Interim Results 2009. Part 1c

Companies

NATWEST GROUP (NWG)

UK 100

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	First half 2009	First half 2008	Full year 2008
			(audited)
	£m	£m	£m

Interest receivable	18,131	24,178	49,522
Interest payable	(9,962)	(15,483)	(30,847)

Net interest income	8,169	8,695	18,675

Fees and commissions receivable	4,988	4,917	9,831
Fees and commissions payable	(1,340)	(1,188)	(2,386)
Income/(loss) from trading activities	1,994	(3,373)	(8,477)
Gain on redemption of own debt	3,790	-	-
Other operating income (excluding insurance premium income)	1,419	1,635	1,899
Net insurance premium income	2,821	3,156	6,326

Non-interest income	13,672	5,147	7,193

Total income	21,841	13,842	25,868

Staff costs	(6,008)	(5,558)	(10,410)
Premises and equipment	(1,533)	(1,218)	(2,593)
Other administrative expenses	(2,682)	(2,420)	(5,464)
Depreciation and amortisation	(1,357)	(1,523)	(3,154)
Write-down of goodwill and other intangible assets	(311)	-	(32,581)

Operating expenses*	(11,891)	(10,719)	(54,202)

Profit/(loss) before other operating charges and impairment losses	9,950	3,123	(28,334)
Net insurance claims	(2,134)	(2,189)	(4,430)
Impairment losses	(8,060)	(1,661)	(8,072)

Operating loss before tax	(244)	(727)	(40,836)
Tax credit	441	333	2,323

Profit/(loss) from continuing operations	197	(394)	(38,513)
(Loss)/profit from discontinued operations, net of tax	(62)	234	3,971

Profit/(loss) for the period	135	(160)	(34,542)
Minority interests	(631)	(452)	10,832
Other owners' dividends	(546)	(215)	(596)

Loss attributable to ordinary shareholders	(1,042)	(827)	(24,306)

Basic earnings per ordinary share from continuing operations (Note 10)	(2.1p)	(6.4p)	(146.2p)

Diluted earnings per ordinary share from continuing operations (Note 10)	(2.1p)	(6.4p)	(146.2p)

Basic earnings per ordinary share from discontinued operations (Note 10)	(0.1p)	(0.4p)	(0.5p)

Diluted earnings per ordinary share from discontinued operations (Note 10)	(0.1p)	(0.4p)	(0.5p)

*Operating expenses include:	£m	£m	£m
Integration and restructuring costs:
- administrative expenses	726	302	1,321
- depreciation and amortisation	8	14	36

	734	316	1,357
Amortisation of purchased intangible assets	140	262	443

	874	578	1,800

	First half 2009	First half 2008	Full year 2008 (audited)
	£m	£m	£m

Profit/(loss)/ for the period	135	(160)	(34,542)

Other comprehensive income:
Available-for-sale financial assets	(1,660)	(1,796)	(7,406)
Cash flow hedges	364	326	(1,456)
Currency translation	(4,281)	3,509	15,425
Actuarial losses on defined benefit plans	-	-	(2,287)
Tax on other comprehensive income	478	423	2,786

Other comprehensive income for the period, net of tax	(5,099)	2,462	7,062

Total comprehensive income for the period	(4,964)	2,302	(27,480)

Attributable to:
Equity shareholders	(3,146)	(936)	(23,148)
Minority interests	(1,818)	3,238	(4,332)

	(4,964)	2,302	(27,480)

	30 June 2009	31 December 2008 (audited)	30 June 2008
	£m	£m	£m
Assets
Cash and balances at central banks	39,946	12,400	35,580
Net loans and advances to banks	60,330	79,426	44,525
Reverse repurchase agreements and stock borrowing	35,076	58,771	107,767
Loans and advances to banks	95,406	138,197	152,292
Net loans and advances to customers	722,260	835,409	721,231
Reverse repurchase agreements and stock borrowing	47,514	39,313	85,973
Loans and advances to customers	769,774	874,722	807,204
Debt securities	244,089	267,549	257,739
Equity shares	17,580	26,330	37,689
Settlement balances	23,264	17,832	27,624
Derivatives	557,284	992,559	415,109
Intangible assets	18,180	20,049	44,869
Property, plant and equipment	17,895	18,949	16,166
Deferred taxation	8,392	7,082	1,535
Prepayments, accrued income and other assets	23,265	24,402	21,535
Assets of disposal groups	3,848	1,581	63,537

Total assets	1,818,923	2,401,652	1,880,879

Liabilities
Bank deposits	126,852	174,378	132,661
Repurchase agreements and stock lending	44,142	83,666	112,212
Deposits by banks	170,994	258,044	244,873
Customer deposits	540,674	581,369	551,245
Repurchase agreements and stock lending	75,015	58,143	92,375
Customer accounts	615,689	639,512	643,620
Debt securities in issue	274,180	300,289	275,211
Settlement balances and short positions	60,287	54,277	84,083
Derivatives	537,064	971,364	407,559
Accruals, deferred income and other liabilities	30,121	31,482	23,863
Retirement benefit liabilities	1,731	2,032	390
Deferred taxation	4,022	4,165	3,492
Insurance liabilities	9,542	9,976	9,596
Subordinated liabilities	35,703	49,154	39,720
Liabilities of disposal groups	7,498	859	44,779

Total liabilities	1,746,831	2,321,154	1,777,186

Equity:
Minority interests	16,426	21,619	42,056
Owners' equity*
Called up share capital	14,120	9,898	4,064
Reserves	41,546	48,981	57,573

Total equity	72,092	80,498	103,693

Total liabilities and equity	1,818,923	2,401,652	1,880,879


*Owners' equity attributable to:
Ordinary shareholders	47,820	45,525	53,283
Other equity owners	7,846	13,354	8,354

	55,666	58,879	61,637

	First half 2009	First half 2008	Full year 2008
	£m	£m	£m
Called-up share capital
At beginning of period	9,898	2,530	2,530
Ordinary shares issued in respect of rights issue	-	1,531	1,531
Ordinary shares issued in respect of capitalisation issue	-	-	101
Ordinary shares issued in respect of placing and open offers	4,227	-	5,728
Preference shares issued in respect of placing and open offer	-	-	5
Other shares issued during the period	-	3	3
Preference shares redeemed during the period	(5)	-	-

At end of period	14,120	4,064	9,898

Paid-in equity
At beginning of period	1,073	1,073	1,073
Securities redeemed during the period	(308)	-	-
Transfer to retained earnings	(200)	-	-

At end of period	565	1,073	1,073

Share premium account
At beginning of period	27,471	17,322	17,322
Ordinary shares issued in respect of rights issue, net of £246 million expenses	-	10,469	10,469
Ordinary shares issued in respect of capitalisation issue	-	-	(101)
Ordinary shares issued in respect of placing and open offer, net of £95 million expenses	1,047	-	-
Expenses of placing and open offer	-	-	(265)
Other shares issued during the year	-	46	46
Preference shares redeemed during the period	(4,995)	-	-

At end of period	23,523	27,837	27,471

Merger reserve
At beginning of period	10,881	10,881	10,881
Placing and open offer	-	-	14,273
Transfer to retained earnings	-	-	(14,273)

At end of period	10,881	10,881	10,881

Available-for-sale reserves
At beginning of period	(3,561)	1,032	1,032
Unrealised losses in the period	(1,494)	(1,322)	(6,808)
Realised losses in the period	197	60	842
Taxation	592	343	1,373

At end of period	(4,266)	113	(3,561)

Cash flow hedging reserve
At beginning of period	(876)	(555)	(555)
Amount recognised in equity during the period	415	(297)	(603)
Amount transferred from equity to earnings in the period	106	174	198
Taxation	(138)	36	84

At end of period	(493)	(642)	(876)

	First half 2009	First half 2008	Full year 2008
	£m	£m	£m

Foreign exchange reserve
At beginning of period	6,385	(426)	(426)
Retranslation of net assets	(2,724)	1,748	11,970
Foreign currency gains/(losses) on hedges of net assets	442	(1,177)	(5,801)
Taxation	(46)	111	642

At end of period	4,057	256	6,385

Capital redemption reserve
At beginning and end of period	170	170	170

Retained earnings
At beginning of period	7,542	21,072	21,072
Loss attributable to ordinary shareholders and other equity owners	(496)	(612)	(23,710)
Ordinary dividends paid	-	(2,312)	(2,312)
Equity preference dividends paid	(510)	(188)	(536)
Paid-in equity dividends paid, net of tax	(36)	(27)	(60)
Transfer from paid-in equity	200	-	-
Equity owners gain on withdrawal of minority interest
- gross	629	-	-
- taxation	(176)	-	-
Transfer from merger reserve	-	-	14,273
Actuarial losses recognised in retirement benefit schemes
- gross	-	-	(1,807)
- taxation	-	-	472
Net cost of shares bought and used to satisfy share-based payments	(13)	(16)	(19)
Share-based payments, net of tax	60	51	169

At end of period	7,200	17,968	7,542

Own shares held
At beginning of period	(104)	(61)	(61)
Shares purchased during the period	-	(39)	(64)
Shares issued under employee share schemes	13	17	21

At end of period	(91)	(83)	(104)

Owners' equity at end of period	55,666	61,637	58,879

1.	Basis of preparation
	The accounts for the half year ended 30 June 2009 have been prepared on a going concern basis. The directors have reviewed the Group's forecasts, projections and other relevant evidence including the ongoing measures from governments and central banks in the UK and around the world to sustain the banking sector. Whilst the Group has received no guarantees, the directors have a reasonable expectation, based on experience to date, of continued and sufficient access to these funding facilities and, accordingly, that the Group will continue in operational existence for the foreseeable future.

2.	Accounting policies
	The annual accounts of the Group are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ('IASB') and interpretations issued by the International Financial Reporting Interpretations Committee of the IASB (together 'IFRS') as adopted by the European Union ('EU'). It also complies with IFRS as issued by the IASB. There have been no significant changes to the Group's principal accounting policies as set out on pages 178 to 188 of the 2008 Report and Accounts apart from the implementation of amendments to IFRS 2 (see below) and the introduction of a new policy dealing with the redemption or settlement of issued debt. These interim financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting'. The Group has implemented Vesting Conditions and Cancellation amendments to IFRS 2 Share-based Payment. The amendments change the way the cancellation of share schemes by an employee are treated. Previously, cancellations resulted in credits as the charge was trued up to reflect the reduction in the number of shares that vest. Under the amendments, cancellations result in the amount that would otherwise have been recognised over the remainder of the vesting period being charged to profit or loss immediately. Implementation of these amendments has increased the charge for the Group's share schemes in the first half of 2009 by £38 million. The Group's income statement, related notes and cash flow statement for the half year ended 30 June 2008 and the year ended 31 December 2008 have been restated increasing loss before tax by £35 million and £169 million respectively. The comparative amounts for the first half of 2008 have been restated for the finalisation of the ABN AMRO acquisition accounting. As a result of the amendments to IAS 1 Presentation of Financial Statements, the interim financial statements include a statement of changes in equity (showing the components of changes in equity for the period) as a primary financial statement and a statement of comprehensive income immediately following the income statement. The Group has extended its accounting policy on derecognition to cover the redemption or settlement of issued debt: On the redemption or settlement of debt securities (including subordinated liabilities) issued by the Group, the Group derecognises the debt instrument and records a gain or loss being the difference between the debt's carrying amount and the cost of redemption or settlement. The same treatment applies where the debt is exchanged for a new debt issue that has terms substantially different from those of the existing debt. The assessment of whether the terms of the new debt instrument are substantially different takes into account qualitative and quantitative characteristics including a comparison of the discounted present value of the cash flows under the new terms with the discounted present value of the remaining cash flows of the original debt issue.

3.	Analysis of income, expenses and impairment losses
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m

	Fees and commissions receivable	4,988	4,917	9,831
	Fees and commissions payable
	- banking	(1,080)	(986)	(1,985)
	- insurance related	(260)	(202)	(401)

	Net fees and commissions	3,648	3,729	7,445

	Foreign exchange	1,722	906	1,994
	Interest rate	3,265	1,447	1,454
	Credit	(3,815)	(6,273)	(12,200)
	Other	822	547	275

	Income/(loss) from trading activities	1,994	(3,373)	(8,477)

	Gain on redemption of own debt	3,790	-	-

	In April 2009, the Group concluded a series of exchange offers and tender offers with the holders of a number of Tier 1 and Upper Tier 2 securities which resulted in an aggregate pre-tax gain of £4.6 billion, of which £3.79 billion was taken through income and the remainder through equity.

4.	Goodwill
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m

	Write-down of goodwill and other intangible assets	311	-	32,581

	The write down of goodwill in the first half of 2009 principally relates to ABN AMRO and NatWest goodwill allocated to non-core businesses.

5.	Pensions
	The pension cost for the first half of 2009 amounting to £425 million (first half 2008 - £339 million; full year 2008 - £638 million) reflects the assumptions adopted in the Group’s 2008 financial statements as the Group has concluded, following a review of scheme assumptions, that as at 30 June 2009 no adjustment to the deficit on the schemes is required.

6.	Loan impairment provisions
	Operating loss is stated after charging loan impairment losses of £7,330 million (first half 2008 - £1,588 million; full year 2008 - £7,091 million). The balance sheet loan impairment provisions increased in the half year ended 30 June 2009 from £11,016 million to £15,528 million, and the movements thereon were:
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m

	At beginning of period	11,016	6,452	6,452
	Transfer to disposal groups	-	-	(767)
	Currency translation and other adjustments	(666)	193	1,441
	Disposals	-	(1,010)	(178)
	Amounts written-off	(2,150)	(1,333)	(3,148)
	Recoveries of amounts previously written-off	176	171	319
	Charge to the income statement	7,330	1,588	7,091
	Unwind of discount	(178)	(91)	(194)

	At end of period	15,528	5,970	11,016

	The provision at 30 June 2009 includes £126 million (31 December 2008 - £127 million; 30 June 2008 - £3 million) in respect of loans and advances to banks.

7.	Taxation
	The credit for taxation differs from the tax credit computed by applying the standard UK corporation tax rate of 28% (2008 - 28.5%) as follows:
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m

	Loss before tax from continuing operations	(244)	(727)	(40,836)

	Expected tax credit at 28% (2008 - 28.5%)	(68)	(207)	(11,638)
	Non-deductible goodwill impairment	87	-	8,292
	Unrecognised timing differences	16	4	274
	Other non-deductible items	73	162	378
	Non-taxable items;
	- gain on redemption of own debt	(692)	-	-
	- other	(176)	(225)	(491)
	Taxable foreign exchange movements	(23)	7	80
	Foreign profits taxed at other rates	3	(52)	203
	Losses in year not recognised	184	40	942
	Other	(23)	-	(11)
	Adjustments in respect of prior periods	178	(62)	(352)

	Actual tax credit	(441)	(333)	(2,323)

10.	Earnings per share
	Earnings per share have been calculated based on the following:
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m
	Earnings
	Loss from continuing operations attributable to ordinary shareholders	(984)	(786)	(24,220)
	Add back finance cost on dilutive convertible securities	-	-	-

	Diluted loss from continuing operations attributable to ordinary shareholders	(984)	(786)	(24,220)

	Loss from discontinued operations attributable to ordinary shareholders	(58)	(41)	(86)

	Weighted average number of ordinary shares (millions)
	In issue during the period	46,719	12,197	16,563
	Effect of dilutive share options and convertible securities	-	-	-

	Diluted weighted average number of ordinary shares in issue during the period	46,719	12,197	16,563

	Basic loss per share from continuing operations	(2.1p)	(6.4p)	(146.2p)

	Diluted loss per share from continuing operations	(2.1p)	(6.4p)	(146.2p)

	Basic loss per share from discontinued operations	(0.1p)	(0.4p)	(0.5p)

	Diluted loss per share from discontinued operations	(0.1p)	(0.4p)	(0.5p)

11.	Segmental analysis
	Changes have been made to the Group's operating segments in the first half of 2009. A Non-Core division has been created comprising those lines of business, portfolios and individual assets that the Group intends to run off or sell. Furthermore, Group Manufacturing is no longer reported as a separate division whose costs are now allocated to the customer-facing divisions along with certain central costs. UK Retail & Commercial Banking has been split into three segments (UK Retail, UK Corporate and Wealth). Ulster Bank has become a specific segment. The remaining elements of Europe & Middle East Retail & Commercial Banking, Asia Retail & Commercial Banking and Share of shared assets form part of Non-Core. The segment measure is now Operating profit/(loss) before tax which differs from Contribution used previously; it excludes strategic disposals. Comparative data have been restated accordingly.

		First half 2009			First half 2008			Full year 2008
		External	Inter segment	Total	External	Inter segment	Total	External	Inter segment	Total
	Total revenue	£m	£m	£m	£m	£m	£m	£m	£m	£m
	UK Retail	3,525	365	3,890	4,174	813	4,987	8,416	1,652	10,068
	UK Corporate	2,212	28	2,240	3,992	21	4,013	7,798	92	7,890
	Wealth	416	465	881	506	1,131	1,637	1,133	2,122	3,255
	Global Banking & Markets	9,691	4,621	14,312	8,844	4,648	13,492	12,709	11,554	24,263
	Global Transaction Services	1,392	33	1,425	1,412	41	1,453	2,940	81	3,021
	Ulster Bank	888	49	937	1,173	128	1,301	2,774	738	3,512
	US Retail & Commercial	2,213	203	2,416	1,913	234	2,147	4,200	475	4,675
	RBS Insurance	2,446	12	2,458	2,542	14	2,556	5,040	33	5,073
	Central items	4,564	5,967	10,531	638	5,261	5,899	1,610	13,387	14,997

	Core	27,347	11,743	39,090	25,194	12,291	37,485	46,620	30,134	76,754
	Non-Core	897	399	1,296	886	736	1,622	3,078	1,325	4,403

	Group before RFS Holdings minority interest	28,244	12,142	40,386	26,080	13,027	39,107	49,698	31,459	81,157
	RFS Holdings minority interest	5,033	130	5,163	4,585	417	5,002	9,703	(24)	9,679
	Elimination of intra-group transactions	-	(12,272)	(12,272)	-	(13,444)	(13,444)	-	(31,435)	(31,435)

		33,277	-	33,277	30,665	-	30,665	59,401	-	59,401

11.	Segmental analysis (continued)
		First half 2009	First half 2008	Full year 2008
		£m	£m	£m
	Operating profit/(loss) before tax
	UK Retail	53	514	753
	UK Corporate	321	939	1,644
	Wealth	218	185	361
	Global Banking & Markets	4,873	1,115	(1,315)
	Global Transaction Services	496	493	1,055
	Ulster Bank	(8)	172	218
	US Retail & Commercial	(51)	291	528
	RBS Insurance	217	300	584
	Central items	175	706	1,024

	Core	6,294	4,715	4,852
	Non-Core	(9,648)	(4,863)	(11,790)

	Group before RFS Holdings minority interest	(3,354)	(148)	(6,938)
	RFS Holdings minority interest	52	(1)	(15,629)

		(3,302)	(149)	(22,567)
	Amortisation of purchased intangible assets	(140)	(262)	(443)
	Integration and restructuring costs	(734)	(316)	(1,357)
	Gain on redemption of own debt	3,790	-	-
	Strategic disposals	453	-	442
	Write-down of goodwill and other intangible assets	(311)	-	(16,911)

		(244)	(727)	(40,836)

	30 June 2009	31 December 2008
	£m	£m
Total assets
UK Retail	104,832	102,430
UK Corporate	105,984	109,834
Wealth	16,423	16,356
Global Banking & Markets	977,221	1,423,805
Global Transaction Services	19,669	22,534
Ulster Bank	41,504	49,107
US Retail & Commercial	76,314	88,673
RBS Insurance	11,694	11,018
Central items	59,746	70,201

Core	1,413,387	1,893,958
Non-Core	231,058	324,734

	1,644,445	2,218,692
RFS Holdings minority interest	174,478	182,960

	1,818,923	2,401,652

	Held-for-trading	Designated as at fair value through profit or loss	Available-for-sale	Loans and receivables	Other (amortised cost)	Finance leases	Other assets/ liabilities	Total
	£m	£m	£m	£m	£m	£m	£m	£m
At 30 June 2009
Cash and balances at central banks	-	-	-	39,946	-	-	-	39,946
Loans & advances to banks	35,848	-	-	59,558	-	-	-	95,406
Loans and advances to customers	51,911	1,963	-	702,334	-	13,566	-	769,774
Debt securities	107,508	4,578	120,589	11,414	-	-	-	244,089
Equity shares	12,630	1,955	2,995	-	-	-	-	17,580
Settlement balances	-	-	-	23,264	-	-	-	23,264
Derivatives (1)	557,284	-	-	-	-	-	-	557,284
Intangible assets	-	-	-	-	-	-	18,180	18,180
Property, plant and equipment	-	-	-	-	-	-	17,895	17,895
Deferred taxation	-	-	-	-	-	-	8,392	8,392
Prepayments, accrued income and other assets	-	-	-	1,461	-	-	21,804	23,265
Assets of disposal groups	-	-	-	-	-	-	3,848	3,848

Total assets	765,181	8,496	123,584	837,977	-	13,566	70,119	1,818,923

Deposits by banks	58,018	-	-	-	112,976	-	-	170,994
Customer accounts	64,743	7,463	-	-	543,483	-	-	615,689
Debt securities in issue	1,051	34,299	-	-	238,830	-	-	274,180
Settlement balances and short positions	37,224	-	-	-	23,063	-	-	60,287
Derivatives (1)	537,064	-	-	-	-	-	-	537,064
Accruals, deferred income and other liabilities	-	-	-	-	1,617	24	28,480	30,121
Retirement benefit liabilities	-	-	-	-	-	-	1,731	1,731
Deferred taxations	-	-	-	-	-	-	4,022	4,022
Insurance liabilities	-	-	-	-	-	-	9,542	9,542
Subordinated liabilities	-	1,291	-	-	34,412	-	-	35,703
Liabilities of disposal groups	-	-	-	-	-	-	7,498	7,498

Total liabilities	698,100	43,053	-	-	954,381	24	51,273	1,746,831

Equity								72,092

								1,818,923

	Note:
	(1) Held-for-trading derivatives include hedging derivatives.

12.	Financial instruments (continued)

	Valuation techniques Refer to Note 11 of the Annual Report and Accounts 2008.

	Valuation hierarchy The table below shows the financial instruments carried at fair value, by valuation method.
				30 June 2009				31 December 2008
				Level 1(1)	Level 2(2)	Level 3(3)	Total	Level 1(1)	Level 2(2)	Level 3(3)	Total
				£bn	£bn	£bn	£bn	£bn	£bn	£bn	£bn
	Assets
	Fair value through profit or loss
	Loans and advances to banks			-	35.8	-	35.8	-	56.2	-	56.2
	Loans and advances to customers			-	52.8	1.1	53.9	-	50.5	3.1	53.6
	Debt securities			53.4	55.1	3.6	112.1	52.8	65.1	3.8	121.7
	Equity shares			10.7	3.4	0.5	14.6	10.6	7.8	0.8	19.2
	Derivatives			1.0	547.6	8.7	557.3	3.9	978.4	10.3	992.6

				65.1	694.7	13.9	773.7	67.3	1,158.0	18.0	1,243.3
	Available-for-sale
	Debt securities			43.4	75.6	1.6	120.6	20.9	108.8	3.1	132.8
	Equity shares			1.1	1.4	0.5	3.0	4.8	2.1	0.3	7.2

				44.5	77.0	2.1	123.6	25.7	110.9	3.4	140.0

				109.6	771.7	16.0	897.3	93.0	1,268.9	21.4	1,383.3

	Liabilities
	Deposits by banks and customers			-	129.9	0.3	130.2	-	144.8	0.3	145.1
	Debt securities in issue			-	32.3	3.1	35.4	-	47.0	4.4	51.4
	Short positions			29.9	6.9	0.4	37.2	36.0	6.5	-	42.5
	Derivatives			1.7	531.2	4.2	537.1	3.6	963.8	4.0	971.4
	Other financial liabilities (4)			-	1.3	-	1.3	-	1.5	0.3	1.8

				31.6	701.6	8.0	741.2	39.6	1,163.6	9.0	1,212.2

	Notes:
	(1)	Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, certain exchange-traded derivatives, G10 government securities and certain US agency securities.
	(2)	Valued using techniques based significantly on observable market data. Instruments in this category are valued using:
		(a)	quoted prices for identical instruments in markets which are not considered to be active or quoted prices for similar instruments trading in active or not so active markets; or
		(b)	valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
		Instruments that trade in markets that are not considered to be active, but for which valuations are based on quoted market prices, broker dealer quotations, or alternative pricing sources with reasonable levels of price transparency and instruments valued using techniques include: most government agency securities, investment-grade corporate bonds, certain mortgage products, certain bank and bridge loans, repos and reverse repos, less liquid listed equities, state and municipal obligations, most physical commodities, investment contracts issued by the Group's life assurance businesses and certain money market securities and loan commitments and most OTC derivatives.

12.	Financial instruments (continued)

	Notes (continued):
	(3)	Valued using a technique where at least one input (which could have a significant effect on the instrument's valuation) is not based on observable market data. Where inputs can be observed from market data without undue cost and effort, the observed input is used. Otherwise, the Group determines a reasonable level for the input. Financial instruments included within level 3 of the fair value hierarchy primarily include cash instruments which trade infrequently, certain syndicated and commercial mortgage loans, unlisted equity shares, certain residual interests in securitisations, super senior tranches of high grade and mezzanine collateralised debt obligations (CDOs), other mortgage-based products and less liquid debt securities, certain structured debt securities in issue and OTC derivatives where valuation depends upon unobservable inputs such as certain credit and exotic derivatives. No gain or loss is recognised on the initial recognition of a financial instrument valued using a technique incorporating significant unobservable data.
	(4)	Comprise subordinated liabilities and write downs relating to undrawn syndicated loan facilities.

	Level 3 portfolios
	Level 3 portfolios have reduced since 31 December 2008 (by £5.4 billion) due to disposals, write downs, reclassification between levels 2 and 3 and reclassification of a number of assets from held-for-trading ('HFT') to loans and receivables ('LAR'). Level 3 liabilities have reduced by £1.0 billion. Level 3 loans and advances to customers decreased by £2.0 billion primarily reflecting the reclassification of certain HFT loans (leveraged finance and other corporate loans) to LAR. Debt securities categorised as level 3 at the 30 June 2009 included £3.7 billion asset-backed securities and £1.5 billion of corporate and other debt securities. The decrease during the first half reflects liquidations, mark-downs and the unwinding of part of the fund derivative portfolio in the US. Equity shares categorised as level 3 decreased by £0.1 billion primarily reflecting the movement of strategic investments from level 3 to level 2 and reduction in value of certain private equity investments, partly offset by other small increases. Level 3 derivative assets at 30 June 2009 included credit derivative trades with credit derivative product companies ('CDPCs') with a fair value of £1.5 billion after credit valuation adjustments of £0.8 billion. At 31 December 2008 these credit derivative trades with CDPCs had a fair value of £3.5 billion after a credit valuation adjustment of £1.3 billion. Other level 3 derivative assets included illiquid credit default swaps ('CDSs'), other credit derivatives and illiquid interest rate derivatives. Debt securities in issue categorised as level 3 were structured medium term notes, with the decrease in the period primarily due to the movement of £1 billion of guaranteed investment certificates from level 3 at the end of 2008 to level 2 at the end of June 2009 reflecting increased price availability in the market.

12.	Financial instruments (continued)

	Level 3 portfolios (continued)
			Valuation basis/technique	Main assumptions	Carrying value	Reasonably possible alternative assumptions
						Increase in fair value		Decrease in fair value
					£bn	£m		£m
	Assets
	Loans and advances		Proprietary model	Credit spreads, indices	1.1	33		33
	Debt securities:
	- RMBS (1)		Industry standard model	Prepayment rates, probability of default, loss severity and yield	0.4	24		28
	- CMBS (2)		Industry standard model	Prepayment rates, probability of default, loss severity and yield	0.4	16		16
	- CDOs (3)		Proprietary model	Implied collateral valuation, defaults rates, housing prices, correlation	1.5	311		288
	- CLOs (4)		Industry standard simulation model	Credit spreads, recovery rates, correlation	0.7	27		27
	- other		Proprietary model	Credit spreads	2.2	54		55
	Equity shares		Private equity - valuation statements	Fund valuations	1.0	106		127
	Derivatives:
	- credit		Proprietary CVA model, industry option models, correlation model	Counterparty credit risk, correlation, volatility	5.1	497		365
	- other		Proprietary model	Volatility, correlation, dividends	3.6	170		174

	30 June 2009				16.0	1,238		1,113

	31 December 2008				21.4	1,880		2,200

	Liabilities
	Debt securities in issue		Proprietary model	Correlation, volatility	3.1	65	65
	Derivatives
	- credit		Proprietary CVA model, industry option models, correlation model	Correlation, volatility	2.7	196	196
	- other		Proprietary model	Volatility, correlation	1.5	54	52
	Other portfolios		Proprietary model	Credit spreads, correlation	0.7	11	11

	30 June 2009				8.0	326	324

	31 December 2008				9.0	490	550

	Notes:
	(1)	Residential mortgage-backed securities.
	(2)	Commercial mortgage-backed securities.
	(3)	Collateralised debt obligations.
	(4)	Collateralised loan obligations.

12.	Financial instruments (continued)

	Level 3 portfolios (continued)
	For each of the portfolio categories shown in the above table, a description is set out below of the types of products that comprise the portfolio and the valuation techniques that are applied in determining fair value, and inputs to those models and techniques. These techniques are also used where the product is categorised as level 2. Where reasonably possible alternative assumptions of unobservable inputs used in models would change the fair value of the portfolio significantly, the alternative inputs are indicated along with the impact this would have on the fair value. Where there have been significant changes to valuation techniques during the year, an explanation of the reasons for this is also included. Amounts relating to 31 December 2008 are also included where relevant.

	Loans and advances to customers
	Loans in level 3 primarily comprise US commercial mortgages and syndicated loans. Commercial mortgages These senior and mezzanine commercial mortgages are loans secured on commercial land and buildings that were originated or acquired for securitisation. Senior commercial mortgages carry a variable interest rate and mezzanine or more junior commercial mortgages may carry a fixed or variable interest rate. Factors affecting the value of these loans may include, but are not limited to, loan type, underlying property type and geographic location, loan interest rate, loan to value ratios, debt service coverage ratios, prepayment rates, cumulative loan loss information, yields, investor demand, market volatility since the last securitisation, and credit enhancement. Where observable market prices for a particular loan are not available, the fair value will typically be determined with reference to observable market transactions in other loans or credit related products including debt securities and credit derivatives. Assumptions are made about the relationship between the loan and the available benchmark data. Using reasonably possible alternative assumptions for credit spreads (taking into account all other applicable factors) would reduce the fair value of these mortgages of £0.3 billion (2008 - £1.1 billion) by up to £8 million (2008 - £18 million) or increase the fair value by up to £8 million (2008 - £25 million). Syndicated lending The Group's syndicated lending activities are conducted by the syndicate business in conjunction with the loan origination business. When a commitment to lend is entered into, the Group estimates the proportion of the loan that it intends to syndicate and the proportion it anticipates to retain on its balance sheet as a loan and receivable. Where the commitment is intended to be syndicated, the commitment to lend is fair valued through the income statement. On drawdown, the portion of the loan expected to be syndicated is classified as a held-for-trading asset, and the expected hold portion is classified as loan or receivables. The Group values the portion of the loan expected to be syndicated at fair value by using market observable syndication prices in the same or similar assets. Where these prices are not available, a discounted cash flow model is used. The model incorporates observable assumptions such as current interest rates and yield curves, the notional and tender amount of the loan and counterparty credit quality which is derived from credit default swap spreads quoted in the market. The model also incorporates unobservable assumptions, including expected refinancing periods, and counterparty credit quality derived from the Group's internal risk assessments. Derivatives arising from commitments to lend are measured using the same model, based on proxy notional amounts. Using reasonably possible alternative assumptions for expected cash flows to value these assets of £0.8 billion (2008 - £2.0 billion) would reduce the fair value by up to £25 million (2008 - £32 million) or increase the fair value by up to £25 million (2008 - £45 million). The assumptions to determine these amounts were based on restructuring scenarios and expected margins.

12.	Financial instruments (continued)

	Level 3 portfolios (continued)

	Debt securities (continued)
	The fair value of securities within each class of asset changes on a broadly consistent basis in response to changes in given market factors. However, the extent of the change, and therefore the range of reasonably possible alternative assumptions, may be either more or less pronounced, depending on the particular terms and circumstances of the individual security. The Group believes that the probability of default is the least transparent input into Alt-A and prime RMBS modelled valuations and is the most sensitive to variations for valuation purposes. The Group believes that a range of 500 basis points greater than and 300 basis points less than the weighted average constant default rate, and a range of 300 basis points greater than and 200 basis points less than the weighted average constant default rate represents a reasonably possible set of acceptable pricing alternatives for Alt-A and prime RMBS, respectively. These assumptions consider the inherently risky nature of Alt-A over prime securities, as well as declining economic conditions leading to an increased likelihood of default at year-end. While other key inputs may possess characteristics of unobservability in both Alt-A and prime modelled valuations, the effect of utilising reasonably possible alternatives for these inputs would have an immaterial effect on the overall valuation. Using these reasonably possible alternative assumptions the fair value of RMBS of £0.4 billion (2008 - £0.5 billion) would be £28 million (2008 - £90 million) lower or £24 million (2008 - £40 million) higher. Commercial mortgage backed securities CMBS are valued using an industry standard model and the inputs, where possible, are corroborated using observable market data. For senior CMBS and subordinated tranches, the Group has determined that the most sensitive input to reasonably possible alternative valuation is probability of default and yield respectively. Using reasonably possible alternative assumptions for these inputs, the fair value of CMBS of £ 0.4 billion (2008 - £0.6 billion) would be £16 million (2008 - £30 million) lower or £16 million (2008 - £30 million) higher. Collateralised debt obligations CDOs purchased from third parties are valued using independent, third-party quotes or independent lead manager indicative prices. For super senior CDOs which have been originated by the Group no specific third-party information is available. The valuation of these super senior CDOs therefore takes into consideration available market data and appropriate valuation adjustments. A collateral net asset value methodology is considered which uses dealer buy side marks to determine an upper bound for super senior CDO valuations. An ABS index implied collateral valuation methodology is also used, which provides a market calibrated valuation data point. Both the ABS index implied valuation and the collateral net asset value methodology apply an assumed immediate liquidation approach. The output from using these alternative assumptions has been compared with inferred pricing from other published data. The Group believes that reasonably possible alternative assumptions could reduce or increase valuations by up to 4%. Using these alternative assumptions would reduce the fair value of level 3 CDOs of £1.5 billion (2008 - £1.7 billion) by up to £288 million (2008 - £440 million) (super senior CDOs: £179 million (2008 - £292 million)) and increase the fair value by up to £311 million (2008 - £410 million) (super senior CDOs: £202 million (2008 - £292 million)).

12.	Financial instruments (continued)

	Level 3 portfolios (continued)

	Derivatives (continued)

	Equity derivatives
	Equity derivative products are split into equity exotic derivatives and equity hybrids. Equity exotic derivatives have payouts based on the performance of one or more stocks, equity funds or indices. Most payouts are based on the performance of a single asset and are valued using observable market option data. Unobservable equity derivative trades are typically complex basket options on stocks. Such basket option payouts depend on the performance of more than one equity asset and require inputs based on the correlations between the individual components of the stock market. Valuation is then performed using industry standard valuation models, with unobservable correlation inputs calculated by reference to correlations observed between similar underlying instruments. Equity hybrids have payouts based on the performance of a basket of underlying instruments where the underlying instruments are all from different asset classes. Correlations between these different underlying instruments are typically unobservable with no market information for closely related assets available. Where no market for the correlation input exists, these inputs are based on historical time series. For equity exotic derivatives and equity hybrids, reasonable possible alternative valuations are determined on the basis of parameter uncertainty calculations for the unobservable parameters. The range of valuations is inferred from consensus data and market quotes. Where day one reserves exist for a given product, the worst case valuation is mitigated by these reserves. For certain products, day one reserves exceed valuation uncertainty and in these instances the worst case is deemed to be current book value.

	Other derivatives
	Interest rate and commodity options provide a payout (or series of payouts) linked to the performance of one or more underlying rates, including interest rates, foreign exchange rates and commodity prices. Included in commodities derivatives are energy contracts entered into by RBS Sempra Commodities. Most of these contracts are valued using models that incorporate observable data. A small number are more complex, structured derivatives which incorporate in their valuation assumptions regarding power price volatilities and correlation between inputs, which are not market observable. These include certain tolling agreements, where power is purchased in return for a given quantity of fuel, and load deals, where a seller agrees to deliver a fixed proportion of power used by a client's utility customers. Exotic options do not trade in active markets except in a small number of cases. Consequently, the Group uses models to determine fair value using valuation techniques typical for the industry. These techniques can be divided, firstly, into modelling approaches and, secondly, into methods of assessing appropriate levels for model inputs. The Group uses a variety of proprietary models for valuing exotic trades. Exotic valuation inputs include correlation between interest rates, foreign exchange rates and commodity prices. Correlations for more liquid rate pairs are valued using independently sourced consensus pricing levels. Where a consensus pricing benchmark is unavailable, these instruments are categorised as level 3. Reasonably possible alternative assumptions have been determined by stressing unobservable model input parameters by levels determined by a qualitative assessment of historical data.

12.	Financial instruments (continued)

	Own credit
	When valuing financial liabilities recorded at fair value, the Group takes into account the effect of its own credit standing. The categories of financial liabilities on which own credit spread adjustments are made are issued debt, including issued structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group's creditworthiness when pricing trades. For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates (at a range of tenors) which the market would demand when purchasing new senior or sub-debt issuances from the Group. Where necessary, these quotes are interpolated using a curve shape derived from CDS prices. The fair value of the Group's derivative financial liabilities has also been adjusted to reflect the Group's own credit risk. The adjustment takes into account collateral posted by the Group and the effects of master netting agreements. The table below shows the own credit spread adjustments on liabilities recorded in the income statement during the half year ended 30 June 2009.
		Debt securities in issue
		Held-for-trading	Designated at fair value through profit and loss	Total	Derivatives	Total
		£m	£m	£m	£m	£m

	At 1 January 2009	1,346	1,027	2,373	450	2,823
	Net effect of changes to credit spreads	242	(73)	169	54	223
	Foreign exchange movements	(189)	(31)	(220)	-	(220)
	New issues and redemptions (net)	(22)	11	(11)	-	(11)

	At 30 June 2009	1,377	934	2,311	504	2,815

	The effect of change in credit spreads could be reversed in future periods.

	Additional losses that would have been recognised in H1 2009 if reclassifications had not occurred

		Reclassified in:
	Total	H1 2009	2008
	£m	£m	£m

From held-for-trading to:
Available-for-sale	(284)	-	(284)
Loans and receivables	526	178	348

	242	178	64

12.		Financial instruments (continued)

	Reclassification of financial instruments (continued)

	Assets reclassified in 2009:	30 June 2009 All reclassifications		31 December 2008 All reclassifications (1)
	carrying value	Carrying value	Fair value	Carrying value	Fair value
	£m	£m	£m	£m	£m

From held-for-trading to:
Available-for-sale	-	8,442	8,442	12,047	12,047
Loans and receivables	1,871	16,458	12,158	20,774	16,628

	1,871	24,900	20,600	32,821	28,675

From available-for-sale to:
Loans and receivables	-	866	741	1,016	956

	1,871	25,766	21,341	33,837	29,631

Note:
(1) 31 December 2008 amounts have been restated.

13.	Debt securities
		UK central and local government	US central and local government	Other central and local government	Bank and building society	Asset backed securities	Corporate	Other	Total
	30 June 2009	£m	£m	£m	£m	£m	£m	£m	£m

	Held-for-trading	7,753	9,526	43,140	5,140	32,539	8,304	1,106	107,508
	Designated as at fair value through profit or loss	1,943	3	570	624	354	1,074	10	4,578
	Available-for-sale	6,179	9,630	36,554	10,851	49,037	7,611	727	120,589
	Loans and receivables	-	-	63	97	8,746	2,416	92	11,414

		15,875	19,159	80,327	16,712	90,676	19,405	1,935	244,089

	31 December 2008

	Held-for-trading	5,372	9,859	37,519	4,407	39,879	17,671	1,573	116,280
	Designated as at fair value through profit or loss	2,085	510	472	89	236	1,580	456	5,428
	Available-for-sale	11,330	6,152	32,480	12,038	62,067	6,501	2,288	132,856
	Loans and receivables	-	-	-	114	8,961	3,749	161	12,985

		18,787	16,521	70,471	16,648	111,143	29,501	4,478	267,549

17.	Capital resources
		30 June 2009	31 December 2008	30 June 2008
	Composition of regulatory capital	£m	£m	£m

	Tier 1
	Ordinary shareholders' equity	47,820	45,525	53,283
	Minority interests	16,426	21,619	42,056
	Adjustments for:
	Goodwill and other intangible assets - continuing	(18,180)	(20,049)	(43,471)
	Goodwill and other intangible assets - discontinued	-	-	(4,230)
	Unrealised losses on available-for-sale debt securities	4,194	3,687	919
	Reserves arising on revaluation of property and unrealised gains on available-for-sale equities	(25)	(984)	(2,623)
	Reallocation of preference shares and innovative securities	(656)	(1,813)	(1,813)
	Other regulatory adjustments	(507)	(362)	(676)
	Less expected losses over provisions	(1,502)	(770)	(1,095)
	Less securitisation positions	(1,397)	(663)	(764)

	Core Tier 1 capital	46,173	46,190	41,586
	Preference shares	11,207	16,655	10,608
	Innovative Tier 1 securities	3,586	7,383	6,374
	Tax on the excess of expected losses over provisions	599	308	437
	Less deductions from Tier 1 capital	(678)	(689)	(510)

	Total Tier 1 capital	60,887	69,847	58,495

	Tier 2
	Reserves arising on revaluation of property and unrealised gains on available-for-sale equities	25	984	2,623
	Collective impairment allowances	744	666	326
	Perpetual subordinated debt	4,844	9,829	9,169
	Term subordinated debt	19,630	23,162	20,923
	Minority and other interests in Tier 2 capital	11	11	100
	Less deductions from Tier 2 capital	(4,176)	(2,429)	(2,806)

	Total Tier 2 capital	21,078	32,223	30,335

	Tier 3	232	260	215

	Supervisory deductions
	Unconsolidated investments	4,461	4,044	4,119
	Other deductions	75	111	38

	Total deductions other than from Tier 1 capital	4,536	4,155	4,157

	Total regulatory capital	77,661	98,175	84,888

18.	Analysis of contingent liabilities and commitments
		30 June 2009	31 December 2008	30 June 2008
		£m	£m	£m
	Contingent liabilities
	Guarantees and assets pledged as collateral security	41,587	49,262	45,579
	Other contingent liabilities	17,298	22,275	16,998

		58,885	71,537	62,577

	Commitments
	Undrawn formal standby facilities, credit lines and other commitments to lend	298,895	352,398	331,262
	Other commitments	6,317	9,326	6,907

		305,212	361,724	338,169

	Total contingent liabilities and commitments	364,097	433,261	400,746

	Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.

	Average	Period end	Maximum	Minimum
	£m	£m	£m	£m
Trading VaR (pro forma and statutory basis)

Interest rate	65.6	81.4	112.8	42.5
Credit spread	125.3	199.6	231.2	66.9
Currency	17.7	15.6	35.8	9.2
Equity	13.0	11.7	21.6	8.3
Commodity	12.7	11.5	21.4	6.5
Diversification effects		(129.2)

30 June 2009	143.3	190.6	229.0	76.8

Core (30 June 2009)	99.6	94.3	135.6	54.2
Non-Core (30 June 2009)	77.3	130.4	166.5	28.6

Statutory basis	Average £m	Period end £m	Maximum £m	Minimum £m

30 June 2009	91.3	100.4	112.5	69.3

31 December 2008	128.1	60.1	194.6	60.3

	30 June 2009
Statutory basis	£m

EUR	39.3
GBP	25.2
USD	83.8
Other	5.1

	Net assets of overseas operations	Minority Interests	Net investments in foreign operations	Net investment hedges	Structural foreign currency exposures
30 June 2009	£m	£m	£m	£m	£m

US dollar	15,551	(3)	15,554	(3,330)	12,224
Euro	18,282	13,619	4,663	(1,300)	3,363
Other non sterling	5,639	536	5,103	(3,585)	1,518

Total	39,472	14,152	25,320	(8,215)	17,105

31 December 2008

US dollar	17,480	(19)	17,499	(3,659)	13,840
Euro	26,943	15,431	11,512	(7,461)	4,051
Chinese RMB	3,928	1,898	2,030	(1,082)	948
Other non sterling	5,088	621	4,467	(3,096)	1,371

Total	53,439	17,931	35,508	(15,298)	20,210

24.	Date of approval
	This announcement was approved by the Board of directors on 6 August 2009.

25.	Filings with the US Securities and Exchange Commission (SEC)
	The Group's interim results will be filed with the SEC in a report on Form 6-K.

	First half 2009	First half 2008
Average yields, spreads and margins of the banking business	%	%

Gross yield on interest-earning assets of banking business	3.93	5.67
Cost of interest-bearing liabilities of banking business	(2.44)	(3.95)

Interest spread of banking business	1.49	1.72
Benefit from interest-free funds	0.25	0.26

Net interest margin of banking business	1.74	1.98

Risk asset ratio
Core Tier 1	7.0%	6.6%	6.5%
Tier 1	9.3%	10.0%	9.1%
Total	11.9%	14.1%	13.2%

Other information	30 June 2009	31 December 2008	30 June 2008

Ordinary share price	£0.3864	£0.494	£2.10*

Number of ordinary shares in issue	56,366m	39,456m	16,142m

Market capitalisation	£21.8bn	£19.5bn	£34.7bn

Net asset value per ordinary share	£0.85	£1.15	£3.27

Employee numbers in continuing operations
(full time equivalents rounded to the nearest hundred)
UK Retail	26,900	28,400	28,700
UK Corporate	12,700	13,200	13,200
Wealth	5,000	5,200	5,200
Global Banking & Markets	17,200	17,800	18,700
Global Transaction Services	3,600	3,900	3,400
Ulster Bank	5,200	5,400	5,800
US Retail & Commercial	15,100	16,200	16,600
RBS Insurance	14,600	14,700	15,300
Group Manufacturing	46,000	47,600	46,000
Central items	4,300	4,300	4,100

Core	150,600	156,700	157,000
Non-Core	15,000	17,300	19,500

	165,600	174,000	176,500
Integration	700	900	1,000
Share of shared assets	300	400	1,000
RFS minority interest	24,800	24,500	54,700

Group total	191,400	199,800	233,200


2009 third quarter interim management statement	11 November 2009

2009 annual results announcement	25 February 2010

2010 first quarter interim management statement	May 2010

2010 interim results announcement	August 2010