RBS 2010 Annual Report Download - page 220

Risk management: Other risk exposures continued
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. 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.
During the year both multi-seller and own asset conduit assets have been
reduced in line with wider Group balance sheet management. The total
assets held by Group-sponsored conduits were £20.0 billion at 31
December 2010 (31 December 2009 - £27.4 billion; 31 December 2008 -
£49.9 billion).
2010 2009
Core
£m
Non-Core
£m
Total
£m
Core
£m
Non-Core
£m
Total
£m
2008
£m
Total assets held by the conduits 16,390 3,624 20,014 23,409 3,957 27,366 49,857
Commercial paper issued (1) 15,522 2,540 18,062 22,644 2,939 25,583 48,684
Liquidity and credit enhancements
Deal specific liquidity
-drawn 868 1,109 1,977 738 1,059 1,797 1,172
- undrawn 21,935 2,980 24,915 28,628 3,852 32,480 57,929
PWCE (2) 1,025 257 1,282 1,167 341 1,508 2,391
23,828 4,346 28,174 30,533 5,252 35,785 61,492
Maximum exposure to loss (3) 22,803 4,089 26,892 29,365 4,911 34,276 59,101
Notes:
(1) Includes £0.7 billion of ABCP issued to RBS plc at 31 December 2010.
(2) Programme-wide credit enhancement.
(3) Maximum exposure to loss is determined as the Group’s total liquidity commitments to the conduits and additionally programme-wide credit support which would absorb first loss on transactions
where liquidity support is provided by a third party.
Information relating to assets in the conduits is set out on pages 219 to
220.
Multi-seller conduits accounted for 44% of the total liquidity and credit
enhancements committed by the Group at 31 December 2010 (2009 -
43%; 2008 - 69%). The Group’s multi-seller conduits have continued to
fund the vast majority of their assets solely through ABCP issuance.
There have been no significant systemic failures within the financial
markets similar to that experienced in the second half of 2008 following
Lehman Brothers bankruptcy filing in September 2008. The improvement
in market conditions has allowed these conduits to move to normal ABCP
funding conditions and reduced the need for backstop funding from the
Group.
Key points
xTotal assets decreased during the year by £7.4 billion in line with the
Group’s strategy of reducing conduit exposure.
xThe average maturity of ABCP issued by the Group’s conduits has
risen throughout 2010, to 69.4 days (2009 - 58.4 days; 2008 - 72.1
days).
xThe maturity of the commercial paper issued by the Group’s
conduits to mitigate the short-term contingent liquidity risk of
providing back-up facilities. The Group’s limits sanctioned for such
liquidity facilities in 2010 totalled approximately £22.6 billion for
multi-seller conduits (2009 - £25.0 billion; 2008 - £42.9 billion). For a
very small number of transactions within one multi-seller conduit the
liquidity facilities have been provided by third-party banks. This
typically occurs on transactions where the third-party bank does not
use, or have, its own conduit vehicles.
xThe Group’s maximum exposure to loss on its multi-seller conduits
is £22.8 billion (2009 - £25.2 billion; 2008 - £43.2 billion), being the
total amount of the Group’s liquidity commitments plus the extent of
PWCE of conduit assets for which liquidity facilities were not
provided by third parties.
xThe Group holds two own-asset conduits, which have assets that
were previously funded by the Group. The Group’s maximum
exposure to loss on these two conduits was £4.1 billion in 2010
(2009 - £9.1 billion; 2008 - £15.9 billion), with £2.2 billion of ABCP
outstanding at that date (2009 - £7.7 billion; 2008 - £14.8 billion).
xAdditionally the Group established an own-asset conduit in 2009
with a committed liquidity of £26.0 billion (2009 - £25.1 billion) to
access the Bank of England’s open market operations for contingent
funding purposes.
The Group also extends liquidity commitments to multi-seller conduits
sponsored by other banks, but typically does not consolidate these
entities as the Group does not retain the majority of risks and rewards.
The Group’s exposure from third-party conduits was £136 million (2009 -
£587 million; 2008 - £3.9 billion) representing deal specific liquidity.
RBS Group 2010218
Business review continued