Annual report 2010 - Dexia.com

Risk managementOn 20 September 2010, the Court of Appeal of Ghentpassed its judgement on the criminal case. It acquitted DexiaBank and Mr G. Dauwe, former member of the ManagementBoard of ABC, of all criminal charges on the basis of a verydetailed analysis of the facts by the Court of Appeal.No party has filed an appeal to the Supreme Court of Appealagainst this acquittal of Dexia Bank and Mr G. Dauwe, so thattheir acquittal is definitive.As a result of those acquittals, the Court of Appeal of Ghentis no longer competent to pronounce on the claims madein civil actions by the shareholders, creditors and receivers ofLHSP against Dexia Bank and Mr G. Dauwe. Deminor andDolor, together representing the majority of the individualsbringing civil actions, consider that they can only appealwhen the Court of Appeal in Ghent has pronounced on thecivil case. Dexia Bank and its counsel are of the opinion thatthis position is extremely contestable.Whatever the case, an appeal by a civil party will notthrow back into question the acquittal of Dexia Bank andMr G. Dauwe.Considering the comprehensively substantiated judgement,the risk of Dexia Bank being ordered to pay damages andinterest to the receivers, creditors or shareholders of LHSP isparticularly low.Civil proceedings against Dexia Bank inBelgiumLHSP receivers’ claimIn July 2005, the Belgian receivers of LHSP filed a civil actionbefore the Commercial Court of Ypres against twenty-oneparties including Dexia Bank. They claim compensation forthe net liabilities of LHSP in bankruptcy. According to thereceivers’ provisional assessment of the claim, it would amountto approximately EUR 439 million. This claim, to a largeextent duplicative of the claims introduced by the receiversin the criminal proceedings, has not developed since then.There is not likely to be any development until after the endof the criminal proceedings (still on hold before the SupremeCourt of Appeal with regard to parties other than Dexia Bank)and settlement of the civil aspect before the Court of Appeal.Considering the acquittal of Dexia Bank and the reasoning forthe order, the risk of that action being declared substantiatedis considered extremely low.Individual actionsDuring the criminal proceedings, certain civil claims werefiled before the Commercial Courts of Ypres and Brusselsagainst various parties, including Dexia Bank. The main claimwas filed by Deminor on behalf of 4,941 investors. Similarly,151 investors affiliated to Spaarverlies (now named Dolor)and the liquidators of the company Velstra also commencedcivil actions. These claims, to a large extent duplicative of theclaims introduced in the criminal proceedings, have notdeveloped since then. There is not likely to be any developmentuntil after the end of the criminal proceedings (still onhold before the Supreme Court of Appeal with regard toparties other than Dexia Bank) and settlement of the civilaspect before the Court of Appeal.Considering the acquittal of Dexia Bank and the reasoning forthe order, the risk of that action being declared substantiatedis considered extremely low.L&H HoldingOn 27 April 2004, the bankruptcy receiver of L&H Holdingsummoned Messrs Lernout, Hauspie and Willaert, alongwith Banque Artesia Nederland (BAN) and Dexia Bank, toreturn the Parvest shares (the value of which was estimatedat USD 31.5 million as at 31 December 2010) or, in default,to pay the principal amount of USD 25 million. The case,pending before the Commercial Court of Ypres, has notdeveloped since thenThis action is connected with a USD 25 million loan grantedto Mr Bastiaens by BAN in July 2000 for the purposes of theacquisition by Mr Bastiaens of LHSP shares owned by L&HHolding. The selling price of USD 25 million was credited notto the account of L&H Holding but to three separate accountsopened by Messrs Lernout, Hauspie and Willaert. Taking theview that this money was due to L&H Holding, the L&HHolding bankruptcy receiver is claiming its repayment.The order by the Court of Appeal in Ghent on 20 September2010 attributed the said Parvest shares to the bankruptcyreceiver of L&H Holding.If the Parvest shares, on deposit in the Netherlands and seizedby various parties, are restored to the bankruptcy receiver ofL&H Holding, his action will have no object and in principleit will lapse.ProvisionsIn view of its acquittal in the criminal case on the basis ofthe facts of the case, the risk that Dexia Bank will be orderedto pay damages and interest in the current civil proceedingsis particularly low and no provision has been constituted inthat regard.Financial Security AssuranceFinancial Security Assurance Holdings Ltd (FSA Holdings) andits subsidiary, Financial Security Assurance Inc. (now namedAssured Guaranty Municipal Corp. and hereafter referredto as “AGM”), former subsidiaries of the Dexia Group, andmany other banks, insurance companies and brokerage firmsare being investigated in the United States by the AntitrustDivision of the US Department of Justice, the US tax authoritiesand the US Securities and Exchange Commission (SEC) onthe grounds that they violated certain laws and regulationsin connection with bidding on and entering into municipalderivatives transactions, including guaranteed investmentcontracts (GICs) (1) , with the issuers of municipal bonds.Several US states have initiated parallel, similar investigations.In addition to the governmental investigations describedabove, a large number of banks, insurance companies andbrokerages, including in some cases FSA Holdings, Dexia and/or AGM, have been named as defendants in various civilactions relating to municipal GICs and municipal derivativestransactions. These civil lawsuits allege violations of antitrustand other laws and regulations. Substantially all these civil(1) The guaranteed investment contracts (GICs) that are the subject of theseinvestigations and lawsuits were issued by subsidiaries of FSA Holdingsin exchange for an investment of funds by US municipal entities. Thosesubsidiaries also issued GICs to issuers of securitized debt securities. The GICs,which had varying terms and repayment conditions, entitle their holdersto receive interest payments at a guaranteed rate (fixed or variable) alongwith a return of invested principal. Payments of principal and interest on theGICs were guaranteed by AGM, and remain so after the acquisition of thatcompany by Assured Guaranty Ltd.Management reportConsolidatedfinancial statementsAdditional information Annual financial statementsAnnual report 2010 Dexia91