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RBS Group • Annual Report and Accounts 2006
Operating and financial review
Ohio. Through its branch network Citizens provides a full range
of retail and corporate banking services, including personal
banking, residential mortgages and cash management.
In addition, Citizens engages in a wide variety of commercial
lending, consumer lending, commercial and consumer deposit
products, merchant credit card services, trust services and retail
investment services. Citizens includes RBS National Bank, our
US credit card business, RBS Lynk, our merchant acquiring
business, and Kroger Personal Finance, our credit card joint
venture with the second largest US supermarket group.
RBS Insurance is the second largest general insurer in the UK,
by gross written premiums. It sells and underwrites retail, SME
and wholesale insurance over the telephone and internet, as well
as through brokers and partnerships. The Retail Divisions of
Direct Line, Churchill and Privilege sell general insurance
products direct to the customer. Through its International Division,
RBS Insurance sells motor insurance in Spain, Germany and Italy.
The Intermediary and Broker Division sells general insurance
products through its network of independent brokers.
Manufacturing supports the customer-facing businesses and
provides operational, technology and customer support in
telephony, account management, lending and money
transmission, global purchasing, property and other services.
Manufacturing drives optimum efficiencies and supports
income growth across multiple brands and channels by using
a single, scalable platform and common processes wherever
possible. It also leverages the Group’s purchasing power and
has become the centre of excellence for managing large-scale
and complex change.
The expenditure incurred by Manufacturing relates to costs
principally in respect of the Group’s banking and insurance
operations in the UK and Ireland. These costs reflect activities
that are shared between the various customer-facing divisions
and consequently cannot be directly attributed to individual
divisions. Instead, the Group monitors and controls each of its
customer-facing divisions on revenue generation and direct
costs whilst in Manufacturing such control is exercised through
appropriate efficiency measures and targets. For financial
reporting purposes the Manufacturing costs have been
allocated to the relevant customer-facing divisions on a basis
management considers to be reasonable.
The Centre comprises group and corporate functions, such as
capital raising, finance, risk management, legal, communications
and human resources. The Centre manages the Group’s
capital requirements and Group-wide regulatory projects and
provides services to the operating divisions.
Competition
The Group faces intense competition in all the markets it
serves. In the UK, the Group’s principal competitors are the
other UK retail and commercial banks, building societies and
the other major international banks represented in London.
Competition for corporate and institutional customers in the UK
is from UK banks and from large foreign financial institutions
who are also active and offer combined investment and
commercial banking capabilities. In asset finance, the Group
competes with banks and specialised asset finance providers,
both captive and non-captive.
In the small business banking market, the Group competes
with other UK clearing banks, specialist finance providers
and building societies.
In the personal banking segment the Group competes with UK
banks and building societies, major retailers, life assurance
companies and internet-only players. In the mortgage market
the Group competes with UK banks and building societies.
National Westminster Life Assurance Limited and Royal
Scottish Assurance compete with Independent Financial
Advisors and life assurance companies.
In the UK credit card market large retailers and specialist card
issuers, including major US operators, are active in addition to
the UK banks. Competitive activity is across a number of
dimensions including introductory and longer term pricing,
loyalty and reward schemes, and packaged benefits. In
addition to physical distribution channels, providers compete
through direct marketing activity and the internet. The market
remains very competitive, both between issuers and with other
payment methods.
In Wealth Management, The Royal Bank of Scotland International
competes with other UK and international banks to offer offshore
banking services. Coutts and Adam & Company compete as
private banks with UK clearing and private banks, and with
international private banks. Competition in wealth management
activities has intensified as banks have increased their focus on
competing for affluent and high net worth customers.
RBS Insurance competes in personal lines insurance and,
to a limited extent, in commercial insurance. There is strong
competition from a range of insurance companies which
now operate telephone and internet direct sales businesses.
Competition in the UK motor market remains particularly intense.
RBS Insurance also competes with local insurance companies in
the direct motor insurance markets in Spain, Italy and Germany.
In Ireland, Ulster Bank and First Active compete in retail and
commercial banking with the major Irish banks and building
societies, and with other UK and international banks and
building societies active in the market. Competition is intensifying
as UK, Irish and other European institutions seek to expand
their businesses.
In the United States, where competition is intense, Citizens
competes in the New England, Mid-Atlantic and Midstates
retail and mid-corporate banking markets with local and
regional banks and other financial institutions. The Group also
competes in the US in large corporate lending and specialised
finance markets, and in fixed-income trading and sales.
Competition is principally with the large US commercial and
investment banks and international banks active in the US.
In other international markets, principally in continental Europe,
the Group faces competition from the leading domestic and
international institutions active in the relevant national markets.