IFRS 2004 results. Tom de Swaan Chief Financial Officer, Member of the Managing Board. Amsterdam, 30 March 2005

Transcription

1 IFRS 2004 results Tom de Swaan Chief Financial Officer, Member of the Managing Board Amsterdam, 30 March 2005

2 Disclaimer IFRS The data contained in this document is solely intended to provide a general overview of the impact of IFRS on the financial reporting of ABN AMRO Holding N.V. (ABN AMRO). It does not replace any formal reporting. Investment considerations should continue to be based on the periodical reporting and other information that ABN AMRO is required to disclose by law or stock exchange regulations. The data contained in this document is in accordance with IFRS standards as issued at 31 December Amounts in this document are unaudited. In accordance with European Union rulings, we have not utilized the option within IFRS to elect liabilities to fair value, nor have we utilized the EU carve-out that permit forms of hedging not allowed under IFRS. Because the summarized IFRS financial data is to be used for comparative purposes, we will update the data for any changes or developments in IFRS or EU rules in 2005 if those amendments permit retrospective application. The IFRS financial reporting is not final and may change as a result of (amongst others) the following: Changes in IFRS Standards and Interpretations; Audit procedures. 2

3 Foreword The Group s 2004 financial statements under IFRS are based on the standards as adopted by the EC and interpretations at 31 December Amounts in this presentation are unaudited The 2004 IFRS results are on the basis of the full implementation and therefore include IAS 32 & 39. The advantage is that it provides a valid comparison for 2005 IFRS results Q IFRS results will be published in the new IFRS reporting format on 27 April We will then also provide the breakdown per quarter per (S)BU for

4 Key Issues We support the move towards international standards The step-by-step approach to international standards needs to be principles based and not rules based We concur with the change from historical cost to fair value We will not make use of the IAS 32 & 39 carve out, and show 2004 IFRS numbers on the basis of full implementation No change in dividend policy as we will strive to at least maintain a stable dividend with the aim of increasing it over time to reflect improved underlying earnings We will already publish the line items of the Special Component of Equity in order to maintain our transparency at a high level The transition impact will for a large part have disappeared within four years 4

5 IFRS impact on Balance Sheet and Income Statement

6 IFRS impact on Balance Sheet: Opening Balance Sheet 1 January 2004 Consolidated Statement of changes in shareholders equity (In millions of euro) Shareholders equity at 1 January 2004 under IFRS 12,119 Change to ordinary share capital (including share premium) Change in treasury stock Net profit for the year Dividend paid Movement in currency translation reserve Movement in cash flow hedging reserve Movement in available for sale reserve Derivatives on own shares Other reserve movements (including goodwill corrections) 49 (513) 3,865 (694) (239) (301) (35) Shareholders equity at 31 December 2004 under IFRS 14,815 6

7 IFRS impact on Balance Sheet: Impact on Shareholders Equity (In millions of euro) Dutch GAAP equity Release of FAR Reclassification of preference shares Reversal of property revaluation Reclassification re Banco Real Transition items Difference in 2004 profit 1-Jan-04 13,047 1,143 (813) (130) (231) (1,115) - 31-Dec-04 14,972 1,149 (767) (87) (231) (1,115) (244) Impact of gains and losses not recognised income Impact of AFS reserve Special Component of Equity Impact of cash flow hedging Reversal of Dutch GAAP pension booking to equity Difference in cumulative translation account movement Impact of other differences in IAS and Dutch GAAP equity Derivatives - own shares Impact of goodwill capitalisation Other impacts on retained earnings 489 (165) - - (106) - - 1,001 (466) 479 (40) Total impact Total IFRS equity (928) 12,119 (157) 14,815 7

8 IFRS impact on Balance Sheet: Transition impact on Shareholders Equity Transition impact (In millions of euro) Release of Interest Equalisation Reserve Impact of derivatives and hedging Fair value adjustments Private Equity impact (consolidation and fair valuation) Loan impairment Property development Impact from Leasing division (sold 2004) Equity accounted investees Pensions Other Taxation impact Total net of taxation 1,563 (560) (160) 56 (405) (108) (148) (100) (1,475) (355) 577 (1,115) 8

9 IFRS impact on Income Statement: Reconciliation net profit under IFRS Net profit under Dutch GAAP Preferred Dividend Net profit available for ordinary shareholders 4,109 (43) 4,066 Reconciling items: IER amortisation investment portfolio AFS realisations and other including hedging Mortgage banking business Fair value adjustments Derivatives Private equity Pension costs Employee stock options Sale of Leaseplan/Bank of Asia Impact from reclass of preference shares to debt Loan provisioning Other IFRS impacts (454) (19) (161) (230) (21) 224 (42) 29 (39) Impact before taxation (484) Tax effect 283 Net profit under IFRS 3,865 9

10 IFRS impact on Tier 1 Capital Outstanding Ratio Tier 1 capital under Dutch GAAP 20, % Transition items impacting Tier 1 (1,115) Lower 2004 IFRS result (244) Reversal of Dutch GAAP pension bookings end of year 479 Other differences 160 Tier 1 capital under IFRS 19, % 10

11 IFRS impact on (S)BUs

12 IFRS impact on BU North America IFRS 2004 net profit is EUR 276 mln lower as compared to Dutch GAAP (excluding special items), which is mainly due to: Realised losses from the sale of part of the investment portfolio (net negative impact EUR 266 mln). Under Dutch GAAP these losses are deferred to the Balance Sheet and amortised via the Interest Equalisation Reserve. Under IFRS they are directly charged to the P&L Different valuation of MSR s (net negative impact EUR 162 mln). Hedge ineffectiveness is charged to the income statement immediately under IFRS and deferred under Dutch GAAP Loan loss provisions, which are slightly higher under IFRS (net negative impact EUR 30 mln) Tax (net positive impact EUR 155 mln), due to the lower operating result under IFRS 12

13 IFRS impact on WCS, excluding Private Equity IFRS 2004 net profit is EUR 149 mln lower than under Dutch GAAP, mainly due to: Day one profit deferrals (net negative impact EUR 99 mln). Under IFRS the unobservable part of any fair value calculated at inception of a contract should be deferred over the life of the contract. This principle has a material impact on our structured products P&L, as under Dutch GAAP day one profits are fully recognised in the P&L Bifurcation (net negative impact EUR 76 mln). Under IFRS, In any combined product the profit on the derivative instrument is deferred to the Balance Sheet and amortised over the life of the product. Under Dutch GAAP these contracts are part of the trading book and as a result the change in market value was directly recognised in the P&L Losses incurred on derivative instruments in the Money Market banking books that are not part of an IFRS hedge relationship (net negative impact EUR 52 mln). These mainly relates to credit derivatives Tax (net positive impact EUR 70 mln) due to lower operating result under IFRS. 13

14 IFRS impact on Private Equity IFRS has a major impact on the Private Equity numbers. Under Dutch GAAP 2004 revenues were EUR 317 mln versus IFRS EUR 1,404 mln. W.r.t. expenses, Dutch GAAP showed EUR 35 mln whilst IFRS showed EUR 949 mln in 2004 This is mainly due to the different consolidation rules. Under IFRS, Private Equity entities in which we have a controlling stake, are fully consolidated, which leads to an additional EUR 840 mln in revenues and 834 mln in expenses The IFRS net profit is EUR 80 mln higher, at EUR 377 mln, which is mainly due to net asset value adjustments and fair market valuation of the investment portfolio 14

15 IFRS impact on Group Functions/GSS IFRS 2004 net profit is EUR 109 mln lower than under Dutch GAAP after deduction of preferred dividend but excluding special items, mainly due to: Interest Equalisation Reserve amortisation (net negative impact EUR 446 mln) Premium on redemption of preference shares (net negative impact EUR 42 mln) The positive effect of US hedge contracts not properly externalised (net positive impact EUR 255 mln). Although the hedges are related to BU North America, the impact is recorded in Group Functions because the proper externalization of the internal hedges of BU North America was a group responsibility. Share based payments (net negative impact EUR 21 mln), which are expensed under IFRS, but were not under Dutch GAAP Tax (net positive impact EUR 96 mln) 15

16 IFRS impact on other (S)BU s, excluding special items, is very limited Net profit in the BU NL is EUR 22 mln higher In BU Brazil, net profit is EUR 16 mln higher BU NGM s net profit is EUR 14 mln higher Bouwfonds net profit is EUR 4 mln lower Net profit of Private Clients is EUR 3 mln higher The net profit of Asset Management under IFRS is EUR 7 mln lower Leaseplan Corporation s net profit under IFRS is EUR 4 mln lower 16

17 Conclusion

18 Conclusion IFRS will have no effect on our strategy or on the development of our business activities 2004 IFRS numbers are based on the full implementation of IFRS No change in dividend policy as we will strive to at least maintain a stable dividend with the aim of increasing it over time to reflect improved underlying earnings We will already publish the line items of the Special Component of Equity in order to maintain our transparency at a high level The transition impact will for a large part have disappeared within four years 18

19 Appendices

20 IFRS versus Dutch GAAP IFRS impact on Income Statement 20

21 IFRS versus Dutch GAAP Hedging Philosophy Share Based Payments Debt/Equity Loan loss provisioning Goodwill Pensions Mortgage Banking activities Investment Portfolio/IER Hedge Accounting Fair Value IAS 39 21

22 IFRS versus Dutch GAAP: Main differences for ABN AMRO Hedging Philosophy - Dutch GAAP: Accounting of the hedge follows the accounting of the hedged item - IFRS: Accounting of hedged item follows the accounting of the hedge strict conditions apply Share Based Payments - Dutch GAAP: Stock options not expensed - IFRS: Stock options expensed at fair value Impact 2004 Income Statement: - EUR 21 min Debt/Equity - A more strict definition of Equity is applicable under IFRS. An instrument only qualifies as equity if the payment of a dividend is at the discretion of the issuer Impact 2004 Shareholder s Equity : - EUR 998 mln 22

23 IFRS versus Dutch GAAP: Main differences for ABN AMRO (2) Loan loss provisioning - Dutch GAAP: value based on nominal cash flows - IFRS: value based on discounted cash flows. Only specific loan losses are allowed Impact 2004 Income Statement: + EUR 29 mln Shareholder s Equity: - EUR 405 mln Goodwill - Dutch GAAP: Goodwill immediately charged to Equity - IFRS: goodwill has to be capitalised including an annual impairment test Impact 2004 Shareholder s Equity: + EUR 46 mln Pensions - ABN AMRO has decided to charge all cumulative actuarial differences against Shareholders Equity at transition date (Fresh Start approach). IFRS method as such does not differ significantly from US GAAP, which we used before Impact 2004 Income Statement: + EUR 89 mln Shareholder s Equity: -1,475 mln 23

24 IFRS versus Dutch GAAP: Main differences for ABN AMRO (3) Mortgage banking activities - Dutch GAAP: only the realised results of terminated hedges are accounted for in the book value of the MSRs - IFRS: Hedge accounting requires unrealised fair value changes to be accounted for in the book value of the MSRs. In addition ineffectiveness is booked through the income statement immediately Impact 2004 Income Statement: - EUR 161 mln Investment portfolio/interest Equalisation Reserve (IER) - Dutch GAAP: the portfolio is stated at amortised cost, results on sales are booked in the IER and amortised over the average life of the investment portfolio - IFRS: the AFS-part of the portfolio has to be fair valued through Equity. Realised results on sales have to be booked immediately through the income statement Impact 2004 Income Statement: AFS EUR 19 mln Impact 2004 Shareholder s Equity: AFS + EUR 1,001 mln IER EUR 454 mln IER + EUR 1,563 mln 24

25 IFRS versus Dutch GAAP : IAS 39 Hedge Accounting - Effectiveness: in practice many hedges are less than 100% perfect Every difference in the change of the fair value of the hedge and the hedged item has to be booked immediately in the Income Statement. If ineffectiveness exceeds a certain level (80% - 125%) only the fair value change of the hedge can be booked in the Income Statement - Externalisation: clear demonstration of external hedge relationship Every internal hedged risk has to be laid off through an external transaction - Documentation: required by IAS 39 rules To qualify as a hedge, the relation between a hedge and a hedged item has to be documented thoroughly 25

26 IFRS versus Dutch GAAP : IAS 39 Fair Value - Broader scope: IFRS forces more instruments to be fair valued, for example all derivatives and the AFS portfolio - Deeper impact: the fair value should be based on objective (market) data - Bifurcation: if an instrument includes an embedded derivative with a nature that differs from the host instrument, that derivative has to be separated from the host instrument and marked-to-market through the Income Statement Impact 2004 Income Statement: - EUR 230 mln Shareholder s Equity: - EUR 160 mln 26

27 IFRS versus Dutch GAAP IFRS impact on Income Statement 27

28 IFRS impact on Income Statement Fair Value adjustments; derivatives, inefficiencies, AFS Private Equity IER MSR Hedge ineffectiveness Pension costs and impact of fresh start approach Reconciliation net profit under IFRS 28

29 IFRS impact on Income Statement Impacts arising from greater use of fair values Fair value effects on derivatives are limited as most items involved are covered by hedge accounting Ineffectiveness in IFRS hedge relationships, for example Mortgage Servicing Rights Realised gains and losses on AFS assets are booked directly to income (not via IER) Fair value changes in Private Equity portfolio 29

30 IFRS impact on Income Statement As a consequence of the consolidation of controlled Private Equity entities, both gross revenues and gross costs of these entities have to be included in the consolidated income statement of ABN AMRO. To improve transparency we have decided to present Private Equity separately, with its own P&L Impact of IFRS on Income Statement basically due to two transition items which will run off within a limited number of years and one item which has been our own choice (Pensions): Interest Equalisation Reserve (IER) MSR Hedge ineffectiveness Pension costs 30

31 IFRS impact on Income Statement: Impact of Pension fresh start approach DUTCH GAAP Pension costs Interest equalisation IFRS The negative impact of the loss of the IER contribution in the coming years will be more than offset by the lower pension costs (EUR 120 mln) as from 2007 *please note that IER under IFRS goes directly to Equity 31

32 Cautionary Statement regarding Forward-Looking Statements This document contains forward-looking statements. Forward-looking statements are statements that are not historical facts, including statements about our beliefs and expectations. Any statement in this announcement that expresses or implies our intentions, beliefs, expectations or predictions (and the assumptions underlying them) is a forward-looking statement. These statements are based on plans, estimates and projections, as they are currently available to the management of ABN AMRO. Forwardlooking statements therefore speak only as of the date they are made, and we take no obligation to update publicly any of them in light of new information or future events. Forward-looking statements involve inherent risks and uncertainties. A number of important factors could therefore cause actual future results to differ materially from those expressed or implied in any forwardlooking statement. Such factors include, without limitation, the conditions in the financial markets in Europe, the United States, Brazil and elsewhere from which we derive a substantial portion of our trading revenues; potential defaults of borrowers or trading counterparties; the implementation of our restructuring including the envisaged reduction in headcount; the reliability of our risk management policies, procedures and methods; changes [resulting from the acquisition of Antonveneta, including the risks associated with its business, as well as the difficulties of integrating its systems, operations functions and cultures with ours; and other risks referenced in our filings with the U.S. Securities and Exchange Commission. For more information on these and other factors, please refer to our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission and to any subsequent reports furnished or filed by us with the U.S. Securities and Exchange Commission. The forward-looking statements contained in this document are made as of the date hereof, and the companies assume no obligation to update any of the forward-looking statements contained in this document. 32