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MERRILL LYNCH B.V.
ANNUAL REPORT
FOR THE YEAR ENDED
31 DECEMBER 2021
Registered no: 56457103
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MERRILL LYNCH B.V.
COMPANY INFORMATION
Directors
L.J.M. Duijsens
Registered office
Independent auditors
S. Lilly
A.E.Okobia
56457103
Amstelplein 1, Rembrandt Tower
27 Floor, 1096 HA, Amsterdam
The Netherlands
PricewaterhouseCoopers Accountants N.V.
Thomas R. Malthusstraat 5
1066 JR Amsterdam
The Netherlands
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MERRILL LYNCH B.V.
CONTENTS
Page(s)
1 - 5
6
7 - 8
9 - 10
11
12 - 49
Directors' report
Financial statements
• Statement of profit or loss and other comprehensive income
• Statement of financial position
• Statement of changes in equity
• Statement of cash flows
• Notes to the financial statements
Other information
50
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MERRILL LYNCH B.V.
DIRECTORS' REPORT
FOR THE YEAR ENDED 31 DECEMBER 2021
The
directors
present
their
report and the
financial statements
of Merrill Lynch B.V. ("MLBV", the "Company")
for the
year
ended
31 December 2021
.
Statement of directors' responsibilities
The directors are responsible for preparing the Directors’ Report and the financial statements in accordance
with applicable laws and regulations.
The directors confirm that to the best of their knowledge:
the financial statements give a true and fair view of the state of the Company’s affairs as at 31
December 2021 and of its profit and cash flows for the year then ended; and
the directors’ report gives a true and fair view of the Company’s situation as at the reporting date, the
events that occurred during 2021, future outlook, events after the reporting date and the risks to which
the Company is exposed.
The Dutch Civil Code requires the directors to prepare financial statements for each financial year. Under that
law the directors have prepared the financial statements in accordance with International Financial Reporting
Standards as adopted by the European Union (“IFRS as adopted by the EU”) and the additional requirements of
Title 9 Book 2 of the Netherlands Civil Code in accordance with article 362 section 8 and 9 of the Netherlands
Civil Code.
In preparing these financial statements, the directors are required to:
select suitable accounting policies and then apply them consistently;
make judgements and accounting estimates that are reasonable;
state whether applicable IFRS's as adopted by the EU have been followed, subject to any material
departures disclosed and explained in the financial statements;
prepare the financial statements on a going concern basis unless the directors either intend to liquidate
the Company or to cease operations, or have no realistic alternative but to do so.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company's transactions and disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with IFRS as adopted by the EU and
the additional requirements of Title 9 Book 2 of the Netherlands Civil Code in accordance with article 362
section 8 and 9 of the Netherlands Civil Code. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Electronic distribution
The directors are responsible for ensuring that the Company’s financial statements are provided for inclusion on
the website of the Company’s ultimate parent undertaking, Bank of America Corporation (“BAC”). The work
carried out by the auditor does not involve consideration of these matters and accordingly, the auditor accepts
no responsibility for any changes that may have occurred to the financial statements since they were initially
presented on the website.
Principal activities
The principal activities of the Company are the issuance of structured notes and economically hedging these
instruments through derivatives with another group affiliate. In addition the Company grants intercompany
loans to affiliated entities and places deposits with BAC and Merrill Lynch International (“MLI”), a BAC affiliate.
There has been no change to the principal activities and the directors expect the principal activities to continue
during 2022.
Page 1
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MERRILL LYNCH B.V.
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
Business review and market environment
The Company was incorporated on November 12, 2012 in Amsterdam, The Netherlands. The statutory address
of the Company is Amstelplein 1, Rembrandt Tower, 27 Floor, 1096 HA, Amsterdam, The Netherlands.
The parent of the Company is Merrill Lynch International, LLC (“MLI LLC”) and the ultimate parent of the
Company is BAC.
Coronavirus ("COVID-19")
The effects of the pandemic have adversely affected, and may continue to adversely affect the Company’s
businesses and results of operations, and the pandemic’s duration and future impacts on global health, the
global economy and its businesses, results of operations and financial condition remain uncertain. Pandemic
developments and certain responses have also resulted in inflationary pressure and ultimately may contribute
to the development of a prolonged, disruptive period of high inflation globally. There has been no material
impact to the accounting estimates or going concern assessment for the Company.
The Company continues to execute its business continuity plans in connection with the pandemic, both locally
and as part of BAC’s coordinated response. The Company continues to closely monitor the pandemic and
related risks as they evolve.
However, the Company continued to be profitable in 2021 and the cash position is positive. Based on a current
analysis, management does not expect a material impact on the Company's working capital, liquidity and
solvency.
Transition from London Interbank Offered Rate ("LIBOR") and other benchmark rates
Subject to the continued publication of certain non-representative LIBOR benchmark rates based on a modified
calculation, all British Pound Sterling, Euro, Swiss Franc and Japanese Yen LIBOR rates and one week and
two month US dollar (“USD”) LIBOR rates ceased or became no longer representative of the underlying market
the rates seek to measure immediately after 31 December 2021, and the remaining USD LIBOR rates (i.e.,
overnight, one month, three month, six month and 12 month) will become non-representative immediately after
30 June 2023.
As a result, a major transition has been and continues to be in progress in the global financial markets with
respect to the replacement of Interbank Offered Rates ("IBORs"). This is a complex process impacting a variety
of the Company’s business and operations. IBORs have historically been used in many of the Company’s
products and contracts. In response, BAC has established an enterprise-wide IBOR transition programme. The
programme was established and continues to drive the BAC's industry and regulatory engagement, client and
financial contract changes, internal and external communications, technology and operations modifications,
including updates to its operational models, systems and processes, introduction of new products, migration of
existing clients, and programme strategy and governance.
As of 31 December 2021, the Company has transitioned or otherwise has addressed IBOR-based products and
contracts referencing the rates that ceased or became non-representative after 31 December 2021. The
Company launched capabilities and services to support the issuance and trading in products indexed to various
Alternative Reference Rates ("ARRs") and developed employee training programmes as well as other internal
and external sources of information on the various challenges and opportunities that the replacement of IBORs
has presented and continues to present. With respect to the transition of LIBOR products referencing USD
LIBOR rates ceasing or becoming non-representative as of 30 June 2023, a significant majority of the
Company’s notional contractual exposure to such LIBOR currencies, of which the significant majority is
derivatives contracts, have been remediated (i.e., updated to include fallback provisions to ARRs based on
market driven protocols, regulatory guidance and industry-recommended fallback provisions and related
mechanisms) and the Company is continuing to remediate the remaining USD LIBOR exposure. The remaining
exposure will require active dialogue with clients to modify the contracts. For any residual exposures after 30
Page 2
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MERRILL LYNCH B.V.
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
June 2023 that continue to have no fallback provisions, the Company is assessing and planning to leverage
relevant contractual and statutory solutions, including relevant legislation, to transition such exposure to ARRs.
The Company continues to monitor current and potential regulatory, tax and accounting impacts of the
transition, engage impacted clients in connection with the transition to ARRs and work actively with global
regulators, industry working groups and trade associations in connection with the transition to ARRs. For an
indicative analysis of exposure to LIBOR and other benchmark rates, that are yet to transition to alternative
benchmark rate, see Note 24 Interest Rate Benchmark Reform.
Results and capital contribution
The directors are satisfied with the Company’s performance for the financial year ended 31 December 2021
and financial position at the end of the year. The profit for the financial year after tax amounted to $18,097,000
(2020 - $24,791,000). This was driven primarily from the interest income on deposits placed with affiliated
entities of $23,972,000 (2020: $42,370,000) and net gain of $896,000 (2020: $6,700,000) on the fair value of
the structured notes and derivatives used to economically hedge these instruments.
Gain on debit valuation adjustment on the structured notes after tax was $35,657,000 (2020: loss of
$10,810,000) due to movements in the BAC credit spreads.
On 18 November 2021, the Company's parent MLI LLC made an additional share premium contribution
of $85,000,000.
Outlook
As noted in the business review & market environment section of the Directors' Report, whilst there is some
uncertainty over the future impacts of COVID-19 and the Ukraine situation, the 2021 results, balance sheet
position and cash flow of the Company do not indicate any significant change to the Company's outlook. There
are no expected changes to the principal activities of the Company, the valuation models applied or the funding
structures in place.
Management of climate change risk
Climate-related risks are divided into two major categories: (1) risks related to the transition to a low-carbon
economy, which may entail extensive policy, legal, technology and market changes, and (2) risks related to the
physical impacts of climate change, driven by extreme weather events, such as hurricanes and floods, as well
as chronic longer-term shifts, such as rising average global temperatures and sea level rise. These changes
and events can have broad impacts on operations, supply chains, distribution networks, customers, and
markets and are otherwise referred to, respectively, as transition risk and physical risk. These risks can impact
both financial and non-financial risk types. The impacts of transition risk can lead to and amplify credit risk or
market risk by reducing MLBV customers operating income or the value of their assets as well as expose us to
reputational and/or litigation risk due to increased regulatory scrutiny or negative public sentiment. Physical risk
can lead to increased credit risk by diminishing borrowers repayment capacity or impacting the value of
collateral. There has been no significant impact on the financial results or balance sheet of MLBV.
BAC’s Risk Framework (as adopted by MLBV) establishes clear ownership and accountability for managing risk
across the three lines of defence: FLUs, independent risk management and Corporate Audit. The same
approach to ownership and accountability is followed for climate risk as for other risks facing BAC.
Further information about BAC’s approach to ESG matters can be accessed via the
http://www.bankofamerica.com/ESRPF at and BAC’s Task Force for Climate-related Financial Disclosures available
at http://www.bankofamerica.com/TCFD.
Global compliance and operational risk
The Company's overall approach to managing risk, including compliance risk, is governed by the BAC Risk
Page 3
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MERRILL LYNCH B.V.
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
Risk management
BAC has established a risk governance framework (the "Risk Framework") which serves as the foundation for
consistent and effective management of risks facing BAC and its subsidiaries (including the Company). It
provides an understanding of the Company's approach to risk management and each employee's
responsibilities for managing risk. All employees must take ownership for managing risk well and are
accountable for identifying, escalating and debating risks facing the Company.
The risk management approach has five components:
• Culture of managing risk well;
• Risk appetite;
• Risk management process;
• Risk data management, aggregation and reporting; and
• Risk governance
The seven key types of risk faced by BAC businesses as defined in the Risk Framework are strategic, credit,
market, liquidity, operational, compliance and reputational risks.
The Company's approach to each of the risk types are further described in the notes to the financial statements
(see note 21).
Disclosure of information to auditors
Each of the persons who are
directors
at the time when this
Directors' report
is approved has confirmed that:
so far as
the director
is aware, there is no relevant audit information of which the Company's auditors are
unaware, and
the director
has taken all the steps that ought to have been taken as a
director
in order to be aware of
any relevant audit information and to establish that the Company's auditors are aware of that information.
Page 4
Framework. As part of this, the Global Compliance & Operational Risk and the Global Financial Crimes teams
work in partnership to offer continuous challenge and oversight in order to minimise the risk of legal or
regulatory sanctions, material financial loss or reputational damage, including but not limited to, the risks
associated with bribery and corruption, economic sanctions, money laundering, terrorist and criminal financing,
and internal and external fraud.
In this respect, BAC has a Code of Conduct in place which provides basic guidelines of business practice, and
professional and personal conduct that are expected from employees. Likewise BAC has whistleblowing
arrangements in place which will allow employees to report suspected malpractices such as unethical
conduct, violations of law etc. on an anonymous and/or confidential basis.
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MERRILL LYNCH B.V.
DIRECTORS' REPORT (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2021
Post reporting date events
Post year end, financial markets and commodities markets have been impacted by the Russia/Ukraine conflict,
including the implementation of various economic sanctions by multiple jurisdictions on select Russian
government and military leaders, financial institutions, business leaders and the Central Bank of Russia. In
addition, the government of Russia has implemented economic sanctions on selected non-Russian institutions
and prevented outflows of selected currencies from Russia. While the Company's exposure to the conflicted
areas is limited, the potential impact of the conflict and sanctions regime on European and global markets and
institutions remains uncertain, and episodes of economic and market volatility may continue to occur. As a
result, the Company's business, results of performance, financial position and/or operational model could be
adversely affected.
Composition of the board
The size and composition of the Board of Directors and the combined experience reflects the best fit for the
profile and strategy of the Company. Currently the Board are all male, however the Company is aware of the
gender diversity goals as set out in the Dutch Civil Code and the Company will pay close attention to gender
diversity in the process of recruiting and appointing new directors.
The Company did not have any employees in the current or the preceding year. The directors are delegated to
the Company and are employed by other group companies.
Board of Directors
(together authorised to represent the Company)
L.J.M. Duijsens
S. Lilly
A.E. Okobia
This report was approved by the Board on 29 April 2022 and signed on its behalf.
A. E. Okobia
Director
S. Lilly
Director
L.J.M. Duijsens
Director
Page 5
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MERRILL LYNCH B.V.
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2021
2021
2020
Note
$000
$000
4 (30,347)
51,971
5
31,241
(58,696)
6
457
455
7
(438)
(270)
913
(6,540)
8
23,972
42,370
24,885
35,830
11
(6,788)
(11,039)
18,097
24,791
46,908
(26,422)
(11,251)
15,612
35,657
(10,810)
53,754 13,981
Page 6
Net (loss)/gain on financial instruments at fair value through profit or loss
Net gain/(loss) on financial instruments designated at fair value through
profit or loss
Other income
Administrative expenses
Profit/(loss) from operations
Interest income
Profit before tax
Tax expense
Profit for the financial year after tax
Other comprehensive income/(loss):
Items that will not be reclassified to profit or loss:
Net gain/(loss) in debit valuation adjustment on structured notes
Tax relating to movement in debit valuation adjustment on structured
notes
Total other comprehensive income/(loss)
Total comprehensive income
The notes on pages 12 to 49 form part of these financial statements.
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MERRILL LYNCH B.V.
STATEMENT OF FINANCIAL POSITION
AS AT
31 DECEMBER 2021
2021
2020
Note
$000
$000
12
3,018,655
2,107,916
14 150,170
214,457
15
-
13,246
3,168,825
2,335,619
12
366,449
301,330
14
16,184
9,700
15
1,398
332
1,711
4,372
13
22,474
22,676
408,216
338,410
3,577,041
2,674,029
16
2,950,283
2,238,864
14 219,677
141,301
15
3,853
-
3,173,813
2,380,165
16
145,832
86,430
17
2,973
100,220
14
9,176
13,651
23
12,993
63
170,974
200,364
3,344,787
2,580,529
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Assets
Non-current assets
Debtors
Derivative assets
Deferred tax asset
Total Non-current assets
Current assets
Debtors
Derivative assets
Income tax receivable
Other assets
Cash and cash equivalents
Total Current assets
Total assets
Liabilities
Non-current liabilities
Financial liabilities designated at fair value through profit or loss
Derivative liabilities
Deferred tax liability
Total Non-current liabilities
Current liabilities
Financial liabilities designated at fair value through profit or loss
Creditors
Derivative liabilities
Accrued expenses and other liabilities
Total Current liabilities
Total liabilities
(Before appropriation of result)
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2021 2020
Note $000 $000
18 - -
18
(40,534)
(76,191)
18 120,437 35,437
134,254
109,463
18,097
24,791
232,254
93,500
3,577,041
2,674,029
Issued capital and reserves
Share capital
Other reserves
Share premium
Retained earnings
Undistributed profits
Total equity
Total liabilities and equity
The notes on pages 12 to 49 form part of these financial statements.
MERRILL LYNCH B.V.
STATEMENT OF FINANCIAL POSITION (CONTINUED)
AS AT 31 DECEMBER 2021
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Share Share Other Retained Undistributed Total equity
capital premium reserves earnings profits
$000 $000 $000 $000 $000 $000
At 1 January 2021 - 35,437 (76,191) 109,463 24,791 93,500
Transfer to retained earnings - - - 24,791 (24,791) 0
Profit for the year - - - - 18,097 18,097
Movement in debit valuation adjustment on
structured notes
- -
46,908
-
46,908
Tax relating to movement in debit valuation
adjustment on structured notes
- - (11,251) - (11,251)
Total comprehensive income for the
year
- -
35,657
24,791 (6,694)
53,754
Transactions with owners in their
capacity as owners:
Share premium contribution - 85,000 - - 85,000
At 31 December 2021 - 120,437
(40,534) 134,254
18,097 232,254
The notes on pages 12 to 49 form part of these financial statements. For further details see note 18.
MERRILL LYNCH B.V.
STATEMENT OF CHANGES IN EQUITY FOR
THE YEAR ENDED 31 DECEMBER 2021
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Share Share Other Retained Undistributed Total equity
capital premium reserves earnings profit
$000 $000 $000 $000 $000 $000
At 1 January 2020 - 145,437 (65,381) 91,900 17,563 189,519
Transfer to retained earnings - - - 17,563 (17,563)
-
Profit for the year - - - - 24,791
24,791
Movement in debit valuation adjustment on
structured notes
- - (26,422) - - (26,422)
Tax relating to movement in debit valuation
adjustment on structured notes
- - 15,612 - -
15,612
Total comprehensive income for the
year
- - (10,810) 17,563 7,228
13,981
Transactions with owners in their
capacity as owners:
Return of share premium - (110,000) - - (110,000)
At 31 December 2020 - 35,437 (76,191) 109,463 24,791
93,500
The notes on pages 12 to 49 form part of these financial statements. For further details see note 18.
MERRILL LYNCH B.V.
STATEMENT OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2020
Page 10
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MERRILL LYNCH B.V.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2021
2021
2020
Note
$000
$000
18,097
24,791
18,097
24,791
4 30,347
(51,971)
5 (31,241)
58,696
8 (23,972)
(42,370)
649
(779)
6,788
11,039
668
(594)
12 (1,362,171)
(188,287)
12
445,834
726,083
14 57,311
(4,572)
16 1,313,681
490,317
16 (420,662)
(1,036,987)
15
(2,656)
(2,274)
(84,317)
164,071
(32,890)
(4,573)
(85,202)
143,184
18
85,000
(110,000)
85,000
(110,000)
(202)
33,184
13
22,676
(10,508)
22,474
22,676
Cash flow used in operating activities
Profit for the year after tax
Adjustments for non-cash items:
Net loss/(gain) on financial instruments at fair value through profit or loss
Net (gain)/loss on financial liabilities designated at fair value through
profit or loss
Interest income
Foreign exchange loss/(gain) on translation of tax liability
Income tax expense
Cash used in operations
Cash flows generated from operating activities:
Placement of debt instruments at amortised cost
Repayment of debt instruments at amortised cost
Net movement of derivatives
Proceeds from issuance of structured notes
Redemption of structured notes
Income tax paid
(Repayment)/placement of intercompany payables
Repayment/(placement) of intercompany receivables
Cash flow (used in)/generated from operating activities
Cash flows used in financing activities:
Share premium contribution/(distribution)
Net cash generated from/(used in) financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of the
year
For further details see note 13 for cash and cash equivalents.
The notes on pages 12 to 49 form part of these financial statements.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1. Accounting policies
The principal accounting policies applied in the preparation of these financial statements are
set out
below. These policies have been consistently applied to all the years presented, unless otherwise
stated.
1.1 Basis of preparation
The financial statements of the Company have been prepared in accordance with IFRS as adopted by
the EU and the additional requirements of Title 9 Book 2 of the Netherlands Civil Code in
accordance with article 362 section 8 and 9 of the Netherlands Civil Code, for entities which prepare
their financial statements in accordance with IFRS as adopted by the EU.
The financial statements have been prepared under the historical cost convention, as modified to
include certain assets and liabilities at fair value. The Company does not maintain historical cost
information on items held at fair value as this is not relevant to the operation of the business.
The preparation of financial statements in conformity with IFRS requires the use of accounting
estimates. It also requires management to exercise their judgement in the process of applying the
Company’s accounting policies, for example, determining the fair value of financial instruments.
The directors have a reasonable expectation, based on current and anticipated future performance,
capital and liquidity position that the Company will continue in operational existence for a period of at
least 12 months from the date of approval of the annual report. The financial statements have,
therefore, been prepared on a going concern basis and the directors expect the principal activities to
continue in 2022. Disclosures in respect to liquidity risk and capital management are set out in note 21.
As part of the consideration of whether to adopt the going concern basis in preparing the financial
statements, management assessed the impact of the COVID-19 pandemic on the financial
statements, including critical accounting estimates and judgements, liquidity and solvency, and
found this to be limited. Consideration was also made of the quantitative viability of the Company, with
no going concern issues identified.
Management also ev
aluated the financial position of the counterparties of its debtors, mostly comprising
loans to affiliated companies, and their ability to repay the notional and interest to the Company.
The Company will continue to monitor
its solvency and liquidity position. Whilst uncertainty
remains, management do not believe, that the impact of the COVID-19 pandemic would have
material adverse effect on the Company’s liquidity position.
Following the assessment, it is deemed appropriate by the directors that the Company continues to
adopt the going concern basis for the preparation of the financial statements.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.1 Basis of preparation (continued)
Change in methodology for measuring the change in fair value of a financial liability due to the
Corporation's own credit spread
BAC issues structured notes from its Global Markets Central Funding Desk. These structured notes are
measured at fair value through earnings except for changes in fair value that are due to changes in the
Corporation's own credit spread, generally referred to as debit valuation adjustment ("DVA"), which are
presented in other comprehensive income ("OCI"). As IFRS does not dictate a valuation method and
multiple valuation methods are applied in practice, the Corporation implemented a valuation method that
it considered to faithfully represent the portion of the total change in fair value of the structured notes that
relates to the Corporation's own credit spread.
During 2020, the Corporation enhanced the methodology for estimating DVA by prospectively calculating
the transaction values for macro floating rate notes ("MFRNs") as if they had been executed on an
individual note by note basis. Under this approach both the floating rate note ("FRN") and the daily
MFRNs are used as a proxy for structured notes DVA, which results in a better estimate that faithfully
captures the changes in value related to changes in own credit of the structured notes
In July 2021, the DVA estimation methodology was further enhanced. It was observed in the model that
as credit spreads widened and then retraced to similar starting levels, the calculation of the DVA balance
failed to revert back to the level at which it was initially measured. This effect was caused by the linearity
of the process capturing first order credit risks but failing to capture second order risks arising from the
optionality within the structured notes (“convexity effects”).
After considering different measurement alternatives, the Corporation determined the best option
available to prospectively enhance the estimation process is by adding a term which captures the change
in value driven by convexity effects to the current proxy based on the value of the FRN and apportioned
change in value of the MFRNs. Under this approach the methodology results in a better estimate that
more faithfully captures the changes in value related to changes in own credit of the structured notes
over an increasing/decreasing or decreasing/increasing credit cycle.
The Corporation has determined this to be a change in accounting estimate that it will apply
prospectively as of 1 July 2021, the period of adoption. As of 1 July 2021, the impact of changing
methods was $191,451 from 'Other reserves' into 'Net gain/(loss) on financial instruments designated at
fair value through profit or loss'.
1.2 New and amended standards adopted by the Company
Below is a summary of standards, amendments or interpretations that are effective for the first time for
the financial year beginning 1 January 2021 that have had a material impact on the Company.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.2 New and amended standards adopted by the Company (continued)
Interest Rate Benchmark Reform - Phase 2
On 1 January 2021, the entity adopted Interest Rate Benchmark Reform – Phase 2 (Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), addressing a number of issues in financial reporting areas
that arise when IBORs are reformed or replaced.
The entity applied the Phase 2 amendments retrospectively. However, in accordance with the exceptions
permitted in the Phase 2 amendments, the entity has elected not to restate comparatives for the prior
periods to reflect the application of these amendments. Since the entity had no transactions for which the
benchmark rate had been replaced with an alternative benchmark rate as at 31 December 2020, there is
no impact on opening equity balance as a result of retrospective application.
The amendments provide a practical expedient that permits certain changes in the contractual cash
flows of debt instruments attributable to the replacement of IBORs with ARRs to be accounted for
prospectively by updating a given instrument’s effective interest rate, provided (i) the change is
necessary as a direct consequence of IBOR reform and (ii) the new basis for determining the contractual
cash flows is economically equivalent to the previous basis.
The entity has adopted the amendment, which have no material effect on its financial statements. The
amendments also provide an exception to use a revised discount rate that reflects the change in interest
rate when remeasuring a lease liability because of a lease modification that is required by interest rate
benchmark reform. The entity did not adopt the relief since no existing lease arrangement is affected by
the reform.
Lastly, the amendment provides various hedge accounting reliefs which are not applicable to the entity.
The amendments introduced additional disclosure requirements regarding the entity’s management of
the transition to alternative benchmark rates, its progress as at the reporting date and the risks to which it
is exposed arising from financial instruments because of the transition.
The objective of the amendments is to provide certain reliefs and additional disclosures. The relief taken
by the Company on transition relates to changes to the basis for determining contractual cash flows as a
result of interest rate benchmark reform. This relief requires the change, as a practical expedient, to be
treated as a change to a floating interest rate, provided that, for the financial instrument, the transition
from the IBOR benchmark rate to alternative risk free rates takes place on
an economically equivalent basis.
Refer to note 24 where these disclosures have been included.
New standards and interpretations not yet adopted
Certain new accounting standards, amendments to accounting standards and interpretations have been
published that are not mandatory for 31 December 2021 reporting periods and have not been early
adopted by the Company. These standards, amendments or interpretations are not expected to have a
material impact on the Company in the current or future reporting periods and on foreseeable future
transaction.
Page 14
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.3
Translation of foreign currencies
The financial statements have been presented in US dollars which is also the functional currency of the
Company.
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are re-translated into US dollars at
rates of exchange ruling at the reporting date. Exchange gains and losses are recognised in the
statement of comprehensive income.
1.4
Financial assets
The Company recognises financial assets in the statement of financial position when it becomes a party
to the contractual provisions of the instrument. Management determines the classification of the
Company’s financial assets at initial recognition. The Company classifies its financial assets as
measured at amortised cost or fair value through profit or loss ("FVPL").
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the
Company changes its business model for managing those financial assets
A financial asset is classified as measured at amortised cost if it meets both of the following conditions
and is not designated as at FVPL and these are presented as debtors under balance sheet:
The asset is held within a business model whose objective is to hold assets to collect contractual
cash flows; and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest ("SPPI") on the principal amount outstanding.
The Company's derivative assets and liabilities, financial instruments at FVPL and financial instruments
designated at FVPL are managed on a fair value basis and accordingly classified as measured as at
FVPL under IFRS 9. The remaining financial assets of the Company, largely relating to amounts due
from affiliated companies, are classified as measured at amortised cost as these are held with the
objective of collecting the contractual cash flows of the assets and meet the SPPI requirements of the
IFRS 9 standard.
In addition, on initial recognition, the Company may irrevocably designate a financial asset that otherwise
meets the requirements to be measured at amortised cost or as at FVPL if doing so eliminates or
significantly reduces an accounting mismatch that would otherwise arise.
Page 15
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.5
Financial liabilities
The Company recognises financial liabilities in the statement of financial position when it becomes a
party to the contractual provisions of the instrument. The Company classifies its financial liabilities in the
following categories: amortised cost or FVPL.
Derivative liabilities held for trading or held for risk management purposes, are measured at FVPL.
Structured instruments issued by the Company that do not meet the accounting definition of a derivative,
are classified as liabilities designated as at FVPL. Gains and losses are recognised through the income
statement as they arise. All remaining financial liabilities are carried at amortised cost using the effective
interest method.
Where the Company designates a financial liability as at FVPL, the amount of change in the fair value of
the liability that is attributable to changes in its credit risk is presented in OCI as a debit valuation
adjustments reserve. However, if on initial recognition of the financial liability the Company assesses that
presentation in OCI would create, or enlarge, an accounting mismatch, then the gains and losses
attributable to changes in the credit risk of the liability are also presented in profit or loss. Amounts
presented in the debit valuation adjustments reserve are not subsequently transferred to profit or loss.
When these instruments are derecognised, the related cumulative amount in the reserve is transferred to
retained earnings.
1.6
Derecognition of financial assets and liabilities
The Company derecognises a financial asset only when the contractual rights to the cash flows from the
asset expire or it transfers substantially all the risks and rewards of ownership of the asset to another
party. If the Company neither transfers nor retains substantially all the risks and rewards of ownership
and continues to control the transferred asset, the Company recognises its retained interest in the asset
and an associated liability for amounts it may have to pay. If the Company retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Company continues to recognise the
financial asset and also recognises a secured borrowing for the cash proceeds received.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the
carrying amount allocated to the portion of the asset derecognised), and the sum of the consideration
received and any cumulative gain that had been recognised in OCI, is recognised in profit or loss.
The Company derecognises a financial liability when its contractual obligations are discharged or
cancelled, or expire.
Modifications to the terms of financial assets and liabilities may result in derecognition if it is deemed that
the modification is substantial and results in an expiry of the contractual rights and obligations of the
original instrument.
1.7
Offsetting financial instruments
Where the Company has the legal right to net settle and intends to do so (with any of its debtors or
creditors) on a net basis, or to realise the asset and settle the liability simultaneously, the balance
included within the financial statements is the net balance due to or from the counterparty.
Counterparties are assessed to identify if net settlement criteria are met. Where this is achieved, assets
and liabilities facing the counterparty are offset (see note 14).
Page 16
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.8
Segmental reporting
The Company’s results are wholly derived from a single class of business, being the Global Markets
segment. The directors review and analyse performance of the Company based on these activities.
Segmental performance is analysed geographically as the Company operates globally under one
management structure (see note 9 Segmental analysis).
1.9
Income and expense recognition
Amortised cost and effective interest rate
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or
financial liability is measured on initial recognition less the principal repayments, plus or minus the
cumulative amortisation using the effective interest method of any difference between that initial amount
and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance.
The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments
through the expected life of the financial asset or financial liability to the gross carrying amount of a
financial asset (that is to say, the amortised cost before any impairment allowance) or to the amortised
cost of a financial liability.
When calculating the effective interest rate for financial instruments other than credit-impaired assets,
the Company estimates cash flows considering all contractual terms of the financial instrument, but does
not consider expected credit losses. For financial assets that are credit-impaired at initial recognition, a
credit-adjusted effective interest rate is calculated using estimated future cash flows including expected
credit losses.
The calculation of the effective interest rate includes all amounts received or paid by the Company that
are an integral part of the overall return, direct incremental transaction costs related to the acquisition or
issue of a financial instrument and all other premiums and discounts.
Calculation of interest income and expense
Interest income and expense for all financial instruments measured at amortised cost are recognised on
an accruals basis using the effective interest method.
The effective interest rate is applied to the gross carrying amount of the financial asset (for non-credit
impaired assets) or to the amortised cost of the liability.
For financial assets that have become credit-impaired subsequent to initial recognition, the effective
interest rate is applied to the amortised cost of the financial asset. If the asset is no longer credit-
impaired, then the calculation of interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial recognition, the credit-adjusted effective interest
rate is applied to the amortised cost of the financial asset. The calculation of interest income does not
revert to a gross basis, even if the credit risk of the asset improves.
Interest income and expense on amounts owed by and from affiliated companies, other financial assets
measured at FVPL and financial liabilities designated at FVPL are recognised using the contractual
interest rate in net gains/(losses) on other financial instruments at FVPL and net gain/(loss) on financial
instruments designated at FVPL, respectively.
Page 17
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.10
Other income
Other income includes service fee income from charges made to affiliated companies to reimburse the
Company for expenditure incurred.
1.11
Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the income
statement, except to the extent that it relates to items recognised in OCI or directly in shareholders’
funds. In this case, the tax is recognised in OCI or directly in shareholders’ funds, respectively.
Current tax, including Dutch corporation tax and foreign taxes, is provided at amounts expected to be
paid or recovered using the tax rates and laws that have been enacted or substantively enacted by
reporting date.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements. Deferred tax is determined using tax
rates and laws that have been enacted or substantively enacted by the balance sheet date and is
measured at the average tax rates that are expected to apply when the related deferred income tax asset
is realised or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised over the Company's planning horizon.
1.12
Cash and cash equivalents
Cash and cash equivalents comprises cash on hand, demand deposits and short term time deposits of
maturities of three months or less.
1.13
Statement of cash flows
The statement of cash flows is prepared according to the indirect method. The statement of cash flows
shows the Company's cash flows for the period, divided into cash flows from operating activities and
financing activities, and how the cash flows have affected the Company's cash balances. Transactions
related to the issuance of structured notes are classified as operating activities.
1.14
Dividend distribution
Dividend distributions to the Company's shareholder are recognised as a liability in the financial
statements in the period in which the dividends are approved by the Company's shareholder.
Page 18
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
1
.
Accounting policies (continued)
1.15
Impairment
The Company calculates a probability-weighted loss allowance for expected credit loss ("ECL") on its
financial assets that are debt instruments that are not measured at FVPL. For instruments that have had
no significant increase in credit risk since initial recognition ECL is calculated on a 12 month basis. In the
event that significant financial difficulty or default of a counterparty indicates that an asset is credit-
impaired, the ECL allowance is assessed on a lifetime basis, taking into account ECL that result from all
possible default events over the expected life of the financial instrument.
Debtor balances are written off, either partially or in full, when there is no realistic prospect of recovery.
This is generally the case when the Company determines that the borrower does not have assets or
sources of income that could generate sufficient cash flows to repay the amounts subject to the write off.
However, financial assets that are written off could still be subject to enforcement activities in order to
comply with the Company's procedures for recovery of amounts due.
Management considered the impact of the COVID-19 pandemic on its impairment assessment process
and concluded that this is adequately reflected in the estimates as part of the probability of default used.
2
.
Critical accounting estimates and judgements
The preparation of financial statements in conformity with IFRS as adopted by the EU requires the use of
accounting estimates and assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the related actual results. It also requires management to exercise judgement in
the process of applying the Company’s accounting policies. The estimates and assumptions that have a
significant risk of causing an adjustment to the carrying amounts of assets and liabilities within the next
financial year are addressed below.
Estimates
Valuation of financial instruments at fair value through profit and loss
Fair value is defined under IFRS 13 - Fair Value Measurement, as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
The Company’s policy for valuation of financial instruments is included in notes 1.4 and 1.5. The fair
values of financial instruments that are not quoted in financial markets are determined by using valuation
techniques based on models such as discounted cash flow models, option pricing models and other
methods consistent with accepted economic methodologies for pricing financial instruments. These
models incorporate observable, and in some cases unobservable inputs including security prices, interest
rate yield curves, option volatility, currency rates, commodity prices or equity prices and correlations
between these inputs.
Where models are used to determine fair values, they are periodically reviewed by qualified personnel
independent of the area that created them. All models are certified before they are used, and models are
calibrated to ensure that output reflects actual data and comparative market prices. These estimation
techniques are necessarily subjective in nature and involve several assumptions.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
3
.
General information
Merrill Lynch B.V. (“MLBV”, or the “Company”) is a private company with limited liability (Besloten
Vennootschap met Beperkte Aansprakelijkheid) incorporated under the laws of The Netherlands on 12
November 2012 with registration number 56457103.
The principal activities of the Company are the issuance of structured notes and economically hedging
these instruments through derivatives that are transacted with Merrill Lynch International ("MLI"), Bank of
America, National Association ("BANA") and BofA Securities Europe SA. In addition the Company grants
intercompany loans and places deposits with Bank of America Corporation ("BAC") and MLI. The
directors expect the principal activities to continue during 2021.
The directive 2004/109/EC of the European Parliament and the Council of 15 December 2004 on the
harmonisation of transparency requirements in relation to information about issuers whose securities are
admitted to trading on a regulated market, has been implemented in The Netherlands. In this regard the
Company had to choose its Home Member State.
The Company has chosen The Netherlands as Home Member State in connection with the Transparency
Directive, The Netherlands being the country of incorporation of the Company.
As a consequence of this choice, the Company files its annual and semi-annual financial statements with
the Autoriteit Financiële Markten ("AFM").
The Company makes use of the exemption to the requirement to establish its own Audit Committee
based on Article 3a of the Royal Decree of 26 July 2008, implementing article 41 of the EU Directive
2006/43EG, as the Audit Committee of BAC that is compliant with the requirements will fulfil the role of
the Company’s Audit Committee. BAC operates an Audit Committee, which covers the BAC group,
including the Company. Details of the charter, membership, duties, and responsibilities can be found on
the BAC group website.
The Company has its registered address at Amstelplein 1, Rembrandt Tower, 27 Floor, 1096HA,
Amsterdam, The Netherlands. Merrill Lynch International, LLC ("MLI LLC") is the Company’s immediate
parent; BAC is the Company’s ultimate parent, see note 20.
4
.
Net (loss)/gain on financial instruments at fair value through profit or loss
2021
2020
$000
$000
Change in fair value of derivative instruments (30,347) 51,971
Page 20
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
5
.
Net gain/(loss) on financial instruments designated at fair value through profit or loss
2021
2020
$000
$000
Change in fair value of structured notes excluding debit valuation
adjustment 31,241 (58,696)
6
.
Other income
Operating income of $457,000 (2020: $455,000) relates to service fee income from MLI, an affiliate for
issuance of certain FICC and equity linked products, including certificates and other financial
instruments.
7
.
Administrative expenses
2021
2020
$000
$000
Foreign exchange (gain)
(13)
(240)
Service charge
56
55
Other operating expenses
395
455
438 270
8
.
Interest income
2021
2020
$000
$000
Interest income 23,972 42,370
Interest income due from affiliated companies within debtors was $23,959,000 (2020: $42,205,000) and
within cash and cash equivalents was $13,000 (2020: $165,000).
Page 21
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
9
.
Segmental analysis
The Company operates in three geographic regions, being Europe, Middle East and Africa ("EMEA"),
the Americas ("AMRS") and Asia Pacific ("APAC"). The Company identifies its geographic performance
based on the regional business unit structure. The methodology for allocating revenue to geographic
regions is dependent on estimates and management judgement.
The table below presents the total net operating revenues of the Company by geographic region:
2021
2020
$000
$000
APAC
19,651
25,516
EMEA
4,536
8,106
AMRS
1,079
2,478
25,266 36,100
10
.
Auditors' remuneration
The Company accrued the following amounts to its auditors in respect of the audit of the financial
statements and for other services provided to the Company.
2021
2020
$000
$000
Audit fees
167
84
Non-audit fees
20
20
187 104
The fees listed above relate to the procedures applied to the Company by accounting firms and external
auditors as referred to in Section 1, subsection 1 of the Audit Firms Supervision Act (“Wet toezicht
accountants organisaties – Wta”) as well as by Dutch and foreign-based accounting firms, including their
tax services and advisory groups.
The accrued audit and non-audit fees relates to the statutory audit of the Company's 2021 financial
statements and services in relation to the 2021 comfort letters for the issuance of structured notes.
Payment of the 2020 fees was made by an affiliated entity and recharged to the Company.
Page 22
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
11
.
Tax expense
2021
2020
$000
$000
Current tax
Current tax on profit for the year
941
1,525
Total current tax expense
941
1,525
Deferred tax
Origination and reversal of temporary differences
5,252
8,191
Tax rate change
595
1,323
Total deferred tax expense
5,847
9,514
Total tax expense 6,788 11,039
2021
2020
$000
$000
24,885
35,830
6,193
8,958
-
758
595
1,323
Profit before tax
Tax calculated at standard rate of corporation tax
(taxable income <€245,000 at 15% and >€245,000 at 25%) (2020: <
€200,000 at 16.5% and >€200,000 at 25%)
Net expenses not deductible for tax purposes/(net credit not subject to tax)
Tax rate change
Total tax expense 6,788 11,039
Temporary differences arise on the recognition of gains or losses as BAC credit spreads change.
Page 23
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
12
.
Debtors
2021
2020
$000
$000
Non-current assets
Debt instruments at amortised cost 3,018,655 2,107,916
Current assets
Debt instruments at amortised cost
141,984
112,417
Cash collateral
61,596
33,517
Amounts owed from affiliated companies
162,869
155,396
366,449 301,330
Debt instruments at amortised cost and amounts owed from affiliated companies mainly consist of funds
raised through the issuance of structured notes and are carried at amortised cost. The balances are
largely denominated in USD, EUR, JPY and GBP, not past due and are not considered to be credit-
impaired.
Debt instruments at amortised cost are unsecured and placed with BAC and MLI (refer to note 21
for credit ratings). The fair value of debt instruments at amortised cost are valued at $3,166,970,000
(2020:$2,297,939,00). The amounts owed from affiliated companies are extended on a short term basis.
13
.
Cash and cash equivalents
2021
2020
$000
$000
Cash at bank and in hand
2,765
2,976
Short term time deposit
19,709
19,700
22,474 22,676
The short term time deposits are held with Bank of America, N.A., and are interest bearing at 0.12%
average rate (2020: 0.82% average rate) maturing on 28 January 2022. The credit rating is A-1
(Standard and Poor's ("S&P")) (2020: A-1 (S&P)).
Page 24
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
14
.
Derivative assets and derivative liabilities
2021
2020
$000
$000
Non-current assets
150,170
214,457
Current assets
16,184
9,700
Total derivative assets 166,354 224,157
2021
2020
$000
$000
Non-current liabilities
219,677
141,301
Current liabilities
9,176
13,651
Total derivative liabilities 228,853 154,952
Financial assets and liabilities are offset and the net amount reported in the statement of financial
position ("SOFP") where the Company currently has a legally enforceable right to offset the recognised
amounts, and there is an intention and ability to settle on a net basis or realise the asset and settle the
liability simultaneously. The Company has also entered into arrangements that do not meet the criteria
for offsetting but still allow for the related amounts to be set-off in certain circumstances, such as
bankruptcy or the termination of a contract.
The following table presents the recognised financial instruments that are offset, or subject to
enforceable master netting arrangements and other similar agreements but not offset, as at 31
December 2021 and 31 December 2020. The column 'net amount' shows the impact on the Company's
SOFP if all set-off rights were exercised.
Page 25
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
14.
Derivative assets and derivative liabilities (continued)
As at 31 December 2021
Gross
amounts
recognised
Gross
amounts
offset in the
SOFP
Net
amounts
presented
in the SOFP
Financial
instruments
Cash
collateral
Net amount
$000
$000
$000
$000
$000
$000
Assets
Derivative
assets 173,958 (7,604) 166,354 (165,010) (1,344) -
Liabilities
Derivative
liabilities 236,457 (7,604) 228,853 (165,010) (61,596) 2,247
As at 31 December 2020
Gross
amounts
recognised
Gross
amounts
offset in the
SOFP
Net
amounts
presented
in the SOFP
Financial
instruments
Cash
collateral
Net amount
$000
$000
$000
$000
$000
$000
Assets
Derivative
assets 240,535 (16,378) 224,157 (121,531) (100,164) 2,462
Liabilities
Derivative
liabilities 171,330 (16,378) 154,952 (121,531) (33,421) -
.
Page 26
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
14. Derivative assets and derivative liabilities (continued)
Derivatives consist of total return swaps and cross currency swaps that are mainly transacted with MLI
and BANA and are predominantly denominated in USD, EUR, JPY and GBP.
The Company does not intend to net settle all swap positions despite having legally enforceable master
netting agreements in place. Only where the total return swaps and cross currency swaps relate to a
single structured note, the Company net settles those swaps upon maturity or buyback of the note and as
a result an offsetting adjustment has been applied to those positions. Cash collateral relates to
collateral received and pledged under legally enforceable master netting agreements.
15. Deferred tax asset/liability and income tax receivable/(payable)
2021
2020
$000
$000
Deferred tax asset at beginning of year
13,246
7,148
Charged to profit and loss
(5,253)
(8,191)
Tax relating to movement in debit valuation adjustment
(11,635)
11,868
Tax rate change
(211)
2,421
Deferred tax (liability)/asset at end of year
(3,853) 13,246
The deferred tax asset is non-current.
2021
2020
$000
$000
Income tax receivable/(payable) at beginning of year
332
(1,196)
Charged to the income statement
(941)
(1,525)
Impact of foreign exchange rates
(649)
779
Tax paid
2,656
2,274
Income tax receivable at end of year
1,398 332
For 2021, the top corporation tax rate remained at 25%. However, the lower tier tax bracket was
extended to EUR 245,000 and the tax rate on the lower tier tax bracket reduced to 15%. The top
corporation tax rate was increased to 25.8% as of 1 January 2022, and the lower tier tax rate bracket
further extended to EUR 395,000. This will have a consequential impact on the Company's future tax
change. Therefore, any deferred tax balances have been remeasured at the tax rate to be applied when
temporary differences are expected to reverse.
Page 27
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
16
.
Financial liabilities designated at fair value through profit or loss
Management have considered the below maturity profile and contractual terms of the liabilities in respect
of the structured note portfolio below and consider there to be sufficient sources of short term funds
available to the Company to meet the contractual maturity of the structured notes in the context of the
current environment detailed in the ‘business review and market environment’ section of the directors'
report.
The below table presents the aggregated amounts of the Company's financial liabilities designated at
FVPL, categorised by maturity dates:
Structured notes
2021
Notional
2021
Fair value
2020
Notional
2020
Fair value
$000
$000
$000
$000
Non-current liabilities
Between one year and five years
443,746
455,344
345,198
359,058
Between five years and ten years
802,341
790,147
116,569
124,598
More than 10 years
1,728,358
1,645,049
1,676,528
1,648,311
Credit spread adjustment
-
59,743
-
106,897
2,974,445
2,950,283
2,138,295
2,238,864
Current liabilities
Less than 1 year
142,228
145,526
85,359
86,144
Credit spread adjustment
-
306
-
286
142,228
145,832
85,359
86,430
Total 3,116,673 3,096,115 2,223,654 2,325,294
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
16.
Financial liabilities designated at fair value through profit or loss (continued)
The financial liabilities designated at fair value through profit or loss represents structured notes issued to
investors. The structured notes are not collateralised. The carrying and fair value amounts of the
structured notes are denominated in the following currencies:
2021
Notional
2021
Fair value
2020
Notional
2020
Fair value
$000
$000
$000
$000
Structured notes
USD
1,458,780
1,430,560
755,685
793,836
JPY
1,005,168
946,246
910,104
846,119
EUR
512,309
530,512
475,140
500,824
KRW
42,059
31,364
46,028
39,286
HKD
19,239
19,446
19,350
20,085
RUB
-
-
8,921
9,225
SEK
-
-
1,065
1,401
GBP
9,872
9,995
6,290
6,264
CNY
27,004
27,307
1,071
1,071
AUD
28,332
26,364
-
-
CHF
1,372
1,364
-
-
ZAR
12,538
12,908
-
-
Credit spread adjustment
-
60,049
-
107,183
3,116,673 3,096,115 2,223,654 2,325,294
The structured notes programme does not include an early repayment option by the holder, hence the
Company is not legally obliged to redeem the notes until they mature.
All structured notes are hybrid instruments with a structured component linked to the performance of
various market indices. The ultimate return on the notes is dependent on the performance of the
underlying indices. The indexed linked amounts are calculated based on the movement of the
underlying indices of each structured note.
The credit spread adjustment represents a debit valuation adjustment which is linked to BAC credit
spreads. The fair value of the structured notes is determined by using valuation techniques based on
valuation models, for more information refer to note 22.
Page 29
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
17
.
Creditors
2021
2020
$000
$000
Cash collateral
1,460
100,180
Amounts owed to affiliated undertakings
1,513
40
2,973 100,220
Cash collateral received under legally enforceable master netting agreements, denominated in USD,
which are due and payable on demand. Due to the short term nature there is no material difference
between the fair value and the carrying values.
18
.
Issued capital and reserves
2021
2020
$000
$000
Share capital
-
-
Other reserves
(40,534)
(76,191)
Share premium
120,437
35,437
79,903 (40,754)
Issued share capital in 2021 comprises 12,998 Ordinary shares of equal voting rights at $0.01 each.
(2020: 12,998 ordinary shares at $0.01 each).
Other reserves include adjustments of $3,651,000 related to the merger with Bank of America Issuance
B.V. during 2015 and $44,184,000 debit which relates to DVA after tax.
On 11 December 2020, the Board approved the return of share premium to the parent company of
$110,000,000 in cash in accordance with Section 2:216 paragraph 2 of the Dutch Civil Code.
On 18 November, 2021, the Company's parent MLI LLC made an additional share premium contribution
of $85,000,000.
Page 30
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
19
.
Financial instruments by category
The following table analyses the carrying amount of the Company’s financial assets and liabilities by
category and by statement of financial position heading:
Summary of financial instruments at 31 December 2021
Amortised
cost
Financial
instruments
mandatorily
at fair value
through
profit or
loss
$000
$000
Assets
Debtors
3,385,103
-
Derivative assets
- 166,354
Other assets
1,711
-
Cash and cash equivalents
22,474
-
3,409,288 166,354
Amortised
cost
Financial
instruments
mandatorily
at fair value
through
profit or
loss
Financial
instruments
designated
at fair value
through
profit or
loss
$000
$000
$000
Liabilities
Financial liabilities designated at fair value through profit or
loss
-
-
3,096,115
Derivative liabilities
- 228,853
-
Creditors
2,973
-
-
Accrued expenses and other liabilities
12,993
-
-
15,966 228,853 3,096,115
Page 31
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
19.
Financial instruments by category (continued)
Summary of financial instruments at 31 December 2020
Amortised
cost
Financial
instruments
mandatorily
at fair value
through
profit or loss
$000
$000
Assets
Debtors
2,409,246
-
Derivative assets
-
224,157
Other assets
4,372
-
Cash and cash equivalents
22,676
-
2,436,294 224,157
Amortised
cost
Financial
instruments
mandatorily
at fair value
through
profit or loss
Financial
instruments
designated
at fair value
through
profit or loss
$000
$000
$000
Liabilities
Bank overdraft
-
-
-
Financial liabilities designated at fair value through profit or
loss
-
-
2,325,294
Derivative liabilities
-
154,952
-
Creditors
100,220
-
-
Accrued expenses and other liabilities
63
-
-
100,283 154,952 2,325,294
Page 32
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
20
.
Related party transactions
Related party transactions are transfers of resources, services or obligations between related parties and
the Company, regardless of whether a price has been charged. Parties are considered to be related 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 or is part of key management of the Company.
The following parties are considered related parties:
Debt instruments at amortised cost:
Interest
income
2021
Debt
instruments
at
amortised
cost
2021
Interest
income
2020
Debt
instruments
at amortised
cost
2020
$000
$000
$000
$000
Merrill Lynch International
23,300
3,155,302
37,645
2,156,928
Bank of America Corporation
394
5,337
2,902
63,405
23,694 3,160,639 40,547 2,220,333
Amounts owed from affiliated companies:
Interest
income
2021
Amounts
owed from
affiliated
companies
2021
Interest
income
2020
Amounts
owed from
affiliated
companies
2020
$000 $000 $000 $000
271 163,934 977 154,066
566 1,330- 245
- 45,316 - 33,515
271 209,495 1,543 188,911
Debt instruments at amortised cost and amounts owed from affiliated companies are set out in note 12.
Page 33
Merrill Lynch International
Bank of America Corporation
BofA Securities Europe SA
Graphics
MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
20.
Related party transactions (continued)
The carrying amounts of the Company's financial asset that have been pledged as collateral to affiliated
company for liabilities totalling $61,596,000 (2020: $33,517,000).
The short term time deposits are held with Bank of America, N.A., and are interest bearing at 0.12%
average rate (2020: 0.82% average rate) maturing on 28 January 2022 amounted to $19,709,000 (2020:
$19,700,000.)
The Company has net derivatives transacted with affiliated companies, which at 31 December 2021
amounting to $(62,499,000) (2020: $69,205,000). See note 14 for further information.
The creditors relates to cash collateral received from affiliated companies under legally enforceable
master netting agreements, denominated in USD, which are due and payable on demand amounting to
$1,460,000 (2020: $100,180,000) and a general intercompany payable amounting to $1,503,000 (2020:
$40,000) See note 17 for further information.
The Company has service fee income from MLI for the year ended 31 December 2021 amounting to
$457,000 (2020: $455,000)
MLI LLC, the Company's immediate parent, is the holder of all 12,998 ordinary shares ($129.98).
On 18 November 2021, MLI LLC made an additional share premium contribution of $85,000,000.
BAC as the ultimate controlling party has the power to govern the Company.
There are no employees in the Company for the year ended 31 December 2021 (2020: none).
Included in the administrative expenses are Directors' fees and remuneration of $173,159 (2020:
$140,230) relating to two directors. Disbursements for travel and other expenses incurred in relation
to matters concerning the Company are charged to the Company separately.
The Company entered into a cost sharing agreement with Investments 2234 Overseas Holdings B.V., an
affiliated company with which costs relating to one of the directors’ are shared, through their mutual
ultimate parent company, BAC, which is based in North Tryon Street, Charlotte, North Carolina, 28202,
U.S.A.
Page 34
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21
.
Financial risk management
Legal entity governance
BAC has established a risk governance framework (the "Risk Framework"), which serves as the
foundation for consistent and effective management of risks facing BAC and its subsidiaries (including
the Company). The Risk Framework applies to all BAC employees. It provides an understanding of the
Company's approach to risk management and each employee's responsibilities for managing risk. All
employees must take ownership for managing risk well and are accountable for identifying, escalating
and debating risks facing the Company.
The risk management approach has five components:
• Culture of managing risk well;
• Risk appetite
• Risk management process;
• Risk data management, aggregation and reporting; and
• Risk governance.
The seven key types of risk faced by BAC Businesses as defined in the Risk Framework are strategic,
credit, market, liquidity, operational, compliance and reputational risks.
Set out below is a summary of the Company's approach to each of the risk types.
Market risk
Market risk is the risk that changes in market conditions may adversely impact the values of assets and
liabilities or otherwise negatively impact earnings.
Trading positions within the entity are subject to various changes in market based risk factors. The
majority of this risk is generated by the activities in interest rate, FX, equities, commodities and credit
markets. In addition, the values of asset and liabilities could change due to market liquidity, correlations
across markets and expectations of market volatility.
Value at Risk ("VaR") is a statistical measure of potential portfolio market value loss resulting from
changes in market variables, during a given holding period, measured at a specified confidence level. A
single model is used consistently across the trading portfolios, and it uses a historical simulation
approach based on a three- year window of historical data. The primary VaR statistic is equivalent to a
99 percent confidence level. This means that for a VaR with a one day holding period, there should not
be losses in excess of VaR, on average, 99 out of 100 trading days.
Page 35
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
The table that follows presents VaR analysis independently for each risk category at 31 December 2021
and 31 December 2020. Additionally, high and low VaR is presented independently for each risk category
and overall.
Year end
2021
High
2021
Daily
average
2021
Low
2021
$000
$000
$000
$000
99% Daily VaR
Total
3,443
4,863
2,733
1,719
Interest rate risk
3,595
4,416
2,621
1,688
Currency risk
883
1,711
618
146
Equity price risk
116
1,469
78
27
Credit risk
992
1,051
181
10
Commodity price risk 4 224 14 2
Year end
2020
High
2020
Daily
average
2020
Low
2020
$000
$000
$000
$000
99% Daily VaR
Total
2,705
11,699
4,043
492
Interest rate risk
2,577
3,641
2,588
138
Currency risk
233
2,869
614
169
Equity price risk
62
2,620
647
31
Credit spread risk
11
10,433
1,435
6
Commodity price risk 5 382 10 -
Page 36
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
Credit Risk
The Company defines credit risk as the loss arising from the inability or failure of a borrower or
counterparty to meet its obligations.
Credit risk to a borrower or counterparty is managed based on their risk profile, which includes assessing
repayment sources, underlying collateral (if any), and the expected impacts of the current and forward
looking economic environment on its borrowers or counterparties. Underwriting, credit management and
credit risk limits are proactively reassessed as a borrower’s or counterparty’s risk profile changes.
Credit risk management includes the following processes:
• Credit origination
• Portfolio management
• Loss mitigation activities
These processes create a comprehensive and consolidated view of the Company's credit risks, thus
providing executive management with the information required to guide or redirect front line units and
certain legal entity strategic plans, if necessary.
BAC has established policies and procedures for mitigating credit risk on principal transactions, including
establishing and reviewing limits for credit exposure, maintaining collateral, purchasing credit protection
and continually assessing the creditworthiness of counterparties. These limits were not exceeded during
the year ended 31 December 2021.
The credit risks of the Company arise from its affiliate hedging of structured note issuance via
derivatives as well as its intercompany loans and deposits. The Company restricts its exposure to credit
losses on derivative instruments by entering into master netting arrangements with affiliate
counterparties. The credit risk associated with favourable contracts is reduced by the master netting
arrangement to the extent that if an event of default occurs, all amounts with the affiliate are terminated
and settled on a net basis.
Additionally, the Company grants intercompany loans and places deposits with affiliates. None of the
loans to affiliate companies is past due or is considered to be credit-impaired such that the resulting ECL
is not significant to the Company. The carrying amounts of financial assets best represent the maximum
credit risk exposure at the end of the reporting year.
The Company is exposed to a concentration of credit risk related to debt instruments at amortised cost
totaling $3,160,639,000 (2020: $2,220,333,000), all with affiliated companies, please refer to note 12. At
the end of the reporting year, the credit rating for outstanding long term debt of the affiliated companies
is A- / A-2 (S&P) for BAC and A+ /A-1 (S&P) for MLI (2020: A- /A-2 (S&P) for BAC and A+ /A-1 (S&P) for
MLI).
As the global environment remains impacted by COVID-19 and uncertainty, the Company continues to
actively monitor the recoverability of its financial assets and ensures any loss allowance reflects on a
timely basis management's best estimate of potential losses.
Derivatives trading
The Company typically enters into ISDA master agreements or their equivalent ("master netting
agreements") with its derivative counterparties. Master netting agreements provide protection in
bankruptcy in certain circumstances and, in some cases, enable receivables and payables with the same
counterparty to be offset for risk management purposes. Agreements are negotiated bilaterally
Page 37
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
and can require complex terms. The enforceability of master netting agreements under bankruptcy laws
in certain countries is not free from doubt, and receivables and payables with counterparties in these
countries are accordingly recorded on a gross basis for risk assessment purposes.
In addition, to reduce the risk of loss, the Company usually requires collateral that is permitted by
documentation such as repurchase agreements or Credit Support Annex to an ISDA. From an economic
standpoint, the Company evaluates risk exposures net of related collateral that meets specified
standards. The Company also attempts to mitigate its default risk on derivatives whenever possible by
entering into transactions with provisions that enable it to terminate or reset the terms of the derivative
contracts under certain defined conditions.
Compliance and operational risk ("C&OR Risk")
Compliance risk is the risk of legal or regulatory sanctions, material financial loss or damage to the
reputation of the Company arising from the failure of the Company to comply with the requirements of
applicable laws, rules and regulations and internal policies and procedures. Operational risk is the risk of
loss resulting from inadequate or failed processes, people and systems, or from external events.
BAC has compliance and operational risk management programmes (“C&OR Programmes”) in place to
identify, mitigate and manage the C&OR Risk for the group, which includes relevant activities of the
Company. The C&OR Programmes include policies and standards among others in relation to Anti-
Bribery and Anti-corruption, fraud, global financial crimes etc.
The Company's directors are confident that the C&OR Risk of the Company is thus appropriately
managed.
Liquidity risk
Liquidity risk is the inability to meet expected or unexpected cash flow and collateral needs while
continuing to support the businesses and customers under a range of economic conditions.
The approach to managing the Company's liquidity risk has been established by the MLBV Board, and is
imbedded in BAC processes, based on the Company's business mix, strategy, activity profile, and
regulatory requirements.
The tables below represent the undiscounted cash flows of the Company's financial liabilities as at 31
December 2021 and 31 December 2020, with the exception of those designated at fair value through
profit or loss and derivatives.
The fair values of financial liabilities designated at fair value through profit or loss and derivatives have
been disclosed as this is consistent with the values used in the liquidity risk management of these
instruments.
The Company manages liquidity for these instruments by actively unwinding asset positions to ensure
appropriately balanced cash flows.
Page 38
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
Less than 3
months
Between 3
months and
1 year
Between 1
and 2 years
Between 2
and 5 years
Over 5
years
Total
$000
$000
$000
$000
$000
$000
As at 31
December 2021
Financial
liabilities
designated at
fair value
through profit or
loss
31,380
114,452
178,740
281,148
2,490,395
3,096,115
Derivative
liabilities
1,977
7,199
20,137
8,565
190,975 228,853
Creditors
-
2,973
-
-
-
2,973
Accrued
expenses and
other liabilities
12,993
-
-
-
-
12,993
46,350 124,624 198,877 289,713 2,681,370 3,340,934
Less than 3
months
Between 3
months and
1 year
Between 1
and 2 years
Between 2
and 5 years
Over 5 years
Total
$000
$000
$000
$000
$000
$000
As at 31
December 2020
Financial
liabilities
designated at
fair value
through profit or
loss
10,676
75,754
114,511
244,546
1,879,807
2,325,294
Derivative
liabilities
11,151
2,500
6,688
4,992
129,621
154,952
Creditors
-
100,220
-
-
-
100,220
Bank overdraft
-
-
-
-
-
-
Accrued
expenses and
other liabilities
63
-
-
-
-
63
21,890 178,474 121,199 249,538 2,009,428 2,580,529
Page 39
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
Reputational risk
Reputational risk is the potential risk that negative perceptions of MLBV may adversely impact its
profitability or operations.
BAC and its subsidiaries manage reputational risk through established policies and controls in the
business and risk management processes to mitigate reputational risks in a timely manner and through
proactive monitoring and identification of potential reputational risk events.
At the BAC enterprise level, reputational risk is reviewed by the Enterprise Risk Committee and the
Management Risk Committee, which provide primary oversight of reputational risk. Additionally, top
reputational risks are reviewed by the Global Risk Management ("GRM") Leadership team and the BAC
Board.
At regional level, reputational risk items are considered as part of the Europe Middle East and Africa
("EMEA") Reputational Risk Committee, whose mandate includes consideration of reputational risk
issues (including matter related to ESG factors) and provision of guidance and approvals for activities
that represent specific reputational risks which have been referred for discussion by other current control
frameworks or lines of business.
Ultimately, to ensure that reputational risk is mitigated through regular business activity, monitoring and
oversight of the risk is integrated into the overall governance process, as well as incorporated into the
roles and responsibilities for employees.
Given the nature of reputational risk, BAC does not set quantitative limits for the level of acceptable risk
appetite. Through proactive risk management, BAC seeks to minimise both the frequency and impact of
reputational events.
The reporting of reputational risk issues is captured as part of management routines for the Reputational
Risk Committee. Tracking of items presented to this Committee is maintained through a reporting
protocol, which provides detail such as the description of the reputational risk issue, the geographical
jurisdiction, the reason for escalation and the decision reached by the Committee. A summary report of
issues discussed at the Reputational Risk Committee is provided to the EMEA Regional Risk Committee
on a quarterly basis.
Strategic risk
Strategic risk is the risk that results from incorrect assumptions about external and/or internal factors,
inappropriate business plans (e.g. too aggressive, wrong focus, ambiguous), ineffective business
strategy execution, or failure to respond in a timely manner to changes in the regulatory, macroeconomic
and competitive environments in the geographic locations in which MLBV operates (such as competitor
actions, changing customer preferences, product obsolescence, and technology developments).
Strategic risk is managed through the assessment of effective delivery of strategy. Strategic risk is
monitored continuously by the executive management team through a number of existing processes
ranging from monitoring of financial and operating performance, through to the management of recovery
plans and also with the regular assessment of earnings and risk profile throughout the year.
The executive management team provides the Board with reports on progress in meeting the strategic
plan, as well as whether timelines and objectives are being met and if additional or alternative actions
need to be implemented.
Page 40
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
21.
Financial risk management (continued)
MLBV strategy execution and risk management involves a formal planning and approval process. The
MLBV strategic plans are set within the context of overall risk appetite and the strategic planning process
includes an evaluation of the internal and external environment and the group's strengths, weaknesses,
opportunities and threats.
Routines exist to discuss the strategic risk implications of new, expanded, or modified businesses,
products or services and other strategic initiatives, and to provide approvals where appropriate.
Independent risk management, Corporate Audit and other control functions provide input, challenge and
oversight to FLUs and strategic decisions and initiatives relating to MLBV.
Regular updates to the Board on business performance and management of strategic risk take into
account analyses of performance relative to the strategic plan, risk appetite, the strength of capital and
liquidity positions and stress tests (which address potential macroeconomic events, changing regulatory
requirements and various market growth rate assumptions).
Capital risk management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as
a going concern, in order to provide returns for its immediate parent and benefits for other stakeholders,
and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust
the capital structure, the Company may pay dividends and return capital to its immediate parent, or issue
new shares. The Company monitors capital on the basis of the capitalisation ratio which is calculated as
equity divided by issued debt.
The Company's capitalisation ratio is consistent with BAC’s Capital Management Policy. On 18
November, 2021, the Company's parent MLI LLC made an additional share premium contribution
of $85,000,000. Taking into account guidelines issued by the Dutch Ministry of Finance, the equity at
risk that is taken into account for purposes of determining the Equity risk remuneration is capped at 4% of
the total amount of outstanding financial liabilities.
2021
2020
$000
$000
Capitalisation ratio:
Equity
232,254
93,500
Issued debt
3,096,115
2,325,294
Capitalisation ratio 8% 4%
Page 41
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22
.
Fair value measurement
In accordance with IFRS 13 – Fair Value Measurement, financial instruments carried at fair value have
been categorised into a three-level fair value hierarchy based on the priority of the inputs to the
valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets
for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
Financial instruments are considered Level 1 when their valuation is based on quoted prices in active
markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or models using inputs that are
observable or can be corroborated by observable market data for substantially the full term of the assets
or liabilities. Financial instruments are considered Level 3 when their values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable.
Financial liabilities designated at FVPL
The fair values of financial liabilities designated at fair value through profit or loss is primarily based on
actively traded markets where prices are based on either direct market quotes or observed transactions.
Liquidity is a significant factor in the determination of the fair values of these financial instruments. In
less liquid markets, market price quotes may not be readily available. Some of these instruments are
valued using a net asset value approach, which considers the value of the underlying assets. In these
instances, fair value is determined based on limited available market information and other factors,
principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or
more rating agencies.
Derivative assets and liabilities
The fair values of derivative assets and liabilities traded in the over the counter ("OTC") market are
determined using quantitative models that require the use of multiple market inputs including interest
rates, prices, and indices to generate continuous yield or pricing curves and volatility factors, which are
used to value the position. The majority of market inputs are actively quoted and can be validated
through external sources, including brokers, market transactions and third party pricing services. When
third party pricing services are used, the methods and assumptions are reviewed by the Company.
Estimation risk is greater for derivative asset and liability positions that are either option-based or have
longer maturity dates where observable market inputs are less readily available, or are unobservable, in
which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining
fair values. The fair value of derivative assets and liabilities include adjustments for market liquidity,
counterparty credit quality and other deal specific factors, where appropriate.
The table below presents the carrying value of financial instruments held at fair value across the three
levels of the fair value hierarchy at 31 December 2021:
As at 31 December 2021
Level 2
Level 3
Total
$000
$000
$000
Assets
Derivative assets 164,027 2,327 166,354
Page 42
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22.
Fair value measurement (continued)
Level 2
Level 3
Total
$000
$000
$000
Liabilities
Financial liabilities designated at fair value through profit
and loss
3,096,115
Derivative liabilities
173,953
54,900
- 3,096,115
228,853
3,270,068 54,900 3,324,968
As at 31 December 2020
Level 2
Level 3
Total
$000
$000
$000
Assets
Derivative assets 209,293 14,864 224,157
Liabilities
Financial liabilities designated at fair value through profit
and loss
2,219,599
105,695
2,325,294
Derivative liabilities
142,948
12,004
154,952
2,362,547 117,699 2,480,246
Fair values of level 3 assets and liabilities
Financial assets and liabilities whose values are based on prices or valuation techniques, that require
inputs that are both unobservable and are significant to the overall fair value measurement, are
classified as Level 3 under the fair value hierarchy. The Level 3 financial instruments include derivatives
and valuation inputs for which there are few transactions, and there is little or no observable market data
to corroborate inputs to valuation models.
Where the value of financial instruments is dependent on unobservable inputs, the precise level for
these parameters at the reporting date might be drawn from a spectrum of reasonably possible
alternatives. Appropriate levels for these inputs are chosen so that they are consistent with prevailing
market evidence and in line with the valuation control policies applicable across the BAC group.
By definition unobservable inputs relate to mark-to-model financial instruments having unobservable
model inputs that have an overall significant impact on the financial instrument fair value. Classification
on Level 3 is essentially a result of failure to be classified on either Levels 1 or 2. It is important to note
some key points regarding the use of unobservable inputs for the purposes of estimating fair value:
Unobservable inputs can only be used in the absence of reliable observable market data.
Page 43
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22.
Fair value measurement (continued)
If unobservable inputs are used, they must reflect the assumptions market participants would use
when pricing the asset or liability, including assumptions about risk. If the Company’s own data is
used to develop unobservable inputs, this should be adjusted if reasonably available information
suggests other market participants would use different data.
Assumptions about risk include the risk or uncertainty inherent in a particular valuation model used to
estimate fair value, as well as the inputs used by the valuation model. A fair value estimate produced
from a valuation model must be adjusted for these risks if a market participant would do so in their
pricing of an asset or liability.
The table below presents a reconciliation for all Level 3 financial instruments measured at fair value.
Level 3 assets were $2,327,000 as of 31 December 2021 (2020: $14,864,000) , and represent
approximately 1.34% of assets measured at fair value and approximately 0.06% of total assets. Level 3
liabilities were $54,900,000 as of 31 December 2021 (2020: $12,004,000) , and represent approximately
1.65% of liabilities measured at fair value and 2.13% of total liabilities.
Derivative
assets
Derivative
liabilities
Financial
liabilities
designated
at fair value
through
profit or
loss
$000
$000
$000
Balance at 1 January 2021
14,864
(12,004)
(105,695)
Losses recognised in the statement of
comprehensive income
(11,702)
(23,286)
-
Settlements
(1,537)
(19,283)
-
Sales
-
-
-
Purchases
644
-
-
Transfers in
768
(2,185)
-
Transfers out
(710)
1,858
105,695
Changes in fair value - classified in OCI
-
-
-
Balance at 31 December 2021 2,327 (54,900) -
Unrealised (losses) for level 3 (12,431) (3,938) -
Unrealised losses relate to profit or loss from positions still held at year end and is included within net
(loss)/gain on financial instruments at fair value through profit or loss or net gain/(loss) on financial
instruments designated at fair value through profit or loss.
Page 44
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
Page 45
Derivative
assets
Derivative
liabilities
Financial
liabilities
designated
at fair value
through
profit or loss
$000 $000 $000
11,427 (38,183) (241,824)
8,592 22,909 8,656
(21,015) 4,995 71,910
- (1,845) -
16,290
1,589
- 8,450
(577) (19,498)
(2,019) 697 67,410
- - (799)
14,864 (12,004) (105,695)
Balance at 1 January 2020
Gain/(losses) recognised in the statement of
comprehensive income
Settlements
Sales
Purchases
Transfers in
Transfers out
Changes in fair value - classified in OCI
Balance at 31 December 2020
Unrealised gains for level 3 7,025 24,477 1,024
The transfers into Level 3 from Level 2 during the year were due to lack of observable market pricing
data subsequent to purchase. The transfers out
of Level 3 to Level 2 during the year were due to
increased availability of observable pricing data on underlying positions.
22. Fair value measurement (continued)
The table below provides information on the valuation techniques, significant unobservable inputs and
their ranges and averages for each major category of assets and liabilities measured at fair value on a
recurring basis with a significant Level 3 balance.
The level of aggregation and breadth of products cause the range of inputs to be wide and not evenly
distributed across the inventory. Further, the range of unobservable inputs may differ across firms in the
financial services industry because of the diversity in the types of products included in each firm’s
inventory.
The Company uses multiple market approaches in valuing certain of its Level 3 financial instruments.
For example, market comparables and discounted cash flows are used together. Therefore, the
balances disclosed encompass both of these techniques.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22.
Fair value measurement (continued)
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
22. Fair value measurement (continued)
Derivative assets and liabilities
For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a
significant change in long-dated rates, volatilities and correlation inputs (e.g., the degree of correlation
between an equity security and an index, between two different commodities, between two different
interest rates, or between interest rates and foreign exchange rates) would result in a significant impact
to the fair value; however, the magnitude and direction of the impact depends on whether the Company
is long or short the exposure. For structured liabilities, a significant increase in yield or decrease in price
would result in a significantly lower fair value. A significant decrease in duration may result in a
significantly higher fair value.
Sensitivity analysis of unobservable input
Where the value of financial instruments is dependent on unobservable inputs, the precise level for
these parameters at the reporting date might be drawn from a spectrum of reasonably possible
alternatives. Appropriate levels for these inputs are chosen so that they are consistent with prevailing
market evidence and in line with the Company’s valuation control policies. Were the Company to have
valued the financial instruments concerned using input values drawn from the extremes of the ranges of
reasonable possible alternatives, then at the year end, it could have increased fair value by as much as
$8,585,000 (2020: $59,000) or decreased fair value by as much as $5,824,000 (2020: $24,000) with the
potential effect impacting profit and loss rather than reserves.
This disclosure is intended to illustrate the potential impact of the relative uncertainty in the fair value of
financial instruments for which valuation is dependent on unobservable inputs and is not predictive or
indicative of future movements in fair value. Furthermore, it is unlikely in practice that all unobservable
parameters would be simultaneously, at the extremes of their ranges of reasonable possible alternatives.
Financial assets and liabilities carried at amortised cost
The below summarises the fair value of the Company’s financial assets and liabilities which are carried
at amortised cost.
The fair value of amounts owed by affiliated companies is determined by reference to quoted market
prices of similar instruments. Debt instruments at amortised cost are classified as level 2 and are valued
at $3,166,970,000 (2020: $2,297,939,000) .
All other debtors and creditors carried at amortised cost in the statement of financial position are
classified as level 2. The carrying amounts are a reasonable approximation of their fair value, due to
short term nature of these instruments.
23. Accrued expenses and other liabilities
The Company has a payable balance as at 31 December 2021 of $12,993,000 (2020: $63,000) which
represents amounts payable for trades pending settlement.
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
24
.
Interest rate benchmark reform
The following table summarises the significant exposures impacted by interest rate benchmark reform
as at 31 December 2021:
The table above represents indicative exposures to interest rate benchmark reform, which have yet to
transition to an alternative benchmark rate. The exposure disclosed is for positions with contractual
maturities after 31 December 2021. Balances are reported using the notional contract amount and
where derivatives have both pay and receive legs with exposure to benchmark reform such as cross
currency swaps, the notional contract amount is disclosed for both legs. Refer to note 1.2 for details on
interest rate benchmark reform - phase 2. A majority of the aggregate notional amount of the
Company's IBOR based products maturing after 2021 include or have been updated to include fallbacks
to ARRs.
25. Events after the reporting period
Post year end, financial markets and commodities markets have been impacted by the Russia/Ukraine
conflict, including the implementation of various economic sanctions by multiple jurisdictions on select
Russian government and military leaders, financial institutions, business leaders and the Central Bank of
Russia. In addition, the government of Russia has implemented economic sanctions on selected non-
Russian institutions and prevented outflows of selected currencies from Russia. While the Company's
exposure to the conflicted areas is limited, the potential impact of the conflict and sanctions regime on
European and global markets and institutions remains uncertain, and episodes of economic and market
volatility may continue to occur. As a result, the Company's business, results of performance, financial
position and/or operational model could be adversely affected.
26. Profit appropriation
Based on the net result over the year ended 31 December 2021, the Board of Directors do not
recommend the payment of a dividend in respect of the year ended 31 December 2021.
Distributions to shareholders are subject to two tests, namely, the equity test and the distribution or
liquidity test. The Board must approve a proposed distribution and may only refuse if they know (or ought
to reasonably foresee) that the Company after the distribution would no longer be able to repay its debts
as and when they fall due.
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USD LIBOR JPY LIBOR EUR LIBOR Other LIBOR TOTAL
$000 $000 $000 $000
1,584,127 647,756 60,272 2,185 2,294,340
40,000 - - - 40,000
Non-derivative financial assets
Non-derivative financial
liabilities
Derivatives 6,021,745 785,931 - - 6,807,676
$000
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MERRILL LYNCH B.V.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2021
The financial statements were approved by the Board and authorised for issue on 29 April 2022.
They were signed on its behalf by:
L.J.M. Duijsens
Director
S. Lilly
Director
A.E. Okobia
Director
Amsterdam
29 April 2022
Page 49
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MERRILL LYNCH B.V.
Independent auditor's report
The independent auditor's report is included on the following page.
Page 50
OTHER INFORMATION
FOR THE YEAR ENDED 31 DECEMBER 2021
Article 19 of the Company's Articles of Association is as follows:
a) The profits of the Company, according to the annual financial statements adopted by the general meeting, are
-
insofar as they are not to be preserved for the formation or maintenance of reserves prescribed by law - at the
disposal of the general meeting which decides about reservations or payments of profits.
b) Dividends may be paid up only to the amount above the sum of the balances between net assets and paid in
capital, increased with reserves which must be maintained by virtue of law
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ZMEZDYUQX5ZC-171746619-49
PricewaterhouseCoopers Accountants N.V., Thomas R. Malthusstraat 5, 1066 JR Amsterdam, P.O. Box 90357,
1006 BJ Amsterdam, the Netherlands
T: +31 (0) 88 792 00 20, F: +31 (0) 88 792 96 40, www.pwc.nl
‘PwC’ is the brand under which PricewaterhouseCoopers Accountants N.V. (Chamber of Commerce 34180285), PricewaterhouseCoopers Belastingadviseurs N.V.
(Chamber of Commerce 34180284), PricewaterhouseCoopers Advisory N.V. (Chamber of Commerce 34180287), PricewaterhouseCoopers Compliance Services B.V.
(Chamber of Commerce 51414406), PricewaterhouseCoopers Pensions, Actuarial & Insurance Services B.V. (Chamber of Commerce 54226368),
PricewaterhouseCoopers B.V. (Chamber of Commerce 34180289) and other companies operate and provide services. These services are governed by General Terms
and Conditions (‘algemene voorwaarden’), which include provisions regarding our liability. Purchases by these companies are governed by General Terms and Conditions
of Purchase (‘algemene inkoopvoorwaarden’). At www.pwc.nl more detailed information on these companies is available, including these General Terms and Conditions
and the General Terms and Conditions of Purchase, which have also been filed at the Amsterdam Chamber of Commerce.
Independent auditor’s report
Financial Statem ents
31 December 202 0
1 January 2020
Merrill Lynch B.V.
Controle
Goedkeurend
31031942A01 0
KVK
Kvk Nummer uit D B (nog te do en)
Create SBR Extensi on
1.0
Amsterdam
29 April 2021
To: the general meeting of Merrill Lynch B.V.
Report on the financial statements 2021
Our opinion
In our opinion, the financial statements of Merrill Lynch B.V. (‘the Company’) give a true and fair view
of the financial position of the Company as at 31 December 2021, and of its result and its cash flows for
the year then ended in accordance with International Financial Reporting Standards as adopted by the
European Union (‘EU-IFRS’) and with Part 9 of Book 2 of the Dutch Civil Code.
What we have audited
We have audited the accompanying financial statements 2021 of Merrill Lynch B.V., Amsterdam.
The financial statements comprise:
the statement of financial position as at 31 December 2021;
the following statements for 2021: the statement of profit or loss and other comprehensive
income, changes in equity and cash flows; and
the notes, comprising the significant accounting policies and other explanatory information.
The financial reporting framework applied in the preparation of the financial statements is EU-IFRS
and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code.
The basis for our opinion
We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing.
We have further described our responsibilities under those standards in the section
‘Our responsibilities for the audit of the financial statements’ of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
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Independence
We are independent of Merrill Lynch B.V. in accordance with the European Union Regulation on
specific requirements regarding statutory audit of public-interest entities, the ‘Wet toezicht
accountantsorganisaties’ (Wta, Audit firms supervision act), the ‘Verordening inzake de
onafhankelijkheid van accountants bij assuranceopdrachten’ (ViO, Code of Ethics for Professional
Accountants, a regulation with respect to independence) and other relevant independence regulations
in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels
accountants’ (VGBA, Dutch Code of Ethics).
Our audit approach
We designed our audit procedures with respect to the key audit matters, fraud and going concern, and
the matters resulting from that, in the context of our audit of the financial statements as a whole and in
forming our opinion thereon. The information in support of our opinion, like our findings and
observations related to individual key audit matters, the audit approach, fraud risk and the audit
approach going concern was addressed in this context, and we do not provide a separate opinion or
conclusion on these matters.
Overview and context
The Company’s main activity is the issuance of structured notes and economically hedging these
instruments through derivatives with other Bank of America Corporation companies. We paid specific
attention to the areas of focus driven by the operations of the Company, as set out below.
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the financial statements. In particular, we considered where the board of directors
made important judgements, for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. We also paid
attention to the risk related to climate change. In note 2 of the financial statements the Company
describes the areas of judgement in applying accounting policies and the key sources of estimation
uncertainty. Given the significant estimation uncertainty and the related higher inherent risks of
material misstatement in the valuation of derivative assets and derivative liabilities, and the valuation
of structured notes, we considered these matters as key audit matters as set out in the section ‘Key
audit matters’ of this report.
The Company assessed the possible effects of climate change on its financial position. We refer to
section ‘Management of climate change risk’ of the directors’ report. We discussed their assessment
and their governance thereof with the management and evaluated the potential impact on the
Company including underlying assumptions and estimates as included in the financial statements.
Given the nature of the Company’s activities, the impact of climate change is not considered to impact
our key audit matter.
Other areas of focus, that were not considered as key audit matters, are areas such as the impact of
COVID-19, IBOR reform and taxation.
We ensured that the audit team included the appropriate skills and competences, which are needed for
the audit of the Company. We therefore included specialists in the areas of valuation and tax in our
team.
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The outline of our audit approach was as follows:
Materiality
Overall materiality: USD 35 million.
Audit scope
We conducted audit work in three locations: the Netherlands, the
United States and the United Kingdom.
Key audit matters
Valuation of derivative assets and derivative liabilities.
Valuation of structured notes.
Materiality
The scope of our audit was influenced by the application of materiality, which is further explained in
the section ‘Our responsibilities for the audit of the financial statements’.
Based on our professional judgement we determined certain quantitative thresholds for materiality,
including the overall materiality for the financial statements as a whole as set out in the table below.
These, together with qualitative considerations, helped us to determine the nature, timing and extent
of our audit procedures on the individual financial statement line items and disclosures and to
evaluate the effect of identified misstatements, both individually and in aggregate, on the financial
statements as a whole and on our opinion.
Overall materiality USD 35 million (2020: USD 27 million ).
Basis for determining
materiality
We used our professional judgement to determine overall materiality. As a basis for
our judgement, we used 1% of total assets.
Rationale for
benchmark applied
We used total assets as the primary benchmark, a generally accepted auditing
practice, based on our analysis of the common information needs of users of the
financial statements. On this basis, we believe that profits are not the main
indicator of financial performance of the Company, and that total assets is the most
relevant and suitable benchmark.
We also take misstatements and/or possible misstatements into account that, in our judgement, are
material for qualitative reasons.
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We agreed with the board of directors that we would report to them any misstatements identified
during our audit above USD 1.7 million (2020: USD 1.3 million) as well as misstatements below that
amount that, in our view, warranted reporting for qualitative reasons.
The scope of our audit
The Company is a subsidiary of Bank of America Corporation. The operations of the Company are
embedded in the IT environment and process controls of the Bank of America Corporation Group
(‘the group’) and are performed in the United Kingdom and the United States.
Considering our responsibility for the opinion on the Company’s financial statements, we are
responsible for the direction, supervision and performance of the audit of the Company. In this
context, we used the work performed by the auditors of Bank of America Corporation Group
companies for assurance over the IT environment and the above mentioned controls.
Where the work was performed by the auditors of Bank of America Corporation Group companies, we
determined the level of involvement we needed to have in the audit work to be able to conclude
whether sufficient and appropriate audit evidence had been obtained as a basis for our opinion on the
financial statements as a whole. In this respect, we performed the following procedures:
We issued detailed audit instructions prescribing the scope of work to be performed, our risk
assessment, the key audit areas and the reporting requirements.
The reports were assessed, and observations were discussed with the auditors of Bank of
America Corporation Group companies and with management.
We have gained digital access to the audit file of the auditors of Bank of America Corporation
Group companies and performed a remote file review.
With respect to the existence of amounts owed by affiliated undertakings, financial assets and
liabilities at fair value through profit or loss and derivative assets and liabilities, we also used the work
performed by the auditors of Bank of America Corporation Group companies. Intercompany balances
are reconciled centrally by Bank of America Corporation and any differences are investigated by the
Company. This control is tested centrally by the auditors of Bank of America Corporation Group
companies. In addition, we have tested any differences resulting from this reconciliation. We have also
assessed the creditworthiness of these counterparties.
By performing the procedures described above at component level, combined with additional
procedures at group level, we have obtained sufficient and appropriate audit evidence regarding the
financial information of the Company taken as a whole to provide a basis for our opinion on the
financial statements.
Audit approach fraud risks
We identified and assessed the risks of material misstatements of the financial statements due to
fraud. During our audit we obtained an understanding of the entity and its environment and the
components of the internal control system. This included the board of directors’ risk assessment
process, the board of directors’ process for responding to the risks of fraud and monitoring the internal
control system, as well as the outcomes.
We evaluated the design and relevant aspects of the internal control system and in particular the fraud
risk assessment, as well as the code of conduct and whistleblowing procedures, among other things.
We evaluated the design and the implementation and, where considered appropriate, tested the
operating effectiveness of internal controls designed to mitigate fraud risks.
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We have asked members of the board of directors whether they are aware of any actual or suspected
fraud.
As part of our process of identifying fraud risks, we have evaluated fraud risk factors with respect to
financial reporting for fraud, misappropriation of assets and bribery and corruption. We evaluated
whether these factors indicate that a risk of material misstatement due to fraud is present.
We have identified the following fraud risk and performed the following specific procedures:
Identified fraud risk
Audit work and observations
The risk of management override of control
Inherently, management is in a unique
position to perpetrate fraud, because of
management’s ability to manipulate
accounting records and prepare fraudulent
financial statements by overriding controls
that otherwise appear to be operating
effectively.
That is why, in all our audits, we pay
attention to the risk of management
override of controls in:
The appropriateness of journal entries
and other adjustments made in the
preparation of the financial statements.
Estimates.
Significant transactions, if any, outside
the normal course of business for the
entity.
We evaluated the design and implementation of the internal
control measures that are intended to mitigate the risk of
management override of control and to the extent relevant for
our audit tested the effectiveness of these controls.
Furthermore, we evaluated the design and implementation of
the controls in the processes for generating and processing
journal entries and making of estimates.
We have selected journal entries based on risk criteria and
performed specific audit procedures on these, also paying
attention to significant transactions, if any, outside normal
business operations.
We also performed specific audit procedures on management
estimates, with specific attention to the valuation of the notes
and hedging transactions with other group companies. We refer
to the section ‘Key audit matters’ for the performed audit
procedures.
Our work did not lead to specific indications of fraud or
suspicions of fraud regarding the risk of management override
of control by the board of directors.
We incorporated an element of unpredictability in our audit. We reviewed lawyer’s letters, where
relevant, and correspondence with regulators. During the audit, we remained alert to indications of
fraud. We also considered the outcome of our audit procedures and evaluated whether any findings
were indicative of fraud or non-compliance with laws and regulations. Whenever we identify any
indications of fraud, we re-evaluate our fraud risk assessment and its impact on our audit procedures.
Audit approach Going Concern
The board of directors prepared the financial statements on the assumption that the entity is a going
concern and that it will continue all its operations for at least 12 months from the date of preparation
of the financial statements. Our procedures to evaluate
the board of directors’ going concern
assessment include, amongst others:
Considering whether management identified events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern (hereafter: going
concern risks).
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Considering whether the board of directors’ going concern assessment includes all relevant
information of which we are aware as a result of our audit and inquiring with the board of
directors regarding the board of directors’ most important assumptions underlying their going
concern assessment. The main areas assessed by the board of directors are the financial
performance and financial position of the Company.
Analysing the financial position as at balance sheet date in relation to the financial position as at
prior year balance sheet date to assess whether events or circumstances exist that may lead to a
going concern risk.
Evaluating the financial position of the Company, the creditworthiness of the counterparties to
the financial assets and trade and other receivables with other Bank of America Corporation
undertakings by assessing observable data from rating agencies, developments in credit spreads,
current financial data (such as recent financial information and cash flows) and other publicly
available data and by discussing and obtaining information from the group auditor.
Assessing that the Company's issuances are economically hedged with other Bank of America
Corporation undertakings.
Performing inquiries of the board of directors as to their knowledge of going concern risks
beyond the period of the board of directors’ assessment.
Our procedures did not result in outcomes contrary to the board of directors’ assumptions and
judgements used in the application of the going-concern assumption.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
the audit of the financial statements. We have communicated the key audit matters to the board of
directors. The key audit matters are not a comprehensive reflection of all matters identified by our
audit and that we discussed. In this section, we described the key audit matters and included a
summary of the audit procedures we performed on those matters.
Due to the nature of the Company, key audit matters do not change significantly year over year.
Compared to last year there have been no changes in key audit matters.
Key audit matter
Our audit work and observations
Valuation of derivative assets and derivative
liabilities
Refer to the accounting policies
note 1.4 ‘Financial
assets’, note 1.5 ‘Financial liabilities’, note 1.6
‘Derecognition of financial assets and liabilities’,
note 2 ‘Critical accounting estimates and judgements’,
note 14 ‘Derivative assets and derivative liabilities’.
Derivative assets amount to USD 166 million as at
31 December 2021. Derivative liabilities amount to
USD 229 million as at 31 December 2021.
Derivative assets and liabilities consist of cross-
currency, interest rate and total return swaps that are
used to economically hedge the structured notes issued.
We obtained an understanding of the valuation
methodology and the processes and controls with
respect to the valuation of the swaps. In addition, we
assessed the appropriateness of the methodology and
the models used by the board of directors.
Furthermore, our audit included testing of the
Company’s internal controls with respect to the models
used throughout the valuation process.
This included test procedures on controls with respect
to model validation around new or amended models
and price testing (which includes independent
revaluation).
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Key audit matter
Our audit work and observations
The valuation of these derivatives are determined by
using valuation models. These valuation models and
pricing inputs used are internally tested by Bank of
America Corporation.
We consider the valuation of the swaps to be a key audit
matter, given the magnitude of these positions and the
complexity of the valuation models applied.
We evaluated the adequacy of the disclosures relating
to the valuation of derivative assets and liabilities to
assess compliance with disclosure requirements
included in EU-IFRS.
Valuation of structured notes
Refer to the accounting policies
note 1.5 ‘Financial
liabilities’, note 1.6 ‘Derecognition of financial assets
and liabilities’, note 2 ‘Critical accounting estimates
and judgements, and note 16 ‘Financial liabilities
designated at fair value through profit or loss’.
Financial liabilities designated at fair value through
profit or loss amount to USD 3,096 million as at
31 December 2021. The financial liabilities designated
at fair value through profit or loss consist of structured
notes. These structured notes are hybrid (debt)
instruments with a structured component (derivative
element) linked to the performance of various market
indices.
The valuation is determined by using valuation models.
These valuation models and pricing inputs used are
internally tested by Bank of America Corporation.
We consider the valuation of the structured notes to be
a key audit matter, given the magnitude of these
positions and the complexity of the valuation models
applied.
We obtained an understanding of the valuation
methodology and the processes and controls with
respect to the valuation of the structured notes.
In addition, we assessed the appropriateness of the
methodology and the models used by the board of
directors.
Furthermore, our audit included testing of the
Company’s internal controls with respect to the models
used throughout the valuation process. This included
test procedures on controls with respect to model
validation around new or
amended models and price
testing (which includes independent revaluation).
We engaged our valuation experts to substantively
revalue a sample of structured notes using independent
models and independently sourced inputs.
We evaluated the adequacy of the disclosures relating
to the valuation of financial liabilities designated at fair
value through profit or loss to assess compliance with
disclosure requirements included in EU-IFRS.
Report on the other information included in the annual report
The annual report contains other information. This includes all information in the annual report in
addition to the financial statements and our auditor’s report thereon.
Based on the procedures performed as set out below, we conclude that the other information:
is consistent with the financial statements and does not contain material misstatements;
contains all the information regarding the directors’ report and the other information that is
required by Part 9 of Book 2 of the Dutch Civil Code.
We have read the other information. Based on our knowledge and the understanding obtained in our
audit of the financial statements or otherwise, we have considered whether the other information
contains material misstatements.
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By performing our procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil
Code and the Dutch Standard 720. The scope of such procedures was substantially less than the scope
of those procedures performed in our audit of the financial statements.
The board of directors is responsible for the preparation of the other information, including the
directors’ report and the other information in accordance with Part 9 of Book 2 of the Dutch Civil
Code.
Report on other legal and regulatory requirements and ESEF
Our appointment
We were appointed as auditors of Merrill Lynch B.V. This followed the passing of a resolution by the
shareholders at the annual general meeting held in 2012. Our appointment has been renewed annually
by shareholders representing a total period of uninterrupted engagement appointment of ten years.
European Single Electronic Format (ESEF)
Merrill Lynch B.V. has prepared the annual report, including the financial statements, in ESEF.
The requirements for this format are set out in the Commission Delegated Regulation (EU) 2019/815
with regard to regulatory technical standards on the specification of a single electronic reporting
format (these requirements are hereinafter referred to as: the RTS on ESEF).
In our opinion, the annual report prepared in XHTML format, including the financial statements of
Merrill Lynch B.V., complies in all material respects with the RTS on ESEF.
The board of directors is responsible for preparing the annual report, including the financial
statements, in accordance with the RTS on ESEF. Our responsibility is to obtain reasonable assurance
for our opinion on whether the annual report complies with the RTS on ESEF.
Our procedures, taking into account Alert 43 of the NBA (Royal Netherlands Institute of Chartered
Accountants), included amongst others:
Obtaining an understanding of the entity’s financial reporting process, including the
preparation of the annual report in XHTML format; and
Examining whether the annual report in XHTML format is in accordance with the RTS on
ESEF.
No prohibited non-audit services
To the best of our knowledge and belief, we have not provided prohibited non-audit services as
referred to in article 5(1) of the European Regulation on specific requirements regarding statutory
audit of public-interest entities.
Services rendered
The services, in addition to the audit, that we have provided to the Company, for the period to which
our statutory audit relates, are disclosed in note 10 to the financial statements.
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Responsibilities for the financial statements and the audit
Responsibilities of the board of directors
The board of directors is responsible for:
the preparation and fair presentation of the financial statements in accordance with EU-IFRS
and Part 9 of Book 2 of the Dutch Civil Code; and for
such internal control as the board of directors determines is necessary to enable the preparation
of the financial statements that are free from material misstatement, whether due to fraud or
error.
As part of the preparation of the financial statements, the board of directors is responsible for
assessing the Company’s ability to continue as a going concern. Based on the financial reporting
framework mentioned, the board of directors should prepare the financial statements using the going-
concern basis of accounting unless the board of directors either intends to liquidate the Company or to
cease operations, or has no realistic alternative but to do so. The board of directors should disclose in
the financial statements any event and circumstances that may cast significant doubt on the
Company’s ability to continue as a going concern.
Our responsibilities for the audit of the financial statements
Our responsibility is to plan and perform an audit engagement in a manner that allows us to obtain
sufficient and appropriate audit evidence to provide a basis for our opinion. Our objectives are to
obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high but not absolute level of assurance, which makes it possible that we
may not detect all material misstatements. Misstatements may arise due to fraud or error. They are
considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial statements.
Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the
effect of identified misstatements on our opinion.
A more detailed description of our responsibilities is set out in the appendix to our report.
Amsterdam, 29 April 2022
PricewaterhouseCoopers Accountants N.V.
/PwC_Partner _Signature/
Original has been signed by V.S. van der Reijden RA
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Appendix to our auditor’s report on the financial statements
2021 of Merrill Lynch B.V.
In addition to what is included in our auditor’s report, we have further set out in this appendix our
responsibilities for the audit of the financial statements and explained what an audit involves.
The auditor’s responsibilities for the audit of the financial statements
We have exercised professional judgement and have maintained professional scepticism throughout
the audit in accordance with Dutch Standards on Auditing, ethical requirements and independence
requirements. Our audit consisted, among other things of the following:
Identifying and assessing the risks of material misstatement of the financial statements, whether
due to fraud or error, designing and performing audit procedures responsive to those risks, and
obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the intentional override of internal control.
Obtaining an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by the board of directors.
Concluding on the appropriateness of the board of directors’ use of the going-concern basis of
accounting, and based on the audit evidence obtained, concluding whether a material
uncertainty exists related to events and/or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report
and are made in the context of our opinion on the financial statements as a whole. However,
future events or conditions may cause the Company to cease to continue as a going concern.
Evaluating the overall presentation, structure and content of the financial statements, including
the disclosures, and evaluating whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
We communicate with the board of directors regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit. In this respect, we also issue an additional report to the
board of directors in accordance with Article 11 of the EU Regulation on specific requirements
regarding statutory audit of public-interest entities. The information included in this additional report
is consistent with our audit opinion in this auditor’s report.
We provide the board of directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
actions taken to eliminate threats or safeguards applied.
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From the matters communicated with the board of directors, we determine those matters that were of
most significance in the audit of the financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, not communicating the
matter is in the public interest.
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