rbs201105066k4.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 6, 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:

 
 

 
 
 

Condensed consolidated income statement
for the quarter ended 31 March 2011
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
  2010 
 
£m 
£m 
£m 
       
Interest receivable
5,401 
5,612 
5,692 
Interest payable
(2,100)
(2,032)
(2,150)
       
Net interest income
3,301 
3,580 
3,542 
       
Fees and commissions receivable
1,642 
2,052 
2,051 
Fees and commissions payable
(260)
(449)
(572)
Income from trading activities
835 
364 
1,766 
Other operating income (excluding insurance premium income)
391 
1,003 
447 
Insurance net premium income
1,149 
1,272 
1,289 
       
Non-interest income
3,757 
4,242 
4,981 
       
Total income
7,058 
7,822 
8,523 
       
Staff costs
(2,399)
(2,194)
(2,689)
Premises and equipment
(571)
(709)
(535)
Other administrative expenses
(921)
(1,048)
(1,011)
Depreciation and amortisation
(424)
(546)
(482)
Write-down of goodwill and other intangible assets
- 
(10)
- 
       
Operating expenses
(4,315)
(4,507)
(4,717)
       
Profit before other operating charges and impairment losses
2,743 
3,315 
3,806 
Insurance net claims
(912)
(1,182)
(1,136)
Impairment losses
(1,947)
(2,141)
(2,675)
       
Operating loss before tax
(116)
(8)
(5)
Tax (charge)/credit
(423)
3 
(107)
       
Loss from continuing operations
(539)
(5)
(112)
Profit from discontinued operations, net of tax
10 
55 
313 
       
(Loss)/profit for the period
(529)
50 
201 
Non-controlling interests
1 
(38)
(344)
Preference share and other dividends
- 
- 
(105)
       
(Loss)/profit attributable to ordinary and B shareholders
(528)
12 
(248)
       
Basic loss per ordinary and B share from continuing operations
(0.5p)
- 
(0.2p)
 
In the income statement above one-off and other items as shown on page 16 are included in the appropriate caption. A reconciliation between the income statement above and the managed view income statement on page 10 is given in Appendix 1 to this announcement.

 
 
 


 
 
 

Condensed consolidated statement of comprehensive income
for the quarter ended 31 March 2011
 
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
(Loss)/profit for the period
(529)
50 
201 
       
Other comprehensive (loss)/income
      
Available-for-sale financial assets (1)
(37)
(1,132)
415 
Cash flow hedges
(227)
(353)
(195)
Currency translation
(360)
34 
785 
Actuarial gains on defined benefit plans
- 
158 
- 
       
Other comprehensive (loss)/income before tax
(624)
(1,293)
1,005 
Tax (charge)/credit
32 
393 
(115)
       
Other comprehensive (loss)/income after tax
(592)
(900)
890 
       
Total comprehensive (loss)/income for the period
(1,121)
(850)
1,091 
       
Total comprehensive (loss)/income recognised in the statement of
  changes in equity is attributable as follows:
      
Non-controlling interests
(9)
52 
325 
Preference shareholders
- 
- 
105 
Ordinary and B shareholders
(1,112)
(902)
661 
       
 
(1,121)
(850)
1,091 
 
Note:
(1)
Analysis provided on page 84.
 
Key point
·
The Q1 2011 currency translation movement represents the net charge on retranslating net investments in foreign operations and related currency hedging, following the weakening of the US dollar against sterling since the year end.
 

 
 
 


 
 
 

Condensed consolidated balance sheet
at 31 March 2011
 
 
31 March 
2011 
31 December 
2010 
 
£m 
£m 
     
Assets
    
Cash and balances at central banks
59,591 
57,014 
Net loans and advances to banks
59,304 
57,911 
Reverse repurchase agreements and stock borrowing
45,148 
42,607 
Loans and advances to banks
104,452 
100,518 
Net loans and advances to customers
494,148 
502,748 
Reverse repurchase agreements and stock borrowing
60,511 
52,512 
Loans and advances to customers
554,659 
555,260 
Debt securities
231,384 
217,480 
Equity shares
22,212 
22,198 
Settlement balances
23,006 
11,605 
Derivatives
361,048 
427,077 
Intangible assets
14,409 
14,448 
Property, plant and equipment
15,846 
16,543 
Deferred tax
6,299 
6,373 
Prepayments, accrued income and other assets
11,355 
12,576 
Assets of disposal groups
8,992 
12,484 
     
Total assets
1,413,253 
1,453,576 
     
Liabilities
    
Bank deposits
63,829 
66,051 
Repurchase agreements and stock lending
39,615 
32,739 
Deposits by banks
103,444 
98,790 
Customer deposits
428,474 
428,599 
Repurchase agreements and stock lending
90,432 
82,094 
Customer accounts
518,906 
510,693 
Debt securities in issue
215,968 
218,372 
Settlement balances
21,394 
10,991 
Short positions
50,065 
43,118 
Derivatives
360,625 
423,967 
Accruals, deferred income and other liabilities
23,069 
23,089 
Retirement benefit liabilities
2,257 
2,288 
Deferred tax
2,094 
2,142 
Insurance liabilities
6,754 
6,794 
Subordinated liabilities
26,515 
27,053 
Liabilities of disposal groups
6,376 
9,428 
     
Total liabilities
1,337,467 
1,376,725 
     
Equity
    
Non-controlling interests
1,710 
1,719 
Owners' equity*
    
  Called up share capital
15,156 
15,125 
  Reserves
58,920 
60,007 
     
Total equity
75,786 
76,851 
     
Total liabilities and equity
1,413,253 
1,453,576 
     
* Owners' equity attributable to:
    
Ordinary and B shareholders
69,332 
70,388 
Other equity owners
4,744 
4,744 
     
 
74,076 
75,132 
 

 
 
 


 
 
 

 
Commentary on condensed consolidated balance sheet
 
Total assets of £1,413.3 billion at 31 March 2011 were down £40.3 billion, 3%, compared with 31 December 2010. This principally reflects the reduction in the mark-to-market value of derivatives within Global Banking & Markets and the continuing planned disposal of Non-Core assets, offset in part by higher settlement balances as a result of increased customer activity from seasonal year-end lows.
 
Loans and advances to banks increased by £3.9 billion, 4%, to £104.5 billion including reverse repurchase agreements and stock borrowing ('reverse repos'), up £2.5 billion, 6%, to £45.2 billion and bank placings up £1.4 billion, 2%, to £59.3 billion.
 
Loans and advances to customers declined £0.6 billion to £554.7 billion. Within this, reverse repurchase agreements were up £8.0 billion, 15%, to £60.5 billion. Customer lending decreased by £8.6 billion to £494.1 billion, or £513.3 billion before impairments. This reflected planned reductions in Non-Core of £7.3 billion along with declines in Global Banking & Markets, £4.7 billion and Ulster Bank, £0.4 billion. These were partially offset by growth in Global Transaction Services, £2.7 billion, UK Retail, £1.6 billion, UK Corporate, £0.8 billion and Wealth, £0.3 billion, together with the effect of exchange rate and other movements.
 
Debt securities were up £13.9 billion, 6%, to £231.4 billion, driven mainly by increased holdings of government bonds within Global Banking & Markets.
 
Settlement asset balances rose £11.4 billion, 98%, to £23.0 billion as a result of increased customer activity from seasonal year-end lows.
 
Movements in the value of derivative assets, down £66.0 billion, 15%, to £361.0 billion, and liabilities, down £63.3 billion 15% to £360.6 billion, primarily reflect decreases in interest rate contracts, higher interest rates and the net effect of currency movements, with Sterling strengthening against the US dollar but weakening against the Euro.
 
The reduction in assets and liabilities of disposal groups primarily resulted from the completion of parts of the RBS Sempra Commodities JV business disposal.
 
Deposits by banks increased £4.7 billion, 5%, to £103.4 billion, with higher repurchase agreements and stock lending ('repos'), up £6.9 billion, 21%, to £39.6 billion offset by reduced inter-bank deposits, down £2.2 billion, 3%, to £63.8 billion.
 
Customer accounts increased £8.2 billion, 2%, to £518.9 billion. Within this, repos increased £8.3 billion, 10%, to £90.4 billion. Excluding repos, customer deposits were down £0.1 billion at £428.5 billion, reflecting decreases in Global Banking & Markets, £2.2 billion, offset by growth in Wealth, £1.1 billion, UK Corporate, £0.6 billion, Non-Core £0.4 billion and Ulster Bank £0.3 billion, together with exchange and other movements.
 
Settlement liability balances were up £10.4 billion, 95%, to £21.4 billion and short positions rose £6.9 billion, 16% to £50.1 billion due to increased customer activity from seasonal year-end lows.
 
 

 
Commentary on condensed consolidated balance sheet
 
Subordinated liabilities decreased by £0.5 billion, 2% to £26.5 billion. This reflected the redemption of £0.2 billion US dollar subordinated notes, together with the effect of exchange rate movements and other adjustments of £0.3 billion.
 
Owner's equity decreased by £1.1 billion, 1%, to £74.1 billion, driven by the £0.5 billion attributable loss for the period together with movements in foreign exchange reserve, £0.4 billion and cash flow hedging reserves, £0.2 billion.
 
 

 
 
 

 
Average balance sheet
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
Average yields, spreads and margins of the banking business
% 
% 
     
Gross yield on interest-earning assets of banking business
3.33 
3.35 
Cost of interest-bearing liabilities of banking business
(1.57)
(1.57)
     
Interest spread of banking business
1.76 
1.78 
Benefit from interest-free funds
0.27 
0.24 
     
Net interest margin of banking business
2.03 
2.02 
     
     
Average interest rates
    
The Group's base rate
0.50 
0.50 
     
London inter-bank three month offered rates
    
  - Sterling
0.79 
0.74 
  - Eurodollar
0.31 
0.29 
  - Euro
1.04 
0.96 
 

 
 
 


 
 
 

 
Average balance sheet (continued)
 
 
Quarter ended
Quarter ended
 
31 March 2011
31 December 2010
 
Average 
    
Average 
    
 
balance 
Interest 
Rate 
balance 
Interest 
Rate 
 
£m 
£m 
% 
£m 
£m 
% 
             
Assets
            
Loans and advances to banks
64,021 
172 
1.09 
61,826 
167 
1.07 
Loans and advances to
  customers
474,177 
4,593 
3.93 
481,973 
4,757 
3.92 
Debt securities
120,380 
638 
2.15 
117,581 
654 
2.21 
             
Interest-earning assets -
  banking business
658,578 
5,403 
3.33 
661,380 
5,578 
3.35 
             
Trading business
279,164 
    
276,306 
    
Non-interest earning assets
507,209 
    
646,384 
    
             
Total assets
1,444,951 
    
1,584,070 
    
             
Memo: Funded assets
1,066,690 
    
1,072,447 
    
             
Liabilities
            
Deposits by banks
66,671 
259 
1.58 
70,567 
287 
1.61 
Customer accounts
329,825 
831 
1.02 
333,895 
928 
1.10 
Debt securities in issue
175,585 
846 
1.95 
189,751 
825 
1.72 
Subordinated liabilities
25,078 
170 
2.75 
27,756 
203 
2.90 
Internal funding of trading
  business
(52,013)
8 
(0.06)
(63,213)
(30)
0.19 
             
Interest-bearing liabilities -
  banking business
545,146 
2,114 
1.57 
558,756 
2,213 
1.57 
             
Trading business
301,753 
    
288,431 
    
Non-interest-bearing liabilities
            
  - demand deposits
63,701 
    
67,707 
    
  - other liabilities
459,981 
    
593,802 
    
Owners' equity
74,370 
    
75,374 
    
             
Total liabilities and
  Owners' equity
1,444,951 
    
1,584,070 
    
 
Notes:
(1)
Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities.
(2)
Interest-earning assets and interest-bearing liabilities exclude the Retail bancassurance long-term assets and liabilities, attributable to policyholders, in view of their distinct nature. As a result, net interest income has been increased by nil    for Q1 2011 (Q4 2010 - £2 million).
(3)
Interest receivable has been decreased by £1 million for Q1 2011 (Q4 2010 - £1 million) and interest payable has been increased by nil for Q1 2011 (Q4 2010 - £1 million) to exclude the RFS Holdings minority interest. Related interest-earning assets and interest-bearing liabilities have also been adjusted.
(4)
Interest receivable has been increased by £3 million for Q1 2011 (Q4 2010 - £35 million decrease) and interest payable has been increased by £29 million for Q1 2011 (Q4 2010 - £45 million decrease) 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.
(5)
Interest payable has been decreased by £15 million for Q1 2011 (Q4 2010 - increased by £225 million) in respect of non-recurring adjustments.
 

 
 
 


Condensed consolidated statement of changes in equity
for the quarter ended 31 March 2011
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Called-up share capital
      
At beginning of period
15,125 
15,030 
14,630 
Ordinary shares issued
31 
121 
401 
Preference shares redeemed
- 
1 
- 
Cancellation of non-voting deferred shares
- 
(27)
- 
       
At end of period
15,156 
15,125 
15,031 
       
Paid-in equity
      
At beginning and end of period
431 
431 
565 
       
Share premium account
      
At beginning of period
23,922 
23,858 
23,523 
Ordinary shares issued
- 
64 
217 
       
At end of period
23,922 
23,922 
23,740 
       
Merger reserve
      
At beginning of period
13,272 
13,272 
25,522 
Transfer to retained earnings
- 
- 
(12,250)
       
At end of period
13,272 
13,272 
13,272 
       
Available-for-sale reserve
      
At beginning of period
(2,037)
(1,242)
(1,755)
Unrealised gains/(losses)
162 
(1,148)
528 
Realised (gains)/losses
(197)
16 
(147)
Tax
9 
337 
(153)
       
At end of period
(2,063)
(2,037)
(1,527)
       
Cash flow hedging reserve
      
At beginning of period
(140)
119 
(252)
Amount recognised in equity
14 
(149)
(11)
Amount transferred from equity to earnings
(241)
(197)
10 
Tax
53 
87 
(19)
       
At end of period
(314)
(140)
(272)
 

 
 
 


 
 
 

Condensed consolidated statement of changes in equity
for the quarter ended 31 March 2011 (continued)
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Foreign exchange reserve
      
At beginning of period
5,138 
5,085 
4,528 
Retranslation of net assets
(429)
- 
1,109 
Foreign currency gains/(losses) on hedges of net assets
76 
(6)
(420)
Tax
(31)
34 
12 
Recycled to profit or loss on disposal of businesses
- 
25 
- 
       
At end of period
4,754 
5,138 
5,229 
       
Capital redemption reserve
      
At beginning of period
198 
172 
170 
Preference shares redeemed
- 
(1)
- 
Cancellation of non-voting deferred shares
- 
27 
- 
       
At end of period
198 
198 
170 
       
Contingent capital reserve
      
At beginning and end of period
(1,208)
(1,208)
(1,208)
       
Retained earnings
      
At beginning of period
21,239 
20,904 
12,134 
(Loss)/profit attributable to ordinary and B shareholders and other equity
  owners
      
  - continuing operations
(530)
12 
(139)
  - discontinued operations
2 
- 
(4)
Equity preference dividends paid
- 
- 
(105)
Transfer from merger reserve
- 
- 
12,250 
Actuarial gains/(losses) recognised in retirement benefit schemes
      
  - gross
- 
158 
- 
  - tax
- 
(71)
- 
Purchase of non-controlling interests
- 
(38)
- 
Shares issued under employee share schemes
(41)
(2)
(7)
Share-based payments
      
  - gross
38 
282 
35 
  - tax
5 
(6)
- 
       
At end of period
20,713 
21,239 
24,164 
       
Own shares held
      
At beginning of period
(808)
(821)
(121)
Shares disposed/(purchased)
12 
11 
(374)
Shares issued under employee share schemes
11 
2 
7 
       
At end of period
(785)
(808)
(488)
       
Owners' equity at end of period
74,076 
75,132 
78,676 

 
 
 


 
 
 

Condensed consolidated statement of changes in equity
for the quarter ended 31 March 2011 (continued)
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Non-controlling interests
      
At beginning of period
1,719 
1,780 
16,895 
Currency translation adjustments and other movements
(7)
15 
96 
(Loss)/profit attributable to non-controlling interests
      
  - continuing operations
(9)
(17)
27 
  - discontinued operations
8 
55 
317 
Dividends paid
- 
17 
(2,674)
Movements in available-for-sale securities
      
  - unrealised gains/(losses)
1 
(2)
25 
  - realised (gains)/losses
(3)
1 
9 
  - tax
1 
- 
(3)
Movements in cash flow hedging reserves
      
  - amounts recognised in equity
- 
(21)
(195)
  - amounts transferred from equity to earnings
- 
- 
1 
  - tax
- 
6 
48 
  - recycled to profit or loss on disposal of discontinued operations
- 
15 
- 
Equity raised
- 
58 
511 
Equity withdrawn and disposals
- 
(188)
(4,693)
       
At end of period
1,710 
1,719 
10,364 
       
Total equity at end of period
75,786 
76,851 
89,040 
       
Total comprehensive (loss)/income recognised in the statement of
  changes in equity is attributable as follows:
      
Non-controlling interests
(9)
52 
325 
Preference shareholders
- 
- 
105 
Ordinary and B shareholders
(1,112)
(902)
661 
       
 
(1,121)
(850)
1,091 
 

 
 
 


 
Notes 
 
1. Basis of preparation
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 2011 has been prepared on a going concern basis.
 
2. Accounting policies
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 International Financial Reporting Interpretations Committee (IFRIC) of the IASB as adopted by the European Union (EU) (together IFRS). The Group's Financial Statements are prepared in accordance with IFRS as issued by the IASB. There have been no significant changes to the Group's principal accounting policies as set out on pages 275 to 283 of the 2010 Annual Report and Accounts.
 

 
Notes (continued)
 
3. Analysis of income, expenses and impairment losses
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Loans and advances to customers
4,593 
4,755 
4,697 
Loans and advances to banks
172 
167 
140 
Debt securities
636 
690 
855 
       
Interest receivable
5,401 
5,612 
5,692 
       
Customer accounts
831 
926 
868 
Deposits by banks
259 
288 
297 
Debt securities in issue
817 
866 
854 
Subordinated liabilities
185 
(18)
200 
Internal funding of trading businesses
8 
(30)
(69)
       
Interest payable
2,100 
2,032 
2,150 
       
Net interest income
3,301 
3,580 
3,542 
       
Fees and commissions receivable
1,642 
2,052 
2,051 
Fees and commissions payable
      
  - banking
(181)
(392)
(466)
  - insurance related
(79)
(57)
(106)
       
Net fees and commissions
1,382 
1,603 
1,479 
       
Foreign exchange
203 
217 
449 
Interest rate
893 
(165)
954 
Credit
(492)
83 
(23)
Other
231 
229 
386 
       
Income from trading activities
835 
364 
1,766 
       
Operating lease and other rental income
322 
369 
343 
Changes in fair value of own debt
(294)
472 
(210)
Changes in the fair value of securities and other financial assets and liabilities
68 
(83)
14 
Changes in the fair value of investment properties
(25)
(293)
(3)
Profit/(loss) on sale of securities
236 
(10)
148 
Profit on sale of property, plant and equipment
11 
29 
9 
(Loss)/profit on sale of subsidiaries and associates
(29)
511 
70 
Life business (losses)/profits
(2)
29 
35 
Dividend income
15 
11 
20 
Share of profits less losses of associated entities
7 
14 
22 
Other income
82 
(46)
(1)
       
Other operating income
391 
1,003 
447 
       
Non-interest income (excluding insurance net premium income)
2,608 
2,970 
3,692 
Insurance net premium income
1,149 
1,272 
1,289 
       
Total non-interest income
3,757 
4,242 
4,981 
       
Total income
7,058 
7,822 
8,523 
 


 
Notes (continued)
 
3. Analysis of income, expenses and impairment losses (continued)
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Staff costs
      
  - wages, salaries and other staff costs
2,059 
1,859 
2,294 
  - bonus tax
11 
15 
54 
  - social security costs
192 
166 
194 
  - pension costs
137 
154 
147 
 
2,399 
2,194 
2,689 
Premises and equipment
571 
709 
535 
Other
921 
1,048 
1,011 
       
Administrative expenses
3,891 
3,951 
4,235 
Write-down of goodwill and other intangible assets
- 
10 
- 
Depreciation and amortisation
424 
546 
482 
       
Operating expenses
4,315 
4,507 
4,717 
       
General insurance
912 
1,151 
1,107 
Bancassurance
- 
31 
29 
       
Insurance net claims
912 
1,182 
1,136 
       
       
Loan impairment losses
1,898 
2,155 
2,602 
Securities impairment losses
49 
(14)
73 
       
Impairment losses
1,947 
2,141 
2,675 
 
Note:
A reconciliation between key line items within the income statements on page 10 and page 57 is shown in Appendix 1 to this announcement.
 

 
Notes (continued)
 
4. Loan impairment provisions  
Operating profit/(loss) is stated after charging loan impairment losses of £1,898 million (31 December 2010 - £2,155 million). The balance sheet loan impairment provisions increased in the quarter ended 31 March 2011 from £18,182 million to £19,258 million and the movements thereon were:
 
 
Quarter ended
31 March 2011
  
Quarter ended
31 December 2010
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total 
 
£m 
£m 
£m 
  
£m 
£m 
£m 
               
At beginning of period
7,866 
10,316 
18,182 
  
7,791 
9,879 
17,670 
Transfers to disposal groups
- 
(9)
(9)
  
- 
(5)
(5)
Intra-group transfers
177 
(177)
- 
  
(217)
217 
- 
Currency translation and other adjustments
56 
95 
151 
  
147 
(235)
(88)
Disposals
- 
- 
- 
  
- 
(3)
(3)
Amounts written-off
(514)
(438)
(952)
  
(745)
(771)
(1,516)
Recoveries of amounts previously written-off
39 
80 
119 
  
29 
67 
96 
Charge to income statement
852 
1,046 
1,898 
  
912 
1,243 
2,155 
Unwind of discount
(60)
(71)
(131)
  
(51)
(76)
(127)
               
At end of period
8,416 
10,842 
19,258 
  
7,866 
10,316 
18,182 
 
Provisions at 31 March 2011 include £130 million (31 December 2010 - £127 million) in respect of loans and advances to banks.
 
The table above excludes impairment charges relating to securities.
 
5. Strategic disposals
 
Quarter ended
 
31 March 
2011
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
(Loss)/gain on sale and provision for loss on disposal of investments in:
      
  - RBS Asset Management's investment strategies business
- 
- 
80 
  - Global Merchant Services
47 
837 
- 
  - Non-Core project finance assets
- 
(221)
- 
  - Other
(70)
(114)
(27)
       
 
(23)
502 
53 
 

 
 
 


 
 
 

 
Notes (continued)
 
6. Tax
The (charge)/credit for tax differs from the tax credit computed by applying the standard UK corporation tax rate of 26.5% (2010 - 28%) as follows:
 
Quarter ended
 
31 March 
2011
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Loss before tax
(116)
(8)
(5)
       
Tax credit based on the standard UK corporation tax rate of 26.5% (2010-28%)
31 
2 
1 
Unrecognised timing differences
5 
11 
(52)
Items not allowed for tax
      
  - losses on strategic disposals and write downs
(3)
(129)
(6)
  - other
(40)
(190)
(25)
Non-taxable items
      
  - gain on sale of Global Merchant Services
12 
221 
- 
  - gain on redemption of own debt
- 
(1)
- 
  - other
12 
240 
2 
Taxable foreign exchange movements
2 
2 
- 
Foreign profits taxed at other rates
(200)
(131)
(124)
UK tax rate change - deferred tax impact
(87)
8 
- 
Losses in period where no deferred tax asset recognised
(166)
(96)
(83)
Losses brought forward and utilised
16 
(8)
8 
Adjustments in respect of prior periods
(5)
74 
172 
       
Actual tax (charge)/credit
(423)
3 
(107)
 
The high charge in the first three months of 2011 reflects profits in high tax regimes (principally US) and losses in low tax regimes (principally Ireland), losses in overseas subsidiaries for which a deferred tax asset has not been recognised (principally Ireland and the Netherlands) and the effect of the reduction of 1% in the rate of UK Corporation Tax enacted in March 2011 on the net deferred tax balance.
 
The combined effect of the Irish tax losses and the 1% change in the standard rate of UK corporation tax accounts for £331 million (73%) of the difference between the actual tax charge and the tax credit derived from applying the standard UK Corporation Tax rate to the results for the period.
 
The Group has recognised a deferred tax asset at 31 March 2011 of £6,299 million (31 December 2010 - £6,373 million), of which £3,770 million (31 December 2010 - £3,849 million) relates to carried forward trading losses in the UK. Under UK tax legislation, these UK losses can be carried forward indefinitely to be utilised against profits arising in the future. The Group has considered the carrying value of this asset as at 31 March 2011 and concluded that it is recoverable based on future profit projections.
 


 
Notes (continued)
 
7. (Loss)/profit attributable to non-controlling interests
 
Quarter ended
 
31 March 
2011
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Trust preferred securities
- 
- 
10 
RBS Sempra Commodities JV
(9)
(11)
- 
ABN AMRO
      
  - RFS Holdings minority interest
10 
49 
332 
  - other
- 
(1)
- 
RBS Life Holdings
- 
9 
4 
Other
(2)
(8)
(2)
       
(Loss)/profit attributable to non-controlling interests
(1)
38 
344 
 
8. Earnings per ordinary and B share
Earnings per ordinary and B share have been calculated based on the following:
 
 
Quarter ended
 
31 March 
2011
31 December 
2010 
31 March 
2010 
 
£m 
£m 
£m 
       
Earnings
      
(Loss)/profit from continuing operations attributable to ordinary and
  B shareholders
(530)
12 
(244)
       
Profit/(loss) from discontinued operations attributable to ordinary and
  B shareholders
2 
- 
(4)
       
Ordinary shares in issue during the period (millions)
56,798 
56,166 
56,238 
B shares in issue during the period (millions)
51,000 
51,000 
51,000 
       
Weighted average number of ordinary and B shares in issue during the
  period (millions)
107,798 
107,166 
107,238 
       
Basic loss per ordinary and B share from continuing operations
(0.5p)
- 
(0.2p)
Fair value of own debt
0.3p 
(0.4p)
0.1p 
Asset Protection Scheme credit default swap - fair value changes
0.3p 
0.5p 
0.3p 
Amortisation of purchased intangible assets
- 
0.1p 
- 
Integration and restructuring costs
0.2p 
0.3p 
0.1p 
Strategic disposals
- 
(0.5p)
- 
Bonus tax
- 
- 
0.1p 
       
Adjusted earnings per ordinary and B share from continuing operations
0.3p 
- 
0.4p 
Loss from Non-Core attributable to ordinary and B shareholders
0.3p 
0.4p 
0.9p 
       
Core adjusted earnings per ordinary and B share from continuing operations
0.6p 
0.4p 
1.3p 
Core impairment losses
0.3p 
0.3p 
0.5p 
       
Pre-impairment Core adjusted earnings per ordinary and B share
0.9p 
0.7p 
1.8p 
       
Memo: Core adjusted earnings per ordinary and B share from continuing operations assuming normalised tax rate of 26.5% (2010 - 28.0%)
1.4p 
1.1p 
1.5p 


 
Notes (continued)
 
9. Segmental analysis
 
Analysis of divisional operating profit/(loss)
The following tables provide an analysis of the divisional profit/(loss) for the quarters ended 31 March 2011, 31 December 2010 and 31 March 2010, by main income statement captions. The divisional income statements on pages 22 to 56 reflect certain presentational reallocations as described in the notes below. These do not affect the overall operating profit/(loss).
 
 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
 Insurance 
net claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Quarter ended 31 March 2011
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail
1,076 
304 
1,380 
(678)
- 
(194)
508 
UK Corporate
689 
332 
1,021 
(423)
- 
(105)
493 
Wealth
167 
114 
281 
(196)
- 
(5)
80 
Global Transaction Services
260 
282 
542 
(335)
- 
(20)
187 
Ulster Bank
169 
51 
220 
(136)
- 
(461)
(377)
US Retail & Commercial
451 
243 
694 
(504)
- 
(110)
80 
Global Banking & Markets (1)
180 
2,200 
2,380 
(1,306)
- 
24 
1,098 
RBS Insurance (2)
88 
982 
1,070 
(219)
(784)
- 
67 
Central items
(28)
(13)
(41)
(1)
- 
(1)
(43)
               
Core
3,052 
4,495 
7,547 
(3,798)
(784)
(872)
2,093 
Non-Core (3)
250 
236 
486 
(323)
(128)
(1,075)
(1,040)
               
 
3,302 
4,731 
8,033 
(4,121)
(912)
(1,947)
1,053 
Fair value of own debt (4)
- 
(480)
(480)
- 
- 
- 
(480)
Asset Protection Scheme credit
  default swap - fair value changes (5)
- 
(469)
(469)
- 
- 
- 
(469)
Amortisation of purchased
  intangible assets
- 
- 
- 
(44)
- 
- 
(44)
Integration and restructuring costs
(2)
(4)
(6)
(139)
- 
- 
(145)
Strategic disposals
- 
(23)
(23)
- 
- 
- 
(23)
Bonus tax
- 
- 
- 
(11)
- 
- 
(11)
RFS Holdings minority interest
1 
2 
3 
- 
- 
- 
3 
               
Total statutory
3,301 
3,757 
7,058 
(4,315)
(912)
(1,947)
(116)
 
Notes:
(1)
Reallocation of £13 million between net interest income and non-interest income in respect of funding costs of rental assets, £10 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £3 million.
(2)
Total income includes £64 million investment income, £53 million in net interest income and £11 million in non-interest income. Reallocation of £35 million between non-interest income and net interest income in respect of instalment income.
(3)
Reallocation of £53 million between net interest income and non-interest income in respect of funding costs of rental assets, £51 million and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £2 million.
(4)
Comprises £186 million loss included in 'Income from trading activities' and £294 million loss included in 'Other operating income' on a statutory basis.
(5)
Included in 'Income from trading activities' on a statutory basis.
 

 
 
 


 
 
 

 
Notes (continued)
 
9. Segmental analysis (continued)
 
Analysis of divisional operating profit/(loss) (continued)
 
 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
 Insurance 
net claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Quarter ended 31 December 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail (1)
1,088 
402 
1,490 
(679)
(31)
(222)
558 
UK Corporate
653 
330 
983 
(431)
- 
(219)
333 
Wealth
160 
111 
271 
(178)
- 
(6)
87 
Global Transaction Services
263 
375 
638 
(368)
- 
(3)
267 
Ulster Bank
187 
56 
243 
(138)
- 
(376)
(271)
US Retail & Commercial
467 
231 
698 
(529)
- 
(105)
64 
Global Banking & Markets (2)
214 
1,373 
1,587 
(1,065)
- 
5 
527 
RBS Insurance (3)
96 
1,016 
1,112 
(223)
(898)
- 
(9)
Central items
92 
24 
116 
11 
(8)
(4)
115 
               
Core
3,220 
3,918 
7,138 
(3,600)
(937)
(930)
1,671 
Non-Core (4)
358 
(37)
321 
(481)
(245)
(1,211)
(1,616)
               
 
3,578 
3,881 
7,459 
(4,081)
(1,182)
(2,141)
55 
Fair value of own debt (5)
- 
582 
582 
- 
- 
- 
582 
Asset Protection Scheme credit
  default swap - fair value changes (6)
- 
(725)
(725)
- 
- 
- 
(725)
Amortisation of purchased
  intangible assets
- 
- 
- 
(96)
- 
- 
(96)
Integration and restructuring costs
- 
- 
- 
(299)
- 
- 
(299)
Strategic disposals
- 
502 
502 
- 
- 
- 
502 
Bonus tax
- 
- 
- 
(15)
- 
- 
(15)
Write-down of goodwill and
  intangible assets
- 
- 
- 
(10)
- 
- 
(10)
RFS Holdings minority interest
2 
2 
4 
(6)
- 
- 
 (2)
               
Total statutory
3,580 
4,242 
7,822 
(4,507)
(1,182)
(2,141)
(8)
 
Notes:
(1)
Reallocation of bancassurance claims of £31 million from non-interest income.
(2)
Reallocation of £31 million between net interest income and non-interest income in respect of funding costs of rental assets, £11 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £20 million.
(3)
Total income includes £77 million investment income, £58 million in net interest income and £19 million in non-interest income. Reallocation of £38 million between non-interest income and net interest income in respect of instalment income.
(4)
Reallocation of £61 million between net interest income and non-interest income in respect of funding costs of rental assets, £57 million and to record interest on financial assets and liabilities designated as at fair value through profit or loss, £4 million.
(5)
Comprises £110 million gain included in 'Income from trading activities' and £472 million gain included in 'Other operating income' on a statutory basis.
(6)
Included in 'Income from trading activities' on a statutory basis.


 
Notes (continued)
 
9. Segmental analysis (continued)
 
Analysis of divisional operating profit/(loss) (continued)
 
 
Net 
interest 
 income 
Non- 
interest 
 income 
 
Total 
 income 
 
Operating 
 expenses 
 Insurance 
net claims 
 
Impairment 
 losses 
 
Operating 
 profit/(loss)
Quarter ended 31 March 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
UK Retail (1)
933 
346 
1,279 
(723)
(29)
(387)
140 
UK Corporate
610 
329 
939 
(435)
- 
(186)
318 
Wealth
143 
112 
255 
(189)
- 
(4)
62 
Global Transaction Services
217 
390 
607 
(374)
- 
- 
233 
Ulster Bank
188 
53 
241 
(160)
- 
(218)
(137)
US Retail & Commercial
468 
252 
720 
(537)
- 
(143)
40 
Global Banking & Markets (2)
373 
2,451 
2,824 
(1,294)
- 
(32)
1,498 
RBS Insurance (3)
96 
1,041 
1,137 
(221)
(966)
- 
(50)
Central items
7 
197 
204 
142 
(8)
(1)
337 
               
Core
3,035 
5,171 
8,206 
(3,791)
(1,003)
(971)
2,441 
Non-Core (4)
499 
418 
917 
(639)
(133)
(1,704)
(1,559)
               
 
3,534 
5,589 
9,123 
(4,430)
(1,136)
(2,675)
882 
Fair value of own debt (5)
- 
(169)
(169)
- 
- 
- 
(169)
Asset Protection Scheme credit
default swap - fair value changes (6)
- 
(500)
(500)
- 
- 
- 
(500)
Amortisation of purchased
  intangible assets
- 
- 
- 
(65)
- 
- 
(65)
Integration and restructuring costs
- 
- 
- 
(168)
- 
- 
(168)
Strategic disposals
- 
53 
53 
- 
- 
- 
53 
Bonus tax
- 
- 
- 
(54)
- 
- 
(54)
RFS Holdings minority interest
8 
8 
16 
- 
- 
- 
16 
               
Total statutory
3,542 
4,981 
8,523 
(4,717)
(1,136)
(2,675)
(5)
 
Notes:
(1)
Reallocation of bancassurance claims of £29 million from non-interest income.
(2)
Reallocation of £6 million between net interest income and non-interest income in respect of funding costs of rental assets, £9 million and to record interest on financial assets and liabilities designated as at fair value profit or loss, £3 million.
(3)
Total income includes £51 million of investment income, £54 million in net interest income and £3 million in non-interest income. Reallocation of £42 million between non-interest income and net interest income in respect of instalment income.
(4)
Reallocation of £69 million between net interest income and non-interest income in respect of funding costs of rental assets.
(5)
Comprises £41 million gain included in 'Income from trading activities' and £210 million loss included in 'Other operating income' on a statutory basis.
(6)
Included in 'Income from trading activities' on a statutory basis.


 
Notes (continued)
 
10. Financial instruments
 
Classification
The following tables analyse the Group's financial assets and liabilities in accordance with the categories of financial instruments in IAS 39: held-for-trading (HFT), designated as at fair value (DFV), available-for-sale (AFS), loans and receivables (LAR) and other financial instruments. Assets and liabilities outside the scope of IAS 39 are shown separately.
 
 
HFT 
DFV 
AFS 
LAR 
Finance 
leases 
Non 
financial 
assets 
Total 
31 March 2011
£m 
£m 
£m 
£m 
£m 
£m 
£m 
               
Assets
              
Cash and balances
  at central banks
- 
- 
- 
59,591 
    
59,591 
Loans and advances
  to banks
              
  - reverse repos
39,838 
- 
- 
5,310 
    
45,148 
  - other
26,377 
6 
- 
32,921 
    
59,304 
Loans and advances
  to customers
              
  - reverse repos
49,007 
- 
- 
11,504 
    
60,511 
  - other
17,540 
1,053 
- 
465,673 
9,882 
  
494,148 
Debt securities
113,139 
332 
111,128 
6,785 
    
231,384 
Equity shares
19,134 
1,051 
2,027 
- 
    
22,212 
Settlement balances
- 
- 
- 
23,006 
    
23,006 
Derivatives (1)
361,048 
          
361,048 
Intangible assets
          
14,409 
14,409 
Property, plant
  and equipment
          
15,846 
15,846 
Deferred tax
          
6,299 
6,299 
Prepayments, accrued
  income and other assets
- 
- 
- 
1,381 
  
9,974 
11,355 
Assets of disposal
  groups
          
8,992 
8,992 
               
 
626,083 
2,442 
113,155 
606,171 
9,882 
55,520 
1,413,253 
 
For the note to this table refer to page 78.
 
Additional analyses on loans and advances, debt securities and derivatives are included in Risk and balance sheet management.
 


 
Notes (continued)
 
10. Financial instruments (continued)
 
Classification (continued)
 
HFT 
DFV 
Other 
 financial 
 instruments 
(amortised 
 cost)
Finance 
leases 
Non 
financial 
liabilities 
Total 
31 March 2011
£m 
£m 
£m 
£m 
£m 
£m 
             
Liabilities
            
Deposits by banks
            
  - repos
24,204 
- 
15,411 
    
39,615 
  - other
25,234 
- 
38,595 
    
63,829 
Customer accounts
            
  - repos
59,246 
- 
31,186 
    
90,432 
  - other
13,704 
4,933 
409,837 
    
428,474 
Debt securities in issue
9,383 
43,681 
162,904 
    
215,968 
Settlement balances
- 
- 
21,394 
    
21,394 
Short positions
50,065 
- 
- 
    
50,065 
Derivatives (1)
360,625 
        
360,625 
Accruals, deferred income
  and other liabilities
- 
- 
1,560 
476 
21,033 
23,069 
Retirement benefit liabilities
    
- 
  
2,257 
2,257 
Deferred tax
    
- 
  
2,094 
2,094 
Insurance liabilities
    
- 
  
6,754 
6,754 
Subordinated liabilities
  
1,064 
25,451 
  
- 
26,515 
Liabilities of disposal groups
        
6,376 
6,376 
             
Total liabilities
542,461 
49,678 
706,338 
476 
38,514 
1,337,467 
             
Equity
          
75,786 
             
           
1,413,253 
 
For the note to this table refer to page 78.

 
 
 

 
Notes (continued)
 
10. Financial instruments (continued)
 
Classification (continued)
 
 
HFT 
DFV 
AFS 
LAR 
Other 
 financial 
 instruments 
(amortised 
 cost)
Finance 
leases 
Non 
financial 
assets/ 
liabilities 
Total 
31 December 2010
£m 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
                 
Assets
                
Cash and balances at
  central banks
- 
- 
- 
57,014 
      
57,014 
Loans and advances to banks
                
  - reverse repos
38,215 
- 
- 
4,392 
      
42,607 
  - other
26,082 
- 
- 
31,829 
      
57,911 
Loans and advances to
  customers
                
  - reverse repos
41,110 
- 
- 
11,402 
      
52,512 
  - other
19,903 
1,100 
- 
471,308 
  
10,437 
  
502,748 
Debt securities
98,869 
402 
111,130 
7,079 
      
217,480 
Equity shares
19,186 
1,013 
1,999 
- 
      
22,198 
Settlement balances
- 
- 
- 
11,605 
      
11,605 
Derivatives (1)
427,077 
            
427,077 
Intangible assets
            
14,448 
14,448 
Property, plant and equipment
            
16,543 
16,543 
Deferred tax
            
6,373 
6,373 
Prepayments, accrued
  income and other assets
- 
- 
- 
1,306 
    
11,270 
12,576 
Assets of disposal groups
            
12,484 
12,484 
                 
 
670,442 
2,515 
113,129 
595,935 
  
10,437 
61,118 
1,453,576 
                 
Liabilities
                
Deposits by banks
                
  - repos
20,585 
- 
    
12,154 
    
32,739 
  - other
28,216 
- 
    
37,835 
    
66,051 
Customer accounts
                
  - repos
53,031 
- 
    
29,063 
    
82,094 
  - other
14,357 
4,824 
    
409,418 
    
428,599 
Debt securities in issue
7,730 
43,488 
    
167,154 
    
218,372 
Settlement balances
- 
- 
    
10,991 
    
10,991 
Short positions
43,118 
- 
          
43,118 
Derivatives (1)
423,967 
            
423,967 
Accruals, deferred income and other liabilities
- 
- 
    
1,793 
458 
20,838 
23,089 
Retirement benefit liabilities
        
- 
  
2,288 
2,288 
Deferred tax
        
- 
  
2,142 
2,142 
Insurance liabilities
        
- 
  
6,794 
6,794 
Subordinated liabilities
  
1,129 
    
25,924 
    
27,053 
Liabilities of disposal groups
            
9,428 
9,428 
                 
Total liabilities
591,004 
49,441 
    
694,332 
458 
41,490 
1,376,725 
                 
Equity
              
76,851 
                 
               
1,453,576 
 
Note:
(1)
Held for trading derivatives include hedging derivatives.
 

 
 
 

 
Notes (continued)
 
10. Financial instruments (continued)
 
Financial instruments carried at fair value
Refer to Note 12 Financial instruments - valuation of the 2010 Annual Report and Accounts for valuation techniques.
 
Certain aspects relating to the valuation of financial instruments carried at fair value are discussed below.
 
Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer spread, liquidity and credit risk.
 
The table below shows the valuation reserves and adjustments.
 
31 March 
2011 
31 December 
2010 
 
£m 
£m 
     
Credit valuation adjustments (CVA)
    
   Monoline insurers
2,178
2,443 
   Credit derivative product companies (CDPCs)
445
490 
   Other counterparties
1,629
1,714 
     
 
4,252
4,647 
Bid-offer, liquidity  and other reserves
2,931
2,797 
     
 
7,183
7,444 
 
CVA represent an estimate of the adjustment to fair value that a market participant would make to incorporate the credit risk inherent in counterparty derivative exposures.
 
Key points
·
The decrease in monoline CVA was driven by a reduction in exposure mainly due to higher prices of underlying reference instruments (see page 108).
   
·
The CDPC CVA reduced as exposure decreased reflecting decline in relative value of senior tranches partially offset by wider credit spreads of the underlying portfolios (see page 108).
   
·
CVA held against exposures to other counterparties decreased due to tighter credit spreads (specifically European names), changes to risk parameters and realised defaults.
 
Own credit
 
Debt 
securities 
in issue 
£m 
Subordinated 
liabilities 
£m 
Total 
£m 
Derivatives 
£m 
Total 
£m 
Cumulative own credit adjustment
           
31 March 2011
1,566 
372 
1,938 
447 
2,385 
31 December 2010
2,091 
325 
2,416 
534 
2,950 
           
           
Carrying values of underlying liabilities
£bn 
£bn 
£bn 
    
           
31 March 2011
53.1 
1.1 
54.2 
    
31 December 2010
51.2 
1.1 
52.3 
    

 
 
 

 
Notes (continued)
 
10. Financial instruments (continued)
 
Valuation hierarchy
 
 
31 March 2011
  
31 December 2010
 
Level 1 
Level 2 
Level 3 
Total 
  
Level 1 
Level 2 
Level 3 
Total 
Assets
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
                   
Loans and advances to banks
                  
  - reverse repos
- 
39.8 
- 
39.8 
  
- 
38.2 
- 
38.2 
  - collateral
- 
25.3 
- 
25.3 
  
- 
25.1 
- 
25.1 
  - other
- 
0.4 
0.7 
1.1 
  
- 
0.6 
0.4 
1.0 
                   
 
- 
65.5 
0.7 
66.2 
  
- 
63.9 
0.4 
64.3 
                   
Loans and advances to customers
                  
  - reverse repos
- 
49.0 
- 
49.0 
  
- 
41.1 
- 
41.1 
  - collateral
- 
12.8 
- 
12.8 
  
- 
14.4 
- 
14.4 
  - other
- 
5.3 
0.5 
5.8 
  
- 
6.2 
0.4 
6.6 
                   
 
- 
67.1 
0.5 
67.6 
  
- 
61.7 
0.4 
62.1 
                   
Debt securities
                  
  - government
117.2 
17.8 
- 
135.0 
  
110.2 
13.7 
- 
123.9 
  - MBS (1)
- 
52.9 
0.4 
53.3 
  
- 
49.5 
0.7 
50.2 
  - CDOs (2)
- 
0.9 
2.4 
3.3 
  
- 
1.0 
2.4 
3.4 
  - CLOs (3)
- 
3.4 
2.1 
5.5 
  
- 
3.6 
2.1 
5.7 
  - other ABS (4)
- 
3.6 
1.2 
4.8 
  
- 
4.0 
1.4 
5.4 
  - corporate
- 
9.3 
0.8 
10.1 
  
- 
7.7 
0.9 
8.6 
  - banks and building societies
0.1 
11.7 
0.3 
12.1 
  
0.1 
12.2 
0.7 
13.0 
  - other
- 
0.5 
- 
0.5 
  
- 
0.2 
- 
0.2 
                   
 
117.3 
100.1 
7.2 
224.6 
  
110.3 
91.9 
8.2 
210.4 
                   
Equity shares
18.6 
2.6 
1.0 
22.2 
  
18.4 
2.8 
1.0 
22.2 
                   
Derivatives
                  
  - foreign exchange
- 
73.5 
0.1 
73.6 
  
- 
83.2 
0.1 
83.3 
  - interest rate
0.2 
257.4 
1.4 
259.0 
  
1.7 
308.3 
1.7 
311.7 
  - equities and commodities
- 
5.2 
0.5 
5.7 
  
0.1 
4.9 
0.2 
5.2 
  - credit - APS (5)
- 
- 
0.1 
0.1 
  
- 
- 
0.6 
0.6 
  - credit - other
- 
20.0 
2.6 
22.6 
  
- 
23.2 
3.1 
26.3 
                   
 
0.2 
356.1 
4.7 
361.0 
  
1.8 
419.6 
5.7 
427.1 
                   
Total
136.1 
591.4 
14.1 
741.6 
  
130.5 
639.9 
15.7 
786.1 
                   
Proportion
18.4% 
79.7% 
1.9% 
100% 
  
16.6% 
81.4% 
2.0% 
100% 
                   
Of which
                  
Core
134.9 
572.6 
6.5 
714.0 
  
129.4 
617.6 
7.2 
754.2 
Non-Core
1.2 
18.8 
7.6 
27.6 
  
1.1 
22.3 
8.5 
31.9 
                   
Total
136.1 
591.4 
14.1 
741.6 
  
130.5 
639.9 
15.7 
786.1 
 
For notes to this table refer to page 82.

 
 
 

 
Notes (continued)
 
10. Financial instruments (continued)
 
Valuation hierarchy (continued)
 
The following table details AFS assets included in total assets on page 80.
 
 
31 March 2011
  
31 December 2010
 
Level 1 
Level 2 
Level 3 
Total 
  
Level 1 
Level 2 
Level 3 
Total 
Assets
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
                   
Debt securities
                  
  - government
51.3 
7.1 
- 
58.4 
  
53.0 
6.4 
- 
59.4 
  - MBS (1)
- 
32.8 
0.2 
33.0 
  
- 
31.1 
0.4 
31.5 
  - CDOs (2)
- 
0.5 
1.4 
1.9 
  
- 
0.6 
1.4 
2.0 
  - CLOs (3)
- 
3.2 
1.2 
4.4 
  
- 
3.5 
1.5 
5.0 
  - other ABS (4)
- 
2.5 
1.1 
3.6 
  
- 
2.9 
1.1 
4.0 
  - corporate
- 
2.0 
- 
2.0 
  
- 
2.0 
- 
2.0 
  - banks and building societies
0.1 
7.7 
- 
7.8 
  
0.1 
7.1 
- 
7.2 
                   
 
51.4 
55.8 
3.9 
111.1 
  
53.1 
53.6 
4.4 
111.1 
Equity shares
0.3 
1.4 
0.3 
2.0 
  
0.3 
1.4 
0.3 
2.0 
                   
Total
51.7 
57.2 
4.2 
113.1 
  
53.4 
55.0 
4.7 
113.1 
                   
Of which
                  
Core
51.4 
51.4 
0.9 
103.7 
  
52.8 
49.2 
1.0 
103.0 
Non-Core
0.3 
5.8 
3.3 
9.4 
  
0.6 
5.8 
3.7 
10.1 
                   
Total
51.7 
57.2 
4.2 
113.1 
  
53.4 
55.0 
4.7 
113.1 
 
For notes to this table refer to page 82.


 
Notes (continued)
 
10. Financial instruments (continued)
 
Valuation hierarchy (continued)
 
 
31 March 2011
  
31 December 2010
 
Level 1 
Level 2 
Level 3 
Total 
  
Level 1 
Level 2 
Level 3 
Total 
Liabilities
£bn 
£bn 
£bn 
£bn 
  
£bn 
£bn 
£bn 
£bn 
                   
Deposits by banks
                  
  - repos
- 
24.2 
- 
24.2 
  
- 
20.6 
- 
20.6 
  - collateral
- 
23.6 
- 
23.6 
  
- 
26.6 
- 
26.6 
  - other
- 
1.6 
- 
1.6 
  
- 
1.6 
- 
1.6 
                   
 
- 
49.4 
- 
49.4 
  
- 
48.8 
- 
48.8 
                   
Customer accounts
                  
  - repos
- 
59.2 
- 
59.2 
  
- 
53.0 
- 
53.0 
  - collateral
- 
8.5 
- 
8.5 
  
- 
10.4 
- 
10.4 
  - other
- 
10.0 
0.1 
10.1 
  
- 
8.7 
0.1 
8.8 
                   
 
- 
77.7 
0.1 
77.8 
  
- 
72.1 
0.1 
72.2 
                   
Debt securities in issue
- 
50.5 
2.6 
53.1 
  
- 
49.0 
2.2 
51.2 
                   
Short positions
40.4 
8.8 
0.9 
50.1 
  
35.0 
7.3 
0.8 
43.1 
                   
Derivatives
                  
  - foreign exchange
-  
78.7 
0.3 
79.0 
  
0.1 
89.3 
- 
89.4 
  - interest rate
0.1 
249.9 
0.5 
250.5 
  
0.2 
298.0 
1.0 
299.2 
  - equities and commodities
- 
8.7 
0.7 
9.4 
  
0.1 
9.6 
0.4 
10.1 
  - credit
- 
21.4 
0.3 
21.7 
  
- 
25.0 
0.3 
25.3 
                   
 
0.1 
358.7 
1.8 
360.6 
  
0.4 
421.9 
1.7 
424.0 
                   
Subordinated liabilities
- 
1.1 
- 
1.1 
  
- 
1.1 
- 
1.1 
                   
Total
40.5 
546.2 
5.4 
592.1 
  
35.4 
600.2 
4.8 
640.4 
                   
Proportion
6.9% 
92.2% 
0.9% 
100% 
  
5.5% 
93.7% 
0.8% 
100% 
                   
Of which
                  
Core
40.5 
536.2 
4.4 
581.1 
  
35.4 
586.9 
3.8 
626.1 
Non-Core
- 
10.0 
1.0 
11.0 
  
- 
13.3 
1.0 
14.3 
                   
Total
40.5 
546.2 
5.4 
592.1 
  
35.4 
600.2 
4.8 
640.4 
 
Notes:
(1)
Mortgage-backed securities.
(2)
Collateralised debt obligations.
(3)
Collateralised loan obligations.
(4)
Asset-backed securities.
(5)
Asset Protection Scheme.

 
 
 

 
Notes (continued)
 
10. Financial instruments (continued)
 
Valuation hierarchy (continued)
 
Key points
·
Total assets carried at fair value decreased by £44.5 billion in the quarter to £741.6 billion, principally in derivatives (£66.1 billion) and collateral (£1.4 billion), partially offset by higher debt securities (£14.2 billion) and reverse repos (£9.5 billion).
   
·
Total liabilities carried at fair value decreased by £48.3 billion to £592.1 billion, mainly in derivatives (£63.4 billion) and collateral (£4.9 billion) offset by higher debt securities in issue (£1.9 billion), repos (£9.8 billion) and short positions (£7.0 billion).
   
·
Level 3 assets decreased by £1.6 billion to £14.1 billion, mainly reflecting French bank bond disposals and increased observability and liquidity in debt securities and credit derivatives. The APS derivative decreased from £550 million to £81 million primarily due to reduction in covered assets.
   
·
Level 3 liabilities increased by £0.6 billion to £5.4 billion primarily due to refinements to structured note classifications in RBS N.V..
   
·
The favourable and unfavourable effects of reasonably possible alternative assumptions on level 3 instruments were £1,730 million and £1,190 million respectively excluding £660 million and £400 million relating to the APS derivative. These sensitivities are calculated at sub- portfolio level and hence these aggregated figures do not reflect the correlation between some of the sensitivities.
 
 

 
Notes (continued)
 
11. Available-for-sale financial assets
 
During Q1 2011 gains were realised, mainly in Group Treasury (£163 million), which were offset by adverse movements relating to IFRS volatility and other volatile Treasury items.
 
 
Quarter ended
 
31 March 
2011 
31 December 
2010 
Available-for-sale reserve
£m 
£m 
     
At beginning of period
(2,037)
(1,242)
Unrealised gains/(losses)
162 
(1,148)
Realised (gains)/losses
(197)
16 
Tax
9 
337 
     
At end of period
(2,063)
(2,037)
 
The above table excludes gains attributable to non-controlling interests of £2 million (Q4 2010 - £1 million loss).
 
12. Contingent liabilities and commitments
 
 
31 March 2011
  
31 December 2010
 
Core 
Non-Core 
Total 
  
Core 
Non-Core 
Total  
 
£m 
£m 
£m 
  
£m 
£m 
£m  
               
Contingent liabilities
              
Guarantees and assets pledged as
  collateral security
26,849 
3,156 
30,005 
  
28,859 
2,242 
31,101 
Other contingent liabilities
11,407 
469 
11,876 
  
11,833 
421 
12,254 
               
 
38,256 
3,625 
41,881 
  
40,692 
2,663 
43,355 
               
Commitments
              
Undrawn formal standby facilities, credit
  lines and other commitments to lend
236,096 
18,460 
254,556 
  
245,425 
21,397 
266,822 
Other commitments
953 
2,494 
3,447 
  
1,560 
2,594 
4,154 
               
 
237,049 
20,954 
258,003 
  
246,985 
23,991 
270,976 
               
Total contingent liabilities and
  commitments
275,305 
24,579 
299,884 
  
287,677 
26,654 
314,331 
 
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)
 
13. Litigation and investigations developments
Except for the developments noted below, there have been no material changes to the litigation or investigations as disclosed in the Annual Results for the year ended 31 December 2010.
 
Personal current accounts
On 29 March 2011, the Office of Fair Trading (OFT) published its update report in relation to personal current accounts. This noted further progress in improving consumer control over the use of unarranged overdrafts. In particular, the Lending Standards Board has led on producing standards and guidance included in a revised Lending Code published on 31 March 2011. The OFT will continue to monitor the market and will consider the need for, and appropriate timing of, further update reports in light of other developments, in particular the work of the Independent Commission on Banking. The OFT intends to conduct a more comprehensive review of the market in 2012.
 
Independent Commission on Banking
On 16 June 2010, HM Treasury published the terms of reference for the Government's Independent Commission on Banking (ICB). The ICB is considering the structure of the United Kingdom banking sector and is looking at structural and non-structural measures to reform the banking system and to promote competition. It is mandated to formulate policy recommendations with a view to: (i) reducing systemic risk in the banking sector, exploring the risk posed by banks of different size, scale and function; (ii) mitigating moral hazard in the banking system; (iii) reducing the likelihood and impact of a bank's failure; and (iv) promoting competition in retail and investment banking with a view to ensuring that the needs of banks' customers are served efficiently and considering the extent to which large banks can gain competitive advantage from being perceived as "too big to fail".
 
The ICB published its Interim Report on 11 April 2011 which contains the ICB's suggestions for changes to the UK banking sector. The report is complex, and while its proposals have potential implications for the Group and many of its stakeholders, they require further clarification and elaboration if they are to be implemented. At this stage it is not possible to estimate the effect of the ICB's report and recommendations upon the Group, if any.
 
The ICB reports to the Cabinet Committee on Banking Reform and is required to produce a final report by the end of September 2011.

 
 
 

 
Notes (continued)
 
13. Litigation and investigations developments (continued)
 
US dollar clearing activities
In May 2010, following a criminal investigation by the United States Department of Justice (DoJ) into its dollar clearing activities, Office of Foreign Assets Control compliance procedures and other Bank Secrecy Act compliance matters, RBS NV formally entered into a Deferred Prosecution Agreement (DPA) with the DoJ resolving the investigation. The investigation was in relation to activities before the Consortium Members acquired ABN AMRO Holding N.V. (now known as RBS Holdings N.V.). The agreement was signed by RBS NV and is binding on that entity and its subsidiaries. Pursuant to the DPA, RBS NV paid a penalty of US$500 million and agreed that it will comply with the terms of the DPA and continue to co-operate fully with any further investigations. Payment of the penalty was made from a provision established in April 2007 when an agreement in principle to settle was first announced. At the joint request of the DoJ and RBS NV, in order to allow RBS NV sufficient time to fulfil its obligations, the U.S. District Court, on 6 April 2011, extended the duration of the DPA until 31 December 2011. Upon satisfaction of the conditions of the DPA within that period, the matter will be fully resolved. Failure to comply with the terms of the DPA could result in the DoJ recommencing its investigations, the outcome of which would be uncertain and could result in public censure and fines or have an adverse effect on RBS Holdings N.V.'s operations, any of which could have a material adverse effect on its business, reputation, results of operation and financial condition.
 
Payment Protection Insurance (PPI)
Following unsuccessful negotiations with the industry, the Financial Services Authority (FSA) issued consultation papers on PPI complaint handling and redress in September 2009 and again in March 2010. The FSA published its final policy statement on 10 August 2010 and instructed firms to implement the measures contained in it by 1 December 2010. The new rules impose significant changes with respect to the handling of mis-selling PPI complaints. On 8 October 2010, the British Bankers' Association (BBA) filed an application for judicial review of the FSA's policy statement and of related guidance issued by the Financial Ombudsman Service (FOS). The application was heard in January 2011. On 20 April 2011 the High Court issued judgment in favour of the FSA and the FOS.  The BBA is considering whether to appeal the judgment. At this time, the Group is unable reliably to estimate any potential financial liability, although it could prove to be material.
 
LIBOR Investigation
The US Commodity Futures Trading Commission, the US Securities and Exchange Commission and the European Commission are conducting investigations into the submission of various LIBOR rates by relevant panel banks. As a panel bank in each instance, RBS Group is co-operating with these investigations and is keeping other relevant regulators informed. It is not possible to estimate with any certainty what effect these investigations and any related developments may have on the Group.
 
14. Other developments
 
Bank levy
The UK bank levy announced in the June 2010 Budget has been included in the Finance Bill 2011 published in March 2011. The levy is an annual charge based on period-end equity and liabilities. The legislation has yet to be enacted and no amounts have been accrued for the levy in the Group's Q1 2011 results. The estimated cost for 2011 is in the region of £350 million to £400 million.


 
Notes (continued)
 
14. Other developments (continued)
 
Proposed transfers of a substantial part of the business activities of RBS N.V. to The Royal Bank of Scotland plc (RBS plc) 
On 19 April 2011, the Group announced its intention to transfer a substantial part of the business activities of RBS N.V. to RBS plc (the "Proposed Transfers"), subject, amongst other matters, to regulatory and other approvals, further tax and other analysis in respect of the assets and liabilities to be transferred and employee consultation procedures.
 
The Proposed Transfers will streamline the manner in which the GBM and GTS businesses of the Group interact with clients with simplified access to the GBM and GTS product suites. 
 
It is expected that the Proposed Transfers will be implemented on a phased basis over a period ending 31 December 2013. A large part of the Proposed Transfers (including the transfers of certain securities issued by RBS N.V.) is expected to have taken place by the end of 2012.
 
Rating agencies
The Group and RBS plc's long term and short term ratings have remained unchanged in the quarter. On 9 March 2011, Standard & Poor's affirmed the A+ counterparty rating of RBS plc and upgraded its standalone credit profile from BBB+ to A-. The agency highlighted that they expect RBS plc's standalone credit profile to move toward the A+ counterparty rating by 2012 if continued progress is made, following the strategic plan. The counterparty rating contains 2 notches of uplift to account for the systemic importance of RBS.
 
Gender equality in insurance contracts
On 1 March 2011, the European Court of Justice (ECJ) upheld a ruling that insurers are no longer allowed to use gender as a rating factor across the insurance industry. This will have a significant impact on the insurance industry in calculating premiums and determining benefits. The Group is currently working through the findings, and any consequences arising will be rectified by December 2012 in line with the ruling from the ECJ. At this stage, it is not possible to estimate the impact which the ECJ's ruling may have on the Group's businesses, financial position or profitability.
 
15. Date of approval
This announcement was approved by the Board of directors on 5 May 2011.
 
16. Post balance sheet events
There have been no significant events between 31 March 2011 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: 6 May 2011
 
 
THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)
 
 
 
By:
/s/ Jan Cargill
 
 
Name:
Title:
Jan Cargill
Deputy Secretary