Annual report 2010 - Dexia.com

Risk managementManagement reportConsolidatedfinancial statementsAdditional information Annual financial statementsshare-lease products should be taken into account whencalculating damages and legal interest to be reimbursed is tobe calculated from the termination date of a contract.Shortly after the judgements of the Amsterdam Court ofAppeal were passed, cassation appeal against two of thosejudgements was filed by clients of the company and is stillpending. The judgements of the Netherlands Supreme Courtin these cases are expected by the end of the second quarterof 2011.The outcome of the judgement of the Amsterdam Court ofAppeal forms the basis of the out-of-court settlement attemptsby the Company (hereafter called the “Court model”).Spousal consent casesUnlike the situation with regard to disputes with clients aboutduty of care issues, the situation with regard to “spousalconsent” cases is less clear. On 28 March 2008 the NetherlandsSupreme Court ruled by judgement that article 1:88 of theDutch Civil Code is applicable to share-lease contracts. Theapplicability of this article means that the written consent ofthe spouse (or registered partner) of the lessee was necessaryto enter into the lease contract, in the absence of which thespouse is permitted to annul the contract, meaning that allpayments made under the contract should be reimbursedand any existing debt towards the Company resulting fromthe contract is extinguished. It has been well established injurisprudence that the spouse or partner should annul thecontract within three years after becoming aware of theexistence of the contract. However, controversial questionsremain concerning the nature of the evidence required todemonstrate the knowledge of the spouse.Number of court casesOn 31 December 2010, the Company is still involved in about2,000 civil court cases (compared to over 3,400 at the end of2009). However, the vast majority of these court cases havebeen suspended. The vast majority of clients in proceedings(and especially those clients with complaints about breach ofthe duty of care) were offered out-of-court settlements onthe basis of the so-called “Court model” during 2010. Thenumber of clients in proceedings will decrease sharply in 2011because of settlements expected after the judgements of theSupreme Court and the Amsterdam Court of Appeal.Proceedings related to “spousal cases” are still ongoing dueto the interpretation issues.Litigations in generalA number of disputes have arisen between the Company andits clients with respect to share-leasing products. Particularlywith regard to the nature of these disputes, Dexia refers toits earlier reports and quarterly activity reports. Generallyspeaking, only the approximately 19,000 clients that have fileda so-called opt-out statement before 1 August 2007, and didnot enter into any settlement since then, are entitled to startor continue proceedings against the Company. However, morethan 1,800 cases have already been closed due to settlementswith the Company or the closure of proceedings.Klachteninstituut Financiële Dienstverlening(KiFiD)At the end of 2010, three share-lease related cases werestill under consideration by the Klachteninstituut FinanciëleDienstverlening (KiFiD), the Complaints Institute for FinancialServices.Provisions as at 31 December 2010Provisions are updated every quarter and may be influencedby fluctuations in the value of the underlying equity portfoliosof the share-leasing contracts, by client behaviour and byfuture judgements. At the end of 2010 the provisioningmodel was adapted to the most recent information aboutclient behaviour as well as the most recent information aboutthe effect of the “Court model”. The net financial impactthereof on Dexia’s 2010 financial statements was negligible.At the end of December 2010, total provisions amounted toEUR 177.5 million.Lernout & HauspieDexia Bank Belgium (Dexia Bank) was involved in various waysin the bankruptcy of Lernout & Hauspie Speech Products SA(LHSP) and the consequences thereof. This was described indetail in the 2007, 2008 and 2009 annual reports.The following important developments have taken place sincethe 2009 annual report.Claim on Lernout & Hauspie Speech ProductsAt 31 December 2010, Dexia Bank has a claim in USDchargeable to the bankruptcy of LHSP for a principal sum ofEUR 29.3 million (exchange rate USD/EUR 1.3399), for whichan impairment of EUR 25.1 million has been booked. Thisclaim originates in the share taken by the former ArtesiaBanking Corporation (ABC) in the syndicated loan of USD 430million to LHSP on 5 May 2000. ABC’s share amounted toUSD 50 million.Dexia Bank believes it will be able to recover the netaccounting value of this claim.The liquidation of LHSP’s assets is subject to separateproceedings in Belgium and in the United States.According to the LHSP Belgian bankruptcy receivers, DexiaBank and the other unsecured creditors are unlikely to receiveany reimbursement from the Belgian liquidation of LHSP.In 2008, Dexia Bank waived its claim on the insolvency ofLHSP in the United States, in exchange for a waiver by theAmerican Litigation Trustee of LHSP of all its claims enteredagainst Dexia Bank.Prosecution of Dexia Bank in BelgiumOn 4 May 2007, Dexia Bank was summoned, together with20 other parties, to appear before the Court of Appeal inGhent. According to the writ of summons, Dexia Bank wasprosecuted by virtue of the former ABC being accused asan alleged accessory to the falsification of the financialstatements of LHSP and other related offences among whichforgery, securities fraud and market manipulation.90 Dexia Annual report 2010