RBS 2007 Annual Report Download - page 52

Corporate Markets – Global Banking & Markets
2007 2006 2005
£m £m £m
Net interest income from banking activities 1,785 1,632 1,487
Net fees and commissions receivable 1,368 1,032 816
Trading activities 849 2,211 1,949
Income from rental assets (net of related funding costs) 679 677 622
Other operating income (net of related funding costs) 1,899 1,279 744
Non-interest income 4,795 5,199 4,131
Total income 6,580 6,831 5,618
Direct expenses
– staff costs 1,826 1,975 1,518
– other 518 442 371
– operating lease depreciation 365 406 398
2,709 2,823 2,287
Contribution before impairment losses 3,871 4,008 3,331
Impairment losses 39 85 139
Contribution 3,832 3,923 3,192
Allocation of Manufacturing costs 145 144 139
Operating profit 3,687 3,779 3,053
£bn £bn £bn
Total assets* 579.4 383.7 330.9
Loans and advances to customers – gross*
– banking book 121.1 94.3 82.0
– trading book 20.0 15.4 11.8
Rental assets 10.2 12.2 11.9
Customer deposits* 72.9 54.1 44.7
Risk-weighted assets 152.6 138.1 120.0
* excluding repos and reverse repos
2007 compared with 2006
Global Banking & Markets (GBM) achieved strong
performances in many of its businesses in 2007, with
particularly strong growth in interest rate and currency trading
activities, but financial results were held back by challenging
credit market conditions in the second half of the year.
Operating profit was £3,687 million, 2% lower than 2006’s
record result.
While many parts of GBM grew strongly, total income of
£6,580 million was 4% lower than in 2006, reflecting both
cumulative 2007 write-downs of our sub-prime-related and
leveraged finance positions and an additional £456 million in
response to the weakening credit profile of certain financial
guarantors.
These losses were partially offset by a reduction of £123
million in the carrying value of our own debt and by a gain of
£950 million realised on the sale of Southern Water. The
resulting reduction in profit, net of write-downs, gains and
variable costs, was £484 million. Excluding these effects,
underlying income rose by 8% and underlying operating profit
by 10%, reflecting the business’s continued operating
momentum.
The strength of GBM and the successful diversification of its
product capabilities resulted in a continuation of the strong
growth we have achieved in Asia and continental Europe in
recent years. In Asia we have now established a solid platform,
with good product capabilities and client relationships. In 2007
this resulted in Asian income growing by 96%, with outstanding
growth in our activities in China and Japan. In Europe, income
grew by 39%, with particularly good results in the Nordic
region and in the Iberian Peninsula, where GBM further
expanded its strong position in the provision of financing and
risk management services to corporates and financial
institutions. Income in the UK grew by 21%, while results in
North America declined as a result of credit market conditions
affecting GBM’s asset-backed and structured credit
businesses.
Net interest income increased by 9% to £1,785 million.
Average loans and advances to customers, excluding reverse
repos, increased by 22% as we expanded our customer base
outside the UK and average customer deposits increased by
25%.
Net fee income rose by 33% to £1,368 million, reflecting our
top tier position in arranging, structuring and distributing large
scale financings. We achieved particularly strong growth in
non-US loan markets.
Income from trading activities declined by £1,362 million.
Interest rate and currency trading activities took advantage of
increased volatility leading to income growth of 78% and 48%
respectively. These strong performances were supplemented
by good growth in our broadening product range, including
equity derivatives and retail investor products. However, in
RBS Group • Annual Report and Accounts 2007
50
Business review continued
Business review