RBS 2007 Annual Report Download - page 186

Continued recognition
The table below sets out the asset categories together with the carrying amounts of the assets and associated liabilities for those
securitisations and other asset transfers where substantially all the risks and rewards of the assets have been retained by the Group.
2007 2006
Assets Liabilities Assets Liabilities
Asset type £m £m £m £m
Residential mortgages 23,652 23,436 15,698 15,375
Credit card receivables 2,948 2,664 2,891 2,585
Other loans 1,703 1,149 1,931 1,346
Commercial paper conduits 32,613 31,193 8,360 8,284
Finance lease receivables 1,038 823 1,211 953
Financial statements
RBS Group • Annual Report and Accounts 2007
184
Notes on the accounts continued
In the normal course of business, the Group arranges
securitisations to facilitate client transactions and undertakes
securitisations to sell financial assets or to fund specific
portfolios of assets. The Group also acts as an underwriter and
depositor in securitisation transactions involving both client and
proprietary transactions. In a securitisation, assets, or interests
in a pool of assets, are transferred generally to a special
purpose entity (“SPE”) which then issues liabilities to third
party investors.
SPEs are vehicles set up for a specific, limited purpose, usually
do not carry out a business or trade and typically have no
employees. They take a variety of legal forms – trusts,
partnerships and companies – and fulfil many different
functions. As well as being a key element of securitisations,
SPEs are also used in fund management activities to segregate
custodial duties from the fund management advice provided
by the Group.
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 129).
The Group has securitisations in each of these categories.
Residential mortgages securitisations – the Group has
securitised portfolios of residential mortgages. Mortgages
have been transferred to SPEs, 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 and cross-currency swaps with the
securitisation SPEs and provides mortgage management and
agency services to the SPEs. On repayment of the financing,
any further amounts generated by the mortgages will be paid
to the Group. The SPEs are consolidated and the mortgages
remain on the Group’s balance sheet.
Credit card securitisations – credit card receivables in the UK
have been securitised. Notes have been issued by an SPE. 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). The SPE is consolidated and the credit card receivables
remain on the Group’s balance sheet.
Other securitisations – other loans originated by the Group
have been transferred to SPEs 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. The SPEs are consolidated
and the loans remain on the Group’s balance sheet.
Commercial paper conduits – the Group sponsors commercial
paper conduits. Customer assets are transferred into SPEs
which issue notes in the commercial paper market. The Group
supplies certain services and contingent liquidity support to
these SPEs on an arm’s length basis as well as programme
credit enhancement. The SPEs are consolidated.
Finance lease receivables – certain finance lease receivables
(leveraged leases) in the US 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. The transactions are recorded gross of third-
party financing.
30 Securitisations and other asset transfers