Annual report 2006 - Dexia.com

PERSONAL FINANCIAL SERVICES
UNDERLYING (1) RESULTS
Personal Financial Services posted another satisfying year
despite the competitive environment in Belgium, particularly
around the middle of the year in the area of mortgages. Cost
discipline, good commercial activity and the more advantageous
effective tax rate altogether brought a satisfactory rise
of net income – Group share (+13.1%). The additional EUR
58 million net earnings produced this year came mainly from
Belgium (EUR 34 million or +11%), Luxembourg (EUR 18 million
or +14%) and Turkey (EUR 4 million in one quarter only,
i.e. +68% on the pro forma 2005).
Total income for the full year reached EUR 2,319 million, an
increase of EUR 48 million or +2.1% on 2005. This increase
came from a contrasted environment, both in terms of
geography and nature of activities. Income grew in Luxembourg
(EUR +31 million), in Turkey (EUR +13 million pro forma,
bearing in mind that the contribution was for one quarter
only), and countries other than Belgium (EUR +13 million),
whilst it went down in Belgium (EUR -9 million). The slight
decline in Belgium (-0.5% of the country’s revenue base) was
caused by the following factors:
• on the customer asset side, increased volumes generated
higher revenues which have been slightly mitigated by a low
margin reduction overall, some products becoming more profitable
and others less;
• sight accounts performed very well, pulled both by volume
increases and higher margins;
• on the loan side the situation deteriorated as a consequence
of the negative effect of refunding on the average
margin on mortgages outstanding, and also because of the
narrow spreads on originations during the months of intense
competition.
(1) As described on page 70.
Costs rose slightly to EUR 1,627 million, a EUR 19 million
increase, or 1.2%, which in effect means negative growth in
real terms. Dexia Bank Belgium continued to reduce the number
of its branches, which now stand at 1,019 in Belgium, with
18 branches closed in the second half of the year. The positive
effects of the integration of Artesia BC being now largely met
and even exceeded, the bank is now seeking efficiency gains,
mainly in back office operations. It should be noted that the sale
of the London based private banking operations has caused a
EUR 3 million cost increase which will disappear as from 2007.
Gross operating income reached EUR 692 million, up 4.4%
in one year. The cost-income ratio continues to improve, from
70.8% in 2005 pro forma to 70.2% in 2006.
The cost of risk remained at a very low level, to EUR 32 million
in 2006.
Tax expense was down 20.2%, to EUR 151 million, mainly
thanks to the lower effective tax rate.
The return on economic equity (ROEE) continued to
improve from 24.6% in 2005 to a very robust 28.8% for the
full year 2006.
UNDERLYING STATEMENT OF INCOME (EXCLUDING NON-OPERATING ITEMS)
(in millions of EUR, except where indicated) 2005 (1) 2006 Variation
Income 2,271 2,319 +2.1%
of which net commissions 752 764 +1.6%
Costs (1,608) (1,627) +1.2%
Gross operating income 663 692 +4.4%
Cost of risk (26) (32) +22.8%
Impairments on (in)tangible assets 0 0 n.s.
Tax expense (189) (151) -20.2%
Net income 448 509 +13.7%
Minority interests 1 4 x4.5
Net income – Group share 447 505 +13.1%
MANAGEMENT REPORT
COMPTES CONSOLIDÉS
COMPTES SOCIAUX
Cost-income ratio 70.8% 70.2%
ROEE (2) 24.6% 28.8%
Total allocated equity (average) 1,822 1,754
(1) Pro forma.
(2) Return on economic equity (net income – Group share/allocated equity – Group share).
Dexia / Annual Report 2006 | 87