RBS 2012 Annual Report Download - page 34

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DIVISIONAL REVIEW
Non-Core has reduced funded assets
by over £200 billion to date. In 2012,
funded assets reduced by £36 billion (39
per cent) to £57 billion and risk-weighted
assets reduced by £33 billion (35 per
cent) to £60 billion. An operating loss of
£2.9 billion was £1.3 billion lower than
2011, partly due to a £1.7 billion reduction
in impairments to £2.2 billion and a £351
million (27 per cent) reduction in costs.
As a net result, the Division released
capital back to the Group through the net
impact of lowering risk-weighted assets,
partially offset by a smaller pre-tax loss.
Making RBS safer
Non-Core aims to run down its portfolio in a
capital efficient manner at a pace the Group
can afford. We make RBS safer through
reducing our funded assets, capital
requirement, provisions, costs, losses
and operational risk.
Non-Core has reduced its third party assets by
over £200 billion since it was formed at the start
of 2009. In 2012, we reduced third party
assets by 39% to £57 billion. We disposed of
£18 billion and negotiated run-off of £16 billion
of funded assets during 2012. We also reduced
our derivatives portfolio by 45% to £6 billion,
down from £85 billion at the start of 2009.
Non-Core targets a balanced run-down of
all the portfolio asset classes in parallel.
For example, in 2012 Real Estate reduced
by 30%, Markets by 48% and Corporates
by 40%. Using diverse approaches across
the portfolio gives us the flexibility to react
to market conditions.
We completed a number of notable
transactions across asset classes in 2012
including the sale of:
RBS Aviation Capital to Sumitomo Mitsui
Financial Group for approximately £5 billion,
which also reduced RWAs by approximately
£2 billion. The business is the world’s fourth
largest aircraft lessor by owned and
managed fleet value, including a portfolio
of 203 owned aircraft;
two buildings in Frankfurt and Berlin to
AXA Real Estate investment Management
and Norges Bank Investment Management
for €784 million;
sale of £275 million securitised real estate
loans. This transaction improved the funding
of the partnership with Blackstone to
manage a fund of £1.4 billion of UK loans
that we announced last year;
over £300 million leveraged assets through
auctions; and
our Reverse Mortgages Services business
in Australia to Macquarie.
Non-Core reduced its capital requirement in
2012 through running down the portfolio and
pursuing targeted capital management actions.
We reduced risk-weighted assets by £33 billion
(35%) over 2012 to £60 billion from £93 billion
in 2011 and also undertook transactions to
avoid or reduce the amount of additional
capital that we will require following the
implementation of the new Basel III rules,
including the fourth Capital Requirements
Directive.
We reduced our impairments again in 2012.
This reflects the run-down of the portfolio and
our recognition of impairments in prior years,
as well as how we managed the remaining
portfolio. We continue to remain cautious on
our Ulster Bank real estate portfolios which
accounted for 40% of the 2012 impairments.
We also reduced our cost base by £351 million
(27%) and operational risk through reducing
the scope and headcount of the Division,
particularly through the completion of business
exits such as RBS Aviation Capital.
Building a better bank that serves
customers well
Non-Core releases capital back to the Group
that can be used to support new Core lending
and generate better returns on equity.
Changing our culture
We are helping to change the culture of RBS
by addressing transparently the legacy of the
past. We do that through:
detailed analysis of the risks in the portfolio
so we can mitigate them;
making capital the prime driver of decision-
making to ensure that the Division focuses
on shareholder value;
transparent accountability and responsibility
for asset management; and
maintaining rigorous controls over the
management and run-down of the portfolio.
Non-Core
Division
Rory Cullinan
Head of Non-Core Division
Watch or listen to Rory Cullinan
www.rbs.com/AnnualReview
Performance highlights 2012 2011
Operating loss before impairment losses (£m) (656) (302)
Impairment losses (£m) (2,223) (3,919)
Operating loss (£m) (2,879) (4,221)
Risk-weighted assets (£bn) 60.4 93.3