RBS 2004 Annual Report Download

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Make it happen
www.rbs.com
Annual Report and Accounts 2004
Profit before
tax up
14%
Total
income up
18%
Adjusted
earnings per
share up
10%
Dividend up
15%

Table of contents

  • Page 1
    Annual Report and Accounts 2004 Profit before tax up 14% Total income up 18% Adjusted earnings per share up 10% Dividend up 15% www.rbs.com Make it happen

  • Page 2
    ... by deposits. In insurance, the acquisition of Churchill broadened the product and distribution channel capabilities of Direct Line and created the second largest general insurer in the UK. In corporate banking, RBS has entered the US, Continental European and Asia Pacific markets. Make it happen

  • Page 3
    ... 04 Additional information 221 Section 05 Shareholder information Divisional review 14 Corporate Banking and Financial Markets 20 Retail Banking 26 Retail Direct 32 Manufacturing 36 Wealth Management 38 RBS Insurance 42 Ulster Bank 44 Citizens Annual Report and Accounts 2004 Report and accounts...

  • Page 4
    ... costs up 15% Profit before tax up 14% Final dividend of 41.2p giving a total for the year of 58.0p per share, up 15% Total shareholder return close to 100% over the last five years 02 Financial highlights Income (£m) Adjusted cost:income ratio (%) Profit before tax, goodwill amortisation and...

  • Page 5
    .... The number of people we employ and the number of customers buying banking products and financial services from the Group are growing in the UK and internationally. We now employ 137,000 people worldwide (on a full time equivalent basis). Dividend per ordinary share (pence) Market capitalisation...

  • Page 6
    ... makes a total for the year of 58.0p per share, an increase of 15%. The total amount payable to shareholders in the form of ordinary dividends for 2004 is £1,837 million. Staff profit sharing Due to the strong financial performance of the Group, we have again set the staff profit share for the year...

  • Page 7
    05 Annual Review and Summary Financial Statement 2004 Group review

  • Page 8
    Group Chief Executive's review 06 Group Chief Executive's review

  • Page 9
    ... benefits. Our customers We aim to deliver value for our customers. Our success in achieving this in 2004 is shown by increased customer numbers in each of our divisions, as well as by positive surveys of customer satisfaction. In Retail Banking for NatWest, the option to call branches direct...

  • Page 10
    ...Pacific. 08 8 Group profile United Kingdom US CBFM Retail Banking Retail Direct Manufacturing Wealth Management RBS Insurance Ulster Bank CBFM Retail Direct Citizens 2004 2004 Income (£bn) Operating profit (£bn) Loans to customers (£bn) Deposits by customers (£bn) Employees 17.5 5.6 233...

  • Page 11
    ... Direct Manufacturing Wealth Management RBS Insurance Ulster Bank CBFM Wealth Management 2004 2004 Income (£bn) Operating profit (£bn) Loans to customers (£bn) Deposits by customers (£bn) Employees 1.6 0.7 36 15 7,000 Income (£bn) Operating profit (£bn) Loans to customers (£bn) Deposits...

  • Page 12
    ...insurance, life assurance and pension products through branches, direct banking and the internet. It is the leading bank for students and for small business customers. During 2004 Retail Banking continued to expand its customer base and grow its loan portfolio, particularly in mortgages and deposits...

  • Page 13
    ... Chief Executive Mark Fisher Geography UK and Europe Retail Direct has leading positions in the UK in credit card issuing, merchant acquiring, consumer finance and supermarket banking. It offers a comprehensive range of credit and charge cards through The Royal Bank of Scotland, NatWest...

  • Page 14
    ... investment management, financial planning and trust and fiduciary services. The offshore banking business offers retail banking services to local and expatriate customers and corporate banking and treasury services to corporate, intermediary and institutional clients. Market data Premier UK private...

  • Page 15
    ... Citizens offers personal banking, residential mortgages and home equity loans, and a wide variety of commercial banking services, through its growing network of city centre, local and supermarket branches. Market data Eighth largest commercial banking organisation in the US ranked by deposits Third...

  • Page 16
    ... million) Total income up 12% Profit up 18% 14 Corporate Banking & Financial Markets BellSouth. Enabling new leadership in the US wireless industry: in 2004 RBS Greenwich Capital provided BellSouth, a Fortune 100 communications services company, with financing advice for Cingular's acquisition of...

  • Page 17
    ... trading, futures brokerage, foreign exchange, money markets, currency derivative and rate risk management services. Operating through three principal businesses - Core Corporate Bank, Structured Finance and Financial Markets - CBFM focuses on addressing client needs in two broad groupings: banking...

  • Page 18
    ... DAX 30 companies. 16 Corporate Banking & Financial Markets Transmanche Ferries. Transmanche Ferries operates cross-channel ferries between the Seine Maritime region of France and the south coast of England, carrying both trade and tourists. Our Corporate Banking team in Paris joined forces with...

  • Page 19
    ... markets in Asia Pacific as well as growing the business in Australia where we now offer a wide range of products to both corporate and institutional customers. In 2004 we opened branches in Australia and Shanghai and gained approval for new offices in Korea and Labuan, Malaysia. Structured Finance...

  • Page 20
    ... services to UK businesses with a current market share of 33%. 18 Corporate Banking & Financial Markets Shire Foods Shire Foods, creators of "Football's Famous Chicken Balti Pies", now supply over 60 football clubs. Commercial Banking provided £3.7 million of property and leasing finance for a new...

  • Page 21
    ... Lead Manager, we provided Lloyd's of London with a debut subordinated issue, the first time Lloyd's have raised funds in the bond market in their 300+ year history. The strength of our UK/German links was demonstrated when RBS was awarded the biggest banking tender in the UK corporate marketplace...

  • Page 22
    ...) Total income up 6% Profit up 3% 20 Retail Banking Student Banking. Access to cheap train travel is high on the priority list for many students across the UK. So offering a free Young Persons Railcard giving 30% off most rail fares for 5 years has proved a popular addition to NatWest's student...

  • Page 23
    ... mortgage balances increased by 21%, personal loans by 14% and small business loans by 13%. Average customer deposits grew by 8%. Customer service We continue to provide our customers with a choice of ways to contact us, including telephoning the branches direct. Royal Bank of Scotland is rated...

  • Page 24
    Retail Banking continued Retail Banking provides a wide range of financial products and services to both the personal and small business markets through a combination of its branches, telephone banking, the internet and its network of ATMs. 22 Retail Banking Current Bank Account. James Walker, a ...

  • Page 25
    ...new Offset Banking Service allows both NatWest and Royal Bank of Scotland customers to set their current and savings account balances against a mortgage. This saves interest and shortens the life of the mortgage. Unlike other banks, we offer the Offset Service to small businesses as well as personal...

  • Page 26
    ... his local branch of The Royal Bank of Scotland has provided James Sheriff with the financial flexibility he needed to realise his dream of flying. Business Customer SJ Solicitors in Ilford is a NatWest business banking customer. Our flexible business loan offers them a range of payment options and...

  • Page 27
    ...NatWest - Best Direct Mortgage Provider (for the fifth time) - Best Direct Business Banking Provider Royal Bank of Scotland - Best Direct Banking Provider (our fourth consecutive win) - Best Online Business Banking Provider Your Money Direct Awards Annual Review and Summary Financial Statement 2004...

  • Page 28
    ... player through Streamline, RBS now has access to the world's largest credit card market and the opportunity to offer state of the art technology to its business customers in Citizens, Charter One and RBS Corporate Banking. The City of Boston is both a Citizens and Lynk customer. Make it happen

  • Page 29
    ... card business of People's Bank. Personal loan balances grew by 17% and mortgage lending by 16%. Cards business Our credit card issuing businesses combine to make one of the largest in the UK. In merchant acquiring, RBS is number one in the UK, and ranks fourth globally. During 2004 Retail Direct...

  • Page 30
    ... channels. 28 Retail Direct TPF - Life Insurance. Tesco Personal Finance is the most successful supermarket bank in the UK with close to 5 million customers. Our award-winning Life Insurance product provides the security and peace of mind that family and loved ones are protected. Make it happen

  • Page 31
    ... personal loan balances. Primeline, our direct banking business, increased its customers by 8% through new affiliate relationships with partners such as BA Executive Club. Tesco Personal Finance launched an innovative new 'Instant' Life Insurance package, to augment the range of instant products...

  • Page 32
    ... continued We have continued to seek new opportunities to build Retail Direct's business through organic growth, strategic acquisitions and new partnerships in the UK, US and Europe. 30 Tchibo We have expanded our distribution capability in Europe through our partnership with Tchibo, which has...

  • Page 33
    ... United States. Credit cards and merchant acquiring services will be offered to the business customers of Citizens, Charter One, and RBS Corporate Banking. The One account - Bank Lender of the Year 2004 - Offset Mortgage Lender of the Year Financial Adviser Awards The One account - Best Lifestyle...

  • Page 34
    ... the re-development of a substantial brownfield site. The Group employs around 5,000 people in Manchester and has consolidated a number of its major businesses here on one campus. A similar strategy has been implemented in London and Birmingham, and Edinburgh will follow in 2005. Make it happen

  • Page 35
    ...in 2003. Royal Bank of Scotland and NatWest customers can telephone their branch or use our automated service. They can speak to our UK based call centre staff 24 hours a day, 365 days a year. Annual Review and Summary Financial Statement 2004 Divisional review During 2004 Manufacturing supported...

  • Page 36
    ...on behalf of the Group every day. Manufacturing Manufacturing Image and Workflow Our new Image and Workflow system captures customer letters and turns them into electronic images, which can be processed efficiently by service centre staff. Mail Handling and Logistics During 2004 we transformed our...

  • Page 37
    ... of the Year Scottish Property Awards Best Direct Banking Provider Your Money Magazine (fourth year running) Best use of Contact Centres Financial Sector Technology Best use of IT in Retail Banking (for ATM mobile phone top-up project) European Banking Technology Awards Annual Review and Summary...

  • Page 38
    ...million) Total income up 17% Profit up 16% 36 Wealth Management Ozwald Boateng. The name Ozwald Boateng is synonymous with the finest of Saville Row tailoring. During 2004, Coutts launched a new super premium charge card, designed by Ozwald Boateng. Cardholders benefit from a concierge service and...

  • Page 39
    ... UK bank for wealthy sports players - Best for super affluent Euromoney Best use of long-only multi manager structures Private Asset Managers Awarded Cool Brand Leaders status The Superbrands organisation Customer Contact Centre of the Year Finalist National Customer Service Awards Annual Review...

  • Page 40
    ...) Total income up 52% Profit up 42% 38 RBS Insurance RBS Insurance Field Team. RBS Insurance has field teams based all over the country, visiting homes to assess damage and authorise claims to proceed, so our customers can return their lives to normal just as quickly as possible. Make it happen

  • Page 41
    .... The new company, RBS Insurance Brokers, provides commercial insurance for small business customers of Retail Banking. NIG is the broker channel specialist within RBS Insurance, offering personal and commercial insurance through a large number of UK insurance brokers. Annual Review and Summary...

  • Page 42
    ... UK's biggest and best known brands offering customers more choice and better products. 40 RBS Insurance Churchill Pet Insurance ...times an hour. Motor Repair Centres Our network of motor repair centres, with teams of specialists to assess damage and complete repairs, ensure that our customers...

  • Page 43
    ... continued to build on its position as a leading wholesale provider by adding to its impressive list of clients, and underlined its ability to work alongside high-profile brands. Awards Direct Line - Best Car Insurer Personal Finance Magazine Devitt - Product of the Year (Services) Motorcycle News...

  • Page 44
    ...% Profit up 32% 42 Ulster Bank New Branch. Our â,¬887 million acquisition of First Active was completed in January 2004, consolidating our position as one of the top 3 providers of financial services across Ireland. First Active plc is a niche provider of mortgage and investment products offering...

  • Page 45
    ...2004. Ulster Bank launched U First Gold, a premium current account with a range of financial and lifestyle benefits, and an award-winning switcher mortgage service. First Active launched tracker mortgages and 100% mortgages for professionals. Ulster Bank has worked closely with Manufacturing to plan...

  • Page 46
    ...Total income up 31% to US$3,923 million Profit up 36% to US$1,900 million 44 Citizens Charter One. In 2004 Citizens Financial Group acquired Charter...Citizens Financial Group, with US$131 billion in assets, became the 8th largest commercial banking organisation in the US by deposits. Make it happen

  • Page 47
    ... Manayunk Bank strengthened Citizens' position in Greater Philadelphia. Citizens processed almost 1.1 million credit applications and closed US$20 billion of new consumer loans during 2004. Citizens is now a leading home equity lender and bank auto lender in the United States. Annual Review and...

  • Page 48
    ... among US commercial banking organisations. Citizens now ranks seventh in the US in the number of branches and ninth in ATMs. 46 Citizens Phillies. We've become a big player in Philadelphia following the successful acquisition of the Mellon regional banking franchise. The Phillies new Major League...

  • Page 49
    ... with additional services and expertise sourced from RBS Corporate Banking and Financial Markets. Services include interest rate protection, foreign exchange, cash management, asset finance and administration. Citizens' new web-based cash management information reporting system, Money Manager GPS...

  • Page 50
    ... England, the Citizens Jobs Bank and the Citizens Housing Bank, are helping create new jobs and affordable housing within the company's footprint. 48 New Branches Charter One has an extensive program of opening new branches to extend its market reach and provide additional customer convenience and...

  • Page 51
    ... was also named "best" in the large company category. Pittsburgh Business Times Citizens Bank - first Corporate Citizen Award The Organization for a New Equality, Boston Annual Review and Summary Financial Statement 2004 Divisional review Citizens Bank Park, the new home of Major League Baseball...

  • Page 52
    ... average for the sector. 50 Corporate Responsibility Money Advice Trust. The RBS Group has given £1.8 million over three years to the Money Advice Trust to promote and improve free, confidential and impartial money advice. The charity offers a structured approach to managing personal debt, so...

  • Page 53
    ... their business practice. We respect the need to assure our key stakeholders that an organisation of the scale and complexity of the RBS Group is managed with integrity and consistency. Our first Corporate Responsibility Report is available from http://www.rbs.com/crreports Supporting international...

  • Page 54
    ... Corporate Responsibility £1m Donation The RBS Group donated £1 million at Christmas to the top ten charities selected by our employees. Community Cashback Awards This scheme supports employees who give their time and skills to help local community projects. In 2004, 5,518 employees participated...

  • Page 55
    ... are three principal elements to the Group's Community Investment Programme: Education, Employment & Enterprise, and Employee Giving. The Programme focuses on helping excluded young people and communities realise their Annual Review and Summary Financial Statement 2004 Corporate Responsibility

  • Page 56
    54 Operating and financial review

  • Page 57
    ... 67 Summary consolidated profit and loss account 71 Analysis of results 79 Divisional performance 92 Consolidated balance sheet 94 Cash flow 95 UK GAAP compared with US GAAP 95 Capital resources 96 Risk management 55 section 01 Operating and financial review Annual Report and Accounts 2004

  • Page 58
    Presentation of information In the Report and Accounts, and unless specified otherwise, the term 'company' means The Royal Bank of Scotland Group plc, 'RBS' or the 'Group' means the company and its subsidiary undertakings, 'the Royal Bank' means The Royal Bank of Scotland plc and 'NatWest' means ...

  • Page 59
    ...' and 'Group Chief Executive's review'. In particular, this document includes forward-looking statements relating, but not limited, to the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk. Such...

  • Page 60
    ...to access services through a full range of channels: branches, ATMs, the internet and the telephone. Retail Direct consists of the Group's non-branch based retail businesses. Retail Direct issues a comprehensive range of credit, charge and debit cards to personal and corporate customers and provides...

  • Page 61
    ... physical distribution channels, providers compete 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 and Adam...

  • Page 62
    .... Changes in currency rates, particularly in the sterling-dollar and sterling-euro exchange rates, affect the value of assets and liabilities denominated in foreign currencies and affect earnings reported by the Group's nonUK subsidiaries, mainly Citizens, RBS Greenwich Capital and Ulster Bank, and...

  • Page 63
    ... of set-off. Gains or losses arising from changes in fair value are included in Dealing profits in the profit and loss account. section 61 Operating and financial review Annual Report and Accounts 2004 Operating and financial review Fair value is the value at which a position could be closed out...

  • Page 64
    ... techniques or management estimates. The Group's derivative products include swaps, forwards, futures and options. Exchange traded instruments are valued using quoted prices. The fair value of over-the-counter instruments is derived from pricing models which take account of contract terms, including...

  • Page 65
    ... share schemes' which are applicable for the year ended 31 December 2004 did not have a material effect on the Group. The Accounting Standards Board issued FRS 27 'Life Assurance' which introduces a new 'realistic' method of measuring life assurance liabilities and related assets. The present value...

  • Page 66
    ... rate of return on the net investment in the lease. This means that under UK GAAP tax cash flows are taken into account in allocating income but they are not under IFRS. Transition - IFRS 1 'First-time Adoption of International Financial Reporting Standards' (IFRS 1) will apply to the Group's 2005...

  • Page 67
    ...by IAS 39. • Share-based payment transactions - IFRS 2 'Share-based Payment' must be applied to equity instruments granted on or after 7 November 2002 that had not vested before the later of the transition date and 1 January 2005. 01 Operating and financial review Annual Report and Accounts 2004

  • Page 68
    ... Profit before tax Profit attributable to ordinary 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) 2004 £m 2003* £m 2002* £m 66 Operating and financial review...

  • Page 69
    ... and loss account on page 143, these items are included in the captions prescribed by the Companies Act. 2004 £m 2003* £m 2002* £m Net interest income Dividend income Fees and commissions receivable Fees and commissions payable Dealing profits Other operating income General insurance net premium...

  • Page 70
    ... on the year's results. These included: In January 2004, Ulster Bank completed the acquisition of First Active plc, for a cash consideration of â,¬887 million. In March 2004, RBS completed the purchase of the credit card business of People's Bank in the US. In August 2004, Citizens completed the...

  • Page 71
    .... General insurance premium income grew strongly, reflecting volume growth in both motor 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...

  • Page 72
    ... that it had agreed terms with People's Bank of Connecticut to purchase their credit card portfolio. This transaction was completed on 5 March 2004. Disposals In May 2003, RBS announced the sale of the Miami-based Latin American private banking operations of Coutts Group to Santander Central Hispano...

  • Page 73
    ... 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 of the banking business. (2) Interest...

  • Page 74
    ... 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 75
    ... - 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 76
    ...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 of the banking business UK Overseas Movement in net interest income...

  • Page 77
    ... greater volumes of trading and structuring business and fees paid in Retail Direct in support of higher volumes. Commissions payable to brokers and intermediaries in the general insurance business were up reflecting the acquisition of Churchill in September 2003. Dealing profits at £1,988 million...

  • Page 78
    ...to 120,900. Acquisitions in the year added 9,700 staff of which 8,500 related to Churchill. Premises and equipment expenses increased by £163 million, 19% to £1,042 million reflecting the continuing upgrade of the property portfolio in major UK centres to support the core business. The increase in...

  • Page 79
    ... Citizens' acquisitions and £23 million in respect of other acquisitions. Accruals in relation to integration costs are set out below. At 31 December 2003 £m Currency translation adjustments £m Charge to profit and loss account £m Utilised during the year £m At 31 December 2004 £m Staff...

  • Page 80
    ...to total risk elements in lending and potential problem loans increased to 68% compared with 65% at 31 December 2002. Taxation 2004 £m 2003* £m 2002* £m Tax on profit on ordinary activities 2,155 % 30.0 31.2 1,888 % 30.0 31.1 1,582 % 30.0 32.6 UK corporation tax rate Effective tax rate The...

  • Page 81
    ... reviewed on pages 80 to 91. Annual Report and Accounts 2004 Operating and financial review Operating and financial review section Corporate Banking and Financial Markets Retail Banking* Retail Direct* Manufacturing* Wealth Management* RBS Insurance* Ulster Bank* Citizens Central items** Profit...

  • Page 82
    ... million due to the greater volumes of trading and structuring business. Dealing profits, which is income (before associated direct costs) arising from our role in providing customers with debt and risk management products in interest rate, currency and credit asset classes, rose by 12% to £1,855...

  • Page 83
    ...220 million due to higher volumes in Financial Markets. Dealing profits which is income (before associated direct costs) arising from our role in providing customers with debt and risk management products in interest rate, currency and credit asset classes, rose by 24% to £1,661 million providing...

  • Page 84
    ... Provisions Contribution Total banking assets Loans and advances to customers - gross - mortgages - small business - consumer lending Customer deposits Weighted risk assets * prior periods have been restated to reflect the transfer in 2004 of certain activities from Wealth Management. 74.2 44...

  • Page 85
    ... with 2002 The division achieved strong volume growth across all personal product areas - current accounts, mortgages and loans and savings. Despite lower interest rates and the adverse effect of the pricing remedies agreed following the Competition Commission inquiry into SME banking which were...

  • Page 86
    ... and while the 0% introductory interest rate for nine months on MINT cards depressed net interest margin, over 711,000 MINT credit cards have been issued and attracted significant balances. During 2004, the total number of customer accounts increased by 2.3 million. Non-interest income was up 21% or...

  • Page 87
    ..., Payments and Security. In telephony, the Royal Bank of Scotland customer service proposition was introduced to NatWest customers who can now choose between speaking to their local branch, to a customer service officer or using the automated telephone service. Annual Report and Accounts 2004...

  • Page 88
    ... management assets increased by £6.2 billion or 39% to £22.3 billion principally due to the acquisition of Bank von Ernst in the year. Expenses were down by 6% or £27 million to £398 million reflecting tight cost control in difficult market conditions and the 7% reduction in staff numbers...

  • Page 89
    RBS Insurance 2004 £m 2003* £m 2002* £m Earned premiums Reinsurers' share Insurance premium income Net fees and commissions Other income Total income Expenses - staff costs - other Gross claims Reinsurers' share Net claims Contribution In-force policies (000's) - Motor: UK - Motor: Continental ...

  • Page 90
    ... Contribution Total assets Loans and advances to customers - gross - mortgages - other Customer deposits Weighted risk assets Average exchange rate - â,¬/£ Spot exchange rate - â,¬/£ * prior periods have been restated to reflect the transfer in 2004 of certain activities to Manufacturing...

  • Page 91
    ... its personal customer base by 376,000 accounts and its business customers by 36,000 due to growth through both traditional and supermarket branches, and the acquisition of Commonwealth Bancorp, Inc., Port Financial Corp. and Community Bancorp, Inc. 01 Operating and financial review Annual Report...

  • Page 92
    ... reflecting the funding of the various acquisitions undertaken by the Group during the year. Changes in net pension costs on the adoption of FRS 17 are reported in Central items. These comprise higher pension cost of £81 million partially offset by the expected return on pension scheme assets less...

  • Page 93
    .... Annual Report and Accounts 2004 Operating and financial review Operating and financial review section Corporate Banking and Financial Markets Retail Banking* Retail Direct Manufacturing* Wealth Management* RBS Insurance* Ulster Bank* Citizens Centre Group total Acquisitions in the year...

  • Page 94
    ... Settlement balances Other assets Prepayments and accrued income Long-term assurance assets attributable to policyholders Total assets Liabilities Deposits by banks Items in the course of transmission to other banks Customer accounts Debt securities in issue Settlement balances and short positions...

  • Page 95
    ... divisions and £23.4 billion arising from acquisitions, principally Charter One, £18.0 billion, First Active, £4.1 billion, and the People's Bank credit card business, £1.0 billion. In $ terms, Citizens grew US$39.5 billion, 92%, including US$32.7 billion related to acquisitions. Debt securities...

  • Page 96
    ... 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 97
    ...: 2004 £m 2003 £m 2002 £m 2001 £m 2000 £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 98
    ... of risk management within each division. • Group Audit Committee - is a non-executive committee that 96 Operating and financial review supports the Board in carrying out its responsibilities for financial reporting including accounting policies, and in respect of internal control and risk...

  • Page 99
    .... • Financial Markets counterparties are approved by a dedicated credit function which specialises in the traded market product risk. GRM and the GEMC review the reports on the Group's portfolio of credit risks on a monthly basis. 01 Operating and financial review Annual Report and Accounts 2004

  • Page 100
    ... repo activity. Including banks, total loans and advances at 31 December 2004 was £407,957 million (2003 - £308,351 million), an increase of 32%. Loans and advances - gross Loans and advances to customers by division - gross CBFM Retail Banking Retail Direct Wealth Management Ulster Bank Citizens...

  • Page 101
    ... small loans that are intrinsically highly diversified. Annual Report and Accounts 2004 Operating and financial review Operating and financial review section Loans and advances to customers by industry Central and local government Finance Individuals - home mortgages - other Other commercial and...

  • Page 102
    ... conducted through the offices in the UK which service international banking transactions. l Cross border exposures Cross border exposures are defined as loans to banks and customers (including finance lease and instalment credit receivables) and other monetary assets, including non-local...

  • Page 103
    .... Early and proactive management of problem exposures ensures that credit losses are minimised. Specialised units are used for different customer types to ensure that the appropriate risk mitigation is taken in a timely manner. 01 Operating and financial review Annual Report and Accounts 2004

  • Page 104
    ... reflects the financial condition of the borrower, the realisable value of security and the costs of recovery. Provision charge Charge to profit and loss account for bad and doubtful debts Charge as a percentage of average loans and advances to customers 2004 £m 2003 £m 2002 £m 1,428...

  • Page 105
    ...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 2004 Operating and financial review Industry: Finance Individuals - other Other commercial and industrial...

  • Page 106
    .... Detailed liquidity position reports are compiled each day by Group Treasury and 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...

  • Page 107
    ... term funds through its Euro and US Medium Term Note programmes and other term issues. The Group remains well placed to access various wholesale funding sources from a wide range of counterparties and markets, and the changing mix evident between customer repos, deposits by banks and debt securities...

  • Page 108
    ... net customer lending further and increasing gradually over time the Group's dependence on the wholesale market for funding. The Group has evaluated a range of balance sheet management strategies to address the consequent impact on its liquidity risk position and has developed and implemented plans...

  • Page 109
    ... 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. 01 Operating and financial review Annual Report and Accounts 2004

  • Page 110
    ... products to the Group's client base at competitive prices. The Group also undertakes: market making - quoting firm bid (buy) and offer (sell) prices with the intention of profiting from the spread between the quotes; arbitrage - entering into offsetting positions in different but closely related...

  • Page 111
    .... Net interest income exposures are measured and controlled in terms of sensitivity over time to movements in interest rates. Treasury The Group's treasury activities include its money market business and the management of internal funds flow within the Group's businesses. Money market portfolios...

  • Page 112
    ...in Citizens and asset growth in home equity loans and mortgage backed securities both organically and through acquisition. VaR, like all interest rate risk measures, has its limitations when applied to retail banking books and the management of Citizens' interest rate exposures involves a number of...

  • Page 113
    ... undertakings and their related currency funding. The Group's policy in relation to structural positions is to match fund the structural foreign currency exposure arising from net asset value, including goodwill, in overseas subsidiaries, equity accounted investments and l branches, except where...

  • Page 114
    ... insurer for the payment of a sum on the occurrence of an insured event. The management of insurance risk is overseen by a Pricing Committee that meets weekly to review underwriting factors, e.g. car groups, terms and conditions, claims experience. This is supplemented by a range of system controls...

  • Page 115
    Governance Contents 114 Board of directors and secretary 116 Report of the directors 120 Corporate governance 124 Directors' remuneration report 134 Directors' interests in shares 135 Statement of directors' responsibilities 113 section 02 Governance Annual Report and Accounts 2004

  • Page 116
    Board of directors and secretary 114 Board of directors and secretary Sir George Mathewson Sir Fred Goodwin Sir Angus Grossart Lord Vallance of Tummel Lawrence Fish Fred Watt Gordon Pell Archie Hunter Joe MacHale ...

  • Page 117
    ... director Annual Report and Accounts 2004 Governance Board of directors and secretary section Far East. He has considerable international investment banking experience, as well as experience in very large risk management in the equities business. He was formerly a member of the group management...

  • Page 118
    ...256 million (after preference dividends of £256 million) compared with £2,254 million for the year ended 31 December 2003, as set out in the consolidated profit and loss account on page 143. An interim dividend of 16.8p per ordinary share was paid on 8 October 2004 totalling £529 million (2003...

  • Page 119
    ... the Times Top 100 Graduate employers table. Annual Report and Accounts 2004 Governance Report of the directors section Ordinary shares: Cater Allen International Legal & General Group plc Barclays PLC The Capital Group of Companies, Inc 11% cumulative preference shares: Guardian Royal Exchange...

  • Page 120
    ...profit sharing that is directly related to the annual performance of the Group. For the last six years this has amounted to a further 10 percent of basic salary. The Group provides pension plan membership for most employees in the UK and overseas. The largest plan is The Royal Bank of Scotland Group...

  • Page 121
    ... company's auditor will be proposed at the forthcoming annual general meeting. 119 Report of the directors section By order of the Board. Miller McLean Secretary 23 February 2005 The Royal Bank of Scotland Group plc is registered in Scotland No. 45551. 02 Governance Annual Report and Accounts...

  • Page 122
    ... schedule of matters detailing key aspects of the company's affairs reserved to it for its decision. This schedule is reviewed annually. The roles of the Chairman and Group Chief Executive are distinct and separate, with a clear division of responsibilities. The Chairman leads the Board and ensures...

  • Page 123
    ...there will be an external review of Group Internal Audit every three years with internal reviews continuing in the intervening years. Annual Report and Accounts 2004 Governance Corporate governance section The Board is satisfied that the Audit Committee members have recent and relevant financial...

  • Page 124
    ... new directors to the Board. The appointments are based on merit and against objective criteria including the time available, and commitment which will be required of, the potential director. In addition, the Nominations Committee considers succession planning for the Chairman, Group Chief Executive...

  • Page 125
    ...an analysis of share price movements, the Group's performance against the sector, and key broker comments. In addition, information on major investor relations activities and changes to external ratings are provided. In 2004, the senior independent director attended the analysts' presentation at the...

  • Page 126
    ... account of the remuneration environment and the performance and responsibilities of the individual director. Benefits UK-based executive directors are eligible to participate in The Royal Bank of Scotland Group Pension Fund ('the RBS Fund'). The RBS Fund is a non-contributory defined benefit fund...

  • Page 127
    .... Each executive director is eligible for an annual award under the plan in the form of share or share equivalent awards. Whilst the rules of the plan allow grants of awards of up to one and a half times earnings, the Remuneration Committee has adopted a policy of granting awards based on a multiple...

  • Page 128
    ... of Growth in Profit before Tax and Relative Return on Equity based on a comparison of Citizens with comparator US banks. The targets for this plan will be set on an annual basis over the three year term of the grant. In the event that the proposed new Citizens Long Term Incentive Plan is not...

  • Page 129
    ... 100 have been rebased to 100 for 1999. Total shareholder return 127 Directors' remuneration report Service contracts The company's policy in relation to the duration of contracts with directors is that executive directors' contracts generally continue until termination by either party, subject to...

  • Page 130
    ...Scotland plc 22 May 2002 National Westminster Bank Plc 28 September 2000 The Royal Bank of Scotland plc 18 February 2004 Citizens Financial Group, Inc. 60 60 60 60 65 12 months 3 months 12 months 12 months 12 months 6 months 3 months 6 months 6 months 12 months 128 Directors' remuneration report...

  • Page 131
    ... will terminate at the company's annual general meeting on 20 April 2005, unless terminated earlier by either party on one month's written notice. The tables and explanatory notes on pages 130 to 133 report the remuneration of each director for the year ended 31 December 2004 and have been audited...

  • Page 132
    ... of three years following the acquisition by Citizens of Charter One Financial, Inc. For these services Mr Koch receives $402,500 per annum. No director received any expense allowances chargeable to UK income tax or compensation for loss of office/termination payment. The non-executive directors did...

  • Page 133
    ... Group Board on 23 August 2004. The figures quoted above are as at cessation. Subsequently, Mr McLuskie exercised his Sharesave 2001 grant of 335 options, and has since been granted a Sharesave award in 2004 of 439 options. Annual Report and Accounts 2004 Governance Directors' remuneration report...

  • Page 134
    ...December 2004, awards made using new issue shares under the company's share plans represented 4.3% of the company's issued ordinary share capital, leaving an available dilution headroom of 5.7%. 132 Directors' remuneration report Value of interests vested £ Awards exercised in 2004 Market price...

  • Page 135
    ... paid or payable to the individual director. Instead they represent a potential liability of the company /pension scheme. (5) The transfer value for Mr Fish as at 31 December 2004 is based on a retirement age of 65. Contributions and allowances paid in the year ended 31 December 2004 under defined...

  • Page 136
    ...). No other director 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...

  • Page 137
    ... are also responsible for safeguarding the assets of the company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By order of the Board. Miller McLean Secretary 23 February 2005 02 Governance Annual Report and Accounts 2004

  • Page 138
    136

  • Page 139
    ... 145 Statement of consolidated total recognised gains and losses 145 Reconciliation of movements in consolidated shareholders' funds 146 Consolidated cash flow statement 147 Balance sheet - the company 148 Notes on the accounts 137 section 03 Financial statements Annual Report and Accounts 2004

  • Page 140
    ... 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 2004 which comprise the accounting policies, the profit and loss...

  • Page 141
    ...benefits for active employees and the amortisation of the surplus recognised on the acquisition of NatWest offset by a credit for the amortisation of the scheme surplus. A pension prepayment was included in the Group's balance sheet. The effect of this change of policy on the profit and loss account...

  • Page 142
    ... the form of pensions and healthcare plans, to eligible employees. Defined benefit scheme liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate that equals the current rate of return on a high quality corporate bond of equivalent term and currency to...

  • Page 143
    ... are valued on the following bases: equity shares and debt securities at market price; investment properties and loans at valuation. These assets are held in the life funds of the Group's life assurance companies, and although legally owned by them, the Group only benefits from these assets when...

  • Page 144
    ... 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 145
    Consolidated profit and loss account for the year ended 31 December 2004 Note 2004 £m 2003* £m 2002* £m General insurance - earned premiums - reinsurance Non-interest income Total income Administrative expenses - staff costs** - premises and equipment** - other** Depreciation and amortisation - ...

  • Page 146
    ... Settlement balances Other assets Prepayments and accrued income Long-term assurance assets attributable to policyholders Total assets Liabilities Deposits by banks Items in the course of transmission to other banks Customer accounts Debt securities in issue Settlement balances and short positions...

  • Page 147
    ...ordinary shareholders Ordinary dividends Retained profit for the year Issue of ordinary and preference shares Conversion of exchangeable undated loan capital Redemption of preference shares Actuarial (losses)/gains recognised in post-retirement benefit schemes Own shares held in relation to employee...

  • Page 148
    ... 2002 £m Note 146 Consolidated cash flow statement Net cash inflow from operating activities Dividends received from associated undertakings Returns on investments and servicing of finance Preference dividends paid Additional Value Shares dividend paid Dividends paid to minority shareholders in...

  • Page 149
    ... were approved by the Board of directors on 23 February 2005 and signed on its behalf by: section Annual Report and Accounts 2004 Financial statements Sir George Mathewson Chairman Sir Fred Goodwin Group Chief Executive Fred Watt Group Finance Director Balance sheet - the company 458 174 632...

  • Page 150
    ... whose assets are independent of the Group's finances. In addition to the main scheme, The Royal Bank of Scotland Group Pension Fund, the Group operates a number of other UK and overseas pension schemes. It also provides other post-retirement benefits, principally through subscriptions to private...

  • Page 151
    ... UK scheme £m Other Group schemes £m 2002 Main UK schemes £m Other Group schemes £m Equities Bonds Other Total market value of assets Present value of scheme liabilities Net deficit in the schemes Deferred tax asset Net pension deficit Other unfunded liabilities (net) Post-retirement benefit...

  • Page 152
    ... before tax is stated after taking account of the following: 2004 £m 2003 £m 2002 £m Income Aggregate amounts receivable under finance leases, hire purchase and conditional sale contracts Aggregate amounts receivable under operating leases Profit on disposal of investment securities Share of...

  • Page 153
    5 Tax on profit on ordinary activities 2004 £m 2003 £m 2002 £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 provision in respect of prior periods Share of ...

  • Page 154
    ... 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 Notes: (1) Dividends for the year ended 31 December 2004 amounted to...

  • Page 155
    ... of short-term maturity and their market value is not materially different from carrying value. 153 Notes on the accounts section 11 Loans and advances to banks 2004 £m 2003 £m Repayable on demand Remaining maturity - three months or less - one year or less but over three months - five years or...

  • Page 156
    ... 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 advances to customers (before provisions). Residual value exposures The table below gives details of...

  • Page 157
    ... in the profit and loss account except for income from the servicing of the mortgages. (v) Loan transfer - during 2004, loans originated by the Group and another bank were transferred to a special purpose vehicle which funded the purchase through the issue of notes. The Group is not obliged...

  • Page 158
    ...unrecognised Book value gains losses £m £m £m 2004 Valuation £m Gross Gross 2003 unrecognised unrecognised Book value gains losses £m £m £m 2003 Valuation £m 156 Notes on the accounts Investment securities: UK government Other government Other public sector bodies Bank and building society...

  • Page 159
    ...(12) 21 2,440 Notes on the accounts section UK government US treasury and other US government Other government Securities issued by the states of the US Other public sector bodies Corporate debt securities Mortgage-backed securities Bank and building society Other Total book value 61 254 442 - 99...

  • Page 160
    ...Bank Plc (1) Citizens Financial Group, Inc. Coutts & Co (2) Greenwich Capital Markets, Inc. RBS Insurance Group Limited Ulster Bank Limited (3) Notes: (1) The company does not hold any of the NatWest preference shares in issue. (2) Coutts & Co is incorporated with unlimited liability. Its registered...

  • Page 161
    ... Charge for the year Disposals At 31 December 2004 Net book value at 31 December 2004 Net book value at 31 December 2003 £m 159 15,758 (558) 5,899 (20) 21,079 2,627 (35) 915 (4) 3,503 17,576 13,131 Annual Report and Accounts 2004 Financial statements Notes on the accounts section 03

  • Page 162
    ...book value: Land and buildings occupied for own use Investment properties Properties under development Properties to be disposed of 2004 £m 2003 £m 2,768 3,715 570 19 7,072 18 2 2,391 3,628 429 19 6,467 90 20 Net book value of assets held under finance leases Depreciation for the year of assets...

  • Page 163
    ...4,418 (861) 3,557 The increase in the shareholders' interest in the long-term assurance business included in the profit and loss account is calculated as follows: 2004 £m 2003 £m Increase in value for the year before tax Tax Increase in value for the year after tax 94 (28) 66 73 (22) 51 * The...

  • Page 164
    ...Notes on the accounts Banking business Trading business 25 Debt securities in issue 2004 £m 2003 £m Bonds and medium term notes, by remaining maturity - one year or less - two years or less but over one year - five years or less but over two years - over five years Other debt securities in issue...

  • Page 165
    ... Charge to profit and loss account Provisions utilised At 31 December 2004 Notes: 179 - 179 - 18 (33) 164 43 (43) - - - - - 34 - 34 12 2 (14) 34 256 (43) 213 12 20 (47) 198 (1) The Group has a number of leasehold properties where rents payable and other unavoidable costs exceed the value to the...

  • Page 166
    ... (issued September 2004; callable September 2016) (11) RBSG Capital Corporation US$250 million 10.125% guaranteed capital notes 2004 (12) - 140 National Westminster Bank Plc £100 million 12.5% subordinated unsecured loan stock 2004 (13) US$400 million guaranteed floating rate capital notes 2005...

  • Page 167
    ...in the company balance sheet within loan capital but are reclassified as non-equity minority interests on consolidation (see Note 32). Notes: (1) On-lent to The Royal Bank of Scotland plc on a subordinated basis. (2) Repayable in five equal annual instalments in May in each of the years 2001 to 2005...

  • Page 168
    ... Royal Bank of Scotland plc on a subordinated basis. (2) Interest is payable at a rate of 0.25% per annum 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...

  • Page 169
    ... Annual Report and Accounts 2004 Financial statements Notes on the accounts section 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 (3) Other non-equity minority interests Total 167...

  • Page 170
    ... accounts continued 33 Share capital (continued) Allotted, called up and fully paid Authorised 2004 2003 2004 2003 Number of shares - thousands Equity shares Ordinary shares of 25p Non-voting deferred shares of £0.01 Non-equity shares Additional Value Shares of £0.01 Non-cumulative preference...

  • Page 171
    ... profits of the company. The non-cumulative preference shares are redeemable at the option of the company, in whole or in part from time to time at the rates detailed below plus dividends otherwise payable for the then current dividend period accrued to the date of redemption. Number of shares...

  • Page 172
    ... Notes on the accounts Share premium account At 1 January Currency translation adjustments Shares issued during the year Conversion of exchangeable undated loan capital Preference shares redeemed during the year Other movements At 31 December Merger reserve At 1 January Transfer to profit and loss...

  • Page 173
    ...01 Non-cumulative convertible preference shares of £0.01 Cumulative preference shares of £1 2004 £m 2003 £m 1,951 978 864 529 197 1 4,520 1,140 1,058 - 528 196 1 2,923 171 Notes on the accounts section 35 Lease commitments The annual rental commitments of the Group under non-cancellable...

  • Page 174
    ... agencies and banks, and margin deposits placed with exchanges. Liabilities secured by charges on assets Deposits by banks Customer accounts Debt securities in issue 2004 £m 2003 £m 5,628 2,001 1,522 9,151 3,000 92 1,550 4,642 39 Derivatives In the normal course of business, the Group enters...

  • Page 175
    ...624 86,353 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 2004 Financial statements Notes on the accounts section 21,812...

  • Page 176
    ...non-trading activities and includes internal trades: 2004 Fair value Positive £m Negative £m 2004 Book value Positive £m Negative £m 2003 Fair value Positive £m Negative £m 2003 Book value Positive £m Negative £m Exchange rate contracts: Spot, forwards and futures Currency swaps and options...

  • Page 177
    ...to banks 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...

  • Page 178
    ... 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 business Total liabilities Off-balance...

  • Page 179
    ... 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 Debt securities in issue Short positions in securities Subordinated loan capital...

  • Page 180
    ... indication of the Group's expectation of future losses. 2004 £m 2003 £m Contingent liabilities: Acceptances and endorsements Guarantees and assets pledged as collateral security Other contingent liabilities Commitments: Documentary credits and other short-term trade related transactions Undrawn...

  • Page 181
    ... adverse effect on the Group's consolidated net assets, results of operations or cash flows. Annual Report and Accounts 2004 Financial statements Notes on the accounts section Banking commitments and contingent obligations, which have been entered into on behalf of customers and for which there...

  • Page 182
    ... value adjustments £m Fair value to the Group £m 180 Notes on the accounts At date of acquisition Cash and balances at central banks Loans and advances to customers Debt securities Equity shares Tangible fixed assets Other assets Deposits by banks Customer accounts Other liabilities Deferred tax...

  • Page 183
    ... consideration paid are shown in the table below: Book value of net assets acquired £m Fair value adjustments £m Fair value to the Group £m Deposits by banks Customer accounts Debt securities in issue Other liabilities Accruals and deferred income Deferred tax provisions Post-retirement benefit...

  • Page 184
    ...)/decrease in securities Increase in other assets Decrease in items in the course of transmission Increase in deposits by banks Increase in customer accounts Increase in debt securities in issue Increase/(decrease) in other liabilities Increase in settlement balances and short positions Effect of...

  • Page 185
    ...48 Analysis of changes in cash during the year 2004 £m 2003 £m 2002 £m At 1 January Net cash inflow At 31 December 20,937 2,786 23,723 10,273 10,664 20,937 7,027 3,246 10,273 section Annual Report and Accounts 2004 Financial statements Notes on the accounts Net assets disposed of Goodwill...

  • Page 186
    ... charges £m Profit/ (loss) on ordinary activities before tax £m 2004 Non-interest income £m Total income £m Provisions* £m Corporate Banking and Financial Markets Retail Banking Retail Direct Manufacturing Wealth Management RBS Insurance Ulster Bank Citizens Central items Profit before...

  • Page 187
    ... office where the transactions are recorded. 2004 UK £m USA £m Europe £m Rest of the World £m Total £m Profit on ordinary activities before tax Total assets Net assets 4,776 378,396 18,070 1,389 145,572 11,068 625 45,593 2,671 127 13,906 56 6,917 583,467 31,865 Annual Report and Accounts...

  • Page 188
    ... of the World £m Total £m 186 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 on ordinary activities before tax Total assets Net assets 2002...

  • Page 189
    ... projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency. Any surplus or deficit of section Annual Report and Accounts 2004 Financial statements Notes on the accounts 51 Transactions with directors, officers and others...

  • Page 190
    ... the profit and loss account. Under US GAAP , securities held 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...

  • Page 191
    ... value measurement for exchanges of nonmonetary assets that do not have commercial substance. The Statement is effective for fiscal years beginning after 15 June 2005 and is not expected to affect the Group's US GAAP reporting. In December 2004, the FASB issued SFAS 123 (revised 2004) 'Share-Based...

  • Page 192
    ...Notes on the accounts Consolidated shareholders' equity Shareholders' funds - UK GAAP Adjustments in respect of: Acquisition accounting Intangible assets Property revaluation and depreciation Leasehold property provisions Proposed dividend Loan origination Pension costs Long-term assurance business...

  • Page 193
    ...of Scotland Staff Pension Scheme and the National Westminster Bank Pension Fund, were merged to form The Royal Bank of Scotland Group Pension Fund ("the plan"). The provisions of SFAS 87 'Employers' Accounting for Pensions' have been applied to the plan, which covers most of the Group's UK employees...

  • Page 194
    ...3.50 2.25 7.20 Weighted-average allocations of market value of plan assets at 31 December: Equity shares Debt securities Other Total 2004 % 2003 % 2002 % 57 31 12 100 65 32 3 100 67 31 2 100 At 31 December 2004, the fund's accumulated benefit obligation was underfunded by £561 million (2002...

  • Page 195
    ... losses £m Total Gross unrealised losses £m Issued by UK government US treasury and government and securities issued by US states Other government Corporate debt securities Mortgage-backed securities Bank and building society Other Available-for-sale debt securities Number of issues Fair value...

  • Page 196
    ... 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 funding...

  • Page 197
    ...services sector. Annual Report and Accounts 2004 Financial statements Notes on the accounts section Savings scheme Under the Inland Revenue rules, a participant in a savings scheme is permitted to make a maximum monthly saving of £250 under approved savings schemes. Employees of Group companies...

  • Page 198
    ... former NatWest executive plans. 2004 Number of options 000's Weighted average exercise price pence 2003 Number of options 000's Weighted average exercise price pence 2002 Number of options 000's Weighted average exercise price pence Year exercisable 196 Notes on the accounts 2003 2004 2005 2006...

  • Page 199
    ... results attributable to hedging activities, interest income, funding costs, changes in asset values prior to securitisation date, and retained interest values subsequent to securitisation date. 2005 2006 2007 2008 2009 146 145 141 133 123 03 Financial statements Annual Report and Accounts 2004

  • Page 200
    ... Credit losses Impact on fair value of 10% adverse change Impact on fair value of 20% adverse change Notes: (1) Constant prepayment rate - the CPR range represents the low and high points of a dynamic CPR curve (2) CPR with yield maintenance provision £509m 12-35% CPR (1) £0.3m £0.4m 1-18 years...

  • Page 201
    ... partnership preferred securities issued by the Group's subsidiaries are deconsolidated, resulting in a US GAAP balance sheet reclassification from minority interests to subordinated liabilities. The effect on US GAAP net income and equity is negligible. Annual Report and Accounts 2004 Financial...

  • Page 202
    200

  • Page 203
    ... time deposits 213 Exchange rates 214 Off balance sheet arrangements 216 Economic and monetary environment 216 Supervision and regulation 220 Description of property and equipment 220 Major shareholders 220 Material contracts 201 section 04 Additional information Annual Report and Accounts 2004

  • Page 204
    ...) Preference dividends - non-equity Additional Value Shares dividend - non-equity Profit attributable to ordinary shareholders Amounts in accordance with US GAAP: Net income available for ordinary shareholders Notes: 2004 $m 2004 £m 2003 £m 2002 £m 2001 £m 2000 £m Additional information...

  • Page 205
    ...final Total dividends on equity shares Notes: (1) Redeemed on 30 January 2003. 32.2 78.9 111.1 16.8 41.2 58.0 14.6 35.7 50.3 12.7 31.0 43.7 11.0 27.0 38.0 9.5 23.5 33.0 For further information, see Notes 6 and 7 on the accounts. section Annual Report and Accounts 2004 Additional information...

  • Page 206
    ... equity shares Intangible fixed assets Other assets Total assets Called up share capital Share premium account Other reserves Profit and loss account Shareholders' funds Minority interests Subordinated liabilities Total capital resources Deposits by banks Customer accounts Debt securities in issue...

  • Page 207
    ...earnings per ordinary share - pence Dividends per ordinary share - pence Dividend payout ratio Share price per ordinary share at period end - £ Market capitalisation at period end - £bn Net asset value per ordinary share - £ Return on average total assets (3) Return on average equity shareholders...

  • Page 208
    ... 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 209
    ... (2003 - £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 2004 Additional information 0.50% 0.29% 0.41% 0.56% 0.59% 0.57% 0.56% 0.58% 0.57% 0.47...

  • Page 210
    ... 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 - 127...

  • Page 211
    ... Report and Accounts 2004 Additional information Additional information section Domestic Manufacturing Construction Finance Service industries and business activities Agriculture, forestry and fishing Property Individuals - home mortgages Individuals - others Finance leases and instalment credit...

  • Page 212
    ... stated before deducting the value of security held or related provisions. 2004 £m 2003 £m 2002 £m 2001 £m 2000 £m 210 Additional information Loans accounted for on a non-accrual basis (3): Domestic Foreign Total Accruing loans which are contractually overdue 90 days or more as to principal...

  • Page 213
    ... - 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 214
    ...short-term borrowings' consist principally of borrowings in the money markets included within 'Deposits by banks' and 'Customer accounts' in the accounts, and generally have original maturities of one year or less. Certificates of deposit and other time deposits The following table shows details of...

  • Page 215
    ... the last business day of each month during the period. (2) The rates used by the Group for translating dollars into sterling in the preparation of its financial statements. (3) On 22 February 2005, the Noon Buying Rate was £1.00 = $1.9092. 04 Additional information Annual Report and Accounts 2004

  • Page 216
    ...to act as commercial paper 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...

  • Page 217
    ... do not include undated loan capital. The maturity 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 2004 Additional information Less than 1 year £m More than 1 year but less than...

  • Page 218
    ...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. 216 Additional information

  • Page 219
    ... the banking business of the UK based banks in the Group, including The Royal Bank of Scotland plc ("The Royal Bank"), National Westminster Bank Plc ("NatWest"), Coutts & Co, Ulster Bank Limited and Tesco Personal Finance Limited. General insurance business is principally undertaken by RBS Insurance...

  • Page 220
    ...types of insurance contracts. Firms must also meet standards relating to senior management and internal systems and controls and must comply with rules designed to reduce the scope for firms to be used for money laundering. Revised Joint Money Laundering Steering Group Guidance Notes came into force...

  • Page 221
    ... Federal Deposit Insurance Corporation and the Royal Bank's New York branch is supervised by the New York Banking Department. NatWest's New York branch was closed at the end of April 2004. The company's US securities affiliates are subject to regulation and supervision by the Securities and Exchange...

  • Page 222
    ... terms of over 50 years. The Group's principal properties include its headquarters at St Andrew Square, Edinburgh, its principal offices in London at 135 and 280 Bishopsgate and the Drummond House administration centre located at South Gyle, Edinburgh. A new corporate headquarters is being developed...

  • Page 223
    ... tax 223 Analyses of ordinary shareholders 223 Trading market 225 Memorandum and articles of association 225 Taxation for US holders 230 Exchange controls 230 Documents on display 231 Important addresses 231 Principal offices 221 section 05 Shareholder information Annual Report and Accounts 2004

  • Page 224
    ... calendar Annual general meeting 20 April 2005 at 2.00 pm, Edinburgh International Conference Centre, The Exchange, Morrison Street, Edinburgh 4 August 2005 Interim results Dividends Payment dates: *Ordinary shares (2004 Final) Ordinary shares (2005 Interim) Cumulative preference shares Non...

  • Page 225
    ... the ADSs above were issued pursuant to 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...

  • Page 226
    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 2005 December 2004 Series D ADSs Series E ADSs Series F ...

  • Page 227
    ... tax. Dividends paid by the company and any Tax Credit Amount will constitute foreign source dividend income for US federal income 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...

  • Page 228
    ... be treated as equity for US federal income tax purposes. Payments (including any UK withholding tax, as to which see below) will constitute foreign source dividend income for US federal income tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as...

  • Page 229
    ... remain at all times listed on the New York Stock Exchange or some other recognised stock exchange within the meaning of section 841 of the Income and Corporation Taxes Act 1988. In all other cases an amount must be withheld on account of UK income tax at the lower rate (currently 20%) subject to...

  • Page 230
    ... the price of the X-CAPs issued. PROs United States Payments of interest on a PRO (including any UK tax withheld therefrom) will constitute foreign source dividend income for US federal income tax purposes to the extent paid out of the current or accumulated earnings and profits of the company, as...

  • Page 231
    ... has adopted a new directive regarding the taxation of savings income. Subject to a number of important conditions being met, Member States of the European Union will be required from a date not earlier than 1 July 2005 to provide to the tax authorities of other Member States details of payments of...

  • Page 232
    Shareholder information continued Exchange controls The company has been advised that there are currently no UK laws, decrees or regulations which would prevent the remittance of dividends or other payments to non-UK resident holders of the company's non-cumulative dollar preference shares. There ...

  • Page 233
    ... Coutts Group 440 Strand London WC2R 0QS The Royal Bank of Scotland International Limited Royal Bank House 71 Bath Street St Helier Jersey Channel Islands JE4 8PJ NatWest Offshore 23/25 Broad Street St Helier Jersey Channel Islands JE4 8QG 231 Shareholder information section The registered office...

  • Page 234
    Notes 232