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Make it happen
Debt Investor Update
October 2008
Ron Huggett
Deputy Group Treasurer
Anne-Marie Hartnett
Investor Relations
Important Information
This presentation may contain forward looking statements, including such statements within the meaning of Section 27A of
the US Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements concern or may
affect future matters, such as the Group's economic results, business plans and strategies, and are based upon the current
expectations of the directors. They are subject to a number of risks and uncertainties that might cause actual results and
events to differ materially from the expectations expressed in or implied by such forward looking statements. Factors that
could cause or contribute to differences in current expectations include, but are not limited to, regulatory developments,
competitive conditions, technological developments and general economic conditions. These factors, risks and
uncertainties are discussed in the Group's SEC filings. The Group assumes no responsibility to update any of the forward
looking statements contained in this presentation.
The information, statements and opinions contained in this presentation do not constitute a public offer under any applicable
legislation or an offer to sell or solicitation of an offer to buy any securities or financial instruments or any advice or
recommendation with respect to such securities or other financial instruments.
The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available
information, including, where relevant any fuller disclosure document published by the Group. Any person at any time
acquiring the securities must do so only on the basis of such person’s own judgement as to the merits of the suitability of the
securities for its purposes and only on such information as is contained in public information having taken all such
professional or other advice as it considers necessary or appropriate in the circumstances and not in reliance on the
information contained herein. The information is not tailored for any particular investor and does not constitute individual
investment advice.
Information in this presentation relating to the price at which investments have been bought or sold in the past
or the yield on investments cannot be relied upon as a guide to future performance.
Slide 2
Agenda
• Group Overview
• Divisional Review
• Capital Management
• Outlook
• Questions
• Appendix
Slide 3
Make it happen
Group Overview
New Group Structure
CUSTOMERS
Global Markets Regional Markets RBS Insurance
• Global Banking & Markets • UK Retail and Commercial Banking • Direct Line
• Global Transaction Services • US Retail and Commercial Banking • Churchill
• Europe and Middle East • Privilege
Retail and Commercial Banking
• Asia Retail and Commercial Banking
Global Manufacturing
Group Functions
Slide 5
New Group Structure – Components
Global Banking UK US RBS Insurance
& Markets Retail + Com Banking Retail + Com Banking
• GBM except • UKCB except • Citizens, except • Direct Line
Transaction Banking Money Transmission Corporate Money • Churchill
• Retail except Transmission, RBS
• ABN AMRO ‘GBM’ Lynk and Citizens • Privilege
except Transaction Merchant Acquiring,
Commercial Cards Manufacturing (unchanged)
Banking
and Card Operations
• UK Wealth
Management
Global Transaction Europe + Middle East Asia Global
Services Retail + Com Banking Retail + Com Banking Manufacturing
• ABN AMRO Trans Bking • Ulster Bank, including • ABN AMRO Retail & • Manufacturing
• GBM Trans Banking ECF Commercial in Asia
• ABN AMRO
• UKCB Money Transmis • ABN AMRO Retail & • International Wealth Manufacturing
• Citizens Corp Money Commercial in Europe Management
Transmission • Citizens
and Middle East
• Retail Merchant Acqring Manufacturing
• Retail Commercial Cards • Card Operations
• RBS Lynk
Slide 6
Contribution by Division
Pro Forma Underlying* £m 2006 2007 Change
%
Regional Markets
– UK Retail & Commercial Banking 5,685 6,207 +9%
– US Retail & Commercial Banking 1,739 1,476 -15%
– EME Retail & Commercial Banking 698 798 +14%
– Asia Retail & Commercial Banking 117 205 +75%
Global Markets
– Global Banking & Markets 4,348 5,002 +15%
– Global Transaction Services 1,616 1,649 +2%
RBS Insurance 967 905 -6%
Group Manufacturing (4,192) (4,287) -2%
* Unaudited pro forma financial information under the Group’s revised divisional structure
‘Contribution’ is profit before amortisation of purchased intangible assets & integration costs
As disclosed on 11th June 2008
Slide 7
2008 Interim Results
Key Messages
£m %
• Costs reduced £118m
Total income 16,835 -1
• Insurance claims down £488m
Pre-impairment profit 6,623 +6
• Impairments up £543m
Operating profit 5,144 -3 • Write-downs in line
• Interim capital guidance
Credit market w/downs (5,925)
surpassed
Other items 90
• Core Tier 1 5.7%
Loss before tax (691) • Tier 1 8.6%
• Strong growth in deposits
• ABN AMRO integration ahead
Slide 8
Make it happen
Global Markets – H108
Global Banking & Markets
• Credit markets impacted by market conditions – write-downs, lower volumes
• Good performances in rates and currencies
• Good progress on realising potential of combination with
ABN AMRO – significant number of joint transactions
• Formed commodities JV with Sempra Energy
• Credit impairments have remained low
Slide 10
Global Banking & Markets
£m % Key Messages
Total income* 5,306 -10 • Rates, Currencies &
Direct expenses 2,607 -14 Commodities +87%
Impairment losses 294 n/a • Impairments up £178m on 2H07
Contribution 2,405 -15 • Credit markets weak
Group Manufacturing 221 +5 • De-risking balance sheet
Operating profit 2,184 -17
• Assets down £108bn in H108
£bn
• Ex-Sempra RWAs down 10%
Total third party assets 762.8 -7
Customer deposits 96.5 +16
RWAs** 211.9 -1
* Income before credit market write-downs and one-off items
** RWAs vs. 1st January 2008 (Basel II) – applies to all divisions
Slide 11
Credit Market Write-downs
In line with April estimates …
£bn Net Current Net Avg W/downs W/downs
Exposure Price June 08(1) April est(1)
ABS CDOs 2.0 40% (1.9) (1.9)
US Residential 1.9 59% (1.0) (1.2)
US Commercial 1.5 87% (0.1) (0.2)
Monoline Exposures 2.4 n/a (2.1) (1.8)
Leveraged Loans 10.8 92% (0.9) (1.3)
CLOs 1.1 84% (0.1) (0.1)
Sub-total (6.1) (6.4)
Hedges 0.2 0.5
Total (5.9) (5.9)
(1) Write-downs before tax
Slide 12
Global Transaction Services
• Successful leverage of combined product strengths and customer franchises to
win significant new business
– International network and infrastructure
– Extending and deepening existing relationships
– Few global competitors
• Continued expansion of international reach in merchant acquiring
• Good growth in income and profit
• Well controlled expense growth
Slide 13
Global Transaction Services
£m % Key Messages
Total income 1,173 +12 • Average customer deposits
Direct expenses 276 +11 +13%
Impairment losses 11 +38 • International Cash
Contribution 886 +12 Management +21%
Group Manufacturing 221 +5 • International
Merchant Acquiring +14%
Operating profit 665 +15
£bn
• Trade Finance +60%
Loans & advances 17.1 +15
• Investment for growth
Customer deposits 58.9 +10
RWAs 17.1 +10
Slide 14
Make it happen
Regional Markets – H108
UK Retail & Commercial Banking
£m % Key Messages
Total income 5,452 +5 • Retail impairments fell £50m
Direct expenses 1,537 +5 • Corporate impairments rose £34m
Impairment losses 694 -2 • Retail Banking profits +9%
Contribution 3,221 +7
• Corporate Banking profits +6%
Group Manufacturing 1,104 +5
• Wealth Management profits +14%
Operating profit 2,117 +8
• Average deposits +10%
£bn
Loans & advances 233.6 +12
Customer deposits 191.8 +7
RWAs 159.4 +4
Slide 16
US Retail & Commercial Banking
$m % Key Messages
Total income 2,746 +2 • Retail growth subdued
Direct expenses 980 +1 • Good Commercial growth
Impairment losses • Strong expense control
– Core 388 +311
– SBO 324 +372 • Core impairment charge 73bps
Contribution 1,054 -32 • Core impairments up $129m on
Group Manufacturing 328 +5 2H07
Operating profit 726 -41 • SBO impairment charge 841bps
$bn
Loans & advances 113.7 +2
Customer deposits 104.8 +5
RWAs 110.2 +2
Slide 17
EME Retail & Commercial Banking
£m % Key Messages
Total income 805 +19 • Benefit from strong euro
Direct expenses 293 +27 • Ulster investment complete
Impairment losses 96 +43 • Impairments +£27m v 2H07
Contribution 416 +9
• New business margins rising
Group Manufacturing 166 +5
• Middle East income +38%
Operating profit 250 +13
£bn
Loans & advances 51.5 +9
Customer deposits 23.4 +1
RWAs 29.9 -1
Balance sheet growth rates at constant FX
Slide 18
Asia Retail & Commercial Banking
£m % Key Messages
Total income 391 +24 • Consumer Finance +28%
Direct expenses 204 +30 • Affluent Banking +24%
Impairment losses 61 - • Business Banking +44%
Contribution 126 +30
• Private Banking +18%
Group Manufacturing 110 +5
• Investing for growth
Operating profit 16 n/a
£bn
Loans & advances 4.6 +21
Customer deposits 12.7 +34
Spot AUMs 19.9 +16
RWAs 5.3 +8
Slide 19
Make it happen
RBS Insurance – H108
RBS Insurance
£m % Key Messages
Total income 2,786 -2 • Own brand income +3%
Direct expenses 410 +17 • Partnership income down 8%
Net claims 1,863 -13 • Partnership contribution +18%
Contribution 513 +41 • Underlying claims down 6%
Group Manufacturing 110 +5 • Underlying profit up 5%
Operating profit 403 +56
Slide 21
Make it happen
ABN AMRO
Substantial Transaction Benefits
ABN AMRO Businesses Offer Doc Now
€m July 2007
Total cost savings 1,319 1,596
Total net revenue benefits 395 688
Total transaction benefits 1,714 2,284
• 2010 transaction benefits represent 16% of 2007 operating profit
Full transaction benefits excluding central cost savings
Slide 23
Achievable Transaction Benefits
ABN AMRO Businesses Underlying U’lying Results 07
€m Results + Full Transaction
2007 Benefits
Total income 6,886 8,346
Expenses 5,906 5,120
Impairment losses 338 397
Operating profit 642 2,829
Cost:income ratio 86% 61%
Underlying results for ABN AMRO businesses acquired by RBS, excluding share of shared assets
Underlying results adjusted for write-downs, impact of the sale of LaSalle and some minor normalisations
Full transaction benefits excluding central cost savings
Slide 24
Make it happen
Capital Management
Capital
Proportional Basis Jun 08 Key Messages
RWAs (£bn – Basel II) 491.7 • £12bn rights issue
• Rebased capital targets
Core Tier 1 (%) 5.7
• Well ahead at mid year
Tier 1 capital (%) 8.6 • De-risking balance sheet
Total capital (%) 13.1 • On track for year end CT1 >6%
Slide 26
Capital Ratios
Core Tier 1 Tier 1
Proportional consolidated basis
Target* - 30 June 2008 >5.0% >7.5%
Actual - 30 June 2008 >5.7% >8.6%
Target* - 31 December 2008 >6.0% >8.0%
*Target capital ratios announced on 22nd April 2008
Slide 27
Capital Initiatives
Analysis of Total Capital Issuance (£m) Analysis of Total Capital Issuance by
Analysis of Total Currency
Capital Issuance by Currency
AUD 2%
SFR 1%
JPY 1%
T1 Retail £6,109 CAD 2%
LT2 £13,166 USD 35%
T1 EUR 39%
Institutional £8,251
UT2 £8,680 GBP 21%
Recent strategic initiatives:
• Focus on US Retail for pricing and capital flexibility
• Diversification of tier 2 issuance into CAD, AUD, JPY and CHF
• Building profile in CAD with Perp NC10 upper tier 2 and innovative tier 1
transaction
Slide 28
Capital Maturity Profile
Total Capital Maturity/Amortisation Profile
5,000
Tier 1 Upper Tier 2 Lower Tier 2
4,500
4,000
3,500
3,000
£'m
2,500
2,000
1,500
1,000
500
-
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Year
Perpetual instruments of value circa £7.2bn are not shown.
• Balanced maturity profile
• long dated issuance when market conditions permit.
• Use of upper tier 2 to retain flexibility
Slide 29
Approach to Term Funding
• Diversification
– £50bn multi currency EMTN Programme and US$35bn domestic MTN Program
– Public benchmark transactions and c.300 private placements p.a.
– Securitisation
• New initiatives
– Samurai
– Australian domestic issuance
– Schuldscheine
– Sovereign Wealth Funds
• Robust Liquidity Management
– Strong retail and corporate deposit base
– Focus on term funding
• Commitment to Investors
– Regular information flow
– Transparency
– Regular borrower
Slide 30
Balance Sheet Composition
• RBS has a well diversified funding structure Wholesale Funding Composition
Subordinated Debt
• Customer loans are matched by customer Debt Securities Issued
5%
deposits, term funding and capital >1yr
13%
• Liquid assets are funded by wholesale funding Deposits by Banks
42%
• Nature of asset determines the appropriate Debt Securities Issued
funding <1yr
25%
RBS Consolidated Proportional Balance Sheet Repo
As at June 2008 15%
100% Net Other
90%
M TM o f Trading Derivatives M TM o f Trading Derivatives
80%
70% Repo Repo Customer Loans 136%
Sho rt-term
60% Liabilities Customer Deposits
Liquid A ssets
50%
Deposits by Banks
40% Lo ans to B anks
Loans and Fixed Assets 96%
30% Custo mer Deposits, Term Debt & Capital
Depo sits
20%
Custo mer Lo ans
10% & Fixed A ssets
Term Funds & Capital
0%
Assets Liabilities
Source: June 2008 Interim Accounts (minority loans and deposits excluded)
Slide 31
Debt Maturity Profile
T e rm F u n d in g M a t u r it y o f R B S & A B N p o r t io n ( G B P b n )
3 .5
C a p it a l
3 .0
S e n io r
2 .5
2 .0
1 .5
1 .0
0 .5
0 .0
O c t-0 8 N o v -0 8 D e c -0 8 J a n -0 9 F e b -0 9 M a r-0 9 A p r-0 9 M a y-0 9 J u n -0 9 J u l-0 9 A u g -0 9 S e p -0 9 O c t-0 9 N o v -0 9 D e c -0 9
• 2008 programme largely complete (£12bn issued)
• Diversified by market, structure and tenor
• Issuing franchise in all major markets
• RBS raised over £3bn equivalent of term funding in the Sterling, Dollar and
Swiss Franc markets in September 2008.
Slide 32
Rating Agency Summary
Moody’s S&P Fitch
RBS (Group) Aa2 A+ AA
RBS (Bank) Aa1 AA- AA
NatWest (Bank) Aa1 AA- AA
Citizens Group Aa3 A+ AA-
Ulster Bank Ltd Aa2 AA- AA-
Ulster Bank Ireland Ltd Aa2 AA- AA-
ABN AMRO Bank NV Aa2 AA- AA
Source – Credit Rating Agencies as listed
As at 01st October 2008.
On 27th June 2008, Moody's downgraded the senior debt and deposit ratings (from Aaa to Aa1) of Royal Bank of Scotland plc and National
Westminster Bank Plc. The senior debt rating of Royal Bank of Scotland Group plc (RBS) changed from Aa1 to Aa2, with the outlook on all ratings
stable. The ratings of Ulster Bank and First Active have not been affected by this rating action.
On 7th October 2008, S&P downgraded the long-term rating of The Royal Bank of Scotland Group plc and its related subsidiaries. The outlook for
long-term debt remains negative.
On the 22nd April 2008 Fitch Ratings downgraded The Royal Bank of Scotland Group plc, and the RBS Bank to a long-term issuer default rating of
AA with a stable outlook.
Citizens Financial Group is not rated. The ratings shown reflect those of its banking subsidiaries.
Slide 33
Make it happen
Outlook
Outlook
• Outlook for the global economy is challenging, but RBS better positioned
– Stronger capital base
– Income growth from new products to enlarged customer base
– Meaningful efficiency improvement from delivery of synergies
• Priorities for RBS
– Deliver ABN AMRO integration and transaction benefits
– Disciplined management of GBM through difficult period
– Maintain momentum in other businesses
– Leverage established presence in growth economies
– Exploit enhanced global platform, customer franchises and product
capabilities
Slide 35
Make it happen
Questions?
Make it happen
Appendix
UK Retail Mortgages
Total Portfolio £72bn (c6% of stock) Cumulative LTV Distribution
100
Buy to Let 6%
80
60
% of
Book
40 35%
24%
20 14%
10%
6% 3%
0
>60% >70% >80% >85% >90% >95% LTV
Other Mortgages 94%
• Average LTV 49%
• Buy-to-let LTV 56%
• New business LTV 66%
Slide 38
Commercial Property
Commercial Property Portfolio £91bn UK Commercial Property £51bn
Diversified by Geography Core Portfolio LTV Distribution
% of Book
100
North Rest of World 1% 87%
America 9%
80
69%
Other 60
UK 55% 45%
Western
Europe 14% 40
19%
20 8% 3%
Spain 4%
0
>50% >60% >70% >75% >80% >85% LTV
Germany
7% • Average LTV 68%
• 1% speculative
RoI 10%
• Well diversified by sector
• Characteristics typical of overall portfolio
Slide 39
US Retail & Commercial portfolio
Total Portfolio £57bn Cumulative LTV Distribution
Residential Mortgage & Core Home Equity
% of
Other Book
Corporate &
Consumer 19% 100
Industrial 25%
80
70%
60 54%
40
29%
CRE*
9%
20
11%
6% 4%
Core Home
SBO 7%
Equity 24% 0
>60% >70% >80% >85% >90% >95%LTV
Residential
Mortgage 16% • Average LTV 64%
* Commercial Real Estate
• Average FICO 748
Slide 40
US SBO Portfolio
% $bn
2.5 10 • Book in managed run-off
• Cumulative provisions $675m
2.0
• Cumulative charge-offs $262m
9
1.5 • Current provisions $413m
• Reserve 2.7x NPL
1.0 • FICO 721
8
0.5
0.0 7
Jun 07 Dec 07 Jun 08
SBO delinquencies as % of total outstanding loans
SBO total outstanding loans
Slide 41
