RBS 2006 Annual Report Download - page 151
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Please find page 151 of the 2006 RBS annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.RBS Group • Annual Report and Accounts 2006
150
Notes on the accounts continued
Financial statements
Continuing involvement
In certain US securitisations of residential mortgages,
substantially all the risks and rewards have been neither
transferred nor retained, but the Group has retained
control, as defined by IFRS, of the assets and continues
to recognise the assets to the extent of its continuing
involvement which takes the form of retaining certain
subordinated bonds issued by the securitisation vehicles.
These bonds have differing rights and, depending on their
terms, they may expose the Group to interest rate risk
where they carry a fixed coupon or to credit risk
depending on the extent of their subordination. Certain
bonds entitle the Group to additional interest if the portfolio
performs better than expected and others give the Group
the right to prepayment penalties received on the
securitised mortgages. At 31 December 2006, securitised
assets were £37.3 billion (2005 – £39.8 billion); retained
interests £930 million (2005 – £863 million); subordination
assets £694 million (2005 – £609 million) and related
liabilities £694 million (2005 – £609 million).
Derecognition
Other securitisations of the Group’s financial assets in the
US qualify for derecognition as substantially all the risks and
rewards of the assets have been transferred. The Group
continues to recognise any retained interests in the
securitisation vehicles.
Disclosures are given below about those securitisations
of financial assets undertaken by the Group that resulted
in derecognition or recognition to the extent of continuing
involvement.
The Group has classified these securitisations into three broad
categories: US Agency, consumer, and commercial
securitisations. During 2006, the Group received proceeds
of approximately £45.6 billion (2005 – £46.3 billion; 2004 –
£30.1 billion) from securitisation trusts in connection with
new securitisations of Group assets and £10.7 billion (2005 –
£9.6 billion; 2004 – £1.3 billion) in connection with
securitisation of third-party assets.
The Group recognised net pre-tax gains of approximately £192
million (2005 – £182 million; 2004 – £111 million) relating to
these securitisations. 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
costs, and exclude any results attributable to hedging
activities, interest income, funding costs, and changes in asset
values prior to, and in retained interest values subsequent to,
the securitisation date.
At 31 December 2006, the fair value of the Group’s retained
interests, which are classified as held-for-trading, was
approximately £2.1 billion (2005 – £2.1 billion). These retained
interests comprise approximately £1,148 million (2005 – £1,179
million) in US Agency based retained interests, £818 million
(2005 – £764 million) in consumer based retained interests
and £113 million (2005 – £128 million) 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. Cash flows
received in 2006 from retained interests held at 31 December
2006 in connection with securitisations that took place in
current and prior years amounted to £544 million (2005 – £481
million; 2004 – £383 million).
12 Loans and advances to customers (continued)