RBS 2011 Annual Report Download - page 14

12 RBS Group 2011
Why have you made changes to your
wholesale businesses? Will you be
making further changes, including
selling businesses?
RBS wholesale businesses are a vital part of
the Group. They are important contributors in
their own right. They are linked with our other
banking businesses closely in a way that helps
us to serve all our customers better, makes us
more profitable as a whole and gives greater
stability and resilience to the Group.
Market conditions and regulatory changes,
including the Independent Commission on
Banking, adversely affected the outlook for
our wholesale business as it was structured.
As a result, we announced in January 2012
that we will exit from business areas that are
unprofitable and where we have weaker
customer positions. We are also scaling
back resources in areas where market
developments threaten our ability to fund
ourselves sustainably and profitably.
We are restructuring our pre-existing GBM and
GTS businesses. The result will be:
•a Markets business serving the clients of
all Group businesses;
•an International Banking unit which will
incorporate the existing GBM corporate
banking business with the international
elements of the existing GTS business; and
•the domestic corporate customers,
previously served by GTS, will be managed
by our domestic corporate banking
businesses in the UK, Ireland and the US.
What conditions are necessary
for you to return to profitability?
It remains the Group's ambition to get back to
being a safe, normal company. Our intention is
to do so as soon as practicable. Economic
headwinds currently point to a slower recovery
with interest rates low for longer than previously
expected. This, together with stringent
regulatory changes, means that it could take
longer to reach some of our strategic plan
targets than we had previously expected.
We remain confident of unlocking the
performance potential in our underlying
franchises and earning a return for our
shareholders above the cost of capital in
the medium-term.
When will I receive
a dividend?
RBS is subject to dividend restrictions
imposed by the European Commission that
prevent us from paying dividends on ordinary
shares, B shares and hybrid securities, unless
we have a legal obligation to pay. Once this
restriction has passed, the Board will be free
to declare dividends as it deems appropriate
and subject to normal market practice.
Further consideration should be given to the
Dividend Access Share held by the UK
Government. This commands a dividend on
the B shares it owns at the higher of 7%, or
2.5 times the ordinary dividend. This could
be a barrier to resuming ordinary dividends
in the near-term and could be subject to a
discussion with the Government at some time
in future.
What is the trend in your
impairment charge?
The level of Group impairments, excluding
Greek sovereign debt impairment, fell by 20%
in 2011, reflecting our risk reduction efforts
and steady underlying improvements in the
economic environment. Clearly challenges
remain across the economies we serve. As a
consequence we remain cautious on future
improvements in impairment trends.
What is the trend
in your margins?
The net interest margin in our Retail &
Commercial businesses increased by seven
basis points in 2011. The expansion was
supported by a recovery in asset margins
across a number of our businesses.
Countering this, liability margins have
remained under pressure, reflecting the
increasing cost of wholesale funding and
strong competition for customer deposits.
What is your exposure to
European sovereign debt?
We have focused on actively managing down
our exposure to sovereign bonds of southern
peripheral European countries (Greece, Italy,
Portugal and Spain), which we had acquired
from ABN AMRO in 2007. In 2011, we reduced
our exposure by over 90%. Our outstanding
exposure is low at £0.3 billion, equivalent to
less than 0.1 percentage points of our Core
Tier 1 capital ratio. Reflecting our conservatism,
we have written down the value of our Greek
bond holdings by £1.1 billion, marking our
position to 21% of its original value.
We clearly have significant exposure to the
Republic of Ireland’s economy through Ulster
Bank where total lending was £48.5 billion at
31 December 2011. We remain committed to
our core Ulster Bank franchise but have placed
£14 billion of loans in our Non-Core division.
We are managing this portfolio down over time
and, where assets are currently non-
performing, they are being appropriately
provisioned.
When we speak to our investors, some questions are asked more often than others.
Below we provide a selection of those frequently asked questions and answers.
Q Q
Our business and our strategy
Q&As on progress
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