Interim Management Statement - Part 2 of 10
First Quarter 2011 Results
Contents
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Page |
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Forward-looking statements |
3 |
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Presentation of information |
4 |
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Results summary |
5 |
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Results summary - statutory |
8 |
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Summary consolidated income statement |
9 |
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Summary consolidated balance sheet |
11 |
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Analysis of results |
12 |
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Divisional performance |
19 |
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UK Retail |
22 |
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UK Corporate |
26 |
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Wealth |
29 |
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Global Transaction Services |
31 |
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Ulster Bank |
33 |
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US Retail & Commercial |
36 |
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Global Banking & Markets |
41 |
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RBS Insurance |
44 |
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Central items |
48 |
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Non-Core |
49 |
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Condensed consolidated income statement |
57 |
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Condensed consolidated statement of comprehensive income |
58 |
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Condensed consolidated balance sheet |
59 |
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Commentary on condensed consolidated balance sheet |
60 |
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Average balance sheet |
62 |
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Condensed consolidated statement of changes in equity |
64 |
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Notes |
67 |
Contents (continued)
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Page |
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Risk and balance sheet management |
88 |
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Capital |
88 |
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Funding and liquidity risk |
91 |
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Credit risk |
97 |
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Market risk |
119 |
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Additional information |
124 |
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Appendix 1 Income statement reconciliations |
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Appendix 2 Asset Protection Scheme |
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Appendix 3 Businesses outlined for disposal |
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Forward-looking statements
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'believes', 'should', 'intend', 'plan', 'could', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.
Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the global economy and instability in the global financial markets, and their impact on the financial industry in general and on the Group in particular; the financial stability of other financial institutions, and the Group's counterparties and borrowers; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the EC State Aid restructuring plan; organisational restructuring; the ability to access sufficient funding to meet liquidity needs; the extent of future write-downs and impairment charges caused by depressed asset valuations; the inability to hedge certain risks economically; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices, equity prices and basis, volatility and correlation risks; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; HM Treasury exercising influence over the operations of the Group; the ability of the Group to attract or retain senior management or other key employees; regulatory or legal changes (including those requiring any restructuring of the Group's operations) in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G7 central banks; impairments of goodwill; pension fund shortfalls; litigation and government and regulatory investigations; general operational risks; insurance claims; reputational risk; general geopolitical and economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the ability to achieve revenue benefits and cost savings from the integration of certain of RBS Holdings N.V.'s (formerly ABN AMRO Holding N.V.) businesses and assets; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the recommendations made by the UK Independent Commission on Banking and their potential implications; the participation of the Group in the APS and the effect of the APS on the Group's financial and capital position; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group's activities as a result of HM Treasury's investment in the Group; and the success of the Group in managing the risks involved in the foregoing.
The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.
Presentation of information
The financial information on pages 5 to 56, prepared using the Group's accounting policies, shows the underlying performance of the Group on a managed basis which excludes certain one-off and other items. This information is provided to give a better understanding of the results of the Group's operations. Group operating profit on this basis excludes:
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movements in the fair value of own debt; |
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Asset Protection Scheme credit default swap - fair value changes; |
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amortisation of purchased intangible assets; |
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integration and restructuring costs; |
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strategic disposals; |
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bonus tax; |
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write-down of goodwill and other intangible assets; and |
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RFS Holdings minority interest (RFS MI). |
Net interest margin
The basis of calculating the net interest margin (NIM) has been refined and now reflects the actual number of days in each quarter. Group and divisional NIMs for prior periods have been re-computed on the new basis.
Results summary
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Quarter ended |
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31 March 2011 |
31 December 2010 |
31 March 2010 |
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£m |
£m |
£m |
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Core |
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Total income (1) |
7,547 |
7,138 |
8,206 |
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Operating expenses (2) |
(3,798) |
(3,600) |
(3,791) |
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Insurance net claims |
(784) |
(937) |
(1,003) |
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Operating profit before impairment losses (3) |
2,965 |
2,601 |
3,412 |
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Impairment losses |
(872) |
(930) |
(971) |
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Operating profit (3) |
2,093 |
1,671 |
2,441 |
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Non-Core |
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Total income (1) |
486 |
321 |
917 |
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Operating expenses (2) |
(323) |
(481) |
(639) |
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Insurance net claims |
(128) |
(245) |
(133) |
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Operating profit/(loss) before impairment losses (3) |
35 |
(405) |
145 |
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Impairment losses |
(1,075) |
(1,211) |
(1,704) |
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Operating loss (3) |
(1,040) |
(1,616) |
(1,559) |
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Total |
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Total income (1) |
8,033 |
7,459 |
9,123 |
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Operating expenses (2) |
(4,121) |
(4,081) |
(4,430) |
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Insurance net claims |
(912) |
(1,182) |
(1,136) |
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Operating profit before impairment losses (3) |
3,000 |
2,196 |
3,557 |
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Impairment losses |
(1,947) |
(2,141) |
(2,675) |
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Operating profit (3) |
1,053 |
55 |
882 |
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Fair value of own debt |
(480) |
582 |
(169) |
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Asset Protection Scheme credit default swap - fair value changes |
(469) |
(725) |
(500) |
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Other items |
(220) |
80 |
(218) |
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Loss before tax |
(116) |
(8) |
(5) |
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Memo: Profit before tax, pre APS |
353 |
717 |
495 |
For definitions of the notes refer to page 7.
Results summary
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Quarter ended |
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Key metrics |
31 March 2011 |
31 December 2010 |
31 March 2010 |
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Performance ratios |
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Core |
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- Net interest margin |
2.26% |
2.25% |
2.15% |
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- Cost:income ratio (4) |
56% |
58% |
53% |
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- Return on equity |
15.1% |
12.1% |
17.1% |
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- Adjusted earnings per ordinary and B share from continuing operations |
0.6p |
0.4p |
1.3p |
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- Adjusted earnings per ordinary and B share from continuing operations assuming a normalised tax rate of 26.5% (2010 - 28.0%) |
1.4p |
1.1p |
1.5p |
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Non-Core |
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- Net interest margin |
0.90% |
1.09% |
1.27% |
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- Cost:income ratio (4) |
90% |
633% |
82% |
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Group |
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- Net interest margin |
2.03% |
2.02% |
1.95% |
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- Cost:income ratio (4) |
58% |
65% |
55% |
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Continuing operations |
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- Basic loss per ordinary and B share (5) |
(0.5p) |
- |
(0.2p) |
For definitions of the notes refer to page 7.
Results summary
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31 March 2011 |
31 December 2010 |
Change |
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31 March 2010(12) |
Change |
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Capital and balance sheet |
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Total assets |
£1,413bn |
£1,454bn |
(3%) |
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£1,583bn |
(11%) |
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Funded balance sheet (6) |
£1,052bn |
£1,026bn |
3% |
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£1,121bn |
(6%) |
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Loan:deposit ratio - Core (7) |
96% |
96% |
- |
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102% |
(600bp) |
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Loan:deposit ratio - Group (7) |
115% |
117% |
(200bp) |
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131% |
(1,600bp) |
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Risk-weighted assets - gross |
£538bn |
£571bn |
(6%) |
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£586bn |
(8%) |
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Benefit of Asset Protection Scheme (APS) |
(£98bn) |
(£106bn) |
(7%) |
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(£125bn) |
(21%) |
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Risk-weighted assets - net of APS |
£440bn |
£465bn |
(6%) |
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£461bn |
(5%) |
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Total equity |
£76bn |
£77bn |
(1%) |
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£81bn |
(6%) |
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Core Tier 1 ratio* |
11.2% |
10.7% |
50bp |
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10.6% |
60bp |
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Tier 1 ratio |
13.5% |
12.9% |
60bp |
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13.7% |
(20bp) |
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Risk elements in lending (REIL) |
£41bn |
£39bn |
5% |
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£37bn |
11% |
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REIL as a % of gross loans and advances(8) |
7.9% |
7.3% |
60bp |
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6.3% |
160bp |
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Provision balance as % of REIL and potential problem loans (PPL) |
46% |
46% |
- |
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45% |
100bp |
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Tier 1 leverage ratio (9) |
17.4x |
16.8x |
4% |
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17.6x |
(1%) |
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Tangible equity leverage ratio (10) |
5.3% |
5.5% |
(20bp) |
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5.1% |
20bp |
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Tangible equity per ordinary and B share(11) |
50.1p |
51.1p |
(2%) |
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51.5p |
(3%) |
* Benefit of APS in Core Tier 1 ratio is 1.3% at 31 March 2011 (31 December 2010 - 1.2%; 31 March 2010 - 1.4%).
Notes:
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(1) |
Excluding movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, strategic disposals and RFS Holdings minority interest. |
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(2) |
Excluding amortisation of purchased intangible assets, integration and restructuring costs, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest. |
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(3) |
Operating profit/(loss) before tax, movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest. |
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(4) |
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. |
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(5) |
(Loss)/profit from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue. Refer to page 72. |
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(6) |
Funded balance sheet represents total assets less derivatives. |
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(7) |
Net of provisions. |
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(8) |
Gross loans and advances to customers including disposal groups, excluding reverse repurchase agreements (reverse repos). |
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(9) |
Tier 1 leverage ratio is total tangible assets (after netting derivatives) divided by Tier 1 capital. |
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(10) |
Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives). |
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(11) |
Tangible equity per ordinary and B share is total tangible equity divided by number of ordinary and B shares in issue. |
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(12) |
Excluding RFS Holdings minority interest for comparability. |
Results summary - statutory
Highlights
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Income of £7,058 million for Q1 2011. |
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Operating loss before tax of £116 million for Q1 2011. |
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Core Tier 1 ratio 11.2%. |
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Quarter ended |
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31 March 2011 |
31 December 2010 |
31 March 2010 |
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|
£m |
£m |
£m |
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Continuing operations: |
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Total income |
7,058 |
7,822 |
8,523 |
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Operating expenses |
(4,315) |
(4,507) |
(4,717) |
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Operating profit before impairment losses |
1,831 |
2,133 |
2,670 |
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Impairment losses |
(1,947) |
(2,141) |
(2,675) |
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Operating loss before tax |
(116) |
(8) |
(5) |
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(Loss)/profit attributable to ordinary and B shareholders |
(528) |
12 |
(248) |
A reconciliation between statutory and managed view income statements is shown in Appendix 1 to this announcement.
Summary consolidated income statement
for the quarter ended 31 March 2011
In the income statement set out below, movements in the fair value of own debt, Asset Protection Scheme credit default swap - fair value changes, amortisation of purchased intangible assets, integration and restructuring costs, strategic disposals, bonus tax, write-down of goodwill and other intangible assets and RFS Holdings minority interest are shown separately. In the statutory condensed consolidated income statement on page 57, these items are included in income and operating expenses as appropriate.
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Quarter ended |
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31 March 2011 |
31 December 2010 |
31 March 2010 |
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Core |
£m |
£m |
£m |
|
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Net interest income |
3,052 |
3,220 |
3,035 |
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|
|
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Non-interest income (excluding insurance net premium income) |
3,484 |
2,827 |
4,050 |
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Insurance net premium income |
1,011 |
1,091 |
1,121 |
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|
|
|
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Non-interest income |
4,495 |
3,918 |
5,171 |
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|
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|
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Total income (1) |
7,547 |
7,138 |
8,206 |
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Operating expenses (2) |
(3,798) |
(3,600) |
(3,791) |
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|
|
|
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Profit before other operating charges |
3,749 |
3,538 |
4,415 |
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Insurance net claims |
(784) |
(937) |
(1,003) |
|
|
|
|
|
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Operating profit before impairment losses (3) |
2,965 |
2,601 |
3,412 |
|
Impairment losses |
(872) |
(930) |
(971) |
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|
|
|
|
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Operating profit (3) |
2,093 |
1,671 |
2,441 |
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|
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Non-Core |
|
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|
|
|
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Net interest income |
250 |
358 |
499 |
|
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|
|
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Non-interest income (excluding insurance net premium income) |
98 |
(218) |
250 |
|
Insurance net premium income |
138 |
181 |
168 |
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|
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|
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Non-interest income |
236 |
(37) |
418 |
|
|
|
|
|
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Total income (1) |
486 |
321 |
917 |
|
Operating expenses (2) |
(323) |
(481) |
(639) |
|
|
|
|
|
|
Profit/(loss) before other operating charges |
163 |
(160) |
278 |
|
Insurance net claims |
(128) |
(245) |
(133) |
|
|
|
|
|
|
Operating profit/(loss) before impairment losses (3) |
35 |
(405) |
145 |
|
Impairment losses |
(1,075) |
(1,211) |
(1,704) |
|
|
|
|
|
|
Operating loss (3) |
(1,040) |
(1,616) |
(1,559) |
For definitions of the notes refer to page 7.
Summary consolidated income statement
for the quarter ended 31 March 2011 (continued)
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Quarter ended |
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31 March 2011 |
31 December 2010 |
31 March 2010 |
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Total |
£m |
£m |
£m |
|
|
|
|
|
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Net interest income |
3,302 |
3,578 |
3,534 |
|
|
|
|
|
|
Non-interest income (excluding insurance net premium income) |
3,582 |
2,609 |
4,300 |
|
Insurance net premium income |
1,149 |
1,272 |
1,289 |
|
|
|
|
|
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Non-interest income |
4,731 |
3,881 |
5,589 |
|
|
|
|
|
|
Total income (1) |
8,033 |
7,459 |
9,123 |
|
Operating expenses (2) |
(4,121) |
(4,081) |
(4,430) |
|
|
|
|
|
|
Profit before other operating charges |
3,912 |
3,378 |
4,693 |
|
Insurance net claims |
(912) |
(1,182) |
(1,136) |
|
|
|
|
|
|
Operating profit before impairment losses (3) |
3,000 |
2,196 |
3,557 |
|
Impairment losses |
(1,947) |
(2,141) |
(2,675) |
|
|
|
|
|
|
Operating profit (3) |
1,053 |
55 |
882 |
|
Fair value of own debt |
(480) |
582 |
(169) |
|
Asset Protection Scheme credit default swap - fair value changes |
(469) |
(725) |
(500) |
|
Amortisation of purchased intangible assets |
(44) |
(96) |
(65) |
|
Integration and restructuring costs |
(145) |
(299) |
(168) |
|
Strategic disposals |
(23) |
502 |
53 |
|
Bonus tax |
(11) |
(15) |
(54) |
|
Write-down of goodwill and other intangible assets |
- |
(10) |
- |
|
RFS Holdings minority interest |
3 |
(2) |
16 |
|
|
|
|
|
|
Loss before tax |
(116) |
(8) |
(5) |
|
Tax (charge)/credit |
(423) |
3 |
(107) |
|
|
|
|
|
|
Loss from continuing operations |
(539) |
(5) |
(112) |
|
Profit from discontinued operations, net of tax |
10 |
55 |
313 |
|
|
|
|
|
|
(Loss)/profit for the period |
(529) |
50 |
201 |
|
Non-controlling interests |
1 |
(38) |
(344) |
|
Preference share and other dividends |
- |
- |
(105) |
|
|
|
|
|
|
(Loss)/profit attributable to ordinary and B shareholders |
(528) |
12 |
(248) |
For definitions of the notes refer to page 7.
Summary consolidated balance sheet at 31 March 2011
|
|
31 March 2011 |
31 December 2010 |
|
|
£m |
£m |
|
|
|
|
|
Loans and advances to banks (1) |
59,304 |
57,911 |
|
Loans and advances to customers (1) |
494,148 |
502,748 |
|
Reverse repurchase agreements and stock borrowing |
105,659 |
95,119 |
|
Debt securities and equity shares |
253,596 |
239,678 |
|
Other assets |
139,498 |
131,043 |
|
|
|
|
|
Funded assets |
1,052,205 |
1,026,499 |
|
Derivatives |
361,048 |
427,077 |
|
|
|
|
|
Total assets |
1,413,253 |
1,453,576 |
|
|
|
|
|
Owners' equity |
74,076 |
75,132 |
|
Non-controlling interests |
1,710 |
1,719 |
|
Subordinated liabilities |
26,515 |
27,053 |
|
Bank deposits (2) |
63,829 |
66,051 |
|
Customer deposits (2) |
428,474 |
428,599 |
|
Repurchase agreements and stock lending |
130,047 |
114,833 |
|
Derivatives, settlement balances and short positions |
432,084 |
478,076 |
|
Other liabilities |
256,518 |
262,113 |
|
|
|
|
|
Total liabilities and equity |
1,413,253 |
1,453,576 |
|
|
|
|
|
Memo: Tangible equity (3) |
54,923 |
55,940 |
Notes:
|
(1) |
Excluding reverse repurchase agreements and stock borrowing. |
|
(2) |
Excluding repurchase agreements and stock lending. |
|
(3) |
Tangible equity is equity attributable to ordinary and B shareholders less intangible assets. |
Analysis of results
|
|
Quarter ended |
||
|
|
31 March 2011 |
31 December 2010 |
31 March 2010 |
|
Net interest income |
£m |
£m |
£m |
|
|
|
|
|
|
Net interest income (1) |
3,289 |
3,365 |
3,447 |
|
|
|
|
|
|
Average interest-earning assets |
658,578 |
661,380 |
717,900 |
|
|
|
|
|
|
Net interest margin (2) |
|
|
|
|
- Group |
2.03% |
2.02% |
1.95% |
|
- Core |
|
|
|
|
- Retail & Commercial (3) |
3.27% |
3.21% |
3.01% |
|
- Global Banking & Markets |
0.76% |
0.93% |
1.13% |
|
- Non-Core |
0.90% |
1.09% |
1.27% |
Notes:
|
(1) |
For further analysis refer to page 63. |
|
(2) |
The basis of calculating the net interest margin has been refined and is now based on daily averages rather than quarterly averages. Prior periods have been re-computed on the new basis. |
|
(3) |
Retail & Commercial comprises the UK Retail, UK Corporate, Wealth, Global Transaction Services, Ulster Bank and US Retail & Commercial divisions. |
Key points
Q1 2011 compared with Q4 2010
|
· |
Net interest income was 2% lower, reflecting the continued run-off of Non-Core assets, higher funding costs and the shorter calendar quarter. |
|
|
|
|
· |
Group NIM improved by 1 basis point to 2.03% compared with the prior quarter, benefiting from improving asset margins in Retail & Commercial and the reduction of low margin assets in Non-Core. However, these were offset by tighter margins in GBM, and higher funding costs. |
|
|
|
|
· |
Core Retail & Commercial NIM improved to 3.27% from 3.21% in Q4 2010. UK Retail asset margins declined marginally, with lower front book margins reflecting the increasing proportion of higher quality, lower loan to value mortgage lending. UK Corporate NIM improved. Deposit margins were stable at low levels in all Retail & Commercial divisions. |
Q1 2011 compared with Q1 2010
|
· |
Net interest income was 5% lower, largely reflecting the reduction in GBM and Non-Core interest-earning assets. |
|
|
|
|
· |
Group NIM rose by 8 basis points from 1.95% in Q1 2010, with Core Retail & Commercial NIM showing an improvement of 26 basis points. GBM NIM, however, was 37 basis points lower. |
Analysis of results (continued)
|
|
Quarter ended |
||
|
|
31 March 2011 |
31 December 2010 |
31 March 2010 |
|
Non-interest income |
£m |
£m |
£m |
|
|
|
|
|
|
Net fees and commissions |
1,382 |
1,604 |
1,479 |
|
Income from trading activities |
1,490 |
979 |
2,225 |
|
Other operating income |
710 |
26 |
596 |
|
|
|
|
|
Non-interest income (excluding insurance net premium income) |
3,582 |
2,609 |
4,300 |
|
Insurance net premium income |
1,149 |
1,272 |
1,289 |
|
|
|
|
|
|
Total non-interest income |
4,731 |
3,881 |
5,589 |
Key points
Q1 2011 compared with Q4 2010
|
· |
The substantial increase in non-interest income in Q1 2011 was largely driven by strong trading results from GBM, where a rebound in credit markets activity, particularly in the early part of the quarter, followed a seasonally subdued Q4 2010. Non-Core non-interest income improved, with lower fair value write-downs on asset portfolios and reduced disposal losses. |
|
|
|
|
· |
UK Retail fees and commissions were lower, reflecting the absence of the profit share income received in Q4 and the restructuring of the division's financial planning joint venture. |
Q1 2011 compared with Q1 2010
|
· |
Although GBM trading results were strong during the quarter, income was lower than in the buoyant market conditions of Q1 2010. |
Analysis of results (continued)
|
|
Quarter ended |
||
|
|
31 March 2011 |
31 December 2010 |
31 March 2010 |
|
Operating expenses |
£m |
£m |
£m |
|
|
|
|
|
|
Staff costs |
2,320 |
2,059 |
2,553 |
|
Premises and equipment |
556 |
636 |
528 |
|
Other |
865 |
938 |
935 |
|
|
|
|
|
|
Administrative expenses |
3,741 |
3,633 |
4,016 |
|
Depreciation and amortisation |
380 |
448 |
414 |
|
|
|
|
|
Operating expenses |
4,121 |
4,081 |
4,430 |
|
|
|
|
|
|
|
|
|
|
|
General insurance |
912 |
1,151 |
1,107 |
|
Bancassurance |
- |
31 |
29 |
|
|
|
|
|
|
Insurance net claims |
912 |
1,182 |
1,136 |
|
|
|
|
|
|
|
|
|
|
|
Staff costs as a % of total income |
29% |
28% |
28% |
Key points
Q1 2011 compared with Q4 2010
|
· |
Group operating expenses remained broadly in line quarter-on-quarter, with a 1% increase from Q4 2010, as continued benefits from the Group's cost reduction programme have kept expense growth in check. |
|
|
|
|
· |
There was a 13% rise in staff costs, largely reflecting an increase in GBM expenses driven by income 50% higher than in Q4 2010, partially offset by a fall in premises, equipment and other costs. |
|
|
|
|
· |
Insurance net claims fell to £912 million from £1,182 million largely driven by more benign weather conditions experienced during Q1 2011 and a return to more normalised claims levels on Non-Core legacy business. |
Q1 2011 compared with Q1 2010
|
· |
Operating expenses fell by 7% compared with Q1 2010 reflecting the realisation of cost saving benefits from the Group cost reduction programme and various country exits throughout 2010. |
|
|
|
|
· |
Staff expenses decreased by 9% largely driven by the country and business exits in Non-Core since Q1 2010, and lower variable compensation in GBM in the quarter. |
|
|
|
|
· |
Insurance net claims decreased by 20% as bodily injury reserving stabilised and the severe weather experienced in Q1 2010 was not repeated. |
Analysis of results (continued)
|
|
Quarter ended |
||
|
|
31 March 2011 |
31 December 2010 |
31 March 2010 |
|
Impairment losses |
£m |
£m |
£m |
|
|
|
|
|
|
Loan impairment losses |
1,898 |
2,155 |
2,602 |
|
Securities impairment losses |
49 |
(14) |
73 |
|
|
|
|
|
|
Group impairment losses |
1,947 |
2,141 |
2,675 |
|
|
|
|
|
|
Loan impairment losses |
|
|
|
|
- latent |
(107) |
(116) |
31 |
|
- collectively assessed |
720 |
729 |
841 |
|
- individual assessed |
1,285 |
1,555 |
1,730 |
|
|
|
|
|
|
Customer loans |
1,898 |
2,168 |
2,602 |
|
Bank loans |
- |
(13) |
- |
|
|
|
|
|
|
Loan impairment losses |
1,898 |
2,155 |
2,602 |
|
|
|
|
|
|
Customer loan impairment charge as % of gross loans and advances (1) |
|
|
|
|
Group |
1.5% |
1.6% |
1.8% |
|
Core |
0.8% |
0.9% |
0.9% |
|
Non-Core |
4.0% |
4.4% |
4.6% |
Note:
|
(1) |
Customer loan impairment charge as a percentage of gross loans and advances to customers including disposal groups and excluding reverse repurchase agreements. |
Key points
Q1 2011 compared with Q4 2010
|
· |
Total impairments fell by 9% in Q1 2011 despite a £135 million increase in Ulster Bank (Core and Non-Core). The decrease was driven by improvements in UK Retail and in UK Corporate which benefited from a £108 million release of latent loss provisions, reflecting improving book quality and credit metrics. Non-Core impairments were 11% lower reflecting the improving corporate environment. |
|
|
|
|
· |
Ulster Bank (Core and Non-Core) impairments continued to rise from Q4 2010, from £1,165 million to £1,300 million (12%). The Core increase was driven by continued deterioration in mortgage credit metrics together with a higher level of defaults recorded in the corporate investment and SME portfolios. |
Q1 2011 compared with Q1 2010
|
· |
Group impairments fell by 27% from Q1 2010 levels as the overall economic environment continued to improve. |
|
|
|
|
· |
In the Core business impairments fell by 10%. A 50% decrease in UK Retail, primarily reflecting lower arrears volumes on the unsecured portfolio, was offset by an increase in Ulster Bank impairments where the economic environment remains challenging. Both UK Corporate and US Retail & Commercial impairments fell, by 44% and 23% respectively. |
|
|
|
|
· |
Non-Core impairments decreased from £1,704 million to £1,075 million as the corporate environment improved, but with continued high impairment levels in Ulster Bank and certain other real estate portfolios. |
Analysis of results (continued)
|
|
Quarter ended |
||
|
|
31 March 2011 |
31 December 2010 |
31 March 2010 |
|
One-off and other items |
£m |
£m |
£m |
|
|
|
|
|
|
Fair value of own debt* |
(480) |
582 |
(169) |
|
Asset Protection Scheme credit default swap - fair value changes |
(469) |
(725) |
(500) |
|
Amortisation of purchased intangible assets |
(44) |
(96) |
(65) |
|
Integration and restructuring costs |
(145) |
(299) |
(168) |
|
Strategic disposals |
(23) |
502 |
53 |
|
Bonus tax |
(11) |
(15) |
(54) |
|
Write-down of goodwill and other intangible assets |
- |
(10) |
- |
|
RFS Holdings minority interest |
3 |
(2) |
16 |
|
|
|
|
|
|
|
(1,169) |
(63) |
(887) |
|
|
|
|
|
|
* Fair value of own debt impact: |
|
|
|
|
Income from trading activities |
(186) |
110 |
41 |
|
Other operating income |
(294) |
472 |
(210) |
|
|
|
|
|
|
Fair value of own debt (FVOD) |
(480) |
582 |
(169) |
Key points
Q1 2011 compared with Q4 2010
|
· |
A tightening of the Group's credit spreads resulted in a charge of £480 million in relation to movements in FVOD, compared with a gain of £582 million in the prior quarter. |
|
|
|
|
· |
Q4 2010 included a £502 million gain largely from the strategic disposal of Global Merchant Services. |
|
|
|
|
· |
Integration and restructuring costs decreased by 52% as costs in relation to business and country exits remain somewhat lumpy. |
|
|
|
|
· |
APS is accounted for as a credit derivative, and movements in the fair value of the contract are taken as an 'other' item. The charge of £469 million in Q1 2011 primarily reflects a reduction in covered assets as well as improvement in credit spreads. The cumulative charge on APS now stands at £2,019 million. |
Q1 2011 compared with Q1 2010
|
· |
The FVOD charge was £311 million higher than in Q1 2010. |
|
|
|
|
· |
Integration and restructuring costs reduced from Q1 2010 as costs relating to the ABN AMRO integration in 2009 were replaced with comparatively smaller business and country exit costs. |
|
|
|
|
· |
Strategic disposals in Q1 2010 included the disposal of a segment of the Group's asset management business. |
For information relating to the bank levy refer to page 86.
Analysis of results (continued)
|
Capital resources and ratios |
31 March 2011 |
31 December 2010 |
31 March 2010 (2) |
|
|
|
|
|
|
Core Tier 1 capital |
£49bn |
£50bn |
£49bn |
|
Tier 1 capital |
£60bn |
£60bn |
£63bn |
|
Total capital |
£64bn |
£65bn |
£72bn |
|
Risk-weighted assets |
|
|
|
|
- gross |
£538bn |
£571bn |
£586bn |
|
- benefit of the Asset Protection Scheme |
(£98bn) |
(£106bn) |
(£125bn) |
|
Risk-weighted assets |
£440bn |
£465bn |
£461bn |
|
Core Tier 1 ratio (1) |
11.2% |
10.7% |
10.6% |
|
Tier 1 ratio |
13.5% |
12.9% |
13.7% |
|
Total capital ratio |
14.5% |
14.0% |
15.7% |
Notes
|
(1) |
Benefit of APS in Core Tier 1 ratio is 1.3% at 31 March 2011 (31 December 2010 - 1.2%; 31 March 2010 - 1.4%). |
|
(2) |
Excluding RFS Holding minority interest for comparability. |
Key points
Q1 2011 compared with Q4 2010
|
· |
The Core Tier 1 ratio improved by 50 basis points to 11.2% in Q1 2011, principally reflecting a £33 billion reduction in gross RWAs, excluding the benefit provided by the APS, driven by asset run-off, disposals and restructurings, and a reclassification of certain trades in Non-Core. |
|
|
|
|
· |
The APS provided relief equivalent to 1.3% of Core Tier 1. |
Q1 2011 compared with Q1 2010
|
· |
The Core Tier 1 ratio increased by 60 basis points from Q1 2010 levels due to a reduction of £48 billion in gross RWAs. |
|
|
|
|
· |
Non-Core RWAs fell by over £36 billion in the year driven by disposals, asset run-off and risk reduction. |
Analysis of results (continued)
|
Balance sheet |
31 March 2011 |
31 December 2010 |
31 March 2010 (4) |
|
|
|
|
|
|
Total assets |
£1,413bn |
£1,454bn |
£1,583bn |
|
Funded balance sheet |
£1,052bn |
£1,026bn |
£1,121bn |
|
Loans and advances to customers (1) |
£494bn |
£503bn |
£554bn |
|
Customer deposits (2) |
£428bn |
£429bn |
£425bn |
|
Loan:deposit ratio - Core (3) |
96% |
96% |
102% |
|
Loan:deposit ratio - Group (3) |
115% |
117% |
131% |
Notes:
|
(1) |
Excluding reverse repurchase agreements and stock borrowing. |
|
(2) |
Excluding repurchase agreements and stock lending. |
|
(3) |
Net of provisions. |
|
(4) |
Excluding RFS Holdings minority interest for comparability. |
Key points
|
· |
Group funded assets, excluding derivatives, increased by £26 billion during the quarter to £1,052 billion at 31 March 2011. Non-Core funded assets continued to decline, falling by £13 billion to £125 billion. GBM assets increased by £27 billion from a seasonally low level at the end of 2010, but remain within the targeted range, and there has been modest growth in Retail & Commercial. |
|
|
|
|
· |
Loans and advances fell by £9 billion during the quarter, with portfolio run-off in Non-Core and GBM only partially offset by growth in Core UK Retail & Commercial lending. With deposits holding steady, the Group loan:deposit ratio improved to 115% while the Core loan:deposit ratio was stable at 96%. |
|
|
|
|
· |
Compared with 31 March 2010, funded assets fell by £69 billion, driven by the run-off of Non-Core. Over the year the Group loan:deposit ratio improved by 16 percentage points and the Core ratio by 6 percentage points. |
Further discussion of the Group's funding and liquidity position is included on pages 91 to 96.
This information is provided by RNS
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