Report of the Management Board

Alex Beleggersbank: acquisition, integration and synergy gains

In the knowledge that the Alex Beleggersbank acquisition would be officially completed at the end of 2007, an integration plan was drawn up immediately after the acquisition was announced in October 2007, so that the integration work could start as soon as the transaction was finalised. This work included reinvesting Alex Beleggersbank's client assets, setting up a new organisational structure, retrieving certain activities which Alex Beleggersbank had outsourced to Rabobank, relocating and integrating personnel departments, harmonising the employment terms of staff with Alex Beleggersbank employment contracts (based on the Rabobank collective labour agreement) and those with BinckBank contracts, integrating processes and systems and adjusting/clarifying the positioning of the Alex and Binck labels.

Alex Beleggersbank's assets under administration of € 1.2 billion were combined with BinckBank's assets under administration on 31 December 2007 and reinvested in the first six weeks of 2008 in accordance with the BinckBank investment strategy. The integration plan envisaged rapid integration of the personnel within 100 days, counting from 2 January 2008, in order to provide clarity for all employees regarding their jobs and reporting lines within the new organisation and BinckBank's strategy. We felt that rapid integration at the human resources level was vitally important to minimise internal disquiet. The new organisational structure and location policy were announced internally on
1 February 2008 and were fully implemented on 1 April and in early May, respectively. The new management cadre consists of a mix of BinckBank and Alex Beleggersbank staff. The main processes that had been outsourced to Rabobank were brought back in-house in the first half of 2008, generating substantial synergy gains. As regards harmonisation of terms of employment, a large number of staff were transferred to standard BinckBank employment contracts in the course of 2008. A new incentive scheme was also introduced for a number of key executives and agreement on compensation was reached at the end of 2008 with staff who, under their contracts of employment, were covered by the Rabobank collective labour agreement until the end of May 2009. Various processes and systems were also integrated in 2008. The most important of these projects was the integration of BinckBank and Alex Beleggersbank financial administration. The BinckBank and Alex Beleggersbank IT platforms will be integrated in 2009 and 2010. A campaign was launched to reposition the Alex and Binck labels in early 2009, profiling Alex as an online bank for investors.

When appointing managers to populate the new organisational structure, we applied the 'best man for the job' principle, recognising that Binck had proved in the past to be more effective in marketing and sales, while Alex Beleggersbank had been stronger in process organisation and structuring. By taking these attributes into account in the integration process, we now have a good mix of BinckBank and Alex Beleggersbank managers in key posts, thus preserving the best of both worlds. This process inevitably resulted in a small number of redundancies among staff whose jobs were duplicated. Other jobs were lost due to the changes in the organisational structure, new corporate strategy and the physical relocation of a large number of staff. This exercise, which involved fewer problems and took less time than expected, has resulted in a robust organisational structure. In parallel with technical integration, there is scope for further process integration. These exercises will generate more cost savings and raise the quality of service to an even higher level.

The synergy gains reflected in the revenues for 2008 relate to the higher returns on the Alex assets under administration and the lower stock exchange and clearing expenses consistent with the larger combined BinckBank and Alex Beleggersbank transaction volume. Gains in terms of operating cost reductions in 2008 took the form of slower growth in staff costs, lower other administrative expenses due to the termination of contracts with external advisers and consultants, lower marketing costs thanks to more efficient planning and organisation campaigns and a reduction in other expenses reflecting higher quantity discounts on purchases consistent with the increased scale of the new organisation. We expect to achieve IT savings in 2010 and beyond. At the time of the acquisition, synergy and operational gains were expected to total € 18-20 million from 2010 onwards. Because the integration process has been easier and has progressed faster than originally expected, the gains have been higher and have been realised earlier. When an analysis of the synergy and operational gains was published in the half-year report, the expected gains as from 2010 were adjusted upwards, from € 18-20 million to € 22-26 million. We do not intend to publish figures on synergy and operational gains in future because, as the integration of Alex Beleggersbank into BinckBank progresses, they will become increasingly difficult to identify (more arbitrary).

On 31 December 2007, when it acquired Alex Beleggersbank's activities, BinckBank valued Alex Beleggersbank's identifiable assets and liabilities at fair value. The goodwill recognised on acquisition, which amounted to € 142.9 million, consists mainly of the value of the growth in the client base and the synergy gains that will accrue when the integration process has been completed. The goodwill is tested annually or more frequently (whenever indicated) for impairment. There were no impairment losses in the 2008 financial year.

The following intangible assets were categorised at that time as income-generating assets arising from the acquisition: 1) the Alex trade name (net carrying amount as at 31/12/08: € 25.1 million) 2) the client base (net carrying amount as at 31/12/08: € 118.5 million) 3) the assets under administration (net carrying amount as at 31/12/08: € 75.7 million) and 4) software developed by Alex in-house (net carrying amount as at 31/12/08: € 1.6 million). All these intangible assets were tested for impairment in 2008, paying particular attention to any indicators of impairment loss, and the net realisable value of the intangible assets was compared with the net carrying amount as at 31 December 2008. These tests showed that no impairment loss had been sustained.

Integration costs of € 4.6 million were recognised in 2008. These consisted mainly of staff costs, partly in connection with redundancies to eliminate duplication, and fees paid to external consultants who assisted with the integration process. No further specific integration costs are expected in 2009.

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