Annual report 2010 - Dexia.com

Financial resultsConsolidated statement of incomeIncomefrom losses and provisioning on the Financial Products portfoliofollowing the Financial Products State Guaranteemechanism (1) .Management reportConsolidatedfinancial statementsAdditional information Annual financial statementsAt EUR 5,310 million, 2010 income was marked byacceleration of the Group’s transformation and in particularby the strengthening of its financial structure. Indeed, thesharp decrease of the liquidity gap and the Group’s activedeleveraging programme, in line with Dexia’s targets, werereflected by a EUR 528 million decrease in Treasury revenuesagainst 2009 record results and a EUR 283 million loss onmargins on run-off assets. Although remaining contained,the cost of deleveraging also impacted revenues with aEUR 212 million loss for a total of EUR 27.2 billion of assetsales. The stronger contribution from the commercial businesslines and the positive effects of the Legacy trading portfoliovaluation (CDS linked to synthetic securitization and CVAon CDS intermediation) did not fully offset this impact.Consequently, income fell by 14% in 2010. Excluding FSAInsurance (deconsolidated as from 2Q 2009), the decreasewas 9% compared to the FY 2009.ExpensesCosts totalled EUR 3,703 million (+3% on 2009). Within thecontext of its restructuring plan, Dexia booked EUR 145 millionof provisions for restructuring costs in 2010 against EUR 89million in the previous year. Excluding those restructuringcosts and bonus reversals, costs remained flat. In 2010, thecost base was also impacted by business-related costs inTurkey resulting from the network expansion (+50 branchesin 2010) and by EUR 52 million of currency impact onRBC Dexia Investor Services and DenizBank. The cost-incomeratio amounted to 69.7% for the full year 2010.Gross operating incomeConsequently, gross operating income amounted toEUR 1,607 million in 2010 compared to EUR 2,577 millionin 2009.Cost of riskThe cost of risk was down sharply on 2009 (-40%) atEUR 641 million. Excluding FSA Insurance, the cost of risk fellby EUR 183 million, reflecting diverging trends. On the onehand, the Group benefited from a decrease (EUR 104 million)of the cost of risk in Retail and Commercial Banking mainlydue to a rapidly improving credit environment in Turkey,EUR 195 million reversals of impairments in Public andWholesale Banking also reflecting an improvement of theenvironment and EUR 191 million reversals on collectiveimpairments for ABS and subordinated debt booked in thebond portfolio in run-off following the disposal of assets. Onthe other hand, 2010 was marked by higher impairments onthe Financial Products portfolio (EUR 559 million in 2010 versusEUR 231 million in 2009), particularly during the last quarterof the year in line with more conservative assumptions on theUS RMBS market. These provisions have not however impactedDexia’s regulatory solvency ratios which have been immuneImpairments and provisions for litigationsOther impairments and provisions for legal litigationsamounted to EUR 42 million.Pre-tax incomeConsequently, pre-tax income amounted to EUR 924 millionagainst EUR 1,403 million in 2009.Tax expensesTax expenses were EUR 127 million and the effective taxrate 14%, principally explained by EUR 143 million of oneoffpositive items: USD 51 million (EUR 39 million) of taxrefunds in the US, EUR 78 million of reversals of DeferredTax Assets (DTA) or tax provisions and tax impacts related tothe closure of foreign entities. In 2010, EUR 21 million DTAon timing differences on the Financial Products portfolio werealso recognized on provisions exceeding the economic lossassessment after deduction of the Own Credit Risk.Net income Group shareAfter taking EUR 74 million of non-controlling interests intoaccount, net income Group share amounted to EUR 723million in 2010 against EUR 1,010 million in 2009.SolvencyWith a Tier 1 ratio of 13.1% (Core Tier 1 of 12.1%) at the endof December 2010, the Group enjoys robust solvency whichwas further strengthened in 2010 thanks to organic capitalgeneration and by a decrease of total weighted risks. Moreinformation is given in the chapter “Capital management” ofthis annual report (page 95).Return on EquityReturn on equity stood at 3.8% in 2010.Earnings per shareEarnings per share amounted to EUR 0.39 for 2010 comparedto EUR 0.55 for 2009.Consolidated balance sheetThe consolidated balance-sheet total amounted toEUR 567 billion as at 31 December 2010, down byEUR 11 billion compared to 31 December 2009.The evolution of the total balance sheet reflected mainly:• the active balance-sheet deleveraging policy(EUR -27.2 billion);• the natural asset amortization (EUR -27.6 billion);• the new commercial production in line with the refocus onthe core commercial franchises (EUR +22.3 billion);100Dexia Annual report 2010(1) More detailed information on the State guarantee is provided in thenote 9.4.C. to the consolidated financial statements in this Annual Report(page 184).