RBS 2009 Annual Report Download - page 204

Business review continued
RBS Group Annual Report and Accounts 2009202
Market turmoil exposures continued
Special purpose entities continued
The Group also employs synthetic structures, where assets are not sold
to 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.
Residential and commercial mortgages and credit card receivables
form the types of assets generally included in cash securitisations, while
corporate loans and commercial mortgages typically serve as reference
obligations in synthetic securitisations.
The Group sponsors own-asset securitisations as a way of diversifying
funding sources, managing specific risk concentrations, and achieving
capital efficiency. The Group purchases the securities issued in own-
asset securitisations. During 2008, the Group was able to pledge AAA-
rated asset-backed securities as collateral for repurchase agreements
with major central banks under schemes such as the Bank of England’s
Special Liquidity Scheme, launched in April 2008, which allowed banks
to temporarily swap high-quality mortgage-backed and other securities
for liquid UK treasury bills. This practice has contributed to the Group’s
sources of funding during 2008 and 2009 in the face of the contraction
in the UK market for inter-bank lending and the investor base for
securitisations.
The Group typically does not retain the majority of risks and rewards of
own-asset securitisations set up for the purposes of risk diversification
and capital efficiency, where the majority of investors tend to be third
parties. Therefore, the Group typically does not consolidate the related
SPEs.
The Group has also established whole loan securitisation programmes
in the US and UK where assets originated by third parties are
warehoused by the Group for securitisation. The majority of these
vehicles are not consolidated by the Group, as it is not exposed to the
risks and rewards of ownership.
The table below sets out the asset categories together with the carrying
amount of the assets and associated liabilities for those securitisations
and other asset transfers, other than conduits (discussed below), where
the assets continue to be recorded on the Group’s balance sheet.
Conduits
The Group sponsors and administers a number of asset-backed
commercial paper (ABCP) conduits. A conduit is an SPE that issues
commercial paper and uses the proceeds to purchase or fund a pool of
assets. The commercial paper is secured on the assets and is
redeemed either by further commercial paper issuance, repayment of
assets or funding from liquidity facilities. Commercial paper is typically
short-dated, usually up to three months.
Group-sponsored conduits can be divided into multi-seller conduits and
own-asset conduits. The Group consolidates both types of conduit
where the substance of the relationship between the Group and the
conduit vehicle is such that the vehicle is controlled by the Group. The
total assets held by Group-sponsored conduits were £27.4 billion at 31
December 2009 (2008 – £49.9 billion). Liquidity commitments from the
Group to the conduit exceed the nominal amount of assets funded by
the conduit as liquidity commitments are sized to cover the funding cost
of the related assets.
Group-sponsored multi-seller conduits
The multi-seller conduits were established by the Group for the purpose
of providing its clients with access to diversified and flexible funding
sources. A multi-seller conduit typically purchases or funds assets
originated by the banks’ clients. The multi-seller conduits account for
43% of the total liquidity and credit enhancements committed by the
Group at 31 December 2009 (2008 – 69.4%).
The Group sponsors six multi-seller conduits which finance assets from
Europe, North America and Asia-Pacific. Assets purchased or financed
by the multi-seller conduits include auto loans, residential mortgages,
credit card receivables, consumer loans and trade receivables.
2009 2008 2007
Assets Liabilities Assets Liabilities Assets Liabilities
£m £m £m £m £m £m
Residential mortgages 69,927 15,937 55,714* 20,075 23,652 23,436
Credit card receivables 2,975 1,592 3,004 3,197 2,948 2,664
Other loans 36,448 1,010 1,679 1,071 1,703 1,149
Finance lease receivables 597 597 1,077 857 1,038 823
* revised
Key points
•The increase in both residential mortgages and other loan assets in the year principally relates to assets securitised to facilitate access to central
bank liquidity schemes.
•As all notes issued by own-asset securitisation SPEs are purchased by Group companies, assets are significantly greater than securitised liabilities.