<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
--------------------------
FORM 20-F
(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, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS 1-14624, 5-52647
------------------------
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.
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- - - - - - - - - - - - - -------------------------------------------------------- --------------------------------------------------------
<S> <C>
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)........................................... 1,441,649,082
Non-cumulative Preference Shares (NLG 5.00).......................... 362,503,010
Convertible Preference Shares (NLG 5.00)............................. 1,700,453
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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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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
<CAPTION>
ITEM ITEM CAPTION
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<S> <C> <C>
PART I
1. Description of Business............................................................................ 1
2. Description of Property............................................................................ 45
3. Legal Proceedings.................................................................................. 46
4. Control of Registrant.............................................................................. 46
5. Nature of Trading Market........................................................................... 48
6. Exchange Controls and Other Limitations Affecting Security Holders................................. 50
7. Taxation........................................................................................... 50
8. Selected Financial Data............................................................................ 54
9. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 58
9A. Quantitative and Qualitative Disclosures about Market Risk......................................... 87
10. Directors and Officers of Registrant............................................................... 87
11. Compensation of Directors and Officers............................................................. 89
12. Options to Purchase Securities from Registrant or Subsidiaries..................................... 89
13. Interest of Management in Certain Transactions..................................................... 90
PART II
14. Description of Securities to Be Registered......................................................... 90
PART III
15. Defaults upon Senior Securities.................................................................... 90
16. Changes in Securities and Changes in Security for Registered Securities and Use of Proceeds........ 90
PART IV
17. Financial Statements............................................................................... 90
18. Financial Statements............................................................................... 91
19. Financial Statements and Exhibits.................................................................. 91
</TABLE>
i
<PAGE>
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 952
billion as of December 31, 1998. 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
<PAGE>
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 euro- or 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, (vii) issues associated with Year 2000 compliance and
(viii) 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>
PERIOD AVERAGE
YEAR END(1) RATE(1)(2) HIGH LOW
- - - - - - - - - - - - - ---------------------------------------------------------- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
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
1998...................................................... 1.88 1.98 2.09 1.81
</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>
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 3,600 offices and branches in 74 countries. ABN AMRO is
one of the largest banking groups in the world, with total consolidated assets
of NLG 952.2 billion at December 31, 1998. 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 one of the largest foreign banking groups
based on total assets held in the country. ABN AMRO also has a significant
presence in Brazil, which together with The Netherlands and the Midwestern
United States, is one of the Bank's three "home" markets.
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. ABN AMRO's expansion strategy targets relatively
homogeneous market areas which offer an attractive long-term macro-economic
environment and adequate critical mass for commercial and investment banking
services, with a focus on Europe and the United States.
ABN AMRO has acquired a number of banks and other financial services
companies in recent years. During May 1997, ABN AMRO acquired Standard Federal
Bancorporation ("Standard Federal") in the Midwestern United States. During
November 1998, ABN AMRO acquired the controlling interest in Banco Real,
Brazil's fourth-largest privately held bank in terms of deposits and net worth,
and Banco do Estado de Pernambuco, or Bandepe, which is also in Brazil. ABN AMRO
also acquired 77% of the equity of Bank of Asia in Thailand during August 1998.
Investment banking firms recently acquired include The Chicago Corporation in
the United States in January 1997 and the Australian and New Zealand operations
of BZW in March 1998.
In August 1998, ABN AMRO increased its target long-term financial
objectives. ABN AMRO's new Dutch GAAP financial objectives are to achieve (1)
average annual growth in earnings per Ordinary Share of at least 10%, up from
7.5%, (2) average annual growth in net profit of at least 12.5%, up from 10%,
and (3) return on shareholders' equity of at least 18%, up from 13%. Annual
growth in earnings per Ordinary Share and net profit averaged 12.2% and 15.2%,
respectively, from 1994 through 1998. Return on shareholders' equity increased
from 12.4% in 1994 to 16.9% in 1998. There can be no assurance that ABN AMRO's
financial objectives will be achieved. In light of the volatility of financial
markets, ABN AMRO's results may fluctuate from period to period.
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. 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 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.
1
<PAGE>
The following table indicates for 1998 the contribution made to total
revenue, operating profit before taxes and risk-weighted total assets by each
operating division and ABN AMRO Lease Holding, as well as the number of offices
and branches for each division and ABN AMRO Lease Holding.
<TABLE>
<CAPTION>
OFFICES
OPERATING PROFIT RISK-WEIGHTED AND
TOTAL REVENUE BEFORE TAXES TOTAL ASSETS BRANCHES
------------------------ ---------------------------- ------------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES AND OFFICES AND BRANCHES)
Netherlands Division......... 8,191 29.6% 2,550 39.9% 148,296 31.2% 937
International Division....... 14,553 52.7% 3,471 54.4% 263,935 55.5% 2,570(1)
Investment Banking
Division................... 3,921 14.2% 542 8.5% 49,280 10.4% 61(1)
ABN AMRO Lease Holding....... 965 3.5% 267 4.2% 13,982 2.9% 34
Non-allocated results........ (668) (10.5%)
Release from Fund for general
banking risks.............. 223 3.5%
------ --------- ----- --------- ------------- --------- ---------
Total........................ 27,630 100% 6,385 100% 475,493 100% 3,583
------ --------- ----- --------- ------------- --------- ---------
------ --------- ----- --------- ------------- --------- ---------
</TABLE>
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(1) Nineteen offices are shared by the International and Investment Banking
Divisions.
NETHERLANDS DIVISION
Operating through the Bank's network of approximately 900 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, structured finance, 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.
At December 31, 1998, the Netherlands Division had total customer loans of
NLG 177.7 billion and total customer deposits of NLG 188.2 billion, resulting in
a 20% share of total lending and a 25% share of total customer deposits, 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 (44% of total private sector loans of the Netherlands Division at
December 31, 1998) and home mortgage and other retail lending (56% of such total
private sector loans at the same date). Retail and corporate customers hold
approximately 3.6 million and 0.5 million current accounts, respectively, which
provide the Bank with a stable source of funding.
ABN AMRO believes that a market-oriented, commercial organization centered
on the customer's interests is the key to successfully responding to market
developments. The responsibility for customer satisfaction (which is frequently
measured by ABN AMRO), market share, profitability and the quality of local
operations has over the last few years been moved to the local branches, many of
which have been transformed into local businesses that operate with substantial
autonomy and are capable of providing on a real-time basis products and services
responsive to client needs. In order to further enhance the quality of its
customer service, during 1998, ABN AMRO also introduced uniform guidelines for
all staff in the Netherlands Division that work directly with customers.
ABN AMRO also has introduced new distribution channels to meet the needs of
its customers, particularly younger customers. For example, ABN AMRO has
broadened its distribution channels through electronic and Internet banking,
cash dispensers, direct mail and "ABN AMRO 24 X 7," an around-the-clock
telephone banking and securities trading service.
2
<PAGE>
Part of ABN AMRO's growth strategy in The Netherlands also is to position
the Bank as a provider of integrated banking and insurance products. The Bank
currently acts as an insurer and authorized underwriting agent directly or
through subsidiaries and also provides insurance brokerage activities. During
1998, the Bank introduced a number of new insurance products linked to banking
products in furtherance of this part of its growth strategy.
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 2,570 offices and branches in 68 countries
and territories worldwide. Through acquisitions of local financial services
businesses and organic growth, ABN AMRO also has established in selected
countries a significant local business franchise that provides banking and other
financial products and services to larger local business clients with a regional
or multinational orientation, in addition to servicing private banking and
consumer banking clients.
Senior bankers within the International Division are responsible for
managing worldwide relationships with ABN AMRO's largest corporate and
institutional clients and coordinating the delivery of ABN AMRO's full range of
services to this important customer group. 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 on high quality delivery of
more conventional corporate banking services.
At year-end 1998, the Bank had consumer banking operations in 23 countries.
ABN AMRO intends to pursue consumer banking on a selective basis through
potential acquisitions of strong local banks in major economies or emerging
markets and the integrated delivery of customized financial products and
services supported by a standard information technology platform, uniform
marketing, multichannel distribution and data base mining. 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.
The following table indicates the contribution for 1998 made to total
revenue, operating profit before taxes and total risk-weighted assets by each
region in the International Division, as well as the number of offices and
branches of the International Division at December 31, 1998 by region.
<TABLE>
<CAPTION>
OPERATING PROFIT OFFICES
RISK-WEIGHTED AND
TOTAL REVENUE BEFORE TAXES TOTAL ASSETS BRANCHES
-------------------- -------------------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES AND OFFICES AND BRANCHES)
Europe (excluding The Netherlands)......... 3,206 22.0% 747 21.5% 57,998 22.0% 177
North America.............................. 7,136 49.1% 2,151 62.0% 132,626 50.2% 443
South and Central America.................. 2,364 16.2% 517 14.9% 30,131 11.4% 1,704
Middle East and Africa..................... 263 1.8% 99 2.8% 3,832 1.5% 70
Asia/Pacific............................... 1,584 10.9% (43) (1.2)% 39,348 14.9% 176
--------- --------- --------- -----
Total International Division............... 14,553 100.0% 3,471 100.0% 263,935 100.0% 2,570
--------- --------- --------- --------- --------- --------- -----
--------- --------- --------- --------- --------- --------- -----
</TABLE>
EUROPE (EXCLUDING THE NETHERLANDS)
ABN AMRO uses its network of 177 offices and branches in 27 European
countries and territories outside The Netherlands, including all of the member
states of the European Union, to deliver sophisticated corporate banking and
other financial services to multinational and large local corporations. Products
include 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, France,
Germany, Luxembourg and Switzerland.
3
<PAGE>
ABN AMRO believes that its substantial European operations are a key
ingredient in its ability to successfully market underwriting, advisory, trading
and structured finance services to ABN AMRO's largest corporate clients. ABN
AMRO intends to further modify the organizational structure of its European
operations to increase efficiency and to take better advantage of its
capabilities to act as a "eurobank."
ABN AMRO intends to continue to expand its Western European business through
both internal growth and acquisitions. In March 1999, ABN AMRO acquired an 8.75%
interest in Banca di Roma, a major Italian banking group, for NLG 1.45 billion.
ABN AMRO also intends to increase its ownership interest in Banca Antoniana
Populare Veneta, a rapidly growing bank operating in Northern Italy. In
addition, during 1998, ABN AMRO submitted bids to acquire Generale Bank in
Belgium and CIC in France. ABN AMRO believes that the trend toward consolidation
in the European financial sector will continue.
In Central and Eastern Europe, 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. ABN AMRO believes that this region continues to provide attractive
growth opportunities. As a result, ABN AMRO's strategy in this region is to
continue to grow internally and to pursue selective acquisitions that satisfy
its acquisition criteria.
NORTH AMERICA
ABN AMRO is one of the largest foreign banking groups in the United States,
based on total assets held in the United States of NLG 231 billion ($123
billion) at December 31, 1998. ABN AMRO has 438 offices and branches and 18,502
full-time equivalent employees in the United States. ABN AMRO also has offices
and branches in Canada and Mexico.
ABN AMRO's principal U.S. banking operations are in the Midwestern United
States, where it has had a substantial presence since 1979. The banks and
savings institutions which form the LaSalle Group comprise one of the largest
banking groups in the Chicago metropolitan area and provide retail, private
banking and home mortgage banking services in the Chicago metropolitan area and
small and middle market business loans in the Midwest and other regions. ABN
AMRO's Midwestern operations also include Standard Federal and its Bell Federal
Bank division in Chicago, which were acquired during 1997. Since 1997, the
mortgage origination and servicing entities of the LaSalle Group and Standard
Federal have been integrated and are the eighth largest mortgage originators in
the United States. As the consolidation of the U.S. banking industry continues,
ABN AMRO will continue to consider additional acquisition opportunities.
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 issues and administers credit cards, both under its
own name and for third parties, and has recently entered the equipment leasing
business.
In addition, ABN AMRO operates eleven branches or agencies in major cities
throughout the United States. These branches and agencies are dedicated
primarily to servicing major local corporations and large multinational
corporations in their U.S. activities. In 1998, these branches were restructured
to focus more intensively on specific industry sectors.
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). In 1997, ABN AMRO acquired The Chicago Corporation,
a Chicago-based investment bank, which operates under the name ABN AMRO
Incorporated. It provides ABN AMRO with futures, securities and options clearing
and trading
4
<PAGE>
capability, in addition to providing investment banking services to middle
market corporate customers, particularly in the Midwestern United States. In May
1998, ABN AMRO also acquired the business and substantially all of the assets of
Sage Clearing Limited Partnership, a leading market maker clearing firm.
SOUTH AND CENTRAL AMERICA
As a result of the acquisition during November 1998 of a controlling
interest in Banco Real and affiliates for $2.1 billion and of Bandepe for $150
million, ABN AMRO had at December 31, 1998 1,704 offices and branches in 14
South and Central American countries. The acquisitions of Banco Real and Bandepe
reflect ABN AMRO's strategy of becoming a leading regional network bank in South
and Central America, and ABN AMRO is now the fourth-largest privately held bank
in Brazil and the leading local provider of consumer finance. The Bank also has
a strong market position in Paraguay and Uruguay.
Banco Real has approximately 1,400 branches, 2.2 million individual
customers, 100,000 business customers and 20,000 employees. In connection with
its acquisition of a controlling interest in Banco Real, ABN AMRO also acquired
a number of related businesses, including a residential mortgage finance
company, an asset management company and insurance companies with activities in
Brazil and five other Latin American countries. The Brazilian authorities have
granted approval for ABN AMRO's acquisition of the remaining Banco Real shares.
This acquisition is expected to be completed during 1999.
ABN AMRO's regional network in Latin America 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. In addition, during 1998, ABN AMRO
implemented uniform information technology standards in most countries in the
region and opened a regional processing center in Miami in order to increase
operating efficiencies.
MIDDLE EAST AND AFRICA
In the Middle East, ABN AMRO has offices in Bahrain, the United Arab
Emirates, Lebanon and Saudi Arabia (through its 40% interest in Saudi Hollandi
Bank). In Africa the Bank's operations are located in Kenya, Morocco and South
Africa. ABN AMRO's network in this region comprises 70 offices.
ASIA/PACIFIC
ABN AMRO's network of 176 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. Management and product specialists for the region
are centralized in Singapore. 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.
Despite the crisis in the Asian financial markets, ABN AMRO remains
committed to the goal of substantially increasing the contribution of Asian
operations. 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.
In 1998, the Bank purchased 77% 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 358 million, with the final purchase price to be
determined based on Bank of Asia's net book value at
5
<PAGE>
December 31, 1999. In addition, ABN AMRO purchased the Australian and New
Zealand investment banking operations of BZW for NLG 179 million. ABN AMRO also
intends to expand its consumer banking activities beyond Hong Kong, Indonesia,
Taiwan and Thailand into other selected Asian markets. In addition, it is
seeking to increase the delivery of non-lending corporate products, such as
treasury, cash management and trade finance in the region.
INVESTMENT BANKING DIVISION
The Investment Banking Division provides integrated investment banking
services, primarily under the "ABN AMRO" name, 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. As a
prominent European investment bank with a global focus, and as part of a larger
universal bank, ABN AMRO considers its Investment Banking Division
well-positioned to take advantage of opportunities arising from the launch of
the euro on January 1, 1999.
In recent years, ABN AMRO has acquired a number of major investment banking
businesses in various markets around the world. These include Hoare Govett in
the United Kingdom, CIMO in Italy, Alfred Berg in Scandinavia, Chicago
Corporation in the United States, HG Asia in the Far East and a stake in
Huysamer Stals in South Africa. In addition, ABN AMRO has established or
acquired securities subsidiaries in certain markets in Central and Eastern
Europe and Latin America.
In addition, in 1998, the Bank established a joint venture with Mellon Bank
for custody services. The new joint venture, which operates under the name ABN
AMRO Mellon Global Securities Services, is engaged in the joint marketing and
sale of global custody services in most countries outside of the United States.
The delivery of products and services by the Investment Banking Division is
organized through global lines of business. The principal products and 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 Investment Banking Division is also
responsible for ABN AMRO's trading activities on behalf of clients and for its
own account. ABN AMRO seeks to become one of the top three providers of treasury
and interest rate-related capital markets products for the euro.
Capital markets and treasury trading activities are conducted principally
from Amsterdam, London, Chicago, New York, Hong Kong and Singapore offices. ABN
AMRO actively trades government and corporate debt instruments, equity
securities and currencies.
The Bank's international equity origination business is conducted through
the ABN AMRO Rothschild joint venture. ABN AMRO believes that the relationships
and distribution capacity of its integrated investment banking business and its
high quality research capabilities, combined with ABN AMRO Rothschild's ability
to draw upon capital markets and financial advisory and merger and acquisition
expertise centralized in London and Amsterdam, are attractive to issuers and
have resulted in ABN AMRO Rothschild being selected as lead manager for an
increasing number of equity capital market transactions.
Financial advisory and mergers and acquisitions activities focus principally
on cross border transactions in Europe and Asia and in specific industry sectors
in North and South America. These activities are supported by sector specialists
in Amsterdam and London.
The Investment Banking Division provides asset management services for
institutional and individual clients, as well as trust and custody services. At
December 31, 1998, ABN AMRO had NLG 197 billion of assets under management.
Asset management activities primarily are conducted from three regional centers
in Amsterdam/London, Chicago and Hong Kong, which perform not only
6
<PAGE>
portfolio management (both through investment funds and discretionary
management) but also account management, marketing, institutional sales, product
development and research. ABN AMRO believes that the European market offers
particularly attractive opportunities to increase assets under management as a
consequence of the ongoing privatization of social security and pension funds.
ABN AMRO also develops and markets complex financing structures for a large
variety of industries, including 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 buyouts
in The Netherlands and, increasingly, elsewhere in Europe. In addition, ABN AMRO
provides global clearing services for futures, options and equities, both to
institutional investors and private banking clients.
ABN AMRO LEASE HOLDING
ABN AMRO Lease Holding is a fleet and equipment leasing holding company
operating through numerous subsidiaries in 21 countries in Europe, North and
South America and Asia, as well as in Australia, New Zealand and South Africa.
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 527,000 cars under management, and is 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, 1998, ABN AMRO had 105,826 employees, an increase of 30,891
or 41.2% over 1997, reflecting acquisitions in Brazil, Thailand and other
countries and the continued organic expansion of its international network.
Approximately 10,000 of these employees hold managerial and executive positions.
A breakdown of employees by division and for ABN AMRO Lease Holding at December
31, 1998 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 expired on December 31, 1998. ABN AMRO is in the process of
negotiating a new collective agreement.
7
<PAGE>
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, cross-border risk, market risk,
liquidity risk, operational risk 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. This culture is reinforced by
the integration of the "ABN AMRO Values" (integrity, teamwork, respect and
professionalism) into the Bank's centralized consensus-based risk management
structure.
ABN AMRO's risk management policy is designed to identify and analyze credit
risk, market risk and other risks at an early stage, to set appropriate limits,
and to continually monitor these risks and limits by means of reliable
information systems. Risk management policies and systems require continuous
modification and enhancement to reflect dynamic changes in markets and products
and are periodically revised.
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 and both of which
include members of the Managing Board and Senior Executive Vice Presidents, are
responsible for the development of effective risk management policy and
controls. The Bank's guidelines stipulate that risk-sensitive decision must, in
most instances, be taken by a specific committee and always by at least two
officers.
Year 2000 compliance by both ABN AMRO and third parties, including
borrowers, also will present risks in 1999 and 2000 and possibly beyond. For a
discussion of these risks, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Introduction--Year 2000."
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 implementing
risk management policy.
ABN AMRO has created regional risk management committees for The
Netherlands, North America and Asia/Pacific and Latin America 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. Cross-border risks are individually analyzed and reviewed
8
<PAGE>
using a value-at-risk model, both to assess the Bank's overall cross-border
exposure and to provide ABN AMRO with a framework for its commercial policies.
In 1998, ABN AMRO implemented a new uniform standard for the presentation of
credit proposals 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. In 1998, a new credit rating
model was implemented to permit the systematic evaluation of risk to bank
counterparties.
As in the three previous years, specific provisions for loan losses in 1998
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 turmoil in the Asian and Latin American financial markets indicates
how swiftly and suddenly the economic tide can turn in an entire region. The
Bank believes that its credit acceptance policies and loan loss reserves are
adequate to maintain the Bank's Asian and Latin American 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 day-to-day 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 limit was not exceeded during 1998. 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>
1998
--------------------------------------------- DECEMBER 31,
MARKET RISK AVERAGE MINIMUM MAXIMUM 1998
- - - - - - - - - - - - - ------------------------------------------------------------------ ------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Overall portfolio................................................. 96 * * 67
Interest rate..................................................... 76 50 103 55
Currency.......................................................... 10 4 21 7
Equity............................................................ 16 7 30 17
</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 1998, the minimum daily value at risk for the overall
portfolio was NLG 67 million and the maximum daily value at risk was NLG 125
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
9
<PAGE>
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.
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 interest rate conditions has been
tested assuming an immediate and lasting interest rate movement of 100 basis
points. Such a sharp upward movement would depress net interest revenue by 2.9%
in the first year while a downward movement would boost net interest revenue by
2.1%.
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, euros, pounds sterling, Swiss francs and Japanese yen. Of total assets
and total liabilities at December 31, 1998, the equivalent of NLG 726 billion
and NLG 713 billion, respectively, was denominated in currencies other than
Dutch guilders, corresponding to approximately 75% 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>
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 at all times able 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 74 countries, whose national financial markets vary
widely in terms of scope and depth. Customers, products and competitors also
differ 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, together with funding in the interbank market. The core deposits of
the bank affiliates of ABN AMRO at December 31, 1998 were NLG 384.6 billion (of
which NLG 188.1 billion is in The Netherlands, NLG 80.9 billion is in the United
States and NLG 16.6 billion is in Brazil), which approximated 93.6% of total
loans excluding professional securities transactions at that date.
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.
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). During the last three 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. At December 31, 1997, loans from banks totaled NLG 208.5 billion as
compared to loans to banks of NLG 140.2 billion. Loans from banks totaled NLG
231.2 billion at December 31, 1998, as compared to loans to banks of NLG 134.2
billion. As part of the expansion of its trading and other investment banking
activities, 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.
OPERATIONAL AND LEGAL RISKS
ABN AMRO, like all large financial institutions, is exposed to diverse 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 continuous
attention to individual integrity and 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>
Legal risk arises from uncertainties about the legal enforceability of the
obligations of the Bank's customers and counterparties (including with respect
to derivatives), as well as the possibility that legal or regulatory changes may
adversely affect the Bank's position. ABN AMRO seeks to minimize legal risk
through the use of industry standard legal agreements for financial products 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 euro, the
Swiss franc and the Japanese yen.
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 Bank for International
Settlements ("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 4,015 billion at
December 31, 1998 or 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 was
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.
12
<PAGE>
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
71.0 billion at December 31, 1998. When weighted for the counterparty risk
(mainly banks) for capital adequacy purposes, the credit risk equivalent
represents only NLG 19.2 billion or 4.0% of total risk-weighted assets at
December 31, 1998.
See note 24 to the Consolidated Financial Statements for further analysis of
ABN AMRO's derivatives activities, including an analysis at December 31, 1998 of
its trading and hedging derivatives portfolios.
13
<PAGE>
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>
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
BALANCE REVENUE (%) BALANCE REVENUE (%) BALANCE REVENUE (%)
------- -------- -------- ------- -------- -------- ------- -------- --------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS(1)(2)
Banks
The Netherlands.................. 103,489 5,892 5.7 71,674 3,552 5.0 93,419 4,545 4.9
North America.................... 7,665 506 6.6 4,560 278 6.1 2,206 126 5.7
Rest of the world................ 95,353 3,869 4.1 71,714 3,810 5.3 58,817 3,084 5.2
Loans(3)
Public sector(4)
The Netherlands.................. 10,865 728 6.7 12,305 837 6.8 15,318 1,030 6.7
North America.................... 1,345 82 6.1 1,291 83 6.4 1,067 64 6.0
Rest of the world................ 2,951 212 7.2 2,298 223 9.7 2,413 233 9.7
Private sector
The Netherlands.................. 187,045 12,139 6.5 174,838 10,881 6.2 166,744 11,294 6.8
North America.................... 161,867 11,354 7.0 127,277 9,172 7.2 65,293 4,840 7.4
Rest of the world................ 133,222 9,912 7.4 118,954 9,044 7.6 90,166 7,467 8.3
Interest-bearing securities(5)
Investment portfolio
The Netherlands.................. 36,913 2,355 6.4 34,604 2,249 6.5 30,338 2,089 6.9
North America.................... 41,495 2,424 5.8 27,690 1,915 6.9 22,184 1,496 6.7
Rest of the world................ 20,451 1,869 9.1 21,428 1,439 6.7 12,657 834 6.6
Trading portfolio and other
securities
The Netherlands.................. 20,807 985 4.7 12,962 590 4.6 9,452 364 3.8
North America.................... 14,632 1,044 7.1 18,220 1,207 6.6 11,448 753 6.6
Rest of the world................ 68,812 3,118 4.5 12,828 547 4.3 8,380 360 4.3
------- -------- --- ------- -------- --- ------- -------- ---
Total interest-earning assets...... 906,912 56,489 6.2 712,643 45,827 6.4 589,902 38,579 6.5
Non-interest-earning assets........ 75,553 75,870 48,619
------- -------- --- ------- -------- --- ------- -------- ---
Total average assets............... 982,465 56,489 5.8 788,513 45,827 5.8 638,521 38,579 6.0
------- -------- --- ------- -------- --- ------- -------- ---
------- -------- --- ------- -------- --- ------- -------- ---
</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.
(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.
14
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ---------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE INTEREST RATE AVERAGE INTEREST RATE AVERAGE INTEREST RATE
BALANCE REVENUE (%) BALANCE REVENUE (%) BALANCE REVENUE (%)
------- -------- ------- ------- -------- ------- ------- -------- -------
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND GROUP EQUITY
Banks
The Netherlands................... 132,769 7,722 5.8 75,114 3,759 5.0 92,591 4,760 5.1
North America..................... 31,815 1,566 4.9 28,917 1,301 4.5 14,663 849 5.8
Rest of the world................. 155,268 6,597 4.2 112,173 5,179 4.6 82,810 3,892 4.7
Savings accounts
The Netherlands................... 62,998 2,402 3.8 64,101 2,576 4.0 58,537 2,408 4.1
North America..................... 49,998 2,183 4.4 49,064 2,286 4.7 23,558 1,054 4.5
Rest of the world................. 16,733 702 4.2 12,561 474 3.8 8,530 272 3.2
Deposits and other customer
accounts(1)
The Netherlands................... 104,265 3,363 3.2 104,678 3,626 3.5 114,642 4,220 3.7
North America..................... 97,559 5,006 5.1 60,495 2,765 4.6 30,742 1,339 4.4
Rest of the world................. 104,505 4,441 4.2 77,793 3,423 4.4 62,052 3,153 5.1
Debt securities
The Netherlands................... 22,691 1,462 6.4 22,210 1,464 6.6 21,633 1,472 6.8
North America..................... 30,827 1,940 6.3 27,949 1,821 6.5 18,107 1,007 5.6
Rest of the world................. 25,532 1,821 7.1 31,415 2,002 6.4 26,312 1,652 6.3
Subordinated debt
The Netherlands................... 11,049 861 7.8 10,076 774 7.7 8,818 713 8.1
North America..................... 8,464 552 6.5 7,630 498 6.5 3,976 254 6.4
Rest of the world................. 141 9 6.4 124 8 6.5 119 8 6.7
------- -------- ------- ------- -------- ------- ------- -------- -------
Total interest-bearing liabilities.. 854,614 40,627 4.8 684,300 31,956 4.7 567,090 27,053 4.8
Non-interest-bearing liabilities.... 95,647 78,881 47,998
Group equity(2)..................... 32,204 25,332 23,433
------- -------- ------- ------- -------- ------- ------- -------- -------
Total average liabilities and Group
equity............................ 982,465 40,627 4.1 788,513 31,956 4.1 638,521 27,053 4.2
------- -------- ------- ------- -------- ------- ------- -------- -------
------- -------- ------- ------- -------- ------- ------- -------- -------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) For purposes of presentation in this table, deposits and other customer
accounts includes professional securities transactions.
(2) Group equity includes minority interests.
15
<PAGE>
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 1998 compared to 1997 and 1997 compared to
1996. 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>
1998 OVER 1997 1997 OVER 1996
-------------------------- --------------------------
CHANGE DUE TO CHANGE DUE TO
TOTAL INCREASE TOTAL INCREASE
CHANGE IN (DECREASE) IN CHANGE IN (DECREASE) IN
INTEREST -------------- INTEREST --------------
REVENUE VOLUME RATE REVENUE VOLUME RATE
--------- ------ ------ --------- ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST REVENUE
Banks
The Netherlands..................................................... 2,340 1,753 587 (993) (1,078) 85
North America....................................................... 228 203 25 152 143 9
Rest of the world................................................... 59 1,083 (1,024) 726 685 41
LOANS(1)
Public Sector
The Netherlands..................................................... (109) (97) (12) (193) (204) 11
North America....................................................... (1) 3 (4) 19 14 5
Rest of the world................................................... (11) 55 (66) (10) (11) 1
Private sector
The Netherlands..................................................... 1,258 780 478 (413) 531 (944)
North America....................................................... 2,182 2,432 (250) 4,332 4,470 (138)
Rest of the world................................................... 868 1,065 (197) 1,577 2,228 (651)
INTEREST-BEARING SECURITIES
Investment portfolio
The Netherlands..................................................... 106 148 (42) 160 282 (122)
North America....................................................... 509 842 (333) 419 380 39
Rest of the world................................................... 430 (68) 498 605 589 16
Trading portfolio and other securities
The Netherlands..................................................... 395 370 25 226 151 75
North America....................................................... (163) (251) 88 454 449 5
Rest of the world................................................... 2,571 2,535 36 187 190 (3)
--------- ------ ------ --------- ------ ------
10,662 10,853 (191) 7,248 8,819 (1,571)
--------- ------ ------ --------- ------ ------
--------- ------ ------ --------- ------ ------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) For purposes of presentation in this table, loans includes professional
securities transactions.
16
<PAGE>
<TABLE>
<CAPTION>
1998 OVER 1997 1997 OVER 1996
-------------------------- --------------------------
CHANGE DUE TO CHANGE DUE TO
TOTAL INCREASE TOTAL INCREASE
CHANGE IN (DECREASE) IN CHANGE IN (DECREASE) IN
INTEREST -------------- INTEREST --------------
EXPENSE VOLUME RATE EXPENSE VOLUME RATE
--------- ------ ------ --------- ------ ------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
Banks
The Netherlands................................. 3,963 3,264 699 (1,001) (878) (123)
North America................................... 265 136 129 452 676 (224)
Rest of the world............................... 1,418 1,858 (440) 1,287 1,357 (70)
Savings accounts
The Netherlands................................. (174) (44) (130) 168 225 (57)
North America................................... (103) 43 (146) 1,232 1,187 45
Rest of the world............................... 228 171 57 202 146 56
Deposits and other customer accounts
The Netherlands................................. (263) (14) (249) (594) (354) (240)
North America................................... 2,241 1,867 374 1,426 1,357 69
Rest of the world............................... 1,018 1,140 (122) 270 729 (459)
Debt securities
The Netherlands................................. (2) 31 (33) (8) 38 (46)
North America................................... 119 183 (64) 814 619 195
Rest of the world............................... (181) (402) 221 350 325 25
Subordinated debt
The Netherlands................................. 87 77 10 61 98 (37)
North America................................... 54 54 -- 244 238 6
Rest of the world............................... 1 1 -- -- -- --
--------- ------ ------ --------- ------ ------
8,671 8,365 306 4,903 5,763 (860)
--------- ------ ------ --------- ------ ------
--------- ------ ------ --------- ------ ------
</TABLE>
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>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN PERCENTAGES)
GROSS YIELD(1)
The Netherlands............................................................................ 6.2 5.9 6.1
North America.............................................................................. 6.8 7.1 7.1
Rest of the world.......................................................................... 5.9 6.6 6.9
ABN AMRO................................................................................... 6.2 6.4 6.5
INTEREST RATE SPREAD(2)
The Netherlands............................................................................ 1.4 1.5 1.5
North America.............................................................................. 1.6 2.1 2.2
Rest of the world.......................................................................... 1.4 1.9 2.0
ABN AMRO................................................................................... 1.5 1.8 1.8
NET INTEREST MARGIN
The Netherlands............................................................................ 1.8 1.9 1.8
North America.............................................................................. 1.8 2.2 2.7
Rest of the world.......................................................................... 1.7 1.7 1.7
ABN AMRO................................................................................... 1.7 1.9 2.0
</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.
17
<PAGE>
ASSETS
SECURITIES
The following table shows the book value of the securities portfolios of ABN
AMRO at December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Investment portfolios............................................ 107,041 96,524 63,584
Trading portfolios............................................... 96,662 53,612 30,447
Other securities................................................. 47,048 40,609 13,381
--------- --------- ---------
Total interest-bearing securities................................ 250,751 190,745 107,412
Shares........................................................... 29,245 18,943 8,795
--------- --------- ---------
Total securities portfolios...................................... 279,996 209,688 116,207
--------- --------- ---------
--------- --------- ---------
</TABLE>
INVESTMENT PORTFOLIOS
Set forth below is an analysis of the fair market value of ABN AMRO's
investment portfolios at December 31, 1998, 1997 and 1996. 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>
PREMIUMS GROSS GROSS FAIR
BOOK OR AMORTIZED UNREALIZED UNREALIZED MARKET
VALUE DISCOUNTS COST GAINS LOSSES VALUE
--------- ----------- ----------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
DECEMBER 31, 1998
Dutch government..................................... 13,165 415 13,580 852 (6) 14,426
U.S. Treasury and U.S. government agencies........... 15,456 258 15,714 310 (6) 16,018
Other OECD governments............................... 32,328 398 32,726 2,199 (170) 34,755
Mortgage-backed securities........................... 29,150 71 29,221 298 (177) 29,342
Other interest-bearing securities.................... 16,942 (269) 16,673 1,182 (22) 17,833
--------- ----------- ----------- ----- --- ---------
Total interest-bearing securities.................... 107,041 873 107,914 4,841 (381) 112,374
Shares............................................... 6,989 6,989
--------- ---------
Total investment portfolios.......................... 114,030 119,363
--------- ---------
--------- ---------
DECEMBER 31, 1997
Dutch government(1).................................. 14,497 430 14,927 687 (2) 15,612
U.S. Treasury and U.S. government agencies........... 18,154 87 18,241 432 (40) 18,633
Other OECD governments............................... 23,171 81 23,252 1,099 (192) 24,159
Mortgage-backed securities........................... 26,188 (115) 26,073 406 (52) 26,427
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..................................... 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
--------- ---------
--------- ---------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Dutch government includes Dutch central, regional and municipal government
obligations.
18
<PAGE>
The following table analyzes interest-bearing investment securities by
maturity and weighted average yield at December 31, 1998. Yields on tax exempt
obligations have not been computed on a tax equivalent basis.
<TABLE>
<CAPTION>
AFTER 5 YEARS
AFTER 1 YEAR AND
AND WITHIN 10 AFTER 10
WITHIN 1 YEAR WITHIN 5 YEARS YEARS YEARS
-------------- -------------- ------------- -------------
YIELD YIELD YIELD YIELD
AMOUNT (%) AMOUNT (%) AMOUNT (%) AMOUNT (%)
------ ------ ------ ------ ------ ----- ------ -----
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dutch government.................................. 5,668 4.2 2,805 6.5 2,549 6.8 2,558 6.4
U.S. Treasury and U.S. government agencies........ 791 6.5 7,946 6.1 2,352 6.6 4,625 6.1
Other OECD governments............................ 4,666 3.3 5,114 6.4 9,690 5.3 13,256 6.6
Mortgage-backed securities(1)..................... 1,037 7.0 15,637 6.7 4,417 6.7 8,130 5.7
Other securities.................................. 2,477 4.5 9,034 6.0 2,886 6.1 2,276 5.5
Total amortized cost.............................. 14,639 4.3 40,536 6.4 21,894 6.0 30,845 6.2
Total market value................................ 14,660 41,837 23,505 32,372
</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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Dutch government................................................... 6,823 4,829 4,032
U.S. Treasury and U.S. government agencies......................... 12,214 9,578 4,296
Other OECD governments............................................. 58,354 24,621 14,307
Other interest-bearing securities.................................. 19,271 14,584 7,812
--------- --------- ---------
Total interest-bearing securities.................................. 96,662 53,612 30,447
Shares............................................................. 11,571 6,820 3,668
--------- --------- ---------
Total trading portfolios........................................... 108,233 60,432 34,115
--------- --------- ---------
--------- --------- ---------
</TABLE>
19
<PAGE>
OTHER SECURITIES
The following table analyzes the fair market value of other securities at
December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- -------------------------- --------------------------
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....... 4,787 4,787 4,806 15,283 15,283 15,308 1,970 1,970 1,970
Other debt securities.............. 8,333 8,191 8,038 9,165 9,157 9,126 8,304 8,275 8,233
Other bank paper................... 33,928 33,912 33,919 16,161 15,302 16,036 3,107 3,105 3,099
------ --------- ------ ------ --------- ------ ------ --------- ------
Total interest-bearing
securities....................... 47,048 46,890 46,763 40,609 39,742 40,470 13,381 13,350 13,302
Shares............................. 10,685 10,698 7,150 7,210 2,402 2,407
------ ------ ------ ------ ------ ------
Total other securities............. 57,733 57,461 47,759 47,680 15,783 15,709
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
CONCENTRATION
At December 31, 1998, ABN AMRO held the following securities positions in
issuers which exceeded 10% of its shareholders' equity at that date:
<TABLE>
<CAPTION>
FAIR MARKET
BOOK VALUE VALUE
----------- ---------------
(IN MILLIONS OF NLG)
<S> <C> <C>
Japanese central bank............................................. 29,012 29,012
Dutch central government.......................................... 19,512 20,224
German central government......................................... 17,811 18,177
U.S. Treasury..................................................... 14,536 14,682
French central government......................................... 13,473 13,489
Italian central government........................................ 11,410 11,678
Belgian central government........................................ 7,620 7,631
Bank Nederlandse Gemeenten........................................ 3,497 3,792
Spanish central government........................................ 3,246 3,425
Austrian central government....................................... 3,085 3,255
Brazilian central government...................................... 2,878 2,753
Swedish central government........................................ 2,846 2,846
</TABLE>
BANKS
The following tables show loans to banks at December 31, 1998, 1997 and
1996, and an analysis of their remaining life at December 31, 1998.
20
<PAGE>
LOANS TO BANKS
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
The Netherlands.................................................. 47,685 70,374 67,965
North America.................................................... 6,545 6,929 3,981
Rest of the world................................................ 79,963 62,882 48,332
--------- --------- ---------
Total loans to banks (gross)..................................... 134,193 140,185 120,278
--------- --------- ---------
--------- --------- ---------
</TABLE>
MATURITIES
<TABLE>
<CAPTION>
AFTER 1 YEAR AND
WITHIN 1 YEAR WITHIN 5 YEARS AFTER 5 YEARS TOTAL
------------- ----------------- --------------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
The Netherlands......................................... 46,201 992 492 47,685
North America........................................... 6,386 159 -- 6,545
Rest of the world....................................... 78,779 839 345 79,963
------------- ----- --- ---------
Total loans to banks (gross)............................ 131,366 1,990 837 134,193
------------- ----- --- ---------
------------- ----- --- ---------
</TABLE>
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,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Public sector.................................. 16,161 14,948 16,199 17,800 19,682
Commercial..................................... 244,076 224,490 205,251 192,175 174,584
Retail......................................... 160,295 141,233 97,822 85,331 77,981
--------- --------- --------- --------- ---------
Total private sector........................... 404,371 365,723 303,073 277,506 252,565
Total loans (gross) excluding professional
securities transactions...................... 420,532 380,671 319,272 295,306 272,247
Professional securities transactions(1)........ 75,055 69,131 17,731 5,562 5,140
--------- --------- --------- --------- ---------
Total loans (gross) including professional
securities transactions...................... 495,587 449,802 337,003 300,868 277,387
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total loans (net)(2)........................... 485,944 443,178 331,600 292,674 270,699
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Professional securities transactions for 1998, 1997 and 1996 include
receivables from professional securities transactions. Receivables from
professional securities transactions are included in commercial loans for
1995 and 1994.
(2) The difference between total loans (gross) and total loans (net) represents
ABN AMRO's specific allowance for loan losses and, in 1995 and 1994, 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."
21
<PAGE>
ABN AMRO's lease portfolio aggregated NLG 19,201 million, NLG 15,775 million
and NLG 13,427 million at December 31, 1998, 1997, and 1996, respectively. At
December 31, 1998, the lease portfolio was comprised of finance lease
receivables of NLG 6,531 million and assets subject to operating leases of NLG
12,670 million.
In addition to loans, at December 31, 1998, ABN AMRO had loan commitments,
guarantees, letters of credit, endorsements and similar parties, amounting to
NLG 261,302 million, of which NLG 195,870 million represented undrawn loan
facilities.
OUTSTANDING LOANS BY REGION
The following table analyzes ABN AMRO's loans by region at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
THE NETHERLANDS
Public sector.............................................. 11,211 11,087 12,502 14,687 16,647
Commercial................................................. 95,049 93,555 88,785 88,919 81,390
Retail..................................................... 100,697 84,288 71,226 63,956 60,206
--------- --------- --------- --------- ---------
206,957 188,930 172,513 167,562 158,243
NORTH AMERICA
Public sector.............................................. 1,324 1,348 1,116 928 1,079
Commercial................................................. 56,104 47,845 45,096 35,691 33,200
Retail..................................................... 44,890 47,333 19,062 15,538 12,427
--------- --------- --------- --------- ---------
102,318 96,526 65,274 52,157 46,706
REST OF THE WORLD
Public sector.............................................. 3,626 2,513 2,581 2,185 1,956
Commercial................................................. 92,923 83,090 71,370 67,565 59,994
Retail..................................................... 14,708 9,612 7,534 5,837 5,348
--------- --------- --------- --------- ---------
111,257 95,215 81,485 75,587 67,298
--------- --------- --------- --------- ---------
Total loans (gross)........................................ 420,532 380,671 319,272 295,306 272,247
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
MATURITIES
The following table provides an analysis of loan maturities at December 31,
1998. Determinations of maturities are based on contract terms.
<TABLE>
<CAPTION>
AFTER 1 YEAR
AND
WITHIN 5 AFTER 5
WITHIN 1 YEAR YEARS YEARS TOTAL
------------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
The Netherlands........................................... 71,537 29,017 106,403 206,957
North America............................................. 30,483 30,364 41,471 102,318
Rest of the World......................................... 77,845 22,545 10,867 111,257
------------- ------ ------------ ---------
Total Loans (gross)....................................... 179,865 81,926 158,741 420,532
------------- ------ ------------ ---------
------------- ------ ------------ ---------
</TABLE>
22
<PAGE>
INTEREST RATE SENSITIVITY
The following table analyzes at December 31, 1998 the interest rate
sensitivity of loans due after one year.
<TABLE>
<CAPTION>
AT AT
VARIABLE AT FIXED RATE
RATE(1) ADJUSTABLE RATE (2) (3) TOTAL
--------------- ------------------- ------------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
DUE AFTER 1 AND WITHIN 5 YEARS
The Netherlands.................................... 3,250 3,301 22,466 29,017
North America...................................... 12,957 3,302 14,105 30,364
Rest of the world.................................. 10,700 4,138 7,707 22,545
DUE AFTER 5 YEARS
The Netherlands.................................... 2,154 75,202 29,047 106,403
North America...................................... 2,938 17,010 21,523 41,471
Rest of the world.................................. 4,641 1,584 4,642 10,867
</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,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantees................................ 12,062 14,841 15,489 12,307 12,200
Mortgages.................................................. 34,343 35,133 30,968 29,403 29,356
Securities................................................. 5,948 4,691 7,320 12,553 9,333
Bank guarantees............................................ 6,817 5,952 4,659 2,316 1,968
Other types of collateral and unsecured.................... 184,906 163,873 146,815 135,596 121,727
--------- --------- --------- --------- ---------
244,076 224,490 205,251 192,175 174,584
RETAIL
Public authority guarantees................................ 7,924 8,005 8,428 10,333 10,283
Mortgages.................................................. 111,339 96,823 59,931 53,226 46,089
Other types of collateral and unsecured.................... 41,032 36,405 29,463 21,772 21,609
--------- --------- --------- --------- ---------
160,295 141,233 97,822 85,331 77,981
--------- --------- --------- --------- ---------
Total private sector loans (gross)......................... 404,371 365,723 303,073 277,506 252,565
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total private sector loans (net) (1)....................... 394,928 359,153 297,734 269,312 245,877
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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 and 1994 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>
COMMERCIAL LOANS BY INDUSTRY
The following table analyzes commercial loans by industry at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy............................. 19,739 18,611 19,961 13,587 13,895
Manufacturing.............................................. 58,726 50,346 50,807 45,597 41,338
Construction and real estate............................... 27,819 22,445 18,672 19,630 15,942
Wholesale and retail trade................................. 38,645 34,814 33,085 34,395 33,452
Transportation and communications.......................... 21,085 19,921 16,269 15,905 14,600
Financial services......................................... 36,026 35,288 27,755 20,244 17,469
Business services.......................................... 18,680 19,913 15,097 19,331 18,006
Education, health care and other services.................. 23,356 23,152 23,605 23,486 19,882
--------- --------- --------- --------- ---------
Total commercial loans (gross)............................. 244,076 224,490 205,251 192,175 174,584
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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 86.1% of ABN AMRO's total loan portfolio at December 31, 1998. The
remainder of the total loan portfolio at December 31, 1998 is comprised 8.1%
from Asian operations, 4.9% from South and Central American operations and 0.9%
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,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
PUBLIC SECTOR
The Netherlands............................................ 8,132 8,207 10,691 12,861 14,546
Rest of Europe............................................. 1,897 1,977 1,198 1,182 1,297
North America.............................................. 211 73 71 73 84
Rest of the world.......................................... 971 830 542 571 720
--------- --------- --------- --------- ---------
3,079 2,880 1,811 1,826 2,101
--------- --------- --------- --------- ---------
Total public sector loans (gross).......................... 11,211 11,087 12,502 14,687 16,647
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
PRIVATE SECTOR
The Netherlands............................................ 179,580 161,609 149,767 141,613 131,450
Rest of Europe............................................. 4,595 5,871 5,808 6,102 5,339
North America.............................................. 3,688 4,990 1,175 1,165 786
Rest of the world.......................................... 7,883 5,373 3,261 3,995 4,021
--------- --------- --------- --------- ---------
16,166 16,234 10,244 11,262 10,146
--------- --------- --------- --------- ---------
Total private sector loans (gross)......................... 195,746 177,843 160,011 152,875 141,596
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
24
<PAGE>
PRIVATE SECTOR LOANS BY TYPE OF COLLATERAL
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantee................................. 7,652 8,767 9,658 7,616 7,752
Mortgages.................................................. 20,944 23,390 21,749 22,348 21,847
Securities................................................. 2,583 1,627 2,434 7,289 5,460
Bank guarantees............................................ 900 483 457 537 238
Other types of collateral and unsecured.................... 62,970 59,288 54,487 51,129 46,093
--------- --------- --------- --------- ---------
95,049 93,555 88,785 88,919 81,390
RETAIL
Public authority guarantees................................ 7,919 7,983 8,405 9,676 9,983
Mortgages.................................................. 67,758 52,744 42,006 38,536 32,383
Other types of collateral and unsecured.................... 25,020 23,561 20,815 15,744 17,840
--------- --------- --------- --------- ---------
100,697 84,288 71,226 63,956 60,206
--------- --------- --------- --------- ---------
Total private sector loans (gross)......................... 195,746 177,843 160,011 152,875 141,596
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMMERCIAL LOANS BY INDUSTRY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................................... 8,062 8,526 8,815 8,609 8,740
Manufacturing.................................................... 16,942 14,262 15,579 15,506 14,911
Construction and real estate..................................... 8,564 7,902 8,478 9,482 6,068
Wholesale and retail trade....................................... 16,612 15,566 16,382 18,589 18,854
Transportation and communications................................ 7,127 6,433 5,616 7,250 7,142
Financial services............................................... 19,608 18,006 14,459 10,939 9,756
Business services................................................ 7,367 9,887 6,883 6,232 6,580
Education, health care and other services........................ 10,767 12,973 12,573 12,312 9,339
--------- --------- --------- --------- ---------
Total commercial loans (gross)................................... 95,049 93,555 88,785 88,919 81,390
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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>
PRIVATE SECTOR LOANS BY TYPE OF COLLATERAL
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantee....................................... 2,097 3,348 4,603 2,620 2,575
Mortgages........................................................ 1,876 1,170 1,485 739 665
Securities....................................................... 1,072 941 72 3,801 2,307
Bank guarantees.................................................. 1,430 2,724 1,181 311 272
Other types of collateral and unsecured.......................... 40,293 39,150 34,518 37,373 35,047
--------- --------- --------- --------- ---------
46,768 47,333 41,859 44,844 40,866
RETAIL
Public authority guarantees...................................... -- 102 5 580 300
Mortgages........................................................ 580 618 779 769 1,370
Other types of collateral and unsecured.......................... 2,404 1,889 1,705 1,437 524
--------- --------- --------- --------- ---------
2,984 2,609 2,489 2,786 2,194
--------- --------- --------- --------- ---------
Total private sector loans (gross)............................... 49,752 49,942 44,348 47,630 43,060
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMMERCIAL LOANS BY INDUSTRY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................................... 3,078 4,302 3,058 2,466 2,855
Manufacturing.................................................... 13,306 10,094 11,223 11,271 11,772
Construction and real estate..................................... 2,891 3,100 2,808 5,127 3,419
Wholesale and retail trade....................................... 7,821 7,542 6,799 5,178 4,830
Transportation and communications................................ 5,006 6,687 5,327 3,604 2,625
Financial services............................................... 6,242 7,426 6,145 6,937 6,197
Business services................................................ 4,203 4,432 3,893 5,584 5,052
Education, health care and other services........................ 4,221 3,750 2,606 4,677 4,116
--------- --------- --------- --------- ---------
Total commercial loans (gross)................................... 46,768 47,333 41,859 44,844 40,866
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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. 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>
PRIVATE SECTOR LOANS BY TYPE OF COLLATERAL
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
COMMERCIAL
Public authority guarantees............................. 1,833 1,539 819 1,206 1,268
Mortgages............................................... 11,396 9,499 6,619 5,743 6,418
Securities.............................................. 847 648 722 757 456
Bank guarantees......................................... 174 158 187 56 97
Other types of collateral and unsecured................. 43,251 36,001 36,749 27,929 24,961
--------- --------- ------ --------- ---------
57,501 47,845 45,096 35,691 33,200
RETAIL
Public authority guarantees............................. 4 21 18 -- --
Mortgages............................................... 40,109 40,793 15,492 12,684 11,503
Other types of collateral and unsecured................. 4,836 6,519 3,552 2,854 924
--------- --------- ------ --------- ---------
44,949 47,333 19,062 15,538 12,427
--------- --------- ------ --------- ---------
Total private sector loans (gross)...................... 102,450 95,178 64,158 51,229 45,627
--------- --------- ------ --------- ---------
--------- --------- ------ --------- ---------
</TABLE>
COMMERCIAL LOANS BY INDUSTRY
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy................................... 5,948 5,216 5,595 1,800 1,618
Manufacturing.................................................... 13,012 12,422 14,179 12,613 9,814
Construction and real estate..................................... 13,371 9,686 5,871 4,294 5,699
Wholesale and retail trade....................................... 7,829 5,668 6,346 6,609 6,155
Transportation and communications................................ 5,496 3,336 3,244 2,910 2,949
Financial services............................................... 4,239 3,266 1,020 1,812 1,121
Business services................................................ 3,706 3,044 3,134 1,982 1,495
Education, health care and other services........................ 3,900 5,207 5,707 3,671 4,349
--------- --------- --------- --------- ---------
Total commercial loans (gross)................................... 57,501 47,845 45,096 35,691 33,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</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
27
<PAGE>
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.
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
based on provisioning level ranges suggested by the Dutch Central Bank. See
"Item 9--Management's Discussion and Analysis of Financial Condition and Results
of Operations" for additional information concerning specific allowances for
country risk.
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,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
The Netherlands....................................................... 2,562 2,616 2,609 2,913 3,456
North America......................................................... 544 610 406 316 376
Rest of the world..................................................... 5,965 3,151 2,278 2,213 1,856
--------- --------- --------- --------- ---------
Total specific allowances for loan losses............................. 9,071 6,377 5,293 5,442 5,688
Specific allowances for country risk.................................. 1,088 903 921 1,055 1,584
--------- --------- --------- --------- ---------
Total specific allowances............................................. 10,159 7,280 6,214 6,497 7,272
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
Due to the situation in Asia and the acquisition of Bank of Asia and Banco
Real, the average risk profile of the Bank's loan portfolio increased during
1998. Nonperforming loans as a percentage of total private sector loans (gross)
increased to 2.39% in 1998 from 1.59% in 1997 after declining from 1.87% and
2.14% in 1996 and 1995, respectively. On balance, the quality of the loan
portfolio remains good. The Dutch economy continued to be strong, with the level
of doubtful loans increasing only moderately despite volume growth. Strong
economies in the United States and certain other countries in which ABN AMRO has
substantial operations were also reflected in a continuation of a low level of
specific provisioning for individual credits in those countries. Although ABN
AMRO operates in most of the countries affected by the financial crises in Asia
and Latin America, 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, higher provisions taken in response to the Asia and Latin
America crises were offset by lower provisions elsewhere. Accordingly, the
specific provisions for loan losses as a percentage of total private sector
loans (gross) was 0.35% in 1998, as compared to 0.36% and 0.46% in 1997 and
1996, respectively. At December 31, 1998, total specific allowances were NLG
2,879 million or 39.5% higher than at December 31, 1997, primarily as a result
of the acquisitions of Banco Real and Bank of Asia, specific allowances for
additional countries required under Dutch Central Bank guidelines (including
South Korea and Thailand) and as a result of increased credit risk in certain
countries. Specific allowances for loan losses as a percentage of total private
sector loans (gross)
28
<PAGE>
increased to 2.24% at December 31, 1998, as compared to 1.74% and 1.75% at
December 31, 1997 and 1996, respectively.
Provision for loan losses rose from NLG 1,205 million in 1997 to NLG 2,073
million in 1998. In light of losses on transactions with Russian banks and
increased cross-border exposure to a number of countries, including Indonesia,
Thailand and Pakistan, NLG 668 million was added to provision for loan losses.
In 1997, NLG 106 million had been released for cross-border risks. The remaining
addition in 1998 of NLG 1,405 million to provision for loan losses related to
specific bad debt provisions, which were higher particularly in Asia and Brazil
but lower in The Netherlands and North America. In 1997, specific bad debt
provisions totaled NLG 1,311 million. The additions made to provisions at the
end of 1997 for developments in Asia were allocated to specific loan losses in
1998. As a result, NLG 223 million was released from the fund for general
banking risks in 1998.
In determining the net asset value of the Bank's 1998 acquisitions,
especially Banco Real, the Bank has taken into account the increased exposure in
the relevant countries. Accordingly, an extra addition was made to the fund for
general banking risks during 1998, resulting in the level of NLG 2,513 million
at December 31, 1998 being slightly above the Bank's standard of 50 basis points
of risk-weighted total assets. The combined provision for loan losses and
addition to / release from the fund for general banking risks amounted to NLG
1,850 million in 1998 compared to NLG 1,600 million in 1997.
The table below shows, for the five years ended December 31, 1998, 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 1998,
1997 and 1996 and for the provision for general contingencies for 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Net provisions for loan losses(1)...................................... 1,405 1,311 1,407 857 1,236
Net provisions for country risk(1)..................................... 668 (106) (153) (135) (253)
--------- --------- --------- --------- ---------
Total specific provisions.............................................. 2,073 1,205 1,254 722 983
Addition to Fund for general banking risks............................. (223) 395 -- -- --
Addition to provision for general contingencies........................ -- -- 146 678 517
--------- --------- --------- --------- ---------
Total charge against profit............................................ 1,850 1,600 1,400 1,400 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."
29
<PAGE>
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.
MOVEMENTS IN SPECIFIC ALLOWANCES FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Balance at beginning of year....................................... 6,377 5,293 5,442 5,688 5,290
Acquisitions, currency translation differences and other
adjustments...................................................... 2,110 514 (197) (70) (128)
Amounts written off
The Netherlands.................................................. (412) (398) (837) (795) (455)
North America.................................................... (525) (356) (303) (198) (366)
Rest of the world................................................ (224) (271) (514) (313) (246)
--------- --------- --------- --------- ---------
(1,161) (1,025) (1,654) (1,306) (1,067)
Recoveries......................................................... 169 119 107 83 176
Subtotal........................................................... 7,495 4,901 3,698 4,395 4,271
Provision for interest in suspense................................. 171 165 188 190 181
New and increased specific provisions
The Netherlands.................................................. 532 601 1,010 822 1,264
North America.................................................... 447 595 364 263 326
Rest of the world................................................ 1,555 839 820 781 556
--------- --------- --------- --------- ---------
2,534 2,035 2,194 1,866 2,146
Releases of specific provisions
The Netherlands.................................................. (240) (251) (306) (673) (416)
North America.................................................... (291) (128) (183) (126) (156)
Rest of the world................................................ (429) (226) (191) (127) (162)
--------- --------- --------- --------- ---------
(960) (605) (680) (926) (734)
Recoveries
The Netherlands.................................................. (13) (5) (6) (16) (102)
North America.................................................... (102) (92) (70) (47) (67)
Rest of the world................................................ (54) (22) (31) (20) (7)
--------- --------- --------- --------- ---------
(169) (119) (107) (83) (176)
New and increased specific provisions (net)........................ 1,405 1,311 1,407 857 1,236
--------- --------- --------- --------- ---------
Balance at end of year............................................. 9,071 6,377 5,293 5,442 5,688
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
30
<PAGE>
MOVEMENTS IN SPECIFIC ALLOWANCES FOR COUNTRY RISK
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Balance at beginning of year............................................ 903 921 1,055 1,584 2,360
Acquisitions, currency translation differences and other adjustments.... (69) 88 35 (72) (106)
Amounts written off..................................................... (414) -- -- (177) (160)
Provisions charged (released) against profit............................ 668 (106) (153) (135) (253)
Provision for interest in suspense...................................... -- -- -- -- (12)
Purchase/sale LDCs...................................................... -- -- (16) (145) (245)
--------- --- --------- --------- ---------
Balance at end of year.................................................. 1,088 903 921 1,055 1,584
--------- --- --------- --------- ---------
--------- --- --------- --------- ---------
</TABLE>
SPECIFIC ALLOWANCE FOR LOAN LOSSES BY INDUSTRY
The following table analyzes the allowance for loan losses by industry at
December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy......................................... 348 311 160 125 182
Manufacturing.......................................................... 3,411 1,246 1,129 890 907
Construction and real estate........................................... 419 471 447 674 767
Wholesale and retail trade............................................. 1,294 1,183 956 1,027 1,062
Transportation and communications...................................... 458 563 459 282 242
Financial services..................................................... 935 669 538 433 449
Business services...................................................... 501 558 351 593 649
Education, health care and other services.............................. 610 539 468 759 885
--------- --------- --------- --------- ---------
Total commercial....................................................... 7,976 5,540 4,508 4,783 5,143
Retail................................................................. 1,095 837 785 659 545
--------- --------- --------- --------- ---------
Total private sector................................................... 9,071 6,377 5,293 5,442 5,688
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
31
<PAGE>
The following table analyzes the percentage of loans in each industry to
total private sector loans at December 31, 1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Agriculture, mining and energy......................................... 4.9 5.0 6.4 4.9 5.5
Manufacturing.......................................................... 14.5 13.8 16.3 16.4 16.4
Construction and real estate........................................... 6.9 6.1 6.0 7.1 6.3
Wholesale and retail trade companies................................... 9.6 9.5 10.6 12.4 13.2
Transportation and communications...................................... 5.2 5.5 5.2 5.7 5.8
Financial services..................................................... 8.9 9.7 11.6 7.3 6.9
Business services...................................................... 4.6 5.4 4.8 7.0 7.1
Education, health care and other services.............................. 5.8 6.4 7.6 8.5 7.9
--------- --------- --------- --------- ---------
Total commercial....................................................... 60.4 61.4 68.5 69.3 69.1
Retail................................................................. 39.6 38.6 31.5 30.7 30.9
--------- --------- --------- --------- ---------
Total private sector................................................... 100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
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 1998, 1997,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Agriculture, mining and energy......................................... 108 148 93 -- 43
Manufacturing.......................................................... 549 249 279 137 213
Construction and real estate........................................... 13 74 72 130 367
Wholesale and retail trade companies................................... 187 295 306 209 115
Transportation and communications...................................... 58 40 146 61 82
Financial services..................................................... 8 78 53 16 30
Business services...................................................... 84 201 88 111 140
Education, health care and other services.............................. 125 53 231 106 218
--------- --------- --------- --------- ---------
Total commercial....................................................... 1,132 1,138 1,268 770 1,208
Retail................................................................. 444 338 327 277 209
--------- --------- --------- --------- ---------
Total private sector................................................... 1,576 1,476 1,595 1,047 1,417
of which interest in suspense.......................................... 171 165 188 190 181
--------- --------- --------- --------- ---------
Total specific provisions (net)........................................ 1,405 1,311 1,407 857 1,236
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
32
<PAGE>
ANALYSIS OF WRITE-OFFS BY INDUSTRY
The following table analyzes the amounts written off by industry during
1998, 1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Agriculture, mining and energy......................................... 41 47 46 55 31
Manufacturing.......................................................... 99 101 289 166 133
Construction and real estate........................................... 71 70 305 241 268
Wholesale and retail trade............................................. 147 284 237 226 113
Transportation and communications...................................... 55 54 75 25 42
Financial services..................................................... 110 35 90 18 26
Business services...................................................... 80 74 148 179 55
Education, health care and other services.............................. 141 108 170 217 200
--------- --------- --------- --------- ---------
Total commercial....................................................... 744 773 1,360 1,127 868
Retail................................................................. 417 252 294 179 199
--------- --------- --------- --------- ---------
Total private sector................................................... 1,161 1,025 1,654 1,306 1,067
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
POTENTIAL CREDIT RISK LOANS
The table below provides an analysis of ABN AMRO's doubtful loans for 1998,
1997, 1996, 1995 and 1994. "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 table below is based on available data for 1998, 1997, 1996, 1995 and 1994.
33
<PAGE>
DOUBTFUL LOANS
<TABLE>
<CAPTION>
INTEREST INCLUDED INCLUDED
REVENUE IN IN
NOT INTEREST INTEREST
RECOGNIZED REVENUE REVENUE
1998 1997 1996 1995 1994 1998 (4) 1998 (5) 1997 (5)
--------- --------- --------- --------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Non-accrual loans (1)
The Netherlands..................... 1,164 1,282 1,786 1,744 1,563 96 -- --
North America....................... 341 369 463 480 671 32 1 4
Rest of the world................... 4,322 903 1,181 1,072 1,007 203 -- 3
--------- --------- --------- --------- --------- --- --- ---
5,827 2,554 3,430 3,296 3,241 331 1 7
Non-performing loans for which
interest has been suspended (2)
The Netherlands..................... 1,303 1,101 1,026 1,285 1,286 61 -- --
North America....................... 410 668 341 395 295 35 4 2
Rest of the world................... 2,119 1,505 861 969 869 75 8 25
--------- --------- --------- --------- --------- --- --- ---
3,832 3,274 2,228 2,649 2,450 171 12 27
Accruing loans (3)
The Netherlands..................... 3,437 4,289 3,362 3,519 4,720 -- 249 242
North America....................... 57 48 203 291 147 -- 4 3
Rest of the world................... 1,343 870 664 441 237 -- 66 59
--------- --------- --------- --------- --------- --- --- ---
4,837 5,207 4,229 4,251 5,104 -- 319 304
--------- --------- --------- --------- --------- --- --- ---
Total doubtful loans................ 14,496 11,035 9,887 10,196 10,795 502 332 338
--------- --------- --------- --------- --------- --- --- ---
--------- --------- --------- --------- --------- --- --- ---
<CAPTION>
INCLUDED
IN
INTEREST
REVENUE
1996 (5)
-----------
<S> <C>
Non-accrual loans (1)
The Netherlands..................... --
North America....................... 2
Rest of the world................... --
---
2
Non-performing loans for which
interest has been suspended (2)
The Netherlands..................... 10
North America....................... --
Rest of the world................... 10
---
20
Accruing loans (3)
The Netherlands..................... 206
North America....................... 5
Rest of the world................... 31
---
242
---
Total doubtful loans................ 264
---
---
</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, 1998, 1997, 1996, 1995 and 1994 that were restructured.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
The Netherlands...................................... -- -- 49 82 68
North America........................................ 34 35 5 8 20
Rest of the world.................................... 696 95 317 367 458
--- --- --- --- ---
730 130 371 457 546
--- --- --- --- ---
--- --- --- --- ---
<CAPTION>
INCLUDED IN INCLUDED IN INCLUDED IN
INTEREST INTEREST INTEREST
REVENUE REVENUE REVENUE
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
The Netherlands...................................... -- -- --
North America........................................ 2 1 --
Rest of the world.................................... 110 22 35
-- --
---
112 23 35
-- --
-- --
---
---
</TABLE>
34
<PAGE>
COUNTRY RISK EXPOSURE AND RELATED SPECIFIC ALLOWANCES
The following table sets ABN AMRO's country risk exposure and related
specific allowances at December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG EXCEPT
PERCENTAGES)
<S> <C> <C> <C>
Country risk exposure................................... 3,918 2,079 2,727
Country risk specific allowances........................ (1,088) (903) (921)
Net exposure............................................ 2,830 1,176 1,806
Net exposure as a percentage of group capital........... 5.3% 2.2% 4.5%
</TABLE>
Total country risk exposure, excluding trade debts, increased by NLG 1,839
million in 1998, mainly due to the addition of a number of new countries for
which allowances for country risk are established. Specific allowances for
country risk represented 28% of total country risk exposure at December 31,
1998, as compared to 43% at December 31, 1997 and 34% at December 31, 1996. Of
the total country risk exposure at December 31, 1998, NLG 800 million, or 20%,
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, 1998,
1997 and 1996 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.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL TOTAL PRIVATE
ASSETS AMOUNT BANKS GOVERNMENT SECTOR
----------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
DECEMBER 31, 1998
United Kingdom.......................................... 5.0 47,175 23,975 3,887 19,313
United States........................................... 3.4 32,849 7,773 6,864 18,212
Germany................................................. 3.4 32,665 10,882 20,147 1,636
France.................................................. 2.5 23,944 14,267 7,444 2,233
Belgium................................................. 2.3 22,272 11,859 7,392 3,021
Italy................................................... 2.1 19,480 5,875 11,795 1,810
Brazil.................................................. 1.2 11,194 689 3,058 7,447
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL TOTAL PRIVATE
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
</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 7,304
million at December 31, 1998 and related entirely to Switzerland. At December
31, 1997, these outstandings totaled NLG 13,017 million and related to Sweden
and Switzerland. At December 31, 1996 these outstandings totaled NLG 16,527
million and related to Italy, 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, 1998, 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.
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.
36
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ---------
<S> <C> <C> <C> <C> <C>
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
AMOUNT RATE (%) AMOUNT RATE (%) AMOUNT
--------- ------------- --------- ------------- ---------
<CAPTION>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
BANKS
The Netherlands
Time deposits(1)......................................... 96,797 5.8 50,056 5.3 69,778
Demand deposits/Current accounts......................... 35,972 5.9 25,058 4.4 22,813
Foreign
Time deposits(1)......................................... 155,261 4.6 117,038 4.8 59,668
Demand deposits/Current accounts......................... 31,822 3.2 24,052 3.5 37,805
TOTAL CUSTOMER ACCOUNTS
The Netherlands
Savings accounts......................................... 62,998 3.8 64,101 4.0 58,537
Time deposits(1)......................................... 36,231 4.0 48,342 4.1 61,012
Demand deposits/Current accounts......................... 54,314 2.1 44,179 2.3 42,590
Others................................................... 13,720 5.6 12,157 5.4 11,040
Foreign
Savings accounts......................................... 66,731 4.3 61,625 4.5 32,088
Time deposits(1)......................................... 86,173 4.6 60,600 4.6 54,111
Demand deposits/Current accounts......................... 27,645 2.9 21,307 3.0 16,670
Others................................................... 88,246 5.3 56,381 5.0 22,013
<CAPTION>
<S> <C>
AVERAGE
RATE (%)
-------------
<S> <C>
BANKS
The Netherlands
Time deposits(1)......................................... 5.2
Demand deposits/Current accounts......................... 5.0
Foreign
Time deposits(1)......................................... 5.6
Demand deposits/Current accounts......................... 3.8
TOTAL CUSTOMER ACCOUNTS
The Netherlands
Savings accounts......................................... 4.1
Time deposits(1)......................................... 4.6
Demand deposits/Current accounts......................... 2.0
Others................................................... 5.1
Foreign
Savings accounts......................................... 4.1
Time deposits(1)......................................... 4.9
Demand deposits/Current accounts......................... 3.4
Others................................................... 5.8
</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 1998, 1997 and 1996, NLG 59.4 billion, NLG
57.4 billion and NLG 67.6 billion, respectively, and for Total customer accounts
were for 1998, 1997 and 1996, NLG 32.3 billion, NLG 32.5 billion and NLG 35.7
billion, respectively.
DEPOSITS OF USD 100,000 OR MORE
At December 31, 1998, 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,
1998
-------------------
<S> <C>
(IN MILLIONS OF
NLG)
3 months or less......................................................... 5,938
more than 3 months but less than 6 months................................ 5,458
more than 6 months but less than 12 months............................... 6,160
over 12 months........................................................... 5,997
------
Total.................................................................... 23,553
------
------
</TABLE>
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'
37
<PAGE>
equity at December 31, 1998 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
PERCENTAGES)
Year-end balance..................................... 42,255 51,234 40,191
Average balance...................................... 45,176 48,956 37,915
Maximum month-end balance............................ 51,056 52,284 42,070
Average interest rate during the year................ 6.0% 6.3% 6.6%
Average interest rate at year-end.................... 5.9% 6.0% 6.7%
</TABLE>
For an analysis of the maturities of ABN AMRO's liabilities at December 31,
1998, see the notes to the Consolidated Financial Statements.
38
<PAGE>
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
39
<PAGE>
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. Due to the adoption of this directive to the regulations
for market risk of the Basle Committee, internal value at risk models for the
calculation of solvency requirements for trading portfolios have been in use
since the beginning of 1998. 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, 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 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 and the sum of Tier 2 and Tier 3
capital may not exceed Tier 1 capital. 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.
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
40
<PAGE>
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
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 replaced the Act on the Supervision of the Securities
41
<PAGE>
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.
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 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.
On January 1, 1999, the European banking sector ventured into uncharted
territory, with eleven EU countries adopting the euro and relinquishing their
monetary independence. At present, the European Central Bank, together with the
EU national central banks, define and implement EU monetary policy, hold and
manage some or all of member states' official foreign currency reserves and
promote the smooth operation of payment systems. The implementation of EU
monetary policy in the participating member states is carried out by their
respective national central banks pursuant to their powers under national
legislation, which has been amended to reflect the introduction of the euro and
the European Central Bank. Foreign exchange operations, particularly open market
operations, are strictly coordinated by the European Central Bank, but are
largely carried out by national central banks.
42
<PAGE>
The euro is now in a transitional period. During the transitional period,
the euro can be used as a calculation unit and for payments in book-entry form.
At the beginning of 2002, euro notes and coins are due to come into circulation,
thus ending the transitional period and completing the introduction of the euro
as a single currency unit in the eleven countries that have adopted the euro. As
of July 1, 2002 at the latest, the eleven participating EU currencies will cease
to exist.
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 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
43
<PAGE>
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 one U.S. securities
underwriting subsidiary based on such permission and other securities
subsidiaries pursuant to Federal Reserve authority.
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. In 1995 and 1997, respectively, the
risk-based capital guidelines were modified to
44
<PAGE>
incorporate interest rate risk and market risk. The federal banking agencies
issued a joint policy statement setting forth prudent interest rate risk
management principles. A bank with material weaknesses in its risk management
process or high levels of exposure relative to its capital will be directed by
the appropriate federal agency to take corrective action. For bank holding
companies and banks with substantial trading activity, the market risk guideline
requires that the bank holding company/bank reflect in its capital adequacy
calculations the general market risk and specific risk of debt and equity
positions in its trading account and the general market risk associated with its
foreign exchange and commodity positions. 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 U.S. 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 provided a framework for the merger of BIF and the Savings Association
Insurance Fund ("SAIF") in 1999, BIF member banks are now responsible for
certain obligations of the SAIF.
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. At this time, the Bank is not required to obtain deposit
insurance protection for the deposit-taking activities of its U.S. branches
under the FDIC regulation. The Bank may be required, however, to change or
reduce the deposit-taking activities of its U.S. branches to ensure continued
compliance with the FDIC regulation, The Bank believes that any such action
would not have a material effect on its operations.
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, 1998, ABN AMRO operated 943 offices and branches in The
Netherlands and 2,640 offices and branches in 73 other countries. Of these
offices and branches, 446 were in North
45
<PAGE>
America, 1,711 were in South and Central America, 217 were in Europe, 74 were in
the Middle East and Africa and 192 were in the Asia/Pacific region.
Approximately 45% of the offices and branches are owned by ABN AMRO and 55% are
leased under long-term lease agreements.
ABN AMRO is constructing 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 of construction
is planned for mid-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 the Bank's existing
London-based activities in one facility and to accommodate anticipated
expansion. The cost of the building is estimated at L240 million, including
costs of furnishings and fittings. The building is expected to be fully
operational by September 30, 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 and financial position of ABN AMRO.
ITEM 4. CONTROL OF REGISTRANT
The institutions listed in the table below (except for ING) reported the
following direct or indirect holdings of ABN AMRO Holding shares. The figures
reflect the holdings as a percentage of the face value of the issued share
capital at December 31, 1998 of 1,441,649,082 ordinary shares and 362,503,010
preference shares, respectively. Depositary receipts for preference shares are
issued by Stichting Administratiekantoor ABN AMRO. This foundation held
362,466,011 preference shares (99.99%) at year-end 1998.
<TABLE>
<CAPTION>
% OF CAPITAL INTEREST (1)
--------------------------------
<S> <C> <C>
DEPOSITARY
ORDINARY RECEIPTS OF
SHARES PREFERENCE SHARES
----------- -------------------
Aegon N.V............................................................................ 1.83 16.30
AMEV/VSB 1990 N.V.................................................................... 0.70 10.06
Commercial Union Assurance PLC....................................................... 0.11 10.72
ING Groep N.V. (2)................................................................... 7.49(3) 9.08
Rabobank Nederland................................................................... 0.15 10.12
De Zonnewijser (investment fund)..................................................... -- 11.24
</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
Holding, its affiliated companies and those connected therewith.
(2) This disclosure dates from 1992 under the Disclosure of Major Holdings in
Listed Companies Act and reflects holdings as percentages of the combined
total of ordinary shares and preference shares outstanding at year-end 1992.
(3) 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.
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
46
<PAGE>
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, 1998, the number of Ordinary Shares
issued increased 385 million, or 36.4% to 1,442 million. This increase is the
result of the issue of stock dividends, the exercise of staff options 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 50.02% of the total capital
outstanding on December 31, 1998. 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, 1998, 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, 1998, 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, (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
47
<PAGE>
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 takeover 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, 1998,
16.9 million Ordinary Shares were held in the form of ADSs. The ADSs are listed
on the New York Stock Exchange (the "NYSE") under the symbol "AAN."
At December 31, 1998, 1.4 billion Ordinary Shares were outstanding, with
approximately 70% of the Ordinary Shares held by Dutch investors and the
remaining 30% by foreign investors. Major geographical concentrations of holders
of Ordinary Shares outside The Netherlands are in the United Kingdom (estimated
at 8%) and the United States (estimated at 6%).
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, 1998, 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 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.
48
<PAGE>
<TABLE>
<CAPTION>
ORDINARY AMERICAN DEPOSITARY
SHARES SHARES AVERAGE DAILY
-------------------- ------------------------ TURNOVER
HIGH LOW HIGH/ASK LOW/BID AEX
--------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS
OF ORDINARY
(IN NLG) (IN USD) SHARES)
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
1998
First Quarter.................................... 49.30 38.70 24.06 18.50 9,242.3
Second Quarter................................... 55.10 45.10 27.44 22.06 8,528.4
Third Quarter.................................... 53.40 32.10 26.69 16.63 8,923.7
Fourth Quarter................................... 41.00 27.80 21.94 14.75 9,332.8
</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 1994 through 1998, as adjusted for the four-for-one stock split
effected on May 12, 1997:
<TABLE>
<CAPTION>
1998 (1) 1998 1997 1996 1995
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
USD NLG NLG NLG NLG
Interim dividend................................................. 0.31 0.60 0.53 0.45 0.40
Final dividend................................................... 0.33 0.67 0.67 0.60 0.50
--- --- --- --- ---
Total dividend per Ordinary Share................................ 0.64 1.27 1.20 1.05 0.90
Total dividends per share as a % of net profit per share......... 46.9 45.5 45.4 46.8
<CAPTION>
1994
-----------
<S> <C>
NLG
Interim dividend................................................. 0.38
Final dividend................................................... 0.42
---
Total dividend per Ordinary Share................................ 0.80
Total dividends per share as a % of net profit per share......... 46.9
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) The interim 1998 dividend has been translated into U.S. dollars at the
applicable rate on date of payment, and the final 1998 dividend has been
translated into U.S. dollars at the March 31, 1999 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 1997 final
dividend, which was declared during 1998, the value of the stock dividend was
virtually equal to the cash dividend. An aggregate of 24.9 million and 13.5
million Ordinary Shares were issued with respect to the 1997 interim and final
dividends and the 1998 interim dividend, respectively. The 1998 final dividend
was announced on February 25, 1998. Elections to receive Ordinary Shares with
respect to the 1998 final dividend will be required to be received by Holding
during the period May 7 through May 20, 1999 and any Ordinary Shares to be
issued in respect of an election will be issued on May 28, 1999. 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.
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<PAGE>
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," which means (i)
an individual citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is subject to U.S. federal income taxation regardless of its source or
(iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the trust.
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.
50
<PAGE>
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.
The current 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
51
<PAGE>
particular investor, a 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 in excess of current and accumulated earnings and profits
will be treated as a return of capital to the extent of a U.S. Shareholder's
basis in the Ordinary Shares and ADRs and thereafter as capital gain.
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 Dutch guilders
into U.S. dollars at the time that a U.S. Shareholder is required to take the
distribution into account for U.S. federal income tax purposes, a U.S.
Shareholder may recognize foreign exchange gain or loss on the later conversion
of the Dutch guilders into U.S. dollars, which will generally be treated as U.S.
source ordinary income or loss. The gain or loss recognized will generally be
based upon the difference between the exchange rate in effect when the Dutch
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%.
For the 1998 dividend, the credit that Holding received was approximately 2.3%
of the gross dividend which was subject to withholding tax. U.S. Shareholders
should consult their own tax advisors concerning the availability of a foreign
tax credit with respect to the credit that Holding received for the 1998
dividend.
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
52
<PAGE>
trade or business in the United States or, in the case of an individual, such
holder is present in the United States 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 U.S.
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.
U.S. BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividend
payments (or other taxable distributions) in respect of Ordinary Shares or ADRs
made within the United States to a noncorporate U.S. Person, and backup
withholding at the rate of 31% will apply to such payments if the holder or
beneficial owner fails to provide an accurate taxpayer identification number in
the manner required by the U.S. Internal Revenue Code and applicable regulations
thereunder, if (i) there has been notification from the Internal Revenue Service
of a failure by the holder or beneficial owner to report all interest or
dividends required to be shown on its U.S. federal income tax returns or (ii) in
certain circumstances, if the holder or beneficial owner fails to comply with
applicable certification requirements. Certain corporations and persons that are
not U.S. Persons may be required to establish their exemption from information
reporting and backup withholding by certifying their status on Internal Revenue
Service Form W-8, W-8BEN, W-8ECI or any successor form.
In general, payment of the proceeds from the sale of Ordinary Shares or ADRs
by or through the U.S. office of a broker is subject to both backup withholding
and information reporting unless the holder or beneficial owner certifies its
non-U.S. status under penalties of perjury or otherwise establishes an
exemption. Information reporting and backup withholding generally will not apply
to a payment of the proceeds of a sale of Ordinary Shares or ADRs by or through
an office outside the United States of a non-U.S. broker. However, information
reporting requirements (but not backup withholding) will apply to a payment of
the proceeds of a sale of Ordinary Shares or ADRs by or through an office
outside the United States of a broker (i) that is a U.S. Person, (ii) that
derives 50% or more of its gross income for a specified three-year period from
the conduct of a trade or business in the United States, (iii) that is a
"controlled foreign corporation" as to the United States or (iv) with respect to
payments made after December 31, 1999, that is a foreign partnership, if at any
time during its tax year, one or more of its partners are U.S. Persons who, in
the aggregate, hold more than 50% of the income or capital interests in the
Partnership or if, at any time during its tax year, such foreign partnership is
engaged in a U.S. trade or business, unless the broker has documentary evidence
in its records that the holder or beneficial owner is a non-U.S. Person or the
holder or beneficial owner otherwise establishes an exemption.
Amounts withheld under the backup withholding rules may be credited against
a holder's tax liability, and a holder may obtain a refund of any excess amounts
withheld under the backup withholding rules by filing the appropriate claim for
refund with the Internal Revenue Service.
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.
53
<PAGE>
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,
1998 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 1996, 1997 and 1998 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 57.
SELECTED CONSOLIDATED INCOME STATEMENT DATA
<TABLE>
<CAPTION>
1998 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(IN (IN MILLIONS OF NLG EXCEPT PER SHARE DATA)
MILLIONS
OF USD)(1)
Net interest revenue...................................... 7,991 15,862 13,871 11,526 10,237 9,789
Net commissions........................................... 3,762 7,467 6,272 4,956 4,184 3,764
Results from financial transactions....................... 1,279 2,540 2,436 1,882 1,198 923
Other revenue............................................. 887 1,761 1,189 727 586 499
Total revenue............................................. 13,919 27,630 23,768 19,091 16,205 14,975
Operating expenses........................................ 9,663 19,182 16,418 12,929 10,935 10,127
Provision for loan losses................................. 1,044 2,073 1,205 1,254 722 1,500
(Release from)/Addition to Fund for general banking
risks................................................... (112) (223) 395 146 678 N.A.
Operating profit before taxes............................. 3,216 6,385 5,786 4,793 3,841 3,363
Net profit................................................ 2,029 4,028 3,853 3,303 2,616 2,286
Net profit attributable to Ordinary Shares................ 1,939 3,850 3,673 3,116 2,368 2,038
Dividends on Ordinary Shares.............................. 964 1,819 1,680 1,429 1,124 965
PER SHARE FINANCIAL DATA
Average number of Ordinary Shares outstanding (in
millions) (2)........................................... 1,422.1 1,388.7 1,346.3 1,232.4 1,193.2
Net profit per Ordinary Share (in NLG) (2)(3)............. 2.71 2.64 2.31 1.92 1.71
Fully diluted net profit per Ordinary Share (in
NLG)(2)(3).............................................. 2.69 2.61 2.28 1.83 1.63
Dividend per Ordinary Share (in NLG)(2)(3)................ 1.27 1.20 1.05 0.90 0.80
Net profit per ADS (in USD)(2)(3)(4)...................... 1.37 1.35 1.37 1.21 0.94
Dividend per ADS (in USD)(2)(3)(5)........................ 0.67 0.58 0.58 0.54 0.48
</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 1998.
(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 1998 final dividend, which has been
translated into U.S. dollars at the March 31, 1999 exchange rate.
54
<PAGE>
SELECTED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1998 1997 1996 1995 1994
----------- --------- --------- --------- --------- ---------
<CAPTION>
(IN
MILLIONS
OF USD)(1) (IN MILLIONS OF NLG EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Banks.................................................. 71,152 134,193 140,185 120,278 131,332 127,067
Loans.................................................. 257,659 485,944 443,178 331,600 292,674 270,699
Interest-bearing securities............................ 123,935 233,741 165,294 101,414 76,580 66,698
Total assets........................................... 504,870 952,185 836,441 599,273 546,526 504,628
LIABILITIES
Banks.................................................. 122,569 231,165 208,466 157,587 144,448 134,413
Total customer accounts................................ 240,181 452,981 396,694 276,718 262,959 255,575
Debt securities........................................ 44,339 83,624 90,595 74,413 61,702 49,571
CAPITALIZATION
Fund for general banking risks......................... 1,332 2,513 2,483 2,000
Shareholders' equity................................... 12,529 23,629 25,845 24,976 20,250 19,325
Minority interests..................................... 4,125 7,779 4,527 2,105 1,525 1,362
Subordinated debt...................................... 10,493 19,789 20,101 15,309 11,701 10,580
----------- --------- --------- --------- --------- ---------
Group capital.......................................... 28,479 53,710 52,956 44,390 33,476 31,267
PER SHARE FINANCIAL DATA
Ordinary Shares outstanding (in millions)(2)........... 1,438.1 1,405.6 1,364.5 1,255.6 1,213.2
Shareholders' equity per Ordinary Share (in NLG)(2).... 15.10 17.00 16.79 13.68 13.40
Shareholders' equity per ADS (in USD)(2)(3)............ 8.01 8.42 9.71 8.54 7.72
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Dutch guilder amounts have been translated into U.S. dollars at an exchange
rate of $1.00 = NLG 1.8860, the exchange rate on December 31, 1998.
(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.
55
<PAGE>
SELECTED RATIOS
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN PERCENTAGES)
PROFITABILITY RATIOS
Net interest margin(1)................................................. 1.7 1.9 2.0 2.1 2.0
Non-interest revenue to total revenue.................................. 42.6 41.6 39.6 36.8 34.6
Efficiency ratio(2).................................................... 69.4 69.1 67.7 67.5 67.6
Return on average total assets(3)...................................... 0.41 0.49 0.52 0.49 0.44
Return on average Ordinary Shareholders' equity(4)..................... 16.9 15.7 16.4 13.9 12.4
CAPITAL RATIOS
Average shareholders' equity on average total assets................... 2.71 3.21 3.39 3.61 3.75
Dividend payout ratio(5)............................................... 46.9 45.5 45.4 46.8 46.9
Tier 1 capital ratio(6)................................................ 6.94 6.96 7.21 6.51 6.74
Total capital ratio(6)................................................. 10.48 10.65 10.89 10.80 11.02
CREDIT QUALITY RATIOS
Specific provision for loan losses (net) to private sector loans
(gross)(7)(8)(9)..................................................... 0.35 0.36 0.46 0.31 0.49
Nonperforming loans to private sector loans (gross)(8)(10)............. 2.39 1.59 1.87 2.14 2.25
Specific allowance for loan losses to private sector loans
(gross)(8)(11)....................................................... 2.24 1.74 1.75 1.96 2.25
Specific allowance for loans losses to nonperforming loans
(gross)(8)(11)....................................................... 93.9 109.4 93.5 91.5 99.9
Write-offs to private sector loans (gross)(8).......................... 0.29 0.28 0.55 0.47 0.42
</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 1998, 1997 and
1996 or the additions to the provision for general contingencies for 1995
and 1994.
(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 1998, 1997
and 1996 and the provision for general contingencies for 1995 and 1994.
56
<PAGE>
APPROXIMATE AMOUNTS IN ACCORDANCE WITH U.S. GAAP
<TABLE>
<CAPTION>
1998 1998 1997
------------------------ --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF USD
EXCEPT (IN MILLIONS OF NLG
SHARE DATA)(1) EXCEPT SHARE DATA)
Net interest revenue.............................................. 6,742 13,383 12,029
Other revenue..................................................... 6,637 13,176 10,333
Total revenue..................................................... 13,379 26,559 22,362
Pre-tax profit.................................................... 3,478 6,905 5,595
Net profit........................................................ 2,123 4,214 3,470
Shareholders' equity.............................................. 19,932 37,591 34,559
Minority interests................................................ 4,125 7,779 4,527
Total assets...................................................... 522,978 986,337 881,403
Basic earnings per Ordinary Share(2).............................. 1.43 2.84 2.37
Diluted earnings per Ordinary Share(2)............................ 1.42 2.82 2.35
Basic earnings per ADS (in USD)(2)(3)............................. -- 1.43 1.21
Shareholders' equity per Ordinary Share(2)........................ 13.15 24.80 23.20
Shareholders' equity per ADS (in USD)(2)(4)....................... -- 13.15 11.49
</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
1998 and for balance sheet items at an exchange rate of $1.00 = NLG 1.8860,
the exchange rate on December 31, 1998.
(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>
1998 1997
--------- ---------
<S> <C> <C>
(IN PERCENTAGES)
PROFITABILITY RATIOS
Net interest margin.............................................................................. 1.7 1.8
Non-interest revenue to total revenue............................................................ 49.6 46.2
Efficiency ratio................................................................................. 69.2 70.0
Return on average total assets................................................................... 0.41 0.42
Return on average Ordinary Shareholders' equity.................................................. 11.8 10.9
CREDIT QUALITY RATIOS
Provision for loan losses (net) to private sector loans (gross)(1)............................... 0.29 0.47
Nonperforming loans to private sector loans (gross).............................................. 2.39 1.59
Allowances for loan losses to private sector loans (gross)(2).................................... 3.20 2.79
Allowances for loan losses to nonperforming loans(2)............................................. 133.9 175.0
Write-offs to private sector loans (gross)....................................................... 0.29 0.28
</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.
57
<PAGE>
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
Investment Banking 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.
In 1998, ABN AMRO made substantial progress in implementing its long-term
international growth strategy, which contemplates expansion in selected markets
with significant long-term growth and profitability potential. In Brazil, the
Bank acquired a controlling interest in Banco Real, the fourth-largest privately
held bank in the country (for a purchase price of approximately NLG 4.2
billion). ABN AMRO also acquired Bandepe in Brazil in November 1998 (for a
purchase price of NLG 290 million). These acquisitions, combined with existing
ABN AMRO operations in Brazil and other countries in South America, provide the
Bank a broad-based position in the region. In Asia, ABN AMRO acquired a majority
interest in Bank of Asia, a bank based in Thailand (for an initial purchase
price of NLG 358 million, subject to adjustment based on Bank of Asia's net book
at year-end 1999). The Bank's position in Australia and New Zealand was enhanced
through the acquisition of the local investment banking operations of BZW (for a
purchase price of NLG 179 million). The Bank also purchased the remaining
interests in its Asian securities subsidiary, ABN AMRO Asia Ltd. (for a purchase
price of NLG 415 million). In addition, in March 1999, the Bank announced the
acquisition of an 8.75% interest in Banca di Roma, a major Italian banking group
(for a purchase price of approximately NLG 1.45 billion).
During 1997, the composition of the ABN AMRO group changed as a result of 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). In
addition, ABN AMRO sold MeesPierson, effective as of January 1, 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, the European Central Bank,
the Federal Reserve Board and the Brazilian Central Bank, 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
58
<PAGE>
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.
ABN AMRO has economic, financial market, credit, legal and other specialists
who monitor economic and market conditions and government policies and actions.
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 EURO
On January 1, 1999, eleven EU countries, including The Netherlands, embraced
the euro and relinquished their monetary independence. ABN AMRO is striving to
become a leading bank in the euro, both inside and outside Europe, in an
increasingly competitive market. ABN AMRO recognized early on that substantial
investments were of paramount importance to establish a promising starting
position in "Euroland." For this reason, ABN AMRO committed a substantial part
of available information technology capacity to euro-related projects in 1998.
The Bank's information technology staff and operating divisions succeeded in
making the Bank's systems euro-compatible in time.
The costs of this project obviously affected ABN AMRO's results. In
addition, the disappearance of trade in the currencies of the eleven euro-zone
countries and the increases in scale in the financial markets put added pressure
on revenue. ABN AMRO will seek to compensate for these effects through the
exploitation of ABN AMRO's market position as a leading commercial and
investment bank in Euroland. New euro-related products and initiatives were
developed in a range of different fields during 1998.
ABN AMRO assigned top priority to services aimed at the conversion of
customer-related systems. The Bank opted to adjust its internal systems in a
manner that enables its customers all over the world to enjoy maximum
flexibility in timing the conversion of their contracts and accounts. The Bank's
products are now available in euros. The conversion is being carried out free of
charge for all the Bank's customer groups. While conversion of EMU currencies
will remain necessary until January 1, 2002, the introduction of the euro has
made currency translation charges fully transparent.
Another major priority was the modification of ABN AMRO's cash management
and international payment products. Customers justifiably have high expectations
concerning the quality of the Bank's payment products as well as the benefits to
be gained from changed cash management in the currency union. One handicap,
however, is that the existing infrastructures of the participating countries are
not yet sufficiently compatible to satisfy these expectations. ABN AMRO has
therefore embarked on building an efficient internal transaction processing
network (Global Transaction Services), making use of the Bank's branch network
covering all EU countries. In this way, the Bank intends to be able to offer
harmonized banking services to banks and businesses in Euroland.
Money markets and stock exchanges in the 11 EMU countries also effected a
complete changeover to the euro at the beginning of 1999. This switch is
reflected in ABN AMRO's investment banking activities where product innovations
were carried out in the fields of treasury, asset management, fixed income and
equity.
59
<PAGE>
YEAR 2000
ABN AMRO is heavily dependent on information technology applications.
Information technology processes form the basis for all of ABN AMRO products and
services. The malfunction of a critical information technology system, for
example due to the millennium problem, will threaten the continuity of such
products and services. In 1995, ABN AMRO started to adapt its information
technology systems to be Year 2000 ready by means of a structured approach, and
expects all systems relevant to ABN AMRO's automated processes to be Year 2000
ready by the end of the first half of 1999. ABN AMRO is now in the final stage
of the necessary modifications, and its efforts in 1999 will be focused on
testing the links between internal and external systems.
ABN AMRO's automated processes depend partly on hardware and software
obtained from outside suppliers. ABN AMRO has active policies to ensure that the
relevant products of these suppliers are, wherever necessary, adjusted in order
to assure Year 2000 readiness or replaced by other products. In addition to
information technology systems, attention is also being devoted to workplace
systems and embedded software used in the operating and control systems of, for
instance, vaults and elevators. ABN AMRO expects such systems and software to be
Year 2000 ready before the end of 1999. ABN AMRO frequently consults with its
information technology departments outside The Netherlands as well as with
supervisory authorities, other companies and government agencies so that all can
benefit from each other's experiences.
The possible implications of the Year 2000 problem in ABN AMRO's loan
portfolio are being evaluated worldwide. Any potential trouble spots are closely
monitored in order to prevent or limit harmful consequences.
The extent of the threat of Year 2000 problems occurring at external parties
(e.g., suppliers of energy, telecommunications, transportation, etc.) will vary,
depending on the country, industry and company concerned. Any incidents that do
occur could have considerable consequences. In mid-1998, ABN AMRO started to
create a Millennium Contingency Plan to permit a swift and effective response to
external incidents.
In the first half of 1999, all operations of ABN AMRO are scheduled to
complete their contingency plans. They will devise and implement alternative
working methods and procedures for their critical business processes so that
services can continue to be provided to customers with as little disruption as
possible. In addition, a worldwide Year 2000 organization has been set up within
ABN AMRO in order to minimize any loss or damage resulting from unforeseen Year
2000 problems. ABN AMRO is also tracking external developments with a view to
taking any additional measures that may be required.
The total cost of adapting ABN AMRO's systems to the new millennium is now
estimated at approximately NLG 500 million. Expenses incurred up to and
including 1998 totaled NLG 350 million. The remaining provisions established by
ABN AMRO are expected to be adequate to cover costs still to be incurred.
Provisions have not been made for expenses that may arise from problems
occurring from third party non-compliance.
The preceding paragraphs contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934 that are based on
ABN AMRO's current information, views and assumptions and that involve known and
unknown risks and uncertainties. There can be no assurance that ABN AMRO's
information technology and other systems will be Year 2000 ready on a timely
basis, which could lead to disruptions in ABN AMRO's services or operations.
This in turn could have a material adverse effect on ABN AMRO's business,
results of operations, liquidity and/or financial condition. Year 2000 readiness
costs also could exceed ABN AMRO's current cost estimates. Furthermore, in most
cases, ABN AMRO is unable to adequately assess Year 2000 readiness by external
parties and, therefore, does not have sufficient information to complete a
reliable external
60
<PAGE>
party assessment. The failure by one or more external parties to be Year 2000
ready could have a material adverse effect on ABN AMRO's business, results of
operations, liquidity and/or financial condition, including, without limitation,
as a result of a disruption in financial markets or infrastructure.
FINANCIAL OVERVIEW
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>
OPERATING PROFIT
TOTAL REVENUE BEFORE TAXES
------------------------------- --------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Netherlands Division................................................ 8,191 7,328 6,652 2,550 2,219
International Division
Europe (excluding The Netherlands).............................. 3,206 2,710 1,909 747 615
North America................................................... 7,136 5,996 3,406 2,151 1,505
South and Central America....................................... 2,364 1,609 1,063 517 547
Middle East and Africa.......................................... 263 217 160 99 61
Asia/Pacific.................................................... 1,584 1,137 770 (43) 11
--------- --------- --------- --------- ---------
14,553 11,669 7,308 3,471 2,739
Investment Banking Division......................................... 3,921 3,887 2,980 542 878
--------- --------- --------- --------- ---------
Subtotal........................................................ 26,665 22,884 16,940 6,563 5,836
ABN AMRO Lease Holding.............................................. 965 884 760 267 239
MeesPierson......................................................... -- -- 1,391 -- --
Unallocated result.................................................. -- -- -- (668) 106
Addition to Fund for general banking risks/Provision for general
contingencies..................................................... -- -- -- 223 (395)
--------- --------- --------- --------- ---------
ABN AMRO............................................................ 27,630 23,768 19,091 6,385 5,786
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
<CAPTION>
1996
---------
<S> <C>
Netherlands Division................................................ 1,678
International Division
Europe (excluding The Netherlands).............................. 241
North America................................................... 1,088
South and Central America....................................... 246
Middle East and Africa.......................................... (8)
Asia/Pacific.................................................... 160
---------
1,727
Investment Banking Division......................................... 925
---------
Subtotal........................................................ 4,330
ABN AMRO Lease Holding.............................................. 209
MeesPierson......................................................... 269
Unallocated result.................................................. 131
Addition to Fund for general banking risks/Provision for general
contingencies..................................................... (146)
---------
ABN AMRO............................................................ 4,793
---------
---------
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS RISK-WEIGHTED ASSETS(1)
AT DECEMBER 31, AT DECEMBER 31,
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division..................................... 197,943 183,635 166,621 148,296 144,010 129,315
International Division
Europe (excluding The Netherlands)................... 85,094 88,775 77,406 57,998 58,203 57,675
North America........................................ 234,830 201,861 110,300 132,626 126,833 98,897
South and Central America............................ 44,922 15,702 10,037 30,131 14,114 8,639
Middle East and Africa............................... 5,917 5,059 3,856 3,832 2,729 1,871
Asia/Pacific......................................... 89,088 76,575 44,447 39,348 39,093 34,792
--------- --------- --------- --------- --------- ---------
459,851 387,972 246,046 263,935 240,972 201,874
Investment Banking Division.............................. 279,475 252,559 176,102 49,280 63,147 47,978
--------- --------- --------- --------- --------- ---------
Subtotal............................................. 937,269 824,166 588,769 461,511 448,129 379,167
ABN AMRO Lease Holding................................... 14,916 12,275 10,504 13,982 11,676 10,101
--------- --------- --------- --------- --------- ---------
ABN AMRO................................................. 952,185 836,441 599,273 475,493 459,805 389,268
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</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.
61
<PAGE>
<TABLE>
<CAPTION>
FULL-TIME EQUIVALENT OFFICES AND
STAFF BRANCHES
AT DECEMBER 31, AT DECEMBER 31,
------------------------------- ----------------------
1998 1997 1996 1998 1997
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Netherlands Division............................................. 25,235 24,093 23,041 937 962
International Division
Europe (excluding The Netherlands)........................... 9,100 8,465 7,778 177 173
North America................................................ 18,768 17,099 11,066 443 439
South and Central America.................................... 26,989 5,183 4,714 1,704 121
Middle East and Africa....................................... 1,145 1,062 988 70 70
Asia/Pacific................................................. 7,133 4,108 3,147 176 53
Central Staff................................................ 339 355 189 --
--------- --------- --------- --------- -----
63,474 36,272 27,882 2,570 856
Investment Banking Division...................................... 7,241 6,309 5,487 61 58
of which included in International Division.................. (19) (18)
Other divisions and group staff.................................. 5,081 4,642 4,312 --
--------- --------- --------- --------- -----
Subtotal..................................................... 101,031 71,316 60,722 3,549 1,858
ABN AMRO Lease Holding........................................... 4,795 3,619 3,406 34 30
--------- --------- --------- --------- -----
ABN AMRO......................................................... 105,826 74,935 64,128 3,583 1,888
--------- --------- --------- --------- -----
--------- --------- --------- --------- -----
<CAPTION>
1996
---------
<S> <C>
Netherlands Division............................................. 1,006
International Division
Europe (excluding The Netherlands)........................... 182
North America................................................ 228
South and Central America.................................... 112
Middle East and Africa....................................... 71
Asia/Pacific................................................. 46
Central Staff................................................ --
---------
639
Investment Banking Division...................................... 60
of which included in International Division.................. (17)
Other divisions and group staff.................................. --
---------
Subtotal..................................................... 1,688
ABN AMRO Lease Holding........................................... 29
---------
ABN AMRO......................................................... 1,717
---------
---------
</TABLE>
RESULTS OF OPERATIONS
1998 profit was slightly above the record level of 1997. The first half of
1998 saw strong growth. In the second half, results were affected by the turmoil
in Russia and its impact on several other financial markets, notably South
America. Net profit for 1998 improved by NLG 175 million or 4.5% to NLG 4,028
million from NLG 3,853 million in 1997, which in turn represented a NLG 550
million or 16.7% increase from 1996. Pre-tax profit increased in 1998 by 10.4%
as ABN AMRO benefited from generally favorable economic and market conditions in
most of the principal regions in which it operates, particularly in the United
States and The Netherlands. Although economic conditions in the United States,
The Netherlands and most of the rest of Europe continue to appear favorable at
present, financial markets can be volatile, as demonstrated by recent events in
Latin America, Asia and Russia, and there can be no assurance that the current
combination of strong growth, relatively stable interest rates and near record
stock market prices in many of the principal economies in which ABN AMRO
operates will continue.
During the second half of 1997, and in particular the closing months of that
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 has had
relatively few negative consequences for the Bank. The quality of the Bank's
loan portfolio in the majority of the affected countries has been good.
Furthermore, ABN AMRO's exposure in terms of outstanding loans and trading
portfolios has been relatively small in this region compared to ABN AMRO's
worldwide credit business. In addition, provisions have been made against this
risk. The crisis in Asia also has 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 a significant widening of
interest margins in Asian markets.
Early in 1999, Brazil was forced to abandon linking its currency, the real,
to the U.S. dollar. While this linkage had been useful in enabling Brazil to
bring its rampant inflation rate down to normal levels, it had exacted a high
price in the form of a substantially overvalued currency. This, in turn, pushed
up the current account deficit, making Brazil highly dependent on foreign
capital. In an effort to achieve a significant reduction in interest rates, the
government effected a policy shift and devalued the real. This sparked a
maxi-devaluation that exceeded expectations as a result of the existing
overvaluation, while the expected fall in interest rates did not materialize.
The devaluation of the Brazilian real has an impact on ABN AMRO's
real-denominated earnings. The high current interest rates in Brazil arising
from the exchange rate policy initially serve to widen
62
<PAGE>
ABN AMRO's interest margins, and have a positive effect on earnings. However, a
sustained period of high interest rates will inevitably lower the production of
new loans. In addition, the number of debtors who are unable to service their
debts will increase, necessitating higher provisions chargeable to income.
However, because the earnings of ABN AMRO's Brazilian operations are denominated
to a substantial extent in U.S. dollars, such earnings are partly immune to the
devaluation of the real.
ABN AMRO's shareholders' equity is affected by conversion into guilders of
real-denominated capital. Because a portion of the capital of Banco Real is held
in U.S. dollars, part of this conversion risk is covered. The total effect on
shareholders' equity amounted to approximately NLG 700 million in mid-March
1999, although the amount will differ depending on further currency movements
over the course of the year.
During 1998, revenues increased by NLG 3,862 million or 16.2% as compared to
1997 to NLG 27,630 million (24.5% increase in 1997 as compared to 1996) and
operating expenses increased by NLG 2,764 million or 16.8% as compared to 1997
to NLG 19,182 million (27.0% in 1997 as compared to 1996). The provision for
loan losses in 1998 increased 72.0% from 1997 levels to NLG 2,073 million,
reflecting losses due to payment problems of Russian banks and increased
cross-border exposure to a number of countries, including Indonesia, Thailand
and Pakistan. ABN AMRO's efficiency ratio (operating expenses as a percentage of
total revenue) deteriorated to 69.4% in 1998 from 69.1% in 1997 and 67.7% in
1996. Acquisition and exchange rate movements had a minor impact on pre-tax
profits for 1998.
After taking into account Preference Share and Convertible Preference Share
dividends, in 1998, profit available for distribution to Ordinary Shares
increased 4.8% to NLG 3,850 million from NLG 3,673 million in 1997, which in
turn was a 17.9% increase from 1996. Net profit per Ordinary Share was NLG 2.71
and NLG 2.64 in 1998 and 1997, respectively, an increase of 2.7% and 14.3%,
respectively, from prior year levels after taking into account the increase in
the average number of Ordinary Shares outstanding from 1,346.3 million in 1996
to 1,388.7 million in 1997 and to 1,422.1 million in 1998.
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 10%, average annual growth in net profit of at least 12.5% and return
on shareholders' equity of at least 18%, 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 period to
period.
NET INTEREST REVENUE
Net interest revenue rose by NLG 1,991 or 14.4% to NLG 15,862 million as
compared to 1997. The Netherlands Division's guilder net interest margin was at
the same level as in 1997 (3.0%). Retail lending volume grew in The Netherlands
by 19.4% while commercial lending decreased by 0.6%. In the International
Division, strong volume growth (up 9.6%), due to the acquisitions in Brazil and
Thailand and commercial loan growth in U.S. operations, more than offset a
slightly narrower net interest margin.
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 4.5%, respectively), and the
Netherlands Division's net interest margin was fractionally higher (from 2.8% in
1996 to 3.0% in 1997). The International Division experienced strong volume
growth (up 48.5%), principally in the United States 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 COMMISSIONS
In 1998, 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,
63
<PAGE>
rose by NLG 1,195 million or 19.1% as compared to 1997. Securities commissions,
which consist of brokerage, custody and underwriting fees, increased 17.0%,
reflecting the continuation of the generally favorable conditions in the
financial markets in Europe and the United States. Payment services commissions
and asset management and trust fee income also showed a significant increase.
In 1997, net commissions increased by NLG 1,316 million or 26.6% as compared
to 1996. In particular, securities commissions increased 36.3%, reflecting high
trading volumes in response to the unusually strong stock markets experienced in
1997.
RESULTS FROM FINANCIAL TRANSACTIONS
Results from financial transactions reflecting primarily securities, foreign
exchange and derivatives trading, increased NLG 104 million or 4.3% to NLG 2,540
million in 1998. Results from financial transactions were depressed by a loss of
NLG 306 million on trading in emerging market debt instruments, following the
Russian financial crisis in the second half of 1998. Results from securities
trading were up NLG 304 million, however, reflecting favorable financial markets
in the developed economies. Foreign exchange dealing also produced higher
revenue, rising NLG 215 million or 22.5%, as the Bank benefited from the
increased volatility of various currency markets, notably in emerging economies.
Results from derivatives were at approximately the same level as in 1997.
In 1997, results from financial transactions 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 hyperinflationary 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. The provision of NLG 150 million was released
at year-end 1997.
OTHER REVENUE
Other revenues, which consist principally of results from mortgage
origination fees, mortgage servicing fees, leasing activities, participating
interests, insurance activities and securitizations, increased by NLG 572
million or 48.1% primarily due to an increase in the Bank's U.S. mortgage
business, which is the eighth largest originator of mortgage loans in the United
States with originations in 1998 of NLG 57.4 billion as compared to NLG 29.8
billion in 1997. Revenue from securities and participating interests, rose by
NLG 138 million, primarily from the sale of several minority interests. Other
revenues increased by NLG 462 million or 63.5% in 1997 over 1996 levels due, in
part, to the sale of several minority interests.
OPERATING EXPENSES
Operating expenses, which consists of staff costs, other administrative
expenses and depreciation, increased in 1998 by NLG 2,764 or 16.8% to NLG 19,182
million. The underlying factors included significant internal growth, several
information technology projects (including the Global Transaction Services
("GTS") project) and higher bonuses, notably in the United States. The
investment for the euro also was substantial in 1998 (approximately NLG 375
million as compared to NLG 135 million in 1997), and the total cost of adapting
the Bank's systems to the euro is expected to amount to approximately NLG 500
million. These costs were largely charged to provisions made for euro-related
conversion costs in previous years. Expenses involved in Year 2000 compliance
(more than NLG 200 million in 1998) were charged almost entirely to the income
statement.
Operating expenses 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
64
<PAGE>
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 company pension fund, no pension costs were
incurred for the Bank's Dutch operations in 1997. Operating expenses in the
International and Investment Banking 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 such as euro conversion and Year 2000
Compliance, also increased operating expenses.
In 1998, staffing costs increased by 18.6% to NLG 10,260 million. In 1997,
staffing costs increased by 21.2% to NLG 8,653 million from NLG 7,140 million in
1996. The full-time equivalent work force, including temporary staff, increased
by 41.2% during 1998 to 105,826 after increasing in 1997 by 16.9% to 74,935 at
December 31, 1997. During 1998, the full-time work force in the International
Division increased by 27,202 or 75.0% to 63,474, mainly due to the acquisitions
of Banco Real, Bank of Asia and Bandepe (excluding acquisitions, the increase
was 3,295 or 9.1% and was due to internal growth, mainly in the United States).
ABN AMRO anticipates reducing its Brazilian work force over time as systems
improvements are implemented. The Investment Banking and the Netherlands
Divisions also increased their full-time equivalent work forces in 1998,
increasing 14.8% and 4.7%, respectively, due to continuing expansion, mainly in
London and Amsterdam, and to expanding the delivery of products and services to
clients. During 1997, the full-time work force in the Investment Banking and
International Divisions increased 15.0% and 30.1%, respectively, reflecting the
acquisitions of Standard Federal Bancorporation and The Chicago Corporation in
the United States and continuing expansion of the Bank's international and
investment banking activities. The Netherlands Division increased its full-time
equivalent work force 4.6% 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 880 million
or 13.4% during 1998 to NLG 7,451 million, after increasing NLG 1,776 million or
37.0% in 1997 to NLG 6,571 million from NLG 4,795 million in 1996. Information
technology and consulting costs in particular increased in both 1997 and 1998 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 1998 and 1997 administrative expenses were the provisions described
above for the adaptation of computer systems for the introduction of the euro
and for the year 2000.
PROVISION FOR LOAN LOSSES
Private sector loans (excluding professional securities transactions) and
risk weighted total assets increased sharply in 1998 by 9.9% and 3.4%,
respectively.
Provision for loan losses rose from NLG 1,205 million in 1997 to NLG 2,073
million in 1998. In light of losses on transactions with Russian banks and
increased cross-border exposure to a number of countries, including Indonesia,
Thailand and Pakistan, NLG 668 million was added to provisions for loan losses
for cross-border risks in 1998, as compared to the release of NLG 106 million in
1997. The remaining addition in 1998 of NLG 1,405 million to provision for loan
losses related to specific bad debt provisions, which were higher particularly
in Asia and Brazil but lower in The Netherlands and North America. In 1997,
specific bad debt provisions totaled NLG 1,311 million. In 1998, the additions
made to provisions at the end of 1997 for developments in Asia (approximately
NLG 250 million) were allocated to specific loan losses. As a result, in 1998,
NLG 223 million was released from the fund for general banking risks. In
determining the net asset value of ABN AMRO's 1998 acquisitions, especially
Banco Real, ABN AMRO has taken into account the increased exposure in each of
the relevant countries. Accordingly, an extra addition was made to the fund for
general banking risks, resulting in the current level of NLG 2,513 million being
slightly above ABN AMRO's standard of 50 basis points
65
<PAGE>
of risk-weighted total assets. The combined provision for loan losses and
addition to / release from the fund for general banking risks amounted to NLG
1,850 million in 1998 compared to NLG 1,600 million in 1997.
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.
VALUE ADJUSTMENTS TO FINANCIAL FIXED ASSETS
Value adjustments to financial fixed assets included unrealized differences
in the value of shares in the Bank's investment portfolios arising from the
sharp decline in stock market prices in the second half of the year and losses
on Russian government paper.
INCOME TAXES
Income taxes in 1998 were up 20.5% or NLG 340 million to NLG 2,001 million,
mainly attributable to lower tax-exempt revenue, several non-tax deductible
losses and higher taxes in a number of countries. Income taxes in 1997 were up
23.1% or NLG 312 million to NLG 1,661 million. The effective tax rate rose to
31.3% in 1998 from 28.7% in 1997 and 28.1% in 1996. 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.
MINORITY INTERESTS
Minority interests increased from NLG 272 million to NLG 356 million,
reflecting the issuance of additional preferred stock by ABN AMRO's U.S.
organization, primarily to finance acquisitions, and the incorporation of the
minority interest of approximately 60% in Banco Real at year-end 1998 in the
1998 figures.
RESULTS OF OPERATIONS BY DIVISION
NETHERLANDS DIVISION
The following table sets forth selected information pertaining to the
Netherlands Division.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
STAFF AND
OFFICES AND BRANCHES)
Net interest revenue....................................................... 5,819 5,318 4,871
Net commissions............................................................ 1,846 1,710 1,507
Results from financial transactions........................................ 167 175 206
Other revenue.............................................................. 359 125 68
--------- --------- ---------
Total revenue.............................................................. 8,191 7,328 6,652
Operating expenses......................................................... 5,343 4,747 4,544
Provisions for loan losses................................................. 222 362 430
Value adjustments to financial fixed assets................................ 76 -- --
--------- --------- ---------
Operating profit before taxes.............................................. 2,550 2,219 1,678
--------- --------- ---------
--------- --------- ---------
Total assets............................................................... 197,943 183,635 166,621
Risk-weighted assets....................................................... 148,296 144,010 129,315
Full-time equivalent staff................................................. 25,235 24,093 23,041
Number of offices and branches............................................. 937 962 1,006
</TABLE>
In 1998, the Netherlands Division achieved a NLG 331 million or 14.9%
increase in operating profit before taxes as compared to 1997, when operating
profit before taxes increased by NLG 541 million or 32.2% as compared to 1996.
Provisions approximating NLG 125 million in 1998 and 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 operating profits before taxes for
each of
66
<PAGE>
the three years. Total revenues in 1998 increased NLG 863 million or 11.8% over
1997 levels, following an increase in 1997 of NLG 676 million or 10.2% as
compared to 1996. Operating expenses increased by NLG 596 million or 12.6% in
1998 as compared to 1997, following an increase in 1997 of NLG 203 million or
4.5% as compared to 1996. The provision for loan losses in 1998 decreased by NLG
140 million or 38.7% to NLG 222 million due to the excellent quality of the
Dutch loan portfolio. The good quality of ABN AMRO's loan portfolio also
permitted a lower provision for loan losses in 1997 than in 1996. Value
adjustments to financial fixed assets showed a loss of NLG 76 million in 1998,
reflecting unrealized losses of shares held in the share investment portfolio.
NET INTEREST REVENUE
Net interest revenue grew in 1998 by NLG 501 million or 9.4%. In the guilder
business, growth in total assets due to an increase in mortgages was the
principal reason for this improvement. Market rates fell during the course of
1998. As long-term interest rates fell more sharply than shorter rates, the
yield curve flattened. Uncertainty in the equity markets spurred demand for
fixed-income securities. Due to the absence of inflationary pressures, the
ten-year capital market rate dropped below 4% to reach the lowest level of the
past 40 years. Money market rates remained fairly constant, hovering between
3.3% and 3.6%. The Dutch Central Bank maintained its official rates throughout
1998. It was not until the end of the year that the interest rate for special
loans was reduced slightly.
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 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 less rapidly in 1998 than in previous years, up
only NLG 15.3 billion or 8.5% as compared to 1997. Average private sector loan
volume increased by 8.8% from NLG 162.5 billion in 1997 to NLG 176.8 billion in
1998. Loans to corporations were at approximately the same level as in 1997.
Residential mortgage volume increased in 1998 by NLG 14.6 billion or 22.6% over
1997 levels, with home mortgage borrowers showing a preference for long-term
fixed-rate loans.
Average total assets rose NLG 15.9 billion in 1997 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 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Payment services................................................................... 741 714 689
Insurance.......................................................................... 260 239 238
Securities......................................................................... 663 600 442
Asset management and trust services................................................ 60 54 50
Other.............................................................................. 122 103 88
--------- --------- ---------
Total net commissions.............................................................. 1,846 1,710 1,507
--------- --------- ---------
--------- --------- ---------
</TABLE>
67
<PAGE>
Net commissions were higher in 1998 compared to 1997, up NLG 136 million or
8.0%. Payment services showed a modest increase in 1998, rising NLG 27 million
or 3.8% from 1997. Turnover and transaction commissions grew substantially as
electronic payments increased more rapidly than the traditional methods of
payment, and sales of the Bank's OfficeNet and HomeNet software packages, which
permit the electronic delivery of payment instructions, remained strong.
Commissions revenue from corporate and cross-border payments fell.
Insurance commissions, both non-life insurance commissions and life
insurance commissions, were up in 1998 as compared to 1997. The Bank believes
that its increased focus on insurance products and their integration with
banking services will lead to continued expansion of the Bank's insurance
operations.
Securities commissions rose in 1998, up 10.5% from 1997, in an extremely
volatile trading environment. During 1998, commissions resulting from
transactions in ABN AMRO's investment funds increased 11.1%. Custodial assets
grew to NLG 1,009 million, up 12.7% from 1997, and custody fee revenue increased
by 15%. Commission revenue from on-line securities trading by customers using
the Investment Line and HomeNet software packages were substantially higher in
1998 than in 1997, with 30% of securities orders being placed through the
Investment Line.
Net commissions were substantially higher in 1997 compared to 1996, rising
NLG 203 million or 13.5%. The increase was almost entirely due to the 35.7% rise
in securities commissions during 1997.
Payment services commissions in 1997 showed a modest increase, rising NLG 25
million or 3.6% from 1996. A decline in turnover commission was offset by
increasing commission revenue from the sale of OfficeNet and HomeNet packages.
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 at December 31, 1998.
Insurance commissions from sales of policies through ABN AMRO's branch
network were essentially unchanged in 1997. Non-life insurance commissions
dropped slightly, while life insurance commissions continued the advance from
1996.
Securities commissions were up 35.7% in 1997 as compared to 1996, following
1996's 32.7% increase over 1995. The buoyant stock market climate during 1996
and 1997 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 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 1996.
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>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Foreign exchange dealing............................................................... 136 151 149
Securities and other results from financial transactions............................... 31 24 57
--- --- ---
Total results from financial transactions.............................................. 167 175 206
--- --- ---
--- --- ---
</TABLE>
For the Netherlands Division, results from financial transactions were
attributable primarily to the spread realized on exchanging foreign currency for
retail clients. Financial transactions in 1998 produced slightly lower revenue,
down NLG 8 million or 4.6% from 1997. This was the result of a decrease in
revenue from customer currency transactions, though improved results in
derivatives transactions partially offset the overall decline.
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
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<PAGE>
other results from financial transactions in 1997 and 1996 was attributable to
the sale of equity participations.
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
Levensverzekering, ABN AMRO's life insurance subsidiary, and ABN AMRO's property
and casualty insurance subsidiaries, including ABN AMRO Schadeverzekering.
Other revenue increased by NLG 234 million in 1998. The insurance companies
achieved vigorous growth in premium income. ABN AMRO Levensverzekering generated
premium income of NLG 1,051 million, up 37.2% from NLG 766 million in 1997.
Premium income of ABN AMRO Schadeverzekering rose to NLG 283 million in 1998
from NLG 190 million in 1997. The launch of new forms of insurance linked to
bank products, as well as the increased focus on insurance in the branch
network, made a significant contribution. ABN AMRO's life insurance and property
and casualty insurance subsidiaries realized considerable growth in net revenue,
which is the balance of premium income, investment income and insurance expense.
ABN AMRO Levensverzekering closed the year with a profit of NLG 44 million
(1997: NLG 40 million), although its results came under slight pressure due to a
rise in the commission paid to ABN AMRO branches for certain products. Further
commission increases are expected for 1999. ABN AMRO Schadeverzekering achieved
a profit of NLG 42 million (1997: NLG 36 million).
Other revenue increased by NLG 57 million or 83.8% to NLG 125 million in
1997. Net revenue from the Netherlands Division insurance subsidiaries 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.
OPERATING EXPENSES
The following table sets forth operating expenses for the Netherlands
Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Staff costs........................................................................ 2,858 2,425 2,518
Other administrative expenses...................................................... 1,855 1,787 1,504
Depreciation....................................................................... 630 535 522
--------- --------- ---------
5,343 4,747 4,544
--------- --------- ---------
--------- --------- ---------
</TABLE>
Operating expenses in 1998 were up NLG 596 million or 12.6% due primarily to
higher staff costs.
Staff costs rose by NLG 433 million or 17.9% in 1998, partly as a result of
an increase in staffing levels and the 3% wage increase in July 1998 under the
Bank's collective labor agreement. As in 1997, increased product sales led to an
expansion of staffing capacity. More staff was also required due to ABN AMRO's
increased focus on insurance products. At year-end 1998, the full-time
equivalent workforce (including temporary staff) totaled 25,235, representing a
rise of 4.7% as compared to 1997. In addition, staff costs for support services,
notably in respect of information technology ("IT") and the GTS projects, were
substantially higher. Contributions of NLG 100 million were made to the company
pension fund in 1998. Given the strong performance of the company pension fund
in 1997, no contributions were made that year.
Other administrative expenses increased in 1998 by NLG 68 million or 3.8%,
partly reflecting volume growth (such as with respect to payment services),
marketing support for the smart card and adjustments to hardware for its use.
Other administrative expenses also include the expenditures relating to the GTS
project and the euro launch.
69
<PAGE>
Depreciation increased by 17.8% in 1998, primarily in connection with higher
depreciation for hardware and software. Capital expenditure on IT equipment in
The Netherlands went up by approximately NLG 200 million to more than NLG 600
million in 1998.
Operating expenses in 1997 were up NLG 203 million or 4.5% from 1996, 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 93 million or 3.7%, primarily because of
the absence of pension contributions. 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 1,052 or 4.6%.
Other administrative expenses rose in 1997 by NLG 283 million or 18.8%.
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.
PROVISION FOR LOAN LOSSES AND VALUE ADJUSTMENTS TO FINANCIAL FIXED ASSETS
Provision for loan losses in 1998 was NLG 222 million, a decline of NLG 140
million or 38.7% from NLG 362 million in 1997. This decline reflected the
excellent quality of the loan portfolio of the Netherlands Division.
Risk-weighted total assets of the Netherlands Division amounted to NLG 148
billion at year-end 1998, essentially unchanged from 1997 levels. The downward
adjustment to the value of financial fixed assets in 1998 related to unrealized
losses on shares in the investment portfolios.
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 144 billion at December 31, 1997, an increase of 11.4% over
risk-weighted assets for the Netherlands Division at December 31, 1996.
70
<PAGE>
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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
STAFF
AND OFFICES AND BRANCHES)
Net interest revenue.......................................................... 9,120 7,710 5,218
Net commissions............................................................... 3,483 2,641 1,502
Results from financial transactions........................................... 1,241 999 412
Other revenue................................................................. 709 319 176
--------- --------- ---------
Total revenue................................................................. 14,553 11,669 7,308
Operating expenses............................................................ 9,933 8,082 4,823
Provisions for loan losses.................................................... 1,112 884 761
Value adjustments to financial fixed assets................................... 37 (36) (3)
--------- --------- ---------
Operating profit before taxes................................................. 3,471 2,739 1,727
--------- --------- ---------
--------- --------- ---------
Analysis of operating profit before taxes
Europe (excluding The Netherlands).......................................... 747 615 241
North America............................................................... 2,151 1,505 1,088
South and Central America................................................... 517 547 246
Middle East and Africa...................................................... 99 61 (8)
Asia/Pacific................................................................ (43) 11 160
--------- --------- ---------
Operating profit before taxes................................................. 3,471 2,739 1,727
--------- --------- ---------
--------- --------- ---------
Total assets.................................................................. 459,851 387,972 246,046
Risk-weighted assets.......................................................... 263,935 240,972 201,874
Full-time equivalent staff.................................................... 63,474(1) 36,272 27,882
Number of offices and branches................................................ 2,570(2) 856 639
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) 24,407 full-time equivalent staff are attributable to the acquisition of
Banco Real, Bandepe, Bank of Asia and BZW.
(2) 1,698 offices and branches are attributable to the acquisition of Banco
Real, Bandepe, Bank of Asia and BZW.
Operating profit before taxes in 1998 increased by NLG 732 million or 26.7%
to NLG 3,471 million, of which NLG 53 million was attributable to higher
exchange rates. Total revenue increased by NLG 2,884 million or 24.7% and
operating expenses increased by 22.9%. The International Division's contribution
to pre-tax group profit increased further, from 47% in 1997 to 54% in 1998. The
North America region performed extremely well, with operating profit before
taxes up NLG 646 million or 42.9% from 1997. Assuming unchanged average exchange
rates and excluding acquisitions, operating profit before taxes of the
International Division would have increased NLG 495 or 18.1%.
Operating profit before taxes increased in 1997 by NLG 1,012 million or
58.6% to NLG 2,739 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 4,361 million or 59.7% to NLG 11,669 million, and operating
expenses in 1997 rose by NLG 3,259 million or 67.6% to NLG 8,082 million.
Assuming unchanged average exchange rates and excluding acquisitions, operating
profit before taxes would have increased NLG 200 million or 11.6%.
71
<PAGE>
NET INTEREST REVENUE
Net interest revenue in 1998 improved by NLG 1,410 million or 18.3%, of
which approximately NLG 900 million was due to internal growth and approximately
NLG 500 million resulted from acquisitions, principally the acquisition of Banco
Real. ABN AMRO's operations in both the United States and the Asia/Pacific
region contributed significantly to the growth in interest revenue as a result
of volume growth. The net interest margin for the International Division
narrowed slightly, from 2.1% in 1997 to 2.0% in 1998, due to lower margins in
South America in particular. In addition, long-term interest rates declined
significantly in the United States in 1998, providing for a flatter yield curve
on average than in 1997. The decrease in interest rates resulted in a
substantial increase in mortgage refinancings in the United States, which
resulted in the replacement of mortgage loans with lower-yielding assets.
Net interest revenue in 1997 improved by NLG 2,492 million or 47.8% to NLG
7,710 million, almost entirely due to volume growth. The net interest margin for
the International Division was unchanged at 2.1%. 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 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Payment services................................................................... 973 788 557
Insurance.......................................................................... 80 58 40
Securities......................................................................... 1,150 755 294
Asset management and trust services................................................ 429 331 238
Guarantees......................................................................... 197 178 152
Other.............................................................................. 654 531 221
--------- --------- ---------
Total net commissions.............................................................. 3,483 2,641 1,502
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net commissions in 1998 improved sharply, up NLG 842 or 31.9% to NLG 3,483
million. Payment services in 1998 increased by NLG 185 million or 23.5%, mainly
due to the acquisition of Banco Real and volume growth in the United States. The
volatility of world stock markets throughout the year boosted securities
commissions by NLG 395 million or 52.3%, accounting for almost half of the total
rise in net commissions. In 1998, the increase in fees from asset management and
trust services of NLG 98 million or 29.6% was also mainly due to the acquisition
of Banco Real and higher volumes in the United States. The increase in 1998 in
other net commissions, which include mortgage loan servicing fees and financial
advisory fees, including from mergers and acquisitions, of NLG 123 million or
23.2% was mainly due to the acquisition of BZW's operations in Australia and New
Zealand.
Net commissions in 1997 improved sharply, up 75.8% from NLG 1,502 million to
NLG 2,641 million. The 41.5% increase in commission revenue from payment
services was almost entirely attributable to higher volumes. Volumes rose
particularly in the United States, in substantial part from the acquisition of
Standard Federal. The acquisition of Magyar Hitel in Hungary also contributed to
72
<PAGE>
the increase. Reflecting buoyant stock markets worldwide in the first half of
1997, securities commissions rose by NLG 461 million or 156.8% as compared to
1996 to NLG 755 million. The second half of 1997 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 United States and France. Other net
commissions, increased NLG 310 million or more than twice 1996 levels as a
result of the inclusion of Standard Federal and Chicago Corporation in the
United States.
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>
1998 1997 1996
--------- ----- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Securities trading................................................................... 206 237 130
Foreign exchange dealing............................................................. 892 646 303
Derivatives trading.................................................................. 192 112 96
Other................................................................................ (49) 4 (117)
--------- --- ---
Total results from financial transactions............................................ 1,241 999 412
--------- --- ---
--------- --- ---
</TABLE>
Results from financial transactions in 1998 increased NLG 242 million or
24.2% as compared to 1997. This increase was due to the continued volatility in
the currency markets, which sent earnings from foreign exchange dealing sharply
higher, notably in the United States and the Asia/Pacific region. Improved
derivatives trading results were partially offset by lower results from
securities trading. A loss was sustained on capital investments in
hyperinflationary countries, mainly Turkey and Russia.
Results from financial transactions increased by NLG 587 million or 142.5%
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 in 1997, with a particularly
strong contribution from the Asian region, where ABN AMRO benefited from the
volatility of the currency markets.
OTHER REVENUE
Other revenue rose sharply by NLG 390 million or 122.3% principally from
higher earnings from the Bank's U.S. mortgage origination, securitization and
servicing businesses. Other revenue in 1997 was up by NLG 143 million or 81.3%
from 1996 levels mainly due to higher dividends received on portfolio
investments and the sale of mortgage servicing rights by Standard Federal.
OPERATING EXPENSES
The following table sets forth operating expenses for the International
Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Staff costs........................................................................ 5,209 4,152 2,539
Other administrative expenses...................................................... 4,106 3,464 2,003
Depreciation....................................................................... 618 466 281
--------- --------- ---------
9,933 8,082 4,823
--------- --------- ---------
--------- --------- ---------
</TABLE>
73
<PAGE>
In 1998, the NLG 1,851 million or 22.9% increase in operating expenses
largely stemmed from acquisitions (more than NLG 500 million), higher bonuses
(more than NLG 300 million), especially in the United States reflecting strong
results, and the growth of ABN AMRO's business in the United States. The
full-time equivalent workforce rose by 27,202 employees, largely as a result of
acquisitions in Brazil (21,705) and Thailand (2,202). In addition, in the United
States, approximately 1,450 full-time equivalent employees were added as a
result of internal growth and approximately 179 full-time equivalent employees
were added due to the acquisition of Sage. Other substantial expenditure items
were the launch of the euro, Year 2000 compliance costs and the development of
the GTS system.
Operating expenses in 1997 increased NLG 3,259 million or 67.6% as compared
to 1996 to NLG 8,082 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
1,613 million in 1997 due to an increase in the full-time equivalent workforce
of 8,390 or 30.1% to 36,272. 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 acquisitions, higher
exchange rates and provisions for the euro and the Year 2000, operating expenses
increased 21% in 1997 over 1996 levels.
Other administrative expenses, including depreciation, increased NLG 794
million or 20.2% in 1998 due primarily to acquisitions and higher IT costs
resulting primarily from Year 2000 and euro compliance. The number of branches
and offices grew to 2,570, an increase of 1,714 or 200.2%, almost all due to the
acquisitions of Banco Real and Bandepe in South America, which added 1,586
branches and offices, and Bank of Asia in Thailand, which added 112 branches and
offices.
Other administrative expenses, including depreciation, increased 72.1% 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. 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 AND VALUE ADJUSTMENTS TO FINANCIAL FIXED ASSETS
Provision for loan losses increased in 1998 by NLG 228 million or 25.8% to
NLG 1,112 million, following an increase in 1997 of NLG 123 million or 16.2%.
Risk-weighted total assets of the International Division totaled NLG 264 billion
at December 31, 1998, an increase of 9.5% over risk-weighted total assets for
the International Division at December 31, 1997. The increase in provision for
loan losses in 1998 related mainly to realized losses in Asia anticipated at the
end of 1997 and a higher provision associated with the inclusion of acquired
Brazilian operations and the expansion of ABN AMRO's existing Brazilian
operations.
The value of financial fixed assets was adjusted downward, due to a loss of
NLG 37 million on Russian government paper. In 1997, a partial recovery of NLG
36 million was taken into account.
Set forth below is a discussion, by region, of the operating results of the
International Division.
EUROPE (EXCLUDING THE NETHERLANDS)
Operating profit before taxes increased in 1998 by 21.5% to NLG 747 million.
Results in Germany improved, due to the reorganizations of the Bank's German
subsidiaries over the past few years and the successful expansion of ABN AMRO's
investment banking business in Germany. In France, where ABN AMRO offers a broad
range of services to corporate and private banking clients, all operations
experienced growth. Belgium, too, reported good performance and strong growth.
In the United
74
<PAGE>
Kingdom, ABN AMRO strengthened its position further, notably in the area of
complex financial solutions for multinational corporations, but a lower than
expected result was reported. As in 1997, ABN AMRO's Swiss and Luxembourg
private banking operations benefited from favorable market conditions. Private
banking in these countries as well as in France made a significant contribution
to the improvement of results in Europe.
Among the southern European countries, Turkey made especially strong
progress. In Italy, ABN AMRO established a very successful asset management
operation through a joint venture with the Northern Italian Banca Antonveneta.
The good results of ABN AMRO's banks in Central and Eastern Europe were
offset by the spillover effect of the financial crisis in Russia. The crisis
also had a distinctly negative impact on the performance of ABN AMRO's Moscow
branch. Despite the difficult environment, results were satisfactory, notably in
the area of servicing international corporate clients. ABN AMRO's operations in
Poland, Romania and Kazakstan achieved excellent results. The drastic
restructuring of ABN AMRO's late 1996 acquisition in Hungary continues to make
slower-than-expected progress. Nevertheless, the Bank remains optimistic about
the potential of its strong position in this future EU member state.
Results in Europe improved significantly in 1997. Operating profit before
taxes increased by NLG 374 million or 155.2% to NLG 615 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 521 million or 216.2% 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.
NORTH AMERICA
The contribution of North America to the operating profit before taxes of
the International Division increased to 62%. North American operating profit
before taxes rose from NLG 1,505 million in 1997 to NLG 2,151 million in 1998,
an increase of 42.9%. This improvement was primarily attributable to continued
growth of middle market lending volume at LaSalle and lower loan loss
provisions.
LaSalle (Illinois), EAB (New York) and Standard Federal (Michigan) each
expanded their middle market lending efforts. LaSalle opened new lending offices
in Minneapolis and Cleveland. The LaSalle retail organization saw increased
market penetration with the installation of 675 automated teller machines at
Clark Gas Stations throughout the Midwest and the introduction of on-line
banking for bill-paying, funds transfers and balance verification. EAB increased
its in-store banking facilities and plans to add more of these facilities in
1999. EAB also expanded its successful leasing activities and completed its
first securitization transaction of leasing assets. Supported by the significant
increase in mortgage refinancing resulting from lower interest rates, Standard
Federal substantially increased its new mortgage origination.
During 1998, the LaSalle Group, EAB and Standard Federal each benefited from
the continuation of high net interest margins and loan volume growth. Net
interest margins remained at attractive levels in 1998, although somewhat lower
than in 1997. LaSalle, EAB and Standard Federal had net interest margins of 2.8%
(3.1% in 1997), 4.0% (4.2% in 1997) and 2.5% (2.8% in 1997), respectively.
Private sector loans grew 11.7% for the LaSalle Group, 11.1% for EAB and 14.7%
for Standard Federal.
75
<PAGE>
In addition, $3.3 billion of unfunded loan commitments and letters of credit
were securitized at the end of 1998. This transaction provided an additional
funding source and also had the benefit of improving capital ratios.
ABN AMRO's branches in Canada reported lower results. The results of
branches in Mexico improved.
In 1997, North America's contribution to the operating profits before taxes
of the International Division increased to 54.9%, 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 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.
During 1997, both the LaSalle Group and EAB benefited from high net interest
margins and loan volume growth. Net interest margins were 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 U.S. 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 overall 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.
ABN AMRO's branches in Canada and Mexico, while profitable in 1997, were not
able to maintain their 1996 profit levels.
SOUTH AND CENTRAL AMERICA
Operating profit before taxes in this region fell in 1998 from NLG 547
million to NLG 517 million, despite the contribution from Banco Real in the
closing two months of the year. ABN AMRO's existing Brazilian operations
reported sharply lower results, the principal factors being the release in 1997
of a provision of NLG 150 million that had been made in earlier years and, in
1998, the gradual deterioration of spreads on ABN AMRO's various activities and
the high level of loan loss provisions.
In Argentina, results failed to meet ABN AMRO's criteria as operating profit
before taxes fell NLG 7 million, with a loss of NLG 13 million in 1998, although
the consumer banking operation ABN AMRO is building in Argentina showed its
first modest profits. In Chile, results increased substantially on an already
excellent 1997. Results in Ecuador and Paraguay were highly satisfactory. The
performance of ABN AMRO's operations in Venezuela and Uruguay remained below
expectations owing to unfavorable economic conditions. ABN AMRO's newly opened
branch in Colombia was still in the start-up phase. Panama reported a
satisfactory result. The results in The Netherlands Antilles and Aruba were well
above the 1997 level while lower results were reported in Surinam; however, ABN
AMRO remains concerned about the difficult economic circumstances in The
Netherlands Antilles.
Operating profit before taxes in this region rose by NLG 301 million or
122.4% in 1997 to NLG 547 million as compared to 1996. Brazil showed a
particularly strong gain. The provision of NLG
76
<PAGE>
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.
MIDDLE EAST AND AFRICA
Operating profit before taxes in this region improved in 1998 by NLG 38
million or 62.3% to NLG 99 million, as improved results in the United Arab
Emirates, particularly from private banking, and at Saudi Hollandi Bank in Saudi
Arabia, principally from consumer banking, offset lower results from Morocco.
In 1997, operating profit before taxes in this region amounted to NLG 61
million as compared to a loss of NLG 8 million in 1996, as strong results by
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.
ASIA/PACIFIC
Considering the difficult operating conditions brought about by the Asian
financial crisis, results were satisfactory in 1998. Operating profit before
taxes declined from a profit of NLG 11 million in 1997 to a loss of NLG 43
million in 1998, due to the high level of loan loss provisions. Higher revenue
from money market transactions, foreign exchange dealing and deposits were the
main elements of growth in the region.
Operating results in Indonesia, Japan and Korea exceeded expectations,
reflecting extraordinary profits from treasury business and liability products.
Indonesia sustained a loss, however, due to the extremely high level of loan
loss provisions. Hong Kong again saw an excellent year, on the strength of its
balanced mix of corporate, investment and consumer banking activities. India
also performed well despite an impending recession and increased competition.
The operation in Taiwan, one of the East-Asian countries least affected by the
financial crisis, showed a strong performance, with consumer banking in Taiwan
achieving profitability in June 1998. Over 225,000 credit cards were issued in
the region last year.
Results of the global treasury unit in Singapore were negatively affected by
the Asian financial crisis, offset to some extent by the good performance of ABN
AMRO's Singapore branch (before loan losses). Capital controls and political
uncertainty in Malaysia and severe economic problems and political uncertainty
in Pakistan hurt results in those two countries.
The results of ABN AMRO's branch in Thailand more than doubled despite the
country's ailing financial health. ABN AMRO believes that this increase was due
largely to a "flight to quality" by depositors to well-known foreign banks from
domestic banks.
In 1997, operating profit before taxes in Asia fell sharply from NLG 160
million in 1996 to NLG 11 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 markdowns 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
77
<PAGE>
Hong Kong and Korea exceeded expectations and results in Pakistan, India and the
Philippines were also favorable.
INVESTMENT BANKING DIVISION
The following table sets forth selected information pertaining to the
Investment Banking Division for each of the three most recently completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
STAFF
AND OFFICES AND BRANCHES)
Net interest revenue....................................................... 527 485 569
Net commissions............................................................ 1,937 1,752 1,201
Results from financial transactions........................................ 1,132 1,262 1,054
Other revenue.............................................................. 325 388 156
--------- --------- ---------
Total revenue.............................................................. 3,921 3,887 2,980
Operating expenses......................................................... 3,225 2,954 2,007
Provision for loan losses.................................................. 54 55 76
Value adjustments to financial fixed assets................................ 100 -- (28)
--------- --------- ---------
Operating profit before taxes.............................................. 542 878 925
--------- --------- ---------
--------- --------- ---------
Total assets............................................................... 279,475 252,559 176,102
Risk-weighted assets....................................................... 49,280 63,147 47,978
Full-time equivalent staff................................................. 7,241 6,309 5,487
Number of offices and branches............................................. 61 58 60
</TABLE>
Due mainly to the turmoil in the financial markets in the second half of
1998, operating profit before taxes fell by 38.3% to NLG 542 million in 1998 as
compared to 1997. Revenues remained at virtually the same level in 1998 as in
1997. Operating expenses were up 9.2% due to the expansion of ABN AMRO's
investment banking operations. The markdown of shares in the equity investment
portfolios, as a result of lower stock prices, also had a negative impact on
results.
Operating profit before taxes in 1997 fell by NLG 47 million or 5.1% 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 907 million or 30.4% to NLG 3,887 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 947 million or 47.2%, more rapidly
than revenues.
NET INTEREST REVENUE
In 1998, net interest revenue rose by NLG 42 million or 8.7% as compared to
1997, mainly due to a profit on the sale of part of an investment bond
portfolio.
In 1997, net interest revenue declined by NLG 84 million or 14.8% as
compared to 1996. These decreases were mainly attributable to funding costs of
higher levels of equity securities portfolios.
78
<PAGE>
NET COMMISSIONS
The following table sets forth total net commissions and the components
thereof for the Investment Banking Division for each of the three most recently
completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Securities......................................................................... 1,352 1,351 983
Asset management and trust services................................................ 401 332 218
Other.............................................................................. 184 69 --
--------- --------- ---------
Total net commissions.............................................................. 1,937 1,752 1,201
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net commissions for 1998 rose by NLG 185 million or 10.6% to NLG 1,937
million, mainly owing to higher fee income from asset management and trust and
M&A advisory services, after rising NLG 551 million or 45.9% in 1997 as compared
to 1996. Securities commissions, which consist of brokerage, custody and
underwriting fees, remained at 1997 levels, as strong growth in Europe offset
lower results in the Far East. Securities commissions increased by NLG 368
million or 37.4% in 1997 as compared to 1996, due to higher brokerage fee
revenue from securities subsidiaries, in particular ABN AMRO Asia and Alfred
Berg, and from the underwriting of equity offerings.
As in 1997, the ABN AMRO Rothschild joint venture in equity offerings was
awarded a large number of attractive mandates. The most striking transaction in
The Netherlands was the much-publicized flotation of AFC Ajax, for which ABN
AMRO Rothschild acted as global coordinator and bookrunner. ABN AMRO Rothschild
also led two large global offerings by Ahold. In France, the joint venture was
appointed global coordinator of the privatization of insurance company CNP,
while international offerings were led for the first time in Spain and Italy.
ABN AMRO Rothschild acted as joint lead manager in the privatization of TAB, the
largest bookmaker in Australia, and as lead manager for the convertible bond
loan of the Taiwanese IT company Ritek.
ABN AMRO is active in the field of M&A advisory services, both in The
Netherlands and elsewhere in Europe. ABN AMRO was advisor to Vendex for the
takeover of KBB and to Koninklijke Gist Brocades for its merger with DSM. Advice
on cross-border mergers and acquisitions was provided to such companies as
Guardian Royal Exchange for the acquisition of TNIC (The Netherlands Insurance
Companies) and to Akzo Nobel for the acquisition of Courtaulds. For the
Courtaulds acquisition, ABN AMRO also arranged and led a L2 billion syndicated
loan. This was the largest debt offering ever arranged by ABN AMRO, providing
firm proof of its capabilities as a universal bank.
ABN AMRO is also a strong presence in the field of structured finance, and
considers itself one of the top project finance banks in the world. In 1998, ABN
AMRO arranged, among other things, a loan for the construction of a GSM network
in Egypt and acted as arranger and agent for a major project finance deal in the
chemical sector in Australia. ABN AMRO's expertise in the field of export
finance, combined with its recognized knowledge of the oil and gas sector,
resulted in an arranger's role for the multi-sourced financing of a gas project
in Turkmenistan. On behalf of a Swiss customer, ABN AMRO arranged the first
aircraft finance deal in Europe in the form of an asset-backed commercial paper
conduit financing.
In 1998, ABN AMRO's investment bank was extremely active in the field of
bond offerings, including such transactions as the bond loan for the Electricity
Generating Authority of Thailand, where ABN AMRO acted as sole bookrunner, and
the 30-year bundled strip bond loan for the Republic of Argentina. In The
Netherlands, ABN AMRO maintained its prominent position, acting as lead manager
and bookrunner for over 65% of the aggregate value of NLG bond offerings. ABN
AMRO was also the leading foreign underwriter for DEM bond offerings.
79
<PAGE>
Custody fee income was NLG 72 million in 1998, an increase of NLG 14 million
or 24.1% from 1997, due to an increase in assets under custody. For 1997,
custody fee income was NLG 58 million, an increase of NLG 15 million or 33.3%
from 1996 as assets under custody increased.
Asset management and trust fee income in 1998 increased 20.8% to NLG 401
million. Assets managed worldwide increased 27% from NLG 155 billion at year-end
1997 to NLG 197 billion at year-end 1998, with the International Division
accounting for half of this amount. Strong European investor interest, ABN
AMRO's marketing and sales activities and its generally recognized expertise in
European investing combined to boost assets managed in its European portfolios.
For both 1998 and 1997, discretionary portfolio management for institutional and
private clients represented 32% and 25%, respectively, of total assets under
management, with the balance represented by ABN AMRO-managed investment funds.
In 1997, asset management and trust service fee income increased by NLG 114
million or 52.3% to NLG 332 million. Assets managed worldwide rose 30% during
the year.
RESULTS FROM FINANCIAL TRANSACTIONS
The following table sets forth total results from financial transactions and
the principal components thereof for the Investment Banking Division for each of
the three most recently completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Securities trading................................................................. 956 621 569
Foreign exchange dealing........................................................... 142 158 196
Derivatives trading................................................................ 192 290 171
Other.............................................................................. (158) 193 118
--------- --------- ---------
Total results from financial transactions.......................................... 1,132 1,262 1,054
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1998, financial transactions generated lower revenue, down 10.3% to NLG
1,132 million. Securities trading results increased due to substantially better
results on equity, equity derivatives and bond trading. Foreign exchange dealing
produced slightly lower revenue. Revenues from derivatives trading performance
also were lower than in 1997, with the decrease attributable mainly to Europe.
Other results from financial transactions were lower due to limited sales
opportunities for ABN AMRO's equity participations as a result of the uncertain
market environment. Sales of equity participations were NLG 148 in 1998, down
from NLG 256 in 1997. In addition, volatile market movements, particularly in
Russia and Brazil, produced a loss in the LDC debt trading portfolio of NLG 306
million.
In 1997, results from financial transactions increased by NLG 208 million or
19.7% as compared to 1996. 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. Revenue from derivatives trading in 1997 was a record NLG 290
million, up NLG 119 million or 69.6% from 1996's level of NLG 171 million, as
the Bank benefited from its expanded operations and favorable market conditions
in both years.
Other results from financial transactions showed a profit of NLG 193 million
in 1997, which was an increase of NLG 75 million from 1996. Favorable market
conditions permitted the sale of a significant number of equity participations.
The sizable market correction in the emerging markets, which began in Asia,
caused other results from financial transactions to be lower than expected
during 1997.
80
<PAGE>
OTHER REVENUE
In 1998, other revenue fell NLG 63 million or 16.2% to NLG 325 million,
primarily due to lower revenue from participating interests, following 1997's
increase of NLG 232 million or 148.7% as compared to 1996.
OPERATING EXPENSES
The following table sets forth the operating expenses and the components
thereof for the Investment Banking Division for each of the three most recently
completed years.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Staff costs........................................................................ 1,798 1,715 1,171
Other administrative expenses...................................................... 1,248 1,084 745
Depreciation....................................................................... 179 155 91
--------- --------- ---------
3,225 2,954 2,007
--------- --------- ---------
--------- --------- ---------
</TABLE>
Operating expenses rose in 1998 by 9.2% to NLG 3,225 million. Staff costs
increased by 4.8% while staff count rose 14.8%. Bonus payments declined in line
with lower revenue for the whole of 1998. As in 1997, substantial capital
outlays were made. In 1998, such capital outlays were made in connection with
information technology, particularly to accommodate growth of the London-based
investment banking business.
Operating expenses in 1997 totaled NLG 2,954 million, an increase of NLG 947
million or 47.2% 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 697 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.
PROVISION FOR LOAN LOSSES AND VALUE ADJUSTMENTS TO FINANCIAL FIXED ASSETS
Provision for loan losses were essentially unchanged from 1997 levels,
following 1997's decrease of NLG 21 million or 27.6% to NLG 55 million.
Risk-weighted total assets of the Investment Banking Division amounted to NLG 49
billion at year-end 1998, compared to NLG 63 billion at year-end 1997. The
introduction of new and more sophisticated risk models facilitated this
substantial reduction.
The downward adjustment to the value of financial fixed assets in 1998
related to unrealized losses on shares in ABN AMRO's investment portfolios.
81
<PAGE>
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>
1998(1) 1997(1) 1996(1)
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
STAFF
AND OFFICES AND BRANCHES)
Net interest revenue........................................................... 396 358 326
Net commissions................................................................ 201 169 150
Other revenue.................................................................. 368 357 284
--------- --------- ---------
Total revenue.................................................................. 965 884 760
Operating expenses............................................................. 681 635 530
Provision for loan losses...................................................... 17 10 21
--------- --------- ---------
Operating profit before taxes.................................................. 267 239 209
--------- --------- ---------
--------- --------- ---------
Total assets................................................................... 14,916 12,275 10,504
Risk-weighted assets........................................................... 13,982 11,676 10,101
Full-time equivalent staff..................................................... 4,795 3,619 3,406
Number of offices and branches................................................. 34 30 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 has improved in each of the last three years.
In 1998, operating profit before taxes increased 11.7% from NLG 239 million to
NLG 267 million, following 1997's increase of 14.4%, with the leasing portfolio
growing by NLG 2.3 billion or 20.4% to NLG 13.6 billion at year-end 1998. In The
Netherlands, results before provision for loan losses and taxes were up NLG 19
million or 18.0% to NLG 123 million from 1997 levels. Outside The Netherlands,
results before provision for loan losses and taxes improved NLG 16 million over
1997 to NLG 161 million, with ABN AMRO Lease Holding benefiting from favorable
economic conditions in the United States and other countries.
In addition to internal growth of NLG 1.8 billion, the portfolio growth also
stemmed from two major acquisitions, a leasing company in South Africa with
15,000 cars in the first half of 1998 and KPN Autolease, a Dutch leasing company
also with a fleet of 15,000 cars in late 1998. In addition, a contract was
concluded in Australia for the management of 16,500 vehicles. Partly as a result
of these acquisitions, the number of vehicles under management grew from 394,000
at year-end 1997 to 527,000 at year-end 1998. ABN AMRO intends to increase the
size of its leasing business, including through acquisitions.
RECONCILIATION OF NET PROFIT UNDER U.S. GAAP
Net profit in 1998 in accordance with U.S. GAAP was NLG 186 million higher
than net profit in accordance with Dutch GAAP. The increase was principally the
net result of (i) an increase in net gains from securities available for sale of
NLG 892 million relating to differences in accounting for realized gains and
losses in investment portfolios, and (ii) lower pension costs of NLG 153 million
due to an increased return on plan assets, offset in part by (a) a charge of NLG
474 million (of which NLG 329 million related to North American acquisitions)
for goodwill associated with acquisitions by ABN AMRO (under Dutch GAAP all
goodwill is written off at the time of the acquisition), (b) charges under U.S.
GAAP relating to the adaptation of computer systems for the euro and for the
year 2000, which have been provisioned under Dutch GAAP in preceding years and
(c) the tax effects of the reconciliation adjustments. Operating profit before
taxes for North American operations for 1998 in accordance with U.S. GAAP would
have been NLG 329 million lower than operating profit before
82
<PAGE>
taxes under Dutch GAAP giving effect only to the charges under U.S. GAAP for
goodwill amortization for North American acquisitions.
Net profit for 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, (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.
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 $50
million provided for by ABN AMRO under Dutch GAAP in 1995.
83
<PAGE>
CAPITAL RESOURCES
The following table shows ABN AMRO's capital at December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C>
Ordinary Share capital......................................................... 1,801 1,763 1,715
Preference Share capital....................................................... 1,813 1,813 1,813
Convertible Preference Shares.................................................. 9 10 20
--------- --------- ---------
3,623 3,586 3,548
Ordinary Share premium reserves................................................ 5,309 5,215 5,061
Convertible Preference Share premium reserves.................................. 99 121 234
Other reserves................................................................. 14,598 16,923 16,133
--------- --------- ---------
Shareholders' equity........................................................... 23,629 25,845 24,976
Minority interests............................................................. 7,779 4,527 2,105
--------- --------- ---------
Group equity................................................................... 31,408 30,372 27,081
Fund for general banking risks................................................. 2,513 2,483 2,000
Subordinated debt.............................................................. 19,789 20,101 15,309
--------- --------- ---------
Group capital.................................................................. 53,710 52,956 44,390
--------- --------- ---------
--------- --------- ---------
</TABLE>
Group capital at year-end 1998 totaled NLG 53,710 million, up NLG 754
million or 1.4% from year-end 1997. Shareholders' equity, one of the components
of group capital, fell in 1998 by NLG 2,216 million to NLG 23,629 million.
Goodwill charges and currency translation losses were partially offset by
retained profit and stock dividends of NLG 3,390 million.
With respect to the 1998 interim dividend, 68% of ordinary shareholders
opted for the stock dividend, leading to the issue of 13.5 million shares at NLG
43.20, representing a total value of NLG 581 million. The 1998 final dividend,
which will be payable in May 1998, will involve the payment of an estimated NLG
670 million in stock.
The exercise of staff options at an average price of NLG 31.91 caused the
number of ordinary shares to increase by 3.3 million. In addition, 0.4 million
preference shares were converted into 1.5 million ordinary shares against an
additional payment of NLG 1.75 per ordinary share. As a consequence,
shareholders' equity rose by NLG 109 million.
Goodwill charges under Dutch GAAP of NLG 5.0 billion, representing the
difference between cost and net asset value of acquisitions, largely related to
the acquisitions of Banco Real (NLG 3.4 billion), Bank of Asia (NLG 0.9 billion)
and ABN AMRO Asia Ltd. (NLG 0.3 billion). An amount of NLG 709 million was
charged to the exchange differences reserve due to currency translation losses
on capital investments in operations abroad, primarily resulting from the
depreciation of the U.S. dollar from NLG 2.02 at year-end 1997 to NLG 1.89 at
the end of 1998.
It will be proposed to the general meeting of shareholders to declare a
dividend of NLG 1.27 per ordinary share of NLG 1.25 each for 1998. This
represents a 5.8% increase from the dividend for 1997. An interim dividend of
NLG 0.60 has already been made available, leaving an unchanged final dividend of
NLG 0.67. Converted at the fixed EUR/NLG rate of 2.20371, the final dividend
amounts to EUR 0.30403 per share, while the full dividend for 1998 amounts to
EUR 0.57630 per share. The final dividend will be payable wholly in cash or, at
the shareholder's option, wholly in ordinary shares chargeable to the share
premium account in a ratio which is still to be determined. The ratio of the
value of the stock dividend to that of the cash dividend will be determined on
May 20, 1999, after the close of trading on the Amsterdam Exchanges, on the
basis of the average quotation for that day. The
84
<PAGE>
value of the stock dividend will be virtually equal to that of the cash
dividend. The new ordinary shares will qualify for dividends from January 1,
1999. The ordinary share will be quoted ex dividend from Monday, May 7, 1999.
Shareholders can submit instructions whether they opt for dividend payment in
cash or in stock from May 7 to May 20, 1999 inclusive. The 1998 final dividend
will be payable as of May 28, 1999.
Minority interests increased NLG 3,252 million, mainly from preferred stock
issued by ABN AMRO's U.S. business ($1,250 million) and the temporary minority
interest in Banco Real (NLG 1,478 million), offset by currency translation
losses on minority interests of NLG 430 million.
The fund for general banking risks increased in 1998 from NLG 2,483 million
to NLG 2,513 million. An amount of NLG 145 million net (NLG 223 million gross)
was released from the fund. This release related to specific provisions for
Asia. As a portion of the equity of acquisitions was added to the fund, the
level of the fund increased on a net basis.
Subordinated debt decreased in 1998 by NLG 0.3 billion. New subordinated
debt of NLG 1.0 billion was issued, almost all in The Netherlands. The converted
NLG value of subordinated debt fell by NLG 0.8 billion, due to a weaker U.S.
dollar.
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.
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.
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 1998, ABN AMRO's Tier 1 capital ratio was 6.94%, its total
capital ratio was 10.48%, and the amount of subordinated loans included in lower
Tier 2 capital was 47.6% of Tier 1 capital. Under BIS guidelines, the amount of
subordinated debt that may be included as lower 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, 1998 was
NLG 1.4 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 1998, the total capital ratio and Tier 1 capital ratio of ABN AMRO
North America, Inc., the bank holding company for the
85
<PAGE>
LaSalle Group, were 10.75% and 7.21%, respectively, as compared to 10.92% and
7.37%, respectively, at December 31, 1997.
Risk-weighted assets at December 31, 1998 were NLG 475.5 billion, which is
NLG 15.7 billion or 3.4% higher than at December 31, 1997. The increase resulted
primarily from acquisitions and a substantial increase in the overall loan
portfolio and was partly offset by lower exchange rates and lower capital
requirements for market risks. In order to improve capital ratios and return on
equity, a number of securitizations were completed in 1998 ($3.5 billion in the
United States and NLG 1.5 billion in The Netherlands).
The following table analyzes the capital ratios of ABN AMRO at December 31,
1998, 1997 and 1996 in accordance with supervisory requirements.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1998 1997 1996(1)
--------- --------------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
PERCENTAGES)
Tier 1 capital............................................................. 33,021 31,996 28,068
Tier 2 capital............................................................. 16,713 16,734 13,660
Tier 3 capital............................................................. 943 1,010 872
Supervisory deductions..................................................... (847) (750) (228)
--------- ------- ---------
Total capital base......................................................... 49,830 48,990 42,372
--------- ------- ---------
--------- ------- ---------
Risk-weighted assets On balance sheet...................................... 371,164 338,304 291,247
Off-balance sheet.......................................................... 86,404 90,860 76,550
Market risks............................................................... 17,925 30,641 21,471
--------- ------- ---------
Total risk-weighted assets................................................. 475,493 459,805 389,268
--------- ------- ---------
--------- ------- ---------
Tier 1 capital ratio....................................................... 6.94% 6.96% 7.21%
Total capital ratio........................................................ 10.48% 10.65% 10.89%
</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, 1998 were NLG 952 billion, up NLG
116 billion or 13.8% from year-end 1997. The increase included NLG 99 billion
from internal growth and NLG 48 billion from acquisitions. Lower year-end
exchange rates reduced total assets by NLG 31 billion. The growth of total
assets occurred at the International Division (NLG 72 billion, mostly due to
acquisitions), the Investment Banking Division (NLG 27 billion, in
interest-bearing securities) and the Netherlands Division (NLG 14 billion,
notably home mortgage lending).
LOANS
Loans increased by NLG 43 billion or 9.6% to NLG 486 billion at December 31,
1998. Private sector loans, excluding professional securities transactions,
increased 9.9% to NLG 395 billion. Short-term advances against securities
increased by NLG 6 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. Loans to the public
sector rose by NLG 1 billion to NLG 16 billion.
In The Netherlands, private sector loans rose by 9.8% to NLG 178 billion at
December 31, 1998, 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.
86
<PAGE>
Outside The Netherlands, private sector loans increased by NLG 17 billion or
9.2% to NLG 202 billion at December 31, 1998, almost all of which was
attributable to acquisitions, particularly Banco Real, Banco do Estado de
Pernambuco and Bank of Thailand.
TOTAL CUSTOMERS ACCOUNTS
Total customer account balances increased in 1998 by NLG 56 billion or 14.2%
to NLG 453 billion.
In the Netherlands Division, the launch of new products and increased sales
of existing savings accounts resulted in strong volume growth and increased
market share. The relatively high level of interest rates on ordinary savings
accounts, from which withdrawals are permitted without notice, led to a decline
in savings and time deposits.
Corporate customer account balances developed favorably in 1998. Middle and
small market products attracted particularly broad interest. This was partly the
result of ABN AMRO's increased emphasis on the corporate sector.
Total customer account balances at the International Division increased by
NLG 39 billion. This includes NLG 12 billion growth in professional securities
transactions, where securities are temporarily sold for trading or liquidity
reasons in order to be repurchased at a predetermined date and price. The effect
of acquisitions, notably Banco Real and Bank of Asia, was NLG 31 billion. Lower
exchange rates reduced total customer accounts by NLG 17 billion as compared to
1997.
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 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, consisting of 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 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.
87
<PAGE>
The members of the Supervisory Board of Holding as of April 1, 1999 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 AKZO
Chairman 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.
A. Burgmans...................................... 1998 Member of the Managing Board of Unilever N.V. and
Unilever plc
</TABLE>
The members of the Managing Board of Holding as of April 1, 1999 were as
follows:
<TABLE>
<CAPTION>
YEAR OF
NAME APPOINTMENT PRINCIPAL OCCUPATION
- - - - - - - - - - - - - ------------------------------------------------- --------------- -------------------------------------------------
<S> <C> <C>
P.J. Kalff....................................... 1977 Chairman of the Managing Board
R.W.J. Groenink.................................. 1988 Netherlands Division
R.W.F. van Tets.................................. 1988 Investment Banking Division
J.M. de Jong..................................... 1989 International Division
W.G. Jiskoot..................................... 1997 Investment Banking Division
R.G.C. van den Brink............................. 1997 Resources Management Division
T. de Swaan...................................... 1999 Risk Management Division/Corporate Affairs
</TABLE>
88
<PAGE>
The senior executive vice presidents of the Bank as of April 1, 1999 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
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 International Division
J. Koopman....................................... 1994 International Division
J.C. ten Cate.................................... 1996 Netherlands Division
C.H.A. Collee.................................... 1996 Netherlands Division
G. Kuyper........................................ 1997 Investment Banking Division
A.C. Tupker...................................... 1997 Investment Banking Division
D. Post.......................................... 1997 Resources Management Division
F.G.H. Deckers................................... 1998 International Division
H. Mulder........................................ 1998 Risk Management Division
J.Ch.L. Kuiper................................... 1998 Investment Banking Division
J. Sijbrand...................................... 1998 Risk Management Division
</TABLE>
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
For the year ended December 31, 1998, the compensation paid to current and
former members of the Managing Board and senior executive vice presidents of the
Bank aggregated NLG 31.3 million, and for current and former members of the
Supervisory Board aggregated NLG 1.4 million.
The amount set aside to provide 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, 1998 aggregated NLG 0.7 million (1997: nil).
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. Options granted after June 26, 1998 are, in accordance with tax
89
<PAGE>
rules, exercisable during specified "window periods" during the fourth and fifth
years after the option is granted. At December 31, 1998, outstanding options
held by employees were as follows:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE
YEAR OF EXPIRATION STAFF OPTIONS PRICE
- - - - - - - - - - - - - ----------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
(IN
THOUSANDS) (IN NLG)
1999................................................................... 758 15.15
2000................................................................... 1,304 15.85
2001................................................................... 3,719 24.20
2002................................................................... 9,276 36.61
2003................................................................... 13,047 50.01
------ -----
28,103 39.65
------ -----
------ -----
</TABLE>
At December 31, 1998, 5,357,700 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 1998.
Loans to members of the Managing Board and to members of the Supervisory Board
totaled NLG 16 million and NLG 11 million, respectively, at December 31, 1998.
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.
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not Applicable.
90
<PAGE>
ITEM 18. FINANCIAL STATEMENTS
See pages F-1 through F-64.
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, 1997 and 1998.................................................. F-7
Consolidated Income Statements for the years ended December 31, 1996, 1997 and 1998........................ F-8
Consolidated Cash Flow Statements for the years ended December 31, 1996, 1997 and 1998..................... F-9
Consolidated Changes in Shareholders' Equity for the years ended December 31, 1996, 1997 and 1998.......... F-10
Notes to the Consolidated Financial Statements............................................................. F-11
</TABLE>
(B) INDEX TO EXHIBITS
Not applicable.
91
<PAGE>
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.
<TABLE>
<S> <C> <C>
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/ H.T.J.M. VAN DEN HOUT
-----------------------------------------
Name: H.T.J.M. van den Hout
Title: Secretary to the Managing Board
</TABLE>
Date: April 20, 1999
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.
<TABLE>
<S> <C> <C>
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/ H.T.J.M. VAN DEN HOUT
-----------------------------------------
Name: H.T.J.M. van den Hout
Title: Secretary to the Managing Board
</TABLE>
Date: April 20, 1999
92
<PAGE>
FINANCIAL STATEMENTS 1998
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, 1997 and 1998.................................................. F-7
Consolidated Income Statements for the years ended December 31, 1996, 1997 and 1998........................ F-8
Consolidated Cash Flow Statements for the years ended December 31, 1996, 1997 and 1998..................... F-9
Consolidated Changes in Shareholders' Equity for the years ended December 31, 1996,
1997 and 1998............................................................................................ F-10
Notes to the Consolidated Financial Statements............................................................. F-11
</TABLE>
F-1
<PAGE>
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, 1997 and 1998, 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, 1998. 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, 1997 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, 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, 1997 and 1998, and the net profits for each of the three years in
the period ended December 31, 1998 to the extent summarized in note 43 to the
Consolidated Financial Statements.
/s/ MORET ERNST & YOUNG
-------------------------------------------------------------------------
Moret Ernst & Young Accountants
Amsterdam, The Netherlands
March 26, 1999
F-2
<PAGE>
EURO
The euro was introduced in eleven European Union countries, including the
Netherlands, on January 1, 1999. On that date, the rates of exchange of the
eurozone currencies, in relation to one another and against the euro, became
fixed. The financial statements are not affected by this.
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 FOR INCLUSION OF FINANCIAL INSTRUMENTS
A financial instrument is accounted for as an asset or liability from the
time the respective contractual rights or obligations accrue to the company.
Whenever this ceases to be the case, a financial instrument is no longer shown
in the balance sheet. If ABN AMRO has the right on the grounds of legal or
contractual provisions and the intention to settle financial assets and
liabilities net or simultaneously, they are netted-off in the balance sheet.
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 both 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 hyperinflationary 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 of transactions 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 hyperinflationary 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 hyperinflationary 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
F-3
<PAGE>
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.
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 substantial 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 financial instruments are no longer qualified as hedges.
Results on the settlement of the hedge are accounted for in the same period as
gains or losses on the settlement of the 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.
If loan-related fees exceed initial expenses, they are accounted for as
interest in the period concerned. Acquisition commission paid by the life
insurance subsidiary to third parties and the banking operation are capitalized
as initial expenses and amortized. Expenses involved in the issuance of ordinary
and preference shares are charged to shareholders' equity.
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.
F-4
<PAGE>
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. Results on sales are
credited to the income statement in the year the investments are sold. However,
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. Investments which are held under insurance contracts for the account
and risk of policyholders are carried at market value; changes in the value of
these investments are accounted for as other revenue (profits or losses of
insurance companies).
SHARES AS PART OF VENTURE CAPITAL ACTIVITIES
Equity investments, i.e., shares acquired as part of venture capital
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.
Goodwill arising from the acquisition of participating interests is charged
to shareholders' equity.
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.
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 on a long-term basis. 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.
F-5
<PAGE>
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.
Insurance fund liabilities are related chiefly to provisions for life
insurance. They are determined using actuarial methods and on the basis of the
same principles as those used to calculate the premium. These provisions are
periodically tested by reference to changes in mortality, interest and costs,
and are increased when deemed inadequate. Technical provisions for investment
exposure borne by policyholders are determined using the same principles as are
applied for the valuation of the underlying investments.
Self-administered pension plan commitments, which are relatively small, and
provisions for payments to non-active employees are computed on the basis of
actuarial assumptions.
Except for deferred tax liabilities, which are determined on the basis of
discounted value, the other provisions for commitments and risks are included at
face value.
TAXES
In determining the effective tax rate, all timing differences between
pre-tax profit determined on the basis of ABN AMRO accounting policies and the
taxable amount in accordance with tax legislation are taken into account.
Deferred tax liabilities are discounted to their present value on the basis of
the net interest. Deferred tax assets are accounted for only if there is
sufficient assurance about their collectibility. The addition to or withdrawal
from the Fund for general banking risks is taken into account when determining
the effective tax rate.
F-6
<PAGE>
CONSOLIDATED BALANCE SHEET AFTER PROFIT APPROPRIATION
<TABLE>
<CAPTION>
NOTES 1998 1997
----- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
ASSETS
Cash................................................................................ 1 9,868 8,408
Short-dated government paper........................................................ 2,5 17,010 25,451
Banks............................................................................... 3 134,193 140,185
Loans to public sector............................................................ 15,961 14,894
Loans to private sector........................................................... 394,928 359,153
Professional securities transactions.............................................. 75,055 69,131
--------- ---------
Loans............................................................................... 4 485,944 443,178
Interest-earning securities......................................................... 5 233,741 165,294
Shares.............................................................................. 5 29,245 18,943
Participating interests............................................................. 6 2,329 2,123
Property and equipment.............................................................. 7 10,264 8,525
Other assets........................................................................ 8 11,986 7,196
Prepayments and accrued income...................................................... 9 17,605 17,138
--------- ---------
952,185 836,441
--------- ---------
--------- ---------
LIABILITIES
Banks............................................................................... 10 231,165 208,466
Savings accounts.................................................................. 136,157 124,877
Deposits and other customer accounts.............................................. 248,447 213,222
Professional securities transactions.............................................. 68,377 58,595
Total customer accounts............................................................. 11 452,981 396,694
Debt securities..................................................................... 12 83,624 90,595
Other liabilities................................................................... 8 93,480 56,367
Accruals and deferred income........................................................ 9 20,207 17,900
Provisions.......................................................................... 13 17,018 13,463
--------- ---------
898,475 783,485
Fund for general banking risks...................................................... 14 2,513 2,483
Subordinated debt................................................................... 15 19,789 20,101
Shareholders' equity.............................................................. 16 23,629 25,845
Minority interests................................................................ 17 7,779 4,527
--------- ---------
Group equity........................................................................ 31,408 30,372
Group capital....................................................................... 53,710 52,956
--------- ---------
952,185 836,441
--------- ---------
--------- ---------
Contingent liabilities.............................................................. 23 77,350 68,511
Committed facilities................................................................ 195,851 158,095
</TABLE>
F-7
<PAGE>
CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
NOTES 1998 1997 1996
----- --------- --------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG
EXCEPT SHARE DATA)
REVENUE
Interest revenue........................................................... 56,489 45,827 38,579
Interest expense........................................................... 40,627 31,956 27,053
--------- --------- ---------
NET INTEREST REVENUE......................................................... 26 15,862 13,871 11,526
Revenue from securities and participating interests.......................... 27 768 630 256
Commission revenue......................................................... 8,417 7,018 5,437
Commission expense......................................................... 950 746 481
--------- --------- ---------
Net commissions.............................................................. 28 7,467 6,272 4,956
Results from financial transactions.......................................... 29 2,540 2,436 1,882
Other revenue................................................................ 30 993 559 471
--------- --------- ---------
TOTAL NON-INTEREST REVENUE................................................... 11,768 9,897 7,565
TOTAL REVENUE................................................................ 39 27,630 23,768 19,091
EXPENSES
Staff costs................................................................ 31 10,260 8,653 7,140
Other administrative expenses.............................................. 32 7,451 6,571 4,795
--------- --------- ---------
Administrative expenses...................................................... 17,711 15,224 11,935
Depreciation................................................................. 33 1,471 1,194 994
--------- --------- ---------
OPERATING EXPENSES........................................................... 19,182 16,418 12,929
Provision for loan losses.................................................... 34 2,073 1,205 1,254
Addition to fund for general banking risks................................... 35 (223) 395 146
Value adjustments to financial fixed assets.................................. 36 213 (36) (31)
--------- --------- ---------
TOTAL EXPENSES............................................................... 21,245 17,982 14,298
OPERATING PROFIT BEFORE TAXES................................................ 6,385 5,786 4,793
Taxes........................................................................ 37 2,001 1,661 1,349
--------- --------- ---------
GROUP PROFIT AFTER TAXES..................................................... 4,384 4,125 3,444
Minority interests........................................................... 38 356 272 141
--------- --------- ---------
NET PROFIT................................................................... 44 4,028 3,853 3,303
--------- --------- ---------
--------- --------- ---------
Net profit per Ordinary Share................................................ 2.71 2.64 2.31
Fully diluted net profit per Ordinary Share.................................. 2.69 2.62 2.28
Dividend per Ordinary Share.................................................. 1.27 1.20 1.05
</TABLE>
F-8
<PAGE>
CONSOLIDATED CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Group profit.................................................................... 4,384 4,125 3,444
Depreciation property and equipment............................................. 1,471 1,194 994
Provision for loan losses/addition to fund...................................... 1,850 1,600 1,400
Increase (decrease) in provisions............................................... (377) 167 243
Increase (decrease) in accrued interest receivable.............................. 80 (4,072) (710)
Increase (decrease) in accrued interest payable................................. 2,332 3,394 (585)
Increase (decrease) in current income taxes payable............................. 288 (166) 564
Other accruals and deferrals.................................................... 5,022 1,461 65
Government paper and securities trading portfolios.............................. (48,438) (23,537) (15,399)
Other securities................................................................ (10,122) (29,802) (904)
Banks, other than demand deposits............................................... 26,303 30,198 25,550
Loans........................................................................... (35,092) (23,950) (34,469)
Professional securities transactions (part of loans)............................ (10,879) (48,945) (6,851)
Total customer accounts......................................................... 27,685 36,108 13,844
Professional securities transactions (part of total customer accounts).......... 14,463 42,839 5,018
Debt securities, excluding bonds and notes...................................... (4,675) 5,517 5,002
Other assets and liabilities.................................................... 45,716 32,792 3,886
---------- ---------- ---------
Net cash flow from operations/banking activities................................ 20,011 28,923 1,092
Purchase of securities for investment portfolios.............................. (137,912) (117,466) (57,867)
Sale and redemption of securities from investment portfolios.................. 123,634 93,910 48,710
---------- ---------- ---------
Net outflow..................................................................... (14,278) (23,556) (9,157)
Investments in participating interests........................................ (2,604) (4,424) (1,038)
Sale of investments in participating interests................................ 689 2,789 182
---------- ---------- ---------
Net outflow..................................................................... (1,915) (1,635) (856)
Capital expenditure on property and equipment................................. (2,743) (2,258) (1,778)
Sale of property and equipment................................................ 381 376 349
---------- ---------- ---------
Net outflow..................................................................... (2,362) (1,882) (1,429)
---------- ---------- ---------
Net cash flow from investment activities........................................ (18,555) (27,073) (11,442)
Increase in group equity........................................................ 2,310 2,887 691
Redemption of Preference Shares................................................. -- (515) --
Issue of Subordinated debt...................................................... 925 3,689 4,012
Repayment of Subordinated debt.................................................. (766) (300) (397)
Issue of debenture loans and notes.............................................. 3,088 8,442 8,981
Repayment of debenture loans and notes.......................................... (5,641) (5,775) (5,043)
Cash dividends paid............................................................. (968) (943) (1,097)
---------- ---------- ---------
Net cash flow from financing activities......................................... (1,052) 7,485 7,147
---------- ---------- ---------
Increase (decrease) in liquid funds............................................. 404 9,335 (3,203)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
For details refer to note 41.
F-9
<PAGE>
CONSOLIDATED CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
ORDINARY SHARES
Opening Balance...................................................................... 1,763 1,715 1,569
Exercised options, rights and conversions............................................ 4 5 42
Conversion of Convertible Preference Shares.......................................... 1 10 80
Issuance of stock dividends.......................................................... 33 33 24
--------- --------- ---------
Closing Balance...................................................................... 1,801 1,763 1,715
--------- --------- ---------
PREFERENCE SHARES
Balance unchanged.................................................................... 1,813 1,813 1,813
--------- --------- ---------
CONVERTIBLE PREFERENCE SHARES
Opening Balance...................................................................... 10 20 100
Conversion........................................................................... (1) (10) (80)
--------- --------- ---------
Closing Balance...................................................................... 9 10 20
--------- --------- ---------
SHARE PREMIUM ACCOUNT RELATED TO ORDINARY SHARES
Opening Balance...................................................................... 5,215 5,061 3,606
Exercised options and rights......................................................... 102 60 443
Conversion of Convertible Preference Shares.......................................... 24 127 1,036
Private placement.................................................................... 1 -- --
Issuance of stock dividends.......................................................... (33) (33) (24)
--------- --------- ---------
Closing Balance...................................................................... 5,309 5,215 5,061
--------- --------- ---------
SHARE PREMIUM ACCOUNT RELATED TO CONVERTIBLE PREFERENCE SHARES
Opening Balance...................................................................... 121 234 1,159
Conversion........................................................................... (22) (113) (925)
--------- --------- ---------
Closing Balance...................................................................... 99 121 234
--------- --------- ---------
GENERAL RESERVE AND STATUTORY RESERVE
Opening Balance...................................................................... 17,097 16,723 12,680
Retained profits..................................................................... 2,031 1,993 1,703
Retained dividend from stock dividends............................................... 1,359 1,070 951
Reduction for goodwill............................................................... (5,012) (2,706) (623)
Provision for general contingencies.................................................. 2,015
Other................................................................................ (75) 17 (3)
--------- --------- ---------
Closing Balance...................................................................... 15,400 17,097 16,723
--------- --------- ---------
REVALUATION RESERVES
Opening Balance...................................................................... 637 664 600
Revaluation.......................................................................... 55 (27) 64
--------- --------- ---------
Closing Balance...................................................................... 692 637 664
--------- --------- ---------
EXCHANGE DIFFERENCES RESERVE
Opening Balance...................................................................... (699) (911) (1,275)
Currency translation differences..................................................... (709) 212 364
--------- --------- ---------
Closing Balance...................................................................... (1,408) (699) (911)
--------- --------- ---------
TREASURY STOCK, AT COST
Opening Balance...................................................................... (112) (343) (2)
Decrease (increase) in treasury stock................................................ 26 231 (341)
--------- --------- ---------
Closing Balance...................................................................... (86) (112) (343)
--------- --------- ---------
TOTAL SHAREHOLDERS' EQUITY........................................................... 23,629 25,845 24,976
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-10
<PAGE>
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>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Public sector........................................................... 16,161 14,948
Commercial.............................................................. 244,076 224,490
Retail.................................................................. 160,295 141,233
Professional securities transactions.................................... 75,055 69,131
Allowances for loan losses and cross border risks....................... (9,643) (6,624)
--------- ---------
Loans................................................................... 485,944 443,178
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
COMMERCIAL
Public authority guarantees............................................. 12,062 14,841
Mortgages............................................................... 34,343 35,133
Securities.............................................................. 5,948 4,691
Bank guarantees......................................................... 6,817 5,952
Other types of collateral and unsecured loans........................... 184,906 163,873
--------- ---------
Total commercial loans.................................................. 244,076 224,490
--------- ---------
--------- ---------
RETAIL
Public authority guarantees............................................. 7,924 8,005
Mortgages............................................................... 111,339 96,823
Other types of collateral and unsecured loans........................... 41,032 36,405
--------- ---------
Total retail loans...................................................... 160,295 141,233
--------- ---------
--------- ---------
</TABLE>
COMMERCIAL LOANS BY INDUSTRY
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Agriculture, mining and energy.......................................... 19,739 18,611
Manufacturing........................................................... 58,726 50,346
Construction and real estate............................................ 27,819 22,445
Wholesale and retail trade companies.................................... 38,645 34,814
Transportation and communications....................................... 21,085 19,921
Financial services...................................................... 36,026 35,288
Business services....................................................... 18,680 19,913
Education, health care and other services............................... 23,356 23,152
--------- ---------
Total commercial loans.................................................. 244,076 224,490
--------- ---------
--------- ---------
</TABLE>
F-12
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MOVEMENTS IN ALLOWANCES FOR LOAN LOSSES
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Opening Balance................................................... 6,377 5,293 5,442
Currency translation differences and other movements.............. 2,110 514 (197)
Write-offs........................................................ (1,161) (1,025) (1,654)
Received after write-off.......................................... 169 119 107
--------- --------- ---------
7,495 4,901 3,698
Addition from net interest revenue................................ 171 165 188
Addition from provision for loan losses......................... 2,365 1,916 2,194
Transfer to provision for loan losses........................... (960) (605) (787)
Net increase...................................................... 1,405 1,311 1,407
--------- --------- ---------
Closing Balance................................................... 9,071 6,377 5,293
--------- --------- ---------
--------- --------- ---------
</TABLE>
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. The total cross border exposure is very substantial but relates
mainly to OECD countries.
An increased risk on these outstandings would arise if and insofar as
government measures or extreme economic conditions in specific countries were to
restrict debt servicing. Additional cross-border allowances are applied in such
circumstances. The following table shows both gross and net cross-border
exposure. Gross exposure involves all outstandings in non-local currencies in
countries with an increased exposure credit-enhanced outstandings. Net exposure
is gross exposure less traditionally low-risk outstandings, such as short-term
trade finance and pre-export finance, as well as items held in the trading
portfolios. Cross-border risk allowances are computed based on net exposure and
country-specific percentages. In determining actual cross-border risk
allowances, any specific allowances for loan losses and the current value of
U.S. treasury zero coupon bonds issued as part of restructuring programs are
taken into account.
CROSS-BORDER EXPOSURES AND RISK ALLOWANCES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
GROSS NET
EXPOSURE EXPOSURE RISK ALLOWANCES
----------- ----------- -----------------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Russia.................................................. 548 372 261
Asia.................................................... 6,239 1,072 291
South and Central America............................... 6,387 1,808 310
Other countries......................................... 2,048 666 226
----------- ----- -----
Total................................................... 15,222 3,918 1,088
----------- ----- -----
----------- ----- -----
</TABLE>
F-13
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MOVEMENTS IN CROSS-BORDER RISK ALLOWANCES
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Opening Balance.................................................... 903 921 1,055
Currency translation differences................................... (51) 103 60
Write-offs......................................................... (414) -- --
Provision for loan losses.......................................... 668 (106) (153)
Other movements.................................................... (18) (15) (41)
--------- --- ---------
Closing Balance.................................................... 1,088 903 921
--------- --- ---------
--------- --- ---------
</TABLE>
Cross-border risk allowances are charged to loans, banks and
interest-bearing securities.
OTHER
The item Loans includes subordinated debt amounting to NLG 199 million
(1997: NLG 198 million) and leasing operations amounting to NLG 19,201 million
(1997: NLG 15,775 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.
The above-mentioned balance sheet items can be analyzed as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Investment portfolios................................................... 114,030 101,497
Trading portfolios...................................................... 108,233 60,432
Short-dated government paper............................................ 4,787 15,283
Other bank paper........................................................ 33,928 16,161
Other securities........................................................ 9,037 9,998
Options................................................................. 8,844 5,472
Equity participations................................................... 1,137 845
--------- ---------
Total securities........................................................ 279,996 209,688
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table analyzes listed and unlisted securities:
<TABLE>
<CAPTION>
LISTED UNLISTED
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Public authority paper............................ 94,487 52,193 42,222 44,256
Other interest-earning securities................. 29,404 40,737 84,639 53,559
Shares............................................ 27,254 12,870 1,990 6,073
--------- --------- --------- ---------
Total securities.................................. 151,145 105,800 128,851 103,888
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 31,807 million, 1997: NLG 58,461 million) and
securities lending transactions (NLG 6,788 million, 1997: NLG 8,991 million). In
addition, ABN AMRO borrowed securities totaling NLG 25,506 million (1997: NLG
19,588 million). The borrowed securities are not shown in the balance sheet. The
item Interest-earning securities includes securities of a subordinated nature
totaling NLG 119 million (1997: NLG 108 million) and non-subordinated
interest-earning securities issued by group companies totaling NLG 1,883 million
(1997: NLG 1,561 million).
As part of its securities brokerage activities, the group also trades in ABN
AMRO Holding shares. 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, 1998, the treasury stock position of group companies
included 3.5 million in ABN AMRO Holding Ordinary Shares. The corresponding
amount of NLG 86 million has been deducted from reserves.
An amount of NLG 56,758 million is scheduled for redemption in 1999 on
interest-earning securities.
INVESTMENT PORTFOLIOS
The analysis below shows the book value and the fair value of ABN AMRO's
investment portfolios at December 31, 1998 and 1997. Fair value is based on
quoted prices for traded securities and estimated market value for non-traded
securities.
<TABLE>
<CAPTION>
1998 1997
--------------------------------------- -------------------------------------
FAIR FAIR
PREMIUMS MARKET BOOK PREMIUMS MARKET
BOOK VALUE OR DISCOUNTS VALUE VALUE OR DISCOUNTS VALUE
----------- --------------- --------- --------- --------------- ---------
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Dutch government......................... 13,165 415 14,426 14,497 430 15,612
U.S. Treasury and U.S. government
agencies............................... 15,456 258 16,018 18,154 87 18,633
Other OECD governments................... 32,328 398 34,755 23,171 81 24,159
Mortgage-backed securities............... 29,150 71 29,342 26,188 (115) 26,427
Other interest-bearing securities........ 16,942 (269) 17,833 14,514 222 15,451
----------- --- --------- --------- --- ---------
Total interest-bearing securities and
short-dated government paper........... 107,041 873 112,374 96,524 705 100,282
Shares................................... 6,989 6,989 4,973 4,973
----------- --------- --------- ---------
Total investment portfolios.............. 114,030 119,363 101,497 105,255
----------- --------- --------- ---------
----------- --------- --------- ---------
</TABLE>
F-15
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table analyzes interest-bearing investment securities by
maturity and weighted average yield at December 31, 1998. Yields on tax exempt
obligations have not been computed on a tax equivalent basis.
<TABLE>
<CAPTION>
AFTER 1 YEAR AFTER 5 YEARS
AND AND
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS
-------------------------- -------------------------- --------------------------
AMOUNT YIELD(%) AMOUNT YIELD(%) AMOUNT YIELD(%)
----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
Dutch government......................... 5,668 4.2 2,805 6.5 2,549 6.8
U.S. Treasury and U.S. government
agencies............................... 791 6.5 7,946 6.1 2,352 6.6
Other OECD governments................... 4,666 3.3 5,114 6.4 9,690 5.3
Mortgage-backed securities(1)............ 1,037 7.0 15,637 6.7 4,417 6.7
Other securities......................... 2,477 4.5 9,034 6.0 2,886 6.1
Total amortized cost..................... 14,639 4.3 40,536 6.4 21,894 6.0
Total market value....................... 14,660 41,837 23,505
<CAPTION>
AFTER 10 YEARS
--------------------------
AMOUNT YIELD(%)
----------- -------------
<S> <C> <C>
Dutch government......................... 2,558 6.4
U.S. Treasury and U.S. government
agencies............................... 4,625 6.1
Other OECD governments................... 13,256 6.6
Mortgage-backed securities(1)............ 8,130 5.7
Other securities......................... 2,276 5.5
Total amortized cost..................... 30,845 6.2
Total market value....................... 32,372
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Maturity dates have been estimated based on historical experience.
The book value of the investment portfolios developed during 1998 as
follows:
<TABLE>
<CAPTION>
INTEREST-EARNING
SECURITIES SHARES
--------------- -----------
<S> <C> <C>
(IN MILLIONS OF NLG)
Opening Balance of banking business investment portfolio............. 91,764 1,563
Movements:
purchases.......................................................... 135,468 231
sales.............................................................. (94,769) (379)
repayments......................................................... (28,487) --
acquisitions (dispositions) (net).................................. 922 (5)
revaluations....................................................... (37) (128)
currency translation differences................................... (3,290) (32)
Other.............................................................. 317 34
------- -----
Closing Balance of banking business investment portfolio............. 101,888 1,284
Closing Balance of insurance business investment portfolio........... 5,153 5,705
------- -----
Total investment portfolios.......................................... 107,041 6,989
------- -----
------- -----
Revaluations included in closing balance............................. 80
Diminutions in value included in closing balance..................... 176
</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 1,120 million below the redemption value.
F-16
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRADING PORTFOLIOS
The following table analyzes the composition of the trading portfolios.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Dutch government......................................................... 6,823 4,829
U.S. Treasury and U.S. Government agencies............................... 12,214 9,578
Other OECD governments................................................... 58,354 24,621
Other interest-bearing securities........................................ 19,271 14,584
--------- ---------
Total interest-bearing securities........................................ 96,662 53,612
Shares................................................................... 11,571 6,820
--------- ---------
Total trading portfolios................................................. 108,233 60,432
--------- ---------
--------- ---------
</TABLE>
OTHER SECURITIES
The following table analyzes the book value and fair value of other
securities.
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Short-dated government paper.................. 4,787 4,806 15,283 15,308
Other bank paper.............................. 33,928 33,919 16,161 16,036
Other debt securities......................... 8,333 8,038 9,165 9,126
----------- ----------- ----------- -----------
Total interest-bearing securities............. 47,048 46,763 40,609 40,470
Shares, options and equity participations..... 10,685 10,698 7,150 7,210
----------- ----------- ----------- -----------
Total other securities........................ 57,733 57,461 47,759 47,680
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
F-17
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6 PARTICIPATING INTERESTS
This item includes equity participations held on a long-term basis for the
purpose of business operations.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Credit institutions.......................................................... 416 370
Other participating interests................................................ 1,913 1,753
--------- ---------
Total participating interests................................................ 2,329 2,123
--------- ---------
--------- ---------
Development:
Opening Balance.............................................................. 2,123 1,664
Movements:
purchases/increases........................................................ 461 203
sales/reductions........................................................... (425) (289)
revaluations............................................................... 17 (14)
acquisitions (dispositions) (net).......................................... 189 360
other...................................................................... (36) 199
--------- ---------
Closing Balance.............................................................. 2,329 2,123
--------- ---------
--------- ---------
Revaluations included in Closing Balance..................................... 43 26
</TABLE>
Participating interests with official stock exchange listings represented a
book value of NLG 368 million (1997: NLG 479 million).
7 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Real property used in operations............................................ 6,310 5,261
Other real property......................................................... 705 652
Equipment................................................................... 3,249 2,612
--------- ---------
Total property and equipment................................................ 10,264 8,525
--------- ---------
--------- ---------
</TABLE>
F-18
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
PROPERTY
------------------------------------------------
<S> <C> <C> <C> <C>
USED IN
TOTAL OPERATIONS OTHER EQUIPMENT
--------- ----------- ----------- -----------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C>
Development in 1998 in property and equipment:
Opening Balance..................................... 8,525 5,261 652 2,612
Movements:
purchases......................................... 2,743 959 216 1,568
sales............................................. (381) (130) (216) (35)
revaluations...................................... 28 20 8 --
depreciation...................................... (1,471) (304) (5) (1,162)
acquisitions (dispositions) (net)................. 969 635 74 260
other............................................. (149) (131) (24) 6
--------- ----------- --- -----------
1,739 1,049 53 637
Accumulated amounts:
Replacement cost.................................... 15,023 8,478 710 5,835
Depreciation........................................ (4,759) (2,168) (5) (2,586)
--------- ----------- --- -----------
Closing Balance..................................... 10,264 6,310 705 3,249
--------- ----------- --- -----------
--------- ----------- --- -----------
Revaluations included in Closing Balance............ 454 446 8 --
</TABLE>
Legal title to property and equipment totaling NLG 268 million (1997: NLG
372 million) is held by third parties. Property used in operations includes NLG
1,001 million of property under construction, notably the new head offices in
Amsterdam and London.
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, deferred tax assets (1998: NLG 1,717 million), servicing
rights, precious metals and other goods, balances of payment transactions still
to be settled, as well as taxes receivable or payable, short securities
positions and market value of interest rate and currency contracts as part of
trading activities.
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 accounts of professional
securities transactions, to credit institutions, central banks and multilateral
development banks.
F-19
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 TOTAL CUSTOMER ACCOUNTS
This item includes total customer balances held in current accounts, savings
account and deposits, as well as debts on account of professional securities
transactions and non-subordinated private loans.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Savings accounts........................................................ 136,158 124,877
Corporate deposits...................................................... 134,289 106,807
Professional securities transactions.................................... 68,377 58,595
Other customer accounts................................................. 114,157 106,415
--------- ---------
Total customer accounts................................................. 452,981 396,694
--------- ---------
--------- ---------
</TABLE>
12 DEBT SECURITIES
This item includes non-subordinated debt and other negotiable
interest-bearing debt securities.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Debentures and notes....................................................... 24,516 22,785
Cash notes, savings certificates and bank certificates..................... 16,880 16,576
Certificates of deposit and commercial paper............................... 42,228 51,234
--------- ---------
Total debt securities...................................................... 83,624 90,595
--------- ---------
--------- ---------
</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 U.S.
dollars. The commercial paper program is conducted mainly in the United States
and is denominated in U.S. 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, 1998, debt securities denominated in Netherlands
guilders amounted to NLG 20,905 million and those denominated in U.S. dollars to
NLG 37,739 million.
At December 31, 1998, debt securities included NLG 835 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, 1998, was 6.3%.
F-20
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MATURITY ANALYSIS OF DEBT SECURITIES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
within one year............................................................ 47,707 49,894
after one and within two years............................................. 9,277 6,152
after two and within three years........................................... 5,609 8,045
after three and within four years.......................................... 3,493 4,687
after four and within five years........................................... 3,433 3,652
after five years........................................................... 14,105 18,165
--------- ---------
Total debt securities...................................................... 83,624 90,595
--------- ---------
--------- ---------
</TABLE>
13 PROVISIONS
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Provision for deferred tax liabilities..................................... 1,546 1,450
Provision for pension commitments.......................................... 141 134
Provisions for payments to non-active employees............................ 499 383
Insurance fund liabilities................................................. 13,248 9,602
Other provisions........................................................... 1,584 1,894
--------- ---------
Total provisions........................................................... 17,018 13,463
--------- ---------
--------- ---------
</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 1,805 million at December 31, 1998.
F-21
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following analysis shows deferred tax liabilities and assets.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Deferred tax liabilities:
Buildings.................................................................... 334 327
Pensions and other post-retirement and post-employment arrangements.......... 377 354
Derivatives.................................................................. 214 123
Leases and similar financial solutions....................................... 400 405
Other........................................................................ 387 581
--------- ---------
Total...................................................................... 1,712 1,790
--------- ---------
--------- ---------
Deferred tax assets
Allowances for loan losses................................................... 451 202
Investment portfolios........................................................ 335 86
Offsettable losses of foreign operations..................................... 857 476
Other........................................................................ 872 358
--------- ---------
Deferred tax assets before value adjustments................................. 2,515 1,122
Less: value adjustments...................................................... 632 419
--------- ---------
Deferred tax assets after value adjustments.................................. 1,883 703
--------- ---------
--------- ---------
</TABLE>
Deferred tax assets are recognized, to the extent possible, net of provision
for deferred tax liabilities.
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.
F-22
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14 FUND FOR GENERAL BANKING RISKS
The Fund for general banking 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>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Opening balance.............................................................. 2,483 2,000
Movements:
Addition from income statement............................................... (223) 395
Tax on addition.............................................................. 78 (138)
--------- ---------
(145) 257
Consolidation................................................................ 279 75
Currency translation differences............................................. (80) 151
Other........................................................................ (24) --
--------- ---------
Closing Balance.............................................................. 2,513 2,483
--------- ---------
--------- ---------
</TABLE>
15 SUBORDINATED DEBT
This item includes subordinated debentures and loans which, according to the
standards applied by the Dutch Central Bank, qualify for the consolidated
capital adequacy ratio. It comprises debt subordinated to all other current and
future liabilities of ABN AMRO Holding as well as borrowings of consolidated
participating interests, including NLG 17,909 million raised by the Bank. In
general, early repayment, in whole or in part, is not permitted.
The average interest rate on subordinated debt was 7.1% in 1998.
MATURITY ANALYSIS OF SUBORDINATED DEBT
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
within one year............................................................ 609 648
after one and within two years............................................. 575 641
after two and within three years........................................... 2,860 594
after three and within four years.......................................... 1,337 2,990
after four and within five years........................................... 362 1,535
after five years........................................................... 14,046 13,693
--------- ---------
Total subordinated debt.................................................... 19,789 20,101
--------- ---------
--------- ---------
</TABLE>
Subordinated debt at December 31, 1998 was denominated in Netherlands
guilders to an amount of NLG 6,877 million and in U.S. dollars to an amount of
NLG 10,640 million, and included NLG 108 million of variable rate obligations.
F-23
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16 SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Share capital.................................................... 3,623 3,586 3,548
Reserves......................................................... 20,092 22,371 21,771
--------- --------- ---------
23,715 25,957 25,319
Treasury stock................................................... (86) (112) (343)
--------- --------- ---------
Total shareholders' equity....................................... 23,629 25,845 24,976
--------- --------- ---------
--------- --------- ---------
</TABLE>
For further information, reference is made to the section on these 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)...................... 1,441,649,082
Preference Shares (nominal value NLG 5.00).................... 362,503,010
Convertible Preference Shares (nominal value NLG 5.00)........ 1,700,453
</TABLE>
On December 31, 1998, 3,537,887 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 6.8 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
1,129 million.
RESERVES
<TABLE>
<CAPTION>
ANALYSIS 1998 1997 1996
- - - - - - - - - - - - - ----------------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Share premium account............................................ 5,408 5,336 5,295
Revaluation reserves............................................. 692 637 664
Reserves prescribed by law and articles of association........... 380 499 449
General reserve................................................ 15,020 16,598 16,274
Exchange differences reserve................................... (1,408) (699) (911)
Other reserves................................................... 13,612 15,899 15,363
--------- --------- ---------
Total reserves................................................... 20,092 22,371 21,771
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-24
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The share premium account is regarded as paid-up capital for tax purposes.
Due to dispositions and depreciation of buildings, NLG 211 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
Apart from Managing Board members and other senior executives, 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 for five years from the date of grant. The
options granted in 1998 to the Managing Board members as well as a portion of
the options granted to other staff are not exercisable, however, during the
first three years from the date of grant. "Window" periods established for
senior management to exercise their options are the two weeks following the
announcement of the annual and interim figures. In 1996, 1997 and 1998 the
exercise price of options exercised ranged from NLG 10.90 to NLG 51.85.
If fully exercised, the options at year-end 1998 would have increased the
number of Ordinary Shares by 28.1 million (see analysis below) and shareholders'
equity by NLG 1,117 million:
<TABLE>
<CAPTION>
AVERAGE LOW/HIGH EXERCISE
STAFF OPTIONS EXERCISE PRICE PRICE
YEAR OF EXPIRATION (IN THOUSANDS) (IN EUR)(1) (IN EUR)(1)
- - - - - - - - - - - - - ------------------------------------------ --------------- --------------- ---------------------
<S> <C> <C> <C>
1999...................................... 757 6.87 6.85- 6.98
2000...................................... 1,304 7.19 6.67- 8.21
2001...................................... 3,719 10.98 10.02-12.75
2002...................................... 9,276 16.61 15.38-18.60
2003...................................... 13,047 22.69 17.28-23.52
------ ----- ---------------------
Total..................................... 28,103 17.99 6.67-23.52
------ ----- ---------------------
------ ----- ---------------------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) 1 EUR=NLG 2.20371
The movements in these rights for the years 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------- --------------------------------
<S> <C> <C> <C> <C>
AVERAGE AVERAGE
STAFF OPTIONS EXERCISE PRICE STAFF OPTIONS EXERCISE PRICE
(IN THOUSANDS) (IN NLG) (IN THOUSANDS) (IN NLG)
--------------- --------------- --------------- ---------------
Movements:
Opening Balance.................... 19,385 30.47 13,534 19.61
Options granted to senior
management....................... 2,820 46.21 2,869 33.90
Other options granted.............. 10,321 50.95 9,709 37.04
Options exercised.................. (4,419) 30.00 (6,726) 19.20
Options canceled................... (4) 23.99 (1) 19.16
------ ----- ------ -----
Closing Balance.................... 28,103 39.65 19,385 30.47
------ ----- ------ -----
------ ----- ------ -----
</TABLE>
F-25
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 $3,125 million
(1997: $1,875 million) issued by subsidiaries in the United States to third
parties. The right to repayment of this preferred stock is in all cases vested
in the issuing institution, but repayment is also subject to approval of the
supervisory authorities. If this right is not exercised, preference shares
without fixed dividend entitlement qualify for a dividend step-up. In terms of
dividend and liquidation rights, trust preference shares are comparable to ABN
AMRO Holding preference shares.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Cumulative preference shares......................................... 207 222 192
Non-cumulative preference shares
Trust preference shares with fixed dividend........................ 2,358
Other shares with fixed dividend................................... 1,037 1,111 174
Other shares with dividend step-up................................. 2,291 2,453 1,291
Other minority interests............................................. 1,886 741 448
--------- --------- ---------
Total................................................................ 7,779 4,527 2,105
--------- --------- ---------
--------- --------- ---------
</TABLE>
The increase in other minority interests was caused primarily by the
acquisition of Banco Real in Brazil. ABN AMRO intends to purchase the remaining
Banco Real shares in 1999.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Opening Balance...................................................... 4,527 2,105 1,525
Currency translation differences..................................... (430) 421 127
Issue of preferred stock............................................. 2,496 2,259 436
Redemption of preferred stock........................................ -- (515) --
Other movements...................................................... 1,186 257 17
--------- --------- ---------
Closing Balance...................................................... 7,779 4,527 2,105
--------- --------- ---------
--------- --------- ---------
</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.
F-26
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table analyzes the capital ratios of ABN AMRO at December 31,
1998 and 1997 in accordance with supervisory requirements.
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
<S> <C> <C> <C> <C>
REQUIRED ACTUAL REQUIRED ACTUAL
----------- --------- ----------- ---------
<CAPTION>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Total capital............................... 38,039 49,830 36,784 48,990
Total capital ratio (in %).................. 8.0% 10.48% 8.0% 10.65%
Tier 1 capital.............................. 19,020 33,021 18,392 31,996
Tier 1 capital ratio (in %)................. 4.0% 6.94% 4.0% 6.96%
</TABLE>
19 ACCOUNTS WITH PARTICIPATING INTERESTS
Amounts receivable from and payable to participating interests included in
the various balance sheet items totaled:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
(IN MILLIONS OF NLG)
Bank (assets)........................................................... 162 29
Loans................................................................... 529 414
Banks (liabilities)..................................................... 700 210
Total customer accounts................................................. 143 362
</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
--------------- --------------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
(IN BILLIONS OF NLG)
Banks (liabilities).............. 31 167 29 4 --
Savings accounts................. 78 27 21 9 1
Deposits and other customer
accounts....................... 103 160 39 9 6
Debt securities.................. -- 29 19 22 14
Subordinated debt................ -- -- 1 5 14
Banks (assets)................... 26 86 19 2 1
Loans............................ 52 140 55 81 158
</TABLE>
21 CURRENCY POSITION
Of total assets and total liabilities, amounts equivalent to NLG 726 billion
and NLG 713 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
F-27
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 5.6
billion), banks (NLG 0.5 billion), securities (NLG 78.2 billion) and loans (NLG
15.2 billion). Collateral has been provided for liabilities included in the
items Banks (NLG 20.9 billion), Total customer accounts (NLG 68.4 billion), Debt
securities (NLG 0.4 billion) and Other liabilities (NLG 6.3 billion).
23 CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Commitments with respect to guarantees granted.......................... 68,874 58,455
Commitments with respect to irrevocable letters of credit............... 8,127 9,053
Commitments with respect to recourse risks arising from discounted
bills................................................................. 349 1,003
--------- ---------
Total Contingent liabilities............................................ 77,350 68,511
--------- ---------
--------- ---------
</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 (also on behalf of customers) 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 extent 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-28
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table shows the notional amounts of ABN AMRO's derivatives
portfolio at December 31, 1998.
DERIVATIVES TRANSACTIONS
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
# 1 YR 1 YR-# 5 YR $ 5 YR TOTAL CREDIT RISK
----------- ----------------- ----------- --------- -----------
<CAPTION>
(IN BILLIONS OF NLG)
<S> <C> <C> <C> <C> <C>
INTEREST RATE CONTRACTS
OTC Swaps........................... 242 558 366 1,166 38
Forwards....................... 289 41 -- 330 1
Options........................ 107 238 80 425 4
Exchange-traded Futures.............. 206 90 6 302 --
Options........................ 62 -- -- 62 --
CURRENCY CONTRACTS
OTC Swaps 111 99 45 255 7
Forwards....................... 1,164 42 2 1,208 20
Options........................ 108 6 1 115 1
Exchange-traded Futures.............. 2 -- -- 2 --
Options........................ -- -- -- -- --
OTHER CONTRACTS
OTC Options......................... 10 62 7 79 10
Exchange-traded Forwards/Swaps....... 2 2 -- 4 --
Options........................ 25 11 31 67 --
----- ----- --- --------- -----
Total derivatives.................... 2,328 1,149 538 4,015 81
----- ----- --- --------- -----
----- ----- --- --------- -----
</TABLE>
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.
F-29
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRADING PORTFOLIO DERIVATIVES TRANSACTIONS IN 1998
<TABLE>
<CAPTION>
AVERAGE
MARKET VALUE MARKET VALUE
NOTIONAL ---------------------- ----------------------
AMOUNTS POSITIVE NEGATIVE POSITIVE NEGATIVE
---------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
INTEREST RATE CONTRACTS
Swaps.................................... 1,153,360 38,536 35,523 30,309 27,439
Forwards................................. 340,663 524 291 237 262
Options purchased........................ 241,615 3,632 -- 2,976 --
Options sold............................. 251,749 -- 3,307 -- 3,197
Futures.................................. 277,008 1,062 93 21 25
---------- --------- ----------- --------- -----------
Total interest rate contracts............ 2,264,395 43,754 39,214 33,543 30,923
CURRENCY CONTRACTS
Swaps.................................... 253,438 7,003 8,313 8,122 8,080
Forwards................................. 1,161,953 17,260 14,766 17,898 16,216
Options purchased........................ 49,359 1,285 -- 2,558 --
Options sold............................. 56,175 -- 1,125 -- 2,623
Futures.................................. 2,378 -- -- -- --
---------- --------- ----------- --------- -----------
Total currency contracts................. 1,523,303 25,548 24,204 28,578 26,919
OTHER CONTRACTS
Equity options purchased................. 72,546 15,917 -- 8,777 --
Equity options sold...................... 72,945 -- 19,941 -- 10,567
Other equity and commodity contracts..... 4,285 42 29 3 2
---------- --------- ----------- --------- -----------
Total other contracts.................... 149,776 15,959 19,970 8,780 10,569
</TABLE>
F-30
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TRADING PORTFOLIO DERIVATIVES TRANSACTIONS IN 1997
<TABLE>
<CAPTION>
AVERAGE
MARKET VALUE MARKET VALUE
NOTIONAL -------------------------- ----------------------
AMOUNTS POSITIVE NEGATIVE POSITIVE NEGATIVE
---------- ------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
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............................ 1,940,507 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-31
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
HEDGING PORTFOLIO DERIVATIVES TRANSACTIONS
<TABLE>
<CAPTION>
1998 1997
----------------------------------- -----------------------------------
MARKET VALUE MARKET VALUE
NOTIONAL ------------------------ NOTIONAL ------------------------
AMOUNTS POSITIVE NEGATIVE AMOUNTS POSITIVE NEGATIVE
--------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
INTEREST RATE CONTRACTS
Swaps.................................... 149,050 7,058 4,746 154,889 3,139 3,803
Forwards................................. 16,415 28 28 5,910 2 5
Options purchased........................ 18,166 409 -- 7,606 126 --
Futures.................................. 24,732 12 20 23,193 1 15
--------- ----- ----- --------- ----- -----
Total interest rate contracts............ 208,363 7,507 4,794 191,598 3,268 3,823
--------- ----- ----- --------- ----- -----
--------- ----- ----- --------- ----- -----
CURRENCY CONTRACTS
Swaps.................................... 17,733 575 831 14,423 224 399
Forwards................................. 49,825 1,992 1,920 38,591 760 339
Options purchased........................ 10,235 26 -- 679 -- --
--------- ----- ----- --------- ----- -----
Total currency contracts................. 77,793 2,593 2,751 53,693 984 738
--------- ----- ----- --------- ----- -----
--------- ----- ----- --------- ----- -----
</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 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, 1998 and 1997. The figures allow for the downward impact
of netting agreements and other collateral on risk exposure and capital
adequacy.
CREDIT EQUIVALENT DERIVATIVES
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN BILLIONS OF NLG)
Interest rate contracts.................................................. 51.0 27.5
Currency contracts....................................................... 51.3 51.4
Other contracts.......................................................... 13.7 0.9
--------- ---
116.0 79.8
Effect of contractual netting............................................ 45.0 19.8
--------- ---
Unweighted credit equivalent............................................. 71.0 60.0
Weighted credit equivalent............................................... 19.2 16.4
</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.
F-32
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1999, investment in property and equipment is estimated at NLG 2.7
billion, of which ABN AMRO is already committed to an amount of NLG 425 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, 1998 (in millions of NLG).
<TABLE>
<S> <C>
Legal title to loans sold........................................... 5,958
Loans serviced for third parties.................................... 86,347
Loans sold with credit enhancements................................. 14,792
</TABLE>
Future rental commitments (in millions of NLG) at December 31, 1998 for
long-term lease contracts were as follows:
<TABLE>
<S> <C>
1999................................................................. 331
2000................................................................. 308
2001................................................................. 269
2002................................................................. 232
2003................................................................. 216
years after 2003..................................................... 1,975
</TABLE>
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 8,230 million (1997: NLG 6,935
million). Interest expense on subordinated debt totaled NLG 1,422 million (1997:
NLG 1,311 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>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Revenue from shares and equity participations............................ 219 195 97
Revenue from participating interests..................................... 549 435 159
--- --- ---
Total Revenue from securities and participating interests................ 768 630 256
--- --- ---
--- --- ---
</TABLE>
F-33
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
28 NET COMMISSIONS
This item includes revenue from securities brokerage, domestic and
international payments, asset management, insurance, leasing and other services.
Amounts paid to third parties are shown as commission expense.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Securities brokerage................................................. 3,165 2,706 1,985
Payment services..................................................... 1,716 1,503 1,332
Asset management and trust........................................... 890 717 684
Insurance............................................................ 342 299 280
Guarantees........................................................... 258 247 226
Leasing.............................................................. 207 170 150
Other................................................................ 889 630 299
--------- --------- ---------
Total Net commissions................................................ 7,467 6,272 4,956
--------- --------- ---------
--------- --------- ---------
</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 branches,
subsidiaries and participating interests in hyper-inflationary countries.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Securities trading................................................... 1,162 858 781
Foreign exchange dealing............................................. 1,170 955 705
Derivatives
Interest rate related products..................................... 216 235 203
Currency related products.......................................... 74 54 38
Equity related products............................................ 118 93 57
Other derivatives.................................................. 6 27 25
--------- --------- ---------
414 409 323
--------- --------- ---------
Other................................................................ (206) 214 73
Total results from financial transactions............................ 2,540 2,436 1,882
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-34
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1998:
<TABLE>
<CAPTION>
LIFE NON-LIFE
--------- -----------
<S> <C> <C>
(IN MILLIONS OF NLG)
Net premium income.................................................... 2,654 288
Investment income..................................................... 903 22
Insurance expenses.................................................... (3,450) (247)
--------- ---
Total revenue from insurance companies................................ 107 63
--------- ---
--------- ---
</TABLE>
31 STAFF COSTS
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT
NUMBER OF EMPLOYEES)
Analysis:
Salaries (including bonuses, etc.)............................... 7,945 7,085 5,576
Pension costs (including post-retirement benefits)............... 332 171 332
Social insurance and other staff costs........................... 1,983 1,397 1,232
--------- --------- ---------
Total Staff costs................................................ 10,260 8,653 7,140
--------- --------- ---------
--------- --------- ---------
Average number of employees (headcount):
Netherlands...................................................... 35,387 33,190 34,491
Foreign countries................................................ 47,880 39,028 30,925
--------- --------- ---------
Total average number of employees (headcount).................... 83,267 72,218 65,416
--------- --------- ---------
--------- --------- ---------
</TABLE>
32 OTHER ADMINISTRATIVE EXPENSES
This item includes office overhead, automation costs, advertising costs and
other general expenses.
ABN AMRO leases premises and space in other buildings for its principal
activities. The leases generally are renewable and provide for payment of rent
and certain other occupancy expenses. Total rent expense for all contracts
amounted to NLG 507 million in 1998, NLG 501 million in 1997 and NLG 451 million
in 1996.
33 DEPRECIATION
This item is made up of depreciation of buildings and equipment.
34 PROVISION FOR LOAN LOSSES
This item includes provisions for uncollectible outstandings.
35 ADDITION TO THE FUND FOR GENERAL BANKING RISKS
This item includes the addition to, or release from, the Fund. Management's
intention is to maintain the Fund at a level approximating 0.5% of risk-weighted
total assets.
F-35
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 overall effective tax rate rose from 28.7% in 1997 to 31.3% in 1998. The
following table reconciles the statutory tax rate to the effective tax rate.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Dutch income tax rate............................................ 35.0% 35.0% 35.0%
Effect of taxes on income of operations outside The
Netherlands.................................................... (1.1%) (1.6)% (4.7)%
Effect of taxes on tax-exempt income in The Netherlands.......... (3.1%) (4.1)% (2.9)%
Other............................................................ 0.5% (0.6)% 0.7%
--- --- ---
Overall effective tax rate....................................... 31.3% 28.7% 28.1%
--- --- ---
--- --- ---
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
The Netherlands...................................................... 920 784 841
Foreign.............................................................. 1,081 877 508
--------- --------- ---------
2,001 1,661 1,349
--------- --------- ---------
--------- --------- ---------
</TABLE>
Taxes in 1998 amounted to NLG 2,001 million, including NLG 182 million
(1997: NLG 153 million) in deferred tax liabilities.
38 MINORITY INTERESTS
This item comprises the share of third parties in the results from
subsidiaries and other group companies, including dividends on preferred stock
issued by ABN AMRO's subsidiaries in the United States.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Dividends on preference shares........................................... 272 200 70
Other minority interests................................................. 84 72 71
--- --- ---
Total minority interests................................................. 356 272 141
--- --- ---
--- --- ---
</TABLE>
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
F-36
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of this analysis, gross revenue represents total revenue before interest expense
and commission expense. Indirect overhead has been allocated to the operating
segments.
<TABLE>
<CAPTION>
GROSS REVENUE TOTAL REVENUE
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division............... 21,969 19,873 18,262 8,191 7,328 6,652
International Division:
Europe (excl. The Netherlands)... 8,268 6,874 5,439 3,206 2,710 1,909
North America.................... 20,973 15,190 8,327 7,136 5,996 3,406
South and Central America........ 4,974 2,849 1,975 2,364 1,609 1,063
Middle East and Africa........... 621 519 334 263 217 160
Asia/Pacific..................... 3,579 3,040 2,274 1,584 1,137 770
--------- --------- --------- --------- --------- ---------
38,415 28,472 18,349 14,553 11,669 7,308
Investment Banking Division........ 7,555 6,940 6,152 3,921 3,887 2,980
--------- --------- --------- --------- --------- ---------
67,939 55,285 42,763 26,665 22,884 16,940
ABN AMRO Lease Holding............. 1,268 1,185 1,016 965 884 760
MeesPierson........................ -- -- 2,846 -- -- 1,391
--------- --------- --------- --------- --------- ---------
Total.............................. 69,207 56,470 46,625 27,630 23,768 19,091
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT BEFORE TAXES
RISK-WEIGHTED ASSETS
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG)
<S> <C> <C> <C> <C> <C> <C>
Netherlands Division............... 2,550 2,219 1,678 148,296 144,010 129,315
International Division
Europe (excl. The Netherlands)... 747 615 241 57,998 58,203 57,675
North America.................... 2,151 1,505 1,088 132,626 126,833 98,897
South and Central America........ 517 547 246 30,131 14,114 8,639
Middle East and Africa........... 99 61 (8) 3,832 2,729 1,871
Asia/Pacific..................... (43) 11 160 39,348 39,093 34,792
--------- --------- --------- --------- --------- ---------
3,471 2,739 1,727 263,935 240,972 201,874
Investment Banking Division........ 542 878 925 49,280 63,147 47,978
--------- --------- --------- --------- --------- ---------
6,563 5,836 4,330 461,511 448,129 379,167
ABN AMRO Lease Holding............. 267 239 209 13,982 11,676 10,101
MeesPierson........................ -- -- 269 -- -- --
Non-allocated result............... (668) 106 131 -- -- --
Addition to/release from Fund for
general banking risks............ 223 (395) (146) -- -- --
--------- --------- --------- --------- --------- ---------
Total.............................. 6,385 5,786 4,793 475,493 459,805 389,268
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
F-37
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
40 MANAGING BOARD AND SUPERVISORY BOARD
The following tables summarize financial data concerning current and former
members of the Managing Board and Supervisory Board.
<TABLE>
<CAPTION>
MANAGING BOARD SUPERVISORY BOARD
-------------------- --------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
--------- --------- --------- ---------
Remuneration (in NLG 1,000)......................... 15,635 16,633 1,358 1,132
Outstanding ABN AMRO staff options issued........... 748,150 717,888 -- --
ABN AMRO option rights listed....................... -- -- -- --
ABN AMRO shares owned............................... 39,343 82,439 53,151 38,545
Loans (in NLG 1,000)................................ 15,973 11,400 10,867 11,025
</TABLE>
ABN AMRO Holding has not issued any convertible debenture loans.
<TABLE>
<CAPTION>
OPTIONS HELD BY AVERAGE
MANAGING EXERCISE PRICE
BOARD (IN NLG)
--------------- ---------------
<S> <C> <C>
Movements:
Opening balance................................................ 717,888 25.03
Options granted................................................ 321,716 46.33
Options exercised.............................................. (131,454) 18.41
Other movements................................................ (160,000) 29.35
--------------- -----
Closing balance................................................ 748,150 34.43
--------------- -----
--------------- -----
</TABLE>
The conditions governing the options are stated in note 16.
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 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 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
F-38
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
differences as well as the effects of the consolidation of acquisitions, where
of material significance, are eliminated from the cash flow figures.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Analysis:
Cash............................................................ 9,868 8,408 3,709
Current accounts (debit)........................................ 18,992 18,406 11,737
Current accounts (credit)....................................... (11,923) (9,498) (8,296)
--------- --------- ---------
Liquid funds.................................................... 16,937 17,316 7,150
Movements:
Opening Balance................................................. 17,316 7,150 11,499
Cash flow....................................................... 404 9,335 (3,203)
Currency translation differences................................ (783) 831 394
Sale of MeesPierson............................................. -- -- (1,540)
--------- --------- ---------
Closing Balance................................................. 16,937 17,316 7,150
</TABLE>
Interest paid in 1998 amounted to NLG 38,296 million; tax payments for 1998
totaled NLG 973 million.
Dividends received from participating interests totaled NLG 51 million in
1998, NLG 36 million in 1997 and NLG 41 million in 1996.
F-39
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table analyzes movements resulting from acquisitions and
dispositions in 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1996
1998 1997 ---------------------------
----------- ----------- SALE OF
ACQUISITIONS ACQUISITIONS ACQUISITIONS MEESPIERSON
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Amounts paid/received in cash and cash
equivalents on acquisitions/
dispositions (net)................... 6,477 4,539 1,368
Cash and cash equivalents included in
acquisitions/dispositions (net)...... 3,873 115 330 (1,540)
Assets acquired (sold) and liabilities
assumed (disposed of) through
acquisitions (net of dispositions):
Banks.................................. 7,816 820 601 (4,230)
Loans.................................. 15,924 24,547 3,735 (18,172)
Securities............................. 5,553 6,402 1,666 (8,501)
Other assets........................... 9,325 2,502 345 (1,900)
----------- ----------- ----- ------------
Total assets........................... 38,618 34,271 6,347 (32,803)
----------- ----------- ----- ------------
----------- ----------- ----- ------------
Subordinated debt...................... 65 -- 64 (481)
Banks.................................. 5,619 5,879 647 (10,565)
Total customer accounts................ 30,745 25,895 4,565 (17,084)
Debt securities........................ 289 847 436 (677)
Other liabilities...................... 3,927 1,591 612 (3,325)
----------- ----------- ----- ------------
Total liabilities...................... 40,645 34,212 6,324 (32,132)
----------- ----------- ----- ------------
----------- ----------- ----- ------------
</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 transactions between two parties, other than in a forced sale or liquidation,
and is best reflected by a quoted market price, if available. 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 values 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.
The approximate fair values as stated by financial institutions are not
comparable due to the wide range of different valuation techniques and the
numerous estimates that must be made. The lack of an objective valuation method
means that approximate fair values are highly subjective. Therefore, readers
F-40
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------- ------------------------
BOOK VALUE FAIR VALUE BOOK VALUE FAIR VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG) (IN MILLIONS OF NLG)
Assets (incl. off-balance sheet items)
Cash...................................... 9,868 9,868 8,408 8,408
Short-dated government paper(1)(2)........ 17,010 17,029 25,451 25,430
Banks..................................... 134,193 134,636 140,185 140,218
Loans to public sector.................... 15,961 17,309 14,984 15,691
Loans to private sector--commercial loans
and professional securities
transactions............................ 310,666 321,184 287,887 290,247
Loans to private sector--retail........... 159,317 162,860 140,397 141,397
Interest-earning securities(1)(3)......... 234,614 238,770 165,999 169,103
Shares(4)................................. 29,245 29,258 18,943 18,986
Derivatives............................... 81,237 86,120 50,386 55,302
----------- ---------- ----------- -----------
Total....................................... 992,111 1,017,034 852,640 864,782
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Liabilities (incl. off-balance sheet items)
Banks..................................... 231,165 231,566 208,466 208,466
Savings accounts.......................... 136,157 137,281 124,877 125,481
Time deposits............................. 134,289 134,697 106,807 107,786
Other customer accounts................... 182,535 182,535 165,010 165,366
Debt securities........................... 83,624 86,645 90,595 91,503
Subordinated debt......................... 19,789 21,469 20,101 21,140
Derivatives............................... 78,171 81,692 48,513 52,938
----------- ---------- ----------- -----------
Total....................................... 865,730 875,885 764,369 772,680
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Book values of Short-dated government paper and Interest-earning securities
are equal to amortized costs increased by premium (discount).
(2) Of which NLG 6,176 million was included in the trading portfolio at December
31, 1998.
(3) Of which NLG 90,486 million was included in the trading portfolio at
December 31, 1998.
(4) Of which NLG 11,571 million was included in the trading portfolio at
December 31, 1998.
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-41
<PAGE>
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
<S> <C>
GOODWILL AND OTHER ACQUIRED INTANGIBLES
Goodwill including other acquired intangibles Goodwill represents the excess of the
arising from acquisitions of subsidiaries and purchase price of investments in subsidiaries
participating interests is charged against and participating interests over the
shareholders' equity. 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 purchase 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 maintain considered to be a general allowance for loan
a fund for general banking risks. This Fund losses. The level of the Fund is adequate for
is net of taxes and covers general risks absorbing all inherent losses in loans.
associated with lending and other banking
activities, which may include risks of loan
losses. 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 market
(after deduction of specific allowances) of value at the date of the restructuring.
the disposed debt. 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 in All bonds and similar debt securities
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 available
stated at redemption value less any for sale, which are those securities that may
diminution in value deemed necessary. be sold prior to maturity as part of
Premiums and discounts at acquisition, asset/liability management or in response to
accounted for as deferred items, are other factors, are stated at market value.
amortized and reported as interest over the Unrealized gains and losses together with
term of the debt securities. Net capital gains and losses on designated derivatives
gains realized prior to maturity date in are reported, net of taxes, in a separate
connection with replacement operations are component of shareholders' equity. Realized
recognized as deferred interest and amortized gains and losses are recognized into income
over the term of the investment portfolio. on trade date.
</TABLE>
F-42
<PAGE>
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
<S> <C>
Shares held in the investment portfolio are All shares are classified as "available for
stated at market value. Movements in value, sale" and stated at market value with
net of tax, are taken to a separate unrealized gains and losses reported in a
revaluation reserve. If the revaluation separate component of shareholders' equity,
reserve is insufficient to absorb a decline net of taxes, unless a decline in value is
in value, this amount will be charged to the judged to be other than temporary. In that
income statement as value adjustments to case, the cost basis is written down and the
financial fixed assets. amount of the writedown is charged to the
income statement.
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 in the applicable based on current and future compensation
countries. Costs of plans are accounted for levels taking into account the market value
using actuarial computations of current of the assets of the pension funds and
compensation levels, taking into account the current interest rates. ABN AMRO adopted SFAS
return achieved by the pension funds in 87 as of January 1, 1994.
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 care
retirement. The calculations are based on benefits to an employee and the employee's
actuarial computations. 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 after
provided to former or inactive employees, 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 have vested 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.
</TABLE>
F-43
<PAGE>
<TABLE>
<CAPTION>
DUTCH GAAP U.S. GAAP
- - - - - - - - - - - - - --------------------------------------------- ---------------------------------------------
<S> <C>
DERIVATIVES USED FOR HEDGING PURPOSES
Derivatives which are used to manage the U.S. GAAP requires that derivatives which are
overall structural interest rate exposure and not designated to specific assets,
which are not designated to specific assets, liabilities or firm commitments be carried at
liabilities or firm commitments are accounted fair value with changes in fair value
for on an accrual basis. Therefore, changes included in income as they occur.
in the fair value of the positions are not
recorded. The periodic cash flows are
recorded in income as incurred.
DEFERRED TAX
Deferred tax assets and liabilities are Under SFAS 109 both deferred tax assets and
recorded on a discounted basis. liabilities are established on a nominal
basis for all temporary differences, using
enacted tax rates. 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.
DIVIDEND PAYABLE
Shareholders' equity is reported after profit Dividends are reported as a part of
appropriation. Dividends proposed by the shareholders' equity until paid or approved
Managing and Supervisory Boards are reported by the General Shareholders' Meeting.
as a current liability.
</TABLE>
ACCOUNTING CHANGES: ADOPTED STATEMENTS IN 1998
In 1998, ABN AMRO adopted, for U.S. GAAP purposes, the following statements
issued by the Financial Accounting Standards Board (FASB):
F-44
<PAGE>
- SFAS 130 "Reporting Comprehensive Income". This statement establishes
rules for the reporting and display of equity from non-owner sources and
its components. Equity from non-owner sources is defined as the change in
equity of an entity, excluding shareholder transactions such as the
issuance of common or preferred stock and payment of dividends.
- SFAS 131 "Disclosures about Segments of an Enterprise and Related
Information". This statement establishes standards for reporting operating
segments and requires certain other disclosures about products and
services, geographic areas and major customers.
- SFAS 132 "Employer's Disclosures About Pensions and Other Postretirement
Benefits". This statement revises an employer's disclosures about pensions
and other postretirement benefits. The standard requires additional
information on the changes in the benefit obligations and plan assets and
eliminates certain disclosures to facilitate the financial analysis of
these plans.
These statements are all limited to reporting and presentation and do not
address recognition or measurement. The adoption of these statements, therefore,
did not affect earnings, liquidity or capital resources of ABN AMRO.
FUTURE DEVELOPMENTS
Recently the following accounting pronouncements have been issued:
- SFAS 133 "Accounting for Derivative Instruments and Hedging Activities".
This statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities and measure
those instruments at fair value. If the derivative is a hedge, changes in
fair value of the derivatives will either be offset against the change in
fair value of the hedged assets, liabilities or firm commitments through
earnings or recognized in other changes to stockholders' equity until the
hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be recognized in earnings
immediately. ABN AMRO is currently in the process of evaluating the impact
of this statement.
- In March 1998, the American Institute of Certified Public Accountants
issued a statement regarding "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". The statement requires
capitalization of certain costs incurred in connection with developing or
obtaining software for internal use. Qualifying software costs are
capitalized and amortized over the estimated useful life of the software.
ABN AMRO is currently in the process of evaluating the impact of this
statement.
F-45
<PAGE>
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
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1996
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS OF NLG EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Shareholders' equity/net profit under Dutch
GAAP........................................... 23,629 25,845 4,028 3,853 3,303
Goodwill......................................... 10,345 5,637 (474) (427) (287)
Provision for general contingencies.............. 101
Debt restructuring............................... (529) (7)
Investment portfolio securities.................. 5,923 3,721 892 335 449
Property......................................... (454) (489) 32 32 25
Pension costs.................................... 110 (43) 153 (86) (48)
Post-retirement benefits......................... (90) (76) (14) (31) (3)
Post-employment benefits......................... (101) (114) 13 28 51
Provisions....................................... 459 641 (182) (31) 234
Derivatives...................................... 688 588 100 (11) 110
Taxes............................................ (2,184) (1,546) (312) (106) (305)
Deferred tax liabilities......................... (672) (155) (22) (86) (25)
Dividends........................................ 467 557
--------- --------- --------- --------- ---------
Shareholders' equity and net profit under U.S.
GAAP........................................... 37,591 34,559 4,214 3,470 3,605
Shareholders' equity per share under U.S. GAAP... 24.80 23.20
Basic earnings per share under U.S. GAAP......... 2.84 2.37 2.54
Diluted earnings per share under U.S. GAAP....... 2.82 2.35 2.52
</TABLE>
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 12,473 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.
F-46
<PAGE>
The following acquisitions were made in 1998, 1997 and 1996 and were
accounted for using the purchase method.
<TABLE>
<CAPTION>
TOTAL
ACQUIRED COMPANIES % ACQUIRED CONSIDERATION ASSETS(1) ACQUISITION DATE
- - - - - - - - - - - - - ------------------------------- ------------- --------------- ----------- ----------------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG EXCEPT PERCENTAGES)
1998:
Banco Real..................... 38 4,226 36,035 November 4, 1998
ABN AMRO Asia Holdings Ltd.
(2).......................... 100 415 -- December 23, 1998
Bank of Asia................... 77 358 6,876 August 31, 1998
Bandepe........................ 100 290 1,258 November 25, 1998
Sage........................... 100 209 2,909 May 4, 1998
BZW, Australia................. 100 179 863 March 1, 1998
Lease Plan South Africa........ 100 63 139 April 1, 1998
Huysamer Stals (3)............. 60 21 257 March 1, 1998
Dasfleet Australia............. 100 52 -- September 21, 1998
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
ABN AMRO Asia Holdings Ltd..... 10 139 -- April 1, 1997
Asia Securities Trading(4)..... 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(5)........................ 29 32 -- July 26, 1996
Banco Fonder(6)................ 50 31 12 April 1, 1996
Carrington Pembroke Ltd........ 100 29 6 September 30, 1996
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Effective of total assets acquired on the Consolidated Balance Sheet.
(2) The Bank acquired a 30% interest in 1998 (in addition to the 70% interest
acquired in 1994, 1995 and 1997).
(3) The Bank acquired a 60% interest in 1998 (in addition to an interest
acquired in 1997).
(4) This is a purchase of minority interest of 35.5%.
(5) A buyout of minority shareholders to raise the percentage to 80%.
(6) This purchase increases the total percentage to 100%. The first 50% was
acquired in 1995 through the acquisition of Alfred Berg.
F-47
<PAGE>
(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 4,460 million (1997: NLG 3,053 million), after
adjusting for NLG 1,463 million (1997: NLG 668 million) of unrecognized gains on
sales of investment portfolio securities and related swap transactions.
In the income statement, the differences in the applicable year consist of
realized gains from sales of interest-earning securities minus the amortization
under Dutch GAAP and the charge as value adjustments to financial fixed assets
of shares if the revaluation reserve under Dutch GAAP is insufficient to absorb
a temporary decline in value.
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
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 1997
were calculated at NLG 222 million. Gross realized gains on sales of
interest-earning securities in the investment portfolio in 1998 were calculated
at NLG 1,674 million and gross realized losses from such sales in 1998 were
calculated at NLG 329 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 Labor 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.
In 1998, ABN AMRO adopted SFAS 132 "Employer's Disclosures About Pensions
and Other Postretirement Benefits". This statement revised disclosures about
pensions and other postretirement benefits.
F-48
<PAGE>
Assumptions used in the pension computation as at December 31 were:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN PERCENTAGES)
Average discount rate
The Netherlands........................................................ 5.0 6.5 7.0
Foreign countries...................................................... 7.0 7.5 7.5
Average compensation increase
The Netherlands........................................................ 3.0 3.0 3.0
Foreign countries...................................................... 6.0 6.0 5.5
Average expected rate of return on assets
The Netherlands........................................................ 7.0 7.5 7.5
Foreign countries...................................................... 8.5 8.5 8.0
</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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
NET PERIODIC PENSION COSTS
Service cost........................................................... 349 375 444
Interest cost.......................................................... 676 632 606
Expected return on plan assets......................................... (877) (757) (702)
Net amortization and deferral.......................................... (29) (4) (3)
--- --- ---
Net periodic pension costs under U.S. GAAP............................. 119 246 345
Net periodic pension costs under Dutch GAAP............................ 272 160 297
--- --- ---
Additional pension costs............................................... (153) 86 48
--- --- ---
--- --- ---
</TABLE>
The following table presents the change in benefit obligations of the plans
under SFAS 87.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Projected benefit obligation at beginning of the year................... 10,297 9,293
Service costs........................................................... 349 375
Interest cost........................................................... 676 632
Actuarial gain/loss..................................................... 2,959 136
Benefits paid........................................................... (382) (338)
Plan amendments......................................................... (4) 0
Settlements/curtailments................................................ (3) (12)
Acquisitions............................................................ 0 185
Currency translation effect............................................. (49) 26
--------- ---------
Projected benefit obligation at end of the year......................... 13,843 10,297
--------- ---------
--------- ---------
</TABLE>
F-49
<PAGE>
The following table presents the change in plan assets of the plans under
SFAS 87.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Fair value of plan assets at beginning of the year...................... 11,863 10,044
Actual return of plan assets............................................ 1,663 1,700
Employer's contribution................................................. 171 189
Benefits paid........................................................... (382) (338)
Acquisitions............................................................ 0 227
Currency translation effect............................................. (63) 41
--------- ---------
Fair value of plan assets at end of the year............................ 13,252 11,863
--------- ---------
--------- ---------
</TABLE>
The following table presents the funded status of the plans under SFAS 87.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Funded status........................................................... (591) 1,566
Unrecognized net actuarial (gain)/loss.................................. 624 (1,586)
Unrecognized prior service cost......................................... 26 11
Unrecognized transition obligation...................................... 16 20
Prepaid/(accrued) benefit cost.......................................... 75 11
</TABLE>
For plans in The Netherlands, the accumulated benefit obligation exceeded
plan assets by NLG 160 million at December 31, 1998. At year-end 1997, plan
assets were in excess of the accumulated benefit obligation.
(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 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>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN PERCENTAGES)
Average discount rate
The Netherlands........................................................ 5.0 6.5 7.0
Foreign countries...................................................... 7.0 7.5 7.5
Average health care cost trend rate
The Netherlands........................................................ 3.0 3.0 3.0
Foreign countries...................................................... 9.0 7.0 7.0
</TABLE>
F-50
<PAGE>
The following table presents the components of net periodic post-retirement
benefit cost.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
NET PERIODIC POST-RETIREMENT BENEFIT COST
Services cost......................................................... 13 12 10
Interest cost......................................................... 31 29 25
Net amortization and deferral......................................... 8 7 9
-- -- --
Net periodic cost under U.S. GAAP..................................... 52 48 44
Net periodic cost under Dutch GAAP.................................... 38 17 41
-- -- --
Additional net periodic post-retirement benefit cost.................. 14 31 3
-- -- --
-- -- --
</TABLE>
The following table presents the change in postretirement benefit
obligations of the plans under SFAS 106.
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
(IN MILLIONS OF NLG)
Projected benefit obligation at beginning of the year.................... 458 397
Service costs............................................................ 13 12
Interest cost............................................................ 31 29
Actuarial gain/loss...................................................... 119 (3)
Benefits paid............................................................ (21) (22)
Acquisitions............................................................. 0 30
Currency translation effect.............................................. (8) 15
--- ---
Projected benefit obligation at end of the year.......................... 592 458
--- ---
--- ---
</TABLE>
The following table presents the change in plan assets of the plans under
SFAS 106.
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
(IN MILLIONS OF NLG)
Fair value of plan assets at beginning of the year....................... 14 8
Actual return of plan assets............................................. 5 3
Employer's contribution.................................................. 31 25
Benefits paid............................................................ (21) (22)
Acquisitions............................................................. 0 0
Currency translation effect.............................................. (1) 0
-- --
Fair value of plan assets at end of the year............................. 28 14
-- --
-- --
</TABLE>
The following table presents the funded status of the plans under SFAS 106.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Funded status............................................................ (564) (444)
Unrecognized net actuarial (gain)/loss................................... 133 24
Unrecognized prior service cost.......................................... 2 0
Unrecognized transition obligation....................................... 120 128
--- ---
Prepaid/(accrued) benefit cost........................................... (309) (292)
--- ---
--- ---
</TABLE>
F-51
<PAGE>
Increasing the assumed health care cost trend rate by 1% in each year would
increase the accumulated post-retirement benefit obligation as of December 31,
1998 by approximately NLG 87 million and would increase the net periodic
postretirement benefit cost of 1998 by NLG 10 million.
Decreasing the assumed health care cost trend rate by 1% in each year would
decrease the accumulated post-retirement benefit obligation as of December 31,
1998 by approximately NLG 71 million and would decrease the net periodic
postretirement benefit cost of 1998 by NLG 7 million.
(f) CONTINGENCIES
U.S. GAAP does not permit provisions for contingencies, which are permitted
under Dutch GAAP. Accordingly, the release in 1998 and 1997 and 1996 provisions
of NLG 272 million, NLG 175 million and NLG 230 million, respectively, for the
adaptation of computer systems for the introduction of the euro and for the year
2000, the release in 1997 and 1996 provisions of NLG 166 million and NLG 24
million, respectively, for the potential devaluation of the Brazilian real, the
provisions in 1998 and 1996 and the release in 1997 for litigation and removals
of NLG 90 million, NLG 65 million and NLG 40 million, respectively, are not
permitted under U.S. GAAP and have been reversed in the U.S. GAAP
reconciliation.
(g) DEFERRED TAX
In accordance with SFAS 109, the components of the net U.S. GAAP deferred
tax liability are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
Deferred tax liabilities
Investment securities.................................................. 1,553 1,214
Property............................................................... 446 435
Post-employment benefits............................................... 349 314
Derivatives............................................................ 455 381
Leasing and other financing constructions.............................. 400 405
Other.................................................................. 563 759
--------- ---------
Total deferred tax liabilities........................................... 3,766 3,508
Deferred tax assets
General allowance for loan losses(1)................................... 1,353 1,337
Specific allowances for loan losses.................................... 451 202
Derivatives............................................................ -- 52
Other.................................................................. 209 358
Tax losses foreign entities............................................ 857 476
--------- ---------
Total deferred tax assets before valuation allowance..................... 2,870 2,425
Less: valuation allowance................................................ 436 368
--------- ---------
Deferred tax assets less valuation allowance............................. 2,434 2,057
--------- ---------
Total net deferred tax liability (asset) under U.S. GAAP(2).............. 1,332 1,451
--------- ---------
--------- ---------
</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 1,503 million (1997: NLG 364 million) is a consequence of
differences between Dutch GAAP and U.S. GAAP.
ABN AMRO considers a significant portion of its approximately NLG 5.4
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.
F-52
<PAGE>
(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 impairment loans of ABN AMRO are
those reported as doubtful loans and amounted to NLG 14,496 million at December
31, 1998 (1997: NLG 11,035 million). Total impaired loans averaged NLG 10,496
million and NLG 12,166 million during 1997 and 1998, respectively. Of the total
doubtful loans of NLG 14,496 million at December 31, 1998, NLG 12,566 million
(1997: NLG 9,351 million) have aggregate specific allowances for loan losses of
NLG 9,071 million (1997: NLG 6,377 million) and NLG 1,930 million (1997: NLG
1,684 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 4,837 million at December 31, 1998
(1997: NLG 5,207 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 1998 on
impaired loans amounted to NLG 332 million (1997: NLG 338 million), and interest
revenue not recognized in 1998 on impaired loans amounted to NLG 502 million
(1997: NLG 386 million).
(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 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-53
<PAGE>
(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>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
ASSETS
Cash........................................................................................ 9,868 8,408
Short-dated government paper................................................................ 17,010 25,451
Banks....................................................................................... 134,193 140,185
Professional securities transactions........................................................ 75,055 69,131
Loans....................................................................................... 420,532 380,671
Less: Allowance for credit losses........................................................... (13,509) (10,444)
--------- ---------
Net Loans................................................................................... 407,023 370,227
Interest-bearing securities................................................................. 237,672 168,340
Shares...................................................................................... 29,245 18,943
Participating interests..................................................................... 2,329 2,123
Property and equipment...................................................................... 9,810 8,036
Goodwill.................................................................................... 10,345 5,637
Other assets................................................................................ 36,182 47,784
Prepayments and accrued interest............................................................ 17,605 17,138
--------- ---------
986,337 881,403
--------- ---------
--------- ---------
LIABILITIES
Banks....................................................................................... 231,165 208,466
Professional securities transactions........................................................ 68,377 58,595
Total customer accounts..................................................................... 384,604 338,099
Debt securities............................................................................. 83,624 90,595
Other liabilities........................................................................... 117,016 95,810
Accruals and deferred income................................................................ 18,744 17,232
Provisions.................................................................................. 17,648 13,419
--------- ---------
921,178 822,216
Subordinated debt........................................................................... 19,789 20,101
Minority interests.......................................................................... 5,421 4,527
Guaranteed preferred beneficial interest in a subsidiary (1)................................ 2,358 --
Shareholders' equity........................................................................ 37,591 34,559
--------- ---------
Total liabilities and shareholders equity................................................... 986,337 881,403
--------- ---------
--------- ---------
</TABLE>
- - - - - - - - - - - - - ------------------------
(1) Guaranteed preferred beneficial interest in a subsidiary represents the 7.5%
Noncumulative Guaranteed Trust Preferred Securities (the "Trust Preferred
Securities") issued by ABN AMRO Capital Funding Trust I (the "Trust"), an
indirect wholly-owned subsidiary of ABN AMRO Holding. The sole assets of the
Trust are 7.5% Noncumulative Guaranteed Class B Preferred Securities (the
"Class B Preferred Securities") of ABN AMRO Capital Funding LLC I, an
indirect wholly-owned subsidiary of ABN AMRO Holding, and the maturities and
interest on the Class B Preferred Securities match those of the Trust
Preferred Securities. The Trust Preferred Securities and the Class B
Preferred Securities pay interest quarterly in arrears and are redeemable
only upon the occurrence of certain events specified in the documents
governing the terms of those securities. Subject to limited exceptions, the
earliest date that the Class B Preferred Securities can be redeemed is
September 30, 2003. The Trust Preferred Securities and the Class B Preferred
Securities are each subject to a full and unconditional guarantee of ABN
AMRO Holding. In terms of dividend and liquidation rights, the Trust
Preferred Securities are comparable to ABN AMRO Holding preference shares.
F-54
<PAGE>
CONSOLIDATED INCOME STATEMENT INCLUDING SIGNIFICANT U.S. GAAP ADJUSTMENTS.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
REVENUE
Interest revenue..................................................................... 55,860 45,585 38,427
Interest expense..................................................................... 40,627 31,956 27,053
--------- --------- ---------
Net interest revenue................................................................. 15,233 13,629 11,374
Provision for loan losses............................................................ 1,850 1,600 1,299
--------- --------- ---------
Net interest revenue after provision for loan losses................................. 13,383 12,029 10,075
Revenue from securities and participating interests.................................. 768 630 256
Commission revenue................................................................... 8,417 7,018 5,437
Commission expense................................................................... 950 746 481
--------- --------- ---------
Net commissions...................................................................... 7,467 6,272 4,956
Results from financial transactions.................................................. 2,640 2,259 2,106
Net gains from available for sale securities......................................... 1,308 613 632
Other revenue........................................................................ 993 559 471
--------- --------- ---------
Total non interest revenue........................................................... 13,176 10,333 8,331
Total revenue........................................................................ 26,559 22,362 18,406
EXPENSES
Staff costs.......................................................................... 10,108 8,742 7,140
Other administrative expenses........................................................ 7,633 6,436 4,585
--------- --------- ---------
Administrative expenses.............................................................. 17,741 15,178 11,725
Depreciation......................................................................... 1,439 1,162 969
Amortization of goodwill............................................................. 474 427 287
--------- --------- ---------
Total expenses....................................................................... 19,654 16,767 12,981
Operating profit before taxes........................................................ 6,905 5,595 5,425
Taxes................................................................................ 2,335 1,853 1,679
--------- --------- ---------
Group profit after taxes............................................................. 4,570 3,742 3,746
Minority interests................................................................... 356 272 141
--------- --------- ---------
Net profit........................................................................... 4,214 3,470 3,605
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-55
<PAGE>
(l) COMPREHENSIVE INCOME
Effective January 1, 1998, ABN AMRO adopted Statement 130 "REPORTING
COMPREHENSIVE INCOME", which establishes rules for the reporting and display of
comprehensive income and its components. Its components and accumulated other
comprehensive income amounts for the three-year period ended December 31, 1998
are summarized as follows:
<TABLE>
<CAPTION>
UNREALIZED ACCUMULATED
CURRENCY GAINS IN OTHER
TRANSLATION INVESTMENT COMPREHENSIVE COMPREHENSIVE
ADJUSTMENTS PORTFOLIOS INCOME INCOME
----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
(IN MILLIONS OF NLG)
Balance January 1, 1996.................................. (1,400) 795 (605)
Net Income............................................... 3,605
Currency translation adjustments (net of NLG 59 million
tax expense)........................................... 537 537
Unrealized gains arising during the year (net of NLG 368
million tax expense)................................... 735 735
Less: reclassification adjustment for gains realized in
net income (net of NLG 210 million tax expense)........ (391) (391)
Other comprehensive income............................... 881
-----
Comprehensive income..................................... 4,486
Balance December 31, 1996................................ (863) 1,139 276
Net Income............................................... 3,470
Currency translation adjustments (net of NLG 80 million
tax expense)........................................... 878 878
Unrealized gains arising during the year (net of NLG 540
million tax expense)................................... 996 996
Less: reclassification adjustment for gains realized in
net income (net of NLG 202 million tax expense)........ (376) (376)
Other comprehensive income............................... 1,498
-----
Comprehensive income..................................... 4,968
Balance December 31, 1997................................ 15 1,759 1,774
Net Income............................................... 4,214
Currency translation adjustments (net of NLG 23 million
tax credit)............................................ (1,003) (1,003)
Unrealized gains arising during the year (net of NLG 840
million tax expense)................................... 1,365 1,365
Less: reclassification adjustment for gains realized in
net income (net of NLG 470 million tax expense)........ (875) (875)
Other comprehensive income............................... (513)
-----
Comprehensive income..................................... 3,701
Balance December 31, 1998................................ (988) 2,249 1,261
</TABLE>
F-56
<PAGE>
(m) 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.
The computation of basic and diluted EPS for the years ended December 31 are
presented in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG,
EXCEPT PER SHARE DATA)
Net profit..................................................... 4,214 3,470 3,605
Dividends on Preference Shares................................. 178 180 187
--------- --------- ---------
Net profit applicable to Ordinary Shares....................... 4,036 3,290 3,418
Dividends on Convertible Preference Shares..................... 6 8 15
--------- --------- ---------
Net profit adjusted for diluted computation.................... 4,042 3,298 3,433
Weighted-Average Ordinary Shares Outstanding................... 1,422.1 1,388.7 1,346.3
Dilutive Effect of Staff Options............................... 4.6 3.6 1.6
Convertible Preference Shares.................................. 6.8 8.3 16.2
--------- --------- ---------
Adjusted Diluted Computation................................... 1,433.5 1,400.6 1,364.1
Basic Earnings Per Share....................................... 2.84 2.37 2.54
Diluted Earnings Per Share..................................... 2.82 2.35 2.52
</TABLE>
F-57
<PAGE>
44 PARENT COMPANY ACCOUNTS (ABN AMRO HOLDING N.V.)
COMPANY BALANCE SHEET AT DECEMBER 31, 1998 AND 1997 AFTER PROFIT APPROPRIATION
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
(IN MILLIONS OF NLG)
ASSETS
Banks (a)................................................................................... 2,571 2,547
Interest-earning securities (b)............................................................. 50 --
Participating interests in group companies (c).............................................. 22,551 25,022
Other assets (d)............................................................................ 831 831
Prepayments and accrued income (e).......................................................... 144 140
--------- ---------
26,147 28,540
LIABILITIES
Banks (a)................................................................................... -- 307
Deposits and other customer accounts........................................................ 50 --
Other liabilities (d)....................................................................... 474 567
Accruals and deferred income (e)............................................................ 148 116
--------- ---------
672 990
Subordinated debt........................................................................... 1,846 1,705
Share capital (f)........................................................................... 3,623 3,586
Share premium account....................................................................... 5,408 5,336
Revaluation reserves........................................................................ 692 637
Reserves prescribed by law and articles of association...................................... 380 499
Other reserves.............................................................................. 13,526 15,787
--------- ---------
Shareholders' equity........................................................................ 23,629 25,845
--------- ---------
Parent Company capital...................................................................... 25,475 27,550
--------- ---------
26,147 28,540
--------- ---------
--------- ---------
</TABLE>
PARENT COMPANY INCOME STATEMENT
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Profits of participating interests after taxes........................................... 4,021 3,836 3,282
Other profit after taxes................................................................. 7 17 21
--------- --------- ---------
Net profit............................................................................... 4,028 3,853 3,303
--------- --------- ---------
--------- --------- ---------
</TABLE>
Drawn up in accordance with section 2:402 of The Netherlands Civil Code.
Letters against items refer to the notes.
F-58
<PAGE>
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 1,447 million (1997: NLG 1,497 million) of this
exposure is subordinated. An amount of NLG 624 million is due for redemption in
1999, an amount of NLG 1,447 is due in 2001 and an amount of NLG 500 million is
due 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 payable by ABN AMRO Bank N.V. to ABN AMRO Holding N.V. amounted to
NLG 831 million (1997: NLG 831 million). Dividends received by ABN AMRO Bank
N.V. from subsidiaries amounted to NLG 488 million (1997: NLG 817 million).
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
Development in Participating interests in group companies:
Opening Balance.................................................. 25,022 24,369 19,533
Provisions for general contingencies............................. -- -- 2,015
Movements (net).................................................. (2,471) 653 2,821
--------- --------- ---------
Closing Balance.................................................. 22,551 25,022 24,369
--------- --------- ---------
--------- --------- ---------
</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
(g) GUARANTEES
ABN AMRO Holding N.V. guarantees all liabilities of ABN AMRO Bank N.V.
F-59
<PAGE>
45 MAJOR SUBSIDIARIES AND PARTICIPATING INTERESTS
(unless otherwise stated, ABN AMRO interest is 100% or almost 100%)
ABN AMRO BANK N.V., AMSTERDAM
THE NETHERLANDS
ABN AMRO Lease Holding N.V., Almere
ABN AMRO Levensverzekeringen N.V., Zwolle
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
AAGUS Financial Services Group 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 Bank A.O., Moscow
ABN AMRO Bank (Deutschland) A.G., Frankfurt
ABN AMRO Bank (Luxembourg) S.A., Luxembourg
ABN AMRO Bank (Polska) S.A., Warsaw
ABN AMRO Bank (Romania) S.A., Bukarest
ABN AMRO Bank (Schweiz) A.G., Zurich
ABN AMRO Corporate Finance Ltd., London
ABN AMRO Corporate Finance (CEE) Ltd., Budapest
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
Banque de Neuflize, Schlumberger, Mallet S.A., Paris
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
F-60
<PAGE>
ABN AMRO Securities (Polska) S.A., Warsaw
ABN AMRO Securities (Romania) S.A., Bukarest
ABN AMRO Stockbrokers (Ireland) Ltd., Dublin
ABN AMRO Trust Company (Jersey) Ltd., St. Helier
ABN AMRO Trust Company (Luxembourg) S.A., Luxembourg
ABN AMRO Trust Company (Suisse) S.A., Geneva
ABN AMRO Yatyrym Menkul Degerter A.S., Istanbul
Alfred Berg Holding A/B, Stockholm
Antonveneta ABN AMRO Bank SpA, Milan (50%)
CM Capital Markets Brokerage S.A., Madrid (45%)
AFRICA
ABN AMRO Bank (Maroc) S.A., Casablanca (99%)
ABN AMRO Securities (Morocco) S.A., Casablanca
ABN AMRO Securities (South Africa) (Pty) Ltd., Johannesburg (76%)
MIDDLE EAST
Saudi Hollandi Bank, Riyadh (40%)
REST OF ASIA
ABN AMRO Asia Ltd., Hong Kong
ABN AMRO Asia Merchant Bank (Singapore) Ltd., Singapore
ABN AMRO Asia Securities Plc., Bangkok (35%)
ABN AMRO Asset Management (Asia) 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 (India) Private Ltd., Bombay (75%)
ABN AMRO Securities (Far East) Ltd., Hong Kong
ABN AMRO Securities (Japan) Ltd., Tokyo
Bank of Asia, Bangkok (77%)
PT ABN AMRO Finance Indonesia, Jakarta (85%)
AUSTRALIA
ABN AMRO Australia Ltd., Sydney
ABN AMRO Capital Markets (Australia) Ltd., Sydney
ABN AMRO Equities Australia Ltd., Sydney
NEW ZEALAND
ABN AMRO Equities NZ Ltd., Auckland
NORTH AMERICA
ABN AMRO Bank Canada, Toronto
ABN AMRO North America Inc., Chicago (holding company, voting right 100%,
equity participation 55%)
LaSalle Bank FSB, Chicago
LaSalle Bank NI, Chicago
LaSalle National Bank, Chicago
LaSalle National Corporation, Chicago
F-61
<PAGE>
Standard Federal Bancorporation, Troy
ABN AMRO Inc., Chicago
European American Bank Inc., New York (voting right 100%, equity participation
66%)
SOUTH AND CENTRAL AMERICA
ABN AMRO Bank Asset Management (Curacao) N.V., Willemstad
ABN AMRO Bank (Chile) S.A., 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 S.A., Sao Paulo
Banco do Estado de Pernambuco S.A., Recife
Banco Real S.A., Sao Paulo (voting right 62%, equity participation 38%)
De Surinaamsche Bank N.V., Paramaribo (49%)
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
Austria, Belgium, the Channel Islands, the Czech Republic, Denmark, Finland,
France, Germany, Gibraltar, Greece, Hungary, Ireland, Italy, Monaco, Poland,
Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom
NORTH AMERICA
United States of America
MIDDLE EAST, FAR EAST, AFRICA AND AUSTRALIA
Australia, Bahrain, Hong Kong, India, Indonesia, Japan, Kenya, Korea,
Lebanon, Myanmar, New Zealand, Pakistan, People's Republic of China,
Philippines, Singapore, South Africa, Sri Lanka, Taiwan, Thailand, United Arab
Emirates, Vietnam
SOUTH AND CENTRAL AMERICA
Argentina, Aruba, Bolivia, Chile, Ecuador, Netherlands Antilles, Panama,
Paraguay, Surinam, Uruguay, Venezuela
46 POST-BALANCE SHEET EVENTS
Following the resolution of the Brazilian authorities in January 1999 to
abandon the linkage of the Brazilian real to the U.S. dollar, the real dropped
approximately 30% in value. It is impossible at this time to estimate the impact
on the Brazilian and other economies and on the position of ABN AMRO. The
capital invested by ABN AMRO in Brazil had fallen by approximately NLG 700
million in value by mid-March 1999. In line with ABN AMRO's accounting policies
for currency translation, this amount will be charged to shareholders' equity.
F-62
<PAGE>
47 STIPULATIONS OF THE ARTICLES OF ASSOCIATION WITH RESPECT TO PROFIT
APPROPRIATION
Profit is appropriated in accordance with article 38 of the Article 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 not 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>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS OF NLG)
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........................... 6 8 15
Addition to reserves................................................. 2,031 1,993 1,687
Dividends on ordinary shares......................................... 1,819 1,680 1,429
--------- --------- ---------
4,028 3,853 3,303
--------- --------- ---------
--------- --------- ---------
</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 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
F-63
<PAGE>
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.
F-64
