RBS 2009 Annual Report Download - page 67

65RBS Group Annual Report and Accounts 2009
Business review
management. In addition, as the provider of the APS, HM Treasury has
a range of rights that other shareholders do not have. These include
rights under the terms of the APS over the Group’s remuneration policy
and practice, including the right (through UKFI) to consent to the shape
and quantum of the bank’s aggregate variable bonus pool for the 2009
performance year. The manner in which HM Treasury or UKFI exercises
HM Treasury’s rights as majority shareholder or in which HM Treasury
exercises its rights under the APS could give rise to conflict between the
interests of HM Treasury and the interests of other shareholders. The
Board has a duty to promote the success of the company for the benefit
of its members as a whole.
The Group’s insurance businesses are subject to inherent risks involving
claims.
Future claims in the Group’s general and life assurance business may
be higher than expected as a result of changing trends in claims
experience resulting from catastrophic weather conditions, demographic
developments, changes in the nature and seriousness of claims made,
changes in mortality, changes in the legal and compensatory landscape
and other causes outside the Group’s control. These trends could affect
the profitability of current and future insurance products and services.
The Group reinsures some of the risks it has assumed and is
accordingly exposed to the risk of loss should its reinsurers become
unable or unwilling to pay claims made by the Group against them.
The Group’s operations have inherent reputational risk.
Reputational risk, meaning the risk to earnings and capital from negative
public opinion, is inherent in the Group’s business. Negative public
opinion can result from the actual or perceived manner in which the
Group conducts its business activities, from the Group’s financial
performance, from the level of direct and indirect government support
or from actual or perceived practices in the banking and financial
industry. Negative public opinion may adversely affect the Group’s
ability to keep and attract customers and, in particular, corporate and
retail depositors. The Group cannot ensure that it will be successful in
avoiding damage to its business from reputational risk.
In the United Kingdom and in other jurisdictions, the Group is responsible
for contributing to compensation schemes in respect of banks and other
authorised financial services firms that are unable to meet their
obligations to customers.
In the United Kingdom, the Financial Services Compensation Scheme
(the “Compensation Scheme”) was established under the FSMA and is
the United Kingdom’s statutory fund of last resort for customers of
authorised financial services firms. The Compensation Scheme can pay
compensation to customers if a firm is unable, or likely to be unable, to
pay claims against it and may be required to make payments either in
connection with the exercise of a stabilisation power or in exercise of
the bank insolvency procedures under the Banking Act. The
Compensation Scheme is funded by levies on firms authorised by the
FSA, including the Group. In the event that the Compensation Scheme
raises funds from the authorised firms, raises those funds more
frequently or significantly increases the levies to be paid by such firms,
the associated costs to the Group may have a material impact on its
results of operations and financial condition. As at 31 December 2009,
the Group has a provision of £135 million related to a levy by the
Compensation Scheme for the 2009/10 and 2010/11 Compensation
Scheme years.
In addition, to the extent that other jurisdictions where the Group
operates have introduced or plan to introduce similar compensation,
contributory or reimbursement schemes (such as in the United States
with the Federal Deposit Insurance Corporation), the Group may make
further provisions and may incur additional costs and liabilities, which
may negatively impact its financial condition and results of operations or
result in a loss of value in its securities.
The Group’s business and earnings may be affected by geopolitical
conditions.
The performance of the Group is significantly influenced by the
geopolitical and economic conditions prevailing at any given time in the
countries in which it operates, particularly the United Kingdom, the
United States and other countries in Europe and Asia. For example, the
Group has a presence in countries where businesses could be exposed
to the risk of business interruption and economic slowdown following
the outbreak of a pandemic, or the risk of sovereign default following
the assumption by governments of the obligations of private sector
institutions. Similarly, the Group faces the heightened risk of trade
barriers, exchange controls and other measures taken by sovereign
governments which may impact a borrower’s ability to repay. Terrorist
acts and threats and the response to them of governments in any of
these countries could also adversely affect levels of economic activity
and have an adverse effect upon the Group’s business.
The restructuring proposals for ABN AMRO are complex and may not
realise the anticipated benefits for the Group.
The restructuring plan in place for the integration and separation of
ABN AMRO into and among the businesses and operations of the
Consortium Members is complex, involving substantial reorganisation of
ABN AMRO’s operations and legal structure. The restructuring plan is
being implemented and significant elements have been completed
within the planned timescales and the integration of the Group’s
businesses continues. The Group may not realise the benefits of the
acquisition or the restructuring when expected or to the extent
projected. The occurrence of any of these events, including as a result
of staff losses or performance issues, or as a result of further disposals
or restructurings by the Group, may have a negative impact on the
Group’s financial condition and results of operations. It is not expected
that the Dutch State’s acquisition of Fortis Bank Nederland’s shares in
RFS Holdings, will materially affect the integration benefits envisaged by
the Group.
The recoverability and regulatory capital treatment of certain deferred
tax assets recognised by the Group depends on the Group’s ability to
generate sufficient future taxable profits and there being no adverse
changes to tax legislation, regulatory requirements or accounting
standards.
In accordance with IFRS, the Group has recognised deferred tax assets
on losses available to relieve future profits from tax only to the extent
that it is probable that they will be recovered. The deferred tax assets
are quantified on the basis of current tax legislation and accounting
standards and are subject to change in respect of the future rates of
tax or the rules for computing taxable profits and allowable losses.
Failure to generate sufficient future taxable profits or changes in tax
legislation or accounting standards may reduce the recoverable amount
of the recognised deferred tax assets.