Royal Bk Scot.Grp. RBS Interim Management Statement - Part 4 of 7

  Royal Bk Scot.Grp. (RBS) - Interim Management Statement - Part 4 of 7

RNS Number : 1669Q
Royal Bank of Scotland Group PLC
02 November 2012




Condensed consolidated income statement

for the period ended 30 September 2012



                               Quarter ended             Nine months ended
                               30                  30          30         30
                        September 30 June September   September September

                             2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Interest receivable         4,529   4,774     5,371     14,320    16,176
Interest payable           (1,658)  (1,803)    (2,294)     (5,479)    (6,571)
                                                                       
Net interest income         2,871   2,971     3,077      8,841     9,605
                                                                       
Fees and commissions
receivable                  1,403   1,450     1,452      4,340     4,794
Fees and commissions
payable                      (341)    (314)      (304)       (945)      (887)
Income from trading
activities                    334     657       957      1,203     2,939
(Loss)/gain on
redemption of own debt       (123)       -         1        454       256
Other operating income
(excluding insurance

 net premium income)        (217)     394     2,384       (570)     3,917
Insurance net premium
income                        932     929     1,036      2,799     3,275
                                                                       
Non-interest income         1,988   3,116     5,526      7,281    14,294
                                                                       
Total income                4,859   6,087     8,603     16,122    23,899
                                                                       
Staff costs                (2,059)  (2,143)    (2,076)     (6,772)    (6,685)
Premises and equipment       (597)    (544)      (604)     (1,704)    (1,777)
Other administrative
expenses                   (1,259)  (1,156)      (962)     (3,431)    (3,635)
Depreciation and
amortisation                 (430)    (434)      (485)     (1,332)    (1,362)
                                                                       
Operating expenses         (4,345)  (4,277)    (4,127)    (13,239)   (13,459)
                                                                       
Profit before insurance
net claims and

 impairment losses           514   1,810     4,476      2,883    10,440
Insurance net claims         (596)    (576)      (734)     (1,821)    (2,439)
Impairment losses          (1,176)  (1,335)    (1,738)     (3,825)    (6,791)
                                                                       
Operating (loss)/profit
before tax                 (1,258)    (101)     2,004     (2,763)     1,210
Tax charge                    (30)    (290)      (791)       (459)    (1,436)
                                                                       
(Loss)/profit from
continuing operations      (1,288)    (391)     1,213     (3,222)      (226)
Profit/(loss) from
discontinued
operations,

 net of tax                    5      (4)         6          6        37
                                                                       
(Loss)/profit for the
period                     (1,283)    (395)     1,219     (3,216)      (189)
Non-controlling
interests                      (3)       5         7         16       (10)
Preference share
dividends                     (98)     (76)         -       (174)         -
                                                                       
(Loss)/profit
attributable to
ordinary and

 B shareholders           (1,384)    (466)     1,226     (3,374)      (199)
                                                                       
Basic (loss)/profit per
ordinary and B share

 from continuing
operations (1)             (12.5p)   (4.2p)     11.3p     (30.7p)     (1.9p)
                                                                       
Diluted (loss)/profit
per ordinary and B
share

 from continuing
operations (1)             (12.5p)   (4.2p)     11.2p     (30.7p)     (1.9p)
                                                                       
Basic and diluted loss
per ordinary and B

 sharefrom
discontinued operations
(1)                             -       -         -          -         -



Note:

(1) Data for  2011 have  been adjusted  for the  sub-division and  one-for-ten 
    consolidation of ordinary shares.



In the income statement above, one-off and other items as shown on page 17 are
included in  the appropriate  captions. A  reconciliation between  the  income 
statement above and the managed view income  statement on page 11 is given  in 
Appendix 1 to this announcement.

Condensed consolidated statement of comprehensive income

for the period ended 30 September 2012



                                 Quarter ended           Nine months ended
                                   30    30         30          30         30
                           September June September   September September

                               2012 2012      2011        2012      2011
                                 £m   £m        £m         £m        £m
                                                                       
(Loss)/profit for the
period                        (1,283) (395)     1,219     (3,216)      (189)
                                                                       
Other comprehensive income                                              
Available-for-sale
financial assets                 124   66       996        715     2,365
Cash flow hedges                 437  662       939      1,132     1,300
Currency translation            (573)   58       (22)     (1,069)      (323)
                                                                       
Other comprehensive income
before tax                       (12)  786     1,913        778     3,342
Tax charge                       (91) (237)      (480)       (347)      (972)
                                                                       
Other comprehensive
(loss)/income

 after tax                     (103)  549     1,433        431     2,370
                                                                       
Total comprehensive
(loss)/income

 for the period              (1,386)  154     2,652     (2,785)     2,181
                                                                       
Total comprehensive
(loss)/income is

 attributable to:                                                      
Non-controlling interests          -  (10)        (6)        (13)       (12)
Preference shareholders          (98)  (76)         -       (174)         -
Ordinary and B
shareholders                  (1,288)  240     2,658     (2,598)     2,193
                                                                       
                             (1,386)  154     2,652     (2,785)     2,181



Key points

· The movement in available-for-sale financial assets reflects net  unrealised 
  gains on high quality UK, US and German sovereign bonds.
 
· Cash flow hedging gains in both the quarter and year-to-date largely  result 
  from reductions in sterling swap rates.
 
· Currency translation losses during the quarter and the nine months ended  30 
  September 2012 are principally due to the strengthening of Sterling  against 
  both the US Dollar, 2.9%,  and the Euro, 1.4%, in  the quarter and 4.3%  and 
  5.0% respectively in the year to date.

Condensed consolidated balance sheet

at 30 September 2012



                                         30 September   30 June 31 December

                                                2012      2012        2011
                                                  £m        £m          £m
                                                                          
Assets                                                                     
Cash and balances at central banks             80,122    78,647      79,269
Net loans and advances to banks                38,347    39,436      43,870
Reverse repurchase agreements and stock
borrowing                                      34,026    37,705      39,440
Loans and advances to banks                    72,373    77,141      83,310
Net loans and advances to customers           423,155   434,965     454,112
Reverse repurchase agreements and stock
borrowing                                      63,909    60,196      61,494
Loans and advances to customers               487,064   495,161     515,606
Debt securities                               177,722   187,626     209,080
Equity shares                                  15,527    13,091      15,183
Settlement balances                            15,055    15,312       7,771
Derivatives                                   468,171   486,432     529,618
Intangible assets                              14,798    14,888      14,858
Property, plant and equipment                  11,220    11,337      11,868
Deferred tax                                    3,480     3,502       3,878
Prepayments, accrued income and other
assets                                         10,695    10,983      10,976
Assets of disposal groups                      20,667    21,069      25,450
                                                                          
Total assets                                1,376,894 1,415,189   1,506,867
                                                                          
Liabilities                                                                
Bank deposits                                  58,127    67,619      69,113
Repurchase agreements and stock lending        49,222    39,125      39,691
Deposits by banks                             107,349   106,744     108,804
Customer deposits                             412,712   412,769     414,143
Repurchase agreements and stock lending        93,343    88,950      88,812
Customer accounts                             506,055   501,719     502,955
Debt securities in issue                      104,157   119,855     162,621
Settlement balances                            14,427    15,126       7,477
Short positions                                32,562    38,376      41,039
Derivatives                                   462,300   480,745     523,983
Accruals, deferred income and other
liabilities                                    18,458    18,820      23,125
Retirement benefit liabilities                  1,779     1,791       2,239
Deferred tax                                    1,686     1,815       1,945
Insurance liabilities                           6,249     6,322       6,312
Subordinated liabilities                       25,309    25,596      26,319
Liabilities of disposal groups                 22,670    23,064      23,995
                                                                          
Total liabilities                           1,303,001 1,339,973   1,430,814
                                                                          
Equity                                                                     
Non-controlling interests                       1,194     1,200       1,234
Owners' equity*                                                            
 Called up share capital                       6,581     6,528      15,318
 Reserves                                     66,118    67,488      59,501
                                                                          
Total equity                                   73,893    75,216      76,053
                                                                          
Total liabilities and equity                1,376,894 1,415,189   1,506,867
                                                                          
* Owners' equity attributable to:                                          
Ordinary and B shareholders                    67,955    69,272      70,075
Other equity owners                             4,744     4,744       4,744
                                                                          
                                              72,699    74,016      74,819



Commentary on condensed consolidated balance sheet



Key points



30 September 2012 compared with 31 December 2011

· Total assets  of £1,376.9  billion at  30 September  2012 were  down  £130.0 
  billion, 9%, compared with 31 December 2011. This was principally driven  by 
  a decrease in  loans and  advances to banks  and customers  led by  Non-Core 
  disposals and run off, decreases in debt securities and the reduction in the
  mark-to-market value of derivatives.
· Loans and  advances to  banks  decreased by  £10.9  billion, 13%,  to  £72.4 
  billion.  Excluding  reverse  repurchase  agreements  and  stock   borrowing 
  ('reverse repos'), down £5.4 billion,  14%, to £34.0 billion, bank  placings 
  declined £5.5 billion, 13%, to £38.4 billion.
· Loans and  advances  to customers  declined  £28.5 billion,  6%,  to  £487.1 
  billion. Within this,  reverse repurchase agreements  were up £2.4  billion, 
  4%, to £63.9 billion.  Customer lending decreased by  £30.9 billion, 7%,  to 
  £423.2 billion, or £30.5 billion to £443.4 billion before impairments.  This 
  reflected planned  reductions  in  Non-Core of  £15.9  billion,  along  with 
  declines in International Banking, £8.7 billion, UK Corporate, £2.0 billion,
  Markets, £1.1  billion and  Ulster  Bank, £0.5  billion, together  with  the 
  effect of  exchange  rate and  other  movements, £5.6  billion.  These  were 
  partially offset  by  growth  in  UK  Retail,  £2.0  billion,  US  Retail  & 
  Commercial, £1.2billion and Wealth, £0.1 billion.
· Debt securities  were down  £31.4 billion,  15%, to  £177.7 billion,  driven 
  mainly by reductions within Markets and Group Treasury in holdings of UK and
  Eurozone government securities and financial institution bonds.
· Settlement balance assets  and liabilities increased  £7.3 billion to  £15.1 
  billion and  £6.9 billion  to  £14.4 billion  respectively  as a  result  of 
  increased customer activity from seasonal year-end lows.
· Derivative assets  were down  £61.4  billion, 12%,  to £468.2  billion,  and 
  liabilities, down £61.7billion,  12%, to £462.3  billion due to  reductions 
  across all major contract categories, with the effect of currency  movements 
  (Sterling strengthened against both the US dollar and the Euro) and contract
  tear-ups being significant contributors. Within interest rate contracts, the
  impact of lower  Sterling and Euro  yields, reflecting global  fears of  low 
  economic growth,  partially offset  the foreign  exchange movements.  Credit 
  derivatives also decreased due to risk reduction in Non-Core and Markets  as 
  well as tightening of credit spreads.
· The reduction  in  assets and  liabilities  of disposal  groups,  down  £4.8 
  billion, 19%,  to £20.7billion,  and  £1.3 billion,  6%, to  £22.7  billion 
  respectively, primarily reflects the disposal of RBS Aviation Capital in the
  second quarter.
· Deposits by banks  decreased £1.5  billion, 1%,  to £107.3  billion, with  a 
  decrease in inter-bank deposits, down £11.0 billion, 16%, to £58.1  billion. 
  This was partly  offset by an  increase in repurchase  agreements and  stock 
  lending ('repos'), up  £9.5 billion,  24%, to £49.2  billion, improving  the 
  Group's mix of secured and unsecured funding.
· Customer accounts  increased £3.1  billion, 1%,  to £506.1  billion.  Within 
  this, repos increased £4.5 billion,  5%, to £93.4 billion. Excluding  repos, 
  customer deposits  were  down £1.4  billion  at £412.7  billion,  reflecting 
  decreases in  International Banking,  £2.2 billion,  Markets, £1.4  billion, 
  Ulster Bank, £0.8 billion and Non-Core, £0.3 billion, together with exchange
  and other movements, £4.5 billion. This was partially offset by increases in
  UK Retail, £4.4 billion, US Retail & Commercial, £2.3 billion, UK Corporate,
  £0.6 billion and Wealth, £0.5 billion.



Commentary on condensed consolidated balance sheet



Key points (continued)



30 September 2012 compared with 31 December 2011 (continued)

· Debt securities in  issue decreased  £58.5 billion, 36%,  to £104.2  billion 
  reflecting  the  maturity  of  the  remaining  notes  issued  under  the  UK 
  Government's Credit Guarantee Scheme, £21.3billion, the repurchase of bonds
  and medium  term notes  as a  result of  the liability  management  exercise 
  completed in September 2012, £4.4  billion, and the continuing reduction  of 
  commercial paper and  medium term notes  in issue in  line with the  Group's 
  strategy.
· Short positions were down £8.5 billion, 21%, to £32.6 billion mirroring £7.5
  billion decreases in held-for-trading debt securities.
· Subordinated liabilities decreased  by £1.0 billion,  4%, to £25.3  billion, 
  primarily reflecting the net decrease in  dated loan capital as a result  of 
  the liability management exercise completed in March 2012, with  redemptions 
  of £3.4 billion  offset by the  issuance of £2.8  billion new loan  capital, 
  together with exchange rate movements and other adjustments of £0.4 billion.
· Owner's equity decreased by  £2.1 billion, 3%, to  £72.7 billion, driven  by 
  the £3.4 billion attributable loss for the period together with movements in
  foreign  exchange   reserves,  £1.0billion.   Partially  offsetting   these 
  reductions were an increase in available-for-sale reserves, £0.7 billion and
  cash flow  hedging  reserves, £0.9billion  and  share capital  and  reserve 
  movements in respect of employee share schemes, £0.7 billion.



Average balance sheet



                             Quarter ended            Nine months ended
                          30 September 30 June  30 September 30 September

                                 2012    2012           2012         2011
                                    %       %             %            %
                                                                        
Average yields, spreads                          
and margins of the

 banking business                                                        
Gross yield on                                   
interest-earning assets
of banking business               3.07    3.13           3.12         3.27
Cost of interest-bearing                         
liabilities of banking
business                         (1.44)   (1.47)          (1.50)        (1.62)
                                                                        
Interest spread of                               
banking business                  1.63    1.66           1.62         1.65
Benefit from                                     
interest-free funds               0.31    0.29           0.31         0.29
                                                                        
Net interest margin of                           
banking business                  1.94    1.95           1.93         1.94
                                                                        
                                                                        
Average interest rates                                                   
The Group's base rate             0.50    0.50          0.50         0.50
                                                                        
London inter-bank three                          
month offered rates                                                       
 - Sterling                      0.72    0.99          0.92         0.83
 - Eurodollar                    0.42    0.47          0.47         0.29
 - Euro                          0.36    0.61          0.65         1.30



Average balance sheet (continued)



                           Quarter ended                Quarter ended
                         30 September 2012              30 June 2012
                      Average                   Average               
                      balance Interest  Rate    balance Interest  Rate
                           £m       £m     %         £m       £m     %
                                                                         
Assets                                                                 
Loans and advances
to banks                69,561      110  0.63     78,151      134  0.69
Loans and advances
to

 customers            425,403    3,968  3.71    435,372    4,117  3.80
Debt securities         92,327      453  1.95     99,472      524  2.12
                                                                      
Interest-earning
assets -

 banking business
(1)                    587,291    4,531  3.07    612,995    4,775  3.13
                                                                      
Trading business (4)   237,032                   241,431               
Non-interest earning
assets                 571,434                   603,888               
                                                                      
Total assets         1,395,757                 1,458,314               
                                                                      
Memo: Funded assets    911,903                   955,789               
                                                                      
Liabilities                                                            
Deposits by banks       36,928      127  1.37     41,543      154  1.49
Customer accounts      330,477      860  1.04    337,189      870  1.04
Debt securities in
issue                   80,476      447  2.21     96,977      541  2.24
Subordinated
liabilities             21,916      188  3.41     22,064      190  3.46
Internal funding of
trading

 business             (10,166)       43 (1.68)     (7,336)       41 (2.25)
                                                                      
Interest-bearing
liabilities -

 banking business
(1,2,3)                459,631    1,665  1.44    490,437    1,796  1.47
                                                                      
Trading business (4)   245,299                   252,639               
Non-interest-bearing
liabilities                                                            
 - demand deposits     74,142                    75,806               
 - other
liabilities            542,971                   565,310               
Owners' equity          73,714                    74,122               
                                                                      
Total liabilities
and

 owners' equity     1,395,757                 1,458,314               



Notes:

(1) Interest receivable  has  been increased  by  £2  million (Q2  2012  -  £1 
    million) and interest payable has been increased by £38 million (Q2 2012 -
    £30 million)  to  record  interest on  financial  assets  and  liabilities 
    designated  as   at   fair  value   through   profit  or   loss.   Related 
    interest-earning assets and  interest-bearing liabilities  have also  been 
    adjusted.
(2) Interest payable has been decreased by  £2 million (Q2 2012 - £2  million) 
    to  exclude  RFS  Holdings  minority  interest.  Related  interest-bearing 
    liabilities have also been adjusted.
(3) Interest payable has been decreased by £29 million (Q2 2012 - £35 million)
    in respect of non-recurring adjustments.
(4) Interest receivable and interest payable on trading assets and liabilities
    are included in income from trading activities.



Average balance sheet (continued)



                         Nine months ended            Nine months ended
                         30 September 2012            30 September 2011
                      Average                   Average               
                      balance Interest  Rate    balance Interest  Rate
                           £m       £m     %         £m       £m     %
                                                                      
Assets                                                                 
Loans and advances
to banks                78,214      392  0.67     67,916      490  0.96
Loans and advances
to

 customers            434,697   12,337  3.79    471,551   13,644  3.87
Debt securities        100,877    1,602  2.12    121,949    2,056  2.25
                                                                      
Interest-earning
assets -

 banking business
(1,2,3)                613,788   14,331  3.12    661,416   16,190  3.27
                                                                      
Trading business (4)   243,159                   281,601               
Non-interest earning
assets                 602,754                   573,261               
                                                                      
Total assets         1,459,701                 1,516,278               
                                                                      
Memo: Funded assets    959,817                 1,081,562               
                                                                      
Liabilities                                                            
Deposits by banks       40,938      461  1.50     65,323      749  1.53
Customer accounts      333,848    2,647  1.06    334,890    2,609  1.04
Debt securities in
issue                  100,043    1,737  2.32    169,622    2,687  2.12
Subordinated
liabilities             22,169      524  3.16     23,795      452  2.54
Internal funding of
trading

 business              (7,986)      109 (1.82)    (50,581)       85 (0.22)
                                                                      
Interest-bearing
liabilities -

 banking business
(1,2,3)                489,012    5,478  1.50    543,049    6,582  1.62
                                                                      
Trading business (4)   253,299                   310,184               
Non-interest-bearing
liabilities                                                            
 - demand deposits     74,106                    65,011               
 - other
liabilities            569,406                   523,038               
Owners' equity          73,878                    74,996               
                                                                      
Total liabilities
and

 owners' equity     1,459,701                 1,516,278               



Notes:

(1) Interest receivable  has  been increased  by  nil (nine  months  ended  30 
    September 2011 - £5  million) and interest payable  has been decreased  by 
    £12 million (nine months ended 30 September 2011 - £1 million) to  exclude 
    the RFS Holdings  minority interest. Related  interest-earning assets  and 
    interest-bearing liabilities have also been adjusted.
(2) Interest receivable has been increased  by £11 million (nine months  ended 
    30 September 2011 - £7 million) and interest payable has been increased by
    £120 million  (nine months  ended 30  September 2011  - £110  million)  to 
    record interest on financial assets and liabilities designated as at  fair 
    value  through  profit  or  loss.  Related  interest-earning  assets   and 
    interest-bearing liabilities have also been adjusted.
(3) Interest receivable  has  been increased  by  nil (nine  months  ended  30 
    September 2011 - £2  million) and interest payable  has been decreased  by 
    £109 million  (nine months  ended  30 September  2011  - £98  million)  in 
    respect of non-recurring adjustments.
(4) Interest receivable and interest payable on trading assets and liabilities
    are included in income from trading activities.

Condensed consolidated statement of changes in equity

for the period ended 30 September 2012



                               Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                            2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Called-up share capital                                                 
At beginning of period      6,528  15,397    15,317     15,318    15,125
Ordinary shares issued         53      64         1        196       193
Share capital
sub-division and
consolidation                   -  (8,933)         -     (8,933)         -
                                                                       
At end of period            6,581   6,528    15,318      6,581    15,318
                                                                       
Paid-in equity                                                          
At beginning and end of
period                        431     431       431        431       431
                                                                       
Share premium account                                                   
At beginning of period     24,198  24,027    23,923     24,001    23,922
Ordinary shares issued         70     171         -        267         1
                                                                       
At end of period           24,268  24,198    23,923     24,268    23,923
                                                                       
Merger reserve                                                          
At beginning of period     13,222  13,222    13,222     13,222    13,272
Transfer to retained
earnings                        -       -         -          -       (50)
                                                                       
At end of period           13,222  13,222    13,222     13,222    13,222
                                                                       
Available-for-sale
reserve (1)                                                             
At beginning of period       (450)    (439)    (1,026)       (957)    (2,037)
Net unrealised gains          651     428     1,005      1,803     1,948
Realised (gains)/losses      (528)    (370)       (12)     (1,110)       417
Tax                            36     (69)      (259)        (27)      (620)
                                                                       
At end of period             (291)    (450)      (292)       (291)      (292)
                                                                       
Cash flow hedging
reserve                                                                 
At beginning of period      1,399     921       113        879      (140)
Amount recognised in
equity                        713     928     1,203      1,931     2,028
Amount transferred from
equity to earnings           (276)    (266)      (264)       (799)      (728)
Tax                           (90)    (184)      (254)       (265)      (362)
                                                                       
At end of period            1,746   1,399       798      1,746       798



Note:

(1) Analysis provided on page 86.

Condensed consolidated statement of changes in equity

for the period ended 30 September 2012 (continued)



                               Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                            2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Foreign exchange
reserve                                                                 
At beginning of period      4,314   4,227     4,834      4,775     5,138
Retranslation of net
assets                       (637)      82       (31)     (1,203)      (271)
Foreign currency
gains/(losses) on
hedges

 of net assets                68      (8)        10        156       (30)
Tax                             2      16        34         22        10
Recycled to profit or
loss on disposal of

 business (nil tax)            -      (3)         -         (3)         -
                                                                       
At end of period            3,747   4,314     4,847      3,747     4,847
                                                                       
Capital redemption
reserve                                                                 
At beginning of period      9,131     198       198        198       198
Share capital
sub-division and
consolidation                   -   8,933         -      8,933         -
                                                                       
At end of period            9,131   9,131       198      9,131       198
                                                                       
Contingent capital
reserve                                                                 
At beginning and end of
period                     (1,208)  (1,208)    (1,208)     (1,208)    (1,208)
                                                                       
Retained earnings                                                       
At beginning of period     16,657  17,405    19,726     18,929    21,239
(Loss)/profit
attributable to
ordinary and B

 shareholders and
other equity owners                                                     
 - continuing
operations                 (1,287)    (387)     1,225     (3,198)      (204)
 - discontinued
operations                      1      (3)         1         (2)         5
Transfer from merger
reserve                         -       -         -          -        50
Equity preference
dividends paid                (98)     (76)         -       (174)         -
Actuarial losses
recognised in
retirement

 benefit schemes                                                       
 - tax                       (39)       -         -        (77)         -
Loss on disposal of own
shares held                     -    (196)         -       (196)         -
Shares released for
employee benefits              (1)    (116)        (2)       (130)      (209)
Share-based payments                                                    
 - gross                      44      47        35        136       102
 - tax                         2     (17)        (8)         (9)        (6)
                                                                       
At end of period           15,279  16,657    20,977     15,279    20,977

Condensed consolidated statement of changes in equity

for the period ended 30 September 2012 (continued)



                               Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                            2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Own shares held                                                         
At beginning of period       (206)    (765)      (786)       (769)      (808)
(Purchase)/disposal of
own shares                     (2)     451        13        447        19
Shares released for
employee benefits               1     108         2        115        18
                                                                        
At end of period             (207)    (206)      (771)       (207)      (771)
                                                                        
Owners' equity at end
of period                  72,699  74,016    77,443     72,699    77,443
                                                                        
Non-controlling
interests                                                                
At beginning of period      1,200   1,215     1,498      1,234     1,719
Currency translation
adjustments and other

 movements                    (4)     (13)        (1)        (19)       (22)
(Loss)/profit
attributable to
non-controlling

 interests                                                              
 - continuing
operations                     (1)      (4)       (12)        (24)       (22)
 - discontinued
operations                      4      (1)         5          8        32
Dividends paid                 (6)      (6)         -        (12)       (39)
Movements in
available-for-sale
securities                                                               
 - unrealised gains            3       5         -          4         -
 - realised
(gains)/losses                 (2)       3         3         18         -
 - tax                         -       -        (1)          -         -
Equity raised                   -       1         -          1         -
Equity withdrawn and
disposals                       -       -       (59)        (16)      (235)
                                                                        
At end of period            1,194   1,200     1,433      1,194     1,433
                                                                       
Total equity at end of
period                     73,893  75,216    78,876     73,893    78,876
                                                                        
Total comprehensive
(loss)/income

 recognised in the
statement of

 changes in equity is
attributable to:                                                         
Non-controlling
interests                       -     (10)        (6)        (13)       (12)
Preference shareholders       (98)     (76)         -       (174)         -
Ordinary and B
shareholders               (1,288)     240     2,658     (2,598)     2,193
                                                                        
                          (1,386)     154     2,652     (2,785)     2,181



Notes



1. Basis of preparation

Having  reviewed  the  Group's  forecasts,  projections  and  other   relevant 
evidence, the  directors have  a reasonable  expectation that  the Group  will 
continue in operational existence for the foreseeable future. Accordingly, the
Interim Management Statement for the period  ended 30 September 2012 has  been 
prepared on a going concern basis.



2. Accounting policies

The annual accounts  are prepared in  accordance with International  Financial 
Reporting Standards  issued by  the International  Accounting Standards  Board 
(IASB) and interpretations issued by the IFRS Interpretations Committee of the
IASB as adopted by the European Union (EU) (together IFRS).



There have been  no significant  changes to the  Group's principal  accounting 
policies as  set out  on  pages 314  to  323 of  the  2011 Annual  Report  and 
Accounts.



Critical accounting policies and key sources of estimation uncertainty

The reported results of  the Group are sensitive  to the accounting  policies, 
assumptions and  estimates  that underlie  the  preparation of  its  financial 
statements. The judgements and assumptions that are considered to be the  most 
important to the portrayal of  Group's financial condition are those  relating 
to loan  impairment provisions;  pensions; financial  instrument fair  values; 
general insurance claims and deferred tax. These critical accounting  policies 
and judgments are described  on pages 323  to 325 of  the Group's 2011  Annual 
Report and Accounts.



Recent developments in IFRS

In May  2012,  the  IASB  issued Annual  Improvements  2009-2011  Cycle  which 
clarified:



· the requirements  for  comparative  information in  IAS  1  Presentation  of 
  Financial Statements and IAS 34 Interim Financial Reporting;
 
· the classification  of servicing  equipment in  IAS 16  Property, Plant  and 
  Equipment;
 
· the accounting for  the tax  effect of  distributions to  holders of  equity 
  instruments in IAS 32 Financial Instruments: Presentation; and
 
· the  requirements  in  IAS  34   Interim  Financial  Reporting  on   segment 
  information for total assets and liabilities.



None  of  the  amendments  are  effective  before  1  January  2013.   Earlier 
application is permitted.



On 31 October 2012,  the IASB issued Investment  Entities (amendments to  IFRS 
10, IFRS  12  and IAS  27).The  amendments apply  to  'investment  entities': 
entities whose business  is to invest  funds solely for  returns from  capital 
appreciation, investment income or both and which evaluate the performance  of 
their investments on a fair value  basis. The amendments provide an  exception 
to IFRS 10 Consolidated Financial Statements by requiring investment  entities 
to measure their subsidiaries (other than those that provide services  related 
to the entity's investment activities) at  fair value through profit or  loss, 
rather than consolidate them. The amendments are effective from 1 January 2014
with early adoption permitted.



The Group  is reviewing  these amendments  and Annual  Improvements  2009-2011 
Cycle to determine their effect, if any, on the Group's financial reporting.



Notes (continued)



3. Analysis of income, expenses and impairment losses



                               Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                            2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Loans and advances to
customers                   3,968   4,117     4,505     12,337    13,633
Loans and advances to
banks                         110     134       154        392       490
Debt securities               451     523       712      1,591     2,053
                                                                       
Interest receivable         4,529   4,774     5,371     14,320    16,176
                                                                       
Customer accounts             858     870       919      2,642     2,603
Deposits by banks             131     156       248        478       756
Debt securities in
issue                         410     511       897      1,619     2,577
Subordinated
liabilities                   216     225       175        631       550
Internal funding of
trading businesses             43      41        55        109        85
                                                                       
Interest payable            1,658   1,803     2,294      5,479     6,571
                                                                       
Net interest income         2,871   2,971     3,077      8,841     9,605
                                                                       
Fees and commissions
receivable                  1,403   1,450     1,452      4,340     4,794
Fees and commissions
payable                                                                 
 - banking                  (209)    (201)      (204)       (589)      (623)
 - insurance related        (132)    (113)      (100)       (356)      (264)
                                                                       
Net fees and
commissions                 1,062   1,136     1,148      3,395     3,907
                                                                       
Foreign exchange              133     210       441        568     1,019
Interest rate                 378     428        33      1,478       684
Credit                        232     177      (369)        619       115
Own credit adjustments       (435)    (271)       735     (1,715)       565
Other                          26     113       117        253       556
                                                                       
Income from trading
activities                    334     657       957      1,203     2,939
                                                                       
(Loss)/gain on
redemption of own debt       (123)       -         1        454       256
                                                                       
Operating lease and
other rental income           163     261       327        725       999
Own credit adjustments     (1,020)    (247)     1,887     (2,714)     1,821
Changes in the fair
value of:                                                               
 - securities and
other financial assets
and

 liabilities                72     (26)      (148)        127       144
 - investment
properties                    (21)     (88)       (22)        (77)       (74)
Profit on sale of
securities                    512     259       274        994       703
(Loss)/profit on sale
of:                                                                     
 - property, plant and
equipment                      (1)      18         5         22        27
 - subsidiaries and
associates                    (27)     155       (39)        116       (13)
Life business losses           (2)      (4)        (8)         (8)       (13)
Dividend income                 12      17        14         45        47
Share of profits less
losses of associated

 entities                      7       5         5          8        20
Other income                   88      44        89        192       256
                                                                       
Other operating
(loss)/income                (217)     394     2,384       (570)     3,917



Refer to Appendix  1 for a  reconciliation between the  managed and  statutory 
bases for key line items.



Notes (continued)



3. Analysis of income, expenses and impairment losses (continued)



                               Quarter ended             Nine months ended
                                30                  30          30         30
                        September 30 June September   September September

                            2012    2012      2011        2012      2011
                              £m      £m        £m         £m        £m
                                                                       
Non-interest income                                    
(excluding

 insurance net premium
income)                     1,056   2,187     4,490       4,482    11,019
Insurance net premium                                  
income                        932     929     1,036       2,799     3,275
                                                                       
Total non-interest                                     
income                      1,988   3,116     5,526       7,281    14,294
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