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Investor Day 2005

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Changes in financial reporting from 2005 Group Chief Financial Officer ... Cr dit du Nord: 142 M ; Dexia Crediop: 131 M ; Sofaxis: 59 M ; Dexia ... – PowerPoint PPT presentation

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Title: Investor Day 2005


1
Investor Day 2005
  • Paris, February 11, 2005

2
Meetings Agenda
  • 9h15 - PART ONE Rembert von Lowis
  • Changes in financial reporting from 2005 Group
    Chief Financial Officer
  • 11h45 - PART TWO Pierre Richard
  • Overview of 2004 - 3-year plans headlines
    Group Chief Executive Officer
  • 12h45 - LUNCH
  • 14h30 - PART THREE Jacques Guerber
  • Public/Project Finance and Credit Enhancement
    Group Head of Public/Project Finance and Credit
    Enhancement
  • Robert Cochran
  • Chairman and CEO FSA
  • Bruno Delétré
  • Managing Director Dexia Credit Local

3
Disclaimer
  • This document contains indications and data which
    are necessary to illustrate the changes
    introduced by IFRS and other reforms, which will
    affect future reportings. All data are unaudited.
  • This document contains also forward looking
    statements, relating to the groups plans and
    prospects in its different lines of business.
    Such statements may be affected by the evolutions
    of general market and competitive environments,
    which could cause future results to differ
    substantially from these presented in this
    document.
  • Dexia undertakes no obligation to revise or
    update any forward looking statements to reflect
    changes in events or expectations or otherwise

4
PART ONEChanges in financial reporting from 2005
Investor Day 2005
  • New business segmentation and conventions
  • IFRS
  • Introducing a new approach to Economic Capital
  • Principal Impacts of changes
  • Q1 2004 from old to new referential

Rembert von Lowis Chief Financial Officer
5
New business segmentation and conventions
6
New segmentation Main impacts of recent
reorganisations
  • In 2004
  • Shift of Equity-Related Services
  • from Investment Management Services (IMS)
  • to Treasury and Financial Markets (TFM)
  • In 2005
  • Shift of Insurance Services
  • from Retail Financial Services (RFS)
  • to IMS, renamed Investment Management and
    Insurance Services (IMIS)
  • Shift of Private Banking
  • from Investment Management Services
  • to RFS, renamed Personal Financal Services (PFS)

7
New segmentation as from January 1st, 2005
Retail Financial Services becomes Personal
Financial Services (PFS)
Central Assets
Treasury and Financial Markets (TFM)
Investment Management Services becomes
Investment Management and Insurance services
(IMIS)
Public Project Finance (PPF)
Retail
Asset Management
Public/Project Finance
CSP
Share-Leasing (DBNL)
Private Banking
Fund Administration
Credit Enhancement
MM
Others
Insurance
  • FED
  • Forex
  • Fixed income
  • Securitization
  • Equity Related Services

The segmentation is IFRS compliant (IAS 14
segment reporting)
8
Rationale of new segmentation (1)
  • Two main markets

Public Authorities (and satellites)
Personal Sector (Households and SMEs)
  • serviced by 2 commercial business lines whose
    brief is largely franchise-driven, i.e.
  • Broaden client bases
  • Promote brand(s)
  • Enhance product offer
  • Gain / defend market shares

9
Rationale of new segmentation (2)
Investment Management and Insurance Services
  • Encompasses business units whose strategy is
    largely driven by
  • Search of product quality and performance
  • Concentration and enhancement of expertise
  • Search of productivity
  • Units are also encouraged to develop their own
    clienteles outside their two main in-house
    markets (PPF and PFS)

IMIS
Asset Management
Insurance
Fund Administration
    Factory  results only i.e. excluding
distribution results
10
Rationale of new segmentation (3)
Treasury and Financial Markets (TFM)
  • Only Equity-Related Services has modified TFMs
    perimeter (in 2004)
  • No change in the fundamental missions of the
    business line
  • Share leasing
  • Portfolio of LT investments linked to Public
    Finance franchise are now lodged in the PPF
    business line (Veolia ASF APRR)

LT funding
CSP
Money Market
Forex
Financial Engineering and Derivatives
Fixed Income
Securitization
Equity-related Services
Central Assets
11
Organisation as from January 1, 2005
Group CEO Pierre RICHARD
  • Audit Compliance
  • Private office of the CEO Secretary General
  • Investor Relations External communication
  • Sustainable development
  • Human resources and internal communication

Personal Financial Services Axel MILLER
Investment Management Insurance Services Marc
HOFFMANN
Public/ Project Finance credit
enhancement Jacques GUERBER
Treasury andFinancial Markets Dirk BRUNEEL
Group Finance Rembert von LOWIS
Group Operations IT Claude PIRET
12
Internal pricing (1)
New conventions re Asset Management (Mutual
Funds)
Bulk of performance fee now lumped within
Management fee
Type of Revenue
13
Internal pricing (2)
Insurance
  • Remuneration of the banking distribution channels
  • From a full reallocation method to a commission
    method
  • Life
  • Non Life
  • 20 to 30 of the premium is paid to the
    distribution channel

14
Revised treatment of nonrecurring items
  • Introduction of a materiality threshold 1 M
    pre-tax per quarter
  • Capital gains on fixed income portfolios (e.g.
    OLOs) now underlying
  • Restructuring costs now underlying except for
    major transactions (e.g. acquisition)

15
IFRS
16
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

17
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

18
Transition towards IFRS at Dexia
  • Dexia Group entities will use the European
    portfolio hedge ( carve-out  of IAS 39 by the
    European Commission)
  • 2004 IFRS Financial Statements will not be very
    useful for comparison purposes with subsequent
    periods, as three important standards are not
    applied in 2004 (IAS 32 39 and IFRS 4)

EU GAAP i.e. IFRS endorsed by the European
Commission (EC)
19
Implementation of IFRS in the Dexia Group
  • Internally, Dexia GAAP and IFRS accounting have
    run in parallel (2 separate systems)
  • Externally, Dexia GAAP only is published
  • Introduction of the new IFRS templates
  • Elements of opening B/S at 01.01.2004
    (unaudited) main FTA impacts
  • Statement of income Q1 2004 from Dexia GAAP to
    IFRS (unaudited)
  • Publication of
  • Financial Statements Q4 year 2004 under Dexia
    GAAP
  • Opening B/S at 01.01.2004 under IFRS
  • Publication of
  • Financial Statements Q1 2005 under EU GAAP

20
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

21
Main differences in Asset classes
See appendix
22
Main differences in Derivatives
At 01.01.04, prorata interests amounted to ?
18.0 Bn in Assets, and ? 18.2 Bn in Liabilities
23
Main differences concerning Equity and related
items
24
From Dexia GAAP to EU GAAP templates
Several types of changes in the PL
  • Definitions / Contents of items
  • Groupings of items
  • Position of items in the templates
  • Some items are deleted
  • New items appear

25
Summarized Statement of Income
26
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

27
FTA impacts on equity as of January 1, 2004
(IFRS without IAS 32 39 and IFRS 4)
(M)
Pensions related employee benefits
Elimination of some risk reserves
Tangible assets
Intangible assets
Deferred tax impacts
Income recognition
others
General Banking Risk Reserves
IAS 30
IAS19
IAS37
IAS16,17,36,40
IAS38
IAS12
IAS18
Equity at 31.12.03 under Dexia GAAP
Equity at 01.01.04 under IFRS (without IAS
3239 and IFRS 4)
28
Focus on IAS 19Pensions Related Employee
Benefits (1)
  • Group Actuary (Mercer) has been mandated to
    review all plans and make calculations
  • Belgium several pension and termination benefits
    (Dexia Bank, Artesia, Bacob)
  • Luxembourg pension benefits of Dexia BIL and its
    subsidiaries
  • France no major plan
  • Dexia has chosen to deduct from equity the net
    funded status ( obligations less assets)
    option of IFRS 1
  • P.V. of obligations 2,070 M
  • Assets at Fair value 1,592 M
  • 62 pension benefits
  • Difference - 478 M 28 termination benefits
  • 10 other L.T. benefits
  • already recognized under Dexia GAAP - 156 M
  • to be recognized under IAS 19 - 322 M

IAS 19 FTA impact 01.01.2004 - 322
M Pre-tax
29
Focus on IAS 19 Pensions Related Employee
Benefits (2)
  • Dexia has opted for the corridor (Option of IAS
    19) to minimize volatility
  • The corridor the difference, for each plan,
    between the assumptions (actuarial tables return
    on assets, inflation rate,) made at the
    beginning of the period and the existing numbers
    at period-end.
  • If variance exceeds 10 of the greater of the
    assets or liabilities, the excess is amortized in
    the PL on the remaining life of the plan (else
    no impact on PL).
  • Example Assets 900 (gt liabilities)
  • (Plan x) Corridor (10) 90
  • Effective variance at year-end 120
  • ? 120 - 90 30
  • remaining life 15 years
  • annual charge 30 ? 15 2
  • In 2004, the charge under Dexia GAAP is not
    expected to be materially different from the one
    under IFRS

IAS 19 RUN
30
IAS 37 Provisions
IAS 37 FTA impacts 01.01.2004 136 M pre-tax
  • Risk reserves eliminated
  • provision for AGDL at Dexia BIL (80 M)
  • elimination of provisions not IFRS compliant
    (e.g. maintenance reserve, restructuration costs,
    ...)

IAS 37 RUN
  • Stricter definition of provisions under IAS 37 a
    provision is recognized only when
  • an entity has a present obligation as result of a
    past event
  • there is a probable outflow
  • a reliable estimate can be made of the amount of
    the obligation

Association for the Guarantee of Deposits,
Luxembourg
31
IAS 16, 17, 36 and 40 Tangible assets (1)
  • IAS 40, IAS 16, and option of IFRS 1
  • Dexia has chosen not to revalue tangible
  • fixed assets (both own-occupied buildings
  • and investment properties) for the FTA 0 M
  • Amortization base has been revisited 8 M
  • IAS 17
  • Leasing contracts granted by the bank to
  • customers are no longer in the Banks
  • Balance Sheet 33 M
  • IAS 36
  • Impairment test has been performed on
  • tangible assets -16 M

IAS 16, 17, 36 40 FTA impacts
01.01.2004 24 M pre-tax
32
IAS 16, 17, 36 and 40 Tangible assets (2)
IAS 16, 17, 36 40 RUN
  • IAS 36
  • Leads to perform impairment tests on fixed assets
    at the level of each Cash Generating Unit (CGU),
    defined as the smallest group of assets that
    generate independent cash flows.
  • At Dexia, all own-occupied properties
  • are one distinct CGU
  • managed by the Chief Operating and Technology
    Officer
  • and their revenues and costs are reported under
    Central Assets
  • Value of Tangible Fixed Assets at 01.01.2004
    1,516 M

33
IAS 38 Intangible assets
  • IAS 38
  • Restructuration costs for Star Agencies
  • were capitalized under Dexia GAAP until 2001
  • are written-off under IFRS
  • In 2004, pre-tax charge was
  • 24 M under Dexia GAAP
  • 0 M under IFRS

IAS 38 FTA impacts 01.01.2004 - 45 M pre-tax
IAS 38 RUN
34
IAS 12 Deferred taxes
IAS 12 FTA impacts 01.01.2004 73 M
  • Corresponds to the Net tax impact of IFRS
    adjustments, which concern mainly
  • Pensions and related employee benefits (gross
    amount of adjustments of -322 M)
  • Provisions (gross amount of adjustments of 136
    M)

35
IFRS 2 Share-based payments
IFRS 2 FTA impact 01.01.2004 0 M
  • Stock options
  • As from 01.01.2004, IFRS 2 is applied, leading to
    pre-tax
  • 16 M (post tax) cost in 2004 (booked from Q3
    onwards)
  • 20 discount on capital increases reserved to
    employees (gross amount of 25 M in 2004)
  • Plans permit only deferred exercise of right to
    sell (gt 5 years)
  • Hence, the annual charge in Dexia PL will be
    less than 20, and booked in full in Q4
  • Amount of the annual charge is credited to Core
    Equity

IFRS 2 RUN
36
IFRS 3 (formerly IAS 22) Business combinations
  • IFRS 3 applied from 01.01.2004
  • Dexia has chosen not to restate past transactions
    - Option of IFRS 1
  • Goodwill deducted from equity (- 6,602 M) and
    negative goodwill (333 M) are transferred to
    Retained Earnings
  • Impairment test on goodwill performed at
    31.12.2003 under Dexia GAAP does not lead to any
    adjustments

IFRS 3 FTA impact on equity 0 M
IFRS 3 RUN
  • As from 01.01.04, no more amortization of
    goodwill leads to 37 M additional income
  • For future accounting, all residual goodwill (663
    M) has been allocated among Cash Generating
    Units
  • Crédit du Nord 142 M Dexia Crediop 131 M
    Sofaxis 59 M Dexia Insurance DVV Insurance
    108 M Other subsidiaries 193 M

37
Other relevant IAS and IFRS
  • IAS 27 consolidated financial statements
    (consolidation scope)
  • Consolidation scope has been already adjusted for
    IFRS purposes at 31.12.2003
  • Application of SIC 12 leads to consolidate
    (only) 3 additional entities (SPVs)

IFRS 27 FTA impact 0 M
IFRS 27 FTA impact on retained earnings -4 M
pre-tax
  • IAS 18 income recognition
  • Debit card revenues now recognized over their
    life time

IFRS 27 FTA impact on equity 0 M
  • IAS 21 translation adjustments
  • Existing translation adjustments (écarts de
    conversion) under Dexia GAAP are transferred to
    Retained Earnings under IFRS option of IFRS 1
  • IAS 11 Construction contracts
  • In 2004, one project in Belgium generating 10
    M revenues is booked largely in Q1 under IFRS
    (percentage of completion method) while it is
    largely recognized in Q4 under Dexia GAAP

IFRS 11 RUN
Standards Interpretation Committee
38
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

39
Main aggregates at stake
(Bn at 31.12.03)
40
Volatility issues under current accounting
standards
  • Dexia GAAP
  • ALM uses macro-hedging approach
  • Credit Spread Portfolio classification of
    instruments partly at cost (2/3), partly
    LOCOM (1/3)
  • Majority of Money Market/Treasury activities
    recognized in prorata interests
  • Other Treasury and Financial Markets revenues
    generally into trading results
  • US GAAP (FSA only)
  • CDSs are Marked to Market (FASB 133)
    accounting noise as instruments are, de facto,
    Held to Maturity
  • Fair Value adjustments are reversed on
    consolidation, under Dexia GAAP
  • Little, or easily explicable, volatility of
    earnings

41
Composition of portfolios under IFRS
classification (before implementation of Hedge
relationship 32/39)
Above amounts indicated at 01.01.2004 do not
include any of the valuations applicable from
01.01.2005 (IAS 32 39 and IFRS 4)
!
Prorata interest only see slide 22
42
Treatment of Interest Rate Swaps (1)
  • Dexia will use the options offered under EU GAAP
    to reflect the effect of the management of its
    interest risk exposure, which aims at minimizing
    volatility of earnings
  • European portfolio hedge (carve-out)
  • Fair Value hedges
  • Cash flow hedges
  • Fair Value option

43
Treatment of Interest Rate Swaps (2)
  • Interest Rate Swaps used in
  • ALM
  • Results included in the Revenues of Public and
    Project Finance
  • and Personal Financial
    Services
  • Money Market / Treasury activities
  • Impacts on the revenues of . Treasury and
    Financial Markets
  • Other Financial Markets Activities
  • (Financial Engineering and Derivatives Fixed
    income )
  • Impacts on the revenues of . Treasury and
    Financial Markets

Mainly European portfolio hedge (carve-out)
  • Cash Flow Hedges
  • Fair Value Hedges
  • Trading

44
European portfolio hedge (carve-out)
  • Why to choose the  Carve-out  ?
  • It allows to appropriately reflect the current
    sound ALM of Dexia in its financial statements,
    as it does with the macro hedging approach.
  • How does it work ?

Fixed rate assets
100
Selected category of assets (e.g. loans to Public
Sector)
80
Hedged amount
The balance of Fixed Rate portfolios (Assets and
Liabilities) is hedged
30
Fixed rate liabilities
70
The net Swap position hedges an amount of the
selected category of assets
Swaps Net position
30
45
The carve-out approach means a limited impact on
volatility
  • Swap (30) recognized at Fair Value with
    adjustments accounted for in the PL
  • The hedged portion of the selected asset category
    (30) recognized at Fair Value with adjustments
    recognized in the PL
  • De facto limited incidence on the PL
  • The balance (70) is naturally hedged
  • Limited impact on the PL

Interest rate risk exposure only
46
Use of other hedge relationships (1)
  • Credit Spread Portfolio
  • A portfolio of Assets without interest rate risk
    exposure
  • Prorata interests in PL
  • FV adjustment of credit component in AFS reserve
  • Some instruments designated at Fair Value
    (limited use of FV option)
  • FV value adjustments in PL
  • Limited use of HTM portfolio
  • Prorata interests in PL
  • Limited volatility impact on the PL

Provided that the hedge relationship, when it
exists, is fully effective
47
Use of other hedge relationships (2)
  • Money Market/Treasury
  • Short term funding activities partly use
    derivatives for hedging purposes
  • ? Mostly as ? Partially as
  • Cash Flow Hedges Fair Value Hedges
  • FV adjustments accounted FV adjustments
    accounted
  • for in the CFH Reserves for in the PL
  • Trading activities
  • Full impact of Fair Value adjustments in the PL
  • (no change from current situation)
  • Volatility, mainly in the Reserves

48
FSA Case
  • Financial guarantee contracts (FSA)
  • Generally not recognized as Financial Assets (IAS
    39) but rather as Insurance Contracts ruled under
    IFRS 4, which means application of local GAAP
    (US GAAP)
  • Exception CDSs are considered derivatives Fair
    Value adjustments in the PL (same treatment in
    FSA under US GAAP and Dexia consolidated accounts
    under EU GAAP)
  • Volatility explicable, as for FSA currently

49
IAS 39 Impairments on financial instruments
  • Specific impairments on loans and bonds
  • under Dexia GAAP, impairments are based on the
    estimated recoverable amount
  • under EU GAAP, impairments are based on NPV of
    cashflows
  • Write-back is possible
  • Statistical impairments on loans and bonds
  • under Dexia GAAP, there are statistical, sectoral
    and country risk provisions
  • under EU GAAP, there is only one statistical
    provision based on past experience (Methodology
    based on Basel 2 approach)
  • Impairments on equity portfolios
  • Impairments only if
  • difference between market and accounting value
    exceeds 25
  • and decision of CFO Committee
  • Write-back is not allowed

the Legiolease credit provision is IFRS
compliant it is deducted from the related assets
50
IFRS 4 Insurance contracts
IFRS 4 FTA impact 28 M
  • Provision for catastrophe equalization of
    insurance companies (28 M as of January 1, 2004)
  • No FTA impact following Liability Adequacy test

51
IFRS 4 Insurance contracts
  • Overall principle
  • If risk is for the insurer ? IFRS 4
  • e.g. Branch 21 (of which 92 of the technical
    provisions are ruled by IFRS 4)
  • - Assets Mainly in AFS
  • - Liabilities in Technical Provisions (no
    change from local GAAP)
  • - Technical Results -gt Technical Margin in
    Insurance Companies
  • - Financial results -gt split into all other
    lines of the revenue
  • If risk is for the client ? IAS 39 for the saving
    component
  • e.g. Branch 23 (of which 97 of the technical
    provisions are ruled by IAS 39) - Assets
    designated at Fair Value
  • - Liabilities designated at Fair Value
  • - Technical Financial Results
  • -gt into Net trading income and Results of
    Hedge Accounting

RUN
Balance Sheet
PL
Balance Sheet
PL
  • Some volatility, mainly in AFS reserves (Branch
    21)

52
IFRS
  • Transition towards IFRS in 2004 and 2005
  • Main changes in financial statements
  • First Time Adoption (FTA) impacts on Equity at
    January 1, 2004
  • First Time Adoption of IAS 32 39 and IFRS 4, on
    January 1, 2005 - EU GAAP
  • Key ratios under EU GAAP

53
Impacts on regulatory ratios
  • 2004
  • Regulators will not use IFRS approach to monitor
    solvency
  • In 2005 Impact not quantifiable
  • FTA impacts 01.01.2005 not finalized
  • Regulators did not yet express their requirements
  • Modalities of implementation of European
    Directive on financial conglomerates still to be
    defined at national level

54
Ratios (1) ROE
  • Definition under Dexia GAAP
  • Annualized Net income / Weighted average
    shareholders equity
  • (excl. GBRR and Treasury Shares, and after
    income appropriation)
  • Main adjustments under IFRS in 2004
  • GBRR now included in equity
  • translation currency reserve not taken into
    account
  • Q1 2004 Ratios
  • Old 22.2
  • New 19.6
  • When Dexia publishes its results with IAS 32 39
    and IFRS 4 (in 2005), the volatile elements (AFS
    CFH Reserves), will be isolated
  • and only the core ROE will be monitored

55
Ratios (2) Cost/Income Ratio
  • In 2004 underlying Cost /Income Ratio will be
    impacted only marginally (less than 50 bp)
  • mostly due to
  • treatment of Net income from associates ,
    previously below the line, and now in  Income
  • Share-based payments


-
56
Ratios (3)
EPS Definition Net income / Weighted average
number of shares, excluding treasury stocks
In Q1 2004
  • Dexia GAAP
  • Basic 0.43 EUR
  • Fully diluted1 0.42 EUR
  • IFRS
  • Basic 0.45 EUR
  • Diluted2 0.45 EUR (average market price 14.4
    EUR)

1 after exercice of all options 2 options have a
dilutive effect if they are in the money
57
Summary of IFRS/EU GAAP impacts
  • Starting equity base at 01.01.04 increases by 1.6
    Bn to 11.4 Bn
  • FTA application on 01.01.05 of IAS 32 39 and
    IFRS 4 (excluding Treasury Shares) is not
    expected to have a negative impact on Equity
  • Use of European Hedge Portfolio ( Carve-out )
    allows no radical change in ALM policies and
    procedures, and should not materially change
    volatility of earnings from 2005 onwards
  • Some activities will generate some  accounting
    noise 
  • CDSs at FSA in the PL
  • Some Treasury and Financial Market mostly in the
    Reserves
  • Impact on Regulatory Capital Ratios is still not
    quantifiable

58
Introducing a new approach to Economic Capital
59
Current framework
Regulatory Capital
  • Basel I requirements
  • On-going monitoring of main Groups entities
  • (Dexia Crédit Local, Dexia Municipal Agency, FSA,
    Dexia-Crediop, Dexia Bank,)
  • Scenario based approach developed in-house and
    introduced in 1999

Rating Agencies
Economic Capital
60
Why change ? Primary objectives
  • Take into account improvements of Basel II
    (Pillar 1)
  • Credit Risk
  • Operational Risk
  • Converge towards Basel II requirements (Pillar 2)
  • Establish a more elaborate and comprehensive risk
    management tool enabling to measure business
    performance (economic profit) and allocate
    capital appropriately

61
Timing
2004
2005
2006
2007
2008
Current framework carried on
New New framework framework introduced
implemented
Basel II starts
62
From Regulatory Capital to Economic Capital
 Economic Capital  defined so as to be used for
Basel II Pillar 2 purposes
63
The Regulatory Framework Basel II Pillar 1Focus
on credit risk
  • Three options
  • Standard
  • Internal Rating Based (IRB) Foundation
  • Probabilities of Default (PD) estimated
    internally
  • Loss Given Default (LGD) given by the Regulators
  • Internal Rating Based (IRB) Advanced Dexias
    Choice
  • All parameters (PD, LGD, ) estimated internally

64
The Regulatory Framework Basel II Pillar 1Impact
on Risk-Weighted Assets for credit and
operational risks
  • Estimated impacts on risk-weighted assets
    results for the advanced method of Quantitative
    Impact Study 3 (QIS 3) completed in 2002, based
    on exposures at 30.06.02

Risk-Weighted Assets
(Bn)
65
Economic Capital encompasses all types of risks
  • Definition
  • Economic Capital is the amount of capital needed
    to cover potential unexpected economic losses
    under stressed conditions,
  • Reminder
  • Expected losses are either covered through
    provisions, or built in the margin
  • Economic Capital is calculated principally on the
    basis of a statistical methodology, and
    marginally through scenario methods

66
New framework for Economic Capital will be
introduced in 2005 and will be fully operational
in 2006
  • Previous method was fully based on scenarios the
    new method is largely based on a statistical
    approach, with an Interval of Confidence (IC) of
    99.97, on one year horizon (consistent with
    AA/Aa2 rating)
  • Measurements
  • Credit Risk Credit VaR for all portfolios at
    Dexia IC (progressively)
  • Equity Marked to Market potential loss at Dexia
    IC
  • Interest Rate Currency Risk estimated long
    term VAR at Dexia IC
  • Operational Risk Basel II standardized approach
    at Dexia IC
  • Business, behavioural, scenario based
    approaches

67
Main types of risks by business line
  • Public / Project Finance
  • Credit Risk
  • Interest rate risk (banking Book)
  • Personal Financial Services
  • Interest rate risk (banking book)
  • behavioural Risk
  • Operational risk
  • Investment Management and Insurance Services
  • Operational Risk
  • Treasury and Financial Markets
  • Credit Risk
  • Market risks on trading book
  • Central Assets
  • Equity

68
Distribution of economic capital by main types
of risk
A first approach based on June 30, 2004 data
Behavioral risk, currency risk, business risk,
participation in Crédit du Nord
69
From Regulatory Capital to Economic Capital
The amount of economic capital may change from
time to time with continuing refinements of the
risk measurement methodology
!
Total reg. Capital
12.1
(Bn at 30.06.04)
Tier One Capital
Basel II Net impact of other risks
Basel II Pillar 1 (at Dexia IC)
Basel II Pillar 1 (all Pillar 1 risks included)
Basel I  Cooke  8
Current Regulatory capital
Economic Capital
IC 99.97 insurance business behavioural
diversification impact deducted
70
Principal impacts of changes
  • Q1 2004 PL
  • from old to new referential

71
Reminder
  • New segmentation fully introduced
  • IAS 32 39 and IFRS 4 not yet enforced in 2004
  • New approach to  Economic Capital  introduced
    (test phase)
  • New treatment of nonrecurring items

72
From Dexia GAAP to IFRS
Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
73
From Dexia GAAP to IFRSImpacts on Revenues
(M)
Application of other IFRS rules
Gains on sale of properties
Income from equity-acc. cies
Gains on LT invest.
Now in revenues
Revenues under IFRS
Revenues under Dexia GAAP
i.e. nonrecurring items
Without IAS 32 39 and IFRS 4
74
From Dexia GAAP to IFRSImpacts on Costs
(M)
Costs under Dexia GAAP
Costs under IFRS
No longer in costs
Gains on sale of properties
Application of other IFRS rules
i.e. nonrecurring items
Without IAS 32 39 and IFRS 4
75
From Dexia GAAP to IFRSImpacts on other items
(M)
Other under Dexia GAAP
Other under IFRS
Now in revenues
No more Amort. Goodwill
No more GBRR
Gains on LT invest.
Income from equity-acc. cies
Application of other IFRS rules
i.e. nonrecurring items
Without IAS 32 39 and IFRS 4
76
From old to new referential - Business lines (1)
Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
77
From old to new referential - Business lines (2)
Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
78
From old to new referential - Business lines (3)
Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
79
From old to new referential - Business lines (4)

Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
80
From old to new referential - Business lines (5)

Q1 04 results
(M)
Without IAS 32 39 and IFRS 4
81
Summary of changes stemming from new financial
reporting referential in the net income
underlying
Without IAS 32 39 and IFRS 4
82
Appendices
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