Corporate
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Risks and Uncertainties
Risks and uncertainties faced by Corporate in the execution of the divisional strategy are primarily based around our ability to manage the balance between risk and return at each stage of the economic cycle. In the current highly competitive corporate market there is pressure on margins in many segments. Whilst credit conditions are currently favourable, in an adverse credit or competitive cycle our ability to maintain current levels of returns to shareholders may be adversely affected.
To mitigate, we retain an appropriate risk appetite focusing on protecting returns rather than chasing market share. We are currently pursuing a strategy of selective lending, choosing the appropriate balance between sell downs and retention activity. Our market understanding, asset quality, sound customer and partner base, proven track record and enhanced sector intelligence (which is being enhanced through our asset class management strategy) are all designed to manage the balance between risk and return.
Prospects
Commentators are now predicting a soft landing for the UK economy and a return to trend growth in the medium term. The UK equity markets are benefiting from earnings growth following cost control and improved margins in UK companies. However, given the tightening credit cycle, our approach will continue to centre on ‘quality first’ and being highly selective on which investment opportunities to pursue.
Our presence in England & Wales continues to grow and we remain focused on improving performance in our chosen asset classes in that market. Our renewed and invigorated approach to the SME market in England & Wales will drive strong value creation as we capture an increased share of this attractive profit pool. We will seek to leverage our existing strengths and relationships in areas such as specialist financing, ultimately extending these to full banking relationships, and also attract new client segments through the development of a distinctive core banking offer.
Through our asset class management strategy we will further sharpen our focus on our core markets to enhance our depth of knowledge and experience. By concentrating our attention on markets where we have expertise, we will continue to develop long term relationships with our chosen customers.
Combining these initiatives with our willingness to “look at things differently”, we are confident of driving sustained shareholder value creation and significant profit growth in 2007 and beyond.
