rbs201102246k3.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 February 24, 2011
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

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

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


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


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

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

 
 

 

Divisional performance

The operating profit/(loss)(1) of each division is shown below.

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) before impairment
  losses by division
            
UK Retail
780 
649 
579 
  
2,532 
1,908 
UK Corporate
552 
580 
530 
  
2,224 
2,052 
Wealth
93 
75 
99 
  
322 
453 
Global Transaction Services
270 
312 
228 
  
1,097 
1,012 
Ulster Bank
105 
110 
73 
  
400 
281 
US Retail & Commercial
169 
198 
134 
  
823 
589 
             
Retail & Commercial
1,969 
1,924 
1,643 
  
7,398 
6,295 
Global Banking & Markets
522 
549 
895 
  
3,515 
6,398 
RBS Insurance
(9)
(33)
(170)
  
(295)
66 
Central items
119 
74 
(167)
  
580 
386 
             
Core divisions before fair value of own debt
2,601 
2,514 
2,201 
  
11,198 
13,145 
Non-Core
(405)
165 
(725)
  
(29)
(5,336)
             
Group operating profit before impairment
  losses and fair value of own debt
2,196 
2,679 
1,476 
  
11,169 
7,809 
             
Fair value of own debt
            
Global Banking & Markets
438 
(598)
106 
  
139 
(49)
Central items
144 
(260)
164 
  
35 
(93)
             
Group operating profit before impairment
  losses
2,778 
1,821 
1,746 
  
11,343 
7,667 
             
Impairment losses by division
            
UK Retail
222 
251 
451 
  
1,160 
1,679 
UK Corporate
219 
158 
190 
  
761 
927 
Wealth
6 
1 
10 
  
18 
33 
Global Transaction Services
3 
3 
4 
  
9 
39 
Ulster Bank
376 
286 
348 
  
1,161 
649 
US Retail & Commercial
105 
125 
153 
  
517 
702 
             
Retail & Commercial
931 
824 
1,156 
  
3,626 
4,029 
Global Banking & Markets
(5)
(40)
130 
  
151 
640 
RBS Insurance
- 
- 
- 
  
- 
8 
Central items
4 
(2)
2 
  
3 
1 
             
Core
930 
782 
1,288 
  
3,780 
4,678 
Non-Core
1,211 
1,171 
1,811 
  
5,476 
9,221 
             
Group impairment losses
2,141 
1,953 
3,099 
  
9,256 
13,899 

Note:
(1)
Operating profit/(loss) before movement in the 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, gains on pensions curtailment and write-down of goodwill and other intangible assets.



Divisional performance (continued)

Key points
·
Retail & Commercial pre-impairment operating profit improved by 18% to £7,398 million for the year ended 31 December 2010, but this was more than offset by weaker GBM and RBS Insurance performance given challenging environments. Non-Core improved significantly to a pre-impairment loss of £29 million.
   
·
Q4 2010 Core pre-impairment profit of £2,601 million exceeded Q3 2010’s £2,514 million and Q4 2009’s £2,201 million, reflecting Retail & Commercial’s continued momentum.
   
·
For Q4 2010 relative to Q3 2010, Core impairments were up 19% to £930 million, with improvements in UK Retail and US Retail & Commercial more than offset by increases in Ulster Bank and UK Corporate.
   
·
For the year ended 31 December 2010 Group impairments fell 33%, as Non-Core reported substantially lower impairments, down 41%, while Core impairments were down 19%.

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Operating profit/(loss) by division
            
UK Retail
558 
398 
128 
  
1,372 
229 
UK Corporate
333 
422 
340 
  
1,463 
1,125 
Wealth
87 
74 
89 
  
304 
420 
Global Transaction Services
267 
309 
224 
  
1,088 
973 
Ulster Bank
(271)
(176)
(275)
  
(761)
(368)
US Retail & Commercial
64 
73 
(19)
  
306 
(113)
             
Retail & Commercial
1,038 
1,100 
487 
  
3,772 
2,266 
Global Banking & Markets
527 
589 
765 
  
3,364 
5,758 
RBS Insurance
(9)
(33)
(170)
  
(295)
58 
Central items
115 
76 
(169)
  
577 
385 
             
Core
1,671 
1,732 
913 
  
7,418 
8,467 
Non-Core
(1,616)
(1,006)
(2,536)
  
(5,505)
(14,557)
             
Group operating profit/(loss) before
  fair value of own debt
55 
726 
(1,623)
  
1,913 
(6,090)
Fair value of own debt
582 
(858)
270 
  
174 
(142)
             
Group operating profit/(loss)
637 
(132)
(1,353)
  
2,087 
(6,232)

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
% 
% 
% 
  
% 
% 
             
Net interest margin by division
            
UK Retail
4.08 
4.02 
3.74 
  
3.91 
3.59 
UK Corporate
2.57 
2.58 
2.47 
  
2.51 
2.22 
Wealth
3.32 
3.44 
3.94 
  
3.37 
4.38 
Global Transaction Services
6.19 
6.72 
9.81 
  
6.73 
9.22 
Ulster Bank
1.78 
1.90 
1.83 
  
1.84 
1.87 
US Retail & Commercial
3.02 
2.92 
2.45 
  
2.85 
2.37 
             
Retail & Commercial
3.24 
3.23 
3.04 
  
3.14 
2.89 
Global Banking & Markets
0.94 
1.14 
0.89 
  
1.05 
1.38 
Non-Core
1.10 
1.05 
1.17 
  
1.16 
0.69 
             
Group net interest margin
2.04 
2.05 
1.83 
  
2.01 
1.76 


Divisional performance (continued)

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Risk-weighted assets by division
            
UK Retail
48.8 
49.3 
(1%)
  
51.3 
(5%)
UK Corporate
81.4 
84.7 
(4%)
  
90.2 
(10%)
Wealth
12.5 
12.1 
3% 
  
11.2 
12% 
Global Transaction Services
18.3 
18.6 
(2%)
  
19.1 
(4%)
Ulster Bank
31.6 
32.6 
(3%)
  
29.9 
6% 
US Retail & Commercial
57.0 
64.1 
(11%)
  
59.7 
(5%)
             
Retail & Commercial
249.6 
261.4 
(5%)
  
261.4 
(5%)
Global Banking & Markets
146.9 
143.7 
2% 
  
123.7 
19% 
Other
18.0 
19.9 
(10%)
  
9.4 
91% 
             
Core
414.5 
425.0 
(2%)
  
394.5 
5% 
Non-Core
153.7 
166.9 
(8%)
  
171.3 
(10%)
             
Group before benefit of Asset Protection
  Scheme
568.2 
591.9 
(4%)
  
565.8 
- 
Benefit of Asset Protection Scheme
(105.6)
(116.9)
(10%)
  
(127.6)
(17%)
             
Group
462.6 
475.0 
(3%)
  
438.2 
6% 


Employee numbers (full time equivalents in continuing operations rounded to the nearest hundred)
31 December 
2010 
30 September 
2010 
31 December 
2009 
       
UK Retail
23,800 
24,400 
25,500 
UK Corporate
13,100 
13,000 
12,300 
Wealth
5,200 
5,100 
4,600 
Global Transaction Services
2,600 
3,700 
3,500 
Ulster Bank
4,200 
4,500 
4,500 
US Retail & Commercial
15,700 
15,700 
15,500 
Retail & Commercial
64,600 
66,400 
65,900 
Global Banking & Markets
18,700 
19,500 
17,900 
RBS Insurance
14,500 
14,400 
13,900 
Group Centre
4,700 
4,600 
4,200 
       
Core
102,500 
104,900 
101,900 
Non-Core
6,900 
10,000 
15,100 
       
 
109,400 
114,900 
117,000 
Business Services
38,800 
41,300 
43,100 
Integration
300 
300 
500 
RFS Holdings minority interest
- 
- 
300 
       
Group
148,500 
156,500 
160,900 


UK Retail
 

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
1,088 
1,056 
939 
  
4,078 
3,452 
             
Net fees and commissions
316 
262 
283 
  
1,100 
1,244 
Other non-interest income (net of insurance
  claims)
51 
64 
60 
  
227 
251 
             
Non-interest income
367 
326 
343 
  
1,327 
1,495 
             
Total income
1,455 
1,382 
1,282 
  
5,405 
4,947 
             
Direct expenses
            
  - staff
(180)
(197)
(211)
  
(778)
(845)
  - other
(68)
(134)
(46)
  
(474)
(453)
Indirect expenses
(427)
(402)
(446)
  
(1,621)
(1,741)
             
 
(675)
(733)
(703)
  
(2,873)
(3,039)
             
Operating profit before impairment losses
780 
649 
579 
  
2,532 
1,908 
Impairment losses
(222)
(251)
(451)
  
(1,160)
(1,679)
             
Operating profit
558 
398 
128 
  
1,372 
229 
             
             
Analysis of income by product
            
Personal advances
275 
248 
273 
  
993 
1,192 
Personal deposits
271 
277 
279 
  
1,102 
1,349 
Mortgages
557 
527 
415 
  
1,984 
1,214 
Bancassurance
52 
60 
56 
  
229 
246 
Cards
251 
243 
228 
  
962 
869 
Other
49 
27 
31 
  
135 
77 
             
Total income
1,455 
1,382 
1,282 
  
5,405 
4,947 
             
             
Analysis of impairments by sector
            
Mortgages
30 
55 
35 
  
177 
124 
Personal
131 
150 
282 
  
682 
1,023 
Cards
61 
46 
134 
  
301 
532 
             
Total impairment losses
222 
251 
451 
  
1,160 
1,679 
             
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Mortgages
0.1% 
0.2% 
0.2% 
  
0.2% 
0.1% 
Personal
4.5% 
4.8% 
8.3% 
  
5.8% 
7.5% 
Cards
4.0% 
3.0% 
8.6% 
  
4.9% 
8.6% 
             
 
0.8% 
0.9% 
1.8% 
  
1.1% 
1.6% 


UK Retail (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
25.2% 
21.2% 
6.5% 
  
18.0% 
3.0% 
Net interest margin
4.08% 
4.02% 
3.74% 
  
3.91% 
3.59% 
Cost:income ratio
45% 
51% 
54% 
  
52% 
60% 
Adjusted cost:income ratio (2)
46% 
53% 
55% 
  
53% 
61% 

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
90.6 
89.1 
2% 
  
83.2 
9% 
  - personal
11.7 
12.4 
(6%)
  
13.6 
(14%)
  - cards
6.1 
6.1 
- 
  
6.2 
(2%)
 
108.4 
107.6 
1% 
  
103.0 
5% 
Customer deposits (excluding
  bancassurance)
96.1 
91.4 
5% 
  
87.2 
10% 
Assets under management (excluding
  deposits)
5.7 
5.4 
6% 
  
5.3 
8% 
Risk elements in lending
4.6 
5.0 
(8%) 
  
4.6 
- 
Loan:deposit ratio (excluding repos)
110% 
115% 
(500 bp)
  
115% 
(500 bp)
Risk-weighted assets
48.8 
49.3 
(1%) 
  
51.3 
(5%)

Notes:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions); adjusted for timing of intra-quarter items.
(2)
Adjusted cost:income ratio is based on total income after netting insurance claims, and operating expenses.

Key points
·
The development of the RBS and NatWest Customer Charters aims to deliver those elements that customers have said are most important to them, and has been well received by both customers and staff. The division is reaping continuing benefits from investment in process improvements and automation, resulting in gains in both service quality and cost efficiency.
   
 
Serving our customers better is a key priority for RBS. While our customer satisfaction compares well with our competitors we know we can do more. In June 2010 we launched a Customer Charter setting out 14 commitments to delivering helpful banking.
 
The Customer Charter reflects the views and expectations of more than 30,000 customers. We are working hard to deliver on the commitments we have made. This won't happen overnight but the Customer Charter is our pledge that we will be regularly held to account against the progress we make. As part of this we will publish an independently-assured report on our performance every six months, with the first report due to be published shortly.

Q4 2010 compared with Q3 2010
·
UK Retail delivered a strong operating performance in Q4 2010, with income up, costs down and impairments continuing to improve. Operating profit was 40% up from the previous quarter at £558 million.


UK Retail (continued)

Key points (continued)

Q4 2010 compared with Q3 2010 (continued)

 
UK Retail continued to drive strong growth in customer deposits and secured lending.
o Total deposits grew by £4.7 billion or 5% in Q4 2010, with two particularly strong campaigns in the quarter on fixed rate bonds and the e-savings account.
o Mortgage balances increased 2% on Q3 2010. Although market activity has weakened, RBS mortgage application volumes increased in the quarter, with good retention rates among existing customers.
    Market share of new mortgage lending remained broadly stable at 11% in the quarter, well above the Group’s 8% share of stock.
o Unsecured lending fell 4% in the quarter, in line with the Group’s continued focus on lower risk secured lending.
o The loan to deposit ratio at 31 December 2010 was 110%, an improvement on the prior quarter’s ratio of 115%.
·
Net interest income increased by 3%, with net interest margin at 4.08%, a 6 basis point improvement on Q3 2010. Asset margins widened, with customers continuing to roll on to standard variable rate mortgages, although the overall proportion of customers on standard variable rate mortgages decreased marginally. Liability margins fell further compared with Q3 2010, with highly competitive positioning in fixed term bonds and bonus savings accounts putting continued pressure on margins, compounded by a continuing reduction in yield on longer term current account hedges.
   
·
Non-interest income increased by 13% principally reflecting a profit share payment from RBS Insurance.
   
·
Expenses fell by 8% in the quarter, largely due to lower Financial Services Compensation Scheme Levy cost. Excluding the levy, costs declined by 2% on Q3 2010 with continued management focus on process re-engineering and technology investment. The cost:income ratio (net of insurance claims) improved from 53% to 46%, although excluding the profit share and FSCS levy benefits mentioned above, the cost:income ratio was broadly flat quarter-on-quarter.
   
·
Impairment losses improved by 12% in Q4 2010. Impairments are expected to stabilise subject to normal seasonal fluctuations and economic conditions remaining broadly stable.
o Mortgage impairment losses were £30 million on a total book of £91 billion. The quarter on quarter decrease of £25 million primarily results from more conservative assumptions on recoveries
   implemented in Q3 2010.
o The unsecured portfolio charge fell 2% to £192 million, on a book of £18 billion, with lower default volumes and improved collections performance.
   
·
Risk-weighted assets decreased in the quarter, with lower unsecured lending balances and improving portfolio credit metrics partly offset by growth in mortgages.

Q4 2010 compared with Q4 2009
·
Operating profit increased by £430 million, with income up 13%, costs down 4% and impairments 51% lower than in Q4 2009.
   
·
Net interest income was 16% higher than Q4 2009, with strong mortgage balance growth and recovering asset margins across all products, which together more than offset the decline in liability margins.


UK Retail (continued)

Key points (continued)

Q4 2010 compared with Q4 2009 (continued)
·
Costs were 4% lower than in Q4 2009, driven by process re-engineering efficiencies within the branch network and operational centres. The cost:income ratio (net of insurance claims) improved from 55% to 46%.
   
·
Impairment losses decreased by 51% on Q4 2009 primarily reflecting lower arrears volumes on the unsecured portfolio.

2010 compared with 2009
·
Operating profit recovered strongly from the low levels recorded in 2008 and 2009 to £1,372 million. Profit before impairments was up £624 million or 33% and impairments fell by £519 million as the economic environment continued to recover.
   
·
The division has continued to focus in 2010 on growing secured lending while at the same time building customer deposits, thereby reducing the Group’s reliance on wholesale funding. Loans and advances to customers grew 5%, with a change in mix from unsecured to secured as the Group actively sought to improve its risk profile. Mortgage balances grew by 9% while unsecured lending contracted by 10%.
o Mortgage growth was due to good retention of existing customers and new business, the majority of which comes from the existing customer base. Gross mortgage lending market share remained
   broadly in line with 2009 at 12%, with the Group on track to meet its Government target on net mortgage lending.
o Customer deposits grew 10% on 2009, reflecting the strength of the UK Retail customer franchise, which outperformed the market in an increasingly competitive environment. Savings balances grew by
   £8 billion or 13% with 1.8 million accounts opened, outperforming the market total deposit growth of 3%. Personal current account balances increased by 3% on 2009.
   
·
Net interest income increased significantly by 18% to £4,078 million, driven by strong balance sheet growth and repricing. Net interest margin improved by 32 basis points to 3.91%, with widening asset margins partially offset by contracting liability margins in the face of a competitive deposit market.
   
·
Non-interest income declined 11% to £1,327 million, principally reflecting the restructuring of current account overdraft fees in the final quarter of 2009.
·
Expenses decreased by 5%, with the cost:income ratio (net of insurance claims) improving from 61% to 53%.
o Direct staff costs declined by 8%, largely driven by a clear management focus on process re-engineering enabling a 7% reduction in headcount.
o RBS continues to progress towards a more convenient, lower cost operating model, with over 4.8 million active users of online banking and a record share of new sales achieved through direct
  channels. More than 7.8 million accounts have switched to paperless statements and 276 branches now utilise automated cash deposit machines.



UK Retail (continued)

Key points (continued)

2010 compared with 2009 (continued)
·
Impairment losses decreased 31% to £1,160 million primarily reflecting the recovery in the economic environment.
o The mortgage impairment charge was £177 million (2009 - £124 million) on a total book of £91 billion. Mortgage arrears rates marginally increased in 2010 but remain below the industry average, as
    reported by the Council of Mortgage Lenders. Repossessions showed only a small increase on 2009, as the Group continues to support customers facing financial difficulties.
o The unsecured lending impairment charge was £983 million (2009 - £1,555 million) on a total book of £18 billion.
   
·
Risk-weighted assets decreased by 5% to £48.8 billion, with lower unsecured lending, improving portfolio credit metrics and small procyclicality benefits more than offsetting growth in mortgages.


UK Corporate

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
653 
662 
626 
  
2,572 
2,292 
             
Net fees and commissions
251 
244 
222 
  
952 
858 
Other non-interest income
79 
80 
100 
  
371 
432 
             
Non-interest income
330 
324 
322 
  
1,323 
1,290 
             
Total income
983 
986 
948 
  
3,895 
3,582 
             
Direct expenses
            
  - staff
(198)
(186)
(212)
  
(778)
(753)
  - other
(93)
(81)
(69)
  
(359)
(260)
Indirect expenses
(140)
(139)
(137)
  
(534)
(517)
             
 
(431)
(406)
(418)
  
(1,671)
(1,530)
             
Operating profit before impairment losses
552 
580 
530 
  
2,224 
2,052 
Impairment losses
(219)
(158)
(190)
  
(761)
(927)
             
Operating profit
333 
422 
340 
  
1,463 
1,125 
             
             
Analysis of income by business
            
Corporate and commercial lending
657 
651 
589 
  
2,598 
2,131 
Asset and invoice finance
166 
163 
140 
  
617 
501 
Corporate deposits
184 
183 
191 
  
728 
986 
Other
(24)
(11)
28 
  
(48)
(36)
             
Total income
983 
986 
948 
  
3,895 
3,582 
             
             
Analysis of impairments by sector
            
Banks and financial institutions
12 
15 
6 
  
20 
15 
Hotels and restaurants
18 
6 
40 
  
52 
98 
Housebuilding and construction
47 
62 
(13)
  
131 
106 
Manufacturing
(9)
2 
28 
  
1 
51 
Other
 (12)
19 
12 
  
127 
150 
Private sector education, health, social
  work, recreational and community services
21 
1 
23 
  
30 
59 
Property
84 
34 
30 
  
245 
259 
Wholesale and retail trade, repairs
31 
14 
23 
  
91 
76 
Asset and invoice finance
27 
5 
41 
  
64 
113 
             
Total impairment losses
219 
158 
190 
  
761 
927 



UK Corporate (continued)

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Banks and financial institutions
0.8% 
1.0% 
0.4% 
  
0.3% 
0.2% 
Hotels and restaurants
1.1% 
0.3% 
2.4% 
  
0.8% 
1.5% 
Housebuilding and construction
4.2% 
5.5% 
(1.2%)
  
2.9% 
2.5% 
Manufacturing
(0.7%)
0.2% 
1.9% 
  
- 
0.9% 
Other
(0.2%)
0.2% 
0.2% 
  
0.4% 
0.5% 
Private sector education, health, social work,
  recreational and community services
0.9% 
- 
1.4% 
  
0.3% 
0.9% 
Property
1.1% 
0.5% 
0.4% 
  
0.8% 
0.8% 
Wholesale and retail trade, repairs
1.3% 
0.5% 
0.9% 
  
0.9% 
0.7% 
Asset and invoice finance
1.1% 
0.2% 
1.9% 
  
0.6% 
1.3% 
             
 
0.8% 
0.6% 
0.7% 
  
0.7% 
0.8% 

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
11.8% 
14.1% 
10.7% 
  
12.1% 
9.4% 
Net interest margin
2.57% 
2.58% 
2.47% 
  
2.51% 
2.22% 
Cost:income ratio
44% 
41% 
44% 
  
43% 
43% 

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
114.6 
116.6 
(2%)
  
114.9 
- 
Loans and advances to customers (gross)
            
  - banks and financial institutions
6.1 
6.0 
2% 
  
6.3 
(3%)
  - hotels and restaurants
6.8 
6.9 
(1%)
  
6.7 
1% 
  - housebuilding and construction
4.5 
4.5 
- 
  
4.3 
5% 
  - manufacturing
5.3 
5.3 
- 
  
5.9 
(10%)
  - other
31.0 
31.9 
(3%)
  
29.9 
4% 
  - private sector education, health, social
    work, recreational and community services
9.0 
9.0 
- 
  
6.5 
38% 
  - property
29.5 
30.0 
(2%)
  
33.0 
(11%)
  - wholesale and retail trade, repairs
9.6 
10.2 
(6%)
  
10.2 
(6%)
  - asset and invoice finance
9.9 
9.7 
2% 
  
8.8 
13% 
 
111.7 
113.5 
(2%)
  
111.6 
- 
             
Customer deposits
100.0 
98.1 
2% 
  
87.8 
14% 
Risk elements in lending
4.0 
3.3 
21% 
  
2.3 
74% 
Loan:deposit ratio (excluding repos)
110% 
114% 
(400bp)
  
126% 
(1,600bp)
Risk-weighted assets
81.4 
84.7 
(4%)
  
90.2 
(10%)

Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).



UK Corporate (continued)

Key points

Q4 2010 compared with Q3 2010
·
Operating profit of £333 million was 21% lower, with income stable but impairments up by £61 million as a result of a small number of individual exposures.
   
·
Net interest income fell by 1% due to reduced lending income. Net loans and advances to customers were marginally down from the previous quarter, with above target levels of gross new lending offset by customer deleveraging. Customer deposits grew by £2 billion with deposit gathering initiatives continuing to deliver, albeit at fine margins, reflecting an intensely competitive market.
   
·
Non-interest income increased by 2%, supported by financial markets transaction income.
   
·
Total costs rose 6%, reflecting further investment in strategic initiatives and an increase in costs relating to higher value of financial market transactions in the quarter.
   
·
Impairments of £219 million were £61 million higher than Q3 2010 and slightly above recent quarterly trends, mainly due to a small number of specific impairment cases.

Q4 2010 compared with Q4 2009
·
Operating profit decreased 2% to £333 million, with strong income growth offset by higher costs and specific impairments.
   
·
Net interest income rose by 4%, driven primarily by the lending book. Net interest margin improved by 10 basis points, reflecting the progress made in repricing the loan portfolio and a more favourable funding environment.
   
·
Non-interest income was 2% higher (£8 million), as a result of increased sales of financial market products and services and operating lease activity.
   
·
Total costs increased 3%, driven by investment in strategic initiatives, operating lease depreciation and costs related to financial markets income.
   
·
Impairments increased £29 million reflecting a small number of specific impairments in Q4 2010, partly offset by a reduction in latent loss provisions booked on the portfolio.

2010 compared with 2009
·
Operating profit grew by £338 million, 30%, compared with 2009, driven by strong income growth and significantly lower impairments, partially offset by higher costs.
   
·
UK Corporate performed strongly in the deposit market, with customer deposit balance growth of £12 billion contributing to a 16 percentage point improvement in the loan to deposit ratio in 2010. While customer lending increased only marginally (with gross lending largely offset by customer deleveraging) net interest income rose by £280 million, 12%, and net interest margin rose by 29 basis points driven primarily by the good progress made on loan repricing.
   
·
Non-interest income increased 3% reflecting strong refinancing levels and increased operating lease activity, partially offset by lower sales of financial market products.
   
·
Total costs increased 9% (£141 million) or 5% excluding the OFT penalty in Q1 2010, legal recovery in 2009 and the normalisation of staff compensation phasing.
   
·
Impairments were 18% lower, primarily as a result of higher charges taken during the first half of 2009 to reflect potential losses in the portfolio not yet specifically identified.
   
·
Return on equity increased from 9.4% to 12.1%, reflecting higher operating profit and lower RWAs as a result of improved risk metrics.


Wealth

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
160 
156 
161 
  
609 
663 
             
Net fees and commissions
94 
90 
91 
  
376 
363 
Other non-interest income
17 
18 
22 
  
71 
83 
             
Non-interest income
111 
108 
113 
  
447 
446 
             
Total income
271 
264 
274 
  
1,056 
1,109 
             
Direct expenses
            
  - staff
(96)
(95)
(107)
  
(382)
(357)
  - other
(29)
(39)
(25)
  
(142)
(144)
Indirect expenses
(53)
(55)
(43)
  
(210)
(155)
             
 
(178)
(189)
(175)
  
(734)
(656)
             
Operating profit before impairment losses
93 
75 
99 
  
322 
453 
Impairment losses
(6)
(1)
(10)
  
(18)
(33)
             
Operating profit
87 
74 
89 
  
304 
420 
             
Analysis of income
            
Private banking
220 
217 
223 
  
857 
916 
Investments
51 
47 
51 
  
199 
193 
             
Total income
271 
264 
274 
  
1,056 
1,109 

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
21.0% 
18.2% 
24.0% 
  
18.9% 
30.3% 
Net interest margin
3.32% 
3.44% 
3.94% 
  
3.37% 
4.38% 
Cost:income ratio
66% 
72% 
64% 
  
70% 
59% 

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
7.8 
7.5 
4% 
  
6.5 
20% 
  - personal
6.7 
6.5 
3% 
  
4.9 
37% 
  - other
1.6 
1.5 
7% 
  
2.3 
(30%)
 
16.1 
15.5 
4% 
  
13.7 
18% 
Customer deposits
36.4 
34.8 
5% 
  
35.7 
2% 
Assets under management (excluding
  deposits)
32.1 
31.1 
3% 
  
30.7 
5% 
Risk elements in lending
0.2 
0.2 
- 
  
0.2 
- 
Loan:deposit ratio (excluding repos)
44% 
44% 
- 
  
38% 
600bp 
Risk-weighted assets
12.5 
12.1 
3% 
  
11.2 
12% 

Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Wealth (continued)

Key points

Q4 2010 compared with Q3 2010
·
Operating profit increased 18% to £87 million in the fourth quarter, with stronger investment fee income and a reduction in expenses.
   
·
Total income increased 3% in Q4 2010 with net interest income also up 3%, primarily driven by growth in UK lending. Non-interest income rose 3% reflecting growth in assets under management and improved investment margins.
   
·
Deposits saw strong growth of 5%, reflecting the impact of new product launches within the UK and offshore markets. Pricing competition on new products has further compressed net interest margin, which narrowed by 12 basis points.
   
·
Loans and advances continued to grow strongly, increasing 4% in the quarter, primarily driven by UK mortgage lending, which rose by £300 million.

Q4 2010 compared with Q4 2009
·
Q4 2010 operating profit was 2% lower than Q4 2009. Marginally lower income and an increase in expenses were partially offset by a fall in impairments.
   
·
Deposits grew 2%, with growth most evident in the UK, where a number of new products were successfully launched in the quarter. These included notice accounts and fixed term products.
   
·
Lending performance was particularly strong, with strong client demand (especially in the UK) driving an 18% growth in balances and average lending margins improving by 29 basis points.

2010 compared with 2009
·
2010 operating profit fell by 28% driven by lower net interest income and higher expenses, partly offset by a 45% decline in impairments in the year.
   
·
Income declined by 5% primarily due to lower net interest income. Strong lending and investment income was offset by the impact of a competitive deposit market.
   
·
Expenses grew by 12% to £734 million. Direct expenses were up 5%, £23 million reflecting additional strategic investment. Indirect expenses increased by £55 million reflecting a change in allocation of Business Services costs.
   
·
Assets under management grew by 5% largely through improving market conditions. On a constant currency basis, assets fell 2% with valuation gains being offset by client losses in the international businesses, resulting from the private banker attrition previously experienced.





Global Transaction Services

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
263 
257 
233 
  
974 
912 
Non-interest income
375 
411 
404 
  
1,587 
1,575 
             
Total income
638 
668 
637 
  
2,561 
2,487 
             
Direct expenses
            
  - staff
(105)
(100)
(102)
  
(411)
(371)
  - other
(51)
(38)
(51)
  
(159)
(161)
Indirect expenses
(212)
(218)
(256)
  
(894)
(943)
             
 
(368)
(356)
(409)
  
(1,464)
(1,475)
             
Operating profit before impairment losses
270 
312 
228 
  
1,097 
1,012 
Impairment losses
(3)
(3)
(4)
  
(9)
(39)
             
Operating profit
267 
309 
224 
  
1,088 
973 
             
             
Analysis of income by product
            
Domestic cash management
207 
216 
197 
  
818 
805 
International cash management
223 
200 
203 
  
801 
734 
Trade finance
81 
81 
67 
  
309 
290 
Merchant acquiring
80 
123 
128 
  
451 
505 
Commercial cards
47 
48 
42 
  
182 
153 
             
Total income
638 
668 
637 
  
2,561 
2,487 

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
42.7% 
47.8% 
36.7% 
  
42.8% 
42.2% 
Net interest margin
6.19% 
6.72% 
9.81% 
  
6.73% 
9.22% 
Cost:income ratio
58% 
53% 
64% 
  
57% 
59% 


 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
25.2 
24.2 
4% 
  
18.4 
37% 
Loans and advances
14.4 
14.4 
- 
  
12.7 
13% 
Customer deposits
69.9 
65.4 
7% 
  
61.8 
13% 
Risk elements in lending
0.1 
0.2 
(50%)
  
0.2 
(50%)
Loan:deposit ratio (excluding repos)
21% 
22% 
(100bp)
  
21% 
- 
Risk-weighted assets
18.3 
18.6 
(2%)
  
19.1 
(4%)

Note:
(1)
Divisional return on equity is based on divisional operating profit after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).


Global Transaction Services (continued)

Key points

Q4 2010 compared with Q3 2010
·
Operating profit decreased 14%, or 13% at constant exchange rates, reflecting the sale of GMS, which completed on 30 November 2010. Adjusting for the disposal, operating profit decreased 6%.
   
·
For the two months in Q4 before completion of the disposal, GMS recorded income of £80 million, total expenses of £50 million and an operating profit of £30 million compared with £123 million income, total expenses of £67 million and an operating profit of £56 million for Q3.
   
·
For the remainder of the business, overall income was marginally higher, with a strong increase in revenues from International Cash Management products.
   
·
Expenses increased by 3% or 2% on a constant foreign exchange basis and 8% excluding GMS, driven by higher marketing costs and investment in front office and support infrastructure.
   
·
Customer deposits increased by 7% to £69.9 billion as a result of higher international cash management balances. The loan to deposit ratio has fallen 100 basis points to 21%.
   
·
Third party assets increased by £1 billion, or £2 billion excluding GMS, due to an increase in Trade Finance loans and advances, partly offset by a decrease in loans and advances to banks.

Q4 2010 compared with Q4 2009
·
Operating profit increased 19%, or 14% on a constant foreign exchange basis, with income broadly flat but a 10% decrease in costs. Adjusting for the disposal, operating profit increased 38%.
   
·
Total income remained broadly flat. Excluding GMS, income rose by 10% reflecting higher deposit balances, a strong performance in both Trade Finance and International Cash Management with improved Commercial Card transaction volumes partially offset by tighter deposit margins.
   
·
Expenses decreased by 10%, or 8% on a constant foreign exchange basis and 5% excluding GMS, driven largely by the realisation of cost saving initiatives and the timing of investment spend.
   
·
Customer deposits increased by £8.1 billion, or 13%, to £69.9 billion, driven by growth in interest-bearing balances in the International Cash Management business. Loans and advances increased by £1.7 billion, 13% to £14.4 billion mainly driven by growth in the Trade Finance business.

2010 compared with 2009
·
Operating profit increased 12%, or 10% on a constant foreign exchange basis, driven by a robust income performance (which has more than compensated for the loss of GMS income), good cost control and lower impairments. Adjusting for the disposal operating profit increased 21%.
   
·
For the eleven months before disposal, GTS booked income of £451 million and total expenses of £244 million for GMS, generating an operating profit of £207 million.
   


Global Transaction Services (continued)

Key points

2010 compared with 2009 (continued)
·
Income was up 3%, or 6% excluding GMS, reflecting higher deposit volumes in the International Cash Management business, growth in the Trade Finance business and improved Commercial Card transaction volumes.
   
·
Expenses were broadly in line with 2009, at £1,464 million, as increased investment in front office and support infrastructure was mitigated by tight management of business costs.
   
·
Third party assets increased by £6.8 billion, or £7.6 billion excluding GMS, as Yen clearing activities were brought in-house and loans and advances increased.

See Appendix 2 for pro forma impacts of GMS disposal.

Ulster Bank

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m
             
Income statement
            
Net interest income
187 
192 
194 
  
761 
780 
             
Net fees and commissions
40 
38 
98 
  
156 
228 
Other non-interest income
16 
14 
(7)
  
58 
26 
             
Non-interest income
56 
52 
91 
  
214 
254 
             
Total income
243 
244 
285 
  
975 
1,034 
             
Direct expenses
            
  - staff
(57)
(54)
(76)
  
(237)
(325)
  - other
(17)
(18)
(13)
  
(74)
(86)
Indirect expenses
(64)
(62)
(123)
  
(264)
(342)
             
 
(138)
(134)
(212)
  
(575)
(753)
             
Operating profit before impairment losses
105 
110 
73 
  
400 
281 
Impairment losses
(376)
(286)
(348)
  
(1,161)
(649)
             
Operating loss
(271)
(176)
(275)
  
(761)
(368)
             
             
Analysis of income by business
            
Corporate
122 
120 
146 
  
521 
580 
Retail
124 
124 
114 
  
465 
412 
Other
(3)
- 
25 
  
(11)
42 
             
Total income
243 
244 
285 
  
975 
1,034 
             
             
Analysis of impairments by sector
            
Mortgages
159 
69 
20 
  
294 
74 
Corporate
            
  - property
69 
107 
233 
  
375 
306 
  - other corporate
135 
100 
83 
  
444 
203 
Other lending
13 
10 
12 
  
48 
66 
             
Total impairment losses
376 
286 
348 
  
1,161 
649 
             
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Mortgages
3.0% 
1.3% 
0.5% 
  
1.4% 
0.5% 
Corporate
            
  - property
5.1% 
8.1% 
9.2% 
  
6.9% 
3.0% 
  - other corporate
6.0% 
4.3% 
3.0% 
  
4.9% 
1.8% 
Other lending
4.0% 
2.4% 
2.0% 
  
3.7% 
2.7% 
             
 
4.1% 
3.0% 
3.5% 
  
3.1% 
1.6% 



Ulster Bank (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
(29.8%)
(20.2%)
(32.4%)
  
(21.0%)
(11.7%)
Net interest margin
1.78%
1.90% 
1.83% 
  
1.84%
1.87% 
Cost:income ratio
57% 
55% 
74% 
  
59%
73% 

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers (gross)
            
  - mortgages
21.2 
21.4 
(1%)
  
16.2 
31% 
  - corporate
            
     - property
5.4 
5.3 
2% 
  
10.1 
(47%)
     - other corporate
9.0 
9.4 
 (4%)
  
11.0 
(18%)
  - other lending
1.3 
1.7 
(24%)
  
2.4 
(46%)
 
36.9 
37.8 
(2%)
  
39.7 
(7%)
Customer deposits
23.1 
23.4 
(1%)
  
21.9 
5% 
Risk elements in lending
            
  - mortgages
1.5 
1.4 
7% 
  
0.6 
150% 
  - corporate
            
     - property
0.7 
0.6 
17% 
  
0.7 
- 
     - other corporate
1.2 
1.0 
20% 
  
0.8 
50% 
  - other lending
0.2 
0.2 
- 
  
0.2 
- 
 
3.6 
3.2 
13% 
  
2.3 
57% 
Loan:deposit ratio (excluding repos)
152% 
156% 
(400bp)
  
177% 
(2,500bp)
Risk-weighted assets
31.6 
32.6 
(3%)
  
29.9 
6% 

Note:
(1)
Divisional return on equity is based on divisional operating loss after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Key points

Q4 2010 compared with Q3 2010
·
An operating loss of £271 million for the quarter was £95 million higher than Q3 2010, reflecting an increase in impairment losses.
   
·
Net interest income decreased by 6%, at constant exchange rates largely driven by higher wholesale market funding costs, resulting in a 12 basis points reduction in net interest margin to 1.78% for the quarter.
   
·
Loans to customers decreased by 2% in constant currency terms reflecting further maturing of the loan book and muted new business levels. Customer deposits have remained stable despite challenging market conditions, with strong growth in both current and savings accounts offset by lower wholesale balances, primarily driven by deterioration in the Republic of Ireland’s sovereign debt ratings during the period.


Ulster Bank (continued)

Key points (continued)

Q4 2010 compared with Q3 2010 (continued)
·
Non-interest income increased by 7% in constant currency terms, reflecting a strong performance in fees across the corporate and retail businesses.
   
·
Expenses decreased by 4% on a constant currency basis, mainly driven by savings on business support services during the period.
   
·
Impairment losses increased to £376 million, up £90 million from Q3 2010, reflecting emerging losses on a deteriorating loan book where, in line with market trends, customer credit quality has worsened and has been impacted by further decline in Irish house prices.

Q4 2010 compared with Q4 2009
·
Net interest income was 1% higher on a constant currency basis, with loan pricing actions partly offset by higher funding costs. Net interest margin has reduced by 5 basis points over the period, reflecting increased liquidity reserves.
   
·
Non-interest income decreased by 36% on a constant currency basis, reflecting a non-recurring gain of £38 million in Q4 2009. Excluding this gain, non-interest income was broadly flat.
   
·
Expenses fell by 35% in constant currency terms reflecting continued management focus on cost control coupled with a decrease in property charges.
   
·
Impairment charges increased by 13% on a constant currency basis, largely driven by higher losses on the mortgage portfolio.

2010 compared with 2009
·
Overall performance deteriorated in 2010, largely as a result of an increase in impairment losses of £512 million. Operating profit before impairment increased to £400 million, up 50% in constant currency terms, driven by the culmination of a bank-wide cost saving programme during 2010.
   
·
Net interest income increased by 1% on a constant currency basis as actions to increase asset margins were largely eroded by tightening deposit margins due to intensive market competition.
   
·
Non-interest income was 14% lower on a constant currency basis reflecting a non-recurring gain in Q4 2009.
   
·
Loans to customers fell by 5% in constant currency terms. As previously disclosed, on 1 July 2010 the division transferred a portfolio of development property assets to the Non-Core division, partially offset by a simultaneous transfer of a portfolio of retail mortgage assets to the core business.
   
·
Despite intense competition, customer deposit balances increased by 8% in constant currency terms over the year with strong growth across all deposit categories, driven by a focus on improving the bank’s funding profile.
   
·
Expenses at constant exchange rates were 22% lower. The strong year-on-year performance in expenses was primarily driven by an increased focus on active management of the cost base, and the benefits derived from the business restructuring and cost-saving programme which commenced in 2009.


Ulster Bank (continued)

Key points (continued)

2010 compared with 2009 (continued)
·
Impairment losses increased by £512 million to £1,161 million reflecting the deteriorating economic environment in Ireland and rising default levels across both personal and corporate portfolios. Lower asset values, particularly in property-related lending together with pressure on borrowers with a dependence on consumer spending have resulted in higher corporate loan losses, while higher unemployment, lower incomes and increased taxation have driven mortgage impairment increases.
   
·
Risk-weighted assets have increased due to deteriorating credit risk metrics.
   
·
Customer numbers increased by 3% during 2010, with a strong performance in current and savings accounts switchers.



US Retail & Commercial (£ Sterling)

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income
467 
480 
423 
  
1,917 
1,775 
             
Net fees and commissions
169 
180 
148 
  
729 
714 
Other non-interest income
62 
91 
73 
  
300 
235 
             
Non-interest income
231 
271 
221 
  
1,029 
949 
             
Total income
698 
751 
644 
  
2,946 
2,724 
             
Direct expenses
            
  - staff
(204)
(214)
(200)
  
(784)
(776)
  - other
(124)
(148)
(130)
  
(569)
(593)
Indirect expenses
(201)
(191)
(180)
  
(770)
(766)
             
 
(529)
(553)
(510)
  
(2,123)
(2,135)
             
Operating profit before impairment losses
169 
198 
134 
  
823 
589 
Impairment losses
(105)
(125)
(153)
  
(517)
(702)
             
Operating profit/(loss)
64 
73 
(19)
  
306 
(113)
             
             
Average exchange rate - US$/£
1.581 
1.551 
1.633 
  
1.546 
1.566 
             
Analysis of income by product
            
Mortgages and home equity
128 
142 
115 
  
509 
499 
Personal lending and cards
113 
127 
115 
  
476 
451 
Retail deposits
206 
223 
195 
  
903 
828 
Commercial lending
141 
145 
134 
  
580 
542 
Commercial deposits
75 
78 
108 
  
320 
398 
Other
35 
36 
(23)
  
158 
6 
             
Total income
698 
751 
644 
  
2,946 
2,724 
             
Analysis of impairments by sector
            
Residential mortgages
3 
14 
8 
  
58 
72 
Home equity
26 
56 
13 
  
126 
167 
Corporate and commercial
54 
23 
92 
  
202 
326 
Other consumer
6 
28 
40 
  
97 
137 
Securities
16 
4 
- 
  
34 
- 
             
Total impairment losses
105 
125 
153 
  
517 
702 
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements) by sector
            
Residential mortgages
0.2% 
0.9% 
0.5% 
  
1.0% 
1.1% 
Home equity
0.7% 
1.5% 
0.3% 
  
0.8% 
1.1% 
Corporate and commercial
1.1% 
0.5% 
1.9% 
  
1.0% 
1.7% 
Other consumer
0.3% 
1.6% 
2.1% 
  
1.4% 
1.8% 
             
 
0.7% 
1.0% 
1.3% 
  
1.0% 
1.4% 




US Retail & Commercial (£ Sterling) (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
3.3% 
3.3% 
(0.9%)
  
3.6% 
(1.3%)
Net interest margin
3.02% 
2.92% 
2.45% 
  
2.85% 
2.37% 
Cost:income ratio
76% 
74% 
79% 
  
72% 
78% 


 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Total third party assets
71.2 
72.4 
(2%)
  
75.4 
(6%)
Loans and advances to customers (gross)
            
  - residential mortgages
6.1 
6.2 
(2%)
  
6.5 
(6%)
  - home equity
15.2 
15.3 
(1%)
  
15.4 
(1%)
  - corporate and commercial
20.4 
19.8 
3% 
  
19.5 
5% 
  - other consumer
6.9 
6.8 
1% 
  
7.5 
(8%)
 
48.6 
48.1 
1% 
  
48.9 
(1%)
Customer deposits (excluding repos)
58.7 
60.5 
(3%)
  
60.1 
(2%)
Risk elements in lending
            
  - retail
0.4 
0.4 
- 
  
0.4 
- 
  - commercial
0.5 
0.4 
25% 
  
0.2 
150% 
 
0.9 
0.8 
13% 
  
0.6 
50% 
Loan:deposit ratio (excluding repos)
81% 
78% 
300bp 
  
80% 
100bp 
Risk-weighted assets
57.0 
64.1 
(11%)
  
59.7 
(5%)
             
Spot exchange rate - US$/£
1.552 
1.570 
    
1.622 
  

Note:
(1)
Divisional return on equity is based on divisional operating profit/(loss) after tax divided by average notional equity (based on 9% of the monthly average of divisional RWAs, adjusted for capital deductions).

Key points
·
Sterling strengthened relative to the US dollar during the fourth quarter, with the average exchange rate increasing by 2% compared with Q3 2010.
   
·
Performance is described in full in the US dollar-based financial statements set out on pages 45 and 46.



US Retail & Commercial (US Dollar)

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
$m 
$m 
$m 
  
$m 
$m 
             
Income statement
            
Net interest income
739 
745 
690 
  
2,962 
2,777 
             
Net fees and commissions
267 
280 
245 
  
1,126 
1,119 
Other non-interest income
100 
139 
120 
  
465 
368 
             
Non-interest income
367 
419 
365 
  
1,591 
1,487 
             
Total income
1,106 
1,164 
1,055 
  
4,553 
4,264 
             
Direct expenses
            
  - staff
(322)
(332)
(325)
  
(1,212)
(1,214)
  - other
(197)
(230)
(215)
  
(880)
(929)
Indirect expenses
(317)
(296)
(294)
  
(1,189)
(1,196)
             
 
(836)
(858)
(834)
  
(3,281)
(3,339)
             
Operating profit before impairment losses
270 
306 
221 
  
1,272 
925 
Impairment losses
(168)
(193)
(252)
  
(799)
(1,099)
             
Operating profit/(loss)
102 
113 
(31)
  
473 
(174)
             
             
Analysis of income by product
            
Mortgages and home equity
201 
220 
188 
  
786 
781 
Personal lending and cards
179 
196 
188 
  
735 
706 
Retail deposits
329 
345 
320 
  
1,397 
1,296 
Commercial lending
223 
225 
219 
  
896 
848 
Commercial deposits
119 
122 
176 
  
495 
624 
Other
55 
56 
(36)
  
244 
9 
             
Total income
1,106 
1,164 
1,055 
  
4,553 
4,264 
             
Analysis of impairments by sector
            
Residential mortgages
5 
22 
14 
  
90 
113 
Home equity
40 
88 
23 
  
194 
261 
Corporate and commercial
87 
35 
150 
  
312 
510 
Other consumer
11 
42 
65 
  
150 
215 
Securities
25 
6 
- 
  
53 
- 
             
Total impairment losses
168 
193 
252 
  
799 
1,099 
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) by
  sector
            
Residential mortgages
0.2% 
0.9% 
0.5% 
  
1.0% 
1.1% 
Home equity
0.7% 
1.5% 
0.4% 
  
0.8% 
1.0% 
Corporate and commercial
1.1% 
0.5% 
1.9% 
  
1.0% 
1.6% 
Other consumer
0.4% 
1.6% 
2.1% 
  
1.4% 
1.8% 
             
 
0.8% 
1.0% 
1.3% 
  
1.0% 
1.4% 



US Retail & Commercial (US Dollar) (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
3.3% 
3.3% 
(0.9%)
  
3.6% 
(1.3%)
Net interest margin
3.02% 
2.92% 
2.45% 
  
2.85% 
2.37% 
Cost:income ratio
76% 
74% 
79% 
  
72% 
78% 

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
$bn 
$bn 
Change 
  
$bn 
Change 
             
Capital and balance sheet
            
Total third party assets
110.5 
113.7 
(3%)
  
122.3 
(10%)
Loans and advances to customers (gross)
            
  - residential mortgages
9.4 
9.7 
(3%)
  
10.6 
(11%)
  - home equity
23.6 
24.0 
(2%)
  
25.0 
(6%)
  - corporate and commercial
31.7 
31.1 
2% 
  
31.6 
- 
  - other consumer
10.6 
10.7 
(1%)
  
12.1 
(12%)
 
75.3 
75.5 
- 
  
79.3 
(5%)
Customer deposits (excluding repos)
91.2 
95.1 
(4%)
  
97.4 
(6%)
Risk elements in lending
            
  - retail
0.7 
0.7 
- 
  
0.6 
17% 
  - commercial
0.7 
0.6 
17% 
  
0.4 
75% 
 
1.4 
1.3 
8% 
  
1.0 
40% 
Loan:deposit ratio (excluding repos)
81% 
78% 
300bp 
  
80% 
100bp 
Risk-weighted assets
88.4 
100.7 
(12%)
  
96.9 
(9%)

Note:
(1)
Divisional return on equity is based on divisional operating profit/(loss) after tax divided by average notional equity (based on 9% of monthly average of divisional RWAs, adjusted for capital deductions).

Key points

Q4 2010 compared with Q3 2010
·
US Retail & Commercial returned a profit for the fourth consecutive quarter, posting an operating profit of $102 million compared with $113 million in the prior quarter. The decrease was substantially driven by the effects of legislative changes, principally related to the implementation of Regulation E, and lower mortgage banking income which decreased income by $21 million. Economic conditions in the division’s core regions remain difficult, with lingering high unemployment, a low interest rate environment, soft housing market and subdued consumer activity.
   
·
Regulation E prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-off debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.
   
·
Net interest income was down 1%. Loans and advances were in line with the previous quarter but net interest income continued to be negatively impacted by older, high-yielding housing related loans and securities running off and being replaced with lower yielding assets.
   
·
Customer deposits decreased 4%, principally through balance loss from higher cost term and time products, reflecting the continued impact of a changed pricing strategy. However, consumer checking balances grew by 1% and small business checking balances grew by 4%.
   

US Retail & Commercial (US Dollar) (continued)

Key points (continued)

Q4 2010 compared with Q3 2010 (continued)
·
Net interest margin improved by 10 basis points to 3.02% substantially driven by the full quarter impact from a balance sheet restructuring carried out during the previous quarter.
   
·
Non-interest income was down 12%, reflecting a fall in mortgage banking income as rates rose from record low rates in the prior quarter, leading to a decrease in applications and lower gains on sales to the secondary market. Lower deposit fees of $14 million as a result of a full quarter impact of Regulation E legislative changes also impacted the quarterly movement, as did a gain on the sale of student loans of $14 million recognised in Q3 2010.
   
·
Total expenses were down 3%, driven by the positive impact of higher mortgage banking rates in Q4 2010 on the valuation of mortgage servicing rights and lower Federal Deposit Insurance Corporation (FDIC) deposit insurance levies of $28 million, partially offset by increased litigation costs.
   
·
Impairment losses were down 13% reflecting a continued improvement in the underlying credit environment, offset by higher impairments related to securities.

Q4 2010 compared with Q4 2009
·
Operating profit increased to $102 million from an operating loss of $31 million largely reflecting higher net interest margins and lower impairments.
   
·
Net interest income was up 7% with net interest margin improving by 57 basis points to 3.02%.  The margin improvement was primarily due to changes in deposit mix and new deposit pricing strategies, as well as a positive impact from a balance sheet restructuring carried out during Q3 2010.
   
·
Customer deposits were down 6%, reflecting the impact of a changed pricing strategy on low margin term and time products partly offset by strong growth achieved in checking balances.  Consumer checking balances grew by 6% while small business checking balances grew by 11%.
   
·
Non-interest income was in line with Q4 2009 reflecting higher mortgage banking income, commercial banking fees and higher gains on the sale of securities offsetting lower fees impacted by Regulation E legislative changes in 2010.
   
·
Total expenses were broadly in line with Q4 2009.
   
·
Impairment losses declined 33%, following a gradual improvement in the underlying credit environment offset by higher impairments related to securities.



US Retail & Commercial (US Dollar) (continued)

Key points (continued)

2010 compared with 2009
·
Operating profit of $473 million represented a marked improvement from an operating loss of $174 million with income up 7%, expenses down 2% and impairment losses down 27%.
   
·
Net interest income was up 7%, despite a smaller balance sheet, with net interest margin improving by 48 basis points to 2.85%.
   
·
Non-interest income was up 7% reflecting higher mortgage banking and debit card income, commercial banking fees and higher gains on securities realisations. This was partially offset by lower deposit fees which were impacted by Regulation E legislative changes in 2010. In addition, gains of $330 million were recognised on the sale of available-for-sale securities as part of the balance sheet restructuring exercise, but these were almost wholly offset by losses crystallised on the termination of swaps hedging fixed-rate funding.
   
·
Total expenses were down 2%, reflecting a $113 million credit related to changes to the defined benefit pension plan in Q2 2010, and lower FDIC deposit insurance levies, partially offset by the impact of changing rates on the valuation of mortgage servicing rights and litigation costs.
   
·
Impairment losses declined 27%, following significant loan reserve building in 2009 and a gradual improvement in the underlying credit environment, offset by higher impairments related to securities. Loan impairments as a proportion of loans and advances decreased from 1.4% to 1.0%.


Global Banking & Markets

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Net interest income from banking activities
245 
317 
324 
  
1,276 
2,243 
             
Net fees and commissions receivable
425 
411 
286 
  
1,495 
1,335 
Income from trading activities
893 
830 
1,416 
  
4,982 
7,812 
Other operating income (net of related
  funding costs)
24 
(4)
(63)
  
159 
(332)
             
Non-interest income
1,342 
1,237 
1,639 
  
6,636 
8,815 
             
Total income
1,587 
1,554 
1,963 
  
7,912 
11,058 
             
Direct expenses
            
  - staff
(554)
(621)
(636)
  
(2,693)
(2,904)
  - other
(292)
(166)
(190)
  
(842)
(777)
Indirect expenses
(219)
(218)
(242)
  
(862)
(979)
             
 
(1,065)
(1,005)
(1,068)
  
(4,397)
(4,660)
             
Operating profit before impairment
  losses and fair value of own debt
522 
549 
895 
  
3,515 
6,398 
Impairment losses
5 
40 
(130)
  
(151)
(640)
             
Operating profit before fair value of
  own debt
527 
589 
765 
  
3,364 
5,758 
Fair value of own debt
438 
(598)
106 
  
139 
(49)
             
Operating profit/(loss)
965 
(9)
871 
  
3,503 
5,709 
             
             
Analysis of income by product
            
Rates - money markets
(65)
38 
108 
  
65 
1,714 
Rates - flow
413 
402 
615 
  
1,985 
3,142 
Currencies & commodities
178 
218 
175 
  
870 
1,277 
Credit and mortgage markets
433 
349 
232 
  
2,215 
2,255 
Portfolio management and origination
445 
349 
376 
  
1,844 
1,196 
Equities
183 
198 
457 
  
933 
1,474 
             
Total income
1,587 
1,554 
1,963 
  
7,912 
11,058 
             
             
Analysis of impairments by sector
            
Manufacturing and infrastructure
2 
(34)
19 
  
(51)
91 
Property and construction
10 
- 
(1)
  
74 
49 
Banks and financial institutions
54 
(3)
68 
  
177 
348 
Other
(71)
(3)
44 
  
(49)
152 
             
Total impairment losses
(5)
(40)
130 
  
151 
640 
             
             
Loan impairment charge as % of gross
  customer loans and advances
  (excluding reverse repurchase
  agreements)
- 
(0.2%)
0.6% 
  
0.2% 
0.6% 




Global Banking & Markets (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Return on equity (1)
10.2% 
11.6% 
16.8% 
  
16.6% 
29.8% 
Net interest margin
0.94% 
1.14% 
0.89% 
  
1.05% 
1.38% 
Cost:income ratio
67% 
65% 
54% 
  
56% 
42% 
Compensation ratio (2)
35% 
40% 
32% 
  
34% 
26% 


 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet
            
Loans and advances to customers
75.1 
87.9 
(15%)
  
90.9 
(17%)
Loans and advances to banks
44.5 
44.8 
(1%) 
  
36.9 
21% 
Reverse repos
94.8 
92.3 
3% 
  
73.3 
29% 
Securities
119.2 
118.8 
- 
  
106.0 
12% 
Cash and eligible bills
38.8 
42.0 
(8%)
  
74.0 
(48%)
Other
24.3 
34.9 
(30%)
  
31.1 
(22%)
             
Total third party assets (excluding derivatives
  mark-to-market)
396.7 
420.7 
(6%)
  
412.2 
(4%)
Net derivative assets (after netting)
37.4 
41.1 
(9%)
  
68.0 
(45%)
Customer deposits (excluding repos)
38.9 
40.9 
(5%)
  
46.9 
(17%)
Risk elements in lending
1.7 
1.6 
6% 
  
1.8 
(6%)
Loan:deposit ratio (excluding repos)
193% 
215% 
(2,200bp)
  
194% 
(100bp)
Risk-weighted assets
146.9 
143.7 
2% 
  
123.7 
19% 

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

Key points

Q4 2010 compared with Q3 2010
·
Operating profit, excluding fair value of own debt, fell 11% to £527 million. Revenue was up slightly but this was more than offset by an increase in non-recurrent legal costs and a lower credit to impairments.
   
·
Excluding fair value of own debt, revenue increased by 2%, reflecting continued investor uncertainty driven by the European sovereign debt crisis. Rates-money markets was adversely impacted by reduced client activity, although excluding the division’s funding activities, the Money Markets business remained profitable. Portfolio income benefited from an uplift in market derivative values.
   
·
In the Currencies and Rates Flow businesses client activity remained subdued in Q4 2010.


Global Banking & Markets (continued)

Key points (continued)

Q4 2010 compared with Q3 2010 (continued)
·
Credit Markets continued to perform well in Q4 2010 and benefited from higher fees in the Syndicate business.
   
·
Movements in fair value of own debt increased revenue by £438 million in the quarter. This reflects a widening of the Group’s credit spreads driven by the European sovereign debt crisis and largely reversed the loss of the previous quarter.
   
·
Total costs increased by £60 million in the quarter reflecting the timing of investment spend as well as legal costs related to business and corporate activities. Staff costs fell 11% during Q4 2010, as a result of cost synergies from long term investment and integration programmes.
   
·
Specific impairments of £80 million were incurred on a small number of individual exposures, but specific losses remain low, and were offset in Q4 by recoveries and by a release of latent loss provisions, reflecting lower balance sheet usage combined with a general improvement in credit conditions.
   
·
Third party assets fell by £24 billion during Q4 2010 reflecting a seasonal decline in activity, and a disciplined approach to balance sheet utilisation.
   
·
The increase in risk-weighted assets was driven by regulatory changes in relation to risk weightings of large exposures, partially offset by a reduction in the banking book.
   
·
Excluding fair value of own debt, return on equity of 10.2% - down from 11.6% in Q3 2010 - reflected the generally quiet late Q4 trading conditions and the increase in risk-weighted assets.

Q4 2010 compared with Q4 2009
·
Operating profit decreased by 31%, excluding fair value of own debt, driven by a fall in revenue only partially offset by improved impairments.
   
·
Excluding the movement in fair value on own debt, revenue fell 19%. This was due to a slowdown in client activity during 2010, especially in the Rates Flow and Money Markets businesses.
   
·
The fall in Equities reflected a very quiet Q4 2010 and the non-repeat of gains on retail-issued notes and other recoveries, both recognised in Q4 2009. Increased revenue in Portfolio Management reflected lower costs associated with balance sheet management activity during Q4 2010.
   
·
Impairments improved significantly compared with Q4 2009, with Q4 2010 benefiting from more benign credit conditions, lower balance sheet usage and a release of latent loss provisions.


Global Banking & Markets (continued)

Key points (continued)

2010 compared with 2009
·
A fall in operating profit excluding fair value of own debt of 42% year on year reflects sharply reduced revenue partially offset by lower costs and a significant improvement in impairments.
   
·
Total revenue was £3,146 million lower in 2010 driven by increased risk aversion in the market during Q3 and Q4 2010, combined with the non-repeat of favourable market conditions seen in the first half of 2009.
o Higher revenue across the Rates and Currencies businesses during 2009 was driven by rapidly falling interest rates and wide bid-offer spreads generating exceptional revenue opportunities, which have not been repeated in 2010.
o The Credit Markets business remained broadly flat, supported by strong Mortgage Trading income where customer demand remained buoyant during 2010.
o Increased revenue from Portfolio Management was driven by disciplined lending alongside a reduction in balance sheet management activities and associated costs.
   
·
Expenses fell by 6% to £4,397 million. This was largely driven by a decrease in staff costs, including on-going benefits from cost synergies.
   
·
The low level of impairments in 2010 reflected a small number of specific cases partially offset by an improved picture on latent loss provisions. This contrasted with 2009, which witnessed a significantly higher level of specific impairments.
   
·
At 16.6%, full year 2010 return on equity remained consistent with the 15% targeted over the business cycle in GBM’s strategic plan. The compensation ratio of 34% was below that of peers.




RBS Insurance

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Income statement
            
Earned premiums
1,100 
1,111 
1,149 
  
4,459 
4,519 
Reinsurers' share
(40)
(36)
(37)
  
(148)
(165)
             
Net premium income
1,060 
1,075 
1,112 
  
4,311 
4,354 
Fees and commissions
(133)
(96)
(84)
  
(409)
(366)
Instalment income
37 
37 
38 
  
144 
142 
Other income
33 
- 
6 
  
46 
25 
             
Total income
997 
1,016 
1,072 
  
4,092 
4,155 
             
Net claims
(906)
(949)
(1,156)
  
(3,961)
(3,635)
             
Underwriting profit/(loss)
91 
67 
(84)
  
131 
520 
             
Staff expenses
(69)
(68)
(61)
  
(266)
(267)
Other expenses
(34)
(41)
(54)
  
(170)
(222)
             
Total direct expenses
(103)
(109)
(115)
  
(436)
(489)
Indirect expenses
(74)
(66)
(75)
  
(267)
(270)
             
 
(177)
(175)
(190)
  
(703)
(759)
             
Technical result
(86)
(108)
(274)
  
(572)
(239)
Impairment losses
- 
- 
- 
  
- 
(8)
Investment income
77 
75 
104 
  
277 
305 
 
            
Operating (loss)/profit
(9)
(33)
(170)
  
(295)
58 
             
Analysis of income by product
            
Personal lines motor excluding broker
            
  - own brands
457 
442 
461 
  
1,787 
1,783 
  - partnerships
73 
64 
75 
  
272 
301 
Personal lines home excluding broker
            
  - own brands
120 
119 
117 
  
474 
443 
  - partnerships
96 
91 
103 
  
378 
381 
Personal lines other excluding broker
            
  - own brands
49 
47 
52 
  
192 
191 
  - partnerships
(1)
42 
54 
  
144 
212 
Other
            
  - commercial
74 
76 
74 
  
299 
305 
  - international
82 
79 
70 
  
316 
288 
  - other (1)
47 
56 
66 
  
230 
251 
             
Total income
997 
1,016 
1,072 
  
4,092 
4,155 


RBS Insurance (continued)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
In-force policies (000’s)
            
Personal lines motor excluding broker
            
  - own brands
4,162 
4,276 
4,762 
  
4,162 
4,762 
  - partnerships
645 
698 
844 
  
645 
844 
Personal lines home excluding broker
            
  - own brands
1,758 
1,765 
1,717 
  
1,758 
1,717 
  - partnerships
1,850 
1,859 
1,918 
  
1,850 
1,918 
Personal lines other excluding broker
            
  - own brands
2,005 
2,069 
2,319 
  
2,005 
2,319 
  - partnerships
8,177 
7,201 
7,335 
  
8,177 
7,335 
Other
            
  - commercial
284 
313 
273 
  
284 
273 
  - international
1,082 
1,060 
944 
  
1,082 
944 
  - other (1)
644 
911 
1,123 
  
644 
1,123 
             
Total in-force policies (2)
20,607 
20,152 
21,235 
  
20,607 
21,235 
             
Gross written premium (£m)
988 
1,128 
1,024 
  
4,298 
4,480 
             
Performance ratios
            
Return on equity (3)
(0.9%)
(3.5%)
(19.0%)
  
(7.9%)
1.7% 
Loss ratio (4)
85% 
89% 
106% 
  
92% 
84% 
Commission ratio (5 )
15% 
9% 
8% 
  
10% 
9%
Expense ratio (6)
14% 
13% 
14% 
  
13% 
14% 
Combined operating ratio (7)
114% 
110% 
128% 
  
115% 
106% 
             
Balance sheet
            
General insurance reserves - total (£m)
7,559 
7,552 
7,030 
  
7,559 
7,030 

Notes:
(1)
Other is predominantly made up of the discontinued personal lines broker business.
(2)
Total in-force policies include travel and creditor policies sold through RBS Group. These comprise travel policies included in bank accounts e.g. Royalties Gold Account, and creditor policies sold with bank products including mortgage, loan & card repayment payment protection.
(3)
Divisional return on equity is based on divisional operating (loss)/profit after tax, divided by divisional average notional equity (based on regulatory capital).
(4)
Loss ratio is based on net claims divided by net premium income for the UK businesses.
(5)
Commission ratio is based on fees & commissions divided by gross written premium income for the UK businesses.
(6)
Expense ratio is based on expenses (excluding fees & commissions) divided by gross written premium income for the UK businesses.
(7)
Combined operating ratio is expenses (including fees & commissions) divided by gross written premium income, added to the loss ratio, for the UK businesses.

Key points
●
RBS Insurance has embarked on a significant programme of investment designed to achieve a substantial lift in operational and financial performance, ahead of the planned divestment of the business, with a current target date of 2012. This programme encompasses the enhancement of pricing capability, transformation of claims operations and expense reduction, together with a range of other improvements across the business, including a greater focus on capital management.



RBS Insurance (continued)

Key points (continued)
 
2010 as a whole was a disappointing profit year, impacted by significant reserve strengthening for bodily injury claims and severe weather, resulting in a loss of £295 million. The final quarter of 2010 saw RBS Insurance end a challenging year for the industry in an improving position, with progress on its strategic investment programme and a reduction in losses to £9 million, despite an additional £100 million weather impact.
 
Excluding the impact of the weather and other one-off adjustments, annualised underlying Q4 profits were circa £300 million and the outlook for 2011 is encouraging.
 
Income was down 2% (£63 million) against 2009, driven by a managed reduction in the risk of the UK motor book, largely offset by significant price increases:
 
· This de-risking was achieved by a combination of rating action to reduce the mix of higher-risk drivers, and the partial or total exit of higher risk business lines (significantly scaling back the fleet and taxi business and the exit of personal lines business sold through insurance brokers). As a result in-force motor policies fell 14% compared with 2009.
· Even with the significant reduction in the risk mix of the book, average motor premiums were up 7% in the year, due to significant price increases. The prices of like-for-like policies have increased by 35-40% over the last year. These increases were in addition to the significant increases achieved in 2009.
 
Initiatives to grow ancillary income were also implemented during the year resulting in revenues of £46 million in 2010 (£25 million in 2009).
 
Away from UK motor, overall home gross written premiums grew by 2%. This included the exit from less profitable business in line with overall strategy. Our underlying own brands business continues to grow successfully, with gross written premiums increasing 4%.
 
The International business continued to invest in growth in 2010 with gross written premium of £425 million up 20% on 2009. The Italian business successfully grew to a market share approaching 30% of the direct insurer market. The German business grew 7% and is well positioned to take advantage of the emerging shift to direct/internet distribution in that market.
 
Several programmes to further improve the overall efficiency of the business took effect during the year, including a reduction of six sites and operational process improvements, which will continue to improve efficiency.
  


RBS Insurance (continued)

Key points

Q4 2010 compared with Q3 2010
●
Operating loss declined from £33 million in Q3 2010 to £9 million in Q4 2010. The severe weather in the UK, primarily affecting the home business, led to claims estimated to be circa £100 million above a normal fourth quarter. Against this there was no significant net movement in motor bodily injury reserves in Q4 whereas in Q3 there was strengthening of £100 million. On an underlying basis, excluding the impact of weather and other one-off items, the RBS Insurance Q4 result was profit of circa £75 million.
●
Total income fell by £19 million. This was driven by a decrease in net premium income, reflecting the decision to exit the personal lines broker and certain partner channels, and by an increase in profit share payments to one of RBS Insurance’s distribution partnerships. Within other income, a project to deliver increased ancillary income generated £26 million in the latter part of 2010 and is expected to produce circa £45 million annually.
●
Q4 2010 also saw a continued focus on removing higher risk business from the motor book through targeted re-pricing, together with the selected channel exits mentioned above. Overall, the total number of policies in force increased compared with Q3 2010, primarily due to new travel policy business from Nationwide Building Society.

Q4 2010 compared with Q4 2009
·
The operating loss of £9 million for Q4 2010 was a significant improvement from the loss of £170 million recognised in Q4 2009. A 7% decrease in income was more than offset by a £250 million reduction in claims.
·
Net claims were 22% lower, reflecting the de-risking of the portfolio. A £272 million strengthening of reserves for bodily injury claims in Q4 2009 was not repeated in Q4 2010.
·
Total income declined by £75 million as higher risk, higher premium policies were managed down through a number of targeted rating actions in the motor book. The reduction in in-force policies was partially offset by higher prices, in line with increasing pricing trends industry-wide.

2010 compared with 2009
·
Total in-force policies declined by 3%, driven by a fall of 14% in motor policies This was partly offset by higher travel policies, up 64% with new business from a partnership with Nationwide Building Society commencing in Q4 2010. The personal lines broker segment overall declined by 43%, in line with business strategy.
●
Underwriting income declined by £63 million, with lower motor premium income, driven by rating action. Increased fees and commissions reflected profit sharing arrangements with UK Retail in relation to insurance distribution to bank customers. Investment income was £28 million lower, reflecting the impact of low interest rates on returns on the investment portfolio as well as lower gains realised on the sale of investments.
●
Net claims were £326 million higher than in 2009, driven by increases to bodily injury reserves relating to prior years, including allowance for higher claims costs in respect of Periodic Payment Orders due to an increased settlement rate of such claims.  Although bodily injury frequency has stabilised, severity has continued to deteriorate.  Claims were also impacted by the adverse weather experienced in the first and fourth quarters.
·
Expenses were down 7%, driven by lower industry levies and marketing costs.


Central items

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
             
Central items not allocated before fair
  value of own debt
115 
76 
(169)
  
577 
385 
Fair value of own debt
144 
(260)
164 
  
35 
(93)
             
Central items not allocated
259 
(184)
(5)
  
612 
292 

Note:
(1)
Costs/charges are denoted by brackets.

Funding and operating costs have been allocated to operating divisions, based on direct service usage, the requirement for market funding and other appropriate drivers where services span more than one division.

Residual unallocated items relate to volatile corporate items that do not naturally reside within a division.

Key points

Q4 2010 compared with Q3 2010
·
Central items not allocated, which are primarily volatile Group Treasury items, amounted to a net credit of £115 million before fair value of own debt, an increase of £39 million on Q3 2010.
   
·
Movements in the fair value of own debt represented a net credit of £144 million in the quarter. The Group's credit spreads widened over the quarter, resulting in a decrease in the carrying value of own debt.

Q4 2010 compared with Q4 2009
·
The Q4 2010 on Q4 2009 increase in Central items not allocated, before fair value of own debt, was £284 million. This movement is largely due to a number of specific one-off corporate costs including certain Asset Protection Scheme fees and IFRS volatility in Q4 2009 that have not been repeated in Q4 2010.
   
·
Movements in the fair value of own debt in both periods reflected a marked widening in the Group’s credit spreads. This led in both quarters to decreases in the carrying value of own debt.

2010 compared with 2009
·
Central items not allocated before fair value of own debt, including available-for-sale (AFS) gains of £237 million and one-off VAT recovery in Q1 2010 of £170 million, amounted to a net credit of £577 million, an increase of £192 million on 2009.
   
·
The Group’s credit spreads have fluctuated over the course of the year, but ended the year slightly wider, resulting in an overall annual decrease in the carrying value of own debt.


Non-Core

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m
             
Income statement
            
Net interest income
419 
438 
578 
  
1,959 
1,534 
             
Net fees and commissions
166 
43 
129 
  
471 
510 
(Loss)/income from trading activities
(152)
219 
(781)
  
(31)
(5,161)
Insurance net premium income
181 
180 
171 
  
702 
784 
Other operating income
            
  - rental income
218 
166 
178 
  
752 
690 
  - other (1)
(494)
(158)
(167)
  
(820)
(658)
             
Non-interest income
(81)
450 
(470)
  
1,074 
(3,835)
             
Total income
338 
888 
108 
  
3,033 
(2,301)
             
Direct expenses
            
  - staff
(105)
(172)
(247)
  
(731)
(851)
  - operating lease depreciation
(108)
(126)
(109)
  
(452)
(402)
  - other
(158)
(151)
(188)
  
(642)
(642)
Indirect expenses
(127)
(130)
(141)
  
(500)
(552)
             
 
(498)
(579)
(685)
  
(2,325)
(2,447)
             
Operating (loss)/profit before other operating
  charges and impairment losses
(160)
309 
(577)
  
708 
(4,748)
Insurance net claims
(245)
(144)
(148)
  
(737)
(588)
Impairment losses
(1,211)
(1,171)
(1,811)
  
(5,476)
(9,221)
             
Operating loss
(1,616)
(1,006)
(2,536)
  
(5,505)
(14,557)
             
Analysis of income by business
            
Banking & portfolios
(91)
131 
37 
  
550 
(1,338)
International businesses & portfolios
354 
330 
493 
  
1,922 
2,262 
Markets
75 
427 
(422)
  
561 
(3,225)
             
Total income
338 
888 
108 
  
3,033 
(2,301)

Key metrics
 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
             
Performance ratios
            
Net interest margin
1.10% 
1.05% 
1.17% 
  
1.16% 
0.69% 
Cost:income ratio
147% 
65% 
634% 
  
77% 
(106%)
Adjusted cost:income ratio
535% 
78% 
(1,713%)
  
101% 
(85%)

Note:
(1)
Includes losses on disposals (quarter ended 31 December 2010 - £247 million; quarter ended 30 September 2010 - £253 million; year ended 31 December 2010 - £504 million).



Non-Core (continued)

 
31 December 
2010 
30 September 
2010 
    
31 December 
2009 
  
 
£bn 
£bn 
Change 
  
£bn 
Change 
             
Capital and balance sheet (1)
            
Total third party assets (excluding derivatives)
137.9 
154.2 
(11%)
  
201.0 
(31%)
Total third party assets (including derivatives)
153.9 
175.2 
(12%)
  
220.9 
(30%)
Loans and advances to customers (gross)
108.4 
119.5 
(9%)
  
149.5 
(27%)
Customer deposits
6.7 
7.3 
(8%)
  
12.6 
(47%)
Risk elements in lending
23.4 
23.9 
(2%)
  
22.9 
2% 
Risk-weighted assets (2)
153.7 
166.9 
(8%)
  
171.3 
(10%)

Notes:
(1)
Includes disposal groups.
(2)
Includes RBS Sempra Commodities JV: 31 December 2010 Third party assets (TPAs) £6.7 billion, RWAs £4.3 billion; (30 September 2010 TPAs £8.3 billion, RWAs £5.9 billion; 31 December 2009 TPAs £14.2 billion, RWAs £10.2 billion).


 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
(Loss)/income from trading activities
            
Monoline exposures
(57)
191 
(679)
  
(5)
(2,387)
Credit derivative product companies
(38)
(15)
(101)
  
(139)
(947)
Asset-backed products (1)
33 
160 
105 
  
235 
(288)
Other credit exotics
21 
(2)
16 
  
77 
(558)
Equities
11 
(15)
(9)
  
(17)
(47)
Banking book hedges
(70)
(123)
(231)
  
(82)
(1,613)
Other (2)
(52)
23 
118 
  
(100)
679 
             
 
(152)
219 
(781)
  
(31)
(5,161)
             
Impairment losses
            
Banking & portfolios
154 
204 
895 
  
1,311 
4,215 
International businesses & portfolios
1,162 
980 
902 
  
4,217 
4,494 
Markets
(105)
(13)
14 
  
(52)
512 
             
Total impairment losses
1,211 
1,171 
1,811 
  
5,476 
9,221 
             
Loan impairment charge as % of gross
  customer loans and advances (excluding
  reverse repurchase agreements) (3)
            
Banking & portfolios
1.0% 
1.3% 
4.1% 
  
2.2% 
4.9% 
International businesses & portfolios
8.7% 
6.9% 
5.3% 
  
7.9% 
6.6% 
Markets
(30.9%)
(0.5%)
0.4% 
  
0.1% 
5.2% 
             
 
4.4% 
3.9% 
4.6% 
  
4.9% 
5.7% 

Notes:
(1)
Asset-backed products include super senior asset-backed structures and other asset-backed products.
(2)
Includes profits in RBS Sempra Commodities JV of £19 million (quarter ended 30 September 2010 - £78 million; 31 December 2009 - £161 million; year ended 31 December 2009 - £770 million).
(3)
Includes disposal groups.


Non-Core (continued)

 
31 December 
2010 
30 September 
2010 
31 December 
2009 
 
£bn 
£bn 
£bn 
       
Gross customer loans and advances
      
Banking & portfolios
55.6 
64.4 
82.0 
International businesses & portfolios
52.5 
54.8 
65.6 
Markets
0.3 
0.3 
1.9 
       
 
108.4 
119.5 
149.5 
       
Risk-weighted assets
      
Banking & portfolios
51.2 
54.0 
58.2 
International businesses & portfolios
37.5 
40.6 
43.8 
Markets
65.0 
72.3 
69.3 
       
 
153.7 
166.9 
171.3 





Non-Core (continued)

Third party assets (excluding derivatives)
               
Quarter ended 31 December 2010
               
 
30 September 
2010 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
31 December 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
46.5 
(2.3)
(0.8)
0.4 
(1.2)
- 
42.6 
Corporate
66.1 
(2.0)
(4.9)
0.4 
- 
0.2 
59.8 
SME
3.9 
(0.3)
- 
0.1 
- 
- 
3.7 
Retail
10.3 
(0.6)
(0.7)
- 
(0.1)
0.1 
9.0 
Other
2.6 
(0.1)
- 
- 
- 
- 
2.5 
Markets
16.5 
0.2 
(3.7)
0.3 
0.1 
0.2 
13.6 
               
Total (excluding derivatives)
145.9 
(5.1)
(10.1)
1.2 
(1.2)
0.5 
131.2 
Markets – RBS Sempra Commodities JV
8.3 
1.4 
(3.0)
- 
- 
- 
6.7 
               
Total (1)
154.2 
(3.7)
(13.1)
1.2 
(1.2)
0.5 
137.9 

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

Year ended 31 December 2010

 
31 December 
2009 
Run-off 
Disposals/ 
restructuring 
Drawings/ 
roll overs 
Impairments 
FX 
31 December 
2010 
 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
£bn 
               
Commercial real estate
51.3 
(6.2)
(1.4)
3.2 
(4.6)
0.3 
42.6 
Corporate
82.6 
(12.0)
(13.0)
2.0 
(0.2)
0.4 
59.8 
SME
3.9 
(0.2)
- 
0.1 
(0.1)
- 
3.7 
Retail
19.9 
(7.7)
(2.6)
0.1 
(0.6)
(0.1)
9.0 
Other
4.7 
(2.1)
(0.4)
0.3 
- 
- 
2.5 
Markets
24.4 
(3.0)
(9.8)
1.3 
- 
0.7 
13.6 
               
Total (excluding derivatives) (2)
186.8 
(31.2)
(27.2)
7.0 
(5.5)
1.3 
131.2 
Markets – RBS Sempra Commodities JV
14.2 
(1.7)
(6.3)
- 
- 
0.5 
6.7 
               
Total (1)
201.0 
(32.9)
(33.5)
7.0 
(5.5)
1.8 
137.9 

Notes:
(1)
£12 billion of disposals have been signed as of 31 December 2010 but are pending closing (30 September 2010 - £9 billion; 31 December 2009 - £3 billion).
(2)
Intra-group transfers during Q3 resulted in a net £2.2 billion reduction in TPAs. As a result of this transfer there was an increase of Commercial real estate assets totalling £5.4 billion, offset by reductions across other sectors, principally Retail.

Non-Core (continued)

 
Quarter ended
  
Year ended
 
31 December 
2010 
30 September 
2010 
31 December 
2009 
  
31 December 
2010 
31 December 
2009 
 
£m 
£m 
£m 
  
£m 
£m 
             
Loan impairment losses by donating
  division and sector
            
             
UK Retail
            
Mortgages
1 
1 
2 
  
5 
6 
Personal
2 
4 
5 
  
8 
47 
             
Total UK Retail
3 
5 
7 
  
13 
53 
             
UK Corporate
            
Manufacturing and infrastructure
5 
5 
41 
  
26 
87 
Property and construction
103 
130 
163 
  
437 
651 
Transport
(20)
26 
2 
  
3 
10 
Banks and financials
51 
(8)
- 
  
69 
102 
Lombard
50 
25 
13 
  
129 
95 
Invoice finance
- 
(3)
1 
  
(3)
3 
Other
50 
(2)
120 
  
169 
729 
             
Total UK Corporate
239 
173 
340 
  
830 
1,677 
             
Ulster Bank
            
Mortgages
- 
(1)
16 
  
42 
42 
Commercial investment and development
241 
201 
256 
  
699 
303 
Residential investment and development
561 
394 
(33)
  
1,690 
716 
Other
(19)
82 
33 
  
251 
217 
Other EMEA
6 
13 
20 
  
52 
106 
             
Total Ulster Bank
789 
689 
292 
  
2,734 
1,384 
             
US Retail & Commercial
            
Auto and consumer
37 
(2)
27 
  
82 
136 
Cards
3 
2 
26 
  
23 
130 
SBO/home equity
51 
57 
85 
  
277 
452 
Residential mortgages
(1)
3 
13 
  
4 
54 
Commercial real estate
31 
49 
51 
  
185 
224 
Commercial and other
2 
7 
8 
  
17 
83 
             
Total US Retail & Commercial
123 
116 
210 
  
588 
1,079 
             
Global Banking & Markets
            
Manufacturing and infrastructure
15 
(53)
84 
  
(290)
1,404 
Property and construction
176 
147 
683 
  
1,296 
1,413 
Transport
24 
8 
5 
  
33 
178 
Telecoms, media and technology
(23)
32 
2 
  
9 
545 
Banks and financials
19 
5 
97 
  
196 
620 
Other
(163)
52 
38 
  
14 
567 
             
Total Global Banking & Markets
48 
191 
909 
  
1,258 
4,727 
             
Other
            
Wealth
- 
7 
38 
  
51 
251 
Global Transaction Services
7 
(10)
14 
  
- 
49 
Central items
2 
- 
1 
  
2 
1 
             
Total Other
9 
(3)
53 
  
53 
301 
             
Total impairment losses
1,211 
1,171 
1,811 
  
5,476 
9,221 


Non-Core (continued)

 
31 December 
2010 
30 September 
2010 
31 December 
2009 
 
£bn 
£bn 
£bn 
       
Gross loans and advances to customers (excluding reverse
  repurchase agreements) by donating division and sector
      
       
UK Retail
      
Mortgages
1.6 
1.7 
1.9 
Personal
0.4 
0.5 
0.7 
       
Total UK Retail
2.0 
2.2 
2.6 
       
UK Corporate
      
Manufacturing and infrastructure
0.3 
0.3 
0.3 
Property and construction
11.4 
12.1 
14.1 
Lombard
1.7 
1.9 
2.9 
Invoice finance
- 
- 
0.4 
Other
13.6 
14.2 
17.2 
       
Total UK Corporate
27.0 
28.5 
34.9 
       
Ulster Bank
      
Mortgages
- 
- 
6.0 
Commercial investment and development
5.6 
6.7 
3.0 
Residential investment and development
7.1 
6.0 
5.6 
Other
1.9 
2.0 
1.1 
Other EMEA
0.4 
0.8 
1.0 
       
Total Ulster Bank
15.0 
15.5 
16.7 
       
US Retail & Commercial
      
Auto and consumer
2.6 
2.7 
3.2 
Cards
0.1 
0.1 
0.5 
SBO/home equity
3.2 
3.3 
3.7 
Residential mortgages
0.7 
0.8 
0.8 
Commercial real estate
1.5 
1.7 
1.9 
Commercial and other
0.5 
0.6 
0.9 
       
Total US Retail & Commercial
8.6 
9.2 
11.0 
       
Global Banking & Markets
      
Manufacturing and infrastructure
8.7 
10.6 
17.5 
Property and construction
19.6 
22.9 
25.7 
Transport
5.5 
5.6 
5.8 
Telecoms, media and technology
0.9 
1.1 
3.2 
Banks and financials
12.0 
13.8 
16.0 
Other
9.0 
10.5 
13.5 
       
Total Global Banking & Markets
55.7 
64.5 
81.7 
       
Other
      
Wealth
0.4 
0.7 
2.6 
Global Transaction Services
0.3 
0.5 
0.8 
RBS Insurance
0.2 
0.2 
0.2 
Central items
(1.0)
(2.1)
(3.2)
       
Total Other
(0.1)
(0.7)
0.4 
       
Gross loans and advances to customers (excluding reverse repurchase
  agreements)
108.2 
119.2 
147.3 




Non-Core (continued)

Key points

Q4 2010 compared with Q3 2010
·
Non-Core made further good progress in its asset reduction programme, with third party assets (excluding derivatives) declining by £16 billion to £138 billion. Disposals in Q4 2010 represented a £13 billion reduction while portfolio run-off totalled £5 billion. The division has also agreed, but not yet completed, a further £12 billion of disposals. Disposals in Q4 2010 included exits from Chile and Pakistan.
   
·
Non-Core operating loss was £1,616 million in the fourth quarter, compared with £1,006 million in Q3 2010, primarily impacted by trading results, increased disposal losses, fair value write-downs and higher impairments.
   
·
Net interest income decreased by £19 million in Q4 2010 reflecting the continued reduction in the balance sheet.
   
·
In non-interest income, losses from trading activities totalled £152 million, compared with a profit of £219 million in the third quarter. A change in assumptions relating to the expected life of several trades in the structured credit portfolio caused a charge of approximately £160 million to monoline exposures in Q4 2010. Other operating income showed a loss of £276 million in Q4 2010 compared with a profit of £8 million in Q3 2010 and was driven by fair value write-downs on asset portfolios of £390 million. Disposal losses within operating income in Q4 2010 totalled £247 million compared with £253 million in Q3 2010.
   
·
Expenses declined by £81 million, or 14%, reflecting a number of business disposals and some one-off items. Headcount declined by 3,100 in Q4 principally reflecting country exits.
   
·
Impairment losses increased by £40 million, despite an increase in recoveries from Q3 2010. The rise was driven by an increase in impairments in the Ulster Bank portfolio.
   
·
Risk-weighted assets decreased by £13 billion driven by business disposals across the Non-Core division, partly offset by increases from regulatory changes.

Q4 2010 compared with Q4 2009
·
Q4 2010 operating loss of £1,616 million was 36% lower than the loss recorded in Q4 2009.
   
·
Losses from trading activities declined by £629 million, while underlying asset prices improved, fair value write-downs and disposal losses increased.
     
·
Impairments were £600 million lower in Q4 2010. This reflected the overall improvement in the economic environment over the year. However, additional impairments taken in Q4 2010 across the Ulster Bank portfolio demonstrate the continuing weakness in certain sectors.



Non-Core (continued)

Key points (continued)

2010 compared with 2009
·
By the end of 2010 third party assets (excluding derivatives) had decreased to £138 billion, £5  billion lower than the end of year target, as a result of a successful disposal strategy, managed portfolio run-off and impairments.
   
·
2010 operating losses in Non-Core were 62% lower than those recorded in 2009. The improvement in performance was driven by significantly lower trading losses, reduced expenses and a marked decline in impairments.
 
  
·
Losses from trading activities declined from £5,161 million for 2009 to £31 million for 2010 as underlying asset prices recovered, offset by continuing weakness in credit spreads. The division has recorded profits on the disposal of many asset-backed securities positions. In addition, a significantly smaller loss of £161 million was recorded on banking book hedges as spreads tightened, compared with £1,728 million in 2009.
 
  
·
Staff expenses fell by 14% over the year, largely driven by the impact of business divestments, including a number of country exits and the disposal of substantially all of the Group’s interest in the RBS Sempra Commodities JV.
 
  
·
Impairments were £3,745 million lower than 2009. The decline reflects the overall improvement in economic environment, although still high loss rates reflect the difficult conditions experienced in specific sectors, including both UK and Irish commercial property sectors.
 
  
·
Wholesale country exits completed during 2010 were Chile, Colombia, Pakistan and Taiwan.
   
·
Risk-weighted assets decreased by £18 billion (10%), reflecting active management to reduce trading book risk and disposals, partially offset by the impact of regulatory changes (£30 billion) and more conservative weightings applied to large corporate exposures.


 
 

 
 
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: 24 February 2011
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary