FORM 6-K

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:



 
 
Appendix 3
 
Asset Protection
Scheme
 
 


 
Appendix 3 Asset Protection Scheme
 
 
 
 
 
THE ASSET POOLS TO BE COVERED BY THE ASSET PROTECTION SCHEME WERE ONLY AGREED VERY RECENTLY. THE DATA FOR 30 SEPTEMBER 2009 ARE ESTIMATES AND ACTUAL NUMBERS WILL BE PROVIDED IN THE CIRCULAR TO SHAREHOLDERS.
 



Page






1. Summary of APS revisions

2



2. Asset coverage


    2.1 Roll forward of covered assets to 30 June 2009

3
    2.2 Covered assets at 30 June 2009 and 31 December 2008

4
    2.3 Credit impairments and write downs

6
    2.4 Risk elements in lending and potential problem loans

6
    2.5 Credit quality

7
    2.6 Risk-weighted assets

7



3. Basis of asset selection

8



4. Pro forma capital ratios

9


 
 
 
 


Appendix 3 Asset Protection Scheme
 
1. Summary of APS revisions
 



Original APS
Revised APS




Capital injection

£19.5 billion
£25.5 billion
Contingent capital reserve               

£6.0 billion
£8.0 billion,
(fee of 4% p.a.)
Details on Insurance cover:



Covered assets at 31 December 2008

£325 billion
£282 billion
RWA relief at 30 June 2009

£149.6 billion
£140.7 billion




First loss

£42.2 billion
£60.0 billion
 - provisions recorded at 31 December 2008

£22.7 billion
£21.3 billion
 - remaining

£19.5 billion
£38.7 billion




Fees: 



 - base  

£6.5 billion
£700 million p.a.
(2009 to 2011),
 £500 million thereafter




 - in deferred tax assets ('DTA') give up         

£5.2 billion historical plus DTA on future tax losses
Nil




Termination rights

Limited
At any time provided
FSA stress test
framework is met




Exit fees

Negotiable
£2.5 billion less
cumulative fees paid




FSA stress test   

Meets FSA framework
Meets FSA framework






 
 
 
Key messages:
 
·        
RBS continues to meet the FSA stress test framework
·        
RBS is exposed to higher credit losses and less capital relief under revised APS
·        
However, RBS will have more capital to serve as offsets through:
(a)    lower fees and retention of deferred tax assets
(b)    issuance of additional B shares
(c)    access to contingent capital
·        
Original APS structure provided higher equivalent capital benefits relative to 8% CT1 target than revised APS because of the way the securitisation formula works. Lower deductible policy resulted in lower capital charges through the period as the first loss is fully utilised.
 
 
 
 
 
Appendix 3 Asset Protection Scheme
 
2. Asset coverage
 
2.1 Roll forward of covered assets to 30 June 2009
 




£bn


Covered assets at 31 December 2008 - as announced on 26 February 2009
325.0 
Asset pool refinements
(9.2)


Covered assets at 31 December 2008 - as published on 7 August 2009
315.8 
Refinements and exclusions

o
asset pool refinements
(1.1)
o
credit derivative product companies
(7.2)
o
derivatives buffer
(4.8)
o
conduits
(6.3)
o
reverse repurchase agreements
(5.2)
o
assets potentially eligible for other sovereign schemes
(6.9)
o
other asset removals
(2.8)


Covered assets at 31 December 2008 - as announced on 3 November 2009
281.5 
Disposals, rollovers and repayments
(12.9)
Effect of foreign currency movements
(14.8)
Amortisations and other movements
(11.0)


Covered assets at 30 June 2009
242.8 


 
 
Removals are a function of  ineligibility in line with the Scheme rules, operational complexity, eligibility for other sovereign schemes and more economic forms of covering risk.
 


Appendix 3 Asset Protection Scheme
 
2. Asset coverage
(continued)
 
2.2 Covered assets* at 30 June 2009 and 31 December 2008
 
The tables below show balances by asset classes, as defined by the Scheme, with underlying product categories, at 30 June 2009 and 31 December 2008.


Carrying
 value (1)
Provisions and adjustments to par value
Par value
Undrawn commitments, and other adjustments (2)
Covered
 amount

£m
£m
£m
£m
£m
30 June 2009
(a)
(b)
(c)=(a)+(b)
(d)
(e)=(c)+(d)






Residential mortgages
15,052
204
15,256
10
15,266






Consumer finance
17,944
2,405
20,349
2,361
22,710
Personal loans
8,203
1,864
10,067
1,395
11,462
Business and commercial loans
9,741
541
10,282
966
11,248






Commercial real estate finance
33,241
1,179
34,420
4,727
39,147






Leveraged finance
14,549
3,820
18,369
5,201
23,570






Lease finance
4,945
331
5,276
614
5,890






Project finance
1,535
24
1,559
312
1,871






Structured finance
16,782
7,523
24,305
4,397
28,702
Structured loans
11,188
743
11,931
3,002
14,933
Asset-backed securities
5,594
6,780
12,374
1,395
13,769






Loans
42,201
4,008
46,209
23,795
70,004






Bonds (3)
719
(8)
711
21
732






Derivatives
13,231
7,178
20,409
14,464
34,873
Monoline insurers
4,104
6,845
10,949
8,832
19,781
Other counterparties
9,127
333
9,460
5,632
15,092






Total
160,199
26,664
186,863
55,902
242,765






UK Retail
16,909
1,772
18,681
1,363
20,044
UK Corporate
33,608
504
34,112
13,245
47,357
Global Banking & Markets
33,023
1,453
34,476
20,035
54,511
Ulster
10,170
210
10,380
829
11,209
Non-Core
66,489
22,725
89,214
20,430
109,644







160,199
26,664
186,863
55,902
242,765






Loans and advances
142,455
10,914
153,369
40,022
193,391
Debt securities
6,313
6,772
13,085
1,416
14,501
Derivatives
11,431
8,978
20,409
14,464
34,873







160,199
26,664
186,863
55,902
242,765


 
 
 
 


 
Appendix 3 Asset Protection Scheme
 
4. Asset coverage
(continued)
 
2.2 Covered assets* at 30 June 2009 and 31 December 2008
(continued)


Carrying
 value (1)
Provisions and adjustments to par value
Par value
Undrawn commitments and other adjustments (2)
Covered
 amount

£m
£m
£m
£m
£m
31 December 2008
(a)
(b)
(c)=(a)+(b)
(d)
(e)=(c)+(d)






Residential mortgages
15,283
144
15,427
-
15,427






Consumer finance
20,297
2,003
22,300
2,085
24,385
Personal loans
9,544
1,687
11,231
1,440
12,671
Business and commercial loans
10,753
316
11,069
645
11,714






Commercial real estate finance
41,367
975
42,342
9,077
51,419






Leveraged finance
16,290
2,944
19,234
5,112
24,346






Lease finance
5,880
236
6,116
890
7,006






Project finance
1,642
58
1,700
414
2,114






Structured finance
19,478
7,047
26,525
5,700
32,225
Structured loans
12,674
261
12,935
3,294
16,229
Asset-backed securities
6,804
6,786
13,590
2,406
15,996






Loans
55,537
1,373
56,910
27,510
84,420






Bonds (3)
1,285
(103)
1,182
65
1,247






Derivatives
21,068
6,575
27,643
11,272
38,915
Monoline insurers
5,620
5,892
11,512
10,758
22,270
Other counterparties
15,448
683
16,131
514
16,645






Total
198,127
21,252
219,379
62,125
281,504






UK Retail
18,186
1,565
19,751
1,415
21,166
UK Corporate
39,191
330
39,521
12,165
51,686
Global Banking & Markets
49,487
2,142
51,629
23,415
75,044
Ulster
11,772
167
11,939
1,163
13,102
Non-Core
79,491
17,048
96,539
23,967
120,506






Total
198,127
21,252
219,379
62,125
281,504






Loans and advances
168,970
7,994
176,964
48,382
225,346
Debt securities
8,089
6,683
14,772
2,471
17,243
Derivatives
21,068
6,575
27,643
11,272
38,915






Total
198,127
21,252
219,379
62,125
281,504


 
Notes:

(1)
Carrying value represents the amounts recorded on the balance sheet and includes assets classified as loans and receivables, fair valued through profit or loss and available-for-sale
(2)
Other adjustments include:  add-back of available-for-sale reserves (taken through equity) and adjustment to covered amounts for derivatives (for 30 June 2009 only) and rollovers and refinancing (for 30 June 2009 only)
(3)
Comprises non asset-backed securities


 
*Detailed information is presented as at 30 June 2009 and 31 December 2008. Information as at 30 September 2009 is being updated for incorporation in the APS shareholder circular.
 
 
 
 
 
Appendix 3 Asset Protection Scheme
 
2. Asset coverage
(continued)
 
2.3 Credit impairments and write downs
 
Cumulative credit impairment losses and adjustments to par value relating to covered assets are set out below:
 


Closing balance

30 June 2009
31 December 2008

£m  
£m 



Loans and advances
10,914
7,994 
Debt securities
6,772
6,683 
Derivatives
8,978
6,575 



Total
26,664
21,252 



UK Retail
1,772
1,565 
UK Corporate
504
330 
Global Banking & Markets
1,453
2,142 
Ulster
210
167 
Non-Core
22,725
17,048 




26,664
21,252 


 
 
2.4 Risk elements in lending and potential problem loans
 
Risk elements in lending (REILs) and potential problem loans (PPLs) for the Group and the amount relating to assets in the Scheme are set out below.
 


30 June 2009

31 December 2008

 
Group
APS

 
Group
APS

£m
£m

£m
£m






Non-performing loans
27,229
20,627

17,082
12,679
Other REIL
3,500
2,900

1,709
1,498






Total REIL
30,729
23,527

18,791
14,177
PPLs
296
239

226
187






REIL and PPLs
31,025
23,766

19,017
14,364






Core
10,364
6,711



Non-Core
20,661
17,055










31,025
23,766





 
Key points:
·        
More than 75% of the Group's REILs and PPLs relate to assets in the Scheme.
·        
Of the REILs and PPLs in Non-Core, more than 80% were in APS.


 
Appendix 3 Asset Protection Scheme
 
2. Asset coverage
(continued)
 
2.5 Credit quality
 
The internal reporting and oversight of risk assets principles are set out in the Group 2008 Report and Accounts credit risk section on page 90.  The table below shows the credit quality of the Group's credit risk assets by risk bands and the proportion relating to assets in the Scheme.
 



30 June 2009

31 December 2008
Asset quality band
Probability of default
Group
% relating to assets in the Scheme

Group
% relating to assets in the Scheme


£bn


£bn








AQ1
0% -   0.034%
109
2%

127
3%
AQ2
0.034% -   0.048%
20
9%

26
16%
AQ3
0.048% -   0.095%
33
10%

38
17%
AQ4
0.095% -   0.381%
114
16%

150
15%
AQ5
0.381% -   1.076%
121
26%

148
28%
AQ6
1.076% -   2.153%
99
32%

103
36%
AQ7
2.153% -   6.089%
49
45%

46
52%
AQ8
6.089% -  17.222%
25
42%

26
46%
AQ9
17.222% -  100%
17
55%

12
69%
AQ10
100%
33
81%

18
72%
Other (1)

38
5%

41
8%









658
24%

735
24%


 
Notes:

(1)
'Other' largely comprises assets covered by the standardised approach for which a probability of default (PD) equivalent to those assigned to assets covered by the internal ratings based approach is not available.
(2)
Reverse repurchase agreements, carrying value relating to net derivative positions and issuer risk relating to debt securities are excluded from both Group numbers and APS covered assets above.


 
Over 80% of Group's credit risk assets with 100% probability of default are in the Scheme.
 
2.6 Risk-weighted assets
 
Risk-weighted assets (RWAs) were as follows:


30 September 2009
 
30 June 2009

31 December 2008

£bn
%
 
£bn
%

£bn
%
APS
166.5
28
 
140.7
26

158.7
27
Non APS
428.2
72
 
406.6
74

419.1
73
Group
594.7
100
 
547.3
100

577.8
100











 


30 June 2009

APS
Non APS
Total
Risk-weighted assets by division:
£bn
£bn
£bn
UK Retail
18.3
35.7
54.0
UK Corporate
32.5
57.0
89.5
Global Banking & Markets
29.3
93.1
122.4
Ulster
8.1
18.1
26.2
Other divisions
-
91.1
91.1




Core
88.2
295.0
383.2
Non-Core
52.5
111.6
164.1




Group
140.7
406.6
547.3




Appendix 3 Asset Protection Scheme
 
3. Basis of asset selection
 
The selection has been carried out primarily between February and April 2009 and was driven by three principal criteria
(1)   Risk and degree of impairment in base case and stressed scenarios;
(2)   Liquidity of exposure; and
(3)   Capital intensity under procyclicality.
 
The approach for high volume commercial and retail exposures was on a portfolio basis.  Selection for large corporates and GBM was at the counterparty/asset level.
Set out below are the selection criteria for the affected divisions.
 

GBM*
 
·     
Banking book:  Selection by individual asset pool (e.g., Corporate loans, Real estate finance, Leveraged finance), Global Restructuring Group (GRG) work-out unit counterparties/assets and high risk counterparties/assets. Additional counterparties/assets were selected through an individual risk review of the total portfolio.
·     
Trading book:  Selection by individual assets (e.g., Monolines, Derivatives, Mortgage trading).
UK Corporate*
 
·     
Commercial & Corporate real estate:  All defaulted assets in the work-out/restructuring unit or in high risk bands.
·     
Corporate:  All defaulted assets in the work-out/restructuring unit.  Corporate banking clients in high risk sectors or with high concentration risk.
·     
Business Banking:  Portfolios in the work out / restructuring unit or in high risk bands.
UK Retail*
 
·     
Mortgages: assets with higher Loan to Values and in higher risk segments (e.g. LTVs >97% on general book, LTVs >85% on buy-to-let book), and those assets in arrears (at 31 December 2008).
·     
Loans and overdrafts - higher risk customers based on internal bandings, and those assets in arrears (as at 31 December 2008).
EME*
(Corporate & Retail)
 
·     
Mortgages: Assets with greater than 85% LTV, broker mortgages and interest only with a higher probability of default.
·     
Retail:  Portfolios of accounts in default, >1 month arrears, <2 years old and a higher probability of default.
·     
Corporate:  Counterparties/assets in work-out / restructuring groups or in high risk bands, and other assets identified as part of an individual review of cases.


* including assets transferred to Non-Core division
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 3 Asset Protection Scheme
 
4. Pro forma capital ratios

 
30 September 2009 (estimated)
 
 
RWAs
 
Core tier 1 capital
 
Core tier 1 capital ratio
 
Tier 1 capital
 
Tier 1 capital ratio
 
 
Total capital
 
Total capital ratio

£bn
£bn
%
£bn 
%
£bn 
%








As reported
594.7
33.0 
5.5%
47.6 
8.0%
62.1
10.4%








Pro forma effects:







B share issuance

25.5 

25.5 

25.5









Less







CDS Value

(2.5)

(2.5)

(2.5)

Contingent Capital fee deducted upfront

 
(1.6)

 
(1.6)

 
(1.6)









Capital requirements at 8%

(13.4)





APS coverage benefit at 4%

6.7 





Net (BiPru 9) deduction

(6.7)

(6.7)

(6.7)









Tier 2 deduction





(6.7)

RWA relief
(166.5)







428.2 
47.7
11.1%
62.3
14.5%
70.1
16.4%


 

 
 
30 June 2009
 
 
RWAs
 
Core tier 1 capital
 
Core tier 1 capital ratio
 
Tier 1 capital
 
Tier 1 capital ratio
 
 
Total capital
 
Total capital ratio

£bn
£bn
%
£bn
%
£bn 
%








As reported
547.3
35.2
6.4%
49.4
9.0%
64.0
11.7%








Pro forma effects:







B share issuance

25.5

25.5

25.5









Less







CDS Value

(2.5)

(2.5)

(2.5)

Contingent Capital fee deducted upfront

 
(1.6)

 
(1.6)

 
(1.6)









Capital requirements at 8%

(11.2)





APS coverage benefit at 4%

5.6





Net (BiPru 9) deduction

(5.6)

(5.6)

(5.6)









Tier 2 deduction





(5.6)

RWA relief
(140.7)







406.6
51.0
12.5%
65.2
16.0%
74.2
18.2%


 
Key messages:
 
·        
CT1, Tier 1 and Total Capital ratios are significantly improved on a pro forma basis
·        
Legacy credit losses will be absorbed through higher capital base
·        
APS coverage provides capital equivalent benefit versus the RBS Group targeted 8% CT1 ratio of approximately £6.7 billion (30 June 2009:  £5.6 billion) which, net of the valuation of the CDS (minimum fee), is approximately £4.2 billion (30 June 2009:  £3.1 billion).
·        
Contingent capital fee for 5 year option deducted upfront

 

 



Signatures



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



Date:  06 November 2009

  THE ROYAL BANK OF SCOTLAND GROUP plc (Registrant)


  By: /s/ A N Taylor

  Name:
Title:		 A N Taylor
Head of Group Secretariat