Annual report 2006 - Dexia.com

TREASURY AND FINANCIAL MARKETS
MANAGEMENT REPORT
COMPTES CONSOLIDÉS
COMPTES SOCIAUX
of which Dexia Crediop represented more than 50% in a
context marked with a new law relating to savings, imposing
to provide a detailed prospectus for bank issues. The average
cost of the long-term issuances in 2006 has decreased,
around two basis points lower than in 2005, thanks to the
good performance of the AAA Dexia issuers.
Regarding the cash & liquidity management activity – whose
first objective it is to meet the Group short-term financing
need through different instruments such as commercial paper,
certificates of deposit, the inter-bank market... – 2006 was a
good year, with volumes exceeding the 2005 heights. Shortterm
issuances decreased due to a lesser appetite from investors,
while on the contrary, central bank deposits increased
by more than 50% and the interbank activity was 28% up
between June 2006 and December 2006.
The Fixed Income business encompasses mainly the Credit
Spread Portfolio (CSP) activity, which benefited from very
good market opportunities in 2006. The new investments
represented EUR 21.7 billion, close to the 2005 record
level. In 2006, investments were concentrated on sectors
which are future Basel II winners such as covered bonds,
AMS/MBS or Negative Basis Trades. The investment portfolio
increased from EUR 62.9 billion at the end of 2005
to EUR 74.0 billion at the end of December 2006. About
99% of the portfolio is rated investment grade and 75%
is rated AA- or better. In the CSP, the investment lines are
essentially classified in the available-for-sale (93%) and
hold-to-maturity (1%) categories, the remaining portion
is classified in trading. Regarding the securitization activity
in Europe, where Dexia acts as an advisor, arranger
and/or underwriter, the business performed very well with
24 underwritings in 2006 compared to 16 in 2005. Dexia
closed the first ever public securitization transaction of
wrapped infrastructure bonds in 2006 (the “WISE” transaction)
for an amount of EUR 2.2 billion; a transaction using
the expertise of Dexia in the Public Finance sphere and in
the financial markets. This transaction will allow reducing
the amount of regulatory capital and allow Dexia to further
enhance its leading position in financing the PFI/PPP and
infrastructure sectors. In the United States, the securitization
activities consist essentially in originating commercial
mortgage loans before securitizing them. The production
reached EUR 2 billion with 8 transactions, with attractive
returns.
The Market Engineering and Trading regroups notably
teams focusing on the supply of structured products to
Personal Financial Services clients, institutional clients and
public sector clients. Those activities were particularly successful
in 2006. In Belgium, the appetite for structured
Eurobonds was high, resulting in significant volumes. The
structuring desk registered a record in terms of production
volume focused on debt restructuring in France, in Germany
and in the United Kingdom. Market Engineering and
Trading also includes the Equities desks in Paris and Brussels
and the Foreign Exchange activity line which support and
work with the other business lines and the different entities
of the Group.
Finally, it should be reminded that TFM is not only a strong
revenue generator on its own, but also an important support
unit for the other business lines and for the Group as a whole
regarding balance-sheet management. As such, the amount
of indirect revenues stemming from this close cooperation
which are booked in the other business lines is estimated at
EUR 469 million for 2006 (against EUR 359 mil lion in 2005).
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Dexia / Annual Report 2006