rbs201305036k3.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 May 3, 2013
 
Commission File Number: 001-10306

 
The Royal Bank of Scotland Group plc

 
RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

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

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


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


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

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

 
 
 
 
 
 
 
 
 
 
Condensed consolidated income statement
for the quarter ended 31 March 2013
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Interest receivable
4,279 
4,439 
4,934 
Interest payable
(1,609)
(1,666)
(2,019)
       
Net interest income
2,670 
2,773 
2,915 
       
Fees and commissions receivable
1,316 
1,374 
1,485 
Fees and commissions payable
(210)
(245)
(179)
Income from trading activities
1,115 
474 
212 
(Loss)/gain on redemption of own debt
(51)
- 
577 
Other operating income
612 
227 
(800)
       
Non-interest income
2,782 
1,830 
1,295 
       
Total income
5,452 
4,603 
4,210 
       
Staff costs
(1,887)
(1,656)
(2,508)
Premises and equipment
(556)
(592)
(562)
Other administrative expenses
(763)
(2,506)
(883)
Depreciation and amortisation
(387)
(498)
(457)
Write-down of goodwill and other intangible assets
- 
(124)
- 
       
Operating expenses
(3,593)
(5,376)
(4,410)
       
Profit/(loss) before impairment losses
1,859 
(773)
(200)
Impairment losses
(1,033)
(1,454)
(1,314)
       
Operating profit/(loss) before tax
826 
(2,227)
(1,514)
Tax charge
(350)
(39)
(138)
       
Profit/(loss) from continuing operations
476 
(2,266)
(1,652)
       
Profit/(loss) from discontinued operations, net of tax
      
  - Direct Line Group (1)
127 
(351)
88 
  - Other
2 
6 
5 
       
Profit/(loss) from discontinued operations, net of tax
129 
(345)
93 
       
Profit/(loss) for the period
605 
(2,611)
(1,559)
Non-controlling interests
(131)
108 
14 
Preference share and other dividends
(81)
(115)
- 
       
Profit/(loss) attributable to ordinary and B shareholders
393 
(2,618)
(1,545)
       
Basic and diluted earnings/(loss) per ordinary and B share from continuing
  operations (2)
2.6p 
(21.6p)
(15.0p)
       
Basic and diluted earnings/(loss) per ordinary and B share from continuing
  and discontinued operations (2)
3.5p 
(23.6p)
(14.2p)
 
Notes:
 
(1)
Includes a gain on disposal of £72 million in Q1 2013 and the write-down of goodwill of £394 million in Q4 2012.
(2)
Data for the quarter ended 31 March 2012 have been adjusted for the sub-division and one-for-ten consolidation of ordinary shares in June 2012.
(3)
In the income statement above, one-off and other items as shown on page 17 are included in the appropriate captions. A reconciliation between the income statement above and the managed view income statement on page 7 is given in Appendix 1 to this announcement.
 
 
 
 
Condensed consolidated statement of comprehensive income
for the quarter ended 31 March 2013
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Profit/(loss) for the period
605 
(2,611)
(1,559)
       
Items that do not qualify for reclassification
      
Actuarial losses on defined benefit plans
- 
(2,158)
- 
Income tax on items that do not qualify for reclassification
- 
429 
(38)
       
 
- 
(1,729)
(38)
       
Items that do qualify for reclassification
      
Available-for-sale financial assets
276 
(70)
525 
Cash flow hedges
(34)
(126)
33 
Currency translation
1,197 
169 
(554)
Income tax on items that do qualify for reclassification
48 
118 
19 
       
 
1,487 
91 
23 
       
Other comprehensive income/(loss) after tax
1,487 
(1,638)
(15)
       
Total comprehensive income/(loss) for the period
2,092 
(4,249)
(1,574)
       
Total comprehensive income/(loss) is attributable to:
      
Non-controlling interests
149 
(104)
(3)
Preference shareholders
71 
99 
- 
Paid-in equity holders
10 
16 
- 
Ordinary and B shareholders
1,862 
(4,260)
(1,571)
       
 
2,092 
(4,249)
(1,574)
 
Key points
 
·
The movement in available-for-sale financial assets during Q1 2013 represents net unrealised gains on high quality UK, US and German sovereign bonds.
   
·
Currency translation gains during the quarter are principally due to the weakening of Sterling against both the US Dollar by 6.2%, and the Euro by 3.6%. Whilst these currency movements benefited the tangible net asset value per share, they did however reduce the Core Tier 1 capital ratio by c.6 basis points given the impact on risk weighted assets.
 
 
 
 
Condensed consolidated balance sheet
at 31 March 2013
 
 
31 March 
2013 
31 December 
2012 
 
£m 
£m 
     
Assets
    
Cash and balances at central banks
86,718 
79,290 
Net loans and advances to banks
34,025 
29,168 
Reverse repurchase agreements and stock borrowing
43,678 
34,783 
Loans and advances to banks
77,703 
63,951 
Net loans and advances to customers
432,360 
430,088 
Reverse repurchase agreements and stock borrowing
59,427 
70,047 
Loans and advances to customers
491,787 
500,135 
Debt securities
153,248 
157,438 
Equity shares
11,861 
15,232 
Settlement balances
15,805 
5,741 
Derivatives
432,435 
441,903 
Intangible assets
13,928 
13,545 
Property, plant and equipment
9,482 
9,784 
Deferred tax
3,280 
3,443 
Interests in associated undertakings
2,604 
776 
Prepayments, accrued income and other assets
7,596 
7,044 
Assets of disposal groups
1,726 
14,013 
     
Total assets
1,308,173 
1,312,295 
     
Liabilities
    
Bank deposits
54,536 
57,073 
Repurchase agreements and stock lending
39,575 
44,332 
Deposits by banks
94,111 
101,405 
Customer deposits
437,437 
433,239 
Repurchase agreements and stock lending
88,658 
88,040 
Customer accounts
526,095 
521,279 
Debt securities in issue
92,740 
94,592 
Settlement balances
14,640 
5,878 
Short positions
30,610 
27,591 
Derivatives
429,881 
434,333 
Accruals, deferred income and other liabilities
15,630 
14,801 
Retirement benefit liabilities
3,533 
3,884 
Deferred tax
1,019 
1,141 
Subordinated liabilities
27,788 
26,773 
Liabilities of disposal groups
961 
10,170 
     
Total liabilities
1,237,008 
1,241,847 
     
Equity
    
Non-controlling interests
532 
1,770 
Owners' equity*
    
  Called up share capital
6,619 
6,582 
  Reserves
64,014 
62,096 
     
Total equity
71,165 
70,448 
     
Total liabilities and equity
1,308,173 
1,312,295 
     
* Owners' equity attributable to:
    
Ordinary and B shareholders
65,341 
63,386 
Other equity owners
5,292 
5,292 
     
 
70,633 
68,678 
 
 
 
 
 
Average balance sheet
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
 
% 
% 
     
Average yields, spreads and margins of the banking business
    
Gross yield on interest-earning assets of banking business
3.10 
3.11 
Cost of interest-bearing liabilities of banking business
(1.48)
(1.51)
     
Interest spread of banking business
1.62 
1.60 
Benefit from interest-free funds
0.33 
0.35 
     
Net interest margin of banking business
1.95 
1.95 
     
     
Average interest rates
    
The Group's base rate
0.50 
0.50 
     
London inter-bank three month offered rates
    
  - Sterling
0.51 
0.53 
  - Eurodollar
0.29
0.32 
  - Euro
0.21 
0.20 
 
 
 
 
 
Average balance sheet (continued)
 
 
Quarter ended
  
Quarter ended
 
31 March 2013
  
31 December 2012
 
Average 
      
Average 
    
 
balance 
Interest 
Rate 
  
balance 
Interest 
Rate 
 
£m 
£m 
% 
  
£m 
£m 
% 
               
Assets
              
Loans and advances to banks
72,304 
110 
0.62 
  
73,106 
117 
0.64 
Loans and advances to customers
411,052 
3,855 
3.80 
  
415,880 
3,974 
3.80 
Debt securities
84,670 
372 
1.78 
  
88,437 
423 
1.90 
               
Interest-earning assets -
  banking business (1,4,6)
568,026 
4,337 
3.10 
  
577,423 
4,514 
3.11 
               
Trading business (5)
238,205 
      
231,113 
    
Non-interest earning assets
524,628 
      
534,487 
    
               
Total assets
1,330,859 
      
1,343,023 
    
               
Memo: Funded assets
891,657 
      
892,306 
    
               
Liabilities
              
Deposits by banks
28,278 
114 
1.63 
  
30,861 
118 
1.52 
Customer accounts
338,685 
837 
1.00 
  
335,054 
849 
1.01 
Debt securities in issue
61,856 
370 
2.43 
  
67,015 
439 
2.61 
Subordinated liabilities
24,546 
198 
3.27 
  
22,563 
182 
3.21 
Internal funding of trading business
(15,422)
81 
(2.13)
  
(12,609)
90 
(2.84)
               
Interest-bearing liabilities -
  banking business (1,2,3,4)
437,943 
1,600 
1.48 
  
442,884 
1,678 
1.51 
               
Trading business (5)
240,519 
      
234,792 
    
Non-interest-bearing liabilities
              
  - demand deposits
76,039 
      
74,957 
    
  - other liabilities
506,560 
      
518,423 
    
Owners' equity
69,798 
      
71,967 
    
               
Total liabilities and owners' equity
1,330,859 
      
1,343,023 
    
 
Notes:
 
(1)
Interest receivable has been increased by £1 million (Q4 2012 - £3 million decrease) and interest payable has been increased by £17 million (Q4 2012 - £32 million) to record interest on financial assets and liabilities designated as at fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(2)
Interest payable has been decreased by £2 million (Q4 2012 - £3 million) to exclude RFS Holdings minority interest. Related interest-bearing liabilities have also been adjusted.
(3)
Interest payable has been decreased by £31 million (Q4 2012 - £29 million) in respect of non-recurring adjustments.
(4)
Interest receivable has been increased by £57 million (Q4 2012 - £78 million) and interest payable has been increased by £7 million (Q4 2012 - £12 million) to include the discontinued operations of Direct Line Group for the period to 12 March 2013. Related interest-earning assets and interest-bearing liabilities have been similarly adjusted.
(5)
Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(6)
Interest income includes amounts (unwind of discount) recognised on impaired loans and receivables. The average balances of such loans are included in average loans and advances to banks and loans and advances to customers.
 
 
 
 
Condensed consolidated statement of changes in equity
for the quarter ended 31 March 2013
 
   
Quarter ended
   
31 March 
2013 
31 December 
2012 
31 March 
2012 
   
£m 
£m 
£m 
         
Called-up share capital
      
At beginning of period
6,582 
6,581 
15,318 
Ordinary shares issued
37 
1 
79 
         
At end of period
6,619 
6,582 
15,397 
         
Paid-in equity
      
At beginning and end of period
979 
979 
979 
         
Share premium account
      
At beginning of period
24,361 
24,268 
24,001 
Ordinary shares issued
94 
93 
26 
         
At end of period
24,455 
24,361 
24,027 
         
Merger reserve
      
At beginning and end of period
13,222 
13,222 
13,222 
         
Available-for-sale reserve (1)
      
At beginning of period
(346)
(291)
(957)
Unrealised gains
582 
136 
724 
Realised gains
(164)
(209)
(212)
Tax
28 
77 
6 
Recycled to profit or loss on disposal of businesses (2)
(110)
- 
- 
Transfer to retained earnings
- 
(59)
- 
         
At end of period
(10)
(346)
(439)
         
Cash flow hedging reserve      
At beginning of period
1,666 
1,746 
879 
Amount recognised in equity
259 
162 
290 
 Amount transferred from equity to earnings
(293)
(288)
(257)
 Tax
3 
46 
9 
         
 At end of period
1,635 
1,666 
921 
 
       
Foreign exchange reserve
      
At beginning of period
3,908 
3,747 
4,775 
Retranslation of net assets
1,386 
147 
(648)
Foreign currency (losses)/gains on hedges of net assets
(201)
21 
96 
Transfer to retained earnings
- 
(2)
- 
Tax
(18)
(5)
4 
Recycled to profit or loss on disposal of businesses
(3)
- 
- 
       
At end of period
5,072 
3,908 
4,227 
       
Capital redemption reserve
      
At beginning and end of period
9,131 
9,131 
198 
       
Contingent capital reserve
      
At beginning and end of period
(1,208)
(1,208)
(1,208)
 
                 
 
Notes:
 
(1)
Analysis provided on page 81.
(2)
Net of tax - £35 million charge.
(3)
Net of tax - £1 million charge.
 
 
 
 
Condensed consolidated statement of changes in equity
for the quarter ended 31 March 2013 (continued)
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
         
Retained earnings
        
At beginning of period
10,596 
15,216 
18,929 
Transfer to non-controlling interests
- 
(361)
- 
Profit/(loss) attributable to ordinary and B shareholders and other equity owners
        
  - continuing operations
366 
(2,278)
(1,633)
  - discontinued operations
108 
(225)
88 
Equity preference dividends paid
(71)
(99)
- 
Paid-in equity dividends paid, net of tax
(10)
(16)
- 
Transfer from available-for-sale reserve
- 
59 
- 
Transfer from foreign exchange reserve
- 
2 
- 
Actuarial losses recognised in retirement benefit schemes
        
  - gross
- 
(2,158)
- 
  - tax
- 
429 
(38)
Shares released for employee benefits
- 
43 
(13)
Share-based payments
        
  - gross
(37)
(19)
45 
  - tax
(3)
3 
6 
         
At end of period
10,949 
10,596 
17,384 
       
Own shares held
      
At beginning of period
(213)
(207)
(769)
Disposal/(purchase) of own shares
2 
(6)
(2)
Shares released for employee benefits
- 
- 
6 
       
At end of period
(211)
(213)
(765)
       
Owners' equity at end of period
70,633 
68,678 
73,943 
       
Non-controlling interests
      
At beginning of period
1,770 
646 
686 
Currency translation adjustments and other movements
15 
1 
(2)
Profit/(loss) attributable to non-controlling interests
      
  - continuing operations
110 
12 
(19)
  - discontinued operations
21 
(120)
5 
Movements in available-for-sale securities
      
  - unrealised gains/(losses)
9 
(1)
(4)
  - realised losses
- 
4 
17 
  - tax
(1)
- 
- 
  - recycled to profit or loss on disposal of businesses (3)
(5)
- 
- 
Equity raised
- 
874 
- 
Equity withdrawn and disposals
(1,387)
(7)
(16)
Transfer from retained earnings
- 
361 
- 
       
At end of period
532 
1,770 
667 
       
Total equity at end of period
71,165 
70,448 
74,610 
       
Total comprehensive income/(loss) recognised in the statement of
  changes in equity is attributable to:
      
Non-controlling interests
149 
(104)
(3)
Preference shareholders
71 
99 
- 
Paid-in equity holders
10 
16 
- 
Ordinary and B shareholders
1,862 
(4,260)
(1,571)
       
 
2,092 
(4,249)
(1,574)
 
For the notes to this table refer to page 70.
 
Notes
 
1. Basis of preparation
The annual accounts are prepared in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) and interpretations issued by the IFRS Interpretations Committee of the IASB as adopted by the European Union (EU) (together IFRS). There have been no significant changes to the Group's principal accounting policies as set out on pages 360 to 371 of the 2012 Annual Report and Accounts apart from the adoption of a number of new and revised IFRSs that are effective from 1 January 2013 as described below.
 
IFRS 11 'Joint Arrangements', which supersedes IAS 31' Interests in Joint Ventures', distinguishes between joint operations and joint ventures. Joint operations are accounted for by the investor recognising its assets and liabilities including its share of any assets held and liabilities incurred jointly and its share of revenues and costs. Joint ventures are accounted for in the investor's consolidated accounts using the equity method. IFRS 11 requires retrospective application.
 
IAS 28 'Investments in Associates and Joint Ventures' covers joint ventures as well as associates; both must be accounted for using the equity method. The mechanics of the equity method are unchanged.
 
IFRS 13 'Fair Value Measurement' sets out a single IFRS framework for defining and measuring fair value and requiring disclosures about fair value measurements.
 
'Amendments to IAS 1 'Presentation of Items of Other Comprehensive Income' require items that will never be recognised in profit or loss to be presented separately in other comprehensive income from those items that are subject to subsequent reclassification.
 
'Annual Improvements 2009-2011 Cycle' also made a number of minor changes to IFRSs.
 
Implementation of the standards above has not had a material effect on the Group's results.
 
IAS 19 'Employee Benefits' (revised) requires: the immediate recognition of all actuarial gains and losses eliminating the 'corridor approach'; interest cost to be calculated on the net pension liability or asset at the long-term bond rate, an expected rate of return will no longer be applied to assets; and all past service costs to be recognised immediately when a scheme is curtailed or amended. Implementation of IAS19 resulted in an increase in the loss after tax for the quarters ended 31 December 2012 and 31 March 2012 of £21 million.
 
IFRS 10 'Consolidated Financial Statements' replaces SIC-12 'Consolidation - Special Purpose Entities' and the consolidation elements of the existing IAS 27 'Consolidated and Separate Financial Statements'. IFRS 10 adopts a single definition of control: a reporting entity controls another entity when the reporting entity has the power to direct the activities of that other entity so as to vary returns for the reporting entity. IFRS 10 requires retrospective application. Following implementation of IFRS 10, certain entities that have trust preferred securities in issue are no longer consolidated by the Group. As a result there has been a reduction in non-controlling interests of £0.5 billion with a corresponding increase in Owners' equity (Paid-in equity); prior periods have been restated.
 
 
 
 
 
 
Notes
 
1. Basis of preparation (continued)
 
Critical accounting policies and key sources of estimation uncertainty
The reported results of the Group are sensitive to the accounting policies, assumptions and estimates that underlie the preparation of its financial statements. The judgements and assumptions that are considered to be the most important to the portrayal of the Group's financial condition are those relating to pensions; goodwill; provisions for liabilities; deferred tax; loan impairment provisions and financial instrument fair values. These critical accounting policies and judgments are described on pages 368 to 371 of the Group's 2012 Annual Report and Accounts.
 
Direct Line Group (DLG)
With effect from 13 March 2013, when the Group's shareholding in DLG fell below 50%, the Group no longer controls DLG. Consequently, in the Q1 results DLG is treated as a discontinued operation until 12 March 2013 and as an associated undertaking thereafter.
 
Going concern
Having reviewed the Group's forecasts, projections and other relevant evidence, the directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future. Accordingly, the Interim Management Statement for the quarter ended 31 March 2013 has been prepared on a going concern basis.
 
 
 
 
 
 
Notes (continued)
 
2. Analysis of income, expenses and impairment losses
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Loans and advances to customers
3,831 
3,940 
4,221 
Loans and advances to banks
108 
114 
143 
Debt securities
340 
385 
570 
       
Interest receivable
4,279 
4,439 
4,934 
       
Customer accounts
837 
849 
915 
Deposits by banks
116 
122 
191 
Debt securities in issue
353 
404 
698 
Subordinated liabilities
222 
201 
190 
Internal funding of trading businesses
81 
90 
25 
       
Interest payable
1,609 
1,666 
2,019 
       
Net interest income
2,670 
2,773 
2,915 
       
Fees and commissions receivable
      
  - payment services
333 
317 
347 
  - credit and debit card fees
254 
280 
262 
  - lending (credit facilities)
353 
368 
358 
  - brokerage
109 
122 
154 
  - investment management
113 
106 
131 
  - trade finance
78 
64 
99 
  - other
76 
117 
134 
       
 
1,316 
1,374 
1,485 
Fees and commissions payable - banking
(210)
(245)
(179)
       
Net fees and commissions
1,106 
1,129 
1,306 
       
Foreign exchange
195 
86 
225 
Interest rate
199 
456 
672 
Credit
552 
118 
210 
Own credit adjustments
99 
(98)
(1,009)
Other
70 
(88)
114 
       
Income from trading activities
1,115 
474 
212 
       
(Loss)/gain on redemption of own debt
(51)
- 
577 
       
Operating lease and other rental income
138 
152 
301 
Own credit adjustments
150 
(122)
(1,447)
Changes in the fair value of:
      
  - securities and other financial assets and liabilities
12 
19 
81 
  - investment properties
(9)
(77)
32 
Profit on sale of securities
153 
237 
190 
Profit/(loss) on sale of:
      
  - property, plant and equipment
18 
(1)
5 
  - subsidiaries and associated undertakings
(6)
(21)
(12)
Life business profits
- 
1 
1 
Dividend income
14 
16 
14 
Share of profits less losses of associated undertakings (1)
177 
21 
(4)
Other income
(35)
2 
39 
       
Other operating income
612 
227 
(800)
 
For the note to this table refer to the following page.
 
 
 
 
 
Notes (continued)
 
2. Analysis of income, expenses and impairment losses (continued)
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Total non-interest income
2,782 
1,830 
1,295 
       
Total income
5,452 
4,603 
4,210 
       
Staff costs
1,887 
1,656 
2,508 
Premises and equipment
556 
592 
562 
Other (2)
763 
2,506 
883 
       
Administrative expenses
3,206 
4,754 
3,953 
Depreciation and amortisation
387 
498 
457 
Write-down of goodwill and other intangible assets (3)
- 
124 
- 
       
Operating expenses
3,593 
5,376 
4,410 
       
Loan impairment losses
1,036 
1,402 
1,295 
Securities impairment losses
(3)
52 
19 
       
Impairment losses
1,033 
1,454 
1,314 
 
Notes:
 
(1)
Includes the Group's share of DLG's profit for the period 13 March to 31 March 2013 of £7 million.
(2)
Includes bank levy of £175 million in Q4 2012, Payment Protection Insurance costs of nil (Q4 2012 - £450 million; Q1 2012 - £125 million), Interest Rate Hedging Products redress and related costs of £50 million (Q4 2012 - £700 million) and regulatory fines of £381 million in Q4 2012.
(3)
Excludes £394 million of goodwill written-off in Q4 2012 in respect of Direct Line Group.
 
Refer to Appendix 1 for a reconciliation between the managed and statutory bases for key line items.
 
Payment Protection Insurance (PPI)
There was no increase to the Group's provision for PPI in Q1 2013 (Q4 2012 - £450 million; Q1 2012 - £125 million). The cumulative charge in respect of PPI is £2.2 billion, of which £1.5 billion (68%) in redress had been paid by 31 March 2013. Of the £2.2 billion cumulative charge, £2.0 billion relates to redress and £0.2 billion to administrative expenses. The eventual cost is dependent upon complaint volumes, uphold rates and average redress costs. Assumptions relating to these are inherently uncertain and the ultimate financial impact may be different than the amount provided. The Group will continue to monitor the position closely and refresh its assumptions as more information becomes available.
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
At beginning of period
895 
684 
745 
Charge to income statement
- 
450 
125 
Utilisations
(190)
(239)
(181)
       
At end of period
705 
895 
689 
 
 
 
 
 
 
Notes (continued)
 
2. Analysis of income, expenses and impairment losses (continued)
 
Interest Rate Hedging Products (IRHP) redress and related costs
Following an industry-wide review conducted in conjunction with the Financial Services Authority, a charge of £700 million was booked in 2012 for redress in relation to certain interest-rate hedging products sold to small and medium-sized retail clients under FSA rules. £575 million was earmarked for client redress, and £125 million for administrative expenses. The Group continues to monitor the level of provision given the uncertainties over the number of transactions that will qualify for redress and the nature and cost of that redress. As a result of full development of the plan for administering this process in accordance with FSA guidelines, the estimate for administrative costs has been increased by £50 million in Q1 2013.
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
At beginning of period
676 
- 
- 
Charge to income statement
50 
700 
- 
Utilisations
(24)
(24)
- 
       
At end of period
702 
676 
- 
 
3. Loan impairment provisions
Operating loss is stated after charging loan impairment losses of £1,036 million (Q4 2012 - £1,402 million; Q1 2012 - £1,295 million). The balance sheet loan impairment provisions increased in the quarter ended 31 March 2013 from £21,250 million to £21,494 million and the movements thereon were:
 
 
Quarter ended
 
31 March 2013
  
31 December 2012
  
31 March 2012
 
Core 
Non- 
Core 
Total 
  
Core 
Non- 
Core 
RFS 
MI 
Total 
  
Core 
Non- 
Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
£m 
  
£m 
£m 
£m 
                         
At beginning of period
10,062 
11,188 
21,250 
  
9,203 
11,115 
- 
20,318 
  
8,414 
11,469 
19,883 
Transfers from disposal groups
- 
- 
- 
  
764 
- 
- 
764 
  
- 
- 
- 
Currency translation and other
  adjustments
136 
266 
402 
  
57 
139 
- 
196 
  
(8)
(80)
(88)
Disposals
- 
- 
- 
  
- 
(1)
(4)
(5)
  
- 
- 
- 
Amounts written-off
(529)
(627)
(1,156)
  
(688)
(733)
- 
(1,421)
  
(405)
(440)
(845)
Recoveries of amounts previously
  written-off
49 
16 
65 
  
50 
46 
- 
96 
  
62 
33 
95 
Charge to income statement
                        
  - continuing operations
599 
437 
1,036 
  
729 
673 
- 
1,402 
  
796 
499 
1,295 
  - discontinued operations
- 
- 
- 
  
- 
- 
4 
4 
  
- 
- 
- 
Unwind of discount
  (recognised in interest income)
(51)
(52)
(103)
  
(53)
(51)
- 
(104)
  
(62)
(67)
(129)
                         
At end of period
10,266 
11,228 
21,494 
  
10,062 
11,188 
- 
21,250 
  
8,797 
11,414 
20,211 
 
Provisions at 31 March 2013 include £119 million in respect of loans and advances to banks (31 December 2012 - £114 million; 31 March 2012 - £135 million).
 
The table above excludes impairments relating to securities (refer to page 11 in Appendix 3).
 
 
 
 
 
Notes (continued)
 
4. Tax
The actual tax charge differs from the expected tax (charge)/credit computed by applying the standard UK corporation tax rate of 23.25% (2012 - 24.5%).
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Profit/(loss) before tax
826 
(2,227)
(1,514)
       
Expected tax (charge)/credit
(192)
546 
371 
Losses in period where no deferred tax asset recognised
(72)
(129)
(173)
Foreign profits taxed at other rates
(88)
(77)
(102)
UK tax rate change impact
- 
(14)
(30)
Unrecognised timing differences
3 
42 
- 
Items not allowed for tax
      
  - losses on disposal and write-downs
- 
(41)
(4)
  - UK bank levy
(20)
10 
(18)
  - regulatory fines
- 
(93)
- 
  - employee share schemes
(7)
35 
(15)
  - other disallowable items
(37)
(133)
(51)
Non-taxable items
      
  - loss on sale of RBS Aviation Capital
- 
(1)
- 
  - other non-taxable items
55 
60 
24 
Taxable foreign exchange movements
2 
- 
1 
Losses brought forward and utilised
5 
(10)
15 
Reduction in carrying value of deferred tax asset in respect of losses in
      
  - Australia
- 
(9)
(161)
  - Ireland
- 
(203)
- 
Adjustments in respect of prior periods
1 
(22)
5 
       
Actual tax charge
(350)
(39)
(138)
 
The high tax charge for the quarter ended 31 March 2013 reflects profits in high tax regimes (principally US) and losses in low tax regimes (principally Ireland) and losses in overseas subsidiaries for which a deferred tax asset has not been recognised (principally Ireland).
 
The Group has recognised a deferred tax asset at 31 March 2013 of £3,280 million (31 December 2012 - £3,443 million) and a deferred tax liability at 31 March 2013 of £1,019 million (31 December 2012 - £1,141 million). These include amounts recognised in respect of UK trading losses of £2,867 million (31 December 2012 - £3,072 million). Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 31 March 2013 and concluded that it is recoverable based on future profit projections.  
 
 
 
 
 
Notes (continued)
 
5. Profit/(loss) attributable to non-controlling interests
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
RBS Sempra Commodities JV
(2)
1 
- 
RFS Holdings BV Consortium Members
113 
1 
(19)
Direct Line Group
19 
(125)
- 
Other
1 
15 
5 
       
Profit/(loss) attributable to non-controlling interests
131 
(108)
(14)
 
6. Dividends
Dividends paid to preference shareholders and paid-in equity holders are as follows:
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Preference shareholders
      
Non-cumulative preference shares of US$0.01
71 
43 
- 
Non-cumulative preference shares of €0.01
- 
55 
- 
Non-cumulative preference shares of £1
- 
1 
- 
       
Paid-in equity holders
      
Interest on securities classified as equity, net of tax
10 
16 
- 
       
 
81 
115 
- 
 
Future coupons and dividends on RBSG hybrid capital instruments will only be paid subject to, and in accordance with, the terms of the relevant instruments. In addition to previous statements with regard to the payment of hybrid coupons and dividends, the Group is also now in a position to resume the payments on the three Trust Preferred Securities of RBS Holdings N.V: RBS Capital Funding Trust V, RBS Capital Funding Trust VI and RBS Capital Funding Trust VII. In the context of recent macro-prudential policy discussions, the Board of RBSG has decided to partially neutralise any impact on Core Tier 1 capital of coupon and dividend payments in respect of RBSG hybrid capital instruments and the RBS N.V. Trust Preferred Securities through an equity issuance of c.£300 million. Approximately 80% of this will be raised through the issue of new ordinary shares, which is expected to take place during the remainder of 2013. The balance (approximately 20%) will be ascribed to equity funding of employee incentive awards through the sale of surplus shares held by the Group's Employee Benefit Trust. RBSG will also undertake several small asset sales to further neutralise the impacts.
 
In response to regulatory requirements and developments (including the recommendations of the Financial Policy Committee of the Bank of England regarding the capital resources of UK banks, published on 27 March 2013) and to allow the Group to manage its capital in the optimal way, the Group may wish to issue loss-absorbing capital instruments in the form of Equity Convertible Notes ("ECNs"). ECNs would convert into newly issued ordinary shares in the company upon the occurrence of certain events (for example, the Group's capital ratios falling below a specified level), diluting existing holdings of ordinary shares. At a General Meeting on 14 May 2013 the Group will propose two resolutions which would allow the flexibility to issue ECNs which could convert into ordinary shares with an aggregate nominal value of up to £1.5 billion. 
 
 
 
 
 
Notes (continued)
 
7. Earnings per ordinary and B share
Earnings per ordinary and B share have been calculated based on the following:
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
       
Earnings
      
Profit/(loss) from continuing operations attributable to ordinary and
  B shareholders (£m)
285 
(2,393)
(1,633)
       
Profit/(loss) from discontinued operations attributable to ordinary and
  B shareholders (£m)
108 
(225)
88 
       
Ordinary shares in issue during the period (millions)
6,031 
6,003 
5,770 
Effect of convertible B shares in issue during the period (millions)
5,100 
5,100 
5,100 
       
Weighted average number of ordinary shares and effect of
  convertible B shares in issue during the period (millions)
11,131 
11,103 
10,870 
Effect of dilutive share options and convertible securities
114 
- 
- 
       
Diluted weighted average number of ordinary and B shares in issue
  during the period
11,245 
11,103 
10,870 
       
Basic earnings/(loss) per ordinary and B share from continuing operations
2.6p 
(21.6p)
(15.0p)
Own credit adjustments
(1.8p)
1.1p 
17.4p 
Payment Protection Insurance costs
- 
3.1p 
0.9p 
Interest Rate Hedging Products redress and related costs
0.3p 
4.9p 
- 
Regulatory fines
- 
3.4p 
- 
Integration and restructuring costs
0.9p 
4.5p 
3.2p 
Loss/(gain) on redemption of own debt
0.4p 
- 
(4.0p)
Write-down of goodwill and other intangible assets
- 
1.1p 
- 
Asset Protection Scheme
- 
- 
0.3p 
Amortisation of purchased intangible assets
0.3p 
0.2p 
0.3p 
Strategic disposals
0.1p 
0.2p 
0.1p 
Bank levy
- 
1.6p 
- 
       
Adjusted earnings/(loss) per ordinary and B share from continuing
  operations
2.8p 
(1.5p)
3.2p 
Adjusted earnings from Direct Line Group operations attributable to ordinary
  shareholders
0.3p 
0.3p 
0.8p 
       
Adjusted earnings/(loss) per ordinary and B share including
  Direct Line Group
3.1p 
(1.2p)
4.0p 
Loss from Non-Core division attributable to ordinary shareholders
2.5p 
2.7p 
1.8p 
       
Core adjusted earnings per ordinary and B share including
  Direct Line Group
5.6p 
1.5p 
5.8p 
       
Memo: Core adjusted earnings per ordinary and B share assuming
  normalised tax rate of 23.25% (2012 - 24.5%)
8.3p 
10.1p 
11.4p 
       
Diluted earnings/(loss) per ordinary and B share from continuing operations
2.6p 
(21.6p)
(15.0p)
 
Data for the quarter ended 31 March 2012 have been adjusted for the sub-division and one-for-ten consolidation of ordinary shares, which took effect in June 2012.
 
 
 
 
 
Notes (continued)
 
8. Trading valuation reserves and own credit adjustments
There have been no significant changes to the Group's valuation methodologies as set out in the Group's 2012 Annual Report and Accounts.
 
Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity and credit risk. The following table shows credit valuation adjustments and other reserves. Valuation adjustments represent an estimate of the adjustment to fair value that a market participant would make to incorporate the risk inherent in derivative exposures.
 
 
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
 
£m 
£m 
£m 
       
Credit valuation adjustments (CVA)
      
  - monoline insurers
144 
192 
991 
  - credit derivative product companies
243 
314 
624 
  - other counterparties
2,210 
2,308 
2,014 
       
 
2,597 
2,814 
3,629 
       
Other valuation reserves
      
  - bid-offer
581 
625 
646 
  - funding valuation adjustment
523 
475 
494 
  - product and deal specific
748 
763 
895 
  - valuation basis
91 
103 
107 
  - other
89 
31 
86 
       
 
2,032 
1,997 
2,228 
       
Valuation reserves
4,629 
4,811 
5,857 
 
Own credit
The cumulative own credit adjustment (OCA) recorded on securities held-for-trading (HFT) designated as at fair value through profit or loss (DFV) and derivative liabilities are set out below.
 
 
Cumulative OCA DR/(CR)(1)
 
Debt securities in issue (2)
Subordinated 
liabilities 
DFV 
£m 
Total 
£m 
Derivatives 
£m 
Total (3)
£m 
HFT 
£m 
DFV 
£m 
Total 
£m 
               
31 March 2013
(597)
148 
(449)
433 
(16)
325 
309 
31 December 2012
(648)
56 
(592)
362 
(230)
259 
29 
               
Carrying values of underlying liabilities
£bn 
£bn 
£bn 
£bn 
£bn 
    
               
31 March 2013
10.8 
22.2 
33.0 
1.1 
34.1 
    
31 December 2012
10.9 
23.6 
34.5 
1.1 
35.6 
    
 
Notes:
 
(1)
The OCA does not alter cash flows and is not used for performance management. It is disregarded for regulatory capital reporting purposes and will reverse over time as the liabilities mature.
(2)
Includes wholesale and retail note issuances.
(3)
The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
 
 
 
 
 
Notes (continued)
 
9. Available-for-sale reserve
 
 
 
Quarter ended
 
31 March 
2013 
31 December 
2012 
31 March 
2012 
Available-for-sale reserve
£m 
£m 
£m 
       
At beginning of period
(346)
(291)
(957)
Unrealised gains
582 
136 
724 
Realised gains
(164)
(209)
(212)
Tax
28 
77 
6 
Recycled to profit or loss on disposal of businesses
(110)
- 
- 
Transfer to retained earnings
- 
(59)
- 
       
At end of period
(10)
(346)
(439)
 
The Q1 2013 movement primarily reflects unrealised net gains on securities of £582 million, largely as yields tightened on German, US and UK sovereign bonds, and realised net gains of £164 million principally in Group Treasury, £105 million and US Retail & Commercial, £33 million.
 
10. Contingent liabilities and commitments
 
 
 
31 March 2013
  
31 December 2012
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
Contingent liabilities
              
Guarantees and assets pledged as collateral
  security
18,839 
956 
19,795 
  
18,251 
913 
19,164 
Other contingent liabilities
10,453 
79 
10,532 
  
10,628 
69 
10,697 
               
 
29,292 
1,035 
30,327 
  
28,879 
982 
29,861 
               
Commitments
              
Undrawn formal standby facilities, credit lines
  and other commitments to lend
213,301 
5,378 
218,679 
  
209,892 
5,916 
215,808 
Other commitments
1,712 
8 
1,720 
  
1,971 
5 
1,976 
               
 
215,013 
5,386 
220,399 
  
211,863 
5,921 
217,784 
               
Total contingent liabilities and commitments
244,305 
6,421 
250,726 
  
240,742 
6,903 
247,645 
 
Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any material loss will arise from these transactions.
 
 
 
 
 
Notes (continued)
 
11. Litigation, investigations and reviews
Except for the developments noted below, there have been no material changes to litigation, investigations and reviews as disclosed in the Annual Results for the year ended 31 December 2012.
 
Litigation
 
Shareholder Litigation
As previously disclosed, RBS and certain of its subsidiaries, together with certain current and former individual officers and directors were named as defendants in purported class actions filed in the United States District Court for the Southern District of New York involving holders of RBS preferred shares (the Preferred Shares litigation) and holders of American Depositary Receipts (the ADR claims). On 4 September 2012, the Preferred Shares litigation was dismissed with prejudice and the dismissal is the subject of an appeal. The Group has filed its opposition to the plaintiffs' appeal. On 27 September 2012, the ADR claims were dismissed with prejudice. The plaintiffs have filed motions for reconsideration and for leave to re-plead their case. The Group has filed its responses to these motions.
 
As previously disclosed, the Group had received notification of similar prospective claims in the United Kingdom and the Netherlands. On 28 March and 3 April 2013, two claims were issued by current and former shareholders, in the High Court of Justice of England and Wales against the Group (and in one of those claims, also against certain former individual officers and directors). The Group considers that it has substantial and credible legal and factual defences to these and other prospective claims that have been threatened in the UK and the Netherlands.
 
Investigations and reviews
 
LIBOR and other trading rates
As previously disclosed, on 6 February 2013 the Group announced settlements with the Financial Services Authority in the United Kingdom, the United States Commodity Futures Trading Commission and the United States Department of Justice (DOJ) in relation to investigations into submissions, communications and procedures around the setting of the London Interbank Offered Rate (LIBOR). RBS agreed to pay penalties of £87.5 million, US$325 million and US$150 million to these authorities respectively to resolve the investigations. As part of the agreement with the DOJ, RBS plc entered into a Deferred Prosecution Agreement in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen LIBOR. RBS Securities Japan Limited agreed to enter a plea of guilty to one count of wire fraud relating to Yen LIBOR. On 12 April 2013, RBS Securities Japan Limited received a business improvement order by Japan's Financial Services Agency for inappropriate conduct in relation to Yen LIBOR.
 
The Group continues to co-operate with investigations by these and various other governmental and regulatory authorities, including in the US and Asia, into its submissions, communications and procedures relating to the setting of a number of trading rates, including LIBOR, other interest rate settings, ISDAFIX and non-deliverable forwards. 
 
 
 
 
 
 
Notes (continued)
 
11. Litigation, investigations and reviews (continued)
The Group is also under investigation by competition authorities in a number of jurisdictions, including the European Commission and the Canadian Competition Bureau, stemming from the actions of certain individuals in the setting of LIBOR and other trading rates, as well as interest rate-related trading. The Group is also co-operating with these investigations.
 
It is not possible to estimate reliably what effect the outcome of these remaining investigations, any regulatory findings and any related developments may have on the Group, including the timing and amount of further fines, sanctions or settlements, which may be material.
 
Technology Incident
As previously disclosed, on 19 June 2012 the Group was affected by a technology incident, as a result of which the processing of certain customer accounts and payments were subject to considerable delay. The cause of the incident has been investigated by independent external counsel with the assistance of third party advisors. The Group has agreed to reimburse customers for any loss suffered as a result of the incident. The Group provided £175 million in 2012 for this matter. Additional costs may arise once all redress and business disruption items are clear.
 
The incident, the Group's handling of the incident and the systems and controls surrounding the processes affected, are the subject of regulatory enquiries (in the UK and Ireland). On 9 April 2013 the UK Financial Conduct Authority (FCA) announced that it had commenced an enforcement investigation into the incident. The FCA will reach its conclusions in due course and will decide whether or not it wishes to initiate enforcement action following that investigation. The Group is co-operating fully with the FCA's investigation.
 
The Group could also become a party to litigation. In particular, the Group could face legal claims from those whose accounts were affected and could itself have claims against third parties.
 
Credit Default Swaps (CDS) Investigation
The Group is a party to the EC's antitrust investigation into the CDS information market under Article 101 and/or 102 of the Treaty on the Functioning of the European Union. The Group is co-operating fully with the EC's investigation. The Group cannot predict the outcome of the investigation at this stage.
 
Securitisation and collateralised debt obligation business
On 28 March 2013, SEC staff informed the Group that it is considering recommending that the SEC initiate a civil or administrative action against RBS Securities Inc. This "Wells" notice arises out of the inquiry that the SEC staff began in September 2010, when it requested voluntary production of information concerning residential mortgage-backed securities underwritten by subsidiaries of RBS during the period from September 2006 to July 2007 inclusive. In November 2010, the SEC commenced a formal investigation. The potential claims relate to due diligence conducted in connection with a 2007 offering of residential mortgage-backed securities and corresponding disclosures. Pursuant to SEC rules, the Group has submitted a response to the Wells notice.
 
 
 
 
 
Notes (continued)
 
11. Litigation, investigations and reviews (continued)
 
RBS Citizens Consent Orders
In April 2013, the two main subsidiaries of RBS Citizens Financial Group, Inc (RBS Citizens), consented to the issuance of orders by their respective primary federal regulators, the FDIC and the OCC.  In the consent orders, the subsidiaries neither admitted nor denied the regulators' findings that they had engaged in deceptive marketing and implementation of the RBS Citizens overdraft protection program, checking rewards programs, and stop-payment process for pre-authorized recurring electronic fund transfers.  The consent orders require the bank subsidiaries to pay a total of US$10 million in civil monetary penalties, to provide approximately US$4 million in anticipated restitution to affected customers, to take certain remedial actions set forth in the orders, and to cease and desist any operations in violation of Section 5 of the Federal Trade Commission Act.
 
Other Investigations
The Group's operations include businesses outside the United States that are responsible for processing US dollar payments. The Group has been conducting a review of its policies, procedures and practices in respect of such payments, has voluntarily made disclosures to US and UK authorities with respect to its historical compliance with US economic sanctions regulations, and is continuing to co-operate with related investigations by the US Department of Justice, the District Attorney of the County of New York, the Treasury Department Office for Foreign Assets Control, the Federal Reserve Board and the New York Department of Financial Services. The Group has also, over time, enhanced its relevant systems and controls. Further, the Group has conducted disciplinary proceedings against a number of its employees as a result of its investigation into employee conduct relating to this matter. Although the Group cannot currently determine the outcome of its discussions with the relevant authorities, the investigation costs, remediation required or liability incurred could have a material adverse effect on the Group's net assets, operating results or cash flows in any particular period.
 
12. Date of approval
This announcement was approved by the Board of directors on 2 May 2013.
 
13. Post balance sheet events
There have been no significant events between 31 March 2013 and the date of approval of this announcement which would require a change to or additional disclosure in the announcement.
 

 
 
 

 
 
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: 3 May 2013
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary