Final Results - Part 2 of 8

RNS Number : 8690Y
Royal Bank of Scotland Group PLC
28 February 2013
 



 

Divisional performance

 

The operating profit/(loss)(1) of each division is shown below.

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Operating profit/(loss) before impairment

  losses by division

 

 

 

 

 

 

UK Retail

2,420 

2,809 

 

606 

605 

649 

UK Corporate

2,634 

2,717 

 

658 

615 

642 

Wealth

299 

273 

 

95 

73 

86 

International Banking

705 

923 

 

192 

187 

208 

Ulster Bank

324 

400 

 

75 

87 

94 

US Retail & Commercial

845 

863 

 

223 

244 

242 

 

 

 

 

 

 

 

Retail & Commercial

7,227 

7,985 

 

1,849 

1,811 

1,921 

Markets

1,546 

937 

 

161

289 

(52)

Direct Line Group

441 

454 

 

113 

109 

125 

Central items

183 

189 

 

151 

176 

85 

 

 

 

 

 

 

 

Core

9,397 

9,565 

 

2,274 

2,385 

2,079 

Non-Core

(656)

(302)

 

(239)

(162)

(531)

 

 

 

 

 

 

 

Group operating profit before impairment

  losses

8,741 

9,263 

 

2,035 

2,223 

1,548 

 

 

 

 

 

 

 

Impairment losses/(recoveries) by division

 

 

 

 

 

 

UK Retail

529 

788 

 

93 

141 

191 

UK Corporate

838 

793 

 

234 

247 

236 

Wealth

46 

25 

 

16 

13 

International Banking

111 

168 

 

37 

12 

56 

Ulster Bank

1,364 

1,384 

 

318 

329 

327 

US Retail & Commercial

91 

326 

 

23 

21 

65 

 

 

 

 

 

 

 

Retail & Commercial

2,979 

3,484 

 

721 

758 

888 

Markets

37 

38 

 

22 

(6)

57 

Central items

40 

(2)

 

(4)

 

 

 

 

 

 

 

Core

3,056 

3,520 

 

751 

752 

941 

Non-Core

2,223 

3,919 

 

703 

424 

751 

 

 

 

 

 

 

 

Group impairment losses

5,279 

7,439 

 

1,454 

1,176 

1,692 

 

Note:

(1)

Operating profit/(loss) before own credit adjustments, Asset Protection Scheme, Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs, regulatory fines, sovereign debt impairment, interest rate hedge adjustments on impaired available-for-sale sovereign debt, amortisation of purchased intangible assets, integration and restructuring costs, gain/(loss) on redemption of own debt, strategic disposals, bank levy, bonus tax, write-down of goodwill and other intangible assets, RFS Holdings minority interest and includes the results of Direct Line Group on a managed basis, which are included in discontinued operations in the statutory results.



 

Divisional performance (continued)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Operating profit/(loss) by division

 

 

 

 

 

 

UK Retail

1,891 

2,021 

 

513 

464 

458 

UK Corporate

1,796 

1,924 

 

424 

368 

406 

Wealth

253 

248 

 

79 

65 

73 

International Banking

594 

755 

 

155 

175 

152 

Ulster Bank

(1,040)

(984)

 

(243)

(242)

(233)

US Retail & Commercial

754 

537 

 

200 

223 

177 

 

 

 

 

 

 

 

Retail & Commercial

4,248 

4,501 

 

1,128 

1,053 

1,033 

Markets

1,509 

899 

 

139 

295 

(109)

Direct Line Group

441 

454 

 

113 

109 

125 

Central items

143 

191 

 

143 

176 

89 

 

 

 

 

 

 

 

Core

6,341 

6,045 

 

1,523 

1,633 

1,138 

Non-Core

(2,879)

(4,221)

 

(942)

(586)

(1,282)

 

 

 

 

 

 

 

Group operating profit/(loss)

3,462 

1,824 

 

581 

1,047 

(144)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Total income by division

 

 

 

 

 

 

UK Retail

4,969 

5,508 

 

1,230 

1,242 

1,309 

UK Corporate

4,723 

4,863 

 

1,173 

1,138 

1,177 

Wealth

1,170 

1,104 

 

285 

292 

280 

International Banking

2,122 

2,555 

 

484 

535 

593 

Ulster Bank

845 

947 

 

212 

213 

226 

US Retail & Commercial

3,091 

3,037 

 

740 

780 

790 

 


 

 

 

 

 

Retail & Commercial

16,920 

18,014 

 

4,124 

4,200 

4,375 

Markets

4,483 

4,415 

 

641 

1,042 

692 

Direct Line Group

3,717 

4,072 

 

918 

899 

923 

Central items

379 

20 

 

109 

267 

 


 

 

 

 

 

Core

25,499 

26,521 

 

5,792 

6,408 

5,999 

Non-Core

288 

1,188 

 

(32)

50 

(278)

 



 

 

 

 

Total income

25,787 

27,709 

 

5,760 

6,458 

5,721 

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

 

 

Net interest margin by division

 

 

 

 

 

 

UK Retail

3.58 

3.95 

 

3.60 

3.53 

3.74 

UK Corporate

3.06 

3.06 

 

2.97 

2.99 

3.02 

Wealth

3.73 

3.23 

 

3.69 

3.88 

3.39 

International Banking

1.64 

1.73 

 

1.62 

1.70 

1.64 

Ulster Bank

1.88 

1.87 

 

1.93 

1.92 

1.87 

US Retail & Commercial

3.00 

3.06 

 

2.92 

2.99 

3.04 

 

 

 

 

 

 

 

Retail & Commercial

2.92 

2.97 

 

2.92 

2.92 

2.90 

Non-Core

0.31 

0.63 

 

0.29 

0.41 

0.42 

 

 

 

 

 

 

 

Group net interest margin

1.93 

1.92 

 

1.95 

1.94 

1.84 



 

Divisional performance (continued)

 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£bn 

£bn 

£bn 

 

 

 

 

Total funded assets by division

 

 

 

UK Retail

117.4 

116.7 

114.5 

UK Corporate

110.2 

111.8 

114.2 

Wealth

21.4 

21.4 

21.6 

International Banking

53.0 

58.4 

69.9 

Ulster Bank

30.6 

30.8 

34.6 

US Retail & Commercial

71.8 

74.2 

74.9 

 

 

 

 

Retail & Commercial

404.4 

413.3 

429.7 

Markets

284.5 

304.4 

313.9 

Other (primarily Group Treasury)

123.3 

125.1 

139.1 

 

 

 

 

Core

812.2 

842.8 

882.7 

Non-Core

57.4 

65.1 

93.7 

 

 

 

 


869.6 

907.9 

976.4 

RFS Holdings minority interest

0.8 

0.8 

0.8 

 

 

 

 

Total

870.4 

908.7 

977.2 

 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Risk-weighted assets by division

 

 

 

 

 

 

UK Retail

45.7 

47.7 

(4%)

 

48.4 

(6%)

UK Corporate

86.3 

82.1 

5% 

 

79.3 

9% 

Wealth

12.3 

12.3 

 

12.9 

(5%)

International Banking

51.9 

49.7 

4% 

 

43.2 

20% 

Ulster Bank

36.1 

35.1 

3% 

 

36.3 

(1%)

US Retail & Commercial

56.5 

56.7 

 

59.3 

(5%)

 

 

 

 

 

 

 

Retail & Commercial

288.8 

283.6 

2% 

 

279.4 

3% 

Markets

101.3 

108.0 

(6%)

 

120.3 

(16%)

Other

5.8 

13.9 

(58%)

 

12.0 

(52%)

 

 

 

 

 

 

 

Core

395.9 

405.5 

(2%)

 

411.7 

(4%)

Non-Core

60.4 

72.2 

(16%)

 

93.3 

(35%)

 

 

 

 

 

 

 

Group before benefit of Asset Protection

  Scheme

456.3 

477.7 

(4%)

 

505.0 

(10%)

Benefit of Asset Protection Scheme

(48.1)

(100%)

 

(69.1)

(100%)

 

 

 

 

 

 

 

Group before RFS Holdings minority

  interest

456.3 

429.6 

6% 

 

435.9 

5% 

RFS Holdings minority interest

3.3 

3.3 

 

3.1 

6% 

 

 

 

 

 

 

 

Group

459.6 

432.9 

6% 

 

439.0 

5% 



 

Divisional performance (continued)

 

Employee numbers by division (full time equivalents rounded to the nearest hundred)

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

UK Retail

26,000 

27,100 

27,700 

UK Corporate

13,300 

13,100 

13,600 

Wealth

5,300 

5,400 

5,700 

International Banking

4,400 

4,600 

5,400 

Ulster Bank

4,500 

4,700 

4,200 

US Retail & Commercial

14,700 

14,600 

15,400 

 

 

 

 

Retail & Commercial

68,200 

69,500 

72,000 

Markets

11,200 

11,900 

13,900 

Direct Line Group

14,200 

14,700 

14,900 

Group Centre

6,800 

6,800 

6,200 

 

 

 

 

Core

100,400 

102,900 

107,000 

Non-Core

3,100 

3,300 

4,700 

 

 

 

 

 

103,500 

106,200 

111,700 

Business Services

33,200 

33,300 

34,000 

Integration and restructuring

500 

800 

1,100 

 

 

 

 

Group

137,200 

140,300 

146,800 



 

UK Retail

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

3,990 

4,302 

 

1,011 

990 

1,032 

 

 

 

 

 

 

 

Net fees and commissions

884 

1,066 

 

202 

231 

242 

Other non-interest income

95 

140 

 

17 

21 

35 

 

 

 

 

 

 

 

Non-interest income

979 

1,206 

 

219 

252 

277 

 

 

 

 

 

 

 

Total income

4,969 

5,508 

 

1,230 

1,242 

1,309 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(800)

(839)

 

(187)

(196)

(200)

  - other

(372)

(437)

 

(89)

(94)

(116)

Indirect expenses

(1,377)

(1,423)

 

(348)

(347)

(344)

 

 

 

 

 

 

 

 

(2,549)

(2,699)

 

(624)

(637)

(660)

 

 

 

 

 

 

 

Operating profit before impairment losses

2,420 

2,809 

 

606 

605 

649 

Impairment losses

(529)

(788)

 

(93)

(141)

(191)

 

 

 

 

 

 

 

Operating profit

1,891 

2,021 

 

513 

464 

458 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Personal advances

916 

1,089 

 

228 

230 

276 

Personal deposits

661 

961 

 

150 

158 

214 

Mortgages

2,367 

2,277 

 

610 

598 

577 

Cards

863 

950 

 

214 

218 

238 

Other

162 

231 

 

28 

38 

 

 

 

 

 

 

 

Total income

4,969 

5,508 

 

1,230 

1,242 

1,309 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Mortgages

92 

182 

 

29 

32 

Personal

307 

437 

 

64 

77 

116 

Cards

130 

169 

 

24 

35 

43 

 

 

 

 

 

 

 

Total impairment losses

529 

788 

 

93 

141 

191 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding

  reverse repurchase agreements) by sector

 

 

 

 

 

 

Mortgages

0.1% 

0.2% 

 

0.1% 

0.1% 

Personal

3.5% 

4.3% 

 

2.9% 

3.5% 

4.6% 

Cards

2.3% 

3.0% 

 

1.7% 

2.5% 

3.0% 

 

 

 

 

 

 

 

Total

0.5% 

0.7% 

 

0.3% 

0.5% 

0.7% 



 

UK Retail (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

24.4% 

24.5% 

 

27.2% 

23.8% 

22.8% 

Net interest margin

3.58% 

3.95% 

 

3.60% 

3.53% 

3.74% 

Cost:income ratio

51% 

49% 

 

51% 

51% 

50% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross) (2)

 

 

 

 

 

 

  - mortgages

99.1 

98.4 

1% 

 

95.0 

4% 

  - personal

8.8 

8.9 

(1%)

 

10.1 

(13%)

  - cards

5.7 

5.6 

2% 

 

5.7 

 

 

 

 

 

 

 

 

113.6 

112.9 

1% 

 

110.8 

3% 

Loan impairment provisions

(2.6)

(2.7)

(4%)

 

(2.7)

(4%)

 

 

 

 

 

 

 

Net loans and advances to customers

111.0 

110.2 

1% 

 

108.1 

3% 

 

 

 

 

 

 

 

Risk elements in lending (2)

4.6 

4.6 

 

4.6 

Provision coverage (3)

58% 

59% 

(100bp)

 

58% 

 

 

 

 

 

 

 

Customer deposits (2)

107.6 

105.9 

2% 

 

101.9 

6% 

Assets under management (excluding deposits)

6.0 

6.1 

(2%)

 

5.5 

9% 

Loan:deposit ratio (excluding repos)

103% 

104% 

(100bp)

 

106% 

(300bp)

Risk-weighted assets (4)

45.7  

47.7 

(4%)

 

48.4 

(6%)

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Includes businesses outlined for disposal: gross loans and advances to customers £7.6 billion (30 September 2012 - £7.6 billion; 31 December 2011 - £7.3 billion), risk elements in lending £0.5 billion (30 September 2012 and 31 December 2011 - £0.5 billion) and customer deposits £8.5 billion (30 September 2012 - £8.5 billion; 31 December 2011 - £8.8 billion).

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

(4)

Divisional RWAs are based on using a long-term conservative average secured mortgage probability of default methodology rather than the current lower point in time basis required for Regulatory reporting.

 

Key points

Over the last four years UK Retail has undertaken stretching initiatives and undergone significant change in order to meet its goal to consistently improve the service it offers to its customers. Highlights in 2012 include:

·

Continued progress on the RBS and NatWest Customer Charter commitments supporting our goal of becoming Britain's most helpful retail bank;

 


·

Providing more than £500 million of cheaper mortgages through the Government's Funding for Lending Scheme (FLS), launched at the end of June 2012 and opened for drawings in August 2012, which represents 14% of all completions in the last quarter of 2012;

 


·

Seeking and responding to customer feedback to enhance the retail mobile banking app which is used by more than two million customers to manage their money and complete over one million transactions every week;



 

UK Retail (continued)

 

Key points (continued)

·

Increasing online banking webchat functionality to allow customers real-time access to an advisor, direct from their computer, who can answer queries and action basic account services 24 hours a day; and

 


·

Continued to invest in simplifying processes to make it easier for customers to bank with us, including introducing more than 200 cash deposit machines and ATMs to further reduce queuing times in branches.

 

However, the business has also had setbacks in the year. Customers suffered from disruptions to payment systems in June. Throughout this time UK Retail staff worked tirelessly to deal quickly with the issues and provide full redress and compensation to customers affected. In addition, the provision relating to historic Payment Protection Insurance (PPI) mis-selling was increased by £1.1 billion in 2012, bringing total PPI expense to date to £2.2 billion. This expense is not included in operating profit. With the new UK conduct regulator examining many products and services along with associated disclosures and sales practices, there are likely to be further impacts to business practices and potential additional costs of redress. The business is actively working to ensure its products set and sales practices are appropriate.

 

Ross McEwan joined UK Retail as its new Chief Executive in September 2012 and spent considerable time engaging with customers and employees around the country and reviewing business processes and performance. With his management team, he has developed a range of initiatives, building upon existing efforts, which focus on simplifying processes and providing a better experience for all customers. Ultimately, with a lot of hard work, the goal is to be the best retail bank in the UK.

 

2012 compared with 2011

·

Operating profit fell by 6% as a 10% decline in income was only partly offset by lower costs, down 6%, and improved impairment losses, down 33%.

 

 

·

Mortgage balances grew by £4.1 billion with the share of new business at 10%, ahead of our stock level of 8%. Growth as a result of FLS was starting to appear by the end of the year as mortgage applications moved through the pipeline to completion. Deposit growth of 6% was in line with the market and drove a 300 basis point improvement in the loan:deposit ratio to 103%.

 

 

·

Net interest income was down 7% due to weaker deposit margins and reduction in unsecured balances, partly offset by mortgage growth. Unsecured balances now represent 13% of total loans and advances to customers compared with 23% in 2008, following realignment of risk appetite and strong mortgage growth. Net interest margin declined as a result of lower rates on current account hedges and increased competition on savings rates in the early part of the year, partly offset by widening asset margins.

 

 

·

Non-interest income was 19% lower mainly due to:

 

lower unauthorised overdraft fees as we continue to help customers manage their finances by providing mobile text alerts and further improving mobile banking functionality;

 

weak consumer confidence lowering spending and associated fees on cards; and

 

lower investment income as a result of weak customer demand and less advisor availability due to restructuring and retraining in preparation for regulatory changes in 2013.



 

UK Retail (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

Costs were down £150 million, 6%, driven by the ongoing simplification of processes across the business, lower headcount and lower FSCS levy.

 

 

·

Impairment losses were £259 million or 33% lower, reflecting the continued benefit of risk appetite tightening in prior years and also a smaller unsecured loan book. Impairments as a percentage of loans and advances were 50 basis points versus 70 basis points in 2011.

 

 

·

Risk-weighted assets continued to improve over the year as the portfolio mix adjusted, with increases in lower-risk secured mortgages, decreases in unsecured lending and further quality improvements across the book.

 

Q4 2012 compared with Q3 2012

·

Operating profit of £513 million was up 11% mainly due to lower impairment losses.

 

 

·

The loan:deposit ratio improved by 100 basis points to 103% due to deposit growth of £1.7 billion, driven by successful instant access and E-Saver savings campaigns along with higher levels of retention on bond maturities achieved through optimising pricing. Mortgage new business market share was strong at 10% with growth relating to the FLS which supported 14% of mortgage completions for first time buyers by the end of the year.

 

 

·

Net interest income increased by £21 million, driven by higher mortgage income and improved internal funding of £12 million, partly offset by lower deposit margins due to lower rates on current account hedges. Net interest margin was 7 basis points higher.

 

 

·

Total costs decreased by 2%, reflecting headcount reductions of 5% and ongoing efficiency savings.

 

 

·

Impairment losses were 34% lower largely due to a provision adjustment of £22 million to reflect the delayed recognition of underlying quality improvements in the performing mortgage book. Accordingly, impairments as a percentage of loans and advances fell to 30 basis points. Lower default rates were also observed across all products.

 

 

·

Risk-weighted assets fell by 4%, reflecting continued reductions in unsecured balances and small quality improvements across the portfolio.

 

Q4 2012 compared with Q4 2011

·

Operating profit increased by 12%, reflecting lower costs and impairment losses, partly offset by a 6% decline in income largely driven by the low interest rate environment.

 

 

·

Net interest income fell by 2% due to lower deposit margins and continued reductions in unsecured lending.

 

 

·

Non-interest income was down 21%, due to the impact of weaker consumer confidence and more risk-averse customer behaviour on transactional fee, investment and advice income.

 

 

·

Total costs decreased by 5%, driven by lower headcount, efficiency savings, and a lower FSCS levy.

 

 

·

Impairment losses were down 51%, reflecting the continued benefit of risk appetite tightening in prior years driving lower default rates, together with higher recoveries and a provision adjustment of £22 million to reflect the delayed recognition of underlying quality improvements in the performing mortgage book.



 

UK Corporate

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

2,974 

3,092 

 

717 

729 

758 

 

 

 

 

 

 

 

Net fees and commissions

1,365 

1,375 

 

349 

334 

341 

Other non-interest income

384 

396 

 

107 

75 

78 

 

 

 

 

 

 

 

Non-interest income

1,749 

1,771 

 

456 

409 

419 

 

 

 

 

 

 

 

Total income

4,723 

4,863 

 

1,173 

1,138 

1,177 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(928)

(922)

 

(227)

(224)

(231)

  - other

(364)

(390)

 

(99)

(91)

(99)

Indirect expenses

(797)

(834)

 

(189)

(208)

(205)

 

 

 

 

 

 

 

 

(2,089)

(2,146)

 

(515)

(523)

(535)

 

 

 

 

 

 

 

Operating profit before impairment losses

2,634 

2,717 

 

658 

615 

642 

Impairment losses

(838)

(793)

 

(234)

(247)

(236)

 

 

 

 

 

 

 

Operating profit

1,796 

1,924 

 

424 

368 

406 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of income by business

 

 

 

 

 

 

Corporate and commercial lending

2,636 

2,643 

 

672 

613 

623 

Asset and invoice finance

685 

660 

 

176 

176 

169 

Corporate deposits

568 

694 

 

87 

141 

171 

Other

834 

866 

 

238 

208 

214 

 

 

 

 

 

 

 

Total income

4,723 

4,863 

 

1,173 

1,138 

1,177 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Financial institutions

15 

20 

 

(2)

Hotels and restaurants

52 

59 

 

23 

16 

Housebuilding and construction

143 

103 

 

25 

14 

27 

Manufacturing

49 

34 

 

10 

20 

13 

Private sector education, health, social work,recreational and community services

37 

113 

 

(8)

81 

Property

252 

170 

 

71 

117 

19 

Wholesale and retail trade, repairs

112 

85 

 

47 

16 

29 

Asset and invoice finance

40 

38 

 

10 

10 

14 

Shipping

82 

22 

 

42 

29 

12 

Other

56 

149 

 

35 

27 

 

 

 

 

 

 

 

Total impairment losses

838 

793 

 

234 

247 

236 



 

UK Corporate (continued)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding reverse repurchase agreements) by sector

 

 

 

 

 

 

Financial institutions

0.3% 

0.3% 

 

0.2% 

0.6% 

(0.1%)

Hotels and restaurants

0.9% 

1.0% 

 

1.6% 

0.4% 

1.0% 

Housebuilding and construction

4.2% 

2.6% 

 

2.9% 

1.6% 

2.8% 

Manufacturing

1.0% 

0.7% 

 

0.9% 

1.7% 

1.1% 

Private sector education, health, social work, recreational and community services

0.4% 

1.3% 

 

0.1% 

(0.4%)

3.7% 

Property

1.0% 

0.6% 

 

1.1% 

1.8% 

0.3% 

Wholesale and retail trade, repairs

1.3% 

1.0% 

 

2.2% 

0.7% 

1.3% 

Asset and invoice finance

0.4% 

0.4% 

 

0.4% 

0.4% 

0.5% 

Shipping

1.1% 

0.3% 

 

2.2% 

1.5% 

0.6% 

Other

0.2% 

0.6% 

 

0.5% 

0.4% 

 

 

 

 

 

 

 

Total

0.8% 

0.7% 

 

0.9% 

0.9% 

0.9% 

 

Key metrics

 

Year ended

 

Quarter ended

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

14.5% 

15.2% 

 

13.2% 

11.9% 

13.0% 

Net interest margin

3.06% 

3.06% 

 

2.97% 

2.99% 

3.02% 

Cost:income ratio

44% 

44% 

 

44% 

46% 

45% 

 



 

UK Corporate (continued)

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross) (2)

 

 

 

 

 

 

  - financial institutions

5.8 

5.1 

14% 

 

5.8 

  - hotels and restaurants

5.6 

5.9 

(5%)

 

6.1 

(8%)

  - housebuilding and construction

3.4 

3.5 

(3%)

 

3.9 

(13%)

  - manufacturing

4.7 

4.7 

 

4.7 

  - private sector education, health, social

    work, recreational and community services

8.7 

8.8 

(1%)

 

8.7 

  - property

24.8 

26.0 

(5%)

 

28.2 

(12%)

  - wholesale and retail trade, repairs

8.5 

8.9 

(4%)

 

8.7 

(2%)

  - asset and invoice finance

11.2 

10.9 

3% 

 

10.4 

8% 

  - shipping

7.6 

7.7 

(1%)

 

7.8 

(3%)

  - other

26.7 

26.8 

 

26.4 

1% 

 

 

 

 

 

 

 

 

107.0 

108.3 

(1%)

 

110.7 

(3%)

Loan impairment provisions

(2.4)

(2.4)

 

(2.1)

14% 

 

 

 

 

 

 

 

Net loans and advances to customers

104.6 

105.9 

(1%)

 

108.6 

(4%)

 

 

 

 

 

 

 

Total third party assets

110.2 

111.8 

(1%)

 

114.2 

(4%)

Risk elements in lending (2)

5.5 

5.5 

 

5.0 

10% 

Provision coverage (3)

45% 

43% 

200bp 

 

40% 

500bp 

 

 

 

 

 

 

 

Customer deposits (2)

127.1 

126.8 

 

126.3 

1% 

Loan:deposit ratio (excluding repos)

82% 

84% 

(200bps)

 

86% 

(400bps)

Risk-weighted assets

86.3 

82.1 

5% 

 

79.3 

9% 

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Includes businesses outlined for disposal: loans and advances to customers £11.3 billion (30 September 2012 - £11.7 billion; 31 December 2011 - £12.2 billion), risk elements in lending £0.9 billion (30 September 2012 - £0.9 billion; 31 December 2011 - £1.0 billion) and customer deposits £13.0 billion (30 September 2012 - £12.9 billion; 31 December 2011- £13.0 billion).

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

Key points

During 2012, UK Corporate continued to support its customers and the UK economy and further demonstrated a commitment to the communities it operates in.

 

RBS was the first bank to support the Government's Funding for Lending Scheme (FLS). The division is using the FLS to stimulate loan demand through reduced interest rates for its customers. Since the scheme's launch, UK Corporate has supported over 11,000 SMEs with over £1.7 billion of allocated funds through FLS initiatives. In addition, UK Corporate is providing targeted support to manufacturers through its Manufacturing Fund. This has made £1 billion available to customers, facilitating investment in technology and innovation and freeing up working capital. UK Corporate launched a Carbon Reduction Fund which provides £200 million of ring-fenced funding for businesses undertaking energy-efficiency projects. The division has also supported its clients in accessing the corporate bond markets. Corporate clients raised a total of £19 billion of bonds in 2012.



 

UK Corporate (continued)

 

Key points (continued)

Throughout the year, UK Corporate has also continued to invest in the service it delivers to its customers through:

·

The introduction of a new enhanced telephony and online offering, Business Connect. This already supports over 170,000 small business customers, offering telephony access to experienced relationship managers from 8am to 8pm, in addition to its traditional branch and relationship manager network;


 

·

New mobile banking apps that allow customers to manage multiple accounts, make payments and transfers, and view detailed statements. In 2012 over 70,000 users were using the app twice a day, transacting more than £700 million since launch; and


 

·

Regional 'Great place to do business' events which bring investors, local authorities and prominent members of the community together to identify opportunities for stimulating growth in the community.

 

UK Corporate has invested significantly to further enhance the skills of its people. As part of improvements to its specialist sector propositions, the business is tailoring its industry leading accreditation programme with industry specific modules. The bespoke modules are endorsed by key sector bodies such as the National Farmers' Union.

 

UK Corporate was the first high street bank to support the Evening Standard and City Gateway apprenticeship initiative, hiring an initial 16 young people onto its scheme.

 

2012 compared with 2011

·

With economic factors continuing to suppress business confidence, 2012 saw lower income and operating profit. Nonetheless, the business delivered a return on equity of 14.5%, slightly below the prior year and comfortably ahead of the cost of capital.

 

 

·

Operating profit decreased by 7%, with income down 3% and increased impairments, up 6%, partially offset by a 3% decrease in costs.

 

 

·

Net interest income was 4% lower, reflecting a 3% fall in lending volumes as loan repayments outstripped new lending, deposit margin compression due to strong competition and the continuation of low yields on current accounts. This was partially offset by improved asset margins and a 1% increase in deposit volumes.

 

 

·

Non-interest income was broadly in line with 2011, with stable income from transaction services, asset finance, Markets revenue share and other lending fees.

 

 

·

Total costs were down 3% due to tight control over direct discretionary expenditure combined with lower indirect costs as a result of operational savings, partially offset by increased investment expenditure.

 

 

·

Core lending balances were up £200 million, excluding the property, housebuilding and construction sectors. The loan:deposit ratio decreased by 400 basis points, principally reflecting deposit growth and portfolio de-risking, particularly in commercial real estate. The Group took part in a number of Government initiatives, seeking responsibly to stimulate additional credit demand in the face of continued customer deleveraging and low business confidence levels. 



 

UK Corporate (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

Impairments increased by 6% with lower specific provisions, mainly in the SME business, more than offset by reduced levels of latent provision releases across the division (£44 million in 2012 versus £226 million in 2011). Impairments as a percentage of loans and advances edged up modestly to 80 basis points.

·

Risk-weighted assets increased by 9% as regulatory changes to capital models during H2 2012 totalling £15 billion (primarily the implementation of the market-wide slotting approach on real estate and increases to default risk weights in other models) were partly offset by a fall in funded assets.

·

Not reflected in operating results was UK Corporate's £350 million share of the provision for interest rate swap redress which relates to prior periods, mainly pre-2008.

 

Q4 2012 compared with Q3 2012

·

Operating profit increased by £56 million, or 15%, as non-interest income, costs and impairments all improved.

 

 

·

Net interest income declined by 2% largely due to tightening LIBOR spreads reducing deposit margins.

 

 

·

Non-interest income increased by 11%, from higher revenue share from Markets hedging contracts and the non-repeat of a property-related fair value adjustment of £25 million in Q3 2012.

 

 

·

Costs were 2% lower, reflecting a reduction in staff-related indirect expenses. This, combined with the increase in total income, improved the cost:income ratio by 200 basis points.

 

 

·

Impairments improved by 5% with the non-repeat of a small number of significant individual provisions in Q3 2012.

 

 

·

Core lending balances held steady at £79 billion, excluding the property, housebuilding and construction sectors.

 

 

·

Risk-weighted assets increased by 5%, a result of ongoing impact of the changes to risk models.

 

Q4 2012 compared with Q4 2011

·

Operating profit improved by 4% to £424 million, driven by a 4% reduction in costs, with total income and impairments remaining broadly flat. As a result, the cost:income ratio improved by 100 basis points.

 

 

·

Net interest income decreased by 5%, primarily driven by compressed deposit margins and a lower loan portfolio, partially offset by improvements in asset margins.

 

 

·

Non-interest income was up 9%, largely reflecting the non-repeat of derivative close-out costs associated with impaired assets of £12 million in Q4 2011, while Q4 2012 included higher gains on equity investments of £7 million.

 

 

·

Impairments were flat with a reduction in specific and collectively assessed provisions offset by lower levels of latent provision releases.

 

 

·

Lending balances (excluding the property, housebuilding and construction sectors) remained flat over the course of Q4 2012, compared with a 1% decline in Q4 2011.



 

Wealth

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

720 

645 

 

178 

185 

168 

 

 

 

 

 

 

 

Net fees and commissions

366 

375 

 

89 

94 

89 

Other non-interest income

84 

84 

 

18 

13 

23 

 

 

 

 

 

 

 

Non-interest income

450 

459 

 

107 

107 

112 

 

 

 

 

 

 

 

Total income

1,170 

1,104 

 

285 

292 

280 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(424)

(413)

 

(87)

(104)

(96)

  - other

(223)

(195)

 

(50)

(57)

(43)

Indirect expenses

(224)

(223)

 

(53)

(58)

(55)

 

 

 

 

 

 

 

 

(871)

(831)

 

(190)

(219)

(194)

 

 

 

 

 

 

 

Operating profit before impairment losses

299 

273 

 

95 

73 

86 

Impairment losses

(46)

(25)

 

(16)

(8)

(13)

 

 

 

 

 

 

 

Operating profit

253 

248 

 

79 

65 

73 

 

 

 

 

 

 

 

Analysis of income

 

 

 

 

 

 

Private banking

956 

902 

 

230 

237 

232 

Investments

214 

202 

 

55 

55 

48 

 

 

 

 

 

 

 

Total income

1,170 

1,104 

 

285 

292 

280 

 

Key metrics

 

Year ended

 

Quarter ended

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

13.7% 

13.1% 

 

17.4% 

14.3% 

15.2% 

Net interest margin

3.73% 

3.23% 

 

3.69% 

3.88% 

3.39% 

Cost:income ratio

74% 

75% 

 

67% 

75% 

69% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - mortgages

8.8 

8.7 

1% 

 

8.3 

6% 

  - personal

5.5 

5.5 

 

6.9 

(20%)

  - other

2.8 

2.8 

 

1.7 

65% 

 

 

 

 

 

 

 

 

17.1 

17.0 

1% 

 

16.9 

1% 

Loan impairment provisions

(0.1)

(0.1)

 

(0.1)

 

 

 

 

 

 

 

Net loans and advances to customers

17.0 

16.9 

1% 

 

16.8 

1% 

 

 

 

 

 

 

 

Risk elements in lending

0.2 

0.2 

 

0.2 

Provision coverage (2)

44% 

41% 

300bp 

 

38% 

600bp 

Assets under management (excluding

  deposits)

28.9 

29.5 

(2%)

 

30.9 

(6%)

Customer deposits

38.9 

38.7 

1% 

 

38.2 

2% 

 

 

 

 

 

 

 

Loan:deposit ratio (excluding repos)

44% 

44% 

 

44% 

Risk-weighted assets

12.3 

12.3 

 

12.9 

(5%)

 

Note:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.



 

Wealth (continued)

 

Key points

2012 saw improved performance overall, with higher lending and deposit margins and volumes driving higher income.

 

In 2012 the Coutts businesses continued to focus on implementing and delivering the new divisional strategy outlined in 2011. The sale of Coutts' Latin American businesses and the completion of the rollout of Coutts global technology platform in the UK were tangible examples of this. By the end of the year the division had exited over 100 countries since the strategy was introduced and was serving clients in the remaining countries through one central operating platform, a clear demonstration of the division's commitment to its strategy.

 

In the UK, Q4 2012 saw the launch of Coutts' new Retail Distribution Review (RDR)-compliant advice proposition and products. Significant investment was made during 2012 to ensure clients would continue to receive the best service, advice and products based on their specific needs. One example of this was the introduction of seven new UK and global RDR-compliant multi-asset funds, allowing clients to continue to invest in a broad range of asset classes matched to their needs and risk appetites.

 

Clients in the UK also benefited from the launch of the Coutts Mobile service in October, offering clients greater choice and flexibility in the way they manage their banking needs electronically.

 

In the International business, the division further invested in Dubai, Singapore and Mumbai as it continued to embed its targeted growth strategy. Clients also benefited from enhancements to the collateralised lending programme, where higher lending limits and a greater number of currencies available has increased its relevance to clients.

 

2012 compared with 2011

·

Operating profit increased by £5 million, or 2% to £253 million driven by higher income partially offset by increased expenses and impairment losses.

 

 

·

Total income increased by £66 million, with net interest income up £75 million, largely driven by improvements in margins and strong divisional treasury income, particularly during H1 2012.

 

 

·

Non-interest income fell by 2% as the gain from the disposal of the Latin American, Caribbean and African businesses was more than offset by a decline in fee income in the UK and lower investment volumes, driven by continued economic uncertainty.

 

 

·

Expenses were £40 million or 5% higher at £871 million, with significant investment in change programmes, including the development of new products and services capability and the implementation of RDR in the UK.

 

 

·

Expenses also increased as a result of client redress following a past business review into the sale of the ALICO Enhanced Variable Rate Fund announced in November 2011 and a Financial Services Authority fine of £8.75 million relating to Anti Money Laundering control processes.



 

Wealth (continued)

 

Key points (continued)

 

2012 compared with 2011(continued)

·

Client assets and liabilities fell by 1% with a £2 billion decrease in assets under management, primarily reflecting low margin client outflows of £1.4 billion and the impact of client transfers following the disposal of the Latin American, Caribbean and African businesses. This fall was partially offset by increases in lending and deposit volumes.

 

 

·

Impairment losses were £46 million, up £21 million, largely reflecting a small number of large specific impairments.

 

Q4 2012 compared with Q3 2012

·

Operating profit was 22% higher, largely driven by lower expenses, partially offset by higher impairment losses and a small decline in income.

 

 

·

Income fell by £7 million, or 2%, reflecting a fall in net interest income, as the effect of lower rates on UK deposit hedges more than offset increases in lending and deposit volumes.

 

 

·

Expenses of £190 million were 13% lower, primarily due to a decrease in FSCS levies, reduced headcount and lower incentive costs.

 

 

·

Client assets and liabilities remained broadly flat, as increases in lending, customer deposits and assets under management were offset by the client transfers resulting from the disposal of the Latin American, Caribbean and African businesses. Excluding these client transfers, client assets and liabilities grew by £0.6bn.

 

 

·

Impairment losses increased by £8 million reflecting a small number of specific impairments in Coutts UK.

 

Q4 2012 compared with Q4 2011

·

Operating profit increased by 8% as income increased by £5 million and expenses fell by £4 million.

 

 

·

Net interest income increased by £10 million, primarily driven by improvements in lending and deposit margins and volumes. Net interest margin increased by 30 basis points. Non-interest income fell as a result of lower transaction and investment volumes.

 

 

·

Expenses decreased by £4 million, or 2%, reflecting lower headcount and continued management of discretionary costs, partially offset by investment in strategic and regulatory projects.

 



 

International Banking

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

922 

1,199 

 

201 

227 

293 

Non-interest income

1,200 

1,356 

 

283 

308 

300 

 

 

 

 

 

 

 

Total income

2,122 

2,555 

 

484 

535 

593 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(577)

(706)

 

(105)

(132)

(160)

  - other

(162)

(226)

 

(20)

(47)

(51)

Indirect expenses

(678)

(700)

 

(167)

(169)

(174)

 

 

 

 

 

 

 

 

(1,417)

(1,632)

 

(292)

(348)

(385)

 

 

 

 

 

 

 

Operating profit before impairment losses

705 

923 

 

192 

187 

208 

Impairment losses

(111)

(168)

 

(37)

(12)

(56)

 

 

 

 

 

 

 

Operating profit

594 

755 

 

155 

175 

152 

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

Ongoing businesses

602 

773 

 

150 

171 

145 

Run-off businesses

(8)

(18)

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Cash management

943 

940 

 

205 

224 

241 

Trade finance

291 

275 

 

70 

76 

67 

Loan portfolio

865 

1,265 

 

207 

228 

257 

 

 

 

 

 

 

 

Ongoing businesses

2,099 

2,480 

 

482 

528 

565 

Run-off businesses

23 

75 

 

28 

 

 

 

 

 

 

 

Total income

2,122 

2,555 

 

484 

535 

593 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Manufacturing and infrastructure

42 

254 

 

21 

75 

Property and construction

17 

 

Transport and storage

(3)

11 

 

Telecommunications, media and technology

12 

 

Banks and financial institutions

43 

(42)

 

12 

Other

10 

(72)

 

12 

(2)

(19)

 

 

 

 

 

 

 

Total impairment losses

111 

168 

 

37 

12 

56 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding reverse repurchase agreements)

0.3% 

0.3% 

 

0.4% 

0.1% 

0.4% 



 

International Banking (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios (ongoing businesses)

 

 

 

 

 

 

Return on equity (1)

9.2% 

11.5% 

 

8.3% 

10.3% 

9.1% 

Net interest margin

1.64% 

1.73% 

 

1.62% 

1.70% 

1.64% 

Cost:income ratio

66% 

62% 

 

61% 

65% 

64% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross) (2)

42.2 

47.3 

(11%)

 

57.7 

(27%)

Loan impairment provisions

(0.4)

(0.6)

(33%)

 

(0.8)

(50%)

 

 

 

 

 

 

 

Net loans and advances to customers

41.8 

46.7 

(10%)

 

56.9 

(27%)

Loans and advances to banks

4.7 

5.1 

(8%)

 

3.4 

38% 

Securities

2.6 

2.3 

13% 

 

6.0 

(57%)

Cash and eligible bills

0.5 

0.7 

(29%)

 

0.3 

67% 

Other

3.4 

3.6 

(6%)

 

3.3 

3% 

 

 

 

 

 

 

 

Total third party assets (excluding derivatives mark-to-market)

53.0 

58.4 

(9%)

 

69.9 

(24%)

Risk elements in lending

0.4 

0.7 

(43%)

 

1.6 

(75%)

Provision coverage (3)

93% 

92% 

100bps 

 

52% 

4,100bps 

 

 

 

 

 

 

Customer deposits (excluding repos)

46.2 

41.7 

11% 

 

45.1 

2% 

Bank deposits (excluding repos)

5.6 

6.5 

(14%)

 

11.4 

(51%)

Loan:deposit ratio (excluding repos

  and conduits)

85% 

101% 

(1,600bp)

 

103% 

(1,800bp)

Risk-weighted assets

51.9 

49.7 

4% 

 

43.2 

20% 

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses.

(2)

Excludes disposal groups.

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Run-off businesses (1)

 

 

 

 

 

 

Total income

23 

75 

 

28 

Direct expenses

(31)

(93)

 

(3)

(21)

 

 

 

 

 

 

 

Operating (loss)/profit

(8)

(18)

 

 

Note:

(1)

Run-off businesses consist of the exited corporate finance business.



 

International Banking (continued)

 

Key points

International Banking was formed in January 2012 to create an integrated, client-focused business which serves RBS's large global customers' financing, risk management, trade finance, payments and cash management needs internationally.

 

Since its formation, the division has made significant progress in strengthening its balance sheet and making efficient use of resources. The loan portfolio decreased significantly due to strategic reduction initiatives and disciplined capital allocation. The division's liability composition also improved, with additional customer deposits raised in the final quarter and the strategic run-off of commercial paper and short-term bank deposits.

 

Performance in 2012 was restricted by macroeconomic pressures and additional regulatory requirements across the industry. Given these constraints, International Banking kept its focus on cost control throughout the year.

 

Despite these headwinds, the division was recognised externally for its efforts in serving its customers' needs, helping RBS Group gain awards such as:

 

·

Top European investment grade corporate bond bookrunner (Dealogic).

 


·

Number one cash management manager in the UK and number two in Europe (Euromoney Cash Management Survey).

 


·

Quality Leader in Large Corporate Trade Finance in the UK, and number one for Large Corporate Trade Finance Penetration in the UK (Greenwich).

 

2012 compared with 2011

·

Operating profit decreased by £161 million as a decline in income was only partially mitigated by lower expenses and impairment losses.

 


·

Income was 17% lower:

 

Loan portfolio decreased by 32%, mainly due to a strategic reduction in assets, in order to allocate capital more efficiently, and the effect of portfolio credit hedging and lower corporate appetite for risk management activities.

 

Cash management was broadly in line with the previous year. Deposit margins declined following reductions in both three month LIBOR and five year fixed rates across Europe; however, this was offset by lower liquidity costs due to the strategic initiative to reduce short-term bank deposits.

 

Trade finance increased by 6% as a result of increased activity, particularly in Asia.

 

The restructuring in 2012 led to a reduction in activities undertaken in the division, which contributed to a decline in income.

 


·

Expenses declined by £215 million, reflecting planned restructuring initiatives following the formation of the International Banking division. Savings were achieved through headcount reduction, run-off of discontinued businesses and a resulting decrease in infrastructure support costs. Revenue-linked expenses also fell in line with the decrease in income.

 


·

Impairment losses decreased by £57 million with the non-repeat of a single name impairment.



 

International Banking (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

Third party assets declined by 24%, with targeted reductions in the lending portfolio following a strategic reduction in assets.

 


·

Customer deposits increased by 2%. Successful efforts to rebuild customer confidence following the Moody's credit rating downgrade and the Group technology incident in June 2012 outweighed economic pressures. This, coupled with the managed reduction in loans and advances to customers, improved the loan:deposit ratio to 85%.

 


·

Bank deposits were down 51%, mainly as a result of lower short-term balances, reflecting a strategic initiative to reduce liquidity outflow risk.

 

 

·

Risk-weighted assets increased by 20%, reflecting the impact of regulatory uplifts partially offset by successful mitigation through balance sheet reduction. Risk-weighted asset intensity in the loan book has increased significantly given the uplifts, which will result in strategic adjustments going forward.

 

Q4 2012 compared with Q3 2012

·

Operating profit was down £20 million, or 11%, driven by higher impairment charges and lower income, partially offset by lower expenses.

·

Income decreased by 10%:

 

Cash management decreased by 8%, driven by lower margins. Both three month LIBOR and five year fixed rates declined during the quarter.

 

Loan portfolio was down 9%, reflecting the ongoing strategic reduction in third party assets.

 

Trade finance declined by 8%, with lower volumes, particularly in Asia, compared with seasonally higher activity levels in the first three quarters of 2012.

·

Total expenses declined by £56 million, or 16%, primarily associated with lower variable compensation.  

 


·

Third party assets fell by 9% as a result of continued capital efficiency discipline.

 


·

Customer deposits increased by 11% through continued business focus to improve the net funding position.

 

Q4 2012 compared with Q4 2011

·

Operating profit was up 2%, as the impact of lower income was absorbed by lower costs and lower impairment losses.

 


·

Income decreased by 18%:

 

Cash management fell by 15% mainly due to margin compression. Payment fees were also lower reflecting a growth in electronic, lower-margin payments.

 

Loan portfolio was down 19% reflecting asset reduction and disciplined capital allocation.

 

Trade finance grew by 4% with an increase in funded assets, primarily in Asia.



·

Expenses fell by £93 million, largely reflecting planned head count reduction and an increased focus on the management of discretionary expenses.



 

Ulster Bank

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

649 

736 

 

161 

163 

177 

 

 

 

 

 

 

 

Net fees and commissions

145 

142 

 

36 

36 

28 

Other non-interest income

51 

69 

 

15 

14 

21 

 

 

 

 

 

 

 

Non-interest income

196 

211 

 

51 

50 

49 

 

 

 

 

 

 

 

Total income

845 

947 

 

212 

213 

226 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(211)

(221)

 

(54)

(53)

(53)

  - other

(49)

(67)

 

(14)

(12)

(15)

Indirect expenses

(261)

(259)

 

(69)

(61)

(64)

 

 

 

 

 

 

 

 

(521)

(547)

 

(137)

(126)

(132)

 

 

 

 

 

 

 

Operating profit before impairment losses

324 

400 

 

75 

87 

94 

Impairment losses

(1,364)

(1,384)

 

(318)

(329)

(327)

 

 

 

 

 

 

 

Operating loss

(1,040)

(984)

 

(243)

(242)

(233)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of income by business

 

 

 

 

 

 

Corporate

360 

435 

 

85 

85 

98 

Retail

360 

428 

 

93 

93 

101 

Other

125 

84 

 

34 

35 

27 

 

 

 

 

 

 

 

Total income

845 

947 

 

212 

213 

226 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Mortgages

646 

570 

 

135 

155 

133 

Corporate

 

 

 

 

 

 

  - property

276 

324 

 

69 

92 

83 

  - other corporate

389 

434 

 

97 

75 

100 

Other lending

53 

56 

 

17 

11 

 

 

 

 

 

 

 

Total impairment losses

1,364 

1,384 

 

318 

329 

327 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding reverse repurchase agreements) by sector

 

 

 

 

 

 

Mortgages

3.4% 

2.9% 

 

2.8% 

3.3% 

2.7% 

Corporate

 

 

 

 

 

 

  - property

6.4% 

6.8% 

 

6.4% 

8.0% 

6.9% 

  - other corporate

5.0% 

5.6% 

 

5.0% 

4.1% 

5.2% 

Other lending

3.8% 

3.5% 

 

4.9% 

2.2% 

2.8% 

 

 

 

 

 

 

 

Total

4.2% 

4.1% 

 

3.9% 

4.1% 

3.8% 



 

Ulster Bank (continued)

 

Key metrics

 

Year ended

 

Quarter ended

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

(21.8%)

(22.8%)

 

(20.9%)

(20.4%)

(20.7%)

Net interest margin

1.88% 

1.87% 

 

1.93% 

1.92% 

1.87% 

Cost:income ratio

62% 

58% 

 

65% 

59% 

58% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - mortgages

19.2 

18.9 

2% 

 

20.0 

(4%)

  - corporate

 

 

 

 

 

 

     - property

4.3 

4.6 

(7%)

 

4.8 

(10%)

     - other corporate

7.8 

7.4 

5% 

 

7.7 

1% 

  - other lending

1.3 

1.3 

 

1.6 

(19%)

 

 

 

 

 

 

 

 

32.6 

32.2 

1% 

 

34.1 

(4%)

Loan impairment provisions

(3.9)

(3.6)

8% 

 

(2.7)

44% 

 

 

 

 

 

 

 

Net loans and advances to customers

28.7 

28.6 

 

31.4 

(9%)

 

 

 

 

 

 

 

Risk elements in lending

 

 

 

 

 

 

  - mortgages

3.1 

2.9 

7% 

 

2.2 

41% 

  - corporate

 

 

 

 

 

 

     - property

1.9 

1.8 

6% 

 

1.3 

46% 

     - other corporate

2.3 

2.1 

10% 

 

1.8 

28% 

  - other lending

0.2 

0.2 

 

0.2 

 

 

 

 

 

 

 

Total risk elements in lending

7.5 

7.0 

7% 

 

5.5 

36% 

Provision coverage (2)

52% 

51% 

100bp 

 

50% 

200bp 

 

 

 

 

 

 

 

Customer deposits

22.1 

20.3 

9% 

 

21.8 

1% 

Loan:deposit ratio (excluding repos)

130% 

141% 

(1,100bp)

 

143% 

(1,300bp)

Risk-weighted assets

36.1 

35.1 

3% 

 

36.3 

(1%)

 

 

 

 

 

 

 

Spot exchange rate - €/£

1.227 

1.256 

 

 

1.196 

 

 

Notes:

(1)

Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

Key points

The challenging macroeconomic environment across the island of Ireland had a significant impact on Ulster Bank's financial performance for 2012. There were some emerging signs of improvement in the Republic of Ireland economy during Q4 2012, most notably in the availability of institutional funding, some stabilisation of residential property prices and continued economic growth, albeit modest.

 

While impairment levels remained elevated during 2012, net interest margin and expense management improved. Further progress was made on Ulster Bank's deposit gathering strategy with customer deposit balances increasing by 7% on a constant currency basis in Q4 2012, driving a significant reduction in the loan to deposit ratio.

 

Following the Group technology incident in June 2012, Ulster Bank made significant efforts to help customers who were affected, extending branch hours, tripling call centre staff and providing full redress.

 

Ulster Bank (continued)

 

Key points (continued)

 

2012 compared with 2011

·

Operating loss increased by £56 million primarily reflecting a reduction in income driven by lower interest earning asset volumes.  

 

 

·

Total expenses fell by £26 million, reflecting the benefits of cost saving initiatives.

 

 

·

Impairment losses remained elevated, as weak underlying credit metrics prevailed. Falling asset values throughout most of 2012 and high levels of unemployment coupled with weak domestic demand continued to depress the property market. The impairment charge for 2012 was driven by a combination of new defaulting customers and deteriorating security values. Risk elements in lending increased by £2 billion during the year reflecting continued difficult conditions in both the commercial and residential property sectors.

 

 

·

The loan to deposit ratio improved from 143% to 130%, driven by a combination of deposit growth and a decrease in the loan book. At constant currency, the loan book decreased by 2% as a result of natural amortisation and limited new lending due to low levels of market demand. Retail and SME deposits increased by 8%; however, this was partly offset by outflows of wholesale balances driven by market volatility and the impact of a rating downgrade in H2 2011.  

 

Q4 2012 compared with Q3 2012

·

Operating loss was flat at £243 million as lower impairment losses were offset by increased expenses. The rise in expenses was primarily driven by a £10 million impairment charge on own property assets due to falling property values.

 

 

·

Impairment losses improved by £11 million in the quarter largely due to a lower level of mortgage defaults. Residential property values showed some signs of stabilisation; however, mortgage arrears remained elevated.

 

 

·

Customer deposits grew by 7% on a constant currency basis, primarily within the Corporate business with strong growth across all product categories. Loan balances remained broadly flat.

 

Q4 2012 compared with Q4 2011

·

Operating loss increased by £10 million with lower income and higher expenses only partly offset by a £9 million decrease in impairment losses.

 

 

·

Total income decreased by £14 million largely due to movements in exchange rates. In constant currency terms income decreased by 1%. Net interest margin increased by 6 basis points to 1.93%, primarily driven by a reduced stock of liquid assets.

 

 

·

Expenses increased by £5 million, reflecting the impairment charge on own property assets.



 

US Retail & Commercial (£ Sterling)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

1,948 

1,900 

 

468 

492 

496 

 

 

 

 

 

 

 

Net fees and commissions

778 

841 

 

193 

195 

199 

Other non-interest income

365 

296 

 

79 

93 

95 

 

 

 

 

 

 

 

Non-interest income

1,143 

1,137 

 

272 

288 

294 

 

 

 

 

 

 

 

Total income

3,091 

3,037 

 

740 

780 

790 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(828)

(838)

 

(181)

(207)

(216)

  - other

(526)

(557)

 

(138)

(128)

(137)

  - litigation settlement

(88)

 

Indirect expenses

(804)

(779)

 

(198)

(201)

(195)

 

 

 

 

 

 

 

 

(2,246)

(2,174)

 

(517)

(536)

(548)

 

 

 

 

 

 

 

Operating profit before impairment losses

845 

863 

 

223 

244 

242 

Impairment losses

(91)

(326)

 

(23)

(21)

(65)

 

 

 

 

 

 

 

Operating profit

754 

537 

 

200 

223 

177 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average exchange rate - US$/£

1.585 

1.604 

 

1.606 

1.581 

1.573 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Mortgages and home equity

541 

463 

 

134 

139 

128 

Personal lending and cards

405 

442 

 

103 

101 

100 

Retail deposits

860 

927 

 

201 

215 

237 

Commercial lending

609 

584 

 

154 

144 

148 

Commercial deposits

441 

416 

 

103 

111 

110 

Other

235 

205 

 

45 

70 

67 

 

 

 

 

 

 

 

Total income

3,091 

3,037 

 

740 

780 

790 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Residential mortgages

(1)

28 

 

(5)

Home equity

95 

103 

 

13 

40 

20 

Corporate and commercial

(77)

55 

 

(20)

(35)

Other consumer

65 

61 

 

24 

21 

21 

Securities

79 

 

12 

 

 

 

 

 

 

 

Total impairment losses

91 

326 

 

23 

21 

65 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding reverse repurchase agreements) by sector

 

 

 

 

 

 

Residential mortgages

0.5% 

 

0.1% 

(0.3%)

0.3% 

Home equity

0.7% 

0.7% 

 

0.4% 

1.2% 

0.5% 

Corporate and commercial

(0.3%)

0.2% 

 

(0.3%)

(0.6%)

0.1% 

Other consumer

0.8% 

0.8% 

 

1.2% 

1.0% 

1.1% 

 

 

 

 

 

 

 

Total

0.2% 

0.5% 

 

0.2% 

0.2% 

0.4% 



 

US Retail & Commercial (£ Sterling) (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

8.3% 

6.3% 

 

9.0% 

9.7% 

8.0% 

Adjusted return on equity (2)

8.9% 

6.3% 

 

9.0% 

9.7% 

8.0% 

Net interest margin

3.00% 

3.06% 

 

2.92% 

2.99% 

3.04% 

Cost:income ratio

73% 

72% 

 

70% 

69% 

69% 

Adjusted cost:income ratio (2)

71% 

72% 

 

70% 

69% 

69% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - residential mortgages

5.8 

5.9 

(2%)

 

6.1 

(5%)

  - home equity

13.3 

13.6 

(2%)

 

14.9 

(11%)

  - corporate and commercial

23.8 

23.0 

3% 

 

22.9 

4% 

  - other consumer

8.4 

8.2 

2% 

 

7.7 

9% 

 

 

 

 

 

 

 

 

51.3 

50.7 

1% 

 

51.6 

(1%)

Loan impairment provisions

(0.5)

(0.6)

(17%)

 

(0.7)

(29%)

 

 

 

 

 

 

 

Net loans and advances to customers

50.8 

50.1 

1% 

 

50.9 

 

 

 

 

 

 

 

Total third party assets

72.5 

75.0 

(3%)

 

75.8 

(4%)

Investment securities

12.0 

13.3 

(10%)

 

15.2 

(21%)

Risk elements in lending

 

 

 

 

 

 

  - retail

0.8 

0.7 

14% 

 

0.6 

33% 

  - commercial

0.3 

0.3 

 

0.4 

(25%)

 

 

 

 

 

 

 

Total risk elements in lending

1.1 

1.0 

10% 

 

1.0 

10% 

Provision coverage (3)

48% 

55% 

(700bp)

 

72% 

(2,400bp)

 

 

 

 

 

 

 

Customer deposits (excluding repos)

59.2 

59.8 

(1%)

 

60.0 

(1%)

Bank deposits (excluding repos)

1.8 

3.8 

(53%)

 

5.2 

(65%)

Loan:deposit ratio (excluding repos)

86% 

84% 

200bp 

 

85% 

100bp 

Risk-weighted assets

56.5 

56.7 

 

59.3 

(5%)

 

 

 

 

 

 

 

Spot exchange rate - US$/£

1.616 

1.614 

 

 

1.548 

 

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Excludes the litigation settlement and net gain on sale of Visa B shares in 2012. 

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

Key points

Sterling strengthened against the US Dollar, with the spot exchange rate at 31 December 2012 increasing by 4.4% compared with 31 December 2011.



Performance is described in full in the US dollar-based financial statements set out on pages 55 to 58.



 

US Retail & Commercial (US Dollar)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

$m 

$m 

 

$m 

$m 

$m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

3,087 

3,048 

 

752 

778 

781 

 

 

 

 

 

 

 

Net fees and commissions

1,233 

1,350 

 

311 

306 

314 

Other non-interest income

579 

473 

 

126 

149 

148 

 

 

 

 

 

 

 

Non-interest income

1,812 

1,823 

 

437 

455 

462 

 

 

 

 

 

 

 

Total income

4,899 

4,871 

 

1,189 

1,233 

1,243 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(1,313)

(1,344)

 

(292)

(327)

(339)

  - other

(833)

(893)

 

(219)

(204)

(216)

  - litigation settlement

(138)

 

Indirect expenses

(1,274)

(1,250)

 

(318)

(318)

(307)

 

 

 

 

 

 

 

 

(3,558)

(3,487)

 

(829)

(849)

(862)

 

 

 

 

 

 

 

Operating profit before impairment losses

1,341 

1,384 

 

360 

384 

381 

Impairment losses

(145)

(524)

 

(38)

(33)

(102)

 

 

 

 

 

 

 

Operating profit

1,196 

860 

 

322 

351 

279 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Mortgages and home equity

856 

744 

 

215 

219 

202 

Personal lending and cards

643 

709 

 

166 

160 

157 

Retail deposits

1,364 

1,487 

 

323 

340 

373 

Commercial lending

965 

936 

 

247 

228 

233 

Commercial deposits

698 

667 

 

165 

175 

173 

Other

373 

328 

 

73 

111 

105 

 

 

 

 

 

 

 

Total income

4,899 

4,871 

 

1,189 

1,233 

1,243 

 

 

 

 

 

 

 

Analysis of impairments by sector

 

 

 

 

 

 

Residential mortgages

(2)

44 

 

(8)

Home equity

150 

165 

 

21 

64 

31 

Corporate and commercial

(120)

88 

 

(31)

(55)

13 

Other consumer

104 

101 

 

39 

32 

33 

Securities

13 

126 

 

19 

 

 

 

 

 

 

 

Total impairment losses

145 

524 

 

38 

33 

102 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances

  (excluding reverse repurchase

  agreements) by sector

 

 

 

 

 

 

Residential mortgages

0.5% 

 

0.1% 

(0.3%)

0.3% 

Home equity

0.7% 

0.7% 

 

0.4% 

1.2% 

0.5% 

Corporate and commercial

(0.3%)

0.2% 

 

(0.3%)

(0.6%)

0.1% 

Other consumer

0.8% 

0.8% 

 

1.2% 

1.0% 

1.1% 

 

 

 

 

 

 

 

Total

0.2% 

0.5% 

 

0.2% 

0.2% 

0.4% 



 

US Retail & Commercial (US Dollar) (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on equity (1)

8.3% 

6.3% 

 

9.0% 

9.7% 

8.0% 

Adjusted return on equity (2)

8.9% 

6.3% 

 

9.0% 

9.7% 

8.0% 

Net interest margin

3.00% 

3.06% 

 

2.92% 

2.99% 

3.04% 

Cost:income ratio

73% 

72% 

 

70% 

69% 

69% 

Adjusted cost:income ratio (2)

71% 

72% 

 

70% 

69% 

69% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

$bn 

$bn 

Change 

 

$bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross)

 

 

 

 

 

 

  - residential mortgages

9.4 

9.5 

(1%)

 

9.4 

  - home equity

21.5 

22.0 

(2%)

 

23.1 

(7%)

  - corporate and commercial

38.5 

37.2 

3% 

 

35.3 

9% 

  - other consumer

13.5 

13.1 

3% 

 

12.0 

13% 

 

 

 

 

 

 

 

 

82.9 

81.8 

1% 

 

79.8 

4% 

Loan impairment provisions

(0.9)

(0.9)

 

(1.1)

(18%)

 

 

 

 

 

 

 

Net loans and advances to customers

82.0 

80.9 

1% 

 

78.7 

4% 

 

 

 

 

 

 

 

Total third party assets

117.3 

121.0 

(3%)

 

117.3 

Investment securities

19.5 

21.4 

(9%)

 

23.5 

(17%)

Risk elements in lending

 

 

 

 

 

 

  - retail

1.3 

1.2 

8% 

 

1.0 

30% 

  - commercial

0.6 

0.5 

20% 

 

0.6 

 

 

 

 

 

 

 

Total risk elements in lending

1.9 

1.7 

12% 

 

1.6 

19% 

Provision coverage (3)

48% 

55% 

(700bp)

 

72% 

(2,400bp)

 

 

 

 

 

 

 

Customer deposits (excluding repos)

95.6 

96.6 

(1%)

 

92.8 

3% 

Bank deposits (excluding repos)

2.9 

6.2 

(53%)

 

8.0 

(64%)

Loan:deposit ratio (excluding repos)

86% 

84% 

200bp 

 

85% 

100bp 

Risk-weighted assets

91.3 

91.6 

 

91.8 

(1%)

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 10% of monthly average of divisional RWAs, adjusted for capital deductions).

(2)

Excludes the litigation settlement and net gain on sale of Visa B shares in 2012. 

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

Key points

In Q1 2012, RBS Citizens implemented five strategic priorities to sharpen the division's back-to-basics strategy. The strategy is founded on the belief that building an engaged workforce which is focused on the customer experience and on being their primary banking partner, with an embedded culture of risk management, will position the franchise to deliver financial results consistent with a top performing regional bank.

 

Efforts in both the Consumer and Commercial businesses throughout 2012 were aligned with those priorities and our customers have acknowledged our efforts.  According to a 2012 survey conducted by American Banker, RBS Citizens was ranked in the top ten of US banks for corporate reputation, an improvement of eight places from 2011.



 

US Retail & Commercial (US Dollar) (continued)

 

Key points (continued)

Core Customer Commitments were implemented in Consumer Banking's branch network at the end of last year. Early indications show progress towards the Commitments' aim to enhance customer experience:

·

At the end of 2012, 77% of customers surveyed externally were 'completely satisfied' or 'very satisfied', compared with the peer average of 71%.

·

RBS Citizens' net promoter score, a measure of how likely customers are to recommend the bank, increased to 20% over the course of 2012 and was over ten percentage points above the peer average.

 

Consumer Banking further improved and expanded its distribution channels and product capabilities including the roll-out of intelligent deposit machines and the on-going build out of its mortgage capabilities, reaching the top 20 nationally for mortgage originations in 2012. The business made enhancements to its mobile banking services and subsequently its apps for both iPhone and Android were rated the 'best integrated apps' in the industry based on an analysis of consumer ratings conducted by Javelin Strategy & Research.

 

In 2012, Commercial Banking responded to client feedback, introducing its own core Client Commitments and developing a new Commercial Client on-boarding process to improve the way clients are welcomed to RBS Citizens.

 

Commercial Banking took further significant steps towards strengthening its customer proposition with a more streamlined, efficient and integrated service and product offering by integrating the Treasury Solutions, Foreign Exchange and Interest Rate Derivatives functions into Commercial Banking.

 

The business made good progress towards expanding its capital markets capabilities. At the end of 2012, RBS Citizens ranked #4 in the new capital markets business for middle market customers within the footprint, and ranked in the top ten nationally.

 

2012 compared with 2011

·

US Retail & Commercial posted an operating profit of $1,196 million, up $336 million, or 39%, from 2011. Excluding the $138 million litigation settlement in Q1 2012 and the $62 million net gain on the sale of Visa B shares in Q2 2012, operating profit was up $412 million, or 48%, largely reflecting lower impairment losses due to an improved credit environment.



·

Net interest income was up $39 million, or 1%, driven by targeted commercial loan growth, deposit pricing discipline and lower funding costs. This was partially offset by consumer loan run-off and lower asset yields reflecting prevailing economic conditions.



·

Non-interest income was down $11 million, or 1%, reflecting a decline in debit card fees as a result of the Durbin Amendment legislation and lower securities gains and deposit fees. This was largely offset by strong mortgage banking fees of $109 million, up 71%, and the $75 million gross gain on the sale of Visa B shares.

 

 

·

Loans and advances to customers were up $3.1 billion, or 4%, due to strong growth in commercial loan volumes.

 

 

·

Customer deposits increased by 3% with strong growth achieved in checking balances. Consumer checking balances grew by 4% while small business checking balances grew by 8% over the year.



 

US Retail & Commercial (US Dollar) (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

Excluding the $138 million litigation settlement, relating to a class action lawsuit regarding the way overdraft fees were assessed on customer accounts prior to 2010, and the $13 million litigation reserve associated with the sale of Visa B shares, and a one-off $33 million pension gain in Q4 2012, total expenses were down 1%, reflecting lower loan collection costs and the elimination of the Everyday Points rewards programme for consumer debit card customers, partially offset by higher operational losses.

 

 

·

During the year, RBS Citizens offered former employees a one-time opportunity to receive the value of future pension benefits as a single lump sum payment. The transaction allowed RBS Citizens to partially de-risk its pension plan and future liability under the plan. A strong participant take-up rate of 60% enabled RBS Citizens to reduce its pension liability by 17% and recognise a $33 million accounting gain.

 

 

·

Impairment losses were down $379 million, or 72%, reflecting an improved credit environment and lower impairments on securities. Loan impairments improved by $266 million driven primarily by commercial loan impairments. Impairments as a percentage of loans and advances fell to 20 basis points.

 

Q4 2012 compared with Q3 2012

·

Operating profit of $322 million decreased by $29 million, or 8%, driven by lower income, partially offset by lower expenses.

 

 

·

Net interest income was down $26 million, or 3%, due to lower asset yields and a smaller investment portfolio, partially offset by commercial loan growth.

 

 

·

Non-interest income was down by $18 million, or 4%, driven by lower securities gains partially offset by higher commercial banking fee income.

 

 

·

Total expenses were $20 million, or 2% lower reflecting the $33 million pension gain, partially offset by higher operational losses.

 

 

·

Impairment losses increased $5 million, or 15%, reflecting higher impairments on securities. The credit environment remained broadly stable in the quarter.

 

Q4 2012 compared with Q4 2011

·

Operating profit of $322 million increased by $43 million, or 15%, as lower impairment losses and expenses were partially offset by lower income.

 

 

·

Net interest income was down $29 million, or 4%, driven by lower asset yields, partially offset by commercial loan growth and lower funding costs.

 

 

·

Non-interest income was down $25 million, or 5%, due to lower securities gains and deposit fees, partially offset by strong mortgage banking and commercial banking fee income.

 

 

·

Total expenses decreased by $33 million, or 4%, reflecting the pension gain and lower loan collection costs partially offset by higher operational losses.

 

 

·

Impairment losses declined by $64 million, or 63%, reflecting an improved credit environment and lower impairments related to securities.



 

Markets

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income from banking activities

113 

79 

 

46 

11 

23 

 

 

 

 

 

 

 

Net fees and commissions receivable

318 

603 

 

41 

77 

62 

Income from trading activities

3,912 

3,602 

 

514 

933 

580 

Other operating income (net of related

  funding costs)

140 

131 

 

40 

21 

27 

 

 

 

 

 

 

 

Non-interest income

4,370 

4,336 

 

595 

1,031 

669 

 

 

 

 

 

 

 

Total income

4,483 

4,415 

 

641 

1,042 

692 

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(1,453)

(1,963)

 

(93)

(393)

(354)

  - other

(721)

(746)

 

(208)

(162)

(197)

Indirect expenses

(763)

(769)

 

(179)

(198)

(193)

 

 

 

 

 

 

 

 

(2,937)

(3,478)

 

(480)

(753)

(744)

 

 

 

 

 

 

 

Operating profit/(loss) before impairment

  losses

1,546 

937 

 

161 

289 

(52)

Impairment (losses)/recoveries

(37)

(38)

 

(22)

(57)

 

 

 

 

 

 

 

Operating profit/(loss)

1,509 

899 

 

139 

295 

(109)

 

 

 

 

 

 

 

Of which:

 

 

 

 

 

 

Ongoing businesses

1,564 

943 

 

135 

300 

(96)

Run-off businesses

(55)

(44)

 

 4 

(5)

(13)


 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Rates

2,006 

1,474 

 

399 

390 

396 

Currencies

757 

1,060 

 

163 

173 

259 

Asset backed products (ABP)

1,318 

1,254 

 

139 

374 

29 

Credit markets

862 

616 

 

179 

186 

36 

Investor products and equity derivatives

224 

593 

 

(66)

76 

118 

 

 

 

 

 

 

 

Total income ongoing businesses

5,167 

4,997 

 

814 

1,199 

838 

Inter-divisional revenue share

(691)

(767)

 

(172)

(159)

(177)

Run-off businesses

185 

 

(1)

31 

 

 

 

 

 

 

 

Total income

4,483 

4,415 

 

641 

1,042 

692 

 

 

 

 

 

 

 

Memo - Fixed income and currencies

 

 

 

 

 

 

Rates/currencies/ABP/credit markets

4,943 

4,404 

 

880 

1,123 

720 

Less: primary credit markets

(568)

(688)

 

(151)

(114)

(134)

 

 

 

 

 

 

 

Total fixed income and currencies

4,375 

3,716 

 

729 

1,009 

586 

 



 

Markets (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios (ongoing businesses)

 

 

 

 

 

 

Return on equity (1)

10.0% 

6.1% 

 

3.6% 

7.8% 

(2.4%)

Cost:income ratio

64% 

77% 

 

76% 

72% 

106% 

Compensation ratio (2)

32% 

42% 

 

17% 

37% 

49% 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 

 

£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet (ongoing

  businesses)

 

 

 

 

 

 

Loans and advances to customers (gross)

29.8 

29.5 

1% 

 

31.5 

(5%)

Loan impairment provisions

(0.2)

(0.2)

 

(0.2)

 

 

 

 

 

 

 

Net loans and advances to customers

29.6 

29.3 

1% 

 

31.3 

(5%)

Loans and advances to banks

16.6 

22.4 

(26%)

 

29.9 

(44%)

Reverse repos

103.8 

97.5 

6% 

 

100.4 

3% 

Securities

92.4 

97.9 

(6%)

 

108.1 

(15%)

Cash and eligible bills

30.2 

34.7 

(13%)

 

28.1 

7% 

Other

11.8 

22.4 

(47%)

 

14.8 

(20%)

 

 

 

 

 

 

 

Total third party assets (excluding derivatives mark-to-market)

284.4 

304.2 

(7%)

 

312.6 

(9%)

Net derivative assets (after netting)

21.9 

21.3 

3% 

 

37.0 

(41%)

 

 

 

 

 

 

 

Provision coverage (3)

77% 

75% 

200bps 

 

75% 

200bps 

 

 

 

 

 

 

 

Customer deposits (excluding repos)

26.3 

34.3 

(23%)

 

36.8 

(29%)

Bank deposits (excluding repos)

45.4 

42.9 

6% 

 

48.2 

(6%)

 

 

 

 

 

 

 

Risk-weighted assets

101.3 

108.0 

(6%)

 

120.3 

(16%)

 

Notes:

(1)

Divisional return on equity is based on divisional operating profit after tax, divided by average notional equity (based on 10% of the monthly average of divisional RWAs, adjusted for capital deductions), for the ongoing businesses.

(2)

Compensation ratio is based on staff costs as a percentage of total income.

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

Run-off businesses (1)

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Total income

185 

 

(1)

31 

Direct expenses

(62)

(229)

 

(7)

(44)

 

 

 

 

 

 

 

Operating (loss)/profit

(55)

(44)

 

(5)

(13)

 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

Run-off businesses (1)

£bn 

£bn 

£bn 

 

 

 

 

Total third party assets (excluding derivatives mark-to-market)

0.1 

0.2 

1.3 

 

Note:

(1)

Run-off businesses consist of the exited cash equities, corporate broking and equity capital markets operations.



 

Markets (continued)

 

Key points

During 2012, the economic environment was dominated by weak prospects for global growth and the uncertain outlook for Eurozone sovereign debt. However, positive central bank activity and a more stable credit environment resulted in marginally improved trading opportunities.

 

Against this backdrop, the division continued to focus on its strengths and client offering. In January 2012 RBS announced the creation of the Markets division and, at the same time, the exit of the cash equities and mergers & acquisitions businesses. Following further review in Q4 2012, the remaining Investor Products and Equity Derivatives (IPED) operation was moved into Rates to form a Derivative Product Solutions (DPS) business. In addition, Markets has also developed a range of measures to enhance its culture and control environment, focusing on improving both supervision and behaviours. Taken together, these actions reinforce Markets' commitment to put the client at the centre of everything we do and to focus resources on meeting client needs.

 

2012 compared with 2011

·

Operating profit increased by 68% reflecting 2% growth in income and 20% decrease in direct expenses, most notably through a reduction in staff costs.

 


·

Rates benefited from a strong trading performance, while losses incurred in managing counterparty exposures during the third quarter of 2011 were not repeated during 2012. Revenues for the year were up 36% to £2.0 billion.

 


·

Currencies volumes were weak across the industry, although the Spot FX business minimised the impact on revenue. Options income was limited by further Eurozone uncertainty.   

 


·

Asset Backed Products continued to perform strongly as markets were sustained throughout the year by investors' search for yield. Revenues for the year were £1.3 billion, up 5% from a strong performance of £1.25 billion in 2011.

 


·

A 40% increase in Credit Markets revenue to £862 million was driven by Flow Credit which, as a result of improved risk management and more benign market conditions, recorded good profitability compared with a loss in 2011. This was partially offset by weaker earnings from credit origination.

 


·

The 62% decrease in IPED followed significantly weaker client volumes in key markets.  The business has been restructured and rationalised. It will be reported within Rates going forward.

 


·

The division focused on controlling costs throughout 2012, driving total expenses down by 16%. Lower staff expenses, down 26%, reflect lower headcount and lower levels of variable compensation, including reductions and clawbacks following the Group's LIBOR settlements reached on 6 February 2013, with the compensation ratio falling from 42% to 32%. Headcount reductions totalled 2,700 in the year, including that resulting from the exit of businesses announced in January. Other expenses fell by 3% as rigorous controls on discretionary expenditure and the exiting of product areas continued to take effect, partially offset by higher legal expenses.

 


·

The reduction in third party assets reflected management action to optimise and de-risk the balance sheet, consistent with previously disclosed medium-term objectives.



 

Markets (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

The division reduced risk-weighted assets, successfully focusing on lowering risk and enhancing models whilst managing the requirement for greater prudence in the regulatory environment.

 


·

Not reflected in Markets operating results in 2012 were the following items: £381 million for regulatory fines; £350 million for its share of the provision for interest rate swap redress; and approximately £700 million in restructuring costs associated with the strategic changes that took place during 2012.

 

Q4 2012 compared with Q3 2012

·

A £156 million reduction in operating profit was driven by lower revenue, partially offset by lower staff expenses. The fall in revenue reflected a seasonal reduction in activity, compared with particularly favourable market conditions as a result of Central Bank announcements during Q3 2012.

 

 

·

Flat yield curves limited opportunities for revenue generation in the Rates business; however, income was up 2% in the quarter.

 

 

·

Income from Asset Backed Products decreased from high levels as volumes declined and asset prices stabilised following a sustained period of strong performance throughout 2012.

 

 

·

Credit Markets benefited from increased levels of capital market issuance, although this was more than offset by lower income from Flow Credit Trading.

 

 

·

The loss in IPED reflected declining client volumes and a weak trading performance, compounded by a revision to divisional funding policies (net impact of zero across the whole division).

 

 

·

A limited number of impairments were incurred on securities in Asset Backed Products.

 

 

·

Lower staff costs reflected lower variable compensation, following the Group's LIBOR settlements, and headcount reductions. An increase in other expenses was driven by higher legal costs during the period.

 

 

·

Third party assets and risk-weighted assets were down by £20 billion and £7 billion respectively, reflecting lower levels of activity in Rates and Asset Backed Products in the quarter and a continued focus on balance sheet management and risk reduction.

 

Q4 2012 compared with Q4 2011

·

Q4 2012 posted an operating profit of £139 million compared with a loss of £109 million in the same period last year. Although income was down in Q4 2012 this was more than offset by lower staff expenses and lower impairments.

 

 

·

The Currencies business experienced lower levels of client activity and declining volatility.

 

 

·

A more positive credit environment enabled greater income generation from Asset Backed Products and Credit Markets.

 

 

·

Significantly lower staff expenses reflected lower variable compensation, following the Group's LIBOR settlements, and the full impact of headcount reductions made towards the end of 2011 and throughout 2012.



 

Direct Line Group

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Earned premiums

4,044 

4,221 

 

999 

1,013 

1,043 

Reinsurers' share

(326)

(252)

 

(80)

(81)

(71)

 

 

 

 

 

 

 

Net premium income

3,718 

3,969 

 

919 

932 

972 

Fees and commissions

(430)

(400)

 

(79)

(129)

(161)

Instalment income

126 

138 

 

32 

32 

33 

Other income

60 

100 

 

14 

16 

19 

 

 

 

 

 

 

 

Total income

3,474 

3,807 

 

886 

851 

863 

Net claims

(2,427)

(2,772)

 

(606)

(596)

(589)

 

 

 

 

 

 

 

Underwriting profit

1,047 

1,035 

 

280 

255 

274 

 

 

 

 

 

 

 

Staff expenses

(338)

(288)

 

(90)

(88)

(75)

Other expenses

(387)

(333)

 

(109)

(106)

(79)

 

 

 

 

 

 

 

Total direct expenses

(725)

(621)

 

(199)

(194)

(154)

Indirect expenses

(124)

(225)

 

(55)

 

 

 

 

 

 

 

 

(849)

(846)

 

(199)

(194)

(209)

 

 

 

 

 

 

 

Technical result

198 

189 

 

81 

61 

65 

Investment income

243 

265 

 

32 

48 

60 

 

 

 

 

 

 

 

Operating profit

441 

454 

 

113 

109 

125 

 

 

 

 

 

 

 

Analysis of income by product

 

 

 

 

 

 

Personal lines motor excluding broker

 

 

 

 

 

 

  - own brands

1,631 

1,742 

 

395 

416 

425 

  - partnerships

124 

209 

 

31 

31 

34 

Personal lines home excluding broker

 

 

 

 

 

 

  - own brands

462 

471 

 

115 

116 

119 

  - partnerships

364 

363 

 

94 

88 

81 

Personal lines rescue and other excluding

  broker

 

 

 

 

 

 

  - own brands

183 

181 

 

46 

46 

46 

  - partnerships

178 

125 

 

47 

42 

(16)

Commercial

322 

315 

 

82 

82 

81 

International

315 

340 

 

75 

79 

89 

Other (1)

(105)

61 

 

(49)

 

 

 

 

 

 

 

Total income

3,474 

3,807 

 

886 

851 

863 

 

For the notes to this table refer to page 65.



 

Direct Line Group (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

In-force policies (000s)

 

 

 

 

 

 

Personal lines motor excluding broker

 

 

 

 

 

 

  - own brands

3,714 

3,787 

 

3,714 

3,762 

3,787 

  - partnerships

336 

320 

 

336 

332 

320 

Personal lines home excluding broker

 

 

 

 

 

 

  - own brands

1,754 

1,811 

 

1,754 

1,777 

1,811 

  - partnerships

2,485 

2,497 

 

2,485 

2,514 

2,497 

Personal lines rescue and other excluding

  broker

 

 

 

 

 

 

  - own brands

1,803 

1,844 

 

1,803 

1,816 

1,844 

  - partnerships

7,628 

7,307 

 

7,628 

7,955 

7,307 

Commercial

466 

422 

 

466 

466 

422 

International

1,462 

1,387 

 

1,462 

1,444 

1,387 

Other (1)

50 

 

50 

52 

 

 

 

 

 

 

 

Total in-force policies (2)

19,698 

19,376 

 

19,698 

20,118 

19,376 

 

 

 

 

 

 

 

Gross written premium (£m)

 

 

 

 

 

 

Personal lines motor excluding broker

 

 

 

 

 

 

  - own brands

1,494 

1,584 

 

318 

400 

348 

  - partnerships

136 

137 

 

27 

40 

28 

Personal lines home excluding broker

 

 

 

 

 

 

  - own brands

455 

474 

 

105 

128 

112 

  - partnerships

534 

549 

 

132 

139 

132 

Personal lines rescue and other excluding

  broker

 

 

 

 

 

 

  - own brands

177 

174 

 

41 

48 

40 

  - partnerships

176 

174 

 

45 

45 

44 

Commercial

436 

435 

 

103 

103 

102 

International

557 

570 

 

138 

113 

142 

Other (1)

 

(1)

 

 

 

 

 

 

 

Total gross written premium

3,966 

4,098 

 

909 

1,015 

950 

 

For the notes to this table refer to page 65.



 

Direct Line Group (continued)

 

Key metrics (continued)

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Return on tangible equity (3)

11.7% 

10.3% 

 

14.0% 

12.9% 

11.0% 

Loss ratio (4)

65% 

70% 

 

66% 

64% 

61% 

Commission ratio (5)

12% 

10% 

 

8% 

14% 

17% 

Expense ratio (6)

23% 

21% 

 

22% 

21% 

22% 

Combined operating ratio (7)

100% 

101% 

 

96% 

99% 

100% 

 

 

 

 

 

 

 

Balance sheet

 

 

 

 

 

 

Total insurance reserves - (£m) (8)

8,066 

7,284 

 

8,066 

8,112 

7,284 

 

Notes:

(1)

'Other' predominantly consists of the personal lines broker business and from Q1 2012 business previously reported in Non-Core.

(2)

Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan and card payment protection.

(3)

Return on tangible equity is based on annualised operating profit after tax divided by average tangible equity adjusted for dividend payments.

(4)

Loss ratio is based on net claims divided by net premium income.

(5)

Commission ratio is based on fees and commissions divided by net premium income.

(6)

Expense ratio is based on expenses divided by net premium income.

(7)

Combined operating ratio is the sum of the loss, commission and expense ratios.

(8)

Consists of general and life insurance liabilities, unearned premium reserve and liability adequacy reserve.

 

Key points

In October 2012, the Group completed the successful initial public offering of Direct Line Group, selling 520.8 million of its existing ordinary shares. This represented 34.7% of the issued share capital, generating gross proceeds of £911 million.

 

During 2012, Direct Line Group made good progress despite competitive market conditions. The operating profit of £441 million was down £13 million compared with the previous year driven by lower investment returns, partially offset by an improved underwriting result.

 

A combined operating ratio (COR) of 100% represented an improvement of 100 basis points compared with 2011 driven predominantly by an improved loss ratio. The full year 2012 result included Home weather event claims of approximately £105 million versus £20 million in 2011, which was more than offset by £390 million of releases from reserves held against prior year claims across the portfolio. Of these releases, £68 million related to the run-off business where the impact on the income statement is broadly neutral. For Direct Line Group's ongoing operations, the current year attritional loss ratio improved by 1.6 percentage points which reflects actions taken to improve risk selection and the implementation of the claims transformation programme.  In 2012 all categories within Direct Line Group made an operating profit.

 

Direct Line Group made further progress in executing its strategic plan with developments made in its pricing capability through the implementation of a new pricing model and rating engine across the Motor and Home divisions. The new claims management system introduced during 2011 is now operational for the majority of new Motor and Home claims. Benefits, including shorter settlement times for customers and improved legal case management, are being realised as a result of the improved claims process.



 

Direct Line Group (continued)

 

Key points (continued)

During 2012, a number of partnership agreements, including Nationwide Building Society and Sainsbury's Bank, were either renewed or extended. In addition, Direct Line Group signed an arm's length, five year distribution agreement with RBS Group for the continued provision, post divestment, of general insurance products to UK Retail customers.

 

Following launch on comparethemarket.com, Churchill and Privilege motor and home products are now available on all four major price comparison websites in the UK. This reinforces Direct Line Group's multi-channel distribution strategy.

 

Direct Line Group continues to focus on reducing operational costs, targeting the delivery of gross annual cost savings of £100 million in 2014 through overall improvements in operational efficiency including claims handling, continued efforts to simplify internal structures and better managing customer acquisition costs. Steps announced during the second half of the year included measures to reduce costs in central functions as well as the reduction of around 70 senior leadership roles across the organisation.

 

Roll-out of a new e-trading platform in Commercial began in Q3 2012 and was launched in January 2013. This new platform has been developed to aid with internal cost efficiency and provide new routes to market as well as to significantly improve the interface with brokers and customers.

 

International consolidated its direct market position in Italy and Germany with a total of 1.5 million in-force policies at the end of 2012. Gross written premium for 2012 was up 4% in local currency on 2011 and followed a period of strong growth in 2010 and 2011. 

 

Direct Line Group further improved its capital efficiency following a number of initiatives including the consolidation of four underwriting entities into one. The combined entity, U K Insurance Limited, received inaugural credit ratings of 'A' from Standard and Poor's and 'A2' from Moody's. Direct Line Group also issued £500 million of Tier 2 debt and paid £1 billion of dividends to RBS Group.

 

Direct Line Group operates in an industry that is under a significant amount of scrutiny and is preparing for substantial regulatory change. Direct Line Group is actively engaging with major stakeholders throughout the ongoing debates surrounding referral and legal fees, the increase in whiplash claims and the implementation of the gender directive in order to help deliver the best possible outcome for its customers and shareholders.

 



 

Direct Line Group (continued)

 

Key points (continued)

 

Separation and divestment update

From 1 July 2012, Direct Line Group has operated on a substantially standalone basis with independent corporate functions and governance following the successful implementation of a comprehensive programme of separation initiatives. During 2012, these included launching a new corporate identity and the Direct Line Group Board became fully compliant with the UK Corporate Governance Code following further non-executive director appointments. New contracts of employment have been agreed and issued to staff, independent HR systems have been implemented and an arm's length transitional services agreement has been reached with RBS Group for residual services. In January 2013, it was announced that Capgemini would design, deliver and operate Direct Line Group's IT infrastructure.

 

The Group sold the first tranche of ordinary shares representing 34.7% of the share capital of Direct Line Group in October 2012 via an Initial Public Offering. This is consistent with the Group's plan to cede control of Direct Line Group by the end of 2013 and a step toward complete disposal by the end of 2014, as required by the European Commission. In accordance with IFRS 5, Direct Line Group has been recognised as a discontinued operation with consequent changes to the presentation of comparative information. The assets and liabilities relating to Direct Line Group are included in Disposal groups as of 31 December 2012. The Group has written down its investment in Direct Line Group at 31 December 2012 to 216 pence per share, the market value on that date, which resulted in a £394 million goodwill write-down.

 

A full year preliminary statement of results for Direct Line Insurance Group plc is available on the company website. A full Annual Report and Accounts will be available in March 2013.

 

2012 compared with 2011

·

Operating profit of £441 million was £13 million, or 3% lower than 2011 as an improved technical result was more than offset by £22 million lower investment income.

 

 

·

Gross written premium of £3,966 million was 3% lower, driven by the impact of de-risking in previous years and changes in the mix of the portfolio in Motor together with competitive market conditions in Home. International was also down reflecting adverse exchange rate movements.

 

 

·

Total income of £3,474 million was £333 million, or 9% lower than prior year due to flow through of lower written premiums, increased commissions payable relating to business previously reported within Non-Core, the cessation of Tesco Personal Finance tariff income and lower supply chain income.

 

 

·

Net claims of £2,427 million were £345 million, or 12% lower than 2011 reflecting lower exposure, higher releases of reserves from prior years and improved claims experience. The 2012 result includes approximately £105 million of Home weather event claims, significantly more than £20 million in 2011 under benign weather conditions.

 

 

·

Expenses of £849 million were broadly flat. Staff expenses were £50 million, or 17% higher partly reflecting the transfer of some head office functions costs to Direct Line Group ahead of separation from RBS Group, together with additional staff recruited to provide services previously provided by RBS Group.

 



 

Direct Line Group (continued)

 

Key points (continued)

 

2012 compared with 2011 (continued)

·

Investment income of £243 million was £22 million lower, primarily as a result of £27 million financing costs relating to the Tier 2 debt issued in April 2012 and lower reinvestment rates during 2012. This was mostly offset by higher realised gains arising from portfolio management initiatives, including those arising from business previously reported in Non-Core. 

 


·

Direct Line Group's reported Return on Tangible Equity was 11.7% in 2012. On a pro forma basis, assuming the capital management initiatives had taken place prior to the start of the year, the Return on Tangible Equity would have been 13.2%.

 

Q4 2012 compared with Q3 2012

·

Operating profit of £113 million was £4 million, or 4% higher than prior quarter driven by a better technical result and partly offset by lower investment income.

 

 

·

Total income of £886 million was £35 million, or 4% higher mainly driven by lower commissions following the settlement of Tesco Personal Finance reserves in Q3 2012.

 

 

·

Net claims of £606 million were £10 million, or 2% higher due to lower releases of reserves from prior years particularly on the Tesco Personal Finance run-off business.

 

 

·

Total expenses of £199 million were £5 million, or 3% higher due to timing of professional and other external fees.

 

 

·

Investment income of £32 million was £16 million, or 33% lower than Q3 2012 due to lower realised gains following portfolio management initiatives earlier in the year.

 

Q4 2012 compared with Q4 2011

·

Operating profit of £113 million was £12 million, or 10% lower than the same period in 2011. This was largely driven by lower investment income, partially offset by an improved technical result.

 

 

·

Gross written premium of £909 million was £41 million, or 4% lower. This is primarily driven by Motor due to volume reduction and business mix changes.

 

 

·

Total income of £886 million was £23 million, or 3% higher mainly due to lower commissions payable with the non-repeat of a profit share payment in Q4 2011 of £57 million. This was largely offset by a reduction in net premium income reflecting flow through of lower written premiums across Motor, Home and International.

 

 

·

Net claims of £606 million were £17 million, or 3% higher due to the non-repeat of a one-off release from reserves on the Creditor book products made in Q4 2011 which was offset in fees and commissions. This was partially offset by favourable movements across the other products.

 

 

·

Total expenses were £10 million, or 5% lower due to management actions taken to improve the cost base.

 

 

·

Investment income of £32 million was £28 million, or 47% lower due to a decline in yields, lower assets under management, lower gains on disposal and the loss of property rental income. Q4 2012 also included £7 million of financing costs relating to the Tier 2 debt issued in April 2012.



 

Central items

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 


£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Central items not allocated

143 

191 

 

143 

176 

89 

 

Funding and operating costs have been allocated to operating divisions based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.

 

Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

 

Key points

 

2012 compared with 2011

·

Central items not allocated represented a credit of £143 million compared with £191 million in 2011.

 

 

·

Significant central costs included the Group technology incident cost of £175 million, a £160 million provision for various litigation and legacy conduct issues, as well as unallocated Treasury costs of circa £390 million. VAT recoveries of £85 million and Group Pension fund adjustment of circa £50 million in 2011 were not repeated.

 

 

·

Offsetting these costs, profits on Group Treasury available-for-sale bond disposals totalled £880 million compared with £516 million in 2011, as active management of the liquid assets portfolio as well as favourable market conditions enabled the Group to crystallise gains on some holdings. 

 

Q4 2012 compared with Q3 2012

·

Central items not allocated represented a credit of £143 million compared with £176 million in Q3 2012.

 

 

·

The movement is driven by the gain of £187 million on available-for-sale bond disposals in Q4 2012, significantly below the £464 million gain recorded in Q3 2012. This was partially offset by the non-repeat of a £50 million provision for the Group technology incident and lower unallocated costs in Group Treasury.

 

Q4 2012 compared with Q4 2011

·

Central items not allocated represented a credit of £143 million, an improvement of £54 million compared with Q4 2011, with gains on available-for-sale bond disposals £61 million higher than in the prior year period at £187 million.



 

Central items

 

Technology incident - costs of redress

The following table provides an analysis by division of the estimated costs of redress following the technology incident in June 2012. These costs are included in Central items above and include waiver of interest and other charges together with other compensation payments all of which are reported in expenses. 84% of these costs have been incurred as of 31 December 2012.

 

 

Total 

 

£m 

 

 

UK Retail

41 

UK Corporate

24 

International Banking

Ulster Bank

82 

Group Centre

25 

 

 

 

175 

 



 

Non-Core

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

 

Net interest income

346 

863 

 

59 

86 

155 

 

 

 

 

 

 

 

Net fees and commissions

105 

(38)

 

28 

17 

(47)

Loss from trading activities

(654)

(721)

 

(50)

(203)

(407)

Insurance net premium income

286 

 

Other operating income

 

 

 

 

 

 

  - rental income

421 

743 

 

47 

73 

163 

  - other (1)

70 

55 

 

(116)

77 

(151)

 

 

 

 

 

 

 

Non-interest income

(58)

325 

 

(91)

(36)

(433)

 

 

 

 

 

 

 

Total income

288 

1,188 

 

(32)

50 

(278)

 

 

 

 

 

 

 

Direct expenses

 

 

 

 

 

 

  - staff

(272)

(375)

 

(52)

(69)

(82)

  - operating lease depreciation

(246)

(347)

 

(51)

(43)

(91)

  - other

(163)

(256)

 

(46)

(30)

(57)

Indirect expenses

(263)

(317)

 

(58)

(70)

(84)

 

 

 

 

 

 

 

 

(944)

(1,295)

 

(207)

(212)

(314)

 

 

 

 

 

 

 

Operating loss before insurance net

  claims and impairment losses

(656)

(107)

 

(239)

(162)

(592)

Insurance net claims

(195)

 

61 

Impairment losses

(2,223)

(3,919)

 

(703)

(424)

(751)

 

 

 

 

 

 

 

Operating loss

(2,879)

(4,221)

 

(942)

(586)

(1,282)

 

Note:

(1)

Includes losses on disposals of £14 million (year ended 31 December 2011 - £127 million; quarter ended 31 December 2012 - £115 million; quarter ended 30 September 2012 - £42 million; quarter ended 31 December 2011 - £36 million).



 

Non-Core (continued)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

Analysis of income/(loss) by business

 

 

 

 

 

 

Banking and portfolios

40 

1,465 

 

(111)

91 

(142)

International businesses

250 

411 

 

29 

60 

92 

Markets

(2)

(688)

 

50 

(101)

(228)


 

 

 

 

 

Total income

288 

1,188 

 

(32)

50 

(278)


 

 

 

 

 

 

Loss from trading activities

 

 

 

 

 

 

Monoline exposures

(205)

(670)

 

(35)

21 

(243)

Credit derivative product companies

(205)

(85)

 

(199)

(19)

Asset-backed products (1)

101 

29 

 

16 

17 

(22)

Other credit exotics

(28)

(175)

 

16 

(8)

Equities

(2)

(11)

 

(5)

Banking book hedges

(38)

(1)

 

(2)

(14)

(36)

Other

(277)

192 

 

(30)

(45)

(80)

 

 

 

 

 

 

 

(654)

(721)

 

(50)

(203)

(407)

 

 

 

 

 

 

 

Impairment losses

 

 

 

 

 

 

Banking and portfolios

2,346 

3,833 

 

723 

433 

714 

International businesses

56 

82 

 

15 

16 

30 

Markets

(179)

 

(35)

(25)

 

 

 

 

 

 

Total impairment losses

2,223 

3,919 

 

703 

424 

751 

 

 

 

 

 

 

 

Loan impairment charge as % of gross

  customer loans and advances (excluding reverse repurchase agreements) (2)

 

 

 

 

 

 

Banking and portfolios

4.2% 

4.9% 

 

5.0% 

2.8% 

3.6% 

International businesses

5.1% 

3.7% 

 

5.5% 

4.5% 

5.3% 

Markets

(3.0%) 

 

0.4% 

(8.8%)

 

 

 

 

 

 

Total

4.2% 

4.8% 

 

4.8% 

2.8% 

3.7% 

 

Notes:

(1)

Asset-backed products include super senior asset-backed structures and other asset-backed products.

(2)

Includes disposal groups.



 

Non-Core (continued)

 

Key metrics

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

 

 

 

 

 

 

Performance ratios

 

 

 

 

 

 

Net interest margin

0.31% 

0.63% 

 

0.29% 

0.41% 

0.42% 

Cost:income ratio

nm 

109% 

 

nm 

nm 

nm 

Adjusted cost:income ratio (1)

nm 

130% 

 

nm 

nm 

nm 

 

 

31 December 

2012 

30 September 

2012 

 

 

31 December 

2011 

 

 

£bn 

£bn 

Change 


£bn 

Change 

 

 

 

 

 

 

 

Capital and balance sheet

 

 

 

 

 

 

Loans and advances to customers (gross) (2)

55.4 

61.6 

(10%)

 

79.4 

(30%)

Loan impairment provisions

(11.2)

(11.1)

1% 

 

(11.5)

(3%)

 

 

 

 

 

 

 

Net loans and advances to customers

44.2 

50.5 

(12%)

 

67.9 

(35%)

 

 

 

 

 

 

 

Total third party assets (excluding

  derivatives)

57.4 

65.1 

(12%)

 

93.7 

(39%)

Total third party assets (including derivatives)

63.4 

72.2 

(12%)

 

104.7 

(39%)

 

 

 

 

 

 

 

Risk elements in lending (2)

21.4 

22.0 

(3%)

 

24.0 

(11%)

Provision coverage (3)

52% 

50% 

200bp 

 

48% 

400bp 

Customer deposits (2)

2.7 

3.3 

(18%)

 

3.5 

(23%)

Risk-weighted assets

60.4 

72.2 

(16%)

 

93.3 

(35%)

 

nm = not meaningful

 

Notes:

(1)

Adjusted cost:income ratio represents operating expenses expressed as a percentage of total income after netting insurance claims against income.

(2)

Excludes disposal groups.

(3)

Provision coverage percentage represents loan impairment provisions as a percentage of risk elements in lending.

 

 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£bn 

£bn 

£bn 

 

 

 

 

Gross customer loans and advances

 

 

 

Banking and portfolios

54.5 

60.4 

77.3 

International businesses

0.9 

1.2 

2.0 

Markets

0.1 

 

 

 

 

 

55.4 

61.6 

79.4 

 

 

 

 

Risk-weighted assets

 

 

 

Banking and portfolios

53.3 

60.5 

64.8 

International businesses

2.4 

2.7 

4.1 

Markets

4.7 

9.0 

24.4 

 

 

 

 

 

60.4 

72.2 

93.3 

 

 

 

 

Third party assets (excluding derivatives)

 

 

 

Banking and portfolios

51.1 

57.6 

81.3 

International businesses

1.2 

1.9 

2.9 

Markets

5.1 

5.6 

9.5 

 

 

 

 

 

57.4 

65.1 

93.7 



 

Non-Core (continued)

 

Third party assets (excluding derivatives)

 

 

31 December 

2011 

Run-off 

Disposals/ 

restructuring 

Drawings/ 

roll overs 

Impairments 

FX 

31 December 

2012 

Year ended 31 December 2012

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

 

 

 

 

 

 

 

 

Commercial real estate

31.5 

(5.0)

(2.2)

0.1 

(1.7)

(0.6)

22.1 

Corporate

42.2 

(7.3)

(9.8)

1.6 

(0.4)

(0.8)

25.5 

SME

2.1 

(1.0)

(0.3)

0.2 

1.0 

Retail

6.1 

(0.8)

(1.9)

0.1 

(0.2)

(0.1)

3.2 

Other

1.9 

(1.3)

(0.1)

0.5 

Markets

9.8 

(1.0)

(3.9)

0.3 

0.1

(0.2)

5.1 

 

 

 

 

 

 

 

 

Total (excluding derivatives)

93.6 

(16.4)

(18.1)

2.3 

(2.2)

(1.8)

57.4 

Markets - RBS Sempra

  Commodities JV

0.1 

(0.1)

 

 

 

 

 

 

 

 

Total (1)

93.7 

(16.5)

(18.1)

2.3 

(2.2)

(1.8)

57.4 

 

 

30 September 

2012 

Run-off 

Disposals/ 

restructuring 

Drawings/ 

roll overs 

Impairments 

FX 

31 December 

2012 

Quarter ended 31 December 2012

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

 

 

 

 

 

 

 

 

Commercial real estate

25.0 

(1.4)

(1.2)

(0.5)

0.2 

22.1 

Corporate

29.0 

(2.1)

(1.7)

0.3 

(0.1)

0.1 

25.5 

SME

1.3 

(0.2)

(0.1)

1.0 

Retail

3.8 

(0.2)

(0.3)

(0.1)

3.2 

Other

0.4 

0.1 

0.5 

Markets

5.6 

0.1 

(0.7)

0.1 

5.1 

 

 

 

 

 

 

 

 

Total (excluding derivatives)

65.1 

(3.7)

(4.0)

0.4 

(0.7)

0.3 

57.4 

 

 

30 June 

2012 

Run-off 

Disposals/ 

restructuring 

Drawings/ 

roll overs 

Impairments 

FX 

30 September 

2012 

Quarter ended 30 September 2012

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

£bn 

 

 

 

 

 

 

 

 

Commercial real estate

26.9 

(0.9)

(0.4)

(0.4)

(0.2)

25.0 

Corporate

32.8 

(2.7)

(1.1)

0.4 

(0.4)

29.0 

SME

1.6 

(0.2)

(0.1)

1.3 

Retail

4.0 

(0.1)

(0.1)

3.8 

Other

0.4 

0.4 

Markets

6.4 

(0.2)

(0.6)

0.1 

(0.1)

5.6 

 

 

 

 

 

 

 

 

Total (excluding derivatives)

72.1 

(4.1)

(2.2)

0.5 

(0.4)

(0.8)

65.1 

 

Note:

(1)

Disposals of £0.2 billion have been signed as at 31 December 2012 but are pending completion (30 September 2012 and 30 December 2011 - £0.2 billion).

 


31 December 

2012 

30 September 

2012 

31 December 

2011 

Commercial real estate third party assets

£bn 

£bn 

£bn 



 

 

UK (excluding NI)

8.9 

9.5 

11.4 

Ireland (ROI and NI)

5.8 

6.2 

7.7 

Spain

1.4 

1.5 

1.8 

Rest of Europe

4.9 

6.3 

7.9 

USA

0.9 

1.2 

2.2 

RoW

0.2 

0.3 

0.5 

 

 

 

 

Total (excluding derivatives)

22.1 

25.0 

31.5 



 

Non-Core (continued)

 

 

Year ended

 

Quarter ended

 

31 December 

2012 

31 December 

2011 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£m 

£m 

 

£m 

£m 

£m 

 

 

 

 

 

 

 

Impairment losses by donating division

  and sector

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Retail

 

 

 

 

 

 

Mortgages

 

Personal

(27)

 

(28)

 

 

 

 

 

 

 

Total UK Retail

(22)

 

(28)

 

 

 

 

 

 

 

UK Corporate

 

 

 

 

 

 

Manufacturing and infrastructure

19 

76 

 

26 

Property and construction

88 

224 

 

83 

Transport

16 

52 

 

Financial institutions

(38)

 

(23)

(13)

Lombard

48 

75 

 

15 

11 

20 

Other

107 

96 

 

53 

37 

21 

 

 

 

 

 

 

 

Total UK Corporate

240 

528 

 

56 

41 

157 

 

 

 

 

 

 

 

Ulster Bank

 

 

 

 

 

 

Commercial real estate

 

 

 

 

 

 

  - investment

288 

609 

 

91 

61 

151 

  - development

611 

1,552 

 

256 

93 

77 

Other corporate

77 

173 

 

16 

10 

15 

Other EMEA

15 

 

 

 

 

 

 

 

 

Total Ulster Bank

983 

2,349 

 

364 

164 

245 

 

 

 

 

 

 

 

US Retail & Commercial

 

 

 

 

 

 

Auto and consumer

49

58 

 

19 

10 

Cards

(9)

 

(2)

(1)

SBO/home equity

130 

201 

 

22 

46 

33 

Residential mortgages

21 

16 

 

10 

Commercial real estate

(12)

40 

 

(2)

(9)

14 

Commercial and other

(12)

(3)

 

(8)

 

 

 

 

 

 

 

Total US Retail & Commercial

177 

303 

 

44 

48 

64 

 

 

 

 

 

 

 

International Banking

 

 

 

 

 

 

Manufacturing and infrastructure

57 

 

(5)

42 

Property and construction

623 

752 

 

96 

205 

241 

Transport

199 

(3)

 

51 

10 

Telecoms, media and technology

32 

68 

 

18 

Banks and financial institutions

(58)

(98)

 

75 

(19)

(31)

Other

18 

(19)

 

(13)

29 

 

 

 

 

 

 

 

Total International Banking

817 

757 

 

238 

169 

309 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Wealth

 

Central items

 

 

 

 

 

 

 

 

Total Other

 

 1 

 

 

 

 

 

 

 

Total impairment losses

2,223 

3,919 

 

703 

424 

751 



 

Non-Core (continued)

 

 

31 December 

2012 

30 September 

2012 

31 December 

2011 

 

£bn 

£bn 

£bn 

 

 

 

 

Gross loans and advances to customers (excluding reverse

  repurchase agreements) by donating division and sector

 

 

 

 

 

 

 

UK Retail

 

 

 

Mortgages

1.4 

Personal

0.1 

0.1 

 

 

 

 

Total UK Retail

0.1 

1.5 

 

 

 

 

UK Corporate

 

 

 

Manufacturing and infrastructure

0.1 

0.1 

0.1 

Property and construction

3.6 

3.9 

5.9 

Transport

3.8 

4.0 

4.5 

Financial institutions

0.2 

0.4 

0.6 

Lombard

0.4 

0.5 

1.0 

Other

4.2 

4.6 

7.5 

 

 

 

 

Total UK Corporate

12.3 

13.5 

19.6 

 

 

 

 

Ulster Bank

 

 

 

Commercial real estate

 

 

 

  - investment

3.4 

3.5 

3.9 

  - development

7.6 

7.6 

8.5 

Other corporate

1.6 

1.6 

1.6 

Other EMEA

0.3 

0.3 

0.4 

 

 

 

 

Total Ulster Bank

12.9 

13.0 

14.4 

 

 

 

 

US Retail & Commercial

 

 

 

Auto and consumer

0.6 

0.6 

0.8 

Cards

0.1 

0.1 

SBO/home equity

2.0 

2.2 

2.5 

Residential mortgages

0.4 

0.5 

0.6 

Commercial real estate

0.4 

0.6 

1.0 

Commercial and other

0.1 

0.4 

 

 

 

 

Total US Retail & Commercial

3.5 

4.0 

5.4 

 

 

 

 

International Banking

 

 

 

Manufacturing and infrastructure

3.9 

4.0 

6.6 

Property and construction

12.3 

13.2 

15.3 

Transport

1.7 

1.9 

3.2 

Telecoms, media and technology

0.4 

1.2 

0.7 

Banks and financial institutions

4.7 

5.3 

5.6 

Other

3.7 

5.4 

7.0 

 

 

 

 

Total International Banking

26.7 

31.0 

38.4 

 

 

 

 

Other

 

 

 

Wealth

0.2 

0.2 

Central items

(0.2)

(0.2)

 

 

 

 

Total Other

 

 

 

 

Gross loans and advances to customers (excluding reverse

  repurchase agreements)

55.4 

61.6 

79.3 



 

Non-Core (continued)

 

Key points

Non-Core third party assets fell to £57 billion, a reduction of £36 billion, or 39%, during the year and an overall reduction of £200 billion, or 78%, since the division was set up. This was achieved through a mixture of disposals, run-off and impairments. By the end of 2012, the Non-Core funded balance sheet was under 7% of the Group's funded balance sheet compared with 21% when the division was created. Non-Core remains on target to reach its third party asset target of c.£40 billion, a reduction of approximately 85% of its original portfolio, by the end of 2013.

 

2012 compared with 2011

·

Third party assets declined by £36 billion, or 39%, largely reflecting disposals of £18 billion and run-off of £16 billion. The disposal of RBS Aviation Capital in Q2 2012 contributed c.£5 billion of this reduction.

 

 

·

Risk-weighted assets were £33 billion lower, principally driven by disposals, run-off and restructuring of existing positions.

 

 

·

An operating loss of £2,879 million was £1,342 million lower than 2011, principally due to lower impairments and expenses, partially offset by lower net interest income following run-off and disposals.

 

 

·

Impairment losses fell by £1,696 million to £2,223 million, with £1,366 million of this reduction from the Ulster Bank portfolio and £269 million from the real estate portfolio.

 

 

·

Income declined by £900 million as continued divestment and run-off reduced net interest income. Rental income was lower following the disposal of RBS Aviation Capital in Q2 2012.

 

 

·

Expenses were £351 million lower, driven by reduced headcount and lower operating lease depreciation, principally following the disposal of RBS Aviation Capital.

 

 

·

Headcount declined by 34% to 3,100 reflecting the divestment activity and run-off across the business.

 

Q4 2012 compared with Q3 2012

·

Third party assets declined by £8 billion to £57 billion, driven by disposals of £4 billion and run-off of £4 billion.

·

Risk-weighted assets fell by £12 billion to £60 billion, primarily driven by disposals, run-off and the restructuring of existing positions.

·

Operating loss increased by £356 million to £942 million, principally due to a £279 million increase in impairments and £73 million additional disposal losses.

 

 

·

Ulster Bank impairments increased by £200 million, partially offset by an improvement of £78 million in the real estate portfolio, with the remainder of the increase in impairments spread across the corporate and retail sectors.

 

 

·

Losses on disposals totalled £115 million in the quarter on assets totalling £4 billion.

 

Q4 2012 compared with Q4 2011

·

Q4 2012 operating loss was £942 million, an improvement of 27% principally due to reduced trading losses.

 

 

·

Non-interest income improved significantly principally due to lower trading losses in 2012 as a result of improved market conditions and reduced exposure.

 

 

·

Ongoing disposal activity reduced the balance sheet and headcount, resulting in lower net interest income, rental income and expenses.

 


This information is provided by RNS
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