RBS 2012 Annual Report Download - page 15

2012 Results
2012 saw landmark achievements in our
restructuring plan. It saw sustained customer
lending support. A 61% share price rise during
the year (and 215% versus the January 2009
low point) underlined an improvement of
investor belief in our future and that of the
banking sector generally.
The critical task of financial stabilisation
passed milestones as RBS recommenced
preference share dividends, completed
the repayment of all crisis liquidity facilities
from public authorities and exited the UK
Government £282 billion Asset Protection
Scheme without making any claim under it.
The notable flotation of Direct Line Group
represented the third of four EU state aid
conditions and offset the disappointment
of Santander withdrawing from its agreed
purchase of 315 branches from RBS.
Underlining this progress, RBS 5 year bonds
traded at c.1% credit spreads compared to
their wide levels earlier in the year of c.4.5%.
The resultant own-credit accounting charge of
£4.6 billion reflects this huge improvement in
the perceived credit quality of RBS.
Core Bank operating profits were £6.3 billion of
which Retail and Commercial businesses were
£5.3 billion (excluding Ulster Bank) and
Markets £1.5 billion. Non-Core losses declined
again (32% to £2.9 billion) and Non-Core
assets also fell ahead of target to £57 billion.
We expect to slow the pace and cost of the
remaining run-down once we hit the £40 billion
asset target for the end of 2013. Exceptional
charges in relation to Payment Protection
Insurance claims, LIBOR settlements and
interest rate hedging product redress, together
with the own credit adjustment, resulted in a
loss before tax of £5,165 million.
In a tough economic environment, most of the
banking industry’s ongoing businesses are
running hard to stand still, and so it was at
RBS. But the existing level of operating
performance is essential to fund our historic
clean-up with the moment coming ever closer
when these costs are behind us and rewards
flow directly once more to shareholders.
Reputation
Our industry faces a tough challenge rebuilding
its reputation. 2012 was a wrenching year on
that front as the cultural clean-up came to the
fore which was always a companion to physical
changes required from pre-crisis times.
Expectations are changing fast and even past
ones have not been lived up to often enough.
And the mistakes of some, grievous in cases,
are tainting the efforts of the majority of bank
staff. Most banks have past failings on a range
of fronts. For RBS the two worst in the past year
were LIBOR and our IT incident - quite different
though they are.
There is no single solution or dramatic action
able to address this problem. The best
companies in the world in any industry develop,
almost as part of their DNA, the consistent
commitment to serve customers well and act
accordingly. Our sights are set here. The facts
and the culture that drives them will be
established one piece at a time across many
many issues. But we have no higher priority.
Strategy
The new RBS is a leading UK bank anchored in
retail and commercial business lines. Our
businesses are shaped around customer
needs with substantial competitive strengths in
their respective fields. Each unit is being
retooled to provide improved and enduring
performance and to meet new external
challenges. We sustain strong capabilities
internationally and in financial markets to
support the needs of our customers and
shareholders. Our businesses are managed to
add value in their own right but to provide a
stronger, more balanced and valuable whole
through vital cross-business linkages.
The physical weaknesses uncovered by the
financial crisis - of leverage, risk concentration
and business stretch - are close to being fixed.
RBS’s total assets have already been reduced
by £906 billion from their peak in 2008 - more
than any other entity worldwide has achieved.
The principles behind this strategy are sound
and working. But it will continue to evolve. A
much slower economic recovery and tougher
set of regulatory and policy pressures need to
be absorbed. We have done this with more
emphasis on customer service, balance sheet
conservatism and while asking staff to do more
with less during a period of significant change.
Our business ambitions have been trimmed as
a necessary reaction.
But whatever the outside conditions and
evolution of strategy we are clear about the
interrelated nature of our priorities. To serve
customers well, run only prudent risk and
reward shareholders over the longer term.
In this context we have set a new medium-term
target for our Markets business, which is an
important part of our service to corporate and
institutional customers. We aim to further
reduce its scale and scope, targeting capital
consumption of £80 billion RWAs whilst
sustaining the service provided to our
customer base.
Additionally, the Board has decided it is now
the right time to begin work on a partial flotation
of Citizens, our US banking business, targeted
probably at around 2 years from now. Citizens
is a good business, serving around 5 million
customers in the north east of the United
States where it is has a strong market position.
It has been substantially improved since 2009
and a local public listing will help to highlight its
growing value. This provides a positive
opportunity for Citizens and its 14,700
employees, as well as being a sensible move
for RBS as a whole.
People
The banking industry has come down to earth
hard. While a more balanced global economy
has clear merits, the changes, pressures and
adjustments asked of our people remain high.
And successful results are vital for the many
who rely on us. The engagement, dedication
and professionalism of RBS employees
remains outstanding and has much to be
commended.
Concluding remarks
RBS is coming through an immense and
wrenching restructuring. Much has been
achieved and that should underpin our energy
for what remains. Much is already good about
our Core business, how it serves customers,
how it performs. Our ambition is to be a really
good bank – for all our stakeholders. Simple to
say. A lot still to do. Many will benefit from our
achieving that goal.
I thank our staff and all our stakeholders for
their continued support in this effort.
Stephen Hester
Group Chief Executive
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RBS GROUP 2012