<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Form 20-F
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<S> <C>
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-14624
ABN AMRO HOLDING N.V.
ABN AMRO BANK N.V.
(Exact name of Registrants as specified in their charters)
THE NETHERLANDS
(Jurisdiction of incorporation or organization)
FOPPINGADREEF 22, 1102 BS AMSTERDAM
THE NETHERLANDS
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act.
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
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Ordinary Shares(1)........................................ New York Stock Exchange(1)
American Depositary Shares, each representing one Ordinary
Share................................................... New York Stock Exchange
</TABLE>
- ---------------
(1) Not for trading, but only in connection with the listing of American
Depositary Shares, pursuant to the requirements of the New York Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section
15(d) of the Act.
None
Indicate the number of outstanding shares of ABN AMRO Holding N.V.'s
classes of capital or common stock as of the close of the period covered by the
annual report.
<TABLE>
<S> <C>
Ordinary Shares (NLG 1.25).................................. 1,410,279,913
Non-cumulative Preference Shares (NLG 5.00)................. 362,503,010
Convertible Preference Shares (NLG 5.00).................... 2,078,833
Priority Share (NLG 5.00)................................... 1
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [ ] Item 18 [X]
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TABLE OF CONTENTS
ABN AMRO HOLDING N.V.
ABN AMRO BANK N.V.
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PAGE
----
<S> <C> <C>
Certain Definitions............................................... ii
Enforcement of Civil Liabilities.................................. ii
Presentation of Information....................................... ii
Cautionary Statement on Forward-Looking Statements................ iii
Exchange Rates.................................................... iii
ITEM ITEM CAPTION
- ---- ------------------------------------------------------------
PART I
1. Description of Business..................................... 1
2. Description of Property..................................... 44
3. Legal Proceedings........................................... 44
4. Control of Registrant....................................... 44
5. Nature of Trading Market.................................... 46
6. Exchange Controls and Other Limitations Affecting Security
Holders................................................... 48
7. Taxation.................................................... 48
8. Selected Financial Data..................................... 51
9. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 56
9A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 79
10. Directors and Officers of Registrant........................ 79
11. Compensation of Directors and Officers...................... 81
12. Options to Purchase Securities from Registrant or
Subsidiaries.............................................. 82
13. Interest of Management in Certain Transactions.............. 82
PART II
14. Description Of Securities To Be Registered.................. 82
PART III
15. Defaults Upon Senior Securities............................. 82
16. Changes in Securities and Changes in Security for Registered
Securities and Use of Proceeds............................ 82
PART IV
17. Financial Statements........................................ 83
18. Financial Statements........................................ 83
19. Financial Statements and Exhibits........................... 83
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i
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CERTAIN DEFINITIONS
As used herein, "Holding" means ABN AMRO Holding N.V., "ABN AMRO" means
Holding and its subsidiaries and the "Bank" means ABN AMRO Bank N.V. and its
subsidiaries.
As used herein, "NLG" refers to Dutch guilders and "USD" or "$" refers to
U.S. dollars.
ENFORCEMENT OF CIVIL LIABILITIES
Holding is organized under the laws of The Netherlands and the members of
its Supervisory Board (with one exception) and its Managing Board are residents
of The Netherlands or other countries outside the United States. Although
certain ABN AMRO affiliates have substantial assets in the United States,
substantially all of Holding's assets and the assets of the members of the
Supervisory Board and the Managing Board are located outside the United States.
As a result, it may not be possible for investors to effect service of process
within the United States upon Holding or such persons or to enforce against
Holding or such persons in United States courts judgments of such courts
predicated upon the civil liability provisions of United States securities laws.
Holding has been advised by legal counsel in The Netherlands that the United
States and The Netherlands do not currently have a treaty providing for
reciprocal recognition and enforcement of judgments in civil and commercial
matters. Therefore, a final judgment for the payment of money rendered by any
federal or state court in the United States based on civil liability, whether or
not predicated solely upon United States federal securities laws, would not be
enforceable in The Netherlands. However, if the party in whose favor such final
judgment is rendered brings a new suit in a competent court in The Netherlands,
such party may submit to a Dutch court the final judgment which has been
rendered in the United States. If the Dutch court finds that the jurisdiction of
the federal or state court in the United States has been based on grounds that
are internationally acceptable and that the final judgment concerned results
from proceedings compatible with Dutch concepts of due process, to the extent
that the Dutch court is of the opinion that reasonableness and fairness so
require, the Dutch court would, in principle, under current practice, recognize
the final judgment that has been rendered in the United States and generally
grant the same claim without relitigation on the merits, unless the consequences
of the recognition of such judgment contravene public policy in The Netherlands.
PRESENTATION OF INFORMATION
Holding was incorporated under Dutch law on May 30, 1990. Holding owns all
of the shares of the Bank, and itself has no material operations.
The consolidated financial statements of ABN AMRO include the consolidated
financial statements of the Bank, which itself had total assets of NLG 837
billion as of December 31, 1997. As of such date and for the year then ended,
the Bank accounted for approximately 100% of ABN AMRO's consolidated assets,
consolidated total revenue and consolidated net profit.
Unless otherwise indicated, the financial information contained in this
Annual Report on Form 20-F (the "Report") has been prepared in accordance with
Dutch generally accepted accounting principles ("Dutch GAAP"), which, as
disclosed in note 43 to the Consolidated Financial Statements, vary in certain
significant respects from accounting principles generally accepted in the United
States ("U.S. GAAP").
Unless otherwise indicated, (i) references to loans include advances,
finance leases and operating leases, (ii) market share statistics for the
Netherlands Division are based on monthly compilations of statistics by De
Nederlandsche Bank N.V. (the "Dutch Central Bank") and (iii) geographic analyses
of loans are, unless otherwise specifically indicated, based on the location of
the branch or office from which the loan is made.
All annual averages in this Report are based on month-end figures.
Management does not believe that such month-end averages present trends
materially different than those that would be presented by daily averages. As
used herein, 1 billion equals 1,000,000,000.
ii
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All Ordinary Share and per share data have been retroactively adjusted for
a four-for-one stock split of the Ordinary Shares effected on May 12, 1997.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Report that are not historical
facts, including, without limitation, certain statements made in the sections
hereof entitled Item 1 -- "Description of Business," Item 5 -- "Nature of
Trading Market," Item 8 -- "Selected Financial Data," and Item 9 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," are statements of future expectations and other forward-looking
statements under Section 21E under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), that are based on management's current views and
assumptions and involve known and unknown risks and uncertainties that could
cause actual results, performance or events to differ materially from those
expressed or implied in such statements. Actual results, performance or events
may differ materially from those in such statements due to, without limitation,
(i) general economic conditions, (ii) performance of financial markets, (iii)
interest rate levels, (iv) currency exchange rates, including the Dutch
guilder-U.S. dollar exchange rate, (v) changes in laws and regulations,
including monetary convergence and the European Monetary Union, (vi) changes in
the policies of central banks and/or foreign governments and (vii) competitive
factors, in each case on a global, regional and/or national basis. See Item 9 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Introduction."
EXCHANGE RATES
The following table shows, for the years indicated, certain information
regarding the noon buying rate in the City of New York for cable transfers in
Dutch guilders as certified for customs purposes by the Federal Reserve Bank of
New York (the "Noon Buying Rate") expressed in Dutch guilders per U.S. dollar.
<TABLE>
<CAPTION>
AVERAGE
YEAR PERIOD END(1) RATE(1)(2) HIGH LOW
---- ------------- ---------- ---- ----
<S> <C> <C> <C> <C>
1993........................................... 1.95 1.87 1.96 1.76
1994........................................... 1.74 1.81 1.98 1.67
1995........................................... 1.60 1.60 1.75 1.52
1996........................................... 1.73 1.69 1.76 1.61
1997........................................... 2.03 1.96 2.12 1.73
</TABLE>
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(1) In certain cases, the Noon Buying Rate at such dates differed from the rates
used in preparation of the Consolidated Financial Statements. See "Currency
Translation" under "Accounting Policies" in the Consolidated Financial
Statements.
(2) The average rate for each period is the average of the Noon Buying Rates on
the last day of each month during the period.
A significant portion of the assets and liabilities of ABN AMRO are
denominated in currencies other than Dutch guilders. Accordingly, fluctuations
in the value of the Dutch guilder relative to other currencies have had an
effect on the financial performance of ABN AMRO. See Item 9 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, changes in the exchange rate between the Dutch guilder and the U.S.
dollar are reflected in the U.S. dollar equivalent to the price of the Ordinary
Shares on the AEX Stock Exchange and, as a result, affect the market price of
Holding's American Depositary Shares ("ADSs") in the United States. Cash
dividends are paid by Holding in respect of the Ordinary Shares in Dutch
guilders, and exchange rate fluctuations will affect the U.S. dollar amounts
received by holders of ADSs on conversion by Morgan Guaranty Trust Company of
New York, the Depositary for the ADSs (the "Depositary"), of such dividends.
iii
<PAGE> 5
PART I
ITEM 1. DESCRIPTION OF BUSINESS
ABN AMRO is a "universal banking" group offering a wide range of commercial
and investment banking products and services on a global basis through its
network of approximately 1,900 offices and branches in 71 countries. ABN AMRO is
one of the largest banking groups in the world, with total consolidated assets
of NLG 836.4 billion at December 31, 1997. According to The Banker, ABN AMRO was
the fifteenth-largest banking group in the world based on total consolidated
assets and the eighth-largest based on Tier 1 capital at June 30, 1997 and the
tenth largest banking group in the world based on 1997 pre-tax operating profit.
In addition to being the largest banking group based in The Netherlands, ABN
AMRO also has a substantial presence in the United States, where it is the
largest foreign banking group based on total assets held in the country.
The Bank is the result of a merger, effective September 22, 1991, between
Algemene Bank Nederland N.V. ("ABN") and Amsterdam-Rotterdam Bank N.V. ("AMRO").
Prior to the merger, ABN and AMRO were, respectively, the largest and
second-largest banks in The Netherlands. Holding was incorporated under Dutch
law on May 30, 1990 and is the holding company of the Bank. Holding and the Bank
are limited liability corporations duly incorporated under the laws of The
Netherlands. Since the combination, ABN AMRO has more than doubled its net
profit. This performance reflects ABN AMRO's broad diversification of revenue
sources and risks on the basis of geography and products, its leading position
in its home market in The Netherlands, and a cautious management approach that
focuses on shareholder value, profitability and cost control.
At the time of the combination, the senior management of Holding stated
that ABN AMRO's principal long-term financial objectives were average annual
growth, based on Dutch GAAP, in earnings per share of at least 6% and return on
equity of at least 12%. These financial objectives have been surpassed, with
annual growth in earnings per share averaging 10.9% in the years 1990 to 1997
and return on equity improving from 10.0% to 15.7% during the same period. As a
result, management has established higher long-term financial objectives of
average annual growth in earnings per Ordinary Share of at least 7.5%, average
annual growth in net profit of at least 10% and return on shareholders' equity
of at least 13%, based on Dutch GAAP. There can be no assurance that these
objectives will be achieved. In light of the volatility of financial markets,
ABN AMRO's results may fluctuate from year to year.
ABN AMRO's strategy is to use its strong capital base to pursue both
organic growth and expansion through acquisitions with the goal of enhancing its
position in key regions, broadening the range of products and services offered
and entering new markets that it believes have significant long-term growth and
profitability potential without compromising its ability to achieve its targets
for financial performance. In targeting countries outside its "home" markets of
The Netherlands and the Midwestern U.S., the Bank targets relatively homogeneous
market areas which offer an attractive macroeconomic environment and adequate
critical mass for commercial, consumer and investment banking and an opportunity
to be among the top five universal banks. ABN AMRO has acquired a number of
banks and other financial services companies in recent years. Bank acquisitions
include the 1996 acquisitions of Columbia National Bank and other branches in
the Midwestern United States, and the May 1997 acquisition of Standard Federal
Bancorporation ("Standard Federal"), also in the Midwestern U.S. Investment
banking firms acquired include Alfred Berg in Scandinavia and HG Asia based in
Hong Kong in 1995, The Chicago Corporation in the United States in early 1997
and the Australian operations of BZW in early 1998. Reflecting the Bank's
increased focus on emerging markets, the Bank acquired Magyar Hitel Bank in
Hungary in 1996, where ABN AMRO has become the fourth-largest bank, and has
executed an agreement, subject to due diligence and other conditions, to acquire
75% of the equity of Bank of Asia in Thailand, where the Bank already had
significant operations. In March 1997, the Bank completed the sale of
MeesPierson, a subsidiary that engaged in commercial lending and investment
banking activities.
Holding has a two-tier system of corporate governance, consisting of a
supervisory board (the "Supervisory Board") and a managing board (the "Managing
Board"). The Supervisory Board has the power to appoint and discharge members of
the Managing Board and the right to approve certain important
1
<PAGE> 6
management decisions, in addition to exercising general supervisory authority
over the affairs of ABN AMRO and advising the Managing Board in connection with
its management of ABN AMRO. Members of the Supervisory Board serve for four-year
terms, subject to reappointment, resignation, death, dismissal by a court or
agreed mandatory retirement at age 70. Members are appointed by the Supervisory
Board itself, subject, in part, to the right of the shareholders' committee of
Holding, pursuant to authority delegated to it by the general meeting of
shareholders, to recommend and, on certain limited grounds, contest a
replacement. Because of Holding's system of corporate governance and other
corporate arrangements relating to control of Holding, and because the holders
of Ordinary Shares of Holding are entitled to vote on only a limited range of
matters, holders of Ordinary Shares have only limited control over Holding's
Supervisory Board and Managing Board and the affairs of Holding. See Item 4 --
"Control of Registrant," and Item 10 -- "Directors and Officers of Registrant."
The Bank traces its origin to the formation of the "Nederlandsche
Handel-Maatschappij, N.V." in 1825 pursuant to a Dutch Royal Decree of 1824.
OPERATING DIVISIONS
The Bank and its numerous subsidiaries are organized into three operating
divisions: the Netherlands Division, the International Division and the
Investment Banking and Global Clients Division ("IB&GC Division"). In addition,
the Bank owns ABN AMRO Lease Holding N.V. ("ABN AMRO Lease Holding"), an
independently managed subsidiary. The operating divisions are supported by
common staff functions that include the Risk Management Division, the Resources
Management Division and Policy Support.
The following table indicates for 1997 the contribution made to total
revenue, total operating profit before taxes and risk-weighted total assets by
each operating division and ABN AMRO Lease Holding, as well as an analysis of
offices and branches by division and independent subsidiary.
<TABLE>
<CAPTION>
OPERATING PROFIT RISK-WEIGHTED OFFICES AND
TOTAL REVENUE BEFORE TAXES TOTAL ASSETS BRANCHES
--------------- ---------------- ---------------- -----------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES AND OFFICES AND BRANCHES)
<S> <C> <C> <C> <C> <C> <C> <C>
Netherlands Division.......... 7,219 30.4% 2,146 37.1% 146,310 31.8% 962
International Division........ 11,582 48.7 2,681 46.3 238,412 51.9 856(1)
IB&GC Division................ 4,004 16.8 930 16.1 63,407 13.8 61(1)
ABN AMRO Lease Holding........ 884 3.7 239 4.1 11,676 2.5 30
Non-allocated results......... 79 0.4 185 3.2
Addition to Fund for general
banking risks............... (395) (6.8) -- -- --
------ ------ ----- ------ ------- ------ -----
Total......................... 23,768 100.0% 5,786 100.0% 459,805 100.0% 1,888
====== ====== ===== ====== ======= ====== =====
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(1) 21 offices are shared by the International and IB&GC Divisions.
NETHERLANDS DIVISION
Operating through the Bank's network of approximately 1,000 branches and
complementary distribution channels such as electronic and telephone banking,
the Netherlands Division provides a wide range of retail and corporate banking
products and services, including deposit accounts, commercial and personal
loans, mortgage lending, consumer finance, electronic banking, payment and
securities brokerage services and insurance. The Bank services the entire Dutch
retail and corporate banking market, with products and services targeted to the
financial needs of specific customers.
Although one of the smaller countries in Western Europe in terms of
territory and population, The Netherlands is one of the wealthier countries in
Europe, with a per capita income of NLG 45,100 ($23,100) in 1997. The small size
and high population density of The Netherlands, a relatively saturated banking
market and a liberal regulatory environment in the financial services industry,
among other factors, have led to a
2
<PAGE> 7
consolidation of the financial services sector in The Netherlands into
relatively few major institutions, including ABN AMRO.
At December 31, 1997, the Netherlands Division had total customer loans of
NLG 161.8 billion and total customer deposits of NLG 167.4 billion, resulting in
a 21% share of total lending and a 27% share of total customer deposits and
making ABN AMRO one of the leading financial institutions in The Netherlands.
Lending activity is composed of commercial lending to small, medium-sized and
large corporations (48% of total private sector loans of the Netherlands
Division at December 31, 1997) and home mortgage and other retail lending
(representing 52% of such total private sector loans at the same date). Retail
and corporate customers hold approximately 3.5 million and 0.5 million current
accounts, respectively, which provide the Bank with a stable source of funding.
During the last several years, ABN AMRO's strategy has been to enhance the
profitability of the Netherlands Division by rationalizing the branch network
through a reduction in branches and headcount and by encouraging customers to
use efficient payment channels. ABN AMRO has also sought to increase revenues by
marketing higher valued added products and services, such as private banking
services for high net worth customers and small- and medium-sized institutional
investors and life insurance and annuities, and by broadening its distribution
channels through electronic banking, cash dispensers, direct mail and "ABN AMRO
24 x 7," an around-the-clock telephone banking and securities trading services
started in 1996.
ABN AMRO intends to substantially expand its insurance operations in future
years. This approach reflects ABN AMRO's belief that, in the long term, only the
integrated delivery of banking and insurance products will permit ABN AMRO to
maintain quality and profitability standards in the Netherlands Division. ABN
AMRO currently acts as insurer and authorized underwriting agent directly or
through subsidiaries and also provides insurance brokerage activities.
The Bank believes that a client-oriented approach is the key to the
successful delivery of financial services in The Netherlands. The rapid
individualization of client needs has made it increasingly difficult to identify
market segments. In response, the Bank has transformed its 225 largest branches
in The Netherlands into local businesses, operating with substantial autonomy
and capable of providing on a real-time basis products and services responsive
to client needs. With a broader delegation of authority to local branch
managers, made possible in part by investments in information systems to improve
marketing capabilities and to simplify credit approval procedures for consumer
and smaller commercial loans, ABN AMRO has been able to eliminate a layer of
management in its domestic branch network. The financial markets in The
Netherlands are experiencing a rapid increase in competition, products and
distribution channels. ABN AMRO believes that its success in the future will
depend largely on the fast, innovative and effective development of new products
and services, in combination with targeted marketing.
INTERNATIONAL DIVISION
The International Division provides banking and other financial services,
including complex financial products, to ABN AMRO's multinational corporate
client base through its network of more than 850 offices and branches in 66
countries and territories worldwide. Through acquisitions of local financial
services businesses and organic growth, ABN AMRO has established, in selected
countries, a significant local business franchise, which provides banking and
other financial products and services to consumers and middle market corporate
customers. This is a strategy which ABN AMRO intends to pursue on a selective
basis through potential acquisitions of strong local banks in major economies or
emerging markets. In considering expansion into a particular geographic region,
ABN AMRO evaluates not only the local opportunity but also the potential for
contribution to the rest of ABN AMRO's global network.
Senior bankers within the International Division are responsible for
managing worldwide relationships with ABN AMRO's largest corporate and
institutional clients. In general, the focus of these bankers is on high value
added products and services, including off balance sheet instruments, that
generate fee income, and to high quality delivery of more conventional corporate
banking services.
3
<PAGE> 8
The following table indicates the contribution for 1997 made to total
revenue, total operating profit before taxes and total risk-weighted assets by
each region in the International Division, as well as an analysis of offices and
branches of the International Division at December 31, 1997 by region.
<TABLE>
<CAPTION>
OPERATING PROFIT OFFICES AND
TOTAL REVENUE BEFORE TAXES RISK-WEIGHTED ASSETS BRANCHES
--------------- ---------------- -------------------- -----------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES AND OFFICES AND BRANCHES)
<S> <C> <C> <C> <C> <C> <C> <C>
Europe (excluding The
Netherlands)............... 2,575 22.2% 560 20.9% 58,773 24.7% 173
North America................ 6,051 52.3 1,505 56.1 128,512 53.9 439
South and Central America.... 1,614 13.9 547 20.4 12,263 5.1 121
Middle East and Africa....... 219 1.9 61 2.3 240 0.1 70
Asia/Pacific................. 1,123 9.7 8 0.3 38,624 16.2 53
------ ------ ----- ------ ------- ------ ---
Total International
Division................... 11,582 100.0% 2,681 100.0% 238,412 100.0% 856
====== ====== ===== ====== ======= ====== ===
</TABLE>
Europe (excluding The Netherlands)
ABN AMRO uses its network of 173 offices and branches in 27 European
countries and territories outside The Netherlands, including all of the current
member states of the European Union, to deliver sophisticated corporate banking
and other financial services to multinational and large local corporations, such
as trade finance, structured and project finance, electronic banking services,
cash management and netting of international payments. ABN AMRO also provides
private banking services to clients in, among other countries, Switzerland,
France, Luxembourg and Germany.
ABN AMRO believes that its substantial European operations are a key
ingredient in its ability to successfully market the underwriting, advisory,
trading and structured finance services to ABN AMRO's largest corporate clients.
ABN AMRO is preparing for the introduction of the single European currency, the
Euro, on January 1, 1999, by making substantial investments in information
technology, adapting existing products to the Euro and developing new products
for the Euro environment. ABN AMRO's Euro strategy is to offer flexibility to
individual and business customers worldwide, with customers deciding for
themselves which products they want converted and when. With a presence in all
European Union countries, ABN AMRO believes that it will be well placed to take
advantage of new opportunities offered by the impending arrival of the Euro. The
Bank also believes that the advent of the Euro increases the attractiveness of
acquisitions of other banks and other financial institutions in Western Europe.
ABN AMRO believes that Central and Eastern Europe continue to provide
attractive opportunities for growth. In response, a significant component of ABN
AMRO's strategy in Europe is to expand its office network in Central and Eastern
Europe to facilitate the delivery of banking services to large corporate
clients. ABN AMRO has established significant consumer banking operations in
Hungary and Poland through the acquisition of local banks, and currently has
offices in the Czech Republic, Romania, Russia, Uzbekistan and Kazakstan.
North America
ABN AMRO is the largest foreign banking group in the United States, based
on total assets held in the U.S. of NLG 197 billion ($98 billion) at December
31, 1997, with 435 offices and branches and 16,864 full-time equivalent
employees in the country. ABN AMRO also has offices and branches in Canada and
Mexico.
ABN AMRO's principal U.S. banking operations are in the Midwest. ABN AMRO
first achieved a substantial presence in that market with its 1979 acquisition
of LaSalle Bank. During the next 13 years, smaller financial institutions in the
Chicago metropolitan area were acquired and then combined under the LaSalle
name. The banks and savings institutions which form the LaSalle group (the
"LaSalle Group") comprise one of the largest banking groups in the Chicago
metropolitan area. The LaSalle Group provides retail and private banking
services in the Chicago metropolitan area, and home mortgage banking services as
well as small and middle market business loans in the Midwest and other regions.
In 1997 ABN
4
<PAGE> 9
AMRO acquired Standard Federal Bancorporation, Inc., the parent of Standard
Federal Bank and its Bell Federal Bank division in Chicago, for an aggregate
cash purchase price of approximately $1.9 billion. The branches of Standard
Federal Bank continue to operate under the Standard Federal name and operate as
a stand-alone federal savings bank. The mortgage origination and servicing
entities of the LaSalle group and Standard Federal have been integrated and are
the ninth largest mortgage originators in the United States.
In the metropolitan New York city area ABN AMRO owns European American Bank
("EAB"), which provides retail banking, private banking, and small and middle
market business loans. EAB also issues and administers credit cards, both under
its own name and for third parties, and also recently entered the equipment
leasing business.
In addition, ABN AMRO operates eleven branches or agencies in major cities
throughout the United States that are dedicated primarily to servicing major
local corporations and large multinational corporations in their U.S.
activities.
One of ABN AMRO's capital markets subsidiaries, ABN AMRO Securities (USA),
has section 20 Tier 1 and 2 powers granted by the Federal Reserve Board, which
enables it to underwrite and trade corporate debt and equity securities (subject
to regulatory limitations). On January 2, 1997, ABN AMRO acquired The Chicago
Corporation, a Chicago-based investment bank. This acquisition operates under
the name ABN AMRO Incorporated and provides ABN AMRO with futures, securities
and options clearing and trading capability as well as the opportunity to expand
the range of investment banking services that ABN AMRO can offer to middle
market corporate customers, particularly in the midwestern United States. In
January 1998 ABN AMRO Incorporated entered into a definitive agreement for its
U.S. affiliates to acquire the business and substantially all of the assets of
Sage Clearing Limited Partnership, a leading market maker clearing firm.
South and Central America
ABN AMRO has 121 offices and branches in 13 South and Central American
countries. This network, which includes offices opened in Colombia in 1997,
facilitates the delivery of trade finance and other banking services to
multinational corporations and other businesses, as well as structured finance
and capital markets services particularly in Argentina, Brazil and Chile.
Through extensive local branch networks ABN AMRO also provides consumer banking
services in Brazil and Argentina. ABN AMRO is seeking to expand its consumer
banking operations in Brazil, Argentina and Chile, with a view to becoming a
leading regional network bank. Operations in Aruba and The Netherlands Antilles
provide trust and asset management services to wealthy individuals and
corporations. ABN AMRO's strong results in this region have largely been
attributable to its Brazilian consumer finance business, which, since 1994, has
grown substantially, while achieving high margins, as a result of the consumer
finance boom in that country triggered by the introduction of the Brazilian
government's currency stabilization program. ABN AMRO has experienced declining
interest margins in Brazil as inflationary expectations have declined.
Middle East and Africa
In the Middle East ABN AMRO has offices in Bahrain (where an Islamic
Banking unit was initiated in 1997), the United Arab Emirates and Lebanon and,
through its 40% interest in Saudi Hollandi Bank, in Saudi Arabia. In Africa the
Bank's operations are located in Morocco, Kenya and South Africa. ABN AMRO's
network in this region comprises of 70 offices.
Asia/Pacific
ABN AMRO's network of 53 offices and branches in this region is extensive,
with locations in Australia, China, Hong Kong, India, Indonesia, Japan,
Malaysia, Myanmar, Pakistan, the Philippines, Singapore, South Korea, Sri Lanka,
Taiwan, Thailand and Vietnam. The corporate banking activities of ABN AMRO in
the Asia-Pacific region have emphasized project finance, reflecting the
financing requirements of the region for major infrastructure improvements,
energy facilities and telecommunications. In 1995, ABN AMRO established a new
headquarters in Singapore to centralize management and product specialists for
the region. Despite the crisis in the Asian financial markets in the second half
of 1997, ABN AMRO remains committed
5
<PAGE> 10
to the goal of substantially increasing the contribution of Asian operations,
and is looking for acquisitions in select Asian countries. The Bank recently
agreed (subject to completion of due diligence and regulatory and shareholder
approvals) to purchase 75% of the equity of Bank of Asia, a Thai bank focusing
principally on middle market corporate and retail customers, for an initial
purchase price of NLG 380 million, with the final purchase price to be
determined based on Bank of Asia's net book value at December 31, 1999. ABN AMRO
believes that the increasing demand for sound financial counterparties and the
resumption over time of long-term growth in the region will lead to demand for
corporate banking and consumer banking services from well-positioned financial
institutions. ABN AMRO provides consumer banking services in Indonesia and
Thailand, and, to a lesser extent, Taiwan, and ABN AMRO intends to enter the
consumer banking market in other select Asian countries.
IB&GC DIVISION
The IB&GC Division provides integrated investment banking services globally
to large corporations, governments, institutional investors and private
investors in 64 countries. ABN AMRO is one of the largest European securities
firms in terms of geographic spread, new issues activities, trading and
placement volume and research. The Division's principal services are capital
markets and treasury activities, financial advisory and merger and acquisition
services, asset management, trust services, and capital investment and
structured project finance. The IB&GC Division is also responsible for ABN
AMRO's trading activities on behalf of clients and for its own account in
government and corporate debt securities, equity securities, currencies and
derivative instruments. Effective April 1, 1998, the Division has been renamed
the Investment Banking Division.
Over the past years ABN AMRO has acquired a number of major investment
banking businesses in various important territories around the world. These
include Hoare Govett in the UK, CIMO in Italy, Alfred Berg in Scandinavia,
Chicago Corporation in the USA, HG Asia in the Far East and a stake in Huysamer
Stals in South Africa. Most recently, ABN AMRO acquired the business of BZW in
Australia and New Zealand. In addition, ABN AMRO has established or acquired a
number of securities subsidiaries in the emerging markets of Poland, the Czech
Republic, Hungary, Romania, Greece, Turkey and Russia and through an equity
investment in Kazakhstan. In Latin America, investment banking operations have
been established in Mexico, Brazil, Argentina, Chile and Venezuela.
Effective February 9, 1998, ABN AMRO has adopted a common brand name for
all its investment banking activities. This action reflects the integration of
ABN AMRO's global wholesale finance and investment banking activities as part of
ABN AMRO's universal banking strategy. The universal brand is indicative of the
increasing pace of integration for ABN AMRO's investment banking activities
managed on a global line of business basis, across product lines and locations,
which in turn reflects the growing and diverse needs of the Bank's clients.
Hoare Govett Corporate Finance Limited in the UK, Alfred Berg in the Nordic
countries and ABN AMRO Rothschild, the Bank's equity capital markets joint
venture with the Rothschild group, will continue to operate under their existing
names.
Capital markets and treasury trading activities are conducted principally
from Amsterdam, London, Chicago, New York, Hong Kong and Singapore offices. ABN
AMRO actively trades Dutch government, foreign government and corporate debt
instruments, equity securities and currencies. The Bank aims to achieve a
leading position in capital markets and treasury activities for the Euro, and to
increase its distribution capabilities in higher margin products. Achievement of
these objectives will require substantial investment in trading and emerging
markets capabilities. After several years of expansion, ABN AMRO believes its
derivatives trading capacity is now sufficient to meet the demands of corporate
and institutional clients.
The ABN AMRO Rothschild joint venture, established on July 1, 1996, has
made rapid progress and was awarded some prestigious mandates in international
and domestic primary equity capital markets activities. In securities
underwriting and financial advisory services, ABN AMRO believes that the
relationships and distribution capacity of its integrated investment banking
business and its high quality research capabilities, together with ABN AMRO
Rothschild's ability to draw upon capital markets and financial advisory and
6
<PAGE> 11
merger and acquisition expertise centralized in London and Amsterdam, will
enable ABN AMRO Rothschild to be selected as lead manager for an increasing
number of equity capital market transactions.
Financial advisory and merger and acquisition activities focus principally
on Europe, Asia and certain South American markets.
The IB&GC Division provides asset management services for institutional and
individual clients, as well as trust and custody services. At December 31, 1997,
ABN AMRO had NLG 155 billion of assets under management. The majority of asset
management activities are conducted from three regional centers in
Amsterdam/London, Chicago and Hong Kong, which perform not only portfolio
management (both through investment funds and discretionary management) but also
account management, marketing, institutional sales, product development and
research.
ABN AMRO also develops and markets complex financing structures for a large
variety of industries and for other substantial investments in capital goods, as
well as arranging for the financing of capital goods exports and large-scale
project finance. An investment capital group provides capital to both newer
enterprises as well as to management and leveraged buy outs in The Netherlands
and, selectively, abroad.
ABN AMRO LEASE HOLDING
ABN AMRO Lease Holding is a fleet and equipment leasing holding company
operating, through numerous subsidiaries, in The Netherlands, 17 other European
countries, the United States, Australia and New Zealand. ABN AMRO Lease Holding
offers a wide variety of leasing services, such as fleet management, equipment
leases and other services such as fuel cost management. In fleet leasing, ABN
AMRO Lease Holding provides a comprehensive range of services for corporate
users of vehicles, including financing, purchasing, maintenance, repairs,
insurance and insurance claim processing. ABN AMRO Lease Holding currently has
approximately 394,000 cars under management, making it the largest car leasing
operation in Europe not affiliated with a major automobile manufacturer. Lease
Plan, an ABN AMRO Lease Holding subsidiary, specializes in offering open
calculation contracts which afford large corporate customers the opportunity to
share in the residual value of leased vehicles.
GENERAL
Competition
ABN AMRO operates in a highly competitive environment in all of its
markets. Many large financial services groups compete in the provision of
sophisticated banking and/or investment banking services to corporate and
institutional customers on a global basis, while local banks and other financial
services companies (which may be of substantial size) often provide significant
competition within national markets. ABN AMRO also competes with other banks,
money market funds and mutual funds for deposits and other sources of funds. In
certain jurisdictions, many of ABN AMRO's competitors are not subject to the
same regulatory restrictions as are applicable to members of the ABN AMRO group.
Employees
At December 31, 1997, ABN AMRO had 74,935 employees. Approximately 7,000 of
these employees hold managerial and executive positions. A breakdown of
employees by division and independent subsidiary at December 31, 1997 is set
forth in Item 9 -- "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
All of ABN AMRO's employees in The Netherlands, other than senior
management, are covered by collective labor agreements which are periodically
renegotiated on an industry-wide basis. The Bank participates in collective
negotiations in the banking industry and has based its employment agreements
with its employees on the relevant collective agreement. The current collective
agreement expires on December 31, 1998.
7
<PAGE> 12
Under Dutch law, the Central Works Council of ABN AMRO in The Netherlands,
whose members are elected by the employees, has certain defined powers,
including the right to make non-binding recommendations for appointments to
Holding's Supervisory Board and the right to enter objections against proposals
for appointments to the Supervisory Board.
ABN AMRO has not experienced any significant strike, work stoppage or labor
dispute in recent years. Management considers its relations with its employees
to be good.
RISK MANAGEMENT
Virtually all of ABN AMRO's activities contain elements of risk. The most
important types of risk are credit risk and cross-border risk, market risk,
liquidity risk and operational and legal risk. Market risk has several
components, including interest rate, currency and equity price risks.
A major factor in risk management is the strong emphasis throughout the
Bank on remaining alert to the various types of risk. The bank's corporate
culture is dedicated to promoting continuous risk awareness. In 1997 the
explicit formulation and communication of the "ABN AMRO Values" (integrity,
teamwork, respect and professionalism) played an important role in this process.
ABN AMRO's risk management policy is designed to identify and analyze
credit risk, market risk and other risks, to set appropriate limits, and to
continually monitor these risks and limits by means of reliable and up-to-date
administrative and information systems. Risk management policies and systems
require continuous modification and enhancement to reflect dynamic changes in
markets and products. On the basis of a revised definition of cross-border risk,
the Bank's policy on country risk exposure was modified in 1997 and new
reporting and limit structures were implemented. The Bank's guidelines stipulate
that risk-sensitive decisions must always be taken by at least two officers and,
in most instances, by a specific committee of officers.
The formulation of risk management policy and the monitoring of risks occur
at the most senior management levels of ABN AMRO. The Managing Board regularly
discusses risk management policies and meets to make major credit decisions at
least twice a week. In addition, the Group Credit Committee and the Asset and
Liability Committee, both established by the Managing Board, facilitate
effective development of risk management policy and controls.
CREDIT RISK AND CROSS-BORDER RISK
Credit risk encompasses all forms of counterparty exposure, i.e., where
counterparties may default on their obligations to ABN AMRO in relation to
lending, trading, hedging, settlement and other financial activities. The Group
Credit Committee, in its policy-making capacity, is responsible for establishing
the credit policies and the mechanisms, organization and procedures required to
analyze, manage and control credit risk. In its approving capacity, the Group
Credit Committee authorizes counterparty exposures subject to limits set by the
Managing Board. The Risk Management Division is responsible for operating the
overall framework for credit risk management.
ABN AMRO has created regional risk management committees for The
Netherlands, North America and Asia which have delegated authority to approve
credits up to specified limits. Similarly, authority has also been delegated to
individual countries and even local offices or branches. The level of authority
depends on the size and sophistication of each entity and the importance of its
market. The overall credit review framework also incorporates dedicated credit
committees for capital markets products.
ABN AMRO has a uniform standard for the presentation of credit proposals,
which include the financial data of borrowers, and consistently works at
improving the effectiveness and efficiency of the credit approval process.
Delegation of approval authority and an increase in the use of information
systems means that more time can be devoted to the evaluation of substantial and
complex counterparty exposures and to monitoring the risk management
organization.
Year 2000 compliance is a major consideration in risk analysis and loan
portfolio management. Based on general guidelines, ABN AMRO seeks to verify
whether clients have adequately identified the Year 2000
8
<PAGE> 13
problems and risks for their business operations, and the progress they have
made in managing these problems and risks.
One recent development has been the implementation of the "value-at-risk"
concept. The aim of this measure is to increase the availability and quality of
expert tools for monitoring and management and to provide an additional support
tool for individual credit analysis and decision-making.
As in the two previous years, specific provisions for loan losses in 1997
were historically low in proportion to the Bank's portfolio size. This is a
reflection of favorable economic conditions in The Netherlands, the United
States and most other countries where ABN AMRO has substantial operations.
However, the severe turmoil in the Asian financial markets, the true extent of
which will become more apparent during the course of 1998, indicates how swiftly
and suddenly the economic tide can turn in an entire region. Most of the
countries affected are expected to recover within a reasonable time frame. The
Bank believes that its credit acceptance policies and loan loss reserves are
adequate to maintain the Bank's Asian credit risks within manageable bounds. The
Bank remains committed to the continuation of its current credit acceptance
policy, which management considers to be a prudent approach toward maintaining
credit quality in less favorable economic conditions.
MARKET RISK
Market risk is the uncertainty concerning the extent to which changes in
the financial markets in which ABN AMRO operates may affect its financial
position and future earnings.
ABN AMRO uses the value-at-risk ("VAR") method as its primary mechanism for
the management and daily monitoring of trading-related market risks. The VAR is
an estimate, with a confidence level of 99%, of the loss that could arise from
adverse market movements if trading positions were held unchanged during one
trading day. On the basis of historical data, the measurement is calibrated so
that a loss exceeding the VAR figure might have occurred, on average, once every
100 days. The VAR is calculated using daily updated prices and actual results
are tested regularly to ensure the assumptions underlying the VAR calculation
are still valid. The positions captured by ABN AMRO's VAR calculations include
both derivative and cash positions that are reported as trading assets and
liabilities.
<TABLE>
<CAPTION>
1997
--------------------------- DECEMBER 31,
MARKET RISK AVERAGE MINIMUM MAXIMUM 1997
----------- ------- ------- ------- ------------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Overall portfolio.......................... 49 27* 70* 67
Interest rate.............................. 37 23 60 52
Currency................................... 8 4 17 7
Equity..................................... 8 4 21 11
</TABLE>
- ---------------
*The minimum (maximum) for each risk category occurred on different days so it
is not meaningful to the overall portfolio total. The overall portfolio is
adjusted to reflect the negative correlations between certain of the components
of market risk. During 1997 the minimum daily value at risk for the overall
portfolio was NLG 27 million and the maximum daily value at risk was NLG 70
million.
Other controls measures used in the market risk management process include
net open positions, interest rate sensitivity per basis point, spread
sensitivities, option parameters, position concentrations and position aging.
The use of statistical VAR and the other conventional limits is complemented in
certain cases with stress tests which are performed daily to assess the impact
of extreme market conditions on trading positions. These non-statistical
measures help further reduce trading risks. In addition, trading activities have
been concentrated in the Amsterdam, London, Chicago, New York, Singapore and
Hong Kong offices to facilitate centralized risk management control and
monitoring.
The development of a global risk reporting system was largely completed in
1997. This system covers all interest rate, currency and equity trading risks,
and captures market risk on-line at the transaction level.
9
<PAGE> 14
Further management information improvements are planned in 1998. Beginning in
1998, the Bank will use this system and its embedded risk models to determine
the amount of capital required to cover market risks.
INTEREST RATE RISK
One of the objectives of asset and liability management is to manage and
control the sensitivity of ABN AMRO's net interest revenue to changes in market
interest rates. The Asset & Liability Committee seeks to ensure that the risk of
earnings being affected by adverse interest rate movements is kept within
specified limits determined by the Managing Board.
A number of measures are used to monitor and measure interest rate risk.
These methods include interest rate gap analysis and scenario analysis.
Sensitivity tests are applied to estimate the impact of market rate movements on
net interest revenue. Because net interest revenue is the outcome of interest
paid and received on millions of contracts and transactions involving hundreds
of different products in a large number of currencies, models and estimation
techniques are used to calculate net interest revenue sensitivities. Assumptions
about the future behavior of clients play an important role in these
calculations. The interest rate risk caused by the repricing gap between assets
and liabilities is initially measured on the basis of contractual interest rate
maturities. Yield curve changes, as opposed to contractual interest rate
maturities, may affect the actual duration. This could occur, for instance, with
lending products where a client is entitled, but not obliged, to repay the
outstanding amount early. To manage this type of risk, the Bank uses assumptions
based on historical behavior, industry standards and/or theoretical valuation.
This allows the Bank to estimate the impact of interest rate movements on cash
flows and on the interest rate gap. In cases where the pricing of products is
not linked to market rates, simulation models are used to predict client
responses to price changes.
The sensitivity of net interest revenue to market circumstances, and
interest rate conditions in particular, has been tested on the basis of an
increase and decline of 200 basis points in interest rates, with the movement
for all points of the yield curve evenly spread over the year. Based upon the
Bank's portfolio at December 31, 1997, an interest rate increase of 200 basis
points would depress net interest revenue by 3.3% in the first year while a
decline of 200 basis points would boost net interest revenue by 2.1%. This
asymmetric sensitivity reflects the interest rate options included in many
products.
CURRENCY RISK
ABN AMRO is an active participant in global foreign exchange markets. The
major foreign currencies in which the Bank conducts transactions are U.S.
dollars, German marks, pounds sterling, Swiss francs, Japanese yen and French
francs. Of total assets and total liabilities at December 31, 1997, the
equivalent of NLG 610 billion and NLG 597 billion, respectively, was denominated
in currencies other than Dutch guilders, corresponding to approximately 72% of
total assets.
Exposure to exchange rate movements in trading portfolios is included in
the VAR analysis as well as in other non-statistical limits. Exchange rate risks
from lending activities are limited as the Bank's operating units, on an
individual basis, are required to hedge the currencies in which their assets and
liabilities are denominated. Any short or long positions are monitored to ensure
compliance with the limits established by the Asset & Liability Committee. The
currency positions arising out of wholesale foreign exchange dealing are also
subject to limits. Capital invested in operations outside The Netherlands is
largely funded in Dutch guilders. ABN AMRO's currency risk policy is designed to
protect the Bank's Tier 1 and Tier 2 capital ratios against fluctuations in the
rate of the U.S. dollar. See "-- Supervision and Regulation."
Foreign exchange dealings expose the Bank to settlement risk, i.e., the
risk that one of the parties engaged in a foreign exchange transaction delivers
the currency sold but does not receive the currency purchased. The rapid growth
of the currency markets has prompted the G-10 countries to step up their efforts
to develop procedures such as multilateral netting of currency transactions in
order to reduce settlement risk.
10
<PAGE> 15
LIQUIDITY RISK
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of ABN AMRO's financial commitments while
capitalizing on opportunities for expansion. Liquidity management is designed to
ensure that members of the ABN AMRO group are able at all times to meet deposit
withdrawals either on demand or at contractual maturity, to repay borrowings as
they mature, and to fund new loans and investments as opportunities arise.
ABN AMRO is active in 71 countries, whose national financial markets vary
widely in terms of scope and depth. The nature of ABN AMRO's customers, products
and competitors also differs at each location. This means that liquidity
management must also take local funding requirements into account. Local line
management is responsible for continuously satisfying the local liquidity
requirements established by the Asset & Liability Committee. Furthermore,
contingency plans for different liquidity deterioration scenarios are required
to be drawn up at the country level.
Customer accounts are the primary source of liquidity for ABN AMRO's
banking operations, while funding in the interbank market provides an additional
source of liquidity for its investment banking activities. The core deposits of
the bank affiliates of ABN AMRO at December 31, 1997 were NLG 338.1 billion (of
which NLG 171.4 billion is in The Netherlands and NLG 82.2 billion is in the
United States), which approximated 90.4% of total loans excluding professional
securities transactions at that date.
ABN AMRO considers funding in the interbank market to be an additional
source of liquidity for its investment banking activities. The Bank's policy has
been to maintain a relatively narrow difference between loans from banks
(liabilities) and loans to banks (assets). At December 31, 1995, loans from
banks totaled NLG 144.4 billion as compared to loans to banks of NLG 131.3
billion. During the last two years, ABN AMRO has increased its use of interbank
funding. At December 31, 1996, loans from banks totaled NLG 157.6 billion as
compared to loans to banks of NLG 120.3 billion. Loans from banks totaled NLG
208.5 billion at December 31, 1997, as compared to loans to banks of NLG 140.2
billion. As part of the expansion of its trading and other investment banking
activities over the last two years, ABN AMRO has used increased interbank
funding to increase its portfolio of marketable interest-bearing securities,
particularly U.S. Treasury, U.S. government agency and other O.E.C.D. government
obligations. In the event of a sharp rise in short-term interest rates, this
portfolio of marketable securities could be liquidated. ABN AMRO also hedges the
interest rate risk from the use of interbank funding to purchase marketable
securities by the use of derivative financial instruments to convert fixed rate
payments received on the marketable securities into floating rate payments.
ABN AMRO holds a portfolio of marketable securities -- including
Netherlands government bonds, U.S. Treasury and U.S. government agency paper and
other O.E.C.D. government paper -- and other short-term investments which can be
readily converted to cash. The Bank is also an active participant in the capital
markets, issuing commercial paper and medium-term notes, as well as debentures,
subordinated debt and preferred stock.
Apart from liquidity planning and monitoring, it is management's belief
that the unwavering trust of customers and investors is key to assuring the
continuous availability of funding. To maintain this trust, the Bank strives to
protect its reputation as a solid financial institution.
OPERATIONAL AND LEGAL RISKS
ABN AMRO, like all large financial institutions, is exposed to many types
of operational risk. These include potential losses caused by a breakdown in
information, communication, transaction processing and settlement systems and
procedures, fraud by employees or outsiders, and unauthorized transactions by
employees. ABN AMRO attempts to mitigate operational risks by maintaining a
system of internal controls designed to keep operational risk at levels
corresponding to its consolidated financial position, the characteristics of the
businesses and markets in which it operates, competitive circumstances and
applicable rules and regulations. To date, losses from operational risks have
not been material to the consolidated operations or financial position of ABN
AMRO.
11
<PAGE> 16
Legal risk arises from uncertainties about the legal enforceability of the
obligations of the Bank's customers and counterparties, as well as the
possibility that legal or regulatory changes may adversely affect the Bank's
position. The risk of unenforceability may be higher for derivative instruments,
as applicable laws and regulations are relatively recent and, in some cases,
incomplete. ABN AMRO seeks to minimize legal risk through the use of industry
standard legal agreements and through consultation with internal and external
legal counsel in the countries where it conducts business.
RISK ASPECTS OF FINANCIAL DERIVATIVES
The principal activities of traditional banking include borrowing and
lending money and trading in currencies and securities. Products derived from
these activities are called "derivatives" and can be subdivided, according to
the nature of the underlying contracts, into interest rate contracts (interest
rate swaps, interest rate options, forward rate agreements and interest rate
futures), currency contracts (currency swaps, currency options and forward
exchange dealings) and other contracts (options and swaps on shares, bonds,
currencies and commodities). Transactions in derivatives are effected for
hedging purposes and, within set limits, as part of ABN AMRO's trading
activities. Complex instruments such as leveraged derivatives are used and sold
on a limited scale. The principal financial instruments utilized by ABN AMRO to
hedge exchange rate fluctuations are currency swaps, forward forex contracts,
currency options and currency futures. The currencies in which a material amount
of ABN AMRO's hedging activities occur include the U.S. dollar, the Deutsche
mark, the Swiss franc, the Japanese yen and the French franc.
The total volume of ABN AMRO's derivatives business, both in number of
transactions and outstanding or notional amounts, and the increasing complexity
of these products require an advanced administrative organization and strict
internal controls as well as close monitoring of interest rate, currency and
other market risks. The recommendations published by the BIS and international
organizations like the Group of 30 are the guiding principles in formulating and
implementing ABN AMRO's requirements in this respect.
Derivatives trading within ABN AMRO takes place mainly in the global
trading units in Amsterdam, London, Chicago and Singapore, subject to limits
which are set by the Asset & Liability Committee with a view to adequate risk
management. Derivatives used for trading purposes are valued daily at market
prices. If market prices are not available, valuation models which ABN AMRO
believes are appropriate are used to calculate the approximate market value.
Movements in market value are incorporated in ABN AMRO's financial results on a
current basis. Valuation of OTC derivative financial instruments is highly
complex and differences in the valuation methodology employed could affect
financial results.
Derivatives form an integral part of ABN AMRO's interest rate and currency
risk management. Results of derivatives transactions entered into as part of
such risk management are attributed to the same reporting period as the
recognition of gains and losses on the hedged assets and liabilities.
The notional amounts of derivatives, which totaled NLG 3,072 billion at
December 31, 1997 or almost four times total assets at that date, only give an
indication of the scale of ABN AMRO's derivatives business, but not of the
related credit risk. The credit risk is the loss that would arise if a
counterparty were to default and ABN AMRO were to face a partly open position.
This actual risk represents only a fraction of the notional amounts. By entering
into agreements which provide under certain circumstances for the settlement on
a net basis of all contracts between ABN AMRO and a counterparty, ABN AMRO
attempts to minimize this credit risk. Initially, this activity was limited to
collateralizing interest rate derivative contracts, but this activity will be
expanded in 1998 to include other transactions and increase the number of
counterparties with whom the bank benefits from these arrangements. To
facilitate risk monitoring and management, substantial enhancements in computer
systems and software have been made as part of the continuing expansion of ABN
AMRO's derivatives business.
To quantify the credit risk, the cost of the replacement transactions which
would be necessary if a counterparty defaulted is calculated and is then
increased by a percentage of the notional amounts. The applied percentage
depends on the nature and remaining maturity of the contract. The credit risk
equivalent for ABN AMRO's total derivatives business was thus calculated at NLG
60.0 billion at December 31, 1997.
12
<PAGE> 17
When weighted for the counterparty risk (mainly banks) for capital adequacy
purposes, the credit risk equivalent represents only NLG 16.4 billion or 3.6% of
total risk-weighted assets at December 31, 1997.
See note 24 to the Consolidated Financial Statements for further analysis
of ABN AMRO's derivatives activities, including an analysis at December 31, 1997
of its trading and hedging derivatives portfolios.
SELECTED STATISTICAL INFORMATION
AVERAGE BALANCE SHEET
The following tables present ABN AMRO's average balances, based on
month-end averages, and interest amounts and average rates for each of the past
three years.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE REVENUE RATE (%) BALANCE REVENUE RATE (%) BALANCE REVENUE RATE (%)
------- -------- -------- ------- -------- -------- ------- -------- --------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS(1)(2)
Banks
The Netherlands................. 71,674 3,552 5.0 93,419 4,545 4.9 84,963 5,244 6.2
North America................... 4,560 278 6.1 2,206 126 5.7 2,811 147 5.2
Rest of the world............... 71,714 3,810 5.3 58,817 3,084 5.2 50,833 2,922 5.7
Loans(3)
Public sector(4)
The Netherlands................. 12,305 837 6.8 15,318 1,030 6.7 19,046 1,276 6.7
North America................... 1,291 83 6.4 1,067 64 6.0 982 58 5.9
Rest of the world............... 2,298 223 9.7 2,413 233 9.7 1,718 276 16.1
Private sector
The Netherlands................. 174,838 10,881 6.2 166,744 11,294 6.8 155,740 11,562 7.4
North America................... 127,277 9,172 7.2 65,293 4,840 7.4 45,088 3,737 8.3
Rest of the world............... 118,954 9,044 7.6 90,166 7,467 8.3 57,892 6,210 10.7
Interest-bearing securities(5)
Investment portfolio
The Netherlands................. 34,604 2,249 6.5 30,338 2,089 6.9 27,584 1,843 6.7
North America................... 27,690 1,915 6.9 22,184 1,496 6.7 16,383 1,146 7.0
Rest of the world............... 21,428 1,439 6.7 12,657 834 6.6 10,205 761 7.5
Trading portfolio and other
securities
The Netherlands................. 12,962 590 4.6 9,452 364 3.8 9,833 412 4.2
North America................... 18,220 1,207 6.6 11,448 753 6.6 5,950 309 5.2
Rest of the world............... 12,828 547 4.3 8,380 360 4.3 9,920 398 4.0
------- ------ --- ------- ------ --- ------- ------ ----
Total interest-earning assets..... 712,643 45,827 6.4 589,902 38,579 6.5 498,948 36,301 7.3
Non-interest-earning assets....... 75,870 48,619 39,241
------- ------ --- ------- ------ --- ------- ------ ----
Total average assets.............. 788,513 45,827 5.8 638,521 38,579 6.0 538,189 36,301 6.7
======= ====== === ======= ====== === ======= ====== ====
</TABLE>
- ---------------
(1) Assets temporarily sold (subject to repurchase) are included in the relevant
balance sheet item.
(2) With respect to the tables in "Selected Statistical Information", income
statement and average balance sheet data includes MeesPierson for 1996 and
prior years. Balance sheet data includes MeesPierson for 1995 and prior
years.
(3) For purposes of presentation in this table, loans include professional
securities transactions.
(4) Public sector represents central, regional and local governments and
governmental authorities.
(5) Balance sheet item Short-dated government paper is included in the table
above, partially in investment portfolio and partially in other securities.
13
<PAGE> 18
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE REVENUE RATE (%) BALANCE REVENUE RATE (%) BALANCE REVENUE RATE (%)
------- -------- -------- ------- -------- -------- ------- -------- --------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND GROUP EQUITY
Banks
The Netherlands................. 75,114 3,759 5.0 92,591 4,760 5.1 84,434 5,094 6.0
North America................... 28,917 1,301 4.5 14,663 849 5.8 8,983 621 6.9
Rest of the world............... 112,173 5,179 4.6 82,810 3,892 4.7 56,198 4,042 7.2
Savings accounts
The Netherlands................. 64,101 2,576 4.0 58,537 2,408 4.1 54,409 2,438 4.5
North America................... 49,064 2,286 4.7 23,558 1,054 4.5 21,694 955 4.4
Rest of the world............... 12,561 474 3.8 8,530 272 3.2 6,039 178 2.9
Deposits and other customer
accounts(1)
The Netherlands................. 104,678 3,626 3.5 114,642 4,220 3.7 110,613 4,474 4.0
North America................... 60,495 2,765 4.6 30,742 1,339 4.4 16,992 584 3.4
Rest of the world............... 77,793 3,423 4.4 62,052 3,153 5.1 49,618 2,875 5.8
Debt securities
The Netherlands................. 22,210 1,464 6.6 21,633 1,472 6.8 25,228 1,744 6.9
North America................... 27,949 1,821 6.5 18,107 1,007 5.6 16,315 1,021 6.3
Rest of the world............... 31,415 2,002 6.4 26,312 1,652 6.3 16,433 1,143 7.0
Subordinated debt
The Netherlands................. 10,076 774 7.7 8,818 713 8.1 9,061 764 8.4
North America................... 7,630 498 6.5 3,976 254 6.4 1,974 124 6.3
Rest of the world............... 124 8 6.5 119 8 6.7 106 7 6.6
------- ------ --- ------- ------ --- ------- ------ ---
Total interest-bearing
liabilities..................... 684,300 31,956 4.7 567,090 27,053 4.8 478,097 26,064 5.5
Non-interest-bearing
liabilities..................... 78,881 47,998 39,196
Group equity(2)................... 25,332 23,433 20,896
------- ------ --- ------- ------ --- ------- ------ ---
Total average liabilities and
Group equity.................. 788,513 31,956 4.1 638,521 27,053 4.2 538,189 26,064 4.8
======= ====== === ======= ====== === ======= ====== ===
</TABLE>
- ---------------
(1) For purposes of presentation in this table, deposits and other customer
accounts includes professional securities transactions.
(2) Group equity includes minority interests.
14
<PAGE> 19
CHANGES IN NET INTEREST REVENUE: VOLUME AND RATE ANALYSIS
The following tables allocate, by categories of interest-earning assets and
interest-bearing liabilities, changes in interest revenue and expense due to
changes in volume and in rates for the year ended December 31, 1997, compared to
the year ended December 31, 1996 and the year ended December 31, 1996, compared
to the year ended December 31, 1995. Volume and rate variances have been
calculated on movements in average balances and changes in interest rates.
Changes due to a combination of volume and rate have been allocated
proportionally.
<TABLE>
<CAPTION>
1997 OVER 1996 1996 OVER 1995
---------------------------------- ----------------------------------
CHANGE DUE TO CHANGE DUE TO
INCREASE INCREASE
TOTAL (DECREASE) IN TOTAL (DECREASE) IN
CHANGE IN --------------- CHANGE IN ---------------
INTEREST REVENUE VOLUME RATE INTEREST REVENUE VOLUME RATE
---------------- ------ ------ ---------------- ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST REVENUE
Banks
The Netherlands.............. (993) (1,078) 85 (699) 487 (1,186)
North America................ 152 143 9 (21) (34) 13
Rest of the world............ 726 685 41 162 433 (271)
LOANS(1)
Public Sector
The Netherlands.............. (193) (204) 11 (246) (251) 5
North America................ 19 14 5 6 5 1
Rest of the world............ (10) (11) 1 (43) 89 (132)
Private sector
The Netherlands.............. (413) 531 (944) (268) 785 (1,053)
North America................ 4,332 4,470 (138) 1,103 1,533 (430)
Rest of the world............ 1,577 2,228 (651) 1,257 2,904 (1,647)
INTEREST-BEARING SECURITIES
Investment portfolio
The Netherlands.............. 160 282 (122) 246 188 58
North America................ 419 380 39 350 393 (43)
Rest of the world............ 605 589 16 73 168 (95)
Trading portfolio and other
securities
The Netherlands.............. 226 151 75 (48) (16) (32)
North America................ 454 449 5 444 345 99
Rest of the world............ 187 190 (3) (38) (65) 27
------ ------ ------ ----- ----- ------
7,248 8,819 (1,571) 2,278 6,964 (4,686)
====== ====== ====== ===== ===== ======
</TABLE>
- ---------------
(1) For purposes of presentation in this table, loans includes professional
securities transactions.
15
<PAGE> 20
<TABLE>
<CAPTION>
1997 OVER 1996 1996 OVER 1995
--------------------------------- ----------------------------------
CHANGE DUE TO CHANGE DUE TO
INCREASE INCREASE
TOTAL (DECREASE) IN TOTAL (DECREASE) IN
CHANGE IN -------------- CHANGE IN ---------------
INTEREST EXPENSE VOLUME RATE INTEREST EXPENSE VOLUME RATE
---------------- ------ ----- ---------------- ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Banks
The Netherlands.............. (1,001) (878) (123) (334) 464 (798)
North America................ 452 676 (224) 228 342 (114)
Rest of the world............ 1,287 1,357 (70) (150) 1,531 (1,681)
Savings accounts
The Netherlands.............. 168 225 (57) (30) 178 (208)
North America................ 1,232 1,187 45 99 83 16
Rest of the world............ 202 146 56 94 78 16
Deposits and other customer
accounts
The Netherlands.............. (594) (354) (240) (254) 159 (413)
North America................ 1,426 1,357 69 755 568 187
Rest of the world............ 270 729 (459) 278 661 (383)
Debt securities
The Netherlands.............. (8) 38 (46) (272) (245) (27)
North America................ 814 619 195 (14) 106 (120)
Rest of the world............ 350 325 25 509 630 (121)
Subordinated debt
The Netherlands.............. 61 98 (37) (51) (20) (31)
North America................ 244 238 6 130 128 2
Rest of the world............ -- -- -- 1 1 --
------ ----- ----- ---- ----- ------
4,903 5,763 (860) 989 4,664 (3,675)
====== ===== ===== ==== ===== ======
</TABLE>
16
<PAGE> 21
YIELDS, SPREADS AND MARGINS
The following table presents selected yield, spread and margin information
applicable to ABN AMRO for each of the past three years.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN PERCENTAGES)
<S> <C> <C> <C>
GROSS YIELD(1)
The Netherlands........................................... 5.9 6.1 6.8
North America............................................. 7.1 7.1 7.6
Rest of the world......................................... 6.6 6.9 8.1
ABN AMRO.................................................. 6.4 6.5 7.3
INTEREST RATE SPREAD(2)
The Netherlands........................................... 1.5 1.5 1.7
North America............................................. 2.1 2.2 2.6
Rest of the world......................................... 1.9 2.0 1.7
ABN AMRO.................................................. 1.8 1.8 1.8
NET INTEREST MARGIN
The Netherlands........................................... 1.9 1.8 2.0
North America............................................. 2.2 2.7 2.9
Rest of the world......................................... 1.7 1.7 1.8
ABN AMRO.................................................. 1.9 2.0 2.1
</TABLE>
- ---------------
(1) Gross yield represents the interest rate earned on average interest-earning
assets.
(2) Interest rate spread represents the difference between the interest rate
earned on average interest-earning assets and the rate paid on average
interest-bearing liabilities.
ASSETS
SECURITIES
The following table shows the book value of the securities portfolios of
ABN AMRO at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------
1997 1996 1995
------- ------- ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Investment portfolios................................ 96,524 63,584 52,604
Trading portfolios................................... 53,612 30,447 16,490
Other securities..................................... 40,609 13,381 17,503
------- ------- ------
Total interest-bearing securities.................... 190,745 107,412 86,597
Shares............................................... 18,943 8,795 7,121
------- ------- ------
Total securities portfolios.......................... 209,688 116,207 93,718
======= ======= ======
</TABLE>
17
<PAGE> 22
Investment Portfolios
Set forth below is an analysis of the fair market value of ABN AMRO's
investment portfolios at December 31, 1997, 1996 and 1995. In the tables below,
fair market value is based on quoted prices for traded securities and estimated
fair market value for non-traded securities.
<TABLE>
<CAPTION>
GROSS GROSS FAIR
BOOK PREMIUMS AMORTIZED UNREALIZED UNREALIZED MARKET
VALUE OR DISCOUNTS COST GAINS LOSSES VALUE
------- ------------ --------- ---------- ---------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
Dutch government............... 14,497 430 14,927 687 (2) 15,612
U.S. Treasury and U.S.
government agencies.......... 32,156 (29) 32,127 712 (40) 32,799
Other OECD governments......... 27,440 81 27,521 1,154 (192) 28,483
Mortgage-backed securities..... 7,917 1 7,918 71 (52) 7,937
Other interest-bearing
securities................... 14,514 222 14,736 798 (83) 15,451
------- ---- ------ ----- ---- -------
Total interest-bearing
securities................... 96,524 705 97,229 3,422 (369) 100,282
Shares......................... 4,973 4,973
------- -------
Total investment portfolios.... 101,497 105,255
======= =======
DECEMBER 31, 1996
Dutch government(1)............ 6,750 398 7,148 511 (12) 7,647
U.S. Treasury and U.S.
government agencies.......... 19,935 42 19,977 240 (102) 20,115
Other OECD governments......... 17,783 (104) 17,679 571 (49) 18,201
Mortgage-backed securities..... 4,611 34 4,645 32 (80) 4,597
Other interest-bearing
securities................... 14,505 187 14,692 934 (14) 15,612
------- ---- ------ ----- ---- -------
Total interest-bearing
securities................... 63,584 557 64,141 2,288 (257) 66,172
Shares......................... 2,725 2,725
------- -------
Total investment portfolios.... 66,309 68,897
======= =======
DECEMBER 31, 1995
Dutch government............... 11,312 363 11,675 746 (8) 12,413
U.S. Treasury and U.S.
government agencies.......... 10,523 84 10,607 151 (14) 10,744
Other OECD governments......... 9,837 (78) 9,759 359 (72) 10,046
Mortgage-backed securities..... 9,645 67 9,712 134 (65) 9,781
Other interest-bearing
securities................... 11,287 78 11,365 617 (89) 11,893
------- ---- ------ ----- ---- -------
Total interest-bearing
securities................... 52,604 514 53,118 2,007 (248) 54,877
Shares......................... 1,710 1,710
------- -------
Total investment portfolios.... 54,314 56,587
======= =======
</TABLE>
- ---------------
(1) Dutch government includes Dutch central, regional and municipal government
obligations.
18
<PAGE> 23
The following table analyzes interest-bearing investment securities by
maturity and weighted average yield at December 31, 1997. Yields on tax exempt
obligations have not been computed on a tax equivalent basis.
<TABLE>
<CAPTION>
AFTER 1 YEAR AND AFTER 5 YEARS AND
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
------------------ ------------------ ------------------ ------------------
AMOUNT YIELD (%) AMOUNT YIELD (%) AMOUNT YIELD (%) AMOUNT YIELD (%)
------ --------- ------ --------- ------ --------- ------ ---------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dutch government.......... 4,553 2.9 4,159 7.0 3,733 6.5 2,482 6.5
U.S. Treasury and U.S.
government agencies..... 993 6.2 13,174 6.5 12,650 6.8 5,310 6.6
Other OECD governments.... 3,608 2.8 7,387 7.0 8,452 6.5 8,074 7.5
Mortgage-backed
securities(1)........... 101 3.7 -- -- -- -- 7,817 4.6
Other securities.......... 1,157 7.0 8,031 6.4 4,095 6.3 1,453 7.0
Total amortized cost...... 10,412 3.7 32,751 6.7 28,930 6.6 25,136 6.3
Total market value........ 10,317 33,597 30,161 26,207
</TABLE>
- ---------------
(1) Maturity dates have been estimated based on historical experience.
Trading Portfolios
The following table analyzes the book value (which equals fair market value
because the trading portfolios are marked-to-market) of securities in the
trading portfolios of ABN AMRO at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Dutch government....................................... 4,829 4,032 2,955
U.S. Treasury and U.S. government agencies............. 9,578 4,296 1,749
Other OECD governments................................. 24,621 14,307 4,474
Other interest-bearing securities...................... 14,584 7,812 7,312
------ ------ ------
Total interest-bearing securities...................... 53,612 30,447 16,490
Shares................................................. 6,820 3,668 3,703
------ ------ ------
Total trading portfolios............................... 60,432 34,115 20,193
====== ====== ======
</TABLE>
Other Securities
The following table analyzes the fair market value of other securities at
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- --------------------------- ---------------------------
FAIR FAIR FAIR
BOOK AMORTIZED MARKET BOOK AMORTIZED MARKET BOOK AMORTIZED MARKET
VALUE COST VALUE VALUE COST VALUE VALUE COST VALUE
------ --------- ------ ------ --------- ------ ------ --------- ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-dated government paper.... 15,283 15,283 15,308 1,970 1,970 1,970 6,667 6,667 6,666
Other debt securities........... 9,165 9,157 9,126 8,304 8,275 8,233 8,801 8,749 8,783
Other bank paper................ 16,161 15,302 16,036 3,107 3,105 3,099 2,035 2,026 1,856
------ ------ ------ ------ ------ ------ ------ ------ ------
Total interest-bearing
securities.................... 40,609 39,742 40,470 13,381 13,350 13,302 17,503 17,442 17,305
Shares.......................... 7,150 7,210 2,402 2,407 1,708 1,718
------ ------ ------ ------ ------ ------
Total other securities.......... 47,759 47,680 15,783 15,709 19,211 19,023
====== ====== ====== ====== ====== ======
</TABLE>
19
<PAGE> 24
Concentration
At December 31, 1997, ABN AMRO held the following securities positions in
issuers which exceeded 10% of its shareholders' equity at that date:
<TABLE>
<CAPTION>
BOOK FAIR
VALUE MARKET VALUE
------ ------------
(IN MILLIONS OF NLG)
<S> <C> <C>
Dutch central government.................................... 19,211 19,668
U.S. Treasury............................................... 18,108 18,330
Japanese central government................................. 12,827 12,827
Japanese central bank....................................... 10,850 10,850
German central government................................... 7,657 7,816
Belgian central government.................................. 5,829 5,839
Bank Nederlandse Gemeenten.................................. 4,320 4,348
Italian central government.................................. 4,030 4,064
Spanish central government.................................. 3,283 3,326
</TABLE>
BANKS
The following tables show loans to banks at December 31, 1997, 1996 and
1995, and an analysis of their remaining life at December 31, 1997.
Loans to banks
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
The Netherlands..................................... 70,374 67,965 79,834
North America....................................... 6,929 3,981 2,324
Rest of the world................................... 62,882 48,332 50,174
------- ------- -------
Total loans to banks................................ 140,185 120,278 132,332
======= ======= =======
</TABLE>
Maturities
<TABLE>
<CAPTION>
AFTER 1 YEAR AND
WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
------------- ---------------- ------------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
The Netherlands.................... 68,280 1,083 1,011 70,374
North America...................... 6,854 60 15 6,929
Rest of the world.................. 61,724 784 374 62,882
------- ----- ----- -------
Total loans to banks (gross)....... 136,858 1,927 1,400 140,185
======= ===== ===== =======
</TABLE>
20
<PAGE> 25
LOANS
ABN AMRO's loan portfolio consists of loans, overdrafts, assets subject to
operating leases, finance lease receivables to governments, corporations and
consumers and reverse repurchase agreements. The following table analyzes this
portfolio by sector at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Public sector....................... 14,948 16,199 17,800 19,682 24,442
Commercial.......................... 224,490 205,251 192,175 174,584 173,499
Retail.............................. 141,233 97,822 85,331 77,981 64,135
------- ------- ------- ------- -------
Total private sector................ 365,723 303,073 277,506 252,565 237,634
Total loans (gross) excluding
professional securities
transactions...................... 380,671 319,272 295,306 272,247 262,076
Professional securities
transactions(1)................... 69,131 17,731 5,562 5,140 12,419
------- ------- ------- ------- -------
Total loans (gross) including
professional securities
transactions...................... 449,802 337,003 300,868 277,387 274,495
======= ======= ======= ======= =======
Total loans (net)(2)................ 443,178 331,600 292,674 270,699 268,205
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Professional securities transactions for 1997 and 1996 include receivables
from professional securities transactions. Receivables from professional
securities transactions are included in commercial loans for 1995, 1994 and
1993.
(2) The difference between total loans (gross) and total loans (net) represents
ABN AMRO's specific allowance for loan losses and, in 1995, 1994 and 1993,
the portion of the Provision for general contingencies allocated to the
balance sheet item Loans. For a discussion of ABN AMRO's provisioning
policy, see "-- Analysis of Loan Loss Experience: Provisions and Allowances
for Loan Losses."
ABN AMRO's lease portfolio aggregated NLG 15,775 million, NLG 13,427
million and NLG 12,309 million at December 31, 1997, 1996, and 1995,
respectively. At December 31, 1997, the lease portfolio was comprised of finance
lease receivables of NLG 6,432 million and assets subject to operating leases of
NLG 9,343 million.
In addition to loans, at December 31, 1997, ABN AMRO had loan commitments,
guarantees, letters of credit, endorsements and similar parties, amounting to
NLG 226,606 million, of which NLG 158,095 million represented undrawn loan
facilities.
21
<PAGE> 26
Outstanding Loans by Region
The following table analyzes ABN AMRO's loans by region at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
THE NETHERLANDS
Public sector.......................... 11,087 12,502 14,687 16,647 20,417
Commercial............................. 93,555 88,785 88,919 81,390 85,822
Retail................................. 84,288 71,226 63,956 60,206 51,848
------- ------- ------- ------- -------
188,930 172,513 167,562 158,243 158,087
NORTH AMERICA
Public sector.......................... 1,348 1,116 928 1,079 1,375
Commercial............................. 47,845 45,096 35,691 33,200 33,502
Retail................................. 47,333 19,062 15,538 12,427 8,971
------- ------- ------- ------- -------
96,526 65,274 52,157 46,706 43,848
REST OF THE WORLD
Public sector.......................... 2,513 2,581 2,185 1,956 2,650
Commercial............................. 83,090 71,370 67,565 59,994 54,175
Retail................................. 9,612 7,534 5,837 5,348 3,316
------- ------- ------- ------- -------
95,215 81,485 75,587 67,298 60,141
------- ------- ------- ------- -------
Total loans (gross).................... 380,671 319,272 295,306 272,247 262,076
======= ======= ======= ======= =======
</TABLE>
Maturities
The following table provides an analysis of loan maturities at December 31,
1997. Determinations of maturities are based on contract terms.
<TABLE>
<CAPTION>
AFTER 1 YEAR AND
WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
------------- ---------------- ------------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
The Netherlands.................... 70,128 27,313 91,489 188,930
North America...................... 32,656 24,756 39,114 96,526
Rest of the World.................. 67,107 18,119 9,989 95,215
------- ------ ------- -------
Total Loans (gross)................ 169,891 70,188 140,592 380,671
======= ====== ======= =======
</TABLE>
22
<PAGE> 27
Interest Rate Sensitivity
The following table analyzes at December 31, 1997 the interest rate
sensitivity of loans due after one year.
<TABLE>
<CAPTION>
AT AT AT
VARIABLE RATE(1) ADJUSTABLE RATE(2) FIXED RATE(3) TOTAL
---------------- ------------------ ------------- ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
DUE AFTER 1 AND WITHIN 5 YEARS
The Netherlands............... 2,952 5,052 19,309 27,313
North America................. 12,660 694 11,402 24,756
Rest of the world............. 9,684 916 7,519 18,119
DUE AFTER 5 YEARS
The Netherlands............... 1,835 62,949 26,705 91,489
North America................. 2,650 13,535 22,929 39,114
Rest of the world............. 3,279 1,724 4,986 9,989
</TABLE>
- ---------------
(1) Variable rate loans are Amsterdam interbank offering rate ("Aibor"), London
interbank offering rate ("LIBOR") and prime rate-based loans as well as
adjustable rate loans with fixed interest periods of up to one year.
(2) Adjustable rate loans are loans with fixed interest rates for a period which
is shorter than the entire term of the loan.
(3) Fixed rate loans are loans for which the interest rate is fixed for the
entire term.
Private Sector Loans by Type of Collateral
The following table analyzes private sector loans by type of collateral at
the dates indicated. Unsecured loans include loans for which ABN AMRO has the
right to require collateral.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantees............ 14,841 15,489 12,307 12,200 9,796
Mortgages.............................. 35,133 30,968 29,403 29,356 31,584
Securities............................. 4,691 7,320 12,553 9,333 12,913
Bank guarantees........................ 5,952 4,659 2,316 1,968 1,863
Other types of collateral and
unsecured............................ 163,873 146,815 135,596 121,727 117,343
------- ------- ------- ------- -------
224,490 205,251 192,175 174,584 173,499
RETAIL
Public authority guarantees............ 8,005 8,428 10,333 10,283 10,585
Mortgages.............................. 96,823 59,931 53,226 46,089 36,262
Other types of collateral and
unsecured............................ 36,405 29,463 21,772 21,609 17,288
------- ------- ------- ------- -------
141,233 97,822 85,331 77,981 64,135
------- ------- ------- ------- -------
Total private sector loans (gross)..... 365,723 303,073 277,506 252,565 237,634
======= ======= ======= ======= =======
Total private sector loans (net)(1).... 359,153 297,734 269,312 245,877 231,344
======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The difference between total private sector loans (gross) and total private
sector loans (net) represents ABN AMRO's specific allowance for loan losses
and in the years 1995, 1994 and 1993 the portion of the Provision for
general contingencies allocated to the balance sheet item Loans. For a
discussion of ABN AMRO's provisioning policy, see "-- Analysis of Loan Loss
Experience: Provisions and Allowances for Loan Losses."
23
<PAGE> 28
Commercial Loans by Industry
The following table analyzes commercial loans by industry at the dates
indicated. ABN and AMRO used differing industry classification systems during
the first three years following their merger. Accordingly, the industry analyses
presented in this Report for 1993 are based on estimates which management
believes are reasonably accurate.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy......... 18,611 19,961 13,587 13,895 14,455
Manufacturing.......................... 50,346 50,807 45,597 41,338 42,755
Construction and real estate........... 22,445 18,672 19,630 15,942 14,495
Wholesale and retail trade............. 34,814 33,085 34,395 33,452 34,637
Transportation and communications...... 19,921 16,269 15,905 14,600 15,644
Financial services..................... 35,288 27,755 20,244 17,469 16,930
Business services...................... 19,913 15,097 19,331 18,006 17,387
Education, health care and other
services............................. 23,152 23,605 23,486 19,882 17,196
------- ------- ------- ------- -------
Total commercial loans (gross)......... 224,490 205,251 192,175 174,584 173,499
======= ======= ======= ======= =======
</TABLE>
Set forth below is an analysis of ABN AMRO's loan portfolio by region. The
loan portfolio of ABN AMRO's Dutch, European and North American operations
comprised 88.4% of ABN AMRO's total loan portfolio at December 31, 1997. The
remainder of the total loan portfolio at December 31, 1997 is comprised 8.1%
from Asian operations, 2.8% from South and Central American operations and 0.7%
from Middle East and African operations.
Netherlands loan portfolio
The Netherlands loan portfolio is comprised of loans made from offices and
branches located in The Netherlands. The following tables analyze, at the dates
indicated, the Netherlands loan portfolio by location of the borrower, and, in
the case of private sector loans, type of collateral and industry of the
borrower.
Loans by Customer Location
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
PUBLIC SECTOR
The Netherlands........................ 8,207 10,691 12,861 14,546 18,324
Rest of Europe......................... 1,977 1,198 1,182 1,297 1,208
North America.......................... 73 71 73 84 100
Rest of the world...................... 830 542 571 720 785
------- ------- ------- ------- -------
2,880 1,811 1,826 2,101 2,093
------- ------- ------- ------- -------
Total public sector loans (gross)...... 11,087 12,502 14,687 16,647 20,417
======= ======= ======= ======= =======
PRIVATE SECTOR
The Netherlands........................ 161,609 149,767 141,613 131,450 124,387
Rest of Europe......................... 5,871 5,808 6,102 5,339 6,660
North America.......................... 4,990 1,175 1,165 786 1,164
Rest of the world...................... 5,373 3,261 3,995 4,021 5,459
------- ------- ------- ------- -------
16,234 10,244 11,262 10,146 13,283
------- ------- ------- ------- -------
Total private sector loans (gross)..... 177,843 160,011 152,875 141,596 137,670
======= ======= ======= ======= =======
</TABLE>
24
<PAGE> 29
Private Sector Loans by Type of Collateral
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantee............. 8,767 9,658 7,616 7,752 6,161
Mortgages.............................. 23,390 21,749 22,348 21,847 24,546
Securities............................. 1,627 2,434 7,289 5,460 8,482
Bank guarantees........................ 483 457 537 238 455
Other types of collateral and
unsecured............................ 59,288 54,487 51,129 46,093 46,178
------- ------- ------- ------- -------
93,555 88,785 88,919 81,390 85,822
RETAIL
Public authority guarantees............ 7,983 8,405 9,676 9,983 10,459
Mortgages.............................. 52,744 42,006 38,536 32,383 26,401
Other types of collateral and
unsecured............................ 23,561 20,815 15,744 17,840 14,988
------- ------- ------- ------- -------
84,288 71,226 63,956 60,206 51,848
------- ------- ------- ------- -------
Total private sector loans (gross)..... 177,843 160,011 152,875 141,596 137,670
======= ======= ======= ======= =======
</TABLE>
Commercial Loans by Industry
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy.............. 8,526 8,815 8,609 8,740 9,580
Manufacturing............................... 14,262 15,579 15,506 14,911 17,387
Construction and real estate................ 7,902 8,478 9,482 6,068 5,788
Wholesale and retail trade.................. 15,566 16,382 18,589 18,854 21,275
Transportation and communications........... 6,433 5,616 7,250 7,142 7,234
Financial services.......................... 18,006 14,459 10,939 9,756 8,634
Business services........................... 9,887 6,883 6,232 6,580 7,376
Education, health care and other services... 12,973 12,573 12,312 9,339 8,548
------ ------ ------ ------ ------
Total commercial loans (gross).............. 93,555 88,785 88,919 81,390 85,822
====== ====== ====== ====== ======
</TABLE>
European loan portfolio
The European loan portfolio is comprised of loans made from offices and
branches located in Europe (excluding The Netherlands). The following tables
analyze, at the dates indicated, the European private sector loan portfolio by
type of collateral and industry of the borrower.
25
<PAGE> 30
Private Sector Loans by Type of Collateral
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantee.................. 3,348 4,603 2,620 2,575 2,223
Mortgages................................... 1,170 1,485 739 665 655
Securities.................................. 941 72 3,801 2,307 2,422
Bank guarantees............................. 2,724 1,181 311 272 439
Other types of collateral and unsecured..... 39,150 34,518 37,373 35,047 30,845
------ ------ ------ ------ ------
47,333 41,859 44,844 40,866 36,584
RETAIL
Public authority guarantees................. 102 5 580 300 126
Mortgages................................... 618 779 769 1,370 1,345
Other types of collateral and unsecured..... 1,889 1,705 1,437 524 431
------ ------ ------ ------ ------
2,609 2,489 2,786 2,194 1,902
------ ------ ------ ------ ------
Total private sector loans (gross).......... 49,942 44,348 47,630 43,060 38,486
====== ====== ====== ====== ======
</TABLE>
Commercial Loans by Industry
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy.............. 4,302 3,058 2,466 2,855 2,582
Manufacturing............................... 10,094 11,223 11,271 11,772 9,915
Construction and real estate................ 3,100 2,808 5,127 3,419 3,267
Wholesale and retail trade.................. 7,542 6,799 5,178 4,830 4,683
Transportation and communications........... 6,687 5,327 3,604 2,625 2,645
Financial services.......................... 7,426 6,145 6,937 6,197 6,602
Business services........................... 4,432 3,893 5,584 5,052 3,342
Education, health care and other services... 3,750 2,606 4,677 4,116 3,548
------ ------ ------ ------ ------
Total commercial loans (gross).............. 47,333 41,859 44,844 40,866 36,584
====== ====== ====== ====== ======
</TABLE>
North American Loan Portfolio
The North American loan portfolio is comprised of loans made by the LaSalle
Group and EAB, loans made by ABN AMRO offices and branches located in the United
States, Canada and Mexico, and beginning in 1997, loans made by Standard
Federal. The Standard Federal loan portfolio consists primarily of mortgage
loans. During 1997, ABN AMRO securitized NLG 11.0 billion of loans from its
North American portfolio to redeploy capital for higher yielding purposes. The
following tables analyze, at the dates indicated, the North American private
sector loan portfolio by type of collateral and by industry of the borrower.
26
<PAGE> 31
Private Sector Loans by Type of Collateral
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantees................. 1,539 819 1,206 1,268 941
Mortgages................................... 9,499 6,619 5,743 6,418 5,829
Securities.................................. 648 722 757 456 977
Bank guarantees............................. 158 187 56 97 101
Other types of collateral and unsecured..... 36,001 36,749 27,929 24,961 25,654
------ ------ ------ ------ ------
47,845 45,096 35,691 33,200 33,502
RETAIL
Public authority guarantees................. 21 18 -- -- --
Mortgages................................... 40,793 15,492 12,684 11,503 8,072
Other types of collateral and unsecured..... 6,519 3,552 2,854 924 899
------ ------ ------ ------ ------
47,333 19,062 15,538 12,427 8,971
------ ------ ------ ------ ------
Total private sector loans (gross).......... 95,178 64,158 51,229 45,627 42,473
====== ====== ====== ====== ======
</TABLE>
Commercial Loans by Industry
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy.............. 5,216 5,595 1,800 1,618 1,604
Manufacturing............................... 12,422 14,179 12,613 9,814 11,007
Construction and real estate................ 9,686 5,871 4,294 5,699 4,930
Wholesale and retail trade.................. 5,668 6,346 6,609 6,155 5,132
Transportation and communications........... 3,336 3,244 2,910 2,949 4,110
Financial services.......................... 3,266 1,020 1,812 1,121 1,196
Business services........................... 3,044 3,134 1,982 1,495 2,192
Education, health care and other services... 5,207 5,707 3,671 4,349 3,331
------ ------ ------ ------ ------
Total commercial loans (gross).............. 47,845 45,096 35,691 33,200 33,502
====== ====== ====== ====== ======
</TABLE>
ANALYSIS OF LOAN LOSS EXPERIENCE: PROVISIONS AND ALLOWANCES FOR LOAN LOSSES
As used in this Report, the term "provisions" denotes the charge to income,
while "allowance" denotes the accumulated balance sheet position created by such
provisions and held against the value of the assets.
PROVISIONING POLICY
Credit officers continually monitor the quality of loans. If doubt exists
as to repayment, loans are transferred to special credit departments. After
assessment, the special credit departments determine the amount, if any, of the
specific provision that should be made, taking into account the value of
collateral. Three times a year, the Group Credit Committee evaluates the
specific allowances for credit risks that are above a certain level and reviews
loans identified as special mention credits because of credit or industry
factors to determine whether additional provisioning is required. It is ABN
AMRO's policy to establish and maintain, through charges against income, a
specific allowance sufficient to cover the estimated loss when credit risks or
economic or political factors make recovery doubtful.
27
<PAGE> 32
Provisioning for consumer loans and residential mortgages takes place on a
portfolio basis with the specific allowance being maintained at a level
commensurate with the size of the portfolio and with historical loss experience.
ABN AMRO also establishes specific allowances for country risk. Country
risk concerns a country's inability to service its external debt, as often
evidenced by rescheduling or payment arrears. Specific allowances for country
risk are generally based on provisioning levels suggested by the Dutch Central
Bank.
For collection purposes, ABN AMRO continues to accrue interest on doubtful
loans, which are loans classified as "doubtful" or "loss," but a provision is
made for interest in suspense against interest revenue in the income statement
for non-performing doubtful loans. Doubtful loans are not written off until it
is clear that repayment of principal can be ruled out. As provisioning is tax
deductible in The Netherlands, it is unnecessary for the Bank, as is the case
for U.S. banks, to write off doubtful loans to achieve tax savings. U.S. banks
stop accruing interest when loans become overdue by 90 days or more or when
recovery is doubtful. For these reasons the relative level of allowance and
doubtful loans is generally higher for Dutch banks than for U.S. banks.
The following table shows ABN AMRO's specific allowances for loan losses
and for country risk.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
The Netherlands.......................... 2,616 2,609 2,913 3,456 3,051
North America............................ 610 406 316 376 579
Rest of the world........................ 3,151 2,278 2,213 1,856 1,660
----- ----- ----- ----- -----
Total specific allowances for loan
losses................................. 6,377 5,293 5,442 5,688 5,290
Specific allowances for country risk..... 903 921 1,055 1,584 2,360
----- ----- ----- ----- -----
Total specific allowances................ 7,280 6,214 6,497 7,272 7,650
===== ===== ===== ===== =====
</TABLE>
The asset quality of ABN AMRO's loan portfolio continued to improve in
1997. Nonperforming loans as a percentage of total private sector loans (gross)
declined to 1.59% in 1997 from 1.87%, 2.14% and 2.25% in 1996, 1995 and 1994,
respectively. The Dutch economy continued to be strong, with the level of
doubtful loans increasing only moderately despite volume growth. Strong
economies in the U.S. and certain other countries in which ABN AMRO has
substantial operations were also reflected in a continuation of a low level
specific provisioning for individual credits. Although ABN AMRO operates in all
of the countries affected by the Asian financial crisis, its exposure in terms
of loans and trading portfolios in those countries is relatively small compared
to the Bank's worldwide credit business. As a result, although a specific
provision for loan losses relating to the Asian crisis was taken, the specific
provisions for loan losses as a percentage of total private sector loans (gross)
was 0.36% in 1997, as compared to 0.46% and 0.31% in 1996 and 1995,
respectively, and specific allowance for loan losses as a percentage of total
private sector loans (gross) declined to 1.74% in 1997, as compared to 1.75% and
1.96% in 1996 and 1995, respectively. At December 31, 1997, total specific
allowances were NLG 1,066 million or 17.2% higher than at December 31, 1996, as
a result of acquisitions and lower write-offs. The specific allowance for
country risk was decreased as a result of lower provision levels suggested by
the Dutch Central Bank.
Consistent with the abolition of undisclosed reserves, ABN AMRO
established, effective January 1, 1997, a disclosed provision on its balance
sheet, Fund for general banking risks, which is net of tax, of NLG 2,000
million. Management's objective is to maintain this fund at 0.5% of
risk-weighted assets. The Fund for general banking risks, at NLG 2,483 million,
exceeded 0.5% of risk-weighted assets at December 31, 1997 because of larger
additions taken due to the Asian crisis. ABN AMRO believes that this provision
is adequate to cover general risks associated with lending and other activities
for which no specific provision has been made. The Consolidated Financial
Statements for 1996 have been restated to reflect the establishment of the Fund
for general banking risks. Prior to adopting this methodology, Dutch banks had
historically maintained an undisclosed provision for general contingencies. This
provision was net of tax and covered
28
<PAGE> 33
general risks associated with lending and other banking activities, which
included risk of loan loss. The level of the provision for general contingencies
was based on management's evaluation of the risks involved and supervisory
requirements.
The table below shows, for the five years ended December 31, 1997, the
composition of the aggregate charge to income regarding the specific provision
for loan losses and additions to the Fund for general banking risks for 1997 and
1996 and for the provision for general contingencies for 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Net provisions for loan losses(1)................ 1,328 1,407 857 1,236 1,220
Net provisions for country risk(1)............... (123) (153) (135) (253) (194)
----- ----- ----- ----- -----
Total specific provisions........................ 1,205 1,254 722 983 1,026
Addition to Fund for general banking risks....... 395 146 -- -- --
Addition to provision for general
contingencies.................................. -- -- 678 517 474
----- ----- ----- ----- -----
Total charge against profit...................... 1,600 1,400 1,400 1,500 1,500
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Net of recoveries and releases. See "-- Movements in Specific Allowances for
Loan Losses" and "-- Movements in Specific Allowances for Country Risk."
The following tables analyze the movements of the specific allowances for
loan losses and country risk: amounts written off (net of recoveries), new
provisions charged against profit (increases and releases) and growth of the
allowance as a consequence of the charge of interest to doubtful loans. The
allowance for interest in suspense is included in the specific allowance for
loan losses.
29
<PAGE> 34
Movements in Specific Allowances for Loan Losses
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................ 5,293 5,442 5,688 5,290 4,559
Acquisitions, currency translation
differences and other adjustments......... 514 (197) (70) (128) 84
Amounts written off
The Netherlands........................... (398) (837) (795) (455) (280)
North America............................. (356) (303) (198) (366) (511)
Rest of the world......................... (288) (514) (313) (246) (189)
------ ------ ------ ------ ------
(1,042) (1,654) (1,306) (1,067) (980)
Recoveries.................................. 119 107 83 176 133
Subtotal.................................... 4,884 3,698 4,395 4,271 3,796
Provision for interest in suspense.......... 165 188 190 181 274
New and increased specific provisions
The Netherlands........................... 601 1,010 822 1,264 954
North America............................. 595 364 263 326 396
Rest of the world......................... 856 820 781 556 531
------ ------ ------ ------ ------
2,052 2,194 1,866 2,146 1,881
Releases of specific provisions
The Netherlands........................... (251) (306) (673) (416) (429)
North America............................. (128) (183) (126) (156) (62)
Rest of the world......................... (226) (191) (127) (162) (37)
------ ------ ------ ------ ------
(605) (680) (926) (734) (528)
Recoveries
The Netherlands........................... (5) (6) (16) (102) (68)
North America............................. (92) (70) (47) (67) (57)
Rest of the world......................... (22) (31) (20) (7) (8)
------ ------ ------ ------ ------
(119) (107) (83) (176) (133)
New and increased specific provisions
(net)..................................... 1,328 1,407 857 1,236 1,220
------ ------ ------ ------ ------
Balance at end of year...................... 6,377 5,293 5,442 5,688 5,290
====== ====== ====== ====== ======
</TABLE>
Movements in Specific Allowances for Country Risk
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year................ 921 1,055 1,584 2,360 2,600
Acquisitions, currency translation
differences and other adjustments......... 105 35 (72) (106) 102
Amounts written off......................... -- -- (177) (160) --
Provisions charged (released) against
profit.................................... (123) (153) (135) (253) (194)
Provision for interest in suspense.......... -- -- -- (12) 97
Purchase/sale LDCs.......................... -- (16) (145) (245) (245)
------ ------ ------ ------ ------
Balance at end of year...................... 903 921 1,055 1,584 2,360
====== ====== ====== ====== ======
</TABLE>
30
<PAGE> 35
Specific Allowance for Loan Losses by Industry
The following table analyzes the allowance for loan losses by industry at
December 31, 1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................... 311 160 125 182 173
Manufacturing.................................... 1,246 1,129 890 907 823
Construction and real estate..................... 471 447 674 767 648
Wholesale and retail trade....................... 1,183 956 1,027 1,062 1,037
Transportation and communications................ 563 459 282 242 209
Financial services............................... 669 538 433 449 518
Business services................................ 558 351 593 649 499
Education, health care and other services........ 539 468 759 885 856
----- ----- ----- ----- -----
Total commercial................................. 5,540 4,508 4,783 5,143 4,763
Retail........................................... 837 785 659 545 527
----- ----- ----- ----- -----
Total private sector............................. 6,377 5,293 5,442 5,688 5,290
===== ===== ===== ===== =====
</TABLE>
The following table analyzes the percentage of loans in each industry to
total private sector loans at December 31, 1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................... 5.0 6.4 4.9 5.5 6.1
Manufacturing.................................... 13.8 16.3 16.4 16.4 18.0
Construction and real estate..................... 6.1 6.0 7.1 6.3 6.1
Wholesale and retail trade companies............. 9.5 10.6 12.4 13.2 14.6
Transportation and communications................ 5.5 5.2 5.7 5.8 6.6
Financial services............................... 9.7 11.6 7.3 6.9 7.1
Business services................................ 5.4 4.8 7.0 7.1 7.3
Education, health care and other services........ 6.4 7.6 8.5 7.9 7.2
----- ----- ----- ----- -----
Total commercial................................. 61.4 68.5 69.3 69.1 73.0
Retail........................................... 38.6 31.5 30.7 30.9 27.0
----- ----- ----- ----- -----
Total private sector............................. 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
</TABLE>
31
<PAGE> 36
Net Specific Provisions for Loan Losses by Industry
The following table analyzes net specific provisions for loan losses
(inclusive of provision for interest in suspense) by industry for 1997, 1996,
1995, 1994 and 1993.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................... 148 93 -- 43 54
Manufacturing.................................... 266 279 137 213 236
Construction and real estate..................... 74 72 130 367 320
Wholesale and retail trade companies............. 295 306 209 115 211
Transportation and communications................ 40 146 61 82 (3)
Financial services............................... 78 53 16 30 177
Business services................................ 201 88 111 140 166
Education, health care and other services........ 53 231 106 218 212
----- ----- ----- ----- -----
Total commercial................................. 1,155 1,268 770 1,208 1,373
Retail........................................... 338 327 277 209 121
----- ----- ----- ----- -----
Total private sector............................. 1,493 1,595 1,047 1,417 1,494
of which interest in suspense.................... 165 188 190 181 274
----- ----- ----- ----- -----
Total specific provisions (net).................. 1,328 1,407 857 1,236 1,220
===== ===== ===== ===== =====
</TABLE>
Analysis of Write-Offs by Industry
The following table analyzes the amounts written-off by industry during
1997, 1996, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................... 47 46 55 31 30
Manufacturing.................................... 118 289 166 133 98
Construction and real estate..................... 70 305 241 268 248
Wholesale and retail trade....................... 284 237 226 113 149
Transportation and communications................ 54 75 25 42 37
Financial services............................... 35 90 18 26 6
Business services................................ 74 148 179 55 104
Education, health care and other services........ 108 170 217 200 155
----- ----- ----- ----- -----
Total commercial................................. 790 1,360 1,127 868 827
Retail........................................... 252 294 179 199 153
----- ----- ----- ----- -----
Total private sector............................. 1,042 1,654 1,306 1,067 980
===== ===== ===== ===== =====
</TABLE>
POTENTIAL CREDIT RISK LOANS
The table below provides an analysis of ABN AMRO's doubtful loans for the
years ended December 31, 1997, 1996, 1995, 1994 and 1993. "Doubtful loans" are
all loans classified as "doubtful or "loss" for which in general a specific
provision has been made, although doubtful loans can still be performing. The
amounts are stated before deduction of the value of collateral held, the
specific allowances carried and interest in suspense. As ABN AMRO is not
required by Dutch regulations to classify loans as "non-accrual", "accruing past
due", "restructured" and "potential problem" loans, as defined by the Securities
and Exchange Commission (the "SEC"), the table below is based on available data
for 1997, 1996, 1995, 1994 and 1993.
32
<PAGE> 37
DOUBTFUL LOANS
<TABLE>
<CAPTION>
INTEREST INCLUDED IN INCLUDED IN INCLUDED IN
REVENUE NOT INTEREST INTEREST INTEREST
RECOGNIZED REVENUE REVENUE REVENUE
1997 1996 1995 1994 1993 1997(4) 1997(5) 1996(5) 1995(5)
------ ------ ------ ------ ------ ----------- ----------- ----------- -----------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS(1)
The Netherlands.............. 1,282 1,786 1,744 1,563 1,869 129 -- -- --
North America................ 369 463 480 671 1,129 31 4 2 6
Rest of the world............ 903 1,181 1,072 1,007 646 37 3 -- 9
------ ------ ------ ------ ------ --- --- --- ---
2,554 3,430 3,296 3,241 3,644 197 7 2 15
NON-PERFORMING LOANS FOR
WHICH INTEREST HAS BEEN
SUSPENDED(2)
The Netherlands.............. 1,101 1,026 1,285 1,286 1,168 68 -- 10 9
North America................ 668 341 395 295 557 30 2 -- 13
Rest of the world............ 1,505 861 969 869 835 67 25 10 15
------ ------ ------ ------ ------ --- --- --- ---
3,274 2,228 2,649 2,450 2,560 165 27 20 37
ACCRUING LOANS(3)
The Netherlands.............. 4,289 3,362 3,519 4,720 3,978 -- 242 206 298
North America................ 48 203 291 147 -- -- 3 5 26
Rest of the world............ 870 664 441 237 455 24 59 31 39
------ ------ ------ ------ ------ --- --- --- ---
5,207 4,229 4,251 5,104 4,433 24 304 242 363
------ ------ ------ ------ ------ --- --- --- ---
TOTAL DOUBTFUL LOANS......... 11,035 9,887 10,196 10,795 10,637 386 338 264 415
====== ====== ====== ====== ====== === === === ===
</TABLE>
- ---------------
(1) "Non-accrual loans" are loans placed on a non-accrual basis but not yet
written off.
(2) "Non-performing loans" are loans on which ABN AMRO continues to accrue
interest, but which is included in interest revenue only if interest is
actually received.
(3) "Accruing loans" are loans on which ABN AMRO continues to charge interest
that is included in interest revenue.
(4) "Interest not recognized" is the difference between the interest revenue
that would have been recognized under original contractual terms and the
interest revenue actually recognized in the relevant year.
(5) "Included in interest" is the amount of interest revenue that is recognized
in the relevant year.
The following table sets forth the outstanding principal balance of loans
as of December 31, 1997, 1996, 1995, 1994 and 1993 that were restructured.
<TABLE>
<CAPTION>
INCLUDED IN INCLUDED IN INCLUDED IN
INTEREST INTEREST INTEREST
REVENUE REVENUE REVENUE
1997 1996 1995 1994 1993 1997 1996 1995
---- ---- ---- ---- ---- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands...................... -- 49 82 68 45 -- -- 5
North America........................ 35 5 8 20 35 1 -- --
Rest of the world.................... 95 317 367 458 753 22 35 21
--- --- --- --- --- -- -- --
130 371 457 546 833 23 35 26
=== === === === === == == ==
</TABLE>
33
<PAGE> 38
COUNTRY RISK EXPOSURE AND RELATED SPECIFIC ALLOWANCES
The following table sets ABN AMRO's country risk exposure and related
specific allowances at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------
1997 1996 1995
----- ----- ------
(IN MILLIONS OF NLG
EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Country risk exposure.................................... 2,079 2,727 2,737
Country risk specific allowances......................... (903) (921) (1,055)
Net exposure............................................. 1,176 1,806 1,682
Net exposure as a percentage of group capital............ 2.2% 4.5% 5.0%
</TABLE>
Total country risk exposure, excluding trade debts, decreased by NLG 648
million in 1997, mainly as a result of the change in Mexico's status from being
a Less Developed Country ("LDC") in 1996 to no longer being one in 1997.
Specific allowances for country risk represented 43% of total country risk
exposure at December 31, 1997, as compared to 34% at December 31, 1996 and 39%
at December 31, 1995. Of the total country risk exposure at December 31, 1997,
NLG 908 million, or 44%, was collateralized mainly by U.S. Treasury zero coupon
bonds issued as part of Brady restructurings. This collateral is designed to
cover fully the principal due on maturity. In determining specific allowances
for country risk the estimated current value of this collateral has been taken
into account.
CROSS-BORDER OUTSTANDINGS
The operations of ABN AMRO involve significant exposure in non-local
currencies. These cross-border outstandings are controlled by the Group Credit
Committee through a country risk management system that requires frequent
monitoring of outstandings to avoid concentrations of transfer, economic and
political risk. Cross-border outstandings are based on the country of domicile
of the borrower and comprise loans denominated in currencies other than the
borrower's local currency.
Cross-border outstandings exceeding 1% of total assets at December 31,
1997, 1996 and 1995 are shown in the following table. These figures are not
netted for any legally enforceable written guarantees of principal or interest
by domestic or other non-local third parties. At the dates below, there are no
outstandings exceeding 1% of total assets in any country where current
conditions give rise to liquidity problems which are expected to have a material
impact on the timely repayment of interest or principal. The table does not
include off balance sheet items.
34
<PAGE> 39
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL PRIVATE
TOTAL ASSETS AMOUNT BANKS GOVERNMENT SECTOR
------------- ------ ------ ---------- -------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997
United Kingdom..................... 5.6 46,879 21,874 2,685 22,320
United States...................... 3.0 25,018 5,133 6,193 13,692
Germany............................ 2.7 22,894 11,294 10,165 1,435
Belgium............................ 1.9 15,520 10,124 2,193 3,203
Japan.............................. 1.8 15,356 10,560 259 4,537
France............................. 1.8 14,893 11,236 640 3,017
Italy.............................. 1.6 12,999 7,243 4,037 1,719
DECEMBER 31, 1996
United Kingdom..................... 3.9 23,171 16,688 212 6,271
Germany............................ 2.6 15,361 7,662 7,044 655
Japan.............................. 2.4 14,186 10,266 -- 3,920
United States...................... 2.1 12,681 8,325 1,814 2,542
France............................. 1.6 9,372 7,098 435 1,839
Belgium............................ 1.5 9,047 6,408 402 2,237
Singapore.......................... 1.2 7,191 6,441 -- 750
Luxembourg......................... 1.1 6,492 5,359 1 1,132
DECEMBER 31, 1995
United Kingdom..................... 4.6 25,086 18,606 50 6,430
United States...................... 2.7 14,867 9,788 1,981 3,098
Japan.............................. 2.4 12,856 8,805 -- 4,051
Germany............................ 2.2 11,989 5,807 5,698 484
Belgium............................ 2.1 11,417 8,237 837 2,343
France............................. 1.9 10,403 8,897 126 1,380
Singapore.......................... 1.3 7,112 6,111 -- 1,001
Italy.............................. 1.2 6,641 5,764 754 123
Luxembourg......................... 1.1 6,276 5,469 72 735
</TABLE>
Cross-Border Outstandings between 0.75% and 1% of Total Assets
Cross-border outstandings to borrowers in countries in which such
outstandings amounted to between 0.75% and 1% of total assets totaled NLG 13,017
million at December 31, 1997 and related to Switzerland and Sweden. At December
31, 1996, these outstandings totaled NLG 16,527 million and related to Italy,
Sweden and Switzerland. At December 31, 1995 these outstandings totaled NLG
9,067 million and related to Sweden and Switzerland.
LOAN CONCENTRATIONS
One of the principal factors influencing the quality of ABN AMRO's earnings
and loan portfolio is diversification of loans by region, industry and borrower.
A concentration exists when loans are made to a multiple number of borrowers
engaged in similar activities all of whom are subject to roughly the same
effects of economic conditions or other changes. At December 31, 1997, there was
no concentration of loans exceeding 10% of ABN AMRO's total loans (gross).
LIABILITIES
Deposits and short-term borrowings are included in the balance sheet items
Banks, Total customer accounts and Debt securities.
35
<PAGE> 40
DEPOSITS
The following table presents the average amount of and the average rate
paid on each deposit category representing in excess of 10% of average total
deposits during the three most recent fiscal years. The geographic allocation is
based on the location of the office or branch where the deposit is made.
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE (%) AMOUNT RATE (%) AMOUNT RATE (%)
------- -------- ------- -------- ------- --------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
BANKS
The Netherlands
Time deposits(1)................... 50,056 5.3 69,778 5.2 52,523 5.1
Demand deposits/Current accounts... 25,058 4.4 22,813 5.0 31,911 7.6
Foreign
Time deposits(1)................... 117,038 4.8 59,668 5.6 40,546 6.0
Demand deposits/Current accounts... 24,052 3.5 37,805 3.8 24,635 9.0
TOTAL CUSTOMER ACCOUNTS
The Netherlands
Savings accounts................... 64,101 4.0 58,537 4.1 54,409 4.5
Time deposits(1)................... 48,342 4.1 61,012 4.6 58,634 4.8
Demand deposits/Current accounts... 44,179 2.3 42,590 2.0 37,817 2.6
Others............................. 12,157 5.4 11,040 5.1 14,162 5.0
Foreign
Savings accounts................... 61,625 4.5 32,088 4.1 27,733 4.1
Time deposits(1)................... 60,600 4.6 54,111 4.9 35,309 5.9
Demand deposits/Current accounts... 21,307 3.0 16,670 3.4 22,773 3.7
Others............................. 56,381 5.0 22,013 5.8 8,528 6.1
</TABLE>
- ---------------
(1) Includes ABN AMRO's Eurodollar deposit activities. Time deposits are funds
whereby the original term, the period of notice and interest payable have
been agreed upon with the counterparty.
Average amounts of deposits by foreign customers in the Dutch branches and
offices included under Banks were for 1997, 1996 and 1995, NLG 57.4 billion, NLG
67.6 billion and NLG 59.4 billion, respectively, and for Total customer accounts
were for 1997, 1996 and 1995, NLG 32.5 billion, NLG 35.7 billion and NLG 33.2
billion, respectively.
Deposits of USD 100,000 or more
At December 31, 1997, deposits of USD 100,000 or more or the equivalent in
other currencies, held in the United States, in time deposits and certificates
of deposits by term remaining until maturity were:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------
(IN MILLIONS OF NLG)
<S> <C>
3 months or less............................................ 26,195
more than 3 months but less than 6 months................... 7,596
more than 6 months but less than 12 months.................. 3,361
over 12 months.............................................. 9,547
------
Total....................................................... 46,699
======
</TABLE>
36
<PAGE> 41
SHORT-TERM BORROWINGS
Short-term borrowings are borrowings with an original maturity of one year
or less. These are included in ABN AMRO's consolidated balance sheet under the
items Banks, Total customer accounts and Debt securities. Categories of
short-term borrowings for which the average balance outstanding during the
preceding three fiscal years was equal to or greater than 30% of consolidated
shareholders' equity at December 31, 1997 were included in the item Debt
Securities and consisted of certificates of deposits and commercial paper. An
analysis of the balance and interest rates paid on such item is provided below.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG
EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Year-end balance................................... 51,234 40,191 33,285
Average balance.................................... 48,956 37,915 32,363
Maximum month-end balance.......................... 52,284 42,070 37,638
Average interest rate during the year.............. 6.3% 6.6% 5.9%
Average interest rate at year-end.................. 6.0% 6.7% 6.2%
</TABLE>
For an analysis of the maturities of ABN AMRO's liabilities at December 31,
1997, see the notes to the Consolidated Financial Statements.
37
<PAGE> 42
SUPERVISION AND REGULATION
REGULATION IN THE NETHERLANDS
General
Holding and its subsidiaries, on a worldwide basis, are extensively
regulated in The Netherlands by the Dutch Central Bank.
The bank regulatory system in The Netherlands is a comprehensive system
based on the provisions of the Act on the Supervision of the Credit System 1992
(the "ASCS 1992"). Certain European Union banking directives made it necessary
to amend the Act on the Supervision of the Credit System that had regulated the
Dutch banking system since 1978, and the new ASCS 1992 entered into force on
January 1, 1993.
The Bank is a "universal bank" under the terms of the ASCS 1992 because it
is engaged in the securities business as well as the banking business. Certain
provisions of the ASCS 1992, summarized below, may restrict the Bank's ability
to make capital contributions or loans to its subsidiaries, and to make
dividends and distributions to Holding.
Supervision of Credit Institutions
In general, under the ASCS 1992, credit institutions are supervised by the
Dutch Central Bank. No enterprise or institution established in The Netherlands
shall pursue the business of a credit institution unless it has obtained prior
authorization from the Dutch Central Bank. Its supervisory activities under the
ASCS 1992 focus on monetary supervision and supervision of solvency, liquidity
and administrative organization including internal control and risk management.
In addition, the ASCS 1992 contains provisions regarding the structure of credit
institutions. The Dutch Central Bank is authorized to issue directives in each
of those areas of supervision. If, in the opinion of the Dutch Central Bank, a
credit institution fails to comply with the Dutch Central Bank's directives
concerning solvency, liquidity or administrative organization, the Dutch Central
Bank will so notify the credit institution, and it may instruct the credit
institution to behave in a certain manner. If the credit institution does not
respond to any such instructions to the satisfaction of the Dutch Central Bank,
the Dutch Central Bank may exercise additional supervisory measures, which may
include the revocation of the license of the credit institution.
The ASCS 1992 provides that each supervised credit institution shall submit
periodic reports to the Dutch Central Bank. In accordance with the Dutch Central
Bank directives promulgated pursuant to the ASCS 1992, the Bank files monthly
reports with the Dutch Central Bank. At least one monthly report for each given
year must be certified by a registered accountant. The report to be certified is
selected by the registered accountant in its discretion.
Solvency Supervision
The Solvency Guidelines of the Dutch Central Bank, as amended on January 1,
1991 (the "Solvency Guidelines"), in accordance with the solvency guidelines of
the Council of the European Communities and the Basle Accord, require that ABN
AMRO maintain a minimum level of total capital (as defined below) to support the
risk-weighted total value of balance sheet assets and off balance sheet items,
the latter of which includes guarantees, documentary credits, certain interest-
and currency-related contracts, unused portions of committed credit facilities
with an original maturity of over one year, note issuance facilities and
revolving underwriting facilities (the "Capital Adequacy Ratio"). The
risk-weighting considers the debtor's risk, which depends on the debtor's
classification, whether or not security is provided, and the country of origin
of the debtor. The required minimum Capital Adequacy Ratio currently is 8.00%.
On January 1, 1996 additional solvency guidelines became effective, implementing
the Capital Adequacy Directive of March 15, 1993 (93/6/EEC) (the "Capital
Adequacy Directive") issued by the Council of the European Communities. The
Solvency Guidelines are applied to the world-wide assets of Dutch credit
institutions.
For ABN AMRO, total capital consists of core capital (also referred to as
Tier 1 capital) and secondary capital (also referred to as Tier 2 capital). As
of January 1, 1996, pursuant to the Capital Adequacy Directive,
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<PAGE> 43
ABN AMRO may also maintain an additional form of regulatory capital, Tier 3
capital, to support the market risks of financial instruments in its trading
book and foreign exchange risk of all business activities. Tier 1 capital
consists of shareholders' equity, published reserves and minority interests.
Tier 2 capital consists of undisclosed reserves (e.g., the provision for general
contingencies under current Dutch GAAP), revaluation reserves and subordinated
debt that does not qualify as Tier 3 capital. Tier 3 capital consists of
subordinated debt that (i) has a minimum original maturity of at least two
years; (ii) is not subject to redemption prior to maturity without the prior
written consent of the Dutch Central Bank (other than in the event of a
winding-up of the Bank); and (iii) is subject to a provision which provides that
neither interest nor principal may be paid if, prior to or as a result of such
payment, ABN AMRO's Capital Adequacy Ratio would be less than the required
minimum.
The amount of subordinated loans included in Tier 2 capital may not exceed
50% of the amount of Tier 1 capital, and the amount of Tier 2 capital included
in total capital may not exceed the amount of Tier 1 capital. In addition, Tier
3 capital may not exceed 250% of the amount of Tier 1 capital that is necessary
to support market and foreign exchange risks. Goodwill and interests of more
than 10% in non-consolidated banking and financial subsidiaries must be deducted
from Tier 1 capital and total capital, respectively. As the Dutch Central Bank
previously announced, as of January 1, 1998, the sum of Tier 2 and Tier 3
capital is no longer permitted to exceed Tier 1 capital.
See Item 8 -- "Selected Financial Data" and Item 9 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Capital Resources" for information concerning the Bank's capital ratios.
Exposure Supervision
The Dutch Central Bank has issued specific rules with respect to large
exposures to a single borrower or group of interconnected borrowers or in
relation to certain other businesses that involve a concentration of risk. These
large exposure rules implement the Large Exposures Directive of December 21,
1992 (92/121/EEC) and the Capital Adequacy Directive. Large exposures generally
include all assets and off balance sheet items of a credit institution with
respect to a single borrower or a group of connected borrowers which exceed 10%
of a credit institution's total capital. Large exposures must be reported once
every quarter to the Dutch Central Bank. There is a limit of 25% of total
capital for a single large exposure, while the aggregate amount of all large
exposures of a credit institution may not exceed 800% of its total capital.
In addition, under the Solvency Guidelines, certain other exposures are
limited as a percentage of total capital as follows: exposures to the Dutch
central government, the Dutch local government and other central governments of
the so-called "Zone A" countries, which include the OECD countries, have no
limit; exposures to local governments of OECD countries are weighted at 50%;
exposures to banks with a remaining maturity of up to or less than one year or
more than one year are weighted at 20% and 50%, respectively; and exposures to
others are weighted at 100%. Equity participations in insurance companies are
exempt up to a level of 40% of total capital of the credit institution.
Facilities and loans to, and investments in, non-banks by credit
institutions of 1% or more of total capital must be registered with the Dutch
Central Bank. For banks, the threshold is 3% of total capital. Regulations of
the Dutch Central Bank also bar a credit institution from lending (on either a
secured or an unsecured basis) to any director or member of senior management of
the credit institution without the prior approval of the Dutch Central Bank more
than the lesser of (i) 5% of its total capital and (ii) (if the loan is
unsecured) five times the monthly salary of the borrower.
Liquidity Supervision
The Dutch Central Bank has issued liquidity directives designed to ensure
that liquid assets are held against liquid liabilities (liabilities with a
remaining term to maturity of less than one year) so that such liabilities can
be met on the due date or on demand, as the case may be. Actual liquidity must
be equal to or greater than the required liquidity, and actual cash liquidity
(which includes assets with a very high liquidity such as deposits with central
banks and other banks) must be equal to or greater than the amounts of very
39
<PAGE> 44
liquid debts. Certain assets are deemed to be liquid only in part, depending on
their negotiability. The liquidity requirements associated with non-term
liabilities depend on the credit institution's expectations as to claims
relating to such liabilities. In determining liquidity requirements associated
with term liabilities, assets and liabilities with the same term, to the extent
that the remaining term to maturity is less than one year, are offset against
each other. After giving effect to any offset of term assets, the liquidity
requirement is 20%. For obligations amounting to more than 3% of total
liabilities, there are additional liquidity requirements.
ABN AMRO reports to the Dutch Central Bank on a monthly basis concerning
its compliance with the liquidity requirements. Compliance reports concerning
liquidity requirements of foreign subsidiaries are submitted to appropriate
foreign regulatory authorities as required. In every country in which ABN AMRO
operates, its liquidity satisfies the standards imposed by the applicable
regulatory authorities.
Structural Supervision
The ASCS 1992 requires a declaration of no objection from the Dutch
Minister of Finance upon consultation with the Dutch Central Bank for certain
changes in the structure of credit institutions, such as mergers, participations
of over 5% in the outstanding share capital of a credit institution or 10% or
more in a non-financial institution by voting or otherwise (each being a
"qualifying participation"), the addition of a managing partner to the credit
institution, repayments of capital or distribution of reserves of the credit
institution and financial reorganization. Approval will be denied if, among
other things, the Dutch Central Bank determines that sound banking policy may be
jeopardized, that an undesirable effect on the Dutch credit system might result
or that a conflict might arise in respect of certain solvency directives.
The Dutch Central Bank together with the Dutch Minister of Finance has
developed a "structural policy" for equity participations by credit institutions
in non-financial institutions. Under this policy, an equity participation is not
allowed if the value of the participation would exceed 15% of a credit
institution's total capital or if the participation would cause the value of the
credit institution's aggregate qualifying participations in non-financial
institutions to exceed 60% of its total capital. Certain types of participations
will be approved in principle, although in certain circumstances such
declaration of no-objection will have a limited period of validity, such as, in
the case of a debt rescheduling or rescue operation or when the participation is
acquired and held as part of an issue underwriting operation. The approval
generally will be given where the value of the non-financial institution
concerned or the value of the participation does not exceed certain threshold
amounts.
Supervision of the Securities Business
The Bank is also subject to supervision of its activities in the securities
business. The Act on the Supervision of the Securities Trade 1995 ("ASST 1995"),
together with the decrees and regulations promulgated pursuant thereto, provide
a comprehensive framework for the conduct of securities trading in or from The
Netherlands. The ASST 1995 replaces the Act on the Supervision of the Securities
Trade 1992 and came into effect on December 31, 1995. It incorporates two
European Union directives, the Investment Services Directive of May 10, 1993
(93/22/EEC) and the Capital Adequacy Directive. The Securities Board of The
Netherlands (Stichting Toezicht Effectenverkeer; the "STE") is charged by the
Dutch Minister of Finance with supervision of the securities industry.
In addition to regulating securities offerings, the ASST 1995 regulates the
provision of brokerage services and the offering of portfolio management
services. Under the ASST 1995, these services cannot be provided without a
license. Credit institutions such as the Bank which are licensed under the ASCS
1992 as a universal bank, are excepted from the license requirement but are
subject to the conduct of business rules which apply to license-holders under
the ASST 1995.
The ASST 1995 also recognizes the self-regulatory supervision of certain
securities exchanges, including the AEX Stock Exchange and the AEX Option
Exchange (the "Exchanges"). Although such exchanges themselves are, as
self-regulatory organizations, responsible for establishing rules and ensuring
compliance therewith, they are subject to reporting obligations to, and ultimate
supervision by the STE. As an institution permitted to trade on the AEX Stock
Exchange and the AEX Option Exchange, the Bank must comply with
40
<PAGE> 45
the rules of the Exchanges. The Exchanges have the power to take disciplinary
action against admitted institutions if they violate the rules of the Exchanges.
In turn, the STE, as the supervisor over the Exchanges, monitors whether the
Exchanges duly enforce their own rules.
Supervision of Investment Business
The Bank and/or certain subsidiaries of the Bank are also active as
managers and/or custodians of collective investment plans, which comprise both
investment funds and investment companies. Collective investment plans are
subject to supervision by the Dutch Central Bank pursuant to the Act on the
Supervision of Investment Institutions 1990.
REGULATION IN THE EUROPEAN UNION
Within the European Union, the creation of a single financial market at the
end of 1992 has involved continued negotiations among member states towards
establishing greater freedom in the cross-border banking and securities business
through a harmonized institutionally based regulatory environment, with emphasis
on the role of the home country regulator. The Second Banking Co-ordination
Directive established a framework for the mutual recognition of such European
Economic Area member state's supervision of banks, enabling a bank authorized in
one European Economic Area member state to carry out banking and investment
activities on a branch or cross-border service basis in other European Economic
Area member states on the basis of a single license provided by the home country
supervisory authority. An equivalent measure for securities firms carrying out
investment business, the Investment Services Directive, was implemented in The
Netherlands as part of the ASST 1995.
Supporting the Second Banking Co-ordination Directive are the Solvency and
Own Funds Directives, which establish a minimum harmonization of regulatory
capital requirements to enable banks to operate throughout the EU under their
authorization granted by the regulators of the home member state (Home Country
Control). The Capital Adequacy Directive establishes minimum capital standards
for the investment business of securities firms and banks.
The proposed establishment of the EMU, under the provisions of the 1992
Maastricht Treaty, involves in its final stages the creation of a single
currency, the Euro, managed by a single European Central Bank. The EMU is
expected to go into effect in 1999 for the majority of Western European
countries, including The Netherlands. The final stages of the EMU will start
with locked exchange rates. Subsequently thereto, the Euro would be introduced
as a single currency, with local currencies, including the guilder, trading in
tandem therewith. This transition will be unprecedented in financial history
and, as such, highly complex. See Item 9 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Introduction."
REGULATION IN THE UNITED STATES
The Bank's operations in the United States are subject to extensive
regulation and supervision by federal and state banking authorities. The Bank's
branches and agencies in the United States are licensed by state banking
authorities under the banking laws of the states in which such branches and
agencies are located. The Bank's branches and agencies are examined by such
state banking authorities, and must observe the banking regulations of such
states.
Under the International Banking Act of 1978 (the "IBA"), as amended by the
Foreign Bank Supervision Enhancement Act of 1991 (the "FBSEA"), the Bank's
branches, agencies and representative offices are subject to examination and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve"). The FBSEA also provides that the Federal Reserve may order a
foreign bank which operates a state branch or agency to terminate the activities
of such branch or agency if the Federal Reserve finds that the foreign bank is
not subject to comprehensive supervision or regulation on a consolidated basis
by the appropriate authorities in its home country, or there is reasonable cause
to believe that such foreign bank, or any affiliate of such foreign bank, has
committed a violation of law or engaged in an unsafe or unsound banking practice
in the United States, and as a result of such violation or practice, the
continued operation of
41
<PAGE> 46
such branch or agency would not be consistent with the public interest or with
the IBA, the Bank Holding Company Act of 1956, as amended ("BHCA"), or the
Federal Deposit Insurance Act ("FDIA").
The activities of the Bank's branches and agencies are limited by the laws
of the state in which they are located and by the IBA. The FBSEA provides that,
commencing on December 19, 1992, a state branch or agency of a foreign bank may
not engage in any type of activity that is not permissible for a federal branch
or agency of a foreign bank unless the Federal Reserve has determined that such
activity is consistent with sound banking practice. Based upon the activities
presently conducted by the Bank's branches or agencies, the Bank does not
believe that this provision materially limits the activities of any branch or
agency in the United States. The Bank's branches and agencies are also subject
to reserve requirements, restrictions on the payment of interest on demand
deposits, and restrictions on the size of loans to a single borrower pursuant to
the IBA and implementing regulations of the Federal Reserve.
The Bank must obtain the prior approval of the Federal Reserve, as well as
any state authorities, to establish an additional branch, agency or
representative office, and the Bank is restricted from opening new full service
branches outside the State of Illinois, its "home state" designated in
accordance with the requirements of the IBA unless specifically permitted by the
law of the state in which any new branch is to be located.
As a result of its indirect ownership of a number of U.S. subsidiary
banking organizations, the Bank also is registered with the Federal Reserve as a
bank holding company and, as a result of its status as a bank holding company
and its operation of branches and agencies in the United States, is subject to
restrictions on its non-banking activities in the United States and on
interstate banking (such restrictions being similar to those applicable to U.S.
domestic bank holding companies). A bank holding company must obtain Federal
Reserve approval before (i) acquiring, directly or indirectly, ownership or
control of any voting shares of a bank or bank holding company if, after such
acquisition, it would own or control 5% or more of such shares, (ii) acquiring
all or substantially all of the assets of another bank or bank holding company
or (iii) merging or consolidating with another bank holding company. In
September 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 ("Riegle-Neal") was enacted. Effective September 29, 1995, bank holding
companies are permitted to acquire banks in any state subject to state deposit
caps and a 10% nationwide cap. In addition, as of June 1, 1997, Riegle-Neal
provides for full interstate branching by bank merger. States were permitted to
"opt out" of this branching provision prior to the effective date and,
alternatively, states were permitted to "opt in" earlier than June 1997. Texas
and Montana adopted legislation to opt out of the branching provisions.
The BHCA also prohibits a bank holding company, with certain limited
exceptions, from acquiring or retaining direct or indirect ownership or control
of 5% or more of the voting shares of any company which is not a bank or a bank
holding company, or from engaging in any activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain activities which the
Federal Reserve has determined to be closely related to the business of banking
or managing or controlling banks.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tying arrangements in connection with the extension of credit, with
limited exemptions. Subsidiary banks of a bank holding company are also subject
to certain restrictions imposed by the Federal Reserve Act ("FRA") on any
extensions of credit to the bank holding company or any of its subsidiaries, or
investment in the stock or other securities thereof, and on the taking of such
stocks or securities as collateral for loans. The Federal Reserve possesses
cease and desist powers over bank holding companies if their actions represent
unsafe or unsound practices or violations of law.
The Banking Act of 1933, sections of which are commonly referred to as the
Glass-Steagall Act, restricts banks from affiliating with entities "principally
engaged in" underwriting securities. Beginning in 1987, the Federal Reserve
permitted banks to affiliate with companies which derive only up to 10% of their
revenue from bank ineligible activities, and on March 6, 1997, the Federal
Reserve raised that limit to 25%. The Bank operates a securities subsidiary
pursuant to Federal Reserve approval.
42
<PAGE> 47
The Bank's national bank subsidiaries are subject to supervision by the
Office of the Comptroller of the Currency ("OCC"). The Bank's savings bank is
subject to supervision by the Office of Thrift Supervision ("OTS"). The Federal
Deposit Insurance Corporation ("FDIC") has primary federal supervisory
responsibility for the Bank's state banks, with the exception of state banks
that are members of the Federal Reserve System. The Bank's state banks are also
subject to supervision by the bank supervisory authorities in their respective
states. Various federal and state laws and regulations apply to many aspects of
the operations of the Bank's subsidiary banks, including interest rates paid on
deposits and loans, investments, mergers and acquisitions and the establishment
of branch offices and facilities. The payment of dividends by the Bank's
subsidiary banks is also subject to certain statutory restrictions and to
regulation by governmental agencies.
On December 16, 1988, the Federal Reserve adopted final risk-based capital
guidelines for use in its examination and supervision of bank holding companies
and banks. The guidelines have three main goals: (1) to make regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations; (2) to take off balance sheet risk exposures into explicit
account in assessing capital adequacy; and (3) to minimize disincentives to
holding liquid, low-risk assets. A bank holding company's ability to pay
dividends and expand its business through the acquisition of new banking
subsidiaries could be restricted if its capital falls below levels established
by these guidelines. The risk-based capital ratios were fully implemented by the
end of 1992. In 1991, the Board required bank holding companies and banks to
adhere to another capital guideline referred to as the Tier 1 leverage ratio.
This guideline places a constraint on the degree to which a banking institution
can leverage its equity capital base. The U.S. bank subsidiaries of the Bank
substantially exceed the requirements of these capital guidelines.
In December, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. FDICIA, among other things, identifies the
following capital standards for depository institutions: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized. A depository institution is well capitalized if it
significantly exceeds the minimum level required by regulation for each relevant
capital measure, adequately capitalized if it meets each such measure,
undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below any such measure, and critically
undercapitalized if it fails to meet any critical capital level set forth in the
regulations. FDICIA requires a bank that is determined to be undercapitalized to
submit a capital restoration plan, and the bank's holding company must guarantee
that the bank will meet its capital plan. Subject to certain limitations, FDICIA
also prohibits banks from making any capital distribution or paying any
management fee if the bank would thereafter be undercapitalized. The Bank's bank
subsidiaries currently meet the well capitalized standards.
FDICIA grants the FDIC authority to impose special assessments on insured
depository institutions to repay FDIC borrowings from the United States Treasury
or other sources and to establish semiannual assessment rates on Bank Insurance
Fund ("BIF") member banks so as to maintain the BIF at the designated reserve
ratio defined in FDICIA. As part of the 1997 Omnibus Consolidated Appropriations
Act which provides a framework for the merger of BIF and the Savings Association
Insurance Fund ("SAIF") in 1999, BIF member banks will be responsible for
certain obligations of the SAIF. Moreover, SAIF-insured savings institutions
were required during 1996 to pay a special one-time assessment to the SAIF based
on the deposits held as of March 31, 1995.
Section 6(b) of the IBA generally requires insurance of deposits of a U.S.
branch of a foreign bank unless the branch does not accept deposits of less than
$100,000 or unless the FDIC determines by order or regulation that the branch is
not engaged in "domestic retail deposit activity" requiring deposit insurance
protection. Under the FDICIA and FDIC regulations, a state-licensed branch of a
foreign bank will not be deemed to be engaged in "domestic retail deposit
activity" if all initial deposits of less than $100,000 are derived solely from
certain specified categories of deposits and the deposits fall within the de
minimis exemption.
43
<PAGE> 48
REST OF THE WORLD
ABN AMRO operates in many other countries and its offices, branches and
subsidiaries are subject to certain reserve, reporting requirements and controls
imposed by the relevant central banks and regulatory authorities.
ITEM 2. DESCRIPTION OF PROPERTY
At December 31, 1997, ABN AMRO operated 967 offices and branches in The
Netherlands and 921 offices and branches in 70 other countries. Of these offices
and branches, 442 were in North America, 128 were in South and Central America,
214 were in Europe, 70 were in the Middle East and Africa and 67 were in the
Asia/Pacific region. Approximately 47% of the offices and branches are owned by
ABN AMRO and 53% are leased under long-term lease agreements.
ABN AMRO is constructing of a new headquarters of approximately 900,000
gross square feet of space in Amsterdam-Buitenveldert at an estimated cost of
NLG 700 million, excluding costs of furnishings and fittings. Completion is
currently anticipated in 1999. The new building will be used in conjunction with
the existing headquarters in Foppingadreef in Amsterdam-Zuidoost, and will
permit the consolidation of head office functions.
In addition, ABN AMRO is constructing a new 280,000 gross square foot
office building at 250 Bishopsgate in London to concentrate all of its existing
London-based activities in one facility and to accommodate anticipated
expansion. The cost of the building is estimated at NLG 350 million, excluding
costs of furnishings and fittings. Completion is currently anticipated in 1999.
ITEM 3. LEGAL PROCEEDINGS
Legal proceedings have been initiated against ABN AMRO in a number of
jurisdictions, but on the basis of information currently available, and having
taken counsel with legal advisers, the Managing Board is of the opinion that the
outcome of these proceedings is unlikely to have a material adverse effect on
the consolidated operations or financial position of ABN AMRO.
ITEM 4. CONTROL OF REGISTRANT
Under the Disclosure of Major Holdings in Listed Companies Act of The
Netherlands (the "Disclosure Act"), shareholders must notify Holding and STE if
their holdings reach, exceed or fall below 5%, 10%, 25%, 50% or 66 2/3% of the
outstanding capital interest and/or voting rights of Holding. As of December 31,
1997, Holding had received notifications under the Disclosure Act of the
following holdings:
<TABLE>
<CAPTION>
% OF CAPITAL INTEREST(1)
-------------------------------
ORDINARY PREFERENCE
SHARES SHARES TOTAL
-------- ---------- -----
<S> <C> <C> <C>
Aegon N.V............................................. 3.31 6.68 9.99
AMEV/VSB 1990 N.V..................................... 0.30 5.40 5.70
Commercial Union Assurance PLC........................ -- 5.90 5.90
ING Groep N.V......................................... 7.49(2) 9.08 16.57
Rabobank Nederland.................................... 0.05 5.59 5.64
De Zonnewijser........................................ -- 5.00 5.00
Stichting Administratiekantoor ABN AMRO Holding....... -- 57.78 57.78
</TABLE>
- ---------------
(1) Other than Stichting Administratiekantoor ABN AMRO Holding ("Stichting"),
the holders of Preference Shares listed in the table above hold certificates
entitling them to the economic benefits of the Preference Shares. The
Preference Shares represented by such certificates are held by Stichting and
the voting rights in respect of such Preference Shares are exercised by the
Managing Board of Stichting, which has broad discretion to vote such
Preference Shares in a manner consistent with the interests of
44
<PAGE> 49
Holding, its affiliated companies and those connected therewith. The
percentage of the capital interest of Holding held by Stichting reflected
in the table above includes Preference Shares in respect of which
certificates have been issued and the percentages of the capital interest
of Holding held by the other shareholders listed therein include the
Preference Shares in respect of which such holders have been issued
certificates.
(2) The Ordinary Shares owned by ING Groep N.V. may not be voted because ING
Groep N.V. has not received a declaration of no objection from the Dutch
Ministry of Finance permitting it to vote such shares.
Other than with respect to Aegon N.V., the percentages of total capital
interest (i.e., aggregate par value of all outstanding shares of all classes)
set forth above are based on the total capital interest as of December 31, 1991,
the date as of which Holding received notification under the Disclosure Act from
such holders. At December 31, 1991, giving effect to the four-for-one stock
split of the Ordinary Shares effected on May 12, 1997, there were issued 1,057.0
million Ordinary Shares, par value NLG 1.25, 362.5 million preference shares,
par value, NLG 5.00 ("Preference Shares") and one priority share, par value NLG
5.00 (the "Priority Share"), for an aggregate total capital of NLG 3.13 billion.
From December 31, 1991 to December 31, 1997, the number of Ordinary Shares
issued increased 353.3 million, or 33.4% to 1,410.3 million. This increase is
the result of the issue of stock dividends, the exercise of staff options and
warrants and conversion of convertible preference shares ("Convertible
Preference Shares"). In 1993, Holding issued 20 million Convertible Preference
Shares of which 18 million have been converted into Ordinary Shares.
Accordingly, Holding does not know if the foregoing percentages remain accurate
as of the date hereof, although Holding has not received, since the date of the
original notification, any notification (other than with respect to Aegon N.V.)
of any change in these percentages that meet any of the thresholds for
notification under the Disclosure Act. Holding is not aware of any other direct
or indirect ownership of more than 5% of the Ordinary Shares or Preference
Shares of Holding.
Stichting holds Preference Shares representing 57.78% of the total capital
outstanding of Holding at December 31, 1991 and 50.63% of the total capital
outstanding on December 31, 1997. Although Stichting has issued a corresponding
number of certificates representing beneficial interest in the Preference
Shares, which are listed on the AEX Stock Exchange, the voting rights of the
Preference Shares are exercised by the Managing Board of Stichting, which has
broad discretion to vote the Preference Shares in a manner consistent with the
interest of Holding and its affiliated companies. Stichting is a non-membership
organization (i.e., an entity without shareholders or other members that is
similar to a trust or foundation) with a self-appointing Managing Board
organized under the laws of The Netherlands. As of December 31, 1997, the
members of the Managing Board of Stichting were:
<TABLE>
<CAPTION>
NAME OCCUPATION
---- ----------
<S> <C>
P. J. Kalff............................... Chairman of the Managing Board of Holding
A. Heeneman............................... Former Group Controller of Shell
International Petroleum Ltd.
P. Schwencke.............................. Former Deputy Director of Nederlandsche
Participatie Maatschappij N.V.
</TABLE>
Neither Mr. Heeneman nor Mr. Schwencke has any management or other material
relationship with Holding or its subsidiaries or other group companies.
Because shareholder resolutions of Holding are approved by an absolute
majority of the votes cast, the Managing Board of Stichting currently is able to
exercise sufficient voting power to determine the outcome of any shareholder
vote. Under the governing instruments of Stichting, one of the members of the
Managing Board of Stichting is the Chairman of the Managing Board of Holding.
As of December 31, 1997, 99.99% of the Preference Shares were held of
record by Stichting. To the extent that Stichting disposes of any Preference
Shares held by it, or Holding issues new Preference Shares to any person or
entity other than Stichting, Preference Shares only may be held by, in addition
to Stichting,
45
<PAGE> 50
(i) natural persons, (ii) Holding or (iii) such other legal entities as are
approved by the Managing Board and the Supervisory Board of Holding in
connection with a partnership with or takeover of another enterprise by merger
or by acquisition of a participating interest or expansion thereof. Except in
connection with a transaction of a type described in clause (iii) of the
preceding sentence, or a transfer to Holding or Stichting, Preference Shares may
not be transferred or issued to an acquiring party if the acquiring party holds
more than 1% of the Preference Shares or if the acquiring party would hold more
than 1% of the Preference Shares after the acquisition. Any transfer of
Preference Shares made in accordance with the foregoing sentence only can be
made to a person that is permitted to hold Preference Shares pursuant to the
Articles of Association.
Pursuant to the Articles of Association of Holding, the holder of the
Priority Share, Stichting Prioriteit ABN AMRO Holding ("Stichting Prioriteit"),
determines the number of members of the Managing Board of Holding, which may not
be less than five, and the number of members of the Supervisory Board of
Holding, which may not be less than ten. Any shareholders' resolution to amend
the Articles of Association of Holding or to dissolve Holding requires not only
the approval of the Supervisory Board but also the prior approval of the holder
of the Priority Share. Stichting Prioriteit is a non-membership organization
organized under the laws of The Netherlands with a self appointing managing
board. Its objective is to protect the interests of Holding and interested
parties, including in the event of a hostile take-over attempt. The Managing
Board of Stichting Prioriteit is composed of the members of the Supervisory
Board and Managing Board of Holding. Accordingly, the Priority Share and its
ownership by Stichting Prioriteit serve essentially as a mechanism by which the
Supervisory Board and the Managing Board may determine their own size and
approve or disapprove amendments to the Articles of Association of Holding.
Holding knows of no arrangements that may lead to a change of control of
Holding. Under the ASCS 1992, a declaration of no objection from the Dutch
Minister of Finance upon consultation with the Dutch Central Bank would be
required for holding, acquiring or increasing a direct or indirect holding of
shares of capital stock equal to more than 5% of the total capital interest in
Holding. A separate declaration of no objection also would be required to
exercise directly or indirectly voting rights with respect to shares of capital
stock representing more than 5% of the voting rights (or the ability to exercise
a comparable degree of control) in Holding. The Dutch Minister of Finance may
attach restrictions or stipulations to its declaration of no objection.
ITEM 5. NATURE OF TRADING MARKET
TRADING MARKETS
The principal trading market for the Ordinary Shares is the AEX Stock
Exchange. The Ordinary Shares also are listed on the London, Paris, Brussels,
Frankfurt, Hamburg, Dusseldorf, Singapore and The Swiss Stock Exchanges.
American Depositary Receipts ("ADRs") evidence the ADSs, each of which
represents the right to receive one Ordinary Share. As of December 31, 1997,
14.8 million Ordinary Shares were held in the form of ADSs. The ADSs were listed
on the New York Stock Exchange (the "NYSE"), under the symbol "AAN," on May 21,
1997.
At December 31, 1997, 1.4 billion Ordinary Shares were outstanding, with
approximately 74% of the Ordinary Shares held by Dutch investors and the
remaining 26% by foreign investors. Major geographical concentrations of holders
of Ordinary Shares outside The Netherlands are in the United Kingdom (estimated
at 11%) and the United States (estimated at 9%).
The Ordinary Shares may be held in bearer or registered form. Ordinary
Shares may be converted from registered to bearer form, and following approval
of the Managing Board may be converted from bearer to registered form. On
December 31, 1997, approximately 84% of the outstanding Ordinary Shares were
held in bearer form with the balance in registered form.
MARKET PRICE INFORMATION
The following table sets forth, for the calendar quarters indicated, the
high and low daily quoted closing prices for Ordinary Shares as reported in the
Official Price List of the AEX Stock Exchange, the high/ask and
46
<PAGE> 51
the low/bid prices for the ADSs in the over-the-counter market until May 21,
1997, the high and low prices on and after May 21, 1997 on the NYSE, and the
average daily turnover (counting both purchase and sale transactions) of
Ordinary Shares on the AEX Stock Exchange. Data have been adjusted for the
four-for-one stock split effected on May 12, 1997. Differences in the rate of
change between the prices of Ordinary Shares and the prices of ADSs for the
calendar quarters indicated are attributable principally to fluctuations in the
U.S. dollar-Dutch guilder exchange rate.
<TABLE>
<CAPTION>
AMERICAN
ORDINARY SHARES DEPOSITARY SHARES
---------------- ------------------- AVERAGE DAILY
HIGH LOW HIGH/ASK LOW/BID TURNOVER
------ ------ -------- ------- -------------------
(IN THOUSANDS
(IN NLG) (IN USD) OF ORDINARY SHARES)
<S> <C> <C> <C> <C> <C>
1996
First Quarter....................... 20.55 17.43 12.43 10.54 6,706.0
Second Quarter...................... 23.75 20.58 13.89 12.23 6,491.6
Third Quarter....................... 23.85 20.55 14.30 12.30 4,741.2
Fourth Quarter...................... 28.33 23.60 16.06 14.03 6,115.6
1997
First Quarter....................... 35.88 27.13 18.96 15.78 8,633.7
Second Quarter...................... 37.60 30.13 19.00 15.50 7,094.0
Third Quarter....................... 51.20 37.10 24.44 18.75 8,538.2
Fourth Quarter...................... 44.20 36.70 22.38 18.25 6,265.1
</TABLE>
DIVIDEND POLICY
Dividends on Ordinary Shares may be paid out of profits as shown in the
consolidated financial statements of Holding, as adopted by the Supervisory
Board and approved by the general meeting of shareholders, after the payment of
dividends on the Priority Share, Preference Shares and Convertible Preference
Shares and the establishment of any reserves. Reserves are established by the
Managing Board subject to approval of the Supervisory Board.
Holding has paid an interim and final dividend for each of the last five
years. The following table sets forth dividends paid in respect of the Ordinary
Shares for 1993 through 1997, as adjusted for the four-for-one stock split
effected on May 12, 1997:
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1997(1)
---- ---- ---- ---- ---- -------
NLG NLG NLG NLG NLG USD
<S> <C> <C> <C> <C> <C> <C>
Interim dividend............................. 0.36 0.38 0.40 0.45 0.53 0.26
Final dividend............................... 0.40 0.42 0.50 0.60 0.67 0.32
---- ---- ---- ---- ---- ----
Total dividend per Ordinary Share............ 0.76 0.80 0.90 1.05 1.20 0.58
Total dividends per share as a % of net
profit per share........................... 47.4 46.9 46.8 45.4 45.5
</TABLE>
- ---------------
(1) The interim 1997 dividend has been translated into U.S. dollars at the
applicable rate on date of payment, and the final 1997 dividend has been
translated into U.S. dollars at the March 31, 1998 exchange rate.
Holding has historically made dividends payable partly in cash and partly
in Ordinary Shares, with the ratio determined by the Managing Board. Effective
from the final dividend for 1994, both the interim dividend and the final
dividend have been made available, at the shareholder's option, either wholly in
cash or wholly in Ordinary Shares. Holding has in the past encouraged the cash
dividend payment option by setting the value of the stock dividend at a level
which is between 2% to 5% below the cash dividend. With respect to the 1996
final dividend, which was declared during 1997, the value of the stock dividend
was equal to the cash dividend. An aggregate of 23.7 million and 11.9 million
Ordinary Shares were issued with respect to the 1996 interim
47
<PAGE> 52
and final dividends and the 1997 interim dividend, respectively. The 1997 final
dividend was announced on February 26, 1998. Elections to receive Ordinary
Shares with respect to the 1997 final dividend will be required to be received
by Holding during the period May 7 through May 25, 1998 and any Ordinary Shares
to be issued in respect of an election will be issued on May 29, 1998. Holding
currently intends to offer its shareholders (including its shareholders in the
United States) a choice between dividends in cash or in Ordinary Shares (or
ADSs) for future dividends.
Holding currently intends to pursue a policy of generally declaring
dividends of between 45% and 50% of net profits attributable to Ordinary Shares.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no limitations under the laws of The Netherlands or in the
Articles of Association of Holding as currently in effect on the rights of
non-residents or foreign owners, as such, to hold or vote Ordinary Shares.
However, under the ASCS 1992, a declaration of no-objection from the Dutch
Minister of Finance, upon consultation with the Dutch Central Bank, is required
for any person or entity, irrespective of residence, to hold more than 5% of the
total capital interest or voting rights in Holding. In addition, certain
notifications under the Disclosure Act apply to shareholders exceeding or
falling below such levels. See Item 4 -- "Control of Registrant."
There are currently no exchange controls in effect in The Netherlands,
although the Dutch External Financial Relations Act of March 25, 1994 ("DEFRA")
does authorize the Minister of Finance or the Dutch Central Bank to issue such
regulations. Cash dividends payable in Dutch guilders and stock dividends on
Netherlands registered shares and bearer shares may be transferred from The
Netherlands and converted into any other currency without Dutch legal
restrictions. For statistical purposes, such payments and transactions if
individually in excess of NLG 25,000 must be reported to the Dutch Central Bank.
There are currently no other limitations under Dutch law affecting the
remittance of dividends or other payments to non-resident holders of Holding
securities (except, since October 15, 1996, in respect of residents of Libya and
Iraq, in order to comply with United Nations and European Union sanctions).
ITEM 7. TAXATION
The following is a summary of the principal and material Dutch tax and U.S.
federal income tax consequences for holders of Ordinary Shares or ADRs of
Holding and, in particular, for U.S. Shareholders (as defined below). The
descriptions of the Dutch tax laws and U.S. federal income tax laws and
practices set forth below are based on the statutes, treaties, regulations,
rulings, judicial decisions and other authorities in force and applied in
practice on the date hereof, all of which are subject to change, retroactively
as well as prospectively.
For purposes of this description, a "Shareholder" is a holder of Ordinary
Shares or ADRs that does not own a "substantial interest" or a "deemed
substantial interest" in Holding. The circumstances under which a "substantial
interest" exists include where a holder alone or together with his/her spouse,
his/her spouse or any other certain of their close relatives holds/hold or
has/have held during the past five years at least 5% of the issued share
capital, at least 5% of a certain class of shares or options giving right to
acquire at least 5% of the issued share capital or of a certain class of shares
of Holding. For purposes of this description, a "U.S. Shareholder" is a
Shareholder of Ordinary Shares or ADRs who is a "U.S. Person," i.e., an
individual citizen or resident of the United States, a corporation created or
organized under the laws of the United States or of any state or territory of
the United States, or any other person subject to U.S. federal income tax on a
net basis.
In general, for Dutch tax and U.S. federal income tax purposes, U.S.
Shareholders of ADRs will be treated as the beneficial owners of the Ordinary
Shares represented by such ADRs.
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<PAGE> 53
DUTCH TAXATION
WITHHOLDING TAX ON DIVIDENDS
The Netherlands imposes a withholding tax on any distribution of dividends
at a statutory rate of 25%, which does not apply to any distribution of stock
dividends paid out of the share premium account of Holding recognized as such
for Dutch tax purposes.
An individual or corporation not resident in The Netherlands which owns or
is deemed to own Ordinary Shares or ADRs can be eligible for a partial exemption
or refund of the above withholding tax under a tax convention which is in effect
between the country of residence of such individual or corporation and The
Netherlands. In order to qualify for the withholding tax reduction or exemption,
a Shareholder will be required to provide certain documentation establishing its
status as a resident of a country with which The Netherlands has concluded a tax
convention.
A new convention between The Netherlands and the United States for the
avoidance of double taxation and the prevention of fiscal evasion with respect
to taxes on income became effective as of January 1, 1994 (the "1992 Treaty").
A U.S. Shareholder can only claim the benefits of the 1992 Treaty (i) if
such person is a resident of the United States, as defined in the 1992 Treaty
and (ii) such person's entitlement to such benefits is not limited by the
limitations on benefits provisions of Article 26 of the 1992 Treaty (treaty
shopping rules). Under the 1992 Treaty, dividends paid by Holding to such U.S.
Shareholder are generally eligible for a reduction of the 25% withholding tax to
15%, provided that such U.S. Shareholder does not carry on a business in The
Netherlands through a permanent establishment or permanent representative (other
than an independent broker acting in the ordinary course of its business) to
which or to whom the Ordinary Shares or ADRs are attributable. If and to the
extent the Ordinary Shares or ADRs are attributable to such permanent
establishment or permanent representative, Dutch withholding tax will, depending
on the particular circumstances, amount to 25%.
NET WEALTH TAX
Shareholders will not be subject to Dutch net wealth tax in respect of the
Ordinary Shares or ADRs, provided that such holder is not an individual or, if
he or she is an individual, provided that:
(i) such holder is not a resident or a deemed resident of The
Netherlands; or
(ii) such holder does not have an enterprise or an interest in an
enterprise, which carries on a business in The Netherlands through a
permanent establishment or a permanent representative to which or to whom
the Ordinary Shares or ADRs are attributable.
TAXES ON INCOME AND CAPITAL GAINS
A Shareholder will not be subject to Dutch taxes on income or capital gains
derived from Ordinary Shares or ADRs provided that the conditions under (i) and
(ii) of the preceding paragraph are met.
GIFT, ESTATE AND INHERITANCE TAX
No gift, estate or inheritance tax is payable in The Netherlands on a gift
of Ordinary Shares or ADRs by, or upon the death of, a Shareholder neither
resident nor deemed resident in The Netherlands, unless such Shareholder has an
enterprise or an interest in an enterprise that is, in whole or in part, carried
on through a permanent establishment or a permanent representative in The
Netherlands to which or to whom the Ordinary Shares or ADRs are attributable.
UNITED STATES FEDERAL INCOME TAX
This summary of principal United States federal income tax consequences of
an investment in Ordinary Shares or ADRs does not discuss all of the tax
consequences that may be relevant to a particular investor, a
49
<PAGE> 54
U.S. Person who is not a U.S. Shareholder or to certain investors subject to
special treatment under U.S. tax laws, such as banks, insurance companies,
dealers and tax-exempt entities, and persons for whom the U.S. dollar is not
their functional currency.
Distributions (whether in cash or stock), to the extent paid out of the
current or accumulated earnings and profits of Holding, as determined under U.S.
tax accounting principles, will be treated as dividends for U.S. federal income
tax purposes. Such dividends (including Dutch withholding taxes deducted
therefrom) will be taxed to U.S. Shareholders as ordinary income and will not be
eligible for the dividends received deduction generally available to corporate
U.S. Shareholders. In addition, such dividends generally will be considered (i)
dividends from sources outside of the United States for foreign tax credit
purposes and (ii) in the "passive income" or "financial services income" foreign
tax credit basket. Such dividends will not be subject to U.S. federal
withholding tax and generally will not be subject to U.S. federal income tax in
the hands of persons who are not U.S. Shareholders unless such dividends are
effectively connected with the conduct of a trade or business in the United
States.
Distributions on Ordinary Shares and ADRs will be made by Holding in Dutch
guilders. It is anticipated that the Depositary will, in the ordinary course,
convert Dutch guilders received by it as distributions on the ADRs into U.S.
dollars. To the extent that the Depositary does not convert the guilders into
U.S. dollars at the time that a U.S. Shareholder is required to take the
distribution into account for federal income tax purposes, a U.S. Shareholder
may recognize foreign exchange gain or loss on the later conversion of the
guilders into dollars. The gain or loss recognized will generally be based upon
the difference between the exchange rate in effect when the guilders are
actually converted and the "spot" exchange rate in effect at the time the
distribution is taken into account.
As discussed above, a resident of the United States may be entitled under
the 1992 Treaty to a reduction of the Dutch dividend withholding tax rate. See
"-- Dutch Taxation-Withholding Tax on Dividends." A U.S. Shareholder may,
subject to limitations and conditions under the U.S. Internal Revenue Code,
credit against his, her or its U.S. federal income tax liability or,
alternatively, deduct from his, her or its U.S. federal taxable income, the
amount of any Dutch withholding taxes. However, to the extent that Holding is
treated for Dutch tax purposes as (i) having paid a dividend on Ordinary Shares
or ADRs out of income that it received from its non-Dutch subsidiaries and/or
foreign branches and (ii) being entitled to a credit for Dutch tax purposes for
non-Dutch taxes attributable to such income, it is possible the Internal Revenue
Service will take the position that the amount of the Dutch withholding tax that
may be credited or deducted by a U.S. Shareholder is less than the amount
actually withheld. The amount of the credit that Holding may receive is limited,
however, so that, for example, a U.S. Shareholder entitled to the 15% dividend
withholding rate under the 1992 Treaty would in no event be treated for U.S.
foreign tax credit purposes as having paid a withholding tax of less than 12%.
Holding intends to notify its U.S. Shareholders of the extent to which the Dutch
withholding tax on their dividends may be affected.
Any gain or loss on a sale or exchange of Ordinary Shares or ADRs by a U.S.
Shareholder will generally be capital gain or loss for U.S. federal income tax
purposes if such Ordinary Shares or ADRs are held as a capital asset. If held
for more than one year, such gain or loss will generally be long-term capital
gain or loss. The amount of the gain or loss will be the difference between the
amount realized and the U.S. Shareholder's adjusted tax basis in the Ordinary
Shares or ADRs. Holders of Ordinary Shares or ADRs who are not U.S. Persons will
generally not be subject to U.S. income tax on the gain or loss realized on
disposition unless such gain or loss is effectively connected with the conduct
of a trade or business in the United States or, in the case of an individual,
such holder is present in the U.S. for 183 or more days in the taxable year of
such disposition and certain other conditions are met.
Based on the manner in which it currently operates its business, Holding
has determined that it is not a passive foreign investment company ("PFIC") for
United States federal income tax purposes. If, however, it were determined to be
a PFIC, then certain U.S. Shareholders may, with respect to their Ordinary
Shares and ADRs, have to (i) pay an interest charge on distributions and gains
that are deemed as having been deferred and/or (ii) recognize ordinary income on
dispositions that, but for the PFIC provisions, would have been treated as
long-term or short-term capital gain.
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<PAGE> 55
Each shareholder should consult its own tax advisor about the specific tax
consequences to them of acquiring, owning and disposing of Ordinary Shares or
ADRs under the tax laws of The Netherlands, the United States and other
jurisdictions, including, in the case of a U.S. Shareholder, its eligibility for
reduced rates of Dutch dividend withholding tax under the 1992 Treaty and the
availability of credits or deductions for such Dutch withholding tax.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data set forth below have been derived from the
audited consolidated financial statements of ABN AMRO. The consolidated
financial statements of ABN AMRO for each of the five years ended December 31,
1997 have been audited by Moret Ernst & Young Accountants, independent auditors.
These selected financial data should be read in conjunction with and are
qualified by reference to the Consolidated Financial Statements and notes
thereto for the years ended December 31, 1995, 1996 and 1997 included elsewhere
in this Report.
ABN AMRO's financial statements have been prepared in accordance with Dutch
GAAP, which varies in certain significant respects from U.S. GAAP. For a
discussion of the differences and a reconciliation of certain Dutch GAAP amounts
to U.S. GAAP, see note 43 to the Consolidated Financial Statements. For selected
financial data in accordance with U.S. GAAP, see page 55.
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<PAGE> 56
SELECTED CONSOLIDATED INCOME STATEMENT DATA
<TABLE>
<CAPTION>
1997 1997 1996 1995 1994 1993
------------ ------- ------- ------- ------- -------
(IN MILLIONS (IN MILLIONS OF NLG EXCEPT PER SHARE DATA)
OF USD)(1)
<S> <C> <C> <C> <C> <C> <C>
Net interest revenue......... 7,090 13,871 11,526 10,237 9,789 8,844
Net commissions.............. 3,206 6,272 4,956 4,184 3,764 3,534
Results from financial
transactions............... 1,245 2,436 1,882 1,198 923 1,314
Other revenue................ 608 1,189 727 586 499 452
Total revenue................ 12,149 23,768 19,091 16,205 14,975 14,144
Operating expenses........... 8,392 16,418 12,929 10,935 10,127 9,379
Provision for loan losses.... 616 1,205 1,254 722 1,500 1,500
Addition to Fund for general
banking risks.............. 202 395 146 678 N.A. N.A.
Operating profit before
taxes...................... 2,957 5,786 4,793 3,841 3,363 3,167
Net profit................... 1,969 3,853 3,303 2,616 2,286 2,024
Net profit attributable to
Ordinary Shares............ 1,877 3,673 3,116 2,368 2,038 1,839
Dividends on Ordinary
Shares..................... 859 1,680 1,429 1,124 965 885
PER SHARE FINANCIAL DATA
Average number of Ordinary
Shares outstanding (in
millions)(2)............... 1,388.7 1,346.3 1,232.4 1,193.2 1,141.2
Net profit per Ordinary Share
(in NLG)(2)(3)............. 2.64 2.31 1.92 1.71 1.61
Fully diluted net profit per
Ordinary Share (in
NLG)(2)(3)................. 2.61 2.28 1.83 1.63 1.57
Dividend per Ordinary Share
(in NLG)(2)(3)............. 1.20 1.05 0.90 0.80 0.76
Net profit per ADS (in
USD)(2)(3)(4).............. 1.35 1.37 1.21 0.94 0.87
Dividend per ADS (in
USD)(2)(3)(5).............. 0.58 0.58 0.54 0.48 0.41
</TABLE>
- ---------------
(1) Dutch guilder amounts have been translated into U.S. dollars at the rate
equal to the average of the month-end rates for 1997.
(2) All Ordinary Share and per share data have been retroactively adjusted for a
four-for-one stock split of the Ordinary Shares effected on May 12, 1997.
(3) Adjusted for increases in share capital, as applicable.
(4) This item has been translated into U.S. dollars at the rate equal to the
average of the month-end rates for the applicable year.
(5) This item has been translated into U.S. dollars at the applicable rate on
the date of payment, other than for the 1997 final dividend, which has been
translated into U.S. dollars at the March 31, 1998 exchange rate.
52
<PAGE> 57
SELECTED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---------- ------- ------- ------- ------- -------
(IN
MILLIONS
OF USD)(1) (IN MILLIONS OF NLG EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Banks.................................. 69,433 140,185 120,278 131,332 127,067 127,753
Loans.................................. 219,504 443,178 331,600 292,674 270,699 268,205
Interest-bearing securities............ 81,869 165,294 101,414 76,580 66,698 54,926
Total assets........................... 414,285 836,441 599,273 546,526 504,628 491,021
LIABILITIES
Banks.................................. 103,252 208,466 157,587 144,448 134,413 134,854
Total customer accounts................ 196,480 396,694 276,718 262,959 255,575 259,424
Debt securities........................ 44,871 90,595 74,413 61,702 49,571 41,028
CAPITALIZATION
Fund for general banking risks......... 1,230 2,483 2,000 -- -- --
Shareholders' equity................... 12,801 25,845 24,976 20,250 19,325 19,139
Minority interests..................... 2,242 4,527 2,105 1,525 1,362 1,047
Subordinated debt...................... 9,956 20,101 15,309 11,701 10,580 10,321
------- ------- ------- ------- ------- -------
Group capital.......................... 26,229 52,956 44,390 33,476 31,267 30,507
PER SHARE FINANCIAL DATA
Ordinary Shares outstanding (in
millions)(2)......................... 1,405.6 1,364.5 1,255.6 1,213.2 1,173.6
Shareholders' equity per Ordinary Share
(in NLG)(2).......................... 17.00 16.79 13.68 13.40 13.68
Shareholders' equity per ADS (in
USD)(2)(3)........................... 8.42 9.71 8.54 7.72 7.05
</TABLE>
- ---------------
(1) Dutch guilder amounts have been translated into U.S. dollars at an exchange
rate of $1.00 = NLG 2.02, the exchange rate on December 31, 1997.
(2) All Ordinary Share and per share data have been retroactively adjusted for a
four-for-one stock split of the Ordinary Shares effected on May 12, 1997.
(3) This item has been translated into U.S. dollars at the applicable year-end
rate.
53
<PAGE> 58
SELECTED RATIOS
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C>
PROFITABILITY RATIOS
Net interest margin(1)........................... 1.9 2.0 2.1 2.0 2.0
Non-interest revenue to total revenue............ 41.6 39.6 36.8 34.6 37.5
Efficiency ratio(2).............................. 69.1 67.7 67.5 67.6 66.3
Return on average total assets(3)................ 0.49 0.52 0.49 0.44 0.42
Return on average Ordinary Shareholders'
equity(4)...................................... 15.7 16.4 13.9 12.4 12.0
CAPITAL RATIOS
Average shareholders' equity on average total
assets......................................... 3.21 3.39 3.61 3.75 3.51
Dividend payout ratio(5)......................... 45.5 45.4 46.8 46.9 47.4
Tier 1 capital ratio(6).......................... 6.96 7.21 6.51 6.74 6.85
Total capital ratio(6)........................... 10.65 10.89 10.80 11.02 11.20
CREDIT QUALITY RATIOS
Specific provision for loan losses (net) to
private sector loans (gross)(7)(8)(9).......... 0.36 0.46 0.31 0.49 0.51
Nonperforming loans to private sector loans
(gross)(8)(10)................................. 1.59 1.87 2.14 2.25 2.61
Specific allowance for loan losses to private
sector loans (gross)(8)(11).................... 1.74 1.75 1.96 2.25 2.23
Specific allowance for loans losses to
nonperforming loans(8)(10)(11)................. 109.4 93.5 91.5 99.9 85.3
Write-offs to private sector loans (gross)(8).... 0.28 0.55 0.47 0.42 0.41
</TABLE>
- ---------------
(1) Net interest revenue as a percentage of average interest-earning assets.
(2) Operating expenses as a percentage of net interest revenue and total
non-interest revenue.
(3) Net profit as a percentage of average total assets.
(4) Net profit attributable to Ordinary Shares as a percentage of average
Ordinary Shareholders' equity.
(5) Dividend per Ordinary Share as a percentage of net profit per Ordinary
Share.
(6) Tier 1 capital and total capital as a percentage of risk-weighted assets
under BIS guidelines. See Item 9 -- "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Capital Resources."
(7) Excludes specific provision for country risk.
(8) Excludes professional securities transactions.
(9) Excludes additions to the Fund for general banking risks for 1997 and 1996
or the additions to the provision for general contingencies for 1995, 1994
and 1993.
(10) Nonperforming loans are non-accrual loans and nonperforming loans for which
interest has been suspended. See Item 1 -- "Description of Business --
Selected Statistical Information -- Doubtful Loans."
(11) Excludes the amount of the Fund for general banking risks for 1997 and 1996
and the provision for general contingencies for 1995, 1994 and 1993.
54
<PAGE> 59
APPROXIMATE AMOUNTS IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
1997 1997 1996
--------------------- -------- --------
(IN MILLIONS OF USD (IN MILLIONS OF NLG
EXCEPT SHARE DATA)(1) EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net interest revenue............................ 6,148 12,029 10,075
Other revenue................................... 5,263 10,297 8,300
Total revenue................................... 11,412 22,326 18,375
Pre-tax profit.................................. 2,860 5,595 5,425
Net profit...................................... 1,774 3,470 3,605
Shareholders' equity............................ 17,117 34,559 30,006
Minority interests.............................. 2,242 4,527 2,105
Total assets.................................... 436,554 881,403 625,831
Basic earnings per Ordinary Share(2)............ 1.21 2.37 2.54
Diluted earnings per Ordinary Share(2).......... 1.20 2.35 2.52
Basic earnings per ADS (in USD)(2)(3)........... -- 1.21 1.50
Shareholders' equity per Ordinary Share(2)...... 11.49 23.20 20.48
Shareholders' equity per ADS (in USD)(2)(4)..... -- 11.49 11.84
</TABLE>
- ---------------
(1) Dutch guilder amounts for income statement items have been translated into
U.S. dollars at the rate equal to the average of the month-end rates for
1997 and for balance sheet items at an exchange rate of $1.00 = NLG 2.02,
the exchange rate on December 31, 1997.
(2) Per share data have been retroactively adjusted for a four-for-one stock
split of the Ordinary Shares effected on May 12, 1997.
(3) This item has been translated into U.S. dollars at the rate equal to the
average of the month-end rates for the applicable year.
(4) This item has been translated into U.S. dollars at the applicable year-end
rate.
SELECTED RATIOS IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN
PERCENTAGES)
<S> <C> <C>
PROFITABILITY RATIOS
Net interest margin......................................... 1.8 1.9
Non-interest revenue to total revenue....................... 46.1 45.2
Efficiency ratio............................................ 69.9 66.0
Return on average total assets.............................. 0.42 0.54
Return on average Ordinary Shareholders' equity............. 10.9 13.4
CREDIT QUALITY RATIOS
Provision for loan losses (net) to private sector loans
(gross)(1)................................................ 0.47 0.48
Nonperforming loans to private sector loans (gross)......... 1.59 1.87
Allowances for loan losses to private sector loans
(gross)(2)................................................ 2.79 2.76
Allowances for loan losses to nonperforming loans(2)........ 175.0 147.9
Write-offs to private sector loans (gross).................. 0.28 0.55
</TABLE>
- ---------------
(1) Includes additions to the Fund for general banking risks. See note 43 to the
Consolidated Financial Statements.
(2) Includes the amount of the Fund for general banking risks. See note 43 to
the Consolidated Financial Statements.
55
<PAGE> 60
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is based on, and should be read in conjunction
with, the Consolidated Financial Statements included elsewhere in this Report.
The Consolidated Financial Statements are prepared in accordance with Dutch
GAAP, which varies in certain significant respects from U.S. GAAP. For a
discussion of the differences and a reconciliation of certain Dutch GAAP amounts
to U.S. GAAP, see note 43 to the Consolidated Financial Statements.
INTRODUCTION
The Bank and its numerous subsidiaries are organized into three operating
divisions, the Netherlands Division, the International Division and the IB&GC
Division. The Bank also owns ABN AMRO Lease Holding, an independently managed
subsidiary. The costs of the Bank's support divisions, including the Risk
Management Division, the Resource Management Division and the corporate policy
support units, have been fully allocated to the three operating divisions based
upon the Bank's internal management evaluations. Because ABN AMRO's business is
diverse and its operations are integrated, it is impractical to segregate the
assets and contributions of each operating division with precision. As a result,
estimates and judgments have been made to apportion balance sheet and revenue
and expense items.
During 1997, the composition of the ABN AMRO group changed as a result of
the sale of MeesPierson (effective from January 1, 1997) and a number of
acquisitions, notably in the United States, where the Bank increased its
presence in the Midwest through the acquisition of Standard Federal
Bancorporation (a savings and loan bank) and Chicago Corporation (an investment
bank). The results of these acquired companies have been incorporated in ABN
AMRO's consolidated financial statements from January 1, 1997. In Europe, ABN
AMRO acquired Magyar Hitel Bank in Hungary (at year-end 1996) and two small
French banks, Banque Demachy and Banque du Phenix (both at June 30, 1997).
The earnings and business of ABN AMRO are affected by general economic
conditions, the performance of the financial markets, interest rate levels,
currency exchange rates, changes in laws, regulations, and the policies of
central banks, particularly the Dutch Central Bank and the Federal Reserve
Board, and competitive factors, in each case on a global, regional and/or
national basis. For instance, changes in general economic conditions, the
performance of financial markets, interest rate levels and the policies and
regulations of central banks may affect, positively or negatively, ABN AMRO's
financial performance by affecting the demand for ABN AMRO's products and
services, reducing the credit quality of borrowers and counterparties and
putting pressure on ABN AMRO's loan loss reserves, changing the interest rate
margin realized by the Bank between its lending and borrowing costs, changing
the value of ABN AMRO's investment and trading portfolios and putting pressure
on its risk management systems. Changes in currency rates, particularly in the
U.S. dollar-Dutch guilder exchange rate, affect earnings reported by ABN AMRO's
foreign operations, and may affect revenues earned from foreign exchange
dealing. Changes in regulatory policies may significantly increase the cost of
compliance.
The establishment of a European Monetary Union ("EMU") in 1999 and the
creation of a single currency, the Euro, in which The Netherlands will
participate, will have significant effects on the foreign exchange markets and
bond markets and are requiring significant changes in the operations and systems
within the European banking industry. The EMU should enhance European market
transparency and create the potential for pan-European commercial banking and
retail products, but the pace at which financial products will be harmonized
following the introduction of the Euro will likely vary significantly by
product. ABN AMRO has been making substantial investments in information
technology in the European Union and worldwide to prepare for the change. In
addition, the policy of ABN AMRO is to offer flexibility to individual and
business customers to decide which products to connect to the Euro and when. The
overall impact of the EMU on ABN AMRO cannot be determined at present, and the
transition period of January 1, 1999 to July 31, 2002, when both the Euro and
participating currencies will exist alongside each other, will be unprecedented
in financial history and, as such, highly complex. ABN AMRO anticipates that
substantial investments will be required in such areas as crossborder payment
services, cash management services, asset
56
<PAGE> 61
management services and investment banking. It is likely that the Bank will
experience a reduction in revenues from foreign exchange dealing between major
European currencies.
ABN AMRO began preparations to address Year 2000 problems in 1995, but
substantial conversion efforts are still necessary in 1998, particularly in the
international network. The Bank's central accounting systems in The Netherlands
have been fully converted and are currently being tested. ABN AMRO's policy is
that all systems must be Year 2000 compliant by the end of 1998. At December 31,
1997, ABN AMRO had a provision of approximately NLG 500 million for the
adaptation of computer systems for the introduction of the Euro and for the Year
2000, and anticipates further provisions, currently estimated at NLG 100
million, during 1998.
ABN AMRO has economic, financial market, credit, legal and other
specialists who monitor economic and market conditions and government policies
and actions, including a project team within the Bank to prepare the Bank for
the final stages of the EMU. However, because it is difficult to predict with
accuracy changes in economic or market conditions or in governmental policies
and actions, it is difficult for ABN AMRO to anticipate the effects that such
changes could have on its financial performance and business operations.
The following tables provide an analysis of total revenue, operating profit
before taxes, total assets, risk-weighted assets and offices and branches of ABN
AMRO by operating division and independent subsidiary for each of the three most
recently completed years.
<TABLE>
<CAPTION>
TOTAL REVENUE OPERATING PROFIT BEFORE TAXES
------------------------ ------------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ -------- -------- --------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division..................... 7,219 6,577 6,215 2,146 1,632 2,085
International Division
Europe (excluding the Netherlands)..... 2,575 1,826 1,708 560 241 7
North America.......................... 6,051 3,461 2,796 1,505 1,088 872
South and Central America.............. 1,614 1,068 889 547 246 231
Middle East and Africa................. 219 162 122 61 (8) 14
Asia/Pacific........................... 1,123 774 571 8 162 252
------ ------ ------ ------ ------ ------
11,582 7,291 6,086 2,681 1,729 1,376
IB&GC Division........................... 4,004 3,072 2,021 930 969 574
------ ------ ------ ------ ------ ------
Subtotal............................... 22,805 16,940 14,322 5,757 4,330 4,035
ABN AMRO Lease Holding................... 884 760 682 239 209 196
MeesPierson.............................. -- 1,391 1,201 -- 269 153
Unallocated result....................... 79 -- -- 185 131 135
Addition to Fund for general banking
risks/Provision for general
contingencies.......................... -- -- -- (395) (146) (678)
------ ------ ------ ------ ------ ------
ABN AMRO................................. 23,768 19,091 16,205 5,786 4,793 3,841
====== ====== ====== ====== ====== ======
</TABLE>
57
<PAGE> 62
<TABLE>
<CAPTION>
TOTAL ASSETS RISK-WEIGHTED ASSETS(1)
AT DECEMBER 31, AT DECEMBER 31,
----------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division............ 179,513 166,621 135,820 146,310 129,315 106,838
International Division
Europe (excluding The
Netherlands)............... 78,672 77,406 77,204 58,676 57,675 48,174
North America................. 201,931 110,300 82,340 126,735 98,897 69,307
South and Central America..... 15,707 10,037 7,758 12,155 8,639 6,278
Middle East and Africa........ 5,063 3,856 2,976 2,717 1,871 1,879
Asia/Pacific.................. 61,384 44,447 40,763 38,129 34,792 25,995
------- ------- ------- ------- ------- -------
362,757 246,046 211,041 238,412 201,874 151,633
IB&GC Division.................. 281,896 176,102 158,936 63,407 47,978 42,139
------- ------- ------- ------- ------- -------
Subtotal...................... 824,166 588,769 505,797 448,129 379,167 300,610
MeesPierson..................... (2) (2) 31,492 (2) (2) 20,347
ABN AMRO Lease Holding.......... 12,275 10,504 9,237 11,676 10,101 8,774
------- ------- ------- ------- ------- -------
ABN AMRO........................ 836,441 599,273 546,526 459,805 389,268 329,731
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Risk-weighted assets are the value of balance sheet assets and off-balance
sheet items weighted for risk in accordance with applicable regulatory
requirements.
(2) Not applicable.
<TABLE>
<CAPTION>
FULL-TIME EQUIVALENT STAFF OFFICES AND BRANCHES
AT DECEMBER 31, AT DECEMBER 31,
---------------------------- ----------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division...................... 24,045 23,041 22,489 962 1,006 1,039
International Division
Europe (excluding The Netherlands)...... 8,466 7,778 5,136 173 182 106
North America........................... 17,099 11,066 9,670 439 228 192
South and Central America............... 5,182 4,714 4,199 121 112 110
Middle East and Africa.................. 1,061 988 952 70 71 71
Asia/Pacific............................ 4,016 3,147 2,724 53 46 43
Central Staff........................... 231 189 122 -- -- --
------ ------ ------ ----- ----- -----
36,055 27,882 22,803 856 639 522
IB&GC Division............................ 6,575 5,487 4,683 61 60 53
of which included in International
Division............................. (21) (17) (13)
----- ----- -----
Other divisions and group staff........... 4,641 4,312 3,945 -- -- --
------ ------ ------ ----- ----- -----
Subtotal................................ 71,316 60,722 53,920 1,858 1,688 1,601
MeesPierson............................... (1) 3,946 (1) 40
ABN AMRO Lease Holding.................... 3,619 3,406 3,169 30 29 29
------ ------ ------ ----- ----- -----
ABN AMRO.................................. 74,935 64,128 61,035 1,888 1,717 1,670
====== ====== ====== ===== ===== =====
</TABLE>
- ---------------
(1) Not applicable.
RESULTS OF OPERATIONS
Net profit for 1997 improved by NLG 550 million or 16.6% to NLG 3,853
million from NLG 3,303 million in 1996, which in turn represented a NLG 687
million or 26.3% increase from 1995. Pre-tax profit
58
<PAGE> 63
increased in both periods as ABN AMRO benefited from generally favorable
economic and market conditions in each of the principal regions in which it
operates. The Dutch economy grew at 3.3% in both 1996 and 1997. The AEX Stock
Exchange established new records in terms of share prices and trading volume.
Money market interest rates in The Netherlands increased as 1997 progressed.
Similarly favorable economic conditions prevailed in the United States, which
experienced strong growth, stable interest rates, low inflation rates and record
Dow Jones Industrial Average prices. With the notable exception of Asia during
the last few months of 1997, economic conditions also continued to be generally
favorable in other regions during 1996 and 1997, including South America.
During the second half of 1997, and in particular the closing months of the
year, the financial markets were dominated by the crisis in Asia. Although ABN
AMRO operates in all of the affected countries, on balance the crisis had
relatively few negative consequences for the Bank in 1997. The quality of the
Bank's loan portfolio in the majority of the affected countries is good.
Furthermore, ABN AMRO's exposure in terms of outstanding loans and trading
portfolios is relatively small in this region compared to ABN AMRO's worldwide
credit business. However, commercial loans in Indonesia, approximately NLG 1.7
billion of which are outstanding, are a source of concern. Provisions were made
against this risk. The crisis in Asia also had a positive side as the Bank has
been able to attract new consumer banking customers, particularly in Indonesia
and Thailand, interested in shifting their savings from local banks to foreign
banks. In addition, the financial crisis resulted in as significant widening of
interest margins in Asian markets. In 1998, the Bank executed an agreement,
subject to due diligence and other conditions, to acquire 75% of the equity of
Bank of Asia, a Thai bank focusing on middle market corporate and retail
customers.
Although economic conditions in the U.S., The Netherlands and the rest of
Europe continue to appear favorable at present, financial markets can be
volatile, as the Asian crisis demonstrates, and there can be no assurance that
the current combination of strong growth, relatively stable interest rates and
near record stock market prices in most of the principal economies in which ABN
AMRO operates will continue.
During 1997, revenues increased by NLG 4,677 million or 24.5% as compared
to 1996 to NLG 23,768 million (17.8% increase in 1996 as compared to 1995) and
operating expenses increased by NLG 3,489 million or 27.0% as compared to 1996
to NLG 16,418 million (18.2% in 1996 as compared to 1995). The provision for
loan losses in 1997 declined 3.9% from 1996 levels to NLG 1,205 million, despite
a significant increase in lending, as loan quality remained high. ABN AMRO's
efficiency ratio (operating expenses as a percentage of total revenue)
deteriorated to 69.1% in 1997 from 67.7% in 1996 and 67.5% in 1995. Net profit
for 1997 and 1996 were both affected by changes in exchange rates, particularly
in the U.S. dollar-Dutch guilder exchange rate, which had a positive impact on
net profit in 1997 of NLG 153 million or 4.6% as compared to 1996 and a positive
impact on net profit of NLG 95 million in 1996.
After taking into account Preference Share and Convertible Preference Share
dividends, in 1997, profit available for distribution to Ordinary Shares
increased 17.9% to NLG 3,673 million from NLG 3,116 million in 1996, which in
turn was a 31.6% increase from 1995. Net profit per Ordinary Share was NLG 2.64
and NLG 2.31 in 1997 and 1996, respectively, an increase of 14.3% and 20.3%
respectively, from prior year levels after taking into account the increase in
the average number of Ordinary Shares outstanding from 1,232.4 million in 1995
to 1,346.3 million in 1996 and to 1,388.7 million in 1997.
The Managing Board of ABN AMRO has established long-term financial
objectives that include average annual growth in earnings per Ordinary Share of
at least 7.5%, average annual growth in net profit of at least 10% and return on
shareholders' equity of at least 13%, based on Dutch GAAP. There can be no
assurance that such objectives will be achieved. In light of the volatility of
financial markets, ABN AMRO's financial performance may fluctuate from year to
year.
NET INTEREST REVENUE
Net interest revenue rose by NLG 2,345 million or 20.3% in 1997 as compared
to 1996 to NLG 13,871 million. Both retail and commercial lending experienced
volume growth in The Netherlands (up 18.5% and 7.5%, respectively), although
severe competition caused the Netherlands Division's net interest margin to be
fractionally lower (from 2.8% in 1996 to 2.7% in 1997). The International
Division experienced strong volume
59
<PAGE> 64
growth (up 48.5%), principally in the U.S. and to a lesser extent in the U.K.
and Japan, due, in part, to acquisitions and higher exchange rates, as the net
interest margins remained essentially unchanged.
Net interest revenue rose by NLG 1,289 million or 12.6% in 1996 as compared
to 1995 to NLG 11,526 million, reflecting loan volume growth in The Netherlands
(up 11.5%) and the U.S. (up 31.5%) and favorable results from asset-liability
management in the Netherlands Division.
NET COMMISSIONS
In 1997, net commissions, which consist of revenue from payment services,
securities, letters of credit and other financial guarantees and commissions
generated from the sale of insurance policies, increased by NLG 1,316 million or
26.6% as compared to 1996. In particular, securities commissions, which consist
of brokerage, custody and underwriting fees, increased 28.3%, reflecting high
trading volumes in response to the unusually strong stock markets experienced in
1997.
In 1996, net commissions improved by NLG 772 million or 18.5% to NLG 4,956
million as compared to 1995, again reflecting high trading volume and buoyant
stock market conditions.
RESULTS FROM FINANCIAL TRANSACTIONS
Results from financial transactions, reflecting primarily securities,
foreign exchange and derivatives trading, increased NLG 554 million or 29.4% to
NLG 2,436 million from NLG 1,882 million in 1996, reflecting the favorable
financial market environment prevailing during 1997. Securities and foreign
exchange trading results increased by NLG 77 million or 9.9% and NLG 250 million
or 35.5%, respectively, from 1996 levels. Derivatives trading results were NLG
86 million or 26.6% higher than in 1996, reflecting higher trading volumes.
Other results from financial transactions showed an increase of NLG 141 million,
the net effect of sharply higher gains on the sale of equity participations,
increased currency translation losses on capital investments in ABN AMRO's
operations in hyper-inflationary countries and lower revenue from LDC debt
trading. In 1995 and 1996, a provision was made against the risk of a
devaluation of the Brazilian real. As of 1998, Brazil is no longer classified as
a hyper-inflationary country, and the provision of NLG 150 million was released
at year-end 1997.
In 1996, results from financial transactions rose NLG 684 million or 57.1%
to NLG 1,882 million from 1995 levels, reflecting the favorable financial market
environment prevailing during 1996. Securities and foreign exchange trading
results increased by NLG 340 million or 77.1% and NLG 92 million or 15.0%,
respectively, from 1995 levels. Derivatives trading results were NLG 97 million
or 42.9% higher than in 1995. These increases reflected substantially higher
securities and derivatives trading results of the IB&GC Division's
Amsterdam-based trading operations. In addition, favorable equity market
conditions permitted ABN AMRO to realize larger gains on the sale of equity
participations.
OTHER REVENUE
Other revenues, which consist principally of results from leasing
activities, participating interests and insurance activities, increased by NLG
462 million or 63.5% in 1997 over 1996 levels due, in part, to the sale of
several minority interests. Other revenues increased by NLG 141 million or 24.1%
in 1996 over 1995 levels due to improved results from ABN AMRO Lease, equity
participations and improved insurance underwriting.
OPERATING EXPENSES
Operating expenses, which consist of staff costs, other administrative
expenses and depreciation, increased in 1997 by NLG 3,489 million or 27.0%, to
NLG 16,418 million. Excluding the effect of acquisitions, the sale of
MeesPierson, higher exchange rates and the provisions relating to the adaptation
of computer systems for Year 2000 compliance and the Euro, the overall increase
was 17.8% or NLG 2,073 million as compared to 1996. Operating expenses in the
Netherlands Division were up 4.3%, as lower staff costs were more than offset by
higher administrative expenses. Staffing levels increased modestly in The
Netherlands in 1996 and again in 1997. However, due to the excellent investment
performance of the
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<PAGE> 65
company pension fund, no pension costs were incurred for the Bank's Dutch
operations in 1997. Operating expenses in the International and IB&GC Divisions
grew in 1997 as a result of continued international expansion, particularly from
internal growth and bonuses and higher exchange rates. Non-recurring items,
consisting of a number of specific information technology projects, also
increased operating expenses. As in previous years, the outlay for the Euro was
substantial. The cost of adapting systems to the Euro, to be introduced on
January 1, 1999, is estimated to total approximately NLG 500 million. Provisions
have been made for future Euro-related conversion costs. In 1997 an extra amount
was added for phase two of the conversion process involving the circulation of
Euro notes and coins. The total cost involved in Year 2000 compliance is now
estimated at approximately NLG 300 million.
In 1996, operating expenses rose by NLG 1,994 million or 18.2% in 1996 as
compared to 1995 to NLG 12,929 million. Operating expenses in 1996 in the
Netherlands Division were up 8.0%, reflecting higher administrative expenses,
including non-recurring charges. Staffing levels increased in The Netherlands in
1996 for the first time since the 1990 combination of ABN and AMRO but were
offset by lower pension costs. Operating expenses in the International and IB&GC
Divisions grew as a result of continued international expansion, particularly
from internal growth, increased bonuses paid in the IB&GC Division as a result
of its strong 1996 performance and higher exchange rates. Non-recurring items
also increased operating expenses. Excluding the effects of higher exchange
rates and the 1996 provision of NLG 230 million for the adaptation of computer
systems, operating expenses increased by 13.8% in 1996 as compared to 1995.
In 1997, staffing costs increased by 21.2% to NLG 8,653 million from NLG
7,140 million in 1996, which in turn represented a 15.3% increase from 1995. The
full-time equivalent work force, including temporary staff, increased 16.9% to
74,935 at December 31, 1997. At December 31, 1996, the full-time equivalent work
force was 64,128, an increase of 12.3% from December 31, 1995, excluding
MeesPierson. During 1997, the full-time work force in the IB&GC and
International Divisions increased 19.8% and 29.3%, respectively, reflecting the
acquisitions of Standard Federal Bancorporation and The Chicago Corporation in
the U.S. and continuing expansion of the Bank's international and investment
banking activities. The Netherlands Division increased its full-time equivalent
work force 4.4% during 1997 principally to expand the delivery of products and
services to clients.
Other administrative expenses, which consist of office overhead, automation
costs, advertising costs and other general expenses, increased NLG 1,776 million
or 37.0% in 1997 to NLG 6,571 million from NLG 4,795 million in 1996, which in
turn represented a NLG 881 million or 22.5% increase as compared to 1995.
Information technology and consulting costs in particular increased in both 1996
and 1997 as a result of a variety of automation and efficiency efforts.
Non-recurring expenses partly caused administrative expenses to increase in both
years. Included in 1997 and 1996 administrative expenses were the provisions
described above for the adaptation of computer systems for the introduction of
the Euro and for the year 2000.
INCOME TAXES
Income taxes in 1997 were up 23.1% or NLG 312 million to NLG 1,661 million.
Income taxes were NLG 1,349 million in 1996, an increase of NLG 225 million over
1995. The effective tax rate rose to 28.7% in 1997 from 28.1% in 1996 as
compared to 29.3% in 1995. The effective tax rate is affected by changes in the
relative contributions to income from different countries as well as the level
of tax exempt income. The increase for 1997 over 1996 was mainly attributable to
lower untaxed results at a number of foreign securities subsidiaries.
PROVISION FOR LOAN LOSSES
Private sector loans (excluding professional securities transactions) and
risk-weighted total assets increased sharply in 1997 by 20.6% and 18.1%,
respectively. The provision for loan losses was lowered 3.9%, however, from NLG
1,254 million in 1996 to NLG 1,205 million in 1997. Substantial additions on
account of the Asian crisis (approximately NLG 250 million) were offset by lower
risk provisioning on the quality of the loan portfolio in the other countries
where the Bank is active. Once again in 1997, a portion of the provisions for
countries with payment problems was released. The provision for loan losses in
1995 was NLG 722 million.
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<PAGE> 66
The addition to the Fund for general banking risks in 1997 was increased to
NLG 395 million from NLG 146 million in 1996 to add provisions associated with
the Asian financial crisis and associated with the rise in risk-weighted total
assets. As a result, the level of the Fund at December 31, 1997 was
approximately NLG 280 million gross or 0.04% above management's objective of
0.5% of risk-weighted total assets.
For further information concerning ABN AMRO's loan loss provisioning
policy, specific allowances for loan losses and country risk, Fund for general
banking risks and credit quality ratios, see Item 1 -- "Description of
Business-Selected Statistical Information -- Analysis of Loan Loss Experience:
Provisions and Allowances for Loan Losses," Item 8 -- "Selected Financial Data
- -- Selected Ratios" and notes 14 and 34 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS BY DIVISION
NETHERLANDS DIVISION
The following table sets forth selected information pertaining to the
Netherlands Division.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF NLG EXCEPT STAFF
AND OFFICES AND BRANCHES)
<S> <C> <C> <C>
Net interest revenue................................ 5,272 4,805 4,555
Net commissions..................................... 1,699 1,498 1,338
Results from financial transactions................. 175 206 215
Other revenue....................................... 73 68 57
------- ------- -------
Total revenue....................................... 7,219 6,577 6,215
Operating expenses.................................. 4,711 4,515 4,180
Provisions for loan losses.......................... 362 430 (50)
------- ------- -------
Operating profit before taxes....................... 2,146 1,632 2,085
======= ======= =======
Total assets........................................ 179,513 164,606 135,820
Risk-weighted assets................................ 146,310 129,315 106,838
Full-time equivalent staff.......................... 24,045 23,041 22,489
Number of offices and branches...................... 962 1,006 1,039
</TABLE>
In 1997, the Netherlands Division achieved a NLG 514 million or 31.5%
increase in operating profit before taxes as compared to 1996, when operating
profit before taxes decreased by NLG 453 million or 21.7% as compared to 1995.
Provisions approximating NLG 90 million in each of 1997 and 1996 related to the
adaptation of computer systems for the introduction of the Euro and for the Year
2000 and reduced 1997 and 1996 operating profits before taxes. Total revenues in
1997 increased NLG 642 million or 9.8% over 1996 levels, following an increase
in 1996 of NLG 362 million or 5.8% as compared to 1995. Operating expenses
increased by NLG 196 million or 4.3% in 1997 as compared to 1996, following an
increase in 1996 of NLG 335 million or 8.0% as compared to 1995. The continued
good quality of ABN AMRO's loan portfolio permitted a lower provision for loan
losses in 1997 than in 1996. In 1996, the provision for loan losses was NLG 430
million as compared to a net release of provisions of NLG 50 million in 1995.
Net Interest Revenue
Net interest revenue grew by NLG 467 million or 9.7%, with both guilder and
foreign currency business generating higher interest revenue due to the growth
in total assets, although the net interest margin was slightly lower, decreasing
from 2.8% to 2.7%.
The Dutch Central Bank twice increased its official rates in 1997. The
promissory note discount rate was raised by 50 basis points in the spring and by
a further 25 basis points in the autumn following the interest rate increase in
Germany. This upward trend of money market rates was mainly related to the
impending arrival of
62
<PAGE> 67
the Euro. After rising early in the year, capital market interest rates edged
down in the remaining months. 1997 was generally characterized by a flattening
yield curve.
Average total assets rose NLG 15.9 billion or 9.7% as compared to 1996. The
residential mortgage portfolio at December 31, 1997, notably medium and
long-term home loans, represented a NLG 11.1 billion or 20.7% increase over
December 31, 1996 levels. Short-term lending to corporations, including
roll-over loans, also increased, rising NLG 2.4 billion or 5.1%. In addition,
the Bank completed a NLG 2 billion loan securitization program in The
Netherlands at the end of 1997. Long-dated lending was partly financed with
short-term funds, which contributed to the overall improvement in interest
revenue, as the Bank benefited from favorable results of asset-liability
management despite a somewhat flatter yield curve than in 1996.
Net interest revenue for 1996 increased NLG 250 million or 5.5% as compared
to 1995 as an increase in loan volume offset a decrease in net interest margins
from 2.0% to 1.8%. Average private sector loan volume increased by 13.4% from
NLG 109.8 billion in 1995 to NLG 124.5 billion in 1996. Loans to corporations
increased NLG 7.5 billion or 13.9% over 1995 levels, with most of the increase
in medium-term loans. Residential mortgage volume increased by NLG 6.9 billion
or 14.8% over 1995 levels, reflecting the acquisition of a NLG 6 billion
residential mortgage portfolio at the end of 1995.
Net Commissions
The following table sets forth total net commissions and the components
thereof for the Netherlands Division for each of the three most recently
completed years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Payment services.......................................... 714 689 709
Insurance................................................. 239 238 225
Securities................................................ 643 483 364
Other..................................................... 103 88 90
----- ----- -----
Total net commissions..................................... 1,699 1,498 1,388
===== ===== =====
</TABLE>
Net commissions were substantially higher in 1997 compared to 1996, rising
NLG 201 million or 13.4%. The increase was almost entirely due to the 33.1% rise
in securities commissions during 1997.
Payment services commissions showed a modest increase, rising NLG 25
million or 3.6%. A decline in turnover commission was offset by increasing
commission revenue from the sale of the Bank's OfficeNet and HomeNet packages,
which permit the electronic delivery of payment instructions. The increased use
of credit cards also added to commission revenue. ABN AMRO issued 1.8 million
smart cards in 1997, bringing the total number in circulation to 8.2 million.
Insurance commissions from sales of policies through ABN AMRO's branch
network were essentially unchanged. Non-life insurance commissions dropped
slightly, while life insurance commissions continued last year's advance. The
Bank believes that its greater focus on insurance products and their integration
with banking services will lead to future expansion of the Bank insurance
operations.
Securities commissions were up 33.1% in 1997 as compared to 1996, following
1996's 32.7% increase over 1995. The buoyant stock market climate during the
last two years has resulted in strong growth in brokerage commissions. During
1997, commissions resulting from ABN AMRO investment fund transactions increased
sharply by 20%. Custodial assets grew to NLG 895 billion, as custody fee revenue
increased by 12%. Commission revenue from on-line securities trading by
customers using the Bank's Investment Line and HomeNet software packages also
increased, as the number of orders placed through the Investment Line tripled in
1997 over the prior year.
In 1996, net commissions increased NLG 110 million or 7.9% from 1995. In
1996, fee income from payment services declined, due in part to severe price
competition. In addition, commissions from payment services declined as
customers increasingly relied on low-charge payment methods, such as direct
debit cards
63
<PAGE> 68
and automated teller machines. ABN AMRO encouraged customers to use these more
efficient payment methods to reduce its transaction costs.
Insurance commissions from sales of policies through ABN AMRO's branch
network increased by NLG 13 million or 5.8% in 1996 as compared to 1995. These
increases resulted from rising commission revenue from life insurance products
and from higher commission revenue from non-life insurance products.
Securities commissions increased 32.7% in 1996, reflecting sharply higher
trading volumes resulting from favorable conditions in the Dutch financial
markets.
Results from Financial Transactions
The following table sets forth the results from financial transactions and
the components thereof for the Netherlands Division for each of the three most
recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Foreign exchange dealing.................................... 151 149 135
Securities and other results from financial transactions.... 24 57 80
---- --- ---
Total results from financial transactions................... 175 206 215
==== === ===
</TABLE>
For the Netherlands Division, results from financial transactions are
attributable primarily to the spread realized on exchanging foreign currency for
retail clients. Financial transactions produced slightly lower revenue in 1997,
falling NLG 31 million or 15.0% from 1996. Results from foreign exchange dealing
were essentially unchanged. The item securities and other results from financial
transactions in 1997 and 1996 was attributable to the sale of equity
participations.
Results from foreign exchange dealing increased by 10.4% in 1996 as
compared to 1995. The item securities and other results from financial
transactions in 1995 was entirely attributable to the sale of a temporary
holding of shares.
Other Revenue
Other revenue for the Netherlands Division consists principally of results
from insurance activities, participating interests and, to a lesser extent,
property development and rental revenue. Other revenue derived from insurance
consists of the underwriting results, excluding staff expenses, of ABN AMRO
Levensverzekeringen and the Bank's property and casualty insurance subsidiaries,
including ABN AMRO Schadeverzekeringen. Other revenue increased by NLG 5 million
or 7.4% to NLG 73 million in 1997. Net revenue from the Netherlands Division
insurance subsidiaries, which is the balance of premium income, investment
income and insurance expenses, improved sharply in 1997 as compared to 1996,
increasing NLG 29 million or 60% to NLG 77 million. Life insurance premium
income in 1997 increased by NLG 258 million or 51% to NLG 766 million.
In 1996, net revenue from the Netherlands Division's insurance subsidiaries
increased NLG 21 million or 78% to NLG 48 million, while life insurance premiums
increased NLG 227 million or 81% to NLG 508 million.
64
<PAGE> 69
Operating Expenses
The following table sets forth operating expenses for The Netherlands
Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Staff costs............................................... 2,404 2,514 2,434
Other administrative expenses............................. 1,775 1,479 1,294
Depreciation.............................................. 532 522 452
----- ----- -----
4,711 4,515 4,180
===== ===== =====
</TABLE>
Operating expenses in 1997 were up NLG 196 million or 4.3%, due primarily
to higher administrative expenses, including a provision relating to the
adaptation of computer systems for the introduction of the Euro and for the Year
2000.
Staff costs in 1997 declined by NLG 110 million or 4.4%, primarily because
of the absence of pension contributions, reflecting strong investment results.
Severance costs were also down. Wages were raised 2% effective October 1, 1997
under the Netherlands Division's collective labor agreement. Staff increased in
1997. The full-time equivalent workforce in 1997, including temporary staff,
grew by 1,004 or 4.4%.
Other administrative expenses rose by NLG 296 million or 20.1%. Costs were
incurred in connection with the expansion of head office space, as well as for
several information technology and other projects. Capital expenditures on
replacement and new IT equipment in The Netherlands totaled NLG 418 million in
1997, consistent with 1996 levels. The Bank also incurred higher costs for
commercial support of the continued nationwide introduction of the Bank's smart
card. Costs were also incurred for an extensive Euro information campaign aimed
at customers and the general public.
Operating expenses increased in 1996 by NLG 335 million or 8.0% due to
higher administrative expenses, including a provision relating to the adaptation
of computer systems for the introduction of the Euro and for the Year 2000.
Excluding this non-recurring charge, operating expenses were NLG 245 million or
5.9% higher than in 1995.
Staff costs in 1996 were up 3.3% from 1995 levels, reflecting a 2.5%
increase in the full-time equivalent workforce to accommodate the 36-hour work
week and additions of information technology specialists. Higher staffing levels
were partly offset by lower pension costs than in 1995.
Provision for Loan Losses
The provision for loan losses in 1997 was NLG 362 million, a decline of NLG
68 million or 15.8% from NLG 430 million in 1996. This decrease reflected the
continued good quality of the Netherlands Division's loan portfolio, despite
continued growth in volume. Risk-weighted assets of the Netherlands Division
were NLG 146 billion at December 31, 1997, an increase of 13.1% over
risk-weighted assets for the Netherlands Division at December 31, 1996.
The provision for loan losses in 1996 was NLG 430 million as compared to a
net release of provisions of NLG 50 million in 1995.
65
<PAGE> 70
INTERNATIONAL DIVISION
The following table sets forth selected information pertaining to the
International Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS OF NLG EXCEPT STAFF AND
OFFICES AND BRANCHES)
<S> <C> <C> <C>
Net interest revenue........................................ 7,674 5,219 4,460
Net commissions............................................. 2,628 1,484 1,234
Results from financial transactions......................... 970 412 274
Other revenue............................................... 310 176 118
------- ------- -------
Total revenue............................................... 11,582 7,291 6,086
======= ======= =======
Operating expenses.......................................... 8,053 4,804 3,988
Provision for loan losses................................... 884 761 723
Value adjustments to financial fixed assets................. (36) (3) (1)
------- ------- -------
Operating profit before taxes............................... 2,681 1,729 1,376
======= ======= =======
Analysis of operating profit before taxes
Europe (excluding The Netherlands)........................ 560 241 7
North America............................................. 1,505 1,088 872
South and Central America................................. 547 246 231
Middle East and Africa.................................... 61 (8) 14
Asia/Pacific.............................................. 8 162 252
------- ------- -------
Operating profit before taxes............................... 2,681 1,729 1,376
======= ======= =======
Total assets................................................ 362,757 246,046 211,041
Risk-weighted assets........................................ 238,412 201,874 151,633
Full-time equivalent staff.................................. 36,055 27,882 22,803
Number of offices and branches.............................. 856 639 522
</TABLE>
Operating profit before taxes increased in 1997 by NLG 952 million or 55.1%
to NLG 2,681 million, of which NLG 261 million was attributable to higher
exchange rates. The U.S. dollar sharply increased in value against the guilder,
rising from an average NLG 1.69 for 1996 to NLG 1.96 for 1997. Total revenue in
1997 rose by NLG 4,291 million or 58.9% to NLG 11,582 million, and operating
expenses in 1997 rose by NLG 3,249 million or 67.6% to NLG 8,053 million. The
International Division's contribution to the ABN AMRO group's operating profit
before taxes increased from 36% in 1996 to 46% in 1997. As in 1996, this
division accounted for the greatest share of the group's operating profit before
taxes. Assuming unchanged average exchange rates and excluding acquisitions,
operating profit before taxes would have increased NLG 140 million or 8.1%.
Operating profit before taxes in 1996 improved by NLG 353 million or 25.7%
to NLG 1,729 million. This increase was the net result of higher total revenue
(up NLG 1,205 million or 19.8%), operating expenses (up NLG 816 million or
20.5%) and provision for loan losses (up NLG 38 million or 5.3%). The increase
in operating profit before taxes was aided by a stronger U.S. dollar in 1996, as
compared to 1995 levels, but also reflected a provision of NLG 80 million
relating to the adaptation of computer systems for the introduction of the Euro.
Assuming unchanged average exchange rates and excluding this non-recurring item,
operating profit before taxes for 1996 would have increased NLG 322 million or
21.7%.
Net Interest Revenue
Net interest revenue in 1997 improved by NLG 2,455 million or 47.0% to NLG
7,674 million, almost entirely due to volume growth. The net interest margin for
the International Division was unchanged at 2.1%.
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<PAGE> 71
Private sector loans, exclusive of professional securities transactions,
increased by an average of NLG 50.0 billion or 42.0% in 1997. A significant part
of this growth was realized in the United States, principally from the
acquisition of Standard Federal. Conditions for realizing U.S. dollar interest
profits, however, were not optimal. The yield curve was almost flat at the end
of the year, while long-term interest rates fell close to an all-time low. As a
result, the opportunities for mismatch benefits were limited. In addition,
mortgage interest margins declined as a result of premature repayments and
refinancings at lower market rates. As a result of stiff competition in the
United States, there were only minor improvements in product margins.
Net interest revenue in 1996 increased by NLG 759 million or 17.0% as
compared to 1995. Private sector loans increased by an average of NLG 22.5
billion or 23.3% in 1996, principally as a result of a 26.6% increase in private
sector loan volume in the United States, as well as increases in loan volume in
Brazil and Australia. Net interest margins declined from 2.2% in 1995 to 2.1% in
1996.
Net Commissions
The following table sets forth total net commissions and the components
thereof for the International Division for each of the three most recently
completed years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Payment services.......................................... 788 557 458
Insurance................................................. 58 40 35
Securities................................................ 739 290 212
Asset management and trust services....................... 331 238 197
Guarantees................................................ 180 152 141
Other..................................................... 532 207 191
----- ----- -----
Total net commissions..................................... 2,628 1,484 1,234
===== ===== =====
</TABLE>
Net commissions in 1997 improved sharply, up 77.1% from NLG 1,484 million
to NLG 2,628 million. The 41.5% increase in commission revenue from payment
services was almost entirely attributable to higher volumes. Volumes rose
particularly in the U.S., in substantial part from the acquisition of Standard
Federal. The acquisition of Magyar Hitel in Hungary also contributed to the
increase. Reflecting buoyant stock markets worldwide in the first half of the
year, securities commissions rose by NLG 449 million or 154.8% as compared to
1996 to NLG 739 million. The second half of the year was characterized by
volatility, which resulted in increased trading volume. Fees from asset
management and trust services increased by NLG 93 million or 39.1% to NLG 331
million, reflecting higher results in the U.S. and France. Other net
commissions, which include mortgage loan servicing fees and financial advisory
fees, including from mergers and acquisitions, increased NLG 325 million or more
than twice 1996 levels as a result of the inclusion of Standard Federal and
Chicago Corporation in the U.S.
Net commissions rose by NLG 250 million or 20.3% in 1996 as compared to
1995, principally due to higher volume for payment services, particularly in the
United States, as well as higher securities commissions and asset management
fees reflecting favorable financial markets.
67
<PAGE> 72
Results from Financial Transactions
The following table sets forth total results from financial transactions
and the principal components thereof for the International Division for each of
the three most recent years.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Securities trading.......................................... 217 130 44
Foreign exchange dealing.................................... 646 303 315
Derivatives trading......................................... 112 96 59
Other....................................................... (5) (117) (144)
---- ---- ----
Total results from financial transactions................... 970 412 274
==== ==== ====
</TABLE>
Results from financial transactions increased by NLG 558 million or 135.4%
in 1997 as compared to 1996 due to sharply higher profits from foreign exchange
dealing, particularly from U.S. operations, and the release of the provision of
NLG 150 million for the Brazilian real. Securities trading results also improved
significantly throughout the international network, with a particularly strong
contribution from the Asian region, where ABN AMRO benefited from the volatility
of the currency markets.
Results from financial transactions increased by NLG 138 million or 50.4%
in 1996 as compared to 1995. Although foreign exchange dealing declined from
1995 levels, securities and derivatives trading results substantially improved,
reflecting generally favorable conditions in financial markets worldwide.
Anticipated and actual currency translation losses (countries with inflation of
more than 100% over three consecutive years) declined NLG 52 million or 38.0% in
1996 to NLG 85 million, as a lower provision was taken against a risk of
depreciation of the Brazilian real in light of the reduction of inflationary
pressures in Brazil.
Other Revenue
Other revenue was up by NLG 134 million or 76.1% in 1997 from 1996 levels
mainly due to higher dividends received on portfolio investments and the sale of
mortgage servicing rights by Standard Federal. Other revenue also increased by
NLG 58 million or 49.2% in 1996 from 1995 levels, mainly due to higher dividends
received on portfolio investments and improved results of participating
interests in each year.
Operating Expenses
The following table sets forth operating expenses for the International
Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Staff costs............................................... 4,122 2,526 2,100
Other administrative expenses............................. 3,453 1,997 1,673
Depreciation.............................................. 478 281 215
----- ----- -----
8,053 4,804 3,988
===== ===== =====
</TABLE>
Operating expenses in 1997 increased NLG 3,249 million or 67.6% as compared
to 1996 to NLG 8,053 million. The increase related to higher headcount as a
result of acquisitions, internal growth, higher bonuses and higher provisions
for the Euro and Year 2000 projects than in 1996. Staff costs increased by NLG
1,596 million in 1997 due to an increase in the full-time equivalent workforce
of 8,173 or 29.3% to 36,055. This increase in the workforce was largely due to
the acquisition of Standard Federal and Chicago Corporation (together, 5,400
employees) with the remainder being attributable to internal growth. Higher
exchange rates, particularly with respect to the U.S. dollar, contributed to
staff cost increases in 1997. Excluding the effects of
68
<PAGE> 73
acquisitions, higher exchange rates and provisions for the Euro and the Year
2000, operating expenses increased 21% in 1997 over 1996 levels.
Operating expenses in 1996 rose by NLG 816 million or 20.5% as compared to
1995 to NLG 4,804 million. Staff costs went up NLG 426 million or 20.3% in 1996
reflecting the 22.3% increase in the full-time equivalent work force. These
increases in personnel result from the addition in 1996 of approximately 2,500
employees with the acquisition of Magyar Hitel Bank in Hungary, internal growth
in the United States and Brazil as well as the acquisition of Columbia National
Bank and Comerica Bank Illinois in the United States. Higher exchange rates,
particularly with respect to the U.S. dollar, contributed to staff cost
increases in 1996.
Other administrative expenses, including depreciation, increased 72.6% in
1997 as compared to 1996 due primarily to acquisitions, higher exchange rates,
and the continued expansion of the branch network. The number of branches and
offices grew to 856, an increase of 217 or 34.0% as compared to year-end 1996.
The acquisition of Standard Federal added 193 branches to ABN AMRO's North
American organization. Other administrative expenses, including depreciation,
increased 20.7% in 1996 as compared to 1995, owing to internal growth, start up
costs of new operations and a number of non-recurring items. Non-recurring items
in 1997 and in 1996 included the provision described above for the adaptation of
computer systems for the introduction of the Euro and for the Year 2000.
Provision for Loan Losses
Provision for loan losses increased in 1997 by NLG 123 million or 16.2% to
NLG 884 million following an increase in 1996 of NLG 38 million or 5.3%.
Risk-weighted assets of the International Division totaled NLG 238 billion at
December 31, 1997, an increase of 18.1% over risk-weighted assets for the
International Division at December 31, 1996.
Set forth below is a discussion, by region, of the operating results of the
International Division.
Europe (excluding The Netherlands)
Results in Europe improved significantly in 1997. Operating profit before
taxes increased by NLG 319 million or 132.4% to NLG 560 million. Results in 1997
were affected by non-recurring costs, with results reduced by a provision of NLG
147 million for the adaptation of computer systems for the introduction of the
Euro and for the Year 2000. Excluding non-recurring costs in 1997, operating
profit before taxes increased by NLG 466 million or 193.4% in 1997, due
primarily to strong private banking and asset management results in France,
Luxembourg and Switzerland, reflecting the strong European stock market
conditions, and strong results in France, the United Kingdom and Belgium, which
more than offset the weaker results generated in Germany. Germany's results fell
short of expectations largely due to a reorganization of a German subsidiary and
to the development of an investment banking organization in Germany. While
results in Poland were less than expected, nearly all of ABN AMRO's other
operations in Central and Eastern Europe reported substantially higher results
in 1997.
Operating profit before taxes for 1996 increased by NLG 234 million to NLG
241 million, as compared to 1995. Results in 1996 were affected by non-recurring
costs. Operating profit before taxes results for 1996 were reduced by a
provision of NLG 80 million for the adaptation of computer systems for the
introduction of the Euro. Excluding non-recurring costs in 1996, operating
profit before taxes increased by NLG 314 million in 1996, as strong results in
France, the United Kingdom and Belgium more than offset a weaker performance
from German operations. ABN AMRO's Central and Eastern European network achieved
strong revenue and profitability growth in virtually all countries in 1996.
North America
North America's contribution to the operating profits before taxes of the
International Division increased to 56% in 1997, as North American operating
profits before taxes rose from NLG 1,088 million in 1996 to NLG 1,505 million in
1997, an increase of 38.3%. This improvement was mainly attributable to the
acquisition
69
<PAGE> 74
of Standard Federal, which achieved results substantially above expectations,
and the increase in value of the U.S. dollar. The strengthened average U.S.
dollar to Dutch guilder exchange rate contributed NLG 202 million of the 1997
increase. Excluding this effect, operating profit before taxes increased 19.8%
as compared to 1996.
Both the LaSalle Group and EAB benefited from the continuation of high net
interest margins and loan volume growth. Net interest margins remained at
attractive levels in 1997, although somewhat lower than in 1996. LaSalle and EAB
had net interest margins of 3.1% (3.5% in 1996) and 4.2% (4.1% in 1996),
respectively. Private sector loans grew 18.3% for the LaSalle Group and 16.2%
for EAB. Standard Federal achieved a net interest margin of 2.8% during 1997.
Wholesale and retail mortgage loan originations were $13.8 billion, a record for
Standard Federal. Approximately $10.0 billion of mortgage loans were resold in
the secondary market. The eleven ABN AMRO branches also reported good results in
1997, as the Bank reported an increased number of complex structural finance
transactions. In addition, a $5.5 billion loan securitization program was
completed at the end of 1997 in an effort to improve capital ratios. Net
interest margins for North American operations declined on an over-all basis,
due primarily to the flattening of the yield curve, mortgage refinancings and
competition in the financial services industry, which held down spreads on both
sides of the balance sheet. Net interest margins for North American operations
also declined as a result of a substantial increase in the volume of low margin
(but also low risk) reverse repurchase agreements associated with the U.S.
investment banking activities included in the International Division.
Effective January 1, 1997, ABN AMRO acquired Chicago Corporation, which,
together with ABN AMRO's existing securities company in New York, gives it a
full-fledged investment banking operation in the United States. Substantial
investments were also made to strengthen ABN AMRO's positions in the U.S. equity
and fixed income markets. U.S. investment banking results were negative in 1997
due to start-up costs.
ABN AMRO's branches in Canada and Mexico, while profitable in 1997, were
not able to maintain their 1996 profit levels.
In 1996, operating profit before taxes increased by NLG 216 million or
24.8% as compared to 1995. A strengthening of the average U.S. dollar to Dutch
guilder exchange rate contributed to NLG 62 million of this increase. Excluding
this effect, operating profit before taxes increased 16.5% compared to 1995. The
LaSalle Group and EAB benefited from high interest margins, virtually unchanged
from 1995 interest margins, as well as growth of private sector loans of 35.0%
for the LaSalle Group and 34.3% for EAB. ABN AMRO also benefited from increased
loan volume to multinational corporations from its U.S. branch network. Net
interest margins for North American operations declined on an over-all basis,
principally as a result of a substantial increase in the volume of reverse
repurchase agreements associated with U.S. investment banking activities.
South and Central America
Operating profit before taxes in this region rose by NLG 301 million or
122% in 1997 to NLG 547 million as compared to 1996. Brazil showed a
particularly strong gain. The provision of NLG 150 million made in previous
years against the risk of a devaluation of the Brazilian real was released.
Although commercial banking also improved, profits once again came largely from
car finance activities, despite falling profits during the final months of 1997
following the announcement of new taxes and rising interest rates. Net interest
margins again declined, as anticipated, from 5.7% in 1996 to 5.1% in 1997, but
were more than offset by the 17% increase in loan volume. Gains were also
recorded in Chile, Uruguay and Paraguay. Results in Argentina remained low,
reflecting declining margins and retail expansion costs. The Netherlands
Antilles, Ecuador and Venezuela also decreased during 1997.
Operating profit before taxes increased in 1996 by NLG 15 million or 6.5%
as compared to 1995. ABN AMRO's Brazilian consumer finance business continued to
enjoy excellent results despite provisions against the risk of a depreciation of
the Brazilian real in 1996. Interest margins declined as inflationary
expectations in Brazil were reduced. Operations in other countries in this
region, including Chile, Paraguay and The Netherlands Antilles, also reported
strong growth in operating profit before taxes in 1996.
70
<PAGE> 75
Middle East and Africa
Operating profit before taxes in this region amounted to NLG 61 million in
1997 as compared to a loss of NLG 8 million in 1996, as strong results by the
Bank's 40%-owned Saudi Arabian affiliate, Saudi Hollandi Bank, and in Lebanon
and Bahrain offset unsatisfactory results in Morocco and Kenya. In the United
Arab Emirates, results dropped slightly due to higher risk provisioning.
Operating profits before taxes for 1996 were down NLG 22 million or 157.1% as
compared to 1995, due to poor performance in Morocco.
Asia/Pacific
Operating profit before taxes in Asia fell sharply from NLG 162 million in
1996 to NLG 8 million in 1997, as substantial provisions were made due to the
Asian economic crisis. Operating profits before taxes also were reduced due to
loan losses and the costs of expanding investment banking activities in Japan
and Australia and mark-downs of securities portfolios and operating costs in
Singapore. The crisis also provided opportunities, as the Bank was able to
expand its customer base significantly, particularly in Thailand and Indonesia,
and treasury business expanded in a number of Asian countries. Consumer banking
activities also increased in Taiwan. Operating profit before taxes in Hong Kong
and Korea exceeded expectations and results in Pakistan, India and the
Philippines were also favorable.
Operating profits before taxes for 1996 decreased NLG 90 million or 35.7%
as compared to 1995 levels, including a NLG 50 million one-time gain included in
1995 operating profit before taxes. This gain resulted from the allocation in
1995 of costs incurred in prior years by ABN AMRO's Hong Kong-based automation
subsidiary in connection with the development of accounting software for the
international branch network.
IB&GC DIVISION
The following table sets forth selected information pertaining to the IB&GC
Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS OF NLG EXCEPT STAFF AND
OFFICES AND BRANCHES)
<S> <C> <C> <C>
Net interest revenue................................ 567 634 418
Net commissions..................................... 1,776 1,228 939
Results from financial transactions................. 1,291 1,054 530
Other revenue....................................... 370 156 134
------- ------- -------
Total revenue....................................... 4,004 3,072 2,021
Operating expenses.................................. 3,019 2,055 1,383
Provision for loan losses........................... 55 76 34
Value adjustments to financial fixed assets......... -- (28) 30
Operating profit before taxes....................... 930 969 574
------- ------- -------
Total assets........................................ 281,869 176,102 158,936
======= ======= =======
Risk-weighted assets................................ 63,407 47,978 42,139
Full-time equivalent staff.......................... 6,575 5,487 4,683
Number of offices and branches...................... 61 60 53
</TABLE>
Operating profit before taxes in 1997 fell by NLG 39 million or 4.0% as
compared to 1996. The generally strong financial markets worldwide led to strong
results from financial transactions and securities commissions, with total
revenue increasing by NLG 932 million or 30.3% to NLG 4,004 million. Operating
profit before taxes was reduced by a provision of NLG 53 million relating to the
adaptation of computer systems for the introduction of the Euro and for the Year
2000. However, operating expenses rose NLG 964 million or 46.9%, more rapidly
than revenues.
71
<PAGE> 76
Operating profit before taxes increased by NLG 395 million or 68.8% in 1996
as compared to 1995, again reflecting favorable conditions. Total revenues in
1996 increased NLG 1,051 million or 52.0% as compared to 1995 to NLG 3,072
million, with operating expenses increasing NLG 672 million or 48.6% to NLG
2,055 million. Operating profit before taxes was reduced by a provision of NLG
60 million relating to the adaptation of computer systems for the introduction
of the Euro and the Year 2000.
Net Interest Revenue
In 1997, net interest revenue declined by NLG 67 million or 10.6% as
compared to 1996. These decreases were mainly attributable to funding costs of
higher levels of equity securities portfolios.
In 1996, net interest revenue rose by NLG 216 million or 51.7% over 1995
levels. These increases were mainly attributable to the IB&GC Division's
Eurodeposit business, which had an on and off balance sheet average volume of
NLG 425 billion in 1996, an increase of NLG 75 billion over 1995 average levels,
with central bank deposits in particular showing substantial volume growth.
Net Commissions
The following table sets forth total net commissions and the components
thereof for the IB&GC Division for each of the three most recently completed
years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Securities................................................ 1,376 994 748
Asset management and trust services....................... 334 220 156
Other..................................................... 66 14 35
----- ----- -----
Total net commissions..................................... 1,776 1,228 939
===== ===== =====
</TABLE>
Net commissions for 1997 rose by NLG 548 million or 44.6% to NLG 1,776
million, after rising NLG 289 million or 30.8% in 1996 as compared to 1995.
Securities commissions, which consist of brokerage, custody and underwriting
fees, increased by NLG 382 million or 38.4% in 1997 as compared to 1996, and NLG
246 million or 32.9% in 1996 as compared to 1995. These increases were due to
higher brokerage fee revenue from securities subsidiaries, in particular ABN
AMRO Asia and Alfred Berg, and from the underwriting of equity offerings.
Underwriting fees have increased during the last three years. In 1997, ABN
AMRO was lead manager for $65.9 billion of debt and equity offerings, as
compared to $35.7 billion in 1996. The ABN AMRO Rothschild joint venture, which
was established on July 1, 1996, completed a successful first full year of
operation. ABN AMRO Rothschild was appointed joint global coordinator of the
largest equity transaction of 1997, the privatization of the Australian
telecommunications company Telstra. ABN AMRO lead-managed 49 public offerings of
equity securities in 1997, as compared to 27 in 1996.
1997 was a record year for bond offerings, following strong years for 1996
and 1995. Over 60% of the total volume of NLG issues was managed by ABN AMRO,
while the Bank acted as lead or co-lead manager for all NLG bond loans of
European governments. New issue activity in other currencies also increased. The
Bank arranged offerings in fourteen different currencies as the volume of
Deutschemark and U.S. dollar issues exceeded that of NLG offerings. Total volume
of Eurobond issues in which ABN AMRO participated rose sharply from $119.7
billion in 1995 to $198.3 billion in 1996 and $257.0 billion in 1997.
Custody fee income was NLG 59 million in 1997, an increase of NLG 15
million or 33.3% from 1996 as assets under custody increased. For 1996, custody
fee income was unchanged from 1995. Increases in assets under custody in 1996
were offset as intense competition put pressure on margins.
Asset management and trust service fee income in 1997 increased by NLG 114
million or 51.8% to NLG 334 million. Assets managed worldwide rose 30%, from NLG
119 billion at December 31, 1996 to NLG 155 billion at December 31, 1997.
Discretionary portfolio management for institutional and private
72
<PAGE> 77
clients represented 32% and 25%, respectively, of total assets under management,
with the balance represented by ABN AMRO-managed investment funds.
In 1996, asset management and trust service fee income increased by NLG 64
million or 41.0% from 1995 levels. Assets under management grew by 39.0%. During
1996, ABN AMRO successfully launched two money market and fixed income
investment funds providing Dutch investors with an attractive net return. ABN
AMRO also introduced two conservative savings type of investment funds in 1996.
Assets in ABN AMRO-managed investment funds rose by NLG 3.4 billion in 1996 to
NLG 26.6 billion at December 31, 1996 as compared to NLG 23.2 billion at
December 31, 1995.
Results from Financial Transactions
The following table sets forth total results from financial transactions
and the principal components thereof for the IB&GC Division for each of the
three most recently completed years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Securities trading........................................ 641 569 244
Foreign exchange dealing.................................. 158 196 118
Derivatives trading....................................... 290 171 125
Other..................................................... 202 118 43
----- ----- -----
Total results from financial transactions................. 1,291 1,054 530
===== ===== =====
</TABLE>
Results from financial transactions in 1997 increased by NLG 237 million or
22.5% as compared to 1996, when results from financial transactions increased by
NLG 524 million, approximately twice 1995 levels. The favorable performance of
various stock exchanges, particularly the AEX Stock Exchange in Amsterdam,
strongly boosted results from equity trading in both 1996 and 1997. Results from
bond trading, particularly in eurobonds and Dutch government bonds, also
improved in both 1996 and 1997. Foreign exchange dealing results decreased by
NLG 38 million or 19.4% in 1997 as compared to 1996. Foreign exchange dealing
results increased by NLG 78 million or 66.1% in 1996 as compared to 1995.
Revenue from derivatives trading in 1997 was again a record NLG 290 million in
1997, up NLG 119 million or 69.6% from 1996's levels of NLG 171 million, as the
Bank benefited from its expanded operations and favorable market conditions in
both years.
Other results from financial transactions were NLG 84 million or 71.2%
higher in 1997 than in 1996, when other results from financial transactions
increased NLG 75 million from 1995. Favorable market conditions permitted the
sale of a significant number of equity participations. In 1997, revenue from the
LDC debt trading portfolio declined, however, by NLG 73 million. The sizable
market correction in the emerging markets, which began in Asia, caused other
results from financial transactions to be lower than expected.
Other Revenue
Other revenue rose by NLG 214 million or 137% to NLG 370 million in 1997
following 1996's increase of NLG 22 million or 16.4% as the Bank experienced
higher profits from participating interests and higher dividends from the equity
investment portfolio. 1997 results also reflect favorable returns on the sale of
several minority interests.
73
<PAGE> 78
Operating Expenses
The following table sets forth the operating expenses and the components
thereof for the IB&GC Division for each of the three most recently completed
years.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Staff costs............................................... 1,766 1,188 858
Other administrative expenses............................. 1,107 776 458
Depreciation.............................................. 146 91 67
----- ----- -----
3,019 2,055 1,383
===== ===== =====
</TABLE>
Operating expenses in 1997 totaled NLG 3,019 million, an increase of NLG
964 million or 46.9% as compared to 1996. Operating expenses were increased by a
provision of NLG 53 million for the adaptation of computer systems for the Euro
and the year 2000 and by the effect of higher exchange rates. Excluding this
non-recurring item and assuming unchanged exchange rates, operating expenses
increased NLG 714 million or 34.7% in 1997 over 1996 levels. Continued expansion
of ABN AMRO's investment banking activities resulted in a 20% rise in the
full-time equivalent workforce and higher total bonuses. Substantial capital
expenditures were made in information technology during 1997, particularly to
accommodate growth of the London-based investment banking business.
Operating expenses increased NLG 672 million or 48.6% in 1996 over 1995
levels to NLG 2,055 million. Operating expenses were increased by a provision of
NLG 60 million for the adaptation of computer systems for the Euro and the Year
2000 and the effect of changes in exchange rates. Excluding this non-recurring
item and assuming unchanged exchange rates, operating expenses increased NLG 547
million or 37.8% in 1996 over 1995 levels. The increase in 1996 reflects the
rise in the full-time equivalent workforce at the securities subsidiaries and
higher bonuses as a result of strong operating performance.
Provision for Loan Losses and Value Adjustments to Financial Fixed Assets
Provision for loan losses decreased NLG 21 million or 27.6% in 1997 to NLG
55 million, following 1996's increase of NLG 42 million or 124% to NLG 76
million. Risk-weighted assets of the IB&GC Division totaled NLG 63 billion and
NLG 48 billion at December 31, 1997 and December 31, 1996. Value adjustments to
financial fixed assets contributed NLG 28 million to the IB&GC Division's 1996
net profit as compared to a cost of NLG 30 million in 1995, as a charge
associated with the decline in the market value of ABN AMRO's investment
portfolio during 1995 was reversed as a result of an increase in market values
during 1996.
74
<PAGE> 79
ABN AMRO LEASE HOLDING
The following table sets forth selected information pertaining to ABN AMRO
Lease Holding for each of the three most recently completed years.
<TABLE>
<CAPTION>
1997(1) 1996(1) 1995(1)
-------- -------- --------
(IN MILLIONS OF NLG EXCEPT STAFF
AND OFFICES AND BRANCHES)
<S> <C> <C> <C>
Net interest revenue................................... 358 326 299
Net commissions........................................ 169 150 136
Other revenue.......................................... 357 284 247
------ ------ ------
Total revenue.......................................... 884 760 682
Operating expenses..................................... 635 530 475
Provision for loan losses.............................. 10 21 11
------ ------ ------
Operating profit before taxes.......................... 239 209 196
====== ====== ======
Total assets........................................... 12,275 10,504 9,237
Risk-weighted assets................................... 11,676 10,101 8,774
Full-time equivalent staff............................. 3,619 3,406 3,169
Number of offices and branches......................... 30 29 29
</TABLE>
- ---------------
(1) This selected financial information may differ from published financial
statements of ABN AMRO Lease Holding as the data above have been adjusted
to reflect the elimination of intercompany transactions.
Operating profit before taxes have improved in each of the last two years.
In 1997, operating profits increased 14.4% following 1996's increase of 6.6%.
The leasing portfolio grew 19.6% in 1997 from NLG 9.2 billion at December 31,
1996 to NLG 11.0 billion at December 31, 1997. In 1996, operating profit before
taxes increased NLG 13 million or 6.6%. In The Netherlands, results before
provision for loan losses and taxes were slightly up from 1995 levels. Outside
The Netherlands, results before provision for loan losses and taxes improved NLG
18 million over 1995 to NLG 127 million, with ABN AMRO Lease Holding benefitting
from favorable economic conditions in the United States and other countries.
ABN AMRO Lease Holding's main activity, fleet leasing, realized an increase
in operating profit in 1996 and 1997. The number of vehicles under management
has increased steadily, from 306,000 in 1995 to 345,000 in 1996 and to 394,000
in 1997. In 1996 and 1997, equipment leasing in The Netherlands and the United
States, ABN AMRO Lease Holding's principal markets for equipment leasing,
developed favorably. At December 31, 1997, the lease portfolio was composed 73%
of fleet and truck leasing and 27% of equipment leasing. Approximately
two-thirds of the vehicle fleet was outside The Netherlands.
RECONCILIATION OF NET PROFIT UNDER U.S. GAAP
Net profit for the year ended December 31, 1997 in accordance with U.S.
GAAP was NLG 383 million lower than net profit in accordance with Dutch GAAP.
The reduction was principally the net result of (i) a charge of NLG 427 million
(of which NLG 334 million related to North American acquisitions) for goodwill
amortization associated with acquisitions by ABN AMRO (under Dutch GAAP, all
goodwill is written off at the time of acquisition), (ii) higher pension costs
of NLG 86 million associated with the absence of charges under Dutch GAAP for
pension costs as a result of strong pension fund investment results and (iii)
the tax effects of the reconciliation adjustments, offset in part by an increase
in net gains from securities available for sale of NLG 335 million relating to
differences in accounting for realized gains and losses in investment
portfolios. Operating profit before taxes for North American operations for the
year ended December 31, 1997 in accordance with U.S. GAAP would have been NLG
334 million lower than operating profit before taxes under Dutch GAAP giving
effect only to the charges under U.S. GAAP for goodwill amortization for North
American acquisitions.
75
<PAGE> 80
Net profit for the year ended December 31, 1996 in accordance with U.S.
GAAP was NLG 302 million higher than net profit in accordance with Dutch GAAP.
The increase was principally the net result of (i) an increase in net interest
revenue and net gains from securities available for sale of NLG 449 million
relating to differences in accounting for realized gains and losses in
investment portfolios, (ii) the elimination of charges of NLG 234 million
associated with certain contingencies, such as the provision for the adaptation
of computer systems for the Euro and for the Year 2000, which under U.S. GAAP
are not permitted to be taken until the event or expenditure has actually
occurred, (iii) an increase in results from financial transactions of NLG 110
million attributable to differences in valuation of derivatives transactions
conducted on behalf of clients and held to maturity and the offsetting
derivatives positions, and (iv) the allocation to net profit of NLG 101 million
of the 1996 addition of NLG 146 million to the Provision for general
contingencies with the balance being allocated to the Fund for general banking
risks reduced by (x) a charge of NLG 287 million (of which NLG 139 million
related to North American acquisitions) for goodwill amortization associated
with acquisitions by ABN AMRO and (y) the tax effects of the reconciliation
adjustments. Operating profit before taxes for North American operations for the
year ended December 31, 1996 in accordance with U.S. GAAP would have been NLG
224 million lower than operating profit before taxes in accordance with Dutch
GAAP giving effect only to the charges under U.S. GAAP for goodwill amortization
for North American acquisitions and for the one-time payment to SAIF of USD 50
million provided for by ABN AMRO under Dutch GAAP in 1995.
CAPITAL RESOURCES
The following table shows ABN AMRO's capital at December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Ordinary Share capital................................. 1,763 1,715 1,569
Preference Share capital............................... 1,813 1,813 1,813
Convertible Preference Shares.......................... 10 20 100
------ ------ ------
3,586 3,548 3,482
Ordinary Share premium reserves........................ 5,215 5,061 3,606
Convertible Preference Share premium reserves.......... 121 234 1,159
Other reserves......................................... 16,923 16,133 12,003
------ ------ ------
Shareholders' equity................................... 25,845 24,976 20,250
Minority interests..................................... 4,527 2,105 1,525
------ ------ ------
Group equity........................................... 30,372 27,081 21,775
Fund for general banking risks......................... 2,483 2,000 --
Subordinated debt...................................... 20,101 15,309 11,701
------ ------ ------
Group capital.......................................... 52,956 44,390 33,476
====== ====== ======
</TABLE>
Group capital at year-end 1997 totaled NLG 52,956 million, up NLG 8,566
million or 19.3% from year-end 1996. Shareholders' equity, one of the components
of group capital grew by NLG 869 million or 3.5% to NLG 25,845 million. Retained
earnings and stock dividends (NLG 3,063 million), the exercise of staff options
and the conversion of Convertible Preference Shares (combined value of NLG 79
million), the reduction in treasury stock (NLG 231 million), and currency
translation profits on capital investments in operations abroad (NLG 212
million, in spite of Asian currencies falling sharply towards the end of the
year) led to an increase of NLG 3,585 million, which was partially offset by a
goodwill charge of NLG 2,706 million under Dutch GAAP, largely related to the
acquisition of Standard Federal and, to a lesser extent, the acquisitions of
Chicago Corporation, Banque Demachy and Banque du Phenix.
76
<PAGE> 81
With respect to the 1997 interim dividend, 63% of ordinary shareholders
opted for the stock dividend, leading to the issue of 11.9 million shares at NLG
39.22, representing a total value of NLG 466 million. The 1997 final dividend,
which will be payable in May 1998, will involve the payment of up to
approximately NLG 565 million in stock, if 60% of ordinary shareholders elect to
receive dividends in stock rather than cash.
Minority interests increased NLG 2,422 million principally as a result of
preferred stock issued by ABN AMRO's U.S. affiliates totaling $925 million and
higher exchange rates.
In addition to specific allowances for loan losses and country risk,
effective January 1, 1997, ABN AMRO established a Fund for general banking
risks, of NLG 2,000 million. During 1997, this Fund increased to NLG 2,483
million. This increase was related to risks entailed by the Asian crisis and
higher risk-weighted total assets and was composed of a charge to the income
statement of NLG 257 million after tax, exchange rate differences of NLG 151
million and provisions of companies acquired of NLG 75 million.
In 1997, subordinated debt increased by NLG 4.8 billion or 31.3%
principally through the issuance of new subordinated debt of NLG 3.8 billion, of
which $0.9 billion was U.S. dollar-denominated instruments issued by the Bank's
Chicago Branch and NLG 1.7 billion was guilder-denominated. The NLG value of
subordinated debt rose by NLG 1.4 billion as a result of the stronger U.S.
dollar.
Group capital at December 31, 1996 amounted to NLG 44,390 million, up NLG
10,914 million or 32.6% as compared to December 31, 1995. Shareholders' equity
grew by NLG 4,726 million or 23.3% to NLG 24,976 million. Retained earnings, the
exercise of staff options and warrants, stock dividends, the reversal of the
revaluation reserve and conversions of Convertible Preference Shares and
currency translation gains in capital invested in operations abroad (NLG 364
million) led to an increase of NLG 3,675 million, which was partially offset by
goodwill write-offs (NLG 623 million) under Dutch GAAP relating primarily to the
acquisitions of Magyar Hitel Bank, Columbia National Bank and Comerica Bank
Illinois, and the increase in treasury stock (NLG 341 million).
In 1996, subordinated debt increased by NLG 3,608 million or 30.8% to NLG
15,309 million principally through the issuance of U.S. dollar denominated
instruments by the Bank's Chicago branch. The NLG 580 million increase in
minority interests to NLG 2,105 million was related to the issuance of preferred
stock by one of ABN AMRO's U.S. affiliates, in anticipation of the Standard
Federal transaction, in addition to higher exchange rates.
For an analysis of ABN AMRO's shareholders' equity under U.S. GAAP see note
43 to the Consolidated Financial Statements.
ABN AMRO's overall capital resources policy is maintained with reference to
the supervisory requirements of the Dutch Central Bank, which applies a capital
ratio based on BIS guidelines as the principal measure of capital adequacy. Such
ratio compares a bank's capital, which is divided into three tiers, with its
assets and off balance sheet exposures weighted according to broad categories of
relative credit risk. The minimum total capital ratio standard is 8% of risk
weighted assets and the minimum Tier 1 capital ratio is 4% of risk weighted
assets.
At year-end 1997, ABN AMRO's Tier 1 capital ratio was 6.96%, its total
capital ratio was 10.65%, and the amount of subordinated loans included in Tier
2 capital was 49.4% of Tier 1 capital. Under BIS guidelines, the amount of
subordinated debt that may be included as Tier 2 capital is limited to 50% of
Tier 1 capital. The Dutch Central Bank has established minimum capital
requirements for the market and other risks associated with trading activities.
The capital adequacy requirement for this market risk at December 31, 1997 was
NLG 2.5 billion. The Dutch Central Bank permits the issuance of Tier 3 capital
in the form of subordinated loans with a maturity of two years or greater. The
Bank has issued $500 million of subordinated debt that qualifies as Tier 3
capital. See Item 1 -- "Description of Business -- Supervision and Regulation."
At year-end 1997, the total capital ratio and Tier 1 capital ratio of ABN AMRO
North America, Inc., the bank holding company for the LaSalle Group, were 10.92%
and 7.37%, respectively, as compared to 12.67% and 7.96%, respectively, at
December 31, 1996.
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<PAGE> 82
Risk-weighted assets at December 31, 1997 were NLG 459.8 billion, which is
NLG 70.5 billion or 18.1% higher than at December 31, 1996. The increase
resulted primarily from acquisitions, higher exchange rates and a substantial
increase in the overall loan portfolio. In order to improve capital ratios and
return on equity, a number of securitizations were completed in 1997 ($5.5
billion in the United States and NLG 2 billion in The Netherlands).
The following table analyzes the capital ratios of ABN AMRO at December 31,
1997, 1996 and 1995 in accordance with supervisory requirements.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------
1997 1996(1) 1995
------- ------- -------
(IN MILLIONS OF NLG
EXCEPT PERCENTAGES)
<S> <C> <C> <C>
Tier 1 capital...................................... 31,996 28,068 21,454
Tier 2 capital...................................... 16,734 13,660 14,385
Tier 3 capital...................................... 1,010 872 --
Supervisory deductions.............................. (750) (228) (237)
------- ------- -------
Total capital base.................................. 48,990 42,372 35,602
======= ======= =======
Risk-weighted assets
On balance sheet.................................... 336,148 291,247 267,974
Off balance sheet................................... 93,016 76,550 61,757
Market risks........................................ 30,641 21,471 --
------- ------- -------
Total risk-weighted assets.......................... 459,805 389,268 329,731
======= ======= =======
Tier 1 capital ratio................................ 6.96% 7.21% 6.51%
Total capital ratio................................. 10.65% 10.89% 10.80%
</TABLE>
- ---------------
(1) The effect of transformation of the Provision for general contingencies as
at January 1, 1997 is included in these figures.
For a discussion of liquidity, see Item 1 -- "Description of Business Risk
Management -- Liquidity Risk."
CONSOLIDATED BALANCE SHEET
Consolidated total assets at December 31, 1997 were up NLG 237 billion or
39.6% over year-end 1996. The international network's contribution to total
assets at year-end 1997 was NLG 478 billion or 57% compared to NLG 296 billion
or 49% at the end of 1996. This growth was achieved mainly in the United States,
and reflected acquisitions, higher exchange rates and loan volume growth.
Excluding the effect of acquisitions and higher exchange rates, total
international assets increased NLG 120 billion or 40.5% over year-end 1996.
Total assets in The Netherlands, including the Netherlands-based Eurodeposit
business, were NLG 359 billion at December 31, 1997 against NLG 303 billion at
year-end 1996, reflecting loan volume growth.
LOANS
Loans increased by NLG 112 billion or 33.7% to NLG 443 billion at December
31, 1997. Private sector loans, excluding professional securities transactions,
increased 20.6% to NLG 359 billion. Short-term advances against securities
increased by NLG 51 billion. These consisted mainly of reverse repurchase
agreements which are characterized by a low risk profile and which fluctuate
significantly in volume over the year. This increase in reverse repurchase
agreements is largely from foreign securities subsidiaries and reflects
acquisitions. Loans to the public sector declined by NLG 1 billion to NLG 15
billion.
78
<PAGE> 83
In The Netherlands, private sector loans rose by 10.9% to NLG 174.6 billion
at December 31, 1997, particularly due to higher volumes of mortgage loans. Many
homeowners refinanced their mortgage loans in order to take advantage of the low
interest rates or to cash in on the increase in housing prices in recent years.
Outside The Netherlands, private sector loans increased by NLG 44 billion
or 31.4% to NLG 185 billion at December 31, 1997, of which NLG 6 billion was
attributable to higher exchange rates. Private sector loans increased in the
U.S. with the inclusion of Standard Federal. The remaining growth in lending
mainly related to consumer credit in Brazil and structured finance in Australia.
LIQUID ASSETS AND INVESTMENTS
In 1997 liquid assets and investments rose by an aggregate NLG 63.4 billion
or 86% over 1996 year-end levels. The increase in The Netherlands was NLG 21.4
billion or 65.2%. The Bank increased its bond investment portfolio by NLG 13.4
billion as part of the Bank's liquidity and interest rate policy. In addition,
the portfolio duration was extended on the basis of the favorable outlook on
long-term interest rates. The international network experienced a rise of NLG 42
billion in liquid assets and investments with higher exchange rates having a
positive effect of NLG 9 billion. The bond investment portfolio was NLG 15.2
billion higher while short-dated government paper rose by approximately NLG 19.5
billion.
TOTAL CUSTOMERS ACCOUNTS
Total customer account balances increased NLG 120 billion or 43.4% to NLG
397 billion at December 31,1997 as compared to December 31, 1996.
With Dutch money market interest rates remaining low, the volume of time
deposits declined. These funds were partly diverted to current accounts and
partly to products earning interest savings market-related rates. Customers
showed a marked preference for demand deposits.
Total customer account balances outside The Netherlands increased by NLG
103 billion or 85.8% to NLG 223 billion at December 31, 1997. This includes NLG
43 billion growth in professional securities transactions, the effect of
acquisitions, notably Standard Federal, of NLG 26 billion, and the effect of
higher exchange rates of NLG 15 billion.
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth in Item 1 -- "Description of Business -- Risk
Management" and in Note 24 to the Consolidated Financial Statements are
incorporated herein by this reference.
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Holding is a public company with limited liability incorporated under the
laws of The Netherlands to which the rules for large companies, as set out in
Sections 152 to 164 inclusive of Book 2 of the Dutch Civil Code (the "Large
Company Rules"), apply. Under the Large Company Rules, companies must have a
two-tier system of corporate governance, comprising a supervisory board and
managing board. The supervisory board supervises the policy conducted by the
managing board, as well as the company's general course of affairs and its
business.
Under the Large Company Rules, the day to day management of ABN AMRO is
vested with the Managing Board. Subject to certain statutory exemptions, the
following powers, among others, are vested in the Supervisory Board by the Large
Company Rules: (i) appointment of the members of the Supervisory Board; (ii)
appointment and dismissal of the members of the Managing Board; (iii) adoption
of the annual accounts; and (iv) approval of certain resolutions by the Managing
Board. In performing their duties, members of the Supervisory Board must
consider the interests of the company and its business.
Holding's Supervisory Board is an independent and self-appointing entity.
The Supervisory Board appoints a chairman from among its members. It also
appoints a secretary, who may or may not be a member
79
<PAGE> 84
of the Supervisory Board. Persons employed by Holding or an affiliated company
cannot be appointed as Supervisory Board members.
Supervisory Board members are appointed for a term of four years and may be
re-appointed thereafter. Members of the Supervisory Board have agreed to retire
by the day on which the annual general meeting of Shareholders is held in the
financial year in which he or she reaches the age of seventy.
The remuneration of each member of the Supervisory Board is determined by
the Supervisory Board, subject to approval by the general meeting of
shareholders.
The members of the Supervisory Board of Holding as of December 31, 1997
were as follows:
<TABLE>
<CAPTION>
YEAR OF
NAME APPOINTMENT PRINCIPAL OCCUPATION
- ---- ----------- --------------------
<S> <C> <C>
A.A. Loudon............................... 1994 Former Chairman of the Managing Board of
Chairman AKZO Nobel N.V.
F.H. Fentener van Vlissingen.............. 1974 Managing Director of Flint Holding N.V.
Vice-Chairman
J.J.J. van Dijck.......................... 1979 Professor of Industrial and Organizational
Sociology, Catholic University Brabant
Mrs. M. Epema-Brugman..................... 1985 Former Chairman of Algemene Energieraad
(AER)
H.B. van Liemt............................ 1986 Former Chairman of the Managing Board of
N.V. DSM
J.J. Endtz................................ 1987 Former President of the Managing Board of
Hollandsche Beton Group N.V. (HBG)
W. Overmars............................... 1990 Former Chairman of Group Management of
Campina Melkunie B.V.
R.J. Nelissen............................. 1992 Former Chairman of the Managing Board of
Holding and ABN AMRO Bank N.V.
W. Dik.................................... 1993 Chairman of the Managing Board of
Koninklijke PTT Nederland N.V. (KPN)
J.M.H. van Engelshoven.................... 1993 Former Group Director of Royal Dutch Shell
Group
R. Hazelhoff.............................. 1994 Former Chairman of the Managing Board of
Holding and ABN AMRO Bank N.V.
S. Keehn.................................. 1996 Former President of the Federal Reserve
Bank of Chicago
J.R.P. Messier............................ 1996 Chief Executive Officer and Chairman of the
Executive Committee of Compagnie Generale
des Eaux S.A.
C.H. van der Hoeven....................... 1997 President of the Managing Board of
Koninklijke Ahold N.V.
M.C. van Veen............................. 1997 Chairman of the Managing Board of
Koninklijke Hoogovens N.V.
</TABLE>
80
<PAGE> 85
The members of the Managing Board of Holding as of December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
YEAR OF
NAME APPOINTMENT PRINCIPAL OCCUPATION
- ---- ----------- --------------------
<S> <C> <C>
P.J. Kalff................................ 1977 Chairman of the Managing Board
M.J. Drabbe............................... 1983 International Division
P. Ribourdouille(1)....................... 1985 Netherlands Division
R.W.J. Groenink........................... 1988 Netherlands Division
R.W.F. van Tets........................... 1988 IB&GC Division
J.M. de Jong.............................. 1989 Risk Management Division
W.G. Jiskoot.............................. 1997 IB&GC Division
R.G.C. van den Brink...................... 1997 Resources Management Division
</TABLE>
- ---------------
(1) Mr. Ribourdouille is scheduled to retire on May 6, 1998.
The senior executive vice presidents of the Bank as of December 31, 1997
were as follows:
<TABLE>
<CAPTION>
YEAR OF
NAME APPOINTMENT PRINCIPAL OCCUPATION
- ---- ----------- --------------------
<S> <C> <C>
W.M. ten Berg............................. 1985 Planning and Control
J.J. Oyevaar.............................. 1985 International Division
A.J. Deknatel............................. 1986 Risk Management Division
J.J. Kamp................................. 1986 Netherlands Division
W. Brounts................................ 1986 Risk Management Division
R.A. Kleyn................................ 1987 Resources Management Division
M.H. Reuchlin............................. 1989 International Division
F.I.A. Lion............................... 1990 Resources Management Division
H.J. Rutgers.............................. 1993 Netherlands Division
P.A. Casey................................ 1994 IB&GC Division
J. Koopman................................ 1994 International Division
J.C. ten Cate............................. 1996 Netherlands Division
C.H.A. Collee............................. 1996 Netherlands Division
G.P.J. Cornelissen........................ 1997 IB&GC Division
G. Kuyper................................. 1997 IB&GC Division
A.C. Tupker............................... 1997 IB&GC Division
D. Post................................... 1997 Resources Management Division
</TABLE>
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1997, the compensation paid to current and
former members of the Managing Board and senior executive vice presidents of the
Bank aggregated NLG 31.4 million, and for current and former members of the
Supervisory Board aggregated NLG 1.1 million.
As a result of the strong investment performance in the pension fund
portfolios, no amounts were set aside for pension benefits for current and
former members of the Managing Board and senior executive vice presidents of the
Bank pursuant to plans provided or contributed to by ABN AMRO for the year ended
December 31, 1997.
81
<PAGE> 86
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Holding has stock option programs under which employees of the Bank's
operating divisions and support functions located in The Netherlands may receive
stock option grants in lieu of cash profit-sharing or Christmas bonuses. In
addition, under a stock option program for senior management, each year a number
of options to acquire Ordinary Shares are granted to approximately 110 employees
of Holding and its domestic and foreign subsidiaries, including but not limited
to the members of the Managing Board and senior executive vice presidents of the
Bank, with the level of grants based on seniority. The exercise price of options
under these programs is equal to the average of the high and low quoted price of
the Ordinary Shares on the AEX Stock Exchange on the date of grant. Pursuant to
its stock option programs, Holding may issue new shares or shares purchased by
Holding in the open market. The options are fully vested on the date of grant
and are exercisable during specified "window periods" for a period of five
years. At December 31, 1997, outstanding options held by employees were as
follows:
<TABLE>
<CAPTION>
AVERAGE
YEAR OF EXPIRATION STAFF OPTIONS EXERCISE PRICE
------------------ -------------- --------------
(IN THOUSANDS) (IN NLG)
<S> <C> <C>
1998.................................................... 76 12.90
1999.................................................... 1,029 15.16
2000.................................................... 1,634 15.89
2001.................................................... 4,817 24.20
2002.................................................... 11,829 36.48
------ -----
19,385 30.47
====== =====
</TABLE>
At December 31, 1997, 3,893,100 Ordinary Shares were issuable upon the
exercise of options held as of such date by members of the Managing Board and
senior executive vice presidents of the Bank taken together as a group.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
There were no material contracts in which members of the Managing Board or
the senior executive vice presidents of the Bank had any interest during 1997.
Loans to members of the Managing Board and to members of the Supervisory Board
totaled NLG 11.4 million and NLG 11.0 million, respectively, at December 31,
1997. As described under Item 10 -- "Directors and Officers of Registrant",
certain members of the Supervisory Board are current and former senior
executives of leading multinational corporations based primarily in The
Netherlands. Members of the ABN AMRO group may at any time have lending,
investment banking or other financial relationships with one or more of these
corporations in the ordinary course of business on terms which Holding believes
are no less favorable to the ABN AMRO group than those reached with unaffiliated
parties of comparable creditworthiness.
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not required in this Report.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
Not Applicable.
82
<PAGE> 87
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-54.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
(A) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Accounting Policies......................................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1997... F-7
Consolidated Income Statements for the years ended December
31, 1995, 1996 and 1997................................... F-8
Consolidated Cash Flow Statements for the years ended
December 31, 1995, 1996 and 1997.......................... F-9
Consolidated Changes in Shareholders' Equity for the years
ended December 31, 1995, 1996 and 1997.................... F-10
Notes to the Consolidated Financial Statements.............. F-11
</TABLE>
(B) INDEX TO EXHIBITS:
Not applicable.
83
<PAGE> 88
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ABN AMRO HOLDING N.V.
(Registrant)
By: /s/ O.L.A.M. SPAAN
------------------------------------
Name: O.L.A.M. Spaan
Title: Principal Accounting Officer
By: /s/ C.F. VAN DER JAGT
------------------------------------
Name: C.F. van der Jagt
Title: Secretary to the Managing
Board
Date: April 20, 1998
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
ABN AMRO BANK N.V.
(Registrant)
By: /s/ O.L.A.M. SPAAN
------------------------------------
Name: O.L.A.M. Spaan
Title: Principal Accounting Officer
By: /s/ C.F. VAN DER JAGT
------------------------------------
Name: C.F. van der Jagt
Title: Secretary to the Managing
Board
Date: April 20, 1998
84
<PAGE> 89
FINANCIAL STATEMENTS 1997
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Accounting Policies......................................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1997... F-7
Consolidated Income Statements for the years ended December
31, 1995, 1996 and 1997................................... F-8
Consolidated Cash Flow Statements for the years ended
December 31, 1995, 1996 and 1997.......................... F-9
Consolidated Changes in Shareholders' Equity for the years
ended December 31, 1995, 1996 and 1997.................... F-10
Notes to the Consolidated Financial Statements.............. F-11
</TABLE>
F-1
<PAGE> 90
REPORT OF INDEPENDENT AUDITORS
The Supervisory Board and the Managing Board of
ABN AMRO Holding N.V.
We have audited the accompanying consolidated balance sheets of ABN AMRO
Holding N.V. and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which do not differ in any material respect from
auditing standards generally accepted in the United States of America. These
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of ABN AMRO Holding N.V. and subsidiaries as of December 31, 1996 and
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with accounting principles generally accepted in The Netherlands.
Accounting principles generally accepted in The Netherlands vary in certain
significant respects from accounting principles generally accepted in the United
States of America. Application of accounting principles generally accepted in
the United States of America would have affected shareholders' equity as of
December 31, 1996 and 1997, and the net profits for each of the three years in
the period ended December 31, 1997 to the extent summarized in note 43 to the
Consolidated Financial Statements.
Amsterdam, The Netherlands
March 31, 1998
/s/ Moret Ernst & Young
Moret Ernst & Young Accountants
F-2
<PAGE> 91
ACCOUNTING POLICIES
GENERAL
The Consolidated Financial Statements have been prepared in conformity with
generally accepted accounting principles in The Netherlands. Where necessary to
conform to these principles, management has made estimates and assumptions that
affect the amounts reported in the Consolidated Financial Statements and
accompanying notes. Actual results could differ from those estimates.
BASIS OF CONSOLIDATION
The Consolidated Financial Statements incorporate the assets, liabilities,
revenues and expenses of ABN AMRO Holding N.V., its subsidiaries and other group
companies that form an organizational and economic entity with it. Minority
interests in the equity and results of subsidiaries and other group companies
are stated separately.
CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and financial
instruments hedging these assets and liabilities are translated into Netherlands
guilders at the spot rates of exchange prevailing at balance sheet date.
Translation differences on positions are taken to the income statement. Apart
from capital investments in hyper-inflationary countries, translation
differences on capital investments in foreign branches, subsidiaries and
participating interests, including retained profit, are accounted for in
shareholders' equity together with the results from related hedging instruments,
after allowing for taxation.
Results denominated in foreign currencies are translated at the rates
prevailing at transaction date or, insofar as accruals and deferrals are
involved, on the last day of the month to which the results relate. Results of
foreign branches, subsidiaries and participating interests, apart from those in
hyper-inflationary countries, are translated at the rates prevailing at the end
of the month in which the results are recognized. The results from branches,
subsidiaries and participating interests in hyper-inflationary countries are
translated at the rates prevailing at balance sheet date, after restating the
local currency results for the effects of inflation.
VALUATION AND DETERMINATION OF RESULTS
GENERAL
Except where otherwise stated, assets and liabilities are recorded at cost.
Assets are shown less any allowance deemed necessary. Premiums and discounts are
accounted for in prepayments and accrued income or accruals and deferred income,
respectively, and are attributed to the accounting periods throughout the
remaining terms of the underlying items.
Except for items forming part of the trading portfolio, interest-earning
and interest-bearing securities on which a large part or all of the interest
receivable or payable is settled on redemption are included at either purchase
price, or discounted value on issue, plus accrued interest.
Non-marketable shares acquired for investment banking activities are stated
at their purchase price, or at a lower value, if an impairment in value has been
deemed to occur.
Where financial instruments are used to hedge risks associated with
designated assets or liabilities, the valuation and determination of results on
these instruments are effected in accordance with the policies applied to the
hedged items. Transactions are qualified as hedges if the position to be hedged
is identified as such and there is a negative correlation between the hedging
results and the results of the positions being hedged. Gains or losses on the
early termination of a hedge are recognized as assets or liabilities and
amortized over the remaining terms of the hedged positions. Where financial
instruments are used to hedge risks associated with designated assets or
liabilities and the hedged assets or liabilities are sold or terminated, such
hedges are simultaneously terminated, restructured or offset. Resulting realized
or unrealized gains or losses on the settlement of the hedge are accounted for
in the same period as gains or losses on the settlement of the
F-3
<PAGE> 92
hedged position. For accounting policies relating to other financial instruments
see "Accounting Policies -- Validation and Determination of Results -- Trading
Activities".
Revenues and expenses are recognized in the year to which they relate.
In calculating the effective tax rate, the addition to the Fund for general
banking risks is treated as an expense.
LOANS
Loans are generally shown at the principal amount. Loans are classified as
doubtful as soon as there is any doubt about the borrower's capacity to repay
the principal. Where necessary, an allowance for loan losses is applied.
Allowances for loan losses are determined on a statistical basis in conformity
with the nature of the underlying loan or per item, taking into account the
value of collateral. The value of LDC receivables is assessed on a country by
country basis. The allowances are recognized in provision for loan losses in the
income statement.
As soon as the loan liquidation procedure is started, ABN AMRO ceases to
accrue interest on the loan in question ("non-accrual loans"). Depending on the
chances of the principal being repaid, interest is recorded in the income
statement only when interest is actually received ("other non-performing loans")
or in accordance with the standard method of valuation ("accruing doubtful
loans"). Doubtful loans are not written off until it is clear that repayment of
principal can be ruled out.
TRADING ACTIVITIES
Securities, including shares, held in the trading portfolios are stated at
market value. Debentures of ABN AMRO group companies, acquired as part of
trading activities, are stated at the lower of market value and purchase price.
Foreign exchange contracts, stock, bond, currency and other options, as well as
interest rate contracts such as interest rate swaps and forward rate agreements
are stated at market value. The aggregate market value of these contracts is
included in other assets or other liabilities. Gains or losses resulting from
the method of valuation described are recognized in the income statement in
results from financial transactions.
FINANCIAL AND OTHER FIXED ASSETS
INVESTMENTS
Interest-bearing securities (other than securities on which a large part or
all of the interest is settled on redemption) held in the investment portfolios
are stated at redemption value. Shares held in the investment portfolios are
included at market value, with changes in value, net of tax, reflected in
shareholders' equity. If the revaluation reserve formed in this manner is
insufficient to absorb diminutions in value, they will be charged to the income
statement in value adjustments to financial fixed assets. Net capital gains on
interest-bearing securities forming part of the investment portfolios realized
prior to redemption date in connection with replacement operations are
recognized as interest over the remaining average portfolio duration.
SHARES FOR INVESTMENT BANKING ACTIVITIES
Equity investments, i.e. shares acquired for investment banking activities,
are stated at purchase price or sustained lower market value.
PARTICIPATING INTERESTS
Participating interests in which ABN AMRO Holding or its subsidiaries have
a significant influence on commercial and financial policy are stated at net
asset value determined in conformity with the policies applied in these
Financial Statements. In accordance with these policies, movements in net asset
value are recorded in shareholders' equity, such as in the case of revaluations
and goodwill, or in the income statement. Tax payable on distributions is taken
into account at the moment of the decision to make a distribution.
F-4
<PAGE> 93
Other participating interests, consisting principally of equity investments
in companies in related lines of business, are shown at estimated proceeds from
sale. Movements in value, net of tax, are recorded in shareholders' equity. If
the revaluation reserve formed in this manner is insufficient to absorb
diminutions in value, such diminutions will be charged to the income statement
in value adjustments to financial fixed assets.
Goodwill arising from the acquisition of participating interests is charged
to shareholders' equity.
PROPERTY AND EQUIPMENT
Premises used in operations, including land, are stated at current value
based on replacement cost. The buildings and the fixtures and fittings are fully
depreciated by the straight-line method over their estimated useful life with a
maximum of fifty years. Movements in value, net of tax, are credited or charged
to shareholders' equity. Capital expenditures on rented premises are capitalized
and also depreciated on a straight-line basis, taking into account the term of
the lease. Property held for sale is stated at the lower of cost, including
interest during construction, and the estimated proceeds from sale.
Equipment, computer installations and software bought from third parties
are stated at cost less straight-line depreciation over the estimated useful
life.
Marketable rights relating to loan servicing activities are capitalized at
the lower of cost and estimated proceeds from sale, and amortized over the
estimated useful life.
PROVISIONS
For the employees in The Netherlands and the majority of staff employed
outside The Netherlands, pension or other retirement plans have been established
in accordance with the regulations and practices of the countries in question.
Most of these plans are administered by separate pension funds or third parties.
The contributions paid are charged to the income statement each year. The amount
of the contribution takes account of increases in pension rights in line with
the development of wages and inflation, as well as of the return achieved by the
pension funds in excess of the actuarial interest rate, which is currently 4% in
The Netherlands.
Self-administered pension plan commitments, which are relatively small,
provisions for severance arrangements and provisions for life and non-life
insurance commitments are computed on the basis of actuarial assumptions.
Deferred tax liabilities are determined on the basis of discounted value.
The other provisions for commitments and risks are included at face value.
CHANGE IN ACCOUNTING POLICIES
Effective from January 1, 1997, the provision for general contingencies was
partly transformed into a fund for general banking risks, which forms part of
group capital. The remainder of the provision for general contingencies was
transferred to the general reserve. For comparison purposes the figures for 1996
have been restated.
The Fund for general banking risks covers general risks associated with
lending and other banking activities. The addition to the Fund is recognized in
the income statement and determined according to the required level of the Fund
on the basis of management's evaluation of the risks involved. Taxation on
movements is charged to the Fund.
F-5
<PAGE> 94
STOCK SPLIT
At the 1997 Annual General Meeting of Shareholders held on May 7, 1997, the
shareholders approved a proposal to effect a four-for-one split of the Ordinary
Shares to reduce the nominal value of each Ordinary Share from NLG 5 to NLG
1.25, and to provide for the Priority Share and each Preference Share and
Convertible Preference Share to have four votes. The stock split and other
proposals were effected on May 12, 1997 pursuant to an amendment to the Articles
of Association of ABN AMRO Holding. All share capital and Ordinary Share data as
well as all figures per Ordinary Share have been restated in accordance with the
stock split.
F-6
<PAGE> 95
CONSOLIDATED BALANCE SHEET AFTER PROFIT APPROPRIATION
<TABLE>
<CAPTION>
NOTES 1997 1996
----- ------- -------
(IN MILLIONS OF
NLG)
<S> <C> <C> <C>
ASSETS
Cash........................................................ 1 8,408 3,709
Short-dated government paper................................ 2,5 25,451 5,998
Banks....................................................... 3 140,185 120,278
Loans to public sector.................................... 14,894 16,135
Loans to private sector................................... 428,284 315,465
------- -------
Loans....................................................... 4 443,178 331,600
Interest-earning securities................................. 5 165,294 101,414
Shares...................................................... 5 18,943 8,795
Participating interests..................................... 6 2,123 1,664
Property and equipment...................................... 7 8,525 7,056
Other assets................................................ 8 7,196 5,999
Prepayments and accrued income.............................. 9 17,138 12,760
------- -------
836,441 599,273
======= =======
LIABILITIES
Banks....................................................... 10 208,466 157,587
Savings accounts.......................................... 124,877 92,994
Deposits and other customer accounts...................... 271,817 183,724
Total customer accounts..................................... 11 396,694 276,718
Debt securities............................................. 12 90,595 74,413
Other liabilities........................................... 8 56,367 24,147
Accruals and deferred income................................ 9 17,900 11,884
Provisions.................................................. 13 13,463 10,134
------- -------
783,485 554,883
Fund for general banking risks.............................. 14 2,483 2,000
Subordinated debt........................................... 15 20,101 15,309
Shareholders' equity...................................... 16 25,845 24,976
Minority interests........................................ 17 4,527 2,105
------- -------
Group equity................................................ 30,372 27,081
Group capital............................................... 52,956 44,390
------- -------
836,441 599,273
======= =======
Contingent liabilities...................................... 23 68,511 61,742
Committed facilities........................................ 158,095 116,496
</TABLE>
F-7
<PAGE> 96
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
NOTES 1997 1996 1995
----- -------- -------- --------
(IN MILLIONS OF NLG EXCEPT SHARE
DATA)
<S> <C> <C> <C> <C>
REVENUE
Interest revenue....................................... 45,827 38,579 36,301
Interest expense....................................... 31,956 27,053 26,064
------ ------ ------
NET INTEREST REVENUE..................................... 26 13,871 11,526 10,237
Revenue from securities and participating interests...... 27 630 256 197
Commission revenue..................................... 7,018 5,437 4,519
Commission expense..................................... 746 481 335
------ ------ ------
Net commissions.......................................... 28 6,272 4,956 4,184
Results from financial transactions...................... 29 2,436 1,882 1,198
Other revenue............................................ 30 559 471 389
------ ------ ------
TOTAL NON-INTEREST REVENUE............................... 9,897 7,565 5,968
TOTAL REVENUE............................................ 39 23,768 19,091 16,205
EXPENSES
Staff costs............................................ 31 8,653 7,140 6,194
Other administrative expenses.......................... 32 6,571 4,795 3,914
------ ------ ------
Administrative expenses.................................. 15,224 11,935 10,108
Depreciation............................................. 33 1,194 994 827
------ ------ ------
OPERATING EXPENSES....................................... 16,418 12,929 10,935
Provision for loan losses................................ 34 1,205 1,254 722
Addition to fund for general banking risks............... 35 395 146 678
Value adjustments to financial fixed assets.............. 36 (36) (31) 29
------ ------ ------
TOTAL EXPENSES........................................... 17,982 14,298 12,364
OPERATING PROFIT BEFORE TAXES............................ 5,786 4,793 3,841
Taxes.................................................... 37 1,661 1,349 1,124
------ ------ ------
GROUP PROFIT AFTER TAXES................................. 4,125 3,444 2,717
Minority interests....................................... 38 272 141 101
------ ------ ------
NET PROFIT............................................... 44 3,853 3,303 2,616
====== ====== ======
Net profit per Ordinary Share............................ 2.64 2.31 1.92
Fully diluted net profit per Ordinary Share.............. 2.61 2.28 1.83
Dividend per Ordinary Share.............................. 1.20 1.05 0.90
</TABLE>
F-8
<PAGE> 97
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Group profit............................................. 4,125 3,444 2,717
Depreciation property and equipment...................... 1,194 994 827
Provision for loan losses/addition to fund............... 1,600 1,400 1,400
Increase in provisions................................... 167 243 495
Increase in accrued interest receivable.................. (4,072) (710) (2,688)
Increase (decrease) in accrued interest payable.......... 3,394 (585) 2,277
Increase (decrease) in current income taxes payable...... (166) 564 285
Other accruals and deferrals............................. 1,461 65 97
Government paper and securities trading portfolios....... (23,537) (15,399) (3,907)
Other securities......................................... (29,802) (904) (4,551)
Banks, other than demand deposits........................ 30,198 25,550 14,360
Loans.................................................... (23,950) (34,469) (26,948)
Professional securities transactions (part of loans)..... (48,945) (6,851) (2,780)
Total customer accounts.................................. 36,108 13,844 12,266
Professional securities transactions (part of total
customer accounts)..................................... 42,839 5,018 118
Debt securities, excluding bonds and notes............... 5,517 5,002 11,088
Other assets and liabilities............................. 32,792 3,886 6,941
-------- -------- --------
Net cash flow from operations / banking activities....... 28,923 1,092 11,997
Purchase of securities for investment portfolios....... (117,466) (57,867) (38,935)
Sale and redemption of securities from investment
portfolios.......................................... 93,910 48,710 29,560
-------- -------- --------
Net outflow.............................................. (23,556) (9,157) (9,375)
Investments in participating interests................. (4,424) (1,038) (453)
Sale of investments in participating interests......... 2,789 182 47
-------- -------- --------
Net outflow.............................................. (1,635) (856) (406)
Capital expenditure on property and equipment.......... (2,258) (1,778) (1,365)
Sale of property and equipment......................... 376 349 238
-------- -------- --------
Net outflow.............................................. (1,882) (1,429) (1,127)
-------- -------- --------
Net cash flow from investment activities................. (27,073) (11,442) (10,908)
Increase in group equity................................. 2,887 691 286
Redemption of Preference Shares.......................... (515)
Issue of Subordinated debt............................... 3,689 4,012 1,734
Repayment of Subordinated debt........................... (300) (397) (329)
Issue of debenture loans and notes....................... 8,442 8,981 5,853
Repayment of debenture loans and notes................... (5,775) (5,043) (3,109)
Cash dividends paid...................................... (943) (1,097) (763)
-------- -------- --------
Net cash flow from financing activities.................. 7,485 7,147 3,672
-------- -------- --------
Increase (decrease) in liquid funds...................... 9,335 (3,203) 4,761
======== ======== ========
</TABLE>
For details refer to note 41.
F-9
<PAGE> 98
CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
ORDINARY SHARES
Opening Balance............................................. 1,715 1,569 1,516
Exercised options, rights and conversions................... 5 42 9
Conversion of Convertible Preference Shares................. 10 80
Issuance of stock dividends................................. 33 24 44
------ ------ ------
Closing Balance............................................. 1,763 1,715 1,569
------ ------ ------
PREFERENCE SHARES
Balance unchanged........................................... 1,813 1,813 1,813
------ ------ ------
CONVERTIBLE PREFERENCE SHARES
Opening Balance............................................. 20 100 100
Conversion.................................................. (10) (80)
------ ------ ------
Closing Balance............................................. 10 20 100
------ ------ ------
SHARE PREMIUM ACCOUNT RELATED TO ORDINARY SHARES
Opening Balance............................................. 5,061 3,606 3,567
Exercised options, rights and conversions................... 60 443 83
Conversion of Convertible Preference Shares................. 127 1,036
Issuance of stock dividends................................. (33) (24) (44)
------ ------ ------
Closing Balance............................................. 5,215 5,061 3,606
------ ------ ------
SHARE PREMIUM ACCOUNT RELATED TO CONVERTIBLE PREFERENCE
SHARES
Opening Balance............................................. 234 1,159 1,159
Conversion.................................................. (113) (925)
------ ------ ------
Closing Balance............................................. 121 234 1,159
------ ------ ------
GENERAL RESERVE AND STATUTORY RESERVE
Opening Balance............................................. 16,723 12,680 11,497
Retained profits............................................ 1,993 1,703 1,244
Retained dividend from stock dividends...................... 1,070 951 546
Reduction for goodwill...................................... (2,706) (623) (607)
Provision for general contingencies......................... 2,015
Other....................................................... 17 (3)
------ ------ ------
Closing Balance............................................. 17,097 16,723 12,680
------ ------ ------
REVALUATION RESERVES
Opening Balance............................................. 664 600 607
Revaluation................................................. (27) 64 (7)
------ ------ ------
Closing Balance............................................. 637 664 600
------ ------ ------
EXCHANGE DIFFERENCES RESERVE
Opening Balance............................................. (911) (1,275) (898)
Currency translation differences............................ 212 364 (377)
------ ------ ------
Closing Balance............................................. (699) (911) (1,275)
------ ------ ------
TREASURY STOCK, AT COST
Opening Balance............................................. (343) (2) (36)
Decrease (increase) in treasury stock....................... 231 (341) 34
------ ------ ------
Closing Balance............................................. (112) (343) (2)
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY.................................. 25,845 24,976 20,250
====== ====== ======
</TABLE>
F-10
<PAGE> 99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 CASH
This item includes legal tender and demand deposits with central banks in
countries in which ABN AMRO has a presence.
2 SHORT-DATED GOVERNMENT PAPER
This item includes securities issued by public authorities, such as
treasury paper, with original terms of two years or less, provided they can be
refinanced with a central bank.
3 BANKS (ASSETS)
This item includes receivables, including professional securities
transactions, from credit institutions, central banks and multilateral
development banks not already included in cash. Receivables in the form of
securities are included in interest-earning securities or shares.
4 LOANS AND CREDIT RISK
This item includes amounts receivable in connection with loans, including
professional securities transactions, insofar as they are not recognized in the
item Banks. Securitized receivables are included in interest-earning securities
or shares.
In granting facilities and loans, ABN AMRO incurs a credit risk, i.e. the
risk that the receivable will not be paid. This is related primarily to the
balance sheet items Banks, Loans and Interest-earning securities, and to
off-balance sheet items. Concentration of credit risk could result in a material
loss for ABN AMRO if a change in economic circumstances were to affect a whole
industry or country.
SECTOR ANALYSIS OF LOANS
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF
NLG)
<S> <C> <C>
Public sector............................................... 14,948 16,199
Commercial.................................................. 224,490 205,251
Retail...................................................... 141,233 97,822
Professional securities transactions........................ 69,131 17,731
Allowances for loan losses and cross border risks........... (6,624) (5,403)
------- -------
Loans....................................................... 443,178 331,600
======= =======
</TABLE>
F-11
<PAGE> 100
Collateral for private sector loans
Collateral is frequently demanded in connection with lending operations.
The following table analyzes private sector loans by type of collateral.
Unsecured loans also include loans for which the bank has the right to require
collateral.
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF
NLG)
<S> <C> <C>
COMMERCIAL
Public authority guarantees................................. 14,841 15,489
Mortgages................................................... 35,133 30,968
Securities.................................................. 4,691 7,320
Bank guarantees............................................. 5,952 4,659
Other types of collateral and unsecured loans............... 163,873 146,815
------- -------
Total commercial loans...................................... 224,490 205,251
RETAIL
Public authority guarantees................................. 8,005 8,428
Mortgages................................................... 96,823 59,931
Other types of collateral and unsecured loans............... 36,405 29,463
------- -------
Total retail loans.......................................... 141,233 97,822
</TABLE>
Commercial loans by industry
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF
NLG)
<S> <C> <C>
Agriculture, mining and energy.............................. 18,611 19,961
Manufacturing............................................... 50,346 50,807
Construction and real estate................................ 22,445 18,672
Wholesale and retail trade companies........................ 34,814 33,085
Transportation and communications........................... 19,921 16,269
Financial services.......................................... 35,288 27,755
Business services........................................... 19,913 15,097
Education, health care and other services................... 23,152 23,605
------- -------
Total commercial loans...................................... 224,490 205,251
</TABLE>
Movements in allowances for loan losses
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Opening Balance..................................... 5,293 5,442 5,688
Currency translation differences and other
movements......................................... 514 (197) (70)
Write-offs.......................................... (1,042) (1,654) (1,306)
Received after write-off............................ 119 107 83
------- ------- -------
4,884 3,698 4,395
Addition from net interest revenue.................. 165 188 190
Addition from provision for loan losses........... 1,933 2,194 1,866
Transfer to provision for loan losses............. (605) (787) (1,009)
Net increase........................................ 1,328 1,407 857
------- ------- -------
Closing Balance..................................... 6,377 5,293 5,442
</TABLE>
F-12
<PAGE> 101
CROSS-BORDER RISK
Loans and other exposures are often not restricted to the country in which
the facility is extended, but also involve banks, public authorities and other
customers in foreign countries, and are mostly denominated in foreign
currencies. These cross-border outstandings are controlled by the Group Credit
Committee through a cross-border risk management system that supports frequent
monitoring of outstandings to avoid concentrations of transfer, economic and
political risk. The total cross-border exposure is very substantial but relates
mainly to OECD countries.
An increased credit risk would arise if and insofar as government measures
in a specific country restrict debt servicing. Allowances for loan losses are
applied in such circumstances. The following table shows cross-border exposure
and related allowances.
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS OF
NLG
EXCEPT
PERCENTAGES)
<S> <C> <C>
Cross-border exposure....................................... 2,079 2,727
Cross-border risk allowances................................ (903) (921)
Net exposure................................................ 1,176 1,806
Net exposure as % of group capital.......................... 2.2% 4.1%
</TABLE>
Cross-border risk allowances represented 43% of total cross-border risk at
December 31, 1997 compared to 34% at December 31, 1996. Of the total
cross-border exposure at December 31, 1997, NLG 908 million or 44%, was
collateralized mainly by U.S. treasury zero coupon bonds issued as part of
restructuring programs. This collateral guarantees full repayment of the
principal at maturity. In determining cross-border risk allowances the estimated
current value of this collateral has been taken into account.
Movements in cross-border risk allowances
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Opening Balance............................................ 921 1,055 1,584
Currency translation differences and other movements....... 105 35 (72)
Write-offs................................................. (177)
Net transfer to provision for loan losses.................. (123) (153) (135)
Purchase (sale) of LDCs.................................... (16) (145)
---- ----- -----
Closing Balance............................................ 903 921 1,055
</TABLE>
Cross-border risk allowances are charged to loans and interest-bearing
securities.
OTHER
The item Loans includes subordinated debt amounting to NLG 198 (1996: NLG
195 million) and leasing operations amounting to NLG 15,775 million (1996: NLG
13,427 million).
5 SECURITIES
The balance sheet items Short-dated government paper, Interest-earning
securities and Shares include the investment portfolios, the trading portfolios,
securitized receivables such as treasury paper and commercial paper, and equity
participations. Interest-earning securities forming part of an investment
portfolio, which principally consist of central government bonds, serve as a
liquidity buffer among other functions. ABN AMRO attempts to maximize the return
on these instruments through a policy of active management. Equity investments
held on a long-term basis are also included in the investment portfolios.
F-13
<PAGE> 102
The above-mentioned balance sheet items can be analyzed as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Investment portfolios....................................... 101,497 66,309
Trading portfolios.......................................... 60,432 34,115
Short-dated government paper................................ 15,283 1,970
Other bank paper............................................ 16,161 3,106
Other securities............................................ 9,998 9,019
Options..................................................... 5,472 859
Equity participations....................................... 845 829
------- -------
Total securities............................................ 209,688 116,207
======= =======
</TABLE>
The following table analyzes listed and unlisted securities:
<TABLE>
<CAPTION>
LISTED UNLISTED
------------------ ------------------
1997 1996 1997 1996
------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Public authority paper.................... 63,973 33,633 44,256 35,275
Other interest-earning securities......... 40,737 21,190 41,779 17,314
Shares.................................... 12,870 5,846 6,073 2,949
------- ------- ------- -------
Total securities.......................... 117,580 60,669 92,108 55,538
======= ======= ======= =======
</TABLE>
Listed securities include all securities which are traded or quoted on any
securities exchange trading facility. Third parties hold legal title to part of
the securities included in the portfolios. This is related to securities sold
with repurchase commitments (NLG 58,461 million, 1996: NLG 8,074 million) and
securities lending transactions (NLG 8,991 million, 1996: NLG 1,006 million). In
addition, ABN AMRO borrowed securities totaling NLG 19,588 million (1996: NLG
6,764 million). The borrowed securities are not shown in the balance sheet. The
item Interest-earning securities includes securities of a subordinated nature
totaling NLG 108 million (1996: NLG 164 million) and non-subordinated
interest-earning securities issued by group companies totaling NLG 1,561 million
(1996: NLG 610 million).
As part of its securities brokerage activities, the group also trades in
ABN AMRO Holding shares. In connection with the NYSE listing, 14 million ABN
AMRO Ordinary Shares were purchased at an average price of NLG 32.91 and sold at
an average price of NLG 34.08. In addition, shares were repurchased on the AEX
Stock Exchange in connection with staff options granted and to cover positions
with clients. At December 31, 1997, the treasury stock position of group
companies included 4.6 million in ABN AMRO Holding Ordinary Shares. The
corresponding amount of NLG 112 million has been deducted from reserves.
An amount of NLG 20,417 million is scheduled for redemption in 1998 on
interest-earning securities.
F-14
<PAGE> 103
INVESTMENT PORTFOLIOS
The analysis below shows the book value and the fair value of ABN AMRO's
investment portfolios at December 31, 1997 and 1996. Fair value is based on
quoted prices for traded securities and estimated market value for non-traded
securities.
<TABLE>
<CAPTION>
1997 1996
------------------------------------- -------------------------------------
BOOK PREMIUMS FAIR BOOK PREMIUMS FAIR
VALUE OR DISCOUNTS MARKET VALUE VALUE OR DISCOUNTS MARKET VALUE
------- ------------ ------------ ------- ------------ ------------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Dutch government.......... 14,497 430 15,612 6,750 398 7,647
US Treasury and US
government agencies..... 32,156 (29) 32,799 19,935 42 20,115
Other OECD governments.... 27,440 81 28,483 17,783 (104) 18,201
Mortgage-backed
securities.............. 7,917 1 7,937 4,611 34 4,597
Other interest-bearing
securities.............. 14,514 222 15,451 14,505 187 15,612
------- --- ------- ------- ---- ------
Total interest-bearing
securities.............. 96,524 705 100,282 63,584 557 66,172
Shares.................... 4,973 4,973 2,725 2,725
------- ------- ------- ------
Total investment
portfolios.............. 101,497 105,255 66,309 68,897
======= ======= ======= ======
</TABLE>
The following table analyzes interest-bearing investment securities by
maturity and weighted average yield at December 31, 1997. Yields on tax exempt
obligations have not been computed on a tax equivalent basis.
<TABLE>
<CAPTION>
AFTER 1 YEAR AND AFTER 5 YEARS AND
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
------------------ ------------------ ------------------ ------------------
AMOUNT YIELD (%) AMOUNT YIELD (%) AMOUNT YIELD (%) AMOUNT YIELD (%)
------ --------- ------ --------- ------ --------- ------ ---------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dutch government............ 4,553 2.9 4,159 7.0 3,733 6.5 2,482 6.5
U.S. Treasury and U.S.
government agencies....... 993 6.2 13,174 6.5 12,650 6.8 5,310 6.6
Other OECD governments...... 3,608 2.8 7,387 7.0 8,452 6.5 8,074 7.5
Mortgage-backed
securities(1)............. 101 3.7 -- -- -- -- 7,817 4.6
Other securities............ 1,157 7.0 8,031 6.4 4,095 6.3 1,453 7.0
Total amortized cost........ 10,412 3.7 32,751 6.7 28,930 6.6 25,136 6.3
Total market value.......... 10,317 33,597 30,161 26,207
</TABLE>
- ---------------
(1) Maturity dates have been estimated based on historical experience.
F-15
<PAGE> 104
The book value of the investment portfolios developed during 1997 as
follows:
<TABLE>
<CAPTION>
INTEREST-EARNING
SECURITIES SHARES
---------------- ------
(IN MILLIONS OF NLG)
<S> <C> <C>
Opening Balance of banking business investment portfolio.... 59,465 678
Movements:
purchases................................................. 114,854 595
sales..................................................... (71,642) (67)
repayments................................................ (22,200)
acquisitions (dispositions) (net)......................... 6,403 18
revaluations.............................................. 7
currency translation differences.......................... 4,738 25
other..................................................... 146 307
------- -----
Closing Balance of banking business investment portfolio.... 91,764 1,563
Closing Balance of insurance business investment
portfolio................................................. 4,760 3,410
------- -----
Total investment portfolios................................. 96,524 4,973
</TABLE>
Premiums and discounts on the investment portfolios are amortized. The
purchase price of the investment portfolios, including unamortized amounts from
replacement transactions, was NLG 385 million below the redemption value. The
accumulated value above the purchase price of shares amounted to NLG 37 million.
TRADING PORTFOLIOS
The following table analyzes the composition of the trading portfolios.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Dutch government............................................ 4,829 4,032
US Treasury and US government agencies...................... 9,578 4,296
Other OECD governments...................................... 24,621 14,307
Other interest-bearing securities........................... 14,584 7,812
------ ------
Total interest-bearing securities........................... 53,612 30,447
Shares...................................................... 6,820 3,668
------ ------
Total trading portfolios.................................... 60,432 34,115
====== ======
</TABLE>
OTHER SECURITIES
The following table analyzes the book value and fair value of other
securities.
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Short-dated government paper.................. 15,283 15,308 1,970 1,982
Other debt securities......................... 9,165 9,126 8,304 8,059
Other bank paper.............................. 16,161 16,036 3,106 3,099
------ ------ ------ ------
Total interest-bearing securities............. 40,609 40,470 13,380 13,140
Shares, options and equity participations..... 7,150 7,210 2,403 2,407
------ ------ ------ ------
Total other securities........................ 47,759 47,680 15,783 15,547
====== ====== ====== ======
</TABLE>
F-16
<PAGE> 105
6 PARTICIPATING INTERESTS
This item includes equity participations held on a long-term basis for the
purpose of business operations.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Analysis:
Credit institutions......................................... 370 334
Other participating interests............................... 1,753 1,330
------ ------
Total participating interests............................... 2,123 1,664
====== ======
Development:
Opening Balance............................................. 1,664 1,692
Movements:
purchases / increases..................................... 203 176
sales / reductions........................................ (289) (188)
revaluations.............................................. (14) 24
acquisitions (dispositions) (net)......................... 360 (114)
other..................................................... 199 74
------ ------
Closing Balance............................................. 2,123 1,664
====== ======
Revaluations included in Closing Balance.................... 26 41
</TABLE>
Participating interests with official stock exchange listings represented a
book value of NLG 479 million (1996: NLG 444 million).
7 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Analysis:
Real property used in operations............................ 5,261 4,340
Other real property......................................... 652 662
Equipment................................................... 2,612 2,054
------ ------
Total property and equipment................................ 8,525 7,056
====== ======
</TABLE>
F-17
<PAGE> 106
<TABLE>
<CAPTION>
PROPERTY
-------------------
USED IN
TOTAL OPERATIONS OTHER EQUIPMENT
------- ---------- ----- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Development in 1997 in property and equipment:
Opening Balance................................... 7,056 4,340 662 2,054
Movements:
purchases....................................... 2,258 818 149 1,291
sales........................................... (376) (75) (267) (34)
revaluations.................................... (23) (23)
depreciation.................................... (1,194) (262) (1) (931)
acquisitions (dispositions) (net)............... 500 326 47 127
other........................................... 304 137 62 105
------- ------- ----- -------
1,469 921 (10) 558
Accumulated amounts:
Replacement cost.................................. 12,837 7,362 655 4,820
Depreciation...................................... (4,312) (2,101) (3) (2,208)
------- ------- ----- -------
Closing Balance................................... 8,525 5,261 652 2,612
======= ======= ===== =======
Revaluations included in Closing Balance.......... 489 489 -- --
</TABLE>
Legal title to property and equipment totaling NLG 372 million (1996: NLG
15 million) is held by third parties.
8 OTHER ASSETS AND OTHER LIABILITIES
These items include those amounts which are not of an accrued or deferred
nature or which cannot be classified with any other balance sheet item. This
concerns, for example, servicing rights, precious metals and other goods,
balances of payment transactions still to be settled, as well as taxes
receivable or payable and short securities positions.
9 PREPAYMENTS AND ACCRUED INCOME AND ACCRUALS AND DEFERRED INCOME
These items include revenues and expenses recognized in the period under
review but whose actual receipt or payment falls in a different period. They
also include the total net difference between contract rates and spot rates on
foreign exchange hedging operations.
10 BANKS (LIABILITIES)
This item comprises all debts, including amounts on account of professional
securities transactions, to credit institutions, central banks and multilateral
development banks.
F-18
<PAGE> 107
11 TOTAL CUSTOMER ACCOUNTS
This item includes total customer balances held in current accounts,
savings accounts and deposits, as well as debts on account of professional
securities transactions and non-subordinated private loans.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Analysis:
Savings accounts............................................ 124,877 92,994
Deposits.................................................... 106,807 82,210
Professional securities transactions........................ 58,595 13,486
Other customer accounts..................................... 106,415 88,028
------- -------
Total customer accounts................................... 396,694 276,718
======= =======
</TABLE>
12 DEBT SECURITIES
This item includes non-subordinated debt and other negotiable
interest-bearing debt securities.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Analysis:
Debentures and notes........................................ 22,785 18,762
Cash notes, savings certificates and bank certificates...... 16,576 15,460
Certificates of deposit and commercial paper................ 51,234 40,191
------ ------
Total debt securities..................................... 90,595 74,413
====== ======
</TABLE>
The debentures and loans are issued principally in the Dutch capital
markets or in the Euromarket and are denominated mostly in Netherlands guilders
and US dollars. The commercial paper program is conducted mainly in the United
States and is denominated in US dollars. The other debt securities are
instruments used in markets in which ABN AMRO is active and are usually
denominated in local currencies. At December 31, 1997, debt securities
denominated in Netherlands guilders amounted to NLG 26,295 million and those
denominated in US dollars to NLG 39,204 million.
At December 31, 1997, debt securities included NLG 725 million of variable
rate obligations. In addition, NLG 3,128 million of debt securities had been
converted into variable rate obligations through the use of asset-liability
management derivatives contracts. The average interest rate on debentures and
notes, adjusted to reflect the effect of asset-liability management derivatives
contracts at December 31, 1997, was 6.4%.
MATURITY ANALYSIS OF DEBT SECURITIES
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
within one year............................................. 49,894 40,616
after one and within two years.............................. 6,152 6,873
after two and within three years............................ 8,045 4,967
after three and within four years........................... 4,687 6,410
after four and within five years............................ 3,652 3,809
after five years............................................ 18,165 11,738
------ ------
Total debt securities..................................... 90,595 74,413
====== ======
</TABLE>
F-19
<PAGE> 108
13 PROVISIONS
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
Analysis:
Provision for deferred tax liabilities...................... 1,450 1,228
Provision for pension commitments........................... 134 315
Provisions for payments to non-active employees............. 899 606
Insurance fund liabilities.................................. 9,602 6,722
Other provisions............................................ 1,378 1,263
------ ------
Total provisions.......................................... 13,463 10,134
====== ======
</TABLE>
The provision for deferred tax liabilities relates to tax liabilities which
will arise in the future owing to the difference between the book value of
specific assets and liabilities and their valuation for tax purposes. The face
value of these liabilities amounted to NLG 1,754 million.
The provisions for payments to non-active employees relate to early
retirement, total disability, contributions to medical expenses and other
commitments. Insurance fund liabilities include the actuarial reserves and the
premium and claims reserves of the group's insurance companies.
Provisions are generally long-term in nature.
14 FUND FOR GENERAL BANKING RISKS
The Fund for general banking risks covers general risks associated with
lending and other banking activities. The Fund is net of tax and forms part of
tier 1 capital; it is maintained partly in currencies other than the Netherlands
guilder.
<TABLE>
<CAPTION>
(IN MILLIONS OF
NLG)
<S> <C>
Transfer from provision for general contingencies........... 2,000
Movements:
Addition from income statement.............................. 395
Tax on addition............................................. (138)
------
257
Consolidation............................................... 75
Currency translation differences............................ 151
------
Closing Balance............................................. 2,483
======
</TABLE>
15 SUBORDINATED DEBT
The debentures and notes included in this item are subordinated to all
current and future liabilities of the group companies that issued the debt. In
general, early repayment, in whole or in part, is not permitted.
The average interest rate on subordinated debt was 7.3% at December 31,
1997.
F-20
<PAGE> 109
MATURITY ANALYSIS OF SUBORDINATED DEBT
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS OF
NLG)
<S> <C> <C>
within one year............................................. 648 294
after one and within two years.............................. 641 648
after two and within three years............................ 594 625
after three and within four years........................... 2,990 586
after four and within five years............................ 1,535 2,717
after five years............................................ 13,693 10,439
------ ------
Total subordinated debt................................... 20,101 15,309
====== ======
</TABLE>
Subordinated debt at December 31, 1997 was denominated in Netherlands
guilders to an amount of NLG 6,975 million and in US dollars to an amount of NLG
11,158 million, and included NLG 34 million of variable rate obligations.
16 SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Analysis:
Share capital.......................................... 3,586 3,548 3,482
Reserves............................................... 22,371 21,771 16,770
------ ------ ------
25,957 25,319 20,252
Treasury stock......................................... (112) (343) (2)
------ ------ ------
Total shareholders' equity............................. 25,845 24,976 20,250
</TABLE>
For further information reference is made to the section on changes in
shareholders' equity.
SHARE CAPITAL
The authorized share capital of ABN AMRO Holding N.V. amounts to NLG
10,500,000,005 face value and consists of one Priority Share, four billion
Ordinary Shares, one billion Preference Shares and one hundred million
Convertible Preference Shares, each of which is convertible into four ordinary
shares.
The issued and paid-up share capital is made up of the following numbers of
shares:
<TABLE>
<S> <C>
Priority Share (nominal value NLG 5.00)..................... 1
Ordinary Shares (nominal value NLG 1.25).................... 1,410,279,913
Preference Shares (nominal value NLG 5.00).................. 362,503,010
Convertible Preference Shares (nominal value NLG 5.00)...... 2,078,833
</TABLE>
On December 31, 1997, 4,635,588 Ordinary Shares were purchased in
connection with staff options granted.
The Preference Shares are registered shares; the dividend has been fixed at
9.5% of the face value. This percentage will be recalculated at January 1, 2001
in the manner stipulated in the Articles of Association.
The dividend payable on the Convertible Preference Shares has been fixed at
NLG 3.78 per share per annum until the end of 2003. Holders of Convertible
Preference Shares can convert their shares into 8.3 million Ordinary Shares
until October 31, 2003, on payment of NLG 1.75 per Ordinary Share. If all rights
are fully exercised, shareholders' equity would increase by an amount of NLG
14.6 million.
F-21
<PAGE> 110
RESERVES
<TABLE>
<CAPTION>
ANALYSIS: 1997 1996 1995
--------- ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Share premium account.................................. 5,336 5,295 4,765
Revaluation reserves................................... 637 664 600
Reserves prescribed by law and articles of
association.......................................... 499 449 357
General reserve...................................... 16,598 16,274 12,323
Exchange differences reserve......................... (699) (911) (1,275)
Other reserves......................................... 15,899 15,363 11,048
------ ------ ------
Total reserves......................................... 22,371 21,771 16,770
====== ====== ======
</TABLE>
The share premium account is regarded as paid-up capital for tax purposes.
Due to dispositions and depreciation, NLG 157 million of the revaluation
reserves is regarded as having been realized. The expected stock dividend
percentage for the final dividend was taken into consideration.
The 1996 figures have been adjusted for the transfer of the balance of NLG
2,015 million from the provision for general contingencies to the general
reserve.
STAFF OPTIONS
Employees of ABN AMRO are periodically offered the opportunity to acquire
equity options on ABN AMRO shares whose value is related to the option's
exercise price. The Ordinary Share capital may increase as a result of the
exercise of these options. The exercise price of staff options is equal to the
average of the high and low Ordinary Share price quoted on the AEX Stock
Exchange on the date of grant. The options can be exercised during specified
'window periods' for five years from the date of grant. These window periods for
senior management are two weeks following the announcement of the annual and
interim figures. In 1995, 1996 and 1997 the exercise price of options exercised
ranged from NLG 10.90 to NLG 36.15.
If fully exercised, the options at year-end 1997 would have increased the
number of Ordinary Shares by 19.4 million (see analysis below) and shareholders'
equity by NLG 591 million:
<TABLE>
<CAPTION>
STAFF OPTIONS AVERAGE EXERCISE LOW / HIGH EXERCISE
YEAR OF EXPIRATION (IN THOUSANDS) PRICE (IN NLG) PRICE (IN NLG)
- ------------------ -------------- ---------------- -------------------
<S> <C> <C> <C>
1998................................ 76 12.90 12.90
1999................................ 1,029 15.16 15.10 - 15.40
2000................................ 1,634 15.89 14.70 - 18.10
2001................................ 4,817 24.20 22.10 - 28.10
2002................................ 11,829 36.48 33.90 - 41.00
------ ----- -------------
Total............................... 19,385 30.47 12.90 - 41.00
====== ===== =============
</TABLE>
F-22
<PAGE> 111
The movements in these rights for the year 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
STAFF OPTIONS AVERAGE EXERCISE STAFF OPTIONS AVERAGE EXERCISE
(IN THOUSANDS) PRICE (IN NLG) (IN THOUSANDS) PRICE (IN NLG)
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Movements:
Opening Balance.......... 13,534 19.61 15,220 14.23
Options granted to senior
management............. 2,869 33.90
Other options granted.... 9,709 37.04 7,999 23.73
Options exercised........ (6,726) 19.20 (9,578) 14.53
Options canceled......... (1) 19.16 (107) 16.48
------ ----- ------ -----
Closing Balance.......... 19,385 30.47 13,534 19.61
====== ===== ====== =====
</TABLE>
17 MINORITY INTERESTS
This item comprises the share of third parties in the equity of
subsidiaries and other group companies, including preferred stock amounting to
USD 1,825 million (1996: USD 950 million) issued by subsidiaries in the United
States to third parties.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Opening Balance........................................... 2,105 1,525 1,362
Currency translation differences.......................... 421 127 (73)
Issue of preferred stock.................................. 2,259 436 160
Redemption of preferred stock............................. (515)
Other movements........................................... 257 17 76
----- ----- -----
Closing Balance........................................... 4,527 2,105 1,525
</TABLE>
18 CAPITAL ADEQUACY
The standards applied by the Netherlands Central Bank for the principal
capital ratios are based on the capital adequacy guidelines of the European
Union and the Basle Committee for Banking Supervision. These ratios compare the
bank's total capital and tier 1 capital with the total of risk-weighted assets
and off-balance sheet items and the market risk associated with the trading
portfolios. The minimum requirement for the total capital ratio and tier 1 ratio
is 8% and 4%, respectively, of risk-weighted assets.
The following table analyzes the capital ratios of ABN AMRO at December 31,
1997 and 1996 in accordance with supervisory requirements.
<TABLE>
<CAPTION>
1997 1996
------------------ ------------------
REQUIRED ACTUAL REQUIRED ACTUAL
-------- ------ -------- ------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Total capital............................... 36,784 48,990 31,141 42,372
Total capital ratio (in %).................. 8.0% 10.65% 8.0% 10.89%
Tier 1 capital.............................. 18,392 31,996 15,571 28,068
Tier 1 capital ratio (in %)................. 4.0% 6.96% 4.0% 7.21%
</TABLE>
F-23
<PAGE> 112
19 ACCOUNTS WITH PARTICIPATING INTERESTS
Amounts receivable from and payable to participating interests included in
the various balance sheet items totaled:
<TABLE>
<CAPTION>
1997 1996
----- -----
(IN MILLIONS OF
NLG)
<S> <C> <C>
Banks (assets).............................................. 29 87
Loans....................................................... 414 392
Banks (liabilities)......................................... 210 112
Total customer accounts..................................... 362 251
</TABLE>
20 MATURITY
Short-dated liabilities and demand deposits are generally matched by cash,
assets that can be realized at short notice or lending operations as part of the
interest rate risk policy. The balance sheet is already presented in descending
order of liquidity, but a number of items containing assets or liabilities with
varying maturities are analyzed in the table in this note. This analysis does
not include liquid assets such as cash and short-dated government paper and the
bond investment portfolios, which by their nature can be realized at short
notice. In every country in which ABN AMRO is active, liquidity satisfies the
standards imposed by the supervisory authorities.
Maturity analysis
<TABLE>
<CAPTION>
On demand #3 MONTHS 3 M-#1 YR 1 yr-#5 yr .5 YR
--------- ---------- ---------- ----------- ------
(IN BILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Banks (liabilities).......... 39 124 41 3 1
Savings accounts............. 63 30 16 12 4
Deposits and other customer
accounts................... 125 114 21 8 4
Debt securities.............. 29 21 23 18
Subordinated debt............ 1 5 14
Banks (assets)............... 30 76 31 2 1
Loans........................ 67 115 52 69 140
</TABLE>
21 CURRENCY POSITION
Of total assets and total liabilities, amounts equivalent to NLG 610
billion and NLG 597 billion, respectively, are denominated in currencies other
than the Netherlands guilder. Positions arising from balance sheet items are
generally hedged by foreign exchange contracts not included in the balance
sheet. The actual currency positions arising out of ABN AMRO's proprietary
foreign exchange dealing activities are of limited size. Capital invested in
operations outside The Netherlands is largely funded in guilders. Part of the
resulting currency positions is used to offset movements in required capital for
foreign-currency risk-weighted assets due to exchange rate fluctuations. Similar
reasoning lies behind the policy of issuing preferred stock and subordinated
debt in foreign currencies.
22 COLLATERAL PROVIDED
In connection with collateral provided for specific liabilities and
off-balance sheet commitments, as well as for transactions in financial markets,
specific assets are not freely available. This relates to cash (NLG 4.8
billion), securities (NLG 72.0 billion) and loans (NLG 13.4 billion). Collateral
has been provided for liabilities included in the items Banks (NLG 10.5
billion), Total customer accounts (NLG 61.4 billion), Debt securities (NLG 0.1
billion) and Other liabilities (NLG 1.8 billion).
F-24
<PAGE> 113
23 CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN MILLIONS OF
NLG)
<S> <C> <C>
Analysis:
Commitments with respect to guarantees granted.............. 58,455 53,155
Commitments with respect to irrevocable letters of credit... 9,053 7,563
Commitments with respect to recourse risks arising from
discounted bills.......................................... 1,003 1,024
------ ------
Total Contingent liabilities................................ 68,511 61,742
====== ======
</TABLE>
24 DERIVATIVES
Derivatives are financial instruments, the contracted or notional amounts
of which are not included in the balance sheet either because rights and
obligations arise out of one and the same contract, the performance of which is
due after balance sheet date, or because the notional amounts serve merely as
variables for calculation purposes. Examples of derivatives are forward exchange
contracts, options, swaps, futures and forward rate agreements. The underlying
value may involve interest rate, currency, commodity, bond or equity products or
a combination of these. Derivatives transactions are conducted as a trading
activity and as a hedge against ABN AMRO's own interest rate and currency
exposure.
The degree to which ABN AMRO is active in the respective markets or market
segments is shown in the following analysis by means of notional amounts
(including maturity profile based on remaining term). The notional amounts,
however, give no indication of the size of the cash flows or the market risk or
credit risk attaching to derivatives transactions.
The market risk arises from movements in variables determining the value of
derivatives, such as interest rates and quoted prices. The credit risk is the
loss that would arise if a counterparty were to default. This is related,
however, to the market risk since the magnitude of the credit risk is in part
determined by actual and expected market fluctuations. In calculating the credit
risk shown in the table below, netting agreements and other collateral have not
been taken into consideration.
F-25
<PAGE> 114
The following table shows the notional amounts of ABN AMRO's derivatives
portfolio at December 31, 1997.
Derivatives transactions
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
----------------------------------------------------
1 YR 1 YR - 5 YR 5 YR TOTAL CREDIT RISK
----- ----------- ---- ----- -----------
(IN BILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
OTC Swaps......................... 172 399 257 828 18.9
Forwards...................... 234 9 243 0.1
Options....................... 79 156 70 305 1.8
Exchange-traded Futures....................... 147 43 7 197
Options....................... 34 3 2 39
CURRENCY CONTRACTS
OTC Swaps......................... 46 97 53 196 6.9
Forwards...................... 1,035 46 2 1,083 20.3
Options....................... 113 9 122 2.6
Exchange-traded Futures....................... 2 2
Options....................... 2 2
OTHER CONTRACTS
OTC Options....................... 13 1 14 0.3
Exchange traded Options....................... 35 6 41
----- --- --- ----- ----
Total
derivatives .............................. 1,912 769 391 3,072 50.9
===== === === ===== ====
</TABLE>
F-26
<PAGE> 115
The tables below summarize the notional amounts and (average) market values
of the principal types of trading portfolio contracts and hedging portfolio
contracts (i.e. contracts entered into as part of the bank's interest rate and
exchange rate policies). Intercompany transactions between hedging and trading
portfolios have not been eliminated from the figures.
Trading portfolio derivatives transactions in 1997
<TABLE>
<CAPTION>
AVERAGE
MARKET VALUE MARKET VALUE
NOTIONAL ------------------- -------------------
AMOUNTS POSITIVE NEGATIVE POSITIVE NEGATIVE
--------- -------- -------- -------- --------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Swaps......................................... 807,120 20,774 17,309 17,125 15,157
Forwards...................................... 237,536 121 168 151 205
Options purchased............................. 176,629 1,730 1,078
Options sold.................................. 160,534 2,207 1,024
Futures....................................... 174,485 839 724 836 721
--------- ------ ------ ------ ------
Total interest rate contracts................. 1,556,304 23,464 20,408 19,190 17,107
CURRENCY CONTRACTS
Swaps......................................... 193,498 7,008 7,911 6,055 6,682
Forwards...................................... 1,049,507 19,571 18,562 18,934 17,172
Options purchased............................. 79,277 2,634 953
Options sold.................................. 43,645 2,298 1,792
Futures....................................... 2,152 7 13 7 13
--------- ------ ------ ------ ------
Total currency contracts...................... 1,368,079 29,220 28,784 25,949 25,659
OTHER CONTRACTS
Equity options purchased...................... 33,150 1,498 859
Equity options sold........................... 21,935 2,233 1,378
Other equity and commodity contracts.......... 323 1 3 1 2
--------- ------ ------ ------ ------
Total other contracts......................... 55,408 1,499 2,236 860 1,380
</TABLE>
F-27
<PAGE> 116
Trading portfolio derivatives transactions in 1996
<TABLE>
<CAPTION>
AVERAGE
MARKET VALUE MARKET VALUE
NOTIONAL ------------------- -------------------
AMOUNTS POSITIVE NEGATIVE POSITIVE NEGATIVE
--------- -------- -------- -------- --------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Swaps......................................... 544,601 12,274 10,199 11,089 9,922
Forwards...................................... 168,199 177 174 205 197
Options purchased............................. 179,398 849 -- 800 --
Options sold.................................. 35,739 -- 631 -- 632
Futures....................................... 81,172 51 1,093 196 1,855
--------- ------ ------ ------ ------
Total interest rate contracts................. 1,009,109 13,351 12,097 12,290 12,606
CURRENCY CONTRACTS
Swaps......................................... 132,824 4,257 3,503 3,121 2,922
Forwards...................................... 829,157 13,519 9,874 12,011 9,153
Options purchased............................. 68,458 775 -- 755 --
Options sold.................................. 23,701 -- 817 -- 629
Futures....................................... 432 6 7 3 4
--------- ------ ------ ------ ------
Total currency contracts...................... 1,054,572 18,557 14,201 15,890 12,708
OTHER CONTRACTS
Equity options purchased...................... 5,515 325 -- 314 --
Equity options sold........................... 4,527 -- 527 -- 507
Other equity and commodity contracts.......... 427 130 9 2 2
--------- ------ ------ ------ ------
Total other contracts......................... 10,469 455 536 316 509
</TABLE>
Hedging portfolio derivatives
<TABLE>
<CAPTION>
1997 1996
------------------------------ ------------------------------
MARKET VALUE MARKET VALUE
NOTIONAL ------------------- NOTIONAL -------------------
AMOUNTS POSITIVE NEGATIVE AMOUNTS POSITIVE NEGATIVE
-------- -------- -------- -------- -------- --------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
Swaps................................. 154,889 3,139 3,803 137,825 3,050 4,105
Forwards.............................. 5,910 2 5 6,537 6 4
Options purchased..................... 7,606 126 4,291 70 --
Futures............................... 23,193 1 15 28,219 15 23
------- ----- ----- ------- ----- -----
Total interest rate contracts......... 191,598 3,268 3,823 176,872 3,141 4,132
CURRENCY CONTRACTS
Swaps................................. 14,423 224 399 12,840 433 573
Forwards.............................. 38,591 760 339 21,893 144 182
Options purchased..................... 679 987 8 --
------- ----- ----- ------- ----- -----
Total currency contracts.............. 53,693 984 738 35,720 585 755
</TABLE>
Derivatives and Capital Adequacy Requirements
In determining the capital adequacy requirement, both existing and future
credit risk is taken into account. To this end the current potential loss, i.e.
the positive replacement value based on market conditions
F-28
<PAGE> 117
at the balance sheet date, is increased by a percentage of the relevant notional
amounts, depending on the nature and remaining term of the contract, thereby
taking into account the possible adverse development of the positive replacement
value during the remaining term of the contract. The analysis below shows the
resulting credit equivalent, both unweighted and weighted for the counterparty
risk (mainly banks) at December 31, 1997 and 1996. The figures allow for the
downward impact of netting agreements and other collateral on risk exposure and
capital adequacy.
Credit equivalent derivatives
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
UNWEIGHTED WEIGHTED UNWEIGHTED WEIGHTED
---------- -------- ---------- --------
(IN BILLIONS OF NLG)
<S> <C> <C> <C> <C>
Interest rate contracts................ 16.5 4.4 15.0 4.0
Currency contracts..................... 42.6 11.8 34.4 8.8
Other contracts........................ 0.9 0.2
---- ---- ---- ----
Total credit equivalent derivatives.... 60.0 16.4 49.4 12.8
==== ==== ==== ====
</TABLE>
25 MEMORANDUM ITEMS
Apart from the memorandum items stated, non-quantified guarantees have been
given for the Bank's securities custody operations, for interbank bodies and
institutions and for participating interests. Collective guarantee schemes are
applicable to group companies in various countries. Furthermore, statements of
liability have been issued for a number of group companies.
Legal proceedings have been initiated against ABN AMRO in a number of
jurisdictions, but on the basis of information currently available, and having
taken counsel with legal advisers, the Managing Board is of the opinion that the
outcome of these proceedings is unlikely to have a material adverse effect on
the consolidated financial position or consolidated operations of ABN AMRO.
For 1998, investment in property and equipment is estimated at NLG 2.3
billion, of which ABN AMRO is already committed to an amount of NLG 500 million.
Though ABN AMRO has sold a part of its loan portfolio, partly through
credit-enhanced or non-credit enhanced securitization, it still holds legal
title to some of these loans. In most cases these loans are also serviced by ABN
AMRO. In addition, the Bank services loans originated by other institutions. The
table below states the outstandings at December 31, 1997 (in millions of NLG).
<TABLE>
<S> <C>
Legal title to loans sold................................... 4,321
Loans serviced for third parties............................ 58,075
Loans sold with credit enhancement.......................... 13,695
</TABLE>
Future rental commitments (in millions of NLG) at December 31, 1997 for
long-term lease contracts were as follows:
<TABLE>
<S> <C>
1998........................................................ 1,099
1999........................................................ 394
2000........................................................ 233
2001........................................................ 204
2002........................................................ 189
years after 2002............................................ 1,506
</TABLE>
F-29
<PAGE> 118
26 NET INTEREST REVENUE
This item comprises interest revenue from loans, investments, other
lending, interest expense on borrowings by ABN AMRO and customer accounts, as
well as the results from interest rate and foreign exchange contracts entered
into for hedging purposes. Also included is other revenue from loans. Interest
revenue from interest-earning securities amounted to NLG 6,935 million (1996:
NLG 4,708 million). Interest expense on subordinated debt totaled NLG 1,311
million (1996: NLG 948 million).
27 REVENUE FROM SECURITIES AND PARTICIPATING INTERESTS
This item includes the share in net profit or loss of participating
interests on which ABN AMRO exercises a significant influence. Also included are
dividends received from shares and other participating interests, as well as the
results from sales of shares from the investment portfolio and investments in
participating interests insofar as these are not treated as value adjustments to
financial fixed assets.
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Revenue from shares and equity participations............... 195 97 67
Revenue from participating interests........................ 435 159 130
--- --- ---
Total Revenue from securities and participating interests... 630 256 197
=== === ===
</TABLE>
28 NET COMMISSIONS
This item includes revenue from domestic and international payments,
securities brokerage, insurance, leasing and other services. Amounts paid to
third parties are shown as commission expense.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Payment services.......................................... 1,503 1,332 1,257
Insurance................................................. 299 280 262
Securities................................................ 2,706 1,985 1,485
Asset management and trust................................ 717 684 547
Guarantees................................................ 247 226 217
Leasing................................................... 170 150 136
Other..................................................... 630 299 280
----- ----- -----
Total Net commissions..................................... 6,272 4,956 4,184
===== ===== =====
</TABLE>
29 RESULTS FROM FINANCIAL TRANSACTIONS
This item includes the results from foreign exchange dealing, securities
trading, derivatives transactions, as well as trading in LDC debt securities,
which is included in the "other" item, and currency translation differences on
investments -- other than those included in tangible fixed assets -- in offices
and branches, subsidiaries and participating interests in hyper-inflationary
countries.
F-30
<PAGE> 119
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Securities trading........................................ 858 781 441
Foreign exchange dealing.................................. 955 705 613
Derivatives
Interest rate related products....................... 235 203 173
Currency related products............................ 54 38 15
Equity related products.............................. 93 57 38
Other derivatives.................................... 27 25 --
----- ----- -----
409 323 226
----- ----- -----
Other..................................................... 214 73 (82)
Total Results from financial transactions................. 2,436 1,882 1,198
===== ===== =====
</TABLE>
30 OTHER REVENUE
This includes revenue from property development, other revenue from leasing
activities and the results from the insurance companies forming part of the
group. The insurance companies achieved the following results in 1997:
<TABLE>
<CAPTION>
LIFE NON-LIFE
------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C>
Net premium income.......................................... 2,591 115
Investment income........................................... 692 10
Insurance expenses.......................................... (3,185) (90)
------ ---
Total revenue from insurance companies...................... 98 35
====== ===
</TABLE>
31 STAFF COSTS
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG EXCEPT
NUMBER OF EMPLOYEES)
<S> <C> <C> <C>
Analysis:
Salaries (including bonuses, etc.).......................... 7,085 5,576 4,842
Pension costs (including post-retirement benefits).......... 171 332 330
Social insurance and other staff costs...................... 1,397 1,232 1,022
------ ------ ------
Total Staff costs........................................... 8,653 7,140 6,194
====== ====== ======
Average number of employees (headcount):
Netherlands................................................. 33,190 34,491 35,188
Foreign countries........................................... 39,028 30,925 28,137
------ ------ ------
Total average number of employees (headcount)............... 72,218 65,416 63,325
====== ====== ======
</TABLE>
32 OTHER ADMINISTRATIVE EXPENSES
This item includes office overhead, automation costs, advertising costs and
other general expenses.
ABN AMRO leases space for its principal facilities and also leases space in
other buildings. The leases generally are renewable and provide for payment of
rent and certain other occupancy expenses. Total rent expense for all leases,
which are operating leases, amounted to NLG 501 million in 1997, NLG 451 million
in 1996 and NLG 415 million in 1995.
F-31
<PAGE> 120
33 DEPRECIATION
This item is made up of depreciation of buildings and equipment.
34 PROVISION FOR LOAN LOSSES
This item includes provisions for loan losses and cross border risks.
35 ADDITION TO THE FUND FOR GENERAL BANKING RISKS
This item includes the addition to the Fund. Management's intention is to
maintain the Fund at a level approximating 0.5% of risk-weighted total assets.
36 VALUE ADJUSTMENTS TO FINANCIAL FIXED ASSETS
Financial fixed assets include the interest-earning securities and equity
investment portfolios and participating interests on which the bank does not
exercise an influence. Diminutions in value of the interest-earning securities
investment portfolio may relate to a permanent deterioration of the debtor's
quality. These diminutions in value and the diminutions in value below the
purchase price of shares and participating interests on which no influence is
exercised, together with amounts released in respect of earlier diminutions in
value, are included in this item. Results from dispositions below purchase price
are likewise treated as diminutions in value. Results from dispositions above
purchase price are included in revenue from securities and participating
interests.
37 TAXES
The following table reconciles the statutory tax rate to the effective tax
rate.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Dutch income tax rate.................................... 35.0% 35.0% 35.0%
Effect of taxes on income of operations outside The
Netherlands............................................ (1.6)% (4.7)% (3.0)%
Effect of taxes on tax-exempt income in The
Netherlands............................................ (4.1)% (2.9)% (2.6)%
Other.................................................... (0.6)% 0.7% (0.1)%
----- ----- -----
Overall effective tax rate............................... 28.7% 28.1% 29.3%
----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
The Netherlands........................................... 784 841 688
Foreign................................................... 877 508 436
----- ----- -----
1,661 1,349 1,124
----- ----- -----
</TABLE>
Taxes in 1997 amounted to NLG 1,661 million, including NLG 153 million in
deferred tax liabilities.
38 MINORITY INTERESTS
This item comprises the share of third parties in the results from
subsidiaries and group companies, including dividends on preferred stock issued
by ABN AMRO's subsidiaries in the United States.
39 SEGMENT INFORMATION
ABN AMRO is established and active in many countries but local operations
also serve customers outside their home countries. The tables below give an
analysis by operating segment. For the purpose of this analysis, gross revenue
represents total revenue before interest expense and commission expense.
Indirect overhead has been allocated to the operating segments.
F-32
<PAGE> 121
<TABLE>
<CAPTION>
GROSS REVENUE TOTAL REVENUE
-------------------------- --------------------------
1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division............... 13,338 13,000 12,840 7,219 6,577 6,215
International Division:
Europe (excl. The Netherlands)... 8,922 7,679 8,503 2,575 1,826 1,708
North America.................... 15,933 8,873 6,738 6,051 3,461 2,796
South and Central America........ 3,082 2,087 1,964 1,614 1,068 889
Middle East and Africa........... 584 378 281 219 162 122
Asia Pacific..................... 5,714 4,093 3,350 1,123 774 571
------ ------ ------ ------ ------ ------
34,235 23,110 20,836 11,582 7,291 6,086
IB&GC Division..................... 7,445 6,124 4,227 4,004 3,072 2,021
------ ------ ------ ------ ------ ------
55,018 42,234 37,903 22,805 16,940 14,322
MeesPierson........................ 3,180 3,583 1,391 1,201
ABN AMRO Lease Holding............. 1,373 1,211 1,118 884 760 682
Non allocated result............... 79 79
------ ------ ------ ------ ------ ------
Total.............................. 56,470 46,625 42,604 23,768 19,091 16,205
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES RISK-WEIGHTED ASSETS
----------------------------- -----------------------------
1997 1996 1995 1997 1996 1995
------- ------- ------- ------- ------- -------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division............... 2,146 1,632 2,085 146,310 129,315 106,838
International Division:
Europe (excl. The Netherlands)... 560 241 7 58,676 57,675 48,174
North America.................... 1,505 1,088 872 126,735 98,897 69,307
South and Central America........ 547 246 231 12,155 8,639 6,278
Middle East and Africa........... 61 (8) 14 2,717 1,871 1,879
Asia Pacific..................... 8 162 252 38,129 34,792 25,995
----- ----- ----- ------- ------- -------
2,681 1,729 1,376 238,412 201,874 151,633
IB&GC Division..................... 930 969 574 63,407 47,978 42,139
----- ----- ----- ------- ------- -------
5,757 4,330 4,035 448,129 379,167 300,610
MeesPierson........................ 269 153 20,347
ABN AMRO Lease Holding............. 239 209 196 11,676 10,101 8,774
Non allocated result............... 185 131 135
Addition to Fund for general
banking risks.................... (395) (146) (678)
----- ----- ----- ------- ------- -------
Total.............................. 5,786 4,793 3,841 459,805 389,268 329,731
===== ===== ===== ======= ======= =======
</TABLE>
F-33
<PAGE> 122
40 MANAGING BOARD AND SUPERVISORY BOARD
The following table summaries financial data concerning current and former
members of the Managing Board and Supervisory Board.
<TABLE>
<CAPTION>
MANAGING BOARD SUPERVISORY BOARD
----------------- ------------------
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Remuneration (in NLG 1,000).......................... 16,633 12,549 1,132 1,104
Outstanding ABN AMRO staff options issued............ 717,888 n.a. -- n.a.
ABN AMRO option rights listed........................ -- n.a. -- n.a.
ABN AMRO shares owned................................ 82,439 n.a. 38,545 n.a.
Loans (in NLG 1,000)................................. 11,400 9,168 11,025 14,659
</TABLE>
The conditions governing the options are stated in note 16. In 1997,
320.000 options were granted at an exercise price of NLG 33.90. ABN AMRO Holding
has not issued any convertible debenture loans.
41 CASH FLOW STATEMENT
The cash flow statement gives details of the source of liquid funds which
became available during the year and the application of the liquid funds over
the course of the year. The cash flow statement has been prepared in accordance
with IAS No.7. The cash flows are analyzed into cash flows from operations,
banking activities, investment activities and financing activities. Liquid funds
include cash in hand, net credit balances on current accounts with other banks
and net demand deposits with central banks. Movements in loans, total customer
accounts and interbank deposits are included in the cash flow from
operations/banking activities. Investment activities comprise purchases, sales
and redemptions in respect of investment portfolios, as well as investments in
and sales of participating interests, property and equipment. The issue of
shares and the borrowing and repayment of long-term funds are treated as
financing activities. Movements due to currency translation differences as well
as the effects of the consolidation of acquisitions, where of material
significance, are eliminated from the cash flow figures.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Analysis:
Cash................................................... 8,408 3,709 3,663
Current accounts (debit)............................... 18,406 11,737 12,495
Current accounts (credit).............................. (9,498) (8,296) (4,659)
------ ------ ------
Liquid funds........................................... 17,316 7,150 11,499
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Movements:
Opening Balance........................................ 7,150 11,499 6,901
Cash flow.............................................. 9,335 (3,203) 4,761
Currency translation differences....................... 831 394 (163)
Sale of MeesPierson.................................... (1,540)
------ ------ ------
Closing Balance........................................ 17,316 7,150 11,499
</TABLE>
Interest paid in 1997 amounted to NLG 28,562 million; tax payments for 1997
totaled NLG 1,734 million.
Dividends received from participating interests totaled NLG 36 million in
1997, NLG 41 million in 1996 and NLG 53 million in 1995.
F-34
<PAGE> 123
The following table analyzes movements resulting from acquisitions and
dispositions in 1997, 1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
------------ --------------------------- ------------
SALE OF
ACQUISITIONS ACQUISITIONS MEESPIERSON ACQUISITIONS
------------ ------------ ----------- ------------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Amounts paid/received in cash and cash
equivalents on acquisitions/dispositions
(net)................................... 4,539 1,368 520
Cash and cash equivalents included in
acquisitions/dispositions (net)......... 115 330 (1,540) 67
Assets acquired (sold) and liabilities
assumed (disposed of) through
acquisitions (net of dispositions):
Banks..................................... 820 601 (4,230) 755
Loans..................................... 24,547 3,735 (18,172) 1,012
Securities................................ 6,402 1,666 (8,501) 427
Other assets.............................. 2,502 345 (1,900) 175
------ ----- -------- -----
Total assets.............................. 34,271 6,347 (32,803) 2,369
====== ===== ======== =====
Subordinated debt......................... 64 (481)
Banks..................................... 5,879 647 (10,565) 703
Total customer accounts................... 25,895 4,565 (17,084) 1,050
Debt securities........................... 847 436 (677) 45
Other liabilities......................... 1,591 612 (3,325) 484
------ ----- -------- -----
Total liabilities......................... 34,212 6,324 (32,132) 2,282
====== ===== ======== =====
</TABLE>
The proceeds of the sale of MeesPierson were received in 1997.
42 FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the amount at which a financial instrument could be exchanged
in a current transaction between willing parties, other than in a forced sale or
liquidation, and is best evidenced by a quoted market price, if one exists. Most
of ABN AMRO's assets, liabilities and off balance sheet items are financial
instruments. Wherever possible, market rates have been used to determine fair
values.
However, for the majority of financial instruments, principally for loans,
deposits and OTC derivatives, fair values are not readily available since there
is no market where these instruments are traded. For these instruments
estimation techniques have been used, such as remaining interest period,
differences between historical contract rates and actual rates, and present
value estimates. These methods are subjective in nature and involve several
assumptions, such as the estimated period the financial instruments will be
held, the timing of future cash flows and the discount rate to be applied. As a
result, the approximate fair value presented below may not be indicative of the
net realizable value. In addition, the calculation of approximate fair values is
based on market conditions at a specific point in time and may not reflect
future fair values.
Approximate fair values among by financial institutions are not comparable
due to the wide range of different valuation techniques and the numerous
estimates that must be made. This lack of objective valuation method means that
approximate fair values are highly subjective. Therefore, readers should
exercise caution in using the information disclosed in this note for comparing
the consolidated financial position of ABN AMRO with that of other financial
institutions.
F-35
<PAGE> 124
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ ------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
---------- ---------- ---------- ----------
(IN MILLIONS OF NLG) (IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Assets (incl. off balance sheet items)
Cash......................................... 8,408 8,408 3,709 3,709
Short-dated government paper(1)(2)........... 25,451 25,430 5,998 5,986
Banks........................................ 140,185 140,218 119,278 119,462
Loans to public sector....................... 14,984 15,691 16,135 17,046
Loans to private sector -- commercial loans
and professional securities
transactions.............................. 287,887 290,247 216,504 216,504
Loans to private sector -- retail............ 140,397 141,397 97,036 98,129
Interest-earning securities(1)(3)............ 165,999 169,103 101,940 103,935
Shares(4).................................... 18,943 18,986 8,795 8,800
Derivatives.................................. 50,386 55,302 32,826 36,089
------- ------- ------- -------
852,640 864,782 602,221 609,660
======= ======= ======= =======
Liabilities (incl. off balance sheet items)
Banks........................................ 208,466 208,466 157,587 157,859
Savings accounts............................. 124,877 125,481 92,994 93,095
Time deposits................................ 106,807 107,786 82,210 82,512
Other customer accounts...................... 165,010 165,366 101,514 101,949
Debt securities.............................. 90,595 91,503 74,413 75,203
Subordinated debt............................ 20,101 21,140 15,309 15,935
Derivatives.................................. 48,513 52,938 27,485 31,721
------- ------- ------- -------
764,369 772,680 551,512 558,274
======= ======= ======= =======
</TABLE>
- ---------------
(1) Book values of Short-dated government paper and Interest-earning securities
are equal to the amortized costs thereof.
(2) Of which NLG 4,141 million was included in the trading portfolio at December
31, 1997.
(3) Of which NLG 49,471 million was included in the trading portfolio at
December 31, 1997.
(4) Of which NLG 6,820 million was included in the trading portfolio at December
31, 1997
43 SHAREHOLDERS' EQUITY AND NET PROFIT UNDER U.S. GAAP
The consolidated Financial Statements of ABN AMRO are prepared in
accordance with accounting principles generally accepted in The Netherlands
("Dutch GAAP") which vary in certain significant respects from those generally
accepted in the United States ("U.S. GAAP"). The following is a summary of the
adjustments to net profit and shareholders' equity that would have been required
if U.S. GAAP had been applied instead of Dutch GAAP in the preparation of the
Consolidated Financial Statements.
F-36
<PAGE> 125
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
---------- ---------
<S> <C>
Goodwill and other Acquired Intangibles
Goodwill including other acquired Goodwill represents the excess of the
intangibles arising from acquisitions of purchase price of investments in
subsidiaries and participating interests is subsidiaries and participating interests
charged against shareholders' equity. over the estimated market value of net
assets acquired at acquisition date.
Goodwill is amortized on a straight-line
basis over the estimated useful life. In ABN
AMRO's case, this amortization period does
not exceed twenty years.
Other acquired intangibles, such as the
value of purchased core deposits, are
amortized over their respective useful
lives, not exceeding fifteen years.
Fund for General Banking Risks
In addition to specific allowances for loan The fund for general banking risks is
losses and country risk, Dutch banks considered to be a general allowance for
maintain a fund for general banking risks. loan losses. The level of the fund is
This Fund is net of taxes and covers general adequate for absorbing all inherent losses
risks associated with lending and other in loans.
banking activities, which may include risk
of loan loss. The level of the fund for
general banking risks is based on
management's evaluation of the risks
involved. The Fund is part of group capital.
Debt Restructuring
Assets, including debt instruments, acquired Assets, including debt instruments, acquired
as part of a debt restructuring, such as as part of a debt restructuring, such as
Brady bonds, are recorded at net book value Brady bonds, are recorded at estimated
(after deduction of specific allowances) of market value at the date of the
the disposed debt. restructuring. Differences between book
value and market value are recorded as a
charge-off or recovery on the restructured
loan.
Investment Portfolio Securities
Bonds and similar debt securities included All bonds and similar debt securities
in the investment portfolios (other than included in the investment portfolio are
securities on which a large part or all of classified as "available for sale". SFAS 115
the interest is settled on redemption) are requires that investment securities
stated at redemption value less any available for sale, which are those
diminution in value deemed necessary. securities that may be sold prior to
Premiums and discounts at acquisition, maturity as part of asset/liability
accounted for as deferred items, are management or in response to other factors,
amortized and reported as interest over the are stated at market value with unrealized
term of the debt securities. Net capital gains and losses together with gains and
gains realized prior to maturity date in losses on designated derivatives reported in
connection with replacement operations are a separate component of shareholders'
recognized as interest over the term of the equity, net of taxes. Realized gains and
investment portfolio. losses are recognized into income on trade
date.
Shares held in the investment portfolio are
stated at market value. Movements in value,
net of tax, are taken to a separate
revaluation reserve. If the revaluation
reserve is insufficient to absorb a decline
in value, this amount will be charged to the
income statement as value adjustments to
financial fixed assets.
</TABLE>
F-37
<PAGE> 126
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
---------- ---------
<S> <C>
Property
Bank premises, including land, are stated at Bank premises are stated at cost and fully
current value based on replacement cost and depreciated on a straight-line basis over
fully depreciated on a straight-line basis their useful lives.
over their useful lives with a maximum of
fifty years. Value adjustments, net of tax,
are credited or charged to a separate
revaluation reserve.
Pension Costs
Pensions have been established in accordance SFAS 87 prescribes actuarial computations
with the regulations of the countries in based on current and future compensation
question. levels taking into account the market value
Cost of the plans is accounted for using of the assets of the pension funds and
actuarial computations of current salary, current interest rates. ABN AMRO adopted
taking into account the return achieved by SFAS 87 as of January 1, 1994.
the pension funds in excess of the actuarial
interest rate.
Post-Retirement Benefits
The expected costs of post-retirement SFAS 106 requires accrual of the expected
benefits are only provided for upon cost of providing post retirement health
retirement. The calculations are based on care benefits to an employee and the
actuarial computations. employee's beneficiaries and covered
dependents, during the year that an employee
renders services.
Post-Employment Benefits
Post-employment benefits are those benefits Under SFAS 112 all contractual benefits
provided to former or inactive employees, after employment but before retirement are
their beneficiaries and covered dependents recognized when the employer's services have
after employment but before retirement. The been rendered, the rights vest and the
cost of these benefits are provided for obligation is probable and quantifiable.
early-retirement (VUT) and
disability-related benefits upon termination
of services. Incentivized, other early leave
arrangements are accounted for on a pay-as-
you-go basis.
Derivatives Entered into on Behalf of
Customers
Derivatives entered into on behalf of U.S. GAAP requires that derivatives that are
customers that are directly hedged by an not hedges of existing assets, liabilities
offsetting derivative are recorded on an or firm commitments be carried at fair value
accrual basis whereby changes in the fair with changes in fair value included in
value of the positions are not recorded but income as they occur.
periodic cash flows are included in earnings
as earned.
Deferred Tax
Deferred tax liabilities are determined on Under SFAS 109 both deferred tax assets and
the basis of present value. Deferred tax liabilities are established on a
assets whose realization is dependent on non-discounted basis for all temporary
taxable income of future years are not differences, using enacted tax rates.
recognized. Deferred tax assets, of which realization is
dependent on taxable income of future years,
are assessed as to likely realization and a
valuation allowance provided, if necessary.
</TABLE>
F-38
<PAGE> 127
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
---------- ---------
<S> <C>
Dividend Payable
Shareholders' equity is reported after Dividends are reported as a part of
profit appropriation. Dividends proposed by shareholders' equity until paid or approved
the Managing and Supervisory Boards are by the General Shareholders' Meeting.
reported as a current liability.
</TABLE>
Future Developments
In December 1996, SFAS 127 was issued, which deferred the effective date of
certain provisions of SFAS 125 "Accounting for transfers and servicing of
financial assets and extinguishments of liabilities". SFAS 127 will be effective
for calendar year 1998. ABN AMRO believes that the adoption of SFAS 127 will not
have a material impact on its earnings, liquidity or capital resources.
Furthermore, ABN AMRO is currently reviewing how it will disclose SFAS 130
"Comprehensive income", which will be effective for the calendar year 1998. ABN
AMRO believes that the adoption of SFAS 130 will not affect its earnings,
liquidity or capital resources.
SFAS 131 "Disclosures about segments of an enterprise and related
information" prescribes reporting of financial and descriptive information about
operating segments to be based on a "management approach". This statement will
be effective for the calendar year 1998. ABN AMRO believes that the adoption of
SFAS 131 will not have a material effect on the presentation in the financial
statements.
RECONCILIATION
The following table summarizes the significant adjustments to ABN AMRO's
consolidated shareholders' equity and net profit which would result from the
application of U.S. GAAP.
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY NET EARNINGS
--------------------- ---------------------
1997 1996(1) 1997 1996 1995
--------- --------- ----- ----- -----
(IN MILLIONS OF NLG EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Shareholders' equity / net profit under Dutch
GAAP.............................................. 25,845 24,976 3,853 3,303 2,616
Goodwill............................................ 5,637 2,712 (427) (287) (233)
Provision for general contingencies................. 101 328
Debt restructuring.................................. (7) (170)
Investment portfolio securities..................... 3,721 2,584 335 449 182
Property............................................ (489) (552) 32 25 39
Pension costs....................................... (43) 43 (86) (48) (29)
Post-retirement benefits............................ (76) (45) (31) (3) (15)
Post-employment benefits............................ (114) (142) 28 51 (51)
Provisions.......................................... 641 634 (31) 234 309
Derivatives......................................... 588 597 (11) 110 120
Taxes............................................... (1,546) (1,087) (106) (305) (352)
Deferred tax liabilities............................ (155) (69) (86) (25) 27
Dividends........................................... 557 509
Adjustments for sale of MeesPierson................. 16
------ ------ ----- ----- -----
Shareholders' equity and net profit under U.S.
GAAP.............................................. 34,559 30,006 3,470 3,605 2,941
Shareholders' equity per share under U.S. GAAP...... 23.20 20.48
Basic earnings per share under U.S. GAAP............ 2.37 2.54 2.19
Diluted earnings per share under U.S. GAAP.......... 2.35 2.52 2.11
</TABLE>
- ---------------
(footnote on following page)
F-39
<PAGE> 128
(1) The adjustments to shareholders' equity at December 31, 1996 which relate to
MeesPierson are presented in a separate line, except for pension and
post-retirement benefits. The effect on shareholders' equity at December
31, 1996 is neutral.
NOTES TO THE ADJUSTMENTS TO CONSOLIDATED NET PROFIT AND SHAREHOLDERS' EQUITY
(a) Goodwill
The gross amount of goodwill and other acquired intangibles before
amortization amounts to NLG 6,966 million. If facts and circumstances indicate
that unamortized goodwill and other acquired intangibles may be impaired, a
review is made to determine what amount, if any, is recoverable. If this review
indicates that goodwill will not be recoverable, as determined based on the
estimated undiscounted cash flows of the entity acquired over the remaining
amortization period, the carrying amount of the goodwill is reduced by the
estimated shortfall of cash flows.
The following acquisitions were made in 1997, 1996 and 1995 and were
accounted for using the purchase method.
<TABLE>
<CAPTION>
TOTAL
ACQUIRED COMPANIES % ACQUIRED CONSIDERATION ASSETS(1) ACQUISITION DATE
------------------ ---------- ------------- ----------- -------------------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
1997:
Standard Federal Corporation.... 100 3,300 30,536 January 1, 1997
Chicago Corporation............. 100 240 1,131 January 1, 1997
Bankers Leasing Association..... 100 182 495 November 30, 1997
Lloyds NZA...................... 100 142 1,644 January 1, 1997
HG Asia Ltd.(2)................. 10 139 -- April 1, 1997
Asia Securities Trading(3)...... 35.5 108 -- June 30, 1997
Banque Demachy Worms............ 80.1 76 2,109 June 30, 1997
Banque du Phenix................ 100 67 885 June 30, 1997
1996:
Comerica Bank Illinois.......... 100 314 2,106 August 1, 1996
Columbia National Bank.......... 100 244 1,391 November 1, 1996
Magyar Hitel Bank............... 94.9 166 2,850 December 18, 1996
American Equipment Leasing...... 100 78 330 January 2, 1996
Causeway Group Ltd.............. 100 56 21 September 23, 1996
CIMO(4)......................... 29 32 -- July 26, 1996
Banco Fonder(5)................. 50 31 12 April 1, 1996
Carrington Pembroke Ltd......... 100 29 6 September 30, 1996
1995:
Alfred Berg (Holding) A/B(6).... 100 340 1,318 April 12, 1995
HG Asia Ltd.(2)................. 35.5 322 534 April 11, 1995
HG Asia Ltd.(2)................. 5 July 15, 1995
ABN Bank S.A.(7)................ 47 20 222 Various dates
ABN AMRO Bank (Chile) S.A.(8)... 50 32 255 February 10, 1995
</TABLE>
- ---------------
(1) Effect of total assets acquired on the Consolidated Balance Sheet.
(2) The bank acquired a 10% interest in 1997 in addition to the 60.5% interest
acquired in 1994 and 1995. At December 31, 1997 in total NLG 279 million
remains to be paid.
(3) This is a purchase of minority interest of 35.5%
(4) A buyout of minority shareholders to raise the total percentage to 80%.
(footnotes continue on following page)
F-40
<PAGE> 129
(5) This purchase increases the total percentage to 100%. The first 50% was
acquired in 1995 through the acquisition of Alfred Berg.
(6) A total amount of NLG 274 million will be paid from 1996 through 1998 and
has been accrued at December 31, 1995. At December 31, 1997, NLG 51 million
remains to be paid.
(7) A buyout of minority shareholders to raise the total percentage held at
December 31, 1995 to 97%.
(8) The purchase of the remaining 50% interest to raise the total percentage
held at December 31, 1995 to 100%.
(b) Provision for general contingencies
In the reconciliation, the provision for general contingencies is reversed
except for a part which based on management's evaluation is necessary to
maintain for U.S. GAAP purposes an overall adequate level of the allowance for
loan losses, including inherent losses in the loan portfolio.
(c) Investment Portfolio Securities
The reconciliation item consists of the difference between the amortized
cost and the fair market value of interest-earning securities included in the
investment portfolio of NLG 3,053 million (1996: NLG (2,031) million), after
adjusting for NLG 668 million (1996: NLG 553 million) of unrecognized gains on
sales of investment portfolio securities and related swap transactions.
In the income statement, the differences consist in the applicable year of
realized gains minus the amortization under Dutch GAAP.
Realized gains and losses from sales of securities in the investment
portfolio are computed using the specific identification method. Gross realized
gains on sales of interest-earning securities in the investment portfolio in
1995 were calculated at NLG 532 million and gross realized losses from such
sales in 1995 were calculated at NLG 270 million. Gross realized gains on sales
of interest-earning securities in the investment portfolio in 1996 were
calculated at NLG 832 million and gross realized losses from such sales in 1996
were calculated at NLG 231 million. Gross realized gains on sales of
interest-earning securities in the investment portfolio in 1997 were calculated
at NLG 799 million and gross realized losses from such sales in 1996 were
calculated at NLG 222 million.
(d) Pension Costs
Personnel employed in The Netherlands are entitled to pension benefits
which, unless otherwise waived, supplement State-provided social security
benefits. The benefits of the plans are based primarily on years of service and
a final pay formula. Benefits for retired employees or their beneficiaries are
subject to a yearly adjustment based on the increase of compensation according
to the Collective Bargaining Agreement.
Most of the plans are administered by separate pension funds or third
parties/life insurance companies. The funding policy of the plans is consistent
with the requirements in The Netherlands.
The retirement plan in the United States is a noncontributory defined
benefit plan covering substantially all employees. Benefits for retired
employees or their beneficiaries of the plans are based primarily on years of
service and on the employee's highest average base compensation for the five
consecutive years of employment in the 10 years preceding
retirement/termination.
SFAS 87 was adopted effective January 1, 1994, as it was not feasible to
apply it as of January 1, 1987, the date specified in the standard. In the
reconciliation NLG 48 million of the transition asset was recorded directly to
shareholders' equity at January 1, 1994; the remaining transition asset will be
amortized over an eight-year period.
F-41
<PAGE> 130
Assumptions used in the pension computation as at December 31, were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN PERCENTAGES)
<S> <C> <C> <C>
Average discount rate
The Netherlands........................................... 6.5 7.0 7.0
Foreign countries......................................... 7.5 7.5 8.2
Average compensation increase
The Netherlands........................................... 3.0 3.0 3.0
Foreign countries......................................... 6.0 5.5 5.3
Average expected rate of return on assets
The Netherlands........................................... 7.5 7.5 7.5
Foreign countries......................................... 8.5 8.0 7.7
</TABLE>
In accordance with SFAS 87, the excess of plan assets over projected
benefit obligation, as of January 1, 1994, the transition date, is recognized as
a part of periodic pension costs on a prospective basis. The following table
presents the components of the net periodic pension costs:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
NET PERIODIC PENSION COSTS
Service cost................................................ 375 444 376
Interest cost............................................... 632 606 570
Expected return on plan assets.............................. (757) (702) (601)
Net amortization and deferral............................... (4) (3) (6)
---- ---- ----
Net periodic pension costs under U.S. GAAP.................. 246 345 339
Net periodic pension costs under Dutch GAAP................. 160 297 310
---- ---- ----
Additional pension costs.................................... 86 48 29
==== ==== ====
</TABLE>
The following table presents the components of the estimated funded status
of the plans under SFAS 87.
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
FUNDED STATUS
Accumulated benefit obligation
vested.................................................... 9,431 7,876
unvested.................................................. 350 317
------ ------
Total accumulated benefit obligation........................ 9,781 8,193
Projected benefit obligation................................ 10,297 8,652
Plan assets at market value................................. 11,863 9,419
------ ------
Benefit obligation in excess of (less than) plan assets..... (1,566) (767)
Unrecognized prior service cost............................. (11) (12)
Unrecognized net gain (loss)................................ 1,586 694
Unamortized net transition obligation (asset)............... (20) (40)
------ ------
Accrued (prepaid) pension costs under U.S. GAAP............. (11) (125)
</TABLE>
(e) Post-Retirement Benefits
ABN AMRO provides certain health care benefits for eligible retirees. SFAS
106 was adopted as at January 1, 1994. In accordance with SFAS 106, the
transition liability for accumulated post-retirement
F-42
<PAGE> 131
benefits as at January 1, 1994, the transition date, is recognized as a part of
periodic post-retirement benefit costs on a prospective basis and amortized over
a 20-year period.
Assumptions used in the computation of the post-retirement obligations as
at December 31 were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN PERCENTAGES)
<S> <C> <C> <C>
Average discount rate
The Netherlands........................................... 6.5 7.0 7.0
Foreign countries......................................... 7.5 7.5 8.0
Average health care cost trend rate
The Netherlands........................................... 3.0 3.0 3.0
Foreign countries......................................... 7.0 7.0 7.0
</TABLE>
The following table presents the components of net periodic post-retirement
benefit cost.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
NET PERIODIC POST-RETIREMENT BENEFIT COST
Service cost.............................................. 12 10 8
Interest cost............................................. 29 25 22
Net amortization and deferral............................. 7 9 11
----- ----- -----
Net periodic cost under U.S. GAAP......................... 48 44 41
Net periodic cost under Dutch GAAP........................ 17 41 26
----- ----- -----
Additional net periodic post-retirement benefit cost...... 31 3 15
===== ===== =====
</TABLE>
The following table presents the components of the accumulated
postretirement benefit obligation under SFAS 106.
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF NLG)
<S> <C> <C>
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION
Accumulated post-retirement benefit obligation (unfunded)... 444 357
Unrecognized net (gain) or loss............................. (24) 11
Unamortized net transition obligation....................... (128) (154)
---- ----
Accrued post-retirement benefit cost under U.S. GAAP........ 292 214
==== ====
</TABLE>
The effect of a 1% change in the assumed health care cost trend rate would
change the accumulated post-retirement benefit obligation by approximately NLG
64 million as of December 31, 1997 and would change the net periodic
postretirement benefit cost by NLG 7 million for fiscal 1997.
(f) Contingencies
U.S. GAAP does not permit provisions for contingencies, which are permitted
under Dutch GAAP. Accordingly, the 1997, 1996 and 1995 provisions of NLG 175
million, NLG 230 million and NLG 60 million, respectively, for the adaptation of
computer systems for the introduction of the Euro and for the year 2000, the
release in 1997 of NLG 166 million and the 1996 and 1995 provisions of NLG 24
million and NLG 85 million, respectively, for the potential devaluation of the
Brazilian real, the release in 1997 (NLG 40 million) and the 1996 and 1995
provisions for litigation of NLG 65 million and NLG 85 million, respectively,
and the 1995 provision for the one-time assessment on deposits insured by the
Savings Association Insurance Fund ($50 million; released in 1996), are not
permitted under U.S. GAAP and have been reversed in the U.S. GAAP
reconciliation.
F-43
<PAGE> 132
(g) Deferred Tax
In accordance with SFAS 109, the components of the net U.S. GAAP deferred
tax liability are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF NLG)
<S> <C> <C>
Deferred tax liabilities
Investment securities..................................... 1,214 728
Property.................................................. 435 386
Post-employment benefits.................................. 314 330
Derivatives............................................... 381 209
Leasing and other financing constructions................. 405 325
Other..................................................... 759 636
----- -----
Total deferred tax liabilities.............................. 3,508 2,614
Deferred tax assets
General allowance for loan losses(1)...................... 1,337 1,076
Specific allowances for loan losses....................... 202 --
Derivatives............................................... 52 --
Other..................................................... 358 123
Tax losses foreign entities............................... 476 512
----- -----
Total deferred tax assets before valuation allowance........ 2,425 1,711
Less: valuation allowance................................... 368 405
----- -----
Deferred tax assets less valuation allowance................ 2,057 1,306
----- -----
Total net deferred tax liability (asset) under U.S.
GAAP(2)................................................... 1,451 1,308
===== =====
</TABLE>
- ---------------
(1) This amount represents the tax effect of the gross up of the Fund for
general banking risks which is considered to be a general allowance for
loan losses for U.S. GAAP purposes.
(2) Of which NLG 364 million (1996: NLG 80 million) is a consequence of
differences between Dutch GAAP and U.S. GAAP.
ABN AMRO considers a significant portion of its approximately NLG 5.6
billion in distributable invested capital to be permanently invested. If such
capital were distributed no foreign taxes would be required to be paid on such
earnings. The estimated impact of foreign withholding tax is NLG 150 million.
(h) Impairment of loans
SFAS 114 requires loans to be measured for impairment when it is probable
that principal and/or interest will not be collected in accordance with the
contractual terms of the loan agreement. Total impaired loans of ABN AMRO are
those reported as doubtful loans and amounted to NLG 11,035 million at December
31, 1997 (1996: NLG 9,887 million). Total impaired loans averaged NLG 10,461
million and NLG 10,496 million during 1996 and 1997, respectively. Of the total
doubtful loans of NLG 11,035 million at December 31, 1997, NLG 9,351 million
(1996: NLG 7,619 million) have aggregate specific allowances for loan losses of
NLG 6,377 million (1996: NLG 5,293 million) and NLG 1,684 million (1996: NLG
2,268 million) have no specific allowances for loan losses. Doubtful loans
included accruing loans (loans on which ABN AMRO continues to charge interest
which is included in interest revenue) of NLG 5,207 million at December 31, 1997
(1996: NLG 4,229 million). Having compared the value of the impaired loans
calculated in accordance with SFAS 114 with the carrying value under Dutch GAAP,
no adjustments were required. Net interest revenue recognized in 1997 on
impaired loans amounted to NLG 338 million (1996: NLG 264 million), and interest
revenue not recognized in 1997 on impaired loans amounted to NLG 386 million
(1996: NLG 457 million).
F-44
<PAGE> 133
(i) Derivatives
Derivative transactions conducted on behalf of clients and held to maturity
are accounted for on an accrual basis. Under U.S. GAAP, these transactions are
considered trading. These transactions as well as derivatives which are used to
manage the overall structural interest rate exposure and which are not
designated to specific assets and liabilities should be valued on a
mark-to-market basis under U.S. GAAP.
(j) Accounting for Stock-Based Compensation
Effective January 1, 1996, ABN AMRO adopted SFAS 123, "Accounting for
Stock-Based Compensation," (SFAS 123). SFAS 123 establishes financial accounting
and reporting standards for stock-based compensation plans. ABN AMRO elected to
continue accounting for stock-based employee compensation plans in accordance
with Accounting Principles Board Opinion No. 25, as SFAS 123 permits. The
application of SFAS 123 did not have a material impact on ABN AMRO's pro forma
net profit, net profit per Ordinary Share or shareholders' equity.
F-45
<PAGE> 134
(k)Consolidated Balance Sheet and Income Statement Adjusted for U.S. GAAP
CONSOLIDATED BALANCE SHEET BEFORE PROFIT APPROPRIATION
INCLUDING SIGNIFICANT U.S. GAAP ADJUSTMENTS
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN MILLIONS OF NLG)
<S> <C> <C>
ASSETS
Cash........................................................ 8,408 3,709
Short-dated government paper................................ 25,451 5,998
Banks....................................................... 140,185 120,278
Professional securities transactions........................ 69,131 17,731
Loans....................................................... 380,671 319,272
Less: Allowance for credit losses........................... (10,444) (8,479)
------- -------
Net Loans................................................... 370,227 310,793
Interest-bearing securities................................. 168,340 103,275
Shares...................................................... 18,943 8,795
Participating interests..................................... 2,123 1,664
Property and equipment...................................... 8,036 6,504
Goodwill.................................................... 5,637 2,712
Other assets................................................ 47,784 31,612
Prepayments and accrued interest............................ 17,138 12,760
------- -------
881,403 625,831
LIABILITIES
Banks....................................................... 208,466 157,587
Professional securities transactions........................ 58,595 13,486
Total customer accounts..................................... 338,099 263,232
Debt securities............................................. 90,595 74,413
Other liabilities........................................... 95,810 48,638
Accruals and deferred income................................ 17,232 11,331
Provisions.................................................. 13,419 9,724
------- -------
822,216 578,411
Subordinated debt........................................... 20,101 15,309
Minority interests.......................................... 4,527 2,105
Shareholders' equity........................................ 34,559 30,006
------- -------
Total liabilities and shareholders' equity.................. 881,403 625,831
======= =======
</TABLE>
F-46
<PAGE> 135
CONSOLIDATED INCOME STATEMENT INCLUDING SIGNIFICANT U.S. GAAP ADJUSTMENTS.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
REVENUE
Interest revenue....................................... 45,585 38,427 36,221
Interest expense....................................... 31,956 27,053 26,064
------ ------ ------
Net interest revenue................................... 13,629 11,374 10,157
Provision for loan losses.............................. 1,600 1,299 1,072
------ ------ ------
Net interest revenue after provision for loan losses... 12,029 10,075 9,085
Revenue from securities and participating interests.... 630 256 197
Commission revenue..................................... 7,018 5,437 4,519
Commission expense..................................... 746 481 335
------ ------ ------
Net commissions........................................ 6,272 4,956 4,184
Results from financial transactions.................... 2,259 2,016 1,403
Net gains from available for sales securities.......... 577 601 262
Other revenue.......................................... 559 471 389
------ ------ ------
Total non interest revenue............................. 10,297 8,300 6,435
Total revenue.......................................... 22,326 18,375 15,520
EXPENSES
Staff costs............................................ 8,742 7,140 6,289
Other administrative expenses.......................... 6,436 4,585 3,690
------ ------ ------
Administrative expenses................................ 15,178 11,725 9,979
Depreciation........................................... 1,162 969 788
Amortization of goodwill............................... 427 287 233
------ ------ ------
OPERATING EXPENSES..................................... 16,767 12,981 11,000
Value adjustments to financial fixed assets............ (36) (31) 29
------ ------ ------
Total expenses......................................... 16,731 12,950 11,029
Operating profit before taxes.......................... 5,595 5,425 4,449
Taxes.................................................. 1,853 1,679 1,449
------ ------ ------
Group profit after taxes............................... 3,742 3,746 3,042
Minority interests..................................... 272 141 101
------ ------ ------
Net profit............................................. 3,470 3,605 2,941
====== ====== ======
</TABLE>
(l) Earnings per Share under U.S. GAAP
Effective December 31, 1997 ABN AMRO adopted SFAS 128, Earnings per Share,
which establishes new standards for computing and presenting earnings per share
(EPS).
Basic EPS is computed by dividing income available to common stockholders
by the weighted-average number of common shares outstanding. Diluted EPS
includes the determinants of basic EPS and, in addition, gives effect to
dilutive potential common shares that were outstanding during the period.
F-47
<PAGE> 136
The computation of basic and diluted EPS for the years ended December 31
are presented in the following table.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN MILLIONS OF NLG,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net profit............................................ 3,470 3,605 2,941
Dividends on Preference Shares........................ 180 187 248
------- ------- -------
Net profit applicable to Ordinary Shares.............. 3,290 3,418 2,693
Dividends on Convertible Preference Shares............ 8 15 76
------- ------- -------
Net profit adjusted for diluted computation........... 3,298 3,433 2,769
Weighted-Average Ordinary Shares Outstanding.......... 1,388.7 1,346.3 1,232.5
Dilutive Effect of Staff Options...................... 3.6 1.6 2.9
Convertible Preference Shares......................... 8.3 16.2 80.0
------- ------- -------
Adjusted for Diluted Computation...................... 1,400.6 1,364.1 1,315.4
Basic Earnings Per Share.............................. 2.37 2.54 2.19
Diluted Earnings Per Share............................ 2.35 2.52 2.11
</TABLE>
44 PARENT COMPANY ACCOUNTS (ABN AMRO HOLDING N.V.)
COMPANY BALANCE SHEET AT DECEMBER 31, 1997 AND 1996 AFTER PROFIT APPROPRIATION
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN MILLIONS OF NLG)
<S> <C> <C>
ASSETS
Banks(a).................................................... 2,547 3,405
Interest-earning securities(b).............................. -- 60
Participating interests in group companies(c)............... 25,022 24,369
Other assets(d)............................................. 831 128
Prepayments and accrued income(e)........................... 140 134
------ ------
28,540 28,096
LIABILITIES
Banks(a).................................................... 307 687
Deposits and other customer accounts........................ -- 60
Other liabilities(d)........................................ 567 521
Accruals and deferred income(e)............................. 116 187
------ ------
990 1,455
Subordinated debt........................................... 1,705 1,665
Share capital(f)............................................ 3,586 3,548
Share premium account....................................... 5,336 5,295
Revaluation reserves........................................ 637 664
Reserves prescribed by law and articles of association...... 499 449
Other reserves.............................................. 15,787 15,020
Shareholders' equity........................................ 25,845 24,976
------ ------
Parent Company capital...................................... 27,550 26,641
------ ------
28,540 28,096
====== ======
</TABLE>
F-48
<PAGE> 137
PARENT COMPANY INCOME STATEMENT
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Profits of participating interests after taxes............ 3,836 3,282 2,560
Other profit after taxes.................................. 17 21 56
----- ----- -----
Net profit................................................ 3,853 3,303 2,616
===== ===== =====
</TABLE>
Drawn up in accordance with section 2:402 of The Netherlands Civil Code.
Letters stated against items refer to the notes.
NOTES TO THE PARENT COMPANY BALANCE SHEET AND INCOME STATEMENT
(a) Banks
This item includes call loans to and other interbank relations with group
companies. An amount of NLG 1,497 million (1996: NLG 1,395 million) of this
exposure is subordinated. An amount of NLG 550 million is due for redemption in
1998, an amount of NLG 1,497 in 2001 and NLG 500 million in 2002.
(b) Interest-earning securities
The amount included in this item represents securitized receivables, such as
commercial paper.
(c) Participating interests in group companies
Dividends to be paid by ABN AMRO Bank N.V. to ABN AMRO Holding N.V. amount
to NLG 831 million (1996: NLG 128 million). Dividends received by ABN AMRO Bank
N.V. from banking subsidiaries amount to NLG 817 million (1996: NLG 363
million).
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Development in Participating interests in group
companies:
Opening Balance........................................ 24,369 19,533 18,059
Provision for general contingencies.................... 2,015
Movements (net)........................................ 653 2,821 1,474
------ ------ ------
Closing Balance........................................ 25,022 24,369 19,533
====== ====== ======
</TABLE>
(d) Other assets and other liabilities
These items include those amounts which are not of an accrued or deferred
nature or which cannot be classified with any other balance sheet item. This
concerns, for example, taxes receivable or payable and dividends.
(e) Prepayments and accrued income and accruals and deferred income
These items include revenue and expense recognized in the period under
review but whose actual receipt or payment falls in a different period, as well
as the total net difference between contract rates and spot rates on foreign
exchange hedging operations.
(f) Share capital and reserves
For details refer to note 16 to the Consolidated Balance Sheet and Income
Statement.
F-49
<PAGE> 138
(g) Guarantees
ABN AMRO Holding N.V. guarantees all liabilities of ABN AMRO Bank N.V.
45 MAJOR SUBSIDIARIES AND PARTICIPATING INTERESTS
(unless otherwise stated, ABN AMRO interest is 100% or almost 100%)
<TABLE>
<S> <C>
ABN AMRO BANK N.V., AMSTERDAM
The Netherlands
ABN AMRO Lease Holding N.V., Almere
ABN AMRO Levensverzekeringen N.V., Rotterdam
ABN AMRO Onroerend Goed Holding B.V., Amsterdam
ABN AMRO Participaties Holding B.V., Amsterdam
ABN AMRO Projectontwikkeling B.V., Amsterdam
ABN AMRO Schadeverzekeringen N.V., Zwolle
ABN AMRO Trustcompany (Nederland) B.V., Amsterdam
ABN AMRO Verzekeringen B.V., Zwolle
AA Interfinance B.V., Amsterdam
ABN AMRO Introductie Fonds B.V., Amsterdam
F. Berger & Co B.V., Amsterdam
CMV-Bank N.V., Amersfoort (67%)
Consultas N.V., Zwolle
Hollandsche Bank-Unie N.V., Rotterdam
IFN Group B.V., Rotterdam
Nachenius, Tjeenk & Co. N.V., Amsterdam
Rijnlandse Disconto Bank C.V., Utrecht
ABROAD
Europe
ABN AMRO Asset Management Ltd., London
ABN AMRO Asset Management (Fixed Income) Ltd., London
ABN AMRO Bank a.o., Moscow
ABN AMRO Bank (Deutschland) A.G., Cologne
ABN AMRO Bank (Gibraltar) Ltd., Gibraltar
ABN AMRO Bank (Luxembourg) S.A., Luxembourg
ABN AMRO Bank (Osterreich) A.G., Vienna
ABN AMRO Bank (Polska) S.A., Warsaw
ABN AMRO Bank (Romania) S.A., Bucharest
ABN AMRO Bank (Schweiz) A.G., Zurich
ABN AMRO Corporate Finance Ltd., London
ABN AMRO Development Capital (UK) Ltd, London
ABN AMRO Equities (Hungary) Rt., Budapest
ABN AMRO Equities (Spain) S.A. Sociedad de Valores y Bolsa,
Madrid
ABN AMRO Equities (UK), London
ABN AMRO France S.A., Paris (88%)
ABN AMRO Fixed Income (France) S.A., Paris
ABN AMRO Securities (France) S.A., Paris
Banque Demachy, Paris (80%)
Banque de Neuflize, Schlumberger, Mallet S.A., Paris
</TABLE>
F-50
<PAGE> 139
<TABLE>
<S> <C>
Banque Odier Bungener Courvoisier, Paris
Banque du Phenix, Paris
ABN AMRO International Financial Services Company, Dublin
ABN AMRO Investment Management S.A., Luxembourg
ABN AMRO Leasing (Hellas) S.A., Athens
ABN AMRO (Magyar) Bank Rt., Budapest (95%)
ABN AMRO Securities (Greece) Ltd., Athens (70%)
ABN AMRO Securities (Italy) SIM SpA, Milan
ABN AMRO Securities (Polska) S.A., Warsaw
ABN AMRO Securities (Romania) S.A., Bucharest
ABN AMRO Stockbrokers (Ireland) Ltd., Dublin
ABN AMRO Trust Compagnie (Jersey) Ltd., St.Helier
ABN AMRO Trust Compagnie (Luxembourg) S.A., Luxembourg
ABN AMRO Trust Compagnie (Suisse) S.A., Geneva
ABN AMRO Transferator AB, Stockholm
ABN AMRO Yatyrym Menkul Degerter A.S., Istanbul
Alfred Berg Holding A/B, Stockholm
Antonveneta ABN AMRO Bank SpA (50%), Milan
CM Capital Markets Brokerage S.A., Madrid (45%)
Africa
ABN AMRO Bank (Maroc) S.A., Casablanca (99%)
ABN AMRO Securities (Morocco) S.A., Casablanca
Middle East
Saudi Hollandi Bank, Riyadh (40%)
Rest of Asia
ABN AMRO Asia Ltd, Hong Kong (70%)
ABN AMRO (Asia) Ltd., Singapore
ABN AMRO Asset Management (Far East) Ltd., Hong Kong
ABN AMRO Bank Berhad, Kuala Lumpur
ABN AMRO Bank (Kazakstan) Ltd., Almaty (51%)
ABN AMRO Bank N.B., Uzbekistan A.O., Tashkent (50%)
ABN AMRO Securities (Far East) Ltd., Hong Kong
ABN AMRO Securities (Japan) Ltd., Tokyo
PT ABN AMRO Finance Indonesia, Jakarta (70%)
Australia
ABN AMRO Australia Ltd., Sydney
ABN AMRO Capital Markets (Australia) Ltd., Sydney
North America
ABN AMRO Bank Canada, Toronto
ABN AMRO North America Inc., Chicago (holding company,
voting right 100%, equity interest 47%)
LaSalle Bank FSB, Chicago
LaSalle Bank NI, Chicago
LaSalle National Bank, Chicago
LaSalle National Corporation, Chicago
</TABLE>
F-51
<PAGE> 140
<TABLE>
<S> <C>
Standard Federal Bancorporation, Troy
ABN AMRO Incorporated, Chicago
European American Bank Inc., New York (voting right 100%,
equity interest 62%)
South and Central America
ABN AMRO Bank Asset Management (Curacao) N.V., Willemstad
ABN AMRO Bank (Chile) SA, Santiago de Chile
ABN AMRO Bank (Mexico) S.A., Mexico City
ABN AMRO Securities (Argentina) Sociedad de Bolsa S.A.,
Buenos Aires
ABN AMRO Trustcompany (Curacao) N.V., Willemstad
Banco ABN AMRO SA, Sao Paulo
De Surinaamsche Bank N.V., Paramaribo (49%)
MINORITY INTERESTS
(ABN AMRO interest generally is 20% or less)
Alpinvest Holding N.V., Naarden (25%)
Nederlandse Participatie Maatschappij N.V., Amsterdam
Pacific Investment Holding N.V., Amsterdam (22%)
Nederlandse Financierings-Maatschappij voor
Ontwikkelingslanden N.V., The Hague
Kredietbank Luxembourgeoise, Luxembourg
</TABLE>
For the investments of ABN AMRO Lease Holding N.V., the reader is referred
to the separate annual report published by this company.
The list of participating interests for which statements of liability have
been issued has been filed at the Amsterdam Chamber of Commerce.
BRANCHES OF ABN AMRO BANK N.V.
ABN AMRO Bank N.V. operates branches in The Netherlands and the following
countries:
Europe
Belgium, the Channel Islands, the Czech Republic, Denmark, Finland, France,
Greece, Hungary, Ireland, Italy, Monaco, Poland, Portugal, Romania, Russia,
Spain, Sweden, Turkey, the United Kingdom
North America
Canada, United States of America, Mexico
Middle East, Far East, Africa and Australia
Bahrain, Hong Kong, India, Indonesia, Japan, Kazakstan, Kenya, Korea,
Lebanon, Malaysia, Myanmar, Pakistan, People's Republic of China, Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, United Arab Emirates, Uzbekistan,
Vietnam
South and Central America
Argentina, Aruba, Colombia, Ecuador, Netherlands Antilles, Panama,
Paraguay, Suriname, Uruguay, Venezuela
46 POST-BALANCE SHEET EVENTS
ABN AMRO and Bank of Asia of Bangkok, Thailand ("Bank of Asia"), have
agreed that ABN AMRO will acquire a (75%) interest in Bank of Asia. The
consummation of the transaction is subject to the completion of a due diligence
examination of the Bank of Asia, and approval of the shareholders of Bank of
F-52
<PAGE> 141
Asia as well as the supervisory and regulatory authorities in Thailand and The
Netherlands. The definitive price will not be established until 2000, and will
be based on the net asset value of Bank of Asia at year-end 1999. An initial
payment of NLG 380 million will be made on closing. At December 31, 1997, Bank
of Asia has total assets of approximately NLG 8 billion and a staff of 2,300.
47 STIPULATIONS OF THE ARTICLES OF ASSOCIATION WITH RESPECT TO PROFIT
APPROPRIATION
Profit is appropriated in accordance with article 38 of the Articles of
Association. The main stipulations with respect to classes and series of shares
currently in issue are as follows:
1. The holder of the Priority Share will be paid a dividend of NLG
0.30, representing 6% of the face value (article 38.2.a.).
2. The holders of Preference Shares will receive a dividend of NLG
0.475 per share, representing 9.5% of the face value. As of January 1,
2001, and every ten years thereafter, the dividend will be adjusted in line
with the average redemption yield on the five longest-dated government
loans, plus an increment of no less than 0.25 percentage point and no more
than one percentage point (article 38.2.b.2.).
The holders of Convertible Preference Shares will receive a dividend
of NLG 3.78 per share, representing 6% of the amount paid on each share. As
of January 1, 2004, and every ten years thereafter, the dividend on shares
not converted by October 31, 2003 will be adjusted in line with the
redemption yield on government loans with an original or remaining term to
maturity of nine to ten years, plus an increment or less a reduction of no
more than one percentage point (article 38.2.b.4. and b.3.). No profit
distributions will be made to holders of Preference Shares and Convertible
Preference Shares in excess of the maxima defined above (article
38.2.b.6.).
3. From the profit remaining after these distributions, such
appropriations will be made to reserves as may be determined by the
Managing Board with the approval of the Supervisory Board (article
38.2.c.).
4. The balance then remaining will be paid out as Ordinary Share
dividend (article 38.2.d.). The Managing Board can make the Ordinary Share
dividend payable, at the shareholder's option, either in cash or entirely
or partly in the form of Ordinary or Preference Shares (article 38.3.).
PROPOSED PROFIT APPROPRIATION
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Appropriation of net profit pursuant to article 38.2 and
38.3 of the articles of association
Dividends on preference shares............................ 172 172 172
Dividends on convertible preference shares................ 8 15 76
Addition to reserves...................................... 1,993 1,687 1,244
Dividends on ordinary shares.............................. 1,680 1,429 1,124
----- ----- -----
3,853 3,303 2,616
===== ===== =====
</TABLE>
48 STIPULATIONS OF THE ARTICLES OF ASSOCIATION WITH RESPECT TO SHARES
Each ordinary share of NLG 1.25 nominal value in the capital of ABN AMRO
Holding N.V. entitles the holder to cast one vote. The other shares in the
capital each have a nominal value of NLG 5.00 and are each
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entitled to four votes. Subject to certain exceptions provided for by law or in
the articles of association, resolutions are passed by an absolute majority of
the votes cast.
The rights of the holder of the priority share include the right to
determine the number of members of the Managing Board, which may not be fewer
than five according to the articles of association, and the number of members of
the Supervisory Board, which may not be fewer than ten. The prior approval of
the holder of the priority share is also required for resolutions to amend the
articles of association or to dissolve the company. The priority share is
entitled to an annual distribution up to 6% of its face value.
The priority share is held by Stichting Prioriteit ABN AMRO Holding, a
foundation established in Amsterdam. The Executive Committee is made up of the
members of the Supervisory and Managing Boards of ABN AMRO Holding N.V.
Subject to certain exceptions, upon the issuance of ordinary shares and
convertible preference shares, holders of ordinary shares have pre-emptive
rights in proportion to their holdings. Upon the issuance of convertible
preference shares, subject to certain limitations, holders of convertible
preference shares have pre-emptive rights in proportion to their holdings.
In the event of the dissolution and liquidation of ABN AMRO Holding N.V.,
the assets remaining after payment of all debts are distributed first to the
holder of the priority share, in an amount equal to the nominal value of the
priority share, secondly to the holders of preference shares and the convertible
preference shares on a pro rata basis, in an amount equal to all dividends
accrued from the beginning of the most recent full financial year through the
date of payment and then in an amount equal to the nominal value of the
preference shares or the amount paid in on the convertible preference shares,
respectively, and thirdly to the holders of ordinary shares on a pro rata basis.
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