Annual Report Rabobank Group

Transcription

1 Annual Report 2007 Rabobank Group

2 Key figures Volume of services (in millions of euros) Total assets 570, , , ,574 Private sector lending 355, , , ,958 Due to customers 249, , , ,482 Assets managed and held in custody 301, , , ,400 Financial position and solvency (in millions of euros) Equity 31,375 29,377 26,349 23,004 Tier I capital 28,484 26,391 24,860 21,404 Qualifying capital 29,156 27,114 25,272 21,205 Risk-weighted assets 266, , , ,052 Tier I ratio BIS ratio Profit and loss account (in millions of euros) Total income 11,499 10,049 9,363 9,222 Operating expenses 7,709 6,887 6,242 6,177 Value adjustments Taxation Net profit 2,662 2,345 2,083 1,793 Ratios Net profit growth 13.5% 12.6% 16.2% Return on equity 10.1% 9.4% 9.7% 9.1% Efficiency ratio 67.0% 68.5% 66.7% 67.0% Nearby Local Rabobanks Offices: - branches 1,159 1,214 1,249 1,299 - contact points 3,102 3,091 3,031 2,965 Cash dispensing machines 3,107 3,139 3,116 3,062 Foreign places of business Employees Number of employees (in fte) 54,737 50,573 45,580 50,216 Employee satisfaction 85% 87% 81% 85% Absenteeism 3.8% 3.6% 3.7% 3.8% Market shares (in the Netherlands) Mortgages 28% 26% 23% 25% Savings 41% 39% 39% 39% Small and medium-sized enterprises 38% 38% 38% 40% Food & agri 84% 84% 83% 84% Ratings Standard & Poor's AAA AAA AAA AAA Moody's Investor Service Aaa Aaa Aaa Aaa Dominion Bond Rating Service AAA AAA AAA AAA

3 Lending in billions of euros Tier I ratio in % Value adjustments in basispoints of average lending Net profit in millions of euros 3,000 2,500 2,000 1,500 1, Return on equity in % Dutch GAAP

4 Annual Report 2007 Rabobank Group

5 Rabobank Group at a glance Net profit up 14% in millions of euros Private sector lending up 10% in billions of euros , , , , , , , All financial targets were realised. The domestic retail banking business contributed strongly to the increase in net profit. The turbulence in the financial markets caused a decline in Rabobank International s net profit. Rabobank Group Rabobank Group is an international financial services provider operating on the basis of cooperative principles. Rabobank Group s operations include retail banking, wholesale banking, asset management, leasing and real estate. In the Netherlands, its focus is on all-finance services and, internationally, on food & agri. The organisation employs more than 60,000 staff in 43 countries. Rabobank Group comprises the independent local Rabobanks plus their central organisation Rabobank Nederland and its (international) subsidiaries. Rabobank Group s structure guarantees strong internal cooperative ties. Net profit up 24% in millions of euros Private sector lending up 11% in billions of euros , , , Rabobank Group strengthened its positions in the mortgages and the savings markets. The strong competition in the mortgages market persisted. The Rabobank 2010 project is the response of the local Rabobanks to the changing market conditions. Domestic retail banking The domestic retail banking business comprises the local Rabobanks, Obvion and Bizner. The 174 independent local Rabobanks have over 1,100 branches and operate more than 3,100 cash dispensing machines. Overall, the local Rabobanks employ around 29,000 staff. The local Rabobanks serve millions of Dutch clients, both private and corporate, with a comprehensive package of financial services. Together, the local Rabobanks make up the largest insurance agent in the Netherlands. Obvion is a provider of mortgages and simple financial products and operates exclusively in collaboration with independent agents. Bizner is the first corporate Internet bank without account managers or branch offices, but with self-service. Net profit down 43% in millions of euros Private sector lending up 4% in billions of euros The credit market crisis caused a decline in the results of Global Financial Markets. As a result, Rabobank International s net profit was lower. The international retail banking business was developed further with the acquisitions of Mid-State Bank & Trust, HNS Banco, Hagabank and Bank Hagakita. 2 Rabobank Group Annual Report 2007 Wholesale banking and international retail banking Rabobank International the Group s wholesale banking and international retail banking business employs more than 10,000 staff world-wide and serves clients from 29 countries. Besides regional activities, Rabobank International has divisions that are directed globally. These include Global Financial Markets, Structured Finance, Leveraged Finance, Direct Banking, Telecom Media & Internet and Trade & Commodity Finance. Rabobank International focuses on food & agri customers. The Irish ACCBank is a 100% subsidiary of Rabobank International and in Poland, Rabobank International owns a 46% interest in Bank BGZ. In addition, Rabobank International has interests in private equity.

6 Net profit up 62% in millions of euros Assets managed and held in custody for clients up 6% in billions of euros The favourable development in profit was the result of the expansion of the Group s interests in Sarasin and Transtrend, the divestments by Sarasin and the strong investment performance of the Transtrend Diversified Trend Program. The sustainable activities were expanded. Asset management and investment The asset management activities are handled by Robeco, an asset manager with global operations, as well as by the Swiss private bank Sarasin and by Schretlen & Co, the Dutch private bank for high net-worth clients. Rabobank Group has a 46% shareholding in Sarasin and a voting share of 69%. In all, more than 3,600 people are employed in Rabobank Group s asset management and investment activities. Net profit up 14% in millions of euros Loan portfolio up 10% in billions of euros The Car Leasing and Financial Institutions units saw strong growth. Despite the integration, car lease customers were better satisfied with the services provided. De Lage Landen s activities in the consumer loans market now include the Freo label. Leasing Rabobank s leasing activities are performed in 29 countries by De Lage Landen. Asset financing products help producers, vendors and distributors in offering their products in Europe, the Americas, Asia/Pacific, Australia and New Zealand. Also included in De Lage Landen is Athlon Car Lease, an international supplier of operating car leasing that operates in seven European countries. In the Dutch heartland, De Lage Landen offers a broad range of leasing and trade financing products. Freo is De Lage Landen s new Internet concept for simple loans. De Lage Landen employs around 4,600 staff. Net profit up 48% in millions of euros Loan portfolio up 31% in billions of euros Rabo Bouwfonds had an excellent year. A great deal of effort was spent on merging the various real estate units. In the Netherlands, Rabo Bouwfonds strengthened its position in the market for real estate financing. Real estate The private and corporate real estate activities are performed by Rabo Bouwfonds, a leading real estate enterprise with three core activities focused on real estate: development, finance and investment management. Rabo Bouwfonds labels include Bouwfonds Property Development, Rabo Vastgoed, FGH Bank, Nederlandse Hypotheekbank, Rijnlandse Hypotheekbank and Bouwfonds Asset Management. Rabo Bouwfonds employs around 1,800 staff and operates in several European countries. 3 Rabobank Group at a glance

7 Contents About Rabobank Group Who we are, what we do and how we do it that is what this section of Rabobank Group s Annual Report is about. Chairman Bert Heemskerk gives his views on 2007 and looks ahead at It is a comprehensive profile, which includes Rabobank Group s strategy and the policy principles for the years ahead striving for growth, with long-term sustainability always in mind. Finally, this section sets out Rabobank Group s structure. Report of the Executive Board The Report of the Executive Board has grown considerably in size over the years. A transparent narrative to accompany the financial data is indispensable nowadays. The Report of the Executive Board contains an extensive account of the bank s policy in 2007, with detailed discussions of the big picture, such as Group results and market trends, but also of developments at the local Rabobanks, Rabobank International, Robeco, Sarasin, De Lage Landen and Rabo Bouwfonds. Their structures and strategies are explained clearly, as is their synergy within Rabobank Group. Risk management, which is an important theme in today s financial world, obviously receives a great deal of attention in the Annual Report. And, last but not least, the members, staff, sponsoring, and corporate social responsibility are discussed extensively. Aspects of governance Corporate governance, i.e. the way the bank is managed and supervised, is a strong element within Rabobank Group. This section in the Annual Report discusses in extenso how Rabobank Group is managed at each level. To many, the governance of one of the oldest cooperatives in the Netherlands might not be as transparent as that of a listed enterprise. Be that as it may, Rabobank Group uses a set of unique checks and balances at all its levels that make up corporate governance that, in many respects, is even stricter than in listed enterprises. This chapter is followed by the detailed Report of the Supervisory Board. This discusses developments in 2007, focusing on the major events. Financial statements This section in the Annual Report contains the key annual figures, including the balance sheet, the profit and loss account, the statement of changes in equity, a statement of cash flows, the business segments plus the auditor s report. Naturally, far more detailed financial statements are available, including detailed notes. Annual Report on the web Copies of the Annual Report can be ordered via but can also be downloaded as a file from that site. On the website, any desired information in the Annual Report can be found quickly and easily with the aid of a convenient search tool. 4 Rabobank Group Annual Report 2007

8 Key figures cover Rabobank Group at a glance 2 Chairman s foreword 10 Rabobank Group s Strategic Framework 15 Membership of the Executive Board of Rabobank Nederland 20 Profile of Rabobank Group 22 About the Rabobank Group 10 Rabobank Group 34 Domestic retail banking 39 Wholesale banking and international retail banking 49 Asset management and investment 57 Leasing 63 Real estate 68 Risk management 73 Corporate social responsibility 83 The people at Rabobank Group 86 The members of the cooperative 90 Sponsoring 92 Report of the Executive Board 34 Corporate governance 98 Report of the Supervisory Board of Rabobank Nederland 104 Membership of the Supervisory Board 108 Control aspects 98 Consolidated balance sheet 114 Consolidated profit and loss account 116 Consolidated statement of changes in equity 117 Consolidated cash flow statement 118 Business segments 119 Auditor s report 120 Annual figures Contents

9 Vital employees People make the bank. Maintaining the employability of all employees is consequently crucial for the future of Rabobank. Many current employees will continue to work until an older age than in the past. This makes resiliency, enjoying your work and operating with optimum effectiveness more important than ever before. It all comes down to being vital and staying vital. This demands effort

10 both on the part of the employees themselves and on the part of the organisation. This is why Rabobank invests in development and vitality. It does so through a number of programmes and activities such as the Rabobank Seniorship Actively moving forward in your career programme. And because Rabobank always needs professional and motivated employees, we are continually looking for young talent. This has led us to establish the Management Talent Development programme in order to retain talented young professionals for the Rabobank Group by identifying them at an early stage and providing them with guidance and opportunities for development. The aim of this programme is to develop talented young professionals skills and abilities in the field of strategy, vision and leadership.

11 Rabobank Climate Mortgage promotes sustainable living The Rabobank Climate Mortgage encourages people to opt for sustainability when constructing or renovating their homes. Homeowners can save energy and consequently also costs by carrying out a number of measures such as installing double glazing, insulating the roof, replacing an old boiler or placing solar panels. The Rabobank Climate

12 Mortgage makes investments such as these more attractive by offering an interest rate discount on the financing. As a result, sustainable investments are not only good for the climate, but also good for your pocketbook. The Rabobank Climate Mortgage encourages the advisers at the local member Rabobanks to discuss energy-saving measures with their clients. The mortgage is certified by HIER, an agency that is dedicated to making the Netherlands climate neutral and that has developed a campaign in which all the Dutch environmental and nature organisations are united.

13 About the Rabobank Group Chairman s foreword Sustainability is a core element for Rabobank Group Although strong financial ratios are a conditio sine qua non for cooperatives as well, such ratios have never been truly inspirational. What does inspire people is the meaning of what they do and what they are trying to achieve together. What is it, then, that we at Rabobank are trying to create? We want to realise added value for our clients, hence our ambition to obtain a leading position in our home market. Obviously, a sound financial basis is important in that context, but the overriding principle is for us to act in a sustainable manner and to serve interests that will hold for the long term. We do this for our clients, our employees and our planet. This is an important element in our vision. For Rabobank Group, 2007 was a good year, although a tumultuous one. Never in my 38-year career have I seen so many issues in a single year as in Obviously, the most prominent issue for our sector was the credit market crisis, which upsets the entire financial world. Nevertheless, we succeeded in meeting our own financial targets in 2007 as well, with net profit increasing by 14% to EUR 2.7 billion, compared with EUR 2.3 billion in Virtually all Group units contributed to this increased result, which reflects not only the benefit of the proper spread of our activities, but also the strength of our modest risk profile. We do, after all, have a Triple A rating. In 2007, great progress was made with the realisation of a number of strategic goals. We succeeded in strengthening our positions in some Dutch markets that are of special importance to Rabobank Group, one being the mortgages market. In order to serve today s and tomorrow s customers, we made significant investments in new distribution channels. We also greatly expanded our international retail banking business. In addition, our subsidiaries were able to strengthen their activities and market positions in 2007 in accordance with our strategic principles. Sustainability is core to our operations. In this respect, Rabobank Group made great strides in 2007 and we strengthened our image as the pre-eminent sustainable bank globally. Stronger market leadership position in the Netherlands One of the chief principles in our Strategic Framework for the Netherlands is market leadership in all-finance services. In the Dutch mortgages market, where competition remains fierce, the local Rabobanks and Obvion succeeded in growing their market share by 10 Rabobank Group Annual Report 2007

14 Bert Heemskerk more than 2 percentage points, to almost 28%. Many new clients opened savings accounts at the local Rabobanks in 2007, causing our share of the savings market to grow by almost 2 percentage points to 41%. In the start-up market, Rabobank Group increased its market share to 38%. Rabo Bouwfonds strengthened its position in the Dutch market for real estate financing. Expansion of international activities As in 2006, much progress was made at the international level. In 2007 we acquired fine banks in California, Indonesia and Chile. In the summer of 2007, I was a guest at our wonderful bank in the Brazilian state of Mato Grosso. Rabobank provides sustainable financing in this region, but under a strict code of conduct. Improper deforestation, or racial or gender discrimination results in loan refusal. In addition, we increased our interest in the Polish BGZ Bank and opened our fourth foreign Internet bank, in Australia. Internationally, Rabo Development continued its development of rural banks in developing countries in Africa, including Tanzania, Zambia and Mozambique. Paraguay followed later in Rabobank s partner bank in Tanzania uses cash dispensing machines that originate from our local Rabobanks. As a result, the long queues of people waiting at its doors in order to make withdrawals should become a thing of the past. Even more importantly, our Tanzanian partner bank National Microfinance Bank has granted agricultural loans to thousands of farmers. 11 About the Rabobank Group

15 Credit market crisis hinders Rabobank International Since the summer of 2007, the financial world was upset by the so-called subprime mortgages in the United States. This credit crunch, as it has come to be called, also hindered Rabobank International in the second half of Results for Rabobank International were affected by the credit market crisis. Since trade in a number of professional markets was virtually stagnant, results for Global Financial Markets fell. Organic recovery in the Netherlands With mixed news from abroad, everything went quite well in the Netherlands. Our advertising icon Jochem was replaced by Fatima. In terms of name recognition among the Dutch public, Fatima has meanwhile far outstripped Jochem. In addition, Rabobank was pronounced one of the Netherlands most popular employers in According to the Intermediair magazine, we are even the number one. I am proud of these achievements and I hope we shall be able to repeat them for many years to come. Also in 2007, we enhanced our image as an innovative bank, including tests with paying via Rabo Mobiel cell phones. Rabo Mobiel is one of the many new distribution channels with which we affirm our image as a near-by bank in the new digital world. Another novelty that adds to our reputation was the launch of Bizner, the first online internet merchant bank without account managers or branches, but with self-service. In the Dutch market for consumer loans, De Lage Landen s Freo is another new, innovative and customer-oriented label. Best of all though was the news from the Netherlands that the results of the local Rabobanks, after a disappointing year 2006, showed strong recovery in We saw strong growth in lending, in savings and in the number of securities transactions. The strong growth in savings is good news because funding is at least as important as lending. The people at Rabobank do not work there for their salaries alone. I can tell that our people really want Rabobank to be successful and that they put in an extra effort and show genuine commitment. Their dedication to the success of a local Rabobank reflects on their local community. Having and keeping satisfied customers is Rabobank s number one priority We attach great importance to client satisfaction and loyalty. As in 2006, clients were satisfied with our services in 2007, as is evidenced by the fact that Incompany business magazine awarded the title of the Netherlands best private bank to Schretlen & Co, with Rabobank Private Banking coming second. Members are important to the cooperative In 2007, work progressed to intensify the engagement and influence of the more than the 1.6 million members that the local Rabobanks now have. Professionalisation within supervisory boards of the local Rabobanks increased further. Also, the cooperative dividend was defined further, with members having a say in the specific expenditure of this money. We are working hard to strengthen ties with our members by offering special member benefits. Sustainability is in our genes In 2007, Rabobank distinguished itself in the field of sustainability and not by climbing on Al Gore s bandwagon. In fact, we were quite aware of the spirit of the times in 2006 possibly because the concept of sustainability has been in our genes from our beginnings over a century ago. Examples include the launch of the credit card with climate compensation and the Rabo KlimaatHypotheek. In addition, Robeco acquired the Sustainable Asset Management Group, another leading Swiss sustainable asset manager besides Sarasin, in which we took a controlling interest late in Strong performance in asset management, leasing and real estate Our asset management, leasing and real estate activities each performed very well. It is good to see growing collaboration among the Group units. Obviously, mutual strengthening and support, where possible, are essential to the group concept. After a number of acquisitions in 2006 and 2007, we decided, on the basis of a strategic reorientation, to sell the Alex online investment bank, because there was an overlap with the services offered through Rabo Direct Beleggen. 12 Rabobank Group Annual Report 2007

16 We do not shun dilemmas At the same time, 2007 was not without issues. Examples include the Bouwfonds affair, the OpMaat Hypotheek, the Rasmussen issue and the significant shift in the Dutch banking landscape. When we are successful, we are in the limelight. But this does not mean that we make ourselves invisible the moment when difficult issues arise. And when we take a firm position on any issue, we say so publicly. I can be brief about the Bouwfonds affair. The issue existed even before we acquired parts of Bouwfonds. Naturally, I regret that Rabobank Group s newly joined unit attracted negative publicity. Still, we are confident about the competitive strength of the new Rabo Bouwfonds combination and the perspectives it offers. The OpMaat Hypotheek issue did not cause us to lose our heads. We have consistently pursued our policy of face-to-face discussions, offering tailored solutions to our clients. Because Rabobank pursues long-term relationships with its clients, the clients interests and Rabobank s relationship with its clients come first. To us, our ongoing duty of care is an integral part of the way we do business with our clients. Now for the Rasmussen issue. In last year s Tour de France, the Rabobank cycling team had victory within reach. My ticket for Paris had been booked. And then suddenly, out of the blue, there was this courageous decision by Theo de Rooy and Rabobank. There are no winners with such decisions at best, they command respect in the longer term. Despite this much-discussed event, our professional Rabo cycling team still had an excellent year, with good results in many prominent races and tours. It was victorious in the Tour of Spain, also known as the Vuelta, for the second consecutive year. The young talents too, showed their best. This gives us a great deal of confidence in the future results of our efforts; not only in the wonderful cycling sport, but also in field hockey and in equestrian sports. There were some dramatic changes in the Dutch banking landscape. As a result, we gained a significant number of new customers, and savings grew strongly. However, the new Fortis / ABN AMRO combination will be a formidable competitor in the future and the new situation will benefit Rabobank for a limited period only. Meantime, we must seek to strengthen our position, particularly in the corporate market. Continued financial soundness Overall, and despite the credit market crisis, 2007 was a good year for Rabobank Group. To be sure, the crisis dit not leave our operations untouched but we still met all our financial targets. Growth in net profit was 14%, which was above our annual 12% target. The Tier I ratio, which testifies to our excellent solvency position, was This is above the target of 10. Return on equity, at 10.1%, likewise exceeded the 10% target. Economic outlook It is anticipated that the banking crisis will affect world economy development in Together, the large banks, most of which have global operations, took in 2007 losses totalling over EUR 100 billion. This has led to an unmistakable weakening of their respective solvencies, as a result of which fewer loans can be granted and higher margins will be negotiated. It is expected that the Netherlands, too, will see some effects of this in Taking into account the soundness of the Dutch economy, we anticipate that our country, with economic growth of around 2.75%, will remain in first position in Europe. For 2008, I am moderately optimistic about the world economy. A significant economic slowdown in the United States will be inevitable in the first half of 2008, possibly even a recession. This might result in economic slowdown in Europe, Asia and South America as well. Rabobank s economists assume 2% growth for Europe and 6% to 7% growth for Asia. Also, we anticipate that the stock exchange indexes will not rise from their closing levels for Outlook for Rabobank Group The local Rabobanks made a strong contribution to Rabobank Group s results for For 2008, we anticipate continued strong competition in the mortgages market and increasing competition in the savings market. For maximum synergy benefits, we intend to focus even more on further integration of our recent acquisitions. Globally, we will continue our focus on growth as a leading food & agri bank. Following the subprime crisis, Rabobank Group will review its various activities within Global Financial Markets. 13 About the Rabobank Group

17 Several years ago, Rabobank decided to place the focus of its international strategy on food & agri, in line with our agricultural origins. Current events show that this decision was spot on, food & agri is a world-wide booming business. In the future, we will look into the cooperative structure and how it can be given shape in an international context. Another goal is to expand our positions in sustainable energy globally, not only in biogases but also in wind, solar and hydrogen. Although this is not without risk, Rabobank relies on the knowledge and experience it has gained in this field over the past years. Rabobank International will increase its focus on trade in such items as emission rights, weather derivatives and harvest insurance. In the Netherlands, the schedule for the local Rabobanks includes the Rabo 2010 project. This involves full integration of the physical local Rabobank, the local call centre, local Internet and local RaboTV, which will make us accessible locally 24 hours a day, 7 days a week. This makes Rabobank unique in the world. The operation will result also in fewer FTEs in the mid and back offices, with more people being deployed in the front office. Rabobank 2010 anticipates on the trend of products being increasingly offered and taken out via new channels, such as the Internet. Finally, no matter how economic developments will work out in 2008, Rabobank Group will maintain its principle of opting for sustainable solutions in all its planning. Hard commodities, such as copper, iron and oil will remain scarce. Indeed, their reserves will be depleted sooner or later. The so-called soft commodities, such as soy, coffee and palm oil, although they are renewable, will likewise reach a degree of scarcity as a result of growth of the world population and their growing use in biomass as a basis for sustainable energy. This calls for caution from all of us. What matters, is the continued, healthy existence of our planet, and mankind must not overuse it. Already, we notice climate changes and an increase in the occurrence of natural disasters. We cannot ignore this and will have to act together all of us to fight it, even at the cost of some growth. All things considered, I am very proud of our bank s performance in 2007, the year in which sustainability and profitability went hand in hand so naturally. In opting for sustainability, a choice that dovetails seamlessly with our cooperative roots, we have chosen the right path. I am convinced it is the path towards Rabobank s sound financial and socially responsible continuity, also in the longer term. Bert Heemskerk. Chairman of the Executive Board of Rabobank Nederland 14 Rabobank Group Annual Report 2007

18 Rabobank Group s Strategic Framework Continuity through sustained growth Since its start in 1898, Rabobank Group has grown from a collection of small, cooperative rural banks into a prominent all-finance service provider in the Netherlands and a leading food & agri bank with international operations. Hence, our Strategic Framework portrays Rabobank Group as the global food & agri bank with its roots in the Netherlands. It identifies a number of principles that determine our strategy for the years ahead. All-finance service provider in the Netherlands and global food & agri bank Under the Strategic Framework , Rabobank Group should remain a Dutch bank with a dominant market position in food & agri, among private individuals and in the small and medium-sized enterprises sector. At the same time, Rabobank remains a cooperative, although exceptions may be made for subsidiaries and equity investments. The Triple A rating must be ensured, underpinned by an annual net profit growth of at least 12%, a return on equity of at least 10% and a Tier I ratio of at least 10%. Rabobank Group s strategic course will be driven by sustained organic growth. Rabobank Group distinguishes three areas in which growth must be realised: - growth in the Dutch all-finance market, above all through further strengthening of Rabobank s position in the top end of the private and corporate markets; - continued international expansion as a leading international food & agri bank; - further growth of and synergy between the Group entities. The implementation of the Strategic Framework will enable Rabobank Group to provide optimum services to its clients both at home and abroad while maintaining its sound financial ratios and remaining a good and attractive employer. In addition, Rabobank Group will thus be able to advantageously position itself for a possible consolidation cycle in the European financial sector in the medium term. Domestic strategy: leader in the all-finance market Market leadership in the Dutch all-finance market is the main goal. In addition to the mass market for banking services to private individuals, small and medium-sized enterprises and the agricultural sector where Rabobank Group is the clear market leader growth opportunities remain in the top end of the private and corporate markets. Further, Rabobank Group focuses on the segments of the future, i.e. large cities, young people and ethnic minorities. The insurance, investment, consumer credit and real estate product markets likewise still offer opportunities for further growth. Domestic retail banking: responding to a changing environment Rabobank leverages its distribution strength as the near-by bank of the Netherlands, not just physically but also and increasingly via such distribution channels as the Internet, television and mobile phones. Because Rabobank wishes to remain in the forefront, it continues its investment efforts for these new forms of distribution. Responding to differences in client segments and geographical differences by tailored market strategies with distinct labels and distribution channels. 15 About the Rabobank Group

19 The goals of the Rabobank 2010 project, which was started in 2007, are to increase the commercial effectiveness of the local Rabobanks further, to serve customers better and faster and to increase efficiency. In doing so, Rabobank anticipates on changing market and client needs, while at the same time ensuring its long-term continuity. With the Rabobank 2010 project, Rabobank will remain a bank that excels in both service level and speed of response. Much use will be made of the integration of all modern distribution channels, including the websites of the local Rabobanks, RaboTV and Rabo Mobiel. Finally, Internet concepts such as Bizner and Freo are aimed at target groups that were previously more difficult to reach for the local Rabobanks. Strategy abroad: global food & agri bank Expansion of Rabobank Group s international activities is necessary because it is what Dutch corporate clients expect. Small and medium-sized enterprises with international operations as well as large multinational enterprises wish to do business with banks that have an international presence and that have built up a strong reputation in the Netherlands. In addition, international growth is desirable in order to be and remain attractive as an employer. It is for these reasons that Rabobank Group s global food & agri bank, Rabobank International, focuses on becoming the world s leading food & agri bank. This ambition dovetails seamlessly with Rabobank Group s cooperative origins as a financier of the Dutch agricultural sector and the expertise it has developed. Rabobank International Wholesale banking In order to reach the top as a wholesale bank for the food & agri business, Rabobank International will strengthen its position further among the large players in this sector in the years ahead. The global product groups comprise Global Financial Markets, Leveraged Finance and Structured Finance. Rabobank International has a global network in almost thirty countries, with hundreds of branches abroad. The international branch network will focus its wholesale banking activities both on the international food & agri clients and on Dutch wholesale clients. The geographical focus of the wholesale banking activities is on Europe and on the countries where Rabobank International has retail banking operations. Intensified collaboration with other Group entities should result in additional growth of these activities in years to come. International retail banking In growing its international retail banking business further, Rabobank Group focuses on food & agri. This involves services to the agricultural sector as well as to small and medium-sized enterprises and private individuals in rural areas in selected countries. Going forward, the international retail banking activities will be making a greater contribution to Rabobank International s net profit. For the expansion of its international retail banking network, Rabobank International focuses on three growth markets, with its prime focus on traditionally agricultural countries with a stable political climate and a structurally attractive agricultural sector, such as the United States and Australia. Rabobank International also focuses on countries in Central and Eastern Europe that have a growing agricultural sector, such as Poland. Then the fast-growing emerging countries follow with a large agricultural sector, such as Brazil, Chile, China, India and Indonesia. Most projects in these countries are on a smaller scale, and are of relatively minor financial significance. In 2002, Rabobank International started its Direct Banking activities in Belgium. In the years following, Internet banks were opened abroad: in Ireland, New Zealand and Australia. These banks are currently in their start-up phase. 16 Rabobank Group Annual Report 2007

20 Strategy for subsidiaries and equity investments Rabobank Group s subsidiaries and equity investments play an important role in the realisation of its market leadership ambitions. Such market leadership would serve as a means to achieve high customer value. The target for the subsidiaries is to obtain leading market positions within the timeline set out in the Strategic Framework and to increase net profit by 10% to 15% annually. Rabobank Group has a 39% interest in Eureko. Rabobank is the largest distributor of insurance products in the Netherlands, Eureko being the largest insurer in the Netherlands. Rabobank aims to intensify its collaboration with Eureko. Asset management and investment: Robeco, Sarasin and Schretlen & Co The asset management activities are performed by Robeco, Schretlen & Co and the Swiss bank Sarasin. Robeco intends to invest in Europe, to grow in the United States and to expand its activities selectively in emerging countries. In doing so, Robeco provides its investment skills and aims to expand its fund distribution through third parties further. With Sarasin, Rabobank Group serves both private and institutional clients. Sarasin intends to expand its international activities outside its Swiss home market. Schretlen & Co focuses on high net-worth individuals and medium-sized institutional investors in the Netherlands, in close cooperation with the local Rabobanks. Here too, further strengthening of the collaboration with other Group entities is the goal for the years ahead. Leasing: De Lage Landen De Lage Landen offers financing solutions world-wide aimed at enhancing vendor sales manufacturers or distributors around the world, ranging from local alliances to global joint ventures. The acquisition of Athlon in 2006 resulted in a significant expansion of the car leasing activities, including in countries abroad. It is De Lage Landen s ambition to be the most client oriented car lease business in every country where it chooses to operate. Since it was decided, in 2006, that De Lage Landen will be the centre of competence in consumer credit in the Netherlands, this has become an integral part of De Lage Landen s strategy. In addition, De Lage Landen aims for a more prominent role as Rabobank s factoring specialist in the Netherlands. Real estate: Rabo Bouwfonds With its real estate development, Rabo Bouwfonds expresses in concrete terms its motivation to be near-by and committed in all levels of Dutch society. Rabo Bouwfonds is a powerful instrument for Rabobank Group to literally shape the Netherlands outward appearance. With the merger of FGH Bank, Rabo Vastgoed and parts of Bouwfonds, which were acquired in 2006, the real estate division acquired a stronger profile. Rabo Bouwfonds intends to maintain and where possible to further strengthen its leading position in the Dutch market for the development of owner-occupied houses and commercial real estate. Abroad, Rabo Bouwfonds has several housing and commercial real estate development projects in its portfolio. Further, the real estate division intends to obtain a dominant position in commercial real estate financing in the Netherlands. Synergy between Group entities Good cooperation between the Group entities is of great importance. The local Rabobanks offer a broad range of Robeco s investment products to their clients and they work closely with Schretlen & Co for optimum service provision to high net-worth clients. In the Netherlands, many of De Lage Landen s products are sold via the local Rabobanks and Rabobank International. Rabo Bouwfonds works closely with the local Rabobanks. Because the local Rabobanks are firmly rooted in the local communities, they know their clients housing wishes. The good cooperation enables Rabo Bouwfonds to respond to these wishes in housing developments. In addition, Rabo Bouwfonds finances commercial real estate and sells real estate funds to clients of the local Rabobanks. The ambition is to strengthen the cooperation between the Group entities further. 17 About the Rabobank Group

21 Organisational and financial implications of the strategy Rabobank Group s strategic ambitions have been embedded in a cooperative and highquality organisation driven by corporate social responsibility. Cooperative roots The cooperative is and remains Rabobank s cornerstone. The local Rabobanks and Rabobank Nederland, which is also the holding company of the Group s subsidiaries and equity investments, are managed in accordance with the cooperative model and will continue to be so. Over the past years, Rabobank has succeeded in strengthening its cooperative identity, partly by embedding member influence in the cooperative further through the introduction of member councils. The scaling-up process of the local Rabobanks typically goes hand in hand with the introduction of the executive model and further professionalisation of the management function. Another key factor is cooperative dividend, the investment in social activities and commitment, which makes members increasingly committed to the bank s image in society. Cooperative dividend comprises spending and efforts for the improvement of the economic, social and cultural environment, including sustainability initiatives. A growing number of local Rabobanks materialise their cooperative dividends by establishing a body of cooperative funds and regional sustainability funds, among other things. Members have influence in the distribution of these funds. Currently, the Dichterbij member magazine is being filled with local news by all the local Rabobanks separately, with more than 170 different editions being mailed to members. At 31 December 2007, the local Rabobanks have more than 1.6 million members. Further development of active member engagement is crucial to the local cooperative s permanent license to operate. In the coming years, the cooperative s distinct character will be emphasised further, both internally and externally. Leading in HRM policy The quality of our people is of paramount importance to our strategy. Rabobank s HRM policy is aimed at attracting and developing talent, broadening its management and improving the flow of staff. In the year under review, a Group-wide management talent development programme for senior staff was introduced. Another important aspect is ongoing investment in knowledge, skills and experience. People make the bank even better, Rabobank s HRM vision which was refocused in 2007, describes the development of the organisation s HR management by reference to three themes: Smarter working, Career and Diversity. Based on these umbrella themes, the bank s HRM policy was defined further in 2007 and this will be continued in a similar fashion going forward. Employee satisfaction in general remained high in 2007, with 85% (87%) of staff being satisfied, all things considered, with working at Rabobank. In 2007, Rabobank was awarded the title the Netherlands most favourite employer among the highly educated for the first time in the Intermediair magazine s image survey. In 2006, the bank came third. Sustainability NGOs, public authorities and consumers increasingly demand that commercial enterprises conduct their business while having regard for the quality of life of our planet. Poverty alleviation and climate change are the international themes of corporate social responsibility that have been in the focus of attention in recent times. Rabobank Group too, has made a commitment to deal carefully with issues such as human rights or the use of scarce sources of (fossil) energy. Accordingly, Rabobank Group intends to maintain and further expand its leading position in sustainable entrepreneurship and corporate social responsibility. In 2007, particularly good progress was made in embedding CSR criteria in our core activities. The greatest impact came from embedding CSR in the lending process. Other aims are to grow the sales of CSR products and services, to expand Rabo Development and to lower the environmental burden. 18 Rabobank Group Annual Report 2007

22 Rabo Development The Rabo Development initiative was launched in Its aim is to help a number of rural banks in developing countries grow into fully-fledged Rabobanks. Over the next few years, the activities will focus on a limited number of countries including China and several East African countries. Rabo Development invests in these banks by acquiring minority interests. In addition, it provides management support and technical assistance, e.g. by seconding Rabobank staff on a temporary basis. Internationally, Rabobank Group takes its full social responsibility by providing access to financial services for the rural population in developing countries. In so doing, Rabobank Group can make an important contribution to the economic development of these countries and to the financial emancipation of their populations. Financial targets The strategic goals warrant ambitious financial targets. Rabobank Group attaches great value to financial stability. In order to ensure this stability, the following long-term financial targets have been formulated: - annual net profit growth of at least 12%; - tier I ratio of 10% or higher; - return on equity of at least 10%. Following Basel II, the target for the bank s Tier I ratio will be adjusted starting About the Rabobank Group

23 Membership of the Executive Board of Rabobank Nederland From left to right (standing): Bert Bruggink, Sipko Schat, Piet van Schijndel, Piet Moerland. From left to right (sitting down): Hans ten Cate, Bert Heemskerk. 20 Rabobank Group Annual Report 2007

24 Executive Board Bert Heemskerk (H.) Chairman Group Audit Communication Legal and Tax Affairs Personnel Supervision & Compliance Knowledge and Economic Research Executive Secretariat Hans ten Cate (J.C.) Rabobank International Management Board Rabobank International, Chairman Regional management Americas/Asia/Europe CFRO domain Rabobank International Special Management Corporate Social Responsibility Real Estate Robeco Piet van Schijndel (P.J.A.) Private Individuals Private Banking Group ICT Leasing Piet Moerland (P.W.) Cooperative & Management Member Banks Personnel SME Shared Services & Facilities Bert Bruggink (A.) Control Rabobank Group Group Risk Management Credit Risk Management Treasury Investor Relations Sipko Schat (S.N.) Rabobank International Management Board Rabobank International, Deputy Chairman COO domain Rabobank International Corporate Clients Netherlands Financial Markets Corporate Finance Trade & Commodity Finance Private Equity Secretary to the Executive Board Rens Dinkhuijsen (L.A.M.) 21 About the Rabobank Group

25 Profile of Rabobank Group Rabobank Group is an international financial services provider operating on the basis of cooperative principles. Its operations include retail banking, wholesale banking, asset management, leasing and real estate. In the Netherlands, its focus is on all-finance services and, internationally, on retail and wholesale banking and food & agri. The organisation employs more than 60,000 staff in 43 countries. Rabobank Group comprises the independent local Rabobanks plus their central organisation Rabobank Nederland and its (international) subsidiaries. Rabobank Group s structure is characterised by strong internal ties, that stem from its cooperative roots. Rabobank Group has the highest credit rating, Triple A, awarded by the well-known international rating agencies Standard & Poor s, Moody s and Dominion Bond Rating Service. In terms of Tier I capital, the Rabobank Group is among the world s twentieth largest financial institutions. Local Rabobanks, Rabobank Nederland and Rabobank International Together, the 174 independent local Rabobanks employ around 29,000 staff and form the densest banking network in the Netherlands. Rabobank has over 1,100 branches and operates more than 3,100 cash dispensing machines. The local Rabobanks serve millions of Dutch clients, both private and corporate, with a comprehensive package of financial services. The local Rabobanks and their members and customers make up Rabobank Group s cooperative core business. Firmly rooted in society, committed, near-by and a leader. Clients can become members of their local Rabobank. In turn, the local Rabobanks are members and shareholders of Rabobank Nederland, the supralocal cooperative organisation that advises the banks and supports their local services. Rabobank Nederland also supervises, on behalf of the Dutch central bank, the solvency, liquidity and administrative organisation of the local Rabobanks. Rabobank Nederland is the holding company of a number of specialised subsidiaries in the Netherlands and abroad. Rabobank International is Rabobank Group s wholesale bank and international retail bank. It employs more than 10,000 staff world-wide and serves its customers from 29 countries. Mission and ambition The Rabobank Group puts the common interests of people and communities first. Based on its commitment to those interests, the Rabobank Group aims to be a driver and an innovator that contributes to the sustainable development of prosperity and well-being. Its goal is to help people and communities achieve their present and future ambitions. Strengthening mutual collaboration and supplying the best possible financial solutions are the means to achieve that end. Based on this mission, Rabobank Group s ambition is to be the largest, best and most customer-driven and innovative financial institution in the Netherlands. In the international environment, Rabobank Group aspires to be the best food & agri bank, with a strong presence in the world s major food & agriculture countries. For this purpose, Rabobank Group uses the experience it has accumulated in the Netherlands over many years. In addition, Rabobank Group aims at global excellence in sustainable entrepreneurship and banking, as would befit its identity and position in society. Rabobank Group works hard to embed corporate social responsibility in its core activities even further. 22 Rabobank Group Annual Report 2007

26 Our values In the Netherlands, Rabobank Group offers all the financial services needed by clients as they participate in an economy-driven modern society. Rabobank Group strives to ensure that its services are continually adjusted and updated so that they always meet the needs of private individuals and businesses alike. Rabobank believes that sustainable growth in prosperity and well-being requires careful nurturing of natural resources and the living environment and it aims to contribute to this with its activities. Rabobank respects the culture and traditions of the countries where it operates without losing sight of its own objectives and values. Rabobank Group s desired profile in the world is defined by four core values that are derived from its mission and ambition. All member entities of Rabobank Group have endorsed these business principles. In a way, they are the preconditions for our actions: - Respect: Rabobank Group works with others on a basis of respect, appreciation and commitment. - Integrity: Rabobank Group aims to be fair, honest, careful and reliable in all its actions. - Professionalism: Rabobank Group serves its clients with high-quality knowledge facilities. It strives to maintain that high quality anticipating where possible on clients future needs and to offer its services in an efficient manner. - Sustainability: Rabobank Group aims to contribute to sustainable development, both economically, socially and ecologically, of society. Rabobank Group s cooperative roots Rabobank Group s origins are in the local loan cooperatives that were established in the Netherlands over a century ago by enterprising people with almost no access to external financing after Friedrich Wilhelm Raiffeisen s example in Germany. These cooperative banks collected the savings from the rural population and used them to fill the need for loans. At first, they operated separately, as Raiffeisenbank and Boerenleenbank, and after their merger in 1972 together as Rabobank. The resulting local Rabobanks have a long tradition, especially in the agricultural sector en in small and medium-sized enterprises. In all those years, its cooperative structure and strong local ties have been its main characteristics. Although idealistic motives drove the establishment of the first cooperative banks, realism characterised their way of working. This appears from the important business principles of the first cooperative banks: unlimited liability of its members; unsalaried management; adding profits to reserves for further growth; a limited local operating area and membership of a cooperative central bank while retaining local independence. The business elements behind the idealistic framework have been key to the successful development of the agricultural loan banks. Collaboration is the thread in Rabobank s cooperative history: people working together, banks joining forces and specialised business units combining their expertise. Specifically, the cooperative structure means that Rabobank Group considers serving its clients as its first and main task. It achieves this by: - providing those financial services considered best and most appropriate by our clients; - ensuring continuity in the services provided with a view to the long-term interests of the client; - showing commitment to our clients and their environment, so that we can contribute to achieving their ambitions. Members make the difference The local Rabobanks and Rabobank Nederland, which is also the holding company of the Group s subsidiaries and equity investments, are managed in accordance with the cooperative model. A unique element in Rabobank Group s governance is the Central Delegates Assembly, Rabobank Group s parliament, which meets four times a year and where member influence makes itself heard in virtually all of Rabobank Nederland s strategic decisions. Embedding member influence and control and recruiting engaged members are core policy elements. In this way, the cooperative identity is emphasised by means of the control members can exercise through the member councils. Member councils consist of 30 to 50 members of a local Rabobank and are cross-sections of the member base of local Rabobanks. These councils increasingly function as committed sounding boards to members of boards of directors and/or management and Supervisory Boards. 23 About the Rabobank Group

27 Cooperative dividend Rabobank s social engagement and corporate citizenship, as it is called, are reflected in the cooperative dividend that is returned to society each year from the profits of the local Rabobanks. Cooperative dividend comprises money and efforts for the improvement of the economic, social and cultural environment, including sustainability initiatives. A growing number of local Rabobanks translate their cooperative dividend into systems that include cooperative funds and regional sustainability funds. Members influence the allocation of these funds. Rabobank Group 9 million clients 1.64 million members 174 local Rabobanks Rabobank Nederland Support of local Rabobanks Staff functions Rabobank Group Rabobank International Private individuals Small & medium-sized enterprises Private Banking Other support units Corporate Social Responsibility Investor Relations Long Term Funding Other staff units Food & agri Wholesale banking International retail banking Labels Asset management Leasing Real estate Insurance Housing Business Robeco Schretlen & Co Sarasin IRIS De Lage Landen - Athlon Rabo Bouwfonds - FGH Bank Eureko (39%) - Interpolis Obvion Zoekallehuizen.nl Bizner Rembrandt Mergers and Acquisitions The local banks and their members make up the core of the banking business. They are the cooperative s key stakeholders. Being the central (legal) entity, Rabobank Nederland is in the centre of the diagram of the organisation. In the Netherlands, Rabobank Nederland facilitates the local Rabobanks, including the development of new products and marketing support. Within Rabobank Nederland, staff functions are performed for the local Rabobanks and for Rabobank Group as a whole, including Shared Services & Facilities, Group ICT and Cooperative & Management, Corporate Social Responsibility, Investor Relations, Long Term Funding, Human Resources, Legal and Tax Affairs, Knowledge & Economic Research and Communications. Finally, Rabobank International, with its expertise, serves a large number of corporate and retail clients all over the world. The bottom part of the diagram of the organisation describes the chief labels within the Rabobank Group operating in the various markets under their own brands. 24 Rabobank Group Annual Report 2007

28 Rabobank Group entities Local Rabobanks The 174 independent local Rabobanks have over 1,100 branches and operate more than 3,100 cash dispensing machines. Overall, the local Rabobanks employ around 29,000 staff. The local Rabobanks serve millions of Dutch clients, both private and corporate, with a comprehensive package of financial services. Rabobank Nederland Rabobank Nederland is the central organisation, serving the local Rabobanks and the Group entities. Rabobank Nederland comprises market support to SMEs, private individuals and private banking clients and, in addition, performs several central staff functions for Rabobank Group. Chairman of the Executive Board: Bert Heemskerk Members of the most senior management of the Rabobank Group carry the title Director of Rabobank Nederland. Directors of Rabobank Nederland: As of 1 March 2008 Cor Broekhuyse (C.F.) Rabobank International Ralf Dekker (R.J.) Rabobank International Jan Dijkstra (J.D.) Shared Services & Facilities Tjalling Halbertsma (T.B.) Rabo Bouwfonds Rob ten Heggeler (R.H.L.) Rabobank International Harold Knebel (H.A.J.M.) Rabo Wielerploegen Jos van Lange (J.H.P.M.) Rabo Bouwfonds Hans van der Linden (J.A.M.) Rabobank Group Audit Bert Mertens (H.H.J.) Cooperative & Management Member Banks Monika Milz (M.R.) Communications Rik Op den Brouw (H.) Group ICT Thomas van Rijckevorsel (T.C.A.M.) Private Individuals Rinus van der Struis (M.) Supervision Harry de Roo (J.H.) Rabobank International Karel Schellens (C.A.C.M.) De Lage Landen Rutger Schellens (R.V.C.) Rabobank International Gerlinde Silvis (A.G.) Personnel Ronald Slaats (R.A.M.) De Lage Landen Jan van Veenendaal (J.) Legal and Tax Affairs Joop Wijn (J.G.) SME Rabobank International Rabobank International the wholesale banking business and international retail banking business employs more than 10,000 staff world-wide and serves clients from 29 countries. Besides regional activities, Rabobank International has divisions that are directed globally. These include Global Financial Markets, Structured Finance, Leveraged Finance, Direct Banking, Telecom Media & Internet and Trade & Commodity Finance. Rabobank International focuses on food & agri customers. The Irish ACCBank is a 100% subsidiary of Rabobank International and in Poland, Rabobank International owns a 46% interest in Bank BGZ. In addition, Rabobank International has interests in private equity. Managing Board: Hans ten Cate (J.C.), Chairman Sipko Schat (S.N.), Deputy Chairman Cor Broekhuyse (C.F.) Ralf Dekker (R.J.) Rob ten Heggeler (R.H.L.) Harry de Roo (J.H.) Rutger Schellens (R.V.C.) 25 About the Rabobank Group

29 Subsidiaries In the Netherlands, Rabobank Group operates several financial brands in various markets. These brands are complementary and strengthen Rabobank Group as a single, coherent entity. This helps Rabobank Group achieve the customer value and continuity it pursues. Robeco was founded in Rotterdam in Worldwide, it provides investment products and services to private investors. Services to private individuals are provided both through banks and other distribution partners, and through direct channels. Robeco s product range includes equity and fixed-interest investments, money market and real estate funds, as well as alternative investments, including private equity, hedge funds and structured products. Chairman of Robeco s Board of Directors: George Möller (G.A.) Schretlen & Co is the private banking specialist within Rabobank Group. Its activities include asset management and advice, combined with asset planning, which are focused on high net-worth individuals and medium-sized institutional investors. In addition to its head office in Amsterdam, Schretlen & Co has branches in Apeldoorn, Heerenveen, Rotterdam and Waalre, all located in the Netherlands. Chairman of Schretlen & Co s Board of Directors: Gerbert Mos (G.A.) Founded in 1841, Bank Sarasin is one of the leading Swiss private banking firms. Its core activities comprise investment advice and asset management services to high net-worth individuals and institutional clients, as well as investment funds management. Complementary services include corporate finance and financial analysis. Sarasin Group has around 1,200 employees and its international operations cover eight countries, in Europe, Asia and the Middle East. Chairman of Sarasin s Board of Directors: Joachim Straehle (J.H.) The Institute for Research and Investment Services (IRIS) is the research unit for Rabobank and Robeco and focuses exclusively on private investors. IRIS has been a joint venture between Rabobank and Robeco since 1 January This structure facilitates its operations as an internal service provider to Rabobank and Robeco in the fields of publishing and independent research. Chairman of IRIS Board of Directors: Lex Hoogduin (L.H.) De Lage Landen offers flexible asset financing products in order to help producers, vendors and distributors in Europe, the Americas, Asia/Pacific, Australia and New Zealand market their products. De Lage Landen is represented in 29 countries and provides competitive benefits for all its clients. In its Dutch home market, De Lage Landen offers a broad range of lease and trade financing products directly to the market and to clients of the local Rabobanks. With more than 120,000 cars, Athlon Car Lease is a prominent player in its business sector in the Netherlands. In addition, Athlon has its own fleet of rental vehicles. Athlon employs more than 600 people in the Netherlands and is a subsidiary of De Lage Landen. Chairman of De Lage Landen s Board of Directors: Karel Schellens (C.A.C.M.) Chairman of Athlon s Board of Directors: Richard Sikkel (R.) Rabo Bouwfonds is a leading real estate enterprise with three core activities focused on real estate: development, finance and investment management. Rabo Bouwfonds operates in both the private and corporate markets and is one of the largest real estate businesses in Europe. Within Rabo Bouwfonds, Bouwfonds Property Development and Rabo Vastgoed are responsible for real estate development. Real estate financing is done by FGH Bank, both under its own label and under the labels Nederlandse Hypotheekbank and Rijnlandse Hypotheekbank. Bouwfonds Asset Management is responsible for real estate investments. Through Fondsenbeheer, Rabo Bouwfonds makes a prominent supporting contribution to social real estate development and financing. Rabo Bouwfonds employs approximately 1,800 staff and operates in several European countries. Chairman of Rabo Bouwfonds Board of Directors: Tjalling Halbertsma (T.B.) Chairman of FGH Bank s Board of Directors: Peter Keur (P.C.) 26 Rabobank Group Annual Report 2007

30 Obvion is a provider of mortgages and simple financial products and focuses on the independent brokers market. Obvion is a joint venture of Rabobank Group and ABP (the Dutch civil service pension fund). Chairman of Obvion s Board of Directors: Roy van Diem (R.) Zoekallehuizen.nl is the search engine that daily scans the websites of virtually all estate agents in the Netherlands. It also scans all the websites on which private individuals offer houses for sale. Zoekallehuizen.nl covers houses offered by estate agents that are members of the official Dutch professional organisations NVM, LMV and VBO, as well as those offered by estate agents not affiliated to such organisations. Chairman of Zoekallehuizen.nl s Board of Directors of: Gijs den Hollander (G.D.) Bizner is the first internet merchant bank without account managers or brances, but with self-service. At Bizner, entrepreneurs can purchase, manage and change all basic financial products including bank cards, credit cards, loans and time deposits on-line themselves, 24 hours a day. Chairman of Bizner Bank s Board of Directors: Frank Klemann (F.J.A.) Rembrandt Fusies & Overnames is an independent organisation whose core business comprises advice and assistance in sales and purchases of enterprises. Rembrandt Fusies & Overnames focuses on owners of smaller and medium-sized family businesses seeking a solution for their succession, as well as on ambitious entrepreneurs planning to expand their businesses. Chairman of Rembrandt Fusies & Overnames Board of Directors: Ferdi Kramer (F.T.) Participations Eureko is a provider of financial services in the area of insurance. With head office in Zeist, the Netherlands, Eureko also has businesses in several other European countries. Eureko s ambition is to expand its insurance activities in its present markets in Europe. Also, it aims to enter new markets that fit its strategy. Rabobank has a 39% interest in Eureko. Interpolis offers a broad range of non-life, health care and life insurances for private and corporate clients. With a customer base of over a million private individuals and several hundreds of thousands of corporate clients, Interpolis is among the largest suppliers of insurance products in the Dutch market. Interpolis is the market leader in the agricultural sector. Interpolis sells insurance policies through the local Rabobanks and a number of independent brokers. Interpolis is a subsidiary of Eureko. Chairman of Eureko s Board of Directors: Maarten Dijkshoorn (M.W.) Chairman of Interpolis Board of Directors: Joop Kanen (J.C.G.) 27 About the Rabobank Group

31 Global presence The Rabobank brand is used by the local Rabobanks and by Rabobank International in 29 countries. With all its other Group entities, Rabobank Group operates in 349 locations spread over 43 countries, including the Netherlands. 28 Rabobank Group Annual Report 2007

32 North America Canada United States Latin America Argentina Brazil Chile Curaçao Cayman Islands Mexico Europe Austria Belgium Czech Republic Denmark Finland France Germany Guernsey Hungary Ireland Italy Luxembourg Norway Poland Romania Russia Slovakia Spain Sweden Switzerland The Netherlands Turkey United Kingdom Asia Bahrain China India Indonesia Japan Korea Malaysia Singapore Thailand United Arab Emirates Australia Australia New Zealand Rabobank Group entities Rabobank and Group entities For more information on branches, including location and contact details, please visit 29 About the Rabobank Group

33 Back to our roots Rabobank originated in the late nineteenth century. It was a period during which there was widespread poverty in the rural regions of the Netherlands. Borrowing money was the only way that many people could keep their heads above water. But in order to borrow money, they were forced to suffer the extortionate practices of mala fide moneylenders. The farmers decided to join forces and start their own bank. The resulting access to financial services

34 opened the door to economic growth for hundreds of farmers. And what took place in the Netherlands more than a century ago, is taking place today in developing countries. Rabobank helps small entrepreneurs in these countries to build a better existence. The Rabobank Foundation supports cooperative microfinance institutions, producer organisations and promising local savings and credit cooperatives. And Rabo Development invests in rural banks in developing countries with a view to enabling them to develop into modern financial services providers that have a nationwide network of offices. We provide support in the form of capital, management and know-how. And by providing equipment. For example, in 2007 a project was launched for recycling Dutch ATMs that are still well-functioning but that had already been written off. Several hundreds of ATMs will ultimately receive a second life in Africa thanks to this project.

35 Green travel Cars account for twenty percent of all CO 2 emissions in the Netherlands. Major gains can consequently be achieved by making car fleets more environmentally friendly. Many companies are actively introducing measures to achieve this. Athlon, a division of De Lage Landen, has gone one step further. The company has already given its more than 100,000 lease car drivers a free Dutch Rail Business Card in order to encourage

36 them to convert car kilometres to train kilometres. Athlon also has an incentive programme that motivates lease car drivers to save on fuel costs and reduce CO 2 emissions at the same time. The resulting savings are returned (partially) to the lease car drivers and this motivates them to change their driving and fuel consumption behaviour. The Rabobank Group also consciously opts for a green car lease policy within its own organisation. Lease car drivers are required to select a car that has been given an energy label A, B or C. We furthermore stimulate the use of public transport by providing our lease car drivers with a Dutch Rail Business Card. The Rabobank Group was even presented the international Green Fleet Innovation Award in 2007 in recognition of the innovative character of this mobility programme.

37 Report of the Executive Board Rabobank Group Financial developments Net profit target achieved; continued financial soundness Financial targets realised - Net profit up 14% - Tier I ratio at Return on equity 10.1% Balance sheet - Private sector lending up 10% to EUR 356 billion - Amounts due to customers up 6% to EUR 250 billion - Savings up 13% to EUR 101 billion - Equity up 7% to EUR 31.4 billion Net profit EUR 2.7 billion - Income up 14% to EUR 11.5 billion - Operating expenses up 12% to EUR 7.7 billion - Efficiency ratio improved by 1.5 percentage points to 67.0% - Value adjustments at 22 basis points, in line with five-year average - Risk Adjusted Return On Capital 13.0% Rabobank Group s net profit rose by 14% to EUR 2,662 million in 2007, with a strong contribution from domestic retail banking. The turbulence in the financial markets caused a decline in Rabobank International s net profit. Rabobank Group exceeded its financial targets for 2007: net profit growth was 14%, the Tier I ratio was 10.7 and return on equity was 10.1%. Rabobank Group achieved a Risk Adjusted Return On Capital of 13.0%. Growth of the mortgages portfolio in the Netherlands was an important factor in the increase in lending, with private sector lending increasing by 10% to EUR 356 billion. The large number of new savings clients at the local Rabobanks contributed to the 13% growth in savings to EUR 101 billion. Despite downward pressures on the interest margin and a slight income decrease for Rabobank International, total income was 14% higher, at EUR 11.5 billion, the increase being due to business growth. Organic growth and acquisitions caused a 12% increase in operating expenses, to EUR 7.7 billion. 34 Rabobank Group Annual Report 2007

38 Gross profit rose by 20% to EUR 3.8 billion and the efficiency ratio showed a 1.5 percentage point improvement, to 67.0%. The item Value adjustments increased by 65% to EUR 742 million, corresponding to 22 basis points of average lending and in line with the five-year average of 23 basis points. Financial targets - Net profit growth at least 12% - Tier I ratio at least 10 - Return on equity at least 10% Rabobank Group achieved its financial targets in Its operations are managed by the following financial ratios: net profit growth, Tier I ratio and return on equity. With an increase in net profit of 14% (13% 1 ), Rabobank Group exceeded its target of 12% in At year-end, the Tier I ratio, i.e. the ratio between core capital and total risk-weighted assets, was 10.7 (10.7). This is higher than the internal requirement of 10. The Tier I ratio declined as a result of the acquisition of Mid-State Bank & Trust and the increase of the bank s interest in Transtrend. However, due in part to the issue of Capital Securities, the Tier I ratio was unchanged from 31 December These issues contributed to the 9% rise in core capital to EUR 28.5 (26.4) billion. The risk-weighted assets were 8% higher, at EUR (247.5) billion. The return on equity, i.e. net profit expressed as a percentage of core capital, was 10.1% (9.4%). This exceeds the target figure of 10%. RAROC Rabobank Group uses RAROC, i.e. Risk Adjusted Return On Capital, as a measure of its financial performance. This measure provides insight in the profitability of the bank s various units and products, taking the risk exposure into account. RAROC is calculated by relating the adjusted profit realised on a particular activity to the capital required for that activity. In 2007, Rabobank Group realised a RAROC (after tax) of 13.0% (13.8%). Economic capital required at 31 December 2007 was EUR 20.5 billion. Balance sheet 1 For page 1 to 113 the numbers in brackets ( ) are comparative figures. For profit and loss data, they are the figures for 2006; balance sheet data are the figures at 31 December Private sector lending up 10% to EUR 356 billion In 2007, the item Loans to customers grew by 5% to EUR (354.9) billion, the greater part by far of which EUR (324.1) billion concerned private sector lending. In addition, the item loans to clients comprises: lending to the public sector, professional securities transactions and loan adjustments due to hedge accounting. At year-end 2007, lending to the public sector amounted to EUR 5.1 (3.1) billion. The volume of professional securities transactions was EUR 14.4 (28.4) billion. In 2007, growth in domestic mortgage lending was an important contributor to the 10% increase in private sector lending to EUR (324.1) billion. At 31 December 2007, 24% of lending was abroad. Of the loans to private clients, 9% is from Europe excluding the Netherlands, 11% from the Americas, 3% from Australia and New Zealand and 1% from Asia. 50% of private sector lending was to private individuals, 33% to the trade, industry and services (TIS) sector and 17% to the food & agri sector. The growth of the mortgage portfolio in the Netherlands was an important driver for the 8% increase in lending to private individuals to EUR (166.1) billion. Lending to private individuals comprises mainly mortgages and to a lesser extent consumer loans. The private mortgages portfolio grew by 10% to EUR (160.9) billion. More real estate loans were granted and De Lage Landen s loan portfolio grew further. This contributed to the 10% growth in lending, to EUR (105.5) billion, to enterprises in the trade, industry and services (TIS) sector. 35 Report of the Executive Board

39 Lending by sector in billions of euros Food & agri TIS Private individuals Breakdown of amounts due to customers in billions of euros Other amounts due to customers Repurchase transactions Time deposits Current accounts/ settlement accounts Savings Lending to the food & agri sector grew by 13% to EUR 59.4 (52.5) billion, the greater part of which was to the primary agricultural sector. The growth in lending to the fruit and vegetables and the grain and oil seeds sectors was an important contributor to the growth in lending to the primary agricultural sector to EUR 40.1 (34.3) billion. Of the loans to private clients, 68%, or EUR (220.9) billion, was granted to domestic retail banking clients, with the wholesale banking and international retail banking business accounting for 22%, leasing for 5% and real estate for 4%. The other entities accounted for 1%. Amounts due to customers up 6% to EUR 250 billion The amounts due to customers grew by 6% to EUR (234.9) billion in 2007, with savings making a significant contribution to this growth. Otherwise, the amounts due to customers rose as a result of the increase in corporate time deposits. The increase in interest rates made time deposits more attractive for corporate clients of the local Rabobanks, resulting in a 19% increase in corporate time deposits, to EUR 55.0 (46.3) billion. Breakdown of savings in billions of euros Other Roparco Fixed-time deposits Savings accounts Telesavings Internet savings Savings up 13% to EUR 101 billion The local Rabobanks saw a large inflow of new savings clients in As a result, savings at Rabobank Group grew by 13% to EUR (89.5) billion. The greater part of savings EUR 89.6 (80.5) billion is entrusted to the local Rabobanks. Due to the higher short-term interest rate, more private individuals are opting for time deposits. As a result, the proportion of fixed-time deposits grew by 14 percentage points to 26% of total savings. Roparco saw its savings grow by 15% to EUR 4.9 (4.3) billion. Thanks to the large number of new internet savings clients abroad, savings at four Internet banks abroad grew by 65% to EUR 5.1 (3.1) billion. Equity in billions of euros Other minority interests Capital Securities and Trust Preferred Securities III to VI Rabobank Member Certificates Retained earnings and other reserves Equity up 7% to EUR 31.4 billion Retained earnings resulted in an increase in equity. This addition caused the item Retained earnings and other reserves to grow by EUR 2.3 billion to EUR 19.7 (17.4) billion in In the year under review, Rabobank Group issued Capital Securities for private investors in Asia and New Zealand, resulting in a EUR 1.0 billion increase in equity. These retained earnings, particularly, together with the issues caused equity to grow by 7% to EUR 31.4 (29.4) billion. At the end of 2007, 62% of equity consisted of retained earnings and other reserves, 20% of Rabobank Member Certificates, 9% of Capital Securities and Trust Preferred Securities III to VI and 9% of other minority interests. Lending by activity at year-end 2007 Lending by region at year-end 2007 Domestic retail banking 68% Wholesale banking and international retail banking 22% Leasing 5% Real estate 4% Other 1% Netherlands 76% America 11% Europe excluding the Netherlands 9% Australia and New Zealand 3% Asia 1% 36 Rabobank Group Annual Report 2007

40 Financial results Results (in millions of euros) Change Interest 6,771 6,472 5% Fees and commission 2,857 2,296 24% Other income 1,871 1,281 46% Total income 11,499 10,049 14% Staff costs 4,445 4,117 8% Other administrative expenses 2,846 2,429 17% Depreciation and amortisation % Operating expenses 7,709 6,887 12% Gross result 3,790 3,162 20% Value adjustments % Operating profit before taxation 3,048 2,712 12% Taxation % Net profit 2,662 2,345 14% Value adjustments (in basis points) Ratios Efficiency ratio 67.0% 68.5% Return on equity 10.1% 9.4% RAROC 13.0% 13.8% Balance sheet (in billions of euros) 31-Dec Dec-06 Total assets % Private sector lending % Due to customers % Risk-weighted assets % Economic capital % Capital ratios BIS ratio Tier 1 ratio Number of employees (in fte) 54,737 50,573 8% Income up 14% Total income grew by 14% in 2007 to EUR 11,499 (10,049) million, with a particularly strong contribution from commission and other income. Interest income was 5% higher, at EUR 6,771 (6,472) million. Due to the higher interest rates, clients felt less inclined to settle their mortgage loans prematurely. Income from penalty interest declined. The margin in domestic retail banking declined as a result of the continued competition in the mortgages market. The margin in the leasing activities declined likewise. The growth in lending offsets the effects of the lower penalty-interest income and the lower interest margin. The rise in asset management commission was largely due to the fact that Sarasin was consolidated from the end of Further, the good investment performance of the Transtrend Diversified Trend Program and the expansion of the interest in Transtrend contributed to the higher commission income. Total commission income was 24% higher, at EUR 2,857 (2,296) million. Other income was 46% higher, at EUR 1,871 (1,281) million, with a strong contribution from the parts of Bouwfonds, which had been acquired in The acquisition of Athlon in the second half of 2006 and the sale of activities at Sarasin likewise contributed to the increase in other income. Income from the Eureko participation, which is included in other income, was lower. 37 Report of the Executive Board

41 Operating expenses up 12% Total operating expenses increased by 12% in 2007 to EUR 7,709 (6,887) million. The higher staffing level caused staff costs to go up by 8% to EUR 4,445 (4,117) million. In 2007, several acquisitions resulted in an increase in staff numbers by around 2,800 FTEs. Rabobank Group s total number of employees grew by 8% in 2007 to 54,737 (50,573) FTEs. The growth in activities, both organic and due to acquisitions, caused an 17% increase, to EUR 2,846 (2,429) million, in other administrative expenses. Depreciation charges were 23% higher, at EUR 418 (341) million, mainly because of higher depreciations on buildings and self developed software. Value adjustments at 22 basis points The item Value adjustments increased by 65% in 2007 to EUR 742 (450) million. This corresponds to 22 (15) basis points of average lending, which is in line with the five-year average of 23 basis points. Income tax up 5% Income tax recognised in 2007 amounted to EUR 386 (367) million, which is equivalent to an effective tax rate of 12.7% (13.5%). One of the contributors to the lower income tax was the reduction in the Dutch corporate income tax rate compared to The results from equity investments such as those in the Gilde funds and the Eureko participation, which are exempt from taxation, contributed to a lower tax burden. Net profit up 14% Because Rabobank Group s income grew more strongly than its expenses, the efficiency ratio improved by 1.5 percentage points in 2007, to 67.0% (68.5%). The higher gross profit, particularly, caused Rabobank Group s net profit to grow by 14% in 2007, to EUR 2,662 (2,345) million. After deduction of minority interests and payments on Rabobank Member Certificates, Capital Securities and Trust Preferred Securities III to VI, the sum remaining was EUR 1,937 (1,757) million. 38 Rabobank Group Annual Report 2007

42 Domestic retail banking Share in Rabobank Group s net profit in % Domestic retail banking 51% The domestic retail banking business comprises the local Rabobanks, Obvion and Bizner. With 174 independent local Rabobanks, each with their own corporate governance, over 1,100 branches and more than 3,100 cash dispensing machines, Rabobank is the pre-eminent near-by bank of the Netherlands. It is the bank with the densest branch network in the Netherlands. Overall, the local Rabobanks employ around 29,000 staff. The local Rabobanks focus their operations on their own local regions. This focus, and their independence, facilitates their quick response and decision-making. Also, they are near-by and committed to their clients. This commitment is reflected in their close ties with local clubs and institutions. Together, the local Rabobanks serve millions of Dutch clients, both private and corporate, with a comprehensive package of financial services. Many private individuals and corporate clients have current, savings and/or investment accounts and/or mortgages with Rabobank. In addition, the local Rabobanks finance a large number of enterprises, from small shops in the High Street to listed and agricultural enterprises. Together, the local Rabobanks make up the largest insurance broker in the Netherlands. A joint venture of Rabobank Group and ABP (the Dutch civil service pension fund), Obvion has its office in Heerlen, the Netherlands. It is a provider of mortgages and simple financial products, and focuses exclusively on the collaboration with independent brokers. Obvion is the biggest player in this field in the Netherlands. Since its beginnings, in 2002, Obvion s market share has more than doubled, to 5.3% in Bizner was started in 2007 and is the first internet merchant bank without account managers or branches, but with self-service. At Bizner, entrepreneurs can purchase, manage and change all basic financial products including bank cards, credit cards, loans and time deposits on-line themselves, 24 hours a day. At year-end 2007, Bizner had 7,500 clients. Strong performance and strengthened positions in important markets Private sector lending up 11% to EUR 244 billion - Mortgages market share grew to 28% - Savings market share grew to 41% - SME market share stable at 38% - Food & agri market share stable at 84% Alles in één Polis insurance policies up 6% to 1.3 million Bedrijven Compact Polis insurance policies up 8% to 185,000 Net profit up 24% to EUR 1.3 billion - Income up 4% to EUR 5.8 billion - Operating expenses down 1% to EUR 3.8 billion - Efficiency ratio improved by 3.6 percentage points to 66.2% - Value adjustments at 6 basis points, with a five-year average of 12 basis points - Risk Adjusted Return On Capital 15.1% 39 Report of the Executive Board

43 The domestic retail banking business the local Rabobanks, Obvion and Bizner had an excellent year, in both financial and commercial terms. Net profit was 24% higher, at EUR 1,349 (1,091) million. As income increased and expenses were lower, the efficiency ratio improved by 3.6 percentage points to 66.2%. In 2007, Rabobank Group succeeded in strengthening its position in the mortgages market as well as in the savings market. In the mortgages market, where competition remains fierce, the local Rabobanks and Obvion are the clear market leader, with a combined market share of 28% (26%). Rabobank Group s share in the Dutch savings market grew from 39% to 41%. Its share in the SME market was unchanged at 38%. In the start-up market, Rabobank Group succeeded in growing its market share by 5 percentage points to 38%. Lending to the food & agri sector also showed an increase. The local Rabobanks sold more Alles in één Polis and Bedrijven Compact Polis insurance policies. Having and keeping satisfied customers is priority number one for Rabobank. Changing client needs call for a change in the services provided by the local Rabobanks to their corporate and private clients in the future. The Rabobank 2010 project, which was started in 2007, is the response of the local Rabobanks to the changing conditions. Strategy and targets - To be and remain the near-by bank of the Netherlands, both in physical and virtual terms. - To pursue market leadership in all financial services sectors in the Netherlands. - To strengthen our position in large cities. - Customer satisfaction score of at least Annual net profit growth of 6 to 10%. Market and clients The turmoil in the financial markets affected the Dutch economy only slightly in Consumer spending increased in the Netherlands, which benefited the corporate sector, despite the higher interest rates in the money and capital markets and the decrease in consumer confidence. Increased consolidation changed the banking landscape in the Netherlands considerably in Rabobank however, remained true to itself and this was part of the reason why many private clients opened Rabobank accounts and the numbers of corporate clients at the local Rabobanks grew. The higher interest rates caused demand for mortgages to be lower in The number of mortgage switches was particularly lower. Partly as a result of this, the fierce competition in the mortgages market continued, leading to lower mortgage margins for the local Rabobanks. Due to the increased uncertainty and the rise of short-term interest rates, clients increasingly opted for mortgages with a longer fixed-interest term. Currently, more than 50% of the clients opts for a mortgage with a 15-year fixed-interest term or longer. As a result of the increasing interest rates, more savings-based mortgages were granted and the demand for investmentbased mortgages declined. From 1 January 2008, the Dutch government allows bank savings on easy fiscal terms. In response, Rabobank has developed two new banking products: the Rabo OpbouwHypotheek and the Rabo ToekomstRekening. The Rabo OpbouwHypotheek could be an interesting product for new mortgage clients. The Rabo ToekomstRekening enables pension savings or investments on easy fiscal terms for clients. The positive economic development in 2007 caused a rise in sales in nearly all SME sectors. Competition in the corporate lending market continued unabated in At the same time, lending to the trade, industry and services sector grew by 16% tot EUR 46.1 (39.9) billion and corporate time deposits grew by EUR 9.4 billion to EUR 13.8 billion. 40 Rabobank Group Annual Report 2007

44 The food & agri sector generally showed favourable market conditions in Lending to this sector grew, and the number of farming and horticultural businesses declined by 3% to approximately 76,500, while the scaling-up process in both agriculture and horticulture continued. These conditions invited the interest from competitors, who are attempting to gain market share by offering highly competitive rates. Duty of care To Rabobank, our clients interests and our relationship with our clients come first. We pursue long-term relationships with our clients. In the context of duty of care, much has happened in the areas of transparency and appropriate advice in recent years. Rabobank is and remains aware of its duty of care. To Rabobank, the ongoing duty of care is an integral part of how it does business with its clients. To Rabobank, a central element is that its clients get products that suit them. A survey by The Dutch Central Bank and the Netherlands Authority for the Financial Markets indicated that consumers might not always be fully aware of the operation and the risks of investment-based mortgages. Accordingly, Rabobank took the initiative in 2006 to invite all its clients with investment-based mortgages for face-to-face discussions in order to explain the operation and the risks of this product to them again, starting from the client s personal situation. Clients indicate that they value this focus on their personal situation. Nevertheless, the OpMaat Hypotheek was highlighted in the TROS Radar consumer show and by the Stichting Woekerpolis Claim in the fourth quarter of Rabobank maintains that the best way for client dialogue is through face-to-face discussions in which tailor-made products are offered. Rabobank 2010 programme: pilot started at five banks How is Rabobank giving optimum support to its clients ambitions in coming years? Clearly, Rabobank s aim for the future is to remain the market leader in many areas and to fulfil its cooperative duties. In that context, market leadership gives Rabobank a key role in the market, providing financial strength for innovations and an adequate scale for costeffective operations. However, continued market leadership in a new virtual era of banking requires considerable innovation and improvement in customer service, and at substantially lower costs. Customers visit their local banks less and less in person. Instead, they communicate via the Internet, (mobile) telephone, and chat sessions. The latest innovations in banking tend to quickly become the standard. Clients expect Rabobank to remain in the forefront of this trend. They expect to have access to their banking services through different channels and that these channels can be used interchangeably and dovetail seamlessly. In addition, clients increasingly perform transactions themselves through the different virtual channels, expecting transparent and optimum support for their actions which is possible under strictly organised processes and related computer systems for all channels. Optimisation and standardisation in handling and managing ensure that both quality and speed are improved and costs are reduced. For that reason, five local Rabobanks, in conjunction with Rabobank Nederland, embarked on the Rabobank 2010 programme in The programme s targets are an even better service to clients, increased commercial effectiveness and optimisation of the main processes. The findings of these local Rabobanks will be further analysed in detail in 2008, following which improvement proposals will be defined and implemented in five areas: processes, back office, management support functions, commercial control and procurement. In 2008, the analyses and improvement proposals will be completed and, gradually, more and more local Rabobanks will start their transformation journey. Rabobank near-by its clients The local Rabobanks try to be and remain near-by their clients. Be that as it may, the number of actual client visits to the bank s offices is declining. Consequently, Rabobank is investing a great deal in other ways of reaching its customers, such as via Rabo Mobiel and Rabo TV. Television is gaining importance as a channel of communication and is increasingly incorporated into the Internet. That is why Rabobank is pioneering enthusiastically in television. Examples include the daily Rabo BeleggersJournaal on and RaboSport TV. 41 Report of the Executive Board

45 As a result of mergers, the number of local Rabobanks declined from 188 to 174 in With 1,159 (1,214) branches, Rabobank is the bank with the largest number of branches by far in the Netherlands. Due to the growing number of cash dispensing machines at public locations, the number of physical customer interfaces at year-end was almost unchanged at 3,102 (3,091), despite the lower number of branches. In 2007, the number of cash dispensing machines likewise was almost unchanged at 3,107 (3,139). Simple banking via the Internet Service provision through direct channels shows undiminished growth. Currently, more than 20% of clients buy products via the Internet of via the telephone. The site, which has around 15 million visitors each month, was again awarded the title of Website of the Year. In 2007, large numbers of elderly people were given extensive information on Internet banking during information visits to care homes, as well as at fairs for the elderly. With this and other target groups in mind, Rabobank introduced the Random Reader Comfort in 2007, which has large keys and a corresponding display. If clients buy via the Internet from entrepreneurs that operate web shops, ideal enables direct online payment. This way of paying has become more popular among consumers than paying with credit card, which clients generally consider to be less safe. Small purchases via the Internet can simply be made with the Minitix purse. Making payments with Rabo Mobiel Rabo Mobiel was introduced in 2006 and a great deal of effort has been put in ever since to improve its coverage within the mobile network and to develop the pay function on cell phones further. In 2007, the first successful tests were done with paying via the mobile telephone network. Currently, Rabo Mobiel enables payments at a number of parking facilities. At a C1000 super market in a village named Molenaarsgraaf, a pilot was started where clients can pay for their groceries via their cell phones. The Rabobank expects that, in the long run, this payment method will render the traditional bank card obsolete. Businesses call for innovative services, such as Bizner Rabobank is aware that in the corporate market, the character of distribution is changing as well. Increasingly, entrepreneurs prefer to handle all their banking transactions themselves, opting for full online banking because of its ease of handling, transparency and speed. In order to reach these clients, Rabobank Group launched the Bizner Internet bank early in Via self-service enables businesses to purchase simple banking products such as loans, payment transactions, credit cards and time deposits. As the first bank in Europe, Bizner also offers complete integration of online accounting and online banking. At year-end 2007, 7,500 clients were using Bizner s services. Since many Bizner clients operate in the large cities, this helps Rabobank achieve its target to extend its market share in urban areas. The payments market changed too in Businesses like to offer their customers the option of mobile PIN transactions. As a result, the RaboPinBox Mobiel was in high demand. In addition, many businesses switched from the old telebanking to modern internet banking. Clients find housing information on the Moviq site Early in 2008, Rabobank Group launched its new site. This Internet site contains information on all aspects of residential housing, from purchase to sale and from design to renovation. The site features a wide range of housing related information and sophisticated search options. The site enables SME businesses to attract new clients. New clients strengthen the bank s position in important markets Rabobank Group has leading positions in many sectors of the Dutch financial services market. Rabobank traditionally has strong ties with the food & agri sector. Despite the changing market conditions, the local Rabobanks maintained a market share of 84% (84%) in the agricultural sector. In addition, Rabobank Group has a strong presence in the savings market, the mortgages market and among small and medium-sized enterprises in the Netherlands. 42 Rabobank Group Annual Report 2007

46 In 2007, the local Rabobanks and Obvion succeeded in strengthening their positions in the mortgages market further. Rabobank Group s mortgages market share grew from 26% to 28%. The market share of the local Rabobanks grew by 2.1 percentage points, to 22.4%. Obvion, the mortgage lender for the broker channel, saw its market share rise by 0.1 percentage points to 5.3%. Early in 2007, Rabobank introduced the Rabo KlimaatHypotheek. Through interest rate discounts, this mortgage encourages sustainable investments in owner-occupied houses. Many new clients opened savings accounts with a local Rabobank in the year under review. Among other factors, this enabled Rabobank Group to increase its market share in the savings market from 39% to 41%. The savings market share of the local Rabobanks grew by 1.2 percentage points to 38.6%. Robeco s savings bank Roparco saw its market share rise as well. At 31 December 2007, Roparco had a 2.1% market share, 0.2 percentage points higher than a year ago. The number of SME clients at the local Rabobanks grew to 599,000 in the year under review and the SME market share, as measured by TNS NIPO, was stable at 38% (38%). Traditionally, the local Rabobanks have had a strong presence in rural areas. In order to further strengthen Rabobank Group s position in the Netherlands, a stronger position in urban areas is called for. Rabobank Group s share of the SME market in the cities was 27%. Rabobank offers several supporting facilities to start-ups. Because the local Rabobanks invest in start-up enterprises with time, money and attention they succeeded in strengthening their leading position in this market. Rabobank Group s share in the start-up market rose from 33% to 38%. Market shares in % Agricultural SME Savings Mortgages Customer satisfaction among private individuals in line with target Rabobank Group attaches great importance to client satisfaction and loyalty. Customer satisfaction and customer loyalty are measured by means of market surveys and compared with those of the competition. Feedback from clients enables Rabobank Group to improve its services continually. In 2007, private clients at the local Rabobanks rated customer satisfaction with a score of 7.5 (7.5), which is in line with our long-term target of at least 7.5. Compared with the competition, Rabobank scores high on such aspects as availability by telephone, quick access to the right person, staff expertise and complaints handling. Also, the surveys show that Rabobank gives advice when the client really needs it and that customer loyalty was high in Loyalty declined at all the banks surveyed, but to a far greater extent with competitors. This offers opportunities for the local Rabobanks. Brokers satisfied with Obvion The brokers collaborating with Obvion were satisfied with the services rendered by this organisation. Good and lasting relationships with its brokers, among other things, won Obvion the Gouden Spreekbuis award in This award is extended annually by Blauw Research to the lender having the best image among brokers. 43 Report of the Executive Board

47 Private banking Clients worth over EUR 80,000 can become private banking client at the local Rabobanks. Such clients get their own account managers and have the benefit of tailored service packages. In the year under review, Rabobank Group s subsidiary Schretlen & Co came first on the list of most valued private banks in the Netherlands, just outstripping Rabobank Private Banking, which came second. In this survey, clients of the local Rabobanks rated their satisfaction with a score of 7.2 (7.2). Each year, Rabobank itself too, measures customer satisfaction among its private banking clients. In 2007, customer satisfaction was awarded a score of 7.5 (7.6). Clients appreciated the bank s expertise, reliability, customer-friendly processes, the many possibilities for reaching Rabobank, its leading products and transparent customer information. According to clients, customer satisfaction would be able to improve even further if the local Rabobanks were more proactive and effective by addressing the right subject at the right time. The entrepreneur in private There was a strong increase in the number of self-employed persons without personnel in the Netherlands in In Rabobank s view, this offers opportunities for combining services to small enterprises and the private individuals owning them. By serving clients with both corporate and private banking needs as one the entrepreneur in private the local Rabobanks are able to offer broader options to the client. The client s private financial affairs can be properly aligned with those of his or her enterprise and vice versa. Many new enterprises that become new corporate clients are owned by individuals who already are private clients of Rabobank. Under the Entrepreneur in Private programme, such services were supported in 2007 by campaigns including Your Financial MOT and Private Banking for Entrepreneurs. This programme contributed to a rise in the number of entrepreneurs who are also private banking clients from 111,000 to 162,000. Small and medium-sized enterprises Rabobank Group is continually researching developments among small and medium-sized enterprises. Figures and Trends is one of Rabobank s publications in which it maps relevant current trends for its SME clients on a quarterly basis. The October issue of this quarterly update focused on developments in the area of sustainability in various SME sectors. In 2007, Rabobank introduced the Rabo Vermogen Versterkingslening. This subordinated loan is intended especially for fast-growing SMEs and is part of the Regeling Groeifaciliteit (growth facilitating arrangement) of the Dutch Ministry of Economic Affairs. The Rabo Vermogen Versterkingslening gives clients access to supplementary risk-bearing capital, enabling SME clients to borrow amounts between EUR 0.5 million and EUR 5 million. Compared with 2006, customer satisfaction among SME clients was higher. SME entrepreneurs value personal attention through good contacts with their account managers or advisors. Services to small businesses improved. They appreciate the speed of our response by telephone and feel welcome at Rabobank. This client group would like to see greater transparency in bank charges, however. Relationships with the larger SME clients remained good. This entrepreneurial group is enthusiastic about their account managers, as a result of which they feel committed to Rabobank. Food & agri The agricultural sector and its related sectors are important customer groups to Rabobank Group. For the best possible service to these food & agri clients, Rabobank Group has bundled its expertise, service provision and marketing communication into its Food & Agri department. Collaboration in agricultural marketing between local Rabobanks is increasing as well. At year-end 2007, a quarter of the market was served through these supralocal collaborative organisations. Tailored product proposals and knowledge products such as studies and visions enable account managers at local Rabobanks to give clients the best possible service. 44 Rabobank Group Annual Report 2007

48 In 2007, Rabobank introduced the Rabo Relocation Package. This relocation package helps Rabobank s agricultural clients in the relocation of their businesses. For their relocation, clients can avail themselves of a Relocation loan, which gives such farmers or horticulturalists more financial leeway during the transformation process. Especially for innovations in the intensive cattle farming sector, Rabobank, together with the Dutch National Green Fund, developed the VIV-Plus loan. This loan enables agricultural entrepreneurs to finance the relocation of their cattle business at low costs. Rabobank makes an effort to help present and future entrepreneurs draw up fitting business strategies. The Rabo Opvolgers Perspectief programme is offered to business successors. In 2007, greenhouse horticulturalists discussed business strategies under the The Wereld van Jip project, based on three core trends formulated by Rabobank for its vision of long-term developments in this sector. Especially for entrepreneurs in the agricultural sector, Rabobank organised two training courses for entrepreneurs. These training courses, Uw Passie en Pressie in Beeld ( Your passion and pressure visualised ) for dairy farmers and Kansrijk ondernemen in the Akkerbouw ( Successful arable farming ), covered several days. Such meetings give agricultural entrepreneurs a broader view of their businesses and a clear picture of the future. Rabobank s own knowledge departments in food & agri, the size of which is unique in the world and befits its market leadership position, are an important source of inspiration for the account managers at the local Rabobanks in their contacts with clients saw another series of authoritative studies on various subjects, including egg-laying poultry farming, arable farming and horticulture. Nevertheless, the traditionally high customer satisfaction in the agricultural sector levelled out slightly in Agricultural clients are very positive about their agricultural account managers. Still, they would prefer Rabobank to offer even more competitive financial products and greater transparency in its charges. Also, agricultural entrepreneurs appreciate being valued as corporate clients. Traditionally, agricultural clients have strong ties with Rabobank and this translated in high customer loyalty in The largest insurance distributor in the Netherlands Together, the local Rabobanks make up the largest insurance broker in the Netherlands. Many insurance products they sell originate from Interpolis. Interpolis is part of Eureko, in which Rabobank Group has a 39% interest. Rabobank Group works closely with Interpolis in product development. Early in 2007, the Interpolis BuitenDeDeur insurance policy was introduced as part of the Interpolis Alles in één Polis insurance policy. This policy insures personal belongings such as cell phones or digital cameras against theft or damage outside the home. In its year of introduction, more than 20,000 of these insurance policies were sold. In 2007, the number of Alles in één Polis insurance policies grew by 6% to 1,272,000 (1,202,000), with clients taking out cover for more risk categories on average under this policy. In 2007, the percentage of clients with three or more types of cover grew from 50.4% to 52.6%. Within the Alles in één Polis insurance policy, sales of motor insurance policies were higher. There was less demand for continuous travel insurance policies. As a result of the higher interest rate, more clients preferred a savings-based insurance policy to the OpMaat insurance policy when talking out mortgages. Consequently, the number of savings-based insurance policies taken out grew by 47% and the number of OpMaat insurance policies sold fell by 75%. In 2007, fewer people in the Netherlands switched to a new health care insurance company than in 2006, the year in which the new health care insurance system was introduced. As in 2006, members of the local Rabobanks received discounts on the Interpolis ZorgActief Polis insurance policy, the health care insurance policy offered by Interpolis. This contributed to an increase in the number of policy holders from 103,000 to 121,000. The number of Interpolis Bedrijven Compact Polis insurance policies was 8% higher in 2007, at 185,000 (172,000). Under the Rabo OndernemersPakket, start-ups get discounts on Interpolis chief insurance policies, which contributed to the 38% increase in the number of start-up enterprises buying insurance products. The number of corporate clients purchasing insurance products at the local Rabobanks was 9% higher, at 232,000 (213,000). 45 Report of the Executive Board

49 Each local Rabobank has its own CSR policy All local Rabobanks and Obvion put a great deal of effort in corporate social responsibility, with the Boards and management teams identifying their own priorities, accountabilities and goals. At the end of 2007, all local Rabobanks had CSR coordinators for CSR implementation and coordination. The outcome of a survey held in 2007 was that staff members have become more familiar with the concept of CSR and that they appreciate Rabobank Group s CSR policy. Social engagement and environmentally conscious operations are considered as strengths. The chief focus of interest in 2008 will be to embed CSR further in the daily activities of all staff members. Early 2007 saw the launch of the Rabocard with climate contribution. For each purchase that a client makes with his Rabocard, Rabobank, in collaboration with World Wildlife Fund, invests in projects that help fight climate change. From February 2007, CSR screening is a standard element in corporate lending to larger clients among small and medium-sized enterprises. Lending by sector in billions of euros Food & agri TIS Private individuals Private sector lending up 11% to EUR 244 billion In 2007, private sector lending increased by 11% to EUR (220.9) billion, of which 70% is granted to private individuals, 19% to the trade, industry and services sector and 11% to the food & agri sector. Loans to private individuals were 8% higher, at EUR (158.9) billion, virtually all of which EUR (153.7) billion are mortgages. Growth in the number of clients among small and mediumsized enterprises and the growing demand for loans caused a 16% increase, to EUR 46.1 (39.9) billion, in lending to the trade, industry and services sector. Lending to the real estate, transport and building sectors particularly showed strong growth. Lending to the food & agri sector grew by 17% to EUR 25.8 (22.1) billion, with the primary agricultural sector accounting for the greater part. These loans grew by 19% to EUR 21.6 (18.2) billion. Higher lending to the fruit and vegetables sector and the dairy and animal protein sector was an important contributor to this growth. Financial results Income up 4% In the year under review, total income was 4% higher, at EUR 5,795 (5,551) million, mainly due to growth in interest income. Despite fierce competition in the mortgages market and lower income from penalty interest, interest income was 4% higher, at EUR 4,391 (4,226) million. The increases in both lending and savings offset the effects of lower mortgage margins and lower penalty interest. Commission income from payment transactions and other financial services were major factors in the 10% rise in commission income to EUR 1,379 (1,259) million. Commission income from insurance activities was 1% lower, at EUR 376 (379) million. Operating expenses down 1% Total operating expenses were 1% lower in 2007, at EUR 3,835 (3,877) million. The staffing level in the domestic retail banking business declined by 71 FTEs to 29,304 (29,375) FTEs. In line with this decrease staff costs were 2% lower, at EUR 2,072 (2,118) million. Other administrative expenses were 1% higher, at EUR 1,618 (1,607) million, partly as a result of higher training costs and higher marketing expenses. Value adjustments at 6 basis points Because the favourable economic climate in the Netherlands continued, the increase in the item Value adjustments was virtually in line with the growth in lending. The item Value adjustments rose by 4% to EUR 145 (139) million in the year under review. This corresponds 46 Rabobank Group Annual Report 2007

50 Results (in millions of euros) Change Interest 4,391 4,226 4% Fees and commission 1,379 1,259 10% Other income % Total income 5,795 5,551 4% Staff costs 2,072 2,118-2% Other administrative expenses 1,618 1,607 1% Depreciation and amortisation % Operating expenses 3,835 3,877-1% Gross result 1,960 1,674 17% Value adjustments % Operating profit before taxation 1,815 1,535 18% Taxation % Net profit 1,349 1,091 24% Value adjustments (in basis points) 6 7 Ratios Efficiency ratio 66.2% 69.8% RAROC 15.1% Balance sheet (in billions of euros) 31-Dec Dec-06 Total assets % Private sector lending % Savings % Risk-weighted assets % Economic capital 8.9 Number of employees (in fte) 29,304 29,375 0% to 6 (7) basis points of average lending and is far lower than the five-year average of 12 basis points. Depreciation charges were 5% lower, at EUR 145 (152) million, mainly due to lower real estate and equipment depreciation. Net profit up 24%, RAROC 15.1% Gross profit increased by 17% in 2007, as a result of higher income in combination with lower operating expenses. The increase in gross profit especially caused net profit to grow by 24% to EUR 1,349 (1,091) million. In 2007, domestic retail banking achieved a Risk Adjusted Return On Capital (RAROC) of 15.1%. At year-end, economic capital required amounted to EUR 8.9 billion. Ambitions and outlook Maintaining high customer satisfaction and customer loyalty is pre-eminent to Rabobank and the Rabobank shall continue to invest in new forms of distribution in order to maintain our high level of client service. Besides new distribution channels, improvement measures will be taken under the Rabobank 2010 project, ensuring ongoing optimum service to Rabobank clients in the future. In addition, Rabobank will make extra investments in urban areas in order to raise its market share there. The local Rabobanks intend to maintain their position in the mortgages market and Obvion intends to strengthen its position in the broker market further. The local Rabobanks, together with De Lage Landen, expect to be able to strengthen their position in the 47 Report of the Executive Board

51 consumer credit market. Lowering the number of clients per account manager is an important precondition to raise customer satisfaction among private banking clients. Rabobank Group intends to grow its share of the SME market further. This is to be achieved by serving clients proactively, based on its knowledge of the client and the industry concerned and by offering the possibility of international services. Together with Bizner, Rabobank Group will strengthen its position in the large cities further in 2008 while attracting many start-up enterprises. Rabobank intends to maintain its leading position in food & agri by developing innovative products and by offering facilities to strengthen agricultural entrepreneurship. Rabobank aims for closer collaboration with Eureko in the area of insurances. Because margins on new loans are lower than those on existing ones, margins on lending are expected to tighten. Rabobank Group likewise anticipates more competition in the savings market for It will therefore focus on cost control in order to maintain profitability. 48 Rabobank Group Annual Report 2007

52 Wholesale banking and international retail banking Share in Rabobank Group s net profit in % Wholesale banking and international retail banking 15% Rabobank International wholesale banking and international retail banking business employs more than 10,000 staff world-wide and serves clients from 29 countries. The activities are subdivided according to region as follows: the Netherlands, Europe excluding the Netherlands, the Americas, Australia and New Zealand, and Asia. In addition, Rabobank International distinguishes a number of customer sectors and product groups that are managed globally. These include Global Financial Markets, Structured Finance, Leveraged Finance, Direct Banking, Telecom Media & Internet and Trade & Commodity Finance. Rabobank International focuses on food & agri customers. The various regions and the units with a global organisation work closely together for optimum service to clients and markets. The Irish ACCBank is a 100% subsidiary of Rabobank International, and in Poland, Rabobank International has a 46% interest in Bank BGZ. Rabobank International has interests in private equity through Rabo Private Equity and through Langholm in the UK. Also, it participates in Gilde funds. Decline in net profit due to difficult second half-year Private sector lending up 4% to EUR 78 billion Savings at Direct Banking activities up 65% to EUR 5.1 billion Risk-weighted assets up 19% to EUR 76 billion Net profit down 43% to EUR 394 million - Income down 3% to EUR 2,546 million - Operating expenses 8% higher, at EUR 1,715 million - Efficiency ratio 6.9 percentage points higher, at 67.4% - Value adjustments at 63 basis points; higher than the five-year average - Risk Adjusted Return On Capital 8.4% Rabobank International Rabobank Group s wholesale banking and international retail banking business saw its net profit decline by 43%. Net profit for 2007 was EUR 394 (687) million. Results for Rabobank International were affected by the credit crisis. Since trade in a number of professional markets was virtually stagnant, results for Global Financial Markets fell. This decline was partly offset by the good performance of Participations and by lower taxation. The international retail banking network was expanded by the acquisition of Mid-State Bank & Trust in the United States, Hagabank and Bank Hagakita in Indonesia and HNS Banco in Chile. In addition, Rabobank International increased its Direct Banking activities by opening its fourth Internet bank abroad, in Australia. Strategy and targets - To expand the retail banking activities through selective acquisitions and organic growth. - To strengthen the position in the Dutch corporate market. - To deliver added value to clients through knowledge-driven solutions based on extensive food & agri research. - Annual net profit growth of 10 to 15%. 49 Report of the Executive Board

53 Market and clients Rabobank International s activities were affected by the credit market crisis in The turmoil in the financial markets led to changes in the market environment for Global Financial Markets. The ensuing crisis caused the result for Global Financial Markets to decline. Leveraged Finance, which specialises in financing with high volumes of borrowed capital, was likewise confronted with greatly altered market conditions following the crisis. This resulted in a lower number of transactions in the second half Local market conditions being the main decisive factor, Rabobank Group s international retail banking business was hardly affected by the turmoil in the financial markets. The private equity market developed favourably for Rabobank International in 2007, resulting in positive revaluations for Gilde funds participations, the interest in Langholm and for Rabo Private Equity, and also in the sale of a number of participating interests. Credit and liquidity crisis The credit crisis has left deep scars in the financial markets over the past months, and, like other financial institutions, Rabobank is feeling its negative effects. The crisis was directly caused by increased payment problems among less creditworthy mortgage borrowers in the United States as a result of higher interest rates and the decline in house prices. Since many of these so-called subprime mortgages had been securitised, bundled and resold to other parties in past years, it was unclear where the risks ended up. The result was a lack of confidence, making banks hesitant to lend to each other, causing an acute liquidity shortage in the money markets. The crisis soon spread to the entire credit market. Even products totally unrelated to US subprime mortgages were affected. Many markets that, until recently, were liquid saw their liquidity disappear. This had significant consequences for the valuation of positions, because if there is little or no trading in certain financial assets, it is difficult to establish their fair market value. Price quotations seen in the market became more than just a reflection of a position s credit risk, the lack of liquidity, too, is reflected strongly in the prices. Rabobank Group s balance sheet and profit and loss account are affected by the turmoil in the financial markets, in the context of which a distinction has been made between effects from indirect subprime exposure and other effects on profit and equity. In millions of euros Revaluation charged to 2007 profit (after tax) Revaluation charged to equity Carrying value at 31 December 2007 % of cost AAA rating AA or higher rating Alt-A RMBS % 94% 96% Subprime RMBS % 82% 94% CDO % 91% 98% Total Indirect subprime-exposure Rabobank has no direct exposure to subprime mortgages. However, Rabobank International s investment portfolios contain a limited indirect exposure in the form of Residential Mortgage Backed Securities (RMBS s) and Collateralized Debt Obligations (CDO s). These items have been revalued, with EUR 284 million in value adjustments being charged to profit and loss and EUR 127 million to reserves. At 31 December 2007, this exposure amounted to EUR 318 million. Other effects on profit and equity Apart from the indirect subprime effects discussed above, the turmoil in the financial markets has had other effects in a broader sense, in the form of value adjustments to those financial assets and liabilities that are valued at fair value. These effects are reflected partly in profit and partly in reserves, and result from, inter alia, increased credit spreads. Partly as a result of this, the item Net income from financial assets and liabilities at fair value through profit and loss was EUR 284 million lower in 2007, at EUR 38 (246) million. In the investment portfolio, which totals more than EUR 50 billion, a revaluation of EUR 697 million was charged to equity. 50 Rabobank Group Annual Report 2007

54 The credit crisis also caused many structures that had been financed with money market paper to be difficult to finance. Examples include Asset Backed Commercial Paper (ABCP conduits) i.e. collateralised money market investment vehicles and Structured Investment Vehicles (SIVs) i.e. off-balance sheet investment vehicles. Over the past few months, the ABCP market has started to show a split, with high-quality programmes still able to finance themselves and the lesser quality programmes, including SIVs, gradually disappearing from the market. Despite the crisis and thanks to its high-quality programmes, Rabobank still succeeded in refinancing its maturing commercial paper. At year-end, Rabobank Group had EUR 23 billion in ABCP outstanding, largely for the financing of its own originated loans and for customer loans and receivables. A relatively minor part concerns so-called securities arbitrage programmes. Since the benefits of these programmes will largely diminish as a result of the Basel II regulations in force as from 2008, Rabobank Group is considering a winding down of these structures. Rabobank sponsored a SIV called Tango, in which it had a 10% shareholding. Since the situation regarding SIVs shows no signs of improvement in the short term, this position has likewise been wound down. After the other investors had bought out more than EUR 5 billion in assets, the remaining Tango assets (EUR 4.8 billion), will be recognised on Rabobank s balance sheet in January This will have no effect on profit and loss. Global food & agri bank Rabobank Group intends to be the best food & agri bank, with a strong presence in the chief food & agri countries. For growth in food & agri, Rabobank International focuses on expansion of its retail banking activities in traditional agricultural countries such as the United States and Australia. In addition, the focus will be on emerging countries with fastgrowing food & agri sectors, both in Central and Eastern Europe and in countries including Brazil, Chile, China, India and Indonesia. Rabobank Group has bundled its food & agri knowledge in Food & Agri business Research and Advisory (FAR). This department operates from the Netherlands, the Americas, Asia and Australia. FAR researches the important food & agri sectors and, with this knowledge, supports many transactions in various stages, gives its opinion on loan proposals, contributes to merger and acquisition proposals and generates ideas for new products. In addition, it produces a large number of publications each year, exchanges visions with clients, and gives insight in production, trade and consumption in important food & agri sectors by producing world maps. Production in 2007 included publications on the biodiesel market in South-East Asia and the market for orange juice in Brazil. Early in 2007, a special Clean Tech department was established within FAR. This department conducts research into enterprises that use clean technologies, such as biofuels, biomass, fermentation, and wind and solar energy. International retail banking Over the past years, Rabobank Group s international retail activities have significantly expanded. This was mainly due to growth of the existing retail banks, to acquisitions and to new activities. Rabobank International has retail banks in the regions Europe, the Americas, Australia and New Zealand, and Asia. In addition, clients are being served via the Internet banks in Belgium, Ireland, Australia and New Zealand. Europe: interest in Bank BGZ expanded In Europe, Rabobank International s retail banking operations are ACCBank in Ireland and a 46% interest in the Polish Bank BGZ. Traditionally, ACCBank has always had close links with the agricultural sector. ACCBank also has a share in the large market for real estate financing in Ireland. In 2007, Rabobank International increased its interest in Bank BGZ from 37% to 46%. Bank BGZ is an important bank to the Polish agricultural and food processing sector. In view of its agricultural background, Bank BGZ offers excellent perspectives for further expansion of the international retail banking business. The collaboration with Bank BGZ was intensified in Besides Robeco investment funds, Bank BGZ now also offers lease products from De Lage Landen to its clients. 51 Report of the Executive Board

55 The Americas: strong growth, both organic and from acquisitions In the United States, Rabobank International has retail banking activities in California. The acquisition of Mid-State Bank & Trust was completed in May 2007, thereby doubling the number of Rabobank-branded branches in California to more than 90. In the year under review, a great deal of work was done on merging these activities with our existing retail banking operations in the United States. The retail banking activities in Brazil, which started in 2006, were expanded further in More than ten branches that focus on the agricultural sector are currently operational outside São Paulo. Thanks to this further expansion of the activities, lending grew significantly in In Chile, the acquisition of HNS Banco, with almost 300 staff, offers plenty of opportunities for Rabobank Group to expand its retail banking network further. In 2007, HNS Banco was rebranded to Rabobank Chile. Australia and New Zealand: organic growth As is the case in the Americas region, the retail banking activities in Australia & New Zealand are focused on the food & agri sector. The key services offered are: loans to the primary agricultural sector, banking services to middle segment enterprises with a business affinity to the food & agri sector and offering complex financial products and services to large cooperatives and enterprises in the food & agri industry. The product range has been broadened over the past few years and the Rabo Financial Advisors unit has been strengthened further with the acquisition of Mondo Financial. Asia: acquisition of Hagabank and Bank Hagakita With the acquisition of Hagabank and Bank Hagakita in Indonesia early in 2007, Rabobank Group extended its retail banking operations to Asia. Both banks have extensive networks, with branches in Bali, Java and South Sumatra. This acquisition gives Rabobank access to the small and medium-sized enterprises sector in Indonesia. Rabobank aims to further professionalise service provision by these banks and plans to introduce new financial products. Direct Banking: savings up 65% to EUR 5.1 billion Rabobank International started its Direct Banking activities in Belgium in 2002, via In the years following, foreign Internet banks were opened in Ireland and New Zealand. Early in 2007, the Direct Banking activities were expanded by the opening of a fourth foreign Internet bank, in Australia, where clients can open savings accounts and can invest in funds via At year-end 2007, more than 12,000 Australian clients were using this new Internet bank, and the foreign Direct Banking activities totalled 197,000 (102,000) clients. Savings at these activities grew by 65% to EUR 5.1 (3.1) billion. Wholesale banking Corporate Banking In the Netherlands, Rabobank International serves large enterprises through Corporate Banking, while supporting the local Rabobanks in their services to the corporate market. In order to serve its Dutch corporate clients and its international SME clients better, Rabobank International started a project, in 2007, with the aim of expanding its present range of services in financial logistics. This concerns mainly services in international cash management. Abroad, the primary focus of the Corporate Banking activities is on the food & agri sector. In addition, Rabobank International possesses specific expertise in Telecom Media & Internet and Trade & Commodity Finance. Telecom Media & Internet operates from Europe, Latin America, Asia and Australia. The Telecom Media & Internet unit works closely with other departments within Rabobank International. Based on a strategic reorientation in September 2007, it was decided to wind down the Telecom, Media & Internet activities in North America. With global operations, the Trade & Commodity Finance department focuses on clients that are active in the market for agricultural products as well as on clients in the metals and the energy markets. In addition, this department offers clients a wide range of export finance products. The Trade & Commodity Finance activities have grown considerably since Rabobank Group Annual Report 2007

56 Global client sectors and product groups Global Financial Markets Global Financial Markets operates in the international financial markets. Besides customer-focused activities, this department handles the trade in money market products for the day-to-day management of the liquidity position, the credit risk and the market risk of Rabobank Group and its clients. Examples include currency and money market products, bonds and derivative products. In addition, Global Financial Markets offers capital market solutions by securitising or restructuring specific risks or cash flows of enterprises or financial institutions. In 2007, income for Global Financial Markets lagged behind that in previous years. Due to the turmoil in the financial markets, the credit exposure related activities particularly were under pressure. At the same time, the money market departments performed well. Global Financial Markets benefited from the strong economic growth and the development of capital markets in the Emerging Markets, Asia in particular. In 2007, Rabobank International introduced a large number of investment products for private clients of local Rabobanks, including the Rabo Familiebedrijven Certificaat for family businesses, the Brazil High Yield Note and the Rabo Afrika Note. Structured Finance Structured Finance offers client-tailored products aimed at both the asset and liability sides of the balance sheet. Even more than in 2006, clients were interested in Rabobank s saleand-lease-back product for Groen Label Kassen. With this product, Rabobank Group makes these green-label greenhouses accessible to a broader group of horticulturalists. In 2007, Rabobank Group was involved in the financing of several wind parks in the Netherlands. Abroad too, Rabobank Group is involved in financing renewable energy, such as a wind park in Belgium and a hydropower station in China. Leveraged Finance Leveraged Finance is involved in financing private equity companies acquisitions that involve acquisition prices exceeding EUR 50 million. On a global level, it is a major player in the agricultural market but it operates in other sectors as well. In 2007, its portfolio grew as a result of transactions with Hendrix Genetics and Heiploeg, among others. Participations Rabo Private Equity, investments in Langholm and participations in Gilde funds Rabo Private Equity invests in unlisted Dutch enterprises. Clients can turn to Rabo Participaties or to Rabo Capital. Rabo Participaties focuses on growing enterprises in the middle segment, participating for an amount between EUR 2 million and EUR 10 million per enterprise. In 2007, acquisitions by Rabo Participaties included a participating interest in Itho. Itho is a developer and producer of comfort enhancing and energy-saving climate systems. Together, they will be working on energy-saving houses. Rabo Capital focuses on acquiring minority interests in larger enterprises, investing between EUR 10 million and EUR 100 million per transaction. In 2007, Rabo Capital s acquisitions included a participating interest in Favory Convenience Food Group, a company established together with Wessanen and comprising the production activities of Habek Snacks and Wessanen in food products such as hamburgers, and deep-fried and halal snacks. In 2007, Rabobank Group invested EUR 25 million in the Clean Tech fund of Emerald Technology Ventures. The transaction is part of Rabobank Group s strategy to expand its Clean Tech activities. Besides this investment, Rabo Private Equity is planning to collaborate with Emerald Technology Ventures in the area of individual investment transactions. Rabobank Group is one of the investors in Langholm, a private equity enterprise with independent operations. Besides these activities, Rabobank International has a number of participations in Gilde funds. CSR testing In 2007, Rabobank International introduced a corporate social responsibility testing system for credit applications from clients and investment proposals made to Rabo Private Equity. The chief aim is to prevent undesirable practices such as child labour, poor working 53 Report of the Executive Board

57 conditions, pollution and deforestation. If a client is unable to meet Rabobank Group s CSR requirements to a sufficient degree, the bank enters into in a dialogue with that client in an attempt to strengthen the sustainable character of the client s operations. For Rabobank Group and for the clients involved, this engagement activity is still in full development. Refusing or dissolving the relationship with the client is a real option if all else fails. A number of Rabobank Group s international branches are planning to devise a climate policy with reduction targets, where applicable, for their respective countries. Private sector lending up 4% to EUR 77.7 billion Private sector lending grew by 4% in 2007 to EUR 77.7 (74.7) billion, despite the 11% depreciation of the US dollar. The international retail banking business accounted fully for this growth in lending. Thanks to the expansion of the international retail banking network, lending to private individuals grew by 17% to EUR 3.8 (3.3) billion. Lending to the food & agri sector grew by 6% to EUR 28.1 (26.5) billion, with this sector accounting for 36% of total private sector lending. Lending to the trade, industry and services (TIS) sector grew by 2% to EUR 45.7 (44.9) billion. At 31 December 2007, 28% (24%) of lending came from the international retail banking business, where lending increased by 18%, to EUR 21.6 (18.2) billion. In Australia and New Zealand, this lending grew by 12% to EUR 8.8 (7.8) billion. The portfolio of the American retail banking activities increased by 42% to EUR 6.0 (4.2) billion. The lending portfolio acquired with Mid-State Bank & Trust amounted to EUR 1.2 billion. The consolidation of HNS Banco, Hagabank and Bank Hagakita resulted in an EUR 0.4 billion increase in lending. Loans at ACCBank grew by 4% to EUR 6.5 (6.2) billion. Financial results Mid-State Bank & Trust has been consolidated in Rabobank International s results from May The smaller banks HNS Banco, Hagabank and Bank Hagakita made limited contributions to net profit in Income down 3% Total income declined by 3% in 2007 to EUR 2,546 (2,622) million. Although some units within Global Financial Markets benefited from the turbulence in the financial markets, income at Global Financial Markets fell by EUR 497 million to EUR 268 million. At the same time, Participations had an excellent year. Income at Global Financial Markets is largely recognised in other income. As a result, other income was 47% lower, at EUR 320 (601) million. Like many others, Leveraged Finance and Structured Finance were hindered by the subprime crisis in the American mortgages market, although to a lesser extent. Income from Leveraged Finance was 7% lower and income from Structured Finance was 5% lower. The growth in lending in the international retail banking business and the Corporate Banking activities contributed to the 11% growth in interest income to EUR 1,832 (1,649) million. Income from the Corporate Banking activities was 11% higher. Of total income, Lending by region at year-end 2007 America 35% Europe excluding the Netherlands 30% Netherlands 15% Australia and New Zealand 15% Asia 5% Lending by sector in billions of euros Food & agri TIS Private individuals Rabobank Group Annual Report 2007

58 24% (19%) is from the international retail banking business. Income from the retail banking activities was 23% higher, at EUR 624 (506) million. ACCBank s income showed a marginal increase, which was in line with the slight growth in lending. Income from the retail banks in the other regions rose as a result of both organic growth and acquisitions. Operating expenses up 8% Total operating expenses were 8% higher in 2007, at EUR 1,715 (1,586) million. Acquisitions were important drivers for the 49% growth in staff numbers to 9,957 (6,684) FTEs. Of this increase, around 2,800 FTEs are the result of acquisitions. Despite the staff increase, staff costs rose by a mere 3% to EUR 890 (867) million. The expansion of the activities contributed to the 16% rise in other administrative expenses to EUR 772 (668) million. Results (in millions of euros) Change Interest 1,832 1,649 11% Fees and commission % Other income % Total income 2,546 2,622-3% Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses 1,715 1,586 8% Gross result 831 1,036-20% Value adjustments Operating profit before taxation % Taxation Net profit % Value adjustments (in basis points) Ratios Efficiency ratio 67.4% 60.5% RAROC 8.4% Balance sheet (in billions of euros) 31-Dec Dec-06 Total assets % Private sector lending % Risk-weighted assets % Economic capital 4.6 Number of employees (in fte) 9,957 6,684 49% Value adjustments at 63 basis points Due to the crisis on the financial markets, the item Value adjustments increased to EUR 493 (234) million in This corresponds to 63 (39) basis points of average lending and is higher than the five-year average of 46 basis points. Net profit down 43%; RAROC 8.4% As a result of the decline in gross profit and the increase in the item Value adjustments, net profit fell by 43% to EUR 394 (687) million, despite the lower income tax. The lower result from Global Financial Markets and the higher income from Participations, the latter being largely tax-exempt because of participation exemption, contributed to the decline in the item Taxation. Rabobank International achieved a Risk Adjusted Return On Capital (RAROC) of 8.4% in At year-end, the economic capital required was EUR 4.6 billion. 55 Report of the Executive Board

59 Ambitions and outlook For the Corporate Banking activities, it is anticipated that the margins will increase because of the higher prices to be paid for risks. Telecom Media & Internet intends to wind down its activities in North America further and sees opportunities for growth in Asia, Latin America and Central and Eastern Europe. Trade & Commodity Finance expects further growth in Global Financial Markets intends to adjust its organisation and its activities following the changes in market conditions as a result of the turmoil in the financial markets. Leveraged Finance expects fewer transactions for This year, the international retail banking business will focus on organic growth. The integration of the recently acquired retail banks with the existing activities will be a point of focus. The retail banking business should grow further by attracting new clients and offering new products. The Polish government, which is a co-shareholder in Bank BGZ, has indicated that it wishes to float its shares. Accordingly, Rabobank Group might increase its interest in Bank BGZ to a majority interest in Strong growth in savings is expected for the Direct Banking activities. A fifth foreign Internet bank will be opened in Rabobank Group Annual Report 2007

60 Asset management and investment Share in Rabobank Group s net profit in % Asset management and investment 14% Rabobank Group s asset management and investment activities are handled by Robeco, an asset manager with global operations, as well as by the Swiss private bank Sarasin and by Schretlen & Co, the Dutch private bank for high net-worth clients. Rabobank Group has a 46% shareholding in Sarasin and a voting share of 69%. From 2008, Alex has ceased to be part of Rabobank Group, after its sale to BinckBank. In all, more than 3,600 people are employed in Rabobank Group s asset management and investment activities. Total assets managed and held in custody for clients amounted to EUR 232 billion. Net profit: strong performance with limited cash flow Assets managed and held in custody up 6% to EUR 232 billion - Cash flow EUR 7 billion - Investment performance of Robeco fixed income funds under pressure Number of orders handled in the Netherlands up 8% to 8.2 million Net profit up 62% to EUR 362 million - Income up 77% to EUR 1,479 million - Operating expenses up 80% to EUR 991 million In 2007, Rabobank Group s asset management activities Robeco, Sarasin, Schretlen & Co and Alex realised a 62% increase in net profit, to EUR 362 (223) million. This favourable development was the result of the expansion of the Group s interests in Sarasin and in Transtrend, in combination with the divestments by Sarasin and the strong investment performance of Transtrend s Diversified Trend Program. Besides the expansion of the Group s interest in Transtrend to 100%, Robeco acquired a 64% interest in the Sustainable Asset Management Group, another leading Swiss-based global player in sustainable investments besides Sarasin. Alex is sold to BinckBank and as from 2008 ceased to be part of Rabobank Group. In 2007, the inflow of assets at Sarasin and the positive investment results made together an important contribution to the 6% growth, to EUR 232 (219) billion, in assets managed and held in custody for clients. Strategy and targets - To offer high-quality services to all categories of investment clients. - To strengthen Rabobank Group s position in the market for high net-worth individuals and institutional investors, pension funds in particular. - To maintain and grow the positions in the Netherlands and Switzerland, with selective expansion elsewhere of the distribution network and the institutional sale and asset management activities, based in part on a sound strategy for international growth. - To broaden and improve the range of innovative products and services. - Annual net profit growth of 10 to 15%. 57 Report of the Executive Board

61 Market and clients Despite the increased turbulence in the financial markets, many stock exchanges succeeded in ending the year in black figures. On 31 December 2007, the AEX index was 4% higher than at the beginning of the year. In Europe, the German DAX 30 index closed 22% higher than in 2006 and in the UK, the FTSE 100 index was 4% higher than a year ago. The S&P 500 index likewise was 4% higher, although in euros it was lower due to the 11% devaluation of the US dollar. In Japan, the NIKKEI 225 index fell by 11%. Since returns on a large number of equity investments were moderately positive, Rabobank Group saw a rise in its assets managed and held in custody for clients. The increased uncertainty in the stock exchanges caused private clients to seek greater security from other products. Helped by the rising short-term interest rate, the interest paid on time deposits was higher as well. As a result, many clients decided to exchange traditional equity funds and bond funds for deposits. This outflow of assets caused a slowdown in the growth of Rabobank Group s total cash flow. Customer services through different channels Rabobank offers a broad range of investment products and services to Dutch private and institutional investors via different channels. For a many years, Robeco has offered investment opportunities in a large number of investment products. Rabo Direct Beleggen accommodates active, independent investors. With Robeco s Younique concept, Robeco Direct offers tailored asset advice and management to private individuals with invested assets of EUR 25,000 or higher. Rabobank Private Banking focuses on private individuals with assets of EUR 80,000 or higher. Schretlen & Co accommodates high net-worth private individuals with assets of EUR 500,000 or more and medium-sized institutional investors. The large Dutch institutional investors can turn to Robeco Institutional Asset Management. Internationally, Rabobank Group likewise provides for many investors needs through Robeco and Sarasin. Robeco: slightly positive cash flow despite asset outflow in favour of deposits Founded in Rotterdam in 1929, Robeco provides investment products and services to approximately 700 institutional clients and some 1.5 million private individuals around the world. Services to private clients are provided through banks and other distribution partners as well as direct channels. Robeco s product range includes not only equity and fixed-interest investments, money market and real estate funds, but also alternative investments including private equity, hedge funds and structured products. In addition to its home markets in the Netherlands and the United States, Robeco has branches in Bahrain, Belgium, China, France, Germany, Hong Kong, India, Japan, Luxembourg, Poland, Spain, Switzerland and the United Kingdom. At year-end 2007, assets managed amounted to EUR 146 billion. Worldwide, Robeco has around 1,800 employees. Investment expertise increased, distribution capacity expanded Robeco increased its investment expertise significantly in 2007 with the acquisition of Sustainable Asset Management Group (SAM Group) and the expansion of its interest in Transtrend. At the beginning of the financial year, Robeco acquired a 64% interest in SAM Group, the Swiss sustainable asset manager, thereby expanding its expertise in sustainable investment. In addition, Robeco acquired the remaining shares in the Dutch Transtrend enterprise, in which it initially held a 49% minority interest. Transtrend is a Rotterdam-based managed futures trader. In Belgium, Robeco intends to focus exclusively on funds distribution and therefore decided to sell Robeco Bank Belgium to Kaupthing Bank. Robeco aims for modest expansion of its activities outside Europe and the United States. In India, Robeco and Canara Bank, one of India s largest banks, set up a joint venture named Canara Robeco Asset Management. Together, Robeco and Canara Bank aim to expand Canara Bank s asset management activities. Robeco developed a separate strategy for Greater China, i.e. China, Hong Kong, Taiwan and Singapore, with Hong Kong being positioned as the gate to Asia. Robeco established a regional office in Hong Kong in 2007 and is setting up a branch in Shanghai. 58 Rabobank Group Annual Report 2007

62 Growth in assets managed thanks to positive investment results Mainly thanks to its positive investment results, assets managed by Robeco grew by 3% in 2007 to EUR (141.7) billion. From early 2007, the consolidation of the Swiss SAM Group subsidiary also contributed to the increase in assets managed. A number of traditional Robeco investment funds, especially bond funds, showed an outflow of assets. This cash flow was compensated by an inflow of funds at both the American subsidiary Harbor Capital Advisors and the SAM Group. Through its Japanese branch, Robeco succeeded in attracting a considerable amount of new assets for the SAM Group. The further weakening of the US dollar in 2007 slowed the growth of assets managed, resulting in a negative impact of approximately EUR 4 billion. Outperformance for the majority of equity investments; handsome returns on alternatives 2 Robeco can be satisfied with the performance of its portfolio managers in Many equity investments outperformed their benchmarks, and alternatives realised handsome absolute returns. Bond funds performed less strongly, however. Of the equity investments, 80% 3 realised an outperformance in 2007, compared with only 21% of fixed-interest investments. On a three-year horizon, these figures are 95% and 57%, respectively. Flagship fund Robeco beat the benchmark by 1.9%, Robeco Emerging Markets Equities by 3.0% and the outperformance for Robeco Hollands Bezit was 1.3%. Highlights abroad were the SAM Sustainable Water Fund, with an outperformance of 9.0%, and Harbor International Fund, with 10.5%. The latter has USD 27.2 billion in assets under management. In 2007, Harbor Capital Advisors came first in two out of the three categories of the Fund Managers of the year election, which is organised annually by Morningstar USA. Outperformance was scarcer among fixed-interest funds, with Flagship funds Rorento and Robeco Lux-o-rente underperforming by 0.9% and 2.1%, respectively. The return on the Harbor Bond Fund exceeded the benchmark by 2.2%. Robeco Balanced Mix, the largest domestic mix fund, realised an absolute return of 3.0%. Alternatives performed well in Transtrend s Diversified Trend Program Enhanced Risk, for instance, realised a handsome absolute return of 22.4%. Robeco Multi Market Bonds likewise showed fine returns in These were significantly higher than the risk-free return. Sarasin: increase in assets from international clients Founded in 1841, Bank Sarasin is one of Switzerland s leading private banking institutions. Its core activities comprise investment advice and asset management services to high net-worth private clients and institutional clients, as well as an investment fund management. Its complementary services extend to corporate finance and financial analysis. The Sarasin Group has around 1,200 employees and operates internationally in eight countries across Europe, Asia and the Middle East. Its shares are listed on the Swiss stock exchange, SWX. 2 Returns are before management fees, with the exception of alternatives. 3 Percentages based on weighted assets. International growth strategy shows positive effects In 2007, Bank Sarasin successfully attracted new assets, largely from private banking clients. Mainly due to this inflow of new funds, assets managed grew by EUR 4.6 billion to EUR 50.2 (45.6) billion. A growing proportion of assets managed originated from clients outside Switzerland was the fifth consecutive year for Bank Sarasin to be elected one of the best private banking providers in German-speaking countries, with the commendation of summa cum laude. The bank won this distinction in the Elite Report 2008 published by the German financial daily paper Handelsblatt. Bank Sarasin-Alpen, Dubai, has earned in its second of only two years of operations in the Middle East the accolade of the Best Private Bank of Year-2007 in the prestigious Banker Middle East Awards. Bank Sarasin s renewed focus on its core competencies resulted in the sale in early 2007 of its brokerage business, to NZB Neue Zϋrcher Bank, and its Luxembourg activities, to Crédit Agricole Group. In addition, Bank Sarasin and AIG Private Bank signed an agreement to form a new bank dedicated to serve private clients with assets worth up to approximately EUR 300,000. Bank Sarasin will have a 57.5% interest in this new bank. Together, Sarasin and AIG Private Bank will be managing approximately EUR 5 billion on behalf of over 235,000 clients. 59 Report of the Executive Board

63 Schretlen & Co: higher customer satisfaction Schretlen & Co is the asset management specialist within Rabobank Group. Its asset management and advice activities, combined with asset planning, are focused primarily on high net-worth individuals and medium-sized institutions. Its collaboration with local Rabobanks has resulted in activities including Rabobank Beheerd Beleggen and the Rabobank Effecten Advies Desk. In addition to its head office in Amsterdam, Schretlen & Co has branches in Apeldoorn, Heerenveen, Rotterdam and Waalre. In terms of customer satisfaction and growth in client numbers, Schretlen & Co showed a very strong performance in Clients were more satisfied with the services provided. The business periodical Incompany awarded Schretlen & Co the title of best private bank in the Netherlands. In that survey, clients rated their satisfaction with a score of 7.3 (6.8). Schretlen & Co succeeded in attracting many new clients in the year under review and their number grew by 16% to 6,091 (5,247). This growth was due in part to good collaboration with the local Rabobanks. Assets managed grew by 12% to EUR 8.4 (7.5) billion, mainly as a result of the inflow of assets from new clients. Alex divested In 2007, following a strategic reorientation at Group level, Rabobank Group decided to sell the online investment bank Alex to BinckBank. Due to the increased volatility at the stock exchange, Alex clients placed a large number of orders again in The number of orders handled increased by 17% to 3.7 (3.2) million. Changes in assets managed and held in custody for clients in billions of euros 4 Assets managed and held in custody on 31 December 2006 have been adjusted for the increase in Sarasin s assets in the second half of Assets managed and held in custody for clients up 6% to EUR 232 billion In 2007, assets managed and held in custody at Rabobank Group grew by 3% to EUR 301 (291) billion, of which EUR 69 (72) billion represents Rabobank s investment portfolio. Assets managed and held in custody for clients grew by 6% to EUR 232 (219 4 ) billion. Deposits, due to the increase in 240 interest paid on them, became a 235 more interesting investment category 230 for clients. For Robeco, this resulted in 225 an asset outflow from a number of 220 investment funds, including Robeco 215 Lux-o-rente and Rorento. Despite the inflow of funds at Sustainable Asset Management Group and Harbor Capital Advisors, both of which are Robeco subsidiaries, Robeco s cash flow was slightly negative on balance. Rabobank Group s total cash flow amounted to EUR 7 billion, largely as a result of an inflow of assets at Sarasin. Despite the turbulence in financial markets, the majority of equity funds showed positive returns for 2007, resulting in positive investment results and a EUR 10 billion increase in assets. The positive investment results were largely offset by the depreciation of the US dollar by 11% and of the Swiss franc by 3%. As a result of the consolidation, from the beginning of 2007, of the Sustainable Asset Management Group, assets grew by more than EUR 2 billion; the sale of Sarasin s Luxembourg activities and the acquisition of DWS Investment Switzerland by Sarasin caused a net decline in assets of more than EUR 2 billion Cashflow Investment results Exchange results SAM Group Disposals and investments Other Of total assets managed and held in custody for clients, 47% is invested in equity, 29% in fixed-income securities and 6% in structured products, hedge funds and private equity. 60 Rabobank Group Annual Report 2007

64 Assets managed and held in custody for clients at year-end 2007 Equity 47% Fixed income 29% Mixed 10% Alternatives 6% Money market 5% Real estate 2% Other 1% More assets managed sustainably Thanks to Rabobank Group s expansion of its interest in Sarasin, the proportion of assets managed in a sustainable manner has been significantly enlarged since the end of Being widely known as an investor with a long and successful track record in areas such as renewable energies and energy efficiency, the rising awareness amongst investors of the threats and opportunities brought about by a potential change in our climate boosted Sarasin s sustainable assets from EUR 3.2 billion to EUR 4.8 billion. Robeco acquired a majority interest in Sustainable Asset Management Group (SAM Group) in SAM Group ranks among the top of sustainable asset managers. Since 2007, Robeco s activities include engagement on behalf of Dutch equity funds operating in the market for private individuals. In this context, Robeco actively enters into constructive dialogue with a large number of enterprises it invests in. It also performs engagement activities for Rabobank Pension Fund, among others. As a result, the proportion of assets managed for which Robeco applies engagement has seen substantial growth. Investment orders handled in the Netherlands up 8% to 8.2 million Due to growth in the number of clients and the turbulence in the financial markets, the large number of orders handled in 2006 was exceeded in The number of orders for securities and in-house funds in the Netherlands grew by 8% to 8.2 (7.6) million. The number of orders handled by local Rabobanks increased by 8% and the number of in-house fund orders handled by Rabobank Group increased by 11%. In 2007, Alex succeeded to increase its number of orders by 17% compared to Financial results Sarasin has been consolidated in Rabobank Group s figures since late Transtrend has contributed in full to Rabobank Group s results since March, Alex contributed to Rabobank Group s profit for the full year The gain on the sale of Alex should have a positive effect on Rabobank Group s results for Income up 77% Increases in both commission and other income were important drivers for the 77% growth, to EUR 1,479 (836) million, in total income. Net interest income was EUR 4 million lower, at EUR 82 (86) million. Commission income increased by EUR 441 million to EUR 1,089 (648) million. The increase in commission income was largely due to Sarasin s full consolidation as from year-end The strong investment performance of the Transtrend Diversified Trend Program and the expansion of the Group s interest in Transtrend also contributed to the increase in commission income. The gains from the sale at Sarasin of both its Luxembourg and its brokerage activities were important drivers for the EUR 206 million increase in other income, to EUR 308 (102) million. Operating expenses up 80% Total operating expenses were 80% higher in 2007, at EUR 991 (551) million, largely as a result of the consolidation of Sarasin. This fact, among others, caused staff costs to increase by EUR 251 million to EUR 581 (330) million and other administrative expenses by EUR 176 million to EUR 386 (210) million. The depreciation charges were EUR 13 million higher, at EUR 24 (11) million, partly due to higher software depreciation. 61 Report of the Executive Board

65 Results (in millions of euros) Change Interest Fees and commission 1, Other income Total income 1, % Staff costs Other administrative expenses Depreciation and amortisation Operating expenses % Gross result % Value adjustments 1 - Operating profit before taxation % Taxation % Net profit % Number of orders in the Netherlands (in millions) % Assets managed and held in custody (in billions of euros) 31-Dec Dec-06 For clients % Investment portfolio % Total % Number of employees (in fte) 3,468 3,126 11% Ambitions and outlook Robeco aims to attract new clients by launching several innovative investment products and services, while maintaining a strong investment performance as a priority. New clients will be reached by broadening the distribution network. Robeco intends to enhance its distribution in Greater China by opening a number of retail offices. For 2008, it plans to open branches in Singapore and Taiwan. Further growth for European branches should be organic. Sarasin expects to grow its business in 2008 further. A growing proportion of income is expected to come from international activities. In this context, Sarasin intends to further strengthen its presence in the Middle East and other key markets. Schretlen & Co s customer base is expected to grow as a result of a better response to private banking clients needs. Besides growth in the number of new clients as a result of the collaboration with the local Rabobanks, Schretlen & Co also expects to attract a large number of clients externally. 62 Rabobank Group Annual Report 2007

66 Leasing Share in Rabobank Group s net profit in % Leasing 9% De Lage Landen offers flexible asset financing products in order to help producers, vendors and distributors in Europe, the Americas, Asia/Pacific, Australia and New Zealand market their products. De Lage Landen is represented in 29 countries and provides competitive benefits for all its clients. With its innovative finance programmes, De Lage Landen helps its partners distinguish themselves in a competitive market environment. In its Dutch home market, De Lage Landen offers a broad range of lease and trade financing products directly to the market and to clients of the local Rabobanks. Athlon Car Lease has been a part of De Lage Landen since Athlon Car Lease is an international supplier of operating car leasing, with operations in seven European countries. From January 2007, De Lage Landen has been operating as Rabobank Group s centre of competence for all Consumer Finance activities in the Dutch market. De Lage Landen employs around 4,600 staff. Net profit benefits from organic growth and Athlon acquisition Loan portfolio up 10% to EUR 20.7 billion - Car lease contracts up 9% to 205,000 - Consumer loans up 42% to EUR 0.9 billion Net profit up 14% to EUR 234 million - Income up 18% to EUR 995 million - Operating expenses up 20% to EUR 594 million - Efficiency ratio inclined by 1.0 percentage points to 59.7% - Value adjustments at 61 basis points, below the five-year average - Risk Adjusted Return On Capital 21.0% Net profit for De Lage Landen, Rabobank Group s lease subsidiary, grew by 14% to EUR 234 (206) million in The Car Leasing and Financial Institutions units both saw strong growth in In order to improve its service to clients with global operations, De Lage Landen worked hard at further standardisation of its business processes in the year under review. Athlon, which had been acquired in 2006, was integrated further with Translease. Among car lease clients, satisfaction with the services continued to grow. Since August 2007, De Lage Landen has also been providing consumer loans under the new Freo label. Strategy and targets - To offer financing solutions world-wide for producers and/or distributors of capital assets. - To serve local Rabobanks and Rabobank International with a broad range of leasing and factoring products. - To be the most client-centred car lease business in all countries where De Lage Landen has car leasing operations. - To strengthen Rabobank Group s position in consumer credit in the Netherlands. - Annual net profit growth of 10 to 15%. 63 Report of the Executive Board

67 Market and clients Strong competition in the asset financing market caused pressure on the Vendor Finance unit s interest margin in The growth in De Lage Landen s Car Leasing activities outstripped market growth. In 2007, the Dutch market grew by approximately 5%, compared with 9% for the activities of Car Leasing in the Netherlands. The car lease portfolio grew by 7% to EUR 2.7 (2.5) billion. The Consumer Finance unit launched the Freo label in August As a result of the further transfer of the portfolio of the local Rabobanks and sales of new loans, consumer credit grew by 42% to EUR 0.9 (0.7) billion. Expansion in Europe De Lage Landen greatly expanded its European presence in In Poland, De Lage Landen started the sale of car leasing contracts and signed a collaboration agreement with Bank BGZ, one of Rabobank Group s minority interests. This agreement enables BGZ clients to purchase lease products of De Lage Landen. With the acquisition of IT Finans in Norway, De Lage Landen strengthened its Norwegian presence in IT Finans specialises in financing solutions for office supplies and IT. Early in 2008, De Lage Landen acquired Siemens Leasing and Siemens Finance in Hungary. This acquisition and the newly started activities of the Cargobull Finance joint venture in Hungary and Romania gave De Lage Landen a solid platform for further expansion in Central and Eastern Europe. Vendor Finance: clients demand global, uniform servicing Through its Vendor Finance unit, De Lage Landen offers financing solutions that meet the needs of capital goods vendors and/or distributors as well as those of their clients. Its many years of international experience, its in-depth knowledge of financial reporting regulations and Basel II guidelines and its leading position in e-commerce applications have earned De Lage Landen the reputation of a widely recognised expert in the area of Vendor Finance. De Lage Landen intends to serve clients with international operations in identical ways globally. For that reason, De Lage Landen made further steps in the standardisation of its business processes in Additionally, De Lage Landen is constantly looking for opportunities to expand its global network for the best possible service to its international vendors. Examples of vendors from various sectors that work closely with De Lage Landen include: Manitowoc, Stryker, AGCO, Philips Medical, Doosan, Manitowok, EMC, Océ, Ricoh and Schmitz Cargobull. Car Leasing: higher customer satisfaction despite integration De Lage Landen s car lease activities were expanded with the acquisition of Athlon in mid As a result, De Lage Landen became second in the Dutch car lease market and obtained strong positions elsewhere in Europe as well. In Europe, the Car Leasing unit operates in Belgium, Luxembourg, Germany, France, Spain and, since mid-2007, in Poland. The number of car lease contracts grew by 9% to 205,000 (188,000) in In the Netherlands, a great deal of effort was spent on the merger of Athlon and Translease in 2007, naturally without losing sight of the customers or the market. This was done successfully. In 2007, Heliview research agency elected Translease as the most customer oriented car lease company in the Netherlands, with Athlon at a shared second place. In the survey, clients rated the general customer satisfaction with a score of 7.7 (7.6) for Translease and 7.5 (7.3) for Athlon. The survey showed clients to be highly satisfied with the services, although they gave a lower score to product innovation. Consumer Finance: Freo launched Within Rabobank Group, Consumer Finance is the centre of competence for consumer credit in the Dutch market. The local Rabobanks work closely with De Lage Landen in the sale of personal, continuous and student loans. The client takes out the loan at a local Rabobank and De Lage Landen handles the entire subsequent process. Besides the sale of consumer credit via the local Rabobanks, De Lage Landen has direct operations in the consumer credit market under the Freo and Crediam labels. 64 Rabobank Group Annual Report 2007

68 The Freo label was launched at the end of August. The product features openness and transparency. Clients no longer need to leave home for a loan because Freo operates fully via the Internet. The Crediam label focuses specifically on the sale of consumer credit to public servants. Factoring: more prominent as Rabobank Group s factoring specialist The local Rabobanks offer factoring products to small and medium-sized enterprises, with De Lage Landen supporting the local Rabobanks in the entire process. Within Rabobank Group, De Lage Landen operates as the factoring specialist. For improved fulfilment of this role, De Lage Landen started a reorganisation in 2006, which resulted in a new factoring organisation early in Upgraded software enables local Rabobanks to process applications independently and credit assessments are performed within 48 hours. CSR in lending In 2007, De Lage Landen introduced a corporate social responsibility test in its lending process, against which all applications from larger non-private clients must be tested. Particular attention is paid to the development of the CSR policy for loans granted in Brazil. The policy includes restrictions on lending to clients operating in the Amazon biome and the state of Mato Grosso. CSR measures were 120drivers of cars leased from Athlon in order to encourage public transport use. In addition, diesel vehicles have been equipped with particulate filters. In order to reduce fuel consumption, maintenance costs and CO 2 emissions, a new driving promotion scheme for leased car drivers was developed. Loan portfolio up 10% to EUR 20.7 billion In the year under review, De Lage Landen s loan portfolio grew by 10% to EUR 20.7 (18.9) billion, despite the 11% depreciation of the US dollar, which caused the contribution from the Americas to decline by 2 percentage points, to 39%. Financial results Income up 18% The 18% increase in total income in 2007, to EUR 995 (842) million, was mainly due to the growth of the item Other income, which includes the car leasing activities. The continued growth of these activities was an important driver for the 49% growth in other income to EUR 425 (286) million. Downward pressures on margins caused interest income to grow by only 2% to EUR 518 (507) million. Commission income was 6% higher, at EUR 52 (49) million. Loan portfolio in billions of euros Loan portfolio by region at year-end 2007 Other Consumer finance Trucks & trailers Car leasing Technology finance Health care Materials handling & construction equipment Financial services Office equipment Food & agri Europe 60% America 39% Asia/Pacific 1% 65 Report of the Executive Board

69 Results (in millions of euros) Change Interest % Fees and commission % Other income % Total income % Staff costs % Other administrative expenses % Depreciation and amortisation % Operating expenses % Gross result % Value adjustments % Operating profit before taxation % Taxation % Net profit % Value adjustments (in basis points) Ratios Efficiency ratio 59.7% 58.7% RAROC 21.0% Balance sheet (in billions of euros) 31-Dec Dec-06 Loan portfolio % Risk-weighted assets % Economic capital 1.1 Number of employees (in fte) 4,411 4,128 7% Operating expenses up 20% Total operating expenses were 20% higher, at EUR 594 (494) million in the year under review. This was largely due to higher staff costs. The greater part of the 21% increase in staff costs to EUR 369 (305) million was the result of the acquisition of Athlon. Staff levels grew by 7% in 2007 to 4,411 (4,128) FTEs as a result of organic growth of the activities. Other administrative expenses were 15% higher, at EUR 193 (168) million. Depreciation charges were EUR 11 million higher, at EUR 32 (21) million, mainly due to higher depreciation of equipment. Value adjustments at 61 basis points The item Value adjustments increased to EUR 100 (77) million in This was connected with the growth of the loan portfolio and the greater portfolio share of consumer loans. This corresponds to 61 (53) basis points and is below the five-year average of 69 basis points. Net profit up 14%; RAROC 21.0% Net profit was 14% higher, at EUR 234 (206) million. Following its acquisition, in mid-2006, Athlon contributed for six months to De Lage Landen s results for that year. For 2007, Athlon s full-year contribution was recognised, resulting in an additional increase in net profit of EUR 18 million. Ambitions and outlook The current credit problems in the United States make economic developments, such as the volumes of business investments and value adjustments, harder to predict. Nevertheless, 2008 looks promising for De Lage Landen. The volume of the loan portfolio is expected to grow, although margins for the Vendor Finance activities will remain under pressure. For international expansion of its leasing activities, De Lage Landen is looking for attractive 66 Rabobank Group Annual Report 2007

70 growth opportunities in Europe and Asia/Pacific, possibly through minor acquisitions. A branch will be opened in Portugal in In addition, De Lage Landen intends to start leasing activities in the Baltic states this year. For 2008, Vendor Finance is planning further standardisation of its business processes in order to improve its services to clients with global operations. The integration of Athlon and Translease will be completed in Opportunities in Car Leasing for synergies between the various countries and other units within De Lage Landen will be leveraged. The acquisition of Siemens Leasing and Siemens Finance offers a good platform for further expansion of the Car Leasing activities in Central and Eastern Europe. Consumer Finance intends to strengthen Rabobank Group s position in the consumer credit market. In Factoring, the credit assessment process will be automated further. 67 Report of the Executive Board

71 Real estate Share in Rabobank Group s net profit in % Real estate 6% Rabo Bouwfonds is a leading real estate enterprise with three core activities focused on real estate: development, finance and investment management. Rabo Bouwfonds operates in both the private and corporate markets and is one of Europe s largest real estate enterprises. Within Rabo Bouwfonds, Bouwfonds Property Development and Rabo Vastgoed are responsible for real estate development. Real estate financing is done by FGH Bank, both under its own label and under the labels Nederlandse Hypotheekbank and Rijnlandse Hypotheekbank. Bouwfonds Asset Management is responsible for real estate investments. Through Fondsenbeheer, Rabo Bouwfonds makes a prominent supporting contribution to social real estate development and financing. Rabo Bouwfonds employs around 1,800 staff and operates in several European countries. Strong net profit development for Rabo Bouwfonds Number of houses sold 6% lower, at 13,173 Loan portfolio up 31% to EUR 13.5 billion Assets managed in real estate up 21% to EUR 5.1 billion Net profit Rabo Bouwfonds EUR 97 million higher, at EUR 246 million - Income up EUR 387 million, at EUR 670 million - Operating expenses up EUR 258 million, at EUR 352 million For Rabo Bouwfonds, Rabobank Group s real estate subsidiary, 2007 was an excellent year. In the first full year since the acquisition of parts of Bouwfonds in 2006, net profit grew by EUR 97 million to EUR 246 (149) million. In the year under review, Rabo Bouwfonds paid a great deal of attention to the integration of the various real estate units. Since the focus remains on the customer during the integration, Rabo Bouwfonds succeeded in strengthening its position in the real estate market in In the Netherlands, the Bouwfonds Property Development and Rabo Vastgoed tandem maintained its position as the largest housing developer by far. FGH Bank strengthened its position in the Dutch market for real estate financing. Assets managed by Bouwfonds Asset Management reached the EUR 5 billion mark in Strategy and targets - To maintain and strengthen the leading position in the Dutch market for owner-occupied houses and commercial real estate, respecting a sustainable living environment. - To maintain a dominant position in commercial real estate financing in the Netherlands. - Selective expansion of the development of houses and commercial real estate, real estate financing and investment products in various European countries. - Within Rabobank Group, to act as the centre of expertise for real estate investments. - To leverage Rabobank s distribution strength and to increase real estate management knowledge and expertise in order to grow assets managed further. - Annual net profit growth of 10 to 15%. 68 Rabobank Group Annual Report 2007

72 Market and clients Despite increased insecurity in the financial markets, the European market for real estate remained strong in Due to the structural scarcity in the Dutch housing market, demand for houses in the Netherlands remained high. At the same time, the building sector in the Netherlands and in the other European countries was hindered by the effects of the rising costs of materials and labour. This results in longer tendering procedures, making it more difficult to put projects on sale. The higher costs had little impact on Bouwfonds Property Development s profitability, however. Benefiting from the positive sentiment in the real estate market and from its market dominance, FGH Bank saw significant growth in new production. Increasingly, FGH Bank supplies tailored finance to its clients. The internationalisation of the real estate investment market is making itself clearly felt. The presence of foreign investors in the market is increasing as a result of a constant capital flow into real estate, mainly from institutional investors. This capital flow is driven by investors seeking investments offering stable income. This fits the profile of real estate. Several surveys indicate that institutional investors are looking to increase their weight in real estate. Further integration of activities After the acquisition of parts of Bouwfonds late in 2006, a great deal of attention was paid in 2007 to the integration of a number of units within Rabo Bouwfonds. The successful integration ensured that several synergy opportunities were realised, with the collaboration between the different divisions and with Rabobank Group showing a strong increase on several fronts in An example is the Eigen Steen real estate project, which was established in Through Eigen Steen, Rabo Bouwfonds relieves the local Rabobanks from all their real estate worries, enabling the local Rabobanks to focus more on banking. In its new set-up, Rabo Bouwfonds has opted for a strong central holding, in combination with a maximum of decentralised accountabilities. Within the Development division, Bouwfonds Property Development was merged with Rabo Vastgoed. From mid-2008, this division will operate under the Rabo Bouwfonds Development label. In the Finance division i.e. FGH Bank work was done on the integration of Rijnlandse Hypotheekbank and Nederlandse Hypotheekbank. Since the second half of 2007, FGH Bank s asset management activities i.e. FGH Asset Management have been integrated with Bouwfonds Asset Management. In 2008, this division will operate as Rabo Bouwfonds Real Estate Investment Management (REIM). Number of houses sold in 2007 The Netherlands 70% France 22% Germany 5% Other 3% Real estate development The Development division s core activity comprises area development of projects with combined residential, labour and shopping facilities as well as multifunctional projects. Its experience in complex, cost-efficient project development and its participation in public/ private collaboration projects are some of the distinguishing features of Rabo Bouwfonds development division in the market. Another strength of the development unit is managing comprehensive area development and complex inner-city redevelopment. Most of the development activities are steered from the Netherlands. Additionally, the Development division operates in several European countries. Number of houses sold 6% lower, at 13,173 In 2007, 13,173 houses were sold by Rabo Bouwfonds, 69% of which in the Netherlands. In the previous year, Rabo Vastgoed and Bouwfonds Property Development had sold 14,073 houses. In 2007, Rabo Bouwfonds completed 223,782 (188,585) m 2 of commercial real estate, with 570,970 (714,565) m 2 of commercial real estate under construction. 69 Report of the Executive Board

73 Loan portfolio 16 in billions of euros Real estate finance FGH Bank does business with professional parties in real estate. These mainly include investors, traders, project developers, construction companies and real estate funds in the Dutch commercial real estate market. Clients of this division typically seek a financier that specialises in real estate financing and that, based on its detailed market and financing expertise, acts as a sparring partner in the development of financing structures. FGH Bank, through its subsidiary FGH Vastgoed Expertise, also offers real estate advisory services besides financing. Nederlandse Hypotheekbank and Rijnlandse Hypotheekbank serve clients operating in the middle segment of the real estate market, typically in conjunction with brokers but also through direct channels. Loan portfolio up 31% to EUR 13.5 billion FGH Bank s new granted loans reached a record of EUR 6.3 billion in The gross loan portfolio grew by 31% in 2007, to EUR 13.5 (10.3) billion. The net loan portfolio, after syndications, grew by 33% to EUR 12.5 (9.4) billion. Repayments amounted to EUR 2.0 billion. Investment financing makes up the greater part of the portfolio: 73%. In June 2007, EUR 3.0 billion of FGH Bank s loan portfolio was securitised. Real estate investment management Bouwfonds Asset Management is especially involved in structuring, placing and managing unlisted real estate funds and real estate related financial products for private and institutional investors. Assets managed in real estate up 21% to EUR 5.1 billion Assets managed by Bouwfonds Asset Management grew by 21% in 2007 to EUR 5.1 (4.2) billion. The increase was due in part to the expansion of the Bouwfonds US Residential Fund for institutional investors and to the contribution of houses to the Woning Dispositie Fonds. Early in 2007, private individuals subscribed en masse to the Bouwfonds Germany Residential Fund IV, and the subscription had to be closed prematurely. The issue of Bouwfonds Germany Residential Fund V followed later in the year. Subscription to this limited partnership was open also for private banking clients of the local Rabobanks. CSR in core activities Rabo Bouwfonds embeds corporate social responsibility in its core activities: development, finance and investment management. For example, in 2007 all new housing projects were put in a software package that enables control of sustainability, living comfort and quality during development. By offering sustainability financing in the near future, FGH Bank intends to stimulate sustainability in building. Investment management researched the possibilities of turning a number of funds, e.g. the housing fund for the elderly and the European housing fund, into energy-friendly funds. In 2008, a harmonised code of conduct will be implemented that is tailored specifically to Rabo Bouwfonds, while being fully in line with Rabobank Group s ethical principles. Through its non-profit Fondsenbeheer, Rabo Bouwfonds makes facilities and staff available for a sustainable living environment. Bouwfonds Fondsenbeheer supplies the management of four public/private funds for nature development, listed buildings, urban renovation and industrial heritage in the Netherlands. In 2007, the capital of these four funds grew from EUR 2.0 billion to EUR 2.4 billion. 70 Rabobank Group Annual Report 2007

74 Financial results In 2007, the parts of Bouwfonds that were acquired in 2006 contributed in full to Rabo Bouwfonds results. The item Net profit Rabo Bouwfonds corresponds with the annual profit as published by Rabo Bouwfonds. The item Net profit real estate division is net of amortisation and financing charges resulting from the acquisition of parts of Bouwfonds. Results (in millions of euros) Change Interest Fees and commission 1 1 Other income Total income Staff costs Other administrative expenses Depreciation and amortisation 13 3 Operating expenses Gross result % Value adjustments 2-1 Operating profit before taxation % Taxation % Net profit Rabo Bouwfonds % Other expenses % Net profit Real estate division % Number of houses sold 13,173 14,073-6% Other information (in billions of euros) 31-Dec Dec-06 Loan portfolio % Assets managed and held in custody % Number of employees (in fte) 1,700 1,654 3% Income up EUR 387 million Total income increased by EUR 387 million in 2007 to EUR 670 (283) million. The decline in interest income by EUR 12 million to EUR 86 (98) million was due to the expansion of the development activities since late 2006, which caused interest expense to increase. Chiefly because the former parts of Bouwfonds, unlike 2006, contributed to income for the full year 2007, other income grew by EUR 399 million to EUR 583 (184) million. Operating expenses up EUR 258 million Total operating expenses were EUR 258 million higher in 2007, at EUR 352 (94) million. Staff numbers grew by 3% in the year under review, to 1,700 (1,654) FTEs. Mainly as a result of the acquisition of parts of Bouwfonds, staff costs rose by EUR 162 million to EUR 217 (55) million and other administrative expenses were EUR 86 million higher, at EUR 122 (36) million. The depreciation charges were EUR 10 million higher, at EUR 13 (3) million, mainly due to higher depreciation of equipment. Net profit up EUR 97 million The EUR 129 million increase in gross profit was an important driver for the EUR 97 million rise in net profit Rabo Bouwfonds to EUR 246 (149) million. 71 Report of the Executive Board

75 Ambitions and outlook The integration of the various real estate activities will be completed in 2008, enabling the business to benefit further from the existing opportunities for synergy. In the areas of housing development and mortgage sales, Rabo Bouwfonds will work more closely with the local Rabobanks. For the distribution of real estate funds, the Investment Management division likewise intends to work more closely with the local Rabobanks. The collaboration with Rabobank Group will be intensified in the other areas as well. Rabo Bouwfonds foreign strategy was refocused in 2007 and will be finalised in It is the ambition of Rabo Bouwfonds to achieve prominent positions with all its activities in the Netherlands and in a number of European countries, especially France and Germany. In line with the selective expansion of the position in Europe, a greater part of income should be from abroad in Bouwfonds Asset Management intends to grow further, both nationally and internationally, by rolling out existing and new real estate investment product lines and by establishing investment management branches in new countries. 72 Rabobank Group Annual Report 2007

76 Risk management An important element of banking is deliberately taking well-considered risks. Rabobank Group pursues a prudent risk policy which entails a moderate risk profile. At the end of 2007, Rabobank Group obtained permission from the Dutch Central Bank to use the most advanced calculation methods for the capital requirement under Basel II, which came into force for Rabobank Group on 1 January The turbulence in the financial markets did not leave Rabobank Group untouched but did not affect its financial soundness. Risk management organisation Risk management is performed at various levels within Rabobank Group. At the highest level, the Executive Board determines the risk strategy, policy principles and limits, under the supervision of the Supervisory Board and is advised by the Balance sheet and Risk Management Committee Rabobank Group (BRMC-RG) as well as the Credit Policy Committee Rabobank Group. The Supervisory Board regularly reviews the risk exposure of Rabobank Group s activities and portfolio. The CFO, who is also a member of the Executive Board, is responsible for the implementation of Rabobank Group s risk policy. Within Rabobank Group, two directorates share the accountability for its risk policy. Group Risk Management is responsible for the policy regarding interest rate, market, liquidity, currency and operational risk, as well as for the credit risk policy at portfolio level. Credit Risk Management is responsible for the policy for accepting new clients in terms of credit risk at the individual customer level. In addition, risk management is embedded within the Group entities, with independent risk control departments monitoring the risks that are relevant for the entity in question. Principles of risk management The primary objective of risk management is the protection of Rabobank Group s financial strength. Risk management is based on the following principles: - Protecting the Group s financial strength: Rabobank Group controls risks in order to limit the impact of potential adverse events, both on its capital and on its financial results. The risk appetite must be proportional to the available capital. An economic capital framework has been developed to quantify this. - Protecting the Group s reputation: reputation is essential for the proper performance of a banker s profession and needs to be diligently preserved. - Risk transparency: for a good insight into Rabobank Group s positions, it is vital to identify all risks. Risks must always be considered as accurately as possible in order to be able to make sound commercial decisions. - Management responsibility: Rabobank Group s business entities are individually responsible for their results as well as for their risks associated with their operations. A balance must be found between risk and return, while of course duly observing the relevant risk limits. - Independent risk control: this is the structured process of identifying, measuring, monitoring and reporting risks. In order to ensure integrity, the risk control departments operate independently of the commercial activities. Risk policy within Rabobank Group has been embedded according to these principles. To manage all the different risks, an extensive system of limits and controls has been put into place within Rabobank Group. 73 Report of the Executive Board

77 External capital requirement The new accord on capital adequacy - Basel II - came into force for Rabobank Group on 1 January This accord represents an integrated framework for the supervision of banks and is based on three pillars. The first pillar sets a number of methods to determine the minimum capital requirements for credit risk, market risk in the trading books and operational risk. The second pillar focuses on the qualitative assessment of risk management, risk models and their application in the organisation. The third pillar concerns the publication of the risk profile and the risk management techniques used. The Dutch Central Bank (DNB) has authorised Rabobank Group to determine the capital requirements under Basel II according to the most advanced approaches. Therefore, Rabobank Group has developed its own risk models during the past years. Regarding credit risk and operational risk, Rabobank Group has opted for the Advanced Internal Ratings Based approach (AIRB) and the Advanced Measurement Approach (AMA), respectively. For market risk in the trading books, also a self-developed and DNB-approved risk model is used. The introduction of Basel II will have a beneficial effect on Rabobank Group s capital requirement. Total capital requirement at 31 December 2007 will be almost 27% lower, from EUR 21.3 billion under the Basel I regulations to EUR 15.5 billion under Basel II. For 2008 and 2009, the Basel II requirements are subject to a minimum of 90% and 80%, respectively, of the Basel I capital requirement. The greater part of the Basel II capital requirement relates to credit risk (EUR 13.7 billion). There are also requirements for operational risk (EUR 1.4 billion) and market risk (EUR 0.4 billion). The reduction from Basel I is mainly due to the relatively low risk profile of Rabobank s large mortgage portfolio. In addition, Basel II takes into account collateral, which will lead to a substantial reduction of the capital requirement in both corporate lending and leasing. At 31 December 2007, the available Tier I capital amounted to EUR 28.5 billion, leading to a Tier I ratio under Basel I of 10.7%. Based on the Basel II requirements, this ratio would be 14.7%. Internal capital requirement: economic capital The second pillar of Basel II prescribes that banks should have an internal capital assessment process that, apart from the risk types to which the external capital requirement applies, also calculates an internal capital requirement for the other material risk types. Within Rabobank Group, this internal capital assessment process has been realised by the introduction of an economic capital framework. Besides credit risk, operational risk and market risk in the trading books, Rabobank Group also calculates economic capital for business risk, interest rate risk, residual value risk, real estate risk, transfer risk, insurance risk and the risk related to the remaining assets. Apart from considering more risk types, the level of confidence used is another important difference between internal economic capital and the external capital requirement. The supervisory authorities apply a level of confidence of 99.9% for the external capital requirement, i.e. a chance of 1 in 1,000 that insufficient capital is available to absorb losses in any one year. For the determination of the internal economic capital, Rabobank Group has opted for the much higher level of confidence of 99.99%. This means that Rabobank Group has set its internal capital requirement such that this chance is only 1 in 10,000. This coincides with Rabobank Group s Triple A rating ambition and results in a significantly more conservative capital requirement than set by the supervisory authorities. Rabobank Group has developed advanced models for the calculation of economic capital for all material risk types. At 31 December 2007, the economic capital amounted to EUR 20.5 (16.9) billion. Relating the profit achieved on a certain activity to the economic capital required for that activity produces the RAROC (Risk Adjusted Return On Capital). In 2007, RAROC for Rabobank Group was 13.0% (13.8%). The increase in economic capital compared to 2006 is due to the growth Rabobank Group saw in Also, a number of risk models have been improved and more risk types have been included in the economic capital framework. For each risk type and each business entity, economic capital is calculated and reported on a monthly basis. 74 Rabobank Group Annual Report 2007

78 Capital requirements (in billions of euros at year-end 2007) Other risks Operational and business risk Interest rate and market risk Credit and transfer risk Economic capital Basel II Basel I The table below shows a breakdown of economic capital at year-end 2007 for the various business entities and the different risk types, taking the diversification effects into account that exist between the different risk types. The diversification effects between the various business entities are stated at group level, which explains the negative value for Other activities. Note that the table shows RAROC by business entity. Since no RAROC target has been defined for Asset management and investment, Real estate and Other activities, no RAROC is stated for these business entities. The outcomes of the economic capital framework are applied in a number of areas within Rabobank Group. For example, the RAROC concept is used to assess the profitability of the various business entities within Rabobank Group in relation to their risk profiles, thus ensuring optimum efficiency in the deployment of the available capital. The concept of economic capital is also used in the annual budget process for the various business entities and in credit pricing, the latter enabling differentiation based on client creditworthiness. Economic capital (in billions of euros at 31-Dec-07) Domestic retail banking Wholesale banking and international retail banking Asset management and investment Leasing Real estate Other activities Credit and transfer risk Interest rate and market risk Operational and business risk Other risks Total Total RAROC (in 2007) 15.1% 8.4% 21.0% 13.0% The economic capital model for credit risk is consistent with the AIRB model, with the parameters based, where possible, on internally established data. For operational risk, an AMA model has been developed that can be used both for the external capital requirement and for economic capital. Within market risk, several sub-risk types are distinguished, i.e. trading book risk, residual value risk, currency risk in the banking book and real estate risk. For most of these sub-risks, a Value at Risk model is used which is developed for each of these specific risk types. Likewise, a Value at Risk model is used for interest rate risk in the banking book. The models for transfer risk and business risk will be improved further in Economic capital by risk type at year-end 2007 Credit and transfer risk 55% Interest rate and market risk 18% Operational and business risk 18% Other risks 9% Economic capital by Group entity at year-end 2007 Domestic retail banking 44% Wholesale banking and international retail banking 23% Real estate 7% Leasing 5% Asset management and investment 3% Other activities 18% 75 Report of the Executive Board

79 Credit risk Credit policy The favourable risk profile of Rabobank Group s loan portfolio is partly due to the bank s prudent policy for accepting new clients. Approval of larger credit applications is decided on by committees. A structure consisting of various committee levels has been established, with the amount of the requested financing determining the applicable committee level. The Executive Board itself decides on the largest financing applications. For corporate loans, a key concept in Rabobank Group s policy for accepting new clients is the know your customer principle, meaning that loans are granted only to corporate clients of which the management, including its integrity and expertise, is known to Rabobank Group and considered acceptable. In addition, the bank is familiar with the industry in which a client operates and can adequately assess its clients financial performance. Rabobank Group has several policy credit committees (Policy CC s): the Policy CC Rabobank Group and the Policy CC s Wholesale and Retail. The Group policy as established by the Policy CC Rabobank Group constitutes the framework for all Group entities. Within this framework, the Group entities define and operate their own credit policies. In this context, the Policy CC Retail is responsible for domestic retail banking and the Policy CC Wholesale for wholesale banking and international retail banking. In the Policy CC Rabobank Group, which is chaired by the CFO, the Executive Board is represented by three members. The CFO also chairs the Policy CC Wholesale and Policy CC Retail. CSR in lending In 2007, the Policy CC Rabobank Group approved a proposal for the formal integration of Corporate Social Responsibility in the bank s lending process. As, CSR also implies socially responsible financing. To that end, CSR guidelines have been drawn up and finalised for use in the lending process. Under these guidelines, assessments of corporate loan applications include a check if a client s activities are stated on the list of CSR-sensitive activities and if the client satisfies policies or directions on specific issues in any sector or country. Insofar as it concerns private individuals financing is provided only if it is sound from a customer s point of view as well. Customer protection and duty of care are high-priority principles. Financing applications will be considered only if a complete picture can be made of a client s current profile. To protect any client from irresponsible financing overcrediting the consequences of a loan for his financial position are carefully explained to him. In 2007, Rabobank Group endorsed the CHF code of conduct on mortgage financing issued by the Contactorgaan Hypothecair Financiers and incorporated it in both its credit policy and its lending processes. The code is a joint effort between banks. The chief adjustments to Rabobank Group s credit policy resulting from the CHF code concern the provisions on calculating a consumer s maximum borrowing capacity and the possibility to deviate, on proper grounds and in special cases, from those provisions. Additionally, Rabobank Group provides aftercare, i.e. maintenance and information during a loan s term. Loan portfolio developments In 2007, loans to private clients were 10% higher, at EUR 356 (324) billion, partly due to strong economic growth. Rabobank Group s private sector lending consists for 50% of loans to private individuals, mainly based on residential mortgages. As for the remainder, 33% of the loan portfolio comprise loans to the trade, industry and services (TIS) sector and 17% comprise loans to the food & agri sector. The graphs enclosed present the breakdown of the portfolio by main industries in the trade, industry and services and the food & agri sectors, and illustrate the diversification of these portfolios. In turn, these main sectors contain a large number of subindustries. In its financing approval process, Rabobank Group uses the Rabobank Risk Rating, which shows the counterparty s probability of default (PD) over a one-year period. The counterparties have been assigned to one of the 25 rating classes, including four default ratings. This gives a loans-weighted average PD of 1.55% (1.34%). In 2007, ratings were increasingly given to clients in the retail portfolios in particular, where PD s are typically higher than in the portfolios for the larger loans. 76 Rabobank Group Annual Report 2007

80 TIS sector lending by industry at year-end 2007 Real estate 20% Financial institutions, excl. banks 15% Wholesale trade 10% Industry 8% Building industry 7% Information and communication 5% Transport and storage 5% Non-food retail trade 4% Health care 4% Corporate services 3% Art and recreation 2% Utilities 1% Other 16% Food & agri sector lending by industry at year-end 2007 Dairy 18% Animal protein 18% Grains and oil seeds 14% Fruit and vegetables 12% Food and retail 7% Flowers 6% Food & agri inputs 6% Other crops 4% Beverages 3% Sugar 2% Other 10% 5 This does not include the general allowance of EUR 635 (583) million euro. For approximately 1% of Rabobank Group s loan portfolio, the commitments are not being fully met and an adequate allowance has been made for this part of the portfolio. It should be noted that the PD indicates only the extent to which the bank expects that clients can or cannot meet their commitments. PD says nothing about the potential loss, because in many cases, Rabobank Group has obtained additional collateral, which is reflected in the so-called loss given default (LGD) which also takes restructuring perspectives into consideration. In summary, it can be concluded that Rabobank Group has a healthy loan portfolio. The Basel II parameters are increasingly being used and it is partly on their basis that Rabobank Group determines economic capital and RAROC, which have meanwhile been embedded in the lending processes. Once a loan has been granted, ongoing credit management takes place assessing new information, both financial and non-financial. The bank monitors if the client meets all obligations and can be expected to do so in the future. If the client does not fulfil its obligations or if it is expected that they will not be met, credit management will be intensified, with a higher monitoring frequency and stricter limit monitoring. If necessary, new agreements will be made with the client. Guidance is provided by a special unit within Rabobank Group, particularly in case of larger and more complex loans with a going-concern threat. If it is likely that the debtor is unable to fulfil all its contractual obligations, this is a matter of impairment and an allowance is made which is charged to income, but only to the extent to which the bank s exposure vis-à-vis the client exceeds the present value of future cash flows. These loans, for which an allowance has been taken, are impaired loans and amounted to EUR 4,198 (4,355) million at 31 December The allowance for bad debts at 31 December 2007 was EUR 2,355 (2,333) million, corresponding to a 56% (54%) coverage. It is to be noted that Rabobank Group takes provisions at an early stage and applies the one obligor principle, meaning that the exposure of all counterparties belonging to the same group is taken into account. In addition, the full exposure vis-à-vis the client is regarded as impaired, even if full coverage is available in the form of, for example, collateral. At 31 December 2007, impaired loans as a percentage of private sector lending amounted to 1.2% (1.3%). 31-Dec Dec-06 Impaired loans and allowances (in millions of euros) Impaired loans Specific and collective allowances 5 Balance sheet value Impaired loans Specific and collective allowances 5 Balance sheet value Domestic retail banking 2, ,703 2, ,750 Wholesale banking and international retail banking 1, , Leasing Other Rabobank Group 4,198 1,720 2,478 4,355 1,749 2, Report of the Executive Board

81 Country risk With respect to country risk, a distinction is made between transfer risk and collective debtor risk. Transfer risk relates to the possibility of foreign governments placing restrictions on funds transfers from debtors in that country to creditors abroad. Collective debtor risk relates to the situation in which a large number of debtors in a country cannot meet their commitments for the same reason (e.g. war, political and social unrest, natural disasters, but also government policy that does not succeed in creating macro-economic and financial stability). Rabobank Group uses a country limit system to manage transfer risk and collective debtor risk for all countries. After careful review, relevant countries get an internal country risk rating, after which transfer limits and a general indicator are established. Transfer limits are determined according to the net transfer risk, which is defined as total loans granted less loans granted in local currency less guarantees and other collateral obtained to cover transfer risk and less a reduced weighting of specific products. The limits are allocated to the offices, which are themselves responsible for day-to-day monitoring of the loans granted by them and for reporting on this to Group Risk Management. At Rabobank Group level, the country risk outstanding, including additional capital requirement and provision for country risks, is reported every quarter to the Balance sheet and Risk Management Committee Rabobank Group (BRMC-RG) and the Country Limit Committee. The calculation of the additional capital requirement and the provision for country risk is made in accordance with Dutch Central Bank guidelines and concerns countries with a high transfer risk. At 31 December 2007, the net transfer risk before provisions for non-oecd countries was 1.2% (1.0%) of total assets. Risk in non-oecd countries (in millions of euros) In Europe In Africa In Latin America In Asia / Pacific Total In % of balance sheet total Economic country risk (excluding derivatives) ,105 9,704 17, % Risk mitigating components: - local currency exposure 7-3,088 3,171 6,266 - third party coverage of country risk ,179 1,534 3,130 - deduction for transactions with lower risk ,796 Net country risk before provisions ,064 4,286 6, % In % of total provisions Total provisions for economic country risk % Interest rate risk 6 Total assets, plus guarantees issued and unused committed credit facilities. Interest rate risk means that the bank s financial result and/or economic value given its balance sheet structure may decline as a result of unfavourable developments in the money and capital markets. Rabobank Group s activities create an interest rate exposure. This interest rate risk results mainly from mismatches between maturities of loans and funds attracted. If interest rates increase, the rate for the liabilities, such as deposits, will be adjusted immediately, whereas the interest rate for the greater part of the assets cannot be adjusted until later. Many assets, such as mortgages, have longer fixed-interest periods and the interest rates for these loans cannot be adjusted until the next interest rate reset date. In addition, client behaviour affects the interest rate exposure. For example, clients may repay their loans before legal maturity or withdraw their savings earlier than expected. Any resulting interest rate exposure can be addressed by means of hedge transactions, thus mitigating the total interest rate exposure by taking opposite positions. The extent and timing of hedging depend on, inter alia, the bank s interest rate vision and the expected balance sheet development. 78 Rabobank Group Annual Report 2007

82 In the management, control and limitation of interest rate risk, Rabobank Group uses three indicators for potential loss. These are: Basis Point Value (BPV), Equity at Risk (EatR) and Income at Risk (IatR). BPV is the absolute loss of market value of equity at a parallel, 1-basispoint rise of the entire yield curve. In the year under review, the BPV never exceeded EUR 25 million. The EatR indicates the percentage by which the market value of equity will decline if the yield curve shows a parallel increase by 1 percentage point. The EatR is an indication of the sensitivity to interest rate fluctuations of the market value of equity. The EatR is determined by the absolute interest rate exposure on the one hand and the size of the buffer, i.e. the market value of equity, on the other hand. In the year under review, EatR never exceeded 8%. The IatR is the maximum loss of interest income over the next 12 months, within a defined confidence interval, as a result of an interest rate increase in the money and the capital markets. In the year under review, IatR never exceeded EUR 150 million. In 2007, the maximum values of these indicators remained well under the limits set. Each month, Rabobank Group performs complementary scenario analyses to assess the impact of changes in customer behaviour and the economic environment. In savings modelling, the replicating portfolio is used. This is a method based on long-term developments to mirror interest rate movements and client behaviour in relation to the variable savings, using a portfolio of both money market and capital market instruments. Liquidity risk and funding Liquidity risk is the risk that the bank is unable to meet all of its (re)payment obligations, as well as the risk that it is unable to fund increases in assets at reasonable prices or at all. This could happen if clients or other professional counterparties suddenly withdraw more funding than expected, which cannot be met by the bank s cash resources or by selling or pledging assets or by borrowing funds from third parties. Liquidity risk was a prominent factor in the financial markets in Lack of trust, inspired by doubts about the quality of certain investments that were related to the subprime mortgages in the United States, caused the money market to become almost stagnant in a number of cases. Central bank intervention kept the system going but could not prevent strong increases in interest rates, particularly in December. Within Rabobank Group, liquidity risk has long been recognised as an important risk type. The policy within Rabobank Group therefore is that the maturity of the funding is aligned with that of the loans. In addition, this risk is managed in three different ways, the first of which is to limit outgoing cash flows. To this end, the bank measures and reports on a daily basis which incoming and outgoing cash flows are to be expected over the next thirty days. In addition, limits have been set for such outgoing cash flows for each currency and location. In order to be prepared for possible crises, detailed contingency plans are in place, formulating the procedures to be followed. Secondly, a large buffer of liquid securities is being held. If necessary, these assets can be used for borrowings from central banks, in repo transactions or for direct selling in the market as a way of generating liquidity. Over the past years, part of Rabobank Group s mortgages portfolio has been securitised (internally), making it eligible for refinancing with the central bank and thus serving as an extra liquidity buffer. Since it concerns internal securitisations for liquidity purposes only, they are not reflected in the economic balance sheet. Thirdly, liquidity risk is limited by Rabobank Group s prudent funding policy, which is to meet the funding requirements of the Group entities at an acceptable cost. In this context, diversification of funding sources and currencies, flexibility of the funding instruments used and active investor relations play an important role. This prevents Rabobank Group s overdependence from a single source of funding. For years, Rabobank Group has enjoyed the highest rating by prominent rating agencies, including Moody s and Standard & Poor s, and these were reaffirmed late in 2007 and early in 2008, respectively. Thanks to its top rating, Rabobank Group has access to the money and capital market even in difficult circumstances. Because of the flight to quality, the liquidity available to Rabobank Group was even greater than under normal circumstances. In addition, the Triple A rating enables Rabobank Group to attract funds at relatively low rates. In 2007, more than EUR 24 billion of long-term funding was raised in the international financial markets. 79 Report of the Executive Board

83 Long-term funding in 2007 by currency Euro 51% US dollar 18% Pound sterling 7% Japanese yen 5% Swiss franc 4% Icelandic krona 4% Australian dollar 3% Other 8% These three pillars have contributed to the fact that at no time during the year under review did the turbulence in the financial markets cause liquidity problems for Rabobank Group. Several methods have been developed to measure and control this liquidity risk. Methods used include the CA/CL method (Core Asset / Core Liabilities). This analysis is based on the cash flow schedule of all assets and liabilities. Using various time periods, a quantification is made of the assets (and unused facilities) and liabilities that will probably still be or come on the balance sheet after assumed and closely defined stress scenarios have occurred. These remaining assets and liabilities are referred to as core assets and core liabilities, respectively. The ratio between core assets and core liabilities is the liquidity ratio. Given the highly conservative weightings used, a ratio below 1.2 is considered adequate. In 2007, this was again the case for the scenarios used. The Dutch supervisory authority also provides extensive guidelines for measuring and reporting the liquidity position of Rabobank Group as a whole. Its liquidity position, measured according to the guidelines of the supervisory authority, is more than adequate, with the available liquidity exceeding the requirement by on average 7%. Informing investors Besides good communications with its members, Rabobank Nederland also attaches great importance to good and transparent communications with institutional investors and other professional financiers. The Investor Relations department informs this target group about developments at Rabobank Group via a dedicated website and an electronic newsletter. Further, this department is responsible for supplying and explaining all relevant information requested by investors. In addition, institutional investors and other professional financiers are informed through presentations about the financial developments at Rabobank Group. Rabobank Group s funding activities in the capital market yielded an award in 2007, with International Financial Review, a leading and independent professional journal, awarding Rabobank Group the title of Issuer of the Year. Market risk Market risk relates to changes in the value of the trading portfolio as a result of price movements in the market. Value changes relate to, inter alia, interest rates, equities, credit spreads, currencies and certain commodities. Within Rabobank Group, Rabobank International and Robeco in particular are exposed to this risk. Therefore, specific market risk management departments are in place within these Group entities that calculate and report market risk exposure on a daily basis. An appropriate system of limits has been developed to control this risk. At a consolidated level, the exposure is measured by the Value at Risk. This measure, based on historic market developments, indicates the maximum loss that Rabobank Group can suffer subject to a certain confidence level and under normal market conditions. In order to weigh the risks of abnormal market conditions as well, the effects of certain extreme events event risk are calculated. To this end, both actual scenarios, e.g. the stock market crash of 1987, and hypothetical scenarios, e.g. an assumed steep rise of all interest rates, are analysed. Sensitivity analyses are also used. Limits have been set for this event risk, which, if exceeded, warrant management action. The graph shows the trend in the Value at Risk during year under review. In 2007, the Value at Risk fluctuated between EUR 20 million and EUR 32 million, with an average of EUR 26 million. For 2007, this means that, at a confidence level of 97.5% and under normal circumstances, expected losses on any one day amounted to a maximum of EUR 32 million. Under this calculation method, the amount of the Value at Risk is derived from both historical market trends and the positions taken. The increased turmoil in the financial markets and the relatively large fluctuations, particularly in credit spreads, caused the Value at Risk to rise by more than 40% over the second half of Rabobank Group Annual Report 2007

84 Value at risk 35 in millions of euros Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec As the table shows, the Value at Risk for the trading portfolios can be broken down into a number of components. The value of the trading portfolios is mainly sensitive to changes in credit spreads, interest rates and equity prices. From the onset of the crisis in the financial markets in August 2007, particularly the positions sensitive to changes in credit spreads have shown negative value trends. Since opposite positions of different books offset each other to a certain degree, this results in a diversification benefit that reduces the total risk. At 31 December 2007, the consolidated Value at Risk was EUR 30.9 million. This is a relatively limited position, as is also evident from the fact that only a small part of total economic capital is held for market risks from the trading activities. Breakdown of Value at Risk (in millions of euros) 31-Dec-07 Credit spread 28.4 Currency 0.3 Equities 5.3 Interest rate 16.4 Diversification Total 30.9 Operational risk The basis for the self-developed and DNB-approved model is formed by the bank s own loss data, plus data from an external database and scenario-based potential losses. In organisational terms, Rabobank Group has decided to place the responsibility for operational risk management as close to the source as possible. Group Risk Management provides frameworks for and supervision of the requirement that each entity within Rabobank Group has its own, adequate risk management organisation and practises an acceptable risk profile. A reward system links the quality of risk management in practical situations and an entity s capital to be held to cover operational risks. Currency risk Currency risk is the risk of changes in income or in equity as a result of currency exchange movements. In currency risk management, a distinction is made between positions in trading books and in banking books. In the trading books, currency risk is part of market risk and is controlled using Value at Risk limits, as are other market risks. In the banking books, there is only the translation risk on non-euro net investments in foreign entities and issues of Trust Preferred Securities not denominated in euros. To monitor and control the translation risk, Rabobank Group uses an interrelated two-track approach to protect Rabobank Group s capital position against currency exchange rate movements. On the one hand, the hedging strategy hedges the non-euro net investments in foreign entities, while on the other hand it immunises the capital ratios against the effects of 81 Report of the Executive Board

85 currency exchange rate movements. The latter is done via the components of the Tier I and Tier II capital that do not form part of the reserves, in particular Trust Preferred Securities. These were issued in selected foreign currencies in 2003 and 2004, and in such a way as to ensure that the currency composition of the total of Tier I and Tier II capital corresponded with that of the risk-weighted assets. This natural hedge was realised by issuing the Trust Preferred Securities, which form part of the Tier I capital, in US dollars (USD 3,250 million), Australian dollars (AUD 500 million) and pounds sterling (GBP 350 million). 82 Rabobank Group Annual Report 2007

86 Corporate social responsibility us/ corporate social responsibility NGOs, public authorities and consumers increasingly demand that commercial enterprises conduct their business while having regard for the quality of life of our planet. Poverty alleviation and climate change are the international themes of corporate social responsibility that were the focus of attention in These days, not a single enterprise can afford to act without reflection on issues such as human rights or the use of scarce sources of (fossil) energy. In 2007, Rabobank Group itself and in conjunction with its clients worked hard to achieve its targets as a financial service provider, while focusing on Rabobank Group s contribution to a more sustainable society. Intensified dialogue with society Rabobank Group values dialogue with its stakeholders. These discussions are part of Rabobank Group s issue management. Early identification and analysis of relevant trends and problems enable Rabobank Group to assess relevant risks sooner and to manage them better, to respond to commercial opportunities and to conduct its business in a more sustainable manner. Rabobank Group refined its issue management process further in 2007, while making it clearer what it is willing and able to influence and what is outside its span of control. In 2008, based on the experience gained, the complaints procedure concerning Rabobank Group s commercial financing will be extended to social issues. The stakeholder dialogue was important for the case studies presented by Rabobank Group in its Annual Sustainability Report 2007: of the six case studies, five were derived from this dialogue. CSR in lending Rabobank Group finalised the introduction of corporate social responsibility assessments in its national and international lending businesses in early Partly on the basis of such guidelines as the Global Reporting Initiative (GRI) and the Global Compact, ten social themes have been embedded in these lending procedures. All new credit applications from clients will be tested against them, regardless of a client s industry or country of operation. Thus, Rabobank Group limits the social and financial risks that are directly associated with its economic activities. CSR contributes to innovations Corporate social responsibility is beneficial to innovations in Rabobank Group s policy, products and services. In both the short and the long term, this is in the interest of society, the bank, its staff and its customers. The innovative power of CSR for Rabobank Group was again evident in It has resulted in new financial products and services including the Rabo KlimaatHypotheek, the Rabocard with climate contribution, a financing tool for soil decontamination, various sustainable investment funds and a charity desk. This charities department helps clients achieve their social responsibility targets. In addition, Rabobank Group has demonstrated in several publications, including Biomass, food and sustainability: is there a dilemma? how CSR results in innovative thinking and acting within the bank. Rabobank Group wishes to see sustainability become an integral and self-evident part of its value proposal to the mass market. In 2007, Rabobank Group detailed a specific policy for CSR issues in a number of sectors. Visions of intensive cattle farming and CSR in horticulture were written. The policies for the fishing industry and for basic agricultural products such as soy were formalised further. 83 Report of the Executive Board

87 Likewise, the bank s human rights policy was formalised by adopting with five special guidelines and a start was made with its introduction in the organisation. In addition, Rabobank Group discussed its human rights policy with a number of NGOs. Climate change affects Rabobank Group s policy The decline in agricultural acreage available as a result of climate change, water scarcity and pollution is affecting the financial performance of agricultural businesses. In turn, this might affect the solvency of this client category, and might lead to greater credit and investment risks for Rabobank Group. It is therefore in Rabobank Group s interest to control and mitigate social risks. In light of this, Rabobank Group aims to make a contribution towards sustainable product chains. It does this by means of CSR performance assessments of new clients and loan applications. At the same time, the climate and scarcity issues are clear opportunities for Rabobank Group because more and more capital will be required for the development of technologies with a more sustainable character. Already, Rabobank Group has developed many initiatives and will continue to do so, both in its own operations and through climate-friendly products and services, by financing sustainable initiatives and by raising awareness among customers and employees of problems and paths towards solutions. Achieving climate-neutral business operations For years, Rabobank Group has pursued an active environmental policy aimed at reducing the volume of raw materials and energy required for its business. The actions are based on three principles. Rabobank Group aims to reduce its own use of natural resources and raw materials, deploys re-usable materials and materials with a lower environmental impact as much as possible and compensates for the remaining environmental impact. This approach is known as the Trias Energetica. In 2007, Rabobank Group quantified the CO 2 emissions related to its own operations. It was then decided to offset these emissions, which amount to 175,000 tonnes, by procuring CO 2 credits. Also in 2007, a full accounting system for its CO 2 emissions from the use of natural gas, electricity, mobility and paper was set up so as to be able to identify relevant opportunities for CO 2 reduction, monitor the effectiveness of environmental measures and formulate additional climate targets. Access to financial services in developing countries Rabobank Group believes that everyone should be able to participate fully in economic activities. Through its partner banks, in which it has minority interests, Rabo Development currently serves more than 2 million customers in Tanzania, Zambia, Mozambique and China. Besides Rabo Development, Rabobank Foundation actively uses its funds in developing countries for many years, supporting cooperative micro financing institutions, producer organisations and promising local savings and loan cooperatives. Rabobank Foundation provided EUR 11 million in loans in 2007, and totally it has EUR 17 million in loans outstanding. Rabo Development Late in 2005, Rabobank took the initiative to develop banks according to the Rabobank model in a number of developing countries. These banks do not necessarily have a cooperative structure but distinguish themselves from other (international) banks because they expressly consider rural areas as their markets and focus on serving all market segments. This gives Rabobank s partner banks a unique position, as other banks focus mainly on the higher-end market segments in urban areas. Rabobank concentrates on the long-term development of its partner banks, with profitability as a subservient factor for the shorter term. Partner banks are being developed along the same lines that Rabobanks have developed over time in the Netherlands. With this initiative, Rabobank makes a practical translation of its original cooperative target: providing financial services where they are not or insufficiently available. Here, the focus is on other parts of the world, where the relevant circumstances are very similar to those in the Netherlands a century ago. In eligible countries, Rabobank looks for banks with a relatively large, preferably nationwide network. Rabobank takes a minority interest, is represented in the board in order to enable controlling the bank s strategy, and supplies managers to strengthen local 84 Rabobank Group Annual Report 2007

88 management and technical assistance to improve all functions within the bank. The latter is done by seconding many Rabobank staff, who share their expertise with the local officers during their short-term secondments as consultants. In this way, a partner bank s development can be significantly speeded up, while at the same time contributing to the development of the national economies of the countries concerned, which requires the availability of sound financial services. In 2007, Rabobank Group obtained a minority interest in Banco Terra, in Mozambique, and in the Zambia National Commercial Bank. In earlier years, Rabobank Group had acquired minority interests in the United Rural Cooperative Bank of Hangzhou, in China, and in the National Microfinance Bank, in Tanzania, bringing the number of banks collaborating with Rabobank Group to four. CSR in HRM policy Rabobank Group endorses the Declaration on Fundamental Principles of the International Labour Organization (ILO) and hence the Universal Declaration of Human Rights, which forms an external pillar of the bank s HRM policy. Rabobank Group updated its Code of Conduct in In 2008 an updated Code of Conduct will be implemented. 85 Report of the Executive Board

89 The people at Rabobank Group - Rabobank Group staff numbers up 7% to 60,342 - Staff satisfaction remained high: 85%, compared with a benchmark of 73% - Intermediair magazine: Rabobank preferred employer to the highly educated - Management Team and FEM/Elsevier: Rabobank best employer in the financial sector - Absenteeism 3.8%, slightly up from 2006 The combination of a people-oriented culture resulting from cooperative roots, the strong professionalisation since 2000 and the modernisation, in 2002, of the organisational structure to include improved checks and balances have made Rabobank Group into a better-balanced whole. The effects have been great, both internally and externally. The people at Rabobank Group have grown in their professional roles. Their focus on results and their entrepreneurship are flourishing. Within Rabobank Group, everyone has the proud feeling that the right strategy has been chosen. Rabobank Group is gaining market share in the Netherlands, its international expansion is succeeding and its focus on sustainability has struck the right chord in society. Nevertheless, ongoing changes in Rabobank Group s environment call for even further professionalisation on all fronts. This target is reflected in Rabobank s HRM vision, People make the bank even better. People make the bank even better Markets and clients are constantly changing as a result of social trends such as digitisation, ageing of the population and blurring of country borders, and Rabobank Group s approach much change with them. It is only with talented, vigorous and constantly motivated people that Rabobank Group can achieve its ambitions of market leadership in the Netherlands, improved synergy between Group entities and growth in food & agri and international retail banking. Rabobank s HRM vision, People make the bank even better, was refocused in 2007 and describes the development of the organisation s HRM management by reference to three themes: Smarter working, Career and Diversity. Based on these umbrella themes, Rabobank s HRM policy was defined further in 2007 and this will continue in a similar fashion in the coming years. Smarter working In our 24-hour economy, international networks are gaining importance and individuals increasingly desire independent roles. ICT offers many opportunities for new ways of collaboration and fast information transfer. Employees tend to act more of their own accord and to choose for themselves where and when they do their work. The line between the working environment and the personal environment becomes blurred. This requires trust and flexibility. Rabobank Nederland s new and flexible accommodation and labour concepts are a response to this, as are its policies for performance management and terms of employment. Rabo Unplugged Part of Smarter working is the Rabo Unplugged project, which is a new style of working for Rabobank Nederland that coincides with the construction of its new corporate centre in 86 Rabobank Group Annual Report 2007

90 Utrecht. This new style of working looks at smarter use of buildings, their security and their facilities services. In the virtual space, it looks at ICT applications and for the employees themselves, it concerns a new attitude, smarter knowledge deployment, more teamwork, more empowerment and entrepreneurship. Performance management In 2005, Rabobank introduced performance management. Under this arrangement, employees and their line managers make agreements on collective targets as well as on individual performance and competence targets. This new way of working, which involves arrangements about targets to be achieved, has greatly enhanced the focus on results. Under the Performance management, even better project, work is done at further professionalisation in the use of performance management. To that end, Rabobank organises, inter alia, workshops for HR advisers and HR managers at local Rabobanks and Rabobank Nederland. Terms of employment Rabobank s Collective Labour Agreement (CLA) for expired in May Negotiations with the trade unions on a new CLA were difficult, particularly where they concerned salary trends. Rabobank wished to raise the performance management-based, variable component within the pay increase, since this might contribute to the organisation s focus on results. The trade unions believed this step was too big at this time. In the compromise that was achieved, employees get a raise in their fixed wages in the CLA s first year and a raise in their fixed wages and their variable pay in its second year. In addition, the new CLA contains study agreements, in anticipation of Smarter working. Rabo Bouwfonds intends to harmonise the terms of employment for the separate real estate units FGH Bank, Bouwfonds and Rabo Vastgoed in These new terms of employment will be laid down in Rabo Bouwfonds new CLA, agreement on which should be reached in In connection with the acquisition of Athlon, De Lage Landen s terms of employment were also harmonised. The actual changes will be implemented in Career In the HRM-vision People make the bank even better, personal and professional development are coupled to longer working. The average career length is increasing and during their careers, employees will increasingly be required to respond to ongoing changes. For employees, personal and professional development is therefore a sheer necessity. Rabobank believes that good health and good employability together form the key to a career that is full of vigour. Recruitment and selection, traineeships The labour market sees growing competition in attracting and retaining highly-educated and talented people. Consequently, it is becoming more and more important for the bank to present itself as Rabobank Group. The new corporate recruitment brochure entitled The world of Rabobank Group was published in October In this brochure, all the different Group entities together present themselves as attractive employers in their respective segments. Each year, Rabobank offers traineeships for many young people. Some trainees like it so well that they decide to join Rabobank. For the Traineeship desk, i.e. the traineeship mediator at Rabobank Nederland, raising the number of trainees with ethnic minority backgrounds was again a spearhead in Most trainees are indigenous; 19% are from ethnic minorities. Talent development Rabobank Group s Management and Talent Development department set up a special programme in The aim of this programme, in alignment with the Strategic Framework, is to regulate succession management for senior and executive managers, to remove hindrances for the flow of staff between Group entities and to promote the internal mobility 87 Report of the Executive Board

91 between departments and units. Talents have been selected since, who receive intensive coaching on their way to the next step in their careers. At Robeco, the Talent Network was started in 2007, enabling talented people to exchange experience and knowledge through network activities and projects. Rabobank best employer In 2007, Rabobank was awarded the title the Netherlands most favourite employer among the highly educated for the first time in the Intermediair magazine s image survey. In 2006, the bank came third. Of the surveyed individuals that would like to work for Rabobank, more than 18% mentioned Rabobank s social commitment as an attractive aspect. According to the employer survey organised by Management Team magazine and in the survey of the FEM/Elsevier magazines, Rabobank was voted best employer in the financial sector in In the Studenten Motivatie Monitor, a survey among more than 2,000 college and university students, Rabobank was voted the employer with the best working atmosphere. In the same survey, Rabobank was among the top 5 in the categories of best work/life balance, best intellectual challenge and best employer. Praise from Rabobank s own staff The Rabobank staff survey, in which more than 40% of its employees participated in 2007, is part of an external benchmark. At 85% (87%), Rabobank s score for employee satisfaction is significantly higher than the external benchmark, which comprises forty of the larger Dutch enterprises (73%). Several surveys have shown that employees at the Group s entities are likewise satisfied generally. Employability Early in 2007, Rabobank, in conjunction with the Works Councils and the relevant trade unions, completed the Employability study. The study has produced a set of recommendations to CLA parties. For example, employees can attend abridged, intermediate-level vocational training courses on the strength of exemptions. Also, the demotion paragraph was simplified to facilitate career steps. In 2008, Rabobank is introducing employability scans for employees and line managers. Training In its training offer, Rabobank makes a distinction between functional, career-oriented and management training courses. These training courses focus not only on the transfer of knowledge, but also, and especially, on management quality improvement and on raising commercial effectiveness. In 2007, employees attended 138,963 (151,760) training courses, involving an amount of EUR 98.0 (76.9) million, or 3.0% (2.8%) of the total wage bill. Increasingly, employees are studying via the Internet and in 2007, too, many used e-learning. In all, 116,600 (122,700) training courses were offered via the Internet and 36,600 (23,800) digital exams were taken. Labour conditions and (un)fitness for work Rabobank Group s HRM policy features a chain approach, in which prevention, absenteeism and return-to-work intervention, reintegration and income in cases of illness or disability form a coherent whole. Satisfaction with return-to-work interventions is measured, both among line managers and employees. In 2007, both parties were satisfied, with employees rating such intervention with a score of 7.9 and line managers rating the return-to-work coaching for their employees with a score of 7.4. After consecutive declines for a number of years, the absenteeism percentage showed an increase, from 3.6 % in 2006 to 3.8 % in The increase was mainly due to the longer duration of absenteeism. The direct costs of absenteeism i.e. continued pay during illness were approximately EUR 144 million in Rabobank Group Annual Report 2007

92 Diversity Rabobank Group s ambition is for the composition of its workforce to mirror, both nationally and internationally, the national labour force, with regional mirroring per operating region. Diversity among people stimulates entrepreneurial behaviour, enables the qualities of employees to show up better and promotes creativity. Rabobank Group wishes to see more women in senior functions. The percentage of women among the organisation s executives grew from 4% in 2000 to 7% in The target for 2008 is 10%. Another goal is greater cultural diversity of the workforce. For example, a first step was made in 2007 in the start-up of a professionalisation voyage for HR advisors and recruiters in this area. Also, the bank experimented with an active recruitment policy for employees from ethnic minorities. CSR targets in performance management Since 2006, executives of Rabobank Nederland and the Group entities are required to include at least one corporate social responsibility target in their performance management contracts. Currently, some departments and banks are encouraging and/or facilitating the inclusion of CSR targets in employee performance management agreements as well. In addition, employees can include CSR targets in their individual competence targets since Staff numbers Rabobank Group s total workforce increased by 4,133 in 2007, to 60,342 (56,209). This growth was partly due to Rabobank Group s various acquisitions in 2007 and was reflected in higher staff numbers in wholesale banking and international retail banking and in asset management and investment. Staff numbers at De Lage Landen and Rabo Bouwfonds were higher as a result of growth in activities. Staff numbers in domestic retail banking remained virtually stable in Key figures people 31-Dec Dec-06 The Netherlands Abroad Total Total Domestic retail banking 34,086-34,086 34,222 Wholesale banking and international retail banking 1,805 8,241 10,046 6,735 Asset management and investment 1,729 1,919 3,648 3,273 Leasing 1,376 3,249 4,625 4,327 Real estate 1, ,794 1,760 Support units and other 6,143-6,143 5,892 Rabobank Group 46,392 13,950 60,342 56,209 Absenteeism 3.8% 3.6% Employee satisfaction 85% 87% 89 Report of the Executive Board

93 The members of the cooperative % of local Rabobanks have member councils - Heightened professionalisation of supervisory boards - Cooperative dividend yields links between clients and members from all social layers - More than 1.6 million members In 2007, work progressed to intensify the involvement and influence of the more than the 1.6 million members that the local Rabobanks now have. This progress concerned several areas. The number of member councils grew from 83 to 104 in The effectiveness and experience within supervisory boards of the evergrowing local Rabobanks increased further. Also, the cooperative dividend was defined further in Many hundreds of initiatives have served to enhance the economic, social and cultural environment, with members asserting their influence. In addition, local Rabobanks introduced member benefit programmes, enabling closer ties between members and the bank. Members make the difference Embedding member influence and control and recruiting engaged members are core policy elements in Rabobank s membership policy. In 2004, the Members make the difference report initiated a new corporate governance structure of the local Rabobanks, with the role of members in member councils receiving greater prominence. Member councils Member councils consist of 30 to 50 members of a local Rabobank and are cross-sections of the member base of local Rabobanks. These councils increasingly function as committed sounding boards to directors and/or management and supervisory boards. Member councils and management boards discuss issues such as the bank s direction, distribution policy and client service. In addition, the bank engages its member council in the selection of and distributions to local community projects, i.e. its cooperative dividend. All banks opting for the executive model, which includes professional management and an elected supervisory board, automatically have member councils. At year-end 2007, 88 (68) out of the 174 (188) local Rabobanks had opted for the executive model. In addition, 16 (15) banks operate under the partnership model with a member council. In all, 60% of the banks have implemented member councils, as a result of which member influence was embedded further in Rabobank s cooperative structure during the year under review. Local supervisory boards The enlargement of the local Rabobanks due to the many mergers and the associated increased complexity of management are making ever-higher demands on individual supervisory board members. Increasingly, the supervisory boards comprise an optimum mix of complementing competencies, with their members having wide and in-depth experience. This improves the checks and balances within the local Rabobanks and ensures a proper balance between professional bankers and professionals from other disciplines. Rabobank Nederland provides knowledge to supervisory board members in order to optimise their performance. In that context, the first Supervisory Board Members Day was held in the autumn of 2007, which was attended by 600 out of the 1,000 supervisory board members. Virtually all local Rabobanks were represented. In workshops and in plenary sessions, discussions were held with the Executive Board and the Supervisory Board of Rabobank Nederland on a wide range of topical issues for Rabobank. 90 Rabobank Group Annual Report 2007

94 Youth Day In January 2008, Rabobank Nederland organised its first Youth Day for members of young people s councils and for junior members of local Rabobanks member councils. In six workshops, discussions were held that included Rabo Mobiel deployment and marketing campaigns, with young members of more than 50 banks attending. Dichterbij member magazine successful In 2006, the Dichterbij member magazine was launched in order to stimulate member involvement and more direct communication with local members. The magazine s concept combines general financial information with background information on clients, members, the local community and their bank. The magazine is published in more than 170 tailormade versions for all members. While in 2006, the emphasis was on the magazine s realisation, and its local editions were yet to be filled out, it has since grown into a truly local magazine for the great majority of local Rabobanks. The magazine reflects a single Rabobank but has more than 170 individual local faces. Thus, the magazine has become a fully-fledged instrument for communication with the bank s members and helps to give shape to the more emotive components of membership, such as near-by and committed. Cooperative dividend Besides realising customer value, it is fitting for Rabobank to implement collaboration and bundling of forces in the social environment, especially in our time. This is embedded in the cooperative principle. Rabobank uses the concept of cooperative dividend for its investments in its social activities and commitment. This dividend comprises all the money and efforts spent on the improvement of the economic, social and cultural environment, including sustainability initiatives. A growing number of local Rabobanks translate their cooperative dividend into systems that include cooperative funds and regional sustainability funds. In many instances, the distribution of cooperative dividend by local Rabobanks is in the form of cash. However, investments and spending can also be in the form of, for example, voluntary work by the bank s employees or access to meeting rooms or copying machines. Also, banks sometimes give access to their means of communication or make their networks available to local organisations, the underlying idea being that Rabobank wishes to facilitate the linking of people with local community organisations. On a national level, self-help, self-organisation and innovative entrepreneurship are encouraged through the Rabobank Foundation, the Projects fund and the Herman Wijffels Innovation award. Member benefit system Members have been able to invest in Rabobank Member Certificates for many years, but otherwise, the emphasis was mainly on offers of a non-banking nature. Since 2005 however, more offers in the areas of insurance and savings have become open to members. Members are eligible for discounts on the Interpolis Zorg Actief Polis health care insurance policy. Members also receive extra interest on the Rabo Levensloop Sparen life-span leave savings account. In addition, there are local initiatives under which members receive discounts from local businesses. The member benefit system will be gradually expanded. 91 Report of the Executive Board

95 Sponsoring Rabobank is the largest sponsor in the Netherlands, with sports and culture as its main focus. Sports and cultural sponsoring enable Rabobank to increase its social commitment and its brand recognition at the same time. Cycling, field hockey and equestrian sports are the spearheads of Rabobank s central sports sponsoring policy. Its collaboration with NOC*NSF emphasises the role Rabobank plays in sports. The bank s cultural sponsoring policy is practiced in its sponsorship of the Van Gogh Museum. On a local level, the local Rabobanks support many athletes, sports organisations and cultural events. Sponsored parties must fit Rabobank Although commercial considerations obviously play an important part in Rabobank s sponsoring relationships, community focus has always been its guiding factor. Rabobank opts for lasting and structural collaboration that should benefit not only Rabobank but the sponsored party as well. It is of vital importance that sponsoring projects align with our brand values: committed, near-by and a leader. In addition, mental market leadership and corporate social responsibility are concepts that must be reflected in the various sponsoring projects. In 2007, Rabobank sought to add innovating elements to the existing contracts. In so doing, it looks especially at how sponsoring projects can be translated into the spearheads of Rabobank s new brand positioning, which focuses on younger people, ethnic minorities and large cities. Cycling Rabo ProTeam, Rabo Continental Team and Rabo Cyclo-Cross Team, together totalling around fifty cyclists, are the most visible manifestations of Rabobank s ambitions in the area of cycling, as set out in the Rabo Cycling Plan. Rabobank invests in cycling. It is the main sponsor of the Royal Dutch Race Cycling Union (KNWU) and supports the Dutch Tour Cycling Union (NTFU). Local Rabobanks sponsor numerous cycling activities in their regions and support events for young people and talents. Rabobank is one of the driving forces behind the touring version of the Amstel Gold Race, Go Biking Tour, Rabo Dikke Banden ( fat tyre ) races and several cycling clinics. The professional Rabo cycling team was highly successful in Victories included the Tour of Spain ( Vuelta ), the Swiss Tour de Romandie and several classics. The espoirs, including cyclo-cross racer Lars Boom, road cyclist Thomas Dekker and track cyclist Theo Bos, let their names heard on many occasions in The Rabo team experienced great ups and downs in the 2007 Tour de France. The required actions have been taken to prevent incidents such as those in 2007 from reoccurring. Field hockey Rabobank has been the main sponsor of the Royal Dutch Hockey Association (KNHB) for over a decade, a period in which field hockey has seen tremendous growth. In 2007, successes were celebrated, both internationally and at the local level. Both national teams qualified for the Olympics, and the men s team captured the European title. On a local level, too, a lot happened in field hockey in No fewer than 172 hockey clubs have sponsor relationships with a local Rabobank. Such relationships are of great value and, on a local level, are practical translations of the bank s commitment to local field hockey communities. The Rabobank Hockey Bonus enables clubs to finance their artificial turf or their pavilions at competitive rates at their local Rabobank. Numerous clinics are organised for young people, with international players coaching. 92 Rabobank Group Annual Report 2007

96 Equestrian sports Based on its commitment of many years to the agricultural sector, Rabobank decided in 2002 to become the main sponsor of the Royal Dutch Equestrian Sports Federation (KNHS). In addition, Rabobank Nederland sponsors the Rabo Ranking and the national teams in the Olympic disciplines of dressage, jumping and eventing. Rabobank, together with the KNHS, has been working at the Rabo Talentenplan for some years. This project enables young talents to be spotted at an early stage and to provide them with structural and professional assistance. Dressage champion Anky van Grunsven is Rabo Talentenplan s ambassador. For local Rabobanks, an incentive package has been developed to stimulate horse-riding at local events. The annual activities around Indoor Brabant, CHIO Rotterdam and Jumping Amsterdam focus on the needs of local Rabobanks in the area of relationship marketing. NOC*NSF In order to strengthen its position as the pre-eminent provider of banking services to Dutch athletes, Rabobank has been an Official Supplier of NOC*NSF since June With its suppliership, Rabobank shares its skills and experience in sponsoring, communication, banking and assisting sports unions and top athletes. On the journey to the 2008 Olympics in Beijing, Rabobank, as Holland s largest sports sponsor, is developing initiatives to take Dutch sports to a higher level. With its Rabobank Topsport desk, Rabobank is the financial coach of Holland s top athletes. A number of top athletes are offered the option to work for Rabobank during their active careers. In September 2007, the very first Rabo Fan Day was organised in Amsterdam s Olympic Stadium, where young clients were given the opportunity to meet their sports heroes, including dressage woman Imke Schellekens- Bartels, track cyclist Theo Bos and field hockey player Fatima Moreira de Melo. Rabo SportTV At everyone can look behind the screens of Rabobank-sponsored sports activities. Rabo SportTV is a web-based television channel that shows new online video reports about the Rabo race cyclists, field hockey players and riders, updated on a daily basis. Sports for the handicapped Rabobank is a sponsor of NebasNsg, the Dutch Sporting Organisation for the handicapped. As an organisation that is firmly rooted in society, Rabobank aims to help athletes with a physical handicap achieve their ambitions. Van Gogh Museum Rabobank and the Amsterdam Van Gogh Museum have teamed up as promotion partners for a period of five years. One of the targets of this collaboration is to encourage the Dutch to visit the Van Gogh Museum. Rabobank and the Van Gogh Museum collaborate on special exhibitions and unique projects. The 150th anniversary of Van Gogh s birthday in 2003 marked the start of the collaboration. Special projects resulting from the collaboration include the Van Gogh Museum Bus. The museum bus covers the entire country in order to introduce Vincent van Gogh to school pupils. In 2007, the Van Gogh Museum and Rabobank announced the continuation of their collaboration beyond 1 January Rabobank will continue as the main sponsor of the Van Gogh Museum Bus and a sponsor of the Van Gogh Museum on Friday night until Increasing the number of Dutch visitors to the Van Gogh Museum remains a target of the extended collaboration. 93 Report of the Executive Board

97 Sustainable construction Rabo Bouwfonds is the largest housing developer in the Netherlands. It focuses a great deal of attention on sustainability with regard to construction plans. For example, Rabo Bouwfonds actively promotes sustainable design, construction and operation in relation to the key aspects of energy, materials, water, health, living quality and waste. Sustainability also plays a pivotal role in the case of large projects. This commitment to sustainability is exemplified by

98 breakthroughs such as the Long-Term Energy Storage Systems that extract cold and heat from the ground to be used to heat buildings in the winter and cool them in the summer. Sustainability also entails paying attention to the needs and requirements of the people who live in an area. An excellent example of this is the Binckhorst development that is located near the centre of The Hague. While it is currently still a disorderly business estate, over the next twenty years it will be transformed into a dynamic area where people will live, work and recreate. Residents, business owners, homeowners, experts and other interested parties have all been invited to join forces to discuss and help chart the future of this project. Rabo Bouwfonds is committed to demonstrating its position as an organisation that takes the city seriously. It is dedicated to supporting the development of an area, whilst still respecting the existing structures and buildings.

99 Driven by the wind We simply cannot live without energy. The use of energy plays a critical role in carrying out numerous functions in our society. Power failures can consequently lead to considerable and acute problems. This is why we cannot survive without fossil fuels yet. But we can accelerate the transition to a sustainable and climate-friendly energy supply by investing in energy conservation, sustainable

100 sources of energy and more efficient use of fossil energy sources. Rabobank contributes to bringing about this transition. We finance innovations and clean technology and invest in sustainable energy generation using biomass, solar energy and wind energy. A compelling illustration of this is the Eemshaven wind farm in Groningen that encompasses 88 wind turbines. The Growind Wind Farm is part of this project. 21 investors, most of whom are customers of Rabobank, Rabobank International and Rabobank Flevoland, laid the foundation for what is now the largest wind farm in the Netherlands. Growind will provide electricity to 60,000 families.

101 Control aspects Corporate governance us/ corporate governance In recent years the corporate governance of organisations has been in the centre of public interest. Rabobank Group has likewise paid a great deal of attention to its corporate governance. To many, the governance of one of the oldest cooperatives in the Netherlands is not as well known as that of a listed enterprise. However, Rabobank Group uses a system of checks and balances at all its levels that make up corporate governance that, in many respects, is even stricter than in listed enterprises. A unique element in Rabobank Group s governance is the Central Delegates Assembly, Rabobank Group s parliament, which meets four times a year and where member influence makes itself heard in virtually all of Rabobank Nederland s strategic decisions. In fact, strict corporate governance is nothing new to Rabobank Group, for the financial sector has always been subject to strict regulation because of its important function in society and the economy. Given its firm roots in Dutch society and its prominence in the international capital markets, Rabobank Group s corporate governance is broadly consistent with the Dutch corporate governance code of a few years ago. Additionally, it will take into account any outcomes from the Frijns committee s review of this code that may be relevant to the bank. The following pages discuss all aspects, thus demonstrating Rabobank Group s balanced corporate governance. Cross-guarantee system Rabobank Group consists of the local Rabobanks, their central organisation Rabobank Nederland and its subsidiaries and other affiliated entities. Through their mutual financial association, various legal entities within Rabobank Group together make up a single organisation. An internal liability relationship exists between these legal entities, as referred to in Section 3:111 of the Financial Supervision Act (Wft). This relationship is formalised in an internal cross-guarantee system, which stipulates that if a participating institution has insufficient funds to meet its obligations towards its creditors, the other participants must supplement that institution s funds in order to enable it to fulfil those obligations. 98 Rabobank Group Annual Report 2007

102 Executive Board The Executive Board of Rabobank Nederland is responsible for the management of Rabobank Nederland and its affiliated entities. This includes responsibility for the achievement of the objectives of Rabobank Group as a whole, its strategic policy, its results, the synergy within Rabobank Group, compliance with all relevant laws and regulations, the management of business risks and the financing of Rabobank Group. The Executive Board reports on all these aspects to the Supervisory Board, the Central Delegates Assembly (the organisation s parliament, which is authorised to take decisions on behalf of the local Rabobanks) and the General Meeting of Rabobank Nederland, which is formed by the members, i.e. the local Rabobanks. The management of Rabobank Group is based in part on the interrelationship between risk, return and reserves. The Financial Supervision Act and the subordinate legislation based thereon, as well as regulations imposed by the supervisory authorities i.e. the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) have formulated standards for financial institutions. The supervision on the bank s solvency and stability i.e. prudential supervision is performed by DNB, while the AFM has the supervision of the bank s conduct. Obviously, these regulations form the framework for the organisation and control of Rabobank Group s activities. The members of the Executive Board are appointed by the Supervisory Board for a fiveyear period, but their contracts of employment are for an indefinite period. They may be dismissed and suspended by the Supervisory Board. The Supervisory Board determines the remuneration of the members of the Executive Board and reports on this to the Confidentiality Committee of the Central Delegates Assembly. The principles of the remuneration policy for the Executive Board, as recommended by the Supervisory Board, are established by the Central Delegates Assembly. Finally, the Supervisory Board periodically assesses and follows up on the Executive Board s performance. Supervisory Board The Supervisory Board performs the supervisory role within Rabobank Nederland. This means that the Supervisory Board supervises the policy pursued by the Executive Board and the general conduct of affairs of Rabobank Nederland and its affiliated entities. As part of this task, the achievement of the Group s objectives, the strategy, business risks, the design and operation of the internal risk management and control systems, the financial reporting process and compliance with laws and regulations are discussed at length and tested regularly. In addition, the Supervisory Board has an advisory role in respect of the Executive Board. In the performance of their duties, the members of the Supervisory Board act in the interests of all stakeholders of Rabobank Nederland and its affiliated entities. Certain key Executive Board decisions are subject to Supervisory Board approval. Examples include decisions on strategic collaboration with third parties, major investments and acquisitions, as well as the annual adoption of policy plans and the budget. The members of the Supervisory Board are appointed by the General Meeting on the recommendation of the Supervisory Board. The independence of the individual members is an important consideration in this respect. The Confidentiality Committee of the Central Delegates Assembly determines the remuneration of the members of the Supervisory Board and has a say in the profile of the members of the Supervisory Board. The Supervisory Board annually assesses its own performance, in terms of the collective body s performance and that of its individual members. Initiatives are developed regularly in order to keep the members of the Supervisory Board up-to-date on developments in the institutional and legal environment in which the bank operates and on risk management systems. The Supervisory Board has five committees: the Cooperative Issues Committee, the Audit & Compliance Committee, the Appointment Committee, the Remuneration Committee and the Appeals Committee. 99 Control aspects

103 Member influence An important precondition for good corporate governance at Rabobank Group is an open culture with clear accountability for the management and supervision. Without transparency, Rabobank Nederland cannot render account to the local Rabobanks on its management and supervision, nor can this be assessed. The local Rabobanks are members of the Rabobank Nederland cooperative. This membership entails rights and obligations. The influence and control of the local Rabobanks are manifested through their representation in two bodies: the Central Delegates Assembly and the General Meeting. In addition, the local Rabobanks are Rabobank Nederland s shareholders. Central Delegates Assembly As from 1 January 2007, the local Rabobanks are organised geographically in 12 regions. The Boards of the Regional Delegates Assemblies form the Central Delegates Assembly (CKV). Through the representation of the local management and supervisory bodies in the Regional Delegates Assemblies, the members/clients of the local Rabobanks are represented in the CKV, which meets in Utrecht four times a year. The CKV s powers include the establishment of rules that all local Rabobanks must comply with and the establishment of the Strategic Framework. The outcome directly influences Rabobank Group s policy. The CKV also approves the annual plan and the budget of the local Rabobanks. The CKV has substantive discussions, which mainly concern the local Rabobanks. These discussions are held not only as part of the CKV s specific duties and powers, but also with the aim of encouraging commitment in the local Rabobanks and consensus between the local Rabobanks and Rabobank Nederland. Consequently, the manner in which Rabobank Nederland accounts for its policy to its members is more extensive than the account rendered by a typical listed public company to its shareholders. Because of the special relationship between Rabobank Nederland and its members, the CKV enjoys very high attendance. In order to operate effectively, the CKV has appointed committees, which are charged with special duties. They are: the Committee on Confidential Matters (advises on appointments in the Supervisory Board, fixes the Supervisory Board s remuneration and assesses the Supervisory Board s application of the remuneration policy), the Coordinating Committee (draws up the agenda of the Central Delegates Assembly and subjects items for the agenda to formality compliance tests) and the Speed Circuit Committee (advises the Executive Board on behalf of the CKV in urgent and confidential cases concerning major investments or divestments). In order to maintain maximum effectiveness of the Central Delegates Assembly, an internal committee was established in 2006 whose task was to advise on the CKV s desired future size and composition. The committee s recommendations included the following: to reduce the CKV membership from 120 to 72, to introduce observers in the CKV and to confirm the CKV s composition according to the ratio of 2 elected members to 1 appointed member. These recommendations have been implemented. General Meeting The General Meeting is the body through which all local Rabobanks, as members of Rabobank Nederland, can exercise direct control. The General Meeting deals with important issues, such as the adoption of the financial statements, approval and endorsement of management en supervision, amendments to the Articles of Association and regulations, and the appointment of members of the Supervisory Board. The Central Delegates Assembly issues advice prior to the General Meeting on all the items on the agenda. This procedure ensures that, prior to the General Meeting, these subjects have been discussed in detail on a local, regional and central level. The local Rabobanks have voting rights in the General Meeting in proportion to their size. Because of the special relationship between Rabobank Nederland and its members, the General Meeting enjoys almost full attendance. 100 Rabobank Group Annual Report 2007

104 Employee influence A few years ago, the Group Works Council of Member Banks (GOR AB) was created as an employee representative body. It acts as a discussion partner to the manager on issues that concern the social policy of all local Rabobanks. The creation of the GOR AB does not affect the position of Rabobank Nederland s Works Council or the existing Works Councils of the local Rabobanks. As a result, they continue to act in full as employee representative bodies within the meaning of the Works Councils Act. Corporate governance at the local Rabobanks Only banks that have a cooperative structure and whose Articles of Association have been approved by Rabobank Nederland can be members of Rabobank Nederland. In turn, the local Rabobanks have members as well, who are local clients. The local Rabobanks have strictly defined rights and obligations towards Rabobank Nederland and each other. Pursuant to the prudential supervision part of the Financial Supervision Act and under Rabobank Nederland s Articles of Association and the Articles of Association of the local Rabobanks, Rabobank Nederland supervises the local Rabobanks on (the integrity of ) their operations, solvency and liquidity. In addition, under the conduct supervision part of the Financial Supervision Act, Rabobank Nederland has been appointed by the Dutch Finance Ministry as the holder of a collective license that also includes the local Rabobanks. Thus, the supervision of conduct by the AFM is exercised through Rabobank Nederland. Management and supervision of the local Rabobanks Two governance models are possible for the local Rabobanks. The introduction of a second governance model the executive model besides the existing partnership model was prompted at the time by the wish to respond to internal and external changes, for example, the ongoing scaling up process, a changing market, and increasing legislation and regulations. Both governance models focus on ensuring effective management as well as professional and independent supervision. The effectiveness of both models will be reviewed in Since both governance models provide assurance of effective member influence and control, the governance of the local Rabobanks will continue to be carried out both adequately and professionally in the future, but also in a way that befits their cooperative character. The members of all the local Rabobanks have important powers, for instance to adopt the financial statements, to amend the Articles of Association, to appoint members of the Supervisory Board and to approve and endorse management and supervision. In addition, account is rendered to the members in respect of the bank s management and supervision. Partnershipmodel In the Partnership model, the Board of each local Rabobank consists of persons elected by the members from their ranks, plus a managing director who is appointed by the Supervisory Board. The managing director is primarily concerned with the day-to-day management of the bank s operations. The Supervisory Board supervises the Board. Executive model In the Executive model, each local Rabobank has a Board of Directors comprising several persons appointed by the Supervisory Board, which operates under the supervision of the Supervisory Board. In this model, no Board members are elected by the members from their ranks, as is the case in the Partnership model. Member council Local Rabobanks using the executive model must institute a member council in order to firmly and permanently embed member influence and control in the structure. An increasing number of banks using the partnership model have established a member council as well. The member council is a delegation of all members elected by the members from their 101 Control aspects

105 ranks. The member council assumes the bulk of the powers of the General Meeting and promotes and structures member control and engagement. The General Meeting continues to exist, but decides only on major issues that impact the local Rabobank s continued existence. Communication with local Rabobanks A closed Internet connection created specifically for the local Rabobanks gives them swift access to useful information and fosters a high level of commitment to Rabobank Nederland. Corporate governance information on the Internet Rabobank Group has placed information on its corporate governance and activities on its public Internet site, including a full explanation of the areas in which Rabobank Group deviates from the Dutch Corporate Governance Code. While Rabobank Group endorses the Code s principles and implements the majority of its elements, it does not implement a number of principles and best practice provisions on account of its cooperative structure. Controls over financial reporting Rabobank Group constantly seeks to improve its corporate governance and overall internal controls, for example, by endorsing the principles of the Dutch Corporate Governance Code. Rabobank Group seeks an open culture and transparent accountability in respect of policies and supervision, and to remain in line with the leading risk management practices in the world. The market demands heightened awareness of world-wide best practices in governance and control, and Rabobank Group proudly embraces ethical business practices, transparency and accountability. In this spirit, Rabobank Group voluntarily assessed the internal controls over financial reporting in a manner similar to what US-registered companies have done pursuant to Section 404 of the United States Sarbanes-Oxley Act of 2002 (SOX 404), even though Rabobank Group is not a registrant with the United States Securities and Exchange Commission and, thus, is not subject to the Sarbanes-Oxley Act or related regulations and oversight. Rabobank Group believes that the review of its internal controls over financial reporting has increased the effectiveness of those controls, including our ability to identify and to remediate any deficiencies at an earlier stage. This results in greater transparency for all stakeholders in the quality of Rabobank Group s financial reporting process. As a result of our review, Rabobank Group has identified areas to improve, simplify and standardise specific business processes. Rabobank Group has established and maintains a comprehensive system of internal control measures designed to ensure transactions are executed as authorised, financial reporting is accurate and reliable, and assets are safeguarded. Rabobank Group has implemented a process whereby finance and business executives throughout the Group assess and attest to the accuracy of financial information as well as the adequacy and effectiveness of internal control over financial reporting. Rabobank Group has adopted policies and procedures that: - pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets; - provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with International Financial Reporting Standards as adopted by the European Union, and that receipts and expenditures are made only in accordance with authorizations of management; - provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements. The internal control framework for the organisation and control of Rabobank Group s activities is based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As set out in the report included in the financial statements, the Executive Board concluded that Rabobank Group s internal control over financial reporting is adequate and effective, consistent with the criteria established by COSO. 102 Rabobank Group Annual Report 2007

106 Risk management The management of Rabobank Group is based on its strategic principles and, by extension, on the interrelationship between risk, return and reserves. Both the DNB and the bank itself have formulated standards concerning Rabobank s organisation and control. Rabobank s organisation and control are subject to the Dutch Financial Supervision Act, including subordinate legislation based thereon, and regulations imposed by both the DNB and the AFM as supervisory authorities. These legal requirements and supervisors regulations form Rabobank Group s framework for the organisation and control of its activities. For further information, please refer to the relevant sections in this Annual Report, and in particular to the section above on Control over financial reporting, which addresses risks relating to financial reporting, and the Risk management chapter, which includes a description of control systems relating to the most important other risks identified by Rabobank Group. 103 Control aspects

107 Report of the Supervisory Board of Rabobank Nederland Rabobank Group found itself in a turbulent environment in 2007, with rapid changes, both nationally and internationally, in the banking landscape. The credit market crisis severely tested the policies of banks and other financial institutions the world over. In spite of challenging conditions, Rabobank Group s net profit was up 14%, again meeting its long-term target. Clients generally were satisfied with the bank s services, while staff satisfaction remained high. Furthermore, Rabobank Group is making good headway in realising the principles of its Strategic Framework. Report to the General Meeting In compliance with the relevant provisions of the Articles of Association of Rabobank Nederland, the Supervisory Board has reviewed the annual report and the financial statements for This review included a discussion with the external auditors Ernst & Young Accountants, and the Supervisory Board took note of Ernst & Young s auditor s report to the financial statements for Based on its findings, the Supervisory Board proposes that the General Meeting of Rabobank Nederland adopt the financial statements for Meetings of the Supervisory Board The Supervisory Board of Rabobank Nederland supervises the policy of the Executive Board, the general conduct of affairs at Rabobank Nederland and its affiliated entities as well as compliance with laws and regulations. The Supervisory Board is responsible for the appointment, dismissal and remuneration of the members of the Executive Board of Rabobank Nederland. In addition, the Supervisory Board advises the Executive Board. Independence and expertise It is important that the Supervisory Board can perform its duties independently. Any semblance of a conflict of interests must be avoided. Equally important are its expertise and broad interest spread, the criteria for which have been defined in the profile for the Supervisory Board. In both appointments and reappointments of members of the Supervisory Board, these aspects are the subject of extensive review. Appointment and reappointments On 21 June 2007, the General Meeting resolved to reappoint Mr Minderhoud, Mr Vermeer and Mr Walravens to the Supervisory Board and to appoint C.P. Veerman as a member of the Supervisory Board. Following the Dutch Cabinet change in 2007, the opportunity presented itself to engage Mr Veerman, a former Dutch Minister of Agriculture, Nature management and Fisheries, as a Rabobank Supervisory Board member. With his network at home and abroad and his extensive knowledge and experience, both in public administration and in academe, Mr Veerman is a valuable addition to the Supervisory Board. Mr Van Rossum, who was also eligible for re-appointment in 2007, decided not to stand for re-election. The Supervisory Board is grateful for his contribution to the Board s performance over the past years. Meetings The Supervisory Board met seven times in Not one member was repeatedly absent from those meetings. The Supervisory Board has five committees. The Audit & Compliance Committee met nine times, the Cooperative Issues Committee, the Appointment Committee and the Remuneration Committee each met four times and the Appeals Committee met once. 104 Rabobank Group Annual Report 2007

108 Extended duties In 2007, the regulations for the Supervisory Board and its committees were updated. This mainly concerns the Audit Committee s name change to Audit & Compliance Committee following the addition of the field of compliance to the duties of this committee. Corporate social responsibility was added to the duties of the Cooperative Issues Committee. Further, the changes to Rabobank Nederland s Articles of Association of 2 January 2007, following the implementation of the Financial Supervision Act (Wft), have been detailed in the regulations. The adjusted regulations have subsequently been published on the website. Keeping abreast of developments The Chairman of the Supervisory Board has contact at least on a monthly basis with the Chairman of the Executive Board and holds monthly meetings with the internal auditor and the Group Compliance Officer. In addition, the Chairman of the Supervisory Board, the Chairman of the Audit & Compliance Committee, the external auditor and the internal auditor meet at least four times a year. Furthermore, the Chairman of the Supervisory Board chairs the General Meetings of Shareholders. During the year, the members of the Supervisory Board regularly attended, as observers, meetings of the Rabobank Nederland Works Council, as well as the Regional and Central Delegates Assembly. This enables the Supervisory Board to keep up to date with the interests of Rabobank Nederland s major stakeholders. As part of their continuous learning, the members of the Supervisory Board gained information on aspects of ICT, the corporate governance aspects of a decision of the Enterprise Section of the Court of Appeal and the duty of care. They also devoted a meeting to the subject of risk management, with an in-depth discussion of the policies for liquidity and interest rate risk. Finally, as part of the training programme, the Board made a separate study of Rabobank Group s funding policy. Corporate governance Corporate governance at Rabobank Nederland is discussed in the chapter Corporate governance. The three pillars of this governance are decisive management, effective member influence and strong and independent supervision. The Supervisory Board also fully endorses the contents of this chapter. Change in the Central Delegates Assembly s structure In 2007, the Supervisory Board took note of the report of the Bierens Committee, i.e. the internal committee whose terms of reference included a study of the structure of Rabobank Nederland s chief member body, the Central Delegates Assembly (CKV). Recommendations in this report included the following: to reduce the CKV membership from 120 to 72, to introduce observers in the CKV and to confirm the CKV s composition according to the ratio of 2 elected members to 1 appointed member. These recommendations were implemented in Modernisation of internal financial relationships In 2007, the Supervisory Board extensively discussed the final report of the Internal Financial Relationships committee, which was chaired by J.S.S. Weitenberg. As was the case for the Bierens committee, this committee likewise comprised directors, managers and supervisory board members of local Rabobanks, as well as Rabobank Nederland employees. The Supervisory Board endorsed the report, that also received wide support from the CKV held on 12 December It concerns modernisation of the financial relationships between the local Rabobanks and Rabobank Nederland and streamlining internal arrangements, such as settlement arrangements. The purpose of all this is to achieve the ambitions of the local Rabobanks. In addition, it helps internal transparency. Ultimately, the report should result in further definition through a resolution by the General Meeting of 2008 and in changes to the Articles of Association of Rabobank Nederland. The Supervisory Board s own performance In 2007, the Supervisory Board again considered its own performance in terms both of its performance as a collective body and that of its individual members. This review is held annually. Matters reviewed in this context included members attendance at Board meetings 105 Control aspects

109 and the extent to which the Supervisory Board complied with its desired profile, its composition and its required competencies. Where necessary, improvements in the Board s effectiveness are made on the basis of this review. In particular, the Board is in need of reinforcement in the areas of information technology and complex financial products. The Audit & Compliance Committee likewise reviewed its composition and effectiveness in 2007 and introduced some improvements in its working methods accordingly. Performance of supervisory role In 2007, The Supervisory Board again assessed the performance of the Executive Board and its individual members. The Supervisory Board supervised the general conduct of affairs at Rabobank Nederland and its affiliated entities. The Supervisory Board also regularly served as a sounding board for the Executive Board. Regular subjects of discussion are the annual and the interim figures, the strategy, the results, corporate social responsibility, ICT and the risks associated with the Group s activities. The latter include the Executive Board s assessment of the design and operation of the internal risk management and control systems and any significant changes therein. Other subjects of discussion included the compliance organisation s operation within Rabobank Group, potential acquisitions and divestment proposals. Subjects receiving special attention in 2007 Financial statements 2006 and Interim Report 2007 The Supervisory Board extensively discussed Rabobank Group s Financial statements for 2006, including the report of the Executive Board, the accompanying auditor s report, the annual accounts and the proposed appropriation of available profit. In addition, the management letter, including the management response, was discussed in detail and in the presence of both the internal auditor and the external auditor. The Audit & Compliance Committee did intensive preparatory work to facilitate the review of the 2006 financial statements. Further, the Supervisory Board extensively discussed Rabobank Group s Interim Report Budget 2008 In accordance with the Articles of Association, the budget for 2008 was discussed and approved by the Supervisory Board. Again, the Audit & Compliance Committee provided important input for this purpose. Subprime crisis The global situation following the subprime crisis received particularly special attention. Following preparatory work by the Audit & Compliance Committee, the Supervisory Board closely monitored relevant developments by means of detailed information sessions with the Executive Board and by exchanging views with the Executive Board on securing Rabobank Group s position. In this context, it discussed Rabobank Group s indirect subprime exposure, the potential consequences of a liquidity crisis and its possible effect on shortterm and long-term funding, the effects on the profit and loss account, the operation of the control and management mechanisms, concentration risk and systemic risk. Local Rabobanks The Rabobank 2010 Vision document was discussed extensively during Board meetings. Rabobank 2010 is a project concerning the future structure of the local Rabobanks, which aims to optimise the entrepreneurial character of the local Rabobanks, to align processes with market needs and to reduce costs in view of Rabobank s competitive position. The CKV agreed with the main terms of the Vision document in December An implementation schedule is to be drawn up. Strategy implementation In 2007, the Supervisory Board discussed the progress of the Strategic Framework, which included a review of the acquisitions made during the year. This Strategic Framework aims at maintaining Rabobank s leadership in the domestic market and in strengthening its market 106 Rabobank Group Annual Report 2007

110 position, particularly in the large cities. Rabobank Group wishes to develop its international banking business further, focusing on the food & agri business and particularly in a few large mature economies on retail banking. The implementation of the targets of the Strategic Framework again made strong progress in During the year under review, the focus was on the integration of the enterprises acquired in 2006 and 2007 with Rabobank Group s existing activities. In particular, this concerned Athlon, parts of Bouwfonds, and Mid-State Bank & Trust. In 2007, Robeco expanded its interest in Transtrend, an asset manager specialising in futures and options markets, from 49% to 100%. It also took a 64% interest in the Swiss Sustainable Asset Management Group in order to strengthen its sustainable investment expertise. Furthermore, Alex is no longer part of Rabobank Group in 2008 after it was sold to BinckBank given that, from a strategic point of view, its activities no longer form part of Rabobank Group s core activities. The Board is pleased that the recently acquired enterprises and participations are contributing to profit. All Rabobank Group units, i.e. the local Rabobanks and the other Group entities, are performing well, although cost levels for Rabobank Nederland and the local Rabobanks partly because of the tightening margins and the bank s organic growth rate are monitored closely. The Supervisory Board gives its full attention to monitoring the alignment and decisionmaking concerning intended equity investments, acquisitions or divestments and their consequences for the financial ratios. With due regard to the regulations around Basel II, the Supervisory Board and the Executive Board discussed the desired solvency level and the associated policy in The Supervisory Board is satisfied with the general course of affairs in 2007 and wishes to thank both management and staff for the commitment and professionalism they have demonstrated. The Supervisory Board believes that Rabobank Group is on track to achieving its longer-term targets and is confident about the future. Utrecht, 4 March 2008 Supervisory Board 107 Control aspects

111 Membership of the Supervisory Board Rabobank Nederland 7 In 2008, Mr Eisma, Mr De Boon, Mr Bijvoet and Mr Overmars will retire by rotation. Mr De Boon, Mr Bijvoet and Mr Overmars are eligible for re-appointment. Mr Eisma is eligible for re-appointment for a period of two years. 8 Year of first appointment to the Board of Supervisors of Rabobank Nederland. With the change in Rabobank Nederland s corporate governance structure in 2002, the Supervisory Board replaced the Board of Supervisors. Membership of the Supervisory Board, at 1 January Name Function Year of first appointment End of current term Lense Koopmans (L.) Chairman Antoon Vermeer (A.J.A.M.) Deputy Chairman Sjoerd Eisma (S.E.) Secretary 2002 (1998) Leo Berndsen (L.J.M.) Member Bernard Bijvoet (B.) Member Teun de Boon (T.) Member Louise Fresco (L.O.) Member Rinus Minderhoud (M.) Member Paul Overmars (P.F.M.) Member Herman Scheffer (H.C.) Member 2002 (1998) Martin Tielen (M.J.M.) Deputy Secretary Aad Veenman (A.W.) Member 2002 (1998) Cees Veerman (C.P.) Member Arnold Walravens (A.H.C.M.) Member Rabobank Groep Jaarverslag 2007

112 Committees of the Supervisory Board Audit & Compliance Committee Members and functions Duties M. Minderhoud, chairman Preparatory work for the Supervisory Board s L.J.M. Berndsen, permanent member decision-making on the supervision of the L. Koopmans, permanent member management of, inter alia, financial issues, B. Bijvoet supervision and information, A.W. Veenman communication technology (ICT) and C.P. Veerman compliance-related activities. A.J.A.M. Vermeer Cooperative Issues Committee Members and functions A.J.A.M. Vermeer, chairman L. Koopmans, permanent member M.J.M. Tielen, permanent member T. de Boon S.E. Eisma L.O. Fresco P.F.M. Overmars H.C. Scheffer A.H.C.M. Walravens Duties Preparatory work for the Supervisory Board s decision-making on intended policies of the Executive Board concerning the cooperative structure of the local Rabobanks and Rabobank Nederland and concerning corporate social responsibility. Appointments Committee Members and functions Duties L. Koopmans, chairman Preparatory work for the Supervisory Board s L.O. Fresco decision-making on the composition of and H.C. Scheffer (re)appointments to the Supervisory Board A.W. Veenman and the Executive Board. A.J.A.M. Vermeer A.H.C.M. Walravens Remuneration Committee Members and functions A.H.C.M. Walravens, chairman L.O. Fresco L. Koopmans H.C. Scheffer A.W. Veenman A.J.A.M. Vermeer Duties Preparatory work for the Supervisory Board s decision-making on the remuneration of the members of the Executive Board. Appeals Committee Members and functions S.E. Eisma, chairman M.J.M. Tielen P.F.M. Overmars Duties Advisory body of appeal in disputes between local Rabobanks or between one or more local Rabobanks and Rabobank Nederland. 109 Control aspects

113 Long-term relationships with clients Rabobank is committed to holding a sustainable position in the market. This means that amongst other things we seek to enter into longstanding and strong relationships with our customers. This is based on our core values of being nearby and involved. We consequently see it as an essential responsibility to enter into dialogue with business

114 owners regarding corporate social responsibility at their businesses. CSR items have consequently been incorporated into the Rabobank Sector Information System since October This provides account managers with a tool that enables them to be well prepared for discussions and to take an active stance in the field of CSR. We also develop a range of specific CSR products. For example, many horticulturists have been able to build environmentally friendly and energy-friendly greenhouses thanks to Rabobank s green financing for the horticulture sector.

115 Certified soy The increasing consumption of meat in fast-growing economies is leading to a rising demand for soy. This is because soy, in addition to being a key ingredient in foodstuffs and cosmetics, is also a core component of animal feed. Large-scale soy production can, however, lead to deforestation and destruction of valuable nature reserves. As a worldwide food & agri bank, Rabobank

116 believes it is its social responsibility to contribute to promoting more sustainable soy production. It is consequently committed to helping bring about soy production that does not result in deforestation and social injustice, but that rather fulfils a range of broadly supported social and environmental criteria. The soy sector established the Round Table on Responsible Soy (RTRS) for this purpose. The members of the RTRS are dedicated to achieving a balanced set of social and environmental criteria. This means that both current and new soy plantations and the links further down in the soy production chain can now be assessed and certified on the basis of these criteria. Rabobank is a participating member of the RTRS.

117 Annual figures Consolidated balance sheet At 31 December At 31 December In millions of euros Assets Cash and cash equivalents 2,129 1,630 Due from other banks 43,218 49,086 Trading financial assets 29,179 36,789 Other financial assets at fair value through profit and loss 18,133 21,468 Derivative financial instruments 26,089 18,992 Loans to customers 372, ,924 Available-for-sale financial assets 50,355 48,961 Held-to-maturity financial assets 859 1,489 Investments in associates 4,558 3,250 Intangible assets 3,183 1,844 Property and equipment 5,572 5,022 Investment properties 1,105 1,338 Current tax assets Deferred tax assets 1,577 1,477 Other assets 11,159 10,009 Total assets 570, , Rabobank Group Annual Report 2007

118 At 31 December At 31 December In millions of euros Liabilities Due to other banks 73,428 94,626 Due to customers 249, ,917 Debt securities in issue 141, ,066 Derivative financial instruments and other trade liabilities 31,097 26,694 Other debts 10,518 10,649 Other financial liabilities at fair value through profit and loss 27,303 26,270 Provisions 1,167 1,175 Current tax liabilities Deferred tax liabilities Employee benefits 941 1,223 Subordinated debt 2,294 2,450 Total liabilities 539, ,078 Equity Equity of Rabobank Nederland and local Rabobanks 19,650 17,426 Rabobank Member Certificates issued by group companies 6,233 5,808 25,883 23,234 Capital Securities and Trust Preferred Securities III to VI 2,779 1,959 Minority interests 2,713 4,184 Total equity 31,375 29,377 Total equity and liabilities 570, , Annual figures

119 Consolidated profit and loss account For the year ended 31 December For the year ended 31 December In millions of euros Interest income 29,356 25,059 Interest expense 22,585 18,587 Interest 6,771 6,472 Fee and commission income 3,394 2,741 Fee and commission expense Fees and commission 2,857 2,296 Income from associates Net income from financial assets and liabilities at fair value through profit and loss (38) 246 Gains on available-for-sale financial assets 64 7 Other 1, Income 11,499 10,049 Staff costs 4,445 4,117 Other administrative expenses 2,846 2,429 Depreciation and amortisation Operating expenses 7,709 6,887 Value adjustments Operating profit before taxation 3,048 2,712 Taxation Net profit 2,662 2,345 Of which attributable to Rabobank Nederland and local Rabobanks 1,937 1,757 Of which attributable to holders of Rabobank Member Certificates Of which attributable to Capital Securities 17 - Of which attributable to Trust Preferred Securities III to VI Of which attributable to minority interests Net profit for the year 2,662 2, Rabobank Group Annual Report 2007

120 Consolidated statement of changes in equity In millions of euros Equity of Rabobank Nederland and local Rabobanks Rabobank Member Certificates Capital Securities and TPS Minority interests Total equity At 1 January ,450 5,811 2,092 2,996 26,349 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (277) (277) Net fair value changes associates Net fair value changes cash flow hedges (16) (16) Other changes Currency translation differences (14) - (133) (191) (338) Reclassified to net profit for the year available-for-sale financial assets Total income and expense for the year recognised directly in equity 93 - (133) (191) (231) Net profit for the year 1, ,345 Total income and expense 1, (23) 10 2,114 Payment on Rabobank Member Certificates and Trust Preferred Securities III to VI (TPS) - (277) (110) - (387) Other 126 (3) - 1,178 1,301 At 31 December ,426 5,808 1,959 4,184 29,377 At 1 January ,426 5,808 1,959 4,184 29,377 Arising in the period (after taxation): Net fair value changes available-for-sale financial assets (39) - - (584) (623) Net fair value changes associates Net fair value changes cash flow hedges Currency translation differences (205) - (170) (225) (600) Reclassified to net profit for the year available-for-sale financial assets Total income and expense for the year recognised directly in equity (170) (809) (826) Net profit for the year 1, ,662 Total income and expense 2, (47) (506) 1,836 Payment on Rabobank Member Certificates, Trust Preferred Securities III to VI and Capital Securities - (299) (123) - (422) Issue of Capital Securities Exchange of government bonds for subordinated loans to Rabobank Nederland (415) - Other (550) (406) At 31 December ,650 6,233 2,779 2,713 31, Annual figures

121 Consolidated cash flow statement For the year ended 31 December For the year ended 31 December In millions of euros Cash flows from operating activities Operating profit before taxation 3,048 2,712 Adjusted for: Non-cash items recognised in profit and loss Depreciation and amortisation Value adjustments Result on sale of property and equipment (9) (14) Share of (profit) of associates and result on sale of subsidiaries (698) (527) Fair value results on investment properties (6) 2 Fair value results on financial assets and liabilities at fair value through profit and loss 38 (246) Net result on available-for-sale financial assets (64) (7) Net change in operating assets: Due from other banks (15,330) 7,874 Trading financial assets 7,610 2,222 Derivative financial instruments (7,097) 5,143 Net change in non-trading financial assets at fair value through profit and loss 3,335 (4,019) Loans to customers (18,044) (50,473) Net change in liabilities relating to operating activities: Derivative financial instruments and other trade liabilities 4,403 (4,488) Due to customers 14,598 29,472 Debt securities in issue 13,746 12,074 Other debts (131) 3,583 Income tax paid (833) (809) Other changes 1,076 (2,285) Net cash flow from operating activities 6,802 1,005 Cash flow from investing activities Acquisition of subsidiaries net of cash and cash equivalents acquired (431) 1,714 Disposal of subsidiaries net of cash and cash equivalents 18 3 Acquisition of property and equipment and investment properties (559) (646) Proceeds from sale of property and equipment Acquisition of available-for-sale financial assets and held-to-maturity financial assets (21,443) (16,160) Proceeds from sale and repayment of available-for-sale financial assets and held-to-maturity financial assets 15,156 12,861 Net cash flow from investing activities (6,861) (1,898) Cash flows from financing activities Proceeds from issue of Capital Securities Payment on Rabobank Member Certificates, Trust Preferred Securities III to VI and Capital Securities (422) (387) Repayment of subordinated debt (10) (13) Net cash flow from financing activities 558 (400) Net change in cash and cash equivalents 499 (1,293) Cash and cash equivalents at beginning of year 1,630 2,923 Cash and cash equivalents at end of year 2,129 1,630 The cash flows from interest are included in the net cash flow from operating activities Interest income 28,831 24,675 Interest expense 21,620 17, Rabobank Group Annual Report 2007

122 Business segments In millions of euros Domestic retail banking Wholesale banking and international retail banking Asset management and investment Leasing Real estate Other 9 Total For the year ended 31 December 2007 External income 7, ,473 1,611 1,008 (1,046) 11,499 Income from other segments (1,941) 1,829 6 (616) (362) 1,084 - Total income 5,795 2,546 1, ,499 Segment expense 3,980 2, ,451 Operating profit before tax 1, (102) 3,048 Income tax expense 466 (56) (271) 386 Net profit for the year 1, ,662 For the year ended 31 December 2006 External income 7,731 1, , (1,954) 10,049 Income from other segments (2,180) 1,040 (58) (462) (248) 1,908 - Total income 5,551 2, (46) 10,049 Segment expense 4,016 1, ,337 Operating profit before tax 1, (325) 2,712 Income tax expense (359) 367 Net profit for the year 1, ,345 9 Other includes various income and expense items not allocated to individual segments, such as income and expense due to the application of centralised hedge accounting, and consolidation effects. 119 Annual figures

123 Auditor s report on the financial information Introduction We have audited whether the consolidated balance sheet, consolidated profit and loss account, consolidated statement of changes in equity, business segments and consolidated cash flow statement, as set out on pages 114 to 119 of this annual report, -hereafter financial information - of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank Nederland), Amsterdam, has been derived consistently from the audited consolidated financial statements 2007 of Rabobank Nederland. In our auditor s report dated 4 March 2008 we expressed an unqualified opinion on these consolidated financial statements. The executive board of Rabobank Nederland is responsible for the preparation of the financial information in accordance with the accounting policies as applied in the consolidated financial statements 2007 of Rabobank Nederland. Our responsibility is to express an opinion on the financial information. Scope We conducted our audit in accordance with Dutch law. This law requires that we plan and perform the audit to obtain reasonable assurance whether the financial information is derived consistently from the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial information has been derived consistently, in all material respects, from the consolidated financial statements. Emphasis of matter For a better understanding of Rabobank Group s financial position and results and the scope of our audit, we emphasize that the financial information should be read in conjunction with the consolidated financial statements, from which the financial information has been derived and our unqualified auditor s reports thereon dated 4 March Our opinion is not qualified in respect of this matter. Utrecht, 4 March 2008 for Ernst & Young Accountants G.H.C. de Meris 120 Rabobank Group Annual Report 2007

124 Colophon Published by Rabobank Nederland Communications Editors Andries van der Bruggen, Geoffrey van Diessen, Smink, Van der Ploeg & Jongsma Design concept Beukers Scholma, Haarlem Design Borghouts Design, Haarlem Photographs DutchPhotography, Amsterdam Edwin Walvisch, Heemstede English translation Ernst & Young Language & Translation Services, The Hague Internet Bit Squad Multimedia, Rosmalen Production co-ordination Kobalt BV, Amstelveen Prepress NEROC VGM, Amsterdam Printers Thieme, Amsterdam Materials used This document was printed using environmentally friendly materials. The ink was mineral oil-free Novavit Easy Mix Bio and the paper 240 gram Muncken Polar and 130 gram Arctic the Volume (FSC certified). Disclaimer This Annual Report is a translation of the Dutch Annual Report. In the event of any conflict in interpretation, the Dutch original takes precedence. Publication This document and the separate publication Rabobank Group Consolidated Financial Statements 2007, financial statements, together form the annual report, the Financial Statements and other information of Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. Filing After they have been adopted, the Annual Report 2007, the Financial Statements 2007 and other information will be filed at the offices of the Trade Registry of the Chamber of Commerce and Industries under number Annual Reports Rabobank Group publishes the following Annual/ Interim Reports Annual Report 2007 (in Dutch and English to be published in April 2008) Consolidated Financial Statements 2007 (in Dutch and English to be published in April 2008) Annual Sustainability Report 2007 (in Dutch and English to be published in April 2008) Interim Report 2008 (in Dutch and English, to be published in September 2008) For copies of these reports please contact Rabobank Nederland: [email protected] All Annual Reports are also available on the internet:

125 Rabobank Group Annual Report