RBS 2012 Annual Report Download - page 158

Liquidity and funding risk: Analyses continued
Non-traded equity risk
Non-traded equity risk is the potential variation in the Group’s non-trading
income and reserves arising from changes in equity valuations.
Objective
Equity positions in the non-traded book are held to support strategic
objectives and venture capital transactions, or in respect of customer
restructuring arrangements.
Risk control framework
The commercial decision to take or hold equity positions in the non-
trading book, including customer restructurings, is taken by authorised
persons with delegated authority under the Group credit approval
framework. Investments or disposals of a strategic nature are referred to
the Group Acquisitions and Disposals Committee (ADCo), Group
Executive Committee (ExCo), and where appropriate the Board for
approval. Those involving the purchase or sale by the Group of
subsidiary companies require Board approval, after consideration by
ExCo and/or ADCo.
The risk arising from these holdings is mitigated by proper controls and
identification of risk prior to investing.
Valuation
At Group level, positions are monitored by and reported quarterly to
GALCO.
Equity positions are measured at fair value. Fair value calculations are
based on available market prices where possible. In the event that
market prices are not available, fair value is based on appropriate
valuation techniques or management estimates.
The following table shows the balance sheet value and fair value of the
Group’s non-traded book equity positions.
Balance
sheet value
2012
£m
Fair value
2012
£m
Balance
sheet value
2011
£m
Fair value
2011
£m
Exchange-traded equity 472 472 576 576
Private equity 632 632 674 674
Other 799 799 1,094 1,094
1,903 1,903 2,344 2,344
The exposures may take the form of listed and unlisted equity shares, linked equity fund investments, private equity and venture capital investments,
preference shares classified as equity or Federal Home Loan Bank stock. The following table shows the net realised and unrealised gains from these
positions:
2012 2011
£m £m
Net realised gains arising from disposals 89 150
Unrealised gains included in Tier 1, 2 or 3 capital 168 235
Note:
(1) Includes gains or losses on available-for-sale instruments only.
Cumulative gains on equity shares designated at fair value through profit or loss but not held for trading purposes were £84 million at 31 December
2012 (2011 - £230 million).
Refer to additional analysis of equity shares in Balance sheet analysis on page 218.
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Business review Risk and balance sheet management continued