Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 report Annual report 2011 Annual report 2011 AnnualAnnual report 2011 Annual re 2011 port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re Dexia créditreport local 2011 port 2011 Annual report 2011 Annual report 2011 Annual Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual report 2011 Annual re port 2011 Annual report 2011 Annual report 2011 Annual report 2011
Dexia Crédit Local Contents 1 – General presentation
1
4 – Consolidated financial statements
95
Dexia profile ................................................................................... 1
Consolidated balance sheet .......................................................... 96
Message from the Chairman of the Board of Directors and the Chief Executive Officer of Dexia SA .................................... 3
Consolidated income statement.................................................... 98
Dexia Crédit Local profile ................................................................ 5
Net income and unrealised or deferred gains and losses through equity ................................................... 99
Message from the Chief Executive Officer of Dexia Crédit Local ...... 6
Consolidated statement of changes in equity .............................. 100
2011 key figures ............................................................................. 7
Consolidated cash flow statement .............................................. 102
Board of Directors (March 2012) ..................................................... 8
Cash and cash equivalents .......................................................... 103
Organisational chart (March 2012).................................................. 9
Notes to the consolidated financial statements............................ 104
Principal subsidiaries and affiliated companies............................... 10 Dexia Crédit Local within the Dexia Group (December 2011)......... 11
Statutory Auditor’s report on the consolidated financial statements .................................................................... 185
2 – Management report
5 – Financial statements
13
187
Business review............................................................................. 14
Balance sheet.............................................................................. 188
Risk management ......................................................................... 24
Off-balance sheet items .............................................................. 190
Operating results .......................................................................... 43
Income statement ....................................................................... 191
Capital stock and share data ......................................................... 49
Notes to the financial statements ................................................ 192
Human resources and environmental data..................................... 50
Statutory Auditor’s report on the financial statements ................. 226
Terms and compensation of Directors and Officers ........................ 57 Significant events and outlook ...................................................... 65
3 – Corporate governance and internal control
6 – Shareholders’ Meeting
227
Statutory Auditors’ special report on regulated agreements and commitments ............................... 228
73
Resolutions proposed to the Combined Shareholders’ Meeting of May 10, 2012 ..................................... 231
Report of the Chairman of the Board of Directors prepared in accordance with Article L.225-37 of the French Commercial Code.................................................... 74
7 – General information
Statutory Auditors’ report ............................................................. 94
Legal and administrative information .......................................... 242
241
Statutory Auditors....................................................................... 245 Statement of the person responsible for the registration document (document de référence) ............................................ 246 List of information published or released during the previous twelve months (prepared 20 March 2012)................................... 247 Cross-reference table .................................................................. 249 Subsidiaries and affiliates in France ............................................. 251 International subsidiaries and locations ....................................... 252
This free translation of the registration document published in the French language is provided solely for the convenience of English-speaking readers. The French version of the Dexia Crédit Local registration document (document de référence) was filed with the French Financial Markets Authority (Autorité des marchés financiers, or AMF) on 5 April 2012, in compliance with Article 212-13 of the AMF’s General Regulations.
Annual report 2011 Dexia is a European banking group which, in 2011, carried out its activities principally in Belgium, Luxembourg, France and Turkey in the fields of retail and commercial banking, public and wholesale banking, asset management and investor services. The Group’s parent company is Dexia SA, a limited company under Belgian law with its shares listed on Euronext Brussels and Paris as well as the Luxembourg Stock Exchange. Since December 2008, the Group has considerably reduced its risk profile and refocused its commercial franchises on its historical business lines and markets, in line with the restructuring plan validated by the European Commission. Dexia has thus principally organised its activity portfolio around retail banking, grasping opportunities for growth in Turkey. In the field of public banking, the Group chose to remain a selective, profitable and recognised specialist, offering a diversified range of products. This plan was implemented in line with the objectives fixed until mid-2011. As a consequence of the aggravation of the sovereign crisis in the euro zone and more generally the hardening of the macroeconomic environment, Dexia was confronted by renewed pressure on its liquidity during the summer of 2011. Against that background, the Group undertook, in October 2011, to make in-depth changes to its structure, including: • the implementation of a temporary funding guarantee scheme involving the Belgian, French and Luxembourg States;
General presentation
Group profile • the sale of Dexia Bank Belgium to the Belgian State, finalised on 20 October 2011; • a protocol of intention with Caisse des Dépôts, La Banque Postale and the French State with regard to local public sector finance; • the planned disposal of certain of the Group’s operational subsidiaries, particularly Dexia Banque Internationale à Luxembourg, DenizBank, Dexia Asset Management and RBC Dexia Investor Services. These measures(1), comprising a definitive liquidity guarantee scheme, will be part of a new plan that the States undertook to submit to the European Commission by the end of March 2012. Implementation of these new structural measures will have a significant impact on the Group profile in the future. Accordingly, since the sale of Dexia Bank Belgium, the Group has very few outstanding commercial activities in Belgium. 2012 will be marked by the completion of pending divestment processes, subject to approval by the European Commission of the Group’s new plan. After completion of those disposals, the Dexia Group’s scope will be composed of the international subsidiaries in charge of public sector services and of a portfolio of assets managed in run-off.
(1) More detailed information on the structural measures undertaken by Dexia in October 2011 is to be found in the chapter “Significant events” in this Annual report.
Annual report 2011 / Dexia Crédit Local
1
1
General presentation
Message from the Chairman of the Board of Directors and the Chief Executive Officer of Dexia SA
General presentation
Message from the Chairman of the Board of Directors and the Chief Executive Officer of Dexia SA
Rapport de gestion
The year 2011 was marked by an aggravation of the European sovereign debt crisis. That unprecedented deterioration of the economic and financial environment in the euro zone had a particularly severe effect on the Dexia Group, still fragile despite the efforts made since 2008 to improve its financial structure. In October 2011, Dexia lost its access to liquidity, as a consequence of rating agencies putting it on negative watch, and this led us to ask the Belgian, French and Luxembourg states for support, and to introduce structural measures comprehensively altering the Group scope, in order to avoid the materialisation of a systemic risk.
Imbalances handed down from the past
Gouvernance et contrôle interne
The origins of this liquidity crisis are to be found in the strategy followed by the Group until 2008, resulting in severe imbalances, particularly in terms of refinancing and risk profile. In fact, the Group had undertaken strong international expansion, outside its historical franchises, although it did not have stable and long-term local funding sources. At the same time, Dexia built up a bond portfolio principally financed over the short term, the size of which was considerable having regard to the Group’s shareholder equity, indeed twenty-five times greater. Finally, its subsidiary Financial Security Assurance had been diversified beyond its initial credit enhancement activity, resulting in severe exposure to the US subprime market and a significant US dollar funding requirement.
Comptes consolidés
Despite an excellent rating, associated with the Group’s historical activities renowned as without risk, Dexia suffered serious weaknesses and drew a large proportion of its profitability from the transformation of liquidities. The Group was therefore seriously harmed by the crisis in 2008 and had to rely on State support. So when we came to lead the Group, in October 2008, 43% of its balance-sheet total, no less than EUR 260 billion, was funded over the short term.
Between 2008 and mid-2011, major progress made in implementing the transformation plan
Comptes annuels
On the basis of this observation, the shareholders entrusted us with two tasks: on the one hand to reduce the sources of risk which had led the Group to a situation close to insolvency and on the other hand to consolidate its core businesses. From the very first weeks of our mandate, we adopted emergency measures aimed at ensuring Dexia’s survival, through the introduction of a State funding guarantee mechanism to resolve the liquidity crisis affecting the Group. We were also required to remove the most critical risk sources, in particular disposing of Kommunalkredit Austria which held a portfolio of EUR 19 billion in CDS on countries in Eastern and Southern Europe, and the credit enhancement activity of Financial Security Assurance, sold in November 2008 to Assured Guaranty.
Assemblée générale
We defined a transformation plan aimed at ensuring the Group’s return to viability by 2014. This plan was ratified by the European Commission in February 2010, at the close of negotiations with the states. Its implementation enabled the short-term funding requirement to be sharply reduced, from EUR 260 billion to EUR 96 billion between October 2008 and June 2011. This 63% fall in dependency on short-term wholesale funding relied on three levers: the alignment of local public sector finance with the Group’s refinancing capacities and a refocusing on its historical markets, a rebalancing towards stable funding sources, particularly with a focus on deposit gathering and the disposal of non-strategic assets which consumed liquidities.
Renseignements de caractère général
Between 2008 and June 2011, dedicated teams disposed of EUR 70.3 billion in assets, in a difficult market context, whilst keeping the level of losses on disposals extremely low. Including liquidity lines in the United States, the Group reduced non-strategic assets by EUR 121 billion over the period. Against a background of great uncertainty and volatility in the global economy, in May 2011 the Group also announced the acceleration of its non-strategic asset disposals, including the guaranteed assets of the Financial products portfolio. We also decided to strengthen and develop Dexia’s commercial activities. In Belgium, the deployment of a new distribution model, accompanied by a plan to invest EUR 350 million, enabled deposits to be increased by 20% between October 2008 and October 2011. In Turkey, an ambitious development plan was implemented for DenizBank, with a resulting 18% growth in the number of clients and a doubling of the amount of deposits
2
Dexia Crédit Local / Annual report 2011
General presentation
Message from the Chairman of the Board of Directors and the Chief Executive Officer of Dexia SA
1
General presentation
gathered over the same period. Finally, Dexia reaffirmed its presence in the field of local public sector finance, broadening its range of products and services. Furthermore, the reduction of finance granted by the banking sector as a whole resulted in a twofold increase in margin levels on this activity. In short, we reduced the Group’s cost base by EUR 600 million, without any forced redundancies. This 15% reduction from the 2008 level resulted both from efficiency improvement measures and from intra-Group synergies.
Rapport de gestion
At the same time, we had to rationalise the Group’s organisation and to reduce its risk profile. We have given the Group standard and uniform tools, centralised with the holding company, particularly for the finance and risk support lines. The concentration of market activities in two centres, as opposed to fourteen in 2008, resulted in a better control of market risk. The Group’s risk profile was reduced by the disposal of risk entities. The Group endeavoured to reduce its exposure to government bonds from peripheral European countries and, moreover, the guaranteed assets of the Financial products portfolio, which held the more risky assets retained after the sale of Financial Security Assurance, were sold in the summer of 2011 in line with the target announced in May 2011. The sale of these assets thus enabled the risk to be removed of any call on the guarantee weighing on the Belgian and French States which had guaranteed this part of the portfolio. At the end of June 2011, the Group had met the conditions imposed by the European Commission and it was even ahead of schedule on several aspects of the plan, such as the volume of assets sold.
Gouvernance et contrôle interne
October 2011: the deterioration of the environment made it necessary to alter the strategy followed since 2008 The aggravation of the European sovereign debt crisis from the second half of 2011 impacted the Dexia Group severely. The succession of rating actions which began in February 2011 resulted in a loss of EUR 38 billion of unsecured funding, whilst the requirement remained high, despite the efforts made to reduce it since 2008.
Comptes consolidés
Confronted by a new liquidity crisis as a result of our rating being put on negative watch by Moody’s on 3 October 2011, we announced on 9 October 2011 structural measures for an in-depth change to the Group scope, eager to protect its commercial activities. Moreover, considering the size of the Group and the level of its off-balance-sheet exposure, it was a priority to avoid the materialisation of any systemic risk, which might have unbalanced the entire European banking sector. The measures include on the one hand the undertaking by the states to grant the Group a liquidity guarantee of EUR 90 billion enabling it to obtain refinancing and on the other hand the sale of operating entities.
Comptes annuels
In an emergency situation and with the aim of protecting the franchise of Dexia Bank Belgium, we accepted the offer made by the Belgian State to purchase it for EUR 4 billion. In order to respond to the financing requirements of local authorities in France, we concluded a partnership agreement with the French State, the Caisse des Dépôts and La Banque Postale which provided for the creation of a new credit establishment to which Dexia Municipal Agency would be transferred. We will continue our negotiations with Precision Capital and the Grand Duchy of Luxembourg and have already signed a binding memorandum of understanding providing the terms of the sale of Dexia Banque Internationale à Luxembourg. Finally, we have begun the process to sell other operating entities – RBC Dexia Investor Services, Dexia Asset Management and DenizBank – so that they will leave the Dexia Group scope. In introducing these measures, the protection of jobs remains our priority objective. The disposals made, and those yet to be made, remain subject to the approval by the European Commission. Awaiting examination of the definitive plan submitted by the States on 21 March 2011, the European Commission has already authorised a temporary guarantee mechanism relating to EUR 45 billion.
Results 2011
Assemblée générale
The net loss of EUR 11.6 billion recorded for the 2011 financial year is explained by various non-recurrent events during the year and is essentially associated with the sovereign debt crisis on the one hand and disposals on the other. In particular, the loss on the sale of Dexia Bank Belgium amounted to EUR 4 billion and the loss expected on the sale of Dexia Municipal Agency is EUR 1 billion. The impairments on Greek government bonds and assimilated exposure represented EUR 3.4 billion, whilst the losses on asset disposals, including the sale of the guaranteed assets of the Financial products portfolio, were EUR 2.6 billion.
Renseignements de caractère général
Shareholders continue to bear the consequences of the imbalances handed down from the past: risks associated with the bond portfolio which materialised through the impairments on Greek government bonds and the losses on asset disposals, as well as too strong a dependency on shortterm funding. Considering the losses recorded in 2011, we will propose to the Shareholders’ Meeting that no dividend be paid for 2011. We have likewise announced that no variable compensation will be paid for 2011 to members of the management teams of Dexia SA and its subsidiaries. On a proposal from the Appointment and Compensation Committee, the Board of Directors accepted the proposal from the Management Board and decided to make use of the opportunity to a posteriori reduce the deferred parts of the variable compensation. Accordingly, it has been decided not to pay any deferred compensation for 2009 and 2010 in 2012.
Annual report 2011 / Dexia Crédit Local
3
1
General presentation
Message from the Chairman of the Board of Directors and the Chief Executive Officer of Dexia SA
General presentation
The net loss recorded for the 2011 financial year was absorbed by virtue of the Group’s robust solvency until June 2011; the Group’s Tier 1 ratio rose from 10.6% at the end of December 2008 to 13.4% at the end of March 2011. At the end of December 2011, the Group’s solvency ratios were 8.6% for Tier 1 and 6.3% for Core Tier 1.
An in-depth alteration to the Group scope
Rapport de gestion
2012 will be a year of transition for the Dexia Group, during which planned disposals should be finalised and a French local public sector refinancing scheme put in place. All of these structural measures will be included in the plan which is submitted by the states to the European Commission for approval. The residual Group will be responsible for managing and restructuring existing assets, managing the international entities of Dexia Crédit Local and ensuring the continuity of management of the assets of the Legacy Division.
Gouvernance et contrôle interne
In presenting the 2011 annual results of the Dexia Group, we draw attention to the fact that full implementation of the Group restructuring relies on a certain number of conditions being met. In particular, it assumes ratification by the European Commission of the plan submitted to it by the States, including obtaining a guarantee from the states of up to EUR 90 billion, covering the Group’s funding requirement over the long term. The compensation for the guarantee to be paid by Dexia is intended to be sufficiently low to enable the Group’s restructuring to be completed. In any event, it is highly likely that any possible improvement of the financial situation of Dexia SA will primarily and principally benefit the guarantor States, in order to take account of the risk they are taking. We are aware that this restructuring is a source of concern for members of staff. We would like to thank them for their commitment to serving the Group and repeat our undertaking to find solutions which protect their jobs. The progress made by the Group in implementing the transformation plan over the last three years would not have been possible without their outstanding involvement.
Comptes consolidés
We would also like to express our gratitude to our shareholders for the support they have provided. They have enabled us to proceed with this restructuring and to avoid the materialisation of any major systemic risk to the European banking system. Finally, we also wish to thank all of the Group’s customers for their confidence in us during the difficult phase Dexia has had to endure.
Comptes annuels
Since our appointment on 7 October 2008, our priorities have remained the same: to reduce the Group’s systemic risk, to defend and to develop the commercial franchises in order to guarantee even better customer service and to give members of staff the maximum of protection.
Renseignements de caractère général
Assemblée générale
Jean-Luc Dehaene Chairman of the Board of Directors
4
Dexia Crédit Local / Annual report 2011
Pierre Mariani Chief Executive Officer
General presentation
Dexia Crédit Local profile
1
Dexia Crédit Local profile General presentation
Since late 2008, the Dexia Group has undertaken a major restructuring of its financial structure while continuing to develop its commercial franchises. The intensification of the European sovereign debt crisis and pressures in the interbank market prompted Dexia to accelerate its restructuring plan in May 2011. Dexia faced renewed pressure on liquidity during the summer of 2011, after the sovereign crisis within the eurozone grew more severe and in the light of the general deterioration of macroeconomic conditions. Under these conditions, since October 2011 the Group has undertaken extensive structural changes that resulted in the signing of an agreement regarding the future of the financing of the French local public sector.
Rapport de gestion
In continuation of the memorandum of negotiation finalised on 20 October 2011 and the comprehensive agreement concluded in February 2012 between Dexia, Caisse des Dépôts, La Banque Postale and the French State, an agreement in principle was approved by the Boards of Directors of Dexia SA and Dexia Crédit Local on 15 March 2012 and signed by all parties. The course of action is a two-part strategy:
Gouvernance et contrôle interne
– creation of a joint venture between La Banque Postale and Caisse des Dépôts to market new financing to local governments, as provided for in the original memorandum of negotiation; – creation of a new credit institution owned directly or indirectly by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%). This new credit institution will serve as the parent company of Dexia Municipal Agency, the société de crédit foncier-type mortgage credit company specialised in local public sector finance. It will also manage the industrial platform used by Dexia Municipal Agency and certain businesses of the joint venture and the Dexia Group. This plan is intended to be one of the cornerstones of the restructuring plan that the Belgian, French and Luxembourg States are to present to the European Commission by the end of March 2012.
Comptes consolidés
In France, in line with the policy chosen by the Group and leveraging off the expertise of its network of specialists and the partnerships it has established, Dexia Crédit Local has made every effort to retain its relationship of trust and sense of proximity with its customers by offering local decision-makers and players in the healthcare, social housing and social economy sectors the highest quality of service.
Comptes annuels
In 2011, with long-term liquidity in short supply, new lending was even more selective and was down overall. Moreover, in the light of the commitments the Bank had made, Dexia Crédit Local continued its active programme of desensitising structured loans, endeavouring to find collaborative solutions with the local players involved.
Renseignements de caractère général
Assemblée générale
Under these adverse conditions, as a traditional partner in the field of local development, Dexia Crédit Local remained sensitive to the needs of its customers, putting all of its expertise to work in every region to address every issue affecting the life of the community. Toward this, Dexia has assisted its customers with their decision making by providing them with top-quality publications about local public sector life, produced by the Bank’s research department.
Annual report 2011 / Dexia Crédit Local
5
1
General presentation
Message from the Chief Executive Officer Dexia Crédit Local
Message from the Chief Executive Officer Dexia Crédit Local General presentation
Fiscal year 2011 was marked by the brutal intensification of the European sovereign debt crisis and its impact on the entire eurozone. Starting in July, the continuing deterioration of conditions led the Dexia Group to take structural measures that profoundly changed its scope and impact Dexia Crédit Local. Under these difficult conditions, Dexia Crédit Local and its subsidiaries’ employees were all mobilised all year long to continue to best meet the needs of their customers – local policy-makers and players in the healthcare, social housing and social economy sectors – standing close by them throughout the country.
Rapport de gestion
In 2011, with long-term liquidity in short supply, new lending was even more selective and was sharply lower. In late 2011, facing a credit crunch created by our main competitors’ withdrawal from the market, the French State allocated a total of EUR 3 billion to addressing the shortfall in available local government financing, taken from the savings deposits held by Caisse des Dépôts et Consignations. At the end of the tender process, Dexia Crédit Local was allocated EUR 628 million, representing over 40% of the EUR 1.5 billion awarded to banks for distribution. The extreme speed with which these funds – which the Dexia Crédit Local commercial network worked very hard to obtain – were consumed confirmed the real need for these emergency loans to local governments facing an unprecedented credit crunch.
Gouvernance et contrôle interne
Eager to help its customers in an increasingly complex environment, Dexia Crédit Local also organised numerous events during the year to share with them its analyses of and insights into developments in the local public sector. The success of the regional meetings – organised around the release of our regional economic studies on local finances – and numerous other events we hosted is concrete proof of just how attached our customers are to our recognized expertise. Finally, our staff worked tirelessly to desensitise sensitive structured loans, in close collaboration with those customers concerned.
Comptes consolidés
Dexia Crédit Local will undergo a significant transition in 2012, following the signature in March 2012 of a partnership agreement with the French State, Caisse des Dépôts and La Banque Postale to address the financing needs of French local governments. The proposed cooperation covers the entire Dexia Crédit Local business model, including both eligible and ineligible financing. Front office duties – which will require the use of Dexia Crédit Local employees – will be performed by a joint venture between Caisse des Dépôts and La Banque Postale for eligible financing and by La Banque Postale for ineligible financing.
Comptes annuels
Local public sector financing expertise will be retained through the creation of a new credit institution, a matched-funding and administrative subsidiary of Dexia Municipal Agency, which will ‘inherit’ the necessary operational and human resources. Our teams will work closely with our new partners all year long in 2012 to progressively implement this new system for financing the French local public sector, with the best interests of the nation’s local players at heart.
Renseignements de caractère général
Assemblée générale
Alain Clot Chief Executive Officer
6
Dexia Crédit Local / Annual report 2011
1
General presentation
2011 key figures
2011 key figures LONG-TERM FUNDING
PUBLIC AND PROJECT FINANCE – NEW LENDING (EUR millions)
1.4
2.4
4,374
Dexia Crédit Local New York Branch
Dexia Kommunalbank Deutschland
6.1
16.6
Dexia Municipal Agency
6.0
0.7
Dexia Crédit Local
2011
Dexia Crediop
OUTSTANDING MEDIUM- AND LONG-TERM LOANS BY COUNTRY
Rapport de gestion
2010
General presentation
(EUR billions) 6,143
DEXIA CRÉDIT LOCAL GROUP EMPLOYEES
(EUR billions)
As at 31 december 2011
1.1
14.4
Israel
450
Legacy PWB(2)
208
United Kingdom
16.5
Iberian Peninsula
82.1
186.2
6.6
Other European entities
1,113
2,202
Dexia Crédit Local (France)
201
France
Gouvernance et contrôle interne
Dexia Sofaxis
12.3
Dexia Crediop
North America (US and Canada excl. SBPA)(1)
230
Other non-European entities
21.7
31.5
SHORT-TERM CREDIT RATINGS
(2) Of which US SBPA: EUR 5 billion.
March 2011
TOTAL ASSETS AND NET INCOME (CONSOLIDATED, UNDER IFRS)
2010
Fitch
Moody's
Fitch
Moody's
Standard & Poor's
Dexia Crédit Local
F1+
P-1
A-1
F1+
P-2
A-2
Crediop
F1
-
A-2
F1
-
B
362
2010
2011
(696)
(2,701)
2011
Assemblée générale
361
Net income – Group share (EUR millions)
March 2012
Standard & Poor's
Comptes annuels
(1) SBPA: Standby bond purchase agreement liquidity guarantees on municipal bonds.
Total assets (EUR billions)
Comptes consolidés
Germany
Italy
LONG-TERM CREDIT RATINGS March 2012
Moody's
Standard & Poor's
Fitch
Moody’s
Standard & Poor’s
Rating
Outlook
Rating
Outlook
Rating
Outlook
Rating
Outlook
Rating
Outlook
Rating
Outlook
A+
Stable
A1
Stable
A
On credit watch negative
A+
Negative
Baa1
On review for downgrade
BBB
On credit watch negative
AAA
-
Aaa
-
AAA
Stable
AAA
-
Aa1
On review for downgrade
AAA
On credit watch negative
Dexia Kommunalbank Deutschland(3)
-
-
-
-
AAA
Stable
-
-
-
-
AAA
On credit watch negative
Dexia Crediop
A
Negative
A2
Negative
A-
Developing
A
On credit watch negative
-
-
BB-
On credit watch negative
Dexia Sabadell
-
-
Baa2
Negative
-
-
-
-
Ba3
On review for downgrade
-
-
Dexia Crédit Local(1) Dexia Municipal Agency(2)
Renseignements de caractère général
March 2011 Fitch
(1) On 28 march 2012, Standard & Poor’s downgraded Dexia Crédit Local’s long term credit rating from BBB+ to BBB and maintained the credit watch negative rating. (2) Obligations foncières (3) Pfandbriefe
Annual report 2011 / Dexia Crédit Local
7
1General presentation
Board of Directors (March 2012)
Board of Directors (March 2012) General presentation
Chairman Jean-Luc Dehaene Chairman of the Board of Directors de Dexia SA Member of the European Parliament
Fédération Nationale des Travaux Publics Represented by Patrick Bernasconi, Chairman
Jean-Pol Henry Honorary Vice Chairman of the chamber of representatives (Belgium)
Fédération Française du Bâtiment Represented by Didier Ridoret, chairman
Pierre Mariani Chief Executive Officer of Dexia SA Chairman of the Management Board of Dexia SA
Julien Brami Deputy director – business development, subsidiaries and affiliates department of Caisse des Dépôts
Philippe Rucheton Chief Financial Officer of Dexia SA Member of the Management Board of Dexia SA
Jean-Pierre Brunel Attorney-at-law
Francine Swiggers Corporate director
Édouard Philippe Mayor of Le Havre, general councillor of Seine-Maritime
René Thissen Honorary member of Parliament, municipal councillor of Waimes (Belgium)
Renseignements de caractère général
Assemblée générale
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Chief Executive Officer Alain Clot Head of Public and Wholesale Banking Member of the Management Board of Dexia SA
8
Dexia Crédit Local / Annual report 2011
General presentation
Organisational chart (March 2012)
1
Organisational chart (March 2012) General presentation
EVP - Chief Risk Officer Marc BRUGIÈRE
Rapport de gestion
EVP - Financial Markets Activities Benoît DEBROISE
EVP - Secretary General Béatrice GOSSEREZ
Director of Research André BOULANGER
Chief Executive Officer Alain CLOT
EVP - PWB* France Jean-Luc GUITARD
Gouvernance et contrôle interne
Advisor to the Chairman Michel BLANC
EVP - Chief Financial Officer François LAUGIER
Chief Auditor Thomas GUITTET
Comptes consolidés
Director of Communication Christophe CHOULEUR
EVP - Operations and Information Systems Marc ROBERT
Comptes annuels
EVP - Human Resources Elizabeth SCHMIDT
EVP - PWB* International Stéphane VERMEIRE
Assemblée générale
EVP - Project Finance France and International Stéphane VERMEIRE
Members of the Management Board
Renseignements de caractère général
* Public and Wholesale Banking
Annual report 2011 / Dexia Crédit Local
9
1
General presentation
Principal subsidiaries and affiliated companies
Principal subsidiaries and affiliated companies General presentation
Branches: Dexia Crédit Local Canada branch Dexia Crédit Local Dublin branch Dexia Crédit Local Grand Cayman branch Dexia Crédit Local New York branch
DEXIA CRÉDIT LOCAL
Rapport de gestion
FRENCH SUBSIDIARIES DEXIA CLF BANQUE 100%
DEXIA LOCATION LONGUE DURÉE
DEXIA KOMMUNALBANK DEUTSCHLAND (Germany) 100%
DEXIA BAIL
DEXIA KOMMUNALKREDIT 100% BANK (Austria)
DEXIA KOMMUNALKREDIT BANK POLSKA (Poland) 100%
DEXIA CREDIOP GROUP (Italy)
DEXIA CREDIOP IRELAND (Ireland) 100%
49%
DEXIA FLOBAIL
Gouvernance et contrôle interne
100%
100%
(1)
DEXIA CLF RÉGIONS BAIL
DEXIA MUNICIPAL AGENCY
CLF IMMOBILIER
DEXIA MUNICIPAL AGENCY (Dublin branch)
100%
100%
100%
DEXIA SOFAXIS(2)
SARL CBX.IA 1
SISL (Luxembourg)
SARL CBX.IA 2
100%
Comptes consolidés
INTERNATIONAL SUBSIDIARIES
100 % 100%
100%
100%
DEXIA HOLDINGS Inc. (United States)(3)
70%
90%
DEXIA FP HOLDINGS Inc. (United States) 100%
FSA GLOBAL FUNDING Ltd. (United States) 100%
DEXIA REAL ESTATE CAPITAL MARKETS (United States)
100%
Comptes annuels
DEXIA CRÉDITO LOCAL MÉXICO SA de CV (Mexico) 100%
DOMISERVE 50%
DOMISERVE + 100%
DEXIA ISRAEL BANK Ltd. (Israel) 65,31%
DEXIA SABADELL SA (Spain)
Assemblée générale
DEXIA DELAWARE LLC (United States)
60%
DEXIA SABADELL, SA (Portugal branch)
100%
Fully consolidated Proportionally consolidated
DEXIA CAD FUNDING LLC (United States) 100%
Renseignements de caractère général
CHUO MITSUI ASSET TRUST & BANKING COMPANY, 100% Ltd. (Japan) DEXIA MANAGEMENT SERVICES Ltd (United Kingdom)
100%
(1) On 20 October 2011 and 13 February and 15 March 2012, the Board of Directors of Dexia Crédit Local approved the terms of an agreement providing notably for the sale of Dexia Municipal Agency. In the light of these factors, the activities of Dexia Municipal Agency are presented as being held for sale as at 31 December 2011. (2) In a resolution dated 11 January 2012, the Shareholders’ Meeting of Dexia Sofaxis resolved to change the company’s name to “Sofaxis”. (3) As a result of the signing, on 30 June 2011, of a put option contract on the Dexia Holdings Inc shares held by Dexia Crédit Local, and a guarantee contract with Dexia SA, control of Dexia Holdings Inc and Dexia FP Holdings Inc (and its subsidiaries) was transferred from Dexia Crédit Local to Dexia SA, with retroactive effect from 1 April 2011.
10
Dexia Crédit Local / Annual report 2011
General presentation
Dexia Crédit Local within the Dexia Group (December 2011)
1
Three Belgian regions
Belgian local governments
Ethias Group
100%
5.04%
Holding communal
100%
Dexia Crédit Local
14.26%
5.73%
Free float
Arco Group
30.34%
11.97%
Dexia SA* (Belgium)
5.73%
CNP Assurances
Caisse des Dépôts
2.96%
17.61%
0.63%
Dexia Group employees
Rapport de gestion
5.73%
French State
Gouvernance et contrôle interne
Belgian federal State
General presentation
Dexia Crédit Local within the Dexia Group (December 2011)
57,68%
100%
Dexia Participation Luxembourg
42.23%
Dexia Banque Internationale à Luxembourg
Renseignements de caractère général
Assemblée générale
Comptes annuels
Comptes consolidés
* Dexia shares are traded on Euronext Brussels and on the Luxembourg Stock Exchange.
Annual report 2011 / Dexia Crédit Local
11
12
Dexia Crédit Local / Annual report 2011
Renseignements de caractère général
Assemblée générale Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
2 – Management report
Business review
14
Capital stock and share data
49
1. Overview .................................................................................. 14
1. Capital stock and number of shares .......................................... 49
2. Long-term Public and Wholesale Banking.................................. 16
2. Shareholder structure................................................................ 49
3. Funding provided by the Public and Wholesale Banking clientele ............................................... 21
3. Dividends paid during the 3 past years ...................................... 49
4. Long-term funding.................................................................... 21
Human resources and environmental data
5. Financial Markets Activities ....................................................... 23
Risk management
24
50
1. Administration of human resources........................................... 50 2. Sustainable development .......................................................... 53
1. Introduction.............................................................................. 24 2. Governance .............................................................................. 24 3. Risk monitoring......................................................................... 28 4. Legal risk .................................................................................. 36 5. Stress tests................................................................................ 37 6. Changes in the regulatory framework ....................................... 38 7. Management of capital............................................................. 39 8. Internal capital adequacy .......................................................... 41 9. Payment systems security .......................................................... 42
Operating results
43
1. Consolidated financial statements............................................. 43 2. Financial statements.................................................................. 47 3. Five-year financial summary ...................................................... 48
Terms and compensation of Directors and Officers
57
1. Functions and terms.................................................................. 57 2. Compensation and regulated agreements ................................. 60
Significant events and outlook
65
1. Significant events in 2011 ......................................................... 65 2. Outlook .................................................................................... 69
2
Management report Business review
Business review Présentation générale
1. Overview
Gouvernance et contrôle interne
Management report
For Dexia Crédit Local, 2011 was marked by increasing pressure on liquidity and the impact of the sovereign debt crisis. The funding conditions of the Dexia Group deteriorated significantly during the summer of 2011, after the crisis grew even more intense and the interbank funding market shut down, resulting in the decision in early October 2011 to dismantle the Group. In connection with this, on 10 October 2011 the French, Belgian and Luxembourg States agreed in principle to provide a guarantee in order to improve the Dexia Group’s access to financial markets. An autonomous guarantee agreement was formally signed on 16 December 2011 and was temporarily approved by the European Commission on 21 December 2011. In addition, on 20 October 2011 the Board of Directors of Dexia Crédit Local approved the terms of a memorandum of negotiation with Caisse des Dépôts et Consignations and La Banque Postale for the sale of the funding activities of Dexia Municipal Agency and the creation of a new commercial joint venture that is intended to create a sustainable response to the financing needs of the local public sector in France. This memorandum was supplemented in February 2012 by a comprehensive agreement involving the French State in the acquisition of Dexia Municipal Agency followed by an agreement in principle signed in March 2012.
Comptes annuels
Comptes consolidés
Under these very difficult conditions, Dexia Crédit Local has continued to pursue the transformation plan initiated at the end of 2008 to cut back operations outside its traditional markets. As a result, the branches in Japan and the United Kingdom were closed. The Financial products activity is no longer included in the scope of consolidation of the Dexia Crédit Local Group following the transfer of control of Dexia Holdings Inc. (DHI) and Dexia FP Holdings Inc. (Dexia FP) to Dexia SA, with effect from 1 April 2011 In addition, a total of EUR 18 billion in non-core bonds and loans was sold off in 2011. Commercial activity focused back on the historic franchises, especially in France. The strategy adopted has sought to promote all products and services that do not weigh on the bank’s liquidity, and especially deposit-taking. New lending was voluntarily kept low during the year, with only EUR 4.4 billion in new commitments in 2011 (EUR 6.1 billion in 2010).
Renseignements de caractère général
Assemblée générale
As at 31 December 2011, long-term commitments were 12% lower year on year at EUR 186 billion. In the Core Market, outstanding loans were down 4.6% year on year at EUR 172 billion (-4.9% at constant exchange rates). The decrease was particularly pronounced in the Legacy Division, where outstanding on- and off-balance sheet exposure fell 54.3% to EUR 14.4 billion as at 31 December 2011 (-54.6% at constant exchange rates). The Dexia Crédit Local Group achieved its annual long-term funding targets at the end of the first half of 2011. The bond market was then closed in the second half. A total volume of EUR 16.6 billion was issued during the full 12 months, including EUR 6.1 billion of obligations foncières-type mortgage bonds issued by Dexia Municipal Agency and EUR 6.5 billion of collateralised funding.
14
Dexia Crédit Local / Annual report 2011
Business review by location A. FRANCE: DEVELOPMENT OF DIVERSIFICATION ACTIVITIES UNDER CREDIT CRUNCH CONDITIONS In France, local public sector investment increased (+2.9% in 2011, versus a sharp 5% decline in 2010), especially in the municipal sector, despite difficult conditions and after the sharp decrease observed in 2010. This investment was paid for with a slight use of tax leverage and by reigning in administrative costs. Local governments therefore limited their use of long-term debt, which is estimated to have increased by only EUR 2.7 billion in 2011, compared with an average EUR 6 billion p.a. since 2003. Total outstanding local government debt is estimated at EUR 154.7 billion at the end of 2011, representing 7.7% of GDP. Insofar as the financing offer is concerned, the year was marked, especially during the second part, by the drying up of financing for local public sector entities due a tightening of access to interbank funding and the anticipation that Basel III will generate future regulatory constraints that will penalise the types of long-term financing requested by counterparties, who do not as a whole generate any deposits. As in 2008, this led authorities to set up a EUR 3 billion emergency budget envelope carried by Caisse des Dépôts to cover some of the unmet needs at the end of 2011. In total, EUR 628 million of Dexia Crédit Local’s EUR 1.8 billion in new long-term lending to local governments came out of this emergency budget, which was taken from savings deposits to be used to satisfy local public sector financing needs. In the local government market, total long-term and short-term financing stood at EUR 4 billion. New long-term lending within the Public and Wholesale Banking business line as a whole declined 9.1% year on year to EUR 3.4 billion in 2011. In order to re-establish a structurally greater financing capacity, in October 2011 Dexia, Dexia Crédit Local, La Banque Postale and Caisse des Dépôts all signed a memorandum of negotiation that was supplemented in February 2012 by a master agreement joined by the French State and in March 2012 by an agreement in principle that calls for: • creation of a new credit institution owned by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%). This new credit institution will serve as the parent company of Dexia Municipal Agency, the société de crédit foncier-type mortgage credit company specialised in local public sector finance, holding all of its shares and managing its operations. It will also manage the industrial platform used by Dexia
Management report Business review
In Germany, Dexia Kommunalbank Deutschland remained a significant contributor to the Dexia Group’s funding through the issuance of Pfandbriefe-type covered bonds, using regular transfers of assets originated in the Group’s other key target countries. In 2011, Dexia Kommunalbank Deutschland issued nearly EUR 2.3 billion in long-term debt. In a highly complementary fashion, the subsidiary continued to successfully grow a deposit-taking business using innovative products already employed in other Group entities, and total deposits reached EUR 3.5 billion before falling to around EUR 1.4 billion following the events of October 2011.
North America (United States and Canada): impact of difficult liquidity conditions on non-euro currencies The project finance activity continued to scale back, maintaining a highly selective new lending policy. This policy was accompanied by an increase in sales to investors of all or part of the project finance exposures originated by local teams. Loan origination was interrupted following the announcement of Dexia’s new restructuring plan in October. Since then, marketing teams have spent their time managing customer requests (waivers) and continuing to execute the asset turnover strategy. The outlook for this activity remains subject to that of the entire project finance function within the Dexia Group, and the restoration of adequate market conditions and suitable funding.
United Kingdom: simplification of structures Following a review of strategy and organisation in the United Kingdom, it was decided in 2010 to transfer all the assets of the branch to Dexia Crédit Local Paris. This transfer was carried out in 2011, and Dexia Crédit Local shut the branch down in order to simplify structures and optimise costs. Front office staff were taken over by Dexia Management Services Ltd., a local non-bank subsidiary specialised solely in origination and management of existing outstanding loans. Practically all support activities are provided by the staff of Dexia Crédit Local in Paris.
Présentation générale Management report
Germany: significant role in funding the Dexia Group
In 2011, Dexia Crediop pursued a highly selective and qualitative strategy in its generation of new long-term financing in the light of the liquidity constraints of both itself and the Dexia Group, in a market that also became much smaller due to fiscal constraints in the Italian public sector. More specifically, the ongoing litigation regarding swaps between certain local governments and their banks and the competitive advantage and dominant position held by the State-controlled Cassa Depositi e Prestiti reduced the depth of the Italian market considerably.
Gouvernance et contrôle interne
B. INTERNATIONAL
Italy: continuing business diversification
This approach resulted in a substantial reduction in long-term volumes produced, thereby favouring both margin levels and fees. At the same time, the company continued to develop its short-term secured financing activity (financing of receivables from local Italian governments, mainly in the healthcare sector).
Comptes consolidés
In 2011, Dexia Crédit Local also continued with the deployment of its diversification activities with Public and Wholesale Banking customers (deposit products, statutory insurance, CESU-type employment cheques, long-term vehicle leasing, etc.).
As for Spain, any return to the production of volumes comparable to those of previous years remains subject to changes in local market conditions and their impact on the funding of Dexia Crediop, in terms of both volume and cost.
Israel: business remains satisfactory
Comptes annuels
Implementation of this agreement remains subject to the approval of the competent supervisory and anti-trust authorities. The new system should start to be phased in gradually in the second half of 2012.
In the light of the continuing constraints on the Dexia Group, Dexia Sabadell developed a much more selective approach to lending, compatible with its financing capabilities. Still, this situation did not seriously damage its commercial franchise, and Dexia Sabadell has remained a major player in its market. Since autumn 2011, Spain’s place at the heart of the sovereign debt crisis and the impact of the latter on the local market have imposed a severe reduction in new financing. The resumption of a more ambitious activity is subject to the availability of medium-term funding and, more generally, to the changing conditions of the Spanish market, particularly in terms of risk.
Dexia Israel confirmed its role as the bank of reference for local governments, based on its experience in account management, the transfer of government grants and deposit-taking. The subsidiary also maintained its funding autonomy, selling two issues under favourable terms and most importantly, raising significant volumes of long-term deposits.
Assemblée générale
• creation of a joint venture between La Banque Postale (65%) and Caisse des Dépôts (35%) that would design and distribute loans for local French governments that would be funded by Dexia Municipal Agency.
Iberian Peninsula: maintenance of the commercial franchise
Slovakia: sale As announced by the Dexia Group in November 2010, Dexia banka Slovensko was sold to local investors (Penta Investments) in March 2011.
Renseignements de caractère général
Municipal Agency and certain businesses of the joint venture and the Dexia Group. All eligible loans made by the joint venture will be funded by Dexia Municipal Agency;
2
Annual report 2011 / Dexia Crédit Local
15
2
Management report Business review
C. ENTITIES IN RUN-OFF
Japan
Central and Eastern Europe (excluding Slovakia)
The Dexia transformation plan approved by the European Commission led to the decision to close the Japanese branch. To prepare for this closure under the best possible conditions, the entity began to sell off all of the loans and bonds on its balance sheet. The process was completed in 2011, and the branch was closed on 8 December 2011.
Présentation générale
The different entities in Central and Eastern Europe have ceased all lending activity. Existing outstanding loans – many of which have already been transferred to the Dexia Crédit Local Paris information systems – are administered by small local teams that are coordinated from Vienna. Fiscal 2011 was devoted to continuing the various asset reduction programmes, and was marked at the end of the year by the sale of the Czech subsidiary: all of the assets of that country have now been sold.
Mexico
Gouvernance et contrôle interne
Management report
The local entity will now merely carry the remaining assets on its balance sheet; administration of these assets has been transferred to the Dexia Crédit Local New York branch.
Australia In 2010, the decision was made to transfer the entire asset portfolio to Dexia Crédit Local Paris and then close the Australian entity. The transfer was carried out in 2011 and Dexia Crédit Local Asia Pacific is now in liquidation. Its closure is expected in the second quarter of 2012.
Switzerland The company’s liquidation proceedings, which began in 2010, are expected to be finalised in the first quarter of 2012.
2. Long-term Public and Wholesale Banking
Comptes consolidés
New long-term lending was voluntarily kept low during the year with only EUR 4.4 billion in new commitments in 2011, compared with EUR 6.1 billion in 2010. France accounted for 79% of the total. Elsewhere, activity was down sharply, reflecting a selective strategy for new commitments.
Comptes annuels
As at 31 December 2011, long-term outstanding loans in the Core Market were 4.6% lower year on year at EUR 171.6 billion. Outstandings are decreasing in every country, with declines ranging
(EUR millions) CORE MARKETS o.w. Local Public Sector o.w. Project Finance
Assemblée générale
Oustanding long-term loans 31/12/2010 31/12/2011
Change
New long-term lending 31/12/2010 31/12/2011
Change
179,991
171,648
-4.6%
6,143
4,374
-28.8%
152,120 27,871
147,071 24,577
-3.3% -11.8%
4,724 1,418
3,240 1,135
-31.4% -20.0%
France
86,333
82,069
-4.9%
3,780
3,434
-9.1%
33,701
31,457
-6.7%
398
120
-70.0%
Iberian Peninsula (Spain and Portugal)
7,165
6,579
-8.2%
411
148
-64.1%
16,889
16,467
-2.5%
1,150
417
-63.7%
Germany
21,926
21,665
-1.2%
0
56
–
United Kingdom
12,835
12,280
-4.3%
246
55
-77.6% -8.4%
Israel LEGACY PORTFOLIO PWB Japan
Renseignements de caractère général
Public and Wholesale Banking outstandings in run-off (Legacy PWB) fell sharply (-54.3%) to EUR 14.4 billion. This is attributable essentially to the very sharp EUR 13.8 billion decline recorded in the United States on standby bond purchase agreements (SBPAs) due to the impairment recognised on the portfolio. In Japan, the remaining balance (EUR 0.5 billion as at 31 December 2010) was sold.
Italy United States and Canada (excl. SBPA)(1)
1,143
1,132
-1.0%
158
144
31,462
14,372
-54.3%
0
0
–
478
0
-100.0%
0
0
–
International Headquarters (Public Banking)
8,923
6,729
-24.6%
0
0
–
Central and Eastern Europe
1,982
1,603
-19.1%
0
0
– –
Australia Mexico United States (SBPA) Germany TOTAL DEXIA CRÉDIT LOCAL
0
0
–
0
0
1,274
728
-42.9%
0
0
–
18,804
5,007
-73.4%
0
0
–
0 211,453
305 186,020
– -12.0%
0 6,143
0 4,374
– -28.8%
(1)
(1) Standby bond purchase agreements: liquidity guarantees on municipal bonds.
16
from 1% in Israel to 8.2% in the United States and Canada. In France, outstanding loans decreased by 4.9%.
Dexia Crédit Local / Annual report 2011
Management report Business review
Change
152,120
147,071
-3.3%
4,724
3,240
-31.4%
France
75,947
72,400
-4.7%
3,498
2,689
-23.1%
Italy
28,979
27,793
-4.1%
218
18
-91.8%
United States and Canada (excl. SBPA)
2,894
2,880
-0.5%
0
0
–
Iberian Peninsula (Spain and Portugal)
12,794
12,500
-2.3%
851
332
-61.0%
Germany
21,348
21,258
-0.4%
0
56
–
9,015 1,143
9,108 1,132
1.0% -1.0%
0 158
0 144
– -8.9%
BUSINESS REVIEW BY LOCATION a. France Total new lending to the public sector declined 23.1% year on year to EUR 2,689 million, and total outstanding loans were down EUR 3.5 billion (-4.7%) to EUR 72.4 billion as at 31 December 2011. In 2011, total new lending to the local government market was down 17.5% year on year to EUR 1,810 million. Of this new lending, 35% was carried out under the EUR 3 billion budget envelope on savings deposits announced on 7 October 2011. Indeed, in response to evidence of a gradual drying up of credit for sub-national governments and public health institutions, authorities set up this budget envelope intended to be used above all to meet the 2011 funding needs of local governments, groups of local governments, departmental fire and ambulance services and public health institutions. Half of the budget was distributed by Caisse des Dépôts and the other half by banking institutions participating in the auction set up on 4 November 2011. Of the EUR 1.5 billion to be distributed by the banks, Dexia Crédit Local was awarded EUR 628 million, all of which was committed as at 31 December 2011.
trade associations of the building and public works industry for the “BPW professional stimulus plan”). Total outstanding loans declined 0.5% year on year to EUR 9 billion as at 31 December 2011. The total volume of the loan restructuring business declined 5.5% year on year to EUR 4,598 million in 2011; this is attributable primarily to less favourable market conditions than in 2010, due especially to the tremendous volatility of interest and exchange rates. The structured loan business contributed 6.8% of total new lending in 2011 (EUR 184 million, versus EUR 180 million in 2010). Dexia Crédit Local bases its definition of structured loans on the concepts contained in the “Code of conduct between banking institutions and local governments”, the so-called “Gissler Charter”. This document, which was prepared at the request of the French government by Eric Gissler, a General Inspector of Finance, was signed on 7 December 2009 by a number of associations representing local governments (Association of French Mayors, Federation of Mayors of Mid-sized Cities, Association of Small French Cities, Association of Mayors of Large French Cities, and the Assembly of French Municipalities) and by four banking institutions, including the Dexia Group. Dexia Crédit Local has committed to the principles espoused in this document.
Total new lending to the other segments of the local public sector market was 32.7% lower year on year at EUR 879 million (of which EUR 64 million in guarantees given): 45.3% of this was carried out with funding provided by Caisse des Dépôts (after being classified as PLS-type loans to promote affordable rental housing) and the European Investment Bank (EIB) or under the terms of the protocol signed by the representative trade associations of the building and public works industry. As at 31 December 2011, total outstanding loans amounted to EUR 21.5 billion, down slightly (2%) year on year:
Accordingly, in the present report, structured loans are defined as:
• total new lending to the healthcare sector was down 18.2% year on year to EUR 397 million, of which 57.9% was funded using EIB or PLS funds. Total outstanding loans fell 1% year on year to EUR 10.3 billion as at 31 December 2011.
• with the exception of all loans whose structured phase has ended and whose interest rate is either fixed or is a simple and definitive variable rate.
• total new lending to the housing and urban development sector fell 60.5% year on year to EUR 286 million in 2011, 58.9% using funding from PLS accounts, the EIB or the “BPW” programme (remainder of the protocol agreement signed with the representative
Gouvernance et contrôle interne
United Kingdom Israel
Présentation générale
New long-term lending 31/12/2010 31/12/2011
Management report
Change
Comptes consolidés
CORE MARKETS
Oustanding long-term loans 31/12/2010 31/12/2011
Comptes annuels
(EUR millions)
• all loans whose structures are included in categories B to E of the Gissler Charter; • all loans whose marketing is banned by the Charter due to their structure (i.e. leverage > 5, etc.), the underlying index(es) used (i.e. foreign currency, commodities, etc.) or their currency of exposure (loans denominated in CHF, JPY, etc.);
Assemblée générale
Total new lending to the local public sector was down 31.4% year on year to EUR 3.2 billion. Every country posted negative growth, with the highest percentage declines observed in Italy (-91.8%) and Spain (-61%). The percentage decline in the French market was smaller
(-23.1%) with new lending of EUR 2.7 billion. This decline in new lending resulted in a slight 3.3% decrease in long-term outstanding loans to EUR 147 billion as at 31 December 2011 (-3.5% at constant exchange rates).
Renseignements de caractère général
2.1. Local public sector
2
Under this definition, total outstanding structured loans outstanding amounted to EUR 21.88 billion as at 31 December 2011, with an average interest rate paid of 3.98% (EUR 23.55 billion and 3.65% respectively in 2010).
Annual report 2011 / Dexia Crédit Local
17
2
Management report Business review
Structured loans Total outstanding loans as at 31 December 2011 Average interest rate paid in 2011
EUR 21.88 billion 3.98%
Average interest rate paid in 2011 by highest 10% of customers concerned (1)
5.94% 1.26%
Average interest rate paid in 2011 by lowest 10% of customers concerned (2)
Présentation générale
(1) Highest 10%: the average rate paid by the 10% of customers who paid the highest rate was 5.94% in 2011. (2) Lowest 10%: the average rate paid by the 10% of customers who paid the lowest rate was 1.25% in 2011.
b. International
2.2. Project finance
Italy
Dexia Crédit Local did some 30 new project finance transactions in 2011, and in nearly all of them acted as Financial Advisor and/or Lead or Co-Lead Manager on the debt and as the interest rate hedging bank.
Management report
New lending was particularly low (EUR 18 million) in the light of the liquidity constraints faced by Dexia Crediop and the Dexia Group. Moreover, the constraints on the Italian public sector and the competitive advantage and dominant position held by Cassa Depositi e Prestiti, a joint venture under public control between the Italian State (70%) and a group of banks (30%), considerably reduced the depth of the Italian market. Total outstanding loans fell 4.1% year on year to EUR 27.8 billion as at 31 December 2011.
Gouvernance et contrôle interne
Spain New long-term lending was sharply lower in 2011 (EUR 332 million versus EUR 851 million in 2010) due to a more selective lending policy and in the light of local liquidity constraints. Total outstanding loans therefore declined 2.3% year on year to EUR 12.5 billion as at 31 December 2011.
Israel
Dexia arranged financing for projects involving total debt of EUR 12 billion. Dexia Crédit Local financed EUR 1.1 billion of this, or around 9% of the total. An analysis of originations by sector shows that 38% went to social infrastructure under public-private partnerships (PPP), 30% to rail and road transport, 25% to energy, 3% to wastewater treatment and waste management and 4% to other sectors. Lastly, in order to streamline the portfolio and promote turnover, early loan amortisations totalling more than EUR 1.5 billion were generated by either assignment (at a price very close to par) or repayment. Combined with the natural amortisation of the portfolio, these assignments resulted in total outstanding long-term exposure falling 12% year on year to EUR 24.6 billion as at 31 December 2011.
Comptes consolidés
Total new long-term lending declined moderately year on year (-8.9%), as the subsidiary enjoys a great deal of funding autonomy. Total outstanding loans were fairly stable year on year (-1%) at EUR 1.1 billion as at 31 December 2011.
Comptes annuels
Project finance
Assemblée générale
(EUR millions)
Outstanding long-term exposure 31/12/2010 31/12/2011 Change
Long-term originations 31/12/2010 31/12/2011
Change
CORE MARKETS
27,871
24,577
-11.8%
1,418
1,135
-20.0%
France
10,386
9,669
-6.9%
282
745
164.2%
Italy
4,722
3,663
-22.4%
180
102
-43.5%
United States and Canada
4,270
3,698
-13.4%
411
148
-64.1%
Iberian Peninsula (Spain and Portugal)
4,095
3,967
-3.1%
299
85
-71.6%
Germany United Kingdom
578 3,819
407 3 173
-29.6% -16.9%
0 246
0 55
-77.6%
The following projects on which Dexia Crédit Local acted as Arranger and/or Financial Advisor all received awards from Project Finance Magazine:
• European Offshore Wind Deal of the Year, for the financing of the Meerwind project in Germany.
Renseignements de caractère général
PFI Magazine also recognised the following projects: • European PPP – Defence Deal of the Year, for the financing of the new headquarters of the Ministry of Defence in Paris; • European Transport High-Speed Rail Deal of the Year, for the financing of the Tours-Bordeaux high-speed line; • European Road Real Toll Deal of the Year, for the financing of the Strada dei Parchi toll road project in Italy;
18
Dexia Crédit Local / Annual report 2011
• Wind Deal of the Year, for the financing of the Global Tech 1 offshore wind power project; • Rail Deal of the Year, for the financing of the Tours-Bordeaux highspeed line. In accordance with the terms of the Group’s restructuring plan, Dexia has begun to discontinue its project finance business.
Management report Business review
BUSINESS REVIEW BY LOCATION a. France In the infrastructure sector, Dexia notably participated in the arrangement of two very large transactions:
2
Iberian Peninsula
In the transportation sector, Dexia Sabadell participated in two financings: • a motorway in the Valencia region; • a motorway in Andalusia.
• the PPP for the construction and operation of the new headquarters for the Ministry of Defence in Paris. Dexia also acted as Financial Advisor for the consortium to which the PPP was awarded.
In the environment sector (wastewater and waste management), Dexia Sabadell financed three projects in Aragon, Cantabria and the outskirts of Madrid.
Présentation générale
• the concession for the construction, operation and maintenance of the Tours-Bordeaux high-speed rail line, one of the largest project financings ever made;
North America
In the renewable energy sector, Dexia Crédit Local financed three projects in the United States:
Dexia also arranged financing for the following PPPs:
Management report
• two renewable energy projects: – a wind farm project in Minnesota (206 MW); – a photovoltaic project in Texas (35 MW).
• financing and restoration of schools in the Lorraine region;
• new electrical power transmission lines in Texas.
• construction and maintenance of the new stadium in Bordeaux;
In the infrastructure sector, Dexia arranged two PPP financings in Canada:
Gouvernance et contrôle interne
• the first PPP financing combining road works and street lighting for the town of Plessis-Robinson, reflecting certain communities’ nascent willingness to fund several municipal services under the same contract;
• the National Sports Centre of the Ministry of Defence. • a new hospital in the province of Ontario. Dexia also acts as agent for the bank consortium and, through its local partner, distributed the bond issue portion of the project financing;
In the renewable energy sector, Dexia acted as Lead Manager for the financing and operation of three photovoltaic solar projects (24 MW):
• part of the athletes village for the 2015 Pan American Games.
• a set of three power plants in Corsica;
United Kingdom
Comptes consolidés
Dexia also acted as Financial Advisor on the first three transactions.
Dexia Crédit Local arranged two PPP financings: • a plant in Charente-Maritime;
Italy
In the transportation sector, Dexia co-arranged the first project financing of a motorway in Italy, on behalf of the concessionaire of the motorway linking Rome to the Adriatic coast. Dexia also coordinated the setting in place of the interest rate hedging and serves as agent for the consortium of lenders. In the renewable energy sector, Dexia Crédit Local financed two photovoltaic projects for a total of 38 MW:
• refinancing of 19 PPP projects in various sectors and already in operation.
Comptes annuels
b. International
• construction and operation of a fire station in the northwest of England;
Other
In the renewable energy sector, Dexia acted as Lead Manager for three wind power projects (718 MW): • two offshore projects in the German North Sea: – Global Tech 1 Offshore Wind (400 MW), the largest project financing of this type to date. The farm will supply power to 445,000 homes;
Assemblée générale
• a plant on the roof of the Nice airport car park.
• a power plant in the Campania region; – Meerwind (288 MW), for which Dexia also acted as Financial Advisor. • a wind power farm on the island of Curacao, for which Dexia acted as guarantor of the Danish export credit agency EKF.
Renseignements de caractère général
• a set of four plants in the Lazio and Puglia regions and in Sicily.
In the telecommunications sector, Dexia Crédit Local financed an investment fund’s acquisition of signal transmission towers in the Netherlands. In the infrastructure sector, Dexia Crédit Local participated as Financial Advisor on a PPP for a Belgian prison project.
Annual report 2011 / Dexia Crédit Local
19
2
Management report Business review
2.3. Dexia Sofaxis STATUTORY INSURANCE
Management report
Présentation générale
Estimated premiums written went up 5% year on year in 2011 to EUR 333 million. This was attributable to a combination of factors: insurers’ rates stabilised after several consecutive years of decreases; meanwhile, Dexia Sofaxis continued to prospect very actively in its various market segments, resulting in an increase in the number of insured customers and in gross payroll, which is used to calculate insurance contributions. As in 2010, the impact of this prospecting was more visible in the administrative centres for the sub-national public service, while the unaffiliated communities segment and hospital sector remain very sensitive to the continuing strong competition in this market. Moreover, slower growth in salary increases for the sub- national public service (for the fourth consecutive year) generated an automatic decrease in the adjustment of estimated premiums to actual. In 2011, annual premiums nevertheless totalled EUR 350 million. The 2011 marketing campaign confirmed Dexia Sofaxis’s leading position with local governments.
Gouvernance et contrôle interne
Insurance companies requested a significant revision of rates, following the sharp increase in claims, thereby lowering their technical margins. Under pressure from insurers, new business was also impacted by an adjustment of contribution rates designed to pass along the financial impact of the lengthening of working hours and the pushing back of the retirement age. This led to half the portfolio being updated. The related services business continued to grow significantly:
Comptes consolidés
• the medical control activity was up by over 10%, reaching more than 18,000 acts in 2011; • collections from the recourse against responsible third parties business increased by 10%; • psychological assistance cases were sharply higher (+15%) in 2011.
PROPERTY AND CASUALTY INSURANCE This new segment enjoyed an intensification of its business. The focus was maintained primarily on increasing business with the departmental fire and ambulance services (SDIS) target market (teaming with Generali and SMABTP, respectively, for the liability and property damage components). Existing relationships with insurance companies were strengthened and contacts with new insurers initiated. The acceptable success rate of 36% positive feedback on requests for proposals (RFPs) processed and the increase in average premium per case won helped build the portfolio, which now includes 100 contracts and over EUR 2 million in receipts.
SERVICES The selection of RFPs announced allowed revenues to be increased while processing significantly fewer cases. Major local governments remain open to the outsourcing of services in areas related to both health in the workplace and the optimisation of the organisation and administration of human resources. However, according to the survey by the National Centre for Sub-national Public Service (CNFPT), they are seeking to optimise both their payroll and workforce (restrictions on recruitment, non-systematic replacement of employees, pooling of services, etc.).
PUBLISERVICES Through its Publiservices subsidiary, Dexia Sofaxis has developed a commercial offer in the fields of supplemental health, accidental death and disability, and social action for public employees. The late publication (November 2011) of the implementing decree for the laws passed in 2007 concerning the participation of local authorities and their public agencies in financing the supplemental social welfare benefits of their employees has kept the market on hold.
Comptes annuels
Despite this, Publiservices won several RFPs in 2011 and its portfolio already holds seven master agreements with administrative centres (two in health and death and disability and five in social action) and eleven individual health and death and disability contracts with municipalities. As at 31 December 2011, the subsidiary covered nearly 12,000 public service employees.
Renseignements de caractère général
Assemblée générale
This market is expected to open up in 2012, and constitutes a major potential source of new business for Dexia Sofaxis.
20
Dexia Crédit Local / Annual report 2011
2
Management report Business review
3. Funding provided by the Public and Wholesale Banking clientele
• in Israel, total deposits increased 5% year on year to EUR 1.5 billion, including EUR 0.5 billion of demand deposits, EUR 0.4 billion of term deposits and EUR 0.6 billion of certificates of deposit;
Présentation générale Management report
• in France, total deposits declined 3.8% year on year to EUR 2.8 billion as at 31 December 2011, including EUR 0.4 billion of demand deposits, EUR 1.4 billion of term deposits and EUR 1 billion of certificates of deposit and medium-term notes (MTN) issued by Dexia Crédit Local and marketed by Dexia CLF Banque. it should be noted that through 30 September 2011 – right before the Group’s restructuring was announced – deposits had seen a net increase of EUR 0.6 billion;
• in Italy, total deposits at 31 December 2011 were up 91.6% year on year to EUR 1 billion, including EUR 0.3 billion of demand deposits, EUR 0.5 billion of term deposits and EUR 0.2 billion of certificates of deposit; • on the Iberian Peninsula, total deposits were down 45.1% year on year to EUR 0.2 billion, and consisted entirely of demand deposits; • in the United States, demand deposits fell to EUR 22 million as at 31 December 2011 from EUR 69 million the previous year. The off-balance sheet products credited to the Public and Wholesale Banking business line declined 11.4% year on year to EUR 2.8 billion, including EUR 1.8 billion of Dexia Asset Management products (Sicavtype investment companies, mutual funds, etc.) and EUR 1 billion of certificates of deposit and medium-term notes (MTN) issued by investors other than Dexia Crédit Local.
Gouvernance et contrôle interne
As at 31 December 2011, total deposits were distributed among the various entities in the following manner:
• in Germany, term deposits are growing strongly and increased 82.5% to EUR 1.4 billion as at 31 December 2011 from EUR 0.7 million the previous year; until 30 September 2011 – right before the Group’s restructuring was announced – deposits had posted a strong net inflow of EUR 2.5 billion prior to the strong net outflow of the fourth quarter;
Comptes consolidés
Total deposits for the Public and Wholesale Banking business line amounted to EUR 6.9 billion as at 31 December 2011, up 13.4% from the previous year: deposit-taking was remarkable until the end of September (EUR 3.4 billion, or +55% year on year) thanks to the efforts of marketing staff and sharing of marketing expertise among entities. The downgrading of the Group’s credit ratings and ensuing restructuring in October, however, sparked significant (EUR 2.6 billion) outflows of deposits in the fourth quarter.
4. Long-term funding
France Dexia Municipal Agency Dexia Crédit Local
New issues in 2010
New issues in 2011
6,785
6,102
19,149
6,043
1,171
677
6,192
2,370
8,850 42,147
1,398 16,590
Comptes annuels
Senior debt Amount issued (EUR millions)
Italy Dexia Crediop Germany Dexia Kommunalbank Deutschland
With the intensification of the European sovereign debt crisis and its very negative impact on the assessment of bank risk in Europe – and in France in particular – market conditions remained very difficult in 2011. Under these conditions, the window of opportunity in the primary bond market remained practically closed during the last quarter. Only a few premier issuers were able to attract investors, and primarily using covered bonds.
severe crisis it was experiencing. On 10 October 2011, the French, Belgian and Luxembourg States agreed in principle to provide a guarantee in order to improve the Dexia Group’s access to financial markets. An autonomous guarantee agreement was formally signed on 16 December 2011 and was temporarily approved by the European Commission on 21 December 2011. This agreement will allow Dexia Crédit Local to execute its funding programme in 2012.
Under these conditions, and although the Dexia Group had achieved its annual long-term funding targets at the end of the first half of 2011, its access to the bond market was cut off in the light of the
In 2011, the Dexia Crédit Local Group issued a total of EUR 16.6 billion.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
Dexia Crédit Local New York branch TOTAL
Assemblée générale
United States
21
2
Management report Business review
4.1. Covered bond issues New issues in 2011 Amount issued Average maturity
Dexia Municipal Agency
Dexia Kommunalbank Deutschland
Dexia Crédit Local (consolidated)
EUR 6,102 million 8.4 years
EUR 2,292 million 5.1 years
EUR 8,394 million 7.5 years
Présentation générale
Dexia Crédit Local Group covered bond issuers raised a total of EUR 8.4 billion, with an average maturity of 7.5 years. Dexia Municipal Agency and Dexia Kommunalbank Deutschland, the Dexia Crédit Local Group’s two covered bond funding vehicles, were active almost exclusively during the first half of 2011, launching four new benchmark issues.
Management report
Dexia Municipal Agency filled out its euro benchmark curve by launching two new, EUR 1 billion issues at 5 and 10 years. In addition to this benchmark activity, Dexia Municipal Agency also increased several euro-denominated issues to meet identified investor demand and continued to work on diversifying its investor base by increasing
two Swiss franc issues. Finally, private placements remained strong. In all, Dexia Municipal Agency raised a total of EUR 6.1 billion in 2011, with an average maturity of 8.4 years. Dexia Kommunalbank Deutschland also filled out its euro benchmark curve by launching two new, EUR 1 billion issues at 3 and 5 years and carrying out several private placements. In all, Dexia Kommunalbank Deutschland raised a total of EUR 2.3 billion in 2011, with an average maturity of 5.1 years.
Gouvernance et contrôle interne
4.2. Other collateralised funding New issues in 2011
Comptes consolidés
Amount issued Average maturity
Dexia Crédit Local Paris EUR 5,011 million 6.5 years
Dexia Crédit Local New York branch
Dexia Crediop
EUR 1,398 million 2.3 years
EUR 50 million 7.8 years
Dexia Crédit Local (consolidated) EUR 6,459 million 5.6 years
One of the strategies in 2011 was to develop sources of collateralised funding other than covered bonds.
maturity of 15.6 years (EUR 338 million for Dexia Crédit Local Paris and EUR 50 million for Dexia Crediop).
In 2011, the Dexia Crédit Local Group raised a total of EUR 6.5 billion in collateralised funding, with an average maturity of 5.6 years.
The increased use of collateralised funding also resulted in the arrangement of several long-term repo and total return swap transactions, further optimising the Group’s balance sheet.
Comptes annuels
The implementation of this strategy was reflected in the continuation of the Dexia Group’s partnership with the European Investment Bank. This partnership resulted in the signing of new projects during the first half of 2011, and the raising of EUR 388 million with an average
4.3. Senior issues
Assemblée générale
New issues in 2011 Amount issued Average maturity
Dexia Crédit Local Paris
Dexia Kommunalbank Deutschland
Dexia Crediop
Dexia Crédit Local (consolidated)
EUR 1,032 million 2.3 years
EUR 78 million 7.3 years
EUR 627 million 4.0 years
EUR 1,737 million
Renseignements de caractère général
As in 2010, the Dexia Crédit Local Group remained very selective in its senior issues, in order notably to optimise its average cost of funds. Therefore, only private placements were carried out (mostly during
22
Dexia Crédit Local / Annual report 2011
3.1 years
the first half) for a total of EUR 1.8 billion, with an average maturity of 3.1 years.
Management report Business review
2
5. Financial Markets activities 5.1. Cash management and short-term funding
Management report
Présentation générale
In 2011, Dexia Crédit Local was particularly impacted by the unfavourable change in its funding structure. The closure of the money markets provoked by the European sovereign debt crisis weighed on short-term funding. Certificates of deposits outstanding, which fluctuated in 2010 and through the end of the second quarter of 2011 at between EUR 10 billion and EUR 15 billion equivalent, now represent less than EUR 1 billion. To weather the situation, Dexia Crédit Local availed itself of the emergency measures offered by central banks.
5.2. Commercial activities
Gouvernance et contrôle interne
PUBLIC SECTOR CUSTOMERS Debt restructuring with public sector customers was down in 2011: a total of 478 transactions were carried out with public sector customers (local governments, hospitals and social housing agencies) for an aggregate nominal volume of EUR 3.5 billion (-30% year on year), including 458 transactions with French customers for an aggregate nominal volume of EUR 3.3 billion (-15% year on year).
Comptes consolidés
PROJECT FINANCE CUSTOMERS
Comptes annuels
Dexia Crédit Local Paris, Dexia Sabadell and Dexia Crediop arranged 34 new derivative transactions with special purpose entities to hedge their cumulative total of EUR 2.3 billion in interest rate risk, including the execution of derivatives transactions on behalf of a consortium (fronting).
INSTITUTIONAL CUSTOMERS In 2011, Dexia Crédit Local staff collected EUR 1.6 billion in noncurrent financing from French and German customers.
Renseignements de caractère général
Assemblée générale
The teams acted as Lead Manager on three external bond issues and as Co-Lead Manager on two other bond issues and six private placements on behalf of external issuers, for a total volume of EUR 627 million.
Annual report 2011 / Dexia Crédit Local
23
2
Management report Risk management
Risk management Présentation générale
1. Introduction Fiscal 2011 unfolded in two stages, obliging the risk management function to maintain a high degree of responsiveness to deal with the many events that marked the year.
Gouvernance et contrôle interne
Management report
Up to the end of June, the Group continued to execute the transformation plan to reduce its risk profile and adjust its capital structure, in line with the targets that had been set. In May, against a backdrop of tightening economic conditions, the Group announced its intention to accelerate its financial transformation by selling the USD 9.5 billion of secured assets in the Financial products portfolio (with a loss on disposal of USD 2.8 billion [EUR 1.9 billion]), and by marking the other non-strategic bonds and loans held for sale to their market value. Over the full year, the Group sold EUR 19 billion in assets in addition to the secured assets of the Financial products portfolio. The intensification of the sovereign debt crisis at the beginning of summer marked a sea change. The worrisome situation in Greece had a strong impact on the Group, leading it to recognise an impairment loss of EUR 4,548 million in 2011, EUR 2,937 million of which to cover Dexia Crédit Local's entire exposure to that country.
bank’s having decreased its funding needs considerably and improved its funding mix significantly since 31 December 2008. Investors’ risk aversion increased, resulting in significant pressure on the short-term interbank market and lower volumes of long-term debt issues. Under these conditions, in October 2011 the Group made significant changes to its structure, including notably: implementation of a programme to provide Belgian, French and Luxembourg State guarantees on its funding; sale of Dexia Bank Belgium to the Belgian State, finalised on 20 October 2011; and sale of certain of the Group’s operating subsidiaries More extensive information regarding the structural measures taken by Dexia in October 2011 is provided in the “Significant events” section of this annual report. Against this background, Dexia remained involved in all domestic and international consultations, participating notably in the Bank for International Settlements’ study of the impact of Basel III reform on the definitions of capital, gearing and liquidity ratios. Dexia worked actively on application of the so-called “CRD 3” EU Capital Requirements Directive, applicable as from 31 December 2011.
Comptes consolidés
Furthermore, the intensification of the sovereign debt crisis and worsening of macroeconomic conditions compromised the liquidity positions of the Dexia Group and Dexia Crédit Local, despite the
Comptes annuels
2. Governance The Risk Management department is responsible for defining the acceptable level of risk for Dexia Crédit Local and its subsidiaries and branches, establishing independent and integrated risk metrics for the various types of risks, monitoring and managing those risks and actively identifying and signalling all potential risks.
Renseignements de caractère général
Assemblée générale
The general organisation of the risk management function of the Dexia Group implemented at the end of 2010 is aligned with that of the Dexia Group and involves several different lines of business: credit risk on the Public and Wholesale Banking business, credit risk on the Retail and Commercial Banking business, financial risk on Financial Markets activities and operational risk. The Dexia Crédit Local Risk Management department performs its duties both directly (via the risk management staff of Dexia Crédit Local) and by employing the services of various specialised knowledge centres situated at the Group level, based on a series of service level agreements (SLAs) entered into in 2010. The major restructuring of the Group initiated in the autumn of 2011, marked notably by the sale of Dexia Bank Belgium and transfer of many Dexia SA Brussels staff to Dexia Bank Belgium, necessarily entails a reorganisation of the risk management function. Most of the activities currently performed by Dexia SA Brussels staff and by certain
24
Dexia Crédit Local / Annual report 2011
expert centres lodged in Dexia Bank Belgium will have to be recreated in order to manage all of the bank’s risks. Until this new organisation is set in place, the present teams will continue to provide services in accordance with the service level agreements currently in place. The organisation and governance presented below correspond to the structure in place as at 31 December 2011; this structure will have to change in the near future, in line with the changes discussed above. The main operational responsibilities of the Risk Management department are: • developing the general risk policy, in conjunction with the Group, under the aegis of the Management Board; • establishing and managing the risk monitoring function and decision-making processes; • setting credit limits and delegations for various decision-makers.
Management report Risk management
Since 2010, in order to enhance its effectiveness and capitalise on the expertise available within the Group, the risk management function has moved toward an organisation based around specialised expert centres, such as project finance, local government financing and corporate financing, in conjunction with the various Dexia business lines (Retail and Commercial Banking, Public and Wholesale Banking and Financial Markets activities). Risk committees specialised by expert centre have been set up, and are coordinated by Group-wide staff and committees. Central Analysis Cells (CAC), specialised by type of counterparty (project, corporate, bank, asset-backed securities, international public sector and country) have been established at Group level to pool expertise and provide all Group entities – and therefore Dexia Crédit Local itself – with all of the analyses they will need. All decisions concerning these counterparties (commitments, reserves, etc.) will remain the responsibility of the different entities and of Dexia Crédit Local in particular. Analysis of matters not within the purview of the CACs is performed directly by Dexia Crédit Local and its subsidiaries and branches.
GROUP-WIDE COMMITTEES Three Group-wide committees participate in the risk management process: • the Risk Policy Committee sets the rules for credit approval for the various sectors and types of counterparties; • the Executive Risk Committee (weekly) is responsible for defining risk management strategy and the organisation of the function; • the Management Credit Committee (weekly) is responsible for commitment decisions.
Présentation générale Management report
It defines the rules for the delegation of powers within Dexia Crédit Local and its subsidiaries and branches, and has them approved by the Group Risk Management department.
This delegation is subject to specific rules, depending on the type of counterparty, their credit rating and the value of the Group’s exposure to credit risk. The Management Credit Committee is the decisionmaking body of last resort for all credit proposals involving very large amounts or high-risk credits. Each proposal submitted to a Credit Committee includes an independent analysis presenting the main risk indicators and a qualitative analysis of the transaction. Dexia Crédit Local also delegates authority for decisions regarding public sector-type counterparties to certain subsidiaries and branches.
Gouvernance et contrôle interne
The Dexia Crédit Local Risk Management department oversees Dexia Crédit Local’s credit risk, under the aegis of the Management Board and a number of specialised committees. Along with the Group, it is responsible for defining credit risk policy, which includes the loan approval process, supervision of the counterparty rating process, analysis of loan proposals and monitoring of exposures.
Parallel to the process for approving lines of credit, various committees are responsible for monitoring specific risks. These committees are organised by expert centre and/or entity and meet on a quarterly basis. These committees are: • Watchlist Committees, which monitor assets considered to be “sensitive” that have been placed under active surveillance: the Dexia Crédit Local Watchlist Committee monitors sensitive Public and Wholesale Banking assets whose exposure lies below a certain threshold, while the Public and Wholesale Banking Watchlist Committee monitors sensitive assets whose exposure lies above that threshold. The Chief Risk Officer of Dexia Crédit Local is also a member of the Public and Wholesale Banking Watchlist Committee and approves all decisions concerning Dexia Crédit Local counterparties;
Comptes consolidés
ORGANISATION
• Default Committees, which qualify and monitor all counterparties in default in accordance with the Basel II regulatory framework, employing the prevailing rules applied by Dexia: the Dexia Crédit Local Default Committee monitors defaults whose exposure lies below a certain threshold, which varies with the type of counterparty, while the Public and Wholesale Banking Default Committee monitors exposures above that threshold. The Chief Risk Officer of Dexia Crédit Local is a member of the Public and Wholesale Banking Default Committee and approves all decisions concerning Dexia Crédit Local counterparties;
Comptes annuels
Credit risk represents the potential loss (decrease in the value of the asset or default of payment) that Dexia Crédit Local may incur due to the deterioration of a counterparty’s solvency.
In order to streamline the decision-making process, the Management Credit Committee delegates its decision-making authority to the Dexia Crédit Local Credit Committee for transactions pertaining to the Public and Wholesale Banking business line (this committee is chaired by the Chief Risk Officer of Dexia Crédit Local or his deputy) and to the Financial Markets Credit Committee organised at the Group level for all banking and insurance counterparties and for asset backed securities. The Dexia Crédit Local Chief Risk Officer or his representative participates systematically in all of the latter committee’s meetings, approves all decisions concerning Dexia Crédit Local transactions and also has veto power.
Assemblée générale
DEFINITION
SPECIALISED COMMITTEES BY EXPERT CENTRE
• Reserves Committees at both the Group and main entity levels, which approve the amounts of reserves set aside and monitor the cost of risk. • Credit Ratings Committees, organised at the Group level, which ensure that the internal credit rating system is applied correctly and that the credit rating process is compliant with the principles that have been established and that the same process is applied by all of the various entities. The Dexia Crédit Local Risk Management department attends all Credit Ratings Committees.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
2.1. Credit risk
2
25
2
Management report Risk management
2.2. Market risk DEFINITION The Group’s market risk reflects its exposure to changes in market parameters such as interest and exchange rates.
Présentation générale
Interest rate risk includes both a general risk on changes in market interest rates and a specific risk (spread risk) on the particular issuer. The latter is generated by changes in the spread of a specific issuer within a rating category. Currency risk reflects the potential decline in value due to fluctuations in foreign exchange rates against the euro.
Management report
ORGANISATION
Gouvernance et contrôle interne
The Financial Markets Risk Management unit (FMR) oversees all market risk, under the aegis of Dexia Crédit Local’s Management Board and a number of specialised risk committees. FMRM is an integrated function within the Risk Management function. With its comprehensive approach to risk management, it is responsible for identifying, analysing, monitoring and reporting all risks and results (including asset valuations) related to Financial Markets activities.
Comptes consolidés
The policies, directives and procedures documenting and framing each of the Financial Markets activities are defined by Dexia SA and applied to all Dexia Crédit Local entities. The central teams organised in expert centres or Group-wide teams are also responsible for defining the methodology for calculating the income statement and measuring risk, and for the consolidated measurement, reporting and monitoring of the risks and results of each of the activities for which they are responsible.
Comptes annuels
Lodged within the operating entities, the FMRM units are responsible for day-to-day operations, i.e., among other things, implementing the policies and directives defined at the Group level, as well as measuring and monitoring risk at the local level (calculating risk indicators, verifying limits and triggers, overseeing new activities/products, etc.), reporting and reconciliations with the Financial Control and Accounting departments and with the local information systems. Each operating entity is also responsible for monitoring and reporting to the local Management Boards and all local control and regulatory bodies.
COMMITTEES
Renseignements de caractère général
Assemblée générale
The Market Risk and Guidelines Committee (MRGC) meets monthly to address the following topics: analysis of risk and profit and loss trigger(1) reports and related decisions; definition and revision of approval limits; proposed approvals of all new products; discussion of risk-related directives, governance and standards; risk concepts and risk measurement methods. The quality of the valuation process is the subject of a special-purpose MRGC that meets once every quarter and also analyses disputes concerning issues such as amounts of cash collateral provided. Special MRGCs may be called as required to address specific operational or risk management issues.
In addition to the monthly MRGC, a specific MRGC meets once a quarter to review reports on activity and risk management related to Financial Markets activities. The Dexia Market Risk Committee (DMRC) meets every two weeks and acts as the supervisory committee for the MRGC. The Risk Policy Committee and the Risk Executive Committee validate all material changes to be made to the risk profile or to the governance of risk.
2.3. Balance sheet management DEFINITION Balance Sheet Management (BSM) includes all of the structural risks on the banking book, i.e. interest rate, currency, equity and liquidity risk. The detailed definitions of structural and specific interest rate risk, currency risk and equity risk are provided in the section on market risk. Liquidity risk measures the bank’s ability to satisfy all of its expected and unexpected current and future cash needs.
ORGANISATION Within the Finance function of Dexia Crédit Local Paris, the BSM department is responsible for managing all risks related to the balance sheet structure of Dexia Crédit Local at the local, parent company and consolidated levels, i.e. all interest rate, currency and liquidity risks other than those risks stemming from the bank’s Financial Markets activities. Within the Risk Management department of Dexia SA, the role of BSM Risk Management is to define the risk framework under which risk management can be conducted by BSM Finance (risk factors, limits, investment universe, guidelines, etc.); validate the models used in the effective management of this risk; monitor all exposures and ensure their compliance with Group norms; define the stresses to be applied to the various risk factors; challenge the risk management carried out by the Finance function, and ensure that the framework is compliant with all applicable external regulations throughout the entire Group.
COMMITTEES Three committees are responsible for monitoring BSM risk. The Dexia ALM Committee (Group Assets & Liabilities Committee, or Group ALCO) meets monthly. It establishes the overall framework for risk, sets limits, guarantees the consistency of the strategy, establishes the overall level of exposure in line with the risk appetite defined by the Management Board of Dexia SA and validates the transfer pricing mechanisms employed within the Dexia Group. It delegates operational implementation to the Dexia Crédit Local ALCO and the ALCOs of the international entities. Dexia Crédit Local is represented on the Group ALCO by either its CEO or its Chief Risk Officer.
(1)
(1) Loss triggers alert staff to a deterioration of earnings, and are expressed as a percentage of VaR limits, i.e. generally 50%, 75% and 100% for triggers 1, 2 and 3, and discontinuation of activity at 300% of VaR.
26
Dexia Crédit Local / Annual report 2011
Management report Risk management
• providing coordination between Group ALCO and local ALCOs: implementation of decisions, transmission of information, etc. Dexia Crédit Local ALCO decisions are implemented at the local level during ALCO meetings for those entities with their own BSM unit, or during Finance Committee meetings for all others. At Dexia Crédit Local Paris, Interest Rates and Liquidity Committees meet twice a month. These committees are composed of the CFO of Dexia Crédit Local or his representative, and representatives from the Risk Management and Financial Markets departments. The committee's main role is to regularly monitor the balance sheet risk of Dexia Crédit Local, for both the parent company and the consolidated group, and to take all appropriate measures to ensure compliance with the risk limits established by the Group ALCO.
Présentation générale Management report
The definition of operational risk developed by Dexia is inspired, in a non-exhaustive manner, by the definition provided by the Basel Committee, which puts the emphasis on losses (negative financial impacts). Dexia’s policy also requires the collection of data concerning any events that generated financial gains.
ORGANISATION The management of operational risk is based on clearly defined governance, responsibilities and roles.
Gouvernance et contrôle interne
The Management Board regularly examines changes in the risk profile of the Group’s various activities and makes all necessary decisions. The Risk Policy Committee (RPC), made up of representatives of the Management Board, approves Dexia Group-wide policies. The Operational Risk Approval Committee (quarterly) examines the main risks identified, decides whether or not they are acceptable and which if any corrective actions to implement. It also validates the proposed preventive or improvement measures in relation to the various components of the process (permanent control, information security, insurance programme, etc.). The Chief Risk Officer chairs the committee.
Comptes consolidés
• monitoring the management of the balance sheet risk of all Dexia Crédit Local Level 2 entities (Dexia Crédit Local New York, FSA Global Funding, Dexia Kommunalbank Deutschland, Dexia Kommunalkredit Bank, Dexia Israel Bank Ltd., Dexia Crediop and Dexia Sabadell);
Operational risk represents the risk of a financial or non-financial impact resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes information systems, legal and compliance risks, but excludes strategic risk.
The Operational Risk Management Committee, chaired once a month by the Group Operational Risk Manager, develops consistent Group-wide operational risk procedures, including those for business continuity, operation, crisis management, information security and insurance.
Comptes annuels
• managing the balance sheet risk of all Dexia Crédit Local Level 1 entities (Dexia Crédit Local Paris, Dexia Crédit Local Dublin, Dexia Municipal Agency and the French subsidiaries);
DEFINITION
Line management has primary responsibility for managing operational risk. For each area of activity, it appoints an operational risk correspondent who coordinates the collection of data and evaluates the risks, with the help of the local operational risk management function.
Assemblée générale
The Dexia Crédit Local ALM Committee (Dexia Crédit Local ALCO) meets monthly. The Group ALCO delegates authority to the Dexia Crédit Local ALCO for the monitoring and operational management of balance sheet risks (interest rate, currency, liquidity, etc.) at the consolidated Dexia Crédit Local level. As such, the Dexia Crédit Local ALCO, which is composed of the Chief Risk Officer, the Chief Financial Officer and the EVP-Financial Markets, is responsible for:
2.4. Operational risk
Renseignements de caractère général
By delegation from the Group ALCO, the Funding and Liquidity Committee (FLC) centralises and coordinates the decision-making process for all liquidity-related issues. The FLC is in charge of monitoring the Group’s liquidity position and ensuring that all needs are covered by short-, medium- and long-term resources. It monitors the attainment of the liquidity targets set by the Group Management Board and develops funding, divestiture and structuring strategies that will enable the Group to overcome all regulatory and internal stresses. The FLC, which meets on a bimonthly basis, takes all measures possible to improve the Group’s liquidity profile. Acting as knowledge centre for liquidity, Group BSM Finance transmits the information submitted by each entity, incorporates notably the specificities of each Dexia Crédit Local entity and centralises this information in order to permit funding conditions and the use of reserves to be optimised to the greatest extent possible.
2
Annual report 2011 / Dexia Crédit Local
27
2
Management report Risk management
3. Risk monitoring 3.1. Credit risk
Présentation générale
DEXIA CRÉDIT LOCAL CREDIT RISK POLICY The Credit Risk Management department (CRM) has established a general framework of policies and procedures consistent with the risk appetite of the bank. This framework guides the Credit Risk Management function in its risk analysis, decision-making and monitoring functions.
Management report
The various committees are delegated certain powers, within the limits established by the bank’s executive management. CRM’s credit risk monitoring duties include controlling changes in the credit risk of its portfolios through regular analysis of credit files and review of credit ratings. It also defines and implements reserve policy. It classifies files as being in default and approves specific reserves.
Gouvernance et contrôle interne
RISK MEASUREMENT
Comptes consolidés
The measurement of credit risk is based primarily on the internal rating systems developed by the Risk Management department in connection with Basel II. Each counterparty is assigned an internal credit rating by the analysts in charge of credit risk, using specialised rating applications. This internal rating corresponds to an assessment of the level of the counterparty’s risk of default expressed through an internal scale and represents a key component of the credit approval process. Credit ratings are reviewed at least once a year, which allows all counterparties requiring regular monitoring by the Watchlist Committee to be identified proactively.
Comptes annuels
In order to limit any concentrations of risk, credit risk limits are set for each counterparty, establishing the maximum acceptable credit risk exposure for a given counterparty. Limits by business sector and by product may also be imposed by the Risk Management department. The latter actively tracks limits, which it may reduce at any time as a function of changes in the associated risks.
FUNDAMENTALS OF DEXIA CRÉDIT LOCAL’S CREDIT RISK IN 2011
Assemblée générale
The International Monetary Fund (IMF) reported a slowdown in global economic growth since the second quarter of 2011 under the influence of several factors including the natural disaster in Japan, rising oil prices and uncertainty about public finances in the eurozone. Consequently, the growth rate of global trade in 2011 is expected to come in at 4%.
Renseignements de caractère général
a. Macroeconomic conditions
In 2012, any persistence of the restrictive forces observed in 2011 or occurrence of additional shocks could undermine growth. While significant revisions are likely, the IMF growth forecast is still set at 3.25%. Growth in the eurozone slowed sharply in the second quarter of 2011, bringing the IMF's growth estimate for 2011 to 1.6% and its forecast for 2012 to -0.5%.
28
Dexia Crédit Local / Annual report 2011
In 2011, market concerns within the eurozone were focused primarily on the so-called peripheral countries, including Portugal, Italy, Ireland, Greece and Spain. The situation in Greece appeared the most troubling, as in 2011 the country went through its fourth consecutive year of recession and posted a debt ratio close to 160% of GDP. The first EUR 110 billion bailout set in place in May 2010 was not enough to restore a balanced budget. The difficulties of implementing the reforms imposed by the so-called “Troika” (International Monetary Fund, European Commission and European Central Bank) against a background of tense social conditions and the chronic inability of State revenues to cover expenditures – due notably to structural weaknesses in the state’s ability to collect taxes – make fiscal consolidation difficult, despite the constitution in October 2011 of a national unity government under Prime Minister Lucas Papademos. This led to the establishment of a second, EUR 130 billion aid package, of which EUR 40 billion is to be used to recapitalise banks. The release of this aid is conditional upon the conclusion of a swap agreement with private creditors, represented by the Institute of International Finance (IIF), involving a large haircut on the Greek sovereign debt held by the latter. This plan, under which Dexia tendered all the shares it held at that time, was executed successfully in the first fortnight of March. In the United States, growth slowed more than expected in 2011. In addition to the sharp hike in oil prices, consumer and business confidence is down, unemployment is still high and financial markets remain highly volatile. GDP growth could reach 1.5% in 2011, and could improve slightly in 2012 (1.8% according to the IMF). It should also be noted that all activity with Middle Eastern and North African countries has been temporarily suspended due to the uncertainty generated by the upheavals in these regions.
b. Commitments to the local public sector Against the background of the sovereign debt crisis, it is important not to extrapolate the default risk of a sovereign to that of local governments. Nevertheless, the financial data available for local governments show changes in performance in most European countries and in the United States, the result of difficult economic conditions leading to a decline in tax revenues. Opportunities for savings are growing more limited and cash reserves are starting to show signs of strain. This general deterioration, which in 2011 led Dexia Crédit Local to set aside collective reserves against the local public sectors of Spain, Italy and North America, turned out to be contained and has not yet resulted in any increase in defaults. This is supported by the number of cases monitored every quarter by the Special Mention and Watchlist Committee. This is attributable notably to the highly restrictive institutional framework imposed upon local governments in almost all of the countries where Dexia has customers, and to its having been strengthened even further in recent times because of the global economic crisis. Situations do, however, differ from one country to another. In France, local governments were generally able to preserve savings and limit the growth of their debt in 2011. However, they must
Management report Risk management
• a target deficit of 1.3% of GDP was set for the regions in 2011. This objective was not reached: the deficit is expected to come in at 2.7% of GDP. If this objective is not achieved, the regions will have to submit an Economic and Financial Plan to the central government which, if not validated, will preclude the regions from borrowing long-term funds; • municipalities and provinces whose debt exceeds 75% of current revenue have been banned from borrowing. Regional public sector agencies have seen their transfers/grants cut and have sometimes been forced to revise their budgets and multiyear plans. Certain regions have also launched programmes to streamline the public sector. In Italy, the Internal Stability Pact – intended to regulate spending and public debt – has been maintained. In the most recent full sets of accounts currently available, i.e. 2009, current municipal revenues rose an average of 3%, the same rate as administrative expenses: administrative savings are therefore relatively stable. Average debt per capita, however, has increased substantially and fiscal flexibility has declined. In the Italian regions, the federal government continued to intervene to limit deficits in the healthcare sector (this item represents 80% of all current spending in the regions).
Présentation générale Management report
In line with the bank’s commitments to the European Commission, Dexia Crédit Local continued to sell off its bond Holdings in 2011, automatically lowering Dexia Crédit Local’s credit risk. The average rating of the portfolio improved slightly. As mentioned in the section on macroeconomic conditions, the intensification of the sovereign crisis within the eurozone led Dexia Crédit Local to reduce its sovereign exposure. Dexia Crédit Local also got rid of its risky US residential mortgage-backed securities assets (US RMBS) by selling almost the entire Financial products covered bond portfolio. Certain asset-backed securities remain under watch (including Irish and Greek RMBSs) but the bank’s exposure is fairly limited. Generally speaking, the ABS/MBS portfolio is composed of senior tranches with levels of protection that remain satisfactory. The credit quality of the bond portfolio remains very good, with 92% rated investment grade.
Gouvernance et contrôle interne
The constraints set in place to limit debt have been strengthened:
c. Bond portfolio
Comptes consolidés
In Spain, the local public sector was hit hard by the economic recession. Savings declined in all three segments (regions, provinces, municipalities), while debt is rising and cash reserves are falling sharply. The first data available for 2010 show a significant drop in regional revenues (savings expected to decline by 6% and debt to come in at 91%).
EXPOSURE TO CREDIT RISK(1) Exposure to credit risk includes: • the net carrying amount of all balance sheet assets other than derivatives (i.e. the gross carrying amount less specific reserves);
Comptes annuels
Under these crisis conditions, Dexia Crédit Local reduced its public sector credit limits and made lending rules more stringent.
County and municipal revenues are reliant in part on transfers from State governments, while the latter have tended to limit their assistance. These local governments are funded by property taxes (70% of municipal revenues) and sales taxes (for counties), both of which have been affected by the economic downturn. Debt service, however, remained low (less than 8% of revenue) and debt ratios are generally stable.
• the market value of derivatives; • the total value of off-balance sheet commitments: the total commitment is equal to either the undrawn portion of the liquidity facilities or the maximum amount that Dexia Crédit Local is required to honour on any guarantees given to third parties. When a credit exposure is guaranteed by a third party with a lower risk weighting, the principle of substitution is applied.
Current regional tax revenues remained stable in 2009 and spending decreased slightly, keeping savings fairly stable, after interest payment on debt. The average level of debt remained fairly low.
Exposure to credit risk includes all Dexia Crédit Local subsidiaries and branches.
In the United States, as State tax revenues are very directly linked to economic conditions (about 40% come from personal income tax,
The Group’s total exposure to credit risk amounted to EUR 319 billion as at 31 December 2011.
Assemblée générale
This overview, however, masks certain occasionally difficult individual situations. More than ever before, local government access to credit is conditioned on their financial position and the quality of their management, which could eventually exacerbate the liquidity situation of the most fragile local governments. The same can be said for the healthcare sector.
30% from sales tax and 8% from corporate income tax), States were impacted by the sharp slowdown in economic activity and strong rise in unemployment and therefore brought in less revenue. States were very active in the face of this decline, reducing costs (primarily education and healthcare), delaying payment of their contributions for pensions and issuing short-term paper to reduce their deficits. They also drew heavily on their reserves. Despite this context, debt levels remained fairly stable and debt service continues to represent only a marginal fraction of total expenses.
Renseignements de caractère général
incorporate new, structural constraints into the planning of their investments, including notably the suspension of all State grants: the latter generates a loss of financial flexibility for the regions and departments, especially on the heels of the reform of the local business tax and in the light of access to credit being more difficult.
2
(1)
(1) For more details, see note 7.2.A of the notes to the consolidated financial statements.
Annual report 2011 / Dexia Crédit Local
29
2
Management report Risk management
DEXIA CRÉDIT LOCAL CONSOLIDATED DATA AS AT 31 DECEMBER 2011 (EXCLUDING GLOBAL FUNDING) MAXIMUM CREDIT EXPOSURE BY TYPE OF COUNTERPARTY – SPECIFIC
MAXIMUM CREDIT RISK EXPOSURE BY TYPE OF COUNTERPARTY – GENERAL
Présentation générale
The composition of Dexia Crédit Local’s portfolio is very stable in terms of counterparties. Over half of the Group’s exposure is to local public sector entities.
20.4 % Interbank
20.4% Financial institutions
12.0 % Private sector
0.0% 10.0%
Private individuals, SME and independents
Management report
67.6 % Public sector
Sovereigns
5.1% Project finance
2.1% ABS-MBS
1.5%
MAXIMUM CREDIT RISK EXPOSURE BY CREDIT RATING
Gouvernance et contrôle interne
Monolines
3.3% Corporates
57.6% Local public sector
As at 31 December 2011, nearly half of Dexia Crédit Local’s exposure was rated AAA or AA. Only 7% of the Group’s exposure was rated non-investment grade (NIG).
MAXIMUM CREDIT RISK EXPOSURE BY REGION
0.9 % Unrated
Comptes consolidés
As at 31 December 2011, Dexia Crédit Local's exposure remained largely concentrated in the European Union (EUR 259 billion, or 81%), primarily in France (29.3%), Belgium (12.3%) and Italy (12.3%).
44.6 % AAA+ to AA–
0.4 % D
7.0 % Non investment grade
1.7 %
Comptes annuels
Rest of world
2.2 % Japan
12.0 % North America
0.1 %
47.1 %
12.3 %
A+ to BBB–
Belgium
29.3 % France
Turkey
ANALYSIS OF SOVEREIGN BOND PORTFOLIO FOR CERTAIN EUROPEAN COUNTRIES
0.5 %
Assemblée générale
Southeast Asia
0.6 % Central and South America
1.8 % Rest of Europe
Renseignements de caractère général
8.7 % Rest of EU
7.1 %
0.9 % Luxembourg
12.3 % Italy
1.3 % Portugal
Spain
0.2 %
0.3 %
Greece
Ireland
30
8.7 % Germany
Dexia Crédit Local / Annual report 2011
(EUR millions) Greece(1) Italy
711 9,533
Portugal
1,474
Spain Ireland TOTAL
(1)
Net of reserves.
481 0 12,199
Management report Risk management
2
Impairment for counterparty risk Loans and advances, including securities reclassified in loans and advances (EUR millions) Non-performing loans under collection Reserves allocated
31/12/2010
31/12/2011
Change (value)
Change (%)
828
1,018
190
23%
203
(1)
161
79%
Change (%)
364
31/12/2011
Change (value)
323
98
-217
-69%
99
0
-99
-100%
Reserves on Greek sovereign debt
0
2,788
2,788
NA
Reserves on Hellenic Railways
0
23
23
NA
Reserves on banks Reserves on mid-corporates
Management report
31/12/2010
Securities and derivates, excl. FP(1) and GF(2) (EUR millions)
Présentation générale
(1) Including EUR 138 million on non-performing loans under collection and EUR 112 million on Hellenic Railways.
Intensification of the sovereign debt crisis and impairment of exposure to Greece
3.2. Market risk
The intensification of the sovereign debt crisis in the eurozone over the summer had a tremendous impact on the Group. As the largest provider of local public sector financing in the eurozone, Dexia – notably through its Dexia Crédit Local subsidiary – has a significant amount of sovereign exposure that used to be considered risk free – especially in Italy, Greece and Portugal.
DEXIA CRÉDIT LOCAL MARKET RISK POLICY
At the end of 2011, Dexia Crédit Local also received support from its parent company to cover potential losses on portfolios of Greek securities carried by its funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. As such, a receivable of EUR 1,934 million has been recorded in the financial statements of Dexia Crédit Local and offsets the losses recognised on these portfolios in the consolidated financial statements.
Asset quality In 2011, impaired loans and advances to customers increased by 23% to EUR 1,018 million, due mainly to the recognition of provisions on Hellenic Railways. Specific reserves on loans and advances to customers also increased by 79% to EUR 364 million. This yields a coverage rate of 36%, against 25% in 2010.
Comptes consolidés
• a structure of limits and procedures governing the acceptance of risk, consistent with the entire risk measurement and management process and with the maintenance of an adequate capital position.
RISK MEASUREMENT
Comptes annuels
Dexia Crédit Local also interrupted the hedging relationships on these assets. The derivatives were reclassified as held for trading, generating a loss of EUR 868 million. Therefore, and including another EUR 20 million of impairment on loans, in 2011 Dexia Crédit Local recorded total impairment of EUR 2,936 million on its exposure to Greece.
• a comprehensive approach to the measurement of risk, which constitutes an important part of the Dexia Group’s process for monitoring and controlling its risk profile;
The Dexia Group has adopted the Value at Risk (VaR) risk measurement technique as one of its main risk metrics. VaR measures the potential loss expected for a 99% confidence interval over a 10-day holding period. Dexia uses several VaR techniques to obtain a precise measurement of the inherent market risk of its various portfolios and activities: • parametric VaR is used to measure general interest rate risk and currency risk, using a technique based on the assumption of a normal distribution of the yields on risk factors;
Assemblée générale
In the light of the uncertainties surrounding the implementation of this aid plan, in 2011 Dexia Crédit Local recognised impairment of EUR 2,056 million on its Greek sovereign bonds and similar types of exposures, representing a discount of 75% off the EUR 2,756 million face value of Dexia Crédit Local’s exposure as at 31 December 2011, and corresponds to the market value of the Greek securities at that date.
In order to manage market risk on a consolidated basis, Dexia has developed a framework based on the following:
• historical VaR is used to measure specific interest rate risk, equity risk and the other risks found in the trading portfolio. The distribution of historical VaR is built by applying historical scenarios for the risk factors affecting the current portfolio.
Renseignements de caractère général
The situation in Greece poses the most concern. The first bailout announced in May 2011 was not enough to calm the situation. It was therefore followed by the announcement of a second aid plan, involving a large haircut (75%) on Greek sovereign debt held by private creditors.
Gouvernance et contrôle interne
(1) Financial products. – (2) FSA Global Funding.
Dexia uses an in-house parametric VaR model to calculate its regulatory capital requirements on the general interest rate and currency risk generated by its trading activities. VaR techniques are being improved continuously. Launched in 2010, the Market Risk Engine now provides an historical VaR that factors in every risk factor (with a full reassessment of all nonlinear risk factors).
Annual report 2011 / Dexia Crédit Local
31
2
Management report Risk management
The comprehensive historical VaR technique, which has emerged as the standard in many banks, provides a consistent and accurate risk measure. This recent tool will facilitate stress testing, analysis of outliers and the implementation of the stressed VaR required by the EU directive on regulatory capital (CRD 3).
scenarios are reviewed and updated regularly. In 2011, stress test scenarios on all the sovereign issues, correlations of interest rates and the credit value adjustment were all performed. The consolidated results of stress testing and the corresponding analysis are presented once a quarter to the MRGC, the DMRC and the local Management Board of Dexia Crédit Local.
Présentation générale
A request was filed on behalf of the entire Dexia Group, including Dexia Crédit Local, with the National Bank of Belgium (BNB) in late 2011 to obtain permission to use historical VaR instead of parametric VaR to calculate the regulatory capital requirement. Once authorisation is received, historical VaR will also be used internally for risk management purposes.
Bonds in the bond portfolio (banking book) are not subject to VaR limits, due to their different investment horizon, but they are subject to regular stress tests.
EXPOSURE TO MARKET RISK(1)
Management report
In addition to VaR and loss trigger metrics, Dexia Crédit Local uses a wide range of other metrics to assess the risks associated with its different businesses and portfolios (limits for nominal volumes, maturities and authorised markets and products; limits for sensitivity to the various risk factors; etc.).
Value at risk Details regarding the VaR used by the Financial Markets activities (excluding the bond portfolio) are provided in the table below. Dexia Crédit Local’s average VaR came to EUR 8.2 million in 2011, compared with EUR 18.6 million the previous year.
Gouvernance et contrôle interne
Stress testing enhances the risk management process by examining a range of events not within the probability-based framework of VaR measurement techniques. VaR measures estimated market risk under traditional, everyday conditions, while stress testing quantifies it under abnormal circumstances. In this context, the various assumption
VaR limits were revised sharply downward in accordance with the principle of reduction of risk appetite laid out in the Dexia transformation plan in 2008 and 2009.
Value at Risk of Treasury and Financial Markets 2010 VaR (10 days, 99%)
Comptes consolidés
(EUR millions) By activity
Comptes annuels
Global
EQT(4) Trading
Spread Trading
Renseignements de caractère général
EQT(4) Trading
Spread Trading
Other risks(5)
4.1
0
14.5
0
3.3
0
4.9
0
Maximum
7.1
0
24.7
0
7.3
0
7.9
0
Average
18.6
8.2
Maximum
30.6
14.1
End of period
11.9
5.9
Limit
42.2
27
IR: interest rate. FX: foreign currency. IR & FX: excluding balance sheet management (BSM). EQT: equities. Other risks: inflation, CO2, commodity.
(1)
(1) For more details, see note 7.5 of the notes to the consolidated financial statements.
32
Other IR(1) & FX(2) (5) risks (Trading and Banking)(3)
Average
Assemblée générale
(1) (2) (3) (4) (5)
IR(1) & FX(2) (Trading and Banking)(3)
2011
Dexia Crédit Local / Annual report 2011
Management report Risk management
DEXIA CRÉDIT LOCAL ALM RISK POLICY Dexia Crédit Local takes a conservative approach to asset-liability management. The main objective is to minimise earnings volatility and preserve value. The bank seeks to stabilise its overall income, not to create additional income through the voluntary assumption of interest rate risk. Interest rate sensitivity is considered to be the main tool for measuring risk (total revaluation expressed in terms of sensitivity). A parametric VaR based on interest rate sensitivity is calculated at the Dexia Group level for information purposes. The key risk metrics used by the ALM Committees (ALCO) to manage this risk remain, however, global and partial sensitivity by time interval.
RISK MEASUREMENT Interest rate risk The role of the Balance Sheet Management (BSM) unit within the risk management function is to reduce the volatility of Dexia Crédit Local’s income statement, in order to ‘immunise’ the operating profits generated by the business lines and protect the Group’s overall creation of value from changes in interest rates. Dexia's approach to interest rate risk management is to reduce its exposure by continuously restoring the equilibrium between the interest rates on its assets and the interest rates on its liabilities. All Group entities use the same methods to measure balance sheet risk. The primary metric used to set limits and monitor risk is currently the sensitivity of the net present value of BSM positions to changes in interest rates. Dexia Crédit Local’s structural interest rate risk is generated primarily by long-term European interest rates and results from the structural imbalance between the Group’s assets and its liabilities.
Présentation générale Management report
Foreign currency positions are managed within the framework of ALM activities. They can be divided into three compartments, each of which has its own specific monitoring and oversight:
Gouvernance et contrôle interne
3.3. Balance sheet management
Dexia Crédit Local does not engage in any forex activities. The basic principle is that all assets denominated in foreign currencies (other than equity investments) are systematically funded in the currency of origin. Thus, any foreign currency positions are generated solely by the results (positive or negative) of operations denominated in foreign currencies.
• from an accounting standpoint, the non-structural currency position includes foreign currency-denominated assets and liabilities other than equity investments, realised gains and losses in foreign currencies and provisions for risks denominated in foreign currencies; • future results denominated in foreign currencies: current transactions (ALM margins, securities, equity investments, etc.) containing future results denominated in foreign currencies that have not yet been recognised but the amount and maturity of which are relatively certain. Group ALCO is authorised to hedge these items in advance using forward purchases/sales of foreign currencies against the accounting currency of record;
Comptes consolidés
The valuation methods used by Dexia for its financial instruments are detailed in the “Fair value of financial instruments” portion of the note “Accounting policies and valuation methods” to the consolidated financial statements of this annual report.
Currency risk (structural)
• the structural foreign currency position represents the currency risk of equity investments acquired in foreign currencies. The revaluation of this position at each balance sheet date affects only the balance sheet and has no impact on earnings. It is recognised in profit or loss only in relation to dividend payments and the setting aside of reserves on, or the sale of, the corresponding asset.
Comptes annuels
In the light of the illiquidity of the markets and the reduced visibility for prices/spreads in the valuation process, models were used to value the “illiquid” portion of assets available for sale (AFS).
Interest rate risk is monitored on a fortnightly basis in the main entities of the Dexia Crédit Local Group and is managed by local committees. Risk indicators are calculated on a “dying balance sheet” and until its extinction. The results of this monitoring are presented each month to Dexia Crédit Local’s Asset & Liabilities Committee (ALCO), which determines the interest-rate risk policies and limits to be observed by its subsidiaries, as the limits to be observed by Dexia Crédit Local are established by the Group ALCO.
BALANCE SHEET EXPOSURE Exposure of the balance sheet to interest rate risk (sensitivity)
Assemblée générale
Dexia Crédit Local manages bond portfolios, most of which have been placed in run-off, with an aggregate value of EUR 98.2 billion as at 31 December 2011 (EUR 127.1 billion the previous year). As the interest rate risk on these bond portfolios is hedged, they are not very financially sensitive to changes in interest rates. A significant portion of the bond portfolios is classified in Loans and Receivables. The AFS reserve of these securities is insensitive to changes in market spreads. As at 31 December 2011, the sensitivity of the fair market value (and the AFS reserve) of the other bond portfolios, classified as AFS, to a one basis point increase in the spread came to negative EUR 27.4 million (negative EUR 30.7 million per basis point the previous year).
Risk sensitivity measurements reflect the exposure of the balance sheet to first- and second-order sensitivity. VaR calculations provide complementary, indicative measurements.
Interest rate risk sensitivity measures the change in the net economic value of the balance sheet caused by a 1% increase along the entire interest rate curve. Dexia Crédit Local had consolidated long-term ALM sensitivity of negative EUR 33.2 million as at 31 December 2011 (negative EUR 7.5 million the previous year). The limit of sensitivity to interest rates amounted to EUR 96 million per 1% change as at 31 December 2011 (negative EUR 94 million the previous year).
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
Bond portfolios
2
33
2
Management report Risk management
3.4. Liquidity risk DEXIA CRÉDIT LOCAL LIQUIDITY RISK POLICY
Présentation générale
Two committees are responsible for the management of liquidity risk: the Funding and Liquidity Committee (FLC) and the Dexia Crédit Local ALCO. The FLC includes all interested parties at Group level and coordinates their actions. Information and decisions affecting Dexia Crédit Local or any of its subsidiaries are also discussed during the Dexia Crédit Local ALM Committee (ALCO), which is responsible for monitoring balance sheet risk within the consolidated scope of Dexia Crédit Local. Finally, Dexia Crédit Local’s Management Board, Audit Committee and Board of Directors regularly monitor the Group’s liquidity position.
Gouvernance et contrôle interne
Management report
Dexia strives to maintain a liquidity reserve that is proportional to its future funding needs under different scenarios, including both normal and stress conditions. This liquidity reserve consists of securities that qualify for the funding programmes of those central banks to which Dexia has access. Dexia’s expected funding needs are assessed in a conservative, dynamic and exhaustive manner, taking account of all existing and planned transactions (both on- and off-balance sheet). Short-term liquidity risk is monitored on a daily basis, whilst long-term liquidity risk is monitored on a monthly basis. Moreover, the liquidity issue is central to the definition of Dexia’s multi-year financial plan.
Comptes consolidés
Dexia’s internal liquidity risk management process allows daily monitoring of liquidity and provides a prospective outlook on long- term liquidity: this forward-looking vision incorporates assumptions as they occur as well as the various stress factors that can affect liquidity, such as drawings on off-balance sheet commitments and issues related to the renewal of long-term funding. Changes to these scenarios have been presented regularly to the Liquidity Committee and the Audit Committee of Dexia Crédit Local.
Comptes annuels
The updated emergency funding plan alters the governance structure to make it more responsive at times when liquidity stress requires prompt action.
RISK MEASUREMENT
Renseignements de caractère général
Assemblée générale
The Dexia Group defines a number of liquidity indicators to measure and monitor how well Dexia would hold up in the face of a liquidity risk. These indicators include but are not limited to the usual “liquidity ratios” comparing the liquidity reserve to the liquidity gap. They include limits on the absolute size of the liquidity gaps and limits on the proportion of short-term funding used. All of these indicators are assessed in accordance with different scenarios, in the main currencies, at all appropriate levels of consolidation and over various horizons ranging from one day to one month for short-term indicators, and from one day to 50 years for long-term indicators. Dexia Crédit Local’s liquidity risk is also limited by the regulatory ratios established by its regulator, and is monitored regularly by the Management Board, the Audit Committee and the Board of Directors of Dexia Crédit Local.
EXPOSURE TO LIQUIDITY RISK In 2011, Dexia Crédit Local raised EUR 16.6 billion in medium- and long-term funding. The funds raised included EUR 8.4 billion of covered bonds, EUR 6.5 billion of other types of secured long-term (1) financing and EUR 1.7 billion of senior unsecured financing.
In 2011, the balance sheet reduction programme allowed the Group to sell off EUR 7.4 billion in bonds and EUR 3.6 billion in long-term loans previously held by the Public and Wholesale Banking business. Lastly, the imposition of a cap on the value of corporate loans (EUR 4.4 billion in new lending) also contributed to the reduction of the Group’s funding requirements. These efforts, however, were not enough to maintain momentum in reducing Dexia Crédit Local’s short-term funding needs, in the light of the long-term debt that was paid down over this period (EUR 34 billion). With the intensification of the sovereign debt crisis, Dexia Crédit Local’s liquidity position, which had improved during the first half, deteriorated significantly starting in the summer of 2011; this caused its regulatory liquidity coefficient to deteriorate significantly, after showing signs of improvement the previous months. For information, the regulatory coefficient measures a credit institution’s projected liquidity position over a given time horizon(1). As at 31 December 2011, Dexia Crédit Local was not able to attain the minimum regulatory threshold required for compliance with the liquidity coefficient to which it is subject. Future compliance with this ratio will depend on the execution of the Group’s issuance plan, which remains the subject of much uncertainty. Following the agreement reached with the French, Belgian and Luxembourg States, a temporary guarantee programme was established in the fourth quarter. The aid programme extended to Dexia SA and its Dexia Crédit Local subsidiary has two ultimate goals: • allow the Dexia Group to carry out the various sales of entities that are planned; • once this has been accomplished, to provide for the Group’s funding needs over the long term. The legal form of the guarantee mechanism is similar to the scheme set up in 2008 and amended in 2009. It consists of a tripartite, irrevocable, unconditional, direct and autonomous demand guarantee extended by the Belgian, French and Luxembourg States. The guarantee provided is joint but not several, and the distribution between the States remains unchanged (60.5%, 36.5% and 3% for Belgium, France and Luxembourg, respectively); it covers contracts, securities and financial instruments. This temporary mechanism is set to expire on 31 May 2012, and it is capped at EUR 45 billion. The European Commission approved the temporary guarantee agreement on 21 December 2011; it went into effect on 22 December and has allowed Dexia Crédit Local to raise guaranteed funding in the market ever since. In all, EUR 21.6 billion had been raised under this programme as at 30 December 2011, and EUR 23.7 billion as at 25 January 2012. The Group’s liquidity requirement at one month increased by 14% year on year to EUR 34.5 billion as at 31 December 2011. At that same date, central bank financing amounted to EUR 49 billion, consisting of EUR 30 billion in financing obtained through European central bank tenders and EUR 18.7 billion in drawings under the emergency liquidity assistance (ELA) line set up in early October 2011 from the entire central banking system. While the Group will strive to reduce this amount, the size and timetable for paying down the ELA drawing will depend greatly on Dexia Crédit Local’s ability to issue guaranteed debt.
(1) The French Prudential Control Authority (ACP) coefficient applicable to Dexia Crédit Local is defined as cash in bank and on hand (the numerator) divided by current liabilities (the denominator) over a prospective period of one month; the coefficient so calculated must at all times be greater than 100 (Instruction No. 2009-05 of 29 June 2009 regarding the standardised approach to liquidity risk).
34
Dexia Crédit Local / Annual report 2011
Management report Risk management
3.5. Operational risk
2
b. Self-assessment of risk and related controls
a. Operational risk database
d. Permanent control
The systematic capture and follow-up of operational risk events is one of the most important requirements stated by the Basel Committee, whatever approach has been chosen for the capital calculation (Standardised or Advanced Measurement Approach): “time series of losses may provide useful information for assessing exposure to operational risk and developing a strategy to control/mitigate this risk”.
This permanent control system is responsible for verifying that the risk management system set in place is sound and effective, and guarantees the quality of all accounting and financial information and information systems. This involves first-level controls performed by operations staff and second-level controls performed by non-operations support staff. Consolidated oversight of the permanent control function is based on the use of decentralised risk measurement and monitoring teams within the Head Office departments, subsidiaries and branches, and on the use of permanent control committees to perform monitoring on a consolidated basis.
RISK MEASUREMENT AND MANAGEMENT
The collection of operational risk event data allows Dexia Crédit Local to comply with regulatory requirements and to obtain valuable information that it can use to improve the quality of its internal control system. Reporting guidelines have been formulated and distributed at the Group level, to ensure that crucial information is passed on in due time (a mandatory reporting threshold has been set at EUR 1,000). The Management Board receives a report of all major operational events, including the action plans defined by the line management to reduce the risks.
Présentation générale
The information systems security policy and all related guidelines, standards and practices are designed to ensure the security of Dexia Crédit Local’s information assets.
4.3% External fraud
24.8% Clients, products and commercial practices
As required by the Group’s policy on business continuity, the business lines must perform impact studies for all critical activities in the event of an interruption. They must define and establish recovery plans and ensure that the business continuity plans of the different functions are tested and updated at least once a year. Based on regular reports, the Management Board validates all recovery strategies, residual risks and action plans in an effort to achieve continuous improvement. Accordingly, improvement measures were undertaken in 2011 on the basis of the assessments of business continuity procedures carried out in 2010 in every Dexia Crédit Local subsidiary.
Assemblée générale
0.1% Systems or infrastructure failure
Internal fraud
e. Management of information systems security and business continuity
The security programmes and well-defined responsibilities in place enable all activities to be carried out in a secure environment.
PERTES DISTRIBUTION DES OF LOSSES PARTYPE TYPEOF D’INCIDENT – 31/12/2011 BY EVENT – AS AT 31 DECEMBER 2011
0.0%
Gouvernance et contrôle interne
The operational risk management system is based on the key factors discussed below.
Line management defines the measures that must be taken to correct any major risk events, deficient controls or significant risks identified. This is monitored regularly by the operational risk management function. This process promotes the continuous improvement of the internal control system and reduction of risk in an appropriate fashion over time.
Management report
c. Definition and monitoring of action plans
Comptes consolidés
Dexia Crédit Local's Operational Risk Management policy is to identify and regularly assess the various risks and controls that exist to verify compliance with the level of tolerance that has been defined for each type of activity. If such is not the case, the system of governance that has been set in place must lead to the rapid development of corrective actions or improvements that will return the situation to an acceptable level. This system is supplemented by a prevention policy that concerns notably data security, business continuity and, when necessary, the transfer of certain risks through the use of insurance.
In addition to building a history of losses, Dexia Crédit Local’s exposure to the major types of operational risk is identified by risk mapping all its activities. This is achieved by all Group entities performing bottom-up exercises in self-assessment of risk in the light of existing controls. The self assessments may result in the definition of initiatives to reduce these risks. They provide an overview of most of the risk areas in the different entities and activities, and allow results to be reported to management at every level of the organisation. These exercises are repeated every year.
Comptes annuels
DEXIA CRÉDIT LOCAL OPERATIONAL RISK POLICY
68.4% 0.9%
Renseignements de caractère général
Execution, delivery and process management
Damage to physical goods
1.5% Employment and workplace safety practices
Annual report 2011 / Dexia Crédit Local
35
Présentation générale
2
Management report Risk management
f. Management of insurance policies
h. Calculation of regulatory capital requirements
The bank also reduces the operational risks to which it is exposed by taking out Group insurance policies covering professional liability, fraud, theft, etc. The aim is to have a common insurance strategy at the Group level that establishes principles regarding coverage of the various risks incurred that are to be implemented in the entities and subsidiaries. It also allows for centralised oversight of negotiations with the various brokers and insurance companies. In this context, a mapping of all existing policies within each entity and subsidiary was performed in 2010, in order to improve effective coverage. Efforts to harmonise local policies within the Group continued in 2011.
Dexia applies the Basel II standardised approach for calculating its regulatory capital in connection with its Operational Risk Management.
g. Increased coordination with other functions involved in the internal control system
Comptes consolidés
Gouvernance et contrôle interne
Management report
A new software application was implemented in 2010 to cover most of the components of the Operational Risk Management system and to make certain key features available to other central functions (internal audit, compliance, validation, permanent control and quality control). This software allows all of these functions to use a common language and common reference systems, and consolidated information to be produced for the bank’s line management, in particular in respect of any action plans and recommendations to be followed over time. Use of the application intensified in 2011 with the inventorying of the main controls in the largest entities.
The standardised approach consists primarily of applying a percentage (the “beta factor”, ranging from 12% to 18%) to an appropriate indicator, calculated for each of the eight business lines defined by the Basel Committee: corporate finance, commercial banking, retail banking, trading and sales, asset management, agency services, retail brokerage and payments and settlement. The indicator in question is defined by the regulator and consists essentially of the operating profit of the underlying businesses, including net fee and commission income and net interest income. Income from insurance activities is not taken into account, as it is not regulated by the Basel II framework. The amount of regulatory capital required for each business line is used to calculate the total operational risk capital requirement. An average over the last three years is used. The calculation is updated at the end of every year. Capital requirements for the most recent calculation periods: It should be noted that the capital requirement was reduced by 40% between 2010 and 2011, due to the fact that in the calculation, which is an average over a three-year period, the income for 2008 was replaced by that of 2011, which was lower due to the change in activities ever since the financial crisis began in 2008.
4. Legal risk
Comptes annuels
During 2011, no significant change was observed in the number of disputes with customers, which remained few. By mid march 2012, a total of nineteen customers had sued Dexia Crédit Local over structured loans. The most significant disputes concerning Dexia Crédit Local’s consolidated subsidiaries are described below:
Assemblée générale
• Dexia Crediop, like other banks in Italy, is the subject of legal proceedings regarding hedging transactions entered into in connection with debt restructuring agreements with local governments. By early 2012, nine legal proceedings had been filed.
Renseignements de caractère général
Under Italian law, debt may be restructured only if this lowers the cost borne by the community. The legal question raised is whether or not the cost to be taken into consideration includes the cost of hedging transactions. In November 2010, the Administrative Tribunal of the Region of Tuscany ruled in favour of the province of Pisa in its dispute with Dexia Crediop, in which it stated that the hedging transaction must be included in the calculation of the cost of the transaction. Dexia Crediop appealed this decision and on 7 September 2011, the State Council validated the ruling of the Administrative Tribunal, but named a financial specialist to evaluate any losses suffered by
36
Dexia Crédit Local / Annual report 2011
the province. The specialist must submit his report by 14 May 2012, and a heating with the State Council is planned for 9 June 2012. Dexia Crediop also appealed the decision of the State Council to the Final Court of Appeals. Dexia Crediop also filed various appeals with civil and administrative courts to preserve its rights stemming from certain hedging transactions. Dexia is not able at present to reasonably predict the length, the outcome or the potential financial repercussions of the disputes. • In May 2002, a complaint was filed concerning Dexia’s purchase of shares held by the State of Israel, alleging a breach of corporate law. In April 2009, the Central District Court dismissed the class action claim filed by the plaintiffs. In June 2009, the latter appealed their case to the Supreme Court. The hearing was held on 8 November 2010, and the Supreme Court will render its ruling at a later date. In December 2011, a second class action suit was filed by nine individual shareholders against Dexia Crédit Local and Union of Local Authorities in Israel (ULAI) in their capacity as shareholders and against Dexia Israel.
Management report Risk management
In addition to the government investigations described above, a large number of banks, insurance companies and brokerage firms, including in some cases FSA Holdings, Dexia and/or AGM, have been subpoenaed in various civil cases relating to GICs and certain other transactions entered into with local governments. These civil lawsuits concern possible breaches of antitrust laws and other laws and regulations. Almost all of these civil suits have been combined and are being handled by the US District Court for the Southern District of New York. Under the terms of the sale of FSA Holdings and AGM to Assured Guaranty Ltd., Dexia has retained the Financial products business and agreed to indemnify AGM and Assured Guaranty Ltd. for all losses related to this activity that they may incur as a result of the investigations and lawsuits mentioned above.
Présentation générale
• In June 2009, a customer of Dexia banka Slovensko, who turned out to be unable to meet margin calls in connection with foreign exchange transactions he had entered into, instituted legal proceedings against Dexia banka Slovensko, seeking EUR 162.4 million for breach of law and contractual obligations. Dexia banka Slovensko filed a counterclaim in the amount of EUR 92.2 million. On 17 May 2010, the Court of Instance [Magistrates’ Court] of Bratislava ruled in first instance in favour of the bank’s former client and the bank was ordered to pay EUR 138 million in principal. By a separate order, Dexia banka Slovensko was also ordered to pay costs in the amount of EUR 15.3 million. Dexia banka Slovensko appealed both decisions to the Court of Appeals of Bratislava and, in response to these convictions, withdrew its counterclaim from the Magistrates' Court and filed it for a higher amount with the Permanent Chamber of Arbitration of the Slovak Banking Association. On 25 January 2011, the Court of Appeals of Bratislava issued a ruling overturning both of the judgments rendered by the Court of Instance of Bratislava. The case will be resubmitted to the Court of Instance. In its ruling, the Court of Appeals of Bratislava said that the Court of Instance had not established the facts to a satisfactory degree and invalidated its legal argument. The argument of the Court of Appeals will be binding on the Court of First Instance recently notified.
Management report
• Financial Security Assurance Holdings Ltd. (FSA Holdings Ltd.) and its subsidiary, Financial Security Assurance Inc., now renamed Assured Guaranty Municipal Corp. (AGM), previously subsidiaries of the Dexia Group, and many other banks, insurance companies and brokerage firms are being investigated in the United States by the Antitrust Division of the US Department of Justice, the US tax authorities and the Securities and Exchange Commission (SEC) on the grounds that they violated the laws and regulations applicable to requests for proposals and the contracting of various transactions with local governments, including the marketing of guaranteed investment contracts (GICs(1)) entered into with issuers of municipal bonds. Several US States have initiated parallel, similar investigations.
Furthermore, on 27 July 2010, the US Department of Justice accused Steven Goldberg, a former employee of AGM, and two of his former colleagues at his previous employer in connection with a case involving bid rigging. The US Department of Justice did not name AGM or any other Dexia Group entity in the indictment it issued against Goldberg.
Gouvernance et contrôle interne
The most significant disputes concerning Dexia Crédit Local’s nonconsolidated subsidiaries are described below:
2
It should be recalled that all of the risks pertaining to the nonconsolidated subsidiaries are covered by Dexia SA.
Comptes consolidés
Dexia is not able at present to reasonably predict the length, the outcome or the potential financial repercussions of the investigations and legal proceedings already underway.
The stress tests are used to measure the bank’s sensitivity to adverse shocks, in terms of expected losses, weighted assets, liquidity needs and capital requirements. In 2011, Dexia performed a battery of stress tests (sensitivity analysis, scenario-based analysis, assessments of potential vulnerabilities, etc.) allowing it to assess the potential impact on its financial strength of one or a combination of hypothetical events. To do so, macroeconomic scenarios simulating crisis situations, common to the entire Group, were defined with economists.
In 2011, Dexia also participated in the stress tests conducted by the European Banking Authority (EBA) and the national regulators. These stress tests(2) were designed to measure the solvency of European banks in the event that credit quality, market risk parameters and the cost of funding were to get worse.
Assemblée générale
At the end of 2010, Dexia implemented a system of governance enhanced by the performance of stress tests based on a Group-wide approach and integrated into the Group’s risk management process.
In addition to the stress tests for market and liquidity risk carried out regularly in compliance with regulatory requirements, in 2011 Dexia also performed resistance tests on most of the loan portfolios. Under Pillar 1 of Basel II, exposures covered by internal rating systems are tested for sensitivity and under adverse scenarios for macroeconomic variables.
Renseignements de caractère général
Only Dexia SA is required to perform stress tests.
Comptes annuels
5. Stress tests
(1)(2) (2)
(1) The guaranteed investment contracts (GICs) that are the subject of these investigations and these subpoenas were issued by subsidiaries of FSA Holdings Ltd. in exchange for funds invested by US municipalities, or in favour of issuers of securitised debt. The GICs, whose terms and repayment conditions vary, entitle their holders to receive interest at a guaranteed rate (fixed or variable) and a repayment of principal. The payment of principal and interest on the GICs was guaranteed by AGM and remain so subsequent to that company’s acquisition by Assured Guaranty Ltd. (2) The exercise was carried out using the scenarios, methodology and assumptions provided by the EBA, as detailed in the comprehensive report published on the EBA website on 15/07/2011: http://www.eba.europa.eu/EU-wide-stress-testing/2011/2011-EU-wide-stress-test-results.aspx.
Annual report 2011 / Dexia Crédit Local
37
2
Management report Risk management
Management report
Présentation générale
After the results of this stress test were released on 15 July 2011, a new exercise(1) incorporating a stress on sovereign exposures was requested of 71 banks, based on the data at 30 September 2011, in response to investor concerns over sovereign risk. The objective was to establish the temporary, non-recurring capital reserve needed to reach a minimum Tier 1 core capital ratio of 9% at 30 June 2012 (versus 5% in the test published in July) and to cover the value of any impairment that might be incurred on sovereign exposures. Application of the EBA methodology identified a EUR 6.3 billion capital shortfall for Dexia, although the scope of the exercise included Dexia Bank Belgium (sold 20 October 2011). On a pro forma basis, excluding Dexia Bank Belgium, application of the EBA methodology shows the Dexia Group with a EUR 4.2 billion capital shortfall as at 30 September).
Since that 30 September 2011 calculation, the Group has announced a broad restructuring plan including the planned divestment of Dexia Banque Internationale à Luxembourg, RBC Dexia Investor Services, Dexia Asset Management, Dexia Municipal Agency and DenizBank. At the conclusion of this restructuring process, the Group will be significantly smaller and will abstain from growing its cross-border activities in any significant manner. In order to able to successfully execute this plan, the Group will benefit from the support of a guarantee from the Belgian, French and Luxembourg States on its new issues that was temporarily approved by the European Commission on 21 December 2011. In the light of these factors, Dexia is not subject to the recapitalisation requirements of this exercise of establishing a capital reserve and will no longer be included in the EBA sample.
Gouvernance et contrôle interne
6. Changes in the regulatory framework The Dexia Group implements all measures related to the Basel II regulations and strives to make improvements on a continuous basis.
Settlements’ study of the impact of Basel III reform on the definitions of items such as equity, gearing, liquidity ratios, etc.
Since 1 January 2008, Dexia Crédit Local has therefore applied the Advanced Internal Rating Based Approach (AIRBA) to calculate its capital requirements and capital adequacy ratios.
Dexia worked actively on applying the so-called CRD 2 and CRD 3 EU regulatory capital Directives.
Comptes annuels
Comptes consolidés
Pillar 2, which has been applicable since 31 December 2008, requires banks to demonstrate to their regulators that they are sufficiently capitalised in the light of their risk profile. To accomplish this, the banks must notably have internal systems for calculating and managing their risk that are capable of estimating their economic capital needs (Internal Capital Adequacy Assessment Process, or ICAAP). Incorporated into the Group in 2010, this process is distinguished notably by its definition of risk appetite and the process for ensuring that adequate capital is maintained (see section on “Internal capital adequacy” below). Pillar 3, which defines a set of qualitative and quantitative risk-related disclosures to be provided to market players, is applied at the highest consolidated level of the Dexia Group, and has been an integral part of its external communication policy since 2008 (see document entitled Risk Report – Pillar 3 of Basel II available at www.dexia.com).
Similarly, under the terms of CRD 3 (applicable as at 31 December 2011) the Group developed an internal measure of stressed value at risk (VaR) to calculate the capital charge in respect of market risk and implemented new requirements for the calculation of the consumption of capital by securitisation and re-securitisation Holdings (although there is very little of this in the Dexia Group) in both the banking and trading books. The strong involvement of the Dexia Group in monitoring the regulatory changes brought about by Basel III resulted in the establishment of a dedicated governance system involving a strong collaboration between the risk management and finance functions in order to successfully execute all necessary changes in respect of the new requirements for the calculation of the consumption of capital (Credit Value Adjustment, Asset Value Correlation, liquidity, definition of capital).
Renseignements de caractère général
Assemblée générale
Finally, Dexia was deeply involved with all domestic and international consultations, participating notably in the Bank for International
Under the terms of CRD 2, on 31 December 2010 Dexia made changes to intercompany and interbank exposures for the calculation of “major risks” and developed internal guidelines to ensure the retention of 5% of all securitised exposures on any new originations.
(1)
(1) The exercise was carried out using the scenarios, methodology and assumptions provided by the EBA, as detailed in the comprehensive report published on the EBA website on 08/12/2011: http://www.eba.europa.eu/News--Communications/Year/2011/The-EBA-publishes-Recommendation-and-final-results.aspx
38
Dexia Crédit Local / Annual report 2011
Management report Risk management
2
Solvency
In accordance with regulatory requirements:
Dexia Crédit Local applies the rules and ratios established by the Basel Committee on Banking Supervision and by EU Directive CRD for the monitoring of solvency.
• reserves on available-for-sale bonds and on cash flow hedges are excluded from regulatory capital;
REGULATORY CAPITAL Regulatory capital includes: • Tier 1 capital (core regulatory capital including hybrid capital), which includes capital stock, additional paid-in capital, retained earnings including profit for the year, hybrid securities, translation adjustments and minority interests, and is presented net of intangible assets, dividends payable, treasury stock and goodwill;
• certain IFRS adjustments to subordinated debt, minority interests and debt must be recaptured to reflect the loss absorption characteristics of these instruments;
Management report
Dexia Crédit Local has been in compliance with these regulatory capital requirements in every period for which results have been released.
• reserves on available-for-sale equities are included in supplementary capital if they are positive (capped at 90%) or are deducted from core capital if they are negative;
• other factors (SPEs, deferred taxes, etc.) are also adjusted in accordance with the requirements of the regulators. Moreover, since 1st January 2007, in accordance with the Capital Requirements Directive (CRD), the National Bank of Belgium has adapted the transposition of the calculation of regulatory capital. The main factor that could impact Dexia is the fact that 50% of the items currently deducted from the total regulatory capital (value of the equity of financial institutions, qualified holdings in financial institutions or subordinated debt issued by such institutions) is deducted from Tier 1 capital and 50% from total regulatory capital.
Gouvernance et contrôle interne
These ratios, the capital adequacy and core capital (Tier 1) ratios, respectively divide the amount of regulatory capital and the amount of Tier 1 capital (regulatory capital in the strict sense of the term including hybrid capital) by the total value of risk-weighted assets. Regulatory minima have been established of 4% for the Tier 1 core capital ratio and 8% for the capital adequacy ratio.
Présentation générale
7. Management of capital
10,418
9,885
Total regulatory capital, including hybrid capital (Tier 1)
6,547
8,355
Common regulatory capital(1) Translation adjustments – Group
6,015
7,529
Prudential filters Minority interests (eligible for Tier 1)
-44
-9
-266
-266
489
609
-347
-194
-259
-104
-13
-13
Deficit of reserves 50% (-) Items excluded
• Intangible assets and goodwill • Investments in other credit and financial institutions > 10% of their capital (50%)
• Subordinated advances to related companies (50%)
-14
-75
-77
700
700
Supplemental capital (Tier 2)
3,871
1,530
Subordinated borrowings with no fixed maturity
1,275
0
Subordinated borrowings with a fixed maturity
2,653
1,601
139
124
Tier 1 hybrid instruments
Fair value reserve on equities (+) Surplus reserves (+), deficit of reserves 50% (-) Items excluded
• Investments in other credit and financial institutions > 10% of their capital (50%)
• Subordinated advances to related companies (50%)
Comptes annuels
31/12/2011
3
-14
-199
-181
-124
-104
-75
-77
Annual report 2011 / Dexia Crédit Local
Assemblée générale
Regulatory capital (after allocation)
31/12/2010
Renseignements de caractère général
(EUR millions) REGULATORY CAPITAL
Comptes consolidés
• Tier 2 capital (supplementary capital), which adds in the eligible portion of long-term subordinated debt and subtracts subordinated debt and shares in financial institutions.
39
2
Management report Risk management
Dexia Crédit Local had Tier 1 capital of EUR 8,355 million as at 31 December 2011 (EUR 6,547 million the previous year). This improvement is directly attributable to the capital increase subscribed by Dexia SA at year-end, which offset the net loss incurred during the period.
As at 31 December 2011, the Group’s Tier 1 hybrid instruments included EUR 700 million in non-cumulative subordinated debt securities issued by Dexia Crédit Local and recognised at their face value.
The terms of the issue are provided in the table below:
Comptes consolidés
Gouvernance et contrôle interne
Management report
Présentation générale
(EUR millions) Issuer Dexia Crédit Local
Amount recognised
Interest rate
Call date
Rate applicable after the call
700
4.30%
18 November 2015
3-month Euribor + 173 basis points
The agreement with the European Commission imposes certain restrictions on the payment of coupons and on exercises of calls on Dexia’s hybrid capital instruments. Dexia effectively pledged to pay coupons on its subordinated debt and hybrid capital instruments only if it has a contractual obligation to do so, and to refrain from exercising any calls prior to 31 December 2011. The Group intends to apply the same rule in 2012.
In order to strengthen the capital of Dexia and its Dexia Crédit Local subsidiary, on 2 March 2012 Dexia Crédit Local launched a buyback offer for its EUR 700 million in Tier 1 hybrid securities at a price (expressed as a percentage of the face value) of 24%. The offer, which expired on 12 March 2012, had a 92% success rate, with a total of EUR 644 million in securities tendered by investors.
WEIGHTED RISK
SOLVENCY RATIOS
Weighted risk has three components: credit risk, market risk and operational risk. Each of these risks is described in the “Risk management” section of this annual report.
At 16.4% and 19.4% respectively, the Tier 1 core capital and capital adequacy ratios reflect the improvement in core capital afforded by the EUR 4,200 million capital increase carried out at the end of 2011.
Total weighted risk fell EUR 19 billion year on year to EUR 51 billion as at 31 December 2011, due primarily to the deconsolidation of Dexia Financial Products Holdings Inc. from the scope of the Dexia Crédit Local Group in the first half of 2011.
It should be recalled that these ratios amounted to 9.41% and 14.97% respectively as at 31 December 2010.
(EUR millions) Weighted credit risk
31/12/2010 66,364
Weighted market risk
978
1,534
2,241 69,582
1,392 50,961
Renseignements de caractère général
Assemblée générale
Comptes annuels
Weighted operational risk Total
40
31/12/2011 48,035
Dexia Crédit Local / Annual report 2011
Core capital ratio (Tier 1) Capital adequacy ratio
31/12/2010
31/12/2011
9.41%
16.40%
14.97%
19.40%
Management report Risk management
2
8. Internal capital adequacy 8.1. Risk appetite
Based on a comprehensive approach, risk appetite serves as a reference point for: • orienting the Group’s strategy and planning;
Capitalised risks are assessed with a higher degree of severity (99.97% for one year).
Présentation générale
Risk appetite reflects the level of risk that an institution is willing to take, given the expectations of its key stakeholders (shareholders, creditors, regulators, rating agencies, customers, etc.), to achieve its strategic and financial objectives.
Dexia Crédit Local had economic capital of EUR 3,370 million as at 31 December 2011 (EUR 4,605 million the previous year). Approximately half of all economic capital is used to cover credit risk. Market risk, which includes interest rate and currency risk, is the second largest risk factor.
Management report
• assessing performance in terms of value creation; Funding risk is the third largest risk factor. • facilitating investment/divestment decisions on a day-to-day basis.
8.2. Economic Capital Economic capital is defined as the potential deviation of the economic value of the Group in relation to the expected value over a given confidence interval and a given period of time. The quantification of economic capital is organised into three stages: identification of risks (definition and mapping updated annually all the way down to the local level), measurement (essentially using statistical methods) and aggregation using an inter-risk diversification matrix. Most risks are capitalised on the basis of a measurement of expected loss; some risks, however, are not capitalised if other management methods (limits, scenarios, governance, etc.) are considered to be better suited to cover them.
Gouvernance et contrôle interne Comptes consolidés
ECONOMIC CAPITAL ADEQUACY Available financial resources exceed the total economic capital required by the business lines to withstand the impact of any extremely severe, unexpected losses.
Comptes annuels
After being set in place at the Group level in 2010, in 2011 the risk appetite approach was rolled out in the Group’s main subsidiaries and validated by their management bodies.
The sharp drop in economic capital between 2010 and 2011 is attributable primarily to the deleveraging of the bond portfolio, the accelerated sale of the Financial products portfolio in the United States, the reserves set aside against Greek bonds, the natural amortisation of the run-off portfolios (especially the SBPA portfolio) and the sale of the Slovak subsidiary in the first quarter of 2011.
Established in 2009, the Economic Performance Analysis Committee (EPAC) manages the process of ensuring capital adequacy as a function of risk and aims to provide solutions tailored to Dexia’s strategy. Every quarter, EPAC reviews all of the ratios, limits and triggers (both regulatory and economic) defined in the risk appetite policy and the budget framework, as well as any differences from the forecast figures. It assesses the Group's ability to absorb such differences and considers proposed action points. The information contained in the EPAC report is prepared jointly by the risk management and finance functions.
Assemblée générale
Limits have been defined for each of these ratios and are validated by the Management Board every year. The risk management and finance functions are responsible for monitoring these ratios and suggesting to the Management Board any measures needed to ensure compliance with the limits that have been established.
The Public and Wholesale Banking business line consumed approximately 38% of all economic capital, while the Legacy Division – which includes the bond portfolio in run-off (former credit spread portfolio, public sector commitments in the form of bonds and certain of the Group’s trading portfolios), certain non-strategic loans to the public sector and off-balance-sheet commitments (mainly liquidity lines in the United States) – uses close to 28%. All remaining economic capital is allocated to the Group centre (ALM, equity investments, etc.).
Renseignements de caractère général
Dexia’s risk appetite is illustrated by a series of ratios that are key in establishing limits in terms of the major financial equilibria. The framework is based on a mix of accounting (gearing), regulatory (Tier 1, weighted risk) and economic (economic capital, earnings at risk) ratios and incorporates liquidity ratios and funding structure, along with credit concentration limits.
Annual report 2011 / Dexia Crédit Local
41
2
Management report Risk management
9. Payment systems security Dexia Crédit Local uses the following payment systems:
Présentation générale
• the Swift network is used for interbank settlements on transactions negotiated by the front office traders in the Financial Markets activities department and any funds transfers requested by other Dexia Crédit Local departments (especially on the international business managed by the Head Office and on settlements of foreign invoices);
Management report
• the French Ministerial Budget and Accounting Control Service (SCBCM) network is used for drawings and collections on loans to public sector customers; • the French Retail Clearing (CORE) and CRISTAL/TARGET2 systems are used for most payments to private sector customers; • lastly, some payments to private sector customers may be made by cheque.
Gouvernance et contrôle interne
Dexia Crédit Local does not provide its customers with payment means. Payment systems security is controlled by a body of procedures and measures:
Renseignements de caractère général
Assemblée générale
Comptes annuels
Comptes consolidés
• lending and Financial Markets back offices are responsible for payment processes, and front office traders are prevented from accessing these systems;
42
Dexia Crédit Local / Annual report 2011
• rules regarding the approval of payments are clearly defined. Specifically, all payments must be authorised by two different members of the back office concerned. The only exception to this rule is for payments of amounts under EUR 5,000,000 initiated automatically by the Financial Markets information system, which require only one authorisation. Authorisation thresholds in foreign currencies are established and updated regularly; • there is an effective segregation of duties between users and operators. Existing profiles accurately reflect all defined rules. The process for authorising access to payment systems has been incorporated into the bank’s user authorisation administration procedures. More particularly, back offices and the IT Security Manager are all required to perform controls; • administration of messages (technical and functional) from the Swift network has been properly secured; • hardware used for payments (servers, etc.) is situated in protected areas, and accessible only to officially authorised persons. These measures are covered by documented procedures; • the bank’s business continuity plan includes a body of procedures guaranteeing continuity of payment in the event of a disaster. These measures are tested regularly and the plan is operational; • with regard to compliance, the Financial Markets back office is responsible for controlling financial flows. As provided for by its audit programme, the Internal Audit department reviews payment systems security as often as is dictated by its assessment of the risk. Any recommendations issued are monitored regularly to verify that they have been carried out.
Management report Operating results
2
Operating results
• State support of the Group’s liquidity position in order to successfully carry out the extensive restructuring measures announced in October 2011. These assumptions are based on a number of exogenous factors that are beyond the control of Dexia Crédit Local: their materialisation remains uncertain and is subject, among other factors, to the decision of the European Commission. In the absence of additional corrective measures, the nonmaterialisation of one or more of these assumptions could have an impact on the going concern assumption as regards Dexia Crédit Local and strain the Group’s liquidity position and solvency. Accordingly, no changes where made to the valuation methods used in 2011.
1.1. Changes in scope
Management report
DECONSOLIDATIONS • Dexia Crédit Local deconsolidated Dexia banka Slovensko on 1 January 2011, following the sale of that company to the Penta Group;
Gouvernance et contrôle interne
• remuneration of the State guarantee will be compatible with the Group's future viability. The remuneration paid under the guarantee will be one of significant factors likely to influence the Group's profitability;
• Dexia Management Services Ltd. is fully consolidated as from 1 January 2011, following the restructuring of the activities carried out by the London branch.
• Dexia Holdings Inc. (DHI) and Dexia FP Holdings Inc. (Dexia FP) were removed from the consolidation scope of Dexia Crédit Local on 1 April 2011, due to the signing, on 30 June 2011, of two agreements transferring control of both entities from Dexia Crédit Local to Dexia SA, with a retroactive application from 1 April 2011; • Dexia Crédit Local Asia Pacific Pty Ltd. was deconsolidated on 1 June 2011, on the basis of its accounts as at 31 May.
Comptes consolidés
• approval by the Belgian, French and Luxembourg States of a EUR 90 billion definitive guarantee, the principle of which was announced in October 2011 and reflected in the enabling acts adopted by the Belgian, French and Luxembourg States. Moreover, under Article 15(f) of the autonomous guarantee agreement signed on 16 December 2011 by the Belgian, French and Luxembourg States, Dexia SA and Dexia Crédit Local, the States all committed to negotiating in good faith the renewal of the guarantee agreement, which could see the overall ceiling of the guarantee increased to EUR 90 billion;
NEWLY CONSOLIDATED COMPANIES
OTHER MOVEMENTS • the percentage ownership in both FSA Global Funding Ltd. and Dexia Real Estate Capital Markets increased from 90% to 100% on 1 January 2011.
Comptes annuels
• European Commission approval of a restructuring plan that includes notably a guarantee from the Belgian, French and Luxembourg States;
The major changes in the scope of consolidation compared with 2010 were:
1.2. Presentation of the consolidated financial statements The consolidated financial statements of Dexia Crédit Local were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Commission at the balance sheet date. They are presented in accordance with French National Accounting Council (CNC) Recommendation 2009-R.04 dated 2 July 2009.
Assemblée générale
The financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns, which is based on a number of assumptions including notably:
Présentation générale
1. Consolidated financial statements
Renseignements de caractère général
The details of the scope of consolidation and all changes therein are presented in organisation chart and in list form in the notes to the financial statements.
Annual report 2011 / Dexia Crédit Local
43
2
Management report Operating results
1.3. Consolidated income statement The primary components of consolidated net income (loss) are presented below for the years ended 31 December: 2010(1)
2011
2011/2010
Net banking income Operating expenses
(79) (426)
(346) (339)
(267) 87
OPERATING INCOME (LOSS) BEFORE COST OF RISK
(505)
(685)
(180)
Cost of risk
(438)
(962)
(524)
OPERATING INCOME (LOSS)
(943)
(1,647)
(704)
0
0
NA
31
91
60
0
(141)
(141)
(912)
(1,697)
(785)
73
(21)
(94)
112
(1,005)
(1,117)
(727)
(2,723)
(1,996)
(31)
(22)
9
NET INCOME (LOSS) – GROUP SHARE
(696)
(2,701)
(2,005)
Basic earnings (loss) per share (EUR) Fully diluted earnings (loss) per share (EUR)
-7.99 -7.99
-31.03 -31.03
NA NA
Présentation générale
(EUR millions)
Income from investments in associates Capital gains (losses) on other assets Amortisation and impairment of goodwill(2) PRE-TAX INCOME (LOSS) FROM CONTINUING OPERATIONS Corporate income tax
Management report
Net income from discontinued or held-for-sale operations NET INCOME (LOSS) Minority interests
Comptes consolidés
Gouvernance et contrôle interne
(1) Following the announcement of the Group’s restructuring, the comparative data on activities that have been discontinued or are being held for sale is presented separately, as required by IFRS 5 (see note 4.6 “Information concerning operations held for sale”). (2) In 2011, the goodwill on Dexia Crediop (EUR 129 million) and Dexia Israel Bank Ltd. (EUR 12 million) were written down in full.
The Dexia Crédit Local Group’s results were sharply lower year on year in 2011, and were marked primarily by:
• the continuation of the asset sale programme intended to reduce the Group’s overall exposures;
• the continuing transformation of the Group’s funding structure (lengthening of maturities and renewal of funding at higher current rates than in the past);
• the impairment of Greek sovereign debt; • the loss linked to the fair value adjustment on the activities of Dexia Municipal Agency, which are considered discontinued operations.
NET BANKING INCOME
Comptes annuels
In 2011, the consolidated net banking loss increased from EUR 79 million in 2010 to EUR 346 million in 2011.
The net banking income line has two components: net interest income and other income.
(EUR millions)
2010
2011
Change
Net interest income Other income (expenses) NET BANKING INCOME
351 (430) (79)
(14) (332) (346)
(365) 98 (267)
a. Net interest income
Assemblée générale
Net interest income includes all interest income and expenses on all on-balance sheet instruments, as well as derivatives, regardless of the type of portfolio in which they have been classified. Net interest income fell EUR 365 million during the year, from income
of EUR 351 million in 2010 to a loss of EUR 14 million. Net interest income was particularly penalised in 2011 by the EUR 352 million increase in funding costs.
b. Other income (expenses)
Renseignements de caractère général
Other income primarily includes net fees and commissions, gains and losses on financial instruments at fair value through profit or loss (held
44
for trading, foreign exchange and hedging), and gains and losses on financial assets available for sale.
(EUR millions)
2010
2011
Change
Change (%)
Net fees and commissions Gains (losses) on financial instruments at fair value through profit or loss Gains (losses) on available-for-sale financial assets Other income and expenses OTHER INCOME (EXPENSES)
116 (59) (491) 4 (430)
103 (13) (430) 8 (332)
(13) 46 61 4 98
-11.2% 78.0% 12.4% 50.0% 22.8%
Dexia Crédit Local / Annual report 2011
Management report Operating results
Présentation générale
In 2011, the line includes notably EUR 405 million in losses on disposals of assets carried out as part of the Group’s strategy to reduce its overall exposure (EUR 508 million in losses the previous year) and an EUR 89 million loss on the sale of the Lehman shares, which have been written down in full (see “Cost of risk” below).
OPERATING EXPENSES Operating expenses decreased EUR 87 million (20.4%) in 2011 to EUR 339 million, from EUR 426 million in 2010. This decline is attributable to the cost reduction initiatives undertaken by the Dexia Group since late 2008.
(EUR millions)
2010
2011
Change
Payroll costs Other administrative expenses
(286) (91)
(234) (63)
-18.1% -30.8%
Amortisation, depreciation and impairment of tangible and intangible assets TOTAL GENERAL OPERATING EXPENSES NET BANKING INCOME Operating ratio
(49)
(42)
-14.3%
(426)
(339)
-20.4%
(79) NA
(346) NA
NA NA
a. Payroll costs
b. Other administrative expenses
Payroll costs decreased EUR 52 million (18.1%) due essentially to the reduction in the Dexia Crédit Local Group’s staff.
Other administrative costs decreased 30.8% (EUR 28 million) year on year, to EUR 63 million in 2011 from EUR 91 million in 2010, due primarily to the deconsolidation of two subsidiaries, Dexia banka Slovensko (EUR 20 million) and Dexia FP Holdings Inc. (EUR 11 million).
Management report
The net losses on available-for-sale financial assets were attributable to decreases (disposals or repayments) of balance sheet items, including loans, borrowings and other securities classified as available for sale.
Net losses on financial instruments at fair value through profit or loss were EUR 46 million lower, due essentially to the improvement in foreign exchange gains and losses: in 2010, the line included a EUR 59 million foreign exchange loss on the translation losses recognised on certain entities in the light of their closure in 2011.
Gouvernance et contrôle interne
Net fee and commission income was slightly lower (down EUR 13 million) due primarily to the deconsolidation of the Dexia banka Slovensko subsidiary, which recorded income of EUR 10 million the previous year.
2
Comptes consolidés
COST OF RISK
(EUR millions)
2010
2011
Change
Impairment of available-for-sale fixed income securities(1) Impairment and losses on customer loans TOTAL
10 (448) (438)
(429) (533) (962)
(439) (85) (524)
Comptes annuels
Cost of risk includes two distinct components, the details of which are presented below:
(1) The line is used to record additions to or recoveries of provisions on securities in the available-for-sale portfolio.
• impairment of EUR 2,825 million on Greek sovereign exposures, offset in part by a EUR 1,934 million gain recognised following the announcement of Dexia SA’s commitment to cover potential losses on portfolios of Greek securities held by the funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG;
• a EUR 21 million reversal of provisions on Lehman Brothers risk; • a EUR 90 million charge on the Group’s banking activities.
Assemblée générale
• additional impairment of EUR 91 million on the Financial products portfolio, which was charged in the first quarter of 2011 in advance of the deconsolidation of Dexia FP Holdings Inc.;
• a EUR 89 million gain on the sale of Lehman Brothers securities that had been written down in full (see above “Net banking income (loss)”);
The quality of the portfolio of financial assets (Customer loans and securities) and the policy for reserving these assets when they must be written down for impairment are demonstrated in the ratios below:
31/12/2010
Renseignements de caractère général
In 2011, the cost of risk included:
31/12/2011
Impaired financial assets / Total financial assets
1.32%
2.44%
Specific impairment / Impaired financial assets
57.3%
65.49%
Specific impairment / Total financial assets
0.75%
1.60%
Annual report 2011 / Dexia Crédit Local
45
2
Management report Operating results
CAPITAL GAINS ON OTHER ASSETS The bank recognised EUR 91 million in capital gains on other assets in 2011 (EUR 31 million the previous year). In 2011, this line included notably:
Présentation générale
• a gain of EUR 327 million on the deconsolidation of the companies Dexia Holdings Inc. and Dexia FP Holdings Inc.;
The Group had total consolidated assets of EUR 362 billion as at 31 December 2011, compared with EUR 361 billion the previous year. This stability includes the positive impact of the sale of EUR 11 billion in assets under the Group’s deleveraging policy, and the adverse impact of an additional EUR 13 billion in cash collateral payments necessitated by unfavourable changes in interest rates.
Management report
INTERBANK LOANS AND ADVANCES
CORPORATE INCOME TAX
As at 31 December 2011, the net borrowings of Group on the interbank market increased 9.7% year on year to EUR 60.9 billion (EUR 55.5 billion the previous year).
Corporate income tax of EUR 21 million was incurred in 2011 (EUR 73 million tax credit in 2010).
CUSTOMER LOANS AND ADVANCES
Gouvernance et contrôle interne
• a loss of EUR 231 million, corresponding to the change in the fair value adjustment reserve for available-for-sale securities reclassified into “Loans and advances” in October 2008 that were intended to be sold during the second quarter of 2011.
1.4. Consolidated balance sheet and equity as at 31 December 2011
The operations of Dexia Municipal Agency are considered to have been discontinued and, in accordance with IFRS 5, the components of its income statement are summarised on a separate line entitled “Net income from discontinued or held-for-sale operations”: this line showed a net loss of EUR 1,005 million in 2011, compared with net income of EUR 112 million in 2010.
NET INCOME FROM DISCONTINUED OR HELD-FORSALE OPERATIONS
Comptes consolidés
In 2011, this line included: • the net income generated by the subsidiary: EUR 64 million in 2011, and EUR 112 million the previous year;
Comptes annuels
• a loss on the fair value adjustment of the operations held for sale, estimated at EUR 1,069 million as at 31 December 2011, equal to the selling price less the value of the equity sold and all associated costs.
In 2011, the Group’s share of the net loss came to EUR 2,701 million (net loss of EUR 696 million the previous year).
Assemblée générale
Minority interests went from a EUR 31 million loss to a EUR 22 million loss. The Group’s share of net income yields the following returns on equity (ROE):
Renseignements de caractère général
SECURITIES PORTFOLIO Total investments in government paper, bonds and other fixed income securities and in equities and other variable income securities decreased 24.2% year on year, from EUR 42.9 billion to EUR 32.5 billion as at 31 December 2011. The EUR 10.4 billion decrease in the securities portfolio in 2011 was attributable essentially to the continuing policy of reducing the liquidity gap.
EQUITY AND RATIOS The EUR 656 million year-on-year increase in the equity of the Dexia Crédit Local Group (excluding minority interests) to EUR 688 million as at 31 December 2011 (EUR 32 million the previous year) included notably the impact of the following:
NET INCOME
Return on equity
As at 31 December 2011, the total value of sums receivable from customers fell to EUR 155.2 billion from EUR 240.0 billion the previous year; EUR 73.2 billion of this EUR 84.8 billion decrease was attributable to the presentation of the receivables of Dexia Municipal Agency on the line “Non-current assets held for sale”, and the rest was attributable to the low level of new lending in 2011.
2010 -11.66 %
2011 -39.98 %
ROE is calculated as the ratio of the Group’s share of net income to average shareholders’ equity (excluding minority interests and after allocation of net income. In 2011, it reflected the very sharp deterioration of earnings.
• a EUR 4.2 billion increase in equity, following Dexia Crédit Local’s capital increase; • a EUR 2.0 billion decrease in the Group’s share of net income; • a EUR 0.8 billion decrease in unrealised or deferred gains or losses. Details of changes in the Group’s equity are presented in the notes to the consolidated financial statements. As at 31 December, Dexia Crédit Local had consolidated regulatory capital of: (EUR millions) Total capital o.w. Tier 1 capital
2010 10,418 6,547
2011 9,885 8,355
Dexia Crédit Local has applied the Basel II principles since 1 January 2008. In the light of the application of the Basel II principles regarding capital and risk volumes, the Tier 1 ratio came in at 16.40% (9.41% in 2010) and the capital adequacy ratio at 19.40% (14.97% in 2010).
46
Dexia Crédit Local / Annual report 2011
Management report Operating results
2
2. Financial statements
2010
2011
Change
Net banking income Operating expenses
(909) (229)
(2,262) (192)
(1,353) 37
(1,138)
(2,454)
(1,316)
(695)
(529)
166
(1,833)
(2,983)
(1,150)
OPERATING INCOME BEFORE COST OF RISK Cost of risk OPERATING INCOME Capital gains (losses) on non-current assets PRE-TAX INCOME FROM CONTINUING OPERATIONS Corporate income tax credit (expense)
(11)
(916)
(905)
(1,844)
(3,899)
(2,055)
314
(536)
(850)
NET INCOME
(1,530)
(4,435)
(2,905)
Basic earnings (loss) per share (EUR) Fully diluted earnings (loss) per share (EUR)
(17.58) (17.58)
(50.95) (50.95)
Net banking income was also heavily penalised in 2011 by higher funding costs (EUR 352 million).
The Company had total assets of EUR 180 billion as at 31 December 2011, up 4% from the EUR 173 billion reported the previous year. This rise is attributable essentially to an EUR 8 billion increase in cash collateral paid.
Operating expenses decreased by EUR 37 million in 2011. This decline reflects the Group’s cost reduction policy, with notably the closing of the London and Tokyo branches in 2011. The cost of risk amounted to EUR 529 million (EUR 695 million in 2010), and included: • EUR 937 in impairment of Greek sovereign debt; • EUR 1,023 million in debt relief extended to Dexia Holdings Inc. following the sale of the Financial products portfolio, which was offset by the recovery of a EUR 1,577 million provision. This provision had been based on the value in use of the Dexia Holdings Inc. subsidiary, which has been controlled by Dexia SA since 1 April 2011; • EUR 135 million in costs related to the sale of Dexia Municipal Agency. The line “Capital gains (losses) on fixed assets” includes a EUR 920 million impairment loss on the equity investments of Dexia Municipal Agency. On 20 October 2011, the Board of Directors of Dexia
The increase also includes EUR 10 billion in disposals of non-core assets, and is offset in large part by changes in exchange rates.
Comptes annuels
The line includes the cost of the State guarantee, which amounted to EUR 279 million in 2011 (EUR 340 million the previous year).
Gouvernance et contrôle interne
2.2. Balance sheet
Comptes consolidés
In 2011, the line includes notably EUR 351 million in losses on disposals of assets carried out as part of the Group’s strategy to reduce its overall exposure (EUR 397 million in losses in 2010).
ASSETS a. Customer loans Outstanding Customer loans, excluding those to credit institutions, amounted to EUR 41 billion as at 31 December 2011, compared with EUR 45 billion the previous year. This decrease is attributable to sales of loan assets in 2011, combined with a decrease in new lending.
Assemblée générale
The net banking loss of EUR 2,262 million was attributable to major additions to provisions for impairment on all of the investment portfolios: EUR 1,383 million of that impairment was linked to the widening of spreads in the sovereign and local government segments. In 2010, a total of EUR 501 million had been charge to these provisions.
Crédit Local approved the terms of a memorandum of negotiation with Caisse des Dépôts and La Banque Postale regarding the financing of local governments in France. These negotiations ended with an agreement in principle that was approved by the Board of Directors of Dexia Crédit Local on 13 February 2012. The agreement calls for Dexia Crédit Local to sell Dexia Municipal Agency for EUR 380 million, and the impairment charge was estimated accordingly.
b. Held-for-trading, available-for-sale and heldto-maturity securities The total value of these securities reached EUR 51 billion, against EUR 57 billion at the end of 2010. Changes in the various portfolios are presented in the notes to the financial statements. These securities consist mainly of French and foreign bonds, negotiable debt securities and government securities. This 10% decrease is related to the sale of a portion of the portfolios. These sales were intended to reduce the liquidity gap and the Group’s risk profile.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
Dexia Crédit Local reported a net loss of EUR 4,435 million for fiscal 2011, compared with a net loss of EUR 1,530 million in 2010.
Management report
(EUR millions)
Présentation générale
2.1. Income statement
47
2
Management report Operating results
c. Long-term equity investments
As at 31 December 2011, central banks had provided total funding of EUR 9.2 billion, up from EUR 6.4 billion the previous year.
Présentation générale
Total long-term equity investments decreased EUR 0.4 billion year on year from EUR 2.9 billion to EUR 2.5 billion as at 31 December 2011, following the capital increases subscribed entirely by Dexia Crédit Local, notably in Dexia Kommunalkredit Deutschland for EUR 300 million and Dexia Municipal Agency for EUR 110 million. Conversely, the line is down overall due to the EUR 920 million impairment loss recognised on the equity investments of Dexia Municipal Agency. New investments in 2011 representing over 66% of the capital
• Dexia Real Estate Capital Markets with capital of USD 20,000,100 of USD 301,379
Management report
Debt securities traditionally represent a significant portion of Dexia Crédit Local’s liabilities, and they amounted to EUR 72 billion as at 31 December 2011 (EUR 74 billion the previous year). It should be noted that this total includes EUR 23 billion of medium- and longterm debt issued under the State guarantee programme extended to Dexia Crédit Local in 2008. In addition, since 22 December 2011, Dexia Crédit Local has issued EUR 21.6 billion of short-term debt backed by the temporary State guarantee that is valid until 31 May 2012.
c. Supplier payment terms
• Dexia USA Securities (formerly Dexia GSF) with capital
In application of Articles L.441-6-1 and D.441-4 of the French Commercial Code, every year Dexia Crédit Local must publish an aging balance analysis of its trade accounts payable by due date. Dexia Crédit Local’s trade accounts payable represented an immaterial portion of the Company’s total liabilities. Dexia Crédit Local generally pays its suppliers at 45 days by default, unless a contractual agreement signed with the supplier provides for payment at 30 or 60 days.
LIABILITIES a. Banks and financial institutions Dexia Crédit Local had total interbank debt of EUR 78 billion as at 31 December 2011, compared with EUR 65 billion the previous year.
Gouvernance et contrôle interne
b. Debt securities
Dexia Crédit Local had trade accounts payable of EUR 1 million as at 31 December 2011, all of which were due in less than 30 days.
3. Five-year financial summary 2007
2008
2009
2010
2011
1,327,004,846
500,513,102
500,513,102
500,513,102
500,513,102(1)
87,045,757
87,045,757
87,045,757
87,045,757
87,045,757
Revenues
6,286,809,567
9,182,903,606
4,466,379,454
2,252,572,210
2,959,081,434
Earnings before income tax, depreciation, amortisation and net impairment charges
1,083,821,549
566,890,589
486,708,671
(825,474,016)
(2,433,312,349)
Corporate income tax
(107,696,679)
448,898,743
(90,171,250)
314,136,349
(536,307,767)
Earnings after income tax, depreciation, amortisation and net impairment charges
319,477,197
(4,936,685,153)
699,114,408
(1,530,340,831)
(4,435,388,577)
Dividends
396,058,194
None
None
None
None
51.31
25.88
33.99
EQUITY
Comptes consolidés
Capital stock (EUR) Number of shares
Comptes annuels
COMPREHENSIVE INCOME (EUR)
PER SHARE DATA (EUR)
Assemblée générale
Revenues
72.22
105.50
Earnings after income tax and before depreciation, amortisation and net impairment charges
13.69
1.36
6.63
(6.07)
(34.12)
Corporate income tax
(1.24)
5.16
(1.04)
3.61
(6.16)
Earnings after income tax, depreciation, amortisation and net impairment charges
3.67
(56.71)
8.03
(17.58)
(50.95)
Dividends
4.55
0.00
0.00
0.00
0.00
1,612 1,178 434
1,737 1,267 470
1,472 1,123 349
1,341 1,004 337
1,276 955 321
129,010,486
134,280,062
134,004,648
128,807,172
104,489,065
37,544,986
49,038,929
41,976,934
36,542,329
33,539,417
Renseignements de caractère général
EMPLOYEE DATA Employees as at 31 December Managerial staff Administrative staff Gross payroll (EUR) Payroll taxes and employee benefits (social security, employee benefit programmes, etc.) (EUR)
(1) By resolution of the Combined Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock in cash by EUR 4.2 billion and reduced its capital stock by EUR 4.2 billion, leaving total capital stock unchanged at EUR 500.5 million.
48
Dexia Crédit Local / Annual report 2011
Management report
Capital stock and share data
2
Capital stock and share data Présentation générale
1. Capital stock and number of shares Dexia Crédit Local has capital stock of EUR 500,513,102.75 divided into 87,045,757 shares, each with one voting right and none of which is pledged.
Management report
There are no other securities giving access to the capital of Dexia Crédit Local.
Gouvernance et contrôle interne
Moreover, by resolution of the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock by EUR 4.2 billion, paid in cash. Dexia SA conducted this capital increase by converting several existing subordinated loans for approximately EUR 2.5 billion and via a cash contribution of EUR 1.7 billion. In the light of the losses estimated for the fiscal year, the Shareholders’ Meeting resolved to reduce the amount of capital stock by the value of the increase achieved (EUR 4.2 billion). The capital stock of Dexia Crédit Local remains unchanged.
2. Shareholder structure The capital stock of Dexia Crédit Local is held directly and almost exclusively by Dexia SA. In accordance with Article 14 of the Company’s by-laws, each member of the Board of Directors holds one registered share of its stock.
Number of shares Dexia SA Individual investors
2007 1,327,004,846
2008 500,513,102
2009 500,513,102
2010 500,513,102
2011 500,513,102
87,045,757
87,045,757
87,045,757
87,045,757
87,045,757
99.98%
99.98%
99.98%
99.98%
99.99%
0.02%
0.02%
0.02%
0.02%
0.01%
Comptes annuels
Capital stock (EUR)
Comptes consolidés
No material changes have taken place in the shareholder structure in the past five years.
Indirect ownership of the capital of Dexia Crédit Local: • Holding Communal de Belgique, a Belgian limited company, holds more than 14% of the Bank’s capital;
• Arco Group, a Belgian limited liability cooperative company, holds more 11% of the Bank’s capital;
• Caisse des Dépôts holds more than 17% of the Bank’s capital.
Assemblée générale
• Ethias Group, the Belgian federal State, the French State and the three Belgian regions each hold more than 5% of the Bank’s capital;
Renseignements de caractère général
3. Dividends paid during the past three years No dividends have been paid in respect of the three previous years. In the light of the results obtained during fiscal year 2011, the Shareholders’ Meeting of 10 May 2012 will not be asked to pay a dividend.
Annual report 2011 / Dexia Crédit Local
49
2
Management report
Human resources and environmental data
Human resources and environmental data Présentation générale
1. Administration of human resources 1.1. Employee agreement
Gouvernance et contrôle interne
Management report
In the absence of agreement between the Company’s management and the trade unions, management has decided to unilaterally apply, as from 1 January 2011, a fixed, general gross wage increase of EUR 500 for all employees earning gross annual salaries of EUR 50,000 or less.
The following agreements were applied to calculate the amounts paid in 2011 in respect of 2010:
FRENCH LEGAL PROFIT-SHARING (PARTICIPATION)
Comptes consolidés
The amounts accrued in respect of fiscal 2011 correspond to the renegotiation of the discretionary and French legal profit-sharing agreements signed on 28 June 2011.
Comptes annuels
DISCRETIONARY PROFIT-SHARING (INTÉRESSEMENT) Under the terms of the 30 June 2008 agreement and amendment no. 2 dated 11 June 2010 thereto, the amount of discretionary profitsharing represents 3.10% of the Gross Operating Income (GOI) of the consolidated Dexia Crédit Local Group excluding FSA and excluding the impact of any changes in exchange rates net of the cost of risk, multiplied by a coefficient K linked to the achievement of the budgeted volume target for deleveraging. Employees must have been with the Group company at least three months to qualify for discretionary profit-sharing.
Assemblée générale
• FY 2010: the amount provisioned came to EUR 8 million (payment in 2011); • FY 2011: the amount provisioned comes to EUR 8.47 million (payment in 2012).
• the French legal profit-sharing agreement dated 11 June 2010 in respect of fiscal year 2010.
Discretionary profit-sharing is paid based on two criteria: 60% is prorated on the length of service of each beneficiary and 40% is proportional to the gross annual compensation paid for the year in question (capped at three times the annual social security ceiling at 31 December of that year).
Renseignements de caractère général
• FY 2009: the amount provisioned came to EUR 3.51 million (payment in 2010);
1.2. Group employee savings plan
• the discretionary profit-sharing agreement dated 30 June 2008 in respect of fiscal years 2008, 2009 and 2010 and the amendment no. 2 thereto dated 11 June 2010 in respect of fiscal year 2010;
The amounts paid out under the discretionary profit-sharing programme may be paid directly to the beneficiaries and/or invested in the Group employee savings plan (PEG) and/or the Intercompany Collective Retirement Savings Plan (PERCOI). The employer makes a 100% matching contribution in an amount not to exceed EUR 500 gross for all sums invested in one or more of the funds offered by the PERCOI.
50
The following amounts of discretionary profit-sharing were paid in respect of the previous three years (gross amounts excluding matching contribution):
Dexia Crédit Local / Annual report 2011
The amount set aside for the special reserve for French legal profitsharing (RSP) is the higher of the RSP calculated by the statutory formula and the RSP calculated using an extraordinary formula that is capped under the terms of the French legal profit-sharing agreement dated 11 June 2010. Eligibility for French legal profit-sharing is subject to the same seniority requirement as that imposed for discretionary profit-sharing. The amount due is prorated on the employee’s salary, and is capped at four times the social security ceiling, and the total amount paid to an employee within a single year may not exceed three-quarters of that same ceiling. The amounts paid out under the French legal profit-sharing programme may be paid directly to the beneficiaries and/or invested in the Group employee savings plan (PEG) and/or the Intercompany Collective Retirement Savings Plan (PERCOI) and/or deposited in the restricted current account. The following amounts of French legal profit-sharing were paid in respect of the previous three years: • FY 2009: the amount provisioned came to EUR 9.89 million (payment in 2010); • FY 2010: in the light of the financial position of the Dexia Crédit Local Group, no French legal profit-sharing was paid; • FY 2011: in the light of the financial position of the Dexia Crédit Local Group, no French legal profit-sharing was provisioned.
Management report
Human resources and environmental data
EMPLOYEE STOCK-OWNERSHIP PROGRAMME
2
INTERCOMPANY COLLECTIVE RETIREMENT SAVINGS PLAN (PERCOI)
Employees of Dexia Crédit Local are eligible to participate in the employee stock ownership programme (ESOP) established for the entire Dexia Group, with the understanding that no new ESOP has been set in place in 2009. Only shares issued by Dexia SA, the Group’s Belgian holding company, may be included in mutual funds or directly held by employees as part of the Group employee savings plan.
Présentation générale
On 11 June 2010, the Company’s management and all trade unions signed an agreement to join the Dexia Intercompany Collective Retirement Savings Plan (PERCOI) to provide employees with a vehicle and financial assistance to prepare for their retirement. This programme rounds out the existing offer of employee savings opportunities by adding a long-term component.
1.3. Key human resources data within the UES (Dexia Crédit Local and Dexia CLF Banque) 2011 1,331
under fixed-term contracts
109
103
under long-term contracts
1,231
1,228
Management report
2010 1,340
Employees present as at 31 December
Analysis of changes in long-term contracts during the year New hires
67
85
Terminations
(124)
(28)
Resignations
(53)
(64)
35-hour workweek
Gouvernance et contrôle interne
Working hours Master agreement of 14 November 2000, with effect from 1 January 2001
Absenteeism (all classifications of personnel)
4.72%
5.81%
Part-time employees (% of total workforce)
9.0%
10.1%
Gross payroll
93,013,926
90,469,716
Employer payroll taxes
53,411,811
53,164,863
Average annual salary – men
66,927
67,787
Average annual salary – women
51,692
52,764
3.89%
3.46%
3,623
3,527
14
12
1,423,091
1,309,334
Compensation (in EUR)
% of gross payroll Number of days (all training programmes)
Comptes consolidés
Training
Health and safety conditions Number of times the Health and Safety Committee met during the year
1.4. Compensation paid to corporate officers and persons whose professional activities have a material impact on the risk profile of the company
Dexia’s compensation policy is set with three key principles in mind. It must be:
Group procedures make the Appointments and Compensation Committee of Dexia SA(1) responsible for preparation of all compensation policy-related items. The Committee’s proposals are submitted to the Board of Directors of Dexia SA, which approves the appropriate actions to be taken. Once validated, the compensation policy is submitted to the Board of Directors of Dexia Crédit Local for approval.
• compliant with regulations.
Comptes annuels
Employee benefit programmes (EUR) Contribution to the funding of employee works council programmes
• consistent with appropriate market practices;
Assemblée générale
• transparent;
Renseignements de caractère général
This policy is applicable to both the fixed (not related to performance) and variable(2) (performance-related) components of compensation, the general principles of which are applicable to every employee. These principles include tying compensation policies and practices to risk in order to create a balance between fixed and variable compensation that does not encourage excessive risk-taking, and establishing methods for evaluating the relationship between performance and variable compensation. (1)(2)
(1) At its meeting of 27 November 2009, the Board of Directors of Dexia Crédit Local decided not to create a special committee for the Company itself and that, in accordance with the provisions of Article L511-41-1 of the French Monetary and Financial Code, the functions that would have been performed by the Compensation Committee of Dexia Crédit Local will be carried out by the Appointments and Compensation Committee of Dexia SA. The latter will inform the Board of Directors of Dexia Crédit Local of those of its decisions that are likely to impact compensation at Dexia Crédit Local. (2) In the context of the Group’s restructuring and the obligations associated with the State guarantee, no variable compensation will be paid in respect of 2011 to any Dexia Crédit Local employees in France.
Annual report 2011 / Dexia Crédit Local
51
2
Management report
Human resources and environmental data
Special provisions are applicable to a specifically identified population whose functions are most often likely to impact the risk profile of the Dexia Group.
Présentation générale
This population includes primarily the members of the Management and Executive Boards of the main Dexia Group entities, including Dexia Crédit Local, as well as employees whose total compensation exceeds EUR 350,000 per year or whose variable pay granted during any one year exceeds 100% of their annual fixed compensation. Variable remuneration is not to exceed a multiple of fixed salary that varies with the category of personnel to which the employee belongs.
Management report
The payment of a portion of variable compensation will be deferred and subject to the fulfilment of conditions (including maintaining the level of performance) to be attained over three years (starting with the year in which the variable compensation is granted). The deferred portion of variable compensation will in principle amount to 40%. It will represent rates going from 50% to 70%, according to thresholds set for variable compensation in excess of EUR 700,000.
Gouvernance et contrôle interne
Variable remuneration shall be paid partly (up to a maximum of 50%) in cash and partly in the form of equity-linked instruments (equity securities or Tier 1 hybrid-type instruments within the meaning of CRD 3, at the choice of the beneficiary), which will be subject to a holding period of at most one year.
Comptes consolidés
In compliance with the existing legal and contractual provisions, the termination benefits granted contractually to an officer or to a financial markets professional shall not in principle exceed 12 months’ fixed and variable compensation (or 18 months under special circumstances). Their payment may also be subject to a performance condition.
Comptes annuels
1.5. Structural changes and social responsibility NEW ORGANISATION The first half of 2011 was marked by the implementation of the third and final phase of the Dexia Group’s transformation plan, with three main objectives:
Assemblée générale
• geographical refocusing of business on the French market, while maintaining niche activities in North America and the United Kingdom; • generalisation of the directive organisational system, inducing a change in the governance of the Operations & IT, human resources and communications functions in order to achieve synergies among the various parts of the Group;
Renseignements de caractère général
• simplification of the hierarchical structure of the Treasury & Financial Markets (TFM) activity at the Group level in order to make governance more effective. This transformation plan will have only a limited impact on employment, in the light of the high proportion of unfilled positions within the Company and an implementation schedule that extends through to the end of 2013.
52
Dexia Crédit Local / Annual report 2011
It calls for the elimination of 82 positions, including 64 that are currently unfilled and 32 transfers between departments or between Dexia Crédit Local and Dexia SA. It also provides for the creation of seven new positions, of which six are to be in the finance function. By using an employment and skills forecast, Dexia Crédit Local was able to identify solutions that repositioned any employees whose positions were to be eliminated.
AGREEMENTS AND INITIATIVES FOR EMPLOYEE MANAGEMENT On 27 January 2011, the group's senior management and all of the trade unions signed an agreement that reflects the desire of the parties to preserve employment using an employment and skills forecast and by establishing an operating procedure to orchestrate the necessary changes and transitions for all employees affected by redundancy or redeployment. This agreement provides for a comprehensive strategy to support employee mobility: information regarding the system, access to vacant positions; assessment of employees’ profiles, skills and preferences; setting up of all necessary training; and post-transfer assistance in the new position. The agreement is intended to reorient employees toward an attractive career plan in order to avoid a new Reduction in Force Plan, thereby preserving and encouraging the talents found within the Company. Negotiations concerning the discretionary and French legal profitsharing programmes were held during the second quarter of 2011: these negotiations were necessary because the discretionary profitsharing agreement had been signed in 2008 for a three-year term and the French legal profit-sharing agreement was valid only for fiscal 2010. A three-year discretionary profit-sharing agreement was renegotiated covering fiscal years 2011, 2012 and 2013. A French legal profitsharing agreement has been concluded solely for fiscal 2011: the agreement uses the official profit-sharing formula and not, as in the past, a special calculation based on the group's share of net income. In 2010, an Intercompany Collective Retirement Savings Plan (PERCOI) was set up, allowing the proceeds of the discretionary and French legal profit-sharing schemes to be invested in this savings plan in addition to other options, with an employer contribution equal to 100% of the amounts invested and capped at EUR 500 per employee. Management has committed to continue to allocate a portion of the budget to the two profit-sharing programmes in order to increase this cap from EUR 500 to EUR 1,000 as from 1 January 2012. Moreover, in accordance with pension reform Act no. 2010-1330 dated 9 Novembre 2011 targeting the expansion of resources for retirement savings plans in order to foster their growth, employees can now transfer amounts received in respect of up to five unused days off per year into the PERCO. Days off are not limited to paid leave days: days earned under the terms of the official reduction of working hours programme, recovery days, six-monthly special days and fractional days can all be allocated to the PERCO. Only that portion of annual leave exceeding 24 working days can be allocated to the PERCO. An agreement regarding the allocation of unused days off to the PERCO was signed on 26 September 2011.
Management report
Human resources and environmental data
Against the backdrop of the continuing deterioration of its liquidity position that began in the summer of 2011, on 19 and 20 October 2011 the Dexia Group announced a series of extensive changes to its organisational structure. These measures included notably the signing of a memorandum of negotiation between Dexia, Caisse des Dépôts and La Banque Postale regarding the financing of the French local public sector. The memorandum has two main components:
Présentation générale
The agreement on gender-based professional equality was also renegotiated in the 2011, as the one signed 24 July 2008 had expired, and discussions are expected to be finalised in the first half of 2012.
STRUCTURAL CHANGES ANNOUNCED ON 19 AND 20 OCTOBER 2011
• creation of a joint venture between La Banque Postale and Caisse des Dépôts to market new financing to local governments; • creation of a new credit institution owned by the French State, Caisse des Dépôts, Dexia Crédit Local and La Banque Postale. This new credit institution will serve as the parent company of Dexia Municipal Agency, the société de crédit foncier-type mortgage credit company specialised in local public sector finance, holding all of its shares and managing its operations. It will also manage the industrial platform used by Dexia Municipal Agency and certain businesses of the joint venture and the Dexia Group. All eligible loans made by the joint venture will be refinanced by Dexia Municipal Agency.
Management report
Finally, on 21 October 2011 an agreement regarding the employment of older workers was signed. This agreement follows the unilateral action plan set in place for the company by management on 1 January 2010. Recognising that older workers are an asset to the labour pool in terms of their experience and skills, corporate memory and complementary team skills, management decided to maintain its strategy of employing older workers. This agreement provides for a set of measures promoting the continued employment of older workers, to be put into practice over a three-year period. It also specifies management’s commitment to recruiting older employees within the Company, with no fewer than 3% of all new employees recruited to be at least 50 years old.
2
Gouvernance et contrôle interne
Finalisation of discussions and implementation of the new scheme will take time. At this stage of the project it is not possible to establish any projections in terms of employment.
Comptes consolidés
2. Sustainable development
Comptes annuels
The following text is a summary of Dexia Crédit Local’s sustainable development policy in 2011, as required by Articles R.225-104 and R.225-105 of the French Commercial Code, in application of Article L.225-102-1 of the French Commercial Code.
2.1. Commitments to and membership in international and domestic initiatives Dexia Crédit Local’s deep commitment to sustainable development is reflected in its involvement in three United Nations programmes.
United Nations Global Compact
United Nations Environment Programme (UNEP) “Declaration on Climate Change by the Financial Services Sector”.
This statement is intended to encourage signatory banks and financial agencies to commit to sustainable development, notably by helping to preserve the environment.
Assemblée générale
United Nations Environment Programme (UNEP) “statement by Financial Institutions on the Environment & Sustainable Development”.
Objectives
Launched in July 2000 and placed under the direct authority of the Secretary General of the U.N., the “United Nations Global Compact” brings together companies that commit to implementing the goal of “sustainable development” on the basis of ten principles in the areas of human rights, labour standards, the environment, and anti-corruption measures.
Renseignements de caractère général
Programme
Launched in June 2007, on the eve of the G8 Summit in Potsdam, the “Declaration on Climate Change by the Financial Services Sector” is the financial services sector’s first global commitment to address this problem. The signatories recognise the contribution of human activities to climate change and undertake to incorporate this issue into their decisions on a daily basis.
Annual report 2011 / Dexia Crédit Local
53
2
Management report
Human resources and environmental data
Commitments undertaken by Dexia Crédit Local in line with the “Declaration on Climate Change by the Financial Services Sector”
Actions taken by Dexia Crédit Local in 2011
Develop knowledge and understanding of risks and opportunities associated with climate change.
• Founder and partner since 2003 of the Rubans du Développe-
Help customers manage the risks and opportunities associated with climate change by assessing their exposure and providing products and services that improve their ability to adapt.
• Implementation of technical and financial decision aids for the ther-
Gouvernance et contrôle interne
Management report
Présentation générale
In 2011, Dexia Crédit Local transposed these commitments through a series of concrete initiatives:
2.2. Sustainable development at the sub-national level In 2011, Dexia Crédit Local enhanced its range of products to assist customers with sustainable development in two strategic areas:
Comptes consolidés
ENVIRONMENT AND ENERGY SECTOR a. Energy efficiency of buildings
Comptes annuels
In 2011, Dexia Crédit Local reaffirmed its strategy of helping local governments and social housing corporations finance the energyefficient renovation of their existing property base. Initially launched in early 2009, this offer is based on a partnership with Promodul, an association of building industry professionals, and the use of dedicated financing products. On behalf of Dexia Crédit Local, Promodul adapted an energy and works audit simulation software tool that allows public policy makers to articulate a technical and financial vision to help them upstream with their projects.
Assemblée générale
Dexia also worked to establish dedicated financing backed by funds from the European Investment Bank.
b. Renewable energy
Renseignements de caractère général
For many years, Dexia has been helping local governments develop photovoltaic solar projects. In 2011, in the tradition of the French Grenelle environmental initiative, Dexia developed an innovative lease financing offer for photovoltaic facilities. In cooperation with Dexia’s technical partners, this “packaged” offer allows customers to benefit from the installation, maintenance and billing administration of the electricity sold, in addition to the financing. This comprehensive solution has been available to public sector entities since July 2011. In 2011, Dexia Crédit Local continued to develop its portfolio of projects involving the generation of electricity from renewable sources. Four wind power projects totalling 924 MW were carried
54
Dexia Crédit Local / Annual report 2011
ment Durable sustainable development awards, which recognised seven new sub-national governments for their comprehensive and concrete sustainable development policies and renewed the certification of 11 sub-national governments already recognised in 2010.
mal renovation of public non-residential buildings and social housing units. • Dexia is proposing a “Zero CO2” long-term leasing offer that includes, in addition to a fleet assessment, proposed replacement scenarios, green driving training and the offsetting of vehicular CO2 emissions, for public sector customers. • Setting in place of a French High Energy and Environmental Quality (HQEE) financing programme with the EIB for a global multi-year total of EUR 100 million.
EIB packages Since 2006, Dexia Crédit Local has been distributing budgetary packages of dedicated financing backed by funds from the European Investment Bank (EIB). Orientated toward sustainable development at the sub-national level, these envelopes are used for urban renewal projects proposed by local governments under National Agency for Urban Renewal (ANRU) programmes. Since 2010, Dexia and the EIB have worked together on a new EUR 100 million package for energy-efficient renovation projects undertaken by local governments seeking to raise energy efficiency standards above their current level. This financing package was marketed for the first time in 2011: by year end more than 77% had been used, with a leverage multiplier that helped finance investments of close to EUR 250 million. The most noteworthy projects include: the Ile Seguin municipal child-care centre in Boulogne Billancourt (EUR 7 million), which met the standards for Very High Energy Performance (TPHE) certification; the low-energy municipal workshops in Le Havre (EUR 8.5 million); and the new, HQEqualified administrative buildings of the General Council of Loiret (EUR 17 million). out as Lead Manager or co-Lead Manager, including Global Tech 1 Offshore Wind, the largest project to date (400 MW), and Meerwind (288 MW), both in the German North Sea. Six photovoltaic projects were completed for a total of 97 MW in France, the United States and in Italy, where Dexia Crediop acted as Mandated Lead Arranger (MLA) on the financing of two new solar power plants (Sanisio SRL and AES Solar’s Project Azimuth) with total installed capacity of 38.2 MW.
c. Green transport Dexia Crédit Local provides its customers with a variety of services to promote green transport and the renewal of public transport infrastructure.
Management report
Human resources and environmental data
Reducing energy consumption of vehicles In France, with its “Zero CO2” products, Dexia Location Longue Durée offers its customers a comprehensive strategy for the prevention (green driving lessons), reduction and offsetting of the carbon dioxide emitted by their fleet, including a carbon audit of the fleet and its replacement with green vehicles.
2
• performance of a disability employment audit to define the issues and results to be achieved in terms of the recruitment, retention and mainstreaming of persons with disabilities, subcontracting and accessibility of premises; • establishment of concrete actions for improvement;
CESU Domiserve In 2011, Domiserve maintained its commitment to optimising social action policies promoting in-home services. Through the APECESU (the professional association of issuers of CESUtype employment cheques for in-home services), which it currently chairs, Domiserve contributed actively to the debate over dependency reforms, highlighting the interest of using pre-paid CESU for the payment of APA and PCH benefits for senior citizens and the disabled. From an operational standpoint, Domiserve now assists seven General Councils with a CESU programme, three more than in 2010. In 2011, Domiserve also developed a tele-management service providing remote monitoring of the actual performance of services.
b. Assistance to the disabled Through its Dexia DS Services subsidiary, Dexia Crédit Local takes action to promote the mainstreaming and job retention of the disabled in local governments. Dexia has a individually tailored, three-stage assistance procedure specially designed for the local public sector:
Management report Gouvernance et contrôle interne
Recognising the challenge of an aging population, in 2010 Dexia renewed for two years the partnership it initiated in 2009 with Vivalib, a company that specialises in special needs housing for older people. The objective of this partnership is to keep seniors in their homes, thanks to a new concept in residential housing for the elderly. This offer is available to social landlords in the form of a stripping of ownership, whereby they retain only beneficiary ownership of the rental usage, allowing them to limit their consumption of capital, while institutional and private investors acquire the full ownership of the asset, in a traditional manner and with no stripping of rights. Dexia partners with Vivalib by financing transactions through the use of PLS-type affordable rental housing loans. Vivalib was building close to 1,000 housing units at 31 December 2011.
“SOLIDARITY, CITIZENSHIP AND CULTURE IN YOUR TOWNS” CALL FOR PROJECTS In 2011, Dexia France’s corporate foundation launched a call for projects entitled “Solidarity, citizenship and culture in your towns”. The goal was to encourage youth in their search for employment (assisted by Mission Locale local youth centres) to be active citizens in their communities by carrying out concrete initiatives to promote solidarity, citizenship and culture. Ninety-one Mission Locale centres presented some of the 400 projects from all around France that help over a million young people every day. Composed of Dexia employee volunteers and representatives of Mission Locale centres, the Foundation’s jury selected 41 particularly exemplary projects aimed at mobilising close to 5,000 young people in both urban and rural neighbourhoods.
Comptes consolidés
In France, one quarter of all renters of social housing are currently over 60 years of age, and over the next 30 years the number of people over 65 will almost double.
Almost one million young people are helped every year by the Mission Locale local centres for the social and professional mainstreaming of youth. Spread throughout France, 7,000 advisors help these young people overcome their difficulties and assist them in their job search and efforts to obtain training, healthcare, housing, civic rights and French nationality.
Comptes annuels
a. Autonomy and aging
Through the Dexia France Foundation it created in 1993, Dexia Crédit Local leads programmes to promote civic spirit in the most socially excluded youth, who come from the poorer urban areas and rural regions in crisis.
Many of the 41 winners focus on citizenship, such as in Bayonne, where young people are organising a referendum entitled “In 2012, will you make your voice heard?” and in Le Mans, where young people are running a campaign based on the notion of “I vote, therefore I am”. In the field of social solidarity, in Brest, young people are developing projects to support people with no access to adequate housing, and in Auxerre, textbooks were collected for children in Ivory Coast. An eco-citizen project in Perpignan was also recognised. It will enable young people to carry out a study of eco-citizenship initiatives in Europe by providing on-site transfers.
Assemblée générale
Along with its efforts on behalf of the environment and to promote energy efficiency, Dexia Crédit Local is maintaining its support to the social welfare sector by establishing partnerships and providing customised financial structures.
2.3. Social commitment
CITIZENSHIP ACADEMY Created in 2007 by the Dexia France corporate foundation and the National Council of Missions Locales, the Citizenship Academy is an educational programme that balances two needs: helping young people acquire the principles of democracy, and leading them toward a discussion-based culture. In 2011, eight one-week training sessions were held for a hundred or so young people residing in urban and rural areas to help them take ownership of the principles of citizenship, discuss their everyday problems and discover democracy. The Academy provided an opportunity for them to discuss civic engagement.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
SOCIAL WELFARE SECTOR
Présentation générale
• monitoring and evaluation of the entire process. Since the launch of the “Zero CO2”, offer, more than 1,000 tons of CO2 emissions have been avoided by purchasing and cancelling an equivalent amount of carbon allowances.
55
2
Management report
Human resources and environmental data
On 17 June 2011, in the City of Architecture and Heritage in Paris, the Foundation organised the first gathering of youth from the Citizenship Academy, in the presence most notably of the Minister for Cities, Maurice Leroy. The 350 young participants presented local elected officials with a manifesto containing some very substantive proposals in the field of sustainable development.
Présentation générale
CORPORATE SKILLS SPONSORSHIP The Dexia France corporate foundation has established a system that allows employees of the Bank to take two hours a month out of their work schedule to sponsor young people participating in local Mission Locale youth centres.
Dexia Crédit Local is also maintaining its policy of generating less waste and using supplies responsibly: • waste management and paper consumption:
Gouvernance et contrôle interne
2.4. Management of direct environmental impacts
– Dexia Crédit Local has undertaken several measures to reduce its consumption of paper, such as improving the quality of the paper it uses (and decreasing the weight) and using only recycled, bleach-free virgin, PEFC-certified paper.
• energy consumption: In France, Dexia Crédit Local has been using only green power in its main buildings since 1 January 2008. Dexia Sofaxis also has 105 m2 of photovoltaic panels incorporated into its buildings that produced 15.300 kWh of electricity in 2011. In Italy, the headquarters of Dexia Crediop also uses green power; • optimisation of business travel Since 2008, increased use has been made of videoconferencing, with the installation of five videoconferencing units (including one mobile unit) in Dexia Crédit Local’s building in La Défense and two units in the Dexia Crediop building in Rome;
Renseignements de caractère général
Assemblée générale
Comptes annuels
– Dexia Crédit Local pays for 60% of the cost of public transportation passes for those employees who work at La Défense, and 50% for employees in the regional headquarters;
– recycling areas are available on each floor of the Tour Dexia in La Défense;
The primary objective of Dexia Crédit Local’s policy of reducing its direct environmental impacts is to reduce the CO2 emitted by energy consumption in its buildings and its employees’ professional travel needs:
56
– since 2007, Dexia Crediop has paid for a portion of these expenditures. Dexia Crediop has also formally documented its business travel policy. Other concrete steps have been taken, such as the creation of a cycle stand at Dexia Crediop’s headquarters and participation in European Mobility Week;
Dexia Crédit Local is one of the first companies to have incorporated the sponsorship of skills-building into its social policy.
Comptes consolidés
Management report
In 2011, close to 50 Dexia Crédit Local and Dexia Sofaxis employees assisted youth in their search for employment.
• Dexia is making a commitment in respect of its employees’ commuting needs:
Dexia Crédit Local / Annual report 2011
Quality strategy Dexia Crédit Local and certain of its subsidiaries observe quality procedures governing their own internal management and their relationships with their customers. In 2011, Dexia Crédit Local obtained the renewal of the ISO 9001 certification of all of its activities in France. The total quality management strategy employed by Dexia Sofaxis is based on the use of a management system and a fourfold certification: ISO 9001, ISO 14001 (Environmental management), 18001 (Occupational health and safety management systems) and 8000 (Social accountability). Dexia Crediop’s environmental management procedures have also been certified ISO 14001.
Management report
Terms Termsandcompensation and compensation ofofdirectorsandofficers directors and officers
2
Présentation générale
Terms and compensation of directors and officers In accordance with Article L.225-102-1 of the French Commercial Code, a list is provided below of the terms and functions performed of each corporate director and officer between 1 January and 31 December 2011, as well as the compensation they were paid during that same period.
CHAIRMAN OF THE BOARD OF DIRECTORS
• Chairman of the Board of Directors of Dexia Sofaxis (since January 2011)
Jean-Luc Dehaene
• Permanent representative of Dexia Crédit Local, member of the Supervisory Board of Dexia Municipal Agency (since January 2011)
Management report
1. Functions and terms
71 years old • Permanent representative of Dexia Crédit Local, Director of Dexia CLF Banque (since January 2011)
Gouvernance et contrôle interne
Chairman of the Board of Directors of Dexia SA Dexia SA – Place Rogier 11 – 1210 Brussels – Belgium
• Director of Dexia Holdings Inc. (since January 2011) • Chairman of the Board of Directors de Dexia SA
• Director of Dexia Financial Products Services LLC (since January 2011)
• Director of INBEV (until April 2011)
• Director of FSA Asset Management LLC (since January 2011)
• Director of Umicore (until April 2011)
• Director of FSA Capital Markets Services LLC (since January 2011)
• Director of Lotus Bakeries (until May 2011)
• Director of FSA January 2011)
Capital
Management
Services
LLC
Comptes consolidés
• Director of Dexia FP Holdings Inc. (since January 2011) • Vice-Chairman of the Board of Directors of Dexia Bank Belgium (until October 2011)
(since
MEMBERS OF THE BOARD OF DIRECTORS
CHIEF EXECUTIVE OFFICER AND DIRECTOR
Fédération Nationale des Travaux Publics represented by Patrick Bernasconi*
Alain Clot (since 1 january 2011)
56 years old
55 years old
Chairman of Fédération Nationale des Travaux Publics 3, rue de Berri – 75008 Paris
Member of the Management Board of Dexia SA (since January 2011) Dexia SA – Place Rogier 11 – 1210 Brussels – Belgium • Director (since February 2011) and Vice Chairman (since April 2011) of Dexia Crediop
Assemblée générale
• Director of Novovil
Comptes annuels
• Director of Thrombogenics
• Chairman of Fédération Nationale des Travaux Publics • Chairman of Bernasconi T.P.
• Permanent representative of Dexia Crédit Local, member de SOFCA-GIE (since January 2011)
Renseignements de caractère général
• Chairman of Science et Industrie • Chairman of the Board of Directors of Dexia Sabadell (since January 2011)
• Chairman of the Board of Directors and Chief Executive Officer of L'Immobilière des Travaux Publics • Director of SMAVIE BTP
1
* Independent member
Annual report 2011 / Dexia Crédit Local
57
2
Management report
Termsandcompensationofdirectorsandofficers Terms and compensation of directors and officers
• Permanent representative of Fédération Nationale des Travaux Publics, member of the Supervisory Board of BTP Banque • Permanent representative of Fédération Nationale des Travaux Publics, Vice Chairman of SMA BTP • Co-legal manager of SCI Bernasconi Frères
Présentation générale
• Managing Partner of Casa Déco
• Non-voting board member of SICAV BTP Rendements • Director of Société de Groupe d’Assurance Mutuelle du Bâtiment et des Travaux Publics (SGAM BTP) • Chairman of the Supervisory Board of Caisse de Garantie Immobilière du Bâtiment (CGI Bâtiment) • Chairman of the Supervisory Board of Société Anonyme Générale d’Assurances (SAGENA) (since June 2011)
• Director of Château des Deux Rives • Chairman of the Board of Directors of la SGAM BTP
Gouvernance et contrôle interne
Management report
Fédération Française du Bâtiment represented by Didier Ridoret*
Julien Brami 37 years old Caisse des Dépôts – 56, rue de Lille – 75007 Paris
60 years old
• Member of the Board of Directors of CDC Entreprises
Chairman of Fédération Française du Bâtiment 33, avenue Kléber – 75016 Paris
• Member of the Board of Directors of Fonds de Garantie des Assurances Obligatoires de Dommages (FGAO)
• Chairman of Fédération Française du Bâtiment
• Director d’EGIS Projects SA (since July 2011)
• Co-legal manager of Elibois SARL
• Director of CDC Climat (since July 2011)
• Co-legal manager of France Menuisiers SARL
• Representative of Caisse des Dépôts on the Board of Directors of CDC Infrastructure
Comptes consolidés
• Co-legal manager of Menuiseries Niortaises SARL • Chief Executive Officer of Ridoret Menuiserie SA
Jean-Pierre Brunel*
• Co-legal manager of Roche Alu SARL
68 years old
• Co-legal manager of Roche France SARL
21, rue Auguste Bosc – Résidence Parc des Cèdres – Esc C – 30900 Nîmes
• Co-legal manager of Roche PVC SARL • Director of Services Conseil Expertises Territoires (until June 2011)
Comptes annuels
• Chief Executive Officer of SAG SAS • Co-legal manager of Pont de la Reine SCI
• Chairman of the Board of Directors of SA d'HLM Le Nouveau Logis – Centre Limousin (until June 2011)
• Vice Chairman of the Supervisory Board of BTP Banque SA
• Legal manager of Tradanimes
• Permanent representative of Fédération Française du Bâtiment, Director, member of the Steering Committee of Union des caisses de France du réseau Congés intempérie du BTP
Philippe Duron* (Director until 12 may 2011) 64 years old
Assemblée générale
• Permanent representative of Fédération Française du Bâtiment, non-voting board member of ECOFI Investissements SA • Permanent representative of Fédération Française du Bâtiment, Vice Chairman of SMA BTP
Renseignements de caractère général
• Permanent representative of Fédération Française du Bâtiment, Vice Chairman of SMAVIE BTP • Co-legal manager of DIFRAHEL • Chairman of the Board of Directors of SICAV BTP Obligations • Non-voting board member of SICAV BTP Associations 1
* Independent member
58
Dexia Crédit Local / Annual report 2011
Member of Parliament for Calvados – Mayor of Caen Esplanade Jean-Marie Louvel – 14027 Caen cedex 09 • Chairman of the Board of Directors of Normandie Aménagement (SEM) • Chairman of the Board of Directors of the semi-public company (SEM) for the Management of the Monument to the Battle of Normandy • Chairman of the Supervisory Board of the University Medical Centre of Caen
Management report
Terms Terms and and compensation compensationofofdirectors directorsand and officers
Jean-Pol Henry*
• Director of FSA Capital Management Services LLC
68 years old
• Director of Dexia Insurance Belgium (until September 2011)
Honorary Vice Chairman of the House of Representatives 118, rue de la Madeleine – 6041 Gosselies – Belgium
• Director of Dexia BIL
2
• Director of Dexia Participation Belgique SA (since March 2011)
Chairman of the Management Board of Dexia SA Dexia SA – Place Rogier 11 – 1210 Brussels – Belgium • Chief Executive Officer of Dexia SA
Présentation générale
55 years old
• Director of Bernard Controls SA (since October 2011)
Francine Swiggers 59 years old Chairman of the Management Board of the Arco Group 6, avenue Livingstone – 1000 Brussels – Belgium
Management report
Pierre Mariani
• Director of Dexia Bank Belgium (until October 2011) • Director of Dexia SA • Director of Dexia BIL • Director of Dexia Banque SA (until November 2011) • Director and Chairman of the Audit Committee of EDF • Liquidator of Arcofin CVBA (since December 2011) • Director of DenizBank (since March 2011)
Édouard Philippe*
• Liquidator of Arcoplus CVBA (since December 2011)
41 years old
• Chairman of the Board of Directors of Auxipar NV
Mayor of Le Havre – General Councillor of Seine-Maritime Place de l’Hôtel de Ville – BP 51 – 76084 Le Havre cedex
• Chairman of the Board of Directors of Interfinance CVBA
Gouvernance et contrôle interne
• Liquidator of Arcopar CVBA (since December 2011)
• Liquidator of Arcosyn BV
Comptes consolidés
• Member of the Supervisory Board of Grand Port Maritime du Havre • Director of Aquafin NV • Chairman of Volcan • Director of VDK – Caisse d’Épargne • Chairman of the Supervisory Board of Groupe Hospitalier Havre • Member of the Board of Directors of De Warande • Chairman of the Board of Directors of Groupe Gériatrique Desaint Jean
Philippe Rucheton 63 years old
Comptes annuels
• Member of the Board of Directors of Hogeschool Universiteit Brussel
René Thissen* 65 years old
Member of the Management Board of Dexia SA Dexia SA – Place Rogier 11 – 1210 Brussels – Belgium
Member of Parliament – Municipal Councillor of Waimes 23, rue de Bouhémont – 4950 Waimes – Belgium
• Chairman of the Supervisory Board of Dexia Municipal Agency
Assemblée générale
• Director of Centre Hospitalier Chrétien • Director of Dexia Asset Management Luxembourg • Director of Unio Bruxelles ASBL • Director of DenizBank AS • Chairman of the Board of Directors of Société Wallonne des Eaux • Director of Dexia Holdings, Inc.
Renseignements de caractère général
• Chairman of the Board of Directors of SAGIMA SA • Director of Dexia FP Holdings Inc. • Director of Dexia Financial Products Services LLC • Director of FSA Asset Management LLC • Director of FSA Capital Markets Services LLC
REPRESENTATIVES OF THE EMPLOYEE WORKS COUNCIL Isabelle Lourenço Pascal Cardineaud
* Independent member
Annual report 2011 / Dexia Crédit Local
59
2
Management report
Terms and compensation of directors and officers
2. Compensation and regulated agreements 2.1. Introduction
Présentation générale
REGULATORY CONTEXT The compensation of executives of companies in the financial sector has been governed by numerous regulations for several years.
Management report
The Board of Directors immediately undertook to observe this regulatory framework as it evolved on the basis of national and international provisions aimed at strengthening corporate governance particularly in terms of compensation. In that context, from 2009, Dexia even anticipated the obligations on the financial sector in particular regarding the deferment of variable compensation.
Gouvernance et contrôle interne
Dexia implemented a global compensation policy for the Dexia Group in accordance with Belgian, French and European regulations as well as the principles applicable to healthy compensation practices. Dexia compensation policy has been prepared by the Human Resources Department in collaboration with the Audit, Risk and Legal, Compliance & Tax Departments and submitted to the Appointment and Compensation Committee of Dexia SA.
Comptes consolidés
Proposals from the Appointment and Compensation Committee were submitted to the Board of Directors of Dexia SA which validated the Group compensation policy. The Board of Directors of Dexia Crédit Local approved all relevant portions of the Dexia Group compensation policy, as well as all provisions applicable to employees of Dexia Crédit Local.
Comptes annuels
The compensation policy and its implementation are regularly assessed in order to identify provisions requiring an adaptation by virtue particularly of the entry into force of new legal or regulatory provisions.
Assemblée générale
The policy applicable to compensation paid as from the year 2011 on the one hand states the general principles applicable to all members of staff of the Dexia Group. On the other hand, observing the principle of proportionality, it contains specific provisions, exclusively applicable to a population identified as liable to impact the risk profile of the Dexia Group in view of the nature or level of their functions and/or compensation.
Renseignements de caractère général
The specific provisions of the compensation policy, applicable to general management, market professionals whose professional activities have a significant impact on the risk profile of the Dexia Group and other members of staff who in view of their income are similar to risk-takers, are referred to in a publication on the Dexia corporate internet site, in accordance with the Royal Decree dated 22 February 2011 approving the Regulation of 8 February 2011 of the Banking, Finance and Insurance Commission concerning the compensation policy of financial institutions.
In accordance with the regulations applicable to it, Dexia Crédit Local provides information about its compensation policy and the Company staff concerned both in this report and on its website. Considering the guidelines, particularly those in the Royal Decree dated 22 February 2011(1), in March 2011 the Board of Directors reviewed the balance of compensation packages (between fixed compensation, i.e. not linked to performance, and variable compensation, i.e. linked to performance) of the Group’s executives and senior management. To that end, a quarterly function premium was introduced into the fixed salary. This decision was applied to compensation granted for the year 2011 observing the principles decided at the time of granting the function premiums for the year 2010 as described in the compensation report for that year. In order not to encourage excessive risk-taking and to facilitate a sufficiently flexible variable compensation policy, maximum ratios to be observed between fixed and variable compensation were imposed by the Dexia Group compensation policy. This maximum ratio for all members of the Management Board was fixed at 1.5 by decision of the Board of Directors on 18 March 2011. This revision aims to reduce excessive incentive to take risks which might result in too great variable compensation in relation to fixed compensation. Without increasing costs, it also permits a considerable reduction of the amount of variable compensation whilst maintaining a competitive package for Group executives.
2.2. Compensation of members of the Management Board(2) PROCEDURE The compensation of members of the Management Board of Dexia SA – including that of the Chief Executive Officer of Dexia Crédit Local – is fixed by the Board of Directors of Dexia SA on proposals from the Appointments and Compensation Committee. The Appointment and Compensation Committee analyses the levels of compensation of members of the Management Board having regard to compensation granted in other companies in the sector. In this respect, compensation consultants are used to obtain information on salary developments on the labour market for the financial sector. In order to offer compensation in line with the market, every two years the Appointment and Compensation Committee asks for a benchmarking study. For the year 2011, this study was carried out in 2010 with the support of Towers Watson, a specialist external consultant.
(1)(2)
(1) Royal Decree approving the Regulation of the Banking, Finance and Insurance Commission dated 8 February 2011 concerning the compensation policy of financial institutions. (2) As used in the present section, the term refers to the members of the Management Board of Dexia SA, some of whom are on the Board of Directors of Dexia Crédit Local.
60
Dexia Crédit Local / Annual report 2011
Management report
Terms and compensation of directors and officers
The performances of members of the Management Board are assessed having regard for quantitative and qualitative objectives, aligned to three fields. A management contract is concluded individually with each member of the Management Board with a view to observing the objectives set around these three fields, i.e.: • business skills, linked to accomplishment of quantitative and qualitative objectives; • the financial budgetary results of the Group and the business concerned; • human resources skills, including managerial skills. The assessment of performances in this latter field may be based on several criteria, including: the role in implementation of the reorganisation envisaged and participation in the retention of key staff members. The law and the Dexia compensation policy enable the deferred variable compensation not yet acquired to be adjusted. Moreover, in the case of fraud observed after the grant of variable compensation and in the case where variable compensation might have been granted on the basis of intentionally false information, the Dexia Group compensation policy provides for possibility of not paying the deferred parts of the variable compensation not yet paid and to take the measures necessary to recover the variable compensation which might already have been paid. The fixed and variable compensation of members of the Management Board constitutes a whole from which, unless the Board of Directors decides otherwise on a proposal from the Appointment and Compensation Committee, a deduction is made of any director’s fee or percentage paid to a member of the Management Board by a company in the Dexia Group or by a third party company in which a mandate is performed in the name and on behalf of Dexia.
(1)(2)
Présentation générale
Summary of the basic compensation and other benefits
(in EUR) Pierre Mariani
(in EUR) Alain Clot
Basic compensation paid in 2011 1,000,000
6,324
Basic compensation paid in 2011 500,000
Philippe Rucheton
Car(1)
Representation costs
Management report
Variable compensation is linked to performance. It is limited to maximum 1.5 times the fixed compensation and spread over at least 3 years.
Basic compensation(1) is determined considering the nature and importance of the responsibilities assumed by each (and taking account of market benchmarks for comparable functions).
3,181 Other benefits(2) 4,066
500,000
8,563
(1) This amount corresponds to the tax advantage associated with the provision of a company car used for private purposes. (2) This amount includes annual lump-sum indemnities for representation costs and the tax advantage associated with the provision of a company car used for private purposes for each of the members of the Management Board.
Gouvernance et contrôle interne
The compensation of the members of the Management Board is composed of a fixed non-performance related and a variable portion.
Base compensation in respect of 2011
Function premium for 2011 (in EUR) Pierre Mariani
200,000
Alain Clot
100,000
Philippe Rucheton
100,000
Comptes consolidés
FIXED AND VARIABLE COMPENSATION
Since 2010, fixed compensation has been composed of basic compensation and a function premium paid quarterly.
b. Variable compensation for the year 2011 Considering the results for the year 2011, the Board of Directors, on a proposal from the Appointment and Compensation Committee, accepted the proposal from the Management Board that no variable compensation would be paid to members of the Management Board of Dexia SA for 2011.
Comptes annuels
The year when the Appointment and Compensation Committee does not require a benchmark, it will be informed by its external advisor (compensation specialist) of the evolution of the executive compensation market.
a. Fixed compensation in respect of 2011
Comparative table of the variable compensation in 2010 and 2011 (EUR millions) Pierre Mariani
2010
2011
600,000
0
N/A
0
Philippe Rucheton
200,000
0
TOTAL
800,000
0
Alain Clot
Assemblée générale
On analysing this benchmark, as regards members of the Management Board of Dexia SA, the Appointment and Compensation Committee makes a proposal to the Board of Directors on any increases in fixed compensation and, if necessary, adjustment of the extent of variable compensation and any changes justified by market developments.
COMPENSATION IN RESPECT OF 2011
In line with Dexia compensation policy, the amounts included in this table are paid on a deferred basis, in accordance with the principles described below.
Renseignements de caractère général
The Appointment and Compensation Committee determines the reference group of companies to be included in the benchmark and the positioning of Dexia vis-à-vis that reference group.
2
DEFERRED PART OF THE VARIABLE COMPENSATION FOR 2010 DUE IN 2012 We refer to pages 60 and following of the Annual Report 2010 for an explanation of the principles of deferment of variable compensation 2010.
(1) Basic compensation does not include directors’ fees from DenizBank: these amounted to EUR 30,689 and EUR 23,166 for Philippe Rucheton and Pierre Mariani respectively.
Annual report 2011 / Dexia Crédit Local
61
2
Management report
Termsandcompensationofdirectorsandofficers Terms and compensation of directors and officers
Moreover, in accordance with the undertakings made by Dexia within the framework of the autonomous guarantee agreement concluded with the Belgian and French states and for so long as the guarantee obligations exist or are liable to be issued, and unless agreed with the states, Dexia shall not make: • any grant of options to subscribe or purchase shares or free shares, or
Présentation générale
• any grant or payment of elements of variable compensation, indemnities and benefits indexed to performance, as well as deferred compensation in favour of the following persons: the Chairman of the Board of Directors, Chief Executive Officer(s) and members of the Board of Directors.
Management report
(EUR)
Pierre Mariani
Initial amount
Paid amount
Gouvernance et contrôle interne
Alain Clot
Initial amount
Paid amount
Philippe Rucheton
Initial amount
Paid amount
Cash
In that same spirit, Dexia undertook to suspend until a final decision is made by the European Commission any payment of the variable part of the compensation of members of the Dexia Management Board. On a proposal from the Appointment and Compensation Committee, the Board of Directors accepted the proposal from the Management Board and decided to make use of the opportunity to a posteriori reduce the deferred parts of the variable compensation. The deferred part of the variable compensation for 2010 in cash and the deferred part of the variable compensation in the form of instruments with a retention period of one year (grant in 2012 and payment in 2013) will not be granted in 2012.
Amount vested in 2011
Amount vested in 2012
Amount vested in 2013
Amount vested in 2014
TOTAL
180,000
40,000
40,000
40,000
300,000
40,000
40,000
300,000
Instrument*
180,000
40,000
Cash
180,000
0
Instrument*
180,000
0
Cash
N/A
-
-
-
-
Instrument*
N/A
-
-
-
-
Cash
N/A
-
-
-
-
Instrument*
N/A
Cash
60,000
13,333.33
13,333.33
13,333.34
100,000
Instrument*
60,000
13,333.33
13,333.33
13,333.34
100,000
Cash
60,000
0
Instrument*
60,000
0
Comptes consolidés
* The counter-value of the instruments representing the capital is vested after a retention period of one year following the definitive acquisition of the rights, as appears in the table.
DEFERRED PART OF VARIABLE COMPENSATION FOR 2009 DUE IN 2012
Comptes annuels
We refer to pages 61 and following of the Annual Report 2009 for an explanation of the principles of deferment of variable compensation 2009.
Initial amount Pierre Mariani
Assemblée générale
Paid amount Initial amount Alain Clot
Paid amount
Renseignements de caractère général
Amount vested in 2011
Amount vested in 2012
TOTAL
308,333
128,768
128,768
565,869
-
128,768
128,768
257,536
308,333
128,768
0
437,101
-
95,524
0
95,524
N/A
-
-
-
Amount vested in 2010
(EUR)
Philippe Rucheton
On a proposal from the Appointment and Compensation Committee, the Board of Directors accepted the proposal from the Management Board and decided to make use of the opportunity to a posteriori reduce the deferred parts of the variable compensation and not to grant the deferred part of the variable compensation for 2009 in 2012.
Initial amount
Paid amount
Cash Instrument* Cash Instrument* Cash Instrument*
N/A
-
-
-
Cash
N/A
-
-
-
Instrument*
N/A
-
-
-
141,667
41,467
41,467
224,601
41,467
41,467
82,934
Cash Instrument* Cash Instrument*
141,667
41,467
0
183,134
-
30,761
0
30,761
* The counter-value of the instruments representing the capital is vested after a retention period of one year following the definitive acquisition of the rights, as appears in the table.
62
Dexia Crédit Local / Annual report 2011
Management report
Terms Terms and and compensation compensationofofdirectors directorsand and officers
EXTRA-LEGAL PENSIONS
CONDITIONS RELATING TO DEPARTURE
Characteristics of the applicable extra-legal pension schemes
Provisions of Dexia compensation policy
Collective annual premiums of EUR 334,127 were paid in 2011 to members of the Management Board under Belgian contract for supplementary cover for death, permanent invalidity and the costs of medical treatment, including EUR 74,407 for Pierre Mariani and EUR 65,027 for Philippe Rucheton, and consisting of the following: Pierre Mariani Discretionary plans
Death, orphan capital
46,001
Invalidity
28,004
Hospitalisation
402
Philippe Rucheton Discretionary plans
Death, orphan capital
50,510
Invalidity
13,714
Hospitalisation
803
Collective annual premiums of EUR 8,927 were paid in 2011 on favour of the members of the Management Board under French contract, including EUR 6,308 for Alain Clot, for obligatory cover for death, permanent invalidity and medical costs.
OPTION PLAN Since unification and for the last time in 2008, each year the Dexia Group established a stock option plan in favour of certain members of staff of the Dexia Group, the characteristics of which are described in the summary table of Dexia subscription rights in this Annual Report (page 56). The options issued under this plan are subscription rights each giving the right, within a limited exercise period, to acquire a new Dexia share at a strike price equal to the value of the Dexia share at the time the options were granted. During 2011, no option was exercised, came to maturity or was granted to members of the Management Board.
Présentation générale Management report
Supplementary cover for death, permanent invalidity and medical costs
These principles will be applied in observance of collective bargaining agreements and legal provisions.
Gouvernance et contrôle interne
Annual premiums of EUR 963,735 were paid in 2011 in favour of the members of the Management Board under Belgian contract, including EUR 150,959 for Pierre Mariani and EUR 99,496 for Philippe Rucheton
Moreover, the agreement providing for the grant of a leaving indemnity will contain a performance condition in the sense that the contractual lenving indemnity will be reduced in the case where the performance assessment of the executive over the two years preceding the termination of the agreement reveals a significant deterioration of those performances. This is to avoid leaving indemnities being granted so as to reward failure.
Any agreement granting leaving indemnities concluded with a member of the Management Board after the adoption of the Dexia Group compensation policy (i.e. 18 March 2011) will respect these provisions.
Provisions relating to leaving indemnities contained in management agreements with members of the Management Board (Titre 6)
Comptes consolidés
Amounts paid under the supplemental pension plans
If Dexia terminates the contract binding him to Dexia, Pierre Mariani will be entitled to a single lump-sum amount of compensation to be determined in relation to the AFEP-MEDEF rules in force. If Dexia terminates the contract binding Philippe Rucheton to Dexia before the age of 65, within twelve months of a change of control, he will be entitled to an amount of compensation equal to the fixed and variable compensation corresponding to a period of 18 months, without that period exceeding the number of months until the date on which he reaches the age of 65 and notwithstanding the rules of Common Law which might be applicable.
Comptes annuels
Pierre Mariani and Philippe Rucheton are beneficiaries of this discretionary pension plan.
Provisions relating to leaving indemnities contained in contracts of employment with members of the Management Board (Titre 6)
Assemblée générale
The new extra-legal pension scheme for members of the Management Board under Belgian contract gives entitlement, on retirement, to the capital arising from capitalisation of the annual contributions. These represent a fixed percentage of a capped annual fixed compensation.
On 18 March 2011, the Board of Directors approved, on proposal from the Appointment and Compensation Committee, the Dexia Group compensation policy. According to this compensation policy, the total of indemnities granted will not exceed 12 months of fixed and variable compensation. Under specific circumstances, the Appointment and Compensation Committee may, with its substantiated opinion, propose to the Board of Directors that there be a leaving indemnity above 12 months but not exceeding 18 months of fixed and variable compensation. A leaving indemnity exceeding 18 months of fixed and variable compensation can only be agreed exceptionally with the approval of the first Shareholders’ Meeting thereafter.
Alain Clot will be entitled, if their contract is terminated by Dexia on grounds other than serious act or omission, to a single lump-sum indemnity in an amount equal to the fixed and variable compensation corresponding to a period of 12 months. This indemnity may be increased to 18 months if the termination occurs following a change of control. These single lump-sum indemnities of 12 or 18 months will be reduced by 50% if the average of the assessments of business and individual parts are less than 55% over the last two years. If the average of the assessments of business and individual parts are less than 35% over the last two years, the indemnity in lieu of notice will be equal to the legal indemnities (i.e. the contractual indemnity).
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
Supplementary pension scheme subscribed by Dexia in favour of members of the Management Board under Belgian contract after 31 December 2006
2
63
2
Management report
Significant Terms and compensation events and outlook of directors and officers
2.3. Summary of directors’ fees paid by Dexia Crédit Local The amount of directors’ fees paid to directors of Dexia Crédit Local was set by the Shareholders' Meeting of 14 May 2009 at EUR 225,000. A total of EUR 121,500 was paid in respect of fiscal year 2011. Detailed information regarding these attendance-based allocations is provided in the table below.
Présentation générale
Member of the Board Julien Brami Jean-Pierre Brunel
Directors’ fees paid in respect of FY 2010
Directors’ fees paid in respect of FY 2011
15,000(1)
15,000(1)
(2)
21,000(2)
21,000
Alain Clot Jean-Luc Dehaene
0 0(3)
Philippe Duron
12,500
0(4)
FFB (Didier Ridoret)
15,000
15,000
21,000(2)
21,000(2)
(5)
11,250(5)
Pierre Mariani
0
0
Philippe Rucheton
0
0
15,000
0(7)
15,750(6)(8)
14,625(6)(8)
11,250(5) 137,750
11,250(5) 109,125
FNTP (Patrick Bernasconi) Jean-Pol Henry
Management report
0(3)
Édouard Philippe Francine Swiggers René Thissen TOTAL
11,250
Renseignements de caractère général
Assemblée générale
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
(1) At his request, the directors’ fees owed Julien Brami were paid to Caisse des Dépôts et Consignations. (2) Includes amount paid for participation in the Audit Committee. (3) Dexia SA paid Jean-Luc Dehaene directors’ fees in respect of his functions at Dexia SA amounting to EUR 88,000 for FY 2010. On 12 October 2011, Jean-Luc Dehaene announced his decision to forego any compensation owed in respect of his duties as a member and Chairman of the Board of Directors of Dexia SA for FY 2011. (4) Philippe Duron stated that he did not wish to receive any fees in respect of his directorship, which expired on 12 May 2011. (5) Net of withholding tax. (6) Includes amount paid for participation in the Audit Committee, and net of withholding tax. (7) Édouard Philippe stated that he did not wish to receive directors' fees for FY 2011. (8) Dexia SA paid Francine Swiggers directors’ fees in respect of her functions at Dexia SA amounting to EUR 46,000 for FY 2010 and EUR 72,000 for FY 2011.
64
Dexia Crédit Local / Annual report 2011
Management report
Significant events and outlook
2
Significant events and outlook
• during the summer, the intensification of the European sovereign debt crisis, uncertainties about growth and their major repercussions on interest rates all increased the funding risk of the Dexia Group. To stabilise its liquidity position and protect its commercial franchises, the Group was therefore obliged to act quickly and decisively and enacted a new series of structural measures. This had a material impact on Dexia Crédit Local’s operations around the globe.
1.2. Continuing divestment in H1 2011 During the first half of 2011, Dexia Crédit Local maintained its strategy of reducing its balance sheet. On 31 March, Dexia sold its 88.71% interest in Dexia banka Slovensko to Penta, a Central European investment group. This sale satisfied the condition of the European Commission that Dexia banka Slovensko be sold before 31 October 2012. In the light of the extremely difficult macroeconomic environment, and especially within the eurozone, on 27 May 2011, the Board of Directors of Dexia decided to accelerate the pace of sales of noncore assets: this was accomplished by selling USD 9.5 billion in assets from the Financial products portfolio covered by the guarantee of the Belgian and French States and by writing down other held-for-sale loans and bonds in the Legacy Division to their market value.
Management report Gouvernance et contrôle interne
The intensification of the European sovereign debt crisis and tremendous turmoil seen in the financial markets since the summer of 2011 increased the funding risk of the Dexia Group, despite Dexia having reduced its funding needs considerably and improved its financing mix significantly since 31 December 2008.
Comptes consolidés
• up until the end of June, the restructuring plan approved by the European Commission continued to be executed at a level in line with or above the stated objectives: disposals of entities were on schedule and asset sale and balance sheet reduction objectives had been exceeded. In May, with economic conditions growing more difficult, the Group announced its intention of accelerating its financial transformation, by selling off the covered assets in its Financial products portfolio and writing down a significant number of other non-core loans and bonds held for sale to their market value;
1.3. Intensification of sovereign debt crisis, pressure on liquidity and adoption of structural measures
1.3.1 INTENSIFICATION OF THE SOVEREIGN DEBT CRISIS AND IMPAIRMENT OF GREEK EXPOSURES The intensification of the sovereign debt crisis in the eurozone over the summer had a tremendous impact on the Group. As the largest provider of local public sector financing in the eurozone, Dexia – notably through its Dexia Crédit Local subsidiary – holds a significant amount of sovereign exposure that used to be considered risk free, especially to Italy, Greece and Portugal.
Comptes annuels
The events of October 2011 were a turning point in a year of two parts for the Dexia Group:
Dexia Holdings Inc. and Dexia FP Holdings Inc. were deconsolidated as from 1 April 2011, with the signature on 30 June 2011 of a put contract on the shares of Dexia Holdings Inc. held by Dexia Crédit Local and a guarantee contract with Dexia SA capping the losses allocatable to Dexia Crédit Local at USD 1,447 million (EUR 1,020 million).
The situation in Greece poses the most concern. The first bailout announced in May 2011 was not enough to calm the situation. It was therefore followed by the announcement of a second aid plan, involving a large haircut (75%) on Greek sovereign debt held by private creditors.
Assemblée générale
In response to renewed pressure on its liquidity during the summer of 2011, Dexia made major changes to the Group’s organisational structure. This new plan came at the end of a three-year period of intensive restructuring to reduce the Group’s risk profile significantly and adapt its financial structure.
This accelerated pace of sales had the triple merit of reducing the relative importance of the Legacy Division, improving liquidity and increasing the underlying profitability of the Group while providing greater visibility to the commercial franchises.
In the light of the uncertainties surrounding the implementation of this aid plan, in 2011 Dexia Crédit Local recognised total impairment of EUR 2,056 million on its Greek sovereign bonds and similar types of exposures, representing a discount of 75% off the EUR 2,756 million face value of Dexia Crédit Local’s exposure as at 31 December 2011, and corresponds to the market value of the Greek securities at that date.
Renseignements de caractère général
1.1. Two-stage year marked by intensification of macroeconomic difficulties
Présentation générale
1. Significant events in 2011
Dexia Crédit Local also interrupted the hedging relationships on these assets. The derivatives were reclassified as held for trading, generating a loss of EUR 868 million. Consequently, in 2011 Dexia Crédit Local recorded total impairment of EUR 2.94 billion on its exposure to Greece.
Annual report 2011 / Dexia Crédit Local
65
Présentation générale
2
Management report
Significant events and outlook
To protect its commercial franchises and avoid the continuing deterioration of its liquidity position, the Dexia Group quickly announced a series of measures with an extensive impact on its organisational structure. Details of the measures announced on 10 and 20 October 2011 are provided below.
More information regarding Dexia’s sovereign exposures is provided in the “Risk Management” section of this annual report.
State guarantee on funding issued by Dexia SA and its Dexia Crédit Local subsidiary
1.3.2 INCREASED PRESSURE ON LIQUIDITY
Management report
Improving the Dexia Group’s financial structure and reducing its liquidity needs were one of the primary objectives of the transformation plan initiated in 2008. Starting midway through 2011, the intensification of the sovereign debt crisis in the eurozone and increased mistrust of financial institutions, however, damaged the Group's liquidity position severely through a series of successive shocks:
Gouvernance et contrôle interne
• first, the ratings of the Group’s main operating entities were placed on credit watch with a negative outlook in March (Moody's) and May (S&P) of 2011, causing the Group’s unsecured funding to decrease by over EUR 22 billion between 30 April and 30 June 2011. Dexia’s US dollar funding was the first to be impacted, and the Group managed the resulting pressure by rapidly executing a series of currency swaps;
Comptes consolidés
• even S&P’s confirmation of the short-term rating in early July 2011 was not enough to reopen access to unsecured funding in the light of the concurrent intensification of the European sovereign debt crisis. The uncertainty surrounding the Greek bailout and resulting pressure on the debt of other European sovereigns created a strong distrust on the part of investors, and especially those in the United States. Trust in the creditworthiness of Dexia, the largest provider of public sector financing, was heavily impacted by the Group’s sovereign exposure, resulting in the loss of an additional EUR 6 billion in unsecured financing between 30 June and 30 September.
Comptes annuels
• this increase in short-term liquidity needs was exacerbated by the significant decline in interest rates, which was accompanied by an increase of over EUR 15 billion in the amount of collateral to be provided to the Group’s derivatives counterparties between 30 June and 31 December, all while liquidity was growing increasingly scarce;
Assemblée générale
• finally, Moody's placement of the long- and short-term ratings on credit watch on 3 October 2011 accelerated the Group’s loss of unsecured interbank funding (additional EUR 6 billion lost between 30 September and 7 October 2011) and eroded the confidence of retail customers in Belgium and Luxembourg, leading to the net loss of around EUR 7 billion in deposits between 30 September and 31 October 2011. This sequence of events put a severe strain on the liquidity of the Group, which in October 2011 lost all access to the unsecured funding market.
Renseignements de caractère général
1.3.3 ADOPTION OF NEW STRUCTURAL MEASURES
At the end of 2011, Dexia Crédit Local also received support from its parent company to cover potential losses on portfolios of Greek securities carried by its funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. As such, a receivable of EUR 1,934 million has been recorded in the financial statements of Dexia Crédit Local and offsets the losses recognised on these portfolios in the consolidated financial statements.
• On 28 March 2012, Standard & Poor’s lowered Dexia Crédit Local’s long-term credit rating from BBB+ to BBB and maintained its credit watch negative rating.
With increased pressure on its funding and to assist the Group with the implementation of its restructuring plan, the Belgian, French and Luxembourg States all pledged jointly but not severally to provide a EUR 90 billion guarantee on the funding of Dexia SA and its Dexia Crédit Local subsidiary – subject to the approval of the European Commission – with Belgium, France and Luxembourg providing respectively 60.5%, 36.5% and 3% of the guarantee. This direct, autonomous demand guarantee was approved in Luxembourg by a Grand Ducal Regulation of 14 October 2011, in Belgium by a Royal Decree of 18 October 2011 and in France by the Revised Finance Act of 2 November 2011. On 21 December 2011, the European Commission temporarily agreed to the implementation of a temporary mechanism, subject to further investigation. This mechanism enables Dexia SA and Dexia Crédit Local to obtain up to EUR 45 billion in funding using issues of up to three years. This temporary agreement is set to expire on 31 May 2012 for all issues carried out before that date, and the entities have an obligation to provide collateral to the States against a portion of issues covered by the guarantee. Any extension of the temporary guarantee or its transformation into a definitive guarantee mechanism is subject to the final approval of the European Commission on the basis of a new restructuring plan that the Guarantor States have agreed to submit for the approval of the European Commission by 21 March 2012. The remuneration on the temporary guarantee is subject to compliance with the new guidelines of the European Commission. Dexia will pay the three States a monthly fee, prorated on the distribution of the guarantee, based on the outstanding amount of guaranteed debt, and calculated in the following manner: • on issues with an initial maturity of strictly less than three months, Dexia will be assessed a fee equal to 120 basis points p.a., plus additional remuneration tied to the credit rating of the entity guaranteed; • on issues with an initial maturity of between three months and 12 months (exclusive), the fee will be equal to 50 basis points p.a., plus additional remuneration tied to the credit rating of the entity guaranteed; • for issues with an original maturity of 12 months or longer, the fee will respect the formula applied by the European Commission in its Communication of 1 December 2011, i.e. 120 basis points as at 31 December 2011. The monthly fee on collateralised secured issues may be reduced, depending on the type and market value of the securities provided to the Guarantor States, as provided under the terms of the guarantee agreement. Dexia will also pay the three States a EUR 225 million arrangement fee, in proportion to their respective contributions to the guarantee.
66
Dexia Crédit Local / Annual report 2011
Management report
Significant events and outlook
2
As this amount is to be prorated on the amounts issued, it did not have a material impact on FY 2011.
local French governments that would be funded by Dexia Municipal Agency.
As at 31 December 2011, the total outstanding secured debt issued under this new mechanism amounted to EUR 22 billion, which amount had increased to EUR 41 billion as at 15 March 2012. Due to market conditions, the Group focused on issuing short-term debt through specific certificate of deposit programmes.
The potential financial impact of the project was detailed in the press release Dexia issued on 20 October 2011.
This project will allow the Dexia Group to reduce its balance sheet and liquidity needs even further, while preserving its commercial franchise. The sale of Dexia Municipal Agency is expected to result in a reduction of the Dexia Group's balance sheet by upwards of EUR 65 billion and in a reduction of its short-term funding requirements, as Caisse des Dépôts is allocating a EUR 12.5 billion budget package.
Since October 2011, the funding provided by Dexia Bank Belgium is being paid down gradually, and by 29 February 2012 all of the unsecured portion of this funding had been repaid.
The price for 100% of Dexia Municipal Agency’s capital was EUR 380 million, which will generate a loss of around EUR 1 billion for the Dexia Group. The sale price includes the provision of the tools and resources needed to process activities eligible for funding by Dexia Municipal Agency. The agreement also includes a price revision clause, after three years, both upwards and downwards, and within a defined range. No sale of Dexia Municipal Agency’s assets is required prior to the sale of the entity.
Agreement in principle between Dexia, Caisse des Dépôts, La Banque Postale and the French State Dexia, Caisse des Dépôts and La Banque Postale finalised the terms of a memorandum of negotiation regarding the financing of the French local public sector. On 19 and 20 October 2011, the Boards of Directors of Dexia SA and Dexia Crédit Local respectively approved this protocol agreement, the terms of which are detailed in an additional agreement, then in an agreement in principle, which were validated by the Boards of Directors of Dexia Crédit Local on 13 February 2012 and 15 March 2012. The October 2011 agreement had two main components: • sale of 70% of the capital (65% to Caisse des Dépôts and 5% to La Banque Postale) of Dexia Municipal Agency, a wholly owned subsidiary of Dexia Crédit Local specialising in the funding of public sector loans and exposures secured by the public sector through the issuance of obligations foncières-type mortage bonds; • creation of a joint venture between La Banque Postale (65%) and Caisse des Dépôts (35%) that would design and distribute loans for
Présentation générale Gouvernance et contrôle interne
The intercompany funding arrangements extended by Dexia Bank Belgium to other Group entities were maintained and are being phased out progressively, in accordance with the principles laid down in the sale agreement. Funding is one of the key issues overseen by a transition committee, in order to ensure a gradual unravelling of the close functional ties binding Dexia Bank Belgium to the rest of the Group.
Comptes consolidés
Since 20 October 2011, and acting on behalf of the Belgian State, the Federal Holding and Investment Company (SFPI) owns all of the shares of Dexia Bank Belgium.
• creation of a new credit institution owned directly or indirectly by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%). This new credit institution will serve as the parent company of Dexia Municipal Agency, holding all of its shares and managing its operations. It will also manage the industrial platform used by Dexia Municipal Agency and certain businesses of the joint venture and the Dexia Group. All eligible loans made by the joint venture will be funded by Dexia Municipal Agency.
Management report
• creation of a joint venture between La Banque Postale (65%) and Caisse des Dépôts (35%) to market new financing to French local government entities;
Comptes annuels
The Board of Directors of Dexia SA approved the offer. The sale was finalised on 20 October 2011 for a one-time consideration of EUR 4 billion and generated a EUR 4 billion loss in the financial statements of the Dexia Group as at 30 September 2011. Dexia SA applied the proceeds of the sale primarily to the early repayment of loans Dexia Bank Belgium had made to Dexia SA and Dexia Crédit Local, in accordance with the Group’s commitments.
The agreed course of action is built on two strategies:
Dexia and Dexia Crédit Local are notably expected to provide Dexia Municipal Agency with guarantees on a EUR 10 billion portfolio of structured loans to French local governments and a guarantee against losses of up to 10 basis points on the total exposure, i.e. more than 10 times Dexia Municipal Agency’s historical loss rate. Dexia will also receive a counter-guarantee from the French State on the same portfolio of structured loans covering 70% of all losses over EUR 500 million.
Assemblée générale
Given the risks to which the Dexia Group’s position exposed the commercial franchise of Dexia Bank Belgium, and considering the fundamental role this institution plays in the Belgian financial system, on 9 October 2011 the Belgian government offered to acquire Dexia’s holding in Dexia Bank Belgium.
The agreement in principle provides for La Banque Postale to receive call options on Dexia Crédit Local’s entire holding in the new credit institution; the exercise of these calls is dependent upon the growth of the business.
Renseignements de caractère général
Sale of Dexia Bank Belgium to the Belgian State
In continuation of the memorandum of negotiation, Dexia, Caisse des Dépôts, La Banque Postale and the French State all signed an agreement in principle on 10 February 2012 – supplemented by an agreement in principle approved on 15 March 2012 and signed by all parties – for the continued financing of the French local public sector (see organisational chart below).
This project will be submitted for the approval of the European Commission and the competent regulatory authorities. It will also be presented for comment to all employee representatives concerned.
Annual report 2011 / Dexia Crédit Local
67
2
Management report
Significant events and outlook
La Banque Postale
CDC
French State
46.35%
46.35%
7.3%
Présentation générale
Dexia Public sector company 100%
Management report
Dexia Crédit Local
68.3% Services
New bank
(credit institution)
Services
JV LBP / CDC (credit institution)
31.7% Services Guarantees
100%
Gouvernance et contrôle interne
Dexia Municipal Agency
Sale of Dexia Banque Internationale à Luxembourg
1.4. Going concern and business plan
In October Dexia SA entered negotiations for the sale of Dexia Banque Internationale à Luxembourg.
The consolidated and parent company financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns (see section on financial results). The going concern assumption was supported by a business plan approved by the Boards of Directors of the Group and Dexia Crédit Local, was based on a number of critical assumptions and incertainties, the major points of which are described below.
Comptes consolidés
A binding memorandum of agreement was reached at the end of December 2011 under the terms of which the Dexia Group will sell its 99.906% stake in Dexia Banque Internationale à Luxembourg to Precision Capital and the Grand Duchy of Luxembourg.
Comptes annuels
Precision Capital, an investor group from Qatar, will acquire 90% of the holding, and the Grand Duchy of Luxembourg will purchase the remaining 10%. The EUR 730 million sale price includes 100% of Dexia SA’s stake in Dexia Banque Internationale a Luxembourg. The transaction remains subject to receiving all necessary regulatory approvals and the authorisation of the European Commission.
European Commission approval of the Dexia restructuring plan
Assemblée générale
All of the measures approved by the Group will extensively alter its structure. The European Commission considers that all these new organisational measures must be submitted for its approval.
Renseignements de caractère général
Under the terms of the new guarantee on Dexia’s funding approved temporarily by the European Commission on 21 December 2011, the States have agreed to submit a new restructuring plan by 21 March 2012 for the approval of the European Commission. As long as the European Commission has not definitively approved the new restructuring plan, the February 2010 decision continues to apply to the States and to Dexia.
68
Funding of eligible loans
Dexia Crédit Local / Annual report 2011
The business plan was produced by compiling business plans prepared by each Group entity, with each entity employing the same scenarios and assumptions. These consolidated plans were checked for consistency and subjected to various stress scenarios that impacted both the entities’ balance sheet and their profitability. The entities’ sensitivity to the following key risk factors was tested: interest rates, exchange rates and credit spreads. Finally, Dexia factored in the impacts of all planned disposals of entities (capital gain or loss, impact on the balance sheet, liquidity and capital ratios). As Dexia announced in October 2011, the plan consists of selling off the Group’s viable commercial franchises, then managing the natural, gradual run-off of the portfolios left within the new scope. The macroeconomic scenario built in calls for a mild recession during the coming two years, followed by a gradual recovery starting in 2014. No major adverse events are factored in during this period. One of the core assumptions of the business plan is European Commission approval of the plan to be submitted by the States. The plan includes a definitive EUR 90 billion funding guarantee, extended by the States and with no collateral requirement.
Management report
Significant events and outlook
2
The cost of funding will be a key factor in the Group's profitability. In this regard, the assumption that the favourable terms of access to central bank funding currently enjoyed by European banks will be maintained over the long term is likely to be revised over time, especially if market conditions improve. Moreover, Dexia assumes that the remuneration to be paid on the State guarantee will be low enough to allow the Group to successfully carry out its restructuring. In any event, it is highly likely that any possible improvement of Dexia SA’s financial circumstances will benefit first and foremost the Guarantor States, to compensate the risk they are bearing.
In addition, implementation of the definitive guarantee is subject to a number of prior conditions, such as obtaining European Commission approval. Any delay in the implementation of the guarantee could impact the Group’s results very significantly, as Dexia will need to roll over large amounts of funding starting in early 2013.
The scenario assumes that the entities’ banking licences are maintained, and this despite any failure to comply with certain regulatory liquidity ratios. It is also assumed that the credit ratings of Dexia SA and Dexia Crédit Local will be maintained at their current levels.
Finally, Dexia is exposed to a number of significant operational risks that require that measures be taken to retain the human resources the Group needs to continue to operate.
Similarly, if interest rates do not behave as the market expects, or remain at a very low level in the future, a higher than expected level of collateral would need to be provided on the Group’s hedging derivatives, and this would significantly increase Dexia’s funding needs and consequently its use of the State guarantee. Any downgrading of the credit ratings of Dexia SA or Dexia Crédit Local or of the Guarantor States could also, below a certain threshold, have an adverse impact on the Group’s liquidity and cost of funding.
Présentation générale Management report Gouvernance et contrôle interne
For example, a more severe than expected recession could generate significant credit losses (notably on the Group’s holdings of sovereign securities) and keep the fair value reserves on the Group’s available for sale securities at strongly negative levels.
By resolution of the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock by EUR 4.2 billion, paid in cash. Dexia SA conducted this capital increase by converting several existing subordinated loans for approximately EUR 2.5 billion and via a cash contribution of EUR 1.7 billion. In the light of the losses estimated for the fiscal year, the Shareholders’ Meeting resolved to reduce the amount of capital stock by the value of the increase achieved (EUR 4.2 billion). The capital stock of Dexia Crédit Local remains unchanged at EUR 500,513,102.
1.6. Structured loans A parliamentary commission was created to examine the use of risky financial products by local public sector entities. Dexia was interviewed by the commission, along with other French and foreign institutions. Dexia presented its policy regarding the marketing of structured products to local governments, as well as several proposals to improve the regulation of this market.
Comptes consolidés
While Dexia's management considers this scenario the most plausible, a significant risk remains of the working assumptions not being substantiated.
1.5. Dexia Crédit Local capital increase
Comptes annuels
The resulting business plan concludes that the Dexia Group is viable, on the basis of the assumptions and scenarios used.
More generally, the plan requires the support of key non-Dexia players: the Guarantor States and central banks in particular play an important role in the success of the business plan established by the Group, working closely with the regulatory authorities.
2. Outlook
DECREASING LOCAL REVENUES IN EUROPE In 2010 (last year for which Eurostat data are available), for the first time in 10 years, local revenues decreased by 0.8% in volume to EUR 1,602 billion in the EU 27, or 13.1% of GDP and 29.7% of total public revenues. Virtually all revenue lines were down in volume terms. Tax revenues continued to fall and were down 0.8% year on year in 2010, although this decrease was less severe than the 4.3%
Assemblée générale
Local finance underwent a considerable transition in 2010 and 2011: while the impacts of the crisis and stimulus plans persisted, the first austerity measures were set in place. This all put local budgets under pressure that is expected to continue to mount in 2012 in the face of tougher austerity policies.
decline observed in 2009 and fewer countries were concerned (11 vs. 19 in 2009). But it was the decrease in contributions and grants (51% of total revenues) that was felt the most in Europe in 2010. Until now, transfers from central governments to local governments had always risen steadily, slightly outpacing GDP growth. In addition, in 2008 and 2009, in connection with stimulus policies, the vast majority of States had even increased funding of local governments (+7.0% in 2009) to support local investment and help distressed communities. Obliged to achieve savings, some States have been led to freeze (France) or (notably Italy, the UK and Spain) reduce their contributions to local governments.
Renseignements de caractère général
2.1. Local governments under financial pressure in Europe and the United States
SPENDING SLOWED In 2010, local spending declined by an average of 0.1% in the EU 27 to EUR 1,677 billion. This slowing is attributable not to social benefits, which continued to rise in 2010 (+3.1%), but to the decrease or deceleration of several current expenditure items and a fall-off in local investment. Financial expenses (1.4% of local expenditures) continued
Annual report 2011 / Dexia Crédit Local
69
2
Management report
Significant events and outlook
Présentation générale
to decline in 2010, by nearly 10%, while rising personnel costs and purchases of goods and services began to decelerate in 2010, each increasing by only 1.0%. Personnel costs actually went down in nearly half the countries, as austerity measures affected the local public service. Finally and most importantly, local investment declined sharply in 2010. Direct investment in particular (EUR 201 billion) fell by 7.2%, although it had been particularly high in 2009 (+4.3%) as a result of stimulus measures. In 2010, owing no doubt to a backlash against its levels in previous years, investment has played an instrumental role as a budgetary adjusment variable and has been reduced in two out of every three countries.
INCREASING EUROPEAN LOCAL PUBLIC SECTOR DEFICIT AND DEBT
Management report
These developments caused local public deficits to increase slightly, from 0.5% of GDP in 2009 to 0.6% of GDP in 2010, while total local public debt went up 6.0% to EUR 833 billion, or 6.8% of GDP.
Gouvernance et contrôle interne
In spite of these increases, local public sector deficits and debt generally remain low. The local public sector accounted for only 9.4% of total public sector deficits and only 8.5% of debt. Moreover, the most troubled situations are essentially the product of a few specific circumstances. Despite the crisis and the deterioration of gross savings and investment income, three-quarters of local investment was still funded by these two sources in 2010, with the remaining quarter covered by the use of debt.
Comptes consolidés
INCREASINGLY STRINGENT AUSTERITY POLICIES: WHAT WILL BE THE IMPACT ON THE LOCAL PUBLIC SECTOR IN 2012?
Renseignements de caractère général
Assemblée générale
Comptes annuels
In 2010 and 2011, the local public sector as a whole demonstrated a certain degree of responsiveness and an ability to adapt to the new situation, but it is unclear how long this can last. Deteriorating growth prospects, the spectre of another financial crisis and the scale of the fiscal adjustments required to restore short- and medium-term equilibria prompted governments to stiffen austerity measures. In the eurozone, budget reduction measures are aimed at reducing the deficit from 6.2% of GDP in 2010 to 1.3% in 2014, or an improvement of 4.9 percentage points of GDP. Local governments already impacted by austerity initiatives in 2010 will be targeted yet again, for several reasons. On the revenue side, many central States either froze or reduced financial assistance to local governments in 2011, or announced their intention of doing so in 2012. Meanwhile, several States undertook structural tax reforms. On the spending side, local governments are involved, more or less directly, in the budget reduction and cost optimisation programmes. The pace of territorial reforms has also accelerated. After Greece in 2010, a reform of the Belgian and Italian province systems is planned, along with the abolishment of small Italian municipalities. Lastly, financial supervision mechanisms, transparency and disclosure requirements, prudential rules and the standards of fiscal discipline applicable to local governments will undoubtedly all be made more stringent. This new governance of public sector finances will focus on improving coordination of central and local policies and making a concerted effort to involve local authorities in the national effort to balance the budget.
70
Dexia Crédit Local / Annual report 2011
RESULTS DIFFER STRONGLY AMONG COUNTRIES In Spain, implementation of reforms aimed at allocating more tax revenue to the regions continues, and will be fully effective in 2013. The State will continue to monitor the financial situation in the regions closely, particularly with regard to the objective of keeping the budget deficit to 1.3% of GDP. Monitoring is easier, as the regions are now required to release quarterly results. In early 2012, the State also adopted several measures aimed at supporting the regions, including making additional financing available through Instituto de Credito Official, accelerating the payment of onetime transfers (EUR 4 billion due in July 2012 that will be paid in the first quarter) and authorising EUR 6.4 billion in short-term lines of credit. In Italy, the constraints imposed by the Internal Stability Pact will be respected, and notably as concerns the capping of debt service at 8% of the current revenues of local governments. While State transfers to local governments are expected to decrease by 10% in 2012, local governments will receive additional tax revenues from the re-incorporation of primary residences back into the base for the calculation of property taxes (they had been taken out of the tax base in 2008). In the United States, pressure on State budgets is expected to remain strong, with a significant portion of expenditure going to healthcare (Medicaid) and pension costs. Revenue growth is likely to remain modest, after a slight upturn in 2011: revenues from personal income taxes, which account for nearly 40% of State budgets, continue to be affected by unemployment. But State credit ratings are still on average very good, and the rating agencies expect default rates to remain extremely low or even equal to zero.
2.2. French local governments also under constraints: could undermine local investment in 2012 After local governments managed to increase gross savings in fiscal 2011 and keep current expenses under control, saw a rebound in investment (+2.9%) on the heels of the sharp drop in 2010 (-4.9%) and kept debt under control, in 2012 the public sector is expected to be heavily impacted by austerity measures and a paucity of resources. Local governments will play an active role in the effort to reduce deficits, notably through the maintenance of a freeze on grants and through control over their current expenses. Under these conditions, the investment levels seen in previous years could be menaced. Disparities between the various regions are expected to persist or even widen, justifying the current equalisation programme.
TAX REVENUE: MORE EQUALISATION AND NEW REDISTRIBUTION OF LOCAL GOVERNMENT TAXING POWERS In 2012, a National Fund for the Equalisation of municipal and Intermunicipal Resources (FPIC) will be set up that will, in 2012, redistribute EUR 150 million to 60% of all inter-municipal bodies and to certain isolated communities. Starting in 2016, that amount will be set at 2% (i.e. around EUR 1 billion) of the tax revenue received by those municipal and inter-municipal authorities endowed with their own taxing powers. The establishment of this redistribution fund is part of the wider reform of local taxation and its impact on measuring local government wealth.
Management report
Significant events and outlook
LOCAL INVESTMENT
Présentation générale
With elections for all levels of local government approaching in 2014 and in the light of continuing investment needs (Grenelle Environmental initiative, compliance with standards), the trend in favour of local investment started in 2011 is naturally expected to be maintained Still, the public finance crisis and funding issues (see below) leave enough room for uncertainty that the usual cycle may once again be disrupted, or even reversed.
TERRITORIAL REFORM Finally, it should be noted that the local public sector is undergoing significant reforms, such as the territorial government reform of 16 December 2010 which calls notably for completion of the intermunicipal mapping and will be implemented gradually over the next few years.
Management report
As regards the tax burden, local taxation reforms have greatly altered the ability of local governments to change rates. As the regions no longer control the traditional “four taxes” [local business tax, residence tax and property taxes on buildings and lands], their flexibility is now focusing on rates for vehicle registrations and on the so-called Grenelle variation of the domestic tax on consumption of petroleum products (TIPP). The taxing power of the departments is now limited to property tax on buildings. In future years, this lever could be used in a more pronounced fashion than the 1.5% increase seen in 2011. Finally, reforms have maintained municipalities’ considerable power over rates, but by transferring much of this flexibility to “household taxes”, with tremendous disparities from region to region. The growing importance of taxation on individuals sometimes high levels of existing levies and approach of the 2014 elections all suggest that municipalities and communities will have only limited recourse to increasing the tax burden and will very probably do so only in those cases with the greatest fiscal imbalances.
2
STATE TRANSFERS: AMOUNTS FROZEN YET AGAIN
With regard to personnel costs, the index for public service wages is expected to remain frozen in 2012. Staffing numbers could increase somewhat more than in 2011. In 2012, social welfare spending is expected to go up, but only as a result of the increased number of beneficiaries, as no steps are planned to create new responsabilities or extend existing ones. In the light of the slowdown in growth projected for 2012, and if the deterioration of the labour market observed in late 2011 continues, the number of beneficiaries of social assistance could accelerate versus 2011, and continue to place a strain on the social action budgets of the Départements and municipal social action centres (CCAS). Lastly, the “Purchases” line should increase by less than in 2011 due to a slowing of inflation.
INTEREST RATES A December 2011 consensus of economists found that three-month interest rates could reach 1.28% by the end of 2012, or four basis points lower than the forecast for the end of 2011. The 10-year bond rate is projected to increase by 22 basis points, from 3.18% at 31 December 2011 to 3.40% the following year.
Gouvernance et contrôle interne Comptes consolidés
MORE MODEST RESOURCES As nearly three-quarters of all hospital resources are provided by health insurance, the rate of change of the ONDAM for health institutions is crucial. In 2011, it is expected to increase by 2.8% as voted. In 2012, the rate of increase was revised downwards to 2.3% in the light of the provisions of the public finance planning act. In order to enforce compliance with these rather low increases while expenses are expected to go up by at least 3%, a freezing mechanism was established for contributions in 2010. If activity is stronger than expected, only a portion of the contributions frozen at the beginning of the year, including primarily those used for the MIGAC (public interest programmes and aid for the formalisation of contracts) are paid at the end. Under these unusually tight fiscal conditions, hospitals will have to take drastic cost-saving measures if they want to reduce their deficit (by around EUR 200 million in 2010) and satisfy the Presidential goal of restoring a balanced budget in 2012.
Comptes annuels
In 2012, local government administrative expenses could accelerate slightly compared to 2011, but without reversing the underlying trend reflecting the impact of cost control targets for normal operating expenses.
Public hospitals (or public health institutions) are also affected by the crisis in public finance, and are being asked to participate in the collective effort to achieve savings. 2010 will probably turn out to have been a year of transition, the one in which the national hospital spending objective (ONDAM for health institutions) was met for the first time since 1997 due to a tightening of budgetary guidelines. Also in 2010, hospital investment, which had reached nearly EUR 7 billion the previous year, marked a change of pace after at least 10 years of uninterrupted increases. Hospitals will be subject to even greater budget constraints in 2011 and 2012.
Assemblée générale
ADMINISTRATIVE EXPENSES: SET FOR A SLIGHT ACCELERATION
2.3. Public health institution budgets also under pressure
OCCASIONALLY STRAINED INDIVIDUAL FINANCIAL POSITIONS
Renseignements de caractère général
For the second consecutive year, transfers from the State will be marked by a stabilisation in value terms. This freeze involves almost EUR 50.7 billion. The global operating grant (DGF) is expected to come in at EUR 41.4 billion. The other major contributions, for both operating needs and investment, will also be frozen at their 2011 levels. Furthermore, on 24 August 2011 the government announced an additional EUR 1 billion in savings on expenditures in the State and Social security budgets for 2012. Local governments will contribute EUR 200 million, or 20%, of these savings. This share corresponds to the weight of State transfers to local governments in its total budget.
Since 2008, the rates for short-stay interventions – the so-called T2A activity fee schedule – are applied in full, although adjusted for transition coefficients until 2010. Starting in 2011, hospitals are reimbursed on the basis of the same fee schedule. As most resources are now activity-based, with no corrective mechanisms, any hospital with a cost structure disproportional to its level of activity may be facing serious financial difficulties while it adjusts. The climate of fiscal constraint described above could exacerbate certain imbalances.
Annual report 2011 / Dexia Crédit Local
71
2
Management report
Significant events and outlook
INVESTMENT FLYING AT HALF MAST
Présentation générale
After rising continuously for nearly 10 years – largely as a result of the national “Hospital 2007” plan – and barring any new initiatives, hospital-sector investment is expected to decline in 2011 and 2012, following an initial 5% downturn in 2010. In particular, the second stage of the Hospital 2012 plan, which was supposed to continue on from the 2007 plan, was deferred, representing EUR 5 billion, or half of all projected amounts. This postponement had been decided in connection with the vote on the 2012 Social Security Financing Bill (PLFSS) in order to reduce public spending. Hospital investment could therefore return to levels of below EUR 6 billion starting in 2011.
More use was made of bond issuance than in the past, especially by those local governments with sufficient financial breadth and technical capacity. The proposed “agency for the financing of local governments” seeks to expand this practice by allowing local governments that want to issue bonds to pool their needs – in exchange for an “admission fee” and meeting criteria for financial soundness – in order to obtain the best possible terms from the bond market. This arrangement supplements the offer available from banks. The agency intends to ultimately meet 25% of all local government needs. The actual establishment of this agency still requires a number of steps to be taken, including notably legislative ones, which would allow the first issues to be launched by the end of 2012 at best, and certainly in 2013.
LIMITED USE OF BORROWING
Gouvernance et contrôle interne
Management report
As hospitals have reduced investment, their borrowing needs also decreased in 2011. Borrowing in the hospital sector was therefore fairly light in comparison with previous years, and is expected to come in at around EUR 3 billion in 2011 and 2012. In 2011, the use of borrowing was in fact limited by difficulties with access to credit (see below). Some hospitals drew on their reserves (working capital and unconsolidated outstandings) to counter the lack of bank credit. In 2012, a new regulation will impact hospital borrowing procedures: the Decree of 14 December 2011 concerning limits and reserves on the use of borrowing by public health institutions.
Comptes consolidés
2.4. Financing of local governments and hospitals undergoing profound change
Assemblée générale
Comptes annuels
For several months, the financial crisis – which was further intensified during the summer of 2011 by market pressures on European sovereign debt – has been cause for concern for local governments and public health institutions. The banks’ new liquidity and funding constraints have prompted most of them to reduce their financing of the local public sector, or even to withdraw from the market altogether. Since mid-2011, this has resulted in (i) there being insufficient available financing to cover the needs of all local government entities, (ii) higher interest rates, due to the increased cost of access to liquidity and (iii) a shortening of repayment periods on new loans. The prospect of implementing the new Basel III standards further limits the ability of banking institutions to finance a sector looking for large volumes of credit, traditionally repaid over long periods. As in 2008, this led authorities to set up an emergency budget envelope carried by Caisse des Dépôts (CDC) to cover some of the unmet needs at the end of 2011.
Renseignements de caractère général
More structural solutions are, however, being actively sought to offset the withdrawal of traditional banks from the market. It is under these conditions that the transformation of Dexia Crédit Local – a traditional lender to local governments – was organised, and that a new vector for public sector finance was created in collaboration with La Banque Postale and Caisse des Dépôts, in order to “provide local governments with the bank loans they require” (Prime Minister’s speech of 7 October 2011).
72
Dexia Crédit Local / Annual report 2011
2.5. Positioning of Dexia Crédit Local in 2012 The Bank ceased all lending requiring liquidity on 1 January 2012. With no exceptions, lines of credit and short-term commitments that mature are no longer renewed. It should be noted that the terms of the restructuring plan for the Group, which includes all disposals already announced by the Group, provide for the implementation of a EUR 90 billion definitive liquidity guarantee. This plan will be sent by the Belgian, French and Luxembourg States to the European Commission on 21 March 2010, in line with the timetable established by the European Commission. Pending the outcome of decisions concerning its strategy, scope and activities (see paragraph directly above and item 1.3.3 “Adoption of new structural measures”), and factoring in the scenarios that could impact the Company’s status as a going concern (see operating results), Dexia Crédit Local is focusing on the following priorities: • continued deleveraging of the balance sheets of the component entities of the network through the sale of public finance loans; • identification and implementation of initiatives aimed at improving liquidity, notably by raising funding in local markets and taking customer deposits; • maintenance of a commercial franchise in those entities that continue to engage in public finance activities, especially in Italy and Spain, within the very strict limits imposed by the constraints placed on the Group and the entities’ abilities to source their own funding. Priority is therefore assigned to the management of existing outstanding loans and activities not requiring the use of the entities’ balance sheets; • continuation of the cessation of all project finance activities that began in early 2012.
3 – Governance and internal control
Report of the Chairman of the Board of Directors prepared in accordance with Article L.225-37 of the French Commercial Code
Statutory Auditors’ report
74
94
3
Governance and internal control
Report of the Chairman of the Board of Directors
Présentation générale
Report of the Chairman of the Board of Directors prepared in accordance with Article L.225-37 of the French Commercial Code This report describes the principles and procedures in force during the 2011 fiscal year.
Governance and internal control
Rapport de gestion
For the preparation of the present report, as a credit institution, Dexia Crédit Local refers to French Banking Regulatory Committee (CRBF) Regulation 97-02, as modified by the decrees of 31 March 2005, 17 June 2005, 20 February and 2 July 2007, 11 September 2008, 14 January 2009, 5 May 2009, the two decrees of 29 October 2009, the decrees of 3 November 2009, 19 January 2010, 25 August 2010 and the decree of 13 December 2010, which defines the aims, principles and procedures of internal controls, and to the reference framework published by the French Financial Markets Authority (AMF).
The present report, established by the Chairman of the Board of Directors of Dexia Crédit Local, was prepared by the General Secretariat and the Internal Audit department, which gathered the appropriate information from all of the operating and support departments concerned, and notably the Risk Management department. This report also takes account of the meetings between the Chairman of the Board of Directors and the Chairman of the Management Board, as well as the summaries of all Audit Committee meetings.
Comptes annuels
Comptes consolidés
1. Preparation and organisation of the duties of the Board of Directors Dexia Crédit Local applies best practices with regard to corporate governance, in accordance notably with those of its parent company (Dexia SA) and the AFEP-MEDEF corporate governance code. This is also true of the functioning of the Board of Directors and its specialised committees.
The Board is composed of four representatives of Dexia SA, the Company’s virtually exclusive shareholder, and eight other directors, six of whom are independent members. The criteria used to ascertain independence are based on the recommendations contained in the AFEP-MEDEF corporate governance code. No non-voting members have been appointed.
1.1. Board of Directors
At its meeting of 24 February 2011, the Board took into consideration the new legal provisions(1) for balanced representation of women and men among its members and committed to their implementation.
The Board of Directors is responsible for establishing and ensuring the implementation of the operational guidelines of Dexia Crédit Local. It acts out of concern for the Company, including its shareholders, customers and employees. There are no potential conflicts of interest between the duties of the members of the Board of Directors with respect to Dexia Crédit Local and their personal interests or other duties.
Renseignements de caractère général
Assemblée générale
In February 2012, the Board of Directors was composed of 12 members, who are selected for their expertise and the contribution that they can make to the administration of the Company. Jean-Luc Dehaene serves as Chairman of the Board of Directors. He organises and directs the activities of the board, oversees the proper functioning of the corporate governance bodies of Dexia Crédit Local and participates in the Company’s dealings with institutional authorities. The function of Chief Executive Officer, which is dissociated from the chairmanship, has been entrusted to Alain Clot. The Chief Executive Officer has the broadest powers to act under all circumstances in the name of Dexia Crédit Local, which he represents in its dealings with third parties. The by-laws do not limit the powers of the Chief Executive Officer, who acts in accordance with all applicable laws and regulations, the Company’s by-laws and the guidelines established by the Board of Directors. (1) Act no. 2011-103 of 27 January 2011.
74
Dexia Crédit Local / Annual report 2011
The members of the Board of Directors are required to comply with a charter defining their responsibilities; this charter was drawn up in accordance with the principles embodied in Dexia Crédit Local’s code of ethics. Updated in 2011 and in early 2012, this charter – one of several documents available for viewing in the Company’s registered office – reminds members notably how important it is that they participate actively in the board’s work. The charter also specifies that members of the Board of Directors are considered to play sensitive roles, and therefore are subject to the strictest requirements with regard to the trading of Dexia shares. All transactions must be signalled in advance to the Chief Compliance Officer of Dexia Crédit Local, and receive his prior approval. The Board of Directors meets at least once a quarter. In 2011 it met 11 times, with an 86% attendance rate. The Chairman of the Board of Directors and the Chief Executive Officer provide the members of the Board of Directors with all information – strategic information in particular – that they require to correctly perform their duties. Prior to each meeting, the members of the Board of Directors are provided with an agenda and all reports and documents relating to items appearing on the agenda.
Governance and internal control
Report of the Chairman of the Board of Directors
All information regarding compensation and benefits paid to directors and officers of the Company are presented in the “Terms and compensation of directors and officers” section of the management report.
1.2. Specialised committees of the Board of Directors The Board of Directors may create specialised committees, comprising between two and five members of the Board of Directors, including a Chairman. Committee meetings may be held in the absence of the Chairman of the Board of Directors. The Chairman of each specialised committee presents a report on its actions to the Board of Directors. In this manner, an Audit Committee helps the Board of Directors carry out its functions in overseeing the management of Dexia Crédit Local. The Audit Committee is comprised of three non-executive members(1) of the Board of Directors of Dexia Crédit Local. The members are
Présentation générale
The Audit Committee meets at least four times a year, and met four times in 2011. The meetings were spent reviewing the financial statements, monitoring the liquidity position, monitoring the deleveraging programme, measuring and monitoring risk, examining business reviews of internal audit and permanent control issues and monitoring audits by the regulators. In the light of the importance of the role of the Audit Committee in the control and monitoring of the preparation of the financial statements, its duties and means of intervention are described in detail in Section 2.4.2 of this report. Following regulatory developments with regard to the role and responsibility of the Audit Committee, the Audit Committee’s rules of procedure were updated in May 2011. In addition to regulatory changes, the new document also reflects the changing composition, role and authority of the Audit Committee. The Appointments and Compensation Committee of the Board of Directors of Dexia SA is consulted about policies concerning the compensation and benefits provided to members of the Dexia Crédit Local Management Board, as well as about the employee stock ownership policy. During the course of the fiscal year just ended, the Board, which in 2009 decided (in accordance with the existing regulations) not to create a Compensation Committee for Dexia Crédit Local itself, but rather to continue to employ the services of the Dexia SA Appointments and Compensation Committee, approved the compensation policy of the Dexia Group for Dexia Crédit Local and the conditions applicable to the employees of the Company.
Rapport de gestion
In addition, the Board of Directors is systematically informed of all reports and follow-up letters issued by the regulatory authorities, as well as the responses issued by the senior management of Dexia Crédit Local.
It should be noted that, in accordance with the recommendation of the AFEP-MEDEF, the Board of Directors may deem that whilst a director may meet all the criteria for independence, that person may not be categorised as independent, and vice-versa.
Governance and internal control
The board convened three Shareholders’ Meetings.
The board has based the criteria used to ascertain independence on the definition contained in the AFEP-MEDEF corporate governance code, and considered an independent director to be one who has no relationship whatsoever with Dexia Crédit Local, its group or its management, that could comprise the exercise of his or her freedom of judgement.
Comptes consolidés
In 2011, in addition to the issues relating to the management of the Company and within its authority, the Board of Directors notably addressed the liquidity and capital situations, the deleveraging program, the Group’s restructuring plan and the State guarantee.
selected for their expertise and the contribution that they can make to carrying out the tasks of the Audit Committee thanks to their experience in different professional fields.
Comptes annuels
All appointments to the Board of Directors are made in compliance with the prevailing legislation and the terms of the Company’s bylaws. At each Board meeting, the Chief Executive Officer presents the activity and the financial statements for the preceding period. The board also reviews the work of the Audit Committee, internal controls and risk monitoring on an ongoing basis.
3
2.1. Organisation of the internal control function
by the laws and regulations of the various countries in which Dexia Crédit Local conducts business.
2.1.1.
The internal control mechanism provided for by CRBF Regulation 97-02 as amended states that several control processes should be established to ensure notably: • compliance of transactions and internal procedures;
a. Role of the internal control function
• accuracy and reliability of accounting and financial information;
Like all credit institutions, the Dexia Crédit Local Group(2) is subject to the oversight of the French Prudential Control Authority (Autorité de contrôle prudentiel). The objectives and organisation of its internal control function are defined by the French Monetary and Financial Code and CRBF Regulation 97-02 as amended (compliance with which is verified regularly by the Internal Audit department), and
• security of information systems;
Renseignements de caractère général
ROLE OF THE INTERNAL CONTROL FUNCTION AND GENERAL ARCHITECTURE OF THE INTERNAL CONTROL PROCESS
Assemblée générale
2. Internal control
• effectiveness of systems used to measure and monitor risks and results; • control of all critical or important outsourced activities.
(1) Jean-Pierre Brunel (Chairman), Francine Swiggers and Patrick Bernasconi. (2) For both the Dexia and the Dexia Crédit Local Groups, the notion of “Group” used in the present report includes the parent company and all consolidated companies.
Annual report 2011 / Dexia Crédit Local
75
Présentation générale
3
Governance and internal control
Report of the Chairman of the Board of Directors
More specifically, the roles assigned to the internal control function in place within Dexia Crédit Local are designed to:
who initiate actions or transactions and those responsible for their validation, control and regulation.
• verify the effectiveness of risk management process. The internal control function is designed to provide the Management Board with a guarantee that the risks assumed by the Group are compatible with the policy established by the Board of Directors and the Management Board, and with the level of risk accepted;
As part of this strategy, the general architecture of Dexia Crédit Local’s internal control system is based on an organisation divided into three levels:
• ensure that the accounting and financial information produced is accurate and relevant. The main purpose of the financial information is to present a true and fair view of the financial situation of Dexia Crédit Local in a consistent, exhaustive and transparent fashion. The internal control process is focused on achieving this objective;
Governance and internal control
Rapport de gestion
• ensure compliance with all regulations and rules concerning ethics and compliance, both internal and external. The proper functioning of Dexia Crédit Local and of its subsidiaries requires the strict observance of all legislative and regulatory requirements in each of the countries in which the Group is present, and of all internal standards that have been established in addition to these obligations, particularly in matters concerning corporate governance, compliance and sustainable development. The internal control system must enable the Group to ensure compliance with these principles;
Comptes consolidés
• improve the functioning of Dexia Crédit Local by ensuring an effective management of all available resources. The decisions taken by the Management Board for that purpose must be able to be put in practice quickly. The internal control procedures ensure the integrity of information flows, the compliance of the initiatives set in place and the verification of all results;
Comptes annuels
• ensure the effectiveness and operational efficiency of all of the business lines. The proper functioning of operational processes is of constant concern at all levels of the decision-making process. Many initiatives have been taken toward this goal, in constant collaboration with the business line and support entities that also measure these initiatives using indicators and regular reports. Dexia Crédit Local has established a body of procedures and controls as part of the organisation of the internal control system designed to improve the bank’s compliance with all regulations and capital adequacy policies, while ensuring that available resources are managed effectively. The internal control process provides a reasonable assurance that the objectives described above will be achieved at a desired level.
Assemblée générale
It should be mentioned that this system, like any control system, cannot be considered an absolute guarantee that the Company will achieve its objectives.
b. Architecture of the internal control system
Renseignements de caractère général
The general architecture of the internal control system is based on a series of basic principles, which are adapted to all of the business lines and support functions. Dexia Crédit Local’s internal control system is based on activities incorporated into all operating, support, management, accounting and other processes, which the Group’s management is responsible for monitoring continuously, with successive levels of control. There is, moreover, a clear segregation of functions designed to maintain and ensure a clear distinction between those operators
76
Dexia Crédit Local / Annual report 2011
• the first level of control is performed by each employee and his superiors, in accordance with responsibilities that have been expressly delegated to him, procedures applicable to the activity he performs, and with instructions provided to him; • the second level of control is performed by specialised functions, independent from the operations controlled and which report directly to the Management Board. This second level may also be the responsibility of specialised committees composed of staff from operating, support and control functions, and chaired by a member of the Management Board, such as the Chief Compliance Officer or the Chief Risk Officer; • the third level of control is performed by the Dexia Group internal audit function, which is responsible for continuously ensuring the efficient and effective performance of both of the levels of control defined above, within the parent company and all of its subsidiaries and branches.
c. Internal control functions Based on the internal control architecture outlined in the preceding paragraph, Dexia Crédit Local has established functions that are segregated and adapted to the specific characteristics of each entity:
Permanent control, excluding compliance This control function is responsible for verifying that the Risk Management system set in place is sound and effective, and guarantees the quality of all accounting and financial information and the quality of the Group’s information systems. The organisation of the permanent control function (excluding compliance) is discussed in detail in Section 2.1.7 below.
Compliance control This control function ensures that all regulations specific to the activities of credit institutions are continuously applied and that the Company runs no risk of administrative, disciplinary, financial or reputational sanction due to their absence or non-application. The organisation of the compliance control function is discussed in detail in Section 2.1.8 below.
Periodic control, or internal audit This control function, carried out by the Internal Audit department of Dexia Crédit Local, in close cooperation with the internal audit function of the Dexia Group, is responsible for monitoring the efficient and effective application of controls in the parent company and all its subsidiaries and branches. The organisation of the internal audit function is discussed in detail in Section 2.1.9 below.
Internal reference documents To ensure that everyone participating in the internal control system has access to the same relevant information and instructions, the Dexia Crédit Local Group has compiled a standard reference system of instructions. These reference documents can be divided into four major categories:
Governance and internal control
Report of the Chairman of the Board of Directors
• procedures define – in compliance with all relevant charters, codes and directives – the organisation, tasks and monitoring necessary for the performance of a given activity. Each employee must have access within his or her department or area to a procedure manual covering his or her function. Similarly, service contracts allow two departments or two Dexia Group entities with a customer-supplier relationship to formalise this by establishing the level of service expected.
The general organisation of the risk management function implemented at the end of 2009 is aligned with that of the Group and involves several different lines of business: credit risk on the Public and Wholesale Banking business, financial risk on Financial Markets activities and operational risk. The Dexia Crédit Local Risk Management department performs its duties both directly and by employing the services of various specialised knowledge centres situated at the Group level. The provision of these services is formalised in a series of service level agreements (SLAs).
The Chief Executive Officer is the Chairman of the Management Board and has ultimate responsibility for guaranteeing that the bank’s internal controls function properly. He defines and coordinates the internal control policies of the Dexia Crédit Local Group. He also allocates resources and establishes deadlines for implementation of the actions that have been decided upon with respect to these policies. He verifies that the objectives that have been set are achieved, and that the internal control system meets all requirements. Lastly, he modifies these requirements whenever warranted by internal and external changes. To assist him in this assignment, the Chief Executive Officer relies on the Management Board, whose members are continuously involved in the internal control system through their operating functions, their participation in various supervisory committees and the audit and other reports with which they are systematically provided. The Chief Auditor, Chief Compliance Officer and Chief Risk Officer all report directly to the Chief Executive Officer. The Chief Executive Officer of Dexia Crédit Local is a member of the Management Board of Dexia SA and is responsible for the Public and Wholesale Banking business. He is responsible for the oversight of all of Dexia Crédit Local’s domestic and international subsidiaries and branches. This Group structure improves coordination between Dexia SA and Dexia Crédit Local, and increases the authority of the Chief Executive Officer over all the entities that report to Dexia Crédit Local, which contributes to greater control over the entire scope of Dexia Crédit Local and to an optimised internal control function.
Comptes consolidés
The major restructuring of the Group initiated in the autumn of 2011, marked notably by the sale of Dexia Bank Belgium (DBB) and transfer of many Dexia SA Brussels staff to DBB, necessarily entails a reorganisation of the risk management function. Some risk management-related activities that are currently performed by certain employees of Dexia SA Brussels and certain expert centres located at DBB will have to be recreated at Dexia Crédit Local. Until this new organisation is set in place, the present teams will continue to provide services in accordance with the SLAs currently in place.
Comptes annuels
2.1.2. CHIEF EXECUTIVE OFFICER AND MANAGEMENT BOARD
Governance and internal control
The Risk Management department is responsible for defining the acceptable level of risk for Dexia Crédit Local, establishing independent and integrated risk metrics for the various types of risks, monitoring and managing those risks and actively identifying and signalling all potential risks, in collaboration with the Group.
Rapport de gestion
2.1.4. RISK MANAGEMENT DEPARTMENT
• rules of conduct – also called directives – are the first-level operating impact of these charters and codes. They spell out the practical implications of the quality standards that have been set, define limits and organise the system whereby authority is delegated. In this manner, the rules of conduct established by Dexia Group Risk Management specify how all counterparty credit limits are to be determined throughout the Dexia Crédit Local Group;
Moreover, the definition of processes performed in connection with ISO 9001 quality certification, although focused primarily on customer satisfaction, has led the Company to develop a comprehensive control plan for its activity.
Présentation générale
The heads of the operating departments are responsible for the adaptation and smooth running of internal control procedures within their areas of activity, analysing the risk on each transaction they initiate, and for verifying that such transactions are in compliance with the internal control procedures in their departments. In the event that a change in the internal or external conditions under which they work should affect internal control, they must propose or implement – depending upon their level of responsibility – any changes required in order to maintain Risk Management at the desired level.
The organisation and governance presented below correspond to the structure in place as at 31 December 2011; this structure will have to change in the near future, in line with the changes discussed above. The main operational responsibilities of the Dexia risk management function are: • developing the general risk policy, under the aegis of the Management Board;
Assemblée générale
• codes provide a set of rules of conduct, or best practices to be observed by all employees in each activity, regardless of their direct and functional reporting lines. The code of ethics and compliance is provided to all employees at the Head Office and in the subsidiaries and branches, and is accessible to all staff via the Compliance section of the Group intranet;
2.1.3. OPERATING DEPARTMENTS
• establishing and managing the risk monitoring function and decisionmaking processes; • setting credit limits and delegations for various decision-makers. The Chief Risk Officer (CRO) of Dexia Crédit Local is a member of the Management Board. He reports directly to the CRO of Dexia SA, and has a strong functional link to the Chief Executive Officer of Dexia Crédit Local. The Chief Risk Officer has no reporting relationship with the other units, and carries out his assignments free of any intervention by the operating functions.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
• charters have been drafted for each business line or activity, detailing the objectives and reference policies that the Group has established and creating a conceptual framework for the organisation and running of the area concerned. Two examples are the Internal Audit and Compliance charters that have been set in place by the Dexia Group;
3
77
3
Governance and internal control
Report of the Chairman of the Board of Directors
All of the CROs in Dexia Crédit Local’s foreign and French subsidiaries and branches now report directly to the Chief Risk Officer of Dexia Crédit Local, who also oversees the credit committees in all of the Group’s largest locations.
Présentation générale
The Risk Management department is responsible for all of the risks generated by the banking activity, as defined by CRBF Regulation 97-02 as modified, namely credit, market, liquidity and operational risks.
2.1.5. COMMITTEES a. Management of credit risk The following Group-wide committees are organised by Dexia SA:
Rapport de gestion
• The Risk Policy Committee (quarterly) approves the rules of allocation of credit risk, which are then detailed in the credit risk policies; • The Risk Executive Committee (weekly) is responsible for defining Risk Management strategy and the organisation of the function;
Governance and internal control
• The Management Credit Committee makes decisions on proposals involving very large amounts or high-risk credits. The Dexia Crédit Local Chief Risk Officer is a member of the Risk Executive Committee.
Comptes consolidés
Specialised committees by expert centre
Comptes annuels
• Impairment Committees, which approve quarterly allocations of reserves and establish the cost of the risk for the quarter; • Rating Committees, which ensure that the internal credit rating system is applied correctly and that the credit rating process is adequate. PWB Special Mention and Watchlist, PWB Default Committees and Impairment Committees are organised in the various subsidiaries and branches (the local committees), in the Head Office of Dexia Crédit Local, and in the Head Office of the Dexia Group for all credit authorities that have not been delegated. Rating Committees are organised at the Group level. The Dexia Crédit Local Risk Management department chairs all of the Dexia Crédit Local committees. It systematically participates in all Dexia Group committees and presents proposals concerning Dexia Crédit Local and its various branches and subsidiaries. The department approves all credit proposals to be housed within Dexia Crédit Local and its various branches and subsidiaries, and has veto power over these proposals.
b. Management of market risk The Market Risk and Guidelines Committee (MRGC) meets monthly to address the following topics: analysis of risk and profit and loss trigger(1) reports and related decisions; definition and revision of approval limits; proposed approvals of all new products; discussion of risk-related directives, governance and standards; risk concepts and measurement methods; and quality of the risk measurement processes. The quality of the valuation process is the subject of a special-purpose MRGC that meets once every valuation quarter.
Decisions regarding commitments are therefore made by:
Ad hoc MRGCs may be organised as required to address specific operational or risk management issues.
• the Dexia SA Financial Markets Credit Committee (for the TFM activity), which is in charge of all new commitments and the allocation and monitoring of limits. The Dexia Crédit Local Risk Management department participates systematically in all Financial Markets Credit Committees, approves all proposals concerning Dexia Crédit Local and its various branches and subsidiaries, and has veto power over these proposals.
Assemblée générale
• PWB and TFM Default Committees, which qualify and monitor all counterparties in default in accordance with Basel II and employing the prevailing rules applied by Dexia;
In order to streamline the decision-making process, the Management Credit Committee delegates its decision-making authority to the Dexia Crédit Local Credit Committee and/or to the Financial Markets Credit Committee. This delegation is subject to specific rules, depending on the type of counterparty, their credit rating and the value of the Group’s exposure to credit risk. The Management Credit Committee is the decision-making body of last resort for all credit proposals involving very large amounts or high-risk credits.
• the Dexia Crédit Local Credit Committee (weekly), which makes decisions regarding proposed commitments involving Dexia Crédit Local and its international network;
Each proposal submitted to a committee includes an independent analysis presenting the main risk indicators and a qualitative analysis of the transaction performed by the Risk Management department.
Renseignements de caractère général
• PWB and TFM Special Mention and Watchlist Committees, which monitor “sensitive” assets that have been placed under surveillance;
Parallel to the process for approving lines of credit, various committees are responsible for monitoring specific risks. These committees are organised by expert centre and/or entity and meet on a quarterly basis. These committees include:
In addition to the monthly MRGC, a specific MRGC meets once a quarter to review reports on activity and Risk Management within the Financial Markets activity. The Dexia Market Risk Committee (DMRC) meets every two weeks and acts as the supervisory committee for the MRGC. The Risk Policy Committee and the Risk Executive Committee validate all material changes to be made to the risk profile or to the governance of risk.
c. Management of balance sheet risk Balance Sheet Management risk is managed through the monthly Dexia SA Group Assets & Liabilities Committee (ALCO). The Dexia SA ALCO establishes the overall framework for risk, sets limits, guarantees the consistency of the strategy and delegates its execution to the Dexia Crédit Local ALCO, establishes the overall level of exposure in line with the risk appetite defined by the Management Board of Dexia SA and validates the transfer pricing mechanisms employed within the Dexia Group. The Dexia Crédit Local ALCO manages the risks specific to the balance sheet of Dexia Crédit Local within the framework defined by and under the responsibility of the Group ALCO.
(1) Loss triggers alert staff to a deterioration of earnings, and are expressed as a percentage of VaR limits, i.e. generally 50%, 75% and 100% for triggers 1, 2 and 3, and discontinuation of activity at 300% of VaR.
78
Dexia Crédit Local / Annual report 2011
Governance and internal control
Report of the Chairman of the Board of Directors
• the New Products Committee (monthly), which is chaired by the Chief Risk Officer, verifies prior to the launch of any new activities or products that the corresponding risks have been correctly analysed, measured and managed, and that adequate risk management systems have been put in place. Each subsidiary also has its own New Products Committee; • the Commercial Risk Evaluation Committee (CERC, quarterly) monitors front office activity and analyses commercial risks in connection with sales of structured loans and transactions. It formulates the marketing strategy for these transactions on this basis.
e. Major it, regulatory and organisational projects
Présentation générale
The following committees are organised:
Control of the international entities is coordinated by the Chief Executive Officer of Dexia Crédit Local in his capacity of head of the Public and Wholesale Banking business. He is assisted in this task by the Public and Wholesale Banking International department, the head of which is a member of the Management Board of Dexia Crédit Local. This department, which is organised into geographical regions, has correspondents for each of the subsidiaries and branches who are responsible for the day-to-day monitoring of these entities, planning the meetings of the various corporate governance bodies, and coordination with the appropriate Head Office departments. The Risk Management and permanent control, compliance and internal audit functions are all overseen directly by the appropriate departments of the Head Office of Dexia Crédit Local, with a specific organisation for each function. Specifically, under the new organisation of the risk management function set in place at the end of 2009, the Chief Risk Officer of each subsidiary and branch reports directly to the CRO of Dexia Crédit Local.
Rapport de gestion
d. Diversification of activities
provided by the Head Office departments. Like the French subsidiaries, foreign subsidiaries and branches have set up internal control systems that are adapted to their size, their activities and the specificities of the local market.
For all entities, control is based on a system of delegation of authority and regular reviews provided to the appropriate departments at Head Office (Risk, Finance, Legal, Compliance and Audit) and the Management Board of Dexia Crédit Local, and the participation of the members of the Management Board in the various administrative and decision-making bodies within each subsidiary.
Governance and internal control
By delegation from the Dexia SA ALCO, the Funding and Liquidity Committee (FLC) centralises and coordinates the decision-making process for all liquidity-related issues. The FLC is in charge of monitoring the Group’s liquidity position and ensuring that all needs are covered by short-, medium- and long-term resources. It monitors the attainment of the liquidity targets set by the Management Board and helps develop funding and divestiture strategies to enable the Group to pass all stress tests, be they internal or at the request of the regulators. The FLC, which meets on a bimonthly basis, takes all measures possible to improve the Group’s liquidity profile.
3
The following committees are organised:
2.1.6. CONTROL OF SUBSIDIARIES AND BRANCHES The Dexia Crédit Local Group employs several tools to monitor and verify the operations of its subsidiaries and branches, depending upon their degree of autonomy from the parent company. French subsidiaries that have been created to house a specific activity (specialpurpose entities, or filiales outils) depend on the services provided by Head Office departments, and are included within the scope of the latter’s internal control system. Control is therefore quite well integrated. The leasing companies and Dexia Municipal Agency are examples of these SPEs. Other French subsidiaries, such as Dexia Sofaxis and Dexia CLF Banque, have a far more extensive scope of activity and use their own staff for permanent control assignments. These subsidiaries have, consequently, established their own internal control systems within their organisations. These systems are modelled on the best practices developed at the Head Office, while taking into account the specific characteristics of these subsidiaries’ own activities. Foreign branches and subsidiaries have their own staff and engage in a range of activities, as appropriate to their local market. Depending on their size, they rely to a greater or lesser extent on the services
Comptes consolidés
Consolidated oversight of the permanent control function is based on the use of decentralised risk measurement and monitoring teams within the Head Office departments, subsidiaries and branches, and on the use of permanent control committees to perform monitoring on a consolidated basis.
Comptes annuels
The tasks performed by most of these committees are reviewed every quarter by the Management Board.
The Operational Risk Manager of Dexia Crédit Local has oversight over all permanent controls other than compliance.
Second-level controls are performed within the Operational Risk and Permanent Control department by the unit responsible for the oversight and reporting of these controls. This unit works in synergy with the Operational Risk Management and IT security functions to guarantee consistency of the various levels of control. The architecture of this control is organised in accordance with the first two levels of the architecture presented in Section 2.1.1.b of this report.
Assemblée générale
• the IT Security Committee, whose main tasks are described in Section 2.3.4.c “Operational risk – Information systems security”.
2.1.7. PERMANENT CONTROL, EXCLUDING COMPLIANCE
Permanent controls are based on a control plan whose results are reported to the Management Board of Dexia Crédit Local every quarter. These controls cover the primary processes involved in the bank’s operations, and were selected in collaboration with the operating departments. The aptness of this selection is reviewed annually in a process that involves the challenging of the control plan. They incorporate both the business process mappings prepared in connection with the ISO 9001 Quality project and the mapping of risks and controls implemented for Operational Risk Management purposes. When setting up their permanent control systems, the subsidiaries and branches have taken into account all applicable laws and regulations in the countries in which they operate as well their own organisation and size.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
• project steering committees monitor the progress of projects, provide the necessary resource planning, make all final decisions and organise reporting to the Management Board of Dexia Crédit Local;
79
3
Governance and internal control
Report of the Chairman of the Board of Directors
Présentation générale
The execution of the permanent control plan defined is monitored by the Operational Risk department, which ensures the consistency and the independence of the controls by establishing functional reporting relationships with the decentralised units within the Head Office departments, subsidiaries and branches. This department prepares the general management report. The department may request justified explanations of any malfunctions observed.
2.1.8. COMPLIANCE Compliance monitoring is an integral part of the internal control systems of credit institutions and investment firms. Dexia Crédit Local’s Compliance department ensures the consistency and effectiveness of non-compliance risk controls.
Rapport de gestion
Compliance is organised as a single function, from the Holding Company of the Dexia Group all the way down to the foreign subsidiaries of Dexia Crédit Local. Compliance is an independent function, and reports functionally to the Secretary General of Dexia.
Comptes consolidés
Governance and internal control
At Dexia Crédit Local, the Chief Compliance Officer reports directly to the Secretary General, who has been given responsibility for compliance dealings with the Prudential Control Authority and has a functional reporting relationship with the Chief Compliance Officer of the Dexia Group. The Chief Compliance Officer also serves as the French Ministry of Finance’s anti-money laundering (Tracfin) correspondent, as part of the bank’s obligations in the fight against money laundering and the financing of terrorism. The Chief Compliance Officer is formally accredited by the French Financial Markets Authority (AMF) as Investment Services Control Manager (RCSI) for both Dexia Crédit Local and Dexia CLF Banque, both of which provide investment services.
Comptes annuels
With rare exceptions(1), each Dexia Crédit Local Group entity has its own Compliance Officer or compliance correspondent. Their role is to ensure that the Group’s general integrity policy and the compliance charter are respected in each of the entities, to update the rules in response to changes in the local activities or environment (legal or economic) and to inform managers and employees about and sensitise them to all local regulatory provisions and the compliance standards that have been defined for the entire Dexia Group. They report to the Chief Compliance Officer of Dexia Crédit Local on either a functional (subsidiaries) or a direct (branches) basis.
Assemblée générale
The Compliance department contributes to the Group’s strict observance of all legal and regulatory obligations. Similarly, it acts in accordance with the guidelines established at the Dexia Group level, consisting notably of charters, codes, policy notes and procedures. The primary modifications made to the rules of compliance concerned the implementation of new rules governing the marketing of structured loans in France. The continued effort to adapt to new regulatory requirements in the fight against money laundering is another of the department’s critical duties, along with the identification of conflicts of interest, with particular attention paid to any benefits received.
Renseignements de caractère général
Each employee attends compliance training sessions, as laid out in a two-year plan established with the Human Resources department. With regard specifically to the fight against money laundering and the financing of terrorism, the Dexia Group complies with all European and French regulations as well as all local laws in each
(1) There is no regulatory obligation for the excepted entities to provide such a function. (2) Investigation & Branch Audit.
80
Dexia Crédit Local / Annual report 2011
of its international locations. In addition to these basic conditions, the Group has also implemented even stricter standardised criteria in terms of the acceptability and reputations of its customers. The Group strives to secure relationships only with counterparties with clearly established identities and who share the Group’s own criteria for integrity and responsibility. The procedure applicable to the fight against money laundering and the financing of terrorism is accessible to all employees and has also been implemented in all of Dexia Crédit Local’s European branches. As part of the anti-money laundering procedures, the Compliance department conducts periodic checks on the effective availability of client identification documentation, by verifying approval requests submitted to the Credit Committees or other bodies that have been granted delegations of powers. USA Patriot Act certification is available on the Dexia website for all appropriate Group entities. The Compliance department also attaches considerable importance to the inclusion of all European entities concerned by the Markets in Financial Instruments Directive (MiFID) in the MiFID monitoring report. The Compliance department performs a regulatory watch by continuously updating all of the applicable laws and regulations. The Compliance department participates in the definition of new rules governing the marketing of structured loans, and is overseeing the implementation of a system for monitoring those rules. The Chief Compliance Officer chairs the Evaluation of Commercial Risks Committee (CERC) for Dexia Crédit Local and the Committee of Evaluation and Prevention of Commercial Risks (CEPCoR) for the Dexia Group, and advises on the marketing of new products and significant changes made to existing products.
2.1.9. PERIODIC CONTROL Dexia Crédit Local’s periodic control function includes both internal audit and inspection(2). A total of 32 auditors and inspectors worked in the Dexia Crédit Local Group internal audit function as at 31 December 2011 (one additional post provided for remains unfilled).
a. Organisation and governance of internal audit Role of the internal audit function Internal audit is an independent and objective function that provides assurance to management as to the degree of control over its operations, offers advice for improvement and contributes to the creation of added value. To achieve this, the internal audit function familiarises itself with all the goals of the organisation, analysing the risks associated with its objectives and periodically evaluating the adequacy of the controls in place to manage these risks. Internal audit then submits an assessment of all residual risks to management so that the latter can validate their fit with the overall risk profile desired for the Dexia Crédit Local Group, and suggests to management any actions needed to strengthen the effectiveness of controls. The internal audit function monitors the implementation of these action plans and provides the Audit Committee with half-yearly reports on the subject. The internal audit function also assists the Boards of Directors of all Group entities in their supervisory role through Audit Committees.
Governance and internal control
Report of the Chairman of the Board of Directors
3
In accordance with international standards, a Group-wide internal audit charter lays out the fundamental principles governing the internal audit function within the Dexia Group, by describing its aims, role, responsibilities and operating procedures.
Dexia Crédit Local Group Management Boards provide the internal audit function with the resources it needs to successfully carry out its assignment, in order to be able to continuously adapt to the Group’s changing structures and environment.
So that each Dexia Group employee can appreciate the importance of the internal audit function’s role within the internal control and management support systems of the Dexia Group, the audit charter has been published on the Dexia website (www.dexia.com).
Scope of intervention
Présentation générale
The strategy, level of requirement and operating procedures of the Dexia Crédit Local Group internal audit function are defined by the Management Boards of both Dexia SA and Dexia Crédit Local, within a framework approved by the Boards of Directors of both Dexia SA and Dexia Crédit Local, via their respective Audit Committees. This framework takes account of the requirements, local laws and regulations and instructions issued by supervisory authorities.
It does not, in principle, include the operations of companies in which the Dexia Crédit Local Group holds only a non-controlling interest, except, for example, in cases when the intervention of the internal control function has been requested by regulatory authorities.
Rapport de gestion
Guidelines
All of the Dexia Crédit Local Group’s businesses, processes, systems and entities fall within the scope of the internal audit function, with no reservations or exceptions. The scope of intervention includes all processes within the Group, including operational, support, managerial, and corporate governance, Risk Management and control-related processes.
Organisation of the function
• access to information: under the terms of its assignment, the internal audit function has access to all information, documents, premises, systems and persons within the entity for which it is responsible, including all management reports and the minutes of and information packages prepared for any advisory and decision- making bodies. Under the terms of their assignment, the internal audit departments have access to all information in all Group entities; • confidentiality: each auditor is bound by a strict obligation to maintain confidentiality and discretion. They must take special care to respect all obligations of professional secrecy contained in regulations; • competence: each auditor must demonstrate the utmost professionalism and receive ongoing training that ensures full understanding of the rapid changes taking place in auditing, banking, financial, information technology and fraud techniques. Training needs are assessed during annual reviews;
Governance and internal control
This organisation, by Group-wide horizontal segment, is superimposed on the organisation by entity, so as to maintain a consolidated view of risk.
Comptes consolidés
• impartiality: the internal audit function is not involved in the operational organisation of Group entities. The Management Boards of the Group may, however, turn to the internal audit function for an opinion, advice or assistance. This type of intervention by the internal audit function must remain infrequent, especially as regards to the development and implementation of internal control procedures;
The internal audit function of the Dexia Group is headed by the Chief Auditor of Dexia SA. He is assisted in his duties by Group Heads of Audit (one per segment) and by an Audit Management Office (AMO) unit.
Comptes annuels
• independence: independence is ensured by having each internal audit department report directly to the highest level of authority within the entity for which it is responsible;
Each segment is managed by a segment manager (Group Head of Audit – GHA) who is responsible, in liaison with the relevant operational managers, for identifying and monitoring all risks relating to the segment for whose supervision he is responsible and for overseeing all the relevant audit assignments carried out within his segment.
Group Heads of Audit are charged with identifying and monitoring all risks affecting the segments for which they are responsible. In the light of the organisation by Group segment, the role of GHA PWB has been merged with that of Chief Auditor of Dexia Crédit Local. The AMO unit defines, maintains and organises the implementation of audit methodology. Transversally, it oversees implementation of support tools for the main audit processes. It coordinates the work and/or develops various reporting produced by the internal audit function. It organises and participates in the Audit Committee of Dexia SA and, to enhance controls over all subsidiaries and branches, monitors the supervisory bodies of the entities and their subsidiaries/ branches and all assignments carried out by local regulators. Finally, it is responsible for planning all of the assignments included in the audit plan, as well as any ad hoc assignments.
Assemblée générale
• objectivity: objectivity of audits is guaranteed by several factors: the assignment of auditors; the objectification of the audit findings through a documented and systematic approach; the oversight of all assignments; and the taking into account of the views of the audited parties through open discussions;
Internal audit is an integrated function within the Dexia Group: its organisational structure is aligned with the Group’s own organisation by segments (Public and Wholesale Banking; Financial Markets, Balance Sheet Management, Risk Management and Finance; Operations and Information Systems and other support functions).
Renseignements de caractère général
In accordance with all professional standards and ethics, the following general principles underlie the performance of the tasks entrusted to the internal audit function and are mandatory for all auditors:
An Audit Management Committee (AMC) was formed to manage the function. Comprising the Chief Auditors of Dexia SA and the main subsidiaries and the Group Heads of Audit of the segments, the AMC is charged with:
• Group-wide methodology: all auditors use the same methodology and document their work in an identical manner to ensure the consistency of their interventions and the traceability of internal audit investigations in the Group, and to foster the identification and management of risk on a consolidated basis.
Annual report 2011 / Dexia Crédit Local
81
3
Governance and internal control
Report of the Chairman of the Board of Directors
Présentation générale
• managing the internal audit strategy as well as the human and financial resources of the function; • defining and updating the audit universe, validating the risk mapping prepared by each of the Group Heads of Audit and ensuring optimal planning of audit assignments;
The Chief Auditor of Dexia Crédit Local ensures that all risks are covered adequately within the entire scope of Dexia Crédit Local: Head Office and the French commercial network, as well as subsidiaries and branches in France and abroad. He also acts as the local interface with local management and the local regulator, and is involved in the management of the internal audit function of the Dexia Group.
• defining and ensuring the proper application of the internal audit methodology applicable within the Dexia Group;
The Internal Audit department of Dexia Crédit Local’s New York branch reports directly to the Chief Auditor of Dexia Crédit Local.
• establishing a global Group audit plan for presentation to the various committees of Dexia SA and to the operating entities for approval;
The heads of the Internal Audit departments of Dexia Crédit Local’s subsidiaries (Italy, Germany, etc.) report directly to either the Chairman of the local executive body, the Board of Directors or the Supervisory Board (depending on local regulations), and report to the Chief Auditor of Dexia Crédit Local on a functional basis. The functional relationship takes the form notably of an approval on all appointments, objectives and annual reviews.
Rapport de gestion
• analysing the results of the monitoring of the performance of the internal audit function. In terms of governance, the organisation in this support line has the following advantages:
Governance and internal control
• each member of the Management Board is assigned one specific and clearly identified audit correspondent, who has a clear overview of the risks in his area of responsibility; • The total integration of the Audit Management Office function ensures a single definition of audit methodology and allows its proper application within the entire Group to be monitored and any help needed to be provided.
Comptes consolidés
• a minimal number of auditors is maintained in the international subsidiaries and branches, with these entities being covered by numerous joint audits, i.e. audit assignments performed in the subsidiaries and branches by the central teams in collaboration with the local teams.
Comptes annuels
It should be specified that since Q4 2011, following the announcement of the dismantling of the Dexia Group, the organisation of this function has been modified to align it with the Group’s new structure and new scope: • the two IT auditors who under the integrated organisation are attached to the Dexia SA function but perform their duties at Dexia Crédit Local will be transferred to Dexia Crédit Local no later than 31 March 2012;
Assemblée générale
• the AMC was entrusted with the additional assignment of identifying areas for “dismantling” the internal audit function and the priority thereof. To reflect this new mission, the AMC has been renamed the Audit Management & Transition Committee (AMTC);
Renseignements de caractère général
• Due to the dismantling, it became necessary to develop a huge new project to review all recommendations and competence centres, in order to assign them to new managers within entities once the central functions are reallocated to the entities. The project is scheduled to end 31 March 2012.
Management guidelines As the internal audit function is an integrated support line within the Dexia Group, it includes on one side the Dexia SA Internal Audit department and on the other side the Internal Audit departments of Dexia Crédit Local and its subsidiaries and branches. The Internal Audit department is headed by the Chief Auditor, who in turn reports directly to both the Chief Executive Officer of Dexia Crédit Local and the Chief Auditor of Dexia SA.
82
Dexia Crédit Local / Annual report 2011
Each Internal Audit department is responsible for fulfilling its duty towards the Chairman of the Management Board depending on local regulations and towards the Board of Directors of the entity or subsidiary, with the potential support of an Audit Committee. Each Chief Auditor attends the meetings of the Management Board of the entity for which he is responsible (i) when that Board so requests, (ii) when presenting an audit report or (iii) at his own request, when he wishes to raise a particular point falling within the scope of his attributions and responsibilities. Each Chief Auditor has direct access to the Chairman of the Board of Directors, the members of the Audit Committee and the Statutory Auditors of the entity for which he is responsible.
Operational guidelines An internal audit function is created within a subsidiary when Dexia Crédit Local exercises control over that subsidiary or, in the absence of such control, at the specific request of the supervisory authorities. If the creation of an internal audit function is not considered relevant, Dexia Crédit Local provides the local internal audit function and, when appropriate, a service level agreement (SLA) is signed between Dexia Crédit Local and the subsidiary in question. This is notably the case of the French subsidiaries (Dexia Municipal Agency, Sofaxis and the leasing and other specialised subsidiaries). Audit duties – Methodology The work performed by the internal audit function is based on proven methods based on international best audit practices. The audit assignments and risk analyses in all Dexia entities are based on one common set of methodologies. They are adjusted regularly to reflect changes in standards, feedback from the field and changes in structures. The methodology first identifies the objectives of the business lines and support processes, and then quantifies the impact of all major risks that could interfere with the achievement of these objectives. Then, audits are targeted at those subjects most critical in terms of impact and likelihood of occurrence. The methods employed structure the internal audit function as a support for corporate governance over risk control. The overall approach of the risk universe, the common audit methodology, the performance of transversal, joint or local assignments depending on needs, and the procedures for reporting and monitoring at the level of the head-of-group structure all contribute to assessing whether the Dexia Crédit Local Group’s internal control system is well integrated and effective and to requesting any improvements that may be needed.
Governance and internal control
Report of the Chairman of the Board of Directors
• list of audit assignments performed over the past three years on the audit units (back testing); • selection of audit assignments of high-risk audit units, taking account of all audits already performed and any regulatory requirements with regard to frequency. In order to be most efficient, the audit plan targets those audit units most at risk, i.e. those which – across all the business lines and support lines – present the greatest number of risks and/or key controls for the achievement of objectives. Those audit units that do not pose major risks are subject to a simplified approach, which meets the regulatory requirements for coverage of the audit universe. This multi-year plan allows the internal audit function to identify any potential quantitative or qualitative need for human resources, as well as any training needs. The audit plan distinguishes between several types of audits: • transversal audit missions, which are carried out simultaneously on the same subject in several entities and focus mainly on processes with a relatively high degree of integration; • joint audit missions, which are carried out within an entity by the local audit staff (if any) along with one or more auditors from a shared services centre; • local audit missions, involving only one entity. It should be noted that during the fourth quarter of 2011, following the dismantling of the Dexia Group, the classification of audit assignments was restructured to take into account the decisions made regarding the structure of the Dexia Group. Audit assignments are now categorised as follows: • local audit missions, involving only one entity. Some local audits may be “of common interest”, meaning that other entities (whether or not they still belong to the Dexia Group) have an interest in the
Présentation générale Rapport de gestion
• identification of the audit units that are either the source of these risks or responsible for anticipating them, leading to a risk score per audit unit, from which is derived a score of the frequency with which the unit must be reviewed by the internal audit function;
– follow up by the correspondents of the various dismantling projects taken from a budget initially allocated to monitor that area. The precise form of this monitoring will be determined on a case-by-case basis by each correspondent together with the Chief Auditor of the entity to which he is assigned and/or with the GHA in charge of the Operations & IT and support functions, and will be notified to the various managers concerned. The dismantling issues identified include notably (i) dismantling of the purchasing function, which had been centralised at Dexia SA; (ii) continuity of IT security governance measures; (iii) management of insurance policies negotiated at the Head Office by Dexia SA on behalf of Dexia Group entities; (iv) management of the “Dexia” brand; and (v) review of all SLAs and the mandates established within the Group concerning services performed among current or former Group entities.
Governance and internal control
• assessment of the degree of Dexia Crédit Local’s vulnerability to these critical risks, by quantifying their impact and likelihood of occurrence. The results of this assessment permit identification of the most significant risks;
– a series of dismantling assignments, which will address the risk items identified during the process of transforming and dismantling the Dexia Group. These assignments will be undertaken based on the degree of progress made with the dismantling process, when initiating an assignment is considered relevant;
2 – Performance of audit assignments All Dexia Group entities apply the same methodology to perform audit assignments. The various steps for carrying out an internal audit mission (preparation, fieldwork, audit report, monitoring of recommendations, etc.) and the formats of the documents expected at each step are described in a procedure that also sets out the roles, responsibilities and processes to be followed for the review and approval of the audit mission and the archiving of all necessary documents.
Comptes consolidés
• identification of potential critical risks that would interfere with the achievement of the business lines’ and support lines’ objectives;
• auditing and monitoring of dismantling operations. This category includes:
Comptes annuels
The plan is put together using an annual risk analysis conducted independently by the internal audit function, in accordance with the best practices presented by the Institute of Internal Audit. The main steps taken by the internal audit function in creating its audit plan are the following ones:
• joint audit missions, which are carried out within a subsidiary or branch by the local audit staff (if any) along with one or more auditors from the parent company;
3 – Monitoring Twice a year, the Chief Auditor of Dexia Crédit Local presents the Audit Committee with a report on the activities of the internal audit function. The report includes a summary of key findings identified during the audit missions, report on the realisation rate status of the audit plan (especially when there has been a significant deviation from the schedule) and a qualitative and quantitative assessment of the adequacy of the resources provided.
Assemblée générale
The Dexia Crédit Local internal audit function uses a single, common audit plan for the entire Group that is defined by the AMC and approved first by the Management Board and then by the Audit Committee and/or the Board of Directors.
results of the audit as, during a transitional phase, these audited processes still have an impact on their own activities;
To ensure the effectiveness of the recommendation monitoring process, twice a year, a report dedicated to the follow-up of all action plans associated with the recommendations is presented to the Management Boards of the various Group entities and any delays in the implementation of these action plans are addressed.
Renseignements de caractère général
1 – Analysis of risk and planning of audit assignments and resources
3
OSCAR is a recommendation-monitoring tool that facilitates an ongoing exchange of information between auditors and auditees on the progress made with the action plans developed in response to audit recommendations. The recommendations of the reports issued by the French Prudential Control Authority have also been entered into OSCAR.
Annual report 2011 / Dexia Crédit Local
83
3
Governance and internal control
Report of the Chairman of the Board of Directors
In 2011, special attention was paid to the monitoring of the recommendations of the internal audit function and the regulators.
Training
Présentation générale
In addition to the training sessions organised by the Human Resources department, a specific training plan has been established for the audit function. The plan includes several different training courses, depending on the role and seniority of the auditor.
Dealings with supervisory authorities and the Statutory Auditors
Rapport de gestion
The Internal Audit departments of all Dexia Crédit Local Group subsidiaries and branches inform the Dexia Crédit Local Internal Audit department of: all meetings planned on the functioning of the internal audit functions; all audit assignments conducted by the supervisory authorities in their entities (throughout the entire audit); and all matters deemed important raised during their regular meetings with the Statutory Auditors and the supervisory authorities, by submitting the summaries of those meetings. The Internal Audit department of Dexia Crédit Local may attend such meetings whenever it so wishes.
Governance and internal control
The Internal Audit department of Dexia Crédit Local acts in the same way with respect to the Chief Auditor of Dexia SA. The Internal Audit department of Dexia SA may attend any meetings with the Statutory Auditors and supervisory authorities whenever it so wishes.
b. General overview of the internal audit function in 2011
Comptes consolidés
A substantial portion of the Dexia Group audit plan took the form of “transversal audits”, i.e. assignments carried out simultaneously at Dexia SA and the Group’s operating entities: Dexia Crédit Local, Dexia Bank Belgium (through October 2011), Dexia Banque Internationale à Luxembourg and DenizBank, as well as certain of their subsidiaries and branches, depending on the nature of the audit. In 2011, these audits mainly addressed Risk Management, Finance, Balance Sheet Management, Operations & IT functions and Financial Markets activities. Other support functions are also audited regularly.
Renseignements de caractère général
Assemblée générale
Comptes annuels
The audits undertaken in 2011 resulted in the establishment of action plans to correct weaknesses identified in the internal control system. Each action plan was approved by the Management Board of the entity concerned and – depending on its materiality – reported to the Management Board of Dexia Crédit Local, and is being regularly monitored, to ensure that all of the recommendations contained therein are effectively implemented.
The bank inspections carried out by the supervisory authorities at the Dexia Crédit Local Group level concerned notably risk management, management of portfolios in run-off, Dexia Municipal Agency, Dexia Crédit Local New York branch (by the US regulator) and Dexia Crediop (by the Bank of Italy).
c. Investigation & Branch Audit unit Role The Investigation & Branch Audit unit engages in two activities: • Investigation: the unit makes an independent and objective contribution to the management of fraud risk. It participates in efforts to raise awareness of and prevent fraud. It takes steps to detect and deal with cases of fraud. Lastly, it proposes and monitors corrective actions; • Branch Audit: the unit provides independent and objective assurance about the extent to which risks on operations in the physical distribution channels are effectively managed. The unit takes a systematic and methodical approach to assessing the risk management, control and governance processes in these distribution channels.
Organisation and governance The Investigation & Branch Audit unit is headed by the Group Head of Investigation, who reports to the Chief Auditor of Dexia SA. It is composed of: • an Investigation & Branch Audit unit that reports directly and on a functional basis to the Dexia SA Internal Audit department; • “local” Investigation & Branch Audit units that report directly to the internal audit departments of the local entities and on a functional basis to the Dexia SA Investigation & Branch Audit department.
In 2011, the audit plan completion rate was generally satisfactory for the subsidiaries and branches and acceptable for transversal assignments.
An Investigation & Branch Audit charter lays out the basic principles that govern the function by describing the objectives, roles, authorities, duties and responsibilities, operating procedures and basic rules governing its activities. This document helps set the objectives of the unit and describes the relationships and conditions for action of the Investigation & Branch Audit of Dexia SA vis-à-vis other Dexia Group entities, factoring in whether or not a local investigation unit exists.
It should be noted that in the second half of 2011, notwithstanding the decision to dismantle the Dexia Group, staff were able to complete all assignments underway at the time the decision was made, including the transversal ones, making some occasional changes to their form (drafting of one report per entity, rather than a comprehensive report) and altering certain recommendations to fit the context.
In accordance with these principles, the inspection function for Dexia Crédit Local and its subsidiaries and branches is performed by the staff of the Dexia SA Investigation & Branch Audit unit. This unit consists of a Group Head of Investigation & Branch Audit and several investigation managers. The Group Head of Investigation & Branch Audit of Dexia SA reports directly to the Chief Auditor of Dexia SA.
Dealings with supervisory authorities and the Statutory Auditors
The Dexia SA Investigation & Branch Audit unit is joined on its audits by a bank inspection correspondent from the Dexia Crédit Local Internal Audit department.
Internal audit staff continued to spend a considerable portion of their time in 2011 dealing with the Dexia Crédit Local Group’s various regulators, participating in bank inspections and other types of meetings. During these bank inspections, the internal audit function is responsible for: monitoring the progress of the inspection while ensuring that all items requested are sent to the bank inspectors in the
84
correct manner; at the end of the audit, coordinating the formulation of action plans in response to the regulators’ recommendations (in application of the principle of enhancing the role of the internal audit function in these matters); and then monitoring both these action plans and those developed in response to its own recommendations.
Dexia Crédit Local / Annual report 2011
The Investigation & Branch Audit division is therefore accountable to the Chief Auditor of Dexia Crédit Local and the Group Head of Investigation & Branch Audit of Dexia SA for the assignments carried out at Dexia Crédit Local and its branches and subsidiaries.
Governance and internal control
Report of the Chairman of the Board of Directors
The executive management body of the Dexia Group is the Management Board of Dexia SA. The Group Management Board is responsible for oversight of the Dexia Group and coordination of its various business lines and the specialised activities that support them. The members of the Management Board of Dexia SA have been delegated specific Group-wide powers that they share amongst themselves. The Group Management Board may also meet in its expanded form, known as the Group Executive Committee, to address Group-wide or highly significant matters. At 31 December 2011, the Management Board consisted of the following: • the Chief Executive Officer and Chairman of the Management Board; • the EVP-Public and Wholesale Banking, who is also Chief Executive Officer of Dexia Crédit Local; • the Chief Executive Officer of DenizBank; • the EVP-Human Resources; • the EVP-Business Development, Portfolios and Financial Markets activities; • the Chief Risk Officer;
Présentation générale Rapport de gestion
• the Group Chief Compliance Officer, who reports directly to the Secretary General and has direct access to the Chairman of the Management Board of Dexia SA and to the Chairman of the Dexia SA Internal Control, Risk Management and Compliance Committee so that he can report to them directly on any significant incidents. The Group Chief Compliance Officer coordinates the network of Compliance Officers within the various entities and ensures compliance with the integrity policy and the propagation of the ethical and compliant corporate culture;
Governance and internal control
2.1.10. THE DEXIA GROUP
• Risk Management: under the responsibility of the Chief Risk Officer, who is a member of the Management Board, oversees the Group’s risk management policy. It establishes policies for risk limits and authorities, controls and measures the aggregate risk of the Group as a whole and puts standard methods in place in the various entities;
• the Permanent Control department’s monitoring unit, which reports to the Group Chief Risk Officer, is responsible for (i) defining methodology, guidelines and reporting, (ii) preparing the Group’s permanent control plan, (iii) challenging the permanent control plans of the business lines and the entities and (iv) consolidation of results at the Group-wide level.
Comptes consolidés
In 2011, pursuant to the establishment of the Investigation & Branch Audit function, Group (Dexia SA) and Dexia Crédit Local staff worked closely together. While recurrent investigations were managed locally by Dexia Crédit Local resources, Dexia SA staff members also helped with internal audits (including notably the audit of measures to raise awareness of fraud risk) and bank investigations. In addition to performing recurrent investigations (such as the monitoring of websurfing), the Investigation team was asked to provide support to the Legal and Compliance departments in connection with cases involving the bank and certain of its customers. Lastly, and especially in the light of the crisis conditions experienced at present, it should be noted that the frequency of external fraud attempts detected and treated, notably within certain foreign subsidiaries, has remained substantially unchanged.
2.2. Preparation and processing of accounting and financial information 2.2.1. FINANCIAL STATEMENTS
Comptes annuels
General overview of Investigation & Branch Audit in 2011
• Internal Audit: reports directly to the Chief Executive Officer and Chairman of the Management Board, establishes all procedures used within the Group, coordinates and helps perform audits of Group-wide functions in several entities, audits all Group functions, and audits the audit functions within the different entities;
The principal goal of the financial statements is to present a true and fair view of a company’s net worth, financial position and results. CRBF Regulation 97-02 as amended, relating to internal control, stipulates in its section on accounting that the organisation put in place must guarantee the existence of a set of procedures referred to as the “audit trail”. This audit trail must allow all accounting information provided to be tied back to an original supporting document, and vice versa. This is the basic policy on which the Dexia Crédit Local Group bases the organisation of its accounting function.
Assemblée générale
The Investigation & Branch Audit charter also requires that details regarding rules governing access to personal data in the various entities be agreed upon with the Compliance function.
The departments most specifically concerned by internal control are the following:
a. Duties and organisation of the accounting department Reporting to the Chief Financial Officer of Dexia Crédit Local (who is a member of the Management Board), the Accounting department plays a central role in the Company’s organisation.
Renseignements de caractère général
The implementation of the charter entails the signing of various service SLAs between Dexia SA and Dexia Crédit Local and between Dexia SA and the subsidiaries of Dexia Crédit Local.
3
• the Chief Financial Officer; • the EVP-Operations & Information Systems; and • the Secretary General, who oversees Compliance, Legal, and Tax.
The Accounting department is responsible for preparation of the parent company financial statements of Dexia Crédit Local, as well as those of any subsidiaries that do not have their own accounting department. It is also responsible for preparation of the consolidated financial statements of the Dexia Crédit Local Group. A specialised unit monitors compliance with regulatory standards and principles of conservatism.
Annual report 2011 / Dexia Crédit Local
85
3
Governance and internal control
Report of the Chairman of the Board of Directors
As part of the consolidation process, the Accounting department also monitors and verifies the accounting data produced by the bank’s French and foreign subsidiaries and branches. In particular, it verifies that the information provided is consistent and compliant with Group rules.
Présentation générale
Generally speaking, the Accounting department has various means of obtaining the information it requires to fulfil its assignment of monitoring the accounting function in the broadest sense of the term. It is represented on all committees that may be relevant to its function, or is at least provided with a copy of the minutes of their meetings. It is in regular contact with its correspondents to ensure that all Group principles have been properly received and that the instructions transmitted have been interpreted correctly. The department participates in changes to IT systems in order to ensure that its specific needs are taken into account.
Governance and internal control
Rapport de gestion
In connection with the Dexia Group’s transformation plan, the finance function established three knowledge centres at the Dexia SA level related to the activities of the Accounting department. The consolidation and accounting standards and controls units all report directly to Dexia SA. Dexia Crédit Local has set a series of service contracts in place with its parent company so that these functions can be performed by the central teams, under a joint management with the Chief Accountant and Chief Financial Officer of the entity. The members of these units maintain close relationships with the local teams, and, in addition to their duties on behalf of Dexia Crédit Local, they also play a Group-wide (or “horizontal”) role at the Dexia Group level.
Comptes consolidés
The Accounting department maintains a unit in charge of the accounting information system, which allows it to participate actively in the implementation of transformation projects and improvement of existing systems alongside the other applications employed in the finance function.
Comptes annuels
The Accounting department uses the work performed by the Dexia SA accounting controls unit to conduct independent verifications. Moreover, and in connection with Dexia Crédit Local’s ISO 9001 certification, the Accounting department has established a quality correspondent who assists the Chief Accountant in his role of assessing the quality of the process by which financial information is produced.
Renseignements de caractère général
Assemblée générale
The accounting system has been adapted to raise the level of quality and efficiency of its processes and to make the consolidated accounting information it produces more reliable on a continuing basis, especially in the context of the uniform application of International Financial Reporting Standards (IFRS) throughout the Dexia Crédit Local Group. The independent verification unit participates in the permanent control process. It strives to verify the materiality and the relevance of the controls performed during the quarterly account closings for the consolidation scope within the Head Office of Dexia Crédit Local. The unit regularly carries out assignments in the international entities, with a frequency suited to the size and financial risks of the entity involved, notably to ensure that all accounting methods are properly applied.
Preparation of the financial statements
In order to prepare the financial statements of the parent company, data is largely automatically posted to Dexia Crédit Local’s accounting system by the upstream management systems used to manage customer transactions, financial market counterparties and general operating expenses. When a transaction is recorded in any of these management systems, automated account mappings generate accounting entries automatically. These entries feed into the financial statements using a single accounting system that incorporates two
86
Dexia Crédit Local / Annual report 2011
sets of standards (French GAAP and EU IFRS [IFRS as adopted in the European Union]). The exhaustiveness and accuracy of the source entries are guaranteed by the internal control systems of the financial control departments. The team in charge of enforcing standards and policies validates the automated charts of accounts under both sets of accounting standards, as well as the processing of complex or unusual transactions. The latter are occasionally entered manually, but they are then covered by specific internal control procedures. First-level controls are performed by accounting teams specialising by line of business, notably through the analysis of bank reconciliations and technical suspense accounts. Each month, all transactions recorded in the general ledger system are reconciled with those in the management systems, and tests of symmetry are performed on micro-hedged transactions. In order to verify the comparability of interest expense and income from one period to another, these items are measured against average outstandings to calculate more easily comparable average rates. Finally, these departments also draft reports summarising the work performed and identifying any points requiring special attention or procedural improvements to be made in subsequent closings. Additional checks are also performed by other units of the Accounting department during monthly, quarterly and annual closings. The work done by the business line accounting teams is reviewed periodically to ensure that all controls included in a standardised list have been correctly performed. The summary report issued by these accounting teams is also reviewed. The financial accounts are reconciled with the management accounts at least once a quarter, and analytical tests are performed to verify the comparability of periods. Explanations of the main changes must be provided. During the past year much of staff time was devoted to analysing these reconciliations in order to automate the reconciliation process and to standardise the approaches employed by the different units contributing to the validation of the financial results. The Management Board was particularly involved in the monitoring of this project in 2011. The accounting entries generated during this process are subsequently compiled and aggregated using an automated, standardised process, to form the parent company financial statements of Dexia Crédit Local prepared under French GAAP and the Company’s contribution to the consolidated financial statements prepared under EU IFRS. The same is true of all Dexia Crédit Local subsidiaries whose accounting is performed at the Head Office. The Accounting department uses these financial statements, supplemented in some cases by data provided by the management systems, to establish the tables for the notes that form an integral part of the financial statements. The Accounting department then performs cross-checks between the summary reports and the notes to the financial statements. Throughout the entire process, reviews and tests of reasonableness and of compliance with the established procedures are conducted in accordance with the reporting authorities that have been established. The same work is performed in each of the entities that make up the Dexia Crédit Local Group, although the degree of complexity may vary with the size of these entities and the activities in which they engage.
Preparation of the consolidated financial statements
The financial statements of the international entities that are prepared under local standards are restated to ensure consistency with the accounting policies of the Dexia Crédit Local Group (EU IFRS). These policies are compiled into a consolidation manual that is provided to each Dexia Crédit Local Group entity. Operational instructions are also provided to the entities at each closing date by the Head Office
Governance and internal control
Report of the Chairman of the Board of Directors
Approval of the financial statements
Once it has finalised the parent company and consolidated financial statements, the Accounting department presents them to the Chief Financial Officer and the Chief Executive Officer of Dexia Crédit Local for review. The financial statements are subsequently reviewed by the Management Board, and then presented to the Audit Committee. As required by law, the Board of Directors of Dexia Crédit Local approves the parent company financial statements and the consolidated financial statements and presents them to the Shareholders’ Meeting along with the Group management report. The Board of Directors also reviews the report of its Chairman on internal control procedures as presented to the Shareholders’ Meeting.
Publication of the financial statements of Dexia Crédit Local
The summary financial statements are then incorporated into the annual report, which is equivalent to the document de référence (registration document) required in France by Article 212-13 of the General Regulations of the French Financial Markets Authority (AMF). Using these reports, together with information gathered throughout the closing process, the Accounting department also prepares the written comments for the section of the management report that covers the preparation and analysis of the financial statements. This accounting and financial information is made public in several ways: • the financial statements are announced in a financial notice and/ or published in BALO, the French official journal of required publications; • the annual report equivalent to the document de référence is filed in both paper and electronic formats with the AMF; it is also filed
Présentation générale
b. Role of the statutory auditors
Rapport de gestion
The committee composed of two statutory audit firms (the “Statutory Auditors”) is involved throughout the entire process of verifying the financial and accounting information in order to promote efficiency and transparency. As part of their review, they analyse accounting procedures and evaluate the internal control systems in place for the sole purpose of determining the type, frequency and scope of their tests. Their review is not intended to provide any specific opinions regarding the effectiveness and reliability of the internal controls; they may, however, choose to share any recommendations they have with regard to internal control procedures and systems that could improve the quality of the accounting and financial information prepared.
Governance and internal control
A specialised accounting permanent control team performs additional checks to ensure the proper application and quality of the control procedures of the various accounting teams in the Head Office and the subsidiaries, suggesting improvements to enhance the effectiveness and standardisation of these procedures and incorporating all of the best practices found within the Group.
The Accounting and Communication departments and the Secretary General perform reciprocal control cross-checks to ensure the consistency of the accounting and financial information published and made available to the public.
Their assessment of internal controls is based notably on substantive tests, such as obtaining confirmations from a sample of unrelated counterparties. They issue instructions to the statutory or internal auditors of the subsidiaries and centralise all work performed. They call summary review meetings to present the findings of their audits and evaluate the accounting standards team’s interpretation of legal and regulatory statutes. They are provided with all accounting and consolidation procedure manuals, as well as the guidelines issued by the Accounting department. They examine the internal audit reports provided to them. Lastly, they verify the accuracy and consistency of the management report and the financial accounting statements, as well as the consistency of the overall document with the items they have audited.
Comptes consolidés
These checks are aimed at ensuring the comparability of the information provided and its compliance with Group rules, and providing a better understanding of the principal changes that have taken place in comparison with prior periods. The consolidation unit performs specific adjustments intended notably to eliminate intercompany transactions and incorporate any changes in the scope of consolidation.
• as required by disclosure regulations, all annual and interim reports are released through an AMF-certified distributor of financial news releases (Hugin).
Comptes annuels
Using their individual financial statements that have been restated to Group norms, each of the entities of the Dexia Crédit Local Group fills in a consolidation package that is incorporated automatically into the consolidation system. Checks are performed on the information that is collected every quarter as well as on data relating to intercompany transactions, the financial statements, and the notes to the financial statements.
• the half-yearly financial report is filed electronically with the AMF and is posted on the Dexia Crédit Local website;
These reviews enable the Statutory Auditors to obtain reasonable assurance that the financial statements they are certifying are free from any material misstatement.
2.2.2. MANAGEMENT AND SEGMENT DATA
Assemblée générale
Should an entity experience any difficulty interpreting these policies, it can request help from the consolidation unit which, in collaboration with the accounting standards unit, will respond appropriately.
with the Clerk of the French Commercial Court and is posted on the Dexia Crédit Local website;
The financial statements (balance sheet, off-balance sheet, income statement, cash flow statement and notes) are not the only quantified analyses released by Dexia Crédit Local to its shareholders and the public. They are supplemented by business reviews, results by business line and discussions of outlook and risk assessments, which are all incorporated into the annual report or transmitted at presentations to financial analysts.
Renseignements de caractère général
consolidation unit. These instructions set out improvements to be made to the process in light of remarks evinced during preceding periods, and provide details of any changes (systems, new data to be provided, etc.) to be taken into consideration during the period.
3
Some of these reports are provided directly by the operating departments or the Risk Management department. Their accuracy is therefore guaranteed by each department’s internal control system. Most of this segment information – and especially that which requires data from different sources to be cross-linked or compiled, or certain high-level figures to be broken down, or accounting data to be
Annual report 2011 / Dexia Crédit Local
87
3
Governance and internal control
Report of the Chairman of the Board of Directors
restated in order to respect management constraints – is provided to the people drafting the annual report by the Strategic Planning and Controlling department. Like the Accounting department, the latter reports to the member of the Dexia Crédit Local Management Board responsible for Finance. The Strategic Planning and Controlling department contributes to the preparation of financial information in two main ways:
Présentation générale
a. Monitoring of the Public and Wholesale Banking business line
Rapport de gestion
Every month, a series of key commercial indicators (margins, fees and commissions, volumes, terms) is used to monitor all of the activities and products of the Public and Wholesale Banking (PWB) business line, including notably short- and long-term financing, deposit-taking, debt structuring, derivatives and any diversification activity. The report is compiled based on information collected from the information system of the PWB Strategic Planning and Controlling department for France and from the international entities. Written comments on the various figures explaining the business environment are prepared in collaboration with the PWB France, Project Finance and PWB International departments.
Governance and internal control
This monitoring of commercial results is summarised in several different formats: • the management report on the commercial results of the French network, presented to the Management Board each month; • the contribution of the PWB activity to the business review presented to the Board of Directors after each quarterly closing;
Comptes consolidés
• the half-yearly business review presented to the Management Board for validation.
Comptes annuels
Moreover, the activity for the entire Dexia Crédit Local scope is incorporated into the PWB management report prepared at the Dexia Group level each month (Monthly Business Review). Analyses of results against the previous year and the budget provide an economic explanation and confirmation of results for the current year; this review also presents the ad hoc analyses of key issues for the PWB business line requested by the Group’s executive management.
b. Calculation of results by line of business The business lines are defined at the Dexia Group level. Dexia Crédit Local’s core business is basically Public and Wholesale Banking, while the results of the bank’s run-off portfolios are allocated to the Legacy division.
Assemblée générale
In order to provide investors with a deeper understanding of the profitability of these business lines, the Strategic Planning and Controlling department is responsible for preparing an income statement for each of them.
Renseignements de caractère général
The calculation of income by business line is monitored each month, and relies essentially on three types of management data: • loan margins on the Public and Wholesale Banking business are prepared by the Strategic Planning and Controlling department by compiling data from the general accounting system – such as
88
Dexia Crédit Local / Annual report 2011
average outstanding loans and the interest margin rate – that is generated automatically in the same way as the pure accounting data; • financial margins on the run-off portfolios and transformation businesses are calculated by the Market Risk Management department (reports to Risk Management department) and the Balance Sheet Management department (reports to Finance department) using the internal bill-back system present in each profit centre in the financial activities area; • liquidity costs (including the transformation margin generated by applying internal transfer rates between assets and liabilities, the cost of central government guarantees and the interest on debt securities issued) are allocated to the various business lines using allocation rules defined by the Group Strategic Planning and Controlling department. Loan margins and financial margins are combined with other types of income, such as fees and commissions, to calculate the total income of each line of business. The sum of these income figures by business line is reconciled with the income figure produced by the Accounting department. The other items in the income statement are also allocated by business line, especially as concerns general operating expenses and the cost of risk, which are allocated specifically to the business that generated them. The sum of these business line income statement items is reconciled at subtotal level with the income statement produced by the Accounting department. In sum, all of these procedures allow complete income statements to be prepared for each business line, in order to foster a better understanding of individual profitability and contribution to the comprehensive income of Dexia Crédit Local.
Compilation process
French and foreign entities with their own financial control units monitor the activity the Public and Wholesale Banking business line and results by business line themselves, using the same standards and principles, which may be adapted with respect to each entity’s size, organisation and systems. This standardised list of instructions is used throughout the entire Dexia Group. Dexia Crédit Local’s Strategic Planning and Controlling department coordinates, monitors and supervises the entire process. Using applications developed in collaboration with the Dexia Group Financial Control department, it provides all Dexia Crédit Local Group entities with standardised, secure data-gathering tools in order to render the data collection process more reliable and effective. Lastly, it compiles all of the data collected. While information is being compiled by line of business, the Accounting department oversees the consolidation process. At each stage of the preparation of the consolidated data, the Planning and Financial Control department and the Accounting department have set in place consistency controls based on the reconciliation of the management and accounting data. Reconciliation of management earnings with accounting earnings is an important component of internal control, to ensure the accuracy of both.
Governance and internal control
Report of the Chairman of the Board of Directors
3
2.3. Identification of risk and corresponding internal controls
c. Monitoring and reporting of information
Banking generates four main types of risks: credit risk, market risk, structural risk (interest rate, currency and liquidity) and operational risk.
• first-level monitoring is provided by the front office teams of the Head Office, branches and subsidiaries as part of their permanent controls of their counterparties’ financial strength;
Monitoring of all these risks is performed jointly by the appropriate committees and the Risk Management department, with the help of tools that it develops, in accordance with the guidelines established by the Dexia Group and all regulatory and supervisory constraints.
• second-level monitoring is provided by the Risk Management department, which collects and consolidates exposures, delinquent payments and non-performing loans and participates in the approval of reserves every quarter.
As regards the supervision of risks in the subsidiaries and branches, each entity has its own local risk management function. These structures are strictly independent of the front offices and report directly to the Dexia Crédit Local Risk Management department.
Every quarter, the Management Board reviews a risk update of all changes in the various risks. The risk management function already described is responsible for the consolidated monitoring of risk within the subsidiaries and branches.
Each local risk management function has one or more correspondents in charge of managing operational risk and implementing the Basel reforms. Generally speaking, all of the risk management techniques used at the Dexia Crédit Local level are also used within each subsidiary and branch.
d. Internal credit ratings
a. Approval process Any commitment that can give rise to a credit risk must be approved in accordance with a lending approval process organised according to volume, rating and type of counterparty. The Credit Committee process is described in Section 2.1.5. The approval process also includes a system of delegations of authority for French public sector customers, and of very limited delegations of authority to the Italian and Spanish subsidiaries for their public sector customers only.
Présentation générale Rapport de gestion Governance and internal control
The Group Quality Control unit verifies that the internal rating system is used correctly, and regularly reviews the quality of the data and the results.
e. Reserve policies Once a quarter, a Reserves Committee, chaired by the Risk Management department, approves the amount of reserves allocated and establishes the cost of risk. Portfolio-based general reserves are calculated and maintained as required by IFRS regulations, in order to protect the bank from any unexpected losses. These reserves are controlled notably by reconciling them to the accounting data.
2.3.2. MARKET RISK
b. Establishment of credit limits
a. Scope
Credit risk limits are defined at the level of the Dexia Group as a whole, in order to manage the Group’s risk profile and to limit any concentrations of risk. A credit limit is established for each counterparty in accordance with the existing credit risk policies. This limit represents the maximum exposure to credit risk that Dexia is prepared to accept for a given counterparty. Limits may also be imposed by business sector and by product. To take account of events as they occur, specific limits may be frozen at any time by the Risk Management department.
Market risk is the risk of loss relating to fluctuations in market prices and interest rates, their interactions and their level of volatility.
These limits are controlled in advance of any credit approval, operation by operation, and retrospectively in the exposure reports provided to the regulatory authorities and the decision-making bodies of the bank.
Comptes consolidés
The principles of credit risk management are explained in Section 2.1 “Credit risk” of the risk management section of the management report, and data regarding exposure by region and by type of counterparty is presented in the notes to the consolidated financial statements.
Comptes annuels
Credit risk represents the potential loss (decrease in the value of the asset or default of payment) that Dexia Crédit Local may incur due to the deterioration of a counterparty’s solvency.
Assemblée générale
2.3.1. CREDIT RISK
To measure its credit risk, Dexia Crédit Local makes particular use of the entire internal rating mechanism set in place in connection with Basel II for the Dexia Group as a whole. Credit risk analysts are responsible for assigning credit ratings to all counterparties. Each rating corresponds to an assessment of the level of risk of the counterparty expressed through an internal scale which, unless otherwise justified, takes account of all potential risks related to the country in which it is established. Once it has been assigned, the internal rating is a key factor in the decisions made by the Credit Committee. By reviewing ratings every year, Dexia is able to proactively identify those counterparties that require more regular monitoring, which are then incorporated into a watchlist that is reviewed once a quarter jointly by the Risk Management department and the Commercial department within a Special Mention and Watchlist Committee.
Dexia Crédit Local also administers a bond portfolio on a run-off basis from Dublin.
Renseignements de caractère général
In addition to the general principles described above, the means used by Dexia Crédit Local to manage these risks in practice, both on a day-to-day basis and under exceptional circumstances, are described below.
The monitoring process is based upon two levels:
This bond portfolio is managed in such a way as to avoid exposure to interest rate risk, using suitable hedges. The only risk to which the portfolio is exposed other than the risk of default by the issuer is the risk from the credit spread, as any changes impact either the AFS reserves (for those portfolios classified in AFS) or the income statement (for the held-for-trading portfolio). The rest of the portfolios are classified in Loans and Receivables.
Annual report 2011 / Dexia Crédit Local
89
Présentation générale
3
Governance and internal control
Report of the Chairman of the Board of Directors
The management principles for these risks are detailed in Section 3.2 “Market risk” in the Risk Management section of the management report, and quantitative exposure data for interest rate risk is presented in the notes to the consolidated financial statements (“Risk on resetting of interest rates: analysis by time until next interest rate reset date – analysis of assets and liabilities”).
section of the management report, and quantitative exposure data for interest rate, currency and liquidity risk is presented in the notes to the consolidated financial statements (“Liquidity risk” and “Currency risk”).
In 2011, Dexia Crédit Local continued to significantly reduce its exposure to market risk.
Four committees are responsible for the monitoring of BSM risks:
b. Organisation of monitoring Two committees are responsible for the monitoring of financial markets-related risks:
Governance and internal control
Rapport de gestion
• the Market Risk Group Committee (MRGC) meets monthly at the Dexia Group level. Dexia Crédit Local is represented by either the Chief Market Risk Officer or the EVP-Financial Markets, who have an explicit mandate defining their decision-making authority. The MRGC is responsible for defining and monitoring all risk policies, such as guidelines and market risk limits. The committee notably establishes guidelines for the development of all new market activities. Every quarter, this committee is divided into specific committees for monitoring the risks and results of the business lines. The Dexia Crédit Local Risk Management department provides the Dexia Crédit Local Management Board with a monthly (or ad hoc, if need be) report informing it of all changes in the bank’s consolidated risks (exposures, limits, limits that have been exceeded) and changes to its monitoring system (modification of measurement methods or guidelines);
Comptes consolidés
• the Dexia Crédit Local Weekly Operational Committee provides local monitoring of the correct application of the standards and decisions set down by the Dexia Market Risk Group Committee, and ensures that all information is provided to the appropriate Dexia Crédit Local managers. The Risk Management department’s Market Risk Management unit measures risk regularly.
Comptes annuels
Their report, which is presented monthly to the Management Board, is based on various indicators for monitoring the limits allocated to the various risks.
Assemblée générale
In addition to these regular monthly presentations, the quarterly risk review that details all of Dexia Crédit Local’s risks includes a summary of market risks (equity, interest rate and credit). The monthly ALCO is informed of the liquidity position and makes decisions regarding the hedging of structural interest rate and currency risks.
2.3.3. STRUCTURAL RISKS: INTEREST RATE, CURRENCY AND LIQUIDITY a. Scope
Renseignements de caractère général
Structural risks are grouped under the name of Balance Sheet Management (BSM) risk. Balance Sheet Management is used to hedge risks related to the balance sheet structure, either partially or in full. Apart from interest rate risks and currency risks stemming from the Financial Markets business line, the ALM Committee is responsible for all of Dexia Crédit Local’s other significant interest rate, currency and liquidity risks. The management principles for these risks are detailed in Sections 3.2. “Market risk” and 3.4 “Liquidity risk” in the risk management
90
Dexia Crédit Local / Annual report 2011
b. Organisation of monitoring
• the Dexia ALM Committee (ALCO) meets monthly. It defines risk policy and the methods used to hedge risks for the entire scope of the Dexia Group. The guidelines set by the Dexia ALM Committee enable individual hedging decisions to be made, but management authority may also be delegated to the Dexia Crédit Local ALM department. It also ensures that these limits are used consistently according to its own scenarios for interest rate movements. Dexia Crédit Local is represented on the committee by either its Chief Executive Officer or its Chief Risk Officer; • The Funding & Liquidity Committee (FLC) meets weekly. By delegation from the Group ALCO, the FLC centralises and coordinates the decision-making process for all liquidity-related issues. The FLC is in charge of monitoring changes in short- and long-term funding needs and establishing Dexia’s overall funding strategy. It is also responsible for examining and updating the stress scenarios that must be considered with regard to liquidity; for establishing emergency action plans and proposing corrective measures to improve the Group’s liquidity profile; and for coordinating the general reporting of liquidity to the Group’s various boards as well as to all rating agencies, regulators, and central banks and governments. The Chief Financial Officer of Dexia Crédit Local participates in the committee and all issues relating specifically to the liquidity of Dexia Crédit Local are presented. The FLC acts as knowledge centre for the liquidity of Dexia Crédit Local; • The Dexia Crédit Local ALM Committee (Dexia Crédit Local ALCO) meets monthly. The Group ALCO delegates authority to the Dexia Crédit Local ALCO for the monitoring and operational management of balance sheet risks (interest rate, currency, liquidity, etc.) at the consolidated Dexia Crédit Local level. As such, the Dexia Crédit Local ALCO: – manages the balance sheet risk of all Dexia Crédit Local Level 1 entities (the Dexia Crédit Local parent company excluding Dexia Crédit Local New York, and the French subsidiaries); – monitors the management of the balance sheet risk of all Dexia Crédit Local Level 2 entities (Dexia Crédit Local New York, Dexia Global Funding, Dexia Kommunalbank Deutschland, Dexia Israel Bank Ltd., Dexia Crediop, Dexia Sabadell and Dexia Kommunalkredit Bank); – provides coordination between Group ALCO and the local ALM Committees: implementation of decisions, transmission of information, etc. The committee is composed of the Chief Executive Officer and/or the Chief Risk Officer, the CFO and the EVP-Financial Markets. • Dexia Crédit Local ALCO decisions are implemented at the local level during ALCO meetings for those entities with their own BSM unit, or during Finance Committee meetings for all others. At Dexia Crédit Local Paris, Interest Rates and Liquidity Committees meet twice a month. These committees are composed of the CFO of Dexia Crédit Local Paris or his representative, and representatives from the Risk Management and Financial Markets departments.
Governance and internal control
Report of the Chairman of the Board of Directors
The Dexia Group has elected to apply the standardised approach allowed under the Basel II directives and has implemented processes and a management tool as called for in the paper on “Sound Practices for the Management and Supervision of Operational Risk” published by the Basel Committee on Banking Supervision. A specialised team in the Dexia Crédit Local Risk Management department is responsible for operational risk, and works with a network of correspondents in each department and entity. The involvement of the business line EVPs enhances the effectiveness of the system.
Collection, analysis and processing of incidents The Dexia Group has defined a procedure for compiling operational risk events and operational losses as required by the provisions of Basel II. Operational risk correspondents are responsible for identifying and analysing all incidents with the help of the central operational risk unit. Depending on the results of this analysis, corrective or preventive measures are taken to reduce exposure to operational risk. Dexia has a shared Operational Risk Management tool that includes a module for compiling incidents in the various Group entities. A quarterly report summarising all significant operational risk events is sent to the Management Board and to each business line EVP (in the Head Office, subsidiaries and branches). Each business line EVP or correspondent must commit to ensuring the exhaustiveness of the list of incidents compiled within his scope.
Risk mapping In addition to the operational risk events that have already been observed, for the Dexia Group to be able to plot its risk profile it is necessary to assess all potential areas of risks and take account of all existing controls. Departments and entities throughout the Dexia Group all use the same method for these risk and control selfassessments. Depending on the results, action plans may be set in place to control exposure to risk. Various reports analyse the bank’s risk profile by entity, by activity, by process and by type of event (as defined in the Basel II accord) and are presented to the Management Board each year.
c. Information systems security Information systems security includes all measures taken to shield data from any threat to its confidentiality, integrity or availability.
Présentation générale Rapport de gestion
Operational Risk Management
Governance and internal control
b. Organisation and monitoring
Dexia Crédit Local has also placed critical systems for data production with a service provider, in a single centre under highly secure physical conditions and connected via redundant high-speed links with a point-to-point link between the IT production site and Dexia Crédit Local Head Office. Dexia Crédit Local has also set up a mirror site to prepare for any failure in these systems. Dexia periodically backs data up and can very quickly substitute this site for the main site, if need be.
Comptes consolidés
Operational risk is defined as the risk of a loss resulting from inadequate or failed internal processes, people and systems, or from external events. It includes all risks related to information systems security and litigation. Dexia has chosen to include reputation risk in its operational risk management.
Under the supervision of a specialised steering committee, each operating department participated in the preparation of a business continuity plan (BCP). Under the plan, the impacts of a disaster affecting IT equipment or facilities or information systems or even a loss of service are analysed from a business unit perspective in order to identify all mission-critical activities. The results of this analysis were used to establish business recovery times that are compatible with operating requirements. The implementation of this recovery strategy is based on the use of formal, documented technical guidelines, procedures and organisational structures. The BCP and these procedures are all updated once a year and tested in accordance with a schedule defined by business continuity steering committee and validated by the Management Board. The results of the tests are reported to the steering committee. The business continuity plans of the subsidiaries and branches are reviewed every year to assess the adequacy of each entity’s plan and to put together, if necessary, the appropriate action plans.
Information systems security is managed by three participants: • the IT Security Committee recommends security policies to the Management Board, establishes specific directives for each area and ensures that they are implemented. The committee includes representatives from the various “functional” stakeholders, including Risk Management, compliance, IT and logistics. The Committee meets every two months, and is chaired by the Chief Risk Officer, who is a member of the Management Board;
Comptes annuels
a. Scope
• the Information Systems Security Officer is responsible for recommending security policies and directives to the IT Security Committee. He oversees the practical implementation of the rules that make up the security policy, increases employee awareness and provides advice to the various departments. The IT Security Manager is a member of the Operational Risk Management department, which guarantees his independence from the operating areas;
Assemblée générale
2.3.4. OPERATIONAL RISK
All these measures are described in the Dexia Crédit Local information systems security policy manual, which defines all applicable principles by area of security, along with the roles and responsibilities of the various players in the IS security process, using a body of directives, specific security policies, rules and operating procedures and the guidelines provided by ISO standard 27000/17799.
• IT departments are responsible for designing and implementing all security hardware and software, and for implementing all associated operational rules and procedures. They also perform firstand second-level controls over the correct application of security. The IT Security Manager position created within the IT department coordinates these actions.
Renseignements de caractère général
The committee’s main role is to conduct regular monitoring of the balance sheet risk of Dexia Crédit Local, at both the parent company and consolidated group levels.
3
d. Legal risk The General Secretariat performs six main functions: • in-house advisory services;
Annual report 2011 / Dexia Crédit Local
91
3
Governance and internal control
Report of the Chairman of the Board of Directors
• drafting and verification of legally binding and tax-related deeds and documents;
The most sensitive horizontal, Group-wide Committees are chaired by a member of the Management Board, who can subsequently summarise the work involved for all the members.
• management of litigation; • maintaining a watch in its areas of specialisation, including a compliance-related regulatory watch;
The Management Board has also implemented a system of delegation and reporting that requires the operations departments to present and approve the key indicators, through which it is able to judge the quality and smooth running of the internal control system.
Présentation générale
• legal secretariat services for Dexia Crédit Local and its subsidiaries; • administrative supervision delegations of power.
of
investments,
trademarks
and
It therefore plays a key role in preventing matters from being taken to litigation, anticipating changes in the law and ensuring compliance with the principles of corporate governance.
Rapport de gestion
Functional relationships have been established between the General Secretariat of Dexia Crédit Local and the equivalent structure for the Dexia Group, in order to promote discussion of legal strategies and cases.
Governance and internal control
Similarly, the General Secretariat of Dexia Crédit Local has established regular contacts with its counterparts in the subsidiaries and branches, with exchanges of all appropriate information. Reporting applications for risks on the areas covered have been set in place within the function.
e. Insurance of operational risk
Comptes consolidés
Dexia Crédit Local currently has traditional property and casualty insurance, including general hardware and facilities multi-risk, vehicle and third-party liability. All French subsidiaries are covered under these polices.
Comptes annuels
Dexia Crédit Local has also taken out policies for the following risks: directors’ and officers’ liability for the members of the management bodies, third-party professional liability, additional operating costs and so-called “comprehensive bank coverage”, which covers fraud and the financial impact of damage to assets and/or documents. These guarantees also cover all French and foreign entities controlled by Dexia Crédit Local.
Assemblée générale
2.4. Control and monitoring of internal controls 2.4.1. CHIEF EXECUTIVE OFFICER AND MANAGEMENT BOARD
Renseignements de caractère général
The Chief Executive Officer, assisted by the Management Board that he chairs, plays a vital role in the assessment of internal control. He has access to several sources of information to enable him to accomplish all of his duties in this area. The Chief Executive Officer has no potential conflicts of interest between his duties with respect to Dexia Crédit Local and his personal interests or other duties. The members of the Management Board have each been assigned operational responsibilities by business line or by function. They therefore have a comprehensive understanding of the constraints and opportunities in their respective fields of activity, and are thus able to define internal control procedures and to judge their effectiveness.
92
Dexia Crédit Local / Annual report 2011
Internal Audit is also a valued source of information for the Chief Executive Officer and the Management Board. They receive all audit reports, which are discussed and commented on during meetings, and approve all recommendations and action plans. The Chief Auditor reports to the Management Board on the monitoring of audit recommendations. The Chief Executive Officer can also request the Internal Audit department to perform assignments that are not scheduled in the annual audit plan on topics that he feels require immediate attention. Both the Statutory Auditors, as part of their audit of the financial statements, and the regulators (in France, essentially the French Prudential Control Authority and the Financial Markets Authority), as part of their inspection duties, make recommendations for improving specific internal control issues. The Management Board subsequently takes the necessary steps so that these recommendations are implemented as quickly as possible.
2.4.2. AUDIT COMMITTEE The Audit Committee is delegated by the Board of Directors to help it carry out its functions in overseeing the management of Dexia Crédit Local. The Audit Committee focuses specifically on those procedures covering the preparation of the financial statements and monitoring of risk, and is also responsible for managing relationships with the Statutory Auditors. Notably following regulatory developments regarding the role and responsibility of the Audit Committee, the Audit Committee’s rules of procedure were updated in May 2011. In addition to regulatory changes, the new document also reflects the changing composition, role and authority of the Audit Committee. The functioning of the Audit Committee was also spelled out in the rules of procedure; this included the frequency with which the Committee meets, which was increased from two meetings per year to the four meetings per year currently observed. In accordance with the recommendations of the AMF, as part of its responsibilities, the Audit Committee: • analyses financial information, accounting procedures and compliance with legal, regulatory and statutory requirements; • examines the findings, comments and recommendations of the Statutory Auditors and may suggest any additional assignments it finds appropriate; • examines, prior to their approval by the board and their publication, the quarterly, half-year and annual financial statements; • provides the Board of Directors with an opinion on the appointment of the Statutory Auditors; • ensures that appropriate internal control and Risk Management procedures exist and have been implemented, notably with regard to credit, market and operational risk;
Governance and internal control
Report of the Chairman of the Board of Directors
3
• ensures that all recommendations made by regulatory authorities and the Dexia Crédit Local rules of conduct are taken into account;
It may request copies of the audit reports. It is also empowered to suggest any additional assignments.
• is notified of the long-term audit plan and audit plan for the coming year, and any changes that may be made during the year;
The Committee can request any information that it may deem useful.
• ensures the adequacy of the resources at the disposal of the Internal Audit department;
2.4.3. THE DEXIA GROUP
• is informed quarterly of the liquidity position; • is consulted on all audit-related regulations in effect within Dexia Crédit Local. The Audit Committee reports on its work and observations to the Board of Directors. In performing its assignments, the Audit Committee has unfettered access to the Statutory Auditors, the Chief Auditor and the Chief Compliance Officer of Dexia Crédit Local. It informs the Chief Executive Officer of its contacts immediately.
Présentation générale Rapport de gestion
• reviews the situation as regards compliance, and is consulted on the rules relating to the integrity and professional ethics policy in force, especially as concerns protection of the Group’s image;
The Dexia Group plays a major role in monitoring internal control within the Dexia Crédit Local Group. The latter’s managerial organisation actively involves representatives of the Dexia Group: the Board of Directors of Dexia Crédit Local includes the Chairman of the Board of Directors, the Chairman of the Management Board and the Chief Financial Officer of Dexia SA. The Chief Executive Officer of Dexia Crédit Local is also a member of the Management Board of Dexia SA. In addition, the Group Management Board and Executive Committee are provided with copies of all reports on Group-wide audits, which generally concern Dexia Crédit Local and its subsidiaries. The Chairman of the Board of Directors of Dexia Crédit Local is copied on the Internal Audit department’s business review, and has access to all audit reports. He may regularly query the Chief Executive Officer of Dexia Crédit Local about internal controls. Lastly, he may ask the Group Internal Audit department or an independent audit firm to investigate any Dexia Crédit Local function, if he feels it is warranted.
Governance and internal control
• is informed of the work performed by the Internal Audit and Bank Inspection departments through internal control reports, audit plan progress reports and recommendation monitoring reports;
Jean-Luc Dehaene Chairman of the Board of Directors
Renseignements de caractère général
Assemblée générale
Comptes annuels
Comptes consolidés
It is also informed of any interventions undertaken by the regulatory regulators and by the Internal Audit department within the Dexia Crédit Local Group (scope of the assignment, progress that has been made, findings and responses made, etc.).
Annual report 2011 / Dexia Crédit Local
93
3
Governance and internal control Statutory Auditors’ report
Statutory Auditors’ report Présentation générale
Prepared in accordance with Article L.225-235 of the French Commercial Code (Code de commerce) on the report of the Chairman of the Board of Directors of Dexia Crédit Local. This is a free translation into English of the Statutory Auditors’ report issued in French prepared in accordance with Article L.225-235 of the French Commercial Code on the report prepared by the Chairman of the Board of Directors on the internal control and risk management procedures relating to the preparation and processing of accounting and financial information issued in French and is provided solely for the convenience of English speaking readers. This report should be read in conjunction and construed in accordance with French law and the relevant professional standards applicable in France.
Rapport de gestion
To the Shareholders, In our capacity as Statutory Auditors of Dexia Crédit Local and in accordance with Article L.225-235 of the French Commercial Code (Code de commerce), we hereby report to you on the report prepared by the Chairman of the Board of Directors of your company in accordance with Article L.225-37 of French Commercial Code for the year ended 31 December 2011.
Governance and internal control
It is the Chairman’s responsibility to prepare, and submit to the Board of Directors for approval, a report on the internal control and risk management procedures implemented by the Company and containing the other disclosures required by Article L.225-37 of the French Commercial Code, particularly in terms of corporate governance. It is our responsibility: • to report to you on the information contained in the Chairman’s report in respect of the internal control and risk management procedures relating to the preparation and processing of the accounting and financial information, and
Comptes consolidés
• to attest that this report contains the other disclosures required by Article L.225-37 of the French Commercial Code, it being specified that we are not responsible for verifying the fairness of these disclosures. We conducted our work in accordance with professional standards applicable in France. Information on the internal control and risk management procedures relating to the preparation and processing of accounting and financial information
Comptes annuels
The professional standards require that we perform the necessary procedures to assess the fairness of the information provided in the Chairman’s report in respect of the internal control and risk management procedures relating to the preparation and processing of the accounting and financial information. These procedures consisted mainly in: • obtaining an understanding of the internal control and risk management procedures relating to the preparation and processing of the accounting and financial information on which the information presented in the Chairman’s report is based and the existing documentation;
Assemblée générale
• obtaining an understanding of the work involved in the preparation of this information and the existing documentation; • determining whether any significant weaknesses in the internal control procedures relating to the preparation and processing of the accounting and financial information that we would have noted in the course of our engagement are properly disclosed in the Chairman’s report.
Renseignements de caractère général
On the basis of our work, we have nothing to report on the information in respect of the Company’s internal control and risk management procedures relating to the preparation and processing of accounting and financial information contained in the report prepared by the Chairman of the Board in accordance with Article L.225-37 of the French Commercial Code. Other disclosures We hereby attest that the Chairman’s report includes the other disclosures required by Article L.225-37 of the French Commercial Code. Courbevoie and Neuilly-sur-Seine, 29 March 2012 The Statutory Auditors French original signed by MAZARS Hervé HELIAS
94
Virginie CHAUVIN
Dexia Crédit Local / Annual report 2011
DELOITTE & ASSOCIÉS José-Luis GARCIA Charlotte VANDEPUTTE
4 – Consolidated financial statements
Consolidated balance sheet
96
Assets ........................................................................................... 96 Liabilities....................................................................................... 97
Consolidated income statement Net income and unrealised or deferred gains and losses through equity
98
Notes to the consolidated financial statements
104
1. Accounting methods and consolidation scope – accounting policies and valuation methods ............................. 104 2. Notes on the assets................................................................. 121 3. Notes on the liabilities ............................................................ 134 4. Other notes on the balance sheet ........................................... 141
99
5. Notes on the income statement .............................................. 152 6. Note on off-balance sheet items ............................................ 159 7. Notes on exposure to risk as at 31 December 2011................. 160
Consolidated statement of changes in equity
100
Consolidated cash flow statement
102
Cash and cash equivalents
103
8. Analysis by geographic region and by line of business ............. 183
Statutory Auditor’s report on the consolidated financial statements
185
4 Consolidated financial statements Consolidated balance sheet
Consolidated balance sheet Présentation générale
Assets
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
(EUR millions)
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
I.
Cash, central banks and postal checking accounts
2.0
901
424
3,056
II.
Financial assets at fair value through profit or loss
2.1
13,472
16,686
21,554
III.
Hedging derivatives
4.1
8,820
12,317
7,879
IV.
Financial assets available for sale
2.2
47,617
39,083
29,560
V.
Interbank loans and advances
2.3
26,796
22,625
12,534
VI.
Customer loans and advances
2.4
239,198
239,982
155,180
VII.
Fair value revaluation of portfolio hedges
1,788
2,144
3,020
VIII.
Financial assets held to maturity
2.5
973
839
561
IX.
Current tax assets
2.6
78
93
47
X.
Deferred tax assets
2.6
1,968
1,541
715
XI.
Accruals and other assets
2.7
17,888
24,316
38,181
XII.
Non current assets held for sale
4.6
0
19
89,185
XIII.
Investments in associates
2.8
0
0
0
XV.
Tangible fixed assets
2.9
500
529
506
XVI.
Intangible assets
2.10
66
60
46
XVII.
Goodwill
2.11
200
200
59
360,265
360,858
362,083
Renseignements de caractère général
Assemblée générale
TOTAL ASSETS
96
Note
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Consolidated balance sheet
4
As at 31/12/2010
As at 31/12/2011
I.
Central banks and postal checking accounts
3.0
28,491
18,517
27,315
II.
Financial liabilities at fair value through profit or loss
3.1
15,615
19,256
24,780
III.
Hedging derivatives
4.1
21,487
31,048
32,114
IV.
Interbank borrowings and deposits
3.2
76,947
78,070
73,425
V.
Customer borrowings and deposits
3.3
13,967
13,457
7,172
VI.
Debt securities
3.4
190,896
190,068
104,892
VII.
Fair value revaluation of portfolio hedges
1,884
1,984
445
VIII.
Current tax liabilities
3.5
127
52
9
IX.
Deferred tax liabilities
3.5
5
9
26
X.
Accruals and other liabilities
3.6
4,462
3,659
3,080
XI.
Liabilities included in disposal groups held for sale
4.6
0
0
85,830
XIII.
Provisions
3.7
263
137
62
XIV.
Subordinated debt
3.8
4,846
4,319
1,762
XV.
Equity
3.9
1,275
282
1,171
918
32
688
XVI.
Equity, Group share
XVII.
Capital stock and additional paid-in capital
2,062
2,702
6,071
XVIII.
Reserves and retained earnings
4,453
4,708
4,859
(5,866)
(6,682)
(7,541)
Unrealised or deferred gains and losses
XX.
Net income for the period
269
(696)
(2,701)
XXI.
Minority interests
357
250
483
360,265
360,858
362,083
Renseignements de caractère général
TOTAL LIABILITIES
Assemblée générale
XIX.
Rapport de gestion
As at 31/12/2009
Gouvernance et contrôle interne
Note
Consolidated Comptes annuels financial statements
(EUR millions)
Présentation générale
Liabilities
Annual report 2011 / Dexia Crédit Local
97
4
Consolidated financial statements Consolidated income statement
Consolidated income statement
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
(EUR millions)
Note
2009
2010*
2011
I.
Interest income
5.1
32,297
21,409
21,635
II.
Interest expense
5.1
(30,999)
(21,058)
(21,649)
III.
Fee and commission income
5.2
149
162
143
IV.
Fee and commission expense
5.2
(41)
(46)
(40)
V.
Net gains (losses) on financial instruments at fair value through profit or loss
5.3
337
(59)
(13)
VI.
Net gains (losses) on financial assets available for sale
5.4
81
(491)
(430)
VII.
Other income(1)
5.5
65
52
53
VIII.
Other expenses(1)
5.6
(37)
( 48)
( 45)
1,852
(79)
(346)
IX.
NET BANKING INCOME
X.
Operating expenses
5.7
(502)
(377)
(297)
XI.
Depreciation, amortisation and impairment of tangible fixed assets and intangible assets
5.8
(52)
(49)
(42)
XII.
GROSS OPERATING INCOME
1,298
(505)
(685)
XIII.
Cost of risk
(630)
(438)
(962)
XIV.
OPERATING INCOME
668
(943)
(1,647)
XV.
Income (losses) from associates
5.10
(1)
0
0
XVI.
Net gains (losses) on other assets
5.11
(102)
31
91
XVII.
Impairment of goodwill
5.12
(6)
0
(141)
XVIII.
INCOME BEFORE TAX
559
(912)
(1,697)
5.13
(239)
73
(21)
4.6
0
112
(1,005)
320
(727)
(2,723)
51
(31)
(22)
269
(696)
(2,701)
Basic (in EUR)
3.09
(7.99)
(31.03)
– of which, related to ongoing activities
3.09
(9.28)
(19.49)
– of which, related to discontinued activities
0.00
1.29
(11.54)
Diluted (in EUR)
3.09
(7.99)
(31.03)
– of which, related to ongoing activities
3.09
(9.28)
(19.49)
– of which, related to discontinued activities
0.00
1.29
(11.54)
25
0
0
XIX.
Income tax
XX.
Income from discontinued operations, net of tax
XXI.
NET INCOME
XXII.
Minority interests
XXIII.
NET INCOME, GROUP SHARE
5.9
Renseignements de caractère général
Assemblée générale
Earnings per share, Group share
(1) Including technical margin of insurance companies
* Following the announcement of the group’s restructuring, comparative information on discontinued operations is disclosed separately, in accordance with IFRS 5 (see note 4.6 “Non-current assets held for sale”).
98
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Net income and unrealised or deferred gains and losses through equity
4
2011
I.
NET INCOME
320
(727)
(2,723)
II.
Translation adjustments
19
76
66
III.
Unrealised or deferred gains and losses on financial assets available for sale
3,039
(664)
85
IV.
Unrealised or deferred gains and losses on cash flow hedges
502
91
(381)
30
0
0
(736)
(403)
(497)
VII.
Unrealised or deferred gains and losses of associates
VIII.
Taxes
IX.
TOTAL UNREALISED OR DEFERRED GAINS AND LOSSES THROUGH EQUITY(1)
2,854
(900)
(727)
X.
NET INCOME AND UNREALISED OR DEFERRED GAINS AND LOSSES THROUGH EQUITY
3,174
(1,627)
(3,450)
XI.
Of which, Group share
3,024
(1,512)
(3,560)
XII.
Of which, minority interests
150
(115)
110
0
0
(252)
(1) Of which, related to non current assets held for sale
Rapport de gestion
2010
Gouvernance et contrôle interne
2009
Consolidated Comptes annuels financial statements
(EUR millions)
Présentation générale
Net income and unrealised or deferred gains and losses through equity
Renseignements de caractère général
Assemblée générale
Unrealised or deferred gains and losses on the portfolio of financial assets available for sale declined during the year: the Group share, after tax, came to a loss of EUR 6,684 million in 2011 compared with a loss of EUR 6,069 million in 2010. This increased loss of EUR 615 million includes non-recurring items: • a positive impact of EUR 2,754 million due to the deconsolidation of Dexia FP Holdings Inc. (positive effect on this line item of EUR 1,336 million) and the impairment of Greek sovereign debt (EUR 1,418 million), • a negative impact of EUR 1 billion due to the provisioning of deferred tax assets on the fair value reserves on the securities portfolios ofvarious group companies. Stripping out these non-recurring items, which represented a net gain, unrealised or deferred gains and losses on the portfolio of financial assets available for sale slumped due to the deterioration in spreads.
Annual report 2011 / Dexia Crédit Local
99
4
Consolidated financial statements
Consolidated statement of changes in equity
Consolidated statement of changes in equity Présentation générale
Core equity
Rapport de gestion Gouvernance et contrôle interne
Total
Change in fair value of financial assets available for sale, net of taxes
6,614
(100)
6,514
(7,403)
0
0
0
(4,552)
4,552
0
0
0
0
0
0
0
0
0
0
0
0
0
161
161
5
5
166
1,494
1,494
23
23
1,517
446
446
13
13
459
663
663
59
59
722
(9)
(9)
0
0
(9)
51
320
(1,080)
(138)
Total
Equity, Group share
Core Unrealised equity or deferred gains and losses
(8,621)
(2,107)
466
0
0
1
(269)
Total
Equity
197
(1,910)
1
1
Movements during the period Changes in capital Changes in additional paid-in capital Dividends Translation adjustments
0
133
Changes in fair value of financial assets available for sale through equity
0
1,494
Changes in fair value of derivatives through equity
0
Changes in fair value of financial assets available for sale through profit or loss
0
Changes in fair value of derivatives through profit or loss
0
Net income for the period Other movements As at 31/12/2009
9
19
446
663
(9)
269
269
0
269
51
0
1
1
0
0
0
0
1
8
0
8
9
2,062
4,722
6,784
(5,113)
(634)
(119)
(5,866)
918
526
(169)
357
1,275
Assemblée générale
Consolidated Comptes annuels financial statements
Reserves, retained earnings and net income for the period
Renseignements de caractère général
100
Change in Cumulative fair value translation of cash flow differences hedges, net of taxes
Minority interests
Capital stock, additional paid-in capital (EUR millions) As at 31/12/2008
Unrealised or deferred gains and losses
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Consolidated statement of changes in equity
Total
Equity, Group share
4,722
6,784
(5,113)
(5,866)
918
526
0
0
0
0
0
0
640
0
640
0
640
0
0
0
0
(260)
(260)
(1,627)
(634)
(119)
Core Unrealised equity or deferred gains and losses
Total
Equity
357
1,275
0
0
0
0
640
(6)
(6)
(6)
1
1
(259)
(1,627)
(145)
(145)
(1,772)
102
102
(7)
(7)
95
972
972
67
67
1 039
(3)
(3)
0
0
(3)
(169)
Movements during the period Changes in capital Changes in additional paid-in capital Dividends Translation adjustments
0
(301)
Changes in fair value of financial assets available for sale through equity
0
(1,627)
Changes in fair value of derivatives through equity
0
Changes in fair value of financial assets available for sale through profit or loss
0
Changes in fair value of derivatives through profit or loss
0
Net income for the period Other movements As at 31/12/2010
(34)
75
102
972
(3)
(696)
(696)
0
(696)
(31)
(31)
(727)
0
(14)
(14)
0
0
0
0
(14)
14
0
14
0
2,702
4,012
6,714
(6,069)
(569)
(44)
(6,682)
32
503
(253)
250
282
0
0
0
0
0
7
7
7
3,369
831
4,200
0
4,200
0
0
4,200
0
0
0
0
0
0
0
146
146
11
11
157
(2,481)
(2,481)
109
109
(2,372)
(344)
(344)
1
1
(343)
1,787
1,787
10
10
1,797
33
33
0
0
33
(22)
(2,723)
Movements during the period Changes in capital Changes in additional paid-in capital Dividends Translation adjustments
0
79
Changes in fair value of financial assets available for sale through equity
0
(2,481)
Changes in fair value of derivatives through equity
0
Changes in fair value of financial assets available for sale through profit or loss
0
Changes in fair value of derivatives through profit or loss
0
Net income for the period Other movements(1) As at 31/12/2011
12
55
(344)
1,787
33
(2,701)
(2,701)
0
(2,701)
(22)
0
16
16
0
0
0
0
16
117
0
117
133
6,071
2,158
8,229
(6,684)
(868)
11
(7,541)
688
605
(122)
483
1,171
Présentation générale
2,062
Change in Cumulative fair value translation of cash flow differences hedges, net of taxes
Rapport de gestion
Change in fair value of financial assets available for sale, net of taxes
Gouvernance et contrôle interne
Total
Consolidated Comptes annuels financial statements
Reserves, retained earnings and net income for the period
Minority interests
Assemblée générale
Capital stock, additional paid-in capital (EUR millions) As at 31/12/2009
Unrealised or deferred gains and losses
Renseignements de caractère général
Core equity
4
(1) Other movements are all discussed in note 3.9.c.
Annual report 2011 / Dexia Crédit Local
101
4
Consolidated financial statements Consolidated cash flow statement
Rapport de gestion
Présentation générale
Consolidated cash flow statement (EUR millions) Cash flow from operating activities Net income
• Depreciation, amortisation and other impairment • Impairment on bonds, equities, loans and other assets • Net (gains) or losses on investments • Changes in provisions • Unrealised gains and losses • Income (losses) from associates • Dividends from associates • Deferred taxes • Other adjustments
Gouvernance et contrôle interne Consolidated Comptes annuels financial statements Assemblée générale
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Cash flow from investing activities Purchases of fixed assets Sales of fixed assets Acquisitions of unconsolidated equity shares
2011
320
(727)
(2,723)
91
81
213
288
444
2,790
(50)
42
(23)
301
(206)
24
(8)
(6)
53 0
1
0
14
0
0
70
(37)
137
1
0
0
(6,629)
(1,962)
(4,155)
(5,600)
(2,371)
(3,684)
(72)
(118)
(101)
12
18
38
(44)
(15)
(23) 83
Sales of unconsolidated equity shares
448
39
Acquisitions of subsidiaries
(24)
0
0
Sales of subsidiaries
371
0
(11)
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
691
(76)
(14)
Cash flow from financing activities Issuance of new shares
1
640
4,207
Redemption of capital
0
0
0
Issuance of subordinated debt
0
0
26
(93)
(661)
(2,570)
Purchases of treasury stock
Redemption of subordinated debt
0
0
0
Sales of treasury stock
0
0
0
Dividends paid
0
(6)
0
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES Net cash provided Cash and cash equivalents at the beginning of the period Cash flow provided (used) by operating activities
(92)
(27)
1,663
(5,001) 20,235
(2,474) 14,961
(2,035) 13,122 (3,684)
(5,600)
(2,371)
Cash flow provided (used) by investing activities
691
(76)
(14)
Cash flow provided (used) by financing activities
(92)
(27)
1,663
(273)
635
(354)
14,961
13,122
10,733
(274)
(120)
102
21
8
6
35,563 (33,617)
26,127 (25,525)
25,776 (25,486)
Effect of exchange rate changes and changes in consolidation scope on cash and cash equivalents CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD Additional information Income tax paid Dividends received
Renseignements de caractère général
2010
Adjustments for:
Changes in operating assets and liabilities
102
2009
Interest received Interest paid
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Cash and cash equivalents
4
Cash, central banks and postal checking accounts (note 2.0) Interbank loans and advances (note 2.3) Financial assets available for sale (note 2.2) Non current assets held for sale TOTAL
Of which, restricted cash (EUR millions) Mandatory reserves(1) Other TOTAL
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
901
424
3,056
12,854
11,249
5,124
1,206
1,449
356
0
0
2,197
14,961
13,122
10,733
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
496
353
1,007
0
0
0
496
353
1,007
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
(1) Minimum reserve deposits credit institutions must maintain with the European Central Bank (ECB) or other central banks.
Rapport de gestion
Analysis by nature (EUR millions)
Gouvernance et contrôle interne
For the purpose of the consolidated cash flow statement, cash and cash equivalents include the following balances with residual maturities of less than 90 days:
Présentation générale
Cash and cash equivalents
Annual report 2011 / Dexia Crédit Local
103
4
Consolidated financial statements
Notes to the consolidated financial statements
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Notes to the consolidated financial statements
104
1. Accounting methods and consolidation scope – accounting policies and valuation methods The consolidated financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns, which is based on a number of assumptions including notably: – European Commission approval of a restructuring plan that includes notably a guarantee from the Belgian, French and Luxembourg States; – approval by the Belgian, French and Luxembourg States of a EUR 90 billion definitive guarantee, the principle of which was announced in October 2011 and reflected in the enabling acts adopted by the Belgian, French and Luxembourg States. Moreover, under Article 15(f) of the autonomous guarantee agreement signed on 16 December 2011 by the Belgian, French and Luxembourg States, Dexia SA and Dexia Crédit Local, the States all committed to negotiating in good faith the renewal of the guarantee agreement, which could see the overall ceiling of the guarantee increased to EUR 90 billion; – remuneration on the State guarantee will be compatible with the Group’s future viability. The remuneration paid under the guarantee will be one of significant factors likely to influence the Group’s profitability; – State support of the Group’s liquidity position in order to successfully carry out the extensive restructuring measures announced in October 2011. Maintenance of the going concern treatment is justified notably by the business plan prepared by the Group, which is based on a number of assumptions and presented below in item 1.1.d “Significant events in 2011”. These assumptions are based on a number of exogenous factors that are beyond the control of Dexia Crédit Local: their materialisation remains uncertain and is subject, among other factors, to the decision of the European Commission. In the absence of additional corrective measures, the nonmaterialisation of one or more of these assumptions could have an impact on the going concern assumption as regards Dexia Crédit Local and strain the Group’s liquidity position and solvency. Accordingly, no changes where made to the valuation methods used in 2011.
Dexia Crédit Local / Annual report 2011
1.1. Group companies and consolidation methods a. Criteria for consolidation and use of the equity method Dexia Crédit Local applies all rules pertaining to credit institutions with regard to the consolidation scope resulting from: – IAS 27 Preparation and presentation of consolidated financial statements; – IFRS 3 Business combinations, and the impact of accounting methods on consolidation; – IAS 28 Investment in associates; – IAS 31 Interests in joint ventures. The policies laid down by these standards imply that all companies over which the Group exercises exclusive or joint control or notable influence must be consolidated. All companies that are controlled exclusively or jointly, or over which is held some notable influence, are consolidated. Pursuant to the principle of a true and fair view of the financial statements of the Group, any companies not making a material contribution to the consolidated financial statements should not be included in the consolidation scope. Companies whose cumulative total assets and net income represent less than 1% of total consolidated assets and net income (i.e. respectively EUR 3.6 billion and EUR 27.2 million in 2011) are considered to be below the materiality threshold. At December 31, 2011, the sum of the total assets and the sum of the net incomes of the companies that were not consolidated were below these thresholds.
b. Changes in the consolidation scope compared with December 31, 2010 The main changes in the consolidation scope are shown below: • Newly consolidated companies – Dexia Management Services Ltd is fully consolidated as from 1 January 2011, following the restructurating of the operations carried out by the London branch. • Deconsolidated companies – Dexia Crédit Local deconsolidated Dexia banka Slovensko on 1 January 2011, further to its sale to the Penta group; – Dexia Holdings Inc and Dexia FP Holdings Inc were removed from the consolidation scope of Dexia Crédit Local on 1 April 2011, due to the signing, on 30 June 2011, of two agreements transferring
Consolidated financial statements
Notes to the consolidated financial statements
• In 2011, Dexia Crédit Local continued to pursue a policy aimed at reducing the size of its balance sheet, which impacted the consolidated financial statements for the year ended 31 December 2011 as follows: – a total of EUR 11.9 billion of non-core bonds and loans were sold in 2011 (including EUR 0.6 billion to other Dexia Group companies), which had a negative impact on the income statement of EUR 405 million (including EUR 84 million relating to internal transfers); – Dexia Holdings Inc. and Dexia FP Holdings Inc. were deconsolidated on 1 April 2011 as a result of the signing, on 30 June 2011, of a put option contract on the Dexia Holdings Inc. shares owned by Dexia Crédit Local, and a guarantee agreement with Dexia SA limiting the losses attributable to Dexia Crédit Local to USD 1,447 million (EUR 1,020 million). A gain of EUR 327 million linked to the deconsolidation of these two companies was recorded in the 2011 net income; – the goodwill on Dexia Crediop (EUR 129 million) and Dexia Israel Bank Ltd. (EUR 12 million) were written down in full on 30 June 2011. It will be recalled that, on 30 June 2011, Dexia Crédit Local had decided to sell EUR 13 billion of assets within the foreseeable future (one year). Given the changes in the Dexia Group, this decision was reviewed in the last quarter of 2011.Those assets previously designated as being held for sale were reclassified in their original category. A loss of EUR 231 million corresponding to the fair value reserve was maintained in profit or loss (see note 5.11 “Net gains (losses) on other assets”). • Short-term liquidity needs soared, this situation being heightened by the sharp decline in interest rates coupled with the increase of more than EUR 15 billion in the amount of collateral to be paid to the Group’s derivatives counterparties between end-June and end-December, in a context of a scarcity of liquidity (see note 7.0, paragraph 2.4 “Liquidity risk”). • The decision by Moody’s to place Dexia’s long- and short-term ratings on review for possible downgrade exacerbated the loss of the Group’s unsecured interbank financing (an additional EUR 6 billion was lost between 30 September and 7 October 2011) and eroded retail customer confidence in Belgium and Luxembourg, resulting in approximately EUR 7 billion of deposits being withdrawn between end-September and end-October 2011.
2) Furthermore, in connection with this plan, Dexia announced that several subsidiaries would leave the Group. As a result, Dexia Banque Belgium, which provided Dexia Crédit Local with certain banking functions relating to management of the Group, was acquired by the Belgian State on 20 October. Dexia Crédit Local thus embarked on a project to replace those functions necessary for its activity. • Following the announcement made by the European Union of its intention to support the Greek State in its financial difficulties, the Dexia Crédit Local Group wrote down its Greek sovereign debt. The amount of the impairment was calculated by taking the year-end valuation for each issue, giving a loss of EUR 2,936 million in the 2011 result. This valuation was established partly by using market indicators and partly from valuations derived from internal models. In late 2011, Dexia Crédit Local also benefited from support from its parent company for the purpose of covering the potential losses on the portfolios of Greek securities held by its funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. As a result, a receivable of EUR 1,934 million is recorded in Dexia Crédit Local’s financial statements and offsets the losses recognised on these portfolios in the consolidated financial statements.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
d. Significant events in 2011
Gouvernance et contrôle interne
The changes in scope that have a material impact on the 2011 consolidated financial statements are described in the points below concerning Dexia Holdings Inc. and Dexia FP Holdings Inc., as well as Dexia Municipal Agency.
1) On 20 October 2011, Dexia Crédit Local’s Board of Directors approved the terms of memorandum of negotiations with Caisse des Dépôts and La Banque Postale on the financing of French local authorities. This memorandum was supplemented in February 2012 by a comprehensive agreement involving the French State in the acquisition of Dexia Municipal Agency followed by an agreement in principle signed in March 2012 that provides notably for: – creation of a new financial institution, 68.3%-owned by a public holding company, in turn owned by the French State (46.35%), Caisse des Dépôts (46.35%) and La Banque Postale (7.3%). This new financial institution, of which Dexia Crédit Local would hold the remaining 31.7%, will be the parent company of Dexia Municipal Agency, in which it will hold a 100% stake and which it will manage; – creation of a jointly-owned company, held for 65% by La Banque Postale and for 35% by Caisse des Dépôts, this company’s function being to design and distribute loans to French local governments funded via Dexia Municipal Agency. Under a service agreement, this jointly-owned company would draw on the combined expertise of Dexia Crédit Local, Caisse des Dépôts and La Banque Postale. Implementation of this agreement remains subject to the agreement of the competent prudential supervisory and anti-trust authorities, but Dexia Crédit Local considers its realisation highly likely, and, in accordance with IFRS 5, is applying the following accounting treatment in the consolidated financial statements: – Dexia Municipal Agency’s assets and liabilities are presented in a separate line on the consolidated balance sheet; – Dexia Municipal Agency’s business is considered to be a discontinued activity and its income statement items are presented in a separate line in the consolidated income statement; – the difference between the equity sold and the sale price plus associated costs is recognised in “Income from discontinued operations, net of tax”, being an estimated loss of EUR 1,069 million.
Consolidated Comptes annuels financial statements
c. Impact of changes in scope on the consolidated income statement
• The significant deterioration in the Dexia Group’s funding conditions led to the implementation of a restructuring plan in early October 2011.
Assemblée générale
• Other movements – The percentage held in FSA Global Funding Ltd and Dexia Real Estate Capital Markets increased from 90% to 100% on 1 January 2011.
This series of events placed immense strain on the liquidity of the Group, which, with effect from October 2011, was no longer able to access the unsecured funding market.
Renseignements de caractère général
control of both entities from Dexia Crédit Local to Dexia SA, with a retroactive application from 1 April 2011; – Dexia Asia Pacific Pty Ltd was deconsolidated on 1 June 2011, on the basis of its financial statements to 31 May 2011.
4
105
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
4
106
Consolidated financial statements
Notes to the consolidated financial statements
• Following a decision made by the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital by means of a cash contribution of EUR 4.2 billion, bringing the total capital stock to EUR 4.7 billion. Dexia SA carried out this capital stock increase by converting several existing subordinated loans (around EUR 2.5 billion) and by means of a cash contribution (EUR 1.7 billion). In light of the estimated losses for the year, the Shareholders’ Meeting also decided to reduce the capital stock by EUR 4.2 billion. Dexia Credit Local’s capital stock thus remains unchanged at EUR 500,513,102, divided into 87,045,757 shares with a par value of EUR 5.75 per share. • For issues made up to 30 June 2010, Dexia benefited from the State guarantee mechanism put in place in October 2008. At 31 December 2011, the instruments covered by this guarantee represented a total of EUR 23.3 billion and the charge paid by Dexia Crédit Local and its subsidiaries in respect of the remuneration on this guarantee came to EUR 279 million (compared with EUR 340 million in the year ended 31 December 2010). Since 22 December 2011, the Dexia Group has benefitted from a temporary guarantee from the States of Belgium (60.5%), France (36.5%) and Luxembourg (3%), valid until 31 May 2012, that enables it to issue bonds with maturities of up to three years, guaranteed for a maximum of EUR 45 billion. This temporary guarantee constitutes the first step of the three States’ commitment to provide a permanent guarantee of EUR 90 billion, whose implementation is subject to the European Commission’s definitive decision. The Dexia Crédit Local Group had issued medium-term notes totalling EUR 21.6 billion under this new agreement as at 31 December 2011. • The consolidated and parent company financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns (see section on financial results). The going concern assumption was supported by a business plan approved by the Boards of Directors of the Group and Dexia Crédit Local, was based on a number of critical assumptions and incertainties, the major points of which are described below. The business plan was produced by compiling business plans prepared by each Group entity, with each entity employing the same scenarios and assumptions. These consolidated plans were checked for consistency and subjected to various stress scenarios that impacted both the entities’ balance sheet and their profitability. The entities’ sensitivity to the following key risk factors was tested: interest rates, exchange rates and credit spreads. Finally, Dexia factored in the impacts of all planned disposals of entities (capital gain or loss, impact on the balance sheet, liquidity and capital ratios).
One of the core assumptions of the business plan is European Commission approval of the plan to be submitted by the States. The plan includes a definitive EUR 90 billion funding guarantee, extended by the States and with no collateral requirement. The cost of funding will be a key factor in the Group’s profitability. In this regard, the assumption that the favourable terms of access to central bank funding currently enjoyed by European banks will be maintained over the long term is likely to be revised over time, especially if market conditions improve. Moreover, Dexia assumes that the remuneration to be paid on the State guarantee will be low enough to allow the Group to successfully carry out its restructuring. In any event, it is highly likely that any possible improvement of Dexia SA’s financial circumstances will benefit first and foremost the Guarantor States, to compensate the risk they are bearing. The scenario assumes that the entities’ banking licences are maintained, and this despite any failure to comply with certain regulatory liquidity ratios. It is also assumed that the credit ratings of Dexia SA and Dexia Crédit Local will be maintained at their current levels. The resulting business plan concludes that the Dexia Group is viable, on the basis of the assumptions and scenarios used. While Dexia’s management considers this scenario the most plausible, a significant risk remains of the working assumptions not being substantiated. For example, a more severe than expected recession could generate significant credit losses (notably on the Group’s holdings of sovereign securities) and keep the fair value reserves on the Group’s available for sale securities at strongly negative levels. Similarly, if interest rates do not behave as the market expects, or remain at a very low level in the future, a higher than expected level of collateral would need to be provided on the Group’s hedging derivatives, and this would significantly increase Dexia’s funding needs and consequently its use of the State guarantee. Any downgrading of the credit ratings of Dexia SA or Dexia Crédit Local or of the Guarantor States could also, below a certain threshold, have an adverse impact on the Group’s liquidity and cost of funding. In addition, implementation of the definitive guarantee is subject to a number of prior conditions, such as obtaining European Commission approval. Any delay in the implementation of the guarantee could impact the Group’s results very significantly, as Dexia will need to roll over large amounts of funding starting in early 2013.
As Dexia announced in October 2011, the plan consists of selling off the Group’s viable commercial franchises, then managing the natural, gradual run-off of the portfolios left within the new scope.
More generally, the plan requires the support of key non-Dexia players: the Guarantor States and central banks in particular play an important role in the success of the business plan established by the Group, working closely with the regulatory authorities.
The macroeconomic scenario built in calls for a mild recession during the coming two years, followed by a gradual recovery starting in 2014. No major adverse events are factored in during this period.
Finally, Dexia is exposed to a number of significant operational risks that require that measures be taken to retain the human resources the Group needs to continue to operate. • Events after the end of the reporting period: On 28 March 2012, Standard & Poor’s downgraded Dexia Crédit Local’s long-term credit rating from BBB+ to BBB and maintained the credit watch negative rating.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
100%
DEXIA KOMMUNALBANK DEUTSCHLAND (Germany) 100%
DEXIA BAIL
DEXIA KOMMUNALKREDIT BANK (Austria) 100%
49%
100%
(1)
DEXIA CLF RÉGIONS BAIL
DEXIA MUNICIPAL AGENCY
CLF IMMOBILIER
DEXIA MUNICIPAL AGENCY (Dublin branch)
100%
100%
DEXIA SOFAXIS(2) 100%
SISL (Luxembourg) 100 % 100%
100%
SARL CBX.IA 1 100%
SARL CBX.IA 2 100%
DEXIA CREDIOP GROUP (Italy)
70%
DEXIA KOMMUNALKREDIT BANK POLSKA (Poland) 100%
DEXIA CREDIOP IRELAND (Ireland) 100%
Gouvernance et contrôle interne
DEXIA FLOBAIL
DEXIA LOCATION LONGUE DURÉE
FSA GLOBAL FUNDING Ltd. (United States) 100%
DEXIA REAL ESTATE CAPITAL MARKETS (United States)
100%
DEXIA CRÉDITO LOCAL MÉXICO SA de CV (Mexico) 100% DEXIA ISRAEL BANK Ltd. (Israel) 65,31%
DOMISERVE 50%
DOMISERVE + 100%
DEXIA SABADELL SA (Spain)
DEXIA DELAWARE LLC (United States)
60%
DEXIA SABADELL, SA (Portugal branch)
100%
DEXIA CAD FUNDING LLC (United States) 100% Fully consolidated Proportionally consolidated
Consolidated Comptes annuels financial statements
100%
CHUO MITSUI ASSET TRUST & BANKING COMPANY, 100% Ltd. (Japan) DEXIA MANAGEMENT SERVICES Ltd (London)
100%
(1) On 20 October 2011 and 13 February and 15 March 2012, the Board of Directors of Dexia Crédit Local approved the terms of an agreement providing notably for the sale of Dexia Municipal Agency. In the light of these factors, the activities of Dexia Municipal Agency are presented as being held for sale as at 31 December 2011. (2) In a resolution dated 11 January 2012, the Shareholders’ Meeting of Dexia Sofaxis resolved to change the company’s name to “Sofaxis”.
Annual report 2011 / Dexia Crédit Local
Assemblée générale
DEXIA CLF BANQUE
INTERNATIONAL SUBSIDIARIES
Renseignements de caractère général
FRENCH SUBSIDIARIES
Rapport de gestion
Dexia Crédit Local Canada branch Dexia Crédit Local Dublin branch Dexia Crédit Local Grand Cayman branch Dexia Crédit Local New York branch
DEXIA CRÉDIT LOCAL
Présentation générale
Branches:
107
4
Consolidated financial statements
Notes to the consolidated financial statements
1.2. Scope of the Dexia Crédit Local Group as at 31 December 2011 a. Fully-consolidated subsidiaries
Présentation générale
Name
Head office
% interest
Dexia CLF Banque
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
CLF Immobilier
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
Dexia CLF Régions Bail
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
Charlottenstrasse 82 – D – 10969 Berlin Germany
100
Dexia Kommunalbank Deutschland AG Dexia Crediop Dexia Flobail
Rapport de gestion Gouvernance et contrôle interne Consolidated Comptes annuels financial statements Assemblée générale
100
180 rue des Aubépines L1145 Luxembourg
100
Dexia Crediop per la Cartolarizzazione(1)
Via Venti Settembre 30 – 00187 Roma Italy
100
6 George’s Dock IFSC Dublin 1 Ireland
100
Via Eleonora Duse, 53 – 00197 Rome Italy
100
Tevere Finance S.r.l(1) (1)
Crediop per le Obbligazioni Bancarie Garantite S.r.l. Dexia Kommunalkredit Bank AG Dexia Kommunalkredit Bank Polska(2)
Via Eleonora Duse, 53 – 00197 Rome Italy
90
Fischhof 3 – A-1010 Wien Austria
100
ul. Sienna 39 – 00-121 Warschau Poland
100
Dexia Sofaxis
Route de Créton 18110 Vasselay France
99,98
SNC SOFCAH(3)
Route de Créton 18110 Vasselay France
99,98
SNC SOFCAP(3)
Route de Créton 18110 Vasselay France
99,98
SARL DS Formation France
Route de Créton 18110 Vasselay France
99,98
SNC SOFIM(3)
Route de Créton 18110 Vasselay France
99,98
SA Dexia DS Services(3)
Route de Créton 18110 Vasselay France
100
(3)
(3)
SA Publiservices
Route de Créton 18110 Vasselay France
100
Dexia Location Longue Durée(4)
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
49
Dexia Bail
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99,91
Dexia Municipal Agency(5)
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
19 Ha’arbaha str., Hatichon building – Tel Aviv PO BOX 709 – Tel Aviv 61200 Israel
65,31
Paseo de las doce Estrellas, 4 Campo de las naciones 28042 Madrid Spain
60
CBX.IA 1
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
CBX.IA 2(7)
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
(6)
Dexia Israel Bank Ltd. Dexia Sabadell SA
Dexia Delaware LLC Dexia Credito Local Mexico SA de CV Sofom Filial Dexia Mexico Servicios SA de CV(8)
15, East North Street – Dover, Delaware 19901 USA
100
Protasio Tagle 104 Colonia San Miguel Chapultepec – 11850 Mexico D.F.
100
Protasio Tagle 104 Colonia San Miguel Chapultepec – 11850 Mexico D.F.
100
FSA Global Funding Ltd.
P.O. Box 1093 GT, Boundary Hall, Cricket square, Grand Cayman, Cayman Islands, KY1-1102, Cayman Islands
100
Premier International Funding Co.(9)
P.O. Box 1093 GT, Boundary Hall, Cricket square, Grand Cayman, Cayman Islands, KY1-1102, Cayman Islands
0
445 Park Avenue 7th Floor – New York New York 10022 USA
100
P.O. Box 1093 GT, Boundary Hall, Cricket square, Grand Cayman, Cayman Islands, KY1 -1102, Cayman Islands
23
Dexia CAD Funding LLC Cypress Point Funding limited (Cayman)(9) Dexia Real Estate Capital Markets Artesia Mortgage CMBS Inc.(10) Artesia Properties Inc.(10)
Renseignements de caractère général
70
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
SISL Dexia Crediop Ireland(1)
108
Via Venti Settembre 30 – 00187 Roma Italy
Chuo Mitsui Asset Trust and Banking Company Limited Dexia Management Services Ltd. (1) (2) (3) (4) (5)
1180 NW Maple St., Suite 202 – Issaquah, WA 98027 USA
100
1013 Centre Road, Wilmington, New Castle, 19801 Delaware USA
100
1209 Orange Street, Wilmington, New Castle, 19801 Delaware USA
100
3-23-1, Shiba, Minato-ku, Tokyo, Japan
100
200 Aldersgate Street, 13th Floor London EC1A 4HD, UK
100
Companies consolidated by Dexia Crediop. Companies consolidated by Dexia Kommunalkredit Bank AG. Companies consolidated by Dexia Sofaxis. Dexia Location Longue Durée is fully consolidated due to the contractually-defined relationships existing between the shareholders. On 20 October 2011 and 13 February 2012, Dexia Crédit Local’s Board of Directors approved the terms of an agreement in principle for the sale of Dexia Municipal Agency Given this, Dexia Municipal Agency’s activities are presented as being held for sale as at 31 December 2011. (6) 65.99% of voting rights held. (7) CBX.IA 2 is 70.85%-held by Dexia Crédit Local and 29.15% by CBX.IA 1. (8) Company consolidated by Dexia Credito Local Mexico SA de CV. (9) Companies consolidated by FSA Global Funding Ltd. (10) Companies consolidated by Dexia Real Estate Capital Markets.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
b. Non consolidated subsidiaries
445 Park Avenue, 5th floor 10022 NY
90
0
Transfer of control to Dexia SA(1)
Dexia FP Holdings Inc.(3)
445 Park Avenue, 5th floor 10022 NY
100
0
Transfer of control to Dexia SA(1)
Dexia Financial Products Services LLC (ex HF Services LLC)(4)
445 Park Avenue, 5th floor 10022 NY
100
0
Transfer of control to Dexia SA(1)
FSA Asset Management LLC(4)
445 Park Avenue, 5th floor 10022 NY
100
0
Transfer of control to Dexia SA(1)
FSA Portfolio Asset Limited (UK)(4)
Shackleton House 4 Battle Bridge Lane London SE1 2 RB
100
0
Transfer of control to Dexia SA(1)
FSA Capital Markets Services LLC(4)
445 Park Avenue, 5th floor 10022 NY
100
0
Transfer of control to Dexia SA(1)
FSA Capital Management Services LLC(4)
445 Park Avenue, 5th floor 10022 NY
100
0
Transfer of control to Dexia SA(1)
P.O. Box 1093 GT, Boundary Hall, Cricket square, Grand Cayman, Cayman Islands, KY1 -1102, Cayman Islands
0
0
Transfer of control to Dexia SA(1)
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.94
67
Below materiality threshold
Dexia Editions
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.98
822
Below materiality threshold
CBX. GEST
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.94
674
Below materiality threshold
Dexint Développement
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.89
37
Below materiality threshold
445 Park Avenue – New York NY 10022
100
0
Below materiality threshold
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.74
45
Below materiality threshold
Dexia Kommunalkredit Bulgaria
19 Karnigradska Sofia 1000 – Bulgaria
100
496
Below materiality threshold
Dexia Kommunalkredit Romania
Str. Faragas nr 21 Sector 1, 010897 Bucuresti, Roumania
100
290
Below materiality threshold
Dexia Kommunalkredit Hungary
Horvat u. 14-24 – 1027 Budapest – Hungary
100
354
Below materiality threshold
Radnicka cesta 80 HR – 10000 Zagreb Croatia
100
341
Below materiality threshold
Dexia CLF Avenir
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.85
61
Below materiality threshold
Dexia CLF Développement
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.83
58
Below materiality threshold
Dexia CLF Organisation
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.89
42
Below materiality threshold
Genebus Lease
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
99.89
56
Below materiality threshold
DCL Projets
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
28
Below materiality threshold
FSA Capital Markets Services (Caymans) Ltd.(4) CLF Marne La Vallée Participations
Dexia Securities LLC USA (anciennement Dexia Global Structured Finance) Guide Pratique de la Décentralisation
Dexia Kommunalkredit Adriatic
(1) As a result of the signing, on 30 June 2011, of a put option contract on the Dexia Holdings Inc shares held by Dexia Crédit Local, and a guarantee contract with Dexia SA, control of Dexia Holdings Inc and Dexia FP Holdings Inc (and its subsidiaries) was transferred from Dexia Crédit Local to Dexia SA, with retroactive effect from 1 April 2011. As a result, these companies were removed from Dexia Crédit Local’s consolidation scope on 1 April 2011, based on their financial statements for the period ended 31 March, and remain included within the Dexia Group’s consolidated financial statements. (2) The remaining 10% is owned by Dexia SA. (3) Company owned by Dexia Holdings Inc. (4) Company owned by Dexia FP Holdings Inc.
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
Dexia Holdings Inc.(2)
Présentation générale
Reason for exclusion
Gouvernance et contrôle interne
Carrying amount of shares including fair-value adjustment (EUR thousands)
Consolidated Comptes annuels financial statements
% interest
Assemblée générale
Head office
Renseignements de caractère général
Name
109
4
Consolidated financial statements
Notes to the consolidated financial statements
Rapport de gestion
Présentation générale
Name
Head office
% interest
Carrying amount of shares including fair-value adjustment (EUR thousands)
Reason for exclusion
Dexia Carbon Fund I
69 route d’Esch L 1470 Luxembourg
70
3,954
Below materiality threshold
Dexia Carbon Fund Managers
69 route d’Esch L 1470 Luxembourg
100
132
Below materiality threshold
Route de Créton 18110 Vasselay France
82.50
1,775
Below materiality threshold
Dexia Habitat
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
4,027
Below materiality threshold
Floral
1 passerelle des Reflets, Tour Dexia, La Défense 2, 92913 La Défense France
100
363
Below materiality threshold
12 av. de la Liberté L 1930 Luxembourg
55
998
Below materiality threshold
Level 23 Veritas House – 207 Kent Street – Sydney NSW 2000 Australia
100
0
Below materiality threshold
SAS Qualnet
European Carbon fund Dexia Crédit Local Asia Pacific Pty Ltd.(5)
(5) Company in run-off, deconsolidated on 1 June 2011, on the basis of its financial statements for the period ended 31 May 2011.
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
c. Jointly-owned companies consolidated by the proportional method
110
Name
Head office
% interest
Domiserve
6 rue André-Gide 92320 Châtillon – France
50
Domiserve +
6 rue André-Gide 92320 Châtillon – France
50
d. Jointly-owned companies not consolidated by the proportional method None.
e. Associated companies accounted for by the equity method None.
f. Associated companies not accounted for by the equity method Name
Le Monde Investisseurs Istituto per il Credito Sportivo
Head office
% interest
Carrying amount of shares including fair-value adjustment (EUR thousands)
Reason for exclusion
80, bd Auguste-Blanqui 75013 Paris France
35.75
426
Below materiality threshold
Via Alessandro Farnese, 1 00192 Rome Italy
21.62
24,658
Below materiality threshold
Via Livorno, 36 00162 Rome Italy
20.4
0
Below materiality threshold
SPS – Sistema Permanente di Servizi Scpa in liquidazione e concordato preventivo SNC du Chapitre
72, rue Riquet 31000 Toulouse France
50
4
Below materiality threshold
67, rue Ermesinde L – 1469 Luxembourg
24.99
15,330
Below materiality threshold
European public infrastructure managers
4, rue Jean-Pierre-Brasseur L – 1258 Luxembourg
20.0
3
Below materiality threshold
SAS THEMIS
1 av. Eugène-Freyssinet 78280 Guyancourt France
40.5
798
Below materiality threshold
35 rue de la Gare 75019 Paris France
25.5
58
Below materiality threshold
104 avenue de France 75646 Paris Cedex 13 France
40
20,000
Below materiality threshold
Impax New Energy Investor
La Cité Exterimmo
g. Companies which are neither consolidated nor accounted for by the equity method in which the Group has at least a 10% stake and whose carrying amount is over EUR 10 million None.
Dexia Crédit Local / Annual report 2011
Application of IFRS adopted by the European commission (IFRS EU)
• estimate of the recoverable amount of cash-generating units for goodwill impairment.
The European Commission issued Regulation EC 1606/2002 on 19 July 2002, requiring listed groups to apply IFRS as from 1 January 2005. This regulation has been updated several times since 2002. Dexia Crédit Local’s financial statements have therefore been prepared in accordance with all IFRS adopted and endorsed by the European Commission up to 31 December 2011, including the conditions of application of interest rate portfolio hedging and the possibility to hedge core deposits. The consolidated financial statements are expressed in millions of euros (EUR) unless stated otherwise. They are compliant with CNC Recommendation 2009-R.04 issued on 2 July 2009. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported. In order to make these assumptions and estimates, management uses the information available at the date of preparation of the financial statements and exercises its judgment. While management believes it has considered all available information when making these assumptions, actual results may differ from such estimates and the differences may have a material impact on the consolidated financial statements. Judgments are principally made in the following areas: • classification of financial instruments; • determination of whether or not there is an active market for financial instruments measured at fair value ; • consolidation (control, including special-purpose entities); • identification of non-current assets and disposal groups held for sale and discontinued operations; • hedge accounting; • existence of a present obligation with probable outflows in the context of litigation; • identification of impairment triggers. These judgments are set out in the corresponding sections of the accounting policies. Estimates are principally made in the following areas: • determination of fair value for financial instruments measured at fair value; • determination of the recoverable amount of impaired financial assets; • determination of fair value less costs to sell for non-current assets and disposal groups held for sale;
b. Changes in accounting policies since the previous annual publication that may impact the Dexia Crédit Local group The overview below is based on the situation as at the reporting date of 31 December 2011.
IASB and IFRIC texts endorsed by the European Commission and applied as from 1 January 2011
The following standards, interpretations and amendments have been endorsed by the European Commission and are applied as from 1 January 2011: • Annual improvements made in 2010 to IFRS and IAS, a series of amendments to IFRS applied as from 1 January 2011. The revision of these standards impacts Dexia Crédit Local’s financial statements mainly with regard to disclosures. • IAS 24 Related Party Disclosures. This standard supersedes IAS 24 Related Party Disclosures (as revised in 2003) and has no significant impact on the financial statements of Dexia Crédit Local. • Amendment to IFRIC 14 Prepayments of Minimum Funding Requirements. This amendment has no impact on the financial statements of Dexia Crédit Local. • Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters. This amendment has no impact on the financial statements of Dexia Crédit Local, which is no longer a first-time adopter. • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments. This interpretation has no impact on the financial statements of Dexia Crédit Local. • Amendment to IAS 32 Financial instruments: presentation: classification of rights issues. This amendment has no impact on the financial statements of Dexia Crédit Local.
IASB and IFRIC texts endorsed by the European Commission during the current year but not yet applicable as from 1 January 2011 • Amendment to IFRS 7 Financial instruments: Disclosures (issued by the IASB in October 2010) on transfers of financial assets. This amendment is effective as from 1 January 2012 and will impact the notes to Dexia Crédit Local’s financial statements.
New standards (IFRS), interpretations (IFRIC) and amendments issued during the current year but not yet endorsed by the European Commission • Amendment to IAS 1 Presentation of Financial Statements – Presentation of Other Comprehensive Income (issued by the IASB in June 2011) clarifies the requirements on the presentation of the
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
• estimate of future taxable profit for the measurement of deferred tax assets;
Gouvernance et contrôle interne
a. Applicable accounting standards
Consolidated Comptes annuels financial statements
• determination of the useful life and residual value of property, plant and equipment, investment property and intangible assets;
Assemblée générale
1.3. Accounting policies and valuation methods
Présentation générale
4
Renseignements de caractère général
Consolidated financial statements
Notes to the consolidated financial statements
111
4
Consolidated financial statements
Notes to the consolidated financial statements
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
statement of comprehensive income and introduces a presentation of other comprehensive income (OCI) on the basis of recyclability. This amendment is effective as from 1 January 2013 and will impact Dexia Crédit Local’s presentation of unrealised or deferred gains and losses through equity.
112
• Amendment to IAS 19 Employee Benefits (issued by the IASB in June 2011) principally changes the recognition and measurement of post-employment defined benefit plans (including removal of the corridor mechanism) and enhances the disclosure requirements for these plans. This amendment is effective as from 1 January 2013. Dexia Crédit Local does not expect this standard to have a material impact on its financial statements. • Amendment to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosures (issued by the IASB in December 2011) defers the mandatory effective date of IFRS 9 to 1 January 2015. This amendment is effective as from 1 January 2015. • IFRS 13 Fair Value Measurement (issued by the IASB in May 2011) describes how to measure fair value under IFRS and introduces new and enhanced disclosure requirements. This standard is effective as from 1 January 2013 and its impact on the financial statements of Dexia Crédit Local is currently being assessed. • A “package of five” new and revised standards (issued by the IASB in May 2011) on the accounting treatment and disclosure requirements for interests in other entities. These new and revised standards are effective as from 1 January 2013. This publication comprises the following: – IFRS 10 Consolidated Financial Statements introduces a single consolidation model for all entities, based on control and regardless the nature of the investee. Dexia Crédit Local does not expect this standard to have a material impact on its financial statements. – IFRS 11 Joint Arrangements will no longer permit the proportional consolidation method when accounting for jointly-controlled entities. Dexia Crédit Local does not expect this standard to have a material impact on its financial statements. – IFRS 12 Disclosures of Interests in Other Entities will require enhanced disclosures on Dexia Crédit Local’s interests in subsidiaries, joint arrangements, associates and non-consolidated structured entities in which Dexia Crédit Local has an involvement. – IAS 27 Separate Financial Statements, which supersedes IAS 27 Consolidated and Separate Financial Statements (as amended in 2008), continues to be a standard dealing solely with separate financial statements: the existing guidance is unchanged. – IAS 28 Investments in Associates and Joint Ventures, which supersedes IAS 28 Investments in Associates (as revised in 2003), is amended to reflect the changes stemming from the issuance of IFRS 10, IFRS 11 and IFRS 12. • Amendment to IAS 32 Financial instruments: Presentation (issued by the IASB in December 2011) provides clarification on the rules for offsetting financial assets and financial liabilities. This amendment is effective as from 1 January 2014 and the impact on the financial statements of Dexia Crédit Local is currently being assessed. • Amendment to IFRS 7 Financial instruments: Disclosures (issued by the IASB in December 2011) on offsetting financial assets and financial liabilities. This amendment is effective as from 1 January 2013 and will impact the notes to Dexia Crédit Local’s financial statements.
Dexia Crédit Local / Annual report 2011
c. Accounting policies applied to consolidated financial statements Consolidation Subsidiaries and business combinations Subsidiaries are those entities over which Dexia Crédit Local has the power to exercise control, directly or indirectly, over financial and operating policies. Subsidiaries are fully consolidated from the date on which effective control is transferred to Dexia Crédit Local and are no longer consolidated as from the date on which Dexia Crédit Local loses significant influence over such subsidiary. Intercompany transactions, balances and unrealised gains and losses on transactions between Dexia Crédit Local’s companies are eliminated. When necessary, adjustments are made to ensure consistency with the policies applied by Dexia Crédit Local. Changes in Dexia Crédit Local’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. Dexia Crédit Local decides on a transaction-by-transaction basis to measure non-controlling interests either at fair value or at their proportional interest in the net assets of the acquiree. Equity and net income attributable to non-controlling interests are shown in a separate line on the balance sheet and in the income statement respectively.
Jointly-controlled entities A joint venture (JV) is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint ventures are accounted for by the proportional consolidation method. In the consolidated financial statements, joint ventures are integrated according to the percentage interest in their assets, liabilities, income and expenses. The consolidation treatment used for intercompany transactions is the same as that applied to subsidiaries.
Associates Investments in associates are initially measured at cost and accounted for using the equity method. Associates are investments in which Dexia Crédit Local has significant influence, but does not exercise control. This is usually the case when Dexia Crédit Local owns between 20% and 50% of the voting rights. The ownership share of net income for the year is recognised as income from associates while the share in other comprehensive income of associates is carried in a separate line of the statement of comprehensive income and the investment is recorded on the balance sheet at an amount that reflects its share of the net assets including goodwill. Gains on transactions between Dexia Crédit Local and its associates are eliminated to the extent of Dexia Crédit Local’s interest. The recognition of losses from associates is discontinued when the carrying amount of the investment reaches zero, unless Dexia Crédit Local has incurred or guaranteed legal or constructive obligations in respect of the associates’ undertakings. Where necessary, the accounting policies of the associates have been amended to ensure consistency with the policies adopted by Dexia Crédit Local.
Consolidated financial statements
Notes to the consolidated financial statements
• those that the entity, upon initial recognition, designates as available for sale; and • those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, which shall be classified as available for sale.
In certain circumstances, financial assets and financial liabilities are offset and the net amount reported on the balance sheet. This may happen when there is a legally enforceable right to set off the recognised amounts and there is an intention that expected future cash flows will be settled on a net basis or that the asset will be de-recognised and the liability settled simultaneously.
Dexia Crédit Local recognises interest-bearing loans and advances initially at fair value plus transaction costs and subsequently at amortised cost, less any allowance for impairment. Interest is measured based on the effective interest rate method and recognised in net interest income. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or, when more appropriate, a shorter period, to the net carrying amount of the financial asset.
Foreign currency translation and transactions
Held-to-maturity financial assets
Offsetting financial assets and financial liabilities
Foreign currency translation On consolidation, the income statements and cash flow statements of foreign entities whose functional currency differs from Dexia Crédit Local’s presentation currency are translated into Dexia Crédit Local’s presentation currency (the euro) at average exchange rates for the year or the period and their assets and liabilities are translated at the year-end or period-end exchange rates. Exchange differences arising from the translation of the net investment in foreign subsidiaries, associates and joint ventures and of foreign currency borrowings and other currency instruments designated as hedges of such investments are recorded as a cumulative translation adjustments in shareholders’ equity. On disposal of a foreign entity, such exchange differences are recognised in the income statement. Goodwill and fair value adjustments arising from the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated at the closing rate.
Foreign currency transactions For individual Dexia Crédit Local entities, foreign currency transactions are accounted for using the exchange rate on the transaction date. Outstanding balances denominated in foreign currencies at the period or year end are translated at period-end or year-end rates for monetary items and non-monetary items carried at fair value. Historical rates are used for non-monetary items carried at cost. The resulting exchange differences from monetary items are recorded in the consolidated income statement, except for the foreign exchange impact related to fair value adjustments on available-for-sale bonds, which are recognised in equity. For non-monetary items carried at fair value, the exchange differences follow the same accounting treatment as for fair value adjustments.
Quoted securities with fixed maturity are classified as “Held-tomaturity financial assets” (HTM) when management has both the intent and the ability to hold the assets to maturity. Held-to-maturity assets are initially recognised at fair value (including transaction costs) and subsequently at amortised cost, less any allowance for impairment. Interest is recognised based on the effective interest rate method using the rate determined upon initial recognition and is recognised in net interest income.
Available-for-sale financial assets Assets intended to be held for an indefinite period of time and which may be sold in response to a need for liquidity or changes in interest rates, exchange rates or equity prices are classified as “available for sale financial assets” (AFS). Available-for-sale assets are initially recognised at fair value (including transaction costs). Interest is recognised based on the effective interest rate method and is recognised in net interest income. Dividend income from variable-income securities is recognised in “Net gains (losses) on available-for-sale financial assets” when the Group’s right to receive payment is established. Unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are recognised in equity. When assets are disposed of, the related accumulated fair value adjustments are reversed to the income statement in “Net gains (losses) on available-for-sale financial assets”.
Annual report 2011 / Dexia Crédit Local
Présentation générale
• those that the entity intends to sell immediately or in the near term, which are classified as held for trading, and those that the entity, upon initial recognition, designates as being at fair value through profit or loss;
Rapport de gestion
• Dexia Crédit Local retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.
IFRS define loans as non-derivative financial assets with fixed or determinable payments that are not quoted on an active market, other than:
Gouvernance et contrôle interne
• Dexia Crédit Local is entitled to obtain the majority of the benefits of the SPE and, as a result, may be exposed to the risks associated with the SPE’s activities;
Interbank and customer loans and advances
Consolidated Comptes annuels financial statements
• Dexia Crédit Local has decision-making powers or has delegated these powers to obtain the majority of the benefits of the SPE’s activities;
Management determines the appropriate classification of its investments at initial recognition. However, under certain conditions, financial assets may be subsequently reclassified.
Assemblée générale
• The SPE’s activities are being conducted on behalf of Dexia Crédit Local according to its specific business needs;
Financial assets and liabilities
Renseignements de caractère général
Special purpose entities (SPEs) A special-purpose entity (SPE) shall be consolidated when the substance of the relationship between Dexia Crédit Local and the SPE indicates that the SPE is controlled by Dexia Crédit Local. Control may arise through the structuring of the activities of the SPE. The following circumstances may indicate a relationship in which Dexia Crédit Local controls an SPE and consequently should consolidate the SPE:
4
113
4
Consolidated financial statements
Notes to the consolidated financial statements
Held-for-trading assets are assets acquired for generating a profit from short-term fluctuations in price or dealer’s margin, or are assets included in a portfolio in which a pattern of short-term profit taking exists. Held-for-trading assets are initially recognised at fair value and subsequently re-measured at fair value. All related realised and unrealised gains and losses are included in “Net gains (losses) on financial instruments at fair value through profit or loss”. Interest earned while holding held-for-trading assets is recognised using the effective interest rate method in net interest income. Dividends received are recognised in “Net gains (losses) on financial instruments at fair value through profit or loss”. All purchases and sales of held-for-trading assets that require delivery within the timeframes established by regulations or market convention (“regular way” purchases and sales) are recognised on the trade date. Other trading transactions are treated as derivatives until settlement occurs (refer to the paragraph on “Trade date and settlement date accounting”).
Held-for-trading liabilities Held-for-trading liabilities follow the same accounting rules as those for held-for-trading financial assets, except that initial recognition is done at settlement date (see also paragraph “Trade date and settlement date accounting”).
Financial assets designated at fair value through profit or loss (FV Option) Loans and securities designated at fair value through profit or loss follow the same accounting rules as those for held-for-trading loans and securities, except for trade date and settlement date accounting (refer to the paragraph on “Trade date and settlement date accounting”). Under IAS 39, a financial asset or group of financial assets can be designated as “at fair value through profit or loss” when: • such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; • a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a duly documented risk management or investment strategy; • an instrument contains an embedded derivative: – that significantly modifies the cash flows that would otherwise be required by the contract; or – for which it is not clear without an in-depth analysis that separation of the embedded derivative is prohibited. Use of the fair value option is a choice that should be made for a given financial instrument, upon initial recognition and when certain documentation conditions are fulfilled.
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Held-for-trading financial assets
114
Dexia Crédit Local / Annual report 2011
Liabilities designated at fair value through profit or loss (FV Option) The accounting principles for financial liabilities designated at fair value through profit or loss are the same as those used for financial assets, except that the initial recognition is done at settlement date (refer to the paragraph on “Trade date and settlement date accounting”).
Derivatives – trading portfolio When a derivative is not designated in a hedge relationship, it is deemed to be held for trading. Derivative financial instruments generally include foreign exchange contracts, currency and interest rate futures, forward rate agreements, currency and interest rate swaps and currency and interest rate options (both written and purchased). All derivatives are initially recognised on the balance sheet at fair value and are subsequently measured at fair value. Fair values are obtained from quoted market prices, discounted cash flow models or option pricing models as appropriate. The amount reported on the balance sheet includes the premium paid/received net of amortisation, fair value adjustments and accrued interest, the sum of all these elements representing the fair value of the derivative. Derivatives are reported as assets when fair value is positive and as liabilities when fair value is negative. Certain derivatives embedded in other financial instruments are treated as separate derivatives when: • their risks and characteristics are not closely related to those of the host contract; • the hybrid contract is not carried at fair value with unrealised gains and losses reported in the income statement.
Borrowings Borrowings are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. They are subsequently stated at amortised cost and any difference between their initial carrying amount and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest rate method.
Trade date and settlement date accounting Held-for-trading financial assets are recognised and derecognised at trade date. For these assets, Dexia Crédit Local recognises from the trade date in “Net gains (losses) on financial instruments at fair value through profit or loss” any unrealised gains or losses arising from re-measuring the contract at fair value at the reporting date. All other “regular way” purchases and sales of financial instruments are recognised on the settlement date, which is the date on which a financial asset or a financial liability is received or delivered by Dexia Crédit Local.
Consolidated financial statements
Notes to the consolidated financial statements
• Accounting treatment of the impairment Changes in the amount of impairment losses are recognised in the income statement in “Cost of risk”. Once an asset has been written down, if the amount of the impairment subsequently decreases due to an event occurring after recognition of the impairment, the writeback of the impairment is credited to “Cost of risk”. When an asset is determined by management as being irrecoverable, the outstanding specific impairment is reversed via the income statement in “Cost of risk” and the net loss is recorded in the same heading. Subsequent recoveries are also accounted for in this heading. Reclassified financial assets Regarding impairment, reclassified financial assets follow the rules as financial assets initially valued at amortised cost for calculation of the impairment. If there is objective evidence that reclassified financial assets are impaired, the amount of the impairment on reclassified assets is calculated as the difference between the net carrying amount
• Accounting treatment of the impairment When available-for-sale financial assets are impaired, the total AFS reserve is recycled into profit or loss and Dexia Crédit Local reports these impairment losses in the income statement in “Cost of risk” (for available-for-sale financial assets with fixed income) or “Net gains (losses) on available-for-sale financial assets” (for available-forsale financial assets with variable income). Any subsequent decline in fair value constitutes an additional impairment loss, recognised in the income statement. Impairment of equity instruments cannot be reversed in the income statement due to a subsequent increase in the quoted price. In the event of an increase in the fair value of an interest-bearing financial instrument that relates objectively to an event occurring after the last impairment was recognised, Dexia Crédit Local recognises a reversal of the impairment loss in the income statement in “Cost of risk” (for available-for-sale financial assets with fixed income). Please refer to the note on Credit Risk for more information on how credit risk is managed by Dexia Crédit Local. Off-balance sheet commitments Off-balance sheet commitments such as credit substitutes (e.g.: guarantees and standby letters of credit) and loan commitments are usually converted into on-balance sheet items when called. However, under certain circumstances, such as uncertainty about the counterparty’s creditworthiness, the off-balance sheet commitment should be classified as impaired if the credit worthiness has deteriorated to an extent that makes repayment of any loan and associated interest payments doubtful.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
• Determination of the impairment – Equities: For equities quoted on an active market, a significant decline in their price compared with the acquisition price (more than 50%) or a prolonged decline (during a period of more than 5 years) is considered as objective evidence of impairment. In addition, management can decide to recognise impairment losses whenever other objective evidence is available. – Interest-bearing debt instruments: in the case of interestbearing debt instruments, impairment is triggered based on the same criteria as those applied to financial assets valued at amortised cost (see above).
Gouvernance et contrôle interne
Available-for-sale financial assets Impairment of available-for-sale assets is recognised on an individual basis if there is objective evidence of impairment as a result of one or more events occurring since initial recognition of the asset. Availablefor-sale financial assets are subject only to specific impairment.
Consolidated Comptes annuels financial statements
• Determination of the impairment – Specific impairment: if there is objective evidence that loans or other receivables, or financial assets classified as held-to-maturity, are impaired, the amount of the provision is calculated as the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, net of any guarantees and collateral, discounted at the financial instrument’s original effective interest rate (except for reclassified assets, see below). When an asset has been written down, it is excluded from the portfolio on which a collective impairment is calculated. – Collective impairment: collective impairment covers the risk of loss in value not covered by specific impairment where there is objective evidence that probable losses are present in certain segments of the portfolio or other lending-related commitments at the balance-sheet date. These losses are estimated based upon historical patterns of losses in each segment, the credit ratings assigned to the borrowers, and the current economic environment in which the borrowers operate. For this purpose, Dexia Crédit Local has developed credit risk models using an approach that combines default probabilities and losses given default. These models are subject to regular back-testing and are based on Basel II data and risk models, consistent with the incurred loss model.
In the event of a positive update to expected cash flows, the impairment amount is reversed through net interest income over the new schedule of expected cash flows, not by a reversal of the impairment.
Assemblée générale
Financial assets valued at amortised cost Dexia Crédit Local first assesses whether objective evidence of impairment exists for a financial asset when taken individually. If no such evidence exists, the financial asset is included in a group of financial assets with similar credit risk characteristics and collectively assessed for impairment
of the asset, excluding the amount of revaluations at fair value due to former classification in AFS, and the net present value of the expected cash flows discounted at the effective interest rate at the time of reclassification. Any existing unamortised AFS reserve will be taken to profit or loss in “Cost of risk”.
Renseignements de caractère général
Impairment of financial assets Dexia Crédit Local records allowances for impairment losses when there is objective evidence that a financial asset or group of financial assets is impaired, as a result of one or more events occurring since initial recognition and when that loss event has an impact on the estimated future cash flows that can be reliably estimated, in accordance with IAS 39 (sections 58-70). The impairment represents management’s best estimate of losses in the value of the asset or group of assets at each balance-sheet date.
4
115
4
Consolidated financial statements
Notes to the consolidated financial statements
Fair value of financial instruments
Market prices are used to determine fair value where an active market (such as a recognised exchange) exists, as these are the best estimate of the fair value of a financial instrument. Active market prices are not available, however, for a significant number of the financial assets and liabilities held or issued by Dexia Crédit Local. If the financial instrument is not traded on an active market, valuation techniques are used. Valuation techniques include the use of data from recent arm’s length market transactions between knowledgeable, willing parties, the current fair value, if available, of another instrument that is substantially the same, and valuation models. A valuation model reflects what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations, i.e. the price that would be received by the holder of the financial asset in an orderly transaction that is not a liquidation or forced sale. The valuation model should attempt to take into account all the factors that market participants would consider when pricing the asset. In this context, Dexia Crédit Local uses its own valuation models and market assumptions, i.e. present value of cash flows or any other techniques based on market conditions existing at the balance-sheet date. Financial instrument measured at fair value (held-for-trading, FVO, AFS, derivatives) Financial investments classified as held for trading, available for sale, or designated at fair value through profit or loss, derivatives and any other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. When quoted market prices are not available, fair values are estimated on the basis of pricing models or discounted cash flows using either observable and/or unobservable market data. For assets and liabilities classified as available for sale (AFS) or designated at fair value through profit or loss, when quoted prices are not available, the pricing models try to reflect as accurately as possible the market conditions on the valuation date as well as changes in the credit quality of these financial instruments and the market liquidity. Financial instruments measured at amortised cost (valuations in IFRS notes on fair value) The following comments are applicable to the fair value of loans and receivables presented in the notes:
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’slength transaction.
• caps, floors and early repayment options are included when determining the fair value of loans and receivables.
Realised gains and losses on the sale of financial assets For financial assets not re-measured through the income statement, realised gains and losses on disposal are the differences between the proceeds received (net of transaction costs) and the costs or amortised costs of the investments. The cost is systematically determined using the “First In, First Out” approach (FIFO method) on a portfolio basis. When an available-for-sale financial asset is sold, the total gains or losses recognised earlier in equity are reclassified in the income statement.
Accounting for early repayment indemnities Dexia Crédit Local has determined the accounting principles applicable to the restructuring of loans in accordance with AG 62 of IAS 39 dealing with the restructuring of financial liabilities. There are several possibilities for accounting for early repayment indemnities, depending on whether the early repayment is recognised as not being an extinguishment (with refinancing) or as an extinguishment (no refinancing). Case of early repayment with refinancing The method of accounting for early repayment indemnities differs depending on whether the restructuring results in terms that are substantially different from those set initially. In accordance with the principles of AG 62, Dexia Crédit Local considers that the terms are substantially different when the net present value of the cash flows under the new terms, including any fees paid net of any fees received, is at least 10% different from the net present value of the remaining cash flows from the original loan. The early repayment indemnity is recognised immediately in the income statement or else amortised over the remaining term of the modified loan depending on the results of the eligibility test. If the eligibility test is passed, i.e. the income statement difference is less than 10%, the early repayment indemnity is amortised over the remaining term of the new loan. Otherwise, i.e. when the difference exceeds 10%, the early repayment indemnity is recognised immediately in the income statement. Case of early repayment without refinancing When the loan has been extinguished, the early repayment indemnity, as well as any gains or losses arising from an unamortised premium or discount, is recognised in the income statement as income for the period, as required by IFRS.
Interest income and expense
Interest income and expense are recognised in the income statement for all interest-bearing financial instruments not designated at fair value on an accrual basis using the effective interest rate method based on initial carrying value including transaction costs.
Renseignements de caractère général
116
• the fair value of fixed-rate loans and mortgages is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans;
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
For asset management operations, revenue consists principally of unit trust and mutual fund management and administration fees. Revenue from asset management is recognised as earned when the service is provided. Performance fees are recognised only when all the underlying conditions are met and the income is thus earned. Loan commitment fees are recognised as part of the effective interest rate if the loan is granted. They are recorded as revenue on expiry date if no loan is granted.
Hedging derivatives
The non-effective portion of the changes in the fair value of the derivatives is recognised in the income statement. Amounts deferred in equity are transferred to the income statement and classified as income or expense in the periods during which the hedged firm commitment or forecast transaction affects the income statement.
Hedging of a portfolio’s interest rate risk exposure
As explained above (“Application of IFRS adopted by the European Commission”), Dexia Crédit Local makes use of the provisions of IAS 39 as adopted by the European Union (“IAS 39 carve-out”) because it better reflects the way Dexia Crédit Local manages its financial instruments. The objective of hedging relationships is to reduce the interest rate risk exposure stemming from the selected category of assets or liabilities designated as the qualifying hedged items.
Hedging derivatives can be categorised as either:
• a hedge of a future cash flow attributable to a recognised asset or liability or a forecast transaction (cash flow hedge); or • a hedge of a net investment in a foreign operation (net investment hedge). Hedge accounting may be used for derivatives designated in this way, provided certain criteria are met. • formal documentation of the hedging instrument, hedged item, hedging objective, strategy used and relationship between the hedging instrument and the hedged item must be prepared before hedge accounting is applied, • the hedge is documented showing that it is expected to be effective both prospectively and retrospectively in neutralising changes in fair value or cash flows attributable to the hedged risk on the hedged item throughout the reporting period,
The entity performs a global analysis of its interest rate risk exposure. This consists in assessing the fixed-rate exposures generated by all fixed-rate balance sheet items. This global analysis may exclude certain components of the exposure, such as financial market activities, provided that the risk exposure stemming from the excluded activities is monitored on an activity-by-activity basis. The entity selects the assets and/or liabilities to be included in the hedge of a portfolio’s interest rate risk exposure. The entity consistently applies the same methodology for selecting portfolio assets and liabilities. The financial assets and liabilities are classified by time bands. Hence, when they are removed from the portfolio, they must be removed from all the time bands on which they have an impact. Demand deposits and savings accounts may be included in the portfolio based on behavioural studies for estimating expected maturity date. The entity may designate as qualifying hedged items different categories of assets or liabilities such as “available for sale” assets or loan portfolios.
Renseignements de caractère général
• a hedge of the fair value of a recognised asset or liability or a firm commitment (fair value hedge);
Présentation générale
The effective portion of the changes in the fair value of derivatives that are designated and qualify as cash flow hedges and that prove to be effective in relation to the hedged risk is recognised in equity as “Unrealised or deferred gains and losses” (see “Net income and unrealised or deferred gains and losses through equity”).
Rapport de gestion
Commissions and fees arising from most of Dexia Crédit Local’s activities are recognised on an accrual basis over the life of the underlying transaction. With regard to significant operations, e.g. negotiating or participating in the negotiation of a transaction on behalf of a third party, such as the arrangement of the acquisition of loans, equities or other securities or the purchase or sale of businesses, fees and commissions are recognised when the significant act has been completed.
Gouvernance et contrôle interne
Fee and commission income and expense
If at any time the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged interest-bearing financial instrument is amortised to profit or loss over the residual maturity of the hedged item by adjusting the yield on the hedged item.
Consolidated Comptes annuels financial statements
Once an interest-bearing financial asset has been written down to its estimated recoverable amount, interest income is thereafter recognised based on the interest rate that was used to discount the future cash flows for measuring the recoverable amount.
Changes in the fair value of derivatives that are designated and documented in a fair value hedging relationship, and which comply with the criteria set out above, are recorded in the income statement, along with the corresponding change in fair value of the hedged assets or liabilities that are attributable to that specific hedged risk.
Assemblée générale
Transaction costs are incremental costs that are directly attributable to the acquisition of a financial asset or liability and are reflected in the effective interest rate. An incremental cost is one that would not have been incurred if the entity had not acquired the financial instrument. Accrued interest is reported in the same balance sheet line as the related financial asset or liability.
4
• the hedge shall be effective at inception and on an ongoing basis.
Annual report 2011 / Dexia Crédit Local
117
Présentation générale
4
Consolidated financial statements
Notes to the consolidated financial statements
Based on this gap analysis, which is realised on a net basis, Dexia Crédit Local defines at inception the risk exposure to be hedged, the length of the time bands and the manner and frequency of testing.
Depreciation is calculated using the straight-line method to write down the cost of such assets to their residual values over their estimated useful lives.
The hedging instruments are a portfolio of derivatives whose positions may be offsetting. The hedging items are recognised at their full fair value (including accrued interest expense or income) with adjustments being recognised in the income statement. Revaluations related to the hedged risk are recognised on the balance sheet in “Fair value revaluation of portfolio hedges”.
• The estimated useful lives for the main tangible non-current assets are as follows:
Day one profit or loss
• technical installations: 10 to 30 years
The day one profit or loss is applicable for all transactions measured at fair value through profit or loss. The day one profit or loss is the difference between either:
• structure of the building: 50 years • roof and frontage: 30 years
• fixtures and fittings: 10 to 30 years
• the transaction price and the adjusted fair value (internal valuation models with some market value adjustments, such as a liquidity risk adjustment, model risk adjustment and credit risk adjustment) if the transaction is not quoted. If the parameters used in the valuation model are considered as observable and if the model is approved by Risk Management, the day one profit or loss is recognised immediately in profit or loss. If the parameters are considered as not observable or if the model is not approved by Risk Management, the day one profit or loss is amortised on a straight line over the expected life of the transaction. However, if the data subsequently becomes observable, the remaining portion of the day one profit or loss is recognised in profit or loss. In the event of early termination, the remaining portion of the day one profit or loss is recognised in profit or loss. In case of partial early termination, the portion of day one profit or loss relating to the partial early termination is recognised in profit or loss.
Tangible fixed assets
Tangible non-current assets include office buildings, furnishings and equipment, and investment properties.
All office buildings, furnishings and equipment are initially stated at historical cost plus directly attributable expenses and related borrowing costs (such as foreign exchange losses, financial costs, etc.). After initial recognition, tangible non-current assets are valued at their cost less accumulated depreciation and impairment, if applicable. Subsequent costs are included in the carrying amount of the asset or recognised as a separate component, where necessary, if it is probable that future economic benefits will flow to the Group and the cost of the asset can be reliably measured.
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
• leasehold improvements, equipment and furniture: 2 to 12 years • the transaction price and the quoted market price, if the transaction is carried out on a quoted market; or
118
Dexia Crédit Local / Annual report 2011
• computer equipment: 3 to 6 years • vehicles: 2 to 5 years An item of property and equipment can be composed of different parts with varying useful lives. In such a case, each part is depreciated separately over its estimated useful life. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset and are therefore capitalised. Other borrowing costs are recognised as an expense. Tangible non-current assets are tested for impairment when an indication of loss of value exists. When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. When the recoverable amount of an asset cannot be determined individually, the Group determines the recoverable amount of the cash-generating unit or group of cashgenerating units to which the asset belongs. Gains and losses on disposals of property and equipment are determined by reference to their carrying amount and are included in “Net gains (losses) on other assets”. Investment properties are those properties held to earn rental income or for capital appreciation. Dexia Crédit Local may also partly use such investment properties for its own use. If the “own use” portion can be sold separately or leased out separately under a finance lease, such portion is accounted for separately. However, if the “own use” portion cannot be sold separately, the property is classed as an investment property only if Dexia Crédit Local uses an insignificant portion for its own use. Investment properties are recorded at acquisition cost less accumulated depreciation and impairment, if applicable. Investment properties are depreciated over their useful life on a straight-line basis.
Consolidated financial statements
Notes to the consolidated financial statements
Non-current assets held for sale and discontinued operations
Assets or groups of assets whose carrying amount will be recovered principally through a sale transaction rather than through continuing use are classified as non-current assets (or disposal groups) held for sale if: • they are available for immediate sale in their present condition; and • their sale is highly probable within one year. Dexia Crédit Local measures non-current assets (or groups of assets) classified as held for sale at the lower of their carrying amount and their fair value less costs to sell. Such assets are no longer depreciated from the time they qualify as assets (or groups of assets) held for sale. Non-current assets (or groups of assets) classified as held for sale are presented separately on the balance sheet. A discontinued operation is defined as a component of an entity that either has been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations. Post-tax profit or loss from discontinued operations is presented in a separate line in the income statement.
Goodwill
Goodwill is as an asset representing the future economic benefits arising from other assets acquired in a business combination that cannot be individually identified and separately recognised. It is measured as the difference between the aggregate of: • (i) the acquisition-date fair value of the consideration transferred; • (ii) the amount of any non-controlling interests; and • (iii) in a business combination achieved in stages, the acquisitiondate fair value of Dexia Crédit Local’s previously-held equity interests in the entity acquired;
The recoverable amount is the higher of fair value less costs to sell and value in use. The value in use is the sum of the future cash flows that are expected to be derived from the cash-generating unit. Expected cash flows used by Dexia Crédit Local are taken from the three-year financial plan approved by Management. The calculation of the value in use must also reflect the time value of money (current market risk-free rate of interest) adjusted for the risk premium inherent in the asset. This is reflected in the discount rate. For subsidiaries operating in economically mature and financially stable markets, the discount rate used is Dexia Crédit Local’s cost of capital, determined using a dividend discount model. For subsidiaries operating in emerging markets, a specific discount rate is applied on a case-by-case basis.
Other assets
Other assets are comprised primarily of accrued income (non-interest related), prepayments and other accounts receivable. They also include insurance products (reinsurance, insurance premiums receivable, etc.), property development contracts, inventories and plan assets relating to employee benefit obligations. These other assets are recorded at amortised cost less impairment, if applicable. Employee benefits are recognised in accordance with IAS 19 requirements.
Leases
Dexia Crédit Local enters into both operating and finance leases. A finance lease is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. An operating lease is a lease other than a finance lease.
Dexia Crédit Local as the lessor For finance leases, Dexia Crédit Local recognises a lease receivable at an amount equal to the net investment in the lease, which may differ from the present value of the minimum lease payments. The interest rate implicit in the lease contract is used as the discount rate. Interest income is recognised over the term of the lease using the interest rate implicit in the lease. Revenue from operating leases is recognised in the income statement on a straight-line basis over the lease term. The underlying asset is recognised in accordance with the accounting policies applicable to the type of asset concerned.
and the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
The carrying amount of goodwill is reviewed at each year end. For the purpose of this impairment testing, Dexia Crédit Local allocates goodwill to cash-generating units (or groups of cash-generating units), i.e. to a combination of business segment/country/legal entity. When specific circumstances or events indicate that the goodwill has been subject to a loss in value, the goodwill is written down for impairment when the recoverable amount of the cash-generating unit or group of cash-generating units to which it has been allocated is lower than the carrying amount.
Gouvernance et contrôle interne
Intangible assets (other than goodwill) are tested for impairment when an indication of loss of value exists. When the carrying amount of an intangible asset is greater than its estimated recoverable value, an impairment loss is recognised and the carrying amount of the asset is written down to its estimated recoverable value. Gains and losses on disposals of intangible assets are determined by reference to their carrying amount and are included in “Net gains (losses) on other assets” in the income statement.
Impairment of goodwill
Consolidated Comptes annuels financial statements
Borrowing costs that are directly attributable to the acquisition or production of a qualifying asset form part of the cost of that asset and are therefore capitalised. Other borrowing costs are recognised as an expense.
Changes in the percentage of ownership in fully-consolidated companies are considered as transactions with shareholders. Therefore, neither fair value adjustments nor goodwill adjustments are made when percentage increases or decreases take place that do not result in changes in the consolidation method. The difference between the amount of the net assets purchased or sold and the purchase or sale price is recorded directly in equity.
Assemblée générale
Intangible assets mainly consist of internally generated or acquired software. The costs associated with maintaining computer software are expensed as incurred. However, expenditure that enhances or extends the benefits of computer software by more than one year is capitalised, thereby increasing the original cost of the software. Computer software and related development costs recognised as assets are amortised using the straight-line method over their estimated useful lives from the time the software is available for use. This amortisation period is usually between three and five years.
Renseignements de caractère général
Intangible assets
4
119
4
Consolidated financial statements
Notes to the consolidated financial statements
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Dexia Crédit Local as the lessee
120
If the lease is recorded as a finance lease, the related asset is capitalised. At inception of the lease, the asset is recorded at the lower of the present value of the minimum lease payments and fair value. Subsequent to initial recognition, the asset is recognised in accordance with the accounting policies applicable to the type of asset concerned. The corresponding rental obligations are recorded as borrowings and the lease payments are recorded using the effective interest rate method. In case of an operating lease, lease payments made under the agreement are recognised in the income statement on a straight-line basis over the lease term. The underlying asset is not recognised When an operating lease is terminated before the lease period has expired, any payments to be made to the lessor by way of penalty are recognised as an expense in the period in which termination takes place.
Sale and repurchase agreements and lending of securities
Securities sold subject to a repurchase agreement (repos) are not derecognised and remain on the balance sheet in their original category. The corresponding liability is included in “Interbank borrowings and deposits” or “Customer borrowings and deposits” as appropriate. The asset is reported as pledged in the notes. Securities purchased under an agreement to resell (reverse repos) are recorded as off-balance sheet items and the corresponding loans are recorded in “Interbank loans and advances” or “Customers loans and advances” as appropriate. The difference between the sale and repurchase price is treated as interest income or expense and is amortised over the life of the agreement using the effective interest rate method. Securities lent to third parties are retained in the financial statements. Securities borrowed are not recognised in the financial statements. If these borrowed securities are sold to third parties, the obligation to return them is recorded at fair value in “Financial liabilities at fair value though profit or loss” and the gain or loss is included in “Net gains (losses) on financial instruments at fair value through profit or loss”.
Deferred income tax
Deferred income tax is recognised in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. The tax rates enacted or substantively enacted at the balance-sheet date are used to determine deferred income tax. Deferred tax assets and liabilities are not discounted. Deferred tax assets on deductible temporary differences and tax loss carry-forwards are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences and tax losses can be utilised.
Deferred tax liabilities are calculated on all temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is unlikely that the difference will reverse in the foreseeable future. Deferred tax related to fair value re-measurement of available-for-sale assets and cash flow hedges and other transactions recorded directly in equity is also credited or charged directly to equity.
Employee benefits Short-term benefits Short-term benefits, payable within 12 months after service is rendered, are not discounted and are recognised as an expense.
Post-employment benefits When Dexia Crédit Local has a legal or constructive obligation to pay post-employment benefits, the plan is classified as either a defined benefit or defined contribution plan. Dexia Crédit Local offers a number of defined benefit and defined contribution plans throughout the world, the assets of which are generally entrusted to insurance companies or pension funds. The pension plans are generally funded by payments from both employees and Dexia Crédit Local. In some cases, Dexia Crédit Local provides former employees with post-retirement healthcare benefits.
Defined benefit plans Employee benefit obligations are measured at the present value of the estimated future cash outflows, which are discounted using the interest rates applicable to AA-rated corporate bonds, whose terms to maturity are similar to the average maturity of the related liability. The calculation of pension expenses is based on, among other things, actuarial and demographic assumptions and the inflation rate. Pension costs are determined based on the Projected Unit Credit Method. Under this method, the cost of providing pensions is charged to the income statement over the expected service lives of employees. Dexia Crédit Local has elected to apply the so-called corridor method: net cumulative unrecognised actuarial gains and losses exceeding the corridor (the higher of 10% of the present value of the gross defined benefit obligation and 10% of the fair value of any plan assets) are recognised in income over the average remaining working life of the plan participants. The amount recognised on the balance sheet is the present value of the defined benefit obligation (which is the present value of the expected future payments required to settle the obligation resulting from current and future services rendered by the employees), as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, less the fair value of plan assets at the balancesheet date. The defined obligation is presented net of plan assets as a liability unless the assets are held by a Group entity, in which case the corresponding asset are recognised as assets on Dexia Crédit Local’s balance sheet. Also, where a plan has been overfunded, an asset may be calculated and recorded separately if those assets are held by a Group entity. Any asset recognised is limited to the total of any cumulative unrecognised actuarial gains and losses and past service cost, and the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
Unlike defined benefit plans, actuarial gains and losses relating to these benefits are recognised immediately in the income statement. All past service costs are recognised immediately in the income statement. Employee entitlement to annual leave or long-service leave is recognised when granted to the employee. As such, a provision is raised for the estimated liability for annual leave and long-service leave based on the services rendered by employees up to the balancesheet date.
• it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and • a reliable estimate of the amount of the obligation can be made. Provisions on loan commitments are recognised using the same methodology as that applied for the impairment of financial assets measured at amortised cost.
Dividends on ordinary shares Dividends on ordinary shares are recognised in liabilities from the date they are declared (they must be authorised and no longer at the entity’s discretion).
Earnings per share Basic earnings per share are calculated by dividing the Group share of net income available to ordinary shareholders by the weighted average number of ordinary shares in issue at the year end.
Termination benefits
Related-party transactions
A termination benefit provision is recorded only when Dexia Crédit Local has a firm commitment to terminate the employment before the normal retirement date and to provide termination benefits as a result of an offer made in order to encourage voluntary redundancy. Dexia Crédit Local must have in place a detailed formal plan and no realistic possibility of withdrawal.
Two parties are considered to be related if one has the ability to control the other or exercises significant influence over the other party’s financial policy or operational decisions. The ultimate parent company of the Group is Dexia SA, incorporated in Belgium. Transactions with companies accounted for by the equity method are reported, as are those with the Directors.
Share-based payments
Segment reporting
Dexia Crédit Local offers equity-settled share-based payments like stock options plans (SOP) and employee share purchase plans (ESPP) and cash-settled share-based payments.
Business line reporting
The fair value of equity-settled plans is measured at grant date by reference to the fair value of the underlying equity instrument based on valuation techniques and market data. The fair value is recognised as remuneration expense and is credited against equity. In the case of cash-settled share-based payments, the services received and the liability incurred to pay for those services are measured at the fair value of the liability. This fair value is measured at the grant date and at each reporting date until settled. The fair value is recognised as remuneration expense with a corresponding increase in liabilities.
Présentation générale
• Dexia Crédit Local has a present legal or constructive obligation as a result of past events;
Rapport de gestion
These mainly include provisions for long-service awards that employees receive on completion of specified periods of service.
Provisions are recognised when:
Gouvernance et contrôle interne
Other long-term benefits
A provision is measured at the present value of the expenditure expected to be required to settle the obligation. The interest rate used is the pre-tax rate that reflects current market assessments of the time value of money.
Consolidated Comptes annuels financial statements
Post-employment medical care Entitlement to these benefits is usually based on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment, using a methodology similar to that used for defined benefit pension plans.
Provisions are mainly recognised for litigation claims, restructuring, and off-balance sheet loan commitments.
An operating segment is a component of Dexia Crédit Local that engages in business activities from which it may earn revenue and for which it may incur expenses and whose operating results are regularly reviewed. The business segmentation was adapted to Dexia Crédit Local’s new profile and strategic directions.
Assemblée générale
Defined contribution pension plans Dexia Crédit Local’s contributions to defined contribution pension plans are charged to the income statement in the year to which they relate. Under such plans, Dexia Crédit Local’s obligation is limited to the contributions that it agrees to pay into the fund on behalf of employees.
Provisions for risks and charges
The Dexia Crédit Local group currently has two divisions: Core Division, composed of the following business lines:
Renseignements de caractère général
Qualified internal and external actuaries carry out valuations of these obligations. All valuations, assumptions and results are reviewed and validated on behalf of Dexia Crédit Local by an external actuary who ensures that all calculations are harmonised and comply with IAS 19.
4
Operating segment 1 – Public and Wholesale Banking (PWB); Operating segment 2 – Retail and Commercial Banking (RCB); Operating segment 3 – Group centre. Legacy Portfolio Management Division, which covers the portfolios in run-off (non-core PWB loans, Bonds and Financial products portfolios in run-off):
Annual report 2011 / Dexia Crédit Local
121
4
Consolidated financial statements
Notes to the consolidated financial statements
Geographical information
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
• The Legacy Portfolio Management Division remains on the balance sheet in a separate unit described as non-core, with specifically allocated funding. The State-guaranteed funding is allocated to this division, meaning that the core division is not impacted by the cost of the State-guaranteed funding.
122
Although Dexia Crédit Local’s business is managed on a worldwide basis, countries with income in excess of 10% (in absolute terms) are shown separately for segment reporting purposes. Geographical information is based on booking centres, being the country of the company having recorded the transaction and not the country of the customers.
• Interest on equity allocated by the Group centre to the business lines is calculated based on the concept of allocated equity, i.e.: – for the Core Division segments, allocated equity is equal to the economic equity; – for the Legacy Division segments, allocated equity is equal to the normative equity, i.e.12.5% of the weighted risks.
Dexia Crédit Local operates in four main geographical areas: • eurozone (countries using the euro as currency);
Return on allocated equity measures the performance of each core business line.
• rest of Europe (European countries which do not belong to the eurozone);
Relations between business lines are subject to management accounting transfers that are governed by service level agreements based on normal commercial terms and market conditions. The results of each business line also include:
• United States;
• the loan margin;
For the purposes of the cash flow statement, cash and cash equivalents comprise balances with terms to maturity of less than three months included in cash and balances with central banks, interbank loans and advances and financial assets available for sale.
• rest of the world.
Cash and cash equivalents
• interest on economic capital: economic capital is allocated to the business lines for internal management purposes and the return on economic capital is used to measure the performance of each business line.
2. Notes on the assets 2.0. Cash, central banks and postal checking accounts (item I – assets) (EUR millions) Cash Mandatory reserve deposits with central banks Other central bank deposits and balances with postal checking accounts TOTAL of which, included in cash and cash equivalents
2010
2011
36 354
1 1,007
34
2,048
424 424
3,056 3,056
2.1. Financial assets at fair value through profit or loss (item II – assets) This line includes both the portfolio held for trading and all financial assets at fair value through profit or loss (see point regarding “Financial assets at fair value through profit or loss“ in note 1.3 “Accounting policies and valuation methods“). (EUR millions) Loans and securities Derivatives (see note 4.1.b) TOTAL
2010
2011
3,003 13,683 16,686
2,377 19,177 21,554
a. Analysis by counterparty 2010
2011
(EUR millions)
Held for trading
Designated at fair value
Total
Held for trading
Designated at fair value
Total
Public sector Banks
53 164
108 19
161 183
0 21
6 0
6 21
Other sectors TOTAL of which, included in finance leases
Dexia Crédit Local / Annual report 2011
2,616
43
2,659
2,318
32
2,350
2,833 0
170 0
3,003 0
2,339 0
38 0
2,377 0
Consolidated financial statements
Notes to the consolidated financial statements
4
b. Analysis by nature
Total
Held for trading
Designated at fair value
Total
0
37
37
0
17
17
53
32
85
0
0
0
2,780
101
2,881
2,339
21
2,360
0 2,833
0 170
0 3,003
0 2,339
0 38
0 2,377
Loans Bonds issued by public bodies Other bonds and fixed-income instruments Equities and other variable-income instruments TOTAL
c. Treasury bills and other bills eligible for refinancing with central banks (EUR millions) TOTAL
2010
2011
0
0
2010
2011
2 5
0 0
d. Securities pledged under repurchase agreements (repos) (EUR millions) Included in bonds issued by public bodies Included in other bonds and fixed-income instruments
e. Analysis by maturity and interest rate
arises from measuring financial assets or recognising the gains and losses on them on a different basis.
See notes 7.7 and 7.4
The Dexia Crédit Local Group uses the fair value option mainly to eliminate, or significantly reduce, the inconsistency in the measurement or recognition (also called the accounting mismatch) that otherwise
g. Reclassification of financial assets (IA S39 amended) See note 2.14
Assemblée générale
See note 7.1
The methodology used to determine the fair value of financial assets at fair value through profit or loss is presented in note 1.3 “Accounting policies and valuation methods”, in the paragraph “Fair value of financial instruments”.
Renseignements de caractère général
f. Analysis of the fair value
Présentation générale
Designated at fair value
Rapport de gestion
Held for trading
Gouvernance et contrôle interne
(EUR millions)
2011
Consolidated Comptes annuels financial statements
2010
Annual report 2011 / Dexia Crédit Local
123
4
Consolidated financial statements
Notes to the consolidated financial statements
2.2. Financial assets available for sale (item IV – assets) a. Analysis by counterparty (EUR millions)
2010
2011
Public sector
19,469 14,248
13,904 9,673
Banks
Présentation générale
Other sectors Performing assets
5,041 28,618
Impaired loans
0
0
Impaired bonds issued by public bodies(1)
0
3,273
Other impaired bonds and fixed-income instruments
240
236
Impaired equities and other variable-income instruments
182
177
Impaired assets
422
3,686
Total assets before impairment
Rapport de gestion
5,182 38,899
39,321
32,304
Specific impairment(1)
(238)
(2,744)
Collective impairment
0
0
39,083 1,449
29,560 356
TOTAL of which, included in cash and cash equivalents (1) At 31 December 2011, this relates to bonds issued by Greece for which a specific impairment of EUR 2,564 million was booked.
(EUR millions)
2010
2011
Loans Bonds issued by public bodies
0 16,201
0 13,601
Other bonds and fixed-income instruments
22,494
18,178
626 39,321
525 32,304
Equities and other variable-income instruments TOTAL
c. Transfers between portfolios None.
See note 7.1
g. Analysis of quality
None.
See note 2.13 “Quality of financial assets”
e. Analysis by maturity and interest rate
h. Reclassification of financial assets (IAS 39 amended)
See notes 7.7 and 7.4
See note 2.14
Renseignements de caractère général
124
f. Analysis of fair value
d. Convertible bonds included in the available-for-sale portfolio
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
b. Analysis by nature
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
2.3. Interbank loans and advances (item V – assets)
795
Reverse repurchase agreements (reverse repos)
1,165
0
14,028
8,837
Other interbank loans and advances(1) Debt instruments Performing assets
4,810
2,911
22,634
12,543
Individually impaired loans and advances
0
0
Impaired assets
0
0
22,634
12,543
Total assets before impairment Specific impairment
0
0
(9)
(9)
TOTAL
22,625
12,534
of which, included in cash and cash equivalents
11,249
5,124
0
0
Collective impairment
of which, included in finance leases (1) Interbank loans and advances include loans granted to other Dexia Group entities (see note 4.3).
b. Analysis by maturity and interest rate
d. Analysis of quality
See notes 7.7 and 7.4
See note 2.13 “Quality of financial assets”
c. Analysis of fair value:
e. Reclassification of financial assets (IAS 39 amended):
See note 7.1
See note 2.14
2.4. Customer loans and advances (item VI – assets) a. Analysis by counterparty (EUR millions) Public sector Other sectors Performing assets Impaired loans and advances Impaired debt instruments(1) Impaired assets Total assets before impairment Specific impairment(2) Collective impairment(3) TOTAL of which, included in finance leases
2010
2011
160,842 78,277
95,965 58,832
239,119
154,797
624
725
2,764
312
3,388
1,037
242,507
155,834
(1,875)
(352)
(650)
(302)
239,982 1,895
155,180 1,853
Renseignements de caractère général
Assemblée générale
The Financial products business was deconsolidated in 2011 with the following effects: (1) Impaired debt instruments decreased by EUR 2,665 million, (2) Specific impairment decreased by EUR 1,679 million, (3) Collective impairment decreased by EUR 327 million. Specific impairment at 31 December 2011 includes a provision of EUR 112 million on Greek sovereign debt.
Rapport de gestion
2011
2,631
Gouvernance et contrôle interne
2010
Nostro accounts
Consolidated Comptes annuels financial statements
(EUR millions)
Présentation générale
a. Analysis by nature
Annual report 2011 / Dexia Crédit Local
125
4
Consolidated financial statements
Notes to the consolidated financial statements
b. Analysis by nature (EUR millions) Reverse repurchase agreements (reverse repos) Loans and advances Debt instruments Performing assets
Impaired assets Total assets before impairment Specific impairment(2) Collective impairment(3) TOTAL of which, included in financial leases
2011
99 167,629
0 99,579
71,391
55,218
239,119
154,797
624
725
2,764
312
3,388
1,037
242,507
155,834
(1,875)
(352)
(650)
(302)
239,982 1,895
155,180 1,853
c. Analysis by maturity and interest rate
e. Analysis of quality
Gouvernance et contrôle interne
The Financial products business was deconsolidated in 2011 with the following effects: (1) Impaired debt instruments decreased by EUR 2,665 million, (2) Specific impairment decreased by EUR 1,679 million, (3) Collective impairment decreased by EUR 327 million. Specific impairment at 31 December 2011 includes a provision of EUR 112 million on Greek sovereign debt.
See notes 7.7 and 7.4
See note 2.13 “Quality of financial assets”
d. Analysis of fair value
f. Reclassification of financial assets (IAS 39 amended)
See note 7.1
See note 2.14
Consolidated Comptes annuels financial statements
Rapport de gestion
Présentation générale
Impaired loans and advances Impaired debt instruments(1)
2010
2.5. Financial assets held to maturity (item VIII – assets) a. Analysis by counterparty (EUR millions) Public sector Banks Other sectors
2010
2011
732 26
439 26
81
15
839
480
Impaired bonds issued by public bodies(1)
0
234
Other impaired bonds and fixed-income instruments
0
0
Impaired assets
0
234
Performing assets
Total assets before impairment
839
714
Specific impairment(1) TOTAL
0 839
(153) 561
2010
2011
461 378 839
406 308 714
Renseignements de caractère général
Assemblée générale
(1) At 31 December 2011, this related to Greek sovereign bonds for which specific impairment of EUR 153 million was booked.
126
b. Analysis by nature (EUR millions) Bonds issued by public bodies Other bonds and fixed-income instruments TOTAL
c. Analysis by maturity and interest rate
e. Analysis of quality
See notes 7.7 and 7.4
See note 2.13 “Quality of financial assets”
d. Analysis of fair value See note 7.1
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
47 47 715
2010
2011
418 23,898 24,316
2,583 35,598 38,181
2.7. Accruals and other assets (items XI – assets) (EUR millions) Other assets(1) Cash collateral(2) Accruals and other assets
(1) Dexia Crédit Local benefits from support from its parent company, intended to cover the potential losses attached to the Greek debt portfolios held by its funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. As such, a receivable of EUR 1,934 million was recorded as at 31 December 2011. (2) The increase in cash collateral was due to the decline in interest rates in 2011.
Other assets Analysis by nature (EUR millions)
2010
2011
Accrued income Deferred expenses
8 5
8 9
376
2,543
Other accounts receivable(1) Plan assets
0
1
Long-term construction contracts
0
0
Inventories
1
3
Others taxes
6
7
Performing assets
396
2,571
Impaired assets(2)
216
27
Total assets before impairment
612
2,598
(194) 418
(15) 2,583
Specific impairment(2) TOTAL
(1) At 31 December 2011, this item includes a receivable of EUR 1,934 million (see comment above). (2) Impaired assets consist of derivative transactions with banking counterparties (Lehman Brothers, of which a large portion was sold in 2011) and customer counterparties.
2.8. Investments in associates (item XIII – assets)
Renseignements de caractère général
Assemblée générale
None.
Rapport de gestion
2011
93 93 1,541
Gouvernance et contrôle interne
2010
Current income tax Current tax assets Deferred tax assets (see note 4.2)
Consolidated Comptes annuels financial statements
(EUR millions)
Présentation générale
2.6. Tax assets (items IX and X – assets)
Annual report 2011 / Dexia Crédit Local
127
4
Consolidated financial statements
Notes to the consolidated financial statements
2.9. Tangible fixed assets (item XV – assets) a. Movements Tangible fixed assets
• • • • • • •
Post-acquisition adjustments
Total
Own use – finance lease
Own use – owner
Own use – finance lease
Operating lease
434 1
0 0
106 9
0 0
135 81
675 91
0
0
0
0
0
0
(1)
0
(6)
0
(27)
(34)
Change in consolidation scope (in)
0
1
1
0
0
2
Change in consolidation scope (out)
0
0
(1)
0
0
(1)
Disposals and retirements
Transfers
0
0
0
0
0
0
Translation adjustments(1)
1
0
2
0
0
3
0
0
0
0
1
1
Acquisition cost as at 31 December 2010
435
1
111
0
190
737
Accumulated depreciation and impairment as at 1 January 2010
(56)
0
(76)
0
(43)
(175)
0
0
0
0
0
0
(9)
0
(10)
0
(32)
(51)
• • • • • • • •
Other movements
Post-acquisition adjustments Additions Disposals and retirements
0
0
6
0
14
20
Change in consolidation scope (in)
0
(1)
(1)
0
0
(2)
Change in consolidation scope (out)
0
0
1
0
0
1
Transfers
0
0
0
0
0
0
Translation adjustments(1)
0
0
(1)
0
0
(1)
Other movements
0
0
0
0
0
0
Accumulated depreciation and impairment as at 31 December 2010
(65)
(1)
(81)
0
(61)
(208)
NET CARRYING AMOUNT AS AT 31 DECEMBER 2010
370
0
30
0
129
529
(1) Impact of changes in exchange rates between 1 January and 31 December on balances in foreign currencies at 1 January, and impact of the difference between average and year-end exchange rates on movements for the year.
Renseignements de caractère général
128
Office furniture and other equipment
Own use – owner (EUR millions) Acquisition cost as at 1 January 2010 • Acquisitions
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Land and buildings
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
Tangible fixed assets Own use – finance lease
Operating lease
435
1
111
0
190
737
1
0
3
0
65
• • • •
Post-acquisition adjustments
69
0
0
0
0
0
Disposals and retirements
0
(1)
0
(5)
0
(41)
(47)
0
0
0
0
0
0
(34)
0
(28)
0
0
(62)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
7
7
Acquisition cost as at 31 December 2011
401
1
81
0
221
704
Accumulated depreciation and impairment as at 1 January 2011
(65)
(1)
(81)
0
(61)
(208)
0
0
0
0
0
0
(8)
0
(8)
0
(31)
(47)
Disposals and retirements
1
0
4
0
18
23
Change in consolidation scope (in)
0
0
0
0
0
0
13
0
21
0
0
34 0
•
Change in consolidation scope (in) Change in consolidation scope (out) Transfers to non-current assets held for sale
• Other transfers • Translation adjustments(1) • Other movements
• • • • • •
Post-acquisition adjustments Additions
Change in consolidation scope (out) Transfers to non-current assets held for sale
0
0
0
0
0
• Other transfers • Translation adjustments(1)
0
0
0
0
0
0
0
0
0
0
0
0
• Other movements
0
0
0
0
0
0
Accumulated depreciation and impairment as at 31 December 2011
(59)
(1)
(64)
0
(74)
(198)
NET CARRYING AMOUNT AS AT 31 DECEMBER 2011
342
0
17
0
147
506
(1) Impact of changes in exchange rates between 1 January and 31 December on balances in foreign currencies at 1 January, and impact of the difference between average and year-end exchange rates on movements for the year.
b. Fair value of investment property None.
c. Capitalised expenses on the construction of tangible fixed assets
d. Contractual obligations relating to investment property at the end of the period None.
Renseignements de caractère général
Assemblée générale
None.
Présentation générale
Own use – owner
Rapport de gestion
Own use – finance lease
Gouvernance et contrôle interne
Own use – owner (EUR millions) Acquisition cost as at 1 January 2011 • Acquisitions
Total
Office furniture and other equipment
Consolidated Comptes annuels financial statements
Land and buildings
Annual report 2011 / Dexia Crédit Local
129
4
Consolidated financial statements
Notes to the consolidated financial statements
2.10. Intangible assets (item XVI – assets) 2010
• • • • •
Total
Internally developed software
Other intangible assets(2
Total
197 12
144 11
341 23
211 12
154 7
365 19
0
0
0
0
0
0
0
(1)
(1)
(68)
(13)
(81)
Change in consolidation scope (in)
0
0
0
0
0
0
Change in consolidation scope (out)
0
0
0
0
(27)
(27)
Transfers to non-current assets held for sale
0
0
0
0
0
0
0
(1)
(1)
0
0
0
2
1
3
0
0
0
0
0
0
0
0
0
211
154
365
155
121
276
(159)
(116)
(275)
(176)
(129)
(305)
0
0
0
0
0
0
(16)
(14)
(30)
(17)
(9)
(26) 80
Acquisition cost as at 31 December Accumulated amortisation and impairment as at 1 january Post-acquisition adjustments Additions Disposals and retirements
0
1
1
68
12
Change in consolidation scope (in)
0
0
0
0
0
0
Change in consolidation scope (out)
0
0
0
0
21
21
Transfers to non-current assets held for sale
0
0
0
0
0
0
• Other transfers • Translation adjustments(1) • Other movements Accumulated amortisation and impairment as at 31 December NET CARRYING AMOUNT AS AT 31 DECEMBER
0
1
1
0
0
0
(1)
(1)
(2)
0
0
0
0
0
0
0
0
0
(176)
(129)
(305)
(125)
(105)
(230)
35
25
60
30
16
46
(1) Impact of changes in exchange rates between 1 January and 31 December on balances in foreign currencies at 1 January, and impact of the difference between average and year-end exchange rates on movements for the year. (2) Other intangible assets mainly comprise purchased software.
Renseignements de caractère général
130
Other intangible assets(2)
Disposals and retirements
• Other transfers • Translation adjustments(1) • Other movements
• • • • • •
Internally developed software
Post-acquisition adjustments
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
(EUR millions) Acquisition cost as at 1 January • Acquisitions
2011
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
2.11. Goodwill (item XVII – assets)
0
0
0
0
Change in consolidation scope (in)
0
0
Change in consolidation scope (out)(2)
0
(81)
Transfers
0
0
Translation adjustments(1)
0
0
Other movements
(2)
0
350
269
(152)
(150)
Post-acquisition adjustments
0
0
Additions(3)
0
(141)
Disposals and retirements
0
0
Change in consolidation scope (in)
0
0
Change in consolidation scope (out)(2)
0
81
Transfers
0
0
Translation adjustments(1)
0
0
Other movements
Accumulated amortisation and impairment as at 31 December NET CARRYING AMOUNT AS AT 31 DECEMBER
2
0
(150) 200
(210) 59
(1) Impact of changes in exchange rates between 1 January and 31 December on balances in foreign currencies at 1 January, and impact of the difference between average and year-end exchange rates on movements for the year. (2) Relates to the deconsolidation in 2011 of Dexia banka Slovensko and Dexia Holdings Inc., which bore fully impaired goodwill of EUR 4 million and EUR 77 million respectively. (3) The goodwill on Dexia Crediop and Dexia Israel Bank Ltd. were fully impaired for EUR 129 million and EUR 12 million respectively in 2011.
b. Analysis of net goodwill by company (EUR millions) Dexia Sofaxis
Year of acquisition
Goodwill
1999
59
2010
2011
137 447
441
This goodwill was tested for impairment at 31 December 2011: no adjustment was required.
2.12. Leases a. Group as lessor Finance leases Gross investment in finance leases (EUR millions) Less than 1 year 1 year to 5 years
138
1,308
1,265
Sub-total (1)
1,892
1,844
Unearned future finance income on finance leases (2) NET INVESTMENT IN FINANCE LEASES (1)-(2)
0 1,892
0 1,844
Renseignements de caractère général
Over 5 years
Rapport de gestion
Post-acquisition adjustments
Gouvernance et contrôle interne
350 0
Disposals
Acquisition cost as at 31 December Accumulated depreciation and impairment as at 1 January
• • • • • • • •
2011
352 0
Consolidated Comptes annuels financial statements
• • • • • • •
2010
Assemblée générale
(EUR millions) Acquisition cost as at 1 January • Acquisitions
Présentation générale
a. Movements
Annual report 2011 / Dexia Crédit Local
131
4
Consolidated financial statements
Notes to the consolidated financial statements
Additional information (EUR millions)
Rapport de gestion
Présentation générale
Contingent lease payments recognised in the income statement during the period
Gouvernance et contrôle interne Consolidated Comptes annuels financial statements
0
0
1
1
Residual values not guaranteed by lessees
0
0
1,910 0
1,846 0
2010
2011
Less than 1 year 1 year to 5 years
34 55
38 53
Over 5 years TOTAL
3 92
2 93
2010
2011
1
2
2010
2011
15 47
11 50
47 109
45 106
2010
2011
2
1
2010
2011
Minimum lease payments Contingent lease payments
19 0
12 0
Sublease payments TOTAL
(2) 17
0 12
Estimated fair value of finance leases Accumulated impairment for uncollectible minimum lease payments receivable
Operating leases Future net minimum lease receivables under operating leases (EUR millions)
b. Group as lessor Finance leases None.
Operating leases Future net minimum lease payments under non-cancellable operating leases (EUR millions) Less than 1 year 1 year to 5 years Over 5 years TOTAL
Future minimum sublease payments expected to be received undernon-cancellable subleases at the balance-sheet date
Lease and sublease payments recognised as expenses during the year (EUR millions)
Renseignements de caractère général
Assemblée générale
2011
Uncollectible finance lease receivables included in the provision for loan losses at the end of the period
Amount of contingent rents recognised in the income statement during the period
132
2010
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
2.13. Quality of financial assets 2010
480 28,618
38,455
28,270
of which, fixed-income instruments of which, variable-income instruments
444
348
376
2,543
Total performing financial assets
301,867
198,981
Collective impairment NET TOTAL PERFORMING FINANCIAL ASSETS
(659) 301,208
(311) 198,670
Other accounts receivable and other assets (note 2.7)
Gross amount (EUR millions) Analysis of non-performing financial assets Interbank loans and advances Customer loans and advances
2010
Specific impairment 2011
2010
Net amount 2011
2010
2011
0
0
0
0
0
0
3,388
1,037
(1,875)
(352)
1,513
685
Financial assets held to maturity
0
234
0
(153)
0
81
Financial assets available for sale
422
3,686
(238)
(2,744)
184
942
of which, fixed-income instruments
240
3,509
(182)
(2,662)
58
847
of which, variable-income instruments
182
177
(56)
(82)
126
95
Other accounts receivable and other assets (note 2.7)
216
27
(194)
(15)
22
12
4,026
4,984
(2,307)
(3,264)
1,719
1,720
Total non-performing financial assets Analysis of total financial assets Interbank loans and advances
22,634
12,543
0
0
22,634
12,543
Customer loans and advances
242,507
155,834
(1,875)
(352)
240,632
155,482
Financial assets held to maturity
839
714
0
(153)
839
561
Financial assets available for sale
39,321
32,304
(238)
(2,744)
39,083
29,560
of which, fixed-income instruments
38,695
31,779
(182)
(2,662)
38,513
29,117
of which, variable-income instruments
626
525
(56)
(82)
570
443
Other accounts receivable and other assets (note 2.7)
592
2,570
(194)
(15)
398
2,555
305,893
203,965
(2,307)
(3,264)
303,586
200,701
(3,264)
(659) 302,927
(311) 200,390
Total financial assets Collective impairment TOTAL NET FINANCIAL ASSETS
305,893
2.14. Reclassification of financial assets (IAS 39 amended) The Dexia Credit Local Group decided to apply the amendment of IAS 39 and IFRS 7 Reclassification of Financial Assets for some assets, and opted to reclassify certain assets from “Financial assets held for trading” to “Financial assets available for sale” or “Loans and advances”, as well as from “Financial assets available for sale” to “Loans and advances”.
203,965
(2,307)
a. Impact of reclassifications on 2011 equity and net income Transfer from “Financial assets held for trading” to “Loans and advances” and “Financial assets available for sale”
The difference between the carrying amount at reclassification date and the reimbursement amount is amortised over the remaining life of the reclassified asset. The impact of this amortisation on net income for the period is shown in the column “Premium/discount amortisation through profit or loss”. The difference between the carrying amount of reclassified assets as at 31 December 2011 and their fair value represents the cumulative changes in fair value from reclassification date until 31 December 2011. It also includes the cumulative amortisation of the premium or discount since reclassification. The difference is negative in 2011 as spreads have increased.
Annual report 2011 / Dexia Crédit Local
Présentation générale
839 38,899
Rapport de gestion
Financial assets held to maturity Financial assets available for sale
Gouvernance et contrôle interne
12,543 154,797
Consolidated Comptes annuels financial statements
22,634 239,119
Assemblée générale
Customer loans and advances
2011
Renseignements de caractère général
(EUR millions) Analysis of performing financial assets Interbank loans and advances
133
4
Consolidated financial statements
Notes to the consolidated financial statements
Transfer from “Financial assets available for sale” to “Loans and advances”
loss. This category mainly includes non-economic losses that will be reversed in the future through net interest income.
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
The nature of Dexia Credit Local Group’s available-for-sale portfolio is very specific as it consists of securities with very long maturities, resulting in significant changes in value following small shifts in spreads.
134
If the assets had not been transferred, the additional expense recognised in “Cost of risk” (difference compared with the net allocations and utilisations of collective and specific impairments booked on the “Loans and advances” portfolio) is estimated at EUR 27 million in 2011. When there is objective evidence of impairment for a financial asset initially classified in “Financial assets available for sale” but reclassified in “Loans and advances” in accordance with the amended IAS 39, any difference between the net present value of expected future cash flows, discounted at the effective interest rate as at the reclassification date, and the carrying amount is recognised as an impairment loss. Consequently, any outstanding unamortised amount recognised in the available-for-sale reserve is also recognised as an impairment
The decrease in the carrying amount of reclassified assets comes mainly from partial or early repayments, maturities and sales made in connection with the policy of reducing the Group’s balance sheet. In comparison with 2008, the decrease in the difference between the carrying amount of reclassified assets and their fair value reflects the decrease in credit and liquidity spreads on the markets.
b. Impact of reclassifications on the interest margin
For assets transferred from “Financial assets available for sale” to “Loans and advances”, the amortisation of the premium/discount on the asset is offset by the amortisation of the fair value reserve frozen at the time of reclassification, with no resulting impact on net interest income. For assets transferred from “Financial assets held for trading” to “Financial assets available for sale” and “Loans and advances”, the impact on net interest income in 2011 amounts to EUR 36 million.
2011 Carrying amount of assets reclassified as at 1 October 2008
Carrying amount of reclassified assets as at 31 December 2011
Fair value of reclassified assets as at 31 December 2011
Amount not taken through profit or loss due to reclassification
From “Financial assets held for trading” to “Loans and advances”
3,565
2,268
1,929
(339)
32
From “Financial assets held for trading” to “Financial assets available for sale”
2,264
5
4
(1)
4
From “Financial assets available for sale” to “Loans and advances”
49,863
46,740
45,733
Ongoing activities (EUR millions)
Amount not taken through AFS reserve due to reclassification
Premium/ discount amortisation through profit or loss
(1,007)
Premium/ discount amortisation through AFS reserve
323
3. Notes on the liabilities 3.0. Central banks, postal checking accounts (item I – liabilities) (EUR millions) Central banks(1) Postal checking accounts TOTAL
2010
2011
18,517 0 18,517
27,315 0 27,315
(1) In 2011, given the scarcity of interbank liquidity, the Dexia Crédit Local Group used the funding facilities offered by central banks.
3.1. Financial liabilities at fair value through profit or loss (item II – liabilities) (EUR millions)
2010
2011
Liabilities held for trading Liabilities designated at fair value
0 4,356
0 1,764
14,900 19,256
23,016 24,780
Derivatives (see note 4.1.b) TOTAL
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
a. Analysis by nature of liabilities held for trading None.
See notes 7.7 and 7.4
d. Analysis of fair value
The fair value option is essentially used by FSA Global Funding Ltd. for financial liabilities for which the hedge accounting conditions are not met or may not be met. The credit spread used to revalue these liabilities is Dexia’s long-term funding spread.
See notes 7.1 and 7.2.h The Dexia Crédit Local Group uses the fair value option mainly to eliminate or significantly reduce the measurement or recognition inconsistency (also called the accounting mismatch) that otherwise arises from measuring financial liabilities or recognising the gains and losses on them on a different basis.
Income of EUR 51 million was recognised in 2011 on charges in value linked to the credit spread. The methodology used to determine the fair value of financial liabilities at fair value through profit or loss is presented in note 1.3 “Accounting policies and valuation methods”, in the section “Fair value of financial instruments”.
3.2. Interbank borrowings and deposits (item IV – liabilities) a. Analysis by nature (EUR millions)
2010
2011
2,536 23,114
594 17,101
52,420 78,070
55,730 73,425
(EUR millions)
2010
2011
Demand deposits Savings deposits
2,051 69
1,010 1
Term deposits
8,473
3,661
Demand deposits Repurchase agreements Other debts TOTAL
b. Analysis by maturity and interest rate
c. Analysis of fair value
See notes 7.7 and 7.4
See note 7.1
3.3. Customer borrowings and deposits (item V – liabilities) a. Analysis by nature
Repurchase agreements Other debts TOTAL
b. Analysis by maturity and interest rate
c. Analysis of fair value
See notes 7.7 and 7.4
See note 7.1
28
8
2,836 13,457
2,492 7,172
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
c. Analysis by maturity and interest rate
Gouvernance et contrôle interne
1,764 0 1,764
Consolidated Comptes annuels financial statements
2011
4,356 0 4,356
Assemblée générale
2010
Renseignements de caractère général
(EUR millions) Non-subordinated liabilities Subordinated liabilities Total
Présentation générale
b. Analysis by nature of liabilities designated at fair value
135
4
Consolidated financial statements
Notes to the consolidated financial statements
3.4. Debt securities (item VI – liabilities) a. Analysis by nature (EUR millions) Certificates of deposit Savings bonds
Rapport de gestion
Présentation générale
Non-convertible bonds(1) Convertibles debts Other dilutive instruments TOTAL
b. Analysis by maturity and interest rate
c. Analysis of fair value
See notes 7.7 and 7.4
See note 7.1
Gouvernance et contrôle interne Consolidated Comptes annuels financial statements
176,267
81,468
0
0
0 190,068
0 104,892
3.5. Tax liabilities (items VIII and IX – liabilities) 2010
2011
52 52 9
9 9 26
(EUR millions)
2010
2011
Other liabilities Cash collateral TOTAL
1,048 2,611 3,659
600 2,480 3,080
2010
2011
114 366
76 64
94
92
Current income tax Current tax liabilities Deferred tax liabilities (see note 4.2)
3.6. Accruals and other liabilities (items X – liabilities)
Other liabilities (EUR millions) Accrued expenses Deferred income Grants Other assistance received Salaries and social charges (payable) Dividends payable to shareholders Other taxes Long-term construction contracts Other accounts payable and other liabilities TOTAL
Renseignements de caractère général
Assemblée générale
2011 23,424 0
(1) The bond portfolio issued by Dexia Municipal Agency, i.e. EUR 68 billion at the end of 2011, is included in the line “Liabilities included in disposal groups held for sale”.
(EUR millions)
136
2010 13,801 0
Dexia Crédit Local / Annual report 2011
1
2
24
16
0
0
24
23
0
0
425 1,048
327 600
Consolidated financial statements
Notes to the consolidated financial statements
4
3.7. Provisions (item XIII – liabilities)
12
12
Other post-retirement obligations
0
0
Other long-term employee benefits
3
3
Provision for off-balance sheet credit commitments
2
5
Onerous contracts Other provisions TOTAL PROVISIONS
0
3
2 137
5 62
b. Movements Litigation claims
Restructuring
Pensions and other employee benefits
Provision for off-balance sheet credit commitments
Onerous contracts
Other provisions
Total
As at 1 January 2010 Additions
178 7
34 22
15 5
2 0
0 0
34 1
263 35
Unused amounts reversed and amounts utilised during the year
(33)
(22)
(5)
0
0
(35)
(95)
Passage of time and effect of changes in discount rate
0
0
0
0
0
0
0
Change in consolidation scope (in)
0
0
0
0
0
0
0
Change in consolidation scope (out)
0
0
0
0
0
(1)
(1)
(EUR millions)
Transfers
(80)
0
0
0
0
0
(80)
Translation adjustments(1)
12
0
0
0
0
3
15
Other movements As at 31 December 2010
0 84
0 34
0 15
0 2
0 0
0 2
0 137
Litigation claims
Restructuring
Pensions and other employee benefits
Provision for off-balance sheet credit commitments
Onerous contracts
Other provisions
Total
84 25
34 0
15 4
2 4
0 0
2 4
137 37
(20)
(29)
(6)
(1)
0
(1)
(57)
Passage of time and effect of changes in discount rate
0
0
0
0
0
0
0
Change in consolidation scope (in)
0
0
0
0
0
0
0
Change in consolidation scope (out)
(57)
0
0
0
0
0
(57)
Transfers to non-current assets held for sale
0
0
0
0
0
0
0
Other transfers
0
0
2
0
3
0
5
Translation adjustments(1)
(3)
0
0
0
0
0
(3)
Other movements As at 31 December 2011
0 29
0 5
0 15
0 5
0 3
0 5
0 62
(EUR millions) As at 1 January 2011 Additions Unused amounts reversed and amounts utilised during the year
(1) Impact of changes in exchange rates between 1st January and 31 December on balances in foreign currencies at 1 January, and impact of the difference between average and year-end exchange rates on movements for the year.
c. Provisions for defined benefit pension plans and long-service awards Provisions for defined benefit pension plans and long-service awards represent a liability of EUR 15 million in 2010 and 2011.
Given their immateriality, the information used in the actuarial calculation of these provisions is not presented. Notes to the consolidated financial statements
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
Defined benefit plans
Gouvernance et contrôle interne
29 5
Consolidated Comptes annuels financial statements
2011
84 34
Assemblée générale
(EUR millions)
Renseignements de caractère général
2010
Litigation claims Restructuring
Présentation générale
a. Analysis by nature
137
4
Consolidated financial statements
Notes to the consolidated financial statements
3.8. Subordinated debt (item XIV – liabilities) a. Analysis by nature
Présentation générale
Convertible subordinated debt None. Non-convertible subordinated debt (EUR millions)
2010
2011
Perpetual subordinated notes Other subordinated notes TOTAL
1,278 3,041 4,319
0 1,762 1,762
Rapport de gestion
Following the Dexia Crédit Local capital increase, several subordinated loans were reimbursed at the end of 2011 (about EUR 2.5 billion).
b. Analysis by maturity and interest rate See notes 7.7 and 7.4
c. Analysis of fair value
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
See note 7.1
d. Detailed information Currency
Due
Amount in millions
EUR
01/12/2014
100.0
a) Early repayment conditions b) Subordination conditions c) Convertibility conditions a) No early repayment
Interest rate (%)
93.25% CMS
b) No specific conditions c) No conversion EUR
12/02/2019
300.0
a) Repayment possible at each due date for interest payments beginning 12/02/2014 with the prior approval of the general secretariat of the Banking Commission*
4.375 From 12/02/2014 3M Euribor + 72bp
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares c) No conversion EUR
09/07/2017
500.0
a) Repayment possible at each due date for interest payments beginning 09/07/2012 with the prior approval of the general secretariat of the Banking Commission
3M Euribor + 0.15 From 09/07/2012, 3M Euribor + 0.65
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares c) No conversion EUR
28/12/2017
300.0
a) Repayment possible at each due date for interest payments beginning 28/12/2012 with the prior approval of the general secretariat of the Banking Commission b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares
3M Euribor + 1.45 until 28/12/2012, then 3M Euribor + 1.95
Assemblée générale
c) No conversion EUR
20/06/2018
300.0
a) Repayment possible at each due date for interest payments beginning 20/06/2013 with the prior approval of the general secretariat of the Banking Commission
3M Euribor + 1.5 From 20/06/2013, 1Y Euribor + 2
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares
Renseignements de caractère général
c) No conversion
138
EUR
20/11/2012
3.0
a) No early repayment b) No specific conditions c) No conversion
* Renamed in March 2010 as the Prudential Control Authority (ACP).
Dexia Crédit Local / Annual report 2011
6.450
Consolidated financial statements
Notes to the consolidated financial statements
Currency
Due
Amount in millions
EUR
30/06/2013
1.0
a) Early repayment conditions b) Subordination conditions c) Convertibility conditions
4
Interest rate (%)
a) No early repayment
6.600
b) No specific conditions c) No conversion 01/06/2012
3.5
6.970
a) No early repayment b) No specific conditions c) No conversion
EUR
01/07/2013
5.0
6M Euribor + 2.10
a) No early repayment b) No specific conditions
Présentation générale
EUR
c) No conversion 07/11/2012
5.0
6.210
a) No early repayment b) No specific conditions c) No conversion
EUR
12/11/2012
5.0
6.080
a) No early repayment b) No specific conditions
Rapport de gestion
EUR
10.0
5.280
a) No early repayment b) No specific conditions c) No conversion
EUR
30/06/2014
10.0
6.250
a) No early repayment b) No specific conditions c) No conversion
EUR
30/06/2014
10.0
6.450
a) No early repayment b) No specific conditions c) No conversion
EUR
2/06/2014
20.0
6.250
a) No early repayment b) No specific conditions c) No conversion
EUR
01/06/2017
14.0
5.080
a) No early repayment b) No specific conditions c) No conversion
EUR
01/06/2017
22.0
4.875
a) No early repayment b) No specific conditions c) No conversion
EUR
01/06/2018
20.0
Consolidated Comptes annuels financial statements
7/03/2013
Gouvernance et contrôle interne
c) No conversion EUR
5.570
a) No early repayment c) No conversion
EUR
01/06/2018
21.8
5.625
a) No early repayment b) No specific conditions
Assemblée générale
b) No specific conditions
29/10/2018
19.7
a) Repayment possible at the Issuer’s option on 29/10/2013 or annually thereafter, if repayment is compliant with the Austrian Banking Act and is replaced by other capital in the same amount and of at least equivalent quality
3M Euribor + 4.75
b) In the event of the liquidation or bankruptcy of the Issuer, after the non-subordinated creditors have been satisfied c) No conversion PLN
03/10/2018
45.0
1M Wibor + 2.65
a) No early repayment b) In the event of the liquidation or bankruptcy of the Issuer, after the nonsubordinated claims of creditors have been satisfied.
Renseignements de caractère général
c) No conversion EUR
c) No conversion
Annual report 2011 / Dexia Crédit Local
139
4
Consolidated financial statements
Notes to the consolidated financial statements
Currency
Due
Amount in millions
ILS
01/01/2019
131.4
a) Early repayment conditions b) Subordination conditions c) Convertibility conditions
Interest rate (%)
a) No possibility for Dexia Israel to repay the bonds early (except following prior and written agreement of the local regulator, Bank of Israel). In case of default, there is an acceleration clause for the investors but subject to the subordination clause
4.85% linked to CPI
Présentation générale
b) The subordinated securities shall not be considered as deposits and the rights attached to them are subordinated to the claims of all other creditors except for the rights of creditors with similar subordinated securities. The subordinated securities shall not be pledged as collateral for a loan granted by Dexia Israel Bank Ltd. or any of its subsidiaries and they may not be guaranteed by collateral. No early redemption and no changes in the terms can be implemented unless prior and written agreement was received from the local regulator, Bank of Israel
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
c) No conversion
140
3.9. Equity a. Capital stock On 1st January 2011, Dexia Crédit Local had capital stock of EUR 500,513,102 divided into 87,045,757 shares. Following a decision made by the Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital by means of a cash contribution of EUR 4.2 billion, bringing the total capital stock to EUR 4.7 billion. Dexia SA carried out this capital stock increase by converting several existing subordinated loans, totalling around EUR 2.5 billion, and by means of a cash contribution of EUR 1.7 billion. In the light of the estimated losses for the year, the Shareholders’ Meeting decided to reduce the capital stock by EUR 4.2 billion. Dexia Crédit Local’s capital stock thus remains unchanged at EUR 500,513,102, divided into 87,045,757 shares with a par value of EUR 5.75 per share.
b. Super-subordinated perpetual note In the last quarter of 2005, Dexia Crédit Local issued EUR 700 million in super-subordinated perpetual notes. The notes carry an early redemption call option at par value that may be exercised by the issuer at each interest payment date with effect from 18 November 2015. The notes bear interest at a fixed rate of 4.3% per annum for the first 10 years. Subsequently, if they are not redeemed early, they will bear interest at a floating rate equal to 3-month Euribor plus 1.73% per annum, payable quarterly. The payment of interest may, and in certain cases must, be suspended. Any unpaid interest at the coupon date will be forfeited and will no longer be payable by the issuer. The principal may also be reduced through the incorporation of losses.
Dexia Crédit Local / Annual report 2011
The notes are included in both accounting and regulatory capital calculations. Interest payments are treated as dividends and deducted directly from equity. In 2008, the amount paid came to EUR 20 million, net of tax. In October 2009, as part of the discussions between Dexia and the European Commission, Dexia committed to not paying any discretionary coupons on Tier 1 and Upper Tier 2 issues during a four-month period. This commitment was also applicable to the 18 November 2009 interest payment on Dexia Crédit Local’s EUR 700 million perpetual super-subordinated notes. Accordingly, on 3 November 2009, Dexia Crédit Local’s Management Board decided that the 18 November 2009 coupon on these securities would not be paid. In February 2010, Dexia confirmed that it will pay coupons on its subordinated debt instruments only if it has a contractual obligation to do so, and will not exercise any early redemption option before the end of 2011. This commitment includes, among others, the aforementioned perpetual super-subordinated notes. On 1st October 2010, Dexia Credit Local’s Management Board decided not to pay the coupon due on 18 November 2010. On 25 October 2011, Dexia Credit Local’s Management Board decided not to pay the coupon due on 18 November 2011.
c. Other movements In 2011, other movements include notably a EUR 13 million adjustment between Group share and minority interests, which also take into account a positive EUR 129 million deconsolidation impact (positive EUR 140 million for Dexia FP Holdings Inc. and negative EUR 11 million for Dexia banka Slovensko).
Consolidated financial statements
Notes to the consolidated financial statements
4
4. Other notes on the balance sheet 4.1. Derivatives
Assets 19,177
Liabilities 23,016
Derivatives designated as fair value hedges
7,680
25,716
5,467
25,941
Derivatives designated as cash flow hedges
252
882
267
1,040
0
0
0
0
4,385
4,450
2,145
5,133
12,317 26,000
31,048 45,948
7,879 27,056
32,114 55,130
Derivatives at fair value through profit or loss (see notes 2.1 and 3.1)
Derivatives designated as hedges of a net investment in a foreign entity Derivatives designated as portfolio hedges Hedging derivatives TOTAL DERIVATIVES
b. Detail of derivatives held at fair value through profit or loss 2010 Notional amount (EUR millions) Foreign exchange derivatives Foreign exchange forward Cross currency swap Foreign exchange option Foreign exchange forward rate agreement
2011 Assets
To receive
To deliver
21,846 2,880
22,175 2,894
1,211 1
6,785
7,104
960
963
1,426
1,441
Liabilities
Notional amount
Assets
Liabilities
27,320 2,190
1,319 1
1,064 39
6,252
6,140
1,294
726
454
444
6
2
0
0
0
0
To receive
To deliver
993 17
26,941 2,194
1,208
968
0
8
0
0
Other foreign exchange
9,795
9,773
2
0
18,041
18,546
18
297
Interest rate derivatives
241,047
241,089
11,830
13,759
202,153
201,295
16,981
21,739
Option-cap-floor-collar-swaption Interest rate swap
2,179
1,417
78
46
2,130
1,019
208
49
235,577
235,962
11,710
13,712
200,023
200,229
16,773
21,690
Forward rate agreement
2,052
2,389
0
0
0
0
0
0
Interest future
1,239
1,239
13
0
0
0
0
0
Other interest rate
0
82
29
1
0
47
0
0
Equity derivatives
246
246
10
10
157
157
2
2
Equity option
31
31
2
2
14
14
0
0
Other equity
215
215
8
8
143
143
2
2
7,223
3,416
632
137
6,336
1,793
875
211
Credit default swap
7,223
3,416
632
137
6,336
1,793
875
211
9 270,371
8 266,934
0 13,683
1 14,900
4 235,591
4 230,569
0 19,177
0 23,016
Renseignements de caractère général
Commodity derivatives TOTAL
Assemblée générale
Credit derivatives
Rapport de gestion
2011
Liabilities 14,900
Gouvernance et contrôle interne
2010 Assets 13,683
Consolidated Comptes annuels financial statements
(EUR millions)
Présentation générale
a. Analysis by nature
Annual report 2011 / Dexia Crédit Local
141
4
Consolidated financial statements
Notes to the consolidated financial statements
c. Detail of derivatives designated as fair value hedges 2010 Notional amount (EUR millions)
Présentation générale Rapport de gestion
489 489
5,199 5,199
132,977
132,940
4,858
20,717
291
189
0
8
20,302
132,686
132,751
4,858
20,709
366
86
2,750
2,637
120
25
51
0
91
0
54
0
315
86
2,659
2,637
66
25
28,629 28,629
2,013 2,013
185,660
185,352
334
219
Interest rate swap
185,326
Equity derivatives
Option-cap-floor-collar-swaption
Equity option Other equity
To receive
To deliver
5,321 5,321
11,120 11,120
5,301
20,309
0
7
185,133
5,301
6,313
6,152
91
0
6,222
6,152
Credit derivatives Commodity derivatives TOTAL
0
0
0
0
0
0
0
0
20 219,043
20 220,153
0 7,680
0 25,716
0 146,847
0 148,809
0 5,467
0 25,941
Assets
Liabilities
Assets
Liabilities
14 0
204 0
d. Detail of derivatives designated as cash flow hedges 2010 Notional amount (EUR millions)
Gouvernance et contrôle interne
13,232 13,232
27,050 27,050
Interest rate derivatives
Foreign exchange derivatives Foreign exchange forward Cross currency swap
To receive
To deliver
991 143
1,111 144
2011
28 0
257 0
Notional amount To receive
To deliver
1,773 0
1,800 0
848
967
28
257
1,773
1,800
14
204
Interest rate derivatives
14,128
14,137
224
625
13,364
13,379
253
836
Interest rate swap TOTAL
14,128 15,119
14,137 15,248
224 252
625 882
13,364 15,137
13,379 15,179
253 267
836 1,040
(EUR millions)
2010
2011
0
0
Amount removed from equity and included in the carrying amount of a non-financial instrument, in the case of a cash flow hedge on a highly probable transaction
e. Detail of derivatives designated as hedges of a net investment in a foreign entity None.
f. Detail of derivatives designated as portfolio hedges 2010 Notional amount (EUR millions) Foreign exchange derivatives Interest rate derivatives TOTAL
To receive
To deliver
0 221,776 221,776
0 221,774 221,774
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Liabilities
To deliver
Liabilities
Notional amount
Assets
To receive
Foreign exchange derivatives Cross currency swap
142
2011 Assets
Dexia Crédit Local / Annual report 2011
2011 Assets 0 4,385 4,385
Liabilities 0 4,450 4,450
Notional amount To receive
To deliver
0 124,675 124,675
0 124,693 124,693
Assets
Liabilities
0 2,145 2,145
0 5,133 5,133
Consolidated financial statements
Notes to the consolidated financial statements
4
4.2. Deferred taxes
Deferred tax assets (see note 2.6) (1)
1,541
715
Deferred tax liabilities (see note 3.5) (1) TOTAL
(9) 1,532
(26) 689
(1) Deferred tax assets and liabilities are netted off when they concern the same tax entity.
relating to the fair value reserve on securities available for sale and cash flow hedging derivatives). The business outlook for the Dexia Crédit Local Group provides justification for the residual deferred tax position (EUR 689 million as at 31 December 2011).
b. Movements (EUR millions) As at 1 January Charge/credit recognised in the income statement: “Income tax” (see note 5.13) Charge/credit recognised in the income statement: “Income from discontinued operations, net of tax” (see note 4.6)
2010
2011
1,963 41
1,532 (133)
(4)
(4)
Effect of change in tax rates – impact on the income statement (see note 5.13) Movements recognised directly in shareholders’ equity
0
0
(495)
(443)
Effect of change in tax rates – impact on shareholders’ equity
0
0
Change in consolidation scope
4
(173)
Transfer to non-current assets held for sale
(112)
Translation adjustments Other movements As at 31 December
96
(14)
(73) 1,532
36 689
c. Deferred taxes arising on balance sheet assets 2010
2011
Total
Of which, change through profit or loss
Total
Of which, change through profit or loss
Loans (and loan loss provisions) Securities
(2,414) 1,297
(1,197) 116
(1,473) (24)
(660) (712)
Derivatives
(4,178)
(1,995)
172
17
0
0
0
(8)
(18)
(1)
(22)
0
25 (5,288)
10 (3,067)
5 (1,342)
(17) (1,380)
Total
Of which, change through profit or loss
Total
Of which, change through profit or loss
6,522 1,219
2,864 351
1,621 1,182
631 587
Provisions
8
2
54
46
Pensions
7
0
7
0
(92)
9
(283)
(215)
(15) 7,649
58 3,284
(66) 2,515
17 1,066
(EUR millions)
Investments in associates Tangible fixed assets and intangible assets Accruals and other assets TOTAL
d. Deferred taxes arising on balance sheet liabilities 2010 (EUR millions) Derivatives Borrowings, deposits and issues of debt securities
Regulatory provisions Accruals and other liabilities TOTAL
2011
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
The deconsolidation of Dexia Holdings Inc. and Dexia FP Holdings Inc. resulted in a decrease of EUR 2,171 million in the gross deferred tax position, and a decrease of EUR 1,942 million in the impairment on deferred tax assets. Also in 2011, due to there being no prospect of recovery in several Group entities, the deferred tax assets were written down by EUR 1,569 million (including EUR 1,000 million for deferred tax
Rapport de gestion
2011 3,260 (2,545)
Gouvernance et contrôle interne
2010 4,476 (2,935)
Consolidated Comptes annuels financial statements
Deferred tax assets before impairment Impairment on deferred tax assets
Assemblée générale
(EUR millions)
Présentation générale
a. Analysis by nature
143
4
Consolidated financial statements
Notes to the consolidated financial statements
e. Deferred taxes arising on other items 2010 (EUR millions)
Gouvernance et contrôle interne Consolidated Comptes annuels financial statements Assemblée générale Renseignements de caractère général
Total
Of which, change through profit or loss
2,188 (82) 2,106
593 28 621
2,121 (60) 2,061
761 22 783
Analysis by nature Directors and key management
(EUR millions)
144
Total
4.3. Related-party transactions
Rapport de gestion
Présentation générale
Of which, change through profit or loss Entities with a special tax status TOTAL
2011
Of which, change through profit or loss
Loans(1) Interest income on loans
Parent company (Dexia)
Entities exercising joint control or significant influence over the entity(2)
Subsidiaries(3)
Associates(3)
Joint ventures in which the entity has an interest(3)
Other related parties(4)
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
2011
1 0
1 0
1,892 16
1,969 15
20 0
2 0
0 0
0 0
0 0
0 0
1 0
1 0
22,710 158
3,608 28
Asset disposals
0
0
0
0
0
0
0
0
0
0
3,000
600
Losses on asset disposals
0
0
0
0
0
0
0
0
0
0
(302)
(84)
Borrowings
0
0
48
136
3,366
4,451
0
0
0
0
0
0
55,165
2,189
Interest expense on borrowings
0
0
0
(4)
(60)
(98)
0
0
0
0
0
0
(549)
(62)
Net commissions
0 0
0 0
0 0
0 0
34 0
33 0
0 0
0 0
0 0
0 0
0 0
0 0
4 23,396
4 11,461
0
0
0
2,268
176
2,714
0
0
0
0
0
0
1,415
6,213
Guarantees issued by the Group Guarantees received by the Group
(1) Loans to key management personnel were granted at general market conditions. (2) This refers to the main shareholders of Dexia in 2010 and 2011: Arco group, Holding Communal, Caisse des Dépôts group, CNP. (3) This includes the non-consolidated investments listed in notes 1.2.b Non-consolidated subsidiaries, 1.2.d Joint companies not consolidated by the proportionate method, and 1.2.f Associated companies not accounted for by the equity method. (4) This item includes loans and borrowings with entities of mainly Belgian and Luxembourg sub-groups consolidated by Dexia, the parent company of Dexia Crédit Local.
In 2011, Dexia Bank Belgium was removed from the consolidation scope of Dexia Group. However, the Dexia Crédit Local Group still has important relationships with this sub-group, particularly with regard to funding (EUR 25.4 billion as at 31 December 2011).
TRANSACTIONS WITH THE BELGIAN, FRENCH AND LUXEMBOURG STATES a. Guarantee mechanism in favour of Dexia’s financing 2011 Temporary guarantee agreement On 16 December 2011, the French, Belgian and Luxembourg States and Dexia SA (“Dexia”) and Dexia Crédit Local entered into a First Demand Guarantee Agreement pursuant to the Belgian royal decree of 18 October 2011 granting a State guarantee for certain loans of Dexia SA and Dexia Crédit Local, the French amending finance law no. 2011-1416 of 2 November 2011, and the Luxembourg regulation of 14 October 2011 authorising the government to grant a financial guarantee in the framework of the orderly restructuring of the Dexia banking group. Pursuant to this Temporary guarantee agreement, the three States guarantee severally, but not jointly, the performance by Dexia and Dexia Crédit Local of their repayment obligations resulting from certain financings provided by central banks, credit institutions and other institutional or professional investors, provided that these obligations arise from certain financings contracted or issued (with a maturity of
Dexia Crédit Local / Annual report 2011
up to three years) between 21 December 2011 and 31 May 2012 (this initial deadline may be extended one or more times with the consent of the Parties and the European Commission). The States guarantee these repayment obligations in the following proportions: (i) 60.5% for the Belgian State, (ii) 36.5% for the French State, (iii) 3.0% for the Luxembourg State. The Guarantee commitment by the States pursuant to the Temporary guarantee agreement may not exceed a combined maximum of EUR 45 billion in principal, calculated on the basis of the obligations guaranteed by virtue of this Agreement, it being understood that obligations guaranteed pursuant to the 2008 Guarantee agreement described below are not taken into consideration for the purpose of calculating the said cap of EUR 45 billion.
Consolidated financial statements
Notes to the consolidated financial statements
Pursuant to the Guarantee agreement, Dexia shall pay the following guarantee fee to the States: (i) an upfront commission equal to 0.50% of the EUR 45 billion ceiling, i.e. EUR 225 million; (ii) a monthly fee, calculated as follows, on the amount of guaranteed fundings outstanding comprising: a fixed or variable basic amount, depending on the maturity of the guaranteed obligation, plus a supplement depending on Dexia and/or Dexia Crédit Local’s rating in relation to fundings with an initial maturity of less than 12 months, less a deduction in the event of collateralisation of the State guarantee commitment.
The medians are calculated over the three-year period ending on the last day of the month that precedes the issuance date of the relevant guaranteed obligations. The supplement depending on Dexia and/or Dexia Crédit Local’s rating will be equal to 20 to 40 basis points and applies to fundings with an initial maturity of less than 12 months. Any deduction in the event of collateralisation will depend on the nature and the value of the assets provided as collateral. As at 31 December 2011, the total outstanding amount of repayment obligations guaranteed by the States pursuant to the 2011 Temporary guarantee agreement was EUR 21.6 billion. In 2011, in respect of this guarantee, Dexia paid total remuneration of EUR 225 million, which will be borne by Dexia Crédit Local in proportion to its issues (the amount is immaterial for Dexia Crédit Local in 2011).
2008 Guarantee agreement
On 9 December 2008, the French, Belgian and Luxembourg States and Dexia entered into a First demand guarantee agreement implementing the principles set forth in the Protocol of 9 October 2008 between the three States and Dexia. Pursuant to this Guarantee agreement, the three States guarantee severally, but not jointly, the performance by Dexia SA, Dexia Banque Internationale à Luxembourg, Dexia Bank Belgium and Dexia Crédit Local (including certain of their branches and issuance vehicles) of their repayment obligations resulting from certain financings provided by central banks, credit institutions and other institutional or professional investors, provided that these obligations arise from certain financings contracted or issued between 9 October 2008 and 31 October 2009 and maturing no later than 31 October 2011. The States guarantee these repayment obligations in the following proportions: (i) 60.5% for the Belgian State,
The basic amount shall be equal to:
(ii) 36.5% for the French State,
(a) for all fundings with an initial maturity of strictly less than three months: 120 basis points per annum;
(iii) 3.0% for the Luxembourg State.
(b) for all fundings with an initial maturity of at least three months and less than 12 months: 50 basis points per annum; (c) for all fundings with an initial maturity of at least 12 months to 36 months: a variable amount based on the rate derived from the following formula:
To supplement the Guarantee agreement on operational and procedural aspects, the three States and Dexia have entered into an operational memorandum. This memorandum provides for, among other things, a process for daily monitoring of the guaranteed financings, including daily publication of the aggregate guaranteed amount and, with respect to Dexia’s guaranteed bond issues, a system of eligibility certificates whereby the States issue, on Dexia’s request, certificates confirming for each bond issue that it is covered by the Guarantee agreement.
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
D is the median of senior 5-year CDS spreads for the Kingdom of Belgium.
Gouvernance et contrôle interne
C is the median of senior 5-year CDS spreads for all European Union Member States, and
Présentation générale
B is the median iTraxx Europe Senior Financials 5-year index,
Consolidated Comptes annuels financial statements
On 21 December 2011, the European Commission authorised this guarantee mechanism on a temporary basis for a period ending on 31 May 2012, pending the Commission’s final decision within the frame of a new State aid investigation procedure, on the basis of, among other things, a new restructuring plan for Dexia to be submitted by the three State Guarantors within a three-month period expiring on 21 March 2012.
A is the median of senior 5-year CDS spreads for Dexia Crédit Local,
Assemblée générale
The three States, Dexia and Dexia Crédit Local have also entered into a “supplemental agreement on alert mechanics” with a view to, among other things, supplementing the Temporary guarantee agreement on information to be provided to the States on the liquidity position of Dexia. This supplemental agreement provides for, among other things, the weekly delivery of a consolidated financing plan including Dexia, Dexia Crédit Local, and Dexia Crédit Local subsidiaries, covering a period of one month. The three States, Dexia and Dexia Crédit Local have also entered into an “Operational Memorandum” and a “Reporting Protocol” supplementing the Temporary guarantee agreement on operational and reporting arrangements. Finally, the three States, Dexia and Dexia Crédit Local have entered into a “Collateral Management Protocol” governing the custody and valuation of the collateral to be provided in respect of collateralised guaranteed obligations.
40 basis points x (1 + (1/2 x A/B) + (1/2 x C/D)), i.e. around 120 basis points based on the quotes as at end-December 2011, where:
Renseignements de caractère général
Furthermore, the three States, Dexia and Dexia Crédit Local have entered into a “supplemental agreement” supplementing the Temporary guarantee agreement on the obligation to collateralise the issue of guaranteed obligations, subject to exceptions, as well as on allocation priorities of the proceeds of such guaranteed obligations. This supplemental agreement specifies collateral valuation principles and exceptions to the obligation to provide assets as collateral. It provides for the allocation of the proceeds of guaranteed notes first to the repayment of unsecured lending granted by Dexia Bank Belgium to Dexia and Dexia Crédit Local and of ELA (Emergency Liquidity Assistance) lending granted by Banque de France to Dexia Crédit Local. Finally, it provides that Dexia Bank Belgium shall subscribe for guaranteed securities and financial instruments issued by Dexia Crédit Local in an amount eligible as collateral of EUR 12 billion.
4
145
4
Consolidated financial statements
Notes to the consolidated financial statements
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
On 19 November 2008, the European Commission authorised this guarantee mechanism for a period of six months as from 3 October 2008, with, on condition that a restructuring plan be filed with the Commission, an automatic extension until the Commission’s definitive decision on this plan. In March 2009, the three States confirmed the extension of the guarantee in accordance with the European Commission’s decision of 13 March 2009.
146
By an addendum dated 14 October 2009 to the above-mentioned Guarantee agreement of 9 December 2008, the Belgian, French and Luxembourg States and Dexia agreed to renew the guarantee scheme for a period of one year, covering certain financings contracted or issued no later than 31 October 2010. This renewal incorporated certain changes to the guarantee in order to limit the State intervention to a bare minimum and to allow an orderly exit from the guarantee within a credible timeframe. These changes notably include: (i) reducing the maximum amount of the total guaranteed financings from EUR 150 billion to EUR 100 billion, with a commitment by Dexia to do its utmost to limit utilisation of the guarantee to EUR 80 billion; (ii) extending to four years of the maximum duration of the new financings contracted or issued under the revised guarantee; (iii) the waiver by Dexia of the benefit of the guarantee, as from 16 October 2009, for all new contracts with a maturity of less than one month and all contracts with an indefinite term. The Guarantee agreement provides for the following remuneration to be paid by Dexia to the States: (i) for financings with a maturity of less than 12 months: 50 basis points per annum calculated on the average amount of the guaranteed financings outstanding; (ii) for financings with a maturity of 12 months or more: 50 basis points per annum, increased by the lowest of: (a) the median of the Dexia 5-year CDS spreads for the period from 1 January 2007 to 31 August 2008; and (b) the median of the 5-year CDS spreads for all credit institutions with a long-term credit rating equivalent to that of Dexia, calculated on the average amount of the guaranteed financings outstanding. The extension and amendments as provided for in the addendum of 14 October 2009 have been duly authorised by an interim decision of the European Commission for a period of four months as from 30 October 2009 (i.e. until 28 February 2010) or until the final decision – if such decision is adopted prior to 28 February 2010 – of the European Commission in the context of the State aid investigation procedure opened on 13 March 2009. By separate agreement dated 17 March 2010, the Belgian, French and Luxembourg States and Dexia amended and supplemented the above-mentioned addendum to the Guarantee agreement of 14 October 2009 to reflect the terms of the European Commission’s final decision in the context of the State aid investigation procedure of 26 February 2010. The changes include: (i) bringing forward the latest date for contracting or issuing guaranteed financings to 31 May 2010 (for financings with a maturity of less than 12 months) and 30 June 2010 (for financings with a maturity of at least 12 months);
Dexia Crédit Local / Annual report 2011
(ii) bringing forward the expiry date of the guarantee on deposits (and equivalents) to 1 March 2010; (iii) gradually increasing the remuneration payable by Dexia on an accrual basis under the guarantee when the outstanding amount of guaranteed obligations exceeds certain thresholds (by 50 basis points on the portion of guaranteed obligations between EUR 60 billion and EUR 70 billion, 65bps on the portion of guaranteed obligations between EUR 70 billion and EUR 80 billion, and 80 basis points on the portion of guaranteed obligations above EUR 80 billion). All outstanding instruments issued pursuant to the 2008 Guarantee agreement, as amended, before 30 June 2010 will continue to benefit from such guarantee in accordance with their terms and conditions. As at 31 December 2011, the total outstanding amount of repayment obligations guaranteed by the three States pursuant to the 2008 Guarantee agreement, as amended, was EUR 23.3 billion. In 2011, the Dexia Group paid total remuneration of EUR 290 million to the States for this guarantee (of which EUR 279 million was paid by the Dexia Crédit Local Group). All the above-mentioned agreements, as well as the total outstanding amount of guaranteed repayment obligations and the list of bond issues for which the States have issued eligibility certificates are available on the website at www.dexia.com.
b. Guarantee for the Financial products portfolio Reminder of existing guarantees
On 14 November 2008, Dexia entered into an agreement for the sale of the insurance activities of Financial Security Assurance (“FSA”) to Assured Guaranty Ltd (“Assured”). The sale was completed on 1 July 2009. FSA’s Financial products activity, managed by FSA Asset Management (“FSAM”), was carved out of the transaction and has thus remained under Dexia’s ownership. In this context, the Belgian and French States agreed to provide a guarantee on the Financial products asset portfolio. The terms of this guarantee are set out in two agreements, the First demand guarantee agreement relating to FSA Asset Management LLC’s Financial products portfolio and the Guarantee reimbursement agreement, entered into by the Belgian and French States and Dexia. The main terms of these agreements are as follows: • Dexia SA and Dexia Crédit Local entered into a put agreement which gave FSAM the right to sell to Dexia and/or Dexia Crédit Local certain assets (the put portfolio assets) included in the FSAM portfolio as at 30 September 2008 upon the occurrence of certain trigger events (asset default, liquidity default, collateral default and insolvency of Dexia). The Belgian and French States each agreed to guarantee, severally but not jointly, the obligations of Dexia SA pursuant to the put agreement up to an aggregate amount equal to USD 16.98 billion and up to 62.3711% for the Belgian State and 37.6289% for the French State. The State guarantee pursuant to an asset default or the insolvency of Dexia was set to expire in 2035, while the guarantee pursuant to a liquidity or collateral default was set to expire on 31 October 2011. • The guarantee agreement obligated Dexia to cover a first loss tranche of USD 4.5 billion, with Dexia having the right to have the States make payments to FSAM under their guarantee if the losses exceeded the USD 4.5 billion first loss tranche. The States would then have the right to recover from Dexia SA any amounts paid under their guarantee as described below.
Consolidated financial statements
Notes to the consolidated financial statements
4.4. Compensation of key management personnel (EUR millions)
2010
2011
Short-term benefits(1) Post-retirement benefits(2)
4 0
4 0
Other long-term benefits
0
0
Termination benefits Share-based payments(3)
0 0
0 0
(1) Includes salary, bonus and other benefits. (2) Includes pension obligations calculated in compliance with IAS 19. (3) Includes the cost of stock options and the discount given on capital increases reserved for employees.
4.5. Acquisitions and disposals of consolidated companies a. Acquisitions No acquisitions with a material impact on the consolidated financial statements were made in 2011.
b. Disposals
both companies were removed from the consolidation scope of Dexia Crédit Local on 1 April 2011, based on their financial statements for the period ended 31 March, and remain included within the Dexia Group’s consolidated financial statements.
c. Information on deconsolidation of Dexia Holdings Inc. and Dexia FP Holdings Inc.
Under the terms of this guarantee contract, the amount of the losses attributable to Dexia Crédit Local is USD 1,447 million, calculated notably based on the assumption by Dexia SA of the losses incurred by Dexia Holdings Inc. on the securities in the FP portfolio over and above the amount of USD 1,890 million, representing the valuation of the economic losses expected at the end of March 2011 on this portfolio.
As a result of the signing, on 30 June 2011, of a put option contract on the securities in Dexia Holdings Inc. held by Dexia Crédit Local, and a guarantee contract with Dexia SA, control of Dexia Holdings Inc. and Dexia FP Holdings Inc. was transferred from Dexia Crédit Local to Dexia SA, with retroactive effect from 1 April 2011. As a result,
As a result, a gain of EUR 314 million was recorded in “Net gains (losses) on other assets”, to which was added a gain of EUR 13 million relating to the translation difference recognised in profit or loss: the total profit on the deconsolidation of both companies therefore amounted to EUR 327 million.
No disposals with a material impact on the consolidated financial statements were made in 2011.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
For a more detailed description of the guarantee on the Financial products portfolio, please see the Dexia SA special board report of 12 May 2009, as last updated by the Dexia SA special board report of 18 March 2011 relating to the re-issue of the warrants. Both these reports are available on Dexia’s website at www.dexia.com.
Gouvernance et contrôle interne
As a result of the signing, on 30 June 2011, of a put option contract on the Dexia Holdings Inc. securities held by Dexia Crédit Local, and a guarantee contract with Dexia SA, control of Dexia Holdings Inc. and Dexia FP Holdings Inc. was transferred from Dexia Crédit Local to Dexia SA, with retroactive effect from 1 April 2011. As a result, Dexia Crédit Local no longer has any exposure to the risks on the Financial products activity.
Consolidated Comptes annuels financial statements
In 2011, with the consent of the Belgian and French States, FSAM sold to Dexia Crédit Local all the remaining put portfolio assets. Dexia Crédit Local subsequently sold substantially all of these assets to third parties. The losses incurred by Dexia on the sales of put portfolio assets to third parties did not count towards the USD 4.5 billion first loss tranche. Only payments made by Dexia SA or Dexia Crédit Local to FSAM for assets sold to those entities by FSAM upon a trigger event would count towards the USD 4.5 billion first loss tranche. As at 31 December 2011, there were no longer any put portfolio assets held by FSAM that could be sold to Dexia SA and Dexia Crédit Local
Guarantee received from Dexia SA
Assemblée générale
Sale of the guaranteed portfolio
and (if those Dexia entities did not pay the required amount to FSAM) would require the States to make a payment to FSAM. In addition, Dexia no longer owes the States any guarantee fee since there is no longer any outstanding nominal amount of put portfolio assets held by FSAM.
Renseignements de caractère général
• Dexia was required to semi-annually pay to the States a guarantee fee at a rate of 1.13% per annum, calculated on the average outstanding nominal amount of the put portfolio assets held by FSAM over a six-month period, plus a fee of 0.32% per annum calculated on the lower of: (i) the total amount of the liabilities pursuant to the guaranteed investment contracts; and (ii) the average outstanding nominal amount of the put portfolio assets held by FSAM over a six-month period.
4
147
4
Consolidated financial statements
Notes to the consolidated financial statements
Dexia Holdings Inc. and Dexia FP Holdings Inc. As at 31 March 2011
Derivatives Financial assets available for sale
Interbank loans and advances Customer loans and advances Deferred tax assets Other assets Tangible and intangible assets Intercompany transactions: net liabilities Financial liabilities at fair value through profit or loss Derivatives Interbank borrowings and deposits Customer borrowings and deposits Other liabilities Provisions
148
Contribution to the consolidated financial statements
590 1,663
498 1,663
384
240
4,963
4,963
157
157
6
0
2
2 (2,579)
2,793
2,390
471
418
5,520
3,166
1,824
1,824
64
53
57
57
Unrealised or deferred gains and losses on financial assets available for sale and cash flow hedges
(1,481)
(1,481)
NET ASSETS
(1,483)
(1,483)
4.6. Information on activities held for sale A. DEXIA MUNICIPAL AGENCY On 20 October 2011, Dexia Crédit Local’s Board of Directors approved the terms of a memorandum of negotiation with Caisse des Dépôts and La Banque Postale on the financing of French local authorities. This memorandum was supplemented in February 2012 by a comprehensive agreement involving the French State in the acquisition of Dexia Municipal Agency followed by an agreement in principle signed in March 2012, that provided for the creation of a new financial institution, 68.3%-owned by a public holding company, in turn owned by the French State (46.35%), Caisse des Dépôts (46.35%) and La Banque Postale (7.3%). This new financial institution, of which Dexia Crédit Local would own the remaining 31.7%, will be the parent company of Dexia Municipal Agency, in which it will hold a 100% stake and which it will manage. Implementation of this agreement remains subject to the agreement of the competent prudential supervisory authorities, but Dexia Crédit Local considers its realisation highly likely, and, in accordance with IFRS5, is applying the following treatment in the consolidated financial statements:
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
(EUR millions)
Assets and liabilities
Dexia Crédit Local / Annual report 2011
• Dexia Municipal Agency’s assets and liabilities are presented in a separate line on the consolidated balance sheet, • Dexia Municipal Agency’s business is considered to be a discontinued activity and its income statement items are presented in a separate line in the consolidated income statement, • the difference between the equity sold and the sale price, adjusted for incidental expenses, is recognised in “Income from discontinued operations, net of tax”, being an estimated loss of EUR 1,069 million. Use of this accounting option (IFRS 5) was made possible by the fact that Dexia Municipal Agency represents an independent business: as required by the standard, the notes impacted are presented after taking into consideration the effect of accounting for Dexia Municipal Agency in accordance with IFRS 5. Dexia Municipal Agency is France’s leading local public issuer, is rated independently of its parent company and is run by independent management bodies.
Consolidated financial statements
Notes to the consolidated financial statements
4
a. Balance sheet Dexia Municipal Agency As at 31 December 2011
Cash, central banks and postal checking accounts Financial assets at fair value through profit or loss (derivatives)
2,198 2,217
Hedging derivatives Financial assets available for sale Interbank loans and advances Customer loans and advances Fair value revaluation of portfolio hedges Tax assets Other assets Intercompany transactions: net liabilities Central banks and postal checking accounts Financial liabilities at fair value through profit or loss (derivatives) Hedging derivatives Debt securities Fair value revaluation of portfolio hedges Tax liabilities Other liabilities
7,975
73,238 875 210 24 (3,133) 2,700
(156)
NET ASSETS
1,135
Net assets held for sale Recognition of prior years’ intercompany profit or loss, net of tax Sale price Incidental sale expenses
(1,135) (178) 380 (136) (1,069)
Loss arising from the fair value adjustment of activities held for sale
b. Income statement
Net banking income Operating expenses
Cost of risk Income before tax Income tax Net income Loss arising from the fair value adjustment of activities held for sale Income from discontinued operations, net of tax Earnings per share Basic (EUR) Diluted (EUR)
Dexia Municipal Agency 2010
2011
267 (96)
200 (93)
(4)
(8)
167
99
(55)
(35)
112
64 (1,069)
112
(1,005)
1.29 1.29
(11.54) (11.54)
c. Net cash flow (EUR millions) Net cash provided (used) by operating activities Net cash provided (used) by investing activities
Net cash provided (used) by financing activities TOTAL
Dexia Municipal Agency 2010
2011
481 0
(45) 0
(134) 347
(110) (155)
Annual report 2011 / Dexia Crédit Local
Gouvernance et contrôle interne
34 2,505
Consolidated Comptes annuels financial statements
2,340
Assemblée générale
68,411
Rapport de gestion
844 8,996
Unrealised or deferred gains and losses on financial assets available for sale and cash flow hedges
(EUR millions)
Présentation générale
649 2,556
Renseignements de caractère général
(EUR millions)
149
4
Consolidated financial statements
Notes to the consolidated financial statements
B. OTHER NON-CURRENT ASSETS HELD FOR SALE The item “Non-current assets held for sale” also includes assets obtained as a result of the restructuring of leasing operations
in the United States within Dexia Real Estate Capital Markets, for EUR 19 million as at 31 December 2010 and 31 December 2011.
Présentation générale
4.7. Share-based payments 2010
2011
14,790,882
14,645,557
Dexia stock option plans (number of options) Outstanding at beginning of period Granted during the period Forfeited during the period
0
0
(849,575)
(3,856,830)
Exercised during the period
0
0
704,250
813,612
14,645,557
11,602,339
9,923,384
9,279,137
Adjustments(1)
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Outstanding at the end of the period Exercisable at the end of the period 2010 Range of exercise prices
2011
Number of outstanding options
Weighted average exercise price (EUR)
Weighted average remaining contractual life (years)
Range of exercise prices
Weighted average exercise price (EUR)
Weighted average remaining contractual life (years)
10.47 - 10.85
1,568,682
10.85
2.40
9.12 - 10.27
11.34 - 13.04
5,259,558
12.88
4.40
10.28 - 10.73
0
0.00
0.00
1,120,443
10.28
13.18 - 13.92
0
0.00
0.00
10.74 - 12.35
1.56
4,703,477
12.16
16.45 - 17.05
902,594
17.05
1.00
4.19
12.36 - 16.29
0
0.00
17.21 - 17.37
2,405,583
17.21
0.00
4.49
16.30 - 16.46
1,655,993
16.30
17.77 - 20.28
2,118,275
3.50
17.77
5.50
16.47 - 19.21
1,756,602
16.83
22.19
2,390,865
4.50
22.19
6.50
19.21 - 21.02
2,365,824
21.02
TOTAL
14,645,557
5.50
TOTAL
11,602,339
(1)
(1) In order to protect the holders of share options against the adverse economic effects arising from the issue of shares for the payment of bonuses, following the decision taken by Dexia’s Extraordinary Shareholders’ Meeting held on 12 May 2011, the exercise price of the stock options was reduced and the number of options increased in accordance with an adjustment ratio established in compliance with the Euronext NYSE Liffe’s Corporate Action Policy.
Dexia stock option plans
None.
Amounts included in expenses for the year None.
4.8. Capital stock 2010
2011
Number of shares authorised
87,045,757
87,045,757
Number of shares issued and fully paid
87,045,757
87,045,757
Number of shares issued and not fully paid
Assemblée générale
Par value of the shares In issue as at 1st January Number of shares issued(2) Number of shares cancelled(2) In issue as at 31 December
Renseignements de caractère général
Rights, preferences and restrictions, including restrictions on the distribution of dividends and repayment of capital
150
Number of outstanding options
Number of shares of treasury stock Number of shares reserved for issue under stock options and contracts for the sale of shares(1)
0
0
5.75
5.75
87,045,757
87,045,757
0
730,434,780
0
(730,434,780)
87,045,757
87,045,757
0
0
0 NA
0 NA
(1) Under Dexia Crédit Local’s stock option plans, these are Dexia shares that are granted to employees. (2) 730,434,780 new cash shares with a nominal value of EUR 5.75 per share were issued then cancelled in connection with the capital increase and the capital reduction decided by Dexia Crédit Local’s Extraordinary Shareholders’ Meeting of 22 December 2011.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
4.9. Exchange rates The main exchange rates are presented in the following table.
Average rate(2)
1.31178 1.33456
1.43878 1.36752
1.27080 1.32200
1.34155 1.37982
Swiss franc
CHF
1.24895
1.37004
1.21685
1.23176
Czech koruna
CZK
25.04247
25.24192
25.51184
24.56275
Danish krone
DKK
7.45305
7.44773
7.43270
7.44947
British pound sterling
GBP
0.85732
0.85702
0.83589
0.86983
Hong Kong dollar
HKD
10.41439
10.27180
10.08014
10.89544
Hungarian forint
280.29986
HUF
278.32403
276.21573
313.93782
Israeli shekel
ILS
4.74575
4.92834
4.96447
5.00787
Japanese yen
JPY
108.76902
115.26745
100.13825
111.32128
Korean won
KRW
1,500.56501
1,531.11733
1,504.46079
1,546.37826
Mexican peso
MXN
16.54782
16.70252
18.09860
17.42265
Norwegian krone
NOK
7.80653
8.00476
7.75695
7.78118
New Zealand dollar
NZD
1.72450
1.83432
1.67206
1.75106
Swedish krona
SEK
8.97947
9.48840
8.89992
8.99483
Singapore dollar
SGD
1.71742
1.79546
1.68279
1.75303
New Turkish lira US Dollar
TRY USD
2.05510 1.33990
1.98803 1.32212
2.45305 1.29775
2.35000 1.40012
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
(1) Rate observed on Reuters at 4:45 pm on the last business day of December. (2) Average of the closing rates used by the Dexia Group.
Présentation générale
AUD CAD
Closing rate(1)
Rapport de gestion
Australian dollar Canadian dollar
2011 Average rate(2)
Gouvernance et contrôle interne
2010 Closing rate(1)
Annual report 2011 / Dexia Crédit Local
151
4
Consolidated financial statements
Notes to the consolidated financial statements
5. Notes on the income statement
Présentation générale
Following the announcement of the Group’s restructuring, comparative information on discontinued operations is disclosed separately, in accordance with IFRS 5 (see note 4.6 “Information on activities held for sale”).
5.1. Interest income – Interest expense (items I and II – income statement) (EUR millions) INTEREST INCOME a) Interest income on assets not measured at fair value Cash, central banks and postal checking accounts
Rapport de gestion
Interbank loans and advances
Gouvernance et contrôle interne
12
10
360
407
Customer loans and advances
5,163
4,919
1,427
1,199
Financial assets held to maturity Impaired assets Other
43
35
106
25
237
363
14,061
14,677
Loans and securities held for trading
78
59
Loans and securities designated at fair value
11
6
7,777
7,936
Derivatives held for trading Hedging derivatives
6,195
6,676
(21,058)
(21,649)
a) Interest expense on liabilities not measured at fair value
(5,056)
(5,262)
Interbank borrowings and deposits
(1,101)
(1,707)
Customer borrowings and deposits
(208)
(266)
(3,198)
(2,901)
(83)
(75)
INTEREST EXPENSE
Debt securities Subordinated debt Preference shares and hybrid capital Amounts covered by sovereign guarantees Other b) Interest expense on liabilities measured at fair value Liabilities held for trading
0
0
(450)
(302)
(16)
(11)
(16,002)
(16,387)
0
0
(238)
(124)
Derivatives held for trading
(7,609)
(7,881)
Hedging derivatives NET INTEREST INCOME
(8,155) 351
(8,382) (14)
Liabilities designated at fair value
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
2011 21,635 6,958
Financial assets available for sale
b) Interest income on assets measured at fair value
152
2010 21,409 7,348
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
5.2. Fees and Commissions (items III and IV – income statement)
(9) (1)
54 41
52 42
(10) (2)
42 40
Purchase and sale of securities
0
(3)
(3)
0
(2)
(2)
Purchase and sale of mutual fund units
4
0
4
2
0
2
Management of mutual funds
0
0
0
0
0
0
Administration of mutual funds
0
0
0
0
0
0
Payment services
11
(13)
(2)
1
(3)
(2)
Commissions paid to business providers
0
0
0
0
0
0
Financial engineering
9
0
9
8
0
8
Services on securities other than custodial services
1
(4)
(3)
0
(4)
(4)
Custodial services
4
(2)
2
5
(1)
4
Issuance and underwriting of securities
2
0
2
2
0
2
Securitisation commissions
0
0
0
0
0
0
Private banking
0
0
0
0
0
0
Clearing and settlement-delivery
2
0
2
0
0
0
Intermediation on repos and reverse repos Other TOTAL
1
(1)
0
3
(5)
(2)
23 162
(13) (46)
10 116
28 143
(13) (40)
15 103
5.3. Net gains (losses) on financial instruments at fair value through profit or loss (item V – income statement) (EUR millions)
2010
2011
16 1
(4) (60)
(35)
(4)
23
51
Net trading income Net result of hedge accounting Net result of financial instruments designated at fair value through profit or loss (*) Change in own credit risk Net result of foreign exchange transactions
(64)
4
TOTAL
(59)
(13)
82
37
(*) of which, trading derivatives included in a fair value option strategy
All interest received and paid on assets, liabilities and derivatives is recorded in net interest income, as required by IFRS. Thus, net gains (losses) on trading transactions and net gains (losses) on hedging transactions include only the change in the clean value of derivatives, the revaluation of assets and liabilities qualified as hedges and the revaluation of the held-for-trading portfolio.
Analysis of net result of hedge accounting (EUR millions)
2010
2011
Fair value hedges Change in fair value of hedged items attributable to the hedged risk
2 3,414
(1) 5,707
(3,412)
(5,708)
Cash flow hedges
Change in fair value of hedging derivatives
0
(57)
Change in fair value of hedging derivatives – ineffective portion Discontinuation of cash flow hedge accounting (cash flows no longer expected to occur)
0 0
0 (57)
Hedges of net investments in a foreign operation
0
0
Change in fair value of hedging derivatives – ineffective portion
0
0
(1)
(2)
Portfolio hedges Change in fair value of hedged items Change in fair value of hedging derivatives TOTAL Discontinuation of cash flow hedge accounting (cash flows still expected to occur) – amounts recorded in interest margin
573
1,023
(574) 1 6
(1,025) (60) 7
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
Net
63 42
Gouvernance et contrôle interne
Expense
Lending activity Insurance activity and broking
Consolidated Comptes annuels financial statements
Income
Assemblée générale
Net
Présentation générale
2011
Expense
Renseignements de caractère général
2010 Income
(EUR millions)
153
4
Consolidated financial statements
Notes to the consolidated financial statements
5.4. Net gains (losses) on financial assets available for sale (item VI – Income statement) (EUR millions)
2010
2011
Dividends on securities available for sale Net gain (loss) on disposals of loans and securities available for sale(1)
8 (540)
6 (436)
(3)
(9)
0
0
44 (491)
9 (430)
Rapport de gestion
Présentation générale
Impairment of variable-income securities available for sale Net gain (loss) on disposals of securities held to maturity Net gain (loss) on disposals of debt securities TOTAL
(1) In 2011, this item includes notably losses of EUR 405 million (EUR 508 million in 2010) on asset disposals made in connection with the Group’s policy of reducing its total exposure, and a loss of EUR 89 million on the sale of the fully-impaired Lehman shares (see note 5.9 Cost of Risk).
5.5. Other income (item VII – income statement) (EUR millions) Operating taxes Lease income
154
2011
0 32
0 38
0
0
20 52
15 53
2010
2011
0 0
0 0
5.6. Other expenses (item VIII – income statement) (EUR millions) Operating taxes Maintenance and repair of investment property that generated income during the year Other banking expenses Other expenses TOTAL
(1)
0
(47) (48)
(45) (45)
5.7. Other expenses (item VIII – income statement) (EUR millions)
2010
2011
Payroll costs General and administrative expenses TOTAL
(286) (91) (377)
(234) (63) (297)
2010 (207) (49)
2011 (164) (39)
Employee benefits
(15)
(14)
Restructuring costs
(1)
1
(14) (286)
(18) (234)
a. Payroll Costs (EUR millions) Compensation and salary expense Social security and insurance expense
Other TOTAL
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Other banking income Other income TOTAL
2010
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
Employee information
Fully consolidated
Proportionally consolidated
Total
Executive staff Administrative staff
52 3,309
4 19
56 3,328
35 2,329
3 22
38 2,351
Non-administrative and other personnel TOTAL
11 3,372
0 23
11 3,395
14 2,378
0 25
14 2,403
The employee decrease in 2011 is mainly due to the deconsolidation of Dexia banka Slovensko. 2010 (Average full time equivalent)
France
Italy
Spain
Rest of Europe
U.S.
Rest of world
Total
27
2
1
12
9
5
56
Administrative staff
1,794
208
48
1,004
202
72
3,328
Non-administrative and other personnel
0
0
0
4
2
5
11
1,821
210
49
1,020
213
82
3,395
Executive staff
TOTAL
2011 (Average full time equivalent)
France
Italy
Spain
Rest of Europe
U.S.
Rest of world
Total
20
2
1
7
4
4
38
Administrative staff
1,757
199
51
144
160
40
2,351
Non-administrative and other personnel
0
0
0
5
4
5
14
1,777
201
52
156
168
49
2,403
Executive staff
TOTAL
b. General and administrative expenses 2010
2011
(6) (19)
(4) (12)
Fees
(39)
(28)
Marketing, advertising and public relations
(12)
(8)
IT expense
(28)
(23)
Software, research and development
(10)
(10)
(7)
(5)
(EUR millions) Cost of premises Rent expense(1)
Maintenance and repair Restructuring costs Insurance (except related to pensions)
0
26
(3)
(4)
Stamp duty
(3)
(2)
Other taxes
(7)
(30)
Other general and administrative expenses Sub-total Income from the recharging of general expenses to Dexia Municipal Agency TOTAL of which, maintenance and repair expenses for investment property that did not generate income during the year
(43)
(49)
(177)
(149)
86 (91)
86 (63)
0
0
Renseignements de caractère général
(1) This amount does not include IT equipment rental expenses, which are included in the “IT expense” line.
Rapport de gestion
Total
Gouvernance et contrôle interne
Proportionally consolidated
Consolidated Comptes annuels financial statements
Fully consolidated
(Average full time equivalent)
Présentation générale
2011
Assemblée générale
2010
Annual report 2011 / Dexia Crédit Local
155
4
Consolidated financial statements
Notes to the consolidated financial statements
5.8. Depreciation, amortisation and impairment of tangible fixed assets and intangible assets (item XI – income statement) Depreciation and amortisation (EUR millions)
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Depreciation of land and buildings, office furniture and other equipment Depreciation of computer equipment
156
2010
2011
(9) 0
(8) 0
Depreciation of other tangible fixed assets
(10)
(6)
Amortisation of intangible assets TOTAL
(30) (49)
(22) (36)
2010
2011
Impairment of land and buildings, office furniture and other equipment Impairment of other tangible fixed assets
0 0
0 (2)
Impairment of intangible assets TOTAL
0 0
(4) (6)
(49)
(42)
Impairment (EUR millions)
TOTAL DEPRECIATION, AMORTISATION AND IMPAIRMENT
5.9. Cost of risk (item XIII – income statement) 2010
2011
Collective impairment
Specific impairment and losses
Total
Collective impairment
150
(598)
(448)
(45)
(384)
(429)
150
10 (588)
10 (438)
(45)
(533) (917)
(533) (962)
(EUR millions) Credit (loans, commitments and securities held to maturity) Fixed-income securities available for sale TOTAL
Specific impairment and losses
Total
Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG;
In 2011, cost of risk comprises: • an additional provision of EUR 91 million on the Financial products portfolio, booked in the first quarter of 2011, prior to the deconsolidation of Dexia FP Holdings Inc.;
• income of EUR 89 million following the sale of the fully-impaired Lehman securities (see note 5.4 “Net gains (losses) on financial assets available for sale”);
• an impairment of EUR 2,825 million on Greek sovereign debt, partially offset by income of EUR 1,934 million, recognised as a result of the commitment given by Dexia to cover the potential losses on the Greek debt portfolios held by the funding subsidiaries
• a write-back of EUR 21 million on the Lehman risk; • a charge of EUR 90 million on the Group’s banking activities.
Detail of collective and specific impairment Collective impairment (EUR millions) Loans and securities held to maturity Off-balance sheet commitments TOTAL Specific impairment (EUR millions)
2010
2011
Additions
Recoveries
Total
Additions
Recoveries
Total
(163) 0 (163)
313 0 313
150 0 150
(219) 0 (219)
174 0 174
(45) 0 (45) Total
2010 Additions
Recoveries
Losses
Collections
0 (908)
0 363
0 (61)
0 8
0 (598)
Financial assets held to maturity
0
0
0
0
0
Accruals and other assets
0
0
0
0
0
Off-balance sheet commitments
0
0
0
0
0
Total credit
(908)
363
(61)
8
(598)
Fixed-income securities TOTAL
(10) (918)
20 383
0 (61)
0 8
10 (588)
Interbank loans and advances Customer loans and advances
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
2011
Total
Additions
Recoveries
Losses
Collections
Interbank loans and advances Customer loans and advances
0 (313)
0 81
0 (52)
0 2
0 (282)
Financial assets held to maturity
(149)
0
0
0
(149)
0
50
0
0
50
(4)
1
0
0
(3)
(466)
132
(52)
2
(384)
(2,565) (3,031)
98 230
0 (52)
1,934 1,936
(533) (917)
Accruals and other assets Off-balance sheet commitments Total credit Fixed-income securities TOTAL
5.10. Income from associates (item XV – income statement)
Présentation générale
Specific impairment (EUR millions)
4
Net gains (losses) on disposals of buildings Net gains (losses) on disposals of other fixed assets Net gains (losses) on disposals of consolidated equity investments(1) TOTAL
2010
2011
0 1
0 (230)
30 31
321 91
(1) In 2011, this item includes notably: – income of EUR 327 million arising on the deconsolidation of Dexia Holdings Inc. and Dexia FP Holdings Inc., – a loss of EUR 231 million relating to the fair value reserve for financial assets available for sale reclassified in “Loans and advances” in October 2008, that were intended to be sold in the second quarter of 2011.
5.12. Impairment of goodwill (item XVII – income statement) (EUR millions) Impairment of goodwill TOTAL
2010
2011
0 0
(141) (141)
In 2011, the goodwill on Dexia Crediop and Dexia Israel Bank Ltd. were fully impaired, with write-downs of EUR 129 million and EUR 12 million respectively.
5.13. Income tax (item XIX – income statement) Detail of tax expense (EUR millions)
2010
2011
Current taxes(1) Deferred taxes
4 48
115 (133)
Tax on prior years’ income
(4)
0
Deferred taxes on prior years
(7)
0
Provision for tax litigation TOTAL
32 73
(3) (21)
Consolidated Comptes annuels financial statements
(EUR millions)
Assemblée générale
5.11. Net gains (losses) on other assets (item XVI – income statement)
Gouvernance et contrôle interne
Rapport de gestion
None.
2011 effective tax expense
The corporate tax rate in France is 36.10%, after taking into account the additional contribution passed in late 2011. Given that this additional contribution applies only to 2011 and 2012 earnings, and since the deferred taxes are expected to be recovered after 2012, the deferred tax rate for Dexia Group companies governed by French law remains 34.43%.
The rate applied to contributions from foreign subsidiaries is that applied locally in accordance with each national legislation. The average tax rate for 2011 was 1.37%.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
(1) Current taxes are positive in 2011 notably because Dexia Crédit Local benefits from a carry-back receivable in respect of the year ended 31 December 2008 (EUR 173 million).
157
4
Consolidated financial statements
Notes to the consolidated financial statements
The variance compared with the French tax rate can be analysed as follows: (EUR millions)
2010
2011
Income before income taxes Net income from associates
(912) 0
(1,697) 0
Impairment of goodwill
0
(141)
(912)
(1,556)
34.43 %
34.43 %
(314)
(536)
Présentation générale
Tax base Applicable tax rate at the period end Theoretical corporate income tax at the standard rate Impact of differences between foreign tax rates and the standard French tax rate
(5)
14
Tax effect of non-deductible expenses
53
40
(94)
(71)
Impact of items taxed at a reduced rate
Tax effect of non-taxable income
(103)
(129)
Other additional taxes or tax savings
(379)
131
801
569
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Impairment of deferred tax assets(1) Liability method
0
0
(32)
3
(73) -8.00%
21 1.37%
Provision for tax litigation Corporate income tax recorded in the income statement EFFECTIVE TAX RATE (1) In 2010 and 2011, the deferred tax assets of several entities were provisioned as a result of the policy to scale back their activity.
Tax consolidation group
• CBX. IA 2
Dexia SA établissement stable in France is the head of the tax group consolidating the following companies:
• Dexia Crédit Local Investissements
• Dexia Crédit Local
• Dexia Crédit Local Projets
• Floral
• Dexiarail
• CLF Immobilier
• Dexia CLF Banque
• CLF Marne la Vallée Participation
• Dexia DS Formation
• Dexia Éditions
• Dexia DS Services
• Dexia Municipal Agency
• Publiservices
• Dexia CLF Développement
Tax savings made by the tax group, as a result of losses, are recorded by the Dexia SA établissement stable (outside the scope of Dexia Crédit Local).
• Genebus Lease • Dexia CLF Organisation • Dexia CLF Avenir
An amendment to the tax agreement between Dexia SA établissement stable and Dexia Crédit Local, signed in 2011, now allow the tax savings generated by Dexia Crédit Local and its subsidiaries to be reallocated to Dexia Crédit Local.
Assemblée générale
• Dexia Habitat • CBX Gest • Dexint Développement
Renseignements de caractère général
• Dexia Flobail
158
Pursuant to this amendment, Dexia Crédit Local recorded tax income of EUR 173 million corresponding to the carry-back receivable that the tax group is entitled to from the French tax authorities.
• Dexia Bail • Dexia Sofaxis • Guide Pratique de la Décentralisation • CBX. IA 1
Dexia Crédit Local / Annual report 2011
5.14. Earnings per share a. Basic earnings per share
Basic earnings per share are obtained by dividing “Net income, Group share” by the weighted average number of ordinary shares in issue during the year, less the average number of ordinary shares purchased by the company and held as treasury stock.
Net income, Group share (EUR millions) Weighted average number of ordinary shares (millions) Basic earnings per share (EUR) - of which, related to ongoing activities - of which, related to discontinued activities
4
2010
2011
(696) 87
(2,701) 87
(7.99)
(31.03)
(9.28) 1.29
(19.49) (11.54)
b. Diluted earnings per share The number of shares calculated in the manner described above is compared with the number of shares that would have been issued assuming the options were exercised.
For stock options, the calculation of the number of shares that could have been acquired at fair value (calculated as the average annual share price) is based on the monetary value of the subscription rights attached to the outstanding options.
No adjustments were made to “Net income, Group share” as there are no financial instruments convertible into Dexia Crédit Local shares.
2010
2011
(696) 87
(2,701) 87
Adjustment for stock options (millions) Weighted average number of ordinary shares used for the calculation of diluted earnings per share (millions) Diluted earnings per share (EUR) - of which, related to ongoing activities - of which, related to discontinued activities
0
0
87
87
(7.99)
(31.03)
(9.28) 1.29
(19.49) (11.54)
6. Note on off-balance sheet items 6.1. Regular way trades 2011 2010
Ongoing activities
Activities held for sale
2,379 3,503
4,731 2,772
0 0
2010
Ongoing activities
Activities held for sale
693 6,295
456 8,694
0 0
(EUR millions) Assets to be delivered Liabilities to be received
Consolidated Comptes annuels financial statements
Net income, Group share (EUR millions) Weighted average number of ordinary shares (millions)
Gouvernance et contrôle interne
Rapport de gestion
Diluted earnings per share are calculated by adjusting the average number of ordinary shares in issue to reflect the potential conversion into dilutive ordinary shares of the options granted to employees.
Présentation générale
Consolidated financial statements
Notes to the consolidated financial statements
(EUR millions) Guarantees given to credit institutions Guarantees given to customers Guarantees received from credit institutions Guarantees received from customers Guarantees received from the States
1,676
9,177
21
16,781 48,561
11,856 44,942
4,786 0
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
2011
Assemblée générale
6.2. Guarantees
159
4
Consolidated financial statements
Notes to the consolidated financial statements
6.3. Loan commitments 2010
Activities held for sale
247 30,168
206 18,397
0 660
3,858 0
3,458 0
149 0
(EUR millions)
Présentation générale
Loan commitments given to credit institutions Loan commitments given to customers Loan commitments received from credit institutions Loan commitments received from customers
2011 Ongoing activities
6.4. Other commitments
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
2010
160
(EUR millions) Banking activity – Commitments given Banking activity – Commitments received
67,169 38,657
2011 Ongoing activities
Activities held for sale
68,003 36,215
3,037 238
7. Notes on exposure to risk as at 31 December 2011 7.0. Risk exposures and hedging strategy RISK FACTORS AND MANAGEMENT
1. GOVERNANCE The Risk Management department is responsible for defining the acceptable level of risk for Dexia Crédit Local and its subsidiaries and branches, establishing independent and integrated risk metrics for the various types of risks, monitoring and managing those risks and actively identifying and signalling all potential risks.
The organisation and governance presented below correspond to the structure in place as at 31 December 2011; this structure will have to change in the near future, in line with the changes discussed above. The main operational responsibilities of the Risk Management department are: • developing the general risk policy, in conjunction with the Group, under the aegis of the Management Board; • establishing and managing the risk monitoring function and decision-making processes; • setting credit limits and delegations for various decision-makers.
The general organisation of the risk management function of the Dexia Group implemented at the end of 2010 is aligned with that of the Dexia Group and involves several different lines of business: credit risk on the Public and Wholesale Banking business, credit risk on the Retail and Commercial Banking business, financial risk on Financial Markets activities and operational risk. The Dexia Crédit Local Risk Management department performs its duties both directly (via the risk management staff of Dexia Crédit Local) and by employing the services of various specialised knowledge centres situated at the Group level, based on a series of service level agreements (SLAs) entered into in 2010. The major restructuring of the Group initiated in the autumn of 2011, marked notably by the sale of Dexia Bank Belgium and transfer of many Dexia SA Brussels staff to Dexia Bank Belgium, necessarily entails a reorganisation of the risk management function. Most of the activities currently performed by Dexia SA Brussels staff and by certain expert centres lodged in Dexia Bank Belgium will have to be recreated in order to manage all of the Bank’s risks. Until this new organisation is set in place, the present teams will continue to provide services in accordance with the service level agreements currently in place.
Dexia Crédit Local / Annual report 2011
1.1. Credit risk Definition
Credit risk represents the potential loss (decrease in the value of the asset or default of payment) that Dexia Crédit Local may incur due to the deterioration of a counterparty’s solvency.
Organisation
The Dexia Crédit Local Risk Management department oversees Dexia Crédit Local’s credit risk, under the aegis of the Management Board and a number of specialised committees. Along with the Group, it is responsible for defining credit risk policy, which includes the loan approval process, supervision of the counterparty rating process, analysis of loan proposals and monitoring of exposures. It defines the rules for the delegation of powers within Dexia Crédit Local and its subsidiaries and branches, and has them approved by the Group Risk Management department. Since 2010, in order to enhance its effectiveness and capitalise on the expertise available within the Group, the risk management function has moved toward an organisation based around specialised expert
Consolidated financial statements
Notes to the consolidated financial statements
• the Risk Policy Committee sets the rules for credit approval for the various sectors and types of counterparties; • the Executive Risk Committee (weekly) is responsible for defining risk management strategy and the organisation of the function; • The Management Credit Committee (weekly) is responsible for commitment decisions.
Specialised committees by expert centre
In order to streamline the decision-making process, the Management Credit Committee delegates its decision-making authority to the Dexia Crédit Local Credit Committee for transactions pertaining to the Public and Wholesale Banking business line (this committee is chaired by the Chief Risk Officer of Dexia Crédit Local or his deputy) and to the Financial Markets Credit Committee organised at the Group level for all banking and insurance counterparties and for asset backed securities. The Dexia Crédit Local Chief Risk Officer or his representative participates systematically in all of the latter committee’s meetings, approves all decisions concerning Dexia Crédit Local transactions and also has veto power. This delegation is subject to specific rules, depending on the type of counterparty, their credit rating and the value of the Group’s exposure to credit risk. The Management Credit Committee is the decisionmaking body of last resort for all credit proposals involving very large amounts or high-risk credits. Each proposal submitted to a Credit Committee includes an independent analysis presenting the main risk indicators and a qualitative analysis of the transaction. Dexia Crédit Local also delegates authority for decisions regarding public sector-type counterparties to certain subsidiaries and branches. Parallel to the process for approving lines of credit, various committees are responsible for monitoring specific risks. These committees are organised by expert centre and/or entity and meet on a quarterly basis. These committees are: • Watchlist Committees, which monitor assets considered to be “sensitive” that have been placed under active surveillance: the Dexia Crédit Local Watchlist Committee monitors sensitive Public and Wholesale Banking assets whose exposure lies below a certain
• Credit Ratings Committees, organised at the Group level, which ensure that the internal credit rating system is applied correctly and that the credit rating process is compliant with the principles that have been established and that the same process is applied by all of the various entities. The Dexia Crédit Local Risk Management department attends all Credit Ratings Committees.
1.2. Market risk Definition
The Group’s market risk reflects its exposure to changes in market parameters such as interest and exchange rates. Interest rate risk includes both a general risk on changes in market interest rates and a specific risk (spread risk) on the particular issuer. The latter is generated by changes in the spread of a specific issuer within a rating category. Currency risk reflects the potential decline in value due to fluctuations in foreign exchange rates against the euro.
Organisation
The Financial Markets Risk Management unit (FMR) oversees all market risk, under the aegis of Dexia Crédit Local’s Management Board and a number of specialised risk committees. FMRM is an integrated function within the Risk Management function. With its comprehensive approach to risk management, it is responsible for identifying, analysing, monitoring and reporting all risks and results (including asset valuations) related to financial markets activities. The policies, directives and procedures documenting and framing each of the financial markets activities are defined by Dexia SA and applied to all Dexia Crédit Local entities. The central teams organised in expert centres or Group-wide teams are also responsible for defining the methodology for calculating the income statement and measuring risk, and for the consolidated measurement, reporting and monitoring of the risks and results of each of the activities for which they are responsible. Lodged within the operating entities, the FMRM units are responsible for day-to-day operations, i.e., among other things, implementing the policies and directives defined at the Group level, as well as measuring and monitoring risk at the local level (calculating risk indicators, verifying limits and triggers, overseeing new activities/products, etc.), reporting and reconciliations with the Financial Control and Accounting departments and with the local information systems. Each operating entity is also responsible for monitoring and reporting to the local Management Boards and all local control and regulatory bodies.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
Three Group-wide committees participate in the risk management process:
Gouvernance et contrôle interne
Group-wide Committees
• Reserves Committees at both the Group and main entity levels, which approve the amounts of reserves set aside and monitor the cost of risk.
Consolidated Comptes annuels financial statements
Analysis of matters not within the purview of the CACs is performed directly by Dexia Crédit Local and its subsidiaries and branches.
• Default Committees, which qualify and monitor all counterparties in default in accordance with the Basel II regulatory framework, employing the prevailing rules applied by Dexia: the Dexia Crédit Local Default Committee monitors defaults whose exposure lies below a certain threshold, which varies with the type of counterparty, while the Public and Wholesale Banking Default Committee monitors exposures above that threshold. The Chief Risk Officer of Dexia Crédit Local is a member of the Public and Wholesale Banking Default Committee and approves all decisions concerning Dexia Crédit Local counterparties;
Assemblée générale
Central Analysis Cells (CAC), specialised by type of counterparty (project, corporate, bank, asset-backed securities, international public sector and country) have been established at Group level to pool expertise and provide all Group entities – and therefore Dexia Crédit Local itself – with all of the analyses they will need. All decisions concerning these counterparties (commitments, reserves, etc.) will remain the responsibility of the different entities and of Dexia Crédit Local in particular.
threshold, while the Public and Wholesale Banking Watchlist Committee monitors sensitive assets whose exposure lies above that threshold. The Chief Risk Officer of Dexia Crédit Local is also a member of the Public and Wholesale Banking Watchlist Committee and approves all decisions concerning Dexia Crédit Local counterparties;
Renseignements de caractère général
centres, such as project finance, local government financing and corporate financing, in conjunction with the various Dexia business lines (Retail and Commercial Banking, Public and Wholesale Banking and Financial Markets Activities). Risk committees specialised by expert centre have been set up, and are coordinated by Group-wide staff and committees.
4
161
4
Consolidated financial statements
Notes to the consolidated financial statements
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Committees
162
The Market Risk and Guidelines Committee (MRGC) meets monthly to address the following topics: analysis of risk and profit and loss trigger reports and related decisions; definition and revision of approval limits; proposed approvals of all new products; discussion of risk-related directives, governance and standards; risk concepts and risk measurement methods. The quality of the valuation process is the subject of a special-purpose MRGC that meets once every quarter and also analyses disputes concerning issues such as amounts of cash collateral provided. Ad hoc MRGCs may be organised as required to address specific operational or risk management issues. In addition to the monthly MRGC, a specific MRGC meets once a quarter to review reports on activity and risk management related to financial markets activities. The Dexia Market Risk Committee (DMRC) meets every two weeks and acts as the supervisory committee for the MRGC. The Risk Policy Committee and the Risk Executive Committee validate all material changes to be made to the risk profile or to the governance of risk.
1.3. Balance sheet management Definition
Balance Sheet Management (BSM) includes all of the structural risks on the banking book, i.e. interest rate, currency, equity and liquidity risk. The detailed definitions of structural and specific interest rate risk, currency risk and equity risk are provided in the section on market risk. Liquidity risk measures the Bank’s ability to satisfy all of its expected and unexpected current and future cash needs.
Organisation
Within the Finance function of Dexia Crédit Local Paris, the BSM department is responsible for managing all risks related to the balance sheet structure of Dexia Crédit Local at the local, parent company and consolidated levels, i.e. all interest rate, currency and liquidity risks other than those risks stemming from the Bank’s financial markets activities. Within the Risk Management department of Dexia SA, the role of BSM Risk Management is to define the risk framework under which risk management can be conducted by BSM Finance (risk factors, limits, investment universe, guidelines, etc.); validate the models used in the effective management of this risk; monitor all exposures and ensure their compliance with Group norms; define the stresses to be applied to the various risk factors; challenge the risk management carried out by the finance function, and ensure that the framework is compliant with all applicable external regulations throughout the entire Group.
Committees
pricing mechanisms employed within the Dexia Group. It delegates operational implementation to the Dexia Crédit Local ALCO and the ALCOs of the international entities. Dexia Crédit Local is represented on the Group ALCO by either its CEO or its Chief Risk Officer. By delegation from the Group ALCO, the Funding and Liquidity Committee (FLC) centralises and coordinates the decision-making process for all liquidity-related issues. The FLC is in charge of monitoring the Group’s liquidity position and ensuring that all needs are covered by short-, medium- and long-term resources. It monitors the attainment of the liquidity targets set by the Group Management Board and develops funding, divestiture and structuring strategies that will enable the Group to overcome all regulatory and internal stresses. The FLC, which meets on a bimonthly basis, takes all measures possible to improve the Group’s liquidity profile. Acting as knowledge centre for liquidity, Group BSM Finance transmits the information submitted by each entity, incorporates notably the specificities of each Dexia Crédit Local entity and centralises this information in order to permit funding conditions and the use of reserves to be optimised to the greatest extent possible. The Dexia Crédit Local ALM Committee (Dexia Crédit Local ALCO) meets monthly. The Group ALCO delegates authority to the Dexia Crédit Local ALCO for the monitoring and operational management of balance sheet risks (interest rate, currency, liquidity, etc.) at the consolidated Dexia Crédit Local level. As such, the Dexia Crédit Local ALCO, which is composed of the Chief Risk Officer, the Chief Financial Officer and the EVP-Financial Markets, is responsible for: • managing the balance sheet risk of all Dexia Crédit Local Level 1 entities (Dexia Crédit Local Paris, Dexia Crédit Local Dublin, Dexia Municipal Agency and the French subsidiaries); • monitoring the management of the balance sheet risk of all Dexia Crédit Local Level 2 entities (Dexia Crédit Local New York, FSA Global Funding Ltd., Dexia Kommunalbank Deutschland, Dexia Kommunalkredit Bank, Dexia Israel Bank Ltd, Dexia Crediop and Dexia Sabadell); • providing coordination between Group ALCO and local ALCOs: implementation of decisions, transmission of information, etc. Dexia Crédit Local ALCO decisions are implemented at the local level during ALCO meetings for those entities with their own BSM unit, or during Finance Committee meetings for all others. At Dexia Crédit Local Paris, Interest Rates and Liquidity Committees meet twice a month. These committees are composed of the CFO of Dexia Crédit Local or his representative, and representatives from the Risk Management and Financial Markets departments. The committee’s main role is to regularly monitor the balance sheet risk of Dexia Crédit Local, for both the parent company and the consolidated group, and to take all appropriate measures to ensure compliance with the risk limits established by the Group ALCO.
Three committees are responsible for monitoring BSM risk.
1.4. Operational risk
The Dexia ALM Committee (Group Assets & Liabilities Committee, or Group ALCO) meets monthly. It establishes the overall framework for risk, sets limits, guarantees the consistency of the strategy, establishes the overall level of exposure in line with the risk appetite defined by the Management Board of Dexia SA and validates the transfer
Definition Operational risk represents the risk of a financial or non-financial impact resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes information systems, legal and compliance risks, but excludes strategic risk.
(1) Loss triggers alert staff to a deterioration of earnings, and are expressed as a percentage of VaR limits, i.e. generally 50%, 75% and 100% for triggers 1, 2 and 3, and discontinuation of activity at 300% of VaR.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
The Risk Policy Committee (RPC), made up of representatives of the Management Board, approves Dexia Group-wide policies. The Operational Risk Approval Committee (quarterly) examines the main risks identified, decides whether or not they are acceptable and which if any corrective actions to implement. It also validates the proposed preventive or improvement measures in relation to the various components of the process (permanent control, information security, insurance programme, etc.). The Chief Risk Officer chairs the Committee. The Operational Risk Management Committee, chaired once a month by the Group Operational Risk Manager, develops consistent Groupwide operational risk procedures, including those for business continuity, operation, crisis management, information security and insurance. Line management has primary responsibility for managing operational risk. For each area of activity, it appoints an operational risk correspondent who coordinates the collection of data and evaluates the risks, with the help of the local operational risk management function.
2. RISK MONITORING 2.1. Credit risk Dexia Crédit Local credit risk policy The Credit Risk Management department (CRM) has established a general framework of policies and procedures consistent with the risk appetite of the Bank. This framework guides the Credit Risk Management function in its risk analysis, decision-making and monitoring functions. The various committees are delegated certain powers, within the limits established by the Bank’s executive management. CRM’s credit risk monitoring duties include controlling changes in the credit risk of its portfolios through regular analysis of credit files and review of credit ratings. It also defines and implements reserve policy. It classifies files as being in default and approves specific reserves.
Risk measurement The measurement of credit risk is based primarily on the internal rating systems developed by the Risk Management department in connection with Basel II. Each counterparty is assigned an internal credit rating by the analysts in charge of credit risk, using specialised rating applications. This internal rating corresponds to an assessment of the level of the counterparty’s risk of default expressed through an internal scale and represents a key component of the credit approval process. Credit ratings are reviewed at least once a year, which allows all counterparties requiring regular monitoring by the Watchlist Committee to be identified proactively.
In 2012, any persistence of the restrictive forces observed in 2011 or occurrence of additional shocks could undermine growth. While significant revisions are likely, the IMF growth forecast is still set at 3.25%. Growth in the eurozone slowed sharply in the second quarter of 2011, bringing the IMF’s growth estimate for 2011 to 1.6% and its forecast for 2012 to -0.5%. In 2011, market concerns within the eurozone were focused primarily on the so-called peripheral countries, including Portugal, Italy, Ireland, Greece and Spain. The situation in Greece appeared the most troubling, as in 2011 the country went through its fourth consecutive year of recession and posted a debt ratio close to 160% of GDP. The first EUR 110 billion bailout set in place in May 2010 was not enough to restore a balanced budget. The difficulties of implementing the reforms imposed by the so-called “Troika” (International Monetary Fund, European Commission and European Central Bank) against a background of tense social conditions and the chronic inability of State revenues to cover expenditures – due notably to structural weaknesses in the state’s ability to collect taxes – make fiscal consolidation difficult, despite the constitution in October 2011 of a national unity government under Prime Minister Lucas Papademos. This led to the establishment of a second, EUR 130 billion aid package, of which EUR 40 billion is to be used to recapitalise banks. The release of this aid is conditional upon the conclusion of a swap agreement with private creditors, represented by the Institute of International Finance (IIF), involving a large haircut on the Greek sovereign debt held by the latter. This plan, under which Dexia tendered all the shares it held at that time, was executed successfully in the first fortnight of March. In the United States, growth slowed down more than expected in 2011. In addition to the sharp hike in oil prices, consumer and business confidence is down, unemployment is still high and financial markets remain highly volatile. GDP growth could reach 1.5% in 2011, and could improve slightly in 2012 (1.8% according to the IMF). It should also be noted that all activity with Middle Eastern and North African countries has been temporarily suspended due to the uncertainty generated by the upheavals in these regions.
Commitments to the local public sector Against the background of the sovereign debt crisis, it is important not to extrapolate the default risk of a sovereign to that of local governments.
Annual report 2011 / Dexia Crédit Local
Présentation générale
The International Monetary Fund (IMF) reported a slowdown in global economic growth since the second quarter of 2011 under the influence of several factors including the natural disaster in Japan, rising oil prices and uncertainty about public finances in the eurozone. Consequently, the growth rate of global trade in 2011 is expected to come in at 4%.
Macroeconomic conditions
Rapport de gestion
The Management Board regularly examines changes in the risk profile of the Group’s various activities and makes all necessary decisions.
Gouvernance et contrôle interne
Fundamentals of Dexia Crédit Local’s credit risk in 2011
Consolidated Comptes annuels financial statements
The management of operational risk is based on clearly defined governance, responsibilities and roles.
Assemblée générale
Organisation
In order to limit any concentrations of risk, credit risk limits are set for each counterparty, establishing the maximum acceptable credit risk exposure for a given counterparty. Limits by business sector and by product may also be imposed by the Risk Management department. The latter actively tracks limits, which it may reduce at any time as a function of changes in the associated risks.
Renseignements de caractère général
The definition of operational risk developed by Dexia is inspired, in a non-exhaustive manner, by the definition provided by the Basel Committee, which puts the emphasis on losses (negative financial impacts). Dexia’s policy also requires the collection of data concerning any events that generated financial gains.
4
163
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
4
164
Consolidated financial statements
Notes to the consolidated financial statements
Nevertheless, the financial data available for local governments show changes in performance in most European countries and in the United States, the result of difficult economic conditions leading to a decline in tax revenues. Opportunities for savings are growing more limited and cash reserves are starting to show signs of strain. This general deterioration, which in 2011 led Dexia Crédit Local to set aside collective reserves against the local public sectors of Spain, Italy and North America, turned out to be contained and has not yet resulted in any increase in defaults. This is supported by the number of cases monitored every quarter by the Special Mention and Watchlist Committee. This is attributable notably to the highly restrictive institutional framework imposed upon local governments in almost all of the countries where Dexia has customers, and to its having been strengthened even further in recent times because of the global economic crisis. Situations do, however, differ from one country to another. In France, local governments were generally able to preserve savings and limit the growth of their debt in 2011. However, they must incorporate new, structural constraints into the planning of their investments, including notably the suspension of all State grants: the latter generates a loss of financial flexibility for the regions and departments, especially on the heels of the reform of the local business tax and in the light of access to credit being more difficult. This overview, however, masks certain occasionally difficult individual situations. More than ever before, local government access to credit is conditioned on their financial position and the quality of their management, which could eventually exacerbate the liquidity situation of the most fragile local governments. The same can be said for the healthcare sector. Under these crisis conditions, Dexia Crédit Local reduced its public sector credit limits and made lending rules more stringent. In Spain, the local public sector was hit hard by the economic recession. Savings declined in all three segments (regions, provinces, municipalities), while debt is rising and cash reserves are falling sharply. The first data available for 2010 show a significant drop in regional revenues (savings expected to decline by 6% and debt to come in at 91%). The constraints set in place to limit debt have been strengthened: • a target deficit of 1.3% of GDP was set for the regions in 2011. This objective was not reached: the deficit is expected to come in at 2.7% of GDP. If this objective is not achieved, the regions will have to submit an Economic and Financial Plan to the central government which, if not validated, will preclude the regions from borrowing long-term funds; • municipalities and provinces whose debt exceeds 75% of current revenue have been banned from borrowing. Regional public sector agencies have seen their transfers/grants cut and have sometimes been forced to revise their budgets and multiyear plans. Certain regions have also launched programmes to streamline the public sector. In Italy, the Internal Stability Pact – intended to regulate spending and public debt – has been maintained. In the most recent full sets of accounts currently available, i.e. 2009, current municipal revenues rose an average of 3%, the same rate as administrative expenses: administrative savings are therefore relatively stable. Average debt per capita, however, has increased substantially and fiscal flexibility has declined.
Dexia Crédit Local / Annual report 2011
In the Italian regions, the federal government continued to intervene to limit deficits in the healthcare sector (this item represents 80% of all current spending in the regions). Current regional tax revenues remained stable in 2009 and spending decreased slightly, keeping savings fairly stable, after interest payment on debt. The average level of debt remained fairly low. In the United States, as State tax revenues are very directly linked to economic conditions (about 40% come from personal income tax, 30% from sales tax and 8% from corporate income tax), States were impacted by the sharp slowdown in economic activity and strong rise in unemployment and therefore brought in less revenue. States were very active in the face of this decline, reducing costs (primarily education and healthcare), delaying payment of their contributions for pensions and issuing short-term paper to reduce their deficits. They also drew heavily on their reserves. Despite this context, debt levels remained fairly stable and debt service continues to represent only a marginal fraction of total expenses. County and municipal revenues are reliant in part on transfers from State governments, while the latter have tended to limit their assistance. These local governments are funded by property taxes (70% of municipal revenues) and sales taxes (for counties), both of which have been affected by the economic downturn. Debt service, however, remained low (less than 8% of revenue) and debt ratios are generally stable.
Bond portfolio In line with the Bank’s commitments to the European Commission, Dexia Crédit Local continued to sell off its bond holdings in 2011, automatically lowering Dexia Crédit Local’s credit risk. The average rating of the portfolio improved slightly. As mentioned in the section on macroeconomic conditions, the intensification of the sovereign crisis within the eurozone led Dexia Crédit Local to reduce its sovereign exposure. Dexia Crédit Local also got rid of its risky US residential mortgage-backed securities assets (US RMBS) by selling almost the entire Financial products covered bond portfolio. Certain asset-backed securities remain under watch (including Irish and Greek RMBSs) but the Bank’s exposure is fairly limited. Generally speaking, the ABS/MBS portfolio is composed of senior tranches with levels of protection that remain satisfactory. The credit quality of the bond portfolio remains very good, with 92% rated investment grade.
Exposure to credit risk
Exposure to credit risk is described in note 7.2.A “Credit risk exposure”.
2.2. Market risk Dexia Crédit Local market risk policy
In order to manage market risk on a consolidated basis, Dexia has developed a framework based on the following: • a comprehensive approach to the measurement of risk, which constitutes an important part of the Dexia Group’s process for monitoring and controlling its risk profile; • a structure of limits and procedures governing the acceptance of risk, consistent with the entire risk measurement and management process and with the maintenance of an adequate capital position.
Consolidated financial statements
Notes to the consolidated financial statements
VaR techniques are being improved continuously. Launched in 2010, the Market Risk Engine now provides an historical VaR that factors in every risk factor (with a full reassessment of all nonlinear risk factors). The comprehensive historical VaR technique, which has emerged as the standard in many banks, provides a consistent and accurate risk measure. This recent tool will facilitate stress testing, analysis of outliers and the implementation of the stressed VaR required by the EU directive on regulatory capital (CRD 3). A request was filed on behalf of the entire Dexia Group, including Dexia Crédit Local, with the National Bank of Belgium (BNB) in late 2011 to obtain permission to use historical VaR instead of parametric VaR to calculate the regulatory capital requirement. Once authorisation is received, historical VaR will also be used internally for risk management purposes. In addition to VaR and loss trigger metrics, Dexia Crédit Local uses a wide range of other metrics to assess the risks associated with its different businesses and portfolios (limits for nominal volumes, maturities and authorised markets and products; limits for sensitivity to the various risk factors; etc.).
Interest rate risk The role of the Balance Sheet Management (BSM) unit within the risk management function is to reduce the volatility of Dexia Crédit Local’s income statement, in order to ’immunise’ the operating profits generated by the business lines and protect the Group’s overall creation of value from changes in interest rates. Dexia’s approach to interest rate risk management is to reduce its exposure by continuously restoring the equilibrium between the interest rates on its assets and the interest rates on its liabilities. All Group entities use the same methods to measure balance sheet risk. The primary metric used to set limits and monitor risk is currently the sensitivity of the net present value of BSM positions to changes in interest rates. Dexia Crédit Local’s structural interest rate risk is generated primarily by long-term European interest rates and results from the structural imbalance between the Group’s assets and its liabilities. Risk sensitivity measurements reflect the exposure of the balance sheet to first- and second-order sensitivity. VaR calculations provide complementary, indicative measurements. Interest rate risk is monitored on a fortnightly basis in the main entities of the Dexia Crédit Local Group and is managed by local committees. Risk indicators are calculated on a “dying balance sheet” and until its extinction. The results of this monitoring are presented each month to Dexia Crédit Local’s Asset & Liabilities Committee (ALCO), which determines the interest-rate risk policies and limits to be observed by its subsidiaries, as the limits to be observed by Dexia Crédit Local are established by the Group ALCO.
Stress testing enhances the risk management process by examining a range of events not within the probability-based framework of VaR measurement techniques. VaR measures estimated market risk under traditional, everyday conditions, while stress testing quantifies it under abnormal circumstances. In this context, the various assumption scenarios are reviewed and updated regularly. In 2011, stress test scenarios on all the sovereign issues, correlations of interest rates and the credit value adjustment were all performed. The consolidated results of stress testing and the corresponding analysis are presented once a quarter to the MRGC, the DMRC and the local Management Board of Dexia Crédit Local.
Currency risk (structural)
Bonds in the bond portfolio (banking book) are not subject to VaR limits, due to their different investment horizon, but they are subject to regular stress tests.
• from an accounting standpoint, the non-structural currency position includes foreign currency-denominated assets and liabilities other than equity investments, realised gains and losses in foreign currencies and provisions for risks denominated in foreign currencies;
Exposure to market risk Exposure to market risk is described in note 7.5 “Sensitivity to interest rate risk and other market risks”.
Présentation générale
Risk measurement
Rapport de gestion
Dexia uses an in-house parametric VaR model to calculate its regulatory capital requirements on the general interest rate and currency risk generated by its trading activities.
Dexia Crédit Local takes a conservative approach to asset-liability management. The main objective is to minimise earnings volatility and preserve value. The Bank seeks to stabilise its overall income, not to create additional income through the voluntary assumption of interest rate risk. Interest rate sensitivity is considered to be the main tool for measuring risk (total revaluation expressed in terms of sensitivity). A parametric VaR based on interest rate sensitivity is calculated at the Dexia Group level for information purposes. The key risk metrics used by the ALM Committees (ALCO) to manage this risk remain, however, global and partial sensitivity by time interval.
Gouvernance et contrôle interne
• historical VaR is used to measure specific interest rate risk, equity risk and the other risks found in the trading portfolio. The distribution of historical VaR is built by applying historical scenarios for the risk factors affecting the current portfolio.
Dexia Crédit Local ALM risk policy
Consolidated Comptes annuels financial statements
• parametric VaR is used to measure general interest rate risk and currency risk, using a technique based on the assumption of a normal distribution of the yields on risk factors;
2.3. Balance sheet management
Dexia Crédit Local does not engage in any forex activities. The basic principle is that all assets denominated in foreign currencies (other than equity investments) are systematically funded in the currency of origin. Thus, any foreign currency positions are generated solely by the results (positive or negative) of operations denominated in foreign currencies.
Assemblée générale
The Dexia Group has adopted the Value at Risk (VaR) risk measurement technique as one of its main risk metrics. VaR measures the potential loss expected for a 99% confidence interval over a 10-day holding period. Dexia uses several VaR techniques to obtain a precise measurement of the inherent market risk of its various portfolios and activities:
Foreign currency positions are managed within the framework of ALM activities. They can be divided into three compartments, each of which has its own specific monitoring and oversight:
Renseignements de caractère général
Risk measurement
4
• future results denominated in foreign currencies: current transactions (ALM margins, securities, equity investments, etc.) containing future
Annual report 2011 / Dexia Crédit Local
165
4
Consolidated financial statements
Notes to the consolidated financial statements
Présentation générale
results denominated in foreign currencies that have not yet been recognised but the amount and maturity of which are relatively certain. Group ALCO is authorised to hedge these items in advance using forward purchases/sales of foreign currencies against the accounting currency of record; • the structural foreign currency position represents the currency risk of equity investments acquired in foreign currencies. The revaluation of this position at each balance sheet date affects only the balance sheet and has no impact on earnings. It is recognised in profit or loss only in relation to dividend payments and the setting aside of reserves on, or the sale of, the corresponding asset.
Rapport de gestion Gouvernance et contrôle interne Consolidated Comptes annuels financial statements Assemblée générale Renseignements de caractère général
Exposure to liquidity risk
Balance sheet exposure
In 2011, Dexia Crédit Local raised EUR 16.6 billion in medium- and long-term funding. The funds raised included EUR 8.4 billion of covered bonds, EUR 6.5 billion of other types of secured long-term financing and EUR 1.7 billion of senior unsecured financing.
2.4. Liquidity risk
In 2011, the balance sheet reduction programme allowed the Group to sell off EUR 7.4 billion in bonds and EUR 3.6 billion in long-term loans previously held by the Public and Wholesale Banking business.
Balance sheet exposure is described in note 7.5. 7.5 of the notes to the consolidated financial statements.
166
indicators are assessed in accordance with different scenarios, in the main currencies, at all appropriate levels of consolidation and over various horizons ranging from one day to one month for short-term indicators, and from one day to 50 years for long-term indicators. Dexia Crédit Local’s liquidity risk is also limited by the regulatory ratios established by its regulator, and is monitored regularly by the Management Board, the Audit Committee and the Board of Directors of Dexia Crédit Local.
Dexia Crédit Local liquidity risk policy
Two committees are responsible for the management of liquidity risk: the Funding and Liquidity Committee (FLC) and the Dexia Crédit Local ALCO. The FLC includes all interested parties at Group level and coordinates their actions. Information and decisions affecting Dexia Crédit Local or any of its subsidiaries are also discussed during the Dexia Crédit Local ALM Committee (ALCO), which is responsible for monitoring balance sheet risk within the consolidated scope of Dexia Crédit Local. Finally, Dexia Crédit Local’s Management Board, Audit Committee and Board of Directors regularly monitor the Group’s liquidity position. Dexia strives to maintain a liquidity reserve that is proportional to its future funding needs under different scenarios, including both normal and stress conditions. This liquidity reserve consists of securities that qualify for the funding programmes of those central banks to which Dexia has access. Dexia’s expected funding needs are assessed in a conservative, dynamic and exhaustive manner, taking account of all existing and planned transactions (both on- and off-balance sheet). Short-term liquidity risk is monitored on a daily basis, whilst long-term liquidity risk is monitored on a monthly basis. Moreover, the liquidity issue is central to the definition of Dexia’s multi-year financial plan. Dexia’s internal liquidity risk management process allows daily monitoring of liquidity and provides a prospective outlook on longterm liquidity: this forward-looking vision factors in assumptions as they occur as well as the various stress factors that can affect growth. This includes things such as drawings on off-balance sheet commitments and issues related to the renewal of long-term funding. Changes to these scenarios have been presented regularly to the Liquidity Committee and the Audit Committee of Dexia Crédit Local. The updated emergency funding plan alters the governance structure to make it more responsive at times when liquidity stress requires prompt action.
Risk measurement
The Dexia Group defines a number of liquidity indicators to measure and monitor how well Dexia would hold up in the face of a liquidity risk. These indicators include but are not limited to the usual “liquidity ratios” comparing the liquidity reserve to the liquidity gap. They include limits on the absolute size of the liquidity gaps and limits on the proportion of short-term funding used. All of these
Lastly, the imposition of a cap on the value of corporate loans (EUR 4.4 billion in new lending) also contributed to the reduction of the Group’s funding requirements. These efforts, however, were not enough to maintain momentum in reducing Dexia Crédit Local’s short-term funding needs, in the light of the long-term debt that was paid down over this period (EUR 34 billion). With the intensification of the sovereign debt crisis, Dexia Crédit Local’s liquidity position, which had improved during the first half, deteriorated significantly starting in the summer of 2011; this caused its regulatory liquidity coefficient to deteriorate significantly, after showing signs of improvement the previous months. For information, the regulatory coefficient measures a credit institution’s projected liquidity position over a given time horizon(1). As at 31 December 2011, Dexia Crédit Local was not able to attain the minimum regulatory threshold required for compliance with the liquidity coefficient to which it is subject. Future compliance with this ratio will depend on the execution of the Group’s issuance plan, which remains the subject of much uncertainty. Following the agreement reached with the French, Belgian and Luxembourg states, a temporary guarantee programme was established in the fourth quarter. The aid programme extended to Dexia SA and its Dexia Crédit Local subsidiary has two ultimate goals: • allow the Dexia Group to carry out the various sales of entities that are planned; • once this has been accomplished, to provide for the Group’s funding needs over the long term. The legal form of the guarantee mechanism is similar to the scheme set up in 2008 and amended in 2009. It consists of a tripartite, irrevocable, unconditional, direct and autonomous demand guarantee extended by the Belgian, French and Luxembourg States. The guarantee provided is joint but not several, and the distribution between the States remains unchanged (60.5%, 36.5% and 3% for Belgium, France and Luxembourg, respectively); it covers contracts, securities and financial instruments. This temporary mechanism is set to expire on 31 May 2012, and it is capped at EUR 45 billion.
(1) The French Prudential Control Authority (ACP) coefficient applicable to Dexia Crédit Local is defined as cash in bank and on hand (the numerator) divided by current liabilities (the denominator) over a prospective period of one month; the coefficient so calculated must at all times be greater than 100 (Instruction No. 2009-05 of 29 June 2009 regarding the standardised approach to liquidity risk).
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
By mid march 2012, a total of nineteen customers had sued Dexia Crédit Local over structured loans. The most significant disputes concerning Dexia Crédit Local’s consolidated subsidiaries are described below: • Dexia Crediop, like other banks in Italy, is the subject of legal proceedings regarding hedging transactions entered into in connection with debt restructuring agreements with local governments. By early 2012, nine legal proceedings had been filed. Under Italian law, debt may be restructured only if this lowers the cost borne by the community. The legal question raised is whether or not the cost to be taken into consideration includes the cost of hedging transactions. In November 2010, the Administrative Tribunal of the Region of Tuscany ruled in favour of the province of Pisa in its dispute with Dexia Crediop, in which it stated that the hedging transaction must be included in the calculation of the cost of the transaction. Dexia Crediop appealed this decision and on 7 September 2011, the State Council validated the ruling of the Administrative Tribunal, but named a financial specialist to evaluate any losses suffered by the province. The specialist must submit his report by 14 May 2012, and a heating with the State Council is planned for 9 June 2012. Dexia Crediop also appealed the decision of the State Council to the Final Court of Appeals. Dexia Crediop also filed various appeals with civil and administrative courts to preserve its rights stemming from certain hedging transactions. Dexia is not able at present to reasonably predict the length, the outcome or the potential financial repercussions of the disputes. • In May 2002, a complaint was filed concerning Dexia’s purchase of shares held by the State of Israel, alleging a breach of corporate law. In April 2009, the Central District Court dismissed the class action claim filed by the plaintiffs. In June 2009, the latter appealed their case to
In addition to the government investigations described above, a large number of banks, insurance companies and brokerage firms, including in some cases FSA Holdings, Dexia and/or AGM, have been subpoenaed in various civil cases relating to GICs and certain other transactions entered into with local governments. These civil lawsuits concern possible breaches of antitrust laws and other laws and regulations. Almost all of these civil suits have been combined and are being handled by the US District Court for the Southern District of New York. Under the terms of the sale of FSA Holdings and AGM to Assured Guaranty Ltd., Dexia has retained the Financial products business and agreed to indemnify AGM and Assured Guaranty Ltd. for all losses related to this activity that they may incur as a result of the investigations and lawsuits mentioned above. Dexia is not able at present to reasonably predict the length, the outcome or the potential financial repercussions of the investigations and legal proceedings already underway. Furthermore, on 27 July 2010, the US Department of Justice accused Steven Goldberg, a former employee of AGM, and two of his former colleagues at his previous employer in connection with a case involving bid rigging. The US Department of Justice did not name AGM or any other Dexia Group entity in the indictment it issued against Goldberg. • In June 2009, a customer of Dexia banka Slovensko, who turned out to be unable to meet margin calls in connection with foreign exchange transactions he had entered into, instituted legal proceedings against Dexia banka Slovensko, seeking EUR 162.4 million for breach of law and contractual obligations. Dexia banka Slovensko filed a counterclaim in the amount of EUR 92.2 million. On 17 May 2010, the Court of Instance [Magistrates’ Court] of Bratislava ruled in first instance in favour of the bank’s former client and the bank was ordered to pay EUR 138 million in principal. By a separate order, Dexia banka Slovensko was also ordered to pay costs in the amount
(1) The guaranteed investment contracts (GICs) that are the subject of these investigations and these subpoenas were issued by subsidiaries of FSA Holdings Ltd. in exchange for funds invested by US municipalities, or in favour of issuers of securitised debt. The GICs, whose terms and repayment conditions vary, entitle their holders to receive interest at a guaranteed rate (fixed or variable) and a repayment of principal. The payment of principal and interest on the GICs was guaranteed by AGM and remain so subsequent to that company’s acquisition by Assured Guaranty Ltd.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion
• Financial Security Assurance Holdings Ltd. (FSA Holdings Ltd.) and its subsidiary, Financial Security Assurance Inc., hereafter referred to as Assured Guaranty Municipal Corp. (AGM), previously subsidiaries of the Dexia Group, and many other banks, insurance companies and brokerage firms are being investigated in the United States by the Antitrust Division of the US Department of Justice, the US tax authorities and the Securities and Exchange Commission (SEC) on the grounds that they violated the laws and regulations applicable to requests for proposals and the contracting of various transactions with local governments, including the marketing of guaranteed investment contracts (GICs(1) entered into with issuers of municipal bonds. Several US States have initiated parallel, similar investigations.
Gouvernance et contrôle interne
During 2011, no significant change was observed in the number of disputes with customers, which remained few.
The most significant disputes concerning Dexia Crédit Local’s nonconsolidated subsidiaries are described below:
Consolidated Comptes annuels financial statements
2.5. Legal risk
In December 2011, a second class action suit was filed by nine individual shareholders against Dexia Crédit Local and Union of Local Authorities in Israel (ULAI) in their capacity as shareholders and against Dexia Israel.
Assemblée générale
The Group’s liquidity requirement at one month increased by 14% year on year to EUR 34.5 billion as at 31 December 2011. At that same date, central bank financing amounted to EUR 49 billion, consisting of EUR 30 billion in financing obtained through European Central Bank tenders and EUR 18.7 billion in drawings under the emergency liquidity assistance (ELA) line set up in early October 2011 from the entire central banking system. While the Group will strive to reduce this amount, the size and timetable for paying down the ELA drawing will depend greatly on Dexia Crédit Local’s ability to issue guaranteed debt.
the Supreme Court. The hearing was held on 8 November 2010, and the Supreme Court will render its ruling at a later date.
Renseignements de caractère général
The European Commission approved the temporary guarantee agreement on 21 December 2011; it went into effect on 22 December and has allowed Dexia Crédit Local to raise guaranteed funding in the market ever since. In all, EUR 21.6 billion had been raised under this programme as at 30 December 2011, and EUR 23.7 billion as at 25 January 2012.
4
167
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
4
168
Consolidated financial statements
Notes to the consolidated financial statements
of EUR 15.3 million. Dexia banka Slovensko appealed both decisions to the Court of Appeals of Bratislava and, in response to these convictions, withdrew its counterclaim from the Magistrates’ Court and filed it for a higher amount with the Permanent Chamber of Arbitration of the Slovak Banking Association. On 25 January 2011, the Court of Appeals of Bratislava issued a ruling overturning both of the judgments rendered by the Court of Instance of Bratislava. The case will be resubmitted to the Court of Instance. In its ruling, the Court of Appeals of Bratislava said that the Court of Instance had not established the facts to a satisfactory degree and invalidated its legal argument. The argument of the Court of Appeals will be binding on the Court of First Instance recently notified.
The strong involvement of the Dexia Group in monitoring the regulatory changes brought about by Basel III resulted in the establishment of a dedicated governance system involving a strong collaboration between the risk management and finance functions in order to successfully execute all necessary changes in respect of the new requirements for the calculation of the consumption of capital (CVA, AVC, liquidity, definition of capital).
It should be recalled that all of the risks pertaining to the nonconsolidated subsidiaries are covered by Dexia SA.
Depending on the objective, the financial derivatives used are designated as fair value hedges, cash flow hedges or hedges of net investments in foreign currencies.
3. CHANGES IN THE REGULATORY FRAMEWORK
Each and every hedging relationship is formally documented from the outset, describing the strategy pursued, designating the hedged instrument and the hedging instrument, the type of risk hedged and the methodology used to assess the prospective and retrospective effectiveness of the hedge.
The Dexia Group implements all measures related to the Basel II regulations and strives to make improvements on a continuous basis. Since 1st January 2008, Dexia Crédit Local has therefore applied the Advanced Internal Rating Based Approach (AIRBA) to calculate its capital requirements and capital adequacy ratios. Pillar 2, which has been applicable since 31 December 2008, requires banks to demonstrate to their regulators that they are sufficiently capitalised in the light of their risk profile. To accomplish this, the banks must notably have internal systems for calculating and managing their risk that are capable of estimating their economic capital needs (Internal Capital Adequacy Assessment Process, or ICAAP). Incorporated into the Group in 2010, this process is distinguished notably by its definition of risk appetite and the process for ensuring that adequate capital is maintained (see section on “Internal capital adequacy” of the Risk management portion of the management report).
Interest rate risk hedge management The Group uses swaps, options, and foreign exchange futures essentially to hedge interest rate and currency risk.
Insofar as interest rate risk is concerned, fair value hedges are applied to either specific fixed rate assets or liabilities or to portfolios of fixed rate assets or liabilities. Derivative financial instruments are contracted to reduce the exposure of the value of these instruments to changes in interest rates. Hedges of specific assets or liabilities concern primarily loans, availablefor-sale securities and Group debt issues. Hedges of portfolios of financial assets or liabilities, established by currency, concern: • fixed-rate loans: customer loans; • fixed-rate customer resources (debt issues).
Pillar 3, which defines a set of qualitative and quantitative risk-related disclosures to be provided to market players, is applied at the highest consolidated level of the Dexia Group, and has been an integral part of its external communication policy since 2008 (see document entitled Risk Report – Pillar 3 of Basel II available at www.dexia.com).
The amount hedged is calculated by laying out a schedule of the outstanding terms to maturity of the hedged items and designating one value per considered maturity band. These maturity schedules factor in the contractual terms of the transactions.
Finally, Dexia was deeply involved with all domestic and international consultations, participating notably in the Bank for International Settlements’ study of the impact of Basel III reform on the definitions of items such as equity, gearing, liquidity ratios, etc.
For each hedging relationship, prospective effectiveness is measured by ensuring that the outstanding value of hedged items in each maturity band is greater than the outstanding value of the designated financial hedging derivatives.
Dexia worked actively on applying the so-called CRD 2 and CRD 3 EU regulatory capital Directives.
Retrospective effectiveness is measured by ensuring that the monthly change in outstandings hedged at the start of the period does not show signs of any retrospective over-hedging.
Under the terms of CRD 2, on 31 December 2010 Dexia made changes to intercompany and interbank exposures for the calculation of “major risks” and developed internal guidelines to ensure the retention of 5% of all securitised exposures on any new originations. Similarly, under the terms of CRD 3 (applicable as at 31 December 2011) the Group developed an internal measure of stressed value at risk (VaR) to calculate the capital charge in respect of market risk and implemented new requirements for the calculation of the consumption of capital by securitisation and re-securitisation holdings (although there is very little of this in the Dexia Group) in both the banking and trading books.
Dexia Crédit Local / Annual report 2011
With interest rate risk, the Group uses financial derivatives to hedge any changes in income and expenses on floating-rate assets and liabilities. Highly probable future transactions are also hedged. The items hedged are positioned in maturity schedules, by currency and by interest rate index. The Group uses financial derivatives to hedge all or part of the risk exposure generated by these floating-rate instruments.
Consolidated financial statements
Notes to the consolidated financial statements
4
7.1. Fair value a. Fair value Unrecognised fair value adjustment
424 22,625
424 22,455
0 (170)
239,982 839
233,409 812
(6,573) (27)
96,587 13,457
95,598 13,289
(989) (168)
190,069 4,319
189,329 4,509
(740) 190
(EUR millions)
As at 31 December 2011 Carrying amount
Unrecognised fair value adjustment
Fair value
Ongoing activities
Activities held for sale
Ongoing activities
Activities held for sale
Ongoing activities
Activities held for sale
3,056
2,198
3,056
2,198
0
0
(EUR millions) Cash, central banks and postal checking accounts
12,534
2,556
11,814
2,556
(720)
0
Customer loans and advances Financial assets held to maturity
Interbank loans and advances
155,180 561
73,238 0
153,404 611
72,612 0
(1 776) 50
(626) 0
Central banks, postal checking accounts and interbank borrowings and deposits
100,740
2,700
100,069
2,700
(671)
0
7,172
0
6,898
0
(274)
0
104,892 1,762
68,411 0
99,553 1,702
66,531 0
(5,339) (60)
(1,880) 0
Customer borrowings and deposits Debt securities Subordinated debt
b. Methods used to determine the fair value of financial instruments Fair value of financial assets As at 31 December 2011 Ongoing activities (EUR millions)
Level 1(1)
Level 2(2)
Level 3(3)
Total
Activities held for sale Level 1(1)
Level 2(2)
Level 3(3)
Total
Loans and securities at fair value through profit or loss (see note 2.1)
0
30
2,347
2,377
0
0
0
0
Derivatives (see note 4.1.a)
0
25,404
1,652
27,056
0
9,196
996
10,192
4,600 4,600
17,241 42,675
7,719 11,718
29,560 58,993
423 423
84 9,280
142 1,138
649 10,841
Financial assets available for sale TOTAL
Gouvernance et contrôle interne
Debt securities Subordinated debt
Consolidated Comptes annuels financial statements
Central banks, postal checking accounts and interbank borrowings and deposits Customer borrowings and deposits
(1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. (2) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). (3) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Annual report 2011 / Dexia Crédit Local
Assemblée générale
Customer loans and advances Financial assets held to maturity
Renseignements de caractère général
Cash, central banks and postal checking accounts Interbank loans and advances
Rapport de gestion
Fair value
Présentation générale
As at 31 December 2010 Carrying amount
169
4
Consolidated financial statements
Notes to the consolidated financial statements
Fair value of financial liabilities As at 31 December 2011 Ongoing activities
Présentation générale
(EUR millions)
Level 1
(1))
(2)
Level 2
Level 3
Activities held for sale (3)
(1))
Total
Level 1
Level 2(2)
Level 3(3)
Total
Financial liabilities at fair value through profit and loss (see note 3.1.a)
0
1,764
0
1,764
0
0
0
0
Derivatives (see note 4.1.a) TOTAL
0 0
51,652 53,416
3,478 3,478
55,130 56,894
0 0
4,766 4,766
5,074 5,074
9,840 9,840
(1) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. (2) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). (3) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
As at 31/12/2011
Ongoing activities (EUR millions)
From 2 to 1
0 0
0 0
Financial assets available for sale
109
0
TOTAL FINANCIAL ASSETS
109
0
Financial liabilities at fair value through profit or loss
0
0
Derivatives TOTAL FINANCIAL LIABILITIES
0 0
0 0
Level 3 reconciliation Ongoing activities
As at Total gains 31/12/2010 and losses through profit and loss
(EUR millions) Loans and securities at fair value through profit or loss
2,863
186
Derivatives
2,902
122
Direct origination
Settlement
Transfer into activities held for sale
Transfer into level 3
Transfer out of level 3
Other As at movements(1) 31/12/2011
Total unrealised or deferred gains and losses
Purchase
Sale
0
(686)
(91)
0
27
(8)
56
2,347
0
114
4
(70)
(1,356)
(19)
(60)
15
1,652
Financial assets available for sale
26,309
(1,439)
(3,593)
123
(2,687)
(1,845)
(582)
31
(7,608)
(990)
7,719
Total financial assets
32,074
(1,131)
(3,593)
237
(3,369)
0
(2,006)
(1,938)
39
(7,676)
(919)
11,718
23
0
0
0
0
0
0
0
0
(15)
(8)
0
6,239 6,262
1,599 1,599
(1) (1)
599 599
0 0
0 0
(1) (1)
(4,955) (4,955)
7 7
(13) (28)
4 (4)
3,478 3,478
Financial liabilities at fair value through profit or loss Derivatives Total financial liabilities
(1) Other adjustments include notably the impact of changes in exchange rates during the year. In 2011, they also include a negative adjustment of EUR 1,201 million due to the deconsolidation of Dexia FP Holdings Inc. and Dexia Holdings Inc.
Renseignements de caractère général
170
From 1 to 2
Loans and securities at fair value through profit or loss Derivatives
Assemblée générale
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Transfer between levels 1 and 2
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
Concerning the valuation of bonds and CDS, when using its models, the Group considered alternative assumptions for the following unobservable parameters:
7.2. Credit risk exposure
• credit spreads, by considering credit spreads available for the same counterparty, or, failing that, for similar counterparties, or belonging to similar sectors or by using credit spreads indexed to liquid CDS indices; • cash-CDS bases, which from can be inferred the spreads for CDS spread securities; • liquidity of the financial instrument, according to the level of market activity for the instrument. Tests have been performed on bonds and CDS classified in level 3. The main impacts are as follows: • for level 3 bonds classified as available for sale, the sensitivity of the AFS reserve to alternative assumptions is estimated to range from a negative impact of EUR 157 million to a positive impact of EUR 130 million in 2011 (negative EUR 245 million to positive EUR 293 million in 2010); • Dexia’s tailor-made negative basis trades (NBT) are considered as a single product. Therefore, the bond and the related CDS are tested together. The main assumption affecting their fair value is the impact of early unwinding of the NBT (bid/ask spread). In 2011, based on the significant number of early unwinds of NBT since 2009, and taking into account all NBT transactions remaining in the portfolio, the positive impact (average unwind costs in 2009) is EUR 7 million whereas the negative impact (average unwind costs in 2011) comes to EUR 41 million. In 2010, the positive impact was EUR 4 million and the negative impact was EUR 33 million.
Credit risk exposure is disclosed in the same way as it is reported to Management and is: • for balance sheet assets other than derivative contracts, the net carrying amount (i.e. accounting value after deducting specific provisions); • for derivative contracts, the market value recognised on the balance sheet; • for off-balance sheet commitments, the amount shown in the notes, being the undrawn amount of financing commitments and the maximum amount that may be called under guarantee commitments.
a. Exposure by geographical region and by counterparty category Credit risk exposure is broken down by geographical region and by counterparty taking into account all guarantees obtained. This means that when credit risk exposure is guaranteed by a third party whose weighted risk (for Basel regulations) is lower than that of the direct borrower, the exposure is assigned to the guarantor’s geographical region and industrial segment. Credit risk exposure is based on a scope that encompasses the fullyconsolidated subsidiaries of Dexia Crédit Local Group and 50% of the joint venture Domiserve.
Renseignements de caractère général
Assemblée générale
The effect of the alternative assumptions on CDS credit spreads was estimated at positive EUR 3.6 million (positive scenario) and negative EUR 3.7 million (negative scenario), before tax. In 2010, the respective estimates were positive EUR 5 million and negative EUR 5 million.
Rapport de gestion
No material deferred day-one profit was recognised in 2010 or 2011. Transactions generating a profit on the first day (essentially perfect matches) are measured using observable market parameters.
Gouvernance et contrôle interne
The Dexia Crédit Local Group measures the fair value of certain instruments (bonds and CDS) partly by using mark-to-model pricing. The sensitivity analysis described below measures the impact on fair value of alternative assumptions for unobservable model parameters.
Présentation générale
c. Disclosure of difference between transaction prices and modeled values (day-one profit or loss)
Consolidated Comptes annuels financial statements
Sensitivity of level 3 valuations to alternative assumptions
4
Annual report 2011 / Dexia Crédit Local
171
4
Consolidated financial statements
Notes to the consolidated financial statements
Exposure by geographical region As at 31 December 2010
Présentation générale
(EUR millions)
Rapport de gestion Gouvernance et contrôle interne
Activities held for sale
91,102 49,141
39,472 31,819
54,027 7,400
Germany
30,340
26,618
1,163
Greece
2,885
649(1)
0
Ireland
1,275
945
5
41,945
35,208
4,010
Italy Luxembourg
2,275
1,351
1,365
23,751
22,184
541
4,588
4,080
141
33,076
21,974
5,408
7,643
6,098
49
470
376
0
54,364
38,012
597
South and Central America
3,106
1,988
0
Southeast Asia
1,184
1,524
0
Japan
8,387
7,071
25
6,867 362,399
5,973 245,342
17 74,748
Spain Portugal Rest of Europe Turkey U.S. and Canada
Rest of world(2) TOTAL
(1) After factoring the Dexia SA guarantee on the Greek sovereign bonds carried by Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. (2) Includes supranational entities
Exposure by counterparty category As at 31 December 2010 (EUR millions)
As at 31 December 2011 Ongoing activities
Activities held for sale
27,785 116,910
4,053 67,165
Central governments Local governments(1)
35,170 204,592
Financial institutions
70,915
62,087
3,166
Corporates
12,057
10,245
150
7,558
4,879
0
ABS/MBS
14,550
7,299
79
Project finance
17,106
16,137
135
451 362,399
0 245,342
0 74,748
Monoline insurers
Private individuals, SME, sole traders TOTAL
(1) Of which, in 2011: EUR 118 million for Greece, EUR 17,177 million for Italy, EUR 154 million for Hungary, EUR 1,793 million for Portugal and EUR 11,279 for Spain.
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Ongoing activities
France Belgium
Other EU countries
172
As at 31 December 2011
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
Credit risk exposure of sovereign assets for certain European countries covered by a European support plan As 31/12/2011 Italy
Hungary
Portugal
Spain
Securities available for sale
Loans and securities held to maturity
Securities available for sale
Loans and securities held to maturity
Securities available for sale
Securities available for sale
Loans and securities held to maturity
Securities available for sale
2,397
359
3,899
5,269
1,289
1,812
63
466
849
77
1,487
610
89
560
0
52
0
0
(1,901)
0
(294)
(911)
0
(40)
(1,788)
(268)
0
0
0
0
0
0
(849)
(77)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
609
91
3,485
5,879
1,084
1,461
63
478
Exposure: Carrying amount before fair value adjustments Fair value adjustment due to interest rate hedged Fair value adjustment not hedged Impairment on carrying amount Impairment on hedges (including cash flow hedge) Provision (off-balance sheet commitments – financial guarantees) Total as at 31 December 2011
Présentation générale
Greece
Rapport de gestion
Ongoing activities (EUR millions)
0
(1,901)
(71)
(294)
(911)
0
(40)
0
375
23
21
40
0
11
Available-for-sale reserve (net)
0
0
(1,526)
(48)
(273)
(871)
0
(29)
The Dexia Crédit Local Group has no exposure on Irish sovereign assets. The Dexia Crédit Local Group has a nil position on credit default swaps on Italian sovereign assets: this position consists of EUR 803 million of credit default swaps sold, offset by purchases for the same nominal amount. The group has no other exposure to credit default swaps.
b. Maximum credit risk exposure As at 31 December 2010
As at 31 December 2011 Ongoing activities
(EUR millions) Financial assets available for sale (excluding variable-income securities) Financial assets designated at fair value (excluding variable-income securities) Financial assets held for trading (excluding variable-income securities) Loans and advances (at amortised cost) Financial assets held to maturity Derivatives
Activities held for sale
Credit risk exposure
Credit risk exposure
Financial effect of collateral
Credit risk exposure
Financial effect of collateral
38,282
28,090
0
1,170
0
170
38
0
0
0
2,824
2,330
0
0
0
245,492
154,412
1,777
72,415
6
839
561
0
0
0
4,829
5,790
1,659
442
2,420 0
Other financial instruments
301
631
0
61
Loan commitments granted
30,781
18,956
0
660
0
38,881 362,399
34,534 245,342
12,509 15,945
0 74,748
0 2,426
Guarantee commitments granted TOTAL
Consolidated Comptes annuels financial statements
0 0
Assemblée générale
Available-for-sale reserve (gross) Deferred taxes
Gouvernance et contrôle interne
Available-for-sale reserve:
Financial collateral consists primarily of cash collateral and term deposits, but also includes investment grade bonds (AAA to AA sovereign or banking issuers), units in mutual funds and equities listed on recognised markets. The table above includes only collateral eligible under Basel II and held directly by the Dexia Crédit Local Group.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
The collateral held by the Dexia Crédit Local Group is comprised of financial collateral.
173
4
Consolidated financial statements
Notes to the consolidated financial statements
c. Credit quality of performing financial assets As at 31 December 2011 Ongoing activities AAA to AA-
A+ to BBB-
Non investment grade
Total
AAA to AA-
A+ to BBB-
Non investment grade
Total
5,190
18,627
4,008
27,825
402
769
0
1,171
0
6
27
33
0
0
0
0
Présentation générale
(EUR millions) Financial assets available for sale (excluding variable-income securities) Financial assets designated at fair value (excluding variable-income securities) Financial assets held for trading (excluding variable-income securities) Loans and advances (at amortised cost)
Rapport de gestion
Financial assets held to maturity Derivatives
Activities held for sale
574
1,636
121
2,331
0
0
0
0
68,045
71,424
13,425
152,894
30,467
36,730
4,751
71,948
46
433
0
479
0
0
0
0
799
4,054
777
5,630
158
284
0
442
Other financial instruments
179
2
430
611
43
0
18
61
Loan commitments granted
8,700
9,165
989
18,854
297
333
31
661
27,627
6,305
575
34,507
0
0
0
Guarantee commitments granted Impaired financial assets
1,279
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Past-due financial assets
899
TOTAL
111,160
111,652
20,352
245,342
360 31,367
Assemblée générale
4,800
74,748
The credit quality of financial assets reflects internal credit ratings (Basel II standard), or external ratings when internal ratings are not available.
d. Past-due and impaired financial assets As at 31 December 2010 Past-due but not impaired financial assets Less than 90 days
90 days to 180 days
Over 180 days
Carrying amount of individually impaired financial assets
0 89
0 53
0 355
240 3,388
Financial assets held to maturity
0
0
0
0
Other financial instruments
0
0
0
216
89
53
355
3,844
(EUR millions) Financial assets available for sale (excluding variable-income securities) Loans and advances (at amortised cost)(1)
TOTAL
(1) As at 31 December 2010, the carrying amount of individually impaired assets includes an amount of EUR 2,615 million in respect of Financial products for which no guarantee is presented in this note: the assets of the Financial products portfolio are covered by a guarantee from the French and Belgian governments described in note 4.3 “Transactions with related parties” of the 2010 annual report.
As at 31 December 2011 Past-due but not impaired financial assets
Renseignements de caractère général
38,116
There are no significant restructured loan assets on the balance sheet.
Ongoing activities
174
0 105
Less than 90 days
90 days to 180 days
Over 180 days
Activities held for sale Carrying amount Past-due but not impaired financial assets of individually Less than 90 days to 180 Over 180 impaired financial 90 days days days assets
Carrying amount of individually impaired financial assets
(EUR millions) Financial assets available for sale (excluding variable-income securities)
0
0
0
3,509
0
0
0
15
175
7
248
1,037
257
33
68
31
Financial assets held to maturity
0
0
0
234
0
0
0
0
Other financial instruments
0
0
0
27
0
0
0
0
175
7
248
4,807
257
33
68
46
Loans and advances (at amortised cost)
TOTAL
Financial assets are classified as impaired in the cases described in note 1.3 “Accounting policies and valuation methods”.
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
e. Assets obtained by taking possession of collateral during the period As at 31 December 2010
As at 31 December 2011 0
Cash Equity instruments
0 0
Debt instruments
0
0
Loans and advances
0
0
0
Tangible fixed assets
3
14
Investment property
0
0
Other TOTAL
0 3
0 14
f. Movements in impairment of financial assets
Présentation générale
(EUR millions)
Other adjustments(1)
Transfers
As at 31 December
Recoveries recognised directly in profit or loss
Charge-offs directly recognised in profit or loss
Spécific impairment
(1,823)
(921)
391
(24)
70
(2,307)
8
(61)
Interbank loans and advances
0
0
0
0
0
0
0
0
(1,382)
(908)
363
(18)
70
(1,875)
8
(61)
0
0
0
0
0
0
0
0
(248)
(13)
28
(5)
0
(238)
0
0
(190)
(10)
20
(2)
0
(182)
0
0
(58)
(3)
8
(3)
0
(56)
0
0
0
0
8
(61)
(EUR millions)
Customer loans and advances Securities held to maturity Securities available for sale (fixed or variable income) Fixed-income instruments Variable-income instruments Accruals and other assets
(193)
0
0
(1)
0
(194)
Collective impairment
(758)
(163)
313
(51)
0
(659)
(10)
(3)
3
0
0
(10)
(748)
(160)
310
(51)
0
(649)
Interbank loans and advances Customer loans and advances(2) Securities held to maturity TOTAL
0
0
0
0
0
0
(2,581)
(1,084)
704
(75)
70
(2,966)
Renseignements de caractère général
Assemblée générale
(1) Other adjustments include notably the impact of changes in exchange rates and in the consolidation scope during the year. (2) Following the announcement of the Group’s restructuring, comparative information on discontinued operations is disclosed separately, in accordance with IFRS 5.
Gouvernance et contrôle interne
Reversals
Consolidated Comptes annuels financial statements
Additions
Rapport de gestion
2010 As at 1 January
Annual report 2011 / Dexia Crédit Local
175
4
Consolidated financial statements
Notes to the consolidated financial statements
2011 As at 1st January
Additions
Reversals
Other adjustments(1)
Transfer into noncurrent assets held for sale
Other transfers
(EUR millions)
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Specific impairment
As at 31 Recoveries December recognised directly in profit or loss
Charge-offs directly recognised in profit or loss
(2,307)
(3,040)
242
1,879
1
(39)
(3,264)
1,936
(52)
Interbank loans and advances
0
0
0
0
0
0
0
0
0
Customer loans and advances
(1,875)
(313)
81
1,754
1
0
(352)
2
(52)
Securities held to maturity
0
(149)
0
(4)
0
0
(153)
0
0
Securities available for sale (fixed or variable income)
(238)
(2,578)
111
0
0
(39)
(2,744)
1 934
0
Fixed-income instruments
(182)
(2,565)
98
(13)
0
0
(2,662)
1,934
0
Variable-income instruments
(56)
(13)
13
13
0
(39)
(82)
0
0
Accruals and other assets
(194)
0
50
129
0
0
(15)
0
0
Collective impairment
1,936
(52)
(659)
(219)
174
375
18
0
(311)
Interbank loans and advances
(10)
(2)
2
0
0
0
(10)
Customer loans and advances
(649)
(217)
172
375
18
0
(301)
Securities held to maturity TOTAL
0
0
0
0
0
0
0
(2,966)
(3,259)
416
2,254
19
(39)
(3,575)
(1) Other adjustments include notably the impact of changes in exchange rates and in the consolidation scope during the year, as well as the impact of the deconsolidation of Dexia Holdings Inc. and Dexia FP Holdings Inc. (EUR 1,679 million on specific impairment and EUR 327 million on collective impairment).
g. Credit risk on loans and advances designated at fair value through profit or loss Maximum exposure to credit risk
Maximum exposure to credit risk hedged by a credit derivative
37 16
0 0
(EUR millions) As at 31 December 2010 As at 31 December 2011
Change in the fair value of credit derivatives hedging loans and advances designated at fair value through profit or loss
Change in the fair value attributable to changes in the credit risk For the period
Cumulative
For the period
Cumulative
0 (3)
0 (3)
0 0
0 0
Assemblée générale
Every quarter, the Dexia Crédit Local Group measures the fair value of its assets by discounting the future cash flows.
h. Credit risk on financial liabilities designated at fair value through profit or loss Carrying amount
Renseignements de caractère général
(EUR millions)
176
As at 31 December 2010 As at 31 December 2011
Amount of change in the fair value attributable to changes in the credit risk For the period
Cumulative
Difference between the carrying amount and the amount due contractually at maturity(1)
(40) (58)
(266) (266)
302 31
4,356 1,765
(1) Amount includes premiums/discounts and change in market value.
The fair value option is essentially used by FSA Global Funding Ltd for financial liabilities for which the conditions relating to hedge accounting are not met or might not be met.
Dexia Crédit Local / Annual report 2011
The credit spread used when revaluing these liabilities is Dexia’s longterm funding spread.
Consolidated financial statements
Notes to the consolidated financial statements
4
7.3. Collateral a. Nature of the assets received as collateral that can be sold or repledged
Fair value of collateral sold or repledged
Fair value of collateral held
Fair value of collateral sold or repledged
0 1,288
0 0
0 0
0 0
Loans and advances
0
0
0
0
Non-financial assets TOTAL
0 1,288
0 0
0 0
0 0
(EUR millions) Equity instruments Debt securities
Collateral is obtained in connection with the repurchase agreement activities.
b. Financial assets pledged as collateral for liabilities or contingent liabilities (EUR millions) Carrying amount of financial assets pledged as collateral for liabilities Carrying amount of financial assets pledged as collateral for contingent liabilities
2010
2011
59,261 0
79,003 0
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Assets are pledged primarily to collateralise repurchase agreements and debts to the Dexia Crédit Local Group’s sister companies.
Rapport de gestion
Fair value of collateral held
Présentation générale
2011
Gouvernance et contrôle interne
2010
Annual report 2011 / Dexia Crédit Local
177
4
Consolidated financial statements
Notes to the consolidated financial statements
7.4. Risk on resetting of interest rates: analysis by time until next interest rate reset date Demand deposits are reported in the “Demand” column, as the information presented below takes into account the current maturity until the next date on which interest rates are reset from an accounting standpoint, rather than assumptions based on observed behavioural data.
a. Analysis of assets
Présentation générale
As at 31 December 2011 Demand Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
No fixed maturity
Accrued interest
Cash, central banks and postal checking accounts Financial assets at fair value through profit or loss
3,054
2
0
0
0
0
0
3
619
18
215
1,195
0
1,171
18,333
21,554
1,142
6,737
7,879
Rapport de gestion
Financial assets available for sale
Gouvernance et contrôle interne
3,056
33
3,832
2,417
7,007
17,788
35
556
636
(2,744)
29,560
Interbank loans and advances
3,836
4,371
1,990
314
1,455
0
80
497
(9)
12,534
Customer loans and advances
912
31,380
31,021
15,360
60,788
0
936
15,437
(654)
155,180
Fair value revaluation of portfolio hedges Financial assets held to maturity
3,020 0
10
53
542
96
Tax assets Accruals and other assets
0
13
0
3,307 5
38,006
122
0
1
Investments in associates
44
16
2
3,020 (153)
561
(2,545)
762
(15)
38,181
0
0
0
Tangible fixed assets
704
(198)
506
Intangible assets and goodwill
546
(441)
105
Total ongoing activities
7,843
78,220
35,621
23,438
81,323
4,636
3,914
44,662
(6,759)
272,898
Non-current assets held for sale
2,227
16,317
9,441
12,979
31,999
(503)
2,027
14,725
(27)
89,185
10,070
94,537
45,062
36,417
113,322
4,133
5,941
59,387
(6,786)
362,083
TOTAL
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Total
(EUR millions)
Hedging derivatives
178
Fair value Impairment adjustment
Dexia Crédit Local / Annual report 2011
4
Consolidated financial statements
Notes to the consolidated financial statements
b. Analysis of liabilities excluding shareholders’ equity As at 31 December 2011 Demand Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
No fixed maturity
Accrued interest
Fair value adjustment
Total
1,321
0
156
38
100,740
0
696
0
616
356
0
1,133
21,979
24,780
1 922
30 192
32 114
Hedging derivatives Customer borrowings and deposits
1,167
2,288
946
726
1,839
0
83
123
7,172
2
54,449
10,869
16,177
18,566
0
1,075
3,754
104,892
445
445
Debt securities Fair value revaluation of portfolio hedges Tax liabilities
35
Accruals and other liabilities
11
2,849
60
18
87
52
Provisions
3,080 62
0
1,509
16
56
124
0
15
42
1,762
1,775
133,283
19,046
37,576
22,293
149
4,387
56,573
275,082
Liabilities included in disposal groups held for sale TOTAL
3
62
Subordinated debt Total ongoing activities
35
0
10,205
6,642
21,679
30,722
34
1,856
14,692
85,830
1,775
143,488
25,688
59,255
53,015
183
6,243
71,265
360,912
7.5. Sensitivity to interest rate risk and other market risks
c. Bond portfolio
Sensitivity to interest rate risk and other market risks was measured as follows in 2011 (see the 2010 annual report for the measurement of sensitivity to risks in 2010):
Treasury and Financial Markets
a. Treasury and Financial Markets (TFM)
TFM engages in trading activities, and takes non trading-related risk positions in relation to short-term balance sheet management and capital management activities.
TFM manages exposure to risk on the held-for-trading portfolio and to a portion of the risk on the banking book: • trading book: general interest rate, foreign exchange, equity and credit spread are managed within Value at Risk indicators, • banking book, cash and liquidity management (CLM): liquidity risk is managed within Value at Risk (VaR) and interest rate sensitivity indicators.
b. Balance Sheet Management (BSM) • Interest rate risk is monitored using sensitivity and Value at Risk (VaR) limits.
• credit spread risk is monitored using spread sensitivities.
Treasury and Financial Market activities are mainly intended as a Group support function.
Following the reorientation of TFM activities, the Risk Committee meeting held on 7 November 2008 decided to reduce TFM’s VaR limits. TFM limits were reduced to EUR 27 million at the end of 2011.
Detail of VaR usage The Dexia Crédit Local Group’s usage of VaR is detailed in the table below. The Dexia Credit Local Group calculates interest rate and forex VaR based mainly on a parametrical method (99%, 10 days), and credit spread VaR based on an historical method using sensitivity.
Annual report 2011 / Dexia Crédit Local
Rapport de gestion
19,983
Gouvernance et contrôle interne
7,155
Consolidated Comptes annuels financial statements
71,492
Assemblée générale
595
Financial liabilities at fair value through profit and loss
Renseignements de caractère général
Central banks, postal checking accounts and interbank borrowings and deposits
Présentation générale
(EUR millions)
179
4
Consolidated financial statements
Notes to the consolidated financial statements
2010 VaR (10 days, 99%) (EUR millions) By risk factor
Interest rate and currency (trading and banking)
Spread (trading)
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Quarter 1
Quarter 2
Quarter 3
Quarter 4
3.7 5.8
4.3 6.0
4.6 7.1
3.7 6.3
20.7 24.8
16.5 18.3
12.4 16.0
8.9 12.1
Average Maximum
Présentation générale
Average Global
18.6
Maximum
30.6
Period end Limit
11.9 42.2 2011 Interest rate and currency (trading and banking)
Rapport de gestion
Quarter 1
By risk factor
Gouvernance et contrôle interne
Average Maximum
3.9 7.3
2.8 4.4
Spread (trading)
Quarter 4 Ongoing activities
VaR (10 days, 99%) (EUR millions)
Global
Consolidated Comptes annuels financial statements
Quarter Quarter 2 3
3.4 5.1
Quarter Quarter Quarter 1 2 3 Activities held for sale
3.2 4.9
7.2 7.9
Average
8.2
Maximum
14.1
Period end (ongoing activities) Limit (ongoing activities)
5.9 27.0
Risks on equities (trading), inflation, commodities and CO2 have no or immaterial VaR.
6.5 6.8
3.4 6.6
Quarter 4 Ongoing activities
Activities held for sale
2.6 2.7
BSM interest rate and credit spread risks
BSM falls under the direct decision and control authority of Group ALCO and the Funding and Liquidity Committee.
CLM risk is also monitored using interest rate sensitivity limits. As at 31 December 2010, the sensitivity to a 1% change in interest rates amounted to negative EUR 75.3 million compared with a limit of EUR 115 million. As at 31 December 2011, the ongoing activities’ sensitivity to a 1% change in interest rates amounted to negative EUR 51.0 million compared with a limit of EUR 115 million.
Sensitivity measures the change in the balance sheet net economic value when interest rates rise by 1% across the entire curve. For the sensitivity calculation, the term to maturity of the portfolio until the next interest rate refixing date is defined using assumptions based on the observed behaviour of customers and not on the contractual repayment date (see note 7.4). 2010* Interest rate(1)(2)
(EUR millions)
Quarter 1 (15)
Sensitivity
Quarter 2 (48)
Quarter 3 (22)
Quarter 4 (3)
(1) Sensitivity to a 1% shift. (2) As at 31 December 2010, the interest rate sensitivity limit for BSM amounted to EUR 94 million (for a 1% shift). * Banking sector companies, excluding Dexia FP.
2011
Renseignements de caractère général
Assemblée générale
Taux d’intérêt(1)(2)
180
Quarter 4 Quarter 1
Quarter 2
Quarter 3
Ongoing activities
27
20
(12)
15
(EUR millions) Sensibilité
Activities held for sale
(1) Sensitivity to a 1% shift. (2) As at 31 December 2011, the interest rate sensitivity limit for BSM ongoing activities amounted to EUR 96 million (for a 1% shift).
Bond portfolio (EUR billions) Exposure
Dexia Crédit Local / Annual report 2011
2010 124.20
2011 Ongoing activities 81.30
Activities held for sale 14.90
Consolidated financial statements
Notes to the consolidated financial statements
4
Interest rate sensitivity The interest-rate risk of the bond portfolio is hedged and match funded on the coupon rolls, as its sole purpose is to manage the credit spread: therefore it has a very limited sensitivity to changes in interest rates.
Credit spread sensitivity
2011 Ongoing activities
2010
(EUR millions) Sensitivity
(30.70)
Activities held for sale
(26.50)
(0.90)
7.6. Sensitivity of listed equities
Présentation générale
This estimates the sensitivity of the AFS reserve to a 1bp increase in the spread.
Demand deposits and savings deposits are included in the “Demand” column, even though they have no fixed repayment date.
Analysis of assets As at 31 December 2011
(EUR millions) Cash, central banks and postal checking accounts Financial assets at fair value through profit or loss
Demand Less than 3 months 3 months to 1 year
1 to 5 years
Over 5 years
No fixed maturity
Accrued interest
Impairment
Total
3,054
2
0
0
0
0
0
3
41
18
238
1,750
0
1,171
18,333
21,554
1,142
6,737
7,879
Hedging derivatives Financial assets available for sale
Fair value adjustment
3,056
32
623
1,741
8,626
20,055
35
556
636
(2,744)
29,560
Interbank loans and advances
729
3,641
1,341
3,904
2,351
0
80
497
(9)
12,534
Customer loans and advances
235
2,232
6,191
27,923
102,880
0
936
15,437
(654)
155,180
Fair value revaluation of portfolio hedges Financial assets held to maturity
3,020 0
10
53
542
96
0
1
3,307 44
Tax assets Accruals and other assets
5
38,006
122
0
Investments in associates Tangible fixed assets Intangible assets and goodwill Total ongoing activities
4,058
Non-current assets held for sale
2,227
TOTAL
6,285
44,555
9,466
41,233
1,743
3,774
20,276
46,298
13,240
61,509
127,133
13 16
3,020
0
(153)
561
2
(2,545) (15)
762 38,181
0
0
0
704 546
(198) (441)
506 105
(6,759)
272,898
4,636
3,914
44,662
44,943
(503)
2,027
14,725
(27)
89,185
172,076
4,133
5,941
59,387
(6,786)
362,083
Annual report 2011 / Dexia Crédit Local
Consolidated Comptes annuels financial statements
A large part of the balance sheet consists of the revaluation of assets, liabilities and derivatives. As such revaluations vary constantly and cannot therefore be linked to the maturity of the financial instruments, they are presented in a separate column.
Assemblée générale
a. Analysis by term to maturity
Renseignements de caractère général
7.7. Liquidity risk
Gouvernance et contrôle interne
Rapport de gestion
None.
181
4
Consolidated financial statements
Notes to the consolidated financial statements
Analysis of liabilities, excluding shareholders’ equity As at 31 December 2011 Demand
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
No fixed maturity
Accrued interest
Fair value adjustment
Total
594
42,156
4,677
44,709
8,410
0
156
38
100,740
0
10
104
1,186
368
0
Présentation générale
(EUR millions) Central banks, postal checking accounts and interbank borrowings and deposits Financial liabilities at fair value through profit and loss Hedging derivatives
Rapport de gestion
Customer borrowings and deposits Debt securities
Gouvernance et contrôle interne Consolidated Comptes annuels financial statements Assemblée générale Renseignements de caractère général
21,979
24,780
30,192
32,114
1,155
1,418
1,352
1,055
1,986
0
83
123
7,172
2
28,496
5,495
42,016
24,054
0
1,075
3,754
104,892
445
445
Fair value revaluation of portfolio hedges Tax liabilities Accruals and other liabilities
35 11
2,829
60
18
107
Provisions
182
1,133 1,922
Subordinated debt Total ongoing activities Liabilities included in disposal groups held for sale TOTAL
52
35 3
3,080
62
62
0
0
16
162
1,527
0
15
42
1,762
1,762
74,909
11,704
89,146
36,452
149
4,387
56,573
275,082
0
6,681
4,322
24,734
33,511
34
1,856
14,692
85,830
1,762
81,590
16,026
113,880
69,963
183
6,243
71,265
360,912
This table takes into account neither the liquidity of assets nor any decision to refinance an asset; certain long-term assets may be sold to meet liquidity needs.
b. Steps taken to improve the Dexia Crédit Local Group’s liquidity The steps taken to improve the Dexia Crédit Local Group’s liquidity are described in note 7.0 “Risk exposures and hedging strategies”, paragraph 2.4 “Liquidity risk”.
7.8. Currency risk As at 31 December 2010 Classification by original currency (EUR millions) Total assets Total liabilities and shareholders’ equity NET BALANCE SHEET POSITION
EUR
Other EU currencies
USD
Other currencies
258,772
23,691
50,229
28,166
360,858
262,515 (3,743)
17,703 5,988
62,268 (12,039)
18,372 9,794
360,858 0
EUR
Other EU currencies
USD
Other currencies
Total
268,549 282,196 (13,647)
25,610 15,121 10,489
41,812 44,528 (2,716)
26,112 20,238 5,874
362,083 362,083 0
Total
As at 31 December 2011 Classification by original currency (EUR millions) Total assets Total liabilities and shareholders’ equity NET BALANCE SHEET POSITION
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Notes to the consolidated financial statements
4
7.9. Risk weighted assets 2011
66,363 978
48,034 1,534
Operational risk TOTAL
2,241 69,582
1,392 50,960
(EUR millions)
Eurozone (countries employing the euro)
Rest of Europe
United States
Rest of world
Total
(29)
53
(53)
(50)
(79)
0
0
0
0
0
(305) 112
51 0
(601) 0
(57) 0
(912) 112
315,650 0
358 0
42,177 0
2,673 0
360,858 0
(256)
13
(122)
19
(346)
0
0
0
0
0
(1,343) (1,005)
35 0
(371) 0
(18) 0
(1,697) (1,005)
332,706 0
225 0
26,685 0
2,467 0
362,083 0
89,166
0
19
0
89,185
As at 31 December 31 2010 Net banking income Income (losses) from associates Income (loss) before income taxes Income from discontinued operations, net of tax Total assets Of which, investments in associates At December 31, 2011 Net banking income Income (losses) from associates Income (loss) before income taxes Income from discontinued operations, net of tax Total assets Of which, investments in associates Of which, non current assets held for sale
The geographic region is assigned on the basis of the country in which the company that engaged in the transaction is located, and not the country in which the counterparty is located.
b. Analysis by line of business The business segmentation was adapted to Dexia Credit Local’s new profile and strategic directions, and now comprises two divisions: • the Core division, which includes the two lines of business covering operational activities focused on client franchises: Public and Wholesale Banking, and Retail and Commercial Banking, as well as a third segment, named Group centre, including treasury operations and the former Central Asset segment; • the Legacy Portfolio Management Division which, in accordance with the European Commission’s decision, now oversees the activities managed on a run-off basis (non-core PWB loans, bonds and the run-off Financial products portfolio).
Interest on equity allocated by the Group centre to the lines of business is now calculated as follows: • for the Core division segments, on the basis of the economic equity; • for the Legacy Portfolio Management Division, on the basis of the normative equity (i.e 12.5% of the weighted risks). Return on allocated equity measures the performance of each business line. Financial information relating to investments sold is disclosed: • in the Legacy Portfolio Management Division if the sale is made in connection with the undertakings given to the European Commission; • in the Group centre segment in other cases.
Renseignements de caractère général
The Legacy Portfolio Management Division has dedicated funding. As such, the State guaranteed funding is allocated to this division.
Gouvernance et contrôle interne
a. Analysis by geographic region
Consolidated Comptes annuels financial statements
8. Analysis by geographic region and by line of business
Rapport de gestion
Présentation générale
2010
Credit risk Market risk
Assemblée générale
(EUR millions)
Annual report 2011 / Dexia Crédit Local
183
4
Consolidated financial statements
Notes to the consolidated financial statements
Core Division
(EUR millions)
Public and Wholesale Banking
Retail and commercial banking
Group centre subtotal
Présentation générale
As at 31 December 31 2010 Net banking income (loss)
Rapport de gestion Gouvernance et contrôle interne
0 62
(29)
259
(338)
(79)
0
0
0
0
0
0
Income (loss) before income taxes
114
11
(135)
(10)
(902)
(912)
Income from discontinued operations, net of tax
112
0
0
112
0
112
170,720
1,851
92,089
264,660
96,198
360,858
0
0
0
0
0
0
6,050
1,662
348,135
355,847
5,011
360,858
219
0
48
267
(613)
(346)
0
0
0
0
0
0
(87)
0
(242)
(329)
(1,368)
(1,697)
(1,005)
0
0
(1,005)
0
(1,005)
164 394
0
123,192
287,586
74,497
362,083
0
0
0
0
0
0
48,420
0
28,732
77,152
12 033
89,185
6 861
0
355,222
362,083
0
362,083
Income (losses) from associates
Of which, investments in associates Liabilities At December 31, 2011 Net banking income Income (losses) from associates Income (loss) before income taxes Income from discontinued operations, net of tax Assets Of which, investments in associates Of which, non current assets held for sale Liabilities
Various costs and income are retroceded or transferred at market conditions in the management accounts between the various lines of business and, more particularly, between the commercial lines of products, financial markets and new lending and service centers. The net results of each line of products also include:
• interest on economic capital: economic capital is allocated to the commercial lines of products for internal purposes, and return on economic capital is used to measure the performance of each commercial line; • cost of funding.
• payments of commercial transformation margins, including the costs of managing such transformations and the capital allocated to this activity on the basis of the amount of outstanding medium-and long-term loans;
Renseignements de caractère général
Assemblée générale
Consolidated Comptes annuels financial statements
Total
226
Assets
184
Sub-total
Legacy Portfolio Management Division
Dexia Crédit Local / Annual report 2011
Consolidated financial statements
Statutory Auditor’s Report on the consolidated financial statements
4
This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking users. The Statutory Auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the consolidated financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the consolidated financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the consolidated financial statements. This report should be read in conjunction and construed in accordance with French law and professional auditing standards applicable in France.
Présentation générale
Statutory Auditor’s Report on the consolidated financial statements
In compliance with the assignment entrusted to us by your Shareholders’ Meeting, we hereby report to you, for the year ended 31 December 2011, on: • the audit of the accompanying consolidated financial statements of Dexia Crédit Local; • the justification of our assessments;
Rapport de gestion
To the Shareholders:
I. Opinion on the consolidated financial statements We conducted our audit in accordance with professional standards applicable in France. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, using sample testing techniques or other selection methods, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made, as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion. In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities, and of the financial position of Dexia Crédit Local the group constituted by the legal persons and entities included in the consolidation as at 31 December 2011 and the results of its operations for the year then ended in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union. Without qualifying the above opinion, we would draw your attention to note 1 to the consolidated financial statements which: • stipulates that the financial statements of Dexia Crédit Local have been prepared on a going concern basis; • sets out the key items and assumptions taken into consideration by the Board of Directors to approve the consolidated financial statements under this basis of accounting and more specifically:
Consolidated Comptes annuels financial statements
The consolidated financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements, based on our audit.
Gouvernance et contrôle interne
• the specific verification required by law.
– a financial remuneration of the States’ compatible with the Group’s future viability; – the support from the States, with regard to the Group’s liquidity situation for the proper implementation of the restructuring measures announced in October 2011. As indicated in note 1 to the consolidated financial statements, maintenance of the going concern basis of accounting is justified by the business plan prepared by the Dexia Group which is based on a number of assumptions. Some of the assumptions used rely on external factors beyond the control of the Dexia Group and more specifically on the European Commission’s decision. Their realisation is therefore uncertain. Accordingly, non-realisation of the assumptions could result in Dexia Crédit Local having to examine the potential consequences of such a situation on the going concern basis of accounting in the preparation of the consolidated financial statements of the fiscal years to come.
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
– the granting by the Belgian, French and Luxembourg States of a final definitive guarantee totalling EUR 90 billion, the principle of which has already been reflected in the authorising legislations adopted by the Belgian, French and Luxembourg States;
Assemblée générale
– the European Commission’s approval of a restructuring plan incorporating a Belgian, French and Luxembourg State guarantee;
185
4
Consolidated Notes to the consolidated financial statements financial statements
Notes Statutory to the Auditor’s consolidated Report financial on the consolidated statements financial statements
Présentation générale
II. Justification of our assessments The accounting estimates used in the presentation of the consolidated financial statements for the year ended 31 December 2011 were prepared in an uncertain environment due to the public finance crisis in certain eurozone countries (Greece in particular) which, together with an economic and liquidity crisis, make it difficult to assess the economic outlook. These conditions are described in note 1.1.d. to the consolidated financial statements. The accounting estimates were also prepared in the context of the Dexia Group specific position described in note 1 to the consolidated financial statements. It is in this context and in accordance with the requirements of Article L.823-9 of the French Commercial Code (Code de commerce) relating to the justification of our assessments that we bring the following matters to your attention:
ACCOUNTING PRINCIPLES: Going concern basis
Rapport de gestion
Our work consisted in assessing the items used by the Board of Directors to justify maintaining the going concern basis of accounting and in gaining an understanding of the underlying documentation and more specifically the business plan and funding forecast. We also reviewed the information disclosed in the notes to the consolidated financial statements with respect to the going concern basis of accounting and related uncertainties.
ACCOUNTING ESTIMATES:
Consolidated Comptes annuels financial statements
Gouvernance et contrôle interne
Recognition of assets held for sales
As described in note 4.6 to the consolidated financial statements, your Company classified and recorded a number of assets and liabilities under the rules applicable to assets held for sale and discontinued operations as at 31 December 2011. We examined the methods used to present and measure the assets and liabilities concerned to verify the appropriateness of this accounting treatment and of the disclosures in note 4.6 to the consolidated financial statements.
Measurement of financial instruments
In a context of volatility in the financial markets and public finance crisis in certain eurozone countries, your Company, as mentioned in note 1.3 to the consolidated financial statements, uses internal methodologies and models to value financial instruments that are not listed on active markets, and for the recognition of any impairment. Our work consisted in reviewing the control procedures for the identification of financial instruments that can no longer be traded on an active market or whose valuation parameters are no longer observable; in determining the models used to measure them; in evaluating the appropriateness of the data and assumptions; and in verifying that the risks and results related to these instruments were taken into account.
Impairment of credit and counterparty risks
Your Company records impairment provisions to cover the credit risks inherent to its activities as described in note 1.3 to the consolidated financial statements. We examined the system used to control monitoring of credit risks, impairment procedures, evaluation of the risk of non-collection and the level of impairment loss cover provided by specific and collective provisions.
Recognition of deferred tax assets
As mentioned in note 4.2 to the consolidated financial statements, your Company has recognized deferred tax assets on the fair value reserve for available-for-sale financial assets and cash flow hedges.
Renseignements de caractère général
Assemblée générale
We examined the main estimates and assumptions that led to the recognition of these deferred taxes, and the measurement of thereof. These assessments were made as part of our audit of the consolidated financial statements taken as a whole and therefore contributed to the opinion we expressed in the first part of this report.
III. Specific verification We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law of the information presented in the Group management report. We have no matters to report as to its fair presentation and consistency with the consolidated financial statements. Courbevoie and Neuilly-sur-Seine, 29 March 2012 The Statutory Auditors French original signed by MAZARS Hervé HELIAS
186
Virginie CHAUVIN
Dexia Crédit Local / Annual report 2011
DELOITTE & ASSOCIÉS José-Luis GARCIA Charlotte VANDEPUTTE
5 – Financial statements
Balance sheet
188
Assets ......................................................................................... 188 Liabilities and equity.................................................................... 189
Notes to the financial statements
192
1. Accounting rules and valuation methods................................. 192 2. Notes on the assets................................................................. 200 3. Notes on the liabilities and equity............................................ 209
Off-balance sheet items
190
4. Notes on the off-balance sheet ............................................... 214
Income statement
191
6. Subsidiaries and equity investments as at 31 December.................................................................. 224
5. Notes on the income statement .............................................. 218
Statutory Auditors’ report on the financial statements
226
5
Financial statements Balance sheet
Assets Note
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
I. Cash, central banks and postal checking accounts
2.1
238
131
1,650
II. Government securities
2.2
3,235
2,554
1,751
III. Interbank loans and advances
2.3
41,624
38,702
40,728
IV. Customer loans and advances
2.4
49,207
44,791
41,617
V. Bonds and other fixed-income securities
2.5
60,057
53,764
49,362
VI. Equities and other variable-income securities
2.6
281
278
246
VII. Long-term equity investments
2.7
2,650
2,965
2,520
VIII. Intangible assets
2.8
46
43
37
2.9
14
12
7
X. Unpaid capital
0
0
0
XI. Uncalled capital
0
0
0
XII. Treasury stock
0
0
0
(EUR millions)
IX. Tangible fixed assets
XIII. Other assets
2.10
12,983
18,096
25,880
XIV. Accruals
2.10
9,740
11,221
16,121
180,075
172,557
179,919
TOTAL ASSETS
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Balance sheet
188
Dexia Crédit Local / Annual report 2011
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
I. Interbank borrowings and deposits
3.1
84,299
65,026
78,737
II. Customer deposits
3.2
1,910
2,495
722
III. Debt securities
3.3
67,361
73,901
72,096
IV. Other liabilities
3.4
5,660
8,218
2,904
V. Accruals
3.4
10,980
13,308
18,085
3.5
2,625
3,743
4,271
0
0
0
3.6
5,271
4,757
2,214
3.7
1,969
1,109
890
IX. Capital stock
501
501
501
X. Additional paid-in capital
861
1,501
4,870
XI Reserves and retained earnings
(92)
637
(46)
699
(1,530)
(4,435)
180,075
172,557
179,919
VIII. Subordinated debt EQUITY
XVII. Net income (loss) for the year TOTAL LIABILITIES AND EQUITY
Assemblée générale
VII. General banking risks reserve
Renseignements de caractère général
VI. Provisions for risks and charges
Financial statements
Note
(EUR millions)
Rapport de gestion
Liabilities and equity
Présentation générale
5
Gouvernance et contrôle interne
Balance sheet
Comptes consolidés
Financial statements
Annual report 2011 / Dexia Crédit Local
189
5
Financial statements Off-balance sheet items
Présentation générale
Off-balance sheet items (EUR millions)
Note
As at 31/12/2009
As at 31/12/2010
As at 31/12/2011
COMMITMENTS GIVEN I.
Financing commitments given
4.1
42,909
36,379
24,002
II.
Guarantees given
4.2
58,312
56,834
52,438
III.
Other commitments given
4.3
31,526
29,922
47,361
IV.
Financing commitments received
4.4
4,980
5,903
3,850
V.
Guarantees received
4.4
23,987
29,327
29,975
VI.
Commitments related to securities
4.5
552
416
2,187
VII.
Commitments related to foreign currency transactions
4.6
82,385
74,707
94,294
VIII.
Commitments related to forward and derivative financial instruments
4.7
600,116
558,327
449,272
Renseignements de caractère général
Assemblée générale
Financial Comptes annuels statements
Gouvernance et contrôle interne
Rapport de gestion
COMMITMENTS RECEIVED
190
Dexia Crédit Local / Annual report 2011
Financial statements
Income statement
5
2010
2011
I.
Interest income
5.1
10,017
6,663
8,215
II.
Interest expense
5.1
(9,659)
(6,972)
(9,019)
III.
Income from variable-income securities
5.2
239
181
134
IV.
Fee and commission income
5.3
12
11
14
V.
Fee and commission expenses
5.3
(17)
(23)
(24)
VI. A.
Net gains (losses) on held-for-trading portfolio transactions
5.4
113
(386)
(191)
VI. B.
Net gains (losses) on available-for-sale portfolio transactions
5.4
1,051
(386)
(1,392)
VI. C.
Net gains (losses) on held-to-maturity portfolio transactions
(2)
0
0
Other banking income
5.8
6
4
1
VIII.
Other banking expenses
5.8
0
(1)
0
1,760
(909)
(2,262)
(196)
(204)
(167)
(28)
(25)
(25)
1,536
(1,138)
(2,454)
(813)
(695)
(529)
723
(1,833)
(2,983)
66
(11)
(916)
789
(1,844)
(3,899)
5.9
0
0
0
5.10
(90)
314
(536)
0
0
0
NET INCOME
699
(1,530)
(4,435)
BASIC EARNINGS PER SHARE (EUR)
8.03
(17.58)
(50.95)
FULLY DILUTED EARNINGS PER SHARE (EUR)
8.03
(17.58)
(50.95)
IX.
General operating expenses
X.
Depreciation and amortisation
5.5
GROSS OPERATING INCOME XI.
Cost of risk
5.6
OPERATING INCOME AFTER COST OF RISK XII.
Capital gains (losses) on non-current assets
5.7
INCOME BEFORE TAX XIII.
Non-recurring items
XIV.
Corporate income tax
XV.
Net change in general banking risks reserve
Renseignements de caractère général
NET BANKING INCOME
Assemblée générale
VII.
Rapport de gestion
2009
Gouvernance et contrôle interne
Note
Financial Comptes annuels statements
(EUR millions)
Présentation générale
Income statement
Annual report 2011 / Dexia Crédit Local
191
5
Financial statements
Notes to the financial statements
Présentation générale
Notes to the financial statements 1. Accounting policies and valuation methods 1.1. Significant events in 2011
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Significant events during the fiscal year included:
192
• Dexia Crédit Local’s financial position has been impacted strongly by an increase in short-term liquidity needs, exacerbated by the significant decline in interest rates, which was accompanied by an increase of over EUR 15 billion in the amount of collateral to be provided to the Group’s derivatives counterparties between 30 June and 31 December, all while liquidity was growing increasingly scarce; • Moody’s placement of the long- and short-term ratings on credit watch accelerated the Group’s loss of unsecured interbank funding (additional EUR 6 billion lost between 30 September and 7 October 2011) and eroded the confidence of retail banking customers in Belgium and Luxembourg, leading to the net loss of around EUR 7 billion in deposits between 30 September and 31 October 2011. This sequence of events put a severe strain on the liquidity of the Group, which lost all access to the unsecured funding market as from October 2011. • The resulting deterioration of the funding conditions of the Dexia Group resulted in the implementation in early October 2011 of a restructuring plan. 1) On 20 October 2011, Dexia Crédit Local’s Board of Directors approved the terms of memorandum of negotiation with Caisse des Dépôts and La Banque Postale on the financing of French local authorities. This memorandum was supplemented in February 2012 by a comprehensive agreement involving the French State in the acquisition of Dexia Municipal Agency followed by an agreement in principle signed on 28 March 2012, which includes notably: – creation of a new financial institution, 68.3%-owned by a public holding company, in turn owned by the French State (46.35%), Caisse des Dépôts (46.35%) and La Banque Postale (7.3%). This new financial institution, of which Dexia Crédit Local would hold the remaining 31.7%, will be the parent company of Dexia Municipal Agency, in which it will hold a 100% stake and which it will manage; – creation of a joint venture company, held for 65% by La Banque Postale and for 35% by Caisse des Dépôts, this company’s function being to design and distribute loans to French local authorities funded via Dexia Municipal Agency. Under a service agreement, this joint venture company would draw on the combined expertise of Dexia Crédit Local, Caisse des Dépôts and La Banque Postale. Implementation of this agreement remains subject to the approval of the competent supervisory and anti-trust authorities. As the terms of that agreement established a sale price of EUR 380 million for Dexia Municipal Agency, Dexia Crédit Local recorded a EUR 920 million impairment provision against the shares of its subsidiaries.
Dexia Crédit Local / Annual report 2011
2) Under the terms of this plan, Dexia also announced the sale of several Group subsidiaries. On 20 October, the Belgian State acquired Dexia Bank Belgium, which performed a number of banking functions on behalf of Dexia Crédit Local with regard to the management of the Group. Dexia Crédit Local has initiated a project to restore the functions necessary to its operations. • Following the European Union’s announcement of its intention to support a financially-troubled Greece, the Dexia Crédit Local Group wrote down its Greek sovereign debt. Impairment was calculated using the year-end valuation of each security, for a total loss of EUR 937 million in 2011. These valuations took account of both market indicators and the valuations produced by internal models. At the end of 2011, Dexia Crédit Local also received support from its parent company to cover potential losses on portfolios of Greek securities carried by its funding subsidiaries Dexia Municipal Agency and Dexia Kommunalbank Deutschland AG. • By resolution of the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock by EUR 4.2 billion, paid in cash, to a total of EUR 4.7 billion. Dexia SA conducted this capital increase by converting several existing subordinated loans for approximately EUR 2.5 billion and via a cash contribution of EUR 1.7 billion. In the light of the losses estimated for the fiscal year, the Shareholders’ Meeting also decided to reduce capital stock by EUR 4.2 billion. The capital stock of Dexia Crédit Local therefore remains unchanged at EUR 500,513,102, consisting of 87,045,757 shares with a par value of EUR 5.75 per share. • Until 30 June 2010, Dexia issued debt under the State guarantee mechanism first introduced in October 2008. As at 31 December 2011, EUR 23.3 billion of these guaranteed instruments were still outstanding, and the total remuneration paid by Dexia Crédit Local and its branches in 2011 in respect of this guarantee came to EUR 279 million (EUR 340 million in 2010). Since 22 December 2011, the Dexia Group benefits from a temporary guarantee (with Belgium, France and Luxembourg providing respectively 60.5%, 36.5% and 3% of the guarantee), valid until 31 May 2012, that allows it to issue up to EUR 45 billion in debt with maturities of up to three years. This temporary guarantee constitutes the first step in the three States’ commitment to provide a EUR 90 billion guarantee, the implementation of which is subject to the final approval of the European Commission. The Dexia Crédit Local Group issued EUR 21.6 billion of medium-term debt under this new arrangement in 2011. • The consolidated and parent company financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns (see section on financial results). The going concern assumption was supported by a business plan approved by the Boards of Directors
Financial statements
Notes to the financial statements
One of the core assumptions of the business plan is European Commission approval of the plan to be submitted by the States. The plan includes a definitive EUR 90 billion funding guarantee, extended by the States and with no collateral requirement. The cost of funding will be a key factor in the Group’s profitability. In this regard, the assumption that the favourable terms of access to central bank funding currently enjoyed by European banks will be maintained over the long term is likely to be revised over time, especially if market conditions improve. Moreover, Dexia assumes that the remuneration to be paid on the State guarantee will be low enough to allow the Group to successfully carry out its restructuring. In any event, it is highly likely that any possible improvement of Dexia SA’s financial circumstances will benefit first and foremost the Guarantor States, to compensate the risk they are bearing. The scenario assumes that the entities’ banking licences are maintained, and this despite any failure to comply with certain regulatory liquidity ratios. It is also assumed that the credit ratings of Dexia SA and Dexia Crédit Local will be maintained at their current levels. The resulting business plan concludes that the Dexia Group is viable, on the basis of the assumptions and scenarios used. While Dexia’s management considers this scenario the most plausible, a significant risk remains of the working assumptions not being substantiated. For example, a more severe than expected recession could generate significant credit losses (notably on the Group’s holdings of sovereign securities) and keep the fair value reserves on the Group’s available for sale securities at strongly negative levels. Similarly, if interest rates do not behave as the market expects, or remain at a very low level in the future, a higher than expected level of collateral would need to be provided on the Group’s hedging derivatives, and this would significantly increase Dexia’s funding needs and consequently its use of the State guarantee. Any downgrading of the credit ratings of Dexia SA or Dexia Crédit Local or of the Guarantor States could also, below a certain threshold, have an adverse impact on the Group’s liquidity and cost of funding.
1.2. Accounting policies and valuation methods used to present the financial statements The parent company financial statements of Dexia Crédit Local as at 31 December 2011 were prepared in accordance with the applicable accounting treatment for going concerns, which is based on a number of assumptions including notably: • European Commission approval of a restructuring plan including notably a guarantee from the Belgian, French and Luxembourg States; • the approval by the Belgian, French and Luxembourg States of a EUR 90 billion definitive guarantee, the principle of which was announced in October 2011 and reflected in the enabling acts adopted by the Belgian, French and Luxembourg States. Moreover, under Article 15 (f) of the autonomous guarantee agreement signed on 16 December 2011 with the Belgian, French and Luxembourg States, Dexia SA and Dexia Crédit Local, the States committed themselves to negotiating the renewal of the guarantee agreement in good faith, which could call for increasing the overall limit under the guarantee to EUR 90 billion; • remuneration of the State guarantee will be compatible with the Group’s future viability. The remuneration paid under the guarantee will be one of significant factors likely to influence the Group’s profitability; • State support of the Group’s liquidity position in order to successfully carry out the extensive restructuring measures announced in October 2011. Maintaining the accounting treatment for a going concern is justified notably by the business plan prepared by the Group, which is based on a number of assumptions and is presented above in section 1.1. “Significant events” in 2011. These assumptions are based on a number of exogenous factors that are beyond the control of Dexia Crédit Local. Whether or not they will happen therefore remains uncertain and is subject, among other factors, to the approval of the European Commission.
Annual report 2011 / Dexia Crédit Local
Présentation générale Rapport de gestion Gouvernance et contrôle interne
The macroeconomic scenario built in calls for a mild recession during the coming two years, followed by a gradual recovery starting in 2014. No major adverse events are factored in during this period.
• Events after the end of the reporting period: On 28 March 2012, Standard & Poor’s downgraded Dexia Crédit Local’s long-term credit rating from BBB+ to BBB and maintained the credit watch negative rating.
Comptes consolidés
As Dexia announced in October 2011, the plan consists of selling off the Group’s viable commercial franchises, then managing the natural, gradual run-off of the portfolios left within the new scope.
Finally, Dexia is exposed to a number of significant operational risks that require that measures be taken to retain the human resources the Group needs to continue to operate.
Financial statements
Finally, Dexia factored in the impacts of all planned disposals of entities (capital gain or loss, impact on the balance sheet, liquidity and capital ratios).
More generally, the plan requires the support of key non-Dexia players: the Guarantor States and central banks in particular play an important role in the success of the business plan established by the Group, working closely with the regulatory authorities.
Assemblée générale
The business plan was produced by compiling business plans prepared by each Group entity, with each entity employing the same scenarios and assumptions. These consolidated plans were checked for consistency and subjected to various stress scenarios that impacted both the entities’ balance sheet and their profitability. The entities’ sensitivity to the following key risk factors was tested: interest rates, exchange rates and credit spreads.
In addition, implementation of the definitive guarantee is subject to a number of prior conditions, such as obtaining European Commission approval. Any delay in the implementation of the guarantee could impact the Group’s results very significantly, as Dexia will need to roll over large amounts of funding starting in early 2013.
Renseignements de caractère général
of the Group and Dexia Crédit Local, was based on a number of critical assumptions and incertainties, the major points of which are described below.
5
193
5
Financial statements
Notes to the financial statements
In the absence of additional corrective measures, the nonmaterialisation of one or more of these assumptions could have an impact on the going concern assumption as regards Dexia Crédit Local and put pressure on the Group’s liquidity position and solvency.
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
As a result, no changes were made to the valuation methods in 2011.
194
The balance sheet, income statement and off-balance sheet are presented in accordance with the standards applicable to banks. The financial statements have been prepared in accordance with the principles and standards contained in European Council Directives governing the financial statements of banking institutions, in compliance with CRBF Regulation 91-01 and CRC Regulation 00-03, regarding the preparation of individual financial statements.
a. Changes in accounting policies and valuation methods applied to the annual financial statements
No changes have been made to the accounting policies and valuation methods applied to the annual financial statements.
b. Measurement of items in the balance sheet, off-balance sheet and income statement in the summary financial statements
with instalments that are more than nine months overdue; real estate loans with instalments that are more than six months overdue; and other loans with instalments that are more than three months overdue. Loans to borrowers that have been subject to formal alert procedures or filed for bankruptcy are classified as loans under collection, this category being analysed in the notes to the financial statements in the same way as non-performing loans. Impairment on non-performing loans is computed on the basis of the estimated loss exposure. Interest is written down in full. Non-performing loans are considered to be doubtful as soon as their repayment becomes highly uncertain and it becomes apparent that they will eventually be written off. Non-performing loans are downgraded from “under collection” to “doubtful” either one year at the latest after becoming nonperforming, or immediately if the loan had previously been classified as a restructured performing loan. The interest on these loans is no longer included in net interest income once they have been classified as doubtful non-performing.
• going concern assumption;
Loans that have been restructured under non-market conditions are included in the second category until their final maturity. They are written down for impairment in an amount equal to the present value of the future interest payments gap. This write-down is taken immediately into expense under the cost of risk, and is reversed into income on an accrual basis over the remaining term of the loan.
• matching principle;
Securities transactions
The financial statements have been prepared in accordance with the rules of prudence, and fundamental accounting principles:
• consistency criterion.
The securities held by Dexia Crédit Local are recorded on the balance sheet under the following asset headings:
Customer loans
• government securities eligible for Central Bank refinancing;
Any loans approved but not yet disbursed are shown as off-balance sheet items.
Current and accrued interest on Customer loans is recognised in banking income on an accrual basis, as is the interest on overdue payments. Interest on non-performing loans reported in net banking income is neutralised by the recognition of an equivalent amount of impairment. Related fees and commissions received and incremental transaction costs on extending or acquiring credits, if significant, are spread over the effective life of the loan. Other fees received are recorded directly to income. For both accounting and tax purposes, all early repayment penalties on loans recognised up to 31 December 2004 will continue to be amortised over the remaining life of the related loans in proportion to the outstanding interest that would have had to be paid. The balance of outstanding penalties to be amortised is classified under deferred income. Since 1 January 2005, all early repayment penalties on loans are taken into income at the repayment date. Customer loans are stated in the balance sheet net of provisions for possible losses. They are broken out into four separate categories: performing loans, restructured performing loans, non-performing loans under collection and doubtful non-performing loans. Non-performing loans are considered to be doubtful as soon as it becomes apparent that they will probably or certainly not be repaid. Non-performing loans are defined as follows: local authority loans
Dexia Crédit Local / Annual report 2011
• bonds and other fixed-income securities; • equities and other variable-income securities. In accordance with French Banking and Financial Regulatory Committee (CRBF) Regulation 2005-01 that amended CRB Regulation 90-01, they are broken out in the notes to the financial statements into “Held-for-trading securities”, “Available-for-sale securities” and “Held-to-maturity securities”.
Held-for-trading securities Held-for-trading securities are securities traded on a liquid market that are purchased or sold with the intention of being sold or repurchased within a short period of time. The Dexia Crédit Local held-for-trading portfolio consists primarily of adjustable-rate bonds. Held-for-trading securities are taken to the balance sheet at cost, including accrued interest and excluding acquisition costs. At each period end, they are marked to market and the resulting unrealised gain or loss is taken to the income statement.
Available-for-sale securities These consist of securities that are not recognised as held-for-trading securities, held-to-maturity securities, portfolio securities, other longterm investments, investments in associates or investments in related parties. The portfolio consists primarily of fixed and adjustable-rate bonds but also includes some variable-income securities. Fixed-rate bonds are generally hedged against interest rate risks by means of interest rate and/or currency swaps classified as hedges. The use of this technique
• the ability of the issuer to honour its repayment obligations appears uncertain; or
If the potential decrease in the value of the securities exceeds the related unrealised hedging gain, a provision corresponding to the difference is deducted from the securities’ carrying amount. A reserve is booked on the liabilities side of the balance sheet for any unrealised hedging losses that are not offset by an increase in the market value of the hedged securities. Gains and losses on disposals of marketable available-for-sale securities are calculated on a FIFO basis. Any available-for-sale securities transferred to the held-to-maturity portfolio are transferred at cost. Any provisions for impairment that are no longer required at the date of transfer are released to the income statement over the remaining life of the securities.
Held-to-maturity securities Held-to-maturity securities consist of fixed-income securities with fixed maturities that have been acquired or transferred from “availablefor-sale securities” and “held-for-trading securities” with the explicit intention of being held to maturity. They are either financed with back-to-back resources or hedged in order to neutralise the effect of interest rate fluctuations on earnings. The hedging instruments used consist solely of interest rate and/or currency swaps. The use of these specific, allocated hedges has the effect of creating synthetic adjustable- or variable-rate assets that are immunised against interest rate risks. Held-to-maturity securities are stated at cost, excluding acquisition costs and accrued interest at the date of acquisition, which are recorded separately. Premiums and discounts, representing the difference between the cost of the securities, excluding accrued interest, and the redemption price, are amortised on a yield-to-maturity basis over the remaining life of the securities.
Portfolio securities This category includes variable-income securities purchased on a regular basis with the intention of selling them at a profit in the medium-term. At the time of purchase, the Company has no intention of investing in the long-term development of the issuer’s business or of actively participating in its day-to-day management. Portfolio securities are taken to the balance sheet at cost excluding acquisition costs. At each period end, they are stated at the lower of historical cost and fair value to the Group. Fair value is determined based on a range of criteria, including the issuer’s outlook and the length of the estimated Holding period. For listed securities, fair value is the average market price determined over a sufficiently long period in view of the estimated Holding period to eliminate the impact of any wide swings in market prices. At each period end, and for each line of securities, if the fair value represents less than carrying amount, a provision is booked for the unrealised loss. For the purpose of determining the provision, unrealised losses are not netted against unrealised gains, which are not recognised. Gains and losses on disposals of portfolio securities are determined on a FIFO basis.
Sale and repurchase agreements and lending of securities Securities may be sold under repurchase agreements, lent or borrowed for the purpose of reducing Dexia Crédit Local’s short-term liquidity cost. The securities may or may not be physically delivered to the buyer. When securities are sold under a repurchase agreement, a debt corresponding to the value of the repurchase commitment is recognised on the balance sheet. The interest paid on the funds received is recognised in the income statement on an accrual basis. Gains and losses on repurchase agreements are calculated using the same method as for outright sales, depending on the portfolio from which the securities were taken.
Annual report 2011 / Dexia Crédit Local
Assemblée générale
If no active market is available for a given financial instrument, valuation techniques are used to calculate the realisable value (or the market value, as defined elsewhere in the notes) of the instrument. The valuation model must factor in all of the parameters considered by market players when measuring the value of the asset. In such cases, Dexia Crédit Local uses its own valuation models, taking account of market conditions at the date of the valuation as well as of any changes in the credit risk quality of these financial instruments and market liquidity.
Should a material proportion of all held-to-maturity securities be sold or transferred to another portfolio category for an amount that is material relative to the total value of all held-to-maturity securities, Dexia Crédit Local would no longer be authorised to classify any securities previously or subsequently acquired as held-to-maturity until the third following full fiscal year, unless said sale or transfer does not call into question the Bank’s intention of maintaining its other held-to-maturity securities until their actual maturity (e.g. sale of one particular held-to-maturity security whose issuer’s credit quality has deteriorated significantly, or in the case of held-for-trading or available-for-sale securities that were previously transferred into held-to-maturity under extraordinary market conditions that required a change of strategy and which may once more be traded on an active market). All previously acquired held-to-maturity securities are reclassified as “available-for-sale securities” at their carrying amount at the same time that the other securities are reclassified.
Renseignements de caractère général
At closing, in application of the prudence principle, available-forsale securities are recorded on the balance sheet at the lower of their acquisition cost and their selling price at closing, after taking into account gains on micro-hedging transactions for purposes of calculating the reduction in their value.
• it is probable that the securities will not be held to maturity due to a change in circumstances.
Rapport de gestion
Available-for-sale securities are taken to the balance sheet at cost, excluding acquisition costs and accrued interest, which are recorded separately. Any premiums or discounts, corresponding to the difference between the acquisition cost and redemption price, are recorded on the balance sheet and amortised to the income statement on a quasiyield-to-maturity basis over the remaining life of the securities. This method is applied to all securities in the portfolio.
Gouvernance et contrôle interne
Unrealised gains are not recognised and no provisions are booked for unrealised losses at the balance sheet date except in cases where:
Comptes consolidés
has the effect of creating synthetic adjustable or variable-rate assets that are immunised against interest rate risks.
Présentation générale
5
Financial statements
Financial statements
Notes to the financial statements
195
5
Financial statements
Notes to the financial statements
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Transactions involving the simultaneous cash sale and forward purchase of the same securities are accounted for in the same way as repurchase agreements. The cash held in connection with repurchase agreements is periodically adjusted to take account of changes in the market value of the securities during the term of the contract, so as to reduce the credit risk incurred by the buyer as a result of any impairment in value of the collateral represented by the securities.
196
Loaned securities are reclassified as receivables for an amount equal to the carrying amount of the loaned securities. At each balance sheet date, the receivable is re-measured using the valuation principles applicable to the securities that have been loaned. Borrowed securities are recorded as held-for-trading securities, with a contra entry to a liability to the lender. At each balance sheet date, the borrowed securities and the corresponding liability are re-measured using the valuation principles applicable to held-for-trading securities.
Long-term investments Investments in associates Investments in associates represent investments that are intended to be useful to the Group’s activities over the long-term. They are intended to: • be held on a long-term basis to exercise influence or control over the issuer; or • underpin banking relations with the company concerned. They are stated at cost excluding any related acquisition costs. At the balance sheet date, these shares are measured at the lower of cost and value in use, i.e. the fair value based on the utility of the investment to Dexia Crédit Local. In the case of companies whose net assets are at least equal to their value when the last shares were acquired, with prior-year positive earnings or an outlook for genuine recovery in the current year, value in use to the Group is considered as being at least equal to the historical cost of the investment. In all other cases, a range of criteria are applied to determine the possible need to record a provision for impairment in value in accordance with the prudence principle. In accordance with CRB Regulation 89-01, differences arising on translation at the year-end rate of investments denominated in foreign currencies that are financed in euros are taken to equity, under “Accumulated translation adjustments”, and not to the income statement.
Tangible and intangible assets These assets are stated at cost and depreciated or amortised using the straight-line method over their estimated useful life, at the rate at which their future economic benefits are consumed. Unless otherwise stated, furniture and fixtures are depreciated over ten years and office equipment generally over five years. Software is amortised over three to five years.
Other assets This heading includes mainly collateral (guarantee deposits) receivable under swap transactions, which is recognised at its carrying amount.
Debt securities Debt securities include bonds and negotiable debt securities.
Bonds Bonds are recorded at face value. All related accrued interest is computed at contractual rates and recorded under interest expense. Zero-coupon bonds are recorded at their issue price. At each period end, accrued interest for the period, computed on the basis of the yield to maturity announced at the time of issue, is charged to the income statement as expenses on debt securities and an equivalent amount is added to the debt on the liabilities side of the balance sheet until the maturity date so as to gradually increase the carrying amount of the debt to the amount repayable at maturity. Bond issuance costs are deferred and amortised on a straight-line basis over the life of the bonds. Since 1 January 2005, premiums paid or received on bonds acquired by Dexia Crédit Local are recognised directly through profit or loss. Bonds denominated in foreign currencies are accounted for in the same way as foreign currency transactions.
Negotiable debt securities Negotiable debt securities are stated at face value. Interest on medium-term notes, BMTN (domestic short- or medium-term notes) and negotiable certificates of deposit is recorded under “Interest expense” on an accrual basis. Prepaid interest on commercial paper is recorded under “Accrued assets” on the transaction date and amortised over the residual life of the paper.
Discounts and premiums on debt securities
In the event of disposal of part of the Group’s interest in an associate, the resulting gain or loss is determined on a FIFO basis.
Bond discounts and premiums and redemption premiums are amortised on a straight-line basis over the remaining life of the bonds from the date of acquisition. They are recorded on the consolidated balance sheet under the relevant liabilities accounts. Amortisation is taken to the income statement under “Interest expense on bonds and other fixed-income securities”.
Other long-term investments
Other liabilities
This category comprises variable-income securities acquired with the aim of developing long-term business ties with the issuer, although Dexia Crédit Local is not in a position to influence the management of the issuer due to the small proportion of voting rights held. Other long-term securities are taken to the balance sheet at cost, excluding acquisition costs. At each period end, they are stated at the lower of historical cost and fair value. The fair value of other long-term securities corresponds to the price that the Company would be willing to pay to acquire them, taking into account the purpose for which they are acquired, irrespective of whether or not the securities are listed. Gains and losses on disposals of other long-term securities are determined on a FIFO basis.
Dexia Crédit Local / Annual report 2011
This heading includes mainly collateral (guarantee deposits) payable under swap transactions, which is recognised at its carrying amount.
Reserves Provisions for risks and charges are set aside at their present value when: • Dexia Crédit Local has a legal or implicit obligation resulting from past events; • it is probable that an outflow of financial resources will be needed to extinguish this obligation; and
Financial statements
Notes to the financial statements
Subordinated debt
Subordinated redeemable notes issued by Dexia Crédit Local are considered as Tier 2 capital for the purpose of calculating the European capital adequacy ratio, in accordance with Article 4-d of CRB Regulation 90-02.
Forward and derivative financial instruments
Instruments meeting this definition consist primarily of swaps acquired as micro-hedges of primary issues, bonds held in the “available-forsale” and “held-to-maturity” portfolios and Customer loans. The hedging instruments have the effect of creating synthetic variableor adjustable-rate assets or liabilities, which are immunised against interest rate risks. Expenses and income on micro-hedges are recorded in the income statement in the same way as the expenses and income on the hedged item of group of similar items. In cases where the hedged item is repaid early (or disposed of), the following accounting treatment is applied to the equalisation payment received or paid due to the early unwinding of the hedging instrument: • if the hedge was unwound before 1 January 2005, the equalisation payment is spread over the remaining life of the cancelled transaction;
Dexia Crédit Local uses forward and derivative financial instruments in the normal course of business, mainly as hedges against interest rate and currency risks and, to a lesser extent, in order to take advantage of favourable interest rate and currency trends. The instruments used include interest rate and/or currency swaps, FRAs, caps, floors, interest rate options, futures, credit default swaps and credit spread options.
• if the hedge was unwound on or after 1 January 2005, the equalisation payment is recognised in profit or loss during the period in which the hedge was unwound. However, the equalisation payment paid by Dexia Crédit Local is charged against income only for the portion that exceeds gains not yet recorded in income on the symmetric position.
Forward and derivative financial instruments are valued and accounted for in four transaction categories, in accordance with CRB Regulations 90-15 and 92-04 based on the initial purpose of the transaction.
In both cases, the inventory of deferred equalisation payments is recorded in accrued assets or liabilities.
The four transaction categories are specific hedges, macro-hedges, isolated open positions and specialist portfolio management; each has its own rules for measurement and recognition. For transactions in all categories, the commitment or notional amount is recorded as an off-balance sheet commitment over the life of the contract, i.e. from the date of signing of the contract to its maturity or the start date of the reference period in the case of forward rate agreements. The amount of the commitment is adjusted to reflect any changes in notional amounts, so as to show at all times the maximum current or future commitment. Each contract is recorded separately and is classified in one of the above four categories. The accounting treatment of gains and losses depends on the underlying purpose of the transaction, as determined by its category. Upfront equalisation payments on hedging transactions are amortised over the remaining life of the instrument. All transactions are amortised on a quasi-yield-to-maturity basis.
Présentation générale Rapport de gestion
• the contracts must be purchased or sold for the specific purpose, and must have the specific effect, of reducing the Bank’s exposure to fluctuations in prices or interest rates in respect of the hedged item and must be identified as such at the outset.
Gouvernance et contrôle interne
These reserves also include provisions for deferred taxes.
• the hedged item must contribute to the Bank’s overall exposure to fluctuations in prices or interest rates;
Comptes consolidés
Retirement and other post-employment benefits are calculated in accordance with the local regulations applicable in each country and are recognised as expenses for the year. These commitments are recalculated each year using an actuarial method and recognised under reserves.
Micro-hedges are used to cover interest rate risks on a specific item or group of items with similar characteristics, identified at the outset. The criteria applied to determine whether transactions qualify as microhedges are as follows:
Financial statements
Regulatory tax reserves are set aside in the financial statements for medium- and long-term credits and accelerated tax depreciation. Reserves against forward and derivative financial instruments are booked in accordance with the rules specified in the paragraph concerning forward and derivative financial instruments.
Micro hedging
Macro hedging This category includes contracts that are intended to hedge and manage Dexia Crédit Local’s overall exposure to interest rate risks on assets, liabilities and off-balance sheet items, other than microhedges, contracts representing isolated open positions and contracts acquired for specialist portfolio management purposes. Macro-hedges have the effect of reducing Dexia Crédit Local’s overall exposure to interest rate risks on its business transactions. Expenses and income on macro-hedges are recorded in the income statement on an accrual basis under “Interest expense on macrohedges” and “Interest income on macro-hedges”. The contra entry is recorded on the balance sheet in an accruals account until such time as the funds are collected or disbursed. In the event of the unwinding of a macro-hedge, the equalisation payment is recognised as follows:
Annual report 2011 / Dexia Crédit Local
Assemblée générale
General (or collective) provisions on Customer loans are included in this heading. These provisions cover the risk of impairment in the absence of any signs of specific impairment but when there are objective indications that losses will probably be incurred in certain sectors of the portfolio or on other financing commitments underway at the balance sheet date. These potential losses are estimated on the basis of the historical loss record and trends specific to each sector, while taking account of the general economic environment in which the borrower operates. To calculate these reserves, Dexia Crédit Local has created a credit risk model based on an approach including probabilities of default and of losses given default.
Hedging transactions
Renseignements de caractère général
• it is possible to estimate with reasonable precision the amount of the obligation.
5
197
5
Financial statements
Notes to the financial statements
• equalisation payments on swaps unwound before 1 January 2005 are amortised when the unwinding of the position is not linked to a prior change in the overall interest rate risks to be hedged, or are taken into income symmetrically to those components that resulted in the modification of said risk.
Présentation générale
• as from 1 January 2005, the equalisation payment is recognised through profit or loss.
Position management Dexia Crédit Local conducts two types of position management transactions: • specialist held-for-trading portfolio management;
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
• position-taking.
198
Specialist held-for-trading portfolio management This activity covers transactions with local authorities and their symmetrical transactions entered into with banks. Its purpose is the specialist management of a held-for-trading portfolio comprising specific interest rate swaps and other interest rate-based derivatives. The held-for-trading portfolio is actively managed based on sensitivity criteria, with predefined interest rate exposure limits set internally in accordance with CRB Regulation 97-02 as amended. Positions are centralised and results calculated on a daily basis. Gains and losses are recognised on a mark-to-market basis, as follows: • total future cash flows are marked to market on a monthly basis and the resulting unrealised gain or loss is taken to the income statement; • all payments made or received are recorded directly in the income statement.
• interest and equalisation payments are recognised in the income statement on an accrual basis.
Foreign exchange transactions
Dexia Crédit Local uses currency swaps and forward purchases and sales of foreign currencies to hedge its currency risks. Currency swaps are used to match funding currencies with the currencies of the assets financed. Forward purchases and sales of foreign currencies are used to offset or reduce the impact of exchange rate fluctuations on specific items or groups of similar items. A limited number of unhedged foreign exchange positions are also established in connection with Dexia Crédit Local’s position-taking activities. In accordance with CRB Regulation 89-01, currency instruments are classified as either hedged transactions or position-management transactions. This categorisation determines the applicable accounting treatment for the related gains and losses. Currency instruments in both categories are recorded as off-balance sheet commitments over the life of the contract, i.e. from the date of signing of the contract to the start date of the reference period. Each contract is recorded separately and is classified in one of the categories defined by the regulation. The accounting treatment of income depends on the category and reflects the substance of the transaction.
Hedging transactions Forward points – the difference between the forward rate and the spot rate – are recognised in the income statement on an accrual basis. The position is initially recorded at the spot rate and its value is gradually adjusted over the life of the contract to take account of the forward points.
Position-management transactions
Mark-to-market gains and losses on derivatives are calculated using the replacement cost method. This method consists of taking each individual contract and simulating a new contract, which, at the balance sheet date, closes the open position created by the original contract. The differences in cash flows between the actual and simulated contracts are then discounted.
These represent forward currency transactions that do not meet the criteria for qualification as hedged forward currency transactions as defined in CRB Regulation 89-01, in that they do not relate simultaneously to loans and borrowings or to spot currency transactions. Such transactions are entered into with the aim of taking advantage of exchange rate movements.
The portfolio valuation takes into account portfolio management costs and credit risks.
Gains and losses on position-management transactions are determined and accounted for by translating movements in the currency accounts into euros at the forward rate applicable to the remaining terms of the contracts.
For the purposes of this activity, the Dexia Crédit Local New York branch centrally manages the risks generated by the portfolios. Risk is transferred using internal contracts. These contracts are put in place, recorded and valued in accordance with CRB Regulation 90-15.
Position-taking Derivatives held in the position-taking portfolio are intended to keep isolated positions open in order to take advantage of any favourable interest rate movements. The portfolio also includes all contracts (including credit derivatives) that do not fulfil the criteria for classification as specialist portfolio management. Gains and losses are recognised in accordance with the prudence principle as follows: • provisions for risks are booked for any unrealised losses calculated as a result of periodic mark-to-market valuations; unrealised gains are not recognised in the income statement;
Dexia Crédit Local / Annual report 2011
Foreign currency transactions
In accordance with CRB Regulation 89-01, as amended by Regulation 90-01, Dexia Crédit Local recognises foreign currency transactions in accounts opened and denominated in each of the currencies concerned. Specific foreign currency position accounts are maintained in each currency showing the position in that currency and the euro equivalent. At each period end, the difference between the value of the foreign currency position account translated into euro at the year-end spot rate and the value of the foreign currency position in the euro equivalent account is taken to the income statement. Differences arising on the translation into euro of investments in foreign currency-denominated non-consolidated companies financed in euros are recorded on the balance sheet under “Accumulated translation adjustments”.
Financial statements
Notes to the financial statements
Non-recurring items
Non-recurring income and expenses result from events or transactions that do not relate to the ordinary business operations or routine management of the Company’s assets and liabilities.
The Dexia SA établissement stable in France became head of the tax consolidation group that includes Dexia Crédit Local on 1 January 2002. The établissement stable alone is liable for the payment of corporate income taxes and the annual fixed taxes paid each year by the Group as a whole. In its individual financial statements, Dexia Crédit Local recognises its income tax expense on a stand-alone basis. The Dexia SA établissement stable records the benefits achieved through tax consolidation (excluding the scope of Dexia Crédit Local). An amendment to the tax convention between Dexia SA établissement stable and Dexia Crédit Local, signed in 2011, now allows the tax savings generated by Dexia Crédit Local and its subsidiaries to be reallocated to Dexia Crédit Local.
Locations and activities in tax haven countries and territories
They represent material items of income and expense that do not depend on decisions made in connection with the routine management of the business or of the Company’s assets and liabilities, but which result from external events that are exceptional in terms of their infrequency and their impact on net income. Only items of this nature, that have a significant impact on profit and loss for the period, are classified as non-recurring income and expenses.
In compliance with Article L. 511-45 of the French Monetary and Financial Code, it should be noted that Dexia Crédit Local has no offices (branches, subsidiaries or special purpose entities), affiliates or other exclusively or jointly controlled de facto or de jure interests in entities in countries that do not have administrative assistance agreements with France.
Corporate income tax
Company consolidating the financial statements of Dexia Crédit Local
Assemblée générale
Financial statements
Dexia SA, Place Rogier, 11 B-1210 Brussels, Belgium.
Renseignements de caractère général
The standard French corporate income tax rate is 36.10%, and the rate used for deferred taxes is 34.43%.
Présentation générale
The cost of risk includes movements in loss reserves on interbank and Customer loans, fixed-income held-to-maturity securities (in the case of recognised risk of default by the issuer) and off-balance sheet items (other than off-balance sheet derivatives), as well as loan losses, recoveries of loans written off in prior years, and movements in other provisions and reserves for credit risks and contingencies relating to these items.
Dexia Crédit Local has adopted the tax consolidation method.
Rapport de gestion
Cost of risk
Tax consolidation
Gouvernance et contrôle interne
The balance sheets of foreign consolidated branches of Dexia Crédit Local are translated into euros at the period-end exchange rate, with the exception of equity, which is translated at the historical rate. Income statement items are translated at the average rate for the period. Differences arising on translation are recorded as a separate component of equity under “Accumulated translation adjustments”.
The income of foreign subsidiaries is taxed at the rates prevailing in the countries in which they operate.
Comptes consolidés
Differences arising on the translation into euros of held-to-maturity securities denominated and financed in foreign currencies are recognised on a symmetrical basis with the differences arising on translation of the related financing.
5
Annual report 2011 / Dexia Crédit Local
199
5
Financial statements
Notes to the financial statements
2. Notes on the assets 2.1. Cash, balances with central banks and post offices (item I – assets)
Rapport de gestion
Présentation générale
a. Accrued interest (EUR millions)
0
b. Detailed analysis, excluding accrued interest (EUR millions)
As at 31/12/2010
As at 31/12/2011
0 131 0 131
0 1,650 0 1,650
Cash Deposits with central banks and issuing institutions Deposits with postal checking accounts TOTAL
2.2. Government securities eligible for central bank refinancing (item II – assets)
Gouvernance et contrôle interne
a. Accrued interest (EUR millions)
48
b. Analysis by term to maturity, excluding accrued interest (EUR millions)
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
As at 31/12/2011
0
0
112
1,591
1,703
c. Analysis by type of portfolio and movements for the year, excluding accrued interest
Comptes consolidés
Banking activity and other (EUR millions) Cost as at 31 December 2010
Available for sale
Held to maturity
47
2,535
40
Total 2,622
Movements for the year: • acquisitions • disposals and redemptions
Financial statements
Held for trading
• transfers
0
93
0
93
(6)
(495)
0
(501)
0
0
0
0
• translation adjustments
0
0
0
0
• other
0
0
0
0
41
2,133
40
2,214
0
(130)
0
(130)
• charges
0
(664)
(32)
(696)
• recoveries
0
317
0
317
• translation adjustments
0
(2)
0
(2)
• other
0
0
0
0
0
(479)
(32)
(511)
41
1,654
8
1,703
Cost as at 31 December 2011 Impairment as at 31 December 2010
Assemblée générale
Movements for the year:
Impairment as at 31 December 2011
Renseignements de caractère général
NET CARRYING AMOUNT AS AT 31 DECEMBER 2011
200
As at 31 December 2011, there were EUR 369 million in securities lent in the available-for-sale portfolio. Additional information concerning government securities is provided in note 2.5.
d. Transfers between portfolios
No transfers were made between portfolios in 2011.
Dexia Crédit Local / Annual report 2011
Financial statements
Notes to the financial statements
5
e. Listed and unlisted securities, excluding accrued interest An analysis of listed and unlisted securities is presented in note 2.5.g.
(EUR millions)
Available for sale
Held to maturity
21 0
0 0
Unrealised capital gains Unrealised capital losses
2.3. Interbank loans and advances (item III – assets)
Présentation générale
f. Unrealised capital gains and losses on securities
b. Analysis by term to maturity, excluding accrued interest (EUR millions) Demand loans and advances Term loans and advances TOTAL
As at 31/12/2010
As at 31/12/2011
Less than 3 months
3 months to 1 year
1 to 5 years
1 to 5 years
14,549 24,094 38,643
8,379 32,271 40,650
3,285 21,153 24,438
4 1,687 1,691
21 4,785 4,806
5,069 4,646 9,715
c. Analysis of non-performing loans, excluding accrued interest Valuation of risk (EUR millions) Gross non-performing loans Accumulated impairment(1) NET NON-PERFORMING LOANS
As at 31/12/2010 Total
As at 31/12/2011 Non-performing loans under collection
57 (37) 20
Doubtful nonperforming loans
Gouvernance et contrôle interne
78
Total
16
0
16
(1) 15
0 0
(1) 15
(1) The 2010 figure corresponds essentially to the impairment of amounts receivable from Lehman Brothers Holding Inc.
Comptes consolidés
(EUR millions)
Rapport de gestion
a. Accrued interest
(EUR millions) Subordinated interbank loans Non-subordinated interbank loans TOTAL
As at 31/12/2010
As at 31/12/2011
1,117 22,977 24,094
737 31,534 32,271
Financial statements
d. Analysis by degree of subordination, excluding accrued interest
e. Analysis of subordinated non-performing loans, excluding accrued interest As at 31/12/2010
As at 31/12/2011
(EUR millions)
Total
Non-performing loans under collection
Doubtful nonperforming loans
Total
Gross non-performing loans Accumulated impairment(1) NET NON-PERFORMING LOANS
373 (373) 0
0 0 0
0 0 0
0 0 0
Assemblée générale
Valuation of risk
Renseignements de caractère général
(1) The 2010 figure corresponds to the impairment of amounts receivable from Dexia Holdings Inc.
Annual report 2011 / Dexia Crédit Local
201
5
Financial statements
Notes to the financial statements
2.4. Customer loans and advances (item IV – assets) a. Accrued interest (EUR millions)
298
Présentation générale
b. Analysis by term to maturity, excluding accrued interest (EUR millions)
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
No fixed maturity or not analysed
As at 31/12/2011
521
2,226
9,731
28,841
0
41,319
c. Analysis by type of borrower, excluding accrued interest As at 31/12/2010
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
(EUR millions) Performing loans Restructured performing loans
Public sector
Other sectors
Total
44,164 0
18,121 0
22,822 0
40,943 0
47
43
178
221
275 44,486
0 18,164
155 23,155
155 41,319
Non-performing loans under collection Doubtful non-performing loans TOTAL
As at 31/12/2011
Total
d. Analysis of non-performing loans, excluding accrued interest Valuation of risk (EUR millions) Gross non-performing loans under collection Accumulated impairment Net non-performing loans under collection
As at 31/12/2011
61 (14)
314 (93)
47
221
Gross doubtful non-performing loans
360
215
Accumulated impairment Net doubtful non-performing loans
(85) 275
(60) 155
As at 31/12/2010
As at 31/12/2011
7 44,479 44,486
0 41,319 41,319
e. Analysis by degree of subordination, excluding accrued interest (EUR millions)
Financial statements
As at 31/12/2010
Subordinated customer loans Non-subordinated customer loans TOTAL
2.5. Bonds and other fixed-income securities (item V – assets)
Renseignements de caractère général
Assemblée générale
a. Accrued interest
202
(EUR millions)
288
b. Analysis by term to maturity, excluding accrued interest (EUR millions)
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
As at 31/12/2011
4,365
1,329
9,048
34,332
49,074
c. Analysis by type of issuer, excluding accrued interest Type of issuer (EUR millions) Public sector issuers Other issuers TOTAL
The decrease in the securities portfolio is attributable to the policy of reducing the liquidity gap.
Dexia Crédit Local / Annual report 2011
As at 31/12/2010 17,581 35,700 53,281
As at 31/12/2011 13,865 35,209 49,074
5
Financial statements
Notes to the financial statements
d. Analysis by type of portfolio and movements for the year, excluding accrued interest Banking activity and other Available for sale
Held to maturity
11,781
42,734
617
Cost as at 31 December 2010 Movements for the year: • acquisitions • disposals and redemptions • other movements • translation adjustments Cost as at 31 December 2011 Impairment as at 31 December 2010
Total 55,132
5,922
94
0
6,016
(4,988)
(5,640)
0
(10,628) 301
0
301
0
(261)
547
(22)
264
12,454
38,036
595
51,085
0
(1,851)
0
(1,851)
Movements for the year: • charges(1)
0
(1,861)
(153)
(2,014)
• recoveries
0
1,855
0
1,855
• other movements
0
0
0
0
• translation adjustments
0
(1)
0
(1)
0 12,454
(1,858) 36,178
(153) 442
(2,011) 49,074
Impairment as at 31 December 2011 NET CARRYING AMOUNT AS AT 31 DECEMBER2011
(1) The impairment charges on the held-to-maturity portfolio pertain to the portfolio of Greek securities.
Présentation générale
Held for trading
Rapport de gestion
(EUR millions)
Total
Held for trading
Available for sale
Held to maturity
Total
47
2,467
40
2,554
41
1,702
8
1,751
Gross carrying amount
50
2,559
40
2,649
41
2,160
40
2,241
Premiums/discounts
(3)
(24)
0
(27)
0
(27)
0
(27)
Related receivables
0
62
0
62
0
48
0
48
Impairment
0
(130)
0
(130)
0
(479)
(32)
(511)
(EUR millions) Government securities
Market value
47
2,488
40
2,575
41
1,724
8
1,773
Bonds and other fixedincome securities
11,781
41,361
622
53,764
12,454
36,464
444
49,362
Gross carrying amount
11,854
42,472
617
54,943
12,454
37,492
595
50,541
Premiums/discounts
(73)
264
0
189
0
544
0
544
Related receivables
0
478
5
483
0
286
2
288
Impairment
0
(1,851)
0
(1,851)
0
(1,858)
(153)
(2,011)
Market value
11,781
44,930
617
57,328
12,454
41,835
449
54,738
Equities and other variableincome securities
0
278
0
278
0
246
0
246
Gross carrying amount
0
332
0
332
0
297
0
297
Premiums/discounts
0
0
0
0
0
0
0
0
Related receivables
0
0
0
0
0
0
0
0
Impairment
0
(54)
0
(54)
0
(51)
0
(51)
Market value
0
320
0
320
0
37
0
37
11,828
44,106
662
56,596
12,495
38,412
452
51,359
0
1,758
0
1,758
0
3,406
0
3,406
Total securities portfolio Provisions for risks and charges (1)
(1) The EUR 3,406 million provision for risks and charges concerns losses on hedges of available-for-sale securities. This provision is presented as a liability (see note 3.5).
Annual report 2011 / Dexia Crédit Local
Comptes consolidés
Held to maturity
Financial statements
As at 31/12/2011
Available for sale
Assemblée générale
As at 31/12/2010 Held for trading
Renseignements de caractère général
e. Analysis by type of portfolio
Gouvernance et contrôle interne
As at 31 December 2011 there were EUR 1.2 billion in securities lent in the held-for-trading portfolio, EUR 24 billion in the available-for-sale portfolio and EUR 26 million in the held-to-maturity portfolio, and EUR 7.8 billion in securities borrowed in the held-for-trading portfolio.
203
5
Financial statements
Notes to the financial statements
f. Analysis by type of counterparty As at 31/12/2010 Held for trading
Available for sale
Held to maturity
Total
Held for trading
Available for sale
Held to maturity
Total
Government securities
47
2,467
40
2,554
41
1,702
8
1,751
Central governments
47
2,445
40
2,532
41
1,556
8
1,605
0
22
0
22
0
146
0
146
11,781
41,361
622
53,764
12,454
36,464
444
49,362
67
1,693
186
1,946
866
1,986
70
2,922
1,142
14,610
75
15,827
2,112
13,648
31
15,791
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
(EUR millions)
Local governments Bonds and other fixedincome securities Central governments Local governments Credit institutions
1,825
8,134
320
10,279
4,842
5,309
316
10,467
Other private-sector entitites
8,747
16,924
41
25,712
4,634
15,521
27
20,182
Equities and other variableincome securities
0
278
0
278
0
246
0
246
Equities and other variableincome securities
0
23
0
23
0
11
0
11
0 11,828
255 44,106
0 662
255 56,596
0 12,495
235 38,412
0 452
51,359
Mutual funds Total securities portfolio
As at 31/12/2010
As at 31/12/2011
Held for trading
Available for sale
Held to maturity
Total
Held for trading
Available for sale
Held to maturity
Total
47
2,467
40
2,554
41
1,702
8
1,751
47
2,463
40
2,550
41
1,698
8
1,747
0
4
0
4
0
4
0
4
11,781
41,361
622
53,764
12,454
36,464
444
49,362
Listed securities(1)
7,164
21,795
30
28,989
3,587
17,725
22
21,334
Unlisted securities
4,617
19,566
592
24,775
8,867
18,739
422
28,028
0
278
0
278
0
246
0
246
0
98
0
98
0
108
0
108
0 11,828
180 44,106
0 662
180 56,596
0 12,495
138 38,412
0 452
138 51,359
(EUR millions)
(1)
Listed securities
Comptes consolidés
235
g. Analysis by listing of securities
Government securities Unlisted securities Bonds and other fixedincome securities
Equities and other variableincome securities (1)
Financial statements
As at 31/12/2011
Listed securities
Unlisted securities Total securities portfolio
(1) “Listed” means quoted on a securities exchange.
h. Analysis by degree of subordination, excluding accrued interest
Renseignements de caractère général
Assemblée générale
(EUR millions)
204
Subordinated bonds and other subordinated fixed-income securities issued by credit institutions Subordinated bonds and other subordinated fixed-income securities issued by other issuers
As at 31/12/2010
As at 31/12/2011
493
0
0
0
Non-subordinated bonds and other non-subordinated fixed-income securities
52,788
49,074
Total of which: listed subordinated bonds and other listed subordinated fixed-income securities
53,281 0
49,074 0
i. Transfers between portfolios
No transfers were made between portfolios in 2011.
Dexia Crédit Local / Annual report 2011
Financial statements
Notes to the financial statements
5
j. Held-for-trading portfolio, excluding accrued interest (EUR millions)
As at 31/12/2010
As at 31/12/2011
(12)
270
As at 31/12/2010 690 425
As at 31/12/2011 997 480
As at 31/12/2010 241
As at 31/12/2011
Mark-to-market gains
l. Analysis of non-performing loans, excluding accrued interest Valuation of risk (EUR millions) Gross non-performing loans under collection Accumulated impairment(1) Net non-performing loans under collection
971 (610) 361
Rapport de gestion
(138) 103
(1) The EUR 610 million of impairment in 2011 relates essentially to reserves set aside against Greek sovereign securities.
2.6. Equities and other variable-income securities (item VI – assets) a. Analysis by type of portfolio and movements for the year Banking activity and other Held for trading Available for sale
(EUR millions) Cost as at 31 December 2010
0
332
Total 332
• acquisitions
0
26
26
• disposals and redemptions
0
(65)
(65)
• other movements
0
0
0
• translation adjustments
0
4
4
Cost as at 31 December 2011
0
297
297
Impairment as at 31 December 2010
0
(54)
(54)
• charges
0
(12)
(12)
• recoveries
0
16
16
• other movements
0
0
0
• translation adjustments
0
(1)
(1)
0 0
(51) 246
(51) 246
Comptes consolidés
Movements for the year:
Financial statements
Movements for the year:
Impairment as at 31 December 2011 Net carrying amount as at 31 December 2011
Gouvernance et contrôle interne
(EUR millions) Unrealised gains (redemption value higher than carrying amount) Unrealised losses (redemption value lower than carrying amount)
Présentation générale
k. Available-for-sale and held-to-maturity portfolios, excluding accrued interest
b. Transfers between portfolios (excluding insurance business) No transfers were made between portfolios in 2011.
Listed securities Unlisted securities Total
Carrying amount as at 31 December
Market value as at 31 December 2011
Net unrealised capital gain as at 31 December 2011
52
52
0
194 246
Renseignements de caractère général
(EUR millions)
Assemblée générale
c. Listing of securities
Annual report 2011 / Dexia Crédit Local
205
5
Financial statements
Notes to the financial statements
d. Unrealised capital gains and losses on variable-income securities
Présentation générale
(EUR millions) Unrealised capital gains Unrealised capital losses
Available for sale portfolio 37 0
2.7. Long-term equity investments (item VII – assets) a. Accrued interest (EUR millions)
0
Rapport de gestion
b. Analysis by type of issuer and movements for the year (EUR millions) Cost as at 31 December 2010 • acquisitions(1)
Comptes consolidés
Gouvernance et contrôle interne
• transfers
Financial statements
Other long-term equity investments Credit institutions Other 12
Total
4,991
203
27
5,233
437
49
0
0
0
2
488
(4)
(4)
(39)
0
39
0
(8) 0
29
0
2
0
31
Movements for the year: • disposals and redemptions(2) • translation adjustments(3) • other movements Cost as at 31 December 2011 Impairment as at 31 December 2010
0
0
0
0
0
5,418
252
49
25
5,744
(2,261)
(5)
0
(2)
(2,268)
Movements for the year: • charges(4)
(922)
0
(1)
(2)
(925)
• recoveries
0
0
0
0
0
• reversals
0
0
0
0
0
• transfers
0
0
0
0
0
(29)
0
(2)
0
(31)
• translation adjustments(3) • other movements Impairment as at 31 December 2011 Net carrying amount as at 31 December 2011 (1) (2) (3) (4)
0
0
0
0
0
(3,212) 2,206
(5) 247
(3) 46
(4) 21
(3,224) 2,520
The primary movements in 2011 pertain to the capital increases of Dexia Kommunalbank Deutschland, Dexia Municipal Agency and Dexia Bail. Disposals include primarily the shares of Vulcain Energie and Dexia Public Finance Switzerland. The translation adjustments concern primarily Dexia Holdings Inc. Includes EUR 920 million for impairment on the shares of Dexia Municipal Agency.
c. Listing of securities (EUR millions) Listed securities
Renseignements de caractère général
Assemblée générale
Unlisted securities TOTAL
206
Related parties Credit institutions Other
Dexia Crédit Local / Annual report 2011
Net carrying amount as at 31 December 2011
Market value as at 31 December 2011
Unrealised capital gain as at 31 December 2011
0
0
0
2,520 2,520
Financial statements
Notes to the financial statements
5
Net carrying amount as at 31 December 2011
0
0
0
Listed securities Unlisted securities
Gross carrying amount as at 31 December 2011
Impairment as at 31 December 2011
Net carrying amount as at 31 December 2011
% interest in capital
Interest in capital as at 31 December 2011
5,744
3,224
2,520
Dexia Holdings Inc.(1)
2,218
2,218
Dexia Municipal Agency(2)
1,300
920
0
90.00%
(1,372)
2011
380
100.00%
1,362
2011
Dexia Crediop
581
0
Dexia Kommunalbank Deutschland
793
0
581
70.00%
750
2011
793
100.00%
751
Dexia Kommunalkredit Bank
160
2011
0
160
100.00%
146
Dexia Sabadell SA
2011
152
0
152
60.00%
289
CBX.IA 2
2011
100
0
100
70.85%
82
2011
Dexia Israel Bank Ltd.
56
0
56
65.31%
93
2011
Dexia Sofaxis
50
0
50
99.98%
52
2011
CBX.IA 1
41
0
41
100.00%
1
2011
Dexia Flobail
56
0
56
100.00%
(97)
2011
Dexia CLF Immo
34
18
16
100.00%
17
2011
Dexia CLF Banque
20
0
20
100.00%
18
2011
Exterimmo
20
0
20
40.00%
20
2010
Societé d’Investissement Suisse Luxembourgeoise
17
13
4
100.00%
4
2011
Dexia Real Estate Capital Markets
49
0
49
100.00%
49
2011
Dexia Bail Dexia CLF Régions Bail
10 8
0 0
10 8
99.91% 100.00%
5 22
2011 2011
Total
Last balance sheet date
Principal interests in long-term equity investments
(1) The shares of Dexia Holdings Inc. were written down in full by virtue of the agreement to sell FSA’s insurance business to Assured Guaranty Ltd. (2) The shares of Dexia Municipal Agency were written down in 2011 by virtue of the agreement in principal (see section on “Significant events” in the notes to the financial statements).
Rapport de gestion
Impairment as at 31 December 2011
Gouvernance et contrôle interne
Gross carrying amount as at 31 December 2011
Comptes consolidés
(EUR millions)
Présentation générale
d. Significant investments
Start-up costs
Other intangible assets
Total
0
273
273
Gross carrying amount as at 31 December 2010 Movements for the year: • increases
0
14
14
• decreases
0
(78)
(78)
• other
0
0
0
• translation adjustments
0
0
0
Gross carrying amount as at 31 December 2011
0
209
209
Amortisation and impairment as at 31 December 2010
0
(230)
(230)
Movements for the year: • charges
0
(17)
(17)
• recoveries
0
75
75
• other
0
0
0
• translation adjustments
0
0
0
0 0
(172) 37
(172) 37
Amortisation and impairment as at 31 December 2011 NET CARRYING AMOUNT AS AT 31 DECEMBER 2011
Intangible assets primarily include software purchased and in-house software development costs that have been capitalised. Intangible assets decreased due to the closing of the London and Tokyo branches.
Annual report 2011 / Dexia Crédit Local
Assemblée générale
(EUR millions)
Renseignements de caractère général
Detailed analysis and movements for the year
Financial statements
2.8. Intangible assets (item VIII – assets)
207
5
Financial statements
Notes to the financial statements
2.9. Tangible fixed assets (item IX – assets) Detailed analysis and movements for the year Land and buildings
Fixtures, equipment, furniture and vehicles
Other tangible non-current assets
Assets under construction and prepayments
Total
1
6
45
0
52
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
(EUR millions) Cost as at 31 December 2010 Movements for the year: • increases
0
0
0
0
0
• decreases
(1)
(2)
(2)
0
(5)
• other
0
0
0
0
0
• translation adjustments
0
0
0
0
0
Cost as at 31 December 2011
0
4
43
0
47
Gains as at 31 December 2011
0
0
0
0
0
Depreciation and impairment as at 31 December 2010
0
(3)
(37)
0
(40) (3)
Movements for the year: • charges
0
(1)
(2)
0
• recoveries
0
1
2
0
3
• other
0
0
0
0
0
• translation adjustments
0
0
0
0
0
Depreciation and impairment as at 31 December 2011
0
(3)
(37)
0
(40)
Net carrying amount as at 31 December 2011
0
1
6
0
7
2.10. Other assets and accruals (items XIII and XIV – assets) Detailed analysis of other assets and accruals
Comptes consolidés
(EUR millions)
25
34
68
55
Guarantee deposits paid(1)
16,946
25,412
Deferred tax assets
Financial statements
Other non-current financial assets Other assets TOTAL OTHER ASSETS
(EUR millions)
Assemblée générale
1
2
944
158
0
0
112 18,096
219 25,880
(1) Guarantee deposits paid consist nearly entirely of collateral deposited under contracts with the primary counterparties trading on derivatives markets. The increase in cash collateral is attributable essentially to the change in interest rates in 2011.
Accruals Premiums and deferred charges on borrowings
As at 31/12/2010
As at 31/12/2011
320
343
Premiums on loans and other deferred charges on loans
72
73
Premiums and deferred charges on hedging transactions
825
675
Premiums and deferred charges on trading transactions
1,030
2,146
Accrued income on hedging transactions
1,661
1,342
Accrued income on trading transactions
6,308
9,787
Unrealised translation losses
Renseignements de caractère général
As at 31/12/2011
Premiums paid on options Tax receivables
208
As at 31/12/2010
Other assets Premiums paid on swaptions issued
Other accrued income TOTAL ACCRUALS
Dexia Crédit Local / Annual report 2011
205
267
800 11,221
1,488 16,121
Financial statements
Notes to the financial statements
5
2.11. Analysis of assets by currency Classification by currency of origin
98,635 19,988
In all other currencies TOTAL ASSETS
61,296 179,919
3. Notes on the liabilities and equity 3.1. Interbank borrowings and deposits (item I – liabilities and equity) a. Accrued interest (EUR millions)
122
Rapport de gestion
In EUR In other EU currencies
Présentation générale
As at 31/12/2011
(EUR millions)
As at 31/12/2011
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
Demand deposits(1)
10,181
38,431
38,431
Term deposits
54,726
40,184
TOTAL
64,907
78,615
11,956
3,154
18,039
7,035
50,387
3,154
18,039
7,035
(1) Funding from central banks came to EUR 9.2 billion as at 31 December 2011 (EUR 6.4 billion the previous year).
3.2. Customer loans and advances (item II – liabilities and equity) a. Accrued interest (EUR millions)
18
Comptes consolidés
As at 31/12/2010
(EUR millions)
Gouvernance et contrôle interne
b. Analysis by term to maturity, excluding accrued interest
(EUR millions) Demand deposits Term deposits TOTAL
As at 31/12/2010
As at 31/12/2011
Less than 3 months
0
7
7
2,478 2,478
697 704
5 12
3 months to 1 year
1 to 5 years
Over 5 years
335 335
247 247
110 110
As at 31/12/2010
As at 31/12/2011
Financial statements
b. Analysis by term to maturity, excluding accrued interest
Public sector Other sectors TOTAL
1,651
21
827
683
2,478
704
Renseignements de caractère général
(EUR millions)
Assemblée générale
c. Analysis by type of issuer, excluding accrued interest
Annual report 2011 / Dexia Crédit Local
209
5
Financial statements
Notes to the financial statements
3.3. Debt securities (item III – liabilities and equity) a. Accrued interest (EUR millions)
300
Rapport de gestion
Présentation générale
b. Analysis by term to maturity, excluding accrued interest As at 31/12/2010
As at 31/12/2011
Less than 3 months
3 months to 1 year
1 to 5 years
Over 5 years
Interbank and other negotiable debt securities
55,572
51,619
25,250
3,281
19,752
3,336
Bonds TOTAL
17,900 73,472
20,177 71,796
6,049 31,299
1,240 4,521
10,830 30,582
2,058 5,394
(EUR millions)
As at 31 December 2011, medium- and long-term borrowings, in the form of Euro Medium-Term Notes, BMTN (domestic short- or medium-term notes) and bonds, amounted to EUR 29 billion.
c. Analysis by type of security and movements for the year, excluding accrued interest
Comptes consolidés
Gouvernance et contrôle interne
(EUR millions)
Interbank and other negotiable debt securities
Bonds
Total
55,572
17,900
73,472
AS AT 31 DECEMBER 2010 Movements for the year • new issues • redemptions • translation adjustments • other AS AT 31 DECEMBER 2011
Financial statements Assemblée générale
16,541 (18,090)
(160)
33
(127)
0 51,619
0 20,177
0 71,796
Detailed analysis Other liabilities and accruals (EUR millions)
Premiums on options sold
As at 31/12/2010
As at 31/12/2011
920
1,892
10
9
Other creditors
7,288
1,003
TOTAL OTHER LIABILITIES
8,218
2,904
92
92
Accruals Deferred income on loans Discounts recognised on purchase of receivables
Renseignements de caractère général
13,440 (11,196)
3.4. Other liabilities and accruals (item IV and V – liabilities and equity)
Other liabilities Guarantee deposits received
210
3,101 (6,894)
0
0
Deferred income on hedging transactions
1,104
1,252
Deferred income on trading transactions
1,234
2,119
Deferred gains on hedging contracts Accrued charges on hedging transactions
43
31
2,079
1,786
Accrued charges on trading transactions
6,382
9,959
Unrealised translation gains
1,459
1,763
Other deferred income
65
8
Other accrued charges
124
88
Other accrued liabilities TOTAL ACCRUALS
Dexia Crédit Local / Annual report 2011
726
987
13,308
18,085
Financial statements
Notes to the financial statements
5
Other movements
As at 31/12/2011
3,295
2,559
(2,139)
162
3,877
10
1
(1)
0
10
154
117
(127)
1
145
• other financial instruments(2)
1,758
2,192
(703)
159
3,406
• other risks and charges(3)
1,370
249
(1,305)
2
316
3
0
(3)
0
0
Provisions for deferred taxes
111
56
(109)
0
58
Regulated provisions
337
10
(11)
0
336
310
0
0
0
310
21
10
(10)
0
21
6
0
(1)
0
5
3,743
2,625
(2,259)
162
4,271
Provisions for risks and charges • pensions and similar commitments (1) • financing commitments
• country risk
• provisions for medium- and long-term loans • provisions accelerated tax depreciation • provisions for investment TOTAL
(1) Provisions for termination benefits and long-service awards. (2) An analysis of provisions for risks and charges on other financial instruments by type of portfolio is provided in note 2.5.d. (3) Other provisions for risks and charges in 2010 included the EUR 1,233 million provision for risk on the Dexia Holdings Inc. subsidiary. The provision was recovered in 2011, following the recognition of a EUR 1,023 million waiver of debt. Calculated on the basis of the value in use of the entity, this provision was used to cover expected economic losses on the Financial products portfolio and expenses related to the State guarantee provided on the risks of that portfolio throughout the period of time covered by the guarantee.
3.6. Subordinated debt (item VIII – liabilities and equity) a. Accrued interest (EUR millions)
14
b. Movements for the year, excluding accrued interest (EUR millions)
Total
AS AT 31 DECEMBER 2010
4,737
Movements for the year: • new issues • redemptions (1) • translation adjustments • other movements AS AT 3131 DECEMBER 2011
0 (2,537) 0
Rapport de gestion
Recoveries
Gouvernance et contrôle interne
Charges
Comptes consolidés
As at 31/12/2010
(EUR millions)
Présentation générale
3.5. Provisions for risks and charges (item VI – liabilities and equity)
0 2,200
Renseignements de caractère général
Assemblée générale
Financial statements
(1) Redemption of EUR 2,537 million in subordinated borrowing simultaneously with the capital increase in December.
Annual report 2011 / Dexia Crédit Local
211
5
Financial statements
Notes to the financial statements
c. Details of individual subordinated borrowings Currency
Maturity
Amount (in millions)
EUR
1/12/2014
100
a) Early repayment conditions b) Subordination conditions c) Convertibility conditions a) No early repayment
Interest rate (%)
93.25% CMS
b) No specific conditions
Présentation générale
c) No conversion EUR
12/02/2019
300
a) Early repayment possible at each due date for interest payments with effect from 12/02/2014 after approval by the general secretariat of the French Banking Commission*
Fixed rate 4,375 From 12/02/2014 3M Euribor + 0.72
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares
Rapport de gestion
c) No conversion EUR
9/07/2017
500
a) Early repayment possible at each due date for interest payments with effect from 09/07/2012 after approval by the general secretariat of the French Banking Commission
3M Euribor + 0.15 From 09/07/2012, 3M Euribor + 0.65
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares
Gouvernance et contrôle interne
c) No conversion EUR
28/12/2017
300
c) No conversion 300
Comptes consolidés
20/06/2018
a) Early repayment possible at each due date for interest payments with effect from 20/06/2013 after approval by the general secretariat of the French Banking Commission
3M Euribor + 1.5 From 20/06/2013 1Y Euribor + 2
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares c) No conversion EUR
No fixed maturity
700
a) Early repayment possible at each due date for interest payments with effect from 18/11/2015 after prior approval by the general secretariat of the French Banking Commission. b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares c) No conversion
Renseignements de caractère général
Assemblée générale
*Renamed in March 2010 as the Prudential Control Authority (ACP)
212
3M Euribor +1.45 until 28/12/2012, then 3M Euribor + 1.95
b) Repayment at par value after all creditors but preferred ranking over subordinated profit-sharing loans and preference shares EUR
Financial statements
a) Early repayment possible at each due date for interest payments with effect from 28/12/2012 after approval by the general secretariat of the French Banking Commission
Dexia Crédit Local / Annual report 2011
Fixed rate 4.30 From 2015 3M Euribor + 1.73
Financial statements
Notes to the financial statements
5
3.7. Equity Detailed analysis of equity (EUR millions)
Amount
Capital stock
501
Additional paid-in capital
861 0 50
Non-distributable reserve
640
General reserves
699 0
Translation adjustments
(112)
Net income for the year
(1,530)
Movements for the year:
Commitments to increase capital stock and additional paid-in capital Reserves and retained earnings(2) Legal reserve Non-distributable reserve(1)(2) Translation adjustments Dividends paid (-) Net loss for the year Other movements
0 (191) 0 (699) 0 3,560 16 0 (4,435) 0
AS AT 31 DECEMBER 2011: Capital stock
501
Additional paid-in capital
670
Commitments to increase capital stock and additional paid-in capital Legal reserve Non-distributable reserve General reserves Retained earnings Translation adjustments Net loss for the year(3) Interim dividends EQUITY AS AT 31 DECEMBER 2011
0 50 4,200 0 0 (96) (4,435) 0 890
(1) By decision of the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock by EUR 4,200 million in cash and reduced capital stock by EUR 4,200 million. Dexia Crédit Local’s capital stock of EUR 500,513,102.75 is composed of 87,045,757 shares with a par value of EUR 5.75 per share. (2) The Combined Shareholders’ Meeting held on 12 May 2011 resolved to allocate the EUR 1,530 million net loss in 2010 in the following manner: EUR 640 million to the undistributable reserve, EUR 669 million to general reserves and EUR 191 million to additional paid-in capital. (3) The Ordinary Shareholders’ Meeting is requested to allocate the net loss for the year as follows: – EUR 4,200 million to the non-distributable reserve established to write off part of the losses for the year; – EUR 235 million to retained earnings.
In respect of the year 2010, Dexia Crédit Local increased its capital stock in cash by EUR 640 million and reduced its capital stock by 640 million, resulting in total capital stock of EUR 500.5 million.
3.8. Analysis of liabilities and equity by currency Classification by currency of origin (EUR millions) In EUR
As at 31/12/2011 100,782
In other EU currencies
19,987
In all other currencies
59,150
TOTAL LIABILITIES AND EQUITY
Gouvernance et contrôle interne
Capital stock(1) Additional paid-in capital(2)
Rapport de gestion
0 1,109
Comptes consolidés
EQUITY AS AT 31 DECEMBER 2010
179,919
Annual report 2011 / Dexia Crédit Local
Financial statements
Interim dividends
Assemblée générale
Retained earnings
Renseignements de caractère général
Commitments to increase capital stock and additional paid-in capital Legal reserve
Présentation générale
AS AT 31 DECEMBER 2010:
213
5
Financial statements
Notes to the financial statements
3.9. Other notes to the balance sheet Transactions with related parties – Analysis by type (EUR millions)
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Assets
Liabilities
Of which, related parties(1)
Items III and IV
Interbank loans and advances and Customer loans and advances
82,345
47,588
Items V, VI, VII
Securities held
52,128
6,526
Items XIII and XIV
Other assets and accruals
42,001
1,072
Items I and II
Interbank borrowings and deposits and customer deposits
79,459
18,221
Item III
Debt securities
72,096
121
Item VIII
Subordinated debt
2,214
1,913
Items IV and V
Other liabilities and accruals
20,989
4,430
(1) Related parties are entities included within the consolidation scope of the Dexia Group. In 2011, Dexia Bank Belgium was taken out of the consolidation scope of the Dexia Group. However, Dexia Crédit Local maintains significant relations with this sub-group, and notably for funding purposes (EUR 20.9 billion as at 31 December 2011).
4. Notes on the off-balance sheet 4.1. Financing commitments given (item I – off-balance sheet) This item includes financing commitments given and commitments given on securities and on loaned foreign currencies. Financing commitments on loans and lines of credit include loans approved but not disbursed as at 31 December 2011.
Analysis by type of beneficiary (EUR millions)
As at 31/12/2010
Commitments to credit institutions
Comptes consolidés
Total
Commitments to customers Commitments given on securities TOTAL
As at 31/12/2011
9,480
9,642
26,731
14,254
168
106
36,379
24,002
Financial statements
4.2. Guarantee commitments given (item II – off-balance sheet) a. Analysis by type of beneficiary As at 31/12/2010
As at 31/12/2011
Commitments to credit institutions
36,526
39,986
Commitments to customers
20,308
12,452
TOTAL
56,834
52,438
As at 31/12/2010
As at 31/12/2011
56,834
52,438
(EUR millions)
Renseignements de caractère général
Assemblée générale
b. Analysis by type of transaction
214
(EUR millions) Guarantee commitments given • guarantees • endorsements
0
0
• liens on assets
0
0
56,834
52,438
TOTAL
c. Contingent liabilities and risks and losses not quantifiable at the date of preparation of the financial statements At the date when the financial statements were prepared, there were no contingent liabilities, risks or losses that were not quantifiable.
Dexia Crédit Local / Annual report 2011
5
Financial statements
Notes to the financial statements
0
Balance sheet liabilities
0
0
Off-balance sheet items
29,922
47,361
TOTAL
29,922
47,361
(1) Carrying amount of the assets pledged. This item includes notably (1) collateral of EUR 6.4 billion in loans pledged for borrowings from international financial institutions; (2) loans of EUR 2.1 billion given as collateral to Dexia LdG Banque SA; (3) assets amounting to EUR 9.4 billion pledged as collateral to central banks; and (4) commitments of EUR 3.3 billion given on the New York Branch’s tender option bond.
4.4. Financing and guarantee commitments received (items IV and V – off-balance sheet) These items include all financing commitments and guarantees received from credit institutions, and commitments received on securities and foreign currency borrowings. (EUR millions)
As at 31/12/2010
As at 31/12/201112/2011
4,949
3,387
Financing commitments received from credit institutions
954
463
Guarantees received from credit institutions
11,177
8,290
Guarantees received from local authorities or claims on local authorities acquired as guarantees
16,295
21,685
Currencies borrowed but not yet received
1,855
0
35,230
33,825
Other commitments received TOTAL
4.5. Commitments related to securities (item VI – off-balance sheet)
Rapport de gestion
As at 31 December 2011(1)
0
(EUR millions)
Gouvernance et contrôle interne
As at 31 December 2010(1)
As collateral for debts and commitments of the Company
Présentation générale
4.3. Assets pledged as collateral (item III – off-balance sheet)
• spot • forward
0
0
208
287
Sales • spot • forward TOTAL
0
0
208
1,900
416
2,187
b. Isolated open positions Unrealised gains on isolated open positions
0
4.6. Commitments related to foreign currency transactions (item VII – off-balance sheet) Spot and forward currency transactions are presented at their value in their accounting currency, translated at the closing foreign exchange rate at the year end. The line “Foreign currencies to be received” amounted to EUR 46 billion and the line “Foreign currencies to be delivered” to EUR 47 billion as at 31 December 2011.
Annual report 2011 / Dexia Crédit Local
Financial statements
As at 31/12/201112/2011
Assemblée générale
As at 31/12/2010
Renseignements de caractère général
(EUR millions) Purchases
Comptes consolidés
a. Analysis by type of transaction
215
5
Financial statements
Notes to the financial statements
4.7. Commitments related to forward and derivative financial instruments (item VIII – off-balance sheet) a. Analysis by type of use and instrument
Rapport de gestion
Présentation générale
Type of transaction
As at 31/12/2010
Gouvernance et contrôle interne
Macrohedging
Specialised Isolated trading open portfolio position management
Fair value as at 31/12/11
36,871
45,102
11,920
24,936
3,301
4,945
(1,606)
13,916
20,548
0
18,354
2,194
0
0
• currency and interest rate swaps
22,955
24,554
11,920
6,582
1,107
4,945
(1,606)
• currency futures
0
0
0
0
0
0
0
• currency options
0
0
0
0
0
0
0
• forward currency agreements
0
0
0
0
0
0
0
558,327
449,272
58,165
250,204
4,313
136,590
(9,850)
542,808
438,805
52,513
250,204
1,124
134,964
(10,636)
17
7
0
0
7
0
0
• forward rate agreements
5,065
1,000
725
0
275
0
0
• interest rate options
2,701
2,811
894
0
291
1,626
110
• other options
7,736
6,649
4,033
0
2,616
0
676
• other futures
0
0
0
0
0
0
0
• other forward purchases and sales
0
0
0
0
0
0
0
595,198
494,374
70,085
275,140
7,614
141,535
(11,456)
Other financial instruments Interest rate instruments(2) • futures
Other forward purchases and sales(3)
TOTAL (1) Amount to be delivered. (2) Face value/notional amount. (3) Purchase/selling price agreed between the parties.
b. Analysis by type of market Type of transaction (EUR millions)
Financial statements
Trading
• forward currency purchases and sales
• interest rate swaps
Comptes consolidés
Microhedging
(EUR millions) Foreign currency instruments(1)
Hedging
As at 31/12/2011
Over-the-counter market
Organised market
As at 31/12/2011
45,102
0
45,102
442,623
0
442,623
6,649
0
6,649
494,374
0
494,374
Forward contracts
Options
As at 31/12/2011
45,102
0
45,102
441,440
1,183
442,623
5,059
1,590
6,649
491,601
2,773
494,374
Foreign currency instruments Other financial instruments • interest rate instruments • other forward purchases and sales TOTAL
Assemblée générale
c. Analysis of forward contracts and options Type of transaction (EUR millions) Foreign currency instruments Other financial instruments • interest rate instruments • other forward purchases and sales
Renseignements de caractère général
TOTAL
d. Analysis by term to maturity Type of transaction (EUR millions) Foreign currency instruments
1 to 5 years
Over 5 years
As at 31/12/2011
21,204
6,838
17,060
45,102
101,394
158,042
183,187
442,623
8
889
5,752
6,649
122,606
165,769
205,999
494,374
Other financial instruments • interest rate instruments • other forward purchases and sales TOTAL
216
Less than 1 year
Dexia Crédit Local / Annual report 2011
Financial statements
Notes to the financial statements
• position management The position management strategy includes two types of activities: – specialist trading portfolio management;
Commitments related to interest rate derivatives are recorded in compliance with CRB Regulations 88-02 and 90-15:
• asset-liability management This includes all transactions intended to cover and manage the total interest rate exposure of the Company. ALM is carried out primarily through the use of swaps and futures contracts. • specific hedging Hedges are used to cover interest rate risks on a specific item or a group of items with similar characteristics, identified at the outset. Instruments meeting this definition consist primarily of swaps acquired as micro hedges of primary issues, bonds in the available for sale or held to maturity portfolios, and Customer loans. The hedging instruments have the effect of creating synthetic variableor adjustable-rate assets or liabilities, which are immunised against interest rate risks. Foreign currency swaps are also classified as hedges when they are used to transform sources of funding in one currency into the currency used in the transactions they finance in the goal of reducing currency risk.
Derivatives held in the position-taking portfolio are intended to keep isolated open positions in order to take advantage of any favourable movements in interest rates or exchange rates. These transactions include primarily interest rate swaps and forward foreign exchange transactions.
f. Risk monitoring Risk is measured by the Risk Management department. The main risk indicator used by Dexia Crédit Local, and throughout the entire Dexia Group, is VaR. The VaR calculated by the Dexia Group measures the potential loss over a 99% confidence interval over a 10-day period. The risk management system consists of allocating to each entity, and for each type of financial market activity, the following items: • a list of foreign currencies and transactional structures likely to be used;
Présentation générale
Dexia Crédit Local uses forward financial instruments as part of the three following strategies:
Rapport de gestion
• options are carried at the nominal value of the underlying instrument.
The specialist trading portfolio management activity includes all transactions entered into with local authorities and the symmetrical transactions executed with banking counterparties. The transactions include primarily interest rate swaps. Specialised duration management is employed for the transactions included in this activity.
Gouvernance et contrôle interne
• forward contracts are carried at the nominal value of the contracts;
– position-taking.
• a VaR limit.
Comptes consolidés
e. Off-balance sheet forward transactions, including securities, currencies and other forward and derivative financial instruments
5
4.8. Transactions with related parties Total
Of which, related parties(1)
Item I
Financing commitments given
24,002
13,796
Item II
Guarantee commitments given
52,438
48,820
Item IV
Financing commitments received
3,850
1,100
Item V
Guarantee commitments received
29,975
7,277
Items III, VI, VII and VIII
Other commitments given and received
593,114
179,484
(EUR millions)
Off-balance sheet
Financial statements
Analysis by type
Renseignements de caractère général
Assemblée générale
(1) Related parties are entities included within the consolidation scope of the Dexia Group. A significant portion of “Other commitments given and received” is attributable to relations between Dexia Crédit Local and Dexia Bank Belgium (EUR 38.5 billion, primarily on interest rate swaps).
Annual report 2011 / Dexia Crédit Local
217
5
Financial statements
Notes to the financial statements
5. Notes on the income statement 5.1. Interest income and interest expense (items I and II – income statement)
Présentation générale
(EUR millions)
As at 31/12/2010
As at 31/12/2011
(a)
692
1,195
(b)
1,646
1,707
Bonds and other fixed-income securities
(c)
880
837
Macro hedging transactions
(d)
3,445
4,476
6,663
8,215 (1,698)
Interest income on: Interbank loans Customer loans and advances
Total interest income
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Interest expense on: Interbank borrowings and deposits
(a)
(1,198)
Customer deposits
(b)
(321)
(643)
Bonds and other fixed-income securities
(c)
(1,268)
(1,494)
Macro hedging transactions
(d)
(4,185)
(5,184)
(6,972) (309)
(9,019) (804)
Total interest expense Net interest expense
a. Interest income and expense on interbank transactions
This item includes a charge of EUR 234 million on transactions with related parties. It also includes an expense relating to the sovereign guarantee amounting to EUR 279 million in 2011 (EUR 340 million in 2010).
b. Interest income and expenses on customer transactions
Interest income and expenses on customer loans and deposits represented a net amount of EUR 1,064 million. The heading includes EUR 17 million of losses on assignments of customer loans. It also includes EUR 138 million in income from financing commitments and guarantees.
c. Interest income and expenses on bonds and other fixed-income securities
The heading includes EUR 837 million in accrued interest on bonds and other fixed-income securities, amortisation of discounts and premiums on held-to-maturity and available-for-sale securities, and the related hedging gains and losses on these securities. Interest expense amounted to EUR 1,494 million for Dexia Crédit Local. In addition to interest expenses on bonds and other fixed-income securities, the heading also includes interest rate hedging gains and losses on specifically identified negotiable debt, bond and subordinated debt issues.
d. Income and expenses on macro-hedging transactions
Financial statements
Income and expenses on macro-hedging transactions amounted to EUR 4,476 million and EUR 5,184 million respectively. These amounts are included in items I and II of the income statement, respectively.
5.2. Analysis of income from variable-income securities (item III – income statement)
Renseignements de caractère général
Assemblée générale
(EUR millions)
218
As at 31/12/2010
Related parties(1) Other related parties and long-term investments
173 6
Equities and other variable-income securities TOTAL
2 181
As at 31/12/2011 131 1 2 134
(1) Includes dividends of EUR 110 million received from the Dexia Municipal Agency subsidiary in 2011 (EUR 134 million in 2010).
5.3. Analysis of fees and commissions (items IV and V – income statement) a. Analysis of fee and commission income (item IV – income statement) Type (EUR millions) Loans Other financial services TOTAL
Dexia Crédit Local / Annual report 2011
As at 31/12/2010
As at 31/12/2011
9 2 11
8 6 14
Financial statements
Notes to the financial statements
5 (3) (7)
(20) (23)
(14) (24)
Other financial services TOTAL
5.4. Analysis of gains and losses on portfolio transactions (item VI – income statement) (EUR millions)
As at 31/12/2010
Gains (losses) on: • held-for-trading securities(1)
As at 31/12/2011
185
(49)
• foreign currency transactions
(187)
(133)
• other financial instruments
(384)
(9)
(386)
(191)
(386)
(1,392)
(386) (772)
(1,392) (1,583)
Sub-total • available-for-sale and similar securities(1)(2) Sub-total TOTAL
(1) The portfolios of held-for-trading and available-for-sale securities reflect the strong volatility and illiquidity of the financial markets. (2) This line includes gains and losses on disposal and charges to/recoveries from provisions in respect of the available-for-sale securities, as well as gains and losses on portfolio securities. These impairment provisions reflect the widening of spreads in the “sovereign” and “local government” segments.
Analysis of gains and losses on disposal and changes in impairment provisions for available-for-sale securities: (EUR millions)
As at 31/12/2010
As at 31/12/2011
(1,283) 794
(5,006) 3,632
• charges to impairment • recoveries of impairment Sub-total
(489)
(1,374)
• disposal losses
(147)
(188)
• disposal gains
250
170
103 (386)
(18) (1,392)
As at 31/12/2010
As at 31/12/2011
(185) (130)
(159) (106)
(55)
(53)
Sub-total TOTAL
Rapport de gestion
As at 31/12/2011
(2) (1)
Gouvernance et contrôle interne
As at 31/12/2010
Comptes consolidés
Type (EUR millions) Loans Corporate actions
Présentation générale
b. Analysis of fee and commission expenses (item V – income statement)
5.5. General operating expenses (item IX – income statement)
• social security Other administrative expenses • taxes and duties(1) • other administrative expenses • provision for restructuring(2) TOTAL
(19)
(8)
(8)
(26)
(10)
(8)
(1) (204)
26 (167)
Renseignements de caractère général
(1) In 2011, a new ‘systemic risk’ tax was levied on banks, adding EUR 14 million in expense to this line. (2) In 2011, a EUR 26 million provision for restructuring was recovered following the closing of the Tokyo and London branches.
Assemblée générale
(EUR millions) Personnel costs • salaries and wages
Financial statements
a. Detailed analysis
Annual report 2011 / Dexia Crédit Local
219
5
Financial statements
Notes to the financial statements
b. Employee information As at 31/12/2010
As at 31/12/2011
1,341 100
1,276 94 861
Présentation générale
Total employees as at 31 December • executive management • other management
904
• administrative personnel
337
321
Personnel costs (EUR millions)
(183)
(157)
(129)
(105)
• salaries and direct benefits • payroll taxes
(37)
(34)
• other personnel costs
(17)
(18)
• pension expense Provisions for pensions (EUR millions) • charges (+)
Rapport de gestion
• recoveries (-) TOTAL
0 (2)
(2)
(3)
0 (185)
1 (159)
5.6. Cost of risk (item XI – income statement) (EUR millions)
Charges and losses
Reversals and recoveries
As at 31/12/2011
(2,451)
874
(346)
1,393
(1,577) 1,047
Provisions for impairment and losses on loans
Gouvernance et contrôle interne
0 (2)
Provisions for risks Regulated provisions TOTAL
The cost of risk came to EUR 529 million in 2011 and essentially comprised:
0
1
(2,797)
2,268
1 (529)
• a EUR 135 million charge for the estimated costs to implement the planned contribution of the Bank’s local public sector financing activities to a new institution yet to be created.
Comptes consolidés
• EUR 937 million in impairment on Greek sovereign debt; • a EUR 1,023 million waiver of debt in respect of Dexia Holdings Inc., offset by a EUR 1,577 million gain on the recovery of a provision;
Financial statements
5.7. Net gain (loss) on long-term investments (item XII – income statement) a. Detailed analysis (EUR millions)
As at 31/12/2010
Total as at 31/12/2011
Other (1)
(14)
Related parties (923)
Other (2)
0
35
35
0
1
1
(13)
34
21
(923)
(1)
(924)
Disposal losses(2)
0
(38)
(38)
0
(1)
(1)
Disposal gains(3)
0
6
6
0
9
9
0 (13)
(32) 2
(32) (11)
0 (923)
8 7
8 (916)
Recoveries of impairment(2) Sub-total
Sub-total TOTAL
(1) Includes a EUR 920 million charge to impairment on the shares of the Dexia Municipal Agency subsidiary in 2011. (2) Includes recovery of a EUR 35 million provision on the shares of Dexia Épargne Pension and recognition of an equivalent disposal loss in 2010. (3) Includes EUR 8 million gain on disposal of the Holdings in Norwich, Oldham and Sheffield in 2011.
Renseignements de caractère général
Assemblée générale
As at 31/12/2011
Related parties (13)
Charges to impairment(1)
220
Total as at 31/12/2010
Dexia Crédit Local / Annual report 2011
(925)
Financial statements
Notes to the financial statements
5
b. Analysis by type As at 31/12/2010
As at 31/12/2011 7
3 (14) (11)
As at 31/12/2010 3 1 4
As at 31/12/2011 0 1 1
b. Other banking expenses (item VIII – income statement) (EUR millions) Other banking expenses Other miscellaneous expenses TOTAL
As at 31/12/2010 (1) 0 (1)
As at 31/12/2011 0 0 0
5.9. Non-recurring items (item XIII – income statement) (EUR millions) Non-recurring income Non-recurring expenses
As at 31/12/2010 0 0
As at 31/12/2011 0 0
5.10. Corporate income tax (item XIV – income statement) a. Analysis of tax expense (EUR millions)
As at 31/12/2010
Corporate income tax Deferred taxes
107 207
Other TOTAL
0 314
As at 31/12/2011 312
Rapport de gestion
(EUR millions) Other banking income Other miscellaneous income TOTAL
Gouvernance et contrôle interne
a. Other banking income (item VII – income statement)
Comptes consolidés
5.8. Other banking income and expenses
Présentation générale
(923) (916)
(848) 0 (536)
In 2011, the tax rate used for France was 36.10%.
Financial statements
(EUR millions) Participating interests Investments in related parties TOTAL
The tax rate applicable to foreign branches is generally lower.
Renseignements de caractère général
Assemblée générale
In the light of Dexia Crédit Local’s position and the likelihood of its ability to recover deferred taxes, deferred taxes have been accrued.
Annual report 2011 / Dexia Crédit Local
221
5
Financial statements
Notes to the financial statements
b. Exceptions to the general valuation principles, as provided for by tax law As at 31/12/2010
As at 31/12/2011
Regulated provisions Provision for medium- and long-term loans
(1) 0
(1)
Provision for investments Accelerated tax depreciation
(1) 1
(1) 0
Présentation générale
Dexia SA établissement stable in France became head of the tax consolidation group in 2002. Dexia Crédit Local is part of that group.
Rapport de gestion
(EUR millions)
5.11. Financial relationships with members of the Management Board and the Board of Directors
c. Tax consolidation
0
savings generated by Dexia Crédit Local and its subsidiaries to be reallocated to Dexia Crédit Local. Pursuant to this amendment, Dexia Crédit Local recorded a tax credit of EUR 173 million, corresponding to the carry back owed the tax group by the French tax authorities.
An amendment to the tax convention between Dexia SA établissement stable and Dexia Crédit Local, signed in 2011, now allows the tax
Comptes consolidés
Gouvernance et contrôle interne
(EUR millions) Compensation paid to the members of the Management Board and the Board of Directors of the Company in respect of their functions within the Company and its subsidiaries and associated companies Management Board
4
Board of Directors TOTAL
0 4
Amounts owed, contingent liabilities in their favour and other material commitments underwritten in their favour Management Board Board of Directors TOTAL
0 0 0
5.12. Analysis by geographical region and line of business a. Analysis by geographical region
Financial statements
(EUR millions)
Net banking income (loss)
Gross operating income (loss)
Net income (loss)
(1,022) (1,240) (2,262)
(1,157) (1,297) (2,454)
(2,959) (1,476) (4,435)
France Foreign branches TOTAL
b. Analysis by line of business
(EUR millions)
222
Gross operating income (loss)
Net income (loss)
As at 31/12/2010
As at 31/12/2011
As at 31/12/2010
As at 31/12/2011
As at 31/12/2010
As at 31/12/2011
340 0
316 0
175 0
202 0
208 0
219 0
(1,249) (909)
(2,578) (2,262)
(1,313) (1,138)
(2,656) (2,454)
(1,738) (1,530)
(4,654) (4,435)
Public and Wholesale Banking Retail and Commercial Banking Other TOTAL
Renseignements de caractère général
Assemblée générale
Net banking income (loss)
Dexia Crédit Local / Annual report 2011
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Notes to the financial statements
Financial statements
5
Annual report 2011 / Dexia Crédit Local
223
5
Financial statements
Notes to the financial statements
6. Subsidiaries and equity investments as at 31 December 2011 Company
Capital stock
Additional paid-in capital, reserves and retained earnings
Revenue or net banking income (loss) for last fiscal year
Net income (loss) for last fiscal year
1 - Details of subsidiaries and equity investments whose carrying amount exceeds 1% of Dexia Crédit Local’s capital stock
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
A - Subsidiaries (50% to 100% of equity) (EUR) Dexia CLF Immobilier 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
2,364,700
14,588,168
729,648
413,550
Dexia Sabadell SA* Paseo de las Doce Estrallas 4 Campo de las Naciones- E - 28042 Madrid
254,061,000
223,899,391
35,875,277
4,445,730
Dexia Crediop* Via Venti settembre N. 30 - I00187 Rome
450,210,000
643,889,868
30,556,373
(23,174,259)
4,690,801,035
(2,232,859,059)
(3,909,007,666)
(3,982,369,142)
432,500,000
399,387,182
3,420,717,279
(80,591,537)
1,300,000,000
56,614,880
126,878,332
5,416,665
35,492,229
93,705,931
24,896,933
13,495,910
1,000,000
2,935,735
14,589
436,300
613,020
46,296,651
10,019,085
5,450,194
CBX. IA 1 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
1,130,004
(363,365)
(244,352)
(254,085)
CBX. IA 2 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
141,140,624
(32,888,726)
19,304,735
7,152,810
Dexia Flobail 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
56,100,175
(153,028,921)
(937,525)
(58,601)
Dexia Holdings Inc. 445 Park Avenue, 7th floor, NY 10022 New York Dexia Kommunalbank Deutschland AG Charlottenstr. 82 - D - 10969 Berlin Dexia Municipal Agency1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense Dexia Israel Bank Ltd. 19 Ha’arbaa Str, Hatichon tower-Tel Aviv 64739 SISL 180, rue des Aubépines L 1145 - Luxembourg Dexia Sofaxis Route de Creton 18110 Vasselay
220,000,000
(137,988,105)
16,899,282
(75,229,922)
Dexia CLF Banque 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
7,625,000
5,718,380
91,709,027
4,241,000
Dexia Bail 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
9,050,600
(3,318,978)
1,299,493
(1,088,543)
Dexia CLF Régions Bail 1 Passerelle des Reflets - Tour Dexia La Défense 2 - 92913 La Défense
7,625,000
11,229,168
3,994,433
2,758,799
Dexia Real Estate Capital Markets*
15,411,366
31,974,417
7,373,649
1,705,457
50,000,000
451,000
76,000
22,000
Dexia Kommunalkredit Bank AG Fischhof 3 - A - 1010 Vienna
B - Equity investments (10% to 50% of equity) Exterimmo 100-104 Avenue de France 75013 Paris 2 - General information A - Other subsidiaries not included in section I-A
Assemblée générale
– French companies – Foreign companies B - Other subsidiaries not included in section I-B and participating interests where equity is less than 10% – French companies – Foreign companies
Renseignements de caractère général
*Companies that produce financial statements only under IFRS
224
Dexia Crédit Local / Annual report 2011
Activity
Gross
Net
100.00%
33,691,141
16,232,208
0
0
0
Real estate financing
60.00%
152,436,600
152,436,600
0
7,116,799,708
7,782,430,919
Bank, credit institution
70.00%
581,223,585
581,223,585
0
1,716,541,504
5,266,046,002
Bank, credit institution
90.00%
2,217,706,832
0
0
863,032,171
0
Holding company
100.00%
793,339,375
793,339,375
0
3,864,718,001,
3,738,907,524
Bank, credit institution
100.00%
1,299,999,909
379,999,909
110,075,000.00
3,500,000,000
5,606,114,542
Société de crédit foncier
65.31%
56,002,387
56,002,387
673,013
138,938,009
146,629,923
Bank, credit institution
100.00%
16,864,002
3,864,002
0
0
0
Management of equity investments
99.98%
50,056,308
50,056,308
9,491,193.08
0
0
Holding and management of equity investments in insurance broking companies
100.00%
39,863,172
39,863,172
0
25,782,028
714,972
Acquisition of land, buildings and property rights
70.85%
100,000,076
100,000,076
0
175,481,051
93,018,950
Real estate leasing
100.00%
56,111,063
56,111,063
0
640,091,643
1,394,883,715
Lease financing of local investments
100.00%
160,226,100
160,226,100
0
3,396,667,099
577,526,636
Holding company
100.00%
19,738,631
19,738,631
10,999,912.00
1,050,200,826
6,184,655,698
Bank, credit institution
99.91%
9,622,149
9,622,149
0
113,549,496
63,483,005
Equipment lease financing
100.00%
7,941,401
7,941,401
30,000
490,031,676
280,854,533
Real estate leasing
100.00%
49,103,773
49,103,773
0
0
0
Other operator in the financial sector
40.00%
20,000,000,
20,000,000,
0
0
0
Acquisition of land, buildings and property rights
9,557,669
0
139,203,172
0
1,273,245
0
0
0
20,261,718
15,361,219
500,436
663,381,529
59,468,080
8,792
8,792
930
0
0
Renseignements de caractère général
13,789,425 46,578,662
Présentation générale
Guarantees given by Dexia Crédit Local
Rapport de gestion
Loans and advances granted by Dexia Crédit Local
Gouvernance et contrôle interne
Dividends received by Dexia Crédit Local during the fiscal year
Financial statements
Carrying amount of stock
Comptes annuels
Interest in equity (%)
5
Assemblée générale
Financial statements
Notes to the financial statements
Annual report 2011 / Dexia Crédit Local
225
5
Financial statements
Statutory Auditors’ report on the financial statements
Rapport de gestion
Présentation générale
Statutory Auditors’ report on the financial statements This is a free translation into English of the Statutory Auditors’ report issued in French and is provided solely for the convenience of English speaking users. The Statutory Auditors’ report includes information specifically required by French law in such reports, whether modified or not. This information is presented below the opinion on the Company financial statements and includes an explanatory paragraph discussing the auditors’ assessments of certain significant accounting and auditing matters. These assessments were considered for the purpose of issuing an audit opinion on the Company financial statements taken as a whole and not to provide separate assurance on individual account captions or on information taken outside of the Company financial statements. This report should be read in conjunction and construed in accordance with French law and professional auditing standards applicable in France. To the Shareholders: In compliance with the assignment entrusted to us by your Shareholders’ Meeting, we hereby report to you, for the year ended 31 December 2011, on:
Comptes annuels
Financial statements
Gouvernance et contrôle interne
• the audit of the accompanying financial statements of Dexia Crédit Local; • the justification of our assessments; • the specific verification and information required by law. The financial statements have been approved by the Board of Directors. Our role is to express an opinion on these financial statements, based on our audit.
I. Opinion on the financial statements We conducted our audit in accordance with professional standards applicable in France; those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures, using sampling techniques or other methods of selection, to obtain audit evidence about the amounts and disclosures in the financial statements. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion. In our opinion, the financial statements give a true and fair view of the assets and liabilities, and the financial position of the Company as at 31 December 2011 and the results of its operations for the period then ended in accordance with French accounting principles. Without qualifying the above opinion, we would draw your attention to note 1.2 to the financial statements which:
Renseignements de caractère général
Assemblée générale
• stipulates that the financial statements of Dexia Crédit Local have been prepared on a going concern basis;
226
• sets out the key items and assumptions taken into consideration by the Board of Directors to approve the financial statements under this basis of accounting and more specifically: – the European Commission’s approval of a restructuring plan incorporating a Belgian, French and Luxembourg State guarantee; – the granting by the Belgian, French and Luxembourg States of a final definitive guarantee totalling EUR 90 billion, the principle of which has already been reflected in the authorizing legislations adopted by the Belgian, French and Luxembourg States; – a financial remuneration of the States’ compatible with the Group’s future viability; – the support from the States, with regard to the Group’s liquidity situation, for the proper implementation of the restructuring measures announced in October 2011.
Dexia Crédit Local / Annual report 2011
Financial statements
Statutory Auditors’ report on the financial statements
5
Going concern basis
Our work consisted in assessing the items used by the Board of Directors to justify maintaining the going concern basis of accounting and in gaining an understanding of the underlying documentation and more specifically the business plan and funding forecast. We also reviewed the information disclosed in the notes to the financial statements with respect to the going concern basis of accounting and related uncertainties.
ACCOUNTING ESTIMATES: Measurement of financial instruments
In a context of volatility in the financial markets and public finance crisis in certain eurozone countries, your Company, as mentioned in note 1.2 to the financial statements, uses internal methodologies and models to value financial instruments that are not listed on active markets, and for the recognition of any impairment. Our work consisted in reviewing the control procedures for the identification of financial instruments that can no longer be traded on an active market or whose valuation parameters are no longer observable; in determining the models used to measure them; in evaluating the appropriateness of the data and assumptions; and in verifying that the risks and results related to these instruments were taken into account.
Rapport de gestion
ACCOUNTING PRINCIPLES:
Gouvernance et contrôle interne
The accounting estimates used in the presentation of the financial statements for the year ended 31 December 2011 were prepared in an uncertain environment due to the public finance crisis in certain eurozone countries (Greece in particular) which, together with an economic and liquidity crisis, make it difficult to assess the economic outlook. Such accounting estimates were also prepared in the context of the Dexia Group’s specific position. These conditions are described in notes 1.1 and 1.2 to the financial statements. It is in this context and in accordance with the requirements of Article L.823-9 of the French Commercial Code (Code de commerce) relating to the justification of our assessments that we bring the following matters to your attention:
Comptes consolidés
II. Justification of our assessments
Présentation générale
As indicated in note 1.2 to the financial statements, maintenance of the going concern basis of accounting is justified by the business plan prepared by the Dexia Group which is based on a number of assumptions. Some of the assumptions used rely on external factors beyond the control of the Dexia Group and more specifically on the European Commission’s decision. Their realisation is therefore uncertain. Accordingly, non-realisation of the assumptions could result in Dexia Crédit Local having to examine the potential consequences of such a situation on the going concern basis of accounting in the preparation of the financial statements of the fiscal years to come.
• Your Company calculates any impairment of its available-for-sale securities portfolio based on their market value, net of any micro-hedges, as described in the section on “Securities transactions – Available-for-sale and held-to-maturity securities”.
• Your Company calculates any impairment in its portfolio investments, participating interests and other long-term securities on the basis of their value in use, as described in the sections on “Securities transactions – Portfolio investments” and “Long-term investments – Participating interests and other long-term securities”. We have assessed the reasonableness of these estimates taking into account the specific context of a still uncertain economic environment and continuing high volatility in financial markets. These assessments were made as part of our audit of the financial statements taken as a whole and therefore contributed to the opinion we expressed in the first part of this report.
Annual report 2011 / Dexia Crédit Local
Assemblée générale
Impairment of securities portfolio
Renseignements de caractère général
Your Company records impairment provisions to cover the credit risks inherent to its activities as described in note 1.2 to the financial statements. We examined the system used to control monitoring of credit risks, impairment procedures, evaluation of the risk of non-collection and the level of impairment loss cover provided by specific and collective provisions.
Financial statements
Provisions for credit and counterparty risks
227
5
Financial statements
Statutory Auditors’ report on the financial statements
III. Specific verification and information We have also performed in accordance with professional standards applicable in France, the specific verifications required by French law.
Présentation générale
We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the management report of the Board of Directors and in the documents addressed to the shareholders in respect of the financial position and the financial statements. Concerning the information given provided in accordance with the requirements of Article L.225-102-1 of the French Commercial Code relating to compensation and benefits received by the directors and officers of the Company and any other commitments made in their favour, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your Company from companies controlling your Company or controlled by it. Based on this work, we attest to the accuracy and fair presentation of this information.
The Statutory Auditors French original signed by
Virginie CHAUVIN
MAZARS
Hervé HELIAS
Renseignements de caractère général
Assemblée générale
Financial statements
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Courbevoie and Neuilly-sur-Seine, 29 March 2012
228
Dexia Crédit Local / Annual report 2011
DELOITTE & ASSOCIÉS Charlotte VANDEPUTTE José-Luis GARCIA
6 – Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
230
Resolutions proposed to the Ordinary Shareholders’ Meeting of 10 May 2012 239
6
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
Présentation générale
Statutory Auditors’ special report on regulated agreements and commitments with third parties This is a free translation into English of the Statutory Auditors’ report issued in the French language and is provided solely for English-speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional auditing standards applicable in France. To the Shareholders:
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
In our capacity as Statutory Auditors of your Company, we hereby report to you on regulated agreements and commitments with third parties. The terms of our engagement require us to communicate to you, based on information provided to us, the principal terms and conditions of those agreements and commitments brought to our attention, or which we may have discovered during the course of our audit, without expressing an opinion on their usefulness and appropriateness or identifying such other agreements and commitments, if any. It is your responsibility, pursuant to Article R.225-31 of the French Commercial Code (Code de commerce), to assess the interest involved in respect of the conclusion of these agreements and commitments for the purpose of approving them. Our role is also to provide you with the information stipulated in Article R.225-31 of the French Commercial Code (Code de commerce) in respect of the performance of the agreements and commitments, already authorizsed by the Shareholders’ Meeting and having continuing effect during the year, if any. We conducted our procedures in accordance with the professional guidelines of the French National Institute of Statutory Auditors (Compagnie Nationale des Commissaires aux Comptes) relating to this engagement. These guidelines require that we agree the information provided to us with the relevant source documents.
Agreements and commitments submitted for the approval of the Shareholders’ Meeting In accordance with Article L.225-40 of the French Commercial Code (Code de commerce), we have been advised of certain related party agreements and commitments which received prior authorization from your Board of Directors.
Comptes annuels
UPDATE OF THE COMFORT LETTER GRANTED BY DEXIA SA CONCERNING DEXIA BANKA SLOVENSKO Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Renseignements de caractère général
Shareholders’ Meeting
Nature and purpose: A comfort letter granted by Dexia SA to Dexia Crédit Local, in connection with Dexia banka Slovensko, was authorised by your Board of Directors on 5 August 2010 and approved by your Shareholders’ Meeting on 12 May 2011. In the context of Dexia banka Slovensko’s dispute with Ritro Finance, Dexia SA is committed to providing as much assistance as needed to help it honour any financial commitments it may incur as a result of this dispute, if Dexia banka Slovensko is fined in the court of last appeal and so long as Dexia SA owns the majority of the Dexia banka Slovensko shares. The comfort letter was updated on 28 December 2010 to take account of the agreement for sale of Dexia banka Slovensko to the Penta Investments Group retroactively authorised by your Board of Directors on 24 February 2011. Dexia Crédit Local continues to be shielded from the consequences of the Ritro dispute. The comfort letter had no impact during the year ended 31 December 2011.
COMFORT LETTER GRANTED BY DEXIA CRÉDIT LOCAL (“DCL”) TO DEXIA KOMMUNALBANK DEUTSCHLAND (“DKD”) Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local.
230
Dexia Crédit Local / Annual report 2011
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
6
Nature and purpose: A comfort letter granted by Dexia Crédit Local to its subsidiary Dexia Kommunalbank Deutschland AG, under which Dexia Crédit Local undertakes to ensure that Dexia Kommunalbank Deutschland always complies with its financial and other obligations towards the German regulator, was authorised by your Board of Directors on 24 February 2011.
AGREEMENT ON INTERCOMPANY TRANSFERS OF ASSETS Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local and Mr Rucheton, common director to Dexia Crédit Local and Dexia Insurance Belgium.
Présentation générale
The comfort letter had no impact during the year ended 31 December 2011.
An agreement for sale of shares in DCL Dublin to Parfipar, or to Dexia Insurance Belgium (an insurance subsidiary of Dexia Bank Belgium, “DIB”), at a price of EUR 1.2 billion, was authorised by your Board of Directors on 18 March 2011. In 2011, Dexia Crédit Local asset sales generated a total loss of EUR 46.2 million. The loss can be broken down as follows:
Rapport de gestion
Nature and purpose:
• Sale of EUR 320 million securities to Parfipar, with a loss of EUR 37 million.
AGREEMENT FOR RELINQUISHMENT BY DEXIA CRÉDIT LOCAL OF DEBT OWED BY DCL ASIA PACIFIC Persons concerned:
Gouvernance et contrôle interne
• Sale of EUR 145 million securities to DIB, with a loss of EUR 9.6 million;
Nature and purpose: In connection with the closure of its subsidiary DCL Asia Pacific, on 16 May 2011 Dexia Crédit Local agreed to waive a EUR 4.4 million receivable owed by the company in respect of two residual transactions.
Comptes consolidés
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local.
Comptes annuels
The agreement was authorised by your Board of Directors on 12 May 2011.
LOAN AGREEMENT BETWEEN DEXIA CRÉDIT LOCAL AND DEXIA HOLDINGS INC. (“DHI”) Persons concerned:
On 14 June 2011, Dexia Crédit Local granted Dexia Holdings Inc. an additional 5-year, USD 500 million credit facility, with a maturity of 5 years, at a market rate of interest but with interest only payable only in the event of available profit on the part of Dexia Holdings Inc.
Other characteristics: Full repayment of the loan is provided for on 15 June 2016. The annual remuneration is fixed at USD LIBOR + 2.5% calculated on the basis of a 360 360-days in the year. In the event of default, 2% additional interest would be applied to the unpaid amount. The agreement was authorised by your Board of Directors on 12 May 2011. No remuneration was recognised in 2011.
PURCHASE OPTION FOR THE SHARES IN DEXIA HOLDINGS INC. GRANTED BY DEXIA CRÉDIT LOCAL TO DEXIA SA Persons concerned:
Renseignements de caractère général
Nature and purpose:
Shareholders’ Meeting
Messrs Clot and Rucheton, common directors to Dexia SA and DHI and Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Annual report 2011 / Dexia Crédit Local
231
6
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
Nature and purpose: On 30 June 2011, with retroactive effect from 1st April 2011, Dexia Crédit Local granted Dexia SA an option to purchase its shares in Dexia Holdings Inc.
Other characteristics:
Présentation générale
The exercise price equals the higher of USD 1 and 90% of DHI’s net assets. The option expires on 30 June 2036. The agreement was authorised by your Board of Directors on 28 June 2011. The purchase option was not exercised by Dexia SA in 2011.
LOAN AGREEMENT BETWEEN DEXIA CRÉDIT LOCAL AND DEXIA SA AND COMFORT LETTER PROVIDED BY DEXIA SA TO DEXIA CRÉDIT LOCAL Persons concerned:
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Nature and purpose: For the purpose of financing the losses associated with sale of assets held in the company’s Financial products portfolio, your Board of Directors was asked to authorise the loan of EUR 5.75 billion by Dexia Crédit Local to Dexia SA, subject to provision by Dexia SA of an undertaking to provide Dexia Crédit Local with financial support. The agreement was authorised by your Board of Directors on 4 August 2011 but no use was made thereof in 2011.
AGREEMENT FOR RELINQUISHMENT BY DEXIA CRÉDIT LOCAL OF DEBT OWED BY DEXIA HOLDINGS INC. Persons concerned: Messrs Clot and Rucheton, common directors to Dexia Crédit Local and Dexia Holdings Inc. and Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Nature and purpose: On 30 September 2011, Dexia Crédit Local relinquished USD 1,447 thousand of debt owing by Dexia Holdings Inc. and equating with the losses to be borne by Dexia Crédit Local by virtue of the agreement with Dexia Holdings Inc. and Dexia SA signed on 30 June 2011.
Comptes annuels
The agreement provides for clawback in the event of an improvement in the fortunes of Dexia Holdings Inc. The agreement was authorised by your Board of Directors on 29 September 2011.
MEMORANDUM OF NEGOTIATION SIGNED BY CAISSE DE DÉPÔTS ET CONSIGNATIONS, LA BANQUE POSTALE, DEXIA SA (“DSA”) AND DEXIA CRÉDIT LOCAL (“DCL”) Persons concerned:
Renseignements de caractère général
Shareholders’ Meeting
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local. Messrs Clot and Rucheton, members of DSA’s Executive CommitteeManagement Board and directors of DCL, common directors to DCL and Dexia Municipal Agency, involved in the agreement, and Mr Brami, a director of DCL.
Nature and purpose: The protocol covers the arrangements for discussions and the principles governing restructuring of the Group. Its main elements are as follows: • structure of the transaction envisaged: – change of shareholding for Dexia Municipal Agency; – creation of a commercial joint venture between Caisse de Dépôts et Consignations and La Banque Postale intended to originate loans for local governments; • price; • guarantees provided by Dexia Crédit Local;
232
Dexia Crédit Local / Annual report 2011
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
6
• mechanisms enabling reduction of Dexia’s liquidity requirements; • conditions precedent; • principles governing the period of transition;
On 20 October 2011, your Board of Directors approved all the terms and conditions of the memorandum of negociation, the effect of which was to require the recognition of impairment of the investment in Dexia Municipal Agency reflecting the agreed sale price, resulting in a loss of EUR 920 million.
AGREEMENT ALLOWING DEXIA CRÉDIT LOCAL TO SUBSCRIBE TO GUARANTEED BONDS ISSUED BY DEXIA SA Persons concerned:
Présentation générale
• non-compete agreement.
In connection with of the new State guarantee arrangements, Dexia Crédit Local may have occasion to subscribe a maximum amount of EUR 25 billion of guaranteed bonds issued by Dexia SA for the purpose of obtaining subsequent central bank funding. On 9 December 2011, your Board of Directors authorised the agreement subject to obtaining the requisite State guarantees and to unreserved approval thereof by the Board of Directors of Dexia SA.
AGREEMENT IN RESPECT OF THE GUARANTEE PROVIDED BY DEXIA SA (“DSA”) IN FAVOUR OF DEXIA CRÉDIT LOCAL (“DCL”) AND RELATING TO GREEK BONDS HELD BY DEXIA KOMMUNALBANK DEUTSCHLAND (“DKD”) Persons concerned:
Gouvernance et contrôle interne
Nature and purpose:
Rapport de gestion
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Nature and purpose: For the purpose of shoring up DCL’s capital, DSA has granted a EUR 1,459 million guarantee to DCL supported by the Greek bonds held by its subsidiary DKD. Dexia Crédit Local thus recognises the provisions required at its subsidiaries.
Comptes consolidés
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Comptes annuels
Other characteristics: The guarantee is remunerated on the same basis as for the remuneration to be received by DCL for the purposes of the guarantee granted to DKD on 3 August 2011, i.e. 1.5% of the amount of the guarantee. The remuneration payable to DSA by DCL amounted to EUR 213 thousand in 2011. The agreement was authorised by your Board of Directors on 9 December 2011.
AGREEMENT FOR PURCHASE BY DEXIA CRÉDIT LOCAL OF GREEK BONDS HELD BY DEXIA KOMMUNALBANK DEUTSCHLAND
Nature and purpose: The agreement provides for: • purchase by Dexia Crédit Local of the Greek bonds held by Dexia Kommunalbank Deutschland for their nominal value; • assignment to Dexia Crédit Local, without charge, of the hedge (swap) taken out by Dexia Kommunalbank Deutschland; • cancellation of the guarantee dated 3 August 2011 provided to Dexia Crédit Local by Dexia Kommunalbank Deutschland, no longer having any purpose after disposal of Dexia Kommunalbank Deutschland’s portfolio; remuneration of the guarantee will cease with effect from the date of effective cancellation. The agreement was authorised by your Board of Directors on 9 December 2011.
Renseignements de caractère général
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local.
Shareholders’ Meeting
Persons concerned:
The Greek bonds initially held by Dexia Kommunalbank Deutschland were acquired by Dexia Crédit Local in January 2012, without any impact during 2011.
Annual report 2011 / Dexia Crédit Local
233
6
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
AGREEMENT COVERING THE REPAYMENT BY DEXIA CRÉDIT LOCAL (“DCL”), AT FACE VALUE, OF ITS SUBORDINATED LOAN FROM DEXIA BANK NEDERLAND (“DBNL”) Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local.
Présentation générale
Nature and purpose: A EUR 300 million, Tier 2 subordinated loan to DCL, maturing on 28 December 2017, has been subscribed by DBNL. As part of the review of the scope for transferring DBNL’s equity to Dexia SA, repayment of the subordinated loan is envisaged. The agreement was authorised by your Board of Directors on 9 December 2011. It was not acted upon in 2011.
Rapport de gestion
AGREEMENT IN RESPECT OF DEXIA FUNDING LUXEMBOURG HYBRID LOANS Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local.
Gouvernance et contrôle interne
Nature and purpose: Dexia Funding Luxembourg (“DFL”), a wholly-owned subsidiary of Dexia SA (“DSA”), has issued EUR 500 million of Tier 1 hybrid subordinated securities in the market and leant the money proceeds on, also in the form of Tier 1 hybrid securities, to Dexia Bank Belgium (“DBB”). The agreement with DBB provides for repurchase of the subordinated securities issued to the market. As the articles of association of DFL do not allow it to invest funds raised from its issues other than with Dexia Group financial institutions, the following arrangements are envisaged: • DFL would lend the proceeds of its remaining issues to DCL in the form of Tier 1 hybrid securities;
Comptes consolidés
• DCL would in turn use the proceeds to lend EUR 100 million to DBB in the form of 5-year debt subject to adjustment of its amount: – if the loan received from DFL is less than EUR 100 million, the adjustable loan will be appropriately adjusted; – if the loan received from DFL exceeds EUR 100 million, DCL will lend the excess to DBB in the form of Tier 1 hybrid securities acceptable to the Banque Nationale de Belgique.
Comptes annuels
The agreement was authorised by your Board of Directors on 9 December 2011. It was not acted upon in 2011.
AGREEMENT COVERING THE PURCHASE BY DEXIA CRÉDIT LOCAL OF SUBORDINATED LOANS GRANTED BY DEXIA BANK BELGIUM TO DENIZBANK Persons concerned:
Renseignements de caractère général
Shareholders’ Meeting
Mrs Swiggers, common director to Dexia Bank Belgium, Dexia SA and Dexia Crédit Local and Messrs Mariani and Rucheton, common directors to Dexia Crédit Local and DenizBank.
234
Nature and purpose: Dexia Bank Belgium (“DBB”) has subscribed to three subordinated loans issued by DenizBank for a total nominal amount of EUR 270 million. The DBB sale agreement provides for maintenance of the subordinated loans, but for the applicable interest payments to be tax deductible in Turkey, the loans must be held by Dexia Crédit Local, the Dexia Group’s main banking subsidiary. The agreement was authorised by your Board of Directors on 9 December 2011. It was not acted upon in 2011.
AGREEMENT IN RESPECT OF THE EARLY REPAYMENT, AT PAR, BY DEXIA CRÉDIT LOCAL OF A EUR 300 MILLION SUBORDINATED LOAN SUBSCRIBED TO BY DEXIA BANK BELGIUM Persons concerned: Mrs Swiggers, common director to Dexia Bank Belgium, Dexia SA and Dexia Crédit Local and Messrs Mariani and Dehaene, common directors to Dexia Crédit Local and Dexia SA.
Dexia Crédit Local / Annual report 2011
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
6
Nature and purpose: Dexia Bank Belgium (“DBB”) holds a EUR 300 million subordinated loan issued by Dexia Crédit Local. Under the terms of the sale of DBB by the Dexia Group, early repayment of the loan by Dexia Crédit Local, at nominal value, has been provided for.
Agreement covering the purchase of Dexia BIL’s portfolio by Dexia Crédit Local Persons concerned: Mrs Swiggers and Mr Dehaene, common directors to Dexia SA (indirectly involved) and Dexia Crédit Local, Mr Mariani, common director to Dexia SA (indirectly involved), Dexia Crédit Local and Dexia BIL and Mr Rucheton, common director to Dexia Crédit Local and Dexia BIL.
Présentation générale
The agreement was authorised by your Board of Directors on 9 December 2011. It was not acted upon in 2011.
Rapport de gestion
Nature and purpose: The agreement comprises a proposal for purchase by Dexia Crédit Local of Dexia BIL’s “legacy” portfolio as part of the projected sale of Dexia BIL. The acquisition would be based on market price and would apply to all or part of Dexia BIL’s “legacy” bond portfolio and to the associated hedging instruments.
Gouvernance et contrôle interne
The portfolio has a total value of EUR 7.8 billion and is currently subject to an average write-down of 21% The agreement was authorised by your Board of Directors on 9 December 2011, subject to verification of the benefit of the transaction for Dexia Crédit Local, in particular in terms of the consistency of the sale price with the level of the market. It was not acted upon in 2011.
Agreements covering the sale by Dexia Crédit Local to Dexia SA of Dexiarail and DCL Investissements
Comptes consolidés
Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Nature and purpose:
Comptes annuels
On 23 December 2011 Dexiarail and DCL Investissements, subsidiaries of Dexia Crédit Local created at the end of 2007 that have not engaged in any activity since then, were sold for their carrying amounts to Dexia SA établissement stable in France.
Other characteristics: Sale price for the 2,500 shares in Dexiarail: EUR 28,762.71 Sale price for the 2,500 shares in DCL Investissement: EUR 27,597.72
Shareholders’ Meeting
The sale agreements were authorised by your Board of Directors on 9 December 2011.
Agreement covering the guarantee issued by Dexia SA (“DSA”) in favour of Dexia Crédit Local (“DCL”) and secured by the Greek bonds held by Dexia Municipal Agency (“DMA”)
Renseignements de caractère général
Persons concerned: Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local.
Nature and purpose: For the purpose of supporting shoring up DCL’s equity capital, DSA has granted Dexia Crédit Local a EUR 475 million guarantee secured by the Greek bonds. In 2011, DCL paid DSA EUR 54 thousand of remuneration for the guarantee. The agreement was authorised by your Board of Directors on 22 December 2011.
Annual report 2011 / Dexia Crédit Local
235
6
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
AMENDMENT OF THE TAX GROUP AGREEMENT BETWEEN DEXIA SA (ÉTABLISSEMENT STABLE IN FRANCE) AND DEXIA CREDIT LOCAL Persons concerned:
Présentation générale
Mrs Swiggers and Messrs Dehaene and Mariani, common directors to Dexia SA and Dexia Crédit Local and Mr Alain Clot, director of Dexia Crédit Local and executive director of Dexia SA (établissement stable in France).
Nature and purpose: On 22 December 2011, an amendment was signed to the tax group agreement between Dexia SA (établissement stable in France) and Dexia Crédit Local (“DCL”) in order to be able to pass tax savings on to loss-making subsidiaries.
Other characteristics:
Rapport de gestion
The amendment modifies as follows clause 1 of the tax group agreement presented in paragraph 2.1.1 of this report: Dexia SA will make good any tax loss (including net long-term capital losses) on the part of DCL up to the lower of the amount of the tax savings procured by use of the loss and the amount of tax paid to DSA by other members of the tax group. Dexia SA will also provide DCL with the benefit of any tax savings resulting from the allocation or reimbursement of any carry-back of tax by Dexia SA. The amendment took effect on 1st January 2011 and enabled DCL to recognise a EUR 173 million carry-back receivable as at 31 December 2011.
Gouvernance et contrôle interne
The amendment was authorised by your Board of Directors on 22 December 2011.
Agreements and commitments already approved by the Shareholders’ Meeting AGREEMENTS AND COMMITMENTS APPROVED IN PRIOR YEARS WITH AN IMPACT ON THE YEAR JUST ENDED
Comptes consolidés
In addition, pursuant to Article R.225-30 of the French Commercial Code, we have been advised that the following agreements authorised by the Shareholders’ Meeting in prior years remained in effect during the year just ended.
Tax group agreement A tax group agreement came into effect as from 1st January 2002 for a (renewable) period of five years. The head of the French tax group is now Dexia établissement stable in France, which holds 95% of the capital of Dexia Crédit Local.
Comptes annuels
In accordance with the applicable tax regulations, the agreement provides that the new head of the tax group replaces Dexia Crédit Local as the beneficiary of any related tax savings. The agreement was authorised by your Supervisory Board on 19 November 2002.
Renseignements de caractère général
Shareholders’ Meeting
Declaration of financial support on behalf of Dexia Municipal Agency
236
The “declaration of financial support” agreement of 16 September 1999 by Dexia Crédit Local in favour of Dexia Municipal Agency, ratified by your Shareholders’ Meeting on 10 January 2000, benefits the holders of bonds issued by Dexia Municipal Agency. The agreement stipulates that Dexia Crédit Local will hold over 95% of the capital stock of Dexia Municipal Agency on a long-term basis. In addition, Dexia Crédit Local will ensure that Dexia Municipal Agency pursues its activities in compliance with the provisions of Articles L.515-13 to L.515-33 of the French Monetary and Financial Code (Code monétaire et financier) concerning mortgage credit companies and has the financial resources needed to meet its obligations. The agreement had no financial impact in 2011.
AGREEMENTS AND COMMITMENTS AUTHORISED IN PRIOR YEARS WHICH THAT WERE APPROVED AND IMPLEMENTED DURING THE YEAR JUST ENDED In addition, we have been advised that the following agreements and commitments which that were approved by the 2010 Shareholders’ Meeting were implemented during the year just ended.
Two tax group agreements in Ireland Two tax agreements were signed by Dexia Crédit Local Dublin, the Dexia Crédit Local branch in Ireland, and its Irish related companies (Dexia Bank Belgium Dublin, Dexia Investments Ireland and Dexia Investment Company). These agreements are linked to the application of two Irish tax group regimes for VAT and corporate income tax.
Dexia Crédit Local / Annual report 2011
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
6
The agreements were authorised by your Board of Directors on 19 February 2010 and approved by your Shareholders’ Meeting on 12 May 2011.
Agreement on provision of services between Dexia Crédit Local and Dexia CLF Banque The agreement led to the recognition of EUR 4.5 million of income in 2011.
The portfolio of Greek bonds was acquired by the Group’s DKD subsidiary which then sold it to Dexia Crédit Local during the first quarter of 2011. The agreement had no impact on Dexia Crédit Local’s financial statements in 2011. The agreement was authorised by your Board of Directors on 5 November 2010 and approved by your Shareholders’ Meeting on 12 May 2011.
Agreement on the transfer from Dexia Crédit Local to Dexia Bank Belgium of the first tranche of Japanese securities The agreement was authorised by your Board of Directors on 5 November 2010 and approved by your Shareholders’ Meeting on 12 May 2011. It was not acted upon in 2011.
AGREEMENTS AND COMMITMENTS APPROVED IN PRIOR YEARS WITH NO IMPACT ON THE YEAR JUST ENDED In addition, we have been advised that the following agreement authorised by the 2010 Shareholders’ Meeting had no impact on the year just ended.
Agreement on intercompany sales
Rapport de gestion
One condition of the planned disposal of Dexia banka Slovensko is Dexia Crédit Local’s commitment to acquire a portfolio of Greek bonds at either face or market value. At the market value, Dexia Crédit Local would recapitalise Dexia banka Slovensko for an amount equal to the difference between the face value (EUR 110 million) and the market value.
Gouvernance et contrôle interne
Agreement on the purchase by Dexia Crédit Local of Greek bonds held by Dexia banka Slovensko
Présentation générale
The agreement was authorised by your Board of Directors on 5 August 2010 and approved by your Shareholders’ Meeting on 12 May 2011.
• Sale of EUR 375 million of Kingdom of Belgium bonds to Dexia Investment Company, with a loss of EUR 52.5 million; • Sale of EUR 271 million of Italian Sovereign bonds to Dexia Insurance Belgium, with a loss of EUR 31.0 million;
Comptes consolidés
Intercompany sales of assets from Dexia Crédit Local to other Dexia Group entities under the balance-sheet deleveraging programme led to a loss of EUR 82.2 million in 2010, and can be broken down as follow:
Comptes annuels
• Sale of EUR 155 million of Spanish covered bonds to Dexia Insurance Belgium, with a gain of EUR 1.3 million. These transactions had no impact in 2011. The agreement was authorised by your Board of Directors on 5 August 2010 and approved by your Shareholders’ Meeting on 12 May 2011.
AGREEMENTS AND COMMITMENTS APPROVED DURING THE YEAR JUST ENDED
Nature and purpose:
The Kingdom of Belgium, the French Republic and the Grand Duchy of Luxembourg have each independently guaranteed, in respective proportions of 60.5%, 36.5% and 3%, the renewal of existing financing arrangements subject to the following main terms and conditions: • independent guarantees payable on demand; • absolute, unconditional and irrevocable commitment on the part of the governments States concerned; • overall State commitments limited to EUR 45 billion of principal; • guarantees covering all sources of finance initially raised from third parties with maturities not exceeding three years, whether under contracts signed by the guaranteed entities or in the form of bonds or other financial instruments, not subject to other security and not subordinated;
Annual report 2011 / Dexia Crédit Local
Renseignements de caractère général
Guarantee agreement between the Kingdom of Belgium, the French Republic, the Grand Duchy of Luxembourg, and Dexia SA and Dexia Crédit Local
Shareholders’ Meeting
We have also been informed as to the performance during the year just ended of the following agreements and commitments already approved by your Shareholders’ Meeting on 22 December 2011 based on our special report dated 22 December 2011.
237
6
Shareholders’ Meeting
Statutory Auditors’ special report on regulated agreements and commitments
• guarantees remaining attached to borrowings in the form of bonds or other financial instruments even in the event of their sale or transmission to any other third party or bondholder; • guarantees able to be triggered by Dexia or by any other beneficiary third party beneficiary or bondholder.
Remuneration of the guarantee:
Présentation générale
Dexia, acting on its own behalf and on that of Dexia Crédit Local, will pay each government State, in proportion to its commitment, an arrangement fee of EUR 225 million (i.e. 0.50% of the total commitment). Monthly commission will also be payable by the guaranteed entities based on the calculation formula set out in clause 12.2 of the agreement.
Period covered:
The guarantee is only applicable to guaranteed instruments issued at the earliest on 16 December 2011, and at the latest on 31 May 2012, with maturities of not exceeding three years.
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Subject to agreement of the parties and of the European Commission, the 31 May 2012 time limit may be extended one or more times. The threeyear maturity limit may also be modified on the same basis. The agreement was authorised retroactively by your Board of Directors on 22 December 2011 and approved by your Shareholders’ Meeting on 22 December 2011.
Complementary agreement between the Kingdom of Belgium, the French Republic, the Grand Duchy of Luxembourg, and Dexia SA and Dexia Crédit Local Nature and purpose:
The agreement provides that prior to any issue of guaranteed instruments, Dexia SA and Dexia Crédit Local will provide the three governments States with security collateral meeting their reasonable requirements. Exceptionally, Dexia SA and Dexia Crédit Local may issue guaranteed instruments not secured by collateral, subject to a ceiling of EUR 23 billion and subject to compliance with the requirements of the agreement as to the use of the finance proceeds thus obtained. The agreement fixes the following principal rules for the use by Dexia SA and Dexia Crédit Local of the finance proceeds obtained from the issue of guaranteed instruments: • application of the proceeds of issues of instruments that are guaranteed and secured by collateral first, in equal amounts to refinancing the unsecured loans granted by Dexia Bank Belgium to Dexia SA and Dexia Crédit Local, and the ELA (Emergency Liquidity Assistance) granted by the Bank of France to Dexia Crédit Local, and then to refinancing other liabilities of Dexia SA and Dexia Crédit Local; • application of the proceeds of issues of instruments that are of guaranteed and but not unsecured instruments by collateral first, to refinancing the unsecured loans granted by Dexia Bank Belgium to Dexia SA and Dexia Crédit Local, and then to refinancing other liabilities of Dexia SA and Dexia Crédit Local. In the agreement, the parties also take note of Dexia Bank Belgium’s commitment to subscribe, with Dexia Crédit Local, guaranteed securities subject to collateral of EUR 12 billion. The agreement was authorised retroactively by your Board of Directors on 22 December 2011 and approved by your Shareholders’ Meeting on 22 December 2011.
The Statutory Auditors French original signed by
Virginie CHAUVIN
MAZARS
Hervé HELIAS
Renseignements de caractère général
Shareholders’ Meeting
Neuilly-sur-Seine and Courbevoie, 29 March 2012
238
Dexia Crédit Local / Annual report 2011
DELOITTE & ASSOCIÉS Charlotte VANDEPUTTE José-Luis GARCIA
Shareholders’ Meeting
Resolutions proposed to the Ordinary Shareholders’ Meeting of 10 May 2012
6
The Ordinary Shareholders’ Meeting, having heard the reports of the Board of Directors, the Chairman of the Board of Directors, and the Statutory Auditors, approves the consolidated financial statements at 31 December 2011 as presented, as well as all the transactions set out in these financial statements or mentioned in the reports, showing a net loss-Group share of EUR 2,700,801,161.
Third resolution: approval of any regulated agreements and commitments The Ordinary Shareholders’ Meeting, having heard the Statutory Auditors’ special report on regulated agreements and commitments governed by Article L.225-38 of the French Commercial Code, approves, in accordance with Article L.225-40 of the Commercial Code, all regulated agreements and commitments mentioned therein.
Following these allocations, the non-distributable reserve will be at zero and the retained earnings account will have a negative balance of EUR 235,388,592. In accordance with Article 243 bis of the French General Tax Code, the Shareholders’ Meeting recalls that no dividends have been paid in respect of the three previous fiscal years.
Sixth resolution: certification of the financial statements In accordance with Article L.822-14 of the French Commercial Code, the Ordinary Shareholders’ Meeting acknowledges that the financial statements and the consolidated financial statements for the fiscal year ended 31 December 2011 are certified by the Statutory Auditors:
Rapport de gestion
• EUR 235,388,592 to the retained earnings account.
Gouvernance et contrôle interne
Second resolution: approval of the consolidated financial statements
• EUR 4,199,999,985 to the non-distributable reserve account established for the purpose of clearing a portion of the losses for the fiscal year ended 31 December 2011;
Comptes consolidés
The Ordinary Shareholders’ Meeting approves all expenses and charges not deductible for tax purposes (Article 39.4 of the French General Tax Code), totalling EUR 218,318.86, which did not generate any additional corporate income tax owing to the Company’s lossmaking position.
The Ordinary Shareholders’ Meeting resolves to allocate the EUR 4,435,388,577 net loss for the fiscal year in the following manner:
• Hervé Helias and Virginia Chauvin, partners, representing the firm Mazars, and
Comptes annuels
The Ordinary Shareholders’ Meeting, having heard the reports of the Board of Directors, the Chairman of the Board of Directors, and the Statutory Auditors, approves the financial statements at 31 December 2011 as presented, as well as all the transactions set out in these financial statements or mentioned in the reports, showing a net loss of EUR 4,435,388,577.
Fifth resolution: appropriation of loss
• José-Luis Garcia and Charlotte Vandeputte, partners, representing the firm Deloitte & Associés.
Seventh resolution: powers The Shareholders’ Meeting gives full powers to the bearer of the original, a copy or an excerpt of these minutes to carry out all legal filing and publication formalities.
Renseignements de caractère général
Fourth resolution: discharge of directors and officers
Shareholders’ Meeting
First resolution: approval of the financial statements
Présentation générale
Resolutions proposed to the Ordinary Shareholders’ Meeting of 10 May 2012
By virtue of the adoption of the preceding resolutions, the Ordinary Shareholders’ Meeting gives full and unconditional discharge to the directors and officers of the Company for the performance of their duties during the fiscal year ended 31 December 2011.
Annual report 2011 / Dexia Crédit Local
239
240
Dexia Crédit Local / Annual report 2011
Renseignements de caractère général Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
7 – General information
2. Outlook .................................................................................. 244
List of information published or released during the previous twelve months (prepared 20 March 2012) 247
Statutory Auditors
Cross-reference table
249
Subsidiaries and affiliates in France
251
International subsidiaries and locations
252
Legal and administrative information 242 1. Regarding the company .......................................................... 242
245
Declaration of the person responsible for the registration document (document de référence) 246
7
General information
Legal and administrative information
1. Regarding the company Company history
Under the major restructuring of the Dexia Group provoked by the sovereign debt crisis, Dexia Crédit Local – which was one of the three principal entities of the Dexia Group, the Franco-Belgian group created in 1996 through the merger of Crédit Local de France and Crédit Communal de Belgique, two credit institutions specialised in the financing of local governments and participants in local economies – is expected to remain the largest Dexia entity (Dexia Bank Belgium was sold to the Belgian State in October 2011 and a proposed sale of Dexia Banque Internationale à Luxembourg has been announced), although its activities will be refocused on managing the run-off of its outstanding exposures.
Corporate name Trade name
As specified in its by-laws, the Company’s corporate name is Dexia Crédit Local. The Company uses the trade name Dexia.
Country of origin Incorporation date and term
The country of origin of the Company is France. It was incorporated in Paris on 28 August 1989 for a term of 99 years.
Registration number
The Company is registered with the Clerk of the Commercial Court of Nanterre under no. 351 804 042, and its APE business identifier code is 6492Z.
Registered office
Since 1 March 2007, the Company’s registered office and chief place of business is: Tour Dexia La Défense 2 – 1, Passerelle des Reflets – 92913 La Défense – France (telephone: +33 1 58 58 77 77)
Legal form Applicable legislation
Dexia Crédit Local is a French limited company (société anonyme) with a Board of Directors, as governed by Articles L.225- 17 et seq. of the French Commercial Code and Article L.511-1 of the French Monetary and Financial Code.
Business purpose
The purposes for which the Company is established are: – to conduct in France and abroad any and all credit operations promoting local development, including notably public services and facilities, mainly for the benefit of local governments and public-sector corporations, local government-backed agencies, local semi-public companies, concessionary public service companies and, more generally, agencies carrying out development and housing schemes, or which have entered into an agreement with a local government for the construction or management of local public facilities; – to carry out, for the benefit of the above parties, insurance brokerage activities and any advisory and assistance work in matters of financial management, financial engineering and, more generally, to offer any and all services to facilitate their financial management subject to the legislative provisions relating to the exercise of certain regulated professions; – to receive cash deposits from local governments and local public entities in accordance with the regulations applicable to such bodies; – to hold the funds lent to customers, pending their use; and – to issue debt securities in France and abroad in order to fund the Company’s lending operations. For this purpose, the Company may: – create subsidiaries; – hold shares in companies whose activities are likely to facilitate the achievement of the Company’s business purpose; – create and manage guarantee funds to ensure repayment of loans made to the agencies mentioned in the first paragraph of this section. The Company may also carry out any and all transactions falling within the scope of its business purpose on behalf of agencies and institutions set up to serve the public interest.
Fiscal year
The Company’s fiscal year begins 1 January and ends 31 December.
General information
Assemblée générale
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Legal and administrative information
242
Dexia Crédit Local / Annual report 2011
Place where Company’s legal documents may be viewed Responsibility for information
All documents and information concerning the Company may be consulted at its registered office. Please address any requests to: Beatrice Gosserez, Secretary General and member of the Management Board (+33 1 58 58 58 70); François Laugier, Chief Financial Officer and member of the Management Board (+33 1 58 58 58 60).
Rapport de gestion
Notice of Shareholders’ Meetings Shareholders’ Meetings are called in accordance with applicable regulations. They are conducted at the Company’s registered office or any other location mentioned in the notice of meeting. All shareholders are entitled to obtain copies of the documents they need to be able to make informed decisions and to make a reasoned assessment of the management and control of the Company. The types of documents concerned and the rules governing their transmission to or consultation by shareholders are prescribed by law and all applicable regulations. Right to attend Shareholders’ Meetings All shareholders are entitled to attend Shareholders’ Meetings upon presentation of a proof of identity, provided that their shares are fully paid-up. The shareholders may choose to be represented by another shareholder. Proxies should be filed at the registered office at least five days before the Shareholders’ Meeting. Voting rights Shares carry voting rights based on the proportion of capital represented. Each share entitles the owner to one vote. Each person present at the Shareholders’ Meeting is entitled to exercise one vote for each share held and for each share for which he or she holds a proxy.
Gouvernance et contrôle interne
Shareholders’ Meetings
Comptes consolidés
Net income for the year, less any prior-year losses and the appropriations provided for in Article 37 of the by-laws (5% for the legal reserve prescribed by law) plus any retained earnings, is available for distribution to shareholders. The Shareholders’ Meeting determines the fraction of income available for distribution to be paid out to shareholders in the form of dividends, based on the recommendations of the Board of Directors. The balance of income available for distribution, if any, is allocated either to retained earnings or to one or more reserves, by resolution of the Shareholders’ Meeting, which also approves the use to be made of said reserves. The Shareholders’ Meeting may also resolve to pay dividends out of distributable reserves; in this case, the related resolution must clearly indicate from which reserves the dividends are to be taken. Insofar as it is possible, dividends are, however, taken first from distributable income for the period. The terms and conditions of payment of the dividend will be set by the Shareholders’ Meeting or, failing that, by the Board of Directors, but dividends must be paid within nine months of the fiscal year-end, unless this period is extended by order of the President of the French Commercial Court ruling on an application by the Board of Directors. Notwithstanding the foregoing, and in the cases provided for by applicable legislation, the Board of Directors is authorised to pay interim dividends to be deducted from the total dividends for the year just ended or the current year, prior to the approval of the related financial statements. The amounts and payment dates of such interim dividends will be decided by the Board of Directors. When the final dividend is set, the Shareholders’ Meeting will be responsible for verifying that the provisions of the above-mentioned paragraph have been fully complied with in respect of the total dividend (including any interim dividend).
General information
Assemblée générale
Appropriation of net income
Présentation générale
7
Comptes annuels
General information
Legal and administrative information
Annual report 2011 / Dexia Crédit Local
243
7
General information
Legal and administrative information
2. Outlook Recent events
Présentation générale
In order to re-establish a structurally greater financing capacity, in October 2011 Dexia, Dexia Crédit Local, La Banque Postale and Caisse des Dépôts all signed a memorandum of negotiation that was supplemented in February 2012 by a master agreement joined by the French State and then in March 2012 by an agreement in principle that calls for:
Rapport de gestion
• creation of a new credit institution owned directly or indirectly by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%). This new credit institution will serve as holding company for Dexia Municipal Agency, the société de crédit foncier-type mortgage credit company specialised in local public sector finance, holding all of its shares and managing its operations. It will also manage the industrial platform used by Dexia Municipal Agency and certain businesses of the joint venture and the Dexia Group. All eligible loans made by the joint venture will be refinanced by Dexia Municipal Agency; • creation of a joint venture between La Banque Postale (65%) and Caisse des Dépôts (35%) that would design and distribute loans for local French governments that would be refinanced by Dexia Municipal Agency. Implementation of these agreements remains subject to the approval of the competent supervisory and anti-trust authorities. Moreover, by resolution of the Extraordinary Shareholders’ Meeting of 22 December 2011, Dexia Crédit Local increased its capital stock by EUR 4.2 billion, paid in cash. Dexia SA conducted this capital increase by converting several existing subordinated loans for approximately EUR 2.5 billion and via a cash contribution of EUR 1.7 billion. In the light of the losses estimated for the fiscal year, the Shareholders’ Meeting resolved to reduce the amount of capital stock by the value of the increase achieved (EUR 4.2 billion). The capital stock of Dexia Crédit Local remains unchanged at EUR 500,513,102. Trends
Pending the outcome of decisions concerning its strategy, scope and activities related to the restructuring plan, and factoring in the scenarios that could impact the Company’s status as a going concern, Dexia Crédit Local’s policy will focus on the following priorities: • continued deleveraging of the balance sheets of the component entities of the network through the assignment of Public Finance loans;
Comptes consolidés
Gouvernance et contrôle interne
The intensification of the European sovereign debt crisis and tremendous turmoil seen in the financial markets since the summer of 2011 increased the funding risk of the Dexia Group, including Dexia Crédit Local, despite the Bank’s having decreased its funding needs considerably and improved its financing mix significantly since 31 December 2008.
• identification and implementation of initiatives aimed at improving liquidity, notably by raising funding in local markets and taking customer deposits;
Comptes annuels
• maintenance of a commercial franchise in those entities that continue to engage in Public Finance activities, within the very strict limits imposed by the constraints placed on the Group and the entities’ abilities to source their own funding. Priority is therefore assigned to the management of existing outstanding loans and activities not requiring the use of the entities’ balance sheets; • desensitisation of outstanding loans structured outside the framework of the Gissler Charter;
General information
Assemblée générale
• continued cessation of project finance activities that began in early 2012. Control
To the best of the Company’s knowledge, no agreement exists – including under the terms of the restructuring plan in effect – whose implementation could, at a later date, bring about a change in its control.
Legal and arbitration proceedings
For at least the last 12 months, the Company has not been involved in any governmental, legal or arbitration proceeding (including any proceeding of which the Company is aware that is currently in suspense or has been threatened) that could have or has recently had a material impact on the Company’s financial position or profitability.
Material changes
Since the last fiscal year for which audited financial statements have been published, the Company’s situation has deteriorated sharply due to significant charges to provisions on all of the investment portfolios, losses on asset sales approved under the Group’s policy of reducing its overall exposures and the increase in its funding costs.
Major contracts
To meet the financing needs of French local governments, Dexia Crédit Local entered into an agreement in principle with the French State, Caisse des Dépôts and La Banque Postale that calls notably for: • creation of a joint venture between La Banque Postale (65%) and Caisse des Dépôts (35%) to market new financing to French local government entities; • creation of a new credit institution owned directly or indirectly by the French State (31.7%), Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%) and La Banque Postale (4.9%). This new credit institution will serve as the parent company of Dexia Municipal Agency, holding all of its shares and managing its operations.
244
Dexia Crédit Local / Annual report 2011
General information Statutory Auditors
7
Statutory Auditors
• Mazars
• Charles de Boisriou
(appointment renewed by the Shareholders’ Meeting of 16 May 2008, for a six-year term)
(appointed by the Shareholders’ Meeting of 16 May 2008, for a sixyear term)
Represented by Hervé Hélias and Virginie Chauvin, Partners Exaltis – 61, rue Henri Regnault – 92075 La Défense Cedex – France
Exaltis – 61, rue Henri-Regnault – 92075 La Défense Cedex
• Deloitte et Associés
• BEAS
(appointed by the Shareholders’ Meeting of 16 May 2008, for a sixyear term)
(appointed by the Shareholders’ Meeting of 16 May 2008, for a sixyear term)
Represented by José-Luis Garcia and Charlotte Vandeputte, Partners 185, avenue Charles-de-Gaulle – 92524 Neuilly-sur-Seine Cedex
Represented by Mireille Berthelot, Partner 7-9, villa Houssay – 92524 Neuilly-sur-Seine Cedex
Analysis of fees paid to each of the statutory auditors (EUR thousands)
Mazars
2010 % Deloitte
2011 %
Mazars
%
Deloitte
%
Audit services
Rapport de gestion
Substitute
Gouvernance et contrôle interne
Principal
Présentation générale
The principal and substitute Statutory Auditors of Dexia Crédit Local are:
• Other assignments Sub-total
2,305
87.58%
2,138
84.07%
2,105
81.81%
2,144
94.62%
327
12.42%
405
15.93%
468
18.19%
122
5.38%
2,632
100.00%
2,543
100.00%
2,573
100.00%
2,266
100.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
0
0.00%
Other services
• Internal audit • Other (disclosure required when > 10% of audit fees)
Sub-total TOTAL
0
0.00%
0
0.00%
0
0.00%
0
0.00%
2,632
100.00%
2,543
100.00%
2,573
100.00%
2,266
100.00%
Assemblée générale
advisory services
General information
• Legal, tax, human resources
Comptes annuels
examination of parent company and consolidated financial statements
Comptes consolidés
• Statutory audit, certification,
Annual report 2011 / Dexia Crédit Local
245
7
General information
Declaration of the person responsible for the registration document (document de référence)
Présentation générale
Declaration of the person responsible for the registration document (document de référence) This free translation of the “Statement of the person responsible for the registration document” issued in the French language is provided solely for the convenience of the English-speaking readers. The person responsible for the Dexia Crédit Local registration document (document de référence) is:
Rapport de gestion
Alain Clot, Chief Executive Officer of Dexia Crédit Local.
Declaration of the person responsible for the registration document (document de référence)
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
I the undersigned, Alain Clot, Chief Executive Officer of Dexia Crédit Local, Hereby declare, after having taken all reasonable measures to this end, that, to the best of my knowledge, the information contained in the present registration document is accurate and contains no omission that would alter its meaning. Hereby declare, to the best of my knowledge, that the financial statements have been prepared in accordance with all applicable accounting standards and present a true and fair view of the assets, financial position and results of the Company and of all the companies included in the scope of consolidation, and that the management report on page 13 of the present document presents a true and fair view of changes in the revenues, results and financial position of the Company and of all the companies included in the scope of consolidation and a description of the main risks and uncertainties to which they are exposed. I have obtained an audit opinion from the Statutory Auditors in which they state that they have verified the information concerning the financial position and the accounts provided in the present document and have reviewed the entire document. The historical financial data presented in this document have been discussed in reports by the Statutory Auditors on pages 185 and 226 of the present document, as well as those included by reference for fiscal years 2009 and 2010, respectively on pages 194 and 245 of the 2009 registration document and on pages 186 and 228 of the 2010 registration document. The Statutory Auditors’ reports on the 2011 and 2009 parent company and consolidated financial statements and on the 2010 consolidated financial statements contain some remarks.
Assemblée générale
For fiscal 2011, note 1.2 to the annual financial statements and note 1 to the consolidated financial statements specify that the annual and consolidated financial statements of Dexia Crédit Local have been prepared in accordance with the rules applicable to going concerns. They outline the key factors and assumptions considered by the Board of Directors in applying this accounting principle to the parent company and consolidated financial statements, including notably: • European Commission approval of a restructuring plan including a guarantee from the Belgian, French and Luxembourg States; • approval by the Belgian, French and Luxembourg States of a definitive EUR 90 billion guarantee, the principle of which was reflected in the enabling acts adopted by the Belgian, French and Luxembourg States ; • remuneration on the guarantee that is compatible with the Group’s future viability;
General information
• State support of the Group’s liquidity position in order to successfully carry out the restructuring measures announced in October 2011. As indicated in note 1.2 to the annual financial statements and note 1 to the consolidated financial statements, maintenance of the going-concern assumption is justified notably by the business plan of the Dexia Group, which depends on a number of assumptions. Some of the assumptions used depend on factors exogenous to the Dexia Group, and the decision of the European Commission in particular. Their materialisation is therefore subject to certain factors of uncertainty. Consequently, if the assumptions are not confirmed, Dexia Crédit Local would have to study the possible impact on its being accounted for as a going concern in the years to come. La Défense, 4 April 2012 Alain Clot Chief Executive Officer
246
Dexia Crédit Local / Annual report 2011
General information
List of information published or released during the previous twelve months (prepared 20 March 2012)
7
Publication media and date
I - Revenues and earnings Q4 2011 Revenues – Correction
BALO: 14/03/2012
Q4 2011 Revenues
BALO: 05/03/2012
Q3 2011 Revenues
BALO: 25/11/2011
30/06/2011 Interim business review
BALO: 28/10/2011
Q2 2011 Revenues
BALO: 17/08/2011
Approval of 2010 annual and consolidated financial statements
BALO: 22/06/2011
Q1 2011 Revenues
BALO: 25/05/2011
Rapport de gestion
Type of information
Présentation générale
List of information published or released during the previous twelve months (prepared 20 March 2012)
Non-renewal of a director
Les Petites Affiches: 07/06/2011
III – Other information Dexia Credit Local launches a public cash-tender offer of its outstanding EUR 700 million hybrid Tier 1
Press release: 02/03/2012
Dexia announces the result of the public cash-tender offer launched by its subsidiary Dexia Credit Local on its EUR 700 million hybrid Tier 1 securities
Press release: 15/03/2012
Dexia announces that its subsidiary Dexia Credit Local decided to extend by 48 hours the public cash tender offer on its EUR 700 million hybrid Tier 1 securities (ISIN: FR0010251421, the “Notes”)
Press release: 13/03/2012
Agreement in principle for the future financing of the French local public sector
Press release: 10/02/2012
Capital increase for Dexia Crédit Local
Press release: 22/12/2011
The European Commission approves the tripartite guarantee agreement granted to the Dexia Group
Press release: 21/12/2011
Precision Capital and the State of the Grand Duchy of Luxembourg to acquire Dexia Banque Internationale à Luxembourg
Press release: 20/12/2011
Dexia and CEMR publish the 2011-2012 edition of Key figures on local and regional Europe
Press release: 14/12/2011
Dexia: further information on the European Banking Authority press release dated 8 December 2011
Press release: 08/12/2011
Economic study on local finances in France (available in French only)
Press release: 01/12/2011
Dexia: further information on the European Banking Authority press release
Press release: 27/10/2011
Ongoing restructuring of the Dexia Group
Press release: 20/10/2011
Update on the sale of Dexia Bank Belgium to the Belgian State: Dexia confirms that the signature of the definitive agreement governing the terms of the agreement for the sale of Dexia Bank Belgium to the Belgian State concluded and announced on 9 October last is expected to be released after approval by the Board of Directors of Dexia SA to be held on 19 October next.
Press release: 18/10/2011
Statement Jean-Luc Dehaene: Jean-Luc Dehaene informed the Secretary of the board of directors that, for the year 2011, he was forfeiting his entitlement to any or all compensation due to him in his capacity as member and Chairman of the Board of Directors of Dexia SA
Press release: 12/10/2011
The Belgian, French and Luxembourg States provide strong support to Dexia in the implementation of the restructuring plan announced on 4 October
Press release: 10/10/2011
Suspension of the trading of the Dexia share at the request of the FSMA
Press release: 06/10/2011
Beginning of exclusive negotiations for the disposal of Dexia Banque Internationale à Luxembourg
Press release: 06/10/11
At the request of the FSMA, Dexia wishes to emphasise that it has not been informed of any decision or draft decision on future options for the Group
Press release: 06/10/11
Fitch confirms Dexia’s LT and ST credit ratings, but cuts the viability rating
Press release: 28/09/2011
Dexia Crédit Local respond to the filing of the Rosny-sur-Seine complaint
Press release: 27/09/2011
Annual report 2011 / Dexia Crédit Local
Assemblée générale
Press release: 09/11/2011
General information
Interim statement for Q3 2011 dated 27 October 2011
Comptes consolidés
Les Petites Affiches: 12/12/2011 Les Petites Affiches: 23/11/2011
Comptes annuels
Notice of meeting for 22/12/2011 ESM Notice of meeting for 09/12/2011 ESM
Gouvernance et contrôle interne
II – Corporate events
247
7
General information
List of information published or released during the previous twelve months (prepared 20 March 2012)
Rapport de gestion
Présentation générale
Type of information
Publication media and date
2Q 2011 net Income Group share of EUR -4,032 million reflecting a strong commercial business performance and the impact of the accelerated deleveraging announced in May
Press release: 04/08/2011
2011 EU-wide stress test results: no need for Dexia to raise additional capital
Press release: 15/07/2011
Dexia serves as Financial Advisor and Mandated Lead Arranger on construction of the new headquarters for the Ministry of Defence, in the form of Public Private Partnership
Press release: 31/05/2011
The benefits of the transformation plan enable Dexia to accelerate the disposal of its non-core assets in order to improve its recurring profits, risk and liquidity profile
Press release: 27/05/2011
Following press articles recently published, Dexia confirms that its restructuring plan is subject to ongoing monitoring by the European Commission
Press release: 18/05/2011
Net profit of EUR 69 million in 1Q 2011 Strong operational performance by the commercial business lines
Press release:11/05/2011
Publication of Dexia Crédit Local 2010 annual report
Press release: 11/04/2011
At the “Financial meeting of healthcare policy-makers, Dexia, the lading financial partner for hospitals, publishes the results of its annual survey on the financial condition of public hospitals
Press release: 06/04/2011
Details on the Executive remuneration policy
Press release: 06/04/2011
Dexia announces today that it sold its 88.71% stake in Dexia banka Slovensko to the Central European investment group Penta Investments
Press release: 31/03/2011
Press release - Dexia Crédit Local: Release of H1 2011 financial report
Hugin: 09/08/2011
Press release - Dexia Crédit Local: release of 2010 annual report equivalent of the registration document
Hugin: 08/04/2011
CSSF provides certificate of approval on 12/09/2011 for the 7th supplement to the 2011 Basic Prospectus
AMF: 12/09/2011
CSSF provides certificate of approval on 12/08/2011 for the 6th supplement to the 2011 Basic Prospectus
AMF: 12/08/2011
th
CSSF provides certificate of approval on 13/07/2011 for the 5 supplement to the 2011 Basic Prospectus
AMF: 13/07/2011
CSSF provides certificate of approval on 01/06/2011 for the 4th supplement to the 2011 Basic Prospectus
AMF: 01/06/2011
rd
CSSF provides certificate of approval on 13/05/2011 for the 3 supplement to the 2011 Basic Prospectus
AMF: 16/05/2011
CSSF provides certificate of approval on 12/04/2011 for the 2nd supplement to the 2011 Basic Prospectus
AMF: 13/05/2011
st
CSSF provides certificate of approval on 28/02/2011 for the 1 supplement to the 2011 Basic Prospectus
AMF: 13/05/2011
CSSF provides certificate of approval on 07/01/2011 for the 2011 Basic Prospectus
AMF: 13/05/2011
DEBT SECURITY ISSUES Dexia Crédit Local Change of address of Process Agent
Hugin: 10/10/2011
Dexia Crédit Local - EMTN 916 TR 1 EUR 9,000,000 – maturing December 2014
Hugin: 13/09/2011
Dexia Crédit Local - EMTN 913 TR 1 EUR 40,000,000 - maturing July 2013
Hugin: 29/06/2011
Dexia Crédit Local - EMTN 912 TR 1 EUR 22,000,000 – maturing May 2016
Hugin: 27/05/2011
Dexia Crédit Local - EMTN 910 TR 1 EUR 25,000,000 – maturing May 2013
Hugin: 04/05/2011
Dexia Crédit Local - EMTN 909 TR 1 EUR 16,000,000 – maturing April 2014
Hugin: 26/04/2011
General information
248
AMF: 07/04/2011
CERTIFICATES OF APPROVAL
Assemblée générale
Comptes annuels
Comptes consolidés
Gouvernance et contrôle interne
2010 registration document (document de référence)
Dexia Crédit Local / Annual report 2011
General information Cross-reference table
7
Pages 1.
Responsibility
1.1
Identification of the persons responsible
246 246
Statutory Auditors during the period covered by the historical financial data Risk factors
4.
Information concerning the issuer
4.1
Background of the company
245 24 to 42/43/65 to 69/ 104 to 106/160 to 184/192 to 194
4.1.1
Corporate name and trade name
242
4.1.2
Place of incorporation and registration number
242
4.1.3
Date of incorporation and term
242
4.1.4
Registered office, legal form, applicable legislation, country of origin, address, telephone number of registered office
242
4.1.5
Recent events affecting the issuer and which could have a material impact on the evaluation of its solvency
244
5.
Business review
5.1
Main activities
5.1.1
Main categories of services provided
5.1.2
New products and activities
5.1.3
Main markets
5.1.4
llustration of the stated competitive positioning
6.
Organisational chart
6.1
Description of the Group and issuer’s position therein
5 and 6/14 to 20
Gouvernance et contrôle interne
2.2 3.
245
Comptes consolidés
Identification of the Statutory Auditors
5 and 6/66 and 67 7/14 to 20
Comptes annuels
2.1
None 11/242
6.2
Shareholding relationship with other Group entities
7.
Trend data
11/49
7.1
Details of the significant deterioration affecting the outlook since the date of the last financial statements
2 to 6/65 to 69/104 to 106/ 192 to 194/244
7.2
Item(s) reasonably likely to have a material impact on the outlook of the issuer, at least for the current year
2 to 6/65 to 69/104 to 106/ 192 to 194/244
8.
Forecasts or estimates of net income (loss)
9.
Corporate governance
None
9.1
Name, address and function within the issuing company of the members of corporate governance bodies, and activities performed outside the company
9.2
Declaration of absence of conflicts of interest for the members of the Board of Directors
10.
Primary shareholders
10.1
Identity of the primary direct and indirect shareholders – type of control – steps taken to ensure that control is not exercised in an abusive manner
10.2
Known agreements that could lead to a change of control
11.
Financial information regarding the assets, financial position and results
57 to 59
Assemblée générale
Declaration of the persons responsible Statutory Auditors
74
General information
1.2 2.
Rapport de gestion
Headings in the schedule in note XI of article 14 of Commission regulation (EC) n° 809/2004
Présentation générale
Cross-reference table
11/49 None 244
Annual report 2011 / Dexia Crédit Local
249
7
General information Cross-reference table
Pages 11.1
Historical financial data
11.2
Financial reports Consolidated financial statements
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
Annual financial statements
2009* and 2010** registration documents 43 to 46/96 to 184 47 and 48 / 188 to 225
11.3
Audit of the annual historical financial data
11.3.1
Statutory Auditors’ report on the consolidated financial statements Statutory Auditors’ report on the annual financial statements
11.3.2
Other information in the registration document verified by the Statutory Auditors
11.3.3
Financial data in the registration document not taken from the audited financial statements
11.4
Date of the most recent financial information
11.4.1
Last fiscal year for which the financial data were audited
11.5
Interim financial data
11.5.1
Quarterly and six-month data Audit of interim financial data
11.6
Legal and arbitration proceedings
11.7
Material changes in financial position
244
12.
Major contracts
244
13.
Information from third parties, declarations of specialists and declarations of interests
14.
185 and 186 226 and 227 14 to 72/74 to 93/239 None 185/226 None None 244
None
Documents available to the public Place where documents may be consulted during the period of validity of the registration documents
243
*In accordance with Article 28 of Commission Regulation (EC) no. 809-2004, for reference purposes we have included the financial data for the year ended 31 December 2009, and the Statutory Auditors’ reports on the consolidated and the annual financial statements for that period, presented respectively on pages 194 and 245 of the 2009 registration document (filed on 12 April 2010 with the French Financial Markets Authority [AMF] under D.10-0246).
General information
Assemblée générale
Comptes annuels
Comptes consolidés
** In accordance with Article 28 of Commission Regulation (EC) no. 809-2004, for reference purposes we have included the financial data for the year ended 31 December 2010, and the Statutory Auditors’ reports on the consolidated and the annual financial statements for that period, presented respectively on pages 186 and 228 of the 2010 registration document (filed on 7 April 2011 with the French Financial Markets Authority [AMF] under D.11-0252).
250
Dexia Crédit Local / Annual report 2011
General information
Subsidiaries and affiliates in France
7
Subsidiaries and affiliates in France
Dexia CLF Régions Bail 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 84 06 Real estate lease financing, mainly for the local public sector
Dexia Municipal Agency 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 77 77 www.dexia-ma.com Dexia Crédit Local’s société de crédit foncier
Dexia Éditions 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 78 78 www.dexia-editions.com Publication of specialised works on topics concerning the local public sector
Sofaxis Route de Creton F-18100 Vasselay Tel.: + 33 2 48 48 10 10 www.sofaxis.com Employer risks insurance brokerage and management advisory services for local governments and hospitals
Dexia Ingénierie Sociale 13, rue Croquechâtaigne BP 30064 F-45380 La Chapelle St Mesmin Tel.: + 33 2 36 56 00 00
[email protected] Supplemental medical insurance for employees of private and para-public companies
Présentation générale Rapport de gestion
Dexia Location Longue Durée 22, rue des Deux Gares F-92564 Rueil-Malmaison Cedex Tel.: + 33 1 57 69 55 55 www.dexia-lld.fr Long-term leasing and management of public sector vehicle fleets
Dexia Asset Management France Washington Plaza 40, rue Washington F-75408 Paris Cedex 08 Tel.: + 33 1 53 93 40 00 www.dexia-am.com Management of mutual funds
Gouvernance et contrôle interne
Dexia CLF Banque 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 72200 F-92919 La Défense Cedex Tel.: + 33 1 58 58 88 02 Banking services for the local public sector
Other Dexia Group companies in France
Comptes consolidés
Dexia Habitat 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 77 77 Acquisition of holdings in public social housing and development bodies (housing authorities)
Domiserve 6, rue André Gide F-92320 Châtillon Tel.: 0810 55 55 55 www.domiserve.com Issuer of CESU employment cheques and licensed national provider of in-home services
RBC Dexia Investor Services Bank France 105, rue Réaumur - F-75002 Paris Tel.: + 33 1 70 37 83 00 Administration of securities accounts, services for institutional investors and mutual funds
Comptes annuels
Dexia Bail 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 84 06 Equipment lease financing
Affiliates
Assemblée générale
CBX.IA 2 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 77 77 Acquisition and administration of buildings
Dexia Flobail 1, passerelle des Reflets Tour Dexia – La Défense 2 TSA 92202 F-92919 La Défense Cedex Tel.: + 33 1 58 58 84 06 Lease financing of local investments (notably for energy conservation and environmental protection)
General information
Subsidiaries
Annual report 2011 / Dexia Crédit Local
251
7
General information
International subsidiaries and locations
Comptes consolidés
Gouvernance et contrôle interne
Rapport de gestion
Présentation générale
International subsidiaries and locations Subsidiaries
SPAIN
Dexia Sabadell Calle Mahonia 2 4ª planta, 28043 Madrid Spain Tel.: + 34 91 721 33 10 www.dexiasabadell.es
GERMANY
Dexia Kommunalbank Deutschland Charlottenstraße 82 D-10969 Berlin Tél. : + 49 30 25 59 8-0 www.dexia.de
UNITED STATES
AUSTRALIA
Dexia Crédit Local Asia Pacific Pty Ltd. 207 Kent Street, Veritas House, Level 23 Sydney NSW 2000 Tél. : + 61 2 925 13 961
Dexia Real Estate Capital Markets 1180 NW Maple St., Suite 202 – Issaquah, WA 98027 Tel.: + 425 313 4600
AUSTRIA AND CENTRAL EUROPE Dexia Kommunalkredit Bank AG Fischhof 3 A-1010 Vienna Austria Tel.: + 43 174 040 35-40 www.dexia-kom.com
ISRAEL
Dexia Kommunalkredit Adriatic d.o.o. Branimirova 29 10000 Zagreb Croatia Tel.: + 385 (1) 640 38 00
Assemblée générale
Comptes annuels
Dexia Kommunalkredit Bulgaria EOOD 19 Karnigradska Street Sofia 1000 Bulgaria Tel.: + 359 (2) 811 49 49
General information
Dexia FP Holdings, Inc. 445 Park Avenue, 5th floor New York, NY 10022 Tel.: + 1 212 826 01 00
Dexia Israel Bank Ltd. 19 Ha’arbaa Str. – Hatichon Tower 64739 Tel Aviv Tel.: + 972 3 764 76 00
ITALY
Dexia Crediop Via Venti Settembre, 30 I-00187 Rome Tel.: + 39 06 47 71 1 www.dexia-crediop.it
MEXIQUE
Dexia Crédito Local México SA DE CV SOFOM, ENG. Protasio Tagle 104 Colonia San Miguel Chapultepec 11850 México DF Tél. : + 52 55 56 87 75 45
Dexia Kommunalkredit Hungary kft. Horvàt u. 14-24 1027 Budapest Hungary Tel.: + 36 1 299 08 00 Dexia Kommunalkredit Bank Polska UI. Sienna 39 PL-00-121 Warsaw Poland Tel.: + 48 22 586 32 00 www.dexia-kom.pl
ROYAUME-UNI
Dexia Kommunalkredit Romania SRL Emanoil Porumbaru Street No. 89, Sector 1 011428 Bucharest Romania Tel.: + 40 21 206 01 50
Dexia Management Services Ltd. 200 Aldersgate Street 13th floor UK – London EC1A 4HD Tél. : + 44 207 470 73 00
Branches CANADA
Dexia Crédit Local Canada branch 800 rue du Square-Victoria, Suite 1620 CP 201, Montreal (Quebec) Canada H4Z 1 E3 Tél. : + 1 514 868 1200
UNITED STATES
Dexia Crédit Local New York branch 445 Park Avenue New York, NY 10022 USA Tel.: + 1 212 515 70 00 www.dexia-americas.com
CAYMAN ISLANDS
Dexia Crédit Local Grand Cayman branch c/o CIBC Bank and Trust Company (Cayman) Ltd. PO Box 694 GT 11 Dr Roy’s Drive Grand Cayman Tel.: +212 515 7000
IRELAND
Dexia Crédit Local Dublin branch 6 George’s Dock IRL-IFSC Dublin 1 Tel.: + 353 1 670 27 00
Representative office CHINA
Dexia Crédit Local Beijing Representative Office Room 503, F/5 9A Financial Street – Xicheng District Beijing - China Tel.: +86 (0) 10 6657 5858
Photo credit: p2: C. Lebedinsky/Challenges-REA ; p. 6 : X. Pierre Réalisation : Nord Compo
252
Dexia Crédit Local 1, passerelle des Reflets Tour Dexia - La Défense 2 92 913 La Défense Cedex Tél. (33) 1 58 58 77 77 Fax : (33) 1 58 58 70 00 www.dexia-creditlocal.fr French public limited company (société anonyme) with capital of EUR 500,513,102 Nanterre Register of Commerce and Companies (RCS) n° 351 804 042 TVA: FR 49 351 804 042
