RBS 2011 Annual Report Download - page 399

RBS Group 2011 397
Continuing involvement
In certain securitisations of US residential mortgages, substantially all the
risks and rewards have been neither transferred nor retained, but the
Group has retained control, as defined by IFRS, of the assets and
continues to recognise the assets to the extent of its continuing
involvement which takes the form of retaining certain subordinated bonds
issued by the securitisation SPEs. These bonds have differing rights and,
depending on their terms, they may expose the Group to interest rate risk
where they carry a fixed coupon or to credit risk depending on the extent
of their subordination. Certain bonds entitle the Group to additional
interest if the portfolio performs better than expected and others give the
Group the right to prepayment penalties received on the securitised
mortgages. At 31 December 2011, securitised assets were £0.6 billion
(2010 - £2.3 billion; 2009 - £3.1 billion); retained interest £72 million
(2010 - £286 million; 2009 - £102 million); subordinated assets £3 million
(2010 - £4 million; 2009 - £91 million); and related liabilities £3 million
(2010 - £4 million; 2009 - £33 million).
The Group retained interests in securitised financial assets take the form
of senior or subordinated securities. These interests predominantly relate
to mortgage-backed securities which were re-securitised. Retained
interests are generally not held to maturity and are typically sold after
settlement of the securitisation. Retained interests may be subordinated
to other investors' interests. Third party investors and securitisation trusts
have no recourse to the Group's other assets for failure of debtors to
perform on the securitised loans or securities, effectively transferring the
risk of future credit losses to the purchasers of the securities issued by
the trust. The value of retained interest varies and is subject to credit,
interest rate, prepayment, and other risks of the transferred assets. In
the ordinary course of business, the Group does not provide any other
financial support to the securitisation trusts other than holding these
retained interests.
Securities repurchase agreements and lending transactions
The Group enters into securities repurchase agreements and securities
lending transactions under which it transfers securities in accordance with
normal market practice. Generally, the agreements require additional
collateral to be provided if the value of the securities falls below a
predetermined level. Under standard terms for repurchase transactions
in the UK and US markets, the recipient of collateral has an unrestricted
right to sell or repledge it, subject to returning equivalent securities on
settlement of the transaction.
Securities sold under repurchase transactions are not derecognised if the
Group retains substantially all the risks and rewards of ownership. The
fair value (and carrying value) of securities transferred under such
repurchase transactions included within debt securities on the balance
sheet, are set out below. All of these securities could be sold or
repledged by the holder.
Assets pledged against liabilities 2011
£m
2010
£m
2009
£m
Debt securities 79,480 80,104 66,883
Equity shares 6,534 5,148 3,409
Other collateral given
This primarily relates to cash collateral relating to derivative contracts as well as assets pledged for bank and other borrowings.
Assets pledged in securities repurchase agreements and lending transactions 2011
£m
2010
£m
2009
£m
Loans and advances to banks 19,691 27,271 25,712
Loans and advances to customers 52,225 46,352 38,924
Debt securities 3,713 7,200 8,723
75,629 80,823 73,359
Liabilities secured by assets
Deposits by banks 6,369 10,565 12,724
Customer accounts 2,663 3,599 3,319
Debt securities in issue —— 1,237
Derivatives 82,356 93,570 65,225
91,388 107,734 82,505