REG - Royal Bk Scot.Grp. - Final Results - Part 1 <Origin Href="QuoteRef">RBS.L</Origin> - Part 12

NatwestAnnouncement

26/02/2015 07:13

- Part 12: For the preceding part double click  ID:nRSZ9135Fk 

and warranties (whether relating
to underlying loans or otherwise), CIB may be contractually required to repurchase such loans or indemnify certain parties
against losses for certain breaches of such representations and warranties. In certain instances where it is required to
repurchase loans or related securities, CIB may be able to assert claims against third parties who provided representations
or warranties to CIB when selling loans to it, although the ability to recover against such parties is uncertain. Between
the start of 2009 and 31 December 2014, CIB received approximately US$741 million in repurchase demands in respect of loans
made primarily from 2005 to 2008 and related securities sold where obligations in respect of contractual representations or
warranties were undertaken by CIB. However, repurchase demands presented to CIB are subject to challenge and rebuttal by
CIB. 
 
Citizens Financial Group, Inc (Citizens) has not been an issuer or underwriter of non-agency RMBS. However, Citizens is an
originator and servicer of residential mortgages, and it routinely sells such mortgage loans in the secondary market and to
GSEs. In the context of such sales, Citizens makes certain representations and warranties regarding the characteristics of
the underlying loans and, as a result, may be contractually required to repurchase such loans or indemnify certain parties
against losses for certain breaches of the representations and warranties concerning the underlying loans. Between the
start of 2009 and 31 December 2014, Citizens received US$257 million in repurchase demands and indemnification payment
requests in respect of loans originated primarily since 2003. However, repurchase demands presented to Citizens are subject
to challenge and rebuttal by Citizens. 
 
Although there has in recent times been disruption in the ability of certain financial institutions operating in the United
States to complete foreclosure proceedings in respect of US mortgage loans in a timely manner or at all (including as a
result of interventions by certain states and local governments), to date, Citizens has not been materially impacted by
such disruptions and RBS has not ceased making foreclosures. 
 
RBS cannot currently estimate what the ultimate exposure may be with respect to repurchase demands. Furthermore, RBS is
unable to estimate the extent to which the matters described above will impact it, and future developments may have an
adverse impact on RBS's net assets, operating results or cash flows in any particular period. 
 
Citizens consent orders 
 
The activities of Citizens' two US bank subsidiaries - Citizens Bank, N.A. and Citizens Bank of Pennsylvania - are subject
to extensive US laws and regulations concerning unfair or deceptive acts or practices in connection with customer products.
Certain of the bank subsidiaries' practices with respect to overdraft protection and other consumer products have not met
applicable standards. The bank subsidiaries have implemented and are continuing to implement changes to improve and bring
their practices into compliance with regulatory guidance. In April 2013, the bank subsidiaries consented to the issuance of
orders by their respective primary federal banking regulators, the Office of the Comptroller of the Currency (OCC) and the
Federal Deposit Insurance Corporation (FDIC) (Consent Orders). In the Consent Orders (which are publicly available and will
remain in effect until terminated by the regulators), the bank subsidiaries neither admitted nor denied the regulators'
findings that they had engaged in deceptive marketing and implementation of the bank's overdraft protection programme,
checking rewards programmes, and stop-payment process for pre-authorised recurring electronic fund transfers. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
In connection with the Consent Orders, the bank subsidiaries paid a total of US$10 million in civil monetary penalties. The
Consent Orders also require the bank subsidiaries to develop plans to provide restitution to affected customers (the amount
of which is anticipated to be approximately US$8 million), to cease and desist any operations in violation of Section 5 of
the Federal Trade Commission Act, and to submit to the regulators periodic written progress reports regarding compliance
with the Consent Orders. 
 
In addition, Citizens Bank, N.A. agreed to take certain remedial actions to improve its compliance risk management systems
and to create a comprehensive action plan designed to achieve compliance with the relevant Consent Order. Restitution plans
have been prepared and submitted for approval, and Citizens Bank, N.A. has submitted for approval and is in the process of
implementing its action plan for compliance with the Consent Order, as well as updated policies, procedures and programmes
related to its compliance risk management systems. In addition to the above, the bank subsidiaries could face further
formal administrative enforcement actions from their federal supervisory agencies, including the assessment of civil
monetary penalties and restitution, relating to issues identified by Citizens arising from other consumer products and
related practices and policies, and they could face potential civil litigation. 
 
Governance and risk management consent order 
 
In July 2011, RBS agreed with the Board of Governors of the Federal Reserve System, the New York State Banking Department,
the Connecticut Department of Banking, and the Illinois Department of Financial and Professional Regulation to enter into a
consent Cease and Desist Order (Governance Order) to address deficiencies related to governance, risk management and
compliance systems and controls in RBS plc and RBS N.V. branches. In the Governance Order, RBS agreed to create the
following written plans or programmes: 
 
 ●  a plan to strengthen board and senior management oversight of the corporate governance, management, risk management, and operations of RBS's U.S. operations on an enterprise-wide and business line basis,                                                                                                                                                     
 ●  an enterprise-wide risk management programme for RBS's U.S. operations,                                                                                                                                                                                                                                                                                         
 ●  a plan to oversee compliance by RBS's U.S. operations with all applicable U.S. laws, rules, regulations, and supervisory guidance,                                                                                                                                                                                                                              
 ●  a Bank Secrecy Act/anti-money laundering compliance programme for the RBS plc and RBS N.V. branches in the U.S. (the U.S. Branches) on a consolidated basis,                                                                                                                                                                                                    
 ●  a plan to improve the U.S. Branches' compliance with all applicable provisions of the Bank Secrecy Act and its rules and regulations as well as the requirements of Regulation K of the Federal Reserve,                                                                                                                                                        
 ●  a customer due diligence programme designed to reasonably ensure the identification and timely, accurate, and complete reporting by the U.S. Branches of all known or suspected violations of law or suspicious transactions to law enforcement and supervisory authorities, as required by applicable suspicious activity reporting laws and regulations, and  
 ●  a plan designed to enhance the U.S. Branches' compliance with OFAC requirements.                                                                                                                                                                                                                                                                                
 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
The Governance Order (which is publicly available) identified specific items to be addressed, considered, and included in
each proposed plan or programme. RBS also agreed in the Governance Order to adopt and implement the plans and programmes
after approval by the regulators, to fully comply with the plans and programmes thereafter, and to submit to the regulators
periodic written progress reports regarding compliance with the GovernanceOrder. RBS has created, submitted, and adopted
plans and/or programmes to address each of the areas identified above. In connection with RBS's efforts to implement these
plans and programmes, it has, among other things, made investments in technology, hired and trained additional personnel,
and revised compliance, risk management, and other policies and procedures for RBS's U.S. operations. RBS continues to test
the effectiveness of the remediation efforts undertaken by RBS to ensure they are sustainable and meet regulators'
expectations. Furthermore, RBS continues to work closely with the regulators in its efforts to fulfil its obligations under
the Governance Order, which will remain in effect until terminated by the regulators. 
 
RBS may be subject to formal and informal supervisory actions and may be required by its US banking supervisors to take
further actions and implement additional remedial measures with respect to these and additional matters. RBS's activities
in the United States may be subject to significant limitations and/or conditions. 
 
US dollar processing consent order 
 
In December 2013 RBS and The Royal Bank of Scotland plc agreed a settlement with the Board of Governors of the Federal
Reserve System (Fed), the New York State Department of Financial Services (DFS), and the Office of Foreign Assets Control
(OFAC) with respect to The Royal Bank of Scotland plc's historical compliance with US economic sanction regulations outside
the US.  As part of the settlement, RBS and The Royal Bank of Scotland plc entered into a consent Cease and Desist Order
with the Fed (US Dollar Processing Order), which remains in effect until terminated by the Fed.  The US Dollar Processing
Order (which is publicly available) indicated, among other things, that RBS and The Royal Bank of Scotland plc lacked
adequate risk management and legal review policies and procedures to ensure that activities conducted outside the United
States comply with applicable OFAC regulations. RBS agreed to create an OFAC compliance programme to ensure compliance with
OFAC regulations by RBS's global business lines outside of the United States, and to adopt, implement, and comply with the
programme.  Prior to and in connection with the US Dollar Processing Order, RBS has made investments in technology, hired
and trained personnel, and revised compliance, risk management, and other policies and procedures. RBS also agreed in the
US Dollar Processing Order (as part of the OFAC compliance programme) to hire an independent consultant to conduct an
annual OFAC compliance review of compliance policies and their implementation and an appropriate risk-focused sampling of
U.S. dollar payments. 
 
US/Swiss tax programme 
 
In August 2013, the DOJ announced a programme for Swiss banks (the Programme), to settle the long-running dispute between
the US tax authorities and Switzerland regarding the role of Swiss banks in concealing the assets of US tax payers in
offshore accounts. The Programme provides Swiss banks with an opportunity to obtain resolution, through non-prosecution
agreements or non-target letters, concerning their status in connection with the DOJ's investigations. 
 
Notes 
 
15. Litigation, investigations and reviews (continued) 
 
Coutts & Co Ltd, a member of the Group incorporated in Switzerland, notified the DOJ that it intended to participate in the
Programme based on the possibility that some of its clients may not have declared their assets in compliance with US tax
laws. The Programme required a detailed review of all US related accounts. The results of Coutts & Co Ltd's review were
presented to the DOJ in June 2014. Coutts & Co Ltd has now completed the collection of evidence of the tax status of all US
related account holders, including those US account holders participating in an offshore voluntary disclosure programme.
The results of the review were presented by Coutts to the DOJ on 5 November 2014. Coutts continues to cooperate with the
DOJ pursuant to the terms of the Programme. Coutts expects to reach resolution with the DOJ in 2015, under the terms of the
Programme. Provision has been made for the estimated liability arising from this programme/review. 
 
German prosecutor investigation into Coutts & Co Ltd 
 
A prosecuting authority in Germany is undertaking an investigation into Coutts & Co Ltd in Switzerland, and current and
former employees, for alleged aiding and abetting of tax evasion by certain Coutts & Co Ltd clients.  Coutts & Co Ltd is
cooperating with the authority. 
 
Review of suitability of advice provided by Coutts & Co 
 
In 2013 the FCA conducted a thematic review of the advice processes across the UK wealth management industry. As a result
of this review, Coutts & Co, a member of the Group incorporated in England and Wales, decided to undertake a past business
review into the suitability of investment advice provided to its clients. This review is ongoing. Coutts & Co is in the
process of contacting clients and redress is being offered in appropriate cases. Provision has been made for the estimated
liability arising from this programme/review. 
 
Enterprise Finance Guarantee Scheme 
 
The Enterprise Finance Guarantee (EFG) is a government lending initiative for small businesses with viable business
proposals that lack security for conventional lending. RBS has identified a number of instances where it has not properly
explained to customers how borrower and guarantor liabilities work under the EFG scheme and will now undertake a review of
affected and potentially affected customers to determine whether affected customers should be offered redress.  From 2009
to the end of 2014, RBS provided over £940 million of lending under the EFG scheme. 
 
Notes 
 
16. Parent Company 
 
 RBSG plc - Balance sheet as at 31 December 2014  31 December  31 December  
                                                  2014         2013         
 £m                                               £m           
                                                                            
 Assets                                                                     
 Loans and advances to banks                      24,490       24,574       
 Loans and advances to customers                  299          153          
 Debt securities                                  911          1,517        
 Investments in Group undertakings                54,858       54,813       
 Derivatives                                      179          164          
 Prepayments, accrued income and other assets     193          36           
 Assets of disposal groups                        -            842          
                                                                            
 Total assets                                     80,930       82,099       
                                                                            
 Liabilities                                                                
 Deposits by banks                                1,202        1,490        
 Customer accounts                                -            740          
 Debt securities in issue                         7,510        7,015        
 Derivatives                                      30           62           
 Accruals, deferred income and other liabilities  165          49           
 Subordinated liabilities                         10,708       12,426       
                                                                            
 Total liabilities                                19,615       21,782       
 Owners' equity*                                  61,315       60,317       
                                                                            
 Total liabilities and equity                     80,930       82,099       
                                                                            
 *Owners' equity                                                            
 Retained earnings                                17,483       17,033       
 Other reserves                                   43,832       43,284       
                                                                            
                                                  61,315       60,317       
 
 
Notes 
 
17. Recent developments 
 
Rating agencies 
 
Standard & Poor's 
 
On 3 February 2015, Standard & Poor's Rating Services (S+P) downgraded the long term credit rating of The Royal Bank of
Scotland Group plc (RBSG plc) to 'BBB-'/'A-3'  from 'BBB'+/'A-2'.  The long term outlook for RBSG plc was changed to stable
from negative, reflecting S&P's view that RBS has made strong progress over the past 12-18 months in executing its
restructuring plan. The long term ratings of The Royal Bank of Scotland plc (RBS plc) and certain of its affiliates were
placed on CreditWatch with negative implications. 
 
This action was not specific to RBS but reflected S&P's view that extraordinary government support is now unlikely in the
case of UK non-operating bank holding companies, and is likely to become less predictable for bank operating companies in
the UK under newly enacted legislation that fully implemented the bail-in rules enshrined in the EU's Bank Recovery and
Resolution Directive with effect from 1 January 2015. 
 
The long term ratings of Citizens Bank, N.A. and its subsidiary Citizens Bank of Pennsylvania were not impacted as Citizens
Bank, N.A. is now considered an insulated subsidiary of RBS plc. Ratings are on a negative outlook. 
 
The ratings for the subordinated, junior subordinated and capital instruments of all RBS entities were also not impacted,
as they do not benefit from government support. 
 
Current RBSG plc and subsidiary ratings are shown in the