Final Results. Part 2 of 6

Companies

NATWEST GROUP (NWG)

UK 100

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	Page

Forward-looking statements	3

Presentation of information	4

Results summary - pro forma	6

Results summary - statutory	8

Chairman's statement	9

Group Chief Executive's letter to shareholders	13

Business and strategic update	17

Description of business	25

Pro forma results	27

Summary consolidated income statement	27

Condensed consolidated statement of comprehensive income	29

Summary consolidated balance sheet	29

Key metrics	30

Results summary	32

Divisional performance	43
UK Retail	46
UK Corporate	50
Wealth	53
Global Banking & Markets	55
Global Transaction Services	59
Ulster Bank	61
US Retail & Commercial	64
RBS Insurance	69
Central items	72
Non-Core	73

Allocation methodology for indirect costs	78

Average balance sheet	80

Condensed consolidated balance sheet	82

Commentary on condensed consolidated balance sheet	83

Condensed consolidated statement of changes in equity	85

Notes	88

●	Continuing businesses of Business Unit North America;

●	Business Unit Global Clients and wholesale clients in the Netherlands (including former Dutch wholesale clients) and Latin America (excluding Brazil);

●	Business Unit Asia (excluding Saudi Hollandi); and

●	Business Unit Europe (excluding Antonveneta).

	Year ended		Quarter ended
	31 December 2009	31 December 2008	31 December 2009	30 September 2009	31 December 2008
	£m	£m	£m	£m	£m

Core
Total income (1)	31,726	23,631	7,432	7,040	2,293
Operating expenses (2)	(14,954)	(13,505)	(3,788)	(3,669)	(2,968)
Insurance net claims	(3,769)	(3,217)	(1,173)	(1,019)	(864)
Operating profit/(loss) before impairment losses (3)	13,003	6,909	2,471	2,352	(1,539)
Impairment losses	(4,678)	(2,496)	(1,288)	(1,213)	(1,312)
Operating profit/(loss) (3)	8,325	4,413	1,183	1,139	(2,851)

Non-Core
Total income (1)	(2,301)	(3,032)	108	54	(1,930)
Operating expenses (2)	(2,447)	(2,683)	(685)	(526)	(767)
Insurance net claims	(588)	(700)	(148)	(126)	(192)
Operating loss before impairment losses (3)	(5,336)	(6,415)	(725)	(598)	(2,889)
Impairment losses	(9,221)	(4,936)	(1,811)	(2,066)	(3,361)
Operating loss (3)	(14,557)	(11,351)	(2,536)	(2,664)	(6,250)

Total*
Total income (1)	29,425	20,599	7,540	7,094	363
Operating expenses (2)	(17,401)	(16,188)	(4,473)	(4,195)	(3,735)
Insurance net claims	(4,357)	(3,917)	(1,321)	(1,145)	(1,056)
Operating profit/(loss) before impairment losses (3)	7,667	494	1,746	1,754	(4,428)
Impairment losses	(13,899)	(7,432)	(3,099)	(3,279)	(4,673)
Operating loss (3)	(6,232)	(6,938)	(1,353)	(1,525)	(9,101)
Integration and restructuring costs	(1,286)	(1,357)	(228)	(324)	(752)
Gain on redemption of own debt	3,790	-	-	-	-
Gains on pensions curtailment	2,148	-	2,148	-	-
Other	(348)	(1)	(433)	(228)	380
Operating (loss)/profit before tax (4)	(1,928)	(8,296)	134	(2,077)	(9,473)

* Includes fair value of own debt impact	(142)	1,232	270	(483)	(861)

	Year ended		Quarter ended
	31 December 2009	31 December 2008	31 December 2009	30 September 2009	31 December 2008

Performance ratios
Core
- Net interest margin	2.12%	2.45%	2.06%	2.10%	2.34%
- Cost:income ratio (5)	47.1%	57.1%	51.0%	52.1%	129.4%
- Adjusted cost:income ratio (6)	53.5%	66.2%	60.5%	60.9%	207.7%
Non-Core
- Net interest margin	0.69%	0.87%	1.17%	0.55%	1.36%
- Cost:income ratio (5)	(106.3%)	(88.5%)	634.3%	974.1%	(39.7%)
- Adjusted cost:income ratio (6)	(84.7%)	(71.9%)	(1,712.5%)	(730.6%)	(36.2%)
Group
- Net interest margin	1.76%	2.08%	1.83%	1.75%	2.11%
- Cost:income ratio (5)	59.1%	78.6%	59.3%	59.1%	-
- Adjusted cost:income ratio (6)	69.4%	97.0%	71.9%	70.5%	-
Continuing operations:
Basic loss per ordinary and B share (7)	(6.3p)	(146.2p)	(1.2p)	(3.2p)	(100.5p)

	31 December 2009	30 September 2009	Change	31 December 2008	Change

Capital and balance sheet
Total assets	£1,522.5bn	£1,680.3bn	(9.4%)	£2,218.7bn	(31.4%)
Funded balance sheet (8)	£1,084.3bn	£1,127.8bn	(3.9%)	£1,227.2bn	(11.6%)
Loan:deposit ratio (Core - net of provisions)	104%	108%	(400bp)	118%	(1,400bp)
Loan:deposit ratio (Non-Core - net of provisions)	1,121%	937%	18,400bp	683%	43,800bp
Loan:deposit ratio (Group - net of provisions)	135%	139%	(400bp)	151%	(1,600bp)
Risk-weighted assets - Gross	£565.8bn	£594.7bn	(5%)	£577.8bn	(2%)
Benefit of APS	(£127.6bn)	-	-	-	-
Risk-weighted assets	£438.2bn	£594.7bn	(26%)	£577.8bn	(24%)
Total equity	£80.0bn	£58.9bn	35.8%	£64.3bn	24.4%
Core Tier 1 ratio	11.0%	5.5%	550bp	5.9%	510bp
Tier 1 ratio	14.4%	8.0%	640bp	9.9%	450bp
Tier 1 leverage ratio (9)	17.0x	23.4x	(27%)	21.2x	(20%)
Tangible equity leverage ratio (10)	5.2%	3.0%	220bp	2.4%	280bp
Net tangible equity per share	51.3p	59.4p	(14%)	73.8p	(31%)

Final Results. Part 2 of 6

Non-interest income (excluding insurance

premiums)*

Operating expenses

Companies

UK 100

Latest directors dealings

●	Income of £38,690 million for 2009.

●	Pre-tax loss of £2,595 million for 2009.

●	Core Tier 1 ratio 11.0%.

●	To serve our customers well;

●	To restore the Bank to undoubted standalone strength; and

●	To rebuild sustainable value for all shareholders and in so doing to enable the UK Government to sell its shareholding profitably over time.

-	Firstly, much depends on the shape and pace of economic recovery and the way it feeds through to business activity, interest rates and credit impairments.

-	Secondly, prospective regulatory change (about which more below) is likely to be significantly shaped in 2010 with timing of implementation also clearer. This will affect customer activity and pricing as well as capital structure and shareholder returns.

-	Thirdly, as the prospect of share sales becomes more realistic, RBS can transition from financial 'problem' to 'opportunity'. This will also help underpin the message to staff, shareholders and customers that RBS is being run commercially on behalf of all shareholders.

-	Finally, while the riskiest part of the recovery plan is behind us, 2010 will be a year of hard slog, with limited visibility of our end value. Though Non-Core impairments and write-downs are expected to improve, they are likely to remain high and will once again continue to weigh against our strong Core operating profits. Our plans carry execution risk, and there is a further risk of sheer change fatigue. We must make sure that we stay on top of these risks.

●	Following accession to the APS and the issue of B shares to the UK Government in December 2009, the Group's core tier 1 capital ratio has increased to 11.0%, from 5.9% at 31 December 2008 and 5.5% at 30 September 2009. The year-end core tier 1 ratio benefits by 160 basis points from the APS, with risk-weighted asset relief provided by the Scheme partially offset by related core tier 1 deductions.

●	The Group's loan:deposit ratio, net of provisions, has improved to 135%, compared with 151% at the end of 2008 and 139% at 30 September 2009, with loans and advances sharply lower (principally in the GBM and Non-Core divisions) and good balance growth in the core deposit-gathering franchises. The Core loan:deposit ratio at 31 December 2009 was 104%, compared with 118% at the end of 2008.

●	Wholesale unsecured funding of less than one year duration has declined to £250 billion, (including £109 billion of bank deposits) compared with £343 billion at the end of 2008 and £294 billion at the end of the third quarter of 2009.

●	Liquidity reserves have increased to £171 billion, compared with £90 billion at the end of 2008 and £140 billion at 30 September 2009.

●	UK Retail added 60,000 current accounts customers during the fourth quarter, with current account numbers rising by 3% over the last year to 12.8 million at 31 December 2009. Over 1 million savings accounts have been added over the year.

●	UK Retail added 19,000 mortgage accounts during the fourth quarter, taking mortgage account numbers to 845,000, 10% up on December 2008.

●	UK Corporate and Commercial customer numbers held stable, including over 1.1 million SMEs.

●	GBM maintained its market position in core franchise areas through 2009, with top tier market rankings in foreign exchange, options, rates, equities and debt capital markets.

●	Ulster Bank held SME and corporate customer numbers stable over the last year and increased consumer accounts by 3%, compared with December 2008.

●	US Retail and Commercial's consumer and commercial customer bases held steady in its core New England, mid-Atlantic and Midwest regional footprint during the quarter, with 58,000 personal checking accounts added over the course of the year. The division substantially improved its position in the mortgage origination market.

●	RBS Insurance has achieved good growth in policy numbers, driven by the success of its own brands. Churchill's motor policy numbers grew by 19% and its home policies by 32% over the course of 2009, with Direct Line, which is not available on price comparison websites, achieving steadier growth - up 4% in motor and 2% in home over the same period.

Risk measures (Group)	Worst point	2009	2013 target

Value drivers	Group	Core	Core
Return on equity	(31%)(1)	13% (2)	>15%(2
Cost/income ratio net of claims	97%(3)	53%	<50%

Risk measures (Group)
Core Tier 1 capital ratio	4%(4)	11.0%	>8%
Loan:Deposit ratio (net of provisions)	154%(5)	134%	c.100%
Wholesale funding reliance (6)	£343bn(7)	£250bn	<£150bn
Liquidity reserves (8)	£90bn(7)	£171bn	c.£150bn
Leverage ratio (9)	28.7x(10)	17.0x	<20x

(1)	Group return on tangible equity for 2008.
(2)	Indicative Core attributable profit taxed at 28% on attributable core spot tangible equity (circa 70% of Group tangible equity based on RWAs).
(3)	2008
(4)	As at 1 January 2008.
(5)	As at October 2008.
(6)	Amount of total unsecured wholesale funding under 1 year (£bn). 2009 includes £109 billion of bank deposits and £141 billion of other wholesale funding. 2013 target is for <£65 billion of bank deposits, <£85 billion of other wholesale funding.
(7)	As at December 2008.
(8)	Eligible assets held for contingent liquidity purposes including cash, Govt issued securities and other securities eligible with central banks.
(9)	Funded tangible assets divided by Tier 1 capital.
(10)	As at June 2008.

	Return on equity	Cost:income	Loan:deposit
Divisional targets	%	%	%

UK Retail
2008 actual	13	62	116
2009 actual	4	60	115
2011	>1	<60	<120
2013	>15	c.50	<105

UK Corporate
2008 actual	18	44	142
2009 actual	10	43	126
2011	>5	<45	<135
2013	>15	<35	<130

GBM
2008 actual	(8)	147
2009 actual	31	42
2011	c15	<65
2013	15-20	c.55

GTS
2008 actual	n.m.	57	25
2009 actual	n.m.	59	21
2011	n.m.	<60	<25
2013	n.m.	<50	<20

Wealth
2008 actual	n.m.	66	36
2009 actual	n.m.	59	38
2011	n.m.	<60	<35
2013	n.m.	<50	<30

Ulster Bank
2008 actual	10	69	179
2009 actual	(13)	73	177
2011	>0	<75	<175
2013	>15	c.50	<150

US Retail and Commercial
2008 actual	8	63	96
2009 actual	(2)	78	80
2011	c.10	<70	<90
2013	>15	<55	<90

	Return on equity	Cost:income less claims
	%	%

Insurance
2008 actual	18	55
2009 actual	2	92
2011	>15	<70
2013	>20	<60

●	RBS Sempra Commodities, in which the Group has a 51% interest, has been moved into Non-Core. On 16 February 2010 an agreement to sell RBS Sempra Commodities' metals, oil and European energy businesses to J.P.Morgan Chase for $1.7 billion was announced. RBS and its joint venture partner, Sempra Energy, are continuing to consider ownership alternatives for the remaining business lines.

●	A retail and business banking operation, whose principal components are the RBS branch network in England and Wales together with NatWest's Scottish branches, is in the process of being prepared for sale. An information memorandum is being issued to potential buyers. An agreement on a sale is targeted for 2010, but there are complex separation issues and completion is not expected until 2011.

●	Global Merchant Services, the Group's card payment acquiring business, has attracted considerable buyer interest and an information memorandum will be issued shortly. Closing is expected in the second half of 2010.

●	RBS Insurance is being prepared for eventual sale or flotation. The divestment will be timed to maximise value, but the current target date is 2012.

●	Prohibition of the payment of dividends or coupons on existing hybrid capital instruments until 2012, unless there is a legal obligation to pay them.

●	GBM to rank no higher than fifth in the combined global all debt league table for three years.

●	Accomplishment of balance sheet reduction targets implicit in the RBS Strategic Plan. (1)

●	No reward for failure: pay awards are subject to challenging and measurable performance criteria directly linked to results and to RBS's strategic plan. Senior executives responsible for the overall losses have left the Group.

●	Deferral: an extensive deferral policy, in line with G20 principles, has been introduced and agreed with the Financial Services Authority.
	○	Executive directors have deferred the entirety of any 2009 bonus until 2012.

	○	Holding periods have been extended to five years for shares forming part of the pay of the highest earners in the investment bank.

	○	All 2009 bonuses awarded to those earning over £39,000 will be deferred and paid in three tranches over the period to June 2012.

●	Clawback: a robust clawback mechanism has been introduced for all discretionary bonus payments.

	31 December 2008	31 December 2009	Gross lending during 2009	Net lending during 2009
	£bn	£bn	£bn	£bn

Mortgages	80.1	91.9	19.3	11.8

Total Business	163.4	151.2	60.2	(12.2)
- SME	68.0	67.0	38.6	(1.0)
- Mid-corporate	49.3	44.4	15.2	(4.9)
- Large Corporate	46.1	39.8	6.4	(6.3)

Total lending	243.5	243.1	79.5	(0.4)

	Year ended		Quarter ended
	31 December 2009	31 December 2008	31 December 2009	30 September 2009	31 December 2008
	£m	£m	£m	£m	£m

Loss for the year	(2,024)	(23,298)	(574)	(1,508)	(23,967)

Other comprehensive income
Available-for-sale financial assets	1,847	(7,270)	619	2,861	(3,599)
Cash flow hedges	893	(405)	217	155	(185)
Currency translation	(2,018)	7,327	(230)	659	4,903
Actuarial losses on defined benefit plans	(3,756)	(1,807)	(3,756)	-	(1,807)
Tax on other comprehensive income	406	2,572	844	(846)	1,583

Other comprehensive income for the year, net of tax	(2,628)	417	(2,306)	2,829	895

Total comprehensive income for the year	(4,652)	(22,881)	(2,880)	1,321	(23,072)

Attributable to:
Minority interests	160	267	29	78	275
Preference shareholders	878	536	126	242	129
Paid-in equity holders	57	60	18	3	33
Ordinary and B shareholders	(5,747)	(23,744)	(3,053)	998	(23,509)

	(4,652)	(22,881)	(2,880)	1,321	(23,072)

●	Gross lending in 2009 totalled £19.3 billion, including over £3.8 billion to first time buyers.

●	UK mortgage balances totalled £91.9 billion at 31 December 2009, 15% higher than at the end of 2008. Net mortgage lending over the year was £11.8 billion and the Group is on target to surpass the £9 billion mortgage lending commitment.

●	Acceptance rates for mortgage lending, at over 88%, remain high.

(1)	Excluding gain on redemption of own debt and strategic disposals.
(2)	Excluding purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration and restructuring costs, gains on pensions curtailment and bonus tax.
(3)	Operating (loss)/profit before tax, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets and gains on pensions curtailment and bonus tax.
(4)	Excluding write-down of goodwill and other intangible assets.
(5)	The cost:income ratio for Core operations and Group is based on total income and operating expenses as defined in (1) and (2) above.
(6)	The adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(7)	(Loss)/profit from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue.
(8)	Funded balance sheet is defined as total assets less derivatives.
(9)	The Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital.
(10)	The tangible equity leverage ratio is based on total tangible equity divided by total tangible assets (after netting derivatives).

●	Net interest margin declined by 32 basis points compared with 2008 primarily reflecting the pressure on liability margins, given rates on many deposit products at floors in the low interest rate environment and strong competition, particularly for longer term deposits and the build up of the Group's liquidity portfolio.

●	Asset margins have been gradually rebuilt over the course of the year helping to stem the erosion of net interest margin experienced over recent years, with the overall retail and commercial asset margin improving from c.1.4% in 2008 to c.1.75% in 2009. Improvement has been noted across all retail and commercial divisions.

●	GBM net interest margin increased modestly, reflecting higher margins on GBM banking assets, partially offset by lower money market income.

●	UK Corporate net interest margin declined, reflecting higher funding costs and continued competitive pricing due to strong demand for deposits. UK Retail held its net interest margin in line with 2008 as wider asset margins offset decreasing liability margins in a competitive deposit market.

●	Net interest margin increased by 8 basis points in the quarter benefiting from improved new lending margins and recovery of suspended interest from a restructured loan. The underlying increase was 5 basis points.

●	UK Retail net interest margin increased by 27 basis points in the quarter, reflecting widening asset margins.

●	UK Corporate net interest margin increased by 9 basis points in the quarter, reflecting strong new business asset margins.

●	US Retail net interest margin increased by 8 basis points, in US dollar terms, driven by improving commercial deposit margins.

●	Net fees and commissions fell by £486 million primarily due to the withdrawal of the single premium payment protection insurance product and the restructuring of current account overdraft fees within UK Retail during the year, as well as to reduced fees received in Non-Core. This was partially offset by improved performance in GBM (£112 million) and US Retail & Commercial (£50 million).

●	Income from trading activities rose substantially during the year by £12,635 million, principally due to lower credit market losses reflecting improved underlying asset prices compared with 2008. Increased market volatility and strong customer demand in a positive trading environment also contributed to this improvement.

●	Other operating income fell by £683 million. Adjusting for changes in the fair value of own debt and a gain of £600 million on the sale of Angel Trains in 2008, other operating income increased by £843 million. This improvement reflected a small gain in the fair value of securities and other assets and liabilities compared with a loss of £1.4 billion in 2008 partially offset by lower profits on sales of securities and properties and reduced dividend income.

●	Insurance net premium income fell by £443 million principally reflecting lower bancassurance fees, £288 million, and lower general insurance premiums, £155 million.

●	Income from trading activities fell by £340 million due to reduced trading activity, particularly in the US liquid mortgage market, and higher credit market write-downs in the Non-Core division.

●	Other operating income improved by £509 million. Adjusting for changes in the fair value of own debt, other operating income fell by £78 million reflecting a fall in life business profits and higher losses from associated entities partially offset by higher profits on sales of securities.

●	Staff costs were up £1,091 million with most of the movement relating to adverse movements in foreign exchange rates and some salary inflation. Changes in incentive compensation, primarily in Global Banking & Markets, represented most of the remaining change.

●	Premises and equipment costs rose by £369 million due to the impact of expanded Group premises in London and the US.

●	Other expenses fell by £288 million due to integration benefits in GBM partially offset by increased deposit insurance levies in the US.

●	General insurance claims rose by £490 million primarily as a result of the rise in estimated costs of bodily injury claims within the motor lines of business.

●	Bancassurance claims fell by £50 million reflecting lower business volumes offset by improved returns on investment products being passed onto customers.

●	Staff costs were up £71 million largely reflecting the finalisation of performance-related compensation, including the accounting adjustments to reflect the deferral structure. Other increases, including Non-Core and APS-related staff costs, were offset by cost reductions resulting from the restructuring programme.

●	Premises and equipment costs were flat compared with 3Q09.

●	Other expenses rose by £132 million, partially reflecting an increase in costs associated with the APS and disposal-related activity.

●	General insurance claims rose by £250 million primarily as a result of adverse weather conditions and higher estimated costs of bodily injury claims within the motor lines of business.

●	Bancassurance claims fell by £74 million due to lower returns on investment products being passed onto customers relative to 3Q09.

●	Impairment losses were £13,899 million compared with £7,432 million. Impairment losses in the Core divisions increased by £2,182 million, while Non-Core losses increased by £4,285 million.

●	In the Core business, the biggest increases were in UK Retail, UK Corporate and Ulster Bank, reflecting the difficult economic environment.

●	Non-Core losses also increased substantially, particularly across the corporate and property sectors.

●	Impairment losses fell by £180 million during 4Q09, primarily due to lower Non-Core impairments resulting, in part, from positive developments in the corporate sector.

●	In the Core business, increases in UK Retail and Ulster Bank were offset by a decrease in Global Banking & Markets impairments, which included a sizeable individual loss in Q309.

●	Although losses are expected to remain at elevated levels for the next few quarters, impairment losses appear to have stabilised. Economic recovery continues to be gradual.

(1)	Included in 'Income from trading activities' on page 34.
(2)	Includes super senior asset-backed structures and other asset-backed products.

●	Losses relating to monoline exposures were £2,387 million in 2009 compared with £3,093 million in 2008.

	○	The credit quality of the monolines has continued to deteriorate and the level of CVA held against exposures to monoline counterparties has increased from 52% to 62% during the year. This was driven by a combination of wider credit spreads and lower recovery rates.

	○	The gross exposure to monoline counterparties has decreased primarily due to a combination of higher prices of underlying reference instruments and restructuring certain exposures.

	○	The increase in CVA resulting from the credit quality deterioration was partially offset by the decrease in CVA requirement following the reduction in gross exposure due to higher prices of underlying reference instruments. Consequently the net losses incurred in this regard were lower than in 2008 when there was both an increase in gross exposure and deterioration in credit quality.

●	Losses relating to CDPC exposures were £957 million in 2009 compared with £615 million in 2008.

	○	The credit quality of the CDPCs has continued to deteriorate and the level of CVA held against exposures to CDPC counterparties has increased from 27% to 39% during the year.

	○	The gross exposure to CDPC counterparties has reduced primarily due to a combination of tighter credit spreads of the underlying reference loans and bonds, and a decrease in the relative value of senior tranches compared with the underlying reference portfolios.

	○	The decrease in CVA requirement following the reduction in gross exposure was partially offset by the increase in CVA requirement resulting from the credit quality deterioration. Consequently there were net gains in this regard in 2009 compared with losses in 2008 when there was both an increase in gross exposure and deterioration in credit quality.

	○	Net losses were incurred in 2009 due to hedges put in place at the end of 2008 and during 2009 which effectively cap the exposure to certain CDPCs. As the exposure to these CDPCs has reduced, losses have been incurred on the hedges.

●	Losses relating to asset-backed products were £288m in 2009 compared with £4,778 million in 2008.

	○	Losses reported in 2009 primarily relate to super senior CDOs. The significant price declines of the underlying predominantly mortgage-backed securities seen in 2008 were not repeated in 2009.

	○	Losses on other mortgage backed securities were greatly reduced in 2009 as many of these positions were sold or substantially written down in 2008 resulting in reduced net exposure in 2009.

●	Losses relating to Credit exotics were £558 million in 2009 compared with £947 million in 2008. These losses were reduced in 2009 as hedges were put in place to mitigate the risk.

●	Leveraged finance assets were reclassified on 1 July 2009. Changes in the fair value of these assets are only recognised in the income statement to the extent that they are considered impairments.

●	Losses relating to banking book hedges were £1,727 million in 2009 compared with profits of £1,642 million in 2008. These trades hedge counterparty risk that arises from loans and bonds on the regulatory banking book. As credit spreads have generally tightened in 2009 the value of these hedges has decreased resulting in losses. These hedges gave rise to gains in 2008 due to credit spreads generally widening.

●	Integration and restructuring costs decreased, primarily as ABN AMRO integration activity neared completion, partly offset by restructuring activity following the conclusion of the strategic review earlier in the year.

●	In the second quarter of 2009 the Group recorded a gain of £3,790 million on a liability management exercise to redeem a number of Tier 1 and upper Tier 2 securities.

●	The overall gain on strategic disposals, £132 million, primarily relates to gains on the sale of Bank of China and Linea Directa partially offset by losses arising from the sale of the Retail and Commercial Asian businesses and Latin America asset portfolio.

●	Pension curtailment gains of £2,148 million were recognised during the fourth quarter of 2009 arising from changes to prospective pension benefits in the defined benefit scheme and certain other subsidiary schemes.

●	No Asset Protection Scheme fees have been charged to income in 2009. The APS is structured as a derivative, with movements in the fair value of the contract (including £1.4 billion of fees paid in 2009) netting to zero at the year end. Changes in the fair value of the contract will be reflected in the income statement in future periods.

●	Integration and restructuring costs were down 30% primarily due to lower than anticipated redundancy costs.

●	In 4Q09 the Group recorded a loss on disposal of £166 million primarily relating to the sale of part of its Latin America business.

●	Pension curtailment gains of £2,148 million have been recognised during Q409 arising from changes to prospective pension benefits.

●	A charge related to the UK Government's bonus tax proposals has been reflected in the fourth quarter. The total bonus tax in 2009 was £208 million with £160 million deferred until 2010 and 2011.

Capital resources and ratios	31 December 2009	30 September 2009	31 December 2008

Core Tier 1 capital	£48.2bn	£33.0bn	£34.0bn

Tier 1 capital	£62.9bn	£47.6bn	£57.1bn

Total capital	£71.3bn	£62.1bn	£82.2bn

Risk-weighted assets - Gross	£565.8bn	£594.7bn	£577.8bn

Benefit of APS	(£127.6bn)	-	-

Risk-weighted assets	£438.2bn	£594.7bn	£577.8bn

Core Tier 1 ratio	11.0%	5.5%	5.9%

Tier 1 ratio	14.4%	8.0%	9.9%

Total capital ratio	16.3%	10.4%	14.2%

●	The significant increase in the Core Tier 1 Capital and ratio reflects the impact of the accession to the Asset Protection Scheme and issue of B shares to the UK Government in December.

●	Risk-weighted assets (RWAs) have decreased by £140 billion from the end of 2008 with reductions due to APS of £128 billion, de-leveraging of £84 billion and movements in exchange rates of £20 billion partially offset by impacts of procyclicality, £75 billion and market risk volatility, £18 billion.

●	Total assets and funded balance sheet were down significantly, ahead of the targets set out in the Group's strategic plan.

	○	Funded balance sheet was down 12% principally reflecting the substantial repayment of loans to banks and customers.

	○	Total assets were down 31% principally reflecting substantial repayments of loans to banks and customers and a fall in mark-to-market derivative assets, with a corresponding fall in derivative liabilities.

●	The loan:deposit ratio (net of provisions) has improved to 135%, as loans to customers, excluding reverse repos, fell by £137 billion, while deposits, excluding repos, fell by just £46 billion. The principal drivers were reduced loans and advances in GBM (down £96 billion) and Non-Core (down £42 billion), with UK Retail growing balances but reduced loan demand in other Core divisions. Good customer deposit growth was achieved in most Core divisions, with a particularly strong performance from UK Retail. GBM achieved a targeted reduction in short-term wholesale deposits.

●	Total assets were down by £158 billion, 9%, due to the continued repayment of loans to banks and customers and a fall in the value of mark-to-market derivative assets. Funded balance sheet declined by £44 billion, 4%.

●	The loan:deposit ratio (net of provisions) has improved by 400 basis points to 135%, due to loans to customers, excluding reverse repos, falling by £33 billion and deposits excluding repos falling by £10 billion. Trends for both loans and deposits were similar to prior quarters.