RBS 2003 Annual Report Download

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Make it happen
www.rbs.co.uk
Annual Report and Accounts 2003
Earnings
per share up
15%
Profit before
tax up
29%
Dividend up
15%
Total
income up
14%

Table of contents

  • Page 1
    Annual Report and Accounts 2003 Profit before tax up 29% Earnings per share up 15% Dividend up 15% Total income up 14% www.rbs.co.uk Make it happen

  • Page 2
    ... Financial highlights Chairman's statement Group Chief Executive's review Group profile Divisional review Corporate responsibility Operating and financial review Governance Financial statements Additional information Shareholder information 01 02 04 06 10 44 51 111 135 199 219 Make it happen

  • Page 3
    ... Value Shares increased by 11% to 159.3p. The Group's total income grew by 14% to £19,229 million. Total shareholder return Dividend per ordinary share (pence) The directors have recommended a final dividend of 35.7p which, when added to the interim dividend of 14.6p, makes a total for the year...

  • Page 4
    Chairman's statement 02 Chairman's statement

  • Page 5
    ... billion of receivables. Board of directors The Board is committed to high standards of corporate governance and business integrity in all its activities. The Board is also conscious of the Group's impact on social issues and during 2003 ratified the Group's Corporate Responsibility Policy. We were...

  • Page 6
    Group Chief Executive's review 04 Group Chief Executive's review

  • Page 7
    ... across our businesses, we have increased our staff numbers again this year. Our shareholders We made the final Additional Value Share payment of £1.5 billion, meaning that a total of £2.7 billion has been returned to shareholders by this means, following the acquisition of NatWest. Our underlying...

  • Page 8
    ... the internet, to access a wide range of banking, financial, insurance, life assurance and pension products. For small business customers Retail Banking offers:- money transmission - cash management - short, medium and long term finance - deposit taking Market data largest retail network in the UK...

  • Page 9
    ... US ranked by deposits 4th largest supermarket bank in the US 2.4 million personal customers Annual Report and Accounts 2003 Group profile Wealth Management Private Banking Coutts Group and Adam & Company offer private, corporate and expatriate client services including:- Offshore Banking The...

  • Page 10
    ... companies, as measured by sales, profit, assets and market value. Those that make the list have the best composite ranking based on all four of these measures. Rank Company Country At the end of 2003 The Royal Bank of Scotland Group was the world's fifth largest banking group, with a market...

  • Page 11
    ...totalling £3bn by Forbes World's Best Banks 5 years (Boston Consulting) United Kingdom Acquisition of Churchill Insurance Group America Banking relationships with 50% of Fortune100 companies Queen's Award for International Trade Acquisitions Citizens extends its reach with the acquisition...

  • Page 12
    Divisional review Group profit before tax, goodwill amortisation and integration costs up 11% to £7,151 million (2002 - £6,451 million). 10 Divisional review Make it happen

  • Page 13
    11 Divisional review Annual Report and Accounts 2003

  • Page 14
    ...261 million) Profit increase 11% Total income up 11% 12 Corporate Banking and Financial Markets 2003 Securitisation House of the Year (Banker Magazine) Banking relationships with over 90% of FTSE 100 2003 Sterling Bond House of The Year (International Financing Review) No.1 global agent for...

  • Page 15
    .... The deal was awarded Loan of the Year by Corporate Finance magazine. Asset Finance Both Angel Trains, our rolling stock leasing company, and Lombard our small and mid-ticket asset finance brand in the UK and Ireland, maintained their leading market positions in 2003. A new car division comprising...

  • Page 16
    ... for our customers in Securitisation 140 Deal of the Year 2003 (The Treasurer) countries 100 Continental European companies bank with us 70% of top HeidelbergCement AG. At â,¬700m the largest non-SEC registered high yield Euro offering ever placed was part of an innovative financing package...

  • Page 17
    ... to 3rd best FX bank in London in the 2003 Euromoney FX survey. Financial Markets is the leading arranger for cross-border issues into the US private placement market, with a market share of 26%. Our money market funds, Global Treasury Funds, continue to grow strongly with client investments up 38...

  • Page 18
    ... to innovation, customer focus and expertise makes RBS the corporate bank of choice for businesses of all sizes in the UK. 16 Corporate Banking and Financial Markets The world has changed since 'Tarmac' came to bank with us in 1903. Now called Carillion it is an international force. In 2003 we...

  • Page 19
    ... Loan" - Cadbury Schweppes Corporate Finance "Best Buyout" - Seat Corporate Finance Ranked No. 2 by UK institutional investors as the best provider of secondary market liquidity for Sterling deals brought to market Credit Magazine "Sterling Bond House of the Year" International Financing Review...

  • Page 20
    ... 4% Total income up 5% 18 Retail Banking No.1 bank for size of branch network in UK Largest bank for small businesses in the UK No.1 bank for size of ATM network in UK Best Retail Bank, Europe (Lafferty International Retail Banking Awards) Systems Telecoms. Andrea Jones, RBS business customer...

  • Page 21
    ... obtain finance for their home, either face to face through our extensive branch network, over the telephone or via the internet. The Premium Banking Service continues to attract new customers who benefit from relationship banking. Royal Bank of Scotland Customer Service Reviews offer customers the...

  • Page 22
    ... Banking Best Current Account Provider (Personal Finance March 2003) No.1 lender in the UK for small businesses in deprived areas Over 530m ATM transactions UK Wide Premium Service Review. In a competitive market our staff go all out to deliver customer satisfaction. NatWest Premium Manager...

  • Page 23
    ... Royal Bank of Scotland and NatWest branches. Products NatWest launched three new savings products: the 90-day Bonus Reserve Account is for savers who want to limit withdrawals to earn an interest bonus; the Private Banking Savings Account helps customers to plan by balancing their assets between...

  • Page 24
    ... branch direct. 12-2pm is our busiest time so we've increased the number of staff we have serving in our branches at this time. Saturday banking has been extended at our busiest Royal Bank of Scotland branches in response to customer demand and now includes a full banking service. Our Community...

  • Page 25
    ... "Best Direct Mortgage Provider", 4th win in five years Your Money "Highly Commended Current Account Mortgage Provider" Mortgage Awards Finalist "Best Online Advertising" - NatWest Student Online Campaign Revolution Awards Royal Bank of Scotland "Best Current Account Provider" Personal Finance...

  • Page 26
    ... Direct No.1 in supermarket banking in the UK Acquisition from Santander Direkt adds around â,¬350m of balances 2nd largest credit card provider in the UK 10th Anniversary of Direct Line Financial Services Best Current Account Mortgage Lender (Your Mortgage Lender Awards 2003) Best (Money...

  • Page 27
    25 Retail Direct Retail Direct is responsible for the Group's cards and non-branch based retail businesses. We continued to expand by organic growth and acquisition. During 2003 the total number of customer accounts grew by 12% or 1.7 million. Our income showed strong growth, up 15% to £1,835 ...

  • Page 28
    ... online product sales for Tesco Personal Finance, Lombard Direct and Direct Line Financial Services. Retail Direct The One account won a number of awards for its innovative current account mortgage product. Primeline, our direct full service bank, continues to grow and maintained its high customer...

  • Page 29
    ...Tesco Personal Finance Your Money Savings & Investments "Best Current Account Mortgage Lender" - The One account Your Mortgage Awards "Best Current Account and Offset Mortgage Provider" - The One account Money£acts Awards "Loans Website of the Year" - Lombard Direct find.co.uk Annual Report and...

  • Page 30
    ...to First We were one of the first banks in Britain to provide an ATM offering customers euros 99.9% No.1 in the UK for cheque payments No.1 (BACS) in the UK for banks automated clearing system Systems Integration Project of the Year (Financial Services Technology magazine) Access for all. Our...

  • Page 31
    ... customers with equal access to the Group's services. Improvement work is already underway at around 600 locations across the NatWest and Royal Bank of Scotland branch networks, including installing automatic entry doors, audio induction loops and low level writing units. Annual Report and Accounts...

  • Page 32
    ... per day RBS is at the forefront of a programme to implement the next generation of payment card technology, spearheading a public trial of PIN protected cards designed to reduce card fraud. We want customers to feel as good about NatWest as we do. We replaced signage at over 1,600 branches, part...

  • Page 33
    ... Financial Services Technology magazine Flagship Award for "Business Achievement - Excellence in IT Management" British Computer Society (BCS) Professional Awards "IT Excellence in Investment Banking" - Best Systems Integration Project Financial News Award Two million man-hours without reportable...

  • Page 34
    ... High Net Worth individuals - Coutts (Euromoney Awards) Investment assets under management up to £27bn Martine McCutcheon - one of the many internationally recognised performers who have helped Coutts achieve the accolade "Best Private Bank" for artists from Euromoney Magazine. Make it happen

  • Page 35
    ... banking businesses. We expanded in the UK and completed the acquisition of Bank von Ernst in Switzerland. Low interest rates and uncertain equity markets, contributed to a small decline in income of 3% to £879 million, but customer numbers increased. Total investment assets under management...

  • Page 36
    ... Over 1m motor insurance policies sold through Tesco Personal Finance No.1 motor insurer in the UK "When I wrote my car off my insurer came up trumps. The whole Churchill team were great - a world class service from a great British company". Samantha Freestone, Oxfordshire. Make it happen

  • Page 37
    ... and the number two home insurer in the UK. Our total income was up by 52% to £3,245 million. Direct Line and Churchill are two of the best known general insurance brands in the UK and provide general insurance and motor breakdown services to the customer direct, by telephone and the internet, or...

  • Page 38
    ... three of the specialist brands within RBS Insurance. UKI Partnerships new Contact Centre in Doncaster meets the needs of our wholesale partners such as Tesco Personal Finance and BMW. Direct Line Rescue now has 1 million customers and came to the aid of 400,000 customers in 2003. Make it happen

  • Page 39
    ... Insurance Provider" - Churchill Your Money Direct "Best Household Insurer" - Direct Line Mortgage Magazine 2003 "First prize for Motor Insurance" for second year running - Direct Line Personal Finance Magazine "Best Companies To Work For" - Churchill Sunday Times "Best Product in the Services...

  • Page 40
    ...with acquisition of First Active plc largest clearing bank in the Republic of Ireland Best tracker mortgage (Irish Independent - Your Money Honours List) No.1 bank in Northern Ireland Ronan O'Driscoll is one of over 45,000 customers in Ireland who opened credit card accounts with us during 2003...

  • Page 41
    ... investment team won a total of 149 new business accounts in 2003. These included biotechnology companies like Genzyme in partnership with Citizens, Affiliated Computer Services in partnership with RBS in Dallas and Lidl, the German supermarket group. Awards Ulster Bank "Best Credit Card" Irish...

  • Page 42
    ...ranked by deposits Top10 Family Friendly Companies (New Hampshire Magazine) 4th Highest Community Reinvestment Act Rating largest supermarket bank in the US 3 more bank acquisitions in 2003 Ed Maas, Orleans Inn, Cape Cod. Since Citizens extended its successful 7-day supermarket banking service...

  • Page 43
    ... in New England and No.3 in Pennsylvania, based on deposit share. In 2003, we increased our personal customer base by 376,000 (18%) and our business customers by 36,000 (18%) due to growth through both traditional and supermarket branches and our three bank acquisitions. Citizens Bank announced...

  • Page 44
    ... innovations in customer service have taken Citizens to top 20 rankings among US banks. 42 Sunday banking is now available to our customers at traditional branches in Greater Philadelphia. Citizens Our network of over 1,630 ATMs adds to our high level of customer service. Our supermarket banking...

  • Page 45
    ... offers five-year loans of $5,000 or $8,000 towards the down payment on a mortgage. Citizens' asset quality is ranked among the top 20 commercial bank holding companies in the US. Awards "Export Lender Award" US Small Business Administration for Export Express loan programmes Citizens Bank New In...

  • Page 46
    Corporate responsibility To deliver superior sustainable value we run our business with integrity, openness and clearly defined business principles. 44 Corporate responsibility Make it happen

  • Page 47
    45 Corporate responsibility Annual Report and Accounts 2003

  • Page 48
    ... UK organisation to double match staff payroll giving Prince's Trust. Over 550 staff are actively involved with The Prince's Trust, adding their time and skills to the Group's £3.75 million donation. Staff from across the Group give their time and business knowledge as volunteers working closely...

  • Page 49
    ... package is among the best in the financial services sector, with a combination of remuneration, a final salary pension scheme, a selection of benefits, access to profit share and sharesave schemes for most of our staff. In 2003 the Group awarded staff a 10% profit share bonus in recognition of...

  • Page 50
    ... olds to think about the benefits of higher education. Seven roadshows visited 1,300 schools and colleges, reaching 135,000 young people. Novel Employee Reward Scheme. In 2003 we launched a popular reward scheme. Six of our people with over 5 years service won a brand new car each. Make it happen

  • Page 51
    ... reported a strong performance by the Group compared to the UK financial services sector and a group of the world's top performing companies. As a result of this consistently high standard, we have now been included in the ISR Global High Performing Norm. Environment RBS continues to actively manage...

  • Page 52
    50 Operating and financial review Make it happen

  • Page 53
    ...consolidated profit and loss account Analysis of results Divisional performance Consolidated balance sheet Cash flow UK GAAP compared with US GAAP Capital resources Risk management 52 53 54 56 57 59 61 Operating and financial review Contents 62 67 75 88 90 91 91 92 Annual Report and Accounts 2003

  • Page 54
    ... organised to service international banking transactions and transactions conducted through offices outside the UK. The geographic analysis in the average balance sheet and interest rates, changes in net interest income and average interest rates, yields, spreads and margins in this report have been...

  • Page 55
    ... include, but are not limited to: general economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal...

  • Page 56
    ... Services ("DLFS"), Lombard Direct, WorldPay Limited, the Group's internet banking platform, the Primeline brand and in Europe, the Comfort Card businesses, all of which offer products to customers through direct channels. During 2003, Retail Direct acquired the credit card and personal loans...

  • Page 57
    ... through direct marketing activity and, increasingly, the internet. In Wealth Management, The Royal Bank of Scotland International and NatWest Offshore compete with other UK and international banks to offer offshore banking services. Coutts Group and Adam & Co. compete as private banks with UK...

  • Page 58
    ...affect earnings reported by the Group's nonUK subsidiaries, mainly Citizens, RBS Greenwich Capital and Ulster Bank, and may affect income from foreign exchange dealing. The performance of financial markets may cause changes in the value of the Group's investment and trading portfolios. The Group has...

  • Page 59
    ...-off in previous years are charged to the profit and loss account. Loans and advances are reported on the balance sheet net of specific and general provisions. For certain homogeneous portfolios, including credit card receivables and other personal advances including mortgages, specific provisions...

  • Page 60
    ... interest rate yield curves, option volatilities and currency rates. Securities carried at fair value include government, assetbacked and corporate debt obligations and corporate equity shares. Fair value for a substantial proportion of these instruments is based on observable market prices or...

  • Page 61
    ...employees' service lives. Scheme liabilities are discounted at a long-term stable rate. Under IFRS, scheme liabilities are discounted at the market rate on high quality corporate bonds. Actuarial gains and losses must be amortised, on a straight-line basis over the expected average remaining working...

  • Page 62
    ... profit and loss on initial recognition. Under UK GAAP , short positions in securities and trading derivatives are carried at fair value, all other financial liabilities are recorded at amortised cost. Liabilities and equity - under UK GAAP , all issued shares are classified as shareholders' funds...

  • Page 63
    ... shareholders Cost:income ratio (%) (1) Basic earnings per share (pence) Adjusted earnings per share (pence) (2) Dividend cover (times) (3) Adjusted after-tax return on equity (%) (4) 2003 £m 2002 £m 2001 £m at 31 December Total assets Loans and advances to customers Deposits Shareholders' funds...

  • Page 64
    ... the Companies Act. 2003 £m 2002 £m 2001 £m 62 Operating and financial review Net interest income Dividend income Fees and commissions receivable Fees and commissions payable Dealing profits Other operating income General insurance net premium income Non-interest income TOTAL INCOME Staff costs...

  • Page 65
    ... and home insurance products, and the acquisition of Churchill. In addition, volumes in financial markets were up strongly in both the UK and the US reflecting growth in customer-driven activity in interest rate protection, mortgage securitisation and foreign exchange. Income from rental assets grew...

  • Page 66
    ...market values on activity levels and fees more than offset the benefit from increased customer numbers and volumes. Net interest income Net interest income increased by 15%, or £1,003 million, to £7,849 million. Net interest income accounted for 47% of total income. Average interest-earning assets...

  • Page 67
    ... payment schedule. The total ordinary dividend for the year was 43.7p per ordinary share, an increase of 15%. The total dividend was covered 3.3 times by earnings before goodwill amortisation, integration costs and the AVS dividend. 65 Operating and financial review Annual Report and Accounts 2003

  • Page 68
    .... This is based on profit attributable to ordinary shareholders before integration costs, goodwill amortisation and the AVS dividend, and average equity shareholders' funds. Acquisitions In May 2002, Lombard, the leasing arm of CBFM, completed the acquisition of Dixon Motors PLC for a consideration...

  • Page 69
    ... Gross yield Group UK Overseas Interest spread Group UK Overseas Net interest margin Group UK Overseas The Royal Bank of Scotland plc base rate London inter-bank three month offered rates: Sterling Eurodollar Euro Notes: (1) Gross yield is the interest rate earned on average interest-earning assets...

  • Page 70
    ... accounts: savings deposits - UK - Overseas Customer accounts: other time deposits - UK - Overseas Debt securities in issue - UK - Overseas Loan capital - UK - Overseas Internal funding of trading business - UK - Overseas Total interest-bearing liabilities - banking business - trading business Total...

  • Page 71
    ... - UK Customer accounts: other time deposits - Overseas Debt securities in issue - UK Debt securities in issue - Overseas Loan capital - UK Loan capital - Overseas Internal funding of trading business - UK Internal funding of trading business - Overseas Total interest-bearing liabilities - banking...

  • Page 72
    ...by banks UK Overseas Customer accounts: demand deposits UK Overseas Customer accounts: savings deposits UK Overseas Customer accounts: other time deposits UK Overseas Debt securities in issue UK Overseas Loan capital UK Overseas Internal funding of trading business UK Overseas Total interest payable...

  • Page 73
    ... business, where income rose by 16%, £112 million, and higher profits from sale of investment securities. General insurance premium income, after reinsurance, rose by 38%, or £519 million reflecting RBS Insurance's organic growth and acquisitions in Continental Europe. Annual Report and Accounts...

  • Page 74
    ... in support of higher business volumes and 10% income growth. Staff costs were up £451 million, 11% to £4,393 million reflecting acquisitions and business growth. The number of staff increased by 9,100, 8% to 120,900. Acquisitions in the year added 9,700 staff of which 8,500 related to Churchill...

  • Page 75
    ... £m Charge to profit and loss account £m Utilised during the year £m At 31 December 2003 £m Staff costs - redundancy Staff costs - other Premises and equipment Other 71 15 - 66 152 - 1 - (2) (1) 58 67 31 73 229 (110) (56) (29) (104) (299) 19 27 2 33 81 Annual Report and Accounts 2003...

  • Page 76
    ... ratio of total balance sheet provisions to risk elements in lending) at 31 December 2002 was maintained at 81%. Taxation 2003 £m 2002 £m 2001 £m Tax on profit on ordinary activities 1,910 % 30.0 31.0 1,556 % 30.0 32.7 1,537 % 30.0 36.1 UK corporation tax rate Effective tax rate The actual...

  • Page 77
    ... of each of the divisions is reviewed on pages 76 to 87. Annual Report and Accounts 2003 Operating and financial review Corporate Banking and Financial Markets* Retail Banking Retail Direct Manufacturing* Wealth Management* RBS Insurance Ulster Bank Citizens Central items Profit before goodwill...

  • Page 78
    ... from 1 January 2003 the pricing remedies agreed following the Competition Commission inquiry into SME banking and by lower money market income, due to less favourable market conditions. The asset rental business comprising operating leases and investment properties, grew strongly. Average...

  • Page 79
    ...%. Net interest income rose by 10% or £211 million to £2,349 million, reflecting customer lending growth in Corporate Banking and continued good performance by Financial Markets from strong wholesale money market activity. Average loans and advances to customers of the banking business increased...

  • Page 80
    ... further growth in the customer base and a 15% growth in general insurance income to £301 million. Embedded value profits of the life assurance business increased by 14%, or £7 million to £57 million. Direct expenses increased by 4% or £43 million to £1,004 million. Staff expenses increased 10...

  • Page 81
    ... general insurance products sold through the Royal Bank and NatWest networks. Strong sales performance was seen in Bancassurance with new business up 30% although the sharp fall in equity markets depressed Bancassurance income. Direct expenses increased by 4% or £33 million to £961 million. Staff...

  • Page 82
    ... in TPF , where the total number of general insurance policies increased during the year to 1.3 million. Direct expenses increased by 8% or £44 million to £608 million reflecting increased volumes and higher marketing activity to support strong business expansion. Provisions increased by £26...

  • Page 83
    ... and Property Operations** Customer Support and other operations Total manufacturing costs 625 1,250 1,875 536 1,226 1,762 484 1,162 1,646 * prior periods have been restated following the transfer of certain activities from Corporate Banking and Financial Markets and Wealth Management ** prior...

  • Page 84
    ... review Contribution before provisions Provisions for bad and doubtful debts - charge/(release) Contribution Total assets Investment management assets - excluding deposits Customer deposits Weighted risk assets * Prior periods have been restated following the transfer of certain activities...

  • Page 85
    ...or £402 million to £1,350 million reflecting increased volumes. Annual Report and Accounts 2003 Operating and financial review Earned premiums Reinsurers' share Insurance premium income Net fees and commissions Other income Total income Expenses - staff costs - other 3,565 (504) 3,061 (99) 283...

  • Page 86
    ... dealing profits. Uncertainty in equity markets adversely affected brokerage fees in the stockbroking business which was sold in October 2003. Expenses increased by 9% or £22 million to £276 million. This reflected the annual pay award and the additional costs to support increased business volumes...

  • Page 87
    ... lower than 2002. Credit quality metrics remain strong and total non-performing loans were 0.40% of total loans and advances at 31 December 2003 compared with 0.57% at the end of 2002. In 2003, Citizens increased its personal customer base by 376,000 accounts and its business customers by 36,000 due...

  • Page 88
    ...215 million, were unchanged. Increased income from higher shareholders' funds was offset by the funding costs associated with the acquisition of Churchill in September 2003 and the £1.5 billion AVS dividend paid in December 2003. Central departmental costs and other corporate items at £414 million...

  • Page 89
    ... by staff reductions from integration. Annual Report and Accounts 2003 Operating and financial review Corporate Banking and Financial Markets* Retail Banking Retail Direct Manufacturing* Wealth Management* RBS Insurance Ulster Bank Citizens Centre Group total Acquisitions in the year Underlying...

  • Page 90
    ... other banks Treasury bills and other eligible bills Loans and advances to banks Loans and advances to customers Debt securities Equity shares Interests in associated undertakings Intangible fixed assets Tangible fixed assets Settlement balances Other assets Prepayments and accrued income Long-term...

  • Page 91
    ... in Wealth Management's investment portfolio of investment grade asset-backed securities, Citizens' portfolio of US government and agency securities and the acquisition of Churchill. Equity shares rose £0.4 billion, 22% to £2.3 billion largely to support an increase in Financial Markets equity...

  • Page 92
    ... lease assets and investment properties, comprised the net cash outflow from capital expenditure and financial investment. Equity and Additional Value Shares ('AVS') dividends paid includes the final dividend on the AVS of £1,463 million. The issue of £883 million trust preferred securities and...

  • Page 93
    ... 2003 2002 2001 2000 1999 £m £m £m £m £m Capital base Tier 1 capital Tier 2 capital Tier 3 capital Less: investments in insurance subsidiaries, associated undertakings and other supervisory deductions Total capital Weighted risk assets Banking book: On-balance sheet Off-balance sheet Trading...

  • Page 94
    ...• Insurance risk • Enterprise risk • Group Asset and Liability Management Committee ("GALCO") which is responsible for reviewing the balance sheet, funding and capital implications of the Group's strategy and operations. In addition, GALCO monitors and reviews legal, regulatory and accounting...

  • Page 95
    ...by a dedicated credit function, with expertise in traded market product risk and which also specialises in the analysis and assessment of financial market counterparties. GRM and the GEMC review the reports on the Group's portfolio of credit risks on a monthly basis. Annual Report and Accounts 2003

  • Page 96
    ...and financial review continued Credit risk (continued) Risk asset quality Internal reporting and oversight of risk assets is principally differentiated by credit ratings. Internal ratings are used to assess the credit quality of borrowers. Customers are assigned credit ratings, based on statistical...

  • Page 97
    ... is based on location of office. The UK includes domestic transactions and transactions conducted through the offices in the UK which service international banking transactions. Annual Report and Accounts 2003 Operating and financial review Loans and advances to customers by industry Central...

  • Page 98
    ... are defined as loans to banks and customers (including finance lease and instalment credit receivables) and other monetary assets, including non-local currency claims of overseas offices on local residents. The Group monitors the geographical breakdown of these exposures based on the country...

  • Page 99
    ... made. (2) The Group's UK banking subsidiary undertakings account for loans on a non-accrual basis from the point in time at which the collectability of interest is in significant doubt. Certain subsidiary undertakings of the Group, principally Citizens, generally account for loans on a non-accrual...

  • Page 100
    Operating and financial review continued Credit risk (continued) Provisions The Group provides for losses in its loan portfolio so as to record impaired loans and advances at their expected ultimate net realisable value. The objective is to set provisions based on the current understanding of the ...

  • Page 101
    ... recoveries Notes: 38 25 4 5 72 37 21 4 1 63 55 17 7 1 80 (1) The geographic analysis is based on location of office. The UK includes domestic transactions and transactions conducted through the offices in the UK which service international banking transactions. Annual Report and Accounts 2003

  • Page 102
    ... reviewed daily and weekly with Financial Markets, who manage day-to-day and intra-day market execution within the policy parameters set. In addition to their consolidation within the Group's daily liquidity management processes, it is also the responsibility of all Group subsidiaries and branches...

  • Page 103
    ... wholesale market sources, whilst maintaining its overall funding structure within its normal prudent liquidity risk policy parameters. Annual Report and Accounts 2003 Operating and financial review Customer accounts (excluding repos): Repayable on demand Time deposits Total customer accounts...

  • Page 104
    ...) Net wholesale market activity Overall structural liquidity risk remains well within the Group's policy parameters. The Group's net surplus of wholesale assets reduced by £8,372 million to £6,274 million. 2003 £m 2002 £m 2001 £m 102 Operating and financial review Deposits by banks (excluding...

  • Page 105
    ... the liquidity risk in its nonSterling activities is recognised and the Group manages its non-Sterling liquidity risk daily within net mismatch limits set for the 0-8 calendar day and 0-1 month periods as a percentage of the Group's total deposit liabilities. Annual Report and Accounts 2003

  • Page 106
    ... the impact of abnormal changes in market rates and prices on the fair value of the Group's trading portfolios. GEMC approves the highlevel VaR and stress limits for the Group. The Group Market Risk function, independent from the Group's trading businesses, is responsible for setting and monitoring...

  • Page 107
    ... advantage of anticipated market conditions. The main risk factors are interest rates, credit spreads and foreign exchange. Financial instruments held in the Group's trading portfolios include, but are not limited to, debt securities, loans, deposits, securities sale and repurchase agreements and...

  • Page 108
    ... by its general insurance business and its strategic equity investments are the principal sources of non-trading equity price risk. The Group's portfolios of non-trading financial instruments mainly comprise loans (including finance leases), debt securities, equity shares, deposits, certificates of...

  • Page 109
    ... to the Group's non-trading interest rate VaR in 2002 and 2003. It invests its surplus retail deposits in a portfolio of highly rated and liquid investments principally mortgage-backed securities. This balance sheet management approach is common for US retail banks where mortgages are originated...

  • Page 110
    ...the Euro exchange rate against Sterling. Equity risk Non-trading equity risk arises principally from the Group's strategic investments, its venture capital activities and its general insurance business. The reserves of the Group's general insurance business are invested in cash, debt securities and...

  • Page 111
    ...Group's activities. Enterprise risk management is achieved through monitoring the Group's exposure to direct or indirect loss using a range of policies, procedures, data, analytical tools and reporting techniques. In particular, Group-wide risk management processes ensure that Enterprise risk issues...

  • Page 112
    110 Governance Make it happen

  • Page 113
    Governance Contents 111 Board of directors and secretary Report of the directors Corporate governance Directors' remuneration report Directors' interests in shares Statement of directors' responsibilities 112 114 118 122 132 133 Governance Contents Annual Report and Accounts 2003

  • Page 114
    Board of directors and secretary 112 Board of directors and secretary Sir George Mathewson Fred Goodwin Sir Iain Vallance Sir Angus Grossart Fred Watt Gordon Pell Norman McLuskie Emilio Botin Sir Steve Robson Iain ...

  • Page 115
    ... business. He was formerly a member of the group management board of UBS AG and head of equities of UBS Warburg. He is a director of Merrill Lynch World Mining Trust Plc, Merrill Lynch Gold Limited, Royal Scottish National Orchestra Society Limited, Standard Life Investments Limited, UBS Securities...

  • Page 116
    ... final dividend of 55p per share on the Additional Value Shares issued in connection with the acquisition of NatWest was paid on 1 December 2003, totalling £1.5 billion. Activities and business review The company is a holding company owning the entire issued ordinary share capital of the Royal Bank...

  • Page 117
    ... of the final dividend on the Additional Value Shares on 1 December 2003, they were de-listed from the London Stock Exchange, converted to Non-voting Deferred Shares and transferred to RBS NVDS Nominees Limited. Trust preferred securities In May 2003, a subsidiary of the company issued 850,000...

  • Page 118
    ...Group profit sharing. In 2003, the Group introduced the Buy As You Earn Plan allowing employees to buy shares in the Group on a monthly basis. The Group provides pension scheme membership for the majority of staff in the UK and overseas. The largest scheme is The Royal Bank of Scotland Group Pension...

  • Page 119
    ... of reviewing its health and safety policies in light of current legislation and best practice, as well as to ensure that they meet the operational needs of the business. Corporate responsibility Business excellence requires that the Group meets changing customer, shareholder, investor, employee and...

  • Page 120
    ... Board are structured to allow open discussion. The Board meets at least eight times each year. It is supplied with comprehensive papers in advance of each Board meeting including financial and business reports covering the Group's principal business activities. Members of the executive management...

  • Page 121
    ...of the Board. No director is involved in decisions regarding his or her own remuneration. Annual Report and Accounts 2003 Corporate governance In January 2003, the Audit Committee established its policy on the engagement of the external auditors to supply audit and non-audit services, taking into...

  • Page 122
    ... Committees and individual attendance by members is shown below. Board Audit Remuneration Nominations Relations with shareholders The company communicates with shareholders through the annual report and by providing information in advance of the annual general meeting. Individual shareholders...

  • Page 123
    ... significant changes in the company's internal controls over financial reporting or, to the knowledge of the Group Chief Executive and Group Finance Director, in other factors that could significantly affect those internal controls as at 31 December 2003. Annual Report and Accounts 2003 Corporate...

  • Page 124
    ... profit sharing scheme, which currently pays up to 10 per cent of salaries, depending on the Group's performance. These schemes are not subject to performance conditions since they are operated on an all-employee basis. Executive directors also receive death in service benefits. Short-term annual...

  • Page 125
    ... group for the award in 2001 focused on the UK financial services sector. In respect of grants made in 2002 and subsequent years, the comparator group was reviewed and, following the merger of Halifax with Bank of Scotland, Citigroup was added to the group. Options The executive share option scheme...

  • Page 126
    ... of awards under the Phantom 2000 Plan and, in line with the grant schedule put in place when the plan was approved by shareholders in 2000, no further awards will be made to him. Under this plan, units are awarded which are a cash-based proxy for share options. The value of the units at the time of...

  • Page 127
    ... total shareholder return for the company and the FTSE 100 have been rebased to 0 for 1998. Total shareholder return 125 Directors' remuneration report Service contracts The company's policy in relation to the duration of contracts with directors is that executive directors' contracts generally...

  • Page 128
    ... the plans, policies and practices of Citizens at the time of termination. • lf Mr McLuskie's contract is terminated by the Royal Bank before he reaches age 60, he is entitled to a payment of three months' base salary, annual bonus and benefits in lieu of notice plus up to 57 weeks' pay (subject...

  • Page 129
    .... The tables and explanatory notes on pages 128 to 131 report the remuneration of each director for the year ended 31 December 2003 and have been audited by the company's auditors, Deloitte & Touche LLP . Annual Report and Accounts 2003 Directors' remuneration report Sir George Mathewson Sir Iain...

  • Page 130
    ..., Corporate Banking and Financial Markets and as a director in a non-executive capacity. He also provides general advice on business issues to the Board and Board Committees as appropriate, including attendance as required at the Group Audit Committee and the Advances Committee. For these services...

  • Page 131
    ... ordinary shares of 25p each in the company granted to, and exercised by, directors during the year to 31 December 2003 are included in the table below: Options exercised in 2003 Options held at 1 January 2003 Options granted in 2003 Market price at date of exercise Number £ Option price £ Options...

  • Page 132
    ... 6%. Medium Term Performance Plan Awards granted in 2003 Scheme interests (share equivalents) at 1 January 2003 Scheme interests (share equivalents) awarded Market price on award £ The market price of the company's ordinary shares at 31 December 2003 was £16.46 and the range during the year to 31...

  • Page 133
    ...company /pension scheme. Contributions and allowances paid in the year ended 31 December 2003 under defined contribution arrangements were: 2003 000 2002 000 Fred Watt Lawrence Fish £109 $90 £93 $90 Bob Scott, Chairman of the Remuneration Committee 18 February 2004 Annual Report and Accounts...

  • Page 134
    ... had an interest in the preference shares during the year. Loan notes No director had an interest in loan notes during the year. The company's Register of Directors' Interests, which is open to inspection, contains full details of directors' shareholdings and options to subscribe. On 7 January 2004...

  • Page 135
    ... directors' responsibilities United Kingdom company law requires the directors to prepare accounts for each financial year which give a true and fair view of the state of affairs of the company and of the Group as at the end of the financial year and of the profit or loss of the Group for that year...

  • Page 136
    134 Financial statements Make it happen

  • Page 137
    ...' report Accounting policies Consolidated profit and loss account Consolidated balance sheet Statement of consolidated total recognised gains and losses Reconciliation of movements in consolidated shareholders' funds Consolidated cash flow statement Balance sheet - the company Notes on the accounts...

  • Page 138
    ... report to the members of The Royal Bank of Scotland Group plc We have audited the financial statements of The Royal Bank of Scotland Group plc ("the company") and its subsidiaries (together "the Group") for the year ended 31 December 2003 which comprise the accounting policies, the profit and loss...

  • Page 139
    ... in dealing profits together with dividends from, and interest receivable and payable on, trading business assets and liabilities. 3 Goodwill Goodwill is the excess of the cost of acquisition of subsidiary and associated undertakings over the fair value of the Group's share of net tangible assets...

  • Page 140
    ... of the products sold - retail based property and casualty, motor, home and personal health insurance contracts - the insurance protection is provided on an even basis throughout the term of the policy. In calculating operating profit from general insurance activities, premiums (net of reinsurance...

  • Page 141
    .... Other debt securities and equity shares are carried at fair value, with changes in fair value recognised in the profit and loss account. 12 Shares in subsidiary undertakings The company's shares in subsidiary undertakings are stated in the balance sheet of the company at directors' valuation that...

  • Page 142
    ... fair value. Gains or losses arising from changes in fair value are included in dealing profits in the consolidated profit and loss account. Fair value is based on quoted market prices. Where representative market prices are not available, the fair value is determined from current market information...

  • Page 143
    Consolidated profit and loss account for the year ended 31 December 2003 Note 2003 £m 2002 £m 2001 £m General insurance - earned premiums - reinsurance Non-interest income Total income Administrative expenses - staff costs* - premises and equipment* - other* Depreciation and amortisation - ...

  • Page 144
    ... 2003 Note 2003 £m 2002 £m 142 Consolidated balance sheet Assets Cash and balances at central banks Items in the course of collection from other banks Treasury bills and other eligible bills Loans and advances to banks Loans and advances to customers Debt securities Equity shares Interests...

  • Page 145
    ... profit for the year Issue of ordinary and preference shares Redemption of preference shares Goodwill previously written off to reserves Other recognised gains and losses Currency translation adjustment on share premium account Net increase in shareholders' funds Opening shareholders' funds Closing...

  • Page 146
    ... of finance Preference dividends paid Additional Value Shares dividend paid Dividends paid to minority shareholders in subsidiary undertakings Interest paid on subordinated liabilities Net cash outflow from returns on investments and servicing of finance Taxation UK tax paid Overseas tax paid Net...

  • Page 147
    ... Investments: Shares in Group undertakings Loans to Group undertakings Current assets Debtors: Due by subsidiary undertakings Debtors and prepayments Creditors Amounts falling due within one year: Due to banks Dated loan capital Debt securities in issue Other creditors Proposed final dividend Net...

  • Page 148
    ... after tax. The unamortised balance before tax is included in 'Other assets'. The Group's two main UK pension schemes, The Royal Bank of Scotland Staff Pension Scheme and the National Westminster Bank Pension Fund, merged on 1 April 2002 to form The Royal Bank of Scotland Group Pension Fund. Scheme...

  • Page 149
    ... through subscriptions to private healthcare schemes in the UK and the US and unfunded post-retirement benefit plans. Provision for the costs of these benefits is charged to the profit and loss account over the average remaining future service lives of the eligible employees. The amounts are...

  • Page 150
    ... UK scheme £m Other schemes £m 2003 Total £m 2002 Total £m Amount that would be charged to profit and loss account Expected return on pension scheme assets Interest on pension scheme liabilities Net return credited to other finance income Current service cost Past service cost Net pension cost...

  • Page 151
    ... investment securities Share of associated undertakings' net profit/(loss) Operating lease rentals of premises Operating lease rentals of computers and other equipment Finance charges on leased assets Interest on subordinated liabilities Integration expenditure* relating to: - acquisition of NatWest...

  • Page 152
    Notes on the accounts continued 5 Tax on profit on ordinary activities 2003 £m 2002 £m 2001 £m Current taxation: UK corporation tax charge for the year at 30% Over provision in respect of prior periods Relief for overseas taxation Overseas taxation: Current year charge (Over)/under provision in...

  • Page 153
    ...25 Non-cumulative convertible preference shares of £0.01 11% cumulative preference shares of £1 (1) 5.5% cumulative preference shares of £1 (2) Appropriation for premium payable on redemption and issue costs Total preference dividends Additional Value Shares Total non-equity dividends 99 100 37...

  • Page 154
    ... 2003 £m 2002 £m Treasury bills and similar securities Other eligible bills 3,917 929 4,846 2,977 1,869 8,348 3,111 11,459 4,569 6,890 Banking business Trading business 152 Notes on the accounts Treasury and other eligible bills are principally of short-term maturity and their market value...

  • Page 155
    ...). The Group's exposure to risk from its lending activities is widely diversified both geographically and industrially. Lending to the services sector, house mortgage lending, loans to financial institutions, other personal loans and lending to property companies exceeded 10% of total loans and...

  • Page 156
    ... be charged to a customer's account but, because its recoverability is in doubt, not recognised in the Group's consolidated profit and loss account. Such interest is held in a suspense account and netted off against loans and advances in the consolidated balance sheet. 2003 £m 2002 £m Loans and...

  • Page 157
    ... held as investment securities were as follows: Cost £m Discounts and premiums £m Provisions £m Book value £m At 1 January 2003 Currency translation and other adjustments Additions Acquisition of subsidiaries Maturities and disposals Provisions made net of write backs Transfers Amortisation of...

  • Page 158
    ... % Total Amount £m Yield % 156 Notes on the accounts British government securities US treasury and other US government securities Other government securities Securities issued by the states of the US Other public sector bodies Corporate debt securities Mortgage-backed securities Bank and building...

  • Page 159
    ... and are not material to the Group's results or financial condition. Annual Report and Accounts 2003 Notes on the accounts At 1 January 2003 Currency translation and other adjustments Change of status Additions Acquisitions Disposals Share of profit At 31 December 2003 94 1 14 2 21 (27) 1 106...

  • Page 160
    ... Line Insurance plc Greenwich Capital Markets, Inc. Lombard North Central PLC National Westminster Home Loans Limited The Royal Bank of Scotland International Limited RBS Life Holdings Limited Ulster Bank Limited (3) Notes: (1) The company does not hold any of the NatWest preference shares in issue...

  • Page 161
    ... 1 January 2003 Currency translation and other adjustments Charge for the year At 31 December 2003 Net book value at 31 December 2003 Net book value at 31 December 2002 £m 159 14,595 (283) 1,456 (10) 15,758 Notes on the accounts 1,898 (34) 763 2,627 13,131 12,697 Annual Report and Accounts 2003

  • Page 162
    ... Market Value. Valuations are carried out by internal and external qualified surveyors who are members of the Royal Institution of Chartered Surveyors or, in the case of some overseas properties, locally qualified valuers. Net book value: Land and buildings occupied for own use Investment properties...

  • Page 163
    ... account is calculated as follows: 2003 £m 2002 £m Increase in value for the year before tax Tax Increase in value for the year after tax 73 (22) 51 61 (18) 43 The decline in long-term assurance assets and liabilities results from the transfer of the pension managed fund business of NatWest...

  • Page 164
    ... business Trading business Issues are made under the Royal Bank's £20 billion euro medium term note programme from time to time. Notes issued, which have a minimum maturity of six months from the date of issue, are included in the above amounts. 26 Settlement balances and short positions 2003...

  • Page 165
    ... (2) The Group operates various unfunded post-retirement benefit plans and provision is made for the expected costs that will arise over the periods in which pensions are paid to the members of these plans. (3) Other provisions arise in the normal course of business. Annual Report and Accounts 2003

  • Page 166
    ... notes 2016 (issued December 2003; callable January 2011) (9) â,¬100 million floating rate subordinated notes 2017 US$125.6 million floating rate subordinated notes 2020 RBSG Capital Corporation US$250 million 10.125% guaranteed capital notes 2004 (7) (1,6) 140 155 National Westminster Bank Plc...

  • Page 167
    ...(5) Repayable in whole, at the option of The Royal Bank of Scotland plc, prior to maturity, on conditions governing the respective debt obligation, including prior approval of the UK Financial Services Authority. (6) Unconditionally guaranteed by the company. (7) Net proceeds received â,¬998 million...

  • Page 168
    ... over an average calculated by reference to six month euro dollar deposits in London for each interest period. (3) Redeemable in certain circumstances related to changes in the tax laws of the UK, in whole or in part, at the option of the company on any interest payment date. Exchangeable, in whole...

  • Page 169
    ... deferred shares of £0.01 each. Annual Report and Accounts 2003 Notes on the accounts Non-equity shares issued by other subsidiaries: Non-cumulative trust preferred securities of â,¬1,000 (3) Non-cumulative trust preferred securities of US$1,000 (4) Other non-equity minority interests Total 167

  • Page 170
    ... sharesave options. Additional Value Shares Approximately 2.7 billion Additional Value Shares ("AVS") with a total nominal value of £27 million were issued to shareholders by way of a bonus issue in July 2000 in connection with the acquisition of NatWest. A dividend of 15 pence per AVS was paid on...

  • Page 171
    ... other resolution). In addition, in the event that, prior to any general meeting of shareholders, the company has failed to pay in full the three most recent quarterly dividend payments due on the non-cumulative dollar preference shares, the two most recent semi-annual dividend payments due on the...

  • Page 172
    ...2001 2003 The Group The company £m £m 170 Notes on the accounts Share premium account At 1 January Currency translation adjustments Shares issued during the year Preference shares redeemed during the year Other movements At 31 December Merger reserve At 1 January Shares issued Transfer to profit...

  • Page 173
    ... shares of £1 Total preference shares Additional Value Shares of £0.01 1,140 1,058 528 196 1 2,923 - 2,923 1,628 1,169 486 196 1 3,480 27 3,507 171 Notes on the accounts 35 Lease commitments The annual rental commitments of the Group under non-cancellable operating leases were as follows: 2003...

  • Page 174
    ... on assets Deposits by banks Customer accounts Debt securities in issue 2003 £m 2002 £m 3,000 92 1,550 4,642 2,778 2,233 591 5,602 39 Derivatives In the normal course of business, the Group enters into a variety of derivative transactions principally in the foreign exchange and interest rate...

  • Page 175
    ...,559 134 483 57,757 Gains and losses on exchange traded contracts subject to daily margining requirements are settled daily. The fair value of such contracts included above reflects the last day's variation margin. Annual Report and Accounts 2003 Notes on the accounts 22,315 8,440 11 102 30,868...

  • Page 176
    ...non-trading activities and includes internal trades: 2003 Fair value Positive £m Negative £m 2003 Book value Positive £m Negative £m 2002 Fair value Positive £m Negative £m 2002 Book value Positive £m Negative £m Exchange rate contracts: Spot, forwards and futures Currency swaps and options...

  • Page 177
    ... Loans and advances to customers Treasury bills and debt securities Other assets Total assets Liabilities Deposits by banks Customer accounts Debt securities in issue Subordinated liabilities Other liabilities Shareholders' funds Internal funding of trading book Total liabilities Off-balance sheet...

  • Page 178
    ... customers Treasury bills and debt securities Other assets Total assets Liabilities Deposits by banks Customer accounts Debt securities in issue Subordinated liabilities Other liabilities Shareholders' funds Internal funding of trading business Total liabilities Off-balance sheet items Interest rate...

  • Page 179
    ... value information to independent markets or other financial institutions' fair value. 177 Trading business Note Assets Treasury bills and other eligible bills Loans and advances to banks and customers Debt securities Equity shares Derivatives Liabilities Deposits by banks and customer accounts...

  • Page 180
    ... in fair values are not recognised in the profit and loss account immediately but are accounted for in the same manner as the hedged item. 2003 Unrecognised gains and losses £m 2003 2002 Deferred Unrecognised gains and gains and losses losses £m £m 2002 Deferred gains and losses £m 178 Notes on...

  • Page 181
    ... forward deposits placed and undrawn note issuance and revolving underwriting facilities. 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. Annual Report and Accounts 2003 Notes on...

  • Page 182
    ...: Book value of net assets acquired £m Fair value adjustments £m Fair value to the Group £m At respective dates of acquisition Cash and balances at central banks Treasury and other eligible bills Loans and advances to banks Loans and advances to customers Debt securities Equity shares Interest...

  • Page 183
    ... in value of long-term assurance business Net cash inflow from trading activities Decrease/(increase) in items in the course of collection Decrease/(increase) in treasury and other eligible bills Decrease/(increase) in loans and advances to banks Increase in loans and advances to customers (Increase...

  • Page 184
    ...182 Notes on the accounts 46 Analysis of changes in financing during the year Share capital (including share premium) 2003 £m 2002 £m 2001 £m 2003 £m Loan capital 2002 £m 2001 £m At 1 January Currency translation adjustments Net cash (outflow)/inflow from financing Amount credited to merger...

  • Page 185
    .... a) Classes of business The prior year data in the tables below have been restated to reflect the transfer in 2003 of certain activities from Corporate Banking and Financial Markets and Wealth Management to Manufacturing. 183 Net interest income £m Non-interest income £m Total income £m 2003...

  • Page 186
    ... UK £m USA £m Europe £m Rest of the World £m Total £m Interest receivable Dividend income Fees and commissions receivable Dealing profits Other operating income General insurance premium income (net of reinsurance) Gross income Profit on ordinary activities before tax Total assets Net assets...

  • Page 187
    ...412,000 27,052 Notes on the accounts Interest receivable Dividend income Fees and commissions receivable Dealing profits Other operating income General insurance premium income (net of reinsurance) Gross income Profit/(loss) on ordinary activities before tax Total assets Net assets 11,360 28 4,079...

  • Page 188
    ...as an adjustment to the yield on the related loan or facility. (g) Pension costs Pension costs, based on actuarial assumptions and methods, are charged in the consolidated accounts so as to allocate the cost of providing benefits over the service lives of employees in a consistent manner approved by...

  • Page 189
    ... by the Group's private equity business are considered to be held by investment companies and are carried at fair value, with changes in fair value being reflected in net income. The Group's other investment debt securities and marketable investment equity shares are classified as available-for-sale...

  • Page 190
    ... is based on the estimated fair value which is charged to the profit and loss account over the period to their average vesting date. (o) Variable interest entities UK GAAP requires consolidation of entities controlled by an enterprise where control means the enterprise's ability to direct the...

  • Page 191
    ...in total. Consolidated statement of income Profit attributable to ordinary shareholders - UK GAAP Adjustments in respect of: Acquisition accounting Amortisation of goodwill Property revaluation and depreciation Leasehold property provisions Loan origination Pension costs Long-term assurance business...

  • Page 192
    ...market price of the ordinary shares during the relevant period. At 31 December 2003, there were 5.2 million such options outstanding (2002 - 3.8 million; 2001 - 0.6 million). Pensions On 1 April 2002, the Group's main pension schemes, The Royal Bank of Scotland Staff Pension Scheme and the National...

  • Page 193
    ...802 Annual Report and Accounts 2003 Notes on the accounts Components of net periodic pension cost: Service cost Interest cost Expected return on plan assets Amortisation of prior service cost Amortisation of loss/(gain) Amortisation of net transition asset Net periodic pension cost/(credit) 2003...

  • Page 194
    ... paid on non-equity shares Tax paid Purchase and sale of associated and subsidiary undertakings Purchase and sale of investment securities and fixed assets Net change in loans and advances, including finance lease receivables Net change in deposits Net change in debt securities in issue Short-term...

  • Page 195
    ...Employees of Group companies in the UK and Ireland and certain offshore jurisdictions are offered participation in the savings scheme. Participants can make monthly savings for a period of three, five or seven years. Options may be granted at not less than 80% of the average market value of ordinary...

  • Page 196
    ...group of companies principally from the UK financial services sector. The following table shows options outstanding by normal exercise date. An option life of 5 years, being the midpoint on the 10 year option, has been assumed for options granted under Group and former NatWest executive plans. 2003...

  • Page 197
    ... following assumptions: 2003 2002 2001 Risk free interest rate Volatility based on historical data Dividend yield Expected lives of options granted under: Employee savings scheme Executive scheme Option 2000 scheme 3.6% - 4.6% 29% 2.9% - 4.1% 3, 5 and 7 years 3 to 10 years 3 years 4.7% - 4.9% 43...

  • Page 198
    .... Net pre-tax gains are based on the difference between the sales prices and previous carrying values of assets prior to date of sale, are net of transaction specific expenses, and exclude any results attributable to hedging activities, interest income, funding costs, changes in asset values prior...

  • Page 199
    ... in commercial based retained interests. These retained interests primarily relate to mortgage loans and securities and arose from securitisations that have taken place in current and prior years. 197 Notes on the accounts Key economic assumptions used in measuring the value of retained interests...

  • Page 200
    ... of trust preferred securities and partnership preferred securities issued by the Group's subsidiaries. The deconsolidation of these securities has resulted in a balance sheet reclassification from minority interests to subordinated liabilities. The effect on US GAAP net income and equity is...

  • Page 201
    ... - product analysis Short term borrowings Certificates of deposit and other time deposits Exchange rates Off balance sheet arrangements Economic and monetary environment Supervision and regulation Description of property and equipment Major shareholders Material contracts 200 Additional information...

  • Page 202
    ... 200 Additional information Summary consolidated profit and loss account Year ended 31 December 2003 $m 2003 £m 2002 £m 2001 £m 2000 £m 3 months ended 31 December 1999 £m Year ended 30 September 1999 £m Amounts in accordance with UK GAAP: Net interest income Non-interest income Total income...

  • Page 203
    ...pence Interim Proposed final Total dividends on equity shares Notes: (1) Redeemed on 30 January 2003. 26.05 63.70 89.75 14.6 35.7 50.3 12.7 31.0 43.7 11.0 27.0 38.0 9.5 23.5 33.0 - - - 8.2 20.3 28.5 For further information, see Notes 6 and 7 on the accounts. Annual Report and Accounts 2003...

  • Page 204
    ...202 Additional information Amounts in accordance with UK GAAP: Loans and advances to banks (net of provisions) Loans and advances to customers (net of provisions) Debt securities and equity shares Intangible fixed assets Other assets Total assets Called up share capital Share premium account Other...

  • Page 205
    ... share - pence Dividend payout ratio Return on average total assets (3) Return on average equity shareholders' funds (4) Average shareholders' equity as a percentage of average total assets Ratio of earnings to combined fixed charges, preference share dividends and perpetual regulatory securities...

  • Page 206
    ... Finance Service industries and business activities Agriculture, forestry and fishing Property Individuals - home mortgages Individuals - other Finance leases and instalment credit Total domestic Overseas residents Total UK offices Overseas US Rest of the World Total overseas offices Loans...

  • Page 207
    ... of £7 million (2002 - £7 million; 2001 - £8 million; 2000 - £14 million). (2) Closing customer provisions exclude closing provisions against loans and advances to banks. Annual Report and Accounts 2003 Additional information Provisions at the beginning of the period Domestic Foreign 2,581...

  • Page 208
    ... Manufacturing Construction Finance Service industries and business activities Agriculture, forestry and fishing Property Individuals - home mortgages Individuals - other Finance leases and instalment credit Total domestic Foreign Specific provisions General provision Total provisions - 156...

  • Page 209
    ...54 Annual Report and Accounts 2003 Additional information Domestic Manufacturing Construction Finance Service industries and business activities Agriculture, forestry and fishing Property Individuals - home mortgages Individuals - others Finance leases and instalment credit Total domestic Foreign...

  • Page 210
    ... before deducting the value of security held or related provisions. 31 December 2003 £m 2002 £m 2001 £m 2000 £m 30 September 1999 £m 208 Additional information Loans accounted for on a non-accrual basis (3): Domestic Foreign Total Accruing loans which are contractually overdue 90 days or more...

  • Page 211
    ... - savings Time deposits - other Total UK offices Overseas Demand deposits - interest-free Demand deposits - interest-bearing Time deposits - savings Time deposits - other Total overseas offices (see below) Total deposits Banking business Trading business Total deposits Overseas US Rest of the World...

  • Page 212
    ...-day market distortions which may not be indicative of generally prevailing rates. Original maturities of commercial paper are not in excess of one year. 'Other short-term borrowings' consist principally of borrowings in the money markets included within 'Deposits by banks' and 'Customer accounts...

  • Page 213
    ... the Noon Buying Rate in New York for cable transfers in sterling as certified for customs' purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate"): US dollars per £1 Noon Buying Rate High Low January 2004 December 2003 November 2003 October 2003 September 2003 August 2003 1.8511...

  • Page 214
    ... conduits for customers. SPVs are also utilised in its fund management activities to structure investment funds to which the Group provides investment management services. Under UK GAAP , the Group accounts for securitisations of assets originated by the Group in accordance with FRS 5 'Reporting the...

  • Page 215
    ...of deposits by banks is given in Note 23 on the accounts, of customer accounts in Note 24, and of debt securities in issue in Note 25. Annual Report and Accounts 2003 Additional information Lending commitments and other commitments Under a loan commitment, the Group agrees to make funds available...

  • Page 216
    ...into and carrying out contracts of insurance; managing, dealing in or advising on, investments; accepting deposits; and issuing electronic money ("regulated activities"). The FSA has published detailed regulatory requirements contained in a Handbook of Rules and Guidance. 214 Additional information

  • Page 217
    ... The Royal Bank of Scotland plc, National Westminster Bank Plc, Coutts & Co, Ulster Bank Limited and Tesco Personal Finance Limited. General insurance business is principally undertaken by companies in the Direct Line and Churchill Insurance Groups, which form part of the RBS Insurance division...

  • Page 218
    ... of Business Rules currently require authorised firms in the Group such as the Royal Bank and NatWest to determine whether to market the "packaged products" (i.e. personal pensions, life assurance, collective investment schemes and investment trust savings schemes) of only one company or group, or...

  • Page 219
    ..., Edinburgh. A new corporate headquarters is being developed at Gogarburn, Edinburgh. Annual Report and Accounts 2003 Additional information The Competition Commission recommended a number of pricing and behavioural remedies following its inquiry into the UK market for small business banking. The...

  • Page 220
    ...31 December 2003. All shareholders within a class of the company's shares have the same voting rights. The company is not directly or indirectly owned or controlled by another corporation or any foreign government. At 18 February 2004, the directors of the company had options to purchase a total of...

  • Page 221
    ... Analyses of ordinary shareholders Trading market Memorandum and articles of association Taxation for US holders Exchange controls Documents on display Important addresses Principal offices 220 220 220 221 221 223 223 227 228 228 228 Shareholder information Contents Annual Report and Accounts 2003

  • Page 222
    ...adjusted 31 March 1982 base value of one ordinary share held currently is 46.1p. For shareholders who held NatWest ordinary shares at 31 March 1982, the market value of one ordinary share held was 85.16p for shareholders who accepted the basic terms of the RBS offer. This takes account of the August...

  • Page 223
    ... Deposit Agreements, among the company, The Bank of New York as depository, and all holders from time to time of ADRs issued thereunder. Currently, there is no non-United States trading market for any of the non-cumulative dollar preference shares. All of the non-cumulative dollar preference shares...

  • Page 224
    Shareholder information continued The following table shows the high and low sales prices for each of the outstanding ADSs, X-CAPs and PROs for the periods indicated, as reported on the NYSE composite tape: Figures in US$ By month January 2004 December 2003 Series D ADSs Series E ADSs Series F ADSs...

  • Page 225
    ..., dividends paid by the company with respect to the non-cumulative dollar preference shares (and any Tax Credit Amount Included) will generally constitute 'passive income' or, in the case of certain US Holders, 'financial services income'. Annual Report and Accounts 2003 Shareholder information...

  • Page 226
    ... tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as determined for US federal income tax purposes. Payments will not be eligible for the dividends received deduction allowed to corporations. For foreign tax credit limitation purposes, payments...

  • Page 227
    ...time in the relevant year of assessment or accounting period carries on a trade in the UK through a branch or agency to which the X-CAPs are attributable. Annual tax charges Corporate holders of X-CAPs may be subject to annual UK tax charges (or relief) by reference to fluctuations in exchange rates...

  • Page 228
    ... tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as determined for US federal income tax purposes. Payments will not be eligible for the dividends received deduction allowed to corporations. For foreign tax credit limitation purposes, payments...

  • Page 229
    ... the articles of association of the company or under UK law, as currently in effect, which limit the right of non-UK resident owners to hold or, when entitled to vote, freely to vote the company's non-cumulative dollar preference shares. 227 Shareholder information Annual Report and Accounts 2003

  • Page 230
    ... Website www.rbs.co.uk Principal offices The company 42 St Andrew Square Edinburgh EH2 2YE The Royal Bank of Scotland plc 42 St Andrew Square Edinburgh EH2 2YE 280 Bishopsgate London EC2M 4RB National Westminster Bank Plc 135 Bishopsgate London EC2M 3UR Citizens Citizens Financial Group, Inc. One...