Replies to post #202 on ROYAL BANK ADS (RBS)

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RBS swings into operating profit as impairments reduce

BFN

The Royal Bank of Scotland Group today reported a 2010 operating profit of £1.913bn, compared with a loss of £6.09bn in 2009. The 2010 attributable loss of £1.125bn includes APS after a tax charge of £1.116bn.

Q4 2010 attributable result was break-even (£12m profit).

Core RBS operating profit was £7.418bn, down 12% from 2009.

RBS reported a Core Tier 1 ratio of 10.7% and Loan to deposit ratio of 117% (Core 96%).

RBS said it is now two years into its five year plan to restore the Group to good health, and has made strong progress against its targets in 2010. Operating profit was £1,913 million, compared with a loss of £6,090 million in 2009, and Core return on equity remained stable at 13% for the year, with stronger Core Retail & Commercial operating profits offsetting more normal results from Global Banking & Markets (GBM), Core Tier 1 ratio at year end was 10.7%. Group income rose 10% in 2010 to £32.662bn with good growth in Core Retail & Commercial offsetting lower markets-related revenue in GBM.

Group income in Q4 2010 was 6% lower than in Q3, with Core income stable and Non-Core impacted by trading results, fair value write-downs and disposals.

Group net interest margin for the year improved by 25 basis points, and was broadly stable in Q4.

Group expenses for the full year were £16.71bn, 4% lower than in 2009.

The Group's cost saving programme has now delivered savings in excess of the £2.5bn target, funding renewed investment in the Core franchises. The cost:income ratio, excluding FVOD and net of claims, improved by 9 percentage points in 2010 to 60%. Q4 expenses were marginally down. Impairments were 33% lower in 2010 at £9.256bn, driven by a £3.745bn fall in Non-Core. Core impairments also fell, with improvements in UK Retail and GBM more than offsetting higher Ulster Bank impairments.

Impairments exceeded net write-offs by £3.1bn during the year, with provisions for impairments increasing from £15.2bn to £18.2bn. Q4 impairments rose by £188m, with higher provisions taken on the Ulster Bank Core and Non-Core portfolios. The Group balance sheet has been strengthened substantially over the course of 2010. Non-Core run-down has accelerated over the course of the year, with £16.3bn of balance sheet reduction in Q4 2010 reflecting good progress on both business disposals and portfolio sales. Non-Core assets, excluding derivatives were £137.9bn at the end of 2010, down £63.1bn from the prior year.

In addition to the disposals completed in 2010, circa £12bn of sales are signed but pending closing. Within the Group's EC-mandated disposal programme the sales of Global Merchant Services and most of the RBS Sempra Commodities JV assets were completed.

The Group exceeded its term funding targets with £38bn of issuance during the year. Liquidity reserves of £155bn were £5bn above target.

Net deposit growth was £14bn in 2010 helped improve the Group loan to deposit ratio to 117% (Core 96%), and the customer funding gap narrowed from £142bn to £74bn.

Short term wholesale borrowing requirements were reduced by £93bn during 2010 to £157bn.

Group Core Tier 1 ratio strengthened by 50 basis points in Q4 to 10.7%, positioning RBS well to meet future Basel capital requirements.

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