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IFRS Analyst & Investor Meeting . Introduction Tom de Swaan CFO & Member of the Managing Board. London, 18 November 2004. Schedule and presenters. 14.00 hrs Introduction Tom de Swaan 14.15 hrs IFRS impact on Balance Sheet Maurice Oostendorp and Income Statement Head of Group Finance

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IFRS Analyst & Investor Meeting


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    1. IFRS Analyst & Investor Meeting Introduction Tom de Swaan CFO & Member of the Managing Board London, 18 November 2004

    2. Schedule and presenters • 14.00 hrs Introduction Tom de Swaan • 14.15 hrs IFRS impact on Balance Sheet Maurice Oostendorp and Income Statement Head of Group Finance • 15.00 hrs IFRS impact on BU NA Tom Goldstein CFO BU NA • 15.20 hrs IFRS impact on Group ALM Rolf Smit Head of Group ALM • 15.40 hrs Concluding remarks Maurice Oostendorp • 15.45 hrs Q&A Other delegates present: Gerhard Zeilmaker (Head of Group Financial & Management Accounting), Tijmen Bout (Head of Group Accounting Policy), Sarah Russell (CFO WCS) & Richard Bruens (Head of Investor Relations)

    3. IntroductionTom de Swaan

    4. Main goal is to provide clarity w.r.t. IFRS impact on ABN AMRO • We will discuss many things that will change as a result of the introduction of IFRS, but: • IFRS will not change the underlying performance of our business. Accounting should continue to reflect business decisions and not drive business decisions • Underlying income streams unchanged as differences are mainly due to transition impact and timing differences (especially IER, Pensions and Hedge ineffectiveness) • IFRS transition will not have an impact on dividend • Transparency and disclosure remain at a high level • Our choice w.r.t. Pensions leads to a lower Tier 1 ratio now and higher net profit in the future, which simply reflects a timing difference (taking pension costs now, instead of future).

    5. IFRS and ABN AMRO - Background • December 2000, the European Commission announced that all EU listed companies must prepare consolidated accounts in accordance with I FRS • ABN AMRO adopted IFRS as of 1 January 2004 for comparison purposes. Dutch GAAP and IFRS accounting have run in parallel through 2004 • Opening 2004 Balance Sheet prepared on IFRS basis • Dutch GAAP leading external reporting in 2004. Dual internal reporting

    6. IFRS and ABN AMRO – Looking Forward • IASB’s version of IAS 39 fully adopted, except fair value option for liabilities which is not allowed by EU • 18 November 2004 indicative HY 2004 IFRS figures are presented • FY 2004 IFRS figures will be published by 31 March 2005 • Q1 2005 results on IFRS basis (and Q1 2004 IFRS figures) will be published on 27 April 2005 • All IFRS figures in this presentation are indicative only and should be treated as such

    7. Impact of IFRS on Performance Management • Management, hedging strategies, etc in 2004 are still based on Dutch GAAP • Full commitment to an IFRS Performance Contract Cycle (PFC) will take place as of 2005 PFC cycle • Milestones PFC 2003 and 2004 for IFRS related Implementation Initiative include: - adjust systems and processes - meet the monthly dual reporting requirements - fulfil the disclosure reporting requirements • Hedge effectiveness the responsibility of management of the (S)BU

    8. IFRS impact on ABN AMRO • Volatility – Will increased P&L volatility lead to different business decisions? • Hedging – Is hedging ineffectiveness avoidable? • Provisioning – Will loan provisioning methodology change significantly? • Disclosure – Will disclosure and transparency increase? • US GAAP – Can US GAAP be used as a proxy for IFRS?

    9. IFRS impact on ABN AMRO Volatility – Will increased P&L volatility lead to different business decisions? • IER • Fair value adjustments (AFS, MSR’s, Other) • Derivatives • Private Equity • Share based payments Conclusion: Increased volatility will not lead to different business decisions

    10. IFRS impact on ABN AMRO Hedging – Is hedging ineffectiveness avoidable? Causes of ineffectiveness: • Operational processes around externalisation, documentation and testing • Mortgage Servicing Rights characteristics • Mortgage Backed Securities characteristics Conclusion: Hedging ineffectiveness is not avoidable

    11. IFRS impact on ABN AMRO Provisioning – Will loan provisioning methodology change significantly? • Under Dutch GAAP, nominal value of expected cash flows on impaired loans • Under IFRS, discounting of expected cash flows on impaired loans • Under IFRS a loan loss provision is only permitted for incurred loan losses Conclusion: Loan provisioning methodology will not change significantly (excluding one-off impact)

    12. IFRS impact on ABN AMRO Disclosure – Will disclosure and transparency increase? • IFRS has increased level of footnote disclosure • New exposure draft 7 (risk disclosure of financial instruments) will further increase level of disclosure • IFRS increases complexity of financial statements, which requires more in depth accounting knowledge of the reader Conclusion: Disclosure will increase and transparency might increase

    13. IFRS impact on ABN AMRO US GAAP – Can US GAAP be used as a proxy for IFRS? • In many respects IFRS is similar to US GAAP • There are, however, some major differences, like macro cash flow hedging and consolidation of Private Equity • Also transition impact causes ongoing different results under IFRS and US GAAP (Goodwill, Pensions and hedge accounting) Conclusion: US GAAP can not be used as a proxy for IFRS

    14. Conclusions • IASB’s version of IAS 39 fully adopted, except fair value option for liabilities which is not allowed by EU • IFRS will not change the underlying performance of our business. Accounting should continue to reflect business decisions and not drive business decisions • Underlying income streams unchanged as differences are mainly due to transition impact and timing differences • Volatility of results could increase • IFRS transition will not have an impact on dividend • Most impact on BU NA and Group ALM. WCS modestly impacted. Other (S)BU’s are hardly impacted

    15. IFRS impact on Balance Sheet and Income Statement Maurice Oostendorp SEVP & Head of Group Finance London, 18 November 2004

    16. Presentation agenda • IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

    17. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

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

    19. IFRS versus Dutch GAAP: Main differences for ABN AMRO • Hedging Philosophy • Dutch GAAP: Accounting of the hedge follows the accounting of the hedged item • IFRS: Accounting of hedged item follows the accounting of the hedge – strict conditions apply • Share Based Payments • Dutch GAAP: Stock options not expensed • IFRS: Stock options expensed at fair value • Debt/Equity • A more strict definition of Equity is applicable under IFRS. An instrument only qualifies as equity if the payment of a dividend is at the discretion of the issuer

    20. IFRS versus Dutch GAAP: Main differences for ABN AMRO (2) • Loan loss provisioning • Dutch GAAP: value based on nominal cash flows • IFRS: value based on discounted cash flows. Only specific loan losses are allowed Goodwill • Dutch GAAP: Goodwill immediately charged to Equity • IFRS: goodwill has to be capitalised including an annual impairment test • Pensions • ABN AMRO has decided to charge all cumulative actuarial differences against Shareholders’ Equity at transition date (Fresh Start approach). IFRS method as such does not differ significantly from US GAAP, which we used before

    21. IFRS versus Dutch GAAP: Main differences for ABN AMRO (3) • Mortgage banking activities • Dutch GAAP: only the realised results of terminated hedges are accounted for in the book value of the MSRs • IFRS: Hedge accounting requires unrealised fair value changes to be accounted for in the book value of the MSRs. In addition ineffectiveness is booked through the income statement immediately • Investment portfolio/Interest Equalisation Reserve (IER) • Dutch GAAP: the portfolio is stated at amortised cost, results on sales are booked in the IER and amortised over the average life of the investment portfolio • IFRS: the AFS-part of the portfolio has to be fair valued through Equity. Realised results on sales have to be booked immediately through the income statement

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

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

    24. IFRS versus Dutch GAAP : IAS 39 • Endorsement of IAS 39 by EU: • a) Macro fair value hedging: Removes obstacles for macro fair value hedging of core deposits - will not be utilised by ABN AMRO • b) Fair value options will only be used for Assets as it is prohibited for Liabilities • Impact largely quantified • Operational burden of increased use of bifurcation • IASB and EU may yet resolve this ‘disagreement’ arising from ECB concerns prior to our issuance of IFRS data

    25. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

    26. IFRS impact on Balance Sheet • Time Table • Reclassification issues – Equity • Presentation impacts • Transition impact on Equity • Other impacts on Equity (SCE) • Impact on Shareholders’ Equity (estimates) • Transition impact on Shareholders’ Equity

    27. IFRS impact on Balance Sheet: Time Table • Opening IFRS balance sheet prepared at January 1, 2004 • Dual reporting through 2004 • External IFRS developments tracked and included in dual reporting data • Review by management and audit is an ongoing process

    28. IFRS impact on Balance Sheet: Reclassification issues - Equity • IAS 32: a number of items reclassified from equity to debt • Preferred securities issued by ABN AMRO Holding • Trust preferred reclassified from minority interest to liabilities. Cost of servicing these funds will be classified as interest expense under IFRS • Fund for General Banking Risks (FAR). This reserve is not permitted under IFRS and will be reclassified to Shareholders’ Equity • As such, reclassification issues have no impact on Tier 1 Capital

    29. IFRS impact on Balance Sheet: Presentation impacts • Offsetting derivative contracts is more difficult under IFRS - estimated grossing up of balance sheet EUR 60 bln (No impact on RWA) • Consolidation of Private Equity investments in which the Bank has a controlling stake - impact on gross asset and gross liabilities - estimated at EUR 1 bln • No increase of securitised assets because of new consolidation criteria. ABN AMRO does already consolidate these Special Purpose Vehicles since 2001. For synthetic securitisations there is no impact at all

    30. IFRS impact on Balance Sheet: Transition impact on Equity • Impact arises from choices made by ABN AMRO under IFRS: • ABN AMRO has decided, w.r.t. pensions, to charge all cumulative actuarial differences against Shareholders’ Equity at transition date. It should be noted that IFRS would have had a positive impact on Shareholders’ Equity if we had not chosen to use this fresh start approach for pensions • Goodwill will be capitalised prospectively and therefore no impact at 1 January 2004 • Property in own use will be restated at cost less depreciation

    31. IFRS impact on Balance Sheet: Other impacts on Equity (SCE) • The Bank will utilise a number of cash flow hedging programs/strategies • The fair value of swaps in an effective cash flow program will be recorded in equity, until the hedged cash flow occurs • The majority of the bank’s investment portfolio will be classified as Available For Sale (‘AFS’) • IFRS requires AFS assets to be held at fair value • Unrealised gains and losses are recorded through equity in the special component of Equity • A limited portion (10%-20%) of the investment portfolio will be classified as held to maturity, which will continue to be booked at cost

    32. IFRS impact on Balance Sheet: Impact on Shareholders’ Equity (estimates) Dutch GAAP equity (In EUR mln) 13.050 Impact on equity (net of tax) Release of FAR +1.150 Reclassification of preference shares -800 Reversal of property revaluation -150 Transition items impacting Tier 1 (excluding pensions) -100 Impact on special components of equity Impact of AFS reserve +300 Impact of cash flow hedging -100 Total impact on IFRS equity +300 Pensions -1.000 Total equity 12.350

    33. IFRS impact on Balance Sheet: Transition impact on Shareholders’ Equity Transition items impacting Tier 1 Capital (in EUR mln) Impact of derivatives and hedging -250 Release of IER +1.550 Loan impairment -600 Private Equity impact -100 Fair value adjustments -200 Property -50 LeasePlan -150 Bouwfonds -100 Other -200 Equityaccounted investees -100 IFRS Impact before tax -200 Pensions -1.500 Taxation +600 Total net of taxation -1.100

    34. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

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

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

    37. IFRS impact on Income Statement (2) • As a consequence of the consolidation of controlled Private Equity entities, both gross revenues and gross costs of these entities have to be included in the consolidated income statement of ABN AMRO. To improve transparency we have decided to present Private Equity separately, with its own P&L • Impact of IFRS on Income Statement basically due to two transition items which will run off within a limited number of years and one item which has been our own choice (Pensions): • Interest Equalisation Reserve (IER) • MSR Hedge ineffectiveness • Pension costs

    38. IFRS impact on Income Statement: Impact of Pension fresh start approach DUTCH GAAP IFRS 1500 The negative impact of the loss of the IER contribution in the coming years will be more than offset by the lower pension costs (EUR 120 mln) as from 2007 *please note that IER under IFRS goes directly to Equity

    39. IFRSimpact on Income Statement: Reconciliationnet profit under IFRS Net profit under Dutch GAAP (per 30/6/2004 in EUR mln) 1.921 Reconciling items: IER amortisation investment portfolio -175 MSR’s -450 AFS other +175 Fair value adjustments -75 Derivatives (including unwinding of Trust Preferred swap) +25 Private equity -75 Pension costs +60 Employee stock based compensation -25 Other IFRS impacts +20 Impacts before taxation -525 Tax effect +200 Net profit under IFRS 1.600

    40. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

    41. IFRS impact on Tier 1 Capital Ratio 8,33% Tier 1 capital under Dutch GAAP (in EUR mln) 20.050 Transition items impacting Tier 1 -100 YTD result (per 30/6/2004, Dutch GAAP vs IFRS) -325 Total impact on Tier 1 Capital -425 8.15%  Pensions -1.000 Tier 1 capital under IFRS 18.625 7,74% *Tier 1 ratio at 30 June 2004

    42. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

    43. IFRS versus US GAAP • In principle ongoing difference between IFRS and US GAAP should be less than between Dutch GAAP and US GAAP. However in the short term this may not be achieved, for the following reasons • Standard setters are still not in agreement on a number of key issues: - IFRS requires consolidation of controlled PE investments - IFRS permits additional macro cash flow hedging possibilities - IFRS is less stringent in the forming of restructuring/onerous lease provisions • Difference in transition ‘moment’ - ‘transition’ to US GAAP took place in 2001. This impacts: • Held to maturity/AFS designation • Hedge accounting • Capitalisation of goodwill

    44. IFRS versus Dutch GAAP • IFRS impact on Balance Sheet • IFRS impact on Income Statement • IFRS impact on Tier 1 Capital • IFRS versus US GAAP • IFRS impact on (S)BU’s

    45. IFRS impact on (S)BU’s • Greatest impact on BU North America and Corporate Centre/Group ALM • Modest impact on WCS • Other (S)BU’s relatively little impacted

    46. IFRS impact on BU NA Thomas Goldstein EVP & CFO BU NA London, 18 November 2004

    47. BU North America: IFRS Impacts • IFRS Hedge Accounting • Hedging mortgage assets result in ineffectiveness • Dutch GAAP smoothes hedge results over time • IFRS requires immediate recognition of hedge results • Economics of hedging unchanged • IFRS adds complexity to MSR accounting • Transition Effects • An accounting “catch-up” of past hedge economics • Going Forward

    48. Effect –a “perfect” hedge locks in value over 5 periods Income impact for a “perfect hedge” is the same under both accounting methods regardless of interest rates Hedge Accounting: A Simplified Example Asset Hedge

    49. Hedge Accounting: Mortgage Assets • With mortgage assets: • “perfect” hedging nearly impossible due to convexity • Result: • Economic ineffectiveness • Accounting for economic ineffectiveness? • Dutch GAAP – smoothed over the life of the asset • IFRS – recognized immediately in earnings

    50. Mortgage assets lengthen – borrowers less likely to prepay New hedge required to protect lengthened asset Net hedged value creates ineffectiveness in period 1 of $20 (economic loss) Dutch GAAP spreads hedge loss; IFRS accelerates Dutch & IFRS totals equal over hedge life Hedge Accounting: Ineffectiveness