RBS 2005 Annual Report Download - page 158

156
Notes on the accounts
Notes on the accounts continued
Securitisations
The Group engages in securitisation transactions of its
financial assets including commercial and residential mortgage
loans, commercial and residential mortgage related securities,
US Government agency collateralised mortgage obligations,
and other types of financial assets. In such transactions, the
assets, or interests in the assets, are transferred generally to a
special purpose entity which then issues liabilities to third
party investors.
Securitisations may, depending on the individual arrangement,
result in continued recognition of the securitised assets;
continued recognition of the assets to the extent of the
Group’s continuing involvement in those assets; or
derecognition of the assets and the separate recognition, as
assets or liabilities, of any rights and obligations created or
retained in the transfer (see Accounting policy on page 141).
The Group has securitisations in each of these categories.
Continued recognition
The table below sets out the asset categories together the carrying amounts of the assets and associated liabilities.
2005 2004
Assets Liabilities Assets Liabilities
Asset type £m £m £m £m
Residential mortgages (1, 2) 2,388 2,366 1,519 1,479
Finance lease receivables (1, 3) 1,467 1,170 1,897 1,502
Other loans (1, 4) 2,189 1,543 1,713 1,313
Credit card receivables (5) 2,891 2,836 1,133 1,133
Commercial paper conduits (6) 6,688 6,685 4,704 4,696
(1) At 31 December 2004, in accordance with previous GAAP, the financial assets in these categories were derecognised to the extent of non-recourse finance as the arrangements
qualified for the linked presentation.
(2) Mortgages have been transferred to special purpose vehicles, held ultimately by charitable trusts, funded principally through the issue of floating rate notes. The Group has
entered into arm’s length fixed/floating interest rate swaps with the securitisation vehicles and provides mortgage management and agency services to the vehicles. On
repayment of the financing, any further amounts generated by the mortgages will be paid to the Group. In 2004, the Group recognised net income of £26 million.
(3) Certain finance lease receivables (leveraged leases) involve the Group as lessor obtaining non-recourse funding from third parties. This financing is secured on the underlying
leases and the provider of the finance has no recourse whatsoever to the other assets of the Group. In 2004, the Group recognised net income of £13 million.
(4) Other loans originated by the Group have been transferred to special purpose vehicles funded through the issue of notes. Any proceeds from the loans in excess of the amounts
required to service and repay the notes are payable to the Group after deduction of expenses. In 2004, the Group recognised net income of £37 million.
(5) Credit card receivables in the UK have been securitised. Notes have been issued by a special purpose vehicle. The note holders have a proportionate interest in a pool of credit
card receivables that have been equitably assigned by the Group to a receivables trust. The Group continues to be exposed to the risks and rewards of the transferred
receivables through its right to excess spread (after charge offs).
(6) The Group sponsors commercial paper conduits. Customer assets are transferred into an SPE which issues notes in the commercial paper market. The Group supplies certain
services and contingent liquidity support to these vehicles on an arm’s length basis as well as programme credit enhancement.
12 Loans and advances to customers (continued)