RBS 2011 Annual Report Download - page 91

RBS Group 2011 89
Non-Core third party assets fell to £94 billion, below the revised year end
target of £96 billion and significantly ahead of the original guidance of
£118 billion. Further reductions will include the sale of RBS Aviation
Capital for £4.7 billion, which was signed in January 2012. Since the
division was formed in 2009, the reduction totals £164 billion, or 64%. By
the end of 2011, the Non-Core funded balance sheet equated to less
than 10% of the Group funded balance sheet compared with 21% when
the division was created.
The division focused on reducing capital intensive trading assets, with
activity including the restructuring of monoline exposures, which, at a cost
of c.£600 million in 2011, achieved a reduction of £32 billion in risk-
weighted assets.
An operating loss of £4,203 million for 2011 was £1,302 million lower
than 2010. Income declined by £1,758 million reflecting continued
divestment, including business and country exits. The decrease was
partially offset by a reduction in expenses of £961 million, largely driven
by the fall in headcount. Impairment losses fell by £1,557 million despite
ongoing challenges in the real estate and Ulster Bank portfolios.
2011 compared with 2010
Operating loss of £4,203 million in 2011 was £1,302 million lower than
the loss recorded in 2010. The continued divestment of Non-Core
businesses and portfolios has reduced revenue streams as well as the
cost base.
Losses from trading activities increased by £690 million compared with
2010, principally as a result of the disposal of RBS Sempra Commodities
in 2010 and costs incurred as part of the division’s focus on reducing
capital intensive trading assets and mitigating future regulatory uplifts in
risk-weighted assets.
Impairment losses fell by £1,557 million despite ongoing challenges in the
real estate and Ulster Bank portfolios, reflecting improvements in other
asset classes.
Third party assets declined by £44 billion (32%) reflecting disposals of
£22 billion and run-off of £22 billion.
Risk-weighted assets were £60 billion lower than 2010, principally driven
by significant disposal activity on trading book assets combined with run-
off.
Headcount declined by 2,189 (32%) to 4,669 in 2011, largely reflecting
the divestment activity in relation to Asia, Non-Core Insurance and RBS
Sempra Commodities.
2010 compared with 2009
Bythe end of 2010 third party assets (excluding derivatives) had
decreased to £138 billion, £5 billion lower than the end of year target, as
aresult of a successful disposal strategy, managed portfolio run-off and
impairments.
2010 operating losses in Non-Core were 62% lower than those recorded
in 2009. The improvement in performance was driven by significantly
lower trading losses, reduced expenses and a marked decline in
impairments.
Losses from trading activities declined from £5,161 million for 2009 to
£31 million for 2010 as underlying asset prices recovered, offset by
continuing weakness in credit spreads. The division has recorded profits
on the disposal of many asset-backed securities positions. In addition, a
significantly smaller loss of £161 million was recorded on banking book
hedges as spreads tightened, compared with £1,728 million in 2009.
Staff expenses fell by 14% over the year, largely driven by the impact of
business divestments, including a number of country exits and the
disposal of substantially all of the Group’s interest in the RBS Sempra
Commodities JV.
Impairments were £3,745 million lower than 2009. The decline reflects
the overall improvement in the economic environment, although still high
loss rates reflect the difficult conditions experienced in specific sectors,
including both UK and Irish commercial property sectors.
Wholesale country exits completed during 2010 were Chile, Colombia,
Pakistan and Taiwan.
Risk-weighted assets decreased by £18 billion (10%), reflecting active
management to reduce trading book risk and disposals, partially offset by
the impact of regulatory changes (£30 billion) and more conservative
weightings applied to large corporate exposures.