RNS Number:4164R
Espirito Santo Financial Group S.A.
29 October 2003
GRUPO BANCO ESPIRITO SANTO 3Q2003 RESULTS (Unaudited)
LISBON - October 29, 2003 -- Banco Espirito Santo (BES) today announced its
third quarter 2003 results.
HIGHLIGHTS
* Accumulated net profit of euro 156.6 million, an increase of 15.0% on a
comparable basis, and corresponding to annualized ROE of 11.2%.
* Moderate business growth due to the tough macroeconomic environment:
tight control in credit expansion translated into an increase of 3.9%
in loans to customers (including securitized credit); on-balance sheet
customer funds were up by 10.4%, with a positive impact on the
transformation ratio, which improved from 115% in September 2002 to
105% current.
* Fees and commissions up by 18.2%, supported by the continuous
improvement in service quality, cross-selling and in investment banking
activity. This increase compensated the 3.9% decrease in net interest
income and allowed a 3.5% increase in commercial banking income
(excluding markets). The exceptional performance of capital market
results, up by 80%, was achieved through the Group's positioning in
interest rate instruments and some recovery of the stock market.
* Containment of costs growth. 1.0% increase, in line with estimated
progress for the year, with a favorable impact on the cost to income,
which dropped to 50.4%, from 55.2% in September 2002.
* Significant reinforcement of provisions, with net provisioning charge
for the period totaling euro 314.9 million (57.7% of the gross results).
* Comfortable solvency levels: solvency ratio remains well above
recommended levels, while the coverage of overdue loans remains high.
CONTACTS:
Paulo Padrao
Elsa Jardim
Banco Espirito Santo, Lisbon
+351 21 350 1713
www.bes.pt
1. ECONOMIC ENVIRONMENT
The third quarter of 2003 was characterized by an improvement of the economic
environment worldwide and visible signs of recovery.
In the United States, the strong expansionist nature of the monetary and
budgetary policies is thought to have led third quarter GDP growth to around
5.5%, in annualized terms. Private consumption benefited from historically low
interest rates, a booming residential market and tax cuts on family income.
The improvement of the global economic situation also extended to Japan, where
activity benefited from the good performance of exports and corporate
investment. GDP is thought to have grown by roughly 0.4% in the third quarter.
In the Euro Area, the economy is thought to have risen by 0.2% in the third
quarter. A consistent rise in the main confidence indicators and the growth
acceleration in the United States and Asia were likely contributors to the
region's improved economic performance. However, unemployment rate of 8.8%, high
family and corporate indebtedness levels, Euro appreciation and the budgetary
restrictions entailed by the Stability and Growth Pact, impose a slow pace on
recovery.
The improvement of corporate results, the outcome of economic activity recovery
and cost containment, led to a positive performance in the stock markets.
Between July and September S&P500 and NASDAQ indices were up, respectively, by
2.2% and 10.1%. Nikkei gained 12.5% and, in Europe, DAX rose by 1.1%. PSI-20
maintained the previous quarter's trend, rising by 5.4%.
Portugal pursued, during the third quarter, the process of adjusting internal
demand to high levels of household indebtedness and to a still rising
unemployment rate. Nevertheless, certain confidence and investment indicators
suggest that the reversal of the economic cycle may have started during this
period.
2. PRIOR NOTE TO THE ANALYSIS OF THE ACTIVITY AND RESULTS
As announced in due time, Banco Espirito Santo sold to Banque Sofinco shares
representing 45% of the share capital of Credibom - Sociedade Financeira para
Aquisicao a Credito S.A., reflected in the financial statements from June 30,
2003. As mentioned at the time 1st half results were announced, this transaction
led to an extraordinary result of euro 65.3 million in the consolidated accounts
and euro 74.3 million in BES' individual accounts. This latter extraordinary
result was fully allocated to reinforcing, by a total euro 86.0 million, the
fund for general banking risks, thus canceling the effects of the operation on
the net income of the period.
BES consolidated balance sheet as from June 30, 2003 excludes Credibom's assets
and liabilities, while the income statement reflects Credibom's consolidation up
to June 30, as, from the economic standpoint, this company contributed to BES
Group first half-year results.
For purposes of comparability with previous periods and whenever justified by
circumstances, the published financial and business data will also be presented
proforma (excluding Credibom).
3. RESULTS AND PROFITABILITY
Consolidated net income reached euro 156.6 million, a year-on-year increase of
13.4%, and a 15.0% rise on a comparable basis. Annualized return on equity (ROE)
reached 11.2%, which can be considered a significant performance, bearing in
mind the current low level of interest rates.
INCOME STATEMENT
euro million
September
2002 2002 * 2003 Proforma
Chg (%)
Net Interest Income 588.5 577.8 555.5 -3.9
+ Fees and Commissions 286.7 286.7 338.9 18.2
= Commercial Banking Income 875.2 864.5 894.4 3.5
+ Capital Markets Results 87.8 87.8 158.0 79.9
= Banking Income 963.0 952.3 1052.4 10.5
- Operating Costs 529.1 525.3 530.7 1.0
+ Extraordinary Results and Other -38.1 -38.1 24.0 ....
= Gross Results 395.8 388.9 545.7 40.3
- Net Provisions 199.9 196.2 314.9 60.5
Credit 137.2 133.5 175.6 31.5
Securities 44.5 44.5 -1.9 ....
Others 18.2 18.2 141.2 ....
= Results Before Taxes and Minorities 195.9 192.7 230.8 19.8
- Income Taxes 31.9 30.6 45.9 50.1
- Minorities 25.9 25.9 28.3 9.5
= Net Income for the Period 138.1 136.2 156.6 15.0
* Proforma, considering the 1st semester of
Credibom's activity
3.1 Net Interest Income
Net interest income reached euro 555.5 million, decreasing by 3.9% year-on-year,
mainly explained by declining interest rates (the European Central Bank has cut
the refi rate by 125 basis points since the end of the third quarter of 2002),
scarce liquidity in the domestic system and strict control of credit growth
(e.g. reduced exposure to consumer credit). The effects of larger clarity in the
price policy translated into a clearer division between the client service (fees
and commissions) and the interest rate components (net interest income).
Relative net interest margin for the first nine months of the year stood at
2.03%, comparing to 2.23% in September 2002 and 2.09% in the first half of the
current year.
3.2 Fees and Commissions
Fees and commissions reached euro 338.9 million, a year-on-year rise of 18.2%
mainly boosted by traditional banking, bancassurance, cards, investment funds
and from the investment banking activity. The focus put on improving service
quality and the launch of new client retention initiatives were crucial
contributors to the growth achieved.
Finally, Banco Espirito Santo was elected by the Global Finance magazine as the
Best Portuguese Sub-Custodian due to the high quality standards of its
settlement and custody services.
3.3 Capital Markets Results
In line with this year's first half performance, Group BES continued to target
opportunities arising out of a rebounding equity market and, in particular, from
the evolution of interest rates, where marked fluctuations produced gains in
fixed-rate instruments in the third quarter.
3.4 Operating Costs
Operating costs rose by 1.0% only, within forecast limits.
Depreciation and amortization showed the strongest increase, reflecting the
depreciation of investments made in modernizing processes. However, its
deceleration has been notable (March 2003: +12.7%; June 2003: +10.3%; September
2003: +7.1%) and should continue until the year-end.
OPERATING COSTS
euro million
September
2002 2002 * 2003 Proforma
Chg (%)
Staff Costs 239.0 237.7 234.3 -1.5
Other Admin Costs 194.3 192.6 194.7 1.1
Depreciation 95.8 95.0 101.7 7.1
Operating Costs 529.1 525.3 530.7 1.0
* Proforma, considering the 1st semester of Credibom's activity
The rationalization plan for 2003 is proceeding, with a net reduction of 207
employees for the period. The objective for the full-year remains at net
reduction of 250 employees.
3.5 Provisioning
During the third quarter of the year, new rules related to provisions for
doubtful loans (Notice 8/2003, of January 30) came into force. This new
framework reduced the ratio of provisions for general banking risks to mortgage
loans from 1% to 0.5% as from last February, originating a surplus of existing
provisions in the balance sheet amounting to euro 39.3 million. The released
provisions must be allocated to reinforcing specific provisions for credit, as
stated in the above mentioned Notice.
Of that amount (euro 39.3 million), BES Group realocated euro 32.5 million to
specific provisions, keeping an amount of euro 6.8 million available for future
use in the balance sheet. Nevertheless, that release did not impact positively
the results for the year, as the charge for general banking risks include an
additional amount of euro 39.1 million above minimum requirements.
PROVISION CHARGE
euro million
PROVISIONS Accum. Accum.
Sep 03 Sep 02
Proforma Stated
Specific for Credit - Needs 157.8 99.9 103.4
(Transfer from generic provisions: Notice 8/2003) (32.5) (1) - -
Specific Provisions via Income Statement 125.3 99.9 103.4
Generic for Credit 50.3 (2) 33.7 33.9
Total Provisions for Credit 175.6 133.6 137.3
For Securities (1.9) 44.5 44.5
For Other Risks and Charges 24.1 9.4 9.4
For General Banking Risks 87.3 (3) (0.9) (0.9)
For Country Risk 18.9 7.0 7.0
For Equity Holdings and Other Purposes 11.0 2.6 2.6
TOTAL 314.9 196.2 199.9
(1) Balance unallocated: euro 6.8 million.
(2) Includes euro 39.1 million charge above requirements.
(3) Charge reflecting a prudent stance vis-a-vis the national and international
economic situation.
Thus, the net provision charge for the period amounted to euro 314.9 million, a
year-on-year increase of 60.5%.
Included in this, were credit provisions reinforced by 31.5% to euro 175.6
million, while other provisions reached euro 141.2 million (net euro 139.3
million), including the charge for general banking risks, which shows BES
prudent stance vis-a-vis the economic situation. The balance of the fund for
general banking risks (on the balance sheet) reached euro 101.1 million, from
euro 14.6 million in December 2002.
3.6 Extraordinary Results and Other
Extraordinary and other results include the amortization of extraordinary
pension charges, as well as an extraordinary capital gain of euro 65.3 million
from the disposal of 45% of Credibom (accomplished at the end of 1H2002). As
already mentioned, this gain was totally affected to the fund for general
banking risks, thus neutralizing the effect of the sale in net income.
4. ACTIVITY HIGHLIGHTS
Notwithstanding macroeconomic constraints domestically and world-wide, Group
BES' business continued to show strong growth, namely in terms of customer
funding, which rose by 12.5%. The progress achieved reflected the commercial
strategy pursued, which continued to rely on innovation, deeper segmentation and
sustained improvement of quality standards.
MAIN BUSINESS VARIABLES
euro million
September
2002 2002* 2003 Proforma
Chg (%)
Total Assets (1) 49,401 48,957 54,983 12.3
Net Assets 39,769 39,325 41,668 6.0
Loans to Customers (gross) 26,571 26,103 26,268 0.6
- Mortgage 9,399 9,399 9,187 -2.3
- Other Loans to Individuals 1,859 1,391 1,267 -8.9
- Corporate 15,313 15,313 15,814 3.3
Loans to Individuals / Gross
Customer Loans (%) 42.4 41.3 39.8 -2.6 p.p.
Funds
+ Deposits 17,201 17,201 17,776 3.3
+ Debt Securities 9,302 9,302 11,012 18.4
= On Balance Sheet Funds 26,503 26,503 28,788 8.6
- EMTN and Commercial Paper 4,445 4,445 4,446 0.0
= On-Balance Sheet Customer Funds 22,058 22,058 24,342 10.4
+ Off-Balance Sheet Funds 9,632 9,632 11,309 17.4
= Total Customer Funds 31,690 31,690 35,651 12.5
Transformation Ratio (%) 117 115 105 -10 p.p.
* Proforma, excluding Credibom
(1) Net Assets + Asset Management + Other Off-Balance Sheet Items
Customer loans, reflecting the adverse conditions that the Portuguese and the
international economies are going through, posted moderate growth: 0.6%
excluding securitized credit, and 3.9% including securitized credit.
euro million
Sep 02(*) Sep 03 Change (%)
Excluding Including Excluding Including Excluding Including
Securitization Securitization Securitization Securitization Securitization Securitization
Loan Portfolio 26,103 26,621 26,268 27,664 0.6 3.9
Mortgage 9,399 9,399 9,187 10,130 -2.3 7.8
Other Loans to 1,391 1,649 1,267 1,461 -8.9 -11.4
Ind.
Corporate 15,313 15,573 15,814 16,073 3.3 3.2
(*) Proforma excluding Credibom
Mortgage loans remained the most dynamic item overall, rising by 7.8%; other
loans to individuals, were down by 11.4%, reflecting an increased selectivity
criteria; corporate credit maintained the slowdown trend of the previous
quarters, growing by only 3.2%.
At the end of September, the Group announced a new securitization transaction of
its subsidiary Banco Internacional de Credito's mortgage portfolio, amounting to
euro 1 billion. The settlement is scheduled to occur during next November.
The increase in customer funds coupled with the moderate growth of customer
loans led to an improvement in the transformation ratio, from 115% in September
2002 to 105% at the end of the third quarter of 2003.
Off-balance sheet funds, namely bancassurance products and mutual funds,
continued to post a significant growth (+17.4%). This trend reflects an increase
in demand for alternative saving products, explained by the current low level of
interest rates.
5. ASSET QUALITY AND SOLVENCY
Bearing in mind the adverse economic context, the balance of credit provisions
(on balance sheet) increased by euro 134 million, above the increase of overdue
loans (+ euro 95 million).
YoY Change(*)
Sep 02 * Dec 02 * Jun 03 Sep 03 absolute relative
(%)
Loans to Customers (Eur mn) 26,103 25,318 26,018 26,268 165 0.6
(Gross)
Overdue Loans (Eur mn) 503.1 521.6 572.5 598.0 95 18.9
Overdue Loans > 90 days (Eur mn) 441.6 457.4 500.8 527.3 86 19.4
Provisions for Credit (Eur mn) 648.4 685.3 750.1 782.7 134 20.7
Overdue Loans / Loans % 1.93 2.06 2.20 2.28 0.35 p.p.
to Customers (gross)
Overdue Loans > 90 days % 1.69 1.81 1.92 2.01 0.32 p.p.
/ Loans to Customers
(gross)
Coverage of Overdue % 128.9 131.4 131.0 130.9 2.00 p.p.
Loans
Coverage of Overdue % 146.8 149.8 149.8 148.4 1.60 p.p.
Loans > 90 days
* Proforma excluding Credibom
The ratio of overdue loans over 90 days to customer loans stood at 2.01%, while
the coverage ratio remained strong: 148.4% for overdue loans over 90 days and
130.9% for total overdue loans.
The solvency ratio remains at comfortable levels: 11.3% according to the Bank of
Portugal's rules (vs. 10.7% in December 2002) and 13.3% under the BIS criteria
(December 2002: 12.6%).
In July of the current year Group BES issued preference shares in the amount of
euro 450 million. This issue aimed to reduce the foreign exchange volatility of
the capital base associated to the value of preference shares. Thus, on August
18, 2003 the Group redeemed the preference shares issued in November 1996 and
listed on the London Stock Exchange, for a total of USD 250 million.
(%)
Dec 02 Sep 03(e)
Solvency Ratio (Bank of Portugal)
- TIER I 6.06 6.79
- Total 10.74 11.28
Solvency Ratio (BIS)
- TIER I 6.99 7.82
- Total 12.61 13.30
(e) Estimate
The medium and long-term debt rating is A1, as assigned by Moody's, A- by
Standard and Poor's and A+ by FitchRatings.
6. PRODUCTIVITY
Regarding productivity and efficiency, noticeable results have been achieved
through cost containment policies, which led to further improvements in the cost
to income (at 50.4% as of September 2003). Having come this far, the Bank
maintains a 50% cost to income ratio objective, as well as a 1% limit for cost
growth, for the end of 2003.
The remaining productivity indicators also improved significantly, particularly
the "Operating Costs / Average Net Assets" and "Total Assets per Employee"
ratios.
YoY
Sep 02* Dec 02* Sep 03 Change (*)
Cost to Income (incl. markets) 55.2% 53.7% 50.4% -4.8 p.p.
Cost to Income (excl. markets) 60.8% 59.9% 59.3% -1.5 p.p.
Operating Costs / Average Net Assets 1.83% 1.85% 1.75% -0.08 p.p.
Total Assets ** per Employee (eur '000) 6,490 6,947 7,600 17.1 %
* Proforma, adjusted for Credibom
** Net Assets + Asset Management + Other off-balance sheet items
7. PROFITABILITY
Return on assets (ROA) improved year-on-year, as indicated below, positively
influenced by the securitization operations. Return on equity (ROE), based on
annualized results, stood broadly stable versus 3rd quarter of 2002.
(%)
Sep 02 Dec 02 Sep 03
Return on Equity (ROE) 11.1 13.1 11.2
Return on Assets (ROA) 0.48 0.57 0.52
8. ELECTRONIC BANKING
Concerning direct channels, the third quarter of 2003 was marked by the award of
the prize for Best Consumer Internet Bank 2003 by Global Finance magazine, the
Quality Certification of BESnet Particulares, and also by a significant increase
in internet banking activity.
The "Best Consumer Internet Bank 2003" prize highlights BES' leadership in
internet banking as the domestic bank with the highest percentage of internet
customers, roughly 40% of its customer base.
The above mentioned quality certification given to BESnet reflects its high
level of security, availability and speed. At the end of the 3rd quarter,
BESnet had 650 thousand users (year-on-year increase of 23%). This channel's
activity continued to grow at a considerable pace, with more than 9.1 million
logins during the current year - an increase of 30% versus the same period in
2002.
Low value-added operations performed through the direct channels continued to
increase their weight, representing 30.5% of total vs. 22.6% last year.
Internet banking service for corporate customers - BESnet Negocios - continued
to make good progress. The number of companies using this service has reached
32,500, a 44% increase vs. September 2002. Transactions made through BESnet
Negocios have risen by 76% year-on-year.
Banco BEST's performance remains on track, with 16,000 customers obtained and
over euro 300 million of assets under management achieved.
Users of pmelink.pt already reached 36,000 companies, of which 10,000 are
frequent users. During the first nine months of the year, the trading volume was
up by 70% year-on-year, and, due to the range of services offered, the gross
margin released during the period rose by 170% year-on-year.
9. SOCIAL INITIATIVES
After the fire calamity that has ravaged the country this year, Banco Espirito
Santo decided to contribute to the social and economic recovery of the affected
families and regions, by providing the following financial aids: a donation of
euro 1.8 million aimed at the rebuilding permanent housing, and a 10-year
subsidized credit line, also amounting to euro 1.8 million, to restore economic
activities.
These funds have been distributed to families in close cooperation with 29
affected municipalities, contributing to the rebuilding of a great number of
houses and to the restoring of small businesses.
The excellent cooperation provided by local authority members must be
emphasized, as their dedication has permitted a fast and effective distribution
of the support provided.
THE BOARD OF DIRECTORS
BANCO ESPIRITO SANTO
CONSOLIDATED BALANCE SHEET AS AT SEPTEMBER 30, 2003
(Unaudited Figures)
Sep 2002 Sep 2003
(1,000 EUR) (1,000 EUR)
ASSETS
Cash and deposits at Central Banks 652,177 662,483
Loans and advances to credit institutions repayable on demand 599,735 471,496
Other loans and advances to credit institutions 4,154,061 5,774,460
(Provisions) (8,461) (43,267)
Loans and advances to customers 26,570,821 26,267,607
(Provisions) (360,017) (419,587)
Bonds and other fixed income securities 3,720,442 4,467,473
(Provisions) (65,390) (57,201)
a) Issued by Government and Public entities 1,083,611 975,621
(Provisions) (5,149) (5,021)
b) Issued by other entities 2,623,108 3,478,451
(Provisions) (60,241) (52,180)
c) Own securities 13,723 13,401
Shares and other variable income securities 725,365 532,510
(Provisions) (92,888) (94,735)
Investments in associated companies 29,574 59,432
(Provisions) (2,389)
Other investments 900,522 965,701
(Provisions) (24,477) (51,716)
Intangible assets 496,867 561,457
(Amortization) (317,155) (390,819)
Tangible assets 1,041,078 884,182
(Depreciation) (617,175) (537,368)
Treasury stock
Other debtors 517,078 461,380
(Depreciations) (23,781) (23,925)
Prepayments and accrued income 1,870,267 2,181,208
TOTAL NET ASSETS 39,768,643 41,668,382
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts owed to credit institutions 7,708,675 6,837,825
a) Repayable on demand 353,554 355,750
b) With agreed maturity date 7,355,121 6,482,075
Amounts owed to customers 17,201,071 17,776,012
a) Savings accounts 2,451,942 2,249,007
b) Repayable on demand 6,219,391 6,800,238
c) With agreed maturity date 8,529,738 8,726,767
Debt securities 9,301,705 11,011,844
a) Outstanding Bonds 7,996,456 8,953,509
b) Other securities 1,305,249 2,058,335
Other liabilities 276,272 280,896
Accruals and deferred income 635,255 839,580
Provisions for liabilities and charges 360,553 414,545
a) Pension plan and equivalent charges 424
b) Other provisions 360,129 414,545
Provisions for general banking risks 60,495 101,106
Subordinated debt 1,680,477 1,679,878
Share capital 1,500,000 1,500,000
Share premium 300,000 300,000
Reserves 37,471 55,585
Revaluation reserves
Retained earnings
Minority interests 568,584 714,537
Consolidated net income for the period 138,085 156,574
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 39,768,643 41,668,382
BANCO ESPIRITO SANTO
CONSOLIDATED INCOME STATEMENT AS AT SEPTEMBER 30, 2003
(Unaudited Figures)
Sep 02 Sep 03
(1,000 EUR) (1,000 EUR)
CREDIT
Interest income 1,691,658 1,603,258
Income from securities 9,725 16,073
Commissions 254,569 287,935
Profits arising from trading activity 2,571,807 1,840,152
Write-back of provisions 133,497 178,903
Income arising from the equity method of consolidation 1,941 6,268
Other operating income 73,270 85,633
Extraordinary gains 17,403 81,801
Minority interests 3,359 2,002
TOTAL CREDIT 4,757,229 4,102,025
DEBIT
Interest expense 1,103,126 1,047,783
Commissions 41,113 34,660
Losses arising from trading activities 2,493,698 1,698,254
General administrative costs 433,273 428,993
a) Staff costs 239,010 234,272
b) Other administrative costs 194,263 194,721
Depreciation 95,793 101,743
Other operating expenses 4,708 5,336
Provisions for loan losses and other risks 330,491 488,127
Provisions for investments 2,929 5,715
Extraordinary losses 44,065 49,603
Income taxes 31,892 45,929
Other taxes 8,062 6,720
Losses arising from the equity method of consolidation 733 2,284
Minority interests 29,261 30,304
Consolidated net income for the period 138,085 156,574
TOTAL DEBIT 4,757,229 4,102,025
This news release may include certain statements relating to the Banco Espirito
Santo Group that are neither reported financial results nor other historical
information. These statements which include (targets, forecasts, projections,
descriptions of anticipated cost savings, statements regarding the possible
development or possible assumed future results of operations) and any statement
preceded by, followed by or that includes the words "believes", "expects",
"aims", "intends", "may" or similar expressions or negatives thereof are or may
constitute forward-looking statements within the meaning of the United States
Private Securities Litigation Reform Act of 1995, regulations, and case law.
By their nature, forward-looking statements are inherently predictive,
speculative and involve risk and uncertainty. There are a number of factors
that could cause actual results and developments to differ materially from those
expressed or implied by forward-looking statements. These factors include, but
are not limited to, changes in economic conditions in individual countries in
which the BES Group conducts its business and internationally, fiscal or other
policies adopted by various governments and regulatory authorities of Portugal
and other jurisdictions, levels of competition from other banks and financial
services companies as well as future exchange and interest rates. (Certain of
the factors that could affect actual results and developments are described in
Banco Espirito Santo's Annual Report and Form 20-F under the heading "Risk
Factors".)
Banco Espirito Santo does not undertake to release publicly any revision to the
forward-looking information included in this news release to reflect events,
circumstances or unanticipated events occurring after the date hereof.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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