REG - Royal Bk Scot.Grp. - Final Results - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 11
26/02/2015 07:13
- Part 11: For the preceding part double click ID:nRSZ9135Fj
19 14,234 16,017
Retirement benefit liabilities 3,210 3,210
Deferred tax 507 507
Subordinated liabilities - 868 23,144 24,012
Liabilities of disposal groups 3,378 3,378
423,308 22,578 4,227 497,202 19 21,329 968,663
Equity 59,215
1,027,878
Notes:
(1) Held-for-trading.
(2) Designated as at fair value.
(3) Hedging derivatives.
(4) Available-for-sale.
(5) Loans and receivables.
(6) Held to maturity
Apart from the reclassification of £3.6 billion of Treasury debt securities from AFS to HTM in Q1 2014, there were no other
reclassifications in the year ended 31 December 2014.
Notes
13. Financial instruments (continued)
Valuation reserves
When valuing financial instruments in the trading book, adjustments are made to mid-market valuations to cover bid-offer
spread, liquidity and credit risk. The table below shows credit valuation adjustments (CVA) and other valuation reserves.
CVA represents an estimate of the adjustment to fair value that a market participant would make to incorporate the risk
inherent in derivative exposures.
31 December 31 December
2014 2013
£m £m
Credit valuation adjustments 1,414 1,766
- of which: monoline insurers and credit derivative product companies (CDPC) 47 99
Other valuation reserves
- bid-offer 398 513
- funding valuation adjustment 718 424
- product and deal specific 657 753
1,773 1,690
Valuation reserves 3,187 3,456
The table below analyses CVA relating to counterparties other than monoline insurers and CDPCs by rating and sector.
31 December 31 December
Ratings: 2014 2013
£m £m
AAA 82 104
AA to AA+ 35 13
A to AA- 78 168
BBB- to A- 401 446
Non-investment grade and unrated 771 936
1,367 1,667
Counterparty:
Banks 32 89
Other financial institutions 203 199
Corporate 938 1,126
Government 194 253
1,367 1,667
Key points
· The decrease in CVA was primarily driven by the tightening of credit spreads.
· The increase in other valuation reserves primarily reflects funding related adjustments partially offset by the impact of the reduction in the balance sheet.
Notes
13. Financial instruments: Valuation reserves (continued)
Own credit
The cumulative own credit adjustment (OCA) recorded on held-for-trading (HFT) and designated as at fair value through
profit or loss (DFV) debt securities in issue, subordinated liabilities and derivative liabilities are set out below.
Cumulative OCA (CR)/DR (1) Subordinated
Debt securities in issue (2) liabilities
HFT DFV Total DFV Total Derivatives Total (3)
£m £m £m £m £m £m £m
31 December 2014 (397) (123) (520) 221 (299) 12 (287)
31 December 2013 (467) (33) (500) 256 (244) 96 (148)
Carrying values of underlying liabilities £bn £bn £bn £bn £bn
31 December 2014 6.5 10.4 16.9 0.9 17.8
31 December 2013 8.6 15.8 24.4 0.9 25.3
Notes:
(1) The OCA does not alter cash flows and is not used for performance management.
(2) Includes wholesale and retail note issuances.
(3) The reserve movement between periods will not equate to the reported profit or loss for own credit. The balance sheet reserve is stated by conversion of underlying currency balances at spot rates for each period, whereas the income statement includes intra-period foreign exchange sell-offs.
Key points
· The cumulative OCA decreased during the year due to tightening of RBS credit spreads partially offset by the impact of time decay (the reduction in the remaining time to maturity of the trades reduces the impact of changes in RBS credit spreads).
· Senior issued debt OCA is determined by reference to secondary debt issuance spreads; the five year spread tightened to 32 basis points (2013 - 92 basis points).
· RBS CDS spreads tightened to 48 basis points (2013 - 114 basis points).
Notes
14. Contingent liabilities and commitments
31 December 2014 31 December 2013
RBS RBS excl.
excl. RCR RCR Total Non-Core Non-Core Total
£m £m £m £m £m £m
Contingent liabilities
Guarantees and assets pledged as collateral security 16,574 147 16,721 19,563 616 20,179
Other 9,401 180 9,581 5,893 98 5,991
25,975 327 26,302 25,456 714 26,170
Commitments
Undrawn formal standby facilities, credit lines and other
commitments to lend 211,462 1,315 212,777 210,766 2,280 213,046
Other 2,106 1 2,107 2,793 - 2,793
213,568 1,316 214,884 213,559 2,280 215,839
Contingent liabilities and commitments 239,543 1,643 241,186 239,015 2,994 242,009
Additional contingent liabilities arise in the normal course of the Group's business. It is not anticipated that any
material loss will arise from these transactions.
15. Litigation, investigations and reviews
The company and certain members of the Group are party to legal proceedings and the subject of investigation and other
regulatory and governmental action in the United Kingdom, the European Union, the United States and other jurisdictions.
RBS recognises a provision for a liability in relation to these matters when it is probable that an outflow of economic
benefits will be required to settle an obligation resulting from past events, and a reliable estimate can be made of the
amount of the obligation. While the outcome of the legal proceedings, investigations and regulatory and governmental
matters in which RBS is involved is inherently uncertain, the directors believe that, based on the information available to
them, appropriate provisions have been made in respect of legal proceedings, investigations and regulatory and governmental
matters as at 31 December 2014 (see Note 4). The aggregate provisions for litigation and regulatory proceedings of £1,500
million recognised in 2014, included a provision of £720 million related to the foreign exchange related investigations, of
which £320 million was taken in the last quarter of 2014. The future outflow of resources in respect of any matter may
ultimately prove to be substantially greater than or less than the aggregate provision that RBS has recognised.
In many proceedings, it is not possible to determine whether any loss is probable or to estimate the amount of any loss.
Numerous legal and factual issues may need to be resolved, including through potentially lengthy discovery and document
production exercises and determination of important factual matters, and by addressing novel or unsettled legal questions
relevant to the proceedings in question, before a liability can be reasonably estimated for any claim. RBS cannot predict
if, how, or when such claims will be resolved or what the eventual settlement, damages, fine, penalty or other relief, if
any, may be, particularly for claims that are at an early stage in their development or where claimants seek substantial or
indeterminate damages.
Notes
15. Litigation, investigations and reviews (continued)
There are also situations where RBS may enter into a settlement agreement. This may occur in order to avoid the expense,
management distraction or reputational implications of continuing to contest liability, or in order to take account of the
risks inherent in defending claims or investigations even for those matters for which RBS believes it has credible defences
and should prevail on the merits. The uncertainties inherent in all such matters affect the amount and timing of any
potential outflows for both matters with respect to which provisions have been established and other contingent
liabilities. The future outflow of resources in respect of any matter may ultimately prove to be substantially greater than
or less than the aggregate provision that RBS has recognised for that matter.
Other than those discussed below, no member of the Group is or has been involved in governmental, legal or regulatory
proceedings (including those which are pending or threatened) that are expected to be material individually or in
aggregate.
Litigation
Shareholder litigation (US)
RBS and certain of its subsidiaries, together with certain current and former officers and directors were named as
defendants in a purported class action filed in the United States District Court for the Southern District of New York
involving holders of American Depositary Receipts (the ADR claims).
A consolidated amended complaint asserting claims under Sections 10 and 20 of the US Securities Exchange Act of 1934 and
Sections 11, 12 and 15 of the Securities Act was filed in November 2011 on behalf of all persons who purchased or otherwise
acquired the Group's American Depositary Receipts (ADRs) from issuance through 20 January 2009. In September 2012, the
Court dismissed the ADR claims with prejudice. In August 2013, the Court denied the plaintiffs' motions for reconsideration
and for leave to re-plead their case. The plaintiffs appealed the dismissal of this case to the Second Circuit Court of
Appeals and that appeal was heard on 19 June 2014. A decision in respect of the appeal has not yet been issued.
Shareholder litigation (UK)
Between March and July 2013, claims were issued in the High Court of Justice of England and Wales by sets of current and
former shareholders, against RBS(and in one of those claims, also against certain former individual officers and directors)
alleging that untrue and misleading statements and/or improper omissions were made in connection with the rights issue
announced by RBS on 22 April 2008 in breach of the Financial Services and Markets Act 2000. In July 2013 these and other
similar threatened claims were consolidated by the Court via a Group Litigation Order. RBS's defence to the claims was
filed on 13 December 2013. Since then, further High Court claims have been issued against RBS under the Group Litigation
Order. At a case management conference in December 2014 the judge ordered that trial commence in December 2016.
Notes
15. Litigation, investigations and reviews (continued)
Other securitisation and securities related litigation in the United States
RBS companies have been named as defendants in their various roles as issuer, depositor and/or underwriter in a number of
claims in the United States that relate to the securitisation and securities underwriting businesses. These cases include
actions by individual purchasers of securities and purported class action suits. Together, the pending individual and class
action cases involve the issuance of more than US$46 billion of mortgage-backed securities (MBS) issued primarily from 2005
to 2007. In general, plaintiffs in these actions claim that certain disclosures made in connection with the relevant
offerings contained materially false or misleading statements and/or omissions regarding the underwriting standards
pursuant to which the mortgage loans underlying the securities were issued. RBS companies remain as defendants in more than
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