RBS 2012 Annual Report Download - page 347

RBS GROUP 2012
345
The directors present their report together with the audited accounts for
the year ended 31 December 2012.
Group structure
The company is a holding company owning the entire issued ordinary
share capital of The Royal Bank of Scotland plc, the principal direct
operating subsidiary undertaking of the company. The Group comprises
the company and all its subsidiary and associated undertakings, including
the Royal Bank and NatWest. Details of the principal subsidiary
undertakings of the company are shown in Note 8 on page 482.
Following placing and open offers in December 2008 and in April 2009,
HM Treasury (HMT) owned approximately 70.3% of the enlarged ordinary
share capital of the company. In December 2009, the company issued a
further £25.5 billion of new capital to HMT. This new capital took the form
of B shares, which do not generally carry voting rights at general
meetings of ordinary shareholders but are convertible into ordinary
shares and qualify as Core Tier 1 capital.
At 31 December 2012, HMT’s holding in the company’s ordinary shares
had reduced to 65.3% as a consequence of share issues during the year.
Results and dividends
The loss attributable to the ordinary and B shareholders of the company
for the year ended 31 December 2012 amounted to £5,971 million
compared with a loss of £1,997 million for the year ended 31 December
2011, as set out in the consolidated income statement on page 353.
The company did not pay a dividend on ordinary shares in 2011 or 2012.
On 26 November 2009, RBS entered into a State Aid Commitment Deed
with HM Treasury containing commitments and undertakings that were
designed to ensure that HM Treasury was able to comply with the
commitments to be given by it to the European Commission for the
purposes of obtaining approval for the State aid provided to RBS. As part
of these commitments and undertakings, RBS agreed not to pay
discretionary coupons and dividends on its existing hybrid capital
instruments for a period of two years. This period commenced on 30 April
2010 for RBS Group instruments and ended on 30 April 2012; the two
year deferral period for RBS Holdings N.V. instruments commenced on 1
April 2011.
On 4 May 2012, RBS determined that it was in a position to recommence
payments on RBS Group instruments. The Core Tier 1 capital impact of
discretionary amounts payable in 2012 on RBSG instruments on which
payments have previously been stopped is c.£330 million. The Board of
RBSG decided to neutralise any impact on Core Tier 1 capital through
equity issuance. Approximately 65% of this is ascribed to equity funding
of employee incentive awards through the sale of surplus shares held by
the Group’s Employee Benefit Trust, which was completed in June 2012.
The remaining 35% was raised through the issue of new ordinary shares
which was completed in September 2012.
Discretionary dividends on certain non-cumulative preference shares and
discretionary distributions on certain RBSG innovative securities payable
after 4 May 2012 have been paid. Future coupons and dividends on
RBSG hybrid capital instruments will only be paid subject to, and in
accordance with, the terms of the relevant instruments.
Business review
Activities
The Group is engaged principally in providing a wide range of banking,
insurance and other financial services. Further details of the
organisational structure and business overview of the Group, including
the products and services provided by each of its divisions and the
competitive markets in which they operate, are contained in the Business
review on pages 40 to 42. Details of the strategy for delivering the
company’s objectives can be found on pages 16 and 17.
Risk factors
The Group’s future performance and results could be materially different
from expected results depending on the outcome of certain potential risks
and uncertainties. Certain risk factors the Group faces are summarised
on page 43. Fuller details of these and other risk factors are set out on
pages 503 to 515.
The reported results of the Group are also sensitive to the accounting
policies, assumptions and estimates that underlie the preparation of its
financial statements. Details of the Group’s critical accounting policies
and key sources of accounting judgments are included in Accounting
policies on pages 360 to 372.
The Group’s approach to risk management, including its financial risk
management objectives and policies and information on the Group’s
exposure to price, credit, liquidity and cash flow risk, is discussed in the
Risk and balance sheet management section of the Business review on
pages 107 to 293.
Financial performance
A review of the Group's performance during the year ended 31 December
2012, including details of each division, and the Group's financial position
as at that date is contained in the Business review on pages 44 to 101.
RBS Holdings N.V. (formerly ABN AMRO Holding N.V.)
In 2007, RFS Holdings B.V., which was jointly owned by the Group, the
Dutch State (successor to Fortis) and Santander (together, the
“Consortium Members”) completed the acquisition of ABN AMRO Holding
N.V.
On 1 April 2010, the businesses acquired by the Dutch State were
transferred to ABN AMRO Group N.V., itself owned by the Dutch State. In
connection with the transfer ABN AMRO Holding N.V. was renamed RBS
Holdings N.V. and its banking subsidiary was renamed The Royal Bank
of Scotland N.V. (“RBS N.V.”). Certain assets of RBS N.V. continue to be
shared by the Consortium Members.
In 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
the UK Financial Services and Markets Act 2000. Substantially all of the
Netherlands and EMEA businesses were transferred in September 2012.
Further transfers are expected to take place during 2013 but are subject
to certain authorisations including regulatory approval where necessary.
The Group now anticipates that the transfers in China will be completed
at a later date.
Approximately 98% of the issued share capital of RFS Holdings B.V. is
held by the Group.
Report of the directors