RBS 2010 Annual Report Download - page 88

Wealth continued
2010 compared with 2009
2010 operating profit fell by 28% driven by lower net interest income and
higher expenses, partly offset by a 45% decline in impairments in the
year.
Income declined by 5% primarily due to lower net interest income. Strong
lending and investment income was offset by the impact of a competitive
deposit market.
Expenses grew by 12% to £734 million. Direct expenses were up 5%,
£23 million reflecting additional strategic investment. Indirect expenses
increased by £55 million reflecting a change in allocation of Business
Services costs.
Assets under management grew by 5% largely through improving market
conditions. On a constant currency basis, assets fell 2% with valuation
gains being offset by client losses in the international businesses,
resulting from the private banker attrition previously experienced.
2009 compared with 2008
Wealth produced strong growth in operating profit, up 21% to £420
million, reflecting the increased value of the division's healthy deposit
base in an increasingly competitive market for funding. Deposit balances
increased by 5% from 2008, though the deposit market remains highly
competitive.
Total income was up 5% (1% in constant currency terms), with strong
growth in net interest income, up 12% in constant currency terms
reflecting the increased internal pricing applied to Wealth's deposit base.
This was offset by a marked decrease in investment income year on year
as assets under management decreased by 8% at constant exchange
rates during 2009, with investors turning to more liquid assets and away
from longer term investments.
Loans and advances increased by 10% over 2008, primarily in the UK.
Lending margins improved, particularly for mortgages, and credit metrics
for new business remain satisfactory.
Expenses were down 6% (10% lower on a constant currency basis),
reflecting a rigorous focus on cost management, with staff costs
decreasing by 5% as a result of planned headcount reduction. The
cost:income ratio improved from 66% to 59%.
Impairments increased by £17 million over 2008 reflecting some isolated
difficulties in the UK and offshore mortgage books (representing
mortgages for second properties for expatriates). Provisions as a
percentage of lending to customers increased slightly to 0.25%.
RBS Group 201086
Business review continued