The la Caixa Group: Statutory Documentation for 2007

Transcription

1 The la Caixa Group: Statutory Documentation for 2007

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3 2007 The la Caixa Group: Statutory Documentation for 2007

4 CAJA DE AHORROS Y PENSIONES DE BARCELONA - LA CAIXA Avenida Diagonal, Barcelona, Spain Telephone: (34) Fax: (34) Telex: CAVEA E and CAIX E Website

5 CONTENTS Auditors Report 5 Consolidated Financial Statements 6 Consolidated balance sheets 6 Consolidated income statements 8 Consolidated statements of changes in equity 9 Consolidated cash flow statements 10 Notes to the consolidated financial statements 12 Directors Report 160

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7 2007 la Caixa Annual Report 5

8 Consolidated Financial Statements of the la Caixa Group Consolidated balance sheets at 31 December 2007 and 2006, before allocation of profit (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP Assets (*) Cash and balances with central banks (Note 8) 3,914,011 3,925,412 Financial assets held for trading (Note 9) 3,090,792 1,599,634 Debt instruments 2,654,764 1,360,969 Other equity instruments 59,181 12,047 Trading derivatives 376, ,618 Memorandum item: Loaned or advanced as collateral 1,511, ,257 Other financial assets at fair value through profit or loss (Note 20) 255, ,400 Debt instruments 85,348 57,592 Other equity instruments 169, ,808 Available-for-sale financial assets (Note 10) 27,738,355 21,707,859 Debt instruments 16,899,096 12,365,666 Other equity instruments 10,839,259 9,342,193 Memorandum item: Loaned or advanced as collateral 11, ,215 Loans and receivables (Note 11) 193,760, ,863,763 Loans and advances to credit institutions (Note 11.1) 31,675,851 20,670,058 Loans and advances to customers (Note 11.2) 158,642, ,231,262 Debt instruments (Note 11.3) 2,654,830 3,159,914 Other financial assets (Note 11.4) 787,230 1,802,529 Memorandum item: Loaned or advanced as collateral 43,310,660 35,880,869 Changes in the fair value of hedged items in portfolio hedges of interest rate risk ,915 Hedging derivatives (Note 12) 5,354,366 5,891,388 Non-current assets held for sale (Note 13) 234,202 53,824 Tangible assets 234,202 53,824 Investments (Note 14) 5,384,729 4,594,113 Associates 4,741,972 4,594,113 Jointly controlled entities 642,757 0 Insurance contracts linked to pensions (Note 2.12) 0 724,636 Reinsurance assets (Note 15) 49,716 14,479 Tangible assets (Note 16) 4,652,390 4,079,969 Property, plant and equipment for own use 3,536,558 3,142,515 Investment property 214, ,615 Other assets leased out under an operating lease 545, ,291 Assigned to Welfare Projects (Note 26) 355, ,548 Intangible assets (Note 17) 895,225 96,726 Goodwill 574,611 0 Other intangible assets 320,614 96,726 Tax assets 1,994,223 2,156,713 Current 528, ,045 Deferred (Note 27) 1,465,798 1,549,668 Prepayments and accrued income (Note 18) 781, ,990 Other assets (Note 18) 389, ,357 Inventories 60,903 68,905 Other 328, ,452 Total Assets 248,495, ,123,178 Memorandum items Contingent liabilities (Note 28) 9,929,498 13,606,805 Financial guarantees 9,884,312 13,559,932 Assets earmarked for third-party obligations 45,186 46,873 Contingent commitments (Note 28) 58,372,680 49,389,356 Drawable by third parties 52,558,321 46,524,908 Other commitments 5,814,359 2,864,448 (*) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 6

9 Consolidated balance sheets at 31 December 2007 and 2006, before allocation of profit (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP Liabilities and Equity (*) Liabilities Financial liabilities held for trading (Note 9) 852,594 1,136,244 Trading derivatives 410, ,649 Short positions 442, ,595 Other financial liabilities at fair value through profit or loss (Note 20) 271, ,700 Customer deposits 271, ,700 Financial liabilities at amortised cost (Note 19) 194,212, ,466,287 Deposits from central banks 34,136 0 Deposits from credit institutions (Note 19.1) 14,237,775 12,420,704 Customer deposits (Note 19.2) 127,076, ,171,945 Marketable debt securities (Note 19.3) 47,261,768 36,061,514 Subordinated liabilities (Note 19.4) 3,534,512 3,398,287 Other financial liabilities (Note 19.5) 2,067,629 1,413,837 Changes in the fair value of hedged items in portfolio hedges of interest rate risk (1,424,006) (599,434) Hedging derivatives (Note 12) 6,127,117 5,545,094 Liabilities under insurance contracts (Note 20) 17,491,918 12,643,209 Provisions (Note 21) 2,919,682 2,880,427 Provisions for pensions and similar obligations 2,355,957 2,372,052 Provisions for taxes 106, ,873 Provisions for contingent liabilities and commitments 116, ,779 Other provisions 340, ,723 Tax liabilities 2,098,987 1,793,944 Current 146, ,330 Deferred (Note 27) 1,952,947 1,622,614 Accrued expenses and deferred income (Note 18) 397, ,458 Other liabilities (Note 18) 1,594,516 1,076,162 Welfare Fund (Note 26) 667, ,034 Other 927, ,128 Equity having the substance of a financial liability (Note 22) 3,000,000 3,000,000 Total Liabilities 227,542, ,694,091 Equity Minority interests (Note 23) 3,433, ,685 Valuation adjustments (Note 24) 3,101,381 3,444,969 Available-for-sale financial assets 3,105,868 3,430,572 Cash flow hedges 13,448 (2,982) Exchange differences (17,935) 17,379 Own funds (Note 4) 14,418,249 10,769,433 Capital or endowment fund (Note 25) 3,006 3,006 Issued 3,006 3,006 Reserves 11,927,290 7,741,109 Accumulated reserves (losses) (Note 25) 10,684,872 6,366,649 Reserves (losses) of entities accounted for using the equity method (Note 25) 1,242,418 1,374,460 Associates 1,084,449 1,374,460 Jointly controlled entities 157,969 0 Profit attributable to the group 2,487,953 3,025,318 Total Equity 20,953,316 14,429,087 Total Liabilities and Equity 248,495, ,123,178 (*) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 7

10 Consolidated income statements for the years ended 31 December 2007 and 2006 (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP (*) Interest and similar income (Note 30) 9,261,588 5,923,735 Interest expense and similar charges (Note 31) (5,913,791) (3,402,703) Return on equity having the substance of a financial liability (132,820) (123,830) Other (5,780,971) (3,278,873) Income from equity instruments (Note 32) 285, ,773 Net interest income 3,633,565 2,821,805 Share of results of entities accounted for using the equity method 693, ,646 Associates 595, ,646 Jointly controlled entities 97,663 0 Fee and commission income (Note 33) 1,462,374 1,469,968 Fee and commission expense (Note 33) (205,470) (170,993) Insurance activity income (Note 34) 216,235 (204,104) Insurance and reinsurance premium income 960,981 1,200,646 Reinsurance premiums paid (11,024) (15,638) Claims paid and other insurance-related expenses (1,402,307) (1,601,208) Reinsurance income 14,780 4,289 Net provisions for insurance contract liabilities 48,828 (387,333) Finance income 613, ,490 Finance expense (8,781) (10,350) Gains/losses on financial assets and liabilities (net) (Note 35) 414,653 1,076,962 Held for trading (66,854) (15,205) Available-for-sale financial assets 447,099 1,069,890 Loans and receivables 2 5 Other 34,406 22,272 Exchange differences (net) 94, ,980 Gross income 6,308,428 5,626,264 Sales and income from the provision of non-financial services (Note 36) 287, ,105 Cost of sales (Note 36) (85,756) (133,281) Other operating income (Note 37) 236, ,072 Personnel expenses (Note 38) (1,949,868) (1,783,174) Other general administrative expenses (Note 39) (865,032) (832,023) Depreciation and amortisation (405,492) (410,072) Tangible assets (Note 16) (345,020) (356,610) Intangible assets (Note 17) (60,472) (53,462) Other operating expenses (Note 40) (57,779) (76,903) Net operating income 3,468,887 3,116,988 Impairment losses (net) (Note 41) (581,536) (478,479) Available-for-sale financial assets (793) (1,069) Loans and receivables (573,243) (473,754) Non-current assets held for sale (16) 630 Investments Tangible assets (7,511) (4,587) Goodwill 0 0 Other assets 0 0 Provisions (net) (Note 21) (205,021) (460,636) Finance income from non-financial activities (Note 42) 7,045 9,212 Finance expenses of non-financial activities (Note 42) (11,700) (61,111) Other gains (Note 43) 102,251 1,949,761 Gains on disposal of tangible assets 61,820 54,522 Gains on disposal of investments 2,126 1,859,582 Other 38,305 35,657 Other losses (Note 43) (55,017) (62,685) Losses on disposal of tangible assets (158) (555) Losses on disposal of investments (157) (473) Other (54,702) (61,657) Profit before tax 2,724,909 4,013,050 Income tax (Note 27) (99,796) (870,424) Mandatory transfer to welfare funds 0 0 Profit from ordinary activities 2,625,113 3,142,626 Profit from discontinued operations (net) 0 0 Consolidated profit for the year 2,625,113 3,142,626 Profit attributable to minority interests (Note 23) (137,160) (117,308) Profit attributable to the Group 2,487,953 3,025,318 (*) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46), In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 8

11 Consolidated statements of changes in equity (*) (Statements of Recognised Income and Expenses) for the years ended 31 December 2007 and 2006 (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP (**) Net income recognised directly in equity (Note 24) 529,796 (267,010) Available-for-sale financial assets 549,152 (271,581) Revaluation gains/losses 1,268,476 1,640,265 Amounts transferred to income statement (374,691) (807,942) Income tax (344,633) (1,103,904) Reclassifications 0 0 Other financial liabilities at fair value 0 0 Cash flow hedges 21,673 52,212 Revaluation gains/losses 31,980 52,279 Amounts transferred to income statement (6,128) 11,979 Amounts transferred to the initial carrying amount of hedged items 0 0 Income tax (4,179) (12,046) Reclassifications 0 0 Hedges of net investments in foreign operations 0 0 Exchange differences (41,029) (47,641) Translation gains/losses (41,087) (47,641) Amounts transferred to income statement 0 0 Income tax 58 0 Reclassifications 0 0 Non-current assets held for sale 0 0 Consolidated profit for the year 2,625,113 3,142,626 Published consolidated profit for the year 2,625,113 3,142,626 Adjustments due to changes in accounting policy 0 0 Adjustments made to correct errors 0 0 Total income and expense for the year 3,154,909 2,875,616 Parent 2,144,365 2,730,475 Minority interests 1,010, ,141 (*) See Note (**) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 9

12 Consolidated cash flow statements (*) (1/2) for the years ended 31 December 2007 and 2006 (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP (**) 1. Cash flows from operating activities Consolidated profit for the year 2,625,113 3,142,626 Adjustments to profit: 781, ,412 Depreciation of tangible assets (+) 345, ,610 Amortisation of intangible assets (+) 60,472 53,462 Impairment losses (net) (+/ ) 581, ,479 Net provisions for insurance contract liabilities (+/ ) (48,828) 387,333 Provisions (net) ( /+) 205, ,636 Gains/Losses on disposal of tangible assets ( /+) (61,662) (53,967) Gains/Losses on disposal of investments ( /+) (1,969) (1,859,109) Shares of results of entities accounted for using the equity method (net of dividends) (+/ ) 397, ,456 Taxes (+/ ) 99, ,424 Other non-monetary items (+/ ) 0 0 Adjusted profit 3,406,568 3,571,038 Net increase/decrease in operating assets 37,754,303 32,719,099 Financial assets held for trading 1,491, ,260 Debt instruments 1,293, ,213 Other equity instruments 47,134 (45,375) Trading derivatives 150,229 (15,578) Other financial assets at fair value through profit or loss 55, ,400 Available-for-sale financial assets 5,244,821 (1,945,264) Debt instruments 4,531,925 (873,873) Other equity instruments 712,896 (1,071,391) Loans and receivables 31,489,804 33,049,552 Loans and advances to credit institutions 11,005,793 7,391,132 Money market operations through counterparties 0 (50,140) Loans and advances to customers 22,004,054 26,594,398 Debt instruments (504,744) (464,224) Other financial assets (1,015,299) (421,614) Other operating assets (527,326) 1,134,151 Net increase/decrease in operating liabilities 25,856,231 13,814,138 Financial assets held for trading (283,650) 182,152 Trading derivatives 164,363 20,799 Short positions (448,013) 161,353 Other financial liabilities at fair value through profit or loss 65, ,700 Financial liabilities at fair value through equity 0 0 Financial liabilities at amortised cost 20,832,699 14,784,899 Deposits from central banks 34,136 (63,406) Deposits from credit institutions 1,817,071 (926,027) Money market operations through counterparties 0 0 Customer deposits 13,904,763 13,893,468 Marketable debt securities 4,422,937 2,892,653 Other financial liabilities 653,792 (1,011,789) Other operating liabilities 5,241,968 (1,359,613) Total net cash flows from operating activities (1) (8,491,504) (15,333,923) (*) See Note (**) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 10

13 Consolidated cash flow statements (*) (2/2) for the years ended 31 December 2007 and 2006 (Notes 1 to 46), in thousands of euros CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP (**) 2. Cash flows from investing activities Investments ( ): (2,497,229) (1,156,797) Subsidiaries, jointly controlled entities and associates 840, ,019 Tangible assets 1,372, ,057 Intangible assets 284,360 60,721 Held-to-maturity investments 0 0 Other financial assets 0 0 Other assets 0 0 Disposals (+): 319,346 6,290,150 Subsidiaries, jointly controlled entities and associates 2,197 1,918,859 Tangible assets 317,149 4,163,293 Intangible assets 0 19,431 Held-to-maturity investments 0 188,567 Other financial assets 0 0 Other assets 0 0 Total net cash flows from investing activities (2) (2,177,883) 5,133, Cash flows from financing activities Issuance/Redemption of other equity instruments (+/ ) 1,537,596 0 Issuance/Redemption of equity having the substance of a financial liability (+/ ) 0 (100,000) Issuance/Redemption of subordinated liabilities (+/ ) 136,225 (35,054) Issuance/Redemption of other long-term liabilities (+/ ) 6,777,317 13,925,079 Increase/Decrease in minority interests (+/ ) 2,208,457 (1,436,913) Dividends/Interest paid ( ) (0) (0) Other items relating to financing activities (+/ ) 0 0 Total net cash flows from financing activities (3) 10,659,595 12,353, Effect of exchange rate changes on cash and cash equivalents (4) (1,609) (935) 5. Net increase/decrease in cash and cash equivalents ( ) (11,401) 2,151,607 Cash and cash equivalents at beginning of year 3,925,412 1,773,805 Cash and cash equivalents at end of year 3,914,011 3,925,412 (*) See Note (**) Presented for comparison purposes only. Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 11

14 Notes to the consolidated financial statements for 2007 la Caixa Group NOTES PAGE 1. Description of the Institution and other disclosures 14 Description of the Institution 14 Investee portfolio Criteria CaixaCorp, SA 14 Basis of presentation 16 Responsibility for the information and for the estimates made 17 Comparative information and changes in scope of consolidation 17 Ownership interests in credit institutions 18 Minimum capital requirements 18 Minimum reserve ratio 20 Deposit Guarantee Fund 20 Events after the balance sheet date Accounting policies and measurement bases Business combinations and basis of consolidation Financial instruments Derivatives and hedges Foreign currency transactions Recognition of income and expenses Transfers of financial assets Impairment of financial assets Offsetting Financial guarantees Leases Investment funds, pension funds and other assets under management Personnel expenses and post-employment benefit obligations Income tax Tangible assets Intangible assets Inventories Non-current assets held for sale Insurance transactions Provisions and contingent liabilities Consolidated statements of changes in equity Consolidated cash flow statements Welfare Projects Risk management Credit risk exposure Market risk exposure Liquidity risk exposure Operational risk Economic capital Own funds and allocation of profit Purchase and sale of ownership interests in the capital of subsidiaries, jointly controlled entities and associates Business segment reporting Remuneration of key directors and executives Cash and balances with central banks Financial assets and liabilities held for trading Available-for-sale financial assets Loans and receivables Loans and advances to credit institutions Loans and advances to customers Debt instruments Other financial assets Impairment allowances Hedging derivatives (assets and liabilities) la Caixa Annual Report 12

15 13. Non-current assets held for sale Investments Reinsurance assets Tangible assets Intangible assets Prepayments and accrued income, accrued expenses and deferred income and other Financial liabilities at amortised cost Deposits from credit institutions Customer deposits Marketable debt securities Subordinated liabilities Other financial liabilities Liabilities under insurance contracts Provisions Equity having the substance of a financial liability Minority interests Valuation adjustments Endowment fund and reserves Welfare Projects Tax matters Contingent liabilities and commitments Other significant disclosures Third-party funds managed by the Group Asset securitisations Securities deposits and investment services Financial assets derecognised due to impairment Geographical distribution of volume of business Interest and similar income Interest expense and similar charges Income from equity instruments Fee and commission income and expense Insurance activity Gains/losses on financial assets and liabilities Sales and income from the provision of non-financial services and cost of sales Other operating income Personnel expenses Other general administrative expenses Other operating expenses Impairment losses Finance income and expenses from non-financial activities Other gains and other losses Transactions with related parties Other disclosure requirements Customer ombudsman and customer care service Environmental information Explanation added for translation to English 145 Appendix 1. Public Financial Statements of la Caixa 146 Appendix 2. la Caixa Group Subsidiaries 152 Appendix 3. Joint ventures of the la Caixa Group (jointly controlled entities) 156 Appendix 4. Associates of the la Caixa Group 157 Appendix 5. Income tax credits for reinvestment of profits 158 Appendix 6. Companies filing joint tax returns la Caixa Annual Report 13

16 Notes to the consolidated financial statements for the year ended 31 December 2007 CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE LA CAIXA GROUP As required by current legislation governing the content of consolidated financial statements, these notes to the consolidated financial statements complete, extend and discuss the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement, and form a unit together with them, in order to present fairly the consolidated equity and consolidated financial position of the la Caixa consolidated Group at 31 December 2007, and the consolidated results of its operations, the changes in the consolidated equity and the consolidated cash flows in the year then ended. 1. Description of the Institution and other disclosures Description of the Institution As a savings bank and in accordance with its bylaws, Caja de Ahorros y Pensiones de Barcelona ( la Caixa ) is a private-law, non-profit financial institution providing beneficent welfare services, and is separate from any other company or entity. Its corporate purpose is to encourage all authorised forms of savings, to carry out beneficent welfare projects and to invest the related funds in safe and profitable assets of general interest. As a credit institution, subject to the rules and regulations issued by the Spanish and EU economic and monetary authorities, la Caixa conducts universal banking activities, and provides substantial retail banking services. la Caixa is the parent of a group of subsidiaries that offer other products and services and which compose, together with it, a single decision-making unit. Therefore, la Caixa is obliged to prepare, in addition to its own individual financial statements, a set of consolidated financial statements of the Caja de Ahorros y Pensiones de Barcelona Group ( the Group ) which also includes the interests in joint ventures and investments in associates. Investee portfolio Criteria CaixaCorp, SA Criteria CaixaCorp, SA (formerly Caixa Holding, SAU ) is the subsidiary that manages and controls substantially all of the la Caixa Group s equity securities portfolio. On 7 June 2007, the Annual General Assembly of la Caixa approved the general design for the flotation of Criteria CaixaCorp, SA, with the aim of creating a vehicle for the international expansion of the la Caixa Group. The expansion will be achieved by exporting the retail banking model that has placed la Caixa at the forefront of the Spanish market. Criteria CaixaCorp, SA will give priority to investing in the finance and insurance industries to achieve a greater balance with the investments in the services industry in the medium term, without losing sight of the la Caixa Group s traditional presence in strategic sectors of the economy, such as telecommunications, energy and infrastructure management. This process will be undertaken in order to create value for the shareholders who from now on will accompany the la Caixa Group in its enterprise. In order to outline the scope of the Criteria CaixaCorp, SA companies to carry out the business strategy described in the preceding paragraph, the la Caixa Group reorganised its investee portfolio prior to the submission of the Initial Public Offering of Shares in Criteria CaixaCorp, SA ( the offering or the IPO ). On 20 September 2007, the Spanish National Securities Market Commission (CNMV) approved and registered the prospectus for the IPO under no The initial offering was made for 657,500,000 newly issued shares Translation of consolidated financial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 46). In the event of a discrepancy, the Catalan-language version prevails la Caixa Annual Report 14

17 of one euro par value each, representing a 20% interest in the share capital of Criteria CaixaCorp, SA following the increase. The offering was divided into four tranches: TRANCHE NUMBER OF SHARES PERCENTAGE OF THE OFFER Retail 361,625,000 55% la Caixa Group employees 32,875,000 5% Domestic qualified investors 65,750,000 10% International 197,250,000 30% On 8 October 2007, Criteria CaixaCorp, SA set the offering price at EUR 5.25 per share and allotted the shares to more than 360,000 new shareholders in the retail and employee tranches, and was unable to cater to all the subscription orders, for 735,326,581 shares in the retail tranche and 65,354,894 shares for the employee tranche. This offering was also well received by institutional investors. The shares of Criteria CaixaCorp, SA finally became listed on the Spanish stock exchange on 10 October The initial public offering could be increased by another 84,400,000 newly issued shares of EUR 1 par value each, if the Global Coordinating Entities of the offering decided to exercise the green shoe subscription option. On 6 November 2007, the aforementioned entities partially exercised their rights by subscribing to 75,519,037 shares at the price of EUR 5.25 per share. The la Caixa Group s high capital adequacy level was bolstered as its equity rose by EUR 3,848 million as a result of the IPO. The main expenses associated with the issue were the underwriting fees, the advertising campaign and the professional fees. la Caixa, the Group s parent, received EUR 30 million in connection with its services as underwriter, which were eliminated on consolidation. In accordance with the recognition of the IPO, the la Caixa Group recognised in equity the expenses associated with the issue, which, net of the consolidation adjustments and the tax effect, amounted to EUR 66 million. As part of the Group s remuneration policy, the Board of Directors of la Caixa resolved to distribute 200 shares of Criteria CaixaCorp, SA free of charge to each la Caixa Group employee (see Note 38). The overall economic and financial effects associated with the IPO are detailed in the table provided below. The table also details the amounts recognised under Minority Interests (see Note 23) and Reserves (see Note 25), and the financing arrangements provided by the la Caixa Group to its customers for the acquisition of the shares offered. The headings Minority Interests and Reserves are part of core capital, whereas financing provided to customers acts as a reduction thereof (see Minimum Capital Requirements below in this Note) la Caixa Annual Report 15

18 Detail of the economic and financial impact of the Initial Public Offering of shares in Criteria CaixaCorp, SA (Thousands of Euros) MINORITY SHAREHOLDERS OWNERSHIP INTEREST SHARES MINORITY INTERESTS (Note 23) RESERVES (Notes 4 and 25) PERSONNEL EXPENSES (Note 38) Public offering 21.80% 733,019,037 2,276,252 1,572,098 3,848,350 Free delivery of shares to employees 0.17% 5,771,000 17,921 12,377 (30,298) 0 Subtotal 21.97% 738,790,037 2,294,173 1,584,475 (30,298) 3,848,350 Expenses associated with the issue (18,981) (46,879) (65,860) Equity increase at the la Caixa Group 2,275,192 1,537,596 (30,298) 3,782,490 Financing granted to customers through the acquisition of shares at 31 December 2007 (35,951) Eligible capital increase at the la Caixa Group 3,746,539 TOTAL At 31 December 2007, the ownership interest held by la Caixa in Criteria CaixaCorp, SA was 78.03%, and 100% at 31 December In order to enhance the transparency of the relationship between Criteria CaixaCorp, SA and its main shareholder, la Caixa, on 19 September 2007 both entities signed an Internal Relationship Protocol which is available on the websites of Criteria CaixaCorp, SA ( and the CNMV ( The aforementioned Protocol follows the recommendations of the Unified Code on Good Governance, of 22 May 2006, and its purpose is to regulate the relationship between la Caixa, Criteria CaixaCorp, SA and all the other la Caixa Group subsidiaries. The Protocol establishes the following: a) The boundaries of the main areas of business activity of Criteria CaixaCorp, SA and its subsidiaries. b) The general policies to follow in connection with intra-group transactions or services on an arm s-length basis. c) The mechanisms to be used to regulate the flows of information between la Caixa, Criteria CaixaCorp, SA and the other la Caixa Group subsidiaries, as required for the Group s internal management purposes and to ensure compliance with the obligations towards the various regulatory entities. Basis of presentation The Group s consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union through EU Regulations, in accordance with Regulation no. 1606/2002 of the European Parliament and of the Council, of 19 July 2002 and subsequent amendments. In particular, the Group applied the Standards and Interpretations adopted by the European Union which came into force on 1 January 2007, which include most notably IAS 1 ( Disclosure of Objectives, Policies and Processes for Managing Capital ) and IFRS 7 ( Financial Instruments: Disclosures ). With regard to the Standards and amendments to the Standards, already adopted by the European Union but yet to become applicable in coming years, the Group has assessed the ensuing effects and decided not to opt for early application, in view of their immateriality. Most notable among these Standards owing to their significance for the Group, are IFRS 8 ( Operating Segments, applicable from 1 January 2009) and IAS 23 ( Borrowing Costs ), applicable from 1 January 2009). Also, in 2004 the Bank of Spain issued Circular 4/2004, of 22 December, 2007 la Caixa Annual Report 16

19 on Public and Confidential Financial Reporting Rules and Formats for Credit Institutions, which constitutes the adaptation of the IFRSs adopted by the European Union to the Spanish credit institution sector. The consolidated financial statements were prepared on the basis of the accounting records kept by la Caixa and by the other Group entities and include certain adjustments and reclassifications required to unify the policies and bases used by the Group companies with those of la Caixa. Appendix 1 to these Notes to the consolidated financial statements includes the balance sheet, income statement, statement of changes in equity and cash flow statement of la Caixa for 2007 and Responsibility for the information and for the estimates made The financial statements of la Caixa and the consolidated financial statements of the la Caixa Group for 2007 were prepared by the Board of Directors at a meeting held on 31 January These financial statements and the financial statements of the consolidated Group companies have not yet been approved by the General Assembly of the Parent and by the Annual General Meetings of the consolidated entities, respectively. However, the Board of Directors of la Caixa considers that they will be approved without any changes. The financial statements of la Caixa and the consolidated financial statements of the la Caixa Group for 2006 were approved by the General Assembly held on 7 June 2007 and are presented solely for comparison purposes with the figures for The financial statements were prepared on the basis of judgments and estimates made by the senior executives of la Caixa and of the consolidated entities, which relate, inter alia, to the fair value of certain assets and liabilities, impairment losses, the measurement of goodwill and intangible assets, the useful life of tangible and intangible assets, actuarial assumptions for the measurement of post-employment benefit obligations, pre-retirement scheme liabilities, and the equity and profit or loss of the companies accounted for using the equity method. These estimates relate to both the amounts recognised in the consolidated balance sheet and in the consolidated income statement for the period. Although these estimates were made on the basis of the best available information, future events might make it necessary to change these estimates in coming years. Changes in accounting estimates would be applied prospectively, recognising the effects of the change in estimates in the consolidated balance sheet and income statement. The accounting standards established by the IFRSs are generally compatible with those established by Bank of Spain Circular 4/2004 and are described in Note 2. No accounting policies differing from such standards which may have a material effect have been applied. Comparative information and changes in scope of consolidation Under International Financial Reporting Standards, the information presented in the consolidated financial statements must be consistent. There were no significant changes to the applicable accounting legislation in 2007 which might affect the year-on-year comparison of the information. The most significant changes in the scope of consolidation in 2006 included the disposal of the CaixaBank- France Group, effective from 1 January, of the Inmobiliaria Colonial Group, from 1 July, and of the Crèdit Andorrà Group, from 1 October. The la Caixa Group s ownership interest in Sociedad General de Aguas de Barcelona, SA is accounted for using the equity method, since the Group uses this method, in general, for jointly controlled entities (see Note 2.1 and Appendix 3). An estimate of the most significant changes that would have affected the accompanying consolidated balance sheet and consolidated income statement had the Group used the proportionate consolidation method for this ownership interest at 31 December 2007 is as follows (see Note 2.1): 2007 la Caixa Annual Report 17

20 The foregoing data were obtained from the company s latest available public information (June and September 2007). Ownership interests in credit institutions As required by Royal Decree 1245/1995, of 14 July, following is a detail of the interests of 5% or more in the capital or voting rights of credit institutions held by the la Caixa Group in 2007 and The ownership interests in credit institutions that are subsidiaries of the la Caixa Group are detailed in Appendix 2. Ownership interests in credit institutions CREDIT INSTITUTIONS PERCENTAGE OF OWNERSHIP INTEREST Banco BPI, SA 25.02% 25.00% Boursorama, SA 20.44% 19.74% The Bank of East Asia, LTD 8.89% At 31 December 2007 and 2006, there was no Spanish or foreign credit institution, or group comprising a credit institution, holding an investment of 5% or more in the capital or voting rights of any of the credit institutions being subsidiaries of the la Caixa Group. Minimum capital requirements Bank of Spain Circular 5/1993, of 26 March, sets forth the rules for determining the capital requirements to be met by groups of credit institutions that may be consolidated and defines the consolidated balance sheet items composing eligible capital. Eligible capital is classified into two categories: be used to increase reserves, minority interests and preference shares. Tier 1 capital is reduced, inter alia, by goodwill (see Note 2.1) and financing provided to customers for the acquisition of securities that may be classified by the financing entity as capital (see the Investee Portfolio Criteria CaixaCorp, SA section above in this Note). Tier I capital excluding preference shares is internationally known as core capital, which is a key measure of an entity s capital adequacy. on equity instruments accounted for as available-for-sale financial assets, general loan-loss reserves and subordinated debt. Tier II capital may not exceed 100% of Tier I capital. Also, general reserves and subordinated debt are eligible for inclusion in Tier II capital subject to certain quantitative and qualitative requirements. It should also be noted that significant investments in unconsolidated financial institutions and insurance entities, as well as excessive qualified investments in other entities, are also reduced from eligible capital. The minimum capital requirements and eligible capital must be determined by reference to the confidential financial statements of consolidated groups of credit institutions, in which the full consolidation method is used solely for financial institutions that may be consolidated on the basis of their activity la Caixa Annual Report 18

21 Circular 5/1993 sets forth the procedures to calculate the capital requirements to be met in order to provide for the following risks, inherent to banking activities: derivative transactions. Credit institutions calculate the measure known as risk-weighted assets in accordance with the procedures established by Circular 5/1993 for the measurement of the risks listed above. The minimum eligible capital requirement to be met by credit institutions at all times is set at 8% of risk-weighted assets. Along the same lines, the capital ratio is defined as the relationship of eligible capital to risk-weighted assets and, therefore, credit institutions must always keep a capital ratio of at least 8%. Since 13 December 2007, the la Caixa Group has been authorised by the Bank of Spain to use a model, prepared by the Group using in-house methodology, for measuring the price risk associated with financial assets and liabilities held for trading, commodity position risk and currency and gold risk, for the purpose of measuring the minimum capital requirements. Circular 5/1993 is the implementing instrument, for credit institutions, of the legislation on capital and supervision of consolidated financial institutions contained in Law 13/1992, of 1 June, in Royal Decree 1343/1992, of 6 November, and in the Ministerial Order of 30 December Circular 5/1993 is also the implementing instrument, for credit institutions, of the legislation on supervision of financial conglomerates contained in Law 5/2005, of 22 April, and in Royal Decree 1332/2005, of 11 November. In this regard, the Bank of Spain reported that the la Caixa Group is considered as a financial conglomerate on the grounds that it meets the conditions stipulated in Articles 2 and 3 of the aforesaid Law 5/2005, of 22 April. The formal requirements for financial conglomerates to report their activities to the supervisory body vary in terms of degree of detail according to the materiality of the insurance business in relation to the conglomerate s total business. In this respect, the Bank of Spain determined that the la Caixa financial conglomerate must be subject to the basic formal reporting requirements. This set of legislation will soon undergo extensive reform as a result of the incorporation of the 2004 New Basel Capital Accord (NBCA) into European and Spanish legislation. In this regard, Law 36/2007, of 16 November, amending Law 13/1985, of 25 May, on investment ratios, equity and disclosure requirements of financial intermediaries and other financial system standards, represents the implementation in Spanish law of Directive 2006/48/EC, of the European Parliament and of the Council, of 14 June 2006, relating to the taking up and pursuit of the business of credit institutions. This directive, together with Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions, incorporated the NBCA into EU law. Specifically, the aforementioned legislation lays the foundations for determining the capital adequacy of credit institutions on the basis of three pillars: The objective of the new legal framework for capital adequacy measurement and control is to ensure the convergence of capital requirements with the risks effectively assumed by the entities (risk profile) la Caixa Annual Report 19

22 The detail of the la Caixa Group s capital adequacy status, calculated in accordance with the procedures set out in Circular 5/1993, is provided below. It should be noted that the funds from the Initial Public Offering for shares in Criteria CaixaCorp, SA (see the Investee Portfolio Criteria CaixaCorp, SA section below in this Note) caused a significant rise in the Group s core capital. (Thousands of Euros) AMOUNT AS A % AMOUNT AS A % Core capital 13, % 8, % Tier 1 capital 16, % 11, % Total capital (1) 20, % 16, % Capital requirements (2) 13, % 11, % Capital in excess of the minimum 7, % 4, % (1) The estimate of the total capital ratio carried out in 2006 was 11.5%. (2) The above figures for 2007 are the best available estimate at the time of preparing the consolidated financial statements and no significant variations are expected. Minimum reserve ratio By virtue of Monetary Circular 1/1998, of 29 September, effective from 1 January 1999, the ten-year cash ratio was repealed and superseded by the minimum reserve ratio. At 31 December 2007 and 2006, and throughout 2007 and 2006, la Caixa complied with the minimum ratio required under applicable Spanish law. Deposit Guarantee Fund la Caixa makes annual contributions to the Savings Banks Deposit Guarantee Fund, the institution responsible for guaranteeing the deposits in cash and securities placed with savings banks. In 2007 and 2006, the contributions were 0.4 per thousand of the calculation basis, which consisted of the guaranteed deposits plus 5% of the market value of the guaranteed security deposits. The amounts accrued are included under Other Operating Expenses in the consolidated income statement (see Note 40). Events after the balance sheet date From 1 January 2008 to the date on which these consolidated financial statements were authorised for issue there were no events significantly affecting them. On 27 December 2007, the CNMV authorised the takeover bid launched by Hisusa, Holding de Infraestructuras y Servicios Urbanos, SA, Suez Environnement, SA, Suez Environnement España, SL (Sole-Shareholder Company) and Criteria CaixaCorp, SA (Bidders) on the shares not controlled by the Bidders, representing 43.54% of the share capital of Sociedad General de Aguas de Barcelona, SA. The period for the minority shareholders to accept the takeover bid expired on 16 January 2008, with 33.55% of the share capital accepting the bid. Consequently, the Bidders gained control over 90.01% of the share capital. In particular, the la Caixa Group will pay EUR 680 million through Criteria CaixaCorp, SA and obtain a 44.11% interest in the capital of Sociedad General de Aguas de Barcelona, SA. 2. Accounting policies and measurement bases The accounting policies and measurement bases applied in preparing the la Caixa Group s consolidated financial statements for 2007 were as follows: 2007 la Caixa Annual Report 20

23 2.1. Business combinations and basis of consolidation In accordance with IFRSs, business combinations are defined as the bringing together of two or more entities into one single entity or group of entities. Acquirer is defined as an entity which, at the date of acquisition, obtains control of another entity. At the acquisition date, the acquirer recognises in its financial statements, or consolidated financial statements, as appropriate, the assets, liabilities and contingent liabilities of the acquiree measured at fair value. The acquirer must also compare the cost of the business combination with the proportion acquired of the fair value of the assets, liabilities and contingent liabilities of the acquiree. If the difference is positive, the acquirer must recognise goodwill in assets; if negative, the acquirer must recognise income. Subsidiaries Subsidiaries are defined as entities with which la Caixa makes up a decision-making unit because it directly or indirectly owns 50% or more of the voting rights or, if it owns a lower percentage, it has agreements with other shareholders of these companies granting it a majority of the voting rights. Special purpose entities are also considered as subsidiaries. Appendix 2 to these Notes to the consolidated financial statements contains significant information on these companies. The la Caixa Group considers as subsidiaries Caixa Inversiones 1, SICAV, SA, in which it owns a 16.10% interest, because it holds a majority of the seats on the Board of Directors, and the securitisation funds created on or after 1 January 2004 in which la Caixa retains the risks inherent to their assets. All the la Caixa Group companies owned more than 50% are considered to be subsidiaries. An exception is Repinves, SA, which is 67.60% owned by the la Caixa Group and is considered to be a jointly controlled entity as a result of a shareholder agreement whereby decisions must be taken jointly. Repinves, SA is a portfolio company which holds a 5% ownership interest in Repsol-YPF, SA, of which 3.39% relates to the la Caixa Group. In 2006, CaiFor, SA, a holding company owned in equal parts by the la Caixa Group and the Fortis Group, was a jointly controlled entity through which the two groups carried on the insurance business marketed by the la Caixa Group s branch network. CaiFor, SA had an 80% interest in the share capital of VidaCaixa, SA de Seguros y Reaseguros, and the remaining 20% was directly owned by the la Caixa Group. Although the la Caixa Group s investment in VidaCaixa, SA de Seguros y Reaseguros was 60%, the majority in the Board of Directors of this company was held by CaiFor, SA. Consequently, VidaCaixa, SA de Seguros y Reaseguros was considered to be a jointly controlled entity. In 2007 the la Caixa Group acquired a full ownership interest in CaiFor, SA and, consequently, also in VidaCaixa, SA de Seguros y Reaseguros, which was thereafter considered to be a subsidiary (see Note 5). The financial statements of the subsidiaries are consolidated, without exceptions on the grounds of activity, with those of la Caixa using the full consolidation method, which consists of the aggregation of similar assets, liabilities and equity, income and expenses shown in their individual financial statements. The carrying amount of the direct and indirect investments in the share capital of the subsidiaries is eliminated at the proportion of the equity interest in the subsidiaries held through these investments. All other balances and transactions between the consolidated entities are eliminated on consolidation. The share of third parties in the la Caixa Group s equity and profit for the year is shown under Minority Interests in the consolidated balance sheet and Profit Attributed to Minority Interests in the consolidated income statement, respectively (see Note 23). The results of subsidiaries acquired during the year are consolidated from the date of acquisition. The results of companies that cease to be subsidiaries are consolidated until the date they are no longer Group subsidiaries la Caixa Annual Report 21

24 Note 5 provides disclosures of the most significant acquisitions and disposals of subsidiaries in 2007 and Jointly controlled entities The la Caixa Group defines jointly controlled entities as entities which are not subsidiaries and which it controls jointly with other shareholders under a contractual agreement. In accordance with IAS 31, at 31 December 2007 the la Caixa Group uses, in general, the equity method for jointly controlled entities (see the Associates section below). As a particular case, the companies whose activity is to hold other companies are proportionately consolidated, and, accordingly, the balance sheet and income statement balances of jointly controlled entities, and the relevant eliminations, are added to the consolidated financial statements only at the proportion of the la Caixa Group s ownership interest therein. Appendix 3 to these notes to the consolidated financial statements contains relevant information on these companies. Note 5 details the most significant acquisitions and disposals of jointly controlled entities in 2007 and Associates Associates are entities over which la Caixa directly or indirectly exercises significant influence but are not subsidiaries or jointly controlled entities. Significant influence is in most cases presumed to exist when the la Caixa Group owns 20% or more of the voting power of the investee. Exceptionally, investees in which more than 20% of the voting rights are held, but which form part of the la Caixa Group s venture capital activity, are not considered to be associates. Similarly, entities in which less than 20% of the voting rights are held are not considered to be associates of the la Caixa Group. In the consolidated financial statements, investments in associates are accounted for using the equity method, i.e. at the proportion of the Group s equity interest in the investee, after taking into account the dividends received therefrom and other equity eliminations. The profits and losses resulting from transactions with an associate are eliminated to the extent of the Group s equity interest in the associate. Appendix 4 to these Notes to the consolidated financial statements contains significant information on these companies. Note 5 details the most significant acquisitions and disposals of associates in 2007 and Financial instruments Initial recognition Financial instruments are initially recognised in the consolidated balance sheet when the Group becomes a party to the contract giving rise to them, under the terms and conditions thereof. Loans and deposits, i.e. the most common financial assets and liabilities, are recognised on the date from which the legal right to receive or the legal obligation to pay cash, respectively, arises. Financial derivatives are generally recognised on the trade date. Financial asset purchases and sales arranged through conventional contracts which may not be settled net are recognised from the date on which the risks and rewards, rights and duties incident to ownership are for the purchaser. Based on the type of financial asset purchased or sold, that date may be the trade date or the settlement or delivery date. In particular, transactions performed in the spot currency market are recognised on the settlement date; transactions performed on equity instruments traded in Spanish secondary securities 2007 la Caixa Annual Report 22