RBS 2011 Annual Report Download - page 455

RBS Group 2011 453
The Group’s ability to implement its strategic plan depends on the
success of the Group’s refocus on its core strengths and its balance
sheet reduction programme
As a result of the global economic and financial crisis that began in 2008
and the changed global economic outlook, the Group is engaged in a
financial and core business restructuring which is focused on achieving
appropriate risk-adjusted returns under these changed circumstances,
reducing reliance on wholesale funding and lowering exposure to capital-
intensive businesses. A key part of this restructuring is the programme
announced in February 2009 to run-down and sell the Group’s non-core
assets and businesses and the continued review of the Group’s portfolio
to identify further disposals of certain non-core assets and businesses.
Assets identified for this purpose and allocated to the Group’s Non-Core
division totalled £258 billion, excluding derivatives, at 31 December 2008.
At 31 December 2011, this total had reduced to £93.7 billion (31
December 2010 - £137.9 billion), excluding derivatives, as further
progress was made in business disposals and portfolio sales during the
course of 2011. This balance sheet reduction programme continues
alongside the disposals under the State Aid restructuring plan approved
by the European Commission. As part of its core business restructuring,
in January 2012 the Group announced changes to its wholesale banking
operations, including the reorganisation of its wholesale businesses and
the exit and downsizing of selected existing activities (including cash
equities, corporate banking, equity capital markets, and mergers and
acquisitions).
Because the ability to dispose of assets and the price achieved for such
disposals will be dependent on prevailing economic and market
conditions, which remain challenging, there is no assurance that the
Group will be able to sell or run-down (as applicable) those remaining
businesses it is seeking to exit either on favourable economic terms to
the Group or at all. In addition, material tax liabilities could arise on the
disposal of assets. Furthermore, there is no assurance that any
conditions precedent agreed will be satisfied, or consents and approvals
required will be obtained in a timely manner, or at all. There is
consequently a risk that the Group may fail to complete such disposals by
any agreed longstop date.
The Group may be liable for any deterioration in businesses being sold
between the announcement of the disposal and its completion, which
period may be lengthy and may span many months. In addition, the
Group may be exposed to certain risks until completion, including risks
arising out of ongoing liabilities and obligations, breaches of covenants,
representations and warranties, indemnity claims, transitional services
arrangements and redundancy or other transaction related costs.
The planned reorganisation, exit and downsizing of business activities
announced in January 2012 will be time intensive and costly, the extent
to which is not fully ascertainable. The process of implementing these
changes may result in further disruption to the Group and the businesses
it is trying to exit or downsize.
The occurrence of any of the risks described above could negatively
affect the Group’s ability to implement its strategic plan and could have a
material adverse effect on the Group’s business, results of operations,
financial condition, capital ratios and liquidity and could result in a loss of
value in its securities.
The 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
As part of the restructuring of its businesses, operations and assets, on
19 April 2011, the Group announced the proposed transfers of a
substantial part of the business activities of RBS N.V. to the Royal Bank.
Subject to, among other matters, regulatory and other approvals, it is
expected that the proposed transfers will be implemented on a phased
basis over a period ending 31 December 2013. A large part of the
proposed transfers is expected to have taken place by the end of 2012.
On 17 October 2011, the Group completed the transfer of a substantial
part of the UK activities of RBS N.V. to the Royal Bank pursuant to Part
VII of FSMA.
The process for implementing the proposed transfers is complex and any
failure to satisfy any conditions or complete any preliminary steps to each
proposed transfer may cause a delay in its completion (or result in its
non-completion). If any of the proposed transfers are delayed (or are not
completed) for any reason, such as a failure to secure required regulatory
approvals, it is possible that the relevant regulatory authorities could
impose sanctions which could adversely impact the minimum regulatory
requirements for capital and liquidity of RBS N.V. and the Royal Bank. In
addition, the FSA may impose additional capital and liquidity
requirements in relation to the Royal Bank to the extent that such a delay
in implementation (or non-completion) of any of the proposed transfers
has consequential financial implications for the Royal Bank (for example
increased intra-group large exposures). A delay in implementation of (or
any failure to implement) any of the proposed transfers may therefore
adversely impact RBS N.V.’s and the Royal Bank’s capital and liquidity
resources and requirements, with consequential adverse impacts on their
funding resources and requirements.
The occurrence of a delay in the implementation of (or any failure to
implement) any of the proposed transfers may therefore have a material
adverse effect on the Group’s business, results of operations, financial
condition, and could result in a loss of value in its securities.