The Royal Bank of Scotland Group plc

29APR200818121267

THIS DOCUMENT AND ANY ACCOMPANYING DOCUMENTS ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to what action you should take, you are recommended to seek immediately your own financial advice from your

stockbroker, bank manager, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised

under the Financial Services and Markets Act 2000 if you are resident in the United Kingdom or, if not, from another appropriately

authorised independent financial adviser.

If you sell or have sold or otherwise transferred all of your Ordinary Shares (other than ex-rights) in certificated form before 15 May 2008 (the

‘‘Ex-Rights Date’’) please send this document, together with any Provisional Allotment Letter, if and when received, at once to the purchaser or

transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee

except that such documents should not be sent to any jurisdiction where to do so might constitute a violation of local securities laws or regulations,

including but not limited to the United States and the Excluded Territories. If you sell or have sold or otherwise transferred all or some of your

Existing Shares (other than ex-rights) held in uncertificated form before the Ex-Rights Date, a claim transaction will automatically be generated by

Euroclear UK and Euroclear Nederland which, on settlement, will transfer the appropriate number of Nil Paid Rights or Euroclear Subscription

Rights to the purchaser or transferee. If you sell or have sold or otherwise transferred only part of your holding of Existing Shares (other than

ex-rights) held in certificated form before the Ex-Rights Date, you should refer to the instruction regarding split applications in Part III of this

document and in the Provisional Allotment Letter.

This document, which comprises (i) a circular prepared in compliance with Listing Rules 13.4.3(3)-(5) of the UK Listing Authority made under

Section 73A of the Financial Services and Markets Act 2000, (ii) a circular prepared for the purposes of the General Meeting convened pursuant to

the Letter to Shareholders and (iii) a prospectus relating to the Rights Issue prepared in accordance with the Prospectus Rules of the UK Listing

Authority made under Section 73A of the Financial Services and Markets Act 2000, has been approved by the Financial Services Authority (the

‘‘FSA’’) in accordance with Section 85 of the Financial Services and Markets Act 2000 and made available to the public in accordance with Rule 3.2

of the Prospectus Rules. The Company has requested the FSA provides a certificate of approval and a copy of this document to the relevant

competent authority in the Netherlands, France, Germany, Ireland and Spain. Merrill Lynch International has acted as sponsor in relation to the

circular and prospectus referred to in clauses (i) and (iii) above. Goldman Sachs International has acted as sponsor in relation to the prospectus

referred to in clause (iii) above.

The Ordinary Shares are listed and traded on the London Stock Exchange’s main market for listed securities and listed and traded on Euronext

Amsterdam by NYSE Euronext (‘‘Euronext Amsterdam’’), the regulated market of Euronext Amsterdam N.V. (‘‘Euronext’’). Application will be made

to the UK Listing Authority and to the London Stock Exchange for the New Shares to be admitted to the Official List of the UK Listing Authority and

to trading on the main market for listed securities of the London Stock Exchange, respectively. It is expected that Admission will become effective

and that dealings on the London Stock Exchange in the New Shares (nil paid) will commence at 8.00 a.m. (London time) on 15 May 2008. It is

expected that dealings in the Euroclear Subscription Rights on Euronext Amsterdam will commence at 9.00 a.m. (CET) on 15 May 2008, and that

admission to listing of the New Shares, fully paid, on Euronext Amsterdam will become effective and dealings will commence at 9.00 a.m. (CET) on

9 June 2008.

The Royal Bank of Scotland Group plc

(incorporated under the Companies Acts 1948 to 1967 and registered with Registered No. SC45551)

Proposed 11 for 18 Rights Issue of 6,123,010,462 New Shares

at 200 pence per share

Goldman Sachs Merrill Lynch The Royal Bank of

International International Scotland plc

Joint Financial Adviser, Joint Sponsor Joint Financial Adviser, Joint Sponsor Joint Bookrunner

and Joint Bookrunner and Joint Bookrunner

UBS Investment Bank

Co-Bookrunner

The whole of this document should be read. Shareholders and any other persons contemplating a purchase of Nil Paid Rights, Fully Paid

Rights, Euroclear Subscription Rights or New Shares should review the risk factors set out on pages 11 to 16 of this document for a

discussion of certain factors that should be considered when deciding on what action to take in relation to the Rights Issue or deciding

whether or not to purchase Nil Paid Rights, Euroclear Subscription Rights, Fully Paid Rights or New Shares.

The Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights, the Provisional Allotment Letters and the New Shares have not been

and will not be registered under the US Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not

be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to

an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any

state or other jurisdiction of the United States. There will be no public offer in the United States.

Goldman Sachs International, Merrill Lynch International, UBS Limited and The Royal Bank of Scotland plc which are authorised and regulated in

the United Kingdom by the Financial Services Authority, are acting for RBS and no one else in connection with the Rights Issue and will not regard

any other person (whether or not a recipient of this document) as a client in relation to the Rights Issue and will not be responsible to anyone other

than RBS for providing the protections afforded to their respective clients or for providing advice in relation to the Rights Issue or any matters

referred to in this document.

Apart from the responsibilities and liabilities, if any, which may be imposed on Goldman Sachs International, Merrill Lynch International, UBS

Limited and The Royal Bank of Scotland plc by the Financial Services and Markets Act 2000, each of Goldman Sachs International, Merrill Lynch

International, UBS Limited and The Royal Bank of Scotland plc accepts no responsibility whatsoever for the contents of this document, including

its accuracy, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with RBS,

the Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights or the New Shares or the Rights Issue. Goldman Sachs International,

Merrill Lynch International, UBS Limited and The Royal Bank of Scotland plc accordingly disclaim all and any liability whether arising in tort,

contract or otherwise (save as referred to above) which they might otherwise have in respect of this document or any such statement. Subject to

the passing of Resolution 1, it is expected that Qualifying Non-CREST Shareholders will be sent a Provisional Allotment Letter on 14 May 2008, and

that Qualifying CREST Shareholders will receive a credit to their appropriate stock accounts in CREST in respect of the Nil Paid Rights to which

they are entitled on 15 May 2008. The Nil Paid Rights so credited are expected to be enabled for settlement by Euroclear UK as soon as practicable

after Admission. Qualifying Euroclear Shareholders are expected to receive a credit to their appropriate securities accounts with Admitted

Institutions in respect of the Euroclear Subscription Rights to which they are entitled on 15 May 2008. The Euroclear Subscription Rights so

credited are expected to be enabled for settlement by Euroclear Nederland as soon as practicable after the start of trading of the Euroclear

Subscription Rights on Euronext Amsterdam.

The Underwriters may, in accordance with applicable legal and regulatory provisions, engage in transactions in relation to the Nil Paid Rights, the

Fully Paid Rights, the Ordinary Shares and/or related instruments for their own account for the purpose of hedging their underwriting exposure or

otherwise. Except as required by applicable law or regulation, the Underwriters do not propose to make any public disclosure in relation to such

transactions.

The latest time and date for acceptance and payment in full for the New Shares by holders of the

Nil Paid Rights is expected to be 11.00 a.m. on 6 June 2008. The latest time and date for

subscription for the New Shares by holders of Euroclear Subscription Rights is expected to be

3.00 p.m. (CET) on 3 June 2008. The latest time and date for delivery of Euroclear Subscription

Rights and payment in full for the New Shares by holders of Euroclear Subscription Rights is

10.00 a.m. (CET) on 6 June 2008. The Euroclear Subscription Rights are expected to trade on

Euronext Amsterdam until 1.00 p.m. (CET) on 3 June 2008. The procedures for delivery of the Nil

Paid Rights, acceptance and payment are set out in Part III of this document and, for Qualifying

Non-CREST Shareholders only, also in the Provisional Allotment Letter. Qualifying CREST

Shareholders should refer to paragraph 2.2 of Part III of this document and Qualifying Euroclear

Shareholders should refer to paragraph 2.3 of Part III of this document.

The Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights, the Provisional

Allotment Letters and the New Shares have not been approved or disapproved by the US

Securities and Exchange Commission, any state’s securities commission in the United States or

any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed

the merits of the offering of the Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid

Rights or the New Shares or the accuracy or adequacy of this document. Any representation to the

contrary is a criminal offence.

Subject to certain exceptions, this document does not constitute an offer of Nil Paid Rights, Euroclear

Subscription Rights, Fully Paid Rights or New Shares to any person with a registered address, or who is

resident, in the United States or the Excluded Territories. The Nil Paid Rights, the Euroclear Subscription

Rights, the Fully Paid Rights, the New Shares and the Provisional Allotment Letters have not been and

will not be registered under the relevant laws of any state, province or territory of the United States or any

Excluded Territories and may not be offered, sold, taken up, exercised, resold, renounced, transferred or

delivered, directly or indirectly, within the United States or any Excluded Territory except pursuant to an

applicable exemption.

Goldman Sachs International, Merrill Lynch International, UBS Limited and The Royal Bank of

Scotland plc may arrange for the offer of New Shares in the United States not taken up in the Rights Issue

only to persons reasonably believed to be ‘‘qualified institutional buyers’’ within the meaning of

Rule 144A under the Securities Act (‘‘QIBs’’) in reliance on an exemption from, or in a transaction not

subject to, the registration requirements of the US Securities Act. The New Shares, the Nil Paid Rights,

the Euroclear Subscription Rights, and the Fully Paid Rights offered outside the United States are being

offered in reliance on Regulation S under the US Securities Act.

In addition, until 40 days after the commencement of the Rights Issue, an offer, sale or transfer of the New

Shares, the Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights or the Provisional

Allotment Letters within the United States by a dealer (whether or not participating in the Rights Issue)

may violate the registration requirements of the US Securities Act.

All Overseas Shareholders and any person (including, without limitation, a nominee or trustee) who has

a contractual or legal obligation to forward this document or any Provisional Allotment Letter, if and when

received, or other document to a jurisdiction outside the United Kingdom should read paragraph 2.6 of

Part III of this document.

NOTICE TO NEW HAMPSHIRE RESIDENTS: NEITHER THE FACT THAT A REGISTRATION STATEMENT

OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW

HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A

SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW

HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT

ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER

ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A

SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY

UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY

PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO

ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT

WITH THE PROVISIONS OF THIS PARAGRAPH.

Notice to Canadian Investors

The distribution of securities offered in Canada pursuant to this document is being made in each of the

Provinces of Canada (individually, a ‘‘Canadian Jurisdiction’’ and collectively, the ‘‘Canadian

Jurisdictions’’) as part of an international rights offering. The securities offered by this document will be

distributed under exemptions from the prospectus and registration requirements of applicable securities

laws in each of the Canadian Jurisdictions. Any certificates representing the securities offered pursuant

to this document may bear legends required or desirable under applicable securities laws or policies.

Any resale of the securities offered hereby will be restricted and must be made in accordance with, or

pursuant to exemptions from, the prospectus and registration requirements available under applicable

securities laws of the Canadian Jurisdictions. Canadian readers are advised to seek legal advice prior to

any resale of the securities offered hereby.

By its receipt of this document, each Canadian investor confirms that it has expressly requested that all

documents evidencing or relating in any way to the sale of the securities described herein (including for

greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par

la reception de ce document, chaque investisseur canadien confirme paries pr

esentes qu’il a

expressement exig

e que tous les documents faisant foi ou se rapportant de quelque mani

ere que ce soit

a la vente des valeurs mobili

eres decrites aux presentes (incluant, pour plus de certitude, toute

confirmation d’achat ou tout avis) soient redig

es en anglais seulement.

The Offering in the Canadian Jurisdictions is being made solely by this document and no person has

been authorized to give any information or to make any representation other than as provided for herein.

Canadian readers should be aware that the financial statements and other financial information

contained in this document have been prepared in accordance with International Financial Reporting

Standards and thus may not be comparable to financial statements and financial information of

Canadian companies. Holding and disposing of the securities offered under this document may have tax

consequences in Canada and other jurisdictions that are not described in this document. Canadian

readers are advised to consult their tax advisors.

RBS is formed under the laws of a jurisdiction outside of Canada. All of the directors and officers of RBS

may be located outside of Canada and, as a result, it may not be possible for purchasers to effect service

of process within Canada upon RBS or such persons. All or a substantial portion of the assets of RBS

may be located outside of Canada and, as a result, it may not be possible for purchasers to satisfy or

collect a judgement in Canada against RBS or its directors and officers or to enforce a judgement

obtained in Canadian courts against RBS or such persons outside of Canada.

Notice to Japanese Investors

The Rights Issue of New Shares offered hereby has not been and will not be registered under the

Financial Instruments and Exchange Law of Japan (the ‘‘Financial Instruments and Exchange Law’’).

Accordingly, each Joint Sponsor and Joint Underwriter has represented, warranted and agreed that the

New Shares which it subscribes will be subscribed by it as principal and that, in connection with the

offering made hereby, it will not, directly or indirectly, offer or sell any New Shares in Japan or to, or for

the benefit of, any resident of Japan (which term as used herein means any person resident in Japan,

including any corporation or other entity organised under the laws of Japan) or to others for re-offering or

resale, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to

an exception from the registration requirements of, and otherwise in compliance with, the Financial

Instruments and Exchange Law and other relevant laws and regulations of Japan.

Notice to Singaporean Investors

This document has not been registered as a prospectus with the Monetary Authority of Singapore.

Accordingly, this document and any other document or material in connection with the offer or sale, or

invitation for subscription or purchase, of the Nil Paid Rights, Euroclear Subscription Rights, Fully Paid

Rights or New Shares may not be circulated or distributed, nor may the Nil Paid Rights, Euroclear

Subscription Rights, Fully Paid Rights or New Shares be offered or sold, or be made the subject of an

invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than

(i) holders of Existing Shares or (ii) pursuant to, and in accordance with, the conditions of an exemption

under any provision of Subdivision (4) of Division 1 of Part XIII of the Securities and Futures Act,

Chapter 289 of Singapore.

Notice to all Investors

Any reproduction or distribution of this document, in whole or in part, and any disclosure of its contents

or use of any information contained in this document for any purpose other than considering an

investment in the Nil Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights or the New

Shares is prohibited. By accepting delivery of this document, each offeree of the Nil Paid Rights, the

Euroclear Subscription Rights, the Fully Paid Rights and/or the New Shares agrees to the foregoing.

The distribution of this document and/or the Provisional Allotment Letters and/or the transfer of the Nil

Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights and/or the New Shares into

jurisdictions other than the United Kingdom, the Netherlands, France, Germany, Ireland and Spain may

be restricted by law. Persons into whose possession these documents come should inform themselves

about and observe any such restrictions. Any failure to comply with these restrictions may constitute a

violation of the securities laws of any such jurisdiction. In particular, such documents should not be

distributed, forwarded to or transmitted in or into the United States or the Excluded Territories. The Nil

Paid Rights, the Euroclear Subscription Rights, the Fully Paid Rights, the Provisional Allotment Letters

and the New Shares are not transferable, except in accordance with, and the distribution of this

document is subject to, the restrictions set out in paragraph 2.6 of Part III of this document. No action has

been taken by RBS or by the Underwriters that would permit an offer of the New Shares or rights thereto

or possession or distribution of this document or any other offering or publicity material or the

Provisional Allotment Letters, the Nil Paid Rights, the Euroclear Subscription Rights, or the Fully Paid

Rights in any jurisdiction where action for that purpose is required, other than in the United Kingdom, the

Netherlands, France, Germany, Ireland and Spain.

No person has been authorised to give any information or make any representations other than those

contained in this document and, if given or made, such information or representations must not be relied

upon as having been authorised by RBS or by the Underwriters. Neither the delivery of this document

nor any subscription or sale made hereunder shall, under any circumstances, create any implication that

there has been no change in the affairs of RBS since the date of this document or that the information in

this document is correct as at any time subsequent to its date.

Following the announcement of the Rights Issue, RBS and ABN AMRO, through certain identifiable

business units, and certain of their affiliates, have engaged, and intend to continue to engage, in various

dealing and brokerage activities involving Ordinary Shares. Certain asset management companies,

insurance companies, trustees and personal representatives and banking units that are affiliates of RBS

and ABN AMRO have purchased and sold, and intend to continue to purchase and sell, Ordinary Shares

and derivatives as part of their ordinary investing activities. ABN AMRO, through an affiliate, has made a

market, from time to time, and continues to make a market, from time to time, in Ordinary Shares by

purchasing and selling Ordinary Shares for its own account in the United Kingdom on the London Stock

Exchange. RBS and ABN AMRO, through certain market-making and derivatives business units, have

also engaged, and intend to continue to engage, in the issuance, purchase and sale of derivatives (such

as options, warrants and other instruments) relating to Ordinary Shares for RBS’s and ABN AMRO’s

accounts and accounts of RBS’s and ABN AMRO’s customers, as well as in purchases and sales of

Ordinary Shares for the purpose of hedging the positions established in connection with the market-

making and derivatives activities relating to Ordinary Shares entered into by RBS and ABN AMRO and

their respective customers. RBS and ABN AMRO, through their respective brokerage business units,

have also engaged, and intend to continue to engage, in unsolicited brokerage transactions in Ordinary

Shares with RBS’s and ABN AMRO’s customers. These activities occurred and are expected to continue

to occur in the United Kingdom, the Netherlands, elsewhere in Europe and elsewhere outside the United

States. Citizens has also engaged and may continue to engage in unsolicited brokerage transactions in

Ordinary Shares in the United States. All of these activities could have the effect of preventing or

retarding a decline in the market price of the Ordinary Shares. RBS and ABN AMRO have sought and

received from the US Securities and Exchange Commission certain exemptive relief from Regulation M

in order to permit its identifiable business units and affiliates to engage in the foregoing activities during

the Regulation M restricted period.

Without limitation, the contents of the websites of the Group do not form part of this document.

Capitalised terms have the meanings ascribed to them in Part XIV of this document.

WHERE TO FIND HELP

Part II of this document answers some of the questions most often asked by shareholders about rights

issues. If you have further questions, please telephone the Shareholder Helpline on the numbers set out

below. This helpline is available from 9.00 a.m. to 5.00 p.m. Monday to Friday (except bank holidays) and

will remain open until 6 June 2008.

Shareholder Helpline

0870 702 0135 (from inside the United Kingdom)

or +44 870 702 0135 (from outside the United Kingdom),

or for holders of Euroclear Subscription Rights: +31 20 383 6707

Please note that, for legal reasons, the Shareholder Helpline will only be able to provide information

contained in this document and information relating to RBS’s register of members and will be unable to

give advice on the merits of the Rights Issue or to provide financial, tax or investment advice.

TABLE OF CONTENTS

Page

SUMMARY ........................................................... 7

RISK FACTORS ........................................................ 11

IMPORTANT INFORMATION ............................................... 17

RIGHTS ISSUE STATISTICS ............................................... 20

EXPECTED TIMETABLE OF PRINCIPAL EVENTS ................................ 21

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS ........... 22

PART I LETTER FROM THE CHAIRMAN OF RBS ............................ 24

PART II SOME QUESTIONS AND ANSWERS ABOUT THE RIGHTS ISSUE .......... 34

PART III TERMS AND CONDITIONS OF THE RIGHTS ISSUE .................... 39

PART IV INFORMATION ON RBS ........................................ 63

PART V OVERVIEW OF BUSINESS PERFORMANCE AND OPERATING AND

FINANCIAL REVIEW OF RBS .................................... 66

PART VI FINANCIAL INFORMATION ON RBS ............................... 74

PART VII OPERATING AND FINANCIAL REVIEW OF ABN AMRO .................. 75

PART VIII FINANCIAL INFORMATION ON ABN AMRO .......................... 76

PART IX UNAUDITED PRO FORMA FINANCIAL INFORMATION .................. 77

PART X CAPITALISATION ISSUE ........................................ 83

PART XI TAXATION .................................................. 85

PART XII ADDITIONAL INFORMATION ..................................... 92

PART XIII DOCUMENTATION INCORPORATED BY REFERENCE .................. 137

PART XIV DEFINITIONS ................................................ 140

ANNEX A THREE-YEAR TRACK RECORD OF ABN AMRO ....................... A-1

SUMMARY

The following summary information should be read as an introduction to the more detailed

information appearing elsewhere in this document. Any investment decision relating to the Rights

Issue should be based on the consideration of the document as a whole and not solely on this

summarised information. Where a claim relating to the information contained in this document is

brought before a court in a member state of the European Economic Area, the claimant may, under

the national legislation of that member state where the claim is brought, be required to bear the

costs of translating this document before legal proceedings are initiated. Civil liability attaches to

those persons who are responsible for this summary, including any translation of this summary,

but only if this summary is misleading, inaccurate or inconsistent when read together with other

parts of this document.

1 Background to and reasons for the Rights Issue

On 22 April 2008, RBS announced a rights issue to raise proceeds of £12bn, net of expenses, to increase

its capital base. RBS also announced revised targets for its capital ratios, estimated write-downs for

capital planning purposes, planned disposals and proposals relating to the 2008 interim dividend, and

gave details of its current trading performance.

RBS’s capital plan had assumed that it would maintain its Tier 1 capital ratio in the range 7 per cent. to

8 per cent. and that it would rebuild its core Tier 1 capital ratio towards 5 per cent. by 2010. At the time of

its 2007 results announcement RBS confirmed that it was operating within the parameters of this plan.

The balance of risks and opportunities inherent in this plan have been under continual review. However,

in the light of developments during March including the severe and increasing deterioration in credit

market conditions, the worsening economic outlook and the increased likelihood that credit markets

could remain difficult for some time, the Board has concluded that it is now appropriate for RBS to

accelerate its plans to increase its capital ratios and to move to a higher target range to reflect the

generally weakened business environment.

Reflecting these factors, the Board has raised its target range for the Group’s Tier 1 capital ratio to

7.5 per cent. to 8.5 per cent. and has set a target for the core Tier 1 capital ratio of in excess of 6 per cent.

at 31 December 2008 on a proportional consolidated basis

(1)

Having identified these targets it was clear that, whilst acknowledging with regret the demands this

would place on Shareholders, the most appropriate way of reaching them more quickly was through a

rights issue. In considering the size of the Rights Issue the Board, as well as having regard to the

potential business performance, made an assessment, based on current knowledge, of the likely

quantum of write-downs in 2008 in respect of the deterioration in credit markets and the potential for

gains from full or partial disposals.

For capital planning purposes, the Board has used the values detailed in paragraph 3 of Part I of this

document as the basis for its estimates of write-downs in 2008 in respect of certain credit market

exposures. These estimates are based on what the Board considers to be prudent assumptions

reflecting the further sharp deterioration in market conditions and outlook in credit markets at this point.

As part of an ongoing exercise, in the context of its decision to increase capital levels, the Board has

identified for possible whole or partial disposal RBS Insurance and other smaller assets which are not

central to the very strong UK and international banking franchises that RBS has built. RBS is determined

to achieve full and fair value in respect of any such disposals. At this stage RBS has assumed in its

capital plan that a £4bn increase in core Tier 1 capital by the end of 2008 can be achieved in this way,

although there is scope for fewer disposals to be made, whilst still exceeding the target core Tier 1 ratio

of 6 per cent.

In addition, RBS envisages containing the capital demands of certain business lines, including Global

Banking & Markets, through active management of its balance sheet.

Taking the above into account and having regard to the outlook for retained profits and the impact of

active balance sheet management, the Board has determined that it is appropriate to raise £12bn

(1) Previous guidance referred to 7 per cent. to 8 per cent. for Tier 1 capital ratio, with 25 per cent. to 30 per cent. preference

share content, but with no target set for core Tier 1 capital ratio.

through the Rights Issue, with the effect of achieving a Tier 1 capital ratio in excess of 8 per cent. and a

core Tier 1 capital ratio in excess of 6 per cent. by year end on a proportional consolidated basis.

2 Current trading and prospects

The operating performance of many of RBS’s businesses since the beginning of 2008 has remained

good, but results have been held back by the effects of the continuing deterioration in credit markets,

which has resulted in additional write-downs on credit market exposures in the first quarter. Some Global

Banking & Markets businesses have experienced a reduced level of activity, although others continue to

perform well, as do Global Transaction Services and Regional Markets. Overall, the Group’s underlying

results, excluding write-downs have remained satisfactory.

In a more uncertain environment for its customers, RBS has continued to benefit from strong growth in

personal and corporate deposits and good growth in lending. Group net interest margin in the quarter

was slightly lower reflecting increased funding costs partially offset by stronger new business margins in

some lending products.

Overall credit risk metrics have remained stable in the first quarter, with a continued decline in UK

personal sector impairment losses but increased delinquencies in a specific US retail portfolio.

Corporate credit quality remains broadly stable.

The outlook is inevitably clouded by the disruption to markets, as a result of which volumes are likely to

be significantly lower in some areas of Global Banking & Markets. However, other areas of Global

Banking & Markets, and most of the Group’s other businesses, are making good progress, taking

advantage of the opportunities that have become available in this changed environment to achieve

profitable growth at good risk-adjusted rates of return. The Group is now better positioned in growth

economies and has many additional opportunities to exploit its enhanced presence, customer

franchises and product capabilities.

With reinforced capital ratios, the Group will be in a stronger position to navigate through an economic

environment that remains uncertain and well-placed to take advantage of the growth opportunities

available to it.

3 Principal terms of the Rights Issue

The Company is proposing to offer 6,123,010,462 New Shares by way of rights to Qualifying

Shareholders at 200 pence per New Share, payable in full on acceptance by no later than 11.00 a.m. on

6 June 2008. The Rights Issue is expected to raise approximately £12bn, net of expenses. The Rights

Issue will be on the basis of 11 New Shares for every 18 Existing Shares. The Issue Price represents a

34.9 per cent. discount to the theoretical ex-rights price based on the closing middle-market price of

372.5 pence per Ordinary Share on 21 April 2008 (being the last business day before the announcement

of the terms of the Rights Issue). The Rights Issue is being made to all Qualifying Shareholders on the

The Rights Issue is fully underwritten by Goldman Sachs International, Merrill Lynch International, UBS

and the other Underwriters pursuant to the Underwriting Agreement, the principal terms of which are

summarised in paragraph 18 of Part XII of this document. The Rights Issue is conditional, inter alia, on:

(i) the Underwriting Agreement having become unconditional in all respects, save for the condition

relating to Admission;

(ii) Admission becoming effective by not later than 8.00 a.m. on 19 May 2008 (or such later time and

date as the parties to the Underwriting Agreement may agree); and

(iii) the passing without amendment of Resolution 1.

It is expected that Admission will occur and that dealings in the New Shares (nil paid) will commence on

the London Stock Exchange at 8.00 a.m. on 15 May 2008.

The latest time and date for acceptance and payment in full under the Rights Issue is expected to

be 11.00 a.m. on 6 June 2008.

The latest time and date for subscription for the New Shares by holders of Euroclear Subscription Rights

is expected to be 3.00 p.m. (CET) on 3 June 2008.

The latest time and date for delivery of Euroclear Subscription Rights and payment in full for the New

Shares by holders of Euroclear Subscription Rights is 10.00 a.m. (CET) on 6 June 2008. The Euroclear

Subscription Rights are expected to commence trading on Euronext Amsterdam at 9.00 a.m. (CET) on

15 May 2008 until 1.00 p.m. (CET) on 3 June 2008.

4 Selected financial information on RBS

The data for the three-year period ended 31 December 2007 set out below have been extracted without

material adjustment from, and should be read together with, RBS’s audited consolidated financial

statements, which were prepared in accordance with IFRS, included in its Annual Report and Accounts

for the year ended 31 December 2007. The per share data for 2006 and 2005 have been restated to reflect

the two-for-one bonus share issue in May 2007.

As of and for the year ended

31 December

2007 2006 2005

(millions, except per share data,

percentages and ratios)

(£) (£) (£)

Key income statement data

Total income

(1)

.................................. 31,115 28,002 25,902

Operating expenses

(2)(3)(4)

.......................... 14,435 12,480 11,946

Profit before other operating charges and impairment losses 16,680 15,522 13,956

Operating profit before tax ......................... 9,900 9,186 7,936

Profit for the year ............................... 7,712 6,497 5,558

Profit attributable to ordinary shareholders ............. 7,303 6,202 5,392

Key balance sheet data

Total assets .................................... 1,900,519 871,432 776,827

Owners’ equity ................................. 53,038 40,227 35,435

Other key financial data

Earnings per ordinary share (pence) .................. 76.4 64.9 56.5

Diluted earnings per ordinary share (pence)

(5)

........... 75.7 64.4 56.1

Dividends per ordinary share paid (pence) ............. 32.2 25.8 20.2

Dividend payout ratio

(6)

........................... 43% 45% 41%

Tier 1 capital ratio ............................... 7.3% 7.5% 7.6%

Total capital ratio ................................ 11.2% 11.7% 11.7%

Notes:

(1) Includes gain on sale of strategic investment of £333m in 2005.

(2) Includes loss on sale of subsidiaries of £93m in 2005.

(3) Includes integration expenditure of £108m for the year ended 31 December 2007 (2006: £134m; 2005: £458m).

(4) Includes purchased intangibles amortisation of £274m for the year ended 31 December 2007 (2006: £94m; 2005: £97m).

(5) All the convertible preference shares had a dilutive effect and as such have been included in the computation of diluted

earnings per share.

(6) Dividend payout ratio represents the interim dividend paid and current year final dividend proposed as a percentage of

profit attributable to ordinary shareholders before discontinued operations, integration costs, amortisation of purchased

intangibles and net gain on sale of strategic investments and subsidiaries (net of tax).

5 Summary of risk factors

Shareholders should carefully consider the following key risks.

Risks related to RBS

• RBS’s business and earnings may be affected by general business and geopolitical conditions.

• Changes in interest rates, foreign exchange rates, bond and equity prices and other market factors

have affected and will continue to affect RBS’s business.

• RBS’s borrowing costs and its access to the debt capital markets depend significantly on its credit

ratings.

• RBS’s business performance could be affected if its capital is not managed effectively.

• The value of certain financial instruments recorded at fair value is determined using financial models

incorporating assumptions, judgements and estimates which may change over time.

• RBS’s future earnings could be affected by depressed asset valuations resulting from poor market

conditions.

• The value or effectiveness of any credit protection which RBS has purchased from monoline

insurers may fluctuate depending on the financial condition of the insurer.

• Liquidity risk is inherent in RBS’s operations.

• The financial performance of RBS may be affected by borrower credit quality.

• Each of the Group’s businesses is subject to substantial regulation and oversight. Any significant

regulatory developments could have an effect on how the Group conducts its business and on its

results of operations.

• RBS is subject to litigation and regulatory investigations which may impact its business.

• Operational risks are inherent in RBS’s operations.

• RBS is exposed to the risk of changes in tax legislation and its interpretation and to increases in the

rate of corporate and other taxes in the jurisdictions in which it operates.

• RBS’s insurance businesses are subject to inherent risks involving claims.

• RBS’s future earnings and shareholder value in part depend on strategic decisions regarding

organic growth and potential acquisitions and disposals.

• Proposals for the restructuring of ABN AMRO are complex and may not realise the anticipated

benefits for RBS.

Risks relating to the Rights Issue and the New Shares

• RBS’s share price will fluctuate.

• An active trading market in the Nil Paid Rights and/or Euroclear Subscription Rights may not

develop.

• RBS’s ability to continue to pay dividends will depend on the level of profits and cash flows

generated by the Group.

• Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their

ownership of RBS.

• If the Company is unable to complete the Rights Issue, it may be required to find alternative

methods of increasing its core Tier 1 and Tier 1 capital ratios.

• Holders of Euroclear Subscription Rights may be exposed to currency fluctuations as Euroclear

Subscription Rights will be traded in euros, but payment to the Company must be made in pounds

sterling.

RISK FACTORS

The following risks should be considered carefully by Shareholders when deciding whether or not to take

up rights in the Rights Issue.

This section addresses the existing and future material risks to RBS’s business. The risks below are not

the only ones that RBS will face. Some risks are not yet known and some that are not currently deemed

material could later turn out to be material. All of these risks could materially affect RBS, its income,

operating profits, earnings, net assets, liquidity and capital resources. In such a case, the market price of

Ordinary Shares may decline and Shareholders could lose all or part of their investment. Shareholders

should read this section in conjunction with the Letter from the Chairman of RBS contained in Part I of this

document.

RISKS RELATED TO RBS

RBS’s business and earnings may be affected by general business and geopolitical conditions.

The performance of RBS is significantly influenced by the economic conditions of the countries in which

it operates, particularly the United Kingdom, the United States and Europe. A downturn in these

economies, including any further deterioration in the US real estate or other markets, could result in a

general reduction in business activity and a consequent loss of income for RBS. It could also cause a

higher incidence of impairments and trading losses in RBS’s lending, trading and other portfolios.

Geopolitical conditions can also affect RBS’s earnings. Terrorist acts and threats and the response of

governments in the United Kingdom, the United States and elsewhere to them could affect the level of

economic activity. RBS’s businesses could also be exposed to the risk of business interruption and

economic slowdown following the outbreak of a pandemic.

Changes in interest rates, foreign exchange rates, bond and equity prices, and other market

factors have affected and will continue to affect RBS’s business.

The most significant market risks RBS faces are interest rate, foreign exchange and bond and equity

price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin

realised between lending and borrowing costs. Changes in currency rates, particularly in the sterling-US

dollar and sterling-euro exchange rates, affect the value of assets and liabilities denominated in foreign

currencies and the reported earnings of RBS’s non-UK subsidiaries (principally ABN AMRO, Citizens,

RBS Greenwich Capital and Ulster Bank) and may affect income from foreign exchange dealing. The

performance of financial markets may affect bond and equity prices and, therefore, cause changes in the

value of RBS’s investment and trading portfolios. While RBS has implemented risk management

methods to mitigate and control these and other market risks to which it is exposed, it is difficult to

predict with accuracy changes in economic or market conditions and to anticipate the effects that such

changes could have on RBS’s financial performance and business operations.

RBS’s borrowing costs and its access to the debt capital markets depend significantly on its credit

ratings.

On 22 April 2008, Standard & Poor’s rating service affirmed the long-term rating of the Group as ‘‘AAǁ’’

with a negative outlook. However, on that same day, Moody’s rating service announced that it was

placing the long-term ratings of NatWest, RBS plc, the subsidiaries of Citizens and the Group under

review for possible downgrade and Fitch Ratings downgraded the Group to ‘‘AA’’ with a stable outlook.

A reduction in the long-term credit ratings of RBS or one of its principal subsidiaries may increase its

borrowing costs, limit its access to the capital markets and trigger additional collateral requirements in

derivative contracts and other secured funding arrangements. Credit ratings are also important to RBS

when competing in certain markets, such as longer-term over-the-counter derivatives. Therefore, further

reductions in RBS’s credit ratings could adversely affect its access to liquidity and competitive position

and, hence, negatively impact its earnings.

RBS’s business performance could be affected if its capital is not managed effectively.

RBS’s capital is critical to its ability to operate its businesses, to grow organically and to take advantage

of strategic opportunities. RBS is required by regulators in the United Kingdom, the United States and

the Netherlands, and in other jurisdictions in which it undertakes regulated activities, to maintain

adequate capital. Although RBS mitigates the risk of not meeting capital adequacy requirements by

careful management of its balance sheet and capital, through capital-raising activities, disciplined

capital allocation and the hedging of capital currency exposures, any change that limits its ability

effectively to manage such resources (including, for example, reductions in profits and retained earnings

as a result of write-downs or otherwise, delays in the disposal of certain assets or the inability to

syndicate loans as a result of market conditions or otherwise) could have a material adverse impact on

its financial condition and regulatory capital position.

The value of certain financial instruments recorded at fair value is determined using financial

models incorporating assumptions, judgements and estimates which may change over time.

Under IFRS, RBS recognises at fair value: (i) financial instruments classified as ‘‘held-for-trading’’ or

‘‘designated as at fair value through profit or loss’’, (ii) financial assets classified as ‘‘available-for-sale’’

and (iii) derivatives, each as further described in ‘‘Accounting Policies’’ on pages 124-139 of the RBS

Annual Report and Accounts for 2007 which is incorporated by reference herein. Generally, in order to

establish the fair value of these instruments, RBS relies on quoted market prices or, where the market for

a financial instrument is not sufficiently active, internal valuation models that utilise observable market

data. In certain circumstances, the data for individual financial instruments or classes of financial

instrument utilised by such valuation models may not be available or may become unavailable due to

changes in market conditions, as has been the case over the past several months. In such

circumstances, RBS’s internal valuation models require RBS to make assumptions, judgements and

estimates in order to establish fair value. In common with other financial institutions, these internal

valuation models are complex, and the assumptions, judgements and estimates RBS is required to

make often relate to matters that are inherently uncertain, such as expected cash flows, the ability of

borrowers to service debt, house price appreciation and depreciation, and relative levels of defaults and

deficiencies. Such assumptions, judgements and estimates may need to be updated to reflect changing

trends and market conditions. The resulting change in the fair values of the financial instruments could

have a material adverse effect on RBS’s earnings.

RBS’s future earnings could be affected by depressed asset valuations resulting from poor market

conditions.

Financial markets are sometimes subject to significant stress conditions where steep falls in perceived

or actual asset values are accompanied by a severe reduction in market liquidity, as exemplified by

recent events affecting asset-backed CDOs, the US sub-prime residential mortgage market and

leveraged finance. In dislocated markets, hedging and other risk management strategies may not be as

effective as they are in normal market conditions due, in part, to the decreasing credit quality of hedge-

counterparties, including monoline insurers. Severe market events are difficult to foresee and, if they

continue to occur, could result in RBS incurring significant losses. In 2007, RBS recorded material write-

downs on its credit market positions, principally on its US residential mortgage and monoline exposures.

For capital planning purposes, RBS has estimated, based on current information, further significant

write-downs in these and other exposures, as further described in Part I of this document. As market

conditions change, the fair value of these exposures could fall further than currently estimated and

therefore result in additional write-downs. Moreover, recent market volatility and illiquidity has made it

difficult to value certain of RBS’s exposures. Valuations in future periods, reflecting then-prevailing

market conditions, may result in significant changes in the fair values of the Group’s exposures, even in

respect of exposures, such as credit market exposures, for which the Group has previously recorded or

estimated write-downs. In addition, the value ultimately realised by RBS will depend on the fair value as

determined at that time and may be materially different from the current or estimated fair value. Any of

these factors could require RBS to recognise further write-downs or realise impairment charges, any of

which may adversely affect its financial condition and results of operations.

The value or effectiveness of any credit protection which RBS has purchased from monoline

insurers may fluctuate depending on the financial condition of the insurer.

RBS’s credit exposure to the monoline sector arises from over-the-counter derivative contracts – mainly

credit default swaps (‘‘CDS’’) which are carried at fair value. The fair value of these CDSs, and RBS’s

exposure to the risk of default by the underlying counterparties, depends on the valuation and the

perceived credit risk of the instrument against which protection has been bought. Towards the end of

2007, monoline insurers were adversely affected by their exposure to US residential mortgage-linked

products. If the financial condition of these counterparties or their perceived credit worthiness

deteriorates further, RBS could record further credit valuation adjustments on the CDSs bought from

monoline insurers in addition to those already recorded, as described in Part I of this document.

Liquidity risk is inherent in RBS’s operations.

Liquidity risk is the risk that RBS will be unable to meet its obligations as they fall due. This risk is inherent

in banking operations and can be heightened by a number of enterprise-specific factors such as an

over-reliance on a particular source of funding, changes in credit ratings or by market-wide phenomena

such as market dislocation and major disasters. RBS’s liquidity management focuses on maintaining a

diverse and appropriate funding strategy for its operations, in controlling the mismatch of maturities and

on carefully monitoring its undrawn commitments and contingent liabilities. However, RBS’s ability to

access sources of liquidity during periods of liquidity stress (such as have been experienced in recent

months), including through the issue or sale of complex financial and other instruments, may be

constrained as a result of current and future market conditions. Furthermore, there is a risk that

corporate and institutional counterparties with credit exposures may look to consolidate their exposure

to the enlarged Group. No statement contained in this risk factor should be taken as qualifying the

statements made as to sufficiency of working capital on page 134 of this document.

The financial performance of RBS may be affected by borrower credit quality.

Risks arising from changes in credit quality and the recoverability of loans and amounts due from

counterparties are inherent in a wide range of RBS’s businesses. Adverse changes in the credit quality of

RBS’s borrowers and counterparties, or in their behaviour, or a general deterioration in the UK, US,

European or global economic conditions, or arising from systemic risks in the financial systems, could

affect the recoverability and value of RBS’s assets and require an increase in the provision for

impairment losses and other provisions.

Each of the Group’s businesses is subject to substantial regulation and oversight. Any significant

regulatory developments could have an effect on how the Group conducts its business and on its

results of operations.

The Group is subject to financial services laws, regulations, administrative actions and policies in each

location in which it operates, all of which are subject to change. For example, the move from Basel I to

Basel II on 1 January 2008 resulted in certain definitional changes in the way risk-weighted assets are

calculated and RBS continues to work with regulators to refine the methods by which the calculation of

risk-weighted assets is made. The change also impacted the way certain deductions to regulatory

capital were applied.

Other areas where governmental policies and regulatory changes could have an adverse impact

include, but are not limited to:

• the monetary, interest rate and other policies of central banks and regulatory authorities;

• general changes in government or regulatory policy or changes in regulatory regimes that may

significantly influence investor decisions in particular markets in which RBS operates or may

increase the costs of doing business in those markets;

• other general changes in the regulatory requirements, such as prudential rules relating to the capital

adequacy framework;

• changes in competition and pricing environments;

• further developments in the financial reporting environment;

• expropriation, nationalisation, confiscation of assets and changes in legislation relating to foreign

ownership; and

• other unfavourable political, military or diplomatic developments producing social instability or legal

uncertainty which, in turn, may affect demand for RBS’s products and services.

Further changes to the regulatory requirements applicable to the Group, in particular in the United

Kingdom, the United States and the Netherlands, whether resulting from recent events in the credit

markets or otherwise, could materially affect its business, the products and services it offers and the

value of its assets.

RBS is subject to litigation and regulatory investigations which may impact its business.

RBS and its subsidiaries operate in a legal and regulatory environment that exposes them to potentially

significant litigation and regulatory risks. As a result, RBS and its subsidiaries are involved in various

disputes and legal proceedings in the United Kingdom, the United States and other jurisdictions,

including litigation and regulatory investigations. Such cases are subject to many uncertainties, and their

outcome is often difficult to predict, particularly in the earlier stages of a case or investigation. Adverse

regulatory action against the Group or adverse judgements in litigation to which the Group is a party

could result in restrictions or limitations on the Group’s operations or result in a material adverse effect

on the Group’s reputation or results of operations. Currently, the Group is responding to regulatory

inquiries and investigations and is involved in litigation arising from its operations. For details about

certain litigation and regulatory investigations in which RBS is involved, see paragraph 16 of Part XII.

Operational risks are inherent in RBS’s operations.

RBS’s operations are dependent on the ability to process a very large number of transactions efficiently

and accurately. Operational losses can result from fraud, errors by employees, failure to document

transactions properly or to obtain proper authorisation, failure to comply with regulatory requirements

and conduct of business rules, equipment failures, natural disasters or the failure of external systems,

including those of RBS’s suppliers or counterparties. Although RBS has implemented risk controls and

loss mitigation actions, and substantial resources are devoted to developing efficient procedures and to

staff training, it is not possible to be certain that such procedures will be effective in controlling each of

the operational risks faced by RBS. Notwithstanding anything contained in this risk factor, it should not

be taken as implying that either the Company or the Group will be unable to comply with its obligations

as a company with securities admitted to the Official List or as a supervised firm regulated by the FSA.

RBS is exposed to the risk of changes in tax legislation and its interpretation and to increases in the

rate of corporate and other taxes in the jurisdictions in which it operates.

RBS’s activities are subject to tax at various rates around the world computed in accordance with local

legislation and practice. Action by governments to increase tax rates or to impose additional taxes would

reduce the profitability of RBS. Revisions to tax legislation or to its interpretation might also affect RBS’s

results in the future.

RBS’s insurance businesses are subject to inherent risks involving claims.

Future claims in RBS’s general and life assurance business may be higher than expected as a result of

changing trends in claims experience resulting from catastrophic weather conditions, demographic

developments, changes in mortality and other causes outside RBS’s control. Such changes would affect

the profitability of current and future insurance products and services. RBS reinsures some of the risks it

has assumed and is accordingly exposed to the risk of loss should its reinsurers become unable or

unwilling to pay claims made by the Group against them.

RBS’s future earnings and shareholder value in part depend on strategic decisions regarding

organic growth and potential acquisitions and disposals.

RBS devotes substantial management and planning resources to the development of strategic plans for

organic growth and identification of possible acquisitions and disposals. In addition, the Group’s

strategic plans are also supported by substantial expenditure to generate organic growth in customer

business. If these strategic plans, including the planned disposals discussed in Part I of this document,

do not meet with success or fail to achieve the results expected, RBS’s earnings could grow more slowly

or decline and its growth prospects may be impaired.

Proposals for the restructuring of ABN AMRO are complex and may not realise the anticipated

benefits for RBS.

The restructuring plan in place for the integration and separation of ABN AMRO into and among the

businesses and operations of the Consortium Banks is complex involving substantial reorganisation of

ABN AMRO’s operations and legal structure. In addition, it contemplates activities taking place

simultaneously in a number of businesses and jurisdictions. Implementation of the reorganisation and

the realisation of the forecast benefits within the planned timescales will be challenging. Execution of the

restructuring requires management resources previously devoted to RBS businesses and the retention

of appropriately skilled ABN AMRO staff. RBS may not realise the benefits of the acquisition or the

restructuring when expected or to the extent projected.

RISKS RELATING TO THE RIGHTS ISSUE AND THE NEW SHARES

RBS’s share price will fluctuate.

The market price of the New Shares (including the Nil Paid Rights, the Euroclear Subscription Rights,

and the Fully Paid Rights) and/or the Ordinary Shares could be subject to significant fluctuations due to a

change in sentiment in the market regarding the New Shares (including the Nil Paid Rights, the Euroclear

Subscription Rights, and the Fully Paid Rights) and/or the Ordinary Shares (or securities similar to them).

Such risks depend on the market’s perception of the likelihood of completion of the Rights Issue, and/or

in response to various facts and events, including any regulatory changes affecting the Group’s

operations, variations in the Group’s operating results, business developments of the Group and/or its

competitors. Stock markets have, from time to time, experienced significant price and volume

fluctuations that have affected the market prices for securities and which may be unrelated to the

Group’s operating performance or prospects. Furthermore, the Group’s operating results and prospects

from time to time may be below the expectations of market analysts and investors. Any of these events

could result in a decline in the market price of the New Shares (including the Nil Paid Rights, the

Euroclear Subscription Rights, and the Fully Paid Rights) and/or the Ordinary Shares.

An active trading market in the Nil Paid Rights and/or Euroclear Subscription Rights may not

develop.

An active trading market in the Nil Paid Rights and/or Euroclear Subscription Rights may not develop on

the London Stock Exchange and/or Euronext Amsterdam, respectively, during the trading period. In

addition, because the trading price of the Nil Paid Rights and the Euroclear Subscription Rights depends

on the trading price of the Ordinary Shares, the Nil Paid Rights and the Euroclear Subscription Rights

price may be volatile and subject to the same risks as noted elsewhere herein.

RBS’s ability to continue to pay dividends will depend on the level of profits and cash flows

generated by the Group.

Under UK company law, a company can only pay cash dividends to the extent that it has distributable

reserves and cash available for this purpose. As a holding company, RBS’s ability to pay dividends in the

future is affected by a number of factors, principally its ability to receive sufficient dividends from

subsidiaries. The payment of dividends to RBS by its subsidiaries is, in turn, subject to restrictions,

including certain regulatory requirements and the existence of sufficient distributable reserves and cash

in RBS’s subsidiaries.

The ability of these subsidiaries to pay dividends and RBS’s ability to receive distributions from its

investments in other entities are subject to applicable local laws and regulatory requirements and other

restrictions, including, but not limited to, applicable tax laws and covenants in some of RBS’s debt

facilities. These laws and restrictions could limit the payment of dividends and distributions to RBS by its

subsidiaries, which could in future restrict RBS’s ability to fund other operations or to pay a dividend to

holders of the Existing Shares or the New Shares.

Shareholders who do not acquire New Shares in the Rights Issue will experience dilution in their

ownership of RBS.

If Shareholders do not take up the offer of New Shares under the Rights Issue their proportionate

ownership and voting interests in RBS will be reduced and the percentage that their shares will represent

of the total share capital of the Company will be reduced accordingly. Even if a shareholder elects to sell

his unexercised Nil Paid Rights or Euroclear Subscription Rights, or such Nil Paid Rights or Euroclear

Subscription Rights are sold on his behalf, the consideration he receives may not be sufficient to

compensate him fully for the dilution of his percentage ownership of the Company’s share capital that

may be caused as a result of the Rights Issue.

If the Company is unable to complete the Rights Issue, it may be required to find alternative

methods of increasing its core Tier 1 and Tier 1 capital ratios.

The purpose of the Rights Issue is to allow the Company to strengthen its capital position and to achieve

a core Tier 1 capital ratio in excess of 6 per cent. and a Tier 1 capital ratio in excess of 8 per cent. by the

end of 2008 on a proportional consolidated basis, which the Company believes are appropriate levels in

light of current market conditions. If the Company is unable to complete the Rights Issue, it will need to

assess its capital position and may be required to find alternative methods for achieving requisite capital

ratios. Such methods could include a reduction in dividends, a reduction in the rate of growth of risk-

weighted assets, disposal of certain businesses or increased issuance of Tier 1 securities. There can be

no assurance that any of these alternative methods would be successful in increasing the Company’s

capital ratios sufficiently or on the timetable currently envisaged. If the Company is unable to increase its

capital ratios sufficiently, its credit ratings may drop, its cost of funding may increase and its share price

may decline.

Holders of Euroclear Subscription Rights may be exposed to currency fluctuations as Euroclear

Subscription Rights will be traded in euros, but payment to the Company must be made in pounds

sterling.

Whereas Euroclear Subscription Rights will be quoted in euros, payment to the Company for the New

Shares must be made in pounds sterling, which could result in an exposure to any fluctuation in the euro/

pounds sterling exchange rate in the period of trading of the Nil Paid Rights and Euroclear Subscription

Rights. The holders of Euroclear Subscription Rights should consult with their Admitted Institution in

respect of the foreign exchange policy of such Admitted Institutions.

IMPORTANT INFORMATION

Presentation of financial information

The Company publishes its financial statements in pounds sterling (‘‘£’’ or ‘‘sterling’’). The abbreviations

‘‘£m’’ and ‘‘£bn’’ represent millions and thousands of millions of pounds sterling, respectively, and

references to ‘‘pence’’ and ‘‘p’’ represent pence in the United Kingdom. Reference to ‘‘USD’’, ‘‘dollars’’

or ‘‘$’’ are to US dollars. The abbreviations ‘‘$m’’ and ‘‘$bn’’ represent millions and thousands of millions

of dollars, respectively, and references to ‘‘cents’’ represent cents in the United States. The abbreviation

‘‘e’’ represents the euro, the European single currency, and the abbreviations ‘‘em’’ and ‘‘ebn’’

represent millions and thousands of millions of euros, respectively.

The financial information presented in a number of tables in this document has been rounded to the

nearest whole number or the nearest decimal. Therefore, the sum of the numbers in a column may not

conform exactly to the total figure given for that column. In addition, certain percentages presented in the

tables in this document reflect calculations based upon the underlying information prior to rounding,

and, accordingly, may not conform exactly to the percentages that would be derived if the relevant

calculations were based upon the rounded numbers.

Certain pro forma information incorporated by reference in Part V of this document is unaudited and may

be subject to adjustment. Although RBS’s management does not anticipate any material adjustments,

there can be no assurance that any such adjustments will not be material.

Exchange rates

Indicative exchange rates of pounds sterling against the US dollar and the euro, comprising the average

rate used for income statements and the period-end rate used for balance sheet information, are shown

below:

US dollar : pounds sterling

Average Period-end

Period rate rate

Year ended 31 December 2005 ............................... 1.820 1.721

Year ended 31 December 2006 ............................... 1.844 1.965

Year ended 31 December 2007 ............................... 2.001 2.004

January 2008 ............................................ 1.971

(1)

1.988

February 2008 ........................................... 1.967

(1)

1.988

March 2008 ............................................. 1.979

(1)

1.986

Note:

(1) Calculated on a year-to-date basis.

On 28 April 2008, being the last practicable date prior to the publication of this document, the US

dollar : pounds sterling exchange rate was 1.9944 : 1 as published in the Daily Official List.

Euro : pounds sterling

Average Period-end

Period rate rate

Year ended 31 December 2005 ............................... 1.463 1.457

Year ended 31 December 2006 ............................... 1.467 1.490

Year ended 31 December 2007 ............................... 1.461 1.361

January 2008 ............................................ 1.339

(1)

1.342

February 2008 ........................................... 1.335

(1)

1.309

March 2008 ............................................. 1.320

(1)

1.255

Note:

(1) Calculated on a year-to-date basis.

On 28 April 2008, being the last practicable date prior to the publication of this document, the

euro : pounds sterling exchange rate was 1.2749 : 1 as published in the Daily Official List.

International Financial Reporting Standards

As required by the Companies Act and Article 4 of the European Union IAS Regulation, the consolidated

financial statements of the Group are prepared in accordance with IFRS issued by the IASB and

interpretations issued by the International Financial Reporting Interpretations Committee of the IASB as

adopted by the European Union. The consolidated financial statements of the Group also comply with

IFRS as issued by the IASB. On implementation of IFRS on 1 January 2005, the Group took advantage of

the option in IFRS 1 ‘First-time Adoption of International Financial Reporting Standards’ to implement

IAS 39 ‘Financial Instruments: Recognition and Measurement’, IAS 32 ‘Financial Instruments: Disclosure

and Presentation’ and IFRS 4 ‘Insurance Contracts’ from 1 January 2005 without restating its 2004

income statement and balance sheet. The date of transition to IFRS for the Group and the Company and

the date of their opening IFRS balance sheets was 1 January 2004.

RFS Holdings and consolidation of ABN AMRO

RFS Holdings, the investment vehicle through which RBS, Fortis and Santander acquired ABN AMRO, is

jointly owned by RBS, Fortis N.V., Fortis SA/NV and Santander. However, it is controlled by RBS and is

therefore fully consolidated in RBS’s financial statements. Consequently, the results of the Group for the

year ended 31 December 2007 include the results of ABN AMRO for the period from 17 October 2007 to

31 December 2007. The interests of Fortis and Santander in RFS Holdings are included in minority

interests in the Group’s financial statements.

Cautionary statement relating to write-down and credit exposure estimates

The information set out in the ‘‘Summary’’ and Part I of this document relating to the estimated capital

effect of RBS’s estimated capital market exposures constitutes ‘‘forward-looking information’’ and is

subject to risks and uncertainties, as set out under ‘‘Risk Factors’’ and below under ‘‘Forward-looking

statements’’. In particular, there are a number of assumptions and judgements that underpin such

estimates, including assumptions and judgements about the underlying performance of RBS’s

operations, the state of the current and future credit markets (including credit markets in the United

Kingdom, the United States and Europe), asset valuations, default rates, access to liquidity, the timing of

disposals relating to the ABN AMRO restructuring and general economic conditions. Such information

was prepared for capital planning purposes and not to predict future results and although RBS’s

management believes that it has taken reasonable care in producing such estimations and projections,

there can be no assurance that the estimated capital effect of the projected capital market exposures will

be equivalent to any actual write-downs or credit market exposures appearing in RBS’s reports and

accounts to be prepared in the future. Any additional write-downs may have a material adverse impact

on RBS’s reported financial condition and results of operations.

Forward-looking statements

This document contains or incorporates by reference ‘‘forward-looking statements’’, within the meaning

of Section 27A of the US Securities Act and Section 21E of the US Exchange Act, regarding the belief or

current expectations of RBS, RBS’s Directors and other members of its senior management about RBS’s

businesses and the transactions described in this document, including statements relating to possible

future write-downs and RBS’s capital planning projections. Generally, words such as ‘‘may’’, ‘‘could’’,

‘‘will’’, ‘‘expect’’, ‘‘intend’’, ‘‘estimate’’, ‘‘anticipate’’, ‘‘believe’’, ‘‘plan’’, ‘‘seek’’, ‘‘continue’’ or similar

expressions identify forward-looking statements.

These forward-looking statements are not guarantees of future performance. Rather, they are based on

current views and assumptions and involve known and unknown risks, uncertainties and other factors,

many of which are outside the control of RBS and are difficult to predict, that may cause actual results to

differ materially from any future results or developments expressed or implied from the forward-looking

statements. Factors that could cause actual results to differ materially from those contemplated by the

forward-looking statements include, among other factors:

• the extent and nature of future developments in the credit markets, including the sub-prime market,

and their impact on the financial industry in general and RBS in particular;

• the effect on RBS’s capital of write-downs in respect of credit market exposures;

• successful consummation of the proposed Rights Issue;

• RBS’s ability to achieve revenue benefits and cost savings from the integration of certain of

ABN AMRO’s businesses and assets;

• the potential exposure of RBS to various types of market risks, such as interest rate risk, foreign

exchange rate risk and commodity and equity price risk. 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;

• general economic conditions in the European Union, in particular in the United Kingdom and in

other countries in which RBS has business activities or investments, including the United States;

• the monetary and interest rate policies of central banks, in particular the Bank of England, the

European Central Bank, the Dutch Central Bank, the Board of Governors of the US Federal Reserve

System and other G-7 central banks;

• changes or volatility in interest rates, foreign exchange rates (including the exchange rates between

pounds sterling, US dollars and euros), asset prices, equity markets, commodity prices, inflation or

deflation;

• the effects of competition and consolidation in the markets in which RBS operates which may be

influenced by regulation, deregulation or enforcement policies;

• tax consequences of the restructuring of ABN AMRO;

• changes in consumer spending and savings habits, including changes in government policies

which may influence investment decisions;

• changes in applicable laws, regulations and taxes in jurisdictions in which RBS operates, including

the laws and regulations governing the structure of the transactions described in this document, as

well as actions or decisions by courts and regulators;

• natural and other disasters;

• the inability of RBS to hedge certain risks economically;

• the adequacy of RBS’s impairment provisions and loss reserves;

• technological changes; and

• the success of RBS in managing the risks involved in the foregoing.

These statements are further qualified by the risk factors disclosed in or incorporated by reference in this

document that could cause actual results to differ materially from those in the forward-looking

statements. See ‘‘Risk Factors’’.

These forward-looking statements speak only as at the date of this document. Except as required by the

FSA, the London Stock Exchange, the Part VI Rules or applicable law, RBS does not have any obligation

to update or revise publicly any forward-looking statement, whether as a result of new information,

further events or otherwise. Except as required by the FSA, the London Stock Exchange, the Part VI

Rules or applicable law, RBS expressly disclaims any obligation or undertaking to release publicly any

updates or revisions to any forward-looking statement contained herein to reflect any change in RBS’s

expectations with regard thereto or any change in events, conditions or circumstances on which any

such statement is based.

Classification of financial instruments

Under applicable generally accepted accounting principles, financial instruments are measured at fair

value or amortised cost depending on their classification. Similar financial instruments may be reported

by RBS in more than one classification and, as a result, measured on different bases. For example, loans

classified as loans and receivables under IFRS are carried at amortised cost less impairment losses

while loans classified as held-for-trading are carried at fair value. Furthermore, similar financial

instruments may be classified and measured differently by different financial institutions. In addition,

different financial institutions may use different valuation methodologies which may result in different fair

values for similar instruments. For a discussion of how RBS classifies and values financial instruments,

see ‘‘Accounting policies’’ on pages 124-139 of its Annual Report and Accounts for 2007 which is

incorporated by reference herein.

RIGHTS ISSUE STATISTICS

Price per New Share ........................................ 200 pence

Basis of Rights Issue ........................................ 11 New Shares for

every 18 Existing

Number of Ordinary Shares in issue at the date of this document ........ 10,019,471,665

Number of New Shares to be issued by the Company

(1)

............... 6,123,010,462

Number of Shares in issue immediately following completion of the Rights 16,142,482,127

Issue

(1)

.................................................

New Shares as a percentage of enlarged issued share capital of the 37.9%

Company immediately following completion of the Rights Issue

(1)

.......

Estimated net proceeds receivable by the Company after expenses ....... £12bn

Estimated expenses of the Rights Issue (inclusive of VAT) .............. £246m

Note:

(1) On the assumption that no further Ordinary Shares are issued as a result of the exercise of any options under any

Discretionary Option Plan or any Sharesave Scheme between the posting of this document and the closing of the Rights

Issue.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Each of the times and dates in the table below is indicative only and may be subject to change.

2008

Record Date for entitlement under the Rights Issue for Qualifying CREST

Shareholders and Qualifying Non-CREST Shareholders .................. close of business on

9 May 2008

Latest time and date for receipt of General Meeting Forms of Proxy ........... 12 noon on 12 May 2008

General Meeting ............................................. 12 noon on 14 May 2008

Record date for entitlement under the Rights Issue for Qualifying Euroclear

Shareholders ............................................. close of business on

14 May 2008

Despatch of Provisional Allotment Letters (to Qualifying non-CREST Shareholders

only)

(1)

.................................................. 14 May2008

Start of subscription period ...................................... 15 May 2008

Dealings in New Shares, nil paid, commence on the London Stock Exchange .. 8.00 a.m. on 15 May 2008

Dealings in Euroclear Subscription Rights commence on Euronext Amsterdam ....9.00 a.m. (CET) on 15 May 2008

Existing Shares marked ‘‘ex’’ by the London Stock Exchange and Euronext

Amsterdam ............................................... 8.00 a.m. (9.00 a.m. (CET))

on 15 May 2008

Nil Paid Rights credited to stock accounts in CREST (Qualifying CREST

Shareholders only)

(1)

........................................ 8.00 a.m. on 15 May 2008

Nil Paid Rights and Fully Paid Rights enabled in CREST and Euroclear Subscription

Rights enabled in Euroclear Nederland ............................ by 8.00 a.m. (9.00 a.m. (CET))

on 15 May 2008

Recommended latest time for requesting withdrawal of Nil Paid Rights and Fully

Paid Rights from CREST (i.e. if your Nil Paid Rights and Fully Paid Rights are in

CREST and you wish to convert them to certificated form) ................ 4.30 p.m. on 2 June 2008

Latest time for depositing renounced Provisional Allotment Letters, nil or fully paid,

into CREST or for dematerialising Nil Paid Rights or Fully Paid Rights into a

CREST stock account (i.e. if your Nil Paid Rights and Fully Paid Rights are

represented by a Provisional Allotment Letter and you wish to convert them to

uncertificated form) ......................................... 3.00 p.m. on 3 June 2008

Last time and date for dealings of Euroclear Subscription Rights on Euronext

Amsterdam ............................................... 1.00 p.m. (CET) on 3 June 2008

Latest time and date for subscription by holders of Euroclear Subscription Rights

(5)

. 3.00 p.m. (CET) on 3 June 2008

Latest time and date for splitting Provisional Allotment Letters, nil or fully paid .... 3.00 p.m. on 4 June 2008

Latest time and date for delivery of Euroclear Subscription Rights and payment in

full by holders of Euroclear Subscription Rights ....................... by no later than 10.00 a.m.

(CET) on 6 June 2008

Latest time and date for acceptance, payment in full and registration of

renunciation of Provisional Allotment Letters ....................... 11.00 a.m. on 6 June 2008

Dealings in New Shares, fully paid, commence on the London Stock Exchange . by 8.00 a.m. on 9 June 2008

Dealings in New Shares, fully paid, commence on Euronext Amsterdam ........ 9.00 a.m. (CET) on 9 June 2008

New Shares credited to CREST stock accounts and to the Euroclear Nederland

accounts of the relevant Admitted Institutions ...................... by no later than 11 June 2008

Despatch of definitive share certificates for the New Shares in certificated form .... by no later than 16 June 2008

Notes:

(1) Subject to certain restrictions relating to Shareholders with registered addresses outside the UK, details of which are set out

in Part III of this document.

(2) The times and dates set out in the expected timetable of principal events above and mentioned throughout this document

may be adjusted by RBS in consultation with Goldman Sachs International and Merrill Lynch International in which event

details of the new times and dates will be notified to the UK Listing Authority, the London Stock Exchange, Euronext and,

where appropriate, Qualifying Shareholders.

(3) References to times in this timetable are to London (BST) times unless otherwise stated.

(4) If you have any queries on the procedure for acceptance and payment, you should contact Computershare on

0870 702 0135 or +44 870 702 0135 if calling from outside the United Kingdom between 9.00 a.m. and 5.00 p.m. on any

London business day.

(5) The Admitted Institutions may set an earlier deadline for subscription by holders of Euroclear Subscription Rights in order to

permit the Admitted Institutions to communicate this acceptance to the Dutch Subscription Agent in a timely manner.

(6) If holders of Euroclear Subscription Rights have any queries in relation to the procedure for acceptance and payment, they

should contact ABN AMRO Bank on +31 20 383 6707 between 9.00 a.m. and 5.00 p.m. (CET) on any Amsterdam business

day.

DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

Directors

Sir Tom McKillop Chairman

Sir Fred Goodwin Group Chief Executive

Guy Whittaker Group Finance Director

Johnny Cameron Chairman, Global Markets

Lawrence Fish

(1)

Chairman, RBS America and Citizens

Mark Fisher Chairman, Managing Board, ABN AMRO

Gordon Pell Chairman, Regional Markets

Colin Buchan

(2)

Non-Executive Director

Jim Currie

(2)

Non-Executive Director

Bill Friedrich

(2)

Non-Executive Director

Archie Hunter

(2)

Non-Executive Director

Charles ‘‘Bud’’ Koch Non-Executive Director

Janis Kong

(2)

Non-Executive Director

Joe MacHale

(2)

Non-Executive Director

Sir Steve Robson

(2)

Non-Executive Director

Bob Scott

(2)

Non-Executive Director

Peter Sutherland

(2)

Non-Executive Director

Notes:

(1) Lawrence Fish will become a Non-Executive Director with effect from 1 May 2008.

(2) Independent Non-Executive Director.

Each of the Directors’ business address is the Company’s registered address at 36 St Andrew Square,

Edinburgh EH2 2YB.

Group General Counsel and Group Secretary

Miller McLean

Registered office

36 St Andrew Square

Edinburgh EH2 2YB

Telephone: 0131 556 8555, or, when dialling from outside the United Kingdom, +44 131 556 8555.

Registered in Scotland No. 45551

Joint Financial Adviser, Joint Sponsor Joint Financial Adviser, Joint Sponsor

and Joint Bookrunner and Joint Bookrunner

Goldman Sachs International Merrill Lynch International

Peterborough Court Merrill Lynch Financial Centre

133 Fleet Street 2 King Edward Street

London EC4A 2BB London EC1A 1HQ

Joint Bookrunner Co-Bookrunner

The Royal Bank of Scotland plc UBS Limited

36 St Andrew Square 1 Finsbury Avenue

Edinburgh EH2 2YB London EC2M 2PP

Auditors Reporting Accountants

Deloitte & Touche LLP Deloitte & Touche LLP

Saltire Court Saltire Court

20 Castle Terrace 20 Castle Terrace

Edinburgh EH1 2DB Edinburgh EH1 2DB

Legal Advisers to RBS Legal Advisers to the Joint Financial

as to English, US and Dutch law Advisers, Joint Sponsors, Joint Bookrunners

and Co-Bookrunner as to English, US and

Linklaters LLP

Dutch law

One Silk Street

London EC2Y 8HQ Freshfields Bruckhaus Deringer

65 Fleet Street

Linklaters LLP

London EC4Y 1HS

World Trade Centre Amsterdam

Tower H, 22nd Floor Freshfields Bruckhaus Deringer

Zuidplein 180 Strawinskylaan 10

1077 XV Amsterdam 1077 XZ Amsterdam

Registrars Receiving Agent

Computershare Investor Services PLC Computershare Investor Services PLC

The Pavilions Corporate Actions 1

Bridgwater Road The Pavilions

Bristol BS99 6ZZ Bridgwater Road

Bristol BS99 6AF

Dutch Subscription, Listing and Paying Agent

ABN AMRO Bank N.V.

Equity Capital Markets/Corporate Actions

Gustav Mahlerlaan 10

1082 PP Amsterdam

5JUL200702360541

PART I

LETTER FROM THE CHAIRMAN OF RBS

30 April 2008

Dear Shareholder,

Proposed 11 for 18 Rights Issue at 200 pence per New Share to Qualifying Shareholders

On 22 April 2008, RBS announced a rights issue to raise proceeds of £12bn, net of expenses, to increase

its capital base. In advance of the General Meeting on 14 May 2008 convened by a separate Letter to

Shareholders, I am writing to provide you with further details about the Rights Issue, which has been fully

underwritten by Goldman Sachs International, Merrill Lynch International, UBS and the other

Underwriters. This document also contains certain information in compliance with RBS’s obligations

under the Listing Rules 13.4.3(3)-(5) following the acquisition of ABN AMRO.

1 Background to and reasons for the Rights Issue

On 22 April, as part of the announcement of the terms of the Rights Issue, RBS also announced revised

targets for its capital ratios, estimated write-downs for capital planning purposes, planned disposals and

proposals relating to the 2008 interim dividend, and gave details of its current trading performance.