RBS 2010 Annual Report Download - page 57

Risk factors
Set out below is a summary of certain risks which could adversely affect
the Group. These should not be regarded as a complete and
comprehensive statement of all potential risks and uncertainties. A fuller
description of these and other risk factors is included on pages 405 to
422.
xRBSG or any of its UK bank subsidiaries may face the risk of full
nationalisation or other resolution procedures and various actions
could be taken by or on behalf of the UK Government, including
actions in relation to any securities issued, new or existing
contractual arrangements and transfers of part or all of RBSG’s
businesses.
xThe Group’s ability to implement its strategic plan depends on the
success of its efforts to refocus on its core strengths and its balance
sheet reduction programme. As part of the Group’s strategic plan
and implementation of the State Aid restructuring plan agreed with
the EC and HM Treasury, the Group is undertaking an extensive
restructuring which may adversely affect the Group’s business,
results of operations and financial condition and give rise to
increased operational risk and may impair the Group’s ability to raise
new Tier 1 capital due to restrictions on its ability to make
discretionary dividend or coupon payments on certain securities.
xThe Group’s businesses, earnings and financial condition have been
and will continue to be affected by geopolitical conditions, the global
economy, the instability in the global financial markets and
increased competition. These have resulted in significant changes in
market conditions including interest rates, foreign exchange rates,
credit spreads, and other market factors and consequent changes in
asset valuations.
xThe Group requires access to sources of liquidity, which have been
constrained in recent years, and a failure to access liquidity due to
market conditions or otherwise could adversely affect the Group’s
financial condition. In addition, the Group’s borrowing costs and its
access to the debt capital markets and other sources of liquidity
depend significantly on its and the UK Government’s credit ratings.
xThe actual or perceived failure or worsening credit of the Group’s
counterparties (including monolines or other credit insurers) or
borrowers and depressed asset valuations resulting from poor
market conditions have adversely affected and could continue to
adversely affect the Group.
xThe value of certain financial instruments recorded at fair value is
determined using financial models incorporating assumptions,
judgements and estimates that may change over time or may
ultimately not turn out to be accurate.
xThe Group’s insurance businesses are subject to inherent risks
involving claims on insured events.
xThe Group’s business performance, financial condition and capital
and liquidity ratios could be adversely affected if its capital is not
managed effectively or as a result of changes to capital adequacy
and liquidity requirements, including those arising out of Basel III
implementation (globally or by UK authorities), or if the Group is
unable to issue Contingent B Shares to HM Treasury under certain
circumstances.
xThe Group could fail to attract or retain senior management, which
may include members of the Board, or other key employees, and it
may suffer if it does not maintain good employee relations.
xAny significant developments in regulatory or tax legislation could
have an effect on how the Group conducts its business and on its
results of operations and financial condition, and the recoverability of
certain deferred tax assets recognised by the Group is subject to
uncertainty.
xThe Group is subject to substantial regulation and oversight, and
any significant regulatory or legal developments could have an
adverse effect on how the Group conducts its business and on its
results of operations and financial condition. In addition, the Group is
and may be subject to litigation and regulatory investigations that
may impact its business, results of operations and financial condition.
xOperational and reputational risks are inherent in the Group’s
operations.
xThe Group may be required to make contributions to its pension
schemes and government compensation schemes, either of which
may have an adverse impact on the Group’s results of operations,
cash flow and financial condition.
xAs a result of the UK Government’s majority shareholding in the
Group they can, and in the future may decide, to exercise a
significant degree of influence over the Group including suspending
dividends and certain coupon payments, modifying or cancelling
contracts or limiting the Group’s operations. The offer or sale by the
UK Government of all or a portion of its shareholding in the company
could affect the market price of the equity shares and other
securities and acquisitions of ordinary shares by the UK
Government (including through conversions of other securities or
further purchases of shares) may result in the delisting of the Group
from the Official List.
xThe Group’s participation in the APS is costly and complex and may
not produce the benefits expected and the occurrence of associated
risks may have a material adverse impact on the Group’s business,
capital or tax position, financial condition and results of operations.
Any changes to the regulatory treatment of the APS may negatively
impact the Group’s capital position and any withdrawal from, or
termination of, the APS will be costly.
55RBS Group 2010
Business review