Global Banking & Markets

Global Banking & Markets is a leading banking partner to major corporations and financial institutions around the world, providing an extensive range of debt and equity financing, risk management and investment services to its customers.

In 2008 the division was organised along four principal business lines: rates, currencies, and commodities, including RBS Sempra Commodities LLP, the commodities-marketing joint venture between RBS and Sempra Energy which was formed on 1 April 2008; equities; credit markets; and asset and portfolio management.

The poor results recorded by GBM in 2008 should not be allowed to disguise the fact that many businesses produced good performances, most notably rates and currencies, and that the activities which directly support our relationships with customers provide the platform for a return to sustainable profitability.

Total income before credit market write-downs and unusual items was £10,214 million, down 6% from 2007. In addition to losses on previously identified credit market exposures of £7,781 million, GBM incurred £5,776 million in trading asset write-downs. Although direct expenses were cut by 18% as we addressed the challenges facing the business, credit impairments rose sharply. The operating loss for the year was £10,994 million. On an indicative basis, the return on equity ('ROE') of GBM was -35%.

These losses occurred in relatively narrow parts of the business, focused on proprietary trading, structured credit and counterparty exposure. More than 50% of losses pertained to ABN AMRO-originated portfolios.

Despite the disappointing headlines and the difficulties encountered by individual business lines, market volatility provided opportunities. The rates and currencies business achieved a particularly strong performance, with high volumes of customer activity and flow trading resulting in a 40% increase in income from rates trading to £3,543 million and 55% growth in currencies income to £1,697 million. The Sempra Commodities joint venture performed well in the nine months after its formation, with GBM's commodities income reaching £778 million for the year.

Equities saw reduced customer flow and write-downs on trading positions as markets deteriorated rapidly. Credit markets achieved some successes in arranging debt financing for its customers but remained severely affected by market dislocation.

The task that GBM faces is to rebuild a business in which profit is sustainable. We start from a very solid foundation of strong underlying revenues. In addition, we enjoy global top five rankings in corporate lending, foreign exchange rates, commodities and interest rates and options. Our problems have largely arisen in trading structured credit products and taking significant longer term underwriting risk. In doing so, we strayed from the model which had originally brought us success: of focusing on the needs of our customers and trading in markets only in order to support them. As a result, our balance sheet has grown in ways that added risk without corresponding returns.

Strategic review

Following the review, GBM intends to focus its business around its core corporate and institutional customer set across the world. These clients are global in nature and are multi-product users. GBM will deploy capital and resources in support of this customer base and will continue to arrange and distribute credit (loans and bonds) and build sustained competitive advantage in its core financing, risk management and investment products, and flow trading businesses.

RBS is renewing its commitment to product areas where GBM has market-leading competitive positions across its customer-centric origination, advisory and trading activities. It has strong market positions in loans, bonds, foreign exchange, rates, commodities and equities and will drive these businesses, restructured where necessary, in a focused manner around customers' needs. GBM will discontinue all illiquid proprietary trading activities and correlation trading in equity and credit markets. It will drastically scale back activity in structured real estate, leveraged and project finance, and exit lending in these areas entirely. All businesses, and notably GBM's asset finance businesses, will be managed within strict capital guidelines.

Globally, the intention is for GBM to move increasingly towards a hub-and-spoke model. Risk will be managed from regional hubs. It is intended that distribution and coverage will be delivered from a mix of hub countries and a scaled-back presence in some local offices. The aim, over time, will be to reduce much of the on-shore trading activity outside the key financial centres.

Assets, products and geographies that fit GBM's new client-focused proposition will be defined as core and will remain within the division. Assets, business lines and some geographies that are non-core will be transferred to the new Non-Core Division. These non-core activities accounted for approximately £205 billion of third party assets at end 2008.

None of this will be easy. The difficult economic environment around the world will make 2009 another challenging year. We are confident, however, that at the core of GBM lies an excellent franchise which can deliver enduring profitability to the Group.

Return to top