RBS 2009 Annual Report Download - page 43

41RBS Group Annual Report and Accounts 2009
Divisional review
Non-Core Division & APS
Did you know?
3,000
We delivered training to more
than 3,000 employees around
the globe about the APS
The key measures of success for our Division are our ability to manage
down Third Party Assets (TPAs) and Risk Weighted Assets (RWAs), while
reducing our trading and credit losses through robust risk management
and credit stewardship as well as managing asset disposals efficiently.
During 2009, we made an encouraging start in reducing TPAs. RWAs
remained broadly flat over the year. The downgrade in monolines and
credit derivative product companies (CPDCs) and the impact of pro-
cyclicality – tougher economic conditions can increase the amount of
capital we have to assign to a loan – partly offset our active management
and runoff of RWAs.
Impairments increased relative to 2008 reflecting where we are in the
economic cycle. However, we saw the level of impairments steadily
decrease in three successive quarters to the end of 2009.
Our disposal programme developed momentum during 2009. We
successfully completed a number of asset sales in the year, including
the RBS equity stakes in Bank of China and Linea Directa, the sale to
ANZ of the Retail & Commercial and wholesale banking businesses in
non-core businesses in six countries in Asia, as well as the sale to
Aberdeen Asset Management of our Asset Management business.
While our focus is on the successful run down of assets, close and
responsible stewardship of these assets over the next four years will
be key to maintaining their value, pending run-off or exit. This requires
a high level of focus on business-as-usual challenges in a difficult
economic and market environment that and against the background of
a rapidly evolving regulatory environment.
The nature of the assets placed in Non-Core Division & APS creates a
very high concentration of risk in one area of the group and managing
the risk associated with this is a key priority. Our key risk is the credit risk
resulting from the higher probability of default of the assets we are
managing. We also have significant execution risk associated with the
scale of the restructuring we are undertaking and the disposal of assets
in the prevailing environment. Finally, we have to manage the high level
of operational risk which naturally arises when businesses are being
sold and staff face considerable uncertainty about their future.
Participation in the UK Government’s APS provided RBS with a capital
injection of £25.5 billion and catastrophe insurance for the riskiest assets
we currently hold on our balance sheet in the event of a prolonged
economic downturn. The progress we have made against our strategic
plan, as well as improvements in financial markets and the economic
outlook, mean we do not anticipate claiming under the scheme. However,
this insurance provides us with financial strength in the event of major
economic and market stress and gives us the confidence we need to
navigate the years ahead.
Under the lighter touch terms agreed with the UK Government in
November 2009, RBS would bear the first £60 billion of losses and the
Treasury would bear 90% of losses thereafter. The fee for this insurance
will be £700 million for the first three years and then £500 million annually.
The new terms allow RBS to exit the APS at any time subject to meeting
capital adequacy requirements and repaying the Treasury for any
shortfall in fees due.
Non-Core Division was also responsible for setting up APS. The task of
setting up the governance and controls, training and equipping staff in
order to implement the scheme was an exceptional achievement. We
delivered training to more than 3,000 employees across the globe.
We continue to work closely with the Treasury and the newly formed
Asset Protection Agency in developing our approach to the day-to-day
stewardship of the APS assets, and the appropriate governance to
ensure compliance.
We have devoted a million person hours to agreeing APS and its rules,
identifying and defining the four million assets covered, training and
equipping our people, and setting up a robust infrastructure for the
stewardship of these assets.
Global Restructuring Group
Our Global Restructuring Group is responsible for supporting our
customers through business and financial restructuring when they are
facing difficulties during the current economic downturn. To meet
increased demand GRG has significantly increased its resourcing levels,
more than doubling staffing levels across the year, especially its regional
presence across the UK, and this trend is expected to continue in 2010.
Its primary aim is to return our customers to sound financial health and
to the core divisions within RBS they originated from. During 2009 over
800 UK based small to medium sized businesses were restructured
safeguarding the future of several thousand jobs and GRG is currently
acting as either lead or coordinator in around 140 restructurings globally.