RBS 2011 Annual Report Download - page 12

10 RBS Group 2011
We are dealing with the new economic and
regulatory challenges within the strategic plan
and have retained our focus on building an
RBS for all to be proud of. Great credit is due
to our people for the accomplishments to date
and to those who have supported us with their
capital or their custom.
Priorities
We are clear on RBS’s priorities:
•to serve customers well;
•to restore the Bank to a sustainable and
conservative risk profile; and
•to rebuild value for all shareholders.
These priorities are interconnected and
mutually supporting.
2009-11 Report Card
During the last three years RBS has:
•sustained its customer franchises across our
Core business in the face of restructuring
and reputational pressures. Market shares
are stable overall. Service standards are
generally up. Lending support across the
UK business substantially exceeds our
natural customer market share.
•rebuilt its financial resilience. Core Tier 1 ratio
increased to 10.6%, total assets reduced
by £712 billion from peak levels, short-term
wholesale borrowing reduced by £195 billion,
converting a £207 billion deficit versus liquid
assets to a £53 billion surplus. Balance sheet
leverage reduced from 21.2x to 16.9x and the
loan:deposit ratio improved to 108% (94% in
Core). In each case the 2011 position is well
ahead of that originally forecast.
•produced £34 billion in pre-impairment
profits from Core businesses. These were
used to self-fund our legacy losses and loan
impairments, which to date have totalled £43
billion. Operating costs have been reduced
by an average of £1 billion annually. Each of
these totals is better than originally forecast
despite a tougher economic environment.
2011 Results
2011 saw good progress across all measures
of risk reduction and increased financial
soundness; important given the much tougher
market conditions. Customer service and
support was sustained well.
However, RBS has reported a pre-tax loss of
£766 million overall and, in common with
others, has seen a share price fall, albeit still at
levels much higher than the 10p starting point
in January 2009. These outcomes reflect the
stage of our recovery and the external
environment. They mask real and important
accomplishments, however.
Core bank operating profits were £6.1 billion.
Within this total, operating profits in 2011
across RBS’s Retail and Commercial business
(excluding Ulster Bank) were up 9% to £4.9
billion. RBS Insurance turned loss into profit,
a £749 million improvement on 2010. GBM
suffered a 54% fall in profit to £1.6 billion,
reflecting tough market conditions, but still
a substantial result and one generally in line
with other investment banking businesses.
Non-Core losses declined 24% to £4.2 billion
as the risk run-off continued ahead of
schedule. Exceptional charges for past
business associated with PPI and Greek
write-downs were also taken. £3.8 billion was
handed over to HMT/HMRC/Bank of England
in fees for APS/Credit Guarantee Scheme,
taxes (both on our behalf and on that of our
employees) and capital support schemes.
We all understand that a company that is
making losses at the bottom line tests the
patience of those who depend on it. However,
the restructuring task we have undertaken at
RBS is unique in its scale and complexity,
and needs to be phased in line with our ability
to fund and execute it. In dealing with these
legacy losses we expect to put the company
on a sustainable footing for generations to
come. 2011 proved what we already knew:
that there are no shortcuts to this endpoint.
Strategy
The new RBS is built upon customer-driven
businesses with substantial competitive
strengths in their respective markets; together
our ‘Core’ business. Each unit is being
reshaped to provide improved and enduring
performance and to meet new external
challenges. The businesses are managed to
add value in their own right but to provide a
stronger, more balanced and valuable whole
through vital cross-business linkages.
The weaknesses uncovered by the financial
crisis – of leverage, risk concentration and
business stretch – are being fixed. The primary
vehicle for this is the run-off and sale of assets
in our Non-Core division though there are
many other parallel tasks. RBS’s total assets
have already been reduced by £712 billion
from their peak in 2008 – more than any other
entity worldwide has achieved.
Adjustments to Plan
The principles of RBS strategy are working
well. The tougher external environment will
slow progress and reduce profitability but
requires largely tactical change from the
original plan for the majority of our business.
RBS has completed the first three years of its recovery plan. Over that period the Bank’s
results across our key goals – Customers, Risk and Value – have exceeded the Plan
targets we put together in 2009. This is pleasing and puts the Bank in a vastly better
position than before to serve our different constituencies.
Our business and our strategy
Group Chief Executive’s review