RBS 2010 Annual Report Download - page 370

34 Memorandum items continued
Bank levy
In his 22 June 2010 budget statement, the Chancellor announced that the
UK Government will introduce an annual bank levy. The Finance Bill
2011 contains details of how the levy will be calculated and collected.
The levy will be collected through the existing quarterly Corporation Tax
collection mechanism starting with payment dates on or after the date the
Finance Bill 2011 receives Royal Assent.
The levy will be based upon the total chargeable equity and liabilities as
reported in the balance sheet at the end of a chargeable period. In
determining the chargeable equity and liabilities the following amounts
are excluded: Tier 1 capital; certain “protected deposits” (for example
those protected under the Financial Services Compensation Scheme);
liabilities that arise from certain insurance business within banking groups;
liabilities in respect of currency notes in circulation; Financial Services
Compensation Scheme liabilities; liabilities representing segregated client
money; and deferred tax liabilities, current tax liabilities, liabilities in
respect of the levy, revaluation of property liabilities, liabilities
representing the revaluation of business premises and defined benefit
retirement liabilities. It will also be permitted in specified circumstances to
reduce certain liabilities by: netting against them certain assets; offsetting
assets on the relevant balance sheets that would qualify as high quality
liquid assets (in accordance with the FSA definition); and repo liabilities
secured against sovereign and supranational debt.
The levy will be set at a rate of 0.075 per cent from 2011. Three different
rates apply during 2011, these average to 0.075 per cent. Certain
liabilities will be subject to only a half rate, namely: any deposits not
otherwise excluded (except for those from financial institutions and
financial traders); and liabilities with a maturity greater than one year at
the balance sheet date. The levy will not be charged on the first £20
billion of chargeable liabilities.
If the levy had been applied to the balance sheet at 31 December 2010,
the cost of the levy to RBS Group would be in the region of £350 million
to £400 million in 2011.
Litigation
As a participant in the financial services industry,RBS Group operates in
alegal and regulatory environment that exposes it to potentially
significant litigation risks. As a result, the company and other members of
RBS Group are involved in various disputes and legal proceedings in the
United Kingdom, the United States and other jurisdictions, including
litigation. Such cases are subject to many uncertainties, and their
outcome is often difficult to predict, particularly in the earlier stages of a
case.
Other than as set out in this section “Litigation”, so far as RBS Group is
aware, no member of RBS Group is or has been engaged in or has
pending or threatened any governmental, legal or arbitration proceedings
which may have or have had in the recent past (covering the 12 months
immediately preceding the date of this document) a significant effect on
RBS Group’s financial position or profitability.
Unarranged overdraft charges
In the US, Citizens Financial Group, in common with other US banks, has
been named as a defendant in a class action asserting that Citizens
charges excessive overdraft fees. The plaintiffs claim that overdraft fees
resulting from point of sale and automated teller machine (ATM)
transactions violate the duty of good faith implied in Citizens’ customer
account agreement and constitute an unfair trade practice. RBS Group
considers that it has substantial and credible legal and factual defences
to these claims and will defend them vigorously. RBS Group is unable
reliably to estimate the liability, if any, that might arise or its effect on RBS
Group’s consolidated net assets, operating results or cash flows in any
particular period.
Shareholder litigation
RBS Group and a number of its subsidiaries and certain individual
officers and directors have been named as defendants in a class action
filed in the United States District Court for the Southern District of New
York. The consolidated amended complaint alleges certain false and
misleading statements and omissions in public filings and other
communications during the period 1 March 2007 to 19 January 2009, and
variously asserts claims under Sections 11, 12 and 15 of the US
Securities Act of 1933, Sections 10 and 20 of the US Securities
Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder.
The putative class is composed of (1) all persons who purchased or
otherwise acquired RBS Group ordinary securities and US American
depositary receipts (ADRs) between 1 March 2007 and 19 January 2009;
and/or (2) all persons who purchased or otherwise acquired RBS Group
Series Q, R, S, T and/or U non-cumulative dollar preference shares
issued pursuant or traceable to the 8 April 2005 US Securities and
Exchange Commission (SEC) registration statement and were damaged
thereby. Plaintiffs seek unquantified damages on behalf of the putative
class.
On 11 January 2011, the District Court dismissed all claims except those
based on the purchase of RBS Group Series Q, R, S, T, and/or U non-
cumulative dollar preference shares. The Court has not yet considered
potential grounds for dismissal of the remaining claims, and directed RBS
Group to re-file its motion to dismiss those claims within 45 days of its
ruling. On 28 January 2011, a new complaint was filed asserting claims
under Sections 10 and 20 of the Exchange Act on behalf of a putative
class of purchasers of ADRs.
RBS Group has also received notification of similar prospective claims in
the United Kingdom and elsewhere but no court proceedings have been
commenced in relation to these claims.
RBS Group considers that it has substantial and credible legal and
factual defences to the remaining and prospective claims and will defend
them vigorously. RBS Group is unable to reliably estimate the liability, if
any, that might arise or its effect on RBS Group’s consolidated net assets,
operating results or cash flows in any particular period.
RBS Group 2010368
Notes on the accounts continued