Banco Espírito Santo SA Annual Report 2013

280 Pages·2014·4.16 MB·English

2013
Annual
Report
2013
Annual
Report
Index
Annual Report 2013
Banco Espírito Santo Group
I Management Report
Joint Message of the Chairman of the Board of Directors and the Chairman
of the Executive Committee 10

1 BES Group 13
2 Responsible Management 27
3 Economic Environment 37

4 Commercial Activity 43
5 Financial Management and Capital Markets 55

6 Risk Management 57
7 Activity and Results 73
8 Financial Statements 83
9 Final Notes 87
Appendices: The Sustainability Accounts 90
II Financial Statements and Notes to the Financial Statements

1 Consolidated Financial Statements and Notes to the Financial Statements 100
2 Appendix – Adoption of the Financial Stability Forum (FSF) and Committee of European Banking Supervisors (CEBS)
Recommendations Concerning the Transparency of Information and the Valuation of Assets 216

3 Auditor’s Report on the Consolidated Financial Statements 218
4 Report of the Audit Committee 221
III Corporate Governance Report
PART I
A - Shareholder Structure 226
B - Corporate Bodies and Committees 230
C - Internal Organisation 249
D - Remuneration 253
E - Related Party Transactions 258
PART II
Corporate Governance Assessment 259
APPENDICES
I - Remuneration Policy of the Corporate Bodies 263
II - Remuneration Policy of the Senior Officers 267
III - Statement of the Audit Committee 272
This report is a free translation into English of the original Portuguese version. In case of doubt or misinterpretation the Portuguese version will prevail.
Main Indicators
2009 2010 2011 2012 2013
ACTIVITY (EUR million)
Total Assets(1) 105,917 104,912 98,589 97,765 93,342
Net Assets 81,702 83,028 80,237 83,691 80,608
Customer Loans (gross) 50,531 52,606 51,211 50,399 49,722
Customer Deposits 25,447 30,819 34,206 34,540 36,831
Total Customer Funds 60,595 55,988 54,383 56,188 56,838
Core Capital - BoP 5,232 5,416 6,020 6,471 6,084
Core Capital - EBA - - - 6,092 5,646
RESULTS/PROFITABILITY
Net Income (M€) 571.7 556.9 -108.8 96.1 -517.6
Return on Equity (ROE) 11.0% 9.4% -0.1% 1.2% -6.9%
Return on Assets (ROA) 0.73% 0.66% 0.00% 0.12% -0.62%
SOLVENCY RATIOS(2)
- CORE TIER I - BoP 8.0% 7.9% 9.2% 10.5% 10.6%
- CORE TIER I - EBA - - - 9.9% 9.8%
- TIER I 8.3% 8.8% 9.4% 10.4% 10.4%
- Total 11.2% 11.3% 10.7% 11.3% 11.8%
LIQUIDITY (eur million)
ECB funds(3) - 1,760 3,929 8,677 6,897 5,414
ECB Eligible Assets (collaterals) 5,553 10,823 15,057 19,402 18,578
Loans to deposits Ratio(4) 192% 165% 141% 137% 121%
ASSET QUALITY
Overdue Loans > 90 days / Gross Loans 1.60% 1.95% 2.74% 3.90% 5.68%
Provisions / Overdue Loans > 90 Days 191.5% 173.0% 154.5% 136.9% 119.9%
Credit at Risk(5)/Total Credit - 4.99% 6.59% 9.44% 10.56%
Credit Provisions/Credit at Risk(5) - 67.8% 64.2% 56.6% 64.5%
Credit Provisions Reserve / Customer Loans (Gross) 3.07% 3.38% 4.23% 5.34% 6.81%
Cost of Risk(6) 1.07% 0.67% 1.17% 1.62% 2.02%
PRODUCTIVITY/EFFICIENCY
Operating Costs / Total Assets (%) 0.95% 1.07% 1.15% 1.18% 1.22%
Assets per Employee (€,000) 11,898 10,641 9,996 9,832 9,137
Total Cost to Income (%) 41.1% 46.7% 57.9% 44.6% 59.8%
Cost to Income (ex-markets) (%) 52.4% 57.0% 57.3% 57.2% 65.8%
EMPLOYEES
Total (7) 8,902 9,858 9,863 9,944 10,216
- Domestic Activity 7,388 7,584 7,588 7,477 7,371
- International Activity 1,514 2,274 2,275 2,467 2,845
BRANCH NETWORK
Retail Network 799 828 801 775 788
- Domestic 734 731 701 666 643
- International 65 97 100 109 145
Corporate Network (domestic) 26 24 24 25 25
Private Banking Network (domestic) 25 22 22 23 23
RATING
Long Term
STANDARD AND POOR’S A A - BB BB- BB-
MOODY’S A1 A2 Ba2 Ba3 Ba3
DBRS - - BBB BBB(low) BBB(low)
DAGONG - - - - BB
Short Term
STANDARD AND POOR’S A 1 A 2 B B B
MOODY’S P 1 P 1 NP NP NP
DBRS - - R-2(high) R-2(med) R-2(med)
DAGONG - - - - B
(1) Net Assets + Asset Management + Other off-balance sheets + Securitised Credit. (5) Acording to BoP instruction nº23/2011.
(2) Calculated under IRB Foundation. (6) P&L provisions / Gross Loans.
(3) Positive figure represents a borrowing position; negative figure represents a lending position. (7) Includes employees with permanent and fixed term contracts.
(4) Ratio calculated under BoP Funding & Capital Plan.

4
Total Assets Net Income
(eur billion) (EUR million)
Off-balance sheet item (1)
Net Assets
105.9
104.9 571.7 556.9
24.2 21.9 98.6 97.8
18.4 14.1 93.3
83.0 83.7 12.7
81.7 80.2
80.6
96.1
-108.8
-517.6
2009 2010 2011 2012 2013
2009 2010 2011 2012 2013
(1) Assets and Liabilities off-balance items.
Business with Clients Asset Quality
(eur billion) (%)
Deposits
Coverage(a)
Loans Credit Provisions/ Gross loans
192 % Loans/ Deposits
165 % 6.8
5.3
141 %
137 % 4.2 5.7
121 % 3.4
3.1 3.9
2.7
50.5 52.6 51.2 50.4 36.8 49.7 2.0
34.2 34.5 1.6
30.8
25.4
2009 2010 2011 2012 2013
2009 2010 2011 2012 2013
(a) Overdue Loans + 90 days/ Gross Loans.
Core Capital and Core Tier I Profitability and Efficiency
(eur million) (%)
Core Capital ROE
Core Tier I Cost to income
10.6% 65.8
10.5%
9.2% 57.0 57.3 57.2
8.0% 7.9% 6,471 52.4
6,020 6,084
11.0
5,416
5,232 9.4
1.2
-0.1
2009 2010 2011 2012
2009 2010 2011 2012 2013 -6.9
2013
Annual Report 2013 BES Group 5
Bank of Portugal Reference Indicators
The table below lists the reference indicators established by Bank of Portugal
Instruction no. 16/2004, as amended by Instructions no. 16/2008, 23/2011 and
23/2012, for both December 2013 and 2012.
Results and Profitability
SIMBOL. 2009 2010 2011 2012 2013 2012 2013
AVERAGE BALANCE (eur million)
SOLVENCY
Net Assets NA 78,657 83,759 82,178 82,959 82,540 Tier I/ Risk Weighted Assets 11.3% 11.8%
Interest Earning Assets IEA 68,018 72,163 70,279 69,443 68,583 Regulatory Capital/ Risk Weighted Assets 10.4% 10.4%
Capital and Reserves KP 4,886 5,578 5,895 7,057 7,508 Core Tier I/ Risk Weighted Assets 10.5% 10.6%
INCOME STATEMENT (eur million) ASSET QUALITY
Net Interest Income NII 1,200.9 1,164.0 1,181.6 1,180.5 1,034.3 Overdue and Doubtful Loans/ Gross Loans 5.0% 6.8%
+ Fees and Commissions FC 717.9 806.9 790.5 828.4 693.4 Overdue and Doubtful Loans net of Impairments/ Total Net Loans -0.3% -0.1%
= Fees and Commissions CBI 1,918.8 1,970.9 1,972.1 2,008.9 1,727.7 Credit at Risk/ Gross Loans 9.4% 10.6%
+ Capital Markets and Other results CMR 530.6 432.9 -21.9 570.2 172.1 Credit at Risk (net)/ Net Loans 4.3% 4.0%
= Banking Income BI 2,449.4 2,403.8 1,950.2 2,579.1 1,899.8
- Operating Costs INS 1,006.1 1,123.1 1,129.2 1,149.1 1,137.0
PROFITABILITY
= Net Operating Income OC 1,443.3 1,280.7 821.0 1,430.0 762.8
Income before Taxes and Minorities/ Average Equity 2.9% -9.0%
- Net Provisions OI 708.8 533.6 848.3 1,199.4 1,422.8
Banking Income/ Average Net Assets 3.1% 2.3%
= Income before Taxes and Minorities PROV 734.5 747.1 -27.3 230.6 -660.0
Income before Taxes and Minorities/ Average Net Assets 0.2% -0.8%
- Income Tax PBT 109.8 43.7 -31.1 110.8 -145.3
- Minority Interests T 53.0 146.5 112.6 23.7 2.8 EFFICENCY
= Net Income MI 571.7 556.9 -108.8 96.1 -517.6 General Admin Costs+Depreciation/ Banking Income 44.6% 59.8%
Staff Costs/ Banking Income 23.2% 30.3%
PROFITABILITY (%)
Net Interest Margin NII / IEA 1.77 1.61 1.68 1.70 1.51
TRANSFORMATION RATIO
+ Return on Fees and Commissions FC / IEA 1.06 1.12 1.12 1.19 1.01
(Gross Loans - Provsions )/ Customer deposits 137% 121%
+ Return on Capital Markets and Other Results CM / IEA 0.78 0.60 -0.03 0.82 0.25
= Business Margin BI / IEA 3.60 3.33 2.77 3.71 2.77
- Weighting of Operating Costs OC / IEA 1.48 1.56 1.61 1.65 1.66
- Weighting of Provisions PROV / IEA 1.04 0.74 1.21 1.73 2.07
- Weighting of Minorities and other (MI+IT+XR) / IEA 0.24 0.26 0.12 0.19 -0.21
= Return on Interest Earning Assets NP / IEA 0.84 0.77 -0.15 0.14 -0.75
x Weighting of Interest Earning Assets IEA / NA 0.86 0.86 0.86 0.84 0.83
= Return on Assets NP / NA 0.73 0.66 0.00 0.12 -0.62
x Placements multiplier NA / KP 15.15 14.11 13.72 10.22 11.24
= Return on Equity NP / KP 11.01 9.38 -0.05 1.25 -6.94
6
Annual Report 2013 BES Group 7
VALTER VINAGRE (b. 1954, Portugal). Da série Variações para um fruto, S/Título #5, 2003. Ilfochrome s/aluminium 100 x 125 cm. Unique Edition. © Valter Vinagre.
Management
Report
Joint Message of the Chairman of the Board of Directors 7 Activity and Results 73
and the Chairman of the Executive Committee 10 7.1 Activity 73
7.2 Liquidity Management and Transformation Ratio 74
1 BES Group 13 7.3 Capitalisation and Capital Adequacy Ratios 75
7.4 Results 77
2 Responsible Management 27 7.5 Profitability 80
7.6 Activity and Results of Banco Espírito Santo 81
3 Economic Environment 37
8 Financial Statements 83
4 Commercial Activity 43 8.1 Consolidated Financial Statements 83
4.1 Domestic Commercial Banking 43 8.2 Individual Financial Statements 85
4.1.1 Retail Banking 43
4.1.2 Private Banking 47 9 Final Notes 87
4.1.3 Corporate Banking and Institutional Clients 47 9.1 Declaration of Conformity with the Financial Information
4.2 International Commercial Banking 49 Reported 87
4.3 Investment Banking 51 9.2 Own Shares 87
4.4 Asset Management 52 9.3 Proposed Distribution of Banco Espírito Santo Net Income 87
4.5 Outlook for BES Group 9.4 Reading Guide to Sustainability Information 87
Main risks and uncertainties 54 9.5 Note of Recognition 89
5 Financial Management and Capital Markets 55 Appendices
The Sustainability Accounts 90
6 Risk Management 57 Independent Limited Assurance Report 94
6.1 Credit Risk 61 Report “The Activity of BES and Biodiversity” 96
6.2 Market Risk 66
6.3 Operational Risk 68
6.4 Liquidity Risk 69
6.5 Solvency 71
Annual Report 2013 9
Banco Espírito Santo Group