RBS 2011 Annual Report Download - page 41

RBS Group 2011 39
Risk factors
Set out below is a summary of certain risks which could adversely affect
the Group; it should be read in conjunction with the Risk and balance
sheet management section of the Business review (pages 100 to 249).
This summary 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 451 to 464.
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. Together with a perceived increased risk of
default on the sovereign debt of certain European countries and
unprecedented stresses on the financial system within the eurozone,
these factors 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’s ability to meet its obligations’ including its funding
commitments, depends on the Group’s ability to access sources of
liquidity and funding. The inability to access liquidity and funding due
to market conditions or otherwise could adversely affect the Group’s
financial condition. Furthermore, 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 Independent Commission on Banking has published its final
report on competition and possible structural reforms in the UK
banking industry. The Government has indicated that it supports and
intends to implement the recommendations substantially as
proposed which could have a material adverse effect on the Group.
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 European Commission 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 occurrence of a delay in the implementation of (or any failure to
implement) the approved proposed transfers of a substantial part of
the business activities of RBS N.V. to the Royal Bank may have a
material adverse effect on the Group.
xThe Group 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 the Group’s
businesses.
xThe actual or perceived failure or worsening credit of the Group’s
counterparties 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 European or 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 Group 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 it can, and in the future may decide to, exercise a significant
degree of influence over the Group including on dividend policy,
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.