RBS 2009 Annual Report Download - page 9

7RBS Group Annual Report and Accounts 2009
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Q&As on progress
Q&As on progress
When we speak to our investors, some
questions are asked more often than others.
Below we provide a selection of those
frequently asked questions – and answers.
xWhat is your dividend policy going forward?
In the light of our 2009 results, it would not be appropriate to pay
any dividend on ordinary shares this year, nor, under the terms of the
European Commission’s approval of the state aid we have received,
will we be able to do so for a further two years. The Board is mindful
that dividends form an extremely important part of shareholder return
and income. It is our intention over time to resume the payment of a
dividend as soon as it is prudent to do so, taking account of the Group’s
capital position, retained earnings and prospects, as well as of the
enhanced dividend rights attached to the B Shares held by the UK
Government. There will be dividend payments on some preference
shares this year but, thereafter, they will be subject to the same two-
year hiatus required by the EC.
xWhat is the timetable for the EU-required divestments?
We have four years to make all our disposals and will determine the
timing of each with reference to the following criteria: getting the best
value for shareholders; minimising the disruption to our customers and
employees; market conditions; and execution risk.
We will look to conclude some of the disposals quickly. For example,
RBS Sempra Commodities agreed to sell its Metals, Oil and European
Energy business lines to J.P. Morgan for $1.7 billion, as announced on
16 February 2010. Others will take longer. We are making good
progress on the divestment of RBS branches in England and Wales,
and NatWest branches in Scotland; we have a target to agree a buyer in
2010, though the complex separation issues mean we don’t expect to
complete until 2011. We are considering our options on the RBS
Insurance divestment, including an IPO in the second half of 2012.
xWhere are you in the impairment cycle?
We believe impairment losses are likely to have peaked in 2009, having
increased to £13,899 million from £7,432 million in 2008. There are
complementary indications that the pace of downwards credit rating
migration for corporates is slowing. Nonetheless, the financial
circumstances of many consumers and businesses remain fragile, and
rising refinancing costs, whether as a result of monetary tightening or of
increased regulatory capital requirements, could expose some
customers to further difficulty.
xWhat has been happening to margins, and why?
Our net interest margin has now shown two quarters of improvement,
despite the continued squeeze on liability margins and higher liquidity
costs. In 2009 overall, net interest income declined by 14%, as the
Group net interest margin narrowed by 32 basis points to 1.76%.
Deposit margins remain under pressure, with strong competition
particularly for longer term deposits and rates on many products
already at floors in the current low interest rate environment. However,
asset margins were gradually rebuilt over the course of the year,
leading to a recovery beginning in overall net interest margins in the
Core retail and commercial banking Divisions in the second half.
xHow much of a problem has UK political interference been?
The benefits to RBS of political involvement, in the widest possible
sense, are significantly larger than the costs. Put simply, if RBS hadn’t
received government support, it wouldn’t be here today. It is in every
shareholder’s interest that RBS is run commercially and, on every item
of strategic and operational substance, that has been the case.
xTo what extent has the loss of high-performing
employees affected performance?
The loss of high-performing employees has been damaging but, to
date, not destructive. Each year, we rate our employees on a scale of
one to five, where four and five are the highest ratings. The bad news is
that the percentage of people ranked four or five that left us in the
second half of 2009 was roughly double the prevailing rate over the
period 2005-07. The better news is that this number is rising from a
relatively low base. We have also been able to hire talented people to
help in the restructuring challenges ahead for the company.
The ability to motivate and retain our best employees is critical to the
future success of RBS so, first and foremost, we need to make sure the
percentage of highly-rated people leaving us doesn’t rise any further.
Ideally, we need to reverse that trend, though this will partly depend on
our ability to convince staff and recruits that RBS is being run
commercially.
xHow would a UK sovereign credit downgrade affect the Group?
We carry out contingency exercises on a range of possible outcomes.
It is true that the RBS Group’s credit rating is, to a degree, supported
by the UK sovereign rating, so a downgrade may have repercussions
for the rating of RBS. We diligently employ liquidity oversight and
contingency planning designed to mitigate the impact on the Group
from a number of liquidity stresses, including credit rating downgrades,
irrespective of the sovereign rating of the UK.