RBS 2014 Annual Report Download - page 10

8
RBS – Interim Results 2015
Highlights
Recent developments
Citizens
On 29 July 2015, RBS announced the final pricing for a further offering of 86 million shares in Citizens and
the grant of a 15% over-allotment option to underwriters giving them a 30-day option to purchase an
additional 12.9 million shares. Gross proceeds will be US$2.2 billion (£1.4 billion), ($2.6 billion (£1.6 billion)
assuming exercise in full of the over-allotment option). Concurrently, Citizens intends to repurchase 9.6
million shares (US$250 million) from RBS. Once these transactions have completed and assuming the over-
allotment option is exercised in full, RBS will own 110.5 million shares - 20.9% of Citizens’ common stock
and will record an estimated £1.1 billion profit (including £0.9 billion reclassified from equity).
Following this significant reduction in its voting interest, RBS will no longer control Citizens for accounting
purposes and will cease to consolidate it; reducing total assets by approximately £78 billion. RBS’s
remaining investment in Citizens will be an associate classified as held for sale.
Citizens will however continue to be consolidated for the purposes of regulatory capital as RBS will retain
certain veto rights notwithstanding the reduction in its interest in CFG.
Capital
AT1 securities
As part of our commitment to continue building our capital ratios, we plan to launch our inaugural Additional
Tier 1 securities offering over the next few days, subject to market conditions.
Preference shares
RBS intends to redeem US$1.9 billion of its outstanding Series M, N, P and Q non-cumulative dollar
preference shares, represented by American depositary shares, on 1 September 2015.
July Budget
On 8 July 2015 a number of proposed changes to the UK corporate tax system were announced. In
accordance with IFRS these changes will be accounted for when they are substantively enacted which is
expected to be in October 2015.
The most relevant proposed measures include:
● Cuts in the rate of corporation tax from 20% to 19% from 1 April 2017 and to 18% from 1 April 2020.
Existing temporary differences on which deferred tax has been provided may reverse at these
reduced rates;
● A corporation tax surcharge of 8% on UK banking entities from 1 January 2016. This is expected to
increase RBS’s corporation tax liabilities and vary the carrying value of its deferred tax balances;
● A reduction in the bank levy rate from 0.21% to 0.18% from 1 January 2016 and subsequent annual
reductions to 0.1% from 1 January 2021; and
● Making compensation in relation to misconduct non-deductible for corporation tax.
It is expected that these measures will increase the normalised tax rate to around 27% in the medium term
and trending lower thereafter. The bank levy for 2015 is expected to be £280 million and is projected to fall
progressively to £150 million by 2019.