RBS 2010 Annual Report Download - page 410

Risk factors continued
In implementing the State Aid restructuring plan, the Group will lose
existing customers, deposits and other assets (both directly through the
sale and potentially through the impact on the rest of the Group’s
business arising from implementing the State Aid restructuring plan) and
the potential for realising additional associated revenues and margins
that it otherwise might have achieved in the absence of such disposals.
Further, the loss of such revenues and related income may extend the
time period over which the Group may pay any amounts owed to HM
Treasury under the APS or otherwise. The implementation of the State
Aid restructuring plan may also result in disruption to the retained
business and give rise to significant strain on management, employee,
operational and financial resources, impacting customers and employees
and giving rise to separation costs which could be substantial.
The implementation of the State Aid restructuring plan may result in the
emergence of one or more new viable competitors or a material
strengthening of one or more of the Group’s existing competitors in the
Group’s markets. The effect of this on the Group’s future competitive
position, revenues and margins is uncertain and there could be an
adverse effect on the Group’s operations and financial condition and its
business generally.
If any or all of the risks described above, or any other currently
unforeseen risks, materialise, there could be a materially adverse impact
on the Group’s business, operations, financial condition, capital position
and competitive position.
The Group’s ability to implement its strategic plan depends on the
success of the Group’s refocus on its core strengths and its balance
sheet reduction programme.
In light of the changed global economic outlook, the Group is engaged in
afinancial and core business restructuring which is focused on achieving
appropriate risk-adjusted returns under these changed circumstances,
reducing reliance on wholesale funding and lowering exposure to capital
intensive businesses. A key part of this restructuring is the programme
announced in February 2009 to run-down and sell the Group’s non-core
assets and businesses and the continued review of the Group’s portfolio
to identify further disposals of certain non-core assets and businesses.
Assets identified for this purpose and allocated to the Group's Non-Core
division totalled £252 billion, excluding derivatives, as at 31 December
2008. At 31 December 2010, this total had reduced to £137.9 billion,
excluding derivatives, largely as a result of the progress made in
business disposals and portfolio sales during the course of 2010. This
balance sheet reduction programme continues alongside the disposals
under the State Aid restructuring plan approved by the European
Commission.
Because the ability to dispose of assets and the price achieved for such
disposals will be dependent on prevailing economic and market
conditions, which may remain challenging, there is no assurance that the
Group will be able to sell or run-down (as applicable) those remaining
businesses it is seeking to exit either on favourable economic terms to
the Group or at all. Tax liabilities could arise on the disposal of assets.
Furthermore, where transactions are entered into for the purpose of
selling non-core assets and businesses, they may be subject to
conditions precedent, including government and regulatory approvals and
completion mechanics that in certain cases may entail consent from
customers. There is no assurance that such conditions precedent will be
satisfied, or consents and approvals obtained, in a timely manner or at all.
There is consequently a risk that the Group may fail to complete such
disposals by any agreed longstop date.
In addition, the Group may be liable for any deterioration in businesses
being sold between the announcement of the disposal and its completion.
In certain cases, the period between the announcement of a transaction
and its completion may be lengthy and may span many months. Other
risks that may arise out of the disposal of the Group’s assets include
ongoing liabilities up to completion of the relevant transaction in respect
of the assets and businesses disposed of, commercial and other risks
associated with meeting covenants to the buyer during the period up to
completion, the risk of employee and customer attrition in the period up to
completion, substantive indemnity obligations in favour of the buyer, the
risk of liability for breach of warranty, the need to continue to provide
transitional service arrangements for potentially lengthy periods following
completion of the relevant transaction to the businesses being transferred
and redundancy and other transaction costs. Further, the Group may be
required to enter into covenants agreeing not to compete in certain
markets for specific periods of time. In addition, as noted above in the
context of the State Aid restructuring plan and in the context of other
disposals, the Group will lose existing customers, deposits and other
assets (both directly through the sale and potentially through the impact
on the rest of theGroup’s business arising from implementing the
restructuring plans) and the potential for realising additional associated
revenues and margins that it otherwise might have achieved in the
absence of such disposals.
Any of the above factors could negatively affect the Group's ability to
implement its strategic plan and have a material adverse effect on the
Group's business, results of operations, financial condition, capital ratios
and liquidity and could result in a loss of value in the Securities.
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Additional information continued