RBS 2012 Annual Report Download - page 61

RBS GROUP 2012
59
Operating expenses and insurance claims
Managed (1) Statutory
2012 2011 2010 2012 2011 2010
£m £m £m £m £m £m
Staff costs 7,639 8,163 8,956 8,076 8,356 9,379
Premises and equipment 2,198 2,278 2,276 2,232 2,423 2,380
Other administrative expenses
- Payment Protection Insurance costs —
— — 1,110 850 —
- Interest Rate Hedging Products redress and related costs — — — 700 — —
- regulatory fines — — — 381 — —
- other 3,248 3,395 3,716 3,402 3,586 3,571
Administrative expenses 13,085 13,836 14,948 15,901 15,215 15,330
Depreciation and amortisation 1,534 1,642 1,762 1,802 1,839 2,125
Write-down of goodwill and other intangible assets — — — 124 80 1
Operating expenses 14,619 15,478 16,710 17,827 17,134 17,456
General insurance 2,427 2,968 4,698 — — —
Bancassurance — — 85 — — 85
Insurance net claims 2,427 2,968 4,783 — — 85
Staff costs as a percentage of total income 30% 29% 27% 45% 34% 35%
Note:
(1) Managed basis excludes PPI costs, Interest Rate Hedging Products redress and related costs, regulatory fines, amortisation of purchased intangible assets, integration and restructuring costs, bank
levy, bonus tax, write-down of goodwill and other intangible assets and RFS MI; and includes Direct Line Group on a managed basis which included discontinued operations in the statutory results.
2012 compared with 2011 - managed
Operating expenses fell by £859 million, or 6%, with staff costs also down
6% (but broadly stable as a percentage of total income) as headcount fell
by 9,600 to 137,200. The decline in expenses was largely driven by Non-
Core run-down and lower variable compensation (particularly in Markets),
including bonus award reductions and clawbacks following the
settlements reached with UK and US authorities in relation to attempted
LIBOR manipulation. The run-off of exited businesses in Markets and
International Banking, following the restructuring announced in January
2012, and simplification of processes and headcount reduction in UK
Retail also yielded cost benefits.
Business Services costs were down 6% in the year, reflecting increased
benefits from earlier cost saving programmes as a number of initiatives
reached their full run rate. Technology Services costs were 8% lower and
Corporate Services costs 6% lower. Headcount was 2% down on 2011.
Insurance net claims decreased by 18% as lower volumes, higher
reserve releases and improved claims experience more than offset an
increase of £85 million in Home weather events claims.
The Core cost:income ratio was broadly flat at 59%, reflecting the
ongoing focus on cost control in an environment where income growth
remained challenging.
2012 compared with 2011 - statutory
Operating expenses increased by £693 million, or 4% primarily due to
charges resulting from legacy conduct issues partially offset by Non-Core
run-down and run-off of exited businesses in Markets and International
Banking, following the restructuring announced in January 2012.
Simplification of processes and headcount reduction in UK Retail also
yielded cost benefits.
Staff expenses were cut by 3%. Excluding integration and restructuring
costs of £811 million (2011 - £464 million), staff costs were down 8%, as
headcount fell by 9,600 to 137,200.
To reflect current experience of Payment Protection Insurance complaints
received, RBS increased its PPI provision by £1,110 million in 2012,
bringing the cumulative charge taken to £2.2 billion, of which £1.3 billion
in redress had been paid by 31 December 2012.
On 31 January 2013, the Financial Services Authority announced the
findings of its industry-wide review of the sale of Interest Rate Hedging
Products to some small and medium-sized businesses that were
classified as retail clients under FSA rules. As a result, RBS provided
£700 million in 2012 to meet the costs of redress.
On 6 February 2013, RBS 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 other bodies in this regard and expects it will
incur some additional financial penalties.