Mid-State Bank & Trust has been consolidated in Rabobank International's results from May 2007. The smaller banks HNS Banco, Hagabank and Bank Hagakita made limited contributions to net profit in 2007.
Income down 3%
Total income declined by 3% in 2007 to EUR 2,546 (2,622) million. Although some units within Global Financial Markets benefited from the turbulence in the financial markets, income at Global Financial Markets fell by EUR 497 million to EUR 268 million. At the same time, Participations had an excellent year. Income at Global Financial Markets is largely recognised in other income. As a result, other income was 47% lower, at EUR 320 (601) million.
Like many others, Leveraged Finance and Structured Finance were hindered by the subprime crisis in the American mortgages market, although to a lesser extent. Income from Leveraged Finance was 7% lower and income from Structured Finance was 5% lower.
The growth in lending in the international retail banking business and the Corporate Banking activities contributed to the 11% growth in interest income to EUR 1,832 (1,649) million. Income from the Corporate Banking activities was 11% higher. Of total income, 24% (19%) is from the international retail banking business. Income from the retail banking activities was 23% higher, at EUR 624 (506) million. ACCBank's income showed a marginal increase, which was in line with the slight growth in lending. Income from the retail banks in the other regions rose as a result of both organic growth and acquisitions.
Operating expenses up 8%
Total operating expenses were 8% higher in 2007, at EUR 1,715 (1,586) million. Acquisitions were important drivers for the 49% growth in staff numbers to 9,957 (6,684) FTEs. Of this increase, around 2,800 FTEs are the result of acquisitions. Despite the staff increase, staff costs rose by a mere 3% to EUR 890 (867) million. The expansion of the activities contributed to the 16% rise in other administrative expenses to EUR 772 (668) million.
Value adjustments at 63 basis points
Due to the crisis on the financial markets, the item Value adjustments increased to EUR 493 (234) million in 2007. This corresponds to 63 (39) basis points of average lending and is higher than the five-year average of 46 basis points.
Net profit down 43%; RAROC 8.4%
As a result of the decline in gross profit and the increase in the item Value adjustments, net profit fell by 43% to EUR 394 (687) million, despite the lower income tax. The lower result from Global Financial Markets and the higher income from Participations, the latter being largely tax-exempt because of participation exemption, contributed to the decline in the item Taxation.
Rabobank International achieved a Risk Adjusted Return On Capital (RAROC) of 8.4% in 2007. At year-end, the economic capital required was EUR 4.6 billion.