RBS 2010 Annual Report Download - page 56

Central Functions comprises Group and corporate functions, such as
treasury, funding and finance, risk management, legal, communications
and human resources. The Centre manages the Group's capital
resources and Group-wide regulatory projects and provides services to
the operating divisions.
Non-Core Division manages separately assets that the Group intends to
run off or dispose of. The division contains a range of businesses and
asset portfolios primarily from the GBM division, linked to proprietary
trading, higher risk profile asset portfolios including excess risk
concentrations, and other illiquid portfolios. It also includes a number of
other portfolios and businesses including regional markets businesses
that the Group has concluded are no longer strategic.
Business Services supports the customer-facing businesses and
provides operational technology, customer support in telephony, account
management, lending and money transmission, global purchasing,
property and other services. Business Services drives efficiencies and
supports income growth across multiple brands and channels by using a
single, scalable platform and common processes wherever possible. It
also leverages the Group's purchasing power and is the Group's centre of
excellence for managing large-scale and complex change. For reporting
purposes, Business Services costs are allocated to the divisions above. It
is not deemed a reportable segment.
Business divestments
To comply with EC State Aid requirements the Group has agreed a series
of restructuring measures to be implemented over a four year period from
December 2009. This will supplement the measures in the strategic plan
previously announced by the Group. These include divesting RBS
Insurance, 80.01% of Global Merchant Services and substantially all of
RBS Sempra Commodities JV business, as well as divesting the RBS
branch-based business in England and Wales and the NatWest branches
in Scotland, along with the Direct SME customers across the UK.
Competition
The Group faces strong competition in all the markets it serves. Banks’
balance sheets have strengthened whilst loan demand has been
subdued as many customers have sought to de-lever and the UK
economy has proved slow to recover. Competition for retail deposits
remains intense as institutions continue to target strong and diverse
funding platforms for their balance sheets.
Competition for corporate and institutional customers in the UK is from
UK banks and from large foreign financial institutions who are also active
and offer combined investment and commercial banking capabilities. In
asset finance, the Group competes with banks and specialised asset
finance providers, both captive and non-captive. In European and Asian
corporate and institutional banking markets the Group competes with the
large domestic banks active in these markets and with the major
international banks.
In the small business banking market, the Group competes with other UK
clearing banks, specialist finance providers and building societies.
In the personal banking segment, the Group competes with UK clearing
banks and building societies, major retailers and life assurance
companies. In the mortgage market, the Group competes with UK
clearing banks and building societies. The ambitions of non-traditional
players in the UK market remain strong with retailers and new entrants
forming aggressive expansion plans. The Group's life assurance
businesses compete with Independent Financial Advisers and life
assurance companies.
In the UK credit card market large retailers and specialist card issuers,
including major US operators are active in addition to the UK banks. In
addition to physical distribution channels, providers compete through
direct marketing activity and the internet.
In Wealth Management, The Royal Bank of Scotland International
competes with other UK and international banks to offer offshore banking
services. Coutts and Adam & Company compete as private banks with
UK clearing and private banks, and with international private banks.
Competition in wealth management remains strong as banks maintain
their focus on competing for affluent and high net worth customers.
RBS Insurance competes in personal lines insurance and, to a more
limited extent, in commercial insurance. There is strong competition from
arange of insurance companies which now operate telephone and
internet direct sales businesses. Competition in the UK motor market
remains intense, and price comparison internet sites now play a major
role in the marketplace. These sites are now extending their scope to
home insurance and other lines. RBS Insurance also competes with local
insurance companies in the direct motor insurance markets in Italy and
Germany.
In Ireland, Ulster Bank competes in retail and commercial banking with
the major Irish banks and building societies, and with other UK and
international banks and building societies active in the market. The
challenging conditions in the Irish economy persist and many of the
domestic Irish banks have required State support and are engaged in
significant restructuring actions.
In the United States, Citizens competes in the New England, Mid-Atlantic
and Mid-West retail and mid-corporate banking markets with local and
regional banks and other financial institutions. The Group also competes
in the US in large corporate lending and specialised finance markets, and
in fixed-income trading and sales. Competition is principally with the large
US commercial and investment banks and international banks active in
the US. The economic recovery in the US is proving weaker than
expected and loan demand is weak in Citizens’ markets which in turn has
dampened the level of competitive pressure in the deposit markets as
funding pressures have eased.
RBS Group 201054
Business review continued