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April 2001

April 2001. An Introduction to Capital Adequacy. Disclaimer.

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April 2001

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  1. April 2001 An Introduction to Capital Adequacy

  2. Disclaimer The material that follows is a presentation of general background information about the Bank’s activities current at the date of the presentation, 3 April 2001. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice when deciding if an investment is appropriate.

  3. Speaker’s Notes • Speaker’s notes for this presentation are attached below each slide. • To access them, you may need to save the slides in PowerPoint and view/print in “notes view.”

  4. Agenda • Theory • Principles • Treatment of investment in life & funds management businesses • Practice • Effect of an increase in Appraisal Value on Capital Adequacy • Effect of accelerated goodwill write-off on Capital Adequacy

  5. Principles • Capital Adequacy is calculated on stand alone and consolidated basis • Consolidated basis excludes life companies • Assets are risk weighted • Two tiers of capital • Regulator requires minimum ratios, market requires higher ratios

  6. Treatment of Life Insurance and Funds Management Businesses • Assets and liabilities not consolidated • NTA for capital adequacy purposes includes acquired VBIF • NTA is deducted from total capital • Balance is deducted from Tier 1

  7. CapitalAdequacy 30 Jun 00 31 Dec 00 Total Tier One Capital 9,618 8,914 Total Tier Two Capital 6,097 5,802 Tier One and Tier Two Capital 15,715 14,716 Deductions (3,197) (2,278) Total Regulatory Capital12,518 12,438 Risk Weighted Capital Ratios (%) Tier one 7.49 6.71 Tier two 4.75 4.37 Less Deductions (2.49)(1.71) Total 9.75 9.37

  8. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  9. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  10. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  11. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  12. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  13. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier One Capital Total Shareholders’ Equity 18,435 19,461 Eligible Loan Capital 418 423 Total Shareholders’ Equity and Loan Capital 18,853 19,884 Less Goodwill (5,905) (6,007) Less Preference shares (86) (39) Less Intangible component of investment in non-consolidated subsidiaries (2,656) (3,449) Less Outside equity interests in entities controlled by non-consolidated subsidiaries (588)(1,475) Total Tier One Capital 9,618 8,914

  14. Appraisal Value Value Future New Business Value Future New Business Value Future New Business Intangible Component of Investment in Non-Consolidated Subs Deducted from Tier 1 Capital Embedded Value Value Business in Force Self Generated Business in Force Acquired Business in Force Shareholder NTA Shareholder NTA Deducted from Total Capital Treatment of Investments in Life and Funds Management Businesses Capital Adequacy Components Less External Debt

  15. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier Two Capital General Provisions for bad and doubtful debts 1,358 1,412 FITB related to general provision (420) (420) Dated note and bond issues 5,120 4,771 Preference shares 39 39 Total Tier Two Capital 6,0975,802

  16. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier Two Capital General Provisions for bad and doubtful debts 1,358 1,412 FITB related to general provision (420) (420) Dated note and bond issues 5,120 4,771 Preference shares 39 39 Total Tier Two Capital 6,0975,802

  17. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier Two Capital General Provisions for bad and doubtful debts 1,358 1,412 FITB related to general provision (420) (420) Dated note and bond issues 5,120 4,771 Preference shares 39 39 Total Tier Two Capital 6,0975,802

  18. CapitalAdequacyComponents 30 Jun 00 31 Dec 00 Tier Two Capital General Provisions for bad and doubtful debts 1,358 1,412 FITB related to general provision (420) (420) Dated note and bond issues 5,120 4,771 Preference shares 39 39 Total Tier Two Capital 6,0975,802

  19. CapitalAdequacy 30 Jun 00 31 Dec 00 Total Tier One Capital 9,618 8,914 Total Tier Two Capital 6,097 5,802 Tier One and Tier Two Capital 15,715 14,716 Deductions (3,197) (2,278) Total Regulatory Capital12,518 12,438 Deductions for life insurance and funds management companies: Tier one 2,656 3,449 Total capital 3,1972,278 Total5,853 5,727

  20. Increase Increase Intangible Component of Investment in Non-Con Subs Deducted from Tier 1 Capital Deduction increases Shareholder Equity Value Future New Business Self Generated Business in Force Increases Acquired Business in Force Less External Debt Shareholder NTA Deducted from Total Capital No Change Capital Adequacy Effect of Increase in Appraisal Value Capital Adequacy Components Appraisal Value Increase Value Future New Business Value Business in Force Shareholder NTA

  21. Shareholders’ Equity $300 Less: Goodwill $300 Other Additions/Adjustments Tier 1 Capital Capital AdequacyEffect of Accelerated Goodwill Write-off Shareholders’ Equity Less: Goodwill Other Additions/Adjustments Tier 1 Capital

  22. Summary • Capital adequacy calculated as per usual, except no consolidation of life insurance and funds management companies • Value of life insurance and funds management companies deducted from capital base • NTA from total capital • Balance from Tier 1

  23. April 2001 An Introduction to Capital Adequacy

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