RBS 2010 Annual Report Download - page 232

The directors present their report together with the audited accounts for
the year ended 31 December 2010.
Group structure
The company is a holding company owning the entire issued ordinary
share capital of The Royal Bank of Scotland plc, the principal direct
operating subsidiary undertaking of the company. The Group comprises
the company and all its subsidiary and associated undertakings, including
the Royal Bank and NatWest. Details of the principal subsidiary
undertakings of the company are shown in Note 18 on the accounts.
Following placing and open offers in December 2008 and in April 2009,
HM Treasury owned approximately 70.3% of the enlarged ordinary share
capital of the company. In December 2009, the company issued a further
£25.5 billion of new capital to HM Treasury. This new capital took the
form of B shares, which do not generally carry voting rights at general
meetings of ordinary shareholders but are convertible into ordinary
shares and qualify as Core Tier 1 capital.
During the year, the company converted certain non-cumulative
convertible preference shares into ordinary shares in the company. As a
result, HM Treasury’s holding in the company’s ordinary shares reduced
to 67.8%.
Results and dividends
The loss attributable to the ordinary and B shareholders of the company
for the year ended 31 December 2010 amounted to £1,125 million
compared with a loss of £3,607 million for the year ended 31 December
2009, as set out in the consolidated income statement on page 268.
The company did not pay a dividend on ordinary shares in 2009 or 2010.
The Group has undertaken that, unless otherwise agreed with the
European Commission, neither the company nor any of its direct or
indirect subsidiaries (other than companies in the RBS Holdings N.V.
group, which are subject to different restrictions, see below) will pay
external investors any dividends or coupons on existing hybrid capital
instruments (including preference shares, B shares and upper and lower
tier 2 instruments) for a period of two years from 30 April 2010 (the
“Deferral Period”), or exercise any call rights in relation to these capital
instruments between 24 November 2009 and the end of the Deferral
Period, unless there is a legal obligation to do so. Hybrid capital
instruments issued after 24 November 2009 will generally not be subject
to the restriction on dividend or coupon payments or call options.
The Group has agreed that RBS Holdings N.V. will not pay investors any
coupons on, or exercise any call rights in relation to, specified hybrid
capital instruments for an effective period of two years from 1 April 2011,
unless in any such case there is a legal obligation to do so. RBS Holdings
N.V. and its group companies are also subject to restrictions on the
exercise of call rights in relation to their other hybrid capital instruments.
Business review
Activities
The Group is engaged principally in providing a wide range of banking,
insurance and other financial services. Further details of the
organisational structure and business overview of the Group, including
the products and services provided by each of its divisions and the
competitive markets in which they operate, are contained in the Business
review on pages 53 and 54.
Risk factors
The Group’s future performance and results could be materially different
from expected results depending on the outcome of certain potential risks
and uncertainties. Certain risk factors the Group faces are summarised
on page 55. Fuller details of these and other risk factors are set out on
pages 405 to 422.
The reported results of the Group are also sensitive to the accounting
policies, assumptions and estimates that underlie the preparation of its
financial statements. Details of the Group’s critical accounting policies
and key sources of accounting judgments are included in Accounting
policies on pages 275 to 285.
The Group’s approach to risk management, including its financial risk
management objectives and policies and information on the Group’s
exposure to price, credit, liquidity and cash flow risk, is discussed in the
Risk and balance sheet management section of the Business review on
pages 119 to 224.
Financial performance
A review of the Group's performance during the year ended 31 December
2010, including details of each division, and the Group's financial position
as at that date is contained in the Business review on pages 56 to 112.
ABN AMRO
In 2007, RFS Holdings B.V., which was jointly owned by the Group, the
Dutch State (successor to Fortis) and Santander (the “Consortium
Members”) completed the acquisition of ABN AMRO Holding N.V..
RFS Holdings B.V. has now substantially completed the separation of the
business units of ABN AMRO Holding N.V.. As part of this reorganisation,
on 6 February 2010, the businesses of ABN AMRO Holding N.V.
acquired by the Dutch State were legally demerged from those acquired
by the Group and were transferred into a newly established company,
ABN AMRO Bank N.V. (save for certain assets and liabilities acquired by
the Dutch State that were not part of the legal separation and which will
be transferred to the Dutch State as soon as possible).
Legal separation of ABN AMRO Bank N.V. occurred on 1 April 2010, with
the shares in that entity being transferred by ABN AMRO Holding N.V
(renamed RBS Holdings N.V. at legal separation) to a holding company
called ABN AMRO Group N.V., which is owned by the Dutch State.
Following legal separation, RBS Holdings N.V. has one direct subsidiary,
The Royal Bank of Scotland N.V. (“RBS N.V.”), a fully operational bank
within the Group. RBS N.V. is independently rated and regulated by the
Dutch Central Bank. Certain assets within RBS N.V. continue to be
shared by the Consortium Members.
The shareholdings of RFS Holdings B.V. were amended on 31 December
2010, resulting in approximately 98% of its issued share capital now
being held by the Group.
RBS Group 2010230
Report of the directors