Annual report 2010 - Dexia.com

Capital managementSolvencyDexia monitors its solvency using rules and ratios establishedby the Basel Committee on Banking Supervision and theEuropean Capital Requirements Directive.These ratios, the capital adequacy ratio and the Tier 1 ratio,compare the amount of regulatory capital (in total and Tier 1)with total weighted risks. From a regulatory point of view,they should amount to a minimum 4% for the Tier 1 ratioand 8% for the capital adequacy ratio.Another indicator used by Dexia to monitor its solvency is theCore Tier 1 ratio, which compares the amount of regulatorycapital excluding hybrid capital, with total weighted risks.The Banking, Finance and Insurance Commission (CBFA)requires Dexia to submit the calculation of capital necessary inperformance of its activity in accordance with the prudentialbanking regulations on the one hand and in accordance withthe prudential regulations on financial conglomerates on theother.Dexia has complied with all regulatory capital rules for allperiods reported.Regulatory capitalRegulatory capital consists of:• Tier 1 capital consisting of share capital, share premiums,retained earnings including current year profit, hybrid capital,foreign currency translation and minority interests, lessintangible assets, accrued dividends, net long positions inown shares and goodwill;• Tier 2 capital which includes the eligible part of subordinatedlong-term debt, less subordinated debt from and equities infinancial institutions.According to regulatory requirements:• AFS reserves on bonds and cash flow hedge reserves arenot part of equity;• AFS reserves on shares are added to Tier 2 equity if positive,with a haircut, or deducted from Tier 1 equity if negative;• certain IFRS adjustments on subordinated debts, minorityinterests and debts must be reversed to reflect thecharacteristics of absorption of loss of those instruments;• other elements (SPV, deferred taxes, etc.) are also adjustedbased on CBFA requirements.Moreover, since 1 January 2007, according to the CRDregulation (Capital Requirement Directive), the CBFA adaptedits definition of the regulatory capital. The most importantpoint impacting Dexia is that the elements which werededucted from the total regulatory capital (banks accountedfor by the equity method, participations in financial companiesor subordinated loans issued by such a financial company)will be deducted for 50% from Tier 1 capital and for 50%from total regulatory capital. For these elements dealingwith insurance companies, the new deduction rule will beimplemented as from 1 January 2013.For regulatory purposes, insurance companies are accountedfor by the equity method. Therefore, non-controlling interestsdiffer from those published in the financial statements.Discretionary participation features only relate to insurancecompanies.Comparison of total equity (financialstatements) and equity calculated forregulatory requirements 31/12/09 31/12/10ConsolidatedfinancialRegulatorypurposesConsolidatedfinancialRegulatorypurposes(in millions EUR)statementsstatementsTotal shareholders’ equity 10,182 10,182 8,945 8,945Non-controlling interests 1,806 1,796 1,783 1,773of which Core equity 1,813 1,805 1,858 1,849of which Gains and Losses not recognised in the statementof income (8) (9) (75) (76)Discretionary participation features of insurance contracts 1 0 0 0Total equity 11,988 11,978 10,728 10,718Management reportConsolidatedfinancial statementsAdditional information Annual financial statementsAnnual report 2010 Dexia95