Annual report 2006 - Dexia.com

TREASURY AND FINANCIAL MARKETS
UNDERLYING (1) RESULTS
Treasury and Financial Markets (TFM) had once again a very
good year in 2006. The net income – Group share reached
EUR 308 million, up 11.2% on 2005, which was a record year.
Fixed Income activities (of which mainly the Credit Spread Portfolio)
was the main contributor to TFM’s net income (73%),
the balance being equally split between Market Engineering
and Trading (MET) (13%) and Treasury (14%).
Total income for the full year 2006 amounted to EUR 561
million, up 11.5%. This very good progression stems mainly
from the MET segment, with a EUR +54 million growth as
compared to 2005. The Public Finance Market Engineering,
the Personal Financial Services Engineering (PFSE), Foreign
Exchange and Equities activities performed particularly well.
Of note, a part of this income growth has to be analyzed
in parallel with the increase of the tax expense, as explained
below. The Fixed Income segment contributed for EUR +22 million
with notably Credit Spread Portfolio achieving a very
successful year. Finally, the Treasury segment experienced a
negative contribution due to the interest rates movement
during the year 2006.
Costs remained unchanged compared to 2005 to EUR 176 million.
This very good achievement is related to the equity-brokerage
activities in France, which were restructured in 2005,
bringing down the cost base in 2006. It is worth mentioning
that this activity came back to profitability in 2006. Without
this effect, the costs would have increased slightly due
to some IT expenses and recruitments. Thus, the underlying
cost-income ratio decreased from 34.8% in 2005 to 31.5%
in 2006.
(1) As described on page 70.
As a consequence, the gross operating income amounted
to EUR 384 million, a very robust increase by 17.3%. Of note,
the quarter-on-quarter trend is also very good with a 19.5%
increase.
Cost of risk remained at a historic low level close to zero.
Tax expense amounted to EUR 71 million for the full year
2006, up 53.6% in one year. The rise is more than half
explained by the increase of gross operating income, and for
the largest remaining part by MET’s arbitrage strategies. To
recall, those strategies embed cash and derivative instruments
whose value changes can cause simultaneously revenue and
tax increases if they go in one direction, or revenue and tax
reductions if they go in the opposite direction. The impacts
in 2006 were a EUR 11 million tax progression linked to a
EUR 17 million revenue increase within the Equities and PFSE
activities.
The return on economic equity (ROEE) declined slightly to
stand at the satisfactory level of 22.0%.
MANAGEMENT REPORT
COMPTES CONSOLIDÉS
UNDERLYING STATEMENT OF INCOME (EXCLUDING NON-OPERATING ITEMS)
(in millions of EUR, except where indicated) 2005 (1) 2006 Variation
Income 503 561 +11.5%
of which net commissions 16 20 +22.0%
Costs (175) (176) +0.7%
Gross operating income 328 384 +17.3%
Cost of risk 1 0 n.s.
Impairments on (in)tangible assets 0 0 n.s.
Tax expense (47) (71) +53.6%
Net income 282 313 +10.9%
Minority interests 5 5 -7.6%
Net income – Group share 277 308 +11.2%
COMPTES SOCIAUX
Cost-income ratio 34.8% 31.5%
ROEE (2) 25.8% 22.0%
Total allocated equity (average) 1,090 1,416
(1) Pro forma.
(2) Return on economic equity (net income – Group sahre/allocated equity – Group share).
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