RBS 2009 Annual Report Download - page 194

Business review continued
RBS Group Annual Report and Accounts 2009192
Market turmoil exposures continued
Asset-backed securities continued
Collateralised debt and loan obligations
Collateralised debt obligations (CDO) are securities whose performance
is dependent on a portfolio of referenced underlying securitised assets.
The referenced assets generally consist of ABS, but may also include
other classes of assets. Collateralised loan obligations (CLO) represent
securities in special purpose entities, the assets of which are primarily
cash flows from underlying leveraged loans. Some of the Group’s
holdings of asset-backed securities were originated for CDO structures.
These CDO structures include off-balance sheet ABS with hedges to
provide net super senior CDO exposures.
The Group retained significant holdings of super senior positions in
CDOs. These positions represent the most senior positions in the CDO
and, at the time of structuring, were senior to tranches rated AAA by
independent rating agencies. However, since the inception of these
transactions, the subordinate tranches have diminished significantly in
value such that, at 31 December 2009, there was no significant value in
any of the subordinate positions related to the Group’s open super
senior positions in ABS CDOs. The net exposure on the open positions
at 31 December 2009 is £910 million (2008 – £1,182 million). Net
exposure represents the value after taking account of hedge protection
purchased from monolines and other counterparties but excludes the
effect of credit valuation adjustments.
Other asset-backed securities
Other asset-backed securities are securities issued from securitisation
vehicles, similar to those in RMBS and CMBS structures, which
reference cash flow generating assets other than mortgages. The wide
variety of referenced underlying assets results in diverse asset
performance levels.
The Group has accumulated these assets from a range of trading and
funding activities. The carrying value of the Group’s other asset-backed
securities by underlying asset type and geographical region is shown
below.
2009 2008
Other Other
US UK Europe RoW Total US UK Europe RoW Total
£m £m £m £m £m £m £m £m £m £m
Covered bonds — — 2,200 — 2,200 — — 3,301 — 3,301
Consumer 346 351 1,050 528 2,275 956 408 118 729 2,211
Student loans 731 — — — 731 953 — — — 953
Other leases 27 491 279 — 797 1 492 455 — 948
Aircraft leases 382 17 — 61 460 459 23 — 273 755
Auto and equipment 78 26 384 308 796 160 30 466 29 685
Utilities and energy 104 37 159 32 332 47 19 48 143 257
Film/entertainment 12 — 1 — 13 86 — — — 86
Other 1,206 202 296 258 1,962 920 650 710 263 2,543
2,886 1,124 4,369 1,187 9,566 3,582 1,622 5,098 1,437 11,739
Key points
•The reduction in carrying value of the Group’s Other ABS exposures reflects asset disposals and foreign exchange movements. There were no
material acquisitions of other ABS by the Group in the year. Where exposures within specific asset types have increased, this is due to a
combination of permitted substitutions within structures and revised sector classifications, particularly in relation to consumer positions.
•The covered bonds comprise asset-backed securities issued primarily by Spanish financial institutions. These securities benefit from credit
enhancement provided by the issuing institutions.