rbs201011056k2.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:

 
 
 
 






Third Quarter 2010 Results









 
 

RBS Group – Q3 2010 Results
 
 
 


Contents
   
 
Page 
   
Forward-looking statements
3 
   
Presentation of information
4 
   
Results summary – pro forma
5 
   
Results summary – statutory
7 
   
Pro forma results
8 
   
Summary consolidated income statement
8 
   
Condensed consolidated statement of comprehensive income
10 
   
Summary consolidated balance sheet
10 
   
Results summary
11 
   
Average balance sheet
12 
   
Divisional performance
21 
UK Retail
24 
UK Corporate
28 
Wealth
31 
Global Transaction Services
33 
Ulster Bank
35 
US Retail & Commercial
38 
Global Banking & Markets
43 
RBS Insurance
46 
Central items
49 
Non-Core
50 
   
Condensed consolidated balance sheet
57 
   
Commentary on condensed consolidated balance sheet
58 
   
Condensed consolidated statement of changes in equity
60 
   
Notes
63 





Contents (continued)
   
 
Page 
   
Risk and capital management
87 
   
Presentation of information
87 
   
Capital
87 
   
Credit risk
91 
   
Funding and liquidity risk
107 
   
Market risk
113 
   
Other risk exposures
117 
   
Statutory results
132 
   
Condensed consolidated income statement
133 
   
Condensed consolidated statement of comprehensive income
134 
   
Financial review
135 
   
Condensed consolidated balance sheet
136 
   
Commentary on condensed consolidated balance sheet
137 
   
Condensed consolidated statement of changes in equity
139 
   
Notes
142 
   
Additional information
143 
   
   
Appendix 1  Reconciliations of pro forma to statutory income statements and balance sheets
  
   
Appendix 2  The Asset Protection Scheme
  

 
 

 


RBS Group – Q3 2010 Results
 
 
 


Forward-looking statements

Certain sections in this document contain ‘forward-looking statements’ as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words ‘expect’, ‘estimate’, ‘project’, ‘anticipate’, ‘believes’, ‘should’, ‘intend’, ‘plan’, ‘could’, ‘probability’, ‘risk’, ‘Value-at-Risk (VaR)’, ‘target’, ‘goal’, ‘objective’, ‘will’, ‘endeavour’, ‘outlook’, ‘optimistic’, ‘prospects’ and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited to: the Group’s restructuring plans, capitalisation, portfolios, net interest margin, capital ratios, liquidity, risk weighted assets, return on equity (ROE), cost:income ratios, leverage and loan:deposit ratios, funding and risk profile; the Group’s future financial performance; the level and extent of future impairments and write-downs; the protection provided by the Asset Protection Scheme (APS); and the Group’s potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. These statements are based on current plans, estimates and projections, and are subject to inherent risks, uncertainties and other factors which could cause actual results to differ materially from the future results expressed or implied by such forward-looking statements.  For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to: the full nationalisation of the Group or other resolution procedures under the Banking Act 2009; the global economy and instability in the global financial markets, and their impact on the financial industry in general and on the Group in particular; the financial stability of other financial institutions, and the Group’s counterparties and borrowers; the ability to complete restructurings on a timely basis, or at all, including the disposal of certain Non-Core assets and assets and businesses required as part of the EC State Aid restructuring plan; organisational restructuring; the ability to access sufficient funding to meet liquidity needs; cancellation, change or withdrawal of, or failure to renew, governmental support schemes; the extent of future write-downs and impairment charges caused by depressed asset valuations; the inability to hedge certain risks economically; costs or exposures borne by the Group arising out of the origination or sale of mortgages or mortgage-backed securities in the United States; the value and effectiveness of any credit protection purchased by the Group; unanticipated turbulence in interest rates, yield curves, foreign currency exchange rates, credit spreads, bond prices, commodity prices and equity prices; changes in the credit ratings of the Group; ineffective management of capital or changes to capital adequacy or liquidity requirements; changes to the valuation of financial instruments recorded at fair value; competition and consolidation in the banking sector; HM Treasury exercising influence over the operations of the Group; the ability of the Group to attract or retain senior management or other key employees; regulatory change in the United Kingdom, the United States and other countries in which the Group operates or a change in United Kingdom Government policy; changes to regulatory requirements relating to capital and liquidity; changes to the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G7 central banks; impairments of goodwill; pension fund shortfalls; litigation and regulatory investigations; general operational risks; insurance claims; reputational risk; general geopolitical and economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the ability to achieve revenue benefits and cost savings from the integration of certain of RBS Holdings N.V.’s (formerly ABN AMRO Holding N.V.) businesses and assets; changes in UK and foreign laws, regulations, accounting standards and taxes, including changes in regulatory capital regulations and liquidity requirements; the participation of the Group in the APS and the effect of the APS on the Group’s financial and capital position; the ability to access the contingent capital arrangements with HM Treasury; the conversion of the B Shares in accordance with their terms; limitations on, or additional requirements imposed on, the Group’s activities as a result of HM Treasury’s investment in the Group; and the success of the Group in managing the risks involved in the foregoing.

The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.

 


RBS Group – Q3 2010 Results
 
 
 


Presentation of information

Pro forma results
Pro forma results have been prepared to include only those business units of ABN AMRO that have been retained by RBS and to reclassify certain non-operating items. The business and strategic update, divisional performance and discussion of risk and capital management in this announcement focus on the pro forma results. The basis of preparation of the pro forma results is detailed on page 63.

Statutory results
RFS Holdings is the entity that acquired ABN AMRO and is jointly owned by the Consortium Members. It is controlled by RBS and is therefore fully consolidated in its financial statements. The interests of Fortis, and its successor the State of the Netherlands, and Santander in RFS Holdings are included in minority interests. Following legal separation on 1 April 2010, the interests of other Consortium Members in RFS Holdings relate only to shared assets. In future years, there will be no significant differences between pro forma and statutory results in respect of ABN AMRO.

 


RBS Group – Q3 2010 Results
 
 
 


Results summary – pro forma

 
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 
             
Core
            
Total income (1)
7,029 
7,290 
7,523 
  
22,508 
24,706 
Operating expenses (2)
(3,517)
(3,511)
(3,669)
  
(10,802)
(11,166)
Insurance net claims
(998)
(1,108)
(1,019)
  
(3,109)
(2,596)
Operating profit before impairment losses and
  fair value of own debt (3)
2,514 
2,671 
2,835 
  
8,597 
10,944 
Impairment losses
(782)
(1,097)
(1,213)
  
(2,850)
(3,390)
Operating profit before fair value of own debt
1,732 
1,574 
1,622 
  
5,747 
7,554 
Fair value of own debt
(858)
619 
(483)
  
(408)
(412)
Operating profit (3)
874 
2,193 
1,139 
  
5,339 
7,142 
             
Non-Core
            
Total income (1)
888 
873 
54 
  
2,695 
(2,409)
Operating expenses (2)
(579)
(592)
(526)
  
(1,827)
(1,762)
Insurance net claims
(144)
(215)
(126)
  
(492)
(440)
Operating profit/(loss) before impairment
  losses (3)
165 
66 
(598)
  
376 
(4,611)
Impairment losses
(1,171)
(1,390)
(2,066)
  
(4,265)
(7,410)
Operating loss (3)
(1,006)
(1,324)
(2,664)
  
(3,889)
(12,021)
             
Total
            
Total income (1)
7,917 
8,163 
7,577 
  
25,203 
22,297 
Operating expenses (2)
(4,096)
(4,103)
(4,195)
  
(12,629)
(12,928)
Insurance net claims
(1,142)
(1,323)
(1,145)
  
(3,601)
(3,036)
Operating profit before impairment losses and
  fair value of own debt (3)
2,679 
2,737 
2,237 
  
8,973 
6,333 
Impairment losses
(1,953)
(2,487)
(3,279)
  
(7,115)
(10,800)
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)
Operating (loss)/profit (3)
(132)
869 
(1,525)
  
1,450 
(4,879)
Integration and restructuring costs
(311)
(254)
(324)
  
(733)
(1,058)
Gain on redemption of own debt
- 
553 
- 
  
553 
3,790 
Asset Protection Scheme credit default swap
  – fair value changes
(825)
500 
- 
  
(825)
- 
Other
(111)
(511)
(228)
  
(688)
85 
(Loss)/profit before tax (4)
(1,379)
1,157 
(2,077)
  
(243)
(2,062)

For definitions of the notes refer to page 6.


 


RBS Group – Q3 2010 Results
 
 
 


Results summary – pro forma

Key metrics
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Performance ratios
            
Core
            
- Net interest margin
2.30% 
2.24% 
2.10% 
  
2.22% 
2.14% 
- Cost:income ratio (5)
50% 
48% 
49% 
  
48% 
45% 
- Adjusted cost:income ratio (6)
58% 
57% 
56% 
  
56% 
51% 
Non-Core
            
- Net interest margin
1.05% 
1.22% 
0.55% 
  
1.18% 
0.54% 
- Cost:income ratio (5)
65% 
68% 
974% 
  
68% 
(73%)
- Adjusted cost:income ratio (6)
78% 
90% 
(731%)
  
83% 
(62%)
Group
            
- Net interest margin
2.05% 
2.03% 
1.75% 
  
2.00% 
1.74% 
- Cost:income ratio (5)
52% 
50% 
55% 
  
50% 
58% 
- Adjusted cost:income ratio (6)
60% 
60% 
65% 
  
58% 
67% 
Continuing operations:
            
Basic (loss)/earnings per ordinary and B
  share (7)
(1.1p)
0.8p 
(3.2p)
  
(0.5p)
(5.2p)

 
30 September 
2010 
30 June 
2010 
Change 
  
31 December 
2009 
Change 
Capital and balance sheet
            
Total assets
£1,629bn 
£1,581bn 
3%
  
£1,522bn 
7%
Funded balance sheet (8)
£1,080bn 
£1,058bn 
2%
  
£1,084bn 
- 
Loan:deposit ratio (Core – net of provisions)
101%
102%
(100bp)
  
104%
(300bp)
Loan:deposit ratio (Group – net of provisions)
126%
128%
(200bp)
  
135%
(900bp)
Risk-weighted assets – gross
£592bn 
£597bn 
(1%)
  
£566bn 
5%
Benefit of Asset Protection Scheme
(£117bn)
(£123bn)
(5%)
  
(£128bn)
(9%)
Risk-weighted assets
£475bn 
£474bn 
- 
  
£438bn 
8% 
Total equity
£77bn 
£79bn 
(3%)
  
£80bn 
(4%)
Core Tier 1 ratio*
10.2%
10.5%
(30bp)
  
11.0%
(80bp)
Tier 1 ratio
12.5%
12.8%
(30bp)
  
14.4%
(190bp)
Risk elements in lending (REIL)
£38bn 
£36bn 
6% 
  
£35bn 
9%
REIL as a % of gross loans and advances
7.0%
6.5%
50bp 
  
6.1%
90bp 
Provision balance as % of REIL and potential
  problem loans (PPL)
46%
43%
300bp 
  
42%
400bp 
Tier 1 leverage ratio (9)
18.0x 
17.2x 
5%
  
17.0x
6%
Tangible equity leverage ratio (10)
5.3%
5.5%
(20bp)
  
5.2%
10bp 
Net tangible equity per ordinary and B share
51.8p 
52.8p 
(2%)
  
51.3p 
1%
* Benefit of APS in Core Tier 1 ratio is 1.2% at 30 September 2010, 1.3% at 30 June 2010 and 1.6% at 31 December 2009.

Notes:
(1)
Excluding fair value of own debt, gain on redemption of own debt, strategic disposals and Asset Protection Scheme credit default swap – fair value changes.
(2)
Excluding amortisation of purchased intangible assets, integration and restructuring costs, bonus tax and write-down of goodwill and other intangible assets.
(3)
Operating profit/(loss) before tax, 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.
(4)
Excluding write-down of goodwill and other intangible assets.
(5)
Cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above.
(6)
Adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(7)
Adjusted (loss)/profit from continuing operations attributable to ordinary and B shareholders divided by weighted average number of ordinary and B shares in issue. Refer to page 69.
(8)
Funded balance sheet represents total assets less derivatives.
(9)
Tier 1 leverage ratio is total tangible assets (after netting derivatives) divided by Tier 1 capital.
(10)
Tangible equity leverage ratio is total tangible equity divided by total tangible assets (after netting derivatives).

 


RBS Group – Q3 2010 Results
 
 
 


Results summary – statutory
 
Highlights
 
·
Income of £6,086 million for Q3 2010.
   
·
Operating loss before tax of £1,560 million for Q3 2010.
   
·
Core Tier 1 ratio 10.2%.
 
 
 
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 
             
Continuing operations:
            
Total income
6,086 
9,437 
6,806 
  
24,046 
25,827 
Operating expenses
(4,551)
(4,453)
(4,590)
  
(13,721)
(14,550)
Operating profit before impairment losses
393 
3,661 
1,071 
  
6,724 
8,241 
Impairment losses
(1,953)
(2,487)
(3,279)
  
(7,115)
(10,800)
Operating (loss)/profit before tax
(1,560)
1,174 
(2,208)
  
(391)
(2,559)
(Loss)/profit attributable to ordinary and B
  shareholders
(1,146)
257 
(1,800)
  
(1,137)
(2,842)

* Restated for the reclassification of the results attributable to other Consortium Members as discontinued operations.

For an explanation of the statutory presentation refer to page 4.

A reconciliation between statutory and pro forma results is shown in Appendix 1 to this announcement.

 


RBS Group – Q3 2010 Results
 
 
 

Summary consolidated income statement
for the quarter ended 30 September 2010 – pro forma

 
In the income statement set out below, 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 are shown separately. In the statutory condensed consolidated income statement on page 133, these items are included in income and operating expenses as appropriate.

 
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 
             
Core
            
             
Net interest income
3,050 
3,212 
3,035 
  
9,297 
9,384 
             
Non-interest income (excluding insurance net
  premium income)
2,870 
2,973 
3,360 
  
9,876 
11,977 
Insurance net premium income
1,109 
1,105 
1,128 
  
3,335 
3,345 
             
Non-interest income
3,979 
4,078 
4,488 
  
13,211 
15,322 
             
Total income (1)
7,029 
7,290 
7,523 
  
22,508 
24,706 
Operating expenses (2)
(3,517)
(3,511)
(3,669)
  
(10,802)
(11,166)
             
Profit before other operating charges
3,512 
3,779 
3,854 
  
11,706 
13,540 
Insurance net claims
(998)
(1,108)
(1,019)
  
(3,109)
(2,596)
             
Operating profit before impairment
  losses (3)
2,514 
2,671 
2,835 
  
8,597 
10,944 
Impairment losses
(782)
(1,097)
(1,213)
  
(2,850)
(3,390)
             
Operating profit before fair value of
  own debt (3)
1,732 
1,574 
1,622 
  
5,747 
7,554 
Fair value of own debt
(858)
619 
(483)
  
(408)
(412)
             
Operating profit (3)
874 
2,193 
1,139 
  
5,339 
7,142 
             
             
Non-Core
            
             
Net interest income
354 
472 
226 
  
1,325 
737 
             
Non-interest income (excluding insurance
  net premium income)
354 
228 
(345)
  
849 
(3,759)
Insurance net premium income
180 
173 
173 
  
521 
613 
             
Non-interest income
534 
401 
(172)
  
1,370 
(3,146)
             
Total income (1)
888 
873 
54 
  
2,695 
(2,409)
Operating expenses (2)
(579)
(592)
(526)
  
(1,827)
(1,762)
             
Profit/(loss) before other operating
  charges
309 
281 
(472)
  
868 
(4,171)
Insurance net claims
(144)
(215)
(126)
  
(492)
(440)
             
Operating profit/(loss) before impairment
  losses (3)
165 
66 
(598)
  
376 
(4,611)
Impairment losses
(1,171)
(1,390)
(2,066)
  
(4,265)
(7,410)
             
Operating loss (3)
(1,006)
(1,324)
(2,664)
  
(3,889)
(12,021)

For definitions of the notes refer to page 6.

 


RBS Group – Q3 2010 Results
 
 
 

Summary consolidated income statement
for the quarter ended 30 September 2010 – pro forma (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 
             
Net interest income
3,404 
3,684 
3,261 
  
10,622 
10,121 
             
Non-interest income (excluding insurance net
  premium income)
3,224 
3,201 
3,015 
  
10,725 
8,218 
Insurance net premium income
1,289 
1,278 
1,301 
  
3,856 
3,958 
             
Non-interest income
4,513 
4,479 
4,316 
  
14,581 
12,176 
             
Total income (1)
7,917 
8,163 
7,577 
  
25,203 
22,297 
Operating expenses (2)
(4,096)
(4,103)
(4,195)
  
(12,629)
(12,928)
             
Profit before other operating charges
3,821 
4,060 
3,382 
  
12,574 
9,369 
Insurance net claims
(1,142)
(1,323)
(1,145)
  
(3,601)
(3,036)
             
Operating profit before impairment
  losses (3)
2,679 
2,737 
2,237 
  
8,973 
6,333 
Impairment losses
(1,953)
(2,487)
(3,279)
  
(7,115)
(10,800)
             
Operating profit/(loss) before fair value
  of own debt (3)
726 
250 
(1,042)
  
1,858 
(4,467)
Fair value of own debt
(858)
619 
(483)
  
(408)
(412)
             
Operating (loss)/profit (3)
(132)
869 
(1,525)
  
1,450 
(4,879)
Amortisation of purchased intangible assets
(123)
(85)
(73)
  
(273)
(213)
Integration and restructuring costs
(311)
(254)
(324)
  
(733)
(1,058)
Gain on redemption of own debt
- 
553 
- 
  
553 
3,790 
Strategic disposals
27 
(411)
(155)
  
(331)
298 
Bonus tax
(15)
(15)
- 
  
(84)
- 
Asset Protection Scheme credit default swap
   –  fair value changes
(825)
500 
- 
  
(825)
- 
             
(Loss)/profit before tax (4)
(1,379)
1,157 
(2,077)
  
(243)
(2,062)
Tax credit/(charge)
261 
(825)
576 
  
(670)
988 
             
(Loss)/profit from continuing operations
(1,118)
332 
(1,501)
  
(913)
(1,074)
Profit/(loss) from discontinued operations, net
  of tax
2 
(26)
(7)
  
(28)
(65)
             
(Loss)/profit for the period
(1,116)
306 
(1,508)
  
(941)
(1,139)
Minority interests
(30)
(30)
(47)
  
(72)
(601)
Preference share and other dividends
- 
(19)
(245)
  
(124)
(791)
             
(Loss)/profit attributable to ordinary and B
  shareholders before write-down of
  goodwill and other intangible assets
(1,146)
257 
(1,800)
  
(1,137)
(2,531)
Write-down of goodwill and other intangible
  assets, net of tax
- 
- 
- 
  
- 
(311)
             
(Loss)/profit attributable to ordinary and B
  shareholders
(1,146)
257 
(1,800)
  
(1,137)
(2,842)




For definitions of the notes refer to page 6.

 


RBS Group – Q3 2010 Results
 
 
 

Condensed consolidated statement of comprehensive income
for the quarter ended 30 September 2010 – pro forma

 
 
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 
             
(Loss)/profit for the period
(1,116)
306 
(1,508)
  
(941)
(1,450)
             
Other comprehensive income
            
Available-for-sale financial assets
272 
117 
2,861 
  
770 
1,228 
Cash flow hedges
508 
38 
155 
  
545 
676 
Currency translation
(661)
480 
659 
  
585 
(1,788)
Tax on other comprehensive income
(252)
10 
(846)
  
(402)
(438)
             
Other comprehensive (loss)/income for
  the period, net of tax
(133)
645 
2,829 
  
1,498 
(322)
             
Total comprehensive (loss)/income for the
  period
(1,249)
951 
1,321 
  
557 
(1,772)
             
Attributable to
            
Minority interests
(4)
44 
78 
  
129 
131 
Preference shareholders
- 
- 
242 
  
105 
752 
Paid-in equity holders
- 
19 
3 
  
19 
39 
Ordinary and B shareholders
(1,245)
888 
998 
  
304 
(2,694)
             
 
(1,249)
951 
1,321 
  
557 
(1,772)

Summary consolidated balance sheet
at 30 September 2010 – pro forma

 
30 September 
2010 
30 June 
2010 
31 December 
2009 
 
£m 
£m 
£m 
       
Loans and advances to banks (1)
60,330 
54,471 
48,777 
Loans and advances to customers (1)
528,049 
539,340 
554,654 
Reverse repurchase agreements and stock borrowing
92,910 
87,059 
76,137 
Debt securities and equity shares
248,165 
253,586 
265,055 
Other assets
150,404 
123,526 
139,659 
       
Funded assets
1,079,858 
1,057,982 
1,084,282 
Derivatives
548,805 
522,871 
438,199 
       
Total assets
1,628,663 
1,580,853 
1,522,481 
       
Owners’ equity
75,600 
76,802 
77,736 
Minority interests
1,542 
2,109 
2,227 
Subordinated liabilities
27,890 
27,523 
31,538 
Bank deposits (2)
80,186 
96,614 
115,642 
Customer deposits (2)
420,639 
420,890 
414,251 
Repurchase agreements and stock lending
128,752 
114,820 
106,359 
Derivatives, settlement balances and short positions
608,029 
571,690 
472,409 
Other liabilities
286,025 
270,405 
302,319 
       
Total liabilities and equity
1,628,663 
1,580,853 
1,522,481 
       
Memo: Tangible equity (3)
56,487 
57,576 
55,104 

Notes:
(1)
Excluding reverse repurchase agreements and stock borrowing.
(2)
Excluding repurchase agreements and stock lending.
(3)
Tangible equity is Owners’ equity attributable to ordinary and B shareholders less intangible assets.

 


RBS Group – Q3 2010 Results
 
 
 


Results summary

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Net interest income
£m 
£m 
£m 
  
£m 
£m 
             
Net interest income (1)
3,459 
3,567 
3,197 
  
10,473 
9,943 
             
Net interest margin
            
- Group
2.05%
2.03%
1.75%
  
2.00%
1.74%
- Core
            
  - Retail & Commercial (2)
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%

Notes:
(1)
Refer to notes on page 13.
(2)
Retail & Commercial comprises the UK Retail, UK Corporate, Wealth, Global Transaction Services, Ulster Bank and US Retail & Commercial divisions.

Key points

Q3 2010 compared with Q2 2010
·
Group net interest margin (NIM) improved to 2.05%, up 2 basis points from the second quarter.
   
·
NIM in the Retail & Commercial businesses improved by 12 basis points, primarily due to recovering asset margins across a number of markets.  Wider asset margins primarily reflect the run-off of older business written at lower margins, with front book margins largely stable. Repricing of retail and corporate assets is well advanced, with retail re-pricing further along than corporate, given the shorter average asset maturity.
   
·
Net interest income of £3,459 million was £108 million lower than in Q2 2010 primarily due to adverse movements in IFRS volatility along with lower average interest earning assets, principally in GBM.
   
·
The Group NIM is affected by increased funding costs as a result of the expansion of its liquidity portfolio as well as the successful terming out of wholesale funding. These costs reduced the NIM by about 4 basis points in Q3 2010.

Q3 2010 compared with Q3 2009
·
Compared with the third quarter of 2009, Group NIM widened by 30 basis points.
   
·
In Retail & Commercial, NIM increased by 32 basis points to 3.23%, with progressive asset repricing more than offsetting liability margin pressure, as well as the costs of holding a higher liquidity portfolio and terming out wholesale funding.




 


RBS Group – Q3 2010 Results
 
 
 


Average balance sheet – pro forma


 
Quarter ended
 
30 September 
2010 
30 June 
2010 
 
% 
% 
     
Average yields, spreads and margins of the banking business
    
Gross yield on interest-earning assets of banking business
3.32 
3.34 
Cost of interest-bearing liabilities of banking business
(1.45)
(1.50)
     
Interest spread of banking business
1.87 
1.84 
Benefit from interest-free funds
0.18 
0.19 
     
Net interest margin of banking business
2.05 
2.03 
     
     
Average interest rates
    
The Group's base rate
0.50 
0.50 
     
London inter-bank three month offered rates
    
- Sterling
0.73 
0.69 
- Eurodollar
0.39 
0.43 
- Euro
0.81 
0.62 

 
Quarter ended
Quarter ended
 
30 September 2010
30 June 2010
 
Average 
    
Average 
    
 
balance 
Interest 
Rate 
balance 
Interest 
Rate 
 
£m 
£m 
% 
£m 
£m 
% 
Assets
            
Loans and advances to banks
54,714 
153 
1.12 
47,090 
132 
1.12 
Loans and advances to
  customers
504,263 
4,721 
3.74 
517,450 
4,752 
3.67 
Debt securities
117,313 
743 
2.53 
139,722 
1,005 
2.88 
             
Interest-earning assets –
  banking business
676,290 
5,617 
3.32 
704,262 
5,889 
3.34 
             
Trading business
271,960 
    
284,281 
    
Non-interest earning assets
692,930 
    
664,168 
    
             
Total assets
1,641,180 
    
1,652,711 
    
             
Liabilities
            
Deposits by banks
74,487 
328 
1.76 
94,330 
418 
1.77 
Customer accounts
340,515 
961 
1.13 
351,282 
955 
1.09 
Debt securities in issue
188,807 
736 
1.56 
193,213 
836 
1.73 
Subordinated liabilities
27,312 
159 
2.33 
29,639 
169 
2.28 
Internal funding of trading
  business
(34,829)
(26)
0.30 
(50,728)
(56)
0.44 
             
Interest-bearing liabilities –
  banking business
596,292 
2,158 
1.45 
617,736 
2,322 
1.50 
             
Trading business
283,909 
    
306,288 
    
Non-interest-bearing liabilities
            
- demand deposits
50,483 
    
49,928 
    
- other liabilities
634,662 
    
601,881 
    
Shareholders’ equity
75,834 
    
76,878 
    
             
Total liabilities and
  shareholders' equity
1,641,180 
    
1,652,711 
    


Average balance sheet – pro forma (continued)

Notes:
(1)
Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(2)
Interest-earning assets and interest-bearing liabilities exclude the Retail bancassurance long-term assets and liabilities, attributable to policyholders, in view of their distinct nature.  As a result, net interest income has been increased by £1 million (June 2010 – £2 million).
(3)
Changes in the fair value of interest-bearing financial instruments designated as at fair value through profit or loss are recorded in other operating income in the consolidated income statement.  In the average balance sheet above, interest includes increased interest income and interest expense related to these instruments of £41 million (June 2010 – £3 million) and £3 million (June 2010 – £12 million) respectively and the average balances have been adjusted accordingly.
(4)
Interest payable has been decreased by £16 million in respect of non-recurring adjustments (June 2010 – increased by £110 million).





 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

 
 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Non-interest income
£m 
£m 
£m 
  
£m 
£m 
             
Net fees and commissions
1,433 
1,467 
1,374 
  
4,379 
4,489 
Income from trading activities
1,432 
1,502 
1,297 
  
5,159 
3,209 
Other operating income
359 
232 
344 
  
1,187 
520 
             
Non-interest income (excluding insurance
  net premium income)*
3,224 
3,201 
3,015 
  
10,725 
8,218 
Insurance net premium income
1,289 
1,278 
1,301 
  
3,856 
3,958 
             
Total non-interest income
4,513 
4,479 
4,316 
  
14,581 
12,176 
             
             
* Excludes fair value of own debt impact:
            
(Loss)/income from trading activities
(330)
104 
(246)
  
(185)
(114)
Other operating income
(528)
515 
(237)
  
(223)
(298)
             
Fair value of own debt
(858)
619 
(483)
  
(408)
(412)

Key points

Q3 2010 compared with Q2 2010
·
Income from trading activities, excluding movements in the fair value of own debt, declined by £70 million, with economic uncertainty and the seasonally quieter summer period leading to weaker capital market conditions, reduced volatility and lower client activity. Non-Core income from trading activities was £219 million, compared with £33 million in the second quarter, reflecting credit market write-backs.
   
·
Other operating income, excluding movements in the fair value of own debt, improved to £359 million from £232 million in the second quarter which included a £105 million loss on disposal of sovereign debt securities, including Portugal and Greece.
   
·
The Group’s credit spreads narrowed during the quarter, resulting in a loss of £858 million on the fair value of own debt, compared with a gain of £619 million in the second quarter.

Q3 2010 compared with Q3 2009
·
Excluding fair value of own debt, GBM trading income was 38% lower than in the third quarter of 2009, which saw greater activity and volatility in capital markets. Non-Core trading income of £219 million compared with a loss of £579 million in the prior year period when losses were incurred on banking book hedges and CDPCs.
   
·
Other operating income, excluding movements in the fair value of own debt, totalled £359 million compared with £344 million in the third quarter of 2009.
   
·
The charge of £858 million on the fair value of own debt compares with a charge of £483 million in the third quarter of 2009, resulting from a sharp improvement in the Group’s credit spreads during the quarter.


 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Operating expenses
£m 
£m 
£m 
  
£m 
£m 
             
Staff costs
2,166 
2,178 
2,175 
  
6,897 
6,835 
Premises and equipment
596 
516 
619 
  
1,640 
1,850 
Other
869 
974 
943 
  
2,778 
2,904 
             
Administrative expenses
3,631 
3,668 
3,737 
  
11,315 
11,589 
Depreciation and amortisation
465 
435 
458 
  
1,314 
1,339 
             
Operating expenses
4,096 
4,103 
4,195 
  
12,629 
12,928 
             
             
             
General insurance
1,092 
1,348 
1,054 
  
3,547 
2,919 
Bancassurance
50 
(25)
91 
  
54 
117 
             
Insurance net claims
1,142 
1,323 
1,145 
  
3,601 
3,036 
             
             
             
Staff costs as a % of total income
27% 
27% 
29% 
  
27% 
31% 

Key points

Q3 2010 compared with Q2 2010
·
Total expenses were flat at £4,096 million. Excluding a £74 million credit in Q2 2010 relating to changes to the US defined benefit pension plan, expenses were down 2% due to good cost control and the benefits of the Group’s efficiency programmes. Staff costs were similarly well controlled.
   
·
Insurance claims fell by 14% to £1,142 million, with a reduction during the quarter in prior year-related bodily injury reserving.

Q3 2010 compared with Q3 2009
·
Total expenses were down 2% compared with a year ago due to the benefits of the Group’s efficiency programmes, particularly in relation to property and purchasing.


 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Impairment losses
£m 
£m 
£m 
  
£m 
£m 
             
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 
             
Asset category
            
Loan impairment losses
1,908 
2,479 
3,262 
  
6,989 
10,058 
Securities impairment losses
45 
8 
17 
  
126 
742 
             
Group impairment losses
1,953 
2,487 
3,279 
  
7,115 
10,800 
             
Loan impairment charge as % of gross
  loans and advances (excluding reverse
  repurchase agreements)
1.4% 
1.8% 
2.2% 
  
1.7% 
2.2% 

Key points

Q3 2010 compared with Q2 2010
·
Within Core, Retail & Commercial impairments were down 12%, £109 million, compared with the second quarter of 2010 with improvements in both personal and mortgage loans. The exception remains Ulster Bank where impairments remain elevated reflecting a very weak economy and property market. In GBM there was an absence of individual impairments and several minor recoveries.
   
·
Non-Core impairments of £1,171 million were down £219 million compared with the second quarter.

Q3 2010 compared with Q3 2009
·
Impairments were lower across most divisions compared with the elevated levels experienced in the prior year, reflecting our risk reduction actions and slightly better economic conditions. Impairment losses in Ulster Bank, however, worsened, reflecting the continuing deterioration in credit metrics across the Irish economy.
   
·
Impairments in the quarter versus a year ago were down 36% in Core and 43% in Non-Core.


 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Credit and other market (gains)/losses (1)
£m 
£m 
£m 
  
£m 
£m 
             
Monoline exposures
(191)
139 
106 
  
(52)
1,653 
CDPCs (2)
15 
56 
276 
  
103 
846 
Asset backed products
(160)
(97)
(147)
  
(202)
390 
Other credit exotics
2 
(47)
46 
  
(56)
588 
Equities
15 
6 
12 
  
28 
34 
Banking book hedges
123 
(147)
426 
  
12 
1,465 
Other
54 
183 
55 
  
377 
97 
             
Net credit and other market (gains)/losses
(142)
93 
774 
  
210 
5,073 

Notes:
(1)
Included in ‘Income from trading activities’, all in Non-Core in Q3 2010.
(2)
Credit derivative product companies.

Key points

Q3 2010 compared with Q2 2010
 
●
Net gains of £142 million compared with losses of £93 million in Q2 2010, primarily reflect general tightening of credit spreads across a range of asset classes in Q3 2010, compared with widening of spreads in the second quarter, together with a rally in asset prices. These factors more than offset losses on banking book hedges.
   
●
Gains on monoline exposures reflect tightening credit spreads and net reductions in exposures, following restructuring; these were partially offset by foreign currency movements.  In Q2 2010, credit spread movements more than offset reductions in exposures from restructuring.
   
●
Gains on asset-backed products in both quarters resulted from disposals and asset price improvements.
   
●
The losses on the banking book hedges in Q3 2010 compared with gains in Q2 2010 reflect tightening credit spreads.

Q3 2010 compared with Q3 2009
●
Gains of £142 million compared with losses of £774 million in Q3 2009 when substantial losses on CDPCs and banking book hedges were incurred due to widening credit spreads.
   
●
Monoline-related gains in Q3 2010 reflect tighter credit spreads compared with widening credit spreads in Q3 2009.
   
●
In Q3 2009 widening credit spreads resulted in higher CDPC credit valuation adjustment, but it remained broadly flat in Q3 2010 primarily reflecting exchange movements and tighter credit spreads.
   
●
Asset-backed product gains in both quarters reflected disposals and price improvements.
   
●
Lower losses on banking book hedges in Q3 2010 compared with Q3 2009 reflect lower credit spread movement on a smaller book.


 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

 
Quarter ended
  
Nine months ended
 
30 September 
2010 
30 June 
2010 
30 September 
2009 
  
30 September 
2010 
30 September 
2009 
Non-operating items
£m 
£m 
£m 
  
£m 
£m 
             
Amortisation of purchased intangible assets
(123)
(85)
(73)
  
(273)
(213)
Integration and restructuring costs
(311)
(254)
(324)
  
(733)
(1,058)
Gain on redemption of own debt
- 
553 
- 
  
553 
3,790 
Strategic disposals
27 
(411)
(155)
  
(331)
298 
Bonus tax
(15)
(15)
- 
  
(84)
- 
Asset Protection Scheme credit default swap
  – fair value changes
(825)
500 
- 
  
(825)
- 
             
 
(1,247)
288 
(552)
  
(1,693)
2,817 

Key points
·
The Asset Protection Scheme (APS) is structured as a credit derivative, and movements in the fair value of the contract led to a charge of £825 million in the third quarter compared with a credit of £500 million in the second quarter. This largely reflected tightening credit spreads across the portfolio of covered assets, leading to a fall in the fair value of the protection provided by the contract. The minimum fee on the APS policy throughout its life remains £2.5 billion, with the cumulative fees paid for coverage through to the end of 2010 at £1.4 billion.
   
·
The second quarter saw £553 million of liability management gains, partially offset by losses on strategic disposals of £411 million.

 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

Capital resources and ratios
30 September 
2010
30 June 
2010 
31 December 
2009 
       
Core Tier 1 capital
£48bn 
£50bn 
£48bn 
Tier 1 capital
£59bn 
£61bn 
£63bn 
Total capital
£64bn 
£66bn 
£71bn 
Risk-weighted assets – gross
£592bn 
£597bn 
£566bn 
Benefit of Asset Protection Scheme
(£117bn)
(£123bn)
(£128bn)
Risk-weighted assets
£475bn 
£474bn 
£438bn 
Core Tier 1 ratio*
10.2%
10.5%
11.0%
Tier 1 ratio
12.5%
12.8%
14.4%
Total capital ratio
13.5%
13.9%
16.3%
 
 
* Benefit of APS in Core Tier 1 ratio is 1.2% at 30 September 2010, 1.3% at 30 June 2010 and 1.6% at 31 December 2009.

Key points
·
The attributable loss and reduced risk-weighted asset (RWA) relief on the Asset Protection Scheme led to a decline of 30 basis points to 10.2% in the Core Tier 1 ratio and to 12.5% in the Tier 1 ratio. The Total Capital ratio declined by 40 basis points to 13.5%.
   
·
Gross RWAs were broadly flat at £592 billion, reflecting successful Non-Core de-leveraging counterbalanced by the roll-off of capital relief trades within GBM.
   
·
RWAs eligible for the Asset Protection Scheme relief declined by £6 billion to £117 billion, reflecting disposals and repayments as well as changes in risk parameters.



 


RBS Group – Q3 2010 Results
 
 
 


Results summary (continued)

Balance sheet
30 September 
2010 
30 June 
2010 
31 December 
2009 
       
Total assets
£1,629bn 
£1,581bn 
£1,522bn 
Funded balance sheet
£1,080bn 
£1,058bn 
£1,084bn 
Loans and advances to customers (1)
£528bn 
£539bn 
£555bn 
Customer deposits (2)
£421bn 
£421bn 
£414bn 
Loan:deposit ratio (Core – net of provisions)
101%
102%
104%
Loan:deposit ratio (Group – net of provisions)
126%
128%
135%

Notes:
(1)
Excluding reverse repurchase agreements and stock borrowing.
(2)
Excluding repurchase agreements and stock lending.

Key points
·
The funded balance sheet increased by £22 billion during the third quarter. This reflects growth in the GBM balance sheet of £21 billion compared with the seasonally low position at the end of the second quarter and growth in our liquidity portfolio, partially offset by further deleveraging in Non-Core, which reduced its balance sheet by £20 billion to £154 billion.
   
·
Loans and advances in Retail & Commercial at constant currency were flat during the quarter at £336 billion, with growth in UK Retail balanced by small reductions elsewhere as loan demand remained subdued.
   
·
At constant exchange rates, Retail & Commercial deposits rose by 1% during the third quarter and by 6% year-on-year.  GBM deposits fell by £4.7 billion during the quarter, with excess short term balances continuing to decline.

Further discussion of the Group’s funding and liquidity position is included on pages 107 to 112.


 


 
 
 
 

 

 
 
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