Annual Report - EFG Bank Group

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4 Report of the Board of Directors on the Consolidated Financial Statements for the year ended December 31, 2006 2006 has been another very successful year for the Geneva-headquartered EFG Group, which continued its strong growth in its core business activities and achieved a new record net profit of CHF 1.2 billion. Each of the two subgroups constituting the EFG Group, EFG International and Eurobank EFG, continued to expand substantially. At year-end 2006, the EFG Group employed around 20,000 persons world-wide. EFG International, EFG Group’s global private banking arm based in Zurich and listed on the Swiss exchange, SWX, saw its net profit attributable to ordinary shareholders increase by 144% to CHF 204 million. This strong growth, both organic and through acquisitions, once more reflects the success of the entrepreneurial model established by EFG International. Total client assets under management or administration (including loans) increased by some 45% to exceed CHF 70 billion, backed by a similar rise in the number of customer relationship officers to 400. At mid-April 2007, its market capitalisation was in excess of CHF 8 billion. Eurobank EFG, EFG Group’s full-service banking arm based in Athens and listed on the Athens Stock Exchange, strengthened both its position as one of Greece’s largest banking and financial institutions and its presence in Central and South-Eastern Europe, showing consolidated net profit nearing CHF 1 billion and a European network totalling 1,300 branches and points of sale. At mid-April 2007, its market capitalisation was nearing EUR 12 billion. The expansion of the EFG Group was also geographical. The EFG International group commenced private banking operations in the Bahamas in early 2006 through the establishment of a new banking subsidiary in Nassau following the purchase, in late 2005, of the Latin American private banking business of the Spanish-based banking group Banco Sabadell. It opened a branch in Dubai and representative offices in Bahrain, Colombia, Ecuador, Mexico, Venezuela, Indonesia and the Philippines. It established a new banking subsidiary in Luxembourg and purchased a second private bank in Monaco, Banque Monégasque de Gestion, from the Italian banking group UniCredito Italiano. In the UK, EFG Private Bank Limited acquired the Harris Allday partnership, a stockbroker based in Birmingham, strengthening its position in the domestic market. In Sweden, towards the end of 2006, EFG Investment Bank AB reached an agreement to acquire a renowned local securities and wealth management company, Quesada Kapitalförvaltning AB. EFG International also grew its existing expertise in the sale, development and management of structured products, hedge funds, funds-ofhedge-funds and other alternative investment products through the acquisitions of the Bermuda-headquartered C. M. Advisors Ltd and, in early 2007, the Miami-headquartered PRS group. The Eurobank EFG group continued to expand its banking and other financial services presence in Central and South-Eastern Europe. In particular, in February 2006, it started retail banking operations in Poland where, at the end of 2006, it operated a network of 130 branches and points of sale. During the year, it acquired DZI Bank AD in Bulgaria, whose merger with the Group’s existing local banking subsidiary, EFG Group
Report of the Board of Directors (continued) Bulgarian Postbank AD, will create the fourth largest bank in the country as measured by total assets, with a combined network of 280 branches. In Turkey, it acquired a 70% shareholding in Istanbul-based Tekfenbank AS, a bank employing 560 persons, focusing on smalland-medium-sized enterprises through a network of 31 branches. In addition, it entered the Ukrainian banking market with the purchase of Lviv-based Bank Universalniy, a bank with 480 employees, operating predominantly in Western Ukraine through a network of 33 branches. These last two acquisitions were completed in February 2007. This strong growth led to a substantial increase in EFG Group’s total customer assets under management or administration, which exceeded CHF 140 billion at the end of the year 2006, from slightly higher than CHF 100 billion at year-end 2005. Eurobank EFG group’s solid organic growth in loans and deposits across most core business segments, both domestically and abroad, was reflected in the increase in EFG Group’s balance sheet totals, which exceeded CHF 100 billion at year-end 2006, from CHF 80 billion a year ago. On the asset side, CHF 15 billion of this increase related to the growth in loans and advances to customers and CHF 3 billion were net investments in availablefor-sale securities, while funding for the increase in assets came in the majority from the CHF 13 billion net increase in client deposits and CHF 7 billion net additional funding through liabilities evidenced by paper. Against this backdrop, total operating income rose by 24% to CHF 4.1 billion, while operating expenses were kept to a 16% increase to CHF 2.1 billion. Consequently, the cost-toincome ratio has been reduced to 50%, from 53% a year before and 67% two years ago. As a result, net consolidated profit for the year reached CHF 1.2 billion, against CHF 0.8 billion for the previous year. 94% of total operating income was comprised of income from the Group’s core activities. Core business growth was seen at all levels. In particular, net interest income, coming essentially from the Eurobank EFG group, increased by Annual Report 2006 20% to CHF 2.7 billion as a result of the abovementioned growth in total loans and advances to customers, maintaining net interest rate margins above 3%. Net fee and commission income rose by 38% to CHF 1.1 billion, stemming from the substantial growth in customer assets under management or administration at EFG International and the increase in revenues from capital market services in Greece. Although loans and advances to customers increased by 32% to CHF 61 billion, the increase in total loan impairment loss for the year was contained at CHF 0.5 billion. The vast majority of these loans and provisions relates to the retail and corporate banking activities carried out by the Eurobank EFG group in Greece and Central and South-Eastern Europe. As at December 31, 2006, EFG Group’s total shareholders’ equity reached CHF 8.5 billion, compared to CHF 7.8 billion a year ago, mainly as a result of the net profit for the year of CHF 1.2 billion, partially offset by CHF 0.6 billion of dividends paid. At year-end, the Group’s consolidated regulatory capital-to-risk-weighted assets ratio stood at 10.5%. This continuing successful expansion is the result of business models, which put clients at their core, encourage entrepreneurship and capitalise on talents. Spiro J. Latsis Chairman of the Board Group 5
Page 1: Annual Report 2006
Page 4 and 5: Contents 3 Consolidated Financial H
Page 8 and 9: 6 EFG Group’s Activities The EFG
Page 10 and 11: 8 EFG Group’s Activities (continu
Page 12 and 13: 10 Group Presence EFG Bank European
Page 14 and 15: 12 Board of Directors and Group Exe
Page 16 and 17: 14 Consolidated Statement of Income
Page 18 and 19: 16 Consolidated Statement of Change
Page 20 and 21: 18 Notes to the Consolidated Financ
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54 Notes to the Consolidated Financ
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EFG Group
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Contents 78 Review of Parent Bank a
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78 Review of Parent Bank Activities
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80 Statement of Income for the year
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82 Off-Balance Sheet Positions at D
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84 Notes to the Financial Statement
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Annual Report - EFG Bank Group

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