RBS 2013 Annual Report Download - page 340
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Business review Risk and balance sheet management
338
Market risk continued
Non-traded market risk continued
Key points
• The Group’s structural foreign currency exposure at 31 December
2013 was £21.7 billion and £15.6 billion before and after economic
hedges, respectively, both £2.3 billion lower than at 31 December
2012. Movements in structural foreign currency exposure are
significantly driven by movements in net assets of overseas
operations.
• Net assets of overseas operations declined by £4.0 billion largely
due to increased impairments in Ulster Bank Group and capital
restructuring in US Retail & Commercial. Sterling strength also
contributed approximately £0.5 billion to the reduction.
• Net investment hedges were reduced broadly in line with the
reduction in net investments.
• Economic hedges remained broadly unchanged.
• Changes in foreign currency exchange rates affect equity in
proportion to structural foreign currency exposure. A 5%
strengthening in foreign currencies against sterling would result in a
gain of £1.1 billion in equity (2012 and 2011 - £1.3 billion), while a
5% weakening would result in a loss of £1 billion in equity (2012 and
2011 - £1.2 billion).
Equity risk
Equity positions are carried at fair value on the balance sheet based on available market prices where possible. In the event that market prices are not
available, fair value is based on appropriate valuation techniques or management estimates.
Refer to the table below for the balance sheet carrying value of the Group’s non-traded book equity positions.
2013 2012 2011
£m £m £m
Exchange-traded equity 368 472 576
Private equity 621 632 674
Other 623 799 1,094
1,612 1,903 2,344
The exposures may take the form of listed and unlisted equity shares, linked equity fund investments, private equity and venture capital investments,
preference shares classified as equity or Federal Home Loan Bank stock. Refer to the table below for the net realised and unrealised gains from these
positions:
2013 2012 2011
£m £m £m
Net realised gains arising from disposals 48 89 150
Unrealised gains included in Tier 1 or 2 capital 232 168 235
Note:
(1) Includes gains or losses on available-for-sale instruments only.
Cumulative gains on equity securities designated at fair value through profit or loss but not held for trading purposes were £96 million for December
2013 (2012 - cumulative gains of £184 million).