ANNUAL REPORT 2004 ANNUAL REPORT 2004
CONTENTS
Summary information 5 The Bank 6 - Who we are 6 - The Dexia Group 6 Messages from the Chairman and the Managing Director 8 Directors and Officers 11 Other committees 11 Performance indicators 12 Organisation chart 14 The Dexia Crediop Banking Group 15 Other Dexia Group Companies in Italy 15 Principal investments held by Dexia Crediop S.p.A. 16 Report on operations 17 Reclassified Balance Sheet 18 Reclassified Statement of Income 19 Results of operations 20 - Introduction: our customers 20 - The Bank for sustainable development 20 - Loans and financial services for the public sector 21 - Funding and activities in the financial markets 22 - Business development 24 - Operating performance and net income 28 Outlook for operations 29 - Significant events subsequent to year-end 29 - Future operations 29 Proposed allocation of net income 30 Final remarks 30 Report of the Board of Statutory Auditors 31 Report of the Independent Auditors 35 Financial statements of the Parent Bank 39 - Balance Sheet 40 - Statement of Income 42 - Explanatory notes 43 - Introduction - Background information on the financial statements 45 - Part A - Accounting Policies 47 - Part B - Notes to the Balance Sheet 53 - Part C - Notes to the Statement of Income 91 - Part D - Other information 105 Attachments 107 - Statement of changes in Shareholders’ Equity 108 - Statement of cash flows 109 - List of properties owned by the Bank 109
SUMMARY INFORMATION
Dexia Crediop Spa Share Capital e 450,210,000 fully paid Rome Company Register no. 04945821009 Register of Banks no. 5288 Parent Bank of the Dexia Crediop Banking Group, Registered as a Banking Group Member of the Interbank Deposit Guarantee Fund
Independent Auditors Mazars & Guérard S.p.A.
5 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004
THE BANK
Who we are Dexia Crediop, the Bank for public sector and project financing dedicated to sustainable development, combines the international expertise of the Dexia Group with a tradition and experience accumulated over more than 80 years. Founded to channel the savings of Italians into the financing of public works and infrastructure for the development of the nation, the Bank has grown to become the leader of this sector. Over time, Dexia Crediop has developed an optimum approach to the market with a view to providing customers with effective support, partly by working closely with its shareholders (in addition to Dexia, the parent bank, some of Italy’s leading co- operative banks are also shareholders: Banca Popolare di Milano, Banco Popolare di Verona e Novara, Em. Ro. Popolare Società Finanziaria di Partecipazioni S.p.A.).
With assets in excess of e 25.5 billion, Dexia Crediop is the point of reference for territorial agencies, the principal public administration offices and the largest providers of public services, offering them a vast range of financial services and consultancy: the financing of major public works and infrastructure, the issue of bonds by territorial agencies, international bonds, financial engineering and structured finance, securitisation, project financing, consultancy and support for privatisations and restructuring, the dynamic management of debt, as well as asset and cash management. Transparency and trust lie at the heart of Dexia Crediop's philosophy. Its particular attention to prudence and risk management has been recognised by the international economic and financial community. In fact, Dexia Crediop enjoys one of the highest credit ratings among Italy's banks: Aa2 (Moody's), AA- (Standard & Poor’s) and AA (Fitch Ratings). The Bank's financial solidity has been recently recognised by the Treasury Ministry, which accredited Dexia Crediop as the Republic of Italy's counterparty in major swap transactions. Dexia Crediop's dealings with customers have always been characterised by its emphasis on trust, transparency and the long term, coupled with a responsible approach to matters of public utility that has satisfied and anticipated the growing demand for innovative financial solutions and financial risk management, bearing in mind budgetary, regulatory and institutional restrictions applying to the public sector.
On the financial front, Dexia Crediop seeks to ensure the quality and added-value of its products, operating on financial markets through five different business lines: long-term funding, fixed income, financial engineering, derivatives and credit spread portfolio.
Synergies with the Group enable Dexia Crediop to extend and constantly update the range of products and services offered to Italian customers, with a strong commitment to the sector of major infrastructure and sustainable development, where both the Group and the Bank have achieved important international recognition. The Dexia Group The Dexia Group was created in 1996 from the alliance between two of Europe's leading players in the local public finance sector: Crédit Local de France and Crédit Communal de Belgique. These two banks subsequently merged in 1999, together with Banque Internazionale à Luxembourg (BIL), to form a single listed company called Dexia, in one of the European banking sector's first transnational mergers. Dexia is now one of the euro zone's top 15 major financial groups. Dexia's two sectors of operation Dexia principally operates in two sectors: local public authorities on the one hand and retail customers and households on the other. In the first of these sectors, Dexia enjoys a position of international leadership, while in the second it operates regionally. Finance for the local public sector Since its unification in 1999, and partly thanks to the acquisition in 2000 of the US company Financial Security Assurance, Dexia is world leader in the provision of finance to the local public sector. Its extensive know-how, the long-term horizon and the low risk profile of these activities allow Dexia to enjoy a high level of earnings and visibility within the banking industry. Retail customers Dexia not only serves local authorities but is also a top retail bank, which, in Belgium, provides banking and financial services to millions of customers. This strong commercial presence was further strengthened in 2001 by the acquisition of Artesia Banking Corporation. Furthermore, over the years Dexia has developed, mainly from its Luxembourg base, private banking services for the management of assets in different European countries. Risk culture, know-how and product efficiency Dexia's success does not only depend on know-how and its distribution network, but also on its ability to create effective products and develop innovative solutions that respond to customer financial needs. Dexia offers its customers the services of 6 top professionals where asset management, insurance services and capital markets activities are concerned. The Group also applies the strictest rules in terms of entering into deals, controlling risks and the handling of products and their performance. With two of its subsidiaries classified as AAA, Dexia has one of the highest ratings in the banking sector. Effective organisational structure Dexia's organisational structure comprises a unique blend of decentralised operating companies and highly effective centralised management of strategic functions such as finance, audit and professional ethics, human resources, communication and investor relations. The Group's management is entrusted to the Managing Director and another six members of the Management Committee. Four of them have specific responsibility for the different lines of business, while the other two supervise the financial functions and operational and technological management. Dexia's four business lines Project finance and credit enhancement Dexia's reputation as leader in the field of public-sector finance is borne out by the large number of its branches in the principal countries of the industrialised world. The market's considerable size, the quality of borrowers and the high demand for public infrastructure give Dexia extensive opportunities to carry out high value-added activities. Size and innovation are the key factors in the success of this business, which generates around half of the Group's earnings. Retail banking services Dexia Banque is one of the top three retail banks in Belgium, offering a full range of banking and insurance services to households and small and medium enterprises, while Dexia BIL holds a similar position in Luxembourg. Dexia's retail banking activities have developed over the years beyond the borders of Belgium and Luxembourg. This activity is carried out through numerous organisations and partnerships in various European countries, including Slovakia, Switzerland, Spain and France. NB: The private banking segment forms part of this area of business since 1 January 2005, while insurance services have been transferred to the "Financial asset management and insurance services" sector (see below). Financial asset management and insurance services From the outset, Dexia has capitalised on the know-how and distribution network of Dexia BIL in Luxembourg in certain specialist sectors, such as financial asset management and fund administration. The acquisition of Artesia in 2001 brought the Group new skills and activities, especially in the area of asset management and insurance services, which now form part of this business line with the goal of developing effective, innovative products and of improving productivity. Products are offered to both institutional customers and third-party channels through Dexia's distribution network. Treasury and financial markets Dexia's main activities involve a highly active presence on the capital markets not only for refinancing purposes and managing its own balance sheet but also for developing sophisticated products and solutions for a diversified clientele. At the same time these activities provide essential support to the Group's operations and an important source of profit; these activities are conducted on the basis of a prudent policy of risk control and generate considerable returns. Dexia, the bank for sustainable development Nature of Dexia’s activities, not to mention its distinctive roots and values, ensure that its name stands out in the world of finance as a "bank for sustainable development". Dexia's activities are defined by the issues of quality of life, well-being of the population and management of savings, issues that are key to the future and take the Group back to long-term values of general interest. This commitment represents a fundamental aspect of the Group's activities for creating value and is a key objective in its dealings with its shareholders, customers and staff. During 2004 Dexia multiplied its initiatives in the area of social responsibility: • the Group applies the "Equator Principles", adopted in 2003, to its procedures for financing large projects; • Dexia has adopted a "Code of conduct for dealing with suppliers"; • Dexia is a key player in the asset management sector and particularly in the field of investments in socially responsible activities; • at the end of 2004, the magazine "Infrastructure Journal" awarded Dexia the title of "Renewables Arranger of the Year 2004"; • Dexia is committed to promoting good practices and spreading awareness of issues associated with sustainable development. The new Dexia TV, found on www.dexia.com, uses image to present the major issues of sustainable development and the initiatives undertaken in this area.
7 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004
MESSAGES FROM THE CHAIRMAN AND THE MANAGING DIRECTOR
Message from the Chairman
The year just ended has witnessed growing tension within the macroeconomic context. The euro's appreciation against the US dollar has put many sectors of our industry under pressure, while higher oil prices have held back the recovery in consumer spending. Italy's GDP unfortunately grew by less than expected, putting the public sector in a contradictory position in some respects.
Local authorities are increasingly being required to play to crucial role in support of the local economy and its development, while the restrictions of the internal stability pact are forcing many agencies to make heavy cutbacks in their expenditure.
As a traditional partner to local and territorial agencies, Dexia Crediop has develo- ped its products and services with a view to helping these organisations find solutions that allow them to balance their budgets, without however stifling their initiative.
The creation of a product range geared towards long-term financial sustainability is not only particularly suited to the institutional purposes of our customers, but is also in line with the longstanding commitment of the Bank and the Dexia Group to all more sustainable forms of development, in harmony with the aspirations of today's society. Just a few months after the Kyoto protocol came into force, Dexia's initiatives in the energy and transport sectors, designed to reduce emissions, are not just symbolic. Dexia Crediop's intervention in this area has been widely acclaimed, especially in the sector of renewable energy.
But the most significant recognition has undoubtedly come from our customers, who, in a difficult economic context, have continued to give us their trust. Our continued attention to operational integrity has also involved strengthening the compliance function, with the group-wide adoption of a Code of Compliance and the Note on the policy of integrity.
In fact, our customers' knowledge that they will encounter a responsible approach to financing their institutional activities is one of Dexia Crediop's main sources of success. The positive results achieved in 2004, both commercially and financially, confirm the validity of the Bank's strategy of seeking a positioning that focuses as much on quality as on prudence.
Mauro Cicchinè
8 Message from the Managing Director
Once again in 2004, Dexia Crediop has reported another set of very positive results both in terms of quality and quantity. Of particular note was the increase in the volume of finance arranged and the stock of outstanding loans, which will help ensure lasting results in the medium and long-term as well.
Dexia Crediop's role in important bond issues, not just by the public sector but also by the banking industry, and in project and structured financing operations has been another development of the established strategy of positioning Dexia Crediop as the public sector's merchant bank. Our operations have obtained important recognition, amongst which the titles of “Renewables Arranger of the Year 2004” and “European Utility Deal of the Year 2004”awarded by specialist magazines for transactions in the wind and water energy sectors respectively.
The Bank has been able to achieve these results without sacrificing its responsible approach to risk, which has placed Dexia Crediop in a position of authority relative to both the market and its customers, even after the issue of regulations governing prudent capital requirements.
On the other hand, we have always been open to innovation.
The securitisation of assets held by the Bank through a special purpose vehicle in order to limit funding costs, just like the first property securitisation by a territorial agency, or the success of structured bonds issued by Dexia Crediop all demonstrate how operational prudence can be compatible with sustainable innovation in the solutions adopted, ensuring their success on the market.
The Bank has also finished its preparations for the transition to International Financial Reporting Standards. The policies adopted will make it possible to keep the Bank's equity and earnings at their current level.
The goal for this year is to obtain EMAS certification, under which we plan to apply in full the principles of sustainable development to our work and which form the framework for the Group's activities. Similarly, the application of the principles contained in the new Basel capital accord will also find the Bank fully prepared.
I am in no doubt that Dexia Crediop's unique model of development will provide the basis for its own growth and that of its stakeholders in the coming year.
Gérard Bayol
9
DIRECTORS AND OFFICERS
Honorary Chairman Antonio Pedone
Board of Directors Mauro Cicchinè Chairman Roland Hecht Deputy Chairman Gérard Bayol Managing Director Bruno Deletré Director Philippe Ducos Director Guido Leoni Director Franco Nale Director Ernesto Paolillo Director
Board of Statutory Auditors Ezio Maria Simonelli Chairman Pierre Paul Destefanis Vincenzo Ciruzzi
OTHER COMMITTEES
Management Committee Gérard Bayol Chairman Stefano Catalano Jean Le Naour Riccardo Massa
Mauro Cicchinè Chairman Board of Directors
11 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004
PERFORMANCE INDICATORS
Loans arranged (in e mn) The level of lending in 2004 continued to grow, reporting an increase of 53% 8.000 after the +27% rise seen in 2003, raising the CAGR for the three-year period 7.000 2002-04 to 39%. 6.000 The subscription of securities issued to fund public infrastructure had a major 5.000 impact on the 2004 result. 4.000 3.000 These numbers comprise lending in all technical forms during 2004. 2.000 CAGR means Compound Annual Growth Rate. 1.000 - 2002 2003 2004
Outstanding loans (in e mn) Lending during the year took outstanding loans to e 21,137 million, up 23% 22.000 since the end of 2002, and raised the CAGR over the past three years to 18%. 20.000 A higher proportion of funds continued to be invested in securities (36% in 18.000 2004 compared with 29% in 2002) even though the share of mortgages 16.000 increased by 10% on 2003. 14.000 12.000 These numbers comprise lending in all technical forms outstanding as of 10.000 31 December 2004. 2002 2003 2004
Breakdown of loans
2002 67,3% Local agencies 12,0% Ministery of Finance and The profile of loans outstanding at the end of 2004 confirms the recovery of other central government organisation 20,3% Companies lending to central government. 0,4% Other 2003 71,6% Local agencies These numbers comprise lending in all technical forms outstanding as of 10,3% Ministery of Finance and 31 December 2004. other central government organisation 17,9% Companies 0,4% Other 2004 62,6% Local agencies 16,7% Ministery of Finance and other central government organisation 21,0% Companies 0,3% Other
Breakdown of funding
2002 An analysis of funding highlights the increase in bond issues with respect to 20,8% Bond 42,5% S-term loans other technical forms 36,7% M/L-term loans 2003 These numbers comprise funding in all technical forms outstanding as of 30,0% Bond 39,3% S-term loans 31 December 2004. 30,7% M/L-term loans
2004 43,2% Bond 37,0% S-term loans 19,8% M/L-term loans
12 ROE 50% ROE for 2004 of 44.0% benefited from the elimination of adjustments previously 45% 40% booked solely for the purposes of tax rules. This operation is reflected in the 35% extraordinary items contained in the statement of income. 30% Ignoring the extraordinary items in 2004 and 2003, ROE for the year would have 25% 20% been 9.2%, which is nonetheless two percentage points higher than the year before. 15% 10% Return on Equity is the ratio of net income for the year to shareholders’ 5% 0% equity at year-end, excluding such net income. This reflects the income- 2002 2003 2004 earning capacity of shareholders’ funds. proportion from ordinary items proportion from extraordinary items Cost to income 30% The increase in the Cost to Income ratio (27.6% in 2004 and 22.6% in 2002)
25% was mostly due to a reduction in net interest and other banking income following a 3% rise in costs. 20% 15% The Cost to Income ratio compares operating costs (administrative costs 10% and depreciation) with net interest and other banking income. This is a
5% measure of productivity in terms of the percentage of margin absorbed by operating costs. 0% 2002 2003 2004
Eps (eurocents for every share of e 2.58) 2 The EPS for 2003 of e 1.56 per share was influenced by the extraordinary 1,5 items mentioned earlier. Excluding the impact of such items, EPS would have been e 0.25, staying in line with last year. 1
0,5 Earnings per share is the ratio of net income to the number of shares comprising share capital. 0 2002 2003 2004 proportion from ordinary items proportion from extraordinary items
Ratio of net non-performing loans to total net lending 0,10% After the reduction seen in 2003, the ratio of net non-performing loans continued to be close to zero. 0,08%
0,06% The non-performing loans ratio reflects the proportion of net non-
0,04% performing loans to total net lending (customers plus banks). This indicator reflects the degree of risk in the loan portfolio. 0,02%
0,00% 2002 2003 2004 incidence non-performing Return on Assets (ROA) 1,20% ROA was 1.06%, having been affected by the extraordinary items mentioned
1,00% earlier. Excluding the impact of such items, ROA would have been basically in line with 2003. 0,80% 0,60% The Return on Assets is the ratio of net income to total assets recorded in 0,40% the balance sheet. This indicator reflects the profitability of capital
0,20% employed.
0,00% 2002 2003 2004 proportion from ordinary items proportion from extraordinary items 13 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004
ORGANISATION CHART
Managing Director and Country Manager Gérard BAYOL
Corporate and Legal Affairs Human Resources Alberto MARI Giuseppe SANTELLA
Communications Internal Audit Daniela CONDÒ Giuseppe NUSINER
Public and Project Financing Finance Administration Riccardo MASSA Stefano CATALANO Jean LE NAOUR (Deputy General Manager)
Trading Room Accounting and Public Financing Vincent BRENELLIÈRE Control Thierry DURAND (Deputy) Viviana ASCANI
Capital Markets IT and Logistics Financial Services Daniele ALBARIN Pasquale TEDESCO Anselmo BARONI (Deputy)
Risk Management Customer Relations Vittorio LIMAURO Massimo GIULIMONDI
Back Office Structured Finance Pietro CONTENTI and Consultancy Christophe BOUCHER
Equity Investments and Projects Gianni BONOMI
Asset Management Riccardo MASSA (Interim)
This information refers to the situation at 31 December 2004.
14 THE DEXIA CREDIOP BANKING GROUP
Dexia Crediop S.p.A. Rome – Via Venti Settembre, 30 (00187) Tel. + 39 (0)6 4771.1 Fax + 39 (0)6.4771.5952 Internet: www.dexia-crediop.it E-mail: [email protected]
Branches: Turin - Via Magenta, 44/A Milan - Via Messina, 38 Bologna - Galleria Ugo Bassi, 1
DCC – Dexia Crediop per la Cartolarizzazione S.r.l. Rome
Crediop Overseas Bank Limited Grand Cayman - Cayman Islands
Crediop B.V. (in voluntary liquidation) Amsterdam (Netherlands)
OTHER DEXIA GROUP COMPANIES IN ITALY
Dexia Fund Services Italia S.p.A. Milan - Via Messina, 38
Dexia Asset Management s.a. Italian Branch Milan – Corso Italia, 1
15 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004
PRINCIPAL INVESTMENTS HELD BY DEXIA CREDIOP S.P.A.
Subsidiary companies DCC - Dexia Crediop per la Cartolarizzazione S.r.l.. 100% Crediop Overseas Bank Limited 100% Crediop B.V. (in voluntary liquidation) 100%
Other investments Istituto per il Credito Sportivo 21.62% Dexia Fund Services Italia S.p.A. 20.00% Ferfina S.p.A. 5.00% European Investment Fund 0.50%
16 REPORT ON OPERATIONS
17 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
RECLASSIFIED BALANCE SHEET
Euro ‘000 ASSETS 31-12-2004 31-12-2003 % Change Cash and deposits with central banks and post offices 4 7 -42.86 Receivables * due from banks 386,977 626,448 -38.23 * loans to customers 13,506,792 12,294,084 +9.86 Marketable securities 9,481,507 6,393,303 +48.30 Fixed assets * investment securities 408,924 295,630 +38.32 * equity investments 81,445 85,715 -4.98 * intangible fixed assets 2,590 2,678 -3.29 * tangible fixed assets 35,783 52,581 -31.95 Other assets 1,695,070 1,431,673 +18.40 Total assets 25,599,092 21,182,119 +20.85
Euro ‘000 LIABILITIES AND SHAREHOLDERS' EQUITY 31-12-2004 31-12-2003 % Change Payables * due to banks 12,367,520 12,563,233 -1.56 * customers' deposits and securities issued 10,787,792 6,302,705 +71.16 Other liabilities 1,554,155 1,574,165 -1.27 Subordinated liabilities - - - Shareholders' equity 889,625 742,016 +19.89 Total liabilities and shareholders' equity 25,599,092 21,182,119 +20.85
Euro ‘000 GUARANTEES AND COMMITMENTS 31-12-2004 31-12-2003 % Change Guarantees given 10,757,504 9,213,522 +16.76 Commitments 7,019,519 9,169,979 -23.45
18 RECLASSIFIED STATEMENT OF INCOME
Euro ‘000 31-12-2004 31-12-2003 % Change Interest income and similar revenues 913,241 789,634 +15.65 Interest expense and similar charges -767,256 -634,111 +21.00 Interest margin 145,985 155,523 -6.13 Dividends 2,275 3,652 -37.71 Net commissions 7,473 6,975 +7.14 Profits (losses) on financial transactions: 756 20,141 -96.25 * trading in securities and security derivatives -1,698 6,228 -127.26 * trading in foreign currencies and currency derivatives 24 10,877 -99.78 * trading in other derivatives 4,514 121 n.s. * valuation of securities and derivatives -2,084 2,915 -171.49 Other operating expenses -25,027 -16,189 +54.59 Other operating income 26,829 17,551 +52.86 Net interest and other banking income 158,291 187,653 -15.65 Administrative costs -39,629 -38,965 +1.70 including: * payroll costs -23,007 -23,983 -4.07 * other administrative costs -15,597 -14,009 +11.34 * indirect taxes -1,025 -973 +5.34 Adjustments to: * tangible fixed assets -1,631 -1,639 -0.49 * intangible fixed assets -2,391 -1,773 +34.86 Operating income 114,640 145,276 -21.09 Adjustments to loans and other provisions for guarantees and commitments -2,351 - n.a. Writeback of adjustments to loans 11,775 270 n.s. Provisions for possible loan losses - -68,860 n.a. Provisions for risks and charges -1,819 -2,152 -15.47 Adjustments to financial fixed assets - -624 n.a. Writeback of adjustments to financial fixed assets - - n.a. Income from ordinary activities 122,245 73,910 +65.40 Extraordinary income (expense), net 319,448 126,141 +153.25 Income before taxes 441,693 200,051 +120.79 Change in reserve for general banking risks - -13,169 n.a. Income taxes for the year -170,189 -54,885 +210.08 Net income for the year 271,504 131,997 +105.69
19 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
RESULTS OF OPERATIONS
INTRODUCTION: OUR CUSTOMERS As a merchant bank specialising in financial services for the public sector, the customers of Dexia Crediop include – consistent with its traditions and the Dexia Group’s mission in the world – government authorities, other central and local government authorities, territorial agencies and public service companies. Dexia Crediop finances public works and infrastructure, helping customers gain access to the capital markets and organising financial engineering transactions, structured finance, project financing, dynamic debt and liquidity management, as well as consultancy and assistance with privatisations and restructuring.
THE BANK FOR SUSTAINABLE DEVELOPMENT Right from the start, the Dexia Group has recognised that local agencies are the true powerhouse of progress and development; Dexia Crediop, a partner of Italy’s territorial agencies since 1919, translates this operational approach into local terms via a variety of measures.
The role of the territorial agencies in the implementation of sustainable development policies has been reco- gnised as essential ever since the 1992 Rio de Janeiro summit, which gave rise to the Local Agenda 21project.
Aside from undeniable difficulties regarding theoretical definition and practical implementation, the concept of sustainable development has contributed to recognition of the need for the economic, social and environmental dimensions of society to develop in harmony. The desire to guarantee satisfactory rates of economic growth, to narrow social inequalities and ensure that development is compatible with the environment means that the territorial agencies, as decentralised authorities, must make an essential contribution. This specialisation in the provision of financial services to the public sector – and, in particular, to territorial agencies – therefore establishes Dexia Crediop and the Dexia Group, to which it belongs, as the natural financial counterpart of the agencies themselves in the area of sustainable development. Dexia Crediop's commitment to sustainable development was further consolidated in 2004. More specifically, the Bank officially approved and published its “Environmental and Sustainability Policy” on which it is committed to base its operations and which incorporates such international principles as Global Compact, UNEP, Equator Principles. Dexia Crediop's focus on sustainability has translated not only into a renewed commitment to the provision of medium/long-term finance to projects of public benefit and essential public services, but also into the creation of an in-house Environmental Management System, capable of evaluating and gradually improving the impact of the Bank's activities on the environment. Specific actions were also taken to foster and spread the culture of sustainability and corporate social responsibility, including in partnership with authoritative players such as the Italian Banking Association and the Forum for Sustainable Finance. The Dexia Group adheres to the Equator Principles (EPs). These consist of a series of guidelines developed by a group of leading banks to manage the social and environmental impact associated with the financing of development projects amounting to US$ 50 million or more. Banks which adopt the EPs in relation to project finance transactions, agree to lend solely to sponsors that demonstrate their ability and willingness to accept a series of restrictions designed to ensure that the projects concerned are completed in a socially responsible manner, using appropriate environmental management methodology. The EPs were devised from guidelines established by the World Bank and the International Finance Corporation (IFC), a financial institution promoted by the World Bank whose members are the Governments of 176 nations. The shares of Dexia, the parent bank listed in Paris and Brussels, are included in the Dow Jones “World” Sustainability Index.
20 LOANS AND FINANCIAL SERVICES FOR THE PUBLIC SECTOR Customer orientation Our wealth of financial information and specific knowledge, not only of the technical issues but also the regulations governing local finance, have continued to represent a factor in the success of our offer of financial services suited to the specific needs of our customer base. Our approach to customers is based on the need to ensure the right balance between the use of traditional financial instruments and financially innovative ones. The Bank's commercial policy has continued to focus on integrating its established position as a benchmark in the disbursement of credit to Italy's public sector with its merchant banking services. This has also helped strengthen Dexia Crediop's role in the origination of transactions on international markets. A philosophy of long-term partnership and assistance lies at the heart of Dexia Crediop's relationship with its customers with the goal of providing products and services tailored to their specific needs. Synergies with other Dexia Group companies have also made their contribution in this respect. Dexia Crediop's website (www.dexia-crediop.it), the only one in Italy entirely dedicated to public and project financing, has focused on spreading awareness of issues relating to sustainable development, as well as providing information services to customers (on-line applications, research, regulations on privacy and transparency). The number of visitors was 21% higher than in 2003.
Activities in the public finance sector As regards the sector of loans by banks and non-banks and domestic and international bonds, the overall size of the market declined in 2004 (-21% according to Dexia Crediop estimates). However, this did not affect the volume of business by the banking sector. Dexia Crediop had 21% of the overall market (17% in 2003).
After 2003, when Italy's securitisation market was Europe's second largest by volume of issues, transactions involving assets originating in Italy amounted to around e 23 billion in 2004, staying in line with the year before. The public sector continues to be an important asset class on the Italian ABS market. Transactions relating to public assets (ignoring ISPA/TAV transactions) accounted for 20% of total issues in 2004, of which 13.6% referred to deals relating to assets of local and territorial agencies. Dexia Crediop's operations in this sector included organising the first property securitisation by a territorial agency and taking part in transactions involving receivables owed to certain businesses by local health authorities. On the regulatory front, the derivatives sector saw the issue of Ministerial Decree 389/03 and related explanatory Circular on 17 May 2004, controlling access to the derivatives market by local and territorial agencies. Dexia Crediop's approach to the sector has nonetheless remained unchanged in view of its prudent policies adopted even before the Decree was issued. The Bank has continued to pay its traditional attention to both legal and regulatory matters, adopting its customary prudent approach, and to the nature of the products and solutions proposed; the ultimate goal has been to meet the needs and requirements of the agencies concerned, while ensuring that the related transactions are understandable and low risk. Dexia Crediop has continued to help customers obtain and update their ratings, an area in which it has extensive experience. Italy boasts the largest number of territorial agencies in Europe that submit them- selves to the judgement of the rating agencies, in a quest for financial transparency aimed at both the market and the population as a whole.
21 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
Corporate Finance After the acceleration experienced in 2003, financing activities involving corporate public and private counterparties increased still further in 2004. Dexia Crediop organised transactions on the capital markets for highly creditworthy businesses in the sectors of public services and infrastructure. The larger transactions were concentrated in the sectors of transport infrastructure and integrated management of water resources.
Structured financing Although the market for project finance is active, only a few deals have yet been closed. Dexia Crediop has confirmed its leadership position, acting as Mandated Lead Arranger for new deals in the sectors of renewable energy and water resource management and also obtaining an award from Euromoney (European Utility Project Award of the Year 2004). It has also won several new mandates to provide assistance to both public and private counterparties for developing projects relating to hospitals, motorways and metropolitan railways, under existing national laws (Merloni, General Policy Law, General Contractor).
Consultancy Dexia Crediop confirmed its heavy commitment in 2004 to helping local agencies interested in privatising local public services. It was particularly active in the local public transport sector where, thanks to the number of appointments received, it is now the market leader in organising and managing competitive bids for awarding the service concerned. Dexia Crediop pays particular attention in these engagements to evaluating and underlining environmental issues, thereby making an active contribution to local sustainable development. In the “telecommunications” sector, the Bank's historic area of specialist consulting activities, there was renewed activity by the Ministry of Communications which required assistance in the award of radio frequency user rights, with particular reference since the end of 2004 to bids involving radio frequencies associated with the wireless local loop (WLL). In addition to traditional consulting services to public and local agencies, the Bank also provided advice to Italian and foreign businesses interested in mergers/acquisitions, in setting up specific joint ventures with local public enterprises (water, environmental companies) and undertaking property projects.
Other activities The Bank continued to offer and improve its Cash Management and Asset Management services on the basis of a global customer approach. The segmentation of the market and synergies with the various Finance desks has helped enlarge both the number of counterparties and the range of products offered. This area includes the Bank's funding products, both traditional or structured with minimum guaranteed capital and yields, and bonds of other issuers in which the Bank has played an active role of origination.
FUNDING AND ACTIVITIES IN THE FINANCIAL MARKETS Funding activities The Bank arranged a total of 92 funding transactions during the year worth a total nominal value of e 5,476 million. Like in the recent past, abundant use was made of structured bonds.
The “Medium Term Note Program”, whose amount was kept at e 8 billion at the time of updating on 4 August 2004, was about 70% utilised at 31 December 2004. Some 37% of new funding was obtained from institutional investors, 9% from supranational organisations and the remaining 54% from households.
22 Among the funding instruments used by Dexia Crediop in 2004, it securitised, through the subsidiary DCC, e 1,128 million in securities issued by local agencies.
Rating Standard & Poor’s raised Dexia Crediop’s credit rating from AA- to AA in March 2004; following the lowering of Italy's rating, this rating was taken back to AA- in July, ie. the same level as Italy itself. Moody’s Investors Service and Fitch Ratings confirmed their rating of Dexia Crediop's medium/long-term debt at Aa2 and AA respectively.
All three agencies put the “outlook” as stable.
Dexia Crediop is currently the highest rated Italian bank, with a “double A” from all three agencies.
Moody’s – m/l term Aa2 Moody’s – short term P-1 Moody’s Financial Strength B
Standard & Poor’s – m/l term AA- Standard & Poor’s – short term A-1+
Fitch Ratings – m/l term AA Fitch Ratings – short term A1+ Fitch Ratings – individual A/B Fitch Ratings – legal 3
Activity in the financial markets The Bank's own bond portfolio is mostly invested in financial institutions and structured securities (ABS and RMBS) based on Italian securitisations. The portfolio is not exposed to the corporate sector. Debt quality was once more the primary consideration in investment decisions during 2004.The portfolio amounted to just over e 1.6 billion at year end. Money market activities (refinancing of short-term liquidity and hedging of interest rate risk) saw the definition of rules in line with IAS 39, due to be introduced soon. These risks are also managed by using short-term interest rate derivatives. Activities in medium/long-term derivatives witnessed a major improvement in their marketing to domestic banks. The commercial policy adopted helped boost the results by over 50% on 2003, while improving the diversification of revenues by product and customer. New valuation models required for the future application of IAS 39 were implemented in this sector as well, particularly with reference to the Bank's structured products. Activity in the primary market concentrated on issues by Italian banks and local agencies. During 2004, Dexia Capital Markets (the Dexia Group’s “brand name” for activities in the primary market) obtained a market share of about 8% regarding the issue of international bonds by Italian banks and about 53% for similar issues by Italian territorial agencies. Activity in the secondary market regarding government securities and the securities issued by Italian banks was also significant. The related activity placed Dexia Crediop in the number ten position in the special ranking of bookrunners for domestic bank issues.
23 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
BUSINESS DEVELOPMENT Share ownership At 31 December 2004 the share capital of Dexia Crediop, amounting to e 450,210,000 and represented by 174,500,000 fully-paid ordinary shares, par value e 2.58 euro, is held as follows: Dexia Crédit Local: 122,150,000 ordinary shares, representing 70% of share capital, par value e 2.58 each, totalling e 315,147,000; Banca Popolare di Milano: 17,450,000 ordinary shares, representing 10% of share capital, par value e 2.58 each, totalling e 45,021,000; Banco Popolare di Verona e Novara: 17,450,000 ordinary shares, representing 10% of share capital, par value e 2.58 each, totalling e 45,021,000; Em. Ro. Popolare S.p.A. 17,450,000 ordinary shares, representing 10% of share capital, par value e 2.58 each, totalling e 45,021,000.
Internal organisation The property located in Via Quintino Sella, Rome, was sold in January 2004.The capital gain realised was about e 5.8 million. As part of a rationalisation of our commercial presence, the Padua branch was closed at the start of 2004 and the related activities were transferred to the Milan branch. The security plan, required by art. 34.1.g) of Decree 196 dated 30 June 2003 (“Personal data protection code”) has been prepared in accordance with Rule 19 of the Technical Instructions, annex B to Decree 196/2003.
Compliance The Compliance function is becoming an increasingly important part of the system of organisational control in order to protect the Bank from financial losses or loss of reputation, by promoting respect for the regulations in areas falling under its responsibility. These particularly include corporate governance, conflicts of interest, privacy, money laundering, and corporate administrative responsibility.
Its activities also extend to professional ethics and hence the respect for of high standards of conduct by all staff.
Among the more important activities in 2004 was the adoption of a Code of Compliance and the Note on the Group's policy of integrity, which outlines the function's main activities and describes the organisational principles on which in-house compliance is based. A special banking “Legal Inventory” was adopted, accompanied by an outline “Risk Matrix”, representing a general mapping of the legal compliance risks. Activities associated with the organisational model continued to be at centre stage. In fact, the organisational model was updated during the year after offences against individual persons were included in the list of those governed by Decree 231/2001 (administrative responsibility of companies and organisations for offences committed in their interests or to their benefit by persons with powers of representation, administration or management and by their staff). As required by this law, great efforts were made for informing and training staff, including a seminar aimed at all personnel and several other measures targeted at individual areas of the business. Compliance activities also involved making the necessary amendments to Dexia Crediop's articles of association for Italy's new civil code and to the internal rules on handling personal data for the new code on privacy. In the area of professional conduct, apart from the training and awareness sessions conducted as part of group projects, a Code of Dealing Room Conduct was also adopted.
The results achieved by the Compliance function are witnessed by the continued reference made to it by the Italian Banking Association; an important association, which became all the more so at year end with the organisation of the “1st Compliance meeting” in Dexia Crediop's offices and aimed at all financial operators, as well as the academic and institutional sector.
24 Communication There were numerous significant events during 2004 on the communications front. Dexia Crediop took part in many specialist events dedicated not only to the territorial agency sector but also financial market operators, and directly organised other events that in some cases benefited from synergies with the Group.
Among the events organised by Dexia Crediop, of particular importance was the 5th Financial Conference for Autonomous Local Agencies held in October in the offices of the Italian Banking Association in Rome. This event is now considered to be a major annual appointment, at which representatives from local agencies and public government can discuss the latest developments in the area of local financing. “Prospects for the Internal Stability Pact and Public-Private Partnership” was the conference's central theme. Two workshops entitled “Innovative finance: a sustainable approach” and “Public – private partnership in local public transport” formed an integral part of the proceedings. The conference also saw the presentation of a paper by the Sacred Heart Catholic University of Milan on the topic of “Investment in Infrastructure and Public-Private Partnership”.
Risk management In relation to the general control of risks, the Bank continues to benefit from its organisational integration with the Group and, in particular, with its parent, Dexia Crédit Local (DCL)
On the whole, 2004 confirmed that the Bank's operations feature a very low credit risk, reflecting its historic focus on customers in the sector of local and territorial public-sector agencies, which are traditionally reliable and supported by a satisfactory system of guarantees.
The Bank also made particular efforts to evaluate risks in less traditional sectors (corporate finance, project financing and derivatives etc), with more than satisfactory results both in terms of volumes and returns. In terms of operational risks, the Bank's approach to mapping out all such risks involved identifying the risk factors starting from the lowest levels of activity (ie. Business Lines). Specific in-house rules were drawn up designed to regulate the proper conduct of these processes, starting from those classified in the categories at most risk. Having established the rules and criteria for identifying and assessing operational risks, the related self assessment activities will be completed in December 2005.
The project for preparing a “Business Continuity Plan (BCP)” was successfully completed within the scheduled deadline of December 2004. This document describes the activities, instruments and documentation needed to ensure business continuity and limit losses in the event that activities are partially or totally stopped due to a general emergency, and identifies the different crisis scenarios.
According to the Dexia Group's rules and Dexia Crediop's internal procedures, interest rate risk associated with money and financial market activities must be measured in terms of sensitivity, VAR and stop-loss. In accordance with the Group's internal rules and procedures, ALM (asset and liability management) activities require the exposure to interest rate risk to be measured in terms of sensitivity. An “earnings at risk” indicator was introduced in 2004 to limit changes in margins as a result of ALM. Short and long-term liquidity risks are monitored via the calculation of ratios identified with reference to liquidity requirements and the available reserves.
25 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
Basel 2 The bank functions in charge of limiting Credit and Operational Risks are heavily involved in taking forward and implementing the Basel 2 projects, with the method for measuring risk adopted by the Group ie. the Advanced “Internal Rating Based Approach - I.R.B.A.” still holding good. Work in 2004 concentrated on fine-tuning the evaluation system designed to calculate an internal rating for all Italian local and territorial agencies, as well as structuring and preparing the database. The Group's activities on this project focused on confirming its reputation for excellence within the international banking sector and that of its individual members, including Dexia Crediop. Dexia Crediop has been selected to act, together with the parent company, as a pilot for carrying out the tests required.
Equity investments A) Subsidiary companies DCC –DEXIA CREDIOP PER LA CARTOLARIZZAZIONE S.R.L. This company, a wholly-owned subsidiary of Dexia Crediop, has been in operation since 2004. Its sole purpose is the conduct of securitisations under Law 130/1999. It carried out its first transaction during the year involving a portfolio consisting entirely of securities issued by Italian public-sector agencies. CREDIOP OVERSEAS BANK LIMITED (COBL) The activities of COBL, a wholly-owned subsidiary of Dexia Crediop, were extremely limited. In fact, it completed just 4 funding transactions on international financial markets worth around e 170 million, guaranteed by Dexia Crediop and whose net proceeds were, as always, invested with Dexia Crediop. No new international funding transactions were carried out in the second half of the year through this subsidiary, which therefore just managed the stock of existing transactions. CREDIOP BV IN VOLUNTARY LIQUIDATION An extraordinary meeting of this Dutch subsidiary held on 1 June 2004 voted to put the company into liquidation with effect from 15 June 2004. In July nearly all the assets were shared out, resulting in the receipt of a higher sum than the investment's book value, carried at the symbolic value of one euro. The last stages of the liquidation are in the process of being completed.
B) Other significant equity interests DEXIA FUND SERVICES ITALIA S.p.A. An extraordinary meeting held on 30 September 2004 voted to increase share capital from e 3,300,000.00 to e 5,000,000.00 entirely subscribed and paid in by Dexia BIL. Following this capital increase, Dexia Crediop's interest decreased from 49.83% to 32.89%. On 13 October 2004 Dexia Crediop sold Dexia BIL 12.89% of the share capital in DFSI, earning a significant profit. Under the agreements made with Dexia BIL, the remaining 20%interest will be sold in 2007 to Dexia BIL. ISTITUTO PER IL CREDITO SPORTIVO (ICS) ICS, founded under Law 1295 dated 24 December 1957, is a public law bank that makes medium/long-term loans for the construction, extension, equipment and improvement of sports facilities. The 2004 Finance Act put the Ministry of Culture and the Ministry of Finance in charge of issuing directives on reforming the bank by amending its articles of association, without changing its nature as a public bank. The related directives were issued only at the end of 2004. These involve enlarging the bank's sphere of operation to include artefacts and cultural activities, completely overhauling the bank's structure and clarifying the methods for enhancing the value of interests held in its share capital. Work commenced in 2005 on rewriting its articles of association which must be approved by the Bank of Italy and then by the Ministries involved.
26 EUROPEAN INVESTMENT FUND (EIF) The EIF is an EU institution that provides support for small and medium enterprises in the form of risk capital and guarantees. The shareholders of EIF include the EIB and the European Union, as well as other banks and financial institutions in EU member countries. Dexia Crediop’s interest represents 0.50% of capital. FERFINA S.p.A. The Ferfina Group (in which Dexia Crediop holds a 5% interest in the holding company, Ferfina S.p.A.) is, via its subsidiary Condotte, one of Italy’s leading players in the area of major public and private-sector works.
C) Disposals Non-strategic minor investments were sold during the year in CEPIM S.p.A., CIV S.p.A. and MIAC S.C.p.A., while the investment in GEAC S.p.A. was cancelled. Part of the shares in the associated company DFSI S.p.A. were sold while the subsidiary CREDIOP BV virtually completed the process of being wound up. All these transactions resulted in the recognition of around e 2.6 million in capital gains.
Human resources The Bank employed 217 persons as of 31 December 2004. Actions continued in 2004 to promote and raise awareness about Dexia by publishing targeted advertise- ments, entering into umbrella agreements with search and selection firms, and redesigning the section of the website dedicated to careers and job opportunities. The relationship with the local area and academia were reinforced by making new agreements for job experience courses, training and orientation with leading Italian universities, and by taking part in job forum and graduand-graduate careers days, organised by important Italian public and private universities, resulting in the recruitment of many candidates for job-experience courses.
Fresh impetus was given to all activities for managing and developing resources, both by improving the monitoring of the performance evaluation system and its output, and by stepping up participation in all Group initiatives for professional integration and development.
Extensive training activities were once again a feature of 2004 with 87 courses provided (collective, indivi- dual and self-tuition) for a total of over 1,380 man/days, covering management issues, specialist topics and languages.
The constructive, positive nature of industrial relations characterising the company's dialogue with the unions continued in 2004, in implementation of the goals and objectives identified in the Dexia Group's “Principles of Social Management Charter”.In fact, in the wake of those signed in 2002 and 2003, additio- nal, important trade union agreements were also signed in 2004.
The returns on the company pension fund were also significant, as was the number of applications to the new supplementary pension fund, successfully started up in the year.
Administration sector activities In the area of accounting, apart from continued improvements to internal accounting procedures, of particular importance was the process of co-ordinating and carrying out the project for examining and applying the new International Financial Reporting Standards (IFRS). In fact, a special interdepartmental team co-ordinated by the Financial Reporting area was set up for this purpose. During the year the team examined and analysed the impact of the new international financial reporting standards on the Bank's statement of income and balance sheet, making the necessary organisational and procedural changes and
27 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
implementing the related IT procedures. As regards Back Office activities, 2004 witnessed a growth in the volume and type of transactions handled. The Bank's commercial policy was supported by the Back Office through the introduction of computerised procedures for handling new products and improving internal processes. As regards software applications, 2004 witnessed the implementation of a complex overall project for continued improvements in the monitoring and automation of company processes, mostly involving the measures for complying with the requirements of Basel 2 and IFRS. In the logistics sector, the property in Via XX Settembre underwent work involving its electrical and air conditioning systems, its furnishing and the configuration of its workstations, with special attention to improving the quality of the stations themselves including from an ergonomic point of view. Work also started on defining, revising and reorganising the security sector. The organisational and regulatory requirements needed for obtaining EMAS and ISO 14001 certifications were introduced.
OPERATING PERFORMANCE AND NET INCOME The Bank’s reclassified statement of income for 2004 reports an interest margin of e 146 million, down 6.1% with respect to 2003, reflecting the drop in market rates which affected the return on assets and transformation margins.
Net interest and other banking income amounted to e 158.3 million, down 15.6 % compared with 2003.The decrease is associated with profits and losses on financial transactions (e 0.8 million compared with e 20.1 million in 2003), mostly as a result of unwinding certain derivatives not held for hedging purposes. The result for 2003 also benefited from exchange gains arising on the conversion into euro of the capital in the subsidiary Crediop Overseas, previously denominated in dollars. Administrative expenses, including depreciation and amortisation, amounted to _ 43.7 million, up 3% compared with 2003 mostly as a result of the increase in other administrative expenses and amortisation and depreciation charges. Conversely, payroll costs were lower. Operating income therefore amounted to e 114.6 million, down 21.1% on 2003.
Income from ordinary activities was 65.3% higher than in 2003 at e 122.2 million. This result was affected by the fact that, as from 2004, the provision to the allowance for possible loan losses is no longer recorded in the financial statements. This is in accordance with the rules on "defiscalisation" which repeal articles 15.3 and 39.2 of Decree 87/92, meaning that it is no longer possible to book adjustments and provisions solely in application of tax rules. Furthermore, the 2004 statement of income includes e 11.8 million in writebacks to the value of loans, mostly as a result of general provisions booked in previous years considered to be surplus after performing a detailed review of risks.
Net extraordinary income amounted to e 319.4 million. This result mostly reflects the consequences of "defiscalisation" mentioned above, which involved crediting to extraordinary income deductions made in the past (the allowance for possible loan losses was e 280.1 million at 31 December 2003).Considering the provision for the period not recorded in the financial statements, after deferred tax, this process generated a gain of e 215 million. Furthermore, extraordinary income included e 26.3 million as a result of changing the method of valuing derivatives not held for hedging purposes at 31 December 2003 from the "lower of cost and market value" to "market value". The sale of the property in Via Quintino Sella during the year generated a capital gain of e 5.8 million. As a result of the above and the tax charge for the year of e 170.2 million, the Bank’s net income for 2004 amounted to e 271.5 million compared with e 132 million in 2003.
28 Ignoring the effect of "defiscalisation" (e 215 million), net income for 2004 would have been e 56.5 million, an increase of e 13 million on the figure of e 43.5 million reported in 2003, also obtained by ignoring extraordinary income of e 88.5 million arising on the release of part of the reserve for general banking risks in order to benefit from the 19% flat-rate tax.
OUTLOOK FOR OPERATIONS
SIGNIFICANT EVENTS SUBSEQUENT TO YEAR-END No significant events have taken place subsequent to year-end.
FUTURE OPERATIONS The drive to limit the growth in public spending seems likely to create a climate in 2005 that is not conducive to boosting investment expenditure by the territorial agencies. At the same time, the expectations - long frustrated - of greater involvement by the private sector in public projects now finally appear set to be satisfied in Italy as well, with the development of ever more partnerships between the public and private sectors for the construction of infrastructure projects.
The Bank is well able to operate in these changed market conditions which appear to be, if not structural, at least irreversible in the medium term. The evolution in Italy's local public finance does not seem likely to lose the modernism and momentum that have characterised it in recent years.
Dexia Crediop's operations in this sector will continue to be marked by a commercial and operational approach designed to achieve the necessary equilibrium between managerial prudence and market mechanisms, that alone can ensure the success of every innovation in this sector.
29 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / REPORT ON OPERATIONS
PROPOSED ALLOCATION OF NET INCOME
Shareholders, The proposed allocation of net income set out below is presented for your approval pursuant to art. 22 of the Bank's articles of association.
Net income e 271,503,739 - 5% to be allocated to reserves pursuant to art. 22.2 of the articles of association e 13,575,187 Residual net income e 257,928,552 Retained earnings brought forward from 2003 e 1,579,920 Net income available to the shareholders e 259,508,472 of which: - dividend to shareholders pursuant to art. 22.4 of the articles of association: e 43,625,000 - to be carried forward pursuant to art. 109.4.b) of the Income Tax Consolidation Act e 214,934,274 - to be carried forward (remainder) e 949,198 Following approval of the financial statements by the shareholders and the distribution of net income (e 0.25 per share), shareholders’ equity will amount to e 846.0 million, comprising share capital of e 450.2 million, the legal reserve of e 54.3 million, retained earnings of e 215.9 million and the reserve for general banking risks of e 125.6 million. Capital for regulatory purposes amounts to e 819 million. At the end of December 2004, the solvency ratio – being the ratio of capital for regulatory purposes to risk-weighted assets – was 30.09% or 4.3 times the minimum required for Dexia Crediop S.p.A. (7%).
FINAL REMARKS
Shareholders, The 2004 results of Dexia Crediop have been impressive, exceeding even the highly satisfactory levels achieved in the recent past.
In particular, lending during the year in its various technical forms amounted to more than e 7 billion, up over 52% with respect to the prior year, while outstanding loans as of 31 December 2004 totalled more than e 21 billion, around 22% higher than at the end of 2003. Underlying these results is the traditional but unremitting commitment to quality and the value of services provided to customers. The particular nature of Dexia Crediop's clients mean that success will come to only those operators who combine professional expertise with a range of products and services perfectly suited to the prudent management needs of the public sector. Dexia Crediop is well advanced in this direction, in the conviction that long-term sustainability is on its own a positive, winning value for its customers. The results achieved strengthen our belief that our commitment in this area is both a guarantee for stakeholders and a factor for commercial success.
Among the key factors behind the Bank's success is the commitment and professional skill of our personnel to whom we express our esteem and appreciation. We would also like to thank François Pauly who stepped down from the Board of Directors during the year.
Lastly, we wish to thank all the members of the Board of Statutory Auditors, whose skill and commitment have contributed to the effective conduct of their work.
Rome, 10 March 2005
The Board of Directors
30 REPORT OF THE BOARD OF STATUTORY AUDITORS
31
REPORT OF THE BOARD OF STATUTORY AUDITORS
To the Shareholders of Dexia Crediop S.p.A. Shareholders, We have examined the draft financial statements of DEXIA CREDIOP S.p.A. as of 31 December 2004 (which close with net income of e 271.5 million, total assets of e 25,599.1 million, shareholders' equity of e 889.6 million, guarantees of e 10,757.5 million and commitments of e 7,019.5 million) which have been prepared by the directors as required by law and were duly provided by the same to the Board of Statutory Auditors, together with detailed schedules and attachments and the report on operations. Activities performed by the Board of Statutory Auditors You are reminded that the shareholders appointed the accounting firm of Mazars & Guerard S.p.A. on 16 April 2004 to act as independent auditors, pursuant to art. 2409-quater of the Italian Civil Code. During our periodic meetings with the independent auditors, no relevant information or facts emerged that would require disclosing in this report. In accordance with art. 2429 of the Italian Civil Code, the Board of Statutory Auditors declares that it has carried out the following activities during the course of 2004: • conduct of legitimacy and merit controls under art. 2403.1 of the Italian Civil Code, confirming the proper observance of law, the articles of association and correct standards of management; • verification of the adequacy of the organisational, administrative and accounting systems adopted by the Bank, and their proper operation, as well as the latter's reliability for correctly representing the results of operations; • participation in regular meetings and attendance at other meetings prescribed by article 2405 of the Italian Civil Code, confirming that these were conducted in accordance with the articles of association, and the legal and regulatory requirements governing the same and for which we can reasonably attest that the resolutions passed comply with the law and the articles of association and are not manifestly imprudent, risky, in potential conflict of interest or such as to compromise the integrity of the Bank's assets; • verification of the regular maintenance and updating of the Bank's statutory books listed in art. 2421 of the Italian Civil Code. We also confirm that we received no complaints during the year from shareholders regarding censurable facts described in art. 2408 of the Italian Civil Code.
Observations and proposals regarding the financial statements Since we are not responsible for auditing the financial statements at 31 December 2004, we have monitored their general approach and compliance with the law regarding their structure and preparation, as a result of which we have no related observations to report. In any case, as far as we are aware, as required by art. 2429.2 of the Italian Civil Code, the directors have not made any exceptions when preparing the financial statements, as would be allowed in certain circumstances under art. 2423 c. 4. Having said this, and bearing in mind the results of the work performed by the independent auditors, contained in the specific comfort letter dated 9 March 2005, we are in favour of approving the financial statements at 31 December 2004, as well as the directors' proposal for allocating net income for the year.
Rome, 24 March 2005 The Board of Statutory Auditors Ezio Maria SIMONELLI Chairman Vincenzo CIRUZZI Auditor Pierre Paul DESTEFANIS Auditor
33
REPORT OF THE INDEPENDENT AUDITORS
35
Report of the independent auditors on the statutory financial statements pursuant to art. 2409-ter of the Italian Civil Code
To the Shareholders of Dexia Crediop S.p.A.
1. We have audited the financial statements of Dexia Crediop S.p.A. as of and for the year ended 31 December 2004. These financial statements were prepared under the responsibility of the Bank’s Directors. Our responsibility is to express an opinion on these financial statements based on our audit.
2. We conducted our audit in compliance with generally accepted auditing standards. Those standards require that we plan and perform the audit so as to obtain reasonable assurance as to whether the financial statements are free of material misstatements and are, as a whole, reliable. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements, as well as assessing the adequacy and fairness of the accounting principles used and the reasonableness of the appraisals made by the directors. We consider that our audit provides a reasonable basis for our opinion. As for our opinion on the previous year’s financial statements, which are presented for comparison purposes as required by law, reference should be made to our report dated 19 March 2004.
3. In our opinion, the financial statements of Dexia Crediop S.p.A. as of and for the year ended 31 December 2004 comply with Italian statutory regulations for financial statements; therefore they give a true and fair view of the financial position and results of the Bank.
4. The Bank holds a controlling interest in some subsidiaries carried at cost and has prepared, together with the financial statements of the year, the consolidated financial statements of the Group. Such financial statements provide appropriate additional information concerning the financial and operating position of Dexia Crediop S.p.A. and of the Group. The consolidated financial statements we examined are presented together with our auditors’ report dated 1 April 2005.
Milan, 1 April 2005
Olivier Rombaut Vincenzo Miceli Partner Partner
37
FINANCIAL STATEMENTS OF THE PARENT BANK
39 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / FINANCIAL STATEMENTS OF THE PARENT BANK
BALANCE SHEET
Euro ASSETS 31-12-2004 31-12-2003 10. Cash and deposits with central banks and post offices 4,038 6,918 20. Treasury bills and sundry bills eligible for refinancing with central banks 290,543,739 599,744,439 30. Due from banks 386,977,010 626,447,479 a) on demand 172,931,136 228,603,826 b) other 214,045,874 397,843,653 40. Loans to customers 13,506,791,956 12,294,084,094 including: - loans using administered funds - - 50. Bonds and other debt securities 9,599,887,378 6,089,189,343 a) public issuers 4,650,119,427 3,478,259,770 b) banks 1,416,537,051 1,019,283,929 including: - own bonds 108,271,998 73,334,792 c) financial institutions 2,944,075,012 1,509,441,305 d) other issuers 589,155,888 82,204,339 60. Shares, quotas and other equities - - 70. Equity investments 31,429,577 32,101,939 80. Equity investments in Group companies 50,015,001 53,613,155 90. Intangible fixed assets 2,590,174 2,678,040 including: - start-up costs - - - goodwill - - 100. Tangible fixed assets 35,782,640 52,581,016 130. Other assets 329,201,634 415,293,449 140. Accrued income and prepaid expenses 1,365,868,355 1,016,378,976 a) accrued income 612,285,447 436,198,394 b) prepaid expenses 753,582,908 580,180,582 including: - issue discounts titoli 143,243,755 66,802,419 Total assets 25,599,091,502 21,182,118,848
40 Euro LIABILITIES AND SHAREHOLDERS' EQUITY 31-12-2004 31-12-2003 10. Due to banks 12,367,520,112 12,563,232,731 a) on demand 51,914,717 619,560,698 b) other 12,315,605,395 11,943,672,033 20. Customers' deposits 1,365,404,783 930,415,305 a) on demand 862,459,637 812,344,003 b) other 502,945,146 118,071,302 30. Securities issued 9,422,386,230 5,372,289,543 a) bonds 9,422,124,292 5,372,027,605 b) certificates of deposit 261,938 261,938 c) other - - 50. Other liabilities 303,982,676 473,726,635 60. Accrued expenses and deferred income 1,047,537,087 748,992,851 a) accrued expenses 612,054,105 475,323,528 b) deferred income 435,482,982 273,669,323 70. Provision for severance indemnities 4,592,325 6,311,232 80. Allowances for risks and charges 198,043,594 65,062,896 a) pensions and similar commitments - - b) taxation 186,381,295 52,416,403 c) other 11,662,299 12,646,493 90. Allowance for possible loan losses - 280,071,698 100. Reserve for general banking risks 125,555,801 125,555,801 110. Subordinated liabilities - - 120. Share capital 450,210,000 450,210,000 140. Reserves 40,775,236 34,175,374 a) legal reserve 40,775,236 34,175,374 b) reserve for own shares - - c) statutory reserves - - d) other - - 160. Retained earnings 1,579,919 77,551 170. Net income for the year 271,503,739 131,997,231 Total liabilities and shareholders' equity 25,599,091,502 21,182,118,848
GUARANTEES AND COMMITMENTS 31-12-2004 31-12-2003 10.Guarantees given 10,757,503,836 9,213,521,922 including: - acceptances - - - other guarantees 10,757,503,836 9,213,521,922 20. Commitments 7,019,519,166 9,169,978,587 including: - repurchase agreements - -
41 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / FINANCIAL STATEMENTS OF THE PARENT BANK
STATEMENT OF INCOME
Euro 31-12-2004 31-12-2003 10. Interest income and similar revenues 913,241,059 789,634,102 including: - loans to customers 613,412,631 595,059,844 - debt securities 283,796,901 184,696,785 20. Interest expense and similar charges -767,255,883 -634,111,404 including on: - customers' deposits -21,880,964 -24,480,746 - securities issued -206,720,216 -117,231,039 30. Dividends and other revenues from 2,275,394 3,652,010 a) shares, quotas and other equities - - b) equity investments 225,394 328,007 c) equity investments in Group companies 2,050,000 3,324,003 40. Commission income 9,285,407 8,725,834 50. Commission expense -1,811,948 -1,750,665 60. Profits (losses) on financial transactions 755,476 20,141,424 70. Other operating income 26,828,606 17,551,535 80. Administrative costs -39,629,054 -38,965,026 a) payroll -23,006,998 -23,983,448 including: - wages and salaries -15,919,448 -16,522,383 - social security charges -4,007,883 -4,121,217 - severance indemnities -938,854 -916,293 - pensions and similar commitment -1,023,952 -1,204,388 b) other -16,622,056 -14,981,578 90. Adjustments to intangible and tangible fixed assets -4,022,203 -3,411,463 100. Provisions for risks and charges -1,819,018 -2,152,456 110. Other operating expenses -25,027,134 -16,189,207 120. Adjustments to loans and provisions for guarantees and committments -2,351,303 - 130. Writebacks of adjustments to loans and provisions for guarantees and commitments 11,775,343 269,765 140. Provision for possible loan losses - -68,860,000 150. Adjustments to financial fixed assets - -623,636 160. Writeback of adjustments to financial fixed assets - - 170. Income from operating activities 122,244,742 73,910,813 180. Extraordinary income 329,861,295 132,139,696 190. Extraordinary expense -10,413,311 -5,999,368 200. Extraordinary income, net 319,447,984 126,140,328 210. Change in reserve for general banking risks - -13,169,176 220. Income taxes for the year -170,188,987 -54,884,734 230. Net income for the year 271,503,739 131,997,231
42 EXPLANATORY NOTES
Introduction - Background information on the financial statements - Form and content of the financial statements - Changes in accounting policies - Audit of the financial statements Part A - Accounting policies - Section 1 - Description of accounting policies - Section 2 - Adjustments and provisions recorded solely for tax purposes Part B - Notes to the Balance Sheet - Section 1 - Loans - Section 2 - Securities - Section 3 - Equity investments - Section 4 - Tangible and intangible fixed assets - Section 5 - Other assets - Section 6 - Funding - Section 7 - Allowances - Section 8 - Share capital, equity reserves and subordinated liabilities - Section 9 - Other liabilities - Section 10 - Guarantees and commitments - Section 11 - Concentration and distribution of assets and liabilities - Section 12 - Administration and trading on behalf of third parties Part C - Notes to the statement of income - Section 1 - Interest - Section 2 - Commissions - Section 3 - Profits (losses) on financial transactions - Section 4 - Administrative costs - Section 5 - Adjustments, writebacks and provisions - Section 6 - Other statement of income captions - Section 7 - Other information regarding the statement of income Part D - Other information - Section 1 - Directors and Statutory Auditors - Section 2 - Parent company
43
INTRODUCTION - BACKGROUND INFORMATION ON THE FINANCIAL STATEMENTS
Form and content of the financial statements The Bank's financial statements for 2004 have been prepared in accordance with Decree 87 of 27 January 1992 and subsequent modifications and additions, in implementation of EC Directive 86/635, and in accordance with the related Bank of Italy regulations.
The financial statements consist of the balance sheet, the statement of income and these explanatory notes, together with the report on operations prepared by the Board of Directors.
The financial statements agree with the underlying accounting records, which fully reflect the transactions that have taken place during the year.
The explanatory notes contain all the information required by established regulations, as well as the supplementary information considered necessary to give a true and fair view of the Bank's financial position and results of operations. The tables required by the Bank of Italy are numbered in accordance with the related regulations dated 16 January 1995.
The following documents are attached to the financial statements: - Statement of changes in shareholders' equity; - Statement of cash flows; - List of properties held by the Bank.
Allowances for possible loan losses (liability caption 90) and elimination of fiscal distortions Article 7.1 (letters b and c) of Legislative Decree 37/2004, which also amended the Banking Act, repealed articles 15.3 and 39.2 of Decree 87/1992, which allowed banks to record adjustments and provisions solely for tax purposes. The repeal of these articles (involving the elimination of fiscal distortions from financial statements) means that as from the 2004 financial statements it will no longer be possible to record adjustments and provisions solely for tax purposes. In the case of Dexia Crediop S.p.A. this refers only to the allowance for possible loan losses; as a result, the allowance as of 31 December 2003 (e 280,071,698) has been eliminated from the statement of income, booking the related deferred taxation, in accordance with the regulations issued by the Bank of Italy.
Audit of the financial statements The Bank's financial statements for 2004 have been audited by Mazars & Guérard S.p.A., in accordance with article 2049-bis of the Italian Civil Code.
45
PART A - ACCOUNTING POLICIES
SECTION 1 - DESCRIPTION OF ACCOUNTING POLICIES
The Bank's financial statements are prepared in accordance with current legislation, with reference to the accounting principles applied in Italy.
The accounting policies adopted have been communicated to and, where required by law, agreed with the Board of Statutory Auditors.
Loans, guarantees and commitments Loans The capital and interest elements of loans are stated at their estimated realisable value, taking into account the solvency of borrowers and the problems in servicing debt in the countries in which they are resident. The assessment performed also takes into consideration any guarantees received and the general difficul- ties experienced by the different categories of borrowers.
Risk classifications (non-performing loans, problem loans, etc.) are determined by the Bank's Credit and Finance departments, with support from the "Credit and Operational Risk" department and approval from the Credit Committee. These departments also determine the estimated realisable value following a detailed review of loans outstanding at year-end, considering the nature of the collection problems associated with the various forms of lending and the inherent risk of default on loans that appear to be performing normally.
In particular: - non-performing loans, being loans to insolvent customers and those in similar situations, are reviewed on a detailed basis;
- problem loans, being loans to customers in temporary difficulty, are reviewed on a detailed basis;
- loans subject to country risk, being loans to customers resident in countries that have difficulty in servicing debt, are valued on an overall basis and written down using percentages that are not lower than those established by the Bank of Italy;
- performing loans, being loans to customers that do not currently present specific insolvency risks, are valued on an overall basis with reference to historical experience for the various classes of loan and similar risk coefficients applied by the banking system.
Loans are written down by reducing the stated value of the related asset.
The original value of loans is reinstated if the reasons for any writedowns cease to apply.
Guarantees and commitments Guarantees given and commitments that involve credit risk are recorded at the total value of the exposure and the related risk is assessed on the basis described above in relation to loans.
47 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Securities and "off-balance sheet" transactions (other than those in foreign currency) Investment securities Investment securities are held for the long term and are valued at cost, as adjusted by the current-year portion of accrued issue and trading discounts (being the difference between the purchase price of the securities and the related redemption value, net of issue discounts yet to mature).
Such securities are written down to reflect any lasting deterioration in the solvency of the issuers and the ability of the related nations to repay debt, except where suitable guarantees are available.
The original value of investment securities is reinstated if the reasons for any writedowns cease to apply.
Marketable securities Marketable securities, held for treasury and trading purposes, are valued at the lower of cost, determined using the daily weighted moving-average cost method, as adjusted to reflect accrued issue discounts, or their market value determined as follows:
- securities listed in organised markets: the simple average of December prices;
- securities not listed in organised markets: by comparison with the fair value of listed securities with similar characteristics, or in the absence of such securities, on the basis of objective criteria, except in relation to "illiquid" securities issued by local agencies that are not listed, which are valued at par (100%).
Securities hedged specifically by derivative contracts are valued at the lower of cost or their market value; this policy is also applied to asset-based swaps. The original value of investment securities is reinstated if the reasons for any writedowns cease to apply.
"Off-balance sheet" transactions "Off-balance sheet" transactions are used to hedge the interest-rate, exchange-rate and market risks associated with outstanding transactions; they are also arranged for broking and trading purposes.
Derivative contracts arranged specifically to hedge assets and liabilities, whether recorded in the financial statements or "off-balance sheet", are stated on a basis consistent with the assets and liabilities that they hedge. In particular, derivatives which hedge marketable securities are valued at the lower of cost or their market value (this policy also applies to asset-based swaps), while derivatives which hedge loans granted, deposits and securities issued are stated at cost. If the underlying assets or liabilities are sold or settled, but the hedging contracts are maintained in the absence of other appropriate assets or liabilities to hedge, then these hedges are reclassified as contracts held for trading purposes and valued using the accounting policies applying to this category. Commission income or expense arising on the early close-out of derivative contracts, following the rescheduling of the hedged assets or liabilities, is recorded in the statement of income to match the rescheduled transactions.
Starting from 1 January 2004, listed non-hedging derivative contracts, classified by the competent department, are booked at market value, as decided by the Board of Directors in compliance with art. 20.1b of Decree 87/92, in order to provide a fairer representation of their actual value. Listed contracts include those directly quoted on Italian or foreign organised markets as well as those whose value is linked to parameters such as prices, quotations or indices that can be found on the information circuits normally used internationally and which can in any case be established objectively. The former are
48 valued with reference to the quoted price on the last day of the period while the latter are valued at their financial value (replacement cost), taking account of the market price at which such parameters are quoted on the balance sheet date. The value of other contracts is determined using objective criteria applied on a consistent basis. Until 31 December 2003, these financial instruments were valued at the lower of cost and market value. The effects of this change on the statement of income, as required by current rules (Italian accounting principle 29 and Bank of Italy notification 166 dated 30/7/1992 and subsequent amendments), are recorded under extraordinary income for the retrospective part and under profits on financial transactions for the current part.
The results of valuing derivative contracts held for trading or hedging purposes are recorded as "profits (losses) on financial transactions".
Differentials and margins accrued on derivative contracts held for trading purposes are recorded as "profits (losses) on financial transactions".
Differentials and margins accrued on derivative contracts arranged to hedge marketable securities are recorded as interest income or expense.
Differentials and margins accrued on derivative contracts arranged to hedge loans and securities issued are recorded as interest income or expense.
Charges and income deriving from implied options relating to structured funding and hedging derivatives are, by convention, reported as "other operating expenses" and "other operating income". Unsettled contracts for the purchase or sale of securities are valued on the basis applicable to marketable securities.
Repurchase agreements and similar transactions Repurchase agreements and similar transactions that require the holder to resell the securities acquired when the agreement matures are recorded as payables and receivables. The related income and expense is recognised on an accruals basis.
Equity investments Equity investments are recorded at cost and written down to reflect any permanent losses in value considering, for example, reductions in the equity value of the companies concerned and, where applicable, market prices.
The difference between the book value of significant investments and the lower value of the interest in their latest reported shareholders' equity represents goodwill and/or the higher market value of their tangible fixed assets.
The original value of equity investments is reinstated if the reasons for any writedowns cease to apply. Dividends and the related tax credits are recorded in the year in which they are collected.
49 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Foreign currency assets and liabilities (including "off-balance sheet" transactions) Foreign currency assets and liabilities, or those in Euro indexed to foreign exchange movements, are valued using the spot exchange rates applying at year-end.
Financial fixed assets funded in Euro are stated using the historical exchange rates applying at the time of acquisition.
"Off-balance sheet" transactions denominated in foreign currency are valued using the spot exchange rates applying at year-end, in the case of spot transactions still to be settled or of forward transactions hedging assets or liabilities.
The effect of such valuations is recorded in the statement of income.
Foreign currency revenues and expenses are stated using the exchange rates applying at the time they are recorded.
Tangible fixed assets Tangible fixed assets are recorded at cost, as uplifted by any improvement costs, and stated net of accumulated depreciation.
Operating assets are depreciated on a straight-line basis over their residual useful lives. The depreciation rates applied are halved in the year of addition.
Repair and maintenance costs that do not increase the value of tangible fixed assets are expensed as incurred.
Intangible fixed assets Intangible fixed assets are recorded at cost and stated net of accumulated amortisation.
Costs related to the purchase or the development of software using external resources are generally amortised on a straight-line basis over three years, taking into account the residual period such software is expected to benefit.
Start-up and capital increase costs are expensed as incurred.
Accruals and deferrals Accruals and deferrals are recognised in accordance with the matching principle. They are not applied directly to the balance sheet accounts concerned, except in the case of income accrued on zero-coupon bonds, including Treasury bills held by the Bank.
Payables Payables are stated at their nominal value with the exception of zero-coupon bonds, which are stated at their issue value. The interest charges accumulated on securities which are compounded annually are added to the outstanding liability.
50 Provision for severance indemnities The provision for severance indemnities represents the liability to each employee at year-end, accrued in accordance with current legislation and payroll agreements.
Allowances for risks and charges Taxation The provision for taxation covers both current and deferred direct taxes.
Income taxes for the year are prudently determined on the basis of the tax regulations applying as of 31 December 2004, taking account of non-deductible items.
Deferred taxation represents the tax effect of temporary differences between taxable and reported income. In particular, in accordance with the concept of prudence, deferred tax assets are only recorded if their recovery is reasonably certain. The recording of deferred tax liabilities is subject to verification that the latent tax expense will actually be incurred in future years.
Settlement date Transactions in securities and similar instruments, foreign currency transactions and interbank deposits and loans are stated with reference to their settlement dates.
51 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 2 - ADJUSTMENTS AND PROVISIONS RECORDED SOLELY FOR TAX PURPOSES
Adjustments recorded solely for tax purposes No such adjustments have been recorded, as they were repealed by art. 7.1 (letters b and c) of Legislative Decree 37/2004.
52 PART B - NOTES TO THE BALANCE SHEET
SECTION 1 - LOANS
The Bank's loan portfolio, summarised in asset captions 10, 30 and 40 amounts to e 13,893,773 thousand, net of adjustments, and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Cash and deposits with cental banks and post offices (caption 10) 4 7 -43 Due from banks (caption 30) 386,977 626,448 -38 Loans to customers (caption 40) 13,506,792 12,294,084 +10 Total 13,893,773 12,920,539 +8
Cash and deposits with central banks and post offices (caption 10) Cash and other deposits amount to e 4 thousand and are analysed below: Euro ‘000 31-12-2004 31-12-2003 % Change Cash 3 6 -50 Deposits with central banks - - - Deposits with post offices 1 1 +0 Total 4 7 -43
Due from banks (caption 30) The amount due from banks totals e 386,977 thousand and is analysed below by type of counterparty and technical form: Euro ‘000 31-12-2004 31-12-2003 % Change Due from banks - repurchase agreements - - - - current accounts 76,478 45,170 +69 - deposits 218,188 468,981 -53 - loans 92,311 112,297 -18 - non-performing loans - - - - other - - - Total 386,977 626,448 -38
Detail of caption 30 "Due from banks" (table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) deposits with central banks 24,008 19,721 +22 b) bills eligible for refinancing with central banks - - - c) repurchase agreements - - - d) securities loaned - - -
53 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Loans to customers (caption 40) Loans to customers amount to e 13,506,792 thousand and are analysed below by technical form:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans to customers - mortgages 13,436,703 12,146,631 +11 - repurchase agreements - - - - exchange adjustments of Lire loans funded in other currencies 3,640 2,612 +39 - term deposits 66,301 144,687 -54 - non-performing loans 102 102 +0 - other 46 52 -12 Total 13,506,792 12,294,084 +10
Detail of caption 40 "Loans to customers" (table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) bills eligible for refinancing with central banks - - - b) repurchase agreements - - - c) securities loaned - - -
Secured loans to customers (table 1.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) mortgages 74,369 57,024 +30 b) pledged assets: 1.cash deposits - - - 2.securities - - - 3.other - - - c) guarantees given by: 1.governments 88,791 109,660 -19 2.other public bodies 82,599 41,473 +99 3.banks 6,218 4,483 +39 4.other 36,890 36,556 +1 Total 288,867 249,196 +16
Degree of risk in the loan portfolio The degree of risk in the loan portfolio is analysed below. These standardised tables were devised by the Bank of Italy in order to increase the transparency of banking financial statements.
Euro ‘000 31-12-2004 31-12-2003 Gross Total Net Value Gross Total Net Value Value adjustments Value adjustments A. Doubtful loans A.1. Non-performing loans 5,646 5,544 102 6,150 6,048 102 A.2. Problem loans 14,271 5,351 8,920 9,886 3,000 6,886 A.3. Loans being rescheduled ------A.4. Rescheduled loans ------A.5. Unsecured loans to customers subject to country risk ------B. Performing loans 13,893,954 9,203 13,884,751 12,934,026 20,475 12,913,551 Total 13,913,871 20,098 13,893,773 12,950,062 29,523 12,920,539
54 The changes in loans during 2004, gross of the related adjustments, are analysed as follows:
Euro ‘000 Non-performing Problem Unsecured Performing Total loans loans loans subject to loans country risk Opening gross exposure 6,150 9,886 - 12,934,026 12,950,062 Changes during the year - balance of principal and corresponding interest and default interest (a) -504 4,385 - 959,928 963,809 Write-offs during the year - via release of initial adjustments ------via a charge to the statement of income for disposals and settlements ------via a charge to the statement of income following bankruptcy proceedings - - - - - Closing gross exposure 5,646 14,271 - 13,893,954 13,913,871
(a) Net value representing new loans, increases in outstanding loans, collections during the year and transfers between loan categories.
Changes in doubtful loans (table 2 B.I.) Euro ‘000 Non-performing roblem Loans being Rescheduled Unsecured loans loans rescheduled loans loans subject to country risk A. Gross exposure as of 31/12/2003 6,150 9,886 - - - A.1 including default interest 100 - - - - B. Increases B.1 transfers from performing loans - 5,450 - - - B.2 default interest - - - - - B.3 transfers from other categories of doubtful loans - - - - - B.3.1 including default interest - - - - - B.4 other increases - - - - - C. Decreases C.1 transfers to performing loans - - - - - C.1.1 including default interest - - - - - C.2 cancellations - - - - - C.3 collections -504 -1,065 - - - C.3.1 including default interest - - - - - C.4 proceeds on disposal - - - - - C.5 transfers to other categories of doubtful loans - - - - - C.5.1 including default interest - - - - - C.6 other decreases - - - - - D. Gross exposure as of 31/12/2004 5,646 14,271 - - - D.1 including default interest 100 - - - -
55 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
The changes during the year in total adjustments to loans are analysed as follows:
Analysis of total adjustments (table 3 B.I.) Euro ‘000 Non-performing Problem Loans being Rescheduled Unsecured Performing loans loans rescheduled loans loans loans subject to country risk A. Total adjustments as of 31/12/2003 6,048 3,000 - - - 20,475 A.1 including default interest 88 - - - - - B. Increases B.1 Adjustments - 2,351 - - - - B.1.1 including default interest ------B.2 uses of allowance for possible loan losses ------B.3 transfers from other loan categories ------B.4 other increases ------C. Decreases C.1 writebacks ------11,272 C.1.1 including: default interest ------C.2 recoveries on collection -504 - - - - - C.2.1 including default interest ------C.3 cancellations ------C.4 transfers to other loan categories ------C.5 other decreases ------D. Total adjustments as of 31/12/2004 5,544 5,351 - - - 9,203 D.1 including default interest 88 - - - - -
The following tables provide information regarding non-performing loans and default interest, as required by the Bank of Italy. Reference should be made to the report on operations for further analysis of the degree of risk inherent in the loan portfolio.
Non-performing loans (Table 1.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Non-performing loans (net book value, including default interest) 102 102 +0
Default interest (Table 1.5 B.I) Euro ‘000 31-12-2004 31-12-2003 % Change a) Non-performing loans (net book value) 12 12 +0 b) Other loans (net book value) - - -
Other information regarding loan Information regarding the distribution of loans by category and location of borrower, by industry, geographic area, currency, maturity and concentration can be found in Part B, Section 11 of these explanatory notes, together with information about market share.
56 SECTION 2 - SECURITIES
Securities owned by the Bank, reported in asset captions 20, 50 and 60, total e 9,890,431 thousand, net of year-end writedowns and writebacks totalling e 719 thousand and e 62 thousand, respectively, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Treasury bills and sundry bills eligible for refinancing with central banks (caption 20) 290,544 599,744 -52 Bonds and other debt securities (caption 50) 9,599,887 6,089,189 +58 Shares, quotas and other equities (caption 60) - - - Total 9,890,431 6,688,933 +48 including: - investment securities 408,924 295,630 +38 - marketable securities 9,481,507 6,393,303 +48
Investment securities Investment securities totalling e 408,924 thousand are being held on a long-term basis as a stable investment; they comprise securities: - hedged by specific derivative contracts (asset-based swaps) e 172,642 thousand - not linked to derivative contracts e 236,282 thousand
Investment securities (table 2.1 B.1.) Euro ‘000 31-12-2004 31-12-2003 Book Market Book Market % Change value value value value Book value 1 Debt securities 1.1. government securities - listed 152,642 152,642 - - +100 - unlisted - - - - - 1.2. other securities - listed 148,088 158,371 187,677 196,924 -21 - unlisted 108,194 109,215 107,953 107,953 +0 2 Equities - listed ------unlisted - - - - - Total 408,924 420,228 295,630 304,877 +38
Comparison of the market and book values of investment securities shows: - unrealised gains of e 11.304 thousand, not recorded
Comparison of the book and redemption values of fixed-income securities revealed a gain of e 1,230 thousand that will be credited to the statement of income in accordance with the matching principle.
57 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in investment securities (table 2.2 B.1.) Euro ‘000 31-12-2004 31-12-2003 Change % A. Opening balance 295,630 287,746 +3 B. Increases B.1 purchases 152,938 7,425 n.s. B.2 writebacks - - - B.3 transfers from the trading portfolio - - - B.4 other changes 414 532 -22 C. Decreases C.1 sales - - - C.2 redemptions 40,058 56 n.s. C.3 adjustments - - - including: permanent write-downs - - - C.4 transfers to the trading portfolio - - - C.5 other changes - 17 -100 D. Closing balance 408,924 295,630 +38
Marketable securities Marketable securities held for treasury and dealing purposes total e 9,481,507 thousand, they comprise securities: - hedged by specific derivative contracts (asset-based swaps) e 4,681,816 thousand - not linked to derivative contracts e 4,799,691 thousand
Marketable securities (table 2.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 Book Market Book Market % Change value (a) value (b) value (a) value (b) Book value 1 Debt securities 1.1. government securities - listed 225,783 225,808 44,813 44,813 +404 - unlisted - - - - - 1.2. other - listed 7,557,135 7,559,260 3,963,895 3,966,063 +91 - unlisted 1,698,589 1,698,938 2,384,595 2,385,431 -29 2 Equities - listed ------unlisted - - - - - Total 9,481,507 9,484,006 6,393,303 6,396,307 +48
(a) After year-end writedowns and writebacks. (b) The market value of listed securities and any writebacks were determined with reference to their average prices for the month of December.
As shown in the table above, unrecorded, unrealised gains on marketable securities amount to e 2,499 thousand.
Writedowns and writebacks of marketable securities totalling e 719 thousand and e 62 thousand, respectively, have been recorded in the statement of income.
The valuation of asset swaps resulted in writebacks of e 338 thousand that have been credited to the statement of income.
58 The results of the above valuations are analysed below: Euro ‘000 31-12-2004 31-12-2003 Var% Losses charged Writebacks Unrealised to the credited to the gains not statement statement of credited of income income to the statement of income Securities not linked to derivative contracts 719 62 2,499 Asset-based swaps - 338 4,346 Total 719 400 6,845
Securities issued by the Bank that are being held for trading purposes amount to e 108,272 thousand.
Changes during the year in marketable securities (table 2.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 6,393,303 4,467,470 +43 B. Increases B.1 Purchases - debt securities - government securities 4,054,605 3,982,663 +2 - other 8,116,806 4,393,533 +85 - quities - - - B.2 writebacks and revaluations 62 284 -78 B.3 transfers from the investment portfolio - - - B.4 other changes 13,700 16,621 -18 C. Decreases C.1 sales and redemptions - debt securities - government securities 3,873,297 4,135,545 -6 - other 5,156,761 2,277,605 +126 - equities - - - C.2 adjustments 719 718 +0 C.3 transfers to the investment portfolio - - - C.4 other changes 66,192 53,400 +24 D. Closing balance 9,481,507 6,393,303 +48
Sub-captions B.4 “Increases - other changes” and C.4 “Decreases - other changes” are analysed as follows:
B.4 "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Net trading income 13,270 6,418 +107 Exchange differences - - - Accrued issue discounts 430 10,203 -96 Total 13,700 16,621 -18
C.4 "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Net trading losses 14,967 191 n.s. Exchange differences 51,225 53,209 -4 Total 66,192 53,400 +24
Other information regarding securities The securities portfolio is analysed by currency and degree of liquidity in Part B, Section 11 of these explanatory notes.
59 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 3 - EQUITY INVESTMENTS
Equity investments reported in asset captions 70 and 80 amount to e 81,445 thousand.
Euro ‘000 31-12-2004 31-12-2003 Var% Equity investments (caption 70) 31,430 32,102 -2 Equity investments in Group companies (caption 80) 50,015 53,613 -7 Total 81,445 85,715 -5 including: - significant investments 75,717 79,987 -5 - other holdings 5,728 5,728 +0
Significant investments Significant investments held by the Bank, being those in subsidiaries and companies subject to significant influence, as defined in arts. 4 and 19 of Decree 87/92, are analysed below:
Significant investements (table 31. B.1.) Euro ‘000 A. Subsidiaries Registered Activity Shareholders' Net income/ % Book offices equity (a) (c) loss (a) ownership value Crediop Bv in liquidation Amsterdam finance - - 100.00 - Crediop Overseas Bank Ltd Cayman Isl. banking 50,226 2,297 100.00 50,000 Dexia Crediop per la Cartolarizzazione Rome finance 15 - 100.00 15 Total 50,015
During the year, the Bank purchased from third parties a company set up under Law 130/99, now called Dexia Crediop per la Cartolarizzazione Srl, in order to carry out a securitisation transaction. This company acts as vehicle company for securitisation transactions and complies with current requirements on the matter.
Crediop B.V. was put into voluntary liquidation during the year.
Euro ‘000 B. Companies subject to Registered Activity Shareholders' Net income/ % Book significant influence offices equity (c) loss ownership value Istituto per il Credito Sportivo (b) (d) Rome banking 1,084,893 35,558 21.62 24,658 S.P.S. Spa in bankruptcy (e) Rome services - - 20.40 0 Dexia Fund Services Italia SpA (a) (f) Milan services 6,943 -3,661 20.00 1,044 Total 25,702
(a) Taken from the financial statements as of 31/12/2004; (b) Taken from the financial statements as of 31/12/2003, net of dividends distributed. (c) The value of shareholders' equity does not include the results for the year. (d) The book value of the interest in Istituto per il Credito Sportivo, e 24,658 thousand, reflects its appraised value at the time of conferral by Istituto Bancario San Paolo di Torino SpA in January 1996. The 2004 Finance Act, which has broadened the tasks and objects of the bank, envisages directives to be issued by the Ministry of Culture and the Ministry of Finance regarding, inter alia, the procedures and criteria for the disposal of individual equity interests. At the beginning of 2005 work started on preparing the new articles of association that will be submitted to the approval of the Bank of Italy and the relevant Ministries. At the time of preparing these financial statements it was decided not to alter the book value of this holding. (e) The value of S.P.S. S.p.A. in bankruptcy was written off with reference to its financial statements as of 31/12/1995; considering the professional opinions obtained, no further charges are expected. (f) A contract for the sale of the investment in Dexia Fund Services Italia S.p.A. was signed during the year. The terms of the agreement provide for a price not lower than the current book value, meaning that the book value has not been adjusted.
60 Other holdings
Euro ‘000 Name Registered Activity% Book offices ownership value Agenzia Regionale per il Recupero Edilizio Spa Genoa non-finance 5.13 0 Centro Agro Alimentare Bologna - Caab Scpa Bologna non-finance 0.38 0 Centro Agro Alimentare di Napoli - Caan Scpa Naples non-finance 0.07 0 Centro Agro Alimentare Torino - Caat Spa Turin non-finance 1.35 0 Consorzio Mercato Agricolo di Bari in liquidation Bari non-finance 2.43 0 European Investment Fund Luxembourg banking 0.50 2,000 Europolis Invest Sa Paris finance 7.00 25 Ferfina Spa Rome non-finance 5.00 3,703 Interporto Campano Spa Naples non-finance 0.09 0 Interporto di Bologna Spa Bologna non-finance 1.13 0 Interporto di Padova Spa Padua non-finance 6.22 0 Sace Spa - Società Aeroporto Cerrione Cerrione non-finance 2.23 0 Total 5,728
Analysis of equity investments
Analysis of caption 80 “Equity investments in Group companies” (table 3.5 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) in banks 1. listed - - - 2. unlisted 50,000 50,000 +0 b) in financial institutions 1. listed - - - 2. unlisted 15 3,613 -100 c) other 1. listed - - - 2. unlisted - - - Total 50,015 53,613 -7
Analysis of caption 70 “Equity investments” (table 3.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) in banche 1. listed - - - 2. unlisted 26,658 26,658 +0 b) in financial institutions 1. listed - - - 2. unlisted 25 25 +0 c) altre 1. listed - - - 2. unlisted 4,747 5,419 -12 Total 31,430 32,102 -2
61 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in equity investments
Investments in Group companies (table 3.6 B.1.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 53,613 54,786 -2 B. Increases B1. purchases 15 50,000 -100 B2. writebacks - - - B3. revaluations - - - B4. other changes 62 11,724 -99 C. Decreases C1. sales - 60,557 -100 C2. adjustments - - - C3. other changes 3,675 2,340 +57 D. Closing balance 50,015 53,613 -7
31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments - - -
Sub-caption B4. “Increases - other changes” is analysed as follows:
B4 "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Gains on the disposal of financial fixed assets 62 57 +9 Exchange differences - 11,667 -100 Total 62 11,724 -99
Sub-caption C3. “Decreases - other changes” is analysed as follows:
C3 "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Transfers to caption 70 - 2,340 -100 Total - 2,340 -100
Other equity investments (table 3.6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 32,102 30,386 +6 B. Increases B1. purchases - - - B2. writebacks - - - B3. revaluations - - - B4. other changes 2,551 2,470 +3 C. Decreases C1. sales 3,223 130 n.s. C2. djustments - 624 -100 including: - permanent writedowns - 624 -100 C3. other changes - - - D. Closing balance 31,430 32,102 -2
31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments 5,234 6,897 -24
62 Sub-caption B4. “Increases - other changes” is analysed as follows:
B4 "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Realised gains on the disposal of financial fixed assets 2,551 130 n.s. Transfers from caption 80 - 2,340 -100 Total 2,551 2,470 +3
Sub-caption C3. “Decreases - other changes” is analysed as follows:
C3 "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Realised losses on the disposal of financial fixed assets - - - Total - - -
Total revaluations and adjustments, shown above, include all the revaluations and adjustments recorded over time in relation to equity investments held at year-end.
63 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes in the portfolio of equity investments during the year are detailed below:
Euro ‘000 Name Opening Purchases Sales Other Exchange Adjustments Writebacks Gains and Closing balance and changes differences losses on balance subscriptions disposals Equity investments in Group companies (caption 80)
Crediop Bv in liquidation 3,613 - - 3,675 - - - 62 - Crediop Overseas Bank Ltd 50,000 ------50,000 Dexia Crediop per la Cartolarizzazione - 15 ------15 Total 53,613 15 - 3,675 - - - 62 50,015
Equity investments (caption 70)
Dexia Fund Services Italia SpA 1,716 - 2,601 - - - - 1,929 1,044 Agenzia Regionale per il Recupero Edilizio Spa 0 ------0 C.e.p.i.m. - Centro Padano Interscambio Merci Spa 0 - 436 - - - - 436 0 Centro Agro Alimentare Bologna - Caab Scpa 0 ------0 Centro Agro Alimentare di Napoli - Caan Scpa 0 ------0 Centro Agro Alimentare Torino - Caat Spa 0 ------0 Collegamenti Integrati Veloci C.I.V. Spa 0 - 174 - - - - 174 0 Consorzio Mercato Agricolo di Bari in liquidation 0 ------0 European Investment Fund 2,000 ------2,000 Europolis Invest Sa 25 ------25 Ferfina Spa 3,703 ------3,703 Geac SpA (formerly Aeroporto Cuneo Levaldigi Spa) 0 ------0 Interporto Campano Spa 0 ------0 Interporto di Bologna Spa 0 ------0 Interporto di Padova Spa 0 ------0 Istituto per il Credito Sportivo 24,658 ------24,658 Italconsult Spa ------M.i.a.c. - Mercato Ingrosso Agro-Alimentare Cuneo Scpa 0 - 12 - - - - 12 0 S.P.S. Spa in bankruptcy 0 ------0 Sace Spa - Società Aeroporto Cerrione 0 ------0 Total 32,102 - 3,223 - - - - 2,551 31,430 Grand total 85,715 15 3,223 3,675 - - - 2,613 81,445
64 Amounts due to and from Group companies and investments (non-Group companies) The following tables show amounts due to and from companies within the Dexia Crediop Group, as defined by art. 4 of Decree 87/92, as well as amounts due to and from non-Group companies:
Amounts due to and from Group companies (table 3.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets 1. due from banks - - - including: - subordinated - - - 2. due from financial institutions 50,200 - +100 including: - subordinated - - - 3. due from other customers - - - including: - subordinated - - - 4. bonds and other debt securities 3,000 - +100 including: - subordinated 3,000 - +100 Total assets 53,200 - +100 b) Liabilities 1. due to banks 3,790,850 4,164,639 -9 2. due to financial institutions 50,000 - +100 3. due to other customers - - - 4. securities issued - - - 5. subordinated liabilities - - - Total liabilities 3,840,850 4,164,639 -8 c) Guarantees and commitments 1. guarantees given 4,742,734 4,013,846 +18 2. commitments - - - Total guarantees and commitments 4,742,734 4,013,846 +18
65 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Amounts due to and from investments (in non-Group companies) (table 3.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets 1. due from banks 91,867 105,189 -13 including - subordinated - - - 2. due from financial institutions - - - including - subordinated - - - 3. due from other customers - - - including - subordinated - - - 4. bonds and other debt securities - - - including - subordinated - - - Total assets 91,867 105,189 -13 b) Liabilities 1. due to banks - - - 2. due to financial institutions - - - 3. due to other customers 1,500 3,201 -53 4. securities issued - - - 5. subordinated liabilities - - - Total liabilities 1,500 3,201 -53 c) Guarantees and commitments 1. guarantees given - - - 2. commitments - - - Total guarantees and commitments - - -
Revenues and expenses relating to transactions with Group and non-Group companies are analysed in Part C, Section 7 of these explanatory notes.
Other information regarding equity investments The report on operations provides a detailed description of the Bank's relations with companies held as equity investments.
66 SECTION 4 - TANGIBLE AND INTANGIBLE FIXED ASSETS
Tangible and intangible fixed assets, reported in asset captions 100 and 90 total e 38,373 thousand, net of accumulated depreciation and amortisation amounting to e 29,845 thousand, including e 4,022 thousand charged during the year, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Tangible fixed assets (caption 100) 35,783 52,581 -32 Intangible fixed assets (caption 90) 2,590 2,678 -3 Total 38,373 55,259 -31
Tangible fixed assets (caption 100) Tangible fixed assets total e 35,783 thousand, net of accumulated depreciation amounting to e 16,188 thousand, including e 1,631 thousand charged during the year, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Property - operating 34,919 52,017 -33 - non-operating 52 54 -4 Furniture and installations - office furniture and equipment 484 132 +267 - furnishings 7 9 -22 - electronic equipment 6 17 -65 - general and specific installations 315 352 -11 Total 35,783 52,581 -32
Changes during the year in tangible fixed assets (Table 4.1 B.I) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 52,581 53,081 -1 B. Increases B1. purchases 1,069 1,138 -6 B2. writebacks - - - B3. revaluations - - - B4. other changes 5,810 1 n.s. C. Decreases C1. disposals 22,040 - +100 C2. adjustments a) depreciation 1,631 1,639 -0 b) permanent writedowns - - - C3. other changes 6 - +100 D. Closing balance 35,783 52,581 -32
Euro ‘000 31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments a) accumulated depreciation 16,188 18,238 -11 b) permanent writedowns - - -
67 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in tangible fixed assets are detailed below:
Euro ‘000 Property Furniture and equipment Opening balance 52,071 510 Increases - purchases 554 515 - writebacks - - - revaluations - - - other changes - gains on disposals 5,810 - - other - - Decreases - disposals 22,040 - - adjustments - depreciation 1,424 207 - permanent writedowns - - - other changes - losses on disposals - - - other - 6 Closing balance 34,971 812
Total revaluations - - Total adjustments - accumulated depreciation 12,803 3,385 - permanent writedowns - -
Total revaluations and adjustments, shown above, include all revaluations and adjustments recorded over time relating to tangible fixed assets held at year-end. Gains on disposals relate to the sale of a non-operating property in Rome.
Intangible fixed assets (caption 90) Intangible fixed assets total e 2,590 thousand, net of accumulated amortisation of e 2,391 thousand charged during the year and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Software 2,590 2,678 -3 Start-up and capital increase costs - - - Total 2,590 2,678 -3
68 Changes during the year in intangible fixed assets (Table 4.2 B.I) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 2,678 1,328 +102 B. Increases B1. purchases 2,377 3,123 -24 B2. writebacks - - - B3. revaluations - - - B4. other changes - - - C. Decreases C1. disposals - - - C2. adjustments a) amortisation 2,391 1,773 +35 b) permanent writedowns - - - C3. other changes 74 - +100 D. Closing balance 2,590 2,678 -3
Euro ‘000 31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments a) accumulated amortisation 13,657 11,307 +21 b) permanent writedowns - - -
Changes during the year in intangible fixed assets are detailed below:
Euro ‘000 Start-up Software and capital increase costs Opening balance - 2,678 Increases - purchases - 2,377 - writebacks - - - revaluations - - - other changes - - Decreases - sales - - - adjustments - amortisation - 2,391 - permanent writedowns - - - other changes - 74 Closing balance - 2,590
Total revaluations - - Total adjustments - accumulated amortisation - 13,657 - permanent writedowns - -
Total revaluations and adjustments, shown above, include all revaluations and adjustments recorded over time relating to intangible fixed assets not fully amortised at year-end.
69 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 5 - OTHER ASSETS
Asset captions 130 and 140 total e 1,695,070 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Other assets (caption 130) 329,202 415,294 -21 Accrued income and prepaid expenses (caption 140) 1,365,868 1,016,379 +34 Total 1,695,070 1,431,673 +18
Other assets (caption 130)
Analysis of caption 130 "Other assets" (table 5.1 B.1.) Euro ‘000 31-12-2004 31-12-2003 % Change Due from tax authorities - advance payment of current taxes 38,877 30,670 +27 - withholding tax paid during the year 106 1,625 -93 - other tax credits 776 740 +5 Effect of off-balance sheet transactions 204,574 332,896 -39 Valuation of derivative contracts 20,204 - +100 Amounts relating to trading in securities 3,205 320 +902 Deferred tax assets 4,286 4,424 -3 Other 57,174 44,619 +28 Total 329,202 415,294 -21
These assets have not been subjected to writedowns since they are fully collectible.
70 Accrued income and prepaid expenses (caption 140)
Analysis of caption 140 "Accrued income and prepaid expenses" (table 5.2 B.1.) Euro ‘000 31-12-2004 31-12-2003 % Change Accrued income - income from derivative contracts 476,624 375,034 +27 - interest on loans to customers 60,339 31,089 +94 - interest on securities 74,691 29,619 +152 - bank interest 631 456 +38 Prepaid expenses - charges on derivative contracts 243,895 242,636 +1 - commissions on placement of securities 170,211 94,491 +80 - issue discounts 143,244 101,714 +41 - commissions relating to funding 45,157 20,150 +124 - commissions on securities portfolio 35,034 - +100 - commissions on mortgages 89,271 70,584 +26 - advance interest on mortgages 26,723 48,721 -45 - other 48 1,885 -97 Total 1,365,868 1,016,379 +34
Adjustments for accrued income and prepaid expenses (table 5.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Asset captions 17,752 26,017 -32 b) Liability captions - - -
The amount of e 17,752 thousand relates solely to accrued interest on zero-coupon bonds.
Distribution of subordinated assets (table 5.4 B.1.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Due from banks - - - b) Loans to customers - - - c) Bonds and other debt securities 87,434 84,391 +4 Total 87,434 84,391 +4
71 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 6 - FUNDING
The Bank's total funding reported in liability captions 10, 20 and 30 amounts to e 23,155,312 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Due to banks (caption 10) 12,367,520 12,563,233 -2 Customers' deposits (caption 20) 1,365,405 930,415 +47 Securities issued (caption 30) 9,422,387 5,372,290 +75 Total 23,155,312 18,865,938 +23
Due to banks (caption 10) Funding from banks totals e 12,367,520 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Due to central banks - repurchase agreements 4,150,001 1,450,001 +186 - current accounts 633 - +100 Due to banks - repurchase agreements 668,304 17,355 n.s. - current accounts - 8,161 -100 - deposits 123,350 2,786,290 -96 - loans 7,425,232 8,301,426 -11 - other - - - Total 12,367,520 12,563,233 -2
Detail of “Due to banks” (table 6.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Repurchase agreements 4,818,305 1,467,356 +228 b) Securities borrowed - - -
72 Customers' deposits and securities issued (captions 20 and 30) Direct funding from customers, comprising customers' deposits (caption 20) and securities issued (caption 30), totals e 10,787,792 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Customers' deposits - repurchase agreements 182,930 118,071 +55 - deposits for loans in the process of being distributed 20,775 28,301 -27 - time deposits - - - - asset management 21 1 n.s. - other 1,161,680 784,042 +48 Securities issued - bonds 9,422,124 5,372,028 +75 - certificates of deposit 262 262 +0 - other - - - Total 10,787,792 6,302,705 +71
Detail of “Customers' deposits” (table 6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Repurchase agreements 182,930 118,071 +55 b) Securities borrowed - - -
Securities issued include those due for repayment totalling e 2,481 thousand.
Other information regarding funding Information relating to the distribution of funding by category and location of customer, by industry, geographic area, currency, maturity and concentration is shown in Part B, Section 11 of these explanatory notes.
73 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 7 -ALLOWANCES
Allowances which do not adjust assets accounts, reported in liability captions 70, 80 and 90, total e 202,636 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Provision for severance indemnities (caption 70) 4,592 6,311 -27 Allowance for risks and charges (caption 80) - taxation (caption 80.b) 186,381 52,416 +256 - other (caption 80.d) 11,663 12,647 -8 Allowance for possible loan losses (caption 90) - 280,072 -100 Total 202,636 351,446 -42
Provision for severance indemnities (caption 70)
Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 6,311 6,172 +2 Increases - provisions 939 916 +3 - other increases - - - Decreases - payments during the year 1,028 739 +39 - other decreases 1,630 38 n.s. Closing balance 4,592 6,311 -27
Allowance for risks and charges (caption 80)
Taxation (caption 80.b) Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 52,416 35,569 +47 Increases - provisions for current income taxes 35,161 52,134 -33 - provisions for deferred tax liabilities 134,915 - +100 - provisions for current indirect taxes 350 387 -10 Decreases - payment of prior year income taxes 36,230 34,251 +6 - release of deferred tax liabilities 25 374 -93 - payment of prior year indirect taxes 206 1,049 -80 Closing balance 186,381 52,416 +256
Changes in deferred tax assets and liabilities are reported in tables A and B respectively.
Deferred taxation The Bank of Italy's ruling dated 3 August 1999 specified requirements for the accounting treatment of deferred taxation which have been applied commencing from the 1999 financial statements. Specifically, in accordance with the concept of prudence, deferred tax assets are only recorded where there is reasonable certainty of their recoverability, while the recording of deferred tax liabilities is subject to verification that the latent tax charge will actually be incurred.
74 Given this, with regard to 2004, the deductible timing differences recorded comprise the fifteenths of entertaining expenses incurred in 2004, the losses on equity investments deductible over five years pursuant to Decree 209/02, the provisions to early-retirement plans (termination incentives); the taxable timing differences arising in the year comprise the gains on the disposal of financial fixed assets that contributed to net income in prior years, but which are taxed over a period of five years (until 2006). The tax rate used to estimate IRES corporate taxation is 33% for 2005 and subsequent years; while the rate in relation to IRAP regional taxation is 5.25% for 2005 and subsequent years (taking account of the 1% increase established in Regional Law 34 dated 13 December 2001).
Table A - Deferred tax assets Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance 4,424 7,549 -41 2. Increases 2.1 Deferred tax assets arising during the year 988 535 +85 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax assets cancelled during the year 1,120 3,545 -68 3.2 Other decreases 6 115 -95 4. Closing balance 4,286 4,424 -3
Deferred tax assets reflect the tax effect of deductible timing differences. The deferred tax assets cancelled during the year mainly relate to the disposal of charges associated with lending transactions and utilisation of part of the provisions made to the early-retirement plans.
Table B - Deferred tax liabilities Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance 76 450 -83 2. Increases 2.1 Deferred tax liabilities arising during the year 134,915 - +100 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax liabilities cancelled during the year 25 362 -93 3.2 Other decreases - 12 -100 4. Closing balance 134,966 76 n.s.
Deferred tax liabilities represent taxes on timing differences relating to deferred capital gains arising on the sale of equity investments, credited to the statement of income, that will be paid when such gains become taxable. During the year deferred tax liabilities of e 107,127 thousand also arose on the reversal of the allowance for possible loan losses (e 280,071 thousand) to extraordinary income, following the new regulations requiring the elimination of fiscal distortions. This caption also includes deferred tax liabilities of e 26,010 thousand on the provision for possible loan losses made for tax but not recorded in the books in accordance with art. 109 4b of the Tax Consolidation Act.
75 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Other allowances (caption 80.c)
Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 12,647 20,449 -38 Increases 1,819 2,152 -15 Decreases 2,803 9,954 -72 Closing balance 11,663 12,647 -8
This allowance relates to future charges relating to the supplementary in-house payroll agreement, early-retirement plans (termination incentives) and potential liabilities.
Allowance for possible loan losses (caption 90) The entire balance of this allowance at 31 December 2003, consisting of provisions booked solely for tax purposes, was released to extraordinary income, in compliance with the regulations on eliminating fiscal distortions, as mentioned earlier in these notes.
Analysis of caption 90 “Allowance for possible loan losses” (table 7.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Default interest due - - - Other provisions - 280,072 -100
Changes during the year in the "Allowance for possible loan losses" (table 7.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 280,072 337,590 -17 B. Increases B1. provisions - 68,860 -100 B2. other changes - - - C. Decreases C1. releases (losses) - 822 -100 C2. other changes 280,072 125,556 +123 D. Closing balance - 280,072 -100
Sub-caption C2 "Decreases - other changes" comprises:
C2 "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Transfer to out-of-period income for transfer of the reserve for general banking risks - 125,556 -100 Transfer to out-of-period income in statement of income (elimination of fiscal distortions) 280,072 - +100 Total 280,072 125,556 +123
76 SECTION 8 - SHARE CAPITAL, EQUITY RESERVES AND SUBORDINATED LIABILITIES
Shareholders' equity reported in equity captions 100, 120, 140,160 and 170 totals e 889,625 thousand.
Euro ‘000 31-12-2004 31-12-2003 % Change Shareholders' equity - reserve for general banking risks (caption 100) 125,556 125,556 +0 - share capital (caption 120) 450,210 450,210 +0 - reserves (caption 140) - legal reserve 40,775 34,175 +19 - statutory reserve - - - - retained earnings (caption 160) 1,580 78 n.s. - net income for the year (caption 170) 271,504 131,997 +106 Total shareholders' equity 889,625 742,016 +20 Subordinated liabilities (caption 110) - - -
The Bank does not own, nor did it own at any time during the year, any of its own shares.
Shareholders' equity
Share capital (caption 120) Share capital amounts to e 450,210,000 and is represented by 174,500,000 issued and fully-paid ordinary shares, par value e 2.58 each.
Other information regarding shareholders' equity The statement of changes in shareholders' equity during the year is attached.
77 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Stockholders' equity and regulatory capital The Bank's solvency ratio, based on the ratio of regulatory capital to the related weighted assets (e 2,721,386), is 30.09% at the end of the year compared with the 7% minimum required for banks belonging to a banking Group. Shareholders' equity and the prudent regulatory requirements are analysed below, using the standard formats prepared by the Bank of Italy in order to enhance the transparency of banking financial statements.
Euro ‘000 31-12-2004 31-12-2003 % Change A. Regulatory capital A1. ier 1 843,410 615,443 +37 A2. Tier 2 - 46,934 -100 A3. Elements to be deducted 24,658 24,658 +0 A4. Regulatory capital 818,752 637,719 +28 B. Prudent regulatory requirements B1. Credit risk 190,497 180,905 +5 B2. Market risk 168,044 120,428 +40 - including: - risks relating to the trading portfolio 168,044 120,428 +40 - exchange risks - - - B2.1 Third-level subordinated loans - - - B3. Other prudent requirements - - - B4. Total prudent requirements 358,541 301,333 +19 C. Risk-weighted assets and regulatory ratios C1. Risk-weighted assets (1) 5,122,012 4,304,754 +19 C2. Tier 1 capital/Risk-weighted assets 16.47% 14.30% +15 C3. Regulatory capital/Risk-weighted assets 15.98% 14.81% +8
(1) Total prudent requirements multiplied by the reciprocal of the minimum ratio for credit risk (e 358,541 * 1/7).
78 SECTION 9 - OTHER LIABILITIES
Liability captions 50 and 60 total e 1,351,519 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Other liabilities (caption 50) 303,982 473,726 -36 Accrued expenses and deferred income (caption 60) 1,047,537 748,993 +40 Total 1,351,519 1,222,719 +11
Other liabilities (caption 50)
Analysis of caption 50 “Other liabilities” (table 9.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Valuation of derivative transactions 141 4,780 -97 Valuation of "off-balance sheet" transactions 216,087 406,855 -47 Amounts available to third parties 853 1,380 -38 Effect of transactions in securities - - - Due to tax authorities 8,589 4,872 +76 Due to suppliers and consultants 7,061 7,051 +0 Due to employees 6,048 5,075 +19 Premiums collected on options sold - - - Other 65,203 43,713 +49 Total 303,982 473,726 -36
Accrued expenses and deferred income (caption 60)
Analyses of caption 60 “Accrued expenses and deferred income” (table 9.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Accrued expenses - charges on derivative contracts 264,326 193,867 +36 - interest on securities issued 122,178 87,743 +39 - interest on amounts due to banks 223,974 192,082 +17 - interest on customers' deposits 1,576 1,632 -3 Deferred income - income from derivative contracts 433,875 262,309 +65 - interest on loans 429 9,724 -96 - income from rentals 20 33 -39 - premiums on securities 254 213 +19 - premiums on other funding 905 1,390 -35 Total 1,047,537 748,993 +40
Adjustments for accrued expenses and deferred income (table 9.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Liability captions - - - b) Asset captions - - -
79 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 10 - GUARANTEES AND COMMITMENTS
Balance sheet captions 10 and 20 relate to the Bank's guarantees and commitments that involve credit risk and total e 17,777,023 thousand. These are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Guarantees (caption 10) 10,757,504 9,213,522 +17 Commitments (caption 20) 7,019,519 9,169,979 -23 Total 17,777,023 18,383,501 -3
Guarantees (caption 10)
Analysis of caption 10 “Guarantees given” (table 10.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Commercial guarantees 5,802,440 4,840,375 +20 b) Financial guarantees 4,955,064 4,373,147 +13 c) Assets lodged as guarantee - - - Total 10,757,504 9,213,522 +17
Financial guarantees mainly relate to e 4,742,734 thousand for guarantees given to Crediop Overseas Bank Ltd. for bond issues and to Dexia Crediop per la Cartolarizzazione srl for the issue of Asset Backed Securities.
Commitments (caption 20)
Analysis of caption 20 “Commitments” (table 10.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Commitments to grant finance (certain to be called on) 540,845 449,616 +20 b) Commitments to grant finance (not certain to be called on) 6,478,674 8,720,363 -26 Total 7,019,519 9,169,979 -23
Firm commitments that may or may not be called on are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Deposits and loans to be made - - - Mortgages 6,296,179 8,587,864 -27 Commitments to the interbank deposit guarantee fund - 4 -100 Commitments regarding equity investments 8,000 8,000 +0 Purchase of securities 332,495 132,499 +151 Credit derivatives 382,845 441,612 -13 Total 7,019,519 9,169,979 -23
Assets lodged to guarantee liabilities
(table 10.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Securities lodged with third parties to guarantee repurchase agreements 4,930,248 1,595,695 +209 Securities lodged with central banks to guarantee advances 219,669 433,477 -49 Securities pledged to guarantee interbank loans 903,116 711,385 +27 Loans pledged to guarantee interbank loans - - - Total 6,053,033 2,740,557 +71
80 Unused lines of credit
(table 10.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Central banks 24,008 19,721 +22 b) Other banks 554,603 733,536 -24 Total 578,611 753,257 -23
Forward transactions Forward transactions outstanding at year end, excluding trading on behalf of third parties, total e 84,517,562 thousand and are analysed below:
(table 10.5 B.I.) Euro ‘000 Hedging Trading Other Total 1. Purchase/sale of 1.1 Securities - purchases - 150,000 - 150,000 - sales - - - - 1.2 Foreign currency - currency against currency - - - - - purchases against Euro 205,149 - - 205,149 - sales against Euro - - - - 2. Deposits and loans - to be made - - - - - to be received - 52,911 - 52,911 3. Derivative contracts 3.1 With exchange of capital a) securities - purchases - 182,495 - 182,495 - sales - 42,500 - 42,500 b) foreign currency - currency against currency - - - - - purchases against Euro 396,085 - - 396,085 - sales against Euro 685,949 - - 685,949 c) other instruments - purchases - - - - - sales - - - - 3.2 Without exchange of capital a) foreign currency - currency against currency - - - - - purchases against Euro - - - - - sales against Euro - - - - b) other instruments - purchases 25,572,875 8,355,547 273,469 34,201,891 - sales 38,016,001 8,825,231 1,759,350 48,600,582 Total 64,876,059 17,608,684 2,032,819 84,517,562
Derivative contracts include implicit options, totalling e 3,744,359 thousand linked to structured funding transactions whose market risk is hedged by derivative contracts arranged with other counterparties that are reported at their notional value. Trading transactions include e 5,140,551 thousand in derivatives hedging asset based swaps. Basis swaps amounting to e 15,506,216 thousand are included among derivatives contracts based on other instruments without the movement of funds and as both purchases and sales.
81 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Analysis of derivative contracts and forward exchange transactions
Notional amounts Euro ‘000 Interest Exchange Share Precious Other rates rates prices metals Trading contracts - unlisted - Forwards ------Swap 11,460,502 - - - - - Option purchased 690,228 - 87,798 - - - Options sold 1,126,765 - 1,095,925 - 7,500 - listed - Futures purchased ------Futures sold ------Option purchased ------Options sold - - - - - Total trading contracts 13,277,495 - 1,183,723 - 7,500 Total non-trading contracts 51,875,503 1,287,184 1,169,530 - 7,500 Grand total 65,152,998 1,287,184 2,353,253 - 15,000
Notional amounts, market value and add ons Euro ‘000 Interest Exchange Share Precious Other rates rates prices metals Notional amounts 65,152,998 1,287,184 2,353,253 - 15,000 Market value of trading contracts - positive 259,733 - - - - - negative 239,439 - - - - Add ons - - - - - Market value of non-trading contracts - positive 788,119 61,504 - - - - negative 1,612,803 64,126 - - - Add ons 296,807 143,129 183,881 - 1,800
The market value of hedging and trading derivatives has been calculated using the criteria laid down by the regulatory authorities for the calculation of the solvency ratio. The market values shown in the above table derive from applying such criteria and include accrued income and expense, as well as the effect of revaluing the notional amounts of cross- currency interest-rate swaps using spot rates. The add ons (only determined in the presence of credit risk) applicable to basis swaps were equal to zero.
82 Residual maturity of notional amounts Euro ‘000 Up to 12 Between Over months 1 and 5 5 years years Interest-rate derivatives 23,960,222 17,805,145 23,387,631 Exchange-rate derivativesi 278,277 457,642 551,265 Share price derivatives 728,953 1,114,300 510,000 Precious metals - - - Other - 15,000 -
Credit quality of derivative contracts, by type of counterparty Euro ‘000 Positive Add ons Equivalent market credit risk (a) value current value Governments, central banks and EU - - - Banks 935,231 519,161 1,454,392 Public bodies 100,729 10,421 111,150 Other 73,396 96,035 169,431 Total 1,109,356 625,617 1,734,973
(a) Includes equivalent credit risk for contracts with an original duration of no more than 14 days.
Credit derivatives
(table 10.6 B.I.) Euro ‘000 Trading Other transactions 1. Purchases of protection 1.1. With exchange of capital Credit Linked Notes - 382,845 1.2. Without exchange of capital - - 2. Sales of protection 2.1. With exchange of capital Credit default swap - 382,845 2.2. Without exchange of capital - -
Derivative transactions consist, on the one hand, of the issue of credit-linked notes by Crediop Overseas Bank Ltd. to pro- tect against credit risk and, on the other, of the arrangement of interest-rate derivative contracts which include a "credit event" clause which is identical and opposite to that included in the notes.
Other information regarding guarantees The classification of guarantees given by category of counterparty is shown in Part B, Section 11 of these explanatory notes, while forward transactions related to trading on behalf of third parties are described in Part B, Section 12.
83 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 11 - CONCENTRATION AND DISTRIBUTION OF ASSETS AND LIABILITIES
Significant exposures Year end exposures, calculated by weighting risk-bearing assets due from individual customers or groups of customers linked either economically or legally, that exceed 10% of regulatory capital and that are therefore defined as “significant risks" in accordance with the established requirements of the Bank of Italy, are shown below:
(table 11.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Total 1,742,774 1,821,464 -4 b) Number 14 18 -22
Distribution of loans to customers by principal category of borrower Loans to customers are distributed as follows:
(table 11.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Governments 7,588,634 5,805,256 +31 b) Other public bodies 4,954,774 5,233,551 -5 c) Non-financial companies 844,915 1,161,459 -27 d) Financial institutions 50,200 - +100 e) Family businesses - - - f) Other operators 68,269 93,818 -27 Total 13,506,792 12,294,084 +10
Distribution of loans to resident non-financial and family businesses The distribution by industry of loans to non-financial and family businesses resident in Italy is as follows:
(table 11.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Services linked to transport 187,592 368,389 -49 b) Energy products 333,931 359,978 -7 c) Telecommunication services 84,208 184,315 -54 d) Other commercial services 177,720 109,961 +62 e) Construction and public works 53,852 88,314 -39 f) Sea and air transportation - - - g) Other sectors 7,612 50,502 -85 Total 844,915 1,161,459 -27
84 Distribution of guarantees granted to principal categories of counterparty The guarantees given by the Bank are classified by the principal categories of counterparty below:
(table 11.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Governments - - - b) Other public bodies 100,000 - +100 c) Banks 9,408,532 8,854,222 +6 d) Non-financial companies 107,330 359,300 -70 e) Financial institutions 1,141,642 - +100 f) Family businesses - - - g) Other operators - - - Total 10,757,504 9,213,522 +17
Geographic distribution of assets and liabilities The geographic distribution of assets and liabilities is analysed below by counterparties' country of residence:
(table 11.5 B.I. ) Euro ‘000 Italy Other EU Other Total countries countries 1. Assets 1.1 due from banks 345,483 41,020 474 386,977 1.2 loans to customers 13,391,450 89,729 25,613 13,506,792 1.3 securities 9,557,169 282,867 50,395 9,890,431 Total 23,294,102 413,616 76,482 23,784,200 2. Liabilities 2.1 due to banks 4,510,204 952,846 6,904,470 12,367,520 2.2 customers' deposits 1,045,389 320,016 - 1,365,405 2.3 securities issued 7,032,333 2,240,982 149,072 9,422,387 2.4 other - - - - Total 12,587,926 3,513,844 7,053,542 23,155,312 3. Guarantees and commitments 9,157,656 684,608 7,934,759 17,777,023
85 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
The distribution of the residual maturities of assets and liabilities is shown below:
(table 11.6 B.I.) Euro ‘000 Specified maturities Unspeciefied maturities Total On demand Up to 3 Between 3 Between 1 and 5 years Beyond 5 years months and 12 months Fixed Floating Fixed Floating rate rate rate rate 1. Assets 1.1 treasury bills eligible for refinancing - 2,718 10,458 52,354 21,746 129,872 73,396 - 290,544 1.2 due from banks 172,996 48,170 69,353 42,469 29,981 - - 24,008 386,977 1.3 loans to customers 70,770 328,212 1,172,447 2,842,243 1,356,235 4,558,345 3,170,367 8,173 13,506,792 1.4 bonds and other debt securities 289 93,834 483,748 649,269 1,526,039 3,203,297 3,643,411 - 9,599,887 1.5 "off-balance sheet" transactions 1,366,331 17,864,907 28,920,720 5,455,912 3,547,890 6,651,637 2,630,547 - 66,437,944 Total assets 1,610,386 18,337,841 30,656,726 9,042,247 6,481,891 14,543,151 9,517,721 32,181 90,222,144 2. Liabilities 2.1 due to banks 51,915 5,008,189 1,048,642 652,669 1,939,211 1,296,646 2,370,248 - 12,367,520 2.2 customers' deposits 862,460 310,763 192,182 - - - - - 1,365,405 2.3 securities issued: – bonds 2,219 20,000 275,055 144,209 5,429,132 298,692 3,252,817 - 9,422,124 – certificates of deposit 262 ------262 – other ------2.4 subordinated liabilities ------2.5 "off-balance sheet" transactions 499,570 24,709,841 21,230,325 5,839,531 1,635,370 11,326,525 1,196,782 - 66,437,944 Total liabilities 1,416,426 30,048,793 22,746,204 6,636,409 9,003,713 12,921,863 6,819,847 - 89,593,255
Assets and liabilities denominated in foreign currency The Bank's foreign currency assets and liabilities are analysed below:
(table 11.7 B.I. ) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets 1. due from banks 19,838 42,982 -54 2. loans to customers 13,802 20,586 -33 3. securities 669,856 526,072 +27 4. equity investments - - - 5. other - - - Total assets 703,496 589,640 +19 b) Liabilities 1. due to banks 519,126 629,509 -18 2. customers' deposits - - - 3. securities issued 171,603 82,010 +109 4 other - - - Total liabilities 690,729 711,519 -3
The principal spot exchange rates as of 31/12/2004 used to translate the Bank's foreign currency assets and liabilities are shown below, in comparison with the rates as of 31/12/2003.
Euro ‘000 31-12-2004 31-12-2003 % Change US dollar 1.362 1.263 +8 Swiss franc 1.543 1.558 -1 Pound sterling 0.705 0.705 +0 Japanese yen 139.650 135.050 +3
86 Analysis of credit derivatives by principal categories of counterparty
Euro ‘000 31-12-2004 31-12-2003 % Change a) Banks 208,494 243,493 -14 b) Financial institutions 174,351 198,119 -12 c) Other operators - - - Total 382,845 441,612 -13
Securitisation transactions Own securitisation transactions During the year, the Bank purchased from third parties a company set up under Law 130/99, now called Dexia Crediop per la Cartolarizzazione Srl, in order to carry out a securitisation transaction. This company acts as vehicle company for securitisation transactions and complies with current requirements in this area. The Bank of Italy has been properly informed of the securitisation transaction, in order to comply with the regulations issued by the Bank of Italy itself. On 19 May 2004 Dexia Crediop per la Cartolarizzazione launched a programme for the issue of Asset Backed Securities for a maximum of e 10 billion to fund the purchase of receivables. The initial securitisation transaction involved selling the vehicle company bonds in portfolio, issued by local Italian public-sector agencies (BOC, BOR and BOP). These bonds were sold in block under a contract signed on 19 Mary 2004 (value date 24 May 2004) in accordance with articles 1 and 4 of Law 130 dated 30 April 1999.
Selection criteria for bonds sold: a) currency: Lire and Euro; b) issued at floating or fixed rate by the Italian Government and/or Italian local agencies (Regions, Provinces, Municipalities, Mountain Communities, Association of Municipalities and local agency consortia) and in certain cases guaranteed by the Italia c) maturing not beyond 2039; d) supported, in the case of bonds issued by the Regions, by an irrevocable payment instruction to the regional treasurer and, in the case of bonds issued by the Provinces, Municipalities, Mountain Communities, Associations of Municipalities and local agency consortia, by a payment instruction under art. 3 of Law 843 of 21/12/78; art. 35.8 of Law 724 of 23/12/94; art. 206 of Decree 267 of 18/08/00.
A total of 151 bonds were identified on the basis of the above criteria worth a total of e 1,131,851,080.00 and which formed a single portfolio. The securitisation involved the vehicle company purchasing this portfolio, pursuant to the combined provisions of articles 1 and 5 of Law 130, and issuing an initial series of notes denominated "Series 2004-1 securities" divided into "class A" and "class B". The proceeds from issuing the notes funded the original purchase of the securities being securitised. For the purposes of improving the asset quality of the "class A" notes, bearers were given an unconditional guarantee both in relation to principal and interest, while the "class B" notes were subscribed in full by the Bank. The notes issued are analysed as follows: - class A note issue value e 1,128,851,000 floating rate maturity 2039 - class B notes issue value e 3,000,080 fixed rate with premium maturity 2039 Total class A + B e 1,131,851,080
87 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
The Bank has been appointed as Arranger for the securitisation of properties owned by the Friuli Venezia Giulia Region, (issue for e 51 million), the Abruzzo Region and the Venice Municipality.
The securitisation activities recorded by the Bank are analysed as follows:
Marketable securities backed by the assets of third parties (table 11.8.1 B.I.) Euro ‘000 Type of security Underlying Quality of Gross Adjustment Net assets securitised asset a) Senior securities Residential mortgages Non-performing - - - Problem - - - Other 257,842 42 257,800 Leasing Non-performing - - - Problem - - - Other 24,996 - 24,996 Credit cards Non-performing - - - Problem - - - Other - - - Other Non-performing 18,505 5 18,500 Problem - - - Other 1,642,899 287 1.642,612 b) Mezzanine securities Residential mortgages Non-performing - - - Problem - - - Other - - - Leasing Non-performing - - - Problem - - - Other - - - Credit cards Non-performing - - - Problem - - - Other - - - Other Non-performing - - - Problem - - - Other - - - c) Junior securities Residential mortgages Non-performing - - - Problem - - - Other - - - Leasing Non-performing - - - Problem - - - Other - - - Credit cards Non-performing - - - Problem - - - Other - - - Other Non-performing - - - Problem - - - Other - - - Total 1,944,242 334 1,943,908
88 SECTION 12 - ADMINISTRATION AND TRADING ON BEHALF OF THIRD PARTIES
In accordance with Decree 415/96, the Bank is authorised to carry out the following stockbroking activities: (a) - trading for own account; (b) - placement, either on a best efforts or an underwritten basis, or underwriting of issues; (c) - administration on an individual basis of the investment portfolios of third parties.
Trading in securities The Bank has not carried out any trading activities on behalf of third parties.
(table 12.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Purchases 1. settled - - - 2. unsettled - - - Total purchases - - - b) Sales 1. settled - - - 2. unsettled - - - Total sales - - -
Asset management The Bank has carried out asset management activities on behalf of customers since 1999.
(table 12.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Securities 739,131 708,287 +4 Bank's own securities - - - Other securities 739,131 708,287 +4 b) Other transactions - - -
Custody and administration of securities The nominal value of securities held in custody or under administration, including those held as guarantees, is analysed below:
(table 12.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Third parties' securities held on deposit (excluding asset management) 3,944,299 1,593,008 +148 Bank's own securities 55,493 45,856 +21 Other securities 3,888,806 1,547,152 +151 b) Third parties' securities deposited with third parties 4,641,768 2,257,964 +106 c) Portfolio securities deposited with third parties 9,645,027 6,590,895 +46
89 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Credit collection on behalf of third parties: debit and credit adjustments The Bank has not carried out any credit collection activities on behalf of third parties.
(table 12.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) debit adjustments 1. current accounts - - - 2. central portfolio - - - 3. cash - - - 4. other - - - b) Credit adjustments 1. current accounts - - - 2. transferors of notes and documents - - - 3. other - - -
Other transactions The Bank has not carried out any other forms of transaction on behalf of third parties.
(table 12.5 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Third parties' portions of syndicated loans arranged by the Bank without a mandate to act as representative - - -
90 PART C - NOTES TO THE STATEMENT OF INCOME
SECTION 1 - INTEREST
Interest income and expense and similar revenues and charges, reported in captions 10 and 20 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Interest income and similar revenues (caption 10) 913,241 789,634 +16 Interest expense and similar charges (caption 20) 767,256 634,111 +21
Interest income and similar revenues (caption 10)
Analysis of caption 10 “Interest income and similar revenues“ (table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On amounts due from banks 16,031 9,877 +62 including: – deposits with central banks 550 984 -44 b) On loans to customers 613,413 595,060 +3 including: – loans using third parties' administered funds - - - c) On debt securities 283,797 184,697 +54 d) Other interest income - - - e) Net differential on hedging transactions - - - Total 913,241 789,634 +16
Detail of caption 10 “Interest income and similar revenues” (table 1.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On foreign currency assets 22.767 9.102 +150
Interest income includes e 1,987 thousand relating to repurchase agreements.
91 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Interest expense and similar charges (caption 20)
Analysis of caption 20 “Interest expense and similar charges” (table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On amounts due to banks 363,204 355,548 +2 b) On customers' deposits 21,881 24,481 -11 c) On securities issued 206,720 117,148 +76 including: – certificates of deposit - - - d) On third parties' administered funds - - - e) On subordinated liabilities - 83 -100 f) Net differential on hedging transactions 175,451 136,851 +28 Total 767,256 634,111 +21
Detail of caption 20 “Interest expense and similar charges” (table 1.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On foreign currency liabilities 15,647 8,968 +74
'Interest expense includes charges of e 79,479 thousand relating to repurchase agreements.
Other information regarding interest
The interest arising on transactions with Group companies is shown in Part C, Section 7 of these explanatory notes.
92 SECTION 2 - COMMISSIONS
The commission income and expense reported in captions 40 and 50 of the statement of income is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Commission income (caption 40) 9,285 8,726 +6 Commission expense (caption 50) 1,812 1,751 +3
Commission income (caption 40)
Analysis of caption 40 “Commission income” (table 2.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Guarantees given 798 14 n.s. b) Credit derivatives - - - c) Management, trading and consultancy services 1. Trading in securities - - - 2. Trading in foreign currencies - 2 -100 3. Asset management 3.1. Individual - - - 3.2. Collective - - - 4. Custody and administration of securities 2,089 1,425 +47 5. Depositary bank services - - - 6. Placement of securities - 6 -100 7. Acceptance of orders - - - 8. Consultancy 1,922 1,544 +24 9. Distribution of third parties' services 9.1 asset management a. individual - - - b. collective - - - 9.2 insurance products - - - 9.3 other - - - d) Collection and payment services - - - e) Servicing of securitisation transactions - - - f) Tax collection services - - - g) Other services 4,476 5,735 -22 Total 9,285 8,726 +6
Sub-caption "g) Other services" comprises:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans granted 1,298 1,175 +10 Other 3,178 4,560 -30 Total 4,476 5,735 -22
93 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Distribution channels for products and services (table 2.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) own branches 1. Asset management - - - 2. Placement of securities 30 6 +400 3. Third parties' products and services - - - b) "door-to-door" 1. Asset management - - - 2. Placement of securities - - - 3. Third parties' products and services - - - Total 30 6 +400
Commission expense (caption 50)
Analysis of caption 50 “Commission expense” (table 2.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Guarantees received 825 1 n.s. b) Credit derivatives - - - c) Management and trading services 1. trading in securities 117 92 +27 2. trading in foreign currencies 68 175 -61 3. asset management 3.1 own portfolio - - - 3.2 third parties' portfolio - - - 4. custody and administration of securities 517 145 +257 5. placement of securities - - - 6. "door-to-door" sales of securities and financial services - - - d) Collection and payment services 76 231 -67 e) Other services 209 1,107 -81 Total 1,812 1,751 +3
Sub-caption “e) Other services ” comprises:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans obtained 8 - +100 Credit broking 148 284 -48 Other 53 823 -94 Total 209 1,107 -81
Other information regarding commissions Commissions on transactions with Group companies are shown in Part C, Section 7 of these explanatory notes.
94 SECTION 3 - PROFITS (LOSSES) ON FINANCIAL TRANSACTIONS
Profits (losses) on financial transactions, reported in caption 60 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Profits (losses) on financial transactions (caption 60) 756 20,141 -96
Analysis of profits (losses) on financial transactions (caption 60) Profits and losses comprise writebacks and revaluations of e 552 thousand, writedowns of e 2,636 thousand and the results of trading totalling e 2,840 thousand. These are analysed in detail below:
Analysis of caption 60 “Profits (losses) on financial transactions" (table 3.1 B.I.) Euro ‘000 Security Foreign currency Other Total transactions transactions transactions A1. Revaluations 62 - 490 i) 552 A2. Writedowns -719 - -1,917 ii) -2,636 B. Other profits and losses -1,698 24 4,514 iii) 2,840 Total -2,355 24 3,087 756 including: 1. on government securities - 2. on other debt securities -2,355 3. on equities - 4. on security derivatives -
i) Including e 338 thousand in writebacks to asset-based swaps, e 143 thousand relating to IRS and OIS contracts and e 9 thousand regarding options ii) Including e 140 thousand in writedowns to options and e 1,777 thousand for IRS and OIS contracts iii) Net gains and losses from trading in derivatives, other than those on securities and foreign currencies.
Other information regarding profits (losses) on financial transactions Profits and losses on financial transactions with Group companies are shown in Part C, Section 7 of these explanatory notes.
(Effetto del cambiamento del criterio di valutazione derivati) Euro ‘000 Lower of Market Total cost and value market Valuation of derivatives as of 31/12/2003 -4,432 21,838 26,270 i) A1. Revaluations 2,184 143 A2. Writedowns -1,809 -1,777 Total 375 -1,634 -2,009 ii) Valuation of derivatives as of 31/12/2004 -4,057 20,204 24,261 iii)
i) Retrospective effect of changing valuation method, booked as extraordinary income and discussed in the related section. ii) Current effect of valuing trading derivatives at market value (recorded in caption 60) iii) Total effect of the valuation at market value (current + retrospective)
95 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 4 - ADMINISTRATIVE COSTS
Administrative costs, reported in caption 80 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Payroll (caption 80.a) 23,007 23,983 -4 Other administrative costs (caption 80.b) 16,622 14,982 +11 Total 39,629 38,965 +2
Payroll (caption 80.a)
Analysis of payroll costs Euro ‘000 31-12-2004 31-12-2003 % Change Wages and salaries 15,919 16,522 -4 Social security charges 4,008 4,121 -3 Severance indemnities - provisions for severance indemnities 939 916 +3 Contributions to the supplementary pension fund 1,024 1,204 -15 Other 1,117 1,220 -8 Total 23,007 23,983 -4
Average number of employees by category (table 4.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Managers 25 23 +9 b) Officials 48 49 -2 c) Other employees 141 159 -11 Total 214 231 -7
96 Other administrative costs (caption 80.b)
Euro ‘000 31-12-2004 31-12-2003 % Change Maintenance of furniture and equipment 17 18 -6 Rental of premises 659 704 -6 Telephone 367 343 +7 Postage and telegraph 74 21 +252 Software maintenance and upgrades 946 893 +6 Security 184 199 -8 Equipment leases 575 138 +317 Energy, heating and water 321 339 -5 Maintenance of property 361 388 -7 Data processing services 3,376 3,215 +5 Stationery and printed matter 121 65 +86 Cleaning 158 179 -12 Professional fees 2,427 2,196 +11 Advertising and public relations 1,204 1,044 +15 Information services 111 112 -1 Cost of security issues 118 106 +11 Insurance premiums 206 207 -0 Membership dues 373 344 +8 Scholarships 279 - +100 Emoluments of directors and statutory auditors 1,557 1,456 +7 Charges for seconded personnel 1,666 1,267 +31 Sponsorship and charitable donations 95 76 +25 Other 402 699 -42 Total 15,597 14,009 +11 Indirect taxes – local property taxes 305 426 -13 – flat-rate tax, Decree 601/73 526 383 +37 – other 194 164 -21 Total 1,025 973 +5 Total other administrative costs 16,622 14,982 +11
97 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 5 - ADJUSTMENTS, WRITEBACKS AND PROVISIONS
Adjustments, writebacks and provisions, reported in captions 90, 100, 120, 130, 140, 150, 160 and 210 of the statement of income, are analysed below: Euro ‘000 31-12-2004 31-12-2003 % Change Adjustments to intangible and tangible fixed assets (caption 90) 4,022 3,412 +18 Provisions for risks and charges (caption 100) 1,819 2,152 -15 Adjustments to loans and provisions for guarantees and commitments (caption 120) 2,351 - +100 Writeback of adjustments to loans and provisions for guarantees and commitments (caption 130) 11,776 270 n.s. Provisions for possible loan losses (caption 140) - 68,860 -100 Adjustments to financial fixed assets (caption 150) - 624 -100 Writeback of adjustments to financial fixed assets (caption 160) - - - Change in reserve for general banking risks (caption 210) - 13,169 -100
Adjustments to intangible and tangible fixed assets (caption 90) Euro ‘000 31-12-2004 31-12-2003 % Change Adjustments to intangible fixed assets - amortisation of start-up costs - - - - amortisation of software 2,391 1,773 +35 Adjustments to tangible fixed assets - depreciation of property 1,424 1,416 +1 - depreciation of furniture and equipment 207 223 -7 Total 4,022 3,412 +18
Provision for risks and charges (caption 100) Euro ‘000 31-12-2004 31-12-2003 % Change Provisions – supplementary pension fund and other future payroll costs 1,819 1,852 -2 – other provisions - 300 -100 Total 1,819 2,152 -15
These provisions relate to early-retirement plans (termination incentives) and future charges relating to the supplementary in-house payroll agreement.
98 Adjustments to loans and provisions for guarantees and commitments (caption 120)
Analysis of caption 120 “Adjustments to loans and provisions for guarantees and commitments” (table 5.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Adjustments to loans 2,351 - +100 including: – general adjustments for country risk - - - – other general adjustments - - - b) Provisions for guarantees and commitments - - - including: – general provisions for country risk - - - – other general provisions - - - Total 2,351 - +100
Adjustments to loans relate to: Euro ‘000 31-12-2004 31-12-2003 % Change Loans to customers specific writedowns 2,351 - +100 general writedowns - - - loan losses covered by previous provisions - - - loan losses not covered by previous provisions - - - Loans to banks write-offs - - - non-perfoming loans - - - Total 2,351 - +100
Writeback of adjustments to loans and provisions for guarantees and commitments (caption 130)
Euro ‘000 31-12-2004 31-12-2003 % Change Revaluation of previously written-down loans Loans to customers non-performing loans 504 270 +87 problem loans - - - performing loans 11,272 - +100 Total 11,776 270 n.s.
99 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Provisions for possible loan losses (caption 140) Following the introduction of the new regulations on elimination of fiscal distortions, no provisions have been made to the allowance for possible loan losses, except for ones "off the books" made in the tax return in accordance with art. 109 of the Tax Consolidation Act.
Euro ‘000 31-12-2004 31-12-2003 % Change Provisions for default interest - - - Provisions for possible loan losses - 68,860 -100 Total - 68,860 -100
Adjustments to financial fixed assets (caption 150) Adjustments to equity investments No adjustments to equity investments have been made during the year.
Euro ‘000 31-12-2004 31-12-2003 % Change Equity investments in Group companies (caption 80) - - - Other equity investments (caption 70) - 624 -100 Total - 624 -100
Writeback of adjustments to financial fixed assets (caption 160) Writeback of equity investments
Euro ‘000 31-12-2004 31-12-2003 % Change Equity investments in Group companies (caption 80) - - - Other equity investments (caption 70) - - - Total - - -
Change in the reserve for general banking risks (caption 210)
Euro ‘000 31-12-2004 31-12-2003 % Change Increase - 125,556 -100 Decrease - -112,387 -100 Total - 13,169 -100
100 SECTION 6 - OTHER STATEMENT OF INCOME CAPTIONS
Statement of income captions 30, 70, 110, 180, 190 and 220, not described earlier in these explanatory notes, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Dividends and other revenues (caption 30) 2,275 3,652 -38 Other operating income (caption 70) 26,829 17,551 +53 Other operating expenses (caption 110) 25,027 16,189 +55 Extraordinary income (caption 180) 329,861 132,140 +150 Extraordinary expense (caption 190) 10,413 5,999 +74 Income taxes for the year (caption 220) 170,189 54,885 +210
Dividends and other revenues (caption 30)
Euro ‘000 31-12-2004 31-12-2003 % Change Shares, quotas and other equities dividends - - - tax credits - - - Equity investments dividends European Investment Fund 39 37 +5 Ferfina Spa - - - Istituto per il Credito Sportivo 186 186 +0 tax credits - 105 -100 Equity investments in Group companies dividends Crediop Bv in liquidation 50 300 -83 Crediop Overseas Bank Ltd 2,000 3,024 -34 tax credits - - - Total 2,275 3,652 -38
Other operating income (caption 70)
(table 6.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Recovery of expenses from customers flat-rate tax 526 383 +37 other taxes 12 16 -25 other 86 762 -89 Premiums received on options - - - Income on implied options relating to structured funding 25,350 15,895 +59 Income from rented properties 250 450 -44 Other 605 45 n.s. Total 26,829 17,551 +53
101 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
Other operating expenses (caption 110)
(table 6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Premiums paid on options - - - Charges for implied options relating to structured funding 24,970 15,895 +57 Other 57 294 -81 Total 25,027 16,189 +55
Extraordinary income (caption 180)
(table 6.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Out-of-period income collection of default interest previously considered collectible - 44 -100 other income and extraordinary income 321,438 131,908 +144 Profits on the disposal of: tangible fixed assets 5,810 1 n.s. financial fixed assets 2,613 187 n.s. Total 329,861 132,140 +150
Out-of-period income includes e 280,071 thousand from the release of the allowance for possible loan losses to extraordinary income, in accordance with the instructions of the Bank of Italy on elimination of fiscal distortions and e 26,270 thousand relating to the change in the valuation of derivatives at market value starting from 1 January 2004. The comment and the effects of this change are reported in section A (Accounting policies) and in section C (Information on the Statement of income, caption 60 “Profits (losses) on financial transaction”). Profits on the disposal of tangible and financial fixed assets refer to properties and equity investments respectively and are described in Part B, Sections 4 and 3 of the explanatory notes.
Extraordinary expense (caption 190)
(table 6.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Out-of-period expense 10,413 5,999 +74 Losses on the disposal of: tangible fixed assets - - - financial fixed assets - - - Total 10,413 5,999 +74
102 Income taxes for the year (caption 220)
Euro ‘000 31-12-2004 31-12-2003 % Change Corporate income taxes (IRES) 145,857 23,126 +531 Regional taxes (IRAP) 24,332 7,903 +208 Flat-rate tax - 23,856 -100 Total 170,189 54,885 +210
Table C - Analysis of caption 220 "Income taxes for the year" Euro ‘000 31-12-2004 31-12-2003 % Change 1. Current income taxes 35,161 28,278 +24 2. Change in deferred tax assets 138 3,125 -96 3. Change in deferred tax liabilities 134,890 - 374 n.s. 4 Flat-rate tax - 23,856 -100 Total income taxes for the year 170,189 54,885 +210
103 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 7 - OTHER INFORMATION REGARDING THE STATEMENT OF INCOME
Geographic distribution of revenues The geographic distribution of revenues, by location of branch office, is as follows:
(table 7.1 B.I.) Euro ‘000 Italy Other EU Other Total countries countries Interest income and similar revenues 913,241 - - 913,241 Dividends and other revenues 2,275 - - 2,275 Commission income 9,285 - - 9,285 Profits (losses) on financial transactions 756 - - 756 Other operating income 26,829 - - 26,829 Total revenues 952,386 - - 952,386
Income and expenses from transactions with Group and non-Group companies Income and expense relating to transactions with Crediop Banking Group companies, as defined by art. 4 of Decree 87/92, and with associated undertakings that are not part of the Group are analysed below, excluding insignificant amounts:
Euro ‘000 Group Associated Total companies undertakings not belonging to the Group Income – interest income and similar revenues 493 3,471 3,964 – dividends and other revenues 2,050 225 2,275 – commission income 450 - 450 – extraordinary income 4,420 - 4,420 – profits on financial transactions 20,315 - 20,315 – other operating income 372 - 372 Total 28,100 3,696 31,796 Expense – interest expense and similar charges 137,010 55 137,065 – commission expense - - - – other administrative costs - - - – expenses deriving from financial transactions 16,049 - 16,049 – extraordinary expense - - - – other operating expenses 12,549 - 12,549 Total 165,608 55 165,663
Year-end amounts due to and from Group companies and associated undertakings not belonging to the Group are shown in Part B, Section 3 of these explanatory notes.
104 PART D - OTHER INFORMATION
SECTION 1 - DIRECTORS AND STATUTORY AUDITORS
Remuneration The annual remuneration of the Bank's Directors and Statutory Auditors is analysed below:
(table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Directors 1,357 1,270 +7 Statutory Auditors 200 186 +8
Loans and guarantees given
(table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Directors - - - Statutory Auditors - - -
SECTION 2 - PARENT COMPANY
The Bank is owned by: - Dexia Crédit Local (70%); - Banca Popolare di Milano Soc. Coop. a r.l. (10%); - Banco Popolare di Verona e Novara Soc. Coop. a r.l. (10%); - Em. Ro. Popolare SpA (10%).
The Bank is the Parent Bank of the Dexia Crediop Banking Group, established in 1999, and prepares consolidated financial statements.
Rome, 10/03/2005 The Board of Directors
105
ATTACHMENTS
107 DEXIA CREDIOP S.P.A. ANNUAL REPORT 2004 / ATTACHMENTS
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Euro ‘000 Reserve for Share Legal Statutory Retained Net income Total general banking capital reserve reserve earnings for the risks year Shareholders' equity as of 1/1/2004 125,556 450,210 34,175 - 78 131,997 742,016 Allocation of 2003 net income * to the legal reserve 6,600 -6,600 - * to the statutory reserve - - - * to retained earnings 1,502 -1,502 - * dividends distributed -123,895 -123,895 Change in the reserve for general banking risks - - Net income for the year 271,504 271,504 Shareholders' equity as of 31/12/2004 125,556 450,210 40,775 - 1,580 271,504 889,625
108 STATEMENT OF CASH FLOWS
Euro ‘000 USES OF FUNDS Use of funds generated by operating activities 436,464 Dividends distributed 123,895 Release from provision for severance indemnities 2,658 Release from allowance for risks and charges 39,264 Release from allowance for possible loan losses 280,072 Net writebacks to loans - 9,425 Increase in funds employed 4,689,331 Loans to customers 1,222,133 Marketable securities 3,088,204 Investment securities 113,294 Intangible fixed assets 2,303 Other assets 263,397 Decrease in funds obtained 195,713 Due to banks 195,713 Total 5,321,508
Euro 000 SOURCES OF FUNDS Funds generated by operating activities 448,710 Net income for the year 271,504 Provisions for severance indemnities 939 Provisions for risks and charges 172,245 Net adjustments to tangible fixed assets 1,631 Net adjustments to intangible fixed assets 2,391 Increase in funds obtained 4,613,887 Customers' deposits 434,990 Securities issued 4,050,097 Other liabilities 128,800 Decrease in funds employed 258,911 Cash and deposits with central banks 3 Loans to banks 239,471 Equity investments 4,270 Tangible fixed assets 15,167 Total 5,321,508
LIST OF PROPERTY OWNED BY THE BANK
Euro Location sq. m. Investment Gross book Adjustments Net book value value ROME - Via Venti Settembre n. 30 12,601 44,076,336 44,076,336 11,106,374 32,969,962 ROME - Via Val Savio n. 8 177 78,092 78,092 19,913 58,179 NAPLES - Naples business centre 1,424 3,556,028 3,556,028 1,665,474 1,890,554 ROME - Via Val Savio n. 8 (non operating) 69 63,189 63,189 10,742 52,447 Total 47,773,645 47,773,645 12,802,503 34,971,142
109
THE DEXIA CREDIOP BANKING GROUP CONSOLIDATED FINANCIAL STATEMENTS FOR 2004
111
CONTENTS
Consolidated Financial Statements and related reports 115 Report on operation 117 Introduction 119 Reclassified Consolidated Balance Sheet 122 Reclassified Consolidated Statement of Income 123 Report of the Board of Statutory Auditors 125 Report of the Independent Auditors 129 Consolidated Fiancial Statements for 2004 133 - Consolidated Balance Sheet 134 - Consolidated Statement of Income 136 - Consolidated Explanatory Notes 137 - Introduction - Background information on the Consolidated Fiancial Statements 139 - Part A - Accounting Policies 141 - Part B - Notes to the Consolidated Balance Sheet 147 - Part C - Notes to the Statement of Income 183 - Part D - Other information 197 Attachments 199 - Statement of changes in Shareholders’ Equity 200 - Statement of cash flows 201 - List of property owned by the Group 201 - Reconciliation of the Parent Bank’s Financial Statements with the Consolidated Financial Statements 202
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED REPORTS
115
REPORT ON OPERATIONS
117
INTRODUCTION
The consolidated financial statements of the Dexia Crediop Banking Group for 2004 have been prepared in accordance with Decree 87 of 27 January 1992, in implementation of EC Directive 86/635, and in accordance with the related Bank of Italy regulations.
The consolidated financial statements prepared by the Board of Directors of the Parent Bank are verified in accordance with art. 2409-ter of the Italian Civil Code and audited by Mazars & Guérard S.p.A.
THE BANKING GROUP The Dexia Crediop Banking Group comprises:
• Dexia Crediop S.p.A. • Crediop Overseas Bank Limited • Crediop B.V. in voluntary liquidation • DCC - Dexia Crediop per la cartolarizzazione S.r.l.
CONSOLIDATED COMPANIES The following companies have been consolidated:
• Dexia Crediop S.p.A. (Parent Bank), holds a 100% interest in the companies belonging to the Group and operates in the field of financing for public works and infrastructure
• DCC - Dexia Crediop per la cartolarizzazione, has been in operation since May 2004, with the sole purpose of conducting securitisations under Law 130/1999.
• Crediop Overseas Bank Limited, carries out an important operational role in the funding of the Parent Bank, Dexia Crediop S.p.A., on international markets.
Crediop B.V., formerly acting as a holding company for investments in the merchant banking sector, was put into voluntary liquidation during 2004 and so has been excluded from the consolidation.
119 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / REPORT ON OPERATIONS
INFORMATION ON OPERATIONS The following commentary is provided on the principal aggregates reflected in the consolidated financial statements: The interest margin reported in the consolidated statement of income for the year ended 31 December 2004 came to e 150.1 million (-5.4% with respect to 2003). Net interest and other banking income amounted to e 158.3 million, down 15.5 % compared with 2003 due to the reduction in profits and losses from financial transactions (down from e 20.1 million in 2003 to e -0.4 million in 2004) mostly as a result of unwinding certain non-hedging derivatives. After booking e 44 million in administrative expenses (+2.9% on 2003), operating income came to e 114.3 million (-20.9% on the year before).Total adjustments, writebacks and provisions produced a net positive balance of e 7.6 million, reflecting writebacks of general provisions against loans made in prior years. Income from ordinary activities, e 121.9 million, was 13.7% lower than in 2003. After booking e 39.4 million in extraordinary income and e 62.8 million in income taxes, net income for 2004 came to e 98.5 million compared with e 177.2 million in 2003.
Ignoring the extraordinary impact of releasing part of the reserve for general banking risks in 2003 (e +88.5 million), net income for 2004 of e 98.5 million was e 9.8 million (+11%) higher than in 2003.
The principal balance sheet aggregates reflect a rise in loans to customers (+9.5%) and growth in the securities portfolio (+64.2%).
With regard to funding, there was an increase in both securities issued (+50.4%) and interbank borrowing (+2%). Total assets amounted to e 26.6 billion at 31 December 2004 (+26% on 2003).
120 INFORMATION ON THE PERFORMANCE OF THE PRINCIPAL GROUP COMPANIES
DEXIA CREDIOP S.P.A. This Bank, which operates in the field of public and project financing, reported excellent operating results for 2004. Net income amounted to about e 271.5 million, compared with e 132 million in the prior year.
DCC – DEXIA CREDIOP PER LA CARTOLARIZZAZIONE S.R.L. This company, a wholly-owned subsidiary of Dexia Crediop, has been in operation since 2004. Its sole purpose is the conduct of securitisations under Law 130/1999. It carried out its first transaction during the year involving a portfolio consisting entirely of securities issued by Italian public-sector agencies. As a vehicle company, DCC does not have significant earnings.
CREDIOP OVERSEAS BANK LIMITED (COBL) The activities of COBL, a wholly-owned subsidiary of Dexia Crediop, were extremely limited in 2004. In fact, it completed just 4 funding transactions on international financial markets worth around e 170 million, guaranteed by Dexia Crediop and whose net proceeds were, as always, invested with Dexia Crediop. No new international funding transactions were carried out in the second half of the year through this subsidiary, which therefore just managed the stock of existing transactions. Net income for the year amounted to e 2.0 million compared with e 2.5 million in 2003.
SIGNIFICANT EVENTS SUBSEQUENT TO YEAR-END No significant events have taken place subsequent to year-end.
121 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / REPORT ON OPERATIONS
RECLASSIFIED CONSOLIDATED BALANCE SHEET
Euro ‘000 ASSETS 31-12-2004 31-12-2003 % Change Cash and deposits with central banks and post offices 4 7 -42,86 Receivables * due from banks 423,220 627,410 -32.54 * loans to customers 13,456,592 12,294,084 +9.46 Marketable securities 10,575,239 6,393,303 +65.41 Fixed assets * investment securities 408,924 295,630 +38.32 * equity investments 31,430 32,102 -2.09 * intangible fixed assets 2,594 2,678 -3.14 * tangible fixed assets 35,783 52,581 -31.95 Other assets 1,692,696 1,429,084 +18.45 Total assets 26,626,482 21,126,879 +26.03
Euro ‘000 LIABILITIES AND SHAREHOLDERS' EQUITY 31-12-2004 31-12-2003 % Change Payables * due to banks 8,633,959 8,471,488 +1.92 * customers' deposits and securities issued 15,547,352 10,337,968 +50.39 Other liabilities 1,553,412 1,400,096 +10.95 Subordinated liabilities - - - Shareholders' equity 891,759 917,327 -2.79 Total liabilities and shareholders' equity 26,626,482 21,126,879 +26.03
Euro ‘000 GUARANTEES AND COMMITMENTS 31-12-2004 31-12-2003 % Change Guarantees given 6,014,770 5,199,675 +15.68 Commitments 7,019,519 9,169,979 -23.45
122 RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME
Euro ‘000 31-12-2004 31-12-2003 % Change Interest income and similar revenues 933,871 789,646 +18.26 Interest expense and similar charges - 783,759 - 630,977 +24.21 Interest margin 150,112 158,669 -5.39 Dividends 275 328 -16.16 Net commissions 6,816 6,975 -2.28 Profits (losses) on financial transactions: -388 20,022 -101.94 * trading in securities and security derivatives - 1,698 6,228 -127.26 * trading in foreign currencies and currency derivatives 16 10,758 -99.85 * trading in other derivatives 3,956 121 n.s. Other operating expenses - 25,000 - 16,189 +54.43 Other operating income 26,511 17,551 +51.05 * valuation of securities and derivatives -2,662 2,915 -191.32 Net interest and other banking income 158,326 187,356 -15.49 Administrative costs - 39,964 - 39,342 +1.58 including: * payroll costs - 23,007 - 23,983 -4.07 * other administrative costs - 15,932 - 14,386 +10.75 * indirect taxes - 1,025 - 973 +5.34 Adjustments to: * tangible fixed assets - 1,632 - 1,639 -0.43 * intangible fixed assets - 2,391 - 1,773 +34.86 Operating income 114,339 144,602 -20.93 Adjustments to loans and provisions for guarantees and commitments - 2,351 -779 +201.80 Writeback of adjustments to loans 11,775 270 n.s. Provisions for possible loan losses - - n.a. Provisions for risks and charges - 1,819 - 2,152 -15.47 Adjustments to financial fixed assets - - n.a. Writeback of adjustments to financial fixed assets - - n.a. Losses on investments carried at equity - -624 n.a. Income from ordinary activities 121,944 141,317 -13.71 Extraordinary income (expense), net 39,401 489 n.s. Income before taxes 161,345 141,806 +13.78 Changes in reserve for general banking risks - 67,341 n.a. Income taxes for the year -62,845 -31,986 +96.48 Net income for the year 98,500 177,161 -44.40
123
REPORT OF THE BOARD OF STATUTORY AUDITORS
125
THE DEXIA CREDIOP BANKING GROUP REPORT OF THE BOARD OF STATUTORY AUDITORS
To the Shareholders of Dexia Crediop S.p.A. Shareholders, As part of our duties under art. 2429 of the Italian Civil Code, we have examined the consolidated financial statements of the DEXIA CREDIOP Group at 31 December 2004 (which close with net income for the year of e 98.5 million, total assets of e 26,626.5 million, shareholders' equity of e 891.8 million, guarantees of e 6,014.8 million and commitments of e 7,019.5 million) and the Group's report on operations.
Review of the consolidated financial statements Our examination was carried out in accordance with the standards of conduct recommended by the Italian accounting profession, and in compliance with these standards, we have referred to legal regulations governing the preparation of annual financial statements, as interpreted and integrated by the accounting standards issued by the Italian accounting profession and, where necessary, by those issued by the IASB.
Since the financial statements of subsidiary companies are checked by their respective statutory auditors and audited by specially appointed independent auditors, we have not carried out any related controls.
In our opinion, bearing in mind the results of the work performed by the independent auditors Mazars & Guerard S.p.A., contained in a specific comfort letter dated 9 March 2005, the consolidated financial statements, taken as a whole, correctly reflect the DEXIA CREDIOP Group's financial position and results for the year ended 31 December 2004, in compliance with the regulations governing consolidated financial statements mentioned in paragraph 1.
Review of the Report on operations We have reviewed the directors' report on operations, accompanying the consolidated financial statements, for the purposes of checking its compliance with the contents required by art. 3 of Decree 87/1992 and its consistency with the consolidated financial statements.
Based on the work performed, we consider that the report on the Group's operations is correct and consistent with the consolidated financial statements.
Rome, 24 March 2005 The Board of Statutory Auditors Ezio Maria SIMONELLI Chairman Vincenzo CIRUZZI Auditor Pierre Paul DESTEFANIS Auditor
127
REPORT OF THE INDEPENDENT AUDITORS
129
Report of the independent auditors on the consolidated financial statements pursuant to art. 2409-ter of the Italian Civil Code
To the Shareholders of Dexia Crediop S.p.A.
1. We have audited the consolidated financial statements of Dexia Crediop S.p.A. as of and for the year ended 31 December 2004. These financial statements were prepared under the responsibility of the Bank’s Directors. Our responsibility is to express an opinion on the consolidated financial statements based on our audit.
2. We conducted our audit in compliance with generally accepted auditing standards. Those standards require that we plan and perform the audit so as to obtain reasonable assurance as to whether the financial statements are free of material misstatements and are, as a whole, reliable. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements, as well as assessing the adequacy and fairness of the accounting principles used and the reasonableness of the appraisals made by the directors. We consider that our audit provides a reasonable basis for our opinion. As for our opinion on the previous year’s consolidated financial statements, which are presented for comparison purposes as required by law, reference should be made to our report dated 19 March 2004.
3. In our opinion, the consolidated financial statements of Dexia Crediop S.p.A. as of and for the year ended 31 December 2004 comply with Italian statutory regulations for financial statements; therefore they give a true and fair view of the financial position and results of the Bank and its subsidiaries.
Milan, 1 April 2005
Olivier Rombaut Vincenzo Miceli Partner Partner
131
CONSOLIDATED FINANCIAL STATEMENTS FOR 2004
133 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / CONSOLIDATED BALANCE SHEET
CONSOLIDATED BALANCE SHEET
Euro ‘000 ASSETS 31-12-2004 31-12-2003 10. Cash and deposits with central banks and post offices 4 7 20. Treasury bills and sundry bills eligible for refinancing with central banks 290,544 599,744 30. Due from banks 423,220 627,410 a) on demand 209,174 229,519 b) other 214,046 397,891 40. Loans to customers 13,456,592 12,294,084 including: - loans using administered funds - - 50. Bonds and other debt securities 10,693,619 6,089,189 a) public issuers 5,746,851 3,478,260 b) banks 1,416,537 1,019,284 including: - own bonds 120,712 127,987 c) financial institutions 2,941,075 1,509,441 including: - own bonds - - d) other issuers 589,156 82,204 60. Shares, quotas and other equities - - 70. Equity investments 31,430 32,102 a) valued at equity - - b) other 31,430 32,102 80. Equity investments in Group companies - - a) valued at equity - - b) other - - 90. Goodwill arising on consolidation - - 100. Goodwill arising from valuation at equity - - 110. Intangible fixed assets 2,594 2,678 including: - start-up costs - - - goodwill - - 120. Tangible fixed assets 35,783 52,581 130. Unpaid share capital due from shareholders - - including: - called-up share capital - - 140. Own shares - - 150. Other assets 329,210 415,379 160. Accrued income and prepaid expenses 1,363,486 1,013,705 a) accrued income 612,293 436,198 b) prepaid expenses 751,193 577,507 including: - issue discounts 179,498 108,598 Total assets 26,626,482 21,126,879
134 Euro ‘000 LIABILITIES AND SHAREHOLDERS' EQUITY 31-12-2004 31-12-2003 10. Due to banks 8,633,959 8,471,488 a) on demand 51,915 619,561 b) term or with notice 8,582,044 7,851,927 20. Customers' deposits 1,351,210 967,438 a) on demand 812,460 812,344 b) term or with notice 538,750 155,094 30. Securities issued 14,196,142 9,370,530 a) bonds 13,710,758 8,838,878 b) certificates of deposit 262 262 c) other 485,122 531,390 50. Other liabilities 293,139 466,910 60. Accrued expenses and deferred income 1,057,601 754,653 a) accrued expenses 622,162 481,019 b) deferred income 435,439 273,634 70. Provision for severance indemnities 4,592 6,311 80. Allowances for risks and charges 198,080 172,222 a) pensions and similar commitments - - b) taxation 186,417 159,575 c) consolidation allowance for risks and charges - - d) other 11,663 12,647 100. Reserve for general banking risks 125,556 125,556 110. Subordinated liabilities - - 120. Negative goodwill arising on consolidation 48 48 150. Share capital 450,210 450,210 170. Reserves 215,865 164,274 a) legal reserve 40,775 34,175 b) reserve for own shares - - c) statutory reserves - - d) other 175,090 130,099 190. Retained earnings 1,580 78 200. Net income for the year 98,500 177,161 Total liabilities and shareholders' equity 26,626,482 21,126,879
GUARANTEES AND COMMITMENTS 31-12-2004 31-12-2003 10. Guarantees given 6,014,770 5,199,675 including: - acceptances - - - other guarantees 6,014,770 5,199,675 20. Commitments 7.019.519 9.169.979 including: - repurchase agreements - -
135 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF INCOME
Euro ‘000 31-12-2004 31-12-2003 10. Interest income and similar revenues 933,871 789,646 including from: - loans to customers 613,413 595,060 - debt securities 304,105 184,696 20. Interest expense and similar charges -783,759 -630,977 including on: - customers' deposits -22,579 -25,041 - securities issued -355,120 -275,683 30. Dividends and other revenues from 275 328 a) shares, quotas and other equities - - b) equity investments 275 328 c) equity investments in Group companies - - 40. Commission income 8,835 8,726 50. Commission expense -2,019 -1,751 60. Profits (losses) on financial transactions -388 20,022 70. Other operating income 26,511 17,551 80. Administrative costs -39,964 -39,342 a) payroll -23,007 -23,983 including: - wages and salaries -15,919 -16,522 - social security charges -4,008 -4,121 - severance indemnities -939 -916 - pensions and similar commitments -1,024 -1,024 b) other -16,957 -15,359 90. Adjustments to intangible and tangible fixed assets -4,023 -3,412 100. Provisions for risks and charges -1,819 -2,152 110. Other operating expenses -25,000 -16,189 120. Adjustments to loans and provisions for guarantees and commitments -2,351 -779 130. Writeback of adjustments to loans and provisions for guarantees and commitments 11,775 270 140. Provisions for possible loan losses - - 150. Adjustments to financial fixed assets - - 160. Writeback of adjustments to financial fixed assets ˙˙ - - 170. Losses from investments valued at equity - -624 180. Income from operating activities 121,944 141,317 190. Extraordinary income 50,356 6,503 200. Extraordinary expense -10,955 -6,014 210. Extraordinary income, net 39,401 489 230. Change in reserve for general banking risks - 67,341 240. Income taxes for the year -62,845 -31,986 260. Net income for the year 98,500 177,161
136 CONSOLIDATED EXPLANATORY NOTES
Introduction - Background information on the consolidated financial statements - Form and content of the consolidated financial statements - Scope of consolidation - Financial statements used and accounting reference date - Consolidation principles - Audit of the consolidated financial statements Part A - Accounting policies - Section 1 - Description of accounting policies - Section 2 - Adjustments and provisions recorded solely for tax purposes Part B - Notes to the consolidated balance sheet - Section 1 - Loans - Section 2 - Securities - Section 3 - Equity investments - Section 4 - Tangible and intangible fixed assets - Section 5 - Other assets - Section 6 - Funding - Section 7 - Allowances - Section 8 - Capital, equity reserves and subordinated liabilities - Section 9 - Other liabilities - Section 10 - Guarantees and commitments - Section 11 - Concentration and distribution of assets and liabilities - Section 12 - Administration and trading on behalf of third parties Part C - Notes to the consolidated statement of income - Section 1 - Interest - Section 2 - Commissions - Section 3 - Profits (losses) on financial transactions - Section 4 - Administrative costs - Section 5 - Adjustments, writebacks and provisions - Section 6 - Other statement of income captions - Section 7 - Other information regarding the statement of income Part D - Other information - Section 1 - Directors and Statutory Auditors
137
INTRODUCTION - BACKGROUND INFORMATION ON THE CONSOLIDATED FINANCIAL STATEMENTS
Form and content of the consolidated financial statements The consolidated financial statements of the Dexia Crediop Banking Group for 2004 have been prepared in accordance with Decree 87 of 27 January 1992, in implementation of EC Directive 86/635, and in accordance with the related Bank of Italy regulations.
The consolidated financial statements consist of the consolidated balance sheet, the consolidated statement of income and these consolidated explanatory notes, together with the report on operations prepared by the Board of Directors.
The consolidated explanatory notes contain all the information required by established regulations, as well as the supplementary information considered necessary to give a true and fair view of the Group's financial position and results of operations. The tables required by the Bank of Italy are numbered in accordance with the related regulations.
The following documents are attached to the consolidated financial statements: - reconciliation of the financial statements of the parent bank with the consolidated financial statements; - list of property owned by the Group.
Scope of consolidation The scope of consolidation comprises: - Dexia Crediop S.p.A., the parent bank; - Crediop Overseas Bank Limited; - Dexia Crediop per la Cartolarizzazione S.r.l.
Crediop BV, in voluntary liquidation from 15 June 2004, has not been consolidated in accordance with Bank of Italy instructions. Equity investments in companies subject to significant influence, meaning those in which the parent bank holds at least one-fifth of their ordinary voting rights, would normally be valued at equity. However, the following such companies have been recorded at cost: - Istituto per il Credito Sportivo, a state-owned bank, has been prudently valued at cost, in view of the Decree dated 20 October 2000, not yet in force, which envisages a new ownership structure for the bank; - S.P.S. - Sistema Permanente di Servizi S.p.A., in bankruptcy, also recorded at cost; - Dexia Fund Services Italia S.p.A., recorded at cost following a forward sale agreement.
Financial statements used for consolidation purposes The financial statements of subsidiary companies used for the line-by-line consolidation were those pre- pared as of 31 December 2004 and approved by the respective boards of directors. Such financial state- ments were adjusted, where necessary, for consistency with the accounting policies adopted by the Group.
The valuation of companies carried at equity was based on the latest approved financial statements available for them.
139 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Consolidation principles The consolidated financial statements comprise the financial statements of Dexia Crediop S.p.A. and its subsidiary companies, consolidated on a line-by-line basis, together with the valuation at equity of companies subject to significant influence.
The consolidation principles adopted are set out below: - the book value of equity investments in companies consolidated on a line-by line basis is eliminated against the Group's interest in their shareholders' equity, while their assets and liabilities are combined with those of the parent bank on a line-by-line basis. In particular, investments are eliminated against the related equity interest as of 31 December 1999, when the first consolidated financial statements were pre- pared. The differences arising from the above comparison are allocated to the related assets and liabilities, where appropriate; otherwise, they are classified as goodwill or negative differences arising on consolida- tion, depending on whether the book value of such investments is lower or higher than their equity value. Any amounts recognised as goodwill are amortised over a period of five years;
- intercompany assets, liabilities and off-balance sheet transactions are eliminated on consolidation, toge- ther with the revenues, expenses, profits and losses arising from significant transactions between compa- nies included within the scope of consolidation. As an exception, and also considering art. 34 of Decree 87/92, any revenues and expenses deriving from intercompany security and currency transactions carried out on arms'-length terms are not eliminated;
- the equity investment in Dexia Fund Services Italia S.p.A., carried at equity in the prior year, has been recorded at cost after a forward sale agreement was signed during the year;
- during the year the parent bank carried out a securitisation transaction involving securities of local public entities through DCC - Dexia Crediop per la cartolarizzazione Srl - a wholly-owned subsidiary. Dexia Crediop issued an unconditional guarantee to the holder (a member of the Dexia group) of the senior asset-backed security. As a result of this guarantee, involving the obligation to repurchase the securities and reimburse the entire asset-backed security for any type of credit and tax event and in view of the risks assumed by Dexia Crediop, it was decided to consolidate the investment in DCC on a line-by-line basis;
- as regards the new regulations issued by the Bank of Italy on fiscal distortions, adjustments and provi- sions recorded solely for tax purposes have already been eliminated from the financial statements of companies included in the scope of consolidation. This involved eliminating extraordinary income from the parent bank's financial statements and releasing the provision for deferred taxation from the consolidated financial statements for the sake of consistency.
Audit of the consolidated financial statements The consolidated financial statements of the Group are audited by Mazars & Guérard S.p.A., in accordan- ce with article 2049-bis of the Italian Civil Code.
140 PART A - ACCOUNTING POLICIES
SECTION 1 - DESCRIPTION OF ACCOUNTING POLICIES
The accounting policies adopted have been communicated to and, where required by law, agreed with the Board of Statutory Auditors.
Loans, guarantees and commitments Loans The capital and interest elements of loans are stated at their estimated realisable value, taking into account the solvency of borrowers and the problems in servicing debt in the countries in which they are resident. The assessment performed also takes into consideration any guarantees received and the general difficulties experienced by the different categories of borrowers.
Risk classifications (non-performing loans, problem loans, etc.) are determined by the Bank's Credit and Finance departments, with support from the "Credit and Operational Risk" department and approval from the Credit Committee. These departments also determine the estimated realisable value following a detailed review of loans outstanding at year-end, considering the nature of the collection problems associated with the various forms of lending and the inherent risk of default on loans that appear to be performing normally. In particular:
- non-performing loans, being loans to insolvent customers and those in similar situations, are reviewed on a detailed basis;
- problem loans, being loans to customers in temporary difficulty, are reviewed on a detailed basis;
- loans subject to country risk, being loans to customers resident in countries that have difficulty in servicing debt, are valued on an overall basis and written down using percentages that are not lower than those established by the Bank of Italy;
- performing loans, being loans to customers that do not currently present specific insolvency risks, are valued on an overall basis with reference to historical experience for the various classes of loan and similar risk coefficients applied by the banking system.
Loans are written down by reducing the stated value of the related asset.
The original value of loans is reinstated if the reasons for any writedowns cease to apply.
Guarantees and commitments Guarantees given and commitments that involve credit risk are recorded at the total value of the exposure and the related risk is assessed on the basis described above in relation to loans.
141 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Securities and "off-balance sheet" transactions (other than those in foreign currency) Investment securities Investment securities are held for the long term and are valued at cost, as adjusted by the current-year portion of accrued issue and trading discounts (being the difference between the purchase price of the securities and the related redemption value, net of issue discounts yet to mature).
Such securities are written down to reflect any lasting deterioration in the solvency of the issuers and the ability of the related nations to repay debt, except where suitable guarantees are available.
The original value of investment securities is reinstated if the reasons for any writedowns cease to apply.
Marketable securities Marketable securities, held for treasury and trading purposes, are valued at the lower of cost, determined using the daily weighted moving-average cost method, as adjusted to reflect accrued issue discounts, or their market value determined as follows:
- securities listed in organised markets: the simple average of December prices;
- securities not listed in organised markets: by comparison with the fair value of listed securities with simi- lar characteristics, or in the absence of such securities, on the basis of objective criteria, except in relation to "illiquid" securities issued by local agencies that are not listed, which are valued at par (100%).
Securities hedged specifically by derivative contracts are valued at the lower of cost or their market value; this policy is also applied to asset-based swaps.
The original value of marketable securities is reinstated if the reasons for any writedowns cease to apply.
"Off-balance sheet" transactions "Off-balance sheet" transactions are used to hedge the interest-rate, exchange-rate and market risks associated with outstanding transactions; they are also arranged for broking and trading purposes.
Derivative contracts arranged specifically to hedge assets and liabilities, whether recorded in the financial statements or "off-balance sheet", are stated on a basis consistent with the assets and liabilities that they hedge. In particular, derivatives which hedge marketable securities are valued at the lower of cost or their market value (this policy also applies to asset-based swaps), while derivatives which hedge loans granted, deposits and securities issued are stated at cost. If the underlying assets or liabilities are sold or settled, but the hedging contracts are maintained in the absence of other appropriate assets or liabilities to hedge, then these hedges are reclassified as contracts held for trading purposes and valued using the accounting policies applying to this category. Commission income or expense arising on the early close-out of derivative contracts, following the rescheduling of the hedged assets or liabilities, is recorded in the statement of income to match the rescheduled transactions.
Starting from 1 January 2004, listed non-hedging derivative contracts, classified by the competent department, are booked at market value, as decided by the Board of Directors in compliance with art. 20.1b of Decree 87/92, in order to provide a fairer representation of their actual value. Listed contracts include those directly quoted on Italian or foreign organised markets as well as those whose value is linked to parameters such as prices, quotations or indices that can be found on the information circuits
142 normally used internationally and which can in any case be established objectively. The former are valued with reference to the quoted price on the last day of the period while the latter are valued at their financial value (replacement cost), taking account of the market price at which such parameters are quoted on the balance sheet date. The value of other contracts is determined using objective criteria applied on a consistent basis. Until 31 December 2003, these financial instruments were valued at the lower of cost and market value. The effects of this change on the statement of income, as required by current rules (Italian accounting principle 29 and Bank of Italy notification 166 dated 30/7/1992 and subsequent amendments), are recorded under extraordinary income for the retrospective part and under profits on financial transactions for the current part.
The results of valuing derivative contracts held for trading or hedging purposes are recorded as "profits (losses) on financial transactions".
Differentials and margins accrued on derivative contracts held for trading purposes are recorded as "profits (losses) on financial transactions".
Differentials and margins accrued on derivative contracts arranged to hedge marketable securities are recorded as interest income or expense.
Differentials and margins accrued on derivative contracts arranged to hedge loans and securities issued are recorded as interest income or expense.
Charges and income deriving from implied options relating to structured funding and hedging derivatives are, by convention, reported as "other operating expenses" and "other operating income".
Unsettled contracts for the purchase or sale of securities are valued on the basis applicable to marketable securities.
Repurchase agreements and similar transactions Repurchase agreements and similar transactions that require the holder to resell the securities acquired when the agreement matures are recorded as payables and receivables. The related income and expense is recognised on an accruals basis.
Equity investments Investments in companies subject to significant influence are valued using the equity method, while other holdings are recorded at cost and written down to reflect any permanent losses in value considering, for example, reductions in the equity value of the companies concerned and, where applicable, market prices. The difference between the book value of significant investments and the lower value of the interest in their latest reported shareholders' equity represents goodwill and/or the higher market value of their tangible fixed assets.
The original value of equity investments is reinstated if the reasons for any writedowns cease to apply.
Dividends are recorded in the year in which they are collected.
143 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Foreign currency assets and liabilities (including "off-balance sheet" transactions) Foreign currency assets and liabilities, or those in Euro indexed to foreign exchange movements, are valued using the spot exchange rates applying at year-end.
Financial fixed assets funded in Euro are stated using the historical exchange rates applying at the time of acquisition.
"Off-balance sheet" transactions denominated in foreign currency are valued using the spot exchange rates applying at year-end, in the case of spot transactions still to be settled or of forward transactions hedging assets or liabilities.
The effect of such valuations is recorded in the statement of income.
Foreign currency revenues and expenses are stated using the exchange rates applying at the time they are recorded.
Tangible fixed assets Tangible fixed assets are recorded at cost, as uplifted by any improvement costs, and stated net of accumulated depreciation.
Operating assets are depreciated on a straight-line basis over their residual useful lives. The depreciation rates applied are halved in the year of addition.
Repair and maintenance costs that do not increase the value of tangible fixed assets are expensed as incurred.
Intangible fixed assets Intangible fixed assets are recorded at cost and stated net of accumulated amortisation.
Costs related to the purchase or the development of software using external resources are generally amortised on a straight-line basis over three years, taking into account the residual period such software is expected to benefit.
Start-up and capital increase costs are expensed as incurred.
Accruals and deferrals Accruals and deferrals are recognised in accordance with the matching principle. They are not applied directly to the balance sheet accounts concerned, except in the case of income accrued on zero-coupon bonds, including Treasury bills held by the Group.
Payables Payables are stated at their nominal value with the exception of zero-coupon bonds, which are stated at their issue value. The interest charges accumulated on securities which are compounded annually are added to the outstanding liability.
144 Provision for severance indemnities The provision for severance indemnities represents the liability to each employee at year-end, accrued in accordance with current legislation and payroll agreements.
Allowances for risks and charges Taxation The provision for taxation covers both current and deferred direct taxes.
Income taxes for the year are prudently determined on the basis of the tax regulations applying as of 31 December 2004, taking account of non-deductible items.
Deferred taxation represents the tax effect of timing differences between taxable and reported income. In accordance with the concept of prudence, deferred tax assets are only recorded if their recovery is reasonable certain. The recording of deferred tax liabilities is subject to verification that the latent tax expense will actually be incurred in future years.
Allowance for possible loan losses The Bank has not set up an allowance for possible loan losses following the repeal of art. 15.3 of Decree 87/1992, which allowed banks to record adjustments and provisions solely for tax purposes.
As regards fiscal distortions, adjustments and provisions recorded solely for tax purposes have already been eliminated from the financial statements of companies included in the scope of consolidation. This involved eliminating extraordinary income from the parent bank's financial statements and releasing the provision for deferred taxation from the consolidated financial statements for the sake of consistency.
Settlement date Transactions in securities and similar instruments, foreign currency transactions and interbank deposits and loans are stated with reference to their settlement dates.
145 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 2 - ADJUSTMENTS AND PROVISIONS RECORDED SOLELY FOR TAX PURPOSES
Adjustments recorded solely for tax purposes No such adjustments have been recorded.
146 PART B - NOTES TO THE CONSOLIDATED BALANCE SHEET
SECTION 1 - LOANS
The Group's loan portfolio, summarised in asset captions 10, 30 and 40, amounts to e 13,879,816 thousand, net of adjustments, and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Cash and deposits with cental banks and post offices (caption 10) 4 7 -43 Due from banks (caption 30) 423,220 627,410 -33 Loans to customers (caption 40) 13,456,592 12,294,084 +9 Total 13,879,816 12,921,501 +7
Cash and deposits with central banks and post offices (caption 10) Cash and other deposits amount to e 4 thousand and are analysed below: Euro ‘000 31-12-2004 31-12-2003 % Change Cash 3 6 -50 Deposits with central banks - - - Deposits with post offices 1 1 +0 Total 4 7 -43
Due from banks (caption 30) The amount due from banks totals e 423,220 thousand and is analysed below by type of counterparty and technical form: Euro ‘000 31-12-2004 31-12-2003 % Change Due from banks - repurchase agreements - - - - current accounts 112,721 46,087 +145 - deposits 218,188 469,026 -53 - loans 92,311 112,297 -18 - non-performing loans - - - - other - - - Total 423,220 627,410 -33
Detail of caption 30 "Due from banks" (table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) deposits with central banks 24,008 19,721 +22 b) bills eligible for refinancing with central banks - - - c) finance leases - - - d) repurchase agreements - - - e) securities loaned - - -
147 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Loans to customers (caption 40) Loans to customers amount to e 13,456,592 thousand and are analysed below by technical form:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans to customers - mortgages 13,386,503 12,146,631 +10 - repurchase agreements - - - - exchange adjustment of euro loans funded in other currencies 3,640 2,612 +39 - term deposits 66,301 144,687 -54 - non-performing loans 102 102 +0 - other 46 52 -12 Total 13,456,592 12,294,084 +9
Detail of caption 40 "Loans to customers" (table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) bills eligible for refinancing with central banks - - - b) finance leases - - - c) repurchase agreements - - - d) securities loaned - - -
Secured loans to customers (table 1.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) mortgages 74,369 57,024 +30 b) pledged assets: 1. cash deposits - - - 2. securities - - - 3. other - - - b) guarantees given by: 1. governments 88,791 109,660 -19 2. other public bodies 82,599 41,473 +99 3. banks 6,218 4,483 +39 4. other 36,890 36,556 +1 Total 288,867 249,196 +16
Degree of risk in the loan portfolio The degree of risk in the loan portfolio is analysed below. These standardised tables were devised by the Bank of Italy in order to increase the transparency of banking financial statements.
Euro ‘000 31-12-2004 31-12-2003 Gross Total Net value Gross Rettifiche di Net value value adjustments value adjustments A. Doubtful loans A.1. Non-performing loans 5,646 5,544 102 6,150 6,048 102 A.2. Problem loans 14,271 5,351 8,920 9,886 3,000 6,886 A.3. Loans being rescheduled ------A.4. Rescheduled loans ------A.5. Unsecured loans to customers subject to country risk ------B. Performing loans 13,879,997 9,203 13,870,794 12,934,988 20,475 12,914,513 Total 13,899,914 20,098 13,879,816 12,951,024 29,523 12,921,501
148 The changes in loans during 2004, gross of the related adjustments, are analysed as follows:
Euro ‘000 Non-performing Problem Unsecured Performing Total loans loans loans subject to loans country risk Opening gross exposure 6,150 9,886 - 12,934,988 12,951,024 Changes during the year ------balance of principal and corresponding interest and default interest (a) -504 4,385 - 945,009 948,890 Write-offs during the year - via release of initial adjustments ------via a charge to the statement of income for disposals and settlements ------via a charge to the statement of income following bankruptcy proceedings - - - - - Closing gross exposure 5,646 14,271 - 13,879,997 13,899,914
(a) Net value representing new loans, increases in outstanding loans, collections during the year and transfers between loan categories.
Changes in doubtful loans (table 2 B.I.) Euro ‘000 Non-performing Problem Loans being Rescheduled Unsecured loans loans rescheduled loans loans subject to country risk A. Gross exposure as of 31/12/2003 6,150 9,886 - - - A.1 including default interest 100 - - - - B. Increases B.1 transfers from performing loans - 5,450 - - - B.2 default interest - - - - - B.3 transfers from other categories of doubtful loans - - - - - B.3.1 including default interest - - - - - B.4 other increases - - - - - C. Decreases C.1 transfers to performing loans - - - - - C.1.1 including: default interest - - - - - C.2 cancellations - - - - - C.3 cancellations - 504 -1,065 - - - C.3.1 including: default interest - - - - C.4 gains on disposals - - - - - C.5 transfers to other categories of doubtful loans - - - - - C.5.1 including: default interest - - - - - C.6 other decreases - - - - - D. Gross exposure as of 31/12/2004 5,646 14,271 - - - D.1 including default interest 100 - - - -
149 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
The changes during the year in total adjustments to loans are analysed as follows:
Analysis of total adjustments (table 3 B.I.) Euro ‘000 Non-performing Problem Loans Rescheduled Unsecured Performing loans loans being loans loans loans rescheduled subject to country risk A. Total adjustments as of 31/12/2003 6,048 3,000 - - - 20,475 A.1 including default interest 88 - - - - - B. Increases B.1 adjustments - 2,351 - - - - B.1.1 including default interest ------B.2 uses of allowance for possible loan losses ------B.3 transfers from other loan categories ------B.4 other increases ------C. Decreases C.1 writebacks ------11,272 C.1.1 including default interest ------C.2 recoveries on collection -504 - - - - - C.2.1 including default interest ------C.3 cancellations ------C.4 transfers to other loan categories ------C.5 other decreases ------D. Total adjustments as of 31/12/2004 5,544 5,351 - - - 9,203 D.1 including default interest 88 - - - - -
The following tables provide information regarding non-performing loans and default interest, as required by the Bank of Italy. Reference should be made to the report on operations for further analysis of the degree of risk inherent in the loan portfolio.
Non-performing loans (table1.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Non-performing loans (net book value, including default interest) 102 102 +0
Default interest (table 1.5 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Non-performing loans (net book value) 12 12 +0 b) Other loans (net book value) - - -
Other information regarding loans Information regarding the distribution of loans by category and location of borrower, by industry, geographic area, currency, maturity and concentration can be found in Part B, Section 11 of these explanatory notes, together with information about market share.
150 SECTION 2 - SECURITIES
Securities owned by the Group, reported in asset captions 20, 50 and 60, total e 10,984,163 thousand, net of year-end writedowns and writebacks totalling e 719 thousand and e 62 thousand, respectively, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Treasury bills and sundry bills eligible for refinancing with central banks (caption 20) 290,544 599,744 -52 Bonds and other debt securities (caption 50) 10,693,619 6,089,189 +76 Shares, quotas and other equities (caption 60) - - - Total 10,984,163 6,688,933 +64 including: - investment securities 408,924 295,630 +38 - marketable securities 10,575,239 6,393,303 +65
Investment securities Investment securities totalling e 408,924 thousand are being held on a long-term basis as a stable investment; they comprise securities: - hedged by specific derivative contracts (asset-based swaps) e 172,642 thousand - not linked to derivative contracts e 236,282 thousand
Investment securities (table 2.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 Book Market Book Market % Change value value value value Book value 1 Debt securities 1.1. government securities - listed 152,642 152,642 - - +100 - unlisted - - - - - 1.2. other securities - listed 148,088 158,371 187,677 196,924 -21 - unlisted 108,194 109,215 107,953 107,953 +0 2 Equities - listed ------unlisted - - - - - Total 408,924 420,228 295,630 304,877 +38
Comparison of the market and book values of investment securities shows: - unrealised gains of e 11,304 thousand, not recorded
Comparison of the book and redemption values of fixed-income securities revealed a gain of e 1,230 thousand that will be credited to the statement of income in accordance with the matching principle.
151 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in investment securities (table 2.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 295,630 287,746 +3 B. Increases B.1 purchases 152,938 7,425 n.s. B.2 writebacks - - - B.3 transfers from the trading portfolio - - - B.4 other changes 414 532 -22 C. Decreases C.1 sales - - - C.2 redemptions 40,058 56 n.s. C.3 adjustments - - - including: permanent write-downs - - - C.4 transfers to the trading portfolio - - - C.5 other changes - 17 -100 D. Closing balance 408,924 295,630 +38
Marketable securities Marketable securities held for treasury and dealing purposes total e 10,575,239 thousand; they comprise securities: - hedged by specific derivative contracts (asset-based swaps) e 5.111.075 thousand - not linked to derivative contracts e 5.464.164 thousand
Marketable securities (table 2.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 Book Market Book Market % Change value (a) value (b) value (a) value (b) Book value 1 Debt securities 1.1. government securities - listed 225,783 225,808 44,813 44,813 +404 - unlisted - - - - - 1.2. other - listed 7,557,135 7,559,260 3,963,895 3,966,063 +91 - unlisted 2,792,321 2,792,670 2,384,595 2,385,431 +17 2 Equities - listed ------unlisted - - - - - Total 10,575,239 10,577,738 6,393,303 6,396,307 +65
(a) After year-end writedowns and writebacks. (b) The market value of listed securities and any writebacks were determined with reference to their average prices for the month of December.
As shown in the table above, unrecorded, unrealised gains on marketable securities amount to e 2,499 thousand.
Writedowns and writebacks of marketable securities totalling e 719 thousand and e 62 thousand, respectively, have been recorded in the statement of income.
The valuation of asset swaps resulted in writebacks of e 338 thousand that have been credited to the statement of income.
152 The results of the above valuations are analysed below: Euro ‘000 Losses charged to the Writebacks Unrealised gains statement of income credited not credited to the statement to the statement of income of income Securities not linked to derivative contracts 719 62 2,499 Asset-based swaps - 338 4,346 Total 719 400 6,845
Securities issued by Group companies that are being held for trading purposes, amounting to e 120,712 thousand, have not been eliminated from the consolidated financial statements.
Changes during the year in marketable securities (table 2.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 6,393,303 4,467,470 +43 B. Increases B.1 purchases - debt securities - government securities 4,054,605 3,982,663 +2 - other 8,116,806 4,393,533 +85 - equities - - - B.2 writebacks and revaluations 62 284 -78 B.3 transfers from the investment portfolio - - - B.4 other changes 13,700 16,621 -18 C. Decreases C.1 sales and redemptions - debt securities - government securities 3,873,297 4,135,545 -6 - other 4,063,029 2,277,605 +78 - equities - - - C.2 adjustments 719 718 +0 C.3 transfers to the investment portfolio - - - C.4 other changes 66,192 53,400 +24 D. Closing balance 10,575,239 6,393,303 +65
Sub-captions B.4 “Increases - other changes” and C.4 “Decreases - other changes” are analysed as follows:
B.4 "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Net trading income 13,270 6,418 +107 Exchange differences - - - Accrued issue discounts 430 10,203 -96 Total 13,700 16,621 -18
C.4 "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Net trading losses 14,967 191 n.s. Exchange differences 51,225 53,209 -4 Total 66,192 53,400 +24
Other information regarding securities The securities portfolio is analysed by currency and degree of liquidity in Part B, Section 11 of these explanatory notes.
153 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 3 - EQUITY INVESTMENTS
Equity investments reported in asset captions 70 and 80 amount to e 31,430 thousand, following the year-end valuation, which involved a net revaluation of e 0 thousand, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Equity investments (caption 70) 31,430 32,102 -2 Equity investments in Group companies (caption 80) - - - Total 31,430 32,102 -2 including: - significant investments 25,702 26,374 -3 - other holdings 5,728 5,728 -0
Significant investments Significant investments held by the Group, being those in subsidiaries and companies subject to significant influence, as defined in arts. 4 and 19 of Decree 87/92, are analysed below:
Significant investments (table 3.1 B.I.) Euro ‘000 Name Registered Type of Shareholders' Net Ownership Ordinary Book offices relationship equity income/ voting value (e) (c) loss rights Held by % A. Consolidated companies A.1 Line-by-line basis (a) (a) Crediop Overseas Bank Ltd Cayman Isl. 1 50,226 2,297 Dexia Crediop SpA 100.00 100.00 - Dexia Crediop per la Cartolarizzazione Rome 1 15 0 Dexia Crediop SpA 100.00 100.00 - A.2 Proportional basis ------B. Equity investments carried at equity C. Other significant investments (b) (b) Crediop Bv (g) Amsterdam 1 - - Dexia Crediop SpA 100.00 100,00 Istituto per il Credito Sportivo (d) Rome 8 1,084,893 35,558 Dexia Crediop SpA 21.62 6.67 24,658 S.P.S. Spa in bankruptcy Rome 8 -9,516 -13 Dexia Crediop SpA 20.40 20.40 - Dexia Fund Services Italia SpA (f) (a) Milan 8 6,943 -3,661 Dexia Crediop SpA 20.00 20.00 1,044 Total 25,702
(a) Taken from the financial statements as of 31/12/2004; (b) Taken from the financial statements as of 31/12/2003, net of dividends distributed. The value of S.P.S. S.p.A. in bankruptcy was written off with refe- rence to its financial statements as of 31/12/1995; considering the professional opinions obtained, no further charges are expected. (c) The value of shareholders' equity does not include the results for the year. (d) The book value of the interest in Istituto per il Credito Sportivo, e 24,658 thousand, reflects its appraised value at the time of conferral by Istituto Bancario San Paolo diTorino SpA in January 1996. The 2004 Finance Law, which has broadened the tasks and objects of the Istituto, envisages directives to be issued by the Ministry for Cultural Assets together with the Ministry for the Economy regarding, inter alia, the procedures and criteria for the disposal of individual equity interests. At the time of preparing these financial statements it was decided not to alter the book value of this holding. (e) 1 = control pursuant to art. 2359.1.1 of the Italian Civil Code (majority of voting rights at an ordinary meeting) 8 = associated company (f) A contract for the sale of the investment in Dexia Fund Services Italia S.p.A. was signed during the year. The terms of the agreement provide for a price not lower than the current book value, meaning that the book value has not been adjusted. (g) Crediop BV was excluded from the scope of consolidation since it is in voluntary liquidation. The invested was paid back during 2004 at an amount higher than the related book value, giving rise to a gain of e 62 thousand.
154 Other holdings The Group's other holdings are listed below:
Euro ‘000 Name Registered Activity % Book offices ownership value Agenzia Regionale per il Recupero Edilizio Spa Genoa non-finance 5.13 0 Centro Agro Alimentare Bologna - Caab Scpa Bologna non-finance 0.38 0 Centro Agro Alimentare di Napoli - Caan Scpa Naples non-finance 0.07 0 Centro Agro Alimentare Torino - Caat Spa Turin non-finance 1.35 0 Consorzio Mercato Agricolo di Bari - in liquidation Bari non-finance 2.43 0 European Investment Fund Luxembourg banking 0.50 2,000 Europolis Invest Sa Paris finance 7.00 25 Ferfina Spa Rome non-finance 5.00 3,703 Interporto Campano Spa Naples non-finance 0.09 0 Interporto di Bologna Spa Bologna non-finance 1.13 0 Interporto di Padova Spa Padova non-finance 6.22 0 Sace Spa - Società Aeroporto Cerrione Cerrione non-finance 2.23 0 Total 5,728
Analysis of caption 80 “Equity investments in Group companies” (table 3.5 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) in banks 1. listed - - - 2. unlisted - - - b) in financial institutions 1. listed - - - 2. unlisted - - - c) other 1. listed - - - 2. unlisted - - - Total - - -
Analysis of caption 70 “Equity investments” (table 3.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) in banks 1. listed - - - 2. unlisted 26,658 26,658 +0 b) in financial institutions 1. listed - - - 2. unlisted 25 25 +0 c) other 1. listed - - - 2. unlisted 4,747 5,419 -12 Total 31,430 32,102 -2
155 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in equity investments
Equity investments in Group companies (table 3.6.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance - 2,339 -100 B. Increases B1. purchases - - - B2. writebacks - - - B3. revaluations - - - B4. other changes 3,675 - +100.00 C. Decreases C1. sales - - - C2. adjustments - - - C3. other changes 3,675 2,339 +57 D. Closing balance - - -
31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments - - -
B4. "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Subsidiaries excluded from the scope of consolidation 3,613 - - Gains on the disposal of equity investments 62 - +100.00 Total 3,675 - +100.00
C3. "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Disposal of subsidiary companies 3,675 2,339 +57 Total 3,675 2,339 +57
Other equity investments (table 3.6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 32,102 30,386 +6 B. Increases B1. purchases - - - B2. Writebacks - - - B3. revaluations - - - B4. other changes 2,551 2,470 +3 C. Decreases C1. sales 3,223 130 n.s. C2. adjustments - 624 -100 including: - pemanent writedowns - 624 -100 C3. other changes - - - D. Closing balance 31,430 32,102 -2
31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments 5,234 6,897 -24
156 Sub-caption B4. “Increases - other changes” is analysed as follows:
B4. "Increases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Realised gains on the disposal of financial fixed assets 2,551 130 n.s. Transfers from caption 80 - 2,340 -100 Total 2,551 2,470 +3
Sub-caption C3. “Decreases - other changes” is analysed as follows:
C3. "Decreases - other changes" Euro ‘000 31-12-2004 31-12-2003 % Change Realised losses on the disposal of financial fixed assets - - - Total - - -
Total revaluations and adjustments, shown above, include all the revaluations and adjustments recorded over time in relation to equity investments held at year-end.
Changes in the portfolio of equity investments during the year are detailed below:
Euro ‘000 Name Opening Purchases SalesOtherTransfers Adjust- Write Other Gains Closing balance subscrip- increases ments backs decreases and balance tions and losses on other disposals increases Equity investments in Group companies (caption 80) Crediop Bv in liquidation - - - 3,613 - - - 3,675 62 - Total - - - 3,613 - - - 3,67562 - Equity investments (caption 70) Agenzia Regionale per il Recupero Edilizio Spa 0 ------0 C.e.p.i.m. - Centro Padano Interscambio Merci Spa 0 - 436 - - - - - 436 0 Centro Agro Alimentare Bologna - Caab Scpa 0 ------0 Centro Agro Alimentare di Napoli - Caan Scpa 0 ------0 Centro Agro Alimentare Torino - Caat Spa 0 ------0 Consorzio Mercato Agricolo Alimentare Bari Srl - In liquidation 0 ------0 Collegamenti Integrati Veloci C.I.V. Spa 0 - 174 - - - - - 174 0 Dexia Fund Sevices Italia Spa 1,716 - 2,601 - - - - 1,929 1,044 European Investment Fund 2,000 ------2,000 Europolis Invest Sa 25 ------25 Ferfina Spa 3,703 ------3,703 Geac SpA (già Aeroporto Cuneo Levaldigi Spa) 0 ------0 Interporto Campano Spa 0 ------0 Interporto di Bologna Spa 0 ------0 Interporto di Padova Spa 0 ------0 Istituto per il Credito Sportivo 24,658 ------24,658 M.i.a.c. - Mercato Ingrosso Agro-Alimentare Cuneo Scpa 0 - 12 - - - - - 12 0 S.P.S. Spa in fallimento 0 ------0 Sace Spa - Società Aeroporto Cerrione 0 ------0 Total 32,102 - 3,223 - - - - -2,551 31,430 Grand total 32,102 - 3,223 3,613 - - - 3,675 2,613 31,430
157 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Amounts due to and from Group companies and investments (non-Group companies) The following tables show amounts due to and from Group companies, as defined by art. 4 of Decree 87/92, not consolidated on a line-by-line basis, as well as amounts due to and from significant investments that do not form part of the Group:
Amounts due to and from Group companies (table 3.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets 1. due from banks - - - including - subordinated - - - 2. due from financial institutions - - - including - subordinated - - - 3. due from other customers - - - including - subordinated - - - 4. bonds and other debt securities - - - including - subordinated - - - Total assets - - - b) Liabilities 1. due to banks - - - 2. due to financial institutions - - - 3. due to other customers - - - 4. securities issued - - - 5. subordinated liabilities - - - Total liabilities - - - c) Guarantees and commitments 1. guarantees given - - - 2. commitments - - - Total guarantees and commitments - - -
158 Amounts due to and from investments (in non-Group companies) (table 3.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets 1. due from banks 91,867 105,189 -13 including - subordinated - - - 2. due from financial institutions - - - including - subordinated - - - 3. due from other customers - - - including - subordinated - - - 4. bonds and other debt securities - - - including - subordinated - - - Total assets 91,867 105,189 -13 b) Liabilities 1. due to banks - - - 2. due to financial institutions - - - 3. due to other customers 1,500 3,201 -53 4. securities issued - - - 5. subordinated liabilities - - - Total liabilities 1,500 3,201 -53 c) Guarantees and commitments 1. guarantees given - - - 2. commitments - - - Total guarantees and commitments - - -
Revenues and expenses relating to transactions with Group companies not consolidated on a line-by-line basis and with investments in non-Group companies are analysed in Part C, Section 7 of these explanatory notes.
Other information regarding equity investments The report on operations provides a detailed description of the Group's relations with equity investments.
159 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 4 - TANGIBLE AND INTANGIBLE FIXED ASSETS
The Group's tangible and intangible fixed assets reported in asset captions 120 and 110 total e 38,377 thousand, net of accumulated depreciation and amortisation amounting to e 29,845 thousand, including e 4,022 thousand charged during the year, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Tangible fixed assets (caption 120) 35,783 52,581 -32 Intangible fixed assets (caption 110) 2,594 2,678 -3 Total 38,377 55,259 -31
Tangible fixed assets (caption 120) Tangible fixed assets total e 35,783 thousand, net of accumulated depreciation amounting to e 16,188 thousand, including e 1,631 thousand charged during the year, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Property - operating 34,919 52,017 -33 - non-operating 52 54 -4 Furniture and installations - office furniture and equipment 484 132 +267 - furnishings 7 9 -22 - electronic equipment 6 17 -65 - general and specific installations 315 352 -11 Total 35,783 52,581 -32
Changes during the year in tangible fixed assets (table 4.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 52,581 53,081 -1 B. Increases B1. purchases 1,069 1,138 -6 B2. writebacks - - - B3. revaluations - - - B4. other changes 5,810 1 n.s. C. Decreases C1. disposals 22,040 - +100 C2. adjustments a) depreciation 1,631 1,639 -0 b) permanent writedowns - - - C3. other changes 6 - +100 D. Closing balance 35,783 52,581 -32
Euro ‘000 31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments a) accumulated depreciation 16,188 18,238 -11 b) permanent writedowns - - -
160 Changes during the year in tangible fixed assets are detailed below:
Euro ‘000 Property Furniture and equipment Opening balance 52,071 510 Increases - purchases 554 515 - writebacks - - - revaluations - - - other changes - gains on disposals 5,810 - - other - - Decreases - disposals 22,040 - - adjustments - depreciation 1,424 207 - permanent writedowns - - - other changes - losses on disposals - - - other - 6 Closing balance 34,971 812
Total revaluations - - Total adjustments - accumulated depreciation 12,803 3,385 - permanent writedowns - -
Total revaluations and adjustments, shown above, include all revaluations and adjustments recorded over time relating to tangible fixed assets held at year-end.
Intangible fixed assets (caption 110) Intangible fixed assets total e 2,594 thousand, net of accumulated amortisation of e 13,657 thousand, including e 2,391 thousand charged during the year, and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Software 2,594 2,678 -3 Start-up and capital increase costs - - - Total 2,594 2,678 -3
161 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Changes during the year in intangible fixed assets (table 4.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change A. Opening balance 2,678 1,328 +102 B. Increases B1. purchases 2,377 3,123 -24 B2. writebacks - - - B3. revaluations - - - B4. other changes 4 - +100 C. Decreases C1. disposals - - - C2. adjustments a) amortisation 2,391 1,773 +35 b) permanent writedowns - - - C3. other changes 74 - +100 D. Closing balance 2,594 2,678 -3
Euro ‘000 31-12-2004 31-12-2003 % Change E. Total revaluations - - - F. Total adjustments a) accumulated amortisation 13,657 11,307 +21 b) permanent writedowns - - -
Changes during the year in intangible fixed assets are detailed below:
Euro ‘000 Start-up Software and capital increase costs Opening balance - 2,678 Increases - purchases - 2,377 - writebacks - - - revaluations - - - other changes - 4 Decreases - disposals - - - adjustments - amortisation - 2,391 - permanent writedowns - - - other changes - 74 Closing balance - 2,594
Total revaluations - - Total adjustments - accumulated amortisation - 13,657 - permanent writedowns - -
Total revaluations and adjustments, shown above, include all revaluations and adjustments recorded over time relating to intangible fixed assets not fully amortised at year-end.
162 SECTION 5 - OTHER ASSETS
Asset captions 150 and 160 total e 1,692,696 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Other assets (caption 150) 329,210 415,379 -21 Accrued income and prepaid expenses (caption 160) 1,363,486 1,013,705 +34 Total 1,692,696 1,429,084 +18
Other assets (caption 150)
Analysis of caption 150 “Other assets”(table 5.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Due from tax authorities: - advance payment of current taxes 38,877 30,670 +27 - withholding tax paid during the year 106 1,625 -93 - other 776 740 +5 Effect of off-balance sheet transactions 224,778 332,896 -32 Amounts relating to trading in securities 3,205 320 +902 Deferred tax assets 4,507 4,424 +2 Other 56,961 44,704 +27 Total 329,210 415,379 -21
These assets have not been subjected to writedowns since they are fully collectible.
163 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Accrued income and prepaid expenses (caption 160)
Analysis of caption 160 “Accrued income and prepaid expenses” (table 5.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Accrued income - income from derivative contracts 471,228 375,034 +26 - interest on loans to customers 60,339 31,089 +94 - interest on securities 80,095 29,619 +170 - bank interest 631 456 +38 - other - - - Prepaid expenses - charges on derivative contracts 243,895 242,636 +1 - commissions on placement of securities 176,722 105,083 +68 - discounts relating to funding 179,498 108,598 +65 - commissions on securities portfolio 35,035 +100 - commissions on mortgages 89,271 70,584 +26 - advance interest on mortgages 26,723 48,721 -45 - other 49 1,885 -97 Total 1,363,486 1,013,705 +35
Adjustments for accrued income and prepaid expenses (table 5.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Asset captions 17,752 26,017 -32 b) Liability captions - - -
The amount of e 17,752 thousand refers solely to accrued income on zero coupon bonds.
Distribution of subordinated assets (table 5.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Due from banks - - - b) Loans to customers - - - c) Bonds and other debt securities 84,434 84,391 +0 Total 84,434 84,391 +0
164 SECTION 6 - FUNDING
Total Group funding reported in liability captions 10, 20 and 30 amounts to e 24,181,311 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Due to banks (caption 10) 8,633,959 8,471,488 +2 Customers' deposits (caption 20) 1,351,210 967,438 +40 Securities issued (caption 30) 14,196,142 9,370,530 +51 Total 24,181,311 18,809,456 +29
Due to banks (caption 10) Funding from banks totals e 8,633,959 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Due to central banks - repurchase agreements 4,150,001 1,450,001 +186 - current accounts 633 - +100 Due to banks - repurchase agreements 668,304 17,355 n.s. - current accounts - 8,161 -100 - deposits 120,494 2,783,459 -96 - loans 3,694,527 4,212,512 -12 - other - - - Total 8,633,959 8,471,488 +2
Detail of “Due to banks” (table 6.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Repurchase agreements 4,818,305 1,467,356 +228 b) Securities borrowed - - -
165 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Customers' deposits and securities issued (captions 20 and 30) Direct funding from customers, comprising customers' deposits (caption 20) and securities issued (caption 30), totals e 15,547,352 thousand and is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Customers' deposits - repurchase agreements 182,930 118,071 +55 - deposits for loans in the process of being distributed 20,775 28,301 -27 - time deposits 309,015 - +100 - asset management 21 1 n.s. - other 838,469 821,065 +2 Securities issued - bonds 13,710,758 8,838,878 +55 - certificates of deposit 262 262 +0 - other 485,122 531,390 -9 Total 15,547,352 10,337,968 +50
Detail of “Customers' deposits” (table 6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Repurchase agreements 182,930 118,071 +55 b) Securities borrowed - - -
Securities issued include those due for repayment totalling e 2,481 thousand.
The Group has issued securities repayable via the delivery of shares in other companies. As of 31/12/2004 these securities amount to e 102,277 thousand.
Other information regarding funding Information relating to the distribution of funding by category and location of customer, by industry, geographic area, currency, maturity and concentration is shown in Part B, Section 11 of these explanatory notes.
166 SECTION 7 - ALLOWANCES
Allowances which do not adjust asset accounts, reported in liability captions 70 and 80, total e 202,672 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Provision for severance indemnities (caption 70) 4,592 6,311 -27 Allowance for risks and charges (caption 80) - taxation (caption 80.b) 186,417 159,575 +17 - other (caption 80.d) 11,663 12,647 -8 Total 202,672 178,533 +14
Provision for severance indemnities (caption 70)
Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 6,311 6,172 +2 Increases - provisions 939 916 +3 - other increases - - - Decreases - payments during the year 1,028 739 +39 - other decreases 1,630 38 n.s. Closing balance 4,592 6,311 -27
Allowance for risks and charges (caption 80) (caption 80)
Taxation (caption 80.b) Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 159,575 165,742 -4 Increases - provisions for current income taxes 35,165 52,134 -33 - provisions for deferred tax liabilities 134,915 26,341 +412 - provisions for current indirect taxes 350 387 -10 Decreases - payment of prior year income taxes 36,230 34,251 +6 - release of deferred tax liabilities 107,152 49,729 +115 - payment of prior year indirect taxes 206 1,049 -80 Closing balance 186,417 159,575 +17
Deferred taxation The Bank of Italy's ruling dated 3 August 1999 specified requirements for the accounting treatment of deferred taxation which have been applied commencing from the 1999 financial statements. Specifically, in accordance with the concept of prudence, deferred tax assets are only recorded where there is reasonable certainty of their recoverability, while the recording of deferred tax liabilities is subject to verification that the latent tax charge will actually be incurred. Given this, with regard to 2004, the deductible timing differences recorded comprise the fifteenths of entertaining expenses incurred in 2004, the losses on equity investments deductible over five years pursuant to Decree 209/02, the provisions to early-retirement plans (termination incentives); the taxable timing differences arising in the year comprise
167 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES the gains on the disposal of financial fixed assets that contributed to net income for 2003, but which are taxed over a period of five years (until 2006). The tax rate used to estimate IRPEG corporate taxation is 33% for 2005 and subsequent years; while the rate in relation to IRAP regional taxation is 5.25% for 2005 and subsequent years (taking account of the 1% increase established in Regional Law 34 dated 13 December 2001).
Table A - Changes in deferred tax assets reflected in the statement of income Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance 4,424 7,549 -41 2. Increases 2.1 Deferred tax assets arising during the year 988 535 +85 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax assets cancelled during the year 1,120 3,545 -68 3.2 Other decreases 6 115 -95 4. Closing balance 4,286 4,424 -3
Deferred tax assets reflect the tax effect of deductible timing differences. The deferred tax assets cancelled during the year mainly relate to the disposal of charges associated with lending transactions and utilisation of part of the provisions made to the early-retirement plans.
Table A - Changes in deferred tax assets reflected in the balance sheet Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance - - - 2. Increases 2.1 Deferred tax assets arising during the year - - - 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax assets cancelled during the year - - - 3.2 Other decreases - - - 4. Closing balance - - -
168 Table B - Changes in deferred tax liabilities reflected in the statement of income Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance 84,917 108,257 -22 2. Increases 2.1 Deferred tax liabilities arising during the year 134,915 26,341 +412 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax liabilities cancelled during the year 84,835 49,669 +71 3.2 Other decreases 12 -100 4. Closing balance 134,997 84,917 +59
The principal changes in deferred tax liabilities reflected in the statement of income for 2004 relate to the requirement to eliminate fiscal distortions from financial statements.
Table B - Change in deferred tax liabilities reflected in the balance sheet Euro ‘000 31-12-2004 31-12-2003 % Change 1. Opening balance 22,319 22,367 -0 2. Increases 2.1 Deferred tax liabilities arising during the year - - - 2.2 Other increases - - - 3. Decreases 3.1 Deferred tax liabilities cancelled during the year 22,319 48 n.s. 3.2 Other decreases - - - 4. Closing balance - 22,319 -100
The decrease during 2004 in the deferred tax liabilities reflected in the balance sheet relates to elimination of fiscal distortions from the financial statements and the associated release of taxes on adjustments recorded solely for tax purposes in years before the first consolidation.
Other allowances (caption 80.c) Euro ‘000 31-12-2004 31-12-2003 % Change Opening balance 12,647 20,449 -38 Increases 1,819 2,152 -15 Decreases 2,803 9,954 -72 Closing balance 11,663 12,647 -8
This allowance relates to future charges relating to the supplementary in-house payroll agreement, early-retirement plans (termination incentives) and potential liabilities.
169 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 8 - CAPITAL, EQUITY RESERVES AND SUBORDINATED LIABILITIES
The Group interest in shareholders' equity reported in equity captions 100, 120, 150, 170, 190 and 200 totals e 891,759 thousand, while subordinated liabilities reported in liability caption 110 amount to e 0 thousand, as analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Shareholders' equity - reserve for general banking risks (caption 100) 125,556 125,556 +0 - negative goodwill arising on consolidation (caption 120) 48 48 +0 - share capital (caption 150) 450,210 450,210 +0 - reserves (caption 170) - legal reserve 40,775 34,175 +19 - other reserves 175,090 130,099 +35 - retained earnings (caption 190) 1,580 78 n.s. - net income for the year (caption 200) 98,500 177,161 -44 Total shareholders' equity 891,759 917,327 -3 Subordinated liabilities (caption 110) - - -
The Group does not own, nor did it own at any time during the year, any of its own shares.
Shareholders' equity
Share capital (caption 150) Share capital amounts to e 450,210,000 and is reprseented by 174,500,000 issued and fully-paid ordinary shares, par value e 2.58 each.
Other information regarding shareholders' equity The statement of changes in shareholders' equity during the year is attached.
170 Shareholders' equity and regulatory capital The Group's solvency ratio, based on the ratio of its regulatory capital to the related weighted net assets (e 2,628,413 thousand), is 31.23% at the end of the year compared with the 8% minimum required for banks not belonging to a banking group. Shareholders' equity and the prudent regulatory requirements are analysed below, using the standard formats prepared by the Bank of Italy in order to enhance the transparency of banking financial statements.
Euro ‘000 31-12-2004 31-12-2003 % Change A. Regulatory capital A1. Tier 1 845,540 790,753 +7 A2. Tier 2 - - - A3. Elements to be deducted 24,658 24,658 +0 A4. Regulatory capital 820,882 766,095 +7 B. Prudent regulatory requirements B1. Credit risk 210,273 220,905 -5 B2. Market risk 219,401 151,486 +45 - including: - risks relating to the trading portfolio 219,401 151,486 +45 - exchange risks - - - B2.1 Third-level subordinated loans - - - B3. Other prudent requirements - - - B4. Total prudent requirements 429,674 372,391 +15 C. Risk-weighted assets and regulatory ratios C1. Risk-weighted assets (1) 5,370,931 4,654,889 +15 C2. Tier 1 capital/Risk-weighted assets 15.74% 16.99% -7 C3. Regulatory capital/Risk-weighted assets 15.28% 16.46% -7
(1) Total prudent requirements multiplied by the reciprocal of the minimum ratio for credit risk:
Subordinated liabilities (caption 110)
Loan Book Interest Issue Original value (e) rate date maturity Subordinated notes issued - floating 01/02/1998 01/02/2003 Total -
171 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 9 - OTHER LIABILITIES
Liability captions 50 and 60 total e 1,350,740 thousand and are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Other liabilities (caption 50) 293,139 466,910 -37 Other liabilities (caption 50) 1,057,601 754,653 +40 Total 1,350,740 1,221,563 +11
Other liabilities (caption 50)
Analysis of caption 50 “Other liabilities” (table 9.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Valuation of derivative transactions 141 4,780 -97 Valuation of "off-balance sheet" transactions 216,087 406,854 -47 Amounts available to third parties 853 1,380 -38 Effect of transactions in securities - - - Due to tax authorities 8,589 4,872 +76 Due to suppliers and consultants 7,192 7,125 +1 Due to employees 6,048 5,075 +19 Premiums collected on options sold - - - Other 54.229 36,824 +47 Total 293,139 466,910 -37
Accrued expenses and deferred income (caption 60)
Analysis of caption 60 “Accrued expenses and deferred income” (table 9.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Accrued expenses - charges on derivative contracts 254,949 193,867 +32 - interest on securities issued 350,484 269,423 +30 - interest on amounts due to banks 14,120 16,097 -12 - interest on customers' deposits 2,609 1,632 +60 Deferred income - income from derivative contracts 433,875 262,309 +65 - interest on loans 429 9,724 -96 - income from rentals 20 33 -39 - premiums on securities 1,115 1,568 -29 - premiums on other funding - - - Total 1,057,601 754,653 +40
Adjustments for accrued expenses and deferred income (table 9.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Liability captions - - - b) Asset captions - - -
172 SECTION 10 - GUARANTEES AND COMMITMENTS
Balance sheet captions 10 and 20 relate to the Group's guarantees and commitments that involve credit risk and total e 13,034,289 thousand. They are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Guarantees (caption 10) 6,014,770 5,199,675 +16 Commitments (caption 20) 7,019,519 9,169,979 -23 Total 13,034,289 14,369,654 -9
Guarantees (caption 10)
Analysis of caption 10 “Guarantees given” (table 10.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Commercial guarantees 5,802,440 4,840,375 +20 b) Financial guarantees 212,330 259,300 -41 c) Assets lodged as guarantee - - - Total 6,014,770 5,199,675 +16
Commitments (caption 20)
Analysis of caption 20 “Commitments” (table 10.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Commitments to grant finance (certain to be called on) 573,340 449,616 +28 b) Commitments to grant finance (not certain to be called on) 6,446,179 8,720,363 -26 Total 7,019,519 9,169,979 -23
Firm commitments given by the Group that may or may not be called on are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Deposits and loans to be made - Lending commitments 6,296,179 8,587,864 -27 Commitments to the interbank deposit guarantee fund - 4 -100 Commitments regarding equity investments 8,000 8,000 +0 Purchase of securities 332,495 132,499 +151 Credit derivatives 382,845 441,612 -13 Total 7,019,519 9,169,979 -23
Assets lodged to guarantee liabilities
(table 10.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Securities lodged with third parties to guarantee repurchase agreements 4,930,248 1,595,695 +209 Securities lodged with central banks to guarantee advances 219,669 433,477 -49 Securities pledged to guarantee interbank loans 903,116 711,385 +27 Loans pledged to guarantee interbank loans - - - Total 6,053,033 2,740,557 +71
173 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Unused lines of credit
(table 10.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Central banks 24,008 19,721 +22 b) Other banks 554,603 733,536 -24 Total 578,611 753,257 -23
Forward transactions Forward transactions outstanding at year-end, excluding trading on behalf of third parties, total e 82,557,344 thousand and are analysed below:
(table 10.5 B.I.) Euro ‘000 Hedging Trading Other Total 1. Purchase/sale of 1.1 Securities - purchases - 150,000 - 150,000 - sales - - - - 1.2 Foreign currency - currency against currency - - - - - purchases against Euro 205,149 - - 205,149 - sales against Euro - - - - 2. Deposits and loans - to be made - - - - - to be received - 52,911 - 52,911 3. Derivative contracts 3.1 With exchange of capital a) securities - purchases - 182,495 - 182,495 - sales - 42,500 - 42,500 b) foreign currency - currency against currency - - - - - purchases against Euro 396,085 - - 396,085 - sales against Euro 685,949 - - 685,949 c) other instruments - purchases - - - - - sales - - - - 3.2 Without exchange of capital a) foreign currency - currency against currency - - - - - purchases against Euro - - - - - sales against Euro - - - - b) other instruments - purchases 25,780,400 7,051,290 273,469 33,105,159 - sales 38,456,772 7,520,974 1,759,350 47,737,096 Total 65,524,355 15,000,170 2,032,819 82,557,344
Derivative contracts without the exchange of capital involving other instruments include implicit options, totalling e 3,744,359 thousand, linked to structured funding transactions whose market risk is hedged by derivative contracts arranged with other counterparties that are reported at their notional value. Trading transactions include derivatives totalling e 5,581,322 thousand that hedge the Parent Bank's trading portfolio (asset-based swaps). Derivative contracts without the exchange of capital involving other instruments include basis swaps amounting to e 14,642,729 thousand that are reported as both purchases and sales.
174 Analysis of derivative contracts and forward exchange transactions
Notional amounts Euro ‘000 Interest Exchange Share Other rates rates prices Trading contracts - unlisted - Forwards - - - - - Swap 9,922,999 - - - - Options purchased 690,228 - 87,798 - - Options sold 1,126,765 - 1,095,925 7,500 - listed - Futures purchased - - - - - Futures sold - - - - - Options purchased - - - - - Options sold - - - - Total trading contracts 11,739,992 - 1,183,723 7,500 Total non-trading contracts 52,316,275 1,287,184 1,169,530 7,500 Grand total 64,056,267 1,287,184 2,353,253 15,000
Notional amounts, market value and add ons Euro ‘000 Interest Exchange Share Other rates rates prices Notional amounts 64,056,267 1,287,184 2,353,253 15,000 Market value of trading contracts - positive 236,266 - - - - negative 216,549 - - - Add ons - - - - Market value of non-trading contracts: - positive 788,206 61,503 - - - negative 1,635,551 64,126 - - Add ons 293,950 143,128 183,881 1,800
The market value of hedging and trading derivatives has been calculated using the criteria laid down by the regulatory authorities for the calculation of the solvency ratio. The market values shown in the above table derive from applying such criteria and include accrued income and expense, as well as the effect of revaluing the notional amounts of cross-currency interest-rate swaps using spot rates. The add ons (only determined in the presence of credit risk) applicable to basis swaps were equal to zero.
175 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Residual maturity of notional amounts Euro ‘000 Up to 12 Between 1 Over months and 5 5 years years Interest-rate derivatives 23,920,546 17,606,294 22,529,427 Exchange-rate derivatives 278,277 457,642 551,265 Share price derivatives 728,952 1,114,300 510,001 Other - 15,000 -
Credit quality of derivative contracts, by type of counterparty Euro ‘000 Positive Add ons Equivalent market credit risk value (a) current value Governments, central banks and multilateral banks - - - Banks 935,232 519,161 1,454,393 Public bodies 100,728 10,421 111,149 Other operators 50,015 93,177 143,192 Total 1,085,975 622,759 1,708,734
(a) Includes equivalent credit risk for contracts with an original duration of no more than 14 days.
Credit derivatives
(table 10.6 B.I.) Euro ‘000 Trading Other transactions 1. Purchases of protection 1.1. With exchange of capital - - Credit-linked notes - 382,845 1.2. Without exchange of capital - - 2. Sales of protection 2.1. With exchange of capital - - Credit default swap - 382,845 2.2. Without exchange of capital - -
Derivative transactions consist, on the one hand, of the issue of credit-linked notes that protect against credit risk and, on the other, of the arrangement of interest-rate derivative contracts which include a "credit event" clause which is identical and opposite to that included in the notes.
Other information regarding guarantees The classification of guarantees given by category of counterparty is shown in Part B, Section 11 of these explanatory notes, while forward transactions related to trading on behalf of third parties are described in Part B, Section 12.
176 SECTION 11 - CONCENTRATION AND DISTRIBUTION OF ASSETS AND LIABILITIES
Significant exposures Year-end exposures exceeding 10% of regulatory capital, defined as “significant risks” in accordance with Bank of Italy requirements, are indicated below:
(table 11.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Total 1,743,497 1,398,757 +25 b) Number 14 12 +17
These positions include total assets at risk (loans, shares, bonds, etc.) at year-end in relation to customers or groups of related customers (including banks).
Distribution of loans to customers by principal category of borrower Loans to customers are distributed as follows:
(table 11.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Governments 7,588,634 5,805,256 +31 b) Other public bodies 4,954,774 5,233,551 -5 c) Non-financial companies 844,915 1,161,459 -27 d) Financial institutions - - - e) Family businesses - - - f) Other operators 68,269 93,818 -27 Total 13,456,592 12,294,084 +9
Distribution of loans to resident non-financial and family businesses The distribution by industry of loans to non-financial and family businesses resident in Italy is as follows:
(table 11.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Services linked to transport 187,592 368,389 -49 b) Energy products 333,931 359,978 -7 c) Telecommunication services 84,208 184,315 -54 d) Other commercial services 177,720 109,961 +62 e) Construction and public works 53,852 88,314 -39 g) Other sectors 7,612 50,502 -85 Total 844,915 1,161,459 -27
177 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Distribution of guarantees granted to principal categories of counterparty The guarantees given by the Group are classified by the principal categories of counterparty below:
(table 11.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Governments - - - b) Other public bodies 100,000 - +100 c) Banks 5,807,440 4,840,375 +20 d) Non-financial companies 107,330 359,300 -70 Total 6,014,770 5,199,675 +16
Geographic distribution of assets and liabilities The geographic distribution of the Group's assets and liabilities is analysed below by the country of residence of the counterparties concerned:
(table 11.5 B.I. ) Euro ‘000 Italy Other EU Other Total countries countries 1. Assets 1.1 due from banks 380,948 41,020 1,252 423,220 1.2 loans to customers 13,341,250 89,729 25,613 13,456,592 1.3 securities 10,650,901 282,867 50,395 10,984,163 Total 24,373,099 413,616 77,260 24,863,975 2. Liabilities 2.1 due to banks 4,567,492 952,846 3,113,621 8,633,959 2.2 customers' deposits 995,389 320,016 35,805 1,351,210 2.3 securities issued 8,161,184 2,240,982 3,793,976 14,196,142 2.4 other - - - - Total 13,724,065 3,513,844 6,943,402 24,181,311 3. Guarantees and commitments 8,016,014 684,608 4,333,667 13,034,289
The distribution of the residual maturities of assets and liabilities is shown below:
(table11.6 B.I. ) Euro ‘000 Specified maturities Unspecified maturities Total On demand Up to 3 Between 3 Between 1 and 5 years Beyond 5 years months and 12 Fixed Floating Fixed Floating months rate rate rate rate 1. Assets 1.1 treasury bills eligible for refinancing - 2,718 10,458 52,354 21,746 129,872 73,396 - 290,544 1.2 due from banks 209,239 48,170 69,353 42,469 29,981 - - 24,008 423,220 1.3 loans to customers 70,770 328,212 1,172,447 2,842,243 1,356,235 4,508,145 3,170,367 8,173 13,456,592 1.4 bonds and other debt securities 289 100,334 522,161 698,599 1,670,528 3,376,518 4,325,190 - 10,693,619 1.5 "off-balance sheet" transactions 1,366,331 17,858,407 28,882,307 5,406,582 3,403,401 6,478,416 1,945,768 - 65,341,212 Total assets 1,646,629 18,337,841 30,656,726 9,042,247 6,481,891 14,492,951 9,514,721 32,181 90,205,187 2. Liabilities 2.1 due to banks 49,060 4,902,479 174,813 162,211 789,332 830,079 1,725,985 - 8,633,959 2.2 customers' deposits 812,460 310,763 192,182 - - 35,805 - - 1,351,210 2.3 securities issued: – bonds 2,219 203,563 756,741 984,374 6,025,610 865,157 4,873,094 - 13,710,758 – certificates of deposit 262 ------262 – other - - 244,290 95,693 128,000 17,139 - - 485,122 2.4 subordinated liabilities ------2.5 “off-balance sheet" transactions 499,570 24,703,341 21,191,912 5,790,200 1,490,881 11,153,304 512,004 - 65,341,212 Total liabilities 1,363,571 30,120,146 22,559,938 7,032,478 8,433,823 12,901,484 7,111,083 - 89,522,523
178 Assets and liabilities denominated in foreign currency The Group's foreign currency assets and liabilities are analysed below:
(table 11.7 B.I. ) Euro ‘000 31-12-2004 31-12-2003 % Change a) Assets - 1. due from banks 19,873 43,122 -54 2. loans to customers 13,802 20,586 -33 3. securities 669,856 526,072 +27 4. equity investments - - - 5. other - - - Total assets 703,531 589,780 +19 b) Liabilities 1. due to banks 338,768 455,627 -26 2. customers' deposits 35,805 37 n.s. 3. securities issued 409,249 218,868 +87 4 other - - - Total liabilities 783,822 674,532 +16
The principal spot exchange rates as of 31/12/2004 used to translate the Group's foreign currency assets and liabilities are shown below, in comparison with the rates as of 31/12/2003.
31-12-2004 31-12-2003 % Change US dollar 1,362 1,263 +8 Swiss franc 1,543 1,558 -1 Pound sterling 0,705 0,705 +0 Japanese yen 139,650 135,050 +3
Analysis of credit derivatives by principal categories of counterparty
Euro ‘000 31-12-2004 31-12-2003 % Change a) Banks 208,494 243,493 -14 b) Financial institutions 174,351 198,119 -12 c) Other operators - - - Total 382,845 441,612 -13
179 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Securitisation transactions Own securitisation transactions During the year, the Bank purchased from third parties a company set up under Law 130/99, now called Dexia Crediop per la Cartolarizzazione Srl, in order to carry out a securitisation transaction. This company acts as vehicle company for securitisation transactions and complies with current requirements on the matter. The balance sheet of DCC has also been included in the consolidation (comprising securities in portfolio, asset-backed securities issued and operating costs).
The Parent Bank has been appointed as Arranger for the securitisation of properties owned by the Friulia Venezia Giulia Region, (issue for e 51 million), the Abruzzo Region and the Venice Municipality.
The securitisation activities recorded by the Group are analysed as follows:
Marketable securities backed by the assets of third parties (table 11.8.1 B.I.) Euro ‘000 Type of security Underlying Quality of Gross Adjustments Net assets securitised asset a) Senior securities Residential mortgages non-performing - - - problem - - - other 257,842 42 257,800 Leasing non-performing - - - problem - - - other 24,996 - 24,996 Credit cards non-performing - - - problem - - - other - - - Other non-performing 18,505 5 18,500 problem - - - other 1,642,899 287 1,642,612 b) Mezzanine securities Residential mortgages non-performing - - - problem - - - other - - - Leasing non-performing - - - problem - - - other - - - Credit cards non-performing problem other Other non-performing - - - problem - - - other - - - c) Junior securities Residential mortgages non-performing - - - problem - - - other - - - Leasing non-performing - - - problem - - - other - - - Credit cards non-performing problem other Other non-performing - - - problem - - - other - - - Total 1,944,242 334 1,943,908
180 SECTION 12 - ADMINISTRATION AND TRADING ON BEHALF OF THIRD PARTIES
In accordance with Decree 415/96, the Group is authorised to carry out the following stockbroking activities: (a) – trading for own account; (b) – placement, either on a best efforts or an underwritten basis, or underwriting of issues; (c) – administration on an individual basis of the investment portfolios of third parties.
Trading in securities The Group has not carried out any trading activities on behalf of third parties.
(table 12.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Purchases 1. settled - - - 2. unsettled - - - Total purchases - - - b) Sales 1. settled - - - 2. unsettled - - - Total sales - - -
Asset management The Group has carried out asset management activities on behalf of customers since 1999.
(table 12.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Securities 739,131 708,287 +4 Group's own securities - - - Other securities 739,131 708,287 +4 b) Other transactions - - -
Custody and administration of securities The nominal value of securities held in custody or under administration, including those held as guarantees, is analysed below:
(table 12.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Third parties' securities held on deposit (excluding asset management) 3,944,299 1,593,008 +148 Group's own securities 55,493 45,856 +21 Other securities 3,888,806 1,547,152 +151 b) Third parties' securities deposited with third parties 4,641,768 2,257,964 +106 c) Portfolio securities deposited with third parties 9,645,027 6,590,895 +46
181 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Credit collection on behalf of third parties: debit and credit adjustments The Group has not carried out any credit collection activities on behalf of third parties.
table 12.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Debit adjustments 1. current accounts - - - 2. central porfolio - - - 3. cash - - - 4. other - - - b) Credit adjustments 1. current accounts - - - 2. transferors of notes and documents - - - 3. other - - -
Other transactions The Group has not carried out any other forms of transaction on behalf of third parties.
(table 12.5 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Third parties' portions of syndicated loans arranged by the Group - - - without a mandate to act as representative
182 PART C - NOTES TO THE STATEMENT OF INCOME
SECTION 1 - INTEREST
Interest income and expense and similar revenues and charges, reported in captions 10 and 20 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Interest income and similar revenues (caption 10) 933,871 789,646 +18 Interest expense and similar charges (caption 20) 783,759 630,977 +24
Interest income and similar revenues (caption 10)
Analysis of caption 10 “Interest income and similar revenues“ (table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On amounts due from banks 16,353 9,889 +65 including: – deposits with central banks 550 984 -44 b) On loans to customers 613,413 595,060 +3 including: – loans using third parties' administered funds - - - c) On debt securities 304,105 184,697 +65 d) Other interest income - - - e) Net differential on hedging transactions - - - Total 933,871 789,646 +18
Detail of caption 10 “Interest income and similar revenues” (table 1.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On foreign-currency assets 22.767 9.107 +150
Interest income includes e 1,987 thousand relating to repurchase agreements.
183 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Interest expense and similar charges (caption 20)
Analysis of caption 20 “Interest expense and similar charges” (table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On amounts due to banks 226,866 193,402 +17 b) On customers' deposits 22,579 25,041 -10 c) On securities issued 355,120 275,600 +29 including: – certificates of deposit - - - d) On third parties' administered funds - - - e) On subordinated liabilities - 83 -100 f) Net differential on hedging transactions 179,194 136,851 +31 Total 783,759 630,977 +24
Detail of caption 20 “Interest expense and similar charges” (table 1.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) On foreign-currency liabilities 16,984 21,958 -23
The interest expense relating to securites issued, reported in the table, differs from the amount shown in caption 20 of the statement of income. This is due to the reclassification of interest on subordinated liabilities.
Interest expense includes charges of e 79,479 thousand relating to repurchase agreements.
Other information regarding interest The interest arising on transactions with Group companies is shown in Part C, Section 7 of these explanatory notes.
184 SECTION 2 - COMMISSIONS
The commission income and expense reported in captions 40 and 50 of the statement of income is analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Commission income (caption 40) 8,835 8,726 +1 Commission expense (caption 50) 2,019 1,751 +15
Commission income (caption 40)
Analysis of caption 40 “Commission income” (table 2.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Guarantees given 382 14 n.s. b) Credit derivatives - - - c) Management, trading and consultancy services 1. trading in securities - - - 2. trading in foreign currencies - 2 -100 3. asset management 3.1. individual - - - 3.2. collective - - - 4. custody and administration of securities 2,055 1,425 +44 5. depositary bank services - - - 6. placement of securities - 6 -100 7. acceptance of orders - - - 8. consultancy 1,922 1,544 +24 9. distribution of third parties' services 9.1 asset management a. individual - - - b. collective - - - 9.2 insurance products - - - 9.3 other services - - - d) Collection and payment services - - - e) Servicing of securitisation transactions - - - f) Tax collection services - - - g) Other services 4,476 5,735 -22 Total 8,835 8,726 +1
Sub-caption "g) Other services" comprises:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans granted 1,298 1,175 +10 Other 3,178 4,560 -30 Total 4,476 5,735 -22
185 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Distribution channels for products and services (table 2.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) own branches 1. Asset management - - - 2. Placement of securities 30 6 +400 3. Third parties' products and services - - - b) "door-to-door" 1. Asset management - - - 2. Placement of securities - - - 3. Third parties' products and services - - - Total 30 6 +400
Commission expense (caption 50)
Analysis of caption 50 “Commission expense” (table 2.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Guarantees received 832 1 n.s. b) Credit derivatives - - - c) Management and trading services 1. trading in securities 117 92 +27 2. trading in foreign currencies 68 175 -61 3. asset management 3.1 own portfolio - - - 3.2 third parties' portfolio - - - 4. custody and administration of securities 717 145 +394 5. placement of securities - - - 6. “door-to-door" sales of securities and financial services - - - d) Collection and payment services 76 231 -67 e) Other services 209 1,107 -81 Total 2,019 1,751 +15
Sub-caption “c) Other services ” comprises:
Euro ‘000 31-12-2004 31-12-2003 % Change Loans obtained 8 - +100 Credit broking 148 284 -48 Other 53 823 -94 Total 209 1,107 -81
Other information regarding commissions Commissions on transactions with Group companies are shown in Part C, Section 7 of these explanatory notes.
186 SECTION 3 - PROFITS (LOSSES) ON FINANCIAL TRANSACTIONS
Profits (losses) on financial transactions, reported in caption 60 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Profits (losses) on financial transactions (caption 60) -388 20,022 -102
Analysis of profits (losses) on financial transactions (caption 60) Profits and losses comprise writebacks and revaluations of e 552 thousand, writedowns of e 3,214 thousand and the results of trading totalling e 2,274 thousand. These are analysed in detail below:
Analysis of caption 60 “Profits (losses) on financial transactions" (table 3.1 B.I.) Euro ‘000 Security Foreign Other Total transactions currency transactions transactions A1. Revaluations 62 - 490 i) 552 A2. Writedowns -719 - -2,495 ii) -3,214 B. Other profits and losses -1,698 16 3,956 iii) 2,274 Total -2,355 16 1,951 -388 including: 1. on government securities - 2. on other debt securities -2,355 3. on equities - 4. on security derivatives -
i) Including e 338 thousand on the writeback of asset-based swaps and e 143 thousand relating to IRS and OIS contracts ii) Including e 140 thousand on the writedown of asset-based swaps, e 2,355 thousand relating to IRS and OIS contracts, and e 9 thousand regarding options. iii) Net gains and losses from trading in derivatives, other than those on securities and foreign currencies.
Other information regarding profits (losses) on financial transactions Profits and losses on financial transactions with Group companies are shown in Part C, Section 7 of these explanatory notes.
(Effect of changing the method of valuing derivatives) Euro ‘000 Lower of Market Total cost and market Valuation of derivatives as of 31/12/2003 -4,432 21,838 26,270 i) A1. Revaluations 2,184 143 A2. Writedowns -1,809 -1,199 Total 375 -1,056 -1,431 ii) Valuation of derivatives as of 31/12/2004 -4,057 20,782 24,839 iii)
i) Retrospective effect of changing valuation method, booked as extraordinary income and discussed in the related section. ii) Current effect of valuing trading derivatives at market value (recorded in caption 60) iii) Total effect of the valuation at market value (current + retrospective)
187 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 4 - ADMINISTRATIVE COSTS
Administrative costs, reported in caption 80 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Payroll (caption 80.a) 23,007 23,983 -4 Other administrative costs (caption 80.b) 16,957 15,359 +10 Total 39,964 39,342 +2
Payroll (caption 80.a)
Analysis of payroll costs Euro ‘000 31-12-2004 31-12-2003 % Change Wages and salaries 15,919 16,522 -4 Social security charges 4,008 4,121 -3 Severance indemnities - provision for severance indemnities 939 916 +3 Contributions to the supplementary pension fund 1,024 1,204 -15 Other 1,117 1,220 -8 Total 23,007 23,983 -4
Average number of employees by category (table 4.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Managers 25 23 +9 b) Officials 48 49 -2 c) Other employees 141 159 -11 Total 214 231 -7
188 Other administrative costs (caption 80.b)
Euro ‘000 31-12-2004 31-12-2003 % Change Maintenance of furniture and equipment 17 18 -6 Rental of premises 659 704 -6 Telephone 367 343 +7 Postage and telegraph 77 21 +267 Software maintenance and upgrades 946 893 +6 Security 184 199 -8 Equipment leases 575 138 +317 Energy, heating and water 321 339 -5 Maintenance of own property 361 388 -7 Data processing services 3,376 3,215 +5 Stationery and printed matter 121 65 +86 Cleaning 158 179 -12 Professional fees 2,481 2,220 +12 Advertising and public relations 1,482 1,397 +6 Information services 111 112 -1 Cost of security issues 118 106 +11 Insurance premiums 206 207 -0 Membership dues 373 344 +8 Contributions to National Guarantee Fund/Consob 279 - +100 Emoluments of directors and statutory auditors 1,557 1,456 +7 Charges for seconded personnel 1,666 1,267 +31 Sponsorship and charitable donations 95 76 +25 Other 402 699 -42 Total 15,932 14,386 +11 Indirect taxes – local property taxes 305 426 -28 – flat-rate tax, Decree 601/73 526 383 +37 – other 194 164 +18 Total 1,025 973 +5 Total other administrative costs 16,957 15,359 +10
189 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
SECTION 5 - ADJUSTMENTS, WRITEBACKS AND PROVISIONS
Adjustments, writebacks and provisions, reported in captions 90, 120, 130, 150, 160 and 230 of the statement of income, are analysed below:
Euro ‘000 31-12-2004 31-12-2003 % Change Adjustments to intangible and tangible fixed assets (caption 90) 4,023 3,412 +18 Provision for risks and charges (caption 100) 1,819 2,152 -15 Adjustments to loans and provisions for guarantees and commitments (caption 120) 2,351 779 +202 Writeback of adjustments to loans and provisions for guarantees and commitments (caption 130) 11,776 270 n.s. Adjustments to financial fixed assets (caption 150) - - - Writeback of adjustments to financial fixed assets (caption 160) - - - Change in reserve for general banking risks (caption 230) - -67,341 -100
Adjustments to intangible and tangible fixed assets (caption 90) Euro ‘000 31-12-2004 31-12-2003 % Change Adjustments to intangible fixed assets - amortisation of start-up costs - - - - amortisation of software 2,391 1,773 +35 Adjustments to tangible fixed assets - depreciation of property 1,425 1,416 +1 - depreciation of furniture and equipment 207 223 -7 Total 4,023 3,412 +18
The rates representing the residual useful lives of individual assets correspond, as a rule, to the maximum rates permitted by tax regulations.
Provision for risks and charges (caption 100) Euro ‘000 31-12-2004 31-12-2003 % Change Provisions – supplementary pension fund and other future payroll costs 1,819 1,852 -2 – other provisions - 300 -100 Total 1,819 2,152 -15
This allowance relates to early-retirement plans (termination incentives) and future charges relating to the supplementary in-house payroll agreement.
190 Adjustments to loans and provisions for guarantees and commitments (caption 120)
Analysis of caption 120 “Adjustments to loans and provisions for guarantees and commitments” (table 5.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change a) Adjustments to loans 2,351 779 +202 including: – general adjustments for country risk - - - – other general adjustments - - - b) Provisions for guarantees and commitments - - - including: – general provisions for country risk - - - – other general provisions - - - Total 2,351 779 +202
Adjustments to loans relate to: Euro ‘000 31-12-2004 31-12-2003 % Change Loans to customers specific writedowns 2,351 - +100.00 general writedowns - - - loan losses covered by previous provisions - - - an losses not covered by previous provisions - 779 -100 Loans to banks write-offs - - - non-performing loans - - - Total 2,351 779 +202
Writeback of adjustments to loans and provisions for guarantees and commitments (caption 130)
Euro ‘000 31-12-2004 31-12-2003 % Change Revaluation of previously written-down loans Loans to customers non-performing loans 504 270 +87 problem loans - - - performing loans 11,272 - +100 Total 11,776 270 n.s.
191 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Adjustments to financial fixed assets (caption 150) Adjustments to equity investments No adjustments to equity investments have been made during the year.
Euro ‘000 31-12-2004 31-12-2003 % Change Equity investments in Group companies (caption 80) - - - Other equity investments (caption 70) - 624 -100.00 Total - - -
Writeback of adjustments to financial fixed assets (caption 160) Writeback of equity investments No writeback to equity investments has been made during the year.
Euro ‘000 31-12-2004 31-12-2003 % Change Equity investments in Group companies (caption 80) - - - Other equity investments (caption 70) - - - Total - - -
Change in reserve for general banking risks (caption 230)
Euro ‘000 31-12-2004 31-12-2003 % Change Increase - 45,046 -100 Decrease - -112,387 -100 Total - -67,341 -100
192 SECTION 6 - OTHER STATEMENT OF INCOME CAPTIONS
Statement of income captions 30, 70, 110, 190, 200 and 240, not described earlier in these explanatory notes, are analysed below: Euro ‘000 31-12-2004 31-12-2003 % Change Dividends and other revenues (caption 30) 275 328 -16 Other operating income (caption 70) 26,511 17,551 +51 Other operating expenses (caption 110) 25,000 16,189 +54 Extraordinary income (caption 190) 50,356 6,503 +674 Extraordinary expense (caption 200) 10,955 6,014 +82 Income taxes for the year (caption 240) 62,845 31,986 +96
Dividends and other revenues (caption 30)
Euro ‘000 31-12-2004 31-12-2003 % Change Shares, quotas and other equities dividends - - - tax credits - - - Equity investments dividends European Investment Fund 39 37 +5 Ferfina Spa - - - Crediop Bv 50 Istituto per il Credito Sportivo 186 186 +0 tax credits - 105 -100 Total 275 328 -16
Other operating income (caption 70)
(table 6.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Recovery of expenses from customers flat-rate tax 526 383 +37 other taxes 12 16 -25 other 140 762 -82 Premiums received on options - - - Income on index-linked instruments 24,978 15,895 -91 Income from rented properties 250 450 -44 Other 605 45 n.s. Total 26,511 17,551 +51
193 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / EXPLANATORY NOTES
Other operating expenses (caption 110)
(table 6.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Premiums paid for options - - - Charges for implied options relating to structured funding 24,943 15,895 +57 Other 57 294 -81 Total 25,000 16,189 +54
Extraordinary income (caption 190)
(table 6.3 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Out-of period income 41,933 6,372 +558 Profits on the disposal of: tangible fixed assets 5,810 1 n.s. financial fixed assets 2,613 130 n.s. Total 50,356 6,503 +674
Extraordinary expense (caption 200)
(table 6.4 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Out-of-period expense 10,955 6,014 +82 Losses on the disposal of: tangible fixed assets - - - financial fixed assets - - - Total 10,955 6,014 +82
Income taxes for the year (caption 240)
Euro ‘000 31-12-2004 31-12-2003 % Change Corporate income taxes (IRES) 38,513 267 n.s. Regional taxes (IRAP) 24,332 7,863 +209 Flat-rate tax - 23,856 -100 Total 62,845 31,986 +96
Table C - Analysis of caption 240 "Income taxes for the year" Euro ‘000 31-12-2004 31-12-2003 % Change 1. Current income taxes 35,165 28,344 +24 2. Change in deferred tax assets -83 3,125 -103 3. Change in deferred tax liabilities 27,763 - 23,339 -219 4 Flat-rate tax - 23,856 -100 Total income taxes for the year 62,845 31,986 +96
194 SECTION 7 - OTHER INFORMATION REGARDING THE STATEMENT OF INCOME
Geographic distribution of revenues The geographic distribution of the Group's revenues, by location of branch office, is as follows:
(table 7.1 B.I.) Euro ‘000 Italy Other EU Other Total countries countries Interest income and similar revenues 933,739 - 132 933,871 Dividends and other revenues 275 - - 275 Commission income 8,835 - - 8,835 Profit (losses) on financial transactions -382 - -6 -388 Other operating income 26,511 - - 26,511 Total revenues 968,978 - 126 969,104
Income and expenses from transactions with non-Group companies Income and expenses from transactions with non-Group companies are analysed below:
Euro ‘000 Associated undertakings Total undertakings not belonging to the Group Income – interest income and similar revenues 3,471 3,471 – dividends and other revenues 225 225 – commission income - - – extraordinary income - - – other operating income - - Total 3,696 3,696 Expenses – interest expense and similar revenues 55 55 – commission expense - - – other administrative costs - - – charges deriving from financial transactions - - – extraordinary expense - - – other operating expenses - - Total 55 55
Amounts due to and from non-Group companies at year-end are shown in Part B, Section 3 of these explanatory notes.
195
PART D - OTHER INFORMATION
SECTION 1 - DIRECTORS AND STATUTORY AUDITORS
Remuneration The annual remuneration of the Group's Directors and Statutory Auditors is analysed below:
(table 1.1 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Directors 1,357 1,270 +7 Statutory Auditors 200 186 +8
Loans and guarantees given
(table 1.2 B.I.) Euro ‘000 31-12-2004 31-12-2003 % Change Directors - Statutory Auditors -
Rome, 10-03-2005 The Board of Directors
197
ATTACHMENTS
199 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / ATTACHMENTS
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Euro ‘000 Reserve Share Legal Statutory Other Retained Negative Net Total for general capital reserves reserves reserves earnings goodwill arising income banking from for the risks consolidation year Shareholders' equity as of 1/1/2004 125.556 450.210 34.175 - 130.099 78 48 177.161 917.327 Allocation of 2003 net income * to the legal reserve - - 6,600 - - - - -6,600 - * to the statutory reserve ------* to retained earnings - - - - - 1,502 - -1,502 - * to other reserves - - - - 45,164 - -45,164 - * dividends distributed ------123,895 - 123,895 Changes in the reserve for general banking risks released to the statement of income ------reclassified to shareholders' equity ------Adjustment on the translation of the financial statements of foreign subsidiaries ------Change in the equity value of subsidiaries - - - - -173 - - - -173 Adjustments to deferred taxation reflected in shareholders' equity ------Net income for the year ------98,500 98,500 Shareholders' equity as of 31/12/2004 125,556 450,210 40,775 - 175,090 1,580 48 98,500 891,759
200 STATEMENT OF CASH FLOWS
Euro ‘000 USES OF FUNDS Use of funds generated by operating activities 282,542 Dividends distributed 123,895 Other changes in consolidated shareholders' equity 173 Release from provision for severance indemnities 2,658 Release from allowance for risks and charges 146,391 Net writebacks to loans 9,425 Increase in funds employed 5,714,232 Loans to customers 1,153,083 Marketable securities 4,181,936 Investment securities 113,294 Intangible fixed assets 2,307 Other assets 263,612 Decrease in funds obtained - Total 5,996,774
Euro ‘000 SOURCES OF FUNDS Funds generated by operating activities 275,710 Net income for the year 98,500 Provisions for severance indemnities 939 Provisions for risks and charges 172,249 Net adjustments to tangible fixed assets 1,631 Net adjustments to intangible fixed assets 2,391 Increase in funds obtained 5,501,032 Due to banks 162,471 Customers' deposits 383,772 Securities issued 4,825,612 Other liabilities 129,177 Decrease in funds employed 220,032 Cash and deposits with central banks 3 Due from banks 204,190 Equity investments 672 Tangible fixed assets 15,167 Total 5,996,774
LIST OF PROPERTY OWNED BY THE GROUP
euro Location sq.m. Investment Gross book Adjustments Ney book value valore value ROME - Via Venti Settembre n. 30 12,601 44,076,336 44,076,336 11,106,374 32,969,962 ROME - Via Val Savio n. 8 177 78,092 78,092 19,913 58,179 NAPLES - Centro Direzionale di Napoli 1,424 3,556,028 3,556,028 1,665,474 1,890,554 ROME - Via Val Savio n. 8 ( non strument.) 69 63,189 63,189 10,742 52,447 Total 47,773,645 47,773,645 12,802,503 34,971,142
201 DEXIA CREDIOP BANKING GROUP ANNUAL REPORT 2004 / ATTACHMENTS
RECONCILIATION OF THE PARENT BANK'S FINANCIAL STATEMENTS WITH THE CONSOLIDATED FINANCIAL STATEMENTS
Euro ‘000 Net income Shareholders' equity Balances as of 31 December 2004 reported by the Parent Bank 271,503 889,624 Difference between the book value of consolidated companies reported in the Parent Bank's financial statements and their equity value 194 Net income for 2004 of consolidated companies other than the Parent Bank, net of the related deferred taxation 2,297 2,297 Elimination of intercompany dividends paid to the Parent Bank, net of deferred taxation 2,000 - Elimination of allowance for possible loan losses, net of related deferred taxation (elimination of fiscal distortions) -172,944 - Release of deferred taxation on income earned prior to the first consolidation - Adjustment of deferred taxation following change in tax rates - - Difference between the equity value of subsidiaries and the book value of the related investments at year-end - Elimination of intercompany derivatives, net of deferred taxation 13,994 13,994 Elimination of hedging derivatives (trading derivatives in the financial statements of the Parent Bank), net of deferred taxation -14,350 -14,350 Balances as of 31 December 2004 reported in the consolidated financial statements 98,500 891,759
202
Production Dexia Crediop S.p.A.
Design Tif&Bit s.n.c.
Print Peristegraf S.r.l.