RBS 2012 Annual Report Download - page 377

RBS GROUP 2012
375
3 Operating expenses
2012 2011 2010
£m £m £m
Wages, salaries and other staff costs 6,984 7,112 7,737
Bonus tax — 27 99
Social security costs 562 615 617
Share-based compensation 126 197 397
Pension costs
- defined benefit schemes (see Note 4) 416 348 519
- curtailment and settlement gains (see Note 4) (41)— (78)
- defined contribution schemes 29 57 88
Staff costs 8,076 8,356 9,379
Premises and equipment 2,232 2,423 2,380
Other administrative expenses (1) 5,593 4,436 3,571
Property, plant and equipment (see Note 18) 1,097 1,254 1,415
Intangible assets (see Note 17) 705 585 710
Depreciation and amortisation 1,802 1,839 2,125
Write-down of goodwill and other intangible assets (see Note 17) (2) 124 80 1
17,827 17,134 17,456
Notes:
(1) Includes Bank levy, Payment Protection Insurance costs, Interest Rate Hedging Products redress and related costs and regulatory fines, which are discussed in more detail below.
(2) Excludes goodwill of £394 million written-off in 2012 in respect of Direct Line Group. Refer to Note 20 for further information.
Bank levy
The Finance Act 2011 introduced an annual bank levy in the UK. The
levy is collected through the existing quarterly Corporation Tax collection
mechanism.
The levy is based on the total chargeable equity and liabilities as reported
in the balance sheet at the end of a chargeable period. The levy is not
charged on the first £20 billion of chargeable liabilities.
The levy was charged at a rate of 0.088 per cent for 2012. Three different
rates applied during 2011, these average to 0.075 per cent. The cost of
the levy to the Group for 2012 is £175 million (2011 - £300 million)
(included in Other administrative expenses). As the Group continues to
target a reduction in wholesale funding, the cost should decline over time
absent further rate increase. The levy for 2013 is currently 0.13 per cent.
Payment Protection Insurance (PPI)
To reflect current experience of PPI complaints received, the Group
increased its provision for PPI by £1,110 million in 2012 (2011 - £850
million), bringing the cumulative charge taken to £2.2 billion, of which
£1.3 billion (59%) in redress had been paid by 31 December 2012. Of the
£2.2 billion cumulative charge, £2 billion relates to redress and £0.2
billion to administrative expenses. The eventual cost is dependent upon
complaint volumes, uphold rates and average redress costs.
Assumptions relating to these are inherently uncertain and the ultimate
financial impact may be different from the amount provided. The Group
will continue to monitor the position closely and refresh its assumptions
as more information becomes available.
Interest Rate Hedging Products redress and related costs
Following an industry-wide review conducted in conjunction with the
Financial Services Authority, a charge of £700 million has been booked
for redress in relation to certain interest-rate hedging products sold to
small and medium-sized businesses, classified as retail clients under
FSA rules. Of the £700 million charge, £575 million relates to redress and
the cost of closing out hedging positions, and £125 million to
administrative expenses.
Regulatory fines
On 6 February, 2013 the Group reached agreement with the Financial
Services Authority, the US Department of Justice and the Commodity
Futures Trading Commission in relation to the setting of LIBOR and other
trading rates, including financial penalties of £381 million. The Group
continues to co-operate with these and other bodies in this regard and
expects it will incur some additional financial penalties related to these
matters.