2012 Registration document and annual financial report - BNP Paribas

4CONSOLIDATEDFINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2012Notes to the financial statementsGoodwill by core business is as follows:4In millions of eurosGoodwill31 December2012Carrying amount Impairment losses recognised Acquisitions of the period31 December2011Year to31 Dec. 2012Year to31 Dec. 2011Year to31 Dec. 2012Year to31 Dec. 2011Retail Banking 8,361 8,962 (486) (172) - 216Arval 316 310 - - - -BancWest 3,782 3,852 - - - -French & Belgi an Retail Banking 59 77 - - - 9Italian Retail Banking 1,400 1,698 (298) - - -Europe-Mediterranean 295 287 - - - 199Leasing Solutions 147 232 (80) - - 7Personal Finance 1,950 2,093 (108) (172) - 1Personal Investors 412 413 - - - -Investment Solutions 1,584 1,544 - - 2 125Insurance 259 258 - - - 120Investment Partners 251 248 - - - -Real Estate 351 348 - - 2 5Securities Services 372 365 - - - -Wealth Management 351 325 - - - -Corporate and Investment Banking 643 657 (7) - - -Other Activities 3 243 - (1) - -TOTAL GOODWILL 10,591 11,406 (493) (173) 2 341Negative goodwill 3 67CHANGE IN VALUE OF GOODWILL (490) (106)Goodwill impairment tests are based on three different methods:observation of transactions related to comparable businesses, share pricedata for listed companies with comparable businesses, and discountedfuture cash flows (DCF).If one of the two comparables-based methods indicates the need forimpairment, the DCF method is used to validate the results and determinethe amount of impairment required.The DCF method is based on a number of assumptions in terms of futurerevenues, expenses and cost of risk. These parameters are taken frommedium-term business plans for the first three years, extrapolated overa sustainable growth period of ten years, representing the duration ofthe economic cycle to which the banking industry is sensitive, and thenin perpetuity, based on sustainable growth rates up to ten years and theinflation rate thereafter, for each business line.The key parameters which are sensitive to the assumptions made are thecost/income ratio, the sustainable growth rate and the cost of capital.Cost of capital is determined on the basis of a risk-free rate, an observedmarket risk premium weighted by a risk factor based on comparablesspecific to each homogeneous group of businesses. The sustainablegrowth rates used are obtained from external market sources and ifnecessary are revised down according to management expectations. Thecost/income ratio is based on the structure specific to each homogeneousgroup of businesses.The following table shows the sensitivity of cash generating unit valuationsto changes in the value of parameters used in the DCF calculation. Thecost of capital, cost/income ratio and sustainable 10- year growth rateare specific to each business. The growth rate beyond 10 years is set at2% for all businesses, which is a conservative rate in view of inflationrates in most countries in which the Group operates.Lastly, allocated capital is determined for each homogeneous group ofbusinesses based on the Core Tier One regulatory requirements for thelegal entity to which the homogeneous group of businesses belongs,with a minimum of 7%.In 2012, considering in particular the expected increase in the Bank ofItaly capital requirement (local Core Equity Tier One increased from 7% to8%), the Group recognised a EUR 298 million impairment of the goodwillallocated to the BNL bc homogeneous group.1602012 Registration document and annual financial report - BNP PARIBAS