2011
”la Caixa” Group
Statutory Documentation for 2011
Fax: (34) 93 339 57 03
Telex: 52623-CAVEA E and 50321-CAIX E Website
Auditor’s Report
5
Consolidated financial statements
6
Consolidated balance sheet
6
Income statement
8
Consolidated statement of recognized income and expense
9
Consolidated statement of total changes in equity
10
Statement of cash flows
12
Note to the consolidated financial statements
13
Management report
186
Annual corporate governance report
202
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 42). In the event of a discrepancy, the Spanish-language version prevails.
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated balance sheet
Assets
2011 2010(*)Cash and balances with central banks(Note 9) 2,713,181 5,162,149
Held-for-trading portfolio(Note 10) 4,183,792 3,114,189
Debt instruments 1,841,771 1,173,891
Equity instruments 57,689 56,025
Trading derivatives 2,284,332 1,884,273
Memorandum items: Loaned or advanced as collateral 92,639 0
Other financial assets at fair value through profit
or loss(Note 22) 210,654 207,485
Debt instruments 95,071 79,121
Equity instruments 115,583 128,364
Available-for-sale financial assets(Note 11) 35,117,185 40,128,171
Debt instruments 31,347,803 32,417,747
Equity instruments 3,769,382 7,710,424
Memorandum items: Loaned or advanced as collateral 584,198 7,151,200
Loans and receivables(Note 12) 185,268,671 191,151,820
Loans and advances to credit institutions 5,168,027 8,487,110
Loans and advances to customers 178,566,457 180,875,995
Debt instruments 1,534,187 1,788,715
Memorandum items: Loaned or advanced as collateral 47,907,330 46,632,495
Held-to-maturity investments(Note 13) 7,784,058 7,389,398
Memorandum items: Loaned or advanced as collateral 4,426,147 6,577,902
Adjustments to financial assets through macro-hedges 122,947 45,700 Hedging derivatives(Note 14) 13,573,424 10,013,406
Non-current assets held for sale(Note 15) 3,744,248 2,860,889
Investments(Note 16) 16,242,833 12,471,922
Associates 10,046,228 7,552,359
Jointly controlled entities 6,196,605 4,919,563
Insurance agreements related to pensions 0 0
Reinsurance assets(Note 17) 7,416 22,672
Property and equipment(Note 18) 5,203,142 5,150,130
Property and equipment 3,576,119 3,878,180
For own use 3,091,509 3,360,313
Leased under operating leases 125,854 153,852
Assigned to welfare projects(Note 25) 358,756 364,015
Investment property 1,627,023 1,271,950
Intangible assets(Note 19) 1,933,082 2,229,530
Goodwill 772,588 1,179,172
Other intangible assets 1,160,494 1,050,358
Tax assets 3,387,407 2,895,830
Current 1,138,344 549,624
Deferred(Note 26) 2,249,063 2,346,206
Other assets(Note 20) 2,914,200 2,880,930
Inventories 2,008,435 1,917,956
Other 905,765 962,974
Total assets 282,406,240 285,724,221
Memorandum items
Contingent liabilities(Note 27) 9,432,597 9,101,003
Contingent commitments(Note 27) 49,180,647 52,084,088 (*) Presented for comparison purposes only.
Consolidated financial statements of ”la Caixa” Group
Consolidated balance sheet
at December 31, 2011 and 2010, before appropriation of profit, in thousands of euros
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated balance sheet at December 31, 2011.
Liabilities and Equity
2011 2010(*)Liabilities
Held-for-trading portfolio(Note 10) 4,119,386 2,598,774
Trading derivatives 2,299,671 1,854,388
Short positions 1,819,715 744,386
Other financial liabilities at fair value through profit
or loss(Note 22) 224,990 210,464
Customer deposits 224,990 210,464
Financial liabilities at amortized cost(Note 21) 213,756,566 224,822,918
Deposits from central banks 13,579,786 0
Deposits from credit institutions 9,951,510 19,041,396
Customer deposits 128,784,046 142,071,559
Marketable debt securities 44,610,375 47,286,756
Subordinated liabilities 13,493,232 13,117,235
Other financial liabilities 3,337,617 3,305,972
Adjustments to financial liabilities through macro-hedges 2,643,932 1,544,353 Hedging derivatives(Note 14) 9,784,561 7,657,744
Liabilities under insurance contracts(Note 22) 21,744,779 19,779,113
Provisions(Note 23) 3,003,021 2,974,762
Provisions for pensions and similar obligations 2,263,753 2,237,808
Provisions for taxes and other legal contingencies 109,332 167,424
Provisions for contingent liabilities and commitments 119,806 122,876
Other provisions 510,130 446,654
Tax liabilities 1,464,787 1,854,830
Current 249,567 115,083
Deferred(Note 26) 1,215,220 1,739,747
Welfare fund(Note 25) 886,394 888,630
Other liabilities(Note 20) 1,575,944 1,412,777
Total liabilities 259,204,360 263,744,365
Equity
Own funds(Note 24) 17,619,108 17,421,121
Capital or endowment fund(Note 24) 3,006 3,006
Issued 3,006 3,006
Reserves(Note 24) 16,641,308 16,110,762
Accumulated reserves/(losses) 13,485,184 14,230,464 Reserves/(losses) of entities accounted for using
the equity method 3,156,124 1,880,298
Profit attributable to the Group 974,794 1,307,353
Valuation adjustments(Note 24) 70,837 1,404,135
Available-for-sale financial assets 503,001 1,526,821
Cash flow hedges 361 (4,214)
Exchange differences (38,160) 32,743
Entities accounted for using the equity method (394,365) (151,215)
Non-controlling interests(Note 24) 5,511,935 3,154,600
Valuation adjustments 13,754 381,705
Other 5,498,181 2,772,895
Total Equity 23,201,880 21,979,856
Total Equity and Liabilities 282,406,240 285,724,221
(*) Presented for comparison purposes only.
Consolidated balance sheet
at December 31, 2011 and 2010, before appropriation of profit, in thousands of euros
Income statement
for the years ended December 31, 2011 and 2010, in thousands of euros
OF CAIXA D’ESTALVIS I PENSIONS DE BARCELONA AND COMPANIES COMPOSING THE ”LA CAIXA” GROUP
2011 2010(*)
Interest and similar income(Note 29) 7,581,056 6,915,864
Interest expense and similar charges(Note 30) (4,834,564) (3,763,512)
Net interest income 2,746,492 3,152,352
Return on equity instruments(Note 31) 377,185 460,018
Share of profit (loss) of entities accounted for using
the equity method 1,026,974 933,941
Fee and commission income(Note 32) 1,644,978 1,628,778
Fee and commission expense(Note 32) (108,775) (221,947)
Gains/(losses) on financial assets and liabilities (net)(Note 33) 256,082 162,777
Held-for-trading portfolio 22,373 63,168
Other financial instruments not measured at fair value
through profit or loss 159,261 46,069
Other 74,448 53,540
Exchange differences (net)(Note 33) 85,830 88,568
Other operating income(Note 34) 1,868,208 1,993,307
Income from insurance and reinsurance contracts 1,403,832 1,518,550
Revenue from provision of non-financial services 280,503 180,264
Other operating income 183,873 294,493
Other operating expenses(Note 34) (1,102,563) (1,238,624)
Expenses from insurance and reinsurance contracts (544,305) (808,327)
Changes in inventories (64,936) (75,100)
Other operating expenses (493,322) (355,197)
Gross income 6,794,411 6,959,170
Administrative expenses (3,057,577) (2,937,931)
Personnel expenses(Note 35) (2,305,523) (2,165,834)
Other general administrative expenses(Note 36) (752,054) (772,097)
Depreciation and amortization(Notes 18 and 19) (371,047) (484,326)
Provisions (net)(Note 23) (99,619) (191,067)
Impairment losses on financial assets (net)(Note 37) (2,578,280) (2,195,010)
Loans and receivables (2,230,244) (2,115,110)
Other financial instruments not measured at fair value
through profit or loss (348,036) (79,900)
Profit from operations 687,888 1,150,836
Impairment losses on other assets (net)(Note 38) (610,501) (176,590)
Goodwill and other intangible assets (7,878) (15,105)
Other assets (602,623) (161,485)
Gains/(losses) on disposal of assets not classified as non-current
assets held for sale(Note 39) 691,689 461,244
Negative goodwill in business combinations 0 0 Gains/(losses) on non-current assets held for sale not classified
as discontinued operations(Note 40) 95,987 4,314
Profit/loss before tax 865,063 1,439,804
Income tax(Note 26) 333,884 246,589
Mandatory transfer to welfare funds 0 0
Profit for the year from continuing operations 1,198,947 1,686,393
Profit from discontinued operations (net) 0 0
Consolidated profit for the year 1,198,947 1,686,393
Profit attributable to the Parent 974,794 1,307,353 Profit attributable to non-controlling interests(Note 24) 224,153 379,040 (*) Presented for comparison purposes only.
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated income statement for the year ended December 31, 2011.
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated integral part of the statement of recognized income and expense for the year ended December 31, 2011.
Consolidated statement of recognized income and expense
for the years ended December 31, 2011 and 2010, in thousands of euros
OF CAIXA D’ESTALVIS I PENSIONS DE BARCELONA AND COMPANIES COMPOSING THE ”LA CAIXA” GROUP
2011 2010(*)
A. Consolidated profit for the year 1,198,947 1,686,393
B. Other recognized income and expense(Note 24) (1,061,968) (224,921)
Available-for-sale financial assets (962,942) (573,262)
Revaluation gains/(losses) (886,766) (433,703)
Amounts transferred to income statement (76,176) (139,559)
Cash flow hedges 121 9,693
Revaluation gains/(losses) (6,324) (3,382)
Amounts transferred to income statement 6,445 13,075
Hedges of net investment in foreign operations 0 0
Exchange differences (86,837) 281,873
Revaluation gains/(losses) (86,837) 281,873
Amounts transferred to income statement 0 0
Non-current assets held for sale 0 0
Actuarial gains/(losses) on pension plans 0 0 Entities accounted for using the equity method (290,147) (103,596)
Revaluation gains/(losses) (290,147) (103,596)
Other recognized income and expense 0 0
Income tax 277,837 160,371
C. Total recognized income and expense (A+B) 136,979 1,461,472
Attributable to the Parent 149,385 1,098,752 Attributable to non-controlling interests (12,406) 362,720
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated statement of total changes in equity for the year ended December 31, 2011.
Consolidated statement of total changes in equity
for the years ended December 31, 2011 and 2010, in thousands of euros
OF CAIXA D’ESTALVIS I PENSIONS DE BARCELONA AND COMPANIES COMPOSING THE ”LA CAIXA” GROUP
QU Y U O P EQUITY 2011 CAPITAL / ENDOWMENT FUND ACCUMULATED RESERVES/(LOSSES) RESERVES/(LOSSES) OF ENTITIES ACCOUNTED FOR USING THE EQUITY
METHOD
PROFIT ATTRIBUTABLE TO THE PARENT
Opening balance at December 31, 2010 3,006 14,230,464 1,880,298 1,307,353
Adjustments due to changes in accounting policy Adjustments made to correct errors
Adjusted opening balance 3,006 14,230,464 1,880,298 1,307,353
Total recognized income/(expense) 974,794
Other changes in equity 0 (745,280) 1,275,826 (1,307,353)
Payment of dividends/remuneration to shareholders
Transfers between equity items (603,137) 1,229,890 (917,353)
Optional transfer to welfare funds (390,000)
Other increases/(decreases) in equity (142,143) 45,936
Final balance at december 31, 2011 3,006 13,485,184 3,156,124 974,794
B E O EQUITY 2010(*) CAPITAL / ENDOWMENT FUND ACCUMULATED RESERVES/(LOSSES) RESERVES/(LOSSES) OF ENTITIES ACCOUNTED FOR USING THE EQUITY
METHOD
PROFIT ATTRIBUTABLE TO THE PARENT
Opening balance at December 31, 2009 3,006 13,454,264 1,729,141 1,509,644
Adjustments due to changes in accounting policy Adjustments made to correct errors
Adjusted opening balance 3,006 13,454,264 1,729,141 1,509,644
Total recognized income/(expense) 1,307,353
Other changes in equity 0 776,200 151,157 (1,509,644)
Payment of dividends/remuneration to shareholders
Transfers between equity items 437,698 646,946 (1,084,644)
Increases/(decreases) due to business
combinations (52,600)
Optional transfer to welfare funds (425,000)
Other increases/(decreases) in equity 391,102 (495,789)
Final balance at December 31, 2010 3,006 14,230,464 1,880,298 1,307,353 (*) Presented for comparison purposes only.
NON-CONTROLLING
INTERESTS TOTAL EQUITY
TOTAL EQUITY VALUATION ADJUSTMENTS 17,421,121 1,404,135 3,154,600 21,979,856 0 0 17,421,121 1,404,135 3,154,600 21,979,856 974,794 (825,409) (12,406) 136,979 (776,807) (507,889) 2,369,741 1,085,045 0 (133,587) (133,587) (290,600) (507,889) 798,489 0 (390,000) (390,000) (96,207) 1,704,839 1,608,632 17,619,108 70,837 5,511,935 23,201,880 NON-CONTROLLING
INTERESTS TOTAL EQUITY
TOTAL EQUITY VALUATION ADJUSTMENTS 16,696,055 1,612,736 3,094,540 21,403,331 0 0 16,696,055 1,612,736 3,094,540 21,403,331 1,307,353 (208,601) 362,720 1,461,472 (582,287) 0 (302,660) (884,947) 0 (287,026) (287,026) 0 0 (52,600) (52,600) (425,000) (425,000) (104,687) (15,634) (120,321) 17,421,121 1,404,135 3,154,600 21,979,856
The accompanying Notes 1 to 42 and appendices 1 to 6 are an integral part of the consolidated statement of cash flows for the year ended December 31, 2011.
Statement of cash flows
for the years ended December 31, 2011 and 2010, in thousands of euros
OF CAIXA D’ESTALVIS I PENSIONS DE BARCELONA AND COMPANIES COMPOSING THE ”LA CAIXA” GROUP
2011 2010(*)
A. Cash flows from operating activities (7,830,926) 3,401,160
Consolidated profit for the year 1,198,947 1,686,393 Adjustments to obtain cash flows from operating
activities 6,050,806 4,321,883
Depreciation and amortization 371,047 484,326
Other adjustments 5,679,759 3,837,557
Net increase/(decrease) in operating assets 1,640,110 8,111,271
Held-for-trading portfolio 988,572 (3,883,412)
Other financial assets at fair value through profit
or loss 3,169 21,774
Available-for-sale financial assets 230,131 (2,840,426)
Loans and receivables (1,161,410) 12,182,869
Other operating assets 1,579,648 2,630,466
Net increase/(decrease) in operating liabilities (13,106,685) 5,750,744
Held-for-trading portfolio 1,520,612 1,184,249
Other financial liabilities at fair value through
profit or loss 14,526 14,734
Financial liabilities at amortized cost (13,267,852) 4,993,432
Other operating liabilities (1,373,971) (441,671)
Income tax (paid)/received (333,884) (246,589)
B. Cash flows used in investing activities 1,467,749 (8,824,959)
Payments 1,962,144 11,897,672
Property and equipment 466,661 807,849
Intangible assets 74,543 95,395
Investments 1,044,371 518,134
Subsidiaries and other business units 238,814 852,223
Non-current assets and associated liabilities held for sale 126,095 2,234,673
Held-to-maturity investments 11,660 7,389,398
Proceeds 3,429,893 3,072,713
Property and equipment 191,987 742,318
Investments 669,359 1,007,596
Subsidiaries and other business units 1,233,096
Non-current assets and associated liabilities held for sale 1,335,451 1,322,799
C. Cash flows from financing activities 3,918,511 5,464,974
Payments 4,184,621 3,087,026
Other payments related to financing activities 4,184,621 3,087,026
Proceeds 8,103,132 8,552,000
Subordinated liabilities 3,000,000
Other inflows related to financing activities 8,103,132 5,552,000
D. Effect of exchange rate changes (4,302) 1,603
E. Net increase/(decrease) in cash and cash equivalents
(A+B+C+D) (2,448,968) 42,778
F. Cash and cash equivalents at the beginning of the year 5,162,149 5,119,371 G. Cash and cash equivalents at the end of the year 2,713,181 5,162,149
Memorandum items
Components of cash and cash equivalents at the end of the year
Cash 1,119,328 1,287,844
Cash equivalents at central banks 1,593,853 3,874,305
Total cash and cash equivalents at the end of the year 2,713,181 5,162,149 (*) Presented for comparison purposes only.
CONTENTS PAGE
1. Corporate and other information 15
Corporate information 15
Reorganization of the ”la Caixa” Group 15
Basis of presentation 18
Responsibility for the information and for the estimates made 22 Comparison of information and changes in scope of consolidation 22
Investments in credit institutions 23
Minimum reserve ratio 23
Deposit guarantee fund 23
Events after the reporting period 24
2. Accounting policies and measurement bases 25 2.1. Business combinations and basis of consolidation 25
2.2. Financial instruments 27
2.3. Derivatives and hedges 30
2.4. Foreign currency transactions 31
2.5. Recognition of income and expenses 32
2.6. Transfers of financial assets 33
2.7. Impairment of financial assets 33
2.8. Mutual funds, pension funds and other assets under management 35 2.9. Personnel expenses and post-employment obligations 35
2.10. Income tax 38
2.11. Property and equipment 38
2.12. Intangible assets 39
2.13. Inventories 40
2.14. Non-current assets held for sale 40
2.15. Insurance transactions 41
2.16. Provisions and contingent liabilities 42
2.17. Welfare projects 42
2.18. Cash flow statement 43
3. Risk management 43 3.1. Credit risk 45 3.2. Market risk 58 3.3. Liquidity risk 66 3.4. Operational risk 71 3.5. Compliance risk 72 3.6. Internal Audit 74
3.7. Internal control over financial reporting 74
4. Capital adequacy management 74
5. Appropriation of profit 76
6. Business combinations, acquisition and disposal of ownership interests
in subsidiaries 77
7. Segment information 84
8. Remuneration and other benefits paid to key management personnel
and executives 87
9. Cash and balances with central banks 90
10. Held-for-trading portfolio (assets and liabilities) 90
11. Available-for-sale financial assets 92
12. Loans and receivables 95
12.1. Loans and advances to credit institutions 96
12.2. Loans and advances to customers 96
12.3. Debt instruments 100
12.4. Impairment losses 101
13. Held-to-maturity investments 102
14. Hedging derivatives (assets and liabilities) 104
15. Non-current assets held for sale 105
Note to the consolidated financial statements of the ”la Caixa” Group
for 2011
16. Investments 107
17. Reinsurance assets 113
18. Property and equipment 114
19. Intangible assets 116
20. Other assets and liabilities 118
21. Financial liabilities at amortized cost 119
21.1. Deposits from credit institutions 121
21.2. Customer deposits 121
21.3. Marketable debt securities 122
21.4. Subordinated liabilities 127
21.5. Other financial liabilities 130
22. Liabilities under insurance contracts 130
23. Provisions 130 24. Equity 138 24.1. Own funds 138 24.2. Valuation adjustments 140 24.3. Non-controlling interests 141 25. Welfare projects 143 26. Tax matters 147
27. Contingent liabilities and commitments 150
28. Other significant disclosures 150
28.1. Third-party funds managed by the Group 150
28.2. Asset securitizations 151
28.3. Securities deposits and investment services 156 28.4. Financial assets derecognized due to impairment 157 28.5. Geographic distribution of business volume 158
29. Interest and similar income 159
30. Interest expense and similar charges 159
31. Return on equity instruments 160
32. Fees and commissions 160
33. Gains/(losses) on financial assets and liabilities (net) 161
34. Other operating income and expense 161
35. Personnel expenses 163
36. Other general administrative expenses 164 37. Impairment losses on financial assets (net) 165 38. Impairment losses on other assets (net) 167 39. Gains/(losses) on disposal of assets not classified as non-current
assets held for sale 167
40. Gains/(losses) on non-current assets held for sale not classified
as discontinued operations 168
41. Related party transactions 168
42. Other disclosure requirements 171
42.1. Customer Ombudsman and Customer Care Service 171
42.2. Environmental information 173
Appendix 1. ”la Caixa” Group subsidiaries 175 Appendix 2. Joint ventures of the ”la Caixa” Group (jointly controlled entities) 179 Appendix 3. Associates of the ”la Caixa” Group 180 Appendix 4. Tax credit for reinvestment of extraordinary profit 182 Appendix 5. Companies filing joint tax returns 183 Appendix 6. Disclosure on the acquisition and disposal of stakes
Notes to the consolidated financial statements
for the year ended December 31, 2011
CAIXA D’ESTALVIS I PENSIONS 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 other comprehensive income, the consolidated statement of total changes in equity and the consolidated statement of cash flows, and form an integral part thereof, in order to give a true and fair view of the equity and financial position of the ”la Caixa” consolidated group at December 31, 2011, and the results of its operations, the changes in consolidated equity and the cash flows during the year then ended.
1. Corporate and other information
Corporate information
As a savings bank and in accordance with its Bylaws, Caixa d’Estalvis i Pensions de Barcelona (hereinafter ”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 authorized forms of savings, to carry out beneficent welfare projects and to invest the related funds in safe and profitable assets of general interest. In accordance with its Bylaws, ”la Caixa” carries on its business indirectly as a credit institution through a bank, CaixaBank, SA (hereinafter “CaixaBank”), which in addition manages part of the investment portfolio of the Caixa d’Estalvis i Pensions de Barcelona Group (the ”la Caixa” Group or “the Group”), focusing mainly on leading companies in the financial and insurance sectors.
As a credit institution, subject to the rules and regulations issued by the Spanish and European Union 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 decision-making unit. Therefore, ”la Caixa” is obliged to prepare, in addition to its own individual financial statements, consolidated financial statements for Caixa d’Estalvis i Pensions de Barcelona Group (the ”la Caixa” Group or the Group), which also includes interests in joint ventures and investments in associates.
Reorganization of the ”la Caixa” Group
The enactment of Royal Decree-Law 11/2010, of July 9, on the governing bodies and other matters relating to the legal framework for savings banks, in addition to the modification of the consolidated text of the Catalan Savings Banks Law, through Royal Decree-Law 5/2010, introduced the possibility for a savings bank to conduct its financial activities indirectly through a bank.
Under this legal framework, on January 27, 2011, the Boards of Directors of ”la Caixa”, Criteria CaixaCorp, SA (“Criteria”) and MicroBank de ”la Caixa”, SA (“MicroBank”) entered into a framework agreement (the “Framework Agreement”) entailing the reorganization of the ”la Caixa” Group in order to adapt to the new demands of national and international regulations and, specifically, to the new requirements of the Basel Committee on Banking Supervision (Basel III). The structure designed enables ”la Caixa” to indirectly carry out its financial activity while upholding its commitment to social welfare.
Approval was given at the Ordinary General Assembly of ”la Caixa” and the Annual General Meeting of Criteria held April 28 and May 12, 2011, respectively, to all proposals set forth by the respective Boards of Directors regarding the reorganization of the ”la Caixa” Group.
On June 30, 2011, the corporate transactions included in the Framework Agreement were completed, for legal and business purposes, which led to the transformation of Criteria into CaixaBank. In accordance with prevailing legislation, these transactions were accounted for retrospectively from January 1, 2011 (see “Corporation information” in this note), as indicated above.
Pursuant to the accounting standards applicable to intra-group mergers and spin-offs require that assets and liabilities subject to such operations be valued at their carrying amount in the consolidated financial statements of the group in question. Consequently, the assets and liabilities included in the transactions listed below have been measured at their carrying amount in the ”la Caixa” Group’s consolidated financial statements at December 31, 2010.
Following is a description of the main corporate transactions carried out within the reorganization of the ”la Caixa” Group:
a) the spin-off by ”la Caixa” in favor of Microbank of the assets and liabilities making up its financial activity, except the stakes of ”la Caixa” in Servihabitat XXI, SAU, Metrovacesa, SA and Inmobiliaria Colonial, SA, certain of its real estate assets and certain of its debt issues. ”la Caixa” maintains its Welfare Fund and continues to finance and support charitable and welfare activities. The net carrying amount in ”la Caixa”’s individual balance sheet of the assets and liabilities spun off by ”la Caixa” in favor of MicroBank is €11,591,982 thousand.
At consolidated levels, the net assets and liabilities amount to €11,894,481 thousand, broken down as follows:
Thousands of euros
Net carrying amount in the separate balance sheet of ”la Caixa” of the spun-off
assets and liabilities 11,591,982
Reserves at ”la Caixa” Group consolidated companies spun off in favor
of MicroBank and other reserves 211,256
Net equity of MicroBank prior to the reorganization 91,243
Total equity of MicroBank post spin-off(*) 11,894,481
(*) MicroBank’s equity post spin-off comprises the equity of the businesses received from Criteria.
The market value of 100% of MicroBank’s capital at January 1, 2011 was estimated at €9,515,585, equivalent to 0.8 times the equity of MicroBank. As indicated in the Framework Agreement, in determining this factor, the share prices of entities with similar profiles were considered, adjusting the multiples to take into account the better competitive position, credit quality and coverage level, and the absence of real-estate assets in the portfolio.
This market value estimate is supported by several fairness opinions issued by independent experts.
b) contribution to Criteria by ”la Caixa” of all the shares of MicroBank post spin-off. In exchange, Criteria transferred the following to ”la Caixa”:
• The equity holdings listed below, the consolidated carrying amount of which is €7,535,809 thousand and whose market value has been estimated at €7,471,340 thousand (both figures are at January 1, 2011). i) a direct 36.64% stake in Gas Natural SDG, SA;
ii) a direct 20.72% stake in Abertis Infraestructuras, SA (hereinafter “Abertis”) and a direct 50.1% stake in Inversiones Autopistas, SL (owner of 7.75% of Abertis) which, in total, represents a 24.61% stake in the share capital of Abertis;
iii) an indirect 24.03% stake in the share capital of Sociedad General de Aguas de Barcelona, SA, through holding a direct 24.26% stake in Hisusa, Holding de Infraestructuras y Servicios Urbanos, SA, owner of 99.04% of the share capital of Sociedad General de Aguas de Barcelona, SA;
(iv) a direct and indirect 50% stake in PortAventura Entertainment, SA; and (v) a direct 100% stake in Mediterránea Beach & Golf Community, SA.
The market values of these investments were estimated based on the following measurement criteria: – Gas Natural SDG, SA and Abertis Infraestructuras, SA: average share price between December 27, 2010
and January 26, 2011, adjusted for dividends paid within the period – Sociedad General de Aguas de Barcelona, SA: latest transaction price.
– PortAventura Entertainment, SA: Latest transaction EBITDA multiples, taking the updated EBITDA based on the latest closing.
– Mediterranea Beach & Golf Community, SA: net carrying amount of leased properties and third-party appraisal of land for residential, hotel and commercial use with completed development.
• 374,403,908 new shares of Criteria issued as part of a non-cash capital increase for €2,044,245 thousand. The unit value of the shares issued by Criteria was set at €5.46, equivalent to net asset value (“NAV”) without factoring in the impact of the reorganization of Criteria’s assets on January 26, 2011.
The combined amount of the capital increase (€2,044,245 thousand) and the market value of the shareholdings and other assets delivered by Criteria to ”la Caixa” (€7,471,340 thousand) equal the market value of the MicroBank shares delivered to Criteria by ”la Caixa” (€9,515,585 thousand euros).
c) the absorption of Criteria by MicroBank. This transaction gave Criteria the status of a credit institution with the corporate name “CaixaBank, SA”. CaixaBank is the listed bank through which ”la Caixa” indirectly carries out its financial activity.
The reorganization process described above also entailed the delivery to ”la Caixa” Group employees of CaixaBank shares equivalent to 0.4% of total capital.
Following Criteria’s Annual General Meeting held on May 12, 2011, Criteria shareholders who had not voted in favor of the merger with MicroBank were given until June 14, 2011 to exercise their voluntary right of withdrawal. Upon expiry of this period, holders of 46,485,705 Criteria shares, representing 1.38% of pre-reorganization share capital, had exercised their right of withdrawal. As a result and pursuant to the resolution adopted at the Annual General Meeting of May 12, 2011, Criteria acquired the corresponding treasury shares at a price of €5.0292 per share (see note 24).
Following the completion of these corporate transactions, CaixaBank became the owner of the stakes previously held by Criteria, in insurance companies, mutual fund managers and foreign financial entities, Telefónica, SA and Repsol-YPF, SA.
Also within the scope of the reorganization of the ”la Caixa” Group, the following transactions were carried out in the second half of 2011, with effect for accounting purposes from January 1, 2011:
• contribution, on August 1, 2011, by ”la Caixa” to a non-listed holding company, called Criteria CaixaHolding, SAU, of all the shareholdings indicated in (b) above, as well as other assets not included in the spinoff of ”la Caixa” in favor of MicroBank indicated in (a) above. ”la Caixa” is Criteria CaixaHolding, SAU’s sole shareholder.
• spin-off, on September 16, 2011, by CaixaBank in favor of a newly created entity, called Nuevo Micro Bank, SA, of the assets and liabilities of the microcredit activity carried out by MicroBank prior to the reorganization.
The following chart illustrates the reorganization of the ”la Caixa” Group:
Previous structure Banking (includes real estate
assets) Welfare projects Welfare projects International banks Industrial and services portfolio
Insurance companies
New structure
Banking and insurance
previously Criteria listed unlisted
100% 81.5% 79.5% International banks Repsol + Telefónica Industrial portfolio Real-estate assets
In connection with the foregoing, in order to bolster the CaixaBank Group’s equity structure, Criteria (called CaixaBank after the reorganization) issued €1,500 million of subordinated bonds with mandatory conversion into CaixaBank shares in June 2011, for distribution through the ”la Caixa” network (see note 24).
The costs associated with the aforementioned transactions amounted to €116 million, of which €62 million related to “Personnel expenses” incurred in the delivery of CaixaBank shares to ”la Caixa” Group employees. In addition, €39 million was recognized in “Other general administrative expenses”, including costs related to the advisory and design of the transaction, the adaptation to the new organizational structure and the communication, disclosure and dissemination of the reorganization. Expenses attributable directly to the issue of own equity instruments (€15 million) were deducted directly from equity (see Note 24).
Finally, within the procedure described in the preceding paragraphs, the 12.69% interest in Repsol-YPF, SA was recognized under associates, with effect from January 1, 2011 (see Notes 11 and 16) as the ”la Caixa” Group then had significant influence over the company.
Basis of presentation
The consolidated financial statements have been prepared in accordance with the Commercial Code, International Financial Reporting Standards (hereinafter 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 July 19, 2002 and subsequent amendments, and bearing in mind the provisions of Bank of Spain Circular 4/2004 of December 22 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 Spanish credit institutions. The financial statements were prepared from the accounting records of ”la Caixa” and the other Group companies, and include certain adjustments and reclassifications required to apply the policies and criteria used by the Group companies on a consistent basis with those of ”la Caixa”.
Standards and interpretations issued by the International Accounting Standard Board
(IASB) that became effective in 2011
At the date of authorization for issue of these consolidated financial statements, the following standards and interpretations were effective, the adoption of which by the Group did not have a significant impact on its consolidated financial statements.
•IAS 32Financial Instruments: Presentation (Amendment)
The amendment clarifies the classification of rights issues for purchase of shares (rights, options or warrants) denominated in foreign currency. The amendment stipulates that rights issued to acquire a fixed number of shares for a fixed amount must be classified as equity, regardless of the currency in which the fixed amount is denominated, provided they meet the requirements of the standard.
• IFRIC 19Extinguishing Financial Liabilities with Equity Instruments
The interpretation sets forth accounting treatment for a debtor that issues equity instruments to a creditor to extinguish all or part of a financial liability.
• IAS 24Related Party Disclosures (Revised)
This introduces two new features: (a) partial exemption from the disclosure requirements when there is a relationship involving entities that are controlled or related to the government (or an equivalent government institution) and (b) revised definition of a related party, clarifying relationships that were previously not explicit in the standard.
• IFRIC 14Prepayments of a Minimum Funding Requirement (Amendment)
This amendment states that, in some circumstances, entities are not permitted to recognize as an asset some voluntary prepayments for minimum funding contributions.
Standards and interpretations issued by IASB but not yet effective
At the date of authorization for issue of these consolidated financial statements, the following standards and interpretations had been issued by the IASB but were not yet effective, either because their effective date is subsequent to the date of the consolidated financial statements or because they had not yet been endorsed by the European Union.
The Group has assessed the impacts arising from these standards and interpretations and has elected not to early adopt them, where possible, because it would have no significant impact.
STANDARDS AND INTERPRETATIONS TITLE
MANDATORY APPLICATION FOR ANNUAL PERIODS BEGINNING ON
OR AFTER:
Approved for use in the EU
Amendment to IFRS 7 Financial instruments: Disclosures July 1, 2011
Not approved for use in the EU
Amendment to IAS 12 Taxes January 1, 2012
Amendment to IAS 1 Presentation of Financial Statements July 1, 2012
Amendment to IFRS 7 Financial instruments: Disclosures January 1, 2013
IFRS 10 Consolidated Financial Statements January 1, 2013
IFRS 11 Joint Arrangements January 1, 2013
IFRS 12 Disclosure of Interests in Other Entities January 1, 2013
IFRS 13 Fair Value Measurement January 1, 2013
Amendment to IAS 19 Employee Benefits January 1, 2013
Amendment to IAS 27 Consolidated and Separate Financial Statements January 1, 2013
Amendment to IAS 28 Investments in Associates January 1, 2013
Interpretation of IFRIC 20 Stripping costs in the production phaseof a surface mine January 1, 2013
Amendment to IAS 32 Financial instruments: Presentation January 1, 2014
IFRS 9 Financial instruments: Classificationand Measurement January 1, 2015
• IFRS 7Financial Instruments: Disclosures (Amendment)
This amendment clarifies and enhances the disclosure requirements in financial statements regarding transfers of financial assets.
• IAS 12Income taxes (Amendment)
The amendment includes an exception to the general principles of IAS 12 affecting deferred taxes on investment properties measured using the fair value model in IAS 40Investment Property. In these cases, the amendment introduces, with respect to calculating deferred taxes, a presumption that recovery of the carrying amount will normally be through sale.
This presumption is refuted when the investment property is depreciable and the business model entails holding the property to earn economic benefits through its future use rather than sale.
• IAS 1Presentation of Financial Statements (Amendment)
This amendment requires entities to present a total for “profit or loss” separately from “other comprehensive income”, distinguishing between those items that will be reclassified to profit or loss subsequently and those that will not be reclassified.
• IFRS 7Financial Instruments: Disclosures (Amendment)
The modification introduces new disclosure requirements for financial assets and financial liabilities shown net on the balance sheet, as well as for those financial instruments subject to a net compensation or similar agreement, regardless of whether they have been offset in accordance with IAS 32:Financial Instruments: Presentation.
• IFRS 10Consolidated Financial Statements
This standard was issued in conjunction with IFRS 11, IFRS 12 and the amendments to IAS 27 and IAS 28 (see below), replacing the current standards governing consolidation and recognition of subsidiaries, associates and joint ventures, as well as disclosure requirements.
Upon entry into force, this standard will replace the consolidation guidelines set out in the current IAS 27
Consolidated and Separate Financial Statementsand in interpretation SIC 12Consolidation –Special Purpose Entities.
The standard primarily modifies the definition of control, eliminating the risks/rewards approach set out in SIC 12. Control is now defined through three required elements: power over the investee; exposure or rights to variable returns from the investee; and the ability to use the power over the investee to affect the amount of the investor’s returns.
• IFRS 11Joint Arrangements
Upon entry into force, IFRS 11 replaces the current IAS 31 Interests in Joint Ventures. The fundamental change compared to the prevailing standard is the elimination of the proportionate consolidation option for jointly controlled entities. Under IFRS 11, these entities should be accounted for using the equity method. The standard also modifies certain nuances when analyzing joint arrangements, focusing on whether or not the arrangement is structured through a separate vehicle. The standard also defines two types of joint arrangements: joint operations and joint ventures.
• IFRS 12Disclosure of Interests in Other Entities
IFRS 12 groups together and extends the scope of all disclosure requirements regarding interests in subsidiaries, associates, joint ventures or other investees. The primary change with respect to current disclosure requirements is the new obligation to disclose interests in unconsolidated structured entities.
• IFRS 13Fair Value Measurement
IFRS 13 aims to provide the sole guidance for calculating the fair value of assets and liabilities when fair value measurement is required or permitted by other IFRS. The new standard does not modify the prevailing measurement criteria established in other standards, and is applicable to measurements of both financial and non-financial assets and liabilities.
In addition, IFRS 13 modifies the current definition of fair value, introducing new considerations, and increases consistency and comparability in fair value measurement by adopting the “fair value hierarchy”, which is conceptually similar to that set out for certain financial instruments in IFRS 7Financial Instruments: Disclosures.
• IAS 19Employee Benefits (Amendment)
The most relevant modifications, which primarily affect defined benefit plans, are as follows:
– Elimination of the corridor approach, under which entities were able to defer a certain portion of their actuarial gains and losses. Following entry into force of this modification, all actuarial gains and losses must be recognized immediately.
– Relevant changes in grouping and presenting cost components in the statement of other comprehensive income. The entire cost of the obligation shall be presented in three separate components: service cost, net interest component and revaluation gains and losses.
• IAS 27Consolidated and Separate Financial Statements (Amendment)
This modification reissues the standard, given that from its entry into force its content will only refer to separate financial statements.
• IAS 28Investments in Associates (Amendment)
This modification reissues the standard, which now includes guidance on how to account for joint ventures, indicating that they shall henceforth be accounted for as associates, i.e., using the equity method.
• IFRIC 20Stripping Costs in the Production Phase of a Surface Mine
The interpretation sets out the accounting treatment of the costs of disposing of waste materials.
• IAS 32Financial Instruments: Presentation (Amendment)
This modification provides additional clarification regarding the requirements for offsetting financial assets and financial liabilities shown on the balance sheet.
• IFRS 9Financial Instruments: Classification and Measurement
IFRS 9 will eventually replace the section of IAS 39 that currently deals with classification and measurement. There are some major differences with respect to the current standard; e.g. approval of a new classification model based on only two categories: amortized cost and fair value, entailing the elimination of the current held-to-maturity investments and available-for-sale financial assets categories; a single impairment method for assets measured at amortized cost, and non-separation of embedded derivatives in finance contracts.
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 2011 were authorized for issue by the Board of Directors at a meeting held on February 23, 2012. These financial statements and the financial statements of the 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” expects they will be approved without any changes. The financial statements of ”la Caixa” and the consolidated financial statements of the ”la Caixa” Group for 2010 were approved by the General Assembly held on April 28, 2011, and are presented solely for the purpose of comparison with the figures for 2011.
The preparation of the consolidated financial statements required senior executives of CaixaBank and consolidated companies to make certain judgments, estimates and assumptions in order quantify certain of the assets, liabilities, revenues, expenses and obligations shown in them. These estimates relate primarily to: • Impairment losses on certain financial assets (Notes 2.7 and 13)
• The measurement of goodwill (Notes 2.12 and 19)
• The useful life of and impairment losses on other intangible assets and property and equipment (Notes 2.11 and 2.12)
• The measurement of investments in jointly controlled entities and associates (Note 16) • Actuarial assumptions used to measure liabilities arising from insurance contracts (Note 22) • Actuarial assumptions used to measure post-employment liabilities and commitments (Note 23) • The fair value of certain financial assets and liabilities (Note 2.2)
These estimates were made on the basis of the best information available at the date of preparation of these consolidated financial statements. However, events may occur that make it necessary for them to be changed in future periods.
The accounting principles and policies and the measurement bases established by the IFRSs are generally consistent with those established by Bank of Spain Circular 4/2004 and are described in Note 2. No criteria differing from such standards which may have a material effect have been applied.
Comparison of information and changes in scope of consolidation
IFRSs require that the information presented in the consolidated financial statements be consistent. In 2011, there were no significant amendments with respect to the accounting regulations applicable that affected the
comparability of information between financial years (see Note 2). The information related to December 31, 2010 contained in these consolidated financial statements is presented solely for purposes of comparison with the year ended December 31, 2011.
The reorganization of the ”la Caixa” Group explained in Note 1 did not produce any change in the scope of consolidation, nor did it affect the comparability of the information. The Group’s equity was unchanged, but equity attributable to non-controlling interest was modified. Note 24 details the impact of the reorganization at January 1, 2011 on equity attributable to the Group and to non-controlling interests.
The main variations in the scope of consolidation in 2011 are set out in Note 6.
Investments in credit institutions
In accordance with the provisions of Royal Decree 1245/1995 of July 14, the table below sets out the stakes equal to or greater than 5% of the capital or voting rights in a credit institution held by the ”la Caixa” Group in 2011 and 2010. Investments in credit institutions that are subsidiaries of the ”la Caixa” Group at December 31, 2011 are shown in Appendix 1.
Investments in credit institutions
CREDIT INSTITUTIONS 2011 2010
Banco BPI, SA 30.10% 30.10%
Boursorama, SA 20.73% 20.76%
Grupo Financiero Inbursa 20.00% 20.00%
The Bank of East Asia, LTd 17.00% 15.20%
Erste Group Bank, AG 9.77% 10.10%
At December 31, 2011 and 2010 no Spanish or foreign credit institution or group of which a credit institution forms part held a stake equal to or greater than 5% of the capital or voting rights of any of the credit institutions that are subsidiaries of the ”la Caixa” Group.
Minimum reserve ratio
At December 31, 2011 and 2010, and throughout the 2011 and 2010 financial years, ”la Caixa” complied with the minimum ratios required by applicable Spanish regulations.
Deposit guarantee fund
In 2011, the ”la Caixa” Group made an annual contribution to the Savings Bank Deposit Guarantee Fund, the institution responsible for guaranteeing the money deposited and securities placed with savings banks. This contribution was 1/1000 of the calculation base.
In 2011, amendments were made to regulation affecting contributions to the Deposit Guarantee Fund. The first amendment, introduced under Bank of Spain Circular 3/2011 of June 20, establishes additional contributions to existing funds for member institutions that arrange time deposits or settle demand deposits whose agreed remuneration exceeds the limits set by the Bank of Spain. These contributions are calculated and made quarterly, weighted at 400% of balances affected and applying the institution’s ordinary percentage contribution. The first settlement in this connection was made in November.
The second amendment, introduced under Royal Law 19/2011 of December 2, modifying Royal Decree-Law 16/2011 of October 14, creating the Deposit Guarantee Fund of Credit Institutions, aims to integrate the three deposit guarantee funds existing at that time (for savings banks, banking institutions and credit cooperatives), while guaranteeing the flexibility to strengthen the solvency and operating efficiency of the institutions.
The maximum annual contribution was also revised, from 2/1000 to 3/1000 of guaranteed deposits, compared to the 1/1000 in place until then for savings banks This new contribution percentage will be effective as from the first settlement made in 2012.
The amounts accrued for contributions to the Deposit Guarantee Fund are recognized under “Other operating expenses” in the income statement (see Note 34).
Events after the reporting period
• On December 15, 2011, the Board of Directors of CaixaBank agreed, pursuant to the authorization granted at the General Shareholders’ Meeting held on May 12, 2011, to issue the following bonds (the “Bonds”):
1) subordinated mandatorily convertible and/or exchangeable bonds in CaixaBank shares with a par value of €100 each and a 6.5% nominal coupon (the “Convertible/Exchangeable Bonds”) up to an amount excluding the pre-emptive subscription rights of shareholders of €1,469,275,800;
(2) subordinated bonds series I/2012, with a par value of €100 each and a 4.06% APR (TAE) coupon (the “Subordinated I”) up to a maximum amount of €2,100,000,000; and
(3) subordinated bonds series II/2012, with a par value of €100 each and a 5.095% APR (TAE) coupon (the “Subordinated II”) up to a maximum amount of €1,328,310,200.
Of the outstanding face value of Convertible/Exchangeable Bonds, 50% will be mandatorily converted into and/or exchanged for shares of CaixaBank on June 30, 2012. The remaining 50% that has not been previously converted and/or exchanged will necessarily be converted into or exchanged for shares of CaixaBank on June 30, 2013. Both the Subordinated I and Subordinated II issues will have a 10-year maturity period from the disbursement date.
For the purpose of the conversion and/or exchange of the Convertible/Exchangeable Bonds, the value of the CaixaBank shares will be the greater of: (i) €3.73 per share; and (ii) 100% of the average quoted price of CaixaBank shares during the last 15 stock exchange trading days of the repurchase offer acceptance period.
The issues target holders of the Series A and Series B preference shares (participaciones preferentes) issued by Caixa Preference Limited (currently Caixa Preference, SAU) and the series I/2009 shares issued by ”la Caixa” (with CaixaBank assuming the position as issuer by virtue of the spin-off by ”a Caixa” in favor of Microbank of the assets and liabilities that made up the financial activity of ”la Caixa” and the subsequent absorption of MicroBank, SA by CaixaBank) accepting the offer to buy back said preference shares held by them (see Note 21.4).
The Preference Shares will be bought back at 100% of their par value (i.e. €1,000), to be paid in the following manner:
i) To the holders of the Series A and Series B preference shares for each preference share: €300 in cash and 7 Subordinated I, subject to the irrevocable subscription application referred to below.
ii) To the holders of the series I/2009 for each preference share: €300 in cash and 7 Subordinated II, subject to the irrevocable subscription application referred to below.
As part of the purchase price, holders accepting the repurchase officer will receive the outstanding interest accrued and payable since the last interest payment date for each of the preference shares until the day, inclusive, prior to the effective preference share buyback date, rounded up or down to the nearest euro cent (the “Accrued Interest”).
Acceptance of the repurchase offer, which must be made between December 29, 2011 and January 31, 2012, can only be made in respect of all of the preference shares they own in each series; i.e., preference shareholders are not entitled to partially accept offers with respect to a given series.
Furthermore, acceptance of the repurchase offer is conditional upon a simultaneous irrevocable subscription application for three Convertible/Exchangeable Bonds for every preference share repurchased. The holder accepting the offer will be obliged to reinvest the total price paid in cash (less then Accrued Interest) in the subscription of the Convertible/Exchangeable Bonds.
The Repurchase Offer was accepted for a total of 4,897,586 Preference Shares, representing 98.41% of the Preference Shares to which this offer was directed.
Pursuant to the formula set forth in the Securities Note, the Conversion and/or Exchange Price of the Convertible/Exchangeable Bonds is €3.862, corresponding to 100% of the weighted average share price during the last fifteen trading days of the Buyback Offer acceptance period.
• On January 31, 2011 –subsequent to a tender involving national and international entities– CaixaBank announced it had entered into an agreement to sell its investment fund, securities investment companies and individual system pension fund depositary business to the Association of Spanish Savings Banks.
A fixed selling price of approximately €100 million was set forth in a global agreement. An additional earn-out of up to €50 million may also be accrued depending on the performance of the custody business. It is envisaged that this transaction will be finalized in the first half of 2012, and it is subject to the normal conditions and authorizations required for this type of transaction.
• On February 7, 2012 and in relation to the enactment of Royal Decree-Law 2/2012 on the restructuring of the financial system, ”la Caixa” announced its preliminary estimates of requirements for real estate asset write-downs.
This consideration amounts to €2,436 million for the CaixaBank Group and €730 million relating to Grupo Servihabitat’s real-estate assets.
The new allowances required of the CaixaBank Group are earmarked entirely to bolstering loans portfolio provisions, €955 million of which comes from the general provision covering 7% of assets classified as normal.
The excellent ability to generate recurring operating income and the provision at December 31, 2011 will enable the ”la Caixa” Group, if applicable, to meet these requirements.
At the date of authorization for issue of these financial statements the regulators had not yet issued a regulation concerning recognition of the above-mentioned provisions.
Furthermore, estimated capital requirements, over and above the increase in allowances, stand at €1,305 million, of which €745 million corresponds to the CaixaBank Group. ”la Caixa” Group has €5,792 million of surplus capital over and above the core capital requirement at December 31, 2011 to cover these requirements, registering a core capital ratio of 11.8% over the required minimum of 8% (see Note 4) • Following the various downgrades to Spain’s sovereign rating in January 2012, on February 13, 2012, Fitch
and Standard & Poor’s awarded ”la Caixa” the following ratings: – Fitch: Long-term rating A–, short-term rating F2. Negative outlook; – S&P: Long-term rating BBB–, short-term rating A–3. Stable outlook.
2. Accounting policies and measurement bases
The principal accounting policies and measurement bases used in the preparation of the consolidated financial statements of the ”la Caixa” Group for 2011 were as follows:
2.1. Business combinations and basis of consolidation
Accounting standards define business combinations as the combination of two or more entities within a single entity or group of entities. “Acquirer” is defined as the entity which, at the date of acquisition, gains control of another entity. At the acquisition date, the acquirer recognizes, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition-date fair value.
In addition to data relating to the parent company, the consolidated financial statements also contain information on subsidiaries, jointly controlled entities and associates. The procedure for integrating the assets and liabilities of these companies depends on the type of control or influence exercised.
Subsidiaries
Subsidiaries are defined as entities with which ”la Caixa” constitutes a decision-making unit, because it owns, directly or indirectly, 50% or more of the voting power, or, if this percentage is lower, because it has agreements with other shareholders of these companies that give ”la Caixa” the majority of the voting power. ‘Special-purpose entities’ are also considered to be subsidiaries. Appendix 1 to these notes contains significant information on these companies.
The ”la Caixa” Group considers as subsidiaries the securitization special purpose vehicles created on or after January 1, 2004 in which ”la Caixa” retains the risks and rewards incidental to ownership of their assets. All ”la Caixa” Group companies in which ”la Caixa” owns more than 50% are considered subsidiaries. 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 adding together like items of assets, liabilities, equity, income and expenses shown on their individual financial statements. The carrying amount of direct and indirect investments in the share capital of the subsidiaries is eliminated in proportion to the percentage of ownership in the subsidiaries held by virtue of these investments. All other balances and transactions between the consolidated entities are eliminated on consolidation.
The share of third parties in the equity of the ”la Caixa” Group and in the profit for the year is shown under “Non-controlling interests” in the consolidated balance sheet and “Profit attributable to non-controlling interests” on the consolidated income statement, respectively (see Note 24).
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 on which they cease to be Group subsidiaries.
Note 6 provides information on the most significant acquisitions and sales of subsidiaries in 2011 and 2010.
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 arrangement.
In accordance with IAS 31, as a general rule the ”la Caixa” Group uses the equity method of accounting for jointly controlled entities (see the section on “Associates” in this Note).
Relevant information on these companies is disclosed in Appendix 2.
Associates
Associates are companies over which ”la Caixa” exercises significant influence, but which are not subsidiaries or jointly controlled entities. Significant influence is presumed to exist when the Group holds 20% or more of the voting power of the investee. If the voting rights are lower than 20%, significant influence is evidenced when the Parent expressly states its will to exercise it and, in addition, certain of the circumstances described in IAS 28 occur, such as representation on the Board of Directors, participation in policy-making processes or the existence of material transactions between the investor and 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 private equity activity are not considered to be associates.
In the consolidated financial statements, investments in associates are accounted for using the “equity method”, i.e. in the proportion of the Group’s equity interest in the investee, after consideration of the dividends received and other equity eliminations. The profits and losses arising from transactions with an associate are eliminated to the extent of the Group’s interest in the share capital of the associate.
The amortization of intangible assets with a defined useful life, identified as a result of a Purchase Price Allocation (PPA) is recognized with a charge to “Share of profit (loss) of entities accounted for using the equity method” on the consolidated income statement.
Relevant information on these entities is disclosed in Appendix 2.
2.2. Financial instruments
Fair value and amortized cost
Upon initial recognition, all financial instruments are recognized on the consolidated balance sheet at fair value which, unless there is evidence to the contrary, is the transaction price. Thereafter, at a specified date, the fair value of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties on an arm’s length basis.
Specifically, financial instruments are classified using the following hierarchy for determining fair value by valuation technique:
Level 1: on the basis of quoted prices in active markets.
Level 2: using valuation techniques in which the assumptions correspond to directly or indirectly observable market data or to quoted prices on active markets for similar instruments.
Level 3: valuation techniques are used in which certain of the main assumptions are not supported by observable market data.
Most of the financial instruments recognized as available-for-sale financial assets and as “held-to-maturity investments” have, as the objective reference for determining their fair value, quoted prices in active markets (Level 1) and, therefore, the fair value is determined on the basis of the price that would be paid for it on an organized, transparent and deep market (“quoted price” or “market price”). In general, this level includes listed debt securities, listed equity securities, derivatives traded on active markets and mutual funds.
The fair value of the instruments classified in Level 2, for which there is no market price, is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, of valuation techniques commonly used by the international financial community, taking into account the specific features of the instrument to be measured and, particularly, the various types of risk associated with it. The fair value of OTC derivatives and financial instruments (debt instruments and equity instruments) traded in scantly deep or transparent organized markets is determined methods such as “net present value” (NPV), where each flow is discounted and estimated bearing in mind the market to which it belongs and the index to which it refers, or option pricing models based on observable market data (e.g. Black’76 for caps, floors and swaptions, Black-Scholes for exchange rates and equity options, and Black-Normal for inflation options). Most of the financial instruments classified as trading and hedging derivatives are measured following the criteria for Level 2.
The fair values of loans and receivables, and financial liabilities at amortized cost, also classified in Level 2, were estimated based on discounted cash flows, bearing in mind the estimate of interest rate, credit and liquidity risks in the discount rate.
The fair value of instruments classified in Level 3, for which there are no directly observable market data for their measurement, is determined using alternative techniques, including price requests submitted to the issuer or the use of market parameters with a risk profile that can be readily equated to that of the instrument being measured.
For unquoted equity instruments, classified in Level 3, the Group considers acquisition cost less any impairment loss determined based on publicly available information is the best estimate of fair value.
The Group concluded that minor variations in the assumptions used in the valuation models for classifying instruments in Level 3 would not give rise to substantial changes in the resulting values.
The breakdown of the fair value by methods used to calculate the fair value of the financial instruments held by the ”la Caixa” Group at December 31, 2011 and 2010 is as follows:
Assets
(Thousands of Euros) 2011 2010
LEVEL I LEVEL II LEVEL III LEVEL I LEVEL II LEVEL III
Held-for-trading
portfolio(Note 10) 1,972,939 2,208,948 1,905 1,171,094 1,825,153 117,942
Debt instruments 1,820,125 20,076 1,570 1,053,891 2,058 117,942
Equity instruments 57,689 56,025
Trading derivatives 95,125 2,188,872 335 61,178 1,823,095
Other financial assets at fair value through
profit or loss 210,654 207,485 0 Available-for-sale financial assets (Note 11) 30,823,167 3,032,783 1,279,207 27,433,060 11,252,654 1,460,429 Debt instruments 27,303,937 2,904,568 1,157,270 20,180,867 11,018,538 1,236,314 Equity instruments 3,519,230 128,215 121,937 7,252,193 234,116 224,115
Loans and receivables
(Note 12) 0 192,495,027 0 0 194,784,457 0
Loans and advances
to credit institutions 5,168,027 8,487,110
Loans and advances
to customers 185,734,503 184,470,428 Debt instruments 1,592,497 1,826,919 Held-to-maturity investments(Note 13) 5,479,323 1,792,845 5,175,535 1,911,520 0 Hedging derivatives (Note 14) 13,573,424 10,013,406 0 Total 38,486,083 213,103,027 1,281,112 33,987,174 219,787,190 1,578,371
Liabilities
(Thousands of Euros) 2011 2010
LEVEL I LEVEL II LEVEL III LEVEL I LEVEL II LEVEL III
Held-for-trading portfolio(Note 10) 1,962,009 2,151,605 5,772 793,879 1,800,356 4,539 Short positions 1,819,715 744,386 Trading derivatives 142,294 2,151,605 5,772 49,493 1,800,356 4,539 Other financial liabilities at fair value through profit or loss 224,990 210,464 Financial liabilities at amortized cost (Note 21) 0 211,642,686 0 0 218,201,069 0
Deposits from central banks and credit
institutions 23,531,297 19,041,396
Customer deposits 127,348,309 137,493,186
Marketable debt
securities 44,116,928 45,775,134
Subordinated liabilities 13,346,023 12,692,481
Other financial liabilities 3,300,130 3,198,872
Hedging derivatives
(Note 14) 9,784,561 7,657,744
Total 2,186,999 223,578,852 5,772 1,004,343 227,659,169 4,539
Movements in Level 3 balances in 2011 were as follows:
Level III movements
(Thousands of Euros) FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT AND LOSS
AVAILABLE-FOR-SALE FINANCIAL ASSETS
TRADING SECURITIES TRADING
DERIVATIVES DEBT INSTRUMENTS
EQUITY
INSTRUMENTS TOTAL
Balance at the beginning
of the year 117,942 (4,539) 1,236,314 224,115 1,573,832
Total gains or losses
To profit and loss (174) (1,233) (1,571) (2,978)
To equity valuation adjustments (76,629) 129 (76,500)
Purchases 861 335 15,243 50,018 66,458
Settlements and others (117,059) (17,658) (150,754) (285,471)
Balance at the end of the year 1,570 (5,437) 1,157,270 121,937 1,275,341 Total gains/(losses) in the period
for instruments held at the end
of the year (174) (1,233) (76,629) 0 (78,036)
Classification and measurements of financial assets and liabilities
Financial instruments are classified for the purposes of management and measurement into one of the following categories: “Held-for-trading portfolio”, “Other financial assets and liabilities at fair value through profit and loss”, “Loans and receivables”, “Held-to-maturity investments”, “Available-for-sale financial assets” and “Financial liabilities at amortized cost”. Any other financial assets and liabilities not included in these categories are recognized under one of the following consolidated balance sheet headings: “Cash and balances with central banks”, “Hedging derivatives” and “Investments”.
