RBS 2008 Annual Report Download - page 149

RBS Group Annual Report and Accounts 2008148
Report of the directors
The directors present their report together with the audited accounts for
the year ended 31 December 2008.
Capital restructuring
In November 2008, HM Treasury announced the establishment of UK
Financial Investments Limited, a company wholly owned by the UK
Government which will manage, on an arms-length basis, the UK
Government’s shareholding in the company and other banks that
subscribed to the government’s recapitalisation fund.
Following a placing and open offer in December 2008, HM Treasury
now holds approximately 58% of the enlarged issued ordinary share
capital of the company. In addition, HM Treasury holds £5 billion non-
cumulative sterling preference shares in the company.
Subsequently, on 19 January 2009, the company announced in
conjunction with HM Treasury and UK Financial Investments Limited,
that the preference shares held by HM Treasury will be replaced with
new ordinary shares. Eligible shareholders will be able to apply to
subscribe for approximately £5 billion of new ordinary shares pro rata to
their existing shareholdings at a fixed price of 31.75 pence per share by
way of an open offer. Any shares not taken up by shareholders in the
open offer (or otherwise placed on behalf of the company) will be
subscribed for by HM Treasury at a fixed price of 31.75 pence per
share and the aggregate proceeds of the open offer will be used to
fund the redemption of the preference shares held by HM Treasury,
together with the redemption premium on the preference shares,
accrued dividend, and commissions payable to HM Treasury on the
offer. The preference shares will be redeemed at 101 per cent of their
issue price. Dividends will continue to accrue on the preference shares
until redemption. This may result in HM Treasury’s shareholding
increasing to approximately 70% of the enlarged ordinary share capital
of the company.
Results and dividends
The loss attributable to the ordinary shareholders of the company for the
year ended 31 December 2008 amounted to £24,137 million compared
with a profit of £7,303 million for the year ended 31 December 2007, as
set out in the consolidated income statement on page 174.
The company did not pay an interim dividend in 2008. On 15 September
2008, shareholders received one new ordinary share for every 40 shares
held on the record date of 12 September 2008 by way of a capitalisation
issue.
As part of an agreement with HM Treasury, the company undertook not to
pay any dividends on the ordinary shares until such time as the £5 billion
non-cumulative sterling preference shares issued to HM Treasury in
December 2008 were repaid.
Upon redemption of the preference shares as noted above, the restriction
on payment of ordinary dividends will be removed. However, it is not the
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 the company and all its subsidiary and associated
undertakings, including the Royal Bank and NatWest. Details of the
principal subsidiary undertakings of the company are shown in Note 16
on the accounts.
The Group is engaged principally in providing a wide range of banking,
insurance and other financial services. Further details of the
organisational structure and business overview of the Group, including
the products and services provided by each of its divisions and the
competitive markets in which they operate, is contained in the Business
review on pages 26 and 27.
The Group is currently undertaking a strategic review that is expected
to re-focus the Group on those businesses with clear competitive
advantages and attractive marketing positions, primarily in stable, low-
to-medium risk sectors.
Risk factors
The Group’s future performance and results could be materially different
from expected results depending on the outcome of certain potential
risks and uncertainties. Details of the principal risk factors the Group
faces are given in the Business review on pages 27 to 34.
The reported results of the Group are also sensitive to the accounting
policies, assumptions and estimates that underlie the preparation of its
financial statements. Details of the Group’s critical accounting policies
and key sources of accounting judgements are included in the
Accounting policies on pages 178 to 188.
The Group’s approach to risk management, including its financial risk
management objectives and policies and information on the Group’s
exposure to price, credit, liquidity and cash flow risk, is discussed in the
Risk, capital and liquidity management section of the Business review
on pages 78 to 144.
Financial performance
A review of the Group’s performance during the year ended 31
December 2008, including details of each division, and the Group’s
financial position as at that date is contained in the Business review on
pages 50 to 67.
Business developments
In October 2007, RFS Holdings B.V. (RFS Holdings), a company jointly
owned by the company, Fortis N.V., Fortis SA/NV and Banco Santander
S.A. and controlled by the company, completed the acquisition of ABN
AMRO Holding N.V. (ABN AMRO).
On 3 October 2008, the State of the Netherlands acquired Fortis Bank
Nederland (Holding) N.V. (including the Fortis interest in RFS Holdings
that represents the remaining Fortis-acquired businesses of ABN
AMRO) as well as Fortis’ participation in certain Dutch insurance
activities. On 24 December 2008, the Fortis interest in RFS Holdings
was transferred from Fortis Bank Nederland (Holding) N.V. into the
direct ownership of the State of the Netherlands, subject to completion
of certain formalities. On the same date, the State of the Netherlands
executed a Deed of Accession with the company, Banco Santander
S.A., and RFS Holdings pursuant to which it acceded to the Consortium
and Shareholders’ Agreement dated 28 May 2007 (as subsequently
amended from time to time).