RBC DEXIA Investor Services Bank S.A
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Transcript of RBC DEXIA Investor Services Bank S.A
RBC DEXIA Investor Services Bank S.A. Consolidated Financial Statements for the year ended December 31, 2010
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Table of contents Page(s) Management report 3 Overview 3 2010 Business Review 4 Risk Management 6 Consolidated financial statements 8 Consolidated balance sheet 10 Consolidated income statement 12 Consolidated statement of comprehensive income 13 Consolidated statement of changes in equity 14 Consolidated cash flow statement 18 Notes to the consolidated financial statements 19 Independent auditor’s report 102
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Management report This report should be read in conjunction with the consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and the related notes to the consolidated financial statements included in this annual report. The preparation of consolidated financial statements requires management to make estimates and assumptions in the application of certain accounting policies that materially affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. All references in this report to “RBC Dexia Investor Services”, “RBC Dexia IS”, “RBC Dexia”, “Group”, “we”, “us”, “our” or similar terms mean RBC Dexia Investor Services Bank S.A. and its subsidiaries on a consolidated basis. All references in this report to “year”, “period ended” or “financial year” or similar terms mean the period from January 1, 2010 to December 31, 2010. Readers should not place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations and intentions expressed in such forward-looking statements. OVERVIEW Business description RBC Dexia Investor Services is a bank headquartered in Luxembourg. RBC Dexia Investor Services offers institutional investors an integrated suite of products, including global custody, fund and pension administration, securities lending, shareholder services, analytics and other related services. RBC Dexia Investor Services is owned by RBC Dexia Investor Services Limited, a company incorporated under the laws of the United Kingdom. The Company offers clients a unique value proposition – the geographic reach of a global player, together with the
client service quality of a local provider. Headquartered in Luxembourg, RBC Dexia Investor Services has 2725 employees (average FTE) who provide award-winning client services from offices in 12 countries. The Group operates through a global custody network that covers more than 90 markets. 2010 highlights 2010 was a year of recovery from the cumulative impacts of the global economic crisis of 2007-2009. Global equity markets recovered, but were tempered by a low interest rate environment and volatile foreign exchange markets. The return of investors to the market place positively impacted the Group’s assets under administration and revenues. RBC Dexia’s priorities in 2010 remained focused on maintaining superior client service, building credibility in the market-place and leveraging the synergies of its complementary businesses. The Group continues to build on this solid foundation. Multi-jurisdictional clients represented a significant share of new business, underscoring the strength of RBC Dexia’s value proposition. The Group’s dedication to quality and service excellence resonated with clients again this year. Market outlook RBC Dexia Investor Services expects market conditions to show modest improvement in 2011. Our expectations are that equity markets will continue to show modest growth, and we expect to see small central bank rate increases in the latter half of 2011. RBC Dexia will maintain its prudent approach to managing costs, which has proven beneficial in helping to maintain momentum throughout the current year. RBC Dexia continues to benefit from the globalization of the asset management business and increasing outsourcing activity across both middle and back office functions. Reflecting the growing sophistication of the industry, the demand for value-added services, a key revenue contributor, is expected to increase. The Company is well positioned to take advantage of future mutual
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fund growth and increasing allocations to alternative investments in key jurisdictions. RBC Dexia’s geographic and product diversity, long-standing client relationships and core revenue base serve to offset any potential down turn in market activity. Focused goals and priorities RBC Dexia is consistently looking to develop better ways to meet the evolving needs of its clients and to ensure that it builds and strengthens its capabilities. RBC Dexia will continue to focus on helping our clients achieve their ambitions by building sustainable relationships and delivering exceptional experiences. The Group continues to focus on its long-term strategies and targets. At a high level, these goals are to maintain the Group’s global reputation for high service quality and to realize the full potential of the enterprise, particularly with respect to accelerated revenue growth. To help RBC Dexia realize its goals, it has set out the following priorities through 2011 and beyond:
1. Maximise client and revenue growth across the geographic footprint, 2. Enhance and broaden our suite of products and services, 3. Deliver a globally integrated client experience by implementing consistent enterprise approaches that increase quality, reduce costs and improve efficiency.
2010 BUSINESS REVIEW Consolidated results of operations In 2010, the improving market conditions led to a profit after tax of EUR 36 million compared to a loss after tax of EUR 4.6 million for 2009. The Group continued to focus on attractive growth markets and broadening capabilities to serve clients. AUA as at December 31, 2010 was EUR 769 billion, an increase of 16.3% over 2009 essentially due to net new clients and equity market movements during 2010. Analysis of the consolidated income statement
Total revenue for the period ended December 31, 2010 was EUR 371 million compared with EUR 310 million in 2009. This increase was due to improved market conditions from those that prevailed in 2009, tempered by a continued low interest rate environment, The Group derives its revenue principally from two streams: core fee revenue and financial market revenue.
Core fee revenue Core fee revenue is primarily generated by charging a fee based upon the market value of financial assets under management, custody or administration and activities related to securities lending. These fees originate in custody, fund administration, shareholder services and value-added service offerings. Total net core fee revenue for the period ended December 31, 2010 was EUR 256 million compared with EUR 197 million in 2009. This increase in revenue was driven by a combination of higher average AUA, changes in business mix, and higher client activity levels.
Financial market revenue Financial market revenue is driven by earnings on client cash balances, reinvestment of capital, and foreign exchange services. These revenues are principally transaction-driven and dependent upon the global stock markets, foreign exchange volatility and cross border client investment flows as well as client deposit levels and the interest rate environment. Total net financial market revenue for the period ended December 31, 2010 was EUR 121,3 million compared with EUR 120,7 million in 2009. The financial market revenue increase of 0.53% compared to 2009 was essentially due to higher volumes of foreign exchange transactions, driven by higher client activity levels.
Operating expenses Total operating expense for the period ended December 31, 2010 was EUR 330 million compared with EUR 305 million for 2009, a growth of 8.4%. Staff growth related to increased client activities, the building of enterprise infrastructure capabilities and IT investment to improve service and gain efficiencies were the main factors contributing to the increase.
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Analysis of the consolidated balance sheet
Total assets as at December 31, 2010 were EUR 12.6 billion, a increase of 12.6% over 2009.
Assets
Cash and loans and receivables due from credit institutions
The cash and due from credit institutions asset category represent 45.1% of total assets as at December 31, 2010. Reverse repurchase agreements, booked as due from credit institutions represented 6.6% of total assets as at December 31, 2010. For additional information refer to Notes 6.1, 6.2 and 6.3.
Loans and receivables due from customers
The loans and receivables due from customers booked represents 4.7% of total assets. The lending activity is correlated to the custody business. In this respect, most of the loans consist of securities settlement advances, temporary overdrafts, or to a small extent, committed credit facilities highly secured by guarantees, cash or securities. For additional information, refer to Note 6.4.
Financial investments Financial investments represented 43.7% of total assets and consist mainly of bonds issued by entities operating in the Organization for Economic Cooperation and Development “OECD” area. EUR 10 million of these securities are pledged to enable the Group to operate in financial markets.
Intangible assets and goodwill Intangible assets, including goodwill, represent 1.8% of total assets as at December 31, 2010. For additional information, please refer to Note 6.8.
Development costs Development costs incurred are exclusively related to IT project development.
Other assets Other assets represent 2.6% of total assets and consist mainly of settlement accounts and guarantee deposits with brokers.
Liabilities
Borrowings and deposits due to
customers The vast majority, 90.5% of total liabilities, were customer borrowing and deposits. These liabilities are generally in the form of non interest-bearing demand deposits, interest-bearing transaction account deposits and repurchase agreements. For additional information, refer to Note 7.2.
Borrowings and deposits due to credit institutions
Due to credit institutions represent 4.3% of total liabilities and consist essentially of amounts pending settlement of banking transactions. Equity
Total equity Total equity was EUR 826.5 million. For additional information see the consolidated statement of changes in equity. Post-balance sheet Events Post-balance sheet events have been disclosed in Note 5. Credit ratings secured
The parent company, RBC Dexia Investor Services Limited is rated ‘Aa3’ long-term by Moody’s with Stable Outlook and ‘A-’ short-term counterparty credit ratings. Standard & Poor’s Ratings Services rated RBC Dexia Investor Services Limited ‘AA-’ long-term, also with Positive Outlook. These ratings are an acknowledgement of the strength of the whole group financial foundation and shareholder support.
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List of Directors of RBC Dexia Investor Services Bank S.A.
Name Position Date of appointment
Date of termination of appointment
Pierre MALEVEZ Chairman 2 January 2006 Annual General Shareholder
Meeting 2011
André LECOQ Vice-Chairman 10 August 2009 Annual General Shareholder
Meeting 2014
José PLACIDO Director 2 January 2006 Annual General Shareholder
Meeting 2011
Jean-Michel LOEHR Director 25 October 2006 Annual General Shareholder
Meeting 2011
Rob WRIGHT Director 15 June 2006 Annual General Shareholder
Meeting 2011 François MOES
Independent Director 15 June 2006 Annual General Shareholder Meeting 2011
Laurent VANDERWEYEN
Director 19 March 2009 Annual General Shareholder Meeting 14 April 2010
Isabelle DAVID Director Representative of the employees
14 January 2009 Annual General Shareholder Meeting 2014
Laurent FRANZ Director Representative of the employees
14 January 2009 Annual General Shareholder Meeting 2014
Jean SONDAG Director Representative of the employees
14 January 2009 Annual General Shareholder Meeting 2014
Frank VAN HOORNWEDER
Director 22 April 2010 Annual General Shareholder Meeting 2014
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Consolidated financial statements
Consolidated balance sheet 10 Consolidated income statement 12 Consolidated statement of comprehensive income 13 Consolidated statement of changes in equity 14 Consolidated cash flow statement 18 Notes to the consolidated financial statements 19 1 General 19 2 Accounting policies 19 2.1 Basis of accounting 19 2.2 Critical accounting estimates 19 2.3 Consolidation 21 2.4 Foreign currency translation 21 2.5 Interest income and expenses 22 2.6 Commission income and expense 22 2.7 Dividend income 22 2.8 Transaction costs 22 2.9 Offsetting financial instruments in
the consolidated income statement23 2.10 Financial assets and liabilities 23 2.11 Tangible assets 27 2.12 Intangible assets 27 2.13 Impairment of non-financial assets 28 2.14 Leases 28 2.15 Income taxes 29 2.16 Employee benefits 29 2.17 Provisions 30 2.18 Financial guarantees 30 2.19 Share issue costs 30 2.20 Dividends on ordinary shares 31 2.21 Assets held on behalf of clients 31 2.22 Non current assets held for sale 31 2.23 Cash and cash equivalents 31 2.24 Segment reporting 31 2.25 Earnings per share (EPS) 31 2.26 Restatements 31
3 Risk management policies 32 3.1 Credit risks 32 3.2 Basel II / Capital Requirement
Directive 33 3.3 Market Risk 33 3.4 Asset and Liability Management 34 3.5 Liquidity Management 34 3.6 Operational Risk Management 35 3.7 Capital Adequacy 36 3.8 Hedge accounting 39 4 List of subsidiaries and associates 40 4.1 Subsequent changes in 2009Error! Bookmark no
RBC Dexia Investor Services Group has no subsequent changes 40
4.2 Fully consolidated subsidiaries 40 5 Significant post balance sheet events 41 6 Notes to the assets 42 6.1 Cash and cash equivalents 42 6.2 Cash and balances with central
banks 42 6.3 Loans and receivables due from
credit institutions 43 6.4 Loans and receivables due from
customers 43 6.5 Financial assets measured at fair
value through profit or loss 44 6.6 Financial investments 46 6.7 Tangible assets 48 6.8 Intangible assets and goodwill 50 6.9 Income tax assets 53 6.10 Other assets 53 6.11 Non-current assets and disposal
groups classified as held for sale 53 6.12 Leasing 54 6.13 Quality of financial assets 55 7 Notes to the liabilities 57
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7.1 Borrowings and deposits due to credit institutions 57
7.2 Borrowings and deposits due to customers 57
7.3 Subordinated debts 58 7.4 Provisions and other obligations 58 7.5 Income tax liabilities 62 7.6 Other liabilities 62 8 Other notes to the consolidated balance sheet 63 8.1 Derivatives 63 8.2 Deferred taxes 65 8.3 Related party transactions 68 8.4 Acquisitions and disposal 69 8.5 Subscribed capital 70 8.6 Exchange rates 71 9 Notes to the consolidated off balance sheet items 72 9.1 Regular way trade 72 9.2 Guarantees 72 9.3 Collateral 72 9.4 Loan commitmentsError! Bookmark not defined.72 9.5 Other commitments 72 9.6 Assets under administration (AUA) 72 10 Notes to the consolidated income statement 73 10.1 Interest income – Interest expense 73 10.2 Dividend income 73 10.3 Net gains/(losses) from financial
instruments at fair value through profit or loss, from derivatives and result of hedge accounting 74
10.4 Net gains/(losses) on investments 75 10.5 Commission income and expense 76 10.6 Other net income 77 10.7 Staff expenses 78 10.8 General and administrative expense79 10.9 Depreciation 79 10.10 Impairment on loans receivables and
provisions for credit commitments 80
10.11 Impairment on tangible and intangible assets 80
10.12 Impairment on goodwill 81 10.13 Income tax expense 81 11 Notes on risk management 82 11.1 Fair value 82 11.2 Credit risk exposure by class of
financial instruments 86 11.3 Pledged assets 91 11.4 Interest rate risk breakdown 92 11.5 Liquidity risk: breakdown by residual
maturity 96 11.6 Currency risk 101 11.7 Other matters 103 11.8 A.G.D.L 103
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Consolidated balance sheet
Assets (in EUR) Note Dec 31, 2010 Dec 31, 2009
Cash and balances with central banks 6.2 724 587 961 840 895 794
Loans and receivables due from credit institutions 6.3 4 948 209 585 4 668 174 835
Loans and receivables due from customers 6.4 591 521 579 332 195 819
Financial assets measured at fair value through profit or loss
6.5 3 352 3 554
Financial investments 6.6 5 488 188 382 4 744 123 013
Derivatives 8.1 236 398 957 122 931 910
Tangible assets 6.7 19 085 900 16 109 759
Intangible assets and goodwill 6.8 227 007 306 114 387 572
Income tax assets 6.9 11 887 564 8 940 585
Other assets 6.10 325 124 773 319 632 377
Non-current assets and disposal groups classified as held for sale
6.11 0 0
Total assets 12 572 015 359 11 167 395 218
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Liabilities (in EUR) Note Dec 31, 2010 Dec 31, 2009
Borrowings and deposits due to credit institutions 7.1 508 399 171 749 138 625
Borrowings and deposits due to customers 7.2 10 628 697 376 9 189 218 547 Financial liabilities measured at fair value through profit or loss
0 0
Derivatives 8.1 247 457 157 114 936 909
Subordinated debt 7.3 0 215 377 704
Provisions and other obligations 7.4 17 695 035 15 019 020
Income tax liabilities 7.5 19 236 634 5 518 210
Other liabilities 7.6 324 036 520 293 056 178 Liabilities included in disposal groups classified as held for sale
0 0
Total liabilities 11 745 521 893 10 582 265 193
Equity (in EUR) Dec 31, 2010 Dec 31, 2009
Subscribed capital 8.5 554 075 000 339 075 000
Additional paid-in capital 0 0
Treasury shares 0 0
Other reserves 51 267 273 56 126 058
Retained earnings 193 141 503 196 782 674
Profit or (loss) for the period 35 378 032 -5 036 660
Core shareholders' equity 833 861 808 586 947 072
Revaluation reserves and other valuation differences - 11 606 736 -5 182 114
Total shareholders' equity 822 255 072 581 764 958
Non-controlling interests 4 238 394 3 365 067
Total equity 826 493 466 585 130 025
Total liabilities and equity 12 572 015 359 11 167 395 218
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Consolidated income statement
(in EUR) Note Dec 31, 2010 Dec 31, 2009
Interest income 10.1 101 279 281 184 117 567
Interest expense 10.1 -50 455 038 -108 603 187
Dividend income 10.2 149 077 327 360 Net gains / (losses) from financial instruments at fair value through profit or loss, from derivatives and result of hedge accounting
10.3 70 469 938 45 145 147
Net gains / (losses) on investments 10.4 -2 261 958 -2 001 278
Commission income 10.5 318 129 831 254 018 772
Commission expense 10.5 -62 009 662 -56 817 876
Other net income 10.6 -3 892 677 -5 769 856
Net operating revenue 371 408 792 310 416 649
Staff expense 10.7 -198 130 399 -188 909 498
General and administrative expense 10.8 -112 284 863 -101 364 059
Depreciation 10.9 -20 160 990 -14 724 091
Operating expense -330 576 252 -304 997 648
Operating profit or (loss) before tax 40 832 540 5 419 001
Impairment on loans, receivables and provisions for credit commitments
10.10 -451 335 -12 804 105
Impairment on tangible and intangible assets 10.11 -804 998 0
Profit or (loss) before income tax 39 576 207 -7 385 104
Income tax expense 10.13 -3 405 003 2 737 004
Profit or (loss) from continuing operations 36 171 204 -4 648 100
Disposal group, net of income tax 0 0
Profit or (loss) for the period 36 171 204 -4 648 100
Attributable to non-controlling interests -793 173 -388 560
Attributable to equity holders of the parent -35 378 031 5 036 660
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Consolidated statement of other comprehensive income
(in EUR) Dec 31, 2010 Dec 31, 2009
Net result recognized in the statement of income 36 171 204 -4 648 100
Unrealized gains (losses) on available-for-sale financial investments, before tax
-13 435 124 -15 738
Gains (losses) in cash flow hedges, before tax 0 -456 843
Cumulative translation adjustments 7 845 053 -178 747 Gains (losses) from hedges on net investments, before tax
-4 840 648 490 847
Other comprehensive income from associates 0 0
Other comprehensive income from assets held for sale 0 0 Tax relating to components of other comprehensive income
4 232 008 120 539
Other comprehensive income, net of tax -6 198 711 -39 942
Total comprehensive income, net of tax 29 972 493 -4 688 042
Attributable to equity holders of the parent 28 953 410 -4 568 125
Attributable to non-controlling interests 1 019 084 -119 917
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Consolidated statement of changes in equity
For the period ended December 31, 2010
Core shareholders’ equity (in EUR)
Subscribed capital
Share premium
Treasury shares
Legal reserves
(*)
Untaxed unavailable
reserves (**)
Available reserves
Consolidation reserves
Retained earnings
Profit or (loss) for
the period
Core shareholders’
equity
As of Dec 31, 2009 339 075 000 0 0 10 436 453 21 842 153 122 655 23 724 797 196 782 674 -5 036 660 586 947 072
Movements of the period
- Issuance of
subscribed capital 307 000 000 0 0 0 0 0 0 0 0 307 000 000
- Reimbursement of
capital -92 000 000 0 0 0 0 0 0 0 0 -92 000 000
- Acquisition of
treasury
shares 0 0 -92 000 000 0 0 0 0 0 0 -92 000 000
- Sale and cancellation
of treasury shares 0 0 92 000 000 0 0 0 0 0 0 92 000 000
- Dividends 0 0 0 0 0 0 0 0 0 0
- Variation of scope of
consolidation 0 0 0 0 0 0 0 0 0 0
- Result appropriation 0 0 0 0 0 0 -1 395 489 -3 641 171 5 036 660 0
- Other movements 0 0 0 0 0 0 -3 463 293 0 0 -3 463 293
- Net profit or (loss)
for the period 0 0 0 0 0 0 0 0 35 378 032 35 378 032
As of Dec 31, 2010 554 075 000 0 0 10 436 453 21 842 153 122 655 18 866 015 193 141 503 35 378 032 833 861 811
(*) Legal reserve: local legislation requires 5% of the net profit to be transferred from retained earnings to a non-distributable statutory reserve until the reserve
reaches 10% of share capital. (**) Untaxed unavailable reserve: an amount of the profit is not taxed provided it is transferred from retained earnings to a non-distributable statutory reserve.
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Revaluation reserves and other valuation differences (in EUR)
Available-for-sale
investments Derivatives
Cumulative translation
adjustments (CTA)
Total gains and losses
Group share
As of Dec 31, 2009 681 468 2 487 175 -8 350 757 -5 182 114
Movements of the period
− Net change in fair value through OCI – available-for-sale investments -9 213 633 0 0 -9 213 633
− Net change in fair value through OCI – Cash flow hedges 0 0 0 0
− Net change in fair value through OCI - hedge of net investment 0 -4 840 648 4 840 648 0
− Translation adjustments 0 0 2 778 494 2 778 494
− Variation of scope of consolidation 0 0 0 0
− Transfer to “consolidated income statement” following disposal or impairment of available-for-sale investments 10 517 0 0 10 517
As of Dec 31, 2010 -8 521 648 -2 353 473 -731 615 -11 606 736
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
Non-controlling interests (in EUR) Core equity
Additional paid-in capital
Gains and losses not recognized in the
consolidated income statement
Non-controlling interests
As of Dec 31, 2009 2 237 173 0 1 127 894 3 365 067
Movements of the period
− Increase of capital 0 0 0 0
− Dividends -145 757 0 0 -145 757
− Net profit or (loss) for the period 793 173 0 0 793 173
− Net change in fair value through OCI 0 0 0 0
− Translation adjustments 0 0 225 911 225 911
− Variation of scope of consolidation 0 0 0 0
− Other movements 0 0 0 0
As of Dec 31, 2010 2 884 589 0 1 353 805 4 238 395
Core shareholders’ equity 833 861 811
Revaluation reserves and other valuation differences -11 606 736
Non-controlling interests 4 238 395
Total equity as of Dec 31, 2010 826 493 470
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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For the period ended December 31, 2009
Core shareholders’ equity (in EUR)
Subscribed capital
Share premium
Treasury shares
Legal reserves
(*)
Untaxed unavailable
reserves (**)
Available reserves
Consolidation reserves
Retained earnings
Profit or (loss) for
the period
Core shareholders’
equity
As of Dec 31, 2008 339 075 000 0 0 6 950 704 5 842 153 122 655 21 798 342 146 576 118 84 514 518 604 879 490
Movements of the period
− Issuance of subscribed capital 0 0 0 0 0 0 0 0 0 0
− Reimbursement of capital 0 0 0 0 0 0 0 0 0 0
− Acquisition of treasury shares 0 0 0 0 0 0 0 0 0 0
− Sale and cancellation of
treasury shares 0 0 0 0 0 0 0 0 0 0
− Dividends 0 0 0 0 0 0 0 0 0 0
− Variation of scope of
consolidation 0 0 0 0 0 0 -12 895 758 0 0 -12 895 758
− Result appropriation 0 0 0 3 485 749 16 000 000 0 14 822 213 50 206 556 -84 514 518 0
− Other movements 0 0 0 0 0 0 0 0 0 0
− Net profit or (loss)
for the period 0 0 0 0 0 0 0 0 -5 036 660 -5 036 660
As of Dec 31, 2009 339 075 000 0 0 10 436 453 21 842 153 122 655 23 724 797 196 782 674 -5 036 660 586 947 072
(*) Legal reserve: local legislation requires 5% of the net profit to be transferred from retained earnings to a non-distributable statutory reserve until the reserve
reaches 10% of share capital. (**) Untaxed unavailable reserve: an amount of the profit is not taxed provided it is transferred from retained earnings to a non-distributable statutory reserve.
Revaluation reserves and other valuation differences (in EUR)
Available-for-sale
investments Derivatives
Cumulative translation
adjustments (CTA)
Total gains and losses
Group share
As of Dec 31, 2008 321 603 2 315 707 -8 287 959 -5 650 649
Movements of the period
− Net change in fair value through OCI – available-for-sale investments -155 298 0 0 -155 298
− Net change in fair value through OCI – Cash flow hedges 0 -319 379 0 -319 379
− Net change in fair value through OCI - hedge of net investment 0 490 847 -490 847 0
− Translation adjustments 0 0 428 049 428 049
− Variation of scope of consolidation 392 528 0 0 392 528
− Transfer to “consolidated income statement” following disposal or impairment of available-for-sale investments 122 635 0 0 122 635
As of Dec 31, 2009 681 468 2 487 175 -8 350 757 -5 182 114
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Non-controlling interests (in EUR) Core equity
Additional paid-in capital
Gains and losses not recognized in the
consolidated income statement
Non-controlling interests
As of Dec 31, 2008 49 772 386 0 1 636 370 51 408 756
Movements of the period
− Increase of capital 0 0 0 0
− Dividends -190 523 0 0 -190 523
− Net profit or (loss) for the period 388 560 0 0 388 560
− Net change in fair value through OCI 0 0 0 0
− Translation adjustments 0 0 -115 948 -115 948
− Variation of scope of consolidation -47 733 250 0 -392 528 -48 125 778
− Other movements 0 0 0 0
As of Dec 31, 2009 2 237 173 0 1 127 894 3 365 067
Core shareholders’ equity 586 947 072
Revaluation reserves and other valuation differences -5 182 114
Non-controlling interests 3 365 067
Total equity as of Dec 31, 2009 585 130 025
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Consolidated cash flow statement
(in EUR) Dec 31, 2010 Dec 31, 2009
Cash flow from operating activities
- Profit or (loss) after tax 36 171 205 -4 648 100
- Adjustment for:
- Depreciation and other impairment 20 965 988 14 724 091
- Impairment on financial assets and provisions for credit commitments 555 846 15 547 111
- Net gains/(losses) on investments 92 867 -911 267
- Provision and other obligations 12 074 530 10 992 092
- Unrealized gains or (losses) -3 599 178 300
- Deferred taxes -9 838 884 -6 952 066
- Other adjustments 19 960 -85 087
- Changes in operating assets and liabilities -120 991 903 823 655 295
Net cash provided (used) by operating activities -60 953 990 852 500 369
Cash flow from investing activities
Purchase of tangible assets and intangible assets -75 051 559 -31 817 542
Disposal of tangible assets and intangible assets 0 38 772
Acquisition of securities 0 -30 828 988
Sales of securities 368 328 967 115
Additional investments in consolidated subsidiairies and business units -41 315 903 -60 629 008
Sales of subsidiaries and of business units 0 0
Cash paid or received on hedging forward on net investment -2 903 868 3 633 988
Net cash provided (used) by investing activities -118 903 002 -118 635 663
Cash flow from financing activities
Issuance of new shares 307 000 000 0 Reimbursement of capital -92 000 000 0 Issuance of subordinated debt 0 0 Reimbursement of subordinated debt -215 000 000 0 Purchase of treasury shares -92 000 000 0 Sale of treasury shares 92 000 000 0 Dividend paid -145 757 -190 523
Net cash provided (used) by financing activities -145 757 -190 523
Net increase in cash and cash equivalents -180 002 749 733 674 183
Cash and cash equivalents at the beginning of the period 7 361 991 618 7 122 833 633
Cash flow from operating activities -60 953 990 852 500 369
Cash flow from investing activities -118 903 002 -118 635 663
Cash flow from financing activities -145 757 -190 523
Effect of exchange rates changes 3 243 982 -605 982
Cash and cash equivalent at the end of the period 7 185 232 851 7 855 901 834
Additional information
Income tax paid -15 398 495 3 130 802
Dividends received 149 077 327 360
Interest received 112 732 510 208 489 164
Interest paid -54 196 203 -106 038 566
The accompanying notes on pages 19 to 102 are an integral part of these consolidated financial statements.
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Notes to the consolidated financial statements
1 General
On January 2, 2006, Royal Bank of Canada and Dexia BIL S.A. combined their institutional investor services businesses in an equally-owned corporate joint venture. The new entity RBC Dexia Investor Services Limited (“RBC Dexia”) is a leading global provider of investor services solutions to asset managers, pension plans, insurance companies and large financial institutions. Provided services include global custody, fund and pension administration of client assets as well as the provision of shareholder services, foreign exchange, securities lending, and other related services. RBC Dexia Investor Services Bank S.A. (“the Group”) is one of the main operating companies of the corporate joint venture. In advance of the creation of the corporate joint venture, Dexia BIL S.A. underwent an internal reorganization with respect to its business to be contributed to RBC Dexia Investor Services Bank S.A. The Group’s predecessor company, First European Transfer Agency (“FETA”), was converted to a bank, and subsequently other relevant subsidiaries, branches, business assets, and cash were contributed to the Group. The Group in its turn was contributed to RBC Dexia IS. RBC Dexia Investor Services Bank S.A. is a bank incorporated and headquartered in Luxembourg. Since 2007, the registered office of RBC Dexia Investor Services Bank S.A. is 14, Porte de France L-4360 Esch-sur-Alzette. The Group’s immediate parent company is RBC Dexia Investor Services Limited (99.99999%), a company incorporated under the laws prevalent in the United Kingdom, and RBC Dexia Investor Services Participations S.à.r.l. (0.00001%), a company incorporated under the laws prevalent in Luxembourg. The ultimate parent companies are the Royal Bank of Canada (50%) and the Dexia Bank S.A. (50%). RBC Dexia Investor Services Bank S.A.’s authorized share capital amounts to EUR
554 075 000 divided into 22 163 000 shares, each with a nominal value of EUR 25. Operations are conducted throughout RBC Dexia Investor Services Bank S.A. and its subsidiaries and branches around the world. The consolidated financial statements were approved by the Board of Directors of RBC Dexia Investor Services Bank S.A. and signed on its behalf by Pierre Malevez, Chairman of the Board of Directors and by Franck Van Hoornweder, Chief Executive Officer and member of the Board of Directors on February 25, 2011.
2 Accounting policies
2.1 Basis of accounting The accompanying consolidated financial statements of the Group are prepared under International Financial Reporting Standards (‘IFRS’) as endorsed by the European Union (‘EU’). Additional reporting and accounting information are included in order to comply with Luxembourg legal regulations (Luxembourg GAAP). In preparing these consolidated financial statements, the Group considered the following:
a. New standards, amendments to published standards and interpretations endorsed by the European Commission and effective January 01, 2010
• “Revised IFRS 3 Business Combinations”, which is applied prospectively to business combinations for which the acquisition date is on or after 1 July 2009.
• Amendments to “IAS 27 Consolidated and separate financial statements. There is no impact on RBC Dexia IS for the period ending 31 December 2010 other than relabeling “minority interest” into “non-controlling interest”.
The following standards, amendments and interpretations, which become effective in 2010 had no impact on the Group:
• “Improvements to IFRSs” (issued by IASB in April 2009), which are amendments to existing standards and interpretations. Unless otherwise specified, the amendments are effective as from 1 January 2010.
• Amendments to “IFRS 2 Group Cash Settled Share-based Payment
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Transactions”. These amendments aim to clarify the scope of IFRS 2.
• Revised IFRS 1 “First-Time adoption of International Financial Reporting Standards”, which replaces the standard as issued in June 2003.
• Amendments to IFRS 1 “Additional Exemptions for First-time Adopters.
• Amendments to IAS 32 Classification of rights issues which was issued October 2009 and effective on February 1, 2010.
• Amendment to “IAS 39 Financial Instruments: Recognition and Measurement: Eligible Hedged Items”.
• Amendments to “IFRS 5 Non-current Assets held for Sale and Discontinued Operations” issued in May 2008 as part of the improvements to IFRSs.
• IFRIC 12 “Service Concession Arrangements”.
• IFRIC 15 “Agreement for the Construction of Real Estate”.
• IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”.
• IFRIC 17 “Distributions of non-cash-assets to owners".
• IFRIC 18 “Transfers of assets from customers”.
b. Standards, amendments to standards
and interpretations endorsed by the European Commission but not yet effective :
The Group did not proceed to an earlier application of standards and interpretations issued but not yet effective:
• Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters” applicable as from 1 January 2011. No impacts for RBC Dexia IS who is no more a first-time adopter.
• Amendment to IFRIC 14 “Prepayments of a Minimum Funding Requirements” applicable as from 1 January 2011. The Group is analyzing impacts.
• IAS 24 “Related Party Disclosures” applicable as from 1 January 2011. This standard supersedes IAS 24 “Related Party Disclosures” (as revised in 2003). This amendment should not significantly impact the Group.
• IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” applicable as from 1 January 2011. This amendment should not impact the Group.
c. New IFRS standards, IFRIC interpretations and amendments issued during 2010 but not yet endorsed by the European Commission:
• Amendment to IAS 12 “Deferred Tax: Recovery of Underlying Assets”.
• Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters”. This amendment will have no impact on RBC Dexia IS, who is not anymore a first-time adopter.
• “IFRS 9 Financial Instruments” – Phase I Classification and Measurement. RBC Dexia IS performed few tentative impact assessments. However, the outcome of these assessments is tentative and is potentially subject to important changes once the final policies on impairment and hedge accounting are known.
• Amendment to IFRS 7 “IFRS Disclosures – Transfers of Financial Assets”. This amendment will impact RBC Dexia IS by requiring more detailed disclosures on transferred assets.
• “The Conceptual Framework for Financial Reporting 2010” completes the first phase of the review and comprises Chapter 1 ‘The objective of general purpose financial reporting’ and Chapter 3 ‘Qualitative characteristics of useful financial information”. There should be no impact for RBC Dexia IS because RBC Dexia IS already complies with the principles of the Conceptual Framework.
• “Improvements to IFRSs” (issued by IASB in May 2010), which are a collection of amendments to existing International Financial Reporting Standards. These amendments are effective as from 1 January 2011 and the impact mainly relates to disclosures.
• The IASB also published “IFRS Practice Statement: Management Commentary: A Framework for presentation”. This Practice Statement is not an IFRS but provides a non-binding framework for the presentation of management commentary.
2.2 Critical accounting estimates In preparing the consolidated financial statements, management is required to make certain estimates and assumptions that affect amounts reported. While management believes they have considered all available information in developing these estimates, actual results could differ from such estimates.
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Assumptions are mainly made in the following domains and the methodologies and valuation techniques are described in the relevant sections of this note:
Impairment of assets Fair value of unquoted financial
instruments Provisions Income taxes Defined benefit obligations
2.3 Consolidation
2.3.1 Business combination
The business combinations contemplated as part of the joint venture agreement included a precedent transaction within Dexia BIL S.A. This precedent transaction was accounted for as follows: the assets and liabilities acquired were recognized at the carrying amounts recognized previously in the Dexia BIL S.A. consolidated financial statements. Subsidiaries were contributed at their fair value. Business combinations are accounted for in accordance with IFRS 3. Business combinations of entities under common control that are out of scope of IFRS 3 are accounted for using predecessor values. Business combinations that occurred during the reporting period are disclosed in note 8.4.
2.3.2 Subsidiaries
The consolidated financial statements include those of RBC Dexia Investor Services Bank S.A., its subsidiaries and special purpose entities (SPE’s) which the Group controls. The notion of control here is the power to govern (directly or indirectly) the financial and operation policies of an entity or a business so as to obtain benefits from its activities. Entities exclusively controlled are consolidated according to the full consolidation method i.e.: Combination of assets, liabilities, equity,
income and expenses on a line by line basis
Elimination of inter-company transactions, including income, expenses and dividends and unrealized gains and losses on transactions
Elimination of carrying amounts of the parent’s investment in each subsidiary and the parent’s portion of equity of each subsidiary
Identification of minority interest in the consolidated income statement and
consolidated statement of changes in equity.
The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Subsidiaries are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated as from the date control is lost.
2.3.3 Jointly controlled entities
Entities over which joint control is exercised are consolidated according to the proportional consolidation method. The same consolidation treatment, as for subsidiaries, is applied to inter-company transactions. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Appropriate adjustments are made in consolidated financial statements if a consolidated entity uses different accounting policies. Jointly controlled entities are consolidated from the date on which effective control is transferred to the Group and are no longer consolidated as from the date control is lost.
2.3.4 Transactions with minority shareholders – ‘economic entity approach’
The Group applies a policy of treating transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains or losses on disposals to minority shareholders are also recorded in equity. For disposals to non-controlling interests, the difference between any proceeds received and the relevant share of non-controlling interests are also recorded in equity.
2.4 Foreign currency translation Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The financial statements are stated in EUR, the functional and presentation currency of the Group.
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The Group uses a multi-currency system where foreign currency balance sheet transactions are initially recorded in foreign currency and translated by applying an approximate exchange rate at the transaction date. At each balance sheet date, outstanding balances are retranslated using closing rate for monetary and non-monetary items carried at fair value. Historical rates are used for non-monetary items carried at cost. The resulting exchange differences are recorded to the income statement for monetary items and follow the same accounting treatment as for fair value adjustments for non-monetary items. The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
- assets and liabilities are translated into the presentation currency EUR using the closing rate at the date of the balance sheet;
- income and expenses are translated at an average rate for the year or the period,
- all resulting exchange differences are recognized as a separate component of equity.
Exchange differences arising on translation of net investments in foreign operations are recorded as a cumulative translation adjustment in shareholder’s equity. On disposal of a foreign entity, such exchange differences are recognized in the consolidated income statement as part of the gain or loss on sale. Disposal of an interest in a foreign operation may be done through sale, liquidation, repayment of share capital or abandonment of all, or part of, that entity. In case of a partial disposal, only the proportionate share of the related accumulated exchange differences is included in gain or loss.
2.5 Interest income and expenses Interest income and expenses are recognized in the consolidated income statement on an accrual basis using the effective interest rate method based on the purchase price including transaction costs. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability and of allocating the interest income or interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. Accrued interest is reported in the same line as the related financial asset or liability in the consolidated balance sheet. Once an interest bearing financial asset has been written down to its estimated recoverable amount, interest income is thereafter recognized based on the rate of interest that was used to discount the future cash flows for measuring the recoverable amount.
2.6 Commission income and expense
Commissions are recognized in accordance with IAS 18. Commissions arising from the Group’s activities are recognized as services are rendered and accrued accordingly on a time appropriate basis. These commissions consist mainly of custody fees, fund administration fees, shareholder services fees and securities lending fees. Fees that are an integral part of the effective interest rate of a financial instrument are treated as an adjustment to the effective interest rate, if the instrument is not measured at fair value through profit or loss. Commitment fees on a loan are recognized as part of the effective interest rate if the loan is granted, and recorded one shot on expiry if no loan is granted. Fees that are earned on the execution of a significant transaction are recognized as revenue when the act has been completed.
2.7 Dividend income Dividend income is recognized when the right to receive income is established. Usually this is the ex-dividend date for ordinary equity securities. Dividends are recorded in a specific consolidated income statement caption.
2.8 Transaction costs Directly attributable transaction costs on financial assets and liabilities not at fair value through profit or loss, if material, are part of
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the initial measurement cost. For interest bearing instruments they will be part of the effective interest rate. Other directly attributable transaction costs on non-financial assets and liabilities are treated according to applicable IFRS standards and generally form part of the investments’ initial cost.
2.9 Offsetting financial instruments in the consolidated income statement
The following items are netted in the face of the income statement:
2.9.1 Net gains/ (losses) on trading
Net gains/ (losses) on trading comprise gains and losses relating to trading assets and liabilities (including derivatives), and include all realised and unrealised fair value changes. Interest on trading assets and liabilities (including derivatives) is reported as interest income or expense.
2.9.2 Net foreign exchange gains/ (losses)
Net foreign exchange gains/ (losses) consist primarily of income earned on foreign exchange activity and revaluation of assets and liabilities.
2.9.3 Net result of hedge accounting
This includes the revaluation of assets and liabilities in a hedge relationship. The net balances represent inefficiencies of the hedges. All these items are disclosed in the “Net gains/ (losses) on trading and results of hedge accounting”.
2.10 Financial assets and liabilities
2.10.1 Trade date and settlement date accounting
All “regular way” sales and purchases of financial instruments other than trading are recognized and derecognized on settlement date. Trading financial instruments are recognized and derecognized on trade date. Any unrealized gains or losses are recognized from trade date in the consolidated income statement unless the financial instrument is subsequently measured at cost. Unrealized gains and losses incurred between trade date and settlement date are booked to equity if
they relate to available-for-sale assets or cash flow hedges.
2.10.2 Realized gains and losses
For financial instruments that are not carried at fair value through the profit or loss, the realized gain or loss on disposal is the difference between received proceeds and the cost or amortized cost of the investment.
2.10.3 Derecognition
The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognized as an asset or a liability. The Group derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. Securities lending and repurchase
transactions: Securities that are lent or sold subject to a linked repurchase agreement (Repos) remain on balance sheet. The corresponding liability is recorded in “Borrowing and deposits due to credit institutions” or “Borrowing and deposits due to customers” as appropriate. The asset is, however, disclosed in the notes. Non-cash collateral received in securities lending transactions is not recognized on the consolidated balance sheet. “Reverse repos” and securities
borrowings: These are securities that are borrowed or purchased under an agreement to resell. “Reverse repos” are recorded as an obligation to return the securities as an off-balance sheet item. The corresponding loan is recorded as loans and receivables. In the event that borrowed securities are sold to third parties, the gain or loss is included in trading income and the obligation to return the securities is recorded at fair value as a trading liability.
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2.10.4 Financial assets and liabilities measurement
2.10.4.1 Amortized cost
The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount (fees, premiums or discounts), minus any reduction for impairment.
2.10.4.2 Fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Quoted market prices are used for financial instruments traded in active markets and are based on current bid prices for financial assets or current offer prices for financial liabilities. For all other financial instruments fair value is determined by using common valuation techniques based on market observable inputs. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. Complex instruments might require the use of proper models, which usually are derived from recognized valuation models that try to reflect as precisely as possible market conditions. Some or all of the inputs into these models may, however, not be market observable, and are derived from market prices or rates or are estimated based on assumptions. Some simplifying hypotheses are used to calculate the fair value given in the notes for unquoted financial instruments carried at amortized cost on balance sheet: The carrying amount of financial
instruments maturing within 12 months can be assumed to approximate their fair value,
The carrying amount of variable interest rate financial instruments is assumed to approximate its fair value.
2.10.5 Non-derivative financial assets and financial liabilities classification and measurement
Note 11.1 sets out the amount of each class of financial asset or liability. A description of the
basis of measurement for each designation is set out hereafter for each asset or liability class.
2.10.5.1 Loans and receivables due from credit institutions and customers
Loans and receivables not classified as trading, at fair value through profit or loss, or available-for-sale (AFS) are classified as loans and receivables and carried at amortized cost.
2.10.5.2 Assets and liabilities held for trading
Trading assets and liabilities are those acquired or incurred principally for the purpose of selling or repurchasing in the near term, or held as part of a portfolio which is managed together for short-term profit or position taking. Trading assets and liabilities are initially recognized and subsequently measured at fair value in the balance sheet with transaction costs taken directly to the income statement. All changes in fair value are recognized as part of net trading income in the consolidated income statement. Trading assets and liabilities are not reclassified subsequent to their initial recognition.
2.10.5.3 Assets and liabilities designated at fair value through profit or loss
Financial assets and liabilities are designated at fair value through profit or loss when: Doing so significantly reduces
measurement inconsistencies that would arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases;
Certain investments, are managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis are designated at fair value through profit or loss; and
Financial Instruments, containing one or more embedded derivatives which significantly modify the cash flows, are designated at fair value through profit or loss.
The classification at fair value through profit or loss is made on initial recognition provided it fulfils the stated conditions. No reclassification is possible subsequent to their initial recognition. This classification was not used for the current financial year.
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2.10.5.4 Held to maturity assets
Held to maturity investments (HTM) are non-derivative assets with fixed or determinable payments and fixed maturity where the Group has the positive intent and ability to hold the asset to maturity and which are not designated as at fair value through profit or loss or available-for-sale. Held to maturity investments are carried at amortized cost. Any sale or reclassification of a significant amount of held to maturity investments not close to their maturity would result in the reclassification of all held-to-maturity Investments as available-for-sale, and prevent the Group from classifying investment securities as held to maturity for the current and the following two financial years. Management determines the appropriate classification of these instruments on acquisition or may reclassify available-for-sale securities into HTM in a later stage. Securities and loans intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, exchange rates, etc. are classified as available-for-sale. This classification was not used for the current financial year.
2.10.5.5 Available-for-sale assets
Available-for-sale investments are non-derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost. All other available-for-sale investments are carried at fair value. Foreign exchange gains or losses on available-for-sale debt security investments are recognized in the consolidated income statement. Other fair value changes are recognized directly in equity until the investment is sold or impaired and the balance in equity is recognized in the consolidated income statement.
2.10.5.6 Financial liabilities
Financial liabilities are non-derivative liabilities that are not designated at fair value through the profit or loss or as trading. Financial liabilities are initially measured at fair value net of transaction costs and subsequently carried at amortized cost.
2.10.6 Embedded derivatives
Derivatives may be embedded in another contractual arrangement (a “host contract”). Embedded derivatives are accounted for separately from the host contract when the host contract is not itself carried at fair value through profit or loss, and the characteristics of the embedded derivative are not clearly and closely related to the host contract. Changes in the fair value of separable embedded derivatives are recognized immediately in the consolidated income statement.
2.10.7 Derivatives classification and measurement
The Group’s derivatives activity mainly includes foreign exchange forward contracts, currency swaps and options. All derivatives are initially recognized at fair value and are subsequently measured at fair value. Derivatives are reported as a specific asset when fair value is positive and as a specific liability when fair value is negative. The amount reported on balance sheet includes the revaluation to fair value. Offsetting is done according to Note 2.10.9. Derivatives are considered to be:
2.10.7.1 Trading derivatives
Derivatives that are not hedging are considered as trading derivatives. Changes in the fair value of a trading derivative are recognized immediately in the consolidated income statement.
2.10.7.2 Derivatives held for risk management
Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value in the consolidated balance sheet. The treatment of changes in their fair value depends on their classification. When the Group enters into a derivative contract, it may designate it fully or partially as a hedging derivative in a: Fair value hedge
When a derivative is designated as a hedge of the change in fair value of a recognized asset or liability or a firm commitment, changes in the fair value of the derivative are recognized immediately in the consolidated income statement together with changes in the fair
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value of the hedged item that are attributable to the hedged risk. In the event that the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for fair value hedge accounting, or the designation is revoked, hedge accounting is discontinued. Any adjustment up to that point, to a hedged item for which the effective interest method is used, is amortized to the consolidated income statement as part of the recalculated effective interest rate of the item over its remaining life. Any adjustment to the carrying amount of a hedged equity security remains in retained earnings until the disposal of the equity security. Net investment hedge
When a derivative (or a non-derivative financial liability) is designated as a hedge of a net investment in a foreign operation, the effective portion of changes in the fair value of the hedging instrument is recognized directly in equity. Any ineffective portion of changes in the fair value of the derivatives is recognized immediately in the consolidated income statement. The amount recognized in equity is removed and included in the consolidated income statement on disposal of the foreign operation. Cash flow hedge
When a derivative is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect the income statement, the effective portion of changes in the fair value of the derivative are recognized directly in equity. The amount recognized in equity is removed and included in the consolidated income statement in the same period as the hedged cash flows affect the income statement under the same consolidated income statement line item as the hedged item. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in consolidated income statement. In the event that the derivative expires or is sold, terminated, or exercised, or no longer meets the criteria for cash flow hedge accounting, or the designation is revoked, hedge accounting is discontinued and the amount recognized in equity remains in equity until the forecast transaction affects profit or loss. Where the forecast transaction is no longer expected to occur hedge accounting is discontinued and the balance in
equity is recognized immediately in the consolidated income statement. Hedge accounting: Hedge accounting may be performed using derivatives provided certain criteria are met. The criteria are the following: Formal documentation of the hedging
instrument, hedged item, hedging objective, strategy and relationship prepared before hedge accounting is applied;
The hedge is expected to be highly effective (within a range of 80%-125%) in offsetting changes in fair value or cash flows attributable to the hedged risk in the hedged item throughout the reporting period;
The hedge is effective at inception and on an ongoing basis.
In the event that the Group uses intra-group currency contracts for hedging purposes, these internal contracts would be offset with external parties to the Group to meet the hedging criteria.
2.10.8 Impairment on non-derivative financial assets - Credit losses
Allowances for impairment are recorded in the following manner:
2.10.8.1 Specific allowance
An allowance for impairment losses is recorded when there is objective evidence that a financial asset or group of financial assets is impaired. Equities declining by more than 25% of their quoted price over a quarter are analyzed for impairment. Prolonged decline in fair value below cost on equities is an objective evidence of impairment. In the absence of observable data, experienced management judgment is used to estimate reasonably the amount of impairment. Impairment represents the difference between the asset’s carrying amount and its recoverable amount and is always recognized in the consolidated income statement even for available-for-sale assets. For on balance-sheet items, impairment reduces the assets carrying value. Reversal of impairment is only allowed for monetary financial assets and is analyzed on case-by-case basis. Impairment losses are reported in the consolidated income
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statement under “Net income on investments” for available-for-sale securities and under “Impairment on loans and provisions for credit commitments” for loans including available-for-sale loans. Recoverable amount: For a monetary asset carried at amortized cost, the recoverable amount is defined as being the present value of expected future cash flows discounted at the financial instrument’s original effective interest rate or current interest rate for a variable interest-rate instrument. For a monetary asset measured at fair value, the recoverable amount of an instrument is the present value of expected future cash flows discounted at the current market rate of interest for a similar asset. For an unquoted equity carried at cost because its fair value cannot be reliably measured, the recoverable amount is the present value of estimated future cash flows discounted at a current market rate of return. For a quoted security carried at fair value, the recoverable amount is the quoted price. Expected future cash flows include amounts recoverable from guarantees and collateral.
2.10.8.2 Collective impairment
Collective impairment only concerns monetary assets carried at amortized cost i.e. held to maturity (“HTM”) and loans and receivables. Collective impairment represents the best estimate of probable losses within the portion of portfolio that has not yet been specifically identified as impaired and is based on expected default considering historical loss patterns in each segment.
2.10.9 Offsetting a financial asset and a financial liability
A financial asset and a financial liability shall be offset and the net amount presented on the balance sheet, when and only when, an entity: Currently has enforceable right to set off
the recognized amounts; and Intends either to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
2.11 Tangible assets Tangible assets are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Depreciation is recognized in the income statement principally on a straight-line basis over the estimated useful lives of assets which are: Building 20-40 years IT equipment 3-12 years Fixtures and fittings 3-10 years Leasehold improvements over the shorter
of the lease term and their useful live Land is not depreciated. When parts of tangible assets have different useful lives, they are accounted for as separate items (major components). The cost of replacing part of tangible assets is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of tangible assets are recognized in the consolidated income statement as incurred.
2.12 Intangible assets
2.12.1 Goodwill
Goodwill arises on the acquisition of a controlling interest and is calculated based on the excess/deficit of the cost the acquisition over the interest in the net fair value of the of the identifiable assets, liabilities and contingent liabilities of the acquiree at the time the acquisition was made by the seller of the entity. Goodwill is tested annually for impairment and is measured at cost less accumulated impairment losses. Where the cost of acquisition is less than the fair value of the net asset acquired, the difference is recognized immediately in the consolidated income statement.
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2.12.2 Other intangible assets
Other intangible assets mainly consist of internally generated and acquired software. Expenditure on internally developed software is recognized as an asset when the Group is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. Projects fulfilling this requirement are qualified strategic projects and eligible for capitalization. The capitalized costs of internally developed software, that are part of strategic projects, include all internal and external costs directly attributable to developing the software. Software and other intangible assets that have finite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Depreciation is charged through the consolidated income statement on a straight-line basis over the estimated useful life. The estimated useful life for capitalized development costs is 2 to 12 years. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates otherwise it is expensed.
2.13 Impairment of non-financial assets
The carrying amounts of non-financial assets, including capitalized development costs, other than deferred tax assets, are reviewed at least annually to determine whether there is any indication of impairment. Where any such indication exists, a recoverable amount is estimated. Impairment testing is performed at least annually for assets not yet in use. The carrying amount of goodwill is reviewed for impairment annually or more often when there are indications of impairment. Goodwill is tested for impairment as part of the impairment testing of the cash generating unit to which it relates. When carrying value exceeds recoverable value, goodwill is written-down for impairment. Impairment is charged to the consolidated income statement in the period in which impairment
is identified. It is prohibited to reverse impairment losses for goodwill. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In respect of other assets, impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. For off balance sheet items, impairment is included in “Provision and other obligations”.
2.14 Leases
2.14.1 Operating leases
The Group mainly enters into operating leases for the rental of IT equipment and buildings. Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. When an operating lease is terminated before the lease period has expired, any payment to be made to the lessor by way of penalty is expensed in the period termination takes place.
2.14.2 Finance leases
Where the lease agreement substantially transfers the risk and rewards of ownership of the asset, the lease is considered to be a finance lease and the related asset is capitalized. At inception, the asset is recorded at the lower of the present value of the minimum lease payments and the fair value of the asset. The asset is depreciated over its
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estimated useful life. The corresponding rental obligation is recorded as borrowings carried at amortized cost using effective interest method. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. The Group does not have any finance leases for the current financial year.
2.15 Income taxes Income taxes recognized in the consolidated income statement include the current and deferred portions of the expense. Income taxes related to items recognized directly in equity are not included in the consolidated income statement. Current income tax is determined to be the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted as at the balance sheet date. It includes any adjustments to tax payable in respect of previous years. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax basis of assets and liabilities and their carrying amounts in the consolidated financial statements except for earnings related to foreign operations where repatriation of such amounts is not contemplated in the foreseeable future. Deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting, nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognized to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Changes in deferred income tax assets or liabilities related to a change in tax rates are recognized in the period the tax rate change is substantively enacted.
2.16 Employee benefits The Group offers a number of defined benefit and defined contribution plans for pensions and other benefits to employees.
2.16.1 Defined contribution plans
Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement as services are rendered, the Group’s pension obligation is limited to payments to a pension fund or to an insurance policy on behalf of the employee.
2.16.2 Defined benefit plans
Defined benefit plans are those under which the Group has a legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Qualified external actuaries carry out valuation of the obligation using the projected unit credit method as required by IAS 19. The net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value, and any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is based on the yield at the reporting date of credit-rated bonds with maturity dates approximating the terms of the obligations. In respect of actuarial gains and losses that arise in calculating the obligation for a plan, to the extent that any cumulative unrecognized actuarial gain or loss exceeds 10 percent of the greater of the present value of the defined benefit obligation and the fair value of plan
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assets, that portion is recognized in the consolidated income statement over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognized. When the calculation results in a benefit, the recognized asset is limited to the net total of any unrecognized actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.
2.16.3 Other long-term employee benefits
The Group offers a number of other long-term employee benefits. The plans are unfunded (i.e. no assets). The net obligation in respect of long-term employee benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods. Such benefits are discounted to determine their present value. The discount rate is based on the yield at the reporting date of credit-rated bonds with maturity dates approximating the terms of the Group’s obligations. Any actuarial gains or losses are recognized in the consolidated income statement in the period in which they arise.
2.16.4 Termination benefits
Termination benefits are recognized as an expense when the Group is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date.
2.16.5 Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.
2.16.6 Employee entitlements
Employee entitlements to annual leave and long service leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave and long-service leave as a result of services
rendered by employees up to the balance-sheet date.
2.16.7 Share-based payments
In 2006, the Group had a plan with a financial leverage based on Dexia S.A. ordinary shares. All eligible employees might be entitled upon subscription to a price discount on the shares. The discount is expensed.
2.17 Provisions A provision is recognized if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligation. Where the effect of time value is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
2.18 Financial guarantees A financial guarantee contract is defined as a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Where a contract meets the definition above, it is recognized initially on balance sheet at fair value and subsequently, measured at the higher of:
The amount initially recognized less cumulative amortization of this amount, and
The amount determined according to IAS 37 i.e. the best reliable estimate of the obligation when the there is a probable outflow of resources i.e. the consolidated income statement provision amount which will normally equal the amount of potential loss. (discounted if the effect is material).
The maximum credit exposure is represented by the maximum amount to be paid if the guaranty is called at the reporting date.
2.19 Share issue costs External incremental costs directly attributable to the issue of new equity securities, other than as part of a business
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combination, are deducted from equity net of any related income tax.
2.20 Dividends on ordinary shares Dividends for the year that are declared after balance sheet date but before issuing financial statements are disclosed in the subsequent events note.
2.21 Assets held on behalf of clients Client assets, liabilities, income and expenses arising thereon are excluded from these financial statements.
2.22 Non current assets held for sale Non-current assets or disposal groups are held for sale if their carrying amount will be recovered principally through a sale transaction, rather than through continuing use. Non-current assets or assets and liabilities within a disposal group classified as held for sale are stated at the lower of carrying amount and fair value less cost to sell and are presented separately on the face of the consolidated balance sheet.
2.23 Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalents include notes and coins on hand, balances held with central banks and highly liquid financial assets with maturities of less than three months, including loans and receivables to financial institutions, financial assets available-for-sale.
2.24 Segment reporting IFRS8 applies to entities whose equity or debt securities are publicly traded, including entities in the process of issuing equity or debt security in a public securities market. Disclosing segmental information is therefore not mandatory for the Group.
2.25 Earnings per share (EPS) IAS 33 Earnings per share is applicable to entities whose ordinary shares or potential ordinary shares are publicly traded and by entities that are in the process of issuing ordinary shares or potential ordinary shares in public markets. Disclosing EPS information is therefore not mandatory for the Group.
2.26 Restatements To improve comparability, some comparative figures were restated due to change in policy: This concerned the following items: • Note 6.1 Cash and cash equivalent • Cash flow statement
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3 Risk management policies
3.1 Credit risks Credit risk is defined as the risk of loss due to the inability or unwillingness of a counterpart to fulfil its payment obligations. Credit risk may be the result of operational, financial or investment activities. The Bank manages and controls concentrations of credit risk wherever they are identified, in particular to individual counterparts and groups and to sectors and countries. The Bank sets limits on its credit exposure to both individual counterparts and counterpart groups.
3.1.1 Organization
The Credit Risk Management function oversees the Bank’s risk policy under guidance and direction from the Global Risk Committee (GRC) as well as the Board of Directors of RBC Dexia Investor Services Bank S.A. Additional local oversight is provided by the Board of Directors of the main subsidiaries. A consistent enterprise approach is used for setting credit limits, policies and guidelines. This is achieved through group wide risk frameworks and policies of the Bank which define the risk appetite of the subsidiaries network. The Credit Risk Management teams in the subsidiaries manage local risk oversight, the surveillance function, as well as local decision and exception processes under the supervision of the Bank’s Credit Risk management. Moreover, the confirmed credit facilities are submitted to the approval of the Global Credit Risk Committee (CreditCo). Regular reporting is provided to senior management and Board Committees to ensure appropriate oversight and control.
3.1.2 Major projects
In a context of financial market volatility and tightening credit conditions, RBC Dexia IS‘s credit risk appetite continued to be kept at a relatively low level by applying a conservative credit risk approach as well as thorough monitoring. The final approval to move to a full advanced internal ratings based approach provided by
CSSF to RBC Dexia IS at the end of 2009 was subject to specific terms and conditions. These terms and conditions have all been fulfilled in 2010, except one item which will be completed in Q1 2011. Moreover RBC Dexia IS has upgraded its processes and procedures in order to comply with the updated Large Exposure legislation. The necessary system upgrades are scheduled in 2011.
3.1.3 Bank’s consolidated exposure
The core portion of the RBC Dexia’s total credit risk exposure is driven by the re-investment of its custody clients excess cash balances through interbank money market deposits and portfolio investments in bonds. Another source of credit risk on the balance sheet, although minor compared to the size of the Bank’s consolidated exposures mentioned above, arises from temporary overdrafts and committed credit facilities granted to its institutional custody clients as well as cash balances with cash correspondents. The Bank is exposed to credit counterparty risk linked to over the counter foreign exchange derivatives it contracts with its custody clients and covers with market professionals. Additional credit counterparty risk arises when we provide indemnification to lender as security lending agent.
3.1.3.1 Exposure by counterparty
Maximum credit exposure covers counterpart risk in the consolidated balance sheet and the consolidated off balance sheet.
Category of counterpart
as of Dec 31, 2010 in EUR In %
Investment Funds 947 456 419 7,65%
Financial Institutions 6 486 951 846 52,33%
Governments and Supranationals
4 885 542 976 39,41%
Retail and SME 75 749 771 0,61%
Total 12 395 701 012 100,00%
Category of counterpart
as of Dec 31, 2009 in EUR In %
Investment Funds 949 707 360 8,33%
Financial Institutions 5 690 805 055 49,88%
Governments and Supranationals
4 681 086 134 41,04%
Retail and SME 85 471 888 0,75%
Total 11 407 070 437 100%
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3.1.3.2 Exposure by geographical region
Credit exposure covers counterpart risk in the consolidated balance sheet and the consolidated off balance sheet.
Geography as of Dec. 2010
in EUR In %
European Union 11 339 494 112 91,48%
North America 289 928 991 2,34%
Rest of Europe 275 042 055 2,22%
Asia 316 991 808 2,55% Central and Latin Americas 52 920 560 0,43%
Others 121 323 486 0,98%
Total 12 395 701 012 100,00%
Geography as of Dec. 2009
in EUR In %
European Union 10 471 850 872 91,80%
North America 375 868 717 3,30%
Rest of Europe 97 854 593 0,86%
Asia 385 595 322 3,38%
Central and Latin Americas 1 462 237 0,01%
Others 74 438 696 0,65%
Total 11 407 070 437 100,00%
3.1.4 Collateral management
Given the conservative Group credit risk profile, the Group policies foresees to grant confirmed credit facilities only to clients in custody and only on a secured basis i.e. with a pledge on existing and future assets. Moreover, securities lending as well as some money market placements are also performed on a collateralized basis.
3.2 Basel II / Capital Requirement Directive
As the CSSF is the principal regulator for the Bank, the European 2006/48/CE and 2006/49/CEE directives are applicable to RBC Dexia IS. The CSSF and local regulators granted RBC Dexia IS the use of the Advanced Internal Ratings Based (A-IRB) approach for its credit risk exposures. RBC Dexia IS will continue to improve risk management practices and capital calculation on an ongoing basis by applying new regulations or guidelines published by regulators or supranational institutions (i.e.: BCBS or BCES). In 2010, RBC Dexia IS reinforced its risk framework by
applying new rules for stress testing, ICAAP, Large Exposure and remuneration. This improvement has been conducted in respect of the new regulatory requirement CRD II and guidelines from the EBA (European Banking Authority previously C-EBS) The risk management initiatives and practices are supported by the Group Executive Committee of RBC Dexia IS During 2010 RBC Dexia provided the additional information required by CSSF to be fully compliant with the CSSF 06/273. One element remains outstanding and it will be delivered in March 2011, after which time the CSSF should definitively close their review. Risk Capital and Reporting has the responsibility to apply appropriate techniques of calculation and to monitor any changes of the regulation. This team is constantly improving the data quality and fine-tuning the calculation process. This team is currently applying the following approaches to produce the COREPs and BCAR reporting of the multiple jurisdictions of RBC Dexia:
• Advanced Internal Ratings Based approach for credit risk
• Standardized measurement approach for market risk
• Standardized approach for operational risk
3.3 Market Risk Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, equity or commodity prices. The components of market risk include:
• Interest rate risk arises from the changes in interest rates.
• Foreign exchange rate risk arises from the change in currency rates.
• Equity risk arises from the movements in individual equity prices or movements in the level of stock market indices.
Commodities risk arises from commodities price movements and volatilities The Group has no material exposure to market risk from trading activities, as trading activities are not part of its strategy or risk appetite.
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Very limited overnight foreign exchange positions are authorized to allow for residual small client trades to be aggregated intraday and placed through professional market counterparty. This dealing activity is continuously monitored by an independent local middle office function reporting to the Risk Management department.
Minor residual positions in listed equities and fixed income securities may also occur in the trading book for a very short period and resulting mainly from the brokerage services offered out by the Spanish subsidiary. This activity has been assigned very tight limits in terms of position, holding period and duration, issuer rating and concentration; it is monitored and reported on a daily basis by an independent local Risk Management line at the Group level. The Group held no position in its equity trading book and there were minor positions reported in its fixed income trading book in 2010 and 2009.
3.4 Asset and Liability Management
Through its activities, such as deposit taking and reinvestment of its funds, the Group has limited exposure to market risks, including interest rate risk. The Group’s global structure and activities also give rise to structural foreign exchange risk. Interest Rate Risk is managed to preserve Group’s safety and soundness by limiting the vulnerability of equity value and net interest income to adverse interest rate movements. Group’s Asset and Liability Committee (“ALCO”) oversees the management of interest rate risk and structural foreign exchange risk, monitoring risk levels against Board-approved limits. ALCO reviews policy developed by Treasury and provides recommendations to the Audit Committee of the Board of Directors for approval at minimum on an annual basis. Day-to-day management of interest rate risk is delegated by ALCO to the Treasury Group. Interest Rate Risk reports are reviewed monthly by ALCO and quarterly by the Board of Directors. RBC Dexia’s Subsidiary ALCO oversees local asset/liability management of the direct subsidiaries and the implementation
of recommendations established at the Group ALCO level.
Group’s overall market risk policies and procedures have not changed materially from 2008
Interest rate risk is monitored using two policy measures; sensitivity of value of equity to a 200 bps parallel shift in interest rates across the yield curve (Value risk), and sensitivity of 12-month earnings to a parallel shift in interest rates across the yield curve (Earnings risk). Interest rate risk limits are specified in the interest rate risk management policy, which is reviewed and approved annually by the Audit Committee of the Board of Directors. The following table provides the potential before-tax impact of an immediate and sustained 200 bps increase or decrease in interest rates on net interest income and economic value of Group’s ALM portfolio. Calculations of these interest rate risk measures are based on the assumptions made by senior management where required. . All interest rate risk measures are based on interest rate exposures at a specific time and continuously change as a result of business activities and Group’s risk management initiatives. As of December 31, 2010: In million EUR up 200 bps down 200 bps
Equity -17 6
Earnings -11 -10
As of December 31, 2009: In million EUR up 200 bps down 200 bps
Equity -19 4
Earnings -13 -11
3.5 Liquidity Management Liquidity risk is the risk that Group may be unable to generate or obtain sufficient cash or its equivalent in a timely and cost-effective manner to meet its commitments as they fall due. The Group’s consolidated balance sheet structure has inherently low liquidity risk; the principal source of funding, demand deposits, is matched against short term investments and available liquidity buffers. The Group
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monitors the composition of its deposit base with respect to liquidity risk.
Given the composition of Group’s consolidated balance sheet, Group is a net originator of liquidity. Group benefits from Eur 700 million irrevocable standby line of credit issued by its shareholder, RBC Dexia, as well as operating funding lines. These resources ensure adequate access to liquidity if required. Tests are run on an appropriate frequency to monitor liquidity relative to regulatory requirements as well as sensitivity analyses designed to focus on the key drivers of Group’s consolidated balance sheet; these tests incorporate management assumptions.
Group’s objective is to put in place a liquidity management structure where day-to-day requirements are met and protection is also available for unforeseen and potentially adverse events. Group’s ALCO oversees liquidity risk management, monitoring liquidity against approved limits. ALCO reviews Liquidity management policy developed by Treasury and provides recommendations to the Audit Committee of the Board of Directors for approval at minimum on an annual basis. Day-to-day management of liquidity is delegated to the Treasury Group. Liquidity measures are reviewed monthly by ALCO and quarterly by the Board of Directors.
Liquidity is managed on a local legal entity level for the Group, under oversight of the Group ALCO.
Market Risk Management Group provides independent measurement and monitoring of liquidity risk. Cumulative net cash flow analysis under different liquidity scenarios is used as main liquidity risk measure. These scenarios incorporate sensitivity to deposit runoff and varying degrees of asset illiquidity. The assessment of Group’s liquidity position reflects management’s estimates, assumptions and judgments pertaining to its current and prospective conditions, market conditions and the related behavior of its clients and counterparties. The Group has established a liquidity contingency plan which contemplates various levels of liquidity crises such as local or systematic. A liquidity crisis management team has also been established.
3.6 Operational Risk Management Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The definition includes legal risk but excludes both strategic risk and reputational risk. The Group manages operational risk in an efficient and effective manner by ensuring effective infrastructure, existence of controls, systems and qualified individuals are in place throughout the organization and supported by an approved operational risk management framework. The operational risk management framework encompasses a common risk language with enterprise-wide programs and methodologies for the identification, measurement, control and management of operational risks. The framework is supported by strong governance processes; a code of ethics; risk based internal auditing; and corporate and business compliance activities.
3.6.1 Measurement
Operational risk is monitored through various mechanisms. The Group has in place a formal process to proactively identify, assess and monitor operational risks. In addition, other assessment programs are conducted in parallel. Ongoing risk reviews of operations, including major projects and new products are also conducted to manage risks.
Operational risks are managed and mitigated, but cannot be totally eliminated as operational risk failures can and do occur. Loss event data is collected leading to a better understanding of the root causes of operational failures and improved risk mitigation strategies.
To ensure controls are in place and operating effectively, comprehensive audits are conducted on a regular basis. Any issues raised are rated, with the key items addressed and resolved as a priority. Results of internal audits including the monitoring of action plan completion are reported to the audit committee on a regular basis. Further, the Group appoints an external auditor to report on key internal controls covering the Group’s core business – custody and fund administration - in compliance with the industry standard such as the AICPA SAS70. Business units also have measurements in place to monitor the delivery of key services to clients. Most of the measurements are connected to operational performance. Any
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negative trends are addressed and reported for follow up.
3.6.2 Control
The Group manages operational risk by having the appropriate infrastructure, systems of controls, systems and people in place throughout the organization. Supporting these activities are groups which focus on:
An independent Risk Management function: Credit Risk, Operational Risk, Financial Market Risk. Those are assessing risk on an ongoing basis.
A Compliance function: Ensuring that RBC Dexia meets all obligations resulting out of existing laws and regulations Anti-Money Laundering (“AML”), Know Your Customer (“KYC”), Protection of investors, etc.
An internal audit team that is independent from the business. The heads of the audit teams report directly to the respective CEO and to the Audit Committee of the operating companies.
The scope of the internal audits extends to all activities and functions of RBC Dexia, its branches and subsidiaries.
A risk-based approach to determine minimum audit coverage, timing and resources is applied. High-risk areas or activities are audited on a more frequent basis.
3.6.3 Reporting
Regular reporting provides senior management, the Board of Directors and its delegated committees with an overview of our operational risk profile. This is obtained from risk identification and monitoring of various activities; and reporting of any significant operational events and losses.
3.7 Capital Adequacy During 2009 and 2010, RBC Dexia IS has maintained a strong capital position. This ensures that at any time, considering potential downturn due to unexpected external or internal events, RBC Dexia IS will be able to maintain business continuity, pursue its business objectives and ensure capital adequacy with regard to the minimum regulatory requirements. This policy is an assurance to provide continuous returns for shareholders and benefits for other stakeholders.
Capital adequacy and regulatory capital are monitored on a monthly basis by the Group’s management committee, employing techniques issued under the guidelines developed by the Basel Committee and the Committee of European Banking Supervision. COmmon solvency ratio REPorting “COREP” for European based entities of RBC Dexia IS are sent on a quarterly basis to CSSF as the Group regulator or local regulators. According to the CSSF circular 06/273, each bank or banking group is required to: (a) hold the minimum level of the regulatory capital of EUR 8,700,000, and (b) maintain a ratio of total regulatory capital to the risk-weighted asset (the “Basel ratio”) at or above the internationally agreed minimum of 8%. RBC Dexia Investor Services adopted a stricter internal measure for capital adequacy ratio which must be higher than 9%.
Tier 1 capital: share capital (net of any book values of treasury shares) retained earnings and reserves created by appropriations of retained earnings. The book value of intangible assets is deducted in arriving at Tier 1 capital;
and Tier 2 capital: qualifying subordinated
loan capital, collective impairment allowances.
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Capital adequacy Under Basel II requirements Dec 31, 2010 :
In EUR Dec 31, 2010
Tier 1 Capital 789 675 559
Total Deduction Tier 1 251 607 246
Net Tier 1 Capital 538 068 313
Tier 2 Capital 1 439 875
Total Deduction Tier 2 1 439 875
Net Tier 2 Capital 0
Total capital and reserves (Eligible own funds) 538 068 313
Capital requirements
Credit Risk 122 419 842
Operational Risk 56 397 544
Market risk : Interest rate risk 2 793 212
Market risk : Foreign exchange risk 568 408
Total Capital requirements 182 179 006
Eligible own funds
Capital requirements x 12.5 23.63%
Capital adequacy Under Basel II requirements Dec 31, 2009 :
In EUR Dec 31, 2009
Tier 1 Capital 584 078 846
Total Deduction Tier 1 131 595 162
Net Tier 1 Capital 452 483 684
Tier 2 Capital 216 051 180
Total Deduction Tier 2 9 810 310
Net Tier 2 Capital 206 240 870
Total capital and reserves (Eligible own funds) 658 724 554
Capital requirements
Credit Risk 107 662 231
Operational Risk 57 371 425
Market risk : Interest rate risk 5 392 698
Market risk : Foreign exchange risk 673 357
Total Capital requirements 171 099 711
Eligible own funds
Capital requirements x 12.5 30.80%
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Internally Rated Portfolio Exposures by risk Ratings (Excluding Retail)
For the period ended December 31, 2010
Portfolios Total Exposure after
CRM
Undrawn Commitments
(notional amount)
Weighted Avg. PD (%)
Weighted Avg.LGD(%) (for advanced banks
only)
Weighted Average Maturity (for
advanced banks only)
Value of exposures
defaulting in the last year
% Default Rate
Banking Institutions 5 450 354 167 0 0,18% 14,93% 471 0 0%
Central Government and Banks 4 818 115 660 0 0,00% 19,14% 593 0 0% Corporate 884 308 949 0 6,35% 31,37% 993 0 0% Retail 0 0 0 0 0 0 0% Other 0 0 0 0 0 0 0%
Total 11 152 778 776 0 2,18% 21,81% 686 0 0%
For the period ended December 31, 2009
Portfolios Total Exposure after
CRM
Undrawn Commitments
(notional amount)
Weighted Avg. PD (%)
Weighted Avg.LGD(%) (for advanced banks
only)
Weighted Average Maturity (for
advanced banks only)
Value of exposures
defaulting in the last year
% Default Rate
Banking Institutions 3 847 830 695 0 0,07% 35,51% 439 0 0%
Central Government and Banks 4 545 493 432 0 0,00% 27,52% 367 0 0% Corporate 682 393 138 0 5,86% 40,13% 702 0 0% Retail 0 0 0 0 0 0 0% Other 0 0 0 0 0 0 0%
Total 9 075 717 265 0 0,28% 31,51% 412 0 0%
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3.8 Hedge accounting The Groups’ hedging strategy consists of Hedging:
its interest rate risk on loans and fixed income securities.
hedging its foreign currency exposures arising from its net investments in subsidiaries and branches. As such, the Group manages its significant net-investment related foreign exchange risk.
This activity is overseen by the ALCO Committee per the structural Foreign Exchange Risk Management policy. Currently the Group hedges its significant net investments in CHF, USD, HKG and SGD using short term financial instruments such as outright forwards. In this context, hedge of net investment accounting is applied, if and only if, all the hedge accounting criteria are met. The Group can also enter into hedges to mitigate fair value exposures on securities and loans. In this context, interest rate swaps are used and fair value hedge accounting is applied, if and only if, all the hedge accounting criteria are met. The Group can also enter into hedges to mitigate cash flow variability exposure on its assets and liabilities. In this context, interest rate swaps are used and cash flow hedge accounting is applied, if and only if, all the hedge accounting criteria are met.
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4 List of subsidiaries and associates
4.1 Fully consolidated subsidiaries
Name Country
% of capital held
RBC Dexia IS Belgium SA Belgium 100,00
RBC Dexia IS Cayman Limited Cayman Islands 100,00
RBC Dexia IS Bank France SA France 100,00
RBC Dexia IS France SA France 100,00
Desys Informatique Finance France 100,00
RBC Dexia IS Holding Hong Kong Limited Hong Kong 80,00
RBC Dexia Corporate Services Hong Kong Limited Hong Kong 80,00
RBC Dexia Trust Services Hong Kong Limited Hong Kong 80,00
Day Nominees Limited Hong Kong 80,00
Dexia BIL Nominees Limited Hong Kong 80,00
Dexia Nominees (Hong Kong) Limited Hong Kong 80,00
RBC Dexia IS Ireland Limited Ireland 100,00
RBC Dexia IS Bank SA Luxembourg 100,00
RBC Dexia IS (Malaysia) Sdn Bhd Malaysia 100,00
RBC Dexia IS Netherlands NV Netherlands 100,00
RBC Dexia IS Custody NV Netherlands 100,00
RBC Dexia Investor Services Singapore Pte Limited Singapore 100,00
RBC Dexia Trust Services Singapore Limited Singapore 100,00
Fintelect SA Spain 100,00
RBC Dexia IS Espana SA Spain 100,00
RBC Dexia IS Activos SA Spain 100,00
4.2 Affiliated companies accounted for by the equity method
The Group has no companies accounted for by the equity method.
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5 Significant post balance sheet events
There were no material subsequent post balance sheet events to report.
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6 Notes to the assets
6.1 Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise the following balances with less than 90 days to maturity excluding accrued interest:
a. Analysis by nature
Dec 31, 2010 Dec 31, 2009
Cash and balances with central banks 724 471 859 840 791 705
Loans and receivables due from credit institutions 4 775 580 520 4 136 189 913
Financial assets available-for-sale 1 685 180 472 2 385 010 001
Financial assets held for trading 0 0
Accounts included in non current assets held for sale 0 0
Total 7 185 232 851 7 361 991 619
b. Of which restricted cash
Dec 31, 2010 Dec 31, 2009
Mandatory reserves (*) 201 621 010 154 330 521
Cash collateral 0 493 910 215
Other 0 4 645 303
(*) Mandatory reserves: minimum reserve deposits credit institutions must have with central banks. 2009 figures have been restated cfr note 2.26 for details.
6.2 Cash and balances with central banks
Analysis by nature (acquisition cost and accrued interest) Dec 31, 2010 Dec 31, 2009
Cash in hand 117 780 174 366
Balances with central banks other than mandatory reserve deposits 522 733 069 686 286 818
Mandatory reserve deposits 201 737 112 154 434 610
Total 724 587 961 840 895 794
of which included in cash and cash equivalents (Excl. accrued interest) 724 471 859 840 791 705
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6.3 Loans and receivables due from credit institutions
a. Analysis by nature
(reimbursement amount, premium, discount, impairment, accrued interest and fair value adjustment)
b. Analysis of quality
See Note 6.13 c. Analysis by interest rate and contractual maturity
See Notes 11.4 and 11.5 d. Analysis of the fair value
See Note 11.1
6.4 Loans and receivables due from customers
a. Analysis by counterpart
(reimbursement amount, premium, discount, impairment, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Public sector 0 0
Other 591 519 553 332 176 453
Impaired loans 40 753 47 057
Less:
Specific impairment -38 727 -27 691
Collective impairment 0 0
Total 591 521 579 332 195 819
b. Analysis of quality
See Note 6.13
Dec 31, 2010 Dec 31, 2009
Nostri accounts 1 039 711 503 1 357 920 035
Reverse repurchase agreements 827 530 356 1 447 019 749
Loans and other advances 3 080 967 726 1 863 235 051
Impaired loans 0 0
Less:
Specific impairment 0 0
Collective impairment 0 0
Total 4 948 209 585 4 668 174 835
of which included in cash and cash equivalents (Excl. accrued interest)
4 775 580 520 4 630 100 128
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c. Analysis by nature
Dec 31, 2010 Dec 31, 2009
Reverse repurchase agreements 1 986 045 0
Loans and other receivables 589 533 508 332 176 453
Impaired loans 40 753 47 057
Less:
Impairment -38 727 -27 691
Collective impairment 0 0
Total 591 521 579 332 195 819
The majority of the loans and receivables due from customers is represented by short term advances to clients in the form of overdraft facilities and loans granted to clients pursuant to committed credit facilities.
d. Analysis by interest rate and contractual maturity
See Notes 11.4 and 11.5 e. Analysis of the fair value
See Note 11.1
6.5 Financial assets measured at fair value through profit or loss In 2010 and 2009, financial assets at fair value through profit or loss consist of trading assets.
a. Analysis by counterpart
(reimbursement amount, premium, discount, impairment, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Public sector 2 328 2 527
Credit institutions 1 024 1 027
Other 0 0
Total 3 352 3 554
of which included in cash and cash equivalents (Excl. accrued interest) 0 37 418
b. Analysis by nature (reimbursement amount, premium, discount, impairment, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Loans 0 0
Bonds issued by public bodies 2 328 2 527
Other bonds and fixed income instruments 1 024 1 027
Equity and variable revenue instruments 0 0
Total 3 352 3 554
There were no transfers of financial investments in the years 2010 and 2009.
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c. Treasury Bills and other eligible bills included
Dec 31, 2010 Dec 31, 2009
Treasury bills and other eligible bills included 0 0
Total 0 0
d. Analysis of quality
See Note 6.13 e. Analysis by interest rate and contractual maturity
See Notes 11.4 and 11.5 f. Analysis of the fair value
See Note 11.1
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6.6 Financial investments
In 2010 and 2009, financial investments consist of financial assets available-for-sale.
a. Analysis by counterpart
(reimbursement amount, premium, discount, impairment, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Public sector 1 332 944 049 699 501 070
Credit institutions 4 072 219 167 3 960 213 941
Other 60 457 964 62 244 154
Public sector - impaired 0 0
Credit institutions - impaired 0 0
Other - impaired 26 007 227 25 286 759
Total financial investments before impairment 5 491 628 407 4 747 245 924
Less:
Specific impairment -3 440 025 -3 122 911
Collective impairment 0 0
Total 5 488 188 382 4 744 123 013
of which included in cash and cash equivalents (Excl. accrued interest) 1 685 180 472 2 385 010 001
b. Analysis by nature
(reimbursement amount, premium, discount, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Loans 0 0
Bonds issued by public bodies 1 332 944 049 699 501 070
Other bonds and fixed income instruments 4 123 184 404 4 011 865 786
Equity and variable revenue instruments 9 492 727 10 592 309
Impaired loans 0 0
Impaired bonds issued by public bodies 0 0
Impaired other bonds and fixed income instruments 2 686 768 2 500 260
Impaired equity and variable revenue instruments 23 320 459 22 786 499
Total financial investments before impairment 5 491 628 407 4 747 245 924
Less :
Specific impairment on other bonds and fixed income instruments -2 686 768 -2 500 260
Specific impairment on equity and variable revenue instruments -753 257 -622 651
Collective impairment 0 0
Total 5 488 188 382 4 744 123 013
- Financial investments include essentially bonds issued by European entities and state guaranteed European Commercial Papers. - See note 11.3 for pledged assets. - There were no transfers of financial investments in the years 2010 and 2009.
c. Analysis of quality
See Note 6.13
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d. Analysis by interest rate and contractual maturity
See Notes 11.4 and 11.5
e. Analysis of the fair value
See Note 11.1
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6.7 Tangible assets
For the period ended December 31, 2010
Land and buildings
Office furniture and other equipment
Investment property
Own use Owner
Own use Finance
lease
Own use Owner
Own use Finance
lease
Land and buildings
Own use Finance
lease Total
Acquisition cost as of Jan 1, 2010
11 294 993 0 18 027 775 0 0 0 29 322 768
Acquisitions 591 060 0 5 998 099 0 0 0 6 589 159
Subsequent expenditures 0 0 0 0 0 0 0 Post-acquisition adjustments
0 0 0 0 0 0 0
Disposals / write-off 0 0 -423 463 0 0 0 -423 463 Change in consolidation scope (in)
163 508 0 433 933 0 0 0 597 441
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 0 0 -1 247 405 0 0 0 -1 247 405
Translation adjustments 0 0 300 900 0 0 0 300 900
Acquisition cost as of Dec 31, 2010
12 049 561 0 23 089 839 0 0 0 35 139 400
Accumulated depreciation as of Jan 1, 2010
-1 537 844 0 -11 675 165 0 0 0 -13 213 009
Post-acquisition adjustments
0 0 0 0 0 0 0
Depreciation booked for the period
-317 774 0 -3 362 231 0 0 0 -3 680 005
Write-back 0 0 0 0 0 0 0
Disposals / Write-off 0 0 348 222 0 0 0 348 222 Change in consolidation scope (in)
-161 310 0 -391 284 0 0 0 -552 594
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 0 0 1 247 405 0 0 0 1 247 405
Translation adjustments 0 0 -203 519 0 0 0 -203 519
Other 0 0 0 0 0 0 0
Accumulated depreciation as of Dec 31, 2010
-2 016 928 0 -14 036 572 0 0 0 -16 053 500
Accumulated impairment as of Jan 1, 2010
0 0 0 0 0 0 0
Post-acquisition adjustments
0 0 0 0 0 0 0
Impairment booked for the period
0 0 0 0 0 0 0
Write-back 0 0 0 0 0 0 0
Disposals / Write-off 0 0 0 0 0 0 0 Change in consolidation scope (in)
0 0 0 0 0 0 0
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 0 0 0 0 0 0 0
Translation adjustments 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
Accumulated impairment as of Dec 31, 2010
0 0 0 0 0 0 0
Net book value as of Dec 31, 2010
10 032 633 0 9 053 267 0 0 0 19 085 900
49
For the period ended December 31, 2009
Land and buildings
Office furniture and other equipment
Investment property
Own use Owner
Own use Finance
lease
Own use Owner
Own use Finance
lease
Land and buildings
Own use Finance
lease Total
Acquisition cost as of Jan 1, 2009
10 374 701 0 18 267 325 0 0 0 28 642 026
Acquisitions 897 177 0 986 031 0 0 0 1 883 208
Subsequent expenditures 0 0 0 0 0 0 0 Post-acquisition adjustments
0 0 -296 486 0 0 0 -296 486
Disposals / write-off 0 0 -914 316 0 0 0 -914 316 Change in consolidation scope (in)
0 0 0 0 0 0 0
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 23 115 0 0 0 0 0 23 115
Translation adjustments 0 0 -14 779 0 0 0 -14 779
Acquisition cost as of Dec 31, 2009
11 294 993 0 18 027 775 0 0 0 29 322 768
Accumulated depreciation as of Jan 1, 2009
-1 327 708 0 -10 050 871 0 0 0 -11 378 579
Post-acquisition adjustments
0 0 81 659 0 0 0 81 659
Depreciation booked for the period
-210 136 0 -2 597 716 0 0 0 -2 807 852
Write-back 0 0 0 0 0 0 0
Disposals / Write-off 0 0 878 977 0 0 0 878 977 Change in consolidation scope (in)
0 0 0 0 0 0 0
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 0 0 0 0 0 0 0
Translation adjustments 0 0 12 786 0 0 0 12 786
Other 0 0 0 0 0 0 0
Accumulated depreciation as of Dec 31, 2009
-1 537 844 0 -11 675 165 0 0 0 -13 213 009
Accumulated impairment as of Jan 1, 2009
0 0 0 0 0 0 0
Post-acquisition adjustments 0 0 0 0 0 0 0 Impairment booked for the period
0 0 0 0 0 0 0
Write-back 0 0 0 0 0 0 0
Disposals / Write-off 0 0 0 0 0 0 0 Change in consolidation scope (in)
0 0 0 0 0 0 0
Change in consolidation scope (out)
0 0 0 0 0 0 0
Transfers 0 0 0 0 0 0 0
Translation adjustments 0 0 0 0 0 0 0
Other 0 0 0 0 0 0 0
Accumulated impairment as of Dec 31, 2009
0 0 0 0 0 0 0
Net book value as of Dec 31, 2009
9 757 149 0 6 352 610 0 0 0 16 109 759
50
6.8 Intangible assets and goodwill (*) Other intangible assets consist of software licenses and related implementation and development by third
parties. For the period ended December 31, 2010
Goodwill
Internally developed
software
Other intangible assets (*)
Total
Acquisition cost as of Jan 1, 2010 40 603 845 56 920 587 62 760 871 160 285 303
Acquisitions 55 022 797 4 032 365 64 421 393 123 476 555
Subsequent expenditures 0 0 0 0
Post acquisition adjustments 0 0 0 0
Disposals / write-off 0 0 0 0
Change in consolidation scope (in) 1 312 213 5 100 000 732 518 7 144 731
Change in consolidation scope (out) 0 0 0 0
Transfers 0 0 -253 462 -253 462
Translation adjustments 0 0 1 555 1 555
Other 0 0 0 0
Acquisition cost as of Dec 31, 2010 96 938 855 66 052 952 127 662 875 290 654 682
Accumulated depreciation as of Jan 1, 2010 -4 523 778 -18 414 589 -22 959 364 -45 897 731
Post acquisition adjustments 0 0 0 0 Depreciation booked for the period 0 -7 239 764 -9 241 221 -16 480 985
Write-back 0 0 0 0 Disposals / Write-off 0 0 0 0 Change in consolidation scope (in) 0 0 -717 188 -717 188
Change in consolidation scope (out) 0 0 0 0 Transfers 0 0 253 462 253 462
Translation adjustments 0 0 64 64 Other 0 0 0 0
Accumulated depreciation
as of Dec 31, 2010 -4 523 778 -25 654 353 -32 664 247 -62 842 378
51
Accumulated impairment as of Jan 1, 2010 0 0 0 0
Post acquisition adjustments 0 0 0 0
Impairment booked for the period 0 -664 347 -140 651 -804 998
Write-back 0 0 0 0 Disposals / Write-off 0 0 0 0 Change in consolidation scope (in) 0 0 0 0
Change in consolidation scope (out) 0 0 0 0 Transfers 0 0 0 0 Translation adjustments 0 0 0 0
Other 0 0 0 0
Accumulated impairment as of Dec 31, 2010 0 -664 347 -140 651 -804 998
Net book value as of Dec 31, 2010 92 415 077 39 734 252 94 857 977 227 007 306 In 2010, increase in goodwill and intangible assets, is mainly due to UBI business acquisition and to Desys acquisition. Cfr note 8.4 for further details.
52
For the period ended December 31, 2009
Goodwill
Internally developed
software
Other intangible assets (*)
Total
Acquisition cost as of Jan 1, 2009 40 603 845 39 870 859 50 216 208 130 690 912
Acquisitions 0 16 147 406 13 786 928 29 934 334 Subsequent expenditures 0 0 0 0
Post acquisition adjustments 0 0 0 0 Disposals / write-off 0 0 -316 145 -316 145 Change in consolidation scope (in) 0 0 0 0
Change in consolidation scope (out) 0 0 0 0 Transfers 0 902 322 -925 437 -23 115
Translation adjustments 0 0 -683 -683 Other 0 0 0 0
Acquisition cost as of Dec 31, 2009 40 603 845 56 920 587 62 760 871 160 285 303
Accumulated depreciation as of Jan 1, 2009 -4 523 778 -11 460 306 -18 119 523 -34 103 607
Post acquisition adjustments 0 0 0 0
Depreciation booked for the period 0 -6 573 789 -5 342 450 -11 916 239
Write-back 0 0 0 0 Disposals / Write-off 0 0 122 097 122 097 Change in consolidation scope (in) 0 0 0 0
Change in consolidation scope (out) 0 0 0 0 Transfers 0 -380 494 380 494 0 Translation adjustments 0 0 18 18
Other 0 0 0 0
Accumulated depreciation as of Dec 31, 2009 -4 523 778 -18 414 589 -22 959 364 -45 897 731
Accumulated impairment as of Jan 1, 009 0 0 -194 048 -194 048
Post acquisition adjustments 0 0 0 0
Impairment booked for the period 0 0 0 0 Write-back 0 0 0 0 Disposals / Write-off 0 0 194 048 194 048
Change in consolidation scope (in) 0 0 0 0 Change in consolidation scope (out) 0 0 0 0
Transfers 0 0 0 0 Translation adjustments 0 0 0 0 Other 0 0 0 0
Accumulated impairment as of Dec 31, 2009 0 0 0 0
Net book value as of Dec 31, 2009 36 080 067 38 505 998 39 801 507 114 387 572
53
6.9 Income tax assets
Dec 31, 2010 Dec 31, 2009
Current/prepaid income tax assets 4 610 318 1 543 305
Deferred income tax assets (*) 7 277 246 7 397 280
Total 11 887 564 8 940 585
(*) See note 8.2
6.10 Other assets
Dec 31, 2010 Dec 31, 2009
Accrued income (*) 62 296 607 45 338 492
Deferred expenses 2 375 540 1 896 147
Operational and exploitation taxes 949 372 3 750 125
Other accounts receivable (**) 89 016 155 178 021 466
Other assets (***) 170 487 099 90 626 147
Total 325 124 773 319 632 377
(*) Accrued income consists of invoices to be issued for services rendered to related and third parties. (**) Other account receivables includes brokerage accounts and issued invoices related to commissions. (***) Other assets consist mainly of settlement accounts with customers.
6.11 Non-current assets and disposal groups classified as held for sale There were no disposals in 2010 and 2009.
54
6.12 Leasing
a. RBC Dexia Investor Services as lessor
The Group is not active in leasing as a lessor.
b. RBC Dexia Investor Services as lessee
1. Finance lease
The Group has not contracted any financial leases during the year.
2. Operating Lease
Future net minimum lease payments under non cancellable operating leases, essentially for buildings and computer equipment, are as follow:
Dec 31, 2010 Dec 31, 2009
Not later than 1 year 20 081 076 23 281 987
Later than 1 year and not later than 5 years 69 082 289 77 470 677
Later than 5 years 68 179 309 94 379 747
Total 157 342 674 195 132 411
Amount of future minimum sublease payments expected to be received under non-cancellable subleases at the balance sheet date
0 0
Lease and sublease payments recognized in the income statement during the year:
Dec 31, 2010 Dec 31, 2009
Minimum lease payments 21 175 626 19 510 342
Contingent rents 0 0
Sublease payments 0 0
Total 21 175 626 19 510 342
55
6.13 Quality of financial assets
For the period ended December 31, 2010
Accrued Interest Not impaired Impaired Dec 31, 2010
Loan and receivables due from credit institutions 1 350 321 0 1 350 321
Loan and receivables due from customers 230 411 0 230 411
Financial assets available-for-sale 7 068 132 0 7 068 132
Total 8 648 864 0 8 648 864
Fair value adjustment Not impaired Impaired Dec 31, 2010
Loans and receivable due from credit institutions 0 0 0
Loans and receivable due from customers 0 0 0
Financial assets available-for-sale -12 899 867 -57 347 -12 957 214
Total -12 899 867 -57 347 -12 957 214
Analysis of not impaired loans and securities (acquisition cost) Dec 31, 2010
Not impaired loans and receivables due from credit institutions 4 946 859 264
Not impaired loans and receivables due from customers 591 289 142
Not impaired financial assets available-for-sale 5 494 830 721
Not impaired other accounts receivable 87 950 386
Not impaired other assets 170 487 099
Total 11 291 416 611
Analysis of impaired loans and securities Acquisition
cost Specific loan
loss allowance Dec 31, 2010
Impaired loans and receivables due from credit institutions
0 0 0
Impaired loans and receivables due from customers 40 753 -38 727 2 026
Impaired financial assets available-for-sale 26 064 574 -3 440 025 22 624 549
Impaired other accounts receivable (*) 15 397 232 -14 331 463 1 065 769
Impaired other assets 0 0 0
Total 41 502 559 -17 810 215 23 692 344
(*) See note 11.7
Not impaired and impaired loans and securities Gross amount Specific loan
loss allowance Dec 31, 2010
Loans and receivables due from credit institutions 4 948 209 585 0 4 948 209 585
Loans and receivables due from customers 591 560 306 -38 727 591 521 579
Financial assets available-for-sale 5 515 006 213 -3 440 025 5 511 566 188
Other accounts receivable 103 347 618 -14 331 463 89 016 155
Other assets 170 487 099 0 170 487 099
Total 11 328 610 821 -17 810 215 11 310 800 605
56
For the period ended December 31, 2009
Accrued Interest Not impaired Impaired Dec 31, 2009
Loan and receivables due from credit institutions 512 025 0 512 025
Loan and receivables due from customers 135 151 0 135 151
Financial assets available-for-sale 17 739 517 0 17 739 517
Total 18 386 693 0 18 386 693
Fair value adjustment Not impaired Impaired Dec 31, 2009
Loans and receivable due from credit institutions 0 0 0
Loans and receivable due from customers 0 0 0
Financial assets available-for-sale 2 908 015 0 2 908 015
Total 2 908 015 0 2 908 015
Analysis of not impaired loans and securities (acquisition cost) Dec 31, 2009
Not impaired loans and receivables due from credit institutions 4 667 662 810
Not impaired loans and receivables due from customers 332 041 302
Not impaired financial assets available-for-sale 4 701 311 581
Not impaired other accounts receivable 177 822 482
Not impaired other assets 90 626 147
Total 9 969 464 322
Analysis of impaired loans and securities Acquisition
cost Specific loan
loss allowance Dec 31, 2009
Impaired loans and receivables due from credit institutions 0 0 0
Impaired loans and receivables due from customers 47 057 -27 691 19 366
Impaired financial assets available-for-sale 25 286 811 -3 122 911 22 163 900
Impaired other accounts receivable (*) 14 345 820 -14 146 836 198 984
Impaired other assets 0 0 0
Total 39 679 688 -17 297 438 22 382 250
(*) See note 11.7
Not impaired and impaired loans and securities Gross amount Specific loan
loss allowance Dec 31, 2009
Loans and receivables due from credit institutions 4 668 174 835 0 4 668 174 835
Loans and receivables due from customers 332 223 510 -27 691 332 195 819
Financial assets available-for-sale 4 747 245 924 -3 122 911 4 744 123 013
Other accounts receivable 192 168 302 -14 146 836 178 021 466
Other assets 90 626 147 0 90 626 147
Total 10 030 438 718 -17 297 438 10 013 141 280
57
7 Notes to the liabilities
7.1 Borrowings and deposits due to credit institutions
a. Analysis by nature
(reimbursement amount, premium, discount, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Demand deposit 355 136 672 158 428 619
Term deposits 13 742 119 11 746 835
Repurchase activity 0 103 910 816
Central banks 0 0
Other borrowings 139 520 380 475 052 355
Total 508 399 171 749 138 625
b. Analysis by interest rate and maturity
See notes 11.4 and 11.5
c. Analysis of the fair value
See note 11.1
7.2 Borrowings and deposits due to customers
a. Analysis by nature
(reimbursement amount, premium, discount, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Demand deposits 9 590 190 020 7 674 375 349
Saving deposits 1 197 174 238 788
Term deposits 265 780 392 173 769 545
Other customer deposits 0 884 430
Total customer deposits 9 857 167 586 7 849 268 112
Repurchase activity 771 340 299 1 339 590 806
Other borrowings 189 491 359 629
Total customer borrowings 771 529 790 1 339 950 435
Total 10 628 697 376 9 189 218 547
b. Analysis by interest rate and contractual maturity
See Notes 11.4 and 11.5
c. Analysis of the fair value See Note 11.1
58
7.3 Subordinated debts
a. Analysis by nature
(reimbursement amount, premium, discount, accrued interest and fair value adjustment)
Dec 31, 2010 Dec 31, 2009
Convertible subordinated debt 0 0
Non-convertible subordinated debt (*) (**) 0 215 377 704
Other 0 0
Total 0 215 377 704 On September 30, 2010 RBC Dexia Investor Services Bank S.A. repaid the subordinated debt owed to its parent company (*) On December 23 2008 RBC Dexia Investor Services Bank S.A. issued subordinated debt to its parent company.
This loan matures on December 23, 2016 and bears a variable interest based on 3 months Euribor rate + 1.90%. The last fixing was 2.609% for the current interest period. The total amount of interest expense in 2009 was Eur 3 228 365 (2008: Eur 102 600).
(**) On October 30, 2007 RBC Dexia Investor Services Bank S.A. issued subordinated debt to its parent company. This loan matures on October 30, 2015 and bears a variable interest based on Eonia swap rate + 1.15%. The last fixing was 1.589% for the current interest period. The total amount of interest expense in 2009 was Eur 2 643 160 (2008: Eur 6 463 410).
7.4 Provisions and other obligations
a. Analysis by nature
Dec 31, 2010 Dec 31, 2009
Litigation claims (*) 1 352 220 458 122
Restructuring 150 000 0
Long term defined benefit plans 5 223 244 6 264 385
Other post retirement obligations 0 0
Other long term employee benefits 5 713 398 4 850 944
Provision for off balance sheet credit commitments 0 0
Onerous contracts 0 0
Other provisions 5 256 173 3 445 569
Total 17 695 035 15 019 020 (*) Litigation: the Group had no significant litigation outstanding as at the year end.
59
b. Analysis of movements
For the period ended December 31, 2010
Litigation
claims Pensions and other employee benefits
Other provisions
Total
As of Jan 1, 2010 458 122 11 115 329 3 445 569 15 019 020
Exchange difference 9 812 62 904 12 598 85 314
Additional provisions 930 186 6 603 415 6 122 117 13 655 718
Unused amounts reversed 0 -1 089 211 -463 920 -1 553 131
Utilized during the period -45 900 -6 478 780 -4 083 501 -10 608 181
Change in consolidation scope (in) 0 722 985 373 310 1 096 295
Change in consolidation scope (out) 0 0 0 0
Transfers 0 0 0 0
Other movements 0 0 0 0
As of Dec 31, 2010 1 352 220 10 936 642 5 406 173 17 695 035
For the period ended December 31, 2009
Litigation
claims Pensions and other employee benefits
Other provisions
Total
As of Jan 1, 2009 1 995 881 9 729 559 2 227 148 13 952 588
Exchange difference 0 -2 065 0 -2 065
Additional provisions 188 843 4 929 233 6 219 247 11 337 323
Unused amounts reversed 0 0 -296 059 -296 059
Utilized during the year -49 172 -3 541 398 -6 382 197 -9 972 767
Change in consolidation scope (in) 0 0 0 0
Change in consolidation scope (out) 0 0 0 0
Transfers -1 677 430 0 1 677 430 0
Other movements 0 0 0 0
As of Dec 31, 2009 458 122 11 115 329 3 445 569 15 019 020
c. Provisions for pensions and other long term benefits
A. Change in benefit obligation (calculated by actuaries) Dec 31, 2010 Dec 31, 2009
Beginning of the year/transferred at valuation date 43 853 100 38 777 285
Current service cost 6 077 526 4 711 097
Interest cost 1 962 567 2 094 281
Plan participants' contributions 221 205 231 523
Amendments 41 565 0
Actuarial (gain)/loss 489 117 -1 396 761
Benefits paid from plan/company -4 903 788 -418 866
Expenses paid -206 422 -23 359
Taxes paid 0 -5 391
Premium paid 0 -149 945 Net transfer in/(out) (including the effect of any business combination/divestures)
880 890 0
Plan curtailments 0 0
Plan settlements -7 095 105 0
Exchange rate changes 917 859 33 236
Benefit obligation as of the end of the period 42 238 515 43 853 100
60
C. Amounts recognized in the consolidated balance sheet Dec 31, 2010 Dec 31, 2009
Plans that are wholly unfunded and plans that are wholly and partially funded
Present value of funded obligation 36 499 633 38 202 618
Fair value of plan assets 26 606 005 30 725 009
Deficit (surplus) for funded plans 9 893 628 7 477 609
Present value of unfunded obligations 6 110 553 5 650 482
Unrecognized net actuarial gains/(losses) -5 287 512 -2 248 070
Unrecognized past service (cost)/benefit 219 973 235 308
Effect of IAS 19 §58 (b) limit 0 0
Net liability (assets) 10 936 642 11 115 329
Amounts in the consolidated balance sheet
Liabilities 10 936 642 11 115 329
Assets 0 0
Net liability (assets) 10 936 642 11 115 329
B. Change in plan assets Dec 31, 2010 Dec 31, 2009
Beginning of the year/transferred at valuation date 30 725 009 25 063 918
Expected return on plan assets 1 672 395 1 710 940
Actuarial (gain)/loss on plan assets -2 524 802 749 462
Employer contributions 4 056 495 3 532 600
Member contributions 221 205 231 523
Benefits paid from plan -1 861 666 -410 067
Expenses paid -206 422 -23 359
Taxes paid 0 -5 391
Premium paid 0 -149 945
Plan settlements -6 248 857 0
Acquisition/divestures 0 0
Exchange rate changes 772 649 25 328
Fair value of plan assets as of the end of the period 26 606 005 30 725 009
61
D. Components of pension cost Dec 31, 2010 Dec 31, 2009
Amounts recognized in the consolidated income statement
Current service cost 6 077 526 4 711 125
Interest cost 1 962 567 2 094 281
Expected return on plan assets -1 672 395 -1 710 940
Expected return on reimbursement assets 0 0
Amortization of past service cost following IAS 19 §58 (a) 26 230 -15 335
Amortization of net (gain)/loss following IAS 19 §58 (a) -7 873 -149 898
Effect of IAS 19 §58 (b) limit 0 0
Curtailment (gain)/loss recognized 0 0
Settlement (gain)/loss recognized -786 688 0
Total pension cost recognized in the consolidated income statement 5 599 368 4 929 233
Actual return on assets
Actual return on plan assets -852 408 2 460 402
Actual return on reimbursement assets 0 0
F. Range of assumptions to determine defined benefit expense (*)
As of Dec 31, 2010
Discount rate Inflation rate
Compensation increase rate
Expected rate of return on assets
Euro Zone 2.30%-4.75% 2,25% 3.25%- 4.75% 6,15%
Non Euro Zone 2,30% n/a n/a n/a
Switzerland 2.30%-2.50% 1,50% 2,30% 3,50%
As of Dec 31, 2009
Discount rate Inflation rate Compensation
increase rate Expected rate of return on assets
Euro Zone 2,75% - 5,25% 2,25% 3%-5,50% 4%-6,15%
Non Euro Zone 2,75% n/a n/a n/a
Switzerland 2,75% 0,90% 2% 3,31%
E. Balance sheet reconciliation (calculated by actuaries) Dec 31, 2010 Dec 31, 2009
Balance sheet liability (asset) as transferred at valuation date 11 488 902 9 729 559 Pension expense recognized in the consolidated income statement in the
financial year 5 599 367 4 929 233
Amounts recognized in SORIE in the financial year 0 0
Employer contributions made in the financial year -4 056 495 -3 404 028
Benefits paid directly by the Group in the financial year -3 042 122 -137 371
Credit to reimbursements 0 0 Net transfer in/(out) (including the effect of any business
combinations/divestitures) 880 890 0
Exchange rate adjustment - (gain)/loss 66 100 -2 064
Consolidated balance sheet liability (asset) as of the end of the period 10 936 642 11 115 329
62
(*) For incentive plans, only discount rate is relevant
d. Defined contribution plans
Contributions paid are recognized in the consolidated income statement.
7.5 Income tax liabilities
Dec 31, 2010 Dec 31, 2009
Current/prepaid income tax liabilities 3 479 808 4 809 383
Deferred income tax liabilities (*) 15 756 826 708 827
Total 19 236 634 5 518 210
(*) See note 8.2
7.6 Other liabilities
Dec 31, 2010 Dec 31, 2009
Accrued costs (*) 37 755 414 34 586 657
Deferred income 81 632 197 784
Operational and exploitation taxes 4 589 656 4 803 440
Other accounts payable (**) 27 419 528 136 745 341
Salaries and social charges (payable) 18 788 858 18 465 298
Shareholder dividends payable 0 0
Other liabilities (***) 235 401 432 98 257 658
Total 324 036 520 293 056 178
(*) Accrued costs consist of invoices to be received for services rendered from related and third parties. (**) Other accounts payable consists mainly of brokerage accounts and to a much smaller extent invoices to be
received for services rendered at year end from related and third parties. (***) Other liabilities consist mainly of settlement accounts with customers.
G. Reconciliation with financial statements Dec 31, 2010 Dec 31, 2009
Long term obligations
Outstanding liability relating to defined benefit plans 5 223 244 6 264 385
Outstanding liability relating to other post retirement obligations 0 0
Outstanding liability relating to other long-term employee benefits 5 713 398 4 850 944
Total outstanding liability reported in the consolidated financial statements 10 936 642 11 115 329
Of which:
Liability calculated by actuaries 10 936 642 11 115 329
Outstanding asset reported in the consolidated financial statements 0 0
Total assets analyzed by actuaries 0 0
Total assets relating to insignificant plans 0 0
63
8 Other notes to the consolidated balance sheet
8.1 Derivatives With the exception of derivatives designated as fair value hedges or cash flow hedges, the vast majority of derivative balances shown below mainly have a very short term maturity.
a. Analysis by nature
Dec 31, 2010
Assets Liabilities
Derivatives held for trading 236 398 957 245 721 873
Derivatives designated as fair value hedges 0 0
Derivatives designated as cash flow hedges 0 0
Derivatives designated as hedge of a net investment in foreign entities 0 1 735 284
Total 236 398 957 247 457 157
Dec 31, 2009
Assets Liabilities
Derivatives held for trading 122 931 910 109 889 564 Derivatives designated as fair value hedges 0 4 130 204 Derivatives designated as cash flow hedges 0 0 Derivatives designated as hedge of a net investment in foreign entities 0 917 141
Total 122 931 910 114 936 909
b. Detail of derivatives held for trading
Dec 31, 2010
Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 21 151 756 239 21 162 051 620 236 398 958 245 721 873
Interest rate derivatives 0 0 0 0
Equity derivatives 0 12 569 541 0 0
Credit derivatives 0 0 0 0
Commodity derivatives 0 0 0 0
Total 21 151 756 239 21 174 621 161 236 398 958 245 721 873
Dec 31, 2009
Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 14 783 137 628 14 771 636 382 122 931 910 109 889 564
Interest rate derivatives 0 0 0 0 Equity derivatives 148 960 17 865 699 0 0
Credit derivatives 0 0 0 0 Commodity derivatives 0 0 0 0
Total 14 783 286 588 14 789 502 081 122 931 910 109 889 564 The amount shown as foreign exchange derivatives represents the fair value of derivatives transactions entered with Group’s clients where the position is closed with a third counterparty.
64
c. Detail of derivatives designated as fair value hedges
Dec 31, 2010
Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 0 0 0 0
Interest rate derivatives 0 0 0 0
Equity derivatives 0 0 0 0
Credit derivatives 0 0 0 0
Commodity derivatives 0 0 0 0
Total 0 0 0 0
Dec 31, 2009
Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 0 0 0 0
Interest rate derivatives 650 000 000 650 000 000 0 4 130 204
Equity derivatives 0 0 0 0
Credit derivatives 0 0 0 0
Commodity derivatives 0 0 0 0
Total 650 000 000 650 000 000 0 4 130 204
d. Detail of derivatives designated as cash flow hedges The Group did not have any derivatives designated as cash flow hedges as at the year end.
e. Detail of derivatives designated as hedge of a net investment in foreign entities
Dec 31, 2010
Notional Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 40 762 423 42 478 205 0 1 735 284
Total 40 762 423 42 478 205 0 1 735 284
Dec 31, 2009
Notional Amount
To receive To deliver Assets Liabilities
Foreign exchange derivatives 33 329 933 34 242 364 0 917 141
Total 33 329 933 34 242 364 0 917 141
f. Detail of derivatives of portfolio hedge
The Group did not have any derivatives of portfolio hedge during the reporting period (2009:0).
65
8.2 Deferred taxes
a. Analysis by nature
Dec 31, 2010 Dec 31, 2009
Net deferred income tax assets (liabilities) -8 479 579 6 688 453
of which: Deferred tax liabilities -15 756 825 -708 827
Deferred tax assets 7 277 246 7 397 280
b. Movements
For the period ended December 31 , 2010
Dec 31, 2010
As of Jan 1, 2010 6 688 453
Movements of the period: Items recognized in the income statement 4 573 917
Items recognized in OCI 5 122 189
Effect of changes of tax rates - Income statement -782
Effect of changes of tax rates - OCI 30 093
Changes in scope of consolidation (*) -18 026 241
Exchange differences 633
Other movements -6 867 842
As of Dec 31, 2010 -8 479 580
(*) In 2010, RBC Dexia IS acquired UBI business which resulted in the recognition of a large deferred tax
liability.
66
Deferred income tax coming from assets Dec 31, 2010
Cash, loans and loan loss provisions 0
Securities 3 897 472
Derivatives -1 043 189
Tangible and intangible assets -17 922 554
Other 0
Subtotal -15 068 271
Deferred income tax coming from liabilities Dec 31, 2010
Securities 0
Derivatives 937 715
Borrowings, deposits and issuance of debt securities 0
Provisions 406 957
Pensions 290 858
Tax losses carried forward 4 934 967
Tax credit carried forward 0
Other 18 194
Subtotal 6 588 691
Total -8 479 580
For the period ended December 31 , 2009
Dec 31, 2009
As of Jan 1, 2009 -383 268
Movements of the period:
Items recognized in the income statement 6 952 066
Items recognized in OCI 120 540
Effect of changes of tax rates - Income statement 0
Effect of changes of tax rates - OCI 0
Changes in scope of consolidation 0
Exchange differences -885
Other movements 0
As of Dec 31, 2009 6 688 453
67
Deferred income tax coming from assets Dec 31, 2009
Cash, loans and loan loss provisions 0
Securities -1 829 356
Derivatives -329 872
Tangible and intangible assets 41 582
Other 0
Subtotal -2 117 646
Deferred income tax coming from liabilities Dec 31, 2009
Securities 0
Derivatives 783 801
Borrowings, deposits and issuance of debt securities 0
Provisions 158 683
Pensions 296 609
Tax losses carried forward 7 548 144
Tax credit carried forward 0
Other 18 862
Subtotal 8 806 099
Total 6 688 453
c. Tax losses available for carry forward and not recognized as deferred tax assets
Analysis by remaining maturity:
Dec 31, 2010 Dec 31, 2009 Tax losses carried forward Tax losses carried forward
1 year 0 3 088 955
2 years 0 4 754 299
3 years 0 3 523 653
4 years 0 2 021 144
5 years 0 4 056 952
More than 5 years 0 0
Undetermined maturity 2 665 266 11 991 693
Total 2 665 266 29 436 696
The tax losses available for carry forward and not recognized as deferred tax assets significantly decreased compared to last year due to the merger of the Italian subsidiary with the Italian branch resulting in a deferred tax asset being recognized. The remaining unrecognized tax loss pertains exclusively to France.
68
8.3 Related party transactions
a. Related party transactions
Dec 31, 2010
Directors and key
management personnel (1)
Parent companies
(2)
Entities with joint control or significant influence
over the entity (3)
Other related parties (4)
Loans and receivables 0 0 1 834 105 681 695 460 049
Financial investments 0 0 60 122 540 5 773 442 896
Derivatives (assets) 0 0 66 377 580 0
Interest income 0 0 18 985 069 29 638 928
Borrowings and deposits 0 0 3 706 635 47 275 707
Derivatives (liabilities) 0 0 28 793 926 0
Subordinated debt 0 0 0 0
Interest expense 0 -3 274 349 -7 546 598 -66 700
Commission expense 0 -1 962 992 - 3 465 -24 812 370
Commission income 0 0 5 702 26 929 173
Guarantees issued and commitments provided by the Group
0 0 0 35 414 315
Guarantees and commitments received by the Group (*)
0 700 000 000 0 0
Collateral received 0 0 3 002 067 157 950 000 738
Dec 31, 2009
Directors and key
management personnel (1)
Parent companies
(2)
Entities with joint control
or significant
influence over the entity (3)
Other related parties (4)
Loans and receivables 0 0 1 477 137 534 185 558 384
Financial investments 0 0 2 211 532 473 1 429 852 019
Derivatives (assets) 0 0 18 347 003 0
Interest income 0 0 108 169 785 35 057 774
Borrowings and deposits 0 0 6 701 183 20 670 945
Derivatives (liabilities) 0 0 41 968 332 0
Subordinated debt 0 215 377 704 0 0
Interest expense -4 117 -5 871 525 -50 544 184 -240 432
Commission expense 0 -1 874 992 -2 716 -615 683
Commission income 0 1 798 3 176 26 555 183
Guarantees issued and commitments provided by the Group
0 0 0 3 000
Guarantees and commitments received by the Group (*)
0 700 000 000 0 0
Collateral received 0 0 3 013 436 342 0
69
(*) Guarantees and commitments received by the Group consist of a total guarantee provided by RBC Dexia Investor Services Limited to both the Bank Group and the Trust Group (see Note 9.2 relating to the consolidated off balance sheet items).
Related parties include parties having the ability to control, jointly control or significantly influence the Group.
(1) Amounts reported relate to key management personnel (meaning senior executives and directors) of the Group.
(2) We refer here to the shareholder RBC Dexia Investor Services Limited. (3) We refer here to the two shareholders of RBC Dexia Investor Services Limited: Dexia BIL S.A. and Royal Bank of Canada. (4) Relations with other related parties in the group Dexia and Royal Bank of Canada are reported.
b. Key management compensations
Dec 31, 2010 Dec 31, 2009
Short-term benefits (*) 4 821 139 7 230 264
Post-employment benefits (**) 417 975 544 596
Other long-term benefits 648 389 391 322
(*) Short-term benefits include salaries, bonuses and other benefits granted to senior executives and directors. As of Dec 31, 2010, director fees amounted to NIL (2009: EUR 58,212). (**) Post-employment benefits include service cost calculated in accordance with IAS 19.
8.4 Acquisitions and disposals
a. Acquisitions and disposals of consolidated companies
Acquisitions and disposals in 2010: - As of July 1st 2010, RBC Dexia Investor Services Bank France S.A. acquired 100 % of the share capital of Desys Informatique France. - In December 2010, RBC Dexia Investor Services Italia Spa merged with RBC Dexia Investor Services Bank SA Milano Branch, with retroactive effect as at July 1st 2010.
- The following companies were liquidated during 2010 :
. Dexia IS Nominees Ltd
. Dexia ISB Nominees Ltd
. DISB Nominees Ltd
. First European Nominees Ltd
. RBC Dexia IS Singapore Pte Ltd. (Final deregistration expected in 2011)
. RBC Dexia IS Netherlands NV. Liquidation (Final deregistration expected in 2011)
Acquisitions and disposals in 2009:
- In 2009, RBC Dexia Investor Services Bank acquired from minorities the remaining issued capital of its Spanish subsidiary (20% in February and 29.9% in July). As of December 31, 2009, RBC Dexia Investor Services Bank holds 100% of the share capital.
- In November 2009, RBC Dexia Investor Services Bank sold Funds Management Services Hoche S.A. to RBC Dexia Investor Services France S.A.. In December 2009, Funds Management Services Hoche S.A. merged into RBC Dexia Investor Services France S.A
70
b. Acquisition and disposal of businesses
Acquisitions and disposals in 2010: On May 31, 2010 RBC Dexia Investor Services completed its acquisition and transfer of the Unione di Banche Italiane scpa (‘UBI Banca’) Group’s depository bank business. Under the terms of the agreement, RBC Dexia will provide depositary and fund administration services to UBI Pramerica, UBI Banca’s subsidiary and Italy’s third largest fund manager. Certain correspondent bank agreements which relate to the provision of paying agent services in Italy for Luxembourg SICAVs and Dublin UCITS were also included in the transaction, subject to client consent. The value of the transaction was EUR 93 million. There were no business disposals in 2010. Acquisitions and disposals in 2009:
There were no business acquisitions or disposals in 2009.
71
8.5 Subscribed capital
By class of shares Dec 31, 2010 Dec 31, 2009
Ordinary shares
Number of shares authorized and not issued 0 0
Number of shares issued and fully paid 22 163 000 13 563 000
Number of shares issued and not fully paid 0 0
Value per share 25 25
Outstanding as of beginning of the period 13 563 000 13 563 000
Number of shares issued 8 600 000 0
Number of shares cancelled 0 0
Outstanding as of end of the period 22 163 000 13 563 000
Rights, preferences and restrictions, including restrictions on the distribution of dividends and the repayment of capital
0 0
Number of treasury shares 0 0
Number of shares reserved for issue under stock options and contracts for the sale of share
0 0
Preference shares Number of shares authorized and not issued 0 0
Number of shares issued and fully paid 0 0
Number of shares issued and not fully paid 0 0
Value per share 25 0
Outstanding as of beginning of the period 0 0
Number of shares issued 3 680 000 0
Number of shares cancelled 3 680 000 0
Outstanding as of end of the period 0 0
8.6 Exchange rates Dec 31, 2010 Dec 31, 2009
Spot rates Average rates Closing rate Average rates
Australian dollar AUD 1.311778 1.438781 1.602772 1.764136
Canadian dollar CAD 1.334558 1.367515 1.510403 1.583016
Swiss franc CHF 1.24895 1.370038 1.483150 1.507617
Danish krone DKK 7.45305 7.447729 7.442297 7.446386
Pound sterling GBP 0.857321 0.857024 0.887892 0.890761
Hong Kong dollar HKD 10.414386 10.2718 11.164813 10.822046
Yen JPY 108.769023 115.26745 133.445298 130.557284
Malaysian Ringgit MYR 4.131427 4.246776 4.930046 4.910665
Norwegian krone NOK 7.806525 8.004756 8.299727 8.708325
Swedish krone SEK 8.979474 9.488398 10.251372 10.588126
Singapore dollar SGD 1.71742 1.795458 2.019534 2.024102
US dollar USD 1.3399 1.322121 1.439850 1.396150
72
9 Notes to the consolidated off balance sheet items
9.1 Regular way trade Dec 31, 2010 Dec 31, 2009
Loans to be delivered and purchases of assets 1 051 788 665 790 614 664
Borrowings to be received and sales of assets 1 013 409 475 550 307 775
9.2 Guarantees Dec 31, 2010 Dec 31, 2009
Guarantees given to credit institutions 18 861 981 67 362 920
Guarantees given to customers 2 630 224 15 141 256
Guarantees received from credit institutions 0 0
Guarantees received from immediate parent company (*) 700 000 000 700 000 000
(*) RBC Dexia Investor Services Limited, the parent company, provides to the Bank Group and to the Trust Group a total guarantee of EUR 700 000 000, which can be used by either group without exceeding the stated amount.
9.3 Collateral Dec 31, 2010 Dec 31, 2009
Banking activity and other - Financial instrument given as collateral 1 320 692 454 1 946 911 908
Banking activity and other - Financial instrument received as collateral 5 237 545 177 5 144 433 747
The amounts above represent mainly collateral given or received by the Group entities in the context of repurchase and reverse repurchase agreement.
9.4 Loan commitments Dec 31, 2010 Dec 31, 2009
Unused lines granted to customers 328 342 765 470 976 027
Unused lines obtained from credit institutions 0 0
9.5 Other commitments Dec 31, 2010 Dec 31, 2009
Banking activity - Commitments given 569 030 689 1 278 195 746
Banking activity - Commitments received 69 852 565 361 398 782
In 2010 and 2009 the amounts above represent commitments given and received in the context of fiduciary activity and the securities lending activity. Decrease in fiduciary transaction and in Securities Lending activity.
9.6 Assets under administration (AUA)
Dec 31, 2010 Dec 31, 2009
Assets under administration 769 347 000 000 661 380 000 000
73
10 Notes to the consolidated income statement
10.1 Interest income – Interest expense
Dec 31, 2010 Dec 31, 2009
Interest income 101 279 281 184 117 567
a) Interest income on assets not at fair value through profit or loss 71 330 759 135 901 691
Cash and balances with central banks 1 909 712 2 255 840
Loans and receivables due from credit institutions 21 744 129 62 202 465
Loans and receivables due from customers 6 831 619 9 679 763
Financial assets investment 40 845 299 61 763 623
Interest on impaired assets 0 0
Other 0 0
b) Interest income on assets at fair value through profit or loss 29 948 522 48 215 876
Financial assets held for trading 534 27 139
Derivatives held for trading (*) 29 043 777 22 108 924
Derivatives used for hedging (*) 904 211 26 079 813
Interest expense -50 455 038 -108 603 187
a) Interest expense on liabilities not at fair value through profit or loss -24 015 169 -43 833 052
Borrowings and deposits due to credit institutions -1 169 726 -1 814 792
Borrowings and deposits due to customers -19 587 095 -36 146 735
Subordinated debts -3 258 348 -5 871 525
Other 0 0
b) Interest expense on liabilities at fair value through profit or loss -26 439 869 -64 770 135
Financial liabilities held for trading 0 0
Derivatives held for trading (*) -23 314 787 -19 922 278
Derivatives used for hedging (*) -3 125 082 -44 847 857
Net interest income 50 824 243 75 514 380
Interest received or paid on assets and liabilities including derivatives are recorded as interest. (*) Fair values of foreign exchange derivative forwards are split into 3 components:
Interest - recorded as interest on derivatives Foreign currency exchange spot component - recorded as net gains/ (losses) from financial
instruments at fair value through profit or loss, from derivatives and result of hedge accounting (see Note 10.3)
Residual fair value component - recorded as net gains/ (losses) from financial instruments at fair value through profit or loss, from derivatives and result of hedge accounting (see Note 10.3)
10.2 Dividend income
Dec 31, 2010 Dec 31, 2009
Financial assets available-for-sale 149 077 327 360
Financial assets held for trading 0 0
Total 149 077 327 360
74
10.3 Net gains/(losses) from financial instruments at fair value through profit or loss, from derivatives and result of hedge accounting
Dec 31, 2010 Dec 31, 2009
Net gains / (losses) on foreign exchange 70 876 196 46 076 009
Net gains / (losses) on trading -409 857 -752 562
Net gains / (losses) on hedge accounting 3 599 -178 300
Total 70 469 938 45 145 147
Result of hedge accounting:
Dec 31, 2010 Dec 31, 2009
Fair value hedges 0 -217 098
Fair value changes of the hedged item attributable to the hedge risk -1 909 428 -8 981 108
Fair value changes of the hedging derivatives 1 909 428 8 764 010
Hedges of net investments in a foreign operation 3 598 38 798
Fair value changes of the hedging derivatives – ineffective portion 3 598 38 798
Total 3 598 -178 300
- The heading “Net gains/(losses) from financial instruments at fair value through profit or loss, from derivatives
and result of hedge accounting” includes: Changes in clean fair value of derivatives Revaluation of assets and liabilities Fair value changes on financial assets and liabilities at fair value through profit or loss Inefficiency on hedge accounting
- All interest received or paid on assets and liabilities including derivatives are recorded as interest.
- Fair values of foreign exchange derivative are split into 3 components:
Interest – recorded as interest on derivatives (see Note 10.1) Foreign currency exchange spot component – recorded as net gains/ (losses) on foreign
exchange Residual fair value component – recorded as other net gains/ (losses) on trading
75
10.4 Net gains/(losses) on investments
Dec 31, 2010 Dec 31, 2009
Gains on loans and receivables 1 527 0
Gains on financial assets available-for-sale 22 901 1 188 084
Gains on tangible assets 834 5 087
Gains on intangible assets 0 0
Gains on non-current assets held for sale 0 0
Gains on liabilities 0 0
Other gains 53 545 0
Total gains 78 807 1 193 171
Losses on loans and receivables 0 0
Losses on financial assets available-for-sale -2 125 442 0
Losses on tangible assets -84 717 -1 654
Losses on intangible assets 0 0
Losses on non-current assets held for sale 0 0
Losses on liabilities 0 0
Other losses 0 0
Total losses -2 210 159 -1 654
Net impairment on securities -130 606 -3 192 795
Total -2 261 958 -2 001 278
Impairment on securities
Dec 31, 2010
Specific Risk
Allowances Write-backs Total
Securities available-for-sale -130 606 0 -130 606
Total -130 606 0 -130 606
Dec 31, 2009
Specific Risk
Allowances Write-backs Total
Securities available-for-sale -3 192 795 0 -3 192 795
Total -3 192 795 0 -3 192 795
76
10.5 Commission income and expense
Dec 31, 2010 Dec 31, 2009
A. Custody, transfer agent and administration services
Income Expense Net Income Expense Net
Investment funds custody 108 003 799 -30 178 515 77 825 284 83 663 155 -26 340 088 57 323 067
Fund administration 56 774 377 -4 747 602 52 026 775 56 345 243 -4 125 703 52 219 540
Transfer agent 67 002 821 -1 540 875 65 461 946 51 376 817 -2 786 483 48 590 334
Trustee & Compliance 7 663 996 0 7 663 996 4 831 062 0 4 831 062
Other transfer agent, custody and administration services
39 254 820 0 39 254 820 21 116 571 -815 322 20 301 249
Subtotal 278 699 813 -36 466 992 242 232 821 217 332 848 -34 067 596 183 265 252
B. Other commissions
Securities lending 24 941 137 -17 682 576 7 258 561 23 680 290 -16 432 048 7 248 242
Other 14 488 881 -7 860 094 6 628 787 13 005 634 -6 318 232 6 687 402
Subtotal 39 430 018 -25 542 670 13 887 348 36 685 924 -22 750 280 13 935 644
Total 318 129 831 -62 009 662 256 120 169 254 018 772 -56 817 876 197 200 896
77
10.6 Other net income
Dec 31, 2010 Dec 31, 2009
Operational taxes 601 887 1 000 000
Other income (*) 5 207 266 6 171 187
Other income 5 809 153 7 171 187
Operational taxes -401 187 -703 673
Other expenses (**) -9 300 643 -12 237 370
Other expenses -9 701 830 -12 941 043
Total -3 892 677 -5 769 856
(*) In 2010 and 2009, other incomes consist mainly of operational gains in business with funds. (**) In 2010 and 2009, other expenses consist mainly of operational losses in business with funds.
78
10.7 Staff expenses
Dec 31, 2010 Dec 31, 2009
Wages and salaries -155 042 327 -151 333 646
Social security and insurance costs -23 594 407 -21 067 363
Employee benefits:
Defined contribution -3 418 517 -3 628 734
Defined benefits -1 944 644 -2 894 166
Long term employee benefits -3 569 560 -2 035 067
Other expenses -10 560 944 -7 950 522
Total -198 130 399 -188 909 498
Average FTE
as of Dec 31, 2010 Belgium
Cayman
Islands France
Hong
Kong Ireland Italy Luxembourg
Malaysia Netherlands Singapore Spain Switzerland
Total
Senior executives
1 0 1 1 1 1 15 1 1 1 1 1 25
Employees 61 0 221 73 167 93 1 424 328 3 111 165 52 2 698
Other 0 0 0 0 0 0 0 0 0 0 2 0 2
Total 62 0 222 74 168 94 1 439 329 4 112 168 53 2 725
Average FTE
as of Dec 31, 2009 Belgium
Cayman
Islands France
Hong
Kong Ireland Italy Luxembourg
Malaysia Netherlands Singapore Spain Switzerland
Total
Senior executives
1 0 1 1 1 1 13 1 1 1 1 1 23
Employees 66 0 240 77 178 51 1 501 211 17 134 167 46 2 688
Other 0 0 0 0 0 0 0 0 0 0 2 0 2
Total 67 0 241 78 179 52 1 514 212 18 135 170 47 2 713
79
10.8 General and administrative expense
Dec 31, 2010 Dec 31, 2009
Occupancy - 7 360 956 -6 571 581
Operating leases - 18 779 159 -18 308 647
Professional fees -16 605 916 -12 621 175
Marketing, advertising and public relations -2 193 312 -2 180 644
Technology and system costs -39 738 793 -37 285 008
Software costs and research -9 438 381 -7 727 210
Repair and maintenance expenses -475 997 -395 693
Insurance (except related to pension) -1 830 007 -1 477 854
Exploitation taxes -1 841 271 -1 724 006
Other general and administrative expenses -14 021 071 -13 072 241
Total -112 284 863 -101 364 059
Analysis of audit fees
Dec 31, 2010 Dec 31, 2009
Audit fees -1 258 093 -993 557
Other assurance services -389 407 -356 682
Tax fees -58 032 -33 576
Other fees -22 740 -66 691
Total -1 728 272 -1 450 506
10.9 Depreciation
Dec 31, 2010 Dec 31, 2009
Depreciation on tangible assets -3 680 005 -2 807 852
Depreciation on intangible assets -16 480 985 -11 916 239
Total -20 160 990 -14 724 091
80
10.10 Impairment on loans receivables and provisions for credit commitments
a. Collective impairment as of December 31, 2010
Dec 31, 2010
Collective impairment Allowances Write backs Total
Loans 0 0 0
Credit enhancement 0 0 0
Total 0 0 0
b. Specific impairment as of December 31, 2010
Dec 31, 2010
Specific impairment Allowances Write backs
Losses Recoveries Total
Loans and receivable due from credit institutions
0 0 0 0 0
Loans and receivable due from customers
-22 411 6 502 -40 984 20 912 -35 981
Loans available-for-sale 0 0 0 0 0
Other receivables -416 194 6 863 -6 022 0 -415 353
Other assets 0 0 0 0 0
Commitments 0 0 0 0 0
Credit enhancement 0 0 0 0 0
Total -438 605 13 365 -47 006 20 912 -451 334
c. Collective impairment as of December 31, 2009
Dec 31, 2009
Collective impairment Allowances Write backs Total
Loans 0 0 0
Credit enhancement 0 0 0
Total 0 0 0
d. Specific impairment as of December 31, 2009
Dec 31, 2009
Specific impairment Allowances Write backs
Losses Recoveries Total
Loans and receivable due from credit institutions
0 0 0 0 0
Loans and receivable due from customers
-32 951 77 350 -433 865 0 -389 466
Loans available-for-sale 0 0 0 0 0
Other receivables (*) -12 775 321 376 606 -15 924 0 -12 414 639
Other assets 0 0 0 0 0
Commitments 0 0 0 0 0
Credit enhancement 0 0 0 0 0
Total -12 808 272 453 956 -449 789 0 -12 804 105
(*) For further details please refer to note 11.7.
81
10.11 Impairment on tangible and intangible assets
Dec 31, 2010 Dec 31, 2009
Impairment on tangible assets 0 0
Impairment on intangible assets -804 998 0
Total -804 998 0
10.12 Impairment on goodwill There was no impairment on goodwill in the years 2010 and 2009.
10.13 Income tax expense
Dec 31, 2010 Dec 31, 2009
Current tax -13 243 887 -4 215 062
Deferred tax 9 838 884 6 952 066
Total -3 405 003 2 737 004
Reconciliation between tax expense (income) and the product of accounting profit multiplied by the statutory tax rate:
Dec 31, 2010 Dec 31, 2009
Profit or (loss) before income tax 39 576 208 -7 385 104
Statutory tax rate (*) 22,87% 46,72%
Income tax expense at applicable statutory tax rate 9 050 268 -3 450 321
Decrease / Increase in income tax expense resulting from:
Tax effect of non deductible expenses 1 315 802 202 929
Tax effect of non-taxable income -4 191 616 -78 659
Effect of changes in tax rates for deferred tax 0 0
Other 3 091 -1 034 494
Movement in unrecognized deferred tax assets 399 469 1 059 850
Adjustments recognized in the period for current tax and deferred tax of prior periods
-544 891 563 691
Tax effect of utilization of previously unrecognized tax losses -1 811 026 0
Tax effect on tax benefit not previously recognized in profit or loss -816 093 0
Income Tax expense 3 405 003 -2 737 004
Effective Tax rate 8,60% 37,06%
(*) The statutory rate represents the weighted average net result before income tax by jurisdiction multiplied by applicable statutory rate.
82
11 Notes on risk management
11.1 Fair value
a. Breakdown of fair value of financial instruments 1. Breakdown of fair value of financial assets
Dec 31, 2010 Dec 31, 2009
Carrying amount Fair value (*)
Carrying amount
Fair value
Cash and balances with central banks 724 587 961 724 587 961 840 895 794 840 895 794 Loans and receivables due from credit institutions
4 948 209 585 4 948 209 585 4 668 174 835 4 668 174 835
Loans and receivables due from customers 591 521 579 591 521 579 332 195 819 332 195 819 Financial assets measured at fair value through profit or loss
3 352 3 352 3 554 3 554
Financial investments 5 488 188 382 5 488 188 382 4 744 123 013 4 744 123 013
Derivatives 236 398 957 236 398 957 122 931 910 122 931 910
Other assets 325 124 773 325 124 773 319 632 377 319 632 377
2. Breakdown of fair value of financial liabilities
Dec 31, 2010 Dec 31, 2009
Carrying amount Fair value (*)
Carrying amount
Fair value
Borrowings and deposits due to credit institutions
508 399 171 508 399 171 749 138 625 749 138 625
Borrowings and deposits due to customers 10 628 697 376 10 628 697 376 9 189 218 547 9 189 218 547 Financial liabilities measured at fair value through profit or loss
0 0 0 0
Derivatives 247 457 157 247 457 157 114 936 909 114 936 909
Subordinated debts 0 0 215 377 704 215 377 704
Other liabilities 324 036 520 324 036 520 293 056 178 293 056 178
(*) In accordance with our valuation rules, fair value is equal to accounting value for some financial instruments, among which interest rate financial instruments maturing within 1 year and equity instruments with no quoted market price. See note 2.10.4.2 Accounting policies.
83
b. Analysis of fair value of financial instruments
1. Financial assets
Dec 31, 2010
Level 1 (Quoted
market price)
Level 2 (Model with observable
market prices and rates)
Level 3 (No
observable market prices
and rates)
Total
Financial assets measured at fair value through profit or loss
3 352 0 0 3 352
Financial investments 2 159 648 886 3 297 827 337 30 712 159 5 488 188 382
Derivatives 0 236 398 957 0 236 398 957
Dec 31, 2009
Level 1 (Quoted
market price)
Level 2 (Model with observable
market prices and rates)
Level 3 (No
observable market prices
and rates)
Total
Financial assets measured at fair value through profit or loss
3 554 0 0 3 554
Financial investments 291 459 523 4 421 608 108 31 055 382 4 744 123 013
Derivatives 0 122 931 910 0 122 931 910
84
2. Financial liabilities
Dec 31, 2010
Level 1 (Quoted
market price)
Level 2 (Model with observable
market prices and rates)
Level 3 (No
observable market prices
and rates)
Total
Financial liabilities held for trading 0 0 0 0
Derivatives 0 247 457 157 0 247 457 157
Dec 31, 2009
Level 1 (Quoted
market price)
Level 2 (Model with observable
market prices and rates)
Level 3 (No
observable market prices
and rates)
Total
Financial liabilities held for trading 0 0 0 0
Derivatives 0 114 936 909 0 114 936 909
85
3. Reconciliation of level 3 financial instruments
As of Jan 1,
2010
Gains and Losses in
P&L - Realized
Gains and Losses in
P&L - Unrealized
Gains and
Losses in OCI
Conversion difference Purchase Sale Settlement
Transfer in Level 3
Transfer out of
Level 3 As of Dec
31, 2010 Financial assets measured at fair value through profit or loss
0 0 0 0 0 0 0 0 0 0 0
Financial investments
31 055 382 -8 984 -130 606 136 966 0 0 -340 599 0 0 0 30 712 159
Derivatives 0 0 0 0 0 0 0 0 0 0 0
As of Jan 1,
2009
Gains and Losses in
P&L - Realized
Gains and Losses in
P&L - Unrealized
Gains and
Losses in OCI
Conversion difference Purchase Sale Settlement
Transfer in Level 3
Transfer out of
Level 3 As of Dec
31, 2009 Financial assets measured at fair value through profit or loss
11 414 -508 0 0 0 0 -10 906 0 0 0 0
Financial investments
2 834 824 2 400 -3 192 795 607 146 0 30 828 988 -26 180 -1 1 000 0 31 055 382
Derivatives 0 0 0 0 0 0 0 0 0 0 0
86
11.2 Credit risk exposure by class of financial instruments
a. Analysis of the total Group’s exposure by counterparty
See Note 3.1.3.1. Exposure by counterparty
b. Analysis of the total Group’s exposure by geographical region
See Note 3.1.3.2. Exposure by geographical region
c. Analysis of credit risk maximum exposure
Dec 31, 2010 Dec 31, 2009
Maximum credit
exposure Collateral received
Maximum credit exposure
Collateral received
Debt instruments 5 456 131 805 0 4 711 370 410 0
Loans and receivables (*) 6 264 319 126 3 952 067 895 5 841 266 448 4 833 157 074
Derivatives (**) 236 398 957 0 122 931 910 0
Financial instruments in other assets 89 016 155 0 178 021 466 0
Off balance sheet exposure 349 834 969 0 553 480 203 0
Total 12 395 701 012 3 952 067 895 11 407 070 437 4 833 157 074
(*) Loans and receivables include also the cash balances. (**) Derivatives are entered into with clients and positions are closed with third parties :
Net position (Derivative assets and liabilities) in 2010 : Eur -11 058 200 Net position (Derivative assets and liabilities) in 2009 : Eur 7 995 001
87
d. Credit quality of financial assets neither past due nor impaired
Dec 31, 2010
Credit quality of neither past due nor impaired financial assets
AAA to AA- A+ or BBB- Non investment
grade Not rated
Total
Carrying amount of financial assets with renegotiated
terms that otherwise should
be past-due or impaired
Debt instruments 4 382 232 180 995 770 422 0 75 442 435 5 453 445 037 0
Loans and receivables 1 447 949 910 3 307 104 083 147 763 150 1 345 310 378 6 248 127 521 0
Derivatives 80 836 870 139 395 558 116 035 16 050 494 236 398 957 0
Financial instruments in other assets
0 0 0 65 609 664 65 609 664 0
Off balance sheet exposure 236 625 126 39 884 742 979 847 72 345 255 349 834 970 0
Total 6 147 644 086 4 482 154 805 148 859 032 1 574 758 226 12 353 416 149 0
Dec 31, 2009
Credit quality of neither past due nor impaired financial assets
AAA to AA- A+ or BBB- Non investment
grade Not rated
Total
Carrying amount of financial assets with renegotiated
terms that otherwise should
be past-due or impaired
Debt instruments 3 958 144 410 657 925 234 0 92 800 506 4 708 870 150 0
Loans and receivables 1 435 927 556 2 169 733 180 38 218 828 2 178 795 785 5 822 675 349 0
Derivatives 61 911 084 52 027 964 638 164 8 354 698 122 931 910 0
Financial instruments in other assets
0 0 0 148 804 614 148 804 614 0
Off balance sheet exposure 389 448 765 0 0 164 031 438 553 480 203 0
Total 5 845 431 815 2 879 686 378 38 856 992 2 592 787 041 11 356 762 226 0
88
e. Past-due and impaired financial assets
Dec 31, 2010
Past-due but not impaired financial assets
<90 days
>90 days
<180 days >180 days
Gross Carrying amount of
specifically impaired financial
assets
Collateral received on both past-due
and impaired loans
Debt and equity instruments
0 0 0 26 007 227 0
Loans and receivable 15 570 925 83 518 496 409 40 753 0
Financial instruments in other assets
558 315 2 058 006 5 392 938 15 397 232 0
Total 16 129 240 2 141 524 5 889 347 41 445 212 0
Dec 31, 2009
Past-due but not impaired financial assets
<90 days
>90 days
<180 days >180 days
Gross Carrying amount of
specifically impaired financial
assets
Collateral received on both past-due
and impaired loans
Debt and equity instruments
0 0 0 25 286 759 0
Loans and receivable 13 676 078 237 928 4 630 036 47 057 0
Financial instruments in other assets
373 893 7 093 221 7 403 918 14 345 820 0
Total 14 049 971 7 331 149 12 033 954 39 679 636 0
f. Collateral and other credit enhancements obtained by taking possession of collateral held
There were no collateral, or other credit enhancements, obtained by taking possession of collateral held in 2010 and 2009.
89
g. Allowances movements for credit losses
For the period ended December 31, 2010
As of Jan 1, 2010
Write-down taken
against the allowance
Amount set aside for
estimated probable loan
losses
Amounts reversed
for estimated probable
loans losses
Other adjustments
Transfers between
allowances
As of Dec 31, 2010
Recoveries directly
recognized in profit or
loss
Charge-offs directly
recognized in profit or
loss
Specific allowances for individually assessed financial assets and specific allowances for collectively assessed financial assets
-17 297 438 230 098 -569 211 13 365 -187 029 0 -17 810 215 20 912 -40 984
Loans and receivables due from credit institutions
0 0 0 0 0 0 0
Loans and receivables due from customers
-27 691 4 873 -22 411 6 502 0 0 -38 727 20 912 -40 984
Financial assets available-for-sale
-3 122 911 0 -130 606 0 -186 508 0 -3 440 025 0 0
Other receivables -14 146 836 225 225 -416 194 6 863 -521 0 -14 331 463 0 0
Other assets 0 0 0 0 0 0 0 0 0
Collective impairment on not specifically impaired financial assets
0 0 0 0 0 0 0 0 0
Total -17 297 438 230 098 -569 211 13 365 -187 029 0 -17 810 215 20 912 -40 984
(*) See note 11.7
90
For the period ended December 31, 2009
As of Jan 1, 2009
Write-down taken
against the allowance
Amount set aside for
estimated probable loan
losses
Amounts reversed
for estimated probable
loans losses
Other adjustments
Transfers between
allowances
As of Dec 31, 2009
Recoveries directly
recognized in profit or
loss
Charge-offs directly
recognized in profit or
loss
Specific allowances for individually assessed financial assets and specific allowances for collectively assessed financial assets
-2 195 789 375 551 -16 001 067 453 956 69 911 0 -17 297 438 0 -433 865
Loans and receivables due from credit institutions 0 0 0 0 0 0 0 0 0
Loans and receivables due from customers
-124 653 52 563 -32 951 77 350 0 0 -27 691 0 -433 865
Financial assets available-for-sale 0 0 -3 192 795 0 69 884 0 -3 122 911 0 0
Other receivables -2 071 136 322 988 -12 775 321 (*) 376 606 27 0 -14 146 836 0 0
Other assets 0 0 0 0 0 0 0 0 0
Collective impairment on not specifically impaired financial assets
0 0 0 0 0 0 0 0 0
Total -2 195 789 375 551 -16 001 067 453 956 69 911 0 -17 297 438 0 -433 865
(*) See note 11.7
91
h. Credit risk information for loans designated at fair value through profit or loss
There were no loans classified at fair value through profit or loss in 2010 and 2009.
i. Collateral received
The table below presents the nature of the assets received as collateral if this collateral can be sold or repledged:
Collateral received as of Dec 31, 2010 Collateral received as of Dec 31, 2009
Fair value of collateral held or, if
not available accounting value
Fair value of collateral
sold/repledged, or, if not available,
accounting value of this collateral
sold/repledged
Fair value of collateral held or, if
not available accounting value
Fair value of collateral sold/repledged, or, if
not available, accounting value of
this collateral sold/repledged
Equity instrument 0 0 0 0
Debt instruments 4 781 519 917 0 4 833 157 074 0
Loans and advances 76 133 761 0 0 0
Total 4 857 653 678
0 4 833 157 074 0
11.3 Pledged assets
Dec 31, 2010 Dec 31, 2009
Carrying amount of financial assets pledged as collateral (*) Carrying amount of financial assets pledged as collateral (*)
For liabilities (**) For contingent liabilities
For other (***) For liabilities (**) For contingent liabilities
For other (***)
772 690 355 0 548 002 099 1 437 662 700 0 509 249 207
(*) Pledged financial assets include assets on balance sheet and assets off balance sheet. (**) Financial assets are pledged mainly to collateralize repurchase agreements. (***) Financial assets are pledged mainly to collateralize securities lending activity in 2009 and to guarantee settlement and other dedicated activities
according to local regulations in 2010 and 2009. Following the increased activity after UBI acquisition, the Italian Branch had to increase the amount of collateral with Bank of Italy.
92
11.4 Interest rate risk breakdown
For the period ended December 31, 2010
a. Assets Dec 31, 2010
On demand Up to 3 months More than 3
months to 1 year More than 1
to 5 years Over 5 years
Accrued interest
Fair value adjustment
Impairment, depreciation
and provision Total
Cash and balances with central banks
717 963 135 6 508 724 0 0 0 116 102 0 0 724 587 961
Loans and receivables due from credit institutions
2 039 351 453 2 898 394 378 579 894 0 8 533 539 1 350 321 0 0 4 948 209 585
Loans and receivables due from customers
556 879 559 31 539 094 2 911 242 0 0 230 411 0 -38 727 591 521 579
Financial assets held for trading
0 1 049 2 312 0 0 61 -70 0 3 352
Financial assets available-for-sale
2 686 768 5 453 304 513 10 026 517 0 31 499 691 7 068 132 -12 957 214 -3 440 025 5 488 188 382
Other assets 215 260 231 110 707 246 829 315 2 910 253 9 749 191 0 0 -14 331 463 325 124 773
Non-current assets and disposal groups classified as held for sale
0 0 0 0 0 0 0 0 0
Total assets 3 532 141 146 8 500 455 004 14 349 280 2 910 253 49 782 421 8 765 027 -12 957 284 -17 810 215 12 077 635 632
93
b. Liabilities Dec 31, 2010
On demand Up to 3 months
More than 3 months to 1
year
More than 1 to 5 years
Over 5 years
Accrued interest
Fair value adjustment
Total
Borrowings and deposits due to credit institutions
352 616 358 146 983 624 0 0 8 533 539 265 650 0 508 399 171
Borrowings and deposits due to customers
9 716 057 400 912 552 942 0 0 0 87 034 0 10 628 697 376
Financial liabilities held for trading
0 0 0 0 0 0 0 0
Subordinated debts 0 0 0 0 0 0 0 0
Other liabilities 200 534 124 119 468 635 2 652 326 905 585 475 850 0 0 324 036 520
Liabilities included in disposal groups classified as held for sale
0 0 0 0 0 0 0 0
Total liabilities 10 269 207 882 1 179 005 201 2 652 326 905 585 9 009 389 352 684 0 11 461 133 067
c. Net position Dec 31, 2010
On demand Up to 3 months
More than 3 months to 1
year
More than 1 to 5 years
Over 5 years
On balance sheet sensitivity gap
-6 737 066 736 7 321 449 803 11 696 954 2 004 668 40 773 032
94
For the period ended December 31, 2009
c. Assets Dec 31, 2009
On demand Up to 3 months More than 3 months to 1
year
More than 1 to 5 years
Over 5 years
Accrued interest
Fair value adjustme
nt
Impairment, depreciation
and provision Total
Cash and balances with central banks
840 791 705 0 0 0 0 104 089 0 0 840 895 794
Loans and receivables due from credit institutions
871 070 771 3 759 029 356 37 562 683 0 0 512 025 0 0 4 668 174 835
Loans and receivables due from customers
292 804 525 39 258 925 24 909 0 0 135 151 0 -27 691 332 195 819
Financial assets held for trading
0 0 1 278 1 341 769 75 91 0 3 554
Financial assets available-for-sale
2 500 260 3 080 525 847 1 571 162 882 40 532 450 31 876 953 17 739 517 2 908 015 -3 122 911 4 744 123 013
Other assets 245 362 666 66 782 448 4 222 897 68 146 17 343 056 0 0 -14 146 836 319 632 377
Non-current assets and disposal groups classified as held for sale
0 0 0 0 0 0 0 0 0
Total assets 2 252 529 927 6 945 596 576 1 612 974 649 40 601 937 49 220 778 18 490 857 2 908 106 -17 297 438 10 905 025 392
95
d. Liabilities Dec 31, 2009
On demand Up to 3 months
More than 3 months to 1
year
More than 1 to 5 years
Over 5 years Accrued interest
Fair value adjustment
Total
Borrowings and deposits due to credit institutions
158 245 943 584 776 942 6 078 513 0 0 37 227 0 749 138 625
Borrowings and deposits due to customers
7 740 576 702 1 421 487 767 27 078 842 0 0 75 236 0 9 189 218 547
Financial liabilities held for trading
0 0 0 0 0 0 0 0
Subordinated debts 0 215 000 000 0 0 0 377 704 0 215 377 704
Other liabilities 217 888 349 60 512 478 3 773 593 3 371 030 7 510 728 0 0 293 056 178
Liabilities included in disposal groups classified as held for sale
0 0 0 0 0 0 0 0
Total liabilities 8 116 710 994 2 281 777 187 36 930 948 3 371 030 7 510 728 490 167 0 10 446 791 054
c. Net position Dec 31, 2009
On demand Up to 3 months
More than 3 months to 1 year
More than 1 to 5 years
Over 5 years
On balance sheet sensitivity gap
-5 864 181 067 4 663 819 389 1 576 043 701 37 230 907 41 710 050
96
11.5 Liquidity risk: breakdown by residual maturity
Amounts disclosed corresponding to contractual undiscounted cash flows payable or receivable by the group under non-derivative financial liabilities and non-deri
With the exception of derivatives designated as fair value hedges, the vast majority of derivatives are foreign exchange derivative with a very short term maturity. Topen derivative positions. Derivatives are concluded with clients and then the position is closed with high quality counterparties.
In 2010, amounts to be received amounted to EUR 21 151 756 239 and amounts to be settled amounted to EUR 21 162 051 620.
In 2009, amounts to be received amounted to EUR 14 783 137 628 and amounts to be settled amounted to EUR 14 771 636 382.
For the period ended December 31, 2010
a. Non-derivative financial assets
Dec 31, 2010
Breakdown of contractual cash flows
At sight and on
demand Up to 3 months
More than 3 months to 1 year
More than 1 year to 5 years
Over 5 years Total
Cash and balances with central banks
732 672 319 6 508 724 0 0 0 739 181 043
Loans and receivables due from credit institutions
2 061 843 230 2 866 193 673 580 156 0 8 533 539 4 937 150 598
Loans and receivables due from customers
557 012 972 18 335 879 10 867 961 1 986 599 4 374 047 592 577 458
Financial assets held for trading 0 74 1 294 1 785 12 122 15 275
Financial assets available-for-sale
2 686 768 1 698 080 627 223 692 513 3 620 937 961 31 499 692 5 576 897 561
Other assets 221 663 386 112 943 444 1 198 606 2 920 533 9 688 431 348 414 400
Total assets 3 575 878 675 4 702 062 421 236 340 530 3 625 846 878 54 107 831 12 194 236 335
97
b. Non-derivative
financial liabilities Dec 31, 2010
Breakdown of contractual cash flow
At sight and on demand
Up to 3 months More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years Total
Borrowings and deposits due to credit institutions
1 007 936 850 139 520 382 0 0 8 533 539 1 155 990 771
Borrowings and deposits due to customers
9 769 790 924 912 719 245 0 0 0 10 682 510 169
Financial liabilities held for trading 0 0 0 0 0 0
Subordinated debts 0 0 0 0 0 0
Other liabilities 199 587 356 119 982 543 2 654 097 906 749 475 850 323 606 595
Total liabilities 10 977 315 130 1 172 222 170 2 654 097 906 749 9 009 389 12 162 107 535
c. Net position Dec 31, 2010
At sight and on demand
Up to 3 months More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years
Net Liquidity Gap - 7 401 436 455 3 529 840 251 233 686 433 3 624 940 129 45 098 442
98
d. Derivatives Dec 31, 2010
Breakdown of contractual cash flows
At sight and on
demand Up to 3 months
More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years Total
Derivative settled on a net basis
Foreign Exchange derivatives 0 0 0 0 0 0
Interest rate derivatives 0 0 0 0 0 0
Equity derivative 0 0 12 569 541 0 0 12 569 541
Other 0 0 0 0 0 0
Derivative settled on a gross basis
Outflow 0 20 863 271 137 358 748 342 0 0 21 222 019 479
Inflow 0 20 824 706 219 355 518 577 0 0 21 180 224 796
e. Break down contractual amounts for other off balance sheet items
Dec 31, 2010
Breakdown of contractual cash flows
At sight and on demand
Up to 3 months More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years Total
Regular way trade
Outflow 1 051 788 664 0 0 0 0 1 051 788 664
Inflow 1 013 409 475 0 0 0 0 1 013 409 475
Loan commitments
Outflow 328 342 765 0 0 0 0 328 342 765
Inflow 0 0 0 0 0 0
Guarantees
Outflow 0 0 0 0 0 0
Inflow 0 0 0 0 0 0
99
For the period ended December 31, 2009
a. Non-derivative financial assets
Dec 31, 2009
Breakdown of contractual cash flows
At sight and on
demand Up to 3 months
More than 3 months to 1 year
More than 1 year to 5 years
Over 5 years Total
Cash and balances with central banks
840 895 794 0 0 0 0 840 895 794
Loans and receivables due from credit institutions
871 076 267 3 760 117 167 31 530 278 244 792 7 424 868 4 670 393 372
Loans and receivables due from customers
292 887 507 14 872 114 19 707 484 1 895 403 4 101 173 333 463 681
Financial assets held for trading 0 314 54 3 153 12 288 15 809
Financial assets available-for-sale 2 500 260 2 406 407 955 2 008 356 489 337 675 180 31 877 005 4 786 816 889
Other assets 245 562 667 66 814 045 4 263 313 68 146 17 128 101 333 836 272
Total assets 2 252 922 495 6 248 211 595 2 063 857 618 339 886 674 60 543 435 10 965 421 817
b. Non-derivative financial liabilities
Dec 31, 2009
Breakdown of contractual cash flow
At sight and on
demand Up to 3 months
More than 3 months to 1 year
More than 1 year to 5 years
Over 5 years Total
Borrowings and deposits due to credit institutions
163 135 035 584 611 510 46 108 244 792 7 424 868 755 462 313
Borrowings and deposits due to customers
7 740 601 200 1 421 731 315 27 093 862 0 0 9 189 426 377
Financial liabilities held for trading 0 0 0 0 0 0
Derivatives 0 0 0 0 0 0
Subordinated debts 0 1 089 105 3 299 927 17 584 720 221 776 267 243 750 019
Provisions and other obligations 0 0 0 0 0 0
Income tax liabilities 0 0 0 0 0 0
Other liabilities 217 694 272 61 180 670 3 980 860 2 782 480 7 510 728 293 149 010
Total liabilities 8 121 430 507 2 068 612 600 34 420 757 20 611 992 236 711 863 10 481 787 719
c. Net position Dec 31, 2009
At sight and on
demand Up to 3 months
More than 3 months to 1 year
More than 1 year to 5 years
Over 5 years
Net Liquidity Gap -5 868 508 012 4 179 598 995 2 029 436 861 319 274 682 -176 168 428
100
d. Derivatives Dec 31, 2009
Breakdown of contractual cash flows
At sight and on
demand Up to 3 months
More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years Total
Derivative settled on a net basis
Foreign Exchange derivatives 0 0 0 0 0 0
Interest rate derivatives 0 2 445 877 1 696 543 0 0 4 142 420
Equity derivative 0 0 0 17 865 699 0 17 865 699
Other 0 0 0 0 0 0
Derivative settled on a gross basis
Outflow 0 14 101 369 096 704 575 373 0 0 14 805 944 469
Inflow 0 14 104 729 762 711 889 275 0 0 14 816 619 037
e. Break down contractual amounts for other off balance sheet items
Dec 31, 2009
Breakdown of contractual cash flows
At sight and on demand
Up to 3 months More than 3 months to 1
year
More than 1 year to 5 years
Over 5 years Total
Regular way trade
Outflow 790 613 668 0 0 0 0 790 613 668
Inflow 550 308 771 0 0 0 0 550 308 771
Loan commitments
Outflow 470 976 027 0 0 0 0 470 976 027
Inflow 0 0 0 0 0 0
Guarantees
Outflow 0 0 0 0 0 0
Inflow 0 0 0 0 0 0
101
11.6 Currency risk
For the period ended December 31, 2010
Dec 31, 2010
EUR
Other EU currencies
USD Other Total
Total assets 7 296 494 825 227 630 086 2 673 851 614 2 374 038 834 12 572 015 359
Total liabilities 6 532 466 283 554 119 247 3 189 167 664 2 296 262 165 12 572 015 359
Net on balance position 764 028 542 -326 489 161 -515 316 050 77 776 669 0
Dec 31, 2010
EUR
Other EU currencies
USD Other Total
Off balance sheet - to receive 8 019 165 187 2 037 615 276 7 413 889 056 4 732 716 192 22 203 385 711
Off balance sheet - to deliver 8 769 911 564 1 712 061 749 7 006 070 137 4 726 372 426 22 214 415 876
Off balance sheet - Net position -750 746 377 325 553 527 407 818 919 6 343 766 -11 030 165
The Bank's net exposure to foreign exchange risk is negligible as it is our policy not to maintain material open currency positions.
Assets under administration are not included in this note.
102
For the period ended December 31, 2009
Dec 31, 2009
EUR
Other EU currencies
USD Other Total
Total assets 7 057 509 791 315 517 753 2 173 366 994 1 621 000 680 11 167 395 218 Total liabilities 7 114 334 604 353 011 789 1 874 138 227 1 825 910 598 11 167 395 218
Net on balance position -56 824 813 -37 494 036 299 228 767 -204 909 918 0
Dec 31, 2009
EUR
Other EU currencies
USD Other Total
Off balance sheet - to receive 6 156 359 846 633 701 823 5 980 120 706 2 598 275 766 15 368 458 141 Off balance sheet - to deliver 6 174 380 240 621 808 557 6 212 907 678 2 347 010 117 15 356 106 592
Off balance sheet - Net position -18 020 394 11 893 266 -232 786 972 251 265 649 12 351 549
The Bank's net exposure to foreign exchange risk is negligible as it is our policy not to maintain material open currency positions.
Assets under administration are not included in this note.
103
11.7 Other matters Lehman Brothers International Europe ("Lehman") acted as prime broker for three investment funds where RBC Dexia’s French subsidiary acts as custodian/depository. At time of default, Lehman held cash and securities on behalf of the investment funds; RBC Dexia had a tripartite agreement with Lehman and the funds. The bankruptcy of Lehman on September 15, 2008 resulted in the management companies of the funds not having access to the assets of the funds.
The "Autorité des Marchés Financiers" (AMF), a supervisory body in France, issued a statement that, as custodian, RBC Dexia in France had to restitute the assets held by Lehman by way of injunctions issued at the end of 2008 and early 2009. The amount to restitute amounted to EUR 38.651.814 on September 12, 2008.
Based on current legislation, conventions existing between various management companies and Lehman and information contained in the prospectus of the funds, RBC Dexia in France decided to appeal the decision of the AMF. The hearing was held in February 2009 for two of the funds. The original judgement was upheld and RBC Dexia's French subsidiary restituted the assets. RBC Dexia Investor Services Bank Luxembourg, the parent company, has issued a guarantee of EUR 38 million in favour of its subsidiary in France to cover the risks associated with this litigation. A provision of EUR 12.2 million was established in the course of 2009 to reflect the amount estimated to be recoverable on this exposure.
11.8 A.G.D.L RBC Dexia IS is a member of the AGDL ("Association pour la Garantie des Dépôts Luxembourg ") but has not been impacted by the AGDL provisioning requirements due to the nature of its clientele, which are excluded from the AGDL guarantee.
