Notes to the Consolidated Financial Statements

Notes to the Consolidated Income Statement

 

Segment report Net interest income Net fee and commission income Dividend income Net trading income Gains less losses from financial assets Other operating income

Personnel expenses Other operating expenses Depreciation and amortisation Impairments of corporate loans and other interest bearing assets Tax Result attributable to minority interests

 

	Segment report
1

 

The segment information has been prepared in accordance with IFRS 8, operating segments, which defines requirements for the disclosure of financial information of an entity's operating segments.

 

 

Identification of segments

IFRS 8 requires operating segments to be identified on the basis of internal management reports on components of the entity that are regularly reviewed by the chief operating decision-maker in order to allocate resources to the segment and to assess segment performance.

 

NIBC is comprised of the following operating segments:

• Merchant Banking; and
• Specialised Finance.

Segment information for these two operating segments is presented in these consolidated financial statements on the same basis as used for internal management reporting within NIBC.

 

Through the Merchant Banking business, NIBC advises, finances, and co-invests with its corporate clients in the Benelux and Germany. Coverage bankers maintain long-term relationships and provide strategic advice to NIBC’s clients. Together with product specialists operating in multidisciplinary teams, client teams deliver a wide range of customised products and solutions, including M&A-related transactions (mergers, acquisitions, disposals and buyouts), capital & restructuring advisory, financing, derivative products, mezzanine and equity investments. Investment Management creates and manages funds that are open to third-party investors. Funds have been developed in the fields of private equity and mezzanine (in companies), infrastructure and real estate.

 

Specialised Finance provides asset and project financing in a select number of clearly-defined asset classes: corporate lending, leveraged finance, shipping, oil & gas services, infrastructure & renewables and commercial real estate. It structures, arranges, underwrites and distributes sophisticated international lending transactions for its clients and combines NIBC’s expertise in specific asset classes with its balance sheet and capital markets access. Specialised Finance includes also the retail market and treasury activities. Retail markets activities include residential mortgage origination in the Netherlands and Germany on the basis of white labelling through a number of distribution partners and NIBC’s online retail savings programme, NIBC Direct.

 

IFRS 8 requires the disclosure of the information used by the chief operating decision-maker to allocate resources and to assess performance. Management reporting within NIBC is based on IFRS. Segment reporting under IFRS 8 requires a presentation of the segment results based on management reporting methods and a reconciliation between the results of the operating segments and the consolidated financial statements.

 

The following table presents the results of the operating segments, including a reconciliation to the consolidated results under IFRS for the years ended 31 December 2009 and 2008.

 

 

		Operating segments 1											Total (consolidated financial statements)
in EUR millions		Merchant Banking		Specialised Finance			Total (internal management report)			Consolidation effects 2
		2009	2008	2009	2008		2009	2008		2009	2008		2009	2008
Net interest income		55	48	16	165		72	213		(8)	(6)		64	207
Net fee and commission income		26	33	5	10		32	43		-	-		32	43
Dividend income		4	10	26	40		30	50		-	-		30	50
Net trading income		-	(3)	207	87		207	84		(1)	(2)		205	81
Gains less losses from financial assets		(22)	(60)	(5)	(2)		(26)	(62)		7	4		(19)	(57)
Share in result of associates		2	3	3	4		5	8		-	(1)		5	7
Other operating income		1	1	1	1		1	2		34	39		35	40
OPERATING INCOME		66	32	255	305		321	337		32	34		352	371
OPERATING EXPENSES		58	73	96	108		154	181		33	34		187	215
Impairments of corporate loans		25	22	34	20		59	42		-	-		59	42
Impairments of other interest bearing assets		46	20	19	-		65	20		-	1		65	20
TOTAL EXPENSES		129	115	149	128		278	242		33	35		311	277
PROFIT BEFORE TAX		(63)	(83)	106	178		42	95		(1)	-		41	94
Tax		(17)	(28)	16	29		(1)	1		(1)	-		(2)	1
PROFIT AFTER TAX		(47)	(55)	90	148		43	93		-	-		43	93
AVERAGE ALLOCATED ECONOMIC CAPITAL		365	365	1,035	985		1,400	1,350		-	-		1,400	1,350
AVERAGE UNALLOCATED CAPITAL		-	-	76	198		76	198		-	-		76	198
SEGMENT ASSETS		2,788	2,674	26,272	26,122		29,060	28,796		129	141		29,189	28,937
SEGMENT LIABILITIES		2,626	2,523	24,747	24,651		27,373	27,174		120	125		27,493	27,299
CAPITAL EXPENDITURE		-	1	-	1		-	2		-	-		-	2
SHARE IN RESULT OF ASSOCIATES BASED ON THE EQUITY METHOD		2	3	3	4		5	7		-	-		5	7
INVESTMENTS IN ASSOCIATES BASED ON THE EQUITY METHOD		8	20	27	20		35	40		-	-		35	40
1. Small differences are possible in the table due to rounding. 2. Concerning controlled non-financial companies included in the consolidation.

 

Transactions between segments are conducted on normal commercial terms and conditions. The funding requirements of each segment reflect funding at market interest rates. Segment revenues, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

 

The items displayed under ‘consolidation effects’ refer to entities over which Merchant Banking has control. IFRS requires NIBC to consolidate these entities. The internal management report differs from this, as the investments in these entities are non-strategic and the activities of these entities are non-financial. Therefore, in the income statement of Merchant Banking only NIBC’s share in the net result of these entities is included in the line-item gains less losses from financial assets. Subsequently, under ‘consolidation effects’ this is eliminated and replaced by the figures of these entities used in these consolidated financial statements.

 

In the income statement of Merchant Banking and Specialised Finance the following allocations are made:

• All expenses relating to Risk Management, Corporate Center and the Managing Board are allocated to the two segments based on the number of direct Full-time equivalents (FTEs) in each segment. Total operating expenses relating to support and overhead amounted to EUR 63 million in 2009 (2008: EUR 74 million);
• Certain client-related portfolios are managed by Merchant Banking and Specialised Finance together; all related income and expenses of these portfolios (interest, fee and trading income, impairments and also related operating expenses) are therefore allocated on a 50/50 base to the two operating segments. Total operating income from these portfolios amounted to EUR 105 million in 2009 (2008: EUR 70 million), total operating expenses to EUR 5 million (2008: EUR 7 million) and impairments to EUR 50 million (2008: EUR 44 million);
• All income and expenses related to Treasury activities are included in Specialised Finance, with the exception of income from NIBC’s strategic mismatch position, which is allocated equally to the two operating segments. Income from NIBC’s strategic mismatch position amounted to EUR 28 million in 2009 (2008: EUR 23 million); and
• During 2009, an average of EUR 365 million of economic capital was allocated to Merchant Banking (2008: EUR 365 million), the remainder was allocated to Specialised Finance. The average before tax return on average economic capital for Merchant Banking was 3% in 2009 (2008: 4%).

 

Besides the allocations mentioned above, there are no further inter-segment revenues and expenses in 2009 and 2008.

 

NIBC generated 99% of its revenues in the Netherlands (2008: 102%) and 1% abroad (2008: -2%). Total operating income of our international branches was negative in 2008.

 

	Net interest income
2

 

In EUR millions		2009		2008
INTEREST AND SIMILAR INCOME
Interest income from assets designated at fair value through profit or loss		331		792
Interest income from other assets		367		682
		698		1,474
INTEREST EXPENSE AND SIMILAR CHARGES
Interest expense from liabilities designated at fair value through profit or loss		61		204
Interest expense from other liabilities		573		1,063
		634		1,267
		64		207

 

For the year ended 31 December 2009, net interest income includes accrued interest on impaired financial assets of EUR 1 million (2008: EUR 4 million).

 

For the year ended 31 December 2009, net interest expense related to deposits from customers amounts to EUR 214 million (2008: EUR 151 million).

 

Interest income from debt and other fixed income instruments designated at held for trading or designated at fair value through profit or loss is recognised in interest and similar income at the effective interest rate.

 

Interest income from financial assets reclassified in 2008 following the IAS 39 amendments, both after reclassification and before reclassification (assuming the reclassifications in 2008 had not been made) is displayed in the following table. The difference between the figure before and the figure after reclassification reflects the amortisation of discounts and premiums on financial assets reclassified from held for trading or available for sale.

 

 

in EUR millions		For the period ended 31 December
		2009				2008
		After reclassification		Before reclassification		After reclassification		Before reclassification
Interest income		139		131		331		323

 

	Net fee and commission income
3

 

In EUR millions		2009		2008
FEE AND COMMISSION INCOME
Agency and underwriting fees		4		14
Investment management fees		11		15
Other		18		16
		33		45
FEE AND COMMISSION EXPENSE
Other non-interest related		1		2
		1		2
		32		43

 

	Dividend income
4

 

In EUR millions		2009		2008
Equity investments (available for sale)		4		8
Equity investments (investments in associates and other equity investments at fair value through profit or loss)		-		2
Enhanced investments (fair value through profit or loss)		26		40
		30		50

 

	Net trading income
5

 

In EUR millions		2009		2008
Assets and liabilities designated at fair value through profit or loss (including related derivatives)		77		36
Assets and liabilities held for trading		23		(93)
Other net trading income		105		138
		205		81

 

Net trading income includes a foreign exchange gain of EUR 6 million (2008: loss of EUR 9 million).

 

Net trading income on financial assets reclassified in 2008 following the IAS 39 amendments, both after reclassification and before reclassification (assuming the reclassification in 2008 had not been made) is displayed in the following table:

 

in EUR millions		For the period ended 31 December
		2009				2008
		After reclassification		Before reclassification		After reclassification		Before reclassification
Net trading income		(1)		(53)		(45)		(201)

 

	Gains less losses from financial assets
6

 

In EUR millions		2009		2008
Equity investments
GAINS LESS LOSSES FROM EQUITY INVESTMENTS (AVAILABLE FOR SALE)
Net gain/(losses) on disposal		1		9
Net revaluation gain/(losses) transferred from equity on disposal		1		26
Impairment losses equity investments		(9)		(65)
INVESTMENTS IN ASSOCIATES (EQUITY METHOD)
Impairment losses investments in associates		(5)		-
Gains less losses from associates (fair value through profit or loss)		(7)		(24)
		(19)		(54)
Debt investments
Gains less losses from debt investments (available for sale)		-		(3)
		-		(3)
		(19)		(57)

 

Impairment losses relating to debt investments (available for sale) are presented under impairments of corporate loans and other interest bearing assets (see note 11).

 

	Other operating income
7

 

In EUR millions		2009		2008
Real estate rental income		1		1
Net revenue of non-financial companies included in the consolidation		34		38
Other		-		1
		35		40

 

In EUR millions		2009		2008
NET REVENUE OF NON-FINANCIAL COMPANIES INCLUDED IN THE CONSOLIDATION CAN BE CATEGORISED AS FOLLOWS:
Net sales		49		50
Cost of sales		(15)		(12)
		34		38

 

	Personnel expenses
8

 

In EUR millions		2009		2008
Salaries		56		66
Variable compensation		10		26
PENSION AND OTHER POST-RETIREMENT CHARGES:
Defined benefit plan		6		7
Defined contribution plan		3		3
Other post-retirement charges/(releases)		(2)		(1)
Other social security charges		6		5
Other staff expenses		2		2
Staff cost of non-financial companies included in the consolidation		18		17
		99		125

 

The decrease in salaries and the lower pension and other post-retirement charges in 2009 are mainly explained by lower average FTEs in 2009 (638) compared to 2008 (665).

 

The decrease in variable compensation mainly relates to lower short-term cash bonuses, lower expenses related to share-based payment plans (partly related to forfeited rights due to employees leaving NIBC) and lower performance-related reward arrangements (carried interest).

 

The number of FTEs (excluding the non-financial companies included in the consolidation) increased from 625 at 31 December 2008 to 644 at 31 December 2009. The number of FTEs employed outside of the Netherlands decreased from 106 at 31 December 2008 to 103 at 31 December 2009.

 

At 31 December 2009, 497 FTEs (2008: 516 FTEs) are employed at the non-financial companies included in the consolidation. There are 461 of these FTEs working outside of the Netherlands (2008: 483 FTEs).

 

Information on the pension charge is included in employee benefits (see note 42).

 

Information on NIBC’s share-based payment plans as well as on the remuneration of the individual members of the Statutory Board and Supervisory Board can be found in note 53.

 

	Other operating expenses
9

 

In EUR millions		2009		2008
Fees of the external auditor		3		3
Other operating expenses of non-financial companies included in the consolidation		5		7
Other operating expenses		63		63
		71		73

 

In EUR millions		2009		2008
FEES OF THE EXTERNAL AUDITOR CAN BE CATEGORISED AS FOLLOWS:
Audit financial statements		3		3
Other audit related activities		-		-
Other non-audit related activities		-		-
Fiscal services		-		-
		3		3

 

 

The fees listed above relate to the procedures applied to NIBC and its consolidated group entities by accounting firms and external auditors as referred to in section 1(1) of the Dutch Accounting Firms Oversight Act (Dutch acronym: Wta), as well as by Dutch and foreign-based accounting firms, including their tax services and advisory groups.

 

Operating expenses include a one-off expense of EUR 6 million for the expected net claim under the Dutch Deposit Guarantee Scheme in relation to the bankruptcy of DSB Bank N.V.

 

	Depreciation and amortisation
10

 

In EUR millions		2009		2008
Property, plant and equipment		7		6
Property, plant and equipment non-financial companies included in the consolidation		5		8
Intangible assets		5		3
		17		17

 

In EUR millions		2009		2008
AMORTISATION OF INTANGIBLE ASSETS CAN BE CATEGORISED AS FOLLOWS:
Customer relationships		2		1
Order backlog		2		2
Other intangible fixed assets		1		-
		5		3

 

The intangible assets are related to non-financial companies included in the consolidation.

 

	Impairments of corporate loans and other interest bearing assets
11

 

In EUR millions		2009		2008
IMPAIRMENTS
Loans classified as amortised cost		101		48
Loans classified as available for sale		-		34
Debt investments classified as amortised cost		13		-
Debt investments classified as available for sale		18		7
		132		89
REVERSALS OF IMPAIRMENTS
Loans classified as amortised cost		(10)		(14)
Loans classified as available for sale		-		(11)
Debt investments classified as amortised cost		-		-
Debt investments classified as available for sale		-		-
		(10)		(25)
Other		2		(2)
		124		62

 

Further details on accrued interest income on impaired financial assets can be found in note 2.

 

Impairments of corporate loans and other interest bearing assets reclassified in 2008 (following the amendments to IAS 39) both after reclassification and before reclassification (assuming the reclassification in 2008 had not been made) is displayed in the following table:

 

in EUR millions		For the period ended 31 December
		2009				2008
		After reclassification		Before reclassification		After reclassification		Before reclassification
Impairments of corporate loans and other interest bearing assets		(90)		(59)		(35)		(27)

 

In the table above negative amounts represent losses.

 

	Tax
12

 

In EUR millions		2009		2008
Current tax		20		1
Deferred tax		(22)		-
		(2)		1

 

Futher information on deferred tax is presented in note 33. The tax on NIBC’s profit before tax differs from the theoretical amount that would arise using the basic tax rate.

 

 

In EUR millions		2009		2008
TAX DIFFERENCES CAN BE ANALYSED AS FOLLOWS:
Profit before tax		41		94
Tax calculated at the nominal Dutch corporate tax rate of 25.5% (2008: 25.5%)		11		24
Effect of different tax rates in other countries		(2)		-
Impact of income not subject to tax		(4)		(23)
Impact of expenses not deductible for tax purposes		1		2
Result final tax assessment previous years:
The Netherlands		(5)		-
United Kingdom		(3)		-
Belgium		-		(2)
Germany		1		-
Singapore		(1)		-
		(2)		1
Effective tax rate		(4.9%)		1.1%

 

The impact of income not subject to tax mainly relates to income from equity investments and investments in associates, in which NIBC has a stake of more than 5%, being income that is tax exempt under Dutch tax law.

 

The current tax expense/(income) related to non-financial companies included in the consolidation amounts to EUR 1 million (2008: nil).

 

NIBC Holding N.V. is the parent company of a number of subsidiaries such as NIBC Bank N.V., NIBC Investments N.V. and NIBC Investment Management N.V., which all are part of the same fiscal entity.

 

	Result attributable to minority interests
13

 

In EUR millions		2009		2008
Result attributable to minority interests		(1)		1
		(1)		1

 

The minority interest reflects third-party participations in investment funds controlled by NIBC and in non-financial companies included in the consolidation held by investment funds controlled by NIBC.