ANNUAL REPORT AND ACCOUNTS - FCE Bank · FCE Bank plc 6 FCE Bank plc – Annual Report and Accounts – 2008.Directors' Report Review of 2008 Performance Summary Sales Sales Results

FCE Bank plc

1 FCE Bank plc – Annual Report and Accounts – 2008

ANNUAL REPORT AND ACCOUNTS

for the year ended December 31, 2008

www.fcebank.comwww.fcebank.comwww.fcebank.comwww.fcebank.com

FCE Bank plc. Central Office, Eagle Way, Brentwood, Essex CM13 3AR. Registered in England and Wales no 772784

FCE Bank plc


Definitions For the purpose of this report (with exception of the ‘Independent review report’) the following key terms used are as follows with the prescribed meaning against them: (i) ‘Company’ means FCE Bank plc and its European branches (ii) ‘Group’ or ‘FCE’ means the Company and its subsidiaries (iii) ‘FMCC’ or Ford Credit means Ford Motor Credit Company LLC, an indirect wholly owned subsidiary of Ford (iv) ‘Ford’ means Ford Motor Company, the Company’s ultimate parent company (v) ‘FCI’ means Ford Credit International, Inc a subsidiary of FMCC and the Company’s immediate shareholder (vi) ‘Special Purpose Entity’ or ‘SPE’ means a bankruptcy-remote entity whose operations are limited to the acquisition and financing of specific assets and in which the Company has no legal ownership or management control (vii) ‘2008 Annual Report and Accounts’ means FCE’s consolidated annual financial statements as at and for the year ended 31 December 2008 For a comprehensive list of definitions refer to the 'Glossary of defined terms' which commences on page 139.

FCE Bank plc


Financial Statements

Contents

Page No

Review of 2008

4 Highlights

5 Chairman's Statement

6 Performance Summary

Business Review

12 Description of Business

13 Strategy

14 Regulation

15 Capital and Funding

19 Risk

28 People

30 Other Financial

Governance

31 Board of Directors

33 Key Governance Principles

41 Audit Committee Report

Page No

44 Directors' Responsibilities for

Financial Statements

46 Independent Auditors' Report

48 Consolidated Income Statement

48 Statement of Total Recognised

Income and Expense

49 Balance Sheets

50 Cash Flow Statement

51 Notes to the Financial Statements

136 Website Addresses

137 European Operating Locations

138 Key Financial Ratios and Terms

139 Glossary of Defined Terms

Directors' Report

Other Information

FCE Bank plc


Directors' Report Review of 2008 Highlights

254

285305 302 294

237

229

329356

329

275300

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008

Profit Before Tax

£ Millions

Adjusted PBT Including Exceptional Items

Adjusted PBT Excluding Exceptional Items and Fair Value Adjustments and Foreign ExchangeAdjustments

End of Period Loans & Advances

£ Billions

17.3

15.514.815.3

15.916.5

11.6

8.9

5.8

3.32.4

1.9

0

2

4

6

8

10

12

14

16

18

20

2003 2004 2005 2006 2007 2008

Retail/Lease Wholesale & Other Amount securitized

End of Period Debt Profile

£ Billions

7.7 7.46.2

4.45.3 5.7

2.0 2.23.1

5.3

7.4

9.3

6.7 6.25.2 4.2

2.0

2.3

0

2

4

6

8

10

12

14

16

18

20

2003 2004 2005 2006 2007 2008

Unsecured External Debt Secured External Debt Intercompany Debt

16.415.8

14.513.9

14.7

17.3

FCE Bank plc


Directors' Report Review of 2008 Chairman's Statement

FCE Bank's (FCE) pre-tax profits for 2008 were £300 million, up £25 million from 2007. Excluding exceptional items and financial instruments fair value and foreign exchange adjustments FCE's profits were £237 million. At a time of huge market volatility FCE is proud of these results which show the continued strength and viability of our 'captive finance' business model. At the end of 2008, FCE was extremely well capitalised with Tier 1 capital of over £2.7 billion after paying a dividend of £190 million. FCE will continue to ensure it retains an appropriate capital base in addition to planned dividend payments. Based on measures of absolute capital FCE ranked in the top ten UK banks by capitalisation in 2008. (For further details see Note 42 'Components of Capital'). In order to protect against market uncertainties, FCE has retained additional liquidity by taking on funding in excess of its immediate lending requirements. Going forward, FCE aims to continue to reduce its exposure to inter-company debt, and become self sufficient in its funding requirements. In 2008 FCE raised a total of £4.5 billion of funding from external sources. (For further details see page 16 'Funding'). FCE continues to hold prudent credit loss reserves and it is a tribute to the quality of FCE's underwriting practices and servicing, that its overall lending portfolio continues to perform at levels within historical trend averages. Although FCE's credit losses are higher than 2007, they remain relatively low. However, in light of the present economic environment targeted resources have been deployed to further strengthen risk management to maintain this strong performance. FCE is committed to treating its customers fairly and it collects, analyses and acts on data to improve its customers' experience in line with industry best practices. Further Company wide training for employees on the importance of treating customers fairly is being rolled out early in 2009 in order to raise awareness of the importance of this topic in every aspect of FCE's business, from product design through to administration and collection. In 2008 Ford of Europe established itself as Europe's second best-selling automotive brand with an increase in its full year market share to 8.5%. This success follows new product launches including the new Fiesta and the new Ka which are both in key segments at a time when European consumers are looking for ever greater economies and value for money. Operating costs as a percentage of FCE's average net receivables fell to a record low during 2008. This reflects the success of FCE's continuous improvement philosophy which has been embraced by its employees. FCE will continue to take appropriate action to control operating costs as it finalises its separation from financial services support to Jaguar, Land Rover and Mazda so that it remains profitable as a smaller entity. FCE faces the future with confidence. It has committed and hardworking employees for whom change management is an established way of doing business, robust risk management practices, proven operational platforms and a unique pan-European footprint. These assets position FCE to navigate these turbulent economic times successfully and to be ready to take full advantage of Europe's future economic recovery. Bernard B Silverstone Chairman, FCE Bank plc. 25 March 2009

FCE Bank plc


.Directors' Report Review of 2008 Performance Summary

Sales

Sales Results 2008 2007

Automotive Sales in Western Europe* (mils) 16.6 18.0 Automotive Brand share of Western Europe Passenger Car Market* 12.5% 12.4% FCE New Contracts as a percentage of Automotive Brand Sales 27.5% 26.8% FCE Sales of new and used Retail/Lease Contracts (000's) 640 696 *(Source: ACEA - European Automobile Manufacturers Association)

Total Western European car industry sales totalled 16.6 million in 2008, down 1.4 million units (8%) from 2007, reflecting the general economic slow-down in the second half of the year. The combined Ford, Volvo, Jaguar, Land Rover and Mazda share of the western European passenger car market was 12.5% in 2008, compared with a share of 12.4% in 2007, and 12.0% at the start of the decade. The Ford brand share increased to 8.5% in 2008 compared to 8.2% in 2007.

FCE sales of new and used retail and lease contracts were 640,000 in 2008, compared with 696,000 in 2007. This reduction primarily reflects the lower car industry sales across Europe. FCE new contracts as a percent of Automotive Brand sales increased from 26.8% to 27.5%. Consistent with the funding strategy, FCE's sales efforts are focused on its core business. (See 'Description of the Business' on page 11).

Business environment

Consistent with the overall market, FCE has been impacted by volatility and disruptions in the capital markets since August 2007, particularly the asset-backed securities market where FCE raises the majority of its funding. FCE has faced the increased challenges of the global credit crisis, including reduced access to capital markets, increases in credit spreads, higher renewal costs for committed liquidity programmes, and greater enhancements for securitisation transactions. In addition there has been a reduction in FCE's capacity to obtain derivatives to manage market risk including interest rate risk.

Declining consumer confidence and increasing unemployment have contributed to lower consumer spending and reduced demand for new and used vehicles which has resulted in increased wholesale receivables. Lower demand for vehicles has also resulted in lower used vehicle values, which has resulted in realised vehicle residual value losses of £8 million (2007: £6 million) and increased vehicle residual value provisions of £46 million (2007: £1 million). Of the vehicle residual value losses and provision increases £15 million is reclaimable from third parties under a residual value loss sharing arrangements. Net credit losses have also increased due to higher credit casualties in FCE's retail portfolio particularly in the Spanish market.

FCE's response

Despite the challenges of the credit crisis, FCE has successfully funded its business and continues to support the sale of Ford's automotive brand vehicles. FCE has accomplished this by reducing underlying retail receivables; using the Company's committed liquidity programmes, and European Central Bank funding; applying consistent risk management practices; and restructuring its business to maintain a competitive cost structure.

As funding is a limited resource, FCE is focusing on financing Ford and Volvo vehicles going forward. In order to reduce funding requirements, Jaguar, Land Rover, and Mazda began transitioning their financial services business to other finance sources. In addition in 2008, FCE executed divestitures and alternative business arrangements in the Swiss and Nordic markets respectively. FCE will continue to explore and execute alternative business arrangements where appropriate. For additional information on FCE's divestitures in 2008, refer to Note 36 'Disposals'.

FCE is also taking steps to maintain a competitive cost structure. In the first Quarter of 2009, FCE announced its plan to restructure it European operations to meet changing business conditions. The restructuring will affect servicing, sales, and central operations.

FCE Bank plc


Directors' Report Review of 2008 Performance Summary

Customer satisfaction

2008 2007 Satisfaction Indices Customer Satisfaction Index (CSI) 85% 84% Dealer Satisfaction Index (DSI) 79% 78%

Customer satisfaction is monitored through sample market research covering a range of questions. CSI and DSI reflect the percentage of those customers and dealers who are completely or very satisfied with their experience in dealing with FCE. The metrics are used internally to drive appropriate improvements in FCE's service as a key contributor to further improving customer loyalty. The 2008 results represent a small increase in both satisfaction indices compared to 2007 and FCE continues to focus its efforts on this key area.

Balance Sheet

As FCE prepares its consolidated financial statements in Sterling and the most significant operating currency is the Euro, the FCE 2008 Annual Report has been impacted significantly by foreign currency exchange rate movements. The stronger Euro has resulted in assets and liabilities which are denominated in Euros when translated to Sterling increasing in value by approximately 23 per cent compared to a year ago. This can be demonstrated in the table below which analyses the 2008 movement for loans and advances to customers which increased by £1.8 billion. Foreign currency exchange rate effects accounted for £2.4 billion of the increase. Explanation of movements during 2008 in Notes 2008 2008 2008 Loans and advances to customers £ bil £ bil £ bil Retail Wholesale Total Balance at 1 January 2008 12 £ 8.2 £ 7.3 £ 15.5 Euro versus Sterling currency translation impact 1.3 1.1 2.4 Divestments 36 (0.4) (0.9) (1.3) Other Increase/(decrease) in receivables (0.3) 1.0 0.7

Balance at 31 December 2008 12 £ 8.8 £ 8.5 £ 17.3

The strength of the Euro has also contributed to a favourable 'translation difference on foreign currency net investments' of £515 million in 2008 as recorded in Note 33 'Shareholder's equity'. The Company is holding significantly more capital than is required by either its regulatory minimum or internally assessed Basel II minimum capital requirements. (Refer to 'Basel II international capital framework' and 'Capital' sections on page 15). This supplements the funding programme and is a source of further reassurance to investors in FCE's unsecured debt. (See 'Funding' page 16.) The ratio for Adjusted Common Equity (ACE) as a percentage of risk weighted exposures remains strong at 17.1%, at December 31, 2008. The ACE ratio has increased in 2008 from 16.4% a year ago as a result of increased levels of equity retained within the business. The equity increase is primarily attributable to earnings exceeding dividend payments and the strength of the Euro which has resulted in favourable currency translation differences as referred to in the previous paragraph. In addition the transfer of the FCE's Nordic locations into a joint venture and the sale of the Company's branch in Switzerland (referred to in the table above as 'Disposals') have reduced Risk Weighted Exposures.

The Company's Tier 1 Capital ratio has also further strengthened during 2008 to 15.9% (2007: 14.8%) as a result of the equity growth referred to in the previous paragraph which has increased Tier 1 capital more than risk weighted exposures.

FCE Bank plc



Profitability

Profit before tax (PBT) and 'Adjusted PBT' for the years below was as follows. Adjusted PBT excluding exceptional items and Notes 2008 2007 Financial instruments fair value and foreign exchange £ mil £ mil adjustments Restated*

PBT including exceptional items £ 300 £ 275 Adjustment to exclude exceptional (gains) 7 (70) (3)

PBT excluding exceptional items 230 272 Adjustment to exclude: - Fair value adjustments to financial instruments - (gains)/losses 6 (88) 5 - Loss on foreign exchange 6 95 17

Financial instruments fair value & foreign exchange adjustments 7 22 Adjusted PBT £ 237 £ 294 *2007 comparatives restated in order to exclude loss on foreign exchange from 'Adjusted PBT'

Total FCE PBT for 2008 was £300 million, up £25 million compared with the prior year. This improvement includes a number of significant one-time gains in 2008, relating to the establishment of a new joint venture in the Nordic markets, the sale of the Company's branch in Switzerland and VAT reclaims in Britain (details are provided in note 7 'Profit before tax' which commences on page 75).

PBT including exceptional items also includes financial instruments fair value and foreign exchange adjustments. FCE uses derivatives to manage interest rate and currency risks and, as a matter of policy, does not use derivatives for speculative purposes. For interest rate risk management, FCE uses interest rate swaps to match the repricing characteristics of its receivables to its debt. Following recent fixed rate EMTN issuances FCE now holds more pay-floating swaps which change the interest characteristics of debt from fixed to floating rate. Consequently the overall fair value of derivatives increases in periods of falling forward interest rates and decreases in periods of rising forward interest rates. As the derivative fair value adjustment does not reflect accruals accounting for the underlying assets and liabilities, this adjustment has been excluded in the calculation of 'Adjusted PBT'.

Excluding exceptional items and financial instruments fair value and foreign exchange adjustments, adjusted PBT for 2008 was £237 million, down £57 million compared with the prior year primarily reflecting lower margins and increased credit losses and residual value reserves, partially offset by favourable currency movements. The stronger Euro accounts for approximately £25 million of additional profit before tax in 2008 when compared to 2007.

Ratios

Key Financial Ratios (detail see page 138) 2008 2007 Return on Equity 7.5% 8.5% Margin (Net Income/Receivables) 3.3% 3.6% Cost Efficiency Ratio (Cost/Receivables) 1.4% 1.5% Cost Affordability Ratio (Cost/Income) 42% 41% * Credit Loss Ratio (Losses/Receivables) 45 bpts 27 bpts Credit Loss Cover (Provision/Losses) 1.6 years 2.5 years Capital Ratios: ACE/Risk Weighted Exposures – Basel II basis 17.1% 16.4% * ATE/Risk Weighted Exposures – Basel II basis 18.5% 17.7% * Tier 1 Capital Ratio (Tier 1 Capital/Risk Weighted Exposures Basel II basis) 15.9% 14.8% * 2007 ratios revised refer to page 138 for further details.

Refer to page 138 for Key financial ratio and terms' definitions and for further details of the calculation of key financial ratios.

Return on Equity has decreased to 7.5% mainly due to FCE's higher level of equity as explained on the previous page.

FCE Bank plc


Source: internal information for all FCE Markets


Ratios continued

FCE's margin in 2008 reduced to 3.3%, from 3.6% in 2007. Margin has been adversely affected by the increased cost of funding during 2008, and the need to hold an increased liquidity buffer in the volatile credit markets. Market interest rates rose significantly through the first half of 2008, although by year-end they had reduced to comparatively low levels as economic conditions deteriorated, providing some mitigation to the higher pricing for risk.

The cost efficiency and cost affordability ratios exclude exceptional items in order to show underlying or 'normalised' performance as explained in 'Key financial ratios and terms' on page 138. The 'cost efficiency' ratio has improved from approximately 2% at the beginning of the decade to a new low of 1.4%. A key contributor to this improvement has been the implementation of common pan-European systems platforms across the business, in turn driving process harmonisation and economies of scale. The cost affordability ratio has declined marginally to 42% primarily as a result of the reduced margins referred to in the previous paragraph.

FCE's credit loss ratio increased to 45 basis points (bpts) in 2008 from the record low of 27 bpts in 2007 but remains well below the peak of over 100 bpts in 2002/3. The 2008 performance reflects adverse economic conditions particularly in Spain and to a lesser extent in Britain and Italy as shown in the bar chart below. Note that the 2007 performance was also positively impacted by higher recoveries from previously written-off dealer accounts and by receipts from debt sales in respect of previously written-off retail accounts.

Credit Loss Cover in 2008 at 1.6 years has decreased from the previous year, as actual losses were at a record low in 2007 due to the exceptionally high level of recoveries. The coverage ratio exceeds FCE's average loss emergence period of 1.2 years. FCE has increased reserves to £123 million (2007: £102 million) due to higher anticipated future credit losses – refer to analysis of Collective impairment allowance as detailed in Note 13 'Provision for incurred losses'. FCE judges that its credit loss provision is appropriate for the current adverse economic conditions.

Net Credit Losses as % of ANR

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Britain Germany Italy Spain France Total FCE

Year ended 2007 Year ended 2008

This bar chart expresses net credit losses for both wholesale and retail as a percentage of average net receivables (ANR) and reflects the 2008 adverse economic conditions particularly in Spain. The continued application and enhancement of risk management tools and enhanced dealer risk monitoring has ensured that 2008 actual credit losses are still low when compared to historical levels. However in the light of the present deteriorating economic environment FCE's underwriting practices are subject to increased monitoring, further enhancements and targeted incremental resources have been deployed to further strengthen servicing and risk management. As already mentioned 2007 performance was positively impacted by higher recoveries.

FCE Bank plc



Future prospects In 2009, FCE expects its 'Adjusted PBT' to be significantly lower than in 2008. The business will be smaller following the transition of Jaguar, Land Rover and Mazda to new financial services providers and the divestitures and alternative business arrangements in the Swiss and Nordic markets respectively (refer to Note 36 'Disposal' for further details). Economic conditions are also expected to be weaker resulting in lower vehicle sales and higher credit and residual value losses. The volatility of the credit markets and need to hold more liquidity will also impact short-term profitability, as will costs of restructuring the business to a smaller scale. FCE has accelerated plans to reduce operating costs and adjust to the lower business volumes. The reduced portfolio size helps reduce the overall funding requirements of the business, and the disruption in the credit markets may see some easing of competitive pressures. The significant fall in market borrowing rates in recent months, should help mitigate the higher cost of credit. On 2 June 2008, Ford Motor Company completed the sale of Jaguar and Land Rover to Tata Motors Limited. As at 31 December 2008 Jaguar and Land Rover financing represented around 12% of the European portfolio with significant variations by market. FCE is continuing to provide financing for Jaguar and Land Rover dealers and customers during a transitional handover period to Tata's future financial services provider. The length of the transition and the timing to implement new financial services arrangement varies by market, from February through June 2009. Existing Jaguar and Land Rover retail and lease portfolios, plus the new contracts originated during the transition period, will continue to be serviced by FCE through to the liquidation of the respective contracts. It is anticipated that Jaguar and Land Rover financing as at the end of 2009 will represent about 5% of the portfolio and that FCE's revenue will reduce in proportion to the decline in Jaguar and Land Rover average net receivables during 2009 and following years.

On 24 September 2008, Ford Motor Company agreed to Mazda Motor Corporation securing its own financial services sources for customers and dealers in the U.S., Canada, and Europe. In Europe the timing of Mazda's transition of dealer wholesale financing and new retail and leasing contracts to other financial service providers varies by country from January through May 2009. In the Nordic markets (Denmark, Finland, Norway, and Sweden) Mazda financing will continue through FCE's joint venture established in 2008. Mazda business as at 31 December 2008 represents about 12% of FCE's receivables, with significant variations by market. Existing Mazda retail and lease portfolios, plus new contracts originated during a transition period, will continue to be serviced by FCE through to the liquidation of respective contracts. It is anticipated that Mazda financing as at the end of 2009 will represent about 5% of the portfolio and that FCE's revenue will reduce in proportion to the decline in Mazda average net receivables during 2009 and following years.

This future prospects statement is based on current expectations, forecasts and assumptions and involves a number of risks, uncertainties, and other factors that could cause actual results to differ. FCE cannot be certain that any expectations, forecasts and assumptions will prove accurate or that any projections will be realised. The statement is based on the best available data at the time of issuance and will be updated upon publication of FCE's 2009 Interim Report and Accounts. Other than this FCE does not undertake to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

FCE Bank plc


Source: Group data from Note 1 'Segmental Reporting'

Directors' Report Business Review Description of the

Business

Who FCE is

FCE is a United Kingdom ('UK') registered bank regulated by the Financial Services Authority ('FSA') and is a wholly-owned subsidiary of Ford.

What FCE does FCE's business is best described in the context of its three main customer groups – retail customers, dealers and Ford's automotive brands.

Wholesale

49%Retail

51%

FCE helps Ford's customers acquire its vehicles by providing:

• Finance for retail customers to purchase or lease Ford vehicles

• Insurance products to protect customers when driving Ford vehicles

• Fleet / business customers with a wide range of financing options

Referred to as 'Retail' within the 2008 Annual Report and Accounts.

FCE helps Ford’s dealers sell its vehicles by providing:

• Finance to stock the forecourt with new and used Ford vehicles

• Finance for demonstrator and courtesy cars • Finance to enable dealers to operate their

business, and expand their premises Referred to as 'Wholesale' within the 2008 Annual Report and Accounts.

FCE helps Ford's automotive brands by providing:

• A pan-European, branded finance network dedicated to supporting the sale of their products

• Financial risk management support to ensure continuity of the distribution network

• Specialist support for key business and customer segments, and new market expansion

Analysis of net loans and advances to customers as at 31 December 2008 by product segment

FCE Bank plc




Source: Internal information for all FCE markets

Directors' Report Business Review Description of the

Business

Where FCE operates

FCE operates directly in 15 European countries through a branch and subsidiary network, providing branded financial services for Ford and Volvo with transitional support for Jaguar, Land Rover and Mazda whilst they progressively move to alternative providers.

The Company also has a Worldwide Trade Financing division, which provides finance to distributors and importers in nearly 80 countries. In addition FCE has a 50% interest in Forso Nordic AB (Forso) which provides automotive financial services for Ford brands in Denmark, Finland, Sweden and Norway. For further information about Forso refer to page 95.

For further information in regard to FCE refer to Note 45 'FCE and other related party information' and 'Other Information – European Operating Locations' which commence on pages 135 and 137 respectively.

Analysis of net loans and advances to customers as at 31 December 2008 by major market and brand

FCE employs around 2,400 staff in 15 European countries to serve over 3,800* dealers.

Markets served by:

FCE Company and branches

FCE Subsidiaries

Forso Nordic AB joint venture

*represents number of legal entities (previously reported as number of dealer sites)

UK

23%

Germany

27%

Italy

14%

Spain

12%

France

8%

Other

Europe

16%Volvo 7%

Jaguar 4%Land Rover

8%Mazda

12%

Ford 70%

FCE Bank plc


Directors' Report Business Review Strategy

FCE's principal objectives are to support the sale of Ford's automotive brand vehicles and return value to its shareholder. These objectives provide the overriding guidance for FCE's actions and decisions, and are implemented with a focus on its three main customer groups. The Retail Customer FCE's business model goes beyond simply providing access to finance for customers to purchase or lease a motor vehicle. FCE strives to enable the customer to replace his or her vehicle as often as they would like, while maintaining affordable monthly payments. The customer also benefits from the convenience of arranging finance and insurance in the dealership, and from the service provided by an organisation dedicated to support the customer right through the ownership experience. The Dealer

FCE's delivery of a high quality customer service combined with the right finance product for the customer drives greater loyalty to the brand and the dealer. Market research over different countries and sectors consistently shows that FCE customers are significantly more likely to purchase their next vehicle from the same dealer and the same automotive brand. The dealer also benefits from FCE's support for its business across a range of financing needs, and is reassured in the knowledge that FCE has supported the dealer network consistently for over 40 years through the ups and downs of the economic cycle.

Ford's automotive brands The combination of highly satisfied and loyal customers with consistent financial support for the entire dealer network provides Ford and Volvo with the knowledge that their customers, their distribution network and their brands are in safe hands. FCE's automotive partners also benefit from a finance company that understands their marketing and sales activities, and is able to support them with the right finance and insurance services throughout the vehicle life cycle. Strategic Enablers Operational Effectiveness FCE has continued to derive efficiencies by simplifying its business processes and through standardising core information technology platforms. This programme has enabled it to make significant reductions in the number of unique market/brand IT systems in core activities. FCE operates centralised service centres in the majority of locations and shares best practices across Europe and globally to drive continuous improvements. FCE remains focused on driving cost reductions in proportion to the overall size of its business while improving customer service and owner loyalty. FCE has established a Transformation Program to respond to the substantial reduction in scale as new business ceases for Jaguar Land Rover and Mazda, and those retail portfolios liquidate. The goal of Transformation Program is to develop and implement the optimal operational model and structure to deliver a sustainable and successful business that will deliver FCE's Mission while improving customer service and owner loyalty. People A drive for high performance people and teams is a foundation of FCE's strategy. This is detailed within the 'People' section of the 'Business Review' which commences on page 28.

FCE Bank plc


Directors' Report Business Review Strategy

Strategic Enablers continued Funding Efficiency FCE’s funding strategy is to maintain a high level of liquidity and access to diverse funding sources that are cost effective. This is detailed within the 'Capital and Funding' section of the 'Business Review' on pages 16 and 17. Strategic Partnerships FCE continues to review its operations to identify alternative business structures and strategic alliances to strengthen its customer value proposition and generate incremental fee-based income. (See Note 36 'Disposals' on page 119.) Governance and Control FCE considers effective corporate governance as a key factor underlying the strategies and operations of the Group. See 'Key governance principles' which commences on page 33. Risk Management

FCE has extensive risk management experience gathered over several economic cycles and its focus is on leveraging and strengthening global risk skills internally. Through these efforts, FCE will continue to optimise profitability as well as generate incremental vehicle sales for Ford's automotive brands. For further details refer to 'Risk management' which commences on page 22.

Directors' Report Business Review Regulation

As a bank FCE is regulated by the governmental authorities in the locations where it operates. In the UK, the Company is authorised by the FSA to carry on a range of regulated activities within the UK and through a European branch network and currently has active branches in eleven other European countries and is subject to consolidated supervision with the FSA being FCE's home regulator for all of its European branch operations. In its role as regulator, the FSA seeks to ensure the safety and soundness of financial institutions with the aim of strengthening, but not guaranteeing, the protection of customers. The FSA's continuing regulation of financial institutions authorised by it is conducted through a variety of regulatory tools, including the collection of information from statistical and prudential returns, reports obtained from skilled persons, visits to firms and regular meetings with management to discuss issues such as performance, funding, risk management and strategy.

The FSA adopts a risk-based approach to supervision. The starting point for supervision of all financial institutions is a systematic analysis of the risk profile for each authorised firm. The FSA has adopted a homogeneous risk, processes and resourcing model in its approach to its supervisory responsibilities (known as the ARROW model) and the results of the risk assessment are used by the FSA to develop a risk mitigation programme for a firm. The FSA also promulgates requirements that banks and other financial institutions are required to meet on matters such as capital adequacy, limits on large exposures to individual entities and groups of closely related entities, liquidity and rules of business conduct. Certain of these requirements derive from EU directives with examples as described below.

In Europe, the UK regulatory agenda is considerably shaped and influenced by the directives emanating from the EU. A number of EU directives have or currently are being implemented, for example the Capital Requirements Directive, the Consumer Credit Directive, the Third Money Laundering Directive, and the Markets in Financial Instruments Directive.

FCE Bank plc


Directors' Report Business Review Regulation

Basel II international capital framework The Basel II Capital Accord which provides a more robust and risk sensitive framework for determining the capital requirements of financial institutions is structured around three 'pillars': minimum capital requirements, supervisory review process and market discipline. Basel II has been implemented in the EU through adoption of the provisions of the EU Capital Requirements Directive in each EU Member State.

Annually the Board of Directors approves its Internal Capital Adequacy Assessment Process (ICAAP) declaration and submits the declaration to the FSA for review and approval. The ICAAP rules require management to recommend a total economic capital level necessary to operate its business and FCE has chosen to use a risk-based equity approach to its analysis. Each assessment is completed after analysis of FCE’s primary risks and risk mitigation, its risk appetite, and stress testing and scenario planning and, as a result of this analysis, the addition of any suitable capital overlays. Each ICAAP is reviewed at Audit Committee and Board meetings. As required by Basel Pillar 3 FCE will provide additional disclosures as part of the market discipline requirements, including capital, risk exposures and risk assessment processes. The first disclosures will be published on FCE's web-site shortly after the completion of the 2008 Annual Report and Accounts. FCE's website address is provided on page 136.

Directors' Report Business Review Capital and Funding

Capital

FCE’s policy is to manage its capital base to targeted levels that exceed all regulatory requirements and support anticipated changes in assets and foreign currency exchange rates. FCE considers that is has fully complied with this policy for the year ended 31 December 2008. Capital adequacy is measured by FCE’s capital resource requirements. The FSA provides Individual Capital Guidance (ICG) for each individual regulated institution. FCE manages its capital level to its ICG plus a cushion for unexpected volatility. FCE's consolidated regulatory capital is managed by its Regulatory Compliance Committee (RCC). A sub-committee of the RCC meets and reports into the RCC on a monthly basis and is responsible for monitoring actual and projected Capital Adequacy positions. FCE's solvency ratio is reported within FCE's Basel Pillar 3 disclosures and was 217% at 31 December 2008 (2007: 203%). The solvency ratio demonstrates that FCE is holding significantly more capital than required by its ICG, internally assessed Basel II minimum capital requirements under Pillar 1 and that indicated by its Pillar 2 Internal Capital Adequacy Assessment Process (ICAAP). The additional capital held supplements the funding program and is a source of reassurance to investors in FCE's unsecured debt. FCE’s capital base remains strong and any changes must be approved by both its Board of Directors and the FSA. There was no change to the Company’s issued share capital during 2008 or 2007. Regulatory capital is defined by tiers. FCE's Tier 1 capital comprises shareholder funds, net of intangible assets and goodwill. FCE's Tier 2 capital comprises of subordinated debt and collective impairment losses. As FCE does not have a trading book, its capital structure does not include any Tier 3 capital. (See Note 42 – 'Components of Capital' for further details of FCE's regulatory capital).

FCE Bank Polska S.A, a wholly owned subsidiary of the Company, is a regulated bank and is also subject to separate regulatory capital requirements set by the National Bank of Poland requiring maintenance of certain minimum capital levels.

FCE Bank plc



Funding

During 2008 the Company continued to meet a significant portion of its funding requirements through securitisation taking advantage of the cost efficiency of the market for asset-backed securities compared to unsecured debt and the further diversity of funding it provides. In doing so the Company utilised a variety of both amortising and revolving structures as well as other forms of structured financing and factoring (for further information see Note 14: 'Securitisation and related financing'). In 2008 FCE raised approximately £4.5 billion of funding from external sources as detailed below External funding raised for the year ended 31 December 2008 2008

£ bil Securitisation: - Sale of wholesale automotive receivables £ 2.3 - Sale of retail and lease automotive receivables 1.0

3.3 Unsecured debt: - Bank loans 0.5 - Euro Medium Term Note (EMTN) programme 0.5 - Renewal of bank guarantees to support European Investment Bank loans 0.2

1.2 Total funding raised £ 4.5

In addition, FCE raises funds through local bank borrowing and private and public debt offerings.

Funding Strategy FCE’s funding strategy is to maintain a high level of liquidity and access to diverse funding sources that are cost effective. In recent years, lower credit ratings generally have resulted in higher borrowing costs. While FCE continues to access the unsecured debt market, the Company has also increased the use of securitisation funding as it is presently more cost effective than unsecured funding and allows access to a broader investor base. The Company plans to continue to meet a significant portion of its 2009 funding requirements through private and public securitisation transactions and the access to European Central Bank funding programmes. In addition, FCE has various alternative business arrangements for select products and markets, such as partnerships with various financial institutions for Full Service Leasing (FSL) and retail and wholesale financing, which reduce funding requirements while allowing continued support to Ford. FCE continues to explore opportunities that provide alternative sources of funding while ensuring ongoing support for Ford vehicle sales. Funding Sources FCE’s funding sources primarily are securitisation and unsecured debt. FCE issues both short- and long-term debt that is held by both institutional and retail investors. FCE has unsecured commercial paper programmes in a number of European markets, including France, Poland and Sweden. In addition, the Company has an unsecured Euro commercial paper program that can issue in various currencies. Given that the Company's credit rating remains below investment grade, active issuance in most programmes has stopped. The Company also participates in the European Central Bank’s short-term tender programme through its German branch and continues to issue a relatively small amount of long-term debt under its EMTN programme.

FCE Bank plc



Funding Sources continued The Company securitises retail, leasing and wholesale receivables through a variety of structures, including amortising, variable funding, and revolving structures as well as other forms of structured financing and factoring. The Company's transactions are aimed at investors in both public and private markets and are structured to meet central banks' eligibility criteria. FCE's funding policy is to optimise the Company's securitisation capabilities for each of its primary asset classes (retail and lease contracts, wholesale loans) in a wide range of European markets. With 11 years experience in the securitisation of its receivables, the Company has developed a strong expertise and solid working relationships with partner banks and in public markets.

Liquidity Sources

• The Company has committed bank lines with a diverse group of major banks. The Company's policy is to minimise utilisation of these lines so they can serve as back-up liquidity. They comprise three year and 364-day revolving credit facilities without any material adverse change clauses or ratings triggers.

• Committed capacity in securitisation transactions allows the Company to continue to sell receivables for a period of time (usually two to three years), which then amortise.

• Balance sheet profile: FCE's balance sheet is inherently liquid because of the short-term nature of finance receivables and cash, compared to debt. For additional information in regard to contractual maturities of receivables and debt, see Note 40 'Liquidity Risk'.

Cumulative Contractual Maturities

as of 31 December 2008

£ bils.

£15.5

£17.8

£20.6£21.9

£12.1

£14.0

£15.6

£19.4

2009 2010 2011 2012 & Beyond

On-balance sheet receivablesand cash *

Liabilities

Source: Group data from Note 40 'Liquidity Risk'

*Includes cash and advances to banks, gross loans and advances to customers, other assets and gross cash flows relating to operating leases reported on the balance sheet within property and equipment. Excludes off balance sheet 'available for use credit facilities'.

FCE Bank plc



Credit Ratings

FCE’s credit ratings are closely associated with the credit ratings of Ford, which have been lowered in the last several years. This is mainly a reflection of concerns regarding Ford’s automotive cash flows and profitability, declining share of the US market and product portfolio strength, excess industry capacity and industry pricing pressure. Ford’s short-term and long-term debt is rated by four major credit rating agencies:

• Dominion Bond Rating Service Limited ('DBRS)

• Fitch, Inc. ('Fitch')

• Moody’s Investors Service Inc ('Moody’s') and

• Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc. ('S&P'). S&P assigns a one notch positive differential credit rating to FCE compared with FMCC. FCE’s credit ratings assigned by Fitch and Moody’s are the same as the ratings these agencies assign to FMCC. The following chart summarises the long-term senior unsecured credit ratings, short-term credit ratings and the outlook assigned to FCE since January 2007 to December 2008.

Fitch Moody's S&P

Date Long-Term

Short-Term Outlook

Long Term

Short-Term Outlook

Long-Term

ShortTerm Outlook

Jan. 2007 BB- B Negative B1 NP Negative B+ B-3 Negative

Nov. 2007 BB- B Negative B1 NP Stable B+ B-3 Stable

Jun. 2008 BB- B Negative B1 NP Negative B+ B-3 Watch negative

July 2008 BB- B Negative B1 NP Negative B NR Negative

Aug. 2008 B+ B Negative B1 NP Negative B NR Negative

Oct. 2008 B- C Negative B2 NP Review negative

B NR Watch negative

Nov. 2008 B- C Negative B3 NP Negative B- NR Negative

Dec. 2008 B- C Negative Caa1 NP Negative B- NR Negative

Dividends

The Company's Board of Directors has approved a policy statement with respect to the payment of dividends. The statement reconfirms FCE's approach to capital management so as to maintain sufficient capital to meet regulatory minimum requirements and Ford group policy. The Board of Directors declared a dividend for the year ended 31 December 2007 of £190 million, equating to approximately to 30.93 pence per ordinary share and paid the dividend to its sole shareholder FCI on 29 July 2008.

The directors have not declared any dividends for the year ended 31 December 2008.

FCE Bank plc


Directors' Report Business Review Risk

Risk appetite

In the normal course of business, FCE is exposed to several types of risk. These risks include primarily credit, vehicle residual value, financial market (including interest rate, currency, counterparty and liquidity risks) and operational risk. FCE's appetite for risk is generally low. FCE has strong risk governance and integrated risk management practices. Each form of risk is uniquely managed in the context of its contribution to overall risk. Business decisions are evaluated on a risk-adjusted basis and products are priced to be consistent with these risks. FCE continuously reviews and improves its risk management practices. FCE has over forty years of experience in the specialist field of automotive sector related lending and seeks security for its lending to minimise the risk of unexpected losses. Lending is confined to automotive sector related products and in the case of customer default, the value of the re-possessed vehicle provides a source of protection.

Principal risks and uncertainties

In addition to the risks faced by FCE in the normal course of business, some risks and uncertainties are outside FCE's direct control. This section outlines specific areas where FCE is particularly sensitive to business risk.

• The credit ratings of FCE and FMCC have been closely associated with the rating agencies’ opinions of Ford. The lower credit ratings assigned to FCE and FMCC over the past several years are primarily a reflection of those opinions, including concerns regarding Ford's automotive cash flow, profitability, declining market share in North America and product and portfolio strength, excess industry capacity and industry pricing pressure.

Lower credit ratings generally result in higher borrowing costs and reduced access to capital markets. The Company has the benefit of a support agreement from FMCC (see Note 32 'Ordinary shares and share premium'). In addition, FCE has the benefit of:

• Access to on-lent debt from Ford, FMCC and FCI from time to time; and • Interest supplements and other support payments from Ford provided for certain

financing transactions.

The elimination, reduction or non-availability of support from FMCC or Ford could negatively impact FCE’s business and results of operations.

• FCE must compete effectively with other providers of finance in Europe. Ford in Europe currently provides a number of marketing programmes that employ financing incentives to generate increased sales of vehicles. These financing incentives generate significant business for FCE. If Ford chose to shift the emphasis from such financing incentives, this could negatively impact FCE's share of financing related to Ford's automotive brand vehicles.

• FCE's business has been built as a pan-European, multi-brand organisation, deriving

efficiencies from common back-office and IT platforms. The transition of Jaguar, Land Rover and Mazda to alternative finance providers requires FCE to accelerate cost efficiency actions to adjust for the loss of scale. The sale of further automotive brands by Ford would require additional cost efficiency actions.

FCE Bank plc



Principal risks and uncertainties continued

Liquidity Risks and Capital Resources

Liquidity risk is the possibility of being unable to meet present and future financial obligations as they become due. To mitigate its liquidity risk and augment its capital resources, FCE currently relies on the following forms of financing: securitisation, short-term funding under the European Central Bank's open market operations programme, unsecured debt, liquidity facilities (i.e. committed lines of credit from major banks), and inter-company funding. One of FCE’s major objectives is to maintain funding availability through any economic or business cycle. FCE focuses on developing funding sources to support both growth and refinancing of maturing debt. FCE also issues debt that on average matures later than assets liquidate, further enhancing overall liquidity.

FCE closely monitors the amount and mix of short-term funding to total debt, the overall composition of total debt and the availability of committed credit facilities in relation to the level of outstanding short-term debt. FCE has the ability to use committed lines of credit from major banks, providing additional levels of liquidity. (For further details of these facilities see Note 40 'Liquidity Risk' on page 126.) These facilities do not contain restrictive financial covenants (e.g. debt-to-equity limitations) or material adverse change clauses that could preclude borrowing under these facilities. FCE’s liquidity position is reported to the FSA on a quarterly basis.

In the normal course of funding transactions, FCE may generate more proceeds than are necessary for immediate funding needs. These excess amounts are maintained primarily as highly liquid investments, providing liquidity for short-term funding obligations and flexibility in the use of other funding programmes. FCE monitors cash levels daily and adjusts them as necessary to support short-term liquidity needs.

Despite FCE's various sources of liquidity, its ability to maintain this liquidity may be affected by the following factors (not necessarily listed in order of importance or probability of occurrence):

• Credit ratings assigned to FCE;

• Prolonged disruption of financial markets;

• Market capacity for Ford, FMCC and FCE sponsored investments;

• General demand for the type of securities FCE offer, including ability to access central banks and government funding;

• The Company's ability to continue funding through asset-backed financing structures;

• Performance of the underlying assets within the existing asset-backed financing structures;

• Regulatory changes; and

• Failure of financial institutions to fulfil commitments under various credit facilities;

• The Company's ability to maintain credit facilities;

• FCE's ability to obtain derivatives to manage risk.

Consistent with the overall market, the Company has been impacted by reduced investor appetite for asset-backed securities and has experienced higher credit spreads. Given present market conditions, FCE expects its credit spreads and the cost of renewing committed liquidity programmes will continue to be higher in the near future. In addition, worsening economic conditions and increased credit losses may adversely impact the Company's existing asset-backed funding transactions.

FCE Bank plc




Sales of Automotive Brand Vehicles

FCE’s business is substantially dependent upon the sale of Ford and affiliated manufacturers’ vehicles in Europe and its ability to offer competitive financing on those vehicles. Fluctuations in the volume of sales of such vehicles resulting from governmental action or geo-political events, changes in consumer demand, increased competition, changes in the pricing of imported units due to currency fluctuations, or other events, could impact the level of finance operations of Ford, including FCE. The automotive industry is sensitive to factors such as disposable income, interest rates, currency exchange rates, national and international trade, economic growth or decline, environmental and health and safety regulations, vehicle safety and emissions regulation and commodity prices such as oil and steel. Adverse changes to any of these factors could cause downturns in the industry and negatively impact the demand for Ford and affiliated manufacturers’ vehicles. Furthermore, the automotive industry is highly competitive and has experienced significant consolidation over the past decade, leading to lower prices and tighter margins within the industry. Sales of Ford vehicles could decline if Ford is unable to respond to price pressure in the industry.

In addition, constraints on the supply of components or materials to Ford and affiliated manufacturers, or work stoppages at Ford and affiliated manufacturer or supplier facilities could adversely affect the production and sale of Ford vehicles. Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. This definition of operational risk captures events such as Information Technology problems, human error and shortcomings in the organisational structure, legal changes and lapses in internal controls, fraud or external threats.

FCE takes a proactive approach to operational risk management. (See 'Operational risk management' section on page 25.) FCE is indemnified under insurance policies for certain operating risks that include health and safety and employee fraud. Nevertheless, notwithstanding these control measures and this insurance coverage, FCE remains exposed to operational risk that could negatively impact its business and results of operations. Regulatory Risk New or increased credit, consumer or data protection, or other regulations could result in higher costs and/or additional financing restrictions. The Company is a regulated banking institution and is required, among other things, to maintain minimum capital reserves. Compliance with these regulations imposes significant costs on FCE, and affects the conduct of FCE's business. Additional regulation could add significant cost or operational constraints that might impair the profitability of FCE's business. Counterparty Credit Risk Counterparty risk is the risk that FCE could incur a loss if the counterparty to an investment, interest rate or foreign currency derivatives with FCE defaults. For more detail on how FCE manages these risks refer to 'Financial market risk management' section which commences on page 25.

FCE Bank plc




Vehicle Residual Value Risk Vehicle residual value risk is the risk that the actual proceeds realised by FCE upon the sale of a returned vehicle at the end of the contract will be lower than that forecast at the beginning of the contract. For more detail on how FCE manages these risks refer to 'Vehicle residual value risk management' section on page 25. Credit Risk Credit risk is the possibility of loss from a customer's or dealer's failure to make payments according to contract terms. (Refer to 'Credit risk management' section below.)

Risk management

Credit risk management Although credit risk has a significant impact on FCE's business, it is mitigated by the majority of FCE's retail, leasing and wholesale financing plans having the benefit of a title retention plan or a similar security interest in the financed vehicle. In the case of customer default the value of the re-possessed collateral provides a source of protection. FCE actively manages the credit risk on retail and commercial portfolios to balance the levels of risk and return. Retail Retail products (vehicle instalment sale, hire purchase and conditional sale and lease contracts) are classified by term and whether the vehicle financed is new or used. This segmentation is used to assist with product pricing to ensure risk factors are appropriately considered. Retail credit underwriting typically includes a credit bureau review of each applicant together with an internal review and verification process. Statistically based retail credit risk rating models are typically used to determine the creditworthiness of applicants. Portfolio performance is monitored regularly and FCE's originations processes and models are reviewed, revalidated and recalibrated as necessary. Retail credit loss management strategy is based on historical experience of many thousands of contracts over many years. All locations now have centralised originations, servicing and collections activities. Centralisation offers economies of scale and enhances process consistency. The British and German Customer Service Centres employ advanced servicing technology and enhanced risk management techniques and controls. These include customer behavioural models that are used in contract servicing to ensure contracts receive appropriate collection attention.

FCE Bank plc



Risk management continued

Credit risk management continued

Retail continued

Detailed below is a retail delinquency monthly trend graph for the last five years which highlights the percentage of retail contracts which are 30, 60 and 90 days overdue. The graph highlights a slight upward trend in delinquent accounts in the latter half of 2008 reflecting the adverse economic conditions. FCE's consistent underwriting and servicing practices has enabled its portfolio to perform well in an extremely difficult market. Targeted resources have been deployed to maintain this strong performance and every reasonable effort is made to follow-up on delinquent accounts and to keep accounts current.

0.0%

0.5%

1.0%

1.5%

2.0%

30 days 60 Days 90 Days

Retail Delinquency 5 Year Monthly Trend

Source: internal information for all FCE markets.

Repossession is considered a last resort. A repossessed vehicle is sold and proceeds are applied to the amount owing on the account. Collection of the remaining balance continues after repossession until the account is paid in full or is deemed by FCE to be economically uncollectable. Wholesale FCE extends commercial credit to franchised dealers selling Ford vehicles primarily in the form of approved lines of credit to purchase stocks of new and used vehicles and financing for dealer vehicles (e.g. demonstrator or courtesy vehicles). FCE also provides automotive financing for other commercial entities, including daily rental companies. Each commercial lending request is evaluated, taking into consideration the borrower’s financial condition, supporting security, debt servicing capacity, and numerous other financial and qualitative factors. All credit exposures are scheduled for review at least annually at the appropriate credit committee. Asset verification processes are in place and include physical audits of vehicle stocks with increased audit frequency for higher risk dealers. In addition, stock-financing payoffs are monitored to detect adverse deviations from typical payoff patterns, in which case appropriate actions are taken.

2004 2005 2006 2007 2008

FCE Bank plc




Credit risk management continued

Wholesale continued Financial and judgmental internal risk evaluation ratings are assigned to each dealer from 0 (best) to 9 (worst). The internal risk ratings are as follows: Risk Rating Description

• 0 to 3 Excellent • 4 to 6 Satisfactory • 7 to 9 Marginal

The bar chart below provides a high-level summary of dealer risk ratings at the end of each quarter during 2008, 2007 and 2006. Percentages displayed in the chart below are calculated by dividing the total approved lines of credit for new wholesale lending to dealers of a particular risk rating group, by the total approved amount of lines of credit provided for new wholesale financing. This chart indicates that the percentage of better risk categories continues to remain high despite the adverse economic conditions.

European Portfolio Financial Risk Ratings - All Brands - Q1 2007 to Q4 2008 (Internal Rating Measurement)

8% 9% 11% 11% 9% 10% 10% 11%

37%43% 41% 40% 41% 41% 42% 37%

55%48% 48% 49% 50% 49% 48% 52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08

% S

plit

by A

mo

un

t of

New

Wh

ole

sale

Cre

dit

Facilit

ies

0-3

4-6

7-9

Source: internal information for all FCE markets. The financial risk ratings for 2007 have been restated to correctly represent the percentage split for each risk rating group.

FCE actively manages risk concentration in the commercial portfolios and has an established House Limit policy based on levels of exposure and risk ratings. Reports on the largest concentrations are prepared monthly and are regularly reviewed at the Credit Policy and Credit Risk Committee as well as at each scheduled Board of Directors meeting. For further details of non-bank counterparty concentration refer to Note 12 'Loans and advances to customers'.

Further details of the payment status, related collateral and provisions for incurred losses for both wholesale and retail loans can be found in Note 12 ' Loans and advances to customers' which commences on page 83 and Note 13 'Provisions for incurred losses' which commences on page 86.

FCE Bank plc




Vehicle residual value risk management

FCE establishes expected residual values based on input from independent consultants (who forecast residual values), current and forecast trade guide valuations and FCE's own proprietary knowledge (historical experience and forward-looking information). This information includes new product plans, marketing programmes and quality metrics. Any unfavourable variance between FCE's forecast and expected residual values for existing contracts results in an adjustment to the carrying value of the asset on the balance sheet. Vehicle residual value provision adequacy is reviewed quarterly to reflect changes in the projected values. At contract end, FCE seeks to maximise residual value proceeds by using various resale channels including auctions, trade sales and resales through dealerships. (For further details see Note 31 ‘Vehicle residual values’).

Operational risk management

The Operational Risk Committee (ORC) has responsibility for reviewing and monitoring major operational risks and for promoting the use of sound operational risk management across FCE. The main areas of focus for the ORC are the implementation of appropriate policies, processes and procedures to control or mitigate material exposure to losses, and the maintenance of suitable contingency arrangements for all areas to ensure that FCE can continue to function in the event of an unforeseen interruption.

The guiding principle is that management at all levels is responsible for managing operational risks. FCE also maintains a strong internal control culture across the organisation through the Operations Review Programme, a self-assessment control process used by the locations, which is reinforced by central controls from the Internal Control Office (ICO) and Ford's General Auditors Office (GAO). (See 'Governance' – 'Audit Committee Report' which commences on page 41).

Financial market risk management

The objective of financial market risk management is to lock-in the financing margin while limiting the impact of changes in interest rate and foreign exchange rates. Interest rate and currency exposures are monitored and managed by FCE as an integral part of its overall risk management programme, which recognises the unpredictability of financial markets and seeks to reduce potential adverse effects on FCE’s operating results. Exposure to financial market risk is reduced through the use of interest rate and foreign exchange derivatives. FCE’s derivatives strategy is defensive; derivatives are not used for speculative purposes. (For further details on the use of derivatives see Note 10 'Derivative Financial Instruments' and Note 39 'Interest rate risk'.)

Interest rate risk

FCE’s asset base consists primarily of fixed-rate retail instalment sale, hire purchase, conditional sale and lease contracts, with an average life of approximately three years, and floating rate wholesale financing receivables with an average life of about 90 days. Funding sources consist primarily of receivable sales (including securitisation and other structured financing transactions), and term debt (public and inter-company).

FCE Bank plc




Financial market risk management continued

To ensure funding availability over a business cycle, FCE normally issues debt with a longer maturity than the maturity of its assets. It is FCE's policy to execute interest rate swaps to change the interest characteristics of the debt to match, within a tolerance range the interest rate characteristics of FCE’s assets. This matching policy seeks to maintain margins and reduce profit volatility. Since a portion of assets is funded with equity, some income volatility can occur as changes in interest rates impact the repricing of FCE's assets.

FCE's ability to obtain derivatives to manage market risk has significantly reduced due to the financial crisis and deterioration of FCE's credit ratings. During the fourth quarter of 2008, FCE prioritised the use of limited derivative capacity for funding transactions and currency exposure, and placed hedging for interest rate risk management on hold. The sensitivity of interest income to changes in interest rates continues to be insignificant as is shown in Note 39 'Interest rate risk'. The interest rate sensitivity of FCE’s assets and liabilities, including derivatives, is evaluated each month.

Given present market conditions, FCE does not foresee a material improvement to its derivative capacity in the near term and plans to continue prioritisation of its derivative capacity to protect funding. This may impact ongoing currency and interest rate exposures. If these conditions continue, this may result in increased income volatility. In the longer term, if the financial crisis continues, FCE will seek to implement alternate hedging arrangements to manage currency as well as interest rate exposure.

Currency risk

FCE faces exposure to currency exchange rate fluctuations if a mismatch exists between the currency of receivables and the currency of the debt funding those receivables. Whenever possible, FCE funds receivables with debt in the same currency, minimising exposure to exchange rate movements. When funding is in a different currency, FCE uses foreign currency derivatives to convert foreign currency debt obligations to the currency of the receivables. (For further details see Note 38 'Currency risk'.)

Use of Derivatives

The following table provides examples of certain activities undertaken, the related risks associated with such activities and the types of derivatives used in managing such risks.

Activity Risk Type of derivative Investment and funding in foreign currencies

Sensitivity to change in foreign exchange rates

• Cross currency interest swaps

• Foreign exchange contracts Investment in Floating and Fixed-Rate Assets

Repricing characteristics of assets not matching repricing of liabilities

• Pay fixed rate and receive floating-rate swaps

• Pay floating rate and receive fixed rate swaps

The use of derivatives is an integral part of FCE’s risk management programme, providing reduced exposure to financial market volatility and substantial funding flexibility at an acceptable cost. Company policies and controls are in place, including derivative effectiveness testing at each reporting date, to manage these risks.

FCE Bank plc




Financial market risk management continued The key derivative policies are:

• Prohibition of use for speculative purposes • Prohibition of use of leveraged positions • Requirement for regular in-depth exposure analysis • Establish and document accounting treatment at onset of trade • Establish exposure limits (including cash deposits) with counterparties • Treasury employee's compensation not being tied to trader's individual profits and losses

The key derivative controls are:

• Regular management reviews of policies, positions and planned actions • Transactional controls including segregation of duties, approval authorities, competitive

quotes and confirmation procedures • Regular management review of portfolio mark to market valuations and potential future

exposures • Monitoring of counterparty creditworthiness • Internal audits to evaluate controls and adherence to policies

Exposure to counterparty risk is managed by diversifying derivative activity amongst highly rated counterparties. FCE does transact with certain Ford related parties, which are non-rated entities. Substantially all of FCE's activities are transacted with financial institutions. Counterparty risk Counterparty exposure limits are established in order to minimise risk and provide counterparty diversification. Exposures to counterparties, including the mark to market on derivatives, are monitored on a regular basis. FCE’s Large Exposures position is reported to the FSA on a quarterly basis and is reported and reviewed monthly at the Regulatory Compliance Committee.

FCE Bank plc


Directors' Report Business Review People

FCE aims to be an 'Employer of Choice' and has a retention strategy to ensure that the skills and experience required to support business objectives are retained. This strategy includes the use of Personnel Development Committees to support the recruitment and development of employees and ensure effective succession planning for key roles, a compensation and benefits philosophy targeted at achieving overall competitiveness with the external market, rewarding performance and retaining key skills. Completion of annual individual development plans for all employees identifies training and development needs.

FCE is committed to diversity in the workplace. This values differences provided by culture, ethnicity, race, gender, disability, nationality, age, religion/beliefs, education, experience and sexual orientation. FCE uses the views of employees to improve processes and to foster a culture based on honesty and respect. Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with FCE continues and that appropriate support is arranged. It is FCE's policy that the training, career development and promotion of disabled persons should, as far as possible, be identical with that of other employees. Consistent with the principle of diversity FCE also operates a Dignity at Work policy which promotes a business environment where employees, customers and suppliers are valued for themselves and their contribution to the business. FCE is committed to conducting its business with integrity and utilising the talents of everyone through providing an environment free from unlawful discrimination, harassment, bullying and victimisation.

Employee communication FCE keeps all employees informed of its activities on a national, pan-European and global level by means of in-house publications, intranet and the annual publication of its reports and financial statements. FCE conducts an annual employee satisfaction survey with a feedback and action-planning process aimed at continued dialogue between management and staff to achieve appropriate levels of employee satisfaction. In addition senior management conducts regular cascade meetings throughout the year with employees. These allow management to communicate key business information whilst allowing two-way dialogue via question and answer sessions on business matters. FCE also fully complies with relevant European and national legislation on information and consultation procedures.

Employment practices

FCE complies fully with relevant legislation enacted by both European and national parliaments and any impact the requirements of the FSA has on Human Resources (HR) policy and process. The Company is also committed to 'best practice' HR policies and processes in support of the business objectives and in line with its 'Employer of Choice' strategy.

Employees Details of the number of employees and related costs can be found in Note 5 'Operating expenses' on page 72.

FCE Bank plc


Directors' Report Business Review People

Community and Environment FCE encourages its employees to give something back to their local community, both inside and outside work time. The policy in this area is that all employees can have up to 16 normal paid work hours per annum (equivalent to two paid work days) to invest in community projects.

A number of FCE's community activities support local environmental improvement actions. This is one of the elements of FCE's overall environmental strategy. The latter includes working with brand partners on 'Green' vehicles sales programmes, introducing energy efficiency, office waste reduction and recycling actions across all office facilities, and reducing travel miles by maximum use of teleconferencing facilities.

Health and Safety FCE is committed to ensuring the health, safety and welfare of its employees and, so far as is reasonably practicable, to providing and maintaining safe working conditions. FCE regards legislative compliance as a minimum and where appropriate it seeks to implement higher standards. FCE also recognises its responsibilities towards all persons on FCE's premises, such as contractors, visitors and members of the public, and ensures, so far as is reasonably practicable, that they are not exposed to risks to their health and safety. FCE's focus is on ensuring that its policies are closely linked to the operational needs of the business. The Board of Directors has also resolved to further improve health and safety governance, based on a model operated by Ford of Europe but tailored to meet FCE's specific business needs and (non-manufacturing) health and safety risk profile. Building upon existing practices and reporting processes the Executive Committee have finalised a management system to improve codification and tracking of incidents and actions. It is expected that FCE's relatively low risk profile will not generate substantial data on the issue. The Board of Directors receive and review an annual report on health and safety performance from the Human Resources Director.

FCE Bank plc


Directors' Report Business Review Other Financial

Pensions The executive directors and the majority of employees of FCE are accruing benefits as members of various retirement plans administered by Ford affiliated companies. For further information see Note 27 'Retirement benefit obligations' which commences on page 105. Directors' and Officers' Liability insurance and indemnity Ford has purchased insurance to cover its directors and officers for all its affiliates against their costs in defending themselves in civil legal proceedings taken against them in that capacity and in respect of damages resulting from the unsuccessful defence of any proceedings. At the date upon which this report was approved, and throughout the 2008 financial year, the Company has provided an indemnity in respect of all its directors. Neither the insurance nor the indemnity provides cover where the director has acted fraudulently or dishonestly. Interest of management in certain transactions During and at the end of the 2008 financial year, none of the Company's directors was materially interested in any material transaction in relation to the group's business and none is materially interested in any presently proposed material transactions. Payments to suppliers The Company has detailed procedures for the purchasing of goods and services. Each country is responsible for agreeing and notifying terms of payment to suppliers as part of the purchase commitments process. Terms of payment vary by location. The Company considers that it has complied with the payment terms agreed with suppliers whenever it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The ratio, expressed in days, between the amounts owed by the Company to trade creditors at the end of the year and the amounts invoiced by suppliers in the year ended 31 December 2008 is 45 days (2007: 45 days). Changes in fixed assets Movements in fixed assets are as disclosed in Note 15 'Property and equipment' on page 92. Donations The Company and its subsidiaries made no charitable or political donations during 2008 (2007: nil).

FCE Bank plc


Directors' Report Governance Board of Directors

Current Directors

Chairman B B Silverstone Director J Noone Managing Director, Britain J Coffey Non-Executive Director C A Bogdanowicz-Bindert

Executive Director, Finance and Strategy P R Jepson Non-Executive Director M F Robinson Executive Director, Global Operations & Technology & Risk T Murphy Non-Executive Director A K Romer-Lee

Managing Director, Germany R N Rothwell Non-Executive Director S Taverne

Secretary R A Pringle

Director Biographies Mrs. Bogdanowicz-Bindert, Non-Executive Director, is a Non-Executive director of McBride plc. Previously a Non-Executive Director of Bank BPH, PBK Bank and Bank Gdanski before which she worked in various senior positions at Lehman Brothers and the International Monetary Fund. Mrs. Bogdanowicz-Bindert was appointed to the Board of Directors on 1 September 2005. Mr. Coffey, Managing Director, Britain, was Executive Director Global Operations and Technology immediately prior to his present appointment. Having joined FCE in 1980 he has held various other senior management posts with FCE in Europe since then including Director Central and Eastern Sales Operations and New Markets and Location Manager Greece. Mr. Coffey was appointed to the Board of Directors on 1 August 2002. Mr. Jepson, Executive Director, Finance and Strategy, was Manager, Profit Analysis, Ford of Europe, immediately prior to his present appointment. Having joined Ford Motor Company Limited in 1976 he has held various other senior finance management posts within Ford of Europe before joining FCE, including Non-Executive Director at Otosan (a Turkish automotive company) and Director of Finance at Ford Spain. Mr. Jepson was appointed to the Board of Directors on 1 April 1999. Mr. Murphy, Executive Director, Global Operations and Technology and Risk, was Ford Credit Regional Manager South Central USA, immediately prior to his present appointment. Having joined Ford Credit in 1982 he has held various other senior management posts including Director, Irving Business Centre and Controller, Ford Credit Europe. Mr. Murphy was appointed to the Board of Directors on 25 March 2009. Mr. Noone, President of Global Marketing and Sales at Ford Credit, was President Ford Credit International immediately prior to his present appointment. Having joined Ford Credit in 1972 he has held various other senior management posts since then in both the U.S. and in Europe including Executive Vice President Diversified and Major Accounts at Ford Credit. Mr. Noone was appointed to the Board of Directors on 1 January 2004. Mr. Robinson, Non-Executive Director, is a former Regional Managing Director at National Westminster Bank plc with whom previously he had held various other senior management posts including being Head of Streamline Merchant Services and Head of Card Services. Mr. Robinson was appointed to the Board of Directors on 25 July 2001.

Mr. Romer-Lee, Non-Executive Director, is a Non-Executive Director of Sonali Bank (UK) Limited and former partner of PricewaterhouseCoopers LLP, where he was Head of Financial Services, Central & Eastern Europe and with whom he previously held various other senior management posts. Mr. Romer-Lee was appointed to the Board of Directors on 1 October 2006. Mr. Rothwell, Managing Director, Germany, was Ford and Mazda Brand Director at FCE immediately prior to his present appointment. Having joined Ford Motor Company Limited in 1979 and FCE in 1995 he has held various other senior management posts in Europe since then including Strategy Director at FCE, and Managing Director Ford Credit South Africa. Mr. Rothwell was appointed to the FCE Board on 1 October 2004.

FCE Bank plc


Directors' Report Governance Board of Directors

Director Biographies continued

Mr. Silverstone, Chairman, was Executive Director European Sales Operations immediately prior to his present appointment. Having joined FCE in 1979 he has held various other senior management posts including Executive Director, Marketing and Sales at FCE, Vice President, Marketing for Ford Credit North America and Regional President of Ford Credit Asia Pacific Credit Operations. Mr. Silverstone was appointed to the Board of Directors on 25 July 2001 and became Chairman of the Board on 21 July 2006. Ms. Taverne, Non-Executive director, is a Non-Executive director of Nationwide Building Society, a Trustee of the Consumer Credit Counselling Service and the Design Museum and Chair of Gingerbread. She was formerly and a Director of Imperial College London, Managing Director of the British Museum, Director of Strategy at Pearson plc, and Finance Director of the Independent. Ms Taverne was appointed to the Board of Directors on 1 April 2008.

Changes to the Board of Directors

Messrs Ribits and Vandenplas resigned as directors effective 1 November 2008 and 16 February 2009 respectively. Ms. Falotico resigned as a director effective 23 March 2009 and was replaced by Mr. Murphy with effect 25 March 2009. For details on the attendance record of directors at the Board and Audit Committee meeting please see section entitled 'Governance – The Board of Directors' on page 34.

Annual General Meeting

The Annual General Meeting will be held on 25 March 2009 immediately after the conclusion of the Board meeting approving these financial statements. In accordance with the Articles of Association all directors retire and, being eligible, will each offer themselves for reappointment.

FCE Bank plc


Directors' Report Governance Key Governance Principles

General

FCE considers effective corporate governance to be a key factor underlying the strategies and operations of the Group. Since only some of the Company's debt securities are listed on Stock Exchanges there are significantly fewer reporting obligations on the Company compared with a company with listed equity. Nevertheless the Company chooses to comply with many of the provisions of the Combined Code on Corporate Governance applicable to UK listed companies except for those provisions that are not appropriate for a wholly-owned subsidiary.

The Company annually undertakes a benchmarking exercise against the latest guidelines on corporate governance making any adjustments it deems necessary and appropriate.

The Company has developed internal standards to ensure that the Group's business is conducted within a strong and defined control framework. These internal standards are well suited to the evolving demands of corporate governance in highly regulated, multi-national environments.

The Board of Directors The Company is controlled through its Board of Directors whose main roles are to: ● create value to the shareholder, ● provide leadership to the Company, ● approve the Company's strategic objectives ● ensure that the necessary financial and other resources are made available to the

management to enable them to meet those objectives and ● operate within a framework of effective controls which enables the assessment and

management of principal risks. In addition, the Board has the ultimate responsibility for ensuring that the Company has systems of corporate governance and internal control appropriate to the various business environments in which it operates. The Board regularly evaluates all risks affecting the business and the processes put in place within the business to control them. The process is focused on the key risks, with formal risk mitigation, transfer or acceptance documented. FCE controls are based on Ford standard controls to safeguard assets, check the accuracy and reliability of financial and non-financial data, promote operational efficiency and encourage adherence to prescribed managerial policies. Policy statements governing credit and treasury risk management are reviewed at least annually. The Board also reviews the Group’s commercial strategy, business and funding plans, annual operating budget, capital structure and dividend policy and statutory accounts. The Board also reviews the financial performance and operation of each of the Company's businesses and other business reports and presentations from senior management. The Board is responsible for the appropriate constitution of Committees of the Board and reviews their activities and terms of reference as part of an annual review of corporate governance. Within the financial and overall objectives for the Company, the management of the Company is delegated to Directors and management through the Chairman. Each of the five Executive Directors is accountable for the conduct and performance of their particular business within the agreed business strategy. They have full authority to act subject to the reserved powers and sanctioning limits laid down by the Board and Company policies and guidelines.

FCE Bank plc



The Board of Directors continued The composition of the Board, and changes to its membership during 2008, is shown on page 31 and page 32 respectively. Currently the Board of Directors comprises four independent Non-Executive directors (NEDs), one shareholder representative director and five Executive Directors who together, with their different financial, commercial and operational expertise and cultures, bring with them a wide range of experience to the Company. The Board of Directors met four times during 2008. With the exception of Mr Noone, (who was unable to attend two of the meetings) and Mr Ribits, Ms Bogdanowicz-Bindert, Ms Taverne and Mr Vandenplas (who all missed one meeting during the year) all other directors in post at the relevant time attended all the Board meetings during the year. Three independent NEDs were in post for the first meeting and thereafter four independent NEDs were in post. All Directors are equally accountable under the law for the proper stewardship of the Company’s affairs. The Directors have access to the advice and services of the Company Secretary and can obtain independent professional advice at the Company's expense in furtherance of their duties, if required. Throughout 2008, the Board and its Committees were supplied with information and papers to ensure that all aspects of the Company’s affairs are reviewed on a regular basis in accordance with a rolling agenda of work. Monthly information packs are sent to the Non-executive Directors which include a strategic update from the Chairman and financial and funding updates with relevant analysis and trend data. Supporting papers for Board meetings generally are distributed a week in advance of the meeting.

FCE Bank plc



Non-Executive Directors (NEDs) The NEDs fulfill key roles in corporate and regulatory accountability. The Board considers all the current NEDs to be independent because they have no material business relationship with the Company (either directly or as a partner, shareholder or officer of an organisation that has a relationship with the Company) and they neither represent the sole shareholder nor have any involvement in the day to day management of the Company or its subsidiaries. As such they bring objectivity and independent judgement to the Board, which complements the Executive Directors’ skills, experience and detailed knowledge of the business. Moreover they play a vital role in the governance of the Company through their membership of the Audit Committee. Each NED is provided, upon appointment, with a letter setting out the terms of his or her appointment including membership of the Audit Committee, the fees to be paid and the time commitment expected from the director. The letter also covers such matters as the confidentiality of information and reference to Ford's Directors and Officers Liability Insurance. The letters of appointment of NEDs are terminable on one month's notice by either party. All NEDs are appointed to the Audit Committee. The NEDs do not serve on any other Board Committee. Currently there is no limitation on the term of office for any NED. However, it is not envisaged that a term of office would exceed nine years. Each year the NEDs hold a meeting with the Chairman to discuss Executive Director succession planning, corporate governance and any other relevant issues. The Board reviews the number of Executive Directors and NEDs periodically to maintain an appropriate balance for effective control and direction of the business. The Combined Code on Corporate Governance recommends the appointment of a Senior Independent NED and Mr Romer-Lee has been appointed to this post since 1 January 2008. The role of the Senior NED is to chair the Audit Committee and to take a lead role with the other NEDs, representing collective views to the Chairman, Board or Audit Committee and to representatives of the Company's shareholder. The role of all the NEDs is to: ● review and give an objective opinion on the Company's financial reporting including relevant

best practice ● maintain effective working relationships with the FSA and FCE's auditors ● provide an objective view of the management of the business ● provide an objective insight into the strategic direction of the Company and an advisory role

on intended strategic actions and potential implications for the business ● review the application of financial reporting and understand the Company's financial position

and constructively challenge its effective management ● provide other Board members with different perspectives on strategic and other issues

facing the Company The NEDs meet from time to time in the absence of FCE's management, and the Senior NED normally presides over such meetings.

FCE Bank plc



Selection of Directors Specialist executive recruitment agencies may be employed to find suitable NEDs. In addition direct appointments are made where specific skills and experience are needed, and FCE may consult its auditors or other professional advisers on appropriate candidates when specialist financial skills are required. Formal interviews are held with senior Company management before a preferred candidate meets other members of the Board including all the current NEDs. Executive Directors (including the Chairman) are selected through a Ford Financial Personnel Development Committee process. Succession plans for Directors and other senior appointments are reviewed with senior representatives of the Company’s parent and the NEDs. Proposals for all Director appointments are then submitted for corporate approval both by Senior Management of the shareholder and by the Ford Corporate Governance Committee before being submitted to the Company's Board of Directors for formal legal approval.

Training of Directors Consideration is given to the training needs of Directors on their appointment to the Board, and new NEDs benefit from a comprehensive induction to the Company’s business, risk management and regulatory environment. Also there is at least one off-site senior management financial review and strategy meeting held each year to which the NEDs are invited, and a training day is available as required for the NED where topical issues and developments can be discussed. From time to time, Ford develops training programmes for various aspects of Director's duties and responsibilities, corporate governance and regulatory and general compliance matters.

Evaluation and compensation of Directors Each Executive Director is evaluated by FCE's performance review process and remuneration is determined in line with the global compensation policy of FMCC and Ford. Senior representatives of FMCC evaluate the performance of the Chairman. NEDs receive a flat fee for their services. The Senior NED receives a higher fee to reflect his additional responsibilities. The levels of both fees are reviewed periodically and the fee level is approved by senior representatives of FMCC. The NEDs do not receive any further remuneration or participate in any incentive arrangements.

FCE Bank plc



Committees of the Board Four Committees report directly into the Board. Each of the Committees has specific delegated authority and detailed terms of reference which are reviewed annually with a report on the activities of each Committee presented to each meeting of the Board of Directors. FCE reviews the balance and composition of the Committees regularly to ensure that there is an appropriate balance and a good mix of skills and experience. FCE also considers the need to refresh the Committees. A review of all Committees, their ongoing operation and efficiency was conducted by the Company Secretary during 2008 to streamline the structure, terms of reference, frequency and membership. The following chart shows the interrelationship of the Board and the Committees that deal with corporate governance. FCE has an integrated approach to Risk Governance and the terms of reference for each of the Committees shown below includes details of the risks covered:

The Administrative Committee on behalf of the Board is responsible for:

• the review and approval of the terms and conditions of securitisation and debt issuance transactions in line with applicable policy statements established by the Board of Directors from time to time.

• consideration and approval of other day-to-day business matters delegated to it for which formal deliberation and/or documentation is legally required to evidence approval rather than approval under general management delegated authorities.

The membership of the Administrative Committee comprises all statutory directors of the Company but excludes Mr Noone, and the NEDs, with any two directors constituting a quorum. The Administrative Committee has no formal meeting schedule and meets as required. Details of the Audit Committee and its work can be found on pages 41 to 43.

Board of Directors

Global FMCC

Executive

Audit Committee

Executive Committee

Administrative Committee

Credit Policy & Credit Risk

Committee

Regulatory

Compliance

Committee

Operational

Risk

Committee

Sales &

Marketing

Committee

Pricing

Committee

Securitisation

Programme

Board

Commercial Credit

Committees

ITO Operating

Review

Committee

Data

Management

Steering

Committee

European

Project Board

Personal

Development

Committees

Anti-Money

Laundering Executive

Steering Group

FCE Bank plc



Committees of the Board continued The Credit Policy and Credit Risk Committee (Credit Policy Committee), usually chaired by the FCE Chairman, determines on behalf of the Board, the general credit policy of the Group on a pan-European basis. It oversees and reviews retail and commercial credit risk and vehicle residual value risk. It reports to each full Board meeting held during the year. Five of the ten members of the Credit Policy Committee are members of the Board of Directors. The Credit Policy Committee consists of individuals responsible for the key components of the business; British, German and European markets, brand directors and pan-European and cross-brand functions such as credit policy and credit risk, sales, and finance.

There are quorum requirements for the Credit Policy Committee, with different combinations of attendees permitted, to ensure that a member of the Board of directors is always in attendance in addition to appropriate representation from key areas of the business. The Credit Policy Committee aims to meet monthly and met eleven times in 2008.

The Commercial Credit Committees have been established as sub-committees of the Credit Policy Committee to review and approve commercial lending requests across Europe. The Commercial Credit Committees are constituted and operate at district, country, European and international levels according to delegated approval authorities and risk assessment. The Executive Committee ('EC') usually chaired by the FCE Chairman, reviews, on behalf of the Board, the Group’s strategic direction and policy and the enhancement of shareholder and customer value whilst improving growth, efficiency and profitability. The Executive Committee reports to the Board at each of the full Board meetings held during the year. The Executive Committee has fourteen members, five of whom are members of the Board of Directors. The EC consists of individuals responsible for the key components of the business; British, German and European markets and brand directors, as well as pan-European and cross-brand functions such as credit policy and credit risk, information technology, sales, general counsel, strategy and finance. Either the Chairman or the Executive Director Finance and Strategy are required in attendance as one of seven members needed to constitute a quorum. The EC meets monthly and held 12 meetings during 2008.

FCE Bank plc



Committees of the Board continued Several sub-committees have been established and meet regularly and cover all areas of the business. These sub-committees report into the EC:

� The Regulatory Compliance Committee informs senior management and the Audit Committee on regulatory compliance issues. Its responsibilities include monitoring and evaluating regulatory changes and determining the Company's response or changes needed. The Committee also oversees communication with the FSA.

� The Information Technology Office Operating Review Committee monitors, aligns and

resolves plans and priorities across FCE to support key information technology related projects and initiatives.

� The Operational Risk Committee has the overall responsibility for reviewing and

monitoring major operational risks and for promoting the use of sound operational risk management across FCE.

� The Data Management Steering Committee provides a co-ordinated input to process and

IT application development to meet business requirements through data solutions that are consistent with strategic priorities.

� The Sales and Marketing Committee facilitates regular and timely information exchanges

between business units and functional areas covering sales, marketing and operational matters.

� The European Project Board oversees the management of FCE's strategic projects. This

sub-committee meets on a monthly basis to review, approve and prioritise large / strategic projects.

� The Pricing Committee reviews and approves pricing strategies and policies on a national,

regional and European basis. � The Personnel Development Committees drive personnel development and career and

vacancies planning. The sub-committees are comprised of members of management, who are assisted by Human Resources representatives.

� The Securitisation Programme Board approves and reviews structural and policy matters

concerning planned securitisation transactions and securitisation issues raised at other committees and forums may be referred to it for further deliberation.

� The Anti-Money Laundering Executive Steering Group oversees compliance with the

provisions of the relevant European Community Money Laundering and related directives as applied to those markets in which FCE operates.

In addition, the EC may from time-to-time appoint working groups or steering committees to address specific business risks and opportunities.

FCE Bank plc



Accountability and Audit Financial Reporting In the Business Review and Directors Report the Board seeks to provide a detailed understanding of each business of the Group, together with a balanced and understandable assessment of FCE's position and prospects. Internal control Further information on the internal control environment can be found in the 'Audit Committee Report' which commences on page 41.

Going Concern

The Directors are confident, on the basis of current financial projections and facilities available, that the Company and FCE have adequate financial resources to continue in operation for the foreseeable future. For this reason, the directors have concluded that there are no material uncertainties that lead to significant doubt upon the entity’s ability to continue as a going concern and therefore continue to adopt the going concern basis in preparing the financial statements. Investor Relations

The Company's website provides potential investors with information about the Company, including recent annual and interim financial statements, Basel Pillar 3 disclosures and governance matters.

BY ORDER OF THE BOARD Bernard B Silverstone Chairman, FCE Bank plc. 25 March 2009

FCE Bank plc


Directors' Report Governance Audit Committee Report

This report describes the role of the Audit Committee ('AC') and its compliance with the requirements of the Combined Code on Corporate Governance where appropriate for a wholly owned subsidiary.

Terms of Reference The AC's terms of reference, a copy of which can be found on the Company's website, are reviewed at least annually and approved by the Board. They are based on the model terms of reference set out in the Guidance Note produced by the Institute of Chartered Secretaries and Administrators. The terms of reference cover membership and appointment, meetings, duties and responsibilities, authority and a number of other matters. The AC's objectives include assisting the Board in meeting its responsibilities to create an effective system of internal control and compliance, provision of accurate external financial reporting, and assisting management in conducting and reporting effective risk management.

Membership and appointment There is no limitation on the term of appointment to the AC. During 2008 the AC was chaired by Mr Romer-Lee, and met four times. Membership of the AC exclusively comprises all the NEDs. The quorum for the AC is any two members. From 30 September 2007 to 31 March 2008, FCE had three NEDs and thereafter four. FCE considers that all four current members of the AC are independent for the purposes of the Combined Code. The members bring wide-ranging financial, commercial and management experience to the work of the AC and their biographical details are set out on pages 31 and 32. The Board is confident that the collective experience of the AC members enables them, as a group, to act as an effective audit committee. The AC also has access to the financial expertise of the Group and its auditors, internal and external, and can seek further professional advice at the Company's expense if required. The Board considers that the current AC Chairman, in particular, qualifies as having recent and relevant financial experience to bring to the deliberations of the AC as required by the Combined Code on Corporate Governance.

Meetings The AC meets at least four times a year. For the first meeting of 2008 the Company had three NEDs and from 1 April 2008 the Company had four who all were members of the AC. Ms Bogdanowicz-Bindert and Ms Taverne each have missed one meeting during the year. PricewaterhouseCoopers LLP ('PwC'), FCE's external auditors, and representatives from Ford's General Auditors Office ('GAO') and FCE's Internal Control Office ('ICO'), together with the Executive Director Finance and Strategy, the Director Legal Affairs and Head of Compliance attend meetings under a standing invitation whilst the Company Secretary attends as Secretary to the AC. In addition, the AC often requires other Directors, managers and staff to attend and agree with audit/review actions in response to the AC enquiries and recommendations. The NEDs also held private meetings with the external auditors during the year. The Committee Chairman reports regularly to the Board on AC's activities and the minutes of the AC meetings are circulated to the Board of Directors.

FCE Bank plc



Work of the Committee The AC carries out its programme of work in accordance with a calendar of actions at four programmed meetings held each year in March, June, August and November or adjacent months as outlined below. The AC also receives regular reports on significant and unusual events at every meeting. In addition, other significant matters are raised as appropriate and necessary:

• March – Review draft Annual Report and Accounts, management letter and external auditors' report and audit fees, which includes consideration of major judgmental areas, significant adjustments and the appropriateness of the going concern assumption before the statements are approved by the Board.

• June – Review preparations for and implementation of Basel II Capital Requirements Directive/Capital Adequacy planning and implementation; annual review of the ICO, incorporating audit review and future plans and progress against its own internal business plan, functional developments and key performance measures; and an annual review from FCE's external auditor including current accounting and financial reporting matters and issues arising and its audit plan and scope.

• August – Review draft Interim Accounts for the first six months of the year and management letter and external auditors' report, which includes consideration of major judgmental areas and significant adjustments before the statements are considered and approved by the Board; and overseeing the process of monitoring compliance and regulatory matters including Anti-Money Laundering through an annual review by FCE's Head of Compliance.

• November – Review Accounting policies and disclosure changes for the next annual accounts including major changes in accounting policies and practices; and consider the annual review of GAO to include overseeing the effectiveness of internal control over reporting and operations and specifically the review of the internal audit charter, update on risk assessment and internal audit reviews and future plans, compliance with auditing standards and progress against its internal audit business plan, functional developments and key performance measures.

For further information in regard to the Basel II Capital Requirements Directive refer to the 'Basel II international capital framework' details on page 15 within the 'Business Review' – 'Regulation 'section. The audit plan and scope for both PwC and the GAO sets out details of the areas to be covered and how the audit is to be conducted. The AC Chairman meets periodically with the external auditors and GAO to discuss progress on the audit and the major points to arise, and has the opportunity to assess the effectiveness of the process. The AC is also able to assess the effectiveness of the auditors and the process through reports made to the Committee by the independent auditors. In addition, prior to each of the AC meetings convened to approve annual and interim financial results, members hold a private meeting with the external auditors.

External auditors, their work and non-audit related services PwC conducts audits of FCE's financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). PwC provides external audit opinions on FCE’s financial statements. The appointment and re-appointment of the external auditor for the Ford group of companies is reviewed at parent company level. However, in accordance with its current terms of reference, the AC receive annual written confirmation that a review had been undertaken by the Ford Audit Committee of PwC's continued independence, performance, significant relationships and compliance with relevant ethical and professional guidance. In addition, the AC reviews PwC's audit plan, its scope and cost effectiveness and the audit fee. PwC's audit fees for 2008 are outlined in Note 7 'Profit before tax' on page 77 of these financial statements.

FCE Bank plc



External auditors, their work and non-audit related services continued

To help ensure that the auditors’ independence and objectivity are not prejudiced by the provision of non-audit services, the AC has agreed that the external auditors should be excluded from providing management, strategic or Information Technology consultancy services and all other non-audit related services, unless the firm appointed as external auditor is:

- the only provider of the specific expertise/service required; or - the clear leader in the provision of the service and is able to provide that service on a

competitively priced basis.

As auditors, PwC will undertake work that they must or are best placed to complete. This includes tax-related work, formalities related to borrowings, regulatory reports or work in respect of acquisitions and disposals.

General Auditors Office Ford’s GAO is fully independent from FCE; its coverage is based on the relative risk assessment of each 'audit entity', which is defined as a collection of processes and systems that are closely related. The GAO's mission is to provide objective assurance and advisory services to management and the Board of Ford and to the Company's AC in order to improve the efficiency and effectiveness of Company operations and assist the Company in achieving its objectives through systemic and disciplined auditing.

Internal Control Office

ICO is the department within FCE that delivers control consultancy, audits, process reviews, investigations, due diligence, advice on systems controls and control training across all locations. ICO's experience across operations, accounting, systems and 6-Sigma enables informed operational reviews, audits and sharing of best practice. This ensures a high level of quality is maintained within FCE's processes, customer and dealer services and financial products. The department has created and delivered training in ongoing controls, which includes learning points derived from the audits and reviews. This matches industry leading-edge practices to assist management in early identification of potential control risks which is an essential element of the process to ensure compliance with the US Sarbanes-Oxley Act.

ICO coordinates the Operations Review Programme (ORP), which has been designed, implemented and revised over the last few years to embed the assessment of risk and opportunity across the Group. The ORP provides the means for the management of each location or activity to continually monitor controls within their operation by the performance of regular and appropriate checks and embeds sound governance principles in key processes. The ORP facilitates high levels of control self-assessment as part of good business practice. It also embodies the principles established by the UK’s Turnbull Committee on achieving the standards in the Combined Code of Corporate Governance. The ORP was modified for, and provides a key structure in FCE's compliance with the US Sarbanes-Oxley Act.

Whistle-blowing procedure

The Company has established a whistle-blowing procedure for the confidential and anonymous submission by employees of concerns regarding accounting, internal controls or auditing matters. A report on any such incidents reported is presented to each Audit Committee meeting, including details of any actions taken to deal with the matters raised. No issues material to FCE were dealt with by the Audit Committee during the reporting year.

BY ORDER OF THE AUDIT COMMITTEE Alex K Romer-Lee 25 March 2009

FCE Bank plc


Financial Statements Directors' Responsibilities for Financial Statements

The following statement should be read in conjunction with the Independent Auditors' Report set out on pages 46 and 47. The Directors are responsible for preparing the Annual Report and the consolidated financial statements of FCE Bank plc and its subsidiaries. The directors are required by law to prepare the Group's financial statements for each financial year in accordance with the Companies Act 1985, International Financial Reporting Standards as adopted by the European Union and Article 4 of the IAS Regulation. The Directors are required to ensure that the Group's financial statements give a true and fair view of the financial position and financial performance of the Company and the Group of which it forms a part as at the end of the financial year and of the profit or loss and cash flows of the Group for that period.

In preparing the financial statements for the year ended 31 December 2008, the directors also are required to:

- select suitable accounting policies and apply them consistently; - make judgements and estimates that are reasonable and prudent;

- confirm that applicable accounting standards have been followed; and

- confirm that the financial statements have been prepared on the going concern basis.

The Directors confirm that they have complied with the above requirements in preparing the financial statements for the year ended 31 December 2008.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial statements comply with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group, and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Disclosure of information to external auditors

Each of the Directors, who is in office at the time when FCE's financial statements are approved, confirms that so far as they are aware, there is no relevant audit information of which the Company's external auditors are unaware and each such director has taken all the steps that he/she ought reasonably be expected to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's external auditors are aware of that information. This information is given and should be interpreted in accordance with the provisions of section 234ZA of the Companies Act 1985.

Website

A copy of the financial statements of the Company is posted on the FCE web-site (www.fcebank.com). The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the website. The work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to FCE's financial statements since they were initially presented on the web-site. Legislation in the UK governing preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

FCE Bank plc


Financial Statements Directors' Responsibilities for Financial Statements

External auditors

In accordance with Section 384 of the Companies Act 1985, a resolution proposing the re-appointment of PricewaterhouseCoopers LLP as external auditors will be submitted to the Annual General Meeting to be held on 25 March 2009.

BY ORDER OF THE BOARD Robert A Pringle Company Secretary 25 March 2009

FCE Bank plc


Financial Statements Independent Auditors' Report

To the members of FCE Bank plc.

We have audited the group and parent company financial statements (the ‘‘financial statements’’) of FCE Bank plc for the year ended 31 December 2008 which comprise the Consolidated Income Statement, the Group and Parent Company Statements of Total Recognised Income and Expense, the Group and Parent Company Balance Sheets, the Group and Parent Company Cash Flow Statements and the related notes. These financial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Act 1985 and, as regards the group financial statements, Article 4 of the IAS Regulation. We also report to you whether in our opinion the information given in the Directors' Report is consistent with the financial statements. In addition we report to you if, in our opinion, the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report and all of the other information listed on the contents page. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

FCE Bank plc


Financial Statements Independent Auditors' Report

Opinion In our opinion:

• the Group financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group’s affairs as at 31 December 2008 and of the Group’s profit and cash flows for the year then ended;

• the Parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the Parent Company’s affairs as at 31 December 2008 and cash flows for the year then ended;

• the financial statements have been properly prepared in accordance with the Companies Act 1985 and, as regards the Group financial statements, Article 4 of the IAS regulation; and

• the information given in the Directors' Report is consistent with the financial statements. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 25 March 2009 Notes:

The maintenance and integrity of the FCE Bank plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

FCE Bank plc


Financial Statements Consolidated income statement

GROUP

for the year ended 31 December

Notes 2008 2007 Restated*

£ mil £ mil

Interest income £ 1,398 £ 1,265

Interest expense ( 949 ) ( 791 )

NET INTEREST INCOME 2 449 474

Fees and commissions income 118 83

Fees and commissions expense ( 15 ) ( 19 )

NET FEES AND COMMISSIONS INCOME 3 103 64

Other operating income 4 205 134

TOTAL INCOME 757 672

Impairment losses on loans and advances 13 ( 76 ) ( 33 )

Operating expenses 5 ( 243 ) ( 222 )

Depreciation of property and equipment 15 ( 132 ) ( 120 )

Fair value adjustments to financial instruments 6 88 ( 5 ) Loss on foreign exchange 6 ( 95 ) ( 17 ) Share of profit of a jointly controlled entity 18 1 - PROFIT BEFORE TAX 7 300 275 Income tax expense 8 ( 96 ) ( 72 )

PROFIT AFTER TAX AND PROFIT FOR THE FINANCIAL YEAR £ 204 £ 203

* Refer to page 51 Accounting Policy A for details of 2007 restated figures

Financial Statements Statements of total recognised income and expense

for the year ended 31 December COMPANY GROUP

Notes 2008 2007 2008 2007 £ mil £ mil £ mil £ mil

Restated* Restated*

Profit for the financial year £ 290 £ 200 £ 204 £ 203

Currency translation differences on foreign currency net investments

33

496

146

515

155

TOTAL RECOGNISED INCOME RELATING TO THE YEAR SINCE LAST ANNUAL REPORT

£ 786

£ 346

£ 719

£ 358


The accompanying 'Notes to the financial statements' are an integral part of these financial statements

FCE Bank plc


Financial Statements Balance Sheets


Notes 2008 2007 2008 2007 £ mil £ mil £ mil £ mil

ASSETS Cash and advances to banks 9 £1,530 £ 729 £2,695 £ 1,601

Derivative financial instruments 10 505 125 505 135

Other assets 11 996 750 661 519

Loans and advances not subject to securitisation 5,399 6,342 5,703 6,624

Loans and advances subject to securitisation 14 11,643 8,865 11,643 8,912

Total loans and advances to customers 12 17,042 15,207 17,346 15,536

Property and equipment 15 175 169 244 249

Income taxes receivable 16 6 31 6 35

Deferred tax assets 17 71 52 118 59

Investment in a jointly controlled entity 18 - - 45 -

Goodwill and other intangible assets 19 168 182 20 35

Investment in group undertakings 20 177 68 - -

TOTAL ASSETS 1 £20,670 £17,313 £21,640 £18,169

LIABILITIES

Due to banks and other financial institutions not in respect of securitisation

21

£1,810

£ 1,432

£1,963

£ 1,566

Due to banks and other financial institutions in respect of securitisation

21

1,387

990

7,683

6,620

Total due to banks and other financial institutions

21

3,197

2,422

9,646

8,186

Corporate deposits 22 30 - 30 -

Due to parent and related undertakings 23 8,554 7,751 2,153 1,975

Derivative financial instruments 10 237 93 398 104

Debt securities in issue not in respect of securitisation

24

4,465

3,682

4,465

3,733

Debt securities in issue in respect of securitisation

24

-

-

852

822

Total debt securities in issue 24 4,465 3,682 5,317 4,555

Other liabilities 25 532 442 568 483

Income taxes payable 16 46 17 47 17

Deferred tax liabilities 17 27 29 27 33

Subordinated loans 26 492 361 492 361

TOTAL LIABILITIES 1 £17,580 £14,797 £18,678 £15,714

SHAREHOLDERS' EQUITY

Ordinary shares 32 614 614 614 614

Share premium 32 352 352 352 352

Retained earnings 33 2,124 1,550 1,996 1,489

TOTAL SHAREHOLDERS' EQUITY 33 £ 3,090 £ 2,516 £2,962 £ 2,455

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY £20,670 £17,313 £21,640 £18,169

The financial statements on pages 48 to 135 were approved by the Board of Directors on 25 March 2009 and were signed on its behalf by:

Bernard B Silverstone Peter R Jepson Chairman Executive Director, Finance & Strategy

FCE Bank plc


Financial Statements Cash flow statements


2008 2007 2008 2007 Notes £ mil £ mil £ mil £ mil Restated* Restated*

Cash flows from operating activities Cash from operating activities 43 £ 125 £ 202 £ 229 £ 125 Interest paid (854) (766) (887) (765) Interest received 1,408 1,249 1,451 1,264 Income taxes paid (84) (110) (85) (111)

Net cash from operating activities 595 575 708 513

Cash flows from investing activities Purchase of property and equipment (4) (4) (5) (5) Proceeds from sale of property and equipment 2 8 2 9 Purchase of vehicles for operating leases (313) (303) (336) (351) Proceeds from sale of operating lease vehicles 214 244 209 262 Proceeds from sale of interests to joint venture partner - - 31 - Proceeds from sale of operations to related undertakings 47 - 47 - Net proceeds on transfer of investment to group undertakings

36

-

-

-

Investment in group undertakings 20 (124) - - -

Net cash used in investing activities (142) (55) (52) (85)

Cash flows from financing activities Proceeds from debt securities and due to banks and other financial institutions

1,576

8,271

3,673

9,781

Repayments of debt securities and due to banks and other financial institutions

(1,294)

(6,100)

(3,989)

(7,341)

Proceeds of funds provided by parent and related undertakings 1,201 80 312 118 Repayment of funds provided by parent and related undertakings (1,656) (2,247) (354) (2,298) Net increase/(decrease) in short term borrowings 659 (30) 525 40 Net increase/(decrease) in corporate deposits 22 30 - 30 - Net increase/(decrease) in derivative financial instruments 45 (4) 46 (4) (Increase)/decrease in Central bank deposits and other deposits in support of European Investment Bank loans 9

(6)

(229)

(5)

(230)

(Increase)/decrease in cash associated with securitisation transactions

(62)

(29)

53

(259)

Dividend paid 34 (190) (250) (190) (250)

Net cash from/(used in) financing activities 303 (538) 101 (443) Effect of exchange rate changes on cash and cash equivalents 43 (41) (6) (47) (12) Net increase/(decrease) in cash and cash equivalents 43

715

(24)

710

(27)

Cash and cash equivalents at beginning of period 43 265 248 277 257 Cash and cash equivalents at end of period 43 980 224 987 230


The accompanying 'Notes to the financial statements' are an integral part of these financial statements

FCE Bank plc

Financial Statements Notes to the financial statements at 31 December 2008


Index to accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

Description Page A Basis of presentation 51 B Group accounts 53

C Critical accounting estimates 54 D Segmental reporting 54 E Net interest income 55

F Fees and commissions income and expense 55

G Other operating income 56

H Employee benefits 56 I Cash and cash equivalents 57

J Financial assets, financial liabilities and offsetting 57

K Derivative financial instruments and hedging 58

L Other assets 59

M Loans and advances to customers 59

N Leases 59

O Provision for incurred losses 60

P Securitisation and related financing 61

Q Vehicle residual value provisions 61

R Property and equipment 61

S Deferred and current income taxes 62 T Joint ventures 62 U Goodwill and other intangible assets 62

V Investments in group undertakings 63

W Debt 63 X Other liabilities and provisions 63 Y Dividends 63 Z Financial guarantees 63

A Basis of presentation

These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The standards applied are those issued by the International Accounting Standards Board and adopted by the European Union as at 31 December 2008. The consolidated financial statements are prepared under a historical cost convention with the exception of derivative and share based payments which are stated at fair value.

As required by the Companies Act 1985 and Article 4 of the IAS Regulation, FCE files financial statements for both Company and Group accounts respectively:

• 'Company' accounts included within these consolidated financial statements comprises of FCE Bank plc. a UK registered company, and all of its European branches.

• 'Group' accounts include FCE Bank plc. a UK registered company, and all of its European branches and subsidiaries. Refer to Note 20 'Investments in group undertakings' for details of FCE's subsidiaries.

The Accounting restatements as detailed have resulted in the amendment of prior year reported figures for the consolidated income statement, statements of total recognised income and expense and cash flow statements for the year ended 31 December 2007.

Accounting restatement Impact of revision to income statement

Certain losses and gains on foreign exchange arising from the translation of foreign currency derivatives into sterling were partially offset against 'Loss/(gain) on foreign exchange' as reported within 'Operating expenses'. This adjustment has been made to correctly represent 'fair value adjustments to financial instruments' by including these losses and gains. All other foreign exchange losses/(gains) are now reported within a new income statement caption 'Loss on foreign exchange' and are no longer included in 'Operating expenses'.

Group: 'Loss on foreign exchange' as restated amounted to £17 million (previously reported as £5 million), while 'fair value adjustments to financial instruments' as restated amounted to a £5 million loss (previously reported as a £17 million loss) and 'Operating expenses' as restated amounted to £222 million expense (previously reported as £227 million expense). This restatement has no effect on the reported

amount of profit before tax for 2007.

FCE Bank plc



A Basis of presentation continued

Accounting restatement Impact of revision to statements of total recognised income and expense

Dividends paid by the Company were previously recorded within the statements of total recognised income and expense. This adjustment has been made to exclude dividend payments in order to correctly represent total recognised income.

Company: 'Total recognised income' as restated amounted to £346 million (previously reported as £96 million). Group: 'Total recognised income' as restated amounted to £358 million (previously reported as £108 million).

Accounting restatement Impact of revision to cash flow statement

Currency translation differences arising from the application of year end rates of exchange to opening assets and liabilities of foreign branches and subsidiaries were previously recorded within the cash flow statement within 'Operating activities' as 'effects of foreign currency translation'. This adjustment has been made to correctly represent cash flows by excluding currency translation differences which otherwise would arise when completing an indirect cash flow statement.

Company: 'Net cash from operating activities' as restated amounted to £575 million from (previously reported as [£57 million]), 'Net cash from/[used] in financing activities as restated amounted to [£538] million (previously reported as £104 million) and 'Net cash from/[used] in investing activities as restated amounted to [£55 million] (previously reported as [£65 million]. Group: 'Net cash from operating activities' as restated amounted to £513 million from (previously reported as [£113 million]), 'Net cash from/[used] in financing activities as restated amounted to [£443] million (previously reported as £193 million) and 'Net cash from/[used] in investing activities as restated amounted to [£85 million] (previously reported as [£95 million]). These restatements have no effect on the reported amount of cash and cash equivalents

for 2007.

IFRS 8 'Operating Segments' (effective for annual periods beginning on or after 1 January 2009) has not been early adopted by FCE. The standard replaces IAS 14 'Segment Reporting' and aligns operating segment reporting with segments reported to senior management as well as requiring amendments to the existing segmental disclosures. The standard does not change the recognition, measurement or disclosure of specific transactions in the consolidated financial statements. The following new interpretations are mandatory for the financial year beginning 1 January 2008 but are not relevant to FCE: Interpretation reference

Interpretation title Effective for annual periods beginning on or after

IFRIC 12 Service Concession Arrangements 1 January 2008

IFRIC 14 Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interactions

1 January 2008

The following new interpretations, standards and amended standards have been issued but are either not yet effective, and have not been early adopted by FCE as they are not expected to be significant to FCE. The following new amendments, which were effective immediately, were issued on 13 October 2008 and had no impact for the financial year beginning 1 January 2008: Standard reference Standard title Effective

IAS 39 Financial Instruments: Recognition and Measurement, Amendment on Reclassifications

Immediately

IFRS 7 Financial Instruments: Disclosure, Amendment on Reclassifications

Immediately

FCE Bank plc



A Basis of presentation continued

The following new interpretations, standards and amended standards have been issued but are not effective for annual periods beginning on 1 January 2008, and have not been early adopted by FCE as they are not expected to be significant to FCE: Standard or Interpretation reference

Standard or Interpretation title Effective for annual periods beginning on or after

IAS 1 Presentation of Financial Statements (Revised) 1 January 2009

IAS 23 Borrowing Costs (Revised) 1 January 2009

IAS 27 Consolidated and Separate Financial Statements (Revised)

1 July 2009

IAS 32 Financial Instruments: Presentation (Revised) 1 January 2009

IAS 39 Amendment Financial Instruments: Recognition and Measurement

1 July 2009

IFRS 1 Amendment First Time Adoption of IFRSs 1 January 2009

IFRS 2 Share-based Payments (Revised) 1 January 2009

IFRS 3 Business Combinations (Revised) 1 July 2009

IFRIC 13 Customer Loyalty Programmes 1 July 2008

IFRIC 15 Agreements for the Construction of Real Estate 1 January 2009

IFRIC 16 Hedges of a Net Investment in a Foreign Operation 1 October 2008

Income statement – As permitted by Section 230 of the Companies Act 1985, a separate income statement has not been presented in respect of the Company. The profit after tax of the Company is reported in the notes to the financial statement within the Company disclosures contained in Note 33 'Total shareholders' equity'.

Cash flow statement - FCE has elected to produce an indirect cash flow statement and as such will show cash flows from operating activities by adjusting profit before tax for non cash items and changes in operating assets and liabilities.

B Group accounts

(i) Subsidiaries Subsidiaries are those companies and special purpose entities controlled directly or indirectly by the Company i.e. where it has power to govern their financial and operating policies. All subsidiaries of the Company are consolidated in the consolidated financial statements. Subsidiaries are consolidated from the date on which control is transferred to the Group, and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is measured at the fair value of the assets given up, shares issued or liabilities incurred at the date of acquisition, plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is recorded as goodwill. See policy U for the accounting policy on goodwill. Inter-company transactions, balances and income and expense on transactions between companies within the Group are eliminated. The consolidated income statement and balance sheet include the financial statements of the Company and its subsidiary undertakings drawn up to the end of the financial year. The Company's interests in group undertakings in the Company's accounts are stated at cost less any provisions for impairment. (ii) Branches

In addition to operating in the UK, the Company operates on a branch network in 11 other European countries and the branches are included within the Company's financial statements.

FCE Bank plc



B Group accounts continued

(iii) Foreign currency translation

The consolidated financial statements are presented in Sterling. Assets and liabilities of each entity of the Group which are denominated in foreign currencies are translated into Sterling at the exchange rates published at the balance sheet date.

Income statements and cash flows of branches and subsidiaries outside of the UK are translated into the Group's reporting currency at average-period exchange rates. Exchange differences arising from the application of year end rates of exchange to opening net assets of foreign branches and subsidiaries are taken to shareholder's equity, as are those differences resulting from the revaluation of the results of foreign operations from average to year end rates of exchange.

On disposal or liquidation of a foreign entity such exchange rate differences are recognised within the income statement under the caption 'Other operating income' as part of the gain or loss on sale.

C Critical accounting estimates

The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results ultimately may differ from those estimates.

An accounting estimate is considered to be critical if:

• The accounting estimate requires assumptions to be made about matters that were uncertain at the time the accounting estimate was made, and

• Changes in the estimate are reasonably likely to occur from period to period, or use of different estimates that reasonably could have been used in the current period, and

• The accounting estimate could have a material impact on the financial statements within the next financial period.

The accounting estimates that are most important to FCE's business are:

• Provision for incurred losses on loans and advances (refer to Note 13 'Provision for

incurred losses') and operating lease assets (refer to Note 15 'Property and equipment'), • Vehicle residual value provisions and depreciation rates applied for vehicles subject to

operating leases (refer to Note 31 'Vehicle residual values').

D Segmental reporting

Business segments are distinguishable components of FCE that provides products or services that are subject to risks and rewards that are different to those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to different risks and rewards that are different to those of components operating in other economic environments.

In accordance with IAS 14 all segments representing 10% or more of the segments revenue, assets or turnover are to be reported as individual geographical segments.

Primary reporting segments: For the purpose of these financial statements and in accordance with IAS 14 'Segment reporting' FCE has primary reporting segments based around the business unit structure representing the various geographic locations of its operations. Secondary reporting segments relate to FCE's range of products and comprise of 'Retail', 'Wholesale' and 'Other'. (Refer to Note 12 'Loans and advances to customers' for further details of Retail and Wholesale). 'Other' includes all assets except 'Retail' and 'Wholesale' receivables.

FCE Bank plc



D Segmental reporting continued Allocation of costs: The main costs which are required to be allocated between primary reporting segments and the basis of allocation are as follows:

• Central staff costs are analysed by department and type of cost and allocated to the

location benefiting from the service. Various allocation methods are used that ensure an equitable allocation between locations of central staff costs.

• Central funding. In certain of FCE's European branches and subsidiaries funding is

obtained by a mixture of local and centrally allocated funding. The costs of central funding, including derivative costs are, where possible, directly allocated to locations where transactions can be specifically identified. Operational efficiencies are also obtained by pooling certain funding, and the related financing costs are allocated across locations to ensure an appropriate allotment of funding costs.

Income and expense from the allocation of intra and inter-company transactions are eliminated on consolidation. E Net interest income

Interest income and expense is recognised in the income statement using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts expected future cash payments or receipts of a financial asset or liability through its expected life to calculate the net carrying amount of a financial asset or liability. The application of this method has the effect of recognising income and expense evenly in proportion to the amount outstanding over the period to maturity or repayment. Interest supplements and other support payments from related parties (including Ford and affiliated manufacturers) are provided at the time of purchase or origination of eligible contracts from dealers. The income is deferred on the balance sheet under the caption 'Loans and advances to customers' and is recognised in 'Interest income' on the same basis as the related receivables. Certain loan origination fees (income) and costs (expenses) which can be directly associated to the origination of loans and advances to customers are regarded as part of the economic return on the loan and included in the loan's carrying value and deferred. The amount deferred is recognised in net interest income, using the effective interest method, over the term of the related receivable.

F Fees and commissions income and expense

Both fees and commission income and expenses are recognised on an accruals basis net of any taxes payable.

Commissions and other bonuses payable to dealers which can be directly associated with the origination of financed receivables are regarded as part of the economic return of the receivables and included as part of the receivable's carrying value. The amount deferred is recognised as a reduction to interest income using the effective interest rate method over the term of the related receivable. Commissions and other bonuses payable which cannot be directly associated with the origination of financed receivables are expensed as incurred.

FCE Bank plc



G Other operating income

Other operating income includes the rentals receivable for vehicles provided under operating leases. Rental income on operating leases is credited to income on a straight-line basis.

H Employee benefits

(i) Retirement benefit obligations

Most of FCE's branches and subsidiaries operate defined benefit pension schemes. Valuations of the pension fund assets and liabilities are completed by a professionally qualified independent actuary. Such valuations include recommendations of future rates of contributions payable into the scheme by the principal company. The funds are valued at least every three years by the actuary. The principal UK fund is valued every two years. In some locations the Company participates in pension schemes that share the risks between entities under common control, and there is no contractual agreement for charging the net defined benefit costs. In such cases the Company recognises a cost equal to contributions payable for the period only and discloses such schemes as 'Accounted for as defined contribution'. Contributions payable by the Company are advised by the principal company which is a related party of FCE.

For defined contribution plans, FCE pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. Once the contributions have been paid, FCE has no further payment obligations. The regular contributions constitute net periodic costs for the years in which they are due. FCE branches that operate defined benefit plans for which Company employees are the only participants recognise the net liability or asset in the balance sheet. Actuarial gains and losses are recognised in profit and loss as they occur, together with contributions payable for the period. For all of the above costs are included within 'Operating expenses'.

(ii) Share-based payments

Under a revised long term incentive programme time-based Restricted Stock Units (RSU) are awarded to directors and employees of FCE. Following a specified restriction period the RSU convert to shares of Ford common stock. The shares carry all associated rights including voting rights and the right to any dividend payments. Grants awarded vest over a three year service period as follows:

• One year from the date of the agreement 33% of the grant will vest • Two years from the date of the agreement an additional 33% of the grant will vest • Three years from the date of the agreement an additional 34% of the grant will vest

The fair value of the employee services received in exchange for the grant of RSU is recognised as an expense and a corresponding increase in 'Other' reserves, which is part of shareholder's equity, over the vesting period. The total amount to be expensed over the vesting period is determined by reference to the fair value of Ford common stock on the grant date, excluding any non-market vesting conditions. Non-market vesting conditions are taken into account so that the amount expensed is based on the number of shares that eventually vest.

FCE Bank plc



H Employee benefits continued

(ii) Share-based payments continued Costs of providing the grant of RSU are charged to FCE by Ford in the year granted and are recognised in 'Other reserves' over the vesting period. Prior to revision of the long-term incentive programme during 2007 share options which can be exercised over Ford Common Stock, were granted to directors and to employees of FCE. The options vest and may be exercised in instalments as follows: a) One year from the date of the agreement 33% of the shares may be exercised b) Two years from the date of the agreement an additional 33% of the shares granted may be exercised c) Three years from the date of the agreement an additional 34% of the shares granted may be exercised The stock options are accounted for on a basis consistent with that for RSU as described above.

I Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise of balances which have a maturity at acquisition of less than 90 days including: treasury bills and other eligible bills, amounts due from other banks and petty cash.

J Financial assets, financial liabilities and offsetting

FCE classifies its financial assets and financial liabilities at inception into the following categories: Financial assets at fair value through profit and loss This category consists of derivative financial assets held at fair value with changes in fair value recognised in profit and loss. Assets in this category are measured at fair value using market rates and industry standard valuation models. FCE has not classified any financial assets into the available for sale or held to maturity category. Loans and receivables These are non-derivative assets with fixed or determinable payments that are not quoted in an active market. Retail and wholesale loans are classified as loans and receivables and are recognised when funds are advanced to customers. Loans and receivables are carried at amortised cost using the effective interest method. Financial liabilities at fair value through profit and loss This consists of derivatives which are held at fair value, with changes in fair value recognised in profit and loss. Financial liabilities at amortised costs These include borrowings, Corporate deposits, debt securities in issue and subordinated loans that are initially recognised at fair value. These are subsequently measured at amortised cost using the effective interest method.

FCE Bank plc



J Financial assets, financial liabilities and offsetting continued

Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a current enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis.

K Derivative financial instruments and hedging

Derivatives are measured at fair value. The fair values of derivatives are calculated using market rates and industry standard valuation models. These models project future cash flows and discount the future amounts to a present value using market-based expectations for interest rates, foreign exchange rates and the contractual terms of the derivative instruments. In certain cases, market data is not available and FCE use management judgment to develop assumptions which are used to determine fair value. Derivatives are included in assets when the fair value is positive and in liabilities when the fair value is negative. When a derivative contract is entered into, FCE may designate certain derivatives as a hedge of the fair value of a recognised asset or liability ('fair value’ hedge). FCE applies the settlement date of accounting for the purchase or sale of a financial asset. The fair values of derivative instruments are disclosed in Note 10 'Derivative financial instruments'.

Hedge accounting Hedge accounting is applied for derivatives only when the following criteria are met:

a) formal documentation of the hedging instrument, hedged item, hedge objective, strategy and relationship is prepared at or before inception of the hedge transaction,

b) the hedge is documented showing that it is expected to be highly effective in

offsetting the risk in the hedged item throughout the reporting period, and c) the hedge is highly effective on an ongoing basis, as measured by re-performance

of effectiveness testing on a minimum quarterly basis.

Fair value hedge accounting Changes in the fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together with changes in the fair value of the hedged item that are attributable to the hedged risk are included in the income statement under the caption 'Fair value adjustments to financial instruments'. When a derivative is de-designated from a fair value hedge relationship, or when the derivative in a fair value hedge relationship is terminated before maturity, the fair value adjustment to the hedged item continues to be reported as part of the basis of the item and is amortised to the income statement over its remaining life.

FCE Bank plc



K Derivative financial instruments and hedging continued

Derivatives not qualifying for hedge accounting Certain derivative transactions (referred to as non-designated in Note 10 'Derivative financial instruments'), while providing effective economic hedges under the Group's risk management policies either do not qualify for hedge accounting under the specific rules in IAS 39 'Financial instruments, recognition and measurement' or FCE elects not to apply hedge accounting. These derivatives are held at fair value and fair value gains and losses are reported in the income statement under the caption 'Fair value adjustments to financial instruments'.

L Other assets

The carrying value of 'Other assets' is stated at cost less any provision for impairment. Vehicles returned to FCE from operating lease, retail and finance leases which are awaiting resale are carried at the net book value after adjusting for any residual value provisions. Vehicles consigned to dealers on consignment financing arrangements are disclosed in Note 11 'Other assets'. Gains and losses on disposals of Operating lease vehicles are included in the income statement under the caption depreciation expense and for vehicles returned from retail and finance lease contracts under 'Interest income'.

M Loans and advances to customers

Loans and advances to customers including finance lease receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and which are not classified as available for sale. Loans and advances to customers are initially recognised at fair value including direct and incremental transaction fees (including interest supplements and other support payments from related parties) and costs. They are subsequently valued at amortised cost, using the effective interest rate method – refer to accounting policy E 'Net interest income'.

N Leases

(i) Where FCE is the lessor: Finance leases – Assets purchased by customers under conditional sale agreements and leased under finance leases are included in 'Loans and advances to customer' at the gross amount receivable, less unearned finance charges. Finance income is recognised over the lease term using the net investment method so as to reflect a constant periodic rate of return in proportion to the net investment in the contract. Operating leases – Assets leased to customers under operating leases are included in 'Property and equipment'. Income recognised in the income statement is described in accounting policy G. (ii) Where FCE is the lessee: To date, the leases entered into by FCE are all operating leases. Operating lease rental expense is charged to the income statement within 'Operating expense' on a straight line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

FCE Bank plc



O Provision for incurred losses

A provision for incurred losses is established when FCE considers the credit-worthiness of an individual borrower or lessee has deteriorated such that the recovery of the whole or part of an outstanding advance or group of loan assets is in doubt. The criteria that FCE uses to determine that there is objective evidence that an impairment loss has occurred include:

• Delinquency in contractual payments of principal or interest;

• Cash flow difficulties experienced by the borrower (for example, equity ratio, net income percentage of sales);

• Breach of loan covenants or conditions;

• Initiation of bankruptcy proceedings;

• Deterioration of the borrower’s competitive position;

• Deterioration in the value of collateral. The provision takes into consideration the financial condition of the borrower or lessee, the value of the collateral, recourse to guarantors and other factors. Loan assets with similar credit characteristics are grouped together and evaluated for impairment on a collective basis.

Following the impairment of a retail financing contract the carrying value of the loan (both 'Gross' and 'Net' as reported in Note 12 'Loans and advances to customers') is reduced to reflect the average vehicle recovery value. The average vehicle recovery value is calculated by multiplying the expected sale proceeds of the vehicle by historical vehicle recovery percentages. Following vehicle recovery and prior to vehicle resale, the carrying value of the loan is eliminated and the vehicle is recorded in 'Other Assets' at the estimated realisable value net of disposal costs. Any further recoveries for contracts previously charged off as uncollectible are written back to 'provision for incurred losses' on loans and advances to customers.' At the point of impairment of a wholesale loan the carrying value of the loan is reduced by the use of a 'specific impairment allowance' for the estimated uncollectible amount. If the final loss at settlement is greater than expected then a further 'write-off ' or if lower a further 'recovery' is recorded and the 'specific impairment allowance is eliminated and the carrying value of the loans (both 'Gross' and 'Net' as reported in Note 12 'Loans and advances to customers') is reduced to reflect the estimated collectable amount. A provision for incurred losses is made against loans and advances and operating lease assets to cover bad and doubtful debts which have been incurred and not separately identified, but which are known from experience to be present in portfolios of loans and advances and operating leases. The provision is determined based on a number of factors including historical loss trends, the credit quality of the present portfolio and general economic factors. Provisions for incurred losses relating to operating lease assets are presented as an adjustment to accumulated depreciation. Provision for incurred losses is deducted from loans and advances to customers and property and equipment and is included in the income statement under the caption 'Impairment losses on loans and advances' and 'Depreciation of property and equipment' respectively. The provision for incurred losses comprises the brought forward balance at the beginning of the period plus the income statement charge as referred to above less 'Net losses' and includes exchange adjustments relating to foreign currency translation. 'Net losses' comprises of loans that have been written off when there is no realistic prospect of recovery, less any subsequent recoveries of bad debts which had previously been written off.

Retail and wholesale loans whose terms have been renegotiated in the normal course of business and for which no objective evidence of impairment loss has occurred are not considered as past due or impaired.

FCE Bank plc



P Securitisation and related financing

The Company has entered into financing arrangements with lenders in order to finance loans and advances to customers. Such receivables have typically been sold for legal purposes to consolidated Special Purpose Entities (SPEs). As the Company is not fully isolated from the risks and benefits of securitisation transactions, the requirements of IAS 39 'Financial instruments, recognition and measurement' have been followed. As required by IAS 39 the Company continues to recognise the carrying value of the transferred assets and a liability is recognised, net of retained interests, for the proceeds of the funding transaction. Certain transaction costs which can be directly associated to securitisation debt issuance are deferred – refer to accounting policy W 'Debt'. The SPEs utilised by the Company and which are listed on page 91, conduct their activities solely to meet securitisation requirements of the Company. In accordance with the scope of Interpretation SIC-12 'Consolidation – Special Purpose Entities' and IAS 27 'Consolidated financial statements and accounting for investments in subsidiaries' such entities are consolidated as a subsidiary within the Group balance sheet.

Q Vehicle residual value provisions

Residual values represent the estimated value of the vehicle at the end of the retail or leasing financing plan. Residual values are calculated after analysing published residual values and FCE's own historical experience in the used vehicle market.

Residual value provisions and accumulated depreciation on vehicles subject to operating leases are based on assumptions as to the used car prices at the end of the financing plan and the number of vehicles that will be returned. Vehicle residual value provisions are reviewed at least quarterly and are accounted for as an adjustment to the carrying value of the assets. The amount of any impairment to residual values is accounted for as supplemental depreciation for operating leases and as a deduction from 'Loans and advances to customers' for retail and finance lease contracts. These assumptions and the related reserves may change based on market conditions - refer to accounting policy C 'Critical accounting estimates'. Changes to residual value provisions for retail and finance lease contracts are included in the income statement under the caption 'Interest income' and for operating leases within 'Depreciation of property and equipment'.

R Property and equipment

All property and equipment is stated at historical cost less accumulated depreciation. Depreciation is calculated on a straight line method to write down the cost of such assets to their residual values at the following rates: Asset Type Annual Depreciation Rate Computer equipment 10.00% Other office equipment 8.00% Company motor vehicles 25.00% Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are included in 'Operating expenses' in the income statement. Operating lease assets over which FCE has entered into operating lease agreements as the lessor are included in Property and equipment. Depreciation is charged on Operating Lease assets over the period of the lease to its estimated residual value on a straight line basis.

FCE Bank plc



R Property and equipment continued The depreciation policy for leased vehicles (including vehicles subject to operating leases) is reviewed on a regular basis taking into consideration various assumptions, such as expected residual values at lease termination and the estimated number of vehicles that will be returned. Adjustments to reflect revised estimates of expected residual values at the end of the lease terms are recorded on a straight-line basis. Upon return of the vehicle, depreciation expense is adjusted for the difference between net book value and expected resale value and the vehicle is transferred to 'Other assets'.

S Deferred and current income taxes

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Deferred tax is determined using tax rates and laws that have been substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Income tax payable on profits is based on the applicable tax law in each company's jurisdiction and is calculated at rates of tax substantially enacted at the balance sheet date. Income tax payable is recognised as an expense in the period in which the profits arise. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available which these losses can be utilised against.

T Joint ventures

Joint ventures (JV's) are those entities over whose activities FCE has joint control, established by contractual agreement. Interest in JV's are classified as jointly controlled entities and accounted for using the equity method of accounting. Under the equity method of accounting, the investment is initially recorded at cost and is subsequently adjusted to reflect the FCE's share of the net profit or loss of the JV within the income statement under the caption 'Share of profit in a jointly controlled entity'.

U Goodwill and other intangible assets

(i) Goodwill represents the excess of the cost of an acquisition over the fair value of the Company's share of the net assets of the acquired subsidiary at the date of acquisition. At each balance sheet date goodwill is tested for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing.

(ii) Other intangible assets relate to computer software development costs. Such costs typically are expensed as incurred. Costs that are directly associated with identifiable and unique software products controlled by FCE and which are anticipated to generate future economic benefits exceeding costs are recognised as intangible assets. Direct costs include staff costs of the software development team.

Expenditure which significantly enhances or extends the performance of computer software programmes beyond their original specifications is recognised as capital improvements and added to the original costs of the software. Computer software development costs recognised as assets are amortised using a straight line method over their useful lives of three or eight years for PC/network and mainframe applications respectively. Other intangible assets are carried at cost less accumulated amortisation and any impairment charges. Impairment is tested at each reporting date. The amortisation of intangible assets is recorded within the income statement within other operating expenses.

FCE Bank plc



V Investments in group undertakings

The Company's interest in group undertakings are stated at cost less any provisions for impairment.

W Debt

Debt which includes amounts due to banks and other financial institutions, corporate deposits, debt securities in issue and subordinated loans are initially stated at fair value net of transaction costs incurred. Foreign currency debt obligations as other foreign currency assets and liabilities are translated into sterling at the exchange rates ruling at the balance sheet and gains and losses are recorded within the income statement under the caption 'Loss on foreign exchange'. Debt not designated as part of a hedging relationship is subsequently stated at amortised cost and any differences between net proceeds and the redemption value is recognised in the income statement over the life of the underlying debt. Debt that is designated as part of a fair value hedging relationship is adjusted to reflect changes in fair value attributable to the risk being hedged and the gains and losses are recognised in the income statement within the same caption as the associated hedge, which is 'fair value adjustments to financial instruments'. Certain transaction costs which can be directly associated to securitisation debt issuance are deferred. For retail and wholesale securitisation transactions, deferred costs are amortised to 'interest expense' over the term of the related debt using the effective yield and straight line methods respectively. Transaction costs which cannot be directly associated to securitisation debt issuance are expensed to 'Operating expenses'. .

X Other liabilities and provisions

Provisions are recognised when FCE has a present and legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provision is made for the anticipated cost of restructuring including employee separation costs, when an obligation exists. An obligation exists when FCE has a detailed formal plan for restructuring an operation and has raised valid expectations in those affected by the restructuring by starting to implement the plan or announcing its main features. Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless they are remote.

Y Dividends

Dividends declared but not paid are included within the balance sheet under the caption 'amounts due to parent and related undertakings' if all of the following criteria are met: (i) proposal by the directors, (ii) if a final dividend then approval at the Annual General Meeting and (iii) approval by the FSA, at which point the dividends become formally declared. Dividends declared following the balance sheet date are disclosed as a non-adjusting post balance sheet event.

Z Financial guarantees

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Financial guarantees are initially recognised in the balance sheet at fair value.

FCE Bank plc



Index to the notes to the financial statements

Description Page 1 Segmental reporting 65 2 Net interest income 70

3 Net fees and commission income 71

4 Other operating income 71

5 Operating expenses 72

6 Fair value adjustments to financial instruments and Loss on foreign exchange

74

7 Profit before tax 75

8 Income tax expenses 78

9 Cash and advances to banks 79

10 Derivative financial instruments 80

11 Other assets 82 12 Loans and advances to customers 83

13 Provision for incurred losses 86 14 Securitisation and related financing 88

15 Property and equipment 92

16 Income taxes receivable and payable 93 17 Deferred tax assets and liabilities 94 18 Investment in a jointly controlled entity 95 19 Goodwill and other intangible assets 96

20 Investments in group undertakings 98

21 Due to banks and other financial institutions 99

22 Corporate deposits 100 23 Due to parent and related undertakings 101

24 Debt securities in issue 102

25 Other liabilities 103

26 Subordinated loans 104

27 Retirement benefit obligations 105

28 Contingent liabilities 110

29 Commitments 111

30 Future lease commitments 111

31 Vehicle residual values 112

32 Ordinary shares and share premium 113

33 Total shareholders' equity 114 34 Dividend per share 115

35 Related party transactions 115

36 Disposals 119

37 Share based payments 121

38 Currency risk 123

39 Interest rate risk 125

40 Liquidity risk 126

41 Financial assets and financial liabilities 130

42 Components of capital 132 43 Notes to consolidated cash flow statement 133

44 Post balance sheet events 134 45 FCE and other related party information 135

Figures in bold font within the notes to the financial statements relate to balances as at 31 December 2008 or revenue, expenditure or other information for the year ended 31 December 2008.

FCE Bank plc


FCE Bank plc – Annual Report and Accounts – 2008 65

Note continues on next page

1 SEGMENTAL REPORTING

Geographic segmentation is the primary reporting segment as FCE is organised on a geographic basis through its branches and subsidiaries. FCE measures the performance of its branches and subsidiaries primarily on a profit before tax basis, after excluding the impact of earnings from fair value adjustment to derivatives, and other related fair value accounting adjustments. All transactions between segments are conducted on an arm's length basis.

Product segmentation is the secondary reporting segment and includes retail, wholesale and other assets for which revenue and assets are reported. Segmental reporting for both the primary and secondary segments is provided for the Company and Group on pages 66 and 67 and pages 68 and 69 respectively. The charts below are extracted from the Group data as at 31 December 2008 and analyse both retail and wholesale net loans and advances to customers by major market and by currency.

EUR

72%

GBP

23%

OTHER 5%

Additional charts which provide further Group segmental data as at 31 December 2008 are contained on pages 11 and 12. Page 11 analyses retail and wholesale segments as a percentage of net loans and advances to customers. Page 12 analyses net loans and advances to customers for both retail and wholesale by major market and brand.

Analysis of Group Retail and Wholesale net loans and advances to customers as at

31 December 2008 by major market

Retail 31 December 2008 by major market

Wholesale 31 December 2008 by major market

Analysis of Group Retail net loans and advances to customers as at 31 December 2008 by currency

UK

25%

Italy

15%

Spain

11%

Other

23%

Germany

15%

France

11%

UK

21%

Germany

38%

Italy

13%

Spain

13%

France

4%

Other

11%

FCE Bank plc




1 SEGMENTAL REPORTING

The segmental data reported for the Company represents outstanding balances at the year end, and profit before tax, revenue, expenditure and other information for the year. Segmental data disclosures continue on the next page.

COMPANY UK Germany Italy Spain France

2008 2007* 2008 2007* 2008 2007* 2008 2007* 2008 2007* Notes £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil External revenue £ 429 £ 383 £ 425 £ 410 £ 170 £ 135 £ 158 £ 143 £ 104 £ 84

Revenue from other segments

- - - - - - - - - -

Total revenue: 429 383 425 410 170 135 158 143 104 84

- Retail revenue £ 184 £ 180 £ 226 £ 189 £ 85 £ 73 £ 81 £ 79 £ 31 £ 29 - Wholesale revenue 205 173 94 84 81 60 75 62 69 51 - Other revenue 40 30 105 137 4 2 2 2 4 4

Share of profit in a jointly controlled entity 18

-

-

-

-

-

-

-

-

-

-

Profit/(loss) before tax 7 94 92 82 81 22 20 (15) 23 24 18

- Retail assets 12 1,847 1,830 3,327 2,403 1,131 962 1,184 1,106 359 314 - Wholesale assets 12 2,130 1,874 1,301 946 1,264 929 940 865 953 758 - Other assets 216 49 1,750 1,318 263 174 100 78 125 137

Total assets 4,193 3,753 6,378 4,667 2,658 2,065 2,224 2,049 1,437 1,209

Total liabilities 3,631 3,263 5,605 4,116 2,245 1,774 1,906 1,766 1,212 1,050

Additions: Property & Equipment 15 3 1 296 283 - - - - - - Intangible assets 19 - - - - - - - - - - Depreciation/amortisation 7 1 1 87 82 - - - - - - Loan impairment losses 13 14 2 (3) 18 13 8 48 6 2 -

For further details of the Company's geographical segments refer to the table below:

Primary Segment Description

United Kingdom FCE Bank plc excluding Worldwide Trade Financing (WTF) a UK division (which is included within 'Other locations') and Central Office operations as detailed below.

Other Euro currency locations Austria, Belgium, Greece, Ireland, Netherlands and Portugal. As at 31 December 2007 'Other Euro locations' included FCE's branch in Finland, the business and assets of which have subsequently been transferred. For further details please refer to Note 18 'Investment in a jointly controlled entity' and Note 36 'Disposals'.

Other locations Includes WTF a UK division and an amortising receivable portfolio in Norway. As at 31 December 2007 'Other locations' included FCE's branches in Denmark, Norway, Sweden and Switzerland, the majority of the business and assets of which have subsequently been transferred. For further details please refer to Note 18 'Investment in a jointly controlled entity' and Note 36 'Disposals'.

Central office Relates to various operations providing support to the Company's branches. Other assets include funding provided to the Company's branches. Fair value adjustments to derivatives are recorded within the Central Office segment earnings as derivatives are administered on a centralised basis for the Company.

Eliminations Eliminates intra company transactions between the Company and its branches

FCE Bank plc




1 SEGMENTAL REPORTING continued

The segmental data reported represents data for the Company for the year ended 31 December and is a continuation from the previous page.

Other Euro Currency locations

Other locations Central office Eliminations Total Company

COMPANY 2008 2007* 2008 2007* 2008 2007* 2008 2007* 2008 2007

Notes £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil External revenue £ 152 £ 126 £ 94 £ 106 £ 94 £ 40 £ - £ - £1,626 £ 1,427


-

-

-

-

268

257

(268)

(257)

-

-

Total revenue 152 126 94 106 362 297 (268) (257) 1,626 1,427

- Retail revenue £ 59 £ 55 £ 44 £ 49 £ - £ - £ - £ - £ 710 £ 654 - Wholesale revenue 85 65 48 55 - - - - 657 550 - Other revenue 8 6 2 2 362 297 (268) (257) 259 223


-

-

-

-

-

-

-

-

-

-

Profit/(loss) before tax 7 36 27 16 22 157 (9) - - 416 274

- Retail assets 12 721 668 147 754 - - - - 8,716 8,037 - Wholesale assets 12 1,212 1,126 465 636 - - - - 8,265 7,134 - Other assets 250 248 180 192 6,236 5,036 (5,431) (5,090) 3,689 2,142 Total assets 2,183 2,042 792 1,582 6,236 5,036 (5,431) (5,090) 20,670 17,313

Total liabilities 1,884 1,766 725 1,368 5,803 4,780 (5,431) (5,086) 17,580 14,797

Additions: Property & Equipment 15 12 16 6 14 - - - - 317 314 Intangible assets 19 - - - - 3 10 - - 3 10

Depreciation/amortisation 7 4 4 - - 5 5 - - 97 92 Loan impairment losses 13

2 1 - (1) - - - - 76 34

* The analysis of total revenue for 2007 has been represented to separately reflect revenue amounts as either external or from other segments.

FCE Bank plc




1 SEGMENTAL REPORTING continued The segmental data reported for FCE represents outstanding balances at the year end, and profit before tax, revenue, expenditure and other information for the year. Segmental data disclosures continue on the next page

GROUP UK Germany Italy Spain France

Notes 2008 2007* 2008 2007* 2008 2007* 2008 2007* 2008 2007* £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil

External revenue £ 436 £ 386 £ 436 £ 403 £ 175 £ 138 £ 167 £ 153 £ 107 £ 84


231

102

92

71

20

6

82

4

43

2

Total revenue: 667 488 528 474 195 146 249 157 150 86

- Retail revenue £ 185 £ 180 £ 226 £ 189 £ 85 £ 73 £ 81 £ 79 £ 31 £ 29 - Wholesale revenue 205 174 94 84 80 60 75 62 69 51 - Other revenue 277 134 208 201 30 13 93 16 50 6


-

-

-

-

-

-

-

-

-

-

Profit/(loss) before tax 7 42 85 62 79 (4) 15 (49) 26 22 18

- Retail assets 12 1,847 1,829 3,327 2,403 1,131 962 1,184 1,106 359 314 - Wholesale assets 12 2,130 1,873 1,301 945 1,264 929 940 863 953 758 - Other assets 3,946 3,254 4,256 3,254 863 623 1,859 802 1,055 327

Total assets: 7,923 6,956 8,884 6,602 3,258 2,514 3.983 2,771 2,367 1,399

Total liabilities 6,876 5,284 8,127 6,053 2,875 2,224 3,680 2,483 2,140 1,240

Additions: Property & Equipment 15 3 8 296 283 - - - - - - Intangible assets 19 - - - - - - - - - - Depreciation/amortisation 7 1 1 87 83 - - - - - - Loan impairment losses 13

14 1 (3) 17 13 8 48 6 2 1

The Group's geographical segments include the operations as detailed on page 66 and the following additional operations detailed below

Primary Segment Description

United Kingdom UK subsidiaries as detailed on page 98 and SPEs* supporting UK securitisation transactions.

Germany, Italy, Spain and France SPEs* supporting each locations securitisation transactions. Other Euro currency locations SPEs* supporting securitisation transactions in the Netherlands and Ireland.

In addition Volvo Car Finance Finland Limited a subsidiary of the Company up until its sale - for further details please refer to Note 18 'Investment in a jointly controlled entity' and Note 36 'Disposals'.

Other locations Includes subsidiaries located in the Czech Republic, Hungary, Poland and a Swedish holding company Saracen Holdco Ab which includes income from the Nordic JV.

Central office Relates to various operations providing support to the Company's subsidiaries. Other assets include funding provided to the Company's subsidiaries where provided.

Eliminations Eliminates inter company transactions between the Company and its subsidiaries.

* SPEs are listed within Note 14 'Securitisation and related financing' on page 91. Other assets and liabilities include balances with the Company branches which are eliminated upon consolidation. The SPE earnings are also include fair value adjustments to derivatives.

FCE Bank plc



1 SEGMENTAL REPORTING continued

The segmental data reported represents data for the FCE group for the year ended 31 December and is a continuation from the previous page.

GROUP Other Euro currency locations

Other locations Central office Eliminations Total Group

Notes 2008 2007* 2008 2007* 2008 2007* 2008 2007* 2008 2007* £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil

External revenue £ 164 £ 146 £ 195 £ 155 £ 41 £ 17 £ - £ - £1,721 £ 1,482


104

53

2

-

305

280

(879)

(520)

-

-

Total revenue 268 199 197 155 346 297 (879) (520) 1,721 1,482

- Retail revenue £ 62 £ 59 £ 54 £ 52 £ - £ - £ - £ - £ 724 £ 661 - Wholesale revenue 85 65 71 68 - - - - 679 564 - Other revenue 121 75 72 35 346 297 (879) (520) 318 257


-

-

1

-

-

-

-

-

1

-

Profit/(loss) before tax 7 28 27 57 30 142 (5) - - 300 275

- Retail assets 12 721 772 214 811 - - - - 8,783 8,197 - Wholesale assets 12 1,212 1,127 702 808 - - - - 8,502 7,303 - Other assets 3,065 1,988 414 267 6,630 4,917 (17,733) (12,763) 4,355 2,669

Total assets 4,998 3,887 1,330 1,886 6,630 4,917 (17,733) (12,763) 21,640 18,169

Total liabilities 4,705 3,585 1,029 1,620 5,803 4,791 (16,557) (11,566) 18,678 15,714

Additions: Property & Equipment 15 - 22 41 49 - - - - 340 362 Intangible assets 19 - - - - 3 10 - - 3 10 Depreciation/amortisation 7 7 9 37 27 5 5 - - 137 125 Loan impairment losses 13

2 (2) - 1 - 1 - - 76 33

* The analysis of total revenue for 2007 has been represented to separately reflect revenue amounts as either external or from other segments.

FCE Bank plc



2 NET INTEREST INCOME

Interest earned on most retail receivables is generally fixed at the time the contracts are originated. On some receivables, primarily wholesale financing, FCE charges interest at a floating rate that varies with changes in short-term interest rates.

For the year ended 31 December GROUP

2008 2007

Notes £ mil £ mil

Interest income

Interest income from loans and advances to external parties £ 765 £ 752 Interest income from related parties 35 577 474 Cash and short term deposit income from external parties and other miscellaneous income

56

39

1,398 1,265 Interest expense

Interest expense to external parties (792) (639) Interest expense to related parties 35 (157) (152)

(949) (791)

Net interest income £ 449 £ 474

'Interest income from loans and advances to external parties' includes revenue from 'retail', 'wholesale' and 'other' segments excluding income from operating lease vehicles which is reported within Note 4 'Other operating income'. 'Interest income from related parties' primarily relates to wholesale receivables income with entities that are reported as consolidated entities of Ford and include both wholly and partially Ford owned dealers.

'Cash and short term deposit income from external parties and other miscellaneous income' mainly relates to interest income from short term investments. Such investments arise as in the normal course of funding activities, more proceeds than are necessary for immediate funding needs are generated. These excess amounts are maintained primarily as highly liquid investments and the associated interest income is reported within the caption. 'Interest expense to external parties' includes expense relating to securitisation, local bank borrowings, public debt offering and the issuance of commercial paper and corporate deposits. 'Interest expense to related parties' includes expense related to liabilities included within the caption 'Total unsubordinated debt' within Note 23 'Due to parent and related undertakings' and Note 26 'Subordinated loans'.

FCE Bank plc



3 NET FEES AND COMMISSION INCOME


2008 2007

£ mil £ mil

Fees and commission income

Finance related and other fee income £ 75 £ 55 Insurance sales commission income 43 28

118 83

Fees and commission expense Finance related and other fees expense (10) (16) Commission and incentives expense (5) (3)

(15) (19)

Net fees and commission income £ 103 £ 64

'Finance related and other fee income' relates to other fees received which cannot be directly associated with the origination of the finance receivables. Other fee income includes FSL commission income received by FCE from the provision of marketing and sales of commercial operating lease customers to a non-affiliated business partner. The preferred third party FSL business partner in each market is responsible for financing, maintenance, repair services and the resale of vehicles at the end of the lease period. 'Insurance sales commission income' primarily relates to Ford branded insurance products which are offered throughout Europe. These insurance products which are mainly vehicle insurance related and payment protection plans are underwritten by non-affiliated local insurance companies from which FCE receive fee income but the underwriting risk remains with the third-party insurance companies. 'Fee and commission expense' includes commissions and other bonuses payables to dealers which cannot be directly associated with the origination of the finance receivables.

4 OTHER OPERATING INCOME

Other operating income includes rentals received for operating lease vehicles to leased commercial customers including leasing companies, daily rental companies and fleet customers and other miscellaneous income. For operating leases the financing margin equals rentals received as recorded in 'Other operating income' less depreciation expense as recorded within Note 15 'Property and equipment' and the cost of borrowed funds as recorded within the caption 'Interest expense' within Note 2 'Net interest income'.


2008 2007

Notes £ mil £ mil

Income from operating leases £ 140 £ 134 Other miscellaneous income: - Gain on sale of interest to joint venture partners 36 34 - - Residual value risk loss sharing arrangement with third parties 31 15 - - Gain on sale of interest to another Ford entity 36 14 - - Dividend received from related party 35 1 - - Other 1 - Total other miscellaneous income 65 -

Other operating income £ 205 £ 134

FCE Bank plc




5 OPERATING EXPENSES


2008 2007

Notes £ mil £ mil

Staff costs: Restated*

Wages and salaries £ 116 £ 111 Social security contributions 14 13 Retirement benefits 27 12 14 Total staff costs 142 138 Other expenses: Software amortisation 19 5 5 Administrative expenses 35 67 69 Operating lease rental expense 13 11 Other expenses 1 - Total other expenses 86 85

Operating expenses excluding exceptional items 228 223 Exceptional items: - Impairment of goodwill 7 12 - - Restructuring provision/(release) 7 3 (1)

Operating expenses including exceptional items £ 243 £ 222

Number of employees

Average monthly number of permanent employees during the year

2,377

2,645 * Refer to page 51 Accounting Policy A for details of 2007 restated figures

Excluded from 'Retirement benefits' and 'Wages and salaries' is £3 million charge (2007: £1 million credit) relating to changes in 'restructuring provisions' and from 'Other expenses' is £12 million charge (2007: nil) relating to goodwill impairment. For further details of both exceptional items refer to Note 7 'Profit before tax'. Included with 'Administrative expenses' are amounts paid to Ford and its related companies for services received which are detailed within Note 35 'Related party transactions'.

Directors and Officers: FCE's Directors and Officers, and persons connected with them, are also considered to be related parties for disclosure purposes. Officers are defined as those persons who are members of FCE's Executive Committee who are not also statutory directors of the Company (for more information on the Executive Committee please refer to 'Governance - Committees of the Board' on page 37). All but two of the Officers, thus defined, are direct reports to the Chairman. The two remaining members are direct reports to a Board director.

Loans: In the ordinary course of business the Company makes loans available to certain management grade employees, Officers and directors under a management car loan plan. Non-Executive directors are not entitled to participate in this arrangement. Certain directors and officers of the Company (including connected persons) have been granted loans to finance the purchase of a maximum of two vehicles from Ford Motor Company Limited (FMCL). The individual pays the Company only the interest on the loan which is set at a commercial rate. These payments are paid monthly as incurred and no interest was outstanding at year-end. The terms of the loans are not intended to last for longer than twelve months. When the loans mature the employee may settle the loan directly with FMCL or the vehicles are returned to FMCL.

FCE Bank plc



5 OPERATING EXPENSES continued

Directors and Officers continued:

Details of transactions, outstanding balances at the beginning and end of periods, maximum amount

outstanding and related income and expense in the period are as follows:

COMPANY 2008 2007

Directors Officers Total Directors Officers Total £000's £000's £000's £000's £000's £000's

Loans Loans outstanding at 1 January £157 £226 £383 £94 £210 £304 Loans issued in the year 220 418 638 250 300 550 Loan repayments during the year (266) (421) (687) (187) (284) (471) Loans outstanding at 31 December £111 £223 £334 £157 £226 £383

Maximum loans amount in period £165 £234 £399 £157 £226 £383 Revenue Interest revenue from loans 19 33 52 13 22 35 Compensation payments Salaries/other short-term benefits 1,065 1,144 2,209 1,366 986 2,352 Post-employment benefits 134 193 327 126 157 283 Share based payments 152 69 221 128 46 174 Total compensation payments £1,351 £1,406 £2,757 £1,620 £1,189 £2,809

'Salaries/other short-term benefits' includes termination payments made in 2008 to one officer of £177,047. No termination benefits were paid in 2007. Officers are the nine (2007: eight) members of the Executive Committee who are not directors of the Company. The full list of present directors and details on the Committees of the Board are displayed on page 31 and from page 37 respectively.

Compensation payments: Aggregate emoluments for the highest paid director including dividends received under long term incentive schemes were £203,278 (2007: £186,960). No share option awards were received under a Long Term Incentive Scheme.

The highest paid director in 2008 is a member of the Ford Motor Company Limited Pension Scheme for Senior Staff. The projected accrued annual benefit at age 65 for the highest paid director at 31 December 2008 is £67,761. Employer contributions made to the pension of the highest paid director during 2008 totalled £32,884. The pension scheme allows for some of the accrued annual pension benefit to be commuted to a lump sum payment on retirement. The maximum projected lump sum available at age 65 for the highest paid director in 2008 is £260,846 together with a reduced pension of £39,073. The highest paid director in 2007 was a member of the Ford (US) General Retirement Plan (GRP) and comparison between the two pension schemes could be misleading due to their different features and structures. The GRP is a defined benefit plan and does not allow for an accrued lump sum. No company contributions for the highest paid director in 2007 were made to the GRP in 2007. However, the highest paid director in 2007 received an annual interest payment on their past contributions of £1,055. The projected accrued annual benefit at age 65 for the highest paid director in 2007 was £27,434.

Post-employment benefits: Retirement benefits are accruing to six current directors and nine

officers (2007: eight directors and eight officers) under various Ford defined benefit schemes.

Share-based payments: During the financial year ended 31 December 2008 no directors or officers who received remuneration from the Company in respect of their services to the Company, including the highest paid director, exercised options held over Ford Common Stock (2007: nil). No shares (2007: nil) under a Long Term incentive scheme were received by the highest paid director in 2008.

FCE Bank plc



6 FAIR VALUE ADJUSTMENTS TO FINANCIAL INSTRUMENTS

AND LOSS ON FOREIGN EXCHANGE

(I) Fair Value adjustments to financial instruments The following table analyses by type of contract the fair value adjustments recognised in the income statement within the captions 'Fair value adjustments to financial instruments'.

For the year ended 31 December GROUP 2008 2007 Net gains/(losses) recognised in the income statement – prior to tax

and excluding loss on foreign exchange as detailed below. £ mil £ mil Designated fair value hedges Restated*

Interest rate contracts: Ineffectiveness on fair value hedges £ 1 £ - Total designated fair value hedges 1 - Non-designated derivatives Interest rate contracts: Interest rate swaps 17 (14) Cross currency interest rate swaps - (2) Foreign exchange forwards 70 11 Total non designated derivatives 87 (5) Total net gains/(losses) recognised in the income statement £ 88 £ (5) * Refer to page 51 Accounting Policy A for details of 2007 restated figures

All derivatives entered into by FCE are entered into for the purpose of matching or minimising risk. For further information in regard to derivative usage, policies and controls refer to the 'Financial market risk management section' which commences on page 25

The gain of £1 million (2007; Nil) for fair value hedges comprises of the gains on the hedging instruments in 2008 of £27 million which were partially offset by losses on the hedged items attributable to the hedged risk of £26 million.

The gain on non designated derivatives of £87 million (2007: loss £5 million) relates to gains from foreign exchange forwards of £70 million (2007: £11 million gain), interest rate swaps of £17 million (2007: £14 million loss) and cross currency interest rate swaps 2008 nil (2007: £2 million loss). The fair value adjustments for foreign exchange forwards are offset by the loss on foreign exchange as explained in the section below. For interest rate risk management, FCE uses interest rate swaps to match the repricing characteristics of its receivables to its debt. Following fixed rate EMTN issuances in 2008 FCE now holds more pay-floating swaps. Consequently the overall fair value of interest rate swaps has increased in 2008 as a result of falling forward interest rates.

Derivatives are measured at fair value using market rates and industry standard valuation models.

(II) Loss on foreign exchange The following table analyses the gains and losses recognised in the income statement within the captions 'Loss on foreign exchange' arising primarily from the translation of foreign currency assets and liabilities into sterling at exchange rates ruling at the balance sheet date.

For the year ended 31 December GROUP 2008 2007* (Loss)/gain recognised in the income statement – prior to tax and

excluding foreign currency derivative fair value adjustments £ mil £ mil Foreign currency debt obligations £ (97) £ (17) Other foreign currency assets and liabilities 2 - Total net (losses)/gains recognised in the income statement £ (95) £ (17) * Refer to page 51 Accounting Policy A for details of 2007 restated figures

To meet funding objectives, FCE borrows in a variety of currencies. FCE exposure to currency exchange rates occurs if a mismatch exists between the currency of the receivables and the currency of the debt funding those receivables. Wherever possible, FCE funds receivables with debt in the same currency, minimising exposure to exchange rate movements. When a different currency is used, foreign currency derivatives are executed to convert substantially all of the foreign currency debt obligations to the local country currency of the receivables. Consequently the loss on 'foreign currency debt obligations' of £97 million (2007: £17 million) is partially offset by fair value gains to foreign exchange forward contracts as detailed in the fair value adjustment table at the top of this page.

FCE Bank plc




7 PROFIT BEFORE TAX

Profit before tax includes certain exceptional items. Exceptional items are typically non-recurring events or transactions of which disclosure aids the interpretation of performance compared to the prior year. Exceptional items have resulted in increased profits of £70 million in 2008 as compared to a £3 million increase in profit before taxes for 2007.

Exceptional items GROUP Profit before tax (PBT) is stated after crediting/(charging): 2008 2007 Total income: Notes £ mil £ mil - Gain on sale of interests to joint venture partner 36 £ 34 £ - - UK VAT claims and associated interest 32 9 - Gain on sale of Switzerland branch net assets sold 36 14 - - Commission income adjustment (provision)/release 4 (7) - Interest received on revised income tax assessments - 9 Sub-total – total income 84 11 Impairment losses on loans and advances -(Provision)/release for wholesale loans due to legal developments in certain jurisdictions

1 (9)

Sub-total impairment losses on loans and advances 1 (9) Operating expenses: - Impairment of goodwill 19 (12) - - Restructuring (provision)/release – refer to following page (3) 1 Sub-total Operating expenses (15) 1 Total exceptional items £ 70 £ 3

'Gain on sale of interests to joint venture partner' of £34 million (2007: nil) was realised by FCE in June 2008 following the sale of 50 per cent plus one share in Forso to a joint venture partner and includes currency translation differences which were transferred to the income statement previously having been recognised within shareholders equity. Refer to Note 36 'Disposals' which commences on page 119 for further details.

'UK VAT claims and associated interest' with HM Customs & Excise resulted in a £32 million gain in 2008 (2007: £9 million gain) which has been reported in 'Total income'. These related to various claims some of which dated back to 1979. Of the £32 million gain recognised in 2008 £18 million has been received from HM Customs & Excise and £14 million related to accrued interest (for further details refer to Note 44 'Post balance sheet events').

'Gain on sale of Swiss branch assets and liabilities' relates to the sale of the Company's Swiss branch in December 2008 to another Ford affiliated company, Volvo Auto Bank Deutschland GmbH. A £14 million gain (2007: nil) relates primarily to currency translation differences which were transferred to the income statement previously having been recognised within shareholders equity. Refer to Note 36 'Disposals' which commences on page 119 for further details.

'Commission income adjustment (provision)/release resulted in a £4 million gain in 2008 (2007: £7 million charge). Following a review of commission income in 2007, the Company charged the income statement, reflecting certain risks which at that time were judged to be probable. Following a more detailed review in 2008 £4 million of such reserves have been released. There are further potential liabilities which are judged to be less probable which have been disclosed within Note 28 'Contingent liabilities'.

'(Provision)/release for wholesale loans due to legal developments in certain jurisdictions' relates to additional VAT payable on sold vehicles which had previously been re-possessed . Following an initial review of commission income, the Company provided for an adjustment of £9 million in 2007. Following a more detailed review in 2008 £1 million of such reserves have been released.

'Impairment of goodwill' £12 million (2007: nil) relates to Mazda Bank GmbH which was purchased on 1 April 1999 and subsequently converted into a German branch of the Company. The goodwill impairment is a result of Mazda Motor Corporation securing its own financial services sources for customers and dealers. For further details refer to page 10 of 'Performance Summary'.

FCE Bank plc




7 PROFIT BEFORE TAX continued

Exceptional items continued Restructuring (provision)/release' relates to the restructuring actions detailed below, which resulted in a net charge of £3 million in 2008 (2007 net release in provision of £1 million). For the year ended 31 December COMPANY/GROUP

2008 2007 Restructuring provisions detailed below: £ mil £ mil

Germany (provision)/release £ (3) £ 6 Spain - (2) UK - (2) France - (1) Restructuring release/(provision) £ (3) £ 1

Germany: In 2008 the Company announced various business structure improvements in Germany to meet changing business conditions including the decline in receivables for which a limited voluntary separation programme was offered. In 2007 the Company released £6 million of reserves relating to a programme announced in 2006, due to a higher than anticipated natural attrition rate. Spain: In 2007, the Company announced a plan to restructure its business in Spain that supports the sales activities of automotive financial services. The plan includes the consolidation of branches into a dual centre in Madrid/Valencia and is expected to improve service and reduce ongoing costs. The Company recognised pre-tax charges of £2 million in 2007. UK: In 2007, the Company announced various business structure improvements in the UK for which a limited voluntary separation programme was offered. The Company recognised pre-tax charges of £2 million in 2007. France: In 2007, purchasing, collections, and dealer and customer service functions from the Bordeaux and Lyon offices consolidated into the Paris office. The Company recognised pre-tax charges of £1 million in 2007 relating to this restructuring. The costs associated with the above restructuring actions primarily related to employee separations and were charged to 'Operating expenses'. Any related liabilities are reported within 'Other liabilities' within the balance sheet.

FCE Bank plc



7 PROFIT BEFORE TAX continued

Auditor remuneration

During the year FCE obtained the following services from the group's auditors as detailed below:

For the year ended 31 December COMPANY GROUP

2008 2007 2008 2007 Nature of services : £ 000's £ 000's £ 000's £ 000's Audit services Audit of parent company and consolidated accounts £ 1,226 £ 1,135

£ 1,226

£ 1,135

Non audit services - Audit of subsidiaries and SPEs pursuant to legislation - -

481

331

- Other services 365 206 365 206 - Tax services 251 475 275 498 Total fees £ 1,842 £ 1,816 £ 2,347 £ 2,170

Definition of nature of services:

• 'Audit of parent company and consolidated accounts' relates to the audit of the annual financial statements of the Company.

• 'Audit of subsidiaries pursuant to legislation' relates to the audit of the annual financial statements of the Company's subsidiaries and Special Purpose Entities.

• 'Other services' relates mainly to securitisation and debt offerings and assistance provided concerning financial accounting and reporting standards.

• 'Tax services' – relates to tax compliance and planning support.

Further explanatory information:

Included in the Governance section under the caption 'External auditors, their work and non-audit related services' on pages 42 and 43 are details of the audit arrangements with PricewaterhouseCoopers LLP (PwC).

Included in 'Other services' and 'Tax services' is £108,300 (2007: £318,000) paid by the Company to the UK firm of PwC.

Pre-approval policies and procedures

The Ford Audit Committee has established approval policies and procedures that govern the engagement of PwC. The services provided by PwC are pre-approved in accordance with Ford's policies and procedures and also by the Company's Audit Committee. Depreciation and amortisation

Detailed below is an analysis of depreciation and amortisation reported within Note 1 'Segmental reporting'. For the year ended 31 December COMPANY GROUP

2008 2007 2008 2007 Notes £ mil £ mil £ mil £ mil Depreciation : - Operating lease vehicles £ 91 £ 85 £ 131 £ 118 - Company vehicles and Office equipment and leasehold improvements

1 2

1

2

Total depreciation 15 92 87 132 120 Amortisation: other intangible assets 19 5 5 5 5 Total depreciation and amortisation 1 £ 97 £ 92 £ 137 £ 125

FCE Bank plc



8 INCOME TAX EXPENSES

The charge for taxation on the profit for the year is as follows GROUP

2008 2007 £ mil £ mil Current tax: UK Corporation tax of 28.5% (2007: 30%) £ 114 £ 72 Overseas taxation 67 77 Relief of overseas taxation (46) (53) Adjustment to prior year corporation tax 8 (16) Income tax expense current 143 80 Deferred tax: Current year deferred tax movement 1 1 Overseas current year deferred taxation (46) - Overseas prior year deferred taxation (2) (9) Income tax expense deferred (47) (8) Total £ 96 £ 72

The taxation charge for the period is higher (2007: lower) than the standard rate of corporation tax in the UK (28.5%). The Foreign taxes exceed the available UK credits primarily because the statutory rates of tax in FCE's major non UK markets are in excess of the UK rate. Excess foreign tax credits have not been recognised for locations where the foreign tax rates have been consistently higher than the UK. The taxation charge is reduced to the extent that UK tax losses have been surrendered to FCE from elsewhere in the Ford group without charge. The factors affecting the tax charge for the period are explained below:

GROUP 2008 2007 £ mil £ mil Profit before tax: £ 300 £ 275 Profit multiplied by standard rate of UK Corporation tax of 28.5% (2007: 30%) 85 82 Effects of: Foreign taxes higher than UK tax rate 8 20 Prior Year Corporation tax : - UK 1 10 - Overseas 8 (26) Group relief (13) (13) Overseas prior year deferred tax (2) - UK tax rate change – deferred tax - 3 Germany tax rate change – deferred tax - (4) Expenses/(income) not deductible/(taxable) 9 - Income tax expenses £ 96 £ 72

FCE Bank plc



9 CASH AND ADVANCES TO BANKS

Cash and highly liquid investments with a maturity of 90 days or less at date of purchase are included within this note under the caption 'Cash and cash equivalents'. The net book value of cash and advances to banks approximates fair value due to the short maturities of these investments.

As at 31 December COMPANY GROUP

2008 2007 2008 2007 £ mil £ mil £ mil £ mil Cash in bank £ 320 £ 294 £ 326 £ 300 Cash in transit 20 5 20 5 Cash equivalents 743 52 755 52 Cash and cash equivalents 1,083 351 1,101 357

Other bank deposits 79 75 651 416 Collateralised deposits 87 28 662 552 Cash associated with securitisation transactions

166 103 1,313 968

Deposits in support of EIB loans 213 217 213 217 Central bank deposits 68 58 68 59 Other deposits 281 275 281 276 Cash and advances to banks £ 1,530 £ 729 £ 2,695 £ 1,601

Current £ 1,223 £ 576 £ 2,097 £ 1,377 Non current 307 153 598 224 Total £ 1,530 £729 £ 2,695 £ 1,601

Cash and cash equivalents which are with a number of highly rated counterparties have increased to £1,101 million (2007: £357 million). Additional liquidity in excess of immediate funding requirements has been retained in order to protect FCE against market uncertainties.

The following balances at the year end which are included in 'Cash and advances to banks' are not available for use in FCE's day to day operations:

• 'Cash associated with securitisation transactions' includes both cash retained in the Company and consolidated SPEs have increased to £1,313 million (2007: £968 million) primarily due to the increased securitisation funding raised during 2008. For further information on SPEs refer to Note 14 'Securitisation and related financing'.

• 'Central bank deposits' represent balances with the Bank of England and other Central banks

in Europe which FCE is required to maintain.

• 'Deposits in support of EIB loans' represent deposits made by the Company in regard to European Investment Bank loans. For further details refer to Note 21 'Due to Banks and Other Financial Institutions'.

Deposits received from FCI and related undertakings (refer to Note 23 'Due to parent and related undertakings) and corporate deposits (refer to Note 22 'Corporate deposits) are available for use in the Company's day to day operations and have therefore not been separately reported.

FCE Bank plc




10 DERIVATIVE FINANCIAL INSTRUMENTS

The following tables analyse the derivative financial instruments by type of contract, giving the underlying notional amount and estimated fair value. The fair values reported below are included in both assets and liabilities sections of the balance sheet within the caption 'Derivative financial instruments'.

As at 31 December 2008 2007

Fair Value Notional Fair Value COMPANY

Notional Amount Assets Liabilities Amount Assets Liabilities

£ mil £ mil £ mil £ mil £ mil £ mil Designated as fair value hedges Interest rate contracts: Interest rate swaps £ 754 £ 64 £ - £ - £ - £ - Total designated as fair value hedges 754 64 - - - - Non-designated derivatives Exchange contracts: Foreign exchange forwards 1,544 60 32 1,281 9 7 Interest rate contracts: Interest rate swaps 11,353 299 75 12,065 89 29 Cross currency interest rate swaps 1,079 82 130 1,132 27 57 Total non designated derivatives 13,976

441 237 14,478 125 93

Total derivatives £ 14,730 £ 505 £ 237 £14,478 £ 125 £ 93

Current £ 102 £ 59 £ 36 £23 Non current 403 178 89 70 Total £ 505 £ 237 £ 125 £ 93

FCE applies the settlement date of accounting for the purchase or sale of a financial asset. Transactions are undertaken in derivative financial instruments, (‘derivatives’), which include interest rate and cross currency interest rate swaps and foreign exchange forward contracts. All derivatives entered into by FCE are entered into for the purpose of matching or minimising risk from potential movements in foreign exchange rates and interest rates inherent in FCE's financial assets and liabilities. Interest rate swaps are used to manage the effects of interest rate fluctuations. Foreign currency exchange agreements, including forward contracts and swaps, are used to manage foreign exchange exposure. Risk is reduced as follows:

(i) through the use of funding instruments that have interest and maturity profiles similar to the assets they are funding, and

(ii) through the use of interest rate and foreign exchange derivatives. (iii) exposure to counterparty risk is managed by diversifying derivative activity amongst highly

rated counterparties. The Company also undertakes transactions with certain Ford subsidiaries that are non-rated entities.

For further information in regard to derivative usage, policies and controls refer to the 'Financial market

risk management section' which commences on page 25

FCE Bank plc



10 DERIVATIVE FINANCIAL INSTRUMENTS continued


Fair Value Notional Fair Value

GROUP

Notional Amount Assets Liabilities Amount Assets Liabilities

£ mil £ mil £ mil £ mil £ mil £ mil

Designated as fair value hedges Interest rate contracts: Interest rate swaps £ 754 £ 64 £ - £ - £ - £ - Total designated as fair value hedges 754 64 - - - - Non-designated derivatives Exchange contracts: Foreign exchange forwards 1,544 60 32 1,281 9 7 Interest rate contracts: Interest rate swaps 15,479 299 236 16,189 100 40 Cross currency interest rate swaps 1,079 82 130 1,132 26 57 Total non-designated derivatives 18,102 441 398 18,602 135 104 Total derivatives £ 18,856 £ 505 £ 398 £18,602 £ 135 £ 104

Current £ 102 £ 59 £ 46 £ 34 Non current 403 339 89 70 Total £ 505 £ 398 £ 135 £ 104

For further information in regard to derivative usage, policies and controls refer to the 'Financial market risk management section' which commences on page 25.

FCE Bank plc



11 OTHER ASSETS

Other assets at 31 December were as follows: COMPANY GROUP

2008 2007 2008 2007

Notes £ mil £ mil £ mil £ mil

Short term receivables – Related parties 35 £ 226 £ 129 £ 229 £ 130 –- External 246 119 249 129 – Subsidiary undertakings 35 219 164 - - Sub-total short term receivable 691 412 478 259 Loans receivable – Related parties – Related parties 35 - 24 - 24 –- External - - - 2 – Subsidiary undertakings 35 109 68 - - Sub-total loans receivable 109 92 - 26 Vehicles awaiting resale 154 120 154 122 Wholesale consignment vehicles - 62 - 62 Prepayments and accrued income 34 46 21 33

Prepaid taxes and related interest 8 18 8 17 Other assets £ 996 £ 750 £ 661 £ 519


'Short term receivables – related parties' includes balances generated in the ordinary course of business. Refer to Note 35 'Related party transactions' for further details.

'Vehicles awaiting resale' relates to returned and re-possessed vehicles from operating leases and retail finance and lease contracts and are reported at the net book value after adjusting for any residual value provisions. Wholesale consignment vehicles' reported in 2007 related to an arrangement that existed until 1 June 2008 whereby the Company's Swedish branch provided finance to certain manufacturer's national sales

companies (namely Ford Motor Company AB and Mazda Motors Logistics Europe NV.) for vehicles supplied to Swedish dealers on a consignment basis. This business is now reported as part of the Forso joint venture finance company. Refer to Note 18 'Investment in a jointly controlled entity' for further details.

FCE Bank plc


FCE Bank plc – Annual Report and Accounts – 2008 83 Note continues on next page

12 LOANS AND ADVANCES TO CUSTOMERS

Loans and advances to customers at 31 December were as follows: As at 31 December COMPANY GROUP

2008 2007 2008 2007 Notes £ mil £ mil £ mil £ mil Finance receivables: Restated*

Wholesale £ 8,290 £ 7,153 £ 8,528 £ 7,322 Retail excluding finance lease 7,668 6,908 7,737 7,070 Finance lease 2,126 2,044 2,126 2,050 Other 61 36 61 36 Gross loans and advances to customers £ 18,145 £ 16,141 £ 18,452 £ 16,478 Unearned finance income (805) (770) (809) (777) Provision for incurred losses 13 (130) (105) (130) (106) Unearned interest supplements from related parties (209) (108) (209) (109) Deferred loan origination costs/(fees) 41 49 42 50 Net loans and advances to customers £ 17,042 £ 15,207 £ 17,346 £ 15,536

Current 11,933 10,290 12,208 10,531 Non current 5,109 4,917 5,138 5,005 Total £ 17,042 £ 15,207 £ 17,346 £ 15,536

Analysis of net loans and advances: Finance receivables: Retail 1 £ 8,716 £ 8,037 £ 8,783 £ 8,197 Wholesale 1 8,265 7,134 8,502 7,303 Other 61 36 61 36 Net loans and advances to customers £ 17,042 £ 15,207 £ 17,346 £ 15,536

Net loans subject to securitisation 14 £ 11,643 £ 8,865 £ 11,643 £ 8,912 Net loans not subject to securitisation 5,399 6,342 5,703 6,624 Net loans and advances to customers £ 17,042 £ 15,207 £ 17,346 £ 15,536

Percentage analysis of net loans and advances: Percentage of retail financing loans 51% 53% 51% 53% Percentage of wholesale/other financing loans 49% 47% 49% 47% Percentage of loans subject to securitisation 68% 58% 67% 57% Percentage of loans not subject to securitisation 32% 42% 33% 43% * Company 2007 figures have been restated to correctly represent 'Gross loans and advances to customers' and 'unearned finance income' figures. This restatement has no effect on the reported amount of 'net loans and advances to customers'.

'Retail' includes retail finance and lease contracts introduced through a Dealer to individual consumers, sole traders and businesses. Such contracts are primarily fixed-rate retail finance and lease contracts which generally require customers to pay equal monthly payments over the life of the contracts.

'Wholesale' primarily represents receivables originated to finance new and used vehicles held in dealer's inventory and generally require dealers to pay a floating rate. Wholesale receivables include receivables from dealerships that are either partially or wholly owned by Ford. 'Other' includes loans due to dealers for working capital and property acquisitions. As shown above Loans and advances to customers include finance receivables that have been sold for legal purposes in securitisation transactions which do not qualify for derecognition of these receivables. Loan subject to securitisation are available only for repayment of the debt or other obligations issued or arising in the securitisation transactions and to pay other transaction participants; they are not available to pay the Company's other obligations or the claims of other creditors (refer to Note 14 'Securitisation and related financing').

FCE's ten largest counterparty exposures including both amounts reported in loans and advances above and undrawn commercial credit facilities (refer to Note 29 'Commitments'), totalled £1,279 million (2007: £1,295 million). Deposits received from FCI (Note 23 'Due to parent and related undertakings) and other deposits (Note 22 'Corporate Deposits) are utilised to mitigate exposure concentrations.

FCE Bank plc



12 LOANS AND ADVANCES TO CUSTOMERS continued

Loans and advances to customers include the following finance lease receivables:


2008 2007 2008 2007 Gross finance lease receivables: £ mil £ mil £ mil £ mil Restated * Restated *

Within 1 year £ 825 £ 1,386 £ 825 £1,390 After 1 year and within 5 years 1,301 655 1,301 657 After 5 years - 3 - 3 Total gross finance lease receivables 2,126 2,044 2,126 2,050 Unearned future finance income on finance leases (220) (196) (220) (196) Provision for identified losses on finance leases (18) (19) (18) (19) Net investment in finance leases 1,888 £ 1,829 1,888 £ 1,835

Within 1 year 729 1,240 729 1,244 After 1 year and within 5 years 1,159 586 1,159 588 After 5 years - 3 - 3 Total net investment in finance leases £ 1,888 £ 1,829 £ 1,888 £ 1,835 * 2007 figures have been restated to correctly represent 'Gross loans and advances to customers' and 'unearned finance income' figures. This restatement has no effect on the reported amount of 'net investment in finance leases'.

The cost of assets acquired for use under finance leases amounted to £1,245 million (2007: £1,053 million) for FCE and £1,242 million (2007: £1,047 million) for the Company. For details of vehicle residual values refer to Note 31 'Vehicle residual values'.

Certain UK receivables and finance related contracts are purchased under the name of Jaguar Financial Services Limited and Volvo Car Finance Limited and are immediately assigned to the Company. No profit or loss is recognised in the financial statements of Jaguar Financial Services Limited and Volvo Car Finance Limited, in connection with these receivables and contracts, as a result of this process.

Retail - consists mainly of retail finance and lease contracts provided to individual customers. Credit underwriting typically includes use of an application scorecard and credit bureau review of each applicant together with an internal review and verification process. Following the impairment of a retail financing contract the carrying value of the loan is reduced to reflect the average vehicle recovery value and the loan is included within the table below under the caption 'Impaired retail loans and advances'. For further details in regard to the percentage of past due but not impaired contracts in relation to the total portfolio see page 23. The value of renegotiated loans being previously past due or impaired at 31 December 2008 was £1.6 million (2007: £0.6 million).

The table below analyses retail loans and advances to customers by payment due status.

COMPANY/GROUP Retail As at 31 December 2008 2007 Past due but not impaired retail contracts £mil £mil Past due under 30 days £ 283 £ 209 Past due over 30 < 60 days 102 72 Past due over 60 < 90 days 44 29 Past due over 90 < 120 days 21 13 Total £ 450 £ 323

Total retail loans and advances to customers £ 8,783 £ 8,197 Past due but not impaired retail contracts as a % of loans & advances to customers 5.1% 3.9% Restated*

Fair value of collateral held for past due but not impaired £ 444 £321 COMPANY/GROUP Retail As at 31 December 2008 2007 Impaired retail loans and advances £ 119 £ 61 Amounts written off (76) (25) Fair value of collateral held for impaired retail loans £ 43 £ 36 *Methodology of calculating fair values were revised in 2008 and 2007 comparatives have been prepared on the same basis.

FCE Bank plc



12 LOANS AND ADVANCES TO CUSTOMERS continued

Wholesale - represents commercial loans provided primarily to franchised dealers selling Ford's brands in the form of approved lines of credit to purchase inventories of new and used vehicles; and to a much lesser extent loans for working capital and property acquisitions. In addition retail and finance leases are provided to corporate and other institutional customers covering single vehicles as well as large and small fleets. It is FCE's policy that amounts past due are either resolved to FCE's satisfaction in accordance with established policies and procedures or the loan is classified as impaired. Therefore there no loans or advances are classified as 'past due but not impaired'. At the point of impairment of a wholesale loan the carrying value of the loan is reduced by the use of a wholesale allowance account for the estimated uncollectible amount and the loan is included within the table above under the caption 'Impaired loans and advances'. The table below provides information about the fair value of collateral held for impaired wholesale loans and advances to customers.

COMPANY/GROUP Wholesale


£mil £mil

Impaired wholesale loans and advances to customers £ 286 £ 174

Amounts written off (78) (85)

Fair value of collateral held for impaired wholesale loans £ 208 £ 89

Risk appetite - FCE has a low risk appetite in regard to credit risk. Lending is confined to automotive sector related products and is predominantly asset backed (typically via a secured interest in the financed asset). Internal risk evaluation ratings and credit lines are assigned to dealers – see page 24. Risk evaluation ratings are not assigned to the retail portfolio. However credit risk rating modules are typically used to determine the credit worthiness of applicants.

During the period FCE obtained assets by taking possession of collateral held as security, as follows: COMPANY/GROUP As at 31 December 2008 2007 Carrying amount £ mil £ mil

Nature of assets

Motor Vehicles £ 51 £ 47

Repossessed vehicles are sold using various resale channels as soon as practicable, with the proceeds used to reduce the outstanding indebtedness. Repossessed vehicles that are awaiting resale are classified in the balance sheet within 'Other assets'.

FCE Bank plc



13 PROVISION FOR INCURRED LOSSES

The movement in the provision for incurred losses for the Company is as follows:

COMPANY Retail Wholesale Total

Notes £ mil £ mil £ mil Balance at 1 January 2007 £ 83 £ 22 £ 105

Impairment losses charged to income statement

1 30 4 34

Deductions:

- Losses written-off

(93)

(11)

(104) - Recoveries 60 3 63 Net losses (33) (8) (41) Other: - Exchange adjustments 6 1 7

Balance at 31 December 2007 / 1 January 2008

£ 86

£ 19

£ 105 Impairment losses charged to income statement 1 73 3 76 Deductions: - Losses written-off (106) (4) (110) - Recoveries 33 3 36

Net losses (73) (1) (74) Other: - Exchange adjustments 21 5 26 - Provision transfer relating to a sale of interests in a jointly controlled entity

36 (2)

-

(2)

- Provision transfer relating to a sale of interests to another Ford entity

36 (1)

-

(1)

Balance at 31 December 2008

£ 104

£ 26

£ 130

Analysis of provision for incurred losses:

Collective impairment allowance £ 104 £ 19 £ 123

Specific impairment allowance

- 7 7

Balance at 31 December 2008 £ 104 £ 26 £ 130


Specific impairment allowance - 4 4


FCE Bank plc



13 PROVISION FOR INCURRED LOSSES continued

The movement in the provision for incurred losses for the Group is as follows:

GROUP Retail Wholesale Total

Notes £ mil £ mil £ mil Balance at 1 January 2007 £ 83 £ 23 £ 106

Impairment losses charged to income statement 1 29 4 33

Deductions:

- Losses written-off

(94)

(12)

(106) - Recoveries 62 3 65 Net losses (32) (9) (41) Other: - Exchange adjustments 6 2 8

Balance at 31 December 2007 / 1 January 2008 £ 86 £ 20 £ 106

Impairment losses charged to income statement 1 73 3 76 Deductions: - Losses written-off (108) (4) (112) - Recoveries 35 2 37

Net losses (73) (2) (75) Other: - Exchange adjustments 21 5 26 - Provision transfer relating to a sale of interests in a jointly controlled entity 36

(2)

-

(2)

- Provision transfer relating to a sale of interests to another Ford entity 36

(1)

-

(1)

Balance at 31 December 2008

£ 104

£ 26

£ 130

Analysis of provision for incurred losses:


Specific impairment allowance

- 7 7

Balance at 31 December 2008 £104 £ 26 £ 130


Specific impairment allowance - 4 4


The collective impairment allowance as detailed forms part of FCE's Tier 2 regulatory capital as disclosed in Note 42 'Components of Capital'.

The provision for incurred losses represents management's estimate of the losses incurred in the loan portfolios at the balance sheet dates. The retail and wholesale portfolios are segregated due to the difference in nature and performance of these asset pools and statistical techniques are applied to each of the asset pools. Subjective judgements are made in this process. Changes in these estimates could result in a change to the provision and have a direct impact on the provision.

FCE Bank plc




14 SECURITISATION AND RELATED FINANCING FCE funding sources include securitisation programmes that generally include the transfer of retail, leasing and wholesale receivables through a variety of programmes, utilising both amortising and revolving structures. The Company also engages in other structured financing and factoring transactions that have similar features to securitisation and are referred to as securitisation in this report.

As part of these transactions the Company provides various forms of credit enhancements to reduce the risk of losses to investors. Credit enhancements include over-collateralisation; segregated cash reserve funds, subordinated securities and excess spread. Excess spread occurs when interest collections on the securitised assets exceed related fees and expenses, including interest payments on the related asset-backed securities.

The Company retains interests in its securitisation transactions, including senior and subordinated securities issued by Special Purpose Entities (SPEs), rights to restricted cash held for the benefit of the SPE (for example, a reserve fund) and residual interests. Residual interests represent the right to receive excess spread otherwise not utilised under the transaction. The Company's ability to realise the carrying amount of its retained interests depends on actual credit losses and prepayment rate on the securitised assets.

By providing these enhancements and retained interests the Company has entered into transfers (as described in IAS 39 'Financial instruments, recognition and measurement') that do not qualify for derecognition of the underlying assets. The Company therefore continues to recognise the carrying value of the securitised assets within its balance sheet. The securitised assets represent receivables that have been sold legally to other entities. Such receivables are available only for the repayment of debt issued by SPEs, to pay other securitisation investors and other participants. The receivables are not available to pay the Company's other obligations or the claims of other creditors.

Use of Special Purpose Entities In a securitisation transaction, legally the securitised assets are generally held by a bankruptcy-remote SPE in order to isolate the securitised assets from the claims of the Company's creditors and ensure that the cash flows on the securitised assets are available for the benefit of securitisation investors. As a result, payments to securitisation investors are based on the creditworthiness of the securitised assets and any enhancements, and not the Company's creditworthiness. Securitisation SPEs have limited purposes and generally are only permitted to purchase the securitised assets, issue asset-backed securities, receive all cash relating to the securitised assets and make payments on the securities. The SPEs utilised by the Company conduct their activities solely to meet the securitisation requirements of the Company. In accordance with the scope of Interpretation SIC-12 'Consolidation – Special Purpose Entities' the entity is consolidated as a subsidiary within the FCE Group balance sheet. Where applicable, the liabilities reported within the Group balance sheet represent the legal liabilities of SPEs, and these are reported in Note 21 ' Due to Banks and Other Financial Institutions' and Note 24 'Debt securities in issue' for private and public transactions respectively. Where the Company has entered into a structured financing arrangement with a third party finance provider, and no SPE structure is involved, a liability is recognised within the Company and Group balance sheet within the caption 'Due to Banks and Other Financial Institutions', representing the proceeds received from the finance provider. None of FCE's officers, directors or employees holds any equity interests in the SPEs utilised or receive any direct or indirect compensation from the SPEs. Also such SPEs do not own shares in the Company or shares in any FCE subsidiary or other Ford affiliates. For details of the SPEs utilised refer to page 91.

FCE Bank plc




14 SECURITISATION AND RELATED FINANCING continued

The table below summarises balances relating to the Company's securitisation transactions. Net cash proceeds received by the Company from the sale of receivables during 2008 were £6,228 million (2007: £5,699 million) and are included in Note 23 'Due to parent and related undertakings'

'Net Loans securitised' represent the accounting value of the finance receivables less unearned income and this is usually different from Investor net receivables as the Company sells the receivables at a discounted net present value as a form of credit enhancement.

The difference between 'net loans securitised' and the 'related debt' below reflects the Company's retained interest in the securitisation transaction, excluding cash associated shown in Note 9 'Cash and advances to banks'. For retail/lease transactions this is made up of subordinated notes held, the right to receive excess spread otherwise not utilised under the transaction, and for wholesale transactions it is usually made up of subordinated notes, seller's share in a trust and the right to receive excess spread otherwise not utilised under the transaction. In December 2008, Moody Investor Services downgraded certain notes in nine of the Company's securitisation transactions including three public retail securitisation transactions. In January 2009, Moody Investor Services downgraded certain notes in a further three securitisation transactions. All of the Company's securitisation notes which remain outstanding continue to be rated investment grade and the securitisation transactions rated by Moody's remain under review for possible downgrade or further possible downgrade. As at 31 December 2008 the Company had accessed £665 million (2007: nil) of short term funding under European Central Bank's (ECB) open market operations programmes secured by retained securitisation rated notes.

Securitisation COMPANY/GROUP

As at 31 December 2008 Wholesale Retail Total Total

Notes Public Private Public Private Public Private

£ mil £ mil £ mil £ mil £ mil £ mil £ mil

Net Loans Securitised 12 £ - £ 5,917 £ 1,963 £ 3,763 £ 1,963 £ 9,680 £ 11,643

Due to other banks and other financial institutions

21 £ - £ 4,387 £ 665 £ 3,296 £ 665 £ 7,683 £ 8,348

Debt Securities in Issue 24 £ - £ - £ 852 £ - £ 852 £ - £ 852

Related Debt £ - £ 4,387 £ 1,517 £ 3,296 £ 1,517 £ 7,683 £ 9,200

Securitisation

As at 31 December 2007 Wholesale Retail Total Total

Public Private Public Private Public Private

£ mil £ mil £ mil £ mil £ mil £ mil £ mil

Net Loans Securitised 12 £ - £ 4,278 £ 823 £ 3,811 £ 823 £ 8,089 £ 8,912

Due to other banks and other financial institutions

21 £ - £ 3,112 £ - £ 3,508 £ - £ 6,620 £ 6,620

Debt Securities in Issue 24 £ - £ - £ 822 £ - £ 822 £ - £ 822

Related Debt £ - £ 3,112 £ 822 £ 3,508 £ 822 £ 6,620 £ 7,442

FCE Bank plc




14 SECURITISATION AND RELATED FINANCING continued Continuing obligations

The Company is engaged as servicer to collect and service the securitised assets and generally receives a servicing fee. Servicing duties include collecting payments and preparing monthly investor reports on the performance of the securitised assets and on amounts of interest and/or principal payments to be made to investors. While servicing securitised assets, the Company applies the same servicing policies and procedures that apply to both securitised and non-securitised assets and maintains normal relationship with its financing customers.

The Company generally has no obligation to repurchase or replace any securitised asset that subsequently becomes delinquent in payment or otherwise is in default. Generally securitisation investors have no recourse to the Company or the Company's other assets for credit losses on the securitised assets and have no right to require the Company to repurchase their investments. The Company does not guarantee any asset-backed securities and has no obligation to provide liquidity or make monetary contributions or contributions of additional assets to the SPEs either due to the performance of the securitised assets or the credit rating of the Company's short-term or long-term debt. However, as the seller and servicer of the securitised assets, the Company is expected to provide support to securitisation transactions, which are customary in the securitisation industry.

Revolving Transaction Structures The Company's securitisation programmes utilise both amortising and revolving structures. Amortising structures involve the sale of a static pool of assets. The associated funding is repaid to investors as the underlying assets liquidate. Revolving structures allow the Company to continue to sell new eligible assets originated, over an agreed period of time, and obtain funding from the transaction investors. The Company has entered into certain revolving structure transactions for both retail and wholesale assets, which are described below: (i) Flat Revolving Structures

In a flat revolving structure, new assets may be sold into a transaction while the outstanding note balance remains constant, in order to fund a revolving pool of assets during an agreed revolving period. At the end of the revolving period, no further assets are sold into the transaction, and the funding amount is repaid as the underlying assets liquidate. At 31 December 2008, the Company had entered into flat revolving structures totaling £1,100 million (£1,099 million in December 2007). These transactions have revolving periods that end on various dates, with all revolving periods ending between 1 January 2010 and 31 May 2010.

(ii) Variable Funding Revolving Structures Similar to flat revolving structures, in variable funding revolving structures, new assets may be sold into the structure from time to time. However, in a variable funding revolving structure, the outstanding balance of the issued note may vary with the size of the asset pool. In these structures, the investors are contractually committed, at the Company's option, to purchase from the Company eligible assets or to purchase or make advances under asset-backed securities backed by assets in a manner that matches the increase (or decrease) in originations. In this way the funded amount varies and is not constant as with flat revolving structures. At 31 December 2008, the Company had entered into variable funding revolving structures totaling up to £6,686 million of committed capacity (£4,975 million in 2007). These transactions have varying maturity dates, with £5,371 million of committed capacity maturing within the next twelve months, and the balance having maturities between 1 January 2010 and 31 March 2011. After the maturity date, no further assets are sold into the transaction, and the funding amount is repaid as the underlying assets liquidate similar to an amortising structure. The Company's ability to obtain funding under these programmes is subject to having a sufficient amount of assets eligible for these programmes. At 31 December 2008, £6,044 million (£3,764 million at December 2007) of the committed capacity was in use.

FCE Bank plc



14 SECURISATION AND RELATED FINANCING continued

Revolving Transaction Structures continued

(ii) Variable Funding Revolving Structures continued

These transactions each contain certain features that could prevent the Company from selling additional pools of assets, and cause any existing funding to amortise. This includes among others insolvency of FCE or Ford, credit losses on the pool of retail assets exceeding specified limits, payment rates on the wholesale assets falling below agreed threshold, the Company failing to add the required amount of additional assets into flat revolving structures, and credit enhancements not maintained at required levels. These features are specific and exclusive to each individual transaction. Special Purpose Entities The Company's securitisation programmes are well diversified among markets and asset classes. All of the SPEs included in the table below are consolidated into these financial statements.

SPE name

Assets securitised or SPE type Country of incorporation

Active Retail SPEs: Globaldrive Receivables Trustee (UK) Two Limited UK Retail - receivables trustee England Globaldrive (UK) Variable Funding I plc UK Retail England Globaldrive France 1 France Retail / Lease France Globaldrive (Germany) IV Limited Germany Retail Guernsey Globaldrive (Italy) IV S.R.L. Italy Retail Italy Globaldrive (Germany) V Limited Germany Retail Netherlands Globaldrive (Germany) 2 B.V. Germany Retail Netherlands Globaldrive Spain 2 B.V. Spain Retail Netherlands Globaldrive European Auto Receivables I B.V Germany Lease Netherlands Globaldrive Auto Receivables 2007 - A B.V. Germany Retail Netherlands Globaldrive Spain VFN 1 B.V. Spain Retail / Lease Netherlands Globaldrive Netherlands VFN 1 B.V. Netherlands Retail Netherlands Globaldrive Auto Receivables 2008 - A B.V. Germany Retail Netherlands Globaldrive Auto Receivables 2008 - B B.V. Germany Retail Netherlands Globaldrive B.V. Retail - Holding Company Netherlands Active Wholesale SPEs: FCC Globaldrive Dealer Floorplan (France) France Wholesale France Globaldrive Dealer Floorplan Germany 2006 GmbH Germany Wholesale Germany Globaldrive UK Dealer Floorplan Holdings Limited UK Wholesale - Holding Company Jersey Globaldrive UK Dealer Floorplan Funding I Limited UK Wholesale Jersey Globaldrive UK Dealer Floorplan Receivables Trustee I Ltd UK Wholesale - receivables trustee Jersey Globaldrive Dealer Floorplan B.V. Spain/France Wholesale master purchaser Netherlands Globaldrive Dealer Floorplan Ireland B.V. Ireland Wholesale Netherlands Globaldrive Dealer Floorplan Netherlands 2006 B.V. Netherlands Wholesale Netherlands Globaldrive Dealer Floorplan (Spain) TdA Spain Wholesale Spain Inactive Retail SPEs (pending liquidation): Globaldrive (UK) Series 4 plc UK Retail England Globaldrive Receivables Trustee Limited Retail - receivables trustee England Globaldrive (UK) Series 2 plc UK Retail England Globaldrive (Germany) III Limited Germany Retail Guernsey Globaldrive (Italy) S.r.l. Italy Retail Italy Globaldrive Series E B.V. Retail - master purchaser Netherlands Globaldrive Netherlands 1 B.V. Netherlands Retail Netherlands Globaldrive (Spain) 2002-1 TdA Spain Retail Spain Globaldrive (UK) Series 4 plc UK Retail England

A securitisation transaction may utilise one or more SPEs, and certain SPEs may be utilised in more than one transaction.

FCE Bank plc




15 PROPERTY AND EQUIPMENT

Property and equipment at 31 December were as follows:

COMPANY GROUP Leasehold

Improve- ments

Office Equip-

ment

Motor Vehicles

Total

Leasehold Improve-

ments

Office Equip-

ment

Motor Vehicles

Total

Cost: £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil At 1 January 2007 £ 4 £ 15 £ 238 £ 257 £ 4 £ 15 £ 376 £ 395 Additions - - 314 314 - - 362 362 Disposals (1) (1) (358) (360) (1) (1) (419) (421) Translation adjustment - 1 6 7 - 1 21 22 At 31 December 2007 / 1 January 2008

£3 £ 15 £ 200 £ 218 £ 3 £15 £ 340 £ 358

Additions - - 317 317 - - 340 340 Disposals (1) (3) (352) (356) (1) (3) (379) (383) Sale of interests in a jointly controlled entity

-

(1)

(5)

(6)

-

(1)

(38)

(39)

Translation adjustment 1 2 53 56 1 3 87 91 At 31 December 2008 £ 3 £ 13 £ 213 £ 229 £ 3 £ 14 £ 350 £ 367 Depreciation: At 1 January 2007 £ 2 £ 14 £ 44 £ 60 £ 2 £ 14 £ 96 £ 112 Charge for the year - - 87 87 - - 120 120 Disposals - (2) (100) (102) - (1) (132) (133) Translation adjustment - 1 3 4 - 1 9 10 At 31 December 2007 / 1 January 2008

£ 2 £ 13 £ 34 £ 49 £ 2 £ 14 £ 93 £ 109

Charge for the year - 1 91 92 1 - 131 132 Disposals (1) (3) (94) (98) (1) (3) (132) (136) Sale of interests in a jointly controlled entity

-

(1)

-

(1)

-

(1)

(10)

(11)

Translation adjustment 1 3 8 12 1 3 25 29

At 31 December 2008 £ 2 £ 13 £ 39 £ 54 £ 3 £ 13 £ 107 £ 123

Net book value at 31 December 2008

£ 1

£ -

£ 174

£ 175

£ -

£ 1

£ 243

£244


£ 1

£ 2

£ 166

£ 169

£ 1

£ 1

£ 247

£ 249

COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Current £ 71 £ 18 £ 77 £ 70 Non current 104 151 167 179 Total £ 175 £ 169 £ 244 £ 249

FCE Bank plc



15 PROPERTY AND EQUIPMENT continued

Motor vehicles include vehicles held for use under operating leases as follows: As at 31 December COMPANY GROUP

2008 2007 2008 2007 £ mil £ mil £ mil £ mil Cost £ 207 £ 195 £ 344 £ 334 Accumulated depreciation (38) (32) (106) (91)

Net book value £ 169 £ 163 £ 238 £ 243

Accumulated depreciation expense on vehicles subject to operating leases is recorded on a straight-line basis in the income statement within the captions 'Depreciation on tangible assets' in an amount necessary to reduce the leased vehicle to its estimated residual value at the end of the lease term. Adjustments to reflect revised estimates of expected residual values at the end of the lease terms are recorded prospectively on a straight-line basis. Upon disposition of the vehicle, the difference between net book value and actual proceeds is recorded as an adjustment to depreciation expense. All assets are valued on the historical cost basis. Included in depreciation above are allowances for impairment losses for bad and doubtful debts and residual value provisions for operating lease assets of £12 million (2007: £6 million) for the Group and £12 million (2007: £6 million) for the Company. For details of vehicle residual values included in Property and Equipment refer to Note 31 'Vehicle residual values'.

16 INCOME TAXES RECEIVABLE AND PAYABLE

The provision for income taxes payable for the years ended 31 December was estimated as follows:

COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil UK taxation £ - £ - £ - £ - Overseas taxation 6 31 6 35 Income taxes receivable £ 6 £ 31 £ 6 £ 35

Current 6 31 6 35 Non current - - - - Total £ 6 £ 31 £ 6 £ 35

UK taxation £ 38 £ - £ 38 £ - Overseas taxation 8 17 9 17 Income taxes payable £ 46 £ 17 £ 47 £ 17

Current 46 17 47 17 Non current - - - - Total £ 46 £ 17 £ 47 £ 17

FCE Bank plc



17 DEFERRED TAX ASSETS AND LIABILITIES

Movements on the deferred tax assets and liabilities accounts are as follows: As at 31 December COMPANY GROUP

2008 2007 2008 2007 £ mil £ mil £ mil £ mil At 1 January liability/(asset) £ (23) £ (21) £ (26) £ (23) Income statement charge/(credit) (12) (8) (47) (8) Foreign currency translation adjustment - - (6) - Sale of interests in a jointly controlled entity

1 - (3) -

Transfers (9) 6 (9) 5 At 31 December (asset) £ (43) £ (23) £ (91) £ (26)

Deferred income tax assets and liabilities are attributable to the following items: Deferred income tax liability: COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Accelerated tax depreciation £ (3) £ - £ (3) £ 4 Less reserves and other timing differences 30 29 30 29 At 31 December liability £ 27 £ 29 £ 27 £ 33

Deferred income tax asset: COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Accelerated tax depreciation £ (24) £ (19) £ (24) £ (19) Less reserves and other timing differences (47) (33) (94) (40) At 31 December (asset) £ (71) £ (52) £ (118) £ (59)

The deferred tax charge in the income statement comprises the following temporary differences: COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Accelerated tax depreciation £ (8) £ 1 £ (11) £ 6 Other provisions (4) (9) (36) (14) At 31 December (asset) £ (12) £ (8) £ (47) £ (8)

Deferred income tax assets are recognised for tax loss carry-forwards only to the extent that realisation of the related tax benefit is probable. At 31 December 2008, the Company's Irish branch has £6.0 million (2007: £3.1 million) of unused tax losses for which no deferred tax asset is recognised.

Deferred income tax liabilities have not been established for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries, as such amounts are permanently reinvested and will not be remitted in the foreseeable future. Unremitted earnings totalled £101.1 million as at 31 December 2008 (2007: £61.1 million). All deferred tax assets and liabilities in the balance sheet are classed as non current items.

FCE Bank plc



18 INVESTMENT IN A JOINTLY CONTROLLED ENTITY On 1 June 2008 FCE transferred the majority of its current and all future retail, leasing and wholesale financing business of its branches in Denmark, Norway and Sweden, and its subsidiary in Finland, Volvo Car Finance Limited (now called Forso Finance Oy), into Forso in exchange for shares in Saracen Holdco. Forso is a regulated Swedish company with branch operations in Denmark and Norway and a subsidiary located in Finland, and at that time was wholly owned by Saracen Holdco Ab. a fully owned FCE subsidiary. Refer to Note 36 'Disposals' which commences on page 119 for further details. On 30 June 2008 Saracen Holdco Ab. sold approximately 50% of its interests in Forso to Sofinco S.A., a consumer credit subsidiary of Crédit Agricole S.A. The remaining interests of £45 million held by Saracen Holdco Ab. in Forso are reported in the balance sheet within the caption 'Investment in a jointly controlled entity' as detailed below. As at 31 December Notes 2008 2007

£ mil £ mil Net assets 36 £ 72 £ - Less 50% of interests transferred to joint venture partner (36) - Initial investment retained by FCE £ 36 £ - Share of net income in a jointly controlled entity 1 - Translation adjustment 8 - Investment retained by FCE £ 45 £ -

The effective date of sale on which equity accounting commenced was 1 June 2008. Summarised financial information of FCE's share of a jointly controlled entity based on the management accounts for the year ended 31 December 2008 is set out below: As at 31 December 2008 2007

ASSETS £ mil £ mil Cash and advances to banks £ 26 £ - Other assets 117 - Loans and advances to customers 469 - Property and equipment 1 - Income taxes receivable 4 - Deferred tax assets 3 -

Total assets £ 620 £ -

LIABILITIES Due to banks and other financial institutions £ 517 £ - Due to FCE and related undertakings 11 - Other liabilities 23 - Deferred tax liabilities 5 - Subordinated loan 19 -

Total liabilities £ 575 £ -

NET ASSETS £ 45 £ -

£ mil £ mil

Revenue £ 24 £ - Operating expenses (23) -

PBT £ 1 £ -

The Board of Directors of Forso is composed of eight directors and both parties to the joint venture are equally represented. A quorum requires at least two thirds of the Directors to be present and that both parties are equally represented. All business arising at the Board meeting shall be determined by a resolution passed by a favourable vote of at least two thirds of all Directors. Forso is a regulated institution in Sweden and is required among other things to maintain minimum capital reserves and also requires approval from the local Swedish regulator to pay dividends.

FCE Bank plc




19 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill and other intangible assets at 31 December were as follows:

As at 31 December COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Net book value Goodwill £ 148 £ 160 £ - £ 12 Other intangible assets (see next page) 20 22 20 23 Total goodwill and intangible assets £ 168 £ 182 £ 20 £ 35

Current - - - - Non current 168 182 £20 35 Total £ 168 £ 182 £ 20 £ 35

GOODWILL Cost: At 1 January and 31 December £ 160 £ 160 £ 12 £ 12

Impairment charge: At 1 January £ - £ - £ - £ - Impairment charge for the year (12) - (12) - At 31 December (12) - (12) -

Net book value: At 1 January £ 160 £ 160 £ 12 £12 Impairment charge for the year (12) - (12) - At 31 December £ 148 £ 160 £ - £ 12

The goodwill 'impairment charge for the year' of £12 million (2007: nil) relates to Mazda Bank GmbH which was purchased on 1 April 1999 and subsequently converted into a German branch of the Company. The goodwill impairment is as result of Mazda Motor Corporation securing its own financial services sources for customers and dealers (refer to page 10 of 'Performance Summary' for further details).

FCE Bank plc



19 GOODWILL AND OTHER INTANGIBLE ASSETS continued Analysis of other intangible assets 'Other intangible assets' relate entirely to computer software development costs which are anticipated to generate future economic benefits to FCE. Software development costs are amortised to the income statement within the captions 'Operating expenses' over the estimated useful life of the system as specified in Accounting Policy U item (ii) 'Other intangible assets'.

COMPANY GROUP

Software

Software

Internally generated

Externally acquired

Total

Internally generated

Externally acquired

Total

£ mil £ mil £ mil £ mil £ mil £ mil Cost: At 1 January 2007 £ 16 £ 24 £ 40 £ 17 £ 24 £ 41 Additions 10 - 10 10 - 10 Disposals (6) - (6) (6) - (6)

At 31 December 2007 / 1 January 2008

£ 20 £ 24 £ 44 £ 21 £ 24 £ 45

Additions 3 - 3 3 - 3 Disposals (2) (3) (5) (2) (5) (7) Translation Adjustment - - - - 1 1 At 31 December 2008 £ 21 £ 21 £ 42 £ 22 £ 20 £ 42 Amortisation: At 1 January 2007 14 3 17 14 3 17 Charge for the year 2 3 5 2 3 5

At 31 December 2007 / 1 January 2008

£ 16 £ 6 £ 22 £ 16 £ 6 £ 22

Charge for the year 5 - 5 5 - 5 Disposals (5) - (5) (5) - (5)

At 31 December 2008 16 £ 6 £ 22 £ 16 £ 6 £ 22


£ 5

£ 15

£ 20

£ 6

£ 14

£ 20


£ 4

£ 18

£ 22

£ 5

£ 18

£ 23

FCE Bank plc



20 INVESTMENTS IN GROUP UNDERTAKINGS

Investments in group undertakings at 31 December were as follows COMPANY 2008 2007 Notes £ mil £ mil Cost at 1 January £ 80 £ 80 Additional investment in group undertakings 124 - Liquidation of group undertaking (12) - Transfer of group undertakings into a jointly controlled entity 36 (15) - Cost at 31 December £ 177 £ 80 Amounts written down at 1 January (12) (12) Reversal of amounts written down following liquidation of group undertaking 12 - Amounts written down at 31 December - (12) Net book value at 31 December £ 177 £ 68

Current - - Non current 177 68 Total £ 177 £ 68

Investment in banks included above 7 7

During 2008 the Company made additional investments in Saracen Holdco Ab, FCE Credit s.r.o and Forso (formerly known as Saracen Nordic Ab) of approximately £73 million, £47 million and £ 4 million respectively.

FCE SpA an Italian subsidiary which was placed into voluntary liquidation on 16 December 2004 was subsequently de-registered and liquidated in December 2008.

On 1 June 2008 FCE transferred the majority of its current and all future retail, leasing and wholesale financing business of its' branches in Denmark, Finland, Norway and Sweden, and its subsidiary in Finland, Volvo Car Finance Finland Limited (now called Forso Finance Oy), into Forso (formerly known as Saracen Nordic Ab) in exchange for shares in Saracen Holdco Ab. Forso is a regulated Swedish company with branch operations in Denmark and Norway and a subsidiary located in Finland, and at that time was wholly owned by Saracen Holdco Ab. a fully owned FCE subsidiary. On 30 June 2008 Saracen Holdco Ab. sold approximately 50% of its interests in Forso to Sofinco S.A., a consumer credit subsidiary of Crédit Agricole S.A. The remaining interests held by Saracen Holdco Ab. in Forso is reported in the balance sheet within the caption 'Investment in a jointly controlled entity'. The amount referred to in the table above as 'transfer of subsidiaries into a jointly controlled entity' related to the transfer of the Company's investment in its subsidiary in Finland and Forso (formerly known as Saracen Nordic Ab) into the above mentioned Nordic joint venture.'

The 'investment in banks' relates to FCE Bank Polska S.A. which as a regulated bank and is required, among other things to maintain minimum capital reserves.

Subsidiary undertakings as at 31 December 2008

Beneficial interest

Accounting reference date

Country of incorporation/ registration

Principal activity

Automotive Finance Limited * 100% 30 June England & Wales Non trading FCE Leasing (Holdings) Limited 100% 31 December England & Wales Holding company FCE Leasing Limited * 100% 31 December England & Wales Non trading Ford Automotive Leasing Limited * 100% 30 September England & Wales Non trading Jaguar Financial Services Limited * 100% 31 March England & Wales Finance company Meritpoint Limited 100% 30 June England & Wales Non trading Primus Automotive Financial Services Limited

100% 31 December England & Wales Dormant

Volvo Car Finance Limited 100% 31 December England & Wales Finance company FCE Credit s.r.o. 100% 31 December Czech Republic Finance company FCE Credit Hungaria Zrt 100% 31 December Hungary Finance company FCE Services Kft * 100% 31 December Hungary Finance company FCE Bank Polska S.A. 100% 31 December Poland Bank FCE Credit Poland S.A. 100% 31 December Poland Finance company Saracen Holdco Ab 100% 31 December Sweden Holding company * Subsidiaries indirectly owned by the Company.

All subsidiaries are consolidated into these financial statements and operate principally in their country of incorporation.

FCE Bank plc




21 DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS

Due to banks and other financial institutions at 31 December were as follows: As at 31 December COMPANY GROUP

2008 2007 2008 2007* £ mil £ mil £ mil £ mil

Due to banks and other financial institutions

in respect of securitisation:

Obligations arising from securitisation of receivables £ 1,387 £ 990 £ 7,683 £ 6,620

Loans from European Central Bank (ECB) secured with retained securitisation notes

665 - 665 -

Sub-total: Due to banks and other financial institutions in respect of securitisation

2,052 990 8,348 6,620

Due to banks and other financial institutions

not in respect of securitisation:

Borrowings from banks and other financial Institutions 328 599 470 733

Loans from European Investment Bank 714 706 714 706

Bank overdrafts 103 127 114 127

Sub-total: Due to banks and other financial institutions not in respect of securitisation

1,145 1,432 1,298 1,566

Due to Banks and Other Financial Institutions £ 3,197 £ 2,422 £ 9,646 £ 8,186

Current £2,288 £ 1,613 £ 7,855 £ 3,904 Non current 909 809 1,791 4,282 Total £ 3,197 £ 2,422 £ 9,646 £ 8,186

Due to Banks and Other Financial Institutions analysis:

Obligations arising from securitisation of receivables £ 1,387 £ 990 £ 7,683 £ 6,620

Loans from ECB secured with retained securitisation notes

665 - 665 -

Sub-total (Note 14) 2,052 990 8,348 6,620

Loans from ECB secured with dealer bills of exchange 76 31 76 31

Secured borrowings 2,128 1,021 8,424 6,651

Unsecured borrowings 1,069 1,401 1,222 1,535

Total Due to Banks and Other Financial Institutions £ 3,197 £ 2,422 £ 9,646 £ 8,186

'Obligations arising from securitisation of receivables' reflects sales of receivables completed under private transactions. As the arrangements do not satisfy the requirements for derecognition under IAS 39 'Financial instruments, recognition and measurement', these receivables and the associated debt are not removed from the balance sheet. Where the Company has entered into a structured financing arrangement with a third party finance provider, and no SPE structure is involved, a liability is recognised within the Company balance sheet representing the proceeds received from the legal transfer of assets to the finance provider. This liability does not represent a legal obligation of the Company and is payable only out of collections on the underlying assets transferred to the finance provider.

'Loans from ECB' represents short-term funding received under the European Central Bank's open market operations programme secured by either retained securitisation notes or dealer receivables. 'Dealer receivables are eligible as the Company operates a bill discounting programme for Ford dealer bills of exchange. 'Retained securitisation notes' represents the Company's retained interests in the Company's public securitisation transactions.

FCE Bank plc



21 DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS continued 'Borrowings from banks and other financial Institutions' are typically either payments received as servicer in regard to sold receivables to banks which are in process of being repaid or other borrowings. 'Loans from European Investment Bank' (EIB) loans partially support a number of different projects relating to FCE's automotive partners, which have been assigned to the Company. The EIB loans have remaining terms from one to four years and are supported by guarantees and letters of credit provided by financial institutions on behalf of the Company to the EIB and deposits made by the Company as detailed in Note 9 'Cash and advances to banks'. FCE's management have not identified any defaults on principal or interest or other breaches with respect to FCE's liabilities during the year ended 31 December 2008 and 31 December 2007.

22 CORPORATE DEPOSITS Corporate deposits at 31 December were as follows: As at 31 December COMPANY GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Dealer deposits £ 30 £ - £ 30 £ -

Total corporate deposits £ 30 £ - £ 30 £ -

Current £ 30 £ - £ 30 £ - Non current - - - - Total £ 30 £ - £ 30 £ -

'Dealer deposits' are utilised to mitigate exposure concentrations. In the event of default by the counterparty the deposits received can be offset against the amounts due to the Company. The above mentioned deposit is collateral for wholesale receivables and can be withdrawn if the Company amends the interest paid or the dealer replaces the deposit with an appropriate guarantee.

FCE Bank plc



23 DUE TO PARENT AND RELATED UNDERTAKINGS

Due to parent and related undertakings at 31 December were as follows: As at 31 December COMPANY GROUP

2008 2007 2008 2007 £ mil £ mil £ mil £ mil

Senior Debt

Term loan due to FMCC £ 956 £ 733 £ 956 £ 733

Deposits received from FCI 585 585 585 585

Amounts drawn under a short term revolving facility - 290 - 290

Principal amounts due to parent undertakings £ 1,541 £ 1,608 £ 1,541 £ 1,608

Deposits received from related parties 255 20 290 41

Deposits received from subsidiary undertakings 157 78 - -

Total Senior Debt £ 1,953 £ 1,706 £ 1,831 £ 1,649

Net cash proceeds from the sale of receivables (Note 14) £ 6,228 £ 5,699 £ - £ -

Accounts payable to related parties 286 294 301 306

Accounts payable to subsidiary undertakings 66 32 - -

Accrued interest 21 20 21 20

Due to parent and related undertakings £ 8,554 £ 7,751 £ 2,153 £ 1,975

Current £ 7,989 £ 7,009 £ 2,153 £ 1,242

Non current 565 742 - 733

Total £ 8,554 £ 7,751 £ 2,153 £ 1,975

'Net cash proceeds from the sale of receivables' represents proceeds received from the transfer of assets to a SPE. This liability is reported net of retained interests and is not the legal obligation of the Company and is payable only out of collections on the underlying assets transferred to the finance provider.

'Term loan due to FMCC' comprises of a single Euro denominated loan with a maturity date of 2009. The movement of £223m (£956 million as at 31 December 2008 compared to £733 million at year end 2007) is due to the Euro versus Sterling currency translation impact (refer to 'Performance Summary' page 7 for further details).

‘Amounts drawn under a short term revolving facility’ provided to the Company by FMCC. This EUR€3 billion (2007: EUR€5 billion) facility matures on 31 December 2009 or earlier upon 90 days notice from FMCC, and no notice has been given by FMCC. As at 31 December 2008 the amount due under this facility was nil (2007: £290 million).

'Deposits received from FCI' are utilised to mitigate certain exposure concentrations from external and related counterparties. In the event of default by these counterparties the deposits received from FCI can be offset against the amounts due to the Company.

'Deposits received from related parties' includes a Euro denominated cash deposit of £235 million from Ford Motor Company Limited in support of a guarantee provided by the Company as collateral in respect of obligations of Ford in Romania. The maximum potential liability of the Company has been fully collateralised by the deposit. The expiration date of the guarantee is August 2009 and could terminate on payment and/or cancellation of the obligation by Ford. A payment to the guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by the guarantee.

Both ‘Accounts payable to related parties’ and 'Accounts payable to subsidiary undertakings' include balances generated in the ordinary course of business. Such balances are typically settled on a daily or monthly basis.

‘Accrued interest’ mainly comprises of interest due on 'Term loans due to FMCC' and 'Deposits received from related parties' (including FCI). Other amounts due to FMCC and FCI are reported within Note 26 'Subordinated loans'.

FCE Bank plc



24 DEBT SECURITIES IN ISSUE Details of the public debt funding programmes as at 31 December are as follows:


PROGRAMME (YEAR LAUNCHED) - AMOUNT 2008 2007 2008 2007 LISTED DEBT: £ mil £ mil £ mil £ mil Euro Medium Term Note (1993) – US$12 billion:

- Continuously Available Retail Securities £ 63 £ 182 £ 63 £ 182 - Other European Medium Term Notes 3,985 2,805 3,985 2,805

Sub-total Euro Medium Term Notes (EMTN) 4,048 2,987 4,048 2,987 Obligations arising from securitisation (Note 14) - - 852 822 Polish CP (1993) PLN 1 billion - - - 51 Sub-total listed debt 4,048 2,987 4,900 3,860 UNLISTED DEBT: Schuldschein 417 695 417 695 Debt securities in issue £ 4,465 £ 3,682 £ 5,317 £ 4,555

Current £ 966 £ 530 £ 1,377 £ 773 Non current 3,499 3,152 3,940 3,782 Total £ 4,465 £ 3,682 £ 5,317 £ 4,555

Analysis of debt securities in issue Unsecured borrowings £ 4,465 £ 3,682 £ 4,465 £ 3,733 Obligations arising from sales of receivables - - 852 822 Total debt securities in issue £ 4,465 £ 3,682 £ 5,317 £ 4,555

The Company's EMTN programme has an issuance limit of US $12 billion (or the equivalent in other currencies). The EMTN Base Prospectus is dated 4 December 2008 and contains information relating to all notes, including Retail Securities. Notes issued under the EMTN programme are listed on the Official List of the Luxembourg Stock Exchange and are admitted for trading on the Luxembourg Stock Exchange’s regulated market. The Luxembourg's Stock Exchange website address is provided on page 136. The EMTN programme includes:

• ''Continuously Available Retail Securities' which may be issued from time to time to retail

investors on a continuously available basis, • 'Other European Medium Term Notes' represents amounts due to non retail investors. The

Company completed the following two unsecured debt transactions during 2008: • August 2008 € 400 million (approximately £ 318 million) – maturing January 2012; • September 2008 € 300 million (approximately £ 240 million) - maturing January 2013;

'Obligations arising from securitisation' reflects public transactions. As the arrangements do not satisfy the requirements for derecognition in accordance with IAS 39 'Financial instruments, recognition and measurement', the sold receivables and the associated debt remain on the Company's balance sheet. This debt is the legal obligation of the securitisation SPEs and is not the legal obligation of the Company. 'Schuldschein' are certificates of indebtedness governed under German law issued by the Company's German branch.

FCE Bank plc



25 OTHER LIABILITIES


2008 2007 2008 2007 £ mil £ mil £ mil £ mil Accrued interest on debt £ 238 £ 154 £ 238 £ 154 Trade payables 151 135 151 137 Accrued liabilities and deferred income 110 128 146 167 Operating Lease subvention 33 25 33 25 Other liabilities £ 532 £ 442 £ 568 £ 483


'Operating lease subvention' relates to interest supplements and other support payments from related parties (including Ford and affiliated manufacturers) provided for operating leases. The amount deferred is recognised in 'Other operating income' over the term of the lease.

FCE Bank plc



26 SUBORDINATED LOANS

Details of subordinated loans provided to the Company as at 31 December are as follows:

COMPANY and GROUP Type / Maturity Date Currency

Amount (Mils) Loan

amount Tier 2 Value Loan amount Tier 2 Value

2008 2008 2007 2007 £ mil £ mil £ mil £ mil Perpetual Loans: Undated US$ 218.6* £ 150 £ 150 £ 109 £ 109 Undated EUR€ 46.0 44 44 34 34 Undated EUR€ 35.8 34 34 26 26 Undated EUR€ 12.8 12 12 9 9 Undated EUR€ 5.6 5 5 4 4 Undated EUR€ 5.6 5 5 4 4 Undated EUR€ 0.8 1 1 1 1

Total perpetual loans £ 251 £ 251 £ 187 £ 187 Dated qualifying loans: Loan 2010 US$ 250* 172 69 125 75 Loan 2011 US$ 45* 31 19 22 22 Loan 2012 US$ 55* 38 30 27 27

Total dated qualifying loans £ 241 £ 118 £ 174 £ 124

Total loan amounts £ 492 £ 361

Total Tier 2 Value £ 369 £ 311

Current - -

Non current 492 361

Total £ 492 £ 361

Analysis of subordinated loans Due to FCI (US$ denominated loans) £ 391 £ 283 Due to FMCC (EUR€ denominated loans) 101 78

Total subordinated loans £ 492 £ 361 * Indicates a drawdown under subordinated loan facility with FCI.

Early repayment of the loans, which are all due to fellow Ford subsidiaries, requires the prior written consent of the FSA and as such these loans qualify for Tier 2 capital for regulatory reporting purposes, refer to Note 42 'Components of Capital'. Dated qualifying loans are amortised on a straight line basis by 20 per cent per annum in the final four years to maturity when calculating the amount to be included in Tier 2 capital as included in the 'Tier 2 Value' column above. The US dollar loans are due to FCI, the Company’s immediate parent undertaking. The Company may repay or FCI may request repayment of the US dollar loans by giving one month's written notice. The Euro loans are due to FMCC. The Company may terminate the agreement at any time by giving one month's written notice. FMCC may terminate the agreement by giving five years and one day's prior written notice. Cross currency swaps are used to minimise currency risks on US dollar denominated funding. The Company has a US$1 billion subordinated loan facility with FCI. This facility enables the Company to respond quickly if additional capital support is required. Under the terms of the facility, the Company is able to take draw downs up to the maximum principal amount of the facility. Any undrawn amount of the facility will be available until it is cancelled either by the Company or FCI. At the end of 2008, the amount drawn under the facility totalled US$ 568.6 million (2007: US$ 568.6 million), and comprised the US$ 218.6 million (2007: US$ 218.6 million) perpetual loans and three dated loans totalling US$ 350 million (2007: US$ 350 million) as indicated by asterisks in the above table.

The rights of FCI and FMCC to payment and interest in respect of all subordinated loans will, in the event of winding up of the Company, be subordinated to the rights of all unsubordinated creditors of the Company with respect to their senior claims.

FCE Bank plc



27 RETIREMENT BENEFIT OBLIGATIONS Total pension costs are detailed below and are charged to 'Operating expenses'.

Total pension expense in the period COMPANY GROUP 2008 2007 2008 2007

£ 000's £ 000's £ 000's £ 000's Restated Restated Defined benefit plans operated by Ford & Volvo subsidiaries £ 9,695 £ 9,861 £ 9,695 £ 9,861 Defined contribution plans in which FCE participates 2,119 2,248 2,131 2,372 Pension plans expensed as defined contribution plans

11,814

12,109

11,826

12,233

Defined benefit plans operated by the Company 813 1,601 813 1,601 Total pension expense £ 12,627 £ 13,710 £ 12,639 £ 13,834

FCE operates various retirement pension plan arrangement in its locations which are explained within this note in the various sections and page numbers detailed below. Section Description Page

numbers

I. Accounting methodology utilised for accounting for net defined benefit costs of plans operated by Ford and Volvo subsidiaries

105

II. FCE locations which do not operate company pension schemes 105 III. Details of pension schemes operated by Ford and Volvo subsidiaries in

which the Company's employee participates 106

IV. Further details of the most significant pension schemes operated by Ford and Volvo subsidiaries in which the Company's employee participates

107 - 108

V. Defined contribution plans and other plans accounted for as defined contribution plans in which FCE employees participate

108

VI. Defined benefit plans operated by the Company 109 (I) Accounting methodology utilised for accounting for net defined benefit costs of plans operated by Ford and Volvo subsidiaries In the locations detailed on the next page Company employees participate in defined benefit pension plans operated by Ford and Volvo subsidiaries. As there is no contractual agreement or stated policy for charging the net defined benefit costs in accordance with IAS 19 ' Employee Benefits', the Company accounts for such schemes as defined contribution plans and recognises a cost equal to contributions payable for the period. (II) FCE locations which do not operate company pension schemes FCE employees in Greece, Hungary and Poland have no company pension schemes.

FCE Bank plc




27 RETIREMENT BENEFIT OBLIGATIONS continued

(III) Details of pension schemes operated by Ford and Volvo subsidiaries in which the Company's employee participates The following tables details the pension schemes operated by Ford and Volvo subsidiaries in which the Company employees participate. The benefit obligation and plan assets as displayed below are the benefits and obligations of the respective pension schemes. The Company's contributions are based on the number of current Company employees participating in each scheme.

COMPANY and GROUP 2008

Total Pension plan participants Company participants

Plan Obligations

Plan Assets

Funding Surplus/ (Deficit)

Current employ-

ees

Retirees Total Current employees

% of Current employ

ees

Contribution paid in year

£ mil £ mil £ mil % £000's

Location/ Scheme Ford unless stated

Belgium £ 209 £ 119 £ (90) 466 1,253 1,719 39 8.4 - Germany – Foveruka *

2,612

2,228

(384)

20,990

22,812

43,802

699

3.3

3,409

Germany - Exempt **

1,900

-

(1,900)

1,253

4,607

5,860

40

3.2

413

Germany – Management** 370 - (370) 8 409 417 - - - Ireland 52 42 (10) 47 315 362 14 29.8 347 Netherlands 92 85 (7) 110 1,133 1,243 46 41.8 43 Portugal 7 6 (1) 74 570 644 30 40.5 - Switzerland *** *** *** *** *** *** *** *** 390 UK – Salaried 2,625 2,369 (256) 4,553 11,461 16,014 753 16.5 4,646 UK - Senior staff 295 251 (44) 200 387 587 15 7.5 378 UK – Volvo 67 64 (3) 215 152 367 9 4.2 69

Total £ 8,229 £ 5,164 £ (3,065) 27,916 43,099 71,015 1,645 5.9 £ 9,695

COMPANY and GROUP 2007

Total Pension plan participants Company participants

Plan Obligations

Plan Assets

Funding Surplus/ (Deficit)

Current employ-

ees

Retirees Total Current employees

% of Current employ

ees

Contribution paid in year

£ mil £ mil £ mil % £000's

Location/ Scheme Ford unless stated

Restated Restated Restated Restated Restated

Belgium £ 165 £ 150 £ (15) 465 1,259 1,724 42 9.0 £ - Germany – Foveruka *

1,840

1,634

(206)

21,755

22,738

44,493

818

3.8

3,505

Germany - Exempt **

1,455

-

(1,455)

1,279

4,611

5,890

54

4.2

-

Germany – Management** 292 - (292) 8 416 424 - - - Ireland 40 47 7 45 315 360 16 35.6 201 Netherlands 69 92 23 111 1,043 1,154 42 37.8 33 Portugal 5 5 - 72 588 660 28 38.9 41 Switzerland 26 35 9 98 55 153 58 59.2 368 UK – Salaried 2,661 2,808 147 5,142 11,556 16,698 794 15.4 5,289 UK - Senior staff 284 292 8 189 381 570 14 7.4 281 UK – Volvo 66 82 16 214 149 363 10 4.7 143 Total £ 6,903 £ 5,145 £ (1,758) 29,378 43,111 72,489 1,876 6.4 £ 9,861

2007 figures restated in order to include 'Germany Management' scheme and to exclude schemes in which FCE employees no longer participate. * For a description of the Foveruka plan refer to the 'glossary of defined terms' on page 139. ** Ford Werke GmbH maintains a balance sheet reserve for the Germany Ford Exempt and management plans as at 31 December 2008 of £1,835 million (2007 £1,413 million). *** Excluded following sale of the Company's branch in Switzerland on 1 December 2008 (refer to Note 36 'Disposals').

FCE Bank plc




27 RETIREMENT BENEFIT OBLIGATIONS continued (IV) Further details of the most significant pension schemes operated by Ford and Volvo subsidiaries in which the Company's employee participates. The most significant retirement benefit obligations to the Company relate to the 'UK Ford Salaried' and 'German Foveruka' pension schemes. Both of these schemes are operated by Ford, are final salaried pension schemes and are accounted for by the Company as defined contribution plans. Further details of these schemes are disclosed below. 2008 2007 2006 2005 2004

UK Ford Salaried

German

Foveruka

UK Ford Salaried

German

Foveruka

UK Ford Salaried

German

Foveruka

UK Ford Salaried

German

Foveruka

UK Ford Salaried

German

Foveruka

Summary of defined benefit plans operated by the Company

£ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil £ mil

Benefit obligations

2,625.4

2,612.4

2,661.0

1,839.7

2,762.5

1,965.9

3,019.5

2,274.9

2,690.5

1,883.1

Plan Assets 2,369.2 2,228.1 2,808.5 1,633.9 2,693.7 1,424.9 2,574.0 1,358.5 2,133.0 1,315.8 Funding Surplus/(Deficit)

£(256.2)

£(384.3)

£ 147.5

£ (205.8)

£ (68.8)

£(541.0)

£(445.5)

£(916.4)

£(557.5)

£(567.3)

2008 2007

UK Ford Salaried

German Foveruka

UK Ford Salaried

German Foveruka

£ mil £ mil £ mil £ mil

Changes in the present value of the defined benefit plan obligations

Opening present value £ 2,661.0 £ 1,839.7 £ 2,762.5 £ 1,965.9 Service cost 29.3 50.7 44.1 50.6 Interest cost 151.5 129.1 147.1 99.6 Actuarial losses/(gains) (86.3) (72.7) (169.4) (375.3) Plan amendments 1.3 - - - Losses on curtailments (12.0) - 3.6 - Member Contributions 16.6 - 15.6 - Past service cost - - - - Translation adjustment 561.4 - 178.0 Benefits paid (136.0) 104.2 (142.5) (79.1)

Closing present value £ 2,625.4 £ 2,612.4 £ 2,661.0 £ 1,839.7

The pension plans on which the defined benefit obligation arises are wholly or partly funded.

2008 2007

UK Ford Salaried

German Foveruka

UK Ford Salaried

German Foveruka

Changes in the fair value of plan assets

£ mil £ mil £ mil £ mil Opening fair value £ 2,808.5 £ 1,633.8 £ 2,693.7 £ 1,424.9 Expected return 218.2 104.2 215.1 75.5 Actuarial gains/(losses) (581.6) (5.7) (62.4) 1.5 Contributions by employer 59.6 101.4 89.0 82.1 Member contributions 16.6 15.6 - Translation adjustment - 498.6 - 129.0 Settlements (16.1) - - - Benefits paid (136.0) (104.2) (142.5) (79.1)

Closing fair value £ 2,369.2 £ 2,228.1 £ 2,808.5 £ 1,633.9

For a description of the Foveruka plan refer to the 'glossary of defined terms' on page 139.

FCE Bank plc




27 RETIREMENT BENEFIT OBLIGATIONS continued (IV) Further details of the most significant pension schemes operated by Ford and Volvo subsidiaries in which the Company's employee participates (continued). The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and property investments reflect long-term real rates of return experienced in the respective markets.

2008 2007 UK Ford Salaried

German Foveruka

UK Ford Salaried

German Foveruka

Composition of plan assets

% % % % Insurance Policy - 100 - 100 Equities 50 - 63 - Bonds 50 - 36 - Other - - 1 - Total 100% 100% 100% 100%

2008 2007

Principal Actuarial Assumptions at the Balance Sheet Date

UK Ford Salaried

German Foveruka

UK Ford Salaried

German Foveruka

% % % % Discount rate 6.0 5.75 5.75 5.50 Expected rate of return on plan assets 7.69 5 7.75 4.75 Future salary increases 3.5 2.6 3.50 2.60 Future pension increases 2.5 1.6 2.50 1.60 Future pension increases (discretionary) 1.9 - 1.90 -

Years Years Years Years Male 18.6 18.5 18.6 18.4

The average life expectancy in years of a member retiring at age 65 on the balance sheet date is as follows:

Female

21.8

22.6

21.8

22.5

Years Years Years Years Male 19.3 21.3 19.3 21.1

The average life expectancy in years of a member retiring at age 65, 20 years after the balance sheet date is as follows:

Female

22.5

25.2

22.5

25.1

(V) Defined contribution plans and other plans accounted for as defined contribution plans in which FCE employees participate In some locations certain FCE employees are members of defined contribution plans, or members of defined benefit plans which are accounted for as defined contribution plans, and a summary of these is given in the table below.

COMPANY GROUP 2008 2007 2008 2007 Contribution paid in year £'000's £'000's £'000's £'000's Location: Restated Restated Denmark £ 132 £ 268 £ 132 £ 268 Czech - - 12 - Finland 14 198 14 198 VCF Finland 43 - 43 124 Germany 1 - 1 - Italy 1,798 1,657 1,798 1,657 Spain 78 55 78 55 Sweden 18 36 18 36 UK 35 34 35 34 Total contributions paid £ 2,119 £ 2,248 £ 2,131 £ 2,372

FCE Bank plc



27 RETIREMENT BENEFIT OBLIGATIONS continued

(VI) Defined benefit plans operated by the Company

In the Company's Austrian, French and Spanish locations certain of the Company's employees participate in defined benefit plans. The Company's Norwegian branch operated a defined benefit plan until the transfer of the majority of its business on 1 June 2008. For further details refer to Note 36 'Disposals'.

A summary of total participants and expenses recognised for defined benefit plans operated by the Company is provided in the following table.

2008 2007 2008 2007 Company participants Expenses recognised in

year £000's £000's Austria* 7 7 £ (8) £ 22 Belgium 15 17 140 152 France 128 129 96 135 Norway - 41 98 937 Spain 40 42 487 355 Total 190 236 £ 813 £ 1,601 *Austria 2008 expense includes release of prior year provision.

Actuarial valuation reports have been obtained for the years to 31 December as detailed below. The reports are used to determine the contributions made by the Company into each scheme. A summary is provided in the following tables.

Austria 2008 2007 2006 2005 2004 £ mil £ mil £ mil £ mil £ mil Benefit obligations £ 0.5 £ 0.4 £ 0.3 £ 0.2 £ 0.2 Plan Assets - - - - - Funding Surplus/ (Deficit) £ (0.5) £ (0.4) £ (0.3) £ (0.2) £ (0.2)

In the Company's Austrian branch an insurance policy valued at £0.4 million (2007: 0.3 million) is held which does not qualify as a plan asset.

Belgium £ mil £ mil £ mil £ mil £ mil Benefit obligations £ 0.9 £ 0.6 £ 0.9 £ 1.6 £- Plan Assets 1.0 0.8 0.6 0.3 - Funding Surplus/ (Deficit) £ 0.1 £ 0.2 £ (0.3) £ (1.3) £-

France £ mil £ mil £ mil £ mil £ mil Benefit obligations £ 1.0 £ 0.7 £ 0.5 £ 0.5 £ 0.3 Plan Assets - - - - - Funding Surplus/ (Deficit) £ (1.0) £ (0.7) £ (0.5) £ (0.5) £ (0.3)

The Company's French branch has two defined benefit plans. In one of the plans at each employee's retirement date, the Company purchases an annuity and transfers the pension liability for the retiree to the insurer. Norway £ mil £ mil £ mil £ mil £ mil Benefit obligations £ - £ 2.3 £ 2.1 £ 1.4 £ 1.4 Plan Assets - 1.6 2.0 1.4 1.5 Funding Surplus/ (Deficit) £ - £ (0.7) £ (0.1) £ - £ 0.1

Spain £mil £mil £mil £mil £mil Benefit obligations £ 7.3 £ 4.5 £ 4.4 £ 4.1 £ 3.6 Plan Assets 7.1 4.3 4.2 4.0 3.4 Funding Surplus/ (Deficit) £ (0.2) £ (0.2) £ (0.2) £ (0.1) £ (0.2)

FCE Bank plc




28 CONTINGENT LIABILITIES As at 31 December COMPANY GROUP

2008 2007 2008 2007 £ mil £ mil £ mil £ mil Guarantees provided to third parties on behalf of Ford:

Romania £ 235 £ - £ 235 £ - City of Cologne authorities 46 35 46 35 Spanish Ministry of Industry and regional authorities 18 26 18 26 Customs authorities, Revenue Commissioners and agencies 14 16 14 16 313 77 313 77 Guarantees provided to third parties on behalf of FCE: Customs authorities and Revenue Commissioners 7 10 7 10 Other 3 - 3 - Total relating to guarantees 323 87 323 87 Commission income contingent liabilities 17 10 17 10

Contingent liabilities prior to credit risk mitigation £ 340 £ 97 £ 340 £ 97

Credit risk mitigation actions:

Cash collateral lodged in support of Romania guarantee (235) - (235) -

Contingent liabilities after credit risk mitigation £ 105 £ 97 £ 105 £ 97

'Guarantees provided to third parties on behalf of Ford' include debt and other financial obligations of Ford. Such arrangements are counter-indemnified by Ford and a fee is charged for the guarantee. Further details of the guarantees provided by the Company are detailed below:

• 'Romania' – The Company has guaranteed obligations of Ford in Romania of which the maximum potential payment of £235 million has been fully collateralised by a deposit from Ford Motor Company Limited. The expiration date of the guarantee is August 2009 and could terminate on payment and/or cancellation of the obligation by Ford. A payment to the guaranteed party would be triggered by failure of Ford to fulfill its obligation covered by the guarantee.

• 'City of Cologne authorities' relates to suspended trade tax payments to the City of Cologne

authorities on behalf of Ford Werke GmbH. This guarantee was issued in December 2004 and is extended each year until notice of termination is provided by the Company.

• 'Spanish Ministry of Industry and regional authorities' relates to loans granted for investment

in the Ford Valencia plant. These guarantees have been provided on behalf of Ford Espana SL to the Spanish Ministry of Industry and regional authorities.

• 'Customs authorities and Revenue Commissioners' relates to duties and registration taxes

on imported vehicles and components provided to various European Customs Authorities, Revenue Commissioners and agencies (including the UK Driver and Vehicle Licensing Agency) on behalf of Ford £14 million (2007: £16 million) and FCE £17 million (2007: £10 million).

'Commission income contingent liabilities' following a review of commission income certain risks which are judged to be less probable have been disclosed above as a contingent liability. Other risks which are judged more probable a provision has been made as detailed in Note 7 'Profit before tax'. 'Cash collateral lodged in support of Romania guarantee' is included within Note 23 'Due to parent and related undertakings' within the caption 'Deposits received from related parties'. The fair values of guarantees are recorded in the financial statements where material.

FCE Bank plc



28 CONTINGENT LIABILITIES continued Litigation and Claims

Certain legal actions and claims are pending or may be instituted or asserted in the future against FCE concerning finance and other contractual relationships. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. FCE has established provisions for certain of the legal actions and claims where losses are deemed probable and reasonably estimable. It is reasonably possible that certain claims for which accruals have not been established could be decided unfavourably to FCE and could require FCE to pay damages or make other expenditures in amounts or a range of amounts that cannot be estimated at 31 December 2008. FCE does not reasonably expect, based on internal analysis, that such matters would have a material effect on future financial statements for a particular year, although such an outcome is possible.

29 COMMITMENTS

The table below details the undrawn portion of commitments to lend. As at 31 December COMPANY GROUP

2008 2007 2008 2007

£ mil £ mil £ mil £ mil

External - less than 1 year maturity £ 130 £ 101 £ 130 £ 101 Subsidiary undertakings – less than 1 years maturity 29 122 - -

Commitments £ 159 £ 223 £ 130 £ 101

The Company extends commercial credit primarily to certain franchised dealers selling Ford brand vehicles in the form of approved lines of credit to purchase inventories of new and used vehicles. There are no external commitments with a maturity of one year or over. Commitments provided to subsidiary undertakings as at 31 December 2008 represent a loan facility provided by the company to its Polish subsidiary FCE Bank Polska S.A of Polish Zloty PLN 200 million (2008: £46m, 2007 £41m). This facility was drawn upon in the amount of £17m as at 31 December 2008. The facility enables the subsidiary to respond quickly if additional funding is required. During 2008 a further commitment to FCE Credit Poland S.A. of PLN 400 million (2007: £81m) was replaced by an uncommitted facility and no longer represents a commitment to lend. The amounts reported above represent the undrawn portion of the commitment at each year end.

30 FUTURE LEASE COMMITMENTS


2008 2007 2008 2007

The future minimum lease payments under non cancellable operating leases are as follows:

£ mil

£ mil

£ mil

£ mil

Not later than one year £ 8 £ 6 £ 8 £ 6 Later than one year and not later than five years 24 10 25 10 Later than five years 1 1 1 1 Future lease commitments £ 33 £ 17 £ 34 £ 17

.

FCE Bank plc




31 VEHICLE RESIDUAL VALUES

The following vehicle residual values relating to retail and operating leases, which are the responsibility of FCE, are included in 'Loans and advances to customers' and 'Property and equipment' respectively in the balance sheet. COMPANY Year in which the residual value will be recovered

Retail residual values

Operating lease residual

values

2008 Total

2007 Total

As at 31 December £ mil £ mil £ mil £ mil

Within 1 year £ 554 £ 132 £ 686 £ 555 Between 1-2 years 643 14 657 537 Between 2-5 years 429 1 430 433 More than 5 years - - - -

Total £ 1,626 £ 147 £ 1,773 £ 1,525

GROUP

Year in which the residual value will be recovered

Retail residual values

Operating lease residual

values

2008 Total

2007 Total

As at 31 December £ mil £ mil £ mil £ mil

Within 1 year £ 554 £ 132 £ 686 £ 561 Between 1-2 years 643 14 657 542 Between 2-5 years 429 1 430 437 More than 5 years - - - -

Total £ 1,626 £ 147 £ 1,773 £ 1,541

Residual value risk is the possibility that the amount FCE obtains from returned vehicles will be less than the estimate of the expected residual value for the vehicle. As demonstrated in the tables above residual risk exposure within FCE predominantly relates to retail finance leases. In 2008 lower demand for vehicles has also resulted in lower used vehicle values, which has resulted in vehicle residual losses of £8 million (2007: £6 million) and increased vehicle residual provisions of £46 million (2007: £1 million). Of the vehicle residual value losses and provision increases £15 million is reclaimable with third parties under residual value loss sharing arrangements. Retail residual values The retail residual value figures included in the table above assume that all retail vehicles where FCE is subject to residual value risk will be returned. FCE is subject to residual value risk on certain retail or finance lease balloon payment products where the customer may choose to return the financed vehicle to FCE at the end of the contract. Residual values are established by reference to various sources of independent and proprietary knowledge. Guaranteed Minimum Future Values ('GMFV's) on retail plans are set below the future market value to protect customer equity and promote Trade Cycle Management products. FCE policy is that the GMFV must be a minimum of 5 per cent below the future market value and is increased to 8 per cent for terms less than 24 months. This policy is a key factor behind the annual rate of return (for vehicles financed under retail finance plans where FCE is subject to residual risk) being less than 4 per cent (2007: less than 3 per cent) of the maturing portfolio. Operating lease residual values All operating lease vehicles are subject to return at the end of the lease period unlike retail plans. FCE's exposure to operating lease has reduced following the outsourcing of the Full Service Leasing (FSL) portfolio in most European markets). The most significant operating lease portfolio remains in Germany which is the primary source of the operating lease residual value risk for FCE. For an additional discussion of residual value risk on operating leases, refer to Note 15 'Property and equipment' and Accounting Policy C 'Critical accounting estimates'.

FCE Bank plc



31 VEHICLE RESIDUAL VALUES continued Sensitivity analysis

If future resale values of FCE's existing portfolio of retail and operating lease vehicles were to decrease this would reduce income for retail vehicles and increase depreciation for operating leases. At 31

st

December 2008 if future resale values reduced by 1 per cent from the current resale values it is estimated this would increase the annual rate of return from the current position of 3.7 per cent to 4 per cent of the maturing portfolio and would have an adverse profit impact to the Company of approximately £3million (2007: £2 million).

32 ORDINARY SHARES AND SHARE PREMIUM COMPANY and GROUP

2008 2007

Authorised at 1 January and 31 December: £ mil £ mil

769,926,202 Ordinary shares of £1 each (2007: 769,926,202) £ 770 £ 770 230,073,798 Non Cumulative convertible preference shares 230 230 £1 each (2007: 230,073,798) Total authorised £ 1,000 £ 1,000

Allotted, called up and fully paid at 1 January and 31 December

614,384,050 Ordinary shares of £1 each (2007: 614,384,050) £ 614 £ 614

Share premium at 1 January and 31 December £ 352 £ 352

There was no change to the issued share capital of the Company during the year. The share premium account is regarded as permanent capital of the Company and is not available for distribution. No director, officer or employee owns or holds shares or owns or holds options over shares in the Company or its subsidiaries.

Since 10 October 2000, FCI has remained the beneficial owner of the entire issued share capital of the Company. One share is held by FMCC on trust for FCI. Since 1 January 2003 the total issued share capital of the Company has been £614,384,050 comprising 614,384,050 Ordinary £1 shares. Support Agreement Pursuant to a support agreement between FMCC and the Company dated 30 September 2004, FMCC has agreed to maintain, directly or indirectly, a controlling interest of not less than 75% of the issued share capital of the Company and to maintain or procure the maintenance of the Company's net worth of not less than US$ 500 million initially until 31 January 2010. The agreement provides for the termination date to be extended automatically on 1 February of each year for an additional one-year period ending on 31 January of the following year. Either party can give notice one month before automatic extension of their wish to prevent the automatic extension of the termination date and terminate the agreement, in which case it will terminate as of the termination date set on the last preceding extension date. However as neither party provided written notice on subsequent 1 February anniversaries, the termination date was automatically extended each time by one year and now is 31 January 2015.

FCE Bank plc



33 TOTAL SHAREHOLDERS' EQUITY

COMPANY Share capital

Share premium

Profit and loss

reserve

Translation Reserve

Total retained earnings

Total


Notes 32 32

Balance at 1 January 2007 32 £ 614 £ 352 £ 1,501 £ (47) £ 1,454 £ 2,420 Total recognised income and expense

- - 200 146 346 346

Dividend paid 34 - - (250) - (250) (250) Balance at 31 December 2007 1 January 2008

32

£ 614

£ 352

£ 1,451

£99

£ 1,550

£ 2,516

Total recognised income and expense

- - 290 496 786 786

Dividend paid 34 - - (190) - (190) (190) Share based payments* 37 - - - - Currency translation differences transferred to the income statement relating to disposals

36

-

-

-

(22)

(22)

(22) Balance at 31 December 2008 32 £ 614 £ 352 £ 1,551 £ 573 £ 2,124 £ 3,090

GROUP Share capital

Share premium

Profit and loss

reserve

Translation Reserve

Total retained earnings

Total


Notes 32 32

Balance at 1 January 2007

32

£ 614

£ 352

£ 1,425

£ (44)

£ 1,381

£ 2,347 Total recognised income and expense

- - 203 155 358 358

Dividend paid 34 - - (250) - (250) (250) Balance at 31 December 2007 1 January 2008

32

£ 614

£ 352

£ 1,378

£ 111

£ 1,489

£ 2,455

Total recognised income and expense

204

515

719

719

Dividend paid 34 - - (190) - (190) (190) Share based payments 37 - - - - - - Currency translation differences transferred to the income statement relating to disposals

36

-

-

-

(22)

(22)

(22) Balance at 31 December 2008 32 £ 614 £ 352 £ 1,392 £ 604 £ 1,996 £ 2,962

* 'Share-based payments' or Restricted Stock Units (RSUs) relates to an incentive programme awarded to directors and employees of FCE. The fair value of the employee services received in exchange for the RSUs is recognised as an expense and a corresponding increase in shareholder's equity, over the vesting period. The costs of providing RSUs are charged to FCE by Ford in the year granted and are recognised within shareholder's equity over the vesting period. During 2007 amounts recognised within shareholder's equity were less than £1 million.

FCE Bank plc




34 DIVIDEND PER SHARE

A dividend of £190 million (2007: £250 million) was paid for the year ended 31 December 2007, equating to approximately 30.93 pence per Ordinary Share was paid to its sole shareholder FCI on 29 July 2008.

35 RELATED PARTY TRANSACTIONS

Parties are considered to be related if they are under common control and if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. A number of transactions are entered into with related parties in the normal course of business. The Company and its subsidiaries are separate, legally distinct companies from Ford and Ford's automotive affiliates and transactions are carried out on commercial terms and at market rates and enforced by FCE in a commercially reasonable manner. In addition to participating in retirement benefit plans sponsored by Ford and Volvo subsidiaries (discussed in Note 27 'Retirement benefit obligations'); the Company has a support agreement with FMCC in regard to Shareholders' funds (detailed in Note 32 'Ordinary shares and share premium'). FCE has reported related party transactions with the following categories: Parent undertakings - this includes FCI, FMCC and Ford. For further information refer to Note 45 'FCE and other related party information',

Directors and officers - reported in Note 5 'Operating expenses', Entities under common control – which includes all subsidiaries of Ford except for those entities already reported within 'Subsidiaries of the Company' and 'Parent undertakings'. Transactions reported in this category include:

• Provision of approved lines of credit, mortgages, working capital and other types of loans which mainly relates to automotive partner vehicle dealers in which Ford maintains a controlling interest

• The receipt of interest income from Ford and its related companies arising from loans, interest supplements and other support costs in regard to a variety of retail and wholesale finance plans

• Guarantees provided on behalf of other related parties of which further details can be found Note 28 'Contingent Liabilities'

• Guarantees received from other related parties primarily for wholesale vehicle finance plans As at 31 December 2008 unearned interest supplements totalled £209 million (31 December 2007: £109 million) and are reported in Note 12 'Loans and advances to customers'. Interest supplements earned and recorded in the income statement for the year ended 31 December 2008 were £513 million (31 December 2007: £432 million). Following the sale of Jaguar and Land Rover by Ford on 2 June 2008, transactions with these entities are reported as related party transactions up until the sale date and as external transactions following the sale date. The Company has guaranteed obligations of Ford in Romania of which the maximum potential payment of £235 million has been fully collateralised by a deposit from Ford Motor Company Limited. For further information please refer to Note 23 'Due to parent and related undertakings' and Note 28 'Contingent liabilities'.

FCE Bank plc




35 RELATED PARTY TRANSACTIONS continued During 2008 dividends were received from:

• Subsidiaries of the Company: EUR€ 16.9million (approximately £13.4 million) was received from Volvo Car Finance Finland Limited prior to the transfer of the subsidiary into the Nordic jointly controlled entity 'Forso'. For further details of the Nordic joint venture refer to Note 18 'Investment in a jointly controlled entity'. 11.5 million Polish Zloty (PZL) (approximately £2.7 million) was received from FFE Poland Branch and 8.2 million Polish Zloty (PZL) (approximately £1.9 million) was received from FCE Credit Poland S.A.

• Entities under common control: 2.6 million Polish Zloty (PZL) million (approximately £0.6

million) by FCE Credit Poland S.A. from a subsidiary of Ford, Ford Polska Sp. Zoo. FCE Credit Poland S.A. has a beneficial interest of approximately 4% in Ford Polska Sp. Zoo.

Jointly controlled entity - FCE's only jointly controlled entity is Forso for which information has been disclosed in Note 18 'Investment in a jointly controlled entity'. The value of related party transactions with Forso, outstanding balances at the year end, and relating income for the year are as follows: Transactions with a jointly controlled entity

Company Group 2008 2007 2008 2007 £ mil £ mil £ mil £ mil Accounts Receivable Accounts receivable at 1 January £ - £ - £ - £ - Additions to accounts receivable during the year 79 - 79 - Repayments during the year (86) - (86) - Accounts receivable at 31 December (7) - (7) - Loans Loans outstanding at 1 January - - - - Loans issued during the year 813 - 813 - Loan repayments during the year (813) (813) Loans outstanding at 31 December - - - - Investment in jointly controlled entity (Note 18) Investment at 1 January - - - - Initial investment retained by FCE during the year - - 36 - Share of net income during the year - - 1 - Foreign currency translation adjustment - 8 Investment at 31 December - - 45 - Subordinated loans receivable (Note 36) Subordinated loans receivable at 1 January - - - - Additions to subordinated loans during the year 8 - 8 - Repayments during the year (8) - (8) - Subordinated loans receivable at 31 December - - - - Accounts Payable Accounts payable at 1 January - - - - Additions to accounts payable during the year 92 92 Repayments during the year (100) - (100) - Accounts payable at 31 December (8) - (8) - Revenue from 1 June 2008 Service fees received 1 1

On 1 December 2008, the Company transferred all business within its branch in Switzerland to Volvo Autobank Gmbh, a fully owned Ford subsidiary. For further details refer to Note 36 'Disposals' There have been no other significant changes in transactions with related parties in the period to 31 December 2008. For further details refer to the following Company and Group disclosures.

FCE Bank plc




35 RELATED PARTY TRANSACTIONS continued

The value of related party transactions, outstanding balances at the year end, and relating expense and income for the year are as follows:

COMPANY: Subsidiaries of the Company Parent undertakings

Entities Under Common Control

2008 2007 2008 2007 2008 2007

Restated* £ mil £ mil £ mil £ mil £ mil £ mil Accounts Receivable Restated Restated Accounts receivable at 1 January £ 164 £ 153 £ - £ - £ 129 £ 127 Additions to accounts receivable during the year 41,583 33,965 - 4 2,431 2,426 Repayments during the year (Footnote 4) (41,528) (33,954) - (4) (2,327) (2,424) Accounts receivable at 31 December 219 164 - - 233 129 Loans Loans outstanding at 1 January 68 816 - - 226 221 Loans issued during the year 6,235 6,915 - - 3,356 2,723 Loan repayments during the year (Footnote 4) (6,194) (7,663) - - (3,386) (2,718) Loans outstanding at 31 December 109 68 - - 196 226 Investment in group undertakings (Note 20) Cost at 1 January 80 80 - - - - Additional investments during the year 124 - - - - - Reduction of investments during the year (27) - - - - - Cost at 31 December 177 80 - - - - Accounts Payable Accounts payable at 1 January 32 65 20 56 294 221 Additions to accounts payable during the year 17,760 6,620 551 465 46,659 46,452 Repayments during the year (Footnote 4) (17,726) (6,653) (550) (501) (46,659) (46,379) Accounts payable at 31 December 66 32 21 20 294 294 Deposits received/subordinated loans Deposits at 1 January 5,777 14 1,969 4,200 20 12 Deposits received during the year 99,645 10,798 970 585 333 21 Deposits repaid during the year (Footnote 4) (99,037) (5,035) (906) (2,816) (98) (13) Deposits at 31 December 6,385 5,777 2,033 1,969 255 20 Revenue Interest supplements earned - - - - 493 419 Interest income related parties 5 49 - - 59 42 Service fees received/(paid) (Footnote 1) 1 1 (6) (8) (17) (14) Expense Interest expense on deposits - - 14 26 - - Interest expense 3 57 133 125 9 - Guarantees Guarantees provided (Note 28) - - - - 323 87 Commitments to lend (Footnote 3) 29 122 - - - - Guarantees received - - - - 349 127 Group tax relief (Footnote 2) 1 5 - - 285 105 Dividends paid (Note 34) - - 190 250 - - Dividends received (see previous page) 13 - - - 1 - Derivatives Derivatives year end positive fair value - - - - 60 9 Derivatives year end negative fair value - - - - 32 7 Footnotes: 1 Service fees received or paid – The Company receives technical and administrative advice and services from Ford and its

related companies, occupies office space furnished and provided by them and utilises data processing facilities maintained by them. The costs of these services are charged to 'Operating expenses'. The Company also allocates central staff costs to its subsidiaries which benefit from the service.

2 Group tax relief relates to losses claimed from related UK companies to shelter the Company's UK tax profits. 3 Commitments to lend: The Company has extended loan facilities to its Polish subsidiaries FCE Bank Polska S.A. and

FCE Credit Poland S.A. For further information refer to Note 29 'Commitments'. 4 Repayments include both repayments and the effect of exchange rate changes during the year.

FCE Bank plc



35 RELATED PARTY TRANSACTIONS continued The value of related party transactions, outstanding balances at the year end, and relating expense and income for the year are as follows:

Parent undertakings Entities Under Common Control

GROUP: 2008 2007 2008 2007

Restated*

£ mil £ mil £ mil £ mil Accounts Receivable Restated Accounts receivable at 1 January £ - £ - £ 130 £ 128 Additions to accounts receivable during the year - 4 2,459 2,445 Repayments of accounts receivable during the year (Footnote 3) - (4) (2,353) (2,443) Accounts receivable at 31 December - - 236 130 Loans Loans outstanding at 1 January - - 226 221 Loans issued during the year - - 3,372 2,723 Loan repayments during the year (Footnote 3) - - (3,402) (2,718) Loans outstanding at 31 December - - 196 226 Accounts Payable Accounts payable at 1 January 20 56 306 230 Additions to accounts payable during the year 551 465 47,143 47,159 Repayments of accounts payable during the year (Footnote 3) (550) (501) (47,140) (47,083) Accounts payable at 31 December 21 20 309 306 Deposits received/subordinated loans Deposits at 1 January 1,969 4,200 42 12 Deposits received during the year 970 585 342 43 Deposits repaid during the year (Footnote 3) (906) (2,816) (94) (14) Deposits at 31 December 2,033 1,969 290 41 Revenue Interest supplements earned - - 513 432 Interest income - - 59 42 Service fees received/paid (Footnote 1) (6) (8) (17) (15) Expense Interest expense on deposits 14 26 - - Interest expense 133 125 10 1 Guarantees Guarantees provided (Note 28) - - 323 87 Guarantees received - - 349 127 Group tax relief (Footnote 2) - - 285 105 Dividend paid (Note 34) - 250 - - Dividends received (see page 116) - - 1 - Derivatives Derivatives year end positive fair value - - 60 9 Derivatives year end negative fair value - - 32 7 Footnotes: 1 Service fees received or paid - FCE receives technical and administrative advice and services from Ford and its related

companies, occupies office space furnished and provided by them and its related companies and utilises data processing facilities maintained by them. The costs of these services are charged to 'Operating expenses'.

2 Group tax relief are losses claimed from related UK companies to shelter FCE's UK tax profits. 3 Repayments include both repayments and effect of exchange rate changes during the year.

FCE Bank plc




36 DISPOSALS

External Sales completed during 2008 and 2007 were as follows: GROUP Region/Country External Sale date Proceeds

currency mils 2008 £ mil

2007 £ mil

Nordic locations (Note 18) June 2008 EUR€ 78 £ 61 £ Switzerland branch December 2008 CHF 132 71 - Belgium November 2007 EUR€ 63 - 44 Total sale proceeds £ 132 £ 44 50% of Nordic net assets transferred to joint venture partner £ 36 £ - Net assets of Switzerland branch sold to Ford subsidiary 70 Belgium portfolio sold to external third party - 44 Net assets sold or transferred £ 106 £ 44 Pre-tax gain on sale excluding foreign currency translation differences

£ 26

£ -

Currency translation differences recognised on sale previously having been recognised within equity:

- Nordic locations 9 - - Switzerland branch 13 - Pre-tax gain on sale including foreign currency translation £ 48 £ -

'Nordic locations': • On 1 May 2008 the Company transferred net assets of £11 million representing the majority of the

assets and liabilities of its branch in Finland into its subsidiary Volvo Car Finance Finland Limited (VCFL), now called Forso Finance Oy.

• On 1 June 2008 FCE transferred the majority of its current and all future retail, leasing and wholesale financing business of its branches in Denmark, Norway and Sweden (referred to in the table below as Nordic branches) and VCFL (included in the table below as 'Subsidiaries') into Forso in exchange for shares in Saracen Holdco Ab. Forso is a regulated Swedish company and at that time was wholly owned by Saracen Holdco Ab. a fully owned FCE subsidiary.

• On 30 June 2008 Saracen Holdco Ab. sold approximately 50% of its interests in Forso (included in the table below as 'Subsidiaries') to Sofinco S.A., a consumer credit subsidiary of Crédit Agricole S.A. For further details refer to Note 18 'Investment in a jointly controlled entity.

'Switzerland branch' - On 1 December 2008, the Company transferred all business within its branch in Switzerland (referred to in the table below as 'Swiss branch') to Volvo Autobank Gmbh, a fully owned Ford subsidiary. The gain on sale primarily relates to currency translation differences recognised on sale that had previously having been recognised within equity.

'Belgium' – On 30 November 2007 the Company Belgium branch sold its finance lease portfolio to an external third party.

Summary of assets and liabilities of businesses sold at the various sales dates is given below: Company Group

Nordic branches

Swiss branch

Total Subsid-iaries

Total

Company and Group

2008 2008 2008 2008 2008 2007

ASSETS £ mil £ mil £ mil £ mil £ mil £ mil

Cash and advances to banks £ 17 £ 24 £ 41 £ 13 £ 54 £ - Other assets 89 1 90 3 93 - Loans and advances to customers 502 486 988 278 1,266 44 Property and equipment 5 - 5 23 28 - Income taxes receivable - - - 2 2 - Deferred tax assets 6 - 6 - 6 -

Total Asset £ 619 £ 511 £ 1,130 £ 319 £ 1,449 £ 44

LIABILITIES

Due to banks and other financial institutions £ 13 £ - £ 13 £ 3 £ 16 £ - Due to FCE and related undertakings 551 420 971 272 1,243 - Other liabilities 8 12 20 2 22 - Deferred tax liabilities 5 9 14 4 18 - Subordinated loan from FCE - - - 8 8 -

Total liabilities £ 577 £ 441 £ 1,018 £ 289 £ 1,307 £ -

NET ASSETS £ 42 £ 70 £ 112 £ 30 £ 142 £ 44

Concurrent or following the sale all funding provided by the Company to the businesses sold including the subordinated loan were repaid.

FCE Bank plc



36 DISPOSALS continued Cash flows arising from the disposals for the year ended 31 December are as follows: For the year ended 31 December GROUP 2008 2007 £ mil £ mil Total sales proceeds £ 132 £ 44 Less: cash and cash equivalents in businesses sold (54) (-) NET CASH INFLOW ON SALES £ 78 £ 44

Summarised income statements for operations sold for the years ended 31 December 2008 and 2007 are as follows: For the year ended 31 December GROUP

2008 2007 £ mil £ mil

Total revenue £ 115 £ 159 Total expenses (101) (135) PROFIT BEFORE TAX 14 24 Income tax income/(expense) 5 (7) PROFIT AFTER TAX* £ 19 £ 17

The 2008 figures as reported in the above table relate to sales completed during 2008. The 2008 income statement figures reported include results of FCE's Nordic locations and the Company's branch in Switzerland from 1 January 2008 to the respective sales dates. The 2007 figures as reported in the above table relate to sales completed during 2008 and 2007. The 2007 incomes statement figures include results for the Nordic locations and the Company's branch in Switzerland for the year ended 31 December 2007 and for the Belgium finance lease portfolio sale from 1 January 2007 to the sale date of 30 November 2007.

FCE Bank plc




37 SHARE BASED PAYMENTS

Costs of providing share options are included in equity Note 33 'Total shareholders' equity' over the vesting period. For reasons of materiality in certain periods amounts are excluded from the above mentioned note. Movements within other reserves relating to shares and share options are detailed below COMPANY and GROUP

2008 2007

£ 000's £ 000's

At 1 January £ 437 £ 306 Expensed to profit and loss account 308 403 Charged by the parent company (349) (272) At 31 December £ 396 £ 437

Prior to the introduction of Restricted Stock Unit's (RSUs) FCE offered share options which are held over Ford Common Stock to directors and employees. For more details about the various Ford share-based payment plans please refer to the annual report of Ford. The number and weighted average exercise price of share options granted to directors and employees of FCE after 7 November 2002* that had not vested by 1 January 2005* are as follows: 2008 2007

COMPANY and GROUP:

Number of shares

Average Grant Price of shares

Number of shares

Average Grant Price of shares

US$ US$ At 1 January 802,694 $ 10.41 812,776 $ 10.53 Granted 47,924 6.14 35,574 7.55 Exercised - - (594) 7.83 Transfers In 15,301 10.84 13,611 11.95 Transfers Out (51,673) 10.61 (55,373) 10.76 Terminated (8,971) 10.56 (3,300) 7.83 At 31 December 805,275 $ 10.22 802,694 $ 10.41 Average grant price of share as at 31 December 2007 restated to correctly reflect the grant price.

* Dates stipulated by IFRS 1 'First time adoption of IFRS' paragraph 25 (b). 'Transfers In' represents share options granted to employees who at the grant date were employees of another subsidiary of Ford and have since transferred to FCE. 'Transfers Out' represents share options granted to employees who at the grant date were employees of FCE and have since transferred to another subsidiary of Ford. No options were exercised in 2008. The weighted average market share price of options exercised during 2007 was US$ 7.83. Share options outstanding at the end of the year were as follows: 2008 2007 Range of Exercise Prices Weighted

Average Grant Price

Number of shares

Weighted Average

Remaining Life

Weighted Average

Grant Price

Number of shares

Weighted Average

Remaining Life

US$ US$ Years US$ Years

5.51 – 7.50 $ 6.14 47,924 9.2 7.51 – 9.50 7.72 352,694 6.4 $ 7.72 374,737 8.0 9.51 – 11.50 9.95 21,457 4.2 10.03 14,857 5.4 11.51 – 13.50 12.80 383,200 5.7 12.86 413,100 6.7 At 31 December 805,275 802,694

FCE Bank plc



37 SHARE BASED PAYMENTS continued The fair value of stock options at the time of grant estimated using the Black Scholes pricing model was as follows: 2008 2007 Weighted average fair value per option US$ 2.65 US$ 3.57 Dividend yield - - Expected volatility 37.70% 39.2% Risk-free interest rate 3.90% 5.0% Expected option term (years) 6 7

The expected volatility is based on the historical volatility over the last seven years.

There were no performance stock rights over Ford US Common stock awarded to directors in either 2008 or 2007. Since 2007 FCE has awarded RSUs to directors and employees, granting 188,838 in 2008 (2007: 164,541) with a weighted average fair market value of $6.14 (2007: $7.55). The outstanding number and weighted average market share price of awards granted is as follows:

2008 2007 Number of

shares Average Market Price of shares

Number of shares

Average Market Price of shares

US$ US$ 322,977 6.78 163,594 7.55

FCE Bank plc




38 CURRENCY RISK In addition to the UK the Company operates branches in eleven other European countries and has subsidiaries in the Czech Republic, Hungary and Poland which provide a variety of wholesale, leasing and retail vehicle financing (see Note 20 'Investment in group undertakings'). Following the sale of the Company's branch in Switzerland and FCE's Nordic operations (see Note 36 'Disposals') the functional currency of the majority of the Group's and Company's operations is Euro, with the exception of the Company's subsidiaries in the Czech Republic, Hungary and Poland. For further information of the Company's and Group's geographical structure refer Note 1 'Segmental reporting'. The main operating currencies are therefore Euro and Sterling. As FCE presents its consolidated financial statements in Sterling, these will be affected by foreign currency exchange rate movements between the Euro and Sterling. The Company does not hedge structural foreign currency investments in overseas operations as each investment is considered to be of a long term nature. FCE's policy is to minimise exposure to operating results from changes in currency exchange rates. Controls are in place to limit the size of transactional currency exposures. To meet funding objectives, the Company borrows in a variety of currencies. Exposure to currency exchange rates occurs if a mismatch exists between the currency of the receivables and the currency of the debt funding those receivables. Wherever possible, the Company funds receivables with debt in the same currency, minimising exposure to exchange rate movements. When a different currency is used, foreign currency derivatives are executed to convert substantially all of the foreign currency debt obligations to the local country currency of the receivables. As a result of this policy, FCE's believes that market risk exposure relating to changes in currency exchange rates is well controlled. For additional information on derivatives, see Note 10 'Derivative Financial Instruments'. COMPANY GROUP

Assets, Liabilities and Shareholders' equity 2008 2007 2008 2007 £ mil £ mil £ mil £ mil

As at 31 December

Assets: Denominated in sterling £ 4,490 £ 3,753 £ 6,513 £ 6,956 Denominated in currencies other than sterling 16,180 13,560 15,127 11,213 Total Assets £ 20,670 £ 17,313 £ 21,640 £ 18,169

Liabilities and shareholders' equity: Denominated in sterling £ 4,590 £ 4,135 £ 5,560 £ 6,156 Denominated in currencies other than sterling 16,080 13,178 16,080 12,013 Total Liabilities and shareholders' equity £ 20,670 £ 17,313 £ 21,640 £ 18,169

FCE Bank plc



38 CURRENCY RISK continued Foreign currency translation exposures arising from FCE's investments in overseas branches and subsidiaries are detailed below. As at 31 December COMPANY and GROUP

Structural currency exposures 2008 2007 £ mil £ mil Functional currency of operations involved: Euro £ 508 £ 520 Other Non Euro currencies 66 48 Total £ 574 £ 568

The table below shows transactional currency exposures which give rise to the net currency gains and losses recognised in the consolidated income statement. Such exposures comprise the monetary assets and liabilities that are not denominated in the operating (or ‘functional’) currency of the operating unit involved. The exposures shown below are stated net of derivatives used to limit currency risk. COMPANY and GROUP: As at 31 December Transactional currency exposure (2008)

US Dollar Euro Sterling Other Total £ mil £ mil £ mil £ mil £ mil Functional currency of operations: Euro £ - £ - £ (21) £ - £ (21) Sterling (1) (18) - - (18) Total assets/(liabilities) £ - £ (18) £ (21) £ - £ (39)

As at 31 December Transactional currency exposure (2007)

US Dollar Euro Sterling Other Total £ mil £ mil £ mil £ mil £ mil Functional currency of operations: Euro £ - £ - £- £ - £ - Sterling 15 5 - 5 25 Total assets/(liabilities) £ 15 £ 5 £ - £ 5 £ 25

Due to the low levels of transactional currency exposure FCE's sensitivity to changes in currency exchange rates is not significant in terms of gains and losses recognised in the income statement.

FCE Bank plc



39 INTEREST RATE RISK As a result of FCE's interest rate risk management processes that utilise hedging derivatives and as some of assets are funded by equity, the total level of assets re-pricing is greater than the level of debt re-pricing. Other things being equal, this means that during a period of rising interest rates, the interest income received on FCE's assets will increase more rapidly than the interest expense paid on its debt, thereby increasing pre-tax net interest income. Correspondingly, during a period of falling interest rates, FCE would expect its pre-tax net interest income to initially decrease. In addition to enhancing liquidity, one of the main reasons that the Company has increased its use of securitisation as a funding source over the last few years has been that interest rate spreads ('spreads') on securitisation transactions have typically been stable and lower than FCE's unsecured long-term debt funding. Consistent with the overall market during 2008, FCE was impacted by a re-pricing of all credit risk that caused fixed income investors to demand higher risk premium for the funding they provide. In 2008 the Company's securitised spreads (based on the creditworthiness of the underlying securitised asset and enhancements) on the notes for newly issued transactions increased (from between 70 to 270 basis points compared to between 14 to 125 basis points in 2007) but remained lower and less volatile than unsecured spreads. To provide a quantitative measure of the sensitivity of pre-tax net interest income to changes in interest rates, FCE use interest rate scenarios. These scenarios assume a hypothetical, instantaneous increase or decrease in interest rates of one hundred basis points across all maturities and all currencies (a 'parallel shift'), as well as a base case that assumes that interest rates remain constant at existing levels. These interest rate scenarios are based on historical trends. FCE's view is that a one hundred basis point instantaneous shift in interest rates is reasonable; however this does not represent an expectation of future interest rate movements. The differences in pre-tax net interest income between these scenarios and the base case over a twelve-month period represent an estimate of the sensitivity of FCE's pre-tax net interest income. FCE's ability to obtain derivatives to manage market risk has significantly reduced due to the financial crisis and deterioration of FCE's credit ratings. During the fourth quarter of 2008, FCE prioritised the use of limited derivative capacity for hedging asset-backed funding transactions and hedging currency exposure. Despite the challenges in obtaining derivatives, FCE's overall exposure to changes in interest rates as of year-end 2008 is comparable to year-end 2007 as detailed below.

GROUP

Pre-tax Net Interest Income impact given a one percentage point

instantaneous increase in interest rates

Pre-tax Net Interest Income impact given a one percentage point

instantaneous decrease in interest rates

£ mil £ mil 2008 £ 14.4 £ (14.4) 2007 11.6 (11.6)

The sensitivity analysis presented previously assumes a one hundred basis point rate change to the year-end yield curve that is both instantaneous and parallel. In reality, interest rate changes are rarely instantaneous or parallel and rates could move more or less than the one percentage point assumed. As a result, the actual impact to pre-tax net interest income could be higher or lower than the results detailed above.

While the sensitivity analysis presented is FCE's best estimate of the impacts of the specified assumed interest rate scenarios, actual results could differ from those projected. The model used to conduct this analysis is heavily dependent on assumptions. Embedded in the model are assumptions regarding the reinvestment of maturing asset principal, refinancing of maturing debt, and predicted repayment of retail installment sale and lease contracts ahead of the contract end date. Repayment projections ahead of contractual maturity are based on historical experience. If interest rates or other factors change, the actual prepayment experience could be different than projected. FCE has presented its sensitivity analysis on a pre-tax rather than an after-tax basis, to exclude the potentially distorting impact of assumed tax rates.

FCE Bank plc




40 LIQUIDITY RISK

The tables within this note analyses gross undiscounted contractual cash flows from assets and liabilities into relevant maturity groupings based on the criteria detailed on page 129. The 'Net liquidity gap excluding off balance sheet items' is reported excluding behavioural adjustments for customer early settlements. The 'Net liquidity gap including off balance sheet items' includes available for use credit facilities. Both of the above gap figures assume that the inflows related to retail, leasing and wholesale financing plans occur on the latest contractual date and that the repayment of debt occurs at the earliest possible repayment date. Accordingly our expected liquidity position based on cash inflows and outflows is more favourable than as presented within this note. COMPANY At 31 December 2008 0-3 Mths 4-12 Mths 1-5 Years 5+ Years Total

Non-derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil

Cash and advances to banks

A

£ 1,193

£ 30

£ 213

£ 94

£ 1,530 Other assets D 739 9 - 52 800 Loans and advances to customers B 3,389 9,154 5,705 29 18,277 Operating leases B 3 11 7 - 21 Assets £ 5,324 £ 9,204 £ 5,925 £ 175 £ 20,628

Due to banks and other financial institutions C £ 952 £ 1,379

£ 983

£ -

£ 3,314

Corporate deposits 30 - - - 30 Due to parent & related undertakings C 3,796 4,355 1,154 61 9,366 Debt securities in issue C 305 981 4,352 - 5,638 Other liabilities D 111 18 24 - 153 Subordinated loans D 5 11 287 252 555 Liabilities £ 5,199 £ 6,744 £ 6,800 £ 313 £ 19,056

Net liquidity gap excluding off balance sheet items £ 125 £ 2,460

£ (875)

£ (138)

£ 1,572

Cumulative net liquidity gap £ 125 £ 2,585

£ 1,710

£ 1,572 Available for use credit facilities: -Granted by financial institutions to the Company 818

-Granted by FMCC to the Company 2,869 -Granted by the Company (Note 29) (159) Net liquidity gap including off balance sheet items £ 3,653

COMPANY At 31 December 2008 0-3 Mths 4-12 Mths 1-5 Years 5+ Years Total

Derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil Derivatives settled on a net basis -Net inflow/(outflow) - interest rate swaps C £ 113 £ (45) £ 234 £ 1 £ 303 Derivatives settled on a gross basis - Forward foreign exchange - Inflow C 1,573 - - - 1,573 - Outflow C 1,544 - - - 1,544 - Cross currency interest rate swaps - Inflow C 26 400 688 - 1,114 - Outflow C 19 381 761 - 1,161 Total inflow £ 1,599 £ 400 £ 688 £ - £ 2,687 Total outflow £ 1,563 £ 381 £ 761 £ - £ 2,705

FCE Bank plc




40 LIQUIDITY RISK continued COMPANY At 31 December 2007 0-3 Mths 4-12 Mths 1-5 Years 5+ Years Total


Restated*

Cash and advances to other banks A £ 335 £ 2 £ 343 £ 49 £ 729 Other assets D 420 51 31 2 504 Loans and advances to customers B 5,286 5,277 5,020 27 15,610 Operating leases B 1 2 26 - 29 Assets £ 6,042 £ 5,332 £ 5,420 £ 78 £ 16,872

Due to banks and other financial institutions C £ 1,062 £ 392

£ 728

£ 194

£ 2,376

Due to parent and related undertakings C 3,851 1,897

2,054

-

7,802 Debt securities in issue C 289 458 2,899 734 4,380 Other liabilities D 53 66 13 3 135 Subordinated loans D 5 16 240 187 448 Liabilities £ 5,260 £ 2,829 £ 5,934 £ 1,118 £ 15,141 Net liquidity gap excluding off balance sheet items £ 782 £ 2,503

£ (514)

£ (1,040)

£ 1,731

Cumulative net liquidity gap £ 782 £ 3,285

£ 2,771

£ 1,731 Available for use credit facilities -Granted by financial institutions to the Company 897

-Granted by FMCC to the Company 3,373 -Granted by the Company (Note 29) (223) Net liquidity gap including off balance sheet items £ 4,829

COMPANY At 31 December 2007 0-3 Mths 4-12 Mths 1-5 Years 5+ Years Total

Derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil Derivatives settled on a net basis -Net inflow/(outflow)-interest rate swaps C £ 50 £ (58) £ 37 £ 39 £ 68 Derivatives settled on a gross basis - Forward foreign exchange - Inflow C 1,282 - - - 1,282 - Outflow C 1,281 - - - 1,281 - Cross currency interest rate swaps - Inflow C 91 222 943 - 1,256 - Outflow C 82 227 983 - 1,292 Total inflow £ 1,373 £ 222 £ 943 £ - £ 2,538 Total outflow £ 1,363 £ 227 £ 983 £ - £ 2,573 * 2007 comparative figures have been restated to include available for use credit facilities granted to the Company by FMCC.

Available for use credit facilities: Granted by financial institutions to the Company At 31 December 2008 the Company had £1,160 million (2007: £1,272 million) of contractually committed credit facilities with financial institutions of which £342 million (2007: £375 million) has been utilised resulting in £818 million (2007: £897million) being available for use which are reported within the Liquidity Risk tables as 'Available for use credit facilities – Granted by financial institutions to the Company/FCE'. Of the global credit lines, 53% (or £590 million) are committed through 31 December 2011, and the remainder is committed for a shorter period of time. All of the global credit facilities have substantially identical contract terms (other than commitment amounts) and are free of material adverse change clauses, restrictive financial covenants (for example, debt-to-equity limitations and minimum net worth requirements) and credit rating triggers that could limit our ability to borrow.

Granted by FMCC to the Company

A EUR 3 billion (2007: EUR 5 billion) short term revolving facility’ has been provided by FMCC to the Company which matures on 31 December 2009 or earlier upon 90 days notice from FMCC. As at 31 December 2008 no amounts no amounts had been drawn under this facility (2007: £290 million).

FCE Bank plc




40 LIQUIDITY RISK continued

GROUP At 31 December 2008 0-3 Mths 4-12 Mths 1-5 Years 5+ Years Total

Non-derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil Cash and advances to banks A £ 1,797 £ 299 £ 439 £ 160 £ 2,695 Other assets D 469 9 - - 478 Loans and advances to customers B 3,473 9,403 5,757 29 18,662 Operating leases B 3 17 70 - 90 Assets £ 5,742 £ 9,728 £ 6,266 £ 189 £ 21,925

Due to banks and other financial institutions C £ 2,612 £ 5,399

£ 1,884

£ -

£ 9,895

Corporate deposits 30 - - - 30 Due to parent & related undertakings C 1,563 637 - - 2,200 Debt securities in issue C 399 1,319 4,801 - 6,519 Other liabilities D 112 19 24 - 155 Subordinated loans D 5 11 287 252 555 Liabilities £ 4,721 £ 7,385 £ 6,996 £ 252 £ 19,354

Net liquidity gap excluding off balance sheet items £ 1,021 £ 2,343

£ (730)

£ (63)

£ 2,571

Cumulative net liquidity gap £ 1,021 £ 3,364

£ 2,634


-Granted by FMCC to the Company 2,869 -Granted by FCE (Note 29) (130) Net liquidity gap including off balance sheet items £ 4,578


Derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil Derivatives settled on a net basis -Net inflow/(outflow)-interest rate swaps C £ 94 £ (98) £ 152 £ - £ 148 Derivatives settled on a gross basis - Forward foreign exchange - Inflow C 1,573 - - - 1,573 - Outflow C 1,544 - - - 1,544 - Cross currency interest rate swaps - Inflow C 26 400 688 - 1,114 - Outflow C 19 381 761 - 1,161 Total inflow £ 1,599 £ 400 £ 688 £ - £ 2,687 Total outflow £ 1,563 £ 381 £ 761 £ - £ 2,705

FCE Bank plc



40 LIQUIDITY RISK continued



Restated*

Cash and advances to other banks A £ 730 £ 11 £ 774 £ 86 £ 1,601 Other assets D 248 27 10 - 285 Loans and advances to customers B 5,338 5,469 5,110 27 15,944 Operating leases B 7 19 67 - 93 Assets £ 6,323 £ 5,526 £ 5,961 £ 113 £ 17,923

Due to banks and other financial institutions C £ 4,234 £ 2,079

£ 2,052

£ 194

£ 8,559

Due to parent and related undertakings C 863 430

734

-

2,027

Debt securities in issue C 468 751 3,353 734 5,306 Other liabilities D 54 66 14 3 137 Subordinated loans D 5 16 240 187 448 Liabilities £ 5,624 £ 3,342 £ 6,393 £ 1,118 £ 16,477

Net liquidity gap excluding off balance sheet items £ 699 £ 2,184

£ (432)

£ (1,005)

£ 1,446

Cumulative net liquidity gap £ 699 £ 2,883 £ 2,451


-Granted by FMCC to the Company 3,373 -Granted by FCE (Note 29) (101) Net liquidity gap including off balance sheet items £ 4,868


Derivative cash flows Notes £ mil £ mil £ mil £ mil £ mil Derivatives settled on a net basis -Net inflow/(outflow)-interest rate swaps

C £ 54 £ (55) £ 27 £ 39 £ 65

Derivatives settled on a gross basis - Forward foreign exchange - Inflow C 1,282 - - - 1,282 - Outflow C 1,281 - - - 1,281 - Cross currency interest rate swaps - Inflow C 91 222 943 - 1,256 - Outflow C 82 227 983 - 1,292 Total inflow £ 1,373 £ 222 £ 943 £ - £ 2,538 Total outflow £ 1,363 £ 227 £ 983 £ - £ 2,573 * 2007 comparative figures have been restated to include available for use credit facilities granted to the Company by FMCC.

Note

Cash flows from assets and liabilities are allocated to the appropriate time bands as follows:

A Based on availability of 'cash and advances to banks' as follows (Note 9) • 'Cash and cash equivalents' classified by contractual maturity date • 'Cash associated with securitisation transactions' classified according to the anticipated repayment date • 'Other deposits' which are typically not available for use in day to day operations classified based on the latest

possible repayment date B Customer payments are assumed to occur on the latest contractual date and no behavioural adjustments are made for

customer early settlements : • Retail finance and lease contracts and operating lease vehicles (reported within Note 15 'Property and Equipment')

generally require customers to pay equal monthly instalments over the life of the contract. • Wholesale financing for new and used vehicles held in dealers inventory - A bullet repayment schedule is utilised as

the principal is typically repaid in one lump sum at the end of the financing period C Classified to the earliest possible repayment date which means the first rollover date, or the shortest period of notice

required to withdraw the funds or exercise a break clause where applicable D Classified according to the remaining period to maturity

FCE Bank plc




41 FINANCIAL ASSETS AND FINANCIAL LIABILITIES Detailed on the following page is a comparison by category of the carrying values and fair values of the financial assets and financial liabilities. Fair value is obtained by calculating the amount at which an asset or liability could be exchanged in an arm’s length transaction between informed and willing parties other than in a forced liquidation. Derivative financial instruments The fair values of derivatives are calculated using market rates and industry standard valuation models. All derivatives are included in assets when the fair value is positive and in liabilities when the fair value is negative.

Financial assets Cash and advances to banks include inter-bank placements and items in the course of collection. The fair value of floating rate placements and overnight deposits is their carrying amount. The estimated fair value of fixed interest bearing deposits is based on discounted cash flows using prevailing money-market interest rates for debts with similar credit risk and remaining maturity. Short term receivables and loans receivable: The book value of short-term receivables and loans receivable approximates fair value due to the short maturities of these assets Loans and advances to customers: The fair value is calculated by discounting anticipated future cash flows using an estimated discount rate that reflects the following: • Expected credit losses • Customer prepayments • Expected future interest rates FCE uses statistical methods that divide receivables into segments by type of receivables and contractual term.

Financial liabilities The aggregate fair values of financial liabilities are calculated as follows:

• Subordinated loans with no stated maturity date are reported based on the amount repayable on demand

• The book value of short-term debt, trade payable and accounts payable to subsidiary and related

undertakings approximates fair value due to the short maturities of these liabilities • The fair value of all other debt is estimated based upon quoted market prices, current market rates

for similar debt with approximately the same remaining maturities, or discounted cash flow models utilising current market rates

Accordingly the information as presented does not purport to represent, nor should it be construed to represent, the underlying value of the business as a going concern.

FCE Bank plc



41 FINANCIAL ASSETS AND FINANCIAL LIABILITIES continued

As at 31 December CARRYING VALUE FAIR VALUE COMPANY 2008 2007 2008 2007 Notes £ mil £ mil £ mil £ mil FINANCIAL ASSETS Restated*

Financial assets at fair value through income statement - Derivative financial instruments 10 £ 505 £ 125 £ 505 £ 125 Loans and receivables - Cash and advances to banks 9 1,530 729 1,530 729 - Short term receivables 11 691 412 691 412 - Loans receivable 11 109 92 109 92 - Loans and advances to customers Retail 12 8,716 8,037 8,699 8,101 Wholesale/other 12 8,326 7,170 8,326 7,170 FINANCIAL LIABILITIES Financial liabilities at fair value through income statement - Derivative financial instruments 10 237 93 237 93 Financial liabilities at amortised cost -Listed Debt: Debt securities in issue 24 4,048 2,987 3,338 2,784 -Unlisted Debt: Due to banks & other financial institutions 21 3,197 2,422 3,018 2,424 Corporate deposits 22 30 - 29 - Due to parent and related undertakings 23 8,554 7,751 8,554 7,751 Debt securities in issue 24 417 695 415 712 Trade payables 25 151 135 151 135 Subordinated loans 26 492 361 371 308 CARRYING VALUE FAIR VALUE GROUP 2008 2007 2008 2007 £ mil £ mil £ mil £ mil FINANCIAL ASSETS Restated*

Financial assets at fair value through income statement - Derivative financial instruments 10 £ 505 £ 135 £ 505 £ 135 Loans and receivables - Cash and advances to banks 9 2,695 1,601 2,695 1,601 - Short term receivables 11 478 259 478 259 - Loans receivable 11 - 26 - 26 - Loans and advances to customers Retail 12 8,783 8,197 8,750 8,228 Wholesale/other 12 8,563 7,339 8,563 7,339 FINANCIAL LIABILITIES Financial liabilities at fair value through income statement - Derivative financial instruments 10 398 104 398 104 Financial liabilities at amortised cost -Listed Debt: Debt securities in issue 24 4,900 3,860 4,081 3,654 -Unlisted Debt: Due to banks & other financial institutions 21 9,646 8,186 8,314 8,047 Corporate deposits 22 30 - 29 - Due to parent and related undertakings 23 2,153 1,975 2,153 1,975 Debt securities in issue 24 417 695 415 712 Trade payables 25 151 137 151 137 Subordinated loans 26 492 361 371 308

*The fair of subordinated loans as at 31 December 2007 has been restated.

The carrying value of financial assets broadly equates to the maximum exposure to credit risk with the exception of Wholesale receivables as the Company extends to certain dealers approved lines of credit as detailed in Note 29 'Commitments'. For reasons of materiality the fair values of guarantees is not separately disclosed.

FCE Bank plc



42 COMPONENTS OF CAPITAL

The components of FCE's regulatory capital as at 31 December are detailed below:

GROUP Notes 2008 2007 Tier 1 £ mil £ mil Share capital 32 £ 614 £ 614 Share premium 32 352 352 Retained earnings 1,794 1,257 Goodwill and other intangible assets 19 (20) (35) Total Tier 1 2,740 2,188 Tier 2 Collective impairment allowances 125 102 Qualifying subordinated loans 26 369 311 Total Tier 2 494 413 Total Tier 3 - - Deductions: Investment in jointly controlled entity 18 (45) - Subordinated loan receivable from SPE 14 - (7) Total regulatory capital £ 3,189 £ 2,594

Tier 1 ratio (%) 15.9% 14.8% Tier 2 ratio (%) 2.9% 2.8% Total capital ratio (%) 18.5% 17.6%

The increase of FCE's regulatory capital in 2008 million to £3,189 million (2007: £2,594 million) and the increase in the Tier 1 ratio is primarily attributable to an increase in retained earnings and qualifying subordinated loans that has been partially offset by increased deductions. FCE is holding significantly more capital than is required by either the regulatory minimum or FCE's internal risk-based capital policy. FCE’s policy is to manage its capital base to targeted levels that meet all regulatory requirements and support anticipated changes in assets and foreign currency exchange rates. For further details refer to 'Capital and Funding' section which commences on page 15. FCE Bank Polska S.A. is a regulated bank and is also subject to regulatory capital requirements requiring maintenance of certain minimum capital levels. During the two years being reported, the individual entities within FCE complied with all of the externally imposed capital requirements to which it is subject.

Regulatory capital is divided into Tiers 1 and 2 that cover credit risk and Tier 3 which supports market risk. Further information in regard to regulatory capital is detailed below:

• Tier 1 comprising of share capital, share premium, retained earnings and reserves created by appropriations of retained earnings. The book value of intangible assets is deducted in arriving at Tier 1 capital

• Tier 2 comprising of qualifying subordinated loans and collective impairment allowances • Tier 3 is not applicable to FCE as no trading book is held. Tier 3 capital is restricted to trading

activities and is not eligible to support counterparty or settlement risk • Deductions comprising mainly of investment in the Forso JV (refer to Note 18 'Investment in a

jointly controlled entity').

Retained earnings included within regulatory capital are net of tax, dividends and other appropriations and exclude the profit for the financial year and unrealised fair value adjustments to financial instruments. The profit for the financial year for 2008 of £204 million (2007 £203 million) is included within the following year's regulatory capital once verified by external auditors.

Qualifying subordinated loans are loans payable and are different to the values reported in Note 26 'Subordinated loans' as in the final four years to maturity, dated loans are not counted in full as part of the bank’s capital as the loans and are amortised on a straight line basis by 20 per cent per annum.

For details of calculation of the capital ratios above refer to 'Glossary of defined terms' on page 140.

FCE Bank plc




43 NOTES TO CONSOLIDATED CASH FLOW STATEMENT

Reconciliation of profit before tax to cash from operating activities COMPANY GROUP

For the year ended 31 December 2008 2007 2008 2007 Notes £ mil £ mil £ mil £ mil Cash from operating activities Restated* Restated*

Profit before tax 1 £ 416 £ 274 £ 300 £ 275 Adjustments for: Depreciation expense on property and equipment 15 1 2 1 2 Depreciation expense on operating lease vehicles 15 91 85 131 118 Effects of foreign currency translation 118 8 111 17 Impairment of goodwill 19 12 - 12 - Loss on sale of operating lease vehicles 2 2 2 2 Profit on sale of interests to joint venture partner - - (34) - Profit on sale of operations to related undertakings (20) - (14) - Provision for identified credit losses 111 99 113 100 Share of net income in a jointly controlled entity 18 - - (1) - Amortisation of other intangibles 19 5 5 5 5 Unrealised gain/(loss) on mark-to-market valuations (227) 3 (88) 5 Capitalisation of internally generated software 19 (3) (10) (3) (10) Interest expense 2 924 787 949 791 Interest income 2 (1,356) (1,249) (1,398) (1,265) Changes in operating assets and liabilities: Net increase/(decrease) in accrued liabilities & deferred income (119) (59) (102) (53) Net (increase)/decrease in deferred charges/prepaid expenses 13 (23) 7 (10) Net (increase)/decrease in finance receivables (561) 85 (817) 21 Net (increase)/decrease in vehicles awaiting resale 29 (20) 30 (21) Net (increase)/decrease in accounts receivables (197) 92 (185) 89 Net increase/(decrease) in accounts payables 58 (4) 80 (6) Net (increase)/decrease in accounts receivables from related undertakings

802

23

1,136

(27)

Net increase/(decrease) in accounts payables to related undertakings

26

98

(6)

92

Investments in group undertakings written down in the year - 4 - - Cash from operating activities £ 125 £ 202 £ 229 £ 125


Reconciliation of cash and cash equivalents at beginning and end of period and of movements during the period

COMPANY GROUP 2008 2007 2008 2007 Cash and cash equivalents Notes £ mil £ mil £ mil £ mil At beginning of period: Restated Restated Bank balances and other liquid funds 9 £ 351 £ 359 £ 57 £ 378 Bank overdrafts 21 (127) (117) (127) (133) Balance at 31 December 2008 and 2007 224 242 230 245 Effect of exchange rate change 41 6 47 12 Balance at beginning of period: 265 248 277 257

At end of period: Bank balances and other liquid funds 9 £ 1,083 £ 351 £ 1,101 £ 357 Bank overdrafts 21 (103) (127) (114) (127) Balance at end of period £ 980 £ 224 £ 987 £ 230

Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period 265 248 277 257 Cash and cash equivalents at end of period 980 224 987 230 Net increase / (decrease) in cash and cash equivalents £ 715 £ (24) £ 710 £ (27)

FCE Bank plc



43 NOTES TO CONSOLIDATED CASH FLOW STATEMENT continued For the purposes of the cash flow statement, cash and cash equivalents comprise of balances held with less than 90 days maturity from the date of acquisition including other eligible bills, amounts due from other banks and petty cash, net of bank overdrafts. In the balance sheet, bank overdrafts are included within liabilities within the caption 'Due to banks and other financial institutions '.

44 POST BALANCE SHEET EVENTS The following material events occurred after the balance sheet date:

Adjusting post balance sheet event: Interest on revised tax assessments Interest on revised tax assessment of approximately £14 million due from HM Customs & Excise relates to vehicles returned under UK retail finance contracts from 1979 to 1996. Customers had returned vehicles without paying the final optional capital repayment. VAT had been previously accounted for on the full selling price. In March 2009 the Company received notification from HMRC that the interest of £14 million of interest would be paid to the Company in addition to the VAT refund paid in December 2008. For further details refer to Note 7 'Profit before tax' on page 75 and refer to the caption 'UK VAT claims and associated interest'.

Non adjusting post balance sheet events: Transitional financing arrangements In January 2009 the Company received settlement of £163 million relating to Mazda UK Wholesale financing following Ford Motor Company agreement with Mazda Motor Corporation that it would secure its own financial services sources for customers and dealers in the U.S., Canada, and Europe. In Europe Mazda's transition for dealer wholesale financing and new retail and leasing contracts to other financial service providers will vary by country from January through May 2009. Structured financing arrangements In February 2009 the Company completed the sale of approximately €870 million of retail contracts in Germany that was listed on the Irish Stock Exchange. Class A notes totaling approximately €692 million were retained by the Company. The Company plans to tender these retained notes to support funding under the European Central Bank's open market operations. Impairment losses on loans and advances charged to the income statement

In March 2009 the Company provided for an estimated credit loss of €10 million in regard to wholesale loans provided to a European dealer group.

FCE Bank plc



45 FCE AND OTHER RELATED PARTY INFORMATION

Domicile: United Kingdom (UK).

Legal form: The Company is a regulated bank and is authorised as a deposit taking business and insurance intermediary under the Financial Services and Markets Act of 2000 and is regulated by the UK Financial Services Authority. The Company also holds a standard license under the UK Consumer Credit Act of 1974 and other licenses to conduct financing business in other European locations. In addition to the UK the Company has active branches in 11 other European countries having exercised passport rights to undertake regulated activities in these countries pursuant to the Banking Consolidation and Insurance Mediation Directives.

Country of registration: England and Wales

Registered office: Central Office - Eagle Way, Brentwood, Essex, CM13 3AR. Registered in England and Wales no 772784.

The Company has seven UK subsidiaries (see Note 20 'Investments in Group Undertakings') which share the same registered office as the Company:

Volvo Car Finance Limited has its registered office at: Globe Park, Marlow, Buckinghamshire, SL7 1YQ

In addition the Company has subsidiaries in the Czech Republic, Hungary and Poland and Sweden and a joint venture in the Nordic region - refer to 'European Operating Locations' on page 137 for addresses of the Company's European branches and subsidiaries.

Nature of operations and principal activities: FCE's primary business is to support the sale of Ford and affiliated manufacturer's vehicles in Europe through the respective dealer networks. A variety of retail, leasing and wholesale finance plans are provided in the markets which FCE operates. In European markets, FCE offers most of its products and services under the Ford Credit/Bank, Volvo Car Finance, Land Rover Financial Services, Jaguar Financial Services and Mazda Credit/Bank brands –refer to European Operating Locations on page 137 for further details. The Company through its Worldwide Trade Financing (WTF) division provides financing to importers and distributors in countries where typically there is no established local Ford presence. WTF currently provides finance in nearly 80 countries. In addition there are private label operations in some European markets. Immediate parent undertaking: The Company's immediate parent undertaking is Ford Credit International Inc. (FCI). FCI does not produce consolidated accounts being wholly owned by, and consolidated into the accounts of Ford Motor Credit Company LLC (FMCC). Ultimate parent undertaking: The ultimate parent undertaking and controlling party is Ford Motor Company (Ford). All three companies (Ford, FCI and FMCC) are incorporated in the United States of America. Copies of the consolidated accounts for FMCC and Ford may be obtained from Ford Motor Company (US), The American Road, Dearborn, Michigan 48121, United States of America.

FCE Bank plc

Financial Statements Other information Website Addresses


Additional data and web resources, including those listed below can be obtained from the following web site addresses:

Additional data Web site addresses

FCE Bank plc. • 'Annual Report' • 'Interim Report' • Basel Pillar 3 Report'

http://www.fcebank.com or http://www.fordfinancialeurope.com To access click on 'Investor Information'

Ford Motor Company (Ultimate Parent Company) including: • 'Financial Results' • 'Annual Reports' • 'US SEC EDGAR filings' Footnote 1 and 2

http://www.ford.com/en/company/investorInformation/ To access click on 'Investor Relations Financial Results' and then required item.

Ford Motor Credit Company including:

• 'Company Reports' Footnote 2 • 'Press Releases' • 'Ford Credit public asset-backed securities

transactions' Footnote 3

http://www.fordcredit.com/investorcenter To access click on 'Investor Reports' and then required item.

Luxembourg's Stock Exchange which includes

• Euro Medium Term Note Base Prospectus (refer to Note 24 'Debt securities in issue').

www.bourse.lu To access search for 'FCE'

Additional information

Footnote 1: Securities and Exchange Commission (SEC) Electronic Data Gathering and Retrieval (EDGAR) Footnote 2: SEC filings include both SEC Form 10K Annual report and SEC Form 10Q Quarterly reports.

Footnote 3: 'Ford Credit public asset-backed securities transactions'. Incorporates European retail public securitisation data including the following report types:

• Offering Circulars • Monthly Rating Agencies Report • Monthly Payments Notification • Monthly Note holders' Statement

To access click on: 'Asset-Backed Securitization', then 'Accept these terms and conditions', then 'Europe', then 'Globaldrive', then Select retail public transactions and report type by using the pull down menus.

FCE Bank plc

Financial Statements Other information European Operating

Locations


FCE's branches and subsidiaries historically have provided retail and wholesale finance for Ford vehicles and Ford affiliated manufacturers in Europe under various trading styles as indicated below. In future FCE is focusing on financing Ford and Volvo vehicles. Jaguar, Land Rover and Mazda have each begun transitioning their financial services business to other finance providers. During 2009 FCE branch and subsidiary locations listed below will cease purchasing new Jaguar, Land Rover and Mazda business, although they will continue to service existing liquidating portfolios in many of the markets. Timings and details will vary by market. FCE's joint venture, Forso Nordic Ab, will continue to provide financing for these brands.

Location Address Trading Styles

The Company's Branch locations

AUSTRIA Ford Bank Austria Zweigniederlassung der FCE Bank plc, Fuerbergstrasse 51, Postfach 2,

A-5020 Salzburg

F, JFS, LRFS, M, VCF

BELGIUM FCE Bank plc, Hunderenveldlaan 10, B-1082 Brussels (also conducts business in Luxembourg)

F, JFS, LRFS, VCF, M

BRITAIN FCE Bank plc, Central Office, Eagle Way, Brentwood, Essex CM13 3AR

(For a full list of UK subsidiaries refer to Note 45)


FRANCE FCE Bank plc, Succursale France, 34 Rue de la Croix de Fer, Saint-Germain-en-Laye, 78174

F, JFS, LRFS, M, P,

VCF

GERMANY Ford Bank Niederlassung der FCE Bank plc,

Mazda Bank Niederlassung der FCE Bank plc

Jaguar Financial Services Niederlassung der FCE Bank plc

Land Rover Financial Services Niederlassung der FCE Bank plc

All four branches based at Josef-Lammerting-Allee 24-34, 50933 Köln

F

M

JFS

LRFS

GREECE FCE Bank plc, 4 Konstantinoupoleos Ave & Gonata St, 12133 Peristeri, Athens

F, VCF

IRELAND FCE Bank plc, Ground Floor, Block 1, The Oval, Shelbourne Road, Ballsbridge, Dublin 4

F, LRFS, VCF, HFS, M

ITALY FCE Bank plc/FCE spa, Via Andrea Argoli 54, 00143 Rome

F, JFS, LRFS, P, M,

VCF

NETHERLANDS FCE Bank plc, Amsteldijk 216/217, Postbus 795, 1000 AT, Amsterdam F, JFS, LRFS, M, VCF

PORTUGAL FCE Bank plc, Av. Liberdade, n° 249 - 5° Andar, 1250-143 Lisboa, Parish de Coração de Jesus


SPAIN FCE Bank plc Sucursal en España, Calle Caléndula, 13, 28109 Alcobendas, Madrid F, JFS, LRFS, M, P,

VCF

The Group: FCE's European subsidiaries

CZECH REPUBLIC

FCE Credit, s.r.o., Nile House, Karolinská 654/2, 186 00 Prague 8

F, VCF

HUNGARY FCE Credit Hungária Zrt/FCE Services Szolgáltató Kft, Galamb József u. 3., Szentendre 2000

F, VCF

POLAND FCE Credit Polska S.A./FCE Bank Polska S.A., Marynarska Business Park, Tasmowa 7, 02-677

Warsaw

F, VCF, JFS, LRFS

The Group: FCE's Joint Venture in the Nordic region (FCE's interest held through Saracen Holdco AB)

DENMARK Forso Nordic, Branch of Forso Nordic Ab, Borupvang 5 D-E, 2750 Ballerup

VCF, R, M

FINLAND

Forso Finance Oy, Taivaltie 1B, 01610 Vantaa

P, VCF

NORWAY Forso Nordic, Branch of Forso Nordic Ab, Pb 514, 1410 Kolbotn

LRFS, P, VCF, M

SWEDEN Forso Nordic Ab, Rävebergsvägen, 405 31 Göteborg M, JFS, LRFS

Key to Trading Styles (t/a = trading as): F = Ford Credit; JFS = Jaguar Financial Services; LRFS = Land Rover Financial Services; P = PRIMUS (non-Ford affiliated), R = Renault; VCF = Volvo Car Finance; M = Mazda Credit/Mazda Bank; HFS = Henry Ford & Son Finance. Locations also may use Ford Financial as an additional trading style.

FCE Bank plc

Financial Statements Other information Key Financial Ratios

and Terms


The table below summarises the calculation of the key financial ratios referred to in the 'Performance summary' section of the 'Review of 2008'. The cost and margin ratios exclude exceptional items in order to show underlying or 'normalised' performance. Exceptional items are summarised in Note 7 'Profit before tax'.

CALCULATION OF KEY FINANCIAL RATIOS 2008 £mil

2007 £mil

A [i] Average Net Receivables £ 16,517 £ 15,178 A [ii] End of period risk weighted exposures (Basel II basis)* 17,224 14,760 A [iii] End of period collective impairment allowance (Note 13) 123 102 B [i] Average Year Equity 2,709 2,401 B [ii] End of period Adjusted Common Equity (ACE) 2,942 2,420 B [iii] End of period Adjusted Total Equity (ATE) 3,194 2,607 B [iv] End of period Tier 1 Capital (Note 42) 2,740 2,188 INCOME: - Total income £ 757 £ 672 - Deduct exceptional items (Note 7) (84) (11) - Depreciation of Operating lease vehicles (Note 7) (131) (118)

C Normalised Income (Margin) £ 542 £ 543

OPERATING COSTS: - Other Operating expenses £ (243) £ (222) ** - Depreciation of Company vehicles, office equipment & leasehold improvements (1) (2) - Exceptional expense/(income) (Note 7) 15 (1) D Normalised Operating costs £ (229) £ (225) **

E Net losses (Note 13) (75) (41) F Profit after tax £ 204 £ 203 KEY FINANCIAL RATIOS: Return on Equity (F/B[i]) 7.5% 8.5% Margin (C/A[i]) 3.3% 3.6% Cost Efficiency Ratio (D/A[i]) 1.4% 1.5% Cost Affordability Ratio (D/C) 42% 41% ** Credit Loss Ratio (E/A[i]) 0.45% 0.27% Credit Loss Cover (A[iii]/E) 1.6 years 2.5 years ACE/Risk weighted exposures (B[ii]/A[ii])* 17.1% 16.4% ATE/Risk weighted exposures (B[iii]/A[ii])* 18.5% 17.7% End of period Tier 1 Capital Ratio (B[iv]/ A[ii]) 15.9% 14.8%

Indicates 2007 figures and ratios revised: * Following implementation in 2008 of the Basel II revised international capital framework. ** To reclassify loss on foreign exchange from operating expenses.

Key financial ratio terms Meaning

Adjusted Common Equity (ACE) End of period shareholders' equity less goodwill and other intangible assets. Adjusted Total Equity (ATE) ACE plus perpetual subordinated debt. Average net receivables The balance of net receivables at the end of each month divided by the number of months

within the reporting period. Exceptional items Typically non-recurring events or transactions of which disclosure aids the interpretation of

performance compared to previous years. Normalised Excluding exceptional items. End of period risk weighted exposures (Basel II basis)

Exposures multiplied by the appropriate percentage risk weighting required for Basel capital adequacy purposes plus operational and market risk capital requirements. Prior year figures have been restated to an equivalent basis to aid comparisons.

FCE Bank plc

Financial Statements Other information Glossary of defined

terms


For the purpose of this report (with the exception of the Independent Auditors' report) the following terms have the meaning prescribed against them. Certain defined terms may not always be capitalised in this report and have been segregated into Other, Financial and Regulatory terms. Key Financial ratio terms having been previously defined on page 138.

Other terms Other terms meaning 2008 Annual Report and Accounts

The FCE consolidated annual financial statements as at and for the year ended 31 December 2008

Board or Board of Directors

The Board of Directors of FCE Bank plc.

2009 Interim Report

FCE's consolidated interim financial statements as at and for the half year ended 30 June 2009

Company FCE Bank plc. including all its European branches Dealer or Dealership

A wholesaler franchised directly by Ford, or one of its affiliates, to provide vehicle sales, service, repair and financing. See Wholesale below.

Derivatives Financial instruments which take the form of contracts under which parties agree to payments between them based upon the value of an underlying asset or other data at a particular point in time

EMTN 1993 European Medium Term Note Programme launched by FCE for the issue of Notes, including retail securities, to both institutional and retail investors. Maximum programme size is now US$12 billion.

EU or European Union

Political and economic community, established in 1993 by the members of the European Economic Community, now comprising twenty seven European countries. The EU comprises a single economic market created by a system of laws which apply in all member states for the free movement of people, goods, services and capital. The EU has created a central European bank and a common currency, the Euro, has been adopted by sixteen of its members

FCE or Group Company and all its subsidiaries (See Note 20 'Investments in Group Undertakings'). FCI Ford Credit International, Inc., a company incorporated under the laws of Delaware USA, a subsidiary of Ford

Credit and the Company's immediate shareholder Finance lease Also known as full payout leasing. A contract involving payment over a primary/basic period of specified sums

sufficient in total to amortise the capital outlay of the lessor, and to provide for the lessor's borrowing costs and profit. The lessee normally is responsible for the maintenance of the asset.

FMCC Ford Motor Credit Company LLC, a limited liability company incorporated under the laws of Delaware USA and an indirect wholly owned subsidiary of Ford

Ford Ford Motor Company, a company incorporated under the laws of Delaware USA and the Company's ultimate parent company. In some cases, this term may mean Ford Motor Company and all or some of its affiliates

FORSO/the Forso JV

A joint venture finance company established with Sofinco, a consumer credit subsidiary of Credit Agricole S.A. in June 2008 that provides customer and dealer automotive financing in the Nordic markets.

Foveruka A Ford Germany pension plan whose assets include deferred and immediate annuity contracts with Alte Leipziger insurance company. Foveruka covers both hourly automotive and certain automotive and FCE salaried employees (dependant upon grade) and employees recruited after 1 January 1993.

FSA UK Financial Services Authority. Established by the UK government and exercises statutory supervisory powers under the Financial Services and Markets Act

Full Service Leasing or FSL

Fixed monthly vehicle rental for customers, including ongoing maintenance and disposal of vehicle at the end of the hire period. Typically FCE retains responsibility for marketing and sales, for which it receives a fee income, and outsources finance, leasing, maintenance and repair services for current and future portfolios of commercial operating leases to a preferred third party business partner.

Interims The FCE consolidated interim financial statements as at and for the half year ended 30 June 2008 JFS Jaguar Financial Services – the part of FCE that provides retail and wholesale financing and leasing products

and services specifically in relation to Jaguar vehicles and Jaguar dealers. LRFS Land Rover Financial Services the part of FCE that provides retail and wholesale financing and leasing

products and services specifically in relation to Land Rover vehicles and Land Rover dealers. Mazda Credit or Mazda Bank

The part of FCE that provides retail and wholesale financing and leasing products and services specifically in relation to Mazda vehicles and Mazda dealers.

Operating lease Contracts where the assets are not wholly amortised during the primary period and where the lessor may not rely on rentals for his profit but may look for recovery of the balance of his costs and of his profits from the sale of the recovered asset at the lease end. Contract hire is a variation of operating lease.

Retail The part of FCE's business that offers, introduced through a Dealer or Dealership that has an established relationship with FCE, vehicle financing and leasing products and services to individual consumers, sole traders and businesses.

Securitisation A technique for raising finance from income-generating assets such as loans by redirecting their cash flow to support payments on securities backed by those underlying assets. Legally the securitised assets generally are transferred to and held by a bankruptcy-remote SPE. FCE normally would be engaged as a servicer to continue to collect and service the securitised assets. FCE also engages in other structural financing and factoring transactions that have similar features to securitisation and also are referred to as 'securitisation' in this report.

Special Purpose Entity or SPE

A bankruptcy-remote entity whose operations are limited to the acquisition and financing of specific assets from FCE (which may include the issue of asset-backed securities and making payments on the securities) and in which FCE usually has no legal ownership or management control (See Note 14 'Securitisation and related financing' page 91 for a list of the Company's SPEs).

VCF Volvo Car Finance - the part of FCE that provides retail and wholesale financing and leasing products and services specifically in relation to Volvo vehicles and Volvo dealers.

Wholesale The part of FCE's business that offers financing of a wholesaler's inventory stock of new and used vehicles, parts and accessories. May also be known as dealer floor-plan or stocking finance. May also include other forms of financing provided to a wholesaler by FCE such as capital or property loans, improvements in dealership facilities and working capital overdrafts. See Dealer or Dealership above

FCE Bank plc

Financial Statements Other information Glossary of defined

terms


GLOSSARY OF DEFINED TERMS continued

Financial Terms

Financial terms meaning

Adjusted PBT PBT excluding exceptional items and financial instruments fair value and foreign exchange adjustments. Refer to page 8 of 'Performance Summary'.

Average Loss Emergence Period

The estimated time between when a receivables amount becomes impaired to the time the account is written off expressed in years.

IAS International Accounting Standards IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards Risk Based Equity (RBE)

The basis on which FCE measures the performance of its locations. RBE interest expense is adjusted from that reported under IFRS in order to allocate location equity costs that are based on the locations contribution to FCE total risk and enables the risk/return of individual locations to be evaluated from a total perspective. RBE profit before taxes includes an RBE interest expense adjustment and excludes gains and losses related to derivative fair value and foreign exchange adjustments. The impact to earnings of derivative fair value and foreign exchange adjustments is primarily related to movements in interest rates and is excluded from the performance measurement as FCE's risk management activities are administered on a centralised basis.

Regulatory Terms

Regulatory terms meaning For further details refer to Basel Pillar 3 disclosure document – the website address is provided on page 136.

Basel II An international business standard that banking regulators use when creating regulations and the supervisory environment for financial institutions in the European Union so that they maintain enough cash reserves to cover financial and operational risks incurred by their operations. Issued by the Basel Committee on Banking Supervision with the framework detailed in the EU Capital Requirements Directive and implemented by national legislation.

ICAAP Internal Capital Adequacy Assessment Process ICG Individual Capital Guidance is what the FSA considers to be an adequate level of capital to meet regulatory

objectives. Pillar 1 Capital framework which revises the 1988 Accord’s guidelines by aligning the minimum capital requirements

more closely to each bank's actual risk of economic loss. Pillar 2 Supervisory Review Process of Basel II whereby regulators evaluate the activities and risk profiles of individual

banks to determine whether such an organisation should hold higher levels of capital. Pillar 3 Leverages the ability of market discipline to motivate prudent management by enhancing the degree of

transparency in banks’ public reporting to shareholders and customers. Solvency Ratio Calculated by dividing the minimum capital requirements calculated under Pillar 1 plus other risk capital

requirements by 'Capital Resources and expressing this as a percentage. For further details refer to Basel Pillar 3 disclosure

Tier 1 Capital FCE's Tier 1 capital comprises shareholder funds, net of intangible assets and goodwill (See Note 42 'Components of Capital').

Tier 1 Capital Ratio

FCE's Tier 1 capital as reported in Note 42 'Components of Capital' divided by end of period risk weighted exposures as defined in 'Key Financial Ratios and Terms' section on page 138.

Tier 2 Capital FCE's Tier 2 capital comprises of subordinated debt, collective impairment losses (See Note 42 'Components of Capital').

Tier 2 Capital Ratio

FCE's Tier 2 capital as reported in Note 42 'Components of Capital' divided by end of period risk weighted exposures as defined in 'Key Financial Ratios and Terms' section on page 138.

Tier 3 Capital FCE does not have a trading book and accordingly its capital structure does not include any Tier 3 capital (See Note 42 'Components of Capital').

Total Capital Ratio

FCE's total regulatory capital as reported in Note 42 'Components of Capital' divided by end of period risk weighted exposures as defined in 'Key Financial Ratios and Terms' section on page 138.

Documents

ANNUAL REPORT AND ACCOUNTS - FCE Bank · FCE Bank plc 6 FCE Bank plc – Annual Report and Accounts – 2008.Directors' Report Review of 2008 Performance Summary Sales Sales Results