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Annual Report and Accounts 2008

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Annual Report and Accounts 2008 rbs.com

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...31 December 2008 and include only those business units of ABN AMRO Holding N.V. which will be retained by the Group. The statutory results are presented on pages 177 to 266. Notes: (1) Profit before tax, credit market write-downs and one-off items, impairment losses on reclassified assets, purchased...

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... of shareholder return and income. It is the Board's intention over time to return to paying dividends, taking account of the Group's capital position, retained earnings and prospects. To that end, we welcome the fact that the existing prohibition on the payment of dividends on the ordinary shares...

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... remuneration with long-term shareholder value In recognition of the crisis in global financial services and the unprecedented losses incurred by the RBS Group in 2008 the Remuneration Committee of the Board has been working to bring about fundamental change to the way remuneration works throughout...

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..., to our shareholders and to all those in the communities we serve. In common with many, we are facing tough times. We will do our best to work through these, to support our customers and to restore RBS to standalone financial health and success. 4 RBS Group Annual Report and Accounts 2008

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... that regard. â€¢ Alongside our business restructuring activities will be substantive changes to management and internal processes. There will continue to be changes of personnel as we promote and reassign internal talent and add to our ranks externally. RBS Group Annual Report and Accounts 2008 5

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... understanding of our businesses and a focus on long-term, quality profitability A business mix more biased than before to stable customer businesses Aiming to rely less on volatile, unsecured wholesale funding Stephen Hester Group Chief Executive 6 RBS Group Annual Report and Accounts 2008

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Divisional review Global Banking & Markets Global Banking & Markets is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. In 2008 the ...

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... revenues. In addition, we enjoy global top five rankings in corporate lending, foreign exchange rates, commodities and interest rates and options. Our problems have largely arisen in trading structured credit products and taking significant longer term underwriting risk. In doing so, we strayed...

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... in 2008, offering global payments, cash and liquidity management, as well as trade finance, United Kingdom and international merchant acquiring and commercial card products and services. It includes the Group's corporate money transmission activities in the United Kingdom and the United States. on...

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...market, RBS UK serves over 15 million personal customers through the RBS and NatWest brands. It offers a full range of banking products and related financial services including mortgages, bancassurance products, deposit accounts, and credit and charge cards. 10 RBS Group Annual Report and Accounts...

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... customer service. Last year, according to leading independent research, RBS retained top position and NatWest was again joint second for customer satisfaction amongst main high street banks. The Group ranks second in terms of market share in the critical current account market and regularly secures...

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... and the business plans to pursue a more consolidated approach to the market through more co-ordination across the multiple brands with which it currently faces the market, whilst investing in additional Relationship Managers and platform functionality. 12 RBS Group Annual Report and Accounts 2008

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... banking activities through its branch network in 13 states in the United States and through non-branch offices in other states. Citizens was ranked the tenth-largest commercial banking organisation in the United States based on deposits as at 30 September 2008 and is a top tier bank in its New...

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... whilst reducing activity in its out-offootprint national businesses in consumer and commercial finance. This strategy will allow Citizens to be become fully funded from its own customer deposits over time, and will support a low risk profile. In weakened economic conditions, operating profit after...

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...Strategic review Ulster Bank remains a core part of the Group's global banking operations. It has a strong franchise in Ireland and has the product and distribution capability to grow profitably and well in normal market conditions. The business plans to manage its balance sheet over the medium term...

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...' businesses outside the UK to RBS Coutts. Total assets under management for the Division at 31 December 2008 were 7% higher than a year earlier at Â£21.2 billion, while customer deposits were 40% higher, partly reflecting exchange rate movements. Strategic review Asia Retail & Commercial Banking...

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... of the current economic market conditions. Strategic review The Group has decided to retain RBS Insurance, reflecting the strength of its franchise as the leading UK personal lines insurer. It provides high quality earnings, which are differentiated from the Group's banking businesses, providing...

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... market and sell our products. Financial crime is at the heart of our most basic responsibility as a bank: to keep our customers' money secure. During the year we: â€¢ promoted Risk Guardian - a fraud screening product to help reduce merchant liability from card fraud; 18 RBS Group Annual Report...

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...access industry-wide fund management expertise. Investing in financial education Understanding and confidently managing money are crucial life skills. RBS has a long-standing commitment to financial education, one which was expanded in 2008 to help people navigate difficult economic times. The Group...

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... products. MoneySense is also being expanded to other countries in which the Group operates. In the United States of America, Citizens Financial Group is involved in a number of financial inclusion and capability initiatives. In Vermont, Citizens runs a Federal Deposit Insurance Corporation Money...

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... of Ireland by Ulster Bank Additional funding for small and medium-sized enterprises New mortgage repossession policy to help customers who fall into arrears Inclusion in the Carbon Disclosure Project's Leadership Index for the second year running RBS Group Annual Report and Accounts 2008 21

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22 RBS Group Annual Report and Accounts 2008

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...Summary consolidated income statement Analysis of results Divisional performance Consolidated balance sheet Cash flow Capital resources Reconciliations of pro forma to statutory income statements and balance sheets Risk, capital and liquidity management RBS Group Annual Report and Accounts 2008 23

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... report as it more closely reflects the basis on which the Group is managed. 'UK' in this context includes domestic transactions and transactions conducted through the offices in the UK which service international banking transactions. The results, assets and liabilities of individual business units...

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... not limited to: general economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and...

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... personal customers through the RBS and NatWest brands. It offers a full range of banking products and related financial services including mortgages, bancassurance products, deposit accounts, and credit and charge cards. RBS UK holds a leading market share across all of the Business & Commercial...

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... with UK clearing and private banks, and with international private banks. Competition in wealth management remains strong as banks maintain 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...

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... credit ratings may drop, its ability to access funding will be further limited, its cost of funding may increase and its share price may decline. The Group's businesses, earnings and financial condition have been and will continue to be affected by the continued deterioration in the global economy...

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... of further reductions in residential and commercial property prices, higher unemployment rates and reduced profitability of corporate borrowers. As a result, the Group has seen and expects to continue to see adverse changes in the credit quality of its RBS Group Annual Report and Accounts 2008 29

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... the Group's Tier 1 preference shares to BB- from A+ and upper tier 2 hybrid capital instruments to BB from A+. The longterm credit rating for senior unsecured debt of AA- and short term rating of F1+ were affirmed. On the same date, Standard & Poor's 30 RBS Group Annual Report and Accounts 2008

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... the Group's or the Royal Bank's credit ratings could adversely affect its access to liquidity and competitive position, increase its funding costs and have a negative impact on the Group's earnings and financial condition or result in a loss of value in RBS shares. The Group's business performance...

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..., margins, profitability and financial condition or result in a loss of value in RBS shares. The Group has agreed to certain undertakings in relation to the operation of its business in the First Placing and Open Offer Agreement and the Second Placing and Open Offer Agreement. Under the terms of...

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... the Group. The acquisition by HM Treasury of a majority shareholding in the Group in consequence of the First Placing and Open Offer could, in certain circumstances, have adverse tax consequences which could affect the post-tax profitability of the Group. RBS Group Annual Report and Accounts 2008...

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... in respect of the rate of tax or the rules for computing taxable profits and allowable losses. Failure to generate sufficient future taxable profits or changes in tax legislation may reduce the recoverable amount of the recognised deferred tax assets. 34 RBS Group Annual Report and Accounts 2008

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...2008 and the capitalisation issue in September 2008 occurred on 1 January 2007. The financial review and divisional performance in the Business review focus on the pro forma results. The basis of preparation of the pro forma results are detailed on page 74. RBS Group Annual Report and Accounts 2008...

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Business review continued Summary consolidated income statement for the year ended 31 December 2008 In the pro forma income statement set out below credit market writedowns and one-off items, amortisation of purchased intangible assets, write-down of goodwill and other intangible assets, ...

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...' issued in October. While the majority of these write-downs were incurred in the first half of 2008, the severity of the financial market dislocation intensified in the fourth quarter, resulting in further losses in particular on the Group's structured credit portfolios. RBS Group Annual Report...

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... (principally allocated to Global Banking & Markets) of Â£2,742 million and other goodwill of Â£720 million. Other intangible asset impairments of Â£1,389 million principally relate to the write-down in the value of customer relationships recognised on the acquisition of ABN AMRO. These impairments...

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... credit market write-downs of Â£7,781 million offset by a movement in the fair value of own debt of Â£1,232 million, and represents 28% of total income (2007 - 60%). Taxation The effective tax rate for 2008 was 5.7% compared with 20.8% in 2007. Earnings Basic earnings per ordinary share decreased...

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... gross yield and the interest rate paid on average interest-bearing liabilities of the banking business. (5) Net interest margin is net interest income of the banking business as a percentage of average interest-earning assets of the banking business. 40 RBS Group Annual Report and Accounts 2008

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... fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted. (4) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities. RBS Group Annual Report and Accounts 2008 41

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... fair value through profit or loss. Related interest-earning assets and interest-bearing liabilities have also been adjusted. (4) Interest receivable and interest payable on trading assets and liabilities are included in income from trading activities. 42 RBS Group Annual Report and Accounts 2008

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... deposits UK Overseas Customer accounts: other time deposits UK Overseas Debt securities in issue UK Overseas Subordinated liabilities UK Overseas Internal funding of trading business UK Overseas Total interest payable of the banking business UK Overseas Movement in net interest income UK Overseas...

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... premium income, after reinsurance, increased by 4% to Â£6,326 million primarily reflecting a full year of ABN AMRO businesses in comparison with 76 days in 2007. This was partly offset by the discontinuation of less profitable partnership contracts. 44 RBS Group Annual Report and Accounts 2008

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... Risk management Sub-section Credit market and related disclosures Note 11 Financial instruments Critical accounting policies Note 11 Financial instruments Note 11 Financial instruments Market risk 122 201 186 199 Page - 144 - 206 - 187 - 206 208 109 RBS Group Annual Report and Accounts 2008...

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... days in 2007. The Group's ratio of operating expenses to total income was 208.9% compared with 45.9% in 2007, largely reflecting the impact on income of the year's difficult market conditions and the write-down of goodwill and other intangible assets. 46 RBS Group Annual Report and Accounts 2008

Page 48
... in respect of the ABN AMRO acquisition, compared to 76 days in 2007. Accruals in relation to integration costs are set out below. At 31 December 2007 Â£m Currency translation adjustments Â£m Charge to income statement Â£m Utilised during the year Â£m At 31 December 2008 Â£m Staff costs Premises...

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Business review continued Impairment Pro forma 2008 Â£m (1) Statutory 2007 Â£m 2008 Â£m 2007 Â£m New impairment less: recoveries of amounts previously written-off Charge to income statement Comprising: Loan impairment Impairment of available-for-sale securities Charge to income statement Note: ...

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... 2008 Â£m 2007 Â£m Expected tax (credit)/charge Non-deductible goodwill impairment Unrecognised timing differences Other non-deductible items Non-taxable items Taxable foreign exchange movements Reduction in deferred tax liability following change in the rate of UK corporation tax Foreign profits...

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... Europe & Middle East Retail & Commercial Banking Asia Retail & Commercial Banking Total Regional Markets RBS Insurance Group Manufacturing Central items (excluding one-off items) Share of shared assets RFS Holdings minority interest Underlying profit/(loss) Credit market write-downs and one-off...

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... - Global Banking & Markets 2008 Â£m Pro forma 2007 Â£m Statutory 2007 Â£m Net interest income from banking activities Net fees and commissions receivable Income from trading activities Other operating income (net of related funding costs) Trading asset write-downs Non-interest income before credit...

Page 53
... performances in a number of businesses, most notably in rates and currencies and the inclusion of the ABN AMRO businesses for a full twelve months. After credit market write-downs and one-off items and trading asset write-down, GBM recorded negative income of Â£2,520 million. Direct costs were up...

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... market, increasing trade finance income in the region by 74%, and has expanded its supply chain finance activities with an enhanced product suite. Margins improved throughout the year reflecting the additional risk premium in the prevailing market conditions. Merchant services and commercial cards...

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... Relationship Managers and platform functionality. The division will pursue above market growth in customer deposits to improve its funding contribution to the Group, and will diversify its customer lending, reducing its exposure to commercial property. 54 RBS Group Annual Report and Accounts 2008

Page 56
..., operating profit decreased 12%, Â£243 million, to Â£1,764 million. In the personal segment, RBS retained top position and NatWest was again joint second for customer satisfaction amongst main high street banks. The business segment has continued to grow, maintaining market leadership with a share...

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... assets totalled Â£63.8 billion at year end, a fall of 3% from 1 January 2008. The upward pressure from procyclicality, especially on the mortgage book, and book growth was offset by the disposal of TPF and improvements in Basel II methodologies. 56 RBS Group Annual Report and Accounts 2008

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... million. 2007 benefited from the profit on disposal of the Securities Services Group business; adjusting for this underlying growth in non interest income was 6%. This strong performance reflects increased sales of interest rate and currency risk management products. Direct expenses increased 13...

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... income increasing by 9% to Â£859 million and operating profit increasing by 5% to Â£403 million. UK Wealth generates earnings from both private banking and investment services, and this has enabled the division to maintain strong organic growth, despite the deterioration in global market conditions...

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...asset margins and management of savings rates in a competitive deposit market. Direct expenses increased by 5% to $2,012 million, reflecting increased costs from the expansion of the commercial banking relationship management teams, write-downs on mortgage servicing rights, and higher costs related...

Page 61
... investments, whilst reducing activity in its out-offootprint national businesses in consumer and commercial finance. This strategy will allow Citizens to become fully funded from its own customer deposits over time, and will support a low risk profile. 60 RBS Group Annual Report and Accounts 2008

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... the impact on credit quality of the slowdown in the Irish economy, with the final quarter showing notable decline in both activity and sentiment. This was reflected in a significantly increased flow of cases into the problem debt management process. RBS Group Annual Report and Accounts 2008 61

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... programme of initiatives. The business plans to manage its balance sheet over the medium term, with particular focus on reducing risk concentrations as market conditions allow, whilst increasing and diversifying its customer deposit base. The E&ME Retail and Commercial franchises outside of Ireland...

Page 64
...to reduced structured product and equity fund sales, as investors stayed out of volatile markets. Despite this, Royal Preferred Banking client numbers have increased by 13% and assets under management in the affluent segment have increased by 3%. Credit cards and consumer finance credit metrics have...

Page 65
... contracts and pulled back from some less profitable segments of the broker market. As a result partnership and broker in-force policies have fallen by 9% over the last year with a corresponding 9% reduction in income, yet contribution grew by 27%. 64 RBS Group Annual Report and Accounts 2008

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... in the online insurance aggregator channel, through the bank channels and in the commercial market. The business retains competitive advantage through its market leading brands, low cost operating model and the benefits of scale on its claims costs. RBS Group Annual Report and Accounts 2008 65

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... Group Manufacturing costs increased by 27% to Â£4,793 million in 2008. This growth reflects the inclusion of a full year of ABN AMRO related costs (Â£937 million) in 2008 whereas 2007 includes only the post acquisition element of costs (Â£193 million). 66 RBS Group Annual Report and Accounts 2008

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... of ABN AMRO. Other corporate costs amounted to a net credit of Â£1,320 million, compared with a net credit of Â£509 million in 2007. The increase reflects higher gains in the fair value of own debt and the profit on sale of Tesco Personal Finance in 2008. RBS Group Annual Report and Accounts 2008...

Page 69
... hundred) 2008 2007 Global Banking & Markets Global Transaction Services UK Retail & Commercial Banking US Retail & Commercial Banking Europe & Middle East Retail & Commercial Banking Asia Retail & Commercial Banking RBS Insurance Group Manufacturing Centre Integration Share of shared assets RFS...

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... assets Assets of disposal groups Share of shared assets Total assets Liabilities Deposits by banks Customer accounts Debt securities in issue Settlement balances and short positions Derivatives Accruals, deferred income and other liabilities Retirement benefit liabilities Deferred tax Insurance...

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... of sterling during the second half of 2008. Debt securities decreased by Â£27.1 billion, 9%, to Â£267.5 billion and equity shares decreased by Â£26.7 billion, 50%, to Â£26.3 billion principally due to lower holdings in Global Banking & Markets. 70 RBS Group Annual Report and Accounts 2008

Page 72
...and liabilities of disposal groups decreased following completion of the sales of the Asset Management business of ABN AMRO to Fortis, Banca Antonveneta to Monte dei Paschi di Sienna and the majority of ABN AMRO's Private Equity business to third parties. Deposits by banks declined by Â£54.3 billion...

Page 73
... liabilities less operating assets and the profit before tax of Â£9,900 million, partly offset by the elimination of foreign exchange differences of Â£10,282 million and income taxes paid of Â£2,442 million. The acquisition of ABN AMRO, included within net investment in business interests and...

Page 74
...inherent credit and other risks); by international agreement, the RAR should be not less than 8% with a Tier 1 component of not less than 4%. At 31 December 2008, the Group's total RAR was 14.1% (2007 - 11.2%) and the Tier 1 RAR was 10.0% (2007 - 7.3%). RBS Group Annual Report and Accounts 2008 73

Page 75
... businesses to the other Consortium Members occurred on 1 January 2007. Group operating profit on a pro forma basis: Excludes â€¢ ABN AMRO pre acquisition credit market write-downs and the impact of the LaSalle sale; â€¢ RBS share of ABN AMRO's shared assets; â€¢ amortisation of purchase accounting...

Page 76
Income statement for the year ended 31 December 2007 289 days RBS share of ABN AMRO Â£m 76 days RBS share of shared assets Â£ 76 days RFS minority interest Â£m Credit market write-downs and one-off items Â£m Intangibles amortisation and integration costs Â£m Pro forma Â£m Funding adjustments Â£m ...

Page 77
..., accrued income and other assets Deferred taxation Assets of disposal groups Share of shared assets Total assets Liabilities Deposits by banks Net customer accounts Repurchase agreements and stock lending Customer accounts Debt securities in issue Settlement balances and short positions Derivatives...

Page 78
..., accrued income and other assets Deferred taxation Assets of disposal groups Share of shared assets Total assets Liabilities Deposits by banks Customer deposits Repurchase agreements and stock lending Customer accounts Debt securities in issue Settlement balances and short positions Derivatives...

Page 79
... business plan and strategy. Group Board of Directors Group Executive Management Committee Group Audit Committee Advances Committee Executive Risk Forum Group Credit Committee Group Asset and Liability Management Committee Group Risk Committee 78 RBS Group Annual Report and Accounts 2008

Page 80
... Group Chief Credit Officer Business and function heads, as determined by the Group Chief Executive/Board Group Chief Executive Group Finance Director Group Chief Risk Officer Chairman, Regional Markets Chief Executive, RBS UK Chief Executive, Global Banking & Markets Group Chief Risk Officer Group...

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... are used to ensure that the Group's risk appetite is achieved. The annual business planning and performance management process and associated activities ensure the expression of risk appetite remains appropriate. GRC and GALCO support this work. 80 RBS Group Annual Report and Accounts 2008

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...to manage their allocated RWAs. Group Treasury and GALCO monitor actual utilisation by tracking capital available and the utilisation of capital by divisions. GALCO makes the necessary decisions around re-allocation of budget and changes in RWA allocations. RBS Group Annual Report and Accounts 2008...

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... capital required to support the credit, market and operational risks in the business. For credit risk, the majority of the Group uses the Advanced Internal Ratings Based Approach (AIRB) for calculating RWAs, making the Group one of a small number of banks whose risk systems and approaches have...

Page 84
... regulatory changes. Compliance with regulations. Potential for fines and/or restrictions in business activities. Additional regulation can be introduced as a result of other risk losses. Other risk The risks arising from reputation and pension fund risk. RBS Group Annual Report and Accounts 2008...

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... utilising industry standard credit and behaviour scoring techniques. â€¢ Stress testing of portfolios is undertaken to assess the potential credit impact of non-systemic scenarios and wider macroeconomic events on the Group's income and capital. 84 RBS Group Annual Report and Accounts 2008

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... basis. Group Risk Committee Approve high materiality models Group Models Committee Approve medium materiality models Wholesale Credit Model Committee Retail Credit Model Committee Technical review of all models Approve low materiality models RBS Group Annual Report and Accounts 2008 85

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...of shared assets, in line with management's view of the business. Facilities included within RFS Holdings minority interests have not been migrated to RBS risk systems, as they will not be part of the Group following separation of the ABN AMRO business. 86 RBS Group Annual Report and Accounts 2008

Page 88
...to manage country risk and agree related policy. Membership of GCRMC comprises the Group Chief Credit Officer, Heads of Credit and business representatives from those divisions with material country risk exposures. GCRMC sets limits for each country based on a risk assessment taking into account the...

Page 89
... assets (2007 - 50%), which are well diversified across a range of sectors. Banks and financial services account for 21% of credit risk assets (2007 - 19%) and public sector and quasi government credit risk assets make up the remaining 5% (2007 - 4%). 88 RBS Group Annual Report and Accounts 2008

Page 90
... issuer risk for 2008 and 2007. As at 31 December 2008, 38% of credit risk assets (2007 - 46%) related to the United Kingdom. Western Europe comprised 27% of credit risk assets (2007 - 23%). North America comprised 21% of credit risk assets (2007 - 19%). RBS Group Annual Report and Accounts 2008...

Page 91
... for the customer type. All credit grades across the Group map to both a Group level asset quality scale, used for external financial reporting, and a master grading scale for wholesale exposures used for internal management reporting across disparate portfolios. Accordingly, measurement of risk is...

Page 92
... of this portfolio. 58% of the lending is in the UK, 30% Residential mortgages The Group originates residential mortgages through retail channels in all four divisions within Regional Markets however activity is primarily in the UK, the US and Ireland. RBS Group Annual Report and Accounts 2008 91

Page 93
... estate assets to the Federal National Mortgage Association in December 2008. CFG has historically adopted conservative risk policies in comparison to the general market. Small exposures to sub-prime (FICO

Page 94
...ABN AMRO and RBS have a number of common clients in this sector, and the Group is working to reduce exposures back within Group concentration limits, primarily in relation to investment grade, vertically integrated counterparties and several of the larger, global exploration and production companies...

Page 95
... is to work closely with the Group's customer facing businesses to support the proactive management of any problem lending. This is based on a clear process (watch listing) which requires the transfer of problem credits to GRG. GRG reports to the Group Chief Risk Officer. Given the current economic...

Page 96
... Notes: (1) Credit risk assets as reported internally to senior management exclude certain exposures and take account of netting agreements including master netting arrangements that provide a right of legal set off but do not meet the criteria for offset in IFRS. The analysis of credit risk assets...

Page 97
... type. Group Loans and advances to banks and customers Â£m Debt securities and equity shares Â£m Netting and offset (2) Â£m 2008 Derivatives Â£m Other (1) Â£m Total Â£m UK Central and local government Manufacturing Construction Finance Service industries and business activities Agriculture...

Page 98
... transactions. Group Loans and advances to banks and customers Â£m Debt securities and equity shares Â£m Netting and offset (2) Â£m 2007 Derivatives Â£m Other (1) Â£m Total Â£m UK Central and local government Manufacturing Construction Finance Service industries and business activities...

Page 99
...Group a legal right to set-off the financial asset against a financial liability due to the same counterparty. In addition, the Group holds collateral in respect of individual loans and advances to banks and to customers. This collateral includes mortgages over property (both personal and commercial...

Page 100
... Banking & Markets - Global Transaction Services Total Global Markets Regional Markets - UK Retail & Commercial Banking - US Retail & Commercial Banking - Europe & Middle East Retail & Commercial Banking - Asia Retail & Commercial Banking Total Regional Markets Other RBS share of shared assets Group...

Page 101
... operates a clear provisions governance framework which sets thresholds whereby suitable oversight and challenge is undertaken and significant cases will be presented to a committee chaired by the Group Chief Executive or the Group Finance Director. 100 RBS Group Annual Report and Accounts 2008

Page 102
...losses Impairment losses on available-for-sale securities Charge to income statement Impairment losses by division: Global Markets - Global Banking & Markets - Global Transaction Services Regional Markets - UK Retail & Commercial Banking - US Retail & Commercial Banking - Europe & Middle East Retail...

Page 103
... RBS Share of Shared Assets Â£m RFS Holdings minority interest Â£m Global Banking & Markets Â£m Global Transaction Services Â£m UK Retail & Commercial Banking Â£m US Retail & Commercial Banking Â£m Central Items Â£m Total 2008 Â£m 2007 Â£m At 1 January Transfers to disposal groups Currency...

Page 104
... and money markets. Government intervention in, and support for, the international financial system has increased to unprecedented levels taking the form of capital injections, guaranteed funding, asset insurance schemes and expanded facilities from a number of central banks: Management of term...

Page 105
...-day term loans of Treasury securities to primary dealers in exchange for other program eligible collateral. Liquidity management in 2008 (audited) The exposure of the Group to wholesale market funding increased markedly in 2008 following the acquisition of the wholesale banking business of ABN AMRO...

Page 106
... short term debt and bank deposit markets. In order to relieve funding shortages in the market, central banks across the world allowed banks to pledge assets to access funding. The Group has used central bank schemes to support its funding and pledged assets into several of these schemes in a number...

Page 107
..., the Group is reviewing the potential for new own-asset conduit structures to add funding diversity. Outlook for 2009 (unaudited) The market outlook for 2009 remains uncertain with the prospect of recession on a global scale. The wholesale funding markets remain difficult with a high degree of risk...

Page 108
... sets an absolute minimum level for the stock of qualifying liquid assets that the Group is required to maintain each day. Given the developments in 2008 the FSA has published new proposals for liquidity management (CP08/22) to replace the current regulatory framework. The FSA is proposing a major...

Page 109
... from changes in interest rates, foreign currency, credit spread, equity prices and risk related factors such as market volatilities. Market risk is actively managed and aligned with the Group's risk appetite. Market conditions were difficult throughout 2008 with significant volatility and write...

Page 110
... of assets to the non-trading book and write-downs. The average equity VaR increased in 2008 compared with 2007, due to the integration of ABN AMRO from 17 October 2007. 2007 Maximum Â£m Minimum Â£m Average Â£m Period end Â£m Maximum Â£m Minimum Â£m Interest rate Credit spread Currency Equity...

Page 111
...risk by comparing model outputs against alternative independently developed models. The results of independent quantitative review are used by Market Risk to inform risk limits and by Finance to inform reserves. Governance over this process is provided 110 RBS Group Annual Report and Accounts 2008

Page 112
... and the management of internal funds flow within the Group's businesses. In addition, this includes GBM trading portfolio assets that have been reclassified to available-for-sale. Money market portfolios include cash instruments (principally debt securities, loans and deposits) and related hedging...

Page 113
Business review continued Non-trading interest rate VaR (audited) Non-trading interest rate VaR for the Group's treasury and retail and commercial banking activities was Â£70.6 million at 31 December 2008 (2007 - Â£42.9 million) with the major exposure being to changes in longer term US dollar ...

Page 114
... bank rates or product rates for which the entity has discretion over the timing and extent of rate changes). The projections make other simplifying assumptions, including that all positions run to maturity and that there are no negative interest rates. RBS Group Annual Report and Accounts 2008...

Page 115
... Group's foreign currency denominated risk weighted assets, reducing the sensitivity of the Group's Tier 1 capital ratio to movements in foreign currency exchange rates. Equity risk (audited) Equity positions are measured at fair value. Fair value calculations are based on available market prices...

Page 116
... systems. Monthly returns by the Group's business units, collated as part of month-end reporting by Group Treasury to GALCO, are used to build a Group IRRBB VaR position and to ensure businesses comply with materiality limits on a pre and post hedge basis for interest rates, as stipulated by Group...

Page 117
...Group uses exclusively proportional reinsurance, quota share and surplus, for its life insurance entities. The Group is not exposed to price, currency, credit, or interest risk on unit linked life contracts but it is exposed to variation in management fees. In the UK, the Group also writes insurance...

Page 118
...The Group uses various types of reinsurance to transfer risk that is outside the Group`s risk appetite, including: â€¢ Per individual risk excess of loss reinsurance. â€¢ Catastrophe excess of loss reinsurance. â€¢ Quota share and surplus reinsurance. RBS Group Annual Report and Accounts 2008 117

Page 119
...the Group's business as it is inherent in the processes it operates to provide services to customers and generate profit for shareholders. An objective of operational risk management is not to remove operational risk altogether, but to manage the risk to an acceptable level, taking into account the...

Page 120
... operational risk issues are identified, escalated and managed on a timely basis. Operational risk exposures for each division are reported through monthly risk and control reports, which provide detail on the risk exposures and action plans for each significant business process. Operational risk...

Page 121
... the crisis and incident management perspective include pandemics, terrorism, environmental impacts and technology disruptions. Business continuity plans have been implemented to ensure that the Group can continue key services, products and operations. 120 RBS Group Annual Report and Accounts 2008

Page 122
... or business purpose and is not designed or used for inappropriate accounting or tax purposes. The Group takes care to understand the issues that matter most to stakeholders, balance the views of all stakeholders and address them coherently. Risks to the RBS Group Annual Report and Accounts 2008...

Page 123
Business review continued Credit market and related exposures Explanatory note (unaudited) These disclosures provide information for certain of the Group's business activities affected by the unprecedented market events of 2008, the majority of which arose within Global Banking and Markets (GBM). ...

Page 124
... trades debt in the form of loan, bond and derivative instruments in all major currencies and debt capital markets in North America, Western Europe, Asia and major emerging markets. During 2008, certain assets identified as being high risk were also transferred to a centrally managed asset unit, set...

Page 125
... referred to in the credit market and related exposures section relates to economic hedges that do not qualify for hedge accounting. Through a sustained de-risking exercise the Group made reductions to the overall risk through a combination of direct asset sales and switching to lower risk assets...

Page 126
... based on observable market data. (3) Instruments in this category have been valued using a valuation technique where at least one input which could have a significant effect on the instrument's valuation is not based on observable market data. RBS Group Annual Report and Accounts 2008 125

Page 127
...97,259 2,119 99,378 Notes: (1) Carrying values at 31 December 2007 above include ABN AMRO's liquidity portfolio of Â£18.6 billion of ABS which were part of shared assets then; this portfolio was transferred to RBS Group Treasury in the first half of 2008. (2) Credit ratings are based on those from...

Page 128
... underlying mortgage assets and the credit enhancement of the securitisation structure. Several tranches of notes are issued, each secured against the same portfolio of mortgages, but providing differing levels of seniority to match the risk appetite of investors. The most junior (or equity) notes...

Page 129
Business review continued 2008 Sub-prime Â£m Alt-A Â£m Prime Guaranteed Â£m Other Â£m Total Â£m Sub-prime Â£m Alt-A Â£m 2007 Prime Guaranteed Â£m Other Â£m Total Â£m United States Net exposure Held-for-trading Available-for-sale Loans and receivables Carrying values Held-for-trading Available-for...

Page 130
...-for-trading nil (2007 - Â£73 million); available-for-sale Â£308 million (2007 - Â£132 million) and loans and receivables Â£6 million (2007 - nil). â€¢ RMBS non-conforming available-for-sale net exposures and carry values of nil (2007 - Â£68 million). RBS Group Annual Report and Accounts 2008 129

Page 131
...and high grade CMBS structures from third parties. These securities are predominantly hedged with monoline insurers. As a result, the Group's risk is limited to the counterparty credit risk exposure to the hedge. The Group also holds CMBS arising from securitisations of European commercial mortgages...

Page 132
... markets with net exposures of Â£1.4 billion (2007 - Â£3.8 billion), as well as other CDO net exposures of Â£1.5 billion (2007 - Â£1.6 billion) purchased from third parties some of which are fully hedged through CDSs with other banks or monoline insurers. RBS Group Annual Report and Accounts 2008...

Page 133
... below. High grade Â£m Mezzanine Â£m Total Â£m Net exposure at 1 January 2008 Net income statement effect Foreign exchange and other movements Net exposure at 31 December 2008 2,581 (1,836) 486 1,231 1,253 (1,140) 31 144 3,834 (2,976) 517 1,375 132 RBS Group Annual Report and Accounts 2008

Page 134
... reference assets and the lack of an active market for the securities. Some of the Group's holdings (Â£3.4 billion) have been hedged with monoline counterparties (see page 135). Mezzanine super senior CDOs The tranches of CDOs have suffered a greater level of price decline than high grade...

Page 135
... in RMBS and CMBS structures, which reference cashflow generating assets other than mortgages. The wide variety of referenced underlying assets result in diverse asset performance levels. The Group has accumulated these assets from a range of trading and funding activities. The carrying value of the...

Page 136
... and credit derivative product companies. The monoline insurer CVA is calculated on a trade-by-trade basis, and is derived using market observable monoline credit spreads. The majority of the monoline CVA is taken against credit derivatives hedging exposures to ABS. The CDPC CVA is calculated using...

Page 137
... an intrinsic credit enhancement from a monoline insurer. These securities are traded with the benefit of this credit enhancement and therefore any deterioration in the credit rating of the monoline is reflected in the market prices for these assets. 136 RBS Group Annual Report and Accounts 2008

Page 138
...20,605 19,742 - 19,742 863 - 863 44 - 44 The movement in the year in CDPC CVA is analysed below: Â£m At 1 January 2008 Net benefit on CVA hedges Net benefit on FX hedges Net income statement effect Balance at 31 December 2008 44 533 119 615 1,311 RBS Group Annual Report and Accounts 2008 137

Page 139
... manager or underwriter, in excess of the Group's intended long term participation. Since the beginning of the credit market dislocation in the second half of 2007, investor appetite for leveraged loans and similar risky assets has fallen dramatically, with secondary prices falling due to selling...

Page 140
...the SPE, but credit derivatives are used to transfer the credit risk of the assets to an SPE. Securities may then be issued by the SPE to investors, on the back of the credit protection sold to the Group by the SPE. In general residential and commercial mortgages and credit card receivables form the...

Page 141
.... As part of the integration of ABN AMRO and a strategic review of the conduit business, the sole securitisation arbitrage conduit was dissolved in 2008. All of its assets were transferred to a centrally managed asset unit for run-off or sale. The Group's exposure from both its consolidated conduits...

Page 142
... (corporate loans) and Â£10.5 billion commercial paper issued relating to a shared conduit - see below. â€¢ Â£1.3 billion assets relating to reactivated conduits which started to issue commercial paper in the second half of 2008. (2) Programme-wide credit enhancement. (3) Maximum exposure to loss is...

Page 143
Business review continued The Group's exposure from the conduit shared with the other consortium members is set out below: 2008 Â£m 2007 Â£m Total assets held by the conduits Commercial paper issued Liquidity and credit enhancements: deal specific drawn liquidity - drawn - undrawn 13,286 13,028 ...

Page 144
... 24 15 784 10,858 3,940 110 2,848 2,183 16 395 2,610 713 9 401 - 2,652 15,877 62 - 147 236 116 - - 125 686 - - - 51 51 Structured investment vehicles (unaudited) The Group does not sponsor any structured investment vehicles. RBS Group Annual Report and Accounts 2008 143

Page 145
...171 million). â€¢ Â£8.0 billion (2007 - Â£5.1 billion) in Money Funds denominated in sterling, US dollars and euro, which invest in short-dated, highly rated money market securities with the objective of providing security, performance and liquidity. 144 RBS Group Annual Report and Accounts 2008

Page 146
... 159 160 169 170 Board of directors and secretary Report of the directors Corporate governance Letter from the Chairman of the Remuneration Committee Directors' remuneration report Directors' interests in shares Statement of directors' responsibilities RBS Group Annual Report and Accounts 2008 145

Page 147
... plc. He is also former chairman of UK Financial Investments Limited, the company established to manage the UK Government's shareholding in banks subscribing to its recapitalisation fund, and is a non-executive director of Belgacom SA. Appointed to the Board on 1 October 2008 and as Group Chief...

Page 148
... of UBS Securities Canada Inc. He is chairman of Standard Life Investments Limited and a director of Standard Life plc and Black Rock World Mining Trust Plc. Appointed to the Board on 1 October 2008, John McFarlane is former chief executive officer of Australia and New Zealand Banking Group Limited...

Page 149
... Board's intention to pay a dividend on ordinary shares in 2009. Business review Activities The company is a holding company owning the entire issued ordinary share capital of The Royal Bank of Scotland plc, the principal direct operating subsidiary undertaking of the company. The "Group" comprises...

Page 150
...the interest in Saudi Hollandi); â€¢ Business Unit Europe (excluding Antonveneta); Employees As at 31 December 2008, the Group employed over 199,000 employees (full-time equivalent basis) throughout the world. Details of employee related costs are included in Note 3 on the accounts on page 190. The...

Page 151
... in Note 27 on the accounts. Authority to repurchase shares At the Annual General Meeting in 2008, shareholders renewed the authority for the company to make market purchases of up to 1,000,710,085 ordinary shares. The directors have not used this authority to date and there is no current intention...

Page 152
... the Employee Share Ownership Plan. The rights and obligations of holders of non-cumulative preference shares are set out in Note 27 on the accounts on pages 242 to 244. The company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and...

Page 153
... Meeting. By order of the Board Miller McLean Secretary 25 February 2009 The Royal Bank of Scotland Group plc is registered in Scotland No. 45551. Political donations At the Annual General Meeting in 2006, shareholders gave authority for the company to make political donations and incur political...

Page 154
...financial and risk management of the company. Meetings of the Board are structured to allow open discussion. There were nine scheduled Board meetings during 2008. The directors were supplied with comprehensive papers in advance of each Board meeting covering the Group's principal business activities...

Page 155
... to prior review by the Board. The names of directors standing for election at the 2009 Annual General Meeting are included on page 151 and further information will be given in the Chairman's letter to shareholders in relation to the company's Annual General Meeting. Board Committees In order...

Page 156
..., information on major investor relations activities and changes to external credit ratings is provided. Detailed market and shareholder feedback is provided to the Board after results and other market announcements. The senior independent director was available throughout 2008 to shareholders...

Page 157
...and management of the significant risks faced by the Group, which operated throughout the year ended 31 December 2008 and to 25 February 2009, the date the directors approved the Report and Accounts. This process is regularly reviewed by the Board and meets the requirements of the guidance 'Internal...

Page 158
... â€¢ monitoring the Group's processes for internal audit, risk management and external audit. The terms of reference of the Audit Committee are available at www.rbs.com and these are considered annually by the Audit Committee and approved by the Board. RBS Group Annual Report and Accounts 2008 157

Page 159
... the Board. Since 2005, divisional audit committees have been responsible for reviewing each division's business. During 2008, the divisional audit committee structure was revised to take account of the acquisition of ABN AMRO, the significant international growth of the Group's businesses and best...

Page 160
... delivery of our strategic plan and to build a sustainable and successful Group for the future. â€¢ No profit share payment has been made for financial year 2008 and the scheme has been withdrawn going forward. We have made changes to benefits for some employees below manager level as part of the...

Page 161
... Chief Executive, and maintains high level oversight of the application of remuneration policy below this level. The Committee oversees annual incentive plans and reviews all long-term incentive arrangements operated by the Group. The non-executive directors' fees are reviewed annually by the Board...

Page 162
... Buy As You Earn schemes. These schemes are not subject to performance conditions since they are operated on an allemployee basis. Options The Executive Share Option Plan was approved by shareholders at the company's 2007 Annual General Meeting. In 2008, options were granted to executive directors...

Page 163
... for 2003. Total shareholder return 200 180 160 140 120 100 80 60 40 20 2003 2004 2005 2006 FTSE 100 FTSE Banks RBS 2007 2008 Service contracts The company's policy in relation to the duration of contracts with directors is that executive directors' contracts generally continue until termination by...

Page 164
... company does not require him to work out his notice period, Mr Hester may receive a payment in lieu of notice based on salary only (i.e. no bonus or benefits) and he will also forfeit any unvested stock awards. Gordon Pell is a member of The Royal Bank of Scotland Group Pension Fund (the RBS Fund...

Page 165
... Chairmanship of the Remuneration Committee. No director received any expense allowances chargeable to UK income tax or compensation for loss of office/termination payment. The non-executive directors did not receive any bonus payments or benefits. 164 RBS Group Annual Report and Accounts 2008

Page 166
...subject to performance conditions. (2) Options held at 21 November 2008 when he ceased to be a director. Unvested awards were waived on cessation and lapsed on 31 January 2009. In respect of his vested options under The Royal Bank of Scotland Group plc 1999 Executive Share Option Scheme, any options...

Page 167
...'s issued ordinary share capital, leaving an available dilution headroom of 7.9%. The company meets its employee share plan obligations through a combination of new issue shares and market purchase shares. Medium Term Performance Plan Scheme interests at 1 January 2008 and the related market price...

Page 168
... the company's Annual General Meeting in April 2005. Performance is measured on a combination of growth in Profit before tax and Relative Return on Equity based on a comparison of Citizens with comparator US banks. (2) When Mr Fish stepped down from the Board on 31 December 2008, under the terms of...

Page 169
... pension schemes. Disclosure of these benefits has been made in accordance with the United Kingdom Listing Authority Listing Rules and with the Directors' Remuneration Report Regulations 2002. Transfer value for the additional pension earned during the year ended 31 December 2008* Â£000 Defined...

Page 170
...028,914 shares) and The Royal Bank of Scotland Group plc 2007 US Employee Share Trust (8,455,545 shares), being trusts operated for the benefit of employees of the company and its subsidiaries. Shares beneficially owned at 1 January 2008 or date of appointment, if later Non-executive directors Mr...

Page 171
... Whittaker Group Finance Director 25 February 2009 Board of directors Chairman Philip Hampton Executive directors Stephen Hester Gordon Pell Guy Whittaker Non-executive directors Colin Buchan Archie Hunter Joe MacHale John McFarlane Arthur 'Art' Ryan 170 RBS Group Annual Report and Accounts 2008

Page 172
... Pension costs Auditors' remuneration Tax Profit attributable to other owners Ordinary dividends Profit dealt with in the accounts of the company Earnings per ordinary share Financial instruments Past due and impaired financial assets Derivatives Debt securities Equity shares Investments in Group...

Page 173
... the business review section of the directors' report. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board and with the standards of the Public Company Accounting Oversight Board (United States...

Page 174
... ended 31 December 2007 were restated for the matters disclosed in Note 1 of the Accounting Polices. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group's internal control over financial reporting as at 31 December 2008...

Page 175
... The accompanying notes on pages 189 to 266, the accounting policies on pages 178 to 188 and the audited sections of 'The Business Review: Risk, Capital and Liquidity Management' on pages 78 to 144 form an integral part of these financial statements. 174 RBS Group Annual Report and Accounts 2008

Page 176
... an integral part of these financial statements. The accounts were approved by the Board of directors on 25 February 2009 and signed on its behalf by: Philip Hampton Chairman Stephen Hester Group Chief Executive Guy Whittaker Group Finance Director RBS Group Annual Report and Accounts 2008 175

Page 177
...-sale investments Net valuation (losses)/gains taken direct to equity Net loss/(profit) taken to income Cash flow hedges Net losses taken direct to equity Net losses/(gains) taken to earnings Exchange differences on translation of foreign operations Actuarial (losses)/gains on defined benefit plans...

Page 178
... defined benefit pension schemes Elimination of non-cash items on discontinued activities Elimination of foreign exchange differences Other non-cash items Net cash (outflow)/inflow from trading activities Changes in operating assets and liabilities Net cash flows from operating activities before tax...

Page 179
... ABN AMRO acquisition accounting as set out in Note 34; and for the classification of Banco Real as a discontinued operation as described in Note 20. The Group is not required to include reconciliations of shareholders' equity and net income under IFRS and US GAAP in its filings with the Securities...

Page 180
... plans to eligible employees. For defined benefit schemes, scheme liabilities are measured on an actuarial basis using the projected unit credit method and discounted at a rate that reflects the current rate of return on a high quality corporate bond of equivalent term and currency to the scheme...

Page 181
... are reported in income from trading activities except for differences arising on cash flow hedges and hedges of net investments in foreign operations. Nonmonetary items denominated in foreign currencies that are stated at fair value are translated into sterling at foreign exchange rates ruling...

Page 182
... investment margins, to estimate future surpluses attributable to the Group. These surpluses, discounted at a risk-adjusted rate, are recognised as a separate asset. Changes in the value of this asset are included in profit or loss. Premiums on long-term insurance contracts are recognised as income...

Page 183
... recognised on trade date. Fair value for a net open position in a financial asset that is quoted in an active market is the current bid price times the number of units of the instrument held. Fair values for financial assets not quoted in an active market are determined using appropriate valuation...

Page 184
... (see accounting policy 3). Fair value for a net open position in a financial liability that is quoted in an active market is the current offer price times the number of units of the instrument held or issued. Fair values for financial liabilities not quoted in an active market are determined using...

Page 185
... effective interest rate. Cash flow hedge - where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability or a highly probable forecast transaction, the effective portion of 184 RBS Group Annual Report and Accounts 2008

Page 186
...the date the options are granted. The fair value is estimated using valuation techniques which take into account the option's exercise price, its term, the risk-free interest rate and the expected volatility of the market price of The Royal Bank of Scotland Group plc's shares. Vesting conditions are...

Page 187
...unemployment level, payment behaviour and bankruptcy trends. Pensions The Group operates a number of defined benefit pension schemes as described in Note 4 on the accounts. The assets of the schemes are measured at their fair value at the balance sheet date. Scheme liabilities are measured using the...

Page 188
... tax assets in respect of losses, principally in the UK, and short-term timing differences. Tax relief is given for operating losses by offset when future profits arise and therefore the recoverability of deferred tax assets is a matter of judgement. RBS Group Annual Report and Accounts 2008...

Page 189
...for accounting periods beginning on or after 1 January 2009 and is not expected to have a material effect on the Group or company. The IFRIC issued interpretation IFRIC 16 'Hedges of a Net Investment in a Foreign Operation' in July 2008. The interpretation addresses the nature of the hedged risk and...

Page 190
...accounts: demand deposits Customer accounts: savings deposits Customer accounts: other time deposits Deposits by banks Debt securities in issue Subordinated liabilities Internal funding of trading business Interest payable Net interest income 2 Non-interest income (excluding insurance premium income...

Page 191
Notes on the accounts continued 3 Operating expenses Group 2008 Â£m 2007 Â£m 2006 Â£m Wages, salaries and other staff costs Social security costs Share-based compensation Pension costs - defined benefit schemes (see Note 4) - defined contribution schemes Staff costs Premises and equipment Other ...

Page 192
... temporary employees during 2008 was 7,000 (2007 - 4,900). The number of persons employed in the continuing operations of the Group at 31 December, excluding temporary staff, was as follows: Group 2008 2007 2006 Global Banking & Markets Global Transaction Services UK Retail & Commercial Banking US...

Page 193
...of 40 years. Employees do not make contributions for basic pensions but may make voluntary contributions to secure additional benefits on a money-purchase basis. Since October 2006 The Royal Bank of Scotland Group Pension Fund ('Main scheme') has been closed to new entrants. The Group also provides...

Page 194
... losses Acquisition of subsidiaries Intra-group transfers Contributions by employer Contributions by plan participants Benefits paid Expenses included in service cost At 1 January 2008 Transfers to disposal groups Currency translation and other adjustments Income statement: Expected return Interest...

Page 195
... Other services relating to taxation - Services relating to corporate finance transactions, including securitisations, entered into by the Group - All other services Total non-audit fees Fees payable to the auditors and their associates in respect of pension schemes: - Audit Total Notes: Group 2008...

Page 196
... share issued by the company are included in subordinated liabilities and the related finance cost in interest payable. (2) Between 1 January 2009 and the date of approval of these accounts, dividends amounting to US$163 million have been declared in respect of equity preference shares for payment...

Page 197
... assets - Assets of disposal groups - 1,226,769 Liabilities Deposits by banks (5) Customer accounts (6, 7) Debt securities in issue (8, 9) Settlement balances and short positions Derivatives Accruals, deferred income and other liabilities Retirement benefit liabilities Deferred taxation Insurance...

Page 198
... change in fair value from movements in the period in the credit risk premium payable by the Group. The carrying amount is Â£1,145 million (2007 - Â£317 million) lower than the principal amount. (10) During 2008 the Group reclassified financial assets from the held-for-trading and available-for-sale...

Page 199
... and receivables Â£m Total Â£m Assets Loans and advances to banks (1) Investments in Group undertakings Derivatives (3) Deferred taxation Prepayments, accrued income and other assets Liabilities Deposits by banks (2) Customer accounts (2) Debt securities in issue Derivatives (2) Accruals, deferred...

Page 200
... the London Inter-Bank Offered Rate (LIBOR) and quoted interest rates in the swap, bond and futures markets. â€¢ Foreign currency exchange rates - there are observable markets both for spot and forward contracts and futures in the world's major currencies. RBS Group Annual Report and Accounts 2008...

Page 201
Notes on the accounts continued 11 Financial instruments (continued) â€¢ Equity and equity index prices - quoted prices are generally readily available for equity shares listed on the world's major stock exchanges and for major indices on such shares. â€¢ Commodity prices - many commodities are ...

Page 202
... banks and customers Debt securities in issue Short positions Derivatives Other financial liabilities (4) - - 36.0 3.6 - 39.6 Notes: (1) Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, certain exchange-traded...

Page 203
... shares - private equity 31 December 2008 31 December 2007 Notes: (1) Residential mortgage-backed securities. (2) Commercial mortgage-backed securities. (3) Collateralised loan obligations. 8.0 0.1 2.2 1.1 21.4 32.7 1,030 - 130 80 1,880 610 1,200 10 130 160 2,200 700 202 RBS Group Annual Report...

Page 204
... insurance wraps or subordinated tranches. Where there are instances of market observable data for several similar RMBS tranches, the Group considers the extent of similar characteristics shared with the instrument being valued, together with the frequency, RBS Group Annual Report and Accounts 2008...

Page 205
... a proprietary model, market data and appropriate valuation adjustments. The Group's proprietary model calculates the expected cashflows from the underlying mortgages using assumptions, derived from publicly available data on future macroeconomic conditions (including house price appreciation and...

Page 206
...available benchmark data. Where significant management judgement has been applied in identifying the most relevant related product, or in determining the relationship between the related product and the instrument itself, the valuation is shown in level 3. Using RBS Group Annual Report and Accounts...

Page 207
... level 3. Equity shares - private equity Private equity investments include unit holdings and limited partnership interests primarily in corporate private equity funds, debt funds and fund of hedges funds. Externally managed funds are valued using recent prices where available. Where not available...

Page 208
... Â£m Total Â£m At 1 January 2008 Effect of changes to credit spreads Benefit of foreign exchange hedges New issues At 31 December 2008 304 376 392 274 1,346 152 583 195 97 1,027 456 959 587 371 2,373 - 450 - - 450 456 1,409 587 371 2,823 RBS Group Annual Report and Accounts 2008 207

Page 209
... from AFS to LAR: Debt securities Total 704 32,638 1.38 772 48,038 1,028 34,205 968 30,052 (12)(1) 6 (3,061) 2,773 - (464) - (2,137) (37)(1) (3,529) - (616) - 628 Note: (1) Gains/(losses) recognised in the available-for-sale reserve. 208 RBS Group Annual Report and Accounts 2008

Page 210
... value of subordinated liabilities in issue is based on quoted prices; where these are unavailable fair value is estimated using other valuation techniques. (6) The fair value of amounts due from and to subsidiaries is equal to their carrying value. RBS Group Annual Report and Accounts 2008 209

Page 211
... months Â£m Total Â£m Assets Cash and balances at central banks Loans and advances to banks Loans and advances to customers Debt securities Equity shares Settlement balances Derivatives Liabilities Deposits by banks Customer accounts Debt securities in issue Settlement balances and short positions...

Page 212
... cash flows payable up to a period of twenty years including future payments of interest. On balance sheet liabilities Group 2008 0-3 months Â£m 3-12 months Â£m 1-3 years Â£m 3-5 years Â£m 5-10 years Â£m 10-20 years Â£m Deposits by banks Customer accounts Debt securities in issue Derivatives held...

Page 213
... under the original terms of non-accrual and restructured loans Domestic Foreign 393 342 735 390 155 545 370 77 447 Interest on non-accrual and restructured loans included in net interest income Domestic Foreign 150 43 193 165 16 181 142 15 157 212 RBS Group Annual Report and Accounts 2008

Page 214
... into cash as rapidly as the market for the individual asset permits. Loans that have been renegotiated in the past 12 months that would otherwise have been past due or impaired amounted to Â£2,637 million as at 31 December 2008 (2007 - Â£930 million). RBS Group Annual Report and Accounts 2008 213

Page 215
... Companies in the Group transact derivatives as principal either as a trading activity or to manage balance sheet foreign exchange, interest rate and credit risk. The Group enters into fair value hedges, cash flow hedges and hedges of net investments in foreign operations. The majority of the Group...

Page 216
... Fair value hedging: (Losses)/gains on the hedged items attributable to the hedged risk Gains/(losses) on the hedging instruments Fair value ineffectiveness Cash flow hedging ineffectiveness (965) 884 (81) (16) (97) 81 (87) (6) 9 3 219 (215) 4 4 8 RBS Group Annual Report and Accounts 2008 215

Page 217
... value hedging Exchange rate contracts Interest rate contracts Assets Â£m - 193 225 - - - 54 - 14 Debt securities Group UK central and local government Â£m US central and local government Â£m Other central and local government Â£m Bank and building society Â£m Mortgage and other asset backed...

Page 218
... by US federal agencies and government sponsored entities. (2) Includes non asset backed securities issued by US federal agencies and government sponsored entities. (3) During 2008 the Group reclassified financial assets from the held-for-trading and available-for-sale categories into the loans and...

Page 219
... the current uncertain macro-economic outlook in US and Europe. The underlying securities remain unimpaired. 15 Equity shares Group 2008 Listed Â£m Unlisted Â£m Total Â£m Listed Â£m 2007 Unlisted Â£m Total Â£m Held-for-trading Designated as at fair value through profit or loss Available-for-sale...

Page 220
... reference date of 31 December. Nature of business Country of incorporation and principal area of operation Group interest The Royal Bank of Scotland plc National Westminster Bank Plc (1) Citizens Financial Group, Inc. Coutts & Co (2) Greenwich Capital Markets, Inc. RBS Insurance Group Limited...

Page 221
Notes on the accounts continued 17 Intangible assets Group Core deposit intangibles Â£m Other purchased intangibles Â£m Internally generated software Â£m 2008 Goodwill Â£m Total Â£m Cost: At 1 January 2008 Transfers to disposal groups Currency translation and other adjustments Acquisition of ...

Page 222
... 2007 Recoverable amount based on: Goodwill at 30 September Â£m RBS Insurance Global Banking & Markets UK Corporate Banking Retail Wealth Management Citizens - Retail Banking Citizens - Commercial Banking Citizens - Consumer Financial Services Fair Fair Fair Fair Fair value value value value...

Page 223
... from the global payments business acquired through the ABN AMRO acquisition along with cash management and corporate money transmission businesses previously in Citizens and Regional businesses. UK Retail and Commercial Banking was formed at the beginning of 2008 when the Group brought together...

Page 224
...plant and equipment Group Investment properties Â£m Freehold premises Â£m Long leasehold premises Â£m Short leasehold premises Â£m Computers and other equipment Â£m Operating lease assets Â£m 2008 Total Â£m Cost or valuation: At 1 January 2008 Transfers to disposal groups Currency translation and...

Page 225
...Investment properties are valued to reflect fair value, that is, the market value of the Group's interest at the reporting date excluding any special terms or circumstances relating to the use or financing of the property and transaction costs that would be incurred in making a sale. Observed market...

Page 226
... on 24 July 2008. There were no discontinued operations during 2006. Businesses acquired exclusively with a view to disposal comprise those ABN AMRO businesses, including Banca Antonveneta, Asset Management and Private Equity, classified as disposal groups on the acquisition of ABN AMRO on 17...

Page 227
...) Short positions (held-for-trading): Debt securities - Government - Other issuers Equity shares 11,741 32,519 6,374 3,643 54,277 17,520 41,048 25,310 7,143 91,021 22 Accruals, deferred income and other liabilities Group 2008 Â£m 2007 Â£m Company 2008 Â£m 2007 Â£m Notes in circulation Current...

Page 228
...Â£m Available for sale financial assets Â£m Cash flow hedging Â£m Tax losses carried forward Â£m Provisions Â£m Deferred gains Â£m Intangibles Â£m Share schemes Â£m Other Â£m Total Â£m At 1 January 2007 Acquisition/(disposals) of subsidiaries Charge/(credit) to income statement Charge/(credit...

Page 229
Notes on the accounts continued 24 Insurance business Group 2008 Â£m 2007 Â£m 2006 Â£m Insurance premium income Reinsurer's share Net premium income Insurance claims Reinsurer's share Net claims 6,626 (300) 6,326 4,603 (173) 4,430 6,376 (289) 6,087 4,742 (118) 4,624 6,243 (270) 5,973 4,550 (92)...

Page 230
... Closing net assets Note: (1) New business contribution represents the present value of future profits on new insurance contract business written during the year. 2008 Â£m 2007 Â£m 604 41 (15) 26 14 2 (46) (2) (10) 588 579 35 (23) 12 5 6 (14) - 16 604 RBS Group Annual Report and Accounts 2008...

Page 231
... and pricing risk through the use of underwriting guidelines which detail the class, nature and type of business that may be accepted; pricing policies by product line and by brand; and centralised control of policy wordings and any subsequent changes. 230 RBS Group Annual Report and Accounts 2008

Page 232
... The Group's focus is on high volume and relatively straightforward products, for example home and motor. This facilitates the generation of comprehensive underwriting and claims data, which are used to accurately price and monitor the risks accepted. RBS Group Annual Report and Accounts 2008 231

Page 233
... 73 The Group has no interest rate exposure from general insurance liabilities because provisions for claims under short-term insurance contracts are not discounted. Frequency and severity of specific risks and sources of uncertainty Most general insurance contracts are written on an annual basis...

Page 234
Life business The Group's three UK regulated life companies, National Westminster Life Assurance Limited (NatWest Life), Royal Scottish Assurance plc (RSA) and Direct Line Life Insurance Company Limited, are required to meet minimum capital requirements at all times under the UK Financial Service ...

Page 235
...or smaller impacts should not be interpolated or extrapolated from these results. The sensitivity analyses do not take into consideration that assets and liabilities are actively managed and may vary at the time that any actual market movement occurs. 234 RBS Group Annual Report and Accounts 2008

Page 236
... Group 2008 Â£m 2007 Â£m Company 2008 Â£m 2007 Â£m Dated loan capital Undated loan capital Preference shares Trust preferred securities 30,162 11,697 2,194 5,101 49,154 23,065 9,866 1,686 3,426 38,043 7,421 1,071 1,822 - 10,314 5,585 781 1,377 - 7,743 Certain preference shares issued...

Page 237
... Euro Total Currently Â£m 2008 Â£m 2009 Â£m 2010-2012 Â£m 2013-2017 Â£m Thereafter Â£m Perpetual Â£m Total Â£m - 425 - 425 13 435 45 493 - 620 - 620 198 643 914 1,755 399 2,594 367 3,360 - 1,089 - 1,089 1 - - 1 611 5,806 1,326 7,743 236 RBS Group Annual Report and Accounts 2008

Page 238
... loan capital floating rate notes 2010 (callable on any interest payment date) First Active Plc Â£60 million 6.375% subordinated bonds 2018 (callable April 2013) 697 623 488 379 376 507 474 376 349 330 287 212 116 69 342 85 50 249 66 65 237 RBS Group Annual Report and Accounts 2008

Page 239
... are subordinated to the claims of other creditors. None of the Group's dated loan capital is secured. (5) Interest on all floating rate subordinated notes is calculated by reference to market rates. (6) Transferred to Banco Santander S.A in July 2008. 238 RBS Group Annual Report and Accounts 2008

Page 240
... in whole, but not in part, at the option of the Group, at the principal amount thereof plus accrued interest, subject to prior regulatory approval. (7) Interest on all floating rate subordinated notes is calculated by reference to market rates. RBS Group Annual Report and Accounts 2008 239

Page 241
... above or on any interest payment date thereafter. They may also be redeemed in whole, but not in part, upon the occurrence of certain tax and regulatory events. The company classifies its obligations to these subsidiaries as dated loan capital. 240 RBS Group Annual Report and Accounts 2008

Page 242
... in retirement benefit schemes, net of tax Equity raised Equity withdrawn At 31 December 2007 Currency translation and other adjustments Acquisition of outstanding ABN AMRO ordinary shares (Loss)/profit attributable to minority interests Dividends paid Losses on available-for-sale securities, net of...

Page 243
... Shares issued in respect of the rights issue Shares issued in respect of the capitalisation issue Shares issued in respect of the placing and open offer Other shares issued At 31 December 2008 10,006,215 6,123,010 403,468 22,909,776 13,536 39,456,005 242 RBS Group Annual Report and Accounts 2008

Page 244
... preference shares are redeemable at the option of the company, in whole or in part from time to time at the rates detailed on the next page plus dividends otherwise payable for the then current dividend period accrued to the date of redemption. RBS Group Annual Report and Accounts 2008 243

Page 245
...were issued to HM Treasury. The company, subject to shareholder approval, intends to issue new ordinary shares by way of an open offer, the proceeds will be used to repay the preference shares, issued to HM Treasury, together with the accrued dividend. 244 RBS Group Annual Report and Accounts 2008

Page 246
... net investments in foreign operations and expected (actual) changes in the fair value of the external currency liabilities (excluding accrued interest) attributable to changes in the spot exchange rate between the currency of the investment and sterling. RBS Group Annual Report and Accounts 2008...

Page 247
... through the operation of the merger relief provisions of the Companies Act 1985. The subsequent redemption of these shares gave rise to distributable profits of Â£14,273 million which have been transferred from merger reserve to retained earnings. 246 RBS Group Annual Report and Accounts 2008

Page 248
... for future capital expenditure not provided for at the year end Operating leases Finance lease receivables Unearned finance income Accumulated allowance for uncollectible minimum lease receivables (37) 566 (23) 322 237 545 5,711 96 5,343 63 RBS Group Annual Report and Accounts 2008 247

Page 249
... level. Under standard terms for repurchase transactions in the UK and US markets, the recipient of collateral has an unrestricted right to sell or repledge it, subject to returning equivalent securities on settlement of the transaction. The fair value (and carrying value) of securities transferred...

Page 250
... on Group assets Deposits by banks Customer accounts Debt securities in issue 15,429 11,050 58,689 85,168 21,693 6,670 65,080 93,443 Note: (1) The table above includes assets used as collateral for central bank liquidity schemes. Of the assets above, Â£91.3 billion (2007 - Â£62.0 billion) relate...

Page 251
...return to shareholders while maintaining a prudent relationship between the capital base and the underlying risks of the business. In carrying out this policy, the Group has regard to the supervisory requirements of the FSA. The FSA uses Risk Asset Ratio (RAR) as a measure of capital adequacy for UK...

Page 252
... for payment by the Group to a named beneficiary against presentation of specified documents, forward asset purchases, forward deposits placed and undrawn note issuance and revolving underwriting facilities, and other short-term trade related transactions. RBS Group Annual Report and Accounts 2008...

Page 253
...impact on the Group its business, reputation, results of operations or share price. There is continuing political and regulatory scrutiny of the operation of the retail banking and consumer credit industries in the United Kingdom and elsewhere. The nature and impact of future changes in policies and...

Page 254
... exposures. The Group and its subsidiaries are co-operating with these various requests for information and investigations. United States In July 2004, ABN AMRO signed a written agreement with the US regulatory authorities concerning ABN AMRO's dollar clearing activities in the New York branch. In...

Page 255
... period. Group companies have been named as defendants in a number of purported class action and other lawsuits in the United States that relate to the sub-prime mortgage business. In general, the cases involve the issuance of sub-prime-related securities or the issuance of shares in companies with...

Page 256
... on sale of securities Charge for defined benefit pension schemes Cash contribution to defined benefit pension schemes Other provisions utilised Depreciation and amortisation Write down of goodwill and other intangible assets Write down of investment in subsidiaries Elimination of foreign exchange...

Page 257
... 99% of the ordinary shares of ABN AMRO Holding N.V., the holding company of a major European banking group based in the Netherlands with subsidiaries that undertake commercial banking operations, investment banking and other related financial activities. During 2008, RFS acquired the remaining...

Page 258
... (63) The Group's reported result from continuing operations for the year would not have been materially affected had all acquisitions occurred on 1 January 2008. The profit on disposal arises on the sales of Angel Trains, Tesco Personal Finance and the European Consumer Finance business during the...

Page 259
... January Issue of ordinary shares Issue of other equity securities Placing and open offer Rights issue Net proceeds from issue of subordinated liabilities Repayment of subordinated liabilities Net cash inflow/(outflow) from financing Acquisition of subsidiaries Transfer to retained earnings Currency...

Page 260
... best to serve the Group's customers whose financial needs are global. GBM is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers. GTS ranks...

Page 261
...- Global Banking & Markets - Global Transaction Services Regional Markets - UK Retail & Commercial Banking - US Retail & Commercial Banking - Europe & Middle East Retail & Commercial Banking - Asia Retail & Commercial Banking RBS Insurance Group Manufacturing Central Items Share of shared assets RFS...

Page 262
...- Global Banking & Markets - Global Transaction Services Regional Markets - UK Retail & Commercial Banking - US Retail & Commercial Banking - Europe & Middle East Retail & Commercial Banking - Asia Retail & Commercial Banking RBS Insurance Group Manufacturing Central Items Share of shared assets RFS...

Page 263
...equity Global Markets - Global Banking & Markets - Global Transaction Services Regional Markets - UK Retail & Commercial Banking - US Retail & Commercial Banking - Europe & Middle East Retail & Commercial Banking - Asia Retail & Commercial Banking RBS Insurance Group Manufacturing Central Items 2008...

Page 264
... Â£m 2008 UK Â£m USA Â£m Europe Â£m Rest of the World Â£m Total Â£m Group Â£m Total revenue Net interest income Net fees and commissions Income from trading activities Other operating income Insurance premium income (net of reinsurers' share) Total income Operating (loss)/profit before tax...

Page 265
... of key management during the year was as follows: Group 2008 Â£000 2007 Â£000 Short-term benefits Post-employment benefits Other long-term Termination benefits Share-based payments 16,813 13,174 496 345 2,078 32,906 37,763 10,051 708 - 5,165 53,687 264 RBS Group Annual Report and Accounts 2008

Page 266
... controlling party of The Royal Bank of Scotland Group plc. The UK Government's shareholding is managed by UK Financial Investments Limited, a company wholly owned by the UK Government. As a result the UK Government and UK Government controlled bodies became related parties of the Group. The Group...

Page 267
... market rates on a tender basis in the form of short and long-term repos on a wide range of collateral and outright purchases of high-quality bonds to enable them to meet the reserves that they must hold at the Bank of England. Government credit guarantee scheme - this was announced in October 2008...

Page 268
... 284 Financial summary Amounts in accordance with IFRS Exchange rates Economic and monetary environment Supervision Regulatory reviews and developments Description of property and equipment Major shareholders Material contracts FSA Listing Rules disclosure RBS Group Annual Report and Accounts 2008...

Page 269
...data have been restated following finalisation of the ABN AMRO acquisition accounting. (2) 2007 to 2004 comparative amounts have been restated for the netting of certain derivative asset and derivative liability balances with the London Clearing House. 268 RBS Group Annual Report and Accounts 2008

Page 270
...pence Dividends per ordinary share - pence Dividend payout ratio (2) Share price per ordinary share at year end - Â£ Market capitalisation at year end - Â£bn Net asset value per ordinary share - Â£ Return on average total assets (3) Return on average ordinary shareholders' equity (4) Adjusted return...

Page 271
... and business activities Agriculture, forestry and fishing Property Individuals - home mortgages - other Finance leases and instalment credit Accrued interest Total domestic Overseas residents Total UK offices Overseas US Rest of the World Total Overseas offices Loans and advances to customers...

Page 272
... closing provisions against loans and advances to banks of Â£127 million (2007 - Â£3 million; 2006 - Â£2 million; 2005 - Â£3 million; 2004 - Â£6 million). (2) Closing customer provisions exclude closing provisions against loans and advances to banks. RBS Group Annual Report and Accounts 2008...

Page 273
...and local government - Manufacturing 127 Construction 254 Finance 67 Service industries and business activities 778 Agriculture, forestry and fishing 19 Property 490 Individuals - home mortgages 36 - other 2,235 Finance leases and instalment credit 194 Accrued interest - Total domestic 4,200 Foreign...

Page 274
... - home mortgages - others Finance leases and instalment credit Total domestic Foreign Total recoveries 2 - 2 12 - - 96 4 116 203 319 - - - 7 - - 143 8 158 184 342 - - - 5 1 - 101 12 119 96 215 1 1 - 2 2 - 84 7 97 75 172 1 - 2 1 - 1 78 2 85 59 144 RBS Group Annual Report and Accounts 2008 273

Page 275
..., 'Domestic' consists of the United Kingdom domestic transactions of the Group. 'Foreign' comprises the Group's transactions conducted through offices outside the UK and through those offices in the UK specifically organised to service international banking transactions. (2) All loans against which...

Page 276
...,608 12,173 27,441 19,049 97,094 155,757 516,365 104,249 3,922 408,194 516,365 Overseas US Rest of the World Total overseas offices 153,163 287,950 441,113 152,324 315,087 467,411 115,121 40,636 155,757 RBS Group Annual Report and Accounts 2008 275

Page 277
...-day market distortions which may not be indicative of generally prevailing rates. Original maturities of commercial paper are not in excess of one year. 'Other short-term borrowings' consist principally of borrowings in the money markets included within 'Deposits by banks' and 'Customer accounts...

Page 278
... Rates on the last business day of each month during the period. (2) The rates used by the Group for translating US dollars into sterling in the preparation of its financial statements. (3) On 25 February 2009, the Noon Buying Rate was Â£1.00 = US$1.4408. RBS Group Annual Report and Accounts 2008...

Page 279
... These movements increase the sterling-value of non-sterling earnings, costs, assets and liabilities. As a result, the Group recognises translation benefits if it reports profits and/or has a positive net asset position denominated in foreign currency. 278 RBS Group Annual Report and Accounts 2008

Page 280
...the Global Markets division through RBS Asset Management Limited. General insurance business is principally undertaken by Direct Line Insurance plc and Churchill Insurance Company Limited. Life assurance business is principally undertaken by Royal Scottish Assurance plc and National Westminster Life...

Page 281
.... United States In the US the Group also engages constructively with regulators and other bodies on regulatory and legislative change and seeks to ensure proper implementation and compliance. Current issues include mortgage reform and student lending. 280 RBS Group Annual Report and Accounts 2008

Page 282
...), the company and Santander after the acquisition of ABN AMRO where funding is required by regulatory authorities in connection with the ABN AMRO businesses, the allocation of Core Tier 1 capital and the allocation of taxes and conduct of tax affairs. RBS Group Annual Report and Accounts 2008 281

Page 283
...(including HM Treasury) at the issue price of 65.5 pence per new Share payable on Admission (as defined in the First Placing and Open Offer Agreement). The company paid all legal and other costs and expenses of HM Treasury, those of UBS and Merrill Lynch International properly incurred and the costs...

Page 284
... up to three new independent non-executive directors; â€¢ to maintain its SME and mortgage lending availability to at least 2007 levels until the end of 2011 with the active marketing of competitively priced loan products; â€¢ to increase its support to shared equity projects until the end of 2009...

Page 285
... Subscription Agreement to any entity that is owned, directly or indirectly, by HM Treasury. The Preference Share Subscription Agreement was conditional on the First Placing and Open Offer Agreement becoming unconditional in accordance with its terms. 284 RBS Group Annual Report and Accounts 2008

Page 286
... Capital gains tax Analyses of ordinary shareholders Trading market Dividend history Taxation for US Holders Exchange controls Memorandum and Articles of Association Incorporation and registration Code of ethics Important addresses Principal offices RBS Group Annual Report and Accounts 2008 285

Page 287
.../law/alerts/overseas.shtml Details of any share dealing facilities that the company endorses will be included in company mailings. More detailed information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.uk 286 RBS Group Annual Report and Accounts 2008

Page 288
... open offer. The information set out above is intended as a general guide only and is based on current United Kingdom legislation and HM Revenue & Customs practice as at this date. This information deals only with the position of individual shareholders who are resident in the United Kingdom for tax...

Page 289
... time of ADSs issued thereunder. The ordinary shares of the company are listed and traded on the London Stock Exchange. All ordinary shares are deposited with the principal London office of The Bank of New York Mellon, as custodian for the Depository. 288 RBS Group Annual Report and Accounts 2008

Page 290
....84 107.98 98.34 - - - - - - 107.55 53.60 122.07 100.49 122.23 106.06 129.57 116.70 125.14 110.58 Note: (1) Price quoted as a % of US$1,000 nominal. RBS Group Annual Report and Accounts 2008 289

Page 291
...of one ADS representing one ordinary share changed to one ADS representing 20 ordinary shares. The prices in the table have been adjusted accordingly. On 24 February 2009, the closing price of the ordinary ADSs on the New York Stock Exchange was $6.83. 290 RBS Group Annual Report and Accounts 2008

Page 292
... new ordinary shares. Following redemption, the dividend restriction on ordinary shares will be removed. However, it is currently the Board's intention not to pay any ordinary dividends for 2009. For further information, see Notes 7 and 8 on the accounts. RBS Group Annual Report and Accounts 2008...

Page 293
...used or acquired will not be subject to UK tax in respect of any dividends received on the relevant shares or ADSs. Distributions by the company will constitute foreign source dividend income for US federal income tax purposes to the extent paid out of the current or accumulated earnings and profits...

Page 294
... an enterprise; or (iii) pertains to a UK fixed base of an individual used for the performance of independent personal services. The Estate Tax Treaty generally provides a credit against US federal estate or gift tax liability for the amount of any tax RBS Group Annual Report and Accounts 2008 293

Page 295
... for or on account of UK taxation as long as the PROs remain at all times listed on a 'recognised stock exchange' within the meaning of section 1005 of the Income Tax Act 2007. In all other cases, an amount must be withheld on account of UK income tax at the basic rate (currently 20%) subject to...

Page 296
..., upon request, by contacting Group Secretariat at the telephone number listed on page 296. Stamp duty and SDRT No stamp duty, SDRT or similar tax is imposed in the UK on the issue, transfer or redemption of the PROs. Passive Foreign Investment Company considerations A foreign corporation will be...

Page 297
... International Limited Royal Bank House 71 Bath Street St Helier Jersey Channel Islands JE4 8PJ NatWest Offshore 23/25 Broad Street St Helier Jersey Channel Islands JE4 8QJ ABN AMRO Holding N.V. Gustav Mahlerlaan 10 1082 PP Amsterdam The Netherlands 296 RBS Group Annual Report and Accounts 2008

Page 298
Published by The Royal Bank of Scotland Group plc Designed by Addison www.addison.co.uk Printed by St Ives Westerham Press This report is printed on ERA Silk paper. This paper has been independently certified as meeting the standards of the Forest Stewardship Council (FSC), and was manufactured ...

Page 299
The Royal Bank of Scotland Group plc Group Headquarters PO Box 1000 Gogarburn Edinburgh EH12 1HQ

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