Implications of financial turbulence
- Protecting the Group's reputation: reputation is essential for the proper performance of a banker's
profession and needs to be diligently preserved.
- Risk transparency: for a good insight into Rabobank Group's risks, identification of its positions is vital.
Risks must always be considered as accurately as possible to enable sound commercial decisions to
be made.
- Management responsibility: Rabobank Group's business entities are individually responsible for their
results as well as for the risks associated with their operations. A balance must be found between risk
and return, while of course duly observing the relevant risk limits.
- Independent risk control: this is the structured process of identifying, measuring, monitoring and
reporting risks. In order to ensure integrity, the risk control departments operate independently of the
commercial activities.
General
In the first half of 2008 the financial crisis continued unabated, followed by a sharp deterioration in the
second half of the year. Virtually all sectors of the financial market were affected, as was the broader
economy. For the AEX, for instance, 2008 was the worst year on record and the prospects for economies
worldwide are cause for great concern. Nationally and internationally, governments intervened in the
financial sector by means of nationalisations, capital injections and the provision of all kinds of
guarantees. The financial crisis not only affects the real economy: its consequences also impact on the
market prices of various financial assets. Even when the creditworthiness of certain assets is not in
doubt, there are significant adverse effects on prices due to the overall market sentiment and because
in many markets sellers often still outnumber buyers. Some financial assets, to a value of EUR 12.0 billion,
in fact no longer have an active market, and this has resulted in adjustments to their accounting
treatment. Since all financial assets have to be recognised at fair value, this has impacted directly on the
carrying amounts of these assets. At year-end 2008, the total negative revaluation of the portfolio of
available-for-sale financial assets with debt instruments amounted to EUR 407 million after tax and was
recognised directly in equity.
At Rabobank International, the Global Financial Market activities resulted in a mixed performance.
Some activities suffered losses while others had a very successful year. Partly due to the continuing
financial crisis and the associated forecasts, some changes were implemented at Global Financial
Markets in the first half of 2008, resulting in the reduction of non-customer related activities in
particular. In the year under review, adjustment proposals were also put forward within Rabobank
Group to update its Strategic Framework.
Asset Backed Commercial Paper conduits
In the first quarter of 2008, two Asset Backed Commercial Paper (ABCP) structures - i.e. collateralised
investment vehicles - were phased out, in part following the introduction of the new Basel II regulation
that became applicable to Rabobank Group as of 1 January 2008. As a consequence, the ABCP outstanding
as of the end of 2008 decreased to EUR 17.5 (23.0) billion, mainly for funding own originated loans and
customer loans and receivables. Since the introduction of IFRS these structures have been included in
the consolidated group balance sheet, and they are also part of the bank's liquidity risk management.
In the fourth quarter, limited use was made of the Commercial Paper Funding Facility launched by the
US Federal Reserve to support the commercial paper market.
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Rabobank Group Annual Report 2008
