Banco Espirito Santo (BES; Bloomberg BESNN PL; Reuters BESN.IN)
today announced its 1Q2005 results. HIGHLIGHTS -- BES Group posted
considerable first quarter growth in the main business areas: total
customer funds were up by 8.9% and total customer loans by 10.5%.
-- Banking income rose by 18.2%. Net income for the quarter, driven
by high trading results, reached euro 80.3 mn, corresponding to ROE
of 14.9%. -- Operating costs dropped by 6.1% due to lower pension
costs related to retirements and to a considerable reduction
(-17.5%) in depreciation and amortisation. -- Provisions for
credit, in line with the previous policy, were strongly reinforced
by euro 66.1 mn (+13.3%). In addition to this amount, BES made an
exceptional provision charge of euro 27 mn during this quarter, due
to the very recent implementation of the IFRS impairment models. --
Stable asset quality: ratio of overdue loans over 90 days at 1.65%
and respective provision coverage at 173.8% (Mar 04: 147%, Dec 04:
167%). -0- *T INDEX 1. Prior Note on the New Regulatory Framework
2. Activity and Results in the 1st Quarter of 2005 2.1 Economic
Environment 2.2 Results a. Net Interest Income b. Fees and
Commissions c. Income from Financial Operations and Sundry d.
Operating Costs 2.3 Activity Highlights 2.4 Asset Quality,
Provisioning and Solvency 2.5 Productivity 2.6 Profitability 2.7
Bank of Portugal Reference Indicators 2.8 Electronic Banking 3.
Impacts of Transition to the IFRS 3.1 Adjustments to Opening
Consolidated Balance Sheet (1/JAN/05) 3.2 Adjustments to
Consolidated Income Statement for the Year Ended 31 December 2004
3.3 Regulatory Impacts *T 1. Prior Note on the New Regulatory
Framework Regulation no. 1606/2002 of 19/Jul/02 of the European
Council and Parliament determines that companies having securities
admitted to trading on a regulated market of any Member State
should prepare their consolidated accounts for each financial year
starting on or after 1 January 2005 in accordance with the
International Financial Reporting Standards (IFRS), also known as
International Accounting Standards (IAS). After this regulation was
transposed into Portuguese national legislation, the Bank of
Portugal, through Notice no. 1/2005, established the standards and
reporting model for the entities subject to its supervision.
Bearing in mind that BES is subject to these provisions, its
financial information relative to financial 2005, including interim
financial information, was prepared based on the application of the
IFRS. However, because the adjustments of transition to the IFRS
must conform to the accounting and fiscal regulations in force on
the date of closing of the 2005 financial year (in this case, 31
December 2005), the quantification of the effects of transition to
the IFRS reported in this document must be considered as
provisional and subject to changes, which, depending on the actual
regulations on that date, could be materially relevant. On the
other hand, and also deriving from the change in accounting
regulations, we point out that the financial statements of BES
Group for financial 2005 (prepared in accordance with the IFRS/IAS)
are not directly comparable with the financial statements disclosed
in the course of 2004, which had been prepared based on the
regulations of the Portuguese Plan of Accounts for the Banking
System (PABS), as set out in the Bank of Portugal's instructions
no. 4/96 and 71/96. Hence, having in mind the comparability of the
financial statements, and in line with the recommendations of the
Committee of European Securities Regulators (CESR) and the
Portuguese Securities Market Commission (CMVM), BES Group has
restated its financial statements for financial year 2004 based on
application of the IAS/IFRS with the exceptions, as permitted by
IFRS 1, of comparable information that would arise from application
of IAS 32 and IAS 39. With regard to the individual accounts, and
only to these in so far as the consolidated accounts were prepared
in accordance to the IFRS, and as determined by the Bank of
Portugal Instruction no. 23/2004, the financial statements relative
to 2005 and following years are prepared and presented in
accordance with the Adjusted Accounting Standards (AAS), which
provide a reference framework that is relatively close to that of
the IAS/IFRS, except on the following matters: -- it maintains the
method of valuation and provisioning of loans granted; -- it defers
the accounting adjustment arising from recognition of certain
liabilities with retirement pensions and post-retirement health
benefits; -- it does not permit valuation of tangible assets at
fair value. 2. Activity and Results in the 1st Quarter of 2005 2.1.
Economic Environment Although under strong constraints associated
to the upward trend in the price of commodities - the barrel price
of Brent climbed by 33%, to USD 53,4 - and despite the fact that
some indicators point to a deceleration in economic activity, the
world economy maintained a relatively strong growth pace in the 1st
quarter of 2005. In the United States, the favourable performance
of domestic demand and the increased capacity of companies to pass
on higher production costs to final prices, led to a stepping up of
inflationary pressures. The Federal Reserve thus raised the target
fed funds rate by 50 basis points, to 2.75%. In the Euro Area,
economic activity accelerated moderately in the first three months
of 2005, with the GDP growth rate rising from 0.2% to 0.4%.
Corporate restructuring efforts translated into a continuous
deceleration of unit labour costs and in turn determined the
absence of any inflationary pressures of note. The European Central
Bank therefore maintained the interest rate for the main
refinancing operations at 2%, while the yield on 10-year public
debt securities dropped from 3.68% to 3.62%. With stock markets
affected by the upward trend of oil prices and growing expectations
of interest rate hikes in the Unites States, the Nasdaq fell by
8.1% while the general Dow Jones and S&P 500 indices registered
negative changes in the region of 2.6%. In Europe, the main stock
market indices all gained ground, with the Paris CAC 40, the
Frankfurt DAX and the IBEX 35 rising by respectively 6.45%, 2.18%
and 1.96%. In Portugal, domestic demand maintained a favourable
performance during the 1st quarter of 2005, backed by a slight
recovery in consumer confidence, which nevertheless remained at
historically low levels. Less positive signs continued to come from
industrial production and the constructing industry, as well as
from the external accounts. With regard to the stock market, the
PSI 20 gained 2.45%. 2.2 Results Net income for the first three
months of 2005 totalled euro 80.3 mn, which compares with euro 67.2
mn in the first quarter of 2004, under the accounting regulations
in force at the time (PABS), or euro 26.7 mn, under the IFRS(1). We
remind that the 2004 results, as restated on an IFRS basis, were
negatively influenced by disability retirement costs that occurred
in the first quarter of 2004 (euro 20 mn). The chart below shows
the income statement for the first quarter of the year together
with the 2004 comparative data -0- *T Income Statement Euro million
----------------------------------------------------------------------
March ----------------------- 2004 2004 2005 % Chg PABS IFRS IFRS
IFRS
----------------------------------------------------------------------
----------------------------------------------------------------------
Net Interest Income 178.4 179.1 178.8 -0.2 (+)Fees and Commissions
130.6 130.6 130.0 -0.5 (=)Commercial Banking Income 309.0 309.7
308.8 -0.3 (+)Trading and Other Results 26.5 15.1 75.1 - (=)Banking
Income 335.5 324.8 383.9 18.2 (-)Operating Costs 180.6 212.4 199.5
-6.1 (=)Gross Results 154.9 112.4 184.4 64.1 (-)Net Provisions 64.6
64.6 88.2 36.5 Credit 58.3 58.3 66.1 13.3 Securities -1.1 -1.1 1.8
- Other 7.4 7.4 20.3 - (=)Income before Taxes and Minorities 90.3
47.8 96.2 101.2 (-)Taxes 13.1 14.2 14.9 4.9 (=)Income after Taxes
77.2 33.6 81.3 - (-)Minority Interests 10.0 6.9 1.0 -85.5 (=)Net
Income 67.2 26.7 80.3 -
----------------------------------------------------------------------
(1) IAS 32 and 39 were not applied in 2004, based on IFRS 1. *T a.
Net Interest Income(2) Net interest income reached euro 178.8 mn,
corresponding to a year-on-year evolution of -0.2%% that is aligned
to the trend of previous quarters (up to Sep/04: -4.5%; full 2004:
-3.5%) and mainly explained by the following effects: -- The
pressure felt on credit spreads, particularly in lower risk
segments, combined with the persistence of conditions that hamper
the profitability of funds due to the historically low level of
Euro interest rates; and -- The positive effect of the credit
portfolio evolution, which grew by 7.7% in the 1st quarter of 2005
versus the same period last year. Another factor adds on to the two
referred, arising from the coming into force of the IFRS, which
introduced more restrictive criteria in the definition of hedging
policies. This obliged, as from 1 January 2005, to reclassify part
of the derivatives transactions from the hedging to the trading
portfolio, implying that the corresponding results recognized as
results from financial operations instead of net interest income
but. b. Fees and Commissions(3) Fees and Commissions show the usual
volatility of the start of a new year, totalling euro 130.0 mn,
which corresponds to a year-on-year increase of 6.7%, on a
comparable basis, adjusted for the effect of the investment banking
fees, and also for the upfront fees related to credit operations
(accrued instead of being recognised at the transaction date). -0-
*T Euro million
----------------------------------------------------------------------
1st Quarter % Chg ------------------------ 2004 2005
----------------------------------------------------------------------
----------------------------------------------------------------------
Fees and Commissions based on applicable rules 130.6 130.0 -0.5
Investment Banking Effect (17.7) (13.2) -
------------------------------ 112.9 116.8 3.5
------------------------------ Deferred Commissions effect (3.4) -
-
======================================================================
Comparable Commissions and Fees 109.5 116.8 6.7
----------------------------------------------------------------------
(2) Difference between "Interest and similar income" and "Interest
and similar costs" in the income statement (3) Includes:
"Commissions and other similar income" + part of "Other net income
from banking activity" - "Commissions and other similar expenses".
*T 3.3 Capital Markets and Other Results(4) The adoption of the
IFRS brought major changes to the analysis of trading results,
which arise from the following: -- Under the new classification and
contrary to the previous method, securities portfolios must be
subject to the principle of revaluation at fair value (marked to
market or fair valued), whether or not they are held to maturity,
with potential impacts on the income statement or equity. -- The
introduction of more restrictive criteria in the definition of
hedging policies, specifically when derivatives are used, which
increases their volatility. In the 1st quarter of 2005 the
financial markets were characterised by increased volatility, at
the level of both equities and interest rates. Long-term rates
witnessed an upward trend, which was slighter in the Euro and
steeper in the USD (unlike what happened in the 1st quarter of
2004, when both markets had experienced sharp drops). On the equity
markets' front, the 1st quarter performance was mainly driven by
the very positive behaviour of the emerging markets, in particular
Brazil, having been sluggish in Europe, including Portugal, and
negative in the North-American market. BES Group's capital market
results reached euro 79.6 mn in the 1st quarter of 2005. These
results were positively influenced by gains in long-term interest
rate and FX, amounting to euro 71.3 mn, and also from profits in
equity positions, notably in the Brazilian market, which globally
totalled euro 8.3 mn. d. Operating Costs The good progress made by
operating costs (a reduction of 6.1%) was underpinned by a policy
of streamlining investment, with impacts on depreciation and
amortisation (-17.5%), and staff cost reduction of 15.4%. The drop
in staff costs stemmed from the evolution of pension costs, which
in the 1st quarter of 2004 had been influenced by retirement costs
of euro 20 mn. -0- *T Operating Costs Euro million
----------------------------------------------------------------------
1st Quarter % Chg ------------------------------------ 2004 2004
2005 PABS IFRS IFRS IFRS
----------------------------------------------------------------------
----------------------------------------------------------------------
Staff Costs 80.4 117.8 99.6 -15.4 Salaries 73.9 85.2 86.6 1.6
Pensions 6.5 32.6 13.0 -60.1 Other Admin Expenses 67.1 69.4 79.1
14.0 Depreciation and Amortisation 33.1 25.2 20.8 -17.5
----------------------------------------------------------------------
Operating Costs 180.6 212.4 199.5 -6.1
----------------------------------------------------------------------
*T A note to the fact that the 2005 staff costs already include the
accrual of employee bonuses, which will naturally be subject to
adjustments during the year. Other administrative costs, up by 14%,
continue to be affected by expenses related to the adaptation of
systems for compliance with Basel II and for the introduction of
the IFRS, totalling euro 6 mn. Excluding this effect,
administrative costs would have risen by 5.3%. 2.3 Activity
Highlights BES Group's activity during the first quarter of the
year continued to focus on the following key commercial factors: --
Differentiation through quality; -- Commitment to the higher value
Clients and products; -- Specific value proposition for the clients
of Tranquilidade. The measures taken translated into business
growth, with total customer funds rising by 8.9% and customer loans
increasing by 10.5%, including securitised credit. -0- *T Main
Business Variables Euro million
----------------------------------------------------------------------
March % Chg --------------------------- 2004 2004 2005 PABS IFRS
IFRS IFRS
----------------------------------------------------------------------
----------------------------------------------------------------------
Total Assets(1) 59,234 56,428 64,830 14.9
----------------------------------------------------------------------
Net Assets 42,455 40,040 45,344 13.2 Gross Loans (including
securitised) 28,639 28,767 31,780 10.5 Mortgage 10,477 10,477
11,455 9.3 Other Loans to Individuals 1,488 1,488 1,651 10.9
Corporate 16,674 16,802 18,674 11.1 Loans to Individuals / Gross
Loans (%) (2) 37.7 37.5 35.5 -2.0 p.p. Customer Funds (+) Deposits
18,528 18,580 18,738 0.9 (+) Debt Securities placed with Customers
7,085 5,267 6,164 17.0 (=) On-Balance Sheet Customer Funds 25,613
23,847 24,902 4.4 (+) Off- Balance Sheet Customer Funds 12,480
12,480 14,651 17.4 (=) Total Customer Funds 38,093 36,327 39,553
8.9
----------------------------------------------------------------------
Transformation Ratio (%) (2) 100 110 113 3 p.p.
----------------------------------------------------------------------
(1) Net Assets + Asset Management + Other Off-Balance Sheet Funds +
Securitised Credit (2) Considering On- Balance Sheet Credit *T With
regard to customer funds, the Group was particularly active in the
placement of debt securities (certificates of deposit and bonds)
and in the distribution of off-balance sheet products (mutual funds
and bancassurance), which increased by 17.4%. On the lending side,
the Group was also quite dynamic, with mortgage loans rising by
9.3%, corporate loans by 11.1% and other loans to individuals by
10.9%. Included in other loans to individuals, Plano BES 95
achieved a stock of euro 134 mn at the end of the quarter, which
almost entirely explains the increase achieved. -0- *T Loans to
Customers Euro million
----------------------------------------------------------------------
Mar,04 IFRS Mar,05 IFRS
--------------------------------------------------- Excluding
Including Excluding Including securitised securitised securitised
securitised credit credit credit credit
----------------------------------------------------------------------
----------------------------------------------------------------------
Gross Loans 26,867 28,767 28,936 31,780 Mortgage 8,615 10,477 8,611
11,455 Other Loans to Individuals 1,450 1,488 1,651 1,651 Corporate
16,802 16,802 18,674 18,674
----------------------------------------------------------------------
Euro million --------------------------------------------- Chg IFRS
(%) -------------------------- Excluding Including securitised
securitised credit credit
---------------------------------------------
--------------------------------------------- Gross Loans 7.7 10.5
Mortgage 0.0 9.3 Other Loans to Individuals 13.8 10.9 Corporate
11.2 11.1 --------------------------------------------- *T During
the 1st quarter of 2005 BES Investimento (BESI) continued to
perform well: -- In M&A (i) financial advisory to the
shareholders on the sale of 100% of the share capital of
pharmaceutical Jaba, and (ii) financial advisor to Nutasa Group in
the sale of the animal feed business to Saprogal (Carlyle Group).
-- In project finance, among others (i) co-leader in the euro 150
mn financing of phase 3 of the M5 motorway (Hungary); (ii) the
financing of the Chicago SkyWay motorway; and financial advisor in
the structuring of the Trakia (Bulgaria) motorway concession, in
the amount of euro 750 mn. -- In equity capital markets, co-leader
in the private placement of Mota-Engil shares, in the amount of
euro 110.25 mn. -- In debt capital markets, leader in the issues of
Eurobonds by Portugal Telecom (euro 1,500 mn) and REFER (euro 600
mn), and also by Brazilian issuers, namely Banco Mercantil do
Brasil (USD 30 mn), BGN (USD 50 mn) and Bradesco (euro 100 mn); --
In brokerage, the main highlight goes to the increase in business
with institutional clients, and to a rise of 83% in assets under
management in the Portfolio management business. In the 1st quarter
of 2005 ESAF's assets under management totalled euro 14.7 bn, which
corresponds to a market share of 16.9%. Also noteworthy was the
growth achieved in Mutual Funds - 10.4% - significantly
outperforming the market. In Asset Management ESAF also performed
very well, reaching a market share of 23%, and in Real Estate Funds
it maintained the leadership of the Portuguese market, with a
market share of 19.5%. In this quarter ESAF was distinguished by
S&P with the prize for "Best Fund Management Company in
Portugal" in 2004. During this quarter Banco Espirito Santo (Spain)
- BESSA concluded the acquisition of Banco Inversion and initiated
the process of integrating its commercial network and asset
managers. This operation boosted the amount of assets under
management in Spain to euro 1,750 mn. With regard to the higher
value clients, the progress made in the 360(degree) and Small
Businesses segments deserves a note. The results achieved in the
360(degree) segment, which completed its first year in February,
clearly prove that it was a correct decision to launch this new
approach. During this first year financial involvement grew by 12%
and new clients totalled 12,000. The segment of Small Businesses
also had a good performance, with loyal clients rising by 5%
year-on-year and financial involvement growing by 13%. In 2005
Banco Espirito Santo and Companhia de Seguros Tranquilidade
initiated a new phase of the Assurfinance Programme, aiming to
develop a new approach to the customers of Tranquilidade which are
not BES clients. A specific value proposition was designed for the
purpose, including a star product (T Card), which automatically
gives the cardholders special advantages. (4)Includes: "Gains and
losses in financial assets held for trading" + "Gains and losses in
financial assets available for sale" + "Gains and losses in foreign
exchange revaluation" + part of "Other net income from banking
activity" + "Equity in earnings of associated companies" + "Gains
and losses in the sale of other assets". 2.4 Asset Quality,
Provisioning and Solvency The introduction of the IFRS led to
significant changes in the provisioning rules: -- in loans granted,
the methodology now applied is that set out in the IFRS to
determine impairment, which differs from the former one by
extending the method for discounting cash flows to all segments of
credit; -- in the portfolio of securities available for sale,
unrealised capital losses in securities are no longer fully
provisioned, but only when there is evidence of impairment; -- with
regard to the remaining assets and contingencies, there are no
significant changes versus the former policy adopted by the Group.
Notwithstanding the change in the regulatory framework of
provisions, at the transition to the IFRS, BES Group made an
adjustment of euro 20 mn in provisions for credit, mainly through
application of the discount technique to some categories of credit
for which provisions were not being calculated under this method.
With regard to the provision charge in the quarter and bearing in
mind that impairment is now calculated using a new methodology,
which requires the collection of sufficiently far-reaching and
tested statistical data, it was considered prudent to make an
exceptional reinforcement of provisions of euro 27 mn above the
needs identified so far, and which may be subject to revision
during the year. Besides this exceptional provision charge,
provisions for credit were also increased (+13.3%), with a positive
impact on the coverage ratios of overdue loans. -0- *T Asset
Quality
----------------------------------------------------------------------
Mar 04 Mar 04 Mar 05 Change IFRS PABS IFRS IFRS
-------------------- absolute relative(%)
----------------------------------------------------------------------
----------------------------------------------------------------------
Gross Loans (eur mn) 26,348 26,867 28,936 2,069 7.7 Overdue Loans
(eur mn) 580.9 586.0 556.5 -29.5 -5.0 Overdue Loans greater than 90
days (eur mn) 511.4 511.4 478.4 -33.0 -6.5 Overdue and Doubtful
Loans (BoP) (a) (eur mn) 565.5 565.5 628.0 62.5 11.1 Provisions for
(eur mn) Credit 751.6 751.7 831.4 79.8 10.6
----------------------------------------------------------------------
----------------------------------------------------------------------
Overdue Loans / Gross Loans % 2.20 2.18 1.92 -0.26 p.p. Overdue
Loans greater than 90 Days / Gross Loans % 1.94 1.90 1.65 -0.25
p.p. Overdue and Doubtful Loans / Gross Loans % 2.15 2.10 2.17 0.07
p.p. Coverage of Overdue Loans % 129.4 128.3 149.4 21.1 p.p.
Coverage of Overdue Loans greater than 90 Days % 147.0 147.0 173.8
26.8 p.p. Coverage of Overdue and Doubtful Loans % 132.9 132.9
132.4 -0.5 p.p.
----------------------------------------------------------------------
(a) According to BoP Circular-Letter no. 99/03/2003 *T Overdue
loans declined by euro 29.5 mn year-on-year, which compares with an
increase of euro 79.8 mn in provisions for credit. As a result, the
ratio of overdue loans over 90 days dropped to 1.65% (Mar 04:
1.90%) while its coverage by provisions increased to 173.8% (Mar
04: 147.0%). The solvency ratio remained at the same level reached
at the end of 2005 (Bank of Portugal). -0- *T Solvency Euro million
----------------------------------------------------------------------
Dec 04 Mar 05 (a)
----------------------------------------------------------------------
----------------------------------------------------------------------
Risk Weighted Assets 34,754 33,777 Regulatory Capital Tier I 2,343
2,302 Tier II 1,912 1,903 Deductions ( 65) ( 35)
------------------------ 4,190 4,170 Preference Shares 600 600
----------------------------------------------------------------------
Tier I (%) 6.74 6.82 Core Tier I (%) 5.02 5.04 Total (%) 12.06
12.35
----------------------------------------------------------------------
(a) Estimate *T As referred in a specific point of this report on
the regulatory impacts of IFRS adjustments, the impact on Tier I
capital will be deferred, of which euro 139 mn will impact 2005
ratio. The medium and long-term debt ratings assigned by Moody's
(A1), FitchRatings (A+) and Standard and Poor's (A-) reflect the
strong competitive positioning of the Group in Portugal, its
adequate risk and asset quality levels and a comfortable solvency
level. 2.5 Productivity In terms of productivity and efficiency,
BES Group continued to progress in line with the previous trend,
registering sustained gains both in Cost to Income and in
productivity indicators, particularly in the "Total Assets per
Employee" ratio, which rose by 16.0%. -0- *T Productivity Mar 04
Mar 04 Mar 05 Chg PABS IFRS IFRS IFRS
----------------------------------------------------------------------
----------------------------------------------------------------------
Cost to Income (incl. Capital Markets) 53.8% 65.4% 52.0% -13.4 p.p.
Cost to Income (excl. Capital Markets) 58.4% 68.6% 64.6% -4.0 p.p.
Operating Costs / Average Net Assets 1.70% 2.13% 1.84% -0.29 p.p.
Total Assets (*) per Employee (eur '000) 8,118 7,733 8,971 16.0%
----------------------------------------------------------------------
(*) Net Assets + Asset Management + Other Off-Balance Sheet Funds +
Securitised Credit *T 2.6 Profitability Based on the quarter's
annualised results, Return on equity (ROE) was 14.9% and Return on
Assets (ROA) 0.74%. -0- *T Profitability (%)
------------------------------------- Mar 05
-------------------------------------
------------------------------------- Return on Equity (ROE) 14.9
Return on Assets (ROA) 0.74 -------------------------------------
*T 2.7 Bank of Portugal Reference Indicators According to Bank of
Portugal Instruction no. 16/2004, credit institutions should
disclose reference indicators (calculated in accordance with the
methodology set forth in the above mentioned regulation), when
releasing information concerning Solvency, Credit Quality,
Profitability and Efficiency. The table below lists these
indicators for both March 2005 and 2004. -0- *T Bank of Portugal
Indicators (%)
----------------------------------------------------------------------
Mar 04 Mar 04 Mar 05 PABS IFRS IFRS
----------------------------------------------------------------------
SOLVENCY
----------------------------------------------------------------------
Regulatory Capital / Risk Weighted Assets 11.41 11.41 12.35 Tier I
Capital / Risk Weighted Assets 6.95 6.95 6.82 ASSET QUALITY
----------------------------------------------------------------------
Overdue & Doubtful Loans (a)/ Gross Loans 2.15 2.10 2.17
Overdue & Doubtful Loans Net of Provisions (b) / Net Loans (b)
0.56 0.55 -0.72 PROFITABILITY
----------------------------------------------------------------------
Income before Taxes and Minorities / Average Equity ( c) 13.86 7.50
14.90 Banking Income (d) / Average Net Assets 3.15 3.25 3.54 Income
before Taxes and Minorities / Average Net Assets 0.85 0.48 0.89
EFFICIENCY
----------------------------------------------------------------------
General Admin Costs (d)+ Depreciation / Banking Income (d) 54.0
65.4 52.0 Staff Costs / Banking Income (d) 24.0 36.3 25.9
----------------------------------------------------------------------
(a) Calculated according to BoP Circular Letter no. 99/03/2003 (b)
Credit net of provisions for overdue loans and for doubtful loans
(c) Includes Average Minorities (d) Calculated according to BoP
Instruction no 16/2004 *T 2.8 Electronic Banking The first quarter
of 2005 consolidated a trend for an increasing penetration of BES
Group's direct channels. The number of users of Internet Banking
for individual customers - BESnet - reached 718,000 in March,
corresponding to a year-on-year increase of 6%. The number of
logins and transactions continued to grow at a sustained pace,
rising year-on-year by respectively 14% and 13%. Visitors to the
site averaged 2.3 million per month between January and March,
corresponding to an increase of 17% compared to the first quarter
of 2004. The number of companies using the Internet banking service
for corporate customers - BESnet Negocios - surpassed 38,000, a
year-on-year increase of 13%. Logins were up by 27% and
transactions by 51%, proving the importance of this channel as a
transactional support to the companies' activity. Pmelink.pt, an
online business centre for companies promoted under a joint venture
between BES, CGD and PT, already has more than 16,500 companies as
customers, a year-on-year increase of 25%. Through this expansion
in the customer base, the number of purchases made through this
channel rose by 14% versus the 1st quarter of 2004. Banco BEST, a
joint initiative of BES and PT, continued to capitalise of a
differentiated value proposition addressed to the affluent segment,
having already reached 37 thousand clients. Assets under management
totalled euro 422 mn, corresponding to an increase of 10% versus
December 2004. 3. Impacts of Transition to the IFRS 3.1 Adjustments
to the Opening Consolidated Balance Sheet (1 Jan 05) The changes
introduced in the accounting policies led to the following
adjustments to the assets, liabilities and shareholders' equity in
BES Group's consolidated balance sheet as of 31 December 2004: -0-
*T Euro million
----------------------------------------------------------------------
Balance Balance Sheet as at Securities Pensions Consolidation SIBA
Dec 31, of SPE and 2004 Bonuses PABS
----------------------------------------------------------------------
----------------------------------------------------------------------
Assets Loans to Customers 27,652 282 Financial Assets with Fair
Value in Results 2,426 -2,011 Financial Assets Available for Sale
5,627 60 Deferred Taxes - 21 62 Intangible Assets 133 Other Assets
10,063 -66 -93 -100
---------------------------------------------------- 45,901 15 -31
-1,729 -100 ----------------------------------------------------
Liabilities Customer Deposits 20,371 Debt Securities 12,702 -1,607
Financial Liabilities with Fair Value in Results 647 Provisions 561
Deferred Taxes - 13 58 Other Liabilities 8,721 132 42
---------------------------------------------------- 43,002 13 190
-1,607 42 ----------------------------------------------------
Shareholders' Equity 2,254 -24 -221 -111 -142 Minority Interests
645 26 -11
----------------------------------------------------------------------
Liabilities + Equity + Minorities 45,901 15 -31 -1,729 -100
----------------------------------------------------------------------
Euro million
----------------------------------------------------------------------
Balance Sheet Preference FGBR Intangible Other adjust. Balance
Shares Assets and as at Reclassific.(*) Jan 1, 2005 IFRS
----------------------------------------------------------------------
----------------------------------------------------------------------
Assets Loans to Customers -253 27,681 Financial Assets with Fair
Value in Results 2,237 2,652 Financial Assets Available for Sale
-2,489 3,198 Deferred Taxes 12 161 256 Intangible Assets -48 -1 84
Other Assets -675 9,129
---------------------------------------------------- -36 -1,020
43,000 ----------------------------------------------------
Liabilities Customer Deposits 48 20,419 Debt Securities -876 10,219
Financial Liabilities with Fair Value in Results 204 851 Provisions
-140 -337 84 Deferred Taxes 85 156 Other Liabilities -17 -154 8,724
---------------------------------------------------- -17 -140 0
-1,030 40,453 ----------------------------------------------------
Shareholders' Equity 617 140 -36 -9 2,468 Minority Interests -600
19 79
----------------------------------------------------------------------
Liabilities + Equity + Minorities 0 0 -36 -1,020 43,000
----------------------------------------------------------------------
(*) Includes reclassifications inherent to the opening balance *T
As the chart above shows, these adjustments had a positive impact
on shareholders' equity, which rose from euro 2,254 mn to euro
2,468 mn. This increase - euro 214 mn - can be split between two
main components: the first concerns the eligibility for capital of
preferred shares amounting to euro 600 mn; the second, totalling
euro 386 mn, reflects negative impacts of the transition
adjustments in the remaining items of the consolidated balance
sheet. The adjustments made are briefly presented below: a)
Securities portfolio Relates to two main accounting changes:
potential capital gains in equity holdings (not recognised under
previous local rules - PABS) and the effect of potential capital
losses in financial investments that are not consolidated,
including FX effects, previously in accordance with Bank of
Portugal Notice no 4/2002. The prior investments were reclassified
as available for sale, marked to market/fair value and subject to
impairment tests. b) Retirement pensions and other employee
benefits BES Group has recalculated its pension liabilities and
other benefits. Therefore, liabilities associated with health
benefits, unrecognised past service costs and recalculation of the
corridor and actuarial deviations in the balance sheet have been
adjusted. c) Consolidation of SPEs All Special Purpose Entities
(SPE) with which BES Group establishes relations must be analysed
in light of the consolidation rules applying to such entities (and
expressed in SIC 12), namely those which may have been set up
within the scope of securitisation transactions. d) Stock-based
incentive system (SIBA) Loans to employees resulting from the sale
of shares under the SIBA programme, were accounted for as assets.
In accordance to IFRS, the shares under the SIBA programme should
be reclassified as a reduction to equity. On the other hand,
employee bonuses are now considered as staff costs. e) Fund for
General Banking Risks (FRBG) The balance of the Fund for General
Banking Risks not allocated to any purpose was transferred to
reserves, since under IFRS perspective, it can only be set up
through appropriation of reserves. f) Preferred shares Preference
shares and respective dividends were accounted for as minority
interests. Under IFRS, the preference shares issued by BES Group
are eligible to equity, and the dividends paid are charged to
reserves. g) Deferred taxes Under the previous criteria, deferred
tax assets were not recognised. The IAS 12 permits the recognition
of deferred tax assets, providing it is probable that taxable
profits will be available to absorb deductible temporary
differences (including tax losses). The above-mentioned adjustments
had been disclosed in the 2003 and 2004 annual reports. 3.2
Adjustments to Consolidated Income Statement for the Year Ended 31
December 2004 The impacts of IFRS in the 2004 income statement do
not include the effects of IAS 32 and 39, as permitted by IFRS 1.
Therefore, some of the most relevant P&L lines are not
comparable, namely net interest income, gains and losses in
financial assets held for trading and available for sale, assets
impairment, among other. The following table highlights the main
adjustments to the consolidated income statement as of December 31,
2004, which, for the above-mentioned reasons, are not fully
comparable to 2005: -0- *T Euro million
----------------------------------------------------------------------
2004 Bonuses Pensions FGBR Intangibles (PABS)
----------------------------------------------------------------------
----------------------------------------------------------------------
Interest income 2,218.0 Interest expense 1,516.8 Dividends on
securities 17.3 Net Interest Income 718.4 Credit impairment 227.0
Net Interest Income after impairment 491.5 Commissions and other
similar income 450.2 Commissions and other similar expenses 52.1
Gains and losses in financial assets held for trading (8.3) Gains
and losses in financial assets available for sale 161.5 Gains and
losses in FX 9.9 Other net income from banking activity 181.2 59.6
Banking Income (net of impairment) 1,233.9 59.6 Staff costs 330.1
42.0 110.0 Other admin expenses 289.4 9.8 Depreciation and
amortisation 130.6 (29.5) Total operating income 483.7 (42.0)
(50.4) 19.7 Securities impairment 7.5 Provisions and other
impairments net of reversals 123.3 (35.5) Equity accounted earnings
in associated companies 4.6 Gains and losses in the sale of other
assets - Income before taxes 357.5 (42.0) (50.4) 35.5 19.7 Current
taxes 42.3 Deferred taxes - 4.6 5.4 Income after taxes 315.2 (42.0)
(55.0) 35.5 14.3 Minority interests 40.0 (0.4) (1.1) Net Income
275.2 (41.6) (53.9) 35.5 14.3
----------------------------------------------------------------------
Euro million
------------------------------------------------------- SPE Other
2004 (IFRS) ------------------------------------------------------
------------------------------------------------------ Interest
income 2,218.0 Interest expense ( 3.4) 1,513.4 Dividends on
securities 17.3 Net Interest Income 3.4 721.8 Credit impairment
227.0 Net Interest Income after impairment 3.4 494.9 Commissions
and other similar income 450.2 Commissions and other similar
expenses 52.1 Gains and losses in financial assets held for trading
(8.3) Gains and losses in financial assets available for sale 161.5
Gains and losses in FX 9.9 Other net income from banking activity (
97.1) ( 3.4) 140.3 Banking Income (net of impairment) ( 97.1)
1,196.4 Staff costs 3.0 485.1 Other admin expenses 299.2
Depreciation and amortisation 101.1 Total operating income ( 97.1)
( 3.0) 311.0 Securities impairment 7.5 Provisions and other
impairments net of reversals 87.8 Equity accounted earnings in
associated companies 4.6 Gains and losses in the sale of other
assets - - Income before taxes ( 97.1) ( 3.0) 220.2 Current taxes
42.3 Deferred taxes ( 6.1) 3.9 Income after taxes ( 97.1) 3.1 174.0
Minority interests ( 10.9) 27.6 Net Income ( 86.2) 3.1 146.4
------------------------------------------------------ *T The main
adjustments made were: a) Employee bonuses: see comment 3.1 d); b)
Pensions: correspond to the amortisation of the actuarial
deviations in the balance sheet, in light of IFRS and to the costs
with curtailments associated to disability retirements. In 2004,
pension costs under IFRS would total euro 136 mn, of which euro 56
mn would be recurrent. c) Fund for general banking risks:
corresponds to the reversal of the year contribution. d) Fixed
assets: reversal of the amortisation and charge of 2004 costs that
are not compliant with IAS 38. e) Special Purpose Entities (SPE):
changes in SPE consolidated under SIC 12. 3.3 Regulatory Impacts In
accordance to Bank of Portugal Notice no 2/2005 and 4/2005, IFRS
regulatory impacts will be deferred by the following transition
periods: a) 7 years, i.e. until December 31, 2011, for health
liabilities; b) 5 years, i.e. until December 31, 2009, for
unrecognised past service costs and remaining impacts of IAS 19; c)
3 years, i.e. until December 31, 2007 for the remaining regulatory
impacts. The regulatory deferral should be made equally throughout
the transition periods, as shown in the following table: -0- *T
Euro million
----------------------------------------------------------------------
IFRS Adjustements TIER -------------------------- Transition Total
Coeff. Regulatory Period 2005 Impact (Years)
----------------------------------------------------------------------
----------------------------------------------------------------------
Securities Gains T2 101 0.45 45 3 15 Losses T1 -145 1.0 -145 3 -48
Pensions -- SAMS T1 -94 1.0 -94 7 -13 Pensions -- Other T1 -81 1.0
-81 5 -16 Consolidation of SPE T1 -110 1.0 -110 3 -37 Deferred
taxes T1 138 1.0 (a) 138 3 46 SIBA T1 -100 1.0 -100 3 -33
Impairment T1 -20 1.0 -20 0 -20 Other T1 -54 1.0 -54 3 -18
======================================================================
Total Tier I -466 -466 -139 Tier II 101 45 15
----------------------------------------------------------------------
(a) Limited to 10% of Tier I Tier I impact in 2005 totals euro 139
mn. THE BOARD OF DIRECTORS BANCO ESPIRITO SANTO, S.A. Consolidated
Balance Sheet As at March 31, 2005 Mar, 04 Mar, 04 Mar, 05 PABS
IFRS IFRS (eur '000) (eur '000) (eur '000)
----------------------------------------------------------------------
----------------------------------------------------------------------
NET ASSETS Cash and deposits at Central Banks 649,715 650,573
615,312 Loans and advances to credit institutions repayable on
demand 429,160 429,160 390,421 Other loans and advances to credit
institutions 5,940,702 5,972,999 6,004,392 Loans and advances to
customers 25,928,831 26,115,420 28,105,032 (Provisions) 751,623
751,623 831,400 Financial Assets held for trading 1,360,540
1,360,540 4,611,320 Financial Assets available for sale 4,901,167
3,560,804 3,110,119 Financial Assets with repurchase agreements - -
- Fair value of Hedging derivatives - - 59,398 Financial Assets
held to maturity 490,650 490,650 506,059 Investments in associated
companies 53,741 53,741 50,655 Non current assets held for sale
77,082 77,082 119,325 Property and equipment 339,948 339,948
391,421 Intagible assets 158,391 97,682 67,749 Current tax assets
5,582 5,582 17,078 Deferred tax assets - - 265,681 Other assets
2,119,553 885,935 1,029,695 TOTAL NET ASSETS 42,455,062 40,040,116
45,343,657
----------------------------------------------------------------------
----------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUTY Amounts owed to central banks
72,522 72,522 359,161 Amounts owed others credit institutions
5,896,674 5,915,835 6,171,074 Amounts owned to customers 18,528,139
18,580,362 18,737,583 Debt securities 11,886,884 10,069,423
12,463,843 Financial liabilities held for trading 644,853 644,853
1,355,295 Fair value of hedging derivatives - - 60,213 Non current
liabilities held for sale - - - Provisions 522,465 85,208 123,862
Subordinated debt 1,633,873 1,690,616 2,055,921 Current tax
liabilities 30,889 30,889 26,217 Deferred tax liabilities - -
165,527 Other liabilities 301,857 262,903 1,154,265 Minority
interests 773,144 791,064 91,455 Shareholders' equity 2,163,762
1,896,442 2,579,241 Share capital 1,500,000 1,500,000 1,500,000
Treasury stock - -100,174 -97,266 Share premium 300,000 300,000
300,000 Preference shares - - 600,000 Other capital instruments - -
- Revaluation reserves - - 109,027 Other reserves and retained
earnings 363,762 196,616 167,480 TOTAL LIABILITIES AND
SHAREHOLDERS' EQUTY 42,455,062 40,040,116 45,343,657
----------------------------------------------------------------------
BANCO ESPIRITO SANTO, S.A. Consolidated Income Statement As at
March 31, 2005 Mar, 04 Mar, 04 Mar, 05 PABS IFRS IFRS (eur '000)
(eur '000) (eur '000)
----------------------------------------------------------------------
----------------------------------------------------------------------
Interest Income 478,913 478,913 465,451 Interest expense 300,565
299,802 286,627 Dividends on securities 1,004 1,004 1,832
---------- ---------- ---------- Net interest income 179,352
180,115 180,656 Commissions and other similar income 100,386
100,386 109,888 Commissions and other similar expenses 9,550 9,550
18,044 Gains and losses in financial assets held for trading 15,312
15,312 16,018 Gains and losses in financial assets available for
sale 22,580 -1,386 64,119 Gains and losses in foreign exchange
revaluation 3,775 3,775 4,724 Other net income from banking
activity 22,373 34,996 24,409 ---------- ---------- ----------
Banking Income (net of impairment) 334,228 323,648 381,770 Staff
expenses 80,413 117,811 99,631 Other administrative expenses 67,058
69,374 79,061 Depreciation 33,118 25,224 20,825 ----------
---------- ---------- Total operating income 153,639 111,239
182,253 Loans impairment 58,318 58,318 66,102 Securities impairment
-1,072 -1,072 1,778 Provisions and other impairments net of
reversals 7,392 7,392 20,356 Equity in earnings of associated
companies 1,208 1,208 1,648 Gains and losses in the sale of other
assets - - 507 Income before taxes 90,209 47,809 96,172 Current
taxes 13,073 13,073 15,513 Deferred taxes - 1,147 -602 ----------
---------- ---------- Income after taxes 77,136 33,589 81,261
Minority interests 9,955 6,854 995
----------------------------------------------------------------------
Net income for the year 67,181 26,736 80,266
----------------------------------------------------------------------
*T 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 may
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 including words like
"believes", "expects", "aims", "intends", "may" or similar
expressions. 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.
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.
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