rbs201011056k3.htm
 
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549

 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
For November 5, 2010
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

 
(Address of principal executive offices)
 
 
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
 
Form 20-F X
  
Form 40-F ___
 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________


Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes
   ___
No X
 
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 
 
The following information was issued as a Company announcement in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 
 
 


Divisional performance

The operating profit/(loss) of each division before fair value of own debt, amortisation of purchased intangible assets, integration and restructuring costs, gain on redemption of own debt, strategic disposals, bonus tax, Asset Protection Scheme credit default swap – fair value changes and write-down of goodwill and other intangible assets is shown below.

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) before impairment
  losses by division
            
UK Retail
649 
576 
468 
  
1,752 
1,329 
UK Corporate
580 
588 
566 
  
1,672 
1,522 
Wealth
75 
88 
120 
  
229 
354 
Global Transaction Services
312 
282 
275 
  
827 
784 
Ulster Bank
110 
104 
59 
  
295 
208 
US Retail & Commercial
198 
273 
137 
  
654 
455 
             
Retail & Commercial
1,924 
1,911 
1,625 
  
5,429 
4,652 
Global Banking & Markets
549 
914 
913 
  
2,993 
5,503 
RBS Insurance
(33)
(203)
13 
  
(286)
236 
Central items
74 
49 
284 
  
461 
553 
             
Core divisions before fair value of own debt
2,514 
2,671 
2,835 
  
8,597 
10,944 
Non-Core
165 
66 
(598)
  
376 
(4,611)
             
Group operating profit before impairment
  losses and fair value of own debt
2,679 
2,737 
2,237 
  
8,973 
6,333 
             
Fair value of own debt
            
Global Banking & Markets
(598)
331 
(320)
  
(299)
(155)
Central items
(260)
288 
(163)
  
(109)
(257)
             
Group operating profit before
  impairment losses
1,821 
3,356 
1,754 
  
8,565 
5,921 
             
Impairment losses by division
            
UK Retail
251 
300 
404 
  
938 
1,228 
UK Corporate
158 
198 
187 
  
542 
737 
Wealth
1 
7 
1 
  
12 
23 
Global Transaction Services
3 
3 
22 
  
6 
35 
Ulster Bank
286 
281 
144 
  
785 
301 
US Retail & Commercial
125 
144 
180 
  
412 
549 
             
Retail & Commercial
824 
933 
938 
  
2,695 
2,873 
Global Banking & Markets
(40)
164 
272 
  
156 
510 
RBS Insurance
- 
- 
2 
  
- 
8 
Central items
(2)
- 
1 
  
(1)
(1)
             
Core
782 
1,097 
1,213 
  
2,850 
3,390 
Non-Core
1,171 
1,390 
2,066 
  
4,265 
7,410 
             
Group impairment losses
1,953 
2,487 
3,279 
  
7,115 
10,800 


 

RBS Group – Q3 2010 Results
 
 
 


Divisional performance (continued)

Key points
·
Operating profit before impairment losses, and fair value of own debt, was £2,679 million, down 2% compared with the second quarter of 2010. Pre-impairment profit improved in RBS Insurance on lower claims, which partially offset weaker performance in GBM. Retail & Commercial improved modestly, as did Non-Core.
·
Retail & Commercial pre-impairment operating profit improved by 17% to £5,429 million for the nine months ended 30 September 2010, but this was more than offset by weaker GBM and RBS Insurance performance given challenging environments. Non-Core improved significantly to a pre-impairment profit of £376 million.
·
For Q3 relative to Q2, Core impairments were down 29% to £782 million, with improvements in all divisions except Ulster Bank where credit losses remained at elevated levels.
·
For the nine months ended 30 September 2010, Non-Core reported substantially lower impairments, down 42%, with Core impairments down 16%. Group impairments fell 34% overall.

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) by division
            
UK Retail
398 
276 
64 
  
814 
101 
UK Corporate
422 
390 
379 
  
1,130 
785 
Wealth
74 
81 
119 
  
217 
331 
Global Transaction Services
309 
279 
253 
  
821 
749 
Ulster Bank
(176)
(177)
(85)
  
(490)
(93)
US Retail & Commercial
73 
129 
(43)
  
242 
(94)
             
Retail & Commercial
1,100 
978 
687 
  
2,734 
1,779 
Global Banking & Markets
589 
750 
641 
  
2,837 
4,993 
RBS Insurance
(33)
(203)
11 
  
(286)
228 
Central items
76 
49 
283 
  
462 
554 
             
Core
1,732 
1,574 
1,622 
  
5,747 
7,554 
Non-Core
(1,006)
(1,324)
(2,664)
  
(3,889)
(12,021)
             
Group operating profit/(loss) before
  fair value of own debt
726 
250 
(1,042)
  
1,858 
(4,467)
Fair value of own debt
(858)
619 
(483)
  
(408)
(412)
             
Group operating (loss)/profit
(132)
869 
(1,525)
  
1,450 
(4,879)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
% 
% 
% 
  
% 
% 
             
Net interest margin by division
            
UK Retail
4.02 
3.88 
3.47 
  
3.85 
3.54 
UK Corporate
2.58 
2.50 
2.38 
  
2.49 
2.14 
Wealth
3.44 
3.36 
4.34 
  
3.39 
4.54 
Global Transaction Services
6.72 
6.47 
9.63 
  
6.96 
9.03 
Ulster Bank
1.90 
1.92 
1.74 
  
1.86 
1.88 
US Retail & Commercial
2.92 
2.78 
2.37 
  
2.79 
2.34 
             
Retail & Commercial
3.23 
3.11 
2.91 
  
3.10 
2.84 
Global Banking & Markets
1.14 
1.01 
1.08 
  
1.08 
1.52 
Non-Core
1.05 
1.22 
0.55 
  
1.18 
0.54 
             
Group net interest margin
2.05 
2.03 
1.75 
  
2.00 
1.74 

Divisional performance (continued)

 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Risk-weighted assets by division
            
UK Retail
49.3 
49.1 
- 
  
51.3 
(4%)
UK Corporate
84.7 
87.6 
(3%)
  
90.2 
(6%)
Wealth
12.1 
12.0 
1% 
  
11.2 
8% 
Global Transaction Services
18.6 
19.4 
(4%)
  
19.1 
(3%)
Ulster Bank
32.6 
30.5 
7% 
  
29.9 
9% 
US Retail & Commercial
64.1 
65.5 
(2%)
  
59.7 
7% 
             
Retail & Commercial
261.4 
264.1 
(1%)
  
261.4 
- 
Global Banking & Markets
143.7 
141.3 
2% 
  
123.7 
16% 
Other
19.9 
16.9 
18% 
  
9.4 
112% 
             
Core
425.0 
422.3 
1% 
  
394.5 
8% 
Non-Core
166.9 
175.0 
(5%)
  
171.3 
(3%)
             
 
591.9 
597.3 
(1%)
  
565.8 
5% 
Benefit of Asset Protection Scheme
(116.9)
(123.4)
(5%)
  
(127.6)
(8%)
             
Total
475.0 
473.9 
- 
  
438.2 
8% 


Employee numbers in continuing operations
  (full time equivalents rounded to the nearest hundred)
30 September 
2010 
30 June 
2010 
31 December 
2009 
       
UK Retail
24,400 
24,000 
25,500 
UK Corporate
13,000 
12,600 
12,300 
Wealth
5,100 
5,000 
4,600 
Global Transaction Services
3,700 
3,600 
3,500 
Ulster Bank
4,500 
4,300 
4,500 
US Retail & Commercial
15,700 
15,700 
15,500 
Retail & Commercial
66,400 
65,200 
65,900 
Global Banking & Markets
19,500 
19,200 
17,900 
RBS Insurance
14,400 
14,500 
13,900 
Group Centre
4,600 
4,700 
4,200 
       
Core
104,900 
103,600 
101,900 
Non-Core
10,000 
11,300 
15,100 
       
 
114,900 
114,900 
117,000 
Business Services
41,300 
41,800 
43,100 
Integration
300 
300 
500 
RFS Holdings minority interest
- 
- 
300 
       
Group total
156,500 
157,000 
160,900 


 

RBS Group – Q3 2010 Results
 
 
 


UK Retail

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
1,056 
1,001 
848 
  
2,990 
2,513 
             
Net fees and commissions
262 
263 
303 
  
784 
961 
Other non-interest income (net of insurance
  claims)
64 
56 
69 
  
176 
191 
             
Non-interest income
326 
319 
372 
  
960 
1,152 
             
Total income
1,382 
1,320 
1,220 
  
3,950 
3,665 
             
Direct expenses
            
- staff
(197)
(203)
(206)
  
(598)
(634)
- other
(134)
(140)
(129)
  
(406)
(407)
Indirect expenses
(402)
(401)
(417)
  
(1,194)
(1,295)
             
 
(733)
(744)
(752)
  
(2,198)
(2,336)
             
Operating profit before impairment losses
649 
576 
468 
  
1,752 
1,329 
Impairment losses
(251)
(300)
(404)
  
(938)
(1,228)
             
Operating profit
398 
276 
64 
  
814 
101 
             
             
Analysis of income by product
            
Personal advances
248 
236 
303 
  
718 
919 
Personal deposits
277 
277 
319 
  
831 
1,070 
Mortgages
527 
478 
319 
  
1,427 
799 
Bancassurance
60 
58 
69 
  
177 
190 
Cards
243 
239 
225 
  
711 
641 
Other
27 
32 
(15)
  
86 
46 
             
Total income
1,382 
1,320 
1,220 
  
3,950 
3,665 
             
             
Analysis of impairments by sector
            
Mortgages
55 
44 
26 
  
147 
89 
Personal
150 
168 
247 
  
551 
741 
Cards
46 
88 
131 
  
240 
398 
             
Total impairment losses
251 
300 
404 
  
938 
1,228 
             
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Mortgages
0.2% 
0.2% 
0.1% 
  
0.2% 
0.1% 
Personal
4.8% 
5.3% 
6.8% 
  
5.9% 
6.8% 
Cards
3.0% 
5.9% 
8.6% 
  
5.2% 
8.7% 
             
 
0.9% 
1.1% 
1.6% 
  
1.2% 
1.6% 


 

RBS Group – Q3 2010 Results
 
 
 


UK Retail (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Return on equity (1)
23.2% 
16.1% 
3.8% 
  
15.8% 
2.0% 
Net interest margin
4.02% 
3.88% 
3.47% 
  
3.85% 
3.54% 
Cost:income ratio
51% 
57% 
57% 
  
55% 
62% 
Adjusted cost:income ratio (2)
53% 
56% 
62% 
  
56% 
64% 


 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
- mortgages
89.1 
86.9 
3% 
  
83.2 
7% 
- personal
12.4 
12.8 
(3%)
  
13.6 
(9%)
- cards
6.1 
6.0 
2% 
  
6.2 
(2%)
Customer deposits (excluding
  bancassurance)
91.4 
90.0 
2% 
  
87.2 
5% 
Assets under management (excluding
  deposits)
5.4 
5.4 
- 
  
5.3 
2% 
Risk elements in lending
5.0 
4.8 
4% 
  
4.6 
9% 
Loan:deposit ratio (excluding repos)
115% 
114% 
100bp 
  
115% 
- 
Risk-weighted assets
49.3 
49.1 
- 
  
51.3 
(4%)

Notes:
(1)
Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).
(2)
Adjusted cost:income ratio is based on total income after netting insurance claims, and operating expenses.

Key points

Q3 2010 compared with Q2 2010
·
UK Retail delivered a strong operating performance in Q3 2010, with income up, costs down and impairments continuing to improve. Operating profit was up 44% from the previous quarter at £398 million.
   
·
The NatWest and RBS Customer Charters aim to deliver those elements that customers have said are most important to them, and has been well received by both customers and staff. The division is reaping continuing benefits from investment in process improvements and automation resulting in gains in both service quality and cost efficiency.

 

RBS Group – Q3 2010 Results
 
 
 


UK Retail (continued)

Key points (continued)

Q3 2010 compared with Q2 2010 (continued)
·
UK Retail continues to achieve growth in secured lending, while building customer deposits.
o  Mortgage balances increased 3% on Q2 2010, with strong retention rates among existing customers and gross new lending up 4% on Q2 2010. Market share of new mortgage lending remained at 12% in the
        quarter, still well above the Group’s 7% share of stock.  While the Group offers a broad range of products across a variety of Loan-to-value (LTV) bandings, the average LTV of new business decreased
        from 69% in Q2 2010 to 64% in Q3 2010.
o  Unsecured lending fell 2% in the quarter, in line with current risk appetite and the Group’s continued focus on lower risk secured lending.
o  Deposits grew by £1.4 billion or 2% in Q3 2010 despite a still challenging market place.
o  The loan to deposit ratio at 30 September 2010 was 115%, broadly in line with the prior quarter.
   
·
Net interest income increased by 5%, with net interest margin continuing to recover from the low levels recorded in 2009 to 4.02% in the quarter. Asset margins continued to widen, mainly reflecting the increasing proportion of customers on standard variable rate mortgages. Liability margins, however, fell further compared with Q2 2010, with strong competition in fixed term bonds and bonus savings accounts, compounded by a continuing reduction in yield on current account hedges.
   
·
Non-interest income increased by 2%, with a modest improvement across the majority of products despite the still-challenging economic climate.
   
·
Expenses declined by 1% in the quarter, with continuing benefit of process re-engineering and technology investment. Headcount in Q3 2010 increased 2% partly as a result of extensions to opening hours, in line with the Customer Charters. The adjusted cost:income ratio improved by 300 basis points to 53%.
   
·
Impairment losses declined by 16% in Q3 2010. Impairments are expected to continue gradually improving, subject to economic conditions remaining stable.
            o  Mortgage impairment losses were £55 million on a total book of £89 billion. The quarter-on-quarter increase of £11 million broadly relates to more conservative assumptions on recoveries.
            o  The unsecured portfolio charge fell 23% to £196 million, on a book of £19 billion, with lower default volumes and improved collections performance.
   
·
Risk-weighted assets increased marginally in the quarter with growth in mortgage loans and a retiring credit cards securitisation largely offset by lower unsecured lending balances and improving portfolio credit metrics.

 

RBS Group – Q3 2010 Results
 
 
 



UK Retail (continued)

Key points (continued)

Q3 2010 compared with Q3 2009
·
Operating profit increased by £334 million, with income up 13%, costs down 3% and impairments 38% lower than in Q3 2009.  Return on equity in the first nine months of 2010 was 15.8%, compared with 2.0% in the same period of 2009.
   
·
Net interest income was 25% higher than Q3 2009, with strong mortgage and deposit balance growth and recovering asset margins across all products, which together more than offset the decline in liability margins.
   
·
Non-interest income decreased 12% on prior year, principally reflecting the change to the structure of overdraft charges, which took effect from Q4 2009.
   
·
Deposit balances were up 7% on Q3 2009.  Savings balances grew by 9%, outperforming the market total deposit growth of 2.4%, which remains intensely competitive. Personal current account balances were up 2% in the same period.
   
·
Mortgage balances at 30 September 2010 were up 11%.  UK Retail considers mortgages to be a core customer product requirement and continues to support lending for both new and existing customers.
   
·
Costs were 3% lower than in Q3 2009, driven by process re-engineering efficiencies within the branch network and operational centres.  The adjusted cost:income ratio improved from 62% to 53%.
   
·
Impairment losses dropped by 38% on Q3 2009 primarily reflecting lower arrears volumes on the unsecured portfolio.




 

RBS Group – Q3 2010 Results
 
 
 


UK Corporate

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
662 
647 
607 
  
1,919 
1,666 
             
Net fees and commissions
244 
233 
223 
  
701 
636 
Other non-interest income
80 
107 
106 
  
292 
332 
             
Non-interest income
324 
340 
329 
  
993 
968 
             
Total income
986 
987 
936 
  
2,912 
2,634 
             
Direct expenses
            
- staff
(186)
(189)
(174)
  
(580)
(541)
- other
(81)
(82)
(71)
  
(266)
(191)
Indirect expenses
(139)
(128)
(125)
  
(394)
(380)
             
 
(406)
(399)
(370)
  
(1,240)
(1,112)
             
Operating profit before impairment losses
580 
588 
566 
  
1,672 
1,522 
Impairment losses
(158)
(198)
(187)
  
(542)
(737)
             
Operating profit
422 
390 
379 
  
1,130 
785 
             
             
Analysis of income by business
            
Corporate and commercial lending
651 
660 
546 
  
1,941 
1,542 
Asset and invoice finance
163 
154 
129 
  
451 
361 
Corporate deposits
183 
185 
241 
  
544 
795 
Other
(11)
(12)
20 
  
(24)
(64)
             
Total income
986 
987 
936 
  
2,912 
2,634 
             
             
Analysis of impairments by sector
            
Banks and financial institutions
15 
(9)
4 
  
8 
9 
Hotels and restaurants
6 
12 
7 
  
34 
58 
Housebuilding and construction
62 
8 
58 
  
84 
119 
Manufacturing
2 
2 
2 
  
10 
23 
Other
19 
83 
31 
  
139 
138 
Private sector education, health, social work,
  recreational and community services
1 
- 
(4)
  
9 
36 
Property
34 
61 
69 
  
161 
229 
Wholesale and retail trade, repairs
14 
28 
16 
  
60 
53 
Asset and invoice finance
5 
13 
4 
  
37 
72 
             
Total impairment losses
158 
198 
187 
  
542 
737 


 

RBS Group – Q3 2010 Results
 
 
 


UK Corporate (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Banks and financial institutions
1.0% 
(0.6%)
0.3% 
  
0.2% 
0.2% 
Hotels and restaurants
0.3% 
0.7% 
0.4% 
  
0.7% 
1.1% 
Housebuilding and construction
5.5% 
0.7% 
5.0% 
  
2.5% 
3.4% 
Manufacturing
0.2% 
0.1% 
0.1% 
  
0.3% 
0.5% 
Other
0.2% 
1.0% 
0.4% 
  
0.6% 
0.6% 
Private sector education, health, social work,
  recreational and community services
- 
- 
(0.2%)
  
0.1% 
0.7% 
Property
0.5% 
0.8% 
0.8% 
  
0.7% 
0.9% 
Wholesale and retail trade, repairs
0.5% 
1.1% 
0.6% 
  
0.8% 
0.7% 
Asset and invoice finance
0.2% 
0.6% 
0.2% 
  
0.5% 
1.1% 
             
 
0.6% 
0.7% 
0.7% 
  
0.6% 
0.9% 

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Return on equity (1)
16.0% 
14.3% 
13.5% 
  
14.3% 
9.3% 
Net interest margin
2.58% 
2.50% 
2.38% 
  
2.49% 
2.14% 
Cost:income ratio
41% 
40% 
40% 
  
43% 
42% 

 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
116.6 
118.4 
(2%)
  
114.9 
1% 
Loans and advances to customers (gross)
            
- banks and financial institutions
6.0 
6.5 
(8%)
  
6.3 
(5%)
- hotels and restaurants
6.9 
7.0 
(1%)
  
6.7 
3% 
- housebuilding and construction
4.5 
4.6 
(2%)
  
4.3 
5% 
- manufacturing
5.3 
5.5 
(4%)
  
5.9 
(10%)
- other
31.9 
32.6 
(2%)
  
29.9 
7% 
- private sector education, health, social
  work, recreational and community services
9.0 
9.1 
(1%)
  
6.5 
38% 
- property
30.0 
30.3 
(1%)
  
33.0 
(9%)
- wholesale and retail trade, repairs
10.2 
10.4 
(2%)
  
10.2 
- 
- asset and invoice finance
9.7 
9.2 
5% 
  
8.8 
10% 
Customer deposits
98.1 
95.4 
3% 
  
87.8 
12% 
Risk elements in lending
3.3 
2.9 
14% 
  
2.3 
43% 
Loan:deposit ratio (excluding repos)
114% 
119% 
(500bp)
  
126% 
(1,200bp)
Risk-weighted assets
84.7 
87.6 
(3%)
  
90.2 
(6%)

Note:
(1)
Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).


 

RBS Group – Q3 2010 Results
 
 
 


UK Corporate (continued)

Key points

Q3 2010 compared with Q2 2010
·
Operating profit increased by 8% to £422 million, driven by improved credit performance.
   
·
Net interest income rose by 2%. Deposit balances grew by £2.7 billion with new product launches and other deposit-gathering initiatives continuing to deliver in an intensely competitive market. Loans and advances to customers were marginally down from the previous quarter, with above-target levels of gross new lending offset by customer deleveraging. Net interest margin increased by 8 basis points, driven by a recovery in asset margins from the depressed levels recorded in 2008 and 2009, whilst deposit margins remain under pressure.
   
·
Non-interest income declined 5%, with reduced sales of financial market products.
   
·
Total costs rose 2%, driven by investment in strategic initiatives.
   
·
Impairments were £40 million lower; reflecting an improved flow into collectively assessed balances.
   
·
Risk-weighted assets decreased by 3% reflecting lower nominal assets and improved risk metrics.

Q3 2010 compared with Q3 2009
·
Operating profit was up £43 million or 11%, reflecting good income growth and lower impairments partially offset by higher costs.
   
·
Net interest income increased by 9%, reflecting good growth in deposit volumes, together with a recovery in asset margins. Deposit balances grew by £11.4 billion compared with 30 September 2009 and the loan:deposit ratio improved to 114%, compared with 130% a year earlier.  Net interest margin improved by 20 basis points, reflecting the progressive repricing of the loan portfolio and a better funding cost environment than in Q3 2009.
   
·
Non-interest income was 2% (£5 million) lower, the result of reduced sales of financial market products and services.
   
·
Total expenses increased by 10%, driven primarily by investment in strategic initiatives.
   
·
Impairments were £29 million lower compared with Q3 2009, which included a charge for potential losses in the portfolio not yet specifically identified and lower specific provisions.
   
·
Whilst loans and advances stayed broadly in line, risk-weighted assets decreased by £6.3 billion, or 7% primarily reflecting improvements in risk metrics.


 

RBS Group – Q3 2010 Results
 
 
 


Wealth

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
156 
150 
168 
  
449 
502 
             
Net fees and commissions
90 
97 
92 
  
282 
272 
Other non-interest income
18 
19 
19 
  
54 
61 
             
Non-interest income
108 
116 
111 
  
336 
333 
             
Total income
264 
266 
279 
  
785 
835 
             
Direct expenses
            
- staff
(95)
(92)
(82)
  
(286)
(250)
- other
(39)
(39)
(41)
  
(113)
(119)
Indirect expenses
(55)
(47)
(36)
  
(157)
(112)
             
 
(189)
(178)
(159)
  
(556)
(481)
             
Operating profit before impairment losses
75 
88 
120 
  
229 
354 
Impairment losses
(1)
(7)
(1)
  
(12)
(23)
             
Operating profit
74 
81 
119 
  
217 
331 
             
             
Analysis of income
            
Private banking
217 
216 
232 
  
637 
693 
Investments
47 
50 
47 
  
148 
142 
             
Total income
264 
266 
279 
  
785 
835 

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Net interest margin
3.44% 
3.36% 
4.34% 
  
3.39% 
4.54% 
Cost:income ratio
72% 
67% 
57% 
  
71% 
58% 


 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
- mortgages
7.5 
6.9 
9% 
  
6.5 
15% 
- personal
6.5 
6.4 
2% 
  
4.9 
33% 
- other
1.5 
1.6 
(6%)
  
2.3 
(35%)
Customer deposits
34.8 
36.2 
(4%)
  
35.7 
(3%)
Assets under management (excluding
  deposits)
31.1 
30.2 
3% 
  
30.7 
1% 
Risk elements in lending
0.2 
0.2 
- 
  
0.2 
- 
Loan:deposit ratio (excluding repos)
44% 
41% 
300bp 
  
38% 
600bp 
Risk-weighted assets
12.1 
12.0 
1% 
  
11.2 
8% 




Wealth (continued)

Key points

Q3 2010 compared with Q2 2010
·
Operating profit fell 9% to £74 million in the third quarter, with weaker investment fee income and higher business investment costs only partially mitigated by a fall in impairment losses.
   
·
Total income fell 1% in the quarter. Lower average assets under management and reduced levels of trading fees led to a 7% fall in non-interest income. This was offset by a 4% increase in net interest income.
   
·
Loans and advances continued to grow strongly, increasing 4% in the quarter, primarily driven by mortgage lending which rose by £0.6 billion. Credit metrics remain satisfactory and were comparable with previous quarters.
   
·
Net interest margin improved 8 basis points reflecting strong lending performance. However the competitive nature of pricing within the deposit market continues, leading to a 4% reduction in balances.
   
·
Assets under management grew 3% in positive market conditions, reversing the falls seen in Q2 2010. The international businesses continue to feel the impact of client losses following the departures of a number of senior private bankers earlier in the year.
   
·
Total expenses increased 6% primarily driven by investment in strategic initiatives, combined with continued front office staff investment and temporary resource to support the implementation of the new banking platform.

Q3 2010 compared with Q3 2009
·
Operating profit fell 38% with lower income and an increase in expenses.
   
·
Income declined by 5% primarily due to lower net interest income which fell £12 million, 7%.
   
·
Lending continued to be made available to meet client demand, with balances increasing 16% over Q3 2009. Mortgage balances in particular saw strong growth, increasing 23%.
   
·
Client deposits decreased 4% through the impact of client losses in the International businesses. Pricing competition to retain and attract balances put pressure on net interest margin which narrowed by 90 basis points.
   
·
Assets under management fell 2% (5% at constant exchange rates) due to client attrition in the International businesses.
   
·
Total expenses rose 19%, in part reflecting additional headcount in expanding the UK and International franchises.





 

RBS Group – Q3 2010 Results
 
 
 


Global Transaction Services

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
257 
237 
234 
  
711 
679 
Non-interest income
411 
411 
388 
  
1,212 
1,171 
             
Total income
668 
648 
622 
  
1,923 
1,850 
             
Direct expenses
            
- staff
(100)
(102)
(87)
  
(306)
(269)
- other
(38)
(37)
(37)
  
(108)
(110)
Indirect expenses
(218)
(227)
(223)
  
(682)
(687)
             
 
(356)
(366)
(347)
  
(1,096)
(1,066)
             
Operating profit before impairment losses
312 
282 
275 
  
827 
784 
Impairment losses
(3)
(3)
(22)
  
(6)
(35)
             
Operating profit
309 
279 
253 
  
821 
749 
             
             
Analysis of income by product
            
Domestic cash management
216 
201 
202 
  
611 
608 
International cash management
200 
193 
183 
  
578 
531 
Trade finance
81 
76 
71 
  
228 
223 
Merchant acquiring
123 
133 
127 
  
371 
377 
Commercial cards
48 
45 
39 
  
135 
111 
             
Total income
668 
648 
622 
  
1,923 
1,850 


Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Net interest margin
6.72% 
6.47% 
9.63% 
  
6.96% 
9.03% 
Cost:income ratio
53% 
56% 
56% 
  
57% 
58% 


 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
24.2 
25.7 
(6%)
  
18.4 
32% 
Loans and advances
14.4 
15.6 
(8%)
  
12.7 
13% 
Customer deposits
65.4 
62.7 
4% 
  
61.8 
6% 
Risk elements in lending
0.2 
0.2 
- 
  
0.2 
- 
Loan:deposit ratio (excluding repos)
22% 
25% 
(300bps)
  
21% 
100bps 
Risk-weighted assets
18.6 
19.4 
(4%)
  
19.1 
(3%)


 

RBS Group – Q3 2010 Results
 
 
 


Global Transaction Services (continued)

Key points

Q3 2010 compared with Q2 2010
·
Operating profit increased 11%, driven by increased deposit volumes and lower expenses.
   
·
Income increased 3%, or 4% at constant foreign exchange rates, reflecting increased earnings on the division’s deposit surplus and improving commercial card transaction volumes, partially offset by seasonality impacts in Merchant Acquiring.
   
·
Expenses fell by 3%, or 1% on a constant foreign exchange basis, mainly reflecting lower operations costs in indirect expenses.
   
·
Customer deposits increased by 4% to £65.4 billion, driven by growth in both non-interest- bearing balances in the Domestic business and interest-bearing balances in the International cash management business. The loan to deposit ratio improved by 300 basis points to 22% from 25% in the previous quarter.
   
·
The sale of the Global Merchant Services business is on track for completion during the fourth quarter. In Q3 2010, Global Merchant Services reported income of £128 million and expenses of £76 million, generating an operating profit of £52 million.

Q3 2010 compared with Q3 2009
·
Operating profit increased 22%, or 18% at constant foreign exchange rates, with income up 7% and expenses up 3%.
   
·
Income rose to £668 million, reflecting higher domestic and international average deposit balances, increased foreign exchange transaction fees and improving commercial card transaction volumes.
   
·
Expenses rose 3%, largely reflecting continued investment in front office and support infrastructure.
   
·
Third party assets increased by £3 billion as yen clearing activities were brought in-house.
   
·
Customer deposit balances increased by 12% with growth in the international and UK domestic cash management businesses. Net interest margin declined by 291 basis points largely driven by the impact of new yen clearing activities and associated low interest cash balances, as well as deposit and trade finance margin compression. The loan to deposit ratio improved by 300 basis points and the funding surplus increased by £6.9 billion.


 

RBS Group – Q3 2010 Results
 
 
 


Ulster Bank

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
192 
194 
176 
  
574 
586 
             
Net fees and commissions
38 
43 
45 
  
116 
130 
Other non-interest income
14 
10 
10 
  
42 
33 
             
Non-interest income
52 
53 
55 
  
158 
163 
             
Total income
244 
247 
231 
  
732 
749 
             
Direct expenses
            
- staff
(54)
(60)
(79)
  
(180)
(249)
- other
(18)
(20)
(22)
  
(57)
(73)
Indirect expenses
(62)
(63)
(71)
  
(200)
(219)
             
 
(134)
(143)
(172)
  
(437)
(541)
             
Operating profit before impairment losses
110 
104 
59 
  
295 
208 
Impairment losses
(286)
(281)
(144)
  
(785)
(301)
             
Operating loss
(176)
(177)
(85)
  
(490)
(93)
             
             
Analysis of income by business
            
Corporate
120 
134 
134 
  
399 
434 
Retail
124 
105 
104 
  
341 
298 
Other
- 
8 
(7)
  
(8)
17 
             
Total income
244 
247 
231 
  
732 
749 
             
             
Analysis of impairments by sector
            
Mortgages
69 
33 
30 
  
135 
54 
Corporate
            
- property
107 
117 
(2)
  
306 
73 
- other corporate
100 
118 
89 
  
309 
120 
Other lending
10 
13 
27 
  
35 
54 
             
Total impairment losses
286 
281 
144 
  
785 
301 
             
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Mortgages
1.3% 
0.9% 
0.7% 
  
0.8% 
0.4% 
Corporate
            
- property
8.1% 
4.9% 
(0.1%)
  
7.7% 
1.0% 
- other corporate
4.3% 
4.8% 
3.0% 
  
4.4% 
1.3% 
Other lending
2.4% 
2.7% 
5.4% 
  
2.7% 
3.6% 
             
 
3.0% 
3.1% 
1.4% 
  
2.8% 
1.0% 


 

RBS Group – Q3 2010 Results
 
 
 


Ulster Bank (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Return on equity (1)
(20.9%)
(21.7%)
(11.3%)
  
(19.4%)
(4.1%)
Net interest margin
1.90% 
1.92% 
1.74% 
  
1.86% 
1.88% 
Cost:income ratio
55% 
58% 
74% 
  
60% 
72% 

 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
- mortgages
21.4 
14.9 
44%
  
16.2 
32%
- corporate
            
   - property
5.3 
9.5 
(44%)
  
10.1 
(48%)
   - other corporate
9.4 
9.9 
(5%)
  
11.0 
(15%)
- other lending
1.7 
1.9 
(11%)
  
2.4 
(29%)
Customer deposits
23.4 
22.7 
3% 
  
21.9 
7% 
Risk elements in lending
            
- mortgages
1.4 
0.7 
100% 
  
0.6 
133% 
- corporate
            
   - property
0.6 
1.3 
(54%)
  
0.7 
(14%)
   - other corporate
1.0 
1.3 
(23%)
  
0.8 
25%
- other lending
0.2 
0.2 
- 
  
0.2 
- 
Loan:deposit ratio (excluding repos)
156% 
154% 
200bp 
  
177% 
(2,100bp)
Risk-weighted assets
32.6 
30.5 
7% 
  
29.9 
9% 

Note:
(1)
Return on equity is based on divisional operating profit/(loss) after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).

Key points

Q3 2010 compared with Q2 2010
·
Operating loss for the quarter of £176 million was in line with the previous quarter. Operating profit before impairment losses increased by 4% in constant currency terms reflecting improved performance in the quarter on both income and expenses.
   
·
As part of its strategic plan update, the bank has taken the decision to cease early stage development property lending. Accordingly on 1 July 2010 the division transferred a portfolio of development property assets to the Non-Core division. In addition, reflecting its continued commitment to the retail mortgage sector, a portfolio of retail mortgage assets to be managed as part of the core business was transferred back.
   
·
Net interest income rose 2% in the quarter on a constant currency basis, with higher asset and liability balances but reduced net interest margin, reflecting an increased level of liquid assets held.
   
·
Total expenses decreased by 1% on a constant currency basis, driven by the continuing impact on direct costs (down 5% at constant exchange rates) of savings initiated through its restructuring programme and ongoing operational efficiencies.

 

RBS Group – Q3 2010 Results
 
 
 


Ulster Bank (continued)

Key points (continued)

Q3 2010 compared with Q2 2010 (continued)
·
Customer deposit balances remained broadly flat in constant currency terms during the period.
   
·
Impairment losses remain severe, reflecting the continuing deterioration in credit metrics across the Irish economy. Asset default levels and loss rates in both the retail and corporate portfolios continue to remain elevated which is expected to continue into Q4 before beginning to stabilise.
   
·
In September, Ulster Bank launched its Helpful Banking programme which outlines a set of commitments to personal and business customers and clearly articulates how the bank intends to deliver on what matters most to them. Private Banking in the Republic of Ireland was also launched in September, delivering an island-wide proposition to meet the day-to-day banking needs of high net worth customers.

Q3 2010 compared with Q3 2009
·
Operating loss increased significantly compared with Q3 2009 as a result of higher impairment losses, partially mitigated by strong management action to improve income generation and to reduce costs.
   
·
Net interest income increased by 15% in constant currency terms, with improved asset pricing more than offsetting a decrease in liability margins.
   
·
Loans to customers decreased by 3% over the period on a constant currency basis, while deposit balances increased by 16%, reflecting the business’s focus on growing the customer deposit base.
   
·
Non-interest income declined by 4% in constant currency terms, largely reflecting changes to the structure of overdraft charges which took effect from Q4 2009.
   
·
The focus on the management of the cost base across the business coupled with the impact of the Group-wide restructuring programme has resulted in a reduction in total expenses of 18% from the prior year on a constant currency basis.
   
·
Impairment losses increased sharply reflecting the deterioration in the economic environment in the Republic of Ireland.


 

RBS Group – Q3 2010 Results
 
 
 


US Retail & Commercial (£ Sterling)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
480 
502 
410 
  
1,450 
1,352 
             
Net fees and commissions
180 
203 
159 
  
560 
566 
Other non-interest income
91 
72 
65 
  
238 
162 
             
Non-interest income
271 
275 
224 
  
798 
728 
             
Total income
751 
777 
634 
  
2,248 
2,080 
             
Direct expenses
            
- staff
(214)
(151)
(174)
  
(580)
(576)
- other
(148)
(163)
(132)
  
(445)
(463)
Indirect expenses
(191)
(190)
(191)
  
(569)
(586)
             
 
(553)
(504)
(497)
  
(1,594)
(1,625)
             
Operating profit before impairment losses
198 
273 
137 
  
654 
455 
Impairment losses
(125)
(144)
(180)
  
(412)
(549)
             
Operating profit/(loss)
73 
129 
(43)
  
242 
(94)
             
             
Average exchange rate – US$/£
1.551 
1.492 
1.640 
  
1.534 
1.543 
             
Analysis of income by product
            
Mortgages and home equity
142 
124 
112 
  
381 
384 
Personal lending and cards
127 
122 
116 
  
363 
336 
Retail deposits
223 
248 
200 
  
697 
633 
Commercial lending
145 
152 
127 
  
439 
408 
Commercial deposits
78 
86 
97 
  
245 
290 
Other
36 
45 
(18)
  
123 
29 
             
Total income
751 
777 
634 
  
2,248 
2,080 
             
Analysis of impairments by sector
            
Residential mortgages
14 
22 
29 
  
55 
64 
Home equity
56 
38 
82 
  
100 
154 
Corporate and commercial
23 
76 
65 
  
148 
234 
Other consumer
28 
7 
4 
  
91 
97 
Securities impairment losses
4 
1 
- 
  
18 
- 
             
Total impairment losses
125 
144 
180 
  
412 
549 
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Residential mortgages
0.9% 
1.3% 
1.7% 
  
1.2% 
1.2% 
Home equity
1.5% 
0.9% 
2.1% 
  
0.9% 
1.3% 
Corporate and commercial
0.5% 
1.5% 
1.3% 
  
1.0% 
1.5% 
Other consumer
1.6% 
0.3% 
0.2% 
  
1.8% 
1.6% 
             
 
1.0% 
1.1% 
1.4% 
  
1.1% 
1.4% 



 

RBS Group – Q3 2010 Results
 
 
 


US Retail & Commercial (£ Sterling) (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Performance ratios
            
Return on equity (1)
3.7% 
6.4% 
(2.2%)
  
4.1% 
(1.6%)
Net interest margin
2.92% 
2.78% 
2.37% 
  
2.79% 
2.34% 
Cost:income ratio
74% 
65% 
78% 
  
71% 
 78% 


 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
72.4 
78.2 
(7%)
  
75.4 
(4%)
Loans and advances to customers (gross)
            
- residential mortgages
6.2 
6.6 
(6%)
  
6.5 
(5%)
- home equity
15.3 
16.3 
(6%)
  
15.4 
(1%)
- corporate and commercial
19.8 
20.7 
(4%)
  
19.5 
2% 
- other consumer
6.8 
8.0 
(15%)
  
7.5 
(9%)
Customer deposits (excluding repos)
60.5 
62.3 
(3%)
  
60.1 
1% 
Risk elements in lending
            
- retail
0.4 
0.4 
- 
  
0.4 
- 
- commercial
0.4 
0.5 
(20%)
  
0.2 
100% 
Loan:deposit ratio (excluding repos)
78% 
81% 
(300bp)
  
80% 
(200bp)
Risk-weighted assets
64.1 
65.5 
(2%)
  
59.7 
7% 
             
Spot exchange rate – US$/£
1.570 
1.498 
    
1.622 
  

Note:
(1)
Return on equity is based on divisional operating profit/(loss) after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).


Key points
·
Sterling strengthened relative to the US dollar during the third quarter, with the average exchange rate increasing by 4% compared with Q2 2010.
   
·
Performance is described in full in the US dollar-based financial statements set out on pages 40 and 41.


 

RBS Group – Q3 2010 Results
 
 
 


US Retail & Commercial (US Dollar)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
$m 
$m 
$m 
  
$m 
$m 
             
Income statement
            
Net interest income
745 
748 
680 
  
2,223 
2,087 
             
Net fees and commissions
280 
303 
266 
  
859 
874 
Other non-interest income
139 
110 
104 
  
365 
248 
             
Non-interest income
419 
413 
370 
  
1,224 
1,122 
             
Total income
1,164 
1,161 
1,050 
  
3,447 
3,209 
             
Direct expenses
            
- staff
(332)
(223)
(289)
  
(890)
(889)
- other
(230)
(246)
(219)
  
(683)
(714)
Indirect expenses
(296)
(283)
(313)
  
(872)
(902)
             
 
(858)
(752)
(821)
  
(2,445)
(2,505)
             
Operating profit before impairment losses
306 
409 
229 
  
1,002 
704 
Impairment losses
(193)
(214)
(296)
  
(631)
(847)
             
Operating profit/(loss)
113 
195 
(67)
  
371 
(143)
             
             
Analysis of income by product
            
Mortgages and home equity
220 
185 
186 
  
585 
593 
Personal lending and cards
196 
182 
190 
  
556 
518 
Retail deposits
345 
372 
329 
  
1,068 
976 
Commercial lending
225 
226 
210 
  
673 
629 
Commercial deposits
122 
128 
160 
  
376 
448 
Other
56 
68 
(25)
  
189 
45 
             
Total income
1,164 
1,161 
1,050 
  
3,447 
3,209 
             
Analysis of impairments by sector
            
Residential mortgages
22 
33 
47 
  
85 
99 
Home equity
88 
56 
131 
  
154 
238 
Corporate and commercial
35 
113 
107 
  
225 
360 
Other consumer
42 
10 
11 
  
139 
150 
Securities impairment losses
6 
2 
- 
  
28 
- 
             
Total impairment losses
193 
214 
296 
  
631
847 
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Residential mortgages
0.9% 
1.3% 
1.7% 
  
1.2% 
1.2% 
Home equity
1.5% 
0.9% 
2.0% 
  
0.9% 
1.2% 
Corporate and commercial
0.5% 
1.5% 
1.3% 
  
1.0% 
1.5% 
Other consumer
1.6% 
0.3% 
0.3% 
  
1.7% 
1.6% 
             
 
1.0% 
1.1% 
1.5% 
  
1.1% 
1.4% 


 

RBS Group – Q3 2010 Results
 
 
 


US Retail & Commercial (US Dollar) (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Performance ratios
            
Return on equity (1)
3.6% 
6.5% 
(2.2%)
  
4.0% 
(1.5%)
Net interest margin
2.92% 
2.78% 
2.37% 
  
2.79% 
2.34% 
Cost:income ratio
74% 
65% 
78% 
  
71% 
78% 

 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
$bn 
$bn 
Change 
  
$bn 
Change 
             
Capital and balance sheet
            
Total third party assets
113.7 
117.2 
(3%)
  
122.3 
(7%)
Loans and advances to customers (gross)
            
- residential mortgages
9.7 
9.9 
(2%)
  
10.6 
(8%)
- home equity
24.0 
24.4 
(2%)
  
25.0 
(4%)
- corporate and commercial
31.1 
30.9 
1% 
  
31.6 
(2%)
- other consumer
10.7 
12.0 
(11%)
  
12.1 
(12%)
Customer deposits (excluding repos)
95.1 
93.3 
2% 
  
97.4 
(2%)
Risk elements in lending
            
- retail
0.7 
0.6 
17% 
  
0.6 
17% 
- commercial
0.6 
0.7 
(14%)
  
0.4 
50% 
Loan:deposit ratio (excluding repos)
78% 
81% 
(300bp)
  
80% 
(200bp)
Risk-weighted assets
100.7 
98.1 
3% 
  
96.9 
4% 

Note:
(1)
Return on equity is based on divisional operating profit/(loss) after tax, divided by divisional notional equity (based on 8% of divisional risk-weighted assets, adjusted for capital deductions).

Key points

Q3 2010 compared with Q2 2010
·
US Retail & Commercial delivered a profit for the third consecutive quarter, posting an operating profit of $113 million. Excluding a $113 million credit related to changes to the defined benefit pension plan in Q2 2010, operating profit was up 38% from the previous quarter. Economic conditions in core regions remain subdued, with lingering high unemployment, a soft housing market and reduced consumer activity.
   
·
Net interest income was in line with the previous quarter. Loans and advances declined 2% principally due to the sale of a student loan portfolio ($1.1 billion) and reduced housing related loans. Customer deposits, however, increased 2% overall, with demand deposit account balances up 9%.
   
·
Net interest margin increased by 14 basis points to 2.92%, with a continued trend of balance migration from lower margin term and time accounts to higher margin checking accounts, as well as a positive impact from a balance sheet restructuring carried out during the quarter.
   
·
The loan to deposit ratio continued to trend lower, dropping by 300 basis points to 78% during the quarter.

 

RBS Group – Q3 2010 Results
 
 
 


US Retail & Commercial (US Dollar) (continued)

Key points (continued)

Q3 2010 compared with Q2 2010 (continued)
·
Non-interest income was up 1% reflecting strong mortgage income (up $35 million on the second quarter), offset by lower deposit fees as a result of Regulation E legislative changes introduced in the quarter. The current annual impact of Regulation E is estimated at between $125-150 million. Mitigating action to implement changes to account and transaction fee schedules is currently under review. In addition, gains of $330 million were recognised on the sale of available-for-sale securities as part of a balance sheet restructuring exercise which were largely offset by losses crystallised on the termination of swaps hedging fixed-rate funding.
   
·
Regulation E prohibits financial institutions from charging consumers fees for paying automated teller machine (ATM) and one-off debit card transactions which would result in overdraft, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
   
·
Total expenses were 1% lower, excluding the pension credit booked in Q2 2010.
   
·
Impairment losses fell 10%, reflecting a gradual improvement in the underlying credit environment. Loan impairments decreased as a proportion of loans and advances, falling 10 basis points from the second quarter and continuing a downward trend from their peak in Q3 2009.
   
·
Following significant loan reserve building in 2009, provisions for loan losses held steady at $1.2 billion, reflecting a cautious near-term view of the credit environment.

Q3 2010 compared with Q3 2009
·
Operating profit increased to $113 million from an operating loss of $67 million.
   
·
Net interest income rose 10%, with net interest margin increasing by 55 basis points to 2.92%, offsetting a reduction in loan and deposit balances. The margin improvement was primarily due to changes in deposit mix and new deposit pricing strategies, as well as a positive impact from a balance sheet restructuring carried out during the quarter.
   
·
Customer deposits were down 4%, reflecting the impact of a changed pricing strategy on low margin term and time products, but strong growth was achieved in checking balances. Over 52,500 consumer checking accounts were added over the year, and more than 12,500 small business checking accounts were added. Consumer checking balances grew by 8% and small business balances by 11%.
   
·
Non-interest income was up 13%, driven by higher mortgage and debit card income and higher gains on the sale of securities.
   
·
Total expenses rose 5% reflecting impairment of mortgage servicing rights ($23 million), changes in the phasing of staff compensation and higher medical costs.


 

RBS Group – Q3 2010 Results
 
 
 


Global Banking & Markets

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income from banking activities
317 
335 
447 
  
1,031 
1,919 
             
Net fees and commissions receivable
411 
314 
340 
  
1,070 
1,049 
Income from trading activities
830 
1,232 
1,348 
  
4,089 
6,396 
Other operating income (net of related
  funding costs)
(4)
66 
(70)
  
135 
(269)
             
Non-interest income
1,237 
1,612 
1,618 
  
5,294 
7,176 
             
Total income
1,554 
1,947 
2,065 
  
6,325 
9,095 
             
Direct expenses
            
- staff
(621)
(631)
(716)
  
(2,139)
(2,268)
- other
(166)
(200)
(184)
  
(550)
(587)
Indirect expenses
(218)
(202)
(252)
  
(643)
(737)
             
 
(1,005)
(1,033)
(1,152)
  
(3,332)
(3,592)
             
Operating profit before impairment
  losses and fair value of own debt
549 
914 
913 
  
2,993 
5,503 
Impairment losses
40 
(164)
(272)
  
(156)
(510)
             
Operating profit before fair value of
  own debt
589 
750 
641 
  
2,837 
4,993 
Fair value of own debt
(598)
331 
(320)
  
(299)
(155)
             
Operating (loss)/profit
(9)
1,081 
321 
  
2,538 
4,838 
             
             
Analysis of income by product
            
Rates – money markets
38 
4 
287 
  
130 
1,606 
Rates – flow
402 
471 
694 
  
1,572 
2,527 
Currencies & commodities
218 
179 
147 
  
692 
1,102 
Equities
198 
238 
282 
  
750 
1,017 
Credit and mortgage markets
349 
474 
475 
  
1,782 
2,023 
Portfolio management and origination
349 
581 
180 
  
1,399 
820 
             
Total income
1,554 
1,947 
2,065 
  
6,325 
9,095 
             
             
Analysis of impairments by sector
            
Manufacturing and infrastructure
(34)
(12)
33 
  
(53)
72 
Property and construction
- 
56 
- 
  
64 
50 
Banks and financial institutions
(3)
110 
237 
  
123 
280 
Other
(3)
10 
2 
  
22 
108 
             
Total impairment losses
(40)
164 
272 
  
156 
510 
             
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements)
(0.2%)
0.7% 
0.6% 
  
0.2%
0.5% 



 

RBS Group – Q3 2010 Results
 
 
 


Global Banking & Markets (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Return on equity (1)
11.3% 
13.8% 
14.2% 
  
18.0% 
36.9% 
Net interest margin
1.14% 
1.01% 
1.08% 
  
1.08% 
1.52% 
Cost:income ratio
65% 
53% 
56% 
  
53% 
39% 
Compensation ratio (2)
40% 
32% 
35% 
  
34% 
25% 


 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers
87.9 
88.8 
(1%)
  
90.9 
(3%)
Loans and advances to banks
44.8 
40.1 
12% 
  
36.9 
21%
Reverse repos
92.3 
85.6 
8% 
  
73.3 
26% 
Securities
118.8 
109.8 
8% 
  
106.0 
12% 
Cash and eligible bills
42.0 
41.2 
2% 
  
74.0 
(43%)
Other
34.9 
34.5 
1% 
  
31.1 
12% 
             
Total third party assets (excluding derivatives
  mark-to-market)
420.7 
400.0 
5% 
  
412.2 
2% 
Net derivative assets (after netting)
41.1 
52.1 
(21%)
  
68.0 
(40%)
Customer deposits (excluding repos)
40.9 
45.6 
(10%)
  
46.9 
(13%)
Risk elements in lending
1.6 
1.8 
(11%)
  
1.8 
(11%)
Loan:deposit ratio (excluding repos)
215%
195% 
2,000bp 
  
194% 
2,100bp 
Risk-weighted assets
143.7 
141.3 
2% 
  
123.7 
16% 

Notes:
(1)
Return on equity is based on divisional operating profit after tax, divided by divisional notional equity (based on 10% of divisional risk-weighted assets, adjusted for capital deductions).
(2)
Compensation ratio is based on staff costs as a percentage of total income, excluding the fair value of own debt.

Key points

Q3 2010 compared with Q2 2010
·
Operating profit, excluding fair value of own debt, fell 21% to £589 million, with reduced revenue partially offset by a net recovery on impairments and a small reduction in costs.
   
·
Excluding fair value of own debt, revenue fell 20%. Adjusting for the impact of the tightening in the Group’s credit spreads on derivative liabilities the decline was 13%. Trading volumes were weak as investors remained risk averse amidst uncertainty in the global economy. Volatility also subsided as concerns about European sovereign debt default decreased during the quarter. In spite of this environment, GBM continued to focus on serving its customers, remaining a top three bookrunner for IG Corporates in EMEA DCM.
   
·
Movements in fair value of own debt reduced revenue by £598 million in the quarter. This reflects the narrowing of the Group’s credit spreads, driven by the announcements of the European bank stress tests in July and the Basel Committee recommendations on capital and liquidity.


 

RBS Group – Q3 2010 Results
 
 
 


Global Banking & Markets (continued)

Key points (continued)

Q3 2010 compared with Q2 2010 (continued)
·
Rates flow and Credit and mortgage markets products suffered from subdued client flow, but Currencies revenues recovered somewhat. Portfolio revenue fell back after a spike in market derivative values in Q2 2010.
   
·
Total costs fell by 3% compared with Q2 2010.  Excluding fair value of own debt, the cost:income ratio for the nine months to September 2010 was 53%, below the 55% strategic plan target. The year-to-date compensation ratio of 34%, excluding fair value of own debt, remains within the expected range of 32-35%.
   
·
Impairments for the quarter were negligible, with no significant single name defaults, low levels of underlying impairment and several modest recoveries, resulting in a credit of £40 million.
   
·
Third party assets increased by £21 billion during Q3 2010, to £421 billion, within the normal range of £400 billion to £450 billion,  reflecting increased customer demand for securities and a pick up in repo trading activity towards the end of the period.
   
·
Risk-weighted assets increased by 2% over the period reflecting effective management of underlying risk which mitigated the impact of changes in the regulatory treatment of some assets.
   
·
Adjusting for the fair value of own debt, return on equity for the quarter was 11.3% and 18.0% for the nine months to September 2010, ahead of the strategic plan target of 15% despite tough market conditions during Q2 and Q3 2010.

Q3 2010 compared with Q3 2009
·
Operating profit declined by 8%, excluding movements in fair value of own debt, reflecting lower revenue that was partially offset by lower costs and impairments.
   
·
Excluding the movement in fair value of own debt, revenue fell 25%. Rates, money markets and flow revenue fell, reflecting reduced volatility and client activity. However, revenue from currencies improved, driven by a significantly better performance in emerging markets.
   
·
Credit and mortgage market revenue declined as mortgage trading income fell from the buoyant trading conditions experienced in Q3 2009. Reduced revenue in Equities reflected lower ECM volumes in the EMEA region. Portfolio management revenue improved as a result of lower costs of balance sheet management and lower losses on market derivative values.
   
·
Third party assets over the period declined by £38 billion, an 8% year-on-year reduction. This was a result of active balance sheet management.



 

RBS Group – Q3 2010 Results
 
 
 


RBS Insurance

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Earned premiums
1,111 
1,118 
1,145 
  
3,359 
3,370 
Reinsurers' share
(36)
(38)
(43)
  
(108)
(128)
             
Net premium income
1,075 
1,080 
1,102 
  
3,251 
3,242 
Fees and commissions
(96)
(91)
(95)
  
(276)
(282)
Instalment income
37 
35 
37 
  
107 
104 
Other income
- 
7 
6 
  
13 
19 
             
Total income
1,016 
1,031 
1,050 
  
3,095 
3,083 
             
Net claims
(949)
(1,132)
(928)
  
(3,055)
(2,479)
Underwriting profit/(loss)
67 
(101)
122 
  
40 
604 
             
Staff expenses
(68)
(66)
(67)
  
(197)
(206)
Other expenses
(41)
(48)
(47)
  
(136)
(168)
             
Total direct expenses
(109)
(114)
(114)
  
(333)
(374)
Indirect expenses
(66)
(62)
(64)
  
(193)
(195)
             
 
(175)
(176)
(178)
  
(526)
(569)
             
Technical result
(108)
(277)
(56)
  
(486)
35 
Impairment losses
- 
- 
(2)
  
- 
(8)
Investment income
75 
74 
69 
  
200 
201 
 
            
Operating (loss)/profit
(33)
(203)
11 
  
(286)
228 
             
Analysis of income by product
            
Personal lines motor excluding broker
            
  - Own brands
442 
442 
462 
  
1,330 
1,322 
  - Partnerships
64 
67 
76 
  
199 
226 
Personal lines home excluding broker
            
  - Own brands
119 
118 
112 
  
354 
326 
  - Partnerships
91 
94 
95 
  
282 
278 
Personal lines other excluding broker
            
  - Own brands
47 
46 
48 
  
143 
139 
  - Partnerships
42 
51 
50 
  
145 
158 
Other
            
  - Commercial and international
155 
150 
141 
  
459 
435 
  - Other (including personal lines broker)
56 
63 
66 
  
183 
199 
             
Total income
1,016 
1,031 
1,050 
  
3,095 
3,083 

 

RBS Group – Q3 2010 Results
 
 
 


RBS Insurance (continued)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
In-force policies (thousands)
            
Personal lines motor excluding broker
            
  - Own brands
4,276 
4,424 
4,798 
  
4,276 
4,798 
  - Partnerships
698 
755 
874 
  
698 
874 
Personal lines home excluding broker
            
  - Own brands
1,765 
1,772 
1,671 
  
1,765 
1,671 
  - Partnerships
1,859 
1,875 
1,947 
  
1,859 
1,947 
Personal lines other excluding broker
            
  - Own brands
2,069 
2,194 
2,250 
  
2,069 
2,250 
  - Partnerships
7,201 
7,186 
7,518 
  
7,201 
7,518 
Other
            
  - Commercial and international
1,373 
1,322 
1,213 
  
1,373 
1,213 
  - Other (including personal lines broker)
911 
1,046 
1,053 
  
911 
1,053 
             
Total in-force policies (1)
20,152 
20,574 
21,324 
  
20,152 
21,324 
             
Gross written premium (£m)
1,128 
1,092 
1,186 
  
3,310 
3,456 
             
Performance ratios
            
Return on equity (2)
(3.5%)
(21.8%)
1.2% 
  
(10.2%)
8.5% 
Cost:income ratio (3)
16% 
16% 
16% 
  
16% 
17% 
Loss ratio (4)
88.6% 
106.3% 
84.0% 
  
94.7% 
75.9% 
Combined operating ratio (5)
110.2% 
128.7% 
104.7% 
  
116.9% 
98.4% 
             
Balance sheet
            
General insurance reserves – total (£m)
7,552 
7,326 
6,839 
  
7,552 
6,839 

Notes:
(1)
Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan & card repayment payment protection.
(2)
Return on equity is based on divisional operating profit/(loss) after tax, divided by divisional notional equity (based on regulatory capital).
(3)
Cost:income ratio is based on total income, including investment income and total expenses.
(4)
Loss ratio is based on net claims divided by net premium income for the UK businesses.
(5)
Combined operating ratio is the expenses (including fees & commissions) divided by gross written premium income, added to the loss ratio, for the UK businesses.

Key points

Q3 2010 compared with Q2 2010
●
Performance improved on Q2 2010 due to lower additions to bodily injury reserves in the quarter. Tighter underwriting criteria are now in effect and pricing and claims management initiatives for bodily injury have started to deliver; further improvements still need to be fully embedded  to restore the business to sustainable profitability.
   
●
RBS Insurance recently announced plans to rationalise its operational sites. This together with further actions to drive down expenses will deliver a more robust and cost-competitive platform for the business.
   
●
As planned, total in-force policies have declined. A reduction in motor policies following significant re-pricing as well as the Group’s exit from less profitable partnership and broker business, has been partly offset by growth in Commercial and International policies.

 

RBS Group – Q3 2010 Results
 
 
 


RBS Insurance (continued)

Key points (continued)

Q3 2010 compared with Q2 2010 (continued)
●
Total income declined slightly to £1,016 million. Although motor pricing has increased, premium income has fallen as a result of exiting the higher risk, higher premium motor business.
   
●
Net claims were 16% lower than Q2 2010, during which additional reserves totalling £320 million were established in respect of bodily injury. For Q3 2010 an additional £100 million has been added to bodily injury claims reserves, largely relating to periodic payment orders following an industry-wide review during the quarter.  In response to this claims experience, motor pricing has been further increased from the second quarter and significant progress continues to be made in removing higher risk business from the overall motor book by targeted rating actions.
   
●
Expenses were flat in the quarter, with higher staff expenses offset by lower marketing costs and levies.  In advance of the main phase of planned role reductions, additional headcount has been required to deliver the business transformation programme.

Q3 2010 compared with Q3 2009
·
Total in-force policies declined by 5%, reflecting the change in mix of the policy book, with motor own-brand policies down 11% but own-brand home policies up 6%. The partnership and broker segment declined by 11%, in line with business strategy.
   
·
Total income declined by 3% as a result of a reduction in in-force policies, including the removal of higher risk, higher premium motor business, partially offset by increased pricing.
   
●
Our market leading home business has continued to make solid progress with an increase in year to date total income of 5%.
   
·
Net claims were 2% higher, principally driven by the deterioration in the observed severity of bodily injury claims.
   
·
Expenses were down 2%, driven by lower levies and marketing costs.
   
·
The combined operating ratio, including indirect costs, was 110.2% compared with 104.7% in Q3 2009, owing to the impact of increased reserving for bodily injury claims partially mitigated by expense ratio improvement. Excluding increased bodily injury reserving relating to prior years, the combined operating ratio was 100.2%.



 

RBS Group – Q3 2010 Results
 
 
 


Central items

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
             
Central items not allocated before fair
  value of own debt
76 
49 
283 
  
462 
554 
Fair value of own debt
(260)
288 
(163)
  
(109)
(257)
             
Central items not allocated
(184)
337 
120 
  
353 
297 


Key points
·
Funding and operating costs have been allocated to operating divisions, based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.
   
·
Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

Q3 2010 compared with Q2 2010
·
Movements in the fair value of own debt represented a net debit of £260 million in the quarter.  The Group's credit spreads narrowed over the quarter, resulting in an increase in the carrying value of own debt.
   
·
Central items not allocated, which are primarily volatile Group Treasury items, amounted to a net credit of £76 million, an increase of £27 million on Q2 2010. In Q3 2010 RBS N.V. realised a gain of £216 million on the sale of AFS securities. This was largely offset by negative movements relating to IFRS volatility.

Q3 2010 compared with Q3 2009
·
Movements in the fair value of own debt in both periods reflect a marked narrowing in the Group’s credit spreads.
   
·
Central items not allocated during the quarter declined by £207 million relative to Q3 2009. This movement is attributable to unallocated volatile Group Treasury items.


 

 

RBS Group – Q3 2010 Results
 
 
 


Non-Core

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m
             
Income statement
            
Net interest income
438 
534 
287 
  
1,540 
956 
             
Net fees and commissions
43 
158 
130 
  
305 
381 
Income from trading activities
219 
33 
(579)
  
121 
(4,380)
Insurance net premium income
180 
173 
173 
  
521 
613 
Other operating income
            
- rental income
166 
181 
179 
  
534 
512 
- other
(158)
(206)
(136)
  
(326)
(491)
             
Non-interest income
450 
339 
(233)
  
1,155 
(3,365)
             
Total income
888 
873 
54 
  
2,695 
(2,409)
             
Direct expenses
            
- staff
(172)
(202)
(150)
  
(626)
(604)
- other
(277)
(269)
(244)
  
(828)
(747)
Indirect expenses
(130)
(121)
(132)
  
(373)
(411)
             
 
(579)
(592)
(526)
  
(1,827)
(1,762)
             
Operating profit/(loss) before other operating
  charges and impairment losses
309 
281 
(472)
  
868 
(4,171)
Insurance net claims
(144)
(215)
(126)
  
(492)
(440)
Impairment losses
(1,171)
(1,390)
(2,066)
  
(4,265)
(7,410)
             
Operating loss
(1,006)
(1,324)
(2,664)
  
(3,889)
(12,021)
             
Analysis of income by business
            
Banking & portfolio
131 
239 
(271)
  
641 
(1,375)
International businesses & portfolios
330 
606 
537 
  
1,568 
1,769 
Markets
427 
28 
(212)
  
486 
(2,803)
             
Total income
888 
873 
54 
  
2,695 
(2,409)

Key metrics
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
             
Performance ratios
            
Net interest margin
1.05% 
1.22% 
0.55% 
  
1.18% 
0.54% 
Cost:income ratio
65% 
68% 
974% 
  
68% 
(73%)
Adjusted cost:income ratio
78% 
90% 
(731%)
  
83% 
(62%)


 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

 
30 September 
2010 
30 June 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet (1)
            
Total third party assets (including derivatives) (2)
175.2 
193.3 
(9%)
  
220.9 
(21%)
Loans and advances to customers (gross)
119.5 
126.4 
(5%)
  
149.5 
(20%)
Customer deposits
7.3 
7.4 
(1%)
  
12.6 
(42%)
Risk elements in lending
23.9 
22.0 
9% 
  
22.9 
4% 
Risk-weighted assets (3)
166.9 
175.0 
(5%)
  
171.3 
(3%)

Notes:
(1)
Includes disposal groups.
(2)
Derivatives were £21.0 billion at 30 September 2010 (30 June 2010 – £19.4 billion; 31 December – £19.9 billion).
(3)
Includes Sempra: 30 September 2010 Third party assets (TPAs) £8.3 billion, RWAs £5.9 billion; (30 June 2010 TPAs £12.7 billion, RWAs £9.7 billion; 31 December 2009 TPAs £14.2 billion, RWAs £10.2 billion).


 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income/(loss) from trading activities
            
Monoline exposures
191 
(139)
(37)
  
52 
(1,708)
Credit derivative product companies
(15)
(55)
(277)
  
(101)
(846)
Asset backed products (1)
160 
97 
148 
  
202 
(393)
Other credit exotics
(2)
47 
(38)
  
56 
(574)
Equities
(15)
(6)
(13)
  
(28)
(38)
Banking book hedges
(123)
147 
(386)
  
(12)
(1,382)
Other (2)
23 
(58)
24 
  
(48)
561 
             
 
219 
33 
(579)
  
121 
(4,380)
             
Impairment losses
            
Banking & portfolio
204 
256 
1,347 
  
1,157 
3,320 
International businesses & portfolios
980 
1,124 
1,234 
  
3,055 
3,592 
Markets
(13)
10 
(515)
  
53 
498 
             
Total impairment
1,171 
1,390 
2,066 
  
4,265 
7,410 
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) (3)
            
Banking & portfolio
1.3% 
1.8% 
6.0% 
  
2.4% 
4.8% 
International businesses & portfolios
6.9% 
7.4% 
6.9% 
  
7.2% 
6.7% 
Markets
(0.5%)
3.6% 
(126.8%)
  
8.8% 
5.7% 
             
 
3.9% 
4.4% 
5.4% 
  
4.7% 
5.7% 


 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

 
30 September 
2010 
30 June 
2010 
31 December 
2009 
 
£bn 
£bn 
£bn 
       
Gross customer loans and advances
      
Banking & portfolio
64.4 
67.8 
82.0 
International businesses & portfolios
54.8 
58.2 
65.6 
Markets
0.3 
0.4 
1.9 
       
 
119.5 
126.4 
149.5 
       
Risk-weighted assets
      
Banking & portfolio
54.0 
55.1 
58.2 
International businesses & portfolios
40.6 
40.4 
43.8 
Markets
72.3 
79.5 
69.3 
       
 
166.9 
175.0 
171.3 

Notes:
(1)
Asset-backed products include super senior asset-backed structures and other asset-backed products.
(2)
Includes profits in Sempra of £78 million (30 June 2010 – £125 million; 31 December 2009 – £161 million).
(3)
Includes disposal groups.





 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

Third party assets (excluding derivatives)
               
Quarter ended 30 September 2010
 
30 June 
2010 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 September 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
44.1 
2.9 
(0.3)
(0.2)
(1.2)
1.2 
46.5 
Corporate
70.4 
(2.8)
(2.4)
0.6 
0.1 
0.2 
66.1 
SME
4.7 
(0.8)
- 
- 
- 
- 
3.9 
Retail
16.8 
(6.2)
- 
- 
(0.1)
(0.2)
10.3 
Other
3.0 
(0.2)
(0.3)
0.1 
- 
- 
2.6 
Markets
22.3 
(1.4)
(4.4)
0.4 
- 
(0.4)
16.5 
               
Total (excluding derivatives) (1)
161.3 
(8.5)
(7.4)
0.9 
(1.2)
0.8 
145.9 
Markets – Sempra
12.7 
(0.5)
(3.3)
- 
- 
(0.6)
8.3 
               
Total (2)
174.0 
(9.0)
(10.7)
0.9 
(1.2)
0.2 
154.2 

Quarter ended 30 June 2010
 
31 March 
2010 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 June 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
49.5 
(5.3)
(0.3)
2.8 
(1.1)
(1.5)
44.1 
Corporate
78.8 
(2.6)
(4.5)
0.6 
0.1 
(2.0)
70.4 
SME
4.0 
0.9 
- 
- 
(0.1)
(0.1)
4.7 
Retail
19.8 
(0.5)
(1.7)
- 
(0.2)
(0.6)
16.8 
Other
3.3 
(0.2)
(0.1)
- 
- 
- 
3.0 
Markets
24.1 
(0.6)
(1.4)
0.6 
(0.1)
(0.3)
22.3 
               
Total (excluding derivatives)
179.5 
(8.3)
(8.0)
4.0 
(1.4)
(4.5)
161.3 
Markets – Sempra
14.0 
(1.4)
- 
- 
- 
0.1 
12.7 
               
Total
193.5 
(9.7)
(8.0)
4.0 
(1.4)
(4.4)
174.0 

Nine months ended 30 September 2010
 
31 December 
2009 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
30 September 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
51.3 
(3.9)
(0.6)
2.8 
(3.4)
0.3 
46.5 
Corporate
82.6 
(10.0)
(8.1)
1.6 
(0.2)
0.2 
66.1 
SME
3.9 
0.1 
- 
- 
(0.1)
- 
3.9 
Retail
19.9 
(7.1)
(1.9)
0.1 
(0.5)
(0.2)
10.3 
Other
4.7 
(2.0)
(0.4)
0.3 
- 
- 
2.6 
Markets
24.4 
(3.2)
(6.1)
1.0 
(0.1)
0.5 
16.5 
               
Total (excluding derivatives) (1)
186.8 
(26.1)
(17.1)
5.8 
(4.3)
0.8 
145.9 
Markets – Sempra
14.2 
(3.1)
(3.3)
- 
- 
0.5 
8.3 
               
Total (2)
201.0 
(29.2)
(20.4)
5.8 
(4.3)
1.3 
154.2 

Note:
(1)
Intra-group transfers during Q3 resulted in a net £2.2 billion reduction in TPAs. As a result of this transfer there was an increase of Commercial real estate assets totalling £5.4 billion, offset by reductions across other sectors, principally Retail.
(2)
In addition, £9.4 billion of disposals have been signed as of 30 September 2010 but are pending closing (30 June 2010 – £1.9 billion; 31 December 2009 - £3.0 billion).


 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Loan impairment losses by donating
  division and sector
            
             
UK Retail
            
Mortgages
1 
- 
1 
  
4 
4 
Personal
4 
- 
11 
  
6 
42 
             
Total UK Retail
5 
- 
12 
  
10 
46 
             
UK Corporate
            
Manufacturing and infrastructure
5 
21 
14 
  
21 
46 
Property and construction
130 
150 
162 
  
334 
488 
Transport
26 
(3)
5 
  
23 
8 
Banks and financials
(8)
2 
1 
  
18 
102 
Lombard
25 
29 
27 
  
79 
82 
Invoice finance
(3)
- 
2 
  
(3)
2 
Other
(2)
64 
33 
  
119 
609 
             
Total UK Corporate
173 
263 
244 
  
591 
1,337 
             
Ulster Bank
            
Mortgages
(1)
23 
7 
  
42 
26 
Commercial investment and development
201 
147 
20 
  
458 
47 
Residential investment and development
394 
384 
406 
  
1,129 
749 
Other
82 
137 
148 
  
270 
184 
Other EMEA
13 
13 
27 
  
46 
86 
             
Total Ulster Bank
689 
704 
608 
  
1,945 
1,092 
             
US Retail & Commercial
            
Auto and consumer
(2)
32 
49 
  
45 
109 
Cards
2 
4 
33 
  
20 
104 
SBO/home equity
57 
67 
69 
  
226 
367 
Residential mortgages
3 
(10)
20 
  
5 
41 
Commercial real estate
49 
42 
85 
  
154 
173 
Commercial and other
7 
6 
39 
  
15 
75 
             
Total US Retail & Commercial
116 
141 
295 
  
465 
869 
             
Global Banking & Markets
            
Manufacturing and infrastructure
(53)
(281)
309 
  
(305)
1,320 
Property and construction
147 
501 
141 
  
1,120 
730 
Transport
8 
- 
5 
  
9 
173 
Telecoms, media and technology
32 
11 
23 
  
32 
543 
Banks and financials
5 
11 
270 
  
177 
523 
Other
52 
24 
84 
  
177 
529 
             
Total Global Banking & Markets
191 
266 
832 
  
1,210 
3,818 
             
Other
            
Wealth
7 
16 
50 
  
51 
213 
Global Transaction Services
(10)
- 
25 
  
(7)
35 
Central items
- 
- 
- 
  
- 
- 
             
Total Other
(3)
16 
75 
  
44 
248 
             
Total impairment losses
1,171 
1,390 
2,066 
  
4,265 
7,410 

 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

 
30 September 
2010 
30 June 
2010 
31 December 
2009 
 
£bn 
£bn 
£bn 
       
Gross loans and advances to customers (excluding reverse repurchase
  agreements) by donating division and sector
      
       
UK Retail
      
Mortgages
1.7 
1.8 
1.9 
Personal
0.5 
0.5 
0.7 
       
Total UK Retail
2.2 
2.3 
2.6 
       
UK Corporate
      
Manufacturing and infrastructure
0.3 
0.4 
0.3 
Property and construction
12.1 
12.9 
14.1 
Lombard
1.9 
2.4 
2.9 
Invoice finance
- 
- 
0.4 
Other
14.2 
14.7 
17.2 
       
Total UK Corporate
28.5 
30.4 
34.9 
       
Ulster Bank
      
Mortgages
- 
5.6 
6.0 
Commercial investment and development
6.7 
4.1 
3.0 
Residential investment and development
6.0 
3.8 
5.6 
Other
2.0 
1.3 
1.1 
Other EMEA
0.8 
0.9 
1.0 
       
Total Ulster Bank
15.5 
15.7 
16.7 
       
US Retail & Commercial
      
Auto and consumer
2.7 
3.0 
3.2 
Cards
0.1 
0.2 
0.5 
SBO/home equity
3.3 
3.6 
3.7 
Residential mortgages
0.8 
0.9 
0.8 
Commercial real estate
1.7 
1.9 
1.9 
Commercial and other
0.6 
0.7 
0.9 
       
Total US Retail & Commercial
9.2 
10.3 
11.0 
       
Global Banking & Markets
      
Manufacturing and infrastructure
10.6 
13.4 
17.5 
Property and construction
22.9 
21.6 
25.7 
Transport
5.6 
5.3 
5.8 
Telecoms, media and technology
1.1 
2.0 
3.2 
Banks and financials
13.8 
15.7 
16.0 
Other
10.5 
9.4 
13.5 
       
Total Global Banking & Markets
64.5 
67.4 
81.7 
       
Other
      
Wealth
0.7 
0.9 
2.6 
Global Transaction Services
0.5 
0.6 
0.8 
RBS Insurance
0.2 
0.2 
0.2 
Central items
(2.1)
(2.1)
(3.2)
       
Total Other
(0.7)
(0.4)
0.4 
       
Gross loans and advances to customers (excluding reverse repurchase
  agreements)
119.2 
125.7 
147.3 



 

RBS Group – Q3 2010 Results
 
 
 


Non-Core (continued)

Key points

Q3 2010 compared with Q2 2010
·
Good progress was made in Non-Core’s asset reduction programme, with third party assets (excluding derivatives) declining by £20 billion to £154 billion. This was due to the division’s disposal programme (£11 billion), including the disposal of £4 billion of assets in the markets business, and portfolio run-off (£9 billion).
   
·
RWAs decreased £8 billion from £175 billion to £167 billion. The largest drivers of the change were the partial disposal of Sempra JV business and other sales across the Non-Core division offset by intra-group transfers, and regulatory model changes.
   
·
Non-Core operating loss was £1,006 million in the third quarter, compared with £1,324 million in Q2 2010, primarily due to improved results from trading activities and lower impairments.
   
·
Income from trading activities totalled £219 million, compared with £33 million in the second quarter. This reflects disposal gains on super senior assets as well as valuation gains in relation to monolines as spreads tightened.  These were offset by losses incurred across CDS portfolios also due to tightening spreads. Sempra Commodities reported revenues £43 million lower than the second quarter following the disposal of its metals, oil and European energy business lines to J.P. Morgan in July.
   
·
Net interest income fell by £96 million, principally reflecting a reduction of 5% in the loan book. Other operating income totalled £8 million in Q3 2010 compared with a loss of £25 million in Q2 2010. Rental income of £166 million fell by £15 million compared to the second quarter due to run-off. Disposal losses in Q3 2010 totalled £304 million, balanced by some revaluations of equity positions totalling £146 million.
   
·
Expenses declined by 2%, reflecting a number of business disposals.
   
·
Impairment losses continued to trend down to £1,171 million. Underlying impairments continued to slow, and the division experienced a number of write-backs in its leveraged lending business, though at a lower level than Q2 2010.

Q3 2010 compared with Q3 2009
·
Over the 12 months to 30 September 2010, third party assets (excluding derivatives) decreased by £48 billion, 24%, as a result of the division’s disposal strategy, managed portfolio run-off and impairments.
   
·
Operating losses decreased substantially from the £2,664 million loss recorded in Q3 2009, with significant improvements in both trading income and impairments.
   
·
Impairments were £895 million lower than in Q3 2009. This reflected the steadily improving environment over the period.  However, charges as a result of the continued decline in the UK and Irish commercial property sectors remain high.



 

 
 
 
 

 
 
 

 
 
Signatures


 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.







 
 
Date: 5 November 2010
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
 Jan Cargill
 Deputy Secretary