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NEDBANK GROUP ANNUAL REPORT 2009

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER

41

Investment contract liabilities

    
    2009 2008
    Rm Rm
  Market value at the beginning of the year 5 843 5 846
  Movements in policyholder liabilities during the year 906 (3)
  Market value at the end of the year 6 749 5 843
  Policies held within investment contracts are recorded at market-related values.
       

42

Insurance contract liabilities

    
      2009
      Rm
  Arising on business combination   1 034
  Net premiums   726
    Individual – single premiums   172
      – recurring premiums   625
    Group – recurring premiums   3
    Net reinsurance premiums   (74)
  Investment income   70
    Dividends   1
    Interest   41
    Realised and unrealised gains on investments   28
  Policyholders’ benefits   (283)
    Annuities   (24)
    Death and disability benefits   (119)
    Maturities   (117)
    Gross surrenders and withdrawals   (23)
  Total expenses   (210)
    Administration expenses   (63)
    Commission   (126)
    Indirect taxation   (21)
  Transfer to operating profit   (204)
  Balance at the end of the year   1 133
  No comparative information is provided for insurance contract liabilities as Nedgroup Life Assurance Company Limited was only consolidated from 5 June 2009 (refer to note 37).
       

43

Long-term debt instruments

    
          2009 2008
      Nominal value Instrument terms Rm Rm
  Subordinated debt     11 126 10 627
  Rand-denominated (ZARm)   10 385 10 625
  Callable bonds repayable on 30 December 2010 (IPB2) (a) 500 8,38% per annum* 493 488
  Callable bonds repayable on 4 December 2013 (IPB3) (b) 300 JIBAR + 2,5% per annum** 151 152
  Callable notes repayable on 24 April 2016 (NED05) (c) 1 500 7,85% per annum* 1 499 1 480
  Callable notes repayable on 20 September 2018 (NED06) (d) 1 800 9,84% per annum* 1 781 1 869
  Callable notes repayable on 8 February 2017 (NED07) (c) 650 9,03% per annum* 658 671
  Callable notes repayable on 8 February 2019 (NED08) (d) 1 700 8,90% per annum* 1 643 1 718
  Callable notes repayable on 6 July 2022 (NED09) (f) 2 000 JIBAR + 0,47% per annum** 2 036 2 060
  Callable notes repayable on 15 August 2017 (NED10) (c) 500 JIBAR + 0,45% per annum** 505 508
  Callable notes repayable on 17 September 2020 (NED11) (e) 1 000 10,54% per annum* 997 1 051
  Callable notes repayable on 14 December 2017 (NED12A) (c) 500 JIBAR + 0,70% per annum** 502 503
  Callable notes repayable on 14 December 2017 (NED12B) (c) 120 10,38% per annum* 120 125
  Namibian dollar-denominated (NAM$m)   2 2
  Long-term debenture repayable on   17% per annum until    
  15 September 2030 40 15 September 2000    
      – thereafter zero coupon 2 2
  US dollar-denominated (US$m)   739 –
  Callable notes repayable on 3 March 2022 (EMTN01) (i) 100 Three-month USD LIBOR 739  
  Hybrid subordinated debt     1 766 1 839
  Rand-denominated (ZARm)   1 766 1 839
  Callable notes repayable on 20 November 2018 (NEDH1A) (g) 487 15,05% per annum* 484 550
  Callable notes repayable on 20 November 2018 (NEDH1B) (g) 1 265 JIBAR + 4,75% per annum** 1 282 1 289
  Securitised liabilities     1 412 1 420
  Rand-denominated (ZARm)   1 412 1 420
  Callable notes repayable on 18 November 2039 (GRN1A1) (h) 291 JIBAR + 0,25% per annum** 294 295
  Callable notes repayable on 18 November 2039 (GR1A2A) (h) 1 407 JIBAR + 0,60% per annum** 993 999
  Callable notes repayable on 18 November 2039 (GRN1B) (h) 98 JIBAR + 0,85% per annum** 75 75
  Callable notes repayable on 18 November 2039 (GRN1C) (h) 76 JIBAR + 1,1% per annum** 50 51
  Senior unsecured debt     5 773 –
  Rand-denominated (ZARm)   5 773 –
  Senior unsecured notes repayable on 9 September 2012 (NBK1B) 1 000 JIBAR + 1,50% per annum** 1 005  
  Senior unsecured notes repayable on 15 September 2015 (NBK2A) 2 000 10,55% per annum* 2 065  
  Senior unsecured notes repayable on 15 September 2015 (NBK2B) 250 JIBAR + 2,20% per annum** 251  
  Senior unsecured notes repayable on 9 September 2019 (NBK3A) 400 11,39% per annum* 414  
  Senior unsecured notes repayable on 31 March 2013 (NBKI1) 1 750 3,9% CPI ref 106.70667 1 805  
  Senior unsecured notes repayable on 28 October 2024 (NBK4) 130 Zero coupon 136  
  Senior unsecured notes repayable on 31 March 2013 (NBKI1U) 98 3,8% real yield base CPI 108,68065 97  
  Other     7 175
  Rand-denominated (ZARm)   7 5
  Unsecured debentures repayable on 30 November 2029 200 Zero coupon 7 5
  US dollar-denominated (USDm)   – 170
  Guaranteed loan repayable on 31 August 2009 + 18 1,5 basis points below six-month LIBOR on nominal value   170
           
  Total long-term debt instruments in issue     20 084 14 061
  During the year there were no defaults or breaches of principal, interest or any other terms and conditions of long-term debt instruments.

Coupon holders are entitled, in the event of interest default, to put the coupon covering such interest payments to Nedbank Group Limited. The US dollar subordinated-debt instruments are either matched by advances to clients or covered against exchange rate fluctuations. In accordance with the group’s articles of association, the borrowing powers of the company are unlimited.
 
 
* Interest on these notes is payable biannually.
** Interest on these notes is payable quarterly.
+ The debt instrument was redeemed on 31August 2009.
(a) Callable by the issuer, Imperial Bank Limited, after approximately five years from the date of issue, 30 March 2006 (ie 30 December 2010), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,67%.
(b) Callable by the issuer, Imperial Bank Limited, after five years from the date of issue, 4 December 2008 (ie 4 December 2013), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 3,75%.
(c) Callable by the issuer, Nedbank Limited, after five years from the dates of issue, being 24 April 2006, 8 February 2007, 15 August 2007, 14 December 2007 and 14 December 2007 (ie 24 April 2011, 8 February 2012, 15 August 2012, 14 December 2012 and 14 December 2012), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 1,70%, 1,95%, 1,45%, 1,70% and 1,70% respectively.
(d) Callable by the issuer, Nedbank Limited, after seven years from the dates of issue, being 20 September 2006 and 8 February 2007 (ie 20 September 2013 and 8 February 2014), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,05% and 2,17% respectively.
(e) Callable by the issuer, Nedbank Limited, after eighty years from the date of issue, being 17 September 2007 (ie 17 September 2015), at which time the interest converts to a floating three-month JIBAR rate, plus a spread of 2,85%.
(f) Callable by the issuer, Nedbank Limited, after ten years from the date of issue, being 6 July 2007 (ie 6 July 2017), at which time the interest will step up by 1,00% to a floating three-month JIBAR rate cla, plus a spread of 1,47%.
(g) Callable by the issuer, Nedbank Limited, after ten and a half years from the date of issue, being 20 May 2008 (ie 20 Novembe 2018), at which time the interest converts to a floating three-month JIBAR rate plus 712,5 basis points in perpetuity unless called.
(h) Callable by the issuer, Greenhouse Funding (Pty) Limited, after approximately five years from the date of issue, being 10 December 2007 (ie 18 November 2012), at which time the interest rate on the notes (GRN1A1, GR1A2A, GRN1B and GRN1C) will step up to a three-month JIBAR rate, plus a spread of 0,40%, 0,80%, 1,10% and 1,35% respectively.
(i) Callable by the issuer, Nedbank Limited, after eight years from the date of issue, being 3 March 2009 (ie 3 March 2017), at which time the interest rate will convert to a floating three-month USD LIBOR rate, plus a spread of 3,00%.
           

44

Contingent liabilities
    2009 2008
    Rm Rm
  Guarantees on behalf of clients 28 161 25 226
  Confirmed letters of credit and discounting transactions 1 487 3 129
  Unutilised facilities and other 43 757 46 378
    73 405 74 733
  The group in the ordinary course of business enters into transactions that expose the group to tax, legal and business risks. Provisions are made for known liabilities that are expected to materialise. Possible obligations and known liabilities where no reliable estimate can be made or it is considered improbable that an outflow would result, are reported as contingent liabilities. This is in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

There are a number of legal or potential claims against Nedbank Group Limited and its subsidiary companies, the outcome of which cannot at present be foreseen. The largest of these potential actions is a claim in the High Court for R1,3 billion against Nedbank Limited by certain shareholders in Pinnacle Point Group Limited, alleging that Nedbank Limited had a legal duty of care to them arising from a share swap transaction. Nedbank and its legal advisers are of the opinion that the claim is extremely ambitious, and that the claimants will have great difficulty succeeding.

Historically a number of group companies entered into structured-finance transactions with third parties using their tax bases. In the majority of these transactions, the underlying third party has contractually agreed to accept the risk of any tax being imposed by the SA Revenue Service (SARS), although the obligation to pay rested in the first instance with the group companies. It would only be in limited cases, for example where the credit quality of a client became doubtful or where the client specifically contracted out of the repricing of additional taxes, that the recovery from a client could be less than the liability arising on assessment, in which case provisions would be made.
       

45

Commitments

    
  45.1 Capital expenditure approved by directors
      2009 2008
      Rm Rm
    Contracted 731 498
    Not yet contracted 642 284
      1 373 782
    Funds to meet capital expenditure commitments will be provided from group resources. In addition, capital expenditure is incurred in the normal course of business throughout the year.
         
  45.2 Operating lease commitments
    Companies in the group have entered into leases over fixed property, furniture and other equipment for varying periods. The group is a major lessor of properties, which are subject to individual contracts that specify the group’s option to renew leases, escalation clauses and purchase options, if applicable. Due to the large number of lease agreements entered into by the group, this information has not been provided in the annual financial statements, but is available from the group on request. The following are the minimum lease payments under non-cancellable leases:
 
      2010 2011 – 2014 Beyond 2014
      Rm Rm Rm
    2009      
    Land and buildings* 902 1 809 2 563
    Furniture and equipment 128 606 178
      1 030 2 415 2 741
    2008      
    Land and buildings* 507 1 074 2 334
    Furniture and equipment 164 347  
      671 1 421 2 334
   
* The group may from time to time enter into subleases of properties where it is the lessee. These subleases are considered to be immaterial in the context of the group’s overall leasing arrangements.
 
    The terms of renewal and escalation clauses are as follows:

The majority of material leases entered into by the group include an option to renew the lease. If the rental for the renewal period has not been agreed on or determined by the commencement date of the renewal period, the tenant continues to pay the existing monthly rental. Once the rental is determined, cumulative adjustments will be made to the amount payable for the following month. Escalation clauses for major leases entered into by the group range between 7% and 10,5% per annum. For all major lease agreements entered into, there is no requirement to pay contingent rent or purchase options.
           
  45.3 Commitments under derivative instruments
    The group enters into option contracts, financial futures contracts, forward rate and interest rate swap agreements and other financial agreements in the normal course of business (note 23).
           

46

Collateral

      
  46.1 Collateral pledged      
    The group has pledged government and other securities (note 25) amounting to R14 935 million (2008: R21 028 million) as collateral for deposits received under repurchase agreements. These amounts represent assets that have been transferred, but that do not qualify for derecognition under IAS 39.

These transactions are entered into under terms and conditions that are standard industry practice regarding securities borrowing and lending activities.
           
  46.2 Collateral held
    The group segregates collateral received into the following two types:
 
  • Financial collateral
    The group takes financial collateral to support credit exposures in the trading book. This includes cash and debt securities in respect of derivative transactions.

    These transactions are entered into under terms and conditions that are standard industry practice regarding securities borrowing and lending activities.
  • Non-financial collateral
    In secured financial transactions the group takes other physical collateral to recover outstanding exposure in the event of the borrower being unable or unwilling to fulfil its obligations. This includes mortgages over property (both residential and commercial), liens over business assets (including, but not limited to, plant, vehicles, aircraft, inventories and trade debtors) and guarantees from parties other than the borrower.

    Should a counterparty be unable to settle its obligations, the group takes possession of collateral as full or part settlement of such amounts. In general, the group seeks to dispose of such property and other assets that are not readily convertible into cash as soon as the market for the relevant asset permits.
           
  46.3 Collateral taken possession of and recognised in the statement of financial position
    Included in properties in possession (note 26: Loans and advances) is an amount of R676 million (2008: R559 million) that represents assets the group has acquired during the year by taking possession of collateral held as security.
           

47

Securitisations
  The group is party to securitisation transactions involving GreenHouse Funding (Pty) Limited (GreenHouse), a residential-mortgage-backed securitisation programme, Octane ABS 1 (Pty) Limited (Octane), a securitisation programme of auto loans advanced by Imperial Bank Limited through its subsidiary Motor Finance Corporation and Synthesis Funding Limited (Synthesis), an asset-backed commercial paper mortgage programme.

Synthesis primarily invests in long-term-rated bonds and offers capital market funding to SA corporates. These assets are funded through the issuance of short-dated investment grade commercial paper to institutional investors. All the commercial paper issued by Synthesis is assigned the highest short-term RSA local-currency credit rating by both Fitch and Moody’s, and is listed on the Bond Exchange of South Africa (BESA).

Under GreenHouse Series 1, R2 billion of residential mortgages originated by Nedbank Retail was securitised. The commercial paper issued by GreenHouse has been assigned credit ratings by both Fitch and Moody’s and is listed on BESA. The home loans of GreenHouse continue to be recognised in the statement of financial position of Nedbank Limited in terms of International Financial Reporting Standards (IFRS) due to the significant risks and rewards associated with the home loans not being transferred to the external investors.

Octane was established to securitise R2 billion of auto loans originated by Imperial Bank under Octane Series 1. The commercial paper issued by Octane Series 1 has been assigned credit ratings by Fitch and is listed on BESA. The auto loans of Octane continue to be recognised in the statement of financial position of Imperial Bank Limited in terms of IFRS due to the significant risks and rewards associated with the auto loans not being transferred to the external investors.

The following table shows the carrying amount of securitised assets, stated at the amount of the group’s continuing involvement, where appropriate, together with the associated liabilities for each category of asset in the statement of financial position:*
 
    2009   2008  
  Rm Carrying
amount of
assets		 Associated
liabilities		 Carrying
amount of
assets		 Associated
liabilities
  Loans and advances to clients:        
  – Residential mortgage loans 1 973 2 019 1 972 2 031
  – Motor vehicle financing 1 672 1 594 1 781 1 751
  – Other financial assets        
  – Corporate and bank paper 1 731   2 067  
  – Other securities 4 024   5 673  
  – Commercial paper   5 769   7 727
  Total 9 400 9 382 11 493 11 509
  This table presents the gross balances within the securitisation schemes and does not reflect any elimination of intercompany balances.
 
 
* The value of any derivative instruments taken out to hedge any financial asset or liability is adjusted against such instrument in this disclosure.
           

48

Foreign currency conversion guide
  Monetary figures in these financial statements are expressed in SA rand to the nearest million. The approximate value of the SA rand at 31 December against the following currencies was:
           
    2009 2008
    Actual Average Actual Average
  United States dollar 0,1355 0,1203 0,1067 0,1211
  Pound sterling 0,0840 0,0773 0,0735 0,0665
  Euro 0,0941 0,0868 0,0757 0,0829
           

49

Cashflow information
  49.1 Reconciliation of profit from operations to cash generated by operations
          2009 2008
          Rm Rm
    Profit from operations 6 664 8 718
    Adjusted for:    
    – Depreciation (note 15) 632 616
    – Amortisation: computer software (note 15) 459 414
    – Amortisation: other intangible assets (note 15) 38  
    – Movement in impairment of loans and advances 7 091 5 201
    – (Profit)/Loss on disposal of property and equipment (18) 42
    – Net income on investment banking assets (14) (8)
    – Effects of exchange rate changes on cash and cash equivalents  (excluding foreign borrowings) 248 (44)
    – Impairment losses on investments, property and equipment, and capitalised development costs (note 17) 11 11
    – Profit on sale of subsidiaries, investments and property and equipment (note 17) (20) (767)
    – Revaluation on acquisition of joint ventures (note 17) (615)  
    – Transaction taxes 438 374
    – Foreign currency translation profit 1  
    Cash generated by operations 14 915 14 557
             
  49.2 Cash received from clients    
    Interest and similar income (note 12) 50 537 57 986
    Commission and fees (note 14) 8 888 7 910
    Net trading income (note 14) 1 841 1 553
    Other income 1 114 1 024
      62 380 68 473
         
  49.3 Cash paid to clients, employees and suppliers    
    Interest expense and similar charges (note 13) (34 231) (41 816)
    Staff costs (note 15) (7 898) (7 040)
    Other operating expenses (6 091) (5 629)
      (48 220) (54 485)
         
  49.4 Increase in operating assets    
    Other short-term securities 39 7 204
    Government and other securities 6 155 (12 501)
    Advances and other accounts (12 203) (76 695)
          (6 009) (81 992)
         
  49.5 (Decrease)/Increase in operating liabilities    
    Current and savings accounts 342 (354)
    Other deposits, loan accounts and foreign currency liabilities (8 138) 39 340
    Negotiable certificates of deposit 16 354 31 211
    Deposits received under repurchase agreements (6 093) 12 152
    Creditors and other liabilities (11 059) (11 031)
          (8 594) 71 318
             
  49.6 Taxation paid    
    Amounts receivable/(payable) at the beginning of the year 111 (278)
    Statement of comprehensive income charge (excluding deferred taxation) (1 741) (1 443)
    Total indirect taxation (note 16) (438) (374)
    Other taxation received/(paid) 38 (27)
    Amounts receivable at the end of the year (288) (111)
      (2 318) (2 233)
         
  49.7 Disposal of investments in subsidiary companies net of cash    
    Cash and cash equivalents   20
    Other assets   82
    Investments in associate companies and joint ventures   4
    Deferred taxation asset   1
    Property and equipment   25
    Provisions and other liabilities   (66)
    Current taxation liabilities   2
    Net assets disposed – 68
    Profit on disposal   21
    Non-controlling interest   (29)
    Consideration received – 60
    Cash and cash equivalents disposed – (20)
    Net consideration – 40
               
  49.8 Acquisition of investments in subsidiary companies net of cash    
    Cash and cash equivalents (48)  
    Loans and advances (80)  
    Other assets (729)  
    Investment securities (1 469)  
    Deferred taxation asset (7)  
    Property and equipment (9)  
    Goodwill (653)  
    Provisions and other liabilities 780  
    Current taxation liabilities 49  
    Deferred taxation liabilities 257  
    Insurance contract liabilities 1 101  
    Net assets acquired (808) –
    Profit on stepup (547)  
    Non-controlling interest 229  
    Goodwill 1 126  
    Consideration paid* – –
    Less: Cash and cash equivalents acquired 48 –
    Net cashflow 48 –
   
* The acquisition of BoE (Pty) Limited, Nedgroup Life Assurance Company Limited and Fairbairn. Private Bank was funded by share issues and not cash. Refer to note 37
               
  49.9 Dividends paid
    Recognised in the group statement of changes in total shareholders’ equity (2 253) (2 736)
               

50

Managed funds
  50.1 Fair value of funds under management – by type
      2009 2008
      Rm Rm
    Unit trusts 48 334 39 242
    Third party 3 143 3 192
    Private clients 42 148 41 947
      93 625 84 381
               
  50.2 Fair value of funds under management – by geography    
    South Africa 79 107 68 403
    Rest of world 14 518 15 978
      93 625 84 381
               
  50.3 Reconciliation of movement in funds under management – by type
      Unit trusts Third party Private clients Total
      Rm Rm Rm Rm
    Balance at 31 December 2007 40 070 2 832 42 536 85 438
    Inflows 18 810 1 166 12 473 32 449
    Outflows (15 415) (760) (9 754) (25 929)
    Mark-to-market value adjustment (6 291) (66) (3 348) (9 705)
    Foreign currency translation differences 2 068 20 40 2 128
    Balance at 31 December 2008 39 242 3 192 41 947 84 381
    Inflows 22 524 1 427 12 780 36 731
    Outflows (17 281) (1 570) (14 470) (33 321)
    Mark-to-market value adjustment 4 561 131 2 079 6 771
    Foreign currency translation differences (712) (37) (188) (937)
    Balance at 31 December 2009 48 334 3 143 42 148 93 625
             
  50.4 Reconciliation of movement in funds under management – by geography
      South Africa Rest of world Total
      Rm Rm Rm
    Balance at 31 December 2007 70 675 14 763 85 438
    Inflows 26 876 5 573 32 449
    Outflows (21 656) (4 273) (25 929)
    Mark-to-market value adjustment (7 492) (2 213) (9 705)
    Foreign currency translation differences   2 128 2 128
    Balance at 31 December 2008 68 403 15 978 84 381
    Inflows 31 981 4 750 36 731
    Outflows (27 192) (6 129) (33 321)
    Mark-to-market value adjustment 5 915 856 6 771
    Foreign currency translation differences   (937) (937)
    Balance at 31 December 2009 79 107 14 518 93 625
    The group, through a number of subsidiaries, operates unit trusts, holds and invests funds on behalf of clients and acts as a trustee in a number of fiduciary capacities. In addition, companies in the group operate securities and custodial services on behalf of clients. Commissions and fees earned in respect of trust and management activities performed are included in the consolidated statement of comprehensive income as non-interest revenue.
           

51

Share-based payments
  Nedbank Group Limited shares, share options over Nedbank Group Limited shares and equity instruments in respect of Nedbank Group Limited shares are granted to employees as part of their remuneration package as services are rendered, as well as to clients, business partners and affinity groups as an incentive to retain business and develop growth within the group. The following are the share and share option schemes that have been in place during the year. All schemes are equity-settled at group level except the UK long-term incentive scheme, which is cash-settled.

As the group cannot estimate reliably the fair value of services received nor the value of additional business received, the group rebuts the presumption that such services and business can be measured reliably. The group therefore measures their fair value by reference to the fair value of the shares, share options or equity instruments granted, in line with the group’s accounting policy. The fair value of such shares, share options and equity instruments is measured at the grant date utilising the Black-Scholes valuation model.
 
  51.1 Description of arrangements
   
Click to enlarge
           
      51.2 Effect on profit and financial position
      Share-based payments
expense		 Share-based payments
reserve/liability
      2009 2008 2009 2008
      Rm Rm Rm Rm
    Traditional employee schemes 13 86 238 290
    Nedbank Group (1994) Share Option Scheme * 7 19 42
    Nedbank Group (2005) Share Option and Restricted Share Scheme 8 57 183 212
    Nedbank Group (2005) Matched Share Scheme 2 20 27 31
    Old Mutual UK Sharesave Scheme 3 2 9 5
    Nedbank UK Long-term Incentive Plan** * * * *
    Nedbank Eyethu BEE schemes 109 180 618 640
    Black Business Partner Scheme*** 10 9 252 243
    Non-executive Directors’ Scheme 2 5 21 20
    Retail Scheme 6 73 * 103
    Corporate Scheme 53 60 234 181
    Black Executive Scheme 6 9 26 25
    Black Management Scheme 32 24 85 68
    Nedbank Namibia Omufima BEE schemes 1 1 19 18
    Namibia Black Business Partner Scheme     9 9
    Namibia Affinity Group Scheme     3 3
    Namibia Education Scheme     4 4
    Namibia Black Management Scheme 1 1 3 2
    Namibia Broad-based Employee Scheme        
    Namibia LTIP Scheme * * * *
             
      123 267 875 948
   
* Represents amounts less than R1 million.
** This scheme is cash-settled and therefore creates a liability.
*** The share-based payments expense in respect of the Nedbank Eyethu BEE black business partners relates to the annual performance fee paid to them, calculated in terms of the trust deed.
             
  51.3 Movements in number of instruments
      2009 2008
        Weighted   Weighted
        average   average
      Number of exercise price Number of exercise price
      instruments R instruments R
    Nedbank Group (1994) Share Option Scheme        
    Outstanding at the beginning of the year 1 870 387 63,19 4 271 871 78,00
    Forfeited     (37 896) 51,33
    Exercised (1 146 002) 62,16 (1 080 909) 59,78
    Expired (96 105) 82,51 (1 282 679) 115,76
    Outstanding at the end of the year 628 280 62,17 1 870 387 63,19
    Exercisable at the end of the year 628 280 62,17 1 675 787 61,89
    Weighted average share price for options exercised (R)   110,68   106,42
    Nedbank Group (2005) Share Option and Restricted Share Scheme        
    Outstanding at the beginning of the year 16 452 721 99,02 16 306 244 113,68
    Granted 5 080 170   2 516 999  
    Forfeited (1 166 407) 64,59 (1 336 047) 105,83
    Exercised (2 607 550) 86,80 (1 003 875) 77,83
    Expired (237 874) 112,52 (30 600) 110,98
    Outstanding at the end of the year 17 521 060 74,23 16 452 721 99,02
    Exercisable at the end of the year 5 580 177 101,94 3 564 940 78,63
    Weighted average share price for options exercised (R)   114,77   102,41
    Nedbank Group (2005) Matched Share Scheme        
    Outstanding at the beginning of the year 595 170   596 762  
    Granted 194 248   295 983  
    Forfeited (143 445)   (30 905)  
    Exercised (62 925)   (266 670)  
    Outstanding at the end of the year 583 048 – 595 170 –
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   85,00   97,00
    Old Mutual UK Sharesave Scheme (options over Old Mutual plc shares – GBP)        
    Outstanding at the beginning of the year 1 071 722 0,93 914 547 0,93
    Granted 586 774 0,35 1 009 743 0,90
    Forfeited (983 791) 0,93 (426 244) 1,18
    Exercised (25 153) 0,78 (424 858) 0,60
    Expired     (1 466) 1,53
    Outstanding at the end of the year 649 552 0,42 1 071 722 0,93
    Exercisable at the end of the year 26 751 1,18 81 184 0,95
    Weighted average share price for options exercised (GBP)   0,97   1,11
    Nedbank UK Long-term Incentive Plan        
    Outstanding at the beginning of the year 56 632 126,06 35 000 134,27
    Granted 75 706   34 132 120,62
    Forfeited (7 434)   (12 500) 134,30
    Outstanding at the end of the year 124 904 24,19 56 632 126,06
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Black Business Partner Scheme        
    Outstanding at the beginning of the year 7 891 300 171,82 7 891 300 171,82
    Outstanding at the end of the year 7 891 300 171,82 7 891 300 171,82
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Non-executive Director Scheme        
    Outstanding at the beginning of the year 575 021 103,88 493 206 108,04
    Granted 46 722 105,99 81 815 78,81
    Outstanding at the end of the year 621 743 104,04 575 021 103,88
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Retail Scheme        
    Outstanding at the beginning of the year 1 106 880   1 200 296  
    Forfeited     (17 159)  
    Exercised (1 079 976)   (509 205)  
    Adjusted for anticipated number of shares to be granted (25 506)   432 948  
    Outstanding at the end of the year 1 398 – 1 106 880 –
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   86,73   91,07
    Corporate Scheme        
    Outstanding at the beginning of the year 10 230 707 108,06 10 230 707 108,06
    Forfeited (300 282) 108,06    
    Outstanding at the end of the year 9 930 425 108,06 10 230 707 108,06
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Black Executive Scheme        
    Outstanding at the beginning of the year 1 179 391 70,73 946 705 69,29
    Granted 125 506 65,94 281 588 74,85
    Forfeited (149 880) 79,66 (48 902) 66,70
    Exercised (117 480) 47,87    
    Outstanding at the end of the year 1 037 537 71,44 1 179 391 70,73
    Exercisable at the end of the year 72 260 96,89 – –
    Weighted average share price for options exercised (R)   110,38   –
             
        Black Management Scheme        
    Outstanding at the beginning of the year 5 640 899 93,04 4 554 109 90,03
    Granted 2 004 380 75,22 2 015 248 102,68
    Forfeited (688 678) 91,88 (849 774) 101,33
    Exercised (441 508) 63,71 (6 342) 54,50
    Expired (19 742) 81,31 (72 342) 78,16
    Outstanding at the end of the year 6 495 351 89,69 5 640 899 93,04
    Exercisable at the end of the year 318 531 76,38 41 300 77,33
    Weighted average share price for options exercised (R)   110,80   106,65
    Namibia Black Business Partner Scheme        
    Outstanding at the beginning of the year 199 929 278,98 199 929 278,98
    Outstanding at the end of the year 199 929 278,98 199 929 278,98
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Namibia Affinity Group Scheme        
    Outstanding at the beginning of the year 74 048 282,47 74 048 282,47
    Outstanding at the end of the year 74 048 282,47 74 048 282,47
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Namibia Education Scheme        
    Outstanding at the beginning of the year 98 730 282,47 98 730 282,47
    Outstanding at the end of the year 98 730 282,47 98 730 282,47
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Namibia Black Management Scheme        
    Outstanding at the beginning of the year 75 400 77,92 75 400 77,92
    Outstanding at the end of the year 75 400 77,92 75 400 77,92
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
    Namibia LTIP Scheme        
    Outstanding at the beginning of the year 23 350 134,30 23 350 134,30
    Granted 47 512      
    Forfeited (3 300)      
    Outstanding at the end of the year 67 562 46,42 23 350 134,30
    Exercisable at the end of the year – – – –
    Weighted average share price for options exercised (R)   –   –
     
  51.4 Instruments outstanding at the end of the year by exercise price
      2009 2008
        Weighted   Weighted
        average   average
        remaining   remaining
      Number of contractual Number of contractual
      instruments life (years) instruments life (years)
    Nedbank Group (1994) Share Option Scheme        
    45,00     47 911 0,5
    55,75 120 500 0,6 254 950 1,6
    60,01 377 980 0,4 1 111 936 1,3
    69,20     62 490 0,7
    74,40 129 800 1,3 338 350 2,2
    102,19     54 750 0,2
      628 280 0,6 1 870 387 1,5
    Nedbank Group (2005) Share Option Scheme        
    0,00 6 830 572 1,9 2 368 882 2,2
    76,79 1 351 596 0,5 3 114 040 1,5
    84,68 224 200 0,6 373 400 1,5
    107,03 251 400 1,6 376 100 2,6
    110,98 3 659 481 1,1 4 493 680 2,1
    134,30 605 200 2,4 696 000 3,6
    144,30 4 598 611 2,1 5 030 619 3,1
      17 521 060 1,7 16 452 721 2,4
    Nedbank Group (2005) Matched Share Scheme        
    0,00 583 048 1,3 595 170 1,5
      583 048 1,3 595 170 1,5
    Old Mutual UK Sharesave Scheme (options over Old Mutual plc shares – GBP)        
    0,35 586 774 4,5    
    0,60     14 235 (0,5)
    0,90 33 864 2,3 882 390 2,3
    0,78 12 576 0,4 37 729 0,4
    1,03     79 140 (0,2)
    1,53 14 175 0,3 27 650 0,5
    1,31 2 163 1,3 30 578 1,5
      649 552 4,2 1 071 722 1,9
    Nedbank UK Long-term Incentive Plan        
    0,00 102 404 3,9    
    120,62     34 132 4,2
    134,30 22 500 3,6 22 500 4,6
      124 904 3,8 56 632 4,4
    Black Business Partner Scheme        
    171,82 7 891 300 5,6 7 891 300 6,6
      7 891 300 5,6 7 891 300 6,6
    Non-executive Director Scheme        
    78,81 81 815 1,6 81 815 2,6
    105,99 46 722 1,6    
    108,04 493 206 1,6 493 206 2,6
      621 743 1,6 575 021 2,6
    Retail Scheme        
    0,00 1 398 0,2 1 106 880 0,2
      1 398 0,2 1 106 880 0,2
    Corporate Scheme        
    108,06 9 930 425 1,6 10 230 707 2,6
      9 930 425 1,6 10 230 707 2,6
    Black Executive Scheme        
    0,00 290 482 2,4 348 048 2,8
    74,75 284 760 2,6 360 000 3,6
    75,74 57 715 6,2    
    104,51 106 265 5,6 106 265 6,6
    107,03 38 394 3,6 51 239 4,6
    108,45 36 000 6,6    
    110,98 17 721 2,5 80 888 4,2
    120,62 79 906 5,2 82 657 6,2
    134,30 48 000 2,6 72 000 5,6
    144,30 78 294 4,2 78 294 5,2
      1 037 537 3,6 1 179 391 4,1
    Black Management Scheme        
    0,00 530 815 2,8 486 767 2,9
    74,75 1 496 339 2,6 2 026 167 3,6
    75,74 1 368 702 6,1    
    104,03 793 197 5,6 926 279 6,6
    107,03 239 367 3,6 258 369 4,6
    108,45 306 286 6,6    
    110,98 220 530 3,2 242 300 4,2
    120,62 699 557 5,2 770 645 6,2
    134,30 480 017 4,6 516 559 5,6
    144,30 360 542 4,1 413 813 5,2
      6 495 352 4,5 5 640 899 4,8
    Namibia Black Business Partner Scheme        
    278,98 199 929 7,0 199 929 8,0
      199 929 7,0 199 929 8,0
    Namibia Affinity Group Scheme        
    282,47 74 048 7,0 74 048 8,0
      74 048 7,0 74 048 8,0
    Namibia Education Scheme        
    282,47 98 730 7,0 98 730 8,0
      98 730 7,0 98 730 8,0
    Namibia Black Management Scheme        
    0,00 17 396 2,0 17 396 3,0
    101,29 58 004 4,0 58 004 5,0
      75 400 3,5 75 400 4,5
    Namibia LTIP Scheme        
    0,00 44 212 2,2    
    134,30 23 350 2,6 23 350 3,6
      67 562 2,3 23 350 3,6
     
  51.5 Instruments granted during the year
    The weighted average fair value of instruments granted during the year has been calculated using the Black-Scholes option pricing model, using the following inputs and assumptions:
     
   
Click to enlarge
     

52

Related parties
  52.1 Relationship with parent, ultimate controlling party and investees
    The group’s parent company is Old Mutual (South Africa) Limited (OMSA), which through its subsidiaries holds 52,21% (2008: 54,30%) of Nedbank Group Limited’s ordinary shares. The ultimate controlling party is Old Mutual plc, incorporated in the United Kingdom.
                     
    Material subsidiaries of the group are identified here and associates and joint ventures of the group are identified here.
                     
  52.2 Key management personnel compensation
    Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, including all directors of the company and its parent, as well as members of the executive committee who are not directors, as well as close members of the family of any of these individuals.
                     
    Details of the compensation paid to the board of directors are disclosed in the Remuneration Report and details of their shareholdings in the company are disclosed here. Compensation paid to the board of directors and compensation paid to other key management personnel, as well as the number of share options and instruments held, are shown below:
                     
                  Key  
                  management  
                Directors personnel Total
    Compensation (Rm)      
    2009      
    Directors’ fees 11   11
    Remuneration – paid by subsidiaries 31 71 102
      Short-term employee benefits 27 56 83
      Gain on exercise of options 4 15 19
                     
                42 71 113
    2008      
    Directors’ fees 12   12
    Remuneration – paid by subsidiaries 25 80 105
      Short-term employee benefits 16 68 84
      Gain on exercise of options 9 12 21
                     
                37 80 117
    Number of share options and instruments      
    2009      
    Outstanding at the beginning of the year 1 256 009 1 489 812 2 745 821
    Granted 463 014 1 024 520 1 487 534
    Forfeited (8 700) (438 165) (446 865)
    Exercised (108 705) (450 379) (559 084)
    Transferred (5) 555 502 555 497
    Outstanding at the end of the year 1 601 613 2 181 290 3 782 903
    2008      
    Outstanding at the beginning of the year 1 412 503 1 380 971 2 793 474
    Granted 209 250 315 507 524 757
    Forfeited   (107 645) (107 645)
    Exercised (166 744) (276 521) (443 265)
    Expired (199 000)   (199 000)
    Transferred   177 500 177 500
    Outstanding at the end of the year 1 256 009 1 489 812 2 745 821
         
      52.3  Related - party transactions    
    Transactions between Nedbank Group Limited and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between Nedbank Group Limited and its other related parties are disclosed below. All of these transactions were entered into in the normal course of business.
         
      Due from/
(Owing to)
    Outstanding balances (Rm) 2009 2008
    Parent/Ultimate controlling party    
    Loans and advances owing to Old Mutual Life Assurance Company (SA) (Pty) Limited   (79)
    Loan due from Old Mutual plc 1 440  
    Deposits owing to Old Mutual Life Assurance Company (SA) (Pty) Limited (600) (1 467)
    Bank balances owing to Old Mutual Life Assurance Company (SA) (Pty) Limited (1 746) (1 637)
    Forward exchange rate contracts with Old Mutual plc 1 (1)
    Interest rate contracts with Old Mutual plc   (1)
    Equity derivatives with Old Mutual plc   (307)
    Fellow subsidiaries    
    Deposits owing to Old Mutual Asset Managers (SA) (Pty) Limited (257) (123)
    Deposits owing to other fellow subsidiaries (4 175) (3 156)
    Bank balances owing to Old Mutual Asset Managers (SA) (Pty) Limited (1) (1)
    Bank balances owing to other fellow subsidiaries (437) (588)
    Insurance-related receivables due from Mutual & Federal Insurance Company Limited   9
    Joint venture    
    Loans due from BoE (Pty) Limited * 78
    Loans owing to BoE (Pty) Limited * (1)
    Deposits and bank balances owing to BoE (Pty) Limited * (553)
    Associates    
    Loans due from associates 608 577
    Deposits owing to associates (43) (93)
    Bank balances owing to associates (7) (319)
    Key management personnel    
    Mortgage bonds due from key management personnel 7 12
    Deposits owing to key management personnel (12) (9)
    Deposits owing to entities under the influence of key management personnel (1 222) (422)
    BBank balances due from key management personnel 38 17
    Bank balances owing to key management personnel (5) (8)
    Bank balances due from entities under the influence of key management personnel 13 37
    Bank balances owing to entities under the influence of key management personnel (81) (41)
     
     
    The Wiphold and Brimstone consortia and Aka Capital (Pty) Limited are related parties since certain key management personnel of the company have significant influence over these entities. These entities are participants in the Nedbank Eyethu BEE schemes and the share-based payments reserve recognised in respect of these entities and key management personnel is detailed below:
         
    Wiphold consortium (108) (108)
    Brimstone consortium (107) (107)
    Aka Capital (Pty) Limited (37) (28)
    Key management personnel – directors (34) (33)
    Key management personnel – other (27) (27)
    Share-based payments reserve (313) (303)
    Performance fees are also paid to the Wiphold and Brimstone consortia in terms of he Nedbank Eyethu BEE scheme:    
    – Wiphold consortium (5) (5)
    – Brimstone consortium (4) (4)
    Performance fee liability at year-end (9) (9)
    Long-term employee benefit plans    
    Bank balances owing to Nedbank Namibia Medical Aid Fund (23) (28)
    Bank balances owing to Nedgroup Pension Fund (69) (134)
    Bank balances and deposits owing to other funds (63) (15)
    During the year under review BoE (Pty) Limited became a wholly owned subsidiary of Nedbank Group Limited.
      Income/(Expense)
    Transactions (Rm) 2009 2008
    Parent/Ultimate controlling party    
    Dividend declared to OMSA via its subsidiaries (1 308) (1 577)
    Interest expense to Old Mutual Life Assurance Company (SA) (Pty) Limited 49  
    Interest expense to Old Mutual Life Assurance Company (SA) (Pty) Limited (322) (384)
    During the year under review Nedbank Group Limited acquired the remaining 50% share in the joint venture of Nedgroup Life Assurance Company Limited (NedLife) and BoE (Pty) Limited from Old Mutual (South Africa) Limited. The balance of the joint ventures’ shareholding and loan account was acquired for the issue of 10 157 719 shares in Nedbank Group Limited, which equated to a total purchase consideration of R928 million.    
         
    During the year under review Nedbank Group Limited also acquired the rest of the non-controlling shareholding in Fairbairn Private Bank from Old Mutual plc for the issue of 2 697 640 shares in Nedbank Group Limited, which equated to a total purchase consideration of R246 million.    
         
    Fellow subsidiaries    
    Interest income from other fellow subsidiaries 1 2
    Interest expense to other fellow subsidiaries (326) (317)
    Interest expense to Old Mutual Asset Managers (SA) (Pty) Limited (20) (26)
    Insurance premiums to Mutual & Federal Insurance Company Limited (277) (268)
    Claims recovered from Mutual & Federal Insurance Company Limited 188 315
    Commission income from Mutual & Federal Insurance Company Limited 70 63
    Handling fees to Mutual & Federal Insurance Company Limited   (17)
    Asset management fee to Old Mutual Asset Managers (SA) (Pty) Limited (4) (5)
    Joint venture    
    Interest expense to BoE (Pty) Limited * (54)
    Lease income from BoE (Pty) Limited * 11
    Administration fee income from BoE (Pty) Limited * 26
    Advisory fee expense to BoE (Pty) Limited * 2
    Associates    
    Interest income from associates   20
    Interest expense to associates (7) (25)
    Key management personnel    
    Interest income from key management personnel 2 2
    Interest income from entities under the influence of key management personnel 7 3
    Interest expense to key management personnel (3) (2)
    Interest expense to entities under the influence of key management personnel (37) (41)
    The share-based payments charge in respect of the entities that are participants in the Nedbank Eyethu BEE schemes and key management personnel is detailed below:    
    – Aka Capital (Pty) Limited (8) (8)
    – Key management personnel – other (2) (3)
    Share-based payments expense (included in BEE transaction expenses) (10) (11)
    Key management personnel – directors (3) (10)
    Key management personnel – other (10) (14)
    Share-based payments expense (included in staff costs) (13) (24)
    Performance fees are also paid to the Wiphold and Brimstone consortia in terms of the Nedbank Eyethu BEE scheme:    
    – Wiphold consortium (12) (9)
    – Brimstone consortium (9) (8)
    Performance fee expense (21) (17)
    Long-term employee benefit plans    
    Interest expense to Nedgroup Pension Fund (6) (8)
    Interest expense to Nedbank Namibia Medical Aid Fund (2) (3)
    Interest expense to other funds (1) (11)
    The group has an insurance policy (Optiplus policy) with a fellow subsidiary, Old Mutual Life Assurance Company (SA) (Pty) Limited, in respect of its pension plan obligations. It also has an interest in the OMART cell captive within a fellow subsidiary in respect of its disability plan obligations. The value of this policy and this interest are shown as reimbursement rights, with a corresponding liability. In the case of the interest in the cell captive, the group recognises the surplus in the cell captive. The amounts included in the financial statements in respect of this policy and this interest are as follows:    
         
    Optiplus policy reimbursement right 806 842
    OMART policy reimbursement right 323 276
    Included in long-term employee benefit assets 1 129 1 118
    Optiplus policy obligation (806) (842)
    Disability obligation (250) (210)
    Included in long-term employee benefit liabilities (1 056) (1 052)
    During the year under review BoE (Pty) Limited became a wholly owned subsidiary of Nedbank Group Limited.