Activity, results and integration progress as of september 30, 2001

  • Marked growth in outstandings. Sectors report significant commercial advances in each of the group's lines of business
  • Net income up 47.4% at EUR 1,092 million (9 months)
  • Net income per share up 9.4%
  • Significant expected from the integration of Artesia BC
  • Creation of Dexia Bank Nederland

Consolidated statement of income (1)
(EUR millions)
Change Sept 2001/Sept 2000
Operating expenses
Gross Operating income
Write-downs and allowances
Corporate income tax
Net income from companies accounted for by the equity method
Net income before minority interests
Minority interests
Net income
(1) It should be noted that Financial Security Assurance in the United States and Bank Labouchere in the Netherlands were the main companies newly consolidated by the group as of July 1, 2000. Artesia Banking Corporation in Belgium is the main company newly consolidated by the Dexia group as of January 1, 2001, and Kempen &co as of July 1, 2001.

I - Strong growth in outstandings and in business lines' activities

In the first nine months of the year, in an environment marked by a downturn in equity markets and significantly slower growth in the principal developed countries, Dexia's businesses have pursued their activities in a globally satisfactory way, and contributed together to the group's good results.

1. Public Finance

This line of business posted significant growth in all respects.

  • - Long-term outstanding commitments increased by 10.3% in 12 months to EUR 141.8 billion (EUR 115.1 billion excluding Germany), of which EUR 3.9 billion from the consolidation of Artesia BC.
  • - Customers assets increased by 63.3% in 12 months to EUR 16.0 billion as of September 30, 2001 (of which EUR 4.7 billion from Artesia BC, representing 41.6% of the rise).
  • - Since the beginning of the year, Dexia-Sofaxis has continued to report strong growth in its insurance brokerage activity in France. At EUR 203 million, premiums increased by 62.4% compared with the same period in 2000. In addition, DVV - Les Assurances Populaires, Artesia's insurance subsidiary, posted revenues of EUR 71 million in this segment of clientele in Belgium, bringing premium income to a total of EUR 274 million for the first nine months of 2001.
  • - Finally, FSA reported very strong growth in business in the first nine months in both the credit enhancement of municipal bonds and asset-backed securities. Outstanding municipal debt insured by FSA totaled EUR 101.4 billion as of September 30, 2001, rising significantly in 12 months (+20.4%). In this sector, FSA was the leader in the third quarter with a market share of 30%. Outstanding asset-backed securities insured by FSA increased even more to EUR 87.2 billion as of September 30, 2001, representing growth of 48.0% in 12 months.

Now the world leader in this sector following the acquisition of FSA, Dexia benefits from significant growth opportunities which exist in the different markets in which the group operates. Operational bridges and the sharing of expertise already make it possible to exploit synergies among the different entities. For example, the combination of Dexia's and FSA's know-how's have led to the introduction of a single product offering for American municipalities in the area of floating rate debt . Twelve transactions have been won , representing insured outstandings of USD 1.55 billion. In addition, in the current economic environment, business has grown significantly as a result of many factors: stronger demand for financing by local players; the widening of the credit spreads which improves pricing conditions ; a flight to quality on the part of bond investors who favor AAA rated securities , which explains that the percentage of bonds insured has risen ; and finally significant business in active debt management by public-sector borrowers in the main European markets.

2. Retail Financial Services

This line of business also reported a rise in outstandings, owing partly to the acquisition of Artesia BC and partly to the development of existing businesses.

  • - As of September 30, 2001, customers assets totaled EUR 76.9 billion, up 29.9% from the end of December 2000, a rise mainly due to the consolidation of Artesia BC. Disintermediated products represented 38.5% of total customer deposits and investments. Excluding the consolidation of Artesia, customer deposits and investments decreased by 2.2%, reflecting several contrasting factors: positive new flows in all product categories (either in or off-balance sheet), except for savings bonds, which continued to decline (EUR -1.9 million in nine months), in line with the group's policy to reduce this product's volumes . In mutual funds, which totaled EUR 12.2 billion (excluding Artesia) as of September 30, 2001, compared with EUR 13.1 billion as of December 31, 2000, the drop in stock market values eroded total assets by EUR 2.1 million, while in nine months, new money totaled EUR 1.5 billion, reflecting sustained commercial activity.
  • - Outstanding retail loans totaled EUR 20.6 billion as of September 30, 2001, representing an increase of 44.8% in nine months, of which 37.0% was due to the contribution of Artesia BC, and 7.8% to organic growth over twelve months.
  • - Finally, retail insurance activities continued to report very strong growth (+141.7%), as new business totaled EUR 1,512 million in the first nine months of 2001. The contribution of the newly consolidated Artesia BC was EUR 591 million and that of Dexia's own networks EUR 921 million (+47.4%).

3. Investment Management Services

This sector of activities demonstrated good resistance to an economic environment characterized by a marked downturn in the stock markets.

  • - Assets managed for private banking clients together with Labouchere's share leasing products totaled EUR 40.0 billion as of September 30, 2001, compared with EUR 36.9 billion on December 31, 2000. The impact of changes in consolidation contributed EUR 7.7 billion to this increase (Artesia BC contributed EUR 3.6 billion, and Kempen & Co EUR 2.7 billion), whereas market valuations led to a reduction of EUR 3.8 billion.
  • - Assets under management increased by EUR 19.4 billion in nine months to EUR 75.3 billion as of September 30, 2001. Despite lackluster market performance, there was a net increase in assets under management of EUR 0.5 billion. Market valuations led to an erosion of EUR 5.2 billion in the value of assets under management. Finally, the impact of the consolidation of new companies augmented the volumes of assets under management in the amount of EUR 16.5 billion with respect to Artesia, and of EUR 7.6 billion for the other acquisitions.
  • - In investment fund administration, the outstandings of capital administered suffered from the drop in stock market values, but this business continued to grow in terms of the volume of transactions, which are the main profit driver. The number of transactions conducted as a custodian bank was 20.2% higher than in the first nine months of 2000 ; the number of portfolios centrally administered increased by 8.5% over September 30, 2000; and the number of transfer agent transactions was up 20.7% in the same period.

II - Strong growth in consolidated net income

In a less and less favorable economic and financial environment, in particular in the banking and financial sector, since the beginning of the year, the Dexia group reported 47.4% growth in net income to EUR 1,092 million as of September 30, 2001, compared with EUR 741 million the previous year. This rise reflected both the very good resistance of the group as a whole, which can be attributed to its well-balanced business portfolio, and also to the broadening of its scope of consolidation. The contribution of the results of the companies consolidated in the last twelve months (mainly Financial Security Assurance, Bank Labouchere, Artesia Banking Corporation and Kempen & Co) represented 82% of the increase recorded.

The 9.4% increase in net income per share demonstrates that growth was once again profitable.

Revenues totaled EUR 4,271 million as of September 30, 2001, versus EUR 2,849 million in September 2000, representing an increase of EUR 1,422 million, almost 50%. This rise was due to changes in consolidation in the amount of EUR 1,353 million. The components of revenue in the first nine months of 2001 reflected trends corresponding to the group's strategy. Net interest and related income increased by 36.1% and accounted for 63.3% of the total revenues. Net commissions and other revenues increased by 38.7% to EUR 1,047 million; they represented 24.5% of the revenues. Finally income from insurance activities reported very strong growth (EUR +413 million), particularly reflecting the consolidation of the activities of FSA and Artesia in this field, but also sustained development in Dexia's insurance activities existing prior to these acquisitions, which alone increased by 21.3%. Income from insurance activities accounted for 12.2% of total net banking income reported by the group.
At the end of September 2001, operating expenses stood at EUR 2,440 million, up EUR 943 million from the first nine months of 2000. This increase was due to changes in consolidation in the amount of EUR 877 million.
The cost/income ratio, stood at 57.1% (52.5% in the first nine months of 2000 and 55.4% for the year 2000). It continues to be one of the best in the banking sector in spite of the increase, which was among other due to changes in consolidation and, in particular, to the consolidation of Artesia BC. To realign the trend with the group's medium-term objective (reduction of this ratio to less than 50% in 2004), it has been decided to put in place a strict cost-control plan for the whole group, and in the each of the different business lines, and more especially in those which are currently affected by the unfavorable stock market environment. Accordingly, the group expects that its cost base in 2002 will not exceed that of 2001, at constant scope.
Write-downs and allowances and provisions for loan losses and off-balance sheet items (excluding goodwill amortization) totaled EUR 147 million as of September 30, 2001, compared with EUR 121 million a year earlier. This net increase of EUR 26 million was the result of several trends.

  • - Capital gains from the portfolio of investments were EUR 29 million more than as of September 30, 2000, mainly because of the sale in 2001 of the equity interest in Banco de Crédito Local in Spain and of the reduction to 25% of the group's equity interest in Fortior.
  • - The net bad debt charge increased by EUR 91 million compared with September 30, 2000, owing partly to changes in the scope of consolidation (in the amount of EUR 68 million) and partly to an increase in provisions. The latter rise reflected, among other trends, an exceptionally low level of provisions in the first half of 2000. Despite this increase, the group's annualized net bad debt charge remained at a very low level of 0.105% of outstanding client commitments on the balance sheet and off-balance sheet, as compared with the banking sector average.
  • - The net allocation to the general banking risks reserve was EUR 44 million. It had been EUR 80 million in the first nine months of the previous year, reflecting increased non-recurring income realized in 2000.

Corporate income tax, which also included deferred taxes, stood at EUR 511 million, up 16.7% from the same period in 2000, with the rise in income attenuated by the decline in the effective rate of taxation for the group.

Income from companies accounted for by the equity method (net of amortization of goodwill) totaled EUR 33 million, compared with EUR 26 million a year earlier for an increase of 25.0%.

In the first nine months of 2001, net income before minority interests stood at EUR 1,163 million, up 48.7% from the same period in 2000. Net income before minority interests reflected balanced contributions from the group's different businesses. Public and project finance accounted for 46.2%; retail financial services for 16.6%; private banking and investment management services for 18.4%; and capital markets for 18.9%.

Net income was EUR 1,092 million, compared with EUR 741 million in the first nine months of 2000, representing an excellent increase of 47.4% from one period to the other.

Net income per share totaled EUR 0.96, compared with EUR 0.88, up 9.4%. This growth is particularly satisfying, for it enables Dexia to rank among the European banks reporting the best performances and to be in line in terms of the group's objective to double net income per share by 2005, as announced last year.

III - Integration of Artesia Banking Corporation

The acquisition of Artesia Banking Corporation marks a major stage in the Dexia group's growth, and its integration is now Dexia's most important project.

Dexia Bank and Artesia chose to integrate as rapidly as possible, in order to set up the most efficient commercial organization while exploiting major synergies. These were the subject of a highly detailed evaluation which started as soon as the transaction was effectively concluded on July 3, 2001.

On the basis of the reports submitted to the integration committee and approved by the group's Executive Board, the total amount of synergies expected from the integration is between EUR 220 million and EUR 255 million per year (before taxes) achievable in full in 2005. Of this total, between EUR 40 million and EUR 55 million represent net additional revenues, i.e. after accounting for improvements but also losses of revenues linked to cutbacks in certain activities. This plan is higher than the estimate made at the beginning of the year and announced in March 2001. Synergies involving revenues will mainly come from the harmonization of product lines, existing complementarity between the asset management and private banking activities of the two entities, and the generalization of a multi-distribution approach (adaptation of distribution channels to targeted clientele segments).

On the cost side, savings of EUR 180 million and EUR 200 million are forecast for 2005 on a full year basis. They had initially been estimated at EUR 170 million. They represent more than 10% of the current combined cost base of Dexia Bank and Artesia BC. Synergies affecting costs will involve three main focuses: the re-sizing of the retail banking network in Belgium and the corresponding reduction in real estate occupied; the integration of the two banks' teams and IT platforms; and finally, the melding of back offices and general services.

The calendar for achieving these synergies calls for a regular increase so that a recurring level is reached in 2005. With respect to cost synergies, approximately 14% of the expected annual net savings should be achieved in 2002, approximately 27% in 2003, and approximately 47% in 2004. For synergies involving revenues, the calendar calls for a first year with a net reduction in revenues representing approximately 25% of the annual envelope of additional net revenues expected on a full year basis. At the end of 2003, 15% of the annual synergies programmed should be achieved, and this percentage will then rise to 50% in 2004 and 100% at the end of 2005.

The next stages in the integration of Artesia Banking Corporation, in addition to negotiations with the staff representatives which began last October and are currently under way, involve the legal merger (scheduled for April 2002) and the effective integration of the networks of Artesia BC and Dexia Bank in 2003.

IV - Merger of Kempen & Co and Bank Labouchere. Creation of Dexia Bank Nederland

The merger was announced in September 2001 following the successful takeover bid for Kempen & Co, and it is currently being carried out. The two banks have already been placed under the authority of a single management team and they will be merged under the name Dexia Bank Nederland at the beginning of next year.

This merger will allow Dexia to occupy a position of first importance in the Netherlands in asset management, private banking, financial services for high net worth individuals, stock market brokerage for individual and institutional clients, and finally advisory services and financial engineering. This entity already represents EUR 450 million in revenues, and EUR 200 million in operating income before allowances.

In all these activities, the teams of Kempen & Co and Bank Labouchere already have very good reputation, which will be further enhanced under the Dexia banner.

The merger of the two entities will make it possible to exploit major synergies involving costs and revenues estimated overall at EUR 40 million per year (EUR 25 million in costs and EUR 15 million in revenues) which will be achieved by 2003.

Beyond this merger, under the authority of the Chief Executive Officer of Dexia Bank Nederland, there will be a central coordination of all the group's activities in Europe in the sectors of advisory services, equity brokerage and equity derivatives under the name Dexia Securities.

These activities are currently conducted by different entities in the group in their respective markets (Dexia Securities France - formerly ODB- , Kempen & Co and Bank Labouchere in the Netherlands, Artesia Securities and Dexia Bank in Belgium, Dexia BIL in Luxembourg). These entities employ some 300 professionals and report cumulated revenues of approximately EUR 170 million.

The organization and integration of all these resources will contribute to the creation of a pole of competence which will improve the level of service offered existing clients and strengthen the strategic position of the group's Investment Management Services business in the Euronext zone.