Annual report 2009 - Dexia.com

Notes to the consolidated fi nancial statementsManagement reportConsolidatedfinancial statementsAnnual financial statementsAdditional information(ii) advancing the expiry date of the guarantee on deposits(and equivalents) to 1 March 2010;(iii) a gradual increase of the remuneration payable by Dexia,pro rata temporis, if the outstanding amount of repaymentobligations guaranteed by the States exceeds certain thresholds(by 50bps if and to the extent the amount exceedsEUR 60 billon but not higher than EUR 70 billon, 65bps ifand to the extent the amount exceeds EUR 70 billon but nothigher than EUR 80 billon, and 80bps above EUR 80 billon).As at 31 December 2009, the total outstanding amountof repayment obligations guaranteed by the States wasEUR 50 billion and Dexia had paid a total remuneration ofEUR 432 million to the States for this guarantee.All the above mentioned agreements, as well as the total outstandingamount of guaranteed repayment obligations andthe list of securities for which the States have issued eligibilitycertificates are available on the website www.dexia.com.Guarantee for the Financial ProductsportfolioDexia entered into an agreement for the sale of the insuranceactivities of Financial Security Assurance (FSA) toAssured Guaranty Ltd (Assured) on 14 November 2008; thesale was completed on 1 July 2009. The Financial Productsactivity of FSA, managed by FSA Asset Management (FSAM),was carved out of the transaction and remains under Dexia’sownership.In that context, the Belgian and French States have agreedto provide a guarantee on the Financial Products assetsportfolio.The terms of this guarantee are set out in two agreements(the First Demand Guarantee Agreement relating to the“financial products” portfolio of FSA Asset ManagementLLC and the Guarantee Reimbursement Agreement) enteredinto by the Belgian and French States and Dexia. The mainrelevant terms are the following:• Dexia SA and Dexia Crédit Local S.A. (“DCL”) entered intoa put agreement whereby FSAM is entitled to sell to Dexiaand/or DCL certain assets included in the FSAM portfolio asat 30 September 2008 upon the occurrence of certain triggerevents (asset default, liquidity default, collateral default andinsolvency of Dexia).• The Belgian and French States have each undertakento guarantee, severally and not jointly, the obligations ofDexia SA pursuant to the put agreement up to an aggregateamount equal to USD 16.98 billion and up to 62.3711% forthe Belgian State and 37.6289% for the French State.• The portfolio to which this put relates is the FSAM portfolioafter deduction of certain “excluded assets” for an amountof USD 4.3 billion, such that the par value of the assetsincluded in the portfolio to which the put relates is equal toUSD 11.2 billion as at 31 December 2009. Dexia will thereforecover a first loss tranche of USD 4.5 billion, of whichan amount of approximately USD 2 billion has already beenreserved as at 31 December 2009 (USD 1.804 billion on theFinancial Products portfolio and a USD 344 million collectiveimpairment on US RMBS).• The States are entitled to recover from Dexia the amountsthat they will have paid pursuant to their guarantee. Thisrecourse of the States can be exercised either in cash or inthe form of instruments representing Tier 1 capital of Dexia(ordinary shares or profit shares).• Dexia therefore issued subscription rights (warrants) to eachof the States for a period of 5 years, to allow the States tobe reimbursed through the issuance of new shares, followingthe contribution in kind to Dexia of their right of reimbursement.The cancellation and re-issuance of the existing warrantsfor a new period of 5 years will be submitted to theapproval of the general meeting of shareholders every year.In case of failure to re-issue the warrants, a penalty will beapplied (500bps per annum for a period of two years, compoundedon the guarantee commission).• Dexia may also issue profit shares at the request of theStates instead of the shares. The profit shares would beissued for a price equal to the exercise price of the warrants,would not have voting rights, would be entitled to a specialdividend and be convertible at the option of the States intoordinary Dexia shares, one for one. The terms of the profitshares have been approved by the extraordinary shareholders’meeting of Dexia on 24 June 2009 and are set out inArticle 4bis of the Articles of Association of Dexia.• Dexia must semi-annually pay to the States a guarantee feeat a rate of 1.13% per annum, calculated on the averageoutstanding nominal amount of the FSAM portfolio (excludingthe excluded assets) over a 6 month-period, plus a feeof 0.32% per annum calculated on the lower of (i) the totalamount of the liabilities pursuant to the Guaranteed InvestmentContracts and (ii) the average outstanding nominalamount of the FSAM portfolio (excluding the excluded assets)over a 6 month-period.• The guarantee of the States pursuant to an asset defaultor the insolvency of Dexia expires in 2035, unless the partiesdecide to extend the guarantee. The guarantee pursuant to aliquidity or collateral default expires on 31 October 2011.This guarantee was approved by the European Commissionon 13 March 2009.As at 31 December 2009, Dexia recognised EUR 61 millioninterest charge for this guarantee.For a more detailed description of the guarantee forthe Financial Products portfolio, see the Special BoardReport of 12 May 2009 available on the website ofDexia (www.dexia.com).168Dexia Annual report 2009