2012 Registration document and annual financial report - BNP Paribas

4CONSOLIDATEDFINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2012Notes to the financial statements4BNP Paribas intended to take up this exchange option in connectionwith the collective undertaking given by the French financial sector.Accordingly, the debt securities held on the Group’s balance sheet and dueto be exchanged were measured by recognising the 21% discount. Treatedas a concession by the lender owing to the difficulties encountered bythe borrower, this discount led to an impairment loss being recognisedthrough profit or loss in the first half of 2011.In regards to Greek sovereign debt securities not exchanged, as well asIrish and Portuguese sovereign debt instruments, after due considerationof the various aspects of the European support plan, some investors tookthe view that there was no objective evidence that the recovery of thefuture cash flows associated with these securities was compromised,especially since the European Council had stressed the unique andnon-replicable nature of the private sector’s participation in such anoperation. Accordingly, the bank took the view that there were no groundsto recognise impairment in these securities.2. Measurement of Greek securities at 31 December 2011In the second half of 2011, it was recognised that Greece was havingtrouble meeting the economic targets on which the 21 July plan wasbased, particularly in regards to sustainability of its debts. This led to anew agreement in principle, dated 26 October, based on private-sectorcreditors waiving 50% of amounts owed to them. Since the arrangementsfor implementing this agreement had not been definitively settled at31 December 2011 by all of the international institutions concerned, thebank determined the impairment loss on all the securities it held on thebasis of the most recent proposal put forward by private-sector creditorsrepresented by the Institute of International Finance (IIF).On the basis of (1) a 50% haircut, (2) the immediate repayment of 15%of amounts owed through securities of the European Financial StabilityFacility (EFSF) with a maturity of two years and paying market interestrates, (3) the payment of accrued interest through EFSF securities witha maturity of six months and paying market interest rates, (4) a couponof 3% until 2020 and 3.75% subsequently on securities maturing between2023 and 2042 received in exchange for existing securities and (5) adiscount rate of 12% on future cash flows, the bank estimated the likelyloss on existing securities as 75%, which is almost identical to that pricedin by the market through the average discount on these securities at31 December 2011.3. Accounting treatment at 30 June 2012, following theexchange offer of Greek securitiesOn 21 February 2012, the agreement was refined and supplementedbetween the representatives of the Greek government, private-sectorinvestors (PSI) and the Eurogroup. This agreement is designed to enableGreece to achieve a debt ratio of 120.5% in 2020 as opposed to 160% in2011, and to achieve the financial stability sought through the plan. Theoffer involves private-sector investors waiving 53.5% of the nominal valueof their Greek bonds, reducing Greece’s debt by around EUR 107 billion,in return for a public-sector contribution of EUR 30 billion.On 12 March 2012, the exchange of Greek sovereign debt securities wasrealised, with the following main characteristics:■ 53.5% of the principal of previous securities was waived;■ 31.5% of the principal of previous securities was exchanged for 20bonds issued by Greece with maturities of between 11 and 30 years.The coupon on new bonds will be 2% from 2012 to 2015, rising to 3%from 2015 to 2020, 3.6% in 2021 and 4.3% until 2042. These securitiesare accounted for as “Available-for-sale assets”;■ 15% of the principal of previous securities has been redeemedimmediately in the form of short-term securities issued by theEuropean Financial Stability Facility (EFSF), repayment of which isguaranteed by the EUR 30 billion public-sector contribution. Thesesecurities are accounted for as “Available-for-sale assets”.In addition to the exchange:■ accrued interest on the exchanged Greek debt at 24 February 2012was settled through the issue of short-term EFSF securities, accountedfor as “Loans and receivables”;■ each new bond issued by Greece will be accompanied by a securitylinked to movements in Greece’s gross domestic product over andabove those expected in the plan. This instrument is accounted foras a derivative.The securities exchange has been accounted for as the extinguishment ofthe previously held assets and the recognition of the securities receivedat their fair value.The fair value of the instruments received in exchange for the previoussecurities was valued at 12 March 2012 at 23.3% of the nominal valueof the previous securities. The difference with the net value of theprevious securities, as well as the adjustment of accrued interest on theprevious securities, led to the recognition of a EUR 55 million loss onthe banking book securities, accounted for in the Cost of risk. The lossrecognised in the Cost of risk at the time of the exchange of the securitiesheld by insurance companies amounts to EUR 19 million, and led to aEUR 12 million insurance policyholders’ surplus reserve being reversed.4. Sale of Greek securities in December 2012 under Greece’sbond buyback programmeOn 27 November 2012, representatives of the Eurogroup and theInternational Monetary Fund (IMF) asked the Greek government toimplement a buyback programme for part of its sovereign debt held byprivate investors, in a bid to reduce its debt burden to 124% of GrossDomestic Product (GDP) in 2020.The offer was open from 3 to 11 December 2012 and enabled privateinvestors to participate in the buyback programme, the average priceof which amounted to 33.5% of the par value. BNP Paribas sold all thebonds it held at the time of the offer, generating a gain of EUR 25 million.1342012 Registration document and annual financial report - BNP PARIBAS