RBS 2009 Annual Report Download - page 368

Additional information continued
RBS Group Annual Report and Accounts 2009366
(iii) provide, as promptly as practicable, information and data relating
to the Proposed Assets reasonably requested for due diligence
purposes and to provide certain other information concerning the
Group’s business and the financial performance and risk of the
Proposed Assets;
(iv) provide access to the Group’s premises, books, records, senior
executives, relevant personnel and professional advisers on
reasonable terms;
(v) consult with HM Treasury regarding the management and
operations of the Proposed Assets and to ensure that the
management of the Proposed Assets is in accordance with usual
business practices and also without regard to the possible benefits
under the APS;
(vi) develop and, subject to market conditions, implement a liability
management plan which is designed to enable the Group to meet
certain Core Tier 1 Capital targets for 2009; and
(vii) use best endeavours (giving regard to reasonable operational
requirements) to maintain regular, adequate and effective
monitoring, reporting, risk management and audit controls and
procedures in order, among other things, to ensure that risks
relating to key business processes which affect the Proposed
Assets are identified, assessed and reported and are managed
and mitigated appropriately.
In addition, the Royal Bank agreed in principle that, if and only if the
Royal Bank accedes to the APS, it would not claim, and would disclaim,
certain UK tax losses and allowances arising to members of the Group
in respect of any accounting period ending on or after 31 December
2008, provided that this undertaking would not apply in respect of any
such tax benefits arising in the earlier of (a) the first accounting period
beginning more than five years after the relevant accession date and
(b) the first accounting period beginning after the relevant accession
date in which the Group becomes profitable.
The company’s commitments, described in this section have been
superseded by the Scheme Rules and the Accession Agreement, (for
details of the Accession agreement, see below), with the exception of a
commitment to inform the Department for Business, Innovation and Skills
prior to making significant reductions in the level of lending being made
available to certain borrowers or counterparties, which will apply until
28 February 2011, in line with the duration of the commitments under
the Lending Commitments Letter described below.
Lending Commitments Letter
On 26 February 2009, the company entered into a deed poll in favour of
certain UK Government departments under which it undertook to
support lending to creditworthy borrowers in the UK in a commercial
manner with effect from 1 March 2009. On 18 May 2009, the company
entered into an amendment to this deed poll which took effect from
29 May 2009 and on 20 November 2009, the company executed a
further amendment to this deed poll. This lending commitment was a
pre-requisite to the company’s participation in the APS and other
Government backed schemes, the objective of which was to reinforce
the stability of the financial system and support the recovery of the
economy.
Pursuant to this lending commitment, the company agreed to increase
its lending in the 12 months commencing 1 March 2009 from its UK
banking operations to UK businesses by, in aggregate, £16 billion above
the amount previously budgeted .
The company has also made a commitment to increase lending to
homeowners, including first time buyers, in the United Kingdom. The
company has undertaken to increase its residential mortgage lending
by at least £9 billion above the amount previously budgeted in the 12
months commencing 1 March 2009.
We are currently in discussions with HM Treasury on potential
adjustments to the lending commitments to reflect economic
circumstances over the coming 12 months from March 2010.
Such additional lending is subject to the company’s ordinary course
pricing and other terms, and certain commercial, risk, credit and
regulatory considerations.
The company has also made a commitment to increase lending to
homeowners, including first time buyers, in the United Kingdom. The
company has undertaken to increase its residential mortgage lending
by at least £9 billion above the amount previously budgeted in the 12
months commencing 1 March 2009 and to maintain in the 12 months
commencing 1 March 2010 similar levels of residential mortgage
lending as in the 12 months commencing 1 March 2009 subject to
adjustment of the commitments by the UK Government departments
from time to time.
The company’s compliance with its lending commitments is monitored
by the UK Government, and is subject to a reporting process.
The company has also made certain undertakings as regards marketing
in support of its lending commitments and certain other matters relating
to its business and residential lending practices and policies. The
lending commitments made in the deed poll supersede the
commitments given by the company in the First Placing and Open Offer
Agreement and the Second Placing and Open Offer Agreement.
B Share Acquisition and Contingent Capital Agreement
On 26 November 2009, the company and HM Treasury entered into the
Acquisition and Contingent Capital Agreement pursuant to which HM
Treasury subscribed for the initial B shares and the Dividend Access
Share (the “Acquisitions”) and agreed the terms of HM Treasury’s
subscription for an additional £8 billion in aggregate in the form of
further B Shares (the “Contingent B Shares”), which will be issued on
the same terms as the initial B shares. The Acquisitions were subject to
the satisfaction of various conditions, including the company having
obtained the approval of its shareholders in relation to the Acquisitions.
The company and HM Treasury further agreed the terms of the £8
billion Contingent Subscription of the Contingent B Shares in the
Acquisition and Contingent Capital Agreement. For a period of five
years from 22 December 2009 or, if earlier, until the occurrence of a
termination event or until the company decides (with FSA consent) to
terminate such Contingent Subscription (the “Contingent Period”), if the
Core Tier 1 ratio of the company falls below five per cent. (and if certain
other conditions are met) HM Treasury has committed to subscribe for