Report of Foreign Issuer

 

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549


Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For November 6, 2009

Commission File Number: 001-10306

The Royal Bank of Scotland Group plc

RBS, Gogarburn, PO Box 1000
Edinburgh EH12 1HQ

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F     X     Form 40-F         

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):_________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):_________

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes            No     X  

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________




The following information was issued as Company announcements in London, England and is furnished pursuant to General Instruction B to the General Instructions to Form 6-K:

 
 
 
 
 
 
Third quarter 2009 results
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
Contents
 

Page 


Forward-looking statements
3


Presentation of information
4


Results summary - pro forma
5


Results summary - statutory
7


Business and strategic update
8


Pro forma results
13


Summary consolidated income statement
13


Condensed consolidated statement of comprehensive income
15


Summary consolidated balance sheet
15


Key metrics
16


Results summary
18


Divisional performance
26
UK Retail
28
UK Corporate
31
Wealth
34
Global Banking & Markets
36
Global Transaction Services
39
Ulster Bank
41
US Retail & Commercial
44
RBS Insurance
51
Central items
53
Non-Core
54


Allocation methodology for indirect costs
59


Condensed consolidated balance sheet
61


Commentary on condensed consolidated balance sheet
62


Notes
63
 
                                                                                                   


 
Contents
(continued)
 

Page 


Risk and capital management
76


Capital resources and ratios
76


Credit risk
78


Liquidity risk
83


Market risk
87


Market turmoil exposures
89


Statutory results
101


Condensed consolidated income statement
102


Condensed consolidated statement of comprehensive income
103


Financial review
104


Condensed consolidated balance sheet
105


Commentary on condensed consolidated balance sheet
106


Notes
107


Capital resources and ratios
114


Additional information
116


Statutory results
116


Appendix 1  Reconciliations of pro forma to statutory income statements and balance sheets



Appendix 2  Analysis by quarter
 


Appendix 3  Asset Protection Scheme



Appendix 4  Businesses outlined for disposal



Appendix 5  Revisions
 
 


 
Forward-looking statements
 
Certain sections in this document contain 'forward-looking statements' as that term is defined in the United States Private Securities Litigation Reform Act of 1995, such as statements that include the words 'expect', 'estimate', 'project', 'anticipate', 'should', 'intend', 'plan', 'probability', 'risk', 'Value-at-Risk (VaR)', 'target', 'goal', 'objective', 'will', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on such expressions.

In particular, this document includes forward-looking statements relating, but not limited, to the Group's potential exposures to various types of market risks, such as interest rate risk, foreign exchange rate risk and commodity and equity price risk.  Such statements are subject to risks and uncertainties.  For example, certain of the market risk disclosures are dependent on choices about key model characteristics and assumptions and are subject to various limitations.  By their nature, certain of the market risk disclosures are only estimates and, as a result, actual future gains and losses could differ materially from those that have been estimated.

Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this document include, but are not limited to:
RBS obtaining the requisite approvals and agreeing the requisite documents to finalise its accession into the APS; the effect of the APS and State Aid remedies on RBS's financial and capital position; the continuation or further deepening of recessionary conditions; the ability of the Group to access sufficient funding to meet its liquidity needs; the developments in the current crisis in the global financial markets
, and their impact on the financial industry in general and the Group in particular; the effect on the Group's capital of write downs in respect of credit market exposures and impairments; general economic conditions in the UK and in other countries in which the Group has significant business activities or investments, including the United States; the monetary and interest rate policies of the Bank of England, the Board of Governors of the Federal Reserve System and other G-7 central banks; inflation; deflation; unanticipated turbulence in interest rates, foreign currency exchange rates, commodity prices and equity prices; changes in UK and foreign laws, regulations and taxes; changes in competition and pricing environments; natural and other disasters; the inability to hedge certain risks economically; the adequacy of loss reserves; acquisitions or restructurings; technological changes; changes in consumer spending and saving habits; the value and effectiveness of any credit protection purchased by RBS; and the success of the Group in managing the risks involved in the foregoing.

The forward-looking statements contained in this document speak only as of the date of this announcement, and the Group does not undertake to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
 
The information, statements and opinions contained in this document do not constitute a public offer under any applicable legislation or an offer to sell or solicitation of any offer to buy any securities or financial instruments or any advice or recommendation with respect to such securities or other financial instruments.


 
Presentation of information
 
Acquisition of ABN AMRO
On 17 October 2007, RFS Holdings B.V. ('RFS Holdings'), a company jointly owned by The Royal Bank of Scotland Group plc ('RBS'), Fortis Bank Nederland (Holding) N.V. ('Fortis') and Banco Santander S.A. ('Santander') (together, the 'Consortium Members'), completed the acquisition of ABN AMRO Holding N.V. ('ABN AMRO').
RFS Holdings is implementing an orderly separation of the business units of ABN AMRO with RBS retaining the following ABN AMRO business units:
•
Continuing businesses of Business Unit North America;
•
Business Unit Global Clients and wholesale clients in the Netherlands
  (including former Dutch wholesale clients) and Latin America (excluding Brazil);
•
Business Unit Asia (excluding Saudi Hollandi); and
•
Business Unit Europe (excluding Antonveneta).
Certain other assets will continue to be shared by the Consortium Members.
On 3 October 2008, the State of the Netherlands acquired Fortis Bank Nederland (Holding) N.V. including Fortis' participation in RFS Holdings that represents the acquired activities of ABN AMRO.
The separation of the main platform shared between RBS and its Dutch state-owned partner has been completed and the Group expects that, subject to legal process and regulatory approvals, the legal separation of the constituent parts of ABN AMRO will be complete in early 2010. From that point RBS will cease to consolidate the Dutch state's interest in RBS Group statutory accounts.
Pro forma results
Pro forma results have been prepared to include only those business units of ABN AMRO that will be retained by RBS.  The financial review and divisional performance and discussion of risk and capital management in this Interim Management Statement focus on the pro forma results.  The basis of preparation of the pro forma results is detailed on page 63.
Statutory results                       
RFS Holdings is jointly owned by the Consortium Members.  It is controlled by RBS and is therefore fully consolidated in its statutory financial statements.  The interests of the State of the Netherlands and Santander in RFS Holdings are included in minority interests.
Restatements
Divisional results for 2008 have been restated to reflect the Group's new organisational structure that includes a Non-Core division comprising individual assets, portfolios and lines of business that the Group intends to run off or dispose of.  The Non-Core division is reported separately from the divisions which form the Core Group.  In addition, separate reporting of Business Services (formerly Group Manufacturing) and Centre results has changed and, with the exception of certain items of a one off nature, costs incurred are now allocated to the customer-facing divisions and included in the measurement of the returns which they generate.  The changes do not affect the Group's results.  Comparatives have been restated accordingly.
The pro forma and statutory results for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'.  This has resulted in an increase in staff costs amounting to £37 million for the third quarter of 2008 and £72 million for the first nine months of 2008.
The pro forma and statutory results for 2008 have been restated for the finalisation of the ABN AMRO acquisition accounting.
 
Results summary - pro forma
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
 2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Core






Total income (1)
7,154 
7,015 
7,529 

24,862 
21,699 
Operating expenses (2)
(3,729)
(3,638)
(3,531)

(11,474)
(10,742)
Insurance net claims
(1,019)
(788)
(764)

(2,596)
(2,353)
Operating profit before impairment losses (3)
2,406 
2,589 
3,234 

10,792 
8,604 
Impairment losses
(1,213)
(1,147)
(512)

(3,390)
(1,184)
Operating profit (3)
1,193 
1,442 
2,722 

7,402 
7,420 







Non-Core






Total income (1)
(60)
(894)
1,056 

(2,977)
(1,463)
Operating expenses (2)
(466)
(428)
(529)

(1,454)
(1,711)
Insurance net claims
(126)
(137)
(170)

(440)
(508)
Operating (loss)/profit before impairment
  losses (3)
(652)
(1,459)
357 

(4,871)
(3,682)
Impairment losses
(2,066)
(3,516)
(768)

(7,410)
(1,575)
Operating loss (3)
(2,718)
(4,975)
(411)

(12,281)
(5,257)







Total*






Total income (1)
7,094 
6,121 
8,585 

21,885 
20,236 
Operating expenses (2)
(4,195)
(4,066)
(4,060)

(12,928)
(12,453)
Insurance net claims
(1,145)
(925)
(934)

(3,036)
(2,861)
Operating profit before impairment losses (3)
1,754 
1,130 
3,591 

5,921 
4,922 
Impairment losses
(3,279)
(4,663)
(1,280)

(10,800)
(2,759)
Operating (loss)/profit (3)
(1,525)
(3,533)
2,311 

(4,879)
2,163 
(Loss)/profit before tax (4)
(2,077)
59 
1,903 

(2,062)
1,177 
(Loss)/profit attributable to ordinary
  shareholders
(1,800)
(140)
871 

(2,842)
44 







* Includes fair value of own debt impact
(483)
(960)
1,281 

(412)
2,093 







Performance ratios






Return on equity - annualised (5)
(11.2%)
(26.6%)
9.8%

(15.6%)
2.4%
Net interest margin**
1.75%
1.70%
2.05%

1.74% 
2.06%
Cost:income ratio (6)
59.1%
66.4%
47.3%

59.1% 
61.5%
Adjusted cost:income ratio (7)
70.5%
78.3%
53.1%

68.6% 
71.7%
Continuing operations:






Pre-impairment Core adjusted earnings per ordinary share (8)
2.5p 
2.6p 
11.5p

15.1p 
38.9p
Core adjusted earnings per ordinary share (9)
1.0p 
1.0p 
9.5p

9.7p 
33.0p
Basic earnings per ordinary share (10)
(3.2p)
(0.2p)
5.6p

(5.6p)
0.9p
 
For definitions of the notes see pages 16 and 17.
 
 
** Net interest margin for the quarter ended 30 June 2009 has been revised. See Appendix 5.


 
Results summary - pro forma
 
Capital and balance sheet
30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008 
Change 







Total assets
£1,680.3bn
£1,644.4bn
2%

£2,218.7bn
(24%)
Funded balance sheet (11)
£1,127.8bn
£1,088.6bn
4%

£1,227.2bn
(8%)
Loan:deposit ratio (gross of provisions)
142.3%
144.5%
(220bp)

152.4%
(1,010bp)
Loan:deposit ratio (net of provisions)
138.8%
142.9%
(410bp)

150.3%
(1,150bp)
RWAs
£594.7bn
£547.3bn
9%

£577.8bn
3%
Total equity
£58.9bn
£57.8bn
2%

£64.3bn
(8%)
Core Tier 1 ratio
5.5%
6.4%
(90bp)

5.9%
(40bp)
Tier 1 ratio
8.0%
9.0%
(100bp)

9.9%
(190bp)
Tier 1 leverage ratio (12)
23.4x
21.7x
8%

21.2x
10%
Tangible equity leverage ratio (13)
3.0%
3.0%
- 

2.4%
60bp
Net tangible equity per share
59.4p
58.0p
2%

73.8p
(20%)
 
For definitions of the notes see pages 16 and 17.


 
Results summary - statutory
 
 
Highlights
·     
Income of £8,080 million.
 
·     
Pre-tax loss of £2,169 million for Q309.
 
·     
Core Tier 1 ratio 6.5%.
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008  

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Total income
8,080 
11,453 
9,962 

29,921 
23,804 
Operating expenses
(5,552)
(5,732)
(5,321)

(17,443)
(16,040)
Operating profit before impairment losses
1,319 
4,674 
3,595 

9,135 
4,529 
Impairment
(3,488)
(4,970)
(1,397)

(11,548)
(3,058)
Operating (loss)/profit before tax
(2,169)
(296)
2,198 

(2,413)
1,471 
(Loss)/profit attributable to ordinary shareholders
(1,800)
(140)
871 

(2,842)
44 
 


 
Business and strategic update
 
 
Strategic plan
 
In August, RBS detailed its plans, first announced in February, for a radical restructuring of its businesses to set the Group on a path to sustainability, stability and customer focus. Businesses and portfolios that did not meet the Group's strategic criteria, including both stressed and non-stressed assets, were transferred to the Non-Core division. Within the Core Bank, comprehensive changes have been set in motion to improve the business and adapt to the future banking climate. The balance sheet and capital framework were also clearly set out, anticipating substantially increased regulatory pressures and much greater emphasis on liquidity. While updates to the Plan and related targets will be published in February, reflecting the new APS agreement and EU remedies, we currently expect the Plan's integrity and key aspirations to remain valid.
 
The Group's strategy has been embedded in five-year plans across divisions, and the more recent 2010 budgets provide encouraging support for these plans. There remain many uncertainties in the economic environment and the Group has made it clear that it expects the path to rebuilding standalone strength and shareholder value to be multi-year in duration.
 
Some encouraging progress has, nevertheless, been made in the third quarter towards some of the Group's intermediate goals:
 
·     
Despite intense competition for retail savings, customer deposits, excluding repos, grew in the quarter, up 2% or £8.5 billion compared with 2Q09, with encouraging deposit- gathering performances from all our retail divisions as well as from Global Transaction Services.
 
·     
Loans and advances to customers, excluding reverse repos, reduced by 1% compared with 2Q09 and by 15% compared with December 2008, with the bulk of the reduction  coming in Global Banking & Markets and Non-Core.
 
·     
The Group's loan to deposit ratio improved to 142% at the end of September, an improvement of 220 basis points from the end of June and of 1,010 basis points from the end of  December 2008. The Group's 2013 target is to achieve a ratio of approximately 100%.
 
·     
Risk-weighted assets, however, increased by 9% in the quarter, mainly due to the fall in credit ratings for monolines, the effect of procyclicality in Basel II models and foreign  exchange movements.
 
·     
Efforts to improve efficiency have continued to make headway, and the Group is on track for its three year cost saving targets. The Group cost:income ratio year to date improved  by 2 percentage points, compared with the same period of 2008.
 
·     
We issued £4.8 billion of unguaranteed term debt during the third quarter, taking the total issued to end September to £9.2 billion. In general, the picture on liquidity is rapidly improving, albeit from a poor starting point.
 
Return on equity remains negative. The Group's 2013 target is to achieve a sustainable return on equity in excess of 15%, powered by market-leading franchises in large, customer-driven markets.


 
Business and strategic update
 
(continued)
 
Non-Core division and disposal programme
 
The Non-Core Division is now fully operational and continues actively to reduce risk and manage the run-down and sale options for the £190.3 billion of RWAs for which it is now responsible. Finalising APS has been the greatest priority to date, in the knowledge that market conditions overall will take time to offer acceptable value and liquidity. Significant and encouraging market improvements are, nevertheless, visible. 
 
The disposal of the majority of our Retail & Commercial businesses in Asia, along with some of our Global Banking & Markets (GBM) businesses, continues to progress well and we remain in advanced stages of negotiations with bidders for the remaining markets. Elsewhere, in addition to normal amortisations, improved market conditions have enabled us to unwind legacy trades.  The current market rally has also significantly reduced monoline and CDPC exposures.
 
Our plan will continue to be affected by external factors such as economic conditions, risk appetite and liquidity in the market, as well as foreign exchange rates.
 
Risk
 
As part of its strategic review RBS has a clearly stated ambition to achieve a standalone AA category risk rating and risk management within the Group is now implementing revised risk appetite and controls in order to achieve this objective. 
 
While economic conditions and outlook have improved since the first half results, they remain fragile, with corporate failures and consequent unemployment not expected to peak until 2010.  The outlook for impairments has improved somewhat and these may now be plateauing at 1H09 levels although we are still seeing a modest increase in default rates.  Economic conditions in the UK and more so Ireland, two key markets for RBS, remain relatively weak.  Our impairments and write-downs remain concentrated in the Non-Core division with better quality credit metrics in most of our Core divisions.
 
The Group continues to reduce its exposure to country risk and a new country risk framework is now well embedded across the Group.  Total cross border exposure to countries in the emerging economies has declined since June 2008 by over 20% adjusted for currency movements.
 
Single Name Concentrations continue to receive a high level of attention and further refinements to the risk management framework will be implemented during the fourth quarter.  A programme to improve reporting is now well underway increasing transparency of risk exposures and improving the ability of management to take mitigating action as part of the process of reducing the risk in RBS's balance sheet.
 
Market risk as measured by Value at Risk (VaR) has increased materially, primarily reflecting the rise in Non-Core credit spread VaR resulting from the increased volatility in the most recent two years' of market data, as well as additional hedges against the risk of counterparty failure, which is not itself recorded in VaR. 
 


 
Business and strategic update
(continued)
 
 
Risk
(continued)
 
The potential for increased Operational Risk emanating from the implementation of the Strategic Plan is an issue which is being actively managed by each division and monitored by the independent risk function.  We also have an active programme of engagement with the very significant regulatory change agenda across prudential requirements, banking capital, bank licensing and supervision. The regulatory agenda is all-consuming of itself, with multiple initiatives to prepare for and react to significant uncertainties still to wash through for all banks.
 
UK Lending Commitments
In February, as a pre-requisite to its proposed participation in the APS, the Group agreed to make available an additional £25 billion of lending (£9 billion of mortgage lending and £16 billion of business lending) to creditworthy customers on commercial terms, and subject to market demand, over the ensuing 12 months, and a similar amount over the following year.
 
RBS is unambiguous in its view that these commitments are being met. However, as is normal in recessions, our customers are generally seeking to repair their balance sheets, not to increase borrowing. As a result, the demand for our lending is muted, especially from business customers. By comparison in the United States, where economic growth has already resumed, the fall in loan demand has been even greater. Increased borrowing is not the route to sustainable recovery.
 
Since entering into this commitment RBS has achieved strong results in the mortgage market:
·     
Gross lending year to date totals £13.9 billion, including over £2.3 billion of lending to first time buyers.  Gross lending during the quarter was 23% higher than in 2Q09 and at 30  September 2009, UK mortgage balances totalled £88.7 billion, 11% higher than at the end of 2008.
·     
The acceptance rate for mortgage lending, at 90%, remains high.  With net mortgage lending year to date totalling £8.6 billion, the Group is on target to surpass the £9 billion mortgage lending commitment.      
 
In business markets, RBS has achieved gross lending of £45.5 billion year to date.  Gross lending during 3Q09 was £15.2 billion, 2% lower than 2Q09.  After taking account of loan repayments and overdraft movements, RBS's business lending, including Ulster Bank, at 30 September 2009 totalled £154.3 billion, a decline of 6% since the end of 2008.
 
·     
In the SME segment, gross lending in the first nine months of 2009 was £28.5 billion.  Demand remains subdued, with credit applications down 26% by value 3Q09 compared  with 3Q08. The acceptance rate across all categories of SME credit remains stable at 85%.
 
·     
The average interest rate on new lending to SMEs has fallen to 3.4% in the third quarter, compared with 7.0% for 3Q08. In November 2008, we gave a promise not to increase  small business customers' overdraft pricing until the end of 2009 unless the risks associated with lending to them have increased. As a result, in the third quarter 94% of SME  customers had overdrafts renewed at the same margin or lower.
 


 
Business and strategic update
(continued)
 
 
UK Lending Commitments
(continued)
 
·     
SME repayments have accelerated as many business and commercial customers seek to deleverage (term loan repayments are up 37% in 2009 year to date).
 
·     
Overdraft utilisation rates across the SME and mid-corporate segments have remained low at 44%. SME and mid-corporate customers still have access to undrawn committed  facilities of more than £27 billion. Our SME Committed Overdraft promise ensures that customers' committed facilities remain in place for at least 12 months.
 
·     
Significant marketing activity to reiterate an 'Open for Business' message and the success of the Regional Funds programme has enabled balances to be held stable year to  date. We have also recently launched a new Business Hotline which offers businesses, whether they are customers or not, a second opinion in cases where their lending  proposition has been declined.
 
·     
Gross new lending to mid- and large corporates totalled £5.4 billion in the quarter, 13% lower than the 2Q09 total, and £17.0 billion year to date. 
 
·     
Many larger corporates are actively deleveraging to repair their balance sheets.  RBS has been a significant player in facilitating access to the debt and equity markets for its  larger clients.  RBS has been bookrunner for circa £5 billion of the £55 billion of bond issuance by UK corporates and has been actively involved in circa £25 billion of equity  issuance in the year to date.  Much of this finance raised has been used to repay bank borrowing.   
 
Notwithstanding the Group's willingness to lend to creditworthy customers and our clarity that the requisite funds are available, thereby fulfilling our commitments, indications remain that it is unlikely that RBS's net business lending will increase by the £16 billion that we are making available, in the light of the subdued demand we currently experience.       
 

30 September 
2008 
 31 December 
 2008 
Gross lending 
during 2009 
Net lending 
during 2009 
30 September 
2009 

£bn 
£bn 
£bn 
£bn 
£bn 






Mortgages
79.2 
80.1 
13.9 
8.6 
88.7 






Total Business
161.1 
163.4 
45.5 
(9.1)
154.3 
  SME
67.4 
68.0 
28.5 
(0.1)
67.9 
  Mid-corporate
48.5 
49.3 
11.2 
(3.7)
45.6 
  Large corporate
45.2 
46.1 
5.8 
(5.3)
40.8 






Total Lending
240.3 
243.5 
59.4 
(0.5)
243.0 
 
Note:
The above figures include Ulster Bank and Wealth lending and represent drawn balances, with the exception of Large Corporate numbers which are committed lending (as per RBS's Lending Commitments agreement).  Unsecured personal lending and non-UK lending are not included in the above data. 
 


 
Business and strategic update
(continued)
 
 
Customer Accounts
 
Crucial to the Group's prospects for future success and return to standalone health is the resilience of its customer franchises. Except for the activities earmarked for restructuring, run-off or exit, RBS has sustained its customer market positions during the third quarter, with customer numbers steady or growing in all the Group's major businesses.
 
·     
UK Retail added 139,000 current account customers during the third quarter, with current account numbers rising by 3% over the last year to 12.7 million at 30 September. Over 1 million savings accounts have been added over the last 12 months.
 
·     
UK Retail added 25,000 mortgage customers during the third quarter, taking mortgage customer numbers to 826,000, 8% up on 3Q08.
 
·     
Ulster Bank has held SME and corporate customer numbers stable over the last year and increased consumer accounts by 4%, compared with 3Q08.
 
·     
US Retail's consumer customer base held steady during the quarter at 4.0 million.
 
·     
RBS Insurance achieved strong growth in own brand policy numbers, both through direct brands and through the bank branch channel. Direct own brand policies were up 11% in motor and 13% in home, compared with 3Q08. Bank channel home policies have risen 13% from 3Q08. 
 


Summary consolidated income statement
for the quarter ended 30 September 2009 - pro forma (unaudited)
 
In the income statements set out below, amortisation of purchased intangible assets, gain on redemption of own debt, strategic disposals, write-down of goodwill and other intangible assets and integration and restructuring costs are shown separately.  In the statutory condensed consolidated income statement on page 102, these items are included in income and operating expenses as appropriate.  Data for 2008 have been restated for the amendment to IFRS 2 'Share-based Payment'. 
 

Quarter ended

Nine months ended

30 September 
2009 
*30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Core













Net interest income*
3,030 
3,111 
3,432 

9,357 
10,242 







Non-interest income (excluding insurance net premium income)*
2,996 
2,799 
2,940 

12,160 
7,924 
Insurance net premium income
1,128 
1,105 
1,157 

3,345 
3,533 







Non-interest income
4,124 
3,904 
4,097 

15,505 
11,457 







Total income (1)
7,154 
7,015 
7,529 

24,862 
21,699 
Operating expenses (2)
(3,729)
(3,638)
(3,531)

(11,474)
(10,742)







Profit before other operating charges
3,425 
3,377 
3,998 

13,388 
10,957 
Insurance net claims
(1,019)
(788)
(764)

(2,596)
(2,353)







Operating profit before impairment losses
2,406 
2,589 
3,234 

10,792 
8,604 
Impairment losses
(1,213)
(1,147)
(512)

(3,390)
(1,184)







Operating profit (3)
1,193 
1,442 
2,722 

7,402 
7,420 














Non-Core













Net interest income
231 
211 
404 

764 
1,095 







Non-interest income (excluding insurance net premium income)
(464)
(1,301)
400 

(4,354)
(3,295)
Insurance net premium income
173 
196 
252 

613 
737 







Non-interest income
(291)
(1,105)
652 

(3,741)
(2,558)







Total income (1)
(60)
(894)
1,056 

(2,977)
(1,463)
Operating expenses (2)
(466)
(428)
(529)

(1,454)
(1,711)







(Loss)/profit before other operating
  charges
(526)
(1,322)
527 

(4,431)
(3,174)
Insurance net claims
(126)
(137)
(170)

(440)
(508)







Operating (loss)/profit before impairment
  losses
(652)
(1,459)
357 

(4,871)
(3,682)
Impairment losses
(2,066)
(3,516)
(768)

(7,410)
(1,575)







Operating loss (3)
(2,718)
(4,975)
(411)

(12,281)
(5,257)
 
For definitions of the notes see pages 16 and 17.
* Certain income reported in other operating income in the interim results for the half year ended 30 June 2009 has been reclassified to net interest income. The reclassification amounted to £205 million and does not affect total income or operating profit. Further details are included in Appendix 5.
 
Su
mmary consolidated income statement
for the quarter ended 30 September 2009 - pro forma (unaudited)
(continued)
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







Total













Net interest income
3,261 
3,322 
3,836 

10,121 
11,337 







Non-interest income (excluding insurance net
  premium income)
2,532 
1,498 
3,340 

7,806 
4,629 
Insurance net premium income
1,301 
1,301 
1,409 

3,958 
4,270 







Non-interest income
3,833 
2,799 
4,749 

11,764 
8,899 







Total income (1)
7,094 
6,121 
8,585 

21,885 
20,236 
Operating expenses (2)
(4,195)
(4,066)
(4,060)

(12,928)
(12,453)







Profit before other operating charges
2,899 
2,055 
4,525 

8,957 
7,783 
Insurance net claims
(1,145)
(925)
(934)

(3,036)
(2,861)







Operating profit before impairment losses (3)
1,754 
1,130 
3,591 

5,921 
4,922 
Impairment losses
(3,279)
(4,663)
(1,280)

(10,800)
(2,759)







Operating (loss)/profit (3)
(1,525)
(3,533)
2,311 

(4,879)
2,163 
Amortisation of purchased intangible assets
(73)
(55)
(119)

(213)
(381)
Integration and restructuring costs
(324)
(355)
(289)

(1,058)
(605)
Gain on redemption of own debt
- 
3,790 
- 

3,790 
- 
Strategic disposals
(155)
212 
- 

298 
- 







Operating (loss)/profit before tax (4)
(2,077)
59 
1,903 

(2,062)
1,177 
Tax
576 
640 
(724)

988 
(421)







(Loss)/profit from continuing operations
(1,501)
699 
1,179 

(1,074)
756 
Loss from discontinued operations, net of tax
(7)
(13)
(46)

(65)
(87)







(Loss)/profit for the period
(1,508)
686 
1,133 

(1,139)
669 
Minority interests
(47)
(83)
(43)

(601)
(191)
Preference share and other dividends
(245)
(432)
(219)

(791)
(434)







(Loss)/profit attributable to ordinary shareholders before write-down of goodwill and other intangible assets
(1,800)
171 
871 

(2,531)
44 
Write-down of goodwill and other intangible assets
-  
(311)
- 

(311)
- 







(Loss)/profit attributable to ordinary shareholders
(1,800)
(140)
871 

(2,842)
44 
 
For definitions of the notes see pages 16 and 17.


Condensed consolidated statement of comprehensive income
for the quarter ended 30 September 2009 (unaudited) - pro forma
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 

£m 
£m 
£m 

£m 
£m 







(Loss)/profit for the period
(1,508)
375 
1,133 

(1,450)
669 







Other comprehensive income:






Available-for-sale financial assets
2,861 
1,319 
(2,056)

1,228 
(3,671)
Cash flow hedges
155 
277 
(97)

676 
(220)
Currency translation
659 
(2,262)
1,691 

(1,788)
2,424 
Tax on other comprehensive income
(846)
(154)
498 

(438)
989 







Other comprehensive income for the period, net of tax
2,829 
(820)
36 

(322)
(478)







Total comprehensive income for the period
1,321 
(445)
1,169 

(1,772)
191 







Attributable to:






Equity shareholders
1,243 
(364)
1,135 

(1,903)
199 
Minority interests
78 
(81)
34 

131 
(8)








1,321 
(445)
1,169 

(1,772)
191 
 
 
 
 
Summary consolidated balance sheet
at 30 September 2009 (unaudited) - pro forma
 

30 September 
2009 
30 June 
2009 
31 December 
2008 

£m 
£m 
£m 




Loans and advances to banks
97,464 
83,700 
129,499 
Loans and advances to customers
631,459 
640,762 
731,265 
Debt securities and equity shares
268,111 
243,279 
275,357 
Derivatives and settlement balances
581,100 
579,134 
1,009,307 
Other assets
102,182 
97,570 
73,265 




Total assets
1,680,316 
1,644,445 
2,218,693 




Owners' equity
56,666 
55,666 
58,879 
Minority interests
2,185 
2,123 
5,436 
Subordinated liabilities
33,085 
32,106 
43,678 
Deposits by banks
178,400 
179,743 
262,609 
Customer accounts
493,234 
490,282 
518,461 
Derivatives, settlement balances and short positions
609,413 
594,914 
1,023,673 
Other liabilities
307,333 
289,611 
305,957 




Total liabilities and equity
1,680,316 
1,644,445 
2,218,693 


 
Key metrics
 

Quarter ended

Nine months ended

30 September 
2009 
30 June 
 2009
 
30 September 
2008 

30 September 
2009 
30 September 
2008 







Performance ratios






Return on equity - annualised (5)
(11.2%)
(26.6%)
9.8%

(15.6%)
2.4%
Net interest margin*
1.75%
1.70%
2.05%

1.74%
2.06%
Cost:income ratio (6)
59.1%
66.4%
47.3%

59.1%
61.5%
Adjusted cost:income ratio (7)
70.5%
78.3%
53.1%

68.6%
71.7%
Continuing operations:






Pre-impairment Core adjusted earnings per ordinary share (8)
2.5p 
2.6p 
11.5p 

15.1p 
38.9p 
Core adjusted earnings per ordinary share (9)
1.0p 
1.0p 
9.5p 

9.7p 
33.0p 
Basic earnings per ordinary share (10)
(3.2p)
(0.2p)
5.6p 

(5.6p)
0.9p 
 
* Net interest margin for the quarter ended 30 June 2009 has been revised. See Appendix 5.
 

30 September 
2009 
30 June 
 2009
 
Change 

31 December 
 2008
 
Change 







Capital and balance sheet






Funded balance sheet (11)
£1,127.8bn
£1,088.6bn
4%

£1,227.2bn
(8%)
Risk-weighted assets
£594.7bn
£547.3bn
9%

£577.8bn
3%
Core tier 1 ratio
5.5%
6.4%
(90bp)

5.9%
(40bp)
Tier 1 ratio
8.0%
9.0%
(100bp)

9.9%
(190bp)
Risk elements in lending (REIL)
£35.0bn
£30.7bn
14% 

£18.8bn
86%
Risk elements in lending as a % of loans and advances
5.74%
5.01%
73bp 

2.66%
308bp 
Provision balance as % of REIL/PPLs
43%
44%
(100bp)

50%
(700bp)
Loan:deposit ratio (gross of provisions)
142.3%
144.5%
(220bp)

152.4%
(1,010bp)
Loan:deposit ratio (net of provisions)
138.8%
142.9%
(410bp)

150.3%
(1,150bp)
Tier 1 leverage ratio (12)
23.4x
21.7x
8%

21.2x
10%
Tangible equity leverage ratio (13)
3.0%
3.0%
- 

2.4%
60bp
Net tangible equity per share
59.4p
58.0p
2%

73.8p
(20%)
 
Notes:
(1)
Excluding gain on redemption of own debt and strategic disposals.
(2)
Excluding purchased intangibles amortisation, write-down of goodwill and other intangible assets, integration and restructuring costs.
(3)
(Loss)/profit before tax, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets.
(4)
Excluding write-down of goodwill and other intangible assets.
(5)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by average ordinary shareholders equity.
(6)
The cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above.
(7)
The adjusted cost:income ratio is based on total income and operating expenses as defined in (1) and (2) above and after netting insurance claims against income.
(8)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for Non-Core operations, impairment losses, purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by weighted average number of shares in issue.
 
 
 
 
 
Key metrics
(continued)
 
Notes (continued):
(9)
(Loss)/profit from continuing operations attributable to ordinary shareholders adjusted for Non-Core operations,  purchased intangibles amortisation, integration and restructuring costs, gain on redemption of own debt, strategic disposals and write-down of goodwill and other intangible assets divided by weighted average number of shares in issue.
(10)
(Loss)/profit from continuing operations attributable to ordinary shareholders divided by weighted average number of shares in issue.
(11)
Funded balance sheet is defined as total assets less derivatives.
(12)
The Tier 1 leverage ratio is based on total tangible assets (after netting derivatives) divided by Tier 1 capital.
(13)
The tangible equity leverage ratio is based on total tangible equity divided by total tangible assets (after netting derivatives).
 
 


 
Results summary
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Net interest income
£m 
£m 
£m 

£m 
£m 







Net interest income
3,197 
3,276 
3,729 

9,943 
11,043 







Net interest margin - Group
1.75%
1.70%
2.05%

1.74%
2.06%







- Global Banking & Markets
1.08%
1.48%
1.24%

1.52%
1.07%
- Rest of Group
1.92%
1.77%
2.31%

1.80%
2.38%







Selected average balances:






Loans and advances to banks
56,984 
55,062 
29,386 

51,984 
44,132 
Loans and advances to customers
554,047 
585,925 
594,762 

586,173 
586,764 
Debt securities
118,791 
129,190 
102,449 

122,303 
82,623 
Interest earning assets
729,822 
770,177 
726,597 

760,460 
713,519 
Deposits by banks
119,317 
128,733 
141,728 

134,291 
135,688 
Customer accounts
350,298 
359,539 
373,805 

360,224 
386,955 
Subordinated liabilities
35,922 
33,813 
37,311 

36,130 
33,827 
Interest bearing liabilities
665,290 
688,432 
696,762 

680,612 
663,598 
Non-interest bearing deposits
35,464 
36,790 
32,020 

36,264 
31,658 







Selected average yields (%):






Loans and advances to banks
1.38 
1.85 
5.69 

1.74 
4.66 
Loans and advances to customers
3.35 
4.07 
6.03 

3.77 
6.00 
Debt securities
2.98 
2.96 
6.04 

3.45 
5.53 
Interest earning assets
3.13 
3.72 
4.51 

3.58 
5.86 
Deposits by banks
1.92 
2.23 
4.19 

2.33 
4.41 
Customer accounts
1.10 
1.49 
3.19 

1.37 
3.50 
Subordinated liabilities
3.11 
3.60 
5.23 

3.73 
5.36 
Interest bearing deposits
1.52 
2.26 
4.13 

2.05 
4.08 







Non-interest bearing deposits as a percentage of interest earning assets
4.86 
4.78 
4.41 

4.77 
4.44 
 
Key points
 
·    
Net interest margin increased by 5 basis points in 3Q09 and declined by 30 basis points compared with 3Q08.
 
·    
GBM net interest margin declined due to lower money market income, partially offset by higher margins on GBM banking assets.
 
·    
UK Retail margin declined in the quarter as increased mortgage margins only partially offset reduced deposit margins and adverse asset mix impacts. UK Corporate margins benefited from improved pricing on new loans, while the US Retail & Commercial margin increased slightly due to improved asset margins.
 
·    
For the near-term, margins are expected to be broadly stable as increased funding and liquidity costs offset further asset margin improvements. 


 
Results summary
(continued)
 

Quarter ended

Nine months ended

30 September 
 2009 
30 June 
 2009 
30 September 
 2008 

30 September 
 2009 
30 September 
 2008 
Non-interest income
£m 
£m 
£m 

£m 
£m