Dexia Investor Day

The Dexia group is holding an Investor Day today in Paris, with four main themes being addressed:

1. Implementation of the IFRS - Modification of the accounting and analytic referentials

The impacts on management accounts of the reorganization decided in 2004 and effective in 2005, as well as the impacts of the changeover to IFRS, have been described by Rembert von LOWIS, Group Chief Financial Officer. The main impacts are summarized below.

Summary of main IFRS impacts

  • Increase of the shareholders' equity in opening balance sheet as of January 1, 2004.
  • The changeover to the new standards leads to a slight positive increase of the net income of the first quarter 2004.
  • No negative impact is expected from the first application of the IAS 32&39 and IFRS 4 on the shareholders' equity in opening balance sheet as of January 1, 2005, except the impact of the treasury shares which will be deducted from them.
  • The use of the "European Portfolio Hedge" ("carve out") will allow to appropriately reflect the current sound balance sheet management in the accounts, with a limited impact in terms of volatility of earnings and reserves.
  • Some activities will generate accounting volatility.

The first time adoption of the IFRS as of January 1, 2004 (except IAS 32, IAS 39 and IFRS 4) leads to an increase by EUR 1,651 million of the group shareholder's equity (capital and reserves), from EUR 9,790 million under the previous standards to EUR 11,441 million under the new standards. This increase stems from (pre-tax impacts):

  • General Banking Risks Reserves being now in equity: EUR + 1,793 million
  • obligations regarding the pension benefits: EUR - 322 million
  • reversal of provisions previously accounted in liabilities: EUR + 136 million
  • adjustments on tangible assets: EUR + 24 million
  • depreciation of intangible assets: EUR - 45 million
  • other adjustments, including tax impacts: EUR + 65 million

Q1 2004 financial results of the group and of its various business lines under the new referentials were compared to those established under the previous ones.

This comparison underlines that, for the period concerned, whilst the structure of the income statement differs quite substantially, the net income under IFRS is only slightly above the one accounted for using the previous standards. Nevertheless the first quarter 2004 is not representative of the entire year, as certain expenses are incurred in the second part of the year, and besides IAS 32 &39 and IFRS 4 are not applied in 2004.

The impact of the first application of the IAS 32, IAS 39 and IFRS 4 standards on January 1, 2005 has been analyzed and more precisely, the classification of portfolios and the accounting treatment of derivatives in hedge relationships. The Dexia group has chosen to apply the European Portfolio Hedge ("carve out") regarding the hedging of its interest risk exposure. This option allows Dexia to appropriately reflect its current sound asset and liability management in the accounts, with a limited impact in terms of volatility of earnings and reserves. However, the changeover to the new standards will cause accounting volatility related to some activities (in Credit enhancement business and parts of Treasury and Financial Markets) either because those activities use derivatives which will be recognized at fair value with adjustments accounted for in the income statement (such as the Credit Default Swaps insured by FSA), or because they use derivatives for hedging purposes, with fair value adjustments recorded in the reserves.

2. New calculation method of Economic Capital

The Dexia group has undertaken to reform its methodology to calculate economic capital. It did so in view of the forthcoming introduction of new standards under Basel II, and so as to take the "pillar 2" prescriptions into account. The reform concerns three main aspects: i) the changeover from the scenario-based method to a more statistical method; ii) the consideration of all natures of risk for banking and insurance activities (credit risk, market risk, exchange risk, operational risk, behavioural risk, …); and finally iii) the raising of the confidence interval to 99.97%, corresponding the AA/Aa2 criteria of rating agencies, which is the group's objective. The economic capital was calculated with this new method on the situation at June 30, 2004; it reaches EUR 8.7 billion and is thus materially below the regulatory capital on the same date (EUR 10,9 billion as Tier One ratio, and EUR 12,1 billion as total capital ratio, under current regulatory capital standards).

3. Present situation and prospects for the group's core business: Public/Project Finance and Credit Enhancement

Part of the investor day consists in presentations of Jacques GUERBER, member of the Management Board of Dexia, and Chief executive of the business line; Robert COCHRAN, Chairman & Chief Executive Officer of Financial Security Assurance (FSA) and Bruno DELETRE, Managing Director of Dexia Crédit Local.

Business results and FSA financial results, disclosed on February 9th, were discussed. Guidelines and strategies were developed concerning, among other, the enlargement of the range of products and service, the diversification in terms of types of customers, and the current and future development of new operations.

4. Performance and financial objectives of the group in the mid-term

Pierre RICHARD, Chairman and Chief Executive Officer of the Management Board of Dexia, started by talking about the year 2004. He then explained the main financial objectives of the group for 2007.

Earning growth expectations maintained for 2004

2004 was an excellent year for Dexia in terms of commercial activity as well as of earning growth, which was predicted early in the year. The expected high double-digit growth year on year is therefore confirmed both for the underlying earnings and for total earnings (i.e. including nonrecurring items). The group also completed its share buy-back objective for the year by reinvesting about EUR 700 million, representing 4% of the existing shares -which are to be cancelled upon decision of the next annual general shareholders meeting - and will carry on its share buy back program in 2005.


The main hypotheses and contents of the 2007 plan, presented to the Board of Directors on February 3rd, have been described at the investor day. The main financial objectives are: i) an annual average growth of the earnings per share above 10%; ii) a growth of the dividend per share of at least 10% every year; iii) bring the cost/income ratio down to about 52.5% in 2007, and iv) achieve return on equity of 16.5% in 2007.

Pierre RICHARD declared:

"The main objective of our plan is the creation of value. The three years to come will be dedicated to the achievement of this goal but also to the preparation of our long-term future, by detecting future growth levers, while being conscious of our shareholder's increasing requirements in terms of efficient use of our capital.

Our priorities lie in the growth of the revenues of our business lines -, based on a targeted and bold commercial development -, on the careful management of costs and the search of synergies within the group.

Dexia benefits from an excellent visibility on its revenue and results. This stems directly from the nature itself of Dexia's activities. This fundamental characteristic of Dexia, and its structural ability to generate wealth, gives us the capacity, as was the case in 2004, to finance our organic development, deliver a robust and growing dividend, and make value creating investments."

The documents presented at the Investor Day are accessible on the website: