Annual report 2010 - Dexia.com

Risk managementManagement reportConsolidatedfinancial statementsAdditional information Annual financial statementsproceedings have been consolidated for pre-trial purposes ina single matter before the US District Court for the SouthernDistrict of New York.Under the terms of the sale of FSA Holdings and AGM toAssured Guaranty Ltd, Dexia retained the Financial Productsbusiness and agreed to indemnify AGM and Assured GuarantyLtd for all losses related to this activity that they may incur asa result of the investigations and lawsuits mentioned above.On 27 July 2010, the Department of Justice (DOJ) indictedformer FSA employee Steven Goldberg, together with twoformer colleagues of Goldberg at his previous employer inthe bid rigging matter. The DOJ did not indict FSA or anyentity within the Dexia FP Group as part of the Goldbergindictment.Dexia is not able at present reasonably to predict the durationand the outcome of the investigations and legal proceedingsin progress, or their potential financial repercussions. Inaddition, due to the nature of the DOJ/SEC investigations andcivil actions relating to the same subject matter, any indicationwhether a provision has been constituted in relation to theseinvestigations or litigations or their subject matter and, if so,the amount thereof, could seriously prejudice Dexia’s legalposition or its defence in the context of these legal actions orany related proceedings.Investigations of allegedshortcomings in financialcommunicationIn 2009 a shareholder, Mr Robert Casanovas, lodged acomplaint with the Public Prosecutors in Brussels and Parisalleging shortcomings in Dexia’s financial communication.These complaints had given rise to the opening of twopreliminary investigations. Mr Casanovas and his wife,Mrs Marie Christine Guil, had also served direct summonseson the company Dexia SA and several former and currentexecutives of the Group to appear before the Criminal Courtin Paris.At the hearing in October 2009, Mr Casanovas and his wifewithdrew their action against the company Dexia SA whichacknowledged it. This withdrawal occurred after the PublicProsecutor in Paris dismissed the complaint filed by Mr RobertCasanovas and his wife. As to the complaint lodged inBrussels, the Public Prosecutor also dismissed the chargesagainst Dexia.Nonetheless, in October 2010, Mr Casanovas and his wifere-filed an action against Dexia before the Civil Court ofPerpignan on essentially the same grounds as the criminalcomplaints filed in 2009.Dexia denies any shortcomings in its financial communicationand considers that the allegations made by Mr Casanovasand his wife are unfounded.No provision has been set up.Dexia banka SlovenskoIn June 2009, a client of Dexia banka Slovensko, whichdefaulted on its collateral posting obligations in respect ofcertain currency transactions, commenced a court actionagainst the bank claiming EUR 162.4 million for noncompliancewith legislation and contractual obligations.Dexia banka Slovensko, in turn, submitted a counterclaim forEUR 92.2 million.On 17 May 2010 the District Court of Bratislava announcedits judgement on the former client’s claim, ordering Dexiabanka Slovensko to pay an amount in principal of EUR 138million. By separate judgement, the District Court furtherordered Dexia banka Slovensko to pay legal fees and costsin an amount of EUR 15.3 million. The bank appealed bothdecisions to the Court of Appeal of Bratislava and, in reactionto these decisions, withdrew its counterclaim still pendingbefore the District Court and resubmitted it for a higheramount to the Permanent Arbitration Court of the SlovakBanking Association.On 25 January 2011, the Court of Appeal in Bratislava passeda judgement cancelling both judgements of the District Courtof Bratislava. The case will now return to the court of firstinstance. In its decision, the Court of Appeal in Bratislavaalmost entirely dismissed the arguments adopted by theDistrict Court and stated that it did not establish the factsof the case correctly and erred in its legal arguments. Thereasoning of the Court of Appeal will be binding on the courtof first instance in the renewed proceedings.This decision lead to the reversal of the provision ofEUR 138 million set up in the second quarter of 2010.However a provision of EUR 39 million is still being maintainedto cover potential charges related to this case.Dexia CrediopDexia Crediop, like other banks in Italy, is involved in certainjudicial proceedings with respect to hedging transactionsconcluded in the framework of debt refinancing for localauthorities.Under Italian law, debt may be restructured only if it leads toa reduction in the cost borne by the community. The legalquestion raised is whether or not the cost to be taken intoconsideration includes the cost of hedging transactions.In November 2010, the Administrative Tribunal of theRegion of Tuscany rendered a decision in a dispute betweenDexia Crediop and the Province of Pisa according to whichthe hedging transaction must be taken into account whencalculating the costs of the restructuring transaction. DexiaCrediop lodged an appeal against this decision before theState Council in January 2011.In addition, Dexia Crediop has filed several claims before civiland administrative courts to preserve its rights under certainhedging agreements.At this stage of the proceedings, Dexia is not in a positionto forecast in a reasonable way the duration or the outcomeof the disputes, nor their possible financial consequences.Therefore, only a provision of an amount of EUR 7 millionappears in the accounts as at 31 December 2010 in order tocover the legal fees.Dexia Banque Internationale àLuxembourg and Dexia Private Bank(Switzerland)Further to the Bernard Madoff Investment Securities (“BMIS”)bankruptcy, the trustee of the BMIS estate and certain trusteesof Madoff-related investment funds launched proceedingsagainst a large number of financial institutions and institutionalinvestors that purchased Madoff securities and Madoff-linkedinvestment products, claiming reimbursement of profitsearned by and redemptions received on these investments92 Dexia Annual report 2010