RBS 2013 Annual Report Download - page 107
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Business review
105
Business Services supports the customer-facing businesses and
provides operational technology, customer support in telephony, account
management, lending and money transmission, global purchasing,
property and other services. Business Services drives efficiencies and
supports income growth across multiple brands and channels by using a
single, scalable platform and common processes wherever possible. It
also leverages the Group's purchasing power and is the Group's centre of
excellence for managing large-scale and complex change. For reporting
purposes, Business Services costs are allocated to the divisions above. It
is not deemed a reportable segment.
Business divestments
To comply with the European Commission State Aid requirements the
Group agreed a series of restructuring measures to be implemented over
a four year period from December 2009. These include the divestment of
Direct Line Insurance Group plc, the sale of 80.01% of the Group’s
Global Merchant Services business (completed in 2010) and the sale of
substantially all of the RBS Sempra Commodities joint venture business
(largely completed in 2010), as well as the divestment of the RBS branch-
based business in England and Wales and the NatWest branches in
Scotland, along with the direct SME customers across the UK (“UK
branch-based businesses”).
In October 2012, Santander UK plc withdrew from its agreed purchase of
the UK branch-based businesses. In September 2013, the Group
reached an agreement with an investor consortium led by Corsair Capital
and Centerbridge Partners for an investment in these businesses ahead
of a stock market flotation. This includes 308 RBS branches in England
and Wales and 6 NatWest branches in Scotland. The new bank will be
called Williams & Glyn, the brand RBS used for its branches in England
and Wales before 1985.
In March 2013 and September 2013, the Group sold a further 16.8% and
20% respectively of the total issued share capital in Direct Line Insurance
Group plc (DLG). This followed the sale in October 2012 via an initial
public offering of 520.8 million ordinary shares representing 34.7% of the
total issued share capital. At 31 December 2013, the Group held 28.5%
of the issued ordinary share capital of DLG.
On 26 February 2014 RBS announced that it had entered into a placing
agreement to complete the sale of its residual interest in DLG (except for
4.2 million shares held to satisfy long term incentive plan awards granted
by RBS to DLG management). Accordingly, on settlement of the placing,
the Group will have completed the disposal as required by the European
Commission.
RBS Capital Resolution (RCR)
In response to a recommendation by the Parliamentary Commission on
Banking Standards, RBS worked closely with HM Treasury (HMT) and
its advisers on a ‘good bank/bad bank’ review and identified a pool of
c.£38 billion of assets with particularly high long-term capital intensity,
credit risk and/or potentially volatile outcomes in stressed environments.
The review concluded that the effort, risk and expense involved in the
creation of an external bad bank could not be justified and consequently
RBS decided to create an internal ‘bad bank’, RBS Capital Resolution
(RCR), to manage these assets down so as to release capital. RCR
brings assets under common management and increases focus on the
run down.
RCR became fully operational on 1 January 2014 with a pool of c.£29
billion of assets, down from the forecast of c.£38 billion due to
accelerated disposals and increased impairments. Whilst RCR is of a
similar size to the Non-Core division, the assets have been selected on a
different basis and no direct comparisons can be drawn.
Strategic review
In November 2013, the Group announced that it was undertaking a
comprehensive business review of its: Customer-facing business,
IT and operations and Organisational and decision making structures.
The aim of the review is to improve the bank’s performance and
effectiveness in serving its customers, shareholders and wider
stakeholders.
As described on pages 8 and 9, the Group has announced the results of
its Strategic review, resulting in it being realigned into three businesses:
Personal & Business Banking, Commercial & Private Banking, and
Corporate & institutional Banking. In addition, the Group will be
rationalising and simplifying its systems, based on a target architecture
with improved resilience.