rbs201011056k4.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:

 
 
 


Condensed consolidated balance sheet
at 30 September 2010 – pro forma

 
30 September 
2010 
30 June 
2010 
31 December 
2009 
 
£m 
£m 
£m 
       
Assets
      
Cash and balances at central banks
61,416 
29,591 
51,548 
Net loans and advances to banks
60,330 
54,471 
48,777 
Reverse repurchase agreements and stock borrowing
48,407 
47,663 
35,097 
Loans and advances to banks
108,737 
102,134 
83,874 
Net loans and advances to customers
528,049 
539,340 
554,654 
Reverse repurchase agreements and stock borrowing
44,503 
39,396 
41,040 
Loans and advances to customers
572,552 
578,736 
595,694 
Debt securities
226,410 
236,260 
249,095 
Equity shares
21,755 
17,326 
15,960 
Settlement balances
22,874 
20,718 
12,024 
Derivatives
548,805 
522,871 
438,199 
Intangible assets
14,369 
14,482 
14,786 
Property, plant and equipment
17,398 
17,608 
17,773 
Deferred taxation
5,907 
5,841 
6,492 
Prepayments, accrued income and other assets
11,903 
13,630 
18,604 
Assets of disposal groups
16,537 
21,656 
18,432 
       
Total assets
1,628,663 
1,580,853 
1,522,481 
       
Liabilities
      
Bank deposits
80,186 
96,614 
115,642 
Repurchase agreements and stock lending
41,465 
44,165 
38,006 
Deposits by banks
121,651 
140,779 
153,648 
Customer deposits
420,639 
420,890 
414,251 
Repurchase agreements and stock lending
87,287 
70,655 
68,353 
Customer accounts
507,926 
491,545 
482,604 
Debt securities in issue
235,083 
217,317 
246,329 
Settlement balances
20,628 
19,730 
10,412 
Short positions
44,004 
42,994 
40,463 
Derivatives
543,397 
508,966 
421,534 
Accruals, deferred income and other liabilities
23,650 
24,842 
24,624 
Retirement benefit liabilities
2,606 
2,600 
2,715 
Deferred taxation
2,237 
2,126 
2,161 
Insurance liabilities
6,782 
6,521 
7,633 
Subordinated liabilities
27,890 
27,523 
31,538 
Liabilities of disposal groups
15,667 
16,999 
18,857 
       
Total liabilities
1,551,521 
1,501,942 
1,442,518 
       
Equity
      
Minority interests
1,542 
2,109 
2,227 
Owners’ equity*
75,600 
76,802 
77,736 
       
Total equity
77,142 
78,911 
79,963 
       
Total liabilities and equity
1,628,663 
1,580,853 
1,522,481 
       
       
* Owners’ equity attributable to:
      
Ordinary and B shareholders
70,856 
72,058 
69,890 
Other equity owners
4,744 
4,744 
7,846 
       
 
75,600 
76,802 
77,736 

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Commentary on condensed consolidated balance sheet – pro forma

Total assets of £1,628.7 billion at 30 September 2010 were up £47.8 billion, 3%, compared with 30 June 2010.

Cash and balances at central banks were up £31.8 billion, 108% to £61.4 billion.

Loans and advances to banks increased by £6.6 billion, 6%, to £108.7 billion. Reverse repurchase agreements and stock borrowing (‘reverse repos’) were up £0.7 billion, 2% to £48.4 billion and bank placings rose £5.9 billion, 11%, to £60.3 billion as a result of increased placings on the inter-bank markets.

Loans and advances to customers were down £6.2 billion, 1%, at £572.6 billion.  Within this, reverse repos were up £5.1 billion, 13%, to £44.5 billion. Excluding reverse repos, customer lending decreased by £11.3 billion, 2%, to £528.0 billion or £9.8 billion before impairment provisions. This reflected reductions, in constant currency terms, in Non-Core of £6.8 billion, together with declines in UK Corporate, £1.7 billion, Global Transaction Services, £1.2 billion, Global Banking & Markets, £1.2 billion and US Retail & Commercial, £1.1 billion together with the effect of exchange rate movements, £0.2 billion. These were offset by growth in UK Retail, £1.9 billion, and Wealth, £0.6 billion.

Equity shares increased £4.4 billion, 26%, to £21.8 billion driven by increased holdings within Global Banking & Markets.

Settlement balances rose £2.2 billion, 10%, to £22.9 billion as a result of customer activity principally within Global Banking & Markets.

Movements in the value of derivative assets, up £25.9 billion, 5%, to £548.8 billion, and liabilities, up £34.4 billion, 7%, to £543.4 billion, primarily reflect changes in interest rates, currency movements, with Sterling strengthening against the US dollar offset in part by weakening against the Euro, and growth in trading volumes.

Assets of disposal groups reduced by £5.1 billion, 24%, to £16.5 billion resulting primarily from the completion of disposals of RBS Sempra’s Oil, Metals and European Gas & Power business, the Eurosales Finance businesses in France and Germany and certain of the Group’s Asian and Latin American businesses.

Deposits by banks declined £19.1 billion, 14%, to £121.7 billion, reflecting reduced inter-bank deposits, down £16.4 billion, 17%, to £80.2 billion and decreased repurchase agreements and stock lending (‘repos’), down £2.7 billion, 6%, to £41.5 billion.

Customer accounts rose £16.4 billion, 3%, to £507.9 billion.  Within this, repos increased £16.6 billion, 24%, to £87.3 billion.  Excluding repos, customer deposits were down £0.2 billion, to £420.6 billion, with reductions, in constant currency terms, in Global Banking & Markets, £4.8 billion, Wealth, £1.4 billion and Ulster Bank, £0.2 billion, together with the effect of exchange rate movements of £1.5 billion. This was partially offset by growth in UK Corporate, £2.6 billion, Global Transaction Services, £2.3 billion, UK Retail, £1.4 billion and US Retail & Commercial, £1.1 billion.

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Commentary on condensed consolidated balance sheet – pro forma

Debt securities in issue were up £17.8 billion, 8%, to £235.1 billion, principally as a result of the Group’s capital raising programme in the third quarter, coupled with movements in Global Banking & Markets.

Liabilities of disposal groups declined £1.3 billion, 8%, to £15.7 billion primarily reflecting the completion of several disposals in the quarter.

Owners' equity reduced by £1.2 billion, 2%, to £75.6 billion. The attributable loss for the period, £1.1 billion, and exchange rate movements, £0.7 billion, were offset in part by an increase in cash flow hedging reserves, £0.4 billion, and reduced losses in available-for-sale reserves, £0.2 billion.




 
 
 

RBS Group – Q3 2010 Results
 
 
 

Condensed consolidated statement of changes in equity
for the period ended 30 September 2010 – pro forma

 
 
 Nine months 
ended 
 30 September 
2010 
 
Six months 
ended 
30 June 
2010 
Year ended 
31 December 
2009 
 
£m 
£m 
£m 
       
Called-up share capital
      
At beginning of period
14,630 
14,630 
9,898 
Ordinary shares issued in respect of placing and open offers
- 
- 
4,227 
B shares issued
- 
- 
510 
Other shares issued during the period
402 
401 
- 
Preference shares redeemed during the period
(2)
(2)
(5)
       
At end of period
15,030 
15,029 
14,630 
       
Paid-in equity
      
At beginning of period
565 
565 
1,073 
Securities redeemed during the period
(132)
(132)
(308)
Transfer to retained earnings
(2)
(2)
(200)
       
At end of period
431 
431 
565 
       
Share premium account
      
At beginning of period
23,523 
23,523 
27,471 
Ordinary shares issued in respect of placing and open offer, net of £95 million
  expenses
- 
- 
1,047 
Other shares issued during the period
217 
217 
- 
Preference shares redeemed during the period
- 
- 
(4,995)
Redemption of preference shares classified as debt
118 
118 
- 
       
At end of period
23,858 
23,858 
23,523 
       
Merger reserve
      
At beginning of period
25,522 
25,522 
10,881 
Issue of B shares, net of £399 million expenses
- 
- 
24,591 
Transfer to retained earnings
(12,250)
(12,250)
(9,950)
       
At end of period
13,272 
13,272 
25,522 
       
Available-for-sale reserves
      
At beginning of period
(1,755)
(1,755)
(3,561)
Unrealised gains in the period
1,327 
647 
1,202 
Realised (gains)/losses in the period
(535)
(127)
981 
Taxation
(263)
(208)
(377)
Recycled to profit or loss on disposal of businesses, net of £6 million tax
(16)
(16)
- 
       
At end of period
(1,242)
(1,459)
(1,755)
       
Cash flow hedging reserve
      
At beginning of period
(252)
(252)
(876)
Amount recognised in equity during the period
329 
(58)
380 
Amount transferred from equity to earnings in the period
138 
17 
513 
Taxation
(154)
- 
(269)
Recycled to profit or loss on disposal of businesses, net of £20 million tax
58 
58 
- 
       
At end of period
119 
(235)
(252)


 
 
 

RBS Group – Q3 2010 Results
 
 
 

Condensed consolidated statement of changes in equity
for the period ended 30 September 2010 – pro forma (continued)

 
Nine months 
ended 
30 September 
2010 
Six months 
ended 
30 June 
2010 
Year ended 
31 December 
2009 
 
£m 
£m 
£m 
       
Foreign exchange reserve
      
At beginning of period
4,528 
4,528 
6,385 
Retranslation of net assets
997 
1,775 
(2,322)
Foreign currency (losses)/gains on hedges of net assets
(452)
(609)
456 
Taxation
29 
72 
9 
Recycled to profit or loss on disposal of businesses
(17)
(11)
- 
       
At end of period
5,085 
5,755 
4,528 
       
Capital redemption reserve
      
At beginning of period
170 
170 
170 
Preference shares redeemed during the period
2 
2 
- 
       
At end of period
172 
172 
170 
       
Contingent capital reserve
      
At beginning of period
(1,208)
(1,208)
- 
Contingent capital agreement – consideration payable
- 
- 
(1,208)
       
At end of period
(1,208)
(1,208)
(1,208)
       
Retained earnings
      
At beginning of period
12,134 
12,134 
7,542 
(Loss)/profit attributable to ordinary shareholders and other equity owners
      
- continuing operations
(985)
163 
(2,600)
- discontinued operations
(28)
(30)
(72)
Equity preference dividends paid
(105)
(105)
(878)
Paid-in equity dividends paid, net of tax
(19)
(19)
(57)
Transfer from paid-in equity
      
- gross
2 
2 
200 
- taxation
(1)
(1)
- 
Equity owners gain on withdrawal of minority interest
      
- gross
40 
40 
629 
- taxation
(11)
(11)
(176)
Redemption of equity preference shares
(2,968)
(2,968)
- 
Gain on redemption of equity preference shares
609 
609 
- 
Redemption of preference shares classified as debt
(118)
(118)
- 
Transfer from merger reserve
12,250 
12,250 
9,950 
Actuarial losses recognised in retirement benefit schemes
      
- gross
- 
- 
(3,756)
- taxation
- 
- 
1,043 
Net cost of shares bought and used to satisfy share-based payments
(11)
(9)
(16)
Share-based payments
      
- gross
103 
61 
325 
- taxation
12 
5 
- 
       
At end of period
20,904 
22,003 
12,134 
       
Own shares held
      
At beginning of period
(121)
(121)
(104)
Shares purchased during the period
(711)
(704)
(33)
Shares issued under employee share schemes
11 
9 
16 
       
At end of period
(821)
(816)
(121)
       
Owners’ equity at end of period
75,600 
76,802 
77,736 
 
Condensed consolidated statement of changes in equity
for the period ended 30 September 2010 – pro forma (continued)

 
Nine months 
ended 
30 September 
2010 
Six months 
ended 
30 June 
2010 
Year ended 
31 December 
2009 
 
£m 
£m 
£m 
       
Minority interests
      
At beginning of period
2,227 
2,227 
5,436 
Currency translation adjustments and other movements
57 
91 
(152)
Profit attributable to minority interests
72 
42 
648 
Dividends paid
(172)
(143)
(313)
Movements in available-for-sale securities
      
- unrealised gains in the period
- 
- 
23 
- realised gains in the period
- 
- 
(359)
Equity raised
- 
- 
9 
Equity withdrawn and disposals
(602)
(68)
(2,436)
Transfer to retained earnings
(40)
(40)
(629)
       
At end of period
1,542 
2,109 
2,227 
       
Total equity at end of period
77,142 
78,911 
79,963 
       
Total comprehensive income/(loss) recognised in the statement of
  changes in equity is attributable as follows:
      
Minority interests
129 
133 
160 
Preference shareholders
105 
105 
878 
Paid-in equity holders
19 
19 
57 
Ordinary and B shareholders
304 
1,549 
(5,747)
       
 
557 
1,806 
(4,652)



 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results

1. Basis of preparation

Pro forma results
The pro forma financial information, prepared using the Group’s accounting policies, shows the underlying performance of the Group including the results of the ABN AMRO businesses retained by the Group.  This information is provided to give a better understanding of the results of the Group’s operations.  Group operating profit on a pro forma basis excludes:

·
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;
   
·
write-down of goodwill and other intangible assets; and
   
·
other Consortium Members’ interest in shared assets.

From 1 April 2010, other than these differences in presentation, the Group’s pro forma and statutory results are substantially the same.

Acquisition and separation of ABN AMRO
On 17 October 2007, RFS Holdings B.V, completed the acquisition of ABN AMRO Holding N.V which was renamed RBS Holdings N.V. on 1 April 2010 when the shares in ABN AMRO Bank N.V. were transferred to ABN AMRO Group N.V., a holding company for the interests of the Dutch State.  This marked the substantial completion of the restructuring of the activities of ABN AMRO Holding N.V. in accordance with the agreement between the RBSG, the Dutch State and Banco Santander, SA. RBS Holdings N.V. has one direct subsidiary, The Royal Bank of Scotland N.V., a fully operational bank within the Group, which is independently rated and regulated by the Dutch Central Bank.
 
 

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

2. Analysis of income, expenses and impairment losses

 
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 
             
Loans and advances to customers
4,720 
4,749 
4,628 
  
14,171 
16,555 
Loans and advances to banks
153 
132 
196 
  
424 
676 
Debt securities
702 
1,003 
873 
  
2,560 
3,115 
             
Interest receivable
5,575 
5,884 
5,697 
  
17,155 
20,346 
             
Customer accounts
961 
954 
962 
  
2,795 
3,692 
Deposits by banks
328 
418 
574 
  
1,043 
2,345 
Debt securities in issue
733 
824 
785 
  
2,411 
3,772 
Subordinated liabilities
175 
60 
263 
  
435 
995 
Internal funding of trading businesses
(26)
(56)
(148)
  
(151)
(579)
             
Interest payable
2,171 
2,200 
2,436 
  
6,533 
10,225 
             
Net interest income
3,404 
3,684 
3,261 
  
10,622 
10,121 
             
Fees and commissions receivable
2,044 
2,046 
1,919 
  
6,141 
6,385 
Fees and commissions payable
            
- banking
(493)
(541)
(450)
  
(1,500)
(1,614)
- insurance related
(118)
(38)
(95)
  
(262)
(282)
             
Net fees and commissions
1,433 
1,467 
1,374 
  
4,379 
4,489 
             
Foreign exchange
442 
375 
108 
  
1,269 
1,767 
Interest rate
866 
202 
1,460 
  
2,028 
4,317 
Credit
(95)
598 
(591)
  
968 
(4,142)
Other
219 
327 
320 
  
894 
1,267 
             
Income from trading activities
1,432 
1,502 
1,297 
  
5,159 
3,209 
             
Operating lease and other rental income
338 
344 
320 
  
1,025 
982 
Changes in the fair value of securities and
  other financial assets and liabilities
22 
(165)
45 
  
(129)
(12)
Changes in the fair value of investment
  properties
(4)
(105)
(6)
  
(112)
(153)
Profit/(loss) on sale of securities
390 
5 
26 
  
542 
(148)
Profit on sale of property, plant and
  equipment
9 
3 
2 
  
21 
27 
Loss on sale of subsidiaries and associates
 (111)
- 
(8)
  
(111)
(19)
Life business profits/(losses)
49 
(23)
108 
  
61 
132 
Dividend income
17 
21 
18 
  
58 
57 
Share of profits less losses of associated
  entities
- 
17 
(13)
  
31 
(67)
Other income
(351)
135 
(148)
  
(199)
(279)
             
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 
             
Total income
7,917 
8,163 
7,577 
  
25,203 
22,297 




Notes to pro forma results (continued)

2. Analysis of income, expenses and impairment losses (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 
             
Staff costs
            
- wages, salaries and other staff costs
1,860 
1,929 
1,840 
  
5,984 
5,869 
- social security costs
153 
159 
131 
  
504 
423 
- pension costs
153 
90 
204 
  
409 
543 
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 
             
             
Loan impairment losses
1,908 
2,479 
3,262 
  
6,989 
10,058 
Securities impairment losses
45 
8 
17 
  
126 
742 
             
Impairment losses
1,953 
2,487 
3,279 
  
7,115 
10,800 

Note:
The data above excludes 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.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

3. Loan impairment provisions
Operating profit/(loss) is stated after charging loan impairment losses of £1,908 million (half year ended 30 June 2010 – £5,081 million; year ended 31 December 2009 – £13,090 million). The balance sheet loan impairment provisions increased in the quarter ended 30 September 2010 from £16,166 million to £17,670 million and the movements thereon were:

 
Quarter ended
  
Half year 
 ended 
  
Year ended 
 
30 September 2010
  
30 June 
2010 
  
31 December 
2009 
Core 
Non-Core 
Total 
 
£m 
£m 
£m 
  
£m 
  
£m 
               
At beginning of period
7,633 
8,533 
16,166 
  
15,173 
  
9,451 
Transfers to disposal groups
- 
- 
- 
  
(67)
  
(321)
Intra-group transfers
(351)
351 
- 
  
- 
  
- 
Currency translation and other adjustments
116 
175 
291 
  
(160)
  
(428)
Disposals
- 
- 
- 
  
(17)
  
(65)
Amounts written-off
(416)
(329)
(745)
  
(3,781)
  
(6,478)
Recoveries of amounts previously
  written-off
80 
85 
165 
  
150 
  
325 
Charge to income statement
779 
1,129 
1,908 
  
5,081 
  
13,090 
Unwind of discount
(50)
(65)
(115)
  
(213)
  
(401)
               
At end of period
7,791 
9,879 
17,670 
  
16,166 
  
15,173 

Provisions at 30 September 2010 include £127 million (30 June 2010 – £139 million; 31 December 2009 – £157 million) in respect of loans and advances to banks. The table above excludes impairment charges relating to securities.

4. Strategic disposals

 
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 
             
Gain/(loss) on sale of investments in:
            
- RBS Asset Management’s investment
    strategies business
- 
- 
- 
  
80 
- 
- Asian branches and businesses
- 
(10)
- 
  
(10)
- 
- Latin American businesses
3 
-
- 
  
3 
- 
- RBS Sempra Commodities – oils, metals
    and European gas & power business
11 
- 
- 
  
11 
- 
- Factoring businesses in France and
    Germany
8 
- 
- 
  
8 
- 
- Bank of China (1)
- 
- 
(5)
  
- 
236 
- Linea Directa
- 
- 
- 
  
- 
212 
Provision for loss on disposal of:
            
- Latin American business
1 
(142)
- 
  
(163)
- 
- Asian branches and businesses
5 
3 
(150)
  
13 
(150)
- Life assurance business
- 
(235)
- 
  
(235)
- 
- Other
(1)
(27)
- 
  
(38)
- 
             
 
27 
(411)
(155)
  
(331)
298 

Note:
(1)
Including £359 million attributable to minority interests.


Notes to pro forma results (continued)

5. Taxation
The credit/(charge) for taxation differs from the tax credit/(charge) computed by applying the standard UK corporation tax rate of 28% as follows:

 
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 before tax
(1,379)
1,157 
(2,077)
  
(243)
(2,062)
             
Expected tax credit/(charge) at 28%
386 
(324)
582 
  
68 
578 
Unrecognised timing differences
- 
52 
223 
  
- 
207 
Other non-deductible items
(77)
(198)
(35)
  
(306)
(108)
Non-taxable items:
            
- gain on redemption of own debt
- 
12 
- 
  
12 
692 
- other
37 
62 
27 
  
101 
203 
Taxable foreign exchange movements
(5)
7 
(9)
  
2 
14 
Foreign profits taxed at other rates
(56)
(210)
(126)
  
(394)
(173)
Reduction in deferred tax asset following
  change in the rate of UK corporation tax
(90)
- 
- 
  
(90)
- 
Losses in period not recognised
9 
(280)
(83)
  
(354)
(267)
Losses brought forward and utilised
(1) 
3 
6 
  
10 
29 
Adjustments in respect of prior periods
58 
51 
(9)
  
281 
(187)
             
Actual tax credit/(charge)
261 
(825)
576 
  
(670)
988 
             
Effective tax rate
18.9% 
71.3% 
27.7% 
  
nm 
47.9% 

The unusually high tax charge in the first nine months of 2010 reflects profits in high tax regimes and losses in low tax regimes, together with £354 million relating to losses in overseas subsidiaries for which a deferred tax asset has not been recognised, and £166 million mainly in respect of losses on disposal of businesses for which no tax relief is available. This was offset in part by the release of provisions of £281 million mainly due to settlement of a number of tax issues relating to prior years.

The Group has recognised a deferred tax asset at 30 September 2010 of £5,907 million, of which £3,741 million relates to carried forward trading losses in the UK.  Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 30 September 2010 and concluded that it is recoverable based on base case future profit projections.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

6. Profit attributable to minority interests

 
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 
             
Trust preferred securities
- 
- 
2 
  
10 
47 
Investment in Bank of China
- 
- 
- 
  
- 
359 
Sempra
26 
20 
35 
  
46 
179 
RBS N.V.
(2)
1 
2 
  
(1)
4 
Other
6 
9 
8 
  
17 
12 
             
Profit attributable to minority interests
30 
30 
47 
  
72 
601 


7. Profit attributable to preference shareholders and paid-in equity holders

 
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 
             
Preference shareholders
            
Non-cumulative preference shares of US$0.01
- 
- 
100 
  
105 
279 
Non-cumulative preference shares of €0.01
- 
- 
81 
  
- 
138 
Non-cumulative preference shares of £1
            
- issued to UK Financial Investments Limited (1)
- 
- 
- 
  
- 
274 
- other
- 
- 
61 
  
- 
61 
             
Paid-in equity holders
            
Interest on securities classified as equity, net
  of tax
- 
19 
3 
  
19 
39 
             
 
- 
19 
245 
  
124 
791 

Note:
(1)
Includes £50 million redemption premium on repayment of preference shares.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

8. Earnings per ordinary and B share

Earnings per ordinary and B share have been calculated based on the following:

 
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 
             
Earnings
            
(Loss)/profit from continuing operations
  attributable to ordinary and B shareholders
(1,148)
283 
(1,793)
  
(1,109)
(2,777)
Gain on redemption of preference shares and
  paid-in equity
- 
610 
- 
  
610 
200 
             
Adjusted (loss)/profit from continuing
  operations attributable to ordinary and B
  shareholders
(1,148)
893 
(1,793)
  
(499)
(2,577)
             
Profit/(loss) from discontinued operations
  attributable to ordinary and B shareholders
2 
(26)
(7)
  
(28)
(65)
             
Ordinary shares in issue during the period
  (millions)
56,164 
56,413 
56,230 
  
56,271 
49,899 
B shares in issue during the period (millions)
51,000 
51,000 
- 
  
51,000 
- 
             
Weighted average number of ordinary and
  B shares in issue during the
  period (millions)
107,164 
107,413 
56,230 
  
107,271 
49,899 
             
Basic (loss)/earnings per ordinary and B
  share from continuing operations
(1.1p)
0.8p 
(3.2p)
  
(0.5p)
(5.2p)
Amortisation of purchased intangible assets
0.1p 
0.1p 
0.1p 
  
0.2p 
0.3p 
Integration and restructuring costs
0.2p 
0.2p 
0.4p 
  
0.5p 
1.5p 
Gain on redemption of own debt (1)
- 
(1.0p)
- 
  
(1.0p)
(7.2p)
Strategic disposals
- 
0.4p 
0.3p 
  
0.3p 
(0.6p)
Bonus tax
- 
- 
- 
  
0.1p 
- 
Asset Protection Scheme credit default swap
  – fair value changes
0.6p 
(0.3p)
- 
  
0.6p 
- 
Write-down of goodwill and other intangible
  assets
- 
- 
- 
  
- 
0.6p 
             
Adjusted (loss)/earnings per ordinary and
  B share from continuing operations
(0.2p)
0.2p 
(2.4p)
  
0.2p 
(10.6p)
Loss from Non-Core attributable to
  ordinary and B shareholders
- 
0.2p 
3.1p 
  
1.1p 
20.3p 
             
Core adjusted (loss)/earnings per ordinary
  and B share from continuing operations
(0.2p)
0.4p 
0.7p 
  
1.3p 
9.7p 
Core impairment losses
- 
0.3p 
1.6p 
  
0.8p 
5.4p 
             
Pre-impairment Core adjusted
  (loss)/earnings per ordinary and B share
(0.2p)
0.7p 
2.3p 
  
2.1p 
15.1p 
             
Basic loss per ordinary and B share from
  discontinued operations
- 
- 
- 
  
- 
(0.1p)

Note:
(1)
Gain on redemption of own debt includes gains on redemption of instruments classified as equity which are included in basic earnings.

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

9. Segmental analysis

Analysis of divisional operating profit/(loss)
The following tables provide an analysis of the divisional profit/(loss) for the quarters ended 30 September 2010, 30 June 2010 and for the nine month period ended 30 September 2010, by main income statement captions. The pro forma divisional income statements on pages 24 to 56 reflect certain presentational reallocations as described in the notes below.  These do not affect the overall operating profit/(loss).

 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
 Insurance 
net claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Quarter ended 30 September 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail (1)
1,056 
376 
1,432 
(733)
(50)
(251)
398 
UK Corporate
662 
324 
986 
(406)
- 
(158)
422 
Wealth
156 
108 
264 
(189)
- 
(1)
74 
Global Transaction Services
257 
411 
668 
(356)
- 
(3)
309 
Ulster Bank
192 
52 
244 
(134)
- 
(286)
(176)
US Retail & Commercial
480 
271 
751 
(553)
- 
(125)
73 
Global Banking & Markets (2)
309 
1,245 
1,554 
(1,005)
- 
40 
589 
RBS Insurance (3)
92 
999 
1,091 
(175)
(949)
- 
(33)
Central items
(154)
193 
39 
34 
1 
2 
76 
               
Core (before fair value of own
  debt)
3,050 
3,979 
7,029 
(3,517)
(998)
(782)
1,732 
Fair value of own debt (4)
- 
(858)
(858)
- 
- 
- 
(858)
               
Core
3,050 
3,121 
6,171 
(3,517)
(998)
(782)
874 
Non-Core (5)
354 
534 
888 
(579)
(144)
(1,171)
(1,006)
               
 
3,404 
3,655 
7,059 
(4,096)
(1,142)
(1,953)
(132)
Amortisation of purchased intangible
  assets
- 
- 
- 
(123)
- 
- 
(123)
Integration and restructuring costs
- 
- 
- 
(311)
- 
- 
(311)
Strategic disposals
- 
27 
27 
- 
- 
- 
27 
Bonus tax
- 
- 
- 
(15)
- 
- 
(15)
Asset Protection Scheme credit
  default swap – fair value changes
- 
(825)
(825)
- 
- 
- 
(825)
               
 
3,404 
2,857 
6,261 
(4,545)
(1,142)
(1,953)
(1,379)
RFS Holdings minority interest
7 
(182)
(175)
(6)
- 
- 
(181)
               
Total statutory
3,411 
2,675 
6,086 
(4,551)
(1,142)
(1,953)
(1,560)

Notes:
(1)
Reallocation of netting of bancassurance claims of £50 million from non-interest income.
(2)
Reallocation of £8 million between net interest income and non-interest income in respect of funding costs of rental assets.
(3)
Total income includes £75 million investment income of which £55 million is included in net interest income and £20 million in non-interest income. Reallocation of £37 million between non-interest income and net interest income in respect of instalment income.
(4)
Comprises £598 million in relation to Global Banking & Markets and £260 million in relation to Group Centre.
(5)
Reallocation of £84 million between net interest income and non-interest income in respect of funding costs of rental assets, £79 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £5 million.




 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

9. Segmental analysis (continued)

Analysis of divisional operating profit/(loss) (continued)

 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
Insurance 
net claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Quarter ended 30 June 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail (1)
1,001 
294 
1,295 
(744)
25 
(300)
276 
UK Corporate
647 
340 
987 
(399)
- 
(198)
390 
Wealth
150 
116 
266 
(178)
- 
(7)
81 
Global Transaction Services
237 
411 
648 
(366)
- 
(3)
279 
Ulster Bank
194 
53 
247 
(143)
- 
(281)
(177)
US Retail & Commercial
502 
275 
777 
(504)
- 
(144)
129 
Global Banking & Markets (2)
320 
1,627 
1,947 
(1,033)
- 
(164)
750 
RBS Insurance (3)
90 
1,015 
1,105 
(176)
(1,132)
- 
(203)
Central items
71 
(53)
18 
32 
(1)
- 
49 
               
Core (before fair value of own
  debt)
3,212 
4,078 
7,290 
(3,511)
(1,108)
(1,097)
1,574 
Fair value of own debt (4)
- 
619 
619 
- 
- 
- 
619 
               
Core
3,212 
4,697 
7,909 
(3,511)
(1,108)
(1,097)
2,193 
Non-Core (5)
472 
401 
873 
(592)
(215)
(1,390)
(1,324)
               
 
3,684 
5,098 
8,782 
(4,103)
(1,323)
(2,487)
869 
Amortisation of purchased
  intangible assets
- 
- 
- 
(85)
- 
- 
(85)
Integration and restructuring costs
- 
- 
- 
(254)
- 
- 
(254)
Gain on redemption of own debt
- 
553 
553 
- 
- 
- 
553 
Strategic disposals
- 
(411)
(411)
- 
- 
- 
(411)
Bonus tax
- 
- 
- 
(15)
- 
- 
(15)
Asset Protection Scheme credit
  default swap – fair value changes
- 
500 
500 
- 
- 
- 
500 
               
 
3,684 
5,740 
9,424 
(4,457)
(1,323)
(2,487)
1,157
RFS Holdings minority interest
(8)
21 
13 
4 
- 
- 
17 
               
Total statutory
3,676 
5,761 
9,437 
(4,453)
(1,323)
(2,487)
1,174 

Notes:
(1)
Reallocation of netting of bancassurance claims of £25 million from non-interest income.
(2)
Reallocation of £15 million between net interest income and non-interest income in respect of funding costs of rental assets, £9 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £6 million.
(3)
Total income includes £74 million investment income of which £55 million is included in net interest income and £19 million in non-interest income. Reallocation of £35 million between non-interest income and net interest income in respect of instalment income.
(4)
Comprises £331 million in relation to Global Banking & Markets and £288 million in relation to Group Centre.
(5)
Reallocation of £62 million between net interest income and non-interest income in respect of funding costs of rental assets, £78 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £16 million.








 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

9. Segmental analysis (continued)

Analysis of divisional operating profit/(loss) (continued)

 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
Insurance 
net 
 claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Nine months ended 30 September 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail (1)
2,990 
1,014 
4,004 
(2,198)
(54)
(938)
814 
UK Corporate
1,919 
993 
2,912 
(1,240)
- 
(542)
1,130 
Wealth
449 
336 
785 
(556)
- 
(12)
217 
Global Transaction Services
711 
1,212 
1,923 
(1,096)
- 
(6)
821 
Ulster Bank
574 
158 
732 
(437)
- 
(785)
(490)
US Retail & Commercial
1,450 
798 
2,248 
(1,594)
- 
(412)
242 
Global Banking & Markets (2)
1,001 
5,324 
6,325 
(3,332)
- 
(156)
2,837 
RBS Insurance (3)
271 
3,024 
3,295 
(526)
(3,055)
- 
(286)
Central items
(68)
352 
284 
177 
- 
1 
462 
               
Core (before fair value of own debt)
9,297 
13,211 
22,508 
(10,802)
(3,109)
(2,850)
5,747 
Fair value of own debt (4)
- 
(408)
(408)
- 
- 
- 
(408)
               
Core
9,297 
12,803 
22,100 
(10,802)
(3,109)
(2,850)
5,339 
Non-Core (5)
1,325 
1,370 
2,695 
(1,827)
(492)
(4,265)
(3,889)
               
 
10,622 
14,173 
24,795 
(12,629)
(3,601)
(7,115)
1,450 
Amortisation of purchased
  intangible assets
- 
- 
- 
(273)
- 
- 
(273)
Integration and restructuring costs
- 
- 
- 
(733)
- 
- 
(733)
Gain on redemption of own debt
- 
553 
553 
- 
- 
- 
553 
Strategic disposals
- 
(331)
(331)
- 
- 
- 
(331)
Bonus tax
- 
- 
- 
(84)
- 
- 
(84)
Asset Protection Scheme credit
  default swap – fair value changes
- 
(825)
(825)
- 
- 
- 
(825)
               
 
10,622 
13,570 
24,192 
(13,719)
(3,601)
(7,115)
(243)
RFS Holdings minority interest
7 
(153)
(146)
(2)
- 
- 
(148)
               
Total statutory
10,629 
13,417 
24,046 
(13,721)
(3,601)
(7,115)
(391)

Notes:
(1)
Reallocation of netting of bancassurance claims of £54 million from non-interest income.
(2)
Reallocation of £30 million between net interest income and non-interest income in respect of funding costs of rental assets, £26 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £4 million.
(3)
Total income includes £200 million investment income, £164 million included in net interest income and £36 million in non-interest income. Reallocation of £107 million between non-interest income and net interest income in respect of instalment income.
(4)
Comprises £299 million in relation to Global Banking & Markets and £109 million in relation to Group Centre.
(5)
Reallocation of £215 million between net interest income and non-interest income in respect of funding assets, £226 million, and to record interest in financial assets and liabilities designated as fair value through profit or loss, £11 million.

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments

Classification
The following tables analyse the Group’s financial assets and liabilities in accordance with the categories of financial instruments in IAS 39: held-for-trading (HFT), designated as at fair value through profit or loss (DFV), available-for-sale (AFS), loans and receivables (LAR) and other financial instruments. Assets and liabilities outside the scope of IAS 39 are shown separately.
 
HFT 
DFV 
AFS
LAR
Other
financial instruments
Non
financial
instruments
Finance 
leases 
Total 
30 September 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
Cash and balances at central banks
- 
- 
- 
61,416 
- 
- 
- 
61,416 
Loans and advances to banks
                
- net loans and advances
26,044 
- 
- 
34,286 
- 
- 
- 
60,330 
- reverse repos
43,536 
- 
- 
4,871 
- 
- 
- 
48,407 
Loans and advances to customers
                
- net loans and advances
27,987 
1,478 
- 
487,415 
- 
- 
11,169 
528,049 
- reverse repos
32,907 
- 
- 
11,596 
- 
- 
- 
44,503 
Debt securities
105,390 
603 
113,151 
7,266 
- 
- 
- 
226,410 
Equity shares
18,007 
1,611 
2,137 
- 
- 
- 
- 
21,755 
Settlement balances
- 
- 
- 
22,874 
- 
- 
- 
22,874 
Derivatives (1)
548,805 
- 
- 
- 
- 
- 
- 
548,805 
Intangible assets
- 
- 
- 
- 
- 
14,369 
- 
14,369 
Property, plant and equipment
- 
- 
- 
- 
- 
17,398 
- 
17,398 
Deferred taxation
- 
- 
- 
- 
- 
5,907 
- 
5,907 
Prepayments, accrued income and
  other assets
- 
- 
- 
1,209 
- 
10,694 
- 
11,903 
Assets of disposal groups
- 
- 
- 
- 
- 
16,537 
- 
16,537 
                 
Total assets
802,676 
3,692 
115,288 
630,933 
- 
64,905 
11,169 
1,628,663 
                 
Deposits by banks
                
- bank deposits
39,781 
- 
- 
- 
40,405 
- 
- 
80,186 
- repos
24,871 
- 
- 
- 
16,594 
- 
- 
41,465 
Customer accounts
                
- customer deposits
11,220 
4,494 
- 
- 
404,925 
- 
- 
420,639 
- repos
59,295 
- 
- 
- 
27,992 
- 
- 
87,287 
Debt securities in issue
6,279 
44,141 
- 
- 
184,663 
- 
- 
235,083 
Settlement balances
- 
- 
- 
- 
20,628 
- 
- 
20,628 
Short positions
44,004 
- 
- 
- 
- 
- 
- 
44,004 
Derivatives (1)
543,397 
- 
- 
- 
- 
- 
- 
543,397 
Accruals, deferred income and other
  liabilities
- 
- 
- 
- 
1,737 
21,449 
464 
23,650 
Retirement benefit liabilities
- 
- 
- 
- 
- 
2,606 
- 
2,606 
Deferred taxation
- 
- 
- 
- 
- 
2,237 
- 
2,237 
Insurance liabilities
- 
- 
- 
- 
- 
6,782 
- 
6,782 
Subordinated liabilities
- 
1,152 
- 
- 
26,738 
- 
- 
27,890 
Liabilities of disposal groups
- 
- 
- 
- 
- 
15,667 
- 
15,667 
                 
Total liabilities
728,847 
49,787 
- 
- 
723,682 
48,741 
464 
1,551,521 
                 
Equity
              
77,142 
                 
               
1,628,663 

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

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Classification (continued)

 
HFT 
DFV 
AFS 
LAR 
Other
financial instruments
Non
financial
instruments
Finance leases
Total 
At 30 June 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
Cash and balances at central banks
- 
- 
- 
29,591 
- 
- 
- 
29,591 
Loans and advances to banks
                
- net loans and advances
22,966 
- 
- 
31,505 
- 
- 
- 
54,471 
- reverse repos
43,787 
- 
- 
3,876 
- 
- 
- 
47,663 
Loans and advances to customers
                
- net loans and advances
21,236 
1,631 
- 
504,541 
- 
- 
11,932 
539,340 
- reverse repos
27,655 
- 
- 
11,741 
- 
- 
- 
39,396 
Debt securities
103,161 
619 
123,941 
8,539 
- 
- 
- 
236,260 
Equity shares
13,768 
688 
2,870 
-  
- 
- 
- 
17,326 
Settlement balances
- 
- 
- 
20,718 
- 
- 
- 
20,718 
Derivatives (1)
522,871 
- 
- 
- 
- 
- 
- 
522,871 
Intangible assets
- 
- 
- 
- 
- 
14,482 
- 
14,482 
Property, plant and equipment
- 
- 
- 
- 
- 
17,608 
- 
17,608 
Deferred taxation
- 
- 
- 
- 
- 
5,841 
- 
5,841 
Prepayments, accrued income and
  other assets
- 
- 
- 
1,175 
- 
12,455 
- 
13,630 
Assets of disposal groups
- 
- 
- 
- 
- 
21,656 
- 
21,656 
                 
Total assets
755,444 
2,938 
126,811 
611,686 
- 
72,042 
11,932 
1,580,853 
                 
Deposits by banks
                
- bank deposits
37,270 
- 
- 
- 
59,344 
- 
- 
96,614 
- repos
24,594 
- 
- 
- 
19,571 
- 
- 
44,165 
Customer accounts
                
- customer deposits
12,268 
4,037 
- 
- 
404,585 
- 
- 
420,890 
- repos
45,869 
- 
- 
- 
24,786 
- 
- 
70,655 
Debt securities in issue
5,703 
39,947 
- 
- 
171,667 
- 
- 
217,317 
Settlement balances
- 
- 
- 
- 
19,730 
- 
- 
19,730 
Short positions
42,994 
- 
- 
- 
- 
- 
- 
42,994 
Derivatives (1)
508,966 
- 
- 
- 
- 
- 
- 
508,966 
Accruals, deferred income and
  other liabilities
- 
- 
- 
- 
1,898 
22,456 
488 
24,842 
Retirement benefit liabilities
- 
- 
- 
- 
- 
2,600 
- 
2,600 
Deferred taxation
- 
- 
- 
- 
- 
2,126 
- 
2,126 
Insurance liabilities
- 
- 
- 
- 
- 
6,521 
- 
6,521 
Subordinated liabilities
- 
1,107 
- 
- 
26,416 
- 
- 
27,523 
Liabilities of disposal groups
- 
- 
- 
- 
- 
16,999 
- 
16,999 
                 
Total liabilities
677,664 
45,091 
- 
- 
727,997 
50,702 
488 
1,501,942 
                 
Equity
              
78,911 
                 
               
1,580,853 

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


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Classification (continued)

 
HFT 
DFV 
AFS 
LAR 
Other 
financial 
 instruments 
Non 
 financial 
instruments 
 
Finance 
leases 
Total 
At 31 December 2009
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
Cash and balances at central banks
- 
- 
- 
51,548 
- 
- 
- 
51,548 
Loans and advances to banks
                
- net loans and advances
18,563 
- 
- 
30,214 
- 
- 
-
48,777 
- reverse repos
26,886 
- 
- 
8,211 
- 
- 
- 
35,097 
Loans and advances to customers
                
- net loans and advances
15,371 
1,981 
- 
524,204 
- 
- 
13,098 
554,654 
- reverse repos
26,313 
- 
- 
14,727 
- 
- 
- 
41,040 
Debt securities
111,413 
2,429 
125,382 
9,871 
- 
- 
- 
249,095 
Equity shares
 11,318 
2,083 
2,559 
- 
- 
- 
- 
15,960 
Settlement balances
- 
- 
- 
12,024 
- 
- 
- 
12,024 
Derivatives (1)
438,199 
- 
- 
- 
- 
- 
- 
438,199 
Intangible assets
- 
- 
- 
- 
- 
14,786 
- 
14,786 
Property, plant and equipment
- 
- 
- 
- 
- 
17,773 
- 
17,773 
Deferred taxation
- 
- 
- 
- 
- 
6,492 
- 
6,492 
Prepayments, accrued income and
  other assets
- 
- 
- 
1,421 
- 
17,183 
- 
18,604 
Assets of disposal groups
- 
- 
- 
- 
- 
18,432 
- 
18,432 
                 
Total assets
648,063 
6,493 
127,941 
652,220 
- 
74,666 
13,098 
1,522,481 
                 
Deposits by banks
                
- bank deposits
32,647 
- 
- 
- 
82,995 
- 
- 
115,642 
- repos
20,962 
- 
- 
- 
17,044 
- 
- 
38,006 
Customer accounts
                
- customer deposits
11,217 
5,256 
- 
- 
397,778 
- 
- 
414,251 
- repos
41,520 
- 
- 
- 
26,833 
- 
- 
68,353 
Debt securities in issue
3,925 
41,444 
- 
- 
200,960 
- 
- 
246,329 
Settlement balances
- 
- 
- 
- 
10,412 
- 
- 
10,412 
Short positions
40,463 
- 
- 
- 
- 
- 
- 
40,463 
Derivatives (1)
421,534 
- 
- 
- 
- 
- 
- 
421,534 
Accruals, deferred income and
  other liabilities
- 
- 
- 
- 
1,889 
22,269 
466 
24,624 
Retirement benefit liabilities
- 
- 
- 
- 
- 
2,715 
- 
2,715 
Deferred taxation
- 
- 
- 
- 
- 
2,161 
- 
2,161 
Insurance liabilities
- 
- 
- 
- 
- 
7,633 
- 
7,633 
Subordinated liabilities
- 
1,277 
- 
- 
30,261 
- 
- 
31,538 
Liabilities of disposal groups
- 
- 
- 
- 
- 
18,857 
- 
18,857 
                 
Total liabilities
572,268 
47,977 
- 
- 
768,172 
53,635 
466 
1,442,518 
                 
Equity
              
79,963 
                 
               
1,522,481 

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

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Reclassification of financial instruments
As permitted by amended IAS 39, the Group reclassified certain financial assets from the HFT and AFS categories into the LAR category and from the HFT category into the AFS category in 2008 and 2009.  There were no reclassifications in the nine months ended 30 September 2010.  The following tables detail the effect of the reclassifications and the balance sheet values of the assets.

 
Reduction in profit for the quarter ended 
30 September 2010 as a result of 
reclassifications 
 
£m 
   
From HFT to:
  
AFS
81 
LAR
162 
   
 
243 


 
30 September 2010
  
30 June 2010
  
31 December 2009
 
Carrying 
 value 
Fair value 
  
Carrying 
 value 
Fair value 
  
Carrying 
 value 
Fair value 
 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                 
From HFT to:
                
AFS
6,843 
6,843 
  
7,343 
7,343 
  
7,629 
7,629 
LAR
9,703 
8,131 
  
10,596 
8,861 
  
12,933 
10,644 
                 
 
16,546 
14,974 
  
17,939 
16,204 
  
20,562 
18,273 
From AFS to:
                
LAR
449 
405 
  
969 
808 
  
869 
745 
                 
 
16,995 
15,379 
  
18,908 
17,012 
  
21,431 
19,018 

During the quarter ended 30 September 2010, the balance sheet value of reclassified assets decreased by £1.9 billion, primarily due to disposals and repayments across a range of securities and loans.

For assets reclassified from HFT to AFS, net unrealised losses recorded in equity at 30 September 2010 were £0.3 billion (30 June 2010 - £0.4 billion; 31 December 2009 - £0.6 billion).

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Financial instruments carried at fair value
Refer to Note 11 Financial instruments of the 2009 Annual Report and Accounts for valuation techniques. Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.

Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity, credit risk and future administrative costs.

Valuation reserves and adjustments comprise:

 
30 September 
2010 
30 June 
 2010 
31 March 
2010 
31 December 
2009 
 
£m 
£m 
£m 
£m 
         
Credit valuation adjustments:
        
Monoline insurers
2,678 
3,599 
3,870 
3,796 
Credit derivative product companies
622 
791 
465 
499 
Other counterparties
1,937 
1,916 
1,737 
1,588 
         
 
5,237 
6,306 
6,072 
5,883 
         
Bid-offer and liquidity reserves
3,092 
2,826 
2,965 
2,814 
         
 
8,329 
9,132 
9,037 
8,697 
         
Debit valuation adjustments (‘own credit’):
        
Debt securities in issue
(1,786)
(2,604)
(2,151)
(2,331)
Derivatives
(485)
(551)
(475)
(467)
         
Total debit valuation adjustments
(2,271)
(3,155)
(2,626)
(2,798)

Credit valuation adjustments (CVA) represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures. CVA is discussed in Risk and capital management - Other risk exposures: Credit valuation adjustments on page 123. Bid-offer and liquidity reserves and own credit is discussed on pages 78 and 79 below.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Valuation reserves (continued)

Bid-offer and liquidity reserves
Fair value positions are adjusted to bid or offer levels, by marking individual cash based positions directly to bid or offer or by taking bid-offer reserves calculated on a portfolio basis for derivatives exposures.

The bid-offer approach is based on current market spreads and standard market bucketing of risk. Risk data are used as the primary sources of information within bid-offer calculations and are aggregated when they are more granular than market standard buckets.

Bid-offer adjustments for each risk factor are determined by aggregating similar risk exposures arising on different products. Additional basis bid-offer reserves are taken where these are charged in the market. Risk associated with non identical underlying exposures is not netted down unless there is evidence that the cost of closing the combined risk exposure is less than the cost of closing on an individual basis.

Bid-offer spreads vary by maturity and risk type to reflect different spreads in the market. For positions where there is no observable quote, the bid-offer spreads are widened in comparison to proxies to reflect reduced liquidity or observability. Bid-offer methodologies also incorporate liquidity triggers whereby wider spreads are applied to risks above pre-defined thresholds.

Netting is applied across risk buckets where there is market evidence to support this. For example calendar netting and cross strike netting effects are taken into account where such trades occur regularly within the market. Netting will also apply where long and short risk in two different risk buckets can be closed out in a single market transaction at less cost than by way of two separate transactions (closing out the individual bucketed risk in isolation).
 
 
Vanilla risk on exotic products is typically reserved as part of the overall portfolio based calculation e.g. delta and vega risk is included within the delta and vega bid-offer calculations. Aggregation of risk arising from different models is in line with the Group's risk management practices; the model review control process considers the appropriateness of model selection in this respect.

Product related risks such as correlation risk attract specific bid-offer reserves. Additional reserves are provided for exotic products to ensure overall reserves match market close-out costs. These market close-out costs inherently incorporate risk decay and cross-effects which are unlikely to be adequately reflected in the static hedge based on vanilla instruments.

Where there is limited bid-offer information for a product a conservative approach is taken, taking into account pricing approach and risk management strategy.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Own credit
The Group takes into account the effect of its own credit standing, when valuing financial liabilities recorded at fair value, in accordance with IFRS. The categories of financial liabilities on which own credit spread adjustments are made are issued debt, including issued structured notes, and derivatives. An own credit adjustment is applied to positions where it is believed that counterparties would consider the Group’s creditworthiness when pricing trades.

The own credit adjustment does not alter cash flows, is not used for performance management, and is disregarded for regulatory capital reporting processes.

For issued debt and structured notes, this adjustment is based on independent quotes from market participants for the debt issuance spreads above average inter-bank rates, (at a range of tenors) which the market would demand when purchasing new senior or subordinated debt issuances from the Group.  Where necessary, these quotes are interpolated using a curve shape derived from credit default swap prices.

The fair value of the Group's derivative financial liabilities has also been adjusted to reflect the Group's own credit risk. The adjustment takes into account collateral posted by the Group and the effects of master netting agreements.

The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by the conversion of underlying currency balances at spot rates for each period, however the income statement includes intra-period foreign exchange sell-offs.

The effect of change in credit spreads could reverse in future periods provided the liability is not repaid at a premium or a discount.



 
 
 

RBS Group – Q3 2010 Results
 
 
 

Notes to pro forma results (continued)

10. Financial instruments (continued)

Valuation hierarchy
 
30 September 2010
  
30 June 2010
  
31 December 2009
 
Total 
Level 1 
Level 2 
Level 3 
  
Total 
Level 1 
Level 2 
Level 3 
  
Total 
Level 1 
Level 2 
Level 3 
Assets
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
                             
Loans and advances to
  banks
                            
- reverse repos
43.5 
- 
43.5 
- 
  
43.8 
- 
43.8 
- 
  
26.9 
- 
26.9 
- 
- collateral
25.1 
- 
25.1 
- 
  
22.3 
- 
22.3 
- 
  
18.4 
- 
18.4 
- 
- other
1.0 
- 
1.0 
- 
  
0.7 
- 
0.7 
- 
  
0.1 
- 
0.1 
- 
                             
 
69.6 
- 
69.6 
- 
  
66.8 
- 
66.8 
- 
  
45.4 
- 
45.4 
- 
                             
Loans and advances to
  customers
                            
- reverse repos
32.9 
- 
32.9 
- 
  
27.7 
- 
27.7 
- 
  
26.3 
- 
26.3 
- 
- collateral
21.7 
- 
21.7 
- 
  
15.7 
- 
15.7 
- 
  
9.9 
- 
9.9 
- 
- other
7.8 
- 
6.9 
0.9 
  
7.1 
- 
5.8 
1.3 
  
7.5 
- 
6.4 
1.1 
                             
 
62.4 
- 
61.5 
0.9 
  
50.5 
- 
49.2 
1.3 
  
43.7 
- 
42.6 
1.1 
                             
Debt securities
                            
- government
132.5 
118.5 
14.0 
- 
  
132.7 
119.0 
13.7 
- 
  
134.1 
118.2 
15.9 
- 
- RMBS (2)
45.1 
- 
44.6 
0.5 
  
48.6 
 - 
48.1 
0.5 
  
57.1 
- 
56.6 
0.5 
- CMBS (3)
4.0 
- 
3.8 
0.2 
  
4.6 
- 
4.1 
0.5 
  
4.1 
- 
4.0 
0.1 
- CDOs (4)
2.8 
- 
0.9 
1.9 
  
3.8 
- 
0.9 
2.9 
  
3.6 
- 
2.6 
1.0 
- CLOs (5)
6.0 
- 
4.2 
1.8
  
9.0 
- 
7.7 
1.3 
  
8.8 
- 
8.0 
0.8 
- other ABS (6)
5.6 
- 
4.2 
1.4 
  
5.6 
- 
4.0 
1.6 
  
6.1 
- 
5.2 
0.9 
- corporate
10.4 
- 
9.6 
0.8 
  
9.4 
 - 
8.7 
0.7 
  
10.5 
- 
9.9 
0.6 
- other (7)
12.7 
0.1 
12.4 
0.2 
  
14.0 
- 
13.8 
0.2 
  
14.9 
- 
14.7 
0.2 
                             
 
219.1 
118.6 
93.7 
6.8 
  
227.7 
119.0 
101.0 
7.7 
  
239.2 
118.2 
116.9 
4.1 
                             
Equity shares
21.8 
17.6 
2.2 
2.0 
  
17.3 
13.1 
2.4 
1.8 
  
16.0 
12.2 
2.5 
1.3 
                             
Derivatives
                            
- foreign exchange
89.6 
0.1 
89.4 
0.1 
  
85.1 
- 
85.0 
0.1 
  
68.3 
- 
68.1 
0.2 
- interest rate
422.1 
0.1 
420.3 
1.7 
  
392.8 
0.2 
390.7 
1.9 
  
321.5 
0.3 
319.7 
1.5 
- equities and commodities
6.3 
- 
6.1 
0.2 
  
5.9 
0.1 
5.8 
- 
  
6.7 
0.3 
6.1 
0.3 
- credit - APS (8)
0.6 
- 
- 
0.6 
  
1.4 
- 
- 
1.4 
  
1.4 
- 
- 
1.4 
- credit - other
30.2 
- 
26.9 
3.3 
  
37.7 
- 
33.4 
4.3 
  
40.3 
0.1 
37.2 
3.0 
                             
 
548.8 
0.2 
542.7 
5.9 
  
522.9 
0.3 
514.9 
7.7 
  
438.2 
0.7 
431.1 
6.4 
                             
Total assets
921.7 
136.4 
769.7 
15.6 
  
885.2 
132.4 
734.3 
18.5 
  
782.5 
131.1 
638.5 
12.9 
                             
Of which classified as AFS
  debt securities
                            
- government
60.5 
54.0 
6.5 
- 
  
66.2 
59.6 
6.6 
- 
  
64.9 
58.3 
6.6 
- 
- RMBS (2)
30.3 
- 
30.1 
0.2 
  
34.1 
- 
33.9 
0.2 
  
37.2 
- 
37.0 
0.2 
- CMBS (3)
1.4 
- 
1.4 
- 
  
1.5 
- 
1.5 
- 
  
1.6 
- 
1.6 
- 
- CDOs (4)
1.9 
- 
0.5 
1.4 
  
2.1 
- 
0.6 
1.5 
  
1.6 
- 
1.2 
0.4 
- CLOs (5)
5.0 
- 
3.7 
1.3 
  
5.7 
- 
5.0 
0.7 
  
5.5 
- 
5.4 
0.1 
- other ABS (6)
4.4 
- 
3.2 
1.2 
  
4.3 
- 
3.0 
1.3 
  
4.6 
- 
4.0 
0.6 
- corporate
2.6 
- 
2.6 
- 
  
2.3 
- 
2.3 
- 
  
2.5 
- 
2.5 
- 
- other (7)
7.1 
0.1 
7.0 
- 
  
7.7 
- 
7.7 
- 
  
7.5 
- 
7.5 
- 
                             
 
113.2 
54.1 
55.0 
4.1 
  
123.9 
59.6 
60.6 
3.7 
  
125.4 
58.3 
65.8 
1.3 
Equity shares
2.1 
0.3 
1.3 
0.5 
  
2.9 
0.3 
1.5 
1.1 
  
2.6 
0.3 
1.6 
0.7 
                             
 
115.3 
54.4 
56.3 
4.6 
  
126.8 
59.9 
62.1 
4.8 
  
128.0 
58.6 
67.4 
2.0 
For notes to this table refer to page 81.

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Valuation hierarchy (continued)

 
30 September 2010
  
30 June 2010
  
31 December 2009
 
Total 
Level 1 
Level 2 
Level 3 
  
Total 
Level 1 
Level 2 
Level 3 
  
Total 
Level 1 
Level 2 
Level 3 
Liabilities
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
                             
Deposits by banks
                            
- repos
24.9 
- 
24.9 
- 
  
24.6 
- 
24.6 
- 
  
21.0 
- 
21.0 
- 
- collateral
36.8 
- 
36.8 
- 
  
33.6 
- 
33.6 
- 
  
28.5 
- 
28.5 
- 
- other
3.0 
- 
3.0 
- 
  
3.7 
- 
3.7 
- 
  
4.1 
- 
4.1 
- 
                             
 
64.7 
- 
64.7 
- 
  
61.9 
- 
61.9 
- 
  
53.6 
- 
53.6 
- 
Customer accounts
                            
-  repos
59.3 
- 
59.3 
- 
  
45.8 
- 
45.8 
- 
  
41.5 
- 
41.5 
- 
- collateral
9.1 
- 
9.1 
- 
  
9.3 
- 
9.3 
- 
  
9.0 
- 
9.0 
- 
- other
6.6 
- 
6.6 
- 
  
7.0 
- 
6.9 
0.1 
  
7.5 
- 
7.4 
0.1 
                             
 
75.0 
- 
75.0 
- 
  
62.1 
- 
62.0 
0.1 
  
58.0 
- 
57.9 
0.1 
Debt securities in issue
50.4 
- 
48.9 
1.5 
  
45.7 
- 
44.4 
1.3 
  
45.4 
- 
43.1 
2.3 
                             
Short positions
44.0 
34.0 
9.3 
0.7 
  
43.0 
31.7 
10.2 
1.1 
  
40.5 
27.1 
13.2 
0.2 
Derivatives
                            
- foreign exchange
98.4 
0.1 
98.0 
0.3 
  
88.7 
- 
88.6 
0.1 
  
63.6 
- 
 63.6 
- 
- interest rate
407.5 
0.1 
406.8 
0.6 
  
377.5 
0.4 
376.2 
0.9 
  
309.3 
0.1 
308.4 
0.8 
- equities and
  commodities
9.7 
- 
9.5 
0.2 
  
9.0 
- 
8.9 
0.1 
  
9.5 
0.8 
8.5 
0.2 
- credit - other
27.8 
- 
27.4 
0.4 
  
33.8 
- 
33.3 
0.5 
  
39.1 
- 
38.2 
0.9 
                             
 
543.4 
0.2 
541.7 
1.5 
  
509.0 
0.4 
507.0 
1.6 
  
421.5 
0.9 
418.7 
1.9 
                             
Other
1.1 
- 
1.1 
- 
  
1.1 
- 
1.1 
- 
  
1.3 
- 
1.3 
- 
                             
Total liabilities
778.6 
34.2 
740.7 
3.7 
  
722.8 
32.1 
686.6 
4.1 
  
620.3 
28.0 
587.8 
4.5 

Notes:
(1)
For details on levels 1, 2 and 3 refer to Note 11 - Financial instruments of the 2009 Annual Report and Accounts.
(2)
Residential mortgage-backed securities.
(3)
Commercial mortgage-backed securities.
(4)
Collateralised debt obligations.
(5)
Collateralised loan obligation.
(6)
Asset-backed securities.
(7)
Primarily includes debt securities issued by banks and building societies.
(8)
Asset Protection Scheme.



 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

10. Financial instruments (continued)

Valuation hierarchy (continued)

Key points
·
Total assets carried at fair value increased by £36.5 billion in the quarter to £921.7 billion at 30 September 2010, principally reflecting an increase in derivatives of £25.9 billion, collateral of £8.8 billion, reverse repos of £4.9 billion, partially offset by a decrease in debt securities of £8.6 billion.
   
·
Total liabilities carried at fair value were up by £55.8 billion, with increases in derivatives of £34.4 billion, repos of £13.8 billion, debt securities in issue of £4.7 billion and collateral of £3.0 billion.
   
·
Level 3 assets represented 1.7% (30 June 2010 – 2.1%; 31 December 2009 – 1.6%) of total assets carried at fair value and decreased by £2.9 billion to £15.6 billion primarily due to disposals and tightening credit spreads.
   
·
Level 3 liabilities decreased by £0.4 billion, mainly reflecting the impact of tighter credit spreads on short positions.
   
·
The favourable and unfavourable effects of reasonably possible alternative assumptions on financial instruments carried at fair value were £3.1 billion and £3.0 billion respectively of which £1.2 billion and £1.5 billion related to the APS credit derivative. These sensitivities are not indicative of the total potential effect on the income statement or other comprehensive income.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

11. Debt securities

 
Central and local government
Banks and 
 building 
 societies 
ABS (2)
Corporate 
Other 
Total 
 
UK 
US 
Other 
Measurement classification
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
30 September 2010
                
Held-for-trading
5,302 
17,164 
49,204 
4,884 
20,475 
7,733 
628 
105,390 
DFV (1)
1 
- 
353 
3 
227 
18 
1 
603 
Available-for-sale
9,511 
17,604 
33,323 
6,910 
42,923 
2,654 
226 
113,151 
Loans and receivables
11 
- 
- 
12 
6,387 
759 
97 
7,266 
                 
 
14,825 
34,768 
82,880 
11,809 
70,012 
11,164 
952 
226,410 
                 
30 June 2010
                
Held-for-trading
8,993 
16,642 
40,589 
5,471 
23,614 
7,077 
775 
103,161 
DFV (1)
1 
- 
357 
3 
234 
24 
- 
619 
Available-for-sale
11,584 
17,194 
37,459 
7,371 
47,709 
2,324 
300 
123,941 
Loans and receivables
11 
- 
- 
18 
7,148 
1,274 
88 
8,539 
                 
 
20,589 
33,836 
78,405 
12,863 
78,705 
10,699 
1,163 
236,260 
                 
31 December 2009
                
Held-for-trading
8,128 
10,427 
50,150 
6,103 
28,820 
6,892 
893 
111,413 
DFV (1)
122 
3 
385 
418 
394 
1,087 
20 
2,429 
Available-for-sale
18,350 
12,789 
33,727 
7,472 
50,464 
2,550 
30 
125,382 
Loans and receivables
1 
- 
- 
- 
7,924 
1,853 
93 
9,871 
                 
 
26,601 
23,219 
84,262 
13,993 
87,602 
12,382 
1,036 
249,095 

Notes
(1)
Designated as at fair value through profit or loss.
(2)
Asset-backed securities.

See Risk and capital management section for information on ratings.

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

12. Derivatives

 
30 September 2010
  
30 June 2010
  
31 December 2009
 
Assets 
Liabilities 
  
Assets 
Liabilities 
  
Assets 
Liabilities 
 
£m 
£m 
  
£m 
£m 
  
£m 
£m 
                 
Exchange rate contracts
                
Spot, forwards and futures
43,109 
45,986 
  
37,670 
38,402 
  
26,559 
24,763 
Currency swaps
31,816 
38,813 
  
28,232 
32,336 
  
25,221 
23,337 
Options purchased
14,603 
- 
  
19,191 
- 
  
16,572 
- 
Options written
- 
13,586 
  
- 
17,921 
  
- 
15,499 
                 
Interest rate contracts
                
Interest rate swaps
345,631 
335,541 
  
324,978 
313,019 
  
263,902 
251,829 
Options purchased
74,395 
- 
  
65,818 
- 
  
55,471 
- 
Options written
- 
69,919 
  
- 
62,766 
  
- 
55,462 
Futures and forwards
2,151 
2,051 
  
2,033 
1,702 
  
2,088 
2,033 
                 
Credit derivatives
30,810 
27,766 
  
38,981 
33,795 
  
41,748 
39,127 
                 
Equity and commodity
  contracts
6,290 
9,735 
  
5,968 
9,025 
  
6,638 
9,484 
                 
 
548,805 
543,397 
  
522,871 
508,966 
  
438,199 
421,534 

The Group enters into master netting agreements in respect of its derivative activities. These arrangements, which give the Group a legal right to set-off derivative assets and liabilities with the same counterparty, do not result in a net presentation in the Group’s balance sheet for which IFRS requires an intention to settle net or to realise the asset and settle the liability simultaneously, as well as a legally enforceable right to set-off.  They are, however, effective in reducing the Group’s credit exposure from derivative assets.  The Group has executed master netting agreements with the majority of its derivative counterparties resulting in a significant reduction in its net exposure to derivative assets. Of the £549 billion derivative assets shown above, £449 billion (30 June 2010 - £422 billion; 31 December 2009 - £359 billion) were subject to such agreements. Furthermore, the Group holds substantial collateral against this net derivative asset exposure, see Risk and capital management: Credit risk: Derivatives on page 106.


 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

13. Available-for-sale financial assets
Available-for-sale financial assets are initially recognised at fair value plus directly related transaction costs and are subsequently measured at fair value with changes in fair value reported in shareholders’ equity until disposal, at which stage the cumulative gain or loss is recognised in profit or loss.  When there is objective evidence that an available-for-sale financial asset is impaired, any decline in its fair value below original cost is removed from equity and recognised in profit or loss.

Impairment losses are recognised when there is objective evidence of impairment. The Group reviews its portfolios of available-for-sale financial assets for such evidence which includes: default or delinquency in interest or principal payments; significant financial difficulty of the issuer or obligor; and it becoming probable that the issuer will enter bankruptcy or other financial reorganisation. However, the disappearance of an active market because an entity’s financial instruments are no longer publicly traded is not evidence of impairment. Furthermore, a downgrade of an entity’s credit rating is not, of itself, evidence of impairment, although it may be evidence of impairment when considered with other available information.  A decline in the fair value of a financial asset below its cost or amortised cost is not necessarily evidence of impairment. Determining whether objective evidence of impairment exists requires the exercise of management judgment. The unrecognised losses on the Group’s available- for-sale debt securities are concentrated in its portfolios of mortgage-backed securities. The losses reflect the widening of credit spreads as a result of the reduced market liquidity in these securities and the current uncertain macroeconomic outlook in the US and Europe. The underlying securities remain unimpaired.

During the third quarter of 2010 gains were realised by US Retail & Commercial (£215 million) and RBS N.V. (£216 million). The gain in US Retail & Commercial, which was part of its balance sheet restructuring exercise, was largely offset in the income statement by losses crystallised on the termination of swaps hedging fixed-rate funding related hedges. The gain in RBS N.V., which is included in Central items was offset by negative movements relating to IFRS volatility. Available-for-sale reserves at 30 September 2010 amounted to net losses of £1,242 million (30 June 2010 – net losses £1,459 million; 31 December 2009 – net losses £1,755 million), and the movements were as follows:

 
Quarter 
 ended 
30 September 
2010 
Half year 
ended 
30 June 
2010 
Year 
ended 
31 December 
2009 
Available-for-sale reserves
£m 
£m 
£m 
       
At beginning of period
(1,459)
(1,755)
(3,561)
Unrealised gains in the period
680 
647 
1,202 
Realised (gains)/losses in the period
(408)
(127)
981 
Taxation
(55)
(208)
(377)
Recycled to profit or loss on disposal of businesses, net of £6 million tax
- 
(16)
- 
       
At end of period
(1,242)
(1,459)
(1,755)

The above excludes losses attributable to minority interests of £336 million in the year ended 31 December 2009.
 
 

 
 
 

RBS Group – Q3 2010 Results
 
 
 


Notes to pro forma results (continued)

14. Contingent liabilities and commitments

 
30 September 2010
  
30 June 2010
  
31 December 
2009 
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total 
  
 
£m 
£m 
£m 
  
£m 
£m 
£m 
  
£m 
                   
Contingent liabilities
                  
Guarantees and assets pledged as
  collateral security
35,334 
2,616 
37,950 
  
33,391 
2,529 
35,920 
  
36,579 
Other contingent liabilities
12,606 
376 
12,982 
  
12,503 
485 
12,988 
  
13,410 
                   
 
47,940 
2,992 
50,932 
  
45,894 
3,014 
48,908 
  
49,989 
                   
Commitments
                  
Undrawn formal standby facilities,
  credit lines and other commitments
  to lend
240,560 
26,126 
266,686 
  
245,053 
25,478 
270,531 
  
289,135 
Other commitments
867 
2,637 
3,504 
  
2,084 
2,631 
4,715 
  
3,483 
                   
 
241,427 
28,763 
270,190 
  
247,137 
28,109 
275,246 
  
292,618 
                   
Total contingent liabilities and
  commitments
289,367 
31,755 
321,122 
  
293,031 
31,123 
324,154 
  
342,607 

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


 
 
 

 
 
 
 

 
 
 

 
 
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