HA L F Y E A R L Y FI N A N C I A L ST A T E M E N T S
( UN A U D I T E D) BPM Capital Trust I
BPM Capital Trust I
Financial Statements (Unaudited)
Six Months Ended June 30, 2014
Contents
Statements of Financial Position Statements of Income
Statements of Comprehensive Income Statements of Changes in Equity Statements of Cash Flow
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BPM Capital Trust I
Statements of Financial Position
(Unaudited)
June 30 December 31
2014 2013
(In Euros)
Assets
Investment securities (Notes 1, 2, 5, 6 and 7) € 162,005,200 € 165,989,435
Total assets € 162,005,200 € 165,989,435
Shareholders equity and liabilities Shareholder’s equity:
Shareholder’s equity € 0 € 0
Total shareholder’s equity € 0 € 0
Liabilities
Debt securities in issue (Notes 1, 2, 4, 6 and 7) € 162,005,200 € 165,989,435
Total liabilities € 162,005,200 € 165,989,435
Total shareholders equity and liabilities € 162,005,200 € 165,989,435
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BPM Capital Trust I
Statements of Income
(Unaudited)
Six Months Ended June 30 2014 2013
(In Euros)
Income and Expense
Interest income (Notes 1, 5 and 7) € 4,022,165 € 6,396,218 Interest expense (Notes 1, 2, 4 and 7) (4,022,165) (6,396,218)
Net income € 0 € 0
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BPM Capital Trust I
Statements of Comprehensive Income
(Unaudited)
Six Months Ended June 30 2014 2013
(In Euros)
Net Income (loss) € 0 € 0
Other comprehensive income without reversal to income statements 0 0
Other comprehensive income with reversal to income statements 0 0
Net income (loss) for period € 0 € 0
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BPM Capital Trust I
Statements of Changes in Equity
(Unaudited)
Interim Periods Ended June 30, 2014 and 2013
Equity
Equity, January 1, 2014 € 0
Net income (loss) 0
Equity, June 30, 2014 € 0
Equity
Equity, January 1, 2013 € 0
Net income (loss) 0
Equity, June 30, 2013 € 0
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BPM Capital Trust I
Statements of Cash Flows
(Unaudited)
Six Months Ended June 30
2014 2013
(In Euros)
Cash flows from operating activities
Interest income received € 8,006,400 € 0
Interest paid (8,006,400) 0
Net cash provided by (used in) operating activities 0 0
Net change in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of year 0 0 Cash and cash equivalents at end of year € 0 € 0
BPM Capital Trust I
Notes to Unaudited Financial Statements
June 30, 2014
1. Organization General
BPM Capital Trust I (the “Trust”) is a statutory business trust created under the Delaware Business Trust Act pursuant to a certificate of trust filed with the Delaware Secretary of State and the execution of a trust agreement of the Trust on June 19, 2001. The Trust was created by Banca Popolare di Milano S.C. a r.l (the “Bank”) a bank incorporated with limited liability under the laws of the Republic of Italy. Together with all its consolidated subsidiaries, including its branches, the Bank is engaged in a wide range of banking, financial and related activities, in Italy and abroad. The Trust will continue its existence from and after the Issue Date pursuant to the Amended and Restated Trust Agreement (the “Trust Agreement”) entered into by and among BPM Capital I LLC (the “Company”), a limited liability company formed on June 19, 2001 under the Delaware Limited Liability Company Act, as grantor, The Bank of New York, as Property Trustee, and The Bank of New York (Delaware), as Delaware Trustee as of the Issue Date.
The financial statements for the six months ended June 30, 2014 were authorized for issue in accordance with a resolution of the directors of the Grantor Company on August 1, 2014.
The Trust was formed for the sole purpose of (i) holding the Company Preferred Securities and the related rights under the Subordinated Guarantee, (ii) issuing Trust Preferred Securities representing a Corresponding Amount of Company Preferred Securities to be held by the Trust and (iii) performing functions necessary or incidental thereto. The Trust cannot issue other equity securities or any debt securities or engage in any other activities. The Company Preferred Securities and the related rights under the Subordinated Guarantee issued by the Bank are the only assets of the Trust.
As set forth in, and subject to, the Trust Agreement, the Property Trustee and the Delaware Trustee will have exclusive and complete authority to carry out the purposes of the Trust.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
1. Organization (continued)
All expenses and liabilities of the Trust other than payments required under the terms of the Trust Preferred Securities will be paid by the Company; provided, however, that if the Company does not pay such expenses or liabilities or can only pay such expenses or liabilities in a manner that would allocate such expenses or liabilities against the interests of the holders of the Company Preferred Securities, the Bank will pay such expenses or liabilities, and, provided, further, that if the Trustees of the Trust incur fees, charges or expenses at the request of a holder of Trust Preferred Securities or other person for which the Trust is not otherwise liable under the Trust Agreement, such holder or other person will be liable for such fees, charges and expenses. The principal executive offices of the Trust are located at C/O GSS, LLC, 68 South Service Road, Suite 120, Melville, NY 11747, USA.
The Company issued 160,000 Noncumulative Perpetual Company Preferred Securities with a liquidation preference of €1,000 per security, in an aggregate amount of €160,000,000. The Trust has offered and sold 160,000 Noncumulative Perpetual Trust Preferred Securities only outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act of 1933. The 160,000 Trust Preferred Securities have an aggregate liquidation preference of €160,000,000, and a liquidation preference of €1,000 per Trust Preferred Security. The Trust has invested the proceeds of the Trust Preferred Securities in the Company’s Preferred Securities. The Trust Preferred Securities are listed on the Luxembourg Stock Exchange.
Investment securities
Investment securities include the Company Preferred Securities including accrued interest, if any.
Dividends on the Company Preferred Securities will be payable when declared by the Board of Directors of the Company, on a non-cumulative basis (i) from the Issue Date to and including the First Call Date, annually in arrears on July 2 of each year, commencing on July 2, 2002, at a fixed rate per annum on the liquidation preference equal to 8.393% (calculated on an Actual/Actual (Bond) Basis), and (ii) after the First Call Date, quarterly in arrears on each October 2, January 2, April 2, and July 2 (or if any such date is not a Business Day, the next Business Day) at a variable rate per annum on the liquidation preference equal to 4.70% above three-month EURIBOR (Euro Inter-bank Offered rate for three-month euro deposits) (calculated on an Actual/360 Basis).
In addition, these dividends are also mandatorily payable to the holders upon the occurrence of certain events that are outside the control of the Company.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
10 1. Organization (continued)
Debt Securities in Issue
Debt securities in issue include the Trust Preferred Securities including accrued interest, if any. Dividends on the Trust Preferred Securities will be payable to the preferred securityholders when received by the Trust, on a non-cumulative basis (i) from the Issue Date to and including the First Call Date, annually in arrears on July 2 of each year, commencing on July 2, 2002, at a fixed rate per annum on the liquidation preference equal to 8.393% (calculated on an Actual/Actual (Bond) Basis), and (ii) after the First Call Date, quarterly in arrears on each October 2, January 2, April 2, and July 2 (or if any such date is not a Business Day, the next Business Day) at a variable rate per annum on the liquidation preference equal to 4.70% above three-month EURIBOR (Euro Inter-bank Offered rate for three-month euro deposits) (calculated on an Actual/360 Basis).
In addition, these dividends are also mandatorily payable to the holders upon the occurrence of certain events that are outside the control of the Company.
Redemption – Liquidation Distribution upon Dissolution
The Company Preferred Securities are not redeemable at the option of the Company Preferred Securityholder at any time and are not redeemable at the option of the Company prior to the First Call Date, which was set at July 2, 2011. At July 2, 2011, the Call option was not exercised. Subordinated Guarantee Issued by the Bank
The Subordinated Guarantee is intended to provide holders of the Company Preferred Securities (including the Trust and thus, indirectly, holders of the Trust Preferred Securities), as nearly as possible, with rights to dividends and additional amounts and right on redemption and liquidation equivalent to those to which such holders would be entitled if the Company Preferred Securities were issued directly by the Bank.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
11 2. Summary of Significant Accounting Policies
The Trust’s financial statements have been prepared in accordance with both International Financial Reporting Standards as issued by the International Accounting Standard Board (IASB) and in accordance with International Financial Reporting Standard as adopted by the European Union (herein collectively referred to as “IFRS”); and there are no differences between the two for the specific case of the Trust. The financial statements have been prepared under the historical cost convention and require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense and disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
The half-yearly financial statements for the period ended 30 June 2014 have been prepared in accordance with IAS 34 “Interim Financial Reporting”.
The accounting policies and methods of computation applied in this interim report are summarized below and are the same applied for preparing the annual report as at 31 December 2013.
It is worth remembering that, effective 1 January 2013, IFRS 13 (Fair value measurement) has become applicable. This sets out in a single IFRS requirements relating to the determination of fair value previously included in various standards. Under this new standard, the application of which is prospective, the concept of fair value remains substantially unchanged (new guidelines are provided for its application) and it introduces new disclosure requirements, for which reference should be made to Section 6. Disclosure About the Fair Value of Financial Instruments).
Cash and Cash Equivalents
For the purpose of reporting cash flows, cash and cash equivalents are comprised of cash and amounts due from banks and other financial institutions with an original maturity of 90 days or less.
Investment securities
The Trust’s investments in the preferred securities are classified as loans and are carried at amortized cost.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
12
2. Summary of Significant Accounting Policies (continued) Debt Securities Issued by the Trust
Debt Securities issued by the Trust represent Trust Preferred Securities and are classified as liability in accordance with IAS 32 Financial Instruments: Presentation due to the existence of contingent events outside the control of the Trust upon which mandatory dividends are required to be paid to the holders of the Trust Preferred Securities.
Trust preferred securities are recognized initially at fair value, net of transaction costs incurred, and are subsequently stated at amortized cost calculated using the effective interest method. Dividends which have been accrued on the Preferred Securities are charged to interest expense. Income Taxes
The Trust is considered a grantor trust for U.S. Federal income tax purposes. As a result, the Trust is not a taxable entity.
Functional Currency
The financial statements of the Trust are presented in Euro which is the functional currency of the Trust.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
13
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
14
2. Summary of Significant Accounting Policies (continued)
International accounting standards (IAS/IFRS) and related interpretations (SIC/IFRIC) endorsed by the European Commission, application of which is mandatory after June 30, 2014
As of June 30, 2014, there are no international accounting standards and interpretations endorsed by the European Commission that take effect after June 30 2014.
International accounting standards (IAS/IFRS), amendments and interpretations issued by the IASB and still to be endorsed by the European Commission For information purposes, set out below are the accounting standards, amendments and interpretations issued by the IASB, the application of which is subject to endorsement by the European Commission and, consequently, are not yet applicable to these interim consolidated financial statements
.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
15 3. Financial Risk Management
The Trust’s investment activities expose it to the various types of risks that are associated with the financial instruments and markets in which it invests. The most significant risks associated with the company are outlined below:
Credit Risk
The Trust is not significantly exposed to credit risk relating to the fact that investments are issued by a wholly-owned subsidiary of the same Group (The Bank, along with its consolidated subsidiaries). The maximum credit exposure the Trust is subject to amounts to €162,005,200 as of June 30, 2014.
Liquidity Risk
The cash flows used for paying dividends on Preferred Securities have the same date of payment and the same interest rate as the cash flows from interest earned on the Preferred Securities. As a result, there is not a significant exposure to liquidity risk.
Market Risk
Market price risk is the possibility that future changes in market prices may change the value of financial instruments. The Trust did not account for its financial assets and liabilities at fair value through profit and loss. Therefore a change in interest rates would not affect net loss or equity. Currency Risk
The Trust has no significant currency risk because substantially all assets and liabilities are denominated in Euro.
4. Dividends and Debt securities in issue
The Trust has paid dividends of €8,006,400 and € -0- on the Preferred Securities in 2014 and 2013. Dividends on the Preferred Securities are accrued and charged to interest expense. The Trust has recorded €2,005,200 and €5,989,435 in accrued interest payable as of June 30, 2014 and December 31, 2013, which has been included in debt securities in issue.
The Preferred Securities of €162,005,200 and €165,989,435 have been included in debt securities in issue at June 30, 2014 and December 31, 2013.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
16 4. Dividends and Debt securities in issue (continued)
Dividends on the Preferred Securities are charged to interest expense. The Trust has recorded €4,022,165 as interest income as of June 30, 2014. The Trust has recorded €6,396,218 as interest income as of June 30, 2013, with respect to the amount of accrued interest payable at December 31, 2012, which was not paid.
There are certain limitations to the payment of dividends. The Trust may elect not to pay dividends on the Trust Preferred Securities when the Bank does not have (according to the unconsolidated annual financial statements of the Bank relating to the financial year immediately preceding the financial year in which such Dividend Payment Date falls or, where such financial statements are not available, the last set of unconsolidated financial statements approved by the Bank) net profits (“Distributable Profits”) that would be available for the payment of a dividend or the making of a distribution on any class of its share capital, and/or the Bank has not declared or paid dividends on any class or series of its share capital for the financial year in which such dividend payment date falls.
The Trust will be prohibited from paying dividends on the Trust Preferred Securities when a capital deficiency event has occurred and is continuing or a capital deficiency event would occur as a consequence of the payment of dividends on the Trust Preferred Securities.
These limitations to the payment of dividends will not apply when the Trust is required to pay dividends upon the occurrence of certain events that are outside the control of the Trust.
The Trust elected not to pay, on the Dividend Payment Date falling on July 2, 2012, October 2, 2012, January 2, 2013, April 2, 2013, July 2, 2013, October 2, 2013 and January 2, 2014, dividends on the Trust Preferred Securities, pursuant to section 7.4(b) of the LLC Agreement and accordingly this represented a suspension of dividends.
Notice of this election was provided to the securityholders on June 12, 2012, September 12, 2012, December 5, 2012, March 20, 2013, June 5, 2013, September 24, 2013, and December 18, 2013.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
17 4. Dividends and Debt securities in issue (continued)
Conditions of the LLC agreement specify that in the event the Trust does not pay dividends or less than full dividends on the Trust Preferred Securities; and the Bank or any of its subsidiaries declares or pays any dividends or makes any other payment or distribution in respect of any Bank Parity Securities on any date and during the twelve-month period ending on and including that date there occurred a Dividend Payment, then on that date the Company will be required to pay a special dividend on the Company Preferred Securities, which would include the suspended dividends and consequently, the Trust would be required to pay the dividends suspended on the Trust Preferred Securities.
The above conditions depend on the decision taken by the Bank (as payment of dividend on the Bank’s shares or payment of dividend on the Bank’s tier 1 instruments) and out of the control of the Trust.
During the six months period ended on June 30, 2014, The Trust paid:
Dividend for €1,995,200 on April 2, 2014, due to the occurrence of the condition under Section 7.4 (b) of the LLC Agreement (i.e. the latest approved Bank Financial Statements showed distributable profit), and
Special Dividend for €6,011,200 on June 25, 2014, due to occurrence of the condition under Section 7.4 (d) of the LLC Agreement. The mentioned contractual term provides that, in case of payments or distribution in respect of any other instrument issued by Bank or any other entity of the group with similar level of subordination (defined “Bank Parity Security”) in the previous 12 months, the Trust is required to pay a special dividend for an amount equal to suspended dividends in the previous 12 months, if any. Since, on June 25 2014, a payment has been done on the debt securities issued considered as a Bank Parity Security (XS0372300227-Perpetual Subordinated Fixed/Floating Rate Notes 9%), a cumulated payment, including the previously suspended dividends for the payment dates on January 2, 2014, October 2, 2013 and July 2, 2013, has been done on the same date.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
18 5. Investments
The Trust has invested €160,000,000 (the proceeds of the Trust Preferred Securities) in the Company’s Preferred Securities.
The Trust has recorded €4,022,165 as interest receivable as of June 30, 2014, whilst the amount recorded as accrued interest receivable as of December 31, 2013 was €5,989,435.
As above indicated for the dividends payable on the Trust Preferred Securities, a Dividend of Dividend for €1,995,200 has been received on April 2, 2014 and a Special Dividend for €6,011,200 has been received on June 25, 2014.
6. Disclosure About the Fair Value of Financial Instruments
In December 2012 the European Commission adopted, with (EU) Regulation No. 1255/2012, the new standard IFRS 13 “Fair value measurement”, which is applicable as from 1 January 2013. This standard sets out in a single IFRS information relating to methodologies for the determination of fair value, which previously had been included in various accounting standards (mainly IAS 39 and IFRS 7).
As regards the type of financial instruments to be measured at fair value, the requirements of paragraph 9 of IAS 39 remain valid, that is, fair value measurement applies to all financial instruments with the exception of: financial assets classified as “investments held to maturity” and “loans and receivables”; investments in equity instruments for which it is not possible to establish a reliable fair value; non-trading financial liabilities to which the fair value option has not been applied. Moreover, it is worth reiterating that accounting standards require, in any event, to disclose the fair value of assets and liabilities measured at amortized cost (receivables and payables, securities issued).
Paragraph 9 of IFRS 13 defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
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6. Disclosure About the Fair Value of Financial Instruments (continued) Fair Value Hierarchy
The fair value hierarchy, according to IFRS 13, has to be applied to all financial instruments for which their fair value is recognized in the balance sheet. In this regard, for these instruments top priority is given to the official prices available in active markets and a lower priority to the use of unobservable inputs, as they are more discretionary. Fair value is therefore determined through the use of prices obtained from financial markets in the case of instruments quoted on active markets, or, for other financial instruments, by using valuation techniques with the aim of estimating the fair value (exit price).
Based on the type of input used, the valuation techniques categorize fair value into the following three levels:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 – inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly;
Level 3 – unobservable inputs for the asset or liability.
As set out in accounting policies the fair value of the assets and liabilities of the Trust is not recognized in the balance sheet; the Trust’s investments in the preferred securities are classified as loans and are carried at amortized cost and the Debt Securities Issued by the Trust are stated at amortized cost.
Consequently the fair value of the instruments indicated below is only for disclosure purpose and it’s not recognized in balance sheets.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
20
6. Disclosure About the Fair Value of Financial Instruments (continued)
The financial instruments are classified in Level 2 (inputs other than quoted prices included within Level 1 that are observable, either directly or indirect) and the fair value at June 30, 2014 and December 31, 2013 are as follows:
June 30, 2014 Carrying Value Estimated Fair Value Assets Investment securities € 162,005,200 € 160,114,000 Liabilities Preferred securities € 162,005,200 € 160,114,000 December 31, 2013 Carrying Value Estimated Fair Value Assets Investment securities € 165,989,435 € 121,010,236 Liabilities Preferred securities € 165,989,435 € 121,010,236
There were no transfers between levels during the six months ended June 30, 2014 and the year ended December 31, 2013.
BPM Capital Trust I
Notes to Unaudited Financial Statements (continued)
21 7. Related-Party Transactions
Dividends on the preferred securities amounted to €4,022,165 for the six months ended June 30, 2014.
There were no dividends paid or accrued on the preferred securities for the six months ended June 30, 2013.
The Trust paid dividends during the six months ended June 30, 2014, already charged to interest expense in the current six months period and previous year, of €8,006,400 to the Trust Preferred security holders, who are not related parties (the amount paid as of June 30, 2013 amounted to €-0-).
As mentioned in Note 1, and in relation to the Company Preferred Securities issued, there is a subordinated guarantee issued by the Bank to the Company’s preferred securityholders.
