annual report 2005

ABN AMRO Holding N.V.

ABN AMRO
is a prominent international bank with European roots dating back to 1824
has over 3,500 branches in almost 60 countries and territories, a staff of about
97,000 full-time equivalents worldwide and total assets of EUR 881 billion as of
year-end 2005
is listed on Euronext (Amsterdam, Brussels and Paris) and the New York Stock
Exchange.
Our business strategy is built on five elements:
1 Creating value for our clients by offering high-quality financial solutions that best meet
their current needs and long-term goals
2 Focusing on:
- consumer and commercial clients in our local markets in Europe, North America,
Latin America and Asia
and globally on:
- selected multinational corporations and financial institutions
- private clients
3 Leveraging our advantages in products and people to benefit all our clients
4 Sharing expertise and operational excellence across the Group
5 Creating fuel for growth by allocating capital and talent according to the principles of
Managing for Value, our value-based management model.
We aim for sustainable growth to benefit all our stakeholders: our clients, our
shareholders, our employees, and society at large. In pursuing this goal we are guided by
our Corporate Values (integrity, teamwork, respect and professionalism) and Business
Principles. Acting with integrity is at the heart of our organisation: by complying in each
of the markets in which we operate with the relevant laws and regulations, the bank
safeguards its reputation and its licence to operate. Meeting the highest compliance
standards is seen as the basis for true competitive advantage. Therefore ABN AMRO
strives to serve as the benchmark for the financial industry.
We implement our strategy through a number of Business Units (BUs). Each of these
units is responsible for managing a specific region, a distinct client segment or a product
segment. Our BUs also share expertise and operational excellence, seek opportunities for
standardisation, and exploit new market solutions to provide clients with even better
products and services.
These BUs are (as of 1 January 2006):
Five regional Client BUs: the Netherlands, Europe, North America, Latin America and
Asia. These BUs serve almost 20 million consumer and commercial clients worldwide.
ABN AMRO is one of the worlds leading players in these segments
Two global Client BUs: The BU Private Clients provides private banking services to
wealthy individuals and families and has EUR 131 billion assets under administration
as of year-end 2005. The BU Global Clients serves a select group of multinational clients
Profile
Three global Product BUs: Global Markets, Transaction Banking and Asset Management
- Global Markets transacts and develops products for all our client segments
- Transaction Banking is our product organisation covering all payments and trade in the
bank for our consumer and commercial clients
- Asset Management, which is one of the worlds leading asset managers, operates from
over 20 locations worldwide and, as of year-end 2005, manages EUR 176 billion worth
of assets for private investors and institutional clients.
To provide all our clients with even better products and services, we have created a
cross-BU Consumer Client Segment and a cross-BU Commercial Client Segment. These
segments focus on aligning the Client BUs with the Product BUs, sharing best practices
and exchanging winning formulas across the Group in order to deliver high-quality
solutions to our client bases across the world.
Our relationship-based approach and our unique combination of clients, products and
geographical markets have enabled us to build a strong competitive advantage in the
mid-market segments, which represent our sweet spot. We aim to increase this
advantage on a continuing basis, both by growing our mid-market client base and
improving our product capabilities.
grand cru haute couture skyscraper forest
In November 2005 ABN AMRO presented a new global brand
campaign, aiming to bring the banks tag line Making more
possible to life.
The campaign shows the potential of what everyday objects can
become (see inside cover).
For this Annual Report we created a spin-off of this campaign,
showing the potential of our long term views and the things that
we believe in.
Potential
2
Chairmans letter 4

ABN AMRO snapshot 8
Figures at a glance 8
2005 diary 10

Group strategy 11

Business in brief 17

Supervisory Board 20
Audit Committee 24
Nomination & Compensation Committee 25
Compliance Oversight Committee 27

Corporate governance 29
The Dutch corporate governance code 29
US corporate governance 31
Shareholders influence 31
Supervisory Board 32
Managing Board 34

Compliance 37

Sustainable development 39

Core businesses 41
Consumer & Commercial Clients 42
BU Netherlands 43
BU North America 45
BU Brazil 50
BU New Growth Markets 52
BU Bouwfonds 55
Wholesale Clients 59
BU Private Equity 62
BU Private Clients 64
BU Asset Management 67

Transaction Banking 71

Group Shared Services 73

Group Functions 75

Human Resources 78

Contents
Contents
3
Risk management 81
Framework 81
Organisation structure 81
Risk measurement 83
Credit risk 85
Loan portfolio and its composition 87
Provisioning policies 88
Doubtful and non-performing loans 88
Country risk 90
Cross-border risk 90
Sovereign risk 91
Operational risk 91
Market risk 92
Interest rate risk (non-trading) 92
Currency risk (non-trading) 93
Liquidity risk 93

Regulatory capital 94

Basel II 96

The Sarbanes-Oxley Act 97

Shareholder information 99

Financial statements 109
Accounting policies 112
Consolidated financial statements 128
Notes to the consolidated financial statements 133
Major subsidiaries and participating interests 205
Company financial statements 209
Notes to the company financial statements 214

Other information 217
Auditors report 218
Stipulations of the articles of association with respect to profit appropriation 218
Stipulations of the articles of association of Holding and trust office with
respect to shares and voting rights 219
Proposed profit appropriation 220
Subsequent events 220
Comparison of the corporate government regulations based upon the
Dutch corporate governance code and the US Sarbanes-Oxley Act of 2002 (SOXA) 221
ABN AMRO Holding N.V. 225
Curricula vitae 226
Organisation of ABN AMRO Bank N.V. 227
European Staff Council 228
Dutch Central Works Council 229
Glossary 230
Abbreviations 233
Publications 236

Contents
4
Dear Shareholder,
On behalf of the Managing Board, I am writing you about our performance in
2005.
We achieved strong results during the year, driven by strong organic growth in
all our consumer and commercial client businesses. This organic growth
reflects the benefits of our continuing focus on the strong local relationships we
have with our mid-market clients, supported by our high-quality global product
capabilities. These factors, in combination with stable provisions and a lower
effective tax rate, enabled us to report a highly satisfactory increase of 13.4% in
net profit attributable to our shareholders. In addition, we will propose to the
General Meeting of Shareholders a full year dividend of EUR 1.10 per ordinary
share for 2005, which is an increase of 10 euro cents compared with 2004.
The improvement in our performance is all the more satisfying as it means we
more than made up for the loss of income from LeasePlan, a non-core but very
profitable asset that we sold in 2004. It is also a good indication that our mid-
market strategy is now firmly established and delivering results. In terms of
the goals we announced for the period from 1 January 2005 to 31 December
2008, we are making progress towards reaching our objectives of an average
return on equity (ROE) of 20% and a top five total return to shareholders (TRS)
position in our peer group of 20 banks by the end of 2008. We reported an
average ROE for 2005 of 23.5%. While we finished in seventh place in the
2002-2005 cycle, for the TRS cycle 2005-2008 we were in 12th place at the end
of 2005. Nevertheless, we know there is much more untapped potential across
the bank. The realignment of our organisational structure with our mid-market
strategy, as announced on 14 October 2005, was really the next logical step.
We have created the Group Business Committee (GBC) in order to drive
coordination across the Client and Product Business Units (BUs) as well as the
segments and Services, and to realise the available synergies. The GBC
coordinates on an operational level while the Managing Board retains full
responsibility for setting the Groups strategy and for managing its
performance.
This realignment created five regional Client BUs, three Product BUs, two
global Client BUs and a Services organisation. It also led to the unbundling of
Wholesale Clients (WCS). By opening up our WCS organisation, we are able to
make our high quality WCS products available to all our mid-market customers
in every region, which should lead to strong organic revenue growth in the
coming years. To support this ambition, the Managing Board is very happy that
it has been joined from 1 January 2006 by three new colleagues: Huibert
Boumeester, Piero Overmars and Ron Teerlink. Their presence on the
Managing Board will help us to optimise the execution of our mid-market
strategy in the coming years and to capitalise on the capabilities available
across the bank to better serve all our clients.
Chairmans letter
5
We will do everything within our control to reach our ambitious goals in the
coming years, but not at the expense of integrity. The Managing Board is fully
committed to the banks Corporate Values and preserving the banks integrity
and reputation. By complying with the relevant laws and regulations in each of
the markets in which we operate, the bank safeguards its reputation, its
licence to operate, and its ability to create sustainable value for all
stakeholders. We believe that meeting the highest compliance standards is the
basis for true competitive advantage. We therefore strive to serve as the
benchmark for the financial industry. The process of the acquisition of Banca
Antonveneta clearly demonstrated our commitment to this high standard.
Unfortunately we faced some difficult compliance issues during the year and
learned the hard way that being fully committed to compliance, in combination
with our Values and Business Principles, is in itself not enough. Since
ABN AMRO signed a Written Agreement with the US bank regulators in 2004,
it has been working actively with external experts to fully review the
compliance area and to start implementing best-in-class compliance standards
in all jurisdictions in which it operates. Bank regulators in the US and the
Netherlands were continuously informed about these actions. A complete
review of the causes of the shortcomings in the internal supervision of the
activities of the US dollar clearing centre in New York was undertaken, as well
as disciplinary actions against employees involved. We have also introduced a
comprehensive training programme across the bank, based on the Basel
principles (these principles describe the compliance activities that Boards and
compliance functions of banks must safeguard and implement), including
various training programmes for all staff to instil a compliance mindset even
more deeply and ensure the required compliance skills.
In December 2005, ABN AMRO agreed to a Cease and Desist Order with the
Nederlandsche Bank and US regulators. This involved an agreement to pay an
aggregate penalty of USD 75 million and a voluntary endowment of USD 5
million in connection with deficiencies in the US dollar clearing centre of our
New York branch and the Office of Foreign Assets Control (OFAC) compliance
procedures, specifically in relation to certain US dollar payments originated by
our branch in Dubai. Based on these Orders, ABN AMRO will have to further
improve its oversight and compliance programmes. The right way forward is to
accept full responsibility, take corrective action, and embed a pro-active culture
of compliance and full reporting to the regulators. This is what we have done
and will continue to do. For ABN AMRO, nothing short of the highest standards
of compliance is acceptable.
The year 2006 will be another important one for ABN AMRO, with the
integration of Banca Antonveneta and the realisation of the planned cost
synergies. We will work hard, in close collaboration with our new Italian
Chairmans letter
6
colleagues, to realise the great opportunity to bring innovation and improved
service to our new clients in Italy. We have a history of managing businesses
across cultures and regions and we have proven many times that we can add
new businesses without losing the strong ties they have with their local
communities and while continuing to keep their strong heritage. This is of
particular importance to our mid-market customers. At the same time, we
firmly believe that we will deliver on our commitment to create value for our
shareholders. Banca Antonveneta is a very good example of the execution of
our mid-market strategy, as it means we can enlarge our presence in the mid-
market of both the consumer and commercial segments.
With the new structure in place since 1 January, the focus in 2006 will be on
organic growth and disciplined cost and capital management, as well as on
implementing improvements in our oversight and compliance programmes
based on the Cease and Desist Order from the Nederlandsche Bank and the
US regulators. The Managing Board has therefore defined its priorities as
organic revenue growth and the realisation of the synergies from the
integration of Banca Antonveneta once the acquisition is completed, as well as
a continued focus on realising cost synergies through the execution of the
Group Shared Services programme, further improving the returns from our
former wholesale banking activities, strict capital discipline across the Group
and implementing best-in-class compliance standards in all jurisdictions in
which we operate.
The year 2005 has been a period of investment, which resulted in significant
cost growth. We expect the underlying rate of growth in expenses to be much
lower in 2006, which will lead to a further improvement in the efficiency ratio.
In line with our strict capital discipline, we will buy back EUR 600 million in
From left to right:
Tom de Swaan, Huibert
Boumeester, Dolf Collee,
Joost Kuiper, Rijkman Groenink,
Piero Overmars, Wilco Jiskoot,
Hugh Scott-Barrett, Ron Teerlink.
Chairmans letter
7
shares during the first half of 2006, as previously announced, and we remain
committed to starting the neutralisation of the stock dividend with effect from
the 2006 interim dividend. We will also continue to review our activities with
a view to more disposals of non-core assets, such as Kereskedelmi s
Hitelbank and the property finance and development activities of Bouwfonds.
Successful execution of these management priorities will create room for
additional share buy-backs in the second half of 2006.
The realisation of these priorities will be facilitated by reaping the benefits of
our new organisational structure and governance, which are now aligned with
our mid-market strategy, and by working as one team across the bank in
short: One Bank. No Boundaries.
Yours faithfully,
Rijkman Groenink
Chairman of the Managing Board
Amsterdam, 23 March 2006
Chairmans letter
8
Figures at a glance
C&CC: 59'
vCS: 27'
PE: 2'
PC: 6'
A: 4'
CF: 2'
20,000
15,000
10,000
5,000
0
2001
13,334
2002
13,230
2003
13,793
2004
19,793
2004
17,130
2005
19,827
These figures have been
prepared in conformity with
general accepted accounting
principles in the Netherlands.
Operating result (in millions of euros) Operating income (in millions of euros)
3,000
6,000
4,000
2,000
0
2001
5,063
2002
5,132
2003
6,203
2004
6,106
2004
3,373
2005
6,310
Operating income 2005 per BU (in %) Operating result 2005 per BU (in%)
C&CC: 69'
vCS: 10'
PE: 5'
PC: 5'
A: 3'
CF: 3'
Provisioning as a % of average risk-weighted assets (RWA)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2004 2005

Average RWA
(in billions of euros) 163 193 212 231 255 279 257 232 239 239 260
Provisioning
(in millions of euros) 569 547 941 653 617 1,426 1,695 1,274 653 616 648
Provisioning as a % of
average RWA 0.35 0.28 0.44 0.28 0.24 0.51 0.66 0.55 0.27 0.26 0.25

350
300
250
200
150
100
50
0
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0
1997 1993 1999 2000 2001 2002 2003 2004 2004 2005
Average RWA (in billions of euros, l.s.) Provisioning as a % of average RWA (r.s.)
ABN AMRO snapshot
9
Return on equity (in %) Profit for the year (in millions of euros) These figures have been
prepared in conformity with
general accepted accounting
principles in the Netherlands.
6,000
4,500
3,000
1,500
0
2001
2,615
2002
2,415
2003
3,415
2004
4,330
2004
3,940
2005
4,443
40
30
20
10
0
2001
27.3
2002
20.1
2003
27.7
2004
30.3
2004
29.7
2005
23.5
Earnings per share (in euros) Market capitalisation (in billions of euros)
4
3
2
1
0
2001
1.53
2002
1.39
2003
1.94
2004
2.45
2004
2.33
2005
2.43
40
30
20
10
0
2001
23.6
2002
25.5
2003
31.2
2004
33.3
2004
33.3
2005
42.3
Balance sheet

(in billion of euros)
2001 2002 2003 2004 2004 2005

Total assets 597.4 556.0 560.4 608.6 727.5 881.0
Shareholders equity 12.1 11.1 13.0 15.0 14.8 22.2
Group capital 34.3 30.4 31.8 33.0 33.2 43.2
Average risk-weighted assets 279.0 257.0 232.0 239.0 239.0 260.0

Number of employees



2004 2005

Number of employees (headcount) 99,414 98,080

Netherlands (%) 29% 27%
Other countries (%) 71% 73%

Full-time (%) 82% 82%
Part-time (%) 18% 18%

ABN AMRO snapshot
10
January
Offering of Pacific Life Funding Retail Notes through our
European Direct Access Notes platform
February
Introduction of first-ever global tag line: Making more
possible
ABN AMRO welcomes its two millionth internet customer
in the Netherlands
Announcement that Standard Federal will be rebranded as
LaSalle Bank
March
Acquisition of Bank Corluy strengthens our position in
private banking in Belgium
Announcement that the Bouwfonds mortgage franchise will
be merged with the mortgage activities in the Netherlands
ABN AMRO announces plans to launch an offer for Banca
Antonveneta
April
Closing of successful share issue, generating EUR 2.52
billion for the acquisition of Banca Antonveneta
Announcement of the sale of our exclusive Dutch private
bank Nachenius, Tjeenk & Co. N.V. to BNP Paribas Private
Bank
General Meeting of Shareholders appoints Rob van den
Bergh and Anthony Ruys as members of our Supervisory
Board and discharges Maarten van Veen and Wim Dik, who
retire
May
Bank of Italy approves ABN AMROs offer for
Banca Antonveneta
June
Sale of ABN AMRO Trust and Management Service
Companies to Equity Trust
Sale and leaseback of our London office, 250 Bishopsgate
July
Inception of the Compliance Oversight Committee of the
Supervisory Board
August
Launch of the Netherlands first-ever structured covered
bond programme
ABN AMRO in Brazil establishes a bancassurance
partnership with Tokio Marine Nichido Fire Insurance Co.,
Ltd., and also sells Real Seguros to the same company
September
Agreement signed to acquire a controlling stake in
Banca Antonveneta
ABN AMRO awarded sustainable market leader in European
banking sector for third successive year in Dow Jones
Sustainability Index
October
ABN AMRO Asset Management introduces new concept for
Socially Responsible Investment
Group structure to be aligned more closely to realise
potential for profitable growth
November
We are awarded the Henri Sijthoff prize for best Dutch
Annual Report 2004
Transparency Benchmark 2005 award for most transparent
organisation in the Netherlands in terms of Corporate Social
Responsibility reporting
Lead management of Europes largest-ever securitisation of
EUR 22 billion with Shield 1
Extraordinary General Meeting of Shareholders appoints
three new members to the Managing Board: Huibert
Boumeester, Piero Overmars and Ron Teerlink
December
ABN AMRO agrees to a civil penalty of USD 75 million and a
voluntary endowment of USD 5 million in connection with
deficiencies in the USD Clearing Center at its New York
branch and compliance procedures of the Office of Foreign
Assets Control
Announcement of the intended sale of our 40% stake in
Kereskedelmi s Hitelbank (Hungary) to KBC Bank (Belgium)
Announcement that the process of divesting Bouwfonds
will start in first quarter 2006
ABN AMRO sets up Foundation investing EUR 5 million per
year in poverty alleviation
2005 Diary
ABN AMRO snapshot
11
ABN AMRO is an international bank with
European roots. We focus on local consumer
and commercial banking relationships,
strongly supported by a global network and an
extensive product suite. Our business mix
gives us a competitive edge in our chosen
markets and client segments.
We aim to maximise value for our clients,
while maximising value for our shareholders
as the ultimate proof of, and condition for, our
success.
Our strategy for growing and strengthening
the business is built on five elements:
1 Creating value for our clients by offering
high-quality financial solutions which best
meet their current needs and long-term
goals
2 Focusing on:
consumer and commercial clients in our
local markets in Europe, North America,
Latin America and Asia,
and globally on:
selected multinational corporations and
financial institutions
private clients
3 Leveraging our advantages in products and
people to the benefit of all our clients
4 Sharing expertise and operational
excellence across the Group
5 Creating fuel for growth by allocating
capital and talent according to the principles
of Managing for Value, our value-based
management model.
We aim to achieve sustainable growth which
will benefit all our stakeholders including our
clients, our shareholders, our employees, and
society at large. We discuss our approach to
sustainability in the section on sustainable
development, starting on page 39, as well as
in our Sustainability Report, which is published
alongside this Annual Report. Our ability to
build sustainable relationships, both internally
and externally, is crucial to our ability to
achieve sustainable profitable growth.
The Managing Board is fully committed to the
banks Corporate Values and to preserving the
banks integrity and reputation. By complying
with the relevant laws and regulations in each
of the markets in which it operates, the bank
safeguards its reputation, its licence to
operate, and its ability to create sustainable
value for all stakeholders. Meeting the highest
compliance standards is seen as the basis for
true competitive advantage. It is ABN AMROs
ambition to be the benchmark for compliance
for the financial industry.
Client focus
Our clients are the prime beneficiaries of our
relationship-based approach carried out
through our various Business Units (BUs).
This Group-wide, client-led strategy enables
us to create value for a comprehensive
spectrum of clients. In terms of consumer
clients, these range from the mass retail
consumer segment to the very high net-worth
private clients segment, while our commercial
clients range from a large number of small
businesses to a small number of large
multinationals.
All these client groups are core to our strategy.
However, the strategic advantage brought by
our particular combination of clients, products
and geographical markets is at its greatest in
the mid-market segments which we serve
mainly through our five regional Client BUs
Netherlands, Europe, North America, Latin
America and Asia. In terms of consumer
clients the mid-market segment includes
the mass affluent segment in our regional
Client BUs as well as most clients within our
BU Private Clients. In terms of commercial
clients the mid-market segment includes a
Group strategy
As an international bank with
European roots, ABN AMRO
focuses on local consumer
and commercial banking
relationships, supported by a
global network and extensive
product suite. Our strategy is
designed to achieve
sustainable profitable
growth which will benefit all
our stakeholders including
clients, shareholders,
employees, and society at
large. The strategic
advantage brought by our
particular combination of
clients, products and
geographical markets is at
its greatest in the mid-
market client segment, our
so-called sweet spot.
We restructured our
organisation from 1 January
2006 to further align it with
our mid-market strategy, and
to leverage the benefits of
being one bank more
effectively across the Group.
Group strategy
12
Sweet spot Private Clients/
Mass Afuent
Mid Market/
Financial Institutions
Top
Private
Clients
Multi-
National
Corporations
Mass Retail
Consumer Commercial
Small Business
Product innovation Product innovation
Provider of scale
Feeder channel
Provider of scale
Feeder channel
Sweet spot
significant number of medium-to-large
companies and financial institutions served
through our regional Client BUs. These clients
typically require a local banking relationship,
an extensive and competitive product suite,
an international network, efficient delivery,
and, for corporates, sector knowledge. With
our range of businesses and capabilities, we
are one of the few banks in the world that can
deliver on all of these requirements, in many
cases uniquely so.
Our range of activities sustains our
competitive edge with these clients. For
example, we choose to offer all our banking
products and services to our selected
multinational clients and top-end private
clients, because in order to remain successful
with these client groups, we need to invest
continuously in product quality and innovation.
By using the resulting product enhancement
and innovation to benefit our mid-market
clients, we sustain our often unique market
position in being able to meet the
requirements of these mid-market clients.
At the same time, our participation in the
mass market consumer segment helps to
cover the costs of investing in the required
infrastructure, such as office branches and IT,
while also serving as a feeder pipeline of
future mid-market clients.
Our growth strategy is to build on
ABN AMROs strong position with mid-market
clients, and to exploit opportunities to
provide clients in this segment with high-
quality and innovative products and services
from across the Group. We constantly strive
to capitalise on our international product
range and network to the benefit of all our
mid-market clients, often using local brands
and local client intimacy. This approach is
underpinned by our global branding concept,
under which we display the green and yellow
ABN AMRO shield next to strong local brand
names in combination with the Making more
possible tag line we introduced in February
2005. Examples of this include LaSalle Bank in
the US Midwest and Banco Real in Brazil.
We aim to build further on our already strong
strategic positioning by winning more clients
in our chosen markets and client segments,
and by making carefully targeted investments
to improve our product capabilities. In terms
of new markets, our BU Europe and BU Asia
are successfully exploiting the attractive
opportunities that are opening up in several
emerging markets, with a strong focus for
BU Asia on Greater China (the Peoples
Republic of China, Hong Kong and Taiwan) and
on India.
Group strategy
13
Capitalising on our one bank
advantage
As an additional step to reinforce our
commitment to the consumer and commercial
mid-market clients, and to leverage the
benefits of being one bank more effectively
by sharing expertise and operational
excellence across the Group, we replaced our
previous Strategic Business Unit-based
structure with a new structure from 1 January
2006. This new structure is comprised of:
seven Client BUs
three Product BUs
two cross-BU segments
Services
Group Functions.
The seven Client BUs consist of five regional
BUs (Netherlands, Europe, North America,
Latin America and Asia) and two global BUs,
Private Clients and Global Clients, the latter
serving a select group of multinational
corporations.
The three Product BUs (Global Markets,
Transaction Banking and Asset Management)
support the Client BUs by developing and
delivering products for all our clients globally
with a primary focus on the mid-market
segment.
The BUs are bound together on a global
basis through a cross-BU Consumer Client
Segment and a cross-BU Commercial Client
Segment. The role of these segments
includes driving the application of winning
formulas across our various geographies, and
working with the BUs Asset Management,
Transaction Banking and Global Markets to
deliver high-quality solutions to our various
client bases.
We will also continue to build on the initial
success of Services. This organisation will
maintain its existing focus on identifying and
exploiting potential for higher operational
efficiency through further consolidation and
standardisation across all our operations.
Services will also continue to investigate and
implement new market solutions, with the
aim of ensuring that all our BUs get the
support services and flexibility they need in
order to provide clients with even better
products and services delivered in the
most efficient way, at an optimal level of
operational risk.
Group Functions is comprised of centres of
expertise delivering value-added support and
services across the Group in areas including,
among others, Risk, Finance, Audit, Legal,
Compliance, Human Resources,
Europe North America Latin America Asia Private Clients Global Clients Netherlands
Consumer Client Segment
Commercial Client Segment
Local Products Local Products Local Products Local Products Local Products Local Products M&A ECM
Global Markets
Transaction Banking
Asset Management
Services
Group Functions
New group organisation structure
Group strategy
14
Communications, Investor Relations and
Corporate Development.
The new structure will create new demands
on the governance of the Group, so we have
adapted the Groups governance model
accordingly. As well as increasing the size of
the Managing Board to eight members and
reallocating some of their responsibilities, we
created a Group Business Committee (GBC)
to drive coordination across the Group. The
GBC will be made up of the five Managing
Board members with line-of-business
responsibility and the Senior Executive Vice
Presidents (SEVPs) managing the various
BUs.
Focusing on our core activities
In order to focus our Group more effectively
on our core strengths, we continued our
disposal programme in 2005 by selling off a
number of non-core activities. In the
Netherlands we completed the disposal of
private bank Nachenius, Tjeenk & Co. In Brazil
we effected the sale of 100% of property and
casualty insurer Real Seguros and 50% of life
insurance and pension company Real Vida e
Previdncia, in both cases to Tokio Marine &
Nichido Fire Insurance Co, with which we
entered into an exclusive bancassurance
partnership in Brazil. During the year we also
completed the sale of ABN AMRO Trust and
Management Service Companies. In line with
this continuing focus on our core strengths,
we have gone on to announce our intention to
sell our international banking activities in
Curacao to FirstCaribbean Bank and our 40%
stake in Kereskedelmi s Hitelbank (Hungary)
to KBC Bank (Belgium), and to start the
process of selling Bouwfonds in the first
quarter of 2006.
As part of Services drive to create value
across the Group, ABN AMRO initiated a
major IT programme in 2005. This includes a
five-year outsourcing contract under which
IBM will oversee IT infrastructure services for
the bank worldwide, contracts with Infosys
and Tata Consulting Services (TCS) to provide
application support and enhancements to the
bank, and preferred vendor agreements with
Accenture, IBM, Infosys, Patni and TCS for
application development.
At the same time we continued to make
targeted investments aimed at strengthening
our core business and our positioning in the
markets in which we operate. In 2005,
ABN AMRO laid the foundations for the
acquisition of Banca Antonveneta, before
taking a majority stake in January 2006. Banca
Antonveneta is a banking group with a strong
presence in Italys wealthy north-eastern
region, and represents an ideal platform on
which to expand our presence in the mid-
market segment. In Belgium we acquired
Bank Corluy, thereby reinforcing the already
strong position of our Private Clients business
in Europe. In the Netherlands, ABN AMRO
acquired the remaining shares in Bouwfonds,
thereby gaining full legal control of
Bouwfonds, in addition to the full economic
ownership acquired in 2000. BU Netherlands
subsequently announced the merger of its
mortgage activities with the Bouwfonds
mortgage company, thus creating the third-
largest mortgage business in the Netherlands.
Capital adequacy
We strive continuously to optimise the ratio of
our tier 1 capital and our risk-weighted assets
(RWA) in order to ensure we maintain our
AA credit-rating. The minimum (regulatory)
tier 1 ratio required is 4%, compared to our
medium-term target tier 1 ratio of 8.5%. Our
tier 1 ratio rose from 7.03% at the end of 2001
to 10.62% at the end of 2005. Over the same
period we also increased our so-called core
tier 1 ratio, which excludes preference shares,
from 4.47% to 8.47%. Our medium-term
target for this ratio is 6.5%.
The consolidation of Banca Antonveneta into
our Group figures will reduce our capital
Group strategy
15
ratios, but we remain committed to restoring
our tier 1 ratio and core tier 1 ratio, which
excludes preference shares, to 8% and 6%
respectively well before the end of 2006. This
will be achieved through disciplined capital
management, including a possible reduction
in RWA, and potentially also via further
disposals of non-core assets.
Looking ahead, ABN AMRO is strategically
positioning itself to capitalise on the Capital
Requirements Directive implementing the
Basel II Accord in the European Union. We are
doing this by using an Advanced Internal
Ratings Based basis for credit risk, and an
Advanced Measurement Approaches basis for
operational risk. This approach is discussed
further in the section Basel II.
Targets for the next
performance cycle 2005-2008
Our continuing commitment to disciplined
capital management will be underpinned by
our target of achieving an average return on
equity of 20% per annum over the four-year
performance cycle to the end of 2008, as well
as our ambition to be in the top five of our self-
selected peer group in terms of total return to
shareholders at the end of 2008.
Managing for Value
We have implemented Managing for Value
(MfV) throughout our organisation. MfV is our
instrument for allocating resources to where
they earn the best long-term economic profit
and for measuring the results. We will
continue to build on the successes MfV has
brought us, allowing us to create further fuel
for growth by optimally allocating key
resources (both capital and talent) to those
businesses which generate the highest
economic value.
Managing Board priorities
2006
With the new structure in place since
1 January, the focus in 2006 will be on organic
growth and disciplined cost and capital
management, as well as on implementing
improvements in our oversight and
compliance programmes based on the Cease
and Desist Order from the Nederlandsche
Bank and the US regulators. The Managing
Board has therefore defined its priorities as
organic revenue growth and the realisation of
the synergies from the integration of Banca
Antonveneta once the acquisition is
completed, as well as a continued focus on
realising cost synergies through the execution
of the Group Shared Services programme,
further improving the returns from our former
wholesale banking activities, strict capital
discipline across the Group and implementing
best-in-class compliance standards in all
jurisdictions in which we operate.
Group strategy
core market
17
Our financial results for 2005 were
influenced by various incidental items, each
with an individual impact of more than EUR 35
million on net operating profit. As a result, the
published figure for our net operating profit in
2005 does not fully reflect the underlying
trends in our business. These incidental items
and their impact on the results are listed in the
table on the next page.
Business in brief
Key figures 2005


(in millions of euros) Group results Underlying results


2005 2004 2005 2004 %

Operating income 19,827 17,130 19,603 17,130 14.4
Operating expenses 13,517 13,257 13,786 12,290 12.2

Operating result 6,310 3,873 5,817 4,840 20.2

Loan impairment and other
credit risk provisions 648 616 648 616 5.2

Operating profit before taxes 5,662 3,257 5,169 4,224 22.4

Income tax expenses 1,219 764 1,200 1,076 11.5

Net operating profit 4,443 2,493 3,969 3,148 26.1

Discontinued operations (net) 0 1,447

Profit for the year 4,443 3,940

Attributable to:
Shareholders of the parent
company 4,382 3,865
Minority interest 61 75

Netherlands 509 418 21.8
North America 871 712 22.3
Brazil 448 302 48.3
New Growth Markets 213 140 52.1
Bouwfonds 315 266 18.4

Consumer & Commercial
Clients 2,356 1,838 28.2

Wholesale Clients 666 270 146.7
Private Equity 331 463 (28.5)
Private Clients 217 205 5.9
Asset Management 171 106 61.3
Group Functions 228 266 (14.3)

Net operating profit 3,969 3,148 26.1

Acquiring Banca Antonveneta will give
ABN AMRO a national presence in
Italy, an attractive market with strong
growth opportunities. The purchase is
very much in line with our strategy, as
Banca Antonvenetas client base fits well
with the segments the bank is focusing
on: the mass-affluent and commercial
mid-market segment.
Business in brief
18
Furthermore, the comparison with the
previous year is made more complicated by
the fact that our operating expenses for
2004 were impacted to the tune of
EUR 967 million by restructuring charges and
the buying-off of the profit-sharing
arrangements under the Dutch collective
labour agreement. The resulting impact on net
operating profit for 2004 was EUR 655 million.
These underlying results have therefore been
reported in the table above, and the analysis
which follows is adjusted for these items.
Operating income
ABN AMROs total operating income in 2005
increased by 14.4% to EUR 19,603 million,
driven by strong organic growth in all our
consumer and commercial client businesses.
The increase in operating income in the BUs
was driven by the following factors:
Nearly all BUs in Consumer & Commercial
Clients recorded double-digit organic
growth in operating income.
Brazil: strong growth in the retail loan
portfolio
Netherlands: good growth in consumer
loans and savings, together with a high
level of mortgage prepayment penalties
North America: an increase in commercial
banking revenue, and lower hedging
costs related to the available-for-sale
portfolio
Bouwfonds: further growth in residential
mortgage and property finance revenues
New Growth Markets: continuing strong
growth, particularly in Asia, driven by the
success of the credit card business and
the Van Gogh Preferred Banking activities.
Wholesale Clients: strong performances
from Fixed Income, Futures and FX,
especially in structured derivatives.
Operating expenses
The 12.2% increase in operating expenses
should be seen against the background of
the 14.4% growth in operating income, and
was partially due to foreign exchange
fluctuations and incidental items (not
adjusted). Expenses in all BUs increased due
to higher expenditure on compliance, with
total expenditure on compliance in 2005 rising
to EUR 186 million. Other specific factors
contributing to higher operating expenses
included:
Brazil: the strengthening of the Brazilian real
and the new collective labour agreements in
2004 and 2005
Incidental items

(in millions of euros) Impact on

Operating Operating Operating Profit for
income expenses result the year

Gain from sale Real Seguros 229 229 196
Gain from sale Nachenius,
Tjeenk & Co 38 38 38
Gain from sale Bishopsgate office 43 43 39
Release healhtcare benefit
provision (392) 392 268
Holiday provision 56 (56) (40)
US regulatory penalty 67 (67) (67)
Provision for balance sheet
adjustments (86) (86) (60)
Release of tax provisions 100

Total 224 (269) 493 474

Business in brief
19
Netherlands: the new collective labour
agreement, and especially the new flexible
bonus scheme that replaced the profit-
sharing arrangement bought off
New Growth Markets: continuing
investment in the Asian operations,
including branch openings and marketing
campaigns
North America: increases in staff costs,
higher bonus accruals, ongoing investment
in business development, and higher IT
expenses on the back of several large
projects such as Basel II.
Operating result
The operating result rose by 20.2% to
EUR 5,817 million, mainly driven by Consumer
& Commercial Clients and Wholesale Clients.
The biggest growth driver within Consumers
& Commercial Clients was BU Brazil, thanks
to strong growth in its loan portfolio. The
Groups efficiency ratio improved from 71.7%
to 70.3%; all BUs contributed to this
improvement, with the exception of
BU Private Equity and BU Bouwfonds.
Loan impairment and other
credit risk provisions
Loan impairment and other credit risk
provisions increased by EUR 32 million to
EUR 648 million. Wholesale Clients and
BU North America benefited from an
improvement in the quality of their credit
portfolios as well as from releases and
recoveries. However, these positive effects
were more than offset by increases in the
provisions made by BU Brazil, BU Netherlands
and Group Functions. The rise in provisions at
BU Netherlands is a reflection of the relatively
slow pace of economic growth in the
Netherlands and strong expansion in our
consumer finance portfolio.
Effective tax rate
The effective tax rate for the Group declined
from 25.5% in 2004 to 23.2% in 2005. This
was mainly the result of lower effective tax
rates at Group Functions and BU Private
Equity.
Business in brief
20
The financial results for 2005 show that
ABN AMRO continued to make significant
progress during the year. The operating result
increased strongly, driven by substantial
organic revenue growth in the Business Units
(BUs) Brazil, Netherlands, North America,
New Growth Markets and Bouwfonds.
Operating expenses also grew, but to a lesser
extent. A much-improved performance from
Wholesale Clients (WCS) contributed to the
rise in performance as well. On the back of on
average stable provisions and a lower effective
tax rate, the net profit attributable to our
shareholders increased by 13.4% to
EUR 4,382 million or EUR 2.43 per share. We
congratulate management and staff on this
good performance.
Financial statements and
proposed dividend
This Annual Report includes the financial
statements, which were audited by Ernst &
Young and subsequently signed by the
Managing Board and the Supervisory Board.
We propose to shareholders that they adopt
the 2005 financial statements and discharge
the Managing Board and Supervisory Board in
respect of their management and supervision
respectively. Upon adoption of the financial
statements and the profit appropriation,
ordinary shareholders will receive a dividend
of EUR 1.10 per ordinary share of EUR 0.56,
each with a stock dividend option. An interim
dividend of EUR 0.50 has already been
declared, leaving a final dividend of EUR 0.60
per ordinary share.
Composition of the
Supervisory Board
Mr van den Bergh and Mr Ruys were
appointed to the Supervisory Board for a term
of four years with effect from 28 April 2005,
the date of our 2005 Annual General Meeting
of Shareholders.
Mr van Veen and Mr Dik stepped down as
members of the Supervisory Board on that
same date.
Mr Loudon and Mr Burgmans will retire from
the Supervisory Board with effect from
27 April 2006. Mr Loudon will step down from
the Supervisory Board, having reached the
maximum total term of membership of
12 years. Since 1996 Mr Loudon has acted as
Chairman of our Board. His enormous
experience in corporate life, the wisdom he
has shown in dealing with difficult situations
and the pleasant and effective way he has
chaired both our full Board and the Nomination
& Compensation Committee will be greatly
missed.
Mr Burgmans, who is to periodically resign in
2006, has not put himself up for re-election.
Throughout his eight-year tenure
Mr Burgmans has contributed greatly to the
discussions in the Supervisory Board and his
views and advice have been highly valued.
He has also played an active role in both the
Nomination & Compensation and Compliance
Oversight Committees. We regret his decision
not to stand for re-election.
Mr Martinez will periodically resign but is
standing for re-election. If he is re-elected, the
intention is that Mr Martinez will succeed
Mr Loudon as chairman of the Supervisory
Board.
The Supervisory Board has nominated
Mr Kramer and Mr Randa for appointment by
the shareholders as new members of the
Board, also with effect from 27 April 2006.
Both gentlemen have enjoyed distinguished
business careers both internationally and in
their native countries. Mr Kramer is a Dutch
national and made his career as a Civil
Engineer. Until the end of 2005 he was
Supervisory Board
Supervisory Board
21
President and Chief Executive Officer of
Fugro N.V., Consulting Engineers. He holds
various other directorships and is a former
member of the Advisory Council of
ABN AMRO Holding N.V. Mr Kramer is
expected to bring his wide international
business experience to our Board.
Mr Randa is of Austrian nationality and
has been in banking for most of his
successful career. Until last year he was
a member of the Board of Managing
Directors of Bayerische Hypo- und
Vereinsbank AG, most recently as Chief
Operating Officer. Currently he is an
Executive Vice President of Magna
International Inc, Toronto. Mr Randa brings
with him broad expertise in commercial
banking as well as specific experience in cost
management and M&A. We are confident that
Mr Kramer and Mr Randa will both be highly
valuable additions to our Board. Curriculum
vitae for both gentlemen can be found on
page 226 of this Annual Report.
For a list of all names and key data of all
Supervisory Board members, please refer
to page 225 or to the website,
www.abnamro.com.
The nominations and appointments were in
accordance with the existing membership
profile, which also can be found on the above
website of ABN AMRO. The Central Works
Council was informed of the vacancies and the
proposed nominations. As a result of these
changes, the size of the Board will remain at
12 members, of whom six are non-Dutch and
of various nationalities spanning three
continents.
Management changes at
ABN AMRO
With a view towards the realisation of the
banks financial goals for the period 2005-2008
the Managing Board has, in consultation with
the Supervisory Board, reviewed the
organisation of the Group and decided to
implement a number of further adjustments in
order to align the organisation more fully with
the strategy.
The new Group structure creates increased
business accountabilities. In order to address
these effectively and create a clear distinction
between functional and line of business
roles on the Managing Board, it was decided
to increase the size of the Managing Board to
eight.
At the Extraordinary General Meeting of
Shareholders on 24 November 2005, three
new members nominated by the Supervisory
Board, Mr Boumeester, Mr Overmars and
Mr Teerlink, were appointed. As a result of
these appointments and organisational
adjustments, the responsibilities of the
members of the Managing Board are now as
follows:
Rijkman Groenink
Chairman of the Managing Board,
Group Audit, Group Compliance & Legal,
Group Human Resources
Wilco Jiskoot
BU Netherlands, BU Global Clients,
BU Asset Management
Tom de Swaan (will retire on 1 May 2006)
Chief Financial Officer (until 1 January
2006), reporting financial results 2005,
Group Risk Management
Joost Kuiper
BU North America, Chairman Group
Business Committee
Dolf Collee
BU Europe, BU Private Clients,
Consumer Client Segment,
Banca Antonveneta
Hugh Scott-Barrett
Chief Financial Officer (from 1 January
2006), Group Finance, Investor Relations,
Supervisory Board
22
Group Communications, Chairman
Resource Allocation and Performance
Management Committee (RAPMC)
Huibert Boumeester
Chief Risk Officer, Group Risk Management,
Corporate Development
Piero Overmars
BU Asia, BU Global Markets, Commercial
Client Segment
Ron Teerlink
BU Latin America, BU Transaction Banking,
Services, European Union Affairs & Market
Infrastructure.
At the Senior Executive Vice President (SEVP)
level this organisational adjustment resulted
in a number of changes in responsibilities.
Page 227 of this report shows the main
elements of the new structure and the
positions of the respective SEVPs.
The Managing Board consulted the
Supervisory Board on the SEVP appointment
as from 1 January 2006 of Carin Gorter
(Group Compliance & Legal), Sarah Russell
(BU Asset Management), Jeroen Drost
(BU Asia) and as from 1 April 2006 Gary Page
(BU Global Markets). As a result of these
appointments, organisational changes and
retirements, the number of SEVPs decreased
by 4 to 20.
Full Board activities
The Supervisory Board met on eight
occasions during the period under review.
All meetings were plenary sessions with the
full Managing Board. Two of these plenary
meetings were preceded by meetings of the
Supervisory Board alone.
In accordance with best practice
provision III.1.5 of the Dutch corporate
governance code, we hereby report that both
Mr Scaroni and Mr Burgmans have not been
able to attend three of the eight meetings of
the Supervisory Board. In all instances
external circumstances made it impossible for
both gentlemen to attend. It is common
practice within the Supervisory Board to
consider absence from three Supervisory
Board meetings in a year as constituting
frequent absence.
During the meetings without the Managing
Board, the Supervisory Board evaluated its
own composition and performance, the
functioning of its members and the
functioning (including the remuneration) of the
Managing Board and its members.
The Chairman prepared the agenda for
meetings of the Supervisory Board with the
assistance of the Chairman of the Managing
Board. Regular agenda items included aspects
of the corporate strategy including
acquisitions and divestments, compliance and
regulatory issues, financial performance,
credit and other risks, performance contracts,
corporate governance and the organisational
structure, human resources policy, customer
and services strategies.
The financial performance of the bank was
extensively discussed at the Supervisory
Board meetings preceding the publication
of quarterly or (semi-) annual results.
Relevant executives and internal and
external auditors participated in these
discussions. These meetings were preceded
by meetings of the Audit Committee, which
advised the full Supervisory Board on the
approval of the financial results.
Comprehensive information provided by the
Managing Board and reviewed by the Audit
Committee with the assistance of internal and
external auditors gave the Supervisory Board
a good picture of the banks risks, results,
capital and liquidity position, both absolutely
and relative to agreed targets and the banks
chosen peer group.
Supervisory Board
23
The creation in 2005 of a Compliance
Oversight Committee illustrates the
increased importance of the Compliance
function in the bank. This committee of the
Supervisory Board is responsible for
supervising the banks compliance
organisation, activities and risk profile, and
advises the full Supervisory Board on its
supervision activities. As previously, the three
Supervisory Board committees reported their
deliberations and findings to the full Board for
further discussion.
During a special briefing session in
January 2005, the Supervisory Board was
extensively informed about the International
Financial Reporting Standards and their
impact on the financial reporting
of ABN AMRO.
At its regular January meeting the
Supervisory Board reviewed and approved
the Group Performance Contract for 2005
as well as the Group Strategic Agenda.
At its February meeting, the Board received
an overview of the Groups real estate lending
and development activities from the head of
Group Risk Management.
During an extraordinary meeting of the Board
in March, the bid for Banca Antonveneta was
extensively discussed and then approved.
At its May meeting the Supervisory Board
reviewed in depth two reports, one
commissioned by the Supervisory Board and
one by the Managing Board, in connection
with deficiencies found in the USD clearing
centre at the New York branch in 2004 and the
Office of Foreign Assets Control (OFAC)
compliance procedures, specifically in relation
to certain US dollar payments originated by
our branch in Dubai in previous years. In
connection with the deficiencies that had
been found, an extensive remedial action plan
was presented and approved by the
Supervisory Board.
The Group strategy was reviewed in depth
during a special session in July and the items
submitted were approved.
At an extraordinary meeting of the Board,
in early October, the proposed adjustments
to the banks organisational structure and
the proposal to nominate three new
Managing Board members were reviewed
and approved.
In advance of its regular meeting later in
October, the Supervisory Board met alone to
discuss a letter received from the
Nederlandsche Bank (DNB) reviewing the
Managing Board actions in connection with
the New York clearing operations and Dubai
transactions issues. Considering the energetic
approach taken by the Managing Board to
remedying the deficiencies, the Supervisory
Board concluded that no further actions or
sanctions from the Supervisory Board were
called for in addition to the repayment of parts
of the bonuses received by the members of
the Managing Board for 2004.
In December the Supervisory Board was
informed and received copies of Orders
from DNB, the US Federal Reserve Board and
other US regulators in connection with the
New York clearing operations deficiencies
and OFAC compliance procedures. The Order
from the US Federal Reserve Board and other
US regulators partly substitutes for the
Written Agreement with US regulators which
was signed in July 2004 and terminated on
19 December 2005. It further instructs the
bank to continue to implement improvements
in its oversight and compliance programmes,
imposing at the same time a tight reporting
schedule. The Orders included an aggregate
civil money penalty charge of USD 75 million
and a USD 5 million voluntary endowment to
the Illinois Bank Examiners Education
Foundation.
The Compliance Oversight Committee will
continue to supervise the execution of the
Orders by the Managing Board and the
implementation of all necessary steps in order
for the bank to be compliant with these
Orders. The Supervisory Board fully supports
the banks desire to implement best-in-class
compliance standards.
Supervisory Board
24
In addition to its own yearly evaluation, the
Supervisory Board commissioned in 2005 an
external board review as to its own
functioning, the findings and conclusions of
which were presented at the January 2006
meeting of the Supervisory Board. Later
that month the external board review was
extensively discussed and follow-up
measures were taken, which should
improve the effectiveness of the Supervisory
Board.
Audit Committee
The Audit Committee of the Supervisory
Board is appointed by the Supervisory Board
from among its members. The Audit
Committee consists of at least four members.
The Audit Committee is currently chaired by
Lord Sharman of Redlynch, who assumed
this position on 28 October 2005, taking over
from Mr Martinez upon his appointment as
Chairman of the Compliance Oversight
Committee. Mr Martinez remains a member
of the Audit Committee. The Chairman of the
Compliance Oversight Committee for that
matter has a standing invitation to attend the
meeting of the Audit Committee. The other
two members of the Audit Committee are
Mr Pratini de Moraes and Mr Olijslager, who
replaced Mr van Veen and Mr Dik upon their
respective retirements from the Supervisory
Board on 28 April 2005. The members
collectively have adequate accounting and
financial management expertise to
understand the companys business, financial
statements and risk profile. In addition, the
Supervisory Board has determined that both
Mr Martinez and Lord Sharman of Redlynch
possess the relevant expertise in financial
administration and accounting for listed
companies or other large companies. The
terms of reference of the Audit Committee
are set out in the Rules Governing the
Supervisory Boards Principles and
Best Practices. These are available via our
website at www.abnamro.com.
During 2005, the Audit Committee met with
the Chairman of the Managing Board and the
Chief Financial Officer (CFO) on five
occasions. In addition, the Audit Committee
met separately with the banks internal and
external auditors. The Audit Committee
reviewed, discussed, and advised the
Supervisory Board on, the annual and
interim financial statements, the Annual
Report, the long-form external auditors
report, the internal auditors management
letter including the Managing Boards
related comments and the impact of the
Sarbanes-Oxley Act. These topics were
discussed in the presence of internal and
external auditors and senior representatives
from Group Finance.
Ernst & Young reported on its independence
to the Audit Committee. Ernst & Young has
reviewed its engagements with ABN AMRO
and confirmed to the Audit Committee that
these have not impaired Ernst & Youngs
ability to act as independent auditors of
ABN AMRO.
In the presence of senior representatives
from Group Risk Management, the Audit
Committee also reviewed and discussed the
overall risk profile (including credit risk, market
risk, country risk and operational risk), the
quality of the loan portfolio and the banks
large exposures and provisioning for loan
losses. Litigation to which ABN AMRO is
(potentially) a party was also covered during
several meetings, in the presence of the Head
of Group Legal.
In the beginning of 2005, the Audit Committee
was also responsible for reviewing the banks
compliance organisation and activities. This
responsibility ended in July 2005, when the
Compliance Oversight Committee was
created.
In 2005, Group Audits reporting lines were
changed. The Head of Group Audit now has
Supervisory Board
25
dual reporting lines to the Chairman of the
Managing Board and the Chairman of the
Audit Committee. The Audit Committee
reviewed, discussed and approved the
Group Audit Charter which lays down these
new reporting lines. The Audit Committee
discussed the operational and internal
control aspects covered by Group Audit in
their audit. Furthermore, the Audit Committee
reviewed and approved the audit plan
prepared by Group Audit, as well as staff
matters including training and recruitment. The
Audit Committee met with the Head of Group
Audit after each committee meeting in private
sessions as well.
In 2005, the Audit Committee reviewed its
pre-approval policy for audit services by the
external auditor. Following this review, the
Audit Committee pre-approved the nature
and the budget for audit, audit-related and
non-audit services, in line with this policy.
No reports were filed during 2005 under the
companys Whistleblowing policy. The policy
was reviewed in 2005, and responsibility for
its monitoring and execution transferred to the
Compliance Oversight Committee.
Nomination & Compensation
Committee
The membership of the Nomination &
Compensation (N&C) Committee changed in
2005. Mr Martinez joined the Committee in
May 2005, replacing Mr van Veen who left the
Supervisory Board and thus the N&C
Committee as he had reached the age
limit of 70.
The members of the Committee as of May
2005 are Mr Loudon (Chairman),
Mr Burgmans, Mrs Maas-de Brouwer and
Mr Martinez. The SEVP in charge of Group HR
acts as secretary to the meetings. During
2005, the Committee prepared several
proposals for consideration by the Supervisory
Board, including the extension of the
Managing Board as a consequence of the new
structure. The Chairman of the Managing
Board was invited to the Committees
meetings to discuss relevant issues, such as
the Managing Boards composition and
compensation.
The N&C Committee met four times in 2005.
As in previous years it was assisted by an
external remuneration advisor Towers Perrin,
which provides the Committee with market-
related information and professional advice on
commonly-applied reward elements, best
practices and expected developments. These
services to the N&C Committee are provided
under a separate arrangement from Towers
Perrins other consultancy services for
ABN AMRO.
Basic reward philosophy
Two principles guide the compensation policy
applied to Managing Board members. First,
the package must be competitive so that the
bank can recruit both internally and externally
and retain expert and experienced Managing
Board members. Secondly, there must be a
strong emphasis on actual performance
against demanding short and longer-term
targets.
In 2004, the N&C Committee reviewed the
Managing Board reward package using
these principles, focusing particularly on the
share-based arrangements and the balance
between the various components of the
package.
The Committee was concerned about two
aspects of the remuneration arrangements.
One of its concerns was the effectiveness
of the option plan. Developments in the
external market indicated that the use of stock
options was decreasing very fast, reflecting
the fact that stock options can produce
unwarranted gains in rising markets but have
no motivation or retention value in flat or
falling markets. The second concern involved
Supervisory Board
26
the balance of the package for the Managing
Board and the issue of whether it puts too
much emphasis on the longer-term elements
of reward.
2005 reward package
It was decided that from 2005 onwards, stock
options would no longer be included in the
Managing Board package. For the 2005
reward package some re-balancing to the
package was also proposed in order to give
greater weight to those performance
measures over which Managing Board
members have more direct control. This
resulted in a reward package for 2005 with an
approximately equal weight on each of the
three main direct elements of reward: salary,
bonus and the expected value of long-term
incentive awards. Base salary is compatible
with the European peer group and also in line
with the salary structure for the whole Top
Executive Group. The cash bonus is expressed
as a percentage of base salary and based on
stretching performance criteria for the relevant
year, set within the framework of the long-
term financial targets of the Group. As from
2005 the long-term reward elements consist
of the Performance Share Plan, with a direct
link to the stretching long-term financial
targets of the Group, and the Share
Investment & Matching Plan.
The proposal to change the package was
approved by the General Meeting of
Shareholders in April 2005 and implemented
with retrospective effect from 1 January 2005.
The review of performance delivery against
the stated objectives for 2005 took place in
the N&C Committees meeting on 30 January
2006. The performance of the Managing Board
members was measured against pre-set
quantitative objectives for the 2005
performance year. Quantitative objectives set
for the Group in 2005 are Economic Profit,
Efficiency Ratio, Return on Equity and
Tier 1 Capital. For the BUs, revenue growth is
also taken into account. For the Chairman of
the Managing Board, the CFO and the
Chief Operating Officer this assessment was
based 100% on Group quantitative results.
For the three members with business unit
responsibility the weighting was 75% for
Group and 25% for BU performance.
The N&C Committee decided to set the
bonuses on the basis of the achievement of
the quantitative objectives for all Managing
Board members, including the Chairman, at
115% of annual base salary, taking into
account the substantial performance above
target. The discussion with respect to the
achievement of the individually-set qualitative
objectives did not give the Committee a
reason to adjust the bonus result on an
individual basis since the qualitative targets
were also amply met by all individual
Managing Board members. The bonuses were
approved by the Supervisory Board.
Details of the 2005 reward packages are
included in the financial statements (note 42,
starting on page 187).
Future reward package
In 2005 the N&C Committee reviewed the
structure of the remuneration package in the
light of the Managing Board compensation
policy principles outlined above and the
practices observed among our major
competitors. These are defined as other major
Dutch companies and other European-
parented banks. As a result of this review, the
N&C Committee believes that, going forward,
and with effect from the 2006 year, it is
necessary to increase the annual bonus
opportunity to bring it more into line with our
competitors aiming at mid-market level.
The N&C Committee therefore proposes to
increase the bonus percentage for on target
performance on the basis of quantitative
criteria from the current 100% of annual salary
to 150%, and to increase the maximum bonus
from 125% to 200%. The N&C Committee
retains the option of adjusting the bonus
outcome for an individual within a band of plus
Supervisory Board
27
or minus 20% of base salary in the light of its
assessment of the qualitative criteria that
have been set. The proposal with regard to the
reward package will be discussed in the
General Meeting of Shareholders on 27 April
2006. Subject to approval from shareholders,
the intention is that this proposed amendment
will become effective in 2006.
Managing Board contracts
The Dutch corporate governance code (the
Code) took effect on 1 January 2004. Among
other governance issues, the Code affects the
employment relationship and reward
packages for Managing Board members.
The appointment of the three new members
to the Managing Board as from 1 January
2006 is in line with the best practice
provision II.1.1 of the corporate governance
code, as the new members of the Managing
Board have been appointed for a maximum
period of four years and may be reappointed
for a term of not more than four years at a
time.
The new members underlying employment
contracts, which are SEVP employment
contracts, continue. However, all
entitlements under these contracts have
been suspended during membership of the
Managing Board, and replaced by another
employment contract applicable to
Managing Board members.
The decision to continue the underlying
employment contracts has implications for
the application of best practice provision II.2.7
of the Dutch corporate governance code.
ABN AMRO departs from the earlier
interpretation that for new members of the
Managing Board a redundancy clause would
be adopted reflecting provision II.2.7 in
principle.
ABN AMRO will not include such a clause in
the contracts of new Managing Board
members who are already employed by
ABN AMRO, and shall apply the best practice
provision as follows: in the event of
termination of the Managing Board
membership, the suspended employment
contract will be reinstated. If it is deemed
necessary to terminate that contract in the
future, this will happen in accordance with
Dutch labour law.
Succession Planning
During the year, the N&C Committee and
Supervisory Board discussed the subject of
Managing Board succession planning. In
October 2005 ABN AMROs new structure
was announced.
The governance model was adjusted to
reflect the new structure, leading to an
increase in the number of Managing Board
members and changes in their areas of
responsibility. The N&C Committee and
subsequently the Supervisory Board
discussed this issue and agreed to the new
appointments. The appointments of the three
new Managing Board members,
Mr Boumeester, Mr Overmars and
Mr Teerlink, were approved by DNB and by
the Extraordinary General Meeting of
Shareholders on 24 November 2005, and
became effective from 1 January 2006. On
1 May 2006 one of the current members of
the Managing Board, Mr de Swaan, CFO, will
retire, taking the Managing Board down to
eight members.
The N&C Committee will continue to examine
the composition of the Managing Board, its
future replacement needs and the
development of the talent pipeline of potential
new Managing Board members.
Compliance Oversight
Committee
The Compliance Oversight Committee was
established as a new Supervisory Board
Committee in 2005 and held its inaugural
meeting on 28 July of that year. The
Compliance Oversight Committee consists of
Supervisory Board
28
at least three members, each of whom is a
member of the Supervisory Board.
The Compliance Oversight Committee
currently has three members:
Mr Martinez (Chairman), Mr Burgmans
and Mrs Maas-de Brouwer. The Chairman of
the Audit Committee has a standing
invitation to attend the meetings of the
Compliance Oversight Committee. The
meetings of the committee are, upon
invitation, attended by the Chairman of
the Managing Board and the Heads of
Group Audit and Group Compliance.
The Compliance Oversight Committee met
twice in 2005 and had in both cases private
sessions with the Head of Group Compliance.
As from 2006, the Committee will meet at
least five times a year. The Charter for the
Compliance Oversight Committee is set out in
the Rules Governing the Supervisory Boards
Principles and Best Practices, which can be
accessed via our website at www.abnamro.
com. The members of the Compliance
Oversight Committee bring together the
necessary collective expertise in the relevant
legislation and regulations as well as in the
banks internal risk management and control
systems to enable them to oversee the banks
compliance obligations, compliance controls
and compliance risk profile.
During its meetings in 2005, the Compliance
Oversight Committee discussed its Charter
and meetings schedule. It also discussed the
organisational changes in Group Compliance,
as well as its budget. Specific attention was
paid to ABN AMROs relationships with
relevant supervisors and to the progress the
bank has made in its remedial action plans
following the Written Agreement with the
US regulators. Furthermore, the Compliance
Oversight Committee discussed the
disciplinary review process against (former)
ABN AMRO employees for breaches of
compliance policies.
Contacts with Dutch Central
Works Council
In accordance with the covenant concluded in
2003 with the Dutch Central Works Council
(CWC), the Supervisory Board members
responsible for Dutch affairs in relation to the
CWC, Mr Dik, Mrs Groenman and
Mr Olijslager, attended by rotation three
meetings of the CWC.
The Chairman of the Supervisory Board also
had a constructive meeting with
representatives of the CWC on the
composition of the Supervisory Board and on
the nomination of two new members. The
intention is to organise another joint meeting
in 2006 attended by the Supervisory Board,
the Managing Board and the CWC.
Amsterdam, 23 March 2006
Supervisory Board
Supervisory Board
29
Corporate governance at ABN AMRO is
defined by the way the bank organises and
conducts the relationship between the
Managing Board, the Supervisory Board and
its stakeholders. For ABN AMRO, good
corporate governance is critical to our ability to
realise our strategic goal of creating
sustainable long-term value for all our
stakeholders including our clients, our
shareholders, our employees and society at
large. In order to achieve good corporate
governance, we organise the company in a
way that promotes entrepreneurship by the
Managing Board under the supervision of the
Supervisory Board. Integrity and transparency
are key elements in ABN AMROs system of
corporate governance, as they are in our
business as a whole.
The Dutch corporate
governance code
The Dutch corporate governance code (the
Code) took effect on 1 January 2004.
The Corporate Governance Supplement for
2005, in which we report on our compliance
with the Code, will be published on our
corporate website. We are pleased to confirm
that ABN AMRO and, where relevant, the
Trust Office (as defined further) applies or
shall apply the principles and the 109
(applicable) best practice provisions of the
Code, with the exception of the following best
practice provisions: II.1.1, II.2.7, III.5.11 and
IV.1.1. It remains our belief that it is in the best
interest of ABN AMRO and its various
stakeholders to apply different best practices
in these specific areas. For the most part, our
explanations for this have remained materially
unchanged, but they are repeated below for
the purpose of clarity. Furthermore as set out
below ABN AMRO has applied best practice
provision III.6.3.
Best practice provision II.1.1 states that a
managing board member is appointed for a
maximum period of four years and that a
member may be reappointed for a term of not
more than four years at a time.
The current members of ABN AMROs
Managing Board, with the exception of
Mr Boumeester, Mr Overmars and
Mr Teerlink, have been appointed for an
indefinite period in accordance with the
applicable statutory obligations at the time of
their appointment. ABN AMRO applies the
Codes best practice provision if and when
new members of the Managing Board are
appointed. The appointment of the three new
members to the Managing Board as from
1 January 2006 is in line with the Codes best
practice provision, as the proposed new
members of the Managing Board have been
appointed for a maximum period of four years
and may be reappointed for a term of not
more than four years at a time.
Best practice provision II.2.7 states that the
maximum remuneration in the event of
dismissal is one years salary (the fixed
remuneration component). If the maximum of
one years salary would be manifestly
unreasonable for a managing board member
who is dismissed during his first term of
office, this board member shall be eligible for
a severance payment not exceeding twice the
annual salary.
The employment contracts for the current
members of the Managing Board (as
employed on 1 January 2004) will remain
unchanged. The Supervisory Board intends to
interpret the redundancy scheme as stated in
the employment contracts of the current
members of the Managing Board in
accordance with this best practice provision.
For members of the Managing Board, a
contractual redundancy clause will be
adopted reflecting this provision in principle.
Corporate governance
Effective corporate
governance is critical to
ABN AMROs goal of
achieving long-term value
for all of our stakeholders.
Our approach to corporate
governance ensures that the
bank operates with maximum
transparency and integrity,
and that the controls and
oversight necessary for
effective risk management
and compliance are in place
and functioning well. The
bank applies the principles
and best practice of the
Dutch corporate governance
code except in a small
number of specific
instances, where the bank
believes that the interests of
its stakeholders are best
served by the application of
other best practices.
Corporate governance
30
ABN AMRO will not include such a contractual
redundancy clause in the contracts of the
Managing Board members who already are
employed by ABN AMRO. For such members
the existing employment contract will be
continued, although all entitlements under the
contract will be suspended during the period
of the Managing Board membership. In the
event of a termination of the Managing Board
membership the suspended employment
contract shall revive and if in the future a
termination of that contract would deem to be
necessary, this will happen in accordance with
applicable labour law.
Best practice provision III.5.11 states that the
remuneration committee shall not be chaired
by the chairman of the supervisory board or by
a former member of the management board
of the company, or by a supervisory board
member who is a member of the managing
board of another listed company.
As stated under best practice provision III.5.1,
ABN AMROs Supervisory Board has a
combined remuneration and selection/
appointment committee, entitled the
Nomination and Compensation Committee.
As ABN AMRO attaches great value to the
coordinating role of the Chairman of the
Supervisory Board, especially in respect of the
selection and nomination process of
Supervisory Board and Managing Board
members, the Chairman of the Supervisory
Board will continue to chair the Nomination
and Compensation Committee.
Best practice provision IIII.6 states that any
conflict of interest or apparent conflict of
interest between the company and
supervisory board members shall be avoided.
This principle has been elaborated in best
practice provisions III.6.1 to III.6.7. Pursuant to
best practice provision III.6.3, we report that
Rothschild has been acting as one of our
advisors in our acquisition of Banca
Antonveneta. As Mr De Rothschild is a
member of our Supervisory Board but also
serves in a number of managing and
supervisory capacities at various Rothschild
companies, our hiring of Rothschild as advisor
may have constituted a conflict of interest
within the scope of best practice provision
III.6.1. Although we do not believe this conflict
of interest to be of material importance (as
referred to in best practice provision III.6.3)
either to us or to Mr De Rothschild, we hereby
disclose it and confirm that best practice
provisions III.6.1 to III.6.3 have been complied
with in respect of it.
Best practice provision IV.1.1 states that the
general meeting of shareholders of a company
not having a statutory two-tier status
(structuurregime) may pass a resolution to
cancel the binding nature of a nomination for
the appointment of a member of the
managing board or of the supervisory board,
and/or a resolution to dismiss a member of
the managing board or of the supervisory
board by an absolute majority of the votes
cast. It may be provided that this majority
should represent a given proportion of the
issued capital, which proportion may not
exceed one third. If the given proportion of the
capital is not represented at the meeting, but
an absolute majority of the votes cast is in
favour of a resolution to cancel the binding
nature of a nomination, or to dismiss a board
member, a new meeting may be convened at
which the resolution may be passed by an
absolute majority of the votes cast, regardless
of the proportion of the capital represented at
the meeting.
ABN AMRO does not have a statutory two-tier
status (structuurregime). The Supervisory
Board of ABN AMRO has decided, for the time
being, to make non-binding nominations for
the appointment of its members and for the
appointment of members of the Managing
Board. This means that the appointment of a
candidate for the Supervisory Board or the
Managing Board if made on the basis of a
non-binding nomination requires an absolute
majority in the General Meeting of
Corporate governance
31
Shareholders, in which case ABN AMRO
applies this best practice provision. If a
candidate for the Supervisory Board or the
Managing Board is proposed on the basis of a
binding nomination, in accordance with its
Articles of Association the binding nature of
the nomination can be set aside by the
General Meeting of Shareholders passing a
resolution with at least a two-thirds majority
of the votes cast, representing more than half
of the economic value of the capital.
Candidates that have been nominated by the
shareholders require a similar majority in order
to be appointed. This means that in the event
that the Supervisory Board would decide in
the future to make binding nominations (or a
binding nomination) or in the event of a
nomination by shareholders, ABN AMRO
would not apply this best practice provision.
ABN AMRO applies the procedure set out in
its Articles of Association for the dismissal of
members of the Managing Board and
Supervisory Board. This procedure applies to
situations in which (i) the Supervisory Board
submits a proposal to the General Meeting of
Shareholders to dismiss a member of the
Managing Board or Supervisory Board, or
(ii) the proposal to dismiss a member of the
Managing or Supervisory Board is submitted
at the initiative of shareholders. The first of
these situations requires an absolute majority
of the General Meeting of Shareholders, and
in this case ABN AMRO applies this best
practice provision. In the event of the second
situation arising, ABN AMRO also wishes
to follow the procedures laid down in its
Articles of Association, and therefore to
apply the requirement of a two-thirds majority
of the votes cast, representing more than half
of the economic value of the capital.
ABN AMRO places great importance on the
delivery of long-term shareholder value, so
maintaining continuity in the management
of the company is critical. For this reason,
ABN AMRO will continue to apply the
procedure with regard to the nominations
for the appointment and dismissal of
Supervisory Board and Managing Board
members.
US corporate governance
As an SEC-registered company with a listing
on the NYSE, ABN AMRO is subject to US
securities laws, including the Sarbanes-Oxley
Act and certain corporate governance rules
imposed by the NYSE. Following the
introduction of the Sarbanes-Oxley Act, we
established a Disclosure Committee which
formalised the roles, tasks and disciplines that
were already in place for ensuring the
accuracy and completeness of information
disclosed to the market. A further requirement
of the Sarbanes-Oxley Act, under Section 404,
is that management must report annually on
the adequacy of the design and effectiveness
of the companys internal control structure and
procedures for providing reasonable
assurance regarding the reliability of the
financial statements. We will provide this
report for the first time in 2007 covering the
year ending 31 December 2006. For further
information about our compliance with the
Sarbanes-Oxley Act, please see the section on
page 97.
Shareholders influence
ABN AMRO Holding and ABN AMRO Bank
are both public companies with limited
liability incorporated under the laws of the
Netherlands. Under an amendment made to
its articles of association on 9 June 2005,
ABN AMRO Bank has changed from applying
the full large company regime (volledig
structuurregime) to applying the large
company regime in its mitigated form
(verzwakt structuurregime). This means that
the Managing Board of ABN AMRO Bank, like
its Supervisory Board, is appointed by its
shareholder, ABN AMRO Holding.
The (depositary receipts of) preference shares
are not listed and are administered by a trust
office, Stichting Administratiekantoor
Preferente Financieringsaandelen ABN AMRO
Corporate governance
32
Holding (the Trust Office). The voting rights on
the preference shares, although formally held
by the Trust Office, are exercised in practice by
the depositary receipt holders, as voting
proxies will be issued to the depositary receipt
holders by the Trust Office under all
circumstances. The Trust Office will not
exercise its voting rights. The voting rights will
be calculated on the basis of the equity
participation of the (depositary receipts of)
preference shares in proportion to the value of
the ordinary shares. Voting rights on
preference shares granted to a depositary
receipt holder by proxy will correspond to the
amount of depositary receipts held by the
depositary receipt holder, in relation to the
stock price of the ordinary shares on Euronext
Amsterdam at the close of the last trading day
in the month preceding the calling of the
shareholders meeting.
The Trust Office holds preference shares
representing 100% of the total preference
share capital on the basis of nominal issued
share capital outstanding on 31 December
2005. The actual voting power that can be
exercised on the (depositary receipts of)
preference shares is approximately 1.8% of
our total issued capital, based on the closing
share price as at 31 December 2005.
The Act containing amendments to Book 2 of
the Dutch Civil Code, which passed into law in
2004, gives shareholders broader powers.
ABN AMRO Holdings Articles of Association
were amended in 2003 and 2005 to include
the right for shareholders representing at least
1% of the economic value of the share capital,
or a block of shares representing a market
value of at least EUR 50,000,000, to request
that additional items be included on the
agenda of the shareholders meeting. One
consequence of shareholders increasing
influence is that the shareholders of
ABN AMRO Holding are entitled to approve
decisions made by the Managing Board that
would lead to an important change in the
identity or character of the company or
business and to approve the remuneration
policy of the Managing Board.
Supervisory Board
Candidates recommended for appointment or
reappointment to the Supervisory Board
should meet the criteria of the membership
profile, which is set out in the Rules Governing
the Supervisory Boards Principles and Best
Practices of ABN AMRO Holding. In order to
ensure the Supervisory Boards
independence, we apply the criteria of
independence as set out in the Code. For
more information about the Supervisory
Boards independence criteria, see our
website at www.abnamro.com. Supervisory
Board members may not represent particular
interests. If an interest of a member of the
Supervisory Board conflicts with that of the
company, the Chairman of the Supervisory
Board should be notified. Details of the
Supervisory Boards remuneration package
can be found in the notes to the financial
statements (note 42, starting on page 187).
With effect from 29 April 2005 the
Supervisory Board of ABN AMRO has twelve
members. Supervisory Board members are
appointed for a term of four years and may be
re-appointed thereafter, serving a maximum of
twelve years, while taking into account the
age limit of 70. As described in the report of
the Supervisory Board, the twelve-year
criterion led to a new nomination to replace
Mr Loudon.
A Chairman and a Vice Chairman are appointed
by the board from among its members. The
Supervisory Board also appoints, again from
among its members, the Audit Committee of
at least four members, the Nomination &
Compensation Committee of at least three
members and the Compliance Oversight
Committee of at least three members. The
committee members are appointed until
further notice. The Rules Governing the
Corporate governance
33
Supervisory Boards Principles and Best
Practices of ABN AMRO Holding have been
revised as a result of the overall reassessment
of ABN AMRO Holdings corporate
governance structure on the basis of the
Dutch corporate governance code. The Rules
are available on our website, together with the
detailed curriculum vitae of the Supervisory
Boards members. A curriculum vitae for each
new member of the Supervisory Board is also
included in ABN AMRO Holdings Annual
Report published in the year in which he or
she is appointed. The Managing and
Supervisory Boards of ABN AMRO Holding
and ABN AMRO Bank have the same
membership.
Audit Committee
The Audit Committee reviews, and advises
the Supervisory Board on, the quarterly
statements, the annual report and annual
financial statements, and the internal and
external auditors management letters. It
regularly reviews the overall risk profile, the
quality of the loan portfolio and the banks
large exposures. In addition, the Audit
Committee reviews the consistency of
ABN AMROs accounting policies, the internal
audit function, the Group Audit Charter, and
the internal control procedures and
mechanisms. The Audit Committee also
reviews our risk management policy, and
reports concerning litigation and acquisitions.
In accordance with the Group Audit Charter,
the Head of Group Audit has a direct reporting
line to the Chairman of the Audit Committee.
Auditor independence is a particularly
prominent issue for the Audit Committee. The
Committee formally evaluates the
independence of the external auditor, the
measures used to control the quality of the
external auditors work, and the annual audit
budget. The Audit Committees policy on
auditor independence governs the
appointment, compensation and oversight of
the external auditor. The external audit firm
will be appointed or reappointed by the
General Meeting of Shareholders for a period
of five years on the advice of the Supervisory
Board. To ensure its independence, the
Auditor Independence Policy prohibits the
external auditor from providing certain non-
audit services to ABN AMRO.
The Audit Committee is responsible for pre-
approving audit, audit-related and permitted
non-audit services provided by the external
auditor. In exercising its pre-approval authority,
the Audit Committee considers whether the
proposed services are consistent with the
continued independence of the external
auditor. Both the Auditor Independence Policy
and the Audit Committee Pre-Approval Policy
for External Audit Firm Services are accessible
via ABN AMROs corporate website.
Nomination & Compensation Committee
The tasks and responsibilities of the
Nomination & Compensation (N&C)
Committee can be divided into tasks related to
nomination and compensation.
The Committees nomination responsibilities
include preparing the selection and
nomination of members of the Supervisory
and Managing Boards by preparing and
periodically reviewing the succession plans of
these Boards on the basis of agreed profiles.
Also the granting of the title of SEVP to
eligible persons is discussed in the N&C
Committee on behalf of the Supervisory
Board. The Management Development
programmes for Top Executives are discussed,
and where relevant the Committee informs
the Supervisory Board.
Furthermore the Committee acts on reward
and performance issues. Standards and
criteria for performance are defined, and on
that basis the performance of the members of
both Boards is reviewed periodically.
The framework, concept and content of
compensation and benefits, pension
schemes and other relevant schemes are
Corporate governance
34
discussed and decided by the Committee.
Resolutions concerning the remuneration
policies for the Managing Board are
submitted to the Supervisory Board and are to
be adopted by the General Meeting of
Shareholders. The Committee prepares a
report annually on the remuneration and
implementation of these policies in the
relevant financial year.
Compliance Oversight Committee
The Compliance Oversight Committees role is
to supervise the banks compliance
organisation, activities and risk profile. More
specifically, the committee is responsible for
supervising and monitoring and advising the
Managing Board on the effects of internal
risk management and control systems relating
to compliance. These duties include
supervising the enforcement of the relevant
legislation and regulations, and overseeing the
effect of codes of conduct. The Compliance
Oversight Committee is also responsible
along with the full Supervisory Board for
setting the right tone from the top by
communicating the importance of compliance
to the Managing Board and the bank as a
whole, and by overseeing the Managing
Boards communications to the bank about the
importance of compliance.
The Compliance Oversight Committee
discusses the banks compliance risk profile
on a regular basis. In addition, the committee
reviews the compliance plan developed by the
Compliance Policy Committee and approved
by the Managing Board, and monitors its
implementation. The committee is also
responsible for supervising the functioning of
Group Compliance, and, in particular, for
ensuring that Group Compliance is
appropriately staffed, compensated,
resourced, and supported by other units of the
bank. The Head of Group Compliance has a
direct reporting line to the Chairman of the
Compliance Oversight Committee.
One of the Compliance Oversight
Committees specific duties, subject to the
ultimate decision of the Supervisory Board, is
to take charge of any remedial actions and/or
disciplinary proceedings against members of
the Managing Board for breaches of
compliance policies, and to provide oversight
of any disciplinary processes against other
company employees for breaches of
compliance policies.
Managing Board
The members of the Managing Board
collectively manage the company and are
responsible for its performance. The members
are appointed by the General Meeting of
Shareholders on the nomination of the
Supervisory Board. If the Supervisory Board
nominates two or more candidates for a
vacant seat, the nomination list is binding.
However, the General Meeting of
Shareholders may resolve that such a list is
not binding by a vote of at least two-thirds of
the votes, which must represent half of the
economic value of the issued capital. Such a
majority vote is also required to appoint a
Managing Board member other than in
accordance with the binding or non-binding
nomination of the Supervisory Board. The
members of the Managing Board are
accountable both collectively and individually
for all decisions taken by the Managing Board.
The Chairman of the Managing Board leads
the Board in its overall management of the
company to achieve its performance goals and
ambitions. The Chairman is the main point of
liaison with the Supervisory Board. The Chief
Financial Officer is responsible for the financial
affairs of the company, and the Chief Risk
Officer has responsibility for supervising and
ensuring risk management and operational
risk control. Alongside their overall corporate
responsibilities, the members of the
Managing Board have specific responsibilities
for one or more Business Units, Group
Functions or Services.
Corporate governance
35
The management of the BUs, Group Functions
and Services is delegated to Management
Teams. These Management Teams consist of
one or more SEVPs and Executive Vice
Presidents. A broader leadership team, the
Group Business Committee (GBC), is
responsible for the leadership of initiatives
developed by cross-BU Client Segments,
Regional BUs, Product BUs and Services to
grow the value of the Group. The GBC
consists of five Managing Board members
who are responsible for the BUs, and eight
SEVPs.
More information on corporate governance
can be found on our website at
www.abnamro.com.
Corporate governance
sweet spot
37
Compliance
Compliance has become
crucial to our ability to
navigate our way through an
increasingly complex
business environment. It is
important that we comply in
all circumstances with the
laws and regulations of each
market in which we operate.
On 1 January 2005, Group
Compliance adopted a new
global structure covering all
ABN AMROs operations and
subsidiaries worldwide. 2005
also saw the creation of a
new Supervisory Board
Committee called the
Compliance Oversight
Committee, together with the
launch of a Group-wide
mindset programme around
compliance, a new
transaction filtering process
and a revised Client
Acceptance & Anti-Money
Laundering Policy.
The compliance function within the bank is the
independent oversight on behalf of senior
management of those core processes and
related policies and procedures that seek to
ensure the bank is in conformity with industry-
specific laws and regulations in both letter and
spirit, thereby maintaining the banks
reputation. This includes but is not limited to
sanctions, monitoring of compliance
standards, client acceptance and anti-money
laundering, good citizenship, and the protection
of clients against the banks position. This last
responsibility manifests itself in areas such as
personal account dealing, conflicts of interest
and Chinese walls.
The Managing Board is fully committed to the
banks Corporate Values and to preserving the
banks integrity and reputation. By complying in
each of the markets in which it operates with
the relevant laws and regulations including the
recommendations of the Financial Action Task
Force on Money Laundering and regulations set
by the Nederlandsche Bank, Federal Reserve
Bank, and Office of Foreign Assets Control
(OFAC) the bank safeguards its reputation, its
licence to operate, and its ability to create
sustainable value for all stakeholders.
Global governance
The Compliance Policy Committee (CPC) is
the governing body responsible for the global
co-ordination of compliance. Led by the
Chairman of the Managing Board, the
committee makes decisions on key
compliance activities and provides broad
oversight of Group Compliance. Members of
the CPC include the Chief Financial Officer
and the heads of Group Compliance & Legal,
Group Legal, Group Risk Management, Group
Audit and Group Human Resources, and
representatives of all businesses.
During 2005, a new Supervisory Board
Committee called the Compliance Oversight
Committee was formed. The creation of the
Compliance Oversight Committee
demonstrates that compliance warrants
continuous attention by the Supervisory
Board, and that the bank works actively to
resolve any compliance issues that are
identified. In the new structure, the Head of
Group Compliance reports to both the
Chairman of the Managing Board and the
Chairman of the Compliance Oversight
Committee.
Group Compliance tasks
In accordance with the recommendations and
standards of the Basel Committee on Banking
Supervision, the mandate of Group
Compliance is to:
identify risks and regulations relevant to the
banks activities
design policies and procedures to minimise
regulatory and reputation risk
advise, train and provide reports to senior
management with regard to regulations and
compliance with these regulations
promote effective compliance and ensure or
oversee follow-up actions in the event of
non-compliance
manage regulatory inquiries and incidents.
Key initiatives
In 2005 Group Compliance developed and
began executing a remedial action plan, of
which the main initiatives are highlighted
below. The Orders received in December 2005
ABN AMROs strategy is firmly set:
focusing on our sweet spot, the
consumer and commercial mid-market
clients and fully leveraging the benefits
of being one bank. The essence of the
organisational changes that took effect at
the beginning of 2006 is that we now are
organised around our sweet spot.
Compliance
38
will be reflected in our mandatory planning
during the course of 2006.
Strengthening the Compliance
organisation
In 2005, the total number of FTEs within
Group Compliance rose to around 800
worldwide, thus ensuring that the Compliance
department can carry out its global
responsibilities effectively.
Mindset programme: Our values in action:
acting with integrity
In April 2005, we launched the Our values in
action: acting with integrity programme to
increase awareness and build on the global
compliance mindset throughout the bank.
The main messages include managements
position as role models and each staff
members individual responsibility for
compliance. The programme involves
newsletters, posters and messages, as well
as special training and policy updates to
support employees with day-to-day
compliance issues.
Client Acceptance & Anti-Money
Laundering (CAAML)
The revised CAAML Policy was implemented
worldwide on 1 September 2005, taking into
account the principles of the Wolfsberg Group,
of which ABN AMRO is a member. To ensure
compliance with the policy, mandatory
Group-wide training for staff on CAAML was
implemented through computer-based
training and regional workshops.
In addition to CAAML training, a CAAML
Advisory team for technical support and Quality
Assurance Programme was established.
A bank-wide Anti-Money Laundering
Oversight Committee was formed in 2005.
Among other duties, this Committee will be
responsible for advising on the CAAML Policy
and reviewing instances of suspicious activity
that are referred to it.
Transaction filtering and monitoring
During 2005, ABN AMRO has continued to
enhance its Anti-Money Laundering
Compliance programme across the branch
network in order to meet its legal and
regulatory compliance obligations and to
ensure robust systems and controls for each
part of its CAAML policy. Enhancements were
focused on automating existing client
acceptance and monitoring processes.
EU Market Abuse Directive
The EU Market Abuse Directive, which has the
objective of regulating market manipulation
and insider trading, was successfully
implemented and embedded into the working
practices of ABN AMRO in 2005. Compliance
officers across Europe worked together to
ensure a one bank approach while delivering
educational and communication tools on the
topic, including comprehensive computer-
based training on market abuse. Other
compliance-related communications focused
on the responsibilities of senior management
to ensure compliance with the Directive.
The banks systems and controls for identifying
and monitoring incidences of market abuse
were also reviewed, assessed, and where
appropriate reconfigured to ensure that they
complied with the new Directive. In particular,
several policies restricting the flow of
confidential information within the bank were
tightened, ensuring that the standard of
integrity within ABN AMRO remains high.
Group Security
Group Security contributes to a sound and
secure environment across ABN AMRO by
developing global policies and standards for
physical security and financial crime,
supporting commercial and strategic
decisions, and investigating serious security
and compliance breaches.
It provides a security framework and related
services that enable the business to take
ownership of its security responsibility.
Compliance
39
Sustainable
development
To create sustainable value
for all our stakeholders, we
run our business responsibly.
This means behaving with
integrity and openness, and
taking environmental, social
and ethical issues into
account. This approach
helps us to build and sustain
the trust that underpins our
licence to operate, and
enables us to be a valued
business partner for our
clients. In 2005 we
intensified our sustainability-
related activities by focusing
on providing responsible
financial services, building
employee engagement,
protecting our assets, being
accountable and
transparent, minimising our
direct impact and supporting
local communities.
Making a commitment
Our main objective in all we do is to create
sustainable value for our clients, employees
and shareholders. To help us achieve this, we
run our business responsibly meaning with
integrity and openness. We also consider the
interests of other stakeholders in society, by
taking environmental, social and ethical issues
and the effect on future generations into
account.
We recognise that our role of allocating capital
between various activities brings a duty of
responsible conduct and engagement. Our
licence to operate depends on the trust of
clients, employees, shareholders,
governments, supervisors and society at
large. Integrity and transparency form the
bedrock of this trust. And active engagement
with our stakeholders is a rich source of
information and understanding, which enables
us to be a well-informed and valued business
partner for our clients.
Continuing our sustainable
journey
We live in challenging times. Natural disasters,
energy constraints, climate change, poverty
and demographic change are shaping our
social and business environment. These
forces create both challenges and
opportunities for us and our clients and offer
advantage to those that recognise trends
early and draw practical conclusions about
their consequences. Our recent focus has
been on embedding sustainable
development into our organisation by
including it in our credit decisions and product
offerings. Our efforts and progress in this area
have been widely recognised, but our
commitment to sustainability inevitably raises
dilemmas for us. While we do not have all the
answers, we will not avoid the difficult
questions that arise.
Accelerating and integrating
the sustainable development
business agenda
During 2005 we continued to investigate the
value case for sustainable development at
ABN AMRO and found that sustainability adds
value to our organisation in several ways:
Providing responsible financial services:
Like us, our customers face todays global
problems, and sustainability allows us to
deepen our relationships with them.
ABN AMRO is perceived as a partner
offering holistic advisory services including
sustainable development expertise, and as
an innovator in new products and services
based on sustainable development, such as
Socially Responsible Investment (SRI) fund
management and carbon trading. We are
also opening up opportunities to foster
sustainable development in Emerging
Markets through techniques such as micro-
finance, as well as providing a well-informed
perspective on the risks in these markets
Employee engagement: Sustainability
strengthens ABN AMROs ability to attract,
motivate and retain staff, by making the
people who work for us feel proud,
motivated and loyal. It also helps us attract
and keep the best talent
Protecting our assets: Sustainability is an
integral part of ABN AMROs risk
management. It has helped us improve our
foresight and insight into our overall
exposure, and increase our knowledge and
understanding of the challenges and
opportunities facing our clients in their
industries
Being accountable and transparent: These
qualities help build our brand around trust,
character, integrity and credibility. We often
have to balance and reconcile conflicting
interests, and we are open about these
dilemmas. Transparency has also
Sustainable development
40
strengthened our emotional connection
with our stakeholders, and helped us create
attractive offerings in ethical and socially
responsible investment
Minimising impact from business
operations: As a major occupier of real
estate, we want to minimise the
environmental impact of our facilities. As
well as benefiting the environment,
sustainability helps us save money by
reducing energy consumption. Our staff are
equally keen to contribute to a cleaner
environment, so we increase employee
engagement through our energy reduction
activities and by using energy from green
sources. We also engage continually with
our suppliers over social and environmental
issues
Supporting local communities: As a good
corporate citizen ABN AMRO wants to act
responsibly towards its customers,
employees and the world at large. We are an
integral part of the communities we serve,
and want to help these communities thrive
and develop. We invest in communities
through financial donations, in-kind
contributions and employee involvement.
We established the ABN AMRO Foundation
in 2005. In line with the United Nations
Millennium Development Goal no. 1, its aim
is to eradicate poverty and tackle other
related issues. It focuses on supporting and
stimulating entrepreneurship in poor
regions, thereby helping to foster
sustainable livelihoods. The Foundation
receives an annual grant from ABN AMRO
of EUR 5 million.
Stepping up our efforts
The Managing Board has decided to intensify
and accelerate our sustainable development
efforts by integrating the sustainable
development business agenda more closely
into all our activities. You can find out more in
our 2005 Sustainability Report, published
alongside this 2005 Annual Report, or at
www.abnamro.com.
Sustainable development
core businesses
42
Consumer & Commercial Clients serves
almost 20 million consumer clients, small to
medium-sized enterprises and corporate
clients, and has an especially strong position
in the mass affluent consumer and mid-sized
commercial segments. It operates principally
in the Netherlands, the US Midwest and
Brazil, which are the markets where we have a
leading local franchise operated through local
staff.
Consumer & Commercial Clients also includes
our consumer and commercial banking
activities in new growth markets in Asia and
Europe, as well as Bouwfonds, our property
development and financing subsidiary.
Across Consumer & Commercial Clients, we
are pursuing several knowledge-sharing
initiatives to realise synergies. These will
enable us to focus even more strongly on our
customers, particularly in areas where we
already have a competitive advantage. These
are:
on the commercial side on small to
medium-sized enterprises and corporate
clients
on the consumer side on the mass affluent
segment.
We will be offering these types of clients a
wide range of financial services, enabling us
to build and expand long-term relationships
with them.
Consumer & Commercial
Clients
Key figures Consumer & Commercial Clients


(in millions of euros) 2005 2004

Net interest income 8,094 6,895
Net fee and commission income 1,866 1,749
Net trading income 225 150
Results from financial transactions 50 (249)
Share of result in equity accounted investments 145 87
Other operating income 1,340 1,047

Operating income 11,720 9,679

Operating expenses 7,391 6,809

Operating result 4,329 2,870

Loan impairment and other credit risk provisions 754 585

Operating profit before tax 3,575 2,285

Income tax expense 1,023 677

Net operating profit 2,552 1,608

Discontinued operations (net) 0 239

Profit for the year 2,552 1,847

Total assets 260,041 217,524
Risk-weighted assets 161,141 145,775

Full-time equivalent staff 68,554 70,193
Number of branches and offices 3,366 3,293

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Consumer & Commercial Clients
(as % of Group operating profit before tax)
Core businesses
43
BU Netherlands
ABN AMRO is one of the leading banks in the
Netherlands, with a total of almost five million
consumer, small to medium-sized enterprise (SME) and
corporate clients. In 2005, BU Netherlands (BU NLs)
market-leading products and services and seamless
multi-channel service model enabled it to make
continuing progress towards its aspiration of being the
primary bank for all its customers. Client satisfaction,
operating income and profit for the year all showed
healthy increases, despite the subdued economic
conditions in the Netherlands. Looking forward, BU NL
will continue to focus on strengthening and deepening
its client relationships, especially among its key target
groups affluent clients and small to medium-sized
enterprises.
As of 31 December 2005 BU NL served
4.6 million consumer clients, over 360,000
small to medium-sized enterprise clients and
around 5,600 corporate clients. The size and
diversity of this client base puts ABN AMRO
at the forefront of the banking industry in the
Netherlands. The bank services its clients
through a network of 555 bankshops,
79 advisory branches and five dedicated
corporate client units. Furthermore, BU NL
operates 1,561 ATMs, four integrated call
centres, and internet and mobile channels.
Strategy, products and services
BU NLs aspiration is to become the primary
bank for all its customers by delivering a
service that makes a difference and is always
personal, through every channel. In line with
ABN AMROs mid-market strategy, BU NLs
key competitive advantage lies with affluent
individuals and small to medium-sized
enterprises.
BU NL is a fully-integrated consumer and
commercial bank offering a full range of
financial services and products. Alongside its
own product capabilities, BU NL actively uses
product knowledge from the banks other
BUs, for example through the Regional
Treasury Desks that make Wholesale Clients
product knowledge available to BU NLs
commercial clients. In additition we offer
insurance products manufactured by our joint
venture with Delta Lloyd.
Key figures BU Netherlands


(in millions of euros) 2005 2004

Net interest income 2,785 2,508
Net fee and commission income 668 631
Net trading income 54 36
Share of result in equity accounted investments 14 32
Other operating income 163 82

Operating income 3,684 3,289

Operating expenses 2,675 2,790

Operating result 1,009 499

Loan impairment and other credit risk provisions 277 173

Operating profit before tax 732 326

Income tax expense 223 96

Profit for the year 509 230

Total assets 95,272 86,602
Risk-weighted assets 47,279 55,523

Full-time equivalent staff 18,989 19,846
Number of branches and offices 639 662

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BU Netherlands
(as % of Group operating profit before tax)
Core businesses
44
Through its integrated multi-channel service
model, BU NL provides clients with a full
range of financial services, 24 hours a day,
seven days a week. In 2005, we continued to
upgrade our services and enable customers to
access them more easily. As a result, client
satisfaction with our internet banking
defined as those clients rating their
satisfaction at 8 or more out of 10 is now at
an all-time high of 73%. The number of
internet clients increased by 24% in 2005 and
the percentage of payments conducted via
the internet continued to rise. As a further
recognition of the quality of our multi-channel
service model we won the 2005 National Call
Centre Award. The continuing rise in the
number of clients using our direct channels
reduces the time that staff in the branches
spend on selling standardised products. In
2005, our branches were open on Saturdays
and during late night shopping hours.
The growing success of BU NLs strategy and
service model is also reflected in our overall
client satisfaction rates. The proportion of
clients who are very satisfied with BU NLs
services, rating us at 8 or more out of 10,
rose by 8% in 2005. BU NL will continue to
work hard to improve client satisfaction still
further.
Results in 2005
BU NLs profit for the year increased by 21.8%
to EUR 509 million in 2005, adjusted for the
restructuring charge related to Group Shared
Services in 2004 (EUR 287 million in operating
expenses, EUR 188 million in profit for the
year). The following figures have been
adjusted for this charge. The increase was
mainly a result of a rise in operating income.
Operating income grew by 12.0% to
EUR 3,684 million, mainly due to increased
volumes of loans. This growth in volumes
reflected improved levels of client satisfaction
driven by better service and product offerings.
The rise in client satisfaction was especially
strong among mid-market consumer and
commercial clients. BU NLs operating income
was also enhanced by an increase in mortgage
prepayment penalties, reflecting the high
levels of mortgage re-financing in the
Netherlands. Almost all other loan products
reported double-digit volume growth, as a
result of growing market share and an
increase in client appetite for these products.
The EUR 37 million increase in net fee and
commission income was broadly based,
although commission on securities grew
particularly strongly in the improved stock
market climate. Net trading income increased
by 50.0% to EUR 54 million, mainly due to
higher income from derivatives sales. This
reflects the success of the regional treasury
desks, which combine BU NLs strong mid-
market corporate client relationships with the
product expertise of WCS. The rise in other
operating income is explained by the transfer
of Stater from BU NGM to BU NL on
1 January 2005.
Operating expenses increased by 6.9% to
EUR 2,675 million mainly due to the transfer
of Stater, higher commercial expenses and
costs arising from Sarbanes Oxley, Basel II
and Compliance. Additional costs arose from
compensating staff on the termination of
profit-sharing arrangements. It was agreed
that staff would be compensated in 2005 and
2006 for a total of 3.5 years profit sharing.
The compensation for 2005 was taken as a
one-off charge at the end of 2004 (in Group
Functions). The costs related to the buy-off in
2006 were accrued over 2005.
Provisioning increased by EUR 104 million to
EUR 277 million, mainly in the SME and
consumer loan portfolios. This was a reflection
of the relatively weak economic environment
in the Netherlands, the increase in the total
volume of loans and the faster-than-average
expansion of our consumer finance portfolio.
Provisioning for the mortgage portfolio
remained relatively stable.
Core businesses
45
Staff numbers decreased by 857 full-time
equivalents, mainly due to the outsourcing of
IT services, and the transfer of transaction
services and facility management services to
other BUs. These reductions were partly
offset by increases arising from the transfer of
Stater to BU NL.
Initiatives for 2006
The alignment of the Groups structure with
its mid-market strategy will have a positive
effect on BU NL. The entire Dutch market will
now be served on the basis of a single
coherent market approach. The local focus
on client relationships remains central, but
the new BU NL will be able to differentiate
itself even further by better leveraging
ABN AMROs international network and
product capabilities.
Looking forward, we will continue to focus on
strengthening and deepening our client
relationships. We are confident we will
achieve this, as we continue to upgrade our
offerings to our target client groups, thereby
encouraging them to use ABN AMRO as their
primary bank.
BU NLs improved organisational model,
consisting of Value Center Consumer and
Value Center Commercial, has become
operational as from 1 January 2006. This
adjustment brings major benefits, enabling us
to sharpen our market focus and increase the
number of client-facing staff to improve still
further the advisory capabilities in our
branches. There has been no disruption for our
clients the service concept, contact points
and branch locations have remained
unchanged.
From 1 January 2006, Bouwfonds mortgage
activities have been transferred to BU NL,
centralising all Dutch mortgage activities in
BU NL.
BU North America
ABN AMRO is one of the largest foreign banks in the
United States (US). The core of BU North America
(BU NA) is LaSalle Bank, headquartered in Chicago,
Illinois. BU NA reaches beyond the Midwest through
an expanding network of regional commercial lending
offices and a mortgage business that operates
nationwide. In 2005, BU NA achieved an increase in
operating income and profit for the year. It aims to
continue to increase its market share in 2006 by building
employee and client engagement and expanding its
geographic network.
Operating under the name LaSalle Bank,
headquartered in Chicago, Illinois, BU NA
serves approximately 3.5 million individuals,
small businesses, mid-market companies,
larger corporates, institutions and
municipalities. We offer a broad range of
ABN AMRO introduces Preferred Banking: personal banking
affluent segment
Affluent clients want a consistently excellent personal banking
experience, anytime and anywhere they need it. Preferred Banking is our
new way to deliver this. These clients are more affluent and have more
complex financial needs than the average consumer client. So every
affluent client now has his or her own Preferred Banker to assist with
every financial need, question or wish.
We created Preferred Banking by taking ABN AMROs successful Van
Gogh Preferred Banking service in Europe, Asia and Brazil and adjusting
it to suit the Netherlands market. It is both personal and special, and is
based on service, accessibility, expertise and transparency. In the
Netherlands, the dedicated bankers role is embedded across a broad
range of channels, with clients benefiting from services including direct
email and internet contact with their own Preferred Banker, annual
financial and investment overviews, a 24x7 call centre service, and
Preferred Banking lounges in bank branches.
Preferred Bankings success has driven a sharp increase in revenues and
client satisfaction, and has attracted over 54,000 new clients within a
year. We will continue to develop the concept in 2006, introducing new
elements including online financial planning, new investment forms and
a special introductory package for new clients. We will also build new
Financial Centres with Preferred Banking lounges, and a special
Preferred Banking lounge at Schiphol Airport.
Core businesses
46
investment, commercial and retail banking
products and services through more than
400 branches and 1,600 ATMs in Illinois,
Michigan and Indiana.
As ABN AMRO focuses increasingly on its
sweet spot mass affluent consumers and
commercial mid-market clients BU NA aims
to continue to achieve strong returns for the
Group, by empowering our employees to
provide the highest level of service to these
customers.
While rooted in the US Midwest, BU NA
reaches further through an expanding network
of 18 regional commercial banking offices
across the country. The Mortgage business
provides a strong presence across the US,
doing businesses in all 50 states through
an extensive broker network and the
mortgage.com website.
Ranked by deposits, ABN AMRO is the second-
largest bank in the Chicago area and the largest
in Michigan. Collectively, we are the
13th largest bank in the US with assets
exceeding USD 110 billion, and are now the
20th largest in terms of deposits. ABN AMRO
is the third largest foreign-owned institution in
the United States in terms of assets and
deposits.
Strategy, products and services
A key element of BU NAs mission is to be
the premier relationship-driven bank based
in the US Midwest. To enable us to achieve
this objective, we maintain a varied portfolio
of businesses designed to meet the
sophisticated and changing needs of
consumer and commercial clients. These
businesses include Commercial Banking,
Specialty Banking and Personal Financial
Services. In addition to these three
businesses, we operate nationwide
mortgage activities through our Mortgage
Group.
The Commercial Banking group now
serves more than 10,000 public and private
sector customers via the Midwest branch
network, as well as a network of 18 regional
offices, focusing on providing mid-market
Key figures BU North America


(in millions of euros) 2005 2004

Net interest income 2,269 2,227
Net fee and commission income 643 610
Net trading income 94 100
Results from financial transactions 43 (261)
Other operating income 434 499

Operating income 3,483 3,175

Operating expenses 2,236 2,086

Operating result 1,247 1,089

Loan impairment and other credit risk provisions 21 143

Operating profit before tax 1,226 946

Income tax expense 355 274

Profit for the year 871 672

Total assets 90,021 73,340
Risk-weighted assets 66,743 53,825

Full-time equivalent staff 16,044 17,159
Number of branches and offices 434 428

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BU North America
(as % of Group operating profit before tax)
Core businesses
47
companies with a total commercial
banking solution including lending, expertise
in specialised industries, treasury
management, trust and asset management
services. The ongoing deepening and
expansion of our relationships with existing
customers continue to drive the consistently
strong long-term performance of this
business.
The Specialty Banking business includes
corporate capital markets, commercial real
estate and asset-based lending. In 2005,
USD 4.5 billion in real estate loans were sold.
BU NA is the fifth largest asset-based lender
in the US and ranks sixth in middle market
syndicated deals nationwide. Our asset-based
lending group has enjoyed much recent
success in closing cross-border and large
syndicated deals. Specialty Banking business
is expanding its presence in more than
20 states across the country.
BU NA also operates US-wide businesses
engaged in the residential mortgage industry,
broker dealer services, equipment financing
and leasing. ABN AMRO is one of the
15 largest mortgage loan originators and
ten largest mortgage servicers in the US.
Results in 2005
Please note that all figures described are
at constant exchange rates in order to
facilitate comparison. On average, the US
dollar appreciated by 0.8% against the euro
in 2005.
BU NAs profit for the year increased by 21.9%
to EUR 871 million in 2005, adjusted for the
restructuring charge related to Group Shared
Services in 2004 (EUR 61 million in operating
expenses, EUR 40 million in profit for the
year). The following figures have been
adjusted for this charge.
Operating income grew by 8.7%, driven by
higher commercial banking revenues and
lower hedging costs related to the available-
for-sale (AFS) portfolio.
The operating income of the commercial
banking business increased by 9.6% on
the back of loan growth and higher non-
interest income. The operating income of
the retail banking business increased by
4.4%, primarily due to higher commission
income.
Net interest income increased by 1.0% due to
solid growth in commercial loans and higher
deposit spreads. These more than offset the
impact of the flattening yield curve and margin
pressure in commercial lending. Non-interest
income benefited from lower hedging costs
related to the AFS portfolio shown under
results from financial transactions which
more than made up for the 8.3% decline in
Helping clients enhance cash flows
BU NA strives to enhance its services on a continuing basis in line with
client needs. For example, clients are actively involved in the
development of treasury management and electronic banking products,
such as CashPro, BU NAs premier online banking service designed to
simplify critical treasury management activities.
BU NAs latest CashPro service has been developed on the basis of in-
depth client research. This highlighted the market need for an efficient
and automated tool to simplify the time-consuming and sometimes
tedious cash-positioning process. Because most clients currently use
Excel for cash positioning, BU NA partnered with Microsoft to develop
CashPro Accelerate SM, an innovative solution that enables clients to
save time, minimise errors and increase control. Mr M. Greenough from
Little Caesars comments: CashPro Accelerate has substantially reduced
the amount of time required to calculate our total cash position. It has
also provided us with a standard reporting format across all our
operating units.
This commitment to meeting client needs earned CashPro high honours
for cash management service internet applications. According to
independent market analysis, LaSalle continues to provide clients with a
comprehensive best-in-class platform offering robust functionality.
Core businesses
synergy
49
mortgage banking revenues booked in other
operating income.
Revenues from mortgage banking decreased
by 8.3% to USD 267 million, representing
6.1% of BU NAs operating income. The fall in
total mortgage income was primarily due to a
58.9% decrease in origination income,
resulting from a contraction in refinancing
activity and the market shift to non-
conforming products. The revenues from
mortgage servicing, including hedging
results, increased by 23.5% to
USD 221 million on a servicing portfolio of
USD 206 billion.
Operating expenses increased by 8.9% due to
increases in staff costs, bonus accruals,
business development expenses and
professional fees. Operating expenses were
impacted by incidental costs of
USD 77 million in the last quarter.
Provisioning fell from 25 basis points of
average RWA to 3 basis points. This decrease
was due to lower gross provisioning levels as
well as recoveries, reflecting the high credit
quality of the loan portfolio.
A settlement of USD 16.85 million, in
connection with the Federal Housing
Administration insurance certifications, has
been reached between ABN AMRO
Mortgage Group, Inc. and the US
Department of Justice, the Office of the
Comptroller of the Currency and the
US Department of Housing and
Urban Development. This settlement was
provisioned for in 2004, and therefore had no
impact on the results for 2005.
Initiatives for 2006
In 2006, as a result of the alignment of the
Groups structure with its mid-market strategy,
BU NA will leverage its relationship-driven
business model to provide high-quality
services and products to a number of large
corporates and financial institutions formerly
served by WCS.
BU NA will continue its drive to build our
employees engagement in the banks
strategy and success, thereby enabling us to
create closer client relationships, provide
better advice and in turn increase clients
engagement with us. For example, within
Personal Financial Services, our new
collaborative sales and service delivery
model continues to generate positive financial
and intangible results. We are also
emphasising important governance and
compliance issues across the organisation
through regular communication and
education.
We will strive to increase market share in
2006, by building strong relationships with
new clients and potentially by expanding our
geographic network. Client intimacy is a key
driver of our success, and its importance will
be evident through ongoing enhancements
across all our businesses.
In 2006, BU NA will work even closer with
other BUs to maximise the value of the
offerings and capture global synergies,
particularly across the international services
groups. Joint teams formed in 2005,
including product managers and relationship
managers from across ABN AMRO, will
continue to work together to make this
objective a reality.
Knowledge sharing, trust and
collaboration across organisational
boundaries are crucial for providing
our clients with the highest possible
quality of service and creating value
for the banks stakeholders. Working
together and sharing a common vision
makes ABN AMRO worth more than the
sum of its parts.
Core businesses
50
BU Brazil
BU Brazil aims to be one of the most efficient and valued
banks amongst the top four privately-owned banks in
the Brazilian market, and seeks to grow its business
by focusing on clients. It is also widely recognised as a
leader in fostering sustainability. BU Brazil had a very
good year in 2005, capitalising in full on the favourable
scenario in the Brazilian economy. Lending, both to
individuals and small to medium-sized enterprises
(SMEs), rose strongly, helping to drive operating
income up by 13.4%. Tight cost control kept the rise in
operating expenses below the general rate of inflation,
and contributed to a strong rise in profit for the year.
Initiatives in 2006 will aim to optimise BU Brazils
operating platform by continuing the segmented
approach to the mid-market consumer and commercial
clients who make up the banks sweet spot.
ABN AMRO has been present in Brazil since
1917. However in 1998, with the acquisition of
Banco Real, Bandepe and Paraiban, the bank
took a major step towards becoming one of
the leading players in Brazilian retail and
commercial banking. In October 2003, with
the acquisition of Banco Sudameris,
ABN AMRO consolidated its position in the
top tier of Brazilian privately-owned retail and
commercial banks.
Today, BU Brazil operates as a universal bank
offering financial services on a nationwide
basis through 2,106 stand-alone and
in-company branches, 6,230 points-of-sale
and 8,370 ATMs. With a presence in all state
capitals and major Brazilian urban centres,
BU Brazil serviced around ten million clients in
the country as of December 2005.
Strategy, products and services
BU Brazils core strategy is to grow its
business by focusing on clients. We seek to
increase our clients satisfaction on a
continuous basis by meeting their day-to-day
and long-term development needs, through
fully-fledged retail, corporate and investment
banking products and services. BU Brazil aims
to be one of the most efficient and valued
banks amongst the top four privately-owned
banks in the Brazilian market, and offers a
segmented client service approach both to
individuals and companies. Van Gogh
preferred banking services are offered to our
Key figures BU Brazil


(in millions of euros) 2005 2004

Net interest income 2,164 1,507
Net fee and commission income 352 317
Net trading income 52 (1)
Share of result in equity accounted investments 37 10
Other operating income 370 151

Operating income 2,975 1,984

Operating expenses 1,730 1,297

Operating result 1,245 687

Loan impairment and other credit risk provisions 363 219

Operating profit before tax 882 468

Income tax expense 238 167

Profit for the year 644 301

Total assets 23,663 13,987
Risk-weighted assets 14,742 9,271

Full-time equivalent staff 25,912 26,800
Number of branches and offices 2,106 2,057

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Core businesses
51
mass affluent clients on a nationwide basis
and provide an international identity and a key
element of aspiration in our retail banking
strategy.
In 2005, ABN AMRO implemented a new
segmented servicing approach for corporate
banking. This was designed to enhance our
focus and efficiency, enabling us to deliver a
seamless product offer for multinational
corporations and capitalising on our large
mid-market commercial client base, now
served by our specialised regional and
middle market relationship management
teams and using a single product platform.
This has allowed us to capture business
opportunities in the current economic cycle
and increase our share of our clients
banking business.
ABN AMRO is also a major player in the
Brazilian consumer finance business, with our
Aymor franchise holding more than 14,000
dealer relationships for the distribution of
vehicle financing and other consumer goods
financing nationwide.
In 2005, in line with the Group-wide strategy
of focusing on its core areas of competitive
advantage, BU Brazil effected the 100% sale
of property and casualty insurer Real Seguros
and 50% of life insurance and pension
company Real Vida e Previdncia. The buyer in
both cases was Tokio Marine & Nichido Fire
Insurance Co., Ltd, with which we also
entered into an exclusive bancassurance
partnership in Brazil.
ABN AMRO is also widely recognised as a
pioneer and leader in the development of
sustainable bank-society relationships in
Brazil. We have long regarded profitability as
going hand-in-hand with social responsibility.
Our recognition of the importance of ethical
principles in conducting business has now
developed into a strong overall commitment
to society and the environment.
Results in 2005
All figures are calculated at constant exchange
rates in order to facilitate comparison. On
average, the Brazilian real appreciated 22.6%
against the euro in 2005. BU Brazils results
were influenced by the sale of Real Seguros in
2005 (EUR 229 million in operating income,
EUR 196 million in profit for the year). The
following figures have been adjusted for this
sale.
Profit for the year increased by 35.2%.
Operating income rose by 13.4%, mainly
resulting from an increase in the retail loan
portfolio. Lending to households increased
by 35.1%, accounting for 53.8% of the
portfolio. This was driven by strong growth in
personal loans and overdrafts. Lending to
SMEs grew by 27.3% on the back of increased
account receivables financing and working
capital needs.
Embracing diversity
Our 2005 engagement surveys showed BU Brazil to have the highest
employee engagement rate in the Brazilian market, with 91% of our
employees declaring themselves to be engaged in their work, and 98%
declaring that they were proud to work in the organisation.
In 2005 BU Brazil was also recognised for the fourth year in a row as
one of The Best Workplaces in Brazil in a survey led by Guia Exame,
a national business publication. In the same survey we were ranked as
the fifth Best Workplace for Women. On the same theme, BU Brazil
was ranked for the second consecutive year by the Great Place to
Work Institute as one of the Top 100 Best Places to Work in
Latin America.
BU Brazil has been consistently recognised for delivering a
differentiated client service, and has earned the Excellence in Client
Servicing Modern Consumer award in the retail bank category.
Similarly, Banco Hoje a national banking publication has named us
Best Client Servicer for the second year on the run.
ABN AMROs commitment to embracing diversity was also recognised
when we were awarded the Camellia Flower Freedom Award
promoted by the Outcast Population Articulation Center.
Core businesses
52
Operating income from consumer finance
activities was down by 6.8%, with the 7.2%
growth in net interest income being more
than offset by a decrease in net fee and
commission income. While the focus for 2004
was on rationalisation and introducing
improvements to credit scoring and
collection procedures, the focus in 2005
shifted back successfully to growing the loan
portfolio. This resulted in 34.9% growth in
new loans production, as well as higher
commissions being paid. Average spreads
continued their downward trend, reflecting
the competitive consumer finance
environment.
Operating expenses increased by 9.5%,
driven by increases in staff costs as a result
of the new collective labour agreement, an
increase in bonus accruals, new marketing
and current account acquisition campaigns,
the appreciation of the Brazilian real and a
number of incidental expenses in the last
quarter of 2005. Adjusted for these
incidentals, the expenses reflect
ongoing cost control as well as synergy
benefits related to the integration of
Banco Sudameris.
Provisioning increased to 303 basis points of
average RWA, compared with 257 basis
points in 2004. This increase reflects the
retail loan portfolios strong growth.
Operating profit before tax increased by
14.9% as a result of robust revenue growth
and active cost management. Given the
volatility experienced in the tax line as a result
of the hedge impact, operating profit before
tax is a good point of reference for measuring
BU Brazils performance.
The effective tax rate fell by 4.3 percentage
points to 31.4%, mainly as the result of a tax
credit in the fourth quarter. The further
appreciation of the Brazilian real against the
US dollar in 2005 led to a hedge-related tax
charge of EUR 39 million, compared with
EUR 24 million in 2004.
Initiatives for 2006
Our 2006 initiatives will aim to optimise our
operating platform through a segmented
approach to financial services. We will support
and service individuals, entrepreneurs and
small to medium-sized business owners, and
hand-in-hand with these key elements of
economic growth we will contribute to Brazils
development and the sustainability of
ABN AMROs businesses. Taken together, the
client groups who are serviced out of our
national retail network represent the sweet
spot for ABN AMROs business in Brazil.
Our Aymor consumer finance franchise plans
to maintain its leading position in vehicle
financing, expanding new brand/dealer
relationships and elongating financing terms
at the same time as incrementing its
acquisition finance activities for other goods.
Our consumer finance customer base will also
provide an excellent cross-selling platform for
our retail business.
Following the alignment of the Groups
structure with its mid-market strategy as of
1 January 2006, BU Brazil is managed and
reported as the core of BU Latin America,
which also includes ABN AMROs activities
elsewhere in Latin America such as in Chile,
Paraguay, Uruguay and Mexico.
BU New Growth Markets
BU New Growth Markets (BU NGM) provides a growing
range of banking services for consumers in countries
ranging from the Asia Pacific region, via the Middle
East, to Europe a geographical footprint that includes
large, fast-expanding and profitable markets such as
India, the United Arab Emirates (UAE), Taiwan and
Hong Kong. In 2005, BU NGM focused on realising the
expanding opportunities in the consumer mid-market
segment in Asia, by servicing the mass affluent segment
with specially-targeted banking products and services.
During the year BU NGM achieved strong growth in
Core businesses
53
operating income and profit for the year, thanks partly to
the continuing success of its credit card and Van Gogh
Preferred Banking offerings in Asia.
In 2005, BU NGM continued to support the
Group strategy by refining its market approach
and organisational structure. The main
changes included the transfer of our
mortgage-related activities in Europe to
BU Netherlands, which was effected via our
subsidiary Stater an end-to-end services
provider in the European mortgage market
as part of the Group-wide consolidation of
these activities into one BU. Additionally, the
consumer banking activities in Kazakhstan,
previously conducted under the auspices of
Wholesale Clients, were transferred to
BU NGM.
As well as boosting top-line revenue growth
by over 40% (adjusted for the transfer of
Stater), these changes will increase the
transparency of our fast-growing operation in
Asia and enable us to exploit synergies and
pursue new opportunities in consumer
banking.
Strategy, products and services
BU NGMs strategy focuses on exploiting the
expanding opportunities in the consumer
mid-market segment in Asia. Our widespread
regional presence from the Middle East to
Asia Pacific includes large, fast-growing and
profitable markets such as India, the UAE,
Taiwan and Hong Kong. Further attractive
factors in these markets include growth of
around 9% a year in consumer mid-market
clients spending on personal financial
services, continuing deregulation, a relatively
small number of well-established incumbent
players, and a growing and increasingly
knowledgeable population of mass affluent
consumers. We also have a 40% stake in
Saudi Hollandi Bank, to which we provide
management services and know-how in
consumer products. A good example of this
Key figures BU New Growth Markets


(in millions of euros) 2005 2004

Net interest income 363 237
Net fee and commission income 193 173
Net trading income 25 15
Results from financial transactions 6 6
Share of result in equity accounted investments 73 44
Other operating income 47 84

Operating income 707 559

Operating expenses 369 346

Operating result 338 213

Loan impairment and other credit risk provisions 67 41

Operating profit before tax 271 172

Income tax expense 58 33

Net operating profit 213 139

Discontinued operations (net) 0 239

Profit for the year 213 378

Total assets 7,753 5,344
Risk-weighted assets 6,461 4,403

Full-time equivalent staff 5,599 4,616
Number of branches and offices 143 112

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Core businesses
54
knowledge-sharing can be seen in the
successful roll-out of the preferred banking
concept in Saudi Arabia.
Our strategic emphasis in Asia and Central
and Eastern Europe is on servicing the mass
affluent segment with specially-targeted
banking products and services. By opening
new branches we have increased our
geographical footprint. In Asia, our key
offerings include credit cards and our highly-
rated Van Gogh Preferred Banking (a
relationship banking approach for mass
affluent clients serviced through a dedicated
point of contact), together with related
products such as consumer finance
especially in India and savings and deposit
accounts. As a result of this strategy, BU NGM
has almost 2.8 million clients in Asia of which
some 40,000 make use of our Van Gogh
Preferred Banking services. Our credit card
offering, with some 2.4 million cards in force,
is well established in India, UAE and Taiwan
and has received a positive response in
Hong Kong, Indonesia, Pakistan and
Singapore.
Our Belgium-based International Diamond &
Jewellery Group, with local units in several
countries, is a leading and successful financier
of the diamond and jewellery trade, with more
than 2,000 client relationships worldwide. This
group reports under BU Private Clients as
from 1 January 2006.
Results in 2005
As from 1 January 2005, the interest of 60%
in the Stater mortgage administration
business, which was previously reported
under BU NGM, was transferred to BU NL. In
2004, the impact was EUR 74 million on
operating income and EUR 72 million on
operating expenses.
Profit for the year increased significantly
by 53.2% to EUR 213 million with a very
strong contribution from Asia due to the
continued success of the credit card
business and the Van Gogh Preferred Banking
activities.
Operating income increased by 26.5% to
EUR 707 million, despite the transfer of Stater
to BU NL. Adjusted for the transfer, the
increase was 45.8%, largely due to continued
strong growth in Asia. Income from the
activities in Asia increased by 41.0% due to
the success of the credit card business and
the Van Gogh Preferred Banking activities. The
number of credit cards in Asia increased by
48% to 2.4 million and the number of
customers in Asia increased by 36% to
2.8 million. The contribution from our
participation in Saudi Hollandi Bank increased
by 63.6%, reflecting a strong market position
in a booming economy.
Net interest income was the main driver of
the increase in operating income. Net
interest income increased by 53.2% to
EUR 363 million, reflecting the increase in
credit card lending, consumer finance,
savings accounts and a year-to-date
reclassification from commission income to
net interest income in the second quarter of
2005.
Operating expenses increased by 6.6% to
EUR 369 million. Adjusted for Stater,
Placement of USD 100 million of equity funds in India national record
In 2005, the consumer bank set a new national record in India by placing
approximately USD 100 million in equity funds within a single month a
record for one-month collections by any distributor in India for equity
funds.
Additionally, the total number of purchase applications relating to this
transaction, at 13,540, set a new internal record for investment services
in India, as a result of record subscriptions from all branches and client
segments covered by the consumer bank.
ABN AMRO Investment Services business won the CEO award in 2005,
and is one of the largest distributors of equity mutual funds in India.
Core businesses
55
operating expenses increased by 34.7% due
to continued investments in the various
businesses in Asia, such as the launch of new
products, opening of new branches and
intensive marketing campaigns. In 2005,
14 branches were opened, bringing the total in
Asia to 67, of which 23 are located in India. The
total number of FTEs in Asia increased by
35% to 5,224.
Provisioning increased from EUR 41 million to
EUR 67 million, reflecting the growth in the
loan portfolio and higher credit card
outstandings.
Income from discontinued operations in 2004
relates to the contribution of Bank of Asia, the
interest in which was sold in 2004.
Initiatives for 2006
As from 1 January 2006, the activities of
BU NGM have been largely moved into
BU Asia, and a small number transferred to
BU Europe. Management will continue to
pursue consumer banking opportunities in
Asia, concentrating on organic expansion of
our business in Hong Kong, India, Indonesia,
Pakistan, Singapore, Taiwan, and the UAE.
During 2006, new branches are planned in
India and Pakistan to help us win new clients.
We will also continue our sales drive in credit
cards in Pakistan, Indonesia, Hong Kong and
Singapore. Acquisitions may play a part in
enabling us to achieve our ambition of
becoming one of the leading consumer
banks in Asia.
BU Bouwfonds
In 2005 BU Bouwfonds (Bouwfonds) consolidated
its leadership in the Netherlands commercial and
residential real estate development markets, and
continued its expansion in other European markets. A
further increase in the number of homes sold both in the
Netherlands and in France, continued growth in property
finance and buoyant sales of new residential mortgages
and refinancings, drove a strong rise in operating
income and profit for the year. As from 1 January 2006,
Bouwfonds residential mortgages activities have been
transferred to BU Netherlands (BU NL). As a result
of further alignment with the mid-market strategy,
ABN AMRO started the process of selling Bouwfonds in
the first quarter of 2006.
Bouwfonds is the Netherlands largest real
estate project developer in terms of volume of
homes sold. It is also a property financing
company with international reach, and a major
provider of residential mortgages.
Strategy, products and services
Bouwfonds strategy is to remain the leading
real estate developer in the Netherlands
residential and commercial property markets,
and to expand selectively in residential and
commercial property development elsewhere
in Europe. A cornerstone of Bouwfonds
strategy is its ability to leverage its real estate
expertise in its property financing activities,
the growth of which should be supported by
further international expansion in Europe and
North America. The company intends to
exploit the same real estate expertise to
grow its real estate-related asset
management products and services for
private and institutional investors, both in the
Netherlands and other markets.
Bouwfonds primary real estate development
activity is developing owner-occupied homes,
in which it is the Netherlands market leader
with sales of over 8,300 homes in 2005. It also
sold 2,700 homes in France and 600 in
Germany. In the Netherlands, the focus of
Bouwfonds portfolio is gradually shifting from
large-scale greenfield developments to inner
city, mixed-use projects. Bouwfonds also has
a leading position in the Netherlands in
commercial real estate development. In late
2004 it strengthened its position in this
market by acquiring the specialised
commercial developer MAB, best known for
mixed-use inner city projects and innovative
retail concepts in the Netherlands and other
European countries.
Core businesses
56
In real estate financing, Bouwfonds provides
finance to Dutch project developers both at
home and abroad, and to property investors
in the Netherlands. It also offers lease
financing of corporate real estate in the
Netherlands.
In asset management, Bouwfonds offers real
estate-based investment products to
institutional and private investors.
In residential mortgages, Bouwfonds
distributes its products through independent
intermediaries and under third-party labels
via insurance companies and chains of
intermediaries. Direct sales are restricted to
the internet mortgage product, MoneYou.
Dutch intermediaries consistently award
Bouwfonds first or second prize as the
best mortgage supplier. As from 1 January
2006, this activity has been transferred
to BU NL.
Results in 2005
Profit for the year improved by 18.4% to
EUR 315 million, reflecting an overall
improvement in operational performance.
Operating income improved by 29.6% to
EUR 871 million as Bouwfonds continued its
strong performance, driven by good results in
all its businesses. Net interest income
increased by 23.3% to EUR 513 million, driven
by further growth in its residential mortgage
portfolio and property finance activities, as
well as by an increase in mortgage
prepayment penalties. Other operating
income rose 39.1% to EUR 331 million,
mainly reflecting higher income from
residential property development and the
acquisition of MAB. In the Netherlands, the
market for residential property remained
favourable due to the low interest-rate
environment. As a result, the number of
homes sold and under construction was
higher, leading to improved results. This
improvement was partly offset by lower
income from commercial property
development, reflecting the low level of new
projects in the Dutch office market.
Operating expenses were up 31.4% to
EUR 381 million, mainly due to higher staff
costs related to the organic expansion of the
business, as well as the acquisitions of MAB
Key figures BU Bouwfonds


(in millions of euros) 2005 2004

Net interest income 513 416
Net fee and commission income 10 18
Share of result in equity accounted investments 17 0
Other operating income 331 238

Operating income 871 672

Operating expenses 381 290

Operating result 490 382

Loan impairment and other credit risk provisions 26 9

Operating profit before tax 464 373

Income tax expense 149 107

Profit for the year 315 266

Total assets 43,332 38,251
Risk-weighted assets 25,916 22,753

Full-time equivalent staff 2,010 1,772
Number of branches and offices 44 34

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(as % of Group operating profit before tax)
Core businesses
57
and the Staal Bankiers portfolio in the second
half of 2004.
Provisioning rose by EUR 17 million to
EUR 26 million as a result of provisions in the
non-domestic mortgage portfolio.
Initiatives for 2006
As from 1 January 2006, Bouwfonds activities
are reported under BU NL. In 2006 several
steps will be taken to grow Bouwfonds
international business in a number of
European countries. In France, Bouwfonds
intends to expand its real estate development
business by opening new offices in several
cities, and to start a French branch for its
property financing activity. In other European
countries, Bouwfonds will start residential
projects in partnerships with local developers,
and develop and finance commercial projects
for Dutch and foreign clients. In asset
management, it will continue to acquire a
variety of portfolios for private and institutional
clients.
Bouwfonds residential mortgage business
was transferred to BU NL in January 2006.
Following this transfer, Bouwfonds is a
European real estate developer, financier and
asset manager with total assets of
approximately EUR 13 billion and profit for the
year of EUR 139 million as of year end 2005.
As a result of further alignment with the
mid-market strategy, ABN AMRO started the
process of selling Bouwfonds in the first
quarter of 2006.
Fore more information, please see the Annual
Report of Bouwfonds or visit
www.bouwfonds.com.
Bouwfonds partner in landmark transaction Vendex KBB stores
In December 2005 Bouwfonds acted as co-financier and via its joint
venture in IEF Capital as co-arranger and co-structurer in the purchase
of 73 department stores put up for sale by a consortium of venture
capitalists. The portfolio consisted of 5 De Bijenkorf stores, 7 V&D stores
and 61 Hema stores, representing a total of over six million square feet
of retail space. The stores have now been leased back to Vendex KBB on
long term leases, and the rental income will serve as the basis for
inflation coverage offered to Dutch pension funds. Bouwfonds will
continue to manage the portfolio. This sale and leaseback transaction
was one of the biggest European property deals of the year, and
Bouwfonds won the mandate against competition from more than
20 bidders, primarily from the Netherlands and the UK.
Core businesses
skipper
59
The WCS product platform ranged from
advisory, capital markets and financing to
transaction banking, all with a global reach.
The pooling of three elements our
understanding of our clients objectives, our
deep product expertise and the banks global
reach differentiated us from our
competitors. During 2005, WCS focused on
improving the leverage of its extensive global
footprint with operations in over 50 countries
and large hubs in Amsterdam, Chicago,
Hong Kong, London, New York, Singapore
and Sydney.
Strategy, products and
services
WCS developed innovative products for
sophisticated multinational clients which are
also offered to the Groups target segment of
mid-market clients and financial institutions. To
achieve this, WCS worked closely with other
parts of the Group, as evidenced for instance
by an integrated distribution platform with the
BU North America and the private investor
products offered through the Consumer &
Commercial Clients BUs.
WCS grouped its product delivery activities
into Fixed Income, Futures and FX (FIFF),
Key figures Wholesale Clients


(in millions of euros) 2005 2004

Net interest income 1,061 1,599
Net fee and commission income 1,718 1,728
Net trading income 2,363 1,138
Results from financial transactions 96 41
Share of result in equity accounted investments 2 83
Other operating income 101 113

Operating income 5,341 4,702

Operating expenses 4,699 4,783

Operating result 642 (81)

Loan impairment and other credit risk provisions (241) (8)

Operating profit before tax 883 (73)

Income tax expense 178 (72)

Net operating profit 705 (1)

Discontinued operations (net) 0 1

Profit for the year 705 0

Total assets 525,203 428,214
Risk-weighted assets 77,019 72,777

Full-time equivalent staff 16,488 17,366
Number of branches and offices 189 190

Wholesale Clients (WCS),
incorporating ABN AMROs
corporate and investment
banking operations,
performed well during 2005,
growing both operating
income and profit for the
year. WCS served the
needs of a select group of
multinational clients
requiring specialist sector
knowledge and
sophisticated products.
As from 1 January 2006,
the activities of WCS have
been moved into new BUs.
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Wholesale Clients
ABN AMRO has entered two boats
in the Volvo Ocean Race 2005-2006,
forming one team in the biggest and
most challenging round-the-world
sailing competion. In November 2005
the race started in Vigo, Spain. After
30,000 nautical miles, the boats will
end the last leg and finish the race in
Gothenburg, Sweden in July 2006.
Core businesses
60
Commercial Banking and Equities &
Investment Banking.
FIFF offered our clients integrated solutions to
allow them to manage their risk exposures
and optimise their portfolio returns. These
product offerings were backed by strong
research and a global presence, enabling WCS
to target its clients in every continent. WCSs
commitment to its clients was reflected in a
large number of annual industry awards that
recognised its leading-class capabilities in risk
management and product innovation on behalf
of our targeted mid-market clients and chosen
multinationals.
WCS invested significantly in building up its
derivatives business during 2005. We
established a Structured Derivatives unit that
focused on delivering a step change in
revenues through the development of
innovative structured products. Its product
expertise spanned all derivatives asset classes
from equities to FX and fixed income.
Structured Derivatives continues to act as an
incubator for new products that can be
standardised into traded products to be sold
through the global trading platform. This
knowledge transfer model innovative
products for sophisticated clients leading to
new products for mid-market clients and
financial institutions is fully aligned with the
Group strategy.
Commercial Banking included traditional debt
financing, conduit, cash management and
trade financing services. These products focus
on the core needs of our mid-market client
set. Working capital solutions involving
conduit securitisations of receivables and
transaction banking products are important
foundations for many of our client
relationships. In 2005 ABN AMRO was
awarded Best Online Trade Finance Bank for
the fourth year running by Trade Finance
Magazine and the Trade Finance Lead
Technology Award by Euromoney, confirming
our market leading trade finance service to
clients.
Equities & Investment Banking included cash
Equities, Equity Derivatives, Equity Capital
Markets (our joint venture with Rothschild
was ranked first for pan-European primary
access in 2005 by Extel), Fixed Income
Capital Markets, and Mergers & Acquisitions
(M&A).
In Equities, we remain one of the leading
houses in Europe including the United
Kingdom where we also offer corporate
broking through our subsidiary Hoare Govett,
the Netherlands, and the Nordic region, with a
growing presence in our other chosen
markets. In 2005 Extel ranked WCS third in
pan-European equity and equity-linked sales,
and third in pan-European Equity market
strategy.
WCSs client coverage has also been aligned
with the current Group strategy. The Global
Clients client coverage function focused on a
select group of multinational clients requiring
specialist sector knowledge and sophisticated
products.
Results in 2005
WCSs profit for the year increased by 160.1%
to EUR 705 million in 2005, adjusted for the
restructuring charge related to WCS and
Group Shared Services in 2004 (EUR 381
million in operating expenses, EUR 271 million
in net operating profit). The following figures
have been adjusted for this charge.
Operating income increased by 13.6% to
EUR 5,341 million, largely driven by strong
revenue growth in FIFF, notably in structured
derivatives.
Underlying operating income in Commercial
Banking (adjusted for the sale of the
professional brokerage and domestic
custody businesses in 2004) increased due to
Core businesses
61
growth in transaction banking and loan
portfolio revenues. The growth in loan
portfolio income was, however, partly offset
by declining margins in North America and
Asia.
FIFF operating income rose mainly due to
growth in structured derivative product
revenues. The Derivatives Step Change
programme, introduced at the start of the year,
resulted in revenue growth of over 150%.
Equities & Investment Banking operating
income also increased. Equity brokerage
revenues were stable, with higher volumes
being offset by lower margins. However, the
implementation of an integrated cash and
derivatives product and sales platform
resulted in an increase in Equity revenues.
Revenues from M&A and Fixed Income
Capital Markets increased in the second half
on the back of a strong pipeline built up during
the year.
The revenue items net interest income, net
trading income and results from financial
transactions should be viewed jointly, as
income in the UK has been reclassified
between these revenue lines.
Operating expenses increased by 6.7% to
EUR 4,699 million, primarily driven by higher
bonus accruals and indirect costs, on the
back of higher IT expenses driven by several
large projects including Basel II and
Compliance.
Provisioning declined by EUR 233 million to a
net release of EUR 241 million driven by
substantial releases in the telecom and
energy portfolios.
Risk-weighted assets (RWA) increased by
EUR 4.2 billion between 31 December 2004
and 31 December 2005 as the foreign
currency impact of EUR 6.4 billion more than
offset the decline in RWA.
Initiatives for 2006
Following the alignment of the Groups
structure with its mid-market strategy as from
1 January 2006, the activities of WCS have
been moved into new BUs. The Global Clients
client coverage function, M&A and Equity
Capital Markets activities now form BU Global
Clients. The Commercial Banking client
coverage function has moved to the regional
BUs to improve ABN AMROs mid-market
coverage. By opening up WCS to the Group
we believe we are better equipped to service
the Groups commercial clients and service
them in a more efficient way. The new
BU Global Markets serves as a product
platform, developing and delivering products
for all ABN AMRO clients.
Strategic initiatives started in 2005 will be
carried forward by the new BUs into 2006 to
continue building profitability.
Largest Equity Capital Markets deal in Asia
Two Korean technology and telecom deals in the summer of 2005,
involving equity issues worth a combined USD 3.2 billion, catapulted
ABN AMRO into the top tier of the Korean capital markets rankings and
reinforced the banks position as a leading player in Asia.
Taken together, the LG.Philips LCD and SK Telecom deals, which were led
by ABN AMRO Rothschild, represented more than 50% of total
transaction volume in the Korean equity capital markets in the year to
July 2005. The LG.Philips LCD transaction a USD 2.2 billion follow-on
offering of American Depositary Receipts (ADRs) and ordinary shares
was by far the largest Equity Capital Markets (ECM) deal ABN AMRO
Rothschild had ever completed in Asia. Within two weeks of completing
it, ABN AMRO Rothschild acted as joint global coordinator and joint
bookrunner on a USD 1 billion offering of SK Telecom ADRs, the largest
ECM telecom transaction in Asia (ex-Japan) in 2005, and the fourth
largest Korean deal since 2001.
The deals demonstrated the power of ABN AMROs global network,
which enables the bank to compete with rivals in both the Asian and
US markets. Competition from the US was fierce as both transactions
involved issues of ADRs, but the bank performed very strongly,
attracting huge investor demand in both transactions.
Core businesses
62
The business model of BU Private Equity
involves buying equity stakes in unlisted
companies over which it can establish
influence or control, and then managing these
shareholdings for a number of years with a
view to selling them at a profit. BU Private
Equity runs two separate lines of business
Buy-Out Investments and Corporate
Investments.
Strategy, products and
services
In the past three years, BU Private Equity has
developed and implemented major
improvements to its business and operational
model. It has changed its investment focus
from taking minority shareholdings in small to
medium-sized early and later stage
companies, to obtaining full control of mature
mid-sized companies.
At the same time, the BU has substantially
reduced its geographical footprint by closing
its operations in East Asia, the US, Latin
America and several East European countries.
This refocusing resulted in the BUs headcount
falling by 55% in the past three years and
investments becoming concentrated in the
Netherlands, UK, France, the Nordic countries,
Italy, Spain and Australia/New Zealand. Also,
its average new investment size is now sub-
stantially larger, and its number of investments
under management is continuing to reduce.
The growth in the Buy-Out Investments
portfolio is fully funded from capital released
and gains realised from ongoing exits in the
Corporate Investment portfolio.
The Buy-Out Investment business manages
controlling interests held by ABN AMRO and
third-party investors in mid-sized European
and Australian buy-outs. The Corporate
Investment business manages a portfolio of
mostly non-controlling shareholdings in small
to medium-sized Dutch companies, and in
Key figures BU Private Equity


(in millions of euros) 2005 2004

Net interest income 5 (32)
Net fee and commission income 0 8
Net trading income 7 4
Results from financial transactions 431 660
Other operating income 7 (24)

Operating income 450 616

Operating expenses 130 115

Operating result 320 501

Loan impairment and other credit risk provisions 34 16

Operating profit before tax 286 485

Income tax expense (45) 22

Profit for the year 331 463

Total assets 7,293 4,770
Risk-weighted assets 3,028 1,988

Full-time equivalent staff 109 115
Number of branches and offices 9 9

BU Private Equity
BU Private Equity invests in
unlisted companies, both on
ABN AMROs own account
and for third-party investors.
In the past three years, the
BU has changed its
investment focus from taking
minority shareholdings in
small to medium-sized early
and later stage companies,
to obtaining full control of
mature mid-sized
companies. This refocusing
saw BU Private Equitys
investment portfolio in
European and Australian
mid-sized buy-outs rise by
around 30% during 2005,
while its investments under
management in early-stage
Dutch companies remained
flat.
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Core businesses
63
venture capital and early stage companies in
the life sciences, information technology and
media/telecom sectors.
As of 31 December 2005, the total investment
portfolio under management by BU Private
Equity was valued at EUR 2.7 billion. Of this
amount, EUR 2.5 billion was capital invested
by ABN AMRO, while the remainder consisted
of investments by third parties.
Results in 2005
During 2005, the value of the Buy-Out
Investments portfolio at fair market value
increased from EUR 1.3 billion to EUR 1.7
billion, reflecting its aim of achieving a
significant increase in Buy-Out Investments
portfolio under management over the next
few years. While the number of Corporate
Investments decreased, the fair market value
remained stable at EUR 0.6 billion, due to
favourable share price developments in
Corporate Investments listed portfolio.
Profit for the year decreased by 28.5% to
EUR 331 million.
Operating income decreased by 26.9% to
EUR 450 million, driven primarily by a normal
level of exits from portfolio companies.
Operating expenses increased by 13.0% to
EUR 130 million.
Provisioning increased from EUR 16 million to
EUR 34 million due to a provision taken in the
UK portfolio.
Income tax expense decreased by EUR 67
million due to a tax release.
Initiatives for 2006
Given the focus on majority shareholdings in
mid-sized companies, the Buy-Out business of
BU Private Equity is to be reorganised as a semi-
independent subsidiary of the bank, with greater
independence in its operations and decision-
making. Consequently AA Capital Holding B.V.
has been established to hold the shares in the
operational subsidiaries and branches of the
Buy-Out business in seven countries.
Because we now obtain shareholder control in
our portfolio companies, we have more
influence over their value-enhancing strategies
and initiatives. The BU is currently taking steps
to improve its investment managers ability to
identify and initiate such strategies and
initiatives at the portfolio company level.
Shareholder control also enables us to obtain
more detailed information on portfolio
companies financial and operational
performance. To help us capture and report
such data, and to improve our in-house
portfolio administration, accounting and
reporting functions, the BU is currently
replacing several existing stand-alone systems
with a fully-integrated web-based system.
Value Creation in Private Equity
In April 2002 ABN AMRO invested EUR 14.4 million in Puzzler Media, a
leading UK publisher of puzzle magazines with a 50% share of the market.
We saw the opportunity to invest in an excellent niche business that had
strong brands and an experienced management team but also needed a
supportive partner to move to the next stage of its development.
Puzzler Media has been transformed over the past three years into the
worlds largest puzzle content provider with annual sales of GBP 17
million, publishing more than 40 titles. Under our ownership the
company successfully invested in new media opportunities with
significant growth prospects, launched in the Australian market and took
full advantage of the popularity of SUDOKU puzzles, which have taken
the world by storm. Puzzler launched its own Sudoku magazine and is
able to offer the puzzles for syndication through its exclusive publishing
and syndication deal with Nikoli, the creators of the puzzle.
In 2005 we initiated a competitive auction to realise our investment in
Puzzler and this culminated in a sale to John Leng & Co, a subsidiary of
the publishing group DC Thomson. We completed the deal in December
2005, generating a total gain of EUR 54.75 million representing an
overall money multiple of 4.8 times the cost of our investment and an
internal rate of return of 58%.
Core businesses
64
BU PC targets the offering of private
banking services to wealthy individuals and
families with investable assets of EUR 1
million or more. We are one of the top ten
private banks worldwide and the fifth biggest
in Europe in terms of assets under
administration (AuA), with year-end AuA in
2005 of EUR 131 billion, up from EUR 115
billion in 2004.
In the past few years, we have built up our
onshore private banking network in
continental Europe through strong organic
growth in the Netherlands and France, and
through the acquisitions of Delbrck
Bethmann Maffei in Germany and Bank Corluy
in Belgium, strengthening our leading
positions in these countries. These
acquisitions will be followed up by organic
growth, driven by additional ongoing
investment in front-office activities.
To build on our leadership position in France,
BU PC is in the process of creating Banque de
Neuflize OBC through a merger of Banque de
Neuflize and Banque OBC. The merged
business encompasses a new service
proposition, more efficient and higher quality
support functions, and a commercial banking
business aimed at family-owned businesses
as a feeder channel for private clients.
Our operations in Latin America and the
Middle East will benefit from increased
investment in people and products to take
advantage of these regions strong growth
prospects. This will be supplemented by
investment in our Swiss operations to
cater to the needs of Latin American and
Middle Eastern clients booked in Switzerland,
as well as clients from other regions.
Key figures BU Private Clients


(in millions of euros) 2005 2004

Net interest income 480 416
Net fee and commission income 594 544
Net trading income 42 45
Results from financial transactions 8 1
Share of result in equity accounted investments 1 14
Other operating income 100 59

Operating income 1,225 1,079

Operating expenses 891 844

Operating result 334 235

Loan impairment and other credit risk provisions 6 0

Operating profit before tax 328 235

Income tax expense 73 66

Profit for the year 255 169

Total assets 16,973 15,355
Risk-weighted assets 7,231 6,816

Full-time equivalent staff 4,009 3,960
Number of branches and offices 84 82

BU Private Clients
BU Private Clients (BU PC) is
one of the top ten private
banks worldwide and the
fifth biggest in Europe in
terms of assets under
administration. It targets the
offering of private banking
services to wealthy
individuals and families with
investable assets of EUR 1
million or more. During 2005
BU PC continued to build its
network and improve its
performance through a
combination of organic
growth and targeted
acquisitions, including the
purchase of Bank Corluy in
Belgium. The year saw
BU PC achieve an excellent
financial performance, with
higher operating income and
profit for the year, and a
healthy rise in assets under
administration.
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Core businesses
65
Strategy, products and
services
Client satisfaction is key to our success, and
our clients vary greatly in their needs.
Consequently, we have built a segmented
private banking offering based on well-defined
services tailored specifically to the
requirements of our client segments and their
sources of wealth. The scope and depth of our
services vary in line with the size and
complexity of the individual clients needs.
Among other elements, our offerings include
comprehensive tailor-made services at the
top end and a relationship manager-based
advisory model.
BU PCs products are based on an open
architecture model, under which clients are
offered the best available products regardless
of provider.
In Asia, BU PC continued its organic growth
strategy with ambitious AuA growth targets
for the coming four-year period. These targets
will be achieved primarily by augmenting the
workforce and exploiting our product potential
in the region.
Our European private banking strategy is
differentiated by our ability to nourish local
brands while giving them the support of a
strong international institution. We seek to
maintain clients strong confidence in their
local brands while capitalising on the
resources and solidity of the Group as a
whole.
BU PC has achieved impressive results from
the Client Engagement Model and best
practices that we first implemented in the
Netherlands, and that we are now transferring
to other markets. The model aims to align
clients various business partners within
ABN AMRO, and between our internal
processes and the individual client and/or
client groups requirements.
Results in 2005
BU PCs profit for the year increased by 20.5%
to EUR 247 million in 2005, supported by a
very strong performance in the Netherlands
and improved performance in Germany. This
result has been adjusted for the sale of
Nachenius, Tjeenk & Co. in 2005 (EUR 38
million in operating income and profit for the
year), a charge related to the merger of
Banque Neuflize and OBC in France in 2005
(EUR 45 million in operating expenses, EUR 30
million in profit for the year) and a restructuring
charge related to Group Shared Services in
2004 (EUR 56 million in operating expenses,
EUR 36 million in profit for the year).
The acquisition and integration of Bank Corluy
In March 2005 ABN AMRO announced the acquisition of Bank Corluy.
The rationale for this acquisition included the strong fit of Bank Corluys
clients with our sweet spot in the mid-market client segment, our
product capabilities and our strengthening position in the Belgian
private banking arena.
The integration process is now well under way and will allow us to
achieve economies of scale through the use of a common IT platform. It
will also enable us to accelerate the growth of the business by exploiting
the combined product palette and Corluy brand name, thereby
capitalising on local familiarity supplemented by the sense of strength
communicated by the ABN AMRO shield.
We are drawing on our previous experiences in Germany to ensure a
successful integration. With this in mind, we have created twelve teams
consisting of people from both banks to assess the different areas
considered vital to the integration. The teams are responsible for
assessing the current situation and coming up with recommendations to
the management. This teamwork is supported by proactive, two-way
communication with the whole organisation to ensure the support of all
involved parties.
Employees enthusiastic response to initiatives such as these has been
reflected in a high level of staff retention and widespread commitment
to helping make the integration process a success. Clients have also
reacted positively, a fact reflected by a continuing inflow of money, low
attrition rates and healthy attendance at various client events.
Core businesses
66
The figures below have been adjusted for
these events.
Mainly due to a very strong performance in
the Netherlands and a significantly improved
performance in Germany, operating income
increased by 13.5% to EUR 1,225 million.
When adjusted for the one-off gain on the sale
of Nachenius, Tjeenk & Co., operating income
increased by 10.0%.
Operating expenses increased by 7.4% to
EUR 846 million, partly due to higher costs in
the Netherlands. Expenses in Germany
showed a decrease, reflecting cost synergies
from the successful integration of Delbrck
Bethmann Maffei.
Assets under Administration increased from
EUR 115 billion at the end of December 2004
to EUR 131 billion at the end of December
2005, reflecting an increase in net new assets
and higher net asset values due to improved
financial markets. The asset mix changed
slightly to 70% in securities (from 67% at the
end of 2004) and 30% in cash (from 33% at
the end of 2004).
Initiatives for 2006
In BU PC, Europe and Asia are at the heart of
our growth strategy, and client engagement
will continue to be key to our future growth. In
2006 we will build on this basic approach by
stepping up our use of our Client Engagement
Model, further strengthening our sales force
and enhancing the key drivers of employee
engagement. We will also launch a drive to
exploit synergies with other BUs across
ABN AMRO in areas such as client migration
between different ABN AMRO products and
services, product development and
distribution, and possibly through highly-
targeted acquisitions in important European
markets. In cooperation with BU Latin
America, we will continue to grow our Private
Clients Brazil activities and client base.
Core businesses
67
BU AM is ABN AMROs global asset
management business and manages
EUR 176.2 billion in specialist mandates and
mutual funds. BU AM operates in more than
20 countries across Europe, the Americas,
Asia and Australia. The global portfolio
management centres are concentrated in six
locations worldwide Amsterdam, Atlanta,
Chicago, Hong Kong, London and Singapore.
BU AM offers investment products in all major
regions and asset classes, using mainly an
active investment style. The investment
philosophy is characterised by an
internationally coordinated investment
process and well-monitored risk management.
BU AMs products are distributed directly to
institutional clients such as central banks,
pension funds, insurance companies and
leading charities. The funds for private
investors are distributed through
ABN AMROs consumer and private banking
arms, as well as via third-party distributors
such as banks and insurance companies. The
institutional client business represents just
over half of the assets BU AM manages.
Retail and third party client accounts for a
further 30%, and the remainder is in
discretionary portfolios that are managed for
BU Private Clients.
Strategy, products and
services
During 2005 we streamlined our product
development processes and invested in
improving our client research. We remain fully
committed to putting client focus at the heart
of every decision we make. In order to achieve
greater efficiency, we have also combined
many of our product capabilities into single
offerings in Luxembourg.
We focus our regional offerings on specific
territories and limit our presence to those
markets where we have meaningful market
share and competitive advantage. As a result
of this tighter geographical focus, we sold our
401k business (pensions activities) in the
BU Asset Management
Key figures BU Asset Management


(in millions of euros) 2005 2004

Net interest income 6 4
Net fee and commission income 596 535
Net trading income 14 9
Results from financial transactions 55 10
Share of result in equity accounted investments 18 2
Other operating income 23 34

Operating income 712 594

Operating expenses 501 443

Operating result 211 151

Income tax expense 40 46

Profit for the year 171 105

Total assets 1,199 954
Risk-weighted assets 823 1,182

Full-time equivalent staff 1,655 1,919
Number of branches and offices 33 31

BU Asset Management
(BU AM), ABN AMROs
global asset management
business, has continued to
strengthen its position in its
target markets and client
groups through clear client
focus and rising efficiency.
Operating income rose
because of a mix of market
and currency factors and
sales efforts. This higher
operating income, combined
with continued control of
costs, resulted in a
significant improvement in
both operating result and the
efficiency ratio during the
year. An increased focus on
those markets with the
greatest potential drove a
number of strategic
divestments and
acquisitions, positioning the
business for future growth.
Continuing investment to
extend BU AMs leadership
in Socially Responsible
Investment was a further
feature of the year.
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Core businesses
68
United States at the end of 2004, and our
Kazakhstan operation in 2005. We also
completed the sale of ABN AMRO Trust and
Management Service Companies. The sale of
the bank and asset management activities in
Curaao to FirstCarribean Bank was
completed at the end of January 2006.
Artemis Investment Management Ltd., our
UK-based specialist in active investment
products for retail investors and institutional
portfolios, has shown a good performance
over recent years. Given this positive
trajectory and future outlook, BU AM took the
opportunity to further increase its majority
shareholding in Artemis Investment
Management Ltd. from 58% to 71%, in line
with the agreements at the time of the original
acquisition.
During the year, we also introduced a new
concept for Socially Responsible Investment
(SRI). We are already the market leader in
SRI in Brazil and Sweden, and will now roll out
our successful concept further throughout
Europe.
Results in 2005
BU AMs profit for the year in 2005 grew by
74.7% to EUR 145 million, adjusted for the
sale of the Trust business (EUR 17 million in
operating income and profit for the year) and
of the operation in Kazakhstan (EUR 13 million
in operating income, EUR 9 million in profit for
the year) in 2005, as well as the sale of the
Czech Pension Funds (EUR 12 million in
operating income and profit for the year) and
of the 401k business in the US (EUR 16 million
in operating income, EUR 10 million in profit
for the year) in 2004. The following figures
have been adjusted for these events.
Operating income increased by 20.5% to
EUR 682 million. The growth in net fee and
commission income is related to the improved
asset mix of high-performance products and
to higher fee levels on existing products.
Assets under Management (AuM) also
increased due to improved performance of
mandates and funds and improved capital
markets conditions in 2005. Results from
financial transactions increased due to
positive returns on seed capital. Other
operating income increased in line with
divestments arising from the strict focus on
the core business.
Overall, this result reflects BU AMs high-
performance focus, the profitable growth in
asset management products, and the way in
which products have been tailored closely to
client requirements. AMs client-driven
approach and its expertise in developing
alternative asset products have enabled it to
grow in this attractive segment by targeting
more attractive, better priced products, rather
than concentrating principally on AuM.
Operating expenses increased by 13.1% to
EUR 501 million, mainly driven by higher
performance-related remuneration,
professional fees related to divestment
processes, an increase in commercial
activities and an incidental impairment
Innovative offering addresses rising demand
BU AM has been capitalising on the growing demand for structured
products in several areas of the market. Both in Europe and
North America, life-insurance companies are responding to the ageing
of the population by supplying solutions geared to these new
demographics. Such solutions include BU AMs unique lifecycle
products, which are innovatively structured to offer maturity dates as far
off as 2054. In the institutional segment, we are also rolling out new
liability-driven structured investment solutions in a number of markets.
These solutions, which perfectly fit the shift from schemes based on
defined benefits to those based on defined contributions, are designed
to offer clients protection against interest-rate movements. At the same
time, our ability to provide liability-driven investment solutions is
winning advisory mandates from large pension funds. Hedging
interest-rate risk is a relatively new area for pension funds, and BU AM
provides numerous solutions to help them comply with new regulations
requiring measurement of liabilities on a mark-to-market basis.
Core businesses
69
charge taken for software and commercial
contracts.
The tax rate decreased due to the high level of
tax-exempt gains.
Initiatives for 2006
We will remain committed to our private, retail
and institutional clients, and will continue to
operate on a global basis while delivering a
high quality of service to clients via our local
operations. In expanding our business we
remain focused primarily on organic growth,
although we will consider bolt-on acquisitions
where appropriate.
In 2006 we will continue to build our position
in selected markets to capitalise on our global
presence. This involves focusing our resources
on markets that have the potential to make a
meaningful contribution to the solid growth of
our business, such as the United States, the
Netherlands, Brazil, Germany, the United
Kingdom, Greater China (the Peoples
Republic of China, Hong Kong and Taiwan),
France and India. In Italy we will continue to
work on the integration of Banca Antonveneta.
On the SRI front, we plan to launch several
new sustainability funds over the next two
years, not only in the current key sustainable
investment markets of Sweden and Brazil, but
also in France, Germany, the Netherlands and
the United Kingdom. We will also focus more
on our multi-manager capabilities and our
structured products, many of which are
perceived as being technologically advanced.
Our product strategy will remain focused
around meeting specific client needs and
providing innovative solutions. We remain
committed to the investment styles that
reflect the capabilities currently embedded in
our business, but will continue to add other
styles where they will enable us to meet more
fully the requirements of various types of
clients.
Core businesses
dialogue
71
Transaction Banking is a global ABN AMRO
product business unit, formed in 2005,
incorporating cash management, trade
services and cards for all of the banks client
segments, across all regions.
The business had an excellent year in 2005,
achieving significant growth in all client
groups, with particularly strong momentum in
the consumer segment in Brazil and other
growth markets. Transaction Banking results
are reported in the different BUs described in
the previous section.
Strategy, products and
services
We provide services in almost 60 countries
and handle billions of transactions a year. Our
business is well diversified, servicing mid-
market and global companies, financial
institutions, consumers and private clients,
with large client bases across all these
segments. We offer our products through all
the countries in the ABN AMRO network.
Within each of the major categories of cash
management, trade and cards we have a
broad array of products, many of which are
tailored to local requirements.
Our core payments products are used in
domestic markets by commercial and
consumer clients. We have substantial local
transaction banking activities in the
Netherlands, Brazil and the US. Our
acquisition of Banca Antonveneta in Italy
provides us with a second major base in
Europe, including a large domestic transaction
banking presence. We are using experience
gained in these markets to build domestic
scale in key growth markets such as India,
Turkey and Greater China (the Peoples
Republic of China, Hong Kong and Taiwan).
These high-growth markets offer excellent
opportunities to provide payment transactions
for their increasingly affluent consumers. Our
knowledge of developed markets enables us
to tackle some of the inefficiencies of
domestic payment systems and assist both
local companies and foreign subsidiaries
operating in these increasingly sophisticated
countries.
Innovation is a principal driver of success in
transaction banking. With this in mind,
ABN AMROs enterprise-wide approach is
designed to facilitate sharing of knowledge
and best practices, both across different client
segments and between countries. A recent
example of this transfer of ideas involves the
global internet banking platform, Access
Online. This portal was first developed for the
multinational market, but has now been
redesigned for mid-market clients. It provides
direct online access to a suite of banking
products that help to improve the efficiency
of a companys working capital. Technological
innovation is critical in transaction banking
and our online delivery channels continued to
win awards during 2005, with, for example,
our trade portal recognised for innovative
supply chain solutions and our US cash
management portal gaining industry
accolades.
The financial services industry is highly
regulated and transaction banking is no
exception, with new regulatory requirements
demanding continual investment in processes
and technology. These new regulatory
requirements can also offer opportunities for
Transaction Banking
Transaction Banking is a
global payments products
and services business,
servicing all ABN AMROs
client segments in every
region. Transaction Banking
is employing the experience
gained in its established
markets to build scale in key
developing and growth
markets. It is achieving
growing success among
mid-market commercial
clients and in providing
outsourced trade, cash
management and payment
services to other banks.
We believe in building an open and
inclusive dialogue with all our
stakeholders on the issues and
challenges ahead. This creates
opportunities to come up with new and
better solutions, and create better mutual
understanding.
Transaction Banking
72
Transaction Banking. The Single Euro
Payments Area (SEPA), for example, is a
European Union initiative to create a
domestic payments market across the
12-nation eurozone. The introduction of SEPA
by 2008 creates the potential for ABN AMRO
to generate new revenues by offering
payments products across the eurozone and
attracting processing volume from other
banks. Many regional and local institutions
find the costs of increasing regulation and the
changing demands of commercial and
consumer clients too high, and see a
partnership approach to transaction banking
as the only viable option. As a result, we have
been successful with outsourced trade
solutions for partner banks in North America,
Asia and Europe, and this remains a key
strategic initiative. The newer market of
outsourced cash management and payment
services is also gaining momentum, spurred
on by the advent of SEPA.
Initiatives for 2006
Transaction banking involves people,
processes and technology, and our partner
banks value our expertise. ABN AMRO is one
of the top global players in this market, having
the necessary scale, network and track record
of innovation. We predict strong growth in
outsourced solutions for financial institutions
in 2006 and beyond, and during 2005 we
invested in senior advisers and product
managers to build our impetus and expand the
range of solutions we can offer.
A key initiative for 2006 is to leverage the
ABN AMRO network to capture a larger share
of cross-border payment flows, which are
forecast to continue to increase in the next
decade. We already work with our global
clients to help them manage the flow of funds
and goods as they extend their businesses
worldwide, and we have developed a wide
range of award-winning products to meet their
needs. Now our strategic focus is increasingly
turning to the commercial segment. As well as
serving the domestic cash management
requirements of companies in this segment,
we are also using our cross-border products to
help them expand successfully into
international markets.
Making more possible every day
Transaction banking products and solutions provide entry points for
clients into the bank and involve an ongoing often daily relationship
with ABN AMRO. This means Transaction Banking is providing core
banking or anchor products that are critical to the banks efforts to
cross-sell additional products and services. So it is particularly
important that our sales and distribution processes, fulfilment and
implementation, daily transactions and ongoing customer service all
meet or exceed client expectations, every day, in every one of our
operating centres. Our many external awards reflect our leading market
positions and our clients view that ABN AMROs transaction banking
products are delivering on this promise.
Transaction Banking
73
GSS which became part of Services at the
start of 2006 manages the delivery of
internal support services across the BUs
within ABN AMRO globally. Its portfolio of
initiatives includes IT, Real Estate and Facilities
Management and Offshoring. Efficiency
improvements resulting from GSS-led
programmes will realise net annual savings
for the Group of at least EUR 600 million for
2007 and EUR 750 million from 2008
onwards.
Strategy, products and
services
During 2005, GSS made good progress in
developing and executing the banks shared
services agenda. Initiatives launched by GSS
will provide ABN AMRO with fuel for growth
by managing and improving long-term cost
and service levels. Short-term cost cutting is
not the aim. Instead, GSS focuses on
improving service quality, increasing
efficiency, optimising operational risk and
increasing agility.
Portfolio of Initiatives
GSS is implementing a portfolio of initiatives
designed to enhance external and internal
client satisfaction and performance across the
BUs. This portfolio includes the following:
Creating a New Technology Organisation
The GSS IT programme aims to optimise the
provision of Group-wide technology services.
It involves in-house consolidation, partial
outsourcing and multi-vendor offshoring. The
programme is supported by a New Technology
Organisation designed to facilitate best
practice and agility.
In 2005, GSS signed global service
agreements valued at approximately
EUR 1.8 billion over a five-year period with
five vendors. These agreements include IT
infrastructure (provided by IBM) and
application support and enhancements
(provided by Infosys and Tata Consultancy
Services (TCS)). Five preferred suppliers were
also appointed for application development:
Accenture, IBM, Infosys, Patni and TCS. All
these agreements utilise the best available
technology and build on the experience gained
to date.
The global service agreements for
infrastructure have come into effect in ten
countries, including the Netherlands, United
States and Brazil. Transition to other countries
and transformation of infrastructure services
will follow over a 24-month period.
Other IT initiatives during the year focused on
enhancing telecommunications and market
data services. GSS signed a contract with
KPN Telecom for global managed mobile
services in 17 countries. Also, a five-year
contract spanning an initial 25 countries was
signed with Avaya, utilising internet
technology to standardise fixed telephony
services.
Optimising the Property Portfolio
Group Real Estate & Facilities Management
(GREFM) identifies, co-ordinates and
implements best practice across the
ABN AMRO-occupied property portfolio.
GREFM improves BU property performance
through approaches including workspace
efficiency initiatives, disposing of surplus
space and improving facilities management.
Several surplus space and space efficiency
programmes have been implemented in
collaboration with the BUs. In addition GSS
has completed the sale and leaseback
transaction of the building in London at
250 Bishopsgate.
Group Shared Services
Group Shared Services
(GSS) oversees and develops
internal support services
across ABN AMRO
worldwide. GSSs initiatives
contribute to the banks
growth in its target areas. Its
portfolio of ongoing
initiatives include the GSS IT
programme, which in 2005
involved the creation of new
service agreements and a
New Technology
Organisation, optimising the
Group-wide property
portfolio, helping the BUs
identify and exploit
opportunities to cut costs
and improve services
through offshoring, and
improving procurement. As
from 1 January 2006, GSS
has been included in the
Services organisation of
ABN AMRO, which
encompasses all the banks
service units.
Group Shared Services
74
Sustainability programmes have been
introduced with the aim of reducing energy
consumption and CO
2
emissions.
Building on our Offshoring expertise
GSS made significant progress in offshoring in
2005. All offshoring programmes are on track
and several new pilot programmes are
underway. Feedback from the BUs shows that
ABN AMRO Central Enterprise Services
(ACES) has successfully improved quality,
service levels and productivity. ACES adds
agility to the banks operations through its
flexible and rapidly expanding workforce in
India, now 3,000 FTEs strong. ACES took
steps to enhance its internal operating
model and support continued growth. It is
certified under ISO 9001 and the British
Standards 7799 on Information Security, and
runs extensive quality programmes which
help to drive continuous improvement in
service levels.
Implementing better Procurement capabilities
To ensure the bank is receiving value for
money, Global Procurement applies a
structured review to money spent with third
parties. A number of best practice
procurement solutions have been
implemented, including a global system for
managing sourcing and contracting in the
major markets, and resourcing desks to
control spend on third party resources.
Initiatives for 2006
As from 1 January 2006, GSS has been
included in the Services organisation of
ABN AMRO, which encompasses all the
banks service units.
A key focus will be working towards delivering
a single, integrated operations platform for the
bank. This will build on the experience and
success of the European Payments Centre in
2005.
Other planned initiatives for 2006 include:
the New Technology organisation will focus
on transforming technology services across
the bank
GREFM will continue to achieve cost
reductions through space efficiency, surplus
space elimination and facilities
management programmes
the Offshoring Centre of Expertise, in
conjunction with ACES, will continue
planned activities and pilot programmes and
look for new opportunities throughout the
bank
Procurement will further develop its
sourcing expertise with third party suppliers
to help develop detailed and efficient
spending plans for all areas within the bank.
External Awards for GSS
ABN AMRO received the Best Initiative Award for Shared Services
from Chief Financial Officer (CFO) Magazine, the leading Dutch
financial magazine, in May 2005. The GSS initiative was praised for the
courage it shows and the inspiration that it should represent for the
whole financial services industry
GSS Operations won the Risk Waters Best Back Office Operational Risk
Reduction Programme Award in 2005 for the second year running. The
award recognises the contributions that individuals and firms make to
the development of operational risk discipline within the financial
services industry
At the seventh annual FSmetrics Awards, GSS Operations Securities
won awards for Best Broker Dealer Overall Operational Performance in
Fixed Income and Best Broker Dealer Confirmation Performance. The
awards were based on a vote by a selection of the largest institutional
investors, including some of our key clients, and were judged against
ABN AMROs Tier 1 and 2 peer group.
Group Shared Services
75
GF provides guidance on ABN AMROs
corporate strategy and supports the
implementation of the strategy in accordance
with our Managing for Value methodology,
Corporate Values and Business Principles. By
aligning and uniting functions across
ABN AMROs BUs and geographical
territories, GF also facilitates Group-wide
sharing of best practices, innovation and
positioning to public authorities, and binds the
company together in both an operational and
cultural sense.
Strategy, products and
services
GF aims to be a centre of excellence,
exploring value-creating opportunities,
providing capabilities and helping BUs meet
their objectives, while balancing the interests
of the BUs with those of the bank as a whole.
In so doing, GF promotes our global brand
name and the combined strength of the Group
as one bank.
This translates into three roles:
Governance: GF enables the company to
exist as a single entity and is responsible for
corporate governance. It is in charge of
compliance with regulatory and legal
requirements, including compiling and
reporting consolidated financial statements
Influencing and making policy: GF adds
value by assisting in the execution of the
Managing Boards strategic guidance. It
designs, implements and monitors the
standards and policies within which the BUs
work. It also monitors performance targets
and progress towards reaching them, and
provides expert advice and assistance in key
areas
Service provision: GF facilitates and exploits
cross-BU synergies by providing support
Group Functions
Group Functions (GF)
provides guidance and
support on corporate
strategy, undertaking three
key roles overseeing
corporate governance,
helping the Managing Board
put the banks strategy into
effect, and facilitating cross-
BU synergies. It also
oversees a wide variety of
Group-wide activities,
ranging from corporate
development to audit, and
from risk management to
EU affairs. Areas that GF will
focus on in 2006 include
compliance with Sarbanes-
Oxley Section 404 and
Basel II, and implementing a
standardised methodology
for risk assessment in the
Compliance function.
Key figures Group Functions


(in millions of euros) 2005 2004

Net interest income (305) (3)
Net fee and commission income (28) 1
Net trading income (32) (36)
Results from financial transactions 607 472
Share of result in equity accounted investments 114 20
Other operating income 23 6

Operating income 379 460

Operating expenses (95) 263

Operating result 474 197

Loan impairment and other credit risk provisions 95 23

Operating profit before tax 379 174

Income tax expense (50) 25

Net operating profit 429 149

Discontinued operations (net) 0 1,207

Profit for the year 429 1,356

Total assets 70,095 60,637
Risk-weighted assets 8,612 3,084

Full-time equivalent staff 6,020 3,867


1J
ZJ
JJ
+J
5J
cJ
/J
oJ
9J
J
Group Functions
(as % of Group operating profit before tax)
Group Functions
76
services in defined business areas for the
Group, in close cooperation with the BUs.
In 2005, the activities listed below have been
grouped into Group Functions. Following this
reorganisation, GF is now being managed in a
more integrated way across the different
businesses of the Group, and its links to the
business are being strengthened
progressively through a greater focus on
internal client satisfaction.
GF carries out the following activities:
Group Compliance: manages regulatory
affairs and the independent Compliance
function across the bank
Group Legal: sets policies for legal risk
management, renders internal legal
services, including litigation
Group Finance: is responsible for supporting
the decision-making of the Managing Board
and the Resource Allocation and
Performance Management Committee; sets
and maintains accounting policies and
standards; is responsible for the strategic,
management, and financial control
functions within ABN AMRO; is
responsible for the coordination, policy
setting and execution of capital
management, asset and liability
management and market, interest and
liquidity management of the Group as well
as economic research; monitors the overall
financial position; prepares internal and
external financial reporting
Group Audit: assesses and advises on the
adequacy of internal controls through
independent audits
Corporate Development: provides support
to the Managing Board on the development
of Group strategy, including identification,
analysis and execution of mergers and
acquisitions, as well as the composition of
the portfolio of Group businesses from a
strategic perspective
Group Communications: manages
corporate communications, press relations
and sponsorships, and the ABN AMRO
brand
Investor Relations: provides our window to
the investment community; ensures
transparent communication to investors and
serves as their point of contact; increases
internal awareness of our investors
perception and valuation of the Groups
strategy, activities and results
Group Risk Management: the Group-wide
risk organisation is built on two pillars: an
empowered Risk function in the regions, in
combination with a strong central Group
Risk Management function focusing on
policy, portfolio management, and risk
appetite. This structure is supported by
Group-wide risk monitoring, control and
reporting functions
Group Human Resources: advises the
Managing Board on people aspects of the
strategy; advises on and supports corporate
policy in executive development and
leadership development; and develops
frameworks and guidelines on important
HR areas for global use by all BUs, including
a bank-wide centralised HR framework
European Union Affairs & Market
Infrastructures: represents ABN AMROs
interests through the EU and The Hague
Liaison Offices, and links market
infrastructures developments in the
payments and securities industry with the
internal strategy development.
In addition, GF oversees the financial
performance of our activities in other
countries, including Capitalia (7.7% stake) and
Banca Antonveneta (76.0% stake) in Italy, and
Kereskedelmi s Hitelbank (40% stake)
in Hungary. Our interest in Banca Antonveneta
was increased in stages through successive
share purchases from 12.7% at the beginning
of 2005 to 55.8% as at 2 January 2006 and
76.0% as at 16 March 2006. As from
1 January 2006, the results of Banca
Antonveneta will be reported under
BU Europe.
Group Functions
77
Results in 2005
GFs results include those of Group Shared
Services. GFs net operating profit of
EUR 149 million in 2004 was strongly
impacted by the buy-off of compensation
of staff for the termination of profit-sharing
agreements in the Netherlands (EUR 177
million in operating expenses and EUR 117
million in profit for the year), as agreed in the
new collective labour agreement. Adjusted for
this charge, the net operating profit increased
by 61.3% to EUR 429 million in 2005.
The figures below have been adjusted for
this charge.
Operating income decreased by 17.6% to
EUR 379 million, mainly due to lower
US dollar profit hedge results (booked in net
interest income) and a provision for balance
sheet adjustments, offsetting higher results
from our stakes in Italy.
Operating expenses decreased by
EUR 181 million, mainly due to the release of
the post-retirement healthcare benefit
provision (EUR 392 million gross, EUR 268
million net), more than offsetting the cost of
the US regulatory fine (EUR 67 million gross,
EUR 67 million net) and a provision for
compensation for holidays not taken by staff
(EUR 56 million gross, EUR 40 million net).
Provisioning increased by EUR 72 million, due
mainly to the incurred but not identified (IBNI)
loan loss provision.
Income tax expense declined substantially in
2005, due mainly to releases of tax provisions
in the fourth quarter.
Income from discontinued operations in 2004
represented the net profit of LeasePlan
Corporation, which we sold in 2004.
Initiatives for 2006
The strategic agenda for 2006 aims to
capitalise on the initiatives started in 2005:
ensuring regulatory compliance with the
Sarbanes-Oxley Act, section 404, following
the postponement by the Securities and
Exchange Commission in 2005 of the
effective date to 31 December 2006
continuing the preparations for the reporting
and risk management implications of the
Basel II requirements
implementation in certain significant
ABN AMRO countries of the Management
Information System infrastructure we have
developed
further development and implementation
of standardised risk assessment
methodology, systems and quality control
procedures within the Compliance function.
Group Functions
78
For us to realise our strategy, all our clients
must receive excellent service from highly-
motivated and engaged staff. To achieve
these goals, we need to maintain high
standards in recruiting, developing and
retaining talent. Engaged staff means more
than satisfied staff, since it signifies that
they are committed to playing an active role in
achieving our objectives and building our
future with us.
In 2005, for the first time, we measured the
engagement of our staff across the globe in all
business units. In each of the previous two
years we had surveyed parts of the bank, with
our 2004 Employee Engagement Survey
covering about 26,000 employees and
achieving a 66% response rate. In 2005 we
sent out questionnaires to 97,000 employees,
and achieved an excellent global response rate
of 75% a reflection of the commitment our
people feel. Their responses enable us to
measure the engagement of all staff and
compare different geographies and BUs.
Compared to the rest of the financial services
sector we do better than our peers in nearly all
categories, and we also pass the test when
compared to the norm for High Performance
companies across all industries. Looking at
our previous surveys, it is clear that we have
improved in many fields.
The 2005 survey indicated that our staff really
value leadership. This is already a high-priority
topic, and will continue to be. In 2004 we
launched a Leadership Review of our top
executives to develop their leadership
effectiveness still further. This process creates
opportunities to improve our top peoples
leadership skills, enabling them to engage
their staff more fully. The 2004 launch focused
on our top 150 executives, and in 2005 it was
rolled out to the next layer and to people
identified as potential future top executives.
This initiative will be opened up to other senior
staff as well in 2006.
All participants in the Leadership Review
agree specific development objectives to
improve their leadership effectiveness. To help
them set these objectives we offer them a
three-day leadership workshop, Leading
Through Others. In 2006 all our top executives
will again participate in the Leadership
Review, in which their leadership
effectiveness will be measured and tracked,
and new objectives identified.
For our middle management layers the
existing leadership programmes were
intensified in 2005, and this will continue in
2006. These programmes are designed to
address the different leadership issues people
encounter during the various phases of their
management careers.
Aimed at identified high performers with
high potential, our talent management
programmes stimulate an integrated
approach across our BUs and help our
succession planning, supporting a broad
diversity of career tracks. People are
supported to steer their career either
towards a generic managerial track and then
leadership and strategic responsibilities, or
alternatively up a path towards specialisation.
We provide coaching programmes and
mentoring to help them make the right
choices. At the same time, separate
mentoring and other initiatives have further
raised the awareness of diversity and
inclusion issues. This increased focus led to
the launch of global and local initiatives,
including global conferences for women in
senior leadership positions and training
programmes on inter-cultural awareness and
leadership & diversity.
Human Resources
Our goal in Human
Resources (HR) is to engage
and motivate all our people
to play an active role in
achieving our objectives. For
the first time this year we
measured staff engagement
across all our BUs
worldwide, creating the
basis for several initiatives.
Additional actions included
the roll-out of an expanded
Leadership Review to build
and widen our leadership
skills, compliance-related
performance objectives for
top executives, mid-year
reviews within our People &
Organisational (P&O)
Capability Reviews, and
voluntary integrity
screening. Several major HR
issues were successfully
addressed during the year,
including a further upgrade
to our peoples learning
opportunities and the
outsourcing of IT service
delivery in ten countries,
with nearly 2,000 employees
transferring to suppliers.
Human Resources
79
In 2005 HR developed a new global strategy
and moved forward to contribute greater
synergy and added value to the business.
Important features during the year included
making knowledge more accessible via e-
learning and communities of practice,
attaining a higher level of professionalism in
our graduate programmes, and achieving a
strong pay-off from the coaching conducted by
our (senior) management.
As mentioned elsewhere in this report, it is
very important for us to have high awareness
of compliance issues across the bank. All top
executives have agreed a compliance-related
performance objective for the current year,
alongside their personal and leadership
development, staff development and business
objectives. During 2005, our current top
executives also volunteered to participate in
Integrity Sensitive Position (ISP) screening
something which has been compulsory for all
newly-appointed top executives since July
2004, under rules introduced by the
Nederlandsche Bank.
To enhance our Performance Management
processes, we added an additional mid-year
review to our P&O Capability Reviews. This
will help our BUs measure their mid-year
results and, where necessary, adjust their
annual plans to achieve their objectives. The
P&O Capability Reviews enable a dialogue
between each BU and the Managing Board to
identify the right combination of skills,
knowledge, behaviour and values (including
compliance) to meet its performance
objectives.
HR has actively supported and enabled
recruitment and selection of many new
employees, as well as overseeing international
reward issues, performance management,
training and development, and talent
management processes. At the same time it
has been instrumental in major change
processes, such as the outsourcing of
IT Service Delivery that was successfully
finalised in ten countries in November 2005.
This enabled nearly 2,000 employees to
continue their professional careers by
transferring to suppliers. The benefits of the
outsourcing include enabling the bank to
concentrate on its core business and
revitalising our IT service delivery, while also
harnessing existing talent and skills. The
quality, timeliness and consistent
effectiveness of IT service delivery are
managed by the New Technology
Organisation, a department that liaises closely
with our external service providers.
Human Resources
affiliations
81
Please note that various disclosures included
in the risk management section of previous
Annual Reports are included in the financial
statements under note 38 Financial risk
management and use of derivatives starting
on page 170.
Framework
We consider a comprehensive risk
management framework to be one of our core
competencies, and approach risk in a prudent
way aligned with our long-term strategy.
We put this approach into effect through
professional risk functions that are
independent from the commercial lines of
our business. Our risk framework combines
centralised policy-setting with broad
oversight, supported by decentralised risk
execution and risk monitoring.
Our risk management processes are designed
to identify and analyse risks at an early stage,
to set and monitor prudent limits, and to help
us face a volatile and rapidly changing
business environment. Each of the banks
departments must analyse the risks involved
in the transactions it originates, verifying that
these risks are compatible with their assigned
limits, and ensuring that they are properly
managed.
Organisational structure
Our Managing Board establishes our strategic
risk philosophy and policies under the
oversight of the Supervisory Board, whose
duties include regular monitoring of risks in
the banks portfolio. Responsibility for the
overall implementation of the risk policy lies
with the Chief Risk Officer (CRO) and Chief
Financial Officer, both of whom are members
of the Managing Board.
Risks are managed through two principal
directorates Group Risk Management (GRM)
and Group Asset and Liability Management
(GALM):
GRM is responsible for the management of
credit, country, market, operational and
reputational risk
GALM is responsible for protecting our
earnings and capital position against
adverse interest rate and currency
movements in the non-trading portfolios, for
liquidity management, and for managing our
(longer-term) debt issuance profile.
Group Risk Management
The Group Risk Committee (GRC), whose
voting members are drawn from GRM and the
business, is the most senior committee on
policy and exposure approval for credit,
country and market risk. In general, policy and
credit portfolio issues are handled in Group
Risk Committee meetings dedicated to policy.
The most senior committee handling
operational risk is the Group Operational Risk
Management Committee.
The risk organisations of the regional BUs
have a local focus and are overseen by GRM.
Regional chief risk officers have dual reporting
lines into the BU Head and the Head of GRM.
Market risk and operational risk are separate
functions within GRM. The chart over the page
shows the overall structure of our risk
management organisation.
Group Asset and Liability Management
In order to manage our balance sheet
effectively, we have established an Asset and
Risk management
Managing our risk / reward
profile effectively is one of
our core competencies. We
have dedicated professional
risk management functions
that operate independently
of the commercial lines of
our business, providing
broad oversight across all
activities and markets. Our
risk management policies
and activities are designed
to identify and analyse risks
as early as possible, so we
can learn and evolve
continuously in a volatile and
rapidly-changing business
environment in order to
optimise risk-adjusted
return. One of the core
responsibilities of the Group
Asset and Liability
Committee (Group ALCO) is
to manage the sensitivity of
the banks net interest
revenue to changes in
market interest rates. The
net interest revenue is the
banks most important
source of revenue.
By understanding our clients needs and
dreams and ensuring their expectations are
exceeded by the solutions the bank
delivers, we build lasting relationships.
Relationships for this generation and those
to come.
Risk management
82
Supervise all Business Units Assets and
Liability Committees
Set the overall risk limit per Business Unit and
per currency for interest rate (earnings at risk
& market value) and liquidity risk
Set overall Value-at-Risk limits for market risk,
the allocation of which is the responsibility of
the Group Risk Committee
Manage the consolidated liquidity and interest
rate position of the bank
Manage our capital structure
Set standards and policy for transfer
pricing and inter Business Unit transactions
Manage the corporate investment portfolio
Hedge invested capital and profits in foreign
currency throughout the bank
Maintain of own credit curve via strategic debt
issuance
Supervisory Board
Oversee risk management
Regularly monitor risk of bank portfolio
Managing Board
Establish strategic risk philosophy, policies and
risk appetite
Chief Risk Officer Chief Financial Officer
Group Risk Management
Credit risk
Market risk
Operational risk
Country risk
Reputational risk
Group Asset and Liability Management
Interest rate risk
Currency risk
Liquidity risk
Capital management
Group Risk Committee Group Asset and Liability Committee
Determine the risk policies, procedures and
methodologies for measuring and monitoring
risk, including reputational risk issues
Set delegated authorities for lower
committees and authorised individuals,
within Group Risk Management,
Regional BUs, Global Clients, Private Clients
and Asset Management
Approve credit, market and operational risk
associated with new products
Approve risk on transactions whose value
exceeds the authority delegated to lower
committees
Approve structured finance, complex products
and tax related transactions
Conduct a quarterly review of the adequacy of
provisions on the credit portfolio
Oversee our overall credit portfolio and risk
profile
Risk Management Functions within
Group Risk Management and the
Business Units
Risk Management Functions within Group
Asset and Liability Management and the
Business Units
Approve interest rate limits under the overall
approval provided by Group ALCO
Monitor utilisation against interest rate and
liquidity limits
Steer actions to manage the exposures of the
balance sheet
Review net interest income and forecasts
Approve key policies including transfer pricing
Track funding mix and other key liquidity ratios
Approve of new products
Oversee all credit, market and regulatory
matters and ensure compliance with local
laws
Approve risk transactions with delegated
authority and advise on credits which exceed
such limits
Support the banks trading operations by
monitoring and ensuring effective market risk
exposure management
Implement, review and control policies on all
risk portfolios
Manage individual problem credits and
monitor the distressed assets portfolio within
our risk parameters
Set provisions for loan losses within delegated
authority
Approve consumer product and small and
medium enterprise lending programmes
within delegated authority
Establish and maintain operational risk control
discipline
Ensure compliance with our Corporate Values
and Business Principles
Risk management
83
Liability Committee (ALCO). Its structure
mirrors that of our organisation, with Group
ALCO and ALCOs at the level of the BUs to
manage the Asset and Liability Management
processes in their specific areas of interest.
The members of Group ALCO are drawn from
the business, as well as from the Finance and
Risk functions.
GALM focuses on increasing capital velocity
throughout the Group, reducing capital costs,
monitoring and improving the liquidity of
assets, and providing for the re-allocation of
capital whenever this is required by strategic
decisions.
Risk measurement
Economic Capital
ABN AMRO uses its internally-developed
models to estimate economic capital as a
uniform risk measure across the bank.
Economic capital models are primarily
designed to provide a warning system for
severe risks that are outside the risks that are
statistically expected to occur in the banks
ordinary business. Economic capital is an
estimate of the amount of capital that the
bank should possess in order to be able to
sustain larger than expected losses with a
certain level of certainty. As with any other
statistical methodology, economic capital
provides an estimate for management and its
primary advantage is to signal risk over time
and help management follow trends. Like all
estimations and statistical methods,
economic capital has its limitations. In
anticipation of the implementation of Basel II
(see Item 4. Information on the Company
B. Business Overview Supervision and
Regulation New Capital Adequacy
Framework (Basel II)), we are in the process
of refining and further developing our
economic capital methodology. As a result,
investors should be aware that our economic
capital may change both due to changes in the
underlying risks and due to improvements in
our methodology for measuring risks.
We also use economic capital for internal
capital allocation decisions, to support risk/
reward decisions at various levels within the
organisation and for performance
management. We estimate economic capital
for each of the primary risks underlying our
business: credit risk (including country risk
and private equity), market risk (including
interest rate risk), operational risk and
business risk. We are active in many locations
worldwide and are involved in many different
business activities. This diversification, as well
as the diversification between different risk
types, is taken into account in calculating
economic capital.
The contribution of each risk type to
ABN AMROs total economic capital is shown
in the graph below.
Economic capital for market risk and
interest rate risk is volatile when compared
to economic capital for other risk types.
At the end of 2005, economic capital for
market and interest rate risk was relatively
low.
A comparison of ABN AMROs economic
capital with that of other firms is unlikely to be
meaningful, because a wide variety of
definitions, model coverage and underlying
Contribution of each risk type to
economic capital (total EUR 16 billion)
Credil risk including counlry risk: 69'
arkel and inleresl rale risk: 3'
Operalional risk: 16'
Business risk: 12'
Risk management
84
assumptions are used. In general, economic
capital is designed to cover all major risks, but
it should be noted that some risks are not
quantifiable. Furthermore, perceptions of risk
evolve over time.
Value-at-Risk
To manage market risk, we use Value-at-Risk
(VaR) models and other control measures such
as sensitivity stress tests and stress test
scenarios. For further information see
note 38 Financial risk management and use
of derivatives.
The effectiveness of VaR can be assessed
through a technique known as back-testing,
which involves determining the number of
days on which the losses were bigger than the
estimated VaRs for those days. At a 99%
confidence level, the statistical expectation is
that on one out of every 100 trading days a
loss exceeding the VaR for such a day occurs.
The back-testing is performed both on the
actual profit and loss (P&L) and on a
hypothetical P&L, which measures a P&L net
of commissions, origination fees and intra-day
trading. The results of this back-testing on the
actual and the hypothetical P&Ls are reported
to the Nederlandsche Bank (DNB) on a
quarterly basis. Back-testing is an essential
instrument for the ex-post validation of our
internal VaR model.
The back-testing result depicted in the graph
above shows that the hypothetical financial
result has not exceeded the calculated
VaR during 2005. This is due to the
conservative nature of our VaR relative to
the hypothetical P&L.
Jan Feb ar Apr ay June July Aug Sepl Ocl ov Dec
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Value at risk Profit Loss
Value-at-Risk versus hypothetical Profit & Loss for trading portfolios for 2005 (in millions of euros)
Risk management
85
Earnings-at-Risk
Earnings-at-risk is the sensitivity of earnings
over a defined time horizon (e.g. 6, 12, or
24 months) under a number of predefined
yield curve scenarios. Details in respect of
earnings-at-risk have been included in
note 38 Financial risk management and use
of derivatives.
Credit risk
We define credit risk as the risk that a
counterparty or an issuer may fail to fulfil its
obligations to us, or that an issuers credit
quality may deteriorate. This covers actual
payment defaults as well as losses in value
resulting from an increased probability of
payment default.
We use a number of statistical methods
to measure, monitor and manage the
banks credit risk. ABN AMRO has
developed a multi-factor risk-adjusted
return on capital (RAROC) model to calculate
economic capital for credit risk. For the
economic capital calculations, country
risk is included in credit risk. Furthermore,
credit risk incorporates the risk of
decreases in the value of the private
equity portfolio.
We apply the following principles in
managing our commercial and consumer
credits:
approval of credit risk exposure is
independent of the business originators
all commercial activities which commit us
to engage in risk-sensitive transactions
require prior approval by committees or
authorised individuals (the four-eyes
principle)
our Managing Board delegates authority
regarding credit risk management to GRM
within Group Functions, and then further
down to the BUs
within their delegated authority levels, the
BUs are responsible for managing all
business activities
credit and trading facilities, once
granted are properly documented and
monitored
we apply Know Your Client ensuring
familiarity with our clients backgrounds
with regard to the financing of their
activities and transactions.
Management of commercial clients
Authorities for credit decisions involving
commercial clients are based on two
measures:
Global One Obligor Exposure: a combination
of all direct and contingent credit limits to a
given relationship globally
Uniform Counterparty Rating (UCR) and
Loss Given Default (LGD) classifications
(see below), both of which are also used as
building blocks for economic capital
calculations.
Credit Rating System, Uniform
Counterparty Rating, Loss Given Default
classification
We have an internal rating system which
we apply globally for commercial credits. It
consists of two types of ratings: a Uniform
Counterparty Rating (UCR) and a Loss Given
Default (LGD) Classification. The UCR reflects
the estimated probability that the
counterparty will default, while the LGD
classification reflects the level of loss that the
bank would expect to suffer on a facility if the
counterparty were to default. Both ratings are
key inputs for measuring and managing credit
risk. The UCR and LGD classification are
assigned by risk officers or risk committees
working independently of the commercial
departments.
The UCR scale is applied globally to all our non-
retail exposure. The scale is comprised of
fourteen non-default grades and three default
grades. The non-default grades can be
benchmarked to those of external ratings
agencies. A number of rating tools have been
developed to support our assignment and
Risk management
86
Benchmark ratings of Rating Agencies


UCR Description S&P / Fitch Moodys

1 Prime AAA / AA Aaa / Aa3

2+ Very strong A+ A1

2 Strong A A2

2 Relatively strong A A3

3+ Very acceptable BBB+ Baa1

3 Acceptable BBB Baa2

3 Relatively acceptable BBB Baa3

4+ Very sufficient watch BB+ Ba1

4 Sufficient watch BB Ba2

4 Relatively sufficient watch BB Ba3

5+ Somewhat weak B+ B1

5 Weak B B2

5 Very weak special attention B B3

6+ Sub-standard special attention CCC+ / C Caa1 / C

6 Default n.a. n.a.

7 Default (partially) provisioned n.a. n.a.

8 Default Stopped trading and/or in liquidation n.a. n.a.

review of UCRs. These rating tools quantify the
relative impact of various risk factors and make
rating decisions transparent. Rating tools are
now available for all our major loan portfolios.
We use rating tools tailored to specific markets
to reflect the underlying risk drivers.
The LGD classification is determined for each
facility on the basis of seniority, collateral and
an assessment of the prevailing legal
environment. LGD classification policies are
tailored to reflect specific (local) markets and
types of counterparties and products. Loss
data on defaulted credits are aggregated and
stored in a database to validate and improve
the LGD classification and the underlying
policies.
Management of programme lending
Our credit to consumers and standardised
lending to certain small to medium-sized
enterprises is managed as programme
lending, which is approved under a product
programme format and managed on a
portfolio basis. To qualify for a programme
lending approach, the BU prepares an
application to offer a certain credit product.
The application has to specify the target
customers or customer segment and must
contain standard risk acceptance criteria for
evaluating individual transactions. The
application must also demonstrate that the
portfolios performance will be predictable in
terms of yield, delinquency and write-offs.
Tracking and reporting mechanisms must be
able to identify trends in the portfolios
performance early on, and to make timely
adjustments where appropriate.
Decision authority is based on the proposed
peak portfolio outstanding for a certain
product offering. Under an approved product
programme, the authority to approve
individual credit transactions is delegated to
authorised individuals.
Credit initiation, account maintenance and
collections decisions are based on objective
eligibility criteria, other guidelines or credit
scores. BUs use both internally-developed
and vendor-supplied scorecards. Portfolio
performance databases are maintained to
Risk management
87
Breakdown of total loans and receivables customers by BU in 2005

(Billions of euros)
Total BU BU BU Bouw- NGM WCS Other Total
2005 NL NA Brazil fonds 2004

Commercial 150.3 29.8 36.9 5.6 8.7 2.8 61.9 4.6 124.4
Consumer 121.8 59.5 15.1 6.7 30.9 3.9 1.8 3.9 106.5
Professional Securities 74.7 0.9 73.7 0.1 59.3
Public Sector 7.5 1.8 0.6 0.6 0.1 4.3 0.1 6.1
Multi seller conduits 25.9 25.9 23.7

Total 380.2 91.1 53.5 12.9 39.7 6.7 167.6 8.7 320.0

facilitate portfolio control, and detailed
information is available at the level of the BUs
to enable segmentation of portfolios. GRM
keeps information at a product portfolio level
to facilitate monitoring.
Loan portfolio and its
composition
In 2005, Consumer & Commercial Clients
(C&CC) continued to hold the majority (54%)
of total loans outstanding, approximately
EUR 204 billion. Wholesale Clients held 44%
and the remaining 2% was held by BU Private
Clients, BU Asset Management and other
Group businesses. C&CCs predominance
within ABN AMROs total loans reflects the
size of its operations in the banks key markets
of the Netherlands, the US Midwest and
Brazil.
Consumer & Commercial Clients loan
portfolio
BU Netherlands (BU NL) continues to
make up the banks largest asset base,
accounting for 45% of total loans outstanding,
followed by BU North America (BU NA)
with 26%.
Commercial portfolios
C&CCs commercial portfolios, which consist
of loans to corporate entities, accounted for
41% of total C&CCs loans in 2005. Key points
include:
The commercial portfolio of BU NL
increased by EUR 3.9 billion (15%) over
the year
In North America, C&CCs commercial
activities remain primarily in the
US Midwest. The commercial loan
portfolio grew with EUR 7.3 billion (25%).
Commercial real estate and middle-market
lending remain important activities for the
bank
BU Brazils commercial portfolio saw
strong growth of EUR 2.2 billion (64%) due
to economic recovery
The BU New Growth Markets (NGM)
commercial loan portfolio increased by
EUR 0.8 billion (40%)
The commercial portfolio of Bouwfonds
showed a growth of EUR 1.0 billion (13%).
Consumer portfolios
The consumer portfolio of C&CC, which
consists of loans to private individuals,
continued to make up a dominant part of the
business in 2005, accounting for 57% of total
loans. 80% of the consumer loans were
covered by mortgages. Key points include:
In BU NL, the portfolio grew by EUR 2.8
billion (5%)
In BU NA, the consumer loan portfolio grew
by EUR 5.4 billion (57%)
BU Brazils consumer portfolio consists
mainly of car finance and personal loans.
The loan portfolio grew by EUR 2.7 billion
(68%)
The BU NGM consumer portfolio increased
by EUR 1.1 billion (39 %)
The Bouwfonds consumer portfolio
increased by EUR 3.6 billion (13%).
Risk management
88
Wholesale Clients loan portfolio
The Wholesale Clients private sector loan
portfolio increased by EUR 12.4 billion (25%).
This portfolio focuses mainly on OECD
countries.
Provisioning policies
ABN AMRO has developed specific
provisioning policies in respect of the various
loan classes of business in which the bank
engages. These policies are kept under
constant review and adjusted to reflect,
among other things, the banks actual loss
experience, developments in credit risk
modelling techniques and changes in
legislation in the various jurisdictions in which
the bank operates. We will now describe
these policies in more detail for the different
loan portfolios.
For all portfolios, the amount of the
impairment loss is measured as the difference
between the carrying amount of the loan and
the present value of estimated future cash
flows, including cash flows from foreclosures
if the loan is collateralised, discounted at the
original effective interest rate of the loan. If a
group of loans is collectively evaluated for
impairment, future cash flows are estimated
on the basis of the contractual cash flows and
historical experience for assets with similar
credit characteristics.
Corporate and commercial loans
At least once a year, the banks dedicated
credit committees or its authorised individuals
will review the status of its corporate and
commercial clients to whom it grants credits.
Additionally, the banks credit officers
continually monitor the quality of loans.
Should the quality of a loan or the borrowers
financial strength deteriorate to the extent
that doubts arise over the borrowers ability
to repay the loan, management of the
relationship is transferred to the Financial
Restructuring & Recovery (FR&R) units.
After making an assessment, FR&R
determines the amount, if any, of the specific
provision that should be made, after taking
into account the value of collateral. At the
close of each quarterly reporting period, the
Group Risk Committee reviews specific
provisions on the portfolio to ensure their
adequacy.
Consumer loan products
The bank offers a wide range of consumer
loan products and programmes such as
personal loans, home mortgages, credit cards
and home improvement loans. Provisioning
for these products is carried out on a portfolio
basis. A specific provision for each product is
determined by the portfolios size and the
banks loss experience.
Mortgage servicing portfolio and
mortgage repurchases in the US
To make full use of economies of scale, the
bank originates mortgage loans through
brokers, its branch network, a national call
centre and the internet. The bank sells the
majority of such loans to investors but
retains servicing rights. Credit risk is
transferred to the investors but if operational
deficiencies occur such as documentation
errors or title issues, investors require the
bank to repurchase affected loans. The bank
maintains an operational reserve to cover this
risk.
Doubtful and non-performing
loans
Loans are classified as doubtful (UCR 6, 7 and
8 for corporate loans) as soon as there is
doubt about the borrowers lack of ability to
meet its payment obligations to the bank in
accordance with the original contractual
terms. Where deemed necessary an
allowance for loan losses (impairment loss) is
determined on a per item or portfolio basis.
Any loan that bears an impairment loss on
principal or interest is defined as non-
performing.
Risk management
89
The volume of non-performing loans
decreased by EUR 601 million, reflecting the
improved quality of the credit portfolio. The
ratio of non-performing loans to private sector
loans developed favourably. Finally the ratio of
allowances for loan losses to private sector
loans also changed slightly, reflecting the
higher quality of the credit portfolio.
Provisioning for loan losses went up by
EUR 32 million to EUR 648 million. In
particular, WCS and the BU NA benefited from
an improvement in the quality of the credit
portfolio as well as from releases and
recoveries.
Provisioning in C&CC increased by EUR 169
million (29%) due to increases in the BU NL
and BU Brazil, partly offset by continuing low
levels of provisioning in the BU NA.
Provisioning by each BU in C&CC was as
follows:
BU NL: provisioning for loan losses
increased by EUR 104 million to
EUR 277 million, mainly in the SME and
consumer loan portfolio. This was a
reflection of the relatively weak economic
environment in the Netherlands, growth in
total loan volume and the change in
business mix as a result of the higher than
average growth in our consumer finance
portfolio. Provisioning for the mortgage
portfolio remained relatively stable
BU NA: provisioning fell from EUR 143
million to EUR 21 million. This decrease was
due to lower gross provisioning levels as
well as recoveries, reflecting the high credit
quality of the loan portfolio
BU Brazil: provisioning increased by
EUR 144 million to EUR 363 million. This
increase reflected the strong growth in the
retail loan portfolio and the appreciation of
the Brazilian real
BU NGM: provisioning increased by EUR 26
million to EUR 67 million, reflecting the
growth in the loan portfolio and higher credit
card outstandings
Bouwfonds: provisioning went up by
EUR 17 million to EUR 26 million as a result
of the non-Dutch mortgage portfolio.
In WCS, provisioning declined by
EUR 233 million to a net release of
EUR 241 million driven by substantial releases
in the telecom and energy sectors.
In BU Private Equity, provisioning increased
from EUR 16 million to EUR 34 million due to
a provision taken in the UK portfolio.
In Group Functions, provisioning increased by
EUR 72 million, mainly due to the incurred but
not identified (IBNI) loan loss allowance. The
IBNI loan loss allowance is based on the
quarterly review of the quantity and the
composition of the Groups overall loan
Specific provisioning by BU net additions


(in millions of euros) Total 2005 C&CC WCS Other Total 2004

Provisioning 648 754 (241) 135 616
Specific provisioning to
average RWA (bps) 25 46 (29) 91 26

Non-performing loans

2005 2004

Total non-performing loans (in millions of euros) 4,736 5,337
Non-performing loans to private sector loans (gross, in %) 1.72 2.28
Allowances for loan losses to private sector loans (gross, in %) 1.09 1.36

Risk management
90
portfolio and the resulting incurred but not
identified loss.
Country risk
As part of the overall mandate of GRM to
address risk concentrations, we manage
country risk in emerging markets on a portfolio
basis. The clear identification, measurement
and quantification of the country risk the bank
takes are crucial for the continued
deployment of capital into emerging markets
in a sustainable and profitable way. The
ultimate purpose of the country risk policy is
to build a strong platform to allow for the
effective management of country
concentration risk.
The policy framework is evolving in line with
the overall adaptation to Basel II, for which we
are participating actively in the specific project
on country risk policy, which is led by DNB.
The main tools we currently utilise are country
risk quantification, cross border limits and
sovereign limits.
Country risk quantification
We currently utilise an internally-developed
cross-border VaR model in order to
quantify and manage the amount of cross
border limits and exposure at portfolio,
regional and country levels under parameters
approved by the Managing Board. In line with
the gradual adoption of a Basel II-compatible
country risk policy, we are currently
working towards full harmonisation and
integration with the economic capital
framework, and therefore expect a
migration during 2006 from cross-border
VaR to country event risk in our economic
capital calculations.
Cross-border risk
Cross-border risk is defined as the risk
that funds in foreign currencies cannot be
transferred out of a country as a result of the
actions of the authorities in the country, or
because the transfer is impeded by other
events, such as civil war or embargo.
Cross-border risk exposures

(in billions of euros for year ended Total cross-border exposure Of which not mitigated
1

31 December)
2005 2004 2003 2005 2004 2003

Latin America 8.8 6.7 6.2 5.0 3.8 2.6
Asia 12.7 10.3 7.7 10.0 6.1 4.8
Eastern Europe 7.5 4.3 3.6 6.9 3.0 2.3
Middle East and Africa 6.2 5.2 3.1 4.9 3.6 2.2

Total 35.2 26.5 20.6 26.8 16.5 11.9

1 Mitigated exposures commonly include transactions covered by credit default swaps, political risk insurance, cash deposits or
securities placed offshore, specific guarantees, ringfenced funding or any other mitigation instruments available in the market.
Sovereign risk exposures

(in billions of euros for year ended Total sovereign exposure Of which foreign currency
1

31 December)
2005 2004 2003 2005 2004 2003

Latin America 9.3 6.3 6.6 1.3 0.8 0.7
Asia 4.2 3.4 3.7 0.4 0.4 0.3
Eastern Europe 2.8 1.9 1.7 1.5 0.5 0.4
Middle East and Africa 1.4 0.6 1.0 0.7 0.5 0.6

Total 17.7 12.2 13.0 3.9 2.2 2.0

1 Part of which also booked under cross border limits.
Risk management
91
The measurement of cross-border risk
exposure covers all on and off balance sheet
assets that might be directly affected by a
cross-border risk event. Our total cross-border
risk exposure in 2005 rose by EUR 9 billion
from 2004, primarily due to significant
increases in Eastern Europe and the
Middle East.
Sovereign risk
Sovereign risk is defined as the counterparty
and issuer (credit) risk on a sovereign entity,
irrespective of the currency involved.
Sovereign entities include central
governments, central banks or entities
guaranteed by central governments or central
banks (but excluding local governments).
Our sovereign risk exposure increased in 2005
mainly as a result of the appreciation of the
Brazilian real and more intense usage of
sovereign-related instruments in our trading
and derivatives activities in Asia and Eastern
Europe.
Operational risk
Framework and governance structure
Operational risk is the risk of losses resulting
from inadequate or failed internal processes,
human behaviour and systems or from
external events. This risk includes operational
risk events such as IT problems, shortcomings
in the organisational structure, missing or
inadequate internal controls, human errors,
fraud, and external threats.
ABN AMRO has instituted a Group
Operational Risk Policy and a Group Risk
Framework, which between them outline
tasks and responsibilities at each level of the
organisation. The Group Operational Risk
Management (ORM) Committee is
responsible for establishing Group policies
and standards on ORM and oversees the
ORM activities throughout ABN AMRO,
including preparations to qualify for Advanced
Measurement Approaches (AMA) under
Basel II. The Group ORM Committee is chaired
by ABN AMROs CRO, and is composed of the
COOs and CROs of each BU and the senior
managers from the relevant Group Functions.
The guiding principle in ORM is that
management at all levels in the organisation is
responsible for directing and managing
operational risks. ORM managers are
assigned throughout the bank to assist line
management in fulfilling this responsibility.
ORM programmes and tools
Line management needs information to enable
it to identify and analyse operational risks,
implement mitigating measures and determine
the effectiveness of these mitigating
measures. ABN AMRO has implemented, or is
in the process of implementing, a number of
programmes and tools to support line
management. These include:
Risk Self-Assessment (RSA)
A structured approach, which helps line
management to identify and assess risks
and take mitigating actions for risks which
are identified as unacceptable. Risks are
assessed with the assistance of facilitators,
who are usually ORM staff
Corporate Loss Database (CLD)
A database that allows for the systematic
registration of operational risk losses. It is
mandatory for all BUs to report losses
above the EUR 5,000 threshold into the
CLD. This tool assists the senior
management in their analysis of operational
risks. The use of internal loss data is one of
the qualifying criteria for AMA under
Basel II, and will form the basis for
calculating economic capital and regulatory
capital in future
External Loss Data
ABN AMRO is a founding member of
Operational Risk eXchange, an international
data consortium set up in 2003. External
loss data is used to perform benchmark
analyses and, in the future, will also be
Risk management
92
used to perform scenario and stress
analyses
Other Risk Approval Process
A comprehensive approval process that
includes an explicit assessment of the
operational, legal and reputation risks
inherent in all new business proposals.
The process includes sign-off by relevant
parties and approval by an appropriate
committee
Key Risk Indicators
An approach used to indicate possible
changes in the operational risk profile. Key
risk indicators allow for a trend analysis over
time and trigger actions if required
Key Operational Risk Control
A framework that provides clear
descriptions of the typical key risks and the
required controls for a set of defined
standard processes. These descriptions
contribute to improved risk awareness
and provide input for the RSA.
In 2001 ABN AMRO established an economic
capital methodology for operational risk,
based on a percentage of risk-weighted
assets with a deduction for the proper
implementation of operational risk
programmes. In 2005 this was replaced by
an economic capital methodology which is
more closely aligned to the future AMA
approach and relies to a significant extent on
internal loss data.
Market risk
We define market risk as the risk that
movements in financial market prices will
change the value of the banks trading
portfolios. ABN AMRO is exposed to market
risk through its trading activities, which are
carried out both for customers and on a
proprietary basis. For trading related to
customer facilitation the bank warehouses
market risks, while for proprietary trading the
bank actively positions itself in the financial
markets.
In any trading activity, risk arises both from
open (unhedged) positions and from imperfect
correlation between market positions that are
intended to offset one another. Effective and
efficient management and use of our exposure
to market risk is essential, for both the
competitiveness and profitability of the bank.
There are several major types of market risk
including interest rate, foreign exchange,
equity price, commodity price, credit spread,
volatility risks and correlation risks. Each has
identifiable risk factors and associated risk
measures. So we quantify market risk
exposure by identifying relevant risk factors
and calculating appropriate risk measures.
These measures are then used to set market
risk limits, to run scenario and sensitivity
analyses, as inputs to various risk
measurement models (such as Value-at-Risk)
and to calculate market risk economic capital.
Market Risk Management governance
structure
The overall objective of the Market Risk
Management (MRM) group is to avoid
unexpected losses due to market risk and to
optimise the use of market risk capital. MRM
ensures that the authority delegated by the
Group ALCO and GRC with regard to market
risk resulting from the banks trading activities
is exercised effectively, and that exposures
are efficiently monitored and managed.
Furthermore, MRM limits and monitors the
potential impact of specific pre-defined
market movements on the profit and loss of
trading positions. MRM also measures and
reports market risk and interest rate risk of
ALCO portfolios.
Interest rate risk (non-trading)
One of the core responsibilities of Group
Asset and Liability Management is to manage
the sensitivity of the banks net interest
revenue to changes in market interest rates.
Group ALCO sets limits to ensure that the
potential adverse impact of market
Risk management
93
movements on earnings is closely controlled.
For interest rate risk of the banking book,
refer to note 38 Financial risk management
and use of derivatives.
Currency risk (non-trading)
Currency risk relates to the risk that our net
investments in non-euro operations change in
value through adverse effects of currency
movements. Details in respect of managing of
currency risk are included in note 38 Financial
risk management and use of derivatives.
Liquidity risk
We define liquidity risk as the current or
prospective risk to earnings and capital arising
from a banks inability to meet its liabilities
when they become due without incurring
unacceptable losses.
In 2005 ABN AMRO launched the first
Dutch Covered Bond (CB) under its newly-
established EUR 25 billion Covered Bond
Programme. This programme helps the Group
to manage more effectively its debt maturity
profile, credit curve and long-term liquidity
position, while also bringing greater
diversification to its global investor base.
In the absence of a specific covered bond act,
the programme replicates the typical
characteristics of CB issued under a legal
framework. The CBs are issued by the
Group and guaranteed by a special,
bankruptcy remote entity, the Group
Covered Bond Company (CBC). The Group
assigns the collateral assets to the CBC.
The pool is dynamic, consisting of euro-
denominated Dutch prime residential
mortgages. The structure is unique since it
combines the robustness of Structured
Covered Bonds (SCBs) and at the same
time avoids complex cash flow mechanisms,
making it more transparent for investors
and less cumbersome for the issuer. It is also
the first SCB programme that allows
MTN issues.
As part of our liquidity management, we have
securitised part of our Dutch home mortgage
portfolio and retained most of the notes
issued by the securitisation vehicles. As a
result, the Group has transformed loans that
are not eligible as collateral for the DNB, into
eligible assets, resulting in a direct
improvement of some EUR 8 billion to our
liquidity. Unlike the US Federal Reserve
Board, the DNB does not directly accept
mortgages as collateral. The securitisation
does not have an impact on our solvency or
on the balance sheet presentation of the
underlying securitised mortgages. If and
when required, these notes can be sold in
the market.
For further details on liquidity risk we refer to
note 38 Financial risk management and use
of derivatives.
Risk management
94
Regulatory capital
In 2005, shareholders equity
was up by more than 48%,
reflecting a range of factors
including retained earnings
and private placements.
There were modest
increases in minority
interests and subordinated
capital. ABN AMRO
continued to meet
comfortably the minimum
regulatory requirements in
terms of capital adequacy,
and the total capital base
rose by over 32% during
the year.
Group capital at year-end 2005 was EUR 43.2
billion, an increase of EUR 10.0 billion or
30.0% compared with 2004.
Shareholders equity
The EUR 7.4 billion or 50% increase in
shareholders equity was mainly due to
retained earnings, private placements,
exercise of staff options and share-based
payments, offset by translation changes on
treasury investments in operations abroad and
the change in special components.
Of the 2005 net profit, EUR 2.3 billion was
retained and added to reserves. A private
placement in April equalled EUR 2.5 billion
and a second one in June EUR 202 million.
The exercise of staff options added EUR 34
million to equity. Share-based payments
increased equity by EUR 87 million.
Exchange rate differences increased
reserves by EUR 1,080 million, of which
EUR 659 million was caused by the
appreciation of the Brazilian real. Special
equity components relating to the
investment portfolio decreased equity by
EUR 405 million.
The number of ordinary shares outstanding
rose by 208.7 million to 1,877.9 million, of
which 61.6 million were related to stock
dividends issued at an average price of
EUR 18.97. The 2004 final dividend resulted in
66.3% of shareholders choosing the stock
dividend, for which 32.3 million shares were
issued at EUR 18.50 each. After the 2005
interim dividend was declared, 61.7% of
shareholders chose stock dividend, leading to
29.2 million shares being issued at EUR 19.50
each. In April 135.0 million shares were issued
at EUR 18.65 each, and in June 10.3 million
additional shares were issued at EUR 19.66
each. Staff options exercised resulted in
1.9 million additional shares, issued from the
repurchased shares at an average price of
EUR 18.05.
Minority interests
A combination of factors caused a rise of
EUR 194 million in minority interests during
2005. Cumulative exchange rate changes
increased the total value of minority interests
by EUR 133 million, of which EUR 68 million
related to elements of tier 1 capital. In
October redemption took place of USD 100
million preference shares ABN AMRO
North America 1995-2005, of which USD 40.5
million had been repurchased earlier.
Subordinated liabilities
Subordinated capital rose by EUR 2.4 billion to
EUR 19.1 billion. In 2005 issuances totalled
EUR 2.8 billion, including EUR 1.5 billion lower
tier-2 Floating Rate Notes due 2015; USD 1.5
billion lower tier-2 Floating Rate Notes due
2015, callable as of 2010; USD 136 million
lower tier-2 Floating Rate Notes due 2015;
EUR 70 million lower tier-2 Floating Rate
Medium Term Notes due 2015; and EUR 15
million lower tier-2 Fixed Medium Term Notes
6% Notes due 2020. Redemptions totalled
EUR 1.7 billion, including a call of EUR 500
million Floating Rate Notes 2000-2010, and
partial redemption of USD 40 million of Non-
Bullet Floating Rate Notes Sudameris 1999-
2009 and USD 1 billion 7.25% notes 1995-
2005. The effect of changes in foreign
exchange rates increased total subordinated
liabilities by EUR 1.2 billion. The lower volume
of repurchased subordinated loans of EUR 132
million increased subordinated liabilities.
Premiums and hedging increased the carrying
value of subordinated loans by EUR 188
million.
Required capital and ratios
ABN AMRO applies capital adequacy ratios
based on Bank for International Settlements
Regulatory capital
95
(BIS) guidelines and Dutch central bank
directives. These ratios compare our banks
capital with its assets and off-balance sheet
exposure, weighted according to the relative
risk involved. Capital is also set aside for
market risk associated with our banks trading
activities. The minimum tier 1 ratio is 4% and
the minimum total capital ratio 8%.
ABN AMRO comfortably meets these
minimum standards with a tier 1 ratio of
10.62%, of which the core tier 1 ratio is
8.47%, and with a BIS total capital ratio of
13.14%.
The total capital base went up by 32.2% to
EUR 33.9 billion at 31 December 2005. Risk-
weighted assets amounted to EUR 257.9
billion at 31 December 2005, an increase of
EUR 26.2 billion from the end of the previous
year. Securitisation programmes in 2005
increased by EUR 39.9 billion to a total of
EUR 65.5 billion.
Regulatory capital
96
On 26 June 2004 the Basel Committee on
Banking Supervision endorsed the publication
of the International Convergence of Capital
Measurement and Capital Standards: a
Revised Framework, also named Basel II.
The Capital Requirements Directive (CRD),
representing the translation of Basel II to
EU legislation, was approved by the European
Parliament on 28 September 2005. The
adoption of the CRD by the EU institutions in
autumn 2005 means that the way is now clear,
in the EU, for the implementation of the
directive into national law, with a published
compliance deadline of 1 January 2008 for
banks adopting the most advanced
approaches.
Basel II allows for several different
approaches to implementation of the Basel II
requirements for Credit, Market and
Operational Risk, ranging from the simple
standardised approaches to more complex
advanced approaches. ABN AMRO aims to
implement in principle the advanced
approaches, for all risk types, at the earliest
opportunity. In September 2005 the Dutch
regulator, the DNB, announced a shift from
the planned advanced two-year parallel run
start date, to a reduced one-year parallel run
(originally planned to start on 1 January 2006,
but now scheduled to commence on
1 January 2007). This shift in dates has had no
impact on ABN AMROs preparations to meet
the compliance date of 1 January 2008.
The approval of the CRD in Europe is in
contrast to the picture in the US, where the
timeframe for acceptance of Basel II local
stipulations remains unclear. The US
regulators recently announced a further delay
in the implementation timeline, and the
published compliance date of 1 January 2009
in the US is now one year later than in Europe.
Despite a number of uncertainties that are still
at play in the regulatory environment,
ABN AMRO is very well positioned to meet its
Basel II goals on time.
Basel II
From 1 January 2008,
compliance with the Basel II
framework will become a
requirement for financial
institutions in the European
Union (EU) adopting the
advanced approaches.
Despite a number of
uncertainties surrounding
the regulatory environment,
we remain well on course to
achieve advanced status
under the regulations by this
deadline.
The challenge of divergent compliance dates
The divergence in the implementation dates between ABN AMROs
home regulator, the Nederlandsche Bank, and its host regulators,
such as the US regulatory authorities, leads to a number of issues
when implementing Basel II globally. Not only does this affect
implementation costs, as banks with a global footprint such as
ABN AMRO have to run parallel implementation streams to meet
different timelines, but the delay also places additional workload
on home and host supervisors. Furthermore, the divergence is not
limited to implementation dates. Divergent interpretations of Basel II
are a further factor adding to the uncertainty over how to ensure
a level playing field in both the EU marketplace and non-EU
jurisdictions.
Basel II
97
The Sarbanes-Oxley Act
Our listing on the New York
Stock Exchange means we
are required to comply with
US regulations including the
Sarbanes-Oxley Act. We fully
honour both the spirit and
the letter of this legislation,
and we have strengthened
our ability to comply by
creating a Disclosure
Committee which formalises
the roles, tasks and
disciplines that were already
in place. Of the various
Sections of this Act,
Section 302 requires
management to certify the
disclosure controls and
procedures and the internal
financial controls.
Section 404 of the Act
requires management to
report annually on the
adequacy of the companys
internal control over
financial reporting.
ABN AMRO is a US Securities and
Exchange Commission (SEC) registered
company with a listing on the New York
Stock Exchange (NYSE). This means we are
subject to US securities laws, including the
Sarbanes-Oxley Act of 2002 (SOXA) and
certain corporate governance rules of the
NYSE. The integrity of management, auditors
and employees is at the heart of the
Sarbanes-Oxley Act. The Act and the rules
require listed companies to have an audit
committee composed of independent
directors. They also promote auditor
independence by prohibiting auditors from
providing certain non-audit services while
conducting audits for the company.
ABN AMROs oversight and corporate
governance practices fully honour the
spirit and requirements of the reforms
introduced by the various Sections of the
Sarbanes-Oxley Act.
Following the introduction of the Sarbanes-
Oxley Act, ABN AMRO has created a
Disclosure Committee which formalises the
roles, tasks and disciplines that were already
in place for ensuring the accuracy and
completeness of information disclosed to the
market. The members of the Disclosure
Committee include the Head of Group
Financial Accounting (Chairman), the Head of
Group Legal, the Head of Investor Relations,
the Head of Group Audit, the Head of Group
Risk Management and, as needed, persons
from other parts of the company.
With regard to financial reporting we have to
date complied with Sarbanes-Oxley Sections
302 and 906 which require, among other
things, that:
1 The financial statements and other financial
information included in the Form-20F
present fairly in all material respects the
financial condition, results of operations and
cash flows of the company in compliance
with the SEC rules
2 Responsibility exists towards establishing
and maintaining disclosure controls and
procedures, and that an evaluation of the
effectiveness of these controls has been
performed as of year end
3 Disclosure is made to the Groups auditors
and Audit Committee, based upon an
evaluation of the internal controls over
financial reporting, about all significant
deficiencies and material weaknesses in the
design and operation and fraud involving
management or other employees who have
a significant role in the companys internal
control over financial reporting.
Under Section 404 management must
evaluate and report annually on the adequacy
of the design and effectiveness of the
companys internal control over financial
reporting. This report will include:
a statement of managements
responsibilities for establishing and
maintaining adequate internal control over
financial reporting
a statement identifying the framework used
by management to evaluate the
effectiveness of the companys internal
control over financial reporting
managements assessment of the
effectiveness of the companys internal
control over financial reporting as of the end
of each financial year, including a statement
as to whether or not internal control over
financial reporting is effective
a statement that the registered public
accounting firm that audited the financial
statements included in the annual report
has issued an attestation report on
managements assessment of the
registrants control over financial reporting.
As ABN AMRO is a foreign accelerated filer in
combination with having a financial year
The Sarbanes-Oxley Act
98
ending on 31 December, we will for the first
time provide this report with the Form - 20F
over 2006. ABN AMRO established in 2003 a
Group-wide SOXA Project governed by a
single Steering Committee made up of senior
managers from both the BUs and Group
Functions.
ABN AMRO agrees with the SEC that the
assessment of internal control over financial
reporting will be more effective if it focuses on
controls related to those processes and
classes of transactions for financial statement
accounts and disclosures that are most likely
to have a material impact on the companys
financial statements. While defining the
accounts, disclosures, processes and controls
in scope for Sarbanes-Oxley Section 404, a
risk-based approach was taken into
consideration.
In line with the recommendation of the Public
Company Accounting Oversight Board,
ABN AMRO has chosen the internal control
framework of the Committee of Sponsoring
Organizations of Treadway Commission
(COSO) for evaluating the effectiveness of
internal control over financial reporting. As
from the beginning ABN AMRO has striven to
obtain a good balance between all the five
components of internal control as identified by
the COSO.
On a quarterly basis, a report on the status
of progress towards compliance with
Sarbanes-Oxley Section 404 is provided to
and discussed with the Audit Committee,
and with the Chief Financial Officer and the
Chairman of the Managing Board. Since the
start of the project frequent dialogues have
also been taking place with the companys
auditor. The intention of the dialogue with the
various parties is to monitor ABN AMROs
progress to compliance regarding the internal
controls and the financial reports upon which
investors rely.
Members of the Supervisory Board, Managing
Board, BU Management Teams and other
senior managers at ABN AMRO are actively
involved and are dedicating the resources
necessary to ensure compliance with the
various Sarbanes-Oxley Sections.
The Sarbanes-Oxley Act
shareholder information
100
Prior-year figures have been restated for comparison purposes.
1 Adjusted for shares repurchased to cover staff options granted.
2 Based on the average number of ordinary shares outstanding.
3 Where necessary, adjusted for increases in share capital.
4 Income statement figures have been translated at the average dollar rate and balance sheet figures at the year-end dollar rate.

2005
8
2005
8
2004
8


(USD)
4

Income statement (in millions of euros)
Net interest income 9,341 11,559 8,879
Total non-interest income 10,486 12,976 8,251
Total operating income 19,827 24,534 17,130
Operating expenses 13,517 16,726 13,257
Provisioning 648 802 616
Operating profit before tax 5,662 7,006 3,257
Profit for the year (IFRS) 4,443 5,498 3,940
Net profit 4,382 5,422 3,865
Profit attributable to ordinary shareholders 4,382 5,422 3,865
Dividends 2,050 2,537 1,663

Balance sheet (in billions)
Shareholders equity 7 22.2 26.3 14.8
Group capital 7 43.2 51.1 33.2
Due to customers and issued debt securities 487.7 577.2 402.6
Loans and receivables - customers 380.2 450.0 320.0
Total assets 880.8 1,042.4 727.5
Credit related contingent liabilities and committed credit facilities 187.0 221.3 191.5
Risk-weighted assets 257.9 305.2 231.6

Ordinary share figures 1
Number of shares outstanding (in millions) 1,877.9 1,669.2
Average number of shares outstanding (in millions) 1,804.1 1,657.6
Net earnings per share (in euros) 2, 5 2.43 3.01 2.33
Fully diluted net earnings per share (in euros) 2, 5 2.42 2.99 2.33
Dividend per share (in euros, rounded) 3 1.10 1.34 1.00
Payout ratio (dividend / net profit) 6 45.3 42.9
Net asset value per share (year-end, in euros) 3, 7 11.83 14.00 8.88

Ratios (in %)
Return on equity 7 23.5 29.7
BIS tier 1 ratio 10.62 8.46
BIS total capital ratio 13.14 11.06
Efficiency ratio 68.2 77.4

Number of employees (headcount)
Netherlands 26,942 28,751
Other countries 71,138 70,663

Number of branches and offices
Netherlands 655 680
Other countries 2,902 2,818

Number of countries and territories where present 58 58

ABN AMRO from 1997
Shareholder information
101
5 2002, including special items. Excluding, net earnings per share amounted to EUR 1.52 and fully diluted net earnings per share amounted to EUR 1.51.
6 2002, including special items. Excluding, the payout ratio is 59.2.
7 Based on the directive of the Council for Annual Reporting at 1 January 2003 and under IFRS excluding the special component of equity with respect to
cash flow hedges and available for sale securites.
8 International Financial Reporting Standards.

2004 2003 2002 2001 2000 1999 1998 1997


9,666 9,723 9,845 10,090 9,404 8,687 7,198 6,294
10,127 9,070 8,435 8,744 9,065 6,840 5,340 4,491
19,793 18,793 18,280 18,834 18,469 15,527 12,538 10,785
13,687 12,585 13,148 13,771 13,202 10,609 8,704 7,450
653 1,274 1,695 1,426 585 633 840 726
5,451 4,918 3,388 3,613 4,725 4,250 2,897 2,626
4,109 3,161 2,207 3,230 2,498 2,570 1,828 1,748
4,066 3,116 2,161 3,184 2,419 2,490 1,747 1,666
1,706 1,589 1,462 1,421 1,424 1,250 906 844

15.0 13.0 11.1 12.1 12.9 12.4 10.9 11.9
33.0 31.8 30.4 34.3 32.9 29.3 24.5 24.2
376.5 361.6 360.7 384.9 339.8 284.2 243.5 221.1
299.0 296.8 310.9 345.3 319.3 259.7 220.5 201.1
608.6 560.4 556.0 597.4 543.2 457.9 432.1 379.5
191.5 162.5 180.3 193.4 187.5 159.0 124.0 102.8
231.4 223.8 229.6 273.4 263.9 246.4 215.8 208.7

1,669.2 1,637.9 1,585.6 1,535.5 1,500.4 1,465.5 1,438.1 1,405.6
1,657.6 1,610.2 1,559.3 1,515.2 1,482.6 1,451.6 1,422.1 1,388.7
2.45 1.94 1.39 1.53 2.04 1.72 1.23 1.20
2.45 1.93 1.38 1.52 2.02 1.71 1.22 1.19
1.00 0.95 0.90 0.90 0.90 0.80 0.58 0.54
40.8 49.0 64.7 58.8 44.1 46.5 46.9 45.5
8.51 7.47 6.47 7.34 8.43 7.87 6.94 7.84

30.8 27.7 20.1 27.3 20.5 23.1 16.6 15.5
8.57 8.15 7.48 7.03 7.20 7.20 6.94 6.96
11.26 11.73 11.54 10.91 10.39 10.86 10.48 10.65
69.2 67.0 71.9 73.1 71.5 68.3 69.4 69.1

28,751 31,332 32,693 36,984 38,958 37,138 36,716 34,071
70,520 81,331 73,745 74,726 76,140 72,800 71,014 42,678

680 711 739 736 905 921 943 967
2,818 2,964 2,685 2,836 2,774 2,668 2,640 921

58 63 66 67 74 76 74 71

These figures have been prepared in conformity with general accepted accounting principles in the Netherlands.
Shareholder information
102
ABN AMRO Shares
Stock exchange listings
At 31 December 2005 the ordinary shares of
ABN AMRO Holding N.V. were listed on the
stock exchanges of Amsterdam, Brussels,
Paris, London and New York. With effect from
17 March 2006, the ordinary shares were
delisted from the London Stock Exchange.
On the New York Stock Exchange the shares
are available in the form of American
Depositary Shares represented by American
Depositary Receipts (ADRs), each ADR
representing one ordinary share. On
31 December 2005, 61,459,721 ADRs were
outstanding, compared to 52,630,453 at year-
end 2004.
The depositary receipts for the financing
preference shares are not listed. The (formerly
convertible) preference shares are listed on
the Euronext Amsterdam.
In connection with the listing of its ordinary
shares on the New York Stock Exchange,
ABN AMRO also publishes an annual report
that satisfies the rules established by the
Securities and Exchange Commission. This
20-F report is published on our website.
Development of share capital
In 2005, the number of ordinary shares
outstanding increased by 208.7 million from
1,669.2 million to 1,877.9 million. This increase
was the result of dividend payments in stock
(61.6 million shares), the exercise of staff
options (1.9 million shares) and issue of
145.2 million new shares.
The time-weighted average number of
ordinary shares outstanding amounted to
1,804.1million (2004: 1,657.6 million). In
calculating the time-weighted average, new
shares are counted on a pro rata basis from
the date of issue.
The number of convertible financing preference
shares remained unchanged at 1,369,815,864,
each with a nominal value of EUR 0.56.
Conversion of these shares into ordinary
shares may take place in certain conditions (for
details please refer to our website).
The number of (formerly convertible)
preference shares remained unchanged at
44,988.
Staff options carry entitlement to the numbers
of ordinary shares stated in the table.
Exercisable staff options could increase the
number of ordinary shares by 26.9 million or
1.4% of the number of ordinary shares
outstanding at 31 December 2005.
Jan Feb ar Apr ay June July Aug Sepl Ocl ov Dec
25
20
15
10
AB AFO Holding .V. SC European Banking ndex AEX
Share price movements January 2005 December 2005 (in euros)
(MSCI and AEX indices restated on the basis of ABN AMRO Holding N.V. ordinary share price on 31 December 2004)
Shareholder information
103
Rights at 31 December 2005

(in thousands of shares)
Staff Average
options exercise price
(in euros)

Year of expiration
2007 4,411 21.30
2008 9,459 22.72
2009 4,391 20.42
2010 898 15.06
2011 495 17.12
2012 8,612 19.14
2013 13,105 14.45
2014 13,265 18.86
2015 7,633 21.24

62,269 19.06

Authorised capital

(in euros)

4,000,000,400 ordinary shares of EUR 0.56 2,240,000,224
4,000,000,000 convertible financing preference shares of EUR 0.56 2,240,000,000
100,000,000 convertible preference shares of EUR 2.24 224,000,000

4,704,000,224

Ordinary share key figures

(in euros) 2005 2004

Closing prices
High 22.34 19.79
Low 18.27 16.47
Year-end 22.09 19.49

Earnings per share 1 2.43 2.33
Fully diluted earnings per share 2.42 2.33
Payout ratio in % 2 45.3 42.9
Dividend per share 1.10 1.00
Dividend yield in % (year-end) 5.0 5.1
Net asset value per share (year-end) 11.83 8.88
Price / earnings ratio (year-end) 9.1 8.4
Price / net asset value in % (year-end) 186.7 219.5

1 Based on the average number of ordinary outstanding and adjusted for increases in share capital
2 Ratio of dividend to net earnings per share
Issued shares at 31 December 2005

(in euros)

1,909,738,427 ordinary shares of EUR 0.56 1,069,453,519.12
1,369,815,864 convertible financing preference shares of EUR 0.56 767,096,883.84
44,988 (formerly convertible) preference shares of EUR 2.24 100,773.12

Shareholder information
104
Dividend policy
Both the interim dividend and the final
dividend have been made available, at the
shareholders option, either wholly in cash or
wholly in ordinary shares chargeable to the
share premium account.
The period for submitting instructions
concerning final dividend payment options will
not commence until the closing of the
business day after the day of the General
Meeting of Shareholders. If shareholders opt
for stock dividend, the dividend coupons must
be delivered to the ABN AMRO Exchange
Agent together with the instructions.
Consequently there will be no official listing
of, and trading in, stock dividend coupons.
In the long term, the intention is to maintain
the dividend pay-out ratio at 45% to 50% of
net attributable profit. Looking forward, our
reported results will be more volatile under
IFRS, but we will strive to at least maintain a
stable dividend, with the aim of increasing it
over time to reflect improved underlying
earnings.
As a result of the improved capital position,
ABN AMRO has decided to resume the
neutralisation of the stock dividend as per the
interim dividend of 2006.
Depositary receipts for
preference shares
At year-end 2005, 1,369.8 million depositary
receipts for convertible financing preference
shares of EUR 0.56 face value each were
outstanding. Holders of convertible financing
preference shares receive an annual cash
dividend of EUR 0.02604 per share,
representing 4.65% of the face value of
EUR 0.56. The dividend percentage on the
Dividends on ordinary shares

Entirely or shares as % of face value New shares Payout
in (x 1,000) ratio
cash

Interim dividend 1996 0.20 1.9% ordinary shares 8,968
Final dividend 1996 0.27 1.6% ordinary shares 14,697 45.4
Interim dividend 1997 0.24 1.4% ordinary shares 11,882
Final dividend 1997 0.30 1.3% ordinary shares 13,058 45.5
Interim dividend 1998 0.27 1.4% ordinary shares 13,451
Final dividend 1998 0.30 1.4% ordinary shares 14,045 46.9
Interim dividend 1999 0.30 1.2% ordinary shares 8,339
Final dividend 1999 0.50 2.2% ordinary shares 13,990 46.5
Interim dividend 2000 0.40 1.4% ordinary shares 14,293
Final dividend 2000 0.50 2.2% ordinary shares 19,508 55.2
Interim dividend 2001 0.45 2.3% ordinary shares 19,554
Final dividend 2001 0.45 2.2% ordinary shares 19,298 58.8
Interim dividend 2002 0.45 2.8% ordinary shares 25,068
Final dividend 2002 0.45 3.0% ordinary shares 23,599 59.2
Interim dividend 2003 0.45 2.8% ordinary shares 26,412
Final dividend 2003 0.50 3.0% ordinary shares 28,151 49.0
Interim dividend 2004 0.50 2.9% ordinary shares 28,855
Final dividend 2004 0.50 2.7% ordinary shares 32,334 40.8

Interim dividend 2005 0.50 2.6% ordinary shares 29,237

Shareholder information
105
convertible financing preference shares and
depositary receipts for convertible financing
preference shares has been fixed at 4.65%, as
of 30 September 2004. As from 1 January
2011, and every ten years thereafter, the
dividend percentage will be adjusted in line
with the arithmetic mean of the 10-year euro-
denominated interest rate swaps, plus a
surcharge of not less than 25 nor more than
100 basis points, depending on the prevailing
market conditions.
On 31 December 2005, 44,988 (formerly
convertible) preference shares of EUR 2.24
face value each were outstanding. These
shares qualify for an annual cash dividend of
EUR 0.95, which represents 3.3231% of the
paid-up amount on issue (EUR 28.58815), as
of 1 January 2004. As from 1 January 2014,
and every ten years thereafter, the dividend
percentage will be adjusted in line with the
redemption yield on Dutch government bonds
with an original or remaining term to maturity
of nine to ten years, plus an increment or
less a reduction of no more than 100 basis
points.
Geographical concentration of
ABN AMRO ordinary shares
The ordinary shares are generally issued in
registered form, which are nearly all held by
Euroclear Netherlands, the Dutch central
depository institution. Apart from the filings
under the disclosure of major holding in the
listed company act, no information is available
on the ownership of shares. A study
conducted in December 2005 into the
ownership of shares in ABN AMRO
Holding N.V. identified 72% of the companys
ordinary shares. Of the 72% identified,
Market capitalisation

(year-end, in millions of euros) 2005 2004

Ordinary shares (outstanding) 41,483 32,533
Convertible financing preference shares 767 767
(Formerly convertible) preference shares 1 1

42,251 33,301

Market capitalisation as % of capitalised value of
all listed Dutch ordinary shares 7.9% 8.2%

Daily ordinary share turnover in 2005

(in thousands)
Euronext NYSE (ADRs)
Amsterdam

High 55,590.6 1,108.9
Low 1,914.3 117.5
Average 9,005.3 280.6

Daily preference share turnover on Euronext Amsterdam in 2005

(in thousands)
(Formerly
convertible)
preference
shares


High 4.0
Low
Average 0.1

Shareholder information
106
institutional investors hold 86% and retail
investors hold 14%. 35% of the identified
shares are hold in the Netherlands, 65%
outside the Netherlands. The geographical
concentration of the shares held by
institutional investors is depicted below.
Geographical concentration worldwide
Major shareholders
The institutions listed in the table reported the
following holdings of ABN AMRO Holding N.V.
shares under the Disclosure of Major Holdings
in Listed Companies Act. The interests are
shown as a percentage of the total number of
ordinary shares and depositary receipts for
preference shares issued at year-end 2005.
Depositary receipts for financing preference
shares are issued by Stichting
Administratiekantoor Preferente
Financieringsaandelen ABN AMRO Holding,
which held 100% of the outstanding financing
preference shares at year-end 2005.
Credit ratings

Long-term Short-term

Moodys Aa3 P-1
Standard & Poors AA A-1+
FitchIBCA AA F1+

Disclosure of major shareholders

Number of Percentage of Number of Percentage of
ordinary shares ordinary shares depositary depositary
receipts of receipts of
preference shares
1
preference shares
1

Aegon N.V. 712,672 0.04 196,347,872 14.33
Fortis Utrecht N.V. 2 10,562,903 0.55 230,833,376 16.85
Delta Lloyd Leven 3 16,047,351 0.84 239,409,452 17.48
ING Groep N.V. 4 124,556,052 6.52 291,692,888 21.29
Eureko B.V. 5 1,596,091 0.08 166,000,000 12.12
De Zonnewijser
(investment fund) 6 5,898 205,789,464 15.02

1 Other than the Trust Office, the holders of preference shares listed in the table above hold depositary receipts entitling them to the
economic benefits of the preference shares. The preference shares represented by these depositary receipts are held by the Trust
Office.
2 In 2005 Fortis Utrecht N.V. decreased its ownership to 0.55% of the total outstanding amount of ordinary shares from its prior
ownership of 0.58%. Ownership of the total outstanding amount of preference shares remained unchanged at 16.85%.
3 In 2005, Delta Lloyd Leven decreased its ownership to 0.84% of the total outstanding amount of ordinary shares from its prior
ownership of 0.86%. Ownership of the total outstanding amount of preference shares remained unchanged at 17.48%.
4 In 2005, ING Groep N.V. decreased its ownership to 6.52% of the total outstanding amount of ordinary shares from its prior
ownership of 6.57%. Ownership of the total outstanding amount of preference shares remained unchanged at 21.29%.
5 In 2005, Eureko B.V. acquired ownership of 0.08% of the total outstanding amount of ordinary shares. Eureko B.V. also acquired
ownership of 12.12% of the total outstanding amount of preference shares.
6 In 2005, De Zonnewijser decreased its ownership to 0.00% of the total outstanding amount of ordinary shares from its prior
ownership of 0.01%. Ownership of the total outstanding amount of preference shares remained unchanged at 15.02%.
orlh Anerica: 17.6'
elherlands: 14.9'
Uniled Kingdon: 3.6'
Belgiun: 2.1'
Luxenbourg: 0.4'
Swilzerland: 2.3'
Cernany: 7.4'
France: 3.3'
Olher: 4.3'
Shareholder information
107
Peer group ABN AMRO
Our corporate measures of success are total return to shareholders (TRS) and average return
on equity. Our TRS is measured against those of 20 competitors that have been established as
our peer group, the members of which are listed below. Our target is to be in the top five of our
peer group at the end of every four-year cycle. At the end of the 2002-2005 cycle, our peer
group position was 7 and on 31 December 2005 our peer group position was 12 in the 2005-
2008 cycle. You can find a TRS graph showing our relative performance at www.abnamro.com.
Barclays plc
BBVA
BNP Paribas
Grupo Santander
Citigroup
Credit Suisse Group
Deutsche Bank
HSBC Holdings plc
HVB Group
ING Group
JPMorgan Chase
KeyCorp
Lloyds TSB Group plc
Merrill Lynch
Morgan Stanley
National City
Nordea
Socit Gnrale Group
UBS
Wells Fargo
Financial calendar 2006

31 January Announcement of 2005 full year results

31 March Publication of Annual Report 2005 and 20-F. Publication of Sustainability Report

26 April First quarter results release 2006

26 April Ex dividend quotation (ADRs)

27 April General meeting of shareholders

28 April Record date (ADRs)

1 May 16 May Dividend election period (ADRs)

2 May Ex dividend quotation (the Netherlands)

2 May 18 May Dividend election period (the Netherlands)

23 May Determination of stock price (the Netherlands) based on weighted average of share price
on 19, 22 and 23 May

23 May Stock portion announced (the Netherlands and ADRs)

29 May Payment date (the Netherlands)

6 June Payment date (ADRs)

31 July Second quarter results release 2006

30 October Third quarter results release 2006

Indices
The ABN AMRO Holding N.V. ordinary share is included in the following key indices:
AEX
S&P Euro Index
DJ Euro Stoxx 50 Index
DJ Sustainability Indexes
MSCI Euro Index
FTSE Eurotop 100
FTSE Eurotop 300
FTSE4Good Index
Shareholder information
108
Investor Relations
tel : +31 20 6287 835
fax: +31 20 6287 837
e-mail: investorrelations@nl.abnamro.com
website: www.abnamro.com/investorrelations
Financial calendar 2007

8 February Announcement of 2006 full year results

30 March Publication of Annual Report 2006 and 20-F

26 April Announcement of 2007 first quarter results

26 April General Meeting of Shareholders

30 July Announcement of 2007 second quarter results

25 October Announcement of 2007 third quarter results

Shareholder information
financial statements 2005
Financial statements 2005
111
Consolidated financial statements

Accounting policies 112

Consolidated income statement for 2005 128

Consolidated balance sheet at 31 December 2005 129

Consolidated statement of changes in equity in 2005 130

Consolidated statement of comprehensive income for 2005 131

Consolidated cash flow statement for 2005 132

Notes to the consolidated financial statements 133

Company financial statements

Accounting policies 209

Company income statement for 2005 212

Company balance sheet at 31 December 2005 (before profit appropriation) 212

Company statement of changes in equity in 2005 213

Notes to the company balance sheet and income statement 214

Contents
Financial statements 2005
112
ABN AMRO Holding N.V. is the parent
company of the ABN AMRO consolidated
group of companies (referred to as the
Group or ABN AMRO) and is domiciled in
the Netherlands. The consolidated financial
statements of the Group for the year ended
31 December 2005 incorporate figures of the
parent, its controlled entities and interests in
associates.
The Group provides a broad range of financial
services on a worldwide basis, including
consumer, commercial and investment
banking.
Statement of compliance
The consolidated financial statements have
been prepared in accordance with
International Financial Reporting Standards
(IFRS) as adopted by the European Union
(EU) and do not utilise the portfolio hedging
carve out permitted by the EU. Accordingly,
the accounting policies applied by the Group
also comply fully with IFRS.
IFRS standards and interpretations are issued
by the International Accounting Standards
Board (IASB) and comprise International
Financial Reporting Standards, International
Accounting Standards and Interpretations
issued by the International Financial
Reporting Interpretations Committee (IFRIC).
Since ordinary shares in ABN AMRO
Holding N.V. are listed on the New York
Stock Exchange (NYSE) in the form of
American Depositary Receipts, ABN AMRO
also publishes an annual report on Form 20-F
that conforms to the rules of the
Securities and Exchange Commission (SEC)
applicable to foreign registrants. The Form
20-F includes a reconciliation of equity and
profit attributable to shareholders of the
parent company to the comparable amounts
using accounting principles generally
accepted in the United States (US GAAP).
Basis of preparation and first time
application
The financial statements are presented in
euros, which is the presentation currency of
the Group, rounded to the nearest million.
The financial statements are prepared on a
mixed model valuation basis. Fair value is
used for derivative financial instruments,
financial assets and liabilities held for trading
or designated as measured at fair value
through income and available-for-sale assets.
Other financial assets (including Loans and
Receivables) and liabilities are valued at
amortised cost. The carrying value of
amortised cost assets and liabilities included
in a fair value hedge relationship is adjusted
with respect to fair value changes resulting
from the hedged risk. Non-financial assets
and liabilities are generally stated at historical
cost.
The preparation of financial statements in
conformity with IFRS requires the use of
judgement and estimates that affect the
recognition and valuation of assets and
liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial
statements and the reported amounts of
income and expenses during the reporting
period. Although these estimates are based
on managements best knowledge of current
events and actions, the actual results may
differ ultimately from these estimates. The
key areas requiring an application of
judgement and estimation include the
assessment of risk and rewards and other
relevant criteria when determining whether
or not to derecognise a financial asset or
when to consolidate a special purpose entity,
the determination of the fair value of certain
assets and liabilities, the amount and timing
of future cash flows on impaired loans, the
outcome of any litigation and the
assumptions underlying the determination of
long term employee benefit liabilities and
other provisions.
The Group has applied the accounting
policies set out herein from its transition to
IFRS at 1 January 2004.
For all periods up to and including the year
ended 31 December 2004, ABN AMRO
prepared its consolidated financial
statements in accordance with
Generally Accepted Accounting Principles
in the Netherlands (Dutch GAAP). From
Accounting policies
Financial statements 2005
113
1 January 2005, ABN AMRO is required
to prepare its consolidated financial
statements in accordance with IFRS as
adopted by the EU and effective for
ABN AMROs reporting for the year ended
31 December 2005. Transition to IFRS
incorporates the impact of applying all IFRS
statements to our assets (such as loans and
property), liabilities (such as pensions) and
open contracts (such as derivatives and
leases) at 1 January 2004. In many respects
the change to IFRS has been a gradual
process for Dutch companies, due to the
inclusion of many IFRS standards within
Dutch GAAP. However, IAS 39 Financial
Instruments, which is the main IFRS
standard impacting banks, was not
incorporated into Dutch GAAP. This standard,
which extends the use of fair values and
sets out specific rules of the application of
hedge accounting, causes a number of the
transition differences.
In preparing these consolidated financial
statements, the Group has elected to utilise
certain transitional provisions within IFRS 1
First-time Adoption of International Financial
Reporting Standards which offer certain
practical exemptions from the normal rule of
applying IFRS retrospectively.
The following exemptions were used to
establish the Groups opening IFRS equity:
no restatement of business
combinations that took place prior to
1 January 2004
the full cumulative actuarial loss on
retirement benefit plans is recognised in
equity at 1 January 2004
the cumulative translation account in equity
for foreign operations is set to zero at
1 January 2004
IFRS 2 Share-based Payment is only
applied to unvested awards that were
issued after 7 November 2002
the IAS 39 requirement to defer gains and
losses on the initial recognition of a
financial asset or liability, not determined
by reference to observable market data,
was applied to all transactions entered into
after 25 October 2002 consistent with
US GAAP requirements
certain financial assets and liabilities were
designated to be held at fair value through
income on transition.
Items elected to fair value through income
on transition include non-controlling
investments of a Private Equity nature,
mortgages originated and held for sale by our
North America business, unit-linked
investments held for the account of
insurance policy holders and certain
structured liabilities.
The Group has adopted the Amendment to
IAS 39 Financial Instruments: Recognition
and Measurement: The Fair Value Option
with effect from 1 January 2004, ahead of its
mandatory date. Additionally, the Group
elected to apply IFRS 5 Non-current assets
held for sale and discontinued operations at
1 January 2004 ahead of its mandatory
effective date.
See note 47 for further details of the
transition to IFRS.
Basis of consolidation
Subsidiaries and acquisitions
Subsidiaries are those enterprises controlled
by the Group. Control is deemed to exist
when the Group has the power, directly or
indirectly, to govern the financial and
operating policies of an enterprise so as to
obtain benefits from its activities. The
existence and effect of potential voting rights
that are presently exercisable or convertible
are taken into account when assessing
whether control exists. The Group sponsors
the formation of entities, including certain
special purpose entities, which may or may
not be directly owned, for the purpose of
asset securitisation transactions and other
narrow and well-defined objectives.
Particularly in the case of securitisations
these entities may acquire assets from other
Group companies. Some of these entities are
bankruptcy-remote entities whose assets are
not available to meet the claims of creditors
of the Group or any of its subsidiaries. Such
entities are consolidated in the Groups
Financial Statements when the substance of
the relationship between the Group and the
Financial statements 2005
114
entity indicates that control is held by the
Group.
The financial statements of subsidiaries and
special purpose entities are included in the
consolidated financial statements from the
date on which control commences until the
date on which control ceases.
Equity attributable to minority interests is
shown separately in the consolidated balance
sheet as part of total equity and current
period profit or loss attributable to minority
interests are presented as an attribution of
profit for the year.
IFRS 3 Business combinations was adopted
for all business combinations that took place
after 1 January 2004. Goodwill on
acquisitions prior to this date was charged
against equity. The cost of an acquisition is
measured at the fair value of the assets
given up, shares issued or liabilities
undertaken at the date of acquisition, plus
costs directly attributable to the acquisition.
The excess of the cost of acquisition over
the Groups share of the fair value of the
identifiable net assets (including certain
contingent liabilities) acquired is recorded as
goodwill.
In a step acquisition, where control is
obtained in stages, all assets and liabilities
of the acquired subsidiary, excluding
goodwill, are adjusted to their fair values at
the date of the latest share acquisition
transaction. Fair value adjustments relating
to existing holdings are recorded directly in
equity.
As a consequence of measuring all the
acquired assets and liabilities at fair value,
minority interests are calculated by reference
to these fair values.
Investments held with significant influence
Associates are those enterprises in which
the Group has significant influence (this is
generally demonstrated when the Group
holds between 20% and 50% of the voting
rights), but not control, over the operating
and financial policies.
If significant influence is held in a venture
capital investment the equity investment is
designated to be held at fair value with
changes through income.
Other investments in which significant
influence is held, including the Groups
strategic investments, are accounted for
using the Net equity method and
presented as Equity accounted
investments. Under this method the
investment is initially recorded at cost and
subsequently increased (or decreased) for
post acquisition net income (or loss), other
movements impacting the equity of the
investee and any adjustments required for
impairment. When the Groups share of
losses exceeds the carrying amount of the
investment, the carrying amount is
reduced to zero, including any other
unsecured receivables, and recognition of
further losses is discontinued except to
the extent that the Group has incurred
obligations or made payments on behalf
of the investee.
Jointly controlled entities
Jointly controlled entities are those
enterprises over whose activities the Group
has joint control, established by contractual
agreement. The consolidated financial
statements include the Groups proportionate
share of these enterprises assets, liabilities,
income and expenses on a line-by-line basis,
from the date on which joint control
commences until the date on which joint
control ceases.
Non-current assets held for sale and
discontinued operations
Non-current assets and/or businesses are
classified as held for sale if their carrying
amount is to be recovered principally
through a sale transaction planned to occur
within 12 months, rather than through
continuing use. Held for sale assets are
measured at the lower of their carrying
amount and fair value less costs to sell and
are classified separately from other assets in
the balance sheet. Assets and liabilities of a
business held for sale are separately
presented.
Financial statements 2005
115
The results of discontinued operations (if
significant and representing a separate major
line of business or a geographical area of
operation) are presented in the income
statement as a single amount comprising the
net profit and/or net loss of the discontinued
operation and the after tax gain or loss
realised on disposal. Comparative income
statement data is re-presented if in the
current period an activity qualifies as
discontinuing and qualifies for separate
presentation.
Private equity
Investments of a private equity nature
controlled by the Group are consolidated. All
other investments of a private equity nature
are designated at fair value through income.
Transactions eliminated on consolidation
Intra-group balances and transactions, and
any related unrealised gains, are eliminated
in preparing the consolidated financial
statements. Unrealised gains arising from
transactions with associates and jointly
controlled entities are eliminated to the
extent of the Groups interest in the
enterprise. Unrealised losses are also
eliminated unless the transaction provides
evidence of impairment in the asset
transferred.
Currency translation differences
The financial performance of the Groups
foreign operations (conducted through
branches, subsidiaries, associates and joint
ventures) is reported using the currency
(functional currency) that best reflects the
economic substance of the underlying events
and circumstances relevant to that entity.
Transactions in a currency that differs from
the functional currency of the transacting
entity are translated into the functional
currency at the foreign exchange rate at
transaction date. Accruals and deferrals are
translated using the foreign exchange rate on
the last day of the month to which the
results relate. Monetary assets and liabilities
denominated in foreign currencies are
translated at the foreign exchange rate
prevailing at the balance sheet date. Non-
monetary assets and liabilities accounted for
at cost, if denominated in foreign currency,
are translated at the foreign exchange rate
prevailing at the date of initial recognition.
Translation differences on monetary financial
assets and liabilities, whether measured at
amortised cost or fair value, are included in
foreign exchange gains and losses in income.
Translation differences on non-monetary
items (such as equities) held at fair value
through income are also reported through
income and, for those classified as available-
for-sale, directly in equity within Net
unrealised gains and losses on available-for-
sale assets.
The assets and liabilities of foreign
operations, including goodwill and purchase
accounting adjustments, are translated to the
Groups presentation currency, the euro, at
the foreign exchange rates prevailing at the
balance sheet date. The income and
expenses of foreign operations are translated
to euro at the rates prevailing at the end of
the month. Currency translation differences
arising on these translations are recognised
directly in equity (currency translation
account). Exchange differences recorded in
equity, arising after transition to IFRS on
1 January 2004, are included in the income
statement on disposal or partial disposal of
the operation.
Fiduciary activities
The Group commonly acts as trustee and in
other fiduciary capacities that entail either
the holding or placing of assets on behalf of
individuals, trusts or other institutions. These
assets are not assets of the Group and are
therefore not included in these financial
statements.
Income statement
Interest income and expenses
Interest income and expense is recognised in
the income statement using the effective
interest rate method. The application of this
method includes the amortisation of any
discount or premium or other differences,
including transaction costs and qualifying
fees and commissions, between the initial
Financial statements 2005
116
carrying amount of an interest-bearing
instrument and its amount at maturity
calculated on an effective interest rate
basis. This item also includes interest
income and expense in relation to trading
balances.
Fee and commission income
Fees and commissions are recognised as
follows:
fees and commissions generated as an
integral part of negotiating and arranging a
funding transaction with customers, such
as the issuance of loans are included in the
calculation of the effective interest rate and
are included in interest income and
expense
fees and commissions generated for
transactions or one-off acts are recognised
when the transaction or act is completed
fees and commissions dependent on the
outcome of a particular event or contingent
upon performance are only recognised
when the relevant criteria have been met
service fees are typically recognised on a
straight-line basis over the service contract
period. Portfolio and other management
advisory and service fees are recognised
based on the applicable service contracts
asset management fees related to
investment funds are also recognised over
the period the service is provided. This
principle is also applied to the recognition
of income from wealth management,
financial planning and custody services that
are provided over an extended period.
Net trading income
Net trading income includes gains and losses
arising from changes in the fair value and
disposal of financial assets and liabilities held
for trading and includes dividends received
from trading instruments. Interest income or
expenses on trading assets or liabilities are
included within interest income or expense.
Results from financial transactions
Results from financial transactions include
gains and losses on the sale of non-trading
financial assets and liabilities, ineffectiveness
of certain hedging programmes, fair value
changes relating to assets and liabilities
designated at fair value through income
and changes in the value of any related
derivatives. Dividend income from
non-trading equity investments is recognised
when entitlement is established.
Other operating income
Development property income is first
recognised when the outcome of a
construction contract can be estimated
reliably; after which contract income and
expenses are recognised in the income
statement in proportion to the stage of
completion of the contract. The stage of
completion is assessed by reference to the
phases of work performed. An expected loss
on a contract is recognised immediately in
the income statement.
Rental income from investment property is
recognised in the income statement on a
straight-line basis over the term of the lease.
Lease incentives granted are recognised as
an integral part of the total rental income.
Income from insurance activities is presented
net of direct costs and provisions required
for the insured risk.
Earnings per share
Earnings per share is calculated by dividing
the profit attributable to shareholders of the
parent company from continuing and
discontinuing operations by the average
number of shares in issuance during the
year. Fully diluted earnings per share is
calculated taking into account all dilutive
instruments, including options and employee
share plans, in issuance at the balance sheet
date.
Segment reporting
Business segments are the primary reporting
segments and are grouped by the nature of
risks and rewards assessed by reference to
product and service characteristics.
Geographical segments are grouped based
on a combination of proximity, relationships
between operations and economic and
currency similarities. Geographical data is
presented according to the location of the
transacting Group entity.
Financial statements 2005
117
Financial assets and liabilities
Measurement classifications
The Group classifies its financial assets and
liabilities into the following measurement
(valuation) categories:
Financial instruments held for trading are
those that the Group holds primarily for the
purpose of short-term profit-taking. These
include shares, interest earning securities,
derivative contracts that are not designated
as hedging instruments, and liabilities from
short sales of financial instruments.
Derivatives are financial instruments that
require little or no initial net investment, with
future settlements dependent on a reference
benchmark index, rate or price (such as
interest rates or equity prices). Changes in
expected future cash flows in response to
changes in the underlying benchmark
determine the fair value of derivatives. All
derivatives are recorded in the balance sheet
at fair value. Changes in the fair value of
derivative instruments are taken to income,
except where a designation as a cash flow
hedge or net investment hedge is made (see
hedging below).
Loans and receivables are non-derivative
financial assets with fixed or determinable
payments that are not quoted on an active
market. They generally arise when the Group
provides money or services directly to a
customer with no intention of trading or
selling the loan. Loans originated with the
intention to sell are classified within other
assets and designated at fair value through
income.
Held-to-maturity assets are non-derivative
financial assets quoted on an active market
with fixed or determinable payments (i.e.
debt instruments) and a fixed maturity that
the Group has the intention and ability to
hold to maturity.
Designated at fair value through income are
financial assets and financial liabilities that
the Group upon initial recognition (or on
transition to IFRS on 1 January 2004)
designates to be measured at fair value with
changes reported in income. Such a
designation is done if:
the host instrument includes an embedded
derivative that would otherwise require
separation. This applies to certain
structured notes issued with hybrid
features. Fair value measurement also
helps to achieve offset against changes in
the value of derivatives and other fair value
positions used to economically hedge
these notes
the designation eliminates or significantly
reduce a measurement inconsistency that
would otherwise arise. In this regard unit-
linked investments held for the account
and risk of policyholders and the related
obligation to policyholders are designated
at fair value with changes through income
it relates to a portfolio of financial assets
and/or liabilities that are managed and
evaluated on a fair value basis. This is
applied to equity investments of a private
equity nature and mortgages that are
originated and held-for-sale by our business
in North America.
Available-for-sale assets include interest
earning assets that have either been
designated as available-for-sale or do not fit
into one of the categories described above.
Equity investments held without significant
influence, which are not held for trading or
elected to fair value through income are
classified as available-for-sale.
Non-trading financial liabilities that are not
designated at fair value through income are
measured at amortised cost.
Recognition and derecognition
Traded instruments are recognised on trade
date, defined as the date on which the Group
commits to purchase or sell the underlying
instrument. Where settlement terms are non-
standard the commitment is accounted for
as a derivative between trade and settlement
date. Loans and receivables are recognised
when they are acquired or funded by the
Group and derecognised when settled.
Issued debt is recognised when issued and
deposits are recognised when the cash is
deposited with the Group. Other financial
Financial statements 2005
118
assets and liabilities, including derivatives,
are recognised in the balance sheet when
the Group becomes party to the contractual
provisions of the asset or liability.
Financial assets are generally derecognised
when the Group loses control or the ability to
obtain benefits over the contractual rights
that comprise that asset. This occurs when
the rights are realised, expire or are fully
transferred. If a servicing function is retained,
which is profitable, a servicing asset is
recognised. A financial liability is
derecognised when the obligations
specified in the contract are discharged,
cancelled or expire.
Financial instruments continue to be
recognised in the balance sheet, and a
liability recognised for the proceeds of any
related funding transaction, unless a fully
proportional share of all or specifically
identified cash flows are transferable to the
lender without material delay and the lenders
claim is limited to those cash flows, in which
case that proportion of the asset is
derecognised; or substantially all the risks
and returns and control associated with the
financial instruments have been transferred
in which case the assets are derecognised in
full.
The Group derecognises financial liabilities
when settled or if the Group repurchases its
own debt. The difference between the former
carrying amount and the consideration paid is
included in results on financial transactions in
income. Any subsequent resale is treated as
a new issuance.
The Group securitises various consumer and
commercial financial assets. This process
generally necessitates a sale of these assets
to a special purpose entity (SPE), which in
turn issues securities to investors. The
Groups interests in securitised assets may
be retained in the form of senior or
subordinated tranches, issued guarantees,
interest-only strips or other residual interests,
together referred to as retained interest. In
many cases these retained interests are
significant, such that the SPE is consolidated,
and the securitised assets continue to be
recognised in the consolidated balance
sheet.
Measurement
All trading instruments and financial assets
and liabilities designated at fair value are
measured at fair value, with transaction costs
related to the purchase taken to income
directly.
All derivatives are recorded in the balance
sheet at fair value with changes recorded
through income unless the derivative
qualifies for cash flow hedging accounting.
Available-for-sale assets are held at fair value
with unrealised gains and losses recognised
directly in equity, net of applicable taxes.
Premiums, discounts and qualifying
transaction costs of interest earning
available-for-sale assets are amortised to
income on an effective interest rate basis.
When available-for-sale assets are sold,
collected or impaired the cumulative gain or
loss recognised in equity is transferred to
results from financial transactions in income.
All other financial assets and liabilities are
initially measured at cost including directly
attributable incremental transaction costs.
They are subsequently valued at amortised
cost using the effective interest rate method.
Through use of the effective interest rate
method, premiums and discounts, including
qualifying transaction costs, included in the
carrying amount of the related instrument
are amortised over the period to maturity
or expected prepayment on the basis of
the instruments original effective interest
rate.
When available, fair values are obtained from
quoted market prices in liquid markets.
Where no active market exists, or quoted
prices are unobtainable, the fair value is
estimated using a variety of valuation
techniques including discounted cash flow
and other pricing models. Inputs to pricing
models are generally taken from reliable
external data sources. The models used are
validated prior to the use for financial
Financial statements 2005
119
reporting by qualified staff independent of
the initial selection or creation of the model.
Where inputs cannot be reliably sourced
from external providers, the initial recognition
value of a financial asset or liability is taken
to be the settled value at trade inception. The
initial change in fair value indicated by the
valuation technique is then released to
income at appropriate points over the life of
the instrument (typically taking account of
the ability to obtain reliable external data, the
passage of time and the use of offsetting
transactions). Where discounted cash flow
techniques are used, estimated future cash
flows are based on managements best
estimates and the discount rate applied is a
market-related rate at the balance sheet date
for an instrument with similar terms and
conditions. Fair values include appropriate
adjustments to reflect the credit quality of
the instrument.
Professional securities transactions
Securities borrowing and securities lending
transactions are generally entered into on a
collateralised basis, with securities usually
advanced or received as collateral. The
transfer of the securities themselves is not
reflected on the balance sheet unless the
risks and rewards of ownership are also
transferred. If cash is advanced or received,
securities borrowing and lending activities
are recorded at the amount of cash advanced
(included in loans and receivables) or
received (due to banks or customers).
The market value of the securities borrowed
and lent is monitored on a daily basis, and
the collateral levels are adjusted in
accordance with the underlying transactions.
Fees and interest received or paid are
recognised on an effective interest basis and
recorded as interest income or interest
expense.
Sale and repurchase transactions involve
purchases (sales) of investments with
agreements to resell (repurchase)
substantially identical investments at a
certain date in the future at a fixed price.
Investments purchased subject to
commitments to resell them at future dates
are not recognised. The amounts paid are
recognised in loans and receivables to either
banks or customers. The receivables are
shown as collateralised by the underlying
security. Investments sold under repurchase
agreements continue to be recognised in the
balance sheet. The proceeds from the sale of
the investments are reported as liabilities to
either banks or customers. The difference
between the sale and repurchase price is
recognised over the period of the transaction
and recorded as interest income or interest
expense.
Netting and collateral
The Group enters into master netting
arrangements with counterparties wherever
possible, and when appropriate, obtains
collateral. If the Group has the right on the
grounds of either legal or contractual
provisions and the intention to settle
financial assets and liabilities net or
simultaneously, these are offset and the
net amount is reported in the balance sheet.
Due to differences in the timing of actual
cash flows, derivatives with positive and
negative fair values are generally not netted,
even if they are held with the same
counterparty.
Hedge accounting
The Group uses derivative instruments to
manage exposures to interest rate, foreign
currency and credit risks, including
exposures arising from forecast transactions.
The Group applies fair value, cash flow or
net investment hedging to qualifying
transactions that are documented as such
at inception.
The hedged item can be an asset, liability,
highly probable forecasted transaction or net
investment in a foreign operation that (a)
exposes the entity to risk of changes in fair
value or future cash flows and (b) is
designated as being hedged. The risk being
hedged (the hedged risk) is typically
changes in interest rates or foreign currency
rates. The Group also enters into credit risk
derivatives (sometimes referred to as credit
default swaps) for managing portfolio credit
risk. However these are generally not
included in hedge accounting relationships
Financial statements 2005
120
due to difficulties in demonstrating that the
relationship will be highly effective.
Both at the inception of the hedge and on an
ongoing basis, the Group formally assesses
whether the derivatives used in its hedging
transactions have been highly effective in
offsetting changes in the fair value or cash
flows of the hedged item, by assessing and
measuring, whether changes in the fair value
or cash flows of the hedged item are offset
by the changes in the fair value or cash flows
of the hedging instrument, within the range
80% to 125%.
Hedge ineffectiveness represents the
amount by which the changes in the fair
value of the derivative differ from changes
in the fair value of the hedged item in a fair
value hedge, or the amount by which the
changes in the fair value of the derivative
are in excess of the fair value change of
the expected cash flow in a cash flow
hedge. Hedge ineffectiveness and gains
and losses on components of a derivative
that are excluded from the assessment of
hedge effectiveness are recorded directly in
income.
The Group discontinues hedge accounting
when the hedge relationship has ceased to
be effective or is no longer expected to be
effective, or when the derivative or hedged
item is sold or otherwise terminated.
Fair value hedges
Where a derivative financial instrument
hedges the exposure to changes in the fair
value of recognised or committed assets or
liabilities, the hedged item is adjusted in
relation to the risk being hedged. Gains or
losses on remeasurement of both the
hedging instrument and the hedged item are
recognised in the income statement, typically
within results from financial transactions. For
hedges of mortgage service rights any
hedging ineffectiveness is recorded in other
income.
When a fair value hedge of interest rate risk
is terminated, any fair value adjustment to
the carrying amount of the hedged asset or
liability is amortised to income over the
original designated hedging period or taken
directly to income if the hedged item is sold,
settled or impaired.
Cash flow hedges
When a derivative financial instrument
hedges the exposure to variability in the cash
flows from recognised assets, liabilities or
anticipated transactions, the effective part of
any gain or loss on remeasurement of the
hedging instrument is recognised directly in
equity. When a cash flow hedging instrument
or hedge relationship is terminated but the
hedged transaction is still expected to occur,
the cumulative gain or loss recognised in
equity remains in equity.
The cumulative gain or loss recognised in
equity is transferred to the income statement
at the time when the hedged transaction
affects net profit or loss and included in the
same line item as the hedged transaction. In
the exceptional case that the hedged
transaction is no longer expected to occur,
the cumulative gain or loss recognised in
equity is recognised in the income statement
immediately.
Hedge of a net investment in a foreign
operation
The Group uses foreign derivatives and
currency borrowings to hedge various net
investments in foreign operations. For such
hedges, currency translation differences
arising on translation of these instruments to
euro are recognised directly in the currency
translation account in equity, insofar as they
are effective.
Impairment of financial assets
The Group assesses at each balance sheet
date whether there is objective evidence that
a financial asset or a portfolio of financial
assets is impaired. A financial asset or
portfolio of financial assets is impaired and
impairment losses are recognised if, and only
if, there is objective evidence of impairment
as a result of one or more events that
occurred after the initial recognition of the
asset and prior to the balance sheet date (a
loss event) and that event adversely impacts
Financial statements 2005
121
estimated future cash flows of the financial
asset or the portfolio.
Loans and receivables
An indication that a loan may be impaired is
obtained through the Groups credit review
processes, which include monitoring
customer payments and other performance
criteria.
The Group first assesses whether objective
evidence of impairment exists for loans
(including any related facilities and
guarantees) that are individually significant,
and individually or collectively for loans that
are not individually significant. If the Group
determines that no objective evidence of
impairment exists for an individually
assessed loan, it includes the asset in a
portfolio of loans with similar credit risk
characteristics and collectively assesses
them for impairment. Loans that are
individually impaired are not included in a
collective assessment of impairment.
Indications that there is a measurable
decrease in estimated future cash flows from
a portfolio of loans, although the decrease
cannot yet be identified with the individual
loans in the portfolio, include adverse
changes in the payment status of borrowers
in the portfolio and national or local economic
conditions that correlate with defaults in the
portfolio.
The amount of impairment loss is measured
as the difference between the loans
carrying amount and the present value of
estimated future cash flows discounted at
the loans original effective interest rate. The
amount of the loss is recognised using an
allowance account and the amount of the
loss is included in the income statement line
loan impairment and other credit risk
provisions.
The calculation of the present value of the
estimated future cash flows of a
collateralised financial asset reflects the
cash flows that are likely to result from
foreclosure less costs for obtaining and
selling the collateral.
Future cash flows of a group of loans that are
collectively evaluated for impairment are
estimated on the basis of the contractual
cash flows of the loans in the portfolio and
historical loss experience for loans with credit
risk characteristics similar to those in the
group. Historical loss experience is adjusted
on the basis of current observable data to
reflect the effects of current conditions that
did not affect the historical data and to
remove the effects of conditions in the
historical data that do not currently exist.
The methodology and assumptions used for
estimating future cash flows are reviewed
regularly to reduce any differences between
loss estimates and actual loss experience.
The impact of changes in estimates and
recoveries is recorded in the income
statement line loan impairment and other
credit risk provisions.
Following impairment, interest income is
recognised using the original effective rate of
interest. When a loan is deemed no longer
collectible, it is written off against the related
allowance for loan impairment. Such loans
are written off after all the necessary
procedures have been completed and the
amount of the loss has been determined.
Subsequent recoveries of amounts
previously written off are credited to the
income statement line loan impairment
and other credit risk provisions. Assets
acquired in exchange for loans to achieve
an orderly realisation are reflected in the
balance sheet as a disposal of the loan and
an acquisition of a new asset, initially booked
at fair value.
Other financial assets
In the case of equity instruments classified
as available-for-sale, a significant or
prolonged decline in the fair value of the
security below its cost is also considered
in determining whether impairment exists.
Where such evidence exists, the
cumulative net loss that has been previously
recognised directly in equity is removed
from equity and recognised in the income
statement within results on financial
transactions.
Financial statements 2005
122
Held to maturity and available-for-sale debt
investments are assessed and any
impairment is measured on an individual
basis, consistent with the methodology
applied to loan and receivables.
Property and equipment
Own use assets
Property and equipment is stated at cost less
accumulated depreciation and any amount
for impairment. If an item of property and
equipment is comprised of several major
components with different useful lives, each
component is accounted for separately.
Additions and subsequent expenditures are
capitalised only to the extent that they
enhance the future economic benefits
expected to be derived from the asset.
Expenditure incurred to replace a component
of an asset is separately capitalised and the
replaced component is written off. Other
subsequent expenditure is capitalised only
when it increases the future economic
benefit of the item of property and
equipment. All other expenditure, including
maintenance, is recognised in the income
statement as incurred. When an item of
property and equipment is retired or
disposed, the difference between the
carrying amount and the disposal proceeds
net of costs is recognised in other operating
income.
Depreciation is charged to the income
statement on a straight-line basis over the
estimated useful lives of items of property
and equipment, and major components that
are accounted for separately. The Group
generally uses the following estimated useful
lives:
Land not depreciated
Buildings 25 to 50 years
Equipment 5 to 12 years
Computer installations 2 to 5 years
Software, presented as an intangible asset,
is amortised over 3-7 years.
Depreciation rates and residual values are
reviewed at least annually to take into
account any change in circumstances.
Capitalised leasehold improvements are
depreciated in a manner that takes into
account the term and renewal conditions of
the related lease.
Development property
The majority of the Groups development and
construction activities are undertaken for
immediate sale or as part of a pre-agreed
contractual arrangement. Property developed
under a pre-agreed contractual arrangement
is stated at cost plus profit recognisable to
date less a provision for any foreseeable
losses and less progress billings. Cost
includes all expenditure related directly to
specific projects and an allocation of fixed
and variable overheads incurred in the
Groups contract activities based on normal
operating capacity. The specific components
of development property are accounted for
as follows.
Building and development sites are carried at
cost including allocated interest and
additional expenses for purchasing the site
and making them ready for development. No
interest is allocated to land which has not
been zoned for a particular purpose, if there
is no certainty that the land will be built on.
Any provision deemed necessary for
expected losses on sale is deducted from
the carrying value of the site.
Work in progress relates to commercial
property projects, as well as to unsold
residential property under construction or
preparation. Work in progress is carried at
the costs incurred plus allocated interest and
net of any provisions as required. Progress
instalments invoiced to buyers and principals
are deducted from work in progress. The
profit and loss is recognised in accordance
with the percentage of completion method.
Until sold, commercial and residential
developments are carried at cost of
production net of any required provisions. If a
decision is taken to retain an unsold property
it is classified as investment property.
Investment property
Investment property is carried at fair value
based on current market prices for similar
properties in the same location and
Financial statements 2005
123
condition. Any gain or loss arising from a
change in fair value is recognised in profit
and loss. Rental income from investment
property is recognised on a straight-line basis
over the term of the lease, with lease
incentives granted recognised as an integral
part of the rental income.
Leasing
As lessee: most of the leases that the Group
has entered into are classified as operating
leases (including property rental). The total
payments made under operating leases are
charged to the income statement on a
straight-line basis over the period of the
lease. Lease incentives received are
recognised in the income statement as an
integral part of the total lease expense.
When it is anticipated that an operating lease
will be terminated or vacated before the
lease period has expired, the lesser of any
penalty payments required and the remaining
payments due once vacated (less sub-leasing
income) is recognised as an expense.
As lessor: assets subject to operational
leases are included in property and
equipment. The asset is depreciated on a
straight-line basis over its useful life to its
estimated residual value. Leases where the
Group transfers substantially all the risks and
rewards resulting from ownership of an asset
to the lessee are classified as finance leases.
A receivable at an amount equal to the
present value of the lease payments, using
the implicit interest rate, including any
guaranteed residual value, is recognised.
Finance lease receivables are included in
loans and receivables to customers.
Intangible assets
Goodwill
Goodwill is capitalised and represents the
excess of the cost of an acquisition over the
fair value of the Groups share of the
acquired entitys net identifiable assets at the
date of acquisition. For the purpose of
calculating goodwill, the fair values of
acquired assets, liabilities and contingent
liabilities are determined by reference to
market values or by discounting expected
future cash flows to present value. Any
change in the assessed fair value of acquired
assets and liabilities at the time of acquisition
identified within one year following the
acquisition are corrected against goodwill.
Any revisions identified after one year are
recorded in income.
Goodwill on the acquisition of equity
accounted investments is included in the
carrying amount of the investment.
Gains and losses on the disposal of an entity,
including equity accounted investments, are
determined as the difference between the
sale proceeds and the carrying amount of the
entity including related goodwill and any
translation differences recorded in equity.
Software
Costs that are directly associated with
identifiable and unique software products
that are controlled by the Group, and likely to
generate future economic benefits exceeding
these costs, are recognised as intangible
assets. Direct costs include staff costs of the
software development team. Expenditure
that enhances or extends the performance of
computer software programs beyond their
original specifications is recognised as a
capital improvement and added to the
original cost of the software. Software is
amortised over 3-7 years.
Costs associated with maintaining computer
software programs are recognised as an
expense as incurred.
Mortgage servicing rights
Mortgage servicing rights (MSRs) represent
the right to a stream of fee-based cash flows
and an obligation to perform specified
mortgage servicing activities. MSRs are
initially recorded at fair value and amortised
over the estimated future net servicing
income stream of the underlying mortgages.
The duration of the income stream relating to
these servicing rights is dependent on the
pre-payment behaviour of the customer,
which is influenced by a number of factors
including interest rate expectations. MSR
assets are subject to hedging under a fair
value hedge programme designed to limit
Financial statements 2005
124
the Groups exposure to changes in the fair
value of the MSR. The change in the fair
value of the hedged MSRs and the change in
the fair value of the hedging derivatives are
included as part of mortgage banking income
within other income.
Other intangible assets
Other intangible assets that are acquired by
the Group are stated at cost less
accumulated amortisation and any
adjustment for impairment losses. Other
intangible assets are comprised of separately
identifiable items arising from acquisition of
subsidiaries, such as customer relationships,
and certain purchased trademarks and similar
items. Amortisation is charged to the income
statement on a straight-line basis over the
estimated useful lives of the intangible asset.
Impairment of property and
equipment and intangible assets
Property and equipment and intangibles are
assessed at each balance sheet date or more
frequently, to determine whether there is any
indication of impairment. If any such
indication exists, the assets are subject to an
impairment review. Regardless of any
indications of potential impairment, the
carrying amount of goodwill is subject to a
detailed impairment review at least annually.
An impairment loss is recognised whenever
the carrying amount of an asset that
generates largely independent cash flows or
the cash-generating unit to which it belongs
exceeds its recoverable amount. The
recoverable amount of an asset is the greater
of its net selling price and value in use. To
calculate value in use, the estimated future
cash flows are discounted to their present
value using a pre-tax discount rate that
reflects current market rates and the risks
specific to the asset. When conducting
impairment reviews, particularly for goodwill,
cash-generating units are the lowest level at
which management monitors the return on
investment on assets.
Impairment losses are recognised in the
income statement as a component of
depreciation and amortisation expense. An
impairment loss with respect to goodwill is
not reversible. Other impairment losses are
reversed only to the extent that the assets
carrying amount does not exceed the
carrying amount that would have been
determined if no impairment loss had
previously been recognised.
Pension and other post-retirement
benefits
For employees in the Netherlands and the
majority of staff employed outside the
Netherlands, pension or other retirement
plans have been established in accordance
with the regulations and practices of the
countries in question. Separate pension
funds or third parties administer most of
these plans. The plans include both defined
contribution plans and defined benefit plans.
Defined contribution plans
In the case of defined contribution plans,
contributions are charged directly to the
income statement in the year to which they
relate.
Defined benefit plans
The net obligations under defined benefit
plans are regarded as the Groups own
commitments regardless of whether these
are administered by a pension fund or in
some other manner. The net obligation of
each plan is determined as the difference
between the benefit obligations and the plan
assets. Defined benefit plan pension
commitments are calculated in accordance
with the projected unit credit method of
actuarial cost allocation. Under this method,
the present value of pension commitments is
determined on the basis of the number of
active years of service up to the balance
sheet date and the estimated employee
salary at the time of the expected retirement
date, and is discounted using the market rate
of interest on high-quality corporate bonds.
The plan assets are measured at fair value.
Pension costs for the year are established at
the beginning of the year based on the
expected service and interest costs and the
expected return on the plan assets, plus the
impact of any current period curtailments or
Financial statements 2005
125
plan changes. Differences between the
expected and the actual return on plan
assets, as well as actuarial gains and losses,
are only recognised as income or expense
when the net cumulative unrecognised
actuarial gains and losses at the end of the
previous reporting year exceed 10% of the
greater of the commitments under the plan
and the fair value of the related plan assets.
The part that exceeds 10% is recognised in
income over the expected remaining years of
service of the employees participating in the
plans. Differences between the pension
costs determined in this way and the
contributions payable are accounted for as
provisions or prepayments. Commitments
relating to early retirement of employees are
treated as pension commitments.
When the benefits of a plan are improved,
the portion of the increased benefit relating
to past service by employees is recognised
as an expense in the income statement on a
straight-line basis over the average period
until the benefits become vested. To the
extent that the benefits vest immediately,
the past service cost is recognised
immediately in the income statement.
Other post-retirement benefits
The Groups net obligation with respect to
long-term service benefits and post-
retirement healthcare is the amount of future
benefit that employees have earned in return
for their service in current and prior periods.
The obligation is calculated using the
projected unit credit method. It is then
discounted to its present value and the fair
value of any related assets is deducted.
Share-based payments to
employees
The Group engages in equity and cash
settled share-based payment transactions in
respect of services received from certain of
its employees. The cost of the services
received is measured by reference to the fair
value of the shares or share options granted
on the date of the grant. The cost related to
the shares or share options granted is
recognised in the income statement over the
period that the services of the employees
are received, which is the vesting period,
with a corresponding credit in equity for
equity settled schemes and a credit in
liabilities for cash settled schemes.
The fair value of the options granted is
determined using option pricing models,
which take into account the exercise price of
the option, the current share price, the risk
free interest rate, the volatility of the
ABN AMRO share price over the life of the
option and the terms and conditions of the
grant. Non-market vesting conditions are
taken into account by adjusting the number
of shares or share options included in the
measurement of the cost of employee
services, so that ultimately the amount
cumulatively recognised in the income
statement shall reflect the number of shares
or share options that eventually vest. Where
vesting conditions are related to market
conditions, the charges for the services
received are recognised regardless of
whether or not the market related vesting
condition is met, provided that the non-
market vesting conditions are met.
Provisions
A provision is recognised in the balance
sheet when the Group has a legal or
constructive obligation as a result of a past
event, and it is probable that an outflow of
economic benefits will be required to settle
the obligation, and a reliable estimate of the
amount of the obligation can be made. If the
effect of time value is material, provisions are
determined by discounting the expected
future cash flows at a pre-tax rate that
reflects current market rates and, where
appropriate, the risks specific to the liability.
A provision for restructuring is recognised
when an obligation exists. An obligation
exists when the Group has approved a
detailed plan and has raised a valid
expectation in those affected by the plan by
starting to implement the plan or by
announcing its main features. Future
operating costs are not provided for.
Provisions for insurance risks are determined
by actuarial methods, which include the use
Financial statements 2005
126
of statistics, interest rate data and
settlement costs expectations.
Other liabilities
Obligations to policyholders, whose return is
dependent on the return of unit linked
investments recognised in the balance sheet,
are measured at fair value with changes
through income.
Income taxes current and
deferred
Income tax payable on profits, based on the
applicable tax law in each jurisdiction, is
recognised as an expense in the period in
which profits arise. The future tax benefit
of income tax losses available for carry
forward is recognised as an asset when it
is probable that future taxable profits will be
available against which these losses can be
utilised.
Deferred tax is recognised for qualifying
temporary differences. Temporary
differences represent the difference
between the carrying amounts of assets and
liabilities for financial reporting purposes and
the amounts used for taxation purposes. The
most significant temporary differences arise
from the revaluation of certain financial
assets and liabilities including derivative
contracts, allowances for loan impairment,
provisions for pensions and business
combinations. The following differences are
not provided for: capitalised goodwill not
deductible for tax purposes, the initial
recognition of assets or liabilities that affect
neither accounting nor taxable profit, and
differences relating to investments in
subsidiaries and associates, to the extent
that they will probably not reverse in the
foreseeable future and the timing of such
reversals is controlled by the Group. The
amount of deferred tax provided is based on
the expected manner of realisation or
settlement of the carrying amount of assets
and liabilities, using tax rates enacted or
substantially enacted at the balance sheet
date. A deferred tax asset is recognised only
to the extent that it is probable that future
taxable profits will be available against which
the asset can be utilised.
Deferred and current tax assets and liabilities
are only offset when they arise in the same
tax reporting group and where there is both
the legal right and the intention to settle on a
net basis or to realise the asset and liability
simultaneously.
Issued debt and equity securities
Issued debt securities are recorded on an
amortised cost basis using the effective
interest rate method, unless they are of a
hybrid/structured nature and designated to be
held at fair value through income.
Issued financial instruments or their
components are classified as liabilities where
the substance of the contractual
arrangement results in the Group having a
present obligation to either deliver cash or
another financial asset or to satisfy the
obligation other than by the exchange of a
fixed number of equity shares. Preference
shares that carry a non-discretionary coupon
or are redeemable on a specific date or at
the option of the holder are classified as
liabilities. The dividends and fees on
preference shares classified as a liability are
recognised as interest expense.
Issued financial instruments, or their
components, are classified as equity when
they do not qualify as a liability and represent
a residual interest in the assets of the Group.
Preference share capital is classified as
equity if it is non-redeemable and any
dividends are discretionary. The components
of issued financial instruments that contain
both liability and equity elements are
accounted for separately with the equity
component being assigned the residual
amount after deducting from the instruments
initial value the fair value of the liability
component.
Dividends on ordinary shares and preference
shares classified as equity are recognised as
a distribution of equity in the period in which
they are approved by shareholders.
Share capital
Incremental external costs directly
attributable to the issue of new shares are
Financial statements 2005
127
deducted from equity net of any related
income taxes.
When share capital recognised as equity is
repurchased, the amount of the consideration
paid, including incremental directly
attributable costs net of income taxes, is
recognised as a change in equity.
Repurchased shares are classified as
treasury shares and presented as a
deduction from total equity. Where such
shares are subsequently sold or reissued,
any consideration received is added to
shareholders equity.
Other equity components
Currency translation account
The currency translation account is
comprised of all currency differences arising
from the translation of the financial
statements of foreign operations net of the
translation impact on liabilities or foreign
exchange derivatives held to hedge the
Groups net investment. These currency
differences are included in income on
disposal or partial disposal of the operation.
Cash flow hedging reserve
The cash flow hedging reserve is comprised
of the effective portion of the cumulative
change in the fair value of cash flow hedging
derivatives, net of taxes, where the hedged
transaction has not yet occurred.
Net unrealised gains and losses on
available-for-sale assets
In this component, gains and losses arising
from a change in the fair value of available-
for-sale assets are recognised, net of taxes.
When the relevant assets are sold, impaired
or otherwise disposed of, the related
cumulative gain or loss recognised in equity
is transferred to the income statement.
Collectively, the cash flow hedging reserve
and the available-for-sale reserve are
sometimes referred to as special
components of equity.
Cash flow statement
Cash and cash equivalents for the purpose of
the cash flow statement include cash in
hand, deposits available on demand with
central banks and net credit balances on
current accounts with other banks.
The cash flow statement, based on the
indirect method of calculation, gives details
of the source of cash and cash equivalents
which became available during the year and
the application of these cash and cash
equivalents over the course of the year. The
cash flows are analysed into cash flows from
operations, including banking activities,
investment activities and financing activities.
Movements in loans and receivables and
inter-bank deposits are included in the cash
flow from operating activities. Investment
activities are comprised of acquisitions, sales
and redemptions in respect of financial
investments, as well as investments in and
sales of subsidiaries and associates, property
and equipment. The issuing of shares and the
borrowing and repayment of long-term funds
are treated as financing activities.
Movements due to currency translation
differences as well as the effects of the
consolidation of acquisitions, where of
material significance, are eliminated from the
cash flow figures.
Financial statements 2005
128
Consolidated income statement for 2005

(in millions of euros)
2005 2004

Interest income 30,528 25,334
Interest expense 21,467 16,538

Net interest income 2 9,061 8,796

Fee and commission income 5,627 5,265
Fee and commission expense 881 700

Net fee and commission income 3 4,746 4,565

Net trading income 4 2,621 1,309
Results from financial transactions 5 1,282 908
Share of result in equity accounted investments 19 280 206
Other operating income 6 1,588 1,235
Income of consolidated private equity holdings 40 3,637 2,616

Operating income 23,215 19,635

Personnel expenses 7 7,531 7,818
General and administrative expenses 8 5,812 5,038
Depreciation and amortisation 9 1,021 1,235
Goods and materials of consolidated private equity holdings 40 2,519 1,665

Operating expenses 16,883 15,756

Loan impairment and other credit risk provisions 18 648 616

Total expenses 17,531 16,372

Operating profit before tax 5,684 3,263
Income tax expense 11 1,241 770

Profit from continuing operations 4,443 2,493

Profit from discontinued operations net of tax 45 1,447

Profit for the year 4,443 3,940

Attributable to:
Shareholders of the parent company 4,382 3,865
Minority interests 61 75

Earnings per share attributable to the shareholders of the
parent company (in euros) 12
From continuing operations
Basic 2.43 1.46
Diluted 2.42 1.46
From continuing and discontinued operations
Basic 2.43 2.33
Diluted 2.42 2.33

Numbers stated against items refer to the notes.
Financial statements 2005
129
Consolidated balance sheet at 31 December 2005

(in millions of euros)
2005 2004

Assets
Cash and balances at central banks 13 16,657 17,896
Financial assets held for trading 14 202,055 167,035
Financial investments 15 123,774 102,948
Loans and receivables banks 16 108,635 83,858
Loans and receivables customers 17 380,248 320,022
Equity accounted investments 19 2,993 1,428
Property and equipment 20 8,110 7,173
Goodwill and other intangible assets 21 5,168 3,143
Accrued income and prepaid expenses 7,614 5,740
Other assets 22 25,550 18,211

Total assets 880,804 727,454

Liabilities
Financial liabilities held for trading 14 148,588 129,506
Due to banks 23 167,821 133,529
Due to customers 24 317,083 281,379
Issued debt securities 25 170,619 121,232
Provisions 26 6,411 6,933
Accrued expenses and deferred income 8,335 8,074
Other liabilities 28 18,723 13,562

Total liabilities (excluding subordinated liabilities) 837,580 694,215
Subordinated liabilities 30 19,072 16,687

Total liabilities 856,652 710,902

Equity
Share capital 1,069 954
Share premium 5,269 2,604
Retained earnings 15,237 11,580
Treasury shares (600) (632)
Net gains / (losses) not recognised in the income statement 1,246 309

Equity attributable to shareholders of the parent company 22,221 14,815
Equity attributable to minority interests 1,931 1,737

Total equity 24,152 16,552

Total equity and liabilities 880,804 727,454

Credit related contingent liabilities 33 46,021 46,465
Committed credit facilities 33 141,010 145,009

Numbers stated against items refer to the notes.
Financial statements 2005
130
Consolidated statement of changes in equity in 2005

(in millions of euros)
2005 2004

Share capital
Balance at 1 January 954 919
Issuance of shares 82
Exercised options and warrants 2
Dividends paid in shares 33 33

Balance at 31 December 1,069 954

Share premium
Balance at 1 January 2,604 2,549
Issuance of shares 2,611
Options and conversion rights exercised 48
Share-based payments 87 40
Dividends paid in shares (33) (33)

Balance at 31 December 5,269 2,604

Retained earnings
Balance at 1 January 11,580 8,469
Profit attributable to shareholders of the parent company 4,382 3,865
Dividends paid to shareholders of the parent company (659) (694)
Other (66) (60)

Balance at 31 December 15,237 11,580

Treasury shares
Balance at 1 January (632) (119)
Net purchase / sale of treasury shares 32 (513)

Balance at 31 December (600) (632)

Equity settled own share derivatives
Balance at 1 January (106)
Change in market value and settlements 106

Balance at 31 December

Net gains / (losses) not recognised in the income statement
Currency translation account
Balance at 1 January (238)
Transfer to income statement relating to disposed subsidiaries (20) 2
Currency translation differences 1,100 (240)

Subtotal Balance at 31 December 842 (238)

Net unrealised gains / (losses) on available-for-sale assets
Balance at 1 January 830 572
Net unrealised gains / (losses) on available-for-sale assets 717 509
Net losses / (gains) reclassified to the income statement (348) (251)

Subtotal Balance at 31 December 1,199 830

Cash flow hedging reserve
Balance at 1 January (283) (165)
Net unrealised gains / (losses) on cash flow hedges (386) 106
Net losses / (gains) reclassified to the income statement (126) (224)

Subtotal Balance at 31 December (795) (283)

Net gains / (losses) not recognised in the income statement at 31 December 1,246 309

Equity attributable to shareholders of the parent company at 31 December 22,221 14,815

Minority interest
Balance at 1 January 1,737 1,301
Additions 202 367
Reductions (49)
Acquisitions / disposals (136) (30)
Profit attributable to minority interests 61 75
Currency translation differences 133 33
Other movements (17) (9)

Equity attributable to minority interests at 31 December 1,931 1,737

Total equity at 31 December 24,152 16,552

Financial statements 2005
131
Consolidated statement of comprehensive income for 2005

(in millions of euro)
2005 2004

Profit attributable to shareholders of the parent company 4,382 3,865
Gains / (losses) not recognised in income:
Currency translation differences 1,100 (240)
Available-for-sale assets 717 509
Cash flow hedges (386) 106

1,431 375

Unrealised (gains) / losses from prior periods recognised in
income:
Currency translation differences relating to disposed subsidiaries (20) 2
Available-for-sale assets (348) (251)
From cash flow hedging reserve (126) (224)

(494) (473)

Comprehensive income for the year 5,319 3,767

The statement of comprehensive income for the year presents all movements in equity
attributable to shareholders of the parent company other than changes in issued share
capital and distributions to shareholders.
Financial statements 2005
132
Consolidated cash flow statement for 2005

(in millions of euros)
2005 2004

Operating activities
Profit from continuing operations 4,443 2,493
Adjustments for significant non-cash items included in income
Depreciation, amortisation and impairment 1,021 1,235
Loan impairment losses 648 616
Share of result in equity accounted investments (280) (206)
Movements in operating assets and liabilities
Movements in operating assets (140,923) (107,875)
Movements in operating liabilities 116,252 87,424
Other adjustments
Dividends received from equity accounted investments 63 59

Cash flows from operating activities (18,776) (16,254)

Investing activities
Acquisition of investments (142,423) (78,760)
Sales and redemption of investments 129,811 76,338
Acquisition of property and equipment (2,037) (1,973)
Sales of property and equipment 1,064 1,131
Acquisition of intangibles (excluding goodwill and MSRs) (431) (339)
Sales of intangibles (excluding goodwill and MSRs) 9 50
Acquisition of subsidiaries and equity accounted investments (1,716) (278)
Disposal of subsidiaries and equity accounted investments 538 153

Cash flows from investing activities (15,185) (3,678)

Financing activities
Issuance of subordinated liabilities 2,975 2,203
Repayment of subordinated liabilities (1,682) (2,708)
Issuance of other long-term funding 36,782 25,894
Repayment of other long-term funding (8,919) (7,771)
Proceeds from the issue of shares 2,491 0
Net (decrease) / increase in treasury shares 32 (513)
Other 92 334
Dividends paid (659) (694)

Cash flows from financing activities 31,112 16,745

Cash flow from discontinued operations 2,733

Movement in cash and cash equivalents (2,849) (454)

Cash and cash equivalents at 1 January 8,603 9,016
Currency translation differences 289 41

Cash and cash equivalents at 31 December 35 6,043 8,603

Financial statements 2005
133
Notes to the consolidated financial statements
(unless otherwise stated, all amounts are in millions of euros)
1 Segment reporting
Segment information is presented in respect of the Groups business and geographical
segments. The primary format, business segments, is consistent with the Groups
management and internal reporting structure applicable in the financial year.
Measurement of segment assets and liabilities and segment income and results is based on
the Groups accounting policies. Segment income, results, assets and liabilities include items
directly attributable to a segment as well as those that can be allocated on a reasonable
basis. Transactions between segments are conducted at arms length. Capital expenditure
represents expenditures during the period to acquire segment assets that are expected to
be used for a period exceeding one year, such as own-use property and equipment and
software.
Business segments
The business segments of the Group are:
Consumer & Commercial Clients (C&CC)
Consumer & Commercial Clients serves consumer clients and small to medium-sized
enterprises. It has an especially strong position in the mass affluent consumer and mid-sized
commercial segments and operates principally in the Netherlands, North America and Brazil
where we have leading local franchises.
Consumer & Commercial Clients further includes our consumer and commercial banking
activities in New Growth Markets and Bouwfonds, our property development and financing
subsidiary. New Growth Markets include, among others, our consumer banking activities in
India, the United Arab Emirates, Taiwan and Hong Kong.
Wholesale Clients (WCS)
Wholesale Clients is a corporate and investment bank operating worldwide. Wholesale
Clients offers clients a wide-ranging product and services platform, including advisory, capital
markets, financing and transaction banking in over 50 countries. Wholesale Clients is able to
offer our clients local advisors with access to global market-leading expertise. Wholesale
Clients global capital markets operations are principally based in Amsterdam, Chicago,
Hong Kong, London, New York, Singapore and Sydney.
Private Clients (PC)
Private Clients offers private banking services to wealthy individuals and families with
investable assets of EUR 1 million or more. Private Clients uses an open architecture model,
where clients are offered the best available products regardless of provider, an approach
geared to delivering the highest possible returns to each of our clients. Private Clients is
among the top ten private banks worldwide and is the fifth largest private bank in Europe in
terms of assets under management.
Financial statements 2005
134
Asset Management (AM)
Our asset management business operates in more than 20 countries across Europe, the
Americas, Asia and Australia. Global portfolio management centres are located in six cities:
Amsterdam, Atlanta, Chicago, Hong Kong, London and Singapore. Asset Management offers
investment products in all major regions and asset classes, using an active investment style.
Its investment philosophy is characterised by an internationally coordinated investment
process and well-monitored risk management.
Asset Managements products for institutional clients such as central banks, pension funds,
insurance companies and leading charities are distributed directly. Funds for private investors
are distributed through our consumer and private banking arms, as well as via third party
distributors. Asset Managements institutional client business represents slightly more than
half of the assets managed. Retail and third party clients account for a further 30%, and the
remainder of the assets managed are in discretionary portfolios managed for Private Clients.
Private Equity (PE)
Private Equity primarily invests in unlisted companies, both on ABN AMROs own account
and for third-party investors. During 2005, Private Equitys investment portfolio in European
and Australian mid-sized buy-outs rose by around 25%, while its investments under
management in early-stage Dutch companies decreased. Both changes reflected the current
refocusing of strategic objectives.
The business model of Private Equity involves buying equity stakes in companies over which
it can establish influence or control, and then managing these shareholdings for a number of
years with a view to selling them at a profit.
Group Functions/Group Shared Services (GF / GSS)
Group Functions and Group Shared Services perform services for the Group that have been
centralised and / or are shared across the Group. Group Functions includes Group Asset and
Liability Management, which manages an investment and derivatives portfolio in order to
manage the liquidity and interest rate risk of the Group. Group Functions also holds the
Groups strategic investments and records any related profits or losses. Inter-segment
elimations are also included in this segment.
Financial statements 2005
135
Business segment information 2005

Total
C&CC WCS PC AM PE GF /GSS Group

Net interest income external 8,636 669 (739) (11) (96) 602 9,061
Net interest income other segments (542) 320 1,219 17 (107) (907)
Net commission income external 1,813 1,765 565 590 9 4 4,746
Net commission income other segments 53 (47) 29 6 (9) (32)
Net trading income 225 2,363 42 14 9 (32) 2,621
Result from financial transactions 50 142 8 55 420 607 1,282
Result in equity accounted investments 145 2 1 18 114 280
Other operating income 1,340 101 100 23 1 23 1,588
Net sales revenue private equity holdings 128 3,509 3,637

Total operating income 11,720 5,443 1,225 712 3,736 379 23,215

Total operating expenses 7,391 4,803 891 501 3,392 (95) 16,883

Loan impairment and credit risk provisions 754 (241) 6 34 95 648

Total expenses 8,145 4,562 897 501 3,426 17,531


Operating profit before taxes 3,575 881 328 211 310 379 5,684

Income tax expense 1,023 176 73 40 (21) (50) 1,241

Profit from continuing operations 2,552 705 255 171 331 429 4,443

Discontinued operations

Profit for the year 2,552 705 255 171 331 429 4,443

Other information at 31 December 2005
Total assets 260,041 525,203 16,973 1,199 7,293 70,095 880,804
Total liabilities 222,567 529,876 50,261 1,136 4,530 48,282 856,652
Capital expenditure 594 331 26 41 190 84 1,266



Bouw- Total
NL NA Brazil NGM fonds C&CC

Net interest income external 2,638 2,553 2,146 389 910 8,636
Net interest income other segments 147 (284) 18 (26) (397) (542)
Net commission income external 626 635 350 192 10 1,813
Net commission income other segments 42 8 2 1 53
Net trading income 54 94 52 25 225
Result from financial transactions 43 6 1 50
Results in equity accounted investments 14 4 37 73 17 145
Other operating income 163 430 370 47 330 1,340
Net sales private equity holdings

Total operating income 3,684 3,483 2,975 707 871 11,720

Total operating expenses 2,675 2,236 1,730 369 381 7,391

Loan impairment and credit risk provisions 277 21 363 67 26 754

Total expenses 2,952 2,257 2,093 436 407 8,145


Operating profit before taxes 732 1,226 882 271 464 3,575

Income tax expense 223 355 238 58 149 1,023

Profit from continuing operations 509 871 644 213 315 2,552

Discontinued operations

Profit for the year 509 871 644 213 315 2,552

Other information at 31 December 2005
Total assets 95,272 90,021 23,663 7,753 43,332 260,041
Total liabilities 98,009 77,126 16,984 5,651 24,797 222,567
Capital expenditure 262 154 143 25 10 594

Financial statements 2005
136
Business segment information 2004

Total
C&CC WCS PC AM PE GF /GSS Group

Net interest income external 7,900 841 (472) (13) (82) 622 8,796
Net interest income other segments (1,005) 758 888 17 (33) (625)
Net commission income external 1,697 1,806 521 531 8 2 4,565
Net commission income other segments 52 (78) 23 4 (1)
Net trading income 150 1,138 45 9 3 (36) 1,309
Result from financial transactions (249) 41 1 10 633 472 908
Result in equity accounted investments 87 83 14 2 20 206
Other operating income 1,047 113 59 34 (24) 6 1,235
Net sales revenue private equity holdings 2,616 2,616

Total operating income 9,679 4,702 1,079 594 3,121 460 19,635

Total operating expenses 6,809 4,783 844 443 2,614 263 15,756

Loan impairment and credit risk provisions 585 (8) 16 23 616

Total expenses 7,394 4,775 844 443 2,630 286 16,372


Operating profit before taxes 2,285 (73) 235 151 491 174 3,263

Income tax expense 677 (72) 66 46 28 25 770

Profit from continuing operations 1,608 (1) 169 105 463 149 2,493

Discontinued operations 239 1 1,207 1,447

Profit for the year 1,847 169 105 463 1,356 3,940

Other information at 31 December 2004
Total assets 217,524 428,214 15,355 954 4,770 60,637 727,454
Total liabilities 194,531 431,966 45,307 1,113 2,843 35,142 710,902
Capital expenditure 710 290 48 6 83 15 1,152



Bouw- Total
NL NA Brazil NGM fonds C&CC

Net interest income external 2,482 2,820 1,601 237 760 7,900
Net interest income other segments 26 (593) (94) (344) (1,005)
Net commission income external 592 602 313 172 18 1,697
Net commission income other segments 39 8 4 1 52
Net trading income 36 100 (1) 15 150
Result from financial transactions 1 (261) 2 6 3 (249)
Results in equity accounted investments 32 1 10 44 87
Other operating income 81 498 149 84 235 1,047
Net sales private equity holdings

Total operating income 3,289 3,175 1,984 559 672 9,679

Total operating expenses 2,790 2,086 1,297 346 290 6,809

Loan impairment and credit risk provisions 173 143 219 41 9 585

Total expenses 2,963 2,229 1,516 387 299 7,394


Operating profit before taxes 326 946 468 172 373 2,285

Income tax expense 96 274 167 33 107 677

Profit from continuing operations 230 672 301 139 266 1,608

Discontinued operations 239 239

Profit for the year 230 672 301 378 266 1,847

Other information at 31 December 2004
Total assets 86,602 73,340 13,987 5,344 38,251 217,524
Total liabilities 86,825 64,075 11,942 3,584 28,105 194,531
Capital expenditure 340 238 109 12 11 710

Financial statements 2005
137
Geographical segments
The Group operates principally in the Netherlands, Europe, and North and Latin America.
The geographical analysis presented below is based on the location of the Group entity in
which the transactions are recorded.


2005 2004

Operating Total Capital Operating Total Capital
income assets expenditure income assets expenditure

Netherlands 9,760 285,073 577 8,903 267,222 473
Europe 4,672 332,922 153 2,324 254,562 122
North America 4,287 167,128 314 4,905 133,592 391
Latin America 3,271 28,420 145 2,305 18,274 113
Asia Pacific 1,225 67,261 77 1,198 53,804 53

Total 23,215 880,804 1,266 19,635 727,454 1,152

2 Net interest income


2005 2004

Interest income from:
Cash and balances at central banks 348 218
Financial assets held for trading 1,559 1,389
Financial investments 5,198 4,190
Loans and receivables banks 2,666 2,083
Loans and receivables customers 20,757 17,454

Subtotal 30,528 25,334

Interest expense from:
Financial liabilities held for trading 1,054 976
Due to banks 5,455 4,298
Due to customers 9,749 7,374
Issued debt securities 4,212 2,797
Subordinated liabilities 997 1,093

Subtotal 21,467 16,538

Total 9,061 8,796

Financial statements 2005
138
3 Net fee and commission income


2005 2004

Fee and commission income
Securities brokerage fees 1,560 1,548
Payment and transaction services fees 1,576 1,449
Asset management and trust fees 1,153 1,041
Fees generated on financing arrangements 180 158
Advisory fees 336 311
Insurance related commissions 177 162
Guarantee fees 218 160
Other fees and commissions 427 436

Subtotal 5,627 5,265

Fee and commission expense
Securities brokerage expense 321 281
Payment and transaction services expense 165 125
Asset management and trust expense 127 126
Other fee and commission expense 268 168

Subtotal 881 700

Total 4,746 4,565

4 Net trading income


2005 2004

Securities 978 179
Foreign exchange transactions 662 687
Derivatives 933 380
Other 48 63

Total 2,621 1,309

Interest income and expense on trading positions are included in interest income and
expense.
5 Results from financial transactions


2005 2004

Net gain from the disposal of available-for-sale debt securities 431 179
Net gain from the sale of available-for-sale equity investments 55 154
Dividend on available-for-sale equity investments 54 48
Net gain on other equity investments 514 694
Hedging ineffectiveness 39 (112)
Other 189 (55)

Total 1,282 908

The net gain on other equity investments includes gains and losses arising on investments
held at fair value and the result on the sale of consolidated holdings of a private equity
nature.
Financial statements 2005
139
6 Other operating income


2005 2004

Mortgage banking activities (North America) 208 234
Property development 330 235
Insurance activities 198 226
Leasing activities 60 63
Result on the disposal of operating activities and
equity accounted investments 347 187
Other 445 290

Total 1,588 1,235

Mortgage banking activity income can be analysed as follows:


2005 2004

Net origination and sale income 30 83
Loan servicing income and related fees 485 484
Amortisation of mortgage servicing rights (net of derivative income) (214) (243)
Net servicing hedge gains / (losses) (93) (90)

Total 208 234

The predominant business practice of our North America mortgage banking business is the
origination and subsequent sale of fixed-rate consumer mortgage loans to US government-
sponsored entities. In most cases a servicing role is retained.
Insurance income can be analysed as follows:


2005 2004

Premium income 1,238 1,303
Investment income 406 300
Provision for insured risk (1,446) (1,377)

Total 198 226

Financial statements 2005
140
7 Personnel expenses


2005 2004

Salaries (including bonuses and allowances) 5,915 5,602
Social security expenses 740 620
Pension and post-retirement healthcare costs 11 390
Share-based payment expenses 61 4
Temporary staff costs 247 222
Termination payments 175 191
Restructuring related costs 10 42 502
Other employee costs 340 287

Total 7,531 7,818

Average number of employees (fte):
Banking activities Netherlands 27,995 28,671
Banking activities foreign countries 69,528 69,469
Consolidated private equity holdings 40 22,201 17,938

Total 119,724 116,078

Included in pension and post-retirement healthcare costs in 2005 is a release of the
healthcare provision.
8 General and administrative expenses


2005 2004

Professional fees 1,111 809
Information technology expenses 930 829
Property costs 766 731
Staff related expenses (including training) 184 153
Travel and transport 312 268
Stationary and printing expense 121 117
Communication and information 477 470
Commercial expenses 571 424
Expenses of consolidated private equity holdings 352 284
Restructuring related costs 10 (9) 179
Sundry expenses 997 774

Total 5,812 5,038

Financial statements 2005
141
9 Depreciation and amortisation


2005 2004

Property depreciation 148 156
Equipment depreciation 543 519
Software amortisation 279 280
Impairment losses on goodwill of private equity investments 19 124
Impairment losses on property and equipment 9 38
Impairment of property and equipment from restructuring 10 4 109
Other 19 9

Total 1,021 1,235

This item includes EUR 133 million (2004: EUR 151 million) of depreciation, amortisation and
impairments charged by consolidated private equity holdings (see note 40).
10 Restructuring costs
The following table summarises the Groups restructuring costs as included in the relevant
cost categories.


2005 2004

Personnel related costs 42 502
Other administrative expenses (9) 179
Impairment of property and equipment 4 109

Total 37 790

The 2005 charge mainly relates to operations in France. The charge of 2004 relates to
Wholesale Clients initiatives and Group Shared Services initiatives for Information Technology
and Human Resources.
11 Income tax expense
Recognised in the income statement


2005 2004

Current tax expense
Current year 1,106 1,186
Under / (over) provided in prior years (87) (30)

Subtotal 1,019 1,156

Deferred tax expense
Origination and reversal of timing differences 257 (373)
Reduction in tax rate (35) (13)

Subtotal 222 (386)

Total 1,241 770

Financial statements 2005
142
The effective tax rate on the Groups profit before tax differs from the theoretical amount
that would arise using the basic tax rate of the Netherlands. The difference can be explained
as follows:

(in percentages points)
2005 2004

Dutch tax rate 31.5 34.5
Effect of tax rate in foreign countries (5.0) (4.2)
Effect of previously unrecognised tax losses utilised (0.8) (0.0)
Effect of tax-exempt income in the Netherlands (1.2) (3.7)
Other (2.7) (3.0)

Effective tax rate on operating profit 21.8 23.6

Recognised directly in equity

(benefits) / charges
2005 2004

Relating to currency translation (198) 51
Relating to cash flow hedges (235) (54)
Relating to available-for-sale assets 169 118

Total (264) 115

12 Earnings per share
The calculations for basic and diluted earnings per share are presented in the following table.


2005 2004

Profit for the year attributable to shareholders of the
parent company 4,382 3,865
Profit from continuing operations attributable to shareholders of
the parent company 4,382 2,418
Profit from discontinued operations attributable to shareholders
of the parent company 1,447

Weighted average number of ordinary shares
outstanding (in millions) 1,804.1 1,657.6
Dilutive effect of staff options (in millions) 5.2 3.1
Performance share plan (in millions) 2.9 1.0

Diluted number of ordinary shares (in millions) 1,812.2 1,661.7

Basic earnings per ordinary share (in euros) 2.43 2.33
Fully diluted earnings per ordinary share (in euros) 2.42 2.33

Basic earnings per ordinary share from continuing
operations (in euros) 2.43 1.46
Fully diluted earnings per ordinary share from continuing
operations (in euros) 2.42 1.46

Basic earnings per ordinary share from discontinued
operations (in euros) 0.87
Fully diluted earnings per ordinary share from discontinued
operations (in euros) 0.87

Financial statements 2005
143
13 Cash and balances at central banks
This item includes cash on hand and deposits with central banks in countries in which the
bank has a presence.


2005 2004

Cash on hand 1,590 1,204
Balances at central bank 15,067 16,692

Total 16,657 17,896

14 Financial assets and liabilities held for trading


2005 2004

Financial assets held for trading
Interest-earning securities:
Dutch government 2,520 552
US treasury and US government agencies 7,843 5,759
Other OECD governments 37,855 28,409
Other interest-earning securities 13,789 17,114

Subtotal 62,007 51,834

Equity instruments 34,676 18,409
Derivative financial instruments 105,372 96,792

Total 202,055 167,035

Financial liabilities held for trading
Short positions in financial assets 52,060 39,059
Derivative financial instruments 96,528 90,447

Total 148,588 129,506

Gains and losses on derivative financial instruments and changes in fair value of other trading
instruments are recognised in net trading income. Interest income and expense from debt
and other fixed-income instruments are recognised in net interest income.
Financial statements 2005
144
Trading portfolio derivative financial instruments


2005 2004

Fair values Fair values
Notional Notional
amounts Assets Liabilities amounts Assets Liabilities

Interest rate derivatives
OTC Swaps 4,846,112 70,644 64,527 3,048,969 56,491 52,373
Forwards 220,612 80 73 204,118 110 89
Options (purchased) 243,296 6,072 337,359 2,262
Options (sold) 266,718 6,321 202,738 2,224
Exchange Futures 209,197 1 2 227,114 20
Options (purchased) 292 3 23,884 160
Options (sold) 293 1 17,278 190

Subtotal 5,786,520 76,800 70,924 4,061,460 59,043 54,876

Currency derivatives
OTC Swaps 518,012 12,356 10,431 428,564 21,933 20,659
Forwards 507,385 5,004 5,661 438,635 10,702 10,144
Options (purchased) 63,835 1,524 60,016 1,666
Options (sold) 66,174 1,313 58,701 1,268
Exchange Futures 2,855 5 8 4,765 4 15
Options 7,243 71 70 3,554 113 86

Subtotal 1,165,504 18,960 17,483 994,235 34,418 32,172

Other
OTC Equity, commodity
and other 511,791 4,747 4,589 124,090 1,458 1,564
Equity options
(purchased) 24,116 3,507 10,655 891
Equity options (sold) 26,987 2,472 9,665 817
Exchange Equity, commodity
and other 12,389 288 23 6,455 76 81
Equity options
(purchased) 14,848 1,070 10,833 906
Equity options (sold) 15,794 1,037 11,077 937

Subtotal 605,925 9,612 8,121 172,775 3,331 3,399

Total 7,557,949 105,372 96,528 5,228,470 96,792 90,447

For an analysis of the market and liquidity risks involved, please refer to note 38.
Financial statements 2005
145
15 Financial investments


2005 2004

Interest-earning securities: available-for-sale
Dutch government 2,781 2,172
US treasury and US government 6,618 8,070
Other OECD governments 51,760 47,238
Mortgage-backed securities 12,100 14,758
Other interest-earning securities 39,918 19,930

Subtotal 113,177 92,168

Interest-earning securities: held-to-maturity
Dutch government 2,136 2,176
US treasury and US government 22 45
Other OECD governments 3,660 4,421
Mortgage-backed securities 36 26
Other interest-earning securities 718 1,002

Subtotal 6,572 7,670

Total 119,749 99,838

Equity investments
Available-for-sale 2,337 1,610
Designated at fair value through income 1,688 1,500

Subtotal 4,025 3,110

Total 123,774 102,948

Other interest-earning securities include investments in covered bonds. Interest income from
debt and other fixed-income instruments is recognised using the effective interest method in
interest income. Dividend income from other non-fixed-income instruments is recognised in
results from financial transactions.
16 Loans and receivables banks
This item is comprised of amounts due from or deposited with banking institutions.


2005 2004

Current accounts 5,479 3,958
Time deposits placed 11,613 11,672
Professional securities transactions 31 87,281 64,375
Loans to banks 4,279 3,856

Subtotal 108,652 83,861

Allowances for impairment 18 (17) (3)

Total 108,635 83,858

Financial statements 2005
146
17 Loans and receivables customers
This item is comprised of amounts receivable, mainly regarding loans and mortgages
balances with non-bank customers.


2005 2004

Public sector 7,461 6,059
Commercial 152,411 127,044
Consumer 122,708 107,124
Professional securities transactions 31 74,724 59,269
Multi-seller conduits 25,931 23,700

Subtotal 383,235 323,196

Allowances for impairment 18 (2,987) (3,174)

Total 380,248 320,022

The amount receivable held by multi-seller conduits is typically collateralised by a pool of
customer receivables in excess of the amount advanced, such that credit risk is very low
(see note 38).
The risk management disclosures section on credit risk (see note 38) contains information
about the concentration of credit risk by business sector and geographical location, as well
as a breakdown of the amounts by type of collateral.
18 Loan impairment charges and allowances


2005 2004

Balance at 1 January 3,177 4,307
Loan impairment charges:
New impairment allowances 1,428 1,259
Reversal of impairment allowances no longer required (550) (464)
Recoveries of amounts previously written off (236) (170)
Other credit related charges 6 (9)

Total loan impairment and other credit risk provisions 648 616

Amount recorded in interest income from
unwinding of discounting (32) (40)
Currency translation differences 208 (83)
Amounts written off (1,070) (1,236)
Disposals of businesses (465)
Reserve for unearned interest accrued on impaired loans 73 78

Balance at 31 December 3,004 3,177

All loans are assessed for potential impairment either individually and / or on a portfolio
basis. The allowance for impairment is apportioned as follows:


2005 2004

Commercial loans 2,146 2,598
Consumer loans 841 576
Loans to banks 17 3

Total 3,004 3,177

Financial statements 2005
147
Loan provisioning-commercial loans
The Group reviews the status of credit facilities issued to commercial clients at least once
during the year. Additionally, credit officers continually monitor the quality of the credit, the
client and the adherence to contractual conditions. Should the quality of a loan or the
borrowers financial position deteriorate to the extent that doubts arise over the borrowers
ability to meet their contractual obligations, management of the relationship is transferred to
the Financial Restructuring and Recovery function. After making an assessment, Financial
Restructuring and Recovery determines the amount, if any, of the specific allowance that
should be made, after taking into account the value of collateral. We partly or fully release
specific allowance when the debt is repaid or expected future cash flows improve due to
positive changes in economic or financial circumstances. Commercial loans are not written
off in whole or in part until it is clear that a further partial recovery can be ruled out.
Loan provisioning-consumer loan products
The bank offers a wide range of consumer loan products and programmes such as personal
loans, home mortgages, credit cards and home improvement loans. Provisioning for these
products is carried out on a portfolio basis, with a specific provision for each product being
determined by the portfolios size and loss experience.
Our consumer loan portfolio policy states that, in general, when interest or principal on a
consumer loan is 90 days or more past due, such loans are classified as non-performing.
Provisions for a given portfolio may be released where there is improvement in the quality of
the portfolio. For consumer loans, our write-off rules are time-based and vary by type of
product. For example, unsecured facilities, such as credit cards and personal loans, are
generally written off at 180 days past due and cash-backed and debt and/or equity-backed
facilities are generally written off at 90 days past due.
Allowance for incurred but not identified losses
In addition to impairment allowances calculated on a specific or portfolio basis, the Group
also maintains an allowance to cover undetected impairments expected to exist within loans
due to changes in economic conditions and delays in obtaining information that indicate that
losses exist at the balance sheet date.
Financial statements 2005
148
19 Equity accounted investments


2005 2004

Banking institutions 2,885 1,257
Other activities 108 171

Total 2,993 1,428

Balance at 1 January 1,428 1,443
Movements:
Purchases 1,554 6
Sales / reclassifications (265) (108)
Share in results of equity accounted investments 280 206
Dividends received from equity accounted investments (63) (59)
Currency translation differences 31 (13)
Other 28 (47)

Balance at 31 December 2,993 1,428

Purchases in 2005 include our increased stake in Banca Antonveneta (see note 44). During
2005 our investment in Kereskedelmi s Hitelbank Rt. has been reclassified to available-for-
sale assets upon the loss of significant influence.
Included in the Groups cash flow hedging and available-for-sale reserve is EUR 95 million of
unrealised gains relating to equity accounted investments.
Investments with a book value of EUR 2,345 million (2004: EUR 738 million) that are traded
on a recognised stock exchange had a combined market value of EUR 3,399 million (2004:
EUR 1,379 million)
Amounts receivable from and payable to equity accounted investments included in the
various balance sheet items totalled:


2005 2004

Loans and receivables banks 1,151 6
Loans and receivables customers 495 134
Due to banks 138 171
Due to customers 246 279

The principal equity accounted investments of the Group on an aggregated basis (not
adjusted for the Groups proportionate interest) have the following balance sheet and income
statements totals:


2005 2004

Total assets 192,927 196,001
Total liabilities 180,577 185,449
Total operating income 8,887 8,751
Profit before tax 1,524 834

Financial statements 2005
149
20 Property and equipment
The book value of property and equipment in 2005 and 2004 changed as follows:

Property

Used in Other Equipment Total
operations

Balance at 1 January 2005 2,994 2,677 1,502 7,173
Movements:
Business combinations 308 24 508 840
Divestment of businesses (36) (190) (186) (412)
Additions 381 1,196 460 2,037
Disposals (295) (724) (45) (1,064)
Impairment losses (13) (43) (1) (57)
Depreciation (148) (543) (691)
Currency translation differences 149 39 96 284

Balance at 31 December 2005 3,340 2,979 1,791 8,110

Representing:
Cost 4,802 3,091 3,801 11,694
Cumulative impairment (48) (103) (2) (153)
Cumulative depreciation (1,414) (9) (2,008) (3,431)


Property

Used in Other Equipment Total
operations

Cost 4,291 2,695 11,378 18,364
Cumulative impairments (25) (46) (71)
Cumulative depreciation (1,191) (6) (1,520) (2,717)

Balance at 1 January 2004 3,075 2,643 9,858 15,576

Movements:
Business combinations 184 112 128 424
Divestment of businesses (187) (380) (8,268) (8,835)
Additions 282 1,156 535 1,973
Disposals (98) (827) (206) (1,131)
Impairment losses (38) (25) (63)
Depreciation (154) (2) (519) (675)
Currency translation differences (70) (26) (96)

Balance at 31 December 2004 2,994 2,677 1,502 7,173

Representing:
Cost 4,417 2,748 3,230 10,395
Cumulative impairment (35) (63) (98)
Cumulative depreciation (1,388) (8) (1,728) (3,124)

The Group leases equipment under a number of finance lease agreements. At 31 December
2005 the net carrying amount of leased equipment included in property and equipment was
EUR 23 million (2004: EUR 22 million).
Financial statements 2005
150
The Group also leases out various assets under operating leases. Non-cancellable operating
lease rentals are as follows:


2005 2004

Less than one year 27 18
Between one and five years 100 137
More than five years 30 40

157 195

During the year ended 31 December 2005, EUR 60 million (2004: EUR 64 million) was
recognised as rental income in the income statement and EUR 51 million (2004: EUR 50
million) in respect of directly related expenses.
Development property
Included in other property is development property relating to Bouwfonds consisting of land
and construction in progress for a total amount of EUR 2,113 million (2004: EUR 1,879
million).
Investment property
Other property includes investment property within Bouwfonds for an amount of EUR 463
million (2004: EUR 336 million). The gross rental income on investment property equals
EUR 33 million (2004: EUR 23 million) and the direct operating expenses are EUR 4 million
(2004: EUR 2 million).
Impairment losses in other property mainly relates to development property of Bouwfonds.
21 Goodwill and other intangible assets


2005 2004

Private equity goodwill 2,128 877
Other goodwill 198 67
Software 758 602
Other intangibles 99 93

Subtotal 3,183 1,639

Mortgage servicing rights 1,985 1,504

Total 5,168 3,143

Financial statements 2005
151
The book value of goodwill and other intangibles, excluding mortgage servicing rights,
changed as follows:

Private Other Software Other Total
equity goodwill intangibles
goodwill

Balance at 1 January 2005 877 67 602 93 1,639
Movements:
Business combinations 1,281 35 5 51 1,372
Divestments of businesses (91) (2) (14) (70) (177)
Other additions 80 97 425 42 644
Disposals (9) (9)
Impairments (19) (1) (20)
Amortisation (279) (18) (297)
Currency translation differences 1 29 1 31

Balance at 31 December 2005 2,128 198 758 99 3,183

Representing:
Cost 2,271 200 1,572 120 4,163
Cumulative impairment (143) (2) (15) (160)
Cumulative amortisation (799) (21) (820)


Private Other Software Other Total
equity goodwill intangibles
goodwill

Balance at 1 January 2004 757 625 95 1,477
Movements:
Business combinations 394 67 16 19 496
Divestments of businesses (150) (32) (21) (203)
Other additions 335 4 339
Disposals (50) (50)
Impairment losses (124) (17) (141)
Amortisation (282) (4) (286)
Currency translation differences 7 7

Balance at 31 December 2004 877 67 602 93 1,639

Representing:
Cost 1,001 69 1,409 96 2,575
Cumulative impairment (124) (2) (17) (143)
Cumulative amortisation (790) (3) (793)

The net book amount of mortgage servicing rights changed as follows:


2005 2004

Balance at 1 January 1,504 1,434
Additions 611 558
Amortisation (291) (413)
Hedge accounting adjustment (86) 55
Currency translation differences 247 (130)

Balance at 31 December 1,985 1,504

Financial statements 2005
152
At the end of December 2005 and 2004 the book value of MSRs was lower than fair value,
so no impairment adjustments are required. The fair value of MSRs at 31 December 2005
amounted to EUR 2,258 million (2004: EUR 1,724 million). The valuation of MSRs, because
of the inherent uncertainties involved, requires judgement. Economic factors considered in
estimating the fair value of MSRs include interest rates, discount rates, prepayment speeds,
geographic characteristics, servicing costs and ancillary income. Mortgage loan prepayment
rates are revised monthly, and are derived from a third-party model. In addition, management
uses valuations by various third-party brokers to compare its valuation assessments with
market data.
22 Other assets


2005 2004

Deferred tax assets 29 2,682 2,956
Current tax assets 337 579
Derivatives assets used for hedging 36 3,213 2,292
Mortgages originated for-sale 4,311 3,124
Unit-linked investments held for policyholder accounts 3,624 2,964
Pension assets 27 119 74
Other assets of consolidated private equity holdings,
including inventories 1,531 1,156
Sundry assets and other receivables 9,733 5,066

Total 25,550 18,211

Mortgages originated-for-sale and unit-linked investments held for policyholders are
designated at fair value with changes through income. Mortgages originated for-sale are
originated by our mortgage banking business in North America.
Sundry assets include insurance related deposits and other short-term receivables. The 2005
amount also includes EUR 2,100 million relating to unsettled purchases of
Banca Antonveneta shares.
23 Due to banks
This item is comprised of amounts due to banking institutions, including central banks and
multilateral development banks.


2005 2004

Professional securities transactions 31 71,231 56,351
Current accounts 23,573 18,378
Time deposits 63,836 50,944
Advances from Federal Home Loan banks 7,239 6,215
Other 1,942 1,641

Total 167,821 133,529

This balance includes EUR 19,932 million (2004: EUR 16,986 million) with central banks.
Financial statements 2005
153
24 Due to customers
This item comprises amounts due to non-banking customers.


2005 2004

Consumer current accounts 21,502 19,817
Commercial current accounts 67,133 61,637
Consumer savings accounts 84,166 74,256
Commercial deposit accounts 87,099 73,466
Professional securities transactions 31 48,982 44,782
Other 8,201 7,421

Total 317,083 281,379

25 Issued debt securities

2005 2004

Effective Effective
rate % rate%

Bonds and notes issued 3.2 90,050 3.0 61,485
Certificates of deposit and commercial paper 2.9 51,873 2.1 32,326
Cash notes, savings certificates and
bank certificates 4.2 2,657 3.3 3,721

Subtotal 144,580 97,532

Commercial paper issued by multi-seller conduits 3.4 26,039 3.0 23,700

Total 170,619 121,232

Bonds are issued in the capital markets with a focus on the Euro market and are
denominated mostly in euro and US dollars. The commercial paper programmes are issued
globally with the majority issued in the United States and Europe. The other debt securities
are instruments used in markets in which ABN AMRO is active and are usually denominated
in local currencies. Of the total amount, EUR 60 billion (2004: EUR 30 billion) are variable
interest bearing securities. EUR 16.5 billion (2004: EUR 7.6 billion) of issued debt of a fixed
rate nature has been designated in fair value hedge relationships.
Currency


2005 2004

EUR 77,660 76,577
USD 75,243 33,476
Other 17,716 11,179

Total 170,619 121,232

Included in the balance above are various structured liabilities that have been designated at
fair value through income due to the inclusion of embedded derivative features. These
liabilities had a fair value at 31 December 2005 of EUR 2,815 million (2004: EUR 2,337
million) and an amortised cost value of EUR 2,882 million (2004: EUR 2,331 million).
Financial statements 2005
154
Maturity analysis


2005 2004

Within one year 102,368 66,239
After one and within two years 11,770 9,016
After two and within three years 7,175 9,053
After three and within four years 7,521 5,334
After four and within five years 8,082 7,405
After five years 33,703 24,185

Total 170,619 121,232

26 Provisions


2005 2004

Provision for pension commitments 27 942 1,218
Provision for contributions to post-retirement healthcare 27 101 524
Other staff provision 459 448
Insurance fund liabilities 3,169 3,111
Restructuring provision 501 752
Other provisions 1,239 880

Total 6,411 6,933

The other staff provisions refer in particular to occupational disability and other benefits,
except early retirement benefits, payable to non-active employees. Provisions created for
staff benefit schemes due to restructuring are accounted for as restructuring provision.
Insurance fund liabilities include the actuarial reserves and the premium and claims reserves
of the Groups insurance companies.

Other staff Restructuring Other provisions
provisions

Balance at 1 January 2005 448 752 880
Movements:
Additions from income statement 316 33 513
Expenses charged to provisions (320) (298) (289)
Acquisitions / disposals 28
Currency translation differences 15 14 107

Balance at 31 December 2005 459 501 1,239


Other staff Restructuring Other provisions
provisions

Balance at 1 January 2004 357 181 814
Movements:
Additions from income statement 332 681 265
Expenses charged to provisions (256) (109) (219)
Acquisitions / disposals (6) (45)
Currency translation differences (9) (1) 3
Other 30 62

Balance at 31 December 2004 448 752 880

Financial statements 2005
155
The change in 2004 relates to Wholesale Clients initiatives and Group Shared Services
initiatives for Information Technology and Human Resources. The majority of savings are
expected to materialise in 2007.
Insurance Fund Liabilities movement are as follows:


2005 2004

Balance at 1 January 3,111 2,640
Premium carried from income statement 294 603
Claims paid (14) (255)
Interest 34 33
Acquisitions / disposals (637)
Changes in estimates and other movements 97 93
Currency translation differences 284 (3)

Balance at 31 December 3,169 3,111

27 Pension and other post-retirement employee benefits
Pension costs and contributions for post-retirement healthcare borne by the Group are
included in personnel expenses and are shown in the following table:

Pension Healthcare

2005 2004 2005 2004

Service cost 320 306 24 18
Interest cost 510 506 39 32
Expected return on plan assets (585) (566) (5) (3)
Net amortisation of net actuarial (gain) / loss 1 9
Net amortisation of prior-service cost 1
(Gain) / loss on curtailment or settlements (11) 19 (453) (1)

Defined benefit plans 236 265 (386) 46

Defined contribution plans 161 79

Total costs 397 344 (386) 46

Liability for defined benefit obligations
The Group makes contributions to 58 defined benefit plans that provide pension benefits for
employees upon retirement. The amounts recognised in the balance sheet are as follows:

Pension Healthcare

2005 2004 2005 2004

Present value of funded obligations 12,316 10,644 88 106
Present value of unfunded obligations 87 71 51 654
Less fair value of plan assets 10,212 8,754 63 46

Present value of net obligations 2,191 1,961 76 714

Unrecognised prior year service cost (10)
Unrecognised actuarial (losses) / gains (1,400) (861) 25 (190)
Unrecognised assets 42 44

Net recognised liability for defined benefit
obligations 823 1,144 101 524

Included in the net recognised liability for pension is a pension asset of EUR 119 million
(2004: EUR 74 million).
Financial statements 2005
156
Movements in the net liability / asset recognised in the balance sheet are as follows:

Pension Healthcare

2005 2004 2005 2004

Net liability at 1 January 1,144 1,399 524 503
Acquisition / disposals (1) 48 18
Contributions paid (572) (573) (56) (17)
Expense recognised in the income statement 236 265 (386) 46
Currency translation differences 16 5 19 (26)

Net liability at 31 December 823 1,144 101 524

Explanation of the asset and liability
The following tables summarise the changes in benefit obligations and plan assets of the
main pension plans and other employee benefit plans.
Movements in projected benefit obligations:

Pension Healthcare

2005 2004 2005 2004

Balance at 1 January 10,715 9,307 760 561
Service cost 320 306 24 18
Interest cost 510 506 39 32
Employee contributions / refunds 15 14
Actuarial (gain) / loss 925 962 45 192
Benefits paid (312) (300) (50) (17)
Acquisitions / disposals (1) (85)
Plan amendments 2 7
Settlement / curtailment (25) (4) (707)
Currency translation differences 212 (14) 28 (26)
Other 42 16

Balance at 31 December 12,403 10,715 139 760

Movements in fair value of plan assets:

Pension Healthcare

2005 2004 2005 2004

Balance at 1 January 8,754 7,988 46 44
Actual return on plan assets 984 629 2 5
Employee contributions / refunds 15 14
Employers contribution 572 573 9 17
Benefits paid (298) (285) (3) (2)
Acquisitions / disposals (133) (18)
Currency translation differences 195 (19) 9
Recognised settlement / curtailment (10)
Other (13)

Balance at 31 December 10,212 8,754 63 46

Financial statements 2005
157
The weighted averages of the main actuarial assumptions used to determine the value of the
provisions for pension obligations and contributions to health insurance as at 31 December
were as follows:


2005 2004

Pensions
Discount rate 4.3% 4.7%
Expected increment in salaries 2.4% 2.6%
Expected return on investments 6.2% 7.0%
Healthcare
Discount rate 7.8% 5.2%
Average rise in the costs of healthcare 9.5% 6.8%

The expected return on investments regarding pension obligations is weighted on the basis
of the fair value of these investments. The average rise in cost of healthcare is weighted on
the basis of the healthcare cost of 2005. All other assumptions are weighted on the basis of
the defined benefit plan obligations.
For the pension plans the target and actual allocation of the plan assets are as follows:
Allocation of plan assets

Target allocation Actual allocation Actual allocation
2005 2005 2004

Plan asset category
Equity securities 49.1% 52.8% 47.7%
Issued debt securities 50.7% 45.3% 50.2%
Real estate 0.0% 0.1% 0.2%
Other 0.2% 1.8% 1.9%

Total 100.0% 100.0% 100.0%

Plan assets for 2005 and 2004 do not include investments in ordinary shares, debt issued or
property occupied by the Group.
Forecast of pension benefits payments

2006 318
2007 330
2008 340
2009 355
2010 363
Years after 2010 2,185

The Groups expected contribution to be paid to defined pension schemes in 2006 is
EUR 598 million.
Financial statements 2005
158
28 Other liabilities


2005 2004

Deferred tax liabilities 29 2,471 2,457
Current tax liabilities 1,032 1,612
Derivatives liabilities used for hedging 36 4,712 3,311
Liability to unit-linked policyholders 3,624 2,964
Other liabilities of consolidated private equity holdings 768 575
Sundry liabilities and other payables 6,116 2,643

Total 18,723 13,562

29 Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following items:

Assets Liabilities Net

2005 2004 2005 2004 2005 2004

Property and equipment 44 104 155 169 (111) (65)
Intangible assets including
goodwill 341 333 341 333
Derivatives 52 140 330 543 (278) (403)
Investment securities 127 205 146 356 (19) (151)
Employee benefits 471 311 12 2 459 309
Servicing rights 613 460 (613) (460)
Allowances for loan losses 762 642 42 35 720 607
Leasing 469 399 (469) (399)
Tax credits 77 89 77 89
Other 317 783 193 161 124 622
Tax value of carry-forward
losses recognised 637 550 511 332 126 218

Subtotal 2,828 3,157 2,471 2,457 357 700

Valuation allowance (146) (201) (146) (201)

Total 2,682 2,956 2,471 2,457 211 499

Unrecognised deferred tax assets
Deferred tax assets that have not been recognised in respect of carry forward losses amount
to EUR 252 million (2004: EUR 202 million). Deferred tax assets have not been recognised in
respect of these items because it is not probable that future taxable profit will be available
against which the Group can utilise the benefits from them.
Financial statements 2005
159
Expiration of carry-forward losses
At 31 December 2005 carry-forward losses expire as follows:

2006 448
2007 435
2008 645
2009 101
2010 181
Years after 2010 1,158

Total 2,968

Tax exposure to distributable reserves
ABN AMRO considers approximately EUR 2.1 billion in distributable invested equity of
foreign operations to be permanently invested. If retained earnings were to be distributed,
no foreign income taxes would have to be paid. The estimated impact of foreign withholding
tax is EUR 9 million (2004: EUR 223 million).
30 Subordinated liabilities
Issued liabilities qualify as subordinated debt if claims by the holders are subordinated to all
other current and future liabilities of, respectively, ABN AMRO Holding N.V, ABN AMRO
Bank N.V. and other Group companies. These liabilities qualify as capital, taking into account
remaining maturities, for the purpose of determining the consolidated capital adequacy ratio
for the Dutch central bank.
The maturity profile of subordinated liabilities is as follows:


2005 2004

Within one year 1,156 1,086
After one and within two years 1,452 1,115
After two and within three years 704 1,364
After three and within four years 1,550 668
After four and within five years 1,395 1,546
After five years 12,815 10,908

Total 19,072 16,687

The average interest rate on subordinated liabilities was 5.4% (2004: 5.6%). Subordinated
liabilities as at 31 December 2005 denominated in euros amounted to EUR 9,240 million
(2004: EUR 8,866 million) and in US dollars an amount of EUR 9,745 million (2004: EUR 7,731
million). EUR 5,703 million (2004: EUR 2,952 million) is of a variable interest rate nature.
Financial statements 2005
160
The following table analyses the subordinated liabilities by issuer:
Breakdown of debt raised by entity


2005 2004

ABN AMRO Holding N.V. financing preference shares 768 768
ABN AMRO Bank N.V. 13,051 10,598
Other Group companies 5,253 5,321

Total 19,072 16,687

Total subordinated liabilities include EUR 5,261 million (2004: EUR 4,657 million) which
qualify as tier 1 capital for capital adequacy purposes.
31 Professional securities transactions
Professional security transactions include balances relating to reverse repurchase activities,
cash collateral on securities borrowed and security settlement accounts. The Group
minimises credit risk associated with these activities by monitoring counterparty credit
exposure and collateral values on a daily basis and requiring additional collateral to be
deposited with or returned to the Group when deemed necessary.

2005 2004

Banks Customers Banks Customers

Assets
Cash advanced under securities borrowing 662 29,811 2,348 28,990
Reverse repurchase agreements 83,260 29,548 59,045 24,663
Unsettled securities transactions 3,359 15,365 2,982 5,616

Total 87,281 74,724 64,375 59,269

Liabilities
Cash received under securities lending 1,715 7,616 1,225 5,115
Repurchase agreements 65,891 26,982 51,833 30,681
Unsettled securities transactions 3,625 14,384 3,293 8,986

Total 71,231 48,982 56,351 44,782

Under reverse repurchase, securities borrowing, and other collateralised arrangements, the
Group obtains securities on terms which permit it to repledge or resell the securities to
others.


2005 2004

Securities received under reverse repurchase and / or securities
borrowing arrangements which can be repledged or resold 66,676 63,618
Of the above amount, the amount that has either been repledged
or otherwise transferred to others in connection with the
Groups financing activities or to satisfy its commitments
under short sale transactions 27,329 42,169

Financial statements 2005
161
32 Securitisations and assets pledged as security
Details of the carrying amounts of assets pledged as collateral are as follows:


2005 2004

Cash and balances at central banks 10,737 7,367
Financial investments 12,074 15,945
Loans and receivables customers 32,656 32,326

Total 55,467 55,638

These assets have been pledged in respect of the following liabilities and contingent
liabilities:


2005 2004

Due to banks 17,782 15,889
Due to customers 4,266 3,940
Issued debt securities 21,440 15,550

Total 43,488 35,379

Securitisation
Sale transactions
Included in the above pledged assets is an amount of EUR 6,290 million (2004: EUR 7,786
million) sold to SPEs in which the Group has the majority of the risks and rewards. Thus the
assets continue to be recognised on consolidation.
Synthetic transactions
In addition the Group has synthetic securitisations for an amount of EUR 59,255 million
(2004: EUR 17,826 million). Through a synthetic securitisation the Group is able to buy
protection without actual transference of any assets to a SPE. In general, the Group as the
owner of the assets, buys protection to transfer the credit risk of a portfolio of assets to
another entity that sells the protection. Although the credit risk of the portfolio is transferred,
actual ownership of the portfolio of assets remains with the Group.
Credit default swaps
In addition to the transactions mentioned above, the Group also uses credit default swaps to
reduce credit risk for parts of the loan portfolio by selling these risks directly to the capital
markets. At 31 December 2005 the Group has bought credit protection for an amount of
EUR 30,352 million (2004: EUR 13,661 million).
Derecognition
Though the Group has sold a part of its loan portfolio in North America, it still holds legal title
to some of these loans. In most cases these loans are also serviced by the Group. The bank
also services loans originated by other institutions. The following table states the total
outstandings at 31 December 2005.
Transaction type


2005 2004

Legal title to loans sold 136 954
Loans serviced for third parties 160,654 139,763

Financial statements 2005
162
33 Commitments and contingent liabilities
Loan and banking commitments
At any time the Group has outstanding commitments to extend credit. These commitments
take the form of approved loans, overdraft facilities and credit card limits. Outstanding loan
commitments have a commitment period that does not extend beyond the normal
underwriting and settlement period of one to three months.
The Group provides financial guarantees and letters of credit to guarantee the performance
of customers to third parties. These transactions have fixed limits and generally extend for a
period of up to five years. Expirations are not concentrated in any particular period. The
Group also provides guarantees by acting as a settlement agent in securities borrowing and
lending transactions.
The contractual amounts of commitments and contingent liabilities are set out by category in
the following table. The amounts stated in the table for commitments assume that amounts
are fully advanced. The amounts reflected in the table for guarantees and letters of credit
represent the maximum accounting loss that would be recognised at the balance sheet date
if the relevant contract parties completely failed to perform as contracted.


2005 2004

Committed credit facilities 141,010 145,009
Contingent liabilities with respect to guarantees granted 41,536 42,399
Contingent liabilities with respect to irrevocable letters of credit 4,485 4,066

Many of the contingent liabilities and commitments will expire without being advanced in
whole or in part. This means that the amounts stated do not represent expected future cash
flows. Additionally, guarantees and letters of credit are supported by varying levels of
collateral.
Aside from the items stated above, non-quantified guarantees have been given for the banks
securities custody operations, for interbank bodies and institutions and for participating
interests. Collective guarantee schemes are applicable to Group companies in various
countries. Furthermore, statements of liability have been issued for a number of Group
companies.
Capital expenditure and commitments
For 2006, capital expenditure is forecast at EUR 1.3 billion, of which the Group is already
committed to an amount of EUR 243 million. These commitments are expected to be settled
in the following financial year.
Financial statements 2005
163
Leases as lessee
Operating lease rentals are payable as follows:

Less than one year 255
Between one and five years 614
More than five years 912

1,781

During 2005, EUR 303 million (2004: EUR 339 million) of operating lease expense and
EUR 48 million (2004: EUR 12 million) of sublease income was recognised in income.
Other contingencies
Legal proceedings have been initiated against the Group in a number of jurisdictions, but on
the basis of information currently available, and having taken legal counsel, the Group is of
the opinion that the outcome of these proceedings net of any related insurance claims is
unlikely to have a material adverse effect on the consolidated financial position and the
consolidated profit of the Group.
34 Asset management
The Group provides asset management services to individuals, trusts, retirement benefit
plans and other institutions. These services involve holding and managing assets or investing
received funds in various financial investments at the direction of the customer. The Group
receives fee income for providing these services. Trust assets are not assets of the Group
and are not recognised in the consolidated balance sheet. The Group is not exposed to any
credit risk relating to such placements, as it does not guarantee these investments.
At 31 December 2005 the total assets managed by the Group on behalf of customers were
EUR 176.2 billion (2004: EUR 160.7 billion).
35 Cash flow statement


2005 2004

Determination of cash and cash equivalents:
Cash and balances at central banks 16,657 17,896
Loans and receivables banks 5,455 3,954
Due to banks (16,069) (13,247)

Cash and cash equivalents 6,043 8,603

Financial statements 2005
164
The following table analyses movements resulting from acquisitions and disposals:


2005 2004

Amounts paid / received in cash and cash equivalents on
acquisitions / disposals of subsidiaries 366 (173)
Net movement in assets and liabilities:
Financial assets held for trading (131)
Financial investments (112)
Loans and receivables banks (866)
Loans and receivables customers 186 (4)
Property and equipment 396 108
Other assets 1,109 366

Total assets 582 470

Due to banks 1,514 281
Due to customers (812) 108
Issued debt securities 21
Accruals and deferred income 57 56
Subordinated liabilities 45 56
Other liabilities (192) (96)

Total liabilities 612 426

Cash flows from operating activities include:
Interest received 29,388 25,154
Interest paid 21,456 16,659
Dividends received 158 170
Income taxes paid (1,056) (511)

The cash flows from discontinued operations represents operating cash flows of EUR 207
million and investing cash flows of EUR 2,526.
36 Hedge accounting
The Group enters into various derivative instrument transactions to hedge risks on assets,
liabilities, net investments and forecasted cash flows. The accounting treatment of the
hedged item and the hedging derivative is dependent on whether the hedge relationship
qualifies for hedge accounting. Qualifying hedges may be designated as either fair value or
cash flow hedges. During 2005 and 2004 there were no transactions that failed the hedge
accounting criteria due to ineffectiveness exceeding the relevant limits.
The fair value changes of derivative transactions used to hedge against economic risk
exposures that do not qualify for hedge accounting, or for which it is not cost beneficial to
apply hedge accounting, are recognised directly through income.
Financial statements 2005
165
Derivatives designated and accounted for as hedging instruments
Fair value hedges
The Groups fair value hedges principally consist of interest rate swaps, interest rate options
and cross currency interest rate swaps that are used to protect against changes in the fair
value of fixed-rate assets, noteably available-for-sale securities and MSRs, and liabilities due
to changes in market interest rates.
For qualifying fair values hedges, changes in the fair value of the derivative and in the fair
value of the hedged item for the risk being hedged are recognised in the income statement.
Cash flow hedges of variable rate assets and liabilities
The Group is exposed to variability in future interest cash flows for assets and liabilities with
variable interest rates or which are expected to be refunded or reinvested in the future. The
amounts and timing of cash flows are projected for each portfolio of financial assets and
liabilities, taking the contractual terms, estimated prepayments and potential defaults into
consideration. For qualifying cash flow hedges, the effective portion of the change in the fair
value of the hedge instrument is recorded in the cash flow hedge reserve and recognised in
the income when the hedged item occurs. The ineffective portions of designated cash flow
hedges are recorded in income immediately. If the hedge relationship is terminated, then the
change in fair value of the derivative recorded in the hedge reserve is recognised when the
cash flows that were hedged occur, consistent with the original hedge strategy. Gains and
losses on derivatives reclassified from the cash flow hedge reserve to income are included
in net interest income.
The Groups main cash flow hedge programmes are operated by Group Asset and Liability
management and our business in North America.
Hedges of net investments in foreign operations
As explained in note 38, the Group limits its exposure to investments in foreign operations
by hedging its net investment in its foreign operations with forward foreign exchange
contracts in the currency of the foreign operations or a closely correlated currency to
mitigate foreign exchange risk.
For qualifying net investment hedges, changes in the fair value of the derivative are recorded
in the currency translation differences reserve within equity.
Hedges not qualifying for hedge accounting
Derivatives that are entered into for risk management purposes but are not designated for
hedge accounting are fair valued through income. Due to difficulties in satisfying the IFRS
hedging criteria, this includes a number of credit derivatives used to hedge credit risk.
Financial statements 2005
166
Overview of the fair value of hedging derivatives

2005 2004

Positive Negative Positive Negative

Qualifying for hedge accounting
Fair value hedges
Interest
Swaps 2,142 2,133 1,423 1,406
Options and futures 940 547
Foreign currency
Swaps 464 289 95 330
Forwards 2 2
Cash flow hedges
Interest
Swaps 452 1,283 197 832
Foreign currency
Swaps 63 2
Forwards 4 511

Subtotal hedge accounting 3,127 4,647 2,228 3,115

Not designated for hedge accounting 86 65 64 196

Total 3,213 4,712 2,292 3,311

Notional amounts


2005 2004

Interest rate risk 224,871 117,286
Foreign currency risk 142,222 114,270
Credit risk 30,352 13,661

Cash flow hedges
Details of gains and losses during the year on cash flow hedges that have been recognised
directly in equity or transferred from equity to income are set out in the statement of
changes in equity.
The amount recognised in the cash flow hedging reserve at 31 December 2005, relates to
cash flows expected to occur within three months to approximately ten years of the balance
sheet date, with the main portion expected to occur within five years. Accordingly this
amount, unless impacted by rate changes, will be recognised in income through fixed
coupon payments of the derivative or by amortisation over a period of approximately five
years.
Financial statements 2005
167
37 Fair value information
Determination of fair values
Fair value is the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arms length transaction. Market prices or
market rates are used to determine fair value where an active market exists (such as a
recognised stock exchange), as it is the best evidence of the fair value of a financial
instrument.
Market prices are not, however, available for all financial assets and liabilities held and issued
by the Group. Where no active market price or rate is available, fair values are estimated
using present value or other valuation techniques, using inputs based on market conditions
existing at the balance sheet dates.
Valuation techniques are generally applied to OTC derivatives, unlisted trading portfolio
assets and liabilities, and unlisted financial investments (including private equity
investments). The most frequently applied pricing models and valuation techniques include
forward pricing and swap models using present value calculations, option models such as
the Black and Scholes model, and credit models such as default rate models or credit spread
models.
The values derived from applying these techniques can be significantly affected by the choice
of valuation model used and the underlying assumptions made concerning factors such as
the amounts and timing of future cash flows, discount rates, volatility, and credit risk.
The following methods and significant assumptions have been applied in determining the fair
values of financial instruments carried at fair value:
a assets and liabilities held for trading are measured at fair value by reference to quoted
market prices when available. If quoted market prices are not available, then fair values
are estimated on the basis of pricing models, or other recognised valuation techniques
b financial investments classified as available for sale (interest-earning securities and
equities) are measured at fair value by reference to quoted market prices when available.
If quoted market prices are not available, then fair values are estimated on the basis of
pricing models or other recognised valuation techniques. Unrealised gains and losses,
excluding impairment, are recorded in Shareholders equity until an asset is sold, collected
or otherwise disposed of
c in general private equity investments fair values cannot be obtained directly from quoted
market prices, or by using valuation techniques supported by observable market prices or
rates. The fair value is estimated indirectly using valuation techniques or models for which
the inputs are reasonable assumptions, based on market conditions. Valuation techniques
applied are in accordance with EVCA (European Private Equity and Venture Capitalist
Association) guidelines.
Financial statements 2005
168
The following table presents the valuation methods used to determine fair values of financial
instruments carried at fair value:


Valuation techniques


Quoted Market Non-market Total
market price observable observable

Financial assets
Financial assets held for trading 97,026 103,683 1,346 202,055
Available-for-sale interest earning securities 113,177 113,177
Available-for-sale equities 1,016 391 930 2,337
Equities designated at fair value through
income 445 1,243 1,688
Other assets derivatives held for hedging 3,213 3,213
Other assets unit-linked investments 3,624 3,624
Other assets mortgages originated-for-sale 4,311 4,311

Total assets at fair value 215,288 111,598 3,519 330,405

Financial liabilities
Financial liabilities held for trading 52,410 95,570 608 148,588
Issued debt 2,815 2,815
Other liabilities unit-linked liability 3,624 3,624
Other liabilities derivatives held for hedging 4,712 4,712

Total liabilities at fair value 56,034 103,097 608 159,739

Sensitivity of fair values
Included in the fair value of financial instruments carried at fair value on the balance sheet
are those estimated in full or in part using valuation techniques based on assumptions that
are not supported by observable market prices or rates. The models used in these situations
undergo an internal validation process before they are certified for use. Any related model
valuation uncertainty is quantified, and deducted from the fair values produced by the
models. Management believes the resulting estimated fair values recorded in the balance
sheet and the changes in fair values recorded in the income statement are reasonable, and
are the most appropriate values at the balance sheet date.
The potential effect of using reasonably possible alternative assumptions as inputs to
valuation models, relying on non market-observable inputs, has been estimated as a
reduction of approximately EUR 150 million using less favourable assumptions, and an
increase of approximately EUR 175 million using more favourable assumptions.
The total amount of the change in fair value estimated using a valuation technique that was
recognised in the profit and loss account for the year 2005 amounts to EUR 1,354 million
(2004: EUR 1,111 million).
Assets and Liabilities elected at fair value
The Group has elected to fair value non-controlling private equity investments, mortgages
originated-for-sale and certain structured notes. The changes in fair value recognised in
income on these assets and liabilities was a gain of EUR 401 million. Changes in the fair
value of liabilities do not include any amount arising from changes in the Groups own credit
risk.
Financial statements 2005
169
Financial assets and liabilities not carried at fair value
The following methods and significant assumptions have been applied in determining the fair
values of financial instrument carried at cost:
a the carrying amount of assets maturing within 12 months is assumed to approximate
their fair value
b the fair value of demand deposits and savings accounts (included in due to customers)
with no specific maturity is assumed to be the amount payable on demand at the balance
sheet date
c the fair value of variable rate financial instruments is assumed to be approximated by their
carrying amounts and, in the case of loans, does not, therefore, reflect changes in their
credit quality, as the impact of credit risk is recognised separately by deducting the
allowances for credit losses from both carrying amounts and fair values
d the fair value of fixed-rate loans and mortgages carried at amortised cost is estimated by
comparing market interest rates when the loans were granted with current market rates
offered on similar loans. Changes in the credit quality of loans within the portfolio are not
taken into account in determining gross fair values, as the impact of credit risk is
recognised separately by deducting the amounts of the allowances for credit losses from
both carrying amounts and fair values.
The following table compares the carrying amount of financial assets and liabilities measured
at cost to estimated fair values:


2005 2004

Carrying Fair Difference Carrying Fair Difference
amount value amount value

Financial assets
Interest earning securities
held-to-maturity 6,572 6,717 145 7,670 7,905 235
Loans and receivables banks 108,635 109,248 613 83,858 84,378 520
Loans and receivables
customers 380,248 383,547 3,299 320,022 325,590 5,568

Total 495,455 499,512 4,057 411,550 417,873 6,323

Financial liabilities
Due to banks 167,821 168,469 (648) 133,529 133,940 (411)
Due to customers 317,083 317,714 (631) 281,379 282,266 (887)
Issued debt securities 170,619 173,086 (2,467) 121,232 122,583 (1,351)
Subordinated liabilities 19,072 19,551 (479) 16,687 17,333 (646)

Total 674,595 678,820 (4,225) 552,827 556,122 (3,295)

Financial statements 2005
170
38 Financial risk management and use of derivatives
This section provides details of the Groups financial risk management objectives and policies
and describes the methods used by management to control risk. In addition this note
includes a discussion of the extent to which financial instruments are used, the associated
risks and the business purpose served.
Financial risk management and control
Risks of financial instruments
The most important types of risk associated with financial instruments to which the Group is
exposed are:
credit risk
market risk (including currency risk, interest rate risk, equity price risk and commodity risk
of the trading book)
interest rate risk (non-trading)
currency risk (non-trading)
liquidity risk.
Below is a discussion of the various risks the Group is exposed to as a result of its activities
and the approach taken to manage those risks.
Credit risk
Measurement and control
The Group is subject to credit risk through its lending, trading, hedging and investing
activities as well as in cases where it acts as an intermediary on behalf of customers or
other third parties or issues guarantees.
The Groups senior management is responsible for establishing the credit policies and the
mechanisms, organisation and procedures required to analyse, manage and control credit
risk. In this respect, counterparty limits are set and an internal system of credit ratings is
applied.
The Groups primary exposure to credit risk arises through its loans, credit facilities and
guarantees issued. The Group is also exposed to credit risk on various other financial assets,
including financial investments (interest earning securities), loans and receivables from
banks, financial assets held for trading (interest earning securities and derivatives) and
derivatives used for hedging.
The risk that counterparties might default on their obligations is monitored on an ongoing
basis. For each transaction the Group evaluates whether collateral or a master netting
agreement is required to mitigate the credit risk.
Financial statements 2005
171
Maximum credit exposure
In the table below we have detailed the maximum credit exposure:


2005 2004

Derivative assets held for trading 105,372 96,792
Financial investments interest-earning securities 119,749 99,838
Loans and receivables banks 21,371 19,486
Loans and receivables customers 282,580 240,227
Professional securities transactions 162,005 123,644
Multi-seller conduits 25,931 23,700
Committed credit facilities 141,010 145,009
Credit related contingent liabilities 46,021 46,465

Total 904,039 795,161

The credit risk exposure on derivative assets held for trading is measured as the current
positive replacement value plus the potential future changes in replacement value, taking
into account master netting agreements with individual counterparties where they are
enforceable in insolvency. For interest-earning securities the amortised cost is included to
reflect to credit risk exposure. The credit risk on professional security transactions is limited
as a result of the nature of these transactions. The loans and receivables due from multi-
seller conduits bear limited credit risk as these are fully collateralised.
Credit risk concentrations
Concentrations of credit risk (whether on- or off-balance sheet) that arise from financial
instruments exist for groups of counterparties when they have similar economic
characteristics that would cause their ability to meet contractual obligations to be affected in
a similar way by changes in economic or other conditions. As part of managing risk
concentrations, country risk in emerging markets and sector risk are managed on a portfolio
basis. Refer to the following tables for details of the credit risk concentrations on the
customer portfolio.
Financial statements 2005
172
Credit risk concentrations from loans and receivables customers:

2005 2004

%
1
%
1

Netherlands
Public sector 2,300 31 1,055 17
Commercial 56,182 37 53,788 42
Consumer 94,603 77 88,585 83

Total 153,085 143,428

Europe (excluding Netherlands)
Public sector 1,454 19 1,826 30
Commercial 30,882 20 23,102 19
Consumer 1,539 1 1,365 1

Total 33,875 26,293

North America
Public sector 735 10 792 13
Commercial 44,693 29 35,460 28
Consumer 15,218 13 9,716 9

Total 60,646 45,968

Latin America
Public sector 596 8 82 1
Commercial 8,024 5 4,714 3
Consumer 7,270 6 4,246 4

Total 15,890 9,042

Asia Pacific
Public sector 2,376 32 2,304 39
Commercial 12,630 9 9,980 8
Consumer 4,078 3 3,212 3

Total 19,084 15,496

Group
Public sector 7,461 6,059
Commercial 152,411 127,044
Consumer 122,708 107,124

Total 282,580 240,227

Professional securities transactions 74,724 59,269
Multi-seller conduits 25,931 23,700

Total loans and receivables customers 383,235 323,196

1 Calculated as a percentage of Group totals for public, commercial and consumer sectors respectively.
Financial statements 2005
173
Credit risk concentrations from credit facilities and guarantees issued:

2005 2004

%
1
%
1

Netherlands
Credit related contingent liabilities 4,194 9 4,933 11
Committed credit facilities 17,881 13 37,373 26

Total 22,075 42,306

Europe (excluding Netherlands)
Credit related contingent liabilities 20,222 44 21,637 46
Committed credit facilities 28,400 20 25,877 18

Total 48,622 47,514

North America
Credit related contingent liabilities 15,830 34 15,049 32
Committed credit facilities 78,660 55 68,215 47

Total 94,490 83,264

Latin America
Credit related contingent liabilities 1,364 3 751 2
Committed credit facilities 5,214 4 3,197 2

Total 6,578 3,948

Asia Pacific
Credit related contingent liabilities 4,411 10 4,095 9
Committed credit facilities 10,855 8 10,347 7

Total 15,266 14,442

Group
Credit related contingent liabilities 46,021 46,465
Committed credit facilities 141,010 145,009

Total 187,031 191,474

1 Calculated as a percentage of Group totals for credit related contingent liabilities and committed credit facilities respectively.
Total commercial loans and receivables by industry are presented in the table below:

2005 2004

% %

Agriculture, mining and energy 12,377 8 11,439 9
Manufacturing 27,758 18 24,060 19
Construction and real estate 30,860 20 22,516 18
Wholesale and retail trade 19,439 13 16,412 13
Transportation and communications 18,012 12 12,314 10
Financial services 15,873 10 19,800 15
Business services 10,233 7 10,284 8
Education, healthcare and other services 17,859 12 10,219 8

Total 152,411 127,044

The amounts stated in the tables represent the maximum accounting loss that would be
recognised at the balance sheet date if counterparties failed completely to perform as
contracted and any collateral or security proved to be of no value. So the amounts greatly
exceed expected losses.
Financial statements 2005
174
For a breakdown of counterparties for interest-earning securities in the available-for-sale and
held-to-maturity portfolio, please refer to note 15. The Group has no significant exposure in
loans and receivables customers to any individual customer or counterparty.
Collateral
The Groups policy is to obtain collateral if and when required prior to the disbursement of
approved loans. Guarantees and letters of credit are also subject to strict credit assessments
before being provided. The transactions specify monetary limits to the Groups obligations.
The extent of collateral held for guarantees and letters of credit is on average 20%.
The following table details loans and receivables from commercial and consumer clients by
type of collateral obtained.


2005 2004

Commercial customers
Public authority guarantees 4,404 8,135
Mortgages 28,441 23,956
Securities 3,487 764
Bank guarantees 3,121 3,029
Other types of collateral 50,439 31,781
Unsecured 62,519 59,379

Total 152,411 127,044

Consumer customers
Public authority guarantees 3 151
Mortgages 93,826 79,639
Securities 2,074 2,647
Bank guarantees 856 2,414
Other types of collateral 7,077 7,354
Unsecured 18,872 14,919

Total 122,708 107,124

Market risk of the trading book
Exposures
All trading instruments are subject to market risk. Market risk arises from open positions in
interest rate, currency, equity and commodity products, all of which are exposed to general
and specific market movements. The instruments are recognised at fair value, and all
changes in market conditions directly affect net trading income.
Measurement and control
The Group applies a Value-at-Risk (VaR) methodology to estimate the market risk of positions
held and the maximum losses expected, based upon a number of assumptions for various
changes in market conditions. The Group uses VaR as its primary tool for the day-to-day
monitoring of market risks. Group Asset and Liability Management (GALM) sets limits on the
VaR that may be accepted.
Other control measures used in the market risk management process include limits on net
open positions, interest rate sensitivity per basis point, spread sensitivities, option
parameters, position concentrations and position ageing. These non-statistical measures help
us to monitor and control trading risks.
Financial statements 2005
175
Value-at-Risk
VaR is a methodology for assessing market risk exposure in a single number. VaR is a
statistical measure that estimates potential losses, and is defined as the predicted worst-
case loss that might be caused by changes in risk factors under normal circumstances, over
a specified period of time and at a specific level of statistical confidence. The Group uses a
proprietary VaR model that has been approved by the Dutch Central Bank.
The VaR methodology adopted by the bank for its VaR calculation is Historical Simulation,
using four years of equally weighted historical data. The VaR is calculated at a 99%
confidence level for a one-day holding period, using relative changes in historical rates and
prices. The positions captured by our VaR calculations include derivative and cash positions
that are reported as assets and liabilities held for trading. The VaR is reported on a daily basis
per trading portfolio, per product line and for the Group as a whole. It is reported daily to the
senior management of the Business Units, Group Risk Management and the responsible
members of the Managing Board.
VaR per Risk Category (99% confidence level, one-day holding period)

(in millions of euros)

For the year ended 31 December 2005 For the year ended 31 December 2004

Mini Maxi- Average Year-end Mini- Maxi- Average Year-end
mum mum mum mum

Interest rate risk 17.7 68.3 30.4 23.3 10.4 49.5 21.6 18.7
Equity price risk 13.0 70.6 36.8 36.2 8.8 25.9 14.9 15.6
Foreign exchange risk 1.2 15.7 4.2 3.0 1.0 7.7 3.0 3.7
Commodity price risk 0.7 5.9 2.0 2.1 0.1 2.5 0.4 0.8
Diversification effect (20.9) (8.3)
Aggregate VaR 1 25.3 80.2 50.0 43.7 17.1 42.2 26.4 30.5

1 The maximum (and minimum) for each risk category occurred on different days and therefore have no direct relation to the
maximum (and minimum) of the aggregate VaR. The aggregate VaR includes the diversification effect of imperfect or negative
correlations between certain risk types. Therefore the aggregate VaR can be lower than the sum of the individual risk types on the
same day (e.g. year- end).
Stress testing
Although the VaR represents a good estimate of potential losses under normal market
circumstances, it fails to capture one-off events. The limitations of the VaR model mean that
we must supplement it with other statistical tests. These include a series of stress tests
scenarios and sensitivity stress tests that shed light on the hypothetical behaviour of our
portfolio and the impact on our financial results under extreme market movements.
Sensitivity stress tests and stress test scenarios have been developed internally to reflect
specific characteristics of the banks portfolios and are performed on a daily basis for each
trading portfolio and at several aggregation levels. They may be based upon parallel
movements in a number of risk elements or in one risk element, upon actual historical
scenarios or upon plausible future shocks.
Financial statements 2005
176
Interest rate risk (non-trading)
Measurement and control
Several measures are used to monitor and limit non-trading interest rate risk. The methods
employed include earnings simulation, duration and interest rate gap analysis. Limits are set
on the earnings and market value sensitivity. Model-based scenario analysis is used to
monitor the interest rate risk positions denominated in euros, Brazilian reals and US dollars
to the extent that these positions are held in Europe, Brazil and the US, which relates to
some 85% to 90% of the total exposure of the Group. Interest rate risk positions in other
currencies and other countries are controlled by gap analysis and/or market value limits, as
these positions are typically less complex.
Net interest income is the sum of interest received less interest paid on large volumes of
contracts and transactions, and numerous different products. Simulation models and
estimation techniques are used to forecast the net interest income and to assess its
sensitivity to movements in the shape and level of the yield curve. Assumptions about client
behaviour play an important role in these calculations. This is particularly relevant for loans
such as mortgages where the client has the option to repay before the scheduled maturity.
On the liability side, the repricing characteristics of savings and deposits are based on
estimates using historical data, since the rates attached to these products are not coupled to
a specified market rate or maturity date.
The bank uses a statistical approach for forecasting and sensitivity analyses because it is the
method best suited to these products.
Interest rate risk associated with our North America residential mortgage business in relation to
mortgage servicing rights
We sell or securitise most of the mortgage loans we originate in North America, and typically
retain the rights to service residential mortgage loans sold. The bank recognises a mortgage
servicing right (MSR) upon sale of the loan. MSRs represent the present value of the
estimated future net servicing cash flows realised over the estimated life of the mortgage.
Origination income and MSR values are sensitive to changes in interest rates.
High or rising interest rates may lead to lower mortgage prepayments and a corresponding
reduction in servicing amortisation costs and, therefore, an increase in servicing income.
However, if interest rates are high or rising as in 2005 and 2004, residential mortgage loan
demand may decline, leading to a fall in origination income.
The Group employs various strategies to manage the risk to net mortgage revenue from all
sources over time and to manage the risk to an immediate reduction in the fair value of its
mortgage servicing rights within the risk parameters established by GALM. The main hedge
instruments used for this risk are interest rate swaps and forward sales contracts. From time
to time we employ other derivative instruments such as interest rate futures, caps, floors or
purchased options. Occasionally cash instruments such as mortgage-backed securities are
utilised as hedges for MSR assets.
Interest rate sensitivity disclosure non-trading book
For assessing interest rate risk in the banking books, GALM provides a set of measures the
Earnings at Risk and Market Value Risk for the EUR, USD and BRL currencies and reports
this to the Group Asset Liability Committee (Group ALCO). This set covers 85% to 90% of
our net interest revenue in the non-trading book. The interest rate sensitivity of our trading
books is measured under market risk.
Financial statements 2005
177
The Earnings-at-Risk table shows the cumulative sensitivity of net interest income over a
time horizon of 6, 12, and 24 months, and under a number of predefined scenarios.
Sensitivity is defined as the percentage change in the interest income relative to a base case
scenario. The base case scenario assumes continuation of the present yield curve
environment. The Rates Rise and Rates Fall scenarios assume a gradual parallel shift of
the yield curve during 12 months, after which the curve remains unchanged. In order to
reflect the differences in yield curve across markets, the scenarios are currency-dependent.
Due to the low interest environment the EUR rates fall scenario is 100 bp, whereas the rates
rise scenario is 200 bp for both years presented. For USD, the 2005 scenarios reflect a
gradual change of 200 bp upwards (2004: 200 bp) and 200 bp downwards (2004: 150 bp).
The change in scenario is due to the low USD interest rates in 2004. For BRL, the rates rise
scenario is 1,100 bp and the rates fall is 800 bp for both years presented.
In all cases, the volume scenario assumes new business volume in line with the business
forecast during the first year, and a constant balance sheet thereafter. For USD, other
interest sensitive items such as mortgage servicing rights are included in this measure.
The following table shows the cumulative % change in income over the relevant time
horizon:
Earnings-at-Risk


December 2005 December 2004

Horizon EUR USD BRL EUR USD BRL

Rates Rise 6 months (2.4%) (2.1%) (4.2%) (4.2%) (8.4%) (5.5%)
1 year (2.9%) (1.6%) (2.8%) (4.1%) (6.8%) (5.7%)
2 years 0.7% 0.3% 3.1% (1.0%) (2.8%) (2.2%)

Rates Fall 6 months 1.1% (2.2%) 2.6% 1.8% (2.6%) 3.7%
1 year 1.3% (1.1%) 1.3% 1.7% 1.0% 3.4%
2 years (1.1%) (8.8%) (3.1%) (0.4%) (6.4%) 0.5%

The December 2004 data above covered a smaller portion of the balance sheet than
December 2005. Therefore the absolute numbers for 2004 would not be comparable. Since
relative numbers are scaled, the relative data for 2004 and 2005 can be compared.
The Earnings-at-Risk table below gives the 2005 cumulative change in income over the
relevant time horizon as absolute numbers using exchange rates at 31 December 2005.
Earnings-at-Risk

(in millions of euros)

December 2005

Horizon EUR USD BRL

Rates Rise 6 months (30) (19) (55)
1 year (75) (30) (77)
2 years 35 12 179

Rates Fall 6 months 15 (20) 35
1 year 33 (21) 36
2 years (58) (343) (180)

Financial statements 2005
178
The Market Value Risk table shows the sensitivity of the market value of equity to changes
in interest rates for the EUR, USD and BRL currencies. Market Value of Equity is defined as
the calculated discounted value of assets in the banking book, minus calculated discounted
value of liabilities, plus market value of derivatives and other interest sensitive items such as
mortgage servicing rights for the US. Sensitivity is measured as the percentage value
change due to an overnight shock. The magnitude of the shocks is equal to the changes used
for earnings risk.
Market Value Risk


December 2005 December 2004

EUR USD BRL EUR USD BRL

Rates Rise (2.7%) (4.1%) (11.3%) (2.8%) (9.8%) (22.0%)
Rates Fall 0.7% (13.4%) 4.7% 0.9% (0.6%) 18.5%

Currency risk (non-trading)
The Groups operating entities are required to manage any currency exposure arising on local
transactions with funding in the same currency or to transfer the currency risk to the Group.
Accordingly the Group is able to manage currency risk through its net investments in its non-
euro operations.
We apply various hedging strategies to our net investments in our non-euro operations, in
order to manage and minimise any adverse effects from translating the relevant foreign
currency into euro.
Capital ratio hedge
To protect our capital ratios (core tier 1, tier 1 and total capital as a portion of RWA) against
adverse effects of the US dollar, our main foreign currency, the USD-sensitive part of our
capital base has to be equal to the USD-sensitive part of our risk-weighted assets. On this
basis there will be no material impact on our capital ratios, as the ratios are hedged against
changes in the EUR/USD exchange rate.
Capital hedge
The capital ratio hedge strategy implies that a part of our capital has to be USD-sensitive to
neutralise the USD sensitivity of our RWA. Hence a part of our equity is also exposed to
EUR/USD fluctuations.
Our investments in foreign operations in currencies other than the USD are hedged on a
selective basis. We consider the use of hedging in cases where the expected currency loss
is larger than the interest rate differential between the two currencies that represents the
cost of the hedge.
At December 2005 56% of our net investment in foreign operations was hedged leaving
approximately EUR 5 billion unhedged including USD 1 billion and BRL 2 billion (USD and
BRL stated in EUR amounts). The table shows the sensitivity of our capital to, respectively, a
10% appreciation and 10% depreciation in the euro against all foreign currencies.

(in millions of euros)
2005 2004

Euro appreciates 10% ( 559) (340)
Euro depreciates 10% + 559 + 340

Financial statements 2005
179
Liquidity risk
Measurement and control
Liquidity risk arises in any banks general funding of its activities. For example, a bank may
be unable to fund its portfolio of assets at appropriate maturities and rates, or may find itself
unable to liquidate a position in a timely manner at a reasonable price. The Group holds
capital to absorb unexpected losses, and manages liquidity to ensure that sufficient funds
are available to meet not only the known cash funding requirements, but also any
unanticipated ones that may arise. At all times, the Group maintains what we believe to be
adequate levels of liquidity on a Group-wide basis to meet deposit withdrawals, repay
borrowings and fund new loans, even under stressed conditions.
We manage liquidity on a daily basis in all the countries in which we operate. Each national
market is unique in terms of the scope and depth of its financial markets, competitive
environment, products and customer profile. Therefore local line management is responsible
for managing our local liquidity requirements under the supervision of GALM on behalf of
the Group ALCO.
On a day-to-day basis our liquidity management depends on, among other things, the
effective functioning of local and international financial markets. As this is not always the
case, we have Group-wide contingency funding plans. These plans are put into effect in the
event of a dramatic change in our normal business activities or in the stability of the local or
international financial markets. The Group Strategic Funding Committee has full authority to
manage such a crisis. As part of this liquidity management contingency planning, we
continually assess potential trends, demands, commitments, events and uncertainties that
could reasonably result in increases or decreases in our liquidity. More specifically, we
consider the impact of these potential changes on our sources of short-term funding and
long-term liquidity planning.
As we have entered into committed credit facilities, our liquidity management process also
involves assessing the potential effect of the contingencies inherent in these types of
transactions on our normal sources of liquidity and finance.
Financial statements 2005
180
Liquidity gap
The following table provides an analysis that categorises the balance sheet of the Group into
relevant maturity groupings based on the remaining contractual periods to repayment.
Maturity for the year ended 31 December 2005:

On < 1 year 1 year - 5 years Total
demand < 5 years

Assets
Cash and balances at central banks 16,657 16,657
Financial assets held for trading 1 202,055 202,055
Financial Investments 12,366 12,047 35,425 63,936 123,774
Loans and receivables banks 7,251 80,091 5,922 15,371 108,635
Loans and receivables customers 24,101 171,824 84,497 99,826 380,248
Other assets 1 3,213 21,268 4,341 20,613 49,435

Total 265,643 285,230 130,185 199,746 880,804

Liabilities
Financial liabilities held for trading 1 148,588 148,588
Due to banks 30,905 117,150 8,349 11,417 167,821
Due to customers 147,846 138,630 14,481 16,126 317,083
Issued debt securities 1,495 100,873 34,548 33,703 170,619
Subordinated liabilities 1,156 5,101 12,815 19,072
Other liabilities 1 4,712 15,335 2,771 10,651 33,469

Total 333,546 373,144 65,250 84,712 856,652

Net liquidity gap (67,903) (87,914) 64,935 115,034 24,152

Maturity for the year ended 31 December 2004:

On < 1 year 1 year - 5 years Total
demand < 5 years

Assets
Cash and balances at central banks 17,896 17,896
Financial assets held for trading 1 167,035 167,035
Financial investments 18,722 33,132 51,094 102,948
Loans and receivables banks 5,575 64,695 4,075 9,513 83,858
Loans and receivables customers 19,821 150,960 66,404 82,837 320,022
Other assets 1 2,292 14,083 4,478 14,842 35,695

Total 212,619 248,460 108,089 158,286 727,454

Liabilities
Financial liabilities held for trading 1 129,506 129,506
Due to banks 28,846 85,396 10,122 9,165 133,529
Due to customers 137,742 124,282 9,893 9,462 281,379
Issued debt securities 1,956 64,283 30,808 24,185 121,232
Subordinated liabilities 1,086 4,693 10,908 16,687
Other liabilities 1 3,311 11,887 2,729 10,642 28,569

Total 301,361 286,934 58,245 64,362 710,902

Net liquidity gap (88,742) (38,474) 49,844 93,924 16,552

1 Financial assets and liabilities held for trading and hedging derivatives are shown as on demand which management believes most
accurately reflects the short term nature of the trading and derivative activities.
Financial statements 2005
181
Use of derivatives
Derivative instruments
The Group uses derivative instruments (a) to provide risk management solutions to its
clients, (b) to manage the Groups own exposure to various risks (including interest, currency
and credit risks) and (c) for proprietary trading purposes.
A derivative is a financial instrument that is settled at a future date and requires little or no
initial net investment, and whose value varies in response to changes in the price of another
financial instrument, an index or some other variable.
The majority of derivative contracts are arranged as to amount (notional), tenor and price
directly with the counterparty (over-the-counter). The remainder are standardised in terms of
their amounts and settlement dates and are bought and sold in organised markets (exchange
traded).
The notional, or contractual, amount of a derivative represents the reference quantity of the
underlying financial instrument on which the derivative contract is based. The value of the
derivative contract is typically determined by applying a calculated price to this notional
amount, and is the basis upon which changes in the value of the contract are measured. The
notional amount provides an indication of the underlying volume of business transacted by
the Group but does not provide any measure of risk, and is not included on the balance
sheet.
Derivative instruments are carried at fair value (or mark-to-market), shown in the balance
sheet as separate totals of positive fair values (assets) and negative fair values (liabilities).
Positive fair values represent the cost to the Group of replacing all transactions with a
favourable fair value if all the counterparties of the Group were to fail to perform according to
the terms of the contract, assuming transactions could be replaced instantaneously.
Negative fair values represent the cost to the Groups counterparties of replacing all their
transactions if the Group failed to meet its obligations. Changes in fair value of derivative
instruments are recognised in trading income unless they qualify as hedges for accounting
purposes.
Positive and negative fair values on different transactions are only netted if the transactions
are with the same counterparty and the cash flows will be settled on a net basis, and the
Group has the legal right to offset separate transactions with that counterparty.
Types of derivative instruments
The most common types of derivatives used are as follows:
Forwards are binding contracts to buy or sell financial instruments, most typically currency,
on a future date at a specified price. Forward contracts are tailor-made agreements that are
transacted between counterparties in the over-the-counter (OTC) market
Futures are exchange traded agreements to buy or sell a standard quantity of specified grade
or type of financial instrument, currency or commodity at a specified future date
Commodity derivatives are contracts to buy or sell a non-financial item. They can be either
exchange traded or OTC
Financial statements 2005
182
Swaps are agreements between two parties to exchange cash flows on a specified notional
amount for a predetermined period. Most swaps are traded OTC. The major types of swap
transactions undertaken by the Group are as follows:
Interest rate swap contracts typically the contractual exchange of fixed and floating rate
interest payments in a single currency, based on a notional amount and a reference
interest rate, most commonly LIBOR
Cross currency swaps the exchange of interest payments based on two different
currency principal balances and reference interest rates, and usually the exchange of
principal amounts at the start and end of the contract
Credit default swaps (CDSs) bilateral agreements under which one party (protection
buyer) makes one or more payments to the other party (protection seller) in exchange for
an undertaking by the seller to make a payment to the buyer following a specified credit
event. CDSs may be on a single name (counterparty) or on a multiple (or basket) of names
(counterparties). Settlement following a credit event may be a net cash amount, or cash in
return for physical delivery of one or more obligations of the credit entity and is made
regardless of whether the protection buyer has actually suffered a loss. After a credit event
and settlement, the contract is terminated
Total rate of return swaps give the total return receiver exposure to all of the cash flows
and economic benefits and risks of an underlying asset, without having to own the asset,
in exchange for a series of payments, often based on a reference interest rate, such as
LIBOR. The total return payer has an equal and opposite position. A specific type of total
return swap is an equity swap.
Options are contractual agreements under which, typically, the seller (writer) grants the
purchaser the right, but not the obligation, either to buy (call option) or to sell (put option) by
or at a set date, a specified quantity of a financial instrument or commodity at a
predetermined price. The purchaser pays a premium to the seller for this right. Options may
be traded OTC or on a regulated exchange, and may be traded in the form of a security
(warrant).
Derivatives transacted for trading purposes
Most of the Groups derivative transactions relate to sales and trading activities. Sales
activities include the structuring and marketing of derivative products to customers to enable
them to take, transfer, modify or reduce current or expected risks.
Trading activities are entered into principally for the purpose of generating profits from short
term fluctuations in price or margin, and include market-making, positioning and arbitrage
activities:
Market making involves quoting bid and offer prices to other market participants with the
intention of generating income based on spread and volume
Positioning means managing market risk positions with the expectation of profiting from
favourable movements in prices, rates or indices
Arbitrage activities involve identifying and profiting from price differentials between
markets and products.
Derivatives transacted for hedging purposes
The Group enters into derivative transactions for the purposes of hedging assets, liabilities,
forecast transactions, cash flows and credit exposures. The accounting treatment of hedge
transactions varies according to the nature of the instrument hedged and whether the hedge
qualifies for accounting purposes (see accounting policies).
Financial statements 2005
183
The Group also enters into derivative transactions which provide economic hedges for credit
risk exposures but do not meet the requirements for hedge accounting treatment; for
example, the Group uses CDSs as economic hedges for credit risk exposures in the loan and
traded product portfolios, but cannot always apply hedge accounting to such positions.
Risks of derivative instruments
Derivative instruments are transacted in many trading portfolios, which generally include
several types of instruments, not just derivatives. The market risk of derivatives is managed
and controlled as an integral part of the market risk of these portfolios. The Groups approach
to market risk is described in the market risk section of this footnote.
Derivative instruments are transacted with many different counterparties, most of whom are
also counterparties for other types of business. The credit risk of derivatives is managed and
controlled in the context of the Groups overall credit exposure to each counterparty. The
Groups approach to credit risk is described in the financial risk management part of this
footnote. It should be noted that although the values shown on the balance sheet can be an
important component of the Groups credit exposure, the positive replacement values for any
one counterparty are rarely an adequate reflection of the Groups credit exposure on its
derivatives business with that counterparty. This is because, on the one hand, replacement
values can increase over time (potential future exposure), while on the other hand,
exposure may be mitigated by entering into master netting agreements and bilateral
collateral arrangements with counterparties.
39 Capital adequacy
To monitor the adequacy of capital the Group uses ratios established by the Bank for
International Settlements (BIS). These ratios measure capital adequacy (minimum 8% as
required by BIS) by comparing the Groups eligible capital with its balance sheet assets, off-
balance sheet commitments and market and other risk positions at weighted amounts to
reflect their relative risk. The market risk approach covers the general market risk and the risk
of open positions in currencies and debt and equity securities. Assets are weighted
according to broad categories of notional risk, being assigned a risk weighting according to
the amount of capital deemed to be necessary to support them. Four categories of risk
weights (0%, 20%, 50%, 100%) are applied; for example cash and money market
instruments have a zero risk weighting which means that no capital is required to support
the holding of these assets. Property and equipment carries a 100% risk weighting, meaning
that it must be supported by capital equal to 8% of the carrying amount. Off-balance-sheet
credit related commitments and derivative instruments are taken into account by applying
different categories of conversion factors, which are designed to convert these items into
balance sheet equivalents. The resulting equivalent amounts are then weighted for risk using
the same percentages as for non-derivative assets.
Tier 1 capital consists of shareholders equity and qualifying subordinated liabilities less
goodwill and some intangible assets. Tier 2 capital represents additional qualifying
subordinated liabilities, taking into account the remaining maturities.
Core tier 1 capital is tier 1 capital excluding preference shares.
Financial statements 2005
184
The Groups capital adequacy level was as follows:

Balance sheet / Risk weighted amount,
unweighted amount including effect of
contractual netting

2005 2004 2005 2004

Balance sheet assets (net of provisions):
Cash and balances at central banks 16,657 17,896 432 263
Financial assets held for trading 202,055 167,035 548 375
Financial investments 123,774 102,948 11,620 9,124
Loans and receivables banks 108,635 83,858 4,992 4,525
Loans and receivables customers 380,248 320,022 151,496 142,665
Equity accounted investments 2,993 1,428 727 681
Property and equipment 8,110 7,173 6,638 6,515
Goodwill and other intangibles 5,168 3,143 4,437 2,191
Prepayment and accrued income 7,614 5,740 2,952 2,330
Other assets 25,550 18,211 8,893 5,587

Subtotal 880,804 727,454 192,735 174,256

Off-balance sheet positions and derivatives:
Credit-related commitments and contingencies 187,031 191,474 48,017 39,172
Credit equivalents of derivatives 10,751 12,226
Insurance companies and other 339 1,095

Subtotal 59,107 52,493

Total credit risks 251,842 226,749
Market risk requirements 6,012 4,873

Total risk-weighted assets 257,854 231,622

The following table analyses actual capital and the minimum standard needed in order to
comply with supervisory requirements.

2005 2004

Required Actual Required Actual

Total capital 20,628 33,874 18,530 25,618
Total capital ratio 8.0% 13.14% 8.0% 11.06%
Tier 1 capital 10,314 27,382 9,265 19,592
Tier 1 capital ratio 4.0% 10.62% 4.0% 8.46%
Core tier 1 21,828 14,641
Core tier 1 ratio 8.47% 6.32%

In determining the capital adequacy requirement, both existing and future credit risk is taken
into account. To this end the current potential loss on derivatives, which is the fair value
based on market conditions at balance sheet date, is increased by a percentage of the
relevant notional amounts, depending on the nature and remaining term of the contract. This
method takes into account the possible adverse development of the fair value during the
remaining term of the contract. The following analysis shows the resulting credit equivalent,
both unweighted and weighted for counterparty risk (mainly banks). The figures allow for the
impact of netting transactions and other collateral.
Financial statements 2005
185
Credit equivalent


2005 2004

Interest rate contracts 84.8 75.0
Currency contracts 28.2 50.5
Other contracts 32.2 18.9

145.2 144.4
Effect of contractual netting 97.4 88.9

Unweighted credit equivalent 47.8 55.5

Weighted credit equivalent 10.8 12.2

40 Private equity investments
Private equity investments are either consolidated or held at fair value.
Consolidated private equity holdings
Investments of a private equity nature that are controlled by the Group are consolidated.
Such holdings represent a wide range of non-banking activities. Personnel and other costs
relating to production and manufacturing activities are presented within material expenses.
The impact of consolidating on the income statement these investments is set out in the
following table.


2005 2004

Income of consolidated private equity holdings 3,637 2,616
Other income included in operating income (242) (96)

Total operating income of consolidated private equity holdings 3,395 2,520

Goods and material expenses of consolidated private
equity holdings 2,519 1,665
Included in personnel expenses 362 399
Included in administrative costs 352 284
Included in depreciation and amortisation 133 151

Operating profit before tax of consolidated private
equity holdings 29 21

Goods and material expense includes personnel costs relating to manufacturing and
production activities.
The assets and liabilities of these consolidated holdings are included in the Group balance
sheet. Given the non-banking nature of the underlying activities the main lines impacted are
goodwill, property and equipment, other assets and issued debt securities. The total assets
of these consolidated entities at 31 December 2005 were EUR 3,477 million (2004:
EUR 2,393 million) excluding goodwill.
Financial statements 2005
186
Unconsolidated private equity investments
The private equity investments in which the Group does not have control are accounted for
at fair value with change through income. Although control is not with the Group, in many
cases the Group does hold significant influence, usually evidenced by an equity stake of
between 20% and 50%. Significant influence is held in approximately 100 investments with
a fair value of EUR 603 million at 31 December 2005, operating in various sectors including
information technology, life sciences, media and telecommunications.
41 Joint ventures
The Groups activities conducted through joint ventures include insurance, trust and property
development activities. See note 49 for further details. The consolidated financial statements
of the joint ventures include the following assets and liabilities, income and expenses of joint
ventures, which represent the Groups proportionate share:


2005 2004

Assets
Cash and balances at central banks 11 6
Financial investments 2,748 1,875
Loans and receivables banks and customers 925 965
Equity accounted investments 6 6
Property and equipment 1,011 827
Accrued income and prepaid expenses 58 54
Other assets 2,161 2,001

Total 6,920 5,734

Liabilities
Financial liabilities held for trading 871 843
Due to customers 896 822
Issued debt securities 7 1
Accrued expenses and deferred income 23 15
Other liabilities 4,994 3,964

Total 6,791 5,645



2005 2004

Total operating income 150 118
Operating expenses 71 79

Operating profit 79 39

Income tax expense 21 8

Net profit 58 31

Financial statements 2005
187
42 Remuneration of Managing Board and Supervisory Board
Remuneration policy
The current compensation policy for the Managing Board was introduced in 2001. The main
objective is to ensure that ABN AMRO is able to attract, retain and motivate its Top Executive
Group. To achieve this, Managing Board remuneration has several elements which, as a
package, make it comparable with the remuneration offered by relevant peers in the market.
Peers are defined as other major Dutch companies and other European-parented banks.
The compensation package for the Managing Board has the following elements:
base salary
performance bonus
long-term incentives Performance Share Plan and Share Investment and Matching Plan.
In addition there are a number of other benefits.
Base salary
A common base salary applies to all Managing Board members except the Chairman, to
whom a 40% differential applies. In addition to the base salary, the non-Dutch Board
member receives a market competitive allowance. Salaries are reviewed annually with
adjustments taking effect from 1 January. Managing Board base salaries were adjusted in
2005 for the first time since 2001. The gross annual base salary for the Managing Board
Members was adjusted from EUR 635,292 to EUR 650,000 and from EUR 889,410 to
EUR 910,000 for the Chairman.
Performance bonus
The annual performance bonus for Managing Board members is based upon ABN AMROs
quantitative and qualitative performance objectives at both the corporate and BU level. The
objectives are set annually by the Nomination & Compensation Committee and endorsed by
the Supervisory Board. Bonuses for the Chairman, the CFO and as of 2004 the COO are
based on delivery against these corporate performance objectives. With effect from 2004,
the bonus for board members responsible for a BU is based 75% on Group performance and
25% on BU performance.
In 2005 objectives such as economic profit, cost / income ratio and tier 1 ratio were used to
measure quantitative corporate and BU performance. In addition qualitative objectives are
set such as increasing customer satisfaction and reaching strategic milestones. Bonus
criteria are aligned with the banks long term objectives. Specific annual performance targets
are not disclosed as they are considered competitively sensitive.
If the quantitative performance objectives are fully met, the 2005 bonus will be 100% of
base salary with an upper limit of 125%. The Nomination & Compensation Committee may,
on the basis of their assessment of a Managing Board members individual performance
against qualitative performance objectives, adjust the bonus outcome upwards or
downwards within a range of plus or minus 20% of base salary. In 2004 the bonus
percentage linked to on-target performance was between 60% and 75%.
The 2005 performance bonuses for Managing Board members have been set at the newly-
agreed 2005 bonus levels. The Committee assessed the 2005 performance against the set
and realised quantitative objectives on the basis of the numbers provided by Group Finance.
Financial statements 2005
188
The bonuses with respect to the 2005 performance year for all Managing Board members,
including the Chairman of the Managing Board, are set at 115% of the 2005 annual base
salary. The individual bonus awards are shown in the table on page 190.
The 2004 bonuses as paid in 2005 and published in the 2004 Annual Report have been
adjusted as the Managing Board members have agreed to pay a part of that bonus back to
the bank.
ABN AMRO Share Investment and Matching Plan
In 2004 Shareholders approval was obtained to encourage executive share ownership.
Under this plan, the Board members may defer a maximum of 25% of their annual salary
into ABN AMRO Holding N.V. shares (Investment Shares). This amount must be funded from
the net bonus outcome of the relevant performance year. If the net bonus outcome is
insufficient to fund the full investment amount the participation will be withdrawn.
At the end of a three-year vesting period the Investment Shares will be matched by the bank
on the basis of one ABN AMRO share (Matching Share) for each Investment Share, provided
that the Managing Board member remains employed within the ABN AMRO Group during
the vesting period. The Investment Shares, together with the built-up dividends, will be
released three years after deferral. The Matching Shares must be held for at least five years
from vesting, with the possibility of selling some of the shares to settle the tax obligation.
In 2005 with respect to the 2004 bonus all Managing Board members have participated
in this plan, five of them for the maximum amount of 25% of base salary and one Managing
Board Member for 12.5% of base salary. The total amount that was used to purchase
Investment Shares was EUR 936,954 for all six Managing Board Members. With respect to
the 2005 performance year, five members again participated for 25% of annual salary and
one member for half of this amount.
Share options
Share options have been an integral part of ABN AMRO top executives compensation for
several years.
As of 2005 share options no longer form part of the long-term reward package for the
Managing Board or for the Top Executive Group as a whole. The options granted in the years
up to and including 2004 will remain in place. In 2005 no options expired. The options
granted in 2002 vested on 25 February 2005 and will remain exercisable during the
remainder of the ten-year option period, which runs until 25 February 2012. In 2006 no
options will expire. The options granted in 2003 have vested on 24 February 2006, because
the two performance conditions that were set for this award were met by the end of the
three-year performance period in 2005.
The Managing Board announced to the N&C Committee on 30 January 2006 their collective
decision to limit the exercise of their options going forward exclusively to the first day of the
first open period after vesting and/or expiration periods, or to earlier equivalent contractual
dates in line with the plan rules, such as the date of retirement. Although this limits the
theoretical value of the options, the Board believes the increase in transparency to the
market outweighs this theoretical disadvantage.
Financial statements 2005
189
Performance Share Plan
The Performance Share Plan (PSP) was introduced in 2001 and forms an important though
stretching part of the Managing Boards reward package. SEVPs are also eligible for a yearly
grant under this plan.
In 2005 Managing Board members received a conditional award of 60,000 shares and the
Chairman 84,000 shares. The PSP grant in 2005 was based half on the relative TRS (total
return to shareholders) performance and half on the average return on equity (ROE) achieved
by the bank over the four-year performance period, defined as the year of grant and three
subsequent years.
The vesting schedule for the TRS-linked award is the same as in previous years. The full
award will be paid if the TRS generated by the bank in the fourth year of the performance
period is fifth out of 21 relative to the peer group. There will be a sliding scale ranging from
no award if the bank is lower than tenth to 150% of the conditional award if the bank has
progressed to the very top of the TRS rankings.
The ROE linked part of the award was introduced in 2005. The pay-out of this part of the
award will be linked to the average ROE target for the performance period using a sliding
scale, with a threshold at 25% and a maximum award of 100%.
Another condition is that the recipient must still be in service with the Group at the end of
the performance period. The four-year performance cycle for the conditional shares as
awarded in 2002 came to a close at the end of 2005, and ABN AMROs position in the peer
group was seventh. This means that the conditional share award made in 2002 will result in
an award representing 70% of the original awards of 70,000 shares for members and 98,000
shares for the Chairman. As a result, the members of the Managing Board received 49,000
ABN AMRO shares with a vesting date, 31 January 2006, and the Chairman 68,600 shares.
This award is subject to taxation which was calculated on the basis of the number of shares
times the share price. The Managing Board members collectively decided to sell, on the day
of the grant of the award, a number of shares sufficient to settle the tax obligation with
respect to the award.
Pension
The Managing Boards pensionable salary is 100% of annual base salary. Until 31 December
2005 the normal retirement age of the Managing Board members was 62. Since 1 January
2006 the plan has been changed in such a way that the normal retirement age is 65, based
on average income (2.15% per year). It is possible to retire earlier. The ABN AMRO Pension
Fund manages the pension plan.
Specific benefits
The Managing Boards compensation package also includes:
the use of a company lease car with driver
reimbursement of the cost of adequate security measures for their main private residence
a 24-hour personal accident insurance policy with a fixed covered amount of EUR 1.8
million for members and EUR 2.5 million for the Chairman
contributions towards private health insurance, according to the policies applicable to all
other ABN AMRO employees in the Netherlands
preferential rates on bank products such as mortgages and loans, according to the same
policies which apply to all other ABN AMRO staff in the Netherlands.
Financial statements 2005
190
The following table summarises total reward, ABN AMRO options and shares, and
outstanding loans of the members of the Managing Board and Supervisory Board.

(in thousands of euros)
Managing Board Supervisory Board

2005 2004 2005 2004

Periodic payments 4,639 4,556 787 767
Profit-sharing and bonus payments 4,787 2,680
Share-based payments 6,063 4,672
Pension benefits 1,324 1,148
ABN AMRO staff options 1 (conditional, granted options) 576,000
ABN AMRO shares 1 (conditional, granted) 429,058 320,000
ABN AMRO staff options 1 (outstanding) 2,380,835 2,382,251
ABN AMRO shares 1 (exercisable) 1,196,835 686,251
ABN AMRO shares 1 (owned) 124,004 72,668 34,847 27,173
Loans (outstanding) 11,518 9,362 2,100 2,100

1 Number of shares / options.
The following table summarises the salaries, other periodic rewards and bonuses of
individual Managing Board members.

(in thousands of euros)

2005 2004

Base Other Bonus Share- Pension Base Other Bonus
4
Shared Pension
salary periodic based costs
3
salary periodic based costs
3
pay- pay- pay- pay-
ments
1
ments
2


ments
1
ments
2

R.W.J. Groenink 910 4 1,047 1,331 263 889 4 805 1,022 225
W.G. Jiskoot 650 2 748 951 185 635 3 575 730 158
T. de Swaan 650 2 748 951 206 635 13 575 730 181
J.Ch.L. Kuiper 650 4 748 951 264 635 15 575 730 228
C.H.A. Collee 650 3 748 951 168 635 3 575 730 140
H.Y. Scott-Barrett 650 464 748 928 238 635 454 575 730 216

1 Other periodic payments are comprised of contributions towards private health insurance and foreigner allowance. Mr Scott-Barrett
received a foreigner allowance of EUR 464 in 2005 and 454 in 2004.
2 Share-based payments are calculated in accordance with IFRS 2 by recognising the fair value of the shares/options at grant date
over the vesting period.
3 Pension costs exclusively comprise pension service cost and post-retirement service cost computed on the basis of IAS 19.
4 Part of the bonus amounts were paid back by all Managing Board members, resulting in a final bonus of EUR 480 for Mr Groenink,
EUR 400 for the CFO Mr de Swaan, and EUR 450 for the four remaining members.
The following tables reflect movements in the option holdings of the Managing Board as a
whole and of individual Board members. The conditions governing the granting of options are
included in note 43.

2005 2004

Options held Average Options held Average
by Managing exercise price by Managing exercise price
Board (in euros) Board (in euros)

Movements:
Balance at 1 January 2,382,251 18.84 2,003,675 18.76
Options granted 576,000 18.86
Options exercised / cancelled 1,416 22.23 197,424 18.13

Balance at 31 December 2,380,835 18.83 2,382,251 18.84

Financial statements 2005
191

Balance at Exercise Exercised/ Balance at Stock price Year of
1 January price cancelled 31 on exercise expiration
(in euros) December date

R.W.J. Groenink
Executive 2000 60,000 21.30 60,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 112,000 19.53 112,000 2012
Executive 2003 1, 3 133,000 14.45 133,000 2013
Executive 2004 1 126,000 18.86 126,000 2014
AOR 2000 354 22.23 354 0
AOR 2001 271 22.34 271 2008
AOR 2002 296 20.42 296 2009

486,921 354 486,567

W.G. Jiskoot
Executive 2000 60,000 21.30 60,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 80,000 19.53 80,000 2012
Executive 2003 1, 3 95,000 14.45 95,000 2013
Executive 2004 1 90,000 18.86 90,000 2014
AOR 2000 354 22.23 354 0
AOR 2001 271 22.34 271 2008
AOR 2002 296 20.42 296 2009

380,921 354 380,567

T. de Swaan
Executive 2000 60,000 21.30 60,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 80,000 19.53 80,000 2012
Executive 2003 1, 3 95,000 14.45 95,000 2013
Executive 2004 1 90,000 18.86 90,000 2014
AOR 2000 354 22.23 354 0
AOR 2001 271 22.34 271 2008
AOR 2002 296 20.42 296 2009

380,921 354 380,567

J.Ch.L. Kuiper
Executive 2000 60,000 21.30 60,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 80,000 19.53 80,000 2012
Executive 2003 1, 3 95,000 14.45 95,000 2013
Executive 2004 1 90,000 18.86 90,000 2014
AOR 2001 271 22.34 271 2008
AOR 2002 296 20.42 296 2009

380,567 380,567

1 Conditionally granted.
2 Vested on 25 February 2005.
3 Vested on 24 February 2006.
Financial statements 2005
192

Balance at Exercise Exercised/ Balance at Stock price Year of
1 January price cancelled 31 on exercise expiration
(in euros) December date

C.H.A. Collee
Executive 2000 56,000 21.30 56,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 80,000 19.53 80,000 2012
Executive 2003 1, 3 95,000 14.45 95,000 2013
Executive 2004 1 90,000 18.86 90,000 2014
AOR 2000 354 22.23 354 0
AOR 2001 271 22.34 271 2008
AOR 2002 296 20.42 296 2009

376,921 354 376,567

H.Y. Scott-Barrett
Executive 2000 56,000 21.30 56,000 2007
Executive 2001 55,000 23.14 55,000 2008
Executive 2002 1, 2 80,000 19.53 80,000 2012
Executive 2003 1, 3 95,000 14.45 95,000 2013
Executive 2004 1 90,000 18.86 90,000 2014

376,000 376,000

1 Conditionally granted.
2 Vested on 25 February 2005.
3 Vested on 24 February 2006.
The following table shows movements in shares conditionally awarded under the
Performance Share Plan. For the years 2002 through 2004 the conditional award was based
100% on the banks ranking in the peer group (TRS ranking). For the year 2005, 50% of the
award is on the TRS ranking and 50% on the average ROE target for the reference period.
The number of shares conditionally awarded on the TRS ranking in the table below assumes
a ranking of fifth in the peer group, in line with our ambition. The number of shares
conditionally awarded on the ROE target assumes that we will achieve an average ROE
above 20% per annum, our target for the performance cycle 2005-2008.
Financial statements 2005
193
As a consequence of ABN AMRO ranking seventh in the peer group at the close of the
performance cycle from 2002 to 2005, all members of the Managing Board received 70% of
the conditionally awarded shares for that performance cycle at 31 January 2006. The average
stock price at that date was EUR 22.78.

Type of Balance Granted Vested Expired / Balance Reference
condition at forfeited
at 31 period
1 January December

R.W.J. Groenink TRS 98,000 68,600 29,400 0
TRS 98,000 98,000 2003-2006
TRS 70,000 70,000 2004-2007
TRS 42,000 42,000 2005-2008
ROE 42,000 42,000 2005-2008
W.G. Jiskoot TRS 70,000 49,000 21,000 0
TRS 70,000 70,000 2003-2006
TRS 50,000 50,000 2004-2007
TRS 30,000 30,000 2005-2008
ROE 30,000 30,000 2005-2008
T. de Swaan TRS 70,000 49,000 21,000 0
TRS 70,000 70,000 2003-2006
TRS 50,000 50,000 2004-2007
TRS 30,000 30,000 2005-2008
ROE 30,000 30,000 2005-2008
J.Ch.L. Kuiper TRS 70,000 49,000 21,000 0
TRS 70,000 70,000 2003-2006
TRS 50,000 50,000 2004-2007
TRS 30,000 30,000 2005-2008
ROE 30,000 30,000 2005-2008
C.H.A. Collee TRS 70,000 49,000 21,000 0
TRS 70,000 70,000 2003-2006
TRS 50,000 50,000 2004-2007
TRS 30,000 30,000 2005-2008
ROE 30,000 30,000 2005-2008
H.Y. Scott-Barrett TRS 70,000 49,000 21,000 0
TRS 70,000 70,000 2003-2006
TRS 50,000 50,000 2004-2007
TRS 30,000 30,000 2005-2008
ROE 30,000 30,000 2005-2008

The following table reflects the number of matched shares the Managing Board will receive
under the ABN AMRO Share Investment and Matching Plan at the end of the vesting period,
provided the member of the Managing Board remains employed within ABN AMRO during
the vesting period.

Balance at Granted Un- Expired / Balance at Vesting
1 January conditional cancelled 31 period
December

R.W.J. Groenink 10,692 10,692 2005-2007
W.G. Jiskoot 7,637 7,637 2005-2007
T. de Swaan 7,637 7,637 2005-2007
J.Ch.L. Kuiper 7,637 7,637 2005-2007
C.H.A. Collee 7,637 7,637 2005-2007
H.Y. Scott-Barrett 3,818 3,818 2005-2007

Financial statements 2005
194
ABN AMRO ordinary shares held by Managing Board members
1


2005 2004

R.W.J. Groenink 30,574 18,334
W.G. Jiskoot 28,827 19,730
T. de Swaan 15,259 6,850
J.Ch.L. Kuiper 16,442 7,973
C.H.A. Collee 8,778 697
H.Y. Scott-Barrett 24,124 19,084

Total 124,004 72,668

1 No financing preference shares were held by any Managing Board member.
Loans from ABN AMRO to Managing Board members

(in thousands of euros)
2005 2004

Outstanding Interest rate Outstanding Interest rate
on on
31 Dec. 31 Dec.

R.W.J. Groenink 5,136 3.58 2,985 3.63
W.G. Jiskoot 1,674 3.94 1,674 3.94
T. de Swaan 1,407 2.75 1,407 2.25 1
J.Ch.L. Kuiper 681 3.72 655 3.87
C.H.A. Collee 2,620 3.27 2,641 3.29

1 Variable rate.
The decrease in outstandings between 31 December 2004 and 31 December 2005 is caused
by repayments.
The following table provides information on the remuneration of individual members of the
Supervisory Board. The members of the Supervisory Board receive an equal remuneration of
EUR 40,000 per annum. For the Vice Chairman this remuneration is EUR 45,000 and for the
Chairman EUR 55,000 per annum. For the membership of the Audit Committee and the
Nomination & Compensation Committee an additional allowance of EUR 7,500 per
membership is applied on an annual basis. In addition to this remuneration every member
also receives a general expenses allowance of EUR 1,500. This allowance is EUR 2,000 for
the Vice Chairman and the Chairman. For members of the Committees mentioned above an
additional expenses allowance of EUR 500 is applicable. Furthermore, for the Supervisory
Board members who do not live in the Netherlands, there is a general allowance of
EUR 5,000 per Supervisory Board meeting that such a member attends.
Financial statements 2005
195
All amounts are based on a full year, but the actual payment depends on the period of
membership during the year. Members of the Supervisory Board are not entitled to
emoluments in the form of ABN AMRO shares or options on ABN AMRO shares.
Remuneration of the Supervisory Board

(in thousands of euros)
2005 2004

A.A. Loudon 63 63
A.C. Martinez 1 56 48
A. Burgmans 48 48
Mrs L.S. Groenman 40 40
D.R.J. Baron de Rothschild 1 40 40
Mrs T.A. Maas-de Brouwer 48 48
M.V. Pratini de Moraes 1 45 40
P. Scaroni 1 40 40
Lord Sharman of Redlynch 1 48 48
A.A. Olijslager 45 27
R. van den Bergh 1 27
A. Ruys 27
W. Dik 2 16 48
M.C. van Veen 2 20 60

1 Excluding an attendance fee.
2 Messrs Dik and Van Veen resigned on 29 April 2005.
ABN AMRO ordinary shares held by Supervisory Board members
1


2005 2004

A.A. Loudon 5,421 5,147
A. Burgmans 9,654 9,165
A.C. Martinez 2 3,000 3,000
M.V. Pratini de Moraes 2 5,384 5,384
A.A. Olijslager 3,221 3,221
R.F. van den Bergh 8,167
M.C. van Veen 3 1,256

Total 34,847 27,173

1 No financing preference shares were held by any Supervisory Board member.
2 ADRs.
3 Mr Van Veen resigned on 29 April 2005.
Loans from ABN AMRO to Supervisory Board members
The outstanding loans at 31 December 2005 amounts to EUR 2.1 million with an interest
rate of 3.00% (2004: EUR 2.1 million 3.60%) and relates to Mr A. Burgmans.
Financial statements 2005
196
Senior Executive Vice Presidents (SEVPs) Compensation 2005
The reward package for ABN AMROs SEVPs, the second level of Top Executives, was also
introduced in 2001 and as with the Managing Board was primarily aimed at maximising
total returns to our shareholders.
The compensation for ABN AMRO SEVPs consists of the following core elements:
Base salary. The base salaries are benchmarked against the relevant local markets. The
current median base salary is EUR 396,000
Performance bonus. The annual performance bonus is linked to the respective markets
within the various countries where we operate. The median bonus amount paid with
respect to the 2005 performance year was EUR 1 million. Bonuses for individual SEVPs
vary widely, again reflecting market and location. No absolute maximum level of bonus has
been defined for SEVPs
Long-term incentives such as the Performance Share Plan and the Share Investment and
Matching Plan. Long-term incentives are set at a lower level than the applicable yearly
grants to Managing Board members. SEVPs received an award under the Top Executive
Performance Share Plan and are eligible to participate on a voluntary basis in the Share
Investment & Matching Plan. All SEVPs receive identical grants.
In addition, a number of benefits apply in relation to the respective markets and countries of
residence.
The total compensation for SEVPs in 2005 amounts to EUR 51 million (2004: EUR 42
million).
43 Share-based payments plans
ABN AMRO grants long-term share-based incentive awards to members of the Managing
Board, other top executives and key staff under a number of plans.
With effect from 2005 share options no longer form part of the reward package of the top
executives.
The current plans for the Managing Board (Performance Share Plan and Share Investment
and Matching Plan) are described in note 42. At a lower level, the Performance Share Plan is
also applicable to the second tier of top executives, the SEVPs. Both the SEVPs and the third
level of top executives, the EVPs and MDs, may defer a part of their bonus to the Share
Investment and Matching Plan. Furthermore, there is a Restricted Share Plan for the EVPs/
MDs with performance conditions linked to the average return on equity in line with the
Performance Share Plan of the Managing Board. All these plans are equity-settled.
There is also a cash-settled Performance Share Plan for the EVPs/MDs for the performance
cycle 2002-2005.
Share-based compensation expense related to plans granted after 7 November 2002 totalled
EUR 63 million in 2005 and EUR 58 million in 2004. Including the plans granted prior to
7 November 2002, for which the expense is calculated under our previous GAAP, total
expense amounted to EUR 61 million (2004: EUR 4 million net of a release of EUR 58 million
due to our final TRS-ranking in the performance cycle 2001-2004). The total carrying amount
of liabilities arising from cash-settled share-based payments transactions amounted to
EUR 22 million at 31 December 2005 (2004: EUR 18 million).
Financial statements 2005
197
Option plans
Key staff are granted options conditionally on ABN AMRO shares with an exercise price
equal to the average share price at the date of grant. Options generally vest three years after
grant if both the service conditions and the performance conditions (a minimum ROE target)
have been achieved.
The fair value of options granted is determined using a Lattice option pricing model. The
following table shows the assumptions on which the calculation of the fair value of these
options was based. The expected volatility was based on historical volatility.
For the calculation of the fair value of the options granted to the Top Executives in 2004, the
same assumptions were used. The expense recorded in 2005 regarding all options plans
amounted to EUR 43 million (2004: EUR 36 million).


2005 2004

Grant date 16 February 2005 13 February 2004
Expiration date 16 February 2015 13 February 2014
Exercise price (in euros) 21.24 18.86
Share price on grant date (in euros) 21.24 18.86
Volatility 34% 35%
Expected dividend yield 5.2% 4.7%
Interest rate 3.7% 4.3%
Fair value at grant date (in euros) 4.24 3.98

The following table shows an overview of options granted during the past two years:


2005 2004

Number of Average Number of Average
options exercise price options exercise price
(in thousands) (in euros) (in thousands) (in euros)

Balance at 1 January 63,050 18.94 59,149 19.30
Movements:
Options granted to Managing Board members 576 18.86
Options granted to other Top Executives 6,175 18.86
Other options granted 7,939 21.24 8,254 18.76
Options forfeited (2,780) 18.29 (760) 18.03
Options exercised (1,868) 18.05 (3,160) 18.10
Options expired (4,072) 22.43 (7,184) 22.04

Balance at 31 December 62,269 19.06 63,050 18.94

Of which exercisable 26,873 20.96 19,599 21.96
Of which exercisable and in the money 17,413 20.01 1,551 17.95
Of which hedged 26,968 18.14 28,837 18.06

In 2005 and 2004, the price of options exercised ranged from EUR 17.46 to EUR 20.42,
compared to an average share price of EUR 20.11 in 2005 and EUR 18.18 in 2004. If all
exercisable rights were to be exercised, shareholders equity would increase by an amount
of EUR 563 million (2004: EUR 430 million). Deliveries on options exercised in 2005 were
made from share repurchases on the date of grant (1,868,242 shares; 2004: 497,512 shares)
and from new shares issued on the exercise date (no shares; 2004: 2,662,183 shares).
Financial statements 2005
198
The following tables further detail the options outstanding at 31 December 2005:

Outstanding Average Low/high
(in thousands) exercise price exercise price
(in euros) (in euros)

Year of expiration
2007 4,411 21.30 21.30
2008 9,459 22.72 22.34-23.14
2009 4,391 20.42 20.42
2010 898 15.06 15.06
2011 495 17.12 17.12
2012 8,612 19.14 17.46-19.53
2013 13,105 14.45 14.45-14.65
2014 13,265 18.86 18.86
2015 7,633 21.24 21.24

Total 62,269 19.06 14.45-23.14


Options outstanding Options exercisable

Out- Weighted- Weighted- Exercisable Weighted
standing average average (in average
(in exercise remaining thousands) exercise
thousands) price (in contractual price (in
euros) life (in years) euros)

Range of exercise prices (in euros)
14.45-17.50 16,139 14.87 6.9 1,641 17.46
17.51-20.00 20,236 19.09 7.4 6,971 19.53
20.01-22.50 21,369 21.34 4.8 13,736 21.39
> 22.51 4,525 23.14 2.2 4,525 23.14

Total 62,269 19.06 6.0 26,873 20.96

Share plans
For the calculation of the expense for the share plans, various models were used. The total
expense in 2005 for plans granted after 7 November 2002 amounted to EUR 19 million
(2004: EUR 22 million). The following table presents a summary of all shares conditionally
granted to the Top Executives of ABN AMRO. For the number of shares granted on the TRS-
ranking under the Performance Share Plan, a ranking of fifth in the peer group has been
assumed.

(in thousands)
2005 2004

Balance at 1 January 3,688 4,741
Granted 2,892 1,797
Forfeited (283) (2,850)
Vested (660)

Balance at 31 December 5,637 3,688

Financial statements 2005
199
44 Acquisitions and disposals of subsidiaries
Acquisitions in 2005 and 2004
The following acquisitions were made in 2005 and 2004 and were accounted for using the
purchase method:

% acquired Consider- Total assets Acquisition
ation Date

Acquired companies
2005:
Bank Corluy 100 50 121 27 April 2005
Private equity acquisitions 51-100 43 2,174 various
2004:
Bethmann Maffei 100 110 812 30 January 2004
Private equity acquisitions 51-100 112 963 various

The acquisitions in 2005 contributed a net loss of EUR 7 million to the consolidated net
profit for the year.
Disposal in 2005 and 2004
During 2005 the Group disposed of the following activities:
Real Seguros in Brazil which was transferred to a joint venture
Nachenius, Tjeenk & Co.
These operations contributed EUR 22 million to the consolidated net profit for the year
ended 31 December 2004 and EUR 12 million in 2005.
During 2004 the Group disposed of the following activities:
LeasePlan Corporation
Bank of Asia.
Business combinations in 2006
On 2 January 2006 the Group entered into the business combination with Banca Antoniana
Popolare Veneta (Banca Antonveneta) to increase its mid-market footprint, and to continue
and accelerate the successful partnership that gives access to the large and attractive Italian
banking market and to the high-quality customer base of Banca Antonveneta.
During 2005 the Group increased its interest in Banca Antonveneta from 12.7% to 29.9%.
On 2 January 2006 the Group further increased its interest in Banca Antonveneta from
29.9% to 55.8% following the purchase of 79.9 million shares in Banca Antonveneta from
Banca Popolare Italiana (BPI). This increase has effectively given the Group a controlling
interest in Banca Antonveneta as from 2 January 2006, the acquisition date of the business
combination. The acquisition of the shares was performed in accordance with the agreement
with BPI announced on 26 September 2005. The Group paid EUR 26.50 per share,
representing a cash consideration of EUR 2.1 billion.
Financial statements 2005
200
As a result of this increased interest in Banca Antonveneta, in accordance with the Italian
law, the Group has launched a mandatory public offer for the remaining shares it does not
already hold in Banca Antonveneta.
On 26 February 2006 the Group published the offering document for the cash offer for all
ordinary shares in Banca Antonveneta. The offering period started on 27 February 2006 and
will end on 31 March 2006, as agreed with the Italian stock exchange Borsa Italiana.
ABN AMRO will pay Banca Antonveneta shareholders a consideration of EUR 26.50 a share
for each Banca Antonveneta ordinary share purchased through the offer, as already
announced on 26 September 2005.
Following further purchases of shares in the open market, as at 16 March 2006 ABN AMROs
interest in Banca Antonveneta amounts to 76.0% of its outstanding share capital.
Business combination achieved in stages
The acquisition of Banca Antonveneta by the Group is being achieved in stages through
successive share purchases. The Group has identified two stages in achieving this business
combination.
The first stage has ended with the announcement by the Group on 30 March 2005 of its
intention to launch the cash offer for all ordinary shares of Banca Antonveneta. At that date
the 12.7% holding of the Group in Banca Antonveneta was accounted for as an associate in
accordance with the equity method. The adjustment to fair value of the 12.7% holding of the
Group in Banca Antonveneta amounting to EUR 101 million following the fair valuation of
assets and liabilities of Banca Antonveneta as per the acquisition date in accordance with the
purchase method will be accounted for as a revaluation through shareholders equity.
The second stage has started as of 1 April 2005 and will be completed by 31 March 2006,
the end of the offering period. The Group has presumed that the fair values of assets and
liabilities of Banca Antonveneta as at 2 January 2006 represent the fair values of assets and
liabilities of Banca Antonveneta during the second stage of the acquisition between 1 April
2005 and 31 March 2006. The stable economic environment and specific business
circumstances of Banca Antonveneta during the second stage of the acquisition have not
had a material impact on the fair values of assets and liabilities of Banca Antonveneta during
that period.
The acquisition of Banca Antonveneta will be accounted for in accordance with the purchase
method as described in IFRS 3 Business Combinations. The total purchase price to acquire
100% of the outstanding shares of Banca Antonveneta amounts to EUR 7.5 billion, including
costs directly attributable to the combination of EUR 32 million.
The preliminary allocation of the purchase price to the assets acquired including newly
identifiable intangible assets resulting from the acquisition and (contingent) liabilities
assumed, using their fair values at the acquisition date and the resulting goodwill, is
presented in the following table.
Financial statements 2005
201
This allocation is based on provisional fair values of assets acquired and liabilities assumed,
and may be adjusted during the period up to 31 December 2006 as more information is
obtained about these fair values.
The fair values of the identifiable assets and liabilities of Banca Antonveneta as at 2 January
2006 are:

Recognised on Carrying value
acquisition by Banca Antonveneta
the group

Intangible assets 1,238 848
Property and equipment 772 751
Financial assets 43,112 41,936
Deferred tax assets 958 736
All other assets 3,359 3,461

Total identifiable assets 49,439 47,732

Deferred tax liabilities 684 147
All other liabilities 45,463 44,487

Total identifiable liabilities 46,147 44,634

Total net assets 3,292 3,098

Purchase price (100%) 7,464
Net assets (3,292)
Fair value adustment of 12.7% investment included in
shareholders equity 101

Goodwill arising on acquisition of 100% outstanding shares 4,273

Newly identifiable intangible assets recognised upon acquisition
As a result of the acquisition, the Group on a pre-tax basis will recognise newly
identifiable intangible assets as follows:

Core deposit intangible assets 400
Core overdraft intangible assets 224
Other customer relationship intangible assets 325
Other intangible assets 245

Total 1,194

Financial statements 2005
202
The amortisation period for all newly identifiable intangible assets is on average
approximately 8 years. The Group estimates that the total amortisation expense (pre-tax)
related to the newly identifiable intangible assets will amount to EUR 174 million in each of
the next three years up to and including 2008 and to EUR 142 million for each of the five
years thereafter up to and including 2013.
Goodwill
Goodwill represents expected revenue and cost synergies from the business combination
and the value of the workforce of Banca Antonveneta which cannot be recognised separately
from goodwill.
45 Discontinued Operations
The Group had no discontinued operations in 2005. During 2004 the Group disposed of
LeasePlan Corporation and the Bank of Asia. The aggregated operating performance and
disposal gain for these discontinued operations was as follows.


2004

Total operating income 736
Total expenses 519

Operating profit before tax 217
Gain recognised on disposal 1,275

Profit before tax from discontinued operations 1,492
Tax on operating profit 51
Tax on disposal gain (6)

Profit from discontinued operations net of tax 1,447

46 Related parties
The Group has a related party relationship with associates (see notes 19 and 40), joint
ventures (see note 41), pension funds (see note 27) and key management (see note 42).
The Group enters into a number of banking transactions with related parties in the normal
course of business. These include loans, deposits and foreign currency transactions. These
transactions were carried out on commercial terms and at market rates except for
employees. No allowances for loan losses have been recognised in respect of loans to
related parties in 2005 and 2004.
Financial statements 2005
203
47 First-time adoption of IFRS
The impact of transition from Dutch GAAP to IFRS can be summarised as follows:
Reconciliation of shareholders equity under Dutch GAAP to IFRS

1 January 31 December
2004 2004

Shareholders equity under Dutch GAAP 13,047 14,972
Release of fund for general banking risks 1,143 1,149
Reclassification of preference shares to subordinated liabilities (813) (767)
Reversal of property revaluation (130) (87)
Reclassification regarding Banco Real to subordinated liabilities (231) (231)
Transition impacts
Release of interest equalisation reserve relating to the
investment portfolio 1,563
Derivatives and hedging (560)
Fair value adjustments (160)
Private Equity (consolidation and fair valuation) 56
Loan impairment provisioning (405)
Property development (108)
Differences at LeasePlan Corporation (148)
Equity accounted investments (100)
Employee benefit obligations (1,475)
Other (355)

Total transition impact before taxation (1,692)

Taxation impact (577)

Total transition items (net of taxation) (1,115) (1,115)

Difference in 2004 profit (244)

Impact of gains and losses not recognised in
income statement
Available-for-sale reserve 489 818
Cash flow hedging reserve (165) (283)
Dutch GAAP pension booking to equity not applicable
under IFRS 479
Difference in currency translation account movement (40)

Other differences affecting IFRS and Dutch GAAP equity
Equity settled derivatives on own shares (106) 16
Goodwill capitalisation under IFRS 46
Other 102

Total impact (928) (157)

Total shareholders equity under IFRS 12,119 14,815

Financial statements 2005
204
Reconciliation of 2004 net profit under Dutch GAAP to IFRS


2004

Net profit under Dutch GAAP 4,109
Dividends accrued on preference shares (43)

Net profit available to shareholders under Dutch GAAP 4,066

Reconciling items:
Interest equalisation reserve amortisation relating to investment portfolio (454)
Available-for-sale realisations and other (including hedging) (19)
Mortgage banking activities (161)
Fair value adjustments (230)
Derivatives 11
Private Equity 129
Employee benefit obligations 89
Employee stock options (21)
Differences in gain on sale of LeasePlan Corporation and Bank of Asia 224
Redemption costs relating to preference shares classified as interest cost
under IFRS (42)
Loan impairment provisioning 29
Other (39)

Total impact before taxation (484)
Tax effect 283

Net profit impact (201)

Profit attributable to equity holders of the parent company under IFRS 3,865

Under Dutch GAAP, total assets and total liabilities at 31 December 2004 were EUR 608,623
million and EUR 589,372 million respectively, compared to EUR 727,454 million and
EUR 710,902 million under IFRS. In addition to differences in valuation and income
recognition (transition difference) and equity / liability classification, the following changes
impact the presentation of assets and liabilities:
IFRS requires the consolidation of multi-seller conduits which impacted both total asset
(loans and receivables customers) and total liabilities (due to customers) by EUR 23,700
million
Under IFRS derivative netting can only be applied if, in addition to holding the right of set-
off, we also have the intention to settle net. This intention criteria is seldom met due to
small differences in the timing of cash flows between derivatives with the same
counterparty and the use of gross settlement accounts with derivative exchanges. This
increased total assets (financial assets held for trading) and total liabilities (financial
liabilities held for trading) by approximately EUR 97 billion
Consolidating controlled private equity investments had the impact of increasing total
assets and total liabilities by EUR 2,393 million
Under IFRS funding instruments totalling EUR 3,714 million that previously qualified as
equity, reported in minority interest and preference shares, are now presented as
subordinated liabilities.
Financial statements 2005
205
Upon transition at 1 January 2004 the following assets and liabilities were designated to be
held at fair value with changes through income:
Non-controlling interests in private equity investments. These investments were previously
valued at cost less any required provision for impairment and presented within shares with
a book value of EUR 1,079 million at 1 January 2004. The adjustment required to bring
these investments to fair value at 1 January 2004 was EUR 9 million. These interests are
now reported within financial investments.
Mortgages held-for-sale as part of our mortgage banking activities in North America. These
mortgages were previously recorded at cost within loans to customer. Under IFRS these
loans are now reported within other assets and had a fair value of EUR 4,209 million. This
exceeded the cost amount by EUR 27 million, a sum which was largely offset by the
requirement to fair value related hedging derivatives.
48 Subsequent events
On 2 January 2006 the Group obtained a controlling stake in Banca Antonveneta.
See note 44 for further details.
49 Major subsidiaries and participating interests
(Unless otherwise stated, the banks interest is 100% or almost 100%, on 15 March 2006.
Those major subsidiaries and participating interests that are not 100% consolidated but are
accounted for under the equity method (a) or proportionally consolidated (b) are indicated
separately).
ABN AMRO Bank N.V., Amsterdam
Netherlands
AAGUS Financial Services Group N.V., Amersfoort (67%)
AA Interfinance B.V., Amsterdam
ABN AMRO Arbo Services B.V., Amsterdam
ABN AMRO Asset Management Holding N.V., Amsterdam
ABN AMRO Asset Management (Netherlands) B.V., Amsterdam
ABN AMRO Assurantie Holding B.V., Zwolle
ABN AMRO Bouwfonds Nederlandse Gemeenten N.V., Hoevelaken
ABN AMRO Effecten Compagnie B.V., Amsterdam
ABN AMRO Mellon Global Securities B.V., Amsterdam (50%) (b)
ABN AMRO Participaties B.V., Amsterdam
ABN AMRO Projectontwikkeling B.V., Amersfoort
ABN AMRO Ventures B.V., Amsterdam
Amstel Lease Maatschappij N.V., Utrecht
Delta Lloyd ABN AMRO Verzekeringen Holding B.V., Zwolle (49%) (a)
Dishcovery Horeca Expl. Mij B.V., Amsterdam
Hollandsche Bank-Unie N.V., Rotterdam
IFN Group B.V., Rotterdam
Solveon Incasso B.V., Utrecht
Stater N.V., Hoevelaken
Financial statements 2005
206
Outside the Netherlands
Europe
ABN AMRO Asset Management Holdings Ltd., London
ABN AMRO Asset Management Ltd., London
Artemis Investment Management Ltd., Edinburgh (71%)
ABN AMRO Asset Management (Deutschland) GmbH, Frankfurt am Main
ABN AMRO Bank A.O., Moscow
ABN AMRO Bank (Deutschland) AG, Frankfurt am Main
ABN AMRO Bank (Luxembourg) S.A., Luxembourg
ABN AMRO Bank (Polska) S.A., Warsaw
ABN AMRO Bank (Romania) S.A., Bucharest
ABN AMRO Bank (Schweiz) A.G., Zurich
ABN AMRO Capital Ltd., London
ABN AMRO Corporate Finance Ltd., London
ABN AMRO France S.A., Paris
Banque de Neuflize, Paris
Banque Odier Bungener Courvoisier, Paris
ABN AMRO Fund Managers (Ireland) Ltd., Dublin
ABN AMRO Futures Ltd., London
ABN AMRO Infrastructure Capital Management Limited, London
ABN AMRO International Financial Services Company, Dublin
ABN AMRO Investment Funds S.A., Luxembourg
ABN AMRO Stockbrokers (Ireland) Ltd., Dublin
Alfred Berg Holding A/B, Stockholm
Alfred Berg Asset Management Sweden A/B, Stockholm
Antonveneta ABN AMRO Societa di Gestione del Risparmio SpA, Milan
(45% ABN AMRO Bank N.V.; 55% Banca Antonveneta Group) (a)
Aspis Internationaal MFMC, Athens (45%) (a)
Banca Antonveneta SpA, Padova (76%) (a), 16 March 2006
Capitalia SpA, Roma (8%) (a)
CM Capital Markets Holding S.A., Madrid (45%) (a)
Delbrck Bethmann Maffei AG, Frankfurt am Main
Hoare Govett Ltd., London
Kereskedelmi s Hitelbank Rt., Budapest (40%) (a)
North America
ABN AMRO Asset Management Canada Ltd, Toronto
ABN AMRO Capital Markets Canada Ltd., Toronto
ABN AMRO Bank (Mexico) S.A., Mexico City
ABN AMRO North America Holding Company, Chicago
(holding company, voting right 100%, equity participation 92%)
LaSalle Bank Corporation, Chicago
LaSalle Bank N.A., Chicago
LaSalle Financial Services, Inc., Chicago
LaSalle National Leasing Corporation, Chicago
LaSalle Business Credit, LLC., Chicago
LaSalle Bank Midwest N.A., Troy
ABN AMRO Mortgage Group, Inc., Chicago
ABN AMRO Advisory, Inc., Chicago (81%)
ABN AMRO Capital (USA) Inc., Chicago
Financial statements 2005
207
ABN AMRO Incorporated, Chicago
ABN AMRO Sage Corporation, Chicago
ABN AMRO Rothschild LLC, New York (50%) (b)
ABN AMRO Asset Management Holdings, Inc., Chicago
ABN AMRO Asset Management (USA) LLC., Chicago
ABN AMRO Asset Management Inc., Chicago
ABN AMRO Investment Fund Services, Inc, Chicago
Montag & Caldwell, Inc., Atlanta
Middle East
Saudi Hollandi Bank, Riyadh (40%) (a)
Rest of Asia
ABN AMRO Asia Ltd., Hong Kong
ABN AMRO Asia Corporate Finance Ltd., Hong Kong
ABN AMRO Asia Futures Ltd., Hong Kong
ABN AMRO Asset Management (Asia) Ltd., Hong Kong
ABN AMRO Asset Management (Japan) Ltd., Tokyo
ABN AMRO Asset Management (India) Ltd., Mumbai (75%)
ABN AMRO Bank Berhad, Kuala Lumpur
ABN AMRO Bank (Kazakhstan) Ltd., Almaty (80%)
ABN AMRO Bank N.B., Uzbekistan A.O., Tashkent (58%)
ABN AMRO Bank (Philippines) Inc., Manilla
ABN AMRO Central Enterprise Services Private Ltd., Mumbai
ABN AMRO Securities (India) Private Ltd., Mumbai (75%)
ABN AMRO Securities (Japan) Ltd., Tokyo
PT ABN AMRO Finance Indonesia, Jakarta (70%)
PT ABN AMRO Manajemen Investasi Indonesia, Jakarta (96%)
Australia
ABN AMRO Asset Management (Australia) Ltd., Sydney
ABN AMRO Australia Ltd., Sydney
ABN AMRO Asset Securitisation Australia Pty Ltd., Sydney
ABN AMRO Corporate Finance Australia Ltd., Sydney
ABN AMRO Equities Australia Ltd., Sydney
ABN AMRO Securities Australia Ltd., Sydney
ABN AMRO Equities Capital Markets Australia Ltd., Sydney
ABN AMRO Capital Management (Australia) Pty Limited, Sydney
New Zealand
ABN AMRO New Zealand Ltd., Auckland
ABN AMRO Equity Derivatives New Zealand Limited, Auckland
Latin America and the Caribbean
ABN AMRO Asset Management Argentina Sociedad Gerente de FCI S.A., Buenos Aires
ABN AMRO Bank (Chile) S.A., Santiago de Chile
ABN AMRO Bank (Colombia) S.A., Bogot
ABN AMRO (Chile) Seguros Generales S.A., Santiago de Chile
ABN AMRO (Chile) Seguros de Vida S.A., Santiago de Chile
Financial statements 2005
208
ABN AMRO Brasil Participaes Financeiras S.A., So Paulo
ABN AMRO Brasil Dois Participaes S.A., So Paulo
Banco ABN AMRO Real S.A., So Paulo (89%)
Banco de Pernambuco S.A., Recife
Banco Sudameris Brasil S.A., So Paulo (85%)
Sudameris Vida e Previdncia S.A., So Paulo
ABN AMRO Asset Management DVTM S.A., So Paulo
ABN AMRO Asset Management S.A., So Paulo
Real Paraguaya de Seguros S.A., Asuncin
Real Uruguaya de Seguros S.A., Montevideo
For information on the investments of ABN AMRO Bouwfonds Nederlandse
Gemeenten N.V., the reader is referred to the separate annual report published by this
company.
The list of participating interests under which statements of liability have been issued has
been filed at the Amsterdam Chamber of Commerce.
Amsterdam, 23 March 2006
Supervisory Board
A.A. Loudon
A.C. Martinez
A. Burgmans
D.R.J. Baron de Rothschild
Mrs L.S. Groenman
Mrs T.A. Maas-de Brouwer
M.V. Pratini de Moraes
P. Scaroni
Lord Sharman of Redlynch
A.A. Olijslager
R.F. van den Bergh
A. Ruys
Managing Board
R.W.J. Groenink
W.G. Jiskoot
T. de Swaan
J.Ch.L. Kuiper
C.H.A. Collee
H.Y. Scott-Barrett
H.G. Boumeester
P.S. Overmars
R. Teerlink
Financial statements 2005
209
Accounting policies
The entity financial statements of
ABN AMRO Holding N.V. have been
prepared in accordance with the
requirements in Title 9 Book 2 of the Dutch
Civil Code. Starting 1 January 2005, the
Group prepares its consolidated financial
statements in accordance with
International Financial Reporting Standards
(IFRS) as adopted by the EU. The
accounting policies applied in the entity
financial statements are the same as those
applied in the consolidated financial
statements. The valuation of participating
interests in Group companies which are
valued at net asset value determined on
the basis of IFRS as adopted by the
European Union. Reference is made to
page 112.
Changes in accounting policies
In 2005, ABN AMRO Holding N.V. decided
to adopt the same accounting policies for
measurement and recognition in its entity
financial statements as applied in the
consolidated financial statements.
ABN AMRO Holding N.V. decided to
change the accounting principles as these
policies improve the reporting for the
entity financial statements and to have a
single set of accounting policies for the
subsidiaries. As a consequence, the profit
for the year and the total shareholders
equity in the entity accounts is the same
as in the consolidated financial statements.
The policies have been consistently applied
in all years presented and comparative
numbers have been amended.
The adoption of these accounting policies
in the consolidated financial statements
resulted in changes in the recognition,
measurement and classification of assets
and liabilities and determination of results.
The Group has made use of exemptions
available under IFRS 1.
Effective 1 January 2005, the Dutch legal
requirements for certain reserves in
shareholders equity were modified. Due
to the changes in the law in combination
with changes in the accounting policies,
the composition of shareholders equity
has changed. The changes recorded by
ABN AMRO Holding N.V. relate mainly to
the consequences of the adoption of IFRS
on the subsidiaries of ABN AMRO Holding.
Financial Statements ABN AMRO Holding NV (Parent Company) 2005
Financial statements 2005
210
The following table shows the impact of the changes in accounting policies of ABN AMRO
Holding N.V. on shareholders equity as at 31 December 2004 and net profit for the year
2004. The impact is consistent with the impact of the transition from Dutch GAAP to IFRS as
shown in the consolidated statements.
Impact of changes in accounting policies on shareholdings equity


2004

Shareholders equity at 31 December 2004 before change in accounting policies 14,972
Release of fund for general banking risks 1,149
Reclassification of preference shares to subordinated liabilities (767)
Reversal of property revaluation (87)
Reclassification regarding Banco Real to subordinated liabilities (231)

Transition impacts
Release of interest equalisation reserve relating to the investment portfolio 1,563
Derivatives and hedging (560)
Fair value adjustments (160)
Private equity (consolidation and fair valuation) 56
Loan impairment provisioning (405)
Property development (108)
Differences at LeasePlan Corporation (148)
Equity accounted investments (100)
Employee benefit obligations (1,475)
Other transition impacts (355)

Total transition impact before taxation (1,692)

Taxation impact (577)

Total transition items (net of taxation) (1,115)

Difference in 2004 profit (244)
Impact of gains and losses not recognised in income statement
Available-for-sale reserve 818
Cash flow hedging reserve (283)
Pension booking to equity not applicable under IFRS 479
Difference in currency translation account movement (40)

Other differences affecting IFRS and Dutch GAAP equity
Equity settled derivatives on own shares 16
Goodwill capitalisation under IFRS 46
Other 102

Total impact (157)

Shareholders equity at 31 December after changes in accounting policies 14,815

Financial statements 2005
211
Impact of changes in accounting policies on net profit


2004

Net profit before changes in accounting policies 4,109
Dividends accrued on preference shares (43)

Net profit available to shareholders 4,066

Reconciling items:
Interest equalisation reserve amortisation relating to investment portfolio (454)
Available-for-sale realisations and other (including hedging) (19)
Mortgage banking activities (161)
Fair value adjustments (230)
Derivatives 11
Private Equity 129
Employee benefit obligations 89
Employee stock options (21)
Differences in gain on sale of LeasePlan Corporation and Bank of Asia 224
Redemption costs relating to preference shares classified as interest cost
under IFRS (42)
Loan impairment provisioning 29
Other (39)

Total impact before taxation (484)

Tax impact 283

Net profit impact (201)

Profit after changes in accounting policies 3,865

Participating interests in Group companies
ABN AMRO Holding N.V. has one participation and is the sole shareholder of ABN AMRO
BANK N.V, Amsterdam.
Basis of preparation
The financial statements are presented in millions of euros, which is the presentation
currency of the Group entities.
Financial statements 2005
212
Company income statement for 2005

(in millions of euros)
2005 2004

Profits of participating interests after taxes 4,398 3,948
Other profit after taxes (16) (83)

Net profit 4,382 3,865

Company balance sheet at 31 December 2005 (before profit appropriation)

(in millions of euros)
2005 2004

Assets
Loans and receivables banks a 3,685 0
Interest-earning securities b 20 10
Participating interests in Group companies c 19,332 15,843
Accrued income and prepaid expenses d 4 0

Total assets 23,041 15,853

Liabilities
Due to banks 0 240
Due to customers 20 20
Other liabilities e 32 10

52 270

Subordinated liabilities f 768 768

Total liabilities 820 1,038

Share capital 1,069 954
Share premium account 5,269 2,604
Other reserves 15,883 11.257

Shareholders equity g 22,221 14,815

Total equity and liabilities 23,041 15,853

Drawn up in accordance with section 2:402 of the Netherlands Civil Code.
Letters stated against items refer to the notes.
Financial statements 2005
213
Company statement of changes in equity in 2005

(in millions of euros)
2005 2004

Issued and paid up share capital
Balance at 1 January 954 919
Issuance of shares 82
Exercised options and warrants 2
Dividends paid in shares 33 33

Balance at 31 December 1,069 954

Share premium
Balance at 1 January 2,604 2,549
Issuance of shares 2,611
Options and conversion rights exercised 48
Share-based payments 87 40
Dividends paid in shares (33) (33)

Balance at 31 December 5,269 2,604

Other reserves and reserves prescribed by law
Balance at 1 January 11,580 8,469
Profit for the year 4,382 3,865
Dividends paid (659) (694)
Other (66) (60)

Balance at 31 December 15,237 11,580

Treasury shares
Balance at 1 January (632) (119)
Net purchase / sale of treasury shares 32 (513)

Balance at 31 December (600) (632)

Equity settled own share derivatives
Balance at 1 January (106)
Change in market value and settlements 106

Balance at 31 December

Net gains / (losses) not recognised in the income statement
Currency translation account
Balance at 1 January (238)
Transfer to income statement relating to disposed subsidiaries (20) 2
Currency translation differences 1,100 (240)

Subtotal balance at 31 December 842 (238)

Net unrealised gains / (losses) on available-for-sale assets
Balance at 1 January 830 572
Net unrealised gains / (losses) on available-for-sale assets 717 509
Net losses / (gains) reclassified to the income statement (348) (251)

Subtotal balance at 31 December 1,199 830

Cash flow hedging reserve
Balance at 1 January (283) (165)
Net unrealised gains / (losses) on the revaluation of cash flow hedges (386) (106)
Net losses / (gains) reclassified to the income statement (126) (224)

Subtotal balance at 31 December (795) (283)

Net gains / (losses) not recognised in the income statement at
31 December 1,246 309

Total equity at 31 December 22,221 14,815

Financial statements 2005
214
Notes to the company balance sheet and income statement
(all amounts are in millions of euros)
a Loans and receivables banks
This item includes loans and deposits to and other interbank relations with Group
companies. The maturity of these loans and receivables is less than one year.
b Interest-earning securities
The amount included in this item represents securitised receivables, such as commercial
paper.


2005 2004

Balance at 1 January 10 20
Purchases 89 100
Sales (79) (110)

Balance at 31 December 20 10

c Participating interests in Group companies
Dividends payable by ABN AMRO Bank N.V to ABN AMRO Holding N.V. amounted to
EUR 1,520 million (2004: EUR 1,751 million).


2005 2004

Balance at 1 January 15,843 12,535
Net profit for the year 4,398 3,948
Dividends received (1,751) (677)
Currency translation differences 1,080 (238)
Other movements (238) 275

Balance at 31 December 19,332 15,843

d Accrued income and prepaid expenses
This item includes income and expenses recognised in the period under review, the actual
receipt or payment of which falls in a different period.
e Other liabilities
This item includes those amounts which are not of an accrued or deferred nature or which
cannot be classified with any other balance sheet item.
Financial statements 2005
215
f Subordinated liabilities
In 2004, as part of our revised corporate governance processes, the registered preference
shares outstanding at the end of 2003 with a defence function were cancelled and new
registered convertible financing preference shares were issued that perform no defence
function. During 2005 the number of outstanding convertible financing preference shares
(face value EUR 0.56) remained unchanged at 1,369,815,864. Also remained unchanged
were the number of outstanding (formerly convertible) preference shares (face value
EUR 2.24) at 44,988. The dividend on the financing preference shares has been fixed with
effect from 1 October 2004 at 4.65% of the face value. This percentage will be adjusted on
1 January 2011 in the manner stipulated in the articles of association.
Dividends on the financing (formerly convertible) preference shares rank above ordinary
dividends for distribution and in the event of liquidation. The dividend on these preference
shares, which were convertible until 31 October 2003, has been fixed at 1 January 2004 at
EUR 0.95 per share per annum until the end of 2013.
g Shareholders equity
Shareholders equity


2005 2004

Share capital 1,069 954
Reserves 21,152 13,861

Total 22,221 14,815

Share capital


2005 2004

Movements in number of issued ordinary shares
Balance at 1 January 1,702,888,861 1,643,220,517
New issue 145,278,482
Dividends paid in shares 61,571,084 59,668,344

Balance at 31 December 1,909,738,427 1,702,888,861



2005 2004

Movements in number of treasury shares
Balance at 1 January 33,686,644 5,337,689
Use for options exercised (1,868,242) (497,512)
Repurchase 28,846,467

Balance at 31 December 31,818,402 33,686,644

As at 31 December 2005, a total of 31,818,402 ordinary shares (book value: EUR 600 million)
were repurchased in connection with the Performance Share Plan and future exercise of staff
options.
Financial statements 2005
216
Reserves


2005 2004

Share premium account 5,269 2,604
Non distributable reserve shares 10 10
Non distributable profit participations 542 270
Currency translation differences reserve 842 (238)
Cash flow hedge reserve (795) (283)
Available for sale assets reserve 1,199 830
Unrealised gains on financial instruments elected to fair value 381 260
Other reserves 13,704 10,408

Total reserves 21,152 13,861

The share premium account is mainly regarded as paid-up capital for tax purposes. Of total
reserves EUR 3,104 million (2004: EUR 1,785 million) is not distributable.
Guarantees
ABN AMRO Holding N.V. guarantees all liabilities of ABN AMRO Bank N.V.
Remuneration Managing Board
Reference is made to note 42 of the consolidated accounts.
Amsterdam, 23 March 2006
Supervisory Board
A.A. Loudon
A.C. Martinez
A. Burgmans
D.R.J. Baron de Rothschild
Mrs L.S. Groenman
Mrs T.A. Maas-de Brouwer
M.V. Pratini de Moraes
P. Scaroni
Lord Sharman of Redlynch
A.A. Olijslager
R.F. van den Bergh
A. Ruys
Managing Board
R.W.J. Groenink
W.G. Jiskoot
T. de Swaan
J.Ch.L. Kuiper
C.H.A. Collee
H.Y. Scott-Barrett
H.G. Boumeester
P.S. Overmars
R. Teerlink
other information
Other information
218
Auditors report
Introduction
We have audited the financial statements of
ABN AMRO Holding N.V., Amsterdam, for
the year 2005 (as set out on pages 110 to
216). These financial statements consist of
the consolidated financial statements and the
company financial statements. These
financial statements are the responsibility of
the companys management. Our
responsibility is to express an opinion on
these financial statements based on our
audit.
Scope
We conducted our audit in accordance with
auditing standards generally accepted in the
Netherlands. Those standards require that we
plan and perform the audit to obtain
reasonable assurance about whether the
financial statements are free of material
misstatement. An audit includes examining,
on a test basis, evidence supporting the
amounts and disclosures in the financial
statements. An audit also includes assessing
the accounting principles used and significant
estimates made by management, as well as
evaluating the overall presentation of the
financial statements. We believe that our
audit provides a reasonable basis for our
opinion.
Opinion with respect to the consolidated
financial statements
In our opinion, the consolidated financial
statements give a true and fair view of the
financial position of the company as at
31 December 2005 and of the result and the
cash flows for the year then ended in
accordance with International Financial
Reporting Standards and with International
Financial Reporting Standards as adopted by
the EU and comply with the financial
reporting requirements included in Part 9 of
Book 2 of the Netherlands Civil Code as far
as applicable.
Furthermore we have established to the
extent of our competence that the annual
report is consistent with the consolidated
financial statements.
Opinion with respect to the company
financial statements
In our opinion, the company financial
statements give a true and fair view of the
financial position of the company as at
31 December 2005 and of the result for the
year then ended in accordance with the
accounting principles generally accepted in
the Netherlands and comply with the
financial reporting requirements included in
Part 9 of Book 2 of the Netherlands Civil
Code.
Furthermore we have established to the
extent of our competence that the annual
report is consistent with the company
financial statements.
Amsterdam, 23 March 2006
for Ernst & Young Accountants
V.C. Veger C.B. Boogaart
Stipulations of the articles of
association with respect to
profit appropriation
Profit is appropriated in accordance with
article 37 of the articles of association. The
main stipulations with respect to classes and
series of shares currently in issue are as
follows:
1 The holders of preference financing shares
convertible into ordinary shares (preference
shares) issued pursuant to the resolution
passed by the extraordinary meeting of
shareholders on 25 August 2004 will receive
a dividend of EUR 0.02604 per share,
representing 4.65% of the face value. As
from 1 January 2011, and every ten years
thereafter, the dividend percentage on the
preference shares will be adjusted in line
with the arithmetical average of the ten-year
euro-denominated interest rate swap as
published by Reuters on the relevant
dividend calculation dates, plus an increment
to be set by the Managing Board with the
approval of the Supervisory Board. This
increment will be of no less than 25 basis
points and no more than one hundred basis
Other information
219
points, depending on the market situation at
that time (article 37.2.a.1. and a.2.).
The holders of preference shares that were
formerly convertible into ordinary shares
(convertible shares) will receive a dividend of
EUR 0.95 per share, representing 3.3231%
of the amount paid on each share as of
1 January 2004. As from 1 January 2014,
and every ten years thereafter, the dividend
on the convertible shares will be adjusted in
the manner described in the articles of
association (article 37.2.a.4.).
No profit distributions will be made to
holders of preference shares or convertible
shares in excess of the maximum levels
defined above (article 37.2.a.6.).
2 From the profit remaining after these
distributions, the Managing Board may
decide to make appropriations to reserves,
subject to the approval of the Supervisory
Board (article 37.2.b.).
3 The allocation of the amount remaining
after these appropriations shall be
determined by the General Meeting of
Shareholders. The Managing Board, subject
to the approval of the Supervisory Board,
shall make a proposal to that effect. A
proposal to pay a dividend shall be dealt with
as a separate item at the General Meeting of
Shareholders (article 37.2.b.).
ABN AMRO Holdings policy on reserves and
dividends shall be determined and can be
amended by the Supervisory Board, upon the
proposal of the Managing Board. The
adoption of and each subsequent
amendment to the policy on reserves and
dividends shall be discussed and accounted
for at the General Meeting of Shareholders
under a separate agenda item (article 37.2.c.).
Notwithstanding the provisions of article
37.2.a.1 and a.2 referred to under 1 above,
after 1 January 2011 the Managing Board
may, with the approval of the Supervisory
Board, resolve not to pay the dividend on the
relevant Preference Shares in cash out of the
profit, or to pay the dividend on the relevant
preference shares out of a freely
distributable reserve. In such cases the part
of the profit not paid out shall be added to
the general reserve. The Managing Board
may only pass such a resolution if no
dividend is to be paid on the ordinary shares
in the relevant year, in accordance with the
provisions of article 37.2.c. Subject to
approval of the Supervisory Board, the
Managing Board can make the dividend or
interim dividend on the ordinary shares
payable, at the discretion of the holders,
either in cash or, provided it is authorised to
issue shares, partly or wholly in the form of
ordinary or preference shares in the
companys capital or in a combination
thereof, such combination to be determined
by the Managing Board (article 37.3.).
Stipulations of the articles of
association of Holding and
trust office with respect to
shares and voting rights
Each ordinary share of EUR 0.56 face value
in the capital of ABN AMRO Holding N.V.
entitles the holder to cast one vote. The
preference shares have the same nominal
value as the ordinary shares, at EUR 0.56
each. Each preference share is entitled to
one vote. The convertible shares in the
capital have a face value of EUR 2.24 and are
entitled to four votes. Subject to certain
exceptions provided for by law or in the
articles of association, resolutions are passed
by an absolute majority of the votes cast.
All of the preference shares are held at the
trust office Stichting Administratiekantoor
Preferente Financieringsaandelen
ABN AMRO Holding (the Trust Office), which
acts as record owner, issuing depositary
receipts evidencing ownership interests in
preference shares to their beneficial owners.
Contrary to the former structure, the
voting rights on the preference shares,
although formally held by the Trust Office, are
exercised in practice by the depositary
receipt holders, since voting proxies will be
issued to the depositary receipt holders by
the Trust Office under all circumstances. The
Other information
220
Trust Office will, in principle, not exercise its
voting rights. The depositary receipt holders
voting rights will be calculated on the basis
of the equity participation of the (depositary
receipts of) preference shares in proportion
to the value of the ordinary shares. Voting
rights on preference shares granted to a
depositary receipt holder by proxy will
correspond to the amount of depositary
receipts held by the depositary receipt holder
in relation to the stock price of the ordinary
shares at the close of the last trading day of
the Euronext Amsterdam in the month
preceding the calling of the shareholders
meeting.
Subject to certain exceptions, upon the
issuance of ordinary shares and convertible
shares, holders of ordinary shares have pre-
emptive rights in proportion to their holdings.
In the event of the dissolution and liquidation
of ABN AMRO Holding N.V., the assets
remaining after payment of all debts will be
distributed (1) first, to the holders of
preference shares and convertible shares on
a pro rata basis, in an amount equal to all
dividends accrued from the beginning of the
most recent full financial year through the
date of payment plus the face value of the
preference shares or the amount paid in
on the convertible shares respectively, and
(2) second, to the holders of ordinary shares
on a pro rata basis.
Subsequent events
On 25 February 2006 ABN AMRO published
the offering document for the cash offer for
all ordinary shares of Banca Antonveneta.
ABN AMRO pays Banca Antonveneta
shareholders a consideration of EUR 26.50
for each Banca Antonveneta ordinary share
to be purchased through the offer. The
offering period, as agreed with the Italian
stock exchange Borsa Italiana, is from
27 February to 31 March 2006.
Proposed profit appropriation
Appropriation of net profit pursuant to article 37.2 and 37.3
of the articles of association

(in millions of euros)
2005 2004

Addition to reserves 2,332 2,200
Dividends on ordinary shares 2,050 1,665

4,382 3,865

Dividends on preference shares 36 43

Other information
221
Comparison of the corporate governance regulations based upon the
Dutch corporate governance code and the US Sarbanes-Oxley Act of 2002 (SOXA)
Overview of
applicable regulations
ABN AMRO
action
Equivalent Dutch
best practice provisions 1
1 Auditor independence
Prohibition of Certain Non-Audit Services (SOXA s201):
The accounting firm that performs an audit of a companys financial
statements is prohibited from performing certain non-audit services.
This requirement has been
incorporated into ABN AMROs
Policy on Auditor Independence (2).
III.5.4 and V.2.2
Pre-approval of Services (SOXA s201-202):
Pre-approval by the Audit Committee of the performance by the auditor of
all audit and permissible non-audit services.
This requirement has been
incorporated into ABN AMROs
Audit Committee Pre-Approval
Policy for External Audit Firm
Services (2).
V.1.2 and V.2.2
Accountant Fees and Related Policies Disclosure (SOXA s202):
Disclosure to investors of the Audit Committees pre-approval policies, and
fees paid to, the auditor.
These disclosures are made in
ABN AMROs Annual Report filed
with the Securities & Exchange
Commission on Form 20-F (the
Form 20-F) for 2004 (2).
V.2.2 and V.2.3
Audit Partner Rotation (SOXA s203):
The rotation of audit partners is required after a certain number of years. This requirement has been
incorporated into ABN AMROs
Policy on Auditor Independence (2).
III.5.4; V.2.2; and V.2.3
Auditor Reports to the Audit Committee (SOXA s204):
The auditor must provide the Audit Committee with timely reports
regarding critical accounting policies and practices used by the company,
alternative treatments of financial information discussed with
management including the auditors preferred treatment and other material
communications between the auditor and management.
This requirement has been
incorporated into ABN AMROs
Policy on Auditor Independence (2).
III.5.4; III.5.9; V.4.1; V.4.2 and V.4.3
Employment of Former Auditor Personnel (SOXA s206):
An auditor is deemed not to be independent if certain senior executives of
the company have been employed by the auditor and participated in the
audit of the company in the year preceding the current audit.
This restriction has been
incorporated into ABN AMROs
Policy on Auditor Independence (2).
III.5.4; V.2.2 and V.2.3
Audit Partner Compensation (SOXA s203):
Prohibition of an audit partner from receiving compensation based upon
selling non-audit services to the audit client.
This requirement has been
incorporated into ABN AMROs
Policy on Auditor Independence (2).
III.5.4; V.2.2 and V.2.3

1 The full text of the equivalent best practice provisions (and ABN AMROs compliance in respect thereof) can be found in the Corporate Governance Supplement which has
been made available on our corporate website (www.abnamro.com).
2 The full text (or where applicable a synopsis) hereof can be found on our corporate website (www.abnamro.com).
Other information
222
Overview of
applicable regulations
ABN AMRO
action
Equivalent Dutch
best practice provisions 1
2 Audit Committee
Auditor Oversight (SOXA s301):
The Audit Committee must be given responsibility for the appointment,
compensation, retention and oversight of the work of the auditor.
This requirement has been
incorporated into ABN AMROs
Rules Governing the Supervisory
Boards Principles and Best
Practices (2).
III.5.4; III.5.5; III.5.8 and III.5.9
Audit Committee Independence (SOXA s301):
All Audit Committee members must be independent. To be independent,
audit committee members may not (other than in their capacity as a board
or committee member):
i) accept any consulting, advisory or compensatory fees; or
ii) be affiliated with the company or any of its subsidiaries.
This requirement has been
incorporated into ABN AMROs
Rules Governing the Supervisory
Boards Principles and Best
Practices (2).
III.2.2; III.5.1 and III.5.6
Whistleblower Procedures & Protections (SOXA s301; s806 and
s1107):
The Audit Committee must establish whistleblower procedures for:
i) the receipt, retention and treatment of complaints regarding
accounting, internal accounting controls and audit matters; and
ii) the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters. Companies are
prohibited from discriminating against whistleblowers.
The Managing Board and the Audit
Committee of the Supervisory
Board approved a general Whistle
Blowing Policy (2) which provides
appropriate procedures and
protections for all employees to
report suspected malpractice,
including a direct reporting line to
the Audit Committee.
II.1.6
Audit Committee Engagement of Advisors and Payment of their
Expenses (SOXA s301):
The Audit Committee must be given the authority to engage advisors as
the committee determines necessary and the company must provide
appropriate funding for their compensation.
This requirement has been
incorporated into ABN AMROs
Rules Governing the Supervisory
Boards Principles and Best
Practices (2).
III.1.9 and III.5.4
Audit Committee Financial Experts (SOXA s407):
Companies must disclose whether the Audit Committee has at least one
member who is an audit committee financial expert and whether or not
the particular person is independent.
These disclosures are made in the
Form 20-F.
III.5.2 and III.5.7

1 The full text of the equivalent best practice provisions (and ABN AMROs compliance in respect thereof) can be found in the Corporate Governance Supplement which has
been made available on our corporate website (www.abnamro.com).
2 The full text (or where applicable a synopsis) hereof can be found on our corporate website (www.abnamro.com).
Other information
223
Overview of
applicable regulations
ABN AMRO
action
Equivalent Dutch
best practice provisions 1
3 CEO / CFO Certifications
CEO/CFO 302 Certification:
The Form 20-F must be accompanied by a certification from the CEO and
CFO that:
i) the financial information included in the Form 20-F fairly represents, in
all material respects, the companys financial position, results of
operations and cash flows;
ii) that they are responsible for establishing and maintaining disclosure
procedures and control, evaluated their effectiveness as of the end of
the year and disclosed any change in the companys internal control
over financial reporting that materially effects such internal control; and
iii) that they have disclosed all significant deficiencies and weaknesses in
the design and operation of internal control over financial reporting as
well as any related fraud on the part of management or other
employees.
The s906 and s302 certifications
are provided in the Form-20F.
II.1.3; II.1.4; II.1.5; III.1.8 and V.1.3
CEO/CFO 906 Certification (SOXA s906):
The Form 20-F must be accompanied by a certification from the CEO and
CFO that the report fully complies with reporting requirements and fairly
represents, in all material respects, the companys financial position and
results of operations.
As Dutch credit institution we also have to maintain the Regulation on
Organization and Control (ROC) which is based on the Act of the
Supervision of the Credit System 1992. The principle of the ROC is that
credit institutions are responsible for organising and controlling their
business processes in such a way that their business is conducted in a
controlled and sound manner. By meeting the requirements of both
Section 302 and the ROC we are of the opinion that we are in this aspect
in compliance with the Dutch corporate governance code.


1 The full text of the equivalent best practice provisions (and ABN AMROs compliance in respect thereof) can be found in the Corporate Governance Supplement which has
been made available on our corporate website (www.abnamro.com).
Other information
224
Overview of
applicable regulations
ABN AMRO
action
Equivalent Dutch
best practice provisions 1
4 General corporate governance
Prohibition of Loans to Directors & Executive Officers (SOXA s402):
Companies are prohibited from making loans to directors and executive
officers, with exceptions for companies that provide financial services in
the ordinary course of their business.
ABN AMRO extends loans to
directors and executive officers in
accordance with the exception
given to financial institutions.
II.2.8 and III.7.4
Management Assessment of Internal Controls (SOXA s404):
Companies must include in their Form 20-F a report on the companys
internal control over financial reporting which includes managements
assessment of the effectiveness of the companys internal control over
financial reporting. The auditor gives an attestation report on
managements assessment.
ABN AMRO will provide a report on
managements assessment of
internal control over financial
reporting and the auditors
attestation in the Form 20-F
covering 2006.
II.1.3; II.1.4; II.1.5; III.1.8; V.1.3 and
V.4.3
Code of Ethics (SOXA s406):
The company must disclose whether it has adopted a code of ethics for
the Chief Executive Officer and Senior Financial Officers.
The standards of ethical conduct
ABN AMRO expects from its
employees, including the CEO and
Senior Financial Officers, are found
within ABN AMROs Business
Principles (2) which constitutes a
code of ethics for the purposes
of SOXA.
II.1.3

1 The full text of the equivalent best practice provisions (and ABN AMROs compliance in respect thereof) can be found in the Corporate Governance Supplement which has
been made available on our corporate website (www.abnamro.com).
2 The full text (or where applicable a synopsis) hereof can be found on our corporate website (www.abnamro.com).
Other information
225
A.A. Loudon (69) *@ 2006
Chairman
Former Chairman of the Board of
Management of AKZO Nobel N.V.
A.C. Martinez (66) *#& 2006
Former Chairman and CEO of Sears
Roebuck & Co. Inc.
A. Burgmans (59) *&@ 2006
Non-Executive Chairman of
Unilever plc and Unilever N.V.
D.R.J. Baron de Rothschild (63)
2007
Senior Partner of Rothschild & Cie.
Banque
Mrs L.S. Groenman (65) 2007
Former Crown Member Sociaal-
Economische Raad (SER)
Mrs T.A. Maas-de Brouwer (59)*&
2008
President of HayVision Society
M.V. Pratini de Moraes (66) #
2007
Former Minister of Agriculture,
Livestock and Food Supply for Brazil
P. Scaroni (59) 2007
CEO of ENI S.p.A.
Lord Sharman of Redlynch (63)
# 2007
Former Chairman of KPMG
International
A.A. Olijslager (62) # 2008
Former Chairman of the Board of
Management of Friesland Coberco
Dairy Foods Holding N.V.
R.F. van den Bergh (55) 2009
Chairman of the Executive Board
and CEO of VNU N.V.
A. Ruys (58) 2009
Former Chairman of the Executive
Board of Heineken N.V.
The numbers against each name
are the age (in brackets) and the
year of periodical resignation.
A curriculum vitae, including other
important positions and nationality,
is available at the companys office
and on www.abnamro.com.
* Member of the Nomination &
Compensation Committee.
# Member of the Audit Committee.
& Member of the Compliance
Oversight Committee.
@ To retire from Supervisory Board
with effect of 27 April 2006.
Supervisory Board
Managing Board
R.W.J. Groenink (56)
Chairman
W.G. Jiskoot (55)
T. de Swaan (60)
J.Ch.L. Kuiper (58)
C.H.A. Collee (53)
H.Y. Scott-Barrett (47)
H.G. Boumeester (46)
P.S Overmars (41)
R. Teerlink (45)
Company Secretary
H.W. Nagtglas Versteeg
Advisory Council
J. Aalberts
President and CEO of Aalberts
Industries N.V.
M.P. Bakker
Chairman of the Managing Board
and CEO of TPG N.V.
J. Bennink
Chairman of the Executive Board of
Royal Numico N.V.
S.H.M. Brenninkmeijer
Chairman of the Managing Board of
COFRA Holding AG
R.J.A. van der Bruggen
Chairman of the Board of
Management of Imtech N.V.
R. van Gelder BA
Chairman of the Management
Board of Royal Boskalis
Westminster N.V.
Ms N. McKinstry
Chairman of the Executive Board of
Wolters Kluwer N.V.
A. Nhn
Chairman of the Board of
Management of Sara Lee DE
International B.V.
H.Th.E.M. Rottinghuis
President and CEO of the Board of
Directors of Pon Holdings B.V.
J. Struik
President and CEO of Struik Food
Group N.V.
P.J.J.M Swinkels
CEO of Bavaria N.V.
N.M. Wagenaar
CEO of Getronics PinkRoccade N.V.
L.M. van Wijk
Vice President of the Board of
Directors Air France-KLM
ABN AMRO Holding N.V.
Situation as at 23 March 2006
Other information
226
Education
1966
Master of Science Civil Engineering, Delft University of Technology
1968
Business Economics, Ring van Rotterdamse Repetitoren
Employment
1966-1967
Design Engineer, Department of Maritime Construction, Dutch
Government
1967-1968
Naval hydrographic officer, The Royal Dutch Navy
1968-1977
Project manager, Koninklijke Adriaan Volker Groep (today Koninklijke Volker
Wessels Stevin N.V.)
1977-1983
Director, Broekhoven Baggermaatschappij Zeist (today part of Van Oord
N.V.)
1983-2005
President and Chief Executive Officer, Fugro N.V.
Other
- Chairman of IRO
- Chairman of the Supervisory Board of Koninklijke BAM Groep N.V.
- Chairman of the Supervisory Board of Damen Shipyards Group
- Member of the Supervisory Board of N.V. Bronwaterleiding Doorn
- Member of the Supervisory Board of Energie Beheer Nederland B.V.
- Chairman of the Supervisory Board of Technische Universiteit Delft
- Member of the Supervisory Board of TNO
- Member Monitoring Committee Corporate Governance Code
- Member of the Board of Nederland Maritiem Land
- Member of the Board of MARIS B.V.
- Member of the Dutch National Committee World Petroleum Congresses
- Member of the Board of Stichting Concertgebouw Fonds
Curriculum vitae G.-J. Kramer
Education
1966
Business Administration, WU Wien (University of Vienna)
Employment
1967-1985
Several positions at Zentralparkasse und Kommerzialbank
1986-1988
Member of the Managing Board, Creditanstalt-Bankverein
1990
Chief Executive Officer, sterreichische Lnderbank AG
1991
Deputy Chief Executive Officer, Z-Lnderbank Bank Austria AG
1995-2003
Chief Executive Officer and Chairman of the Managing Board,
Bank Austria AG
2003-2005
Chief Operating Officer, Bayerische Hypo-und Vereinsbank AG
2005
Executive Vice President Planning, Magda International Inc.
Other
- Member of the Generalrat der sterreichischen Nationalbank (Austrian
central bank)
- Chairman of the Board of B&C Privatstiftung
- Chairman of the Board of Immobilien Privatstiftung
Curriculum vitae G. Randa
Curricula vitae
Other information
227
Organisation of ABN AMRO Bank N.V.
Situation as at 23 March 2006
Rijkman Groenink (Chairman)
Wilco Jiskoot
Tom de Swaan (CFO
until 1 January 2006)
Joost Kuiper
Dolf Collee
Hugh Scott-Barrett (CFO
as from 1 January 2006)
Huibert Boumeester
Piero Overmars
Ron Teerlink
Managing Board
BU Netherlands
Jan Peter Schmittmann
BU Europe
Lex Kloosterman
BU Asia
Jeroen Drost
BU North America
Norman Bobins
BU Latin America
Fabio Barbosa
BU Private Clients
Jos ter Avest
BU Global Clients
Alexandra Cook-Schaapveld
BU Global Markets
Gary Page (as from 1 April 2006)
BU Transaction Banking
Ann Cairns
BU Asset Management
Sarah Russell
Services
Ron Teerlink
Group Functions
Group Human Resources
Hugh Scott-Barrett (interim)
Group Finance
Maurice Oostendorp
Group Risk Management
Head Group Risk Management
David Cole
Erwin Mahne
(until 1 April 2006)
Head of Risk Advisory and Group
Sustainable Development
Herman Mulder
Group Compliance & Group Legal
Carin Gorter
Group Audit
Peter Diekman
Group Communications
Robin Boon
European Union Affairs and
Market Infrastructure
Gerard Hartsink
Investor Relations
Richard Bruens
Corporate Development
Alexander Pietruska
Group Business Committee
Joost Kuiper
Wilco Jiskoot
Dolf Collee
Piero Overmars
Ron Teerlink
Fabio Barbosa
Norm Bobins
Lex Kloosterman
Alexandra Cook-Schaapveld
Jan Peter Schmittmann
Ann Cairns
Jeroen Drost
Sarah Russell
Client Segments
Consumer Client Segment
Dolf Collee
Commercial Client Segment
Piero Overmars
Business Units, Services and Group Functions
Other information
228
European Staff Council
The European Staff Council (ESC) conducted
extensive and intensive discussions with
management during 2005, which was
another year of significant change. The ESC
was fully involved at an early stage in the
development and implementation of the
restructuring of Wholesale Clients, the
outsourcing and offshoring of the remaining
parts of the IT function, the new human
resources model and many other initiatives.
In its discussions with management, the ESC
raised key concerns prevalent among staff.
Many colleagues saw their jobs change or
even disappear, provoking emotional
responses among those involved. The ESC
also made arrangements to help these
employees move to another job.
At the request of the ESC, the bank agreed
with several IT vendors that they would
expand their organisation in Europe and take
on former ABN AMRO staff for this purpose.
As a result, many tens of redundancies were
avoided.
Early in 2005, the ESC proposed joining
forces with management in efforts to place
even more emphasis than before on ongoing
staff development. Thanks to this initiative,
our colleagues will have more opportunities
to improve their skills and competences. This
will enhance their employability and reduce
the risk of their becoming unemployed. In
2006 this initiative will be integrated into the
SMART objectives of staff and managers.
In 2005 there were eight plenary sessions
one in London, one in Prague, one in Paris
and five in Amsterdam. During these
meetings, extensive and open discussions
were held with several Managing Board
members and other top executives about a
wide variety of subjects.
Important issues in 2005 included:
restructuring of Wholesale Clients
IT outsourcing and offshoring
acquisition of Banca Antonveneta
global HR Transformation Programme
Group restructuring, as announced in
October 2005
transparent rewards
Private Clients organisation
Compliance.
The ESC appreciates the constructive and
substantive dialogue it has enjoyed with
management throughout the past year, as
well as the positive manner in which
management responded to suggestions and
ideas and took on board feedback received
from the ESC.
Amsterdam, 31 December 2005
European Staff Council
Other information
229
Dutch Central Works Council
A new Central Works Council (CWC) took
office in March 2005, with a tenure due to
run until March 2008. It hit the ground
running, pressing ahead with the
development of a new role that differs from
the one outlined in the Works Councils Act.
In view of the many and rapid changes taking
place across ABN AMRO, the CWC aims to
act more than ever as the Managing Boards
sparring partner as it implements its plans for
the bank in the Netherlands.
The first steps towards this new role took
place in November 2004, with a series of
management workshops on offshoring. In
these workshops, the CWC discussed the
success factors in complex change projects
with the members of the Managing Board
and the Supervisory Board. The themes
debated included emotion, behaviour and
rationality. This exercise led to a clearer
definition of the CWCs own role. The CWC
then drew up an ambitious long-term plan for
developing its own vision and knowledge as
a team to enable it to fulfil its envisaged new
role. Early involvement in key changes within
the bank, and appropriate handling of
requests for advice, will be crucial to the
CWCs ability to play this role in practice.
In 2005 the CWC issued advice on:
IT outsourcing and offshoring
global HR Transformation Programme (will
be finalised in 2006)
the initiative for the integration /
reorganisation of mortgage operations in
the form of a new company (merger
between mortgage companies of
ABN AMRO Bank N.V. and Bouwfonds)
corporate governance, under the new group
structure as published on 14 October 2005.
In the field of corporate governance several
appointments were announced, including
those of Mr A. Ruys and Mr R.F. van den
Bergh as new members of the Supervisory
Board, as well as Mr H.G. Boumeester, Mr P.
S. Overmars and Mr R. Teerlink as new
members of the Managing Board. The CWC
was informed in good time of these
appointments.
In addition, the CWC received several
requests for advice or approval on various
other subjects, including the reorganisation
of two departments into the integrated
Employability Centre. This change meant that
ABN AMROs general employability policy
became a major topic of discussion in 2005,
and it can be expected to remain so in the
near future.
Alongside a number of formal and informal
meetings with management, the CWC had
two formal meetings with the chairman of
the Managing Board to discuss the banks
results and the position it aims to establish
in the financial community. Several
consultative meetings were attended by one
or more members of the Supervisory Board.
The Central Works Council greatly
appreciates these meetings.
In the context of the complex change
processes taking place in the bank, the CWC
is continuing to look in a targeted manner at
the implementation of these changes and
the accompanying arrangements. In doing
so, it is focusing particularly on the interests
of the staff and of the company itself, the
feasibility of the proposed changes, and the
way in which the bank communicates
measures and initiatives it intends to take. In
addition, in its capacity as an employee
representative body, the CWC examines not
only the direct social consequences of any
changes, but also the underlying substance
of the banks intentions.
On behalf of all consultative bodies within
ABN AMRO, the CWC expresses its
appreciation for the mutual trust that
continues to characterise its relations with
management. We are confident that this
trust will become an increasingly prominent
characteristic of this relationship, and are
committed to fulfilling our role and
responsibility in this respect with both
professionalism and drive.
Amsterdam, 31 December 2005
Central Works Council
Other information
230
Advanced Internal Ratings
Based (AIRB)
The highest and most detailed
level of credit risk calculation for
determining capital adequacy
levels under Basel II, based on
the use of internal models to
assess risk.
Advanced Management
Approaches (AMA)
The highest and most detailed
level of operational risk
calculation for determining capital
adequacy levels under Basel II,
based on the use of internal
models to assess risk.
Allowance for loan losses
Balance sheet provision held
against the total of non-
performing loans. The allowance
is increased by the annual
provisions and decreased by
write-downs (net of recoveries)
on non-performing loans.
Assets under Administration
(AuA)
All client assets managed by or
deposited with a financial
services firm for investment
purposes, including wholesale
client assets derived from
custody, correspondent banking
and/or working capital.
Assets under Management
(AuM)
Assets, including investment
funds and assets of private
individuals and institutions, being
professionally managed with the
aim of realising an optimal
investment result.
Basis point (bp)
One hundredth of 1 percentage
point.
Basel II
The Basel II Framework offers
a new set of standards for
establishing minimum capital
requirements for banks. It was
prepared by the Basel Committee
on Banking Supervision.
Bank for International
Settlements (BIS)
Set up in 1930 with its head
office in Basel. Its principal tasks
are to promote cooperation
between central banks and to
assist in international payments.
The BIS also issues
recommendations to banks and
regulatory authorities in the
fields of risk management,
capital adequacy and the
provision of information on
financial derivatives.
BIS Ratio
Solvency ratio for banks, stating
the minimum capital
requirements related to risk-
weighted assets, as defined by
the Bank for International
Settlements (BIS).
Bookrunner
Head of a securities syndicate
responsible for arranging the
subscription, allotment and after-
market for all syndicate
members.
Capital adequacy
Measure of a companys financial
strength, often expressed in
equity as a percentage of
balance sheet total or for banks
in the BIS ratio.
Core tier 1 ratio
The banks core capital, excluding
preference shares, expressed as
a percentage of total risk-
weighted assets.
Credit equivalent
Sum of the costs of replacement
transactions (when
counterparties fail to fulfil their
obligations) and the potential
future credit risk, being reflected
in a mark-up percentage on the
principal of the contract. The
mark-up percentage depends on
the nature and remaining term of
the contract.
Credit rating
Assessment of a credit rating
agency expressed in a
combination of letters and/or
figures indicating the
creditworthiness of a country,
company or institution.
Currency risk
Price risk relating to exchange
rate fluctuations.
De Nederlandsche Bank
N.V. (DNB)
Dutch central bank.
Derivatives
Financial instruments whose
value is derived from the price of
one or several underlying assets
(e.g. currencies, securities,
indices, etc).
Economic capital
An estimate of the amount of
capital that the bank should
possess in order to be able to
sustain larger than expected
losses with a certain level of
certainty.
Economic profit
Net profit after tax less risk-
adjusted cost of capital.
Economic value
The value of future economic
profits discounted to the present.
Glossary
Other information
231
GAAP
Generally accepted accounting
principles.
Goodwill
The difference between the
purchase price of a participation
and the fair value of the
individual net assets and
liabilities.
Hedge
Protecting a financial position by
going either long or short, often
using derivatives.
International Financial
Reporting Standards (IFRS)
IFRS, formerly known as
International Accounting
Standards, are drawn up and
recommended by the
International Accounting
Standards Board. The European
Union requires that IFRS be used
by all exchange-listed companies
in the EU starting from the
financial year 2005.
Interest rate risk
Degree to which fluctuations in
long and short-term interest
rates have a negative influence
on the banks result.
Joint venture
Cooperative venture between
two or more separate legal
entities.
Loss Given Default (LGD)
The amount that the bank
expects to lose on an exposure
to a counterparty at default.
Managing for Value (MfV)
Instrument ABN AMRO uses for
maximising value. It allocates
resources to where they earn the
best long-term returns as
measured by economic profit.
Two relevant connected terms
are economic profit and
economic value.
Market risk
Risk relating to fluctuations in
stock exchange prices, currency
and/or interest rates.
Mergers & Acquisitions
(M&A)
Activities in the fields of
mergers, acquisitions,
privatisations, advisory services
and organisation.
Mid-market
Client segment where
ABN AMRO focuses strategically.
The consumer mid-market
consists of clients who require
more than a basic banking
package (mass affluent and
private clients), but who are not
yet in the small category of top-
end private clients. The
commercial mid-market ranges
from mid-sized companies to a
small number of large corporate
clients and financial institutions.
Mortgage Servicing Right
(MSR)
Right to a stream of cash flows
and an obligation to perform
specified residential mortgage
servicing activities, which may
also be purchased from third
parties. Mortgage servicing
activities include collecting
principal, interest, and escrow
payments from borrowers;
making tax and insurance
payments on behalf of the
borrowers; monitoring
delinquencies and executing
foreclosure proceedings; and
accounting for and remitting
principal and interest payments
to the investors. If servicing is
retained at the time of loan sale,
the MSRs are recognised as
assets on our balance sheet.
Net asset value per share
Value of all the assets of a
company less liabilities divided
by the number of shares
outstanding.
Non-performing loans
Loans for which there is
objective evidence that not all
contractually agreed amounts will
be collected and for which an
allowance for loan losses is
established.
Notional amounts
The value of the principal of the
underlying financial derivatives
contracts.
Options (shares and
currencies)
Contractual right to buy (call
option) or sell (put option) a
specified amount of underlying
shares or currency at a fixed
price during a specified period or
on a specified date.
Other information
232
Preference share
Share that receives a fixed rate
of dividend prior to ordinary
shares.
Private banking
Dedicated to the development
and execution of the policy in
relation to high net-worth clients
and small to medium-sized
institutional investors.
Provision for loan losses
Charge to income to cover
possible loan losses on non-
performing loans.
Return on equity
Net profit attributable to ordinary
shareholders of the parent
company divided by
shareholders equity.
Risk adjusted return on
capital (RAROC)
Risk adjusted return on capital,
measured against economic
capital. This a risk-adjusted
profitability measurement,
providing a consistent view of
profitability across businesses.
Risk-weighted assets
Total assets and off-balance
sheet items calculated on the
basis of the risks relating to the
various balance sheet items.
Scenario analysis
Method used to measure and
manage the interest rate risk. For
example, net interest revenue
can be estimated by using
various assumptions about future
interest rate movements.
Securitisation
Restructuring credits in the form
of marketable securities.
Sweet spot
A phrase ABN AMRO uses to
refer to our mid-market client
segment, where we have a
strong competitive advantage.
Structured finance
Global activity aimed at the
extension of credits in
specialised product/market
combinations, development and
marketing of complex financial
solutions, export financing of
capital goods and large-scale
project finance.
Tier 1 ratio
Core capital of the bank
expressed as a percentage of
total risk-weighted assets.
Total return to shareholders
(TRS)
Share price movement plus
dividend yield.
Treasury
Department responsible for all
money market and currency
operations.
Trust business, trust
services
Assets are entrusted to a trustee
who is responsible for the
management of those assets.
Uniform Credit Rating (UCR)
The UCR is an obligor rating and
refers to the probability of default
by an obligor, i.e. the likelihood
that a counterparty fails to pay
interest and/or principal and/or
other financial obligations to the
bank.
Value-at-Risk (VaR)
The statistical analysis of
historical market trends and
volatilities to estimate the
likelihood that a given portfolios
losses will exceed a certain
amount.
Volatility
Statistical measure for the
degree to which items (market
rates, interests) fluctuate over
time.
Whistleblowing policy
ABN AMRO policy that provides
all employees with channels and
guidance for reporting suspected
malpractice, such as fraud,
insider trading or breach of client
confidentiality.
Other information
233
Abbreviations
ACES ABN AMRO Central Enterprise Services Private Limited
ADR American Depositary Receipt
AFS Available for sale
AIRB Advanced International Ratings Based basis for credit risk
ALCO Asset and Liability Committee
ALM Asset and Liability Management
AM Asset Management
AMA Advanced Measurement Approaches basis for operational risk
ATM Automated Teller Machine
AuA Assets under Administration
AuM Assets under Management
BIS Bank for International Settlement
bp Basis point
BRL Brazilian real
BU Business Unit
C&CC Consumer & Commercial Clients
CAAML Client Acceptance & Anti-Money Laundering
CB Covered bond
CEO Chief Executive Officer
CFO Chief Financial Officer
COO Chief Operating Officer
CPC Compliance Policy Committee
CRD Capital Requirements Directive
CRO Chief Risk Officer
CWC Central Works Council
DNB De Nederlandsche Bank N.V. (Dutch central bank)
ECM Equity Capital Markets
ESC European Staff Council
EU European Union
EUR Euro
EVCA European Private Equity & Venture Capital Association
FIFF Fixed Income, Futures and FX
FTE Full time equivalent, a measurement of number of staff
FX Foreign Exchange
GALM Group Asset and Liability Management
GBC Group Business Committee
GBP Great Britain Pound
GDP Gross Domestic Product
GF Group Functions
GRC Group Risk Committee
GREFM Group Real Estate & Facilities Management
GRM Group Risk Management
GSS Group Shared Services
HR Human Resources
IASB International Accounting Standards Board
IFRIC IASB International Financial Reporting Interpretations Committee
IFRS International Financial Reporting Standards
Other information
234
ISO International Organisation for Standardisation
IT Information Technology
LGD Loss Given Default
M&A Mergers & Acquisitions
MfV Managing for Value
MRM Market Risk Management
MSR Mortgage Servicing Right
MTN Medium Term Note
NA North America
N&C Nomination & Compensation
NGM New Growth Markets
NL Netherlands
NYSE New York Stock Exchange
OECD Organisation for Economic Cooperation and Development
ORM Operational Risk Management
OTC Over-the-Counter
P&L Profit & Loss
PC Private Clients
PSP Performance Share Plan
RAROC Risk adjusted return on capital
ROE Return on equity
RWA Risk-weighted assets
SCB Structured covered bond
SEC Securities and Exchange Commission
SEPA Single Euro Payments Area
SEVP Senior Executive Vice President
SME Small to medium-sized enterprises
SOXA Sarbanes-Oxley Act of 2002
SRI Socially Responsible Investment
SPE Special Purpose Entity
TRS Total return to shareholders
UAE United Arab Emirates
UCR Uniform Counterparty Rating
USD US dollar
VaR Value-at-Risk
WCS Wholesale Clients
Other information
235
Safe Harbour Statement under the US
Private Securities Litigation Reform Act of
1995
Certain of the statements contained herein that are
not historical facts, including, without limitation,
statements as to future net profit and operating
expenses, are statements of future expectations
and other forward-looking statements (as such
term is defined in Section 21E of the US Securities
Exchange Act of 1934, as amended) that are based
on managements current views and assumptions
and involve known and unknown risks and
uncertainties that could cause actual results,
performance or events to differ materially from
those expressed or implied in such statements.
Actual results, performance or events may differ
materially from those in such statements due to,
without limitation, (i) general economic conditions,
(ii) performance of financial markets, (iii) interest
rate levels, (iv) currency exchange rates, including
the EUR/-USD exchange rate, (v) changes in laws
and regulations, including monetary convergence
and the European Monetary Union, (vi) changes in
the policies of central banks and/or foreign
governments, (vii) cost overruns and
(viii) competitive factors, in each case on a global,
regional and/or national basis. ABN AMRO does not
undertake to update any statements of future
expectations or other forward-looking statements
contained herein.
Other information
236
Publications
Annual Report 2005
This report is also available in Dutch.
Annual Report 2005 on Form 20-F
This report is available in English only.
Quarterly Results Releases
These releases are available in Dutch and
English.
Sustainability Report
This report is available in English, and in
downloadable form in Dutch and Portuguese.
Corporate Governance Supplement
This report is available in downloadable form
in Dutch and English.
How to order reports
The above mentioned publications can be
downloaded from www.abnamro.com.
Where available, printed copies can be
ordered:
on the internet at www.abnamro.com
by phone: +31 20 628 7835
by e-mail: investorrelations@nl.abnamro.com.
ABN AMRO Holding N.V.
Gustav Mahlerlaan 10
1082 PP Amsterdam
The Netherlands
Mailing address:
P.O. Box 283
1000 EA Amsterdam
The Netherlands
Telephone:
+ 31 20 628 93 93
+ 31 20 629 91 11
Internet:
www.abnamro.com
ABN AMRO Holding N.V. has its registered office in Amsterdam, the Netherlands, and is
entered in the Trade Register of the Amsterdam Chamber of Commerce under no.
33220369.
The bank consists of the listed company ABN AMRO Holding N.V., which conducts its
business almost entirely through its wholly-owned subsidiary ABN AMRO Bank N.V. or
this companys many subsidiaries.
Acknowledgements
Design: Eden Design & Communication, Amsterdam
Editing: Rick Marsland, White Page Ltd., London
Photography theme Potential: Reinier Gerritsen, Amsterdam
Photo Managing Board, page 6: Ron Offermans, Amsterdam
Printed by: Thieme Amsterdam bv, Amsterdam
Production: ABN AMRO Group Communications
This report is printed on Biotop3
19.0.3.06