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Notes to the accounts

for the year ended 31 December 2007

10. Goodwill

	2007 £mn	2006 £mn
At 1 January	65.3	24.6
Exchange translation adjustments	0.3	(2.9)
Additions	29.6	43.6
At 31 December	95.2	65.3

Of the increase in goodwill during the year, £18.6 million is attributable to contingent consideration relating to the 2006 acquisition of NewFinance Capital Holdings Limited. The purchase agreement for the acquisition stated that an additional payment would become due should certain stringent performance criteria be met in 2008 and 2009. The Directors now consider that it is probable the recognition criteria as set out in IFRS 3 will be met and the additional consideration has therefore been provided for. The balance of the additional goodwill, being £11.0 million, is attributable to the acquisition of Aareal Asset Management GmbH ('AAM') on 28 February 2007 (see note 40).

The goodwill acquired during the year represents the value assigned on acquisition to the future benefits which the Group expects to achieve from the acquired businesses where these benefits are not capable of being individually identified and separately recognised as either tangible or intangible assets.

Goodwill acquired in a business combination is allocated to the cash generating units ('CGUs') that are expected to benefit from that business combination. For all relevant acquisitions, the lowest level of CGU the Group is able to use to determine impairment is segment level.

The carrying amount of goodwill has been allocated as follows:

	2007 £mn	2006 £mn
Asset Management	90.2	60.3
Private Banking	5.0	5.0
	95.2	65.3

The recoverable amounts of the CGUs are determined from value-in-use calculations. The key assumptions on which management have based their five-year cash flow projections to arrive at the value-in-use are those regarding the market growth rates (based on the Group's view of anticipated future market movements), a pre-tax discount rate of 12.1 per cent., expected fund flows (based on the aggregation of local expectations of country heads worldwide) and expected changes to margins (based on an analysis of the current fee structure flexed to take into account expected changes in product mix and the proportion of rebates payable to external distributors).

The sensitivity of the carrying amounts of goodwill to the methods and assumptions used in the estimation of the recoverable amounts of the CGUs is small due to the amount of goodwill on the Group's balance sheet relative to the size of the Group's estimations of future profitability within the business segments to which that goodwill has been allocated. The effect of an increase/decrease of 1 per cent. in the pre-tax discount rate used would be £nil.