Report of the Managing Board

The financial crisis that intensified in 2008 left few in the market unscathed. What began the year as an interbank crisis spread into the real economy, with slowdown and recessionary conditions taking an ever-wider toll.

 

Our fourth-quarter 2008, results were impacted by negative fair value adjustments and impairments on equity and mezzanine investments. For the year 2008, we realised a net profit of EUR 92 million and further strengthened our capital and liquidity positions. By addressing the situation at an early stage, we minimised the impact on our financial performance and by the autumn were in relatively stable shape.

 

After being one of the first banks in 2007 to recognise the extent of US losses and to take action by reducing our US portfolio exposure in NIBC Holding by 90%, from EUR 2.5 billion at 31 March 2007 to EUR 0.7 billion at year-end 2007 and only EUR 0.2 billion at year-end 2008, NIBC continued to be an early mover in 2008 with a focus on de-risking the balance sheet, capital-raising and liquidity.

 

In January 2008, Chairman and CEO Michael Enthoven and Vice-Chairman and CRO Jurgen Stegmann stepped down in light of the 2007 financial performance of NIBC. In their place, the Managing Board welcomed Jeroen Drost as Chairman and CEO and Jan Sijbrand as CRO.

 

NIBC Holding was swift to raise EUR 400 million new cash equity from its shareholders in the first quarter of 2008, a key step in supporting its Tier-1 ratio to the robust 16.7% at which it ended the year. We moved fast to de-risk our balance sheet, substantially reducing our risk profile to create a sound and sustainable portfolio.

 

As the environment deteriorated even further for banks, we took decisive steps to diversify our funding - a key objective of our strategy - and ensure stable, transparent and tightly-controlled liquidity. In 2008, we launched a covered bond programme, under which EUR 0.7 billion was issued and also successfully issued a three-year EUR 1.4 billion bond under the Dutch State’s Credit Guarantee Scheme.

 

In addition, NIBC Direct, NIBC’s online retail savings programme, was successfully launched in September 2008 and reached EUR 1 billion by year-end 2008. In February 2009, NIBC Direct was also launched in Germany.  

 

We were one of the first to right-size our bank, which gave us the flexibility to cut costs in response to declining income. We reduced our costs by 14% in 2008. This process was realised in close cooperation with our Employees’ Council.

 

We sharpened our strategy and streamlined our organisation in order to focus on our strengths. The shift to a structure based around the two pillars of Merchant Banking and Specialised Finance boosted our teamwork, accountability and action, making us more effective in addressing the needs of our clients.

 

In the turbulent Benelux banking environment, there is clearly room for a bank that caters to the mid-sized clients on which NIBC focuses. Testimony to that is the string of important client transactions we arranged in 2008 on the advising side as well as in financing and co-investing with clients. Those deals, and the financial results we achieved in 2008, underline our strategy to focus on what we do best for our clients.

 

However, the market deterioration took an undeniably heavy toll on all financial services companies. NIBC too saw its credit ratings downgraded during the year as the operating environment worsened.

 

As we enter 2009, it is clear that the overarching risk to NIBC is the business environment. The most severe economic crisis in many years is swiftly enveloping all industries and businesses and this is not yet over. Business is subdued and companies are postponing their plans if at all possible. It is impossible to predict exactly when the worst will be behind us.

 

 

Targets and performance in 2008

 

• Portfolio de-risking: we actively further de-risked our investment portfolios in line with our sharpened strategy. This was primarily achieved by reducing positions in the financial markets area. The further de-risking of our balance sheet resulted in total assets of EUR 28.9 billion at year-end 2008, compared to EUR 31.8 billion at year-end 2007 (coming from a high of EUR 35.4 billion at 31 March 2007).

 

• Strong capitalisation: we successfully maintained a strong Tier-1 ratio above 10%, ending the year with our Tier-1 ratio at 16.6% (31 December 2007: 12.0%). This, along with our core Tier-1 ratio of 13.5% and BIS ratio of 18.9% is testimony to our healthy capital position. 

 

• Income diversification: client activity-related income - interest, fee, dividend income and gains less losses from financial assets - accounted for EUR 244 million of our Operating income in 2008. This is in line with our aim of focusing on these robust sources, which include all our income sources excluding trading, and ensuring they form a high proportion of our income.

 

• Risk assessment: we have extensively analysed and stress-tested our debt investment exposures and made sure the evaluation was fully based on our core credit skills instead of third party ratings.

 

• Cost control and right-sizing: in the context of our sharpened strategy and enhanced focus, and to keep pace with the changed market circumstances, we further improved the efficiency of our organisation and cut costs by 14% in response to declining income.

 

• Expansion in Germany: we expanded our presence and entrenched our position in Germany, an important growth country for NIBC.  

 

• Growth of equity/mezzanine activities for NIBC and third-party investors: Principal Investments and Investment Management continued to be strategic growth areas and were folded into a single operation that invests in equity/mezzanine on behalf of NIBC and also offers our expertise to third-party investors. Several new investments were made in 2008, new funds were set up and new investors came on board.