Dexia's Board of Directors
met in Paris on March 14, 2002 to approve the group's accounts for the
financial year 2001. In commenting on them, Pierre Richard, Chief Executive
Officer and Chairman of the Management Board, declared:
'2001 marked a change
of scale for Dexia. Net income was up by 42.5%, to 1,426 million Euro,
the strategic acquisitions made in the last two years having contributed
to a large extent to this progression. With this level of earnings,
Dexia counts among the leading players of the banking sector in Europe.
Even more important
is the 9.1% increase in earnings per share, making 2001 the fifth consecutive
year of significant EPS growth since the creation of the group.
is all the more remarkable as it was achieved in a particularly difficult
environment, putting a heavy pressure on the revenues and on the cost
of risk throughout the banking sector globally. This confirms the validity
of the group 's strategy and of its business portfolio which allows
a resilience of the revenues and a very low risk level.
These healthy results
were achieved at the same time as the group was making considerable
efforts to develop its own activities in 2001 and to integrate the newly
acquired companies, whilst bearing the corresponding costs.
The increase in
operating expenses was higher than that of the revenues for the whole
year. Nevertheless, the rise of the revenues and the stabilization of
costs in the 4th quarter helped the underlying gross operating income
to mark a very satisfactory increase of more than 10% over the 3rd quarter.
We were thus able to stabilize the underlying gross operating income
throughout the whole of 2001.
Now our first priority
for 2002 is to continue working on the costs. Our other priority is
to implement Artesia's integration successfully, insuring the release
of synergies and the continued growth in our profits."
(If the goodwill
relating to the share exchange offer on Dexia BIL shares (in 1999), the
acquisitions of FSA and Labouchere (in 2000) of Artesia BC, Kempen&Co
and Financière Opale Group (in 2001) had been activated and amortized
over a period of 20 years, ROE's would have been 11.8% in 2000 and 9.2%
in 2001. The goodwill on Artesia BC includes the provision for integration
costs born by Artesia BC and written off its reserves.)
I. New growth in profit in 2001
Net Income for 2001
recorded an increase of 42.5% to EUR 1,426 million. This comes after the
30.6% increase in 2000 compared to the previous year. This year again,
profits progressed, particularly under the impact of the recent major
acquisitions . These expanded the basis of the earnings but they have
also given rise to an additional burden of expenses related to these projects.
(The principal additions to the group structure in 2001 were Artesia
(12 months), Financière Opale (12 months), FSA (the first 6 months),
Labouchere (the first 6 months), Kempen (the last 6 months) and Ely Fund
Managers (the last 6 months)
Revenues grew by 51.7%
settling at EUR 5,665 million. This growth can be explained partly by
the changes in the consolidation scope. On a like for like basis and excluding
exceptional items, the increase would have been + 5.3%. In the environment
prevailing in 2001, this increase is quite satisfactory and compares favorably
within the banking industry. Net interest and related incomes increased
by 36.9% in total, and 9.5% on a like for like basis and without any exceptional
items. Commissions and other income rose by 52.2% in total, but if exceptional
items and changes in the scope of consolidation are excluded, this category
of revenues fell by 6.4% in one year. On the other hand, Income from insurance
more than tripled compared to 2000. At constant scope of consolidation
the growth was very high (+18.4%). Revenues from insurance activities
now represent 12.3% of total income as compared to only 5.8% a year earlier.
amounted to EUR 3,371 million, an increase of 63.9%, and by 9.8% excluding
the changes in the scope of consolidation, exceptional items and costs
for the integration of Artesia. These latter costs represented a charge
of EUR 127 million on the year's accounts.
The gross operating
income rose to EUR 2,294 million, against EUR 1,678 million in 2000, an
increase of +36.7%. Excluding the changes in the scope of consolidation,
integration costs and exceptional items, the gross operating income was
almost stable (-0.3%) compared to 2000. This stability stems from two
factors which have combined. First of all, the activity linked to external
growth and integrations added in different ways to the operating costs,
and yet these costs have not always been treated as extraordinary items.
Secondly, the very strong increase in commercial activity in 2000 led
the group to dimensioning its resources, particularly in the Investment
Management Services business line, to meet a new year of growth in income,
which eventually didn't come through. On the contrary, the downturn in
the markets made the customers more cautious, resulting in a decrease
in the amount of assets under management and a slowing down in the flows
of new business and corresponding commissions. Naturally in this new environment,
the budgets for costs and capital expenditure that had been approved at
the start of the year were revised downwards during the second half. But
this did not prevent the increase in operating expenses being higher than
income in total over the year as a whole. However, this unfavorable trend
was reversed in the 4th quarter as the revenues increased by 4.0%, whilst
operating expenses remained stable (+0.1%).
The Cost/Income ratio
stood at 59.5% in 2001, against 55.1% in 2000. Without the impact of the
changes in the scope of consolidation and the exceptional items, it would
have been 57.3% in 2001, against 54.7% in 2000, which reflects the underlying
trend of operations in 2001. As for the overall cost/income ratio, its
increase results from Artesia, whose ratio was 79.7%. The integration
of this subsidiary, and the synergies which are expected from it are bound
to contribute to a reduction in the group's cost/income ratio in order
to bring it into line with the corporate objective of 50%.
Write downs and allowances
- including the cost of risk, gains/losses or impairments on long term
investments, amortization of goodwill and allocation to, or write back
from, the General Banking Risk Reserve - rose to EUR 283 million, an increase
of 21.5% compared to the 2000 figure (EUR 233 million). Several factors
account for this rise. The cost of risk was EUR 281 million, an increase
of EUR 167 million. EUR 69 million of this is due to the changes in the
scope of consolidation. The remainder reflects the deterioration of the
risks in 2001 (Enron: EUR 22 million; Argentina: EUR 6 million; Sabena:
EUR 16 million; share leasing portfolio in the Netherlands: EUR 25 million).
In addition, provision of EUR 51 million was made on one single case (and
covering almost the entirety of the risk of loss) following a fraud identified
in the debtor's accounts - a hospital in Chicago. Despite this heavier
charge, the cost of risk for Dexia has remained very low, at 14 basis
points of the total of customer commitments. This is approximately one
third of the average ratio of the banking industry. Besides, the net gains
and recoveries on long term investments stood at EUR 13 million in 2001,
against EUR 31 million in 2000. The amortization of goodwill was EUR 56
million (against EUR 49 million in 2000). Finally EUR 41 million was written
back from the General Banking Risk Reserve (against an allocation of EUR
101 million in 2000), in the context of all the specific charges for 2001
and particularly those related to the integration of Artesia.
The ROE stood at 18.7%
this year, against 17.7% in 2000.
Earnings per share,
at EUR 1.25 made a further and healthy progression this year, of + 9.1%.
Tier One capital ratio
of the group stood at 9.3%, unchanged compared to the end of 2000.
By business lines,
the performance was uneven, but taken as a whole, their contribution to
the group contributed to the overall resilience, and allowed to withstand
the unfavorable economic climate of 2001.
Finance and credit enhancement business produced a net income before minority
interest of EUR 719 million, up 63.1% in one year, largely due to the
changes in the group structure. With the same structure and excluding
exceptional items, the business has stood up well. The underlying revenues
increased by 6.3%, and the underlying gross operating income increased
by 7% over the year. It was up by 12.5% between the 3rd and 4th quarter
in 2001. In addition, despite the provision on the Chicago situation and
the country risk provision linked to Argentina, the cost of risk has remained
extremely low, at 11 basis points of outstanding customer commitments.
Over the year, the net income from this line of business increased by
71.6%, and by 9.9% on a like for like basis. The business line achieved,
again, a high and increasing level of profitability, with a return on
economic equity of 21.4% (against 17.7% in 2000)
In Retail financial
services, the year 2001 showed good resistance in the economic climate.
The revenues stood at EUR 1,762 million, an increase of 58.1%. Most of
this increase was due to the arrival of Artesia. On a like for like basis
and without the exceptional items, revenues increased by 3.2%, showing
a satisfactory performance as a whole, considering the customers' loss
of appetite for investment products, which make up a large part of the
range distributed by the group's retail networks. As a result of this,
commissions and other income were slightly down over the year (-2.8%).
On the other hand, the interest margin stood up well (+2.9%); and technical
and financial margins on insurance increased by a very hefty +49.1%, confirming
the growing success of Dexia Insurance. The underlying gross operating
income for the business declined slightly over the year as a whole (-4.1%),
due to the expenses incurred in the sector, most of which are connected
with the efforts at integrating Artesia. But the underlying gross operating
income went back to growth in the 4th quarter (5.0% more than in the 3rd
quarter) owing particularly to the reduction of the underlying costs (-2.7%).
Over the year, the net income for this business line increased by 38.9%
and by 3.5% on a like for like basis and excluding exceptional items.
The return on the economic equity of the business was 12.4% for the year.
In the business of
Investment Management Services, (private banking, asset management, fund
administration and Equity related activities), the net banking income
increased by 30.6%, under the dual effect of changes in the structure
of the group and the increase in exceptional items and of the negative
organic growth. This has resulted in a drop in the underlying revenues
of 13.6% over the year, but as with retail banking, this trend was radically
reversed in the last quarter of the year (+8.6% compared to the 3rd quarter).
The underlying gross operating income had a similar experience : it fell
by 34.8% over the year as a whole, but it went back in the direction of
growth again during the last quarter (+ 13.3%). The different units within
the business line contributed variously to the underlying gross operating
income over the year. In private banking, the fall was 30%, due on the
one hand to increasing costs (+6%), and on the other to a drop in revenues
(-11%). In asset management, the fall was 42%, due to both the increase
in costs (+19%), and the decline in revenues (-23%). In fund administration,
the fall was 9%, mainly due to the increase in costs (+28%) which became
necessary due to the strong growth of activity in this sector, whilst
revenues continued to climb (+8%), despite the very bad economic climate.
Finally in the equity related activities, the fall in underlying revenues
from one year to the other was quite high (-69%), and the costs also fell,
but to a lesser extent (-29%). In what was a very bad year for the industry
as a whole, Dexia's total net income for this line of business fell by
18.9% compared to 2000, which was, by contrast, an excellent year. It
fell by 40.9%, on a like for like basis and excluding exceptional items.
Despite this, the return on economic equity stood at 46.7%, a decline
compared to 2000 (62.4%), but still remarkably high and well above the
objectives for the whole of the group.
Finally the Capital
Markets and Treasury activities- which are support activities at Dexia
- performed particularly well in 2001. The net income of the business
line grew by 114.5%, partly due to the changes in the group structure
and extraordinary items. On a like for like basis and excluding exceptional
items, it also strongly grew (+37.4%), and this was achieved despite the
weight on the cost of the risk which was made heavier by the Enron's bankruptcy.
The business line continued to produce a high level of profitability with
a Return on economic equity of 23.7%, an increase compared to 2000 (16.9%).
The Board of Directors
will propose a gross dividend of EUR 0.48 per share (EUR.036 net) to the
Shareholders' Meeting on May 7, 2002, an increase of 11.6% compared to
the previous year. The pay out ratio would thus be 39.3%.
information for the year 2001 is given in a full Activity Report which
can be consulted as from now on the group's internet site http//www.dexia.com.
The integration of Artesia
The legal merger of
Dexia Bank and Artesia BC will take place on April 1, 2002, with retroactive
effect to January 1, 2002. The services of the merged bank will be placed
under one single Management Board from April 1st. All the operational
managers for the three top layers of the organization have been appointed;
each function has been staffed, with no overlaps nor duplications. The
timetable originally set for the integration is unchanged. Progress has
been accomplished in the various worksites of the project, and the objectives
for the synergies have been precisely identified, fine-tuned and confirmed.
The plan for the target
network is being discussed in depth with the social partners on the basis
of principles that will enable the transition to take place in the best
possible way for the customers, the most efficient way for the organization,
and naturally with the objective to reach the level of synergies in the
announced time frame: a single brand (Dexia Bank) from January 1, 2003;
common information technology systems, a single management line (Dexia
Bank); a network comprising 1,060 branches, thus implying the closure
of 422 of those existing; these have already been identified in each of
the two networks of Dexia Bank and Bacob.
In the other fields,
the progress to date is on target: the target IT architecture has been
chosen, and the migration towards it of all the applications has been
planned. The ATM networks are accessible by the 2 customer bases indifferently
since the end of 2001; the dealing rooms and their back offices in Brussels
have been merged since the end of December 2001; the asset management
subsidiaries have already been merged under the one brand name of Dexia
Asset Management; the merger of Dexia Banque Privée France and
of Artesia Vernes will take place in the coming weeks; some of Artesia's
assets that are non core for the Dexia group have been sold.
is an essential project for the group, and a great challenge for all the
teams who are working hard on it. Dexia's Management Board gives it the
greatest focus and commitment and the highest level of priority.