RBS 2008 Annual Report Download - page 54

53RBS Group Annual Report and Accounts 2008
Global Markets – Global Transaction Services
Pro forma Statutory
2008 2007 2007
£m £m £m
Net interest income 909 846 595
Non-interest income 1,563 1,359 1,183
Total income 2,472 2,205 1,778
Direct expenses
– staff costs 392 367 271
– other 202 177 178
594 544 449
Contribution before impairment 1,878 1,661 1,329
Impairment 60 15 14
Contribution 1,818 1,646 1,315
Allocation of manufacturing costs (1) 479 448 —
Operating profit 1,339 1,198 1,315
£bn £bn £bn
Total third party assets 24.0 22.5 22.5
Loans and advances 18.6 18.7 18.7
Customer deposits 60.9 56.8 56.8
Note:
(1) Only for pro forma results.
2008 compared with 2007 – pro forma
Global Transaction Services grew income by 12% to £2,472 million and
operating profit by 12% to £1,339 million for the full year 2008, reflecting
the strength and enhanced international capability of its cash
management, trade finance and merchant acquiring platforms. The
income growth rate was maintained in the second half of the year,
despite difficult market conditions.
Growth was driven by a strong performance in cash management,
where income rose 9% to £1,514 million with good growth in
international cash management markets and steadier growth in UK and
US domestic markets. Average customer deposits were 14% higher
mitigating the impact of lower interest rates. International overdrafts
have been re-priced, reflecting the increased cost of funds and higher
risk premia during the second half of the year. Fee income from
payment transactions increased strongly, particularly in the US and
internationally. The division was successful throughout the year in
winning new international cash management mandates from existing
RBS Group clients due to the strength of the international payments
platform and network.
Trade finance made good progress, with income continuing to grow
strongly in the second half of the year and was up 57% for the full year.
GTS has substantially improved its penetration into the Asia-Pacific
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 delivered a 6% increase in
income to £694 million. Acquiring transaction volumes were up 23% in
the year driven by good growth in online volumes, but weaker consumer
confidence in the latter part of the year meant that average transaction
values decreased, slowing income growth. Commercial cards income
saw strong second half growth of 26% and rose 16% for the full year,
driven by higher interchange income particularly in the small and
middle markets.
Direct expenses rose by 9% to £594 million, with second half cost
growth lower than the first half. The full year cost growth reflected
investment in staffing and infrastructure to support GTS’s development.
Impairment losses were £60 million, up from £15 million in 2007,
reflecting in particular the downturn in the global economy and some
growth in defaults amongst mid-corporates and SMEs.
Strategic review
GTS remains a strategically attractive business for RBS, providing
important working capital and payment solutions to the Group’s
customers and substantial scope remains to cross-sell global
transaction services to our corporate and financial institutional clients,
particularly those in the UK. GTS plans to right-size its global network
consistent with developing Europe as its core base, it will retain the
capability to continue to serve both locally and globally all multi-national
customers who are at the heart of the Core GBM proposition, whilst at
all times maintaining service levels during the change. The business
also plans to increase efficiency through development of a lower cost
front and back-office operating model and explore joint ventures for
growth and selective disposals.
2008 compared with 2007 – statutory
Global Transaction Services grew income by 39% from £1,778 million to
£2,472 million and contribution by 38% to £1,818 million. Those results
reflect strong business performance and a full year’s contribution from
the ABN AMRO acquired business. The key driver of this growth has
been the acquisition of the ABN AMRO business with the historic RBS
business contributing year on year growth of 5%.
Direct expenses rose by 32% to £594 million, reflecting the full year
costs of the ABN AMRO business.
Impairment losses were £60 million, up from £14 million in 2007,
reflecting in particular the downturn in the global economy and some
growth in defaults amongst mid-corporates and SMEs.