RBS 2012 Annual Report Download - page 400

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Notes on the consolidated accounts continued
11 Financial instruments - valuation continued
The following table shows the cumulative own credit adjustment recorded on securities held-for-trading (HFT), classified as fair value through profit or
loss (DFV) and derivative liabilities.
Debt securities in issue (2)
Cumulative own credit adjustment (1) HFT
£m
DFV
£m
Total
£m
Subordinated
liabilities DFV
£m
Total
£m
Derivatives
£m
Total (3)
£m
2012 (648)56 (592)362 (230) 259 29
2011 882 2,647 3,529 679 4,208 602 4,810
2010 517 1,574 2,091 325 2,416 534 2,950
Carrying values of underlying liabilities £bn £bn £bn £bn £bn
2012 10.9 23.6 34.5 1.1 35.6
2011 11.5 35.7 47.2 0.9 48.1
2010 7.7 43.5 51.2 1.1 52.3
Notes:
(1) The OCA does not alter cash flows and is not used for performance management. It is disregarded for regulatory capital reporting purposes and will reverse over time as the liabilities mature.
(2) Consists of wholesale and retail note issuances.
(3) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserves are stated by conversion of underlying currency balances at spot rates
for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
Key points
x The own credit adjustment decreased significantly during the year
primarily due to tightening of credit spreads, reflecting improved
investor perception of RBS.
x Senior issued debt adjustments are determined with reference to
secondary debt issuance spreads. At 31 December 2012, the five
year level tightened to c.100 basis points from c.450 basis points at
31 December 2011, primarily due to increased demand from
investors following quantitative easing measures from the European
Central Bank and US Federal Reserve and the announcement of the
Group’s liability management exercise.
x Significant tightening of credit spreads, buy-backs exceeding
issuances and the impact of buying back certain securities at lower
spreads than at issuance, resulted in cumulative own credit
adjustment of £29 million at 31 December 2012.
x Derivative liability own credit adjustment decreased as credit default
swap spreads tightened.