RBS 2013 Annual Report Download - page 469
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Notes on the consolidated accounts
467
29 Structured entities
A structured entity (SE) is an entity that has been designed such that
voting or similar rights are not the dominant factor in deciding who
controls the entity, for example when any voting rights relate to
administrative tasks only and the relevant activities are directed by
means of contractual arrangements. SEs are usually established for a
specific, limited purpose, they do not carry out a business or trade and
typically have no employees. They take a variety of legal forms - trusts,
partnerships and companies - and fulfil many different functions. As well
as being a key element of securitisations, SEs are also used in fund
management activities to segregate custodial duties from the fund
management advice.
The Group applies IFRS 10 ‘Consolidated Financial Statements’ in
determining whether or not to consolidate an SE. Entities, including SEs,
are consolidated where the Group has power over the investee;
exposure, or rights, to variable returns from its involvement with the
entity; and the ability to use its power over the entity to affect the amount
of the Group’s returns.
Consolidated structured entities
Securitisations
In a securitisation, assets, or interests in a pool of assets, are transferred
generally to an SE which then issues liabilities to third party investors.
The majority of securitisations are supported through liquidity facilities or
other credit enhancements. The Group arranges securitisations to
facilitate client transactions and undertakes own asset securitisations to
sell or to fund portfolios of financial assets. The Group also acts as an
underwriter and depositor in securitisation transactions in both client and
proprietary transactions.
The Group’s involvement in client securitisations takes a number of
forms. It may: sponsor or administer a securitisation programme; provide
liquidity facilities or programme-wide credit enhancement; and purchase
securities issued by the vehicle.
Own asset securitisations
In own-asset securitisations, the pool of assets held by the SE is either
originated by the Group, or (in the case of whole loan programmes)
purchased from third parties.
The table below analyses the asset categories for those own-asset
securitisations where the transferred assets continue to be recorded on
the Group’s balance sheet.
2013 2012 2011
Debt securities in issue Debt securities in issue Debt securities in issue
Held by third Held by the Held by third Held by the Held by third Held by the
Assets parties Group (1) Total Assets parties Group (1) Total Assets parties Group (1) Total
Asset type £m £m £m £m £m £m £m £m £m £m £m £m
Mortgages
- UK 14,434 4,876 10,978 15,854 16,448 6,462 11,963 18,425 49,549 10,988 47,324 58,312
- Irish 9,300 1,890 8,751 10,641 10,587 3,217 7,634 10,851 12,660 3,472 8,670 12,142
UK credit cards 3,261 500 1,625 2,125 3,019 1,243 1,736 2,979 4,037 500 110 610
UK personal loans 3,382 — 3,677 3,677 4,658 — 4,283 4,283 5,168 —4,706 4,706
Other loans (2) 12,326 488 12,078 12,566 18,008 1,059 18,064 19,123 19,778 420,577 20,581
42,703 7,754 37,109 44,863 52,720 11,981 43,680 55,661 91,192 14,964 81,387 96,351
Cash deposits 6,245 5,366 11,164
48,948 58,086 102,356
Notes:
(1) Debt securities retained by the Group may be pledged with central banks.
(2) Corporate, social housing and student loans.
Commercial paper conduits
The Group consolidates a number of asset-backed commercial paper
(ABCP) conduits. A conduit is an SE that issues commercial paper and
uses the proceeds to purchase or fund a pool of assets. The commercial
paper is secured on the assets and is redeemed by further commercial
paper issuance, repayment of assets or funding from liquidity facilities.
Commercial paper is typically short-dated, usually up to three months. At
31 December 2013 assets held by the conduits totalled £1.6 billion (2012
- £3.6 billion; 2011 - £13.1 billion). At 31 December 2013 and at 31
December 2012 the conduits were funded entirely by the Group.
Covered bond programme
Certain loans and advances to customers have been assigned to
bankruptcy remote limited liability partnerships to provide security for
issues of debt securities by the Group. The Group retains all of the risks
and rewards of these loans, the partnerships are consolidated, the loans
retained on the Group’s balance sheet and the related covered bonds
included within debt securities in issue. At 31 December 2013, £16,177
million of mortgages provided security for debt securities in issue of
£9,041 million (2012: mortgages £15,990 million, bonds £10,139 million;
2011: mortgages £15,441 million, bonds £9,107 million).