RBS 2012 Annual Report Download - page 45

RBS GROUP 2012
43
Risk factors
Set out below is a summary of certain risks which could adversely affect
the Group; it should be read in conjunction with the Risk and balance
sheet management section of the Business review (pages 107 to 293).
This summary should not be regarded as a complete and comprehensive
statement of all potential risks and uncertainties. A fuller description of
these and other risk factors is included on pages 503 to 515.
x The Group’s businesses, earnings and financial condition have been
and will continue to be negatively affected by global economic
conditions, the instability in the global financial markets and
increased competition and political risks including proposed
referenda on Scottish independence and UK membership of the EU.
Together with a perceived increased risk of default on the sovereign
debt of certain European countries and unprecedented stresses on
the financial system within the Eurozone, these factors have
resulted in significant changes in market conditions including interest
rates, foreign exchange rates, credit spreads, and other market
factors and consequent changes in asset valuations.
x The actual or perceived failure or worsening credit of the Group’s
counterparties or borrowers and depressed asset valuations
resulting from poor market conditions have adversely affected and
could continue to adversely affect the Group.
x The Group’s ability to meet its obligations’ including its funding
commitments depends on the Group’s ability to access sources of
liquidity and funding. The inability to access liquidity and funding due
to market conditions or otherwise could adversely affect the Group’s
financial condition. Furthermore, the Group’s borrowing costs and its
access to the debt capital markets and other sources of liquidity
depend significantly on its and the UK Government’s credit ratings.
x The Group is subject to a number of regulatory initiatives which may
adversely affect its business, including the UK Government’s
implementation of the final recommendations of the Independent
Commission on Banking’s final report on competition and possible
structural reforms in the UK banking industry, the US Federal
Reserve’s proposal for applying US capital, liquidity and enhanced
prudential standards to certain of the Group’s US operations.
x The Group’s business performance, financial condition and capital
and liquidity ratios could be adversely affected if its capital is not
managed effectively or as a result of changes to capital adequacy
and liquidity requirements, including those arising out of Basel III
implementation (globally or by European or UK authorities), or if the
Group is unable to issue Contingent B Shares to HM Treasury under
certain circumstances.
x As a result of the UK Government’s majority shareholding in the
Group it can, and in the future may decide to, exercise a significant
degree of influence over the Group including on dividend policy,
modifying or cancelling contracts or limiting the Group’s operations.
The offer or sale by the UK Government of all or a portion of its
shareholding in the company could affect the market price of the
equity shares and other securities and acquisitions of ordinary
shares by the UK Government (including through conversions of
other securities or further purchases of shares) may result in the
delisting of the Group from the Official List.
x The Group or any of its UK bank subsidiaries may face the risk of
full nationalisation or other resolution procedures and various
actions could be taken by or on behalf of the UK Government,
including actions in relation to any securities issued, new or existing
contractual arrangements and transfers of part or all of the Group’s
businesses.
x The Group is subject to substantial regulation and oversight, and
any significant regulatory or legal developments could have an
adverse effect on how the Group conducts its business and on its
results of operations and financial condition. In addition, the Group is,
and may be, subject to litigation and regulatory investigations that
may impact its business, results of operations and financial condition.
x The Group’s ability to implement its Strategic Plan depends on the
success of its efforts to refocus on its core strengths and its balance
sheet reduction programme. As part of the Group’s Strategic Plan
and implementation of the State Aid restructuring plan agreed with
the European Commission and HM Treasury, the Group is
undertaking an extensive restructuring which may adversely affect
the Group’s business, results of operations and financial condition
and give rise to increased operational risk.
x The Group could fail to attract or retain senior management, which
may include members of the Group Board, or other key employees,
and it may suffer if it does not maintain good employee relations.
x Operational and reputational risks are inherent in the Group’s
businesses.
x The value of certain financial instruments recorded at fair value is
determined using financial models incorporating assumptions,
judgements and estimates that may change over time or may
ultimately not turn out to be accurate.
x The Group’s insurance businesses are subject to inherent risks
involving claims on insured events.
x Any significant developments in regulatory or tax legislation could
have an effect on how the Group conducts its business and on its
results of operations and financial condition, and the recoverability of
certain deferred tax assets recognised by the Group is subject to
uncertainty.
x The Group may be required to make contributions to its pension
schemes and government compensation schemes, either of which
may have an adverse impact on the Group’s results of operations,
cash flow and financial condition.