RBS 2007 Annual Report Download - page 13

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RBS Group • Annual Report and Accounts 2007
For The Royal Bank of Scotland Group, 2007 was
defined by another strong operating performance
and by the acquisition of ABN AMRO.
The diversity and quality of our business platform
enabled us to deliver good financial results, with
operating profit for the enlarged RBS Group rising
by 9% to £10,282 million. Our earnings momentum
remained powerful, notwithstanding the impact of
challenging credit market conditions in the second
half of the year.
Our results demonstrate the resilience of the Group in the face
of testing circumstances. The summer floods came during the
wettest May to July in England and Wales since records began
in 1766. While RBS Insurance responded magnificently to meet
the needs of customers in distress, the impact on profits is
evident. The pace of activity in the US slowed as the housing
market weakened, leading to challenging conditions for Global
Banking & Markets (‘GBM’) and Citizens. Later in the summer
began the dislocation in credit markets, which made the second
half a turbulent period for the financial services sector.
Delivering such a robust financial performance in this
environment is the consequence of action in two areas: over
a number of years we have diversified the Group’s income
streams and last year also saw us benefit from our focus on
credit quality and risk management with our impairments,
excluding ABN AMRO, down 1%.
Our customers and businesses
The Group now serves over 40 million customers in 53 countries
worldwide. In each of those markets we will continue our
relentless focus on customers’ needs.
GBM enjoyed another strong first half performance and took
full advantage of the volatility in the second half to deliver
excellent performances in interest rate and currency trading.
Inevitably, the second half witnessed significantly lower origination
volumes in credit markets and write-downs on US mortgage-
related exposures. Our UK Corporate Banking business enjoyed
another very successful year maintaining its consistent record
of high single-figure income growth and further advancing its
market share from a position of leadership. By continuing to invest
in service quality we have achieved market-leading customer
satisfaction scores and customer numbers increased by 4%.
Retail delivered strong growth in savings and investment
products while maintaining a cautious approach to unsecured
credit. Our success is built on customer satisfaction, and on
this metric RBS and NatWest maintained their lead over the
other major high street banks. Wealth Management’s trajectory
remains very strong. We continued to expand Coutts UK’s
regional franchise and achieved significant growth in Asia-Pacific.
Ulster Bank maintained its strong growth record and we have
continued to invest in the good opportunities for future growth
presented by the Irish market. Citizens further developed its
franchise, increasing its consumer banking customer base by
2% and achieving good results in its growing corporate and
commercial banking operations.
In RBS Insurance, we have built on our strong position as
the UK’s leading personal lines insurer by further sharpening
our focus on selective underwriting of the more profitable
segments, reducing volumes in others. Of course, results were
held back by the floods, but excluding this, operating profit
grew strongly.
Manufacturing is central to the way we operate, underpinning
our determination to deliver service to our customers while
deriving scale benefits achievable from sharing infrastructure,
processes and services across our businesses. We held cost
growth to just 1%, despite continued investment in technology
and property to support increased transaction volumes and
the development of our business.
Capital
The Group’s Tier 1 capital ratio at 31 December was 7.3%
and our total capital ratio 11.2%, within our target ranges.
At the time of the bid for ABN AMRO we indicated our intention
to rebuild our capital ratios. We remain committed to this goal,
and the improved financial returns now expected on the
acquisition will help to accelerate delivery of the Group’s
capital regeneration commitments.
Positioned for growth
This decade has seen considerably stronger economic
growth in the developing world, especially Asia, than in the
West. Trade and capital flows have been the main drivers of
rising prosperity. This growth has spurred demand for many
commodities, notably energy. Within the dynamic Asian
economies, the number of wealthy people is growing and
around the world affluence is increasingly common.