enterprise risk management (erm) abn amro business unit north america (bu na)

Enterprise Risk Management (ERM)ABN AMRO Business Unit North America (BU NA)

Risk Outlook Process

May 14, 2007

2

Table of Contents

Historical Loss Perspective2

Questions to Address During this Time of Uncertainty

[Presentation to RMC on May 11]1

Top Risks Identified3

What do we need from the ERM-C?4

5 Appendix

3

The proposed sale of the LaSalle Bank Corporation (“LBC”, in conjunction

with a proposed merger or sale of the remaining ABN AMRO group) has

changed our risk state from “business as usual” to “business in transition.”

While LBC can be isolated as a legal entity with separate financial

statements, the Group structure requires Business Unit North America (“BU

NA”) to continue until a final transaction is completed.

The uncertainty over the deal structure and the potential acquirer raises

issues around how to match incentive programs to an uncertain deal horizon;

how to best retain customers and employees; and how to proactively protect

the local interests of LBC.

This growing uncertainty lends itself to increasing risk levels.

As a result, the ERM Working Group has detailed questions for the RMC to

discuss (and potentially address) in this time of uncertainty.

Overview

4

Key Issues and Concerns

Key Issuesand

Concerns

Loss Events

ProfitCollapse

FranchiseValue

ShareholdersLBC vs.BUNA

Rating Agencies

IntellectualProperty

Customers

Competitors Data Loss /Privacy

StaffRetention

ComplianceRegulators

LegalDeal

Quality

LiquidityAlignmentwith AA

Deal Horizon

IT / AccessControl

5

Top questions for the RMC

External Issues Customers – What has the RMC done to

ensure that there is a consistent message communicated to customers regarding press information?

Competitors – Does the RMC have a contingency plan if revenue falls by 20% in the next six months? What steps can the RMC take to discourage employee “poaching”?

Regulators – Has the RMC evaluated staffing levels to address heightened regulatory scrutiny and deal execution? Has the RMC discussed the possibility of reprioritizing/deferring certain exams?

Rating Agencies – What will the impact be of a drop in ratings?

Shareholders – How can LaSalle (and its employees) ensure that the shareholders support the best long-term value proposition?

Internal Issues

BU NA

– How will the RMC ensure adequate BU NA

representation (i.e. is the RMC too LaSalle

focused)?

– If the deal progresses with Barclays, how will

the RMC oversee the disentanglement of

Global Clients and Global Markets (without

disruption to LaSalle or GC/GM)?

– How will the RMC oversee cross-border self

interest between ABN AMRO and LaSalle?

Employees

– How will the RMC react to whole team

defections (e.g. derivatives, payroll, loan

syndications, etc.)?

– What steps is the RMC taking to reduce the

“distraction effect” (i.e. employee apathy,

frustration and/or anxiety) leading to reduced

efficiency?

6


External Issues

Liquidity – What steps have been taken

to protect liquidity in the event of a ratings

decrease or litigation charge?

Legal

– How will the DOJ issue be resolved? Who

maintains contingent liability (Group vs. BU

NA)?

– Who is overseeing legal issues from a

LaSalle perspective?

Internal Issues

Human Resources – How quickly can HR

implement appropriate incentives to curb

undesirable behavior (e.g. minimize

suboptimal behavior in short term)?

Operations – What steps has the RMC

taken to protect the bank against

heightened operational risk?

– IT / Access security?

– Data loss / privacy protection?

– Disaster recovery?

– Sabotage / Fraud?

– IT contracts / Outsourcing?

– Protection of Intellectual Property (e.g.

trademarks and trade secrets)

7


External Issues

Execution Risk

– Has the RMC considered all of the legal and

transactional steps necessary to “break apart”

LaSalle Bank as a standalone entity from the

ABN AMRO group?

– What risks increase if the transaction takes

longer than expected?

Internal Issues

Deal quality – How will the RMC ensure

that underwriting standards do not fall

(particularly if competition increases and

our loss horizon shortens)?

Compliance – What steps will the RMC

take to ensure all employees continue to

fulfill compliance requirements?

Capital management – How will the RMC

ensure discipline is maintained? Do we

continue costly hedges?

8

Table of Contents


Questions to Address During this Time of Uncertainty1



5 Appendix

9

In April, the ERM Committee (“ERM-C”) requested that Risk Management

provide a historical loss perspective with which the members could assess

the survey results.

This historical loss perspective should be used to determine whether the

average loss impact was “on target” or “needs adjustment.”

Risk Management utilized average gross credit and operational losses as a

point of comparison. Losses are based upon General Ledger effective dates.

Historical Loss Perspective

10

Risk Outlook: Ranking our Risks

Unacceptable Level Unknown - Need More Info Acceptable Level Un-Rated

Distribution of Risks by Probability and Impact

A

BC

D

E

F

G

H

IJ

K

L

M

N

0%

5%

10%

15%

20%

25%

30%

0 10 20 30 40 50 60

Average Expected Impact

Av

era

ge

Pro

ba

bili

ty

Client/Corporate Credit Default (6)

Legal Risk (4)

General Economy Decline (4)

Declining Employee Morale/Loss of Top Employees (5)

Failed Business Practices (4)

Real Estate Decline (6)

Data Loss/Vulnerability (11)

Supplier Failure (2)

Regulatory / Ethical Failure (7)Material Unpredicted External Event (6)

Model Risk / Failure (6)

System / IT (7)

Control Breakdown (13)

Fraud Loss (9)

L

K

JG

H

BM

I

F

E

LOW RISK

MEDIUM RISK

MEDIUM RISK

HIGH RISK

Source: Survey of “top risks”

11

Risk Outlook: Credit LossClient / Corporate Credit Default

Source: Finance

Distribution of Risks by Probability and Impactvs. Historical Average Gross Losses (2004 - 2006)

F

0%

5%

10%

15%

20%

25%

30%

0 10 20 30 40 50 60


Ave

rag

e P

rob

ab

ility

Client/Corporate Credit Default (6)

2006

2005

2004

$1MM

Note: Historical loss data from 2001 / 2002 may indicate higher average gross losses.

12

Risk Outlook: Operational LossBusiness Disruption and Systems Failure

Source: Corporate Loss Database


B

E

0%

5%

10%

15%

20%

25%

30%

0 5 10 15 20 25 30


Ave

rag

e P

rob

abili

ty

System / IT (7)

Data Loss/Vulnerability (11)

20052004

2006

$0.2MM

Business Disruption and Systems Failure

$0.1MM

$1.5MM

13

Risk Outlook: Operational LossClients, Products and Business Practices



D

K

L

0%

5%

10%

15%

20%

25%

30%

0 10 20 30 40 50 60 70 80 90


Ave

rag

e P

rob

abili

ty

Regulatory / Ethical Failure (7)Legal Risk (4)

Failed Business Practices (4)

2004

$0.05MM

2006

$2MM

2005

$85MM

14

Table of Contents





5 Appendix

15

Top Risks Identified

# Short Name# of

Responses

Average Probability

Range

Average Expected (Millions)

Average Probability X

Average Expected(Millions)

A Control Breakdown 13 10 - 20% 10 - 30 1 - 6

B Data Loss/Vulnerability 11 10 - 20% 10 - 40 1 - 8

C Fraud Loss 9 10 - 20% 1 - 10 0 - 2

D Regulatory/Ethical Failure 7 0 - 10% 0 - 10 0 - 1

E System/IT 7 10 - 20% 5 - 20 1 - 4

F Client/Corporate Credit Default 6 20 - 30% 20 - 60 4 - 20

G Material Unpredicted External Event 6 0 - 20% 10 - 30 0 - 6

H Model Risk/Failure 6 10 - 20% 10 - 40 1 - 8

I Real Estate Decline 6 0 - 20% 10 - 50 0 - 10

J Declining Employee Morale/Loss of Top Employees 5 0 - 20% 20 - 60 0 - 12

K Failed Business Practices 4 10 - 20% 20 - 60 2 - 12

L Legal Risk 4 0 - 10% 30 - 80 0 - 8

M General Economy Decline 4 10 - 20% 10 - 40 1 - 8

N Supplier Failure 2 0 - 10% 1 - 5 0 - 1

Does anyone propose any changes to this list? Does anyone propose any changes to this list?

16

Table of Contents





5 Appendix

17

What do we need from the ERM-C?

• Review list of “Top Risks”

• Determine if this list is still representative and fully comprehensive

• Review “business in transition” scenarios to identify risks and mitigants

• Determine how each risk should be monitored

• ERM-C members to discuss “Top Risks” with respective MTs

Next Steps...

18

Table of Contents





5 Appendix

19

Credit Loss Data

Gross Loss (USD Million)Event Type 2004 2005 2006

Commercial Banking $176.1 $94.9 $56.9 PFS $40.9 $29.4 $38.5 Mortgage $3.0 $1.2 $3.3 Other $0.0 $0.4 $0.0 OREO $0.0 $0.0 $0.0Total Net Charge-offs $219.9 $125.9 $98.7

Recoveries (USD Million)Event Type 2004 2005 2006

Commercial Banking ($77.3) ($41.1) ($26.4) PFS ($12.0) ($11.1) ($6.6) Mortgage ($0.0) ($0.2) ($0.0) Other $0.0 OREO $0.0Total Net Charge-offs ($89.2) ($52.3) ($33.0)

Net Loss (USD Million)Event Type 2004 2005 2006

Corporate Credit Default Commercial Banking $98.8 $53.8 $30.5 PFS $28.9 $18.3 $32.0 Mortgage $3.0 $1.0 $3.3 Other $0.0 $0.4 $0.0 OREO $0.0 $0.0 $0.0Total Net Charge-offs $130.7 $73.6 $65.7

2004 2005 2006No. of events No. of events No. of events

155 88 53 261 263 273

n/a n/a n/a- - - - - - 416 351 326

20

Operational Loss Data

Gross Loss (USD Million)

Event Type 2004 2005 2006

Business Disruption and Systems Failures $0.1 $8.8 $1.7

Clients, Products and Business Practices $0.1 $340.7 $19.2

Damage to Physical Assets$3.7 $2.4 $4.5

Employment Practices and Workplace Safety $0.6 $0.6 $0

Execution, Delivery and Process Management $139.1 $119.3 $63.3

External Fraud$3.4 $2.7 $4.0

Internal Fraud$0.2 $1.4 $15.9

(blank)$0.1 $0.3 $0.3

Grand Total$147.2 $476.0 $109.0

Gross Loss (Number of Events)

Event Type 2004 2005 2006

Business Disruption and Systems Failures 1 6 9

Clients, Products and Business Practices 2 4 10

Damage to Physical Assets 1 1 17

Employment Practices and Workplace Safety 3 1 -

Execution, Delivery and Process Management 89 99 124

External Fraud40 39 50

Internal Fraud5 12 4

(blank)1 1 3

Grand Total142 163 217

21

Risk Outlook: Operational LossFraud – Internal and External



C

0%

5%

10%

15%

20%

25%

30%

0 1 2 3 4 5 6 7 8 9 10


Ave

rag

e P

rob

abili

ty

Fraud Loss (9)

External Fraud

20062004 2005

$0.1MM (2004 - 2006)

Internal Fraud

$0.05M (2004)

$0.1MM (2005)

$4MM

2006

22

Risk Outlook: Operational LossExecution, Delivery & Process Management


A H

N

0%

5%

10%

15%

20%

25%

30%

0 10 20 30 40 50 60


Ave

rag

e P

rob

ab

ility

Control Breakdown (13)

Supplier Failure (2)

Model Risk / Failure (6)

2006

$0.5MM

2005

2004

$1MM

$2MM

Execution, Delivery & Process Management


23

Risk Outlook: Operational LossEmployment Practices and Workplace Safety



J

0%

5%

10%

15%

20%

25%

30%

0 5 10 15 20 25 30 35 40 45


Ave

rag

e P

rob

abili

ty

Declining Employee Morale/Loss of Top Employees (5)

Employement Practices and Workplace Safety

20042005

$0.2MM

$0.6MM

$0

2006

enterprise risk management (erm) abn amro business unit north america (bu na)

Documents

lasalle perspective

group structure

deal structure

lasalle bank corporation

remaining abn amro group

legal issues

risk levels

deal execution