RBS 2003 Annual Report Download - page 200

Notes on the accounts continued
198
Notes on the accounts
Variable interest entities
Special purpose entities (“SPEs”)
The Group has elected to apply the provisions of FIN 46R in its
2003 accounts. The Group reviewed its SPEs in light of FIN 46R
and has concluded that it is the primary beneficiary of a number
of commercial paper conduits and other asset securitisation
vehicles that meet FIN 46R’s definition of a variable interest
entity. These entities, with total assets of £6.9 billion at 31
December 2003, acquire financial assets from third parties or
from the Group funded by the issue of commercial paper or
other debt instruments. The Group supplies certain administrative
services and provides credit enhancement, liquidity facilities
and derivative transactions to some or all of these entities on
an arm’s length basis. In the case of commercial paper conduits,
the Group provides programme-wide credit enhancement by
letters of credit or loan facilities across all tranches of assets
funded by conduits.
Trust preferred securities
The trust preferred securities referred to in Note 32 (3) and (4)
on page 167, represent undivided beneficial interests in the
assets of trusts, which consist of partnership preferred securities
representing non-cumulative perpetual preferred limited
partnership interests issued by Delaware limited partnerships.
The Group has provided subordinated guarantees for the
benefit of the holders of the trust preferred securities and the
partnership preferred securities. Under the terms of the
guarantees, the Group has fully and unconditionally guaranteed
on a subordinated basis, payments on such trust preferred
securities and partnership preferred securities, to the extent
they are due to be paid and have not been paid by, or on behalf
of the trusts and the partnerships, as the case may be:
•any due and payable distributions on the trust preferred
securities or partnership preferred securities
•the redemption price required to be paid for each trust
preferred security or partnership preferred security called
for redemption; and
•upon a dissolution, winding up or liquidation of the trust or
partnership, any amounts due in respect of the trust
preferred securities or partnership preferred securities,
through to the date of payment.
The application of FIN 46 (and FIN 46R) has resulted in the
deconsolidation 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
negligible.
54 Post balance sheet events
53 Significant differences between UK and US
generally accepted accounting principles (continued) There have been no significant events between the year end
and the date of approval of these accounts which would
require a change to our disclosures in the accounts.