6011BANCO PASTOR GROUP Consolidated

Transcription

6011BANCO PASTOR GROUP
Consolidated Annual Financial Statements
and Management Report for the year
ended 31 December 2011 and Report of
the Auditors
1
CONTENTS
REPORT OF THE AUDITORS ...................................................................................................................................4
CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2011 AND 2010 ...........................................................5
CONSOLIDATEDSTATEMENTSOFINCOMEFORTHEYEARSENDED31DECEMBER2011AND2010......................................7
CONSOLIDATED STATEMENTS OF REVENUES AND EXPENSES FOR THE YEARS ENDED 31 DECEMBER
2011 AND 2010 ..........................................................................................................................................................8
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2011
AND 2010 ...................................................................................................................................................................9
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE YEARS ENDED 31 DECEMBER 2011 AND 2010
..................................................................................................................................................................................11
BANCO PASTOR GROUP: Notes to the Consolidated Annual Financial Statements for the year ended 31
December 2011 ........................................................................................................................................................13
1.
INTRODUCTION, BASIS OF PRESENTATION OF FINANCIAL STATEMENTS AND OTHER
INFORMATION ...........................................................................................................................................13
2.
ACCOUNTING PRINCIPLES AND POLICIES AND MEASUREMENT CRITERIA APPLIED ....................34
3.
EARNINGS PER SHARE............................................................................................................................65
4.
DISTRIBUTION OF PROFIT.......................................................................................................................66
5.
CHANGES IN THE CONSOLIDATION SCOPE .........................................................................................66
6.
BUSINESS SEGMENT REPORTING.........................................................................................................67
7.
DIRECTORS AND SENIOR EXECUTIVES COMPENSATION..................................................................70
8.
CASH AND DEPOSITS AT CENTRAL BANKS..........................................................................................71
9.
FINANCIAL ASSETS AND LIABILITIES HELD FOR TRADING: ...............................................................72
10.
OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH CHANGES IN PROFIT OR LOSS ...............74
11.
AVAILABLE-FOR-SALE FINANCIAL ASSETS...........................................................................................76
12.
LOANS AND RECEIVABLES .....................................................................................................................79
13.
HELD-TO-MATURITY INVESTMENTS ......................................................................................................82
14.
ADJUSTMENTS TO FINANCIAL ASSETS FOR MACRO-HEDGES .........................................................83
15.
HEDGING DERIVATIVES (ASSETS AND LIABILITIES)............................................................................83
16.
NON-CURRENT ASSETS FOR SALE .......................................................................................................85
17.
INVESTMENTS...........................................................................................................................................86
18.
INSURANCE POLICIES ASSOCIATED WITH PENSIONS .......................................................................88
19.
PROPERTY, PLANT AND EQUIPMENT....................................................................................................89
20.
INTANGIBLE ASSETS................................................................................................................................92
21.
OTHER ASSETS ........................................................................................................................................93
22.
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH CHANGES IN PROFIT OR LOSS..........94
23.
FNANCIAL LIABILITIES AT AMORTISED COST.......................................................................................95
24.
INSURANCE CONTRACT LIABILITIES .....................................................................................................99
2
25.
PROVISIONS, EXCLUDING PROVISIONS FOR TAXES ........................................................................100
26.
OTHER LIABILITIES .................................................................................................................................101
27.
EQUITY.....................................................................................................................................................101
28.
TAX SITUATION .......................................................................................................................................107
29.
RESIDUAL TERM TO MATURITY OF TRANSACTIONS ........................................................................113
30.
FAIR VALUE OF ASSETS AND LIABILITIES...........................................................................................114
31.
RISK MANAGEMENT ...............................................................................................................................117
32.
OTHER SIGNIFICANT INFORMATION....................................................................................................147
33.
INTEREST AND SIMILAR INCOME .........................................................................................................150
34.
INTEREST EXPENSE AND SIMILAR CHARGES....................................................................................151
35.
INCOME FROM EQUITY INSTRUMENTS ...............................................................................................151
36.
RESULTS IN ENTITIES MEASURED UNDER THE EQUITY METHOD..................................................151
37.
FEE INCOME ............................................................................................................................................152
38.
FEE EXPENSE .........................................................................................................................................152
39.
GAINS/LOSSES ON FINANCIAL ASSETS AND LIABILITIES .................................................................153
40.
EXCHANGE DIFFERENCES....................................................................................................................153
41.
OTHER OPERATING INCOME ................................................................................................................154
42.
OTHER OPERATING EXPENSES ...........................................................................................................154
43.
ADMINISTRATIVE EXPENSES................................................................................................................154
44.
“Gains/(Losses) on the derecognition of assets not classified as non-current assets held for sale”:........157
45.
GAIN/(LOSS) ON NON-CURRENT AVAILABLE-FOR-SALE ASSETS NOT CLASSIFIED AS
DISCONTINUED ACTIVITIES ..................................................................................................................158
46.
GAINS/LOSSES ON DISCONTINUED ACTIVITIES ................................................................................158
47.
RELATED-PARTY TRANSACTIONS .......................................................................................................160
APPENDICES ........................................................................................................................................................161
BANCO PASTOR GROUP - 2011 MANAGEMENT REPORT...............................................................................179
3
REPORT OF THE AUDITORS
4
CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2011
AND 2010
BANCO PASTOR GROUP
Thousand euro
ASSETS
CASH ON HAND AND ON DEPOSIT AT CENTRAL BANKS
HELD FOR TRADING
Debt securities
Equity instruments
Deriv ativ es held for trading
NOTE
8
9
2011
2010(*)
432.215
177.409
5.102
156
172.151
283.834
207.375
110.446
3.680
93.249
193.952
193.952
--2.542.147
2.499.173
42.974
22.109.232
319.974
20.932.508
577.650
575.116
2.534
1.749.832
1.696.894
52.938
23.533.832
847.596
21.652.136
856.750
2.079.066
1.034.100
2.031.689
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST
14 RATE RISK
20.615
Hedging derivatives
15
102.095
NON-CURRENT ASSETS FOR SALE
16
1.352.943
INVESTMENTS
17
104.162
Associates
91.677
Jointly -controlled entities
12.485
10.121
154.068
1.069.425
102.653
89.561
13.092
OTHER FINANCAIL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
Debt securities
Equity instruments
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Debt securities
Equity instruments
LOANS AND DISCOUNTS
Deposits w ith credit institutions
Customer loans
Debt securities
HELD-TO-MATURITY PORTFOLIO
INSURANCE CONTRACTS LINKED TO PENSIONS
PROPERTY, PLANT AND EQUIPMENT
Property , plant and equipment
For ow n use
Assigned under operating lease
Inv estment property
INTANGIBLE ASSETS
Goodw ill
Other intangible assets
TAX ASSETS
Current
Deferred
OTHER ASSETS
Inv entories
Other assets
TOTAL ASSETS
10
11
12
13
18
19
20
28
21
21.583
166.640
138.770
119.396
19.374
27.870
28.999
--28.999
282.915
32.518
250.397
761.914
622.836
139.078
30.375.887
25.442
182.474
153.766
134.212
19.554
28.708
25.602
148
25.454
279.926
54.317
225.609
900.775
738.059
162.716
31.134.698
(*) In accordance w ith mercantile legislation, only presented for purposes of comparison.
The accompany ing notes and appendices form an integral part of the consolidated annual accounts
5
Thousand euro
LIABILITIES
NOTE
2011
2010(*)
HELD FOR TRADING
9
122.188
122.188
76.663
76.663
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Deposits from credit institutions
Customer funds
FINANCIAL LIABILITIES AT AMORTISED COST
Deposits from central bank
Customer funds
Marketable debt securities
Subordinated debt financing
Other financial liabilities
HEDGING DERIVATIVES
INSURANCE CONTRACT LIABILITIES
PROVISIONS
Prov isions for pensions and similar liabilities
Prov isions for tax es and other legal contingencies
Prov isions for contingent ex posures and commitments
Other prov isions
TAX LIABILITIES
Current
Deferred
OTHER LIABILITIES
TOTAL LIABILITIES
22
184.906
--184.906
28.094.139
2.700.750
3.129.099
16.436.479
5.231.641
352.999
243.171
106.121
2.485
74.505
44.027
13.309
7.227
9.942
22.356
3.538
18.818
46.579
28.653.279
489.633
--489.633
28.730.489
3.900.914
2.798.297
15.029.770
6.234.974
498.952
267.582
69.112
2.761
105.476
57.752
15.273
16.670
15.781
15.551
1.391
14.160
38.892
29.528.577
1.753.638
90.041
90.041
144.763
1.244.974
1.230.073
14.901
246.776
246.776
(18.830)
51.939
(6.025)
(50.189)
(50.290)
101
19.159
19.159
1.722.608
30.375.887
1.479.424
88.083
88.083
146.720
1.202.275
1.186.604
15.671
785
785
(13.445)
62.062
(7.056)
(44.105)
(44.353)
248
170.802
170.802
1.606.121
31.134.698
23
15
24
25
28
28
26
EQUITY
SHAREHOLDERS' FUNDS
Capital
Capital
Share premium
Reserv es
Accumulated reserv es (losses)
Reserv es (losses) in companies measured under the equity method
Other equity instruments
Return on equity instruments
Less: Treasury shares
Profit for y ear attributed to the parent entity
Less: Dividends and remuneration
VALUE ADJUSTMENTS
Av ailable-for-sale financial assets
Entities measured under the equity method
Minority interests
Other
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
CONTINGENT EXPOSURES
MEMORANDUM ITEM
CONTINGENT COMMITMENTS
27
27.2
27.3
32.1
862.465
946.420
32.2
1.809.119
2.565.880
6
CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED
31 DECEMBER 2011 AND 2010
BANCO PASTOR GROUP
Thousand euro
Interest and similar income
NOTE
33
Interest and similar charges
34
A) INTEREST MARGIN
(614.311)
425.405
(475.238)
469.434
35
1.810
3.964
Results in Entities measured under the equity method
36
5.615
3.554
Fees received
37
130.966
160.852
Fees paid
38
(36.315)
(34.071)
Income on financing operations (net)
Held for trading
Other financial instruments at fair v alue through profit or loss
Financial instruments not carried at fair v alue through profit or loss
Other
39
98.605
31.190
80
67.449
(114)
119.012
43.418
-2.043
76.867
770
Exchange differences (net)
40
2.684
5.477
Other operating income
Sales and rev enues from prov ision of non-financial serv ices
41
39.214
18.621
20.593
50.806
31.156
19.650
Other operating charges
Difference betw een opening and closing inv entories
42
(18.507)
(10.609)
(7.898)
(26.712)
(19.526)
(7.186)
649.477
752.316
43
(356.791)
(233.574)
(123.217)
(356.199)
(233.845)
(122.354)
19 and 20
(27.114)
(28.291)
B) GROSS MARGIN
Administrative expenses
Staff costs
Other general administration ex penses
Amortisation/ Depreciation
Provisions (net)
Financial asset impairment losses (net)
Loans and discounts
Other financial instruments not carried at fair v alue through profit or loss
2011
1.039.716
12.5
C) INCOME FROM OPERATING ACTIVITIES
2010(*)
944.672
10.849
13.709
(124.957)
(117.794)
(7.163)
(283.819)
(283.448)
(371)
151.464
97.716
Other asset impairment losses (net)
21
(18.156)
(74.191)
Gains(losses) from disposals of assets not classified as non-current available for sale
44
(6.501)
53.849
45
(65.647)
(64.002)
61.160
13.372
(9.032)
52.128
12.471
25.843
Gains(losses) from non-current assets available for sale not classified as discontinued
operations
D) PROFIT/(LOSS) BEFORE TAX
Corporate income tax
28
E) PRIOR YEAR RESULTS FROM CONTINUING OPERATIONS
Profit (loss) from discontinued operations (net)
46
F) CONSOLIDATED PROFIT/(LOSS) FOR THE YEAR
Profit attributed to the parent entity
Profit attributed to minority interests
---
36.930
52.128
51.939
189
62.773
62.062
711
Earnings per share (euro/ share)
3
0,195
0,236
Diluted earnings per share (euro/ share)
3
0,164
0,236
7
CONSOLIDATED STATEMENTS OF REVENUES AND
EXPENSES FOR THE YEARS ENDED 31 DECEMBER 2011 AND
2010
BANCO PASTOR GROUP
Thousand euro
2011
2010(*)
A) CONSOLIDATED PROFIT/(LOSS) FOR THE YEAR
52.128
62.773
B) OTHER RECOGNISED INCOME AND EXPENSE
(6.084)
(53.772)
(6.149)
(66.347)
(706)
(41.479)
(5.443)
(24.868)
Available-for-sale financial assets
Measurement gains/(losses)
Amounts transferred to income statement
Other reclassifications
---
---
---
---
---
---
---
---
Amounts transferred at initial v alue of hedged items
---
---
---
---
---
---
---
---
---
---
---
---
Exchange differences:
Cash flow hedge
Hedges of net investment in foreign operations
---
---
---
---
---
---
---
---
---
187
---
187
---
---
---
---
Non-current assets held for sale:
Actuarial gains /(losses) - pension plans
---
---
(210)
---
(210)
---
---
---
---
---
Entities measured under the equity method
Other recognised income and expense
TOTAL RECOGNISED INCOME/(EXPENSE) (A + B)
Attributed to the parent company
Attributed to minority interests
---
---
275
12.388
46.044
9.001
45.855
8.290
189
711
8
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR
THE YEARS ENDED 31 DECEMBER 2011 AND 2010
BANCO PASTOR GROUP
Thousand euro
EQUITY ATTRIBUTED TO THE PARENT COMPANY
Closing balance at 31/12/2010
88.083 146.720 1.186.604
15.671
785 (13.445)
62.062
(7.056) 1.479.424
TOTA L EQUITY
M INOR ITY INTER ESTS
TOTA L
VA LU E A D JU STM EN TS
Total shareholders' funds
Less: D ividends and
remuneration
Less: Treasury shares
Reserves (losses) in
companies measured under
the equity method
Accumulated reserves
(losses)
Share premium
Capital
2011
Profit for year attributed to the
parent entity
SHAREHOLDERS' FUNDS
RESERVES
(44.105) 1.435.319 170.802 1.606.121
Adjustments due to changes in
accounting standards
Adjustments due to errors
Adjusted opening balance
---
---
---
---
---
---
---
---
88.083 146.720 1.186.604
15.671
---
---
---
---
785 (13.445)
----62.062
---
---
---
---
(7.056) 1.479.424
---
---
---
---
---
---
---
---
(44.105) 1.435.319 170.802 1.606.121
Total recognised income/(
expense)
Other changes in equity
---
---
1.958
(1.957)
Capital increases
1.958
(1.958)
Capital reductions
---
---
---
--43.469
---
---
(770) 245.991
--(5.385)
51.939
---
51.939
(62.062)
1.031
222.275
(6.084)
---
189
46.044
222.275 (151.832)
45.855
70.443
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
251.810
---
251.810
---
251.810
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
251.810
---
---
---
---
---
---
instruments to financial liabilities
---
---
---
---
Div idend distribution
---
---
---
---
instruments (net)
---
---
Transfers betw een equity items
---
---
47.778
business combinations
---
---
---
Equity settled pay ments
---
---
---
1
Conv ersion of financial liabilities
into capital
Increase in other equity
instruments
Reclassification of financial
liabilities to other equity
instruments
Reclassification of other equity
(15.839)
1.031
(14.808)
---
(14.808)
---
(14.808)
---
(5.385)
---
(5.385)
---
(5.385)
Operations w ith ow n equity
---
---
(770)
(785)
(5.385)
---
---
---
---
---
---
---
---
---
(5.034)
---
(4.308)
(46.223)
---
---
---
---
---
---
---
---
---
---
Increases / (Decreases )
-----
(5.034)
---
--(5.034)
---
(5.034)
---
(4.308) (151.832) (156.140)
Other increases /(decreases) in
equity i
(4.309)
90.041 144.763 1.230.073
---
---
14.901 246.776 (18.830)
--51.939
(6.025) 1.753.638
(50.189) 1.703.449
19.159 1.722.608
9
Thousand euro
EQUITY ATTRIBUTED TO THE PARENT COMPANY
T OT A L EQU IT Y
---
M IN OR IT Y IN T ER EST S
---
(15.609) 1.429.618
T OT A L
(9.628) 101.074
VAL U E A D JU STM EN T S
2.683
T otal sh areho lders' fun d s
2.349
L ess: D ivid en ds and
remun eratio n
L ess: T reasury sh ares
R eserves (lo sses) in
co mpanies measured u nd er
the equ ity metho d
A ccu mu lated reserves
(lo sses)
86.356 148.447 1.113.946
Other equ ity instru men ts
Share premium
C ap ital
2010(*)
Profit fo r year attrib u ted to th e
p aren t entity
SHAREHOLDERS' FUNDS
RESERVES
9.667 1.439.285 170.926 1.610.211
Adjustments due to changes in
accounting standards
Adjustments due to errors
Adjusted opening balance
---
---
---
---
---
---
---
---
86.356 148.447 1.113.946
2.349
2.683
---
---
---
---
(9.628) 101.074
---
---
---
---
(15.609) 1.429.618
---
---
---
---
---
---
---
---
9.667 1.439.285 170.926 1.610.211
Total recognised income/(
expense)
---
---
1.727
(1.727)
72.658
13.322
62.062
---
62.062
8.290
711
9.001
(3.817) (101.074)
8.553
(12.256)
---
(12.256)
(835)
(13.091)
Capital increases
1.727
(1.727)
(3)
---
---
---
---
---
(3)
---
(3)
---
(3)
Capital reductions
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
instruments to financial liabilities
---
---
---
---
---
---
---
---
---
---
---
---
---
Div idend distribution
---
---
---
---
---
---
instruments (net)
---
---
---
---
Transfers betw een equity items
---
---
72.142
13.322
1
---
business combinations
---
---
---
---
---
---
---
---
(125)
---
(1.825)
---
---
644
---
(74)
88.083 146.720 1.186.604
15.671
Other changes in equity
---
---
--(1.898)
---
(53.772)
Conv ersion of financial liabilities
into capital
Increase in other equity
instruments
Reclassification of financial
liabilities to other equity
instruments
Reclassification of other equity
(15.609)
8.553
(7.056)
---
(7.056)
---
(7.056)
---
(3.817)
---
(3.817)
---
(3.817)
Operations w ith ow n equity
(3.817)
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
(1.950)
---
(1.950)
---
---
---
570
---
570
(85.465)
Increases / (Decreases )
---
(1.950)
Other increases /(decreases) in
equity i
785 (13.445)
62.062
(7.056) 1.479.424
(835)
(265)
(44.105) 1.435.319 170.802 1.606.121
10
CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE
YEARS ENDED 31 DECEMBER 2011 AND 2010
BANCO PASTOR GROUP
Thousand euro
2011
A) CASH FLOWS FROM OPERATING ACTIVITIES
2010(*)
1.128.383
(498.654)
Consolidated profit for the year
52.128
62.773
Adjustments to obtain cash flows from operating activities
193.169
206.454
Other adjustments
Net (increase)/decrease in operating assets
27.114
28.291
166.055
178.163
660.947
(638.909)
Held for trading
(16.426)
288.626
Other financial assets at fair v alue through profit or loss
383.698
428.386
(807.144)
375.746
Loans and discounts
889.989
(1.704.616)
Other operating assets
210.830
(27.051)
252.333
(93.834)
Net increase/(decrease) in operating liabilities
Held for trading
45.525
(8.507)
Other financial liabilities at fair v alue through profit or loss
(4.727)
(15.596)
201.668
(62.226)
Financial liabilities at amortised cost
Other operating liabilities
9.867
(7.505)
(30.194)
(35.138)
(11.107)
(659.136)
(68.574)
(830.821)
(-) Tangible assets:
(10.687)
(12.528)
(-) intangible assets:
(10.388)
(11.622)
(737)
(25.084)
Corporate income tax income/(payments)
B) CASH FLOWS FROM INVESTING ACTIVITIES
Payments:
(-) Shareholdings
(-) Subsidiaries and other business units
---
---
(-) Non-current assets and associated liabilities for sale
---
---
(-) Held-to-maturity
(-) Other pay ments related to inv esting activ ities
Collections:
(46.762)
(781.587)
---
---
57.467
171.685
(+) Tangible assets
5.717
8.733
(+) Shareholdings
3.039
15.005
---
89.925
48.711
58.022
(+) Subsidiaries and other business units
(+) Non-current assets and associated liabilities for sale
11
Thousand euro
CONSOLIDATED CASH FLOW STATEMENTS (CONT)
2011
C) CASH FLOWS FROM FINANCING ACTIVITIES
(1.051.853)
(892.850)
(2.354.010)
(3.134.220)
(14.808)
(7.056)
(101.774)
(63.130)
Payments:
(-) Div idends
(-) Subordinated debt financing
2010(*)
(-) Redemption of ow n equity instruments
(-) Acquisition of ow n equity instruments
(-) Other pay ments related to financing activ ities
Collections:
--(5.722)
(7.108)
(2.231.706)
(3.056.926)
1.302.157
2.241.370
---
---
251.810
---
(+) Subordinated debt financing
(+) Issue of ow n equity instruments
(+)Disposal of ow n equity instruments
(+) Other collections related to financing activ ities
347
1.370
1.050.000
2.240.000
D) EFFECT OF EXCHANGE RATE FLUCTUATIONS
E) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D)
---
---
---
65.423
(2.050.640)
F) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
396.490
2.447.130
G) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (E + F)
461.913
396.490
Cash
120.027
133.197
Cash equiv alent balances in central banks
312.188
150.637
29.698
112.656
---
---
461.913
396.490
---
---
MEMORANDUM ITEM
COMPONENT OF CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
Other financial assets
Less: At sight reimbursable bank overdrafts
Total cash and cash equivalents at the year end
Of w hich: held by consolidated entities but not av ailable to the group
12
BANCO PASTOR GROUP: Notes to the Consolidated Annual
Financial Statements for the year ended 31 December 2011
1. INTRODUCTION, BASIS OF PRESENTATION OF
FINANCIAL STATEMENTS AND OTHER INFORMATION
1.1. Introduction
Banco Pastor S.A. (hereinafter the “Bank”) is a private entity subject to Spanish
banking standards and regulations. The bylaws and other public information
regarding the bank are available for consultation at its registered office at Canton
Pequeño, 1, A Coruña, or on its official website: www.bancopastor.es.
In addition to the activities that it carries out directly, the Bank acts as parent
company for a group of subsidiaries engaged in a number of businesses and which,
together with the parent company, make up the Banco Pastor Group (the “Group”).
As well as its own financial statements, the Bank is therefore obliged to prepare
annual financial statements for the consolidated group, which include its holdings in
jointly-controlled entities and investments in associates.
The balance sheets, income statements, statements of recognised income and
expense, statement of changes in equity and individual cash flow statements for
Banco Pastor S.A. for 2011 and 2010 are shown in Appendices I to V, respectively.
The 2010 consolidated financial statements were approved at the Bank’s
Shareholders’ Meeting on 6 April 2011.
The Group's consolidated financial statements and the financial statements of
nearly all Group companies for 2011 are pending approval at their respective
Shareholders’ Meetings. Nonetheless, the Bank’s board of directors expects the
financial statements to be approved without significant changes.
1.2. Basis of presentation of the consolidated annual
financial statements
The 2011 consolidated financial statements of the Banco Pastor Group are
presented in thousand euro and have been prepared:

By the Bank’s Directors, at a Board meeting held on 9 February 2012.
 In accordance with International Financial Reporting Standards adopted by the
EU (IFRS-EU) to 31 December 2011, as adapted to the Spanish banking sector by
Bank of Spain Circular 4/2004, dated 22 December, and its subsequent
amendments, which constitute the development and adaptation of the
aforementioned IFRS-EU to Spanish credit institutions.
 Note 2 sets out the main accounting principles and policies and the main
valuation criteria applied in preparing the Group’s 2011 consolidated financial
statements.
 Applying all the obligatory accounting principles, standards and measurement
criteria that have a material impact on the consolidated financial statements.
 So as to give a true and fair view of the equity and financial position of the Group
at 31 December 2011 and the results of its operations, the changes in equity and its
cash flows, all on a consolidated basis, during the year then ended.
 Prepared from the accounting records of the Bank and the other companies
composing the Group.
13
 In accordance with the historic cost approach, although modified by the
restatement of land and buildings at the time of transition to IFRS-EU and the
restatement of financial assets available for sale and financial instruments at fair
value through changes in profit and loss (including derivatives).
However, in view of the fact that the accounting principles and measurement criteria
used to prepare the Group's 2011 consolidated financial statements differ to those
applied by certain Group entities, the adjustments and reclassifications necessary to
standardise the principles and criteria used and to ensure compliance with IFRS
were made on consolidation. All of the Companies forming part of the Group close
their annual accounts on 31 December.
1.3. Corporate transaction with Banco Popular
On 7 October 2011, the Board of Directors of Banco Popular Español, S.A. adopted
a resolution to make a Public Offer to Acquire (POA) all the shares and necessarily
convertible subordinated bonds of Banco Pastor, S.A., consisting of a swap of 1,115
newly issued shares in Banco Popular Español, S.A. for each share in Banco
Pastor, S.A. and 30.9 newly created shares in Banco Popular Español, S.A. for
each necessarily convertible bond in Banco Pastor, S.A., once the irrevocable
acceptance of at least of the shareholders holding at least 50.1% of the share
capital in Banco Pastor, S.A. has previously been obtained. The POA was also
subject to the condition that a number of shares accept the operation such that
Banco Popular Español, S.A. is ensured the ownership of more than 75% of the
voting rights in Banco Pastor, S.A. and obtains all of the required authorisations
from authorities and supervising entities.
On 10 October 2011, Banco Popular Español, S.A. subscribed irrevocable
commitments with shareholders of Banco Pastor, S.A. representing a total of
52.28% of the entity's share capital that they would accept the POA in the terms
described above and in the announcement published by the National Stock Market
Commission (C.N.M.V.) on that same date.
On 10 November 2011, Banco Popular Español, S.A. presented the National Stock
Market Commission with the application for the authorisation for the POA and the
Prospectus explaining the offer and it was accepted for processing at that date.
At the date on which these consolidated annual accounts were prepared the POA
had yet to be definitively settled (Note 1.13).
1.4. Responsibility for the information and estimates
made
The information contained in these consolidated financial statements is the
responsibility of the Directors of the Bank as the parent company of the Group.
In measuring some of the assets, liabilities, income, expense and commitments in
the consolidated financial statements for 2011 the group has occasionally relied on
estimates made by the senior executives of the Bank and its subsidiaries and
subsequently ratified by the Directors. Basically, these estimates mainly concern the
following items:
 Impairment losses on certain assets (Notes 2.1.8, 11.4, 12.5, 13.2, 16.2, 17, 19,
20, 21 and 22).
 The assumptions used in actuarial calculations of liabilities and commitments
relating to post-employment benefits and other long-term commitments with
employees (Notes 2.9.1.3.1 and 2.9.1.3.2);
 The useful life of property, plant and equipment and of intangible assets (Notes
2.11, 19 and 20).
 Estimate of the probability of occurrence of those events considered to be
contingent liabilities and, if appropriate, an estimate of the provisions necessary to
cover these events (Note 25).
14

The measurement of goodwill (Note 20.1).

The fair value of certain unlisted assets (Note 30).
 The reversal period of temporary differences for the purposes of their
measurement (Note 28).

The fair value of certain guarantees covering the collection of assets (Note 30).
These estimates were made on the basis of the best information available at 31
December 2011. However, it is possible that future events may require them to be
increased or decreased in subsequent years. Any such changes, in compliance with
IFRS-EU, would be applied prospectively, with the impact of the changed estimates
recognised in the corresponding item in the consolidated income statement or
statements of recognized revenues and expenses, as appropriate.
1.5. Changes in accounting estimates
In 2011 there has been no change in the Group's accounting estimates that has a
significant effect on consolidated results for the year or on the consolidated balance
sheet.
1.6. Subsidiaries, associates and interests in jointlycontrolled entities
1 . 6 . 1 . S u b s i d i a ri e s
Subsidiaries are defined as any companies over which the Bank can exercise
control; control is generally, though not exclusively, evidenced by the Bank’s direct
or indirect ownership of 50% or more of the investee company’s voting rights or by
the existence of agreements with the company shareholders that give the Bank
effective control even though it may own less, or none, of the company’s voting
rights. Under IFRS-EU control is understood as the ability to govern the financial
and operating policy of an entity so as to obtain benefits from its activities. Appendix
VII of these notes contains significant information regarding these subsidiaries.
Securitisation funds of assets that include securities prior to 1 January 2004 are not
consolidated, under the rule of first-time application. In reference to securitisations
made subsequent to that date, if the risks and income are retained then the
securitised loans are recognised in the balance sheet, and the net payments
received from treasury shares, as appropriate, are recognised under the entry
“Marketable debt securities”. Accordingly, the consolidation of securitisation funds
would not offer further relevant information or provide an enhanced fair and true
image of the consolidated financial statements. If the risks and rewards are
substantially transferred, the securitised loans removed from the balance sheet, and
the securitisation funds are not consolidated, since the Group does not assume the
associated gains or losses. Appendix XIII provides details of the securitisation funds
in force at 31 December 2011 and 2010.
The financial statements of subsidiaries are consolidated with those of the Bank
using the full consolidation method. Consequently, all material balances and results
of transactions between consolidated companies were eliminated on consolidation.
In addition, third parties’ interests in Group equity are presented under “Minority
interests” in the consolidated balance sheet (Note 27.3) and their share of results for
the year is shown under “Profit/(loss) for the year – attributable to minority interests”
in the consolidated income statement. The statement of recognized income and
expense presents information regarding the comprehensive profits attributable to
minority shareholders (Note 2.19).
The results of subsidiaries acquired during the year are included in the consolidated
income statement from the date of acquisition to year-end. Similarly, the results of
subsidiaries disposed of during the year are included in the consolidated income
statement from the beginning of the year to the date of disposal.
15
Note 5 details the changes in scope of consolidation and the most significant
acquisitions and disposals of subsidiaries in 2011, and new investment in the capital
of companies already classified as subsidiaries at the beginning of the year.
1 . 6 . 2 . J o i n t l y-c o n t ro l l e d c o mp a n i e s
“Jointly-controlled entities” are companies that are not subsidiaries and that are
contractually subject to control by two or more entities.
The Bank has opted to recognise its interests in jointly-controlled entities under the
equity method (Note 1.6.3), as this was considered the best way to give investors a
truer and fairer view of the Group.
Consolidating jointly-controlled entities by the proportionate consolidation method
would have made no material difference to the consolidated financial statements.
Appendix IX provides relevant information on these companies and Note 5 gives
details of the most significant acquisitions made in 2011 of jointly-controlled entities
and new investments in companies that were already designated jointly-controlled
entities at the start of the year, as well as information on disposals of investments in
jointly-controlled entities.
1.6.3. Associated companies
Associates are companies over which the Bank can exercise significant influence,
but which are not subject to the Bank’s decisions or under joint control. Normally,
significant influence generally accompanies a direct or indirect shareholding of 20%
or more of the voting rights.
The Bank's investments in associates are initially recognised at cost and
subsequently accounted for in the consolidated financial statements under the
equity method of accounting, i.e. at a value equivalent to the Group’s proportional
share in their equity after the deduction of dividends paid to the Group and other
eliminations from equity. The Group’s investment in associates includes goodwill
identified on acquisition.
The profit and loss resulting from transactions with an associate are eliminated to
the extent of the Group’s interest in the associate.
If an associate incurs losses to the extent that its carrying amount becomes
negative, the Group’s investment in the associate is reported with a value of zero,
since the Group has no obligation to support the associate financially.
Appendix X provides relevant information on these companies. Note 5 gives details
of the most significant acquisitions of associates made in 2011, and new
investments in companies that were already classified as associates at the start of
the year, as well as information on disposals of investments in associates in 2011.
1.7. Agency agreements
The list of the bank's Agents at the end of 2011, defined in the manner established
by Article 22 of Royal Decree 1245/1995 (14 July) and Bank of Spain Circular (BSC)
4/2010 (30 July) is set out in Appendix XII to these Consolidated Financial
Statements.
1.8. Environmental impact
The Group’s overall operations are governed, among others, by environmental and
occupational health and safety legislation. The Group believes that it substantially
complies with such legislation and it implements procedures to ensure and promote
compliance.
16
The Group has adopted all appropriate measures with respect to the protection and
improvement of the environment and the minimization of any environmental impact
and complies with current legislation in this respect. During the year the Group has
continued to implement waste treatment, recycling and energy savings plans. As a
result, it has not been deemed necessary to record any provision for environmental
risks and expenses and since there are no contingencies associated with
environmental protection and improvement.
1.9. Equity - Treasury shares
The balance of the heading "Equity - Treasury shares" in the consolidated balance
sheet relates to Bank shares and the subordinated bonds that must necessarily be
converted into shares held by some consolidated companies at the year end
totalling €18,673 thousand and €157 thousand, respectively, at 31 December 2011.
These instruments are recognised at cost and any gains or losses on their disposal
are credited to or charged against equity in the accompanying consolidated balance
sheet.
Total shares in the Bank held by consolidated companies at 31 December 2011 and
2010 represented, respectively, 1.80% and 1.16% of issued capital outstanding
(Note 27.1.4 summarises transactions involving treasury shares in 2011 and 2010).
1.10. Capital Management
Bank of Spain Circular 3/2008 stipulates the minimum equity controls and
calculation applicable to credit institutions, partially amended by Circular 9/2010 (22
December) (hereinafter Bank of Spain Circular 4/2008), and regulates the minimum
equity that must be maintained by Spanish credit institutions and the manner in
which the equity must be calculated, as well as the various capital self-assessment
processes that must be carried out and the public reporting of information that must
be sent to the market.
In 2011 Bank of Spain Circular Letter 3/2008 has been partially amended by the
issue of Bank of Spain Circular Letter 4/2011 (30 November). This Circular Letter is
intended to make advances with respect to the adaptation of Spanish regulations to
the new criteria established by the Basel Committee on Banking Supervision. This
objective is intended to be met, for the special purpose of ensuring the future
computation of capital instruments to be issued starting in 2012, within the authority
of the Bank of Spain and without affecting the potential availability of credit or
perturbing the capacity of Spanish credit institutions to obtain resources. The
aforementioned Circular Letter also complies with the recommendations made
regarding the transparency of compensation policies that were published in July
2011 by the Basel committee and to exercise some of the authority attributed to the
Bank in this area.
The strategic objectives put forward by the Group’s Directors in relation to the
management of capital requirements are the following:
 To comply with applicable regulations regarding minimum capital requirements
at all times.
 To seek maximum efficiency in the management of capital, so that, alongside
other variables related to profitability and risk, the use of capital is considered a
fundamental variable in any analysis associated with investment decisions taken by
the Group.

Reinforce the weight that Tier 1 capital as a percentage of total Group capital.
In order to comply with these objectives, the Group has drawn up a series of polices
and management processes, with the main guidelines being:
17
 The Group has created units, under the Direction of the Bank’s finance and Audit
Departments, with the responsibility of monitoring levels of compliance with Bank of
Spain regulations regarding minimum capital requirements. These units are
equipped with alarm systems that guarantee compliance with current regulations at
all times. To this end, there are contingency plans in place to ensure compliance
with the limits imposed by current regulations.
 A key decision-making factor in strategic and commercial planning, as well as
the analysis and monitoring of the Group’s operations, is the impact of these
activities on the capital of the Group and the trade-off between risk, return and
consumption. Therefore, the Group has produced a series of handbooks
establishing the guidelines to be followed in decision making processes in terms of
minimum capital requirements.
The Group considers capital and the capital requirements established by the
aforementioned regulations to be a fundamental part of capital management,
affecting not only investment decisions taken but also viability studies and profit
distribution strategies by subsidiaries and issues.
Bank of Spain Circular 3/2008, dated 22 May, establishes which items must be
considered as equity, in order to comply with the minimum requirements established
by the regulation. Eligible capital for these calculation purposes is classified into Tier
I and Tier II capital and differs from equity calculations provided for under IFRS-EU
as it defines certain balance sheet headings to be included in eligible capital while
stipulating that other headings be deducted. These deductions are not stipulated in
IFRS-EU. The consolidation and valuation methods of equity affiliates to be applied
in the calculation of minimum capital requirements for the Group differ, in
accordance with current regulations, from those used to produce these consolidated
financial statements, which may result in differences in the calculation of capital
under the two sets of standards.
The Group’s management of equity meets the provisions of Bank of Spain Circular
3/2008, with respect to conceptual definitions. In this connection, the Group
considers computable equity to be the items indicated in Rule 8 of Bank of Spain
Circular 3/2008 and subsequent amendments.
The minimum capital requirements established in the aforementioned Circular are
calculated according to the Group’s exposure to credit and dilution risk (in relation to
assets, commitments and other memorandum accounts that represent these risks
according to their amounts, characteristics, counterparties, guarantees, etc.), to
counterparty risk and the liquidity risk position of its trading portfolio, exchange rate
risk and risk associated with its position in gold (in relation to the net currency
position and the net gold position) and operational risk. The Group is subject to
compliance with the risk concentration limits established in the aforementioned
Circular and monitors the degree of concentration in the credit risk portfolios by
taking into consideration various parameters: geography, customer sectors and
groups and it establishes risk policies and exposure limits to manage the extent of
concentration in those portfolios. The positions that are considered to be high risk
within the Group are much lower that the maximum concentration risk limit
established in the Circular. In addition the Group must comply with internal
Corporate Governance obligations, the self-evaluation of capital and interest rate
risk measurement, and the obligation to provide information to the public, which are
also established in the Circular. In order to guarantee compliance with the
objectives listed above, the Group employs an integrated risk management strategy,
in accordance with the policies indicated above. The following table provides a
breakdown of the Group’s capital at 31 December 2011 and 2010, classified as Tier
1 and Tier 2 capital. These have been calculated in accordance with the stipulations
of Bank of Spain Circular 3/2008, dated 22 May, and subsequent amendments,
which as previously noted, coincides with what is considered, for consolidation
purposes, “capital under management”.
18
Thousand euro
2011
1.975.394
2010
1.957.119
90.041
88.083
1.666.847
1.380.125
9.064
170.802
Subordinated financing subject to limit
299.088
399.600
Treasury shares
(18.830)
(13.445)
Tier 1 capital
Capital
Reserv es (including net amount of reserv es carried under the equity
Minority interests
Non-computable ex cess on subordinated financing
Other deductions
Tier two equity
Reserv es for asset restatements
Ex cess of tier 1 capital of subordinated transferred
Subordinated financing - undefined duration or similar
Measurement adjustments in computable av ailable-for-sale portfolio
Other instruments
Other deductions
TOTAL COMPUTABLE OWN FUNDS
---
---
(70.816)
(68.046)
57.788
176.201
15.580
15.773
---
---
45.839
85.608
762
---
---
79.153
(4.393)
(4.333)
2.033.182
2.133.320
10,82
10,63
Main ratios:
Tier I
Tier II
Solv ency ratios
Regulatory minimum
0,32
0,96
11,13
11,59
8,00
8,00
At 31 December 2011 and 2010, and during those financial years, the Group’s
computable capital exceeded the requirements stipulated in the aforementioned
regulation as shown in the table above.
1.11. Deposit Guarantee Fund
The Bank is the only Group entity that contributes to the Deposit Guarantee Fund.
In 2011 and 2010 the cost of contributions to this entity were EUR 7,541 and EUR
6,822 thousand, respectively. These were recognised under “Other operating
expenses - Contribution to the Deposit Guarantee Fund” in the accompanying
consolidated income statement (Note 42).
Royal Decree-Law 16/2011 (14 October) entered into force on 15 October 2011 and
created the Deposit Guarantee Fund for Credit Institutions. Article 2 of that Royal
Decree-Law declares the cancellation of the Deposit Guarantee Fund for Savings
Banks, the Deposit Guarantee Fund for Banking Establishments and the Deposit
Guarantee Fund for Credit Cooperatives, the balances of which are integrated into
the Deposit Guarantee Fund for Credit Institutions, which subjugates to all of the
rights and obligations of the canceled funds. As a result, as from that date the Entity
joined the new Deposit Guarantee Fund for Credit Institutions.
Onto December 2011 Royal Decree-Law 19/2011 (2 December) entered into force
and amended Royal Decree-Law 16/2011 which established that the amount of the
contributions by Entities to the Deposit Guarantee Fund for Credit Institutions would
increase to 2 per thousand of the calculation base. The aforementioned Royal
Decree is applicable to the contributions made as from the date on which it entered
into force. In 2011 the amount of contributions was set at 0.6 per thousand of the
calculation base.
19
Finally, on 4 July 2011 Circular Letter 3/2011 (30 June) entered into force for
entities belonging to a Deposit Guarantee Fund and covers additional contributions
to Deposit Guarantee Funds. That Circular Letter establishes mandatory quarterly
additional contributions for member entities that obtain term deposits or settle
interest-bearing current accounts ceding certain interest rate, based on the term of
the deposit or the nature of the on demand account. This contribution would derive
from the weighting, of 500%, of deposits obtained or settled that exceed those rates,
of the calculation base that may be determined by ordinary contributions.
1.12. Minimum reserves ratio
At 31 December 2011 and 2010, and throughout 2011 and 2010, the Group met the
minimum requirements for this ratio under applicable Spanish regulations.
The cash on deposit at the Bank of Spain for these purposes totaled EUR 267,632
thousand and EUR 96,491 thousand at 31 December 2011 and 2010, respectively,
although the obligation falling to several Group companies to maintain the balance
required by applicable legislation to comply with this minimum reserve ratio is
calculated based on the average daily balances maintained by each of them in that
account during the mandatory maintenance period.
On 21 December 2011 the Official Journal of the European Union (OJEU) published
Regulation (EU) 1358/2011 of the European Central Bank (14 December), which
amends Regulation (EC) 1745/2003, relating to the application of minimum
reserves. The aforementioned amendment consists of including the reduction from
2% to 1%, approved by the Board of Governors of the European Central Bank on 8
December 2011, affecting the minimum reserve ratio to be held by entities subject
to the regulations. This amendment entered into force as from the reserve
maintenance period starting on 18 January 2012.
The Bank is the only Group company that is subject to compliance with the
minimum reserve ratio.
1.13. Subsequent events
As regards the corporate transaction described in Note 1.3, on 18 January 2012 the
Board of the C.N.M.V authorised the POA once it was approved by the National
Competition Commission (NCC) and the relevant documents stating no opposition
by the various supervisory bodies were obtained. On 19 January 2012 the C.N.M.V.
reported that the POA acceptance period was between 20 January 2012 and 10
February 2012, both inclusive.
On 31 January 2012 the number of declarations of acceptance of the POA received
exceeded 75% of the Company's share capital. At the date these annual accounts
were prepared, the definitive settlement of the POA had yet to be settled and it is
expected to be completed during the second half of February 2012.
On 4 February 2012, Royal Decree - Law 2/2012 (3 February) was published, which
covers financial sector write-downs and is intended to improve the confidence,
credibility and strength of the sector, facilitating a return to the financing of economic
growth and the creation of employment. The aforementioned Royal Decree - Law
establishes new requirements for additional provisions and capital, exclusively for
the purpose of covering the impairment of the assets associated with the real estate
activity, which includes both financing and adjudicated or received as payment of
debt relating to the real estate sector.
In general, banks must meet the provisions of the new legislation before 31
December 2012, although those that are carrying out mergers in 2012 will have 12
months as from the approval of such an operation to comply with the new
requirements.
20
The Bank is currently quantifying the effects of that legislation, to subsequently
analyse the procedure under which they may be absorbed into its financial
statements. The above is subject to the completion of the corporate transaction
described above with Banco Popular, in which case a a joint analysis of the impacts
that their resolution would be carried out.
At the date these consolidated financial statements were prepared no other event
had materially affected the balance sheet.
1.14. Other information
1 . 1 4 . 1 . D e t a i l s o f i n ve s t me n t s a n d p o s t s h e l d b y d i re c t o rs i n
c o mp a n i e s e n g a g i n g i n s i mi l a r a c t i vi t i e s
In accordance with the requirements established in Section 2 of Article 229 and 230
of the Spanish Companies Act 2010 intended to reinforce the transparency of listed
companies, the companies with the same, similar or supplementary corporate
purpose as the Bank, and in which members of the Board of Directors and related
persons have a direct or indirect interest, are listed in Appendix VI.
Since 19 July 2003, the date on which Law 26/2003 entered into force, the member
of the Board of Directors and related persons as defined by Article 231 of the
Spanish Companies Act 2010, have not carried out and do not currently carry out
any activity on their own behalf or on behalf of any other party, that is the same,
similar or supplementary to the activity carried out by the Bank, except for Mr. José
Arnau Sierra, who holds the position of Secretary to the Board of Directors of
Dorneda de Inversiones 2002, S.I.C.A.V.
1 . 1 4 . 2 . S u m ma r y o f t h e A n n u a l R e p o rt o f t h e C u s t o m e r S e r vi c e
D e p a r t me n t a n d O mb u d s m a n
In accordance with the provisions of article 17 of Ministry of the Economy Order
734/2004 on customer service departments and ombudsmen for financial entities, a
summary of the annual report compiled by the heads of customer service and the
ombudsman for the Board of Directors is provided in Appendix VII.
1 . 1 4 . 3 . M o r t g a g e m a rk e t i n f o r m a t i o n
The information required by Bank of Spain Circular 7/2010 dated 30 November
regarding the development of certain aspects of the mortgage market.
The Bank's Board of Directors states that the Group has all of the express policies
and procedures covering all activities carried out with respect to mortgage market
issues and which guarantee rigorous compliance with the mortgage market
regulations governing these activities.
The policies and procedures referred to above include the following criteria:
 Relationship between the amount of the loan and appraisal value of the
mortgaged property, as well as the influence of other guarantees and the selection
of appraisal companies.
 Relationship between the borrower's debt and income, as well as the verification
of the information reported by borrowers, and their solvency.
 Avoid imbalances between the flows from the hedge portfolio and those deriving
from the payments made as a result of the securities issued.
The Bank has not issued any mortgage bonds and it is the only Group company that
issues mortgage bonds and securities. As an issuer of such mortgage instruments,
certain relevant information is presented broken down in the annual accounts below
as required by mortgage market regulations:
21
A) Active transactions
The nominal value of all of the outstanding mortgage loans granted by the Group,
the amount of the mortgage shares and certificates of mortgage transfers issued
and the nominal amount of the loans that back up the issue of the mortgage loans
are presented below, making a distinction between eligible and ineligible items with
respect to 31 December 2011 and 2010:
MORTGAGE LOANS (a)
1. Total loans (b)
2. Mortgage bond holdings
Of which: Loans held on balance sheet
3. Mortgage transfer certificates
Of which: Loans held on balance sheet
4. Mortgage loans assigned as security for financing received
5. Loans securing bond and mortgage bond issue (1-2-3-4)
Thousand euro
31.12.2011
31.12.2010
15.266.621
15.951.082
1.635.326
1.831.766
---
---
367.667
783.801
304.339
722.877
---
---
13.263.628
13.335.515
4.753.475
4.372.014
5.1.1 Fulfil requirements to be eligible ex cept for limit under Article 5.1 of Roy al Decree 716/2009
2.995.936
2.222.192
5.1.2 Other
1.757.539
2.149.822
8.510.153
8.963.501
111.398
254.083
8.398.755
8.709.418
5.1. Ineligible loans (c)
5.2. Eligible loans (d)
5.2.1 Non-computable amounts (e)
5.2.2 Computable amounts
5.2.2.1 Loans cov ering mortgage bond issues
5.2.2.2 Qualify ing loans to cov er mortgage bond issues
--8.398.755
--8.709.418
(a) The term "mortgage loans" includes both loans and credit facilities w ith mortgage guarantees.
(b) Balance used pending collection on mortgages irrespectiv e of percentage represented by the risk ov er the amount of the latest v aluation
av ailable (Loan to v alue).
(c ) Mortgage loans not transferred to third parties or associated w ith financing receiv ed that do not meet the requirements of Article 3 of Roy al
Decree 716/2009 to be eligible for the issue of mortgage securities.
(d) Loans eligible for issue of mortgage securities according to Article 3 of Roy al Decree 716/2009 w ithout deducting the limits to their
computation established by Article 12 of Roy al Decree 716/2009.
(e ) Amount of eligible loans that according to Article 12 of Roy al Decree 716/2009, are not computable to cov er issues of mortgage
securities.
The nominal value of the outstanding mortgage loans at 31 December 2011 and
2010 and those that are eligible, without taking into consideration the calculation
limits established by Article 12 of Royal Decree 716/2009 (24 April) and broken
down by item, is presented below:
22
Thousand euro
31.12.2011
31.12.2010
Loans securing
Loans securing
bond and
Eligible loans
bond and
Eligible loans
mortgage bond
(b)
mortgage bond
(b)
issue (a)
Origin of operations
Arranged by the entity
issue (a)
13.263.628
8.510.153
13.335.515
8.963.501
13.263.628
8.510.153
13.335.515
8.963.501
Subrogated other entities
---
---
---
---
Other
---
---
---
---
Currency
13.263.628
8.510.153
13.335.515
8.963.501
Euro
13.250.913
8.504.975
13.322.742
8.955.346
12.715
5.178
12.773
8.155
13.263.628
8.510.153
13.335.515
8.963.501
11.812.656
7.854.566
12.308.089
8.418.317
Other currencies
Payment status
Pay ment status
Other situations
1.450.972
655.587
1.027.426
545.184
13.263.628
8.510.152
13.335.515
8.963.501
Up to 10 y ear
3.895.718
1.567.404
3.656.065
2.510.298
More than 10 y ears and up to 20 y ears
2.815.619
1.935.226
2.777.191
1.955.385
4.325.594
3.175.649
4.344.731
2.832.948
More than 30 y ears
2.226.697
1.831.873
2.557.528
1.664.870
13.263.628
8.510.153
13.335.515
8.963.501
592.362
170.058
395.650
258.817
8.656.468
Average residual period to maturity
Interest rate
Fix ed
Variable
12.609.252
8.320.701
12.865.749
Mix ed
62.014
19.394
74.116
48.216
Holders
13.263.628
8.510.153
13.335.515
8.963.501
Entities and indiv idual entrepreneurs
- Of which: Real estate developments
Other indiv iduals and ISFLSH
Type of guarantee
Assets /finished buildings
Residential
- Of which: Official housing
Commercial
Other
Assets/ buildings under construction
Residential
- Of which: Official housing
Commercial
Other
Land
Dev eloped
Other
7.958.115
3.638.358
7.839.934
4.473.821
3.147.038
692.513
3.499.284
2.274.275
5.305.513
4.871.795
5.495.581
4.489.680
13.263.628
8.510.153
13.335.515
8.963.501
9.217.672
7.875.132
9.561.341
6.913.433
7.596.423
5.814.401
8.036.033
6.029.918
87.401
85.648
1.621.249
1.649.148
1.525.308
883.515
---
411.583
---
---
3.189.830
359.182
2.730.605
1.398.386
1.108.062
31.742
998.430
489.231
192.113
46.510
156.195
79.054
1.889.655
280.930
1.575.980
830.101
856.126
275.839
1.043.569
651.682
787.311
274.639
910.849
568.802
68.815
1.200
132.720
82.880
192.113
(a) Balance used pending collection on loans and credit facilities secured by mortgages, irrespectiv e of the percentage of risk ov er the
latest v aluation ("loan to v alue"), not transferred to third parties or associated w ith financing receiv ed.
(b) Loans and credit facilities eligible for issue of mortgage bonds and debentures according to Article 3 of Roy al Decree 716/2009
w ithout deducting the limits to their computation established by Article 12 of Roy al Decree 716/2009.
The breakdown of the nominal value of outstanding eligible mortgage loans and
credit facilities at 31 December 2011 and 2010, as a percentage of the risk with
respect to the value obtained based on the latest appraisal available for mortgaged
assets (loan to value):
23
Thousand euro
31/12/2011
31/12/2010
Loan to value of operations
More than 40% More than 60%
Type of guarantee
Up to 40%
and up to 60%
More than 40% More than 60%
and up to 80% More than 80%
TOTAL
Up to 40%
and up to 60%
and up to 80% More than 80%
TOTAL
Eligible loans (a):
Mortgages on housing
1.001.998
1.688.487
3.154.257
1.401
5.846.143
824.279
1.536.585
3.323.455
---
5.684.319
Mortgages on other assets
1.169.673
1.450.827
567
42.943
2.664.010
1.464.210
1.729.518
85.454
---
3.279.182
2.171.671
3.139.314
3.154.824
44.344
8.510.153
2.288.489
3.266.103
3.408.909
---
8.963.501
TOTAL
(d) Loans eligible for issue of mortgage securities without considering the limits to their computation established by Article 12 of Royal Decree 716/2009.
The available balance of mortgage loans that support the issue of mortgage bonds
at 31 December 2011 and 2010 is as follows:
Thousand euro
31.12.2011
Balances available (a):
31.12.2010
598.849
767.590
- Potentially eligible loans (b)
360.080
612.404
- Potentially non-eligible loans
238.769
155.186
(a) Amounts committed (limit) less amounts used on all mortgage loans, irrespectiv e of
the percentage of total risk ov er the latest v aluation av ailable ("loan to v alue"), not
transferred to third parties or associated w ith financing receiv ed.
(b) Potentially eligible loans for the issue of mortgage securities according to Article 3 of
Roy al Decree 716/2009.
The Group does not have replacement assets linked to issues of mortgage bonds.
b) Liability transactions
Information regarding the mortgage bonds issued at 31 December 2011 and 2010 is
as follows:
24
Thousand euro
31/12/2011
Nominal value
1. Outstanding mortgage bonds
2. Mortgage debentures issued
2.1. Debt securities Issued through public offering
31/12/2010
Average
Nominal value
residual
maturity (a)
maturity (a)
---
---
6.207.100
6.383.100
5.267.100
4.600.000
- Time to maturity up to one y ear
1.167.100
---
- Time to maturity more than one y ear and up to tw o y ears
1.300.000
500.000
- Time to maturity more than tw o y ears and up to three y ears
1.500.000
1.300.000
- Time to maturity more than three y ears and up to fiv e y ears
1.300.000
2.800.000
---
---
- Time to maturity more than fiv e y ears and up to 10 y ears
-Time to maturity more than 10 y ears
---
---
140.000
1.183.100
---
676.000
---
167.100
---
---
---
200.000
140.000
140.000
2.2. Debt securities Other issues
2.3. Deposits
---
---
800.000
600.000
---
---
400.000
---
200.000
400.000
200.000
---
---
200.000
---
3. Mortgage bond holdings (b)
Average
residual
---
---
---
---
---
- Issued through public offering
---
---
---
---
- Other issues
---
---
---
---
304.339
154
722.877
166
4. Mortgage transfer certificates (b)
- Issued through public offering
- Other issues
---
---
---
---
304.339
154
722.877
166
(a) Av erage w eighted time to maturity by amount and ex pressed in months.
(b) Amount of mortgage holdings and mortgage transfer certificates issued relating ex clusiv ely to loans on the balance sheet .
25
1.15. Informational transparency relating to the
financing of contruction and real estate developments,
financing for the acquisition of homes, assets acquired
in foreclosure and measurement of financing needs in
the markets
1 . 1 5 . 1 . I n f o r m a t i o n re g a rd i n g t h e f i n a n c i n g d e d i c a t e d t o
c o n s t ru c t i o n a n d r e a l e s t a t e d e v e l o p m e n t , h o m e f i n a n c i n g a n d
f o re c l o s e d a s s e t s .
1 . 1 5 . 1 . 1 . Qu a l i t a t i v e i n f o r ma t i o n
The Group carries out integral management of the real estate portfolio throughout
the credit cycle. As from the time of concession, a which time the particularities of
the segment in question are taken into consideration, and including close monitoring
of the current portfolio, up to the management of mismatched customer positions or
defaults of customers in the real estate construction or promotion business and the
properties that may be included in the balance sheet as a result of this action.
Granting of new risk
The real estate and construction segments are not a target segment for the Group.
However, it does have a process and tools for ensuring that the positions that may
arise are of maximum credit quality.
Firstly, the statistical measurement tools applied to customers (ratings and scorings)
include the National Classification of Economic Activities (CNAE) as one of its
discriminating factors. It expressly examines the differential performance shown by
customers in this segment.
In addition, within the delegated attribution guidelines to penalize risk, the sector of
economic activity is also taking into account as a discriminating factor. The offices
have very limited authority to grant credit to companies that are involved in the real
estate construction or development business.
Ordinary monitoring of loans
In addition to the overall monitoring of the portfolio using general criteria, all
borrowers that carry out activities in the real estate or development business are
exhaustively examined regardless of their level of credit impairment. The processes
implemented by the Group in this respect pursue the review of these portfolios at
least on an annual basis.
The examination concludes with the assignment of a rating for each customer. This
rating constitutes the strategy that is to be followed with respect to each customer in
order to prevent imbalances or, if inevitable, to maintain the most robust position
possible. The examination is highly detailed and includes both the analysis of the
credit risk and technical and legal issues (formalities, guarantees, etc.).
Risk Management also has a team specialised in the real estate sector that
supports the management of these risks:
I.
After receiving authorisation for the financing/refinancing:
a. Technical advisory services regarding market knowledge, viability of the
project, current status of the General Plan that may affect the property, the
validity of the appraisal method, land development expectations, concentration of
developments in the area, etc.
b. Verification of licenses, distribution documents, verification of horizontal
development rights, insurance policies, approved project, etc.
26
II.
Formalities:
a. Validation of the formal execution of the Development Mortgage Loan and
the Land Mortgage Loan, reviewing and examining the documentation attached
to the case file.
b. Verification of the proper registration of the guarantees.
III.
Provisions:
a. Control over the provisions of both the Land Mortgage Loan and the
Development Mortgage Loan, including the updating of the related information.
The same team of specialists monitors the developments and land financed by the
Group by issuing alerts regarding the progress of developments, when necessary:
 Review of the rates associated with the developers and after verification, the
values associated with the units making up the development. Alarms are raised
when significant decreases in the appraised value are observed.

Status of the licenses necessary at any given moment of development.
 Valuation of the banking operation (profile of the drawn downs, frequency,
amounts).

Development of sales regarding the execution of construction work.

Progress of the construction work.
 Court claims involving suppliers, encumbrances following the creation of the
mortgage.
 Developments that , after the end of the grace period and after a more than
reasonable time has passed for sale, remain in possession of remnants of the
development, maintaining the initial financing conditions.
 Reports on the overall situation of the development and land mortgage loan,
providing details, among other things, geographic loacation, degree of completion of
the work, appraisals, etc.
Management of the non-performing loan portfolio
The team engaged in these tasks (represented at both Central Services and
Regional Management) have clearly established criteria for managing customers.
Cusrtomers are managed as from the first default and all possible means of friendly
resolution are exhausted, wihtout harming the position the Group has with respect
to the debtor. This action includes the granting of a grace period, extension of the
maturity period, modification of the repayment dates, obtaining of additional
guarantees for refinancing and partial dation in payment or total payments for the
debt, in accordance with the following criteria:
In any case, all strategies pivot around updated information, particularly focused on
appraisals, verifications and, in general, customer solvency.
To apply this action the Irregular Investment Management Team has a series of
decision trees. They fundamentally consist of the following two branches:
 Existing guarantees, deeper examination of the existing situation, based on the
coverage they represent. A differentiation is made based on the Group's creditor
position relating to other companies.

Existence of guarantors, taking into consideration their financial situation.
 Solvency situation, measuring the quality of the available assets, as well as the
situation in terms of pre-existing charges.
27
Based on the characterisation surrounding these branches clearly define the action
to be taken. In general, the following strategies are applied:
 If there are no guarantees that easily cover the position, the intention is to
improve the Group's position by including guarantor's with sufficient solvency or the
contribution of new guarantees.
 Refinancing: reserved for solvent customers that provide solid support for the
risk, taking into consideration pre-existing loads based on updated appraisals. In
these types of situations the coverage of the transaction must be improved by
increasing the guarantees, extending terms such that the weight of the financing
can be borne by the customer. In this case, by ensuring that the risk is covered.
 Dation in payment/acquisition of properties: if refinancing is not viable the option
of accepting a dation in payment or acquiring the property. In these cases, a limit is
set at 90% of the updated appraised value, ensuring that the amount is never less
than the value of the borrowings.
 Court claim: initiated if the position cannot be improved in terms of the
guarantees provided, when sufficient solvency exists with respect to owners or
guarantors. In this connection, the mortgage process is differentiated either through
mortgages or through non-court claims for ownership, pursuing assets owned by the
owner and guarantors.
Management of borrowings involving several entities
The Restructuring Unit is specialised in the management of restructuring of debt
financing loans for corporate customers, in which several financial institutions
participate.
This Unit implements strategies that are coherent with those applied to the
management of customers in an irregular or default situation that are not involved
with multilateral financing, adapted to the increased complexity of the cases being
managed. The guidelines are based on the following fundamental principles:
I. Analysis of operating collateral.
II. Measurement of the limitations for foreclosing on collateral.
III. Legal support for evaluating existing agreements between creditors or guarantee
and pledge documentation.
IV. Business and reputational cost.
Management of personal mortgage loans
The Bank has a unit specialising in the management of personal debt reflecting
payment difficulties. This team is responsible for the management of personal
mortgage loans for individuals that have sufficient solvency and a will to make
payment. Its duties are:
 Negotiate with individual and autonomous customers that are solvent and have
demonstrated a willingness to make payment, through restructuring, refinancing
management and, as a final recourse, acquiring assets.
 In the case of refinancing, it will make use of the various measures that have
been implemented by the Government to facilitate financial activities by consumers
(default ICO, extension of payment periods free of charge, etc.).
 This centre supplements the management work carried out for any problems
involving individuals and independent contractors and is carried out by external
agencies.
28
Real estate area
The real estate area is intended to manage the real estate assets owned by the
Group, maximising value in the most efficient way possible. This area interacts
fundamentally with the Irregular Investment Management Unit and the Restructuring
Unit.
Typically, action starts as a step prior to a dation-in-payment or the acquisition of
property. However, the Real Estate Area provides advisory services in general,
before bringing the property into the Group's balance sheet. It also prepares reports
for the following purposes:
 Appraise the land, including the perspectives of future development, including
any relevant development plans.
 Evaluate unfinished developments, identifying the investments that are
necessary for completion and the perspectives for the subsequent sale of the units
concerned.
 Analyse the position of unfinished developments, from the point of view of the
possible sale of the properties.
Once these processes have been completed (dation-in-payment, foreclosure, etc.)
which end with the asset being included in the Group's balance sheet, the Real
Estate Area receives all the information regarding the assets and starts to manage
the properties. The following tasks are involved in this area:
 Manage the sale of the properties or land, in accordance with a value
optimisation strategy.
 Coordinate the development of the land or unfinished developments, when
considered to be profitable investments.
 Manage the assets owned by the Group, including security, the payment of
taxes, maintenance, etc.
1 . 1 5 . 1 . 2 . Qu a n t i t a t i v e i n f o r ma t i o n
At 31 December 2011 and 2010, the details of the financing applied to real estate
construction and development, and the relevant coverage, is as follows:
29
Thousand euro
2011
2010
Excess over
Excess over
guarantee value
guarantee value
Gross amount
(2)
Specific cover Gross amount
(2)
Specific cover
Financing (businesses in Spain ) (1)
Of which: doubtful
Of which: substandard
Memorandum item
Non-performing loans (4)
Memorandum item
Total customer loans, excluding Public
Administrations (businesses in Spain) (5)
Total assets
General total cover (total businesses) (3)
5.037.941
1.688.154
397.185
4.813.311
1.994.150
358.143
946.779
352.316
313.484
769.193
319.165
255.822
837.749
332.068
83.701
934.583
447.442
102.321
250.430
307.953
Carrying value
Carrying value
20.303.558
21.140.666
30.375.887
31.134.698
23.601
113.075
(1) Lo ans are classified acco rding to their purpo se and no t the debto r's CNA E. This implies, fo r example, that if the debto r relates to : (a) a real estate co mpany but the
financing is dedicated to a purpo se o ther than co nstructio n o r real estate develo pment, it is no t included in this table and (b) a co mpany who se co re business is no t
co nstructio n o r real estate develo pment but the lo an is used to finance pro perties fo r real estate develo pment, it is included in this table.
(2) The amo unt o f the excess that the gro ss amo unt o f each lo an represents o ver the real rights which, if appro priate, have been received in guarantee, acco rding to
A ppendix IX o f B ank o f Spain Circular 4/2004. Therefo re, the value o f the real rights is the result o f weighting the lo wer o f the co st o f the assets and their valuatio n
value in their current co nditio n by percentages ranging fro m 70% to 50% acco rding to the nature o f the mo rtgaged assets.
(3) The to tal amo unt o f the value adjustments fo r impairment o f assets and pro visio ns having the nature o f general co verage carried o ut fo r any item (to tal
businesses)
(4) Gro ss amo unt o f the lo an used to finance the real estate co nstructio n and develo pment reco rded by the Gro up's credit institutio ns (businesses in Spain), written o ff
o wing to classificatio n as no n-perfo rming .
(5) Amo unt reflected under assets o n the balance sheet after deducting the amo unts reco rded fo r their co verage.
The breakdown of the financing devoted to real estate construction and
development at 31 December 2011 and 2010, based on the type of guarantee, is as
follows:
Thousand euro
Gross amount
2011
2010
Without mortgage
470.732
420.616
With mortgage
Finished buildings
3.148.011
3.537.278
1.187.301
1.449.337
673.970
876.989
513.331
572.348
1.108.869
1.044.372
1.071.904
998.430
36.965
45.942
851.841
1.043.569
783.370
910.849
68.471
132.720
1.419.198
855.417
5.037.941
4.813.311
Housing
Other
Buildings under construction
Housing
Other
Land
Dev eloped land
Other land
With other guarantees
Total
30
The breakdown of household lending to acquire homes at 31 December 2011 and
2010 is as follows (business in Spain):
Thousand euro
2011
2010
Of which:
Gross amount
Of which:
Doubtful
Gross amount
Doubtful
Home loans
Without mortgage
With a mortgage
Total
37.858
124
43.742
8.687
6.133.900
224.770
6.332.302
223.574
6.171.758
224.894
6.376.044
232.261
The breakdown of loans secured by a mortgage guarantees for the acquisition of
homes, based on the percentage represented by the total risk involving the amount
of the latest available appraisal (LAA) at 31 December 2011 and 2010 is as follows:
Thousand euro
2011
LTV ranges (1)
LTV≤40%
Gross amount
Of w hich: doubtful
40%<LTV≤60%
60%<LTV≤80%
80%<LTV≤100%
LTV>100%
Total
932.793
1.624.887
3.325.842
233.679
16.699
6.133.900
5.135
14.184
153.302
46.077
6.072
224.770
(1) Lo an to value (LTV) is the ratio resulting from dividing the risk in effect at the year end by the amo unt o f the latest valuatio n available.
Thousand euro
2010
LTV ranges (1)
LTV≤40%
Gross am ount
Of w hich: doubtful
40%<LTV≤60%
60%<LTV≤80%
80%<LTV≤100%
LTV>100%
Total
838.687
1.548.587
3.661.099
261.993
21.936
6.332.302
4.622
13.242
144.490
45.407
15.813
223.574
(1) Lo an to value (LTV) is the ratio resulting fro m dividing the risk in effect at the year end by the amo unt o f the latest valuatio n available.
The breakdown of real estate assets and capital instruments foreclosed on by the
Group at 31 December 2011 and 2010 is as follows:
Thousand euro
2011
2010
Value
value
Value
Of which: Cover
value
Of which: Cover
Real estate assets deriving from financing of construction and real
estate development companies
1.500.837
531.619
1.412.477
396.767
492.546
144.300
524.407
111.518
Housing
307.087
91.430
340.469
69.608
Other
185.459
52.870
183.938
41.910
123.259
35.848
88.843
27.145
Housing
87.704
26.733
83.039
25.329
Other
35.555
9.115
5.804
1.816
885.032
351.471
799.227
258.104
Dev eloped land
617.090
244.570
195.107
55.161
Other land
267.942
106.901
604.120
202.943
Real estate assets deriving from home loan mortgages
142.919
74.836
101.930
8.267
Other foreclosed real estate assets
56.105
28.073
11.274
---
366
---
880
---
1.700.227
634.528
1.526.561
405.034
Finished buildings
Buildings under construction
Land
Equity instruments, interests and financing companies holding
such assets (1)
Total
(1) This relates in full to equity instruments representing interests in no n-co nso lidated co nstructio n o r real estate co mpanies, received in payment o f debts.
There are no no n-co nso lidated co mpanies ho lding fo reclo sed real estate assets.
31
1 . 1 5 . 2 . I n f o r m a t i o n re g a rd i n g m a rk e t f i n a n c i n g n e e d s
In 2011 no significant amount of issues matured at Banco Pastor. There is mainly
the structured maturity of four mortgage bonds totalling EUR 376 million and two
multi-party bonds totalling EUR 300 million.
Part of the first issue of ordinary secured bonds maturing in March 2012 was
redeemed early in December in the amount of EUR 171.1 million.
Banco Pastor ended the year with liquid available assets exceeding EUR 1,700
million compared with EUR 1,200 million in 2010. The most relevant aspects were
as follows:
 The liquidity strategy continues to be based substantially on investments through
network resources. In this respect, at 31 December 2011, 79.4% of loan
investments are financed using customer funds, compared with 71.9% at the end of
2010.
 In 2011 the issue of long-term instruments continued, mainly consisting of the
April issue of EUR 500 million in mortgage bonds that mature in April 2012 and the
December issue of ordinary guaranteed bonds totalling EUR 500 million, maturing in
December 2016.
In April 2011 convertible bonds totalling EUR 251.8 million were issued and mature
in April 2014.
In terms of short-term instruments, the balance of promissory notes issued in the
wholesale market has progressively been reduced.
In 2012 there will be more demanding maturities. The most important are
concentrated in March (EUR 828.9 million in guaranteed senior debt) and in
September (EUR 600 million) in mortgage bonds. To finance these maturities, the
activity mainly focuses on:
1. The branch office network's activities will continue to be very focused on the
generation of a positive commercial gap, such that the loan investment/resources
ratio continues to improve.
2. The issue of medium and short-term debt instruments continues to take place
under market conditions.
3. The issue of short-term debt instruments, mainly promissory notes, will increase
very significantly.
This strategy will allow the bank to end 2012 with a top tier line of liquidity that is in
line, or even higher, than that recorded at the end of 2011.
In the longer term, the maturities faced by Banco Pastor were planned in a scaled
manner and without any significant concentration in any year. The Bank will thus
have certain flexibility when managing its liquidity, taking advantage of the right
moments and through the products that are most advisable at any given time.
Alternations in the sovereign debt markets continued throughout 2011 and the
appeal during the year to the European Central Bank was important due to the
difficulties faced by markets to obtain temporary debt. Despite this, in December
2011 Banco Pastor recognised a notably lower amount in this respect than in the
same period in 2010.
The 3-year European Central Bank facility has notably relaxed the risk premium for
Spain and other peripheral countries. Its effects were also felt with respect to shortterm Spanish debt interest rates, which fell significantly.
32
1.16. Information regarding the deferral of payments
made to suppliers.
On 5 July 2010 Law 15/2010 was published and it amends Law 3/2004 (29
December), which established measures to counter delays in payments in
commercial transactions.
Among other things, this legislation supresses the possibility of "agreements
between the parties" with respect to the extension of the deadline for paying
suppliers, in response to the financial repercussions of the financial crisis on all
sectors, which translated into an increase in defaults, delays and extensions when
settling outstanding invoices. This particularly affected small and medium-sized
companies due to their significant dependence on short-term credit and the cash
limitations within the current economic context. In addition, in order to fight against
these difficulties, the law establishes a general maximum deferral between
companies of 60 calendar days as from the date on which the goods were delivered
or services rendered, and it takes effect on 1 January 2013. Up until that time a
transitional system has been established under which the legal maximum payment
periods will be progressively reduced for those companies that had agreed longer
payment periods.
In addition, Additional Provision Three of that law indicates that companies must
expressly publish information regarding supplier payment periods in the notes to the
individual and consolidated annual accounts. In compliance with that provision,
payments made by the Group and the amounts pending payment at 31 December
2011 and 2010, in all cases have been made within the legal deadline.
1.17. Changes in accounting policies
a) Standards and interpretations taking effect this year
In 2011 the following International Finanical Reporting Standards and
Interpretations were mandatory and therefore have been applied when preparing
the Group's consolidated financial statements for 2011:
Standards, amendments
Description
Mandatory in the years starting as from
and interpretations
Amendment to IAS 32
Classification of rights ov er shares
1 February 2010
Rev iew of IAS 24
Related party disclosures
1 January 2011
Amendment to IFRIC 14
Prepay ment of a minimum funding requirement
1 January 2011
IFRIC 19
Ex tinguishing financial liabilities w ith equity instruments
1 July 2010
Improv ements to IFRIC
Amendments to a series of standards
Mostly mandatory for y ears starting as from
Amendment to IFRS 1
Limited ex emption to the requirement to disclose comparativ e
1 January 2011
1 July 2011
information in accordance w ith IFRS 7, applicable to first time
adopters
Amendment to IFRS 7
Financial instruments: disclosures - transfer of financial assets
1 July 2011
In 2011 the Official Journal of the European Union (OJEU) published the following
European Commission Regulations regarding the adoption of IASB standards and
interpretations:
- Commission Regulation EU/149/2011 (18 February 2011), which amends
Regulation CE/1126/2008, which adopts certain international accounting standards
in accordance with European Parliament and Council Regulation CE/1606/2002,
which refers to the Improvements to International Financial Reporting Standards
(IFRS).
33
- Commission Regulation EU/1205/2011 (22 November 2011), which amends
Regulation CE/1126/2008, which adopts certain international accounting standards
in accordance with European Parliament and Council Regulation CE/1606/2002,
which refers to the Improvements to International Financial Reporting Standard IFRS 7.
b) Standards and interpretations that have been issued but have not yet entered
into force
At the date these consolidated annual accounts were prepared, the following
standards and interpretations (the most relevant adopted at that date) that had been
published by the IASB but which had not yet entered into force, either because their
effective date is after the date of these consolidated annual accounts or because
they have not yet been adopted by the European Union:
Standards, am endments
Description
Mandatory in the years starting as from
and interpretations
IFRS 9
Financial instruments
1January 2013
IA S 12
Inco me taxes -deferred tax related to real estate
1 January 2012
IA S 27
Co nso lidated and separate financial statements
1January 2013
IA S 28
Investments in asso ciates and jo intly-co ntrolled entities
1January 2013
IFRS 10
Co nso lidated financial statements
1January 2013
IFRS 11
Jo int arrangements
1January 2013
IFRS 12
B reakdo wn o f interests in o ther entities
1January 2013
IFRS 13
M easurement o f fair value
1January 2013
A mendment to IA S 19
Emplo yee benefits
1January 2013
A mendment to IA S 1
P resentatio n o f the financial statements
1July 2012
IFRIC 20
Stripping co sts in the pro ductio n phase o f a surface mine
1January 2013
2. ACCOUNTING PRINCIPLES AND POLICIES AND
MEASUREMENT CRITERIA APPLIED
In drawing up the consolidated annual financial statements for 2011 the Group
applied the following accounting principles and policies and measurement bases:
2.1. Financial instruments
A “financial instrument” is a contract that gives rise to a financial asset at one entity
and a financial liability or equity instrument at another.
An “equity instrument” is a legal transaction that shows a residual participation in the
assets of the entity that issues it once all liabilities are deducted.
A "financial derivative" is a financial instrument whose value changes in response to
an observable market variable (such as listed commodities prices, price index or
interest rates, ratings or other credit indicator, or based on some other variable
which, if a non-financial variable, is not specific to one of the parties to the contract),
which does nto require an initial investment and is settled at a future date.
“Hybrid financial instruments” are contracts that incorporate both a non-derivative
host contract and a financial derivative, called an embedded derivative, that is not
individually transferable, with the effect that some of the cash flows of the combined
instrument vary in a way similar to a standalone derivative.
“Compound financial instruments” are contracts that, from the issuer’s perspective,
contain both a financial liability and an equity instrument (such as, for example,
convertible bonds that give the holder the right to convert them into equity
instruments of the issuing company).
The operations indicated below are not considered, in accounting terms, as financial
instruments:
- Shareholdings in subsidiaries, multi-group companies and associates.
34
- The rights and obligations arising as a result of employee benefit plans.
- The rights and obligations arising from insurance contracts.
- Contracts and obligations relating to share-based employee remuneration.
2 . 1 . 1 . I n i t i a l r e c o g n i t i o n o f f i n a n c i a l i n s t r u me n t s
Financial instruments are initially recognised on the balance sheet when the Group
becomes a party to the contract that gives rise to the instrument under the terms of
the contract. Specifically, debt securities, such as loans and cash deposits, are
recognised from the date on which the legal right to receive or the legal obligation to
pay cash arises. Derivative financial instruments are generally recognised from the
trade date.
Trading of financial derivatives using standard contacts, i.e. contracts where the
parties’ reciprocal obligations must be fulfilled within a time period set by regulation
or market conventions and that cannot be settled net, such as stock market
contracts or spot market currency contracts, are recognised from the date on which
the benefits, risks, rights and obligations conferred by ownership first apply to the
buyer. Depending on the type of financial asset being traded this could be the trade
date or the settlement or delivery date. Specifically, transactions performed on the
spot currency market are recognised at their settlement date, transactions in equity
instruments traded on secondary Spanish securities’ markets are recognised at their
trade date and transactions in debt securities traded on secondary Spanish
securities’ markets are recognised at their settlement date.
2 . 1 . 2 . Fa i r va l u e a n d a m o r t i s e d c o s t
The fair value of a financial instrument on a specific date is the amount for which it
could be delivered or settled on that date in a transaction carried out between
knowledgeable, willing parties on an arm’s-length basis. The most objective and
common reference for the fair value of a financial instrument is the price that would
be paid for it on an organised, transparent and deep market (“quoted price” or
“market price”).
Where no market price exists for a particular financial instrument fair value is
estimated on the basis of recent arm’s length transactions in similar instruments or,
failing that, on the basis of valuation techniques that are sufficiently tried and tested
by the international financial community, adjusting where necessary for specific
features of the instrument being measured and, especially, for the various types of
risk to which the instrument is exposed.
The valuation techniques applied in the calculation of the market value of financial
instruments are the following:
- Published prices on financial markets.
- Internal measurement models for those instruments that are not recognised at fair
value. This calculation is based on the present value of cash flows and interest to
the next repricing date (balloon at repricing)- on floating rate instruments – or until
final maturity – on fixed rate instruments. To carry out this analysis, the interest rate
curve used is the current market curve at the date of calculation.
- Internal calculation model of the present value of credit spreads for those
operations that are referenced to a variable rate. To carry out this analysis, the
interest rate curve used is the current market curve at the date of calculation.
Specifically, the fair value of financial derivatives traded in organised, transparent
and deep markets and included in financial assets and liabilities held for trading is
their daily quoted price and if, due to exceptional reasons, their quoted price cannot
be determined at a given date, they are measured using methods similar to those
used to measure derivatives not traded in organised markets.
35
The fair value of derivatives not traded on organised markets or traded on markets
lacking in transparency or depth, is determined as the sum of future cash flows
originating from the instrument, discounted to the valuation date (“present value”)
using methods generally recognised by the financial markets: “net asset value”
(“NAV”), option pricing models, etc.
Amortised cost is understood to be the acquisition cost of a financial asset or liability
plus or minus, as appropriate, the principal repayments and the portion
systematically recognised in the consolidated income statement, using the effective
interest method, of the difference between the initial cost and the maturity amount of
such financial instruments. In the case of financial assets, amortised cost includes
any impairment losses recognised.
The effective interest rate is the rate that exactly discounts estimated future cash
payments or receipts throughout the expected life of the financial instrument. For
fixed-rate financial instruments the effective interest rate is the same as the
contractual interest rate set at the time the instrument was acquired, adjusted as
necessary for fees and transaction costs which, under IFRS-EU, are included in the
calculation of such effective interest rates. For floating rate financial instruments, the
effective interest rate is estimated in a similar way to that used for fixed-rate
instruments, with the contractual rate being recalculated at each reset date to take
account of changes affecting future cash flows.
Note 30 provides details of the fair value calculation methods applied to financial
instruments.
2 . 1 . 3 . C l a s s i f i c a t i o n a n d m e a s u re m e n t o f f i n a n c i a l i n s t ru m e n t s
In general terms, financial instruments are included for measurement purposes in
one of the following categories:
 Financial assets and liabilities at fair value through profit or loss: this
includes all financial instruments classified as held for trading and those designated
at fair value through profit or loss.
Financial liabilities held for trading include those issued with a view to
repurchase in the near future, financial instruments forming part of an identified and
jointly-managed portfolio for which there is evidence of recent actions to make
short-term gains, any short positions on securities arising from the sale of assets
acquired temporarily under a non-optional resale agreement or securities loan, and
any derivative instruments that have not been designated as hedging derivatives,
including those forming part of hybrid financial instruments under IFRS-EU.
Derivatives embedded in other financial instruments or host contracts are
recognised separately as derivatives when their risks and other features are not
closely related to those of the host contracts and when the host contracts are not
classified as “Other financial assets or liabilities at fair value through profit or loss” or
“Financial assets/liabilities held for trading”.
Financial liabilities held for trading include those issued with a view to
repurchase in the near future, financial instruments forming part of an identified and
jointly-managed portfolio for which there is evidence of recent actions to make
short-term gains, any short positions on securities arising from the sale of assets
acquired temporarily under a non-optional resale agreement or securities loan, and
any derivative instruments that have not been designated as hedging derivatives,
including those forming part of hybrid financial instruments under IFRS-EU.
36
Other assets classified at fair value through profit and loss include “hybrid
financial assets” that are not included in financial assets and liabilities held for
trading and where the fair value of the embedded derivative cannot be reliably
measured, assets that are managed jointly with “insurance liabilities” recognised at
fair value, financial derivatives that significantly and effectively reduce exposure to
changes in fair value, and financial liabilities and derivatives that are intended to
significantly reduce general exposure to interest rate risk. Included in this category
are those financial assets classified on initial recognition if as such they provide
further information reducing or eliminating inconsistencies in the recognition or
valuation (information asymmetries) resulting from the measurement of assets and
liabilities or the recognition of gains and losses using different criteria.
Other financial liabilities at fair value through changes in profit and loss are
those designated on initial recognition and they must meet one of the following
conditions:
- They must take the form of hybrid financial instruments and the fair value of the
embedded derivative cannot be reliably determined or the company has decided to
designate the entire hybrid instrument as a financial asset or liability at fair value
through changes in profit and loss.
- When designated they eliminate or significantly reduce incoherency in the
recognition or measurement (accounting asymmetries) that would arise by
measuring assets or liabilities, or through the recognition of gains or losses, using
different criteria.
Financial instruments classified at fair value through profit or loss are initially
recognised at fair value. Any subsequent changes in fair value are recognised with
a balancing entry to “Gains/losses on financial assets and liabilities (net)” on the
income statement, except for changes due to income or expense on financial
instruments that are unrelated to trading, which are recognised through “Interest
and similar income”, “Interest and similar expense” or “Income from equity
instruments – equity instruments” on the income statement, depending on their
nature. The accrued returns on debt securities included in this category are
calculated using the effective interest method.
Notwithstanding the above, financial derivatives whose underlying assets are equity
instruments whose fair value cannot be measured reliably and which are settled by
delivery of the underlying, are measured at cost.
 Held-to-maturity investments: This category includes debt securities with fixed
maturities and fixed or determinable cash flows that the Group has, at acquisition or
any time thereafter, the intention and ability to hold to maturity.
The securities included in this portfolio cannot be reclassified, except for the
exceptions established by IAS 39.
These instruments are initially measured at fair value adjusted for transaction costs
directly attributable to the acquisition of the financial asset, which are recognised in
the consolidated income statement by the effective interest method defined in IFRSEU. Subsequently, they are measured at amortised cost, calculated using their
effective interest rate.
The interest accrued on these securities, calculated using the effective interest rate
method, is recognised under “Interest and similar income” in the income statement.
Exchange differences on securities denominated in non-euro currencies in this item
are recognised in accordance with the method set out in Note 2.2. Any impairment
losses on these securities are recognised as indicated in Note 2.1.8 above.
 Loans and receivables: This category includes securities representing debt not
traded on an active market whose cash flows are of a determined amount and for
which the bank expects to receive full repayment, the financing granted to third
parties originating from typical credit and loan activities carried out by the group and
the debt claims deriving from sales and services rendered by the Group. It also
includes receivables under finance leases where the Group acts as lessor.
37
Financial assets classified under this item are initially recognised at fair value,
adjusted for fees and transaction costs directly attributable to their acquisition, and,
under IFRS-EU, taken to the income statement at the value calculated using the
effective interest rate method to maturity. Following acquisition, the assets included
in this category are carried at amortised cost.
The interest accrued on these securities, calculated using the effective interest rate
method, is recognised under “Interest and similar income” in the income statement.
Exchange differences on securities denominated in non-euro currencies in this item
are recognised in accordance with the method set out in Note 2.2. Any impairment
losses on these securities are recognised as indicated in Note 2.1.8 above. Debt
securities included in fair value hedges are recognised in accordance with the
method set out in Note 2.1.4.
 Available-for-sale financial assets: This heading includes debt securities not
classified as held-to-maturity investments or as loans and receivables or at fair
value through profit or loss, and also includes equity instruments issued by entities
other than subsidiaries, jointly-controlled entities and associates, provided that such
instruments have not been classified at fair value through profit or loss.
Available-for-sale assets are initially recognised at fair value, adjusted for
transaction costs directly attributable to the acquisition of the financial asset. These
are recognised in the income statement at their value as calculated using the
effective interest rate method, as defined by IFRS-EU, over their remaining term to
maturity, unless the financial assets do not have a fixed maturity date, in which case
they are taken to the income statement when eliminated from the balance sheet.
Subsequent to acquisition, financial assets included in this category are measured
at their fair value.
Notwithstanding the above, equity instruments whose fair value cannot be
measured reliably are carried at cost, net of any impairment losses, in accordance
with the method set out in Note 2.1.8.
Changes in the fair value of financial assets designated as available for sale arising
from interest or dividend payments are recognised against balancing entries in
“Interest and similar income” (calculated using the effective interest rate method)
and “Income from equity instruments – other equity instruments”, respectively, on
the income statement. Any impairment losses affecting these instruments are
recognised in accordance with the method set out in Note 2.1.8. Exchange
differences on financial assets denominated in non-euro currencies are recognised
as described in Note 2.2. Changes in the fair value of financial assets in this
category hedged by fair value hedges are measured as indicated in Note 2.1.4
Other changes in the fair value of available-for-sale financial assets after their
acquisition are recognised against a balancing entry in Group equity under “Equity –
measurement adjustments – available-for-sale financial assets” until the financial
asset is derecognised. At this point the balance of this item is recognised in the
income statement under “Gains (losses) on financial transactions (net) – Other”.
 Non-current assets available-for-sale and Liabilities associated with noncurrent assets available-for-sale “Non-current assets held for sale” represents the
carrying amount of individual items or groups of items (“disposal groups”) or items
that form part of a business unit earmarked for disposal (“discontinued operations”),
whose sale is highly probable in the assets’ current condition within a year of the
date referred to in the financial statements. Group companies that meet the
conditions mentioned in this paragraph are also classified as “Non-current assets
held for sale”.
This means that the carrying amount for these items – either financial or nonfinancial – is expected to be realised through the sale transaction.
In particular, real estate assets or other non–current assets foreclosed by the Group
in full or partial satisfaction of non-performing loans are classified as non–current
assets held for sale, unless the Group has opted to keep them in use.
38
Similarly, “Liabilities associated with non-current assets held for sale” represent
payables originating from assets or disposal groups and from discontinued
operations.
 Financial liabilities at amortised cost: These include all financial liabilities that
have not been classified in any of the previous categories.
The financial liabilities included in this category are initially measured at fair value,
adjusted for the amount of the transaction costs directly attributable to their issue,
which are recognised in the consolidated income statements by the effective
interest method defined in IAS 39 until maturity. They are subsequently measured at
amortised cost.
Interest earned on these securities, calculated by the effective interest rate method,
is recognised in “Interest and similar expense” on the consolidated income
statement. Exchange differences on securities denominated in non-euro currencies
in this item are recognised in accordance with the method set out in Note 2.2.
Financial liabilities included in this category are recognised as described in Note
2.1.4
Notwithstanding the above, financial instruments considered to be non-current
assets held for sale under IFRS-EU are presented in these financial statements
according to the criteria set out in this Note.
2.1.4. Hedge accounting
A hedge is a financial technique through which one or more financial instruments
(hedging instruments) are used to mitigate exposure to a specific risk that could
affect the income statement in the event of changes in the fair value of, or cash
flows generated by one or more specific items (hedged items).
In the specific case of financial instruments designated as hedged items or
qualifying for hedge accounting, valuation differences are recognised as follows:
 In fair value hedges, valuation differences in both hedges and hedged items –
insofar as they relate to the risk being hedged – are recognised directly in the
income statement.
 In cash flow hedges, valuation differences on the portion of the hedging
instruments qualifying as an effective hedge are temporarily recognised in equity
under “Valuation adjustments – cash flow hedges”
 In hedges of net investments in foreign operations, valuation differences on the
portion of the hedging instruments qualifying as an effective hedge are recognised
temporarily in equity under “Valuation adjustments – Hedges of net investments in
foreign operations”.
 In the two latter cases, valuation differences are not recognised in income until
the gains or losses of the hedged item are charged to income or the hedge matures.
 Valuation differences on the ineffective portion of cash flow hedges and hedges
of net investments in foreign operations are recognised directly in the income
statement.
Hedging derivatives: These asset and liability items on the balance sheet include
all financial derivatives acquired or issued by the Group that qualify for hedge
accounting under IFRS-EU.
To qualify as a hedge a financial derivative must satisfy the following conditions:
1) Hedge one of the following three types of risk:
 Changes in the fair value of assets and liabilities that are attributable to a
particular risk that affects the position or balance to be hedged (“fair value
hedge”).
39
 Changes in the cash flows expected from financial assets and liabilities,
commitments and highly probable forecast transactions (“cash flow hedge”).
 Net investment in a foreign business (“hedge of net investment in a foreign
operation”)
2) Effectively eliminate any risk in the item or position being hedged for the entire
forecast hedging period.
 This means that: At the hedge inception it is expected that under normal
circumstances the hedge would be highly efficient (“prospective efficiency”).
 There is adequate evidence that the hedge was efficient during the life of the
item of position hedged (“retrospective efficiency”).
3) There is adequate documentation showing that the financial derivative was taken
out specifically to hedge certain balances or transactions and indicating how an
efficient hedge was to be achieved and measured, consistent with the Group’s
own risk management policies.
Hedges may be applied to individual elements or balances (microhedges) or to
portfolios of financial assets and liabilities (macrohedges). In this last case, all the
financial assets and liabilities to be hedged must be exposed to the same type of
risk. This is taken to be the case where all the assets have a similar exposure to
interest rate risk. In addition, the change in the fair value attributable to the hedged
risk in each individual item in the portfolio must be expected to be approximately
proportional to the total change in the fair value attributable to the risk hedged in
that portfolio.
The Group uses fair value accounting hedges and financial derivatives to hedge
interest rate risks such as fair value hedges and it also uses macrohedges to hedge
the fair value of acquired options embedded in all granted loans ("floors"). The
policy on hedging financial risks is coordinated with the general risk policy of the
entity, as decided by the Assets and Liabilities Committee.
The Group’s market risk unit uses the following effectiveness measuring methods to
ensure effective measurement of the hedge:
1) Prospective test:
 Value at Risk (VaR) on a one-day horizon at a 99% confidence level. The
hedge must almost completely mitigate the VaR of the hedged item, for which a
range of between 95% and 105% has been established.
 Sensitivity analysis of the interest rate curve: effectiveness in each part of the
curve.
2) Retrospective test:
 Variations in the market value of the hedging asset must track those in the
hedged
asset within a range of 80-125%.
The Group reviews the efficiency of its hedges monthly.
2 . 1 . 5 . Tr a n s f e rs o f f i n a n c i a l a s s e t s a n d d e re c o g n i t i o n o f f i n a n c i a l
assets and liabilities
The accounting treatment of the transfer of financial assets depends on the degree
to which the associated risks and benefits are transferred. The following cases can
be distinguished:
 If the risks and returns are substantially transferred to third parties, the asset is
written off the balance sheet and any right or obligation retained or created as a
result of the transfer is simultaneously recognised.
40
 If the risks and benefits associated with the financial asset transferred are
substantially retained, the transferred financial asset is not written off the balance
sheet and it continues to be measured using the same criteria applied before the
transfer. Nonetheless, the following items are recognised:
 An associated financial liability in an amount equal to the price received,
which is subsequently measured at amortised cost.
 Both income from the financial asset transferred but not written off and
expense from the new financial liability.
 If the risks and returns associated with the transferred financial asset are neither
substantially transferred nor substantially retained, the following distinction is made:
 If the assigning entity does not retain control of the financial asset
transferred: it is written off the balance sheet and any right or obligation
retained or created as a result of the transfer is recognised.
 If the seller retains control of the transferred financial asset, the asset
continues to be recognised on the balance sheet at the amount equivalent to
its exposure to potential changes in value and a financial liability associated
with the transferred asset is recognised. The net amount of the transferred
asset and associated liability will be the amortised cost of the rights and
obligations retained, if the transferred asset is measured at amortised cost, or
the fair value of the rights and obligations retained if the transferred asset is
measured at fair value.
Accordingly, financial assets are only written off the balance sheet when the cash
flows they generate have been exhausted or when related risks and returns have
been substantially transferred to third parties. Similarly, financial liabilities are only
derecognised from the balance sheet when the obligations that gave rise to them
have been settled or when they have been acquired, whether with a view to
cancellation or resale.
Note 32.4 summarises the most important circumstances regarding the main asset
transfers outstanding at year-end 2011 and 2010.
2 . 1 . 6 . S e c u ri t i e s l e n d i n g
Securities lending is a transaction where the borrower receives full ownership rights
over certain securities while only paying fees, and promises to return to the lender
securities of the same type as those received. The lender maintains the lent
securities on its balance sheet and the borrower does not recognise the borrowed
securities as assets.
Securities borrowed are not recognised on the balance sheet and securities lent are
nor derecognised because the associated risks are rewards are not transferred.
If the borrower is obliged to pay a monetary deposit against the securities borrowed,
the transaction is classified by the lender as repurchase agreement.
2 . 1 . 7 . R e p o s a n d re v e rs e re p o s
Financial instruments acquired (or sold) under resale or repurchase agreements at
a pre-determined price (repos or reverse repos), are recognised in the consolidated
balance sheet as short-term lending (borrowing), depending on whether the Bank
acts as lender (borrower), under “Due from banks” or “Loans and advances to
customers” (or “Due to banks” or “Customer deposits”)
Differences between acquisition and sale prices are recognised as financial interest
over the duration of the agreement.
41
2 . 1 . 8 . I mp a i r m e n t o f f i n a n c i a l a s s e t s
A financial asset is considered to be impaired – and its carrying amount
consequently adjusted to reflect this impairment – when there is objective evidence
that an event has occurred causing one of the following situations:
 Debt instruments (loans and debt securities): when there is objective evidence of
an adverse effect on the future cash flows that were estimated at the transaction
date.

Equity instruments: when the carrying amount may not be fully recovered.
As a general rule, the carrying amount of impaired financial instruments is adjusted
with a charge to the income statement for the period in which the impairment
becomes evident, and the reversal, if any, of previously recognised impairment
losses is recognised in the income statement for the period in which the impairment
is reversed or reduced, with the exception of equity instruments for which
impairment losses cannot be reversed.
When the recovery of any recognised amount is considered unlikely, the amount is
written off, without prejudice to any actions that the consolidated entities may initiate
to seek collection until their contractual rights are extinguished due to expiry of the
statute-of-limitations period, forgiveness or any other cause.
2 . 1 . 8 . 1 . D e b t i n s t r u me n t s m e a s u re d a t a mo rt i s e d c o s t :
Impairment losses on such instruments are equal to the positive difference between
their respective carrying amounts and the present value of their estimated future
cash flows. However, the market value of listed debt securities is considered a fair
proxy for the present value of future cash flows.
In estimating the future cash flows on debt securities the following factors are taken
into account:

All cash flows that the instrument is expected to generate over its remaining life,
including, if any, amounts that may be generated by any associated collateral
(after deducting the costs incurred in their foreclosure and subsequent sale). The
impairment loss includes an estimate of the likelihood of collecting interest.

The different types of risk to which each instrument is exposed.

The circumstances under which collection will foreseeably take place.
These cash flows are subsequently discounted using the instrument’s effective
interest rate (if its contractual rate is fixed) or the effective contractual rate at the
discount date (if it is floating).
In the specific case of impairment losses arising as a result of insolvency risk in
relation to the obligors (credit risk), a debt instrument is considered impaired due to
insolvency in the following instances:

When there is evidence of a deterioration of the obligor’s ability to pay, either
because it is in arrears or for other reasons.

When country risk materialises: country risk is considered to be the risk
associated with debtors resident in a given country due to circumstances other
than normal commercial risk.
Possible impairment losses on these assets are measured as follows:

Individually, for all significant debt instruments and for those that are not
significant and cannot be classified into uniform groups of instruments with
similar charfacteristics: type of instrument, debtor’s industry and geographical
area, type of guarantee, age of past due amounts etc., as well as customer
operations from groups in difficulty (“substandard risk”).
42

Collectively: the Group classifies transactions on the basis of the nature of the
obligors, the conditions of the countries in which they reside, transaction status,
type of guarantee or collateral and age of past-due amounts. For each risk group
it establishes the impairment losses (“identified losses”) that it recognises in the
Group’s annual financial statements.
In addition to the identified losses, the Group recognises a complementary
impairment loss on risks classified as standard and, therefore, not specifically
identified ("inherent loss"). The inherent loss is calculated using statistical methods
based on the Bank of Spain’s parameters, which are in turn based on past
experience and information drawn from the Spanish banking sector and modified as
circumstances dictate.
2 . 1 . 8 . 2 . A va i l a b l e -f o r -s a l e d e b t i n s t r u me n t s
The impairment loss on debt securities held in the available-for-sale financial asset
portfolio is equivalent to the positive difference between their acquisition cost (net
of any repayment of principal) and their fair value, after deducting any prior
impairment loss recognised in the income statement, provided that there is objective
evidence that the differences arising on the measurement of these assets originates
from their impairment, in which case these differences cease to be presented in the
equity heading "Measurement Adjustments - Available-for-sale Financial Assets"
and the entire amount accumulated to that date in the income statement is
recognised. If all or part of the impairment loss is subsequently recovered, its
amount is recognised in the income statement for the period when the reversal
occurred.
2 . 1 . 8 . 3 . A va i l a b l e -f o r -s a l e e q u i t y i n s t r u m e n t s
The criteria for measuring and recognising impairment losses are similar to those
used for assets recognised under “Debt securities classified as available for sale (as
explained in Note 2.1.8.2), with the exception that any reversal of these losses is
recognised in equity under “Valuation adjustments – Available-for-sale financial
assets” and if objective evidence is considered to exist that the assets included in
this category have become impaired due to a prolonged or significant decline in
their fair value to less than their cost.
2 . 1 . 8 . 4 . E q u i t y i n s t ru m e n t s c a rr i e d a t c o s t
The amount of impairment losses on equity instruments carried at cost is the
positive difference between their carrying amount and the present value of the
expected future cash flows discounted at the market rate of return for similar
securities.
Impairment losses are recognised in the consolidated income statement for the
period in which they arise as a direct reduction to the cost of the instrument. These
losses can only be reversed subsequently if the impaired assets are sold.
Impairment losses on investments in jointly—controlled entities and associates that
are not classified as “financial instruments” are estimated and recognised by the
parent company in accordance with the criteria set out in Note 2.1.8 above.
2.2. Transactions denominated in foreign currency
2 . 2 . 1 . Fu n c t i o n a l c u r re n c y
The euro is the functional currency for all Group companies. Consequently, all
non-euro balances and transactions are considered foreign currency balances and
transactions.
The equivalent value in euros of the Group’s total foreign currency denominated
assets and liabilities, at 31 December 2011 and 2010, detailing the major
currencies, was as follows:
43
2011
Balances held in:
Equivalent value in thousand euro of balances held in:
Pound sterling US dollars
Swiss franc
Japanese
Canadian
yen
dollar
Other
TOTAL
248
573
138
10
15
50
1.034
1.069
44.366
2.989
1.647
2.281
2.678
55.030
Customer loans
4.243
119.087
5.961
1.427
---
--- 130.718
Debt securities
4.531
---
---
---
---
---
4.531
96
54.983
32
---
1
---
55.112
10.187
219.009
9.120
3.084
2.297
Coins and notes
Other assets
TOTAL ASSETS
Customer funds
Other liabilities
TOTAL LIABILITIES
341
42.862
25
---
---
25.535
759.762
9.033
190
2.920
63
2.750
29
---
5
25.939
805.374
9.087
190
2.925
2010
Balances held in:
2.728 246.425
535
43.763
410 797.850
13
2.860
958 844.473
Equivalent value in thousand euro of balances held in:
Pound sterling US dollars
Swiss franc
Japanese
Canadian
yen
dollar
Other
TOTAL
Coins and notes
306
734
174
9
11
71
1.305
854
62.361
5.297
83
2.566
4.628
75.789
Customer loans
4.251
102.356
6.106
1.620
---
--- 114.333
Debt securities
4.733
---
---
---
---
---
4.733
119
62.626
32
---
---
---
62.777
10.263
228.077
11.609
1.712
2.577
Other assets
TOTAL ASSETS
Customer funds
Other liabilities
TOTAL LIABILITIES
102
39.939
244
---
2
26.322
782.772
9.047
257
2.989
159
2.789
6
---
5
26.583
825.500
9.297
257
2.996
4.699 258.937
20
40.307
15 821.402
11
2.970
46 864.679
2 . 2 . 2 . Fo re i g n c u r re n c y t ra n s l a t i o n me t h o d s :
The translation of foreign currency balances into euros is carried out in two
consecutive steps:
 Translation of foreign currency balances into the functional currency of the
branches and consolidated entities.
 Translation into euros of balances held in the functional currencies of branches
and consolidated entities whose functional currency is not the euro.
Translation of foreign currency into functional currency: Foreign currency
transactions carried out by branches and consolidated entities are initially
recognised in their financial statements at their functional currency equivalent,
applying the exchange rates in force on the corresponding transaction dates. At
year end, the outstanding foreign currency monetary balances at branches and
consolidated entities are translated into their functional currencies at the exchange
rate then prevailing.
Also:
Non-monetary items measured at historical cost are translated to the functional
currency at the exchange rate at the date of acquisition.
1)
Non-monetary items recognised at fair value are translated at the exchange
rate prevailing on the date on which their fair value was determined.
2)
Forward foreign currency purchase and sale contracts outstanding, not
considered hedges, are translated to euros at the year-end exchange rates on the
forward currency market for the maturity date concerned.
3)
Companies with functional currencies other than the euro: balances in the
financial statements of consolidated companies whose functional currency is not the
euro are translated into euros as follows:
1)
Assets and liabilities, at the exchange rate prevailing at the balance sheet date.
44
2)
Income, expense and cash flows at the average exchange rate for the year.
3)
Equity, at historical exchange rates.
2 . 2 . 3 . E x c h a n g e ra t e s a p p l i e d
The exchange rates applied by the Group in translating foreign currency balances to
euros when preparing these annual financial statements were the average official
(fixing) rates published by the European Central Bank for the spot currency market
on the last trading day of the year.
2 . 2 . 4 . A c c o u n t i n g f o r e x c h a n g e d i f f e re n c e s :
Exchange differences arising upon translation of foreign currency balances into the
functional currencies are generally recognised in the income statement. Exchange
differences arising on non-monetary items whose fair value is adjusted through
equity are recognised under “Measurement adjustments - Available-for-sale
financial assets” in the balance sheet until they are realised.
2 . 2 . 5 . Fo re i g n e x c h a n g e ri s k e x p o s u re
In accordance with Bank of Spain Circular 3/2008, the Group has established an
internal limit for its net currency positions, which is met at all times, by establishing
internal control measures.
In particular, the risk assumption policies approved by the governing bodies are
clearly established, including: internal measurement procedures, operating limits,
review frequency, responsible person or body and other relevant issues.
Note 31.4.3 reports exchange rate risks.
2.3. Recognition of income and expense
The paragraphs below summarise the most significant criteria applied by the Group
in recognising income and expense:
2 . 3 . 1 . I n t e re s t i n c o me a n d e x p e n s e , d i vi d e n d s a n d s i mi l a r i t e ms
In general, interest income and expense and similar items are recognised on an
accrual basis using the effective interest rate method. The dividends received from
other companies are recognised as revenue at the time the right to their receipt
arises, except when they relate to profits generated prior to the acquisition date for
which no revenues are recognised.
2 . 3 . 2 . Fe e s , c o m m i s s i o n s a n d s i mi l a r i t e m s
Fee and commission income and expenses and similar items that are not required
to be included in the calculation of the applicable effective interest rate and/or do not
form part of the attributable costs of acquiring financial assets and liabilities other
than those designated at fair value through profit or loss, are recognised in the
income statement using criteria that vary according to their nature. The most
significant of these are as follows:
 Those related to the acquisition of financial assets and liabilities at fair value
through profit or loss are recognised when paid.
 Fees and commissions arising on transactions or services that continue over an
extended period are recognised over the life of the transaction or service.
 Fees and commissions relating to services provided in a single act are
recognised when the one-time act takes place.
2 . 3 . 3 . N o n -f i n a n c i a l i n c o m e a n d e x p e n s e
Non-financial income and expenses are recognised on an accrual basis.
45
2 . 3 . 4 . D e f e r re d c o l l e c t i o n s a n d p a y m e n t s
Deferred payments either to or by the Group are recognised at the value of their
forecast cash flows discounted to present value at market rates.
2.4. Offsetting
Financial assets and liabilities are offset, i.e., reported in the consolidated balance
sheet at their net amount, only if the entities have a legally enforceable right to set
off the amounts of such instruments and intend either to settle on a net basis, or to
realise the asset and settle the liability simultaneously.
In 2011 and 2010 no offsetting occurred since no suitable financial transactions
were made.
2.5. Asset swaps
Asset swaps entail the acquisition of property, plant and equipment or intangible
assets in exchange for other non-monetary assets or a combination of cash and
non-monetary assets. For the purposes of these consolidated financial statements,
the foreclosure of assets to recover amounts owed to consolidated entities by third
parties is not considered an asset swap.
Assets received in a swap are recognised at the fair value of the asset given in
exchange plus the fair value of any additional monetary consideration, unless there
is a clearer way to establish the fair value of the asset received.
2.6. Financial guarantees and related provisions
A financial guarantee contract is defined as a contract whereby an issuer is required
to make specific payments to reimburse the holder for a loss it incurs when a
specific debtor fails to meet its payment obligations (original or modified) relating to
a debt instrument, irrespective of the various legal forms they may take: deposits,
financial guarantee, insurance policy or credit derivative.
Financial guarantees are recognised under “Financial liabilities at amortised cost Other liabilities” on the balance sheet at fair value, which will initially be the premium
received, plus, where applicable, the present value of cash flow to be received,
using a similar rate of interest to that paid on financial assets granted with a similar
term and risk. At the same time, the present value of future cash flows pending
receipt is recognised under “Loans and receivables - Customer loans” using the
interest rate mentioned above. Subsequent to initial recognition, the amount
recorded under “Loans and receivables - Customer loans” on the asset side of the
balance sheet is updated, and the difference recognised in the income statement
under financial revenue, while the amount recognised under “Financial liabilities at
amortised cost” is recognised on a straight-line basis in the income statement as fee
and commission income for the expected life of the financial guarantee.
Financial guarantees, irrespective of the owner, instrumentation or other
circumstances, are analysed periodically to determine the associated credit risk and
estimate any provisions required. Provisions are calculated on similar criteria to
those used to measure impairment losses on debt instruments carried at amortised
cost (Note 2.1.8.1 above).
Any provisions recorded are recognised under “Provisions for contingent liabilities
and commitments” on the liability side of the consolidated balance sheet. Use and
reversal of these provisions is recognised with a charge or credit to “Net provisions”
in the income statement.
If necessary to record a provision in respect of these financial guarantees,
unaccrued fees on these contracts – recognised under “Other financial liabilities” on
the liability side of the balance sheet – are reclassified to the corresponding
provision account.
46
2.7. Recognition of Leases
2 . 7 . 1 . Fi n a n c e l e a s e s
Finance leases are leases that transfer to the lessee substantially all the risks and
rewards incidental to ownership of the leased asset.
When the Group acts as lessor of an asset, the sum of the present value of the
lease payments receivable from the lessee, plus the guaranteed residual value
(which is generally the exercise price of the lessee’s purchase option at the end of
the lease term), is recognised as lending to third parties and is therefore included
under “Loans and receivables” in the balance sheet based on the type of lessee.
When the Group acts as lessee, the cost of the leased assets is recognised in the
balance sheet based on the nature of the leased asset, and a liability is
simultaneously recognised for the same amount which is the lower of the fair value
of the leased asset and the sum of the present value of the lease payments payable
to the lessor plus, if appropriate, the exercise price of the purchase option. The
depreciation policy for these assets is consistent with that used for property, plant
and equipment for the Group’s own use.
In both cases, the finance income and charges arising under the lease agreements
are credited or debited to the income statement such that the yield remains constant
over the life of the leases.
2 . 7 . 2 . Op e r a t i n g l e a s e s
In operating leases, the lessor retains substantially all the risks and rewards of
ownership of the asset.
When the Group acts as lessor, it recognises the acquisition cost of the leased
assets under “Property, plant and equipment” either as “Investment properties” or
“Other assets leased out under operating leases”. The depreciation policy for these
assets is consistent with that for similar property, plant and equipment for own use,
and income from operating leases is recognised under “Other Operating Income” in
the consolidated income statement on a straight-line basis.
When the Group acts as lessee, lease expenses, including any incentives granted
by the lessor, if applicable, are charged to “Other general administrative expenses”
in the consolidated income statement on a straight-line basis.
2.8. Off-balance sheet resources
Off-balance sheet resources are those provided by third parties for investment in
companies and investment funds, pension funds, insurance-savings arrangements
and discretional portfolio management agreements. These amounts are distributed
among resources managed by other group companies and those marketed by the
Bank, but managed by third parties outside of the Group.
Note 32.3 provides information regarding third party assets managed and marketed
by the Group in the years ended 31 December 2011 and 2010.
2.9. Personnel expenses
2 . 9 . 1 . P o s t - e mp l o y me n t b e n e f i t s a n d o t h e r l o n g -t e r m e mp l o y e e
benefits
The Group is obliged to supplement the provisions of the public social security
system for certain retired and in-service employees and their rightholders in the
event of retirement, permanent disability, death of a spouse or parent, early
retirement and under several other circumstances.
47
The collective agreement replacing the Employee Welfare System signed on 21
November 2001 with all the unions represented in the Bank envisaged the creation
of a pension plan known as the Plan de Pensiones de Empleo (“The Plan”). The
Plan is designed to cover contingent risks such as the retirement of current
employees. It is a mixed pension plan, managed by Pastor Vida, S.A. Compañía de
Seguros y Reaseguros. Banco Pastor S.A. acts as custodian.
The Plan covers all the commitments under the Collective Agreement, both in
respect of risks (similar to those regulated by Banking Industry Collective
Agreement XXI) and retirement. Retirement commitments are addressed through a
mix of defined-benefit and defined-contribution arrangements, as follows:

Defined benefits for employees that joined the Bank before 8 March 1980 and
who were 55 or older at the date of the aforementioned Collective Agreement.

A mix of defined benefits and defined contributions for employees that joined the
Bank before 8 March 1980 and who were younger than 55 at the date of the
Collective Agreement.

Defined contribution for employees that joined the Bank after 8 March 1980. This
group of employees did not have any retirement rights prior to the signing of the
Agreement.
The commitments under the defined benefit plan are insured through policies with
BBVA Seguros, S.A., Vida Caixa, S.A. and Pastor Vida, S.A. insurance and
reinsurance companies.
In prior years the Group offered some employees the possibility of early retirement
before reaching the retirement age established in the current Collective Agreement,
assuming certain salary commitments up to the effective retirement date. The early
retirement commitments are partially covered by a policy obtained from Pastor Vida
and partilyy by an Internal Fund.
In addition, other post-employment commitments assumed by the Group with
respect to current employees and retirees relating to the company store, education
assistance, Christmas baskets and voluntary bonuses, as well as extraordinary and
special contributions of the pension plan. These post-employment commitments are
partially covered by a policy obtained from Pastor Vida, S.A. and partially by an
Internal Fund.
2 . 9 . 1 . 1 . P e n s i o n c o m m i t m e n t s – d e f i n e d c o n t ri b u t i o n p l a n s
Benefits accrued under the defined contribution plan at 31 December 2011 and
2010 were EUR 42,681 thousand and EUR 43,229 thousand, respectively. The net
amount accrued under these plans in 2011 and 2010 was EUR 2,659 thousand and
EUR 2,785 thousand, respectively (Note 43.1).
2.9.1.2. Pension commitments under defined benefit plans and other
p o s t -e m p l o y m e n t c o m p e n s a t i o n .
48
The present value of obligations taken on by the Bank in terms of post-employment
benefits and other long-term obligations, and the funding status of these obligations
at year ended 31 December 2011, as well as for the last four years, is detailed
below:
Thousand euro
Pension commitments (public sy stem complements) (Note 2.9.1.2.1)
2011
2010(*)
2009(*)
2008(*)
2007(*)
262.937
246.958
262.567
263.689
245.665
With serv ing employ ees
78.781
76.159
73.543
70.014
67.178
With retired employ ees
168.177
186.408
190.146
175.651
195.759
Pre-retirees (Note 2.9.1.2.2)
15.225
24.491
33.806
41.080
54.634
Other post-employ ment commitments (Note 2.9.1.2.3)
11.701
13.804
15.313
15.880
18.166
273.884
300.862
312.808
302.625
335.737
Present value of obligations
Related
insurance
contracts
–
Pension
commitments
(public
complements )
sy stem
236.636
250.479
253.256
233.749
248.620
Present value of obligations net of related assets
37.248
50.383
59.552
68.876
87.117
Insurance contracts w ith related companies (Note 18 and 25)
21.583
25.442
25.240
27.521
33.013
Present value of obligations net of assets (related and other)
15.665
24.941
34.312
41.355
54.104
Unrecognised actuarial (losses)/gains (Agent) (Note 2.9.1.2.1)
(16.865)
(14.739)
(13.399)
(12.278)
(9.032)
(1.200)
10.202
20.913
29.077
45.072
Net pension liabilities /(assets) at 31 December
(*) Included for comparativ e purposes.
At 31 December 2011 and 2010 net liabilities for pensions were recognized in the
balance sheets as follows:
Thousand euro
2011
2010
Liabilities reflected in balance sheet:
Pension prov isions (Note 25)
44.027
57.752
21.254
23.881
Less:
Insurance contracts w ith related companies cov ering public sy stem benefit
complements (Note 2.9.1.2.1)
Insurance contracts w ith related companies cov ering pre-retirement commitments
(Note 2.9.1.2.2)
329
1.561
22.444
32.310
Net assets in pension plans (Note 21) (b)
23.644
22.108
Net pension liabilities/(assets) (a) - (b)
(1.200)
10.202
Pension prov isions (net of policies w ith related companies) (a)
Assets reflected in balance sheet:
The amount of the commitments were measured by qualified, independent actuaries
applying the following criteria:
1) Valuation method: "projected unit credit method". This looks at each year of
service as generating an additional unit of benefit rights and values each unit
separately.
2) Actuarial assumptions used: Unbiased and mutually compatible.
49
Specifically, the main actuarial assumptions used in the calculations were the
following:
Assumptions
2011
Mortality tables
Discount rates
2010
PERM/F 2000 NP
PERM/F 2000 NP
2.68% to 6.15%, on the basis of the
maturity of commitments
0.00%
0.00%
regulatory bases and pensions.
2.25 %
2.25 %
Annual salary increase rate
3.50 %
3.50 %
Annual accumulated inflation rate
2.25 %
2.25 %
Ex pected rates of return on assets
Annual pension rev ision rate
Annual grow th rate of Social Security v ariables:
3) Each employee is assumed to retire as soon as they become entitled to do so.
4) The plans covered by internal or external pension funds, in accordance with
Spanish regulations governing the implementation of companies’ pension
obligations to employees, apply the actuarial assumptions stipulated in Spanish
legislation.
Assets associated with the plan are considered to be those that will be used to
directly settle obligations and meet the following conditions: they are not owned by
the bank, they are only available to pay or finance compensation and cannot return
to the Bank.
2.9.1.2.1. Pension commitments in defined benefit plans relating to supplements to
public system benefits
At the end of the last two years, the composition of pension commitments in defined
benefit plans for supplements to the public system is as follows:
Thousand euro
Pension obligations -retired employ ees
Accrued risks for pensions - retired employ ees
2011
2010
168.177
186.408
78.781
76.159
TOTAL OBLIGATIONS (Note 2.9.1.2)
246.958
262.567
Insurance contracts - non-related companies
232.466
245.996
21.254
23.881
253.720
269.877
Insurance contracts - related companies (Note 2.9. 1.2)
COVER AT THE YEAR END
50
The reconciliation of the opening and closing present value of pension commitments
in defined benefit plans relating to supplements to the public system benefits, as
well as the reconciliation of the opening and closing fair values of the assets
associated with the plan, are as follows:
Thousand euro
2011
2010
Present actuarial value of obligations at the start of the period (Note 2.9.1.2)
262.567
263.689
+ Cost of serv ices for y ear (Note 2.9. 1.3)
+ Borrow ing costs (Note 2.9 .1.3)
- Benefits paid
+/-Actuarial losses/(gains)
694
10.832
(17.160)
(11.809)
1.834
713
11.395
(17.819)
4.589
Present actuarial value of obligations at the end of the period (Note 2.9.1.2)
246.958
262.567
Fair value of plan assets at the start of the period
+ Ex pected return on plan assets (Note 2.9.1.3)
+ Contributions made by the Entity
- Benefits paid
+/-Actuarial (losses)/gains
Fair value of plan assets at the end of the period
269.877
11.167
3.771
(17.160)
(13.935)
253.720
271.427
11.745
1.275
(17.819)
3.249
269.877
The total plan assets include insurance policies, with flows that are identical, both in
terms of amount and regularity of payments, to one or all of the payment obligations
contained in the plan. As such, it is considered that the fair value of these insurance
policies is equal to the present value of the associated payment obligations.
Therefore, the plan assets have been measured as the actuarial value of the
benefits guaranteed by the policies and, as a result, the expected return on the
assets is equal to the discount rate applied in the calculation of the present value of
the obligations. This is determined, once the life of each obligation has been
calculated, using the market yield of high quality corporate bonds or obligations as
reference at the date of the associated financial statements.
The real return on the plan assets differs from the estimated return only as a result
of actuarial losses on insurance policies, which being linked to obligations, are offset
against the actuarial losses on the liabilities side.
The forecast contribution to the plan during 2012 is EUR 2,732 thousand.
Actuarial gains and losses
“Actuarial gains and losses” are defined as those gains and losses that arise from
differences between actuarial forecasts and actual performance and changes in the
actuarial assumptions used.
Actuarial gains and losses generated by post-employment benefits were amortised
using the 10% corridor method. Any accrued excess over 10% of the greater of the
present value of plan assets and the present value of plan obligations was
distributed over five years.
Actuarial gains and losses generated by other long-term commitments, including
those acquired for employees taking early retirement, are recognised in the income
statement immediately.
51
The unrecognised portion of commitments acquired in connection with postemployment benefits was wholly generated by actuarial differences. The table
below summarises the movements in 2011 and 2010:
Thousand euro
2011
2010
Accumulated actuarial gain /(loss) at the start of the year
(Nota 2.9.1.2)
(14.739)
(13.399)
Actuarial gain / (loss) on obligations
11.809
(4.589)
Actuarial gain / (loss) on assets
(13.935)
3.249
Amortisation for the y ear
---
---
Accumulated actuarial gain /(loss) at the end of the year
(Nota 2.9. 1.2)
(16.865)
(14.739)
The adjustment for experience and changes in assumptions that arises from plan
assets and liabilities is as follows:
Adjustment for experience of obligations
Gains / (losses) on obligations by ex perience
Thousand euro
2011
2010
876
176
Gains / (losses) on obligations ow ing to change in assumptions
10.933
(4.765)
Gains / (losses) on obligations
11.809
(4.589)
Adjustment experience of assets
Gains / (losses) on assets ow ing to ex perience
Thousand euro
2011
2010
(2.904)
(1.546)
Gains / (losses) on assets ow ing to change in assumptions
(11.031)
4.795
Gains / (losses) on assets
(13.935)
3.249
2.9.1.2.2. Early retirements
In previous years the Bank offered some of its employees the option of retiring
before reaching the retirement age stipulated in the current Collective Agreement.
The present value of the obligations to personnel taking early retirement, until their
effective retirement, at 31 December 2011 and 2010 was EUR 15,225 thousand and
EUR 24,491 thousand, respectively. This is covered by internal funds and
insurance policies obtained from insurance companies associated with the Bank.
The present value of obligations accrued after the official retirement date and
related provisions are included in “Defined benefit plans”.
Movements in 2011 and 2010 in the present value of the obligation accruing for
early retirement commitments are show below:
Thousand euro
+ Borrow ing costs (Note 2.9 .1.3)
- Benefits paid
+ Pre-retirees for the y ear
+/- Actuarial losses/(gains) (Note 2.9.1.3)
2011
24.491
475
(8.655)
--(1.086)
15.225
2010
33.806
701
(10.234)
--218
24.491
+ Ex pected return on plan assets (Note 2.9 and 1.3)
+Premiums net of losses or direct pay ments
-Real pay ments made
+/- Actuarial losses/(gains) (Note 2.9. 1.3)
Fair value of plan assets at the end of the period (Note 2.91.2)
1.561
16
7.852
(8.656)
(444)
329
2.647
34
9.126
(10.234)
(12)
1.561
52
Thousand euro
2011
Accumulated actuarial gain /(loss) at the start of the year (
2010
---
---
1.086
(218)
(444)
(12)
Amortisation for the y ear (Note 2.9.1.3)
(642)
230
---
---
Adjustment for experience of obligations
Thousand euro
2011
2010
890
(181)
196
(37)
1.086
(218)
Thousand euro
2011
2010
(442)
(19)
(2)
7
(444)
(12)
2.9.1.2.3. Other commitments
Other defined benefit commitments include the port-employment obligations
assumed by the Bank with respect to current employees and retirees relating to the
company store, education assistance, christmas baskets and voluntary bonuses, as
well as extraordinary and special contributions of the pension plan.
Movements in 2011 and 2010 in the present value of the obligations accruing for
other commitments defined in the preceding paragraph are show below:
Thousand euro
+ Cost of serv ices for y ear (Note 2.9. 1.3)
+ Borrow ing costs (Note 2.9.1.3)
+ Ex pected return on plan assets (Note 2.9.1.3)
+Premiums net of losses or direct pay ments
Fair value of plan assets at the end of the period
2011
13.804
69
561
(2.059)
(674)
11.701
2010
15.313
63
639
(2.140)
(71)
13.804
4.483
196
1.888
(2.058)
(339)
4.170
4.422
210
1.916
(2.140)
75
4.483
53
Thousand euro
2011
Accumulated actuarial gain /(loss) at the start of the year (
2010
---
---
674
71
(339)
75
Amortisation for the y ear (Note 2.9.1.3)
(335)
(146)
---
---
Thousand euro
Adjustm ent for experience of obligations
2011
2010
7
313
667
(242)
674
71
Thousand euro
2011
2010
(27)
(63)
(312)
138
(339)
75
2 . 9 . 1 . 3 . To t a l re c o g n i s e d e x p e n s e i n t h e t h e p ro f i t a n d l o s s a c c o u n t .
Total expenses recognised in the profit and loss account in 2011 and 2010 are set
out below with respect to pension commitments in defined benefit plans and other
post-employment compensation, classified by type of commitment and account
heading:
Thousand euro
Pre-
2011
Recorded in the income statement
Public system
retirement
Other
complements
(Note
commitments
(Note 2.9.1.2.1
2.9.1.2.2
(Note 2.9.1.2.3
and 2.9.1.3.1)
and
and 2.9.1.3.1)
Total
commitm
ents
2.9.1.3.2)
+ Cost of serv ices for the y ear
Interest
and
similar
charges
(Note 34)
Staff
costs
(Note
43.1)
Transfers to
provisions
(Note 25)
694
---
69
763
---
763
---
10.832
475
561
11.868
1.036
10.832
---
---
(642)
(335)
(977)
---
---
(11.167)
(16)
(196)
(11.379)
(212)
(11.167)
---
+ Increase in obligations ow ing to new commitments
1.834
---
---
1.834
---
1.834
---
Total expense in income statement for the year
2.193
(183)
99
2.109
824
2.262
(977)
+ Borrow ing costs
+/- Amortisation of actuarial gains and losses
-
Forecast
return
on
plan
assets
(977)
and any
reimbursement right recognised as an asset
54
Thousand euro
Pre-
2010
Recorded in the income statement
Public system
retirement
Other
complements
(Note
commitments
(Note 2.9.1.2.1
2.9.1.2.2
(Note 2.9.1.2.3
and 2.9.1.3.1)
and
and 2.9.1.3.1)
Interest
Total
commitm
ents
+ Borrow ing costs
-
Forecast
return
on
plan
assets
and
similar
charges
2.9.1.3.2)
+ Cost of serv ices for the y ear
and
(Note 34)
Staff
Transfers to
costs
provisions
(Note
(Note 25)
43.1)
713
---
63
776
---
776
---
11.395
701
639
12.735
1.340
11.395
---
---
230
(146)
84
---
---
84
(11.745)
(34)
(210)
(11.989)
(244)
(11.745)
---
363
897
346
1.606
1.096
426
84
any
reimbursement right recognised as an asset
Total expense in income statement for the year
The criteria for recognising post-employment compensation commitments and other
long-term commitments in the profit and loss accounts for 2011 and 2010 are
summarised below:
2.9.1.3.1. Commitments covered by insurance policies and pension plans:
Post-employment benefits for groups whose entitlements are covered by insurance
policies, pension plans and internal funds are recognised in the income statement
under “Personnel expenses” at the net total amount of the following items:

Service cost for the current year (understood as the increase in the present
value of obligations as a result of services provided by employees in the course
of the year).

Interest expense (i.e. the increase in the present value of obligations in the
course of the year due to the passage of time).

Expected return on assets assigned to cover commitments and value gains and
losses, less any expense arising from administration and taxes.

Amortisation of actuarial gains and losses in accordance with the 10% corridor
method described above and any unrecognised past service cost.
The amount recognised in the income statement under the heading “Personnel
expenses” for post-employment benefits relating to these groups, broken down by
item, is the following:
1) Carried expense for pension commitments in defined benefit plans relating to
supplements to public system benefits
Thousand euro
2011
+ Cost of serv ices for the current y ear
+ Borrow ing costs
2010
694
713
10.832
11.395
(11.167)
(11.745)
- Forecast return on plan assets and any reimbursement right
recognised as an asset
+/- Curtailments / Settlements
1.834
---
Total expense in income statement (Note 2.9.1.3)
2.193
363
55
2) Carried expense for other commitments:
Thousand euro
2011
+ Cost of serv ices for the current y ear
2010
69
63
561
639
(196)
(210)
(335)
(146)
99
346
+ Borrow ing costs
Total expense in income statem ent (Note 2.9.1.3)
2.9.1.3.2. Commitments with early retired personnel
Commitments in respect of post-employment benefits to staff taking early retirement
that are covered by internal funds are recognised in the income statement as
follows:

At the date of early retirement, the present value of benefit entitlements through
normal retirement age is recognised under “Net provisions”, along with the
present value of pre-retirement benefits pending accrual at the date of early
retirement.

Interest expense (i.e. the increase in the present value of obligations in the
course of the year due to the passage of time) is recognised under “Interest and
Similar Expense”.

Actuarial gains and losses are recognised in the income statement in the year
that they become apparent under the item “Allocations to provisions net)”.
The amount recognised in the income statement under the heading “Provisions” and
“Interest and similar expense” relating to commitments to employees taking early
retirement is the following:
Thousand euro
2011
+ Borrow ing costs
475
2010
701
(16)
(34)
(642)
230
Total expense in income statement (Note 2.9.1.3)
(183)
897
2 . 9 . 2 . S h a re -b a s e d p a y m e n t t ra n s a c t i o n s
The delivery of own equity instruments to employees as consideration for their
services when these are delivered after a defined service period is recognised as
employee expense (with a balancing entry in equity). Services rendered and the
corresponding increase in equity are valued at the fair value of the equity
instruments granted, at the date granted. The changes in value of the instruments
granted between the date of recognition and settlement are not recognised in the
financial statements.
In 2006, the Bank introduced a share-based compensation scheme as part of an
incentive program also introduced that year (the Delta incentive scheme) to run from
2006 to 2008 and conditional upon achievement of the business targets established
in the strategic plan for the same period (not linked to external market conditions).
The definitive number of shares to be delivered was set at 175,086 shares, which
were delivered on 1 February 2010, thereby canceling this incentive plan and it did
not have any effect on the income statement for 2010.
In December 2011 an agreement was concluded covering the delivery of shares in
the bank to certain employees for a total of EUR 2,256 thousand (Note 27.1.5).
56
2 . 9 . 3 . Te r mi n a t i o n b e n e f i t s
In accordance with current legislation, the Group is required to pay severance to
any employee whose employment is terminated without due cause. Got 31
December 2011 and 2010 there are no reports of any dismissals yet to be executed
or any plan to reduce the number of employees that would make it necessary to
create a provision in this respect.
2.10. Corporate income tax
Expenses for Spanish corporate income tax and similar taxes levied on foreign
consolidated subsidiaries are recognised in the consolidated income statement,
except when it results from a transaction recognised directly in equity. In this case,
the income tax is also recognised in equity.
The current income tax expense is calculated as the tax payable on taxable profit
for the year, adjusted for the changes arising during the year in the assets and
liabilities recognised as a result of temporary differences, tax credits and allowances
and tax losses.
Deferred tax assets and liabilities are taxes that are expected to be either payable
or receivable as a result of differences between the carrying amount of assets and
liabilities in the financial statements and the corresponding tax bases used to
calculate taxable profit. They are recognised using the balance sheet liability
method. They are measured by multiplying the amount of the temporary difference
or tax credit by the expected prevailing applicable tax rate at the time of
settlement/recovery.
Deferred tax liabilities are recognized for all taxable temporary differences. Deferred
tax liabilities are recognised for all taxable temporary differences. A deferred tax
liability is recognised for taxable temporary differences caused by investments in
subsidiaries or associates and interests in jointly-controlled entities, except when
the Group can control the reversal of the temporary differences and it is improbable
that these will be reversed in the foreseeable future.
Notwithstanding the above, deferred tax assets are only recognised where it is
considered probable that the consolidated entities will generate sufficient future
taxable profit to be able to offset them. Deferred tax assets are never recognised in
relation to the goodwill arising in a business combination.
At the time of each accounting closing, deferred tax assets and liabilities are
reviewed in order to verify that they remain in force and any relevant adjustments
are made in accordance with the results of the analysis performed.
2.11. Property, plant
and equipment
2 . 1 1 . 1 . P ro p e rt y, p l a n t a n d e q u i p me n t f o r o w n u s e
Property, plant and equipment for own use includes, among other things, property,
plant and equipment foreclosed by consolidated entities in full or partial settlement
of third party receivables which are intended to be held for continuing use. It also
includes assets acquired under finance leases.
Property, plant and equipment under construction that are being built or developed
for the use of the Bank or to be used as property investments are classified under
Property, plant and equipment for own use.
Property and equipment for own use are presented in the consolidated balance
sheets at acquisition cost, which is the fair value of any consideration given plus any
monetary amounts paid or committed, less:

The corresponding accumulated depreciation; and
 if applicable, estimated losses calculated by comparing each asset’s carrying
amount with its recoverable amount.
57
For these purposes, the cost of foreclosed assets is the carrying amount of the
financial assets settled through foreclosure.
The cost of interest that is directly attributable to the acquisition or construction of
assets is I in the event that the asset concerned necessarily requires the substantial
period before being ready for use.
Depreciation is calculated by applying the straight-line method to the acquisition
cost of the assets less their residual value. The land on which Group buildings and
other constructions are located is deemed to have an indefinite life and is therefore
not depreciated.
The annual provisions for depreciation of property, plant and equipment are charged
to the consolidated statement of income and are calculated on the basis of the
following average years of estimated useful life of the various groups of items, as
follows:
Years of useful
life
Buildings for ow n use
Furniture
Installations
50
10
6 a 10
Office and machine building
4
Refurbishment of rented offices
10
The consolidated entities assess at the reporting date whether there is any
indication that an asset may be impaired (i.e. its carrying amount exceeds its
recoverable amount). If this is the case, the carrying amount of the asset is reduced
to its recoverable amount and future depreciation charges are adjusted in proportion
to the revised carrying amount and to the new remaining useful life, if the useful life
has to be re-estimated.
Similarly, if there is an indication of a recovery in the value of an item of property,
plant and equipment, the consolidated entities recognise the reversal of the
impairment loss recognised in prior periods in the above-mentioned income
statement heading, and adjust the future depreciation charges accordingly. Under
no circumstances may the reversal of an impairment loss on an asset increase its
carrying amount above the amount at which it would have been stated if no
impairment losses had been recognised in prior years.
The estimated useful lives of all items of property, plant and equipment for own use
are reviewed at least at each reporting date for indications of significant changes
and, where appropriate, the depreciation charges are adjusted in the consolidated
income statements of future years to reflect the new estimates.
Repair and maintenance costs for property, plant and equipment for own use are
charged to the consolidated income statement during the financial period in which
they are incurred, in the caption “Other general administration expenses”.
2 . 1 1 . 2 . P ro p e rt y, p l a n t a n d e q u i p me n t a n d o t h e r a s s e t s l e a s e d o u t
under operating leases
“Investment property” in the consolidated balance sheet includes the carrying
amounts of land, buildings and other constructions held either for rental or to obtain
a gain on the sale of the property as a result of future market price increases.
The criteria used to determine the acquisition cost of investment properties, the
corresponding depreciation rates, estimated useful life, and potential impairment
losses are the same as those described above for property, plant and equipment for
own use (Note 2.11.1).
58
2.12. Intangible assets
Intangible assets are identifiable non-monetary assets without physical substance
which arise as a result of a legal transaction or which are developed by the
consolidated entities. These are only recognised when their cost can be estimated
reliably and when it is considered probable that they will generate future economic
benefits.
Intangible assets are recognised initially at acquisition or production cost and are
subsequently remeasured at cost less any accumulated amortisation and any
impairment losses.
2 . 1 2 . 1 . Go o d w i l l
Positive differences between the cost of equity holdings in consolidated entities,
associates and joint ventures and their acquired carrying amount, adjusted at first
consolidation, are recognised as follows:
Where such differences can be allocated to specific assets of the companies
acquired, by adjusting the value of the assets or the value of the liabilities whose fair
values were higher (lower) than the carrying amounts at which they had been
recognised in the acquired entities’ balance sheet.
1)
Where differences can be assigned to specific intangible assets, they are
explicitly recognised in the consolidated balance sheet provided their fair value at
the acquisition date can be measured reliably.
2)
Any remaining surplus is recorded as goodwill, which is assigned to one or
more specific cash-generating units.
3)
Goodwill is only recorded when it has been acquired for consideration and
accordingly represents advance payments made by the acquirer for future economic
profits generated by the assets of the acquired entity that are not individually and
separately identifiable and recognisable.
Goodwill acquired as from 1 January 2004 is shown at acquisition cost, while
goodwill acquired before that date is carried at the net amount recognised at 31
December 2003. In both cases, at each accounting close the Group tests goodwill
for any impairment that may have reduced its recoverable amount to below the
carrying amount. In this case, goodwill is written down and a balancing entry is
made in the caption “Asset impairment losses – Goodwill” in the consolidated
income statement.
Goodwill relating to associated and multigroup companies is recorded under their
carrying values in the balance sheet.
Impairment losses relating to goodwill cannot be subsequently reversed.
2 . 1 2 . 2 . N e g a t i ve g o o d w i l l
If there are any negative differences between the cost of shareholdings in
consolidated or associated companies or joint ventures compared with their
theoretical book value, adjusted on the date of first consolidation, the assignment of
the cost of the business combination is reassessed, and if the existence of negative
differences is confirmed, they are recognized as follows:
Where such negative differences can be assigned to specific assets of the
acquired companies it is recognised as an adjustment to the amount of liabilities or
assets whose market value is higher (lower) than their carrying amounts on the
balance sheet and whose accounting treatment is similar to that of similar assets
(liabilities) owned by the Group: depreciation, accruals, etc.
1)
Remaining amounts are recognised in “Other gains” in the income statement for
the year that the acquisition of the consolidated entity or associate took place.
2)
59
2 . 1 2 . 3 . Ot h e r i n t a n g i b l e a s s e t s
Intangible assets can have an “indefinite useful life” when, based on an analysis of
all the relevant factors, it is concluded that there is no foreseeable limit to the period
over which the asset is expected to generate net cash inflows for the consolidated
entities or a “finite useful life”, in all other cases.
Intangible assets with indefinite useful lives are not amortised; instead, at the end of
each reporting period the consolidated entities review the remaining useful lives of
the assets in confirm that they continue to be indefinite. If not, the appropriate steps
are taken.
Intangible assets with a finite useful life are amortised over their useful life, applying
similar criteria to those used in the depreciation of property, plant and equipment.
In both cases, the consolidated entities submit those assets to an impairment test at
least on an annual basis and recognise any impairment losses resulting from the
recognised value and its subsequent loss with a charge to “Impairment losses (net)
– other assets” in the consolidated income statement. The methods applied to
recognise impairment losses on these assets and, if appropriate, the recovery of
impairment losses recognised in prior years are similar to those applied to property,
plant and equipment (Note 2.11.1).
2.13. Inventories
”Inventories” on the consolidated balance sheet includes all non-financial assets
that consolidated companies hold for sale in the ordinary course of their business,
are in the process of producing, constructing or developing with a view to sale, or
that they expect to be consumed in the production process or in the rendering of
services.
Land and other properties held for sale or to be integrated into a property
development are therefore regarded as inventories.
Inventories are valued at the lower of cost, including all costs of acquisition, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition, and their net realisable value. Net realisable value is defined
as the estimated selling price of inventories less the estimated production costs and
costs to sell.
The calculation of inventory impairment relating to land and buildings is determined
in accordance with the appraised value obtained from specialist companies
registered with the Bank of Spain.
The cost of inventory items that are not tradable normally and the cost of goods and
services produced and reserved for specific projects, are determined individually for
each case. The cost of other inventories is determined using the weighted average
cost method, as appropriate.
Both decreases and any subsequent recoveries of the net realisable cost of
inventories are recognised in the consolidated income statement for the year in
which they were incurred.
The carrying value of inventories is written off the consolidated balance sheet and is
charged to expense under the heading "Other operating charges" in the period the
income from their sale is recognised.
2.14. Insurance business
In 2010 the Group ceased to carry out insurance activities. Up until that interruption,
the principles, policies and accounting criteria applied to insurance transactions
were as follows.
60
In accordance with accounting standards specific to the insurance industry, the
consolidated insurance entities recognise income for the amounts of the premiums
written and an expense for the cost of claims when the claims are settled. This
means that, at each balance sheet date, the insurance entities have to accrue all
amounts credited to their income statements but unearned and all costs incurred but
not recognised in the income statement.
The most significant accruals by consolidated entities on insurance directly written
by them are recognised under the following technical provisions:
 Unearned premiums: provision reflecting the premium charged in a year that is
attributable to future years, less transfers to the equalisation reserve.
 Unexpired risks: these supplement the provision for unearned premiums by the
amount by which that provision is not sufficient to reflect the assessed risks and
expenses to be covered in the coverage period not elapsed at the reporting date.
 Claims: this provision reflects the estimated value of obligations on past claims
outstanding at the year-end – including claims pending settlement or payment and
undeclared claims – after deducting any prepayments and adjusting for internal and
external costs of claim handling, as well as any additional provisions that may be
necessary to cover discrepancies in the valuation of claims that take a long time to
settle.
 Life insurance: in life insurance where the period of coverage is a year or less,
the unearned premium provision reflects premiums paid in the year attributable to
future years. Where this is insufficient, an additional provision for unexpired risks is
calculated reflecting the valuation of risks and expenses forecast for the future
period at the balance sheet date.
In life insurance where the coverage period is longer than a year, the mathematical
provision is calculated as the difference between the present actuarial value of
future obligations of consolidated entities engaged in the sector and those of the
policyholder or insured. The basis for the calculation is taken as the inventory
premium (premium plus handling charge) accrued over the year.
 Profit sharing and refunds: this provision covers the share of profits accruing
to policyholders, insureds or beneficiaries of insurance policies and the share of
premiums to be refunded to policyholders or insureds as a result of factors affecting
the insured risk, where these have not been individually assigned.
Technical provisions for accepted reinsurance are calculated on similar criteria to
those applied to direct insurance, generally based on information provided by the
ceding insurer.
Technical provisions for ceded reinsurance are calculated based on the reinsurance
contracts taken out and by applying the same criteria as for direct insurance.
2.15. Provisions and contingent liabilities
At the date of preparation of the annual financial statements of the consolidated
entities, their respective directors distinguished between:
 Provisions: amounts covering present obligations at the balance sheet date
arising from past events which could give rise to a loss for the entities considered
likely to occur and certain in terms of its nature but uncertain in terms of its amount
and/or timing, and
 Contingent liabilities: possible obligations as a result of past events whose
occurrence depends on the occurrence or non-occurrence of one or more separate
future events not within the control of the consolidated entities.
The Group’s consolidated financial statements include all the material provisions
with respect to which it is considered more likely than not that the obligation will
have to be settled. Contingent liabilities are not recognised in the consolidated
financial statements, although information is provided when they are significant.
61
Provisions are measured based on the best information available on the
consequences of the events giving rise to them and remeasured at each balance
sheet date. They are used to meet the specific obligations for which they were
originally recognised. They may be wholly or partly reversed if these obligations
cease to exist or diminish.
Allocations to provisions that are deemed necessary as stated above are charged or
credited to the consolidated income statement caption “Transfers to provisions
(net)” in the profit and loss account.
At the 2011 year end a number of legal proceedings and claims had been filed
against consolidated companies in connection with the ordinary course of their
business. The Group’s legal counsel and its directors believe that the resolution of
these proceedings and claims will not have a significant effect on the annual
financial statements of the years in which they are resolved.
2.16. Non-current assets held for sale and liabilities
associated with non-current assets held for sale
The heading “Non-current assets held for sale” on the balance sheet represents the
carrying amount of individual items or groups of items (“disposal groups”) or items
that form part of a business unit earmarked for sale (“discontinued operations”),
whose sale is highly probable in the assets’ current condition within a year of the
date referred to on the financial statements.
Investments in associates and interests in joint ventures meeting the conditions set
forth in the foregoing paragraph are also considered to be non-current assets held
for sale.
Therefore, the carrying amount of these items – which can be of a financial nature
or otherwise– will foreseeably be recovered through the proceeds from their
disposal, rather than their continuing use (Note 16).
Specifically, property or other non-current assets received by the Group in full or
part-payment of obligations owed by its debtors are considered to be non-current
assets held for sale, unless the consolidated entities decide to make continuing use
of these assets.
Similarly, “Liabilities associated with non-current assets held for sale” includes the
payables associated with disposal groups or from the Group’s discontinued
operations.
In general, assets classified as non-current assets held for sale are valued at the
lower of their carrying amount calculated as at the classification date and their fair
value less estimated costs to sell. Property and equipment and intangible assets
that are depreciable and amortisable by nature are not depreciated or amortised
during the time they remain in this category.
If the carrying amount of the assets exceeds their fair value less estimated costs to
sell, the Group adjusts the carrying amount of the assets by the amount of the
excess with a charge to “Gains/(Losses) for non-current assets held for sale not
considered discontinued operations” in the consolidated income statement. If the
fair value of such assets subsequently increases, the Group reverses the losses
previously recognised and increases the carrying value of the assets without
exceeding the carrying amount prior to the impairment, with a credit to
“Gains/(Losses) for non-current assets held for sale not considered discontinued
operations” in the consolidated income statement.
Revenue from the sale of non-current assets held for sale is shown under
“Gains/(Losses) for non-current assets held for sale not considered discontinued
operations” in the income statement.
62
However, financial assets, assets relating to employee benefits, assets relating to
deferred taxes and insurance contract assets that make up a disposal group or a
discontinued operation, are not valued as detailed in previous paragraphs, but in
accordance with the applicable principles and regulations explained in the relevant
paragraphs of Note 2.
2.17. Other assets and liabilities
The heading "Other assets" records the balance of all assets accrual accounts
(except for those relating to interest), in addition to Inventories (Note.13), as well as
the amount of the difference between pension plan obligations and the value of the
plan's assets showing a favorable balance for the Entity when this amount must be
presented as a net amount in the balance sheet, together with the amount of the
remaining assets not under other headings.
The heading "Other liabilities" records the liability accrual accounts (except those
relating to interest) and payables consisting of financial liabilities not included in
other categories.
2.18. Gains/losses on discontinued activities
A discontinued activity is a component of the Group (unit or a group of cash
generating units) that have been sold or otherwise disposed of or has been
classified as being held for sale and it represents a line of business or some mythic
and geographic area, or forms part of a plan to sell or otherwise dispose of a line of
business or a significant geographic area, or it is a subsidiary acquired solely for the
purpose of being resold.
The heading "Gain/loss on discontinued activities" in the income statement reveals,
both in the case that the item has been derecognized and if it remains in that
account at 31 December, a single amount consisting of the total of:
a)
after-tax profits on discontinued activities, even if generated before this
classification.
b)
after-tax profits recognized by the fair-value measurement, less the selling cost
of the assets or disposable groups of assets that make up the discontinued
activity, or the amount recognized for the sale disposal of those assets.
This same principle is applied in the preparation of the consolidated financial
statements for the preceding year that are presented for purposes of comparison.
2.19. Statement of consolidated recognized income and
expense.
The consolidated statement of recognised revenues and expenses shows the
income and expenses generated by the Group as a result of its activity during the
year, distinguishing profit and loss for the year, and each item of income and
expense for the period that, as required by current regulations, recognised directly
in equity.
Accordingly, this statement reflects:
a. Profit/(loss) for the year.
b. The net amount of income and expense temporarily recognised as valuation
adjustments in equity.
c. The net amount of income and expense fully recognised in equity
d. Income tax accrued for the items indicated in b and c above.
e. Total recognised income and expense, calculated as the sum of the letters
above.
63
Variations in income and expense recognised in equity as valuation adjustments are
detailed in:
a. Measurement gains (losses): records the amount of the income, net of the
expenses originating during the year, recognize directly in equity, even if
transferred to the income statement in the same year, at the initial value of other
assets or liabilities, or the amount is reclassified to another heading.
b. Amounts transferred to the income statement: represents the balance of
valuation gains or losses previously recognised in equity, albeit for the same
year, that are recognised in the income statement.
c. Amounts transferred to the opening value of hedged items: represents the
balance of valuation gains and losses previously recognised in equity, albeit for
the same year, recognised in the initial carrying amount of assets and liabilities
resulting from cash flow hedges.
d. Other reclassifications: represents the balance of all reclassifications for the year
in terms of valuation adjustments in accordance with prevailing legislation.
The balance of these items is presented gross, with the corresponding negative
balance shown in the statement under “Income tax”.
2.20. Consolidated statement of changes in equity
The statement of changes in equity shows all changes in equity, including those
resulting from changes in accounting policies and corrections of errors. This
statement accordingly presents a reconciliation between the carrying amount of
each item of consolidated equity at the beginning and the end of the period,
grouping movements by type under the following headings:
a. Adjustments due to changes in accounting policies and the correction of errors:
including any changes in equity as a result of the retroactive restatement of
financial statement balances due to changes in accounting policies or the
correction of errors.
b. Income and expense recognised during the year: represents the aggregate of all
items of recognised income and expense, as outlined above.
c. Other changes in equity: represents all other items recognised under equity, both
increases and decreases of capital, distribution of profit, operations with own
equity instruments, payments with equity instruments, transfers between equity
headings and any other increase or decrease in equity.
2.21. Consolidated cash flow statement
The following terms are used in the consolidated statement of cash flows with the
meanings specified:
 Cash flows: inflows and outflows of cash and cash equivalents, defined as highly
liquid, short-term investments with low risk of experiencing significant fluctuations in
the value.
 Operating activities: principal banking activities and other activities that are not
investing or financing activities.
 Investment activities: the acquisition and disposal of non-current assets and
other investments not included in cash and cash equivalents.
 Financing activities: activities that alter the amount and structure of equity and
liabilities that are not operating activities.
In preparing the cash flow statement, “cash and cash equivalents” were considered
to be the short-term, highly liquid investments with an insignificant risk of changes in
value. Accordingly, the Group classified the following financial assets and liabilities
as cash and cash equivalents:
64
 The Group’s own cash, recorded under “Cash and Balances with Central Banks”
on the balance sheet (Note 8). The amount of cash owned by the Group amounted
to EUR 432,215 thousand at 31 December 2011 (EUR 283,834 thousand at 31
December 2010).
 Balances receivable on demand from credit institutions, separate from balances
held with Central Banks, that are included under “Loans and receivables – Loans
and advances to credit institutions” of the balance sheets, amounting to EUR 29,698
thousand and EUR 66,264 thousand at 31 December 2011 and 2010, respectively.
 Other highly liquid short-term investments with little risk of changes in value,
including Treasury Bills under “Trading portfolio – debt securities” on the balance
sheet (Note 9.2). At 31 December 2011 this heading recorded a zero balance where
at 31 December 2000 and the balance was EUR 46,392 thousand.
No investment or financing transactions have been carried out that did not involve
the use of cash or cash equivalents in 2011 or 2010.
3. EARNINGS PER SHARE
3.1. Basic earnings per share
Basic earnings per share are calculated by dividing the net consolidated income for
the year attributable to the Group by the weighted average number of outstanding
shares for the year, excluding the average number of treasury shares held during
the year.
The calculation of basic earnings per share is as follows:
2011
Net profit for the y ear (thousand euro)
Weighted av erage number of shares (units)
2010
Change (%)
51.939
62.062
270.526.852
265.255.861
1,99
4.023.888
2.175.829
84,94
0,195
0,236
-17,39
Av erage number of treasury shares in the y ear (units)
Basic earnings per share (euros)
(16,31)
3.2. Diluted earnings per share
Diluted earnings per share are calculated in the same way as basic earnings per
share, but the weighted average number of shares outstanding is adjusted to take
into account the potential dilutive effect of share options, warrants and convertible
bonds outstanding at year end.
At 31 December 2011 the only instruments with a potential dilutive effect relate to
the issue of subordinated convertible bonds on 14 April 2011 (Note 27.1.5).
At 31 December 2010 the Group had not issued any such instrument.
The calculation of basic earnings per share is as follows:
2011
Net profit for the y ear (thousand euro)
2010
51.939
Change (%)
62.062
(16,31)
Adjustments to results ow ing to amounts associated w ith potential
shares w ith diluting effects (thousand euro)
---
---
Weighted av erage number of shares (units)
270.526.852
265.255.861
1,99
4.023.888
2.175.829
84,94
50.069.708
---
316.572.672
263.080.032
0,164
0,236
Av erage number of treasury shares in the y ear (units)
---
Av erage number of shares that w ould be issued if all conv ertible
instruments w ere conv erted (units)
---
Total adjusted av erage number of shares to calculate diluted
earnings per share (units)
Diluted earnings per share (euros)
20,33
(30,45)
65
4. DISTRIBUTION OF PROFIT
The distribution of 2011 profits obtained by the Bank that will be proposed by the
Board of Directors at the Annual General Meeting for approval, and the distribution
approved for 2010, are set out below:
Thousand euro
2011 Proposed
2010 Approved
To div idends
To v oluntary reserv es
Bank's net profit for the year (*)
6.139
16.015
34.743
29.737
40.882
45.752
(*) Reflected in “Results for the y ear” under Equity in the Bank's balance sheet
The legally required liquidity statement drawn up by the Bank shows that the Bank
has sufficient resources to pay interim dividends charged against 2011 profit, as
follows:
1 Dividend
Payment date
25/10/2011
Thousand euro
Profit after tax es (*)
50.360
Div idends paid
Profit av ailable for distribution
--50.360
Interim div idend
Av ailable liquidity (**)
6.139
563.177
Euro
Gross dividend per share
0,023
(*) Profits for the first interim div idend relate to the income statement
for May .
(**) Av ailable liquidity consists of Cash on hand and on deposit at
central banks included under assets in the Bank's balance sheet for
May .
5. CHANGES IN THE CONSOLIDATION SCOPE
The most significant changes or other events affecting the Group’s consolidation
scope in 2011 and 2010 were as follows:
5.1. Subsidiaries
2011:
 Transfer of the company Pastor Participadas 2, S.L. to the subsidiary category
due to the increase in the interest held (in 2010 this company was called
Ventogenera, S.L. and it was classified as an associated company) (Note 5.2).
2010:
 Addition due to the incorporation of the subsidiaries Pastor Participadas 1, S.L.,
Almeiras Assets, S.L. and Cercebelo Assets, S.L.

The sale of the subsidiary Gespastor, S.A. (Note 44).
 Derecognition of the company Pastor Seguros Generales, S.A. due to
liquidation.
66
 Derecognition of the subsidiary Pastor Vida, S.A. due to the sale of a 50% stake
and the transfer of control of the Company and its transfer to the category of
associated companies due to the remaining 50% stake held (Notes 5.2 and 17.1).
5.2. Associates and jointly controlled entities
2011:

Derecognition of the company Crecientta Galicia, S.L due to its liquidation.

Sale of the entire stake in the company EON Pastor Renovables, S.L.
 Transfer of the company Pastor Participadas 2, S.L. to the subsidiary category
due to the increase in the interest held (in 2010 this company was called
Ventogenera, S.L. and it was classified as an associated company) (Note 5.1).
2010:
 Addition of the company Pastor Vida, S.A. due to the transfer from the subsidiary
category of the remaining 50% stake held (Note 5.1).
 Addition of the company Nuevo Ágora Centro de Estudios, S.L. due to the
acquisition of a 30.9% interest.
 Addition of the company Puertos Futuros, S.L. due to the acquisition of a 49.0%
interest.
 Addition of the company Amarres Deportivos, S.L. due to the acquisition of
40.9% (3.3% direct shareholding and a 37.6% indirect stake through Puertos
Futuros, S.L.).

Sale of the company Moura Consulting, S.L.
 Transfer of the company Fotovoltaica Monteflecha, S.A. from jointly controlled
companies to associated companies.
6. BUSINESS SEGMENT REPORTING
The Group's most relevant activities, classified by business segments, are as
follows: Retail banking (the Group's primary business) and other activities (property
development, mainly) segmentation used for management purposes.
In 2010 the Group ceased to carry out insurance activities as a result of the sale of
50% of the interest held in Pastor Vida, S.A. and control was lost (company through
which the Group carried out that activity).
The breakdown of total consolidated assets by business segment for 2011 and
2010 is, respectively: retail banking 99.05% and 99.03% and other activities 0.95%
and 0.97% respectively.
A summarized balance sheet and income statement broken down by business
segment at 31 December 2011 and 2010 is as follows:
67
Thousand euro
OPERATIONS
OTHER
RETAIL BANKING
BALANCE SHEET
OTHER
OPERATIONS
CONSOLIDATED
2010
RETAIL BANKING
BALANCE SHEET
CONSOLIDATED
2011
ASSETS
Cash o n hand and o n depo sit at
central banks
432.215
432.202
13
283.834
283.833
1
Held fo r trading
177.409
177.409
---
207.375
207.375
---
Other financial assets at fair value
thro ugh pro fit o r lo ss
193.952
193.952
577.650
577.650
---
A vailable-fo r-sale financial assets
Lo ans and disco unts
Held-to -maturity po rtfo lio
Changes in the fair value o f hedged
items in po rtfo lio o f hedges o n interest
rate risk
Hedging derivatives
No n-current assets held fo r sale
Shareho ldings
Insurance co ntracts linked to pensio ns
A ssets held fo r reinsurance
P ro perty, plant and equipment
2.542.147
2.541.262
885
1.749.832
1.748.949
883
22.109.232
22.081.527
27.705
23.533.832
23.506.764
27.068
2.079.066
2.079.066
---
2.031.689
2.031.689
---
20.615
20.615
---
10.121
10.121
---
102.095
102.095
---
154.068
154.068
---
1.352.943
1.352.918
25
1.069.425
1.068.402
1.023
104.162
104.056
106
102.653
101.982
671
21.583
21.583
---
25.442
25.442
---
---
---
---
---
---
---
166.640
166.206
434
182.474
181.288
1.186
28.999
28.889
110
25.602
25.465
137
Tax assets
282.915
277.467
5.448
279.926
274.309
5.617
Other assets
761.914
507.287
254.627
900.775
636.476
264.299
30.375.887
30.086.534
289.353
31.134.698
30.833.813
300.885
Held fo r trading
122.188
122.188
---
76.663
76.304
359
Other financial liabilities at fair value
thro ugh pro fit o r lo ss
184.906
184.906
---
489.633
489.633
---
28.094.139
27.881.240
212.899
28.730.489
28.476.204
254.285
---
---
---
106.121
---
69.112
69.112
---
Intangible assets
TOTAL ASSETS
L I AB I L I TI ES
Financial liabilities at amo rtised co st
Changes in the fair value o f hedged
items in po rtfo lio o f hedges o n interest
rate risk
Hedging derivatives
--106.121
2.485
2.485
---
2.761
2.761
---
P ro visio ns
74.505
71.368
3.137
105.476
103.600
1.876
Tax liabilities
22.356
21.087
1.269
15.551
15.427
124
Insurance co ntract liabilities
Other liabilities
TOTAL LIABILITIES
TOTAL EQUITY
TOTAL EQUITY AND
LIABILITIES
46.579
46.355
224
38.892
38.885
7
28.653.279
28.435.750
217.529
29.528.577
29.271.926
256.651
1.722.608
1.650.784
71.824
1.606.121
1.561.887
44.234
30.375.887
30.086.534
289.353
31.134.698
30.833.813
300.885
68
Thousand euro
A) INTEREST MARGIN
Return o n equity instruments
Results in entities measured under the
equity metho d
425.405
431.334
(5.929)
469.434
476.631
1.810
1.783
27
3.964
3.964
OTHER
OPERATIONS
RESULTS OF
RESULTS OF
RETAIL BANKING
RESULTS
CONSOLIDATED
OPERATIONS
RESULTS OF
OTHER
2010
RETAIL BANKING
RESULTS OF
RESULTS
CONSOLIDATED
2011
(7.197)
---
5.615
5.615
---
3.554
3.554
---
Net fees and co mmissio ns
94.651
93.651
1.000
126.781
125.435
1.346
Inco me o n financing o peratio ns (net)
98.605
98.605
---
119.012
119.062
(50)
2.684
2.684
---
5.477
5.477
---
Other o perating inco me and expenses
(net)
B) GROSS MARGIN
A dministrative expenses
A mo rtisatio n/ Depreciatio n
P ro visio ns (net)
20.707
8.574
12.133
24.094
11.472
12.622
649.477
642.246
7.231
752.316
745.595
6.721
356.791
347.322
9.469
356.199
346.593
9.606
27.114
26.984
130
28.291
28.073
218
114.108
112.868
1.240
270.110
270.370
(260)
151.464
155.072
(3.608)
97.716
100.559
(2.843)
(90.304)
(86.614)
(3.690)
(84.344)
(73.941)
(10.403)
61.160
68.458
(7.298)
13.372
26.618
(13.246)
9.032
7.767
1.265
(12.471)
(12.625)
154
52.128
60.691
(8.563)
25.843
39.243
(13.400)
---
---
36.930
36.930
52.128
60.691
62.773
76.173
C) PROFIT/(LOSS) FROM
OPERATING ACTIVITIES
Other pro fit/(lo ss) net
Co rpo rate inco me tax
E) PRIOR YEAR RESULTS FROM
CONTINUING OPERATIONS
P ro fit /(lo ss) fro m disco ntinued
o peratio ns (net)
---
---
F) CONSOLIDATED PROFIT/(LOSS)
FOR THE YEAR
(8.563)
(13.400)
Given that the Group carries out virtually all its activity in Spain and its customer
base is homogeneous across the whole country, the Group considers that it
operates in a single geographic segment.
69
7. DIRECTORS AND SENIOR EXECUTIVES
COMPENSATION
7.1. Bylaw-stipulated directors' emoluments
The detail of compensation paid to the Bank’s directors based on the agreements in
force for 2011 and 2010 excluding salaries earned by directors also discharging
executive responsibilities is as follows:
Thousand euro
Fixed
Attendance
remuneration allowance TOTAL 2011 TOTAL 2010
Directors at 31/12/2011:
Mr José María Arias Mosquera
50
45
95
Mr Jorge Gost Gijón
50
45
95
89
Mr José Luis Vázquez Mariño
50
52
102
110
Mr Marcial Campos Calv o-Sotelo
50
83
133
116
Mr Fernando Díaz Fernández
50
51
101
99
Mr José Arnau Sierra
50
48
98
99
Mr Gonzalo Gil-García
50
78
128
107
Mr José Gracia Barba
13
10
23
--
Mr Oscar García Maceiras
13
27
40
--
Former directors
64
76
140
212
440
515
955
921
TOTAL
89
7.2. W ages and salaries
The total salaries earned in 2011 by Bank directors discharging executive
responsibilities came to EUR 1,629 thousand in fixed compensation. The Executive
Directors did not receive any variable compensation in 2011.
The total salaries earned in 2010 by Bank directors discharging executive
responsibilities came to EUR 1,424 thousand in fixed compensation. The Executive
Directors did not receive any variable compensation in 2010.
7.3. Director compensation deriving from the Bank’s
equity holdings in other companies
No compensation deriving from equity holdings in other companies was paid to the
Bank’s Directors in 2011 and 2010.
7.4. Pension, insurance and other commitments
Actuarial liabilities recognised in respect of post-employment benefits accrued by
current and former Directors at 31 December 2011 were valued at approximately
EUR 28,026 thousand (EUR 26,233 thousand at 31 December 2010) with a
corresponding charge to the 2011 income statement of approximately EUR 3,952
thousand (EUR 1,038 thousand in 2010).
In 2011, post-employment benefits were paid out of previously constituted funds to
1 current Bank Director and former Bank Directors for a gross total of EUR 1,302
thousand gross (EUR 1,689 thousand were paid in 2010 to 2 current Directors and
former Directors).
As well as post-employment benefits, some of the current and former Bank directors
are beneficiaries or holders of insurance policies, paid by the Bank. The
corresponding charge to the 2011 income statement was EUR 596 thousand (EUR
106 thousand in 2010).
70
There are no share-based payments made to Directors.
7.5. Loans, prepayments and guarantees
At 31 December 2011 the Group's direct risks with respect to Bank Directors totalled
EUR 1,029 thousand (EUR 624 at 31 December 2010).
At 31 December 2011 the Group had not granted any guarantees to Bank Directors.
At 31 December 2010 the balance under this heading totalled €7 thousand.
All the transactions that gave rise to these items were carried out on an arm’s length
basis.
7.6. Senior executive compensation
Compensation paid to the Bank’s General Managers and persons discharging
similar responsibilities – excluding managers that are also members of the Board of
Directors (whose compensation is set out above) – amounted to approximately EUR
925 thousand in 2011 (EUR 1,777 thousand in 2010).
Actuarial liabilities recognised in respect of post-employment benefits accrued by
these managers and being paid to those that held these positions in the past were
valued at approximately EUR 6,323 thousand at 31 December 2011 (EUR 6,361
thousand at 31 December 2010) with a corresponding charge to the 2011 income
statement of approximately EUR 141 thousand (EUR 214 thousand in 2010).
In 2011, post-employment benefits were paid out of previously constituted funds to
three former General Managers and other former senior executives totalling
approximately EUR 485 thousand gross (3 former Bank Generral Managers and
senior executives totaling EUR 484 thousand in 2010).
No insurance policies, loans, guarantees or share-based payments exist with
respect to 2011 and 2010.
The number of persons making up the Bank’s senior management team, at 31
December 2011 and 2010, is 5 and 8 respectively.
In 2011 and 2010 no transactions were carried out that are not included within the
Group's ordinary course of business.
8. CASH AND DEPOSITS AT CENTRAL BANKS
The detail of this item on the consolidated balance sheet at 31 December 2011 and
2010 is as follows:
Thousand euro
2011
2010
Cash
120.027
133.197
Deposits at the Bank of Spain
262.961
95.584
Deposits at other central banks
49.227
55.053
432.215
283.834
TOTAL
At 31 December 2011 and 2010 the average effective interest rate for the assets
included under this heading was 0.87% and 0.64%, respectively.
Note 30 describes the fair value of these financial assets.
Note 31 presents information regarding the credit risk assumed by the Bank with
respect to these financial assets.
71
9. FINANCIAL ASSETS AND LIABILITIES HELD FOR
TRADING:
9.1. Breakdown
The breakdown by type of instrument of these consolidated balance sheet items at
31 December 2011 and 2010 is as follows:
Thousand euro
2011
DEBTOR
Debt securities
5.102
Equity instruments
TOTAL
2010
CREDITOR
---
DEBTOR
CREDITOR
110.446
---
156
---
3.680
---
172.151
122.188
93.249
76.663
177.409
122.188
207.375
76.663
The net balance recognised under “Gains/(losses) on financial asset and liabilities
(net) – Held for trading” on the income statement is a profit of EUR 31,190 thousand
in 2011 and a gain of EUR 43,418 thousand in 2010 (Note 39).
9.2. Debt securities
At 31 December 2011 and 2010, the detail of this heading by instrument and
counterparty is as follows:
Thousand euro
2011
Spanish government debt
· Treasury bills
· Book entry debt
Non-resident public administrations
TOTAL
2010
4.831
110.446
---
46.392
4.831
64.054
271
---
5.102
110.446
Movements in this balance sheet heading in 2011 and 2010 were as follows:
Thousand euro
Balance at start of the year
2011
2010
110.446
2.322.817
Additions
41.745
821.565
Disposals
(106.952)
(2.455.418)
(40.137)
(578.518)
5.102
110.446
Redemption
Balance at year end
All the securities included under this heading of the accompanying balance sheets
are listed on organised markets.
9.3. Equity instruments
The detail of this heading is as follows:
Thousand euro
2011
2010
Shares in Spanish companies
156
Shares in foreign companies
---
807
TOTAL
156
3.680
2.873
72
Movements in this balance sheet heading in 2011 and 2010 were as follows:
Thousand euro
2011
2010
3.680
2.109
Additions
26.289
32.825
Disposals
(29.813)
(31.254)
156
3.680
Balance at year end
All the securities included under this heading of the accompanying balance sheets
are listed on organised markets.
9.4. Trading derivatives
The tables below show the detail, by type of risk exposure and by whether or not
they are traded on an organised market, of the fair value of the trading derivatives
outstanding at the Group at 31 December 2011 and 2010.
2010
Creditor
balance
balance
FAIR VALUES
Debtor
Creditor
balance
balance
N OTIONA
L
VALUES
FAIR VALUES
Debtor
N OTIONA
L
VALUES
2011
EXCHANGE RISK
17.941
2.673
777.827
2.056
8.481
670.135
NON-ORGANISED MARKETS
17.941
2.673
777.827
2.056
8.481
670.135
17.941
2.673
777.827
2.056
8.465
668.647
17.903
101
715.999
1.651
8.170
638.375
36
2.572
61.166
405
295
30.272
Forward transactions
Purchases
Sales
Purchases of foreign currency against foreign
currency
2
---
662
---
---
---
---
---
---
---
16
1.488
140.790
106.505
8.962.156
73.252
51.278
7.665.925
---
---
102.091
9
9
20.200
---
---
102.091
---
---
Purchased
---
---
50.000
---
---
---
Sold
---
---
52.091
---
---
7.000
Options
---
---
---
9
9
13.200
Sold
---
---
---
9
9
13.200
140.790
106.505
8.860.065
73.243
51.269
7.645.725
133.382
99.265
7.024.061
68.588
45.556
5.993.737
7.408
7.240
1.836.004
4.655
5.713
1.651.988
7.408
---
829.509
4.655
---
802.605
---
7.240
1.006.495
---
5.713
849.383
13.420
13.010
92.357
17.941
16.904
161.244
---
---
---
550
356
27.467
---
---
---
---
---
1.383
---
---
---
---
---
1.383
---
---
---
550
356
26.084
---
---
---
550
---
8.904
Swaps
INTEREST RISK
ORGANISED MARKETS
Financial futures
Swaps
Options
Purchased
Sold
SHARE RISK
ORGANISED MARKETS
Financial futures
Purchased
Options
Purchased
Sold
Options
Purchased
Sold
TOTAL
7.000
---
---
---
---
356
17.180
13.420
13.010
92.357
17.391
16.548
133.777
13.420
13.010
92.357
17.391
16.548
133.777
879
171
59.361
4.390
3.026
81.861
12.541
12.839
32.996
13.001
13.522
51.916
172.151
122.188
9.832.340
93.249
76.663
8.497.304
73
The table below breaks down the notional values by terms to maturity:
Thousand euro
2011
2010
Up to 1 y ear
3.339.880
2.128.678
3.681.823
3.732.552
More than 5 y ears
2.810.637
2.636.074
9.832.340
8.497.304
TOTAL
At 31 December 2011 there are collateral assets received to secure risk positions
totalling EUR 97,700 thousand (EUR 79,360 thousand at 31 December 2010) which
are recognised under the heading "Deposits at credit institutions" in the
accompanying consolidated balance sheet.
The deposits provided to secure positions total EUR 49,603 thousand at 31
December 2011 (EUR 43,,557 thousand at 31 December 2010) are recognised
under the heading "Deposits at credit institutions" in the accompanying consolidated
balance sheet.
The notional and/or contract amounts of the contracts arranged do not reflect the
actual risk taken by the Group.
In the case of trading derivatives sold to customers and acquired from
counterparties for a profit, the Group accrues the related proceeds/expenses
through maturity of the transaction. The amount recognised for this item in the 2011
income statements is EUR 931 thousand (2010: EUR 1,000 thousand}, recognised
under “Gains/(losses) on financial asset and liabilities (net) – Held for trading”, and
the amount pending recognition is EUR 369 thousand at 31 December 2011 (EUR
1,300 at 31 December 2010), included under “Other liabilities – Other accrued
expenses”.
The Group manages the credit risk exposure deriving from these contracts by
maintaining framework agreements with the main counterparties and in some cases
cash deposits are received as collateral for the risk positions, and some have
established "netting" agreements.
In Note 31 information is given on the credit risk assumed by the Group in relation to
those financial assets, as well as information on market risk and liquidity risk
assumed in relation to the financial assets included in this category.
10. OTHER FINANCIAL ASSETS AT FAIR VALUE THROUGH
CHANGES IN PROFIT OR LOSS
The breakdown by type of instrument of this heading in the consolidated balance
sheet items at 31 December 2011 and 2010 is as follows:
Thousand euro
2011
Debt securities
Equity instruments
TOTAL
2010
193.952
575.116
---
2.534
193.952
577.650
74
At 31 December 2011 and 2010, the detail of this heading by instrument,
counterparty and listed price is as follows:
Thousand euro
2011
2010
BY SECTOR AND NATURE
2.251
12.880
Treasury bills
2.251
12.880
Credit institutions
4.212
68.174
4.212
68.174
Other sectors
Resident
187.489
494.062
Resident
187.489
494.062
193.952
575.116
193.952
575.116
BY LISTING
Unlisted
TOTAL
At 31 December 2011 this balance includes an amount relating to the bonds backed
by mortgages issued by the Bank, with a nominal total value of EUR 200,000
thousand (EUR 500,000 thousand at 31 December 2010) (Note 22).
Movements in these bonds that took place in 2011 and 2010 are as follows:
Thousand euro
2011
Additions
Amortisation
Balance at year end
2010
575.116
1.003.904
---
25.368
(381.164)
(454.156)
193.952
575.116
The bonds subscribed by the Bank and mortgage bonds issued are classified in the
category of “Other financial assets at fair value through profit or loss” and “Other
financial liabilities at fair value through profit and loss” respectively, to avoid
information asymmetries. Variations in the fair value of these assets are offset
against the corresponding liabilities, so that in the income statement the net impact
is cancelled out.
The other items making up the balance of this heading at year-end 2011 and 2010
relate to assets included in fair value hedges.
Note 29 shows financial instruments classified by residual maturity periods at 31
December 2011 and 2010.
Note 31 contains information on the Group’s exposure to the credit risk associated
with the financial assets included in this category.
75
At 31 December 2011 this consolidated balance sheet heading presented a balance
of zero. The detail of this heading is as follows at 31 December 2010:
Thousand euro
2010
2.308
226
LISTED/UNLISTED
Listed
2.534
TOTAL
2.534
Thousand euro
2011
2010
575.116
Additions
1.003.904
---
Amortisation
25.368
(381.164)
(454.156)
193.952
575.116
Balance at year end
11. AVAILABLE-FOR-SALE FINANCIAL ASSETS
11.1. Breakdown
The breakdown by type of instrument of this heading in the accompanying
consolidated balance sheets at 31 December 2011 and 2010 is as follows:
Thousand euro
2011
Debt securities
2.499.173
Equity instruments
TOTAL
2010
1.696.894
42.974
52.938
2.542.147
1.749.832
At 31 December 2011 and 2010 all debt securities included in this heading are
traded securities.
Assets classified as “Available-for-sale financial assets” are measured at fair value,
calculated as follows:
 Sovereign debt issued by Spanish and foreign public authorities based on
published prices on financial markets.
 Fixed income securities issued by banks and other private sector issuers based
on their secondary market prices.
 The fair value of non listed debt securities is determined using the methods
explained in Note 2.1.3.
 Listed equity instruments, based on quoted prices on official securities markets,
except for unlisted shares, based on the carrying amount as per the most recent
available financial statements as the best estimate of impairment loss.

Certain swaps for certain debt instruments have been designated to be
accounting hedges (Note 15).
Note 29 (“Remaining term to maturity of transactions”) details the maturity schedule
for the most significant assets under this entry on the balance sheet.
76
At 31 December 2011 and 2010, the detail of this heading by and counterparty and
listing is as follows:
Thousand euro
2011
2010
2.499.360
1.697.886
1.088.395
66.244
Treasury bills
76.025
5.790
Book entry debt
969.699
11.663
Other securities
42.671
48.791
Non-resident public administrations
Credit institutions
Resident
330
---
1.284.167
1.467.592
1.223.157
1.325.633
61.010
141.959
Other sectors
Non-resident
126.468
164.050
Resident
118.228
156.297
8.240
7.753
BY LISTING
2.499.360
1.697.886
Listed
2.113.733
330.539
385.627
1.367.347
(187)
(992)
2.499.173
1.696.894
Non-resident
Unlisted
Less: Value adjustments
TOTAL
The table below depicts the gross changes in this balance sheet heading in 2011
and 2010:
Thousand euro
2011
2010
1.697.886
2.605.336
Additions
1.540.191
3.796.752
Disposals
(614.774)
(2.652.575)
Amortisation
(123.943)
(1.557.956)
Transfers (Note 13.1)
Balance at year end
---
(493.671)
2.499.360
1.697.886
The transfers in 2010 relate to the reclassification of debt securities recorded under
the heading "Financial assets available for sale" to "Investment portfolio to be held
to maturity", as a result of a change in the intention to maintain these securities until
maturity. These securities were transferred at fair value at the transfer date, which
was converted to their amortised cost.
77
At 31 December 2011 and 2010, the detail of this heading by counterparty and
listing is as follows:
Thousand euro
2011
2010
62.372
68.131
46.759
49.490
1.529
4.419
14.084
14.222
BY LISTING
62.372
68.131
Listed
17.237
20.683
Unlisted
45.135
47.448
(19.398)
(15.193)
42.974
52.938
Inv estment fund units
Less: Value adjustments
TOTAL
The table below depicts the gross changes in this balance sheet heading in 2011
and 2010:
Thousand euro
2011
2010
68.131
118.524
Additions
13.952
15.851
Disposals
(19.711)
(66.244)
62.372
68.131
Balance at year end
The main disposals in 2010 relate to the sale of the company RCable
Telecomunicaciones Galicia, S.A. for €27,510 thousand, on which capital gains
totalling €17,093 thousand were obtained and Regasificadora del Noroeste, S.A.,
for €2,324 thousand, on which a profit of €2,309 thousand was obtained (Note 39).
11.4. Impairment losses
The table below summarises the movements that affected the provisions covering
impairment losses on these items over 2011 and 2010:
Thousand euro
2011
BALANCE AT START OF THE YEAR
Net transfers (applications) by charge to results:
2010
16.185
19.405
3.270
(2.186)
Determined indiv idually
4.080
577
Determined collectiv ely
(810)
(2.763)
---
(1.526)
Funds used
Ex change differences
Transfer betw een funds and other
5
---
125
492
19.585
16.185
Of w hich: Determined indiv idually
19.398
15.193
Of w hich: Determined collectiv ely
187
992
BALANCES AT THE END OF THE YEAR
BY INSTRUMENT TYPE
Debt securities
187
992
Equity instruments
19.398
15.193
TOTAL IMPAIRMENT LOSSES
19.585
16.185
78
In 2011 and 2010 direct write-offs have been applied to reduce the value of
investments in equity instruments by EUR 4,508 thousand and EUR 4,007
thousand, respectively.
12. LOANS AND RECEIVABLES
12.1. Breakdown
At 31 December 2011 and 2010 the detail of this balance sheet heading by type of
financial instrument is as follows:
Thousand euro
2011
Customer loans
Debt securities
TOTAL GROSS
Less: Impairment losses
TOTAL NET
2010
319.974
847.596
21.650.100
22.401.533
856.750
1.034.100
22.826.824
24.283.229
(717.592)
(749.397)
22.109.232
23.533.832
Note 29 details the maturity schedule for the items making up these headings in the
consolidated balance sheets.
Note 32.4 sets out the main details of the asset securitisation transactions carried
out by the Group and still outstanding at 31 December 2011 and 2010.
12.2. Bank deposits
The detail of this balance sheet heading at 31 December 2011 and 2010 is as
follows:
Thousand euro
2011
2010
By type and credit status
On demand
Other accounts
Other deposits
Fix ed-term deposits
Temporary acquisitions of assets
Measurement adjustments
TOTAL
139.040
174.617
139.040
174.617
180.934
672.979
181.383
187.670
---
486.326
(449)
(1.017)
319.974
847.596
178.237
660.358
By geographical area
Spain
European Union (ex cluding Spain)
Rest of the w orld
TOTAL
12.351
33.082
129.835
155.173
(449)
(1.017)
319.974
847.596
The credit rating awarded to the entities holding these deposits by recognised credit
rating agencies, is mainly “A” or higher. The average effective interest rate on debt
securities classified as deposits with credit institutions at 31 December 2011 and
2010 was 3.57% and 2.89% respectively.
79
12.3. Customer loans
The table below breaks down the balance of this entry, without allowing for any
impairment losses, based on the type and status of the transactions, the borrower’s
sector of activity, the geographical area in which they are resident and the type of
interest rate levied on the transactions:
Thousand euro
2011
2010
By nature
Trade credit
Secured loans
Temporary acquisitions of assets
1.006.187
1.028.735
14.051.314
13.938.802
---
41.339
5.098.699
5.774.491
Demand loans and other
871.809
829.515
Finance leases
526.545
714.541
95.546
74.110
21.650.100
22.401.533
Other term loans
Other v aluation adjustments
TOTAL
By sector of borrower activity
Spanish Public Administrations
Resident sector
Non-resident sector
TOTAL
621.631
532.134
20.689.906
21.477.576
338.563
391.823
21.650.100
22.401.533
21.125.854
21.831.047
206.282
242.795
By geographical area
Spain
European Union (ex cluding Spain)
USA and Puerto Rico
Rest of the w orld
TOTAL
73.054
86.196
244.910
241.495
21.650.100
22.401.533
1.020.259
4.427.918
20.629.841
17.973.615
21.650.100
22.401.533
By type of interest rate
At a fix ed interest rate
At a v ariable interest rate
TOTAL
The average effective interest rate on debt securities classified as customer loans at
31 December 2011 was 3.96% (3.79% at 31 December 2010).
At 31 December 2011 and 2010, real guarantees on balances included under this
entry (excluding those guaranteed by financial institutions) as detailed in Note
31.1.6 total EUR 14,147,760 and EUR 14,928,695 thousand, respectively.
The information regarding impaired debt instruments relating to this heading is
indicated in Note 31.1.8.
80
follows:
Thousand euro
2011
Credit institutions
2010
457.606
634.680
382.057
509.255
75.549
125.425
Other sectors
398.674
397.817
Resident
398.674
397.817
---
---
Resident
Non-resident
Non-resident
Valuation adjustments
TOTAL
470
1.603
856.750
1.034.100
In 2011 and 2010 the Group acquired bonds which have been classified under
Loans and receivables since they are not traded on an active market, their cash
flows are of a determined amount and the full redemption amount is expected to be
recovered.
At 31 December 2011 and 2010 the heading "Debt securities - Other sectors"
records EUR 398,674 thousand and EUR 397,817, respectively, relating to
mortgage backed bonds issued for a nominal amount of EUR 400,000 thousand
(Note 23.4).
The table below shows the gross movements affecting this balance sheet item in
2011 and 2010:
Thousand euro
2011
Opening balance
2010
1.034.100
614.561
Additions
457.982
936.212
Disposals and redemption
(635.332)
(516.673)
856.750
1.034.100
Balance at year end
The average effective interest rate on debt securities classified as customer loans at
31 December 2011 was 3.08% (1.85% at 31 December 2010).
The changes in the balance of impairment losses on assets recognised under
“Loans and receivables” are as follows:
Thousand euro
2011
2010
BALANCEDS AT START OF THE YEAR
749.397
Net transfers determined indiv idually
222.726
463.697
Net transfers determined collectiv ely
(84.198)
(174.493)
(148.266)
(263.466)
909
94
Funds used
Changes in consolidation scope
Transfers betw een funds (Note 16.2)
Other mov ements net
BALANCES AT THE END OF THE YEAR
---
794.665
(74)
(23.670)
(68.390)
694
(2.636)
717.592
749.397
Of w hich: Determined indiv idually
695.557
643.191
Of w hich: Determined collectiv ely
22.035
106.206
717.592
749.397
TOTAL IMPAIRMENT LOSSES
81
The table below summarises changes in 2011 and 2010 under “Impairment losses –
Loans and receivables” on the consolidated income statement:
Thousand euro
2011
2010
Net transfers determined indiv idually
222.726
463.697
Net transfers determined collectiv ely
(84.198)
(174.493)
32.6)
(55.834)
(44.190)
Direct balance amortisation
35.100
38.434
TOTAL
117.794
283.448
Suspense account items recov ered (Note
Details of accrued and/or impaired assets is set out under Note 31.1.8.
13. HELD-TO-MATURITY INVESTMENTS
13.1. Breakdown
The detail, by instrument type, of this account of the consolidated balance sheet at
Thousand euro
2011
2010
By sector
Public authorities
1.795.667
1.730.556
Credit institutions
133.283
134.837
107.534
109.067
Resident
25.749
25.770
Other sectors
Non-resident
150.302
167.097
Resident
145.625
162.224
Non-resident
TOTAL GROSS
4.677
4.873
2.079.252
2.032.490
(186)
(801)
2.079.066
2.031.689
1.981.480
1.853.741
TOTAL NET
BY LISTING
Listed
Unlisted
TOTAL GROSS
97.772
178.749
2.079.252
2.032.490
(186)
(801)
2.079.066
2.031.689
TOTAL NET
Note 29 details the maturity schedule for the most significant held-to-maturity
investments.
The table below shows the gross movements affecting this balance sheet item in
2011 and 2010:
Thousand euro
2011
2010
2.032.490
757.232
Additions
173.253
855.009
Amortisation
(126.491)
Transfers (Note 11.2)
Balance at year end
(73.422)
---
493.671
2.079.252
2.032.490
The transfers in 2010 relate to the reclassifications indicated in Note 11.2.
82
The table below summarises the movements that gave rise to impairment losses in
these items over 2011 and 2010:
Thousand euro
2011
2010
801
2.251
(615)
(1.450)
(615)
(1.450)
Balance at year end
186
801
- Of w hich: Determined collectiv ely
186
801
TRANSFERS BY CHARGE TO RESULTS
Determined collectiv ely
14. ADJUSTMENTS TO FINANCIAL ASSETS FOR MACROHEDGES
At 31 December 2011 this balance sheet heading recorded EUR 20,615 thousand
(EUR 10,121 at 31 December 2010).
This balance relates to the fair value of the intrinsic value of acquired options
embedded in a group of loans granted by the bank ("loan floors") which, together
with the aforementioned loans, are hedged by a macro-hedge at fair value. These
loans comply with the requirements to be designate as hedged items.
The hedging instruments are interest rate options issued by the Bank to offset the
changes in the fair value of the hedged item (Note 15).
At 31 December 2010 the hedge was capitalised as as from that date the balance of
this heading is attributed to the income statement over the term of the hedge at the
effective interest rate concerned.
15. HEDGING DERIVATIVES (ASSETS AND LIABILITIES)
The tables below break down the fair value and notional value of trading derivatives
attributable to the Group at 31 December 2011 and 2010 by type of inherent risk
and according to whether or not they are traded on an organised market:
Debtor balance
balance
FAIR VALUES
Creditor
Debtor balance
balance
NOTIONA L
VALUES
Creditor
2010
NOTIONA L
VALUES
2011
FAIR VALUES
INTEREST RISK
102.095
106.121
7.065.721
154.068
69.112
8.098.648
102.095
106.121
7.065.721
154.068
69.112
8.098.648
102.095
75.349
5.980.721
154.068
48.749
7.013.648
Options
---
30.772
1.085.000
---
20.363
1.085.000
Sold
---
30.772
1.085.000
---
20.363
1.085.000
102.095
106.121
7.065.721
154.068
69.112
8.098.648
Swaps
TOTAL
Under the framework of its general risk policy the Group uses certain financial
instruments, basically IRS and interest rate futures, to hedge interest rate risk on
certain fixed-income instruments on the asset side of the balance sheet and certain
borrowings and customer deposits on the liability side.
83
The options sold included in this heading are those hedging items relating to the
macro-hedge at fair value described in Note 14.
At 31 December 2011 and 2010 there were no cash flow hedges.
All these fair value hedges are arranged with the intention of mitigating risks or
protecting balance sheet items whose value is exposed to interest rate risk from
fluctuations in the market swap curves (changes in the risk-free interest rate).
The table below sets out the type of hedges used by the Group, the risks hedged
and the valuation criteria and methods used to measure their efficiency:
Risk hedged
Specific risk
Prospective effectiveness test
Retrospective effectiveness test
Recognition of hedged item
Recognition of hedge
Fair value hedge
Interest rate
Fixed interest rate of an asset/liability or a portfolio
of assets/liabilities
VaR and Sensitivity
Fair value
Income statement
Income statement
At 31 December 2011 there are collateral assets received to secure risk positions
totalling EUR 54,976 thousand (EUR 131,120 thousand at 31 December 2010)
which are recognised under the heading "Deposits at credit institutions" in the
accompanying balance sheet.
The deposits provided to secure positions totalling EUR 43,081 thousand at 31
December 2011 (EUR 39,451 thousand at 31 December 2010) are recognised
under the heading "Deposits at credit institutions" in the accompanying balance
sheet.
The table below breaks down the notional values by terms to maturity:
Thousand euro
2011
2010
Up to 1 y ear
2.530.000
1.446.000
4.444.508
6.561.270
91.213
91.378
7.065.721
8.098.648
More than 5 y ears
TOTAL
The notional and/or contract amounts of the contracts arranged do not reflect the
actual risk taken by the Group.
A number of financial swaps have been designated as fair value hedges with the
aim of mitigating, in full or in part, potential losses on bonds and equity instruments
classified as available-for-sale financial assets arising from changes in their market
value as a result of exposure to interest rate risk (Note 11). Fair value hedges are
also used to hedge the present value of debt issued by the Group and linked to
fixed interest rates and customer deposits in foreign currencies with rising interest
rates (Note 23).
All financial instruments designated as hedges have been arranged with a range of
counterparties, whose financial solvency is widely acknowledged and pursuant to
strict limits on the concentration of counterparty risk.
The Bank carried out interest swaps that involve payments received/(made) on a
quarterly basis against payments (received)/made on an annual basis. The
aforementioned quarterly payments received/(made) are recognised under the
heading "Other assets" or "Other liabilities" since they concern the apportionment of
certain amounts settled on account. At 31 December 2011 and 2010 the amount
included under "Other assets" totalled EUR 80,820 and EUR 110,198 thousand,
respectively (Note 21), and the figure recorded under “Other liabilities totalled EUR
29,959 and EUR 20,370 thousand, respectively (Note 26).
84
The amount recognised under “Gains/losses on financial assets and liabilities (net)”
in the accompanying 2011 income statement in relation to the effective portion of
hedging instruments and hedged items was EUR 77,473 thousand (EUR 20,301
thousand in 2010). In 2011 and 2010 the inefficiency of these hedges recognised in
the income statement totals EUR 114 thousand and EUR 770 thousand,
respectively (positive).
16. NON-CURRENT ASSETS FOR SALE
16.1. Breakdown and significant changes
The breakdown of the balance under this heading in the accompanying
consolidated balance sheets, at 31 December 2011 and 2010, is as follows:
Thousand euro
2011
Property , plant and equipment for ow n use
2010
25
1.023
Foreclosure assets:
60.768
42.691
1.666.859
1.312.358
Total gross
1.727.652
1.356.072
(374.709)
(286.647)
Total net
1.352.943
1.069.425
Other property , plant and equipment
Impairment losses
At 31 December 2011 and 2010 the balances classified as foreclosed assets in the
above table includes assets foreclosed in satisfaction of debts. Impairment losses
relate in full to this asset category.
Assets foreclosed in satisfaction of debts are carried at an amount equal to the net
carrying value of the corresponding debt at the time of foreclosure or at the fair
value of the asset less costs to sell, where this is smaller. These assets are held-forsale assets, where their sale is considered highly probable. For the majority of these
assets the sale is expected to be completed within one year of the date the asset
was classified as a non-current asset held for sale.
At 31 December 2011 and 2010, the fair value of the foreclosed assets was EUR
1,939,722 and EUR 1,560,202 thousand, respectively. This is calculated based on
appraisal values determined by specialist appraisal companies registered with the
Bank of Spain.
Appraisal companies mainly use the valuation methods established in Order
ECO/805/2003, dated 27 March, on the appraisal of real estate assets and certain
rights for financial purposes. These methods are the following:
- Cost Method
- Comparison Method
- Present value of income Method
- Residual Method
The classification of these assets by type at 31 December 2011 and 2010 is as
follows:
Thousand euro
2011
2010
Residential property
991.652
782.633
Industrial property
343.192
282.517
Rural property
Mov eable property
Total net
15.488
666
2.586
2.586
1.352.918
1.068.402
85
The reclassifications recognised under this heading in the balance sheet for 2011
and 2010 are detailed below:
Thousand euro
2011
2010
1.356.072
1.072.389
Included during the y ear
389.958
415.619
Disposals
(51.474)
(55.486)
Transfers from / to inv entories (Note 21)
33.096
(80.398)
Transfers of property , plant and equipment for
ow n use
Balance at year end
---
3.948
1.727.652
1.356.072
Transfers between this heading and "Inventories" relate to foreclosed properties
whose use (sale or management and real estate promotion) was modified with
respect to its initial classification.
In 2010 the transfers from the heading "Property, plant and equipment" relate to
assets (net of depreciation) that were reclassified when the decision to sell them
was taken. These assets were sold in 2010, generating a profit of EUR 4,444
thousand (Note 45).
Movements in impairment losses during 2011 and 2010 are set out below:
Thousand euro
2011
Transfers for the y ear (Note 45)
286.647
151.323
62.884
66.125
---
---
23.670
68.390
1.508
809
374.709
286.647
Funds used
Transfers of funds (Note 12.5)
Balance at year end
2010
17. INVESTMENTS
17.1. Investments in associates
Appendix X details the investments in companies considered to be associates by
the Group at 31 December 2011 and 2010, and the most significant are as follows:
Thousand euro
2011
2010
Pastor Vida, S.A.
58.841
57.079
Nuev o Ágora Centro de Estudios, S.L.
25.639
25.000
Ronáutica Marinas Internacional, S.A.
4.663
4.632
Other shareholdings
Total gross
Total net
2.534
2.850
91.677
89.561
---
---
91.677
89.561
86
The reclassifications under this heading in 2011 and 2010 are summarised as
follows:
Thousand euro
2011
Opening balance
2010
89.561
16.307
737
25.084
Additions
Disposals
(89)
(253)
Div idends receiv ed
(3.113)
(11)
Allocation of results
5.150
3.208
---
33.802
(569)
11.424
91.677
89.561
Restatements
Transfers and others
Closing balance
Additions in 2011 mainly relate to the capitalization of the acquisition cost of the
shareholding in the company Nuevo Ágora Centro de Estudios, S.L. at the end of
2010.
Disposals in 2011 relate to the sale of the shareholdings in the companies Crecentia
Galicia, S.L. and Eon Pastor Renovables, S.L.
Additions in 2010 relate mainly to the acquisition of a 30.9% stake in the company
Nuevo Ágora Centro de Estudios, S.L., which represented an investment totalling
€25,000 thousand.
Disposals in 2010 relate to the collection of a share premium refunded to an
associated company.
The transfers recognised in 2010 relate mainly to a €20,164 thousand increase in
this heading due to the reclassification of the shareholding maintained in Pastor
Vida, S.A. (50%) after the sale of the remaining 50%, through which control was lost
in 2010 and the transfer from this heading to "Shareholdings in multigroup
companies" totalling €8,982 thousand due to the reclassification of the shareholding
in the company Fotovoltaica Monteflecha, S.L. (Note 17.2).
The restatements in 2010 totalling €33,802 thousand relate to the fair value
measurement of the aforementioned 50% retained stake in Pastor Vida, S.A., with a
balancing entry under the heading ¨Gasin on the disposal of assets not classified as
non-current assets for saleïn the income statement for 2010 (Note 44). This
restatement gave rise to implicit goodwill that will be subjected to impairment tests
at least on an annual basis.
Note 47 shows a breakdown of the most significant transactions that these
companies made with the Group.
17.2. Investments in jointly controlled entities
Appendix IX provided details of the Group’s investments in companies classified as
jointly controlled at 31 December 2011 and 2010, which are as follows:
Thousand euro
2011
S.A. Internacional de Terrenos y Edificios
Saite Cobal, S.A.
Fotov oltaica Monteflecha, S.L.
Total gross
Total net
2010
4.277
4.076
---
423
8.208
8.593
12.485
13.092
---
---
12.485
13.092
87
Movements in tnhis heading in 2011 and 2010 are summarised below:
Thousand euro
2011
Opening balance
2010
13.092
16.783
Additions
---
Disposals
---
(11.727)
465
346
Allocation of results
Closing balance
---
(1.072)
7.690
12.485
13.092
Disposals in 2010 relate to the sale of the shareholding in the company Moura
Consulting, S.L., which gave rise to a gain of €3,014 thousand and recognised
under the heading "Gasin on the sale of shareholdings" in the income statement for
2010 (Note 44).
The main item included under the heading "Transfers and others" in 2010 relates to
the reclassification of the shareholding in the company Fotovoltaica Monteflecha,
S.L. from the heading "Shareholdings in associated companies" totalling EUR 8,982
thousand (Note 17.1).
Note 47 shows a breakdown of the most significant transactions that these
companies made with the Group.
18. INSURANCE POLICIES ASSOCIATED WITH PENSIONS
At 31 December 2011 this consolidated balance sheet heading presents a balance
of EUR 21,583 thousand (EUR 25,442 thousand at 31 December 2010), which
relates to the value of the pension commitments covered by insurance policies
obtained from the associated company Pastor Vida, S.A. (50% stake held).
These assets have been assigned to cover post-employment compensation and are
recognised under assets in the balance sheet at the value of the commitments
covered by that policy, as calculated by qualified actuaries applying the criteria
indicated in Note 2.9 and under Liabilities in the same amount under the heading
Pension provisions (Note 25).
88
19. PROPERTY, PLANT AND EQUIPMENT
The changes in this item in the consolidated 2011 and 2010 balance sheets are as
follows:
Thousand euro
For own use
Other assets
Investment
assigned under
property
TOTAL
operating lease
(1) COST
Balances at 31 December 2009
344.153
36.156
34.210
414.519
Additions/ Disposals (net) due to change in scope of
(746)
---
---
(746)
12.200
243
---
12.443
Disposals
(2.104)
(4.125)
(658)
(6.887)
24.597
6.820
---
31.417
378.100
39.094
33.552
450.746
consolidation
Additions
---
---
---
---
Additions
10.456
184
---
10.640
Disposals
(8.050)
(2.106)
(463)
(10.619)
(1.441)
1.441
---
---
379.065
38.613
33.089
450.767
194.428
4.529
14.312
213.269
consolidation
2. (ACCUMULATED DEPRECIATION)
consolidation
(546)
(546)
---
---
Disposals
(1.093)
(556)
(435)
(2.084)
Transfers
21.589
425
121
22.135
29.439
5.926
---
35.365
243.817
10.324
13.998
268.139
consolidation
---
---
---
---
Disposals
(3.816)
(99)
(347)
(4.262)
Transfers
19.750
374
40
20.164
(82)
82
---
---
259.669
10.681
13.691
284.041
(71)
(62)
---
(133)
---
(62)
(24)
(86)
134.212
28.708
19.554
182.474
119.396
27.870
19.374
166.640
(3) VALUE ADJUSTMENTS
(4) PROPERTY, PLANT AND EQUIPMENT NET (1)(2)-(3)
89
19.1. Property, plant and equipment for own use
The breakdown, by type of asset, of the balance of this entry at 31 December 2011
and 2010 in the consolidated balance sheets is as follows:
Thousand euro
Cost
Computer equipment and facilities
Furniture, v ehicles and rest of installations
Buildings
Accumulated
Impairment
depreciation
losses
Net balance
89.366
(76.849)
(71)
12.446
210.956
(148.785)
---
62.171
76.638
(17.444)
---
59.194
Work in progress
244
---
---
244
Other
896
(739)
---
157
378.100
(243.817)
Computer equipment and facilities
92.647
(82.034)
210.800
(158.748)
---
52.052
74.507
(18.127)
Furniture, v ehicles and rest of installations
(71)
134.212
10.613
---
56.380
Work in progress
180
---
---
180
Other
931
(760)
---
171
379.065
(259.669)
---
119.396
Buildings
The net balance of property, plant and equipment at 31 December 2011, as shown
in the table above, includes approximately EUR 241 thousand (EUR 278 thousand
at 31 December 2010) corresponding to property owned by Group branches located
in foreign countries.
At 31 December 2011 and 2010, the gross amount of property, plant and equipment
for own use that was fully depreciated totalled EUR 154,006 and EUR 134,533
In 2010 and 2009 the Group sold a group of properties that it used in its operations
that previously had been reclassified to the heading "Non-current assets for sale". At
the same time each of the properties was sold, operating leases were concluded for
these premises for a mandatory term of 20 years, plus four 5-year renewals that are
mandatory for the lessor and voluntary for the lessee. These agreements establish
an annual revision in accordance with the inflation rate and rent updates to market
levels at several moments during the term of the lease. Most of the leases contain
market value repurchase options that may be exercised by the Group when the
lease expires. The Group was advised by an independent expert of recognised
prestige who concluded that both the selling prices and rent paid on the leases are
in line with market conditions.
At 31 December 2011 and 2010 the present value of the future payments for the
long-term operating leases that the group will incur during the mandatory lease term
of 20 years, considering that the additional renewals will not be exercised, totals
EUR 158,794 thousand (EUR 167,767 thousand at the end of 2010), of which EUR
19,084 thousand will arise within one year. The present value of the future
payments that the Group will eventually incur if it exercises the renewals totals EUR
203,854 thousand at the end of 2010 (EUR 204,829 thousand at the end of 2010).
The facts and circumstances that permit reasonable certainty that the optional lease
renewals allowed for by the contracts will not be exercised are as follows:
 The consolidation of alternative channels based on the intensive use of
technology (internet, mobile telephony) will mean that an extensive network of
branch offices will no longer be necessary and therefore these renewals will not be
exercised with respect to properties now used as bank offices.
 The relocation of central services by banking organizations to locations that
allow fixed costs to be reduced and to obtain more efficient spaces leads to the
consideration that there is reasonable certainty that the leases covering office
buildings will not be extended.
90
 As is indicated in the financial statements, in most cases there is an option to
repurchase the properties at market value. If the Group decides to continue with any
of the properties at the end of the mandatory lease term, it is reasonable to consider
that the purchase option will most likely be chosen over the renewal of the lease
agreement.
The Bank has recorded the results deriving from these transactions in the income
statement given that they meet the conditions to be considered operating leases, as
follows:
 There is no purchase option at the maturity of the contract or, if one does exist, it
allows the lessee to acquire the asset at its fair value at the time the option is
exercised.
 At the start of the contract, the present value of the rent payments to be made by
the lessee is lower than the fair value of the leased asset.
The term of the lease does not cover the majority of the financial life of the asset
involved in the transaction.
19.2. Investment properties
The balance of this heading in the accompanying consolidated balance sheets at 31
December 2011 and 2010 was EUR 27,870 thousand and EUR 28,708 thousand
respectively.
The main movements under this heading in 2011 relate to net disposals totalling
EUR 2,007 thousand, which mainly relate to the sale of property under operating
leases and to increases relating to transfers from the heading Property, plant and
equipment used by the bank totalling EUR 1,359 thousand.
The main movements under this heading in 2010 relate to net disposals totalling
€3,569 thousand, which mainly relate to the sale of property under operating leases
and to increases relating to transfers from the heading Property, plant and
equipment used by the bank totalling €894 thousand.
In 2011 and 2010 rental income from investment properties owned by the
consolidated entities amounted to EUR 5,612 and EUR 5,558 thousand respectively
(Note 41). Related operating expenses (including depreciation) amounted to EUR
497 and EUR 508 thousand in those years, mainly consisting of the depreciation of
property investments.
The balance recorded under this heading at 31 December 2011 is EUR 14,774
(EUR 15,472 thousand at 31 December 2010) Bank assets, consisting mainly of
homes and commercial premises held to obtain rent, capital gains or both. The
amount of EUR 12,755 thousand (EUR 12,892 thousand at 31 December 2010)
relates to two hotel establishments pertaining to the subsidiary Grupo La Toja
Hoteles, S.L. that have been assigned to third parties since 2004 under a 15 year
lease agreement and the rent consists of a fixed amount, adjusted annually in
accordance with the inflation rate, and a variable component based on the ordinary
revenues obtained by the lessee from the operation of each of these
establishments. The lessee bears all upkeep and maintenance expenses and the
cost of generally upgrading and improving the hotel facilities and equipment. Under
the terms of the lease agreements, the Group assumed future investment
commitments of which the approximate amount pending at the close of 2011 was
EUR 1.2 million (same amount as at the end of 2010).
Of the remaining assets under this entry, some are also leased out under operating
leases but are not significant.
There are no restrictions on investment properties, on the cost of income derived
from these or the resources obtained for its disposal by other means. There are also
no contractual obligations for the acquisition, construction or development of
investment properties or for carrying out repairs, maintenance or improvements,
except those legal obligations under the ruling laws that the lease is subject to, and
with the exception of the investment commitment explained above.
91
19.3. Other assets assigned under operating leases
The balance recognised under this heading at both 31 December 2011 and 31
December 2010 totalled EUR 19,374 thousand for all the assets (except the
buildings) at the hotel establishments assigned to third parties mentioned in Note
19.2.
The rest of the balance relates mainly to the assets assigned under operating
leases though the Groups lease activity carried out by Pastor Servicios Financieros,
S.A.
In 2011 and 2000 and the income deriving from this activity totaled EUR 739
thousand and EUR 263 thousand, respectively, which was included in the balance
of the heading "Other operating profits" in the income statement (Note 41). The
depreciation relating to these assets is recorded under the income statement
heading "Depreciation-Property, plant and equipment", and totalled EUR 40
thousand and EUR 121 thousand, respectively, in those years (Note 19).
20. INTANGIBLE ASSETS
20.1. Goodwill
At 16 February 2012 and 31 December 2011 this balance sheet heading presented
a balance of zero.
20.2. Other intangible assets
2 0 . 2 . 1 . B re a k d o w n a n d s i g n i f i c a n t c h a n g e s
The detail of this account of the consolidated balance sheet at 31 December 2011
and 2010 is as follows:
Estimated
useful life
With a defined useful life
Thousand euro
2011
3 y ears
2010
28.999
25.454
The Group records no intangible assets with indefinite useful lives. Intangible assets
with a finite useful life consist of software acquired from third parties or developed
in-house by the Group that satisfy the prerequisites for balance sheet recognition
established under IFRS-EU and are stated at their carrying amount less
accumulated amortisation.
The reclassifications under this item in the accompanying consolidated balance
sheet in 2011 and 2010 were as follows:
Thousand euro
2011
Opening balance
2010
25.454
20.715
Additions
10.612
12.101
Disposals
(117)
(1.206)
Amortisation
(6.950)
(6.156)
Closing balance
28.999
25.454
In-house development of software applications recognised on the balance sheet
entailed a credit to “Other operating income” in the income statement in 2011 and
2010, in the amount of EUR 3,642 and EUR 3,327 thousand, respectively (Note 41).
2 0 . 2 . 2 . A m o r t i s a t i o n o f f i n i t e -l i f e i n t a n g i b l e a s s e t s
At 31 December 2011 and 2010, fully depreciated property, plant and equipment
totalled EUR 27,976 and EUR 22,690 thousand, respectively.
92
In 2011 and 2010 the Group recognised a charge of EUR 6,950 and EUR 6,156
thousand, respectively under “Depreciation and amortisation – Intangible assets”.
21. OTHER ASSETS
follows:
Thousand euro
2011
Inventories
2010
622.836
738.059
Cost
767.912
872.157
Value adjustments
(145.076)
(134.098)
Prepaym ents and accrued incom e
114.277
138.962
Time-apportionment of hedges (Note 15)
80.820
110.198
Other prepay ments and accrued income
33.457
28.764
24.801
23.754
23.644
22.108
1.157
1.646
761.914
900.775
Other assets
Net assets in pension plans (Note 2.9.1.2)
Other assets
TOTAL
Inventories relate to buildings owned by the Group's real estate companies, which
originate from real estate activities and foreclosures. These items are recognised at
the lower of their acquisition cost or fair value.
In 2011 transfers were made from the heading "Inventories" to "Non-current assets
for sale" totaling EUR 33,096 thousand (inversely in the amount of EUR 80,398 in
2010) (Note 16).
The appraised value of inventories at 30 December 2011 and 2010 is EUR 721,215
thousand and €808,102 thousand, respectively (Note 30).
This heading of the accompanying consolidated balance sheets includes the net
balance of pension plan assets of EUR 23,644 thousand and EUR 22,108 thousand
for 2011 and 2010, respectively (Note 2.9.1.2).
Movements in Inventory impairment in 2011 and 2010 are set out below:
Thousand euro
2011
2010
134.098
63.237
Transfer for the y ear
18.091
71.597
Funds used
(6.033)
(736)
Transfer to prov ision for tax es
(2.018)
---
938
---
Balance at year end
145.076
134.098
At 31 December 2011 and 2010 the income statement heading "Other asset
impairment losses", which reflected a balance of EUR EUR 18,156 thousand and
EUR 74,191 thousand, respectively, include inventory impairment totalling EUR
18,091 thousand and EUR 71,597 thousand, respectively.
93
22. OTHER FINANCIAL LIABILITIES AT FAIR VALUE
THROUGH CHANGES IN PROFIT OR LOSS
The detail of this heading of the consolidated balance sheet at 31 December 2011
and 2010 was as follows:
Thousand euro
2011
2010
Customer funds
200.000
(15.094)
(10.367)
TOTAL
184.906
489.633
500.000
The balance under this heading at 31 December 2011 relates to untraded mortgage
bonds issued by the Group for a nominal amount of EUR 200,000 thousand (EUR
500,000 at 31 December 2010), subscribed by a multi-party securitisation fund and
the Group simultaneously subscribed to bonds issued by that fund in the same
amount (Note 10). The bonds entered into by the Group and bonds issued are
classified in the category of “Other financial liabilities at fair value through profit or
loss” and “Other financial assets at fair value through profit and loss”, as
appropriate, to avoid information asymmetries. Variations in the fair value of these
bonds are offset against those of the aforementioned assets, so that in the income
statement the net impact of both is cancelled out.
The reclassifications under this entry, excluding valuation adjustments, for 2011 and
2010 are the following:
Thousand euro
2011
2010
Opening balance
500.000
900.000
Amortisation
(300.000)
(400.000)
Closing balance
200.000
500.000
Within valuation adjustments, those relating to fair value variations are a positive
balance of EUR 18,445 thousand at 31 December 20111 and a positive balance of
EUR 12,970 thousand at 31 December 2010.
The characteristics of the issued included under this heading are set out below:
ISSUER
Banco Pastor, S.A.
YEAR OF ISSUE
2005
CURRENCY OF
Amount
ISSUE
(thousand euro)
200.000
Euro
Total
INTEREST RATE
MATURITY
Fix ed rate: 3.750%
11/03/2015
200.000
The average interest rate accrued on these mortgage-backed bonds is 3.03% and
1.49% at 31 December 2011 and 2010, respectively.
Note 30 provides certain information regarding the fair value of the financial
liabilities and Note 31.4.2 presents information regarding the liquidity risk assumed
with respect to the financial liabilities included in this category.
94
23. FNANCIAL LIABILITIES AT AMORTISED COST
23.1. Breakdown
The breakdown of this entry in the consolidated balance sheets at 31 December
2011 and 2010 is as follows:
Thousand euro
2011
2010
2.700.750
3.900.914
3.129.099
2.798.297
16.436.479
15.029.770
5.231.641
6.234.974
352.999
498.952
Customer funds
TOTAL
243.171
267.582
28.094.139
28.730.489
Note 30 describes the fair value of these liabilities.
23.2. Central bank deposits
The breakdown of the balance under “Deposits with central banks” at 31 December
2011 and 2010 in the consolidated balance sheets is shown below.
Thousand euro
Used in credit account w ith the Bank of Spain
Temporary assignment of assets
TOTAL
2011
2010
2.700.000
2.609.837
---
1.290.502
750
575
2.700.750
3.900.914
The balance available for draw-down on credit lines with the Bank of Spain is EUR
842,725 thousand at 31 December 2011 (EUR 667,013 thousand at 31 December
2010). This line of credit has no maturity date.
The average rate applied to these liabilities in 2011 and 2010 is 1.12% and 1.02%,
respectively.
23.3. Bank deposits
The breakdown of this heading in the consolidated balance sheets at 31 December
2011 and 2010, by type of transaction, was as follows:
Thousand euro
On demand
Other accounts
Term or subject to prior notice
2011
2010
267.044
354.402
267.044
354.402
2.849.169
2.433.908
Fix ed-term deposits
1.515.959
1.510.616
Temporary assignment of assets
1.333.210
923.292
TOTAL
12.886
9.987
3.129.099
2.798.297
The average effective interest rates earned on the deposits included under this
heading at 31 December 2011 and 2010 were 1.75% and 1.10%, respectively.
95
23.4. Customer deposits
Set out below is a breakdown of the balances in this caption of the consolidated
balance sheets at 31 December 2011 and 2010, taking into account the nature of
the operations:
Thousand euro
2011
Public authorities
2010
355.032
379.105
14.481.561
13.005.871
Current accounts
2.463.636
2.813.533
Other demand deposits
1.327.009
1.310.513
Term deposits
9.110.619
7.843.468
Other accounts
1.531.904
1.033.310
Other resident sectors
Non-resident
TOTAL
48.393
5.047
1.599.886
1.644.794
16.436.479
15.029.770
"Term deposits" includes EUR 400,000 thousand (EUR 400,000 in 2010) which is
the nominal value of untraded mortgage bonds issued by the Group, subscribed by
a multi-party securitisation fund and the Group simultaneously subscribed to bonds
issued by that fund in the same amount (Note 12.4).
The characteristics of the issue are described in the following table:
AMOUNT
YEAR OF ISSUE CURRENCY OF ISSUE (thousand euro)
2010
Euro
400.000
INTEREST RATE
MATURITY
3.974% Fix ed rate
23/12/2013
The heading "Other accounts" includes a balance totalling €1,181,825 thousand
(EUR 518,947 thousand in 2010 that relates to assets sold under repo agreements
for which collateral has been provided by MEFF.
The average effective interest rates earned on the financial liabilities included under
this heading at 31 December 2011 and 2010 were 2.11% and 1.55%, respectively.
The breakdown of the balance of “Other Liabilities” in the consolidated balance
sheets is as follows:
Thousand euro
Bonds and debentures issued
Other securities linked to transferred financial assets
Promissory notes and other securities
Treasury shares
TOTAL
2011
2010
6.923.000
6.420.100
157.156
311.341
118.510
311.721
(2.153.840)
(1.051.492)
186.815
243.304
5.231.641
6.234.974
96
23.5.1. Bonds and debentures issued
Details of bonds issued and outstanding are depicted in the following table:
AMOUNT
YEAR OF ISSUE CURRENCY OF ISSUE (thousand euro)
INTEREST RATE ON
INTEREST RATE INCLUDED IN
HEDGES
TYPE OF ISSUE
MATURITY
2005(*)
Euro
1.000.000
3.750% Fix ed rate
Euribor 12m + 45.5 bp
Mortgage bonds
04/03/2015
2006(*)
Euro
1.000.000
3.982% Fix ed rate
Euribor 12m + 5 bp
Mortgage bonds
20/09/2013
Euribor 6m + 18pb + 95 bp guarantee cost
Simple debt
03/12/2012
Euribor 3m + 80pb + 95 bp guarantee cost
Simple debt
02/03/2012
Mortgage bonds
17/03/2014
2009
Euro
137.000
2009(*)
Euro
828.900
2009(*)
Euro
ISSUE
Euribor 6m + 18pb + 95
bp guarantee cost
4.141% Fix ed rate
1.000.000
3.328% Fix ed rate
Euribor 1m + 107.7bp, since 17/09/2010
sw ap 3m + 85.7 bp
2009
Euro
67.100
3.330% Fix ed rate
---
Mortgage bonds
17/02/2012
2010(*)
Euro
300.000
3.588% Fix ed rate
Euribor 6m + 115 bp
Mortgage bonds
04/03/2015
2010(*)
Euro
300.000
3.038% Fix ed rate
Mortgage bonds
20/09/2013
2010(*)
Euro
40.000
4.55% Fix ed rate
Mortgage bonds
31/07/2020
2010
Euro
500.000
Euribor 1m + 95 bp
Euribor 1m + 95 bp
Mortgage bonds
23/06/2014
2010
Euro
100.000
Mortgage bonds
17/09/2018
2010
Euro
500.000
3.684% Fix ed rate
---
Mortgage bonds
24/09/2012
2010
Euro
100.000
3.839% Fix ed rate
---
Mortgage bonds
24/09/2012
2011
Euro
---
Simple debt
25/11/2013
---
Simple debt
16/12/2016
---
Mortgage bonds
17/04/2012
2011
2011
Euro
50.000
Euribor 3m + v ariable differential
500.000
Euro
500.000
Total
6.923.000
FIXED RATE: coupon
580bp + 144.8 bp
Euribor 3M + 230 bp
(*) Issues w ith fair v alue hedging
Reclassifications under “Issued Bonds and Debentures” in 2011 and 2010 were as
follows:
Thousand euro
2011
Opening balance
2010
6.420.100
6.430.100
1.050.000
1.840.000
Maturities
(376.000)
(1.000.000)
Amortisation
(171.100)
(850.000)
6.923.000
6.420.100
Issues
Closing balance
Movements in 2011 relate to three issues, one consisting of mortgage bonds
totaling EUR 500,000 thousand and two ordinary debt issues (EUR 500,000
thousand and EUR 50,000), and to the maturity of four issues of mortgage bonds,
two totaling EUR 25,000 thousand, one totalling EUR 226,000 thousand and one in
the amount of EUR 100,000, and the redemption of part of an ordinary guaranteed
debt issue totaling EUR 171,100 thousand.
Movements in 2010 relate to seven issues of mortgage bonds carried out during the
year (whose characteristics are described in the table set out above), at the maturity
of an issue of mortgage bonds totalling €1,000,000 thousand and the redemption of
two issues, on consisting of mortgage bonds totalling €750,000 thousand and
another bond issue totalling €100,000 thousand.
2 3 . 5 . 2 . Ot h e r s e c u ri t i e s a s s o c i a t e d w i t h f i n a n c i a l a s s e t s t ra n s f e rr e d
At 31 December 2011 and 2010 the amount recorded under this heading in the
accompanying balance sheets totals EUR 157,156 thousand and EUR 311,341
97
2 3 . 5 . 3 . P ro mi s s o r y n o t e s a n d o t h e r s e c u ri t i e s
Promissory notes issued by the Group and outstanding at 31 December 2011 and
2010 mature in an average of 82 and 103 days, respectively, while the average
interest rate was 0.88% and 1.91%, respectively.
The detail by maturity was as follows:
Thousand euro
2011
Up to 3 months
2010
55.249
3 months to one y ear
TOTAL
290.026
63.260
21.695
118.510
311.721
2 3 . 5 . 4 . Tr e a s u r y s h a re s
At 31 December 2011 and 2010 the balance under this heading totalled EUR
2,153,840 thousand and EUR 1,051,492 thousand, respectively, and relates in full
to the repurchase of bonds by the Group.
Movements during the year in this heading are as follows:
Thousand euro
2011
Opening balance
Additions
Disposals
Closing balance
2010
1.051.492
323.684
1.380.959
920.594
(278.611)
(192.786)
2.153.840
1.051.492
In 2011 and 2010 the results obtained on the repurchase of debt issued by the
Group totalled EUR 15,447 thousand and EUR 868 thousand, respectively (Note
39).
23.6. Subordinated debt
The detail of this heading of the consolidated balance sheet at 31 December 2011
and 2010 was as follows:
Thousand euro
2011
Treasury shares
TOTAL
2010
345.750
485.500
(762)
---
8.011
13.452
352.999
498.952
The main features of the issues outstanding at 31 December 2011 and 2010 are set
out in the table below:
AMOUNT
YEAR OF ISSUE
(thousand euro)
INTEREST RATE
ISSUER
INTEREST RATE
CAPS
* UP TO 11,06,2014: Euríbor 3m + 90bp
2004
45.900 Banco Pastor, S.A.
Pastor Participaciones
2005
50.000 Preferentes, S.A.
Pastor Participaciones
2009
250.000 Preferentes, S.A.
Issue ex penses
TOTAL
* FROM 11.06.2014: Euríbor 3m + 240bp
---
(call as from y ear 10)
Institutional
Perpetual
---
* UP TO 02,04,2012: 7.250%
* FROM 02.04.2012: Euríbor 3m + 460bp (min 6.80%)
DISTRIBUTION
Perpetual
* UP TO 27,07,2015: 4.564%
* FROM 27.07.2015: Euríbor 3m + 240bp
MATURITY
Institutional
Perpetual
---
Retailer
(150)
345.750
98
Movements in this caption in 2011 and 2010 are analysed below:
Thousand euro
2011
Opening balance
Issues
Amortisation and
Other
Closing balance
2010
485.500
607.573
---
---
(140.762)
(122.227)
250
154
344.988
485.500
In 2011, after receiving authorisation from the Bank of Spain the special issue of
subordinated Banco Pastor debt was partially redeemed early in the amount of EUR
40,000 thousand and the 1st issue of preferred shares in the subsidiary Pastor
Participaciones Preferentes, S.A. was redeemed for the amount of EUR 100,000
thousand.
In 2010, after receiving authorisation from the Bank of Spain the special issue of
subordinated Banco Pastor debt was partially redeemed early in the amount of
€69,400 thousand and the 1st issue of preferred shares in the subsidiary Pastor
Participaciones Preferentes was redeemed for the amount of €52,827 thousand.
In 2011 and 2010 the securities issued in the amount of EUR 109,861 thousand and
EUR 64,040 thousand, respectively were repurchased and redeemed, giving rise to
a capital gain of EUR 38,738 thousand and EUR 33,505 thousand, respectively
(Note 39).
This debt is subordinated, so that all ordinary payables of the issuing entities rank
as senior. Debt issued by Pastor Participaciones Preferentes, S.A. is secured by a
perpetual, irrevocable, joint and several guarantee provided by the Bank.
Interest accrued on subordinated debt in 2011 and 2010 amounted to EUR 22,413
and EUR 27,329 thousand, respectively (Note 34).
23.7. Other financial liabilities
The breakdown of the balance at 31 December 2011 and 2010 of this item in the
accompanying consolidated balance sheet is as follows:
Thousand euro
2011
2010
160.335
183.018
Guarantee deposits
1.180
2.250
Collection accounts
44.478
29.978
Special accounts
24.689
38.524
(note 32.1)
6.006
6.776
Other items
6.483
7.036
243.171
267.582
Debentures pay able
TOTAL
24. INSURANCE CONTRACT LIABILITIES
At 31 December 2011 and 2010, the balance in this heading in the consolidated
balance sheet totals EUR 2,485 thousand and EUR 2,761 thousand, respectively,
and relates solely to the non-financial guarantees granted by the Group (guarantee
agreements under which the grantor will compensate the beneficiary in the event of
a specific failure to comply other than a payment obligation relating to a third party).
99
25. PROVISIONS, EXCLUDING PROVISIONS FOR TAXES
The reclassifications in 2011 and 2010, and the purpose of the provisions
recognised on the consolidated balance sheet at 31 December 2008 and 2007, are
as follows:
Thousand euro
PENSIONS AND
CONTINGENT
OTHER
SIMILAR ITEMS
EXPOSURES
PROVISIONS
BALANCES AT 31 DECEMBER 2009
Appropriations charged to income statement
67.482
28.488
18.564
1.912
(11.866)
(2.659)
Financial cost (Notes 2.9.1.3 and 34)
Transfers to prov isions
1.096
---
---
816
(11.866)
(2.659)
Actuarial losses/(gains) (Note 2.9.13)
84
---
---
Other transfers
Transfer between funds and other
Pension pay ments by charge to internal funds
732
(11.866)
(2.659)
(11.642)
48
(124)
(9.211)
---
---
Insurance premiums paid
---
---
---
Pension pay ments through Group insurance policies
---
---
---
---
---
---
---
48
---
Transfer betw een funds
---
---
---
Other net mov ements and funds used
BALANCES AT 31 DECEMBER 2010
Appropriations charged to income statement
(2.431)
---
(124)
57.752
16.670
15.781
420
(9.473)
(711)
Financial cost (Notes 2.9.1.3 and 34)
Transfers to prov isions
824
---
---
(404)
(9.473)
(711)
Actuarial losses/(gains) (Note 2.9.13)
(977)
---
---
573
(9.473)
(711)
(14.145)
30
(5.128)
(7.818)
---
---
---
---
---
Other transfers
Transfer between funds and other
Pension pay ments by charge to internal funds
Insurance premiums paid
Pension pay ments by charge to Group insurance
policies
(3.859)
---
---
---
---
---
---
28
---
Transfer betw een funds
Other net mov ements and funds used
BALANCES AT 31 December 2011
---
---
(1.927)
(2.468)
2
(3.201)
44.027
7.227
9.942
The balance of Provisions for pensions and similar items at 31 December 2011 and
2010 is made up of the following components:
Thousand euro
2011
2010
For pension commitments under defined benefit plans and other
post-employ ment remuneration (Nota 2.9.1.2)
44.027
57.752
21.583
25.442
Of w hich: Commitments transferred out through policies arranged
w ith related insurance companies (Notes 2.9.1.2 and 18)
The provisions included under “Other provisions” include the estimated amount
required for probable or certain liabilities not associated with banking activities,
including litigation in progress, and compensation and obligations pending
settlement of an as yet undetermined amount.
100
26. OTHER LIABILITIES
follows:
Thousand euro
2011
Accruals and deferred income
2010
39.493
32.593
29.959
20.370
Other accruals
9.534
12.223
Other liabilities
7.086
6.299
926
2.242
Apportioned hedges (Note 15)
Transactions in transit
Other items
TOTAL
6.160
4.057
46.579
38.892
27. EQUITY
The reclassification in 2011 and 2010 under the different entries which make up this
heading in the consolidated balance sheets are recognised under “Statement of
changes in Equity” included within these annual accounts.
27.1. Equity
2 7 . 1 . 1 . S h a re c a p i t a l
27.1.1.1. Banco Pastor
In 2011 the Bank increased share capital by charging EUR 1,957,407.21 against the
share premium account and issuing 5,931,537 new shares with an identical par
value and of the same class as pre-existing shares. The share capital increase
carried out served as an instrument to compensate the shaerholder. The increase
allows shareholders to receive the new shares in Banco Pastor. Each shareholder
was given one new share free of charge for every 45 shares already held, charged
against the share premium account.
In 2010 the Bank increased share capital by charging €1,727,123.97 against the
share premium account and issuing 5,233,709 new shares with an identical par
value and of the same class as pre-existing shares. The share capital increase
carried out served as an instrument to compensate the shaerholder. The increase
allows shareholders to receive the new shares in Banco Pastor. Each shareholder
was given one new share free of charge for every 50 shares already held, charged
against the share premium account.
At 31 December 2011 and 2010 the Bank’s share capital consisted of 272,850,714
and 266,919,177 registered shares, respectively, with a par value of EUR 0.33
each. All shares are listed on the continuous market of the Spanish stock
exchanges.
During 2011 and 2010 movements in the Bank’s share capital were as follows:
Number of
Nominal value
Number of shares and nominal value of share capital at 31 December 2009
Capital increase against the share premium
shares
261.685.468
5.233.709
266.919.177
(Euro)
86.356.204
1.727.124
88.083.328
5.931.537
272.850.714
1.957.407
90.040.735
101
In accordance with the provisions of Article 297 of the Spanish Companies Act
2010, the Bank's Shareholders at a General Meeting held on 6 April 2011
authorised the Board of Directors to increase share capital, at one or more times,
and under the conditions deemed advisable, through monetary contributions up to a
limit of EUR 44,041,664.20 and the issue of any class of shares allowed by Law,
including non-voting shares, with or without a share premium, under any other
terms, conditions or limitations deemed advisable. The authorisation to carry out
capital increases up to this limit is valid until 2016.
The only shareholder with an interest in the Bank’s capital in excess of 10% is
Fundación Pedro Barrié de la Maza (a not-for-profit charitable and educational
institution). At 31 December 2011 and 2010 the Foundation owned 42.176% of the
Bank's shares.
At the General Shareholders’ Meeting held on 6 April 2011, the Bank’s shareholders
gave the Board of Directors authorisation to:
- Acquire treasury shares either directly or through Group companies, pursuant to
the Spanish Companies Act 2010.
- Whereas Subject to applicable legal provisions and the prior authorisations
required, within the legally established period, on one or more occasions, either
directly or through companies specifically established for this purpose that are
wholly owned by Bank Pastor and, where appropriate, with the full guarantee of the
Bank, issue bonds, debentures, subordinated bonds, mortgage bonds, territorial
bonds, non-convertible bonds, promissory notes, assignments of all manner of
credit rights for securitisation through securitisation funds established for this
purpose, preference shares, and any other similar securities, which represent or
create debt, whether unsecured or benefiting from some form of guarantee,
subordinated or not, bearing interest at a fixed or variable rate, denominated in
euros or any other currency, in one or several issues with similar or different
characteristics, with a specific or undetermined term, and whatever other
appropriate terms and conditions it may deem appropriate, thereby replacing the
authorisation granted at the General Shareholders’ Meeting held on 6 April 2010
and also authorising it to request official listing for any such issues.
At 31 December 2011 and 2010 the Bank did not hold any treasury shares.
However, in 2011 and 2010, the consolidated entities traded in shares issued by the
Bank as detailed in Note 27.1.4.
2 7 . 1 . 1 . 2 . S u b s i d i a ri e s
At 31 December 2011 and 2010, the shares of Group subsidiaries Bolhispania,
S.A., SICAV and Inverpastor, S.A. SICAV were traded on the Spanish alternative
equity market.
At 31 December 2011 no subsidiary reflected any share capital yet to be paid in.
Ongoing capital increases at Group subsidiaries at the close of 2011 were not
material in relation to the overall Group.
Group subsidiaries in which parties unconnected to or associated with the Group
have an ownership percentage of at least 10% are as follows:
Group subsidiaries in which other entities
hold interests of at least 10%
Bolshispania, S.I.C.A.V., S.A. (*)
Inv erpastor, S.I.C.A.V., S.A. (*)
% of equity owned by third
2011
2010
---
55,36%
---
90,21%
Grupo La Toja Hoteles, S.L.
10,00%
10,00%
Pastor Priv ada Inv estment 1, S.L. (*)
15,00%
15,00%
Pastor Priv ada Inv estment 3, S.L. (*)
40,00%
40,00%
(*) The Bank has appointed the majority of the members of the administrativ e bodies
of these companies in accordance w ith the relev ant shareholder agreements.
102
2 7 . 1 . 2 . S h a re p r e mi u m
The share premium reflects the amount paid in by shareholders of the Bank in
shares or capital increases above the nominal value. The reclassifications under
this entry in the balance sheet for 2011 and 2010 are as follows:
Thousand euro
2011
Balance at the start of the year
2010
146.720
Return of premium to shareholders
Balance at year end
148.447
---
---
(1.957)
(1.727)
144.763
146.720
Shareholders at a General Meeting held on 6 April 2011 authorised a capital
increase by charging the share premium account in the proportion of 1 new share
for every 45 shares held (Note 27.1.1.1).
Shareholders at a General Meeting held on 26 March 2010 authorised a capital
increase by charging the share premium account in the proportion of 1 new share
for every 50 shares held (Note 27.1.1.1).
2 7 . 1 . 3 . R e s e r ve s
The breakdown of reserves by account is as follows:
Thousand euro
2011
2010
Restricted reserves
41.380
35.924
Legal reserv e
19.508
19.508
Reserv es for treasury shares
18.830
13.445
656
585
---
---
Reserv es for treasury shares accepted as security
Restricted rev aluation reserv es
Canary Island inv estment reserv e
2.386
2.386
1.203.594
1.166.351
Attributed to the Bank
1.505.807
1.297.866
Attributed to other consolidated entities
(317.114)
(147.186)
Voluntary reserves and consolidation reserves
Attributed to entities measured under the equity method
TOTAL
14.901
15.671
1.244.974
1.202.275
2 7 . 1 . 3 . 1 . R e s e r ve s a t t ri b u t e d t o t h e B a n k a n d t h e o t h e r
consolidated entities
27.1.3.1.1. Legal reserve
Pursuant to the Revised Spanish Companies Act 2010, Spanish companies that
obtain profit in any given year must transfer 10% of this profit to their legal reserve.
This transfer must continue until the balance of the reserve is equal to at least 20%
of share capital. The legal reserve can be used to increase capital provided that the
remaining reserve balance does not fall below 10% of the increased share capital
amount.
27.1.3.1.2. Reserve for treasury shares and Reserve for treasury shares held as
collateral
Under the Revised Spanish Companies Act 2010, a restricted reserve has been set
up equal to the carrying value of Bank shares owned by its subsidiaries, shown
under “Reserve for treasury shares”.
103
Similarly the “Reserve for treasury shares held as collateral” is a restricted reserve
account set up in the amount of unamortised loans extended by the Group for the
acquisition of Bank shares, as well as all the Banks shares pledged for the Group to
secure third party asset transactions.
These reserves will become unrestricted when the circumstances dictating their
establishment cease to exist.
27.1.3.1.3. Net reserves attributable to the other consolidated entities
The breakdown by company of the balances carried forward on the consolidated
balance sheets, after consolidation adjustments, and the amounts recognised in
equity as valuation adjustments resulting from the consolidation process are as
follows:
Thousand euro
2011
2010
Valuation
Reserves
Valuation
adjustments to
Reserves
adjustments to
equity
Bolshispania SICAV, S.A.
equity
5.124
---
5.200
---
---
---
---
---
10.372
---
10.968
---
4.835
---
4.641
---
(10.013)
---
(8.500)
---
36.510
---
34.928
---
---
---
---
---
21.066
---
14.319
---
9.256
---
7.419
---
(234.922)
---
(116.336)
---
Promotora Inmobiliaria Ospibel, S.A.
(70.717)
---
(30.274)
---
Paradanta Gestión Global Inmuebles, S.L.
(19.457)
---
(23.177)
---
Vilamar Gestión, S.L.
(23.226)
---
(12.429)
---
(3.061)
---
(3.447)
---
(24.051)
---
(17.053)
---
(298.284)
---
(133.741)
---
Gespastor, S.G.I.I.C.
Inv erpastor SICAV, S.A
Sobrinos de José Pastor, S.A.
Bergantiños Gestión Global Inmuebles, S.L.
Grupo La Toja Hoteles, S.L.
Pastor Vida, S.A.
General de Terrenos y Edificios, S.L.
Sobrinos de José Pastor Inv ersiones, S.A.
Tabeiros Gestora Global de Inmuebles, S.A.
Univ ersal Support, S.A.
Other entities
TOTAL
The reserves reflected in the previous table also include reserves for treasury
shares that carry in their individual balance sheets those subsidiaries holding shares
in the Bank, corresponding to those shares.
2 7 . 1 . 3 . 2 . R e s e r ve s a t t ri b u t e d t o c o mp a n i e s a c c o u n t e d f o r b y t h e
e q u i t y me t h o d
The breakdown by company of the balances carried forward on the consolidated
balance sheets, after consolidation adjustments, and the amounts recognised in
equity as valuation adjustments resulting from the consolidation process, are as
follows:
Thousand euro
2011
2010
Valuation
Reserves
Valuation
adjustments to
Reserves
equity
Mercav alor, S.A.
adjustments to
equity
1.419
96
1.292
79
Pastor Vida, S.A. (Notes 5 and 17)
15.230
5
15.445
169
Other entities
(1.748)
---
(1.066)
---
14.901
101
15.671
248
TOTAL
104
2 7 . 1 . 4 . Tr e a s u r y s h a re s
In 2011 and 2010 the consolidated companies carried out the following transactions
in shares issued by the Bank:
2011
Purchases
Sales
Thousand
Number of
Thousand
shares
Euro
shares
Euro
3.108.463
13.445
1.710.320
9.628
1.820.011
5.565
1.823.199
7.108
(12.185)
(337)
(249.970)
(1.341)
---
---
(175.086)
(1.950)
4.916.289
18.673
3.108.463
13.445
Deliv ery of shares (*)
Balance at year end
2010
Number of
(*) Shares w ere deliv ered in 2010 under Plan Delta .
In addition, at 31 December 2011 the consolidated companies recorded
"Subordinated bonds convertible into shares" issued by the Bank in the amount of
EUR 157 thousand (Note 27.1.5).
The average price paid by consolidated entities to acquire shares in the Bank in
2011 was EUR 3.06 per share and the average sale price was EUR 3.90 per share
(excluding the sale of subscription rights) (EUR 3.90 and EUR 5.54 per share,
respectively, in 2010).
The Group's after tax net proceeds generated by transactions in shares issued by
the Bank were for a positive amount of EUR 10 thousand in 2011 (including the
profit generated on the sale of subcription rights) and a negative amount of EUR 2
thousand in 2010, after discounting the tax effect, and they were recognised directly
as a change in equity in both years.
In accordance with the Spanish Companies Act 2010, a restricted reserve has been
created in an amount equivalent to the amount of the shares in the Bank owned by
its subsidiaries (27.1.3.1.2)
The number and nominal value of treasury shares accepted by consolidated entities
to secure transactions carried out by them was 1,704 thousand shares and EUR
562 thousand at 31 December 2011 (EUR 1,088 thousand shares and EUR 359
thousand at 31 December 2010).
The number and nominal value of Bank shares owned by third parties and managed
by consolidated entities was 19,016 thousand shares and EUR 6,275 thousand at
31 December 2011 (19,198 thousand shares and EUR 6,335 thousand at 31
December 2010).
2 7 . 1 . 5 . Ot h e r e q u i t y i n s t ru m e n t s
The detail of this consolidated balance sheet heading at 31 December 2011 and
2010 is as follows:
Thousand euro
2011
Other items
TOTAL
2010
2.256
---
244.520
785
246.776
785
The amount under the heading "Share-based payments" records the agreement
reached in December 2011 regarding the delivery of Bank shares to certain
employees (Note 43.1.1).
105
At 31 December 2011, the heading "Other items" of course the issue of
subordinated bonds that necessarily must be converted into shares that took place
during the first half of 2011 by the Bank in the amount of EUR 251,810,500
(2,518,105 bonds with a nominal value of EUR 100 each), called "Issue of
Subordinated Bonds Necessarily Convertible I/2011 by Banco Pastor, S.A." The
issue was fully subscribed. In 2011 interest totaling EUR 7,290 thousand was paid
on this issue (net of the tax effect) that was recognized by charging this heading.
The characteristics of the issue are set out in the relevant Securities Memo that has
been registered with the National Stock Market Commission on 1 March 2011 and is
supplemented by the Registration Document prepared by Banco Pastor, S.A., and
entered into the Official Registry at the National Stock Market Commission on 29
November 2010.
At 31 December 2011 the consolidated entities recorded "Subordinated Bonds
convertible into shares" in their balance sheets totaling EUR 157 thousand, under
the heading "Treasury Shares" in Equity (Note 27.1.4).
Movements in this heading in 2011 are as follows:
Thousand euro
2011
Balance at the start of the year
Issues
2010
785
2.683
251.810
---
2.256
---
Pay ment of interest
(7.290)
---
Other mov ements
(785)
(1.898)
Balance at year end
246.776
785
27.2. Adjustments to equity through measurement
The balance of this heading in the consolidated balance sheets at 31 December
2011 and 2010 by type of instrument and company is as follows:
Thousand euro
2011
Parent company
(50.290)
(44.353)
(50.290)
(44.353)
101
248
(50.189)
(44.105)
Other adjustments
TOTAL
2010
2 7 . 2 . 1 . A va i l a b l e -f o r -s a l e f i n a n c i a l a s s e t s
This item in the accompanying consolidated balance sheets includes the amount,
net of the tax effect, of the differences between the fair value and the acquisition
cost of assets classified as available-for-sale which, as indicated in Note 2, must be
classified as an integral part of the Group’s equity. These differences are
recognised in the consolidated income statement when the assets that gave rise to
them are sold.
The breakdown of this heading at 31 December 2011 and 2010 is as follows:
Thousand euro
2011
Adjustments debt securities
Adjustments equity instruments
TOTAL
2010
(51.476)
(43.816)
1.186
(537)
(50.290)
(44.353)
In the statement of changes in equity for 2011 and 2010 reclassifications under this
heading are shown for those years.
106
In the consolidated statement of recognised income and expense the amounts
transferred to the profit and loss account (EUR 5,443 thousand in 2011 and EUR
24,868 thousand in 2010) are presented before taxes.
27.2.2. Cash flow hedges
This entry on the balance sheet reflects changes in the value of the effective part of
instruments used to hedge cash flows, when the hedged items do not affect the
income statement.
At 31 December 2011 and 2010 there were no cash flow hedges.
27.3. Minority shareholdings
At 31 December 2011 and 2010 this heading in the consolidated balance sheet
included the net value of the equity of subsidiaries made up of equity instruments
neither directly nor indirectly owned by the Bank, including the amounts allocated
from profit for the year, as detailed below:
Thousand euro
2011
Minority
2010
Results attributed
interests
to minority
Results attributed
Minority
to minority
interests
interests
interests
By activity
inv estments
Other
TOTAL
2.315
86
153.515
539
16.655
103
16.576
172
18.970
189
170.091
711
28. TAX SITUATION
The Banco Pastor Group is not taxed on a consolidated basis for corporate income
tax purposes. Accordingly, each Group company files and settles its own income tax
return.
The reconciliation of accounting profit for 2011 and 2010 with taxable profit for
income tax purposes is as follows:
Thousand euro
2011
Reported results for the y ear
2010
52.128
62.773
9.032
(12.471)
Permanent differences, net
5.664
(28.133)
Temporary differences, net:
Arising during the y ear
199.821
307.867
Arising in prior y ears (*)
(361.536)
(465.672)
Offset of tax loss carry forw ards
TAX BASE
---
(3.234)
(94.891)
(138.870)
The calculation of corporate income tax expense takes into consideration, among
other things, a permanent negative difference relating to the calculation of monetary
declines, as established by Article 15.9 of Legislative Royal Decree 4/2004 of the
Corporate Income Tax Act, totalling EUR 32 thousand and EUR 534 thousand in
2011 and 2010, respectively.
107
When calculating the corporate income tax expense for 2011 and 2010, the Bank
has included tax credits of EUR 7,983 thousand and EUR 20,691 thousand
respectively, corresponding to internal double taxation credits, training costs and
reinvestments under article 42 and company contributions to pension plans under
article 43, research and development under Article 35 and child care deductions
under Article38.4 of Legislative Royal Decree 4/2004 relating to the Revised
Spanish Companies Act. There are no deductions from prior years pending
application.
In addition, the corporate income tax expense shown on the income statements at
31 December 2009 and 2010 include net adjustments of EUR 3,032 thousand and
EUR 1,569 thousand, respectively, as detailed below:
Thousand euro
ADJUSTMENTS: POSITIVE/(NEGATIVE)
2011
2010
Tax differences prev ious y ear
1.256
(350)
Other
1.776
(1.219)
3.032
(1.569)
TOTAL
In accordance with Article 12.3 of Legislative Royal Decree 4/2004, which approves
the Revised Spanish Companies Act (as worded by Law 4/2008 for tax periods
commencing as from 1 January 2008), the amounts deducted in each tax period are
reported below with respect to impairment losses on equity instruments for
companies not listed on secondary markets, the difference arising during the year in
the equity of the investee company and the amounts included in, and excluded
from, the tax base:
Thousand euro
TAX
2011
TAX ASSETS
LIABILITIES
TAX
COMPANY
ASSETS
2010
ACCOUNTING
TRANSFER
TAX TRANSFER
TAX LIABILITIES
TOTAL
POSITIVE
NEGATIVE
ADJUSTMENT
ADJUSTMENT
TOTAL
NEGATIVE
POSITIVE
ADJUSTMENT
ADJUSTMENT
Almeiras Assets, S.L.
---
---
8.212
8.212
8.212
(8.212)
---
---
---
---
Arv um, S.L.
---
(1.271)
---
---
---
---
---
---
---
---
937
---
13.166
13.166
13.166
(13.166)
---
---
---
---
Caldelas Gestión Global de Inmuebles, S.L.
17
---
(17)
---
---
(17)
(17)
---
---
---
Cercebelo Assets, S.L.
---
---
---
---
---
---
---
---
---
---
Crecentia Galicia, S.L.
---
10
(163)
(173)
---
---
---
(173)
163
(10)
Bergantiños Gestión Global de Inmuebles, S.L.
1
---
(1)
---
---
(1)
(1)
---
---
---
La Limia Gestión Global de Inmuebles, S.L.
---
---
182
182
---
---
---
(182)
182
---
Nav iera Cañada, S.L.
---
---
2
2
2
(2)
---
---
---
---
Nav iera Cerv o, S.L.
---
---
---
---
---
---
---
---
---
---
Nav iera Curtis, S.L.
---
---
(9)
(9)
---
---
---
(9)
9
---
Nav iera San Timoteo, S.L.
---
---
---
---
---
---
---
---
---
---
Nav iera Zurita, S.L.
---
---
---
---
---
---
---
---
---
---
1.131
---
2.542
2.542
2.542
(2.542)
---
---
---
---
---
---
573
---
4.432
4.432
4.432
(4.432)
---
---
---
18.428
---
28.459
36.696
28.459
(36.696)
(8.237)
Paradanta Gestión Global de Inmuebles, S.L.
---
(5)
3.532
3.527
---
---
---
(3.527)
3.532
5
Pastor Priv ada Inv estment 2, S.L.
---
---
107
107
---
---
---
(107)
107
---
101
---
7
7
7
(7)
---
---
---
---
9
---
---
---
---
---
---
---
---
---
Pastor Representasoes
---
---
Pastor Participadas 1
---
---
1
(1)
---
---
---
(1)
1
---
Pastor Participadas 2
---
---
9
2
9
(2)
7
---
---
---
Proinalaga,S.L.
---
(2.974)
---
---
---
---
---
---
---
---
154
---
---
---
---
---
---
---
---
---
Sobrinos de José Pastor Inv ersiones, S.A.
2.054
---
17.541
20.773
17.541
(19.595)
(2.054)
(1.178)
---
(1.178)
Tabeiros Gestora Global de Inmuebles, S.L.
---
E.On Pastor Renov ables, S.L.
Moreira Gestión Global de Inmuebles, S.L.
O Nov o Aquilon, S.L.
S.L.
Promotora Inmobiliaira Ospibel, S.L.
Pastor International Debt, S.A.
Pastor Participaciones Preferentes, S.A.
Sistemas 4B
---
-------
---
---
39.801
---
118.626
109.150
118.626
(109.150)
9.476
---
---
Terra Cha Gestión Global de Inmuebles, S.L.
---
---
---
---
---
---
---
---
---
---
Univ ersal Support, S.A.
---
(1.473)
(151)
(151)
---
---
---
(151)
150
(1)
63.206
(5.713)
196.477
198.464
192.996
(193.822)
(826)
(5.328)
4.144
(1.184)
TOTAL
108
The Bank participates in several Economic Interest Groupings (EIGs, or AIEs in
Spanish), which, pursuant to current tax regulations, allocate their taxable profits or
tax losses, withholdings borne and tax relief on the basis of their percentage
interest. The Bank has opted for the amount of tax savings and benefits arising from
these allocations to be distributed according to a financial criterion for as long as
each EIG remains in force. In 2011 and 2010 the Bank applied tax-loss
carryforwards totalling EUR 45,831 thousand and EUR 53,791 thousand,
respectively. The result of applying these allocations and accounting criteria has
been a reduction in accrued corporate tax expenses in 2011 and 2010 amounting to
EUR 426 thousand and EUR 1,696 thousand, respectively.
The differences in accounting and tax criteria for the temporary recognition of
certain income and expenses gave rise to deferred tax assets and liabilities relating
to temporary differences that are either tax deductible or taxable in the future,
respectively. The Group have recognised these assets since they are likely to be
offset against taxable profit in future periods.
The detail of these headings in the consolidated balance sheets at 31 December
2011 and 2010 was as follows:
Thousand euro
2011
2010
DEFERRED TAX ASSETS
Pension commitments
Insolv ency fund
Substandard risks
Apportionment of fees and commissions
10.041
15.901
5.322
19.571
26.539
37.997
459
669
Value adjustments Equity
22.470
20.518
Specific fund - subsidiaries
57.310
55.853
carry forw ards (Banco Pastor, S.A.)
67.778
37.528
Av ailable deductions
28.882
20.691
Other
31.596
16.881
250.397
225.609
Fix ed asset restatement
7.233
7.315
Value adjustments Equity
917
1.509
10.668
5.336
18.818
14.160
TOTAL
DEFERRED TAX LIABILITIES
Other
TOTAL
109
The reclassification of amounts of these deferred tax assets in 2011 and 2010 were
as follows:
Thousand euro
Deferred tax
Deferred tax
asset
liabilities
182.151
23.716
Pension commitments (net)
(9.541)
---
Transfer to the general insolv ency fund
(53.789)
---
Transfer sub-standard risks
365
---
Apportionment of fees and commissions (253)
---
Value adjustments Equity 2008 (net)
14.198
(8.903)
---
(608)
37.528
---
20.691
---
28.494
---
Other adjustments (net)
5.765
(45)
225.609
14.160
Pension commitments (net)
(5.860)
---
Transfer to the general insolv ency fund
(14.249)
---
Transfer sub-standard risks
(11.458)
---
Adjustments due to change tax rate Law
Apportionment of fees and commissions (210)
---
Value adjustments Equity 2009 (net)
1.952
---
---
(592)
30.250
(82)
8.191
---
1.457
2.063
Other adjustments (net)
14.715
3.269
250.397
18.818
At 31 December 2011, the Bank does not have any carry-forward of unused tax
losses from previous tax years.
110
In 2003 and 2002 the Bank availed itself of the tax credit for reinvestment of
extraordinary income provided for in article 36 of Law 43/1995, as amended by Law
24/2001, and in the third transitional provision of Law 24/2001, dated 27 December,
in its first tax return filed after 1 January 2002 and included in its 2001 tax base all
deferred income not yet reported. The income to which the credit for the
reinvestment of extraordinary income was applied totalled EUR 122 thousand and
EUR 79,432 thousand in 2011 and 2010, respectively, and all the reinvestment
commitments assumed up to 2009 and 2010 for the purpose of application of this
tax credit have been covered by a commitment of EUR 86,877 thousand and EUR
260 thousand remains pending, as detailed below:
Income
Year
qualifying for
in which it
deduction
crystallised
2002
20.558
2001
2003
4.656
2002 and 2003
2004
1.420
2003
2005
16.948
2004 and 2005
2006
679
2005
2007
1.795
2006
2008
143
2007
2009
21.416
2008
2010
79.432
2009 and 2010
2011
122
---
In prior years, the Bank availed of the tax incentive regulated by article 27 of Law
19/94 amending the economic and tax regime of the Canary Islands, establishing in
those years reserves for investments in the Canary Islands. This reserve will be
used for investment in the Canary Islands in line with the Bank’s branch network
expansion plan. The investment commitments assumed have been completed
within a maximum period of three years and compliance will be subject to the
provisions laid down in the aforementioned regulatory law.
To comply with the provisions of article 135 of Royal Decree 4/2004, dated 5 March,
approving the Revised Spanish Companies Act, itemised details of revalued
property, plant and equipment and the amount of the revaluations are provided in
Appendix XI.
The Bank also has the last four years open for inspection for all taxes applicable to
its business.
The Bank is required to disclose, pursuant to article 98.2 of Law 43/95 on Corporate
Income Tax Law, the current article 84.2 of Royal Decree 4/2004, of 5 March
approving the revised Corporate Income Tax Law, that it has participated as
transferor in transactions executed under the special regime envisaged in Chapter
VIII of Title VII of Royal Legislative Decree Tax Law 4/2004, dated 5 March,
approving the revised text of Corporate Income Tax Law pertaining to mergers,
spin-offs, contributions of assets and equity exchanges, and that the securities
received have been recognised at the same value as the assets contributed, i.e.
EUR 7,738 thousand and EUR 51,617 thousand from La Toja, S.A. and Grupo La
Toja Hoteles, respectively.
On 26 September 2002, S.A. Internacional de Terrenos y Edificios (SAITE) was
partially spun off and Banco Pastor received all shares in the new company,
General de Terrenos y Edificios S.L. which were recognised at the same value as
the existing shares of the former SAITE.
111
On 1 July 2004, Pastor Servicios Financieros, S.A. was partially spun off in favour of
Banco Pastor, S.A. which received the assets corresponding to the financial lease
activities formerly performed in Spain by the spun-off company. The transferred
assets were recognised on the Bank’s balance sheet at the amount at which they
were carried in the accounts of the spun-off company. Information relating to the
spin-off was disclosed in the first financial statements published subsequent to
conclusion of the transaction, pursuant to article 93.1 of Royal Decree 4/2004.
In 2007, the merger and takeover of B.Pastor Agencia de Seguros, S.A, was made
by Pastor Mediación Operador for Banca-Seguros Vinculado, S.L, with the company
being dissolved without liquidation, with the en bloque universal transfer of all
assets to the absorbing company. The relevant tax authority was notified of the
application of the special tax regime under Chapter VIII of mergers, spin-offs,
contributions of assets and equity exchanges of Title VII of Royal Decree 4/2004,
dated 5 March, approving the Revised Corporate Income Tax Law.
Also, in 2007, the merger and takeover of Getenai S.L., was made by General de
Terrenos y Edificios S.L., with the company being dissolved without liquidation, and
with the en bloque universal transfer of all assets to the absorbing company. The
relevant tax authority was notified of the application of the special tax regime under
Chapter VIII of mergers, spin-offs, contributions of assets and equity exchanges of
Title VII of Royal Decree 4/2004, dated 5 March, approving the Revised Corporate
Income Tax Law.
The entry “Current tax liabilities” in the accompanying consolidated balance sheets
consists of amounts pending payment by the Group to the tax authorities in respect
of the various applicable taxes.
Also the balance of “Current Tax Assets” in the consolidated balance sheet includes
the net amount of the current tax asset as a result of the calculation of the provision
for corporation tax on profit for the current year, net of prepayments, withholdings
and other advance payments made in the year.
Thousand euro
2011
Current tax assets
2010
32.518
54.317
21.277
16.962
124
30.216
3.538
1.391
Of w hich:
Corporate income tax refundable for the y ear
(Banco Pastor, S.A.)
Corporate income tax refundable for prev ious
y ears (Banco Pastor, S.A.)
Current tax liabilities
Reclassification in the provision for taxes recorded on the liabilities side of the
balance sheet at 31 December 2011 and 2010 was as follows:
Thousand euro
Net transfers
Use of balances
Transfers and other mov ements Balance at year end
2011
2010
15.273
16.402
(261)
585
(5.046)
---
3.343
(1.714)
13.309
15.273
In June 2006 the Bank received notice of the start of tax verification and
investigation action regarding corporate income tax for 2001 through 2004, and for
all other taxes relating to the Bank's activities for the years 2002 through 2004. In
2007 this inspection action was completed and the provision for tax liabilities is
considered to be sufficient and the tax criteria applied by the bank were deemed
reasonable by the Inspectorate.
112
As a result, among other things, of the different interpretations to which Spanish tax
legislation lends itself, additional tax assessments may be raised in the event of a
tax inspection. The Directors consider, however, that any additional assessments
that might be made would not significantly affect these annual accounts.
29. RESIDUAL TERM TO MATURITY OF TRANSACTIONS
The detail by term of maturity of certain items of the consolidated balance sheet at
TOTAL
Measurement
adjustments
year
More than 5
Between 1
and 5 years
and 12
months
Between 3
months
Between 1
and 3
Up to 1
month
FY 2011
On demand
Thousand euro
ASSETS
Cash o n hand and o n depo sit at central banks
432.076
139
4 3 2 .2 15
---
20.486
714.758
947.222
3.695.397
256.083
97
5 .6 3 4 .0 4 3
2.533.450
566.267
898.098
1.422.675
3.952.180
12.396.400
(619.076)
2 1.14 9 .9 9 4
(448)
3 19 .9 7 4
Debt securities
Lo ans and disco unts:
Depo sits at credit institutio ns
Custo mer lo ans
---
---
---
---
---
88.985
28.259
7.524
18.645
71.895
105.114
2.444.465
538.008
890.574
1.404.030
3.880.285
12.291.286
TOTAL
2 .9 6 5 .5 2 6
5 8 6 .7 5 3
1.6 12 .8 5 6
2 .3 6 9 .8 9 7
7 .6 4 7 .5 7 7
Depo sits fro m central bank
---
---
---
---
---
2.700.000
12 .6 5 2 .4 8 3
(618.628) 2 0 .8 3 0 .0 2 0
( 6 18 .8 4 0 )
2 7 .2 16 .2 5 2
750
2 .7 0 0 .7 5 0
LIABILITIES
Depo sits fro m credit institutio ns
152.759
1.269.656
723.881
184.177
605.882
179.859
12.885
3 .12 9 .0 9 9
4.322.687
2.007.216
2.220.244
5.133.417
1.554.173
158.464
42.873
15 .4 3 9 .0 7 4
M arketable debt securities
---
174.070
754.558
911.040
3.065.158
140.000
186.815
5 .2 3 1.6 4 1
Subo rdinated debt financing
---
---
---
---
---
344.988
8.011
4 .4 7 5 .4 4 6
3 .4 5 0 .9 4 2
3 .6 9 8 .6 8 3
6 .2 2 8 .6 3 4
5 .2 2 5 .2 13
3 .5 2 3 .3 11
Custo mer funds
TOTAL
2 5 1.3 3 4
3 5 2 .9 9 9
2 6 .8 5 3 .5 6 3
TOTAL
adjustments
Measurement
year
More than 5
and 5 years
Between 1
months
and 12
Between 3
and 3
months
Between 1
month
Up to 1
FY 2010
On demand
Thousand euro
ASSETS
Cash on hand and on deposit at central banks
Debt securities
283.643
---
Loans and discounts:
Deposits at credit institutions
Custo mer loans
---
---
---
---
---
11.417
272.270
216.450
4.472.242
476.056
2.278.273
1.258.945
1.132.165
1.135.207
4.236.374
13.042.847
51.331
497.006
82.900
107.114
2.226.942
761.939
1.049.265
1.028.093
TOTAL
2.5 61.9 16
Depo sits from central bank
---
1.270 .36 2
1.4 04.435
--4.236.374
191
2 83.8 34
(190)
5.4 48.2 45
(676.082) 2 2.4 07.7 29
110.262
(1.017)
8 47.5 96
12.932.585
(675.065)
2 1.5 60.133
1.3 51.6 57
8 .70 8.616
13.518 .90 3
( 67 6.0 81)
2 8.139.8 08
---
---
---
575
3.9 00.914
LIABILITIES
Depo sits from credit institutions
Custo mer funds
M arketable debt securities
Subo rdinated debt financing
TOTAL
2.400.339
1.500.000
428.674
983.938
395.006
297.091
586.902
96.699
9.987
2.7 98.2 97
3.333.624
3.680.939
2.561.929
5.069.162
858.609
1.431
13.709
15.5 19.4 03
130.193
214.202
233.331
4.962.603
451.341
243.304
6.2 34.9 74
-----
---
---
---
---
485.500
3 .76 2.2 98
7 .195 .40 9
4.671.137
5 .59 9.5 84
6 .40 8.114
1.034 .97 1
13.452
2 81.0 27
4 98.9 52
2 8.9 52.5 40
113
There are differences between the amounts set out above and Group’s liquidity gap
due to the classification of sight and demand deposits. However, the amounts
classified into each time period are fair and consistent with the Group’s balance
sheet data, following the classification criteria recommended in prevailing
legislation.
To ensure that it is able to meet its commitments, the Group has adopted
appropriate liquidity management models designed to optimise cost and maturity
schedules. The measures adopted include maintaining liquid assets sufficient to
cover potential liquidity crises. At 31 December 2011 and 2010 the Bank had assets
pledged to the European Central Bank amounting to EUR 4,349,016 thousand and
EUR 3,695,126 thousand, respectively.
To ensure adequate measurement of liquidity risk, the Group has developed a
series of tools that enable it to track and manage the payment structure of its asset
and liabilities. These tools include the static and dynamic liquidity gaps, and a series
of liquidity indicators and limits (liquidity profile and liquidity ratio). The Group has
also established a liquidity contingency plan which sets out the procedure to follow
in situations of illiquidity that could pose a threat to the Bank's business (Note
31.4.2).
30. FAIR VALUE OF ASSETS AND LIABILITIES
A breakdown of the fair values of the consolidated balance sheet headings at 31
December 2011 and 2010, by class of asset and liabilities, and in the following
classifications:
 Tier 1: Financial instruments whose fair value is calculated by using listed prices
on active markets or which relate to recent transactions (within the past 12 months)
carried out in active markets that have been updated to reflect current conditions.
 Tier 2: Financial instruments whose fair value is estimated based on listed prices
in organised markets for similar instruments or through measurement techniques for
which all significant inputs are based on information that is directly or indirectly
observable in the market.
 Tier 3: Financial instruments whose fair value is estimates based on
measurement techniques for which some inputs are not based on observable
market information.
114
Thousand euro
2011
Account balance
2010
Fair value
Total
Level 1
Level 2
Other
Account balance
Fair value
Total
Level 1
Level 2
Other
ASSETS
Financial instrum ents
Cash on hand and on deposit at central banks
Customer loans
432.215
432.215
432.215
---
---
283.834
283.834
283.834
---
---
20.932.508
21.418.433
---
21.418.433
---
21.652.136
22.045.270
---
22.045.270
---
319.974
319.974
---
319.974
---
847.596
847.751
---
847.751
-----
Debt securities
Held for trading
at fair v alue through profit or loss
Av ailable for sale
Loans and receiv ables
5.102
5.102
5.102
---
---
110.446
110.446
110.446
---
193.952
193.952
---
193.952
---
575.116
575.116
---
575.116
---
2.499.173
2.499.173
2.113.546
374.528
11.099
1.696.894
1.696.894
329.585
1.340.856
26.453
856.750
856.750
---
856.750
---
1.034.100
1.034.100
---
101.930
932.170
2.079.066
2.050.930
1.960.614
90.316
---
2.031.689
2.031.689
1.852.941
178.748
---
156
156
156
---
---
3.680
3.680
3.680
---
---
---
---
---
---
---
2.534
2.534
2.534
---
---
42.974
45.575
17.237
---
28.338
52.938
60.912
20.683
---
40.229
172.151
172.151
172.151
---
---
93.249
93.249
93.249
---
---
Hedging deriv ativ es
102.095
102.095
102.095
---
---
154.068
154.068
154.068
---
---
Shareholdings
104.162
105.399
---
---
105.399
102.653
104.764
---
---
104.764
Other assets
493.190
493.190
---
---
493.190
503.807
503.807
---
---
503.807
Held-to-maturity
Equity instruments:
Held for trading
Av ailable for sale
Other assets:
Non-current assets held for sale
1.352.943
1.939.732
1.069.425
1.560.202
166.640
166.640
182.474
182.474
Inv entories
622.836
721.215
738.059
808.102
30.375.887
31.522.682
31.134.698
32.098.892
TOTAL ASSETS
LIABILITIES
Customer deposits
184.906
184.906
---
184.906
---
489.633
489.633
---
489.633
---
16.436.479
16.372.918
---
16.372.918
---
15.029.770
14.710.702
---
14.710.702
---
5.829.849
5.857.074
---
5.857.074
---
6.699.211
6.699.211
---
6.699.211
---
5.231.641
5.494.925
---
5.494.925
---
6.234.974
6.353.362
---
6.353.362
---
352.999
354.340
---
354.340
---
498.952
535.942
---
535.942
---
Held for trading
122.188
122.188
122.188
---
---
76.663
76.663
76.663
---
---
Hedging deriv ativ es
106.121
106.121
106.121
---
---
69.112
69.112
69.112
---
---
Other liabilities
389.096
389.096
---
---
389.096
430.262
430.262
---
---
430.262
28.653.279
28.881.568
29.528.577
29.364.887
At amortised cost
Deposits of central banks and credit institutions
TOTAL LIABILITIES
As has been previously stated, except for loans and receivables and held-tomaturity investments, equity instruments whose market value may not be reliably
estimated and financial derivatives that have such instruments as their underlying
assets and are settled by the delivery of the assets, the financial assets owned by
the Bank are recognised in the accompanying balance sheets at fair value.
Except for financial liabilities measured at fair value through changes in profit or loss
and financial derivatives whose underlying assets consist of equity instruments
whose market value cannot be reliably measured, the Bank's financial liabiloities are
recorded in the accompanying balance sheets at amortised cost.
Note 2.1.2 shows the principles used to determine the fair value of those financial
instruments recognised at fair value in the balance sheet.
In general the fair value of the financial assets classified in the trading portfolio
coincides with the listed price on the final market day of the year unless, due to
some circumstance, that price is not representative, in which case the alternatives
established in the restatement procedure will be applied to correct any weaknesses
detected in the listed prices.
The derivatives contracted by Banco Pastor on unorganised markets mainly relate
to interest rate swaps (IRS) and sometimes there are some Call Money Swap
(CMS) transactions, FX Swaps and options.
115
The contracting of the IRS is not executed on organised markets but rather is the
most representative example of over the counter trading (OTC), very common in
current financial markets. For this reason and in order to mitigate the counterparty
risk that varies on a daily basis due to the change in the revaluation curves, and due
to the absence of a clearing house, the Group has concluded framework
agreements concerning Financial Transactions + collateral agreements (ISDA +
Appendix CSA, CMOF + Appendix III) with its main counterparties in the market for
this product.
The Group considers that the unorganised markets (OTC) in which it has obtained
these derivative instruments are active markets due to the following reasons:
The goods or services exchanged on the market are homogeneous. Although OTC
products are involved, the IRS contracted by the Group are in line with market
conventions (nominal, reference curves, calculation bases, currencies, etc.), and
therefore it is not difficult to find many financial swap contracts with similar terms.
b) Buyers or sellers for a certain good or service may be found at any time. The IRS
are the main hedging instrument for medium and long-term interest rates and
therefore they are habitually traded among financial institutions.
c) Prices are known and easily accessed by the public. These prices will also reflect
actual, current and regular market transactions.
The measurement criteria for these products is the discount of future flows at
present value using the interest rate curve at the measurement date. The commonly
used curve is the Swap curve made up of the fixed rates in the market that equal
the IRS maturities with a floating payment in the same term. This curve is contantly
updated in the market and is one of the most "liquid" prices in the market.
Other transactions in unorganised markets:
FX Swap transactions: this type of transaction is also highly liquid in the markets,
especially in the short-term (maximum term of three months) for a the USD/EUR
currency pair. In any event, it also complies with the three criteria for an active
market, although currently, and given the current circumstances in the market, a
premium is placed on the rates applied to the reference rates in the market curve
due to the characteristics of this OTC products, i.e. the exchange of principal at the
start and final maturity of the transaction. These products are included, together with
the IRS and other OTC products, in the framework contracts and ancillary contracts
to the provision of collateral.
Pure exchange rate transactions Spot and Forward transactions The exchange rate
market is undoubtedly the most liquid and active in which the USD/EUR currency
pair is notable above all other transactions. It is an OTC market in which
transactions are carried out through a broker. In the past few years transactions
through electronic brokers, instead of a "physical or voice" broker, have grown
exponentially.
To determine the fair value of the financial instruments recognised in the balance
sheet at amortised cost, in general, they are calculated by discounting free cash
flows to the repricing date, using an implicit embedded market rate curve without
adding any additional credit risk premium.
For equity instruments not listed in organised markets, fair value is considered to be
their respective carrying amounts, a principle which was also applied to
investments.
The fair value of properties recognised under “Non-current assets held for sale” and
“Inventories” has been determined based on appraisals carried out by independent
experts.
The main assumptions underlying fair value calculations are those used to
determine the maturity date of demand deposits, which by nature are accounts
without a specific maturity. Accordingly, the term to maturity of these accounts has
been assumed to be, as a general rule, five years.
116
Below are the amounts recognised in the income statements for 2011 and 2010 for
variations in fair value in financial instruments for non-materialised gains or losses.
Financial instruments are distinguished between those whose fair value is
determined by prices quoted on public markets (Tier 1) and those whose values are
estimated using valuation techniques with variables taken from data observable in
the marketplace (Tier 2).
Thousand euro
2011
Gains
Lev el 1
3.117
Lev el 2
TOTAL
2010
Losses
Net
Gains
Losses
Net
(5.982)
(2.865)
349
(896)
(547)
3.635
(85)
3.550
1.078
(7.131)
(6.053)
6.752
(6.067)
685
1.427
(8.027)
(6.600)
The amounts shown in the table above correspond to the trading portfolio (other
assets at fair value through profit and loss are not included since they are assets
hedged in fair value hedges or assets valued at fair value through profit and loss to
avoid information asymmetries. In both cases changes in value are cancelled out by
changes in the value of hedging instruments or the corresponding liability, with no
effect on income).
In terms of liabilities recognised at fair value, the Bank would be obliged to pay the
holders of these liabilities EUR 18,445 thousand more than the amount of those
liabilities recognised on the balance sheet at 31 December 2011 at maturity, while
at 31 December 2010 it exceeded the amount recognised in the balance sheet by
EUR 12,970 thousand.
There were no credit derivatives in place at 31 December 2011 or 2010 to mitigate
the risk exposure of financial assets at fair value through profit or loss.
31. RISK MANAGEMENT
Banco Pastor considers that risk management is one of the pillars on which its
business strategy rests and continually aligns the management and control of risks
with the business objectives established at any given moment. The corporate map
indicates that Excellence in cost and risk management is one of its strategic
objectives, strengthening the integral management of risk and placing emphasis on
diversification.
The basic principles on which the Bank bases risk management are:
 The active participation and supervision of the Company's governing bodies: the
Board of Directors and Management Committee play an active part in the approval
of general business strategies and assume responsibility for the definition of risk
assumption and management policies, taking care to ensure that appropriate risk
policies, controls and monitoring systems are in place and that lines of authority are
clearly defined.
 General internal control environment: a culture of risk management that is
promoted by the Board of Directors itself and communicated to all levels of the
organisation must be manifest within the Group. Objectives must be clearly defined
to prevent inappropriate risks or positions being taken due to a lack of adequate
organisation, procedures or control systems.
 Selection of adequate methods to measure risks: the Bank must implement
appropriate risk measurement methodologies to ensure proper assessment of the
various risk factors to which it is exposed.
 Evaluation, analysis and monitoring of risks assumed: risks must be identified,
quantified, controlled and monitored on an ongoing basis, so that the relationship
between the return obtained on transactions and the risks assumed can be
accurately defined.
117
The most significant risks inherent to the Bank's activities can be grouped into the
following categories:
 Credit risk
 Counterparty risk
 Market risk
 Structural balance sheet risks (interest rate, liquidity and exchange risks)
 Operational risk
 Compliance and reputational risk
In accordance with the Bank's exposure to the primary risks, measured in terms of
equity requirements established by Bank of Spain Circular 3/2008, the risk profile
assumed by the Bank in 2011 and 2010 is distributed as follows:
 Credit and counterparty risk: 92.9% (92.7% in 2010)
 Operational risk: 6.6% (7.1% in 2010)
 Market risk: 0.5% (0.2% in 2010)
In line with the business model focused on retail bank and oriented towards
customer service quality, the highest exposure derives from credit risk.
31.1. Credit risk
31.1.1. Duties of the Risk Unit.
The responsibility for credit risk management at Banco Pastor falls to the Risk
Management Office. Its main duties in this area are:
 To supervise and oversee management of credit risk from a unified, global
perspective, thereby ensuring that growth plans are addressed within a sustainable
and stable framework, as efficiently as possible.

Define and implement credit risk policies and assign responsibilities in this area.
 Establish and manage risk control systems that are necessary for adequate
credit quality in the portfolio.
 Preserve the Group's solvency through selective growth that seeks the creation
of value in the medium and long-term.
Objectives of Risk Management.
Credit risk management has taken on a central role in the current economic
environment. In this context, Banco Pastor has strengthened this area, establishing
a series of strategic priorities to attain excellence:
 Integrate the size of risk into commercial policies and when creating new
products.
 Direct the efforts of the network and regional offices in terms of risks, providing
them with technical capacities.
 Advance towards the attainment of IRB models for all of the Bank's credit
portfolios (creation of PD and LGD models and integrating them into management
tasks).
 Integrate risk metric as pillars of basic management tasks (RAROC, IRB models,
etc.).

Optimise the management of customers showing difficulties or in default.
118
 Increase the early management of customers showing a high probability of nonpayment.
3 1 . 1 . 2 . S t r u c t u re o f o f R i s k M a n a g e m e n t .
In order to carry out its tasks and attain its objectives in the most effective and
efficient manner possible, Banco Pastor has redefined its Credit Risk structure.
Reporting directly to the Bank's Chairman, and with frequent exposure to the Board
of Directors, Risk management is structured into five units with supplementary
although well differentiated duties.
- Granting of credit
- Risk control
- Risk Policies and Operations
- Risk models
- Validation
3 1 . 1 . 2 . 1 . C r e d i t R i s k C o n c e s s i o n D e p a rt m e n t
The Credit Risk Concession Department transcends the traditional view of an
analysis department and the approval of transactions. Its duties include active
participation in the monitoring of the credit portfolio and the definition of the credit
investment policy, as well as the definition of policies and the management of risk
tems within the network and Regional Offices:
 Analysis, evaluation and approval of the risk transactions that exceed the
authority delegated to the network.
 Analysis of those customers that have been identified based on prevention
policies and tools. In addition, together with the Prevention Unit, it proposes the
strategy to be followed in each case.
 To provide advice to individual business units on all risk analysis and
assessment activities.
 It participates in the definition of the Bank's credit risk policy (qualities, target
customer credit profile, etc.).
3 1 . 1 . 2 . 2 . R i s k C o n t ro l D e p a rt m e n t
This office is responsible for the management of the credit portfolio presenting
irregularities within the Bank's balance sheet. It covers both exposure to delayed
payments or defaults and those that are in a compliance position but which show a
high probability of impairment in the future.
At the start of the current economic situation, Banco Pastor redesigned this area in
order to be in a position to best handle the challenges it currently faces. All of the
indicated changes have been implemented and are fully operational.
- Prevention
- Irregular investment management.
- Restructuring.
- Financial Solutions Centre
31.1.2.2.1. Prevention unit
The primary aim of the Prevention Unit is to provide the Bank with mechanisms to
allow symptoms of changes in credit quality with respect to the time at which the
transaction took place to take decisions that allow the risk to be redirected if
necessary.
119
One of the main changes within the Risk Control Office has consisted of the
redesign of the unit, as well as the improvement of the tools available to carry out
these tasks. Banco Pastor has created systematic procedures and econometric
tools to identify customers showing impairment risk involving credit quality, as well
as detailed protocols to assign the strategies to be implemented with respect to
each type of customer, based on their situation. Another fundamental change in this
connection was the involvment of all management bodies in prevention efforts: from
the network to Central Services.
Main duties:
 Proposing and implementing risk monitoring policy for the Bank and financial
group as a whole.
 Permanent analysis of the Bank's portfolio through the identification of
customers to be reviewed, supported by an "ad hoc" default anticipation tool.

Exhaustively monitor real estate operations currently underway.
 Together with Credit Risk Concession, define the strategy to be applied to
customers analysed within the prevention process and ensure the correct and
complete implementation of that policy.
In 2011 more than EUR 3,650 million in credit loans have been reviewed and
classified, establishing adequate repositioning strategies where necessary, reducing
the number of customers entering into difficulty and mitigating losses in the event
that defaults are inevitable.
The Prevention Unit also supervises the management of risks at offices and
evaluates, for example, the rigor of the preparation of proposals, risk criteria applied
or the quality of the customer information provided. In addition to the review of all
offices that was completed in 2011, many underwent second and even third
reviews. In this area, a risk figure exceeding EUR 3,970 million was detected.
31.1.2.2.2. Irregular Investment Management Unit
Irregular investment management starts at the time a customer first presents
payment problems and ends when the process is completed. Fundamental changes
have also been made in this area:
 Implementation of a specific tool for the assignment of the management of case
files in accordance with the target parameters for the various teams.
 Assignment of responsibilities to different teams in accordance with their profile
and the customers they manage.
 Implementation of a new specific tool for monitoring customer management
efforts.
 Advances in the management of multiple suppliers to externalise debt
management, in order to optimise results.
The main duties carried out by the Irregular Investment Management Unit are:

Administer debt recovery policy for the Bank and the financial group as a whole.
 Coordinate the recovery efforts carried out by the various parties involved (office
network, Regional Offices and external suppliers).

Directly manage customers within the assigned parameters.
 Define guidelines for managing the various management levels involved in the
process.
 Analyse the performance of irregular investment management throughout the
Bank.
120
31.1.2.2.3. Restructuring unit
The Restructuring Unit is specialised in the management of restructuring of debt
financing loans for corporate customers, in which several financial institutions
participate.
This unit is the natural contact with customers, as well as with the rest of the entities
participating in the syndicated looan or involved with the restructuring process.
31.1.2.2.4. Financial Solutions Centre
In order to attain maximum efficiency, this work has been centralised at a team
specialised in debt restructuring for individual customers. Its duties are:
 Negotiate with individual and autonomous customers that are solvent and have
demonstrated a willingness to make payment, through restructuring or refinancing
management.

Direct relationship with customers in this activities.
3 1 . 1 . 2 . 3 . R i s k P o l i c i e s a n d Op e r a t i o n s U n i t
This Unit was created within the framework of the restructuring of the Risk Office. In
order to support all other component units, its main tasks are:
 Define and implement the Bank's credit policies in cooperation with the units
involved (Risk concession, Irregular investment management, Prevention).
 As a tool to define the policies the Unit must manage both statistical analysis
tools and credit rules.
 Take action together with the Sales Department and cooperate with the
integration of the size of Risks into the sales activity (for example, defining
products).
 Implement risk management focusing on RAROC at all levels (network, regional
offices and central services).
 Continuously monitor and improve the risk area: organisation, processes and
tools.
3 1 . 1 . 2 . 4 . R i s k Mo d e l U n i t
The Model Unit is responsible for developing the quantitative statistical tools that
support the risk management processes. As a central project, this unit leads the
Bank's advancement to the attainment of IRB approaches. Specifically, the Unit's
duties are:
 Development and monitoring of the internal rating models used to approve
transactions, pre-set limits, anticipate payment problems and monitor credit risk for
each of the Bank's relevant portfolios. In addition, estimates are prepared with
respect to the regulatory parameters and the calculation of IRB capital.
 Maintain and improve scoring and rating systems used when allowing
transactions and when carrying our Prevention activities.
 Define the profitability metrics that match the risk and pricing that use, among
other things, inputs consisting of the parameters previously defined and
subsequently implemented in the risk management processes.
 Define a financial capital model and perform all stress tests necessary to identify
the Bank's main risks in the event of certain adverse scenarios.
 Obtain and manage the information that is necessary within the risk area, which
is one of the control panel tools.
121
3 1 . 1 . 2 . 5 . I n t e rn a l V a l i d a t i o n U n i t
The Internal Validation Unit was created within the framework of the restructuring of
the Risk Office, in order to have a Unit that is totally independent of the person
responsible for creating the models, in order to ensure maximum efficiency when
monitoring their performance. Specifically, this Unit's duties are:

Continuous monitoring of models.
 Identify the relevant uses of internal models, both on a regulatory and
management level.
 Issue an opinion on the usefulness and effectiveness for those uses, verifying
compliance with the minimum requirements established by regulations to use those
advanced models.
 Evaluate whether or not risk procedures, including methodologies, are adequate
to the Bank's risk strategy and profile.
3 1 . 1 . 3 . S t r u c t u re o f t h e d e l e g a t i o n o f a u t h o ri t y
Banco Pastor has an authority delegation structure to approve credit risk
transactions based on objective criteria in order to enbsure that the risk assumed by
the bank is controlled by professionals with an adequate profile:
Risk Committee  Risk Commission (Regional Management)  Local Risk
Commission (NETWORK)
All bodies with delegated authority to approve credit risk must take joint decisions,
from the network to the Regional Offices. Only the persons responsible for risk at
the Central Services level has limited authority to individually approve transactions,
once analysed and proposed by the Regional Offices.
31.1.3.1. Risk Committee
By delegation of the Board of Directors, the Risk Committee is the most senior body
authorised to make credit risk decisions.
 Establishes strategic risk policies, evaluates their performance and assesses
and sets the corrective measures considered to be the most advisable in each case.
 Approves the businesses that exceed the authority of other decision making
bodies.
This committee meets every week. The Committee consists of 6 members: The
Chairman of the Bank, the CEO, the Commercial Managing Director, the General
Director of Risks, the Director of Risk Concession, and the Director of Global Risk
Management and Control.
3 1 . 1 . 4 . D e ve l o p me n t o f t h e S t r a t e g i c P l a n f o r A d a p t a t i o n t o B a s e l I I
In 2005 Banco Pastor drew up a document entitled “Diagnosis of risk management
processes and strategic plan for adaptation to Basel II”. The document identified the
tasks pending to bring the Bank’s systems in line with the new risk management
models and identified two priority objectives:

To continue to improve risk management at the Bank.
 To make it possible to apply the most advanced Basel II models in calculating
the consumption of capital.
In 2006 the Master Plan was executed and since that time the teams have been
working on fulfiling the tasks established in that plan. In 2010 significant advances
were made towards the objectives set and many of the initiatives are expected to be
implemented in the management processes in 2011.
122
1. Systematic monitoring of internal credit risk models.
Processes are being defined that ensure the proper operation of the models and
action will be taken with respect to any that require adjustment.
During the execution of this objective, opportunities for improvement have been
identified in the models that evaluate the Personal and Commercial portfolios at
the Bank. Models have been adjusted and new models were implemented for
the Personal Banking portfolio this year and at the start of 2012 the same was
done for the Business Banking portfolio.
2. Estimate of Risk Parameters
Within the scope of the Basel project, in 2011 several actions were taken on a
parallel basis:
 Re-estimate of the IRB parameters using more recent information.
 Review of the methodologies used to adjust to the new economic
environment.
 Improvement of automatic mechanisms to assign parameters and to
calculate capital.
Progressive integration of the IRB parameters in the daily management of credit
risk.
3. Risk information model (credit risk and integration of reporting on all other
types of risks).
One of the pillars with respect to optimising risk management at Banco Pastor is
the creation of a risk control panel. This control panel is structured such that it
makes relevant information avaialble to the various managers. It also allows
access to information in aggregate terms, as well as access to information with
maximum detail.
4. Risk-adjusted return model (RAROC/Pricing).
In 2011 the technical measures to automatically calculate the RAROC from
transactions were developed. This work is expected to be completed during the
first four months of 2012. As from that time the RAROC and Pricing policies for
the granting and monitoring of credit risk will be progressively integrated, as well
as the establishment of incentives.
5. Internal Validation Function
As is mentioned in the summary of the organisational structure of Banco Pastor
Risks, an Internal Validation Unit has been created that is completely
independent from the persons responsible for developing and using the models.
The fundamental objective of this Unit is to provide a technical and critical
opinion of the adequacy of the internal models, both for regulatory and
management purposes, identifying all relevant uses and reaching conclusions
regarding their usefulness and effectiveness.
3 1 . 1 . 5 . M a x i mu m c r e d i t ri s k e x p o s u re
The table below shows the maximum level of credit risk exposure assumed by the
Group at 31 December 2011 and 2010 for each category of financial instruments,
without deducting from each exposure any real guarantees or other credit
enhancements received as security for debt fulfilment:
123
Thousand euro
2011
Asset balances
Financial assets at fair value
Available-for-
Loans and
Held for trading Other assets
sale financial
discounts
Marketable securities
Hedging
derivatives
Memorandum
accounts
TOTAL
assets
Debt instruments
institutions
Held-to-maturity
---
---
---
319.974
---
---
---
319.974
5.102
193.952
2.499.360
856.750
2.079.252
---
---
5.634.416
---
---
---
21.785.047
---
---
---
21.785.047
5.102
193.952
2.499.360
22.961.771
2.079.252
---
---
27.739.437
Financial guarantees
---
---
---
---
---
---
483.657
483.657
Other contingent risks
---
---
---
---
---
---
378.808
378.808
---
---
---
---
---
---
862.465
862.465
172.151
---
---
---
---
102.095
---
274.246
---
---
---
---
---
---
1.809.119
1.809.119
Customer loans (*)
Total debt instruments
Contingent exposures
Total contingent risks
Other exposures
Deriv ativ es
Contingent commitments
---
---
---
---
---
---
---
---
Total other exposures
172.151
---
---
---
---
102.095
1.809.119
2.083.365
TOTAL EXPOSURE
177.253
193.952
2.499.360
22.961.771
2.079.252
102.095
2.671.584 30.685.267
Other
(*) Includes securitised loans w ritten off relating to securitisations prior to 2004 totalling € 134,947 thousand
Euro thousand
2010
Asset balances
Financial assets at fair value
Available-for-sale
Loans and
Held for trading Other assets
financial assets
discounts
Held-to-maturity
Hedging
derivatives
Memorandum
accounts
TOTAL
Debt instruments
---
---
---
847.596
---
---
---
847.596
110.446
575.116
1.697.886
1.034.100
2.032.490
---
---
5.450.038
---
---
---
22.562.014
---
---
---
22.562.014
110.446
575.116
1.697.886
24.443.710
2.032.490
---
---
28.859.648
---
---
---
---
---
---
534.869
534.869
---
---
---
---
---
---
411.551
411.551
---
---
---
---
---
---
946.420
946.420
93.249
---
---
---
---
154.068
---
247.317
---
---
---
---
---
---
2.565.880
2.565.880
Customer loans (*)
Other exposures
Deriv ativ es
---
---
---
---
---
---
---
---
93.249
---
---
---
---
154.068
2.565.880
2.813.197
TOTAL EXPOSURE
203.695
575.116
1.697.886
24.443.710
2.032.490
154.068
3.512.300 32.619.265
Other
In relation to the information set out in the above tables, it should be noted that:
 The figures for “debt instruments” recognised on the asset side of the balance
sheet are shown at their gross carrying value, without deducting impairment losses
and including all other valuation adjustments (accrued interest, loan arrangement
fees and similar charges to be accrued, etc) in the “Asset balances” columns.
 “Contingent commitments” include amounts available for drawdown by
borrowers.
 “Contingent liabilities” are recognised at the maximum amount guaranteed by
the Bank. As a general rule, it is assumed that the majority of these balances will
mature without giving rise to any actual financing need for the Bank. These
balances are shown without deducting the provisions established to cover the
associated credit risk.
124
 Other credit risk exposures, including the counterparty risk exposure
corresponding to derivative contracts, are shown at their carrying value.
3 1 . 1 . 6 . R e a l g u a r a n t e e s re c e i v e d a n d o t h e r c re d i t e n h a n c e m e n t s
A key element of the Group’s credit risk management policy is to ensure, as far as
possible, that the financial assets it acquires or contracts benefit from real
guarantees or some other form of credit enhancement in addition to the personal
guarantee of the borrower. The Group’s risk analysis and selection policies define
the real guarantees or credit enhancements that must be made available to secure
the exposure, in addition to the real guarantee of the borrower, before it is acquired
or contracted according to the various specific characteristics of the transaction,
including purpose of the exposure, counterparty, term, use of capital, etc.
The value of the real guarantees is determined on the basis of the nature of the
guarantee received. Real guarantees in the form of property assets are generally
valued at the appraisal value determined by independent experts in accordance with
the guidelines established for such purpose by the Bank of Spain at the time the
exposure is contracted. Only in the case of evidence of any losses of value affecting
these guarantees, or in those cases in which there is any deterioration in the
borrower's solvency that leads to the conclusion that these guarantees may be
applied, this measurement is restated in accordance with the same criteria; real
guarantees taking the form of securities listed on active markets are measured at
their listed price, adjusted by a percentage to cover any possible changes to that
market value that could negatively affect the coverage of the risk; similar real
guarantees are measured at the amount guarantees under these transactions;
credit derivatives and similar transactions used as a credit risk hedge are measured,
for the purposes of calculating the hedged amount, at the nominal value equal to the
pledged deposits, are measured at the value of those deposits and in the event that
they are denominated in foreign currency, converted to the exchange rate in force at
each measurement date.
The table below shows, for each category of financial instrument, the maximum
exposure to credit risk secured by each of the principal types of real guarantees and
other credit enhancements available to the Group at 31 December 2011 and 2010:
Thousand euro
2011
Real-estate
Guaranteed on Other property
guarantee
cash deposits
---
---
---
guarantees
Backed by
financial
TOTAL
institutions
Debt instruments
---
---
---
585.420
---
---
585.420
12.896.247
623.595
627.918
47.745 14.195.505
12.896.247
623.595
1.213.338
47.745 14.780.925
Deriv ativ es
---
106.576
---
---
106.576
---
---
---
---
---
Other
---
---
---
---
---
---
106.576
---
---
106.576
12.896.247
730.171
1.213.338
Customer loans
TOTAL
Other exposures
TOTAL
TOTAL AMOUNT COVERED
47.745 14.887.501
125
Thousand euro
2010
Real-estate
Guaranteed on
Other property
Backed by
guarantee
cash deposits
guarantees
financial
TOTAL
institutions
Debt instruments
---
---
486.326
---
486.326
---
---
889.915
---
889.915
13.438.604
659.434
830.657
66.152 14.994.847
13.438.604
659.434
2.206.898
66.152 16.371.088
Deriv ativ es
---
210.480
---
---
210.480
---
---
24.975
---
24.975
Other
---
---
---
---
---
---
210.480
24.975
---
235.455
13.438.604
869.914
2.231.873
Customer loans
TOTAL
Other exposures
TOTAL
TOTAL AMOUNT COVERED
66.152 16.606.543
31.1.7. Credit quality of financial assets
Credit risk exposure by level of risk
The table below shows maximum exposure to credit risk, classified according to the
level of risk attributable to the assets in question (based on the classifications and
definitions established in Bank of Spain Circular 4/2004 relating to the calculation of
impairment losses on debt instruments) at 31 December 2011 and 2010:
Thousand euro
2011
With no
Low risk
appreciable risk
Medium – low Medium risk
risk
Medium -high
High risk
Total
risk
Debt instruments:
319.974
---
5.338.045
130.477
Customer loans
1.034.544
7.237.650
6 .6 9 2.56 3
7 .3 6 8 .12 7
----4.859.452
4.85 9 .4 52
--165.894
5.324.942
5.49 0 .8 3 6
---
---
---
---
1.376.838
1.951.621
3 19 .9 74
5.6 34 .4 16
2 1.78 5 .0 47
1.3 76 .83 8
1.9 5 1.62 1
2 7.73 9 .4 37
Contingent risks:
8.761
---
---
474.896
---
---
48 3 .6 5 7
---
---
601
376.990
1.217
---
37 8 .8 0 8
8 .7 61
---
601
8 51.8 8 6
1.217
---
86 2 .4 6 5
Other exposures:
Deriv ativ es
Total
254.715
---
1.542.866
---
1.7 9 7 .5 81
8 .4 9 8.90 5
--7 .3 6 8 .12 7
--266.253
19.531
---
26 6 .2 53
19 .5 3 1
5.12 6 .3 06
6.36 2 .2 5 3
---
---
27 4 .2 4 6
---
---
1.8 0 9.119
--1.3 78 .05 5
--1.9 5 1.62 1
2.08 3 .3 6 5
3 0.68 5 .2 67
126
Thousand euro
2010
With no
Low risk
Medium – low Medium risk
appreciable risk
Medium-high
risk
High risk
Total
risk
Debt instruments:
847.596
5.064.656
Customer loans
1.343.576
Total debt instrum ents
7 .2 5 5.8 28
---
---
160.632
6.838.051
--4.846.436
6.9 98 .6 8 3
4 .8 46 .43 6
--224.749
6.247.304
---
---
8 4 7.5 96
---
---
5 .4 5 0.0 37
1.627.275
6.4 72 .05 3
1.659.373
2 2 .5 6 2 .0 15
1.6 2 7.2 75
1.65 9 .3 7 3
2 8 .8 5 9.6 48
5 3 4.8 69
Contingent risks:
21.051
---
---
513.818
---
---
8.774
---
---
402.777
---
---
2 9.82 5
---
---
9 16 .59 5
---
---
4 11.5 5 1
9 4 6.4 20
Other exposures:
Deriv ativ es
223.543
---
2.062.742
---
2 .2 8 6.2 85
Total
9 .5 7 1.9 38
--6.9 98 .6 8 3
---
23.774
503.138
---
5 0 3.13 8
23 .77 4
5 .3 49 .57 4
7 .4 12 .42 2
---
---
2 4 7 .3 17
---
---
2 .5 6 5.8 80
--1.6 2 7.2 75
--1.65 9 .3 7 3
2 .813 .197
3 2 .6 19.2 65
The following table details the maximum exposure to credit risk, classified by type of
financial instrument to which the Group is exposed, according to the ratings given
by external ratings agencies, at 31 December 2011 and 2010:
Thousand euro
2011
AAA to AA- A+ to A-
BBB+ to BBB- BB+ to BB- B+ to B-
CCC+ and No external
below
rating
TOTAL
Debt instruments
209.828
319.974
10.832
5.634.416
51.661
54.034
3.120
1.331
---
---
4.708.245
649.549
242.050
23.080
---
659
---
168.286
227.450
34.662
---
---
21.354.649 21.785.047
4.759.906
871.869
472.620
59.073
---
659
21.575.309 27.739.437
---
3
799
1.204
---
---
481.651
483.657
---
---
---
---
---
---
378.808
378.808
---
3
799
1.204
---
---
860.459
862.465
35.140
216.449
---
3.126
---
---
19.531
274.246
---
---
---
---
---
---
1.809.119
1.809.119
Customer loans (*)
Other exposures
Deriv ativ es
---
Other
TOTAL EXPOSURE
216.449
---
3.126
---
---
4.795.046 1.088.321
35.140
473.419
63.403
---
659
1.828.650
2.083.365
24.264.418 30.685.267
(*) Includes securitised loans w ritten off relating to securitisations prior to 2004 ( € 134,947 thousand
127
Euro thousand
2010
AAA to AA- A+ to A- BBB+ to BBB- BB+ to BB- B+ to B-
CCC+ and No external
below
rating
TOTAL
Debt instruments
261.438
56.227
4.872.406
458.772
68.502
22.207
310.044
100.291
5.156.051
825.043
491.387
---
792
---
---
---
Customer loans (*)
322.594
---
207.337
847.596
31.658
5.450.038
---
---
---
---
18.700
18.830
8.650
---
22.101.992 22.562.014
18.830
8.650
18.700
22.340.987 28.859.648
---
3.739
---
---
530.338
534.869
---
---
---
---
411.551
411.551
792
---
3.739
---
---
941.889
946.420
Other exposures
176.458
18.070
---
---
---
---
52.789
247.317
---
---
---
---
---
---
2.565.880
2.565.880
Other
---
---
---
---
---
---
---
---
2.618.669
2.813.197
Deriv ativ es
TOTAL EXPOSURE
176.458
18.070
---
---
---
---
5.332.509
843.905
491.387
22.569
8.650
18.700
25.901.545 32.619.265
(*) Includes securitised loans w ritten off relating to securitisations prior to 2004 ( € 160,481) thousand
Of the total amounts with ratings reflected in the above tables, practically all have
ratings granted by the agencies Fitch, Moody’s and Standard & Poors in both 2011
and 2010.
Credit risk exposure by counterparty
The table below breakdowns maximum exposure to credit risk by counterparties to
the transactions at 31 December 2011 and 2010:
Thousand euro
2011
Public
Financial
authorities Institutions
Other resident
sectors
Other non-
Other
resident sectors operations
TOTAL
Debt instruments
Customer loans (*)
---
319.974
---
---
---
319.974
2.891.745
1.879.737
850.017
12.917
---
5.634.416
621.631
---
20.824.853
338.563
---
21.785.047
3.513.376
2.199.711
21.674.870
351.480
---
27.739.437
---
---
478.249
5.408
---
483.657
---
31.290
347.485
33
---
378.808
---
31.290
825.734
5.441
---
862.465
---
254.715
19.531
---
---
274.246
50.690
11.097
1.689.115
58.217
---
1.809.119
---
---
---
---
---
---
Other exposures
Deriv ativ es
Other
TOTAL EXPOSURE
50.690
265.812
1.708.646
58.217
---
2.083.365
3.564.066
2.496.813
24.209.250
415.138
---
30.685.267
128
Euro thousand
2010
Public
Financial
authorities Institutions
Other resident
sectors
Other non-
Other
resident sectors operations
TOTAL
Debt instruments
Customer loans (*)
---
847.596
1.920.126
2.305.283
532.134
---
2.452.260
3.152.879
---
847.596
---
---
1.212.003
12.626
---
5.450.038
21.638.057
391.823
---
22.562.014
22.850.060
404.449
---
28.859.648
---
---
531.176
3.693
---
534.869
---
52.776
358.742
33
---
411.551
---
52.776
889.918
3.726
---
946.420
---
223.543
23.774
---
---
247.317
61.150
11.130
2.404.161
89.439
---
2.565.880
---
---
---
---
---
---
Other exposures
Deriv ativ es
Other
TOTAL EXPOSURE
61.150
234.673
2.427.935
89.439
---
2.813.197
2.513.410
3.440.328
26.167.913
497.614
---
32.619.265
3 1 . 1 . 8 . Fi n a n c i a l a s s e t s p a s t d u e a n d / o r i mp a i r e d
Assets impaired due to credit risk
Doubtful risks resulting from arrears, which include debt instruments with past-due
payments of more than three months and also all transactions with a given client
when balances classified as doubtful due to arrears account for more than 25% of
the total amount pending collection, and all contingent liabilities where the
guaranteed borrower has fallen into arrears, are considered to be impaired financial
assets.
Doubtful risks resulting from reasons other than arrears, which include debt
instruments, whether or not matured, where, although circumstances are not yet
such that they should be classified as bad or doubtful debts on the grounds of client
default, there is reasonable doubt as to their full recovery (principal and interest) on
the terms agreed contractually, as well as contingent liabilities and contingent
commitments not classified as doubtful on the ground of the client’s default where
payment by the Bank is probable and recovery doubtful, are also considered to be
impaired.
This category includes, inter alia, transactions with clients in situations that mean a
deterioration in their solvency, balances for which notice of demand have been
issued and balances that the Bank has decided to seek to recover by judicial
channels, loans where the borrower has instituted legal proceedings and collection
of the outstanding is dependent on the resolution of the case, finance lease
operations where the Group has decided to terminate the contract in order to
recover possession of the asset, transactions with clients that have been or are
about to be declared insolvent without order for liquidation, as well as all
transactions with clients with any balance classified as doubtful due to arrears, if
there is reasonable doubt as to the full recovery of these balances. It also includes
the contingent liabilities of guaranteed borrowers declared insolvent where notice of
liquidation has been or is due to be issued or there has been a significant and
irrecoverable deterioration in their solvency, but the beneficiary of the guarantee has
not sought to claim payment.
129
In 2010 the system for calculating the impairment losses affecting financial assets
was changed, as is indicated in Note 1.4. In accordance with the new calculation
system, the base for making provision for these assets secured by real estate
guarantees is the excess of their carrying value over the adjusted value of the
guarantee (as is indicated in Note 1.4), while the base for making provision for
financial guarantees not secured by real estate guarantees coincides with the
carrying value. If the adjusted value of the real estate guarantee exceeds the
carrying value, the impairment loss is calculated by applying the same criteria as
used for the risks classified as being in a "normal" situation, as is defined in Note
2.1.8.1.
A breakdown of the Group's financial assets that are impaired due to credit risk at
31 December 2011 and 2010 is set out below, reporting their carrying value and the
excess value of the real estate guarantee, which constitutes the base for making the
provision.
2011
Debt instrum ents
DOUBTFUL RISKS DUE TO BAD DEBTORS
Total
Account Excess over real Account Excess over real
Account Excess over real
balance
balance
estate guarantee
9.399
1.012.130
330.652
---
8.601
---
estate guarantee balance estate guarantee
1.002.731
321.253
8.601
---
Unsecured operations
174.107
174.107
9.399
9.399
183.506
183.506
Secured operations
147.146
Operations instigated as "without appreciable risk"
9.399
820.023
147.146
---
---
820.023
Housing completed borrow er's habitual residence
239.376
9.162
---
---
239.376
9.162
Farmland in use and finished offices, premises and ind. facilities
116.140
13.416
---
---
116.140
13.416
Completed housing (rest)
175.838
25.029
---
---
175.838
25.029
Plots, sites and other inv estment properties
288.669
99.539
---
---
288.669
99.539
---
---
---
---
---
---
804.592
415.212
14.298
14.017
818.890
429.229
12.829
---
281
---
13.110
---
275.192
275.192
13.413
13.413
288.605
288.605
Secured operations
516.571
140.020
604
604
517.175
140.624
6.858
475
---
---
6.858
475
85.248
7.262
---
---
85.248
7.262
With partial pledge
DOUBTFUL RISKS FOR REASONS OTHER THAN BAD
DEBTORS
103.446
9.809
---
---
103.446
9.809
321.019
122.474
604
604
321.623
123.078
1.807.323
736.465
23.697
23.416
1.831.020
759.881
TOTAL
Allow ance to cov er impairment loss (*)
612.020
Difference
147.861
% cov er
80,5%
(*) Allow ance determined indiv idually relating to debt instruments and contingent risks, ex cluding substandard risk (defined in Note 2.1.8.1) amounting to € 89,351
130
2010
Debt instrum ents
Account
balance
DOUBTFUL RISKS DUE TO BAD DEBTORS
Excess over real
estate guarantee
(*)
Account
balance
Excess over real
estate guarantee
(*)
Total
Account
balance
Excess over real
estate guarantee
(*)
1.019.339
358.883
13.758
13.758
1.033.097
5.137
---
---
---
5.137
---
205.580
205.580
13.758
13.758
219.338
219.338
Secured operations
372.641
807.575
153.303
---
---
807.575
153.303
236.733
11.723
---
---
236.733
11.723
109.906
12.097
---
---
109.906
12.097
156.057
24.370
---
---
156.057
24.370
304.879
105.113
---
---
304.879
105.113
1.047
---
---
---
1.047
---
524.138
212.515
25.061
24.025
549.199
236.540
With partial pledge
DOUBTFUL RISKS FOR REASONS OTHER THAN BAD
DEBTORS
18.669
---
1.036
---
19.705
---
146.105
146.105
23.150
23.150
169.255
169.255
Secured operations
359.364
66.410
875
875
360.239
67.285
5.503
246
---
---
5.503
246
54.566
1.705
271
271
54.837
1.976
77.774
2.382
---
---
77.774
2.382
221.521
62.077
604
604
222.125
62.681
1.543.477
571.398
38.819
37.783
1.582.296
609.181
TOTAL
527.239
Allow ance to cov er impairment loss (*)
81.942
Difference
86,5%
% cov er
(*) Allow ance determined indiv idually relating to debt instruments and contingent risks, ex cluding substandard risk (defined in Note 2.1.8.1) amounting to € 127,546
All impaired debt instruments are included under “Loans and receivables”.
All impaired assets included in the above table were determined as impaired
individually.
Change in impairment losses
The following table shows the change in impairment losses recognised by the
Group in 2011 and 2010, by type of financial asset:
Thousand euro
Net transfers
2011
charged/(credite
Balances
Balance at 31
d) to income
Transfers
applied during
December 2009
statement:
between items
the year
Other
Balance at 31
movements December 2010
Debt instruments
Customer loans
1.793
(1.425)
5
373
749.397
138.528
(23.670)
(148.266)
1.603
717.592
751.190
137.103
(23.670)
(148.266)
1.608
717.965
16.670
(9.473)
30
7.227
---
---
16.670
(9.473)
Total
767.860
127.630
----(23.670)
----(148.266)
30
7.227
1.638
725.192
131
Euro thousand
Net transfers
2010
charged/(credite
Balances
Balance at 31
d) to income
Transfers
applied during
December 2009
statement:
between items
the year
Other
Balance at 31
movements December 2010
Debt instruments
Customer loans
5.997
(4.213)
9
1.793
794.665
289.204
(68.609)
(263.466)
(2.397)
749.397
800.662
284.991
(68.609)
(263.466)
(2.388)
751.190
---
---
28.488
(11.866)
---
---
48
16.670
28.488
(11.866)
---
---
48
16.670
Total
829.150
273.125
(2.340)
767.860
(68.609)
(263.466)
The above tables do not include impairment losses on equity instruments owned by
the Group (impairment losses on these assets, when they occur, are recognised in
terms of the market risk associated with them, which is based, indirectly, on their
credit risk). Also excluded are financial instruments designated as at fair value
through profit or loss, since, being carried at fair value, any change in the fair value
of these instruments associated with credit risk is recognised in income
immediately.
The NPL ratio at the end of 2011 was 6.12% (5.14% in 2010).
Financial assets past-due but not impaired
The value of financial assets past-due but not considered impaired was EUR
291,370 thousand at 31 December 2011 (EUR 272,863 thousand at 31 December
2010). This amount corresponds to debt instruments with amounts past-due by
more than three months but not considered doubtful for reasons other than arrears.
All these assets are included under “Loans and receivables”.
Financial assets impaired and derecognised
Note 32.6 details the change in 2011 and 2010 in impaired financial assets that
were not recognised in the consolidated balance sheet at the year-end because the
possibility of their recovery was thought to be remote, although the Group had not
discontinued the actions deemed appropriate to recover the amounts owed.
Refinancing
During the course of its normal business the Group has renegotiated certain credit
transactions and has changed the original conditions (term, rate, grace period, etc.)
and has obtained additional guarantees that provide added security as to
repayment.
Other information
Uncollected finance income accrued on financial assets that, in accordance with the
criteria set out in the section entitled “Assets impaired due to credit risk” of this Note,
are considered to be impaired, is not recognised.
Assets taken as guarantees and guarantees executed
The carrying value at 31 December 2011 and 2010 of assets recognised in the
financial statements that were taken or executed in the course of the aforesaid
years to secure collection of the Group’s financial assets was as follows:
132
Thousand euro
Additions during the year
2011
Inventories
2010
Balance at the end of the
2011
2010
360.416
415.619
1.352.918
1.068.402
39.142
100.750
349.528
459.866
Shares
Av ailable for sale
Total
467
---
1.518
1.628
400.025
516.369
1.703.964
1.529.896
Foreclosed assets executed to pay debt are recorded by the Group at the lower of
the difference between the carrying value of the financial assets provided (net of
any impairment) and the fair value of the foreclosed assets, less selling costs. This
amount is the initial cost. In no case are funds released by charging results during
initial recognition, or at any subsequent time.
31.2. Counterparty risk
Credit risk, due to activity in financial markets, is the risk deriving from the incapacity
and/or intention of the counterparty to comply with contractual obligations, i.e. it
arises from the possibility that losses will be incurred as a result of the
counterparty's failure to comply with contractual obligations.
Due to its participation in financial markets as a result of its cash and capitaql
market activities, Banco Pastor is exposed to the following risks:
 Counterparty risk: is defined as the possibility that financial harm will be caused
as a result of a counterparty's failure to comply with contractual obligations within a
financial transaction, due to an impairment of its solvency or in the country in which
it is located.
Copunterparty risk arises in the period between the start of a transaction until it is
finally settled, measured as the cost of replacing the position held, plus an estimate
of the potential risk that could be incurred as a result of future changes in market
prices.
 Delivery Risk: This risk is that which is incurred by the bank at the settlement
date for a transaction and exists with respect to any transaction involving an
exchange of principal for the possibility that the counterparty will not comply with
payment obligations after the Bank has already given payment instructions with
respect to its commitments to that counterparty.
Delivery risk exists with respect to those products and markets in which the
payment on delivery principle is not enforced, i.e. it is a risk arising on transactions
involving the exchange of assets (cash flows in both directions or the flow of
securities against cash flows) with the same value date. Transactions that involve
settlements based on differences do not give rise to this type of risk.
 Issuer Risk: This risk is that incurred by the Bank due to the decline in the value
of an asset as a result of a loss of credit quality on the part of the counterparty or
even the perception of such an event in the market.
 Settlement Risk: This risk is that which is incurred by the Bank due to the
potential financial harm that could be caused during the exchange of payments
made to and received from a counterparty in the same currency.
133
3 1 . 2 . 1 . O rg a n i s a t i o n o f t h e ma r k e t ri s k f u n c t i o n a t B a n c o P a s t o r
3 1 . 2 . 1 . 1 . L i mi t a u t h o ri s a t i o n
The proper management of counterparty risk in an environment that is progressively
more dynamic and complex is fundamental to successfully manage the Bank's
activity in financial markets. Applying the prudence principle on a priority basis, the
Bank has defined an internal organisation that works to obtain an adequate internal
diversification of risks, a common characteristics of the banking business, in
accordance with objectives concerning yields, solvency, efficiency and adequate
liquidity that are defined at any given moment by the Bank's Senior Management.
The Board of Directors is responsible for approving annual counterparty limits, as
proposed by the Management Committee, which means the Bank is only permitted
to deal on the financial markets with counterparties that have an authorised limit, up
to that limit.
Prior to their submission to the Board, the Management Committee approves the
counterparty limit proposals and makes any amendments it considers appropriate.
Any new counterparty limits established in the course of the year must also be
approved by the Management Committee.
The unit in charge of the tasks of measuring, controlling and managing counterparty
risk at the Group is the Market Risk and Operations Unit [UORM].
3 1 . 2 . 1 . 2 . P ro p o s a l f o r s e t t i n g c re d i t l i mi t s
When assigning proposed limits, the Market Risk and Operations Unit performs a
prior analysis of each financial group, as well as those institutions in the group,
provided that they operate in the market. The analysis focuses on the review of the
publications issued by the main rating agencies (Moody´s, Standard & Poor´s and
Fitch) and the regulatory bodies (ECB, BoS, CNMV, etc.) in the study of financial
information for each group (analysis of solvency, profitability, structural ratios and
core capital, etc.) and even the latest news or reports related to financial institutions.
In addition to the above analysis, Banco Pastor has an expert internal rating model
for financial institutions that allows it to measure the credit rating of its
counterparties, anticipating any changes in its credit rating and, therefore, proposing
adjustments to the established lines of credit. This internal model allows quantitative
aspects based on specialised financial information available with respect to financial
institutions to be meshed with the opinion of the Bank's financial institution analysts,
thereby giving rise to an internal rating that, together with external ratings, allows
the Bank to establish a dynamic monitoring system for each financial group and
entity counterparty risk.
These limits may be adjusted based on the level of neutral operations, the results of
the internal rating model and/or the specific market conditions, which has been a
fundamental aspect throughout 2011 due to the high volatility of markets and the
repeated lowering of the ratings granted to our main counterparties by rating
agencies.
3 1 . 2 . 1 . 3 . M e a s u re m e n t o f c o u n t e rp a rt y ri s k
1. Counterparty Risk with Financial Institutions. The method for calculating
counterparty risk exposure applied by the Bank is based on the measurement of the
"active" market psoitions that each counterparty maintains with the Group, i.e. it is
calculated based on current exposure or market value (Mark to Market) of all
transactions existing with each counterparty, plus an add-on that recognises the
potential future exposure that may exist until the transaction matures.
The UORM calculates the market value of each transactions and based on the
product being calculated, it will apply the market data that are necessary (rate
curves, volatilities, prices, etc.) to calculate each EAD ("Exposure at Default").
134
In the case of complex positions that cannot be evaluated automatically by the
Bank's applications, alternative means are used to calculate this market value and
its subsequent application in the Bank's management tools.
2. Risk with Issuers. The current crisis has revealed the need to control the risk of
a decline in the credit quality of issuers of fixed income securities since, in these
cases, the financial harm for financial institutions is particularly relevant. In this
respect the Bank applies daily controls to its current exposure to this risk in all
portfolios (trading, available for sale, credit investment and investment to maturity).
3 1 . 2 . 1 . 4 . Mi t i g a t i o n o f c o u n t e rp a rt y ri s k
In order to mitigate exposure to counterparty risk, Banco Pastor maintains a solid
base of guarantee contracts (Appendix CSA - Credit Support Annex, Appendix III CMOF- Financial Transaction Framework Contract, GMRA Contract, Global Master
Repurchase Agreement) that have been concluded with counterparties an which,
through the daily contribution of daily guarantees, means that the risk incurred is
significantly reduced. This instrument mitigates counterparty risk, essentially over
the course of this year to maintain the level of this risk within adequate parameters.
Finalmente, en los últimos meses, Banco Pastor, al igual que el resto del sector
financiero, ha generalizado el uso de cámaras de compensación para operaciones
de financiación vía repos con el fin de reducir el riesgo de contrapartida derivado de
este tipo de operaciones.
3 1 . 2 . 1 . 5 . M o n i t o ri n g a n d c o n t r o l o f l i n e s
Counterparty limits are controlled via an integrated, real-time system, which means
the Bank is at all times aware of each line of credit (authorised, consumed and
available for each counterparty). For this reason, established and available
counterparty limits must be systematically checked before carrying out any new
transaction and each new transaction must be immediately entered in the systems,
so that the limit available is updated before being used by operators.
Daily monitoring and control of authorised limits is performed by the Market Risks
and Operations Unit, within the General Audit Department, which, in application of
the principle of segregation of functions, is totally independent from the business
unit, i.e. the Treasury Department, which is part of the Finance Division.
3 1 . 2 . 1 . 6 . R e p o r t i n g o f ri s k l e ve l s
On a daily basis the UORM issues a daily report to Senior Management with the
counterparty risks assumed, as well as the available lines on an individual and
aggregate basis.
31.3. Market risk
Market risk is associated with the activities carried out in the financial markets by
the Bank Treasury Unit and is defined by the risk of loss to which the entity is
exposed due to changes in the value of financial assets in which positions are
maintained due to the change in risk factors that affect each market (interest rates,
exchange rates, equities, etc.).
3 1 . 3 . 1 . O rg a n i s a t i o n o f t h e ma r k e t ri s k f u n c t i o n a t B a n c o P a s t o r
3 1 . 3 . 1 . 1 . L i mi t a u t h o ri s a t i o n
Authorised market risk limits are reviewed and, where necessary, updated on a
yearly basis.
The Board of Directors, based on a proposal from the Management Committee, is
responsible for approving annual market risk levels.
Prior to their submission to the Board for approval, the Management Committee
approves the market limits proposed for each of the different operating units and
makes any amendments to the proposals it considers appropriate.
135
3 1 . 3 . 1 . 2 . M a rk e t ri s k m e a s u re m e n t p ro c e d u r e s a n d s ys t e ms
The Group's cash activity, deriving from its involvement in financial markets, is
exposed to market risk from unfavourable movements in the following risk factors:
a) interest rates, b) exchange rates, c) share and commodities prices and d)
volatility, correlation curves, etc.
The market risk limits are intended to provide guidelines for the Bank's activities in
the financial markets, so that each specific transaction carried out by the Treasury
unit at the General Financial Office is necessarily arranged under this framework.
The Bank's market risk limit structure complies with the following objectives:
 Establishment of market risk exposure in each portfolio, in accordance with the
tolerance level defined by the Board of Directors and the Management Committee.
 Granting of risk limits which guarantees sufficient flexibility so as not to constrain
the risk-taking activities of individual business areas.
 The limit structure established must be consistent with the objectives approved
for each business area, its level of experience, past performance and, in an y event,
the situation of the financial markets.
The unit in charge of the tasks of measuring, controlling and monitoring market risk
at Banco Pastor is the Market Risk and Operations Unit [UORM].
On a daily basis the Market Risk Unit at Banco Pastor monitors the market risk for
contracted transactions and supervises compliance with the established limit
structure. In those cases in which the authorised risk levels are exceeded, an agile
procedure for informing the bank's Senior Management has been defines, reporting
the reasons why the limit was exceeded and, if necessary, justification and/or the
measures taken to resolve or mitigate the situation.
3 1 . 3 . 1 . 3 . T yp e s o f ma rk e t ri s k l i mi t s
The Management Committee establishes an Overall Limit for all market activities
carried out by the Treasury Unit, such that the overall risk assumed by the various
portfolios/operating units cannot be exceeded at any time.
This limit is measured in terms of VaR ("Value at Risk"), diversified with a time
horizon of one day and a statistical probability of 99%, through which exposure to
the various risk factors assumed (interest, exchange, price and volatility) are offset.
However, the daily control has defined various types of market risk limits grouped
into three large blocks:
1. VaR Limits (Value-at-Risk)
The measurement of discretional risk is done using the VaR ("Value at Risk")
method. This method allows the joint measurement of the risk deriving from a
portfolio made up of products associated with multiples and diverse risk factors.
These limits measure the maximum end-of-day exposure in the Cash area of each
unit or each portfolio individually and are calculated in terms of diversified VaR on a
one-day time horizon with a confidence level of 99%.
The VaR methodology enables the Bank to measure the maximum possible loss in
portfolio value that may arise as a result of changes in general conditions on the
financial markets, specifically fluctuations in interest rates, exchange rates and
equity prices, assuming the portfolio is held for a fixed period of time.
The historic simulation method has been used to apply measurement and control
mechanisms for market risk ("Adaptiv" pertaininbg to the Sungard Group).
This risk measurement estimates the maximum loss, with a given confidence level,
that could arise from the market position of a portfolio over a certain time horizon.
The Bank has decided to calculate the VaR on a daily basis with a 99% confidence
level and a time horizon of 1 day.
136
2. Stop-loss level
A maximum level of actual losses in the market has been defined by establishing
stop-losses at three levels: daily, monthly and annually. In these cases, the
maximum assumable loss is established in the management results for each period.
In the event that any of these stop-loss levels is reached, the authorised and
competent bodies must authorise the excess, establishing a new stop-loss level
and/or reach a decision as to the total or partial execution of the stop-loss.
When a monthly/annual stop-loss is executed, all open positions in the portfolio
subject to the stop-loss are closed or hedged and no further risk positions can be
opened on the portfolio until the following month/year unless expressly authorised.
3. Additional limits
A series of additional limits, aligned to the specific characteristics of each portfolio
(interest rate, exchange rate, equity or fixed income risk), have also been
established for the purpose of in-depth position control and monitoring that entail the
application of other types of controls (net sensitivity, maximum net position, limits by
issuer, limits by security, limits by underlying risk and curve risk, limits by rating,
etc.)
3 1 . 3 . 1 . 4 . D a i l y C o n t r o l o f M a rk e t R i s k P o s i t i o n s a n d L i m i t s
Market risk is monitored via daily verifications of authorised positions and limits
performed by the Market Risk Unit, which reports to the General Audit Department.
It is a unit that is totally independent from the business unit (Treasury) falling within
the General Financial Management area. This risk control unit is responsible for
setting in motion the procedure in place for authorising any limit overruns and
reporting them to senior management.
Market risk limits are checked on a daily basis using an integrated system that
allows for the risk incurred to be identified, measured and analysed at any time, by
type of risk, business unit and/or product.
The daily position and limit control report includes exposures measured in terms of
VaR, the principal market risk indicator, stop-loss position and, finally, changes in
additional limits.
The daily results from the Treasury unit are compared with the VaR figure obtained
with the objective of measuring the reliability of the market risk measurement model.
These limits are calculated using positions that are active at the end of the
preceding day, i.e., all those transactions that have been recorded by the Treasury
unit.
31.4. Structural balance sheet risks
The activities carried out by financial institutions may give rise to the assumption of
one or more types of structural risks. The most important balance sheet structural
risks are:
 Interest rate risk: This arises as a result of the different references and rythms
at which balance sheet components change.
 Liquidity risk: Liquidity risk relates to the possibility that an entity may not be
able to meet its payment obligations in time and form, without having to obtain funds
under onerous conditions or cause a negative effect on its image and reputation.
 Exchange risk: This risk arises as a result of changes in exchange rates for the
currencies in whcih the various balance sheet items are denominated.
At Banco Pastor Group, the risks assumed must be compatible with the target
solvency level and must be identified, measured and valued and there must be
procedures for monitoring and managing these risks, in addition to solid control
mechanisms.
137
All risks must be managed on an integral basis over their life cycle, providing a
differentiated treatment based on the type of risk concerned.
3 1 . 4 . 1 . I n t e re s t ra t e ri s k
The structural interest rate risk measures the balance sheet's sensitivity to changes
in the interest rate curve under various scenarios. All Bank activities are covered,
except trading, which is managed by the Treasury unit and its risk is measured
independently.
General Financial Management is responsible for managing structural risks. On a
monthly basis, it submits the various risk management proposals to the Asset and
Liability Committee (COAP). That Committee also defines the lines of action in
accordance with the guidelines approved by the Board of Directors and the
Management Committee. The Committee is formed by the Bank's Senior
Management. The ALCO also monitors performance and sets hedging strategies to
reduce the sensitivity of net interest income to interest rate fluctuations and
preserve the economic value of the consolidated balance sheet.
In order to develop this activity, Banco Pastor has advanced technology that
requires detailed knowledge of balance sheet positions and performance. Static and
dynamic measurement methods are used.
The static gap analysis includes measurement of the repricing gap and analysis to
determine the exposure of rate-sensitive assets and liabilities to rate changes over
specific time intervals. Dynamic simulations are used to analyse the impact on the
interest margin (sensitivity) of different movements in the interest rate curve –
including step changes and changes in the curve slope - in a range of different
trading volume scenarios. To ensure that this analysis reflects the full impact of
movements in the yield curve on almost all balance-sheet aggregates, the impact is
measured over a time period of 24 months.
The Bank complies with the limits established by the Board of Directors with respect
to the analysis of financial value (which is understood to be the sum of the fair value
of net assets and liabilities sensitive to interest rates and the net carrying value of
the assets and liabilities that are not sensitive to interest rates).
The Bank has established two limits for interest rate risk control purposes. The first
determines the adverse impact of 100bp movements in interest rates on the
economic value of the capital. The second establishes a limit on the sensitivity of
net interest income on a one-year horizon to all adverse interest rate scenarios.
These limits and the amounts used at 31 December 2011 and 2010 were as follows:
2011
2010
CONSUMPTION
LIMIT
CONSUMPTION
LIMIT
Value: variation (+100 pb)
-1,24%
-8,50%
-0,33%
-8,50%
Sensitivity MI 1 year (+100 pb)
-8,13%
-15,00%
-12,19%
-15,00%
The table below summarises these sensitivity tables at 31 December 2011 and
2010:
138
Thousand euro
FY 2011
From 1 to 3 From 3 months
Up to 1 month
months
to 1 year
from 4 to 5 More than 5
1 to 2 years 2 to 3 years 3 to 4 years
years
years
SENSITIVE ASSET
2.670.536
4.724.380
10.505.028
693.767
177.409
112.365
62.720
222.008
Money market
240.378
---
---
---
---
---
---
---
Securities
100.804
691.960
1.147.492
1.088.682
938.800
1.280.476
269.620
106.868
3.011.718
5.416.340
11.652.520
1.782.449
1.116.209
1.392.841
332.340
328.876
Customer deposits
2.452.387
1.789.624
6.085.638
1.365.189
346.619
3.625.597
8.893
8.185
Money market
4.909.940
275.492
94.783
---
---
---
---
--40.000
TOTAL
SENSITIVE LIABILITY
Wholesale financing
191.508
1.297.099
1.054.065
1.521.100
908.000
1.238.838
500.000
7.553.835
3.362.215
7.234.486
2.886.289
1.254.619
4.864.435
508.893
48.185
Tranche gap
(4.542.117)
2.054.125
4.418.034
(1.103.840)
(138.410)
(3.471.594)
(176.553)
280.691
Accumulated gap
TOTAL
(4.542.117)
(2.487.992)
1.930.042
826.202
687.792
(2.783.802)
(2.960.355)
(2.679.664)
Cov erage
292.700
(830.800)
(404.395)
1.062.670
(198.000)
226.038
(137.000)
(11.213)
Securitisations (*)
(22.800)
(74.469)
97.269
---
---
---
---
---
Total Gap
(4.272.217)
1.148.856
4.110.908
(41.170)
(336.410)
(3.245.556)
(313.553)
269.478
Total Accumulated Gap
(4.272.217)
(3.123.361)
987.547
946.377
609.967
(2.635.589)
(2.949.142)
(2.679.664)
---
---
---
Risks and contingent liabilities ( ** )
2.671.584
---
---
---
---
( * ) Securitisation w ritten off in w hich risk is substantially maintained
( ** ) Under the assumption of the total disposal of the risks and contingent liabilities and w ithout considering their corresponding asset counterparties.
Thousand euro
FY 2010
From 1 to 3 From 3 months
Up to 1 month
months
to 1 year
years
years
SENSITIVE ASSET
Money market
Securities
2.632.292
5.032.762
11.146.279
354.374
402.127
---
106.736
---
(21.239)
---
89.497
66.700
98.107
---
---
---
928.364
892.503
635.885
1.556.242
1.196.463
959.800
805.476
233.885
3.962.783
5.925.265
11.888.900
1.910.616
1.175.224
1.049.297
872.176
331.992
Customer deposits
2.381.880
2.088.566
5.351.821
797.746
200.486
47.039
3.586.217
10.851
Money market
3.830.349
1.645.258
---
---
---
---
---
---
Wholesale financing
1.356.998
1.625.114
790.180
1.267.100
1.700.000
1.250.000
1.570.000
40.000
TOTAL
SENSITIVE LIABILITY
7.569.227
5.358.938
6.142.001
2.064.846
1.900.486
1.297.039
5.156.217
50.851
Tranche gap
TOTAL
(3.606.444)
566.327
5.746.899
(154.230)
(725.262)
(247.742)
(4.284.041)
281.141
Accumulated gap
(3.606.444)
(3.040.117)
2.706.782
2.552.552
1.827.290
1.579.548
(2.704.493)
(2.423.352)
Cov erage
317.700
(2.168.500)
(792.692)
(304.800)
1.074.670
844.000
1.041.000
(11.378)
Securitisations (*)
(30.911)
(86.566)
117.477
---
---
---
Total Gap
(3.319.655)
(1.688.739)
5.071.684
(459.030)
349.408
596.258
(3.243.041)
269.763
(3.319.655)
(5.008.394)
63.290
(395.740)
(46.332)
549.926
(2.693.115)
(2.423.352)
Risks and contingent liabilities ( ** )
3.512.300
---
---
---
---
---
---
---
---
---
( * ) Securitisation w ritten off in w hich risk is substantially maintained
( ** ) Under the assumption of the total disposal of the risks and contingent liabilities and w ithout considering their corresponding asset counterparties.
3 1 . 4 . 2 . L i q u i d i t y ri s k
Liquidity risk measures the entity’s capacity to meet payment commitments
assumed and finance planned business growth.
139
Analysis and presentation by General Financial Management, the Asset and
Liability Committee (ALCO) monitors and controls the Bank’s liquidity position,
identifying possible situations of liquidity shortfall or surplus resulting from timing
mismatches between the maturities of balance sheet assets and liabilities. The aim
of the Group’s structural liquidity management policies is to optimise the balance
sheet structure in terms of diversification by maturity and product by maximising
deposit growth and devising profitable investment plans.
On an annual basis the bank prepares a plan covering financing needs deriving
from business budgets. Based on these needs, and bearing in mind the possibility
of going to markets, and limiting the short-term use of markets in a prudent manner,
a plan for issues, securitization and other sources of wholesale financing.
Actual financing needs are monitored on a monthly basis (backtesting) and plan
updates are applied as needed.
The Bank also uses other measures such as liquidity gap and ratios to control and
analyse positions (loan to deposits, % short-term liquidity, long-term liquidity with
respect to total assets).
Various analyses of scenarios (stress) are carried out to determine the additional
needs that could arise should different events take place.
The Bank has established a Liquidity Contingency Plan, approved by the Board of
Directors and designed to circumvent situations of severe illiquidity, that by taking in
a range of liquidity indicators enables it to identify the different situations and their
degree of severity, as well as the measures and procedures that should be adopted
in each case.
As its first line of liquidity, Banco Pastor has liquid assets with maximum credit
ratings and eligible for the European Central Bank and collateral for financial
institutions and customers.
The breakdown of issues (excluding promissory notes) by years to maturity (Notes
22, 23.4, 23.5.1 and 23.6) is shown below:
140
YEAR OF
Thousand euro
ISSUE
AMOUNT 2012
2013
2014
2015 =>2016 Perpetual TOTAL
67.100
67.100
67.100
2009
828.900
828.900
828.900
2009
137.000
137.000
137.000
2009
1.000.000
1.000.000
1.000.000
2009
1.000.000
1.000.000
1.000.000
2006
50.000
50.000
50.000
2005
45.900
45.900
45.900
2004
1.000.000
1.000.000
1.000.000
2005
200.000
------200.000
----200.000
2005
250.000
----------250.000
250.000
2009
500.000
500.000
----------500.000
2010
100.000
100.000
----------100.000
2010
400.000
--400.000
400.000
2010
300.000
--300.000
------300.000
2010
500.000
----500.000
----500.000
2010
300.000
----300.000
----300.000
2010
100.000
------100.000
--100.000
2010
40.000
--------40.000
--40.000
2010
50.000
--50.000
--------50.000
2011
500.000
500.000
----------500.000
2011
500.000
--------- 500.000
500.000
2011
TOTAL (a)
7.868.900 2.133.000 1.750.000 1.500.000 1.500.000 640.000
345.900 7.868.900
Less: Issuances without effect on liquidity:
2005(*)
200.000
------200.000
----200.000
2010(*)
400.000
--400.000
--------400.000
2009 (**)
92.000
----92.000
----92.000
2010 (**)
178.900
--178.900
------178.900
2010 (**)
500.000
----500.000
----500.000
2010 (**)
310.400
------310.400
----310.400
2011 (**)
500.000
500.000
----------500.000
2011 (**)
500.000
--------- 500.000
--500.000
TOTAL (b)
2.681.300
500.000
578.900
592.000
510.400 500.000
--- 2.681.300
Total issuances impacting liquidity:
TOTAL (a)-(b) 5.187.600 1.633.000 1.171.100
908.000
989.600 140.000
345.900 5.187.600
( * ) Bonds issued subscribed by a multi-assignment fund with the simultaneous subscription of bonds issued by it.
( ** ) own securities corresponding to debt issued.
The detail of static asset and liability maturity gaps at 31 December 2011 and 2010
was as follows:
141
Thousand euro
From 3
2011
From 1 to 3 months to 1
Up to 1 month
months
year
years
years
ASSET
Money market
Securities
1.251.017
1.307.330
3.449.736
2.442.075
1.508.944
1.111.026
857.817
7.240.269
240.378
---
---
---
---
---
---
---
20.358
546.194
1.085.732
1.130.180
1.021.256
1.296.647
275.040
249.295
1.511.753
1.853.524
4.535.468
3.572.255
2.530.200
2.407.673
1.132.857
7.489.564
Customer deposits
2.009.544
1.686.128
5.736.596
1.467.675
426.236
4.126.184
43.499
186.269
Money market
2.209.940
270.492
99.783
---
---
2.700.000
---
---
TOTAL
LIABILITIES
Wholesale financing
18.816
901.199
819.858
1.591.409
1.286.426
1.238.838
700.000
194.065
4.238.300
2.857.819
6.656.237
3.059.084
1.712.662
8.065.022
743.499
380.334
Tranche gap
(2.726.547)
(1.004.295)
(2.120.769)
513.171
817.538
(5.657.349)
389.358
7.109.230
Accumulated gap
(2.726.547)
(3.730.842)
(5.851.611)
(5.338.440)
(4.520.902) (10.178.251)
(9.788.893)
(2.679.663)
TOTAL
Coverage
---
OBS securitisations
---
---
---
---
---
---
---
---
---
Total Gap
(2.726.547)
(1.004.295)
(2.120.769)
513.171
817.538
(2.726.547)
(3.730.842)
(5.851.611)
(5.338.440)
---
---
---
---
---
---
(5.657.349)
389.358
7.109.230
(4.520.902) (10.178.251)
(9.788.893)
(2.679.663)
Suspense account:
Risks and contingent liabilities ( * )
2.671.584
---
---
---
---
---
---
---
( * ) Under the assumption of the total disposal of the risks and contingent liabilities and w ithout considering their corresponding asset counterparties.
Thousand euro
From 3
2010
From 1 to 3 months to 1
Up to 1 month
months
year
years
years
ASSET
1.320.213
3.579.380
402.127
---
106.736
---
---
---
---
---
60.453
235.377
577.274
1.842.648
1.394.548
1.650.193
877.065
571.059
1.744.241
1.555.590
4.263.390
4.181.745
3.376.538
2.913.243
2.037.269
7.044.234
Customer deposits
2.303.922
1.726.393
4.799.831
886.206
267.323
98.483
4.294.172
88.275
Money market
3.830.349
1.640.258
---
5.000
---
---
---
---
358.025
367.660
750.308
1.753.563
1.933.803
2.342.907
1.624.803
468.321
Money market
Securities
TOTAL
1.281.661
2.339.097
1.981.990
1.263.050
1.160.204
6.473.175
LIABILITIES
Wholesale financing
6.492.296
3.734.311
5.550.139
2.644.769
2.201.126
2.441.390
5.918.975
556.596
Tranche gap
TOTAL
(4.748.055)
(2.178.721)
(1.286.749)
1.536.976
1.175.412
471.853
(3.881.706)
6.487.638
Accumulated gap
(4.748.055)
(6.926.776)
(8.213.525)
(6.676.549)
(5.501.137)
(5.029.284)
(8.910.990)
(2.423.352)
Coverage
---
OBS securitisations
---
Total Gap
(4.748.055)
(2.178.721)
(1.286.749)
1.536.976
1.175.412
471.853
(3.881.706)
6.487.638
(4.748.055)
(6.926.776)
(8.213.525)
(6.676.549)
(5.501.137)
(5.029.284)
(8.910.990)
(2.423.352)
Suspense account:
Risks and contingent liabilities ( * )
3.512.300
---
---
---
---
---
---
---
( * ) Under the assumption of the total disposal of the risks and contingent liabilities and w ithout considering their corresponding asset counterparties.
3 1 . 4 . 3 . E x c h a n g e ri s k
The Group does not present significant exposure to exchange rates, since all
positions (mainly liabilities) are closed in the markets.
142
31.5. Operational risk
Banco Pastor's Operational Risk management model is inspired by the guidelines
established in the Framework for International Convergence of Measures and Rules
(Capital Framework "Basel II"). It also meets the requirements of Bank of Spain
Circular 3/2008 regarding the calculation and control of minimum capital and follows
the best practices in the sector at all times. (*)
The method adopted to calculate capital and reserves for operating risk is the
standard method, and an Integral Operating Risk Management Model has been
built, which covers the qualitative and quantitative requirements established by law
and provides a solid base for adopting internal models in the future.
This year a new Internal Control Model has been implemented with respect to
Operating Risk. The main objectives of the Control Model are as follows:
- Identify and document all existing control activities and mitigate critical risks,
- Identify and assess the control gaps to bring them into line with the Bank's risk
tolerance,
- Proposals of control environments to reliably adapt them to new situations.
To apply this new model, the Operating Risk and the Operating Control Units have
been unified due to existing synergies and a Operating Risk Management Method
has been defined and is anchored and supported by common tools and processes
that will allow for improvements in efficiency while maintaining adequate levels of
control and better risk management.
In order to extend the Internal Control Model in an effective manner to the entire
Organization, Operating Risk Committees have been created that meet monthly at
all Offices at which various operating issues are reviewed with a focus on attaining
the Control Model objectives.
Banco Pastor is a member of the Spanish Operating Risk Consortium and the
Spanish Business Continuity Consortium.
The Operational Risk model includes several management tools, based on the
following applications:
 Systems for the management and qualitative assessment of operation risk,
known internally as SIRO (Sistema de Información de Riesgo Operacional, or
operational risk information system)
 A system for the quantitative management of operational risk, known internally
as ARO (Aplicación de Riesgo Operacional, or operational risk application)
 Segmentation of the Bank’s activities into business lines in the tool used to
calculate minimum capital requirements according to the business line definitions
established by the Bank of Spain.

Key risk indicators (KRI)
 Systems for generating and processing management information, based
principally on the report-generating systems used in the operational risk scorecard.
Our objectives are structures based on their nature:

Qualtitative objectives, whose main mission is:
- To detect current and potential risks so as to facilitate decision-making on
operational risk management and the Bank’s operations.
- To achieve continuous improvements to control processes and systems to mitigate
any risks that may arise.
143
- To foster awareness across the entire organisation of the importance of
operational risk and the impact and nature of loss events affecting the Bank.

Quantitative objectives, whose main mission is:
- To obtain a quantitative measurement of actual losses suffered as a result of loss
events associated with operational risk
- To generate historical information on loss events and categorise such events
according to business line, process and their nature.
- To generate the information needed to facilitate decision-making on the Bank’s
operational risk management.
- For the consolidation of the method, both qualitative and quantitative
methodologies were used to generate the elements key to operational risk
measurement and management. These methodologies build on the Bank's risk
analysis and classification, following the guidelines of the Basel II Capital Accord
and Bank of Spain Circular 3/2008.
The qualitative methodologies are supported mainly by SIRO and centred on three
processes:
- Generation of the Bank’s processes map
- Identification of the risks and controls associated with these processes
- Self-assessment system based on questionnaires and generation of a qualitative
VaR calculated on the basis of the result of these questionnaires.
- Identification and measurement of the Key Risk Indicators (KRI) most closely
correlated to the potential occurrence of the risk and its impacts.
- The quantitative methodologies (supported by ARO) centre around identifying and
recording events in a loss database that is reconciled with the accounting records.
The information recorded in the loss database is classified according to process,
type of risk (type of event) and associated line of business.
Since 2007, Banco Pastor has been a member of the ORX (Operational Riskdata
Exchange Association), an international association of 59 financial institutions in 18
countries that constitutes the benchmark in the creation and operation of an
international operational loss database and enforces high quality standards in the
exchange of data.
31.6. Compliance and reputational risk
The Group has a long- and firmly-established culture of compliance, as set out in its
first Professional Conduct Guide, which was approved by the Board of Directors in
1986. Updated in 2000 as the Code of Professional Conduct, the guide now also
sets out the values that should direct the actions of everyone working within the
Group as well as expressly covering issues surrounding transparency in customer
dealings, conflicts of interest, and proactive contributions to the drive to prevent
potentially criminal third-party activity.
In relation with the above, all matters relating to Bank customer complaints are
monitored closely at the most senior level. An interdepartmental committee for the
prevention of money laundering proposes to the Board of Directors the measures
required to ensure the Bank acts as effectively as possible at all times in managing
this important issue. Information on the actions taken by the supervisory committee
for the internal code of conduct in the securities markets division is also reported
directly to the Board of Directors.
The Bank created a Legislative Compliance Unit in September 2006 to initially adapt
to the Basel Committee requirements in 2005 and to respond to the obligations
established by Law 47/2007, which amends Law 24/1988 on the Stock Market and
Royal Decree 217/2008 that enacted the enabling regulations. This legislation is a
result of the transposition of two groups of EU Directives:
144
1) The Directives relating to capital at credit institutions. Directives 2006/48/CE (14
June 2006), relating to access to credit institution activities, and Directive
2006/49/CE (14 June 2006), regarding capital adequacy at ESIs and credit
institutions. These Directives were transposed into Spanish legislation through Law
36/2007 (16 November), which amends Law 13/1985 on investment coefficients,
capital and reporting obligations, and Law 47/2007, which amends the Stock Market
Act. These two laws are enabled through Royal Decree 216/2008 (15 February) on
credit institution capital.
2) The Directives relating to Markets and financial instruments (MIFID), an essential
part of the Financial Services Action Plan (PASF), that consists of three Directives:
The Directive 2004/39/CE (21 April), on Tier 1, called the MIFID Directive and two
Tier 2 Directives, Directive 2006/73/CE (10 August 2006), that covers organizational
requirements and operating conditions, and Regulation (EC) 1287/2006 (16
August), which develops the obligations relating to mandatory ledgers, transaction
reporting, market transparency and listing financial istruments on stock markets.
These Directives have been transposed into Spanish legislation through Law
47/2007, which amends the Stock Market Act and Royal Decree 217/2008 (15
February), regarding the legal system for ESIS and other entities that render
investment services.
When transposing both bodies of legislation (Capital and MIFID), through R.D.
216/2008 and R.D.217/2008, the obligation was established requiring credit
institutions to have a function and a person responsible for compliance.
To allow for an integral response by the Bank to the demands of adapting to the
constant legislative changes, such as the investor protection legislation (MIFID) or
the market abuse prevention legislation that impact our daily operations, since
November 2010 thge Legislative Compliance Unit now reports to the Bank's
General Secretary (notwithstanding the necessary coordination with the Operating
Control Units and Operating Risk Units, amopng others, which report to the Audit
and Control Department), thereby guaranteeing their development under the
principles of objectivity and independence established by current legislation.
The Circular dated February 2011 develops and updates the duties that the
Legislation Compliance Unit must perform, especially those relating to the
legislation deriving from the reforms relating to the Criminal Code, Market Abuse
and Suspicious Transaction Reporting, COS and supervision of the Miami Branch.
The Unit's role with respect to the implementation and management of risks deriving
from the rendering of investment services to customers that regulates the MIFID
legislation and it has been, and will continue to be, very active. As from that date it
reports to the Money Laundering Prevenion Unit. This is all to attain better efficiency
and effectiveness.
The objective of the Legislative Compliance Unit is to adapt to the regulatory and
supervisory environment, attempting to anticipate the legislative changes that are
taking place and those that will come in the future, assisting senior management to
mitigate the impact of risks that may affect Banco Pastor. Accordingly, it advises
and assists the rest of the Organisation so that the "compliance culture" permeates
its activity so that by maintaining a good alignment of values, processes and
controls, it can prevent and minimise the possible impact of the risks that are
described below that may affect Banco Pastor due to potential deficiencies with
respect to legislation. To attain this objective, it will have the indicators, controls and
procedures that will allow it to efficienctly monitor and manage the various types of
risk.
At Banco Pastor we have defined and distinguished four types of Risk:
Compliance risk: Is the harm that may be caused to the business model, the
organization's reputation or its financial situation due to the failure to comply with
legislation, policies or internal standards, as well as not satisfying expectations of
stakeholders.
145
Regulatory risk: is the risk of incurring penalties from regulators, financial losses or
harm to the Bank's reputation for failing to comply with applicable laws and
regulations, preventing compliance or failing to respond to changes in regulatory
expectations. In this connection, this covers all failures to comply with rules and the
failure to satisfy regulatory expectations, which includes not communicating fluidly
with regulators.
Reputation risk: Is the most concerning due to impacts to the brand and the Bank's
image deriving from the negative perception of third parties may have with respect
to its business practices, regardless of whether true or not, and could affect the
customer base, potential litigation costs or revenues.
Criminal Risk: This derives from the consequences that may arise from the
application of Organic Law 5/2010 (22 June), which amends the Criminal COde that
entered into force in December 2010. Subsequently, the Bank could be deemed to
be subject to civil liability for crimes committed by its de factor or legal Directors and
it could also be deemed to be criminally liable for certain crimes committed by its
executives or employees when performing their duties on behalf of and to the
benefit of banco Pastor if the Group has not applied adequate controls in the latter
case. The penalties may vary from a fine, a prohibition from obtaining public
assistance or contracts with the government, to court intervention or even
liquidation.
With respect to compliance with the legislation that was in force before the creation
of the Legislative Compliance Unit in 2006, the Bank already had other units created
to manage the risk of failing to comply with other already existing legislation such as
the "ad hoc" committee forming part of the General Secretary's Office, which is
repsonsible for the control of the codes of conduct and the RIC.
In all other issues, the Compliance Unit bases its work on the operational risks
identified and categorised qualitatively in the recommendations issued by the British
Bankers’ Association. This categorisation applies a subjective rating from 0 to 5 to
express the reputational risk associated with a given operational loss event.
In 2011 the difficult conditions in international financial markets over thre past few
years have persisted. European governments have continued to work to adopt
appropriate measures to resolve the bank financing problems and the effects they
have on the real economy, with the objective of preserving the stability of the
international financial system.
Notable among these measures are those adopted with respect to liquidity over the
last few months of 2011, basically relating to the reduction of the cash ratio for
financial institutions, the auctions for ECB funds over thgree years, which were held
in December 2011 and February 2012, and the expansion of the collateral that
financial institutions may use with respect to the European Central Bank. This is all
intended to preserve the statbility of financing for banks.
The 3-year European Central Bank facility has notably relaxed the risk premium for
Spain and other peripheral countries. Its effects have also been noted in the shortterm financing rates for Spanish debt, which have seen significant reductions. This
has also allowed a certain opening of the wholesale financing markets over the past
few months.
The main legislative milestones under which Banco Pastor has carried out various
issues are as follows:
146
Royal Decree-Law 7/2008 (13 October) on Urgent Financial Measures relating to
the Concerted Action Plan for Eurozone Countries and Order EHA/3364/2008 (21
November), which enables Article 1 of that Royal Decree includes, among other
things, the provision of Spanish state guarantees for issues of notes, bonds and
debentures made by Spanish banks as of 14 October 2008, provided the notes,
bonds or debentures are issued individually or as part of an issuance programme;
are not subordinated and do not benefit from any other form of security; are listed to
trade on Spain's official secondary markets; have a term to maturity of between
three months and three years, although the latter term may be extended to five
years subject to Bank of Spain authorisation; bear interest at a fixed or floating rate,
with specific conditions applying for floating-rate debt; are redeemable in a single
payment and do not incorporate options or other financial instruments; and have a
nominal value of no less than €10 million. The deadline for guarantees ended on 31
December 2009 and the amount of the guarantees granted to the Bank totalled
€736 in 2009 thousand and €1,137 million in 2008.
The Ministry of Finance resolved on three occasions to extend the possibility of
issuing debt secured by the Kingdom of Spain. The last of these was formally
enacted by Resolution issued by the Directorate General for the Treasury and
Financial Policy on 10 June 2011, which stipulated that secured debt may be issued
until 31 December 2011.
In 2009 the Group issued secured debt totalling EUR 1,137 million in two three-year
issues (EUR 1,000 million and EUR 137 million, respectively) while in 2010 no
secured issues took place. The available amount for issuing secured debt at 31
December 2010 was EUR 736 million.
In December 2011 EUR 171 million of the fist secured issue was redeemed and a
new issue of 5-year secured debt totalling EUR 500 million. The possibility of
issuing the remaining EUR 236 million expired on 31 December 2011.
Final Provision Seventeen of Royal Decree – Law 20/2011 (30 December), to
correct the public deficit, establishes the possibility that Spanish credit institutions
may carry out new government secured debt in 2012 for a total amount of EUR
100,000 million, up until 30 June 2012. This new line represents a new quota for
each financial institution.
32. OTHER SIGNIFICANT INFORMATION
32.1. Contingent risks
The detail of this account at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
Letters of credit
Other guarantees and sureties
TOTAL
2010
483.657
534.869
31.290
52.777
347.518
358.774
862.465
946.420
Included under contingent liabilities are the amounts payable by the Group on
behalf of a third party if the latter fails to do so, as a result of commitments assumed
by this third party in its ordinary course of business. A significant portion of these
guarantees mature without generating any obligations for the Group. Accordingly
the total balance of these commitments is not equivalent to an actual future funding
or liquidation requirement.
These guarantees are recognised in the balance sheet by applying the criteria
established in Note 226, i.e., in the liability heading ¨Financial liabilities at amortised
cost - Other financial liabilities" totalling EUR 6,006 and €6,776 thousand at 31
December 2011 and 2010, respectively (Note 23.7) and under the asset heading
"Customer loans - On demand and sundry" totalling EUR 4,307 and EUR 5,032
147
The income generated by guarantee instruments is recognised in the consolidated
income statement for 2011 and 2010 under “Fee income” and “Interest and similar
income” (in amounts corresponding to the discounted value of the fees) and is
calculated by applying the contractual interest rate of the guarantee to the nominal
value of the guarantee.
The provisions recognised to cover these guarantees, which are calculated by
applying similar criteria to those used to calculate the impairment of financial assets
at amortised cost, are recognised in the balance sheet under “Provisions for
contingent liabilities and commitments” (Note 25).
32.2. Contingent commitments
The detail of this account at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
Av ailable to third parties
2.456.875
---
24.975
Commitments to term purchases of financial assets
Conv entional financial asset acquisition contracts
TOTAL
2010
1.738.722
70.397
84.030
1.809.119
2.565.880
At 31 December 2011 and 2010, the balances drawable by third parties, i.e. the
difference between the amounts that borrowers are authorised to draw and those
actually drawn down, were as follows:
Thousand euro
2011
Available immediately
Credit institutions
1.443.289
1.999.664
11.097
11.130
Public authorities
Other sectors
Available subject to conditions
Public authorities
Other sectors
TOTAL AVAILABLE
2010
2.023
61.150
1.430.169
1.927.384
295.433
457.211
48.667
---
246.766
457.211
1.738.722
2.456.875
32.3. Off-balance sheet customer funds
The breakdown of off-balance sheet funds managed or marketed by the Group is as
follows:
Thousand euro
2011
Managed by the Group
Marketed but not managed
TOTAL
2010
71.583
87.891
1.718.660
1.476.757
1.790.243
1.564.648
32.4. Asset securitisation
In 2011 and 2010 the Group carried out various asset securitisations entailing the
assignment of loans and advances in its portfolio to various securitisation funds in
which, under the terms and conditions agreed for the transfer of these assets, it
retained the significant risks and shares in the rewards generated on these assets
(essentially a certain credit risk on the loans transferred and recovery of the part of
the excess margin assigned to the vehicle or the profit generated by the fund).
148
The Group has issued 19 Securitisation Bonds between 1999 and 31 December
2011. The securitised loans relate to mortgages and small business loans.
Appendix XIII provides details of the securitisation funds in force at 31 December
2011 and 2010.
In 2011 the following securitisation funds were redeemed early:
- Fondo GC FTPYME Pastor 6 in September 2011 with an outstanding nominal
value of EUR 270 million.
- TDA Empresas Pastor 5 in April 2011 for a nominal amount of EUR 170 million.
- GC GENCAT II in January 2011 for EUR 3.7 million.
- Fondo GC FTPYME Pastor 2 in January 2011 with a nominal value of EUR 74
million.
In accordance with IFRS-EU, securitised assets for which all or some of the
associated risks are retained may not be derecognised. Securitised loans
recognised in the balance sheet are included under “Loans and receivables – Loans
and advances to customers” on the accompanying consolidated balance sheets
(Note 12.3). Under IFRS-EU, a financial liability in the same amount is recognised
simultaneously under “Financial liabilities at amortised cost”.
The breakdown of securitised loans by those recognised on the balance sheet in full
and those fully derecognised at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
Remaining entirely on balance sheet
Fully w ritten off balance sheet
TOTAL
2010
520.620
1.235.108
1.775.991
1.998.894
2.296.611
3.234.002
Of the balance of securitised loans recognised on the balance sheet in full, EUR
363,464 thousand correspond to securitisation bonds acquired by the Group at 31
December 2011 (EUR 923,767 thousand at 31 December 2010) while the remaining
EUR 157,156 (EUR 311,341 thousand at 31 December 2010) correspond to
liabilities recognised in "Marketable debt securities” (Note 23.5.2).
The criteria determining the exclusion of securitisation funds from the consolidation
scope are explained in Note 1.6.1.
32.5. Investment services
In the years ended 31 December 2011 and 2010, the Group carried out the
following investment services on behalf of third parties:
Thousand euro
2011
Assets acquired in ow n name for account of third parties
Financial instruments placed in trust by third parties
TOTAL
2010
112.042
142.797
3.833.634
5.133.973
3.945.676
5.276.770
The fees and commissions collected on these services are recognised in the
consolidated income statements under “Fee income”.
149
32.6. Financial assets derecognised due to impairment
The change in 2011 and 2010 in assets derecognised from the consolidated
balance sheet as the likelihood of their recovery is considered remote was as
follows (Note 31.1.8):
Thousand euro
2011
AMOUNTS AT BEGINNING OF YEAR
2010
1.209.079
932.727
Additions due to:
Remote recov ery
247.165
Other causes
Total additions
386.730
---
---
247.165
386.730
Recoveries:
Refinancing and restructuring
Cash collection w ithout additional financing
Adjudication of assets
Total recoveries (Note 12.5)
(410)
(941)
(48.834)
(39.712)
(6.590)
(3.537)
(55.834)
(44.190)
(48.079)
(66.188)
Write-offs due to:
Pardon and other reasons
Total write-offs
AMOUNTS AT BEGINNING OF YEAR
(48.079)
(66.188)
1.352.331
1.209.079
32.7. Suspended interest and fee income
Interest and fee income accrued but not recognised on the balance sheet due to
doubts over the possibility of its collection came to amounts of EUR 433,829
thousand and EUR 257,639 thousand at 31 December 2011 and 2010 respectively.
33. INTEREST AND SIMILAR INCOME
The breakdown of the main interest and similar income items earned by the Group
in 2011 and 2010 is as follows:
Thousand euro
2011
Bank of Spain and other central banks
2010
3.981
2.842
21.211
28.699
Customer loans
795.203
760.838
Debt securities
179.982
148.215
Money market transactions through counterparties
65
3
Doubtful assets
44.940
29.207
Rectification of income deriv ing from book hedges
(8.043)
(25.966)
Other rev enues
Financial income from non-financial entities
TOTAL
2.377
783
---
51
1.039.716
944.672
150
34. INTEREST EXPENSE AND SIMILAR CHARGES
The detail of this item of the consolidated income statement is as follows:
Thousand euro
2011
Central banks
31.512
---
---
Other central banks
2010
29.835
82.243
39.108
Customer funds
331.358
258.119
218.249
241.703
Money market transactions through counterparties
Subordinated debt financing (Note 23.6)
7.345
894
22.413
27.329
Adjustment of costs deriv ing from book hedges
---
---
(78.628)
(132.468)
25)
824
1.096
Other charges
672
697
---
7.248
614.311
475.238
Financial ex penses from non-financial entities
TOTAL
35. INCOME FROM EQUITY INSTRUMENTS
The detail of “Income from equity instruments” recognised in the consolidated
income statements, by instrument, is as follows:
Thousand euro
2011
2010
Equity instruments classified as:
TOTAL
5
89
1.805
3.875
1.810
3.964
36. RESULTS IN ENTITIES MEASURED UNDER THE EQUITY
METHOD
Thousand euro
2011
2010
Pastor Vida, S.A.
5.039
3.113
Other associates
111
95
5.150
3.208
---
(441)
415
726
ASSOCIATES
Saite-Cobal, S.A.
Saite
Other jointly controlled entities
JOINTLY CONTROLLED ENTITIES
TOTAL
50
61
465
346
5.615
3.554
151
37. FEE INCOME
Thousand euro
FEES RECEIVED ORIGINATING IN:
Financing provided to third parties
Av ailability of funds
2011
2010
3.864
3.933
3.864
3.933
9.856
13.343
Inv estment funds
6.622
10.042
Pension funds and plans:
2.851
2.899
383
402
7.838
12.116
405
3.716
Intermediation in securities market operations
3.489
3.316
Keeping of third-party deposits
Management and administration of
Capital ow ned by third parties
Investment services
third parties
3.944
5.084
Change of currency
212
236
13.025
14.664
Collection and payment services
62.232
61.077
for marketing of non-banking financial services
12.269
29.258
Other fees
21.670
26.225
13.243
14.896
8.427
11.329
130.966
160.852
On claims for ov erdrafts and ov erdue balances
Remaining fees
TOTAL
38. FEE EXPENSE
Thousand euro
2011
Collection and pay ment serv ices
2010
162
154
26.525
23.821
Intermediary serv ice fees
4.515
5.554
Remaining fees
5.113
4.542
36.315
34.071
Fees assigned to third parties
Other fees:
TOTAL
152
39. GAINS/LOSSES ON FINANCIAL ASSETS AND
LIABILITIES
The detail of this item of the consolidated income statement, by source of income, is
as follows:
Thousand euro
2011
Trading portfolio (Note 9.1)
2010
31.190
43.418
80
(2.043)
7.775
35.525
Loans and discounts
3.813
4.913
Held-to-maturity
1.278
2.158
profit or loss
through profit or loss
Other
TOTAL
54.469
35.041
98.605
119.012
The heading "Other" mainly relates to the results obtained in 2011 for the
repurchase of payables represented by negotiable securities issued by the Group in
the amount of EUR 15,447 thousand (EUR 868 thousand in 2010) (Note 23.5.4) and
results obtained from the repurchase of subordinated liabilities totalling EUR 38,738
thousand (EUR 33,505 thousand in 2010) (Note 23.6).
The detail by type of financial instrument is as follows:
Thousand euro
2011
Fix ed interest
51.693
2.605
19.488
Variable interest
Other
TOTAL
2010
65.158
30.842
47.831
98.605
119.012
In 2011 the heading "Fixed income" includes the sale and redemption of
government debt totalling EUR 3,770 thousand.
In 2010 the heading "Fixed income" includes, among other things, the profits
obtained on the same and redemption of foreign fixed income securities totalling
€12,157 thousand and the sale and redemption of Government debt totalling €3,931
thousand.
In 2010 the heading "Equities" includes the profits obtained on the sale of RCable
Telecomunicaciones Galicia, S.A. (€17,093 thousand) and Regasificadora del
Noroeste, S.A. (€2,309 thousand) (Note 11.3).
40. EXCHANGE DIFFERENCES
The detail of administrative expenses recognised in the accompanying consolidated
income statement at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
2010
Gains
4.554
6.498
Losses
(1.870)
(1.021)
2.684
5.477
TOTAL
153
In both years the exchange differences arose primarily from Group sales of surplus
US-dollar denominated liabilities against euros on the spot market, eliminating the
exchange risk inherent in these transactions through the use of foreign currency
derivatives (offsetting forward purchases). Under IFRS-EU, the net spot-forward
position cannot be classified as a foreign exchange accounting hedge. The net gain
or loss on such transactions is therefore recognised in “Exchange differences (net)”.
41. OTHER OPERATING INCOME
The breakdown of this line in the accompanying consolidated income statement is
as follows:
Thousand euro
2011
Income from insurance and reinsurance contracts issued
2010
---
---
Sales and revenues from provision of non-financial services
18.621
31.156
20.593
19.650
5.612
5.558
739
263
assets (Note 20.2.1)
3.642
3.327
Financial commissions offsetting direct costs
6.657
8.089
3.943
2.413
39.214
50.806
Operating income on inv estment property (Note 19.2)
Income from other tangible assets assigned under operating
leases (Note 19.3)
Ex penses recov ered due to being included in cost of intangible
TOTAL
42. OTHER OPERATING EXPENSES
The breakdown of the balance of “Other Operating Expenses” in the consolidated
income statement is as follows:
Thousand euro
2011
Insurance and reinsurance contract ex penses
Difference betw een opening and closing inv entories
2010
---
---
10.609
19.526
Operating ex penses on inv estment property (Note 19.2)
123
83
7.541
6.822
234
281
18.507
26.712
Contribution to deposit guarantee funds (Note 1.11)
Other
TOTAL
43. ADMINISTRATIVE EXPENSES
The detail of administrative expenses recognised in the accompanying consolidated
income statement at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
2010
Staff costs
233.574
233.845
123.217
122.354
356.791
356.199
TOTAL
154
43.1. Personnel expenses
The detail of “Personnel expenses” at 31 December 2011 and 2010 was as follows:
Thousand euro
2011
Wages and salaries
Social security contributions
2010
174.426
178.228
43.499
43.664
(Note 2.9.1.3)
2.262
426
(Note 2.9.1.1)
2.659
2.785
Other staff costs
TOTAL
10.728
8.742
233.574
233.845
The average number of Group employees, by professional category, in 2011 and
2010 was as follows:
Average number of employees
Men
Women
TOTAL 2011
Men
Women
TOTAL 2010
Ex ecutiv e directors
3
---
3
2
---
2
Senior management
15
4
19
14
5
19
Qualified employ ees
2.014
1.303
3.317
1.991
1.233
3.224
177
301
478
258
366
624
Administrativ e personnel
General serv ices
113
236
349
108
244
352
TOTAL
2.322
1.844
4.166
2.373
1.848
4.221
The average number of employees at the Group in 2011 and 2010, by category and
gender, is as follows:
No. of persons
Men
Women
TOTAL 2011
Men
Women
TOTAL 2010
Ex ecutiv e directors
3
---
3
4
---
4
Senior management
15
3
18
12
5
17
Qualified employ ees
1.976
1.294
3.270
2.008
1.283
3.291
Administrativ e personnel
168
301
469
216
323
539
General serv ices
113
236
349
94
225
319
TOTAL
2.275
1.834
4.109
2.334
1.836
4.170
The number of Group employees with a disability equal to or exceeding 33% is 1%
of the total at the end of 2011 and 2010.
4 3 . 1 . 1 . R e m u n e ra t i o n i n k i n d
The following compensation in kind was available to staff in 2011 and 2010:
 Interest free advance payments made to employees in accordance with the
collective agreement.
 Interest free advance payments to all employees, for the reasons recognised in
the Social Benefit Framework Agreement concluded on 1 July 2009.
 Interest-free advances extended to all staff of the Bank and Group for the
acquisition of the Bank shares issued in the November 2004. The maximum term is
8 years and the maximum loan per employee is EUR 30 thousand.
 Life insurance, which includes death and disability benefits for all qualifying staff,
covering an amount equivalent to the annual salary of the individual staff member.
This is an ex gratia benefit introduced in 2005 that is not provided for in the
collective labour agreement.
155
 Life insurance, which covers death or disability benefits, for employees without
signature authority, in the amount of EUR 18,000 up until 31 July 2009 and EUR
25,000 as from that date as a result of the Social Benefit Framework Agreement
concluded on 1 July 2009. This is an ex gratia benefit introduced in 2007 that is not
provided for in the collective labour agreement.
 Health insurance provided to certain executives, their spouses and children
under the age of 24 (this compensation was offered in 2010).
The above items are all recognised under “Personnel expenses” in the consolidated
income statement:
 In the case of loans and advances, the cost recognised corresponds to the
difference between the official interest rate and the interest rate extended to staff
(0%). An equivalent amount is simultaneously recognised in income under "Interest
and similar income".
 In the case of life insurance, the expense recognised corresponds to the cost of
the insurance policy borne by the Bank.
In addition, in 2006, the Bank introduced a share-based compensation scheme as
part of a three-year incentive program also introduced that year (the Delta incentive
scheme) to run from 2006 to 2008 and was conditional upon achievement of the
business targets established in the strategic plan for the same period.
Once that period ended the shares were delivered on 1 February 2010. The
corresponding expense is accrued annually, with a credit to "Equity - Other equity
instruments". In 2010 there was no effect on the income statement.
In December 2011 an agreement was concluded for the delivery of bank shares to
certain employees for a total of EUR 2,256 thousand, charged against "Personnel
expenses" and crediting "Equity - Other capital instruments" (Note 27.1.5).
43.2. Other general administrative expenses
The breakdown of this line in the accompanying consolidated income statement is
as follows:
Thousand euro
2011
Technology and sy stems
Communications
Adv ertising
2010
13.766
13.504
5.769
5.618
6.524
6.792
13.837
13.990
Tax es
8.322
7.892
Rentals
35.591
35.896
Other administration ex penses
39.408
38.662
123.217
122.354
Buildings and installations
TOTAL
156
4 3 . 2 . 1 . Ot h e r i n f o r ma t i o n
“Other general administrative expenses” includes the fees paid by the Group for the
audit of its annual financial statements and other non-attest work. Details of these
expenses for 2011 and 2010 are set out below:
Thousand euro
2011
2010
Main auditor (PwC)
Auditing
488
460
Other w ork
394
274
Other auditors
Miami branch audit
92
88
Other w ork
---
---
974
822
TOTAL
44. “Gains/(Losses) on the derecognition of assets not
classified as non-current assets held for sale”:
The main items included in this income statement account are shown in the
following table:
Thousand euro
2011
PROFITS
On sale of property , plant and equipment
On sale of holdings
LOSSES
TOTAL
NET
PROFITS
LOSSES
NET
1.607
(2.247)
(640)
3.541
(386)
3.155
---
(163)
(163)
53.779
---
53.779
---
---
---
On sale of other capital instruments
Other items
2010
---
730
(6.428)
(5.698)
722
(3.807)
(3.085)
2.337
(8.838)
(6.501)
58.042
(4.193)
53.849
The amount recorded for Gains on the sale of shareholdings in 2010 relates mainly
to the fair value measurement of the remaining 50% stake held in Pastor Vida, S.A.
totalling €33,802 thousand (Note 17.1) and the sale of 100% of the subsidiary
Gespastor, S.A. totalling €18,179 thousand (Note 5). The gain obtained on the sale
of the remaining 50% of Pastor Vida, S.A. is recorded under the heading ¨Gains and
losses on discontinued operations (Note 46).
157
45. GAIN/(LOSS) ON NON-CURRENT AVAILABLE-FOR-SALE
ASSETS NOT CLASSIFIED AS DISCONTINUED
ACTIVITIES
This heading of the accompanying income statements records the results obtained
on the sale of foreclosed assets and related impairment losses, as well as the
results obtained on the sale of non-current assets held for sale. In 2011 this heading
recognised a loss of EUR 65,647 thousand, of which EUR 4,570 thousand relates to
profits on sales, EUR 7,333 thousand relates to losses on sales and €62,884
thousand to impairment losses affecting non-current assets held for sale (Note 16).
In 2010 this heading recognised a loss of €64,002 thousand, of which €7,217
thousand relates to profits on sales, €5,094 thousand relates to losses on sales and
€66,125 thousand to impairment losses affecting non-current assets held for sale
(Note 16). Profits obtained on sales include the profits obtained on the sale of
properties totalling €4,444 thousand.
46. GAINS/LOSSES ON DISCONTINUED ACTIVITIES
In 2011 the accompanying income statement did not include any amount under this
heading.
The breakdown the heading "Gains/losses on discontinued activities (net) in the
income statement for 2010 is as follows:
158
Thousand euro
2010
Income/(expenses)
(a)
4.252
---
Fees received
2.803
Fees paid
(2.276)
Other financial instruments at fair v alue through profit or loss
Income from insurance and reinsurance contracts issued
Insurance and reinsurance contract ex penses
Other items
(161)
--(161)
10.322
10.322
--(9.596)
(9.575)
(21)
(1.101)
Staff costs
(580)
(521)
(211)
(6)
Goodwill and other intangibles
---
Other assets
PROFIT/(LOSS) DISCONTINUED ACTIVITIES BEFORE TAX
PROFIT/(LOSS) OF DISCONTINUED ACTIVITIES, NET
(6)
4.027
(1.216)
2.811
Profit (loss) from discontinued operations (net)
PROFIT/(LOSS) OF DISPOSAL OF ASSETS COMPRISING DISCONTINUED
ACTIVITY
Profit/(loss) before tax es
41.609
(7.489)
Profit/(loss) after tax es
34.120
TOTAL PROFIT/(LOSS) FROM DISCONTINUED OPERATIONS:
profit/(loss) discontinued activ ities before tax
45.635
(8.705)
profit/(loss) discontinued activ ities after tax
36.930
(a) Insurance activ ity carried out through the subsidiary Pastor Vida, S.A. (in fourth quarter of 2010 a
50% stake in this company w as sold, giv ing up control ov er it). The income and ex penses relating to
this activ ity deemed to be discontinued relate to the 50% of total income and ex penses generated by
said activ ity .
159
47. RELATED-PARTY TRANSACTIONS
All the significant balances at year-end between the consolidated companies and
the effect of the transactions between them in 2010 were eliminated on
consolidation. The detail of the most significant balances outstanding between the
Group and its associates and jointly controlled entities, and the impact on the
income statement of transactions carried out between them, is as follows:
Thousand euro
2011
2010
Jointly-
Jointly-
controlled
entities
Significant
Associates shareholders
controlled
entities
Significant
Associates shareholders
ASSETS:
Customer loans
31.372
9.034
4.752
46.493
24
5.636
3.355
32.176
17.906
2.725
79.056
73.886
---
1.950
---
---
500
---
LIABILITIES:
Customer debits
Other liabilities
PROFIT AND LOSS:
Expenses
47
2.227
6.834
16
422
8.125
Financial ex penses
47
2.227
1.271
16
422
1.812
Fees and other ex penses
---
---
5.563
---
---
6.313
1.161
7
128
1.399
---
147
1.161
7
126
1.399
---
147
---
---
2
---
---
---
849
12.513
658
849
12.062
593
6.379
984
---
5.243
226
15.000
Income
From loans
From serv ices
OTHER COMMITMENTS:
Contingent ex posures
Transactions with members of the Board of Directors and Senior Management in
the years ended 31 December 2011 and 2010 are recorded in Note 7.
160
APPENDICES
APPENDIX I
Banco Pastor, S.A.
BALANCE SHEETS AS AT 31 December 2011 AND 2010
ASSETS
CASH ON HAND AND ON DEPOSIT AT CENTRAL BANKS
HELD FOR TRADING
Customer loans
Debt securities
Equity instruments
Thousand euro
2011
2010
432.185
177.409
283.810
207.375
5.102
156
172.151
110.446
3.680
93.249
OTHER FINANCAIL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
186.746
492.098
Customer loans
Debt securities
186.746
492.098
Equity instruments
AVAILABLE-FOR-SALE FINANCIAL ASSETS
2.531.975 1.739.600
Debt securities
2.499.173 1.696.894
Equity instruments
32.802
42.706
LOANS AND DISCOUNTS
24.006.489 25.262.928
961.679 1.492.131
Customer loans
22.188.060 22.736.697
Debt securities
856.750 1.034.100
HELD-TO-MATURITY PORTFOLIO
2.079.066 2.031.689
CHANGES IN THE FAIR VALUE OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK
20.615
10.121
Hedging derivatives
102.095
154.068
NON-CURRENT ASSETS FOR SALE
250.897
185.004
INVESTMENTS
177.276
147.670
Associates
5.714
5.802
Jointly -controlled entities
2.398
2.398
Group companies
169.164
139.470
INSURANCE CONTRACTS LINKED TO PENSIONS
21.583
25.442
PROPERTY, PLANT AND EQUIPMENT
124.179
138.419
109.405
122.947
For ow n use
109.405
122.947
Assigned under operating lease
----Used in community projects (only Sav ings Banks and Credit Cooperativ es )
14.774
15.472
INTANGIBLE ASSETS
27.806
24.891
Goodw ill
Other intangible assets
27.806
24.891
TAX ASSETS
267.875
268.584
Current
22.620
49.707
Deferred
245.255
218.877
OTHER ASSETS
139.789
162.516
TOTAL ASSETS
30.545.985 31.134.215
161
LIABILITIES
HELD FOR TRADING
OTHER FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Customer funds
FINANCIAL LIABILITIES AT AMORTISED COST
Customer funds
Hedging derivatives
PROVISIONS
Prov isions for pensions and similar liabilities
Prov isions for tax es and other legal contingencies
Prov isions for contingent ex posures and commitments
Other prov isions
Tax liabilities
Deferred
OTHER LIABILITIES
TOTAL LIABILITIES
SHAREHOLDERS' FUNDS
Capital
Capital
Share premium
Reserv es
Profit for the y ear
Less: Dividends and remuneration
VALUE ADJUSTMENTS
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
CONTINGENT EXPOSURES
CONTINGENT COMMITMENTS
EQUITY
Memorandum item
Thousand euro
2011
2010
122.188
122.188
76.304
76.304
184.906
489.633
184.906
489.633
28.408.202 29.022.230
2.700.750 3.900.914
3.523.216 3.115.994
16.247.605 14.877.488
5.493.156 6.505.760
352.473
497.328
91.002
124.746
106.121
69.112
69.136
99.142
44.027
57.752
10.811
15.273
7.227
16.670
7.071
9.447
15.824
12.222
15.824
12.222
48.169
40.769
28.954.546 29.809.412
1.641.729 1.369.156
90.041
88.083
90.041
88.083
144.763
146.720
1.125.406 1.095.728
246.776
--246.776
--40.882
45.752
(6.139)
(7.127)
(50.290)
(44.353)
(50.290)
(44.353)
1.591.439 1.324.803
30.545.985 31.134.215
1.170.827
2.477.470
1.354.689
3.310.216
162
APPENDIX II
Banco Pastor, S.A.
INCOME STATEMENTS THE YEARS ENDED 31 DECEMBER 2011 AND 2010
Thousand euro
2010
2011
1.124.271 1.019.497
Interest and similar charges
(638.988)
(496.652)
A) INTEREST MARGIN
Fees received
Fees paid
Held for trading
Other
Other operating incom e
485.283
25.440
129.084
(34.470)
68.345
31.236
37.223
(114)
2.690
10.506
(7.882)
522.845
13.247
155.635
(32.101)
109.887
43.038
66.079
770
5.476
11.187
(7.163)
B) GROSS MARGIN
Staff costs
Provisions (net)
Financial asset im pairment losses (net)
678.996
(325.114)
(218.810)
(106.304)
(25.697)
12.013
(93.639)
779.013
(324.410)
(218.805)
(105.605)
(26.566)
12.071
(307.831)
(86.487)
(307.443)
(7.152)
(388)
246.559
(196.477)
132.277
(172.742)
(196.477)
(172.742)
(7.152)
79.081
Loans and discounts
Other financial instruments not carried at fair v alue through profit or loss
C) INCOME FROM OPERATING ACTIVITIES
Other assets
Gains(losses) from disposals of assets not classified as non-current available for sale
Gains(losses) from non-current assets available for sale not classified as discontinued operations
(6.077)
(2.172)
Corporate incom e tax
36.853
4.029
36.444
9.308
E) PRIOR YEAR RESULTS FROM CONTINUING OPERATIONS
40.882
45.752
F) PROFIT/(LOSS) FOR THE YEAR
40.882
45.752
163
Appendix III
Banco Pastor, S.A.
STATEMENTS OF RECOGNISED INCOME AND EXPENSE FOR THE
YEARS ENDED 31 DECEMBER 2011 AND 2010
Thousand euro
2011 2010
A) PROFIT/(LOSS) FOR THE YEAR
40.882
B) OTHER RECOGNISED INCOME AND EXPENSE
(5.937) (53.903)
(6.219) (66.360)
45.752
(941) (41.524)
(5.278) (24.836)
---
---
---
---
---
---
---
---
Amounts transferred at initial v alue of hedged items
---
---
---
---
---
---
---
---
---
---
---
---
Cash flow hedge
Hedges of net investment in foreign operations
Exchange differences
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
---
Actuarial gains /(losses) - pension plans
---
---
Other recognised income and expense
---
---
282
12.457
34.945
(8.151)
C) TOTAL INCOME/(EXPENSE) RECOGNISED (A + B)
164
APPENDIX IV
Banco Pastor, S.A.
STATEMENT OF CHANGES IN EQUTIY FOR THE YEARS ENDED 31 DECEMBER 2011 AND 2010
Thousand euro
1.09 5.7 28
-- -
4 5.75 2
( 7.12 7)
1.3 69.156
(4 4.3 53) 1.3 24.803
---
---
---
---
---
---
---
---
Adjustments due to erro rs
---
---
---
---
---
---
---
---
---
8 8.0 83
146 .72 0
1.09 5.7 28
-- -
4 5.75 2
( 7.12 7)
1.3 69.156
A djusted o pening bala nce
T o ta l re co gnis ed inco me / ( e xpe nse )
O the r changes in e quity
Increase in share capital / assigned capital
- --
R eserves
C ap ital
C lo s ing balanc e at 31/ 12/ 2010
-- -
1.95 8
( 1.95 7)
1.958
(1.958)
T OT A L EQU IT Y
VA L U E
A D JU ST M EN T S
146 .72 0
---
2011
Oth er eq u ity
in stru men ts
8 8.0 83
Adjustments due to changes in acco unting standards
Sh are p remiu m
T o tal
sh areh o ld ers'
fu n d s
Pro fit fo r th e year
L ess: D ivid en d s
an d remu n eratio n
SHAREHOLDERS' FUNDS
(4 4.3 53) 1.3 24.803
- --
-- -
4 0.88 2
- --
40.8 82
2 9.6 78
246 .77 6
(45 .75 2)
9 88
2 31.691
(5.9 37)
---
---
---
---
---
---
---
---
---
---
---
---
---
34.945
231.691
Capital reductio ns
---
---
---
Co nversion of financial liabilities into capital
---
---
---
---
---
---
---
---
---
Increase in other equity instruments
---
---
---
251.810
---
---
2 51.810
---
251.810
Reclassificatio n of financial liabilities to o ther equity instruments
---
---
---
---
---
---
---
---
---
Reclassificatio n of other equity instruments to financial liabilities
---
---
---
---
---
---
---
---
---
Distribution of dividends / shareholder remuneration
---
---
---
---
Operations with own equity instruments (net)
---
---
---
---
Transfers between equity items
---
---
29.737
---
Increases / (Decreases ) business co mbinations
---
---
---
Equity settled payments
---
---
Other increases /(decreases) in equity i
---
1
9 0.0 41
144 .76 3
C lo s ing ba lanc e a t 31/ 12/ 2011
---
1.12 5.4 06
--(29.737)
988
( 15.0 27)
---
(15.027 )
---
---
---
---
---
---
---
---
---
---
---
---
---
---
(5.0 34)
---
(5.034 )
---
---
---
(58)
---
(58 )
246 .77 6
4 0.88 2
( 6.13 9)
(5.034)
(59)
(16.015)
1.6 41.7 29
---
(5 0.2 90) 1.5 91.439
165
Thousand euro
C lo sing ba la nc e a t 31/ 12 / 20 09
TOT A L EQU ITY
8 6.3 56
14 8.44 7
1.011.3 00
1.8 25
10 0 .25 7
9 .5 50
1.3 42 .03 4
A djustments due to changes in acco unting standards
---
---
---
---
---
---
- --
---
-- -
A djustments due to erro rs
---
---
---
---
---
---
- --
---
-- -
8 6.3 56
14 8.44 7
1.011.3 00
1.8 25
10 0 .25 7
(15.7 01) 1.3 32 .4 84
9 .5 50
1.3 42 .03 4
---
4 5.75 2
---
45 .75 2
( 1.8 25 ) (10 0.25 7)
8.5 74
(9 .08 0)
---
(3)
---
A djus te d o pe ning bala nc e
T o t al re co gnis ed inco me / ( expe ns e)
O ther change s in equity
---
---
1.7 27
(1.7 27 )
1.727
(1.727)
- -84 .4 28
(15.7 01) 1.3 32 .4 84
VA L U E
A D JU ST M EN T S
T otal
sh areho ld ers'
fu n ds
L ess: D ivid en d s
an d remu n eratio n
Pro fit fo r th e year
Oth er eq uity
in stru m en ts
C apital
2010
R eserves
Sh are p remium
SHAREHOLDERS' FUNDS
(53 .9 03 )
(8 .151)
(9 .08 0)
(3)
---
---
---
Capital reductio ns
---
---
---
---
---
---
- --
---
-- -
Conversion of financial liabilities into capital
---
---
---
---
---
---
- --
---
-- -
Increase in o ther equity instruments
---
---
---
---
---
---
- --
---
-- -
Reclassificatio n o f financial liabilities to o ther equity instruments
---
---
---
---
---
---
- --
---
-- -
Reclassificatio n o f o ther equity instruments to financial liabilities
---
---
---
---
---
---
- --
---
-- -
Distributio n of dividends / shareholder remuneratio n
---
---
---
---
Operations with own equity instruments (net)
---
---
---
---
Transfers between equity items
---
---
84.556
---
Equity settled payments
---
---
(125)
Increase in share capital / assigned capital
Other increases /(decreases) in equity i
C lo s ing bala nc e at 31/ 12 / 2 010
(1.825)
(15.701)
--(84.556)
---
8.574
(7 .12 7)
---
---
- --
---
---
- --
---
---
(1.95 0)
---
---
---
---
---
---
- --
8 8.0 83
14 6.72 0
1.0 95 .7 28
---
4 5.75 2
( 7.127 )
1.3 69 .15 6
-----
(3)
(7 .12 7)
-- -- (1.95 0)
-- -
(44 .3 53 ) 1.3 24 .80 3
166
Appendix V
Banco Pastor, S.A.
CASH FLOW STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2011 AND
2010
Thousand euro
2011
2010
A) CASH FLOWS FROM OPERATING ACTIVITIES
Profit for the year
Adjustments to obtain cash flows from operating activities
Other adjustments
1.266.209
(277.559)
40.882
45.752
308.121
301.923
25.697
26.566
282.424
275.357
650.332
(552.415)
(16.426)
288.626
305.352
413.373
(808.624)
372.488
1.069.773
(1.589.493)
100.257
(37.409)
288.151
(41.227)
Net (increase)/decrease in operating assets
Held for trading
Loans and discounts
Other operating assets
Net increase/(decrease) in operating liabilities
Held for trading
45.884
(8.047)
Other financial liabilities at fair v alue through profit or loss
(4.727)
(15.596)
Financial liabilities at amortised cost
Other operating liabilities
Corporate income tax income/(payments)
220.954
5.588
26.040
(23.172)
(21.277)
(31.592)
(275.600)
(873.474)
(291.821)
(985.812)
(8.849)
(10.627)
Intangible assets
(9.876)
(12.006)
(226.334)
(181.592)
B) CASH FLOWS FROM INVESTING ACTIVITIES
Payments:
Shareholdings
Other business units
---
---
Non-current assets and associated liabilities for sale
---
---
Held-to-maturity
(46.762)
Other pay ments related to inv esting activ ities
Collections:
(781.587)
---
16.221
112.338
2.739
1.953
Intangible assets
---
---
Shareholdings
88
90.181
Other business units
---
---
Non-current assets and associated liabilities for sale
13.394
20.204
Held-to-maturity
---
---
Other collections related to inv esting activ ities
---
167
CASH FLOW STATEMENTS (CONT)
Thousand euro
2011
C) CASH FLOWS FROM FINANCING ACTIVITIES
Payments:
Div idends
Redemption of ow n equity instruments
Acquisition of ow n equity instruments
Other pay ments related to financing activ ities
Collections:
Issue of treasury shares
Disposal of ow n equity instruments
Other collections related to financing activ ities
D) EFFECT OF EXCHANGE RATE FLUCTUATIONS
E) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A+B+C+D)
2010
(925.192)
(899.599)
(2.227.002)
(3.139.614)
(15.027)
(7.127)
(132.101)
(74.431)
-----
--(1.965)
(2.079.874)
(3.056.091)
1.301.810
2.240.015
---
---
251.810
---
---
15
1.050.000
2.240.000
---
---
65.417
(2.050.632)
F) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR
396.466
2.447.098
G) CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (E + F)
461.883
396.466
Cash
119.997
133.173
Cash equiv alent balances in central banks
312.188
150.637
29.698
112.656
MEMORANDUM ITEMS
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
Other financial assets
Less: At sight reimbursable bank overdrafts
TOTAL CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
---
---
461.883
396.466
168
E X H I B I T VI
BREAKDOWN OF BANCO PASTOR BOARD MEMBERS' SHAREHOLDINGS
IN COMPANIES ENGAGED IN SIMILAR ACTIVITIES
Shareholding
Company
Santander Central Hispano, S.A.
Banco Bilbao Vizcay a Argentaria, S.A.
Direct
20.000
Direct
4.000
Direct
74.255
Direct
79.703
Direct
Bank of America
4.000
Direct
Citibank
3.153
Direct
JP Morgan
6.145
Direct
Associated Bank Corp.
3.000
Direct
Goldman Sachs
Mr Marcial Campos Calv o-Sotelo
125
Direct
Santander Finance
3.200
Direct
Wells Fargo
5.000
Direct
32
Direct
245
Direct
8.309
Direct
2.142
Direct
4
Direct
26.931
Direct
1.039
Direct
Finex perta, S.A.
1.000
Indirect
Eurosigma, S.A.
238.763
Indirect
Banco Gallego
Dorneda de Inv ersiones 2002, SICAV
Type of
shareholding
Direct
2.409
Mr José Luis Vázquez Mariño
No.
shares
5.417
Banco Popular, S.A.
Mr Gonzalo Gil García
---
---
---
---
---
---
169
E X H I B I T VII
SUMMARY OF THE ANNUAL REPORT OF THE CUSTOMER CARE
AND CUSTOMER DEFENCE OFFICE OF BANCO PASTOR, S.A.
Pursuant to Article 17 of Order ECO/734/2004 (11 March) from the Ministry of Economy on Customer Care and Customer Protection Departments
and Offices of Financial Institutions, set out below is a summary of the Annual Report submitted to the Board of Directors by Customer Care and
Customer Protection Serv ice management.
CUSTOMER CARE OFFICE
Statistical sum mary of complaints and claims received
In 2011 the Customer Care Office opened 1,553 complaint and claim files; 141 w ere not processed.
There follow s a list of complaints and claims by ty pe:
· Asset operations:
39,92%
· Liability operations:
14,94%
· Transfers:
2,00%
· Cheques, bills of ex change, notes, receipts and other drafts:
4,83%
· Inv estment funds:
0,97%
· Pension plans:
1,03%
· Foreign currency and foreign banknote operations:
0,13%
· Securities:
2,32%
· Debit and credit cards:
11,40%
· Insurance:
2,25%
· Data protection:
0,06%
· Miscellaneous:
20,15%
The analy sis of replies to customers is analy sed below :
· In claimant's fav our
16,74%
· In Bank's fav our
55,25%
· No ruling
9,53%
· Pending resolution
9,40%
· Rejected
9,08%
The cost of claims for 2011 w as € 232 thousand.
Rulings w ere adopted in accordance w ith applicable legislation, including transparency and customer protection regulations, and good financial
practices.
CUSTOMER DEFENCE
Statistical sum mary of complaints and claims received
In 2011, 220 claims w ere receiv ed by Customer Defence; 37 w ere not processed.
Reasons for and issues raised in the claim s and complaints
· Asset operations:
47,73%
· Liability operations:
23,64%
· Cards, cheques, notes and other drafts
7,27%
· Inv estment and securities operations
5,45%
· Insurance
2,27%
· Pensions
4,09%
· Miscellaneous
9,55%
The analy sis of replies to customers is summarised below :
· In claimant's fav our
19,09%
· In Bank's fav our
50,91%
· Pending resolution
13,18%
· Rejected
16,82%
Customer Defence's approach to the rulings issues w as based on three main parameters: the contracts betw een the financial institutions and their
customers, good banking practices and equity .
170
EXHIBIT VIII
SUBSIDIARIES AT 31 DECEMBER 2011
Shareholding
controlled by the
A Coruña
Real estate
Banco P astor
5.000
5 100,00
0,00
0,00
5
34.731
34.726
5
(8.212)
ANDALECIA, S.L.
A Coruña
Real estate
Banco P astor
5.000
5 100,00
0,00
0,00
5
15
---
15
(1)
BERGANTIÑOS GESTION GLOBAL DE INMUEBLES, S.L. A Coruña
Real estate
Banco P astor
100.000
100 100,00
0,00
0,00
23.817
25.621
1.804
23.817
(13.167)
BOLSHISPANIA, S.A. S.I.C.A.V. (*)
M adrid
Securities
investment
Banco P astor
850.524
2.560 85,75
0,00
0,00
2.031
18.914
17
18.897
(92)
CALDELAS GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco P astor
6.000
6 100,00
0,00
0,00
639
651
12
639
---
CERCEBELO ASSETS, S.L.
A Coruña
Real estate
Banco P astor
5.000
5 100,00
0,00
0,00
5
6
1
5
---
ESSENTIAL INFORMATION SYSTEMS, S.A.
A Coruña
IT services Universal Support
100,00
0,00
---
97
3
94
(3)
GENERAL DE TERRENOS Y EDIFICIOS, S.L.
A Coruña
Real estate
Banco P astor
1.458.089
0,00
0,00
19.200
76.744
38.791 37.953
2.683
P ontevedra Real estate
Banco P astor
959
89,71
10,29
0,00
802
1.635
112
1.523
(6)
M anagemen Banco P astor
t
Securities
Banco P astor
investment
14.540.760
14.541 90,00
0,00
0,00
25.289
75.388
3.113
72.275
1.515
GESTORA INMOBILIARIA LA TOJA, S.A.
18.300
110
0,00
8.763 100,00
288
Eq u ity
A ssets
R esu lt
ALMEIRAS ASSETS, S.L.
L iab ilities
Shareholder
D irect
Activity
Oth er
Investee data
Address
In d irect
Bank
C arryin g amo u n t
Par valu e (T h eu ro )
N o . sh ares
Company
Thousand euro
% voting rights
GRUPO LA TOJA HOTELES
A Coruña
INVERPASTOR, S.A. S.I.C.A.V. (*)
A Coruña
1.869
2.250 92,62
0,00
0,00
3.762
16.144
23
16.121
862
LA LIMIA GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco P astor
5.000
5 100,00
0,00
0,00
5
7.868
7.863
5
(182)
MOREIRA GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco P astor
5.000
5 100,00
0,00
0,00
4
39.201
39.197
4
(2.542)
OS ANCARES GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco P astor
10.000
10 100,00
0,00
0,00
247
41.903
41.656
247
(3.885)
PARADANTA GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco P astor
10.000
10 100,00
0,00
0,00
651
69.659
69.008
651
(3.527)
PASTOR INTERNACIONAL DEBT, S.A.
A Coruña
Finance
Banco P astor
603
60 100,00
0,00
0,00
150
156
6
150
(7)
PASTOR MEDIACION O.B.S. VINCULADO, S.L.
A Coruña
Services
Banco P astor
63.995
385 100,00
0,00
0,00
361
3.292
1.193
2.099
288
PASTOR PARTICIPACIONES PREFERENTES,S.A.
A Coruña
Financial
Banco P astor
602
60 100,00
0,00
0,00
60 306.542
306.355
PASTOR PRIVADA INVESTMENT 1, S.L. (*)
A Coruña
Sobrino s JP
Inversiones
250
5,00
95,00
---
6.291
4
6.287
PASTOR PRIVADA INVESTMENT 2, S.L.
A Coruña
Banco P astor
6.000
6 100,00
0,00
0,00
50
14.382
14.332
50
(107)
A Coruña
Portfolio
company
Portfolio
company
Portfolio
company
Sobrino s JP
Inversiones
1.000
1 0,00
5,00
95,00
---
14.382
14.332
50
(107)
PASTOR SERVICIOS FINANCIEROS E.F.C., S.A.
A Coruña
Finance
Banco P astor
1.852.325
11.132 100,00
0,00
0,00
16.703 688.051 666.465
21.586
2.124
PROMOTORA INMOBILIARIA OSPIBEL, S.L.
A Coruña
Real estate
Banco P astor
10.000
10 100,00
0,00
0,00
8.205 273.786
RESIDENCIAL VALDEMAR, S.L.
A Coruña
Real estate
RUTA SYSTEMS, S.L.
A Coruña
Services
SOBRINOS DE JOSE PASTOR, S.A.
A Coruña
SOBRINOS DE JOSE PASTOR INVERSIONES, S.A.
A Coruña
TABEIROS GESTORA GLOBAL DE INMUEBLES, S.L.
A Coruña
UNIVERSAL SUPPORT, S.A.
Telemarketin
A Coruña
Banco P astor
g services
Sobrino s JP
A Coruña Real estate
Inversiones
VILAMAR GESTION, S.L.
OTHER ENTITIES
------
Portfolio
company
Portfolio
company
Real estate
------
Sobrino s JP
Inversiones
Universal
Support
0
0,00
265.581
187 (20.646)
---
8.205 (32.596)
380.000
3.800
0,00
100,00
0,00
---
37.214
33.414
3.800
(3.344)
90
5
0,00
100,00
0,00
---
95
37
58
(136)
Banco P astor
253.100
1.521 100,00
0,00
0,00
21.773
22.715
372
22.343
181
Banco P astor
1.200.000
1.200 100,00
0,00
0,00
25.022
95.551
70.528
25.023
(17.541)
Banco P astor
10.000
10 100,00
0,00
0,00
18.480 1.197.684 1.179.204
116.500
700 100,00
0,00
0,00
0,00
100,00
---
---
------
10.312
7.002
---
---
1.829
18.480 (111.520)
2.568
739
1.829
151
0,00
--- 204.903
175.104
29.799
(11.667)
---
69 391.777
391.221
556
305
(*) The Bank has appointed the majority of the members of these companies' Administrativ e Bodies under shareholder agreements.
171
EXHIBIT VIII (cont.)
SUBSIDIARIES AT 31 DECEMBER 2010
Shareholding
controlled by the
A Coruña
Real estate
Banco Pastor
5.000
5 100,00
0,00
0,00
5
2.109
2.104
5
(40)
ANDALECIA, S.L.
A Coruña
Real estate
Banco Pastor
5.000
5 100,00
0,00
0,00
5
15
---
15
(1)
BERGANTIÑOS GESTION GLOBAL DE INMUEBLES, S.L. A Coruña
Real estate
Banco Pastor
100.000
100 100,00
0,00
0,00
36.983
38.284
1.301
36.983
(1.513)
BOLSHISPANIA, S.A. S.I.C.A.V. (*)
38,09
0,00
55,36
2.031
18.914
17
18.897
(92)
6 100,00
0,00
0,00
622
644
5
639
---
4
---
M adrid
Securities
investment
Banco Pastor
850.524
CALDELAS GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco Pastor
6.000
CERCEBELO ASSETS, S.L.
A Coruña
Real estate
Banco Pastor
ESSENTIAL INFORMATION SYSTEMS, S.A.
A Coruña
IT services Universal Support
A Coruña
Real estate
Banco Pastor
1.458.089
Pontevedra Real estate
Banco Pastor
959
GENERAL DE TERRENOS Y EDIFICIOS, S.L.
GESTORA INMOBILIARIA LA TOJA, S.A.
GRUPO LA TOJA HOTELES
5.000
18.300
2.560
5 100,00
110
0,00
8.763 100,00
Equity
A ssets
R esult
ALMEIRAS ASSETS, S.L.
Liabilities
Shareholder
D irect
Activity
Other
Investee data
Address
Indirect
Bank
C arrying amount
Par value (Th euro)
N o. shares
Company
Thousand euro
% voting rights
0,00
0,00
4
4
100,00
0,00
---
100
--3
97
(3)
0,00
0,00
19.201
71.499
37.380
34.119
4.141
89,71
10,29
0,00
802
1.611
81
1.530
45
14.541 90,00
0,00
0,00
25.289
74.366
3.257
71.109
1.733
2.130
0,00
90,21
2.967
156.446
144 156.302
610
288
A Coruña
M anager
Banco Pastor
14.540.760
INVERPASTOR, S.A. S.I.C.A.V. (*)
A Coruña
Securities
investment
Banco Pastor
1.769
MOREIRA GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco Pastor
5.000
5 100,00
0,00
0,00
649
39.660
39.011
649
(4.628)
OS ANCARES GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco Pastor
10.000
10 100,00
0,00
0,00
0
26.481
26.485
(4)
(1.352)
PARADANTA GESTION GLOBAL DE INMUEBLES, S.L.
A Coruña
Real estate
Banco Pastor
10.000
10 100,00
0,00
0,00
4.183
70.521
66.338
4.183
3.725
PASTOR INTERNACIONAL DEBT, S.A.
A Coruña
Finance
Banco Pastor
603
60 100,00
0,00
0,00
156
162
6
156
(7)
PASTOR MEDIACION O.B.S. VINCULADO, S.L.
A Coruña
Services
Banco Pastor
63.995
385 100,00
0,00
0,00
361
2.919
1.138
1.781
358
PASTOR PARTICIPACIONES PREFERENTES,S.A.
A Coruña
Finance
Banco Pastor
602
60 100,00
0,00
0,00
60 408.243
408.060
183
7.567
A Coruña
Sobrinos JP
Inversiones
250
5,00
95,00
---
6.608
4
6.604
---
PASTOR PRIVADA INVESTMENT 2, S.L.
A Coruña
P ortfolio
company
P ortfolio
company
P ortfolio
company
Banco Pastor
6.000
6 100,00
0,00
0,00
79
19.827
19.748
79
Sobrinos JP
Inversiones
1.000
1
5,00
95,00
---
1.899
---
1.899
---
16.703 783.808
764.346
19.462
2.785
0
8,95
0,00
A Coruña
PASTOR SERVICIOS FINANCIEROS E.F.C., S.A.
A Coruña
Finance
Banco Pastor
1.852.325
11.132 100,00
0,00
0,00
PROMOTORA INMOBILIARIA OSPIBEL, S.L.
A Coruña
Real estate
Banco Pastor
10.000
10 100,00
0,00
0,00
0
265.917
266.365
RESIDENCIAL VALDEMAR, S.L.
A Coruña
RUTA SYSTEMS, S.L.
A Coruña
Real estate
Services
P ortfolio
company
P ortfolio
company
Sobrinos JP
Inversiones
Universal
Support
SOBRINOS DE JOSE PASTOR INVERSIONES, S.A.
A Coruña
A Coruña
TABEIROS GESTORA GLOBAL DE INMUEBLES, S.L.
A Coruña
A Coruña
A Coruña
Real estate
Sobrinos JP
Inversiones
------
------
------
UNIVERSAL SUPPORT, S.A.
VILAMAR GESTION, S.L.
OTHER ENTITIES
0,00
(122)
(448) (45.029)
380.000
3.800
0,00
100,00
0,00
---
40.556
36.712
3.844
(2.933)
90
5
0,00
100,00
0,00
---
35
14
21
(3)
Banco Pastor
253.100
1.521 100,00
0,00
0,00
21.773
22.775
286
22.489
96
Banco Pastor
200.000
200 100,00
0,00
0,00
1.149
66.890
65.741
1.149
(18.974)
Real estate
Banco Pastor
10.000
10 100,00
0,00
0,00
4.716 1.127.710 1.122.994
4.716
(111.480)
Telemarket.
Services
Banco Pastor
116.500
700 100,00
0,00
0,00
1.678
3.354
1.676
1.678
385
0,00
100,00
0,00
---
224.150
217.510
6.640
(17.963)
---
---
---
69 568.875
568.604
271
146
8.840
6.002
---
---
(*) The Bank has appointed the majority of the members of these companies' Administrativ e Bodies under shareholder agreements.
172
EXHIBIT IX
JOINTLY-CONTROLLED ENTITIES AT 31 DECEMBER 2011
P asto r P rivada
Investment 1 y
P asto r P rivada
Investment 3
678.699
7
0,00
50,00
0,00
8.208
31.998
18.668
13.330
1.329
S.A.INTERNACIONAL DE TERRENOS Y EDIFICIOS A Co ruña
Real estate
B anco P asto r
96.917
582
50,00
0,00
0,00
4.277 29.359
17.780
11.579
829
SAITE COBAL, S.A.
Real estate
General de
Terreno s y
Edificio s
300.000
3.000
0,00
50,00
0,00
0 27.854
29.751
(1.897)
(182)
M adrid
Result
Pho to vo ltaic
entity
Equity
Other
P alencia
FOTOVOLTAICA MONTE FLECHA, S.L. (*)
Bank
Liabilities
Shareholder
Assets
Activity
Indirect
Investee data
Address
Direct
controlled by the
Carrying amount
Thousand euro
% voting rights
Par value (Th euro)
Company
No. shares
Shareholding
TOTAL 12.485
(*) The Group has appointed 50% of the members of these companies' Administrativ e Bodies under shareholder agreements.
EXHIBIT IX (cont.)
JOINTLY-CONTROLLED ENTITIES AT 31 DECEMBER 2010
P asto r Privada
Investment 1 y
P asto r Privada
Investment 3
678.699
7
0,00
50,00
0,00
8.593
31.843
18.763
13.080
1.389
S.A.INTERNACIONAL DE TERRENOS Y EDIFICIOS A Co ruña
Real estate
B anco P asto r
96.917
582
50,00
0,00
0,00
4.076 25.732
17.582
8.150
1.451
SAITE COBAL, S.A.
Real estate
General de
Terreno s y
Edificio s
300.000
3.000
0,00
50,00
0,00
423 27.720
29.435
(1.715)
(3.443)
M adrid
Result
Pho to vo ltaic
energy
Equity
Other
P alencia
FOTOVOLTAICA MONTE FLECHA, S.L. (*)
Bank
Liabilities
Shareholder
Assets
Activity
Indirect
Investee data
Address
Direct
controlled by the
Carrying amount
Thousand euro
% voting rights
Par value (Th euro)
Company
No. shares
Shareholding
TOTAL 13.092
(*) The Group has appointed 50% of the members of these companies' Administrativ e Bodies under shareholder agreements.
173
EXHIBIT X
ASSOCIATES AT 31 DECEMBER 2011
Shareholding
M adrid
B ro kerdealer
B anco P astor
NUEVO AGORA CENTRO DE ESTUDIOS,S.L.
M adrid
Teaching
So brinos JP
Inversiones
PASTOR VIDA, S.A.
M adrid
Insurance
B anco P astor
4.550.000
4.550 50,00
Pontevedra
Services
B anco P astor
539
32 35,02
A Coruña
Services
So brinos JP
Inversiones
78.400
Pontevedra
Services
So brinos JP
Inversiones
---
---
---
PUERTOS FUTUROS, S.L.
RONAUTICA MARINAS INTERNACIONAL, S.A.
OTHER ENTITIES
Investee data
Equity
MERCAVALOR, S.A.
PEREZ TORRES HANDLING, S.A.
Bank
2.493
10.951
140
43.981 54.845
(211)
13.444
0,00
25.639
98.826
0,00
0,00
58.841 224.282 174.206 50.076 10.078
0,00
0,00
399
1.962
78
0,00 49,00
0,00
76
155
22.702
23
0,00
22,11
0,00
4.663
4.379
---
---
0,00
0,00
0,00
(133)
9.409
165.530
16.553
0,00 30,86
TOTAL
Result
2.192
644 20,01 0,00
Other
0,00
1.072
Direct
Assets
Shareholder
Indirect
Activity
Liabilities
controlled by the
Address
Carrying amount
Par value (Th euro)
No. shares
Company
Thousand euro
% voting rights
820
1.142
199
---
155
(3)
144
4.235
(5)
9.518
(109)
(218)
91.677
EXHIBIT X (cont.)
ASSOCIATES AT 31 DECEMBER 2010
Shareholding
A Coruña
P ortfo lio
company
B anco P astor
250.000
MERCAVALOR, S.A.
M adrid
P ortfo lio
company
B anco P astor
1.072
NUEVO AGORA CENTRO DE ESTUDIOS,S.L.
M adrid
Teaching
Sobrino s JP
Inversio nes
PASTOR VIDA, S.A.
M adrid
Insurance
B anco P astor
4.550.000
4.550 50,00
P o ntevedra
Services
B anco P astor
539
32 35,02
A Coruña
Services
Sobrino s JP
Inversio nes
78.400
Services
Sobrino s JP
Inversio nes
---
---
CRECENTIA GALICIA, S.L.
PEREZ TORRES HANDLING, S.A.
PUERTOS FUTUROS, S.L.
RONAUTICA MARINAS INTERNACIONAL, S.A. P o ntevedra
OTHER ENTITIES
---
165.530
Bank
Investee data
372
23
349
(332)
644 20,01 0,00
0,00
2.112
15.983
5.469
10.514
435
71.536 32.790
472
16.553
0,00 30,86
Result
99
Equity
0,00
250 25,00
Assets
0,00
Direct
Other
Shareholder
Indirect
Activity
Liabilities
controlled by the
Address
Carrying amount
Par value (Th euro)
No. shares
Company
Thousand euro
% voting rights
0,00
25.000 104.326
0,00
0,00
57.079
0,00
0,00
563
1.391
529
862
270
78
0,00 49,00
0,00
77
181
24
157
(3)
22.702
23
0,00
22,11
0,00
4.632
4.289
50
4.239
(61)
---
---
0,00
0,00
0,00
(1)
319
395
(76)
(325)
TOTAL
223.811 177.923 45.888 5.623
89.561
174
EXHIBIT XI
RESTATEMENT OF TANGIBLE ASSETS
The accompany ing tables contain a breakdow n of the net balance at 31 December
2011 and 2010 for real estate restated on first-time adoption of the regulations brought
in by Bank of Spain Circular 4/2004 (1 January 2004).
RESTATED ASSETS: NET BALANCE AT 31 DECEMBER 2011
Thousand euro
Town
Net
Revaluation
Deferred
reserves
tax liabilities
CORUÑA Agª 1
restatement
3.248
2.097
975
SANTIAGO O.P.
1.674
1.082
502
417
270
125
PONTEVEDRA O.P.
1.971
1.273
591
MADRID Agª 2
2.147
1.387
644
990
640
297
GETAFE
1.177
760
353
VALLADOLID O.P.
1.333
864
400
CARBALLIÑO
ALCALA DE HENARES
BARCELONA Agª 1
948
613
284
ZARAGOZA O.P.
4.873
3.171
1.478
VALENCIA O.P.
3.605
2.338
1.082
MURCIA O.P.
TOTAL
1.672
1.085
502
24.055
15.580
7.233
RESTATED ASSETS: NET BALANCE AT 31 DECEMBER 2010
Thousand euro
Town
Net
Revaluation
Deferred
restatement
reserves
tax liabilities
CORUÑA Agª 1
3.314
2.143
994
SANTIAGO O.P.
1.702
1.102
511
CARBALLIÑO
423
274
127
PONTEVEDRA O.P.
2.005
1.297
602
MADRID Agª 2
2.185
1.414
656
ALCALA DE HENARES
1.004
650
301
GETAFE
1.197
774
359
VALLADOLID O.P.
1.341
870
402
961
622
288
ZARAGOZA O.P.
4.884
3.179
1.481
VALENCIA O.P.
3.631
2.356
1.089
MURCIA O.P.
1.683
1.092
505
24.330
15.773
7.315
BARCELONA Agª 1
TOTAL
175
E X H I B I T XII
LIST OF AGENTS
FULL NAME / COMPANY NAME
TOWN
AREA COVERED
GARCIA LOPEZ NATALIA
MERA
MERA
LAGARES GOMEZ MARIA BELEN
PONTECARREIRA
PONTECARREIRA
FEIJOO PIÑEIRO DAVID
CABO DE CRUZ
CABO DE CRUZ
ROMERO FORMOSO FATIMA
ESTEIRO
ESTEIRO
TOURIS FERNANDEZ MANUEL
A BAÑA
A BAÑA
SANTOS GERPE MARIA SONIA
CAMARIÑAS
CAMARIÑAS
CARBIA GONZALEZ JOSE MANUEL
TARAGOÑA
TARAGOÑA
FRANCO RAMOS MANUEL ANTONIO
AGUIÑO
AGUIÑO
FRANCO RAMOS MANUEL ANTONIO
PALMEIRA
PALMEIRA
AÑON ROIBAL JAIME
PAIOSACO
PAIOSACO
PROL BECERRA AVELINO
CRUCEIRO DE ROO
CRUCEIRO DE ROO
RODRÍGUEZ FERNÁNDEZ Mª CARMEN
CASTROVERDE
CASTROVERDE
PEREIRO LOPEZ MARIA
O INCIO
O INCIO
VARELA RIVERA JULIO
PORTOMARÍN
PORTOMARÍN
SOMOZA DE LA FUENTE JULIO JOSE LUIS
A POBRA DO BROLLÓN
A POBRA DO BROLLÓN
ALVAREZ TEIJEIRO FRANCISCO ANTONIO
VEGADEO
VEGADEO
VEIGA ROCANDIO RUBEN
A PONTENOVA
A PONTENOVA
RODRIGUEZ ALVAREZ BORJA
SAN CLODIO
SAN CLODIO
PARDO VAZQUEZ MARIA ESTELA
PARGA
PARGA
DIGON RODRIGUEZ ANA MARIA
SAN ROMÁN DE CERVANTES SAN ROMÁN DE CERVANTES
FERNANDEZ MAREY MARIA FLOR
BARALLA
BARALLA
LOPEZ YAÑEZ MARIA FE
NAVIA DE SUARNA
NAVIA DE SUARNA
GEADA LOSADA ANA MARIA
FERREIRA DO VALADOURO
FERREIRA DO VALADOURO
CASTRO GOMEZ MARIA BEGOÑA
PALAS DE REI
PALAS DE REI
MOURIÑO VARELA BEGOÑA
ANTAS DE ULLA
ANTAS DE ULLA
CELEIRO LOPEZ ANTONIO
TRIACASTELA
TRIACASTELA
CABO NAYA JULIO
CALO
CALO
PASCUAL RUBIN LUIS
MACEDA
MACEDA
ALVAREZ DOMINGUEZ ALICIA
LEIRO
LEIRO
NOGUEROL RODRIGUEZ ANDRES
O IRIXO
O IRIXO
FERNANDEZ FERNANDEZ JULIO JUSTO
SOBRADELO
SOBRADELO
DIEGUEZ DIEGUEZ SONIA
AGUDIÑA
AGUDIÑA
RODRIGUEZ TEIXEIRA SONIA
VILARDEVÓS
VILARDEVÓS
FERNANDEZ FERNANDEZ MAGIN
O BOLO
O BOLO
XIAMA BANDE, S.L.
BANDE
BANDE
BLANCO CORTIÑAS RAQUEL
TRASMIRAS
TRASMIRAS
COTA VAZQUEZ SERGIO
CALVOS DE RANDIN
CALVOS DE RANDIN
RODRIGUEZ SOTELO CESAR
SARREAUS
SARREAUS
SALGADO FEIJOO MANUEL
BALTAR
BALTAR
ESCUREDO GARCIA JOAQUINA
A VEIGA
A VEIGA
176
E X H I B I T XII
LIST OF AGENTS
FULL NAME / COMPANY NAME
TOWN
AREA COVERED
LOPEZ VALEIRAS SAMPEDRO ANTON
BARBANTES-ESTACIÓN
BARBANTES-ESTACIÓN
VAZQUEZ FERNANDEZ DIEGO
CASTROCALDELAS
CASTROCALDELAS
FRANCISCO FERNANDEZ MARIA PRAXEDES
CORTEGADA
CORTEGADA
FEIJOO RIO ELADIO
OS PEARES
OS PEARES
GONZALEZ ANDRADE MARIA MARTINA
ENTRIMO
ENTRIMO
RAPADO ASESORES, S.L.
FORCAREI
FORCAREI
ASESORIA XARPER,S.L.
BANDEIRA
BANDEIRA
BLANCO SECO MARIBEL
AGOLADA
AGOLADA
PORTAS IGLESIAS JUAN ANTONIO
O SEIXO
O SEIXO
FERNÁNDEZ BLANCO PATRICIA
CABOALLES DE ABAJO
CABOALLES DE ABAJO
ARIAS ESCUREDO JULIO
PUENTE DOMINGO FLOREZ
PUENTE DOMINGO FLOREZ
GONZÁLEZ GÓMEZ RENATO
TORMALEO
TORMALEO
REY VALIÑO LUIS CESAR
CORISTANCO
Coristanco
RIVERA GALDO JOSE
MAÑON
Mañon
FERNANDEZ FERNANDEZ MATILDE
A SEARA
A Seara
GONZALEZ PEDROUZO AVELINO
DACÓN
Dacón
LOPEZ CASTAÑO MERCEDES
PÁRAMO
Páramo
LOPEZ LOPEZ MARIA ASUNCION
GUNTÍN
Guntín
PEREZ CORRAL MARIA CARMEN
SAN AMARO
San Amaro
SOBREDO SIGUEIRO JOSE MANUEL
PONTEVEA
Pontev ea
VAZQUEZ BERTOA JOSE MANUEL
A SILVA
A Silv a
GONZALEZ DAFONTE JUAN MANUEL
A FORXA
A Forx a
GONZALEZ VAZQUEZ MANUEL JESUS
PONTEDEVA
Pontedev a
MONTERO RODRIGUEZ DELFINA
QUINTELA DE LEIRADO
Quintela de Leirado
PERALTA CORDERI JAIME
A SAINZA
A Sainza
PEREZ OBREGON SONIA
OIMBRA
Oimbra
RIVAS FERNANDEZ MARIA
XUNQUEIRA DE AMBÍA
Xunqueira de Ambía
VAZQUEZ BAYO MIGUEL ANGEL
LA BAÑA
La Baña
ROMERO GATO LAURA
XERMADE
Xermade
PABLO PIÑEIRO MARTA
CAION
Caion
PEREZ CARBALLO JULIO
VILAR DO BARRIO
Vilar do Barrio
PASTOR SERVICIOS FINANCIEROS, E.F.C., S.A.
SPAIN
Spain
177
EXHIBIT XIII
SECURITISATION FUNDS
RATING
SECURITISATION FUND
Fitch
Moody´s
No.
S&P
TDA 13
bonds
Th euro
Thousand euro
TOTAL
BALANCE PENDING
NOMINAL
2011
2010
1.503
150.300
23.020
27.393
21.293
BONDS A1
---
Aa3
---
1.442
144.200
16.920
BONDS B1
---
A2
---
61
6.100
6.100
6.100
4.946
490.900
111.927
129.289
TDA PASTOR 1
BONDS A1
AAA
Aaa
---
4.298
429.800
50.827
68.189
BONDS A2
AAA
Aaa
---
475
47.500
47.500
47.500
BONDS B
A
A2
---
106
10.600
10.600
10.600
BONDS C
BBB
Baa2
---
30
3.000
3.000
3.000
BONDS D
BB
Ba1
---
37
---
---
---
10.000
1.000.000
299.862
338.467
IM PASTOR 2
BONDS A
---
Aa1
A+
9.620
962.000
261.862
300.467
BONDS B
---
A1
A+
173
17.300
17.300
17.300
BONDS C
---
Baa1
BBB+
142
14.200
14.200
14.200
BONDS D
---
Baa3
BBB-
65
6.500
6.500
6.500
10.000
1.000.000
367.220
404.450
IM PASTOR 3
BONDS A
---
A1
AA
9.610
961.000
328.220
365.450
BONDS B
---
Ba2
BBB-
170
17.000
17.000
17.000
BONDS C
---
Caa3
BB
120
12.000
12.000
12.000
BONDS D
---
Ca
BB-
100
10.000
10.000
10.000
5.200
520.000
55.669
79.280
EDT FTPYME PASTOR 3
BONDS A1
---
Aaa
AAA
3.659
365.900
5.040
17.073
BONDS A2
---
Aaa
AAA
1.000
100.000
578
12.157
BONDS B
---
Aaa
AAA
387
38.700
34.650
34.650
BONDS C
---
Caa1
BB
154
15.400
15.400
15.400
9.200
920.000
462.652
505.446
IM PASTOR 4
BONDS A
---
A2
BB-
8.860
886.000
428.652
471.446
BONDS B
---
Ba3
B-
179
17.900
17.900
17.900
BONDS C
---
Caa2
B-
92
9.200
9.200
9.200
BONDS D
---
Ca
CCC
69
6.900
6.900
6.900
6.300
630.000
124.330
166.141
GC FTPYME PASTOR 4
BONDS A1
---
---
---
2.600
260.000
---
---
BONDS A2
---
Aaa
AA
2.566
256.600
10.930
52.741
BONDS A3 (G)
---
Aaa
AA
504
50.400
50.400
50.400
BONDS B
---
A2
BBB
158
15.800
15.800
15.800
BONDS C
---
Ba2
BB
157
15.700
15.700
15.700
BONDS D
---
Caa2
CCC
189
18.900
18.900
18.900
BONDS E
---
Caa3
CCC-
126
12.600
12.600
12.600
3.000
300.000
67.127
106.062
88.162
TDA P CONSUMO 1
BONDS A
---
Baa1
BB-
2.821
282.100
49.227
BONDS B
---
B3
B
73
7.300
7.300
7.300
BONDS C
---
Caa3
CCC
106
10.600
10.600
10.600
7.105
710.500
444.184
483.989
BONDS A1
---
Aaa
AAA
1.750
175.000
---
---
BONDS A2
---
Aa2
A+
4.928
492.800
401.484
441.289
BONDS B
---
Ba2
BBB-
249
24.900
24.900
24.900
BONDS C
---
Ca
B
73
7.300
7.300
7.300
BONDS D
---
C
D
105
10.500
10.500
10.500
4.400
440.000
340.620
433.452
BONDS A1
---
Aaa
---
625
62.500
---
55.952
BONDS A2(G)
---
Aaa
---
2.500
250.000
213.120
250.000
BONDS B
---
B2
---
GC P HIPOTECARIO 5
TDA EMPRESAS PASTOR 9
TOTAL
1.275
88.191
127.500
6.161.700
127.500
2.296.611
127.500
3.234.002
178
BANCO PASTOR GROUP - 2011 MANAGEMENT REPORT
Macroeconomic and financial backdrop
2011 was undoubtedly a year dominated by the European sovereign risk crisis.
Although this had begun in 2010, it became worse – in terms of both its scope and
seriousness – in 2011.
The lowering of the ratings of countries on the European periphery went on
throughout the year: Ireland in the month of July, Hungary and Portugal in
November, etc. Towards the end of the year, the OECD published its forecasts for
2012 and 2013. Among other points, it warned that the “slight” recession in the
Eurozone posed a threat to all prosperous nations. As the year progressed, growth
forecasts for all countries became markedly more pessimistic. The year began with
growth slightly higher than had initially been forecast. Even the Eurozone, one of the
areas most severely affected by the current crisis, experienced growth of almost 2%
in the first half year, thanks to a great extent to the driving force of the German
economy. Half way through the year, however, came the first signs of stagnation,
owing to a declining global demand, the effects of fiscal consolidation in a large part
of the Eurozone and the financial stress and loss of confidence generated by the
worsening of the sovereign debt crisis as from the summer, which has had a serious
impact on the banking sector.
Spain’s economic situation deteriorated in 2011. The year ended with weak growth,
of 0.7%. This growth corresponded primarily to the first half of the year and was
attributable to external demand, since domestic demand rates remained negative.
The final quarter of the year saw a slight contraction of economic activity, which was
weighed down primarily by internal indicators. Domestic demand has been affected
by the mood of uncertainty, the fiscal consolidation process and the persistence of
financial tensions. In addition, unemployment continued to grow. In the third quarter,
unemployment reached 21.5%, with forecasts for 2012 predicting growth of 22 to
23%. Rates of inflation continued to decrease, the year ending with 2.4% inflation
and forecasts of deceleration in 2012, depending on developments in relation to fuel
prices.
Following the data for the third quarter, the public debt remained at 66% of GDP,
with cumulative growth throughout of 2011 of 4.9 percentage points in relation to the
situation at December 2010. The effects of this became clear at all levels of the
administration.
In the financial arena, the year was dominated by the intense activity on the part of
regulators and supervisory bodies. Royal Decree Law 2/2011 for the reinforcement
of the financial system was published in February 2011. This law raised the
solvency threshold required of financial institutions. Core capital required was set,
as a general rule, at 8%, or at 10% when two conditions were fulfilled: a wholesale
funding ratio of over 20% and when securities representing capital stock placed with
third parties are below 20%. The restructuring of the Spanish financial system was
accelerated following Royal Decree Law 2/2011, leading to the virtual
disappearance of savings banks, since most of these institutions opted to operate
as ordinary banks. Whereas at the end of 2010, savings banks had accounted for
approximately half the sector’s assets, at the 2011 year end they accounted for only
2%. In addition, the Royal Decree law in question led to the subsequent taking over
by the FROB [Fund for Orderly Bank Restructuring] of four institutions
(Novacaixagalicia , UNIM, CAM and Catalunya Caixa).
Whereas the Spring was marked by the effects of Royal Decree-Law 2/2011, the
Summer was marked by the publication of stress tests and the worsening of the
sovereign debt crisis. The results of the stress test exercises – in which Spanish
financial institutions participated on a massive scale - were published on 15 July.
Five Spanish institutions, according to calculations made by the European Banking
Authority, failed to meet the required minimum capital of 5% for the adverse
scenario.
179
At the same time, on the other side of the Atlantic, the US was immersed in a crisis
which almost resulted in the nation defaulting on its debts. This crisis was resolved
in extremis by means of a commitment which enabled the US Government to raise
its debt ceiling in exchange for major cutbacks in public spending.
In August, because the sovereign debt crisis had worsened, the European Central
Bank resumed its securities Programme. It also guaranteed the provision of
unlimited liquidity through the extension, in the months of August and September, of
various unconventional measures, and implemented a new programme for the
acquisition of secured bank bonds, which included the Spanish cédulas. In this way
it managed, for a time, to stabilize the yield on Spanish bonds. The situation was so
serious that it required an amendment to the Constitution establishing a
constitutional limit on the deficit. This reform was welcomed internationally.
On 26 October, the European Council held a Euro summit in which it approved a
new bail-out fund for Greece along with a 50% write-down of the Greek debt to
private creditors. Capital requirements for systemic institutions were also raised to
9% and the capacity of the European Financial Stability Fund was increased. As a
result of this change, it is estimated that systemic institutions will require additional
capital amounting to €106,000 million, of which €26,000 million would correspond to
Spanish institutions.
The political crisis which was unleashed after the Summit led to the resignation of
the presidents of Greece and Italy, who were replaced by technocratic
governments, and at approximately the same time general elections were held in
Spain. The result of the Spanish elections, as predicted by the polls, was an
absolute majority for the Partido Popular (People’s Party). The day after the
elections, the Banco de Valencia became the first listed entity to be taken over by
the Bank of Spain. The continued instability of both capital and debt markets
continued over the following weeks, pushing the risk premiums of Spain and Italy
(among others) up to maximum levels, and even France’s credit rating was
threatened.
A further European summit was held on 9 December. This summit had attracted a
great deal of attention in view of the failure of previous summits, and the ever more
delicate situation of the Eurozone. The results of this summit helped to reduce
tension, but the decisions adopted failed to provide the much-needed definitive
solution to the crisis. Its main achievement was the reaching of an international
agreement between most European Union member states (from which the United
Kingdom dissociated itself) which laid down the foundations for strict surveillance of
the States’ budgetary policies. This envisages, among other measures, supervision
by the European Commission of the annual budgets of countries subject to an
excessive deficit procedure, prior to approval by their respective parliaments.
The uncertainty with respect to the final content of the relevant treaty and the
process for its drafting, approval and ratification has, in general terms, persisted
Indeed, the measures adopted by the ECB – which on 8 December cut the interest
rate for the second consecutive month, bringing it down to 1%, which was the level
it was at prior to the rises of April and July – appear to have been more effective.
This interest rate cut, which had been anticipated by the market, was a response to
the fear of recession in the Eurozone, in view of the forecasts of reduced European
growth in the future.
In addition, the ECB announced two three-year liquidity auctions, a broadening of
the range of eligible collaterals for bank loans and the cutting of the minimum
reserve ratio from 2% to 1%. The first of these two three-year liquidity auctions took
place towards the end of December, with the European banking sector receiving
489 billion euros at 1%.
180
The new Spanish government’s cabinet meeting of 30 December implemented a
series of urgent measures design to reduce expenditure by approximately €8,900
million and increase revenues by approximately €6,100 million. These measures
were taken to try and reduce the public deficit, which at the end of 2011 amounted
to approximately 8%, two points above the target figure of 6%. Apart from a range of
measures designed to contain spending – such as the freezing of the interprofessional minimum wage (SMI) - , action was taken to increase revenues, such
as an additional complementary Personal Income Tax charge of up to 7% for higher
income brackets and a complementary tax charge of up to 6% on income from
savings.
The situation at the close of 2011 was delicate, with forecasts of international
growth under threat from the imbalances and uncertainty in developed countries,
basically in those of the Eurozone. A situation in which all the Eurozone countries
are exposed to an increase in risk premiums also affects their banking systems. The
hesitation, lack of cohesion and differences between the governments of the
different European nations have made it more difficult to remedy the crisis. The
markets are still wondering whether the austerity measures adopted will be
sufficient to stem the public deficit and to what extent these measures will affect the
weak recovery of countries on the European periphery.
The Spanish economy is set to face some major challenges in 2012. After almost
two years of positive GDP growth, it looks as though economic activity is grinding to
a halt once again, that recovery in the second half of the year is unlikely, and that
the labour market will suffer the consequent effects. The rate of recovery will
depend to a great extent on the capacity of the external sector and the adoption of
measures which stimulate growth and improve the competitiveness of the Spanish
economy.
The Banco Pastor Group: institutional, organizational
and technological development
The Board of Directors of Banco Pastor, in its meeting in January 2011, resolved to
accept the resignation of the General Financial Director, Ms. Gloria Hernández
García, and to appoint, in her place, Mr. Juan Babío Fernández, described by Mr.
Jorge Gost, the Managing Director, as “one of the most experienced members of
Banco Pastor’s senior management, representing youthfulness, drive, and capacity
for work”. Mr. Juan Babío Fernández, who was previously head of the Corporate
Development Directorate, is to join the Assets and Liabilities Committee, thus
continueing as a member of the Management Comittee. Mr. José Manuel Ramos
Sánchez, former Director of Human and Other resources, is to become the new
Director of Corporate Development and thus a member of the Management
Committee.
In July, in order to be able to meet requirements resulting form the Audit and Control
Model, the structure of the Audit and Control Directorate was modified in order to
increase synergies. The Operational Risk and Operational Control Units have
ceased to exist, their functions – which were extended to include those resulting
from the Internal Control Model – being assumed by the new Internal Control and
Operational Risk Unit. This unit is responsible for defining policies, plans and criteria
for action relating to the identification, evaluation, control and monitoring of
operational risks; it is responsible for identifying and evaluating the risks relating to
each new product/service which is introduced, establishing – through a process of
mutual agreement – the appropraite controls through the corresponding rules and
procedures; it is responsible for participating in the functional analysis of the
computer applications which are used to process economic transactions or have a
direct impact on customers, to ensure that these applications include automatic
controls which prevent their manipulation; and it is responsible for implementing,
maintaining and developing the Internal Control Model, so that levels of Operational
Risk tollerance can be set and the general Control situation can be monitored.
181
In September 2011, the Banco Pastor Board of Directors accepted the resignation
tendered for personal reasons by Mr. Miguel Sanmartín Losada from his position as
Secretary and Member of the Board of Directors. Mr. Sanmartín Losasada has
played an active part in the development and transformation of our bank throughout
the period of over 25 years for which he has been with it, either as an executive or
as member of the Board of Directors, displaying great dedication and loyalty and a
sense of total commitment to the entity. Mr. Óscar García Maceiras has been
appointed in his place as Secretary and Member of the Board of Directors, and shall
combine the functions corresponding to this post with his functions as Secretary
General and Director of our bank’s Legal Advisory area.
During the same meeting the Board also resolved to appoint Ms. Susana Quintás
Veloso, Director of Planning and Management Control, the as Director General of
Banco Pastor. She has been with the entity for over 16 years and is also to remain
in charge of the Planning and Management Control Directorate. Mr. José Gracia
Barba, representing the significant shareholder Financière Tesalia, S.A., was also
appointed to the Board.
The Banco Pastor Board of Directors, in its meeting held in November 2011,
resolved to accept the resignation from the position of General Risks Director of Ms.
Ana Peralta Moreno, who over the past three years has performed excellent work
and shown a total commitment to the company, striving to increase the integration
of global risks management into all areas of the business.
In October, the Banco Popular presented a Takeover Bid for 100% of the shares
and convertible debentures of Banco Pastor, which shall be exchanged for shares in
Banco Popular, thus integrating the two entities. The combination of the two is
expected to produce the fifth largest Spanish entity in terms of volume of assets,
and is a great opportunity for both parties. The swap operation envisaged is as
follows:

1.115 ordinary shares in Banco Popular for each share in Banco Pastor.
 30.9 ordinary shares in Banco Popular for each subordinated and necessarily
convertible debtenture of Banco Pastor.
The operation was publicly announced once the majority shareholders of Banco
Pastor (Fundación Barrié with 42.176%, Pontegadea Inversiones S.L. with 5.063%,
and Financière Tesalia with 5.041%) had commited themselves irrevocably to
acceptance of the swap ratio. The operation was approved by the Spanish
National Securities Market Commission on 18 January 2012, the period for
acceptance of the swap beginning on 20 January 2012.
Research and development
a) Technological Systems Plan
In 2011, Banco Pastor completed the implementation of a set of initiatives of the
Technological Systems Plan 2009-11, the guidelines of which can be summarised
in:
 The technological renewal of the base infrastructures, mainly in relation to
mainframe computers and storage systems.
 The renewal of the equipment and peripherals of the Branch network, as well as
the devices which make it possible to achieve an integral platform of "Unified
Communications" of voice, data and applications.
 The update of the network infrastructure of single buildings, as well as the
security and monitoring systems of services and applications.
182
The renewal of central infrastructures has been planned since 2009 by means of
contracting a five-year package of services from two of the most representative
providers in the technology sector. The competitive advantage of these agreements
lies in the Bank obtaining significant savings in recurring maintenance expenses,
which makes it possible to advance since the start of the agreement the level of
technical benefits and capacities of the infrastructure. The actions carried out along
this line in 2011 were:
 Renewal of the range of mainframe computers which have been equipped with
greater processing capacity, parrelelisation and redundancy.
 Virtualisation of servers on said platform and incorporation of application
services, corporate mail and ERP business planning systems.

Renewal of the range of data storage, obtaining greater capacity and features.
 Renewal of the Data Warehouse systems, substantially extending the capacity
of the platform so as to give support to major projects with intensive information
processing (Basel II, New Management Information or Business Intelligence
Systems).
In branch infrastructure in 2011 a complete renewal was carried out of the set of
terminals, around 3500 PCs, once they had reached their useful life-cycle, with the
aim of avoiding equipment obsolescence in the future and guaranteeing their
maintenance over the next five-year period.
In the area of networks and communications, in 2011 work was completed on the
integral renewal of the network electronics of the single buildings, as well as the
backbone or call mainframe for connectivity of the main and back-up Data
Processing Centres. This action was carried out by means of the three year
investment, configuring a "MPLS" routing protocol, which strengthens security and
promotes multimedia capacity, preparing the infrastructure for its coming evolution
towards VoIP and ToIP. With regards to the area of security and monitoring,
renewal of the firewall for access to the perimeter network has been completed and
new preventive systems for detecting external intrusions have been implemented.
b) IT Governance
A set of projects were started in may 2010 which are framed within the Improvement
Model of the SEI (Software Engineering Institute of the University of Carnegie
Mellon), known as CMMI (Capability Maturity Model Integration), which is a model
process evaluation and improvement for the development, maintenance and
operation of software systems. The main objectives defined for plan are:
 Defining and implementing the necessary processes in the area of CMMI, which
allow us to reach level 3 of CMMI in said period.
 Having access to advanced operations in IT Project Management as a lever for
change so as to reach high levels of maturity in IT governance.
 Managing the demand for IT products and services based on two pillars:
Excellence in budgetary management of demand and the establishment of Service
Level Agreements with the requesting units.
In 2010 and 2011 the processes of the consolations of Development, Acquisition
and Services were defined and piloted and/or deployed in the affected projects and
units.
In December 2011 a diagnosis was carried out of the level of CMMI maturity with
the SCAMPI method (Standard CMMI Appraisal Method for Process Improvement),
covering the level III processes of the constellations of development, acquisition
services.
183
According to the diagnosis carried out, Banco Pastor has obtained level 3 in three
constellations : Development, Acquisition and Services.
New products and commercial actions
In the first four months of the years an issue of Mandatory Convertible Subordinated
Debentures was launched for an amount of €251,810,500(2,518,105 debentures
with a nominal value of €100) with a annual interest of 8.25% payable quarterly.
In May, as a result of the agreement with the insurance company AXA, a car
insurance was launched under the “Autoflexible” campaign, with 3 levels of
protection: FlexiBásico, FlexiConfort and FlexiVip. There were also promotions for
Business insurance, Health insurance and Life insurance.
With regard to funds, as a result of the good management of funds in January 2010,
the Bank has continued with a fund renewal and improvement policy throughout the
year, leading to:
 ESAF Rendimiento Fijo Garantizado, FI (renewal of the fund Pastor Garantizado
Rentabilidad Segura, FI), launched in January, a conservative guaranteed fixed
yield fund with 3.5% AER and for investment at 3 years and 4 months.
 ESAF Fondodepósito III, aimed at taking out term deposits from diverse financial
institutions, it was launched in May with an approximate yield of 3.20% AER.
A new pension plan was created in November, in addition to the previously existing
pension plans in the bank. Under the name Pastor Protección 1, with a minimum
revaluation guarantee of 13% to 30/01/2016, the plan invests mainly in European
public debt.
The Bank continues with the support policy through the ICO and IGAPE lines for
supporting and encouraging business development, which is implemented mainly in:
 “Inversión Sostenible 2011” line, with the aim of guiding the activity of Freelance
Workers and Businesses towards sectors with have long-term growth potential, and
which generate employment and are sustainable from an economic, social and
environmental point of view. It was created in two formats: leasing and loan.

“Liquidez 2011” line, to provide working capital to solvent and viable companies.
 “Future 2011” line, aimed at support for improving competitiveness of tourism
companies.
 “Plan Avanza2” line, with the aim of encouraging the incorporation of information
and communication technologies into small companies.
 “ICO Terremoto Lorca 2011” line, to facilitate funding for the repair or
replacement of installations affected by the earthquake in Lorca (Murcia).
 “Resolve+ 2011” and “Rebrote 2011” agreements with the IGAPE, in order to
enable lines of funding aimed at facilitating access of SMEs to financing so as to
adapt and strengthen their financial structure.
As in previous years promotional campaigns were initiated in almost every month of
the year so as to encourage retail use of debit cards through the refund of the
amount of the purchases to prize-winners; campaigns to acquire liabilities, such as
"“Es por tu interés” (its in your interest) with an AER of 4.00% and payment of
interest in advance, or campaigns to acquire direct deposits of salaries and
pensions with gifts such as an iPod, television set etc. This last campaign was
improved towards the end of the year through the launch of the “Cuenta Nómina
Sin”, which is a substitute of the successful campaign of “Nómina Triplete” without
any type of commissions and valid for salaries and pensions, and which also offers
gifts depending on the amount directly deposited into the account.
184
Furthermore the marketing of the deposit with remuneration in kind “Depósito a
huevo” was very successful. It was launched in April with a kitchen set of the brand
Pyrex Elegance as a gift; as well as different term deposits existing in Oficina
Directa with their respective remunerations in kind. There are also other deposits
with remunerations of 4.00% AER and 4.25% AER at 12 months and 24 months
respectively.
In November the Back created a new foreign currency deposit at two and three
years, which may be contracted in US dollar, Swiss franc and Pound Sterling.
In addition, in March, so as to provide accessible communication, a groundbreaking
communication system was implemented in the bank so that any deaf person may
have access, without the need for an interpreter, to service operations and bank
products.
Institutional financing
The following issues were carried out over 2011:
 “17th issue of mortgage bonds” in April for €500 million, maturity in April 2012
through the Fixed Income Programme registered in the Spanish Securities Market
Commission (CNMV).
 Two simple debt issues, one in May for €50 million with maturity in November
2013 and another in December, “Third issue of simple guaranteed debentures" for
€500 million, with maturity in December 2016. This second issue has the guarantee
of the Spanish State and both have been issued through the Fixed Income
Programme registered in the Spanish Securities Market Commission (CNMV).
 Issue of Convertible Debentures in April 2011 for €251.8 million (2,518,105
debentures with a nominal value of €100), with maturity in April 2014 which provide
different conversion possibilities: 1) Voluntary conversion at the request of the
investor annually, 14/04/2012 and 14/04/2013 and, in addition, if in one quarter the
remuneration is not paid (for whatever reason), an extraordinary conversion period
will be opened in which the holders of the debentures may opt to convert their
debentures into shares. 2) Mandatory or necessary conversion on maturity. The
possibility is also established for early mandatory conversion in the event that
Banco Pastor is declared in bankruptcy proceedings and in the events of the
dissolution or liquidation of the Bank. The convertible debentures are listed on the
Electronic Fixed Income Market of the Madrid Stock Market.
The maturities and payments of the issues and securitisation funds which have
been carried out over 2011 are as follows:
 Maturity of 4 issues of mortgage bonds, the "Third" and "Fourth" issue of €25
million in March, the "Sixth" issue of €226 million and the "Seventh" issue of €100
million, both in December 2011.
 Maturity of two issues of multi-contribution mortgage bonds, the first of those
“Cédulas TdA 10” for €100 million in March and the second “Cédulas TdA 12” for €
200 million in June 2011.
 The following securitisation funds have been fully amortised: “GC FTGENCAT II”
for €3.8 million and “GC FTPYME PASTOR 2” for €73.7 million, both in January
2011; “TDA Empresas PASTOR 5” for €177.5 million in April 2011 and finnaly “GC
FTPYME PASTOR 6” for €255.3 million in September 2011.
 On 23 November 2011, Pastor Participaciones Preferentes, S.A.U, subsidiary of
Banco Pastor, S.A. carried out the early amortisation of €100 million of preferred
securities corresponding to the issue entitled “EURO 250,000,000 Fixed/Floating
Rate Non-Cumulative Perpetual Guaranteed Preferred Securities”, which was
issued in 2005 and identified with ISIN: XS0225590362. Following this third
amortisation, the outstanding balance of the issue stands at €50,000,000.
185
 Also on this date, Banco Pastor, S.A. carried out an early amortisation of €40
million of the Issue of Special Subordinated Debt, carried out on 11 June 2004, for a
nominal amount of up to €300 million and with ISIN: ES0213770011. With this new
amortisation, the outstanding balance of the issue stands at €45.9 million.
Early amortisation in December of €171.1 million of the “First issue of guaranteed
simple debentures” with maturity in March 2012. Following the amortisation, the
outstanding balance of the issue stands at €828.9 million.
Risk management
Note 31 of the attached notes to the financial statements includes an extensive
description of Risk Management in the Banco Pastor Group.
Evolution of the balance sheet and income statement
FY 2011 was marked by solvency increases in all banks, including Banco Pastor. In
December, core capital stood at 9.18%, 72 basis points up on December 2010; in
four years of crisis, it rose by 399 basis points from 5.9% in the second quarter of
2007. This allows Banco Pastor to fulfil the Bank of Spain requirements imposed on
financial institutions.
Another key issue in 2011 was liquidity. Banco Pastor still has one of the best
liquidity ratios in Spain’s banking system (79.74%), well above the industry average
of 66.99% at November 2011. A five-year peak was reached in 2011. Sound
performance of customer funds, combined with prudent lending, pushed up the ratio
by 787 basis points on December 2010 (71.87%).
Concern for the stability of sources of financing has been a priority for Banco
Pastor. Since the start of the crisis, Banco Pastor’s liquidity ratio has improved
steadily, rising 1,417 basis points since 2007 from 65.57% to 79.74% in December
2011. This has been possible thanks to balanced and controlled growth in the main
balance sheet captions.
Business unravelled in a highly complicated environment in 2011. Sovereign debt
market tensions finally affected the financial sector, access to wholesale financing
having become increasingly difficult. Spain’s finance sector is undergoing a deep
restructuring that has reduced the number of competitors and caused the State to
take a share in others through the FROB, resulting in State control of over 9% of the
financial sector. In this context, Banco Pastor has increased its market share of both
loans and deposits. Data at 30 November reflect a year-on-year improvement of two
basis points in loans and 10 basis points in deposits.
Financing remained stagnant cross the sector due to the economic slowdown, a
decline in solvent demand and a fall in loan applications. Banks tightened risk
policies during the year.
At 31 December 2011, in Assets - Loans and receivables on the consolidated
balance sheet, the caption Loans and advances to other debtors totalled €
20,932,508 thousand, having decreased by € 719,628 thousand (3.32%), in line
with the generalised reduction throughout the sector.
The relative significance of this figure in the balance sheet remained steady during
2011 at 69% of total assets, reflecting Banco Pastor’s clear commercial focus.
At 31 December 2011, off-balance sheet securitised loans totalled € 1,775,991
thousand (31 December 2010: € 1,998,894 thousand). Considering these amounts
and setting aside impairment adjustments, gross loans and advances to other
debtors would amount to € 23,426,091 thousand at 31 December 2011, 3.99%
down on 2010 (€ 24,400,427 thousand).
186
The highest growth in this caption was achieved in Loans and advances to General
Government, from € 530,228 thousand at 31 December 2010 to € 617,354
thousand at 31 December 2011 (16.43%). Loans and advances to other resident
sectors (excluding doubtful assets), the most significant item in this caption,
amounted to € 18,806,951 thousand at 31 December 2011, which was 5.38% down
on 2010 (€ 19,876,132 thousand), in line with the generalised fall throughout the
banking system. In Loans and advances to other resident sectors, Secured
receivables totalled € 12,137,217 thousand, 5.28% (€ 676,750 thousand) down on
2010 (€ 12,813,967 thousand). Other term receivables fell by € 188,467 thousand
from € 4,545,583 thousand at 31 December 2010 to € 4,357,116 thousand (4.15%).
Loans and advances to non-residents declined by € 54,659 thousand from €
377,584 thousand at 31 December 2010 to € 322,925 thousand at year-end 2011
(14.48%).
The economic slowdown has logically affected credit quality. The balance of
doubtful assets relating to all customer credit risk managed at 31 December 2011
reached € 1,807,323 thousand, which is € 263,846 thousand above the same date
of the previous year (17.09%); this figure is more than 10% below the sector
average at November 2011 (annual increase of 28.1%). Impairment adjustments at
31 December 2011 amounted to € 717,592 thousand, 4.24% down on December
2010.
The Group’s non-performing loan ratio stood at 6.12% at year-end 2011 (including
debt instruments and contingent risks). The coverage ratio reached 112.55%,
including collateral.
The second group of assets in terms of relevance, although a long distance from the
previous group, are the different types of debt securities: Financial assets held for
trading (€5,102 thousand), Other assets at fair value through profit or loss (€
193,952 thousand), Available-for-sale financial assets (€ 2,499,173 thousand),
Loans and receivables (€ 856,750 thousand) and Held-to-maturity investments (€
2,079,066 thousand). They total € 5,634,043 thousand, representing 18.55% of
assets (2010: 17.50%). This figure rose by € 185,798 thousand in 2011 (3.41%).
Also in assets, Loans and advances to credit institutions totalled € 319,974
thousand, entailing a fall of € 527,622 thousand (62.25%) on year-end 2010.
As regards liabilities, the main group is formed by Financial liabilities at amortised
cost, the most representative and relevant balances being in Deposits from other
creditors, and Debt certificates including bonds, Deposits from central banks and
from credit institutions, Subordinated liabilities and Other financial liabilities. Overall,
these items totalled € 28,094,139 thousand, representing a decrease of 2.21% in
related terms and accounting for 92.5% of total equity and liabilities, which is slightly
above the previous-year figure.
As regards Deposits from other creditors or traditional liabilities, at 31 December
2011 the Group managed funds totalling € 16,621,385 thousand, having grown by €
1,101,982 thousand (7.10% year-on-year). This favourable evolution of Deposits
from other creditors contrasts with the sector decline at a cumulative year-on-year
3% at November 2011. The most significant items forming these balances are time
deposits, totalling € 10,464,181 thousand at year-end 2011, 13.37% or € 1,234,285
thousand up on December 2010. This again reflects the stability of Banco Pastor’s
liquidity sources, allowing the liquidity ratio to hit a five-year peak in 2011, as
mentioned earlier.
At 31 December 2011, Off-balance sheet customer funds totalled € 1,735,309
thousand, 10.50% below the previous year end.
In this slowdown context, spreads also declined slightly, causing the net interest
income to fall by 9.4% or € 44,029 thousand to € 425,405 thousand; though
significant, it is below the 12.7% fall recognised in 2010 as compared with 2009.
187
Within net interest income, the item Interest and similar income rose by € 95,044
thousand (10.1%) to € 1,039,716 thousand, but Interest expense and similar
charges increase more, by € 139,073 thousand (29.3%) to € 614,311 thousand.
Dividend income totalled € 1,810 thousand, less than half the 2010 figure, relating
mainly to Sistemas 4B (2010: € 3,964 thousand received basically from Ibersuizas,
R Cable and Reganosa).
The Net interest margin, as the sum of net interest income and dividend income,
totalled € 427,215 thousand, which was € 46,183 thousand (9.8%) down on the
previous period.
Also in the income statement, setting aside the net interest margin, net fee and
commission income (€ 94,651 thousand) fell by € 32,130 thousand (25.3%). This is
explained mainly by fee and commission income, which declined 18.6% due to the
fall in commissions for securitisation funds, investment funds and securities
underwriting and placement. Fee and commission expense, much less significant,
rose by € 2,244 thousand (6.6%).
As regards the other figures forming the Gross margin, Gains or losses on financial
assets and liabilities (net) decreased by € 20,407 thousand to € 98,605 thousand. In
2010, a gain of € 17,093 thousand was obtained on the sale of 9.91% of R Cable
and a gain of € 2,309 thousand on the sale of Reganosa, gains that were not
repeated in 2011. The held-for-trading item also declined by € 12,228 thousand to €
31,190 thousand.
Within the gross margin, Other operating income/expenses (net) totalled € 20,707
thousand or € 3,387 thousand below the 2010 figure.
With respect to the other two groups that make up the gross margin, the item Share
of profit or loss of entities accounted for using the equity method (€ 5,615 thousand)
was € 2,061 thousand up on 2010 due to the improved performance of associates.
Exchange differences (net) amounted to € 2,684 thousand, having decreased by €
2,793 thousand.
Once these figures are added to the basic margin, we arrive at a gross margin of €
649,477 thousand, which is 13.7% down on 2010 (€ 102,839 thousand in absolute
terms).
Administrative expenses remained in line with the previous year, having risen by €
592 thousand (0.2%) following a decrease of € 271 thousand in Personnel
expenses to € 233,574 thousand and an increase of € 863 thousand in Other
administrative expenses to € 123,217 thousand; in the latter case, all groups of
items in general decreased with the exception of the rise in technical report
expenditure.
It should be noted that Banco Pastor had 575 offices at year-end 2011, 30 less than
in the previous year. At 31 December 2011, the Banco Pastor Group had 4,109
professional, 61 below year-end 2010.
As a result of this expenditure, the efficiency ratio (quotient of other administrative
expenses and the gross margin), excluding from the numerator and denominator
expenses recovered, ended the period at 54.21% or 7.67% above the previous year
end.
Depreciation and amortisation decreased by € 1,177 thousand to € 27,114
thousand.
The Gross operating margin, i.e. the gross margin net of administrative expenses
and depreciation/amortisation totalled € 265,572 thousand, which is € 102,254
below the 2010 figure, similar to the fall in the gross margin, although the relative
decline is more significant (27.8%).
At year-end 2011, Net operating profit amounted to € 151,464, entailing a rise of €
53,748 thousand or 55.0%.
188
The significant difference with respect to the performance of the gross operating
margin is the result of Financial asset impairment losses (net), which amounted to €
124,957 thousand, less than half the prior-year figure (€ 283,819 thousand). Of this
amount, € 117,794 thousand relates to provisions for loans and receivables (€
165,654 thousand down on the previous year) and € 7,163 thousand to other
financial assets (€ 6,792 thousand up on year-end 2010).
The € 117,794 thousand provisioned for loans and receivables include € 222,726
thousand in net appropriations to the specific provision (€ 240,971 down on 2010).
In 2011, € 84,198 thousand was released to the general provision, entailing a
difference of € 90,295 thousand with respect to the € 174,493 thousand released in
2010.
Finally, write-off assets were recovered in the amount of € 55,834 thousand
(€11,644 thousand below the prior-year figure).
Provisioning expense (net) shows a drawable of € 10,849 thousand, which is €
2,860 thousand lower than the prior-year amount. The amount drawable in 2011
consists mainly of € 5,569 thousand released from the specific provision and €
3,904 thousand released from the general provision for contingent risks.
Impairment losses on other assets (net) totalled € 18,156 thousand (€ 56,035
thousand below the previous year) as a result of the new regulations imposed in
2010 to adjust upwards the amounts for 2010 and prior years.
Losses due to the derecognition of assets not classified as non-current assets held
for sale showed a negative figure of € 6,501 thousand at year-end 2011, € 60,350
thousand below the positive figure of € 53,849 thousand posted in 2010. In 2010
this group of items reflected the sale of 100% of Gespastor and the positive
difference between the carrying amount and actual amount of 50% of Pastor Vida,
which remained in the balance sheet following the sale of the other 50%, the gain
having been recognised in 2010 in Profit/(loss) from discontinued operations (net).
Gains/(losses) on non-current assets held for sale not classified as discontinued
operations were negative by € 65,647 thousand (€1,645 down on the previous
period).
Finally, Profit/(loss) before tax totalled € 61,160 thousand, which is € 47,788
thousand or 357.4% up n 2010.
Income tax (€ 9,032 thousand) was € 21,503 thousand higher than in 2010, when a
tax credit was recognised. In 2010, income tax on the adjusted reported profit
became a tax credit on the basis of the tax credits generated for the Bank as a
result of tax deductions and incentives derived basically from dividends or gains
from internal sources, and other credits for the reinvestment of profits from the sale
of shares in Gespastor, Pastor Vida and R-Cable, or R&D&i deductions.
Profit/(loss) from discontinued operations showed a zero amount in 2011, having
fallen by € 36,930 thousand on 2010, when the gain from the sale of 50% of Pastor
Vida was recognised, as indicated.
Profit/(loss) from discontinued operations combined with income tax resulted in a
consolidated profit for the period of € 52,128 thousand, which was € 10,645
thousand on the previous year, or 17% in relative terms. The profit attributed to the
Parent entity was € 51,939 thousand (€ 10,123 thousand or 16.3% down on 2010).
On the basis of attributed profit and average equity capital of € 1,638,026 thousand,
ROE stood at 3.17%, 118 basis points below the 2010 figure.
ROA, return on average total assets, stood at 0.17%, three basis points below the
previous period.
In view of these consolidated results, the parent Banco Pastor shows a profit after
tax of € 40,882 thousand, representing a decline of € 4,870 thousand or 10.6% on
2010.
189
Environment
The Group’s global operations are governed, among other regulations, by laws on
environmental protection and health and safety in the workplace. The Group
considers that it substantially fulfils such laws and has procedures in place designed
to encourage and guarantee compliance.
The Group has implemented appropriate measures in connection with
environmental protection and improvement, and minimisation of any environmental
impacts, in compliance with prevailing legislation. During 2010 the Group continued
with plans for waste treatment, recycling of consumables and energy saving. No
provision was deemed necessary for environmental liabilities and charges as there
are no contingencies relating to environmental protection and improvement.
Treasury shares
At 31 December 2011, Banco Pastor recorded no treasury shares. There were no
dealings in own shares.
At 31 December 2011, Banco Pastor shares held by the consolidated entities
totalled 4,916,289 shares, representing 1.80% of the Bank’s capital.
During the period, buy and sell transactions involving Banco Pastor shares effected
by the consolidated entities (including the Bank) showed a total cash value of €
5,565 thousand and € 337 thousand, respectively (in the latter case, calculated
using the purchase price). In terms of the number of shares, 1,820,011 shares were
bought and 12,185 were sold, representing 0.66% and 0.004% of capital,
respectively.
Events after the reporting date
In addition to the events explained in Note 1.13 to the accompanying notes to
consolidated annual accounts, in connection with the corporate operation and
publication of Royal Decree-Law 2/2012 (3 February) on the restructuring of
financial sector, there have been no other events having a significant effect on
consolidated annual accounts.
the
the
the
the
Additional information required by Article 116 bis of the
Stock Market Law
C a p i t a l s t ru c t u re
Banco Pastor, S.A.’s share capital stands at € 90,040,735.62 and is represented by
272,850,714 ordinary shares with a par value of € 0.33 each.
R e s t ri c t i o n s o n t h e t r a n s f e r o f s h a re s
No restrictions are imposed on the transfer of shares in the Articles of Association.
S i g n i f i c a n t d i r e c t a n d i n d i r e c t s h a re h o l d i n g s .
- FUNDACIÓN PEDRO BARRIÉ DE LA MAZA, 42.176%; 115,078,130 shares
- NCG BANCO, S.A., 5.185%; 14,146,607 shares
- FINANCIERE TESALIA, S.A., 5.041%; 13,814,467 shares
- PONTEGADEA INVERSIONES, S.L., 5.063%; 13,753,947 shares
R e s t ri c t i o n s o n vo t i n g r i g h t s
There are no restrictions whatsoever on the exercise of voting rights.
190
P a r a -c o r p o ra t e a g re e m e n t s
On 10 October 2011, a group of three shareholding owning a total of 52.28% of
Banco Pastor’s share capital (Fundación Pedro Barrié de La Maza; Financière
Tesalia, S.A. and Pontegadea, S.L.) concluded with Banco Popular Español, S.A.
irrevocable “Commitment Agreements for the Submission and Acceptance of a
Public Offering for the Acquisition of Shares and Debentures”, relating to the sale of
their respective shares and convertible debentures.
On 10 November 2011, Banco Popular submitted a Public Offering for the
Acquisition of Shares and Debentures targeting all the share capital of Banco Pastor
and all the convertible debentures issued; settlement will foreseeably take place
during the first quarter of 2012.
R e g u l a t i o n s a p p l i c a b l e t o t h e a p p o i n t me n t a n d re m o va l o f me m b e rs
o f t h e g o ve r n i n g b o d y a n d t o t h e a m e n d m e n t o f t h e A rt i c l e s o f
Association
In accordance with the Articles of Association, a person wishing to become a Board
director must not be subject to any legal prohibition and must be a Company
shareholder (Article 22).
Article 23 stipulates that Board directors may be designated only by the General
meeting. Board directors will hold office for a six-year period and may be re-elected
one or more times for equal periods. Nonetheless, Board directors may be removed
at any time by the General Meeting.
Article 24 states that if a vacancy arises during the period for which Board directors
are appointed, the Board may designate from among the shareholders that fulfil the
requirements of Article 22 the persons that must fill the vacancy until the next
General Meeting.
Amendments to the Articles of Association are submitted to the Ministry of Economy
and Finance for authorisation, pursuant to R.D. 1245/1995 (14 July) on credit
institutions.
Finally, in relation to certain corporate agreements and amendments to the Articles
of Association, it should be noted that they are regulated by Article 20, which states
that in order for the Annual General Meeting or Extraordinary General Meeting to
validly agree on any amendment to the Articles of Association, with the exception of
those required in the cases envisaged in section one of Article 20 (issuance of
debentures, capital increase or reduction, transformation, merger or spin-off),
shareholders present or represented on first call must hold at least sixty percent of
subscribed voting capital. On second call, thirty percent of voting capital will suffice.
In order to adopt the resolutions envisaged in this section, the favourable vote of
three quarters of the share capital present or represented at the Meeting will be
required.
P o w e rs o f t h e B o a r d d i r e c t o rs , p a rt i c u l a rl y p o w e rs re l a t i n g t o t h e
p o s s i b i l i t y o f i s s u i n g o r re p u rc h a s i n g s h a re s
The Board of Directors, under a resolution validly adopted by the Annual General
Meeting held on 6 April 2011, may, when deemed fit, acquire treasury shares
subject to the limits and requirements agreed and, if applicable, set up the relevant
special reserves, even charging them to unrestricted reserves, in compliance with
Articles 144 and concordant articles of the Spanish Companies Act 2010 (Royal
Decree-Law 1/2010, 2 July).
191
Moreover, in the General Meeting of 6 April 2011, a majority of shareholders
resolved, rendering invalid, in the unused portion, the authorisation granted by the
General Meeting on 27 April 2007, to delegate to the Board of Directors the power
to increase share capital, on one or more occasions, on the terms deemed fit and
subject to the amount, conditions, deadline and form envisaged in Article 297 of the
Spanish Companies Act 2010, by issuing any class of shares permitted by Law,
including non-voting shares, with or without a share premium, including any other
terms, conditions and characteristics deemed advisable. The General Meeting also
empowered the Board of Directors to increase share capital in the amount of the
subscriptions effected under Article 311 of the Spanish Companies Act 2010, to
amend, where necessary, Articles 5 and 7 of the Articles of Association, and to
request the official listing of the shares issued on domestic and foreign stock
exchanges. The Board was likewise empowered, including the specific power of
substitution, to delegate to the Board Committee, Chairman, Chief Executive Officer
or any Board member, and to any of the Bank’s legal representatives, authorisation
to execute such public or private documents that may be necessary to implement
the resolution adopted, in the broadest sense, including the correction, interpretation
and completion of the resolution where necessary to ensure full validity and
execution.
S i g n i f i c a n t a g re e m e n t s t h a t h a v e b e e n c o n c l u d e d b y t h e C o m p a n y
a n d t h a t c o m e i n t o f o rc e , a re a m e n d e d o r a re t e r mi n a t e d i n t h e
e v e n t o f a c h a n g e o f c o n t r o l o v e r t h e C o m p a n y d u e t o a t a k e o ve r
b i d , a n d r e l a t e d e f f e c t s , e x c e p t w h e r e d i vu l g a t i o n w o u l d c a u s e
s e ri o u s h a r m t o t h e C o m p a n y .
The Company has directly or indirectly entered into the following significant
agreements containing clauses related to changes of control: (i) current shareholder
agreement relating to Pastor Vida, S.A.; (ii) agreements with Espirito Santo Gestión,
S.A., S.G.I.I.C. relating to the marketing of collective investment institutions; and (iii)
agency agreement with Axa on the distribution of non-life insurance policies.
A g r e e m e n t s b e t w e e n t h e C o mp a n y a n d i t s B o a rd d i r e c t o rs ,
m a n a g e m e n t o r e mp l o y e e s s t i p u l a t i n g i n d e mn i t i e s o n re s i g n a t i o n o r
u n f a i r d i s mi s s a l , o r w h e n t h e e mp l o ye r - e mp l o ye e re l a t i o n s h i p i s
t e r m i n a t e d a s a re s u l t o f a t a k e o ve r b i d .
There are three members of the Company’s management with contracts that
envisage, on the basis of their responsibilities, the right to receive indemnities in the
event of the termination of the employment relationship.
192
ANNUAL CORPORATE GOVERNANCE REPORT
LISTED COMPANIES
ISSUER’S PARTICULARS
YEAR ENDED: 31/12/11
TAX CODE: A-15000128
Company name: BANCO PASTOR, S.A.
193
MODEL ANNUAL CORPORATE GOVERNANCE REPORT
FOR LISTED COMPANIES
For a better understanding of the model and s ubsequent preparation of the report,
please read the instructions provided at the end before filling it out.
A - OWNERSHIP STRUCTURE
A.1 Complete the following table on the company’s share capital:
Date of last modification
Share capital (€)
Number of shares
Number of voting rights
—
90.040.735,62
272.850.714
272.850.714
Indicate whether different types of shares exist with different associated rights:
NO
A.2 List the direct and indirect holders of significant ownership interests in your organisation at year-end,
excluding directors:
Name or corporate name of the shareholder
FUNDACION PEDRO BARRIE DE LA MAZA
Number of direct
voting rights
Number of
indirect voting
rights (*)
% of total voting
rights
115.078.130
0
42,176
NCG BANCO, S.A.
14.146.607
0
5,185
PONTEGADEA INVERSIONES, S.L.
13.814.467
0
5,063
FINANCIÉRE TESALIA, S.A.
13.753.947
0
5,041
194
Indicate the most significant movements in the shareholder structure during the year:
A.3 Complete the following charts on the members of the Company’s Board of Directors that hold voting rights
through company shares:
Name or corporate name of the director
DON JOSE MARIA ARIAS MOSQUERA
Number of direct
voting rights
% of total voting
rights
Number of
indirect voting
rights (*)
401,299
0
0.147
DON JORGE GOSTGIJON
16,891
0
0.006
DON FERNANDO DIAZ FERNANDEZ
35,671
0
0.013
DON GONZALO GIL GARCIA
22,000
0
0.008
DON JOSE ARNAU SIERRA
23,694
0
0.009
117,555
0
0.043
6,000
0
0.002
27,006
0
0.010
8,075
0
0.003
DON JOSE LUIS VAZQUEZ MARINO
DON JOSÉ GRACIA BARBA
DON MARCIAL CAMPOS CALVO SOTELO
DON OSCAR GARCIA MACEIRAS
Total % of voting rights held by the Board of Directors
0.241
Complete the following charts on the members of the Company’s Board of Directors that hold rights over
company shares:
A.4 Indicate, as applicable, any family, commercial, contractual or corporate relationships between the owners
of significant holdings, insofar as these are known by the company, unless irrelevant or arising from ordinary
trading or exchange activities:
A.5 Indicate, as applicable, any commercial, contractual or corporate relationships between owners of
significant holdings and the company and/or its group, unless irrelevant or arising from ordinary trading or
exchange activities:
195
A.6 Indicate whether any shareholders’ agreements have been notified to the company that affect it as set forth
in art. 112 of the Spanish Securities Market Act (Ley del Mercado de Valores ). Provide a brief description and
list the shareholders bound by the agreement, as applicable:
NO
Indicate whether the company is aware of the existence of any concerted actions among its shareholders.
Give a brief description as applicable:
NO
Expressly indicate any amendment to or termination of such agreements or concerted actions during the
year:
----
A.7 Indicate whether any individuals or bodies corporate currently exercise or could exercise control over the
company in accordance with article 4 of the Spanish Securities Market Act. If so, identify:
NO
A.8 Complete the following tables on the Company’s treasury shares:
At year-end:
Number of direct shares
Number of indirect shares (*)
0
4,916,289
% of total share capital
1.802
196
(*) through:
Name or corporate name of the direct owner of the ownership interest
Number of direct
shares
3,108,463
BANCO PASTOR, S.A.
Total
0
3,108,463
Give details of any significant changes during the year, in accordance with Royal Decree 1362/2007:
Gains/(losses) on treasury shares transferred during the year (in thousands of euros)
10
A.9 Give details of the applicable conditions and time periods governing any resolutions of the General
Shareholders’ Meeting authorising the Board of Directors to acquire and/or transfer treasury shares.
At its meeting of 06/04/2011, the General Shareholders’ Meeting adopted the following resolution:
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to
authorise the Board of Directors, with express powers of substitution in favour of the Executive Committee or any of
its members, so that, when it deems fit, it may acquire treasury stock either directly or through other companies of
the Banco Pastor Group and, where appropriate, set up the required special reserves, which may be charged to
unrestricted reserves, in accordance with the terms of article 146 et al. of the Capital Companies Act, rendering the
unused portion of the authorisation granted by the General Meeting on 26 March 2010 null and void, within the limits and
requirements indicated below:
- The acquisition shall be made by deed of sale or any other valid lawful title for extra-judicial acquisition for valuable
consideration.
- The face value of the purchased shares plus those held by the Bank and its subsidiaries shall not exceed 10% of the
share capital of Banco Pastor, S.A.
- The acquisitions shall allow the Bank and participated Companies to set up the restricted reserve stipulated by Law,
even by charging it to unrestricted reserves.
- The acquisition prices must be in line with prevailing stock market prices or those authorised by the Spanish Securities
Market Commission (CNMV).
197
- The authorisation is granted for the maximum term prescribed by Law i.e. five years.
- It is expressly agreed that some or all of the shares acquired by the Bank or its subsidiaries under this authorisation may
be delivered to company employees or administrators who are entitled to received such shares, either directly or as a
consequence of exercising stock option rights, as provided for in the last paragraph of article 146.1 a) of the Capital
Companies Act.
A.10 Indicate, as applicable, any restrictions imposed by Law or the Articles of Association on exercising voting
rights, as well as any legal restrictions on the acquisition or transfer of ownership interests in the share capital:
Indicate whether there are any legal restrictions on exercising voting rights:
NO
Maximum percentage of voting rights that may be exercised by a shareholder based on legal
restrictions
0
Indicate whether there are any restrictions included in the Articles of Association on exercising voting rights:
NO
Maximum percentage of voting rights that may be exercised by a shareholder based on
restrictions prescribed by the Articles of Association
0
Indicate if there are any legal restrictions on the acquisition or transfer of share capital:
YES
Description of the legal restrictions on the acquisition or transfer of share capital.
Articles 57, 58 and 60 of Law 26/1988 of 29 July on the Discipline and Supervision of Credit Institutions establish the
requirement to obtain the Bank of Spain’s approval prior to acquiring 10% of more of a bank’s capital or higher
percentages expressly indicated in the law.
As an entity whose stock is listed on the Spanish stock exchange, the acquisition of certain significant shares of
Banco Pastor, S.A. stock is subject to disclosure and to the procedure established in this regard in Securities Market
Act 24/1988 and its implementing legislation.
A.11 Indicate whether the General Shareholders’ Meeting has agreed to take neutralisation measures to
prevent a public takeover bid by virtue of the provisions of Act 6/2007.
NO
If applicable, explain the measures adopted and the terms under which these restrictions may be lifted:
198
B – COMPANY MANAGEMENT STRUCTURE
B.1 Board of Directors
B.1.1 List the maximum and minimum number of directors included in the articles of association:
Maximum number of directors
15
Minimum number of directors
5
B.1.2 Complete the following table with Board members’ details:
Representative
Position held
---
--
CHAIRMAN
MR JORGE GOST
--
Name or corporate
name of the director
GIJON
VC AND
Date of first
appointment
Date of last
appointment
28/06/1988
26/03/2010
29/04/2005
26/03/2010
VOTE AT
SHAREHOLDERS’
MEETING
VOTE AT
SHAREHOLDERS’
MEETING
CHIEF
EXECUTIVE
OFFICER
--
DIRECTOR
20/12/2005
26/03/2010
MR GONZALO GIL
GARCIA
--
DIRECTOR
25/09/2008
26/03/2010
MR JOSE ARNAU
SIERRA
--
DIRECTOR
20/12/2005
26/03/2010
MR JOSE LUIS
VAZQUEZ MARIÑO
--
DIRECTOR
27/06/2002
26/03/2010
MR JOSÉ GRACIA
BARBA
--
DIRECTOR
29/09/2011
29/09/2011
MR
MARCIAL
CAMPOS CALVO
SOTELO
--
MR FERNANDO DIAZ
Election procedure
FERNANDEZ
VOTE AT
SHAREHOLDERS’
MEETING
VOTE AT
SHAREHOLDERS’
MEETING
VOTE AT
SHAREHOLDERS’
MEETING
VOTE AT
SHAREHOLDERS’
MEETING
COOPTATION
27/06/2002
26/03/2010
29/09/2011
29/09/2011
DIRECTOR
MR OSCAR GARCIA
SECRETARY
DIRECTOR
VOTE AT
SHAREHOLDERS’
MEETING
VOTE AT
SHAREHOLDERS’
MEETING
199
Total number of Directors
9
Indicate whether any members have left the Board of Directors during the year:
Type of director at time of leaving
Withdrawal date
DON JOAQUIN DEL PINO CALVO-SOTELO
PROPRIETARY
21/07/2011
DON MIGUEL SANMARTIN LOSADA
PROPRIETARY
29/09/2011
B.1.3 Complete the following tables on the Board members and their respective categories:
EXECUTIVE DIRECTORS
MR JOSE MARIA ARIAS MOSQUERA
Committee proposing
the appointment
--
MR JORGE GOST GIJON
CHAIRMAN
APPOINTMENTS AND
REMUNERATION
COMMITTEE
MR DON OSCAR GARCIA MACEIRAS
Post held in the
company
APPOINTMENTS AND
REMUNERATION
COMMITTEE
VC AND CHIEF
EXECUTIVE OFFICER
DIRECTOR SECRETARY
OF THE GENERAL
SECRETARY BOARD
Total number of executive directors
3
% of the Board
33.333
EXTERNAL PROPRIETARY DIRECTORS
Name or corporate name of the
director
Committee proposing
appointment
Name or corporate name of the
significant shareholder
represented or proposing the
appointment
MR JOSE ARNAU SIERRA
-
MR JOSÉ GRACIA BARBA
-
Total number of proprietary directors
% of the Board
2
22.222
200
INDEPENDENT EXTERNAL DIRECTORS
------Profile
BANKING PROFESSIONAL WITH MORE THAN 30 YEARS OF EXPERIENCE IN DIFFERENT
POSITIONS .
-----Profile
ECONOMIST, BOASTING EXTENSIVE EXPERIENCE WITH THE BANK OF SPAIN SPANNING 1968 TO
2006, DURING WHICH TIME HE SERVED AS DEPUTY GOVERNOR.
-----Profile
GRADUATE IN ECONOMICS AND BUSINESS, CHARTERED ACCOUNTANT AND ECONOMIST AND
AUDITOR.
----Profile
INDUSTRIAL ENGINEER. GRADUATE OF ICADE BUSINESS SCHOOL AND HOLDING A MASTER’S
DEGREE IN BUSINESS ADMINISTRATION FROM THE GRADUATE SCHOOL OF INDUSTRIAL
ADMINISTRATION.
Total number of independent directors
4
% of the Board
44.444
OTHER EXTERNAL DIRECTORS
List the reasons why these cannot be considered as independent or proprietary directors, and detail their
relationships with the company, its executives or shareholders.
List any changes in the category of each director that have occurred during the year:
B.1.4 Explain, when applicable, the reasons why proprietary directors have been appointed upon the request of
shareholders who hold less than 5% of the share capital.
Provide details of any rejections of formal requests for Board representation from shareh olders whose
equity interest is equal to or greater than that of other shareholders who have successfully requested the
appointment of proprietary directors. If so, explain why these requests have not been entertained.
NO
B.1.5 Indicate whether any director has resigned from his/her post before their term of office has expired,
whether that director has given the Board his/her reasons and through which channel. If made in writing to the
201
whole Board, list below the reasons given by that director:
Yes
Name of the director
------Reason for resignation
As a result of the sale of the shareholding of CASAGRANDE CARTAGENA, S.L.
Name of the director
------Reason for resignation
Resignation for personal reasons
202
B.1.6 Indicate what powers, if any, have been delegated to the Chief Executive Officer/s:
MR JORGE GOST GIJON
Brief description
----------Name or corporate name of the director
Brief description
ALL POWERS, WITH THE EXCEPTION OF NON-DELEGABLE POWERS PURSUANT TO LAW
B.1.7 List the Directors, if any, who hold office as directors or executives in other companies belonging to
the listed Company’s group:
Business name of Group company
DON JORGE GOST GIJON
PASTOR MEDIACION. OPERADOR DE BANCA. S.L.
CHAIRMAN
Office
DON JORGE GOSTGIJON
PASTOR VIDA. S.A. DE SEGUROS Y REASEGUROS
VICE-CHAIRMAN
B.1.8 List any company Board members who likewise sit on the Boards of Directors of other non-group
companies that are listed on official securities markets in Spain, insofar as these have been disclosed to the
Company:
B.1.9 Indicate and, where appropriate, explain whether the company has established rules regarding
the number of boards on which its directors may sit:
YES
Explanation of the Rules
The company is governed by the terms of Law 31/1968 of 27 July which imposed a series of limitations on the Chairmen,
Directors and Officers of private banks.
B.1.10 In relation with Recommendation 8 of the Unified Code, indicate the company’s general policies and
strategies that are reserved for approval by the Board of Directors in plenary session:
Investment and financing policy
YES
Design of the structure of the corporate group
YES
Corporate governance policy
YES
203
Corporate social responsibility policy
YES
The strategic or business plan and management targets and annual budgets
YES
Remuneration and performance appraisal of senior officers
YES
YES
Risk control and management, and periodic monitoring of the internal information and control
systems
Dividend policy, as well as the policies and limits applying to treasury stock
YES
B.1.11 Complete the following tables on the aggregate remuneration paid to directors during the year:
a) In the reporting company:
Concept
Amount in
thousands of euros
1,629
Fixed remuneration
0
Variable remuneration
515
Per diems
Compensation as per the Articles of Association
Share options and/or other financial instruments
440
0
0
Other
2,584
Total
other Benefits
Advances
Loans extended
Pension plans and funds: contributions
Pension plans and funds: obligations assumed
Life insurance premiums
Guarantees issued by the company in favour of directors
Figures in
thousands of euros
28
1,001
3,952
28,026
596
0
204
b) For company directors sitting on other governing bodies and/or holding senior management posts within
group companies:
Concept
Figures in
thousands of euros
Fixed remuneration
0
Variable remuneration
0
Per diems
0
Compensation as per the Articles of Association
0
Share options and/or other financial instruments
0
Other
0
Total
0
Other Benefits
Figures in
thousands of euros
Advances
0
Loans extended
0
Pension plans and funds: contributions
0
Pension plans and funds: obligations assumed
0
Life insurance premiums
0
Guarantees issued by the company in favour of directors
0
c) Total remuneration by type of director:
Type of director
Executive
External proprietary
External independent
By company
By group
1,859
261
464
0
Other external
Total
2,584
0
0
0
0
0
205
d) Remuneration as percentage of profit attributable to parent company
Total remuneration received by directors (in thousands of euros)
2,584
5.0
Total remuneration received by directors/profit attributable to parent (%)
B.1.12 List the members of senior management who are not executive directors and indicate total remuneration
paid to them during the year:
Name or corporate name
Post
YOLANDA GARCIA CAGIAO
DEPUTY GENERAL MANAGER
RAFAEL BOTAS DIAZ
DEPUTY GENERAL MANAGER
JUAN BABIO FERNANDEZ
GENERAL MANAGER
SUSANA QUINTAS VELOSO
GENERAL MANAGER
AMADEU FONT JORBA
GENERAL MANAGER
Total remuneration received by senior management (in thousands of euros)
925
206
B.1.13 Identify, in aggregate terms, any indemnity or “golden parachute” clauses that exist for members of the
senior management (including executive directors) of the company or of its group in the event of dismissal or
changes in control. Indicate whether these agreements must be reported to and/or approved by the governing
bodies of the company or its group:
Number of beneficiaries
2
Board of Directors
Body authorising the clauses
YES
General Shareholders’ Meeting
NO
NO
Is the General Meeting informed of the clauses?
B.1.14 Describe the procedures for establishing remuneration for Board members and the relevant provisions in
the Articles of Association.
Procedures for establishing remuneration of Board members and relevant provisions
in the Articles of Association
Remuneration of Board Members is established by the Board itself, upon the proposal of the Appointments and
Remuneration Committee, within the limits of the Articles of Association and in keeping with the criteria established
in the Internal Regulations of the Board of Directors.
Indicate whether the Board has reserved for plenary approval the following decisions:
At the proposal of the company’s chief executive officer, the appointment and dismissal of senior management
and their compensation clauses.
Remuneration paid to board members and, in the case of executive directors, additional remuneration
for their executive functions and other contractual terms and conditions.
YES
YES
B.1.15 Indicate whether the Board of Directors approves a detailed remuneration policy and specify the points
included:
YES
Amount of the fixed components, with a breakdown, if applicable, of attendance fees for sitting on the
Board and its Committees and an estimate of the annual fixed remuneration they give rise to
Variable items
YES
YES
207
Main characteristics of the employee benefit system with an estimate of the amount or equivalent annual
YES
cost
The terms and conditions that must be contained within the contracts for those who exercise senior
management functions as chief executive officers
YES
B.1.16 Indicate whether the Board submits a report on the directors’ remuneration policy to the advisory vote of the
General Meeting, as a separate point on the agenda. Explain the points of the report regarding the remuneration
policy as approved by the Board for forthcoming years, the most significant departures in those policies with
respect to that applied during the year in question and a global summary of how the remuneration policy was
applied during the year. Describe the role played by the Remuneration Committee and whether external
consultancy services have been procured, including the identity of the external consultants.
Yes
Issues which the remuneration policy covers
GENERAL MEETING OF 06/04/2011:
11.- Delegation to the Board Directors, with the possibility of substitution, of the power to meet the variable
remuneration of the Company's Directors and Senior Management by giving shares or share options.
The General Meeting agreed by majority, with the favourable vote of 97.87% of the share capital in
attendance, to authorise the Board of Directors, with express powers of substitution in favour of the Executive
Committee or any of its members, so that it may meet the variable remuneration of the Company's Directors
and Senior Management by giving shares or share options, and may to this effect indicate the value of the
shares, the number of shares to be given, which shall not under any circumstances exceed 0.3% of the share
capital and with the remuneration system being limited to a maximum duration of three years.
208
Role played by the Remuneration Committee
Article 30 of the Internal Regulations of the Board states that without prejudice to other functions assigned to it by the Board,
the Committee shall have the following functions:
1. Frame and review the criteria for Board membership and candidate selection.
2. Examine and submit to the Board proposals for the appointment, reappointment and removal of directors, as regards
proposals which the Board lays before the general meeting of the c ompany and as regards co-opted appointments by the
Board itself.
3. Propose to the Board the memberships of Board Committees.
4. Examine and submit to the Board proposed appointments and removals of senior executives.
5. Establish and submit to the Board the policies for directors’ and executive directors’ remuneration and the amount of such
remuneration for each year.
6. Appraise and review policies and schemes for remuneration of senior executives and how they are being applied, and
ensure such policies and schemes are appropriate and effective.
7. Report on issues that may involve conflicts of interests.
8. Supervise compliance with the rules of Corporate Governance.
9. Inform the Board of Directors with respect to the gender -diversity issues indicated in Recommendation 14 of the Unified
Good Governance Code.
Have external consultancy firms been used?
YES
Identity of the external consultants
TOWERSWATSON
B.1.17 List any Board members who are likewise members of the Boards of Directors, or executives or
employees of companies that own significant holdings in the listed company and/or group companies:
209
Name or corporate name of director
Post
Corporate name of significant
shareholder
SECRETARY OF THE
BOARD OF DIRECTORS
SOLE DIRECTOR
List any relevant relationships, other than those included under the previous heading, that link members of
the Board of Directors with significant shareholders and/or their group companies:
Name or corporate name of the associated director
---Name or corporate name of the significant associated shareholder
FUNDACION PEDRO BARRIE DE LA MAZA
Description of the relationship
CHAIRMAN
B.1.18 Indicate whether any changes have been made to the Regulations of the Board of Directors during the
year:
NO
B.1.19 Indicate the procedures for appointing, re-electing, appraising and removing board members. List the
competent bodies and the processes and criteria to be followed for each procedure.
The appointment of Board Members takes places following the prop osal of the Appointments and Remuneration
Committee in accordance with the stipulations of the Spanish Corporations Act, either by co -optation and ratification at
the first General Meeting held, or directly by the General Meeting upon the proposal of the Board of Directors.
In appointing the Directors, their professional and commercial standing and capacity to bring value to the Bank is taken
into account.
Board members are re-elected following a proposal by the Appointments and Remuneration Committee and are voted
on at the General Meeting upon the proposal of the Board of Directors.
When re-electing Directors, the company takes into account whether or not they maintain the characteristics by virtue of
which they were appointed and the tasks carried out on the Board.
Directors are appraised following a proposal from the Appointments and Remuneration Committee.
The removal of Board members follows a proposal from the Appointments and Remuneration Committee and is voted
upon at the General Meeting upon the proposal of the Board of Directors.
210
With respect to the removal of Directors, the Internal Regulations of the Board of Directors establish the obligation of the
Director to tender his/her resignation as soon as the characteristics by virtue of which they were appointed to the post
cease to exist, or when circumstances arise that may lead to their being removed from office, such as the sale of shares
by the shareholders associated to a Proprietary Director.
B.1.20 Indicate the cases in which directors must resign.
The Internal Regulations of the Board of Directors stipulate that directors must resign in cases in which they may have a
detrimental impact on the proper working of the Board or the Company’s prestige and reputation, and that Directors shall
resign from their post when, following a report issued by the Appointments and Remuneration Committee, the Board
considers this appropriate for the Company and in general, if they are involved in any case of incompatibility or legal
prohibition.
Similarly, Proprietary Directors shall resign from office if the shareholder they represent sells all of its shares or reduces
them to a level that warrants a reduction in the number of Proprietary Directors.
B.1.21 Indicate whether the duties of chief executive officer fall upon the Chairman of the Board of Directors. If
so, describe the measures taken to limit the risks of power being concentrated in a single person:
YES
Measures for reducing risk
ARTICLE 4 OF THE BOARD REGULATIONS: FUNCTIONS:
In the framework of the powers vested in the Board by the Articles of Association and by the Companies Act, the Board shall
perform a general function of oversight, which specifically entails three principal duties:
- to guide company policy and decide and review company strategies.
- to oversee the various levels of management.
- to manage relations with shareholders.
The Board shall perform the above duties pursuant to principles of effectiveness, responsibility, transparency and due
disclosure to shareholders, to the supervisory bodies of financial markets and to the Bank of Spain, in the company’s best interests,
to create value for shares and shareholders.
The Board is thus in charge of the running of the company and has the broadest powers of management and administration. The Board
is vested in all powers which the articles of association and current laws and regulations do not expressly reserve exclusively to
the general meeting of the company, including, without limitation, the powers listed below:
a)
b)
Those powers expressly given to the Board under the articles of association.
To exercise the signing powers of the company.
c)To implement the resolutions of the general meeting.
d)
To set the duties, rights, powers, pay, bonuses and terms of appointment, promotion, transfer, severance, retirement,
discharge, awards and penalties, etc. of company staff of whatever class; to create and vary as it sees fit the internal rules and
regulations governing such staff and their working regime.
e)
To appoint, remove and dismiss all staff of whatever class, whether permanent or temporary.
f) To create, suppress and move branches and sub-branches.
g)
To set the general terms and conditions of discounts, loans, security deposits and, in general, of all company
transactions.
h)
To decide on the subscription, acquisition, sale, purchase and exchange of government securities and shares and
bonds; to open credit lines and accounts, commitments, replacements and reimbursements of funds; to create and cancel
mortgages, sureties and bank guarantees of all kinds.
211
Measures for reducing risk
i)=To decide on the use of available capital and on the investment of reserve funds.
j) To acquire, sell, pledge and encumber in any form personal and real property, rights and shares of any kind, and allocate all such
to those purposes it sees fit; to enter into procedures of arbitration and amicable arrangement and reach settlements in all classes
of issue relating thereto.
k)=To execute all classes of contract and such public and private instruments as may be required in the exercise of the company’s
rights.
l) To decide on and implement, in general, on such terms as it sees fit, all operations within the objects of the company.
m)
Provisionally to set the dividend payable per share and interim dividends in respect thereof.
n)To make capital calls when it sees fit, and set time frames and terms of payment.
o)To exercise full powers of representation of the company in all respects and before authorities, courts, centres, bodies,
persons and public or private entities of all classes, degrees and categories.
p)To appoint the company’s authorised representatives and grant them powers as it sees fit.
q)To decide on the exercise, before the judges and courts of ordinary and special jurisdictions and before the authorities, centres,
bodies, divisions and offices of all classes of central, provincial and municipal government, of the company’s rights, actions and
defences; to abandon such exercise; to institute all classes of ordinary and extraordinary appeals, including appeals of cassation and
review, and to abandon any such appeal; for any such purposes, to grant to solicitors and other persons the powers, mandates and
authorities required and with such faculties as may be necessary.
r) To prepare and issue public takeover bids and offerings of securities of commercial companies, within the constraints
laid down in current laws and regulations.
s)On justified grounds, to apply to the court of first instance of the company’s domicile for the dismissal of the auditors
appointed by the general meeting or, if applicable, by the registrar of companies, and for appointment of replacement auditors.
t) To interpret the Articles of Association.
The Company also has a permanent Executive or Delegate Commitment, which in accordance with Article 19 of the Internal
Regulations of the Board of Directors:
The Executive Committee is a collegiate body to which all or any of the Board’s powers may be delegated, except powers not
delegable by law or under the articles of association.
The Board of Directors also has the following Committees for the optimum discharge of the duties entrusted to it by the Articles
of Association and the Board Regulations.
AUDIT AND COMPLIANCE COMMITTEE
APPOINTMENTS AND REMUNERATION COMMITTEE
There is also a MANAGEMENT COMMITTEE, of a mixed nature, comprising Bank Directors and senior managers.
Indicate, and if necessary explain, whether rules have been established that enable any of the independent
directors to convene Board Meetings or include new items on the agenda, to coordinate and voice the
concerns of external directors and oversee the evaluation by the Board of Directors.
YES
Explanation of the rules
Pursuant to article 11.2 of the Internal Regulations of the Board of Directors, Independent Directors may request the
Chairman to include other items on the Agenda in addition to those initially scheduled.
B.1.22 Are qualified majorities, other than legal majorities, required for any type of decision?
212
YES
Describe how resolutions are adopted by the Board of Directors and specify, at least, the minimum
attendance quorum and the type of majority for adopting resolutions:
Description of resolution:
ARTICLE 27 OF THE ARTICLES OF ASSOCIATION:
In order for a resolution to be validly passed by the Board, there must be three members physically present at the session and
one-half plus one of the components must be present or represented.
Quorum
%
55.55
Type of majority
%
55.55
ARTICLE 16 OF THE INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS: CONDUCT OF SESSIONS:
1.For the Board to pass resolutions, the meeting must be attended personally by three directors, and one half plus one of Board
members must be present in person or by proxy.
2.Resolutions shall be passed by a majority vote. In the event of a tie, the chairman has the casting vote.
3.The chairman shall direct discussions.
4.A director may appoint another director in writing as his proxy. One and the same director may hold more than one proxy.
5.The secretary or, as the case may be, the deputy secretary shall take, draft and write down minutes of the meeting in the
relevant book.
6.The secretary shall likewise, with the approval of the chairman or the director replacing him, issue certifications of the minutes
and the rest of documents relating to the functioning of the Board.
Quorum
%
55.55
Type of majority
%
55.55
213
ARTICLE 28 OF THE ARTICLES OF ASSOCIATION: Resolutions must be passed by a majority vote. In the event of a tie, the
chairman has the casting vote.
The secretary or, as the case may be, the deputy secretary shall take, draft and write down minutes of Board meetings in the
relevant book. The secretary shall likewise, with the approval of the chairman or the director replacing him, issue certifications of
the minutes of the general meetings and the rest of documents relating to the functioning of the Board.
Quorum
%
55.55
Type of majority
%
55.55
B.1.23 Indicate whether there are any specific requirements, apart from those relating to the directors, to be
appointed Chairman.
NO
B.1.24 Indicate whether the Chairman has the casting vote:
YES
Subjects for which a casting vote is required
Article 28 of the Articles of Association stipulates that resolutions must be adopted by a majority vote and that the
chairman has the casting vote in the event of a tie.
B.1.25 Indicate whether the Articles of Association or the Board Regulations set any age limit for directors:
NO
Age limit for Chairman
Age limit for Director
Age limit for Chief Executive
Officer
0
0
0
214
B.1.26 Indicate whether the Articles of Association or the Board Regulations set a limited term of office for
independent directors:
YES
12
Maximum term of office
B.1.27 If there are few or no female directors, explain the reasons and describe the initiatives adopted to
remedy this situation.
Explanation of the reasons and initiatives
Until 27th October 2009, there was a female Director who served as the chief executive of the organisation for almost twenty
years and was the first women to occupy the top position in a Spanish bank.
Article 9 of the Internal Board Regulations establishes that according to the tradition of Banco Pastor, S.A., the Board of
Directors will attempt to ensure, when filling new vacancies, that the selection procedures do not suffer from any implicit
biases that hinder the selection of Female Directors and will attempt, directly and especially for the Appointments and
Remuneration Committee, to select women who meet the professional profile sought.
Indicate in particular whether the Appointments and Remuneration Committee has established procedures to
ensure the selection processes are not subject to implicit bias that will make it difficult to select female directors,
and make a conscious effort to search for female candidates who have the required profile:
YES
Indicate the main procedures
Senior Bank management, comprising a total of five members, as at 31 December 2010 included two women:
Ms. Yolanda García Cagiao, Deputy General Manager; and
Ms. Susana Teresa Quintás Veloso, General Manager.
B.1.28 Indicate whether there are any formal procedures for granting proxies to vote at Board meetings. If so,
give brief details.
Article 17.4 of the Internal Regulations of the Board of Directors states that a director may appoint another director in
writing as his proxy. The same director may hold more than one proxy.
215
B.1.29 Indicate the number of Board meetings held during the year and how many times the board has met
without the Chairman’s attendance:
Number of board meetings
10
Number of board meetings without Chairman’s attendance
0
Indicate how many meetings of the various Board Committees were held during the year:
Number of Executive committee meetings
4
Number of Audit Committee meetings
6
Number of Appointments and Remuneration Committee meetings
8
Number of Appointments Committee meetings
0
Number of Remuneration Committee meetings
0
B.1.30 Indicate the number of Board meetings held during the year without the attendance of all members. Nonattendance will also include proxies granted without specific instructions.
Number of non-attendances by directors during the year
% of non-attendances of the total votes cast during the year
2
1.111
B.1.31 Indicate whether the individual and consolidated financial statements submitted for approval by the
Board are certified previously:
NO
Indicate, if applicable, the person(s) who certified the company’s individual and consolidated financial
statements for preparation by the Board:
B.1.32 Explain the mechanisms, if any, established by the Board of Directors to prevent the individual and
consolidated financial statements it prepares from being submitted to the General Meeting with a qualified Audit
Report.
The Audit and Compliance Committee maintains a direction relationship with the external audit firm and is permanently
informed of all issues related to the preparation of the annual accounts submitted, for the purpose of eliminating any issue
that could prevent it from being presented without qualifications in the audit firm’s report.
216
B.1.33 Is the Secretary to the Board also a Director?
YES
B.1.34 Explain the procedures for appointing and removing the Secretary to the Board, indicating whether
his/her appointment and removal have been notified by the Appointments Committee and approved by the
Board in plenary session.
Appointment/removal procedure
Article 14 of the Internal Regulations of the Board of Directors establishes that the Secretary to the Board of
Directors, who must be a qualified lawyer, shall assist the Chairman in the performance of his duties. The Secretary
shall facilitate the proper functioning of the Board and provide counsel to directors. The Secretary shall maintain
company documents and, as Secretary to the Board, must reflect in the minutes the procedures for the sessions and
the adoption of resolutions.
Are appointments announced by the Appointments Committee?
YES
Are removals announced by the Appointments Committee?
YES
Does the Board approve appointments in plenary session?
YES
Does the Board approve removals in plenary session?
YES
Is the Secretary to the Board entrusted in particular with the function of overseeing good governance
recommendations?
YES
Remarks:
Article 14 of the Internal Regulations of the Board of Directors establishes that the Secretary shall assure the formal
and substantive legality of the minutes of the Board.
B.1.35 Indicate the mechanisms, if any, established by the Company to preserve the independence of the
auditors, of financial analysts, of investment banks and of rating agencies.
INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS. ARTICLE 26, 7.1:
On the matter of contracting Auditors, the Audit and Compliance Committee shall have the following powers:
1. With regard to the Auditors of the Bank and of the Companies of the Group, it is the responsibility of the Audit and
Control Committee:
- Propose contracting the Auditor.
- Receive its work proposals.
- Approve contracting of any work different from Auditing per se.
- Monitor the relationship with the Auditor and supervise its independence.
217
B.1.36 Indicate whether the Company has changed its external audit firm during the year. If so, identify the new
audit firm and the previous firm:
NO
Outgoing auditor
Incoming auditor
Explain any disagreements with the outgoing auditor and the reasons for the same:
NO
B.1.37 Indicate whether the audit firm performs other non-audit work for the Company and/or its Group, and if
so, state the amount of fees received for such work and the percentage they represent of the fees billed to the
company and/or its group:
YES
Company
Amount of other non-audit work
Group
Total
230
164
394
44,400
45,050
44,670
(thousands of euros)
Amount of other non-audit work as a % of
total amount billed by audit firm
B.1.38 Indicate whether the audit report on the annual accounts for the previous year is qualified or includes
reservations. If applicable, indicate the reasons given by the Chairman of the Audit Committee for explaining
the content and scope of those reservations or exceptions.
NO
B.1.39 Indicate the number of consecutive years during which the current audit firm has been auditing the
financial statements of the company and/or its business group. Likewise, indicate how many years the current
auditing firm has been auditing the accounts as a percentage of the total number of years over which the
annual accounts have been audited:
Company
Number of consecutive years
Number of years audited by current audit firm
/Number of years the company accounts
Group
3
3
---
23.1
have been audited (%)
218
B.1.40 List any equity holdings of the members of the company’s Board of Directors in other companies with the
same, similar or complementary types of activity to that which constitutes the corporate purpose of the company
and/or its group, and which have been reported to the company. Likewise, list the posts or duties they hold in
such companies:
Name or corporate name
of the director
Name of the company in question
BANCO SANTANDER, S.A.
BANCO BILBAO VIZCAYA
%
shareholding
Post or duties
0.00
---
0.00
---
ARGENTARIA, S.A.
MR JORGE GOST GIJON
MR JORGE GOST GIJON
0.00
0.00
-----
ARGENTARIA, S.A.
MR FERNANDO DIAZ FERNANDEZ
BANCO BILBAO VIZCAYA ARGENTARIA,
S.A.
MR FERNANDO DIAZ FERNANDEZ
0.00
---
0.00
---
0.00
---
0.00
---
ARGENTARIA, S.A.
MR JOSE LUIS VAZQUEZ MARIÑO
BANCO GALLEGO, S.A.
ARGENTARIA, S.A.
JP MORGAN
GOLDMAN SACHS
0.00
0.00
0.00
0.00
SANTANDER FINANCE
0.00
WELLS FARGO
0.00
BANK OF AMERICA
0.00
0.00
CITIGROUP
0.00
-----
---------------
BANCO POPULAR ESPAÑOL
0.00
---
0.00
---
0.00
---
MR MARCIAL CAMPOS CALVO
SOTELO
MR MARCIAL CAMPOS CALVO
SOTELO
ARGENTARIA, S.A.
219
B.1.41 Indicate and give details of any procedures through which Directors may receive external advice:
YES
Details of the procedure
INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS. ARTICLE 18 – INFORMATION TO DIRECTORS Directors,
further to the information they receive in the course of Board meetings in connection with the business there dealt with, shall
at all times be entitled to obtain information on any aspect of the company, to inspect its books, records, documents and other
antecedents of company operations and to inspect its premises.
So as not to disrupt the normal running of the company, all such information shall be channelled through the chairman or,
as applicable, the chief executive officer or the secretary to the board, who shall furnish the information to the director directly,
offer him appropriate interlocutors and take such measures as may facilitate the desired procedures of examination and
inspection on the premises.
Directors may apply to the Board, through the chairman, for any such advice as the director thinks fit in aid of the exercise of
their functions.
B.1.42 Indicate whether there are procedures for Directors to receive the information they need in sufficient time
to prepare for the meetings of the governing bodies:
YES
Details of the procedure
As stipulated in article 18 of the Internal Regulations of the Board of Directors and its Committees, directors shall at all
times be entitled to obtain information on any aspect of the company, to inspect its books, records, documents and
other antecedents of company operations and to inspect its premises. In addition, article 16 establishes that the call to
meeting shall be made by the Secretary or, in their absence, by the Vice Secretary, accompanied by the Agenda, as
well as any appropriate information with regard to the matters to be addressed.
B.1.43 Indicate and give details of whether the company has established rules obliging directors to inform the
board of any circumstance that might harm the organisation's name or reputation, tendering their resignation as
the case may be:
YES
Explain the rules
ARTICLE 36 OF THE INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES - A
director shall exercise the diligence of a prudent businessman and legal representative and shall refrain from using
the company’s name or relying on his status as a director thereof to enter into transactions on his behalf or on behalf
of his spouse, parents, children or siblings or their spouses or companies in which the director, for himself or through
a third party, is in any of the situations set forth in article 4 of the Ley del Mercado de Valores (“the Securities Market
Act”).
B.1.44 Indicate whether any director has notified the company that he/she has been indicted or tried for any of
the offences stated in article 124 of the Spanish Companies Act:
220
NO
Indicate whether the Board of Directors has examined this matter. If so, provide a justified explanation of the
decision taken as to whether or not the director should continue to hold office.
NO
Decision
Explanation
B.2 Committees of the Board of Directors
B.2.1 Give details of all the committees of the Board of Directors and their members:
EXECUTIVE COMMITTEE
Name
Post
Type
CHAIRMAN
EXECUTIVE
MR GONZALO GIL GARCIA
BOARD MEMBER
INDEPENDENT
MR JORGE GOST GIJON
BOARD MEMBER
EXECUTIVE
BOARD MEMBER
INDEPENDENT
MR MARCIAL CAMPOS CALVO SOTELO
BOARD MEMBER
INDEPENDENT
MR OSCAR GARCIA MACEIRAS
BOARD MEMBERSECRETARY
EXECUTIVE
AUDIT COMMITTEE
Name
Post
Type
MR GONZALO GIL GARCÍA
CHAIRMAN
INDEPENDENT
BOARD MEMBER
PROPRIETARY
BOARD MEMBER
INDEPENDENT
MR OSCAR GARCIA MACEIRAS
BOARD MEMBERSECRETARY
EXECUTIVE
221
APPOINTMENTS AND REMUNERATION COMMITTEE
Name
Post
Type
MR MARCIAL CAMPOS CALVO SOTELO
CHAIRMAN
INDEPENDENT
MR FERNANDO DÍAZ FERNÁNDEZ
BOARD MEMBER
INDEPENDENT
BOARD MEMBER
PROPRIETARY
MANAGEMENT COMMITTEE
Name
Post
CHAIRMAN
MR AMADEU FONT JORBA
BOARD MEMBER
MR JORGE GOST GIJON
BOARD MEMBER
JOSE MANUEL SAENZ GARCIA
BOARD MEMBER
MR JUAN BABIO FERNANDEZ
BOARD MEMBER
Type
EXECUTIVE
EXECUTIVE
B.2.2 Indicate whether the Audit Committee is responsible for the following.
Monitoring the preparation and the integrity of the financial information prepared on the company
and, where appropriate, the group, checking for compliance with legal provisions, the accurate
demarcation of the scope of consolidation and the correct application of accounting principles.
YES
Reviewing internal control and risk management systems on a regular basis, so main risks are
properly identified, managed and disclosed.
YES
Monitoring the independence and efficacy of the internal audit function; proposing the selection,
appointment, reappointment and removal of the head of internal audit; proposing the department’s
budget; receiving regular report-backs on its activities; and verifying that senior management are
acting on the findings and recommendations of its reports.
YES
Establishing and supervising a mechanism whereby staff can report, confidentially and, if
necessary, anonymously, any irregularities they detect in the course of their duties, in particular
financial or accounting irregularities, with potentially serious implications for the firm.
Making recommendations to the board for the selection, appointment, reappointment and removal of
the external auditor, and the terms and conditions of his engagement.
NO
YES
222
Receiving regular information from the external auditor on the progress and findings of the audit programme,
and checking that senior management are acting on its recommendations.
Monitoring the independence of the external auditor.
YES
YES
In the case of groups, the Committee should urge the group auditor to take on the auditing of all component
YES
companies.
B.2.3 Describe the organisational and operational rules and the responsibilities attributed to each of the Board
committees.
Name of committee
----Brief description
APPOINTMENTS AND REMUNERATION COMMITTEE: ARTICLES 28 AND 30 OF THE INTERNAL
REGULATIONS OF THE BOARD OF DIRECTORS:
ARTICLE 28 – COMPOSITION
The Appointments and Remuneration Committee shall comprise at least three directors. A majority of members
shall be external directors. The Committee shall be chaired by an independent director.
The secretary to the Appointments and Remuneration Committee shall be the secretary to the Board.
Appointments and Remuneration Committee members, their number, and the Committee chairman shall be
appointed by the Board on the motion of the chairman of the Board. Committee members shall leave office
when they cease to be directors or when so decided by the Board.
ARTICLE 30 - FUNCTIONING
The Appointments and Remuneration Committee shall meet whenever convened by the Committee chairman
or on the motion of the Board, and at least four times a year.
One-half of Appointments and Remuneration Committee members, present at a meeting in person or by proxy,
are a quorum. The Committee shall pass resolutions by a majority of members present in person or by proxy.
A Committee member may appoint another Committee member as his proxy. No Committee member may
represent more than one Committee member other than himself.
The secretary shall record the resolutions of each meeting in a book of minutes, under his signature and with
the approval of the chairman. The Appointments and Remuneration Committee shall, through its chairman,
report to the Board on the resolutions it has adopted.
The Committee may require the presence at its meetings of directors, Bank executives or employees or any
other person, and procure any pertinent external advice.
Without prejudice to the duties and powers set out above, the Appointments and Remuneration Committee
shall examine any other matter referred to it by the Board in plenary session or by the chairman of the Board.
Name of committee
----Brief description
EXECUTIVE COMMITTEE: ARTICLES 20 AND 21 OF THE INTERNAL REGULATIONS OF THE BOARD OF
DIRECTORS:
The Executive Committee shall comprise such directors, of whatever class, as the Board appoints from among
its number.
The chairman of the Executive Committee shall be the chairman of the Board or, as the case may be, the
chairman may be replaced by the vice chair appointed by the chairman or by the chief executive officer.
The secretary to the Executive Committee shall be the secretary to the Board.
The Executive Committee shall meet at least on a quarterly basis and, at all events, when convened by the
Committee chairman.
223
Committee meetings shall be chaired by the Committee chairman, who shall put forward such proposals as he
thinks fit and direct discussions.
The secretary shall take the minutes of adopted resolutions, under his signature and with the approval of the
chairman.
One-half of Executive Committee members, present at a meeting in person or by proxy, are a quorum. A
Committee member may appoint another Committee member as his proxy. No Committee member may
Executive Committee resolutions shall be passed by a majority vote. In the event of a tie, the chairman has the
casting vote.
The chairman shall report to the Board on the discussions and decisions of the Executive Committee.
Name of committee
---Brief description
MANAGEMENT COMMITTEE: ARTICLES 32 AND 34 OF THE INTERNAL REGULATIONS OF THE BOARD OF
DIRECTORS: ARTICLE 32 – COMPOSITION. It shall comprise executive directors and senior manager in the company.
The chairman of the Committee shall be the chairman of the Board, who may delegate to another director. The
secretary to the Management Committee shall be appointed by the Board. Management Committee members shall
be appointed by the Board on the motion of the chairman. Committee members shall leave office when so decided
by the Board. ARTICLE 34 – FUNCTIONING. The Management Committee shall meet monthly and, at all events,
when convened by the Committee chairman. One-half of Management Committee members, present at a
meeting in person or by proxy, are a quorum. Resolutions must be adopted by a majority vote. In the event of a tie,
the chairman has the casting vote. A Committee member may appoint another Committee member as his proxy.
No Committee member may represent more than one Committee member other than himself. The secretary
shall record the resolutions of each meeting in minutes, under his signature, and form a book of minutes under
the custody of the secretary to the Board. The Management Committee chairman shall report Committee
resolutions to the Board. The Management Committee may require the presence at its meetings of any senior
executive or other employee of the Bank.
Name of committee
--Brief description
AUDIT AND COMPLIANCE COMMITTEE: ARTICLES 23 AND 26 OF THE INTERNAL REGULATIONS OF
THE BOARD OF DIRECTORS:
The Audit and Compliance Committee shall comprise at least three and no more than five members, a majority
of whom shall be non-executive directors.
The chairman, who shall be an independent director, shall be appointed from among Committee members. He
shall hold office for four years, and may be re-elected one year after his last departure from such office.
The secretary to the Audit and Compliance Committee shall be the secretary to the Board.
Audit and Compliance Committee members shall be appointed by the Board on the motion of the chairman.
Committee members shall leave office when they cease to be directors or when so decided by the Board.
The Audit and Compliance Committee shall meet whenever convened by the Committee chairman and at least
quarterly. The Committee shall prepare an annual action plan for the year and lay such plan before the Board in
plenary session.
One-half of Audit and Compliance Committee members, present at a meeting in person or by proxy, are a
quorum. The Committee shall pass resolutions by a majority of members present in person or by proxy. A
Committee member may appoint another Committee member as his proxy. No Committee member may
The secretary shall record the proceedings of each meeting in a book of minutes, under his signature and with
the approval of the chairman. The Audit and Compliance Committee shall, through its chairman, report to the
Board at least twice a year.
The Committee may require the presence at its meetings of such company or subsidiary executives or
employees, including directors, as the Committee thinks fit. The Committee shall to this end notify general
224
managers so that they may arrange such attendance on an ongoing basis or for specific meetings. The
Committee may likewise require the presence at its meetings of the company’s account auditors and of the
Bank’s internal audit officers, without prejudice to the internal audit unit’s regular reports to the Committee.
For the proper performance of its functions, the Audit and Compliance Committee may procure advice from
legal advisors and other independent professionals. On request by the Committee chairman, the secretary to
the Board shall engage the services of such legal advisors and professionals, to be rendered directly to the
Committee.
The Audit and Compliance Committee shall have access to all the information and documents required for the
performance of its duties.
B.2.4 Indicate any advisory or consulting power s and, where applicable, the powers delegated to each of the
committees:
Name of committee
ARTICLE 28 – LEGAL NATURE
The Appointments and Remuneration Committee is the collegiate body of the Board that reports to the Board
on appointments and re-elections to, departures from and remuneration of the Board and the Bank’s senior
management.
ARTICLE 30 - DUTIES
Without prejudice to other duties assigned to the Committee by the Board, the Committee shall:
Frame and review the criteria for Board membership and candidate selection.
Examine and submit to the Board proposals for the appointment, reappointment and removal of directors, as
regards proposals the Board lays before the general meeting of the company and as regards co -opted
appointments by the Board itself.
Propose to the Board the memberships of Board Committees.
Examine and submit to the Board proposed appointments and removals of senior executives.
Establish and propose to the Board the policies for Directors’ and Exec utive Directors’ remuneration and the
amount of such remuneration for each year.
Appraise and review policies and schemes for remuneration of senior executives and how they are being
applied, and ensure such policies and schemes are appropriate and effecti ve.
Report on issues that may involve conflicts of interests.
Supervise compliance with the rules of Corporate Governance.
Report to the Board of Directors on the matters of Gender Diversity indicated in Recommendation 14 of the
Unified Good Governance Code.
Name of committee
ARTICLE 20 OF THE INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS: The Executive
Committee is a collegiate body to which all or any of the Board’s powers may be delegated, except powers not
delegable by law or under the articles of association.
The delegation of powers shall include all those powers conferred by the Board.
Permanent delegation of Board powers shall be validly passed by a two -thirds majority of directors.
Name of committee
--Brief description
ARTICLES 32 AND 34 OF THE INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS:
ARTICLE 32 – LEGAL NATURE. The Management Committee is a collegiate body of the Board of a mixed
nature, created by the Board of Directors under article 30 of the articles of associa tion. The Management
225
Committee submits reports and proposals to the Board on company policy and decides on and implements the
operations of the company’s business, following the instructions and guidelines of the Board.
ARTICLE 34 – DUTIES. The Committee shall have the following duties:
To submit to the Board proposals on the Bank’s business policy and its related strategies, and to exercise these
as and when required.
To resolve on the granting of loans and authorisation of investments and on other transactions of the
company’s business, following the instructions and guidelines of the Board.
To create such sub-committees from among its members as it sees fit, with notice to the Board.
Any other function entrusted to it by the Board.
Name of committee
--Brief description
ARTICLES 23 AND 25 OF THE INTERNAL REGULATIONS OF THE BOARD OF DIRECTORS:
ARTICLE 23 – LEGAL NATURE.
The Audit and Compliance Committee is the collegiate body of the Board for the exercise of the powers of
disclosure, oversight, monitoring and advice on the company’s accounting, economic and financial affairs and
on compliance with the related laws and regulations applicable to Banco Pastor, S.A.
ARTICLE 25 - DUTIES
The primary function of the Audit and Compliance Committee is to assist the Board of Directors in its duties of
oversight by periodically reviewing the preparation of the economic and financial information, its internal
controls and the independence of the external auditors.
A further function of the Committee is to address, through its chairman, issues within its remit raised by
shareholders at the general meeting of the company.
B.2.5 Indicate, as appropriate, whether there are any regulations governing the board committees. If so,
indicate where they can be consulted, and whether any amendments have been made during the year. Also
indicate whether any annual report on the activities of each co mmittee has been prepared voluntarily.
Name of committee
----------Brief description
The Board committees are regulated in the Articles of Association and the Internal Regulations of the Board of
Directors and its Committees, which are available for consultation at the General Secretary’s Office of the Bank,
at its registered office and on the bank’s website.
During the year, the Board Regulations were modified and adapted to the recommendations and new rules
issued by the Spanish Comisión Nacional del Mercado de Valores (CNMV). In October, the Secretary to the
Board of Directors reported on the compliance with the Corporate Governance guidelines by the Board itself
and its Committees, in accordance with its responsibilities and the regulations governing them.
Name of committee
--------Brief description
issued by the Spanish Securities Market Commission (CNMV). In October, the Secretary to the Board of
Directors Board reported on the compliance with the Corporate Governance guidelines by the Board itself and
its Committees, in accordance with its responsibilities and the regulations governing them.
Name of committee
---
226
Brief description
Board of Directors Board reported on the compliance with the Corporate Governance guidelines by the Board
itself and its Committees, in accordance with its responsibilities and the regulations governing them.
Name of committee
--Brief description
Board of Directors Board reported on the compliance with the Corporate Governance guidelines by the Board
itself and its Committees, in accordance with its responsibilities and the regulations governing them.
B.2.6 Indicate whether the composition of the Executive Committee reflects the participation within the Board of
the different types of directors:
YES
C – RELATED-PARTY TRANSACTIONS
C.1 Indicate whether the Board plenary sessions have the right to approve, based on a favourable report from
the Audit Committee or any other committee responsible for this task, transactions which the company carries
out with directors, significant shareholders or representatives on the Board, or related parties:
YES
C.2 List any relevant transactions entailing a transfer of assets or liabilities between the company or its group
companies and the significant shareholders in the company:
227
C.3 List any relevant transactions entailing a transfer of assets or liabilities between the company or its group
companies and the company’s managers or directors:
C.4 List any relevant transactions undertaken by the company with other companies in its group that are not
eliminated in the process of drawing up the consolidated financial statements and whose object and conditions
set them apart from the company’s habitual trading activities:
C.5 Identify, where appropriate, any conflicts of interest affecting company Directors pursuant to Article 127.3 of
the Spanish Companies Act.
NO
C.6 List the mechanisms established to detect, determine and resolve any possible conflicts of interest between
the company and/or its group, and its Directors, management or significant shareholders.
ARTICLE 36 OF THE INTERNAL REGULATIONS GOVERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
STATES THE FOLLOWING:
A director shall exercise the diligence of a prudent businessman and of a representative acting in good faith. In particular,
a director is under a duty to:
Diligently apprise himself of the affairs of the company.
Attend Meetings of the Board and of bodies of which he is a member and take part in deliberations such that his
judgement contributes to decision-making.
Carry out any specific duty entrusted to him by the Board that lies reasonably within the scope of his commitments.
228
Resign where he may have a detrimental impact on the proper working of the Board or on the company's prestige and
reputation.
Perform the duties imposed by the law and the articles of association in the best interests of the company.
Abide by the rules of conduct required under these Rules and Regulations and under the laws and regulations governing
credit institutions, the laws and regulations on securities markets, Bank of Spain and CNMV (Spanish securities market
regulator) circulars and the Banco Pastor, S.A. Code of Conduct.
Not use the company’s name or rely on his status as a director thereof to enter into transactions on his behalf or on behalf
of his spouse, ancestors, descendants or siblings or their spouses or companies in which the director, for himself or
through a third party, is in any of the situations set forth in article 4 of the Ley del Mercado de Valores (“the Securities
Market Act”).
Keep in confidence the deliberations of the Board and of the bodies of which he is a member and abstain from disclosing
information to which he gains access in the performance of his office.
Abstain from holding any office at a competing bank or an entity with interests opposed to the Bank’s.
Abstain from taking part in deliberations on matters in which he has a direct interest or an interest through his spouse or
children or a company in which he has a significant shareholding or holds senior office.
Abstain from using the companies’ means or assets or confidential information for his economic gain.
Not conclude for his own benefit or for the benefit of persons connected with him any investment or transaction relating to
the company’s assets using information gained through the exercise of his office.
Report to the Board any situation in which he has a direct or indirect interest that conflicts with the interests of the
company. In the event of any such conflict, he shall abstain from involvement in the transaction to which the conflict
relates.
Report to the Board his interest in the share capital of any company engaging in the same, a similar or a related kind of
activity as the objects of the Bank, and any office or function he performs in such company.
And, in general, act pursuant to the duties and constraints that apply to him under the framework of laws and regulations
governing credit institutions, the Companies Act, the standards of transparency and corporate governance, and the rules
issued by the relevant regulatory bodies.
Notify the Board of Directors by means of a letter addressed to all the members, of the reasons for his resignation before
ending his term of office.
C.7 Is more than one Group company listed in Spain?
NO
Indicate the listed subsidiaries in Spain:
D – RISK CONTROL SYSTEMS
D.1 Give a general description of risk policy in the company and/or its group, detailing and evaluating the risks
covered by the system, together with evidence that the system is appropriate for the profile of each type of risk.
Banco Pastor considers risk management to be one of the cornerstones of its business strategy and is constantly striving
to ensure that risk management and control policies are in line with business objectives.
The objectives of the corporate map include excellence in cost and risk management, fostering comprehensive risk
management and placing a premium on diversification.
The guiding principles of the Group’s risk management policy are:
Active participation and supervision by the Company's governing bodies: the Board of Directors and Management
Committee play an active part in the approval of general business strategies and the definition of risk assumption and
229
management policies, taking care to ensure that appropriate risk policies, controls and monitoring systems are in place
and that lines of authority are clearly defined.
General culture of internal control: a culture of risk management that is promoted by the Board of Directors itself and
communicated to all levels of the organization must be manifest within the Group. Objectives must be clearly defined to
prevent inappropriate risks or positions being taken due to a lack of adequate organisation, procedures or control systems.
Selection of appropriate risk measurement methodologies: the Group must implement appropriate risk measurement
approaches to ensure proper assessment of the various risk factors to which it is exposed.
Assessment, analysis and monitoring of the risks assumed: risks must be identified, quantified, controlled and monitored
on an ongoing basis, so that the risk/return trade-off for company transactions can be accurately defined.
The most significant risks associated with the Group's activities can be grouped into
the following categories:
Credit risk
Counterparty risk
Market risk
Structural risk (interest rate, liquidity, exchange rate)
Operational risk
Compliance and reputation risk
The distribution of the main risks to which the Banco Pastor Group is exposed in 2011 and 2010, measured in terms of
capital requirements as established in Bank of Spain Circular 3/2008, is as follows:
Credit and counterparty risk: 92.9% (92.7% in 2010)
Operational risk: 6.6% (7.1% in 2010)
Market risk: 0.5% (0.2 % in 2010)
In keeping with a retail banking business model with a strong customer service orientation, the Group’s greatest risk
exposure is credit risk.
CREDIT RISK
Functions of the Risk Unit
The responsibilities for managing Banco Pastor’s credit risk lies with the Corporate Risk Management Department, whose
primary functions in this regard include:. To supervise and oversee management of the credit risk assumed by the Bank
and companies of the financial group from a unified, global perspective, thereby ensuring that growth plans are addressed
within a sustainable and stable framework, as efficiently as possible.
. To propose lines of action for the definition of credit risk policy and assignment of credit risk limits.
. To manage and oversee credit risk policy.
. To ensure that investments are made in an efficient manner and consistently generate value over time, thereby
guaranteeing the Group’s solvency.
Organisational Structure
Risk Management Objectives
Credit risk management plays a critical role in the current economic context. Because of this, Banco Pastor has reinforced
this function by establishing a series of strategic priorities for achieving excellence in this area:
. Incorporating the risk dimension into commercial policies and the creation of new products.
. Providing the commercial network and regional offices with risk orientation and technical skills.
. Advancing towards the achievement of IRB models for all of the Bank’s credit portfolios (creation of PD and LGD models) .
Including risk metrics as basic management pillars (RAROC, IRB models, etc.).
. Optimising the management of customers at risk of defaulting and in default situations.
. Increasing our ability to anticipate customers with a high likelihood of defaulting.
Risk Management Structure
To perform its functions and achieve its objectives as effectively and efficiently as possible, Banco Pastor has redefined
the structure of the Credit Risk area. Now reporting directly to the Chairman and with frequent exposure to the Board of
Directors, Risk Management is broken down into five units with clearly differentiated yet complementary functions:
- Concession
- Risk Control
- Risk Policies and Operations
- Risk Models
- Validation
230
Risk Assumption Department
The Risk Concession Unit transcends the traditional vision of the department as one that is limited to analysing and
sanctioning operations.
Its functions include actively participating in overseeing the performance of the investment portfolio.
. Analysing, evaluating and sanctioning risk operations that exceed the delegated authority of the network.
. Analysing customers included in the portfolio who have been identified based on prevention policies and tools. Also
defines, along with the Prevention Unit, the proposed strategy to be followed in each case.
. Advising the Business Units on all aspects relative to risk analysis and evaluation.
. Participating in the definition of the Bank’s credit risk policies (functions, target credit profiles of customers, etc.).
Risk Control Unit
This Unit is responsible for managing the portfolio of irregular credit accounts that appear on the Bank’s balance sheet. Hence,
it refers not only to the exposure to accounts that have already defaulted but also accounts that are currently in good
standing but with a high likelihood of becoming impaired in the future.
Early on in the economic crisis, Banco Pastor redesigned this function with a view to dealing with the current challenges as
effectively as possible. At this time, all of the proposed changes have been implemented and are fully operational.
- Prevention
- Delinquency Management
- Reorganisations
- Financial Solutions Centre
Prevention Unit
The basic objective of the Prevention Unit is to provide the Bank with mechanisms for detecting signs of a change in
creditworthiness compared to that which existed when the operation was approved in order to take the pertinent actions. One
of the most significant changes made to the Risk Control Department consisted of redesigning this unit and improving the
tools available to the Department to perform its functions. Banco Pastor has created systematic procedures and econometric
tools for identifying customers whose creditworthiness is at risk of deteriorating and detailed protocols for assigning the
strategies to be carried out with each type of customer depending on the situation. Another fundamental change in this regard
was the inclusion of all management bodies in the prevention effort: from the network of branch offices to Central Services.
Principal functions:
. Proposing and implementing risk monitoring policy for the Bank and financial group as a whole.
. Ongoing analysis of the Bank’s risk portfolio, identifying the customers to be reviewed, supported by “ad hoc” tools for
anticipating delinquency.
. Exhaustively monitoring operations in the real estate sector.
. Defining, along with Credit Risk Concession, the strategy to be following with the customers analysed in the prevention
process and ensuring the correct and complete implementation of the strategy.
In 2011 over 3650 million of credit investments were reviewed and rated, setting up appropriate repositioning strategies as
necessary, thus reducing the number of accounts entering delinquency and mitigating the losses if default is inevitable.
The Prevention Unit also supervises the risk management performed by branch offices, evaluating such things as the rigor of
the proposals made, the risk criteria applied or the quality of the customer information provided. In this regard, the Prevention Unit
completed the review of all the branch offices in 2011, and many of these branches have been subject to second or even
third reviews. Within this context, the Prevention Unit has analysed a risk figure greater than 3,970 million euros.
Delinquency Management Unit
The delinquency management process commences when the customer first shows signs of falling behind and ends with the
closure of the process. Fundamental changes in this unit included:
. Implementation of a specific tool for allocating management of the delinquent files to different teams according to objective
criteria.
. Progress in multi-supplier management for outsourcing debt management in order to optimise results.
The main functions of the Delinquency Management Unit are:
. Managing the recovery policy of the Bank and Financial Group.
. Coordinating the recovery work carried out by the different agents involved (branch network, Regional Divisions and external
suppliers).
. Directly managing customers within the assigned parameters.
. Defining the guidelines for handling the different levels of management involved in the process.
. Analysing the delinquency management efforts of the Bank as a whole.
231
Reorganisation Unit
The Reorganisation Unit specialises in loan management for the reorganisation or refinancing of customer debt involving
various financial institutions.
This unit acts as the liaison between the customers and the rest of the financial institutions involved in the syndicated loans
or the reorganisation process.
Financial Solutions Centre
With the aim of achieving the highest levels of efficiency, the Bank has centralised the task of reorganising private
customer debt in a special unit.
This unit’s functions include:
. Negotiating with private customers and independent contractors who are solvent and have shown a demonstrated
commitment to pay by managing the reorganisation or refinancing management process.
. Direct relations with the customers in this situation.
Risk Policy and Operations Unit
This Unit was created as part of the reorganisation of the Risk Management area to support all of the units making up the Risk
Management area. Its principal functions include:
. Defining and implementing the Bank’s credit policies in collaboration with the units involved (Risk Concession,
Delinquency Management, Prevention).
. As a tool for defining policies, the Unit manages both the statistical analysis tools and credit regulations.
. Acting as a nexus with the Commercial Department and collaborating on the incorporation of the risk dimension into the
commercial function (e.g., product definition).
. Implementing RAROC-focused risk management at all levels (branch office network, regional offices and central
services).
. Continuously monitoring and improving the risk management function: organisation, processes and tools.
Risk Model Unit
The Risk Model Unit is responsible for developing the statistically-based quantitative tools which support risk
management processes. This unit is leading the Bank’s progress towards the achievement of and IRB models.
The specific functions of the unit include:
. Developing and monitoring the internal scoring models used to approve operations, establish limits, anticipate defaults and
monitor the credit risk of the Bank’s most important portfolios.
This unit is also responsible for estimating regulatory parameters and calculating IRB capital.
. Maintaining and improving the scoring and rating systems used to approve operations and prevention systems.
. Defining the risk-adjusted profitability metrics taking the parameters defined above as input and subsequently
implementing them in risk management processes.
. Defining an economic capital model and conducting stress tests to identify the Bank’s principal risks under certain adverse
scenarios.
. Gathering and managing necessary risk-related information, with the balanced scorecard being one of
management’s essential tools.
Internal Validation Unit.
The Internal Validation unit was created during the reorganisation of the Risk Management area as a unit that is
completely independent from the one responsible for creating the models to ensure the maximum effectiveness of the
models’ performance.
More specifically, the functions of this Unit include:
. Continuously monitoring models.
. Identifying the relevant use of internal regulatory and management models.
. Determining the usefulness and effectiveness of those models for their intended purpose, verifying that they meet the
minimum requirements established for the use of advanced models.
. Evaluating whether the risk procedures, including the methodologies, are in line with the bank’s strategy and risk profile.
Delegation of powers
Banco Pastor has a system for delegating the authority to sanction credit risk operations based on objective criteria so as to
ensure that the risk assumed by the Bank is controlled by qualified professionals:
Risk Committee Regional Risk Committee (Regional Management) Local Risk Committee (Network).
All of the bodies with delegated powers for approving credit risk must take their decisions collegiately, from the network of
branch offices to regional management offices. Only the people responsible for approving risk operations at the Central
232
Services level have limited powers for approving operations proposed by the Regional Offices and duly analysed.
Risk Committee
By delegation of the Board of Directors, the Risk Committee is the most senior body authorised to make credit risk
decisions. Accordingly, the Risk Committee is responsible for:
. Establishing risk policies, assessing their performance and continued adequacy and determining the corrective
measures deemed most appropriate in each case.
. Authorising proposals that fall outside the powers of other decision-making bodies.
The Committee meets every week and has 6 members who are as follows:
Bank Chairman
CEO
Director of Sales
Director of Risks
Director of Risk and Credit Concessions and Director of Risk Management
Development of the Master Plan for Adaptation to Basel II
In 2005, in collaboration with an external consultant, the Bank drew up a document entitled “Diagnosis of risk
management processes and master plan for adaptation to Basel II”. The document established the tasks pending to bring the
Bank’s systems in line with the new risk management models and identified two priority objectives:
To continue to improve risk management at the Bank.
To calculate use of regulatory capital via application of the most sophisticated Basel II models.
In 2006, the Bank began to execute the first group of tasks identified in the Master Plan. Later, the Bank began to execute
the other tasks pending under the Master Plan. In 2011, significant progress was made towards the stated objectives and
many of the initiatives are expected to be implemented in 2012.
1. Systematic monitoring of internal credit risk models. Processes are being defined to ensure that the models work
properly and that they can be acted upon if necessary.
In the pursuit of this objective, the bank has identified areas for improvement in the models used to evaluate the Bank’s
corporate and individual customer portfolios. The models have been adjusted and new models for the individual customer
portfolio were implemented in 2011 and are expected to be implemented for the corporate portfolio in early 2012.
2. Estimating risk parameters
In 2011, in the context of the Basel project, work has been carried out in parallel relating to the following issues:
. Re-estimating the IRB parameters with more recent information.
. Review of methodologies so as to adjust them to the new economic environment.
. Upgrade of automated systems for allocating parameters and calculating capital.
. Progressive integration of the IRB parameters in daily credit risk management.
3. Risk reporting model (credit risk and integration of reporting on all other types of risks)
As one of the cornerstones in the process of optimising Banco Pastor’s risk management, we are making progress in the
creation of a risk management balanced scorecard. This balanced scorecard is structured in such a way that it makes the relevant
risk management information available to the people who need it, providing access to aggregate and highly detailed
information.
4. Risk-adjusted return on capital (RAROC / Pricing)
In 2011, work was carried out on developing the technical means for automatically calculating the RAROC of transactions.
This development is expected to be completed in the first four months of 2012. From then RAROC and pricing policies will
be gradually incorporated in granting and monitoring credit risk, as well as in setting incentives.
5. Internal Validation Function
As mentioned in the summary of the organisational risk structure of Banco Pastor, the Internal Validation Unit was created as
an entity that is completely independent from
the units responsible for developing and using the models. The basic function of this Unit is to issue a technical and critical
opinion on the appropriateness of the internal models from a regulatory and management point of view and to identify the
relevant uses and to reach conclusions on their usefulness and effectiveness.
COUNTERPARTY RISK
The credit risk associated with operating in financial markets is the risk of the counterparty being unable and/or unwilling to
fulfil its contractual obligations, i.e., the possibility of incurring losses due to the counterparty's breach of its contractual
233
responsibilities.
Because of its operations in capital and financial markets, Banco Pastor is exposed to the following risks:
. Counterparty Risk: this is defined as the possibility of incurring an economic loss as a consequence of the counterparty’s
breach of its contractual obligations in a financial transaction due to the impairment of the counterparty’s solvency or that of
the counterparty’s home country.
Counterparty risk arises during the period of time between the beginning and end of the transaction and is measured as the
cost of replacing the position plus the estimated additional losses that may be incurred as a consequence of fluctuations in
market prices.
. Delivery Risk: the risk to which the Bank is exposed on the settlement date of an operation that exists in all transactions
involving a foreign currency exchange due to the possibility of the counterparty failing to pay after the Bank has issued
payment orders to cover its commitments with that counterparty.
Delivery risk exists in those products and markets where the principle of payment on delivery does not exist. In other words,
this type of risk is assumed in transactions involving the exchange of assets (cash flows in both directions or securities
exchanges for cash) on the same value date.
This type of risk does not exist in transactions that are settled by differences.
. Issuer Risk: The risk of an asset potentially losing value as a consequence of a decline in the creditworthiness of the
counterparty or even the market’s perception of creditworthiness.
. Settlement Risk: The risk of economic losses related to the making and receiving of payments with a counterparty in the
same currency.
Organisation of the Counterparty Risk Management function at Banco Pastor.
Authorisation of limits
Effective counterparty risk management in an increasingly dynamic and complex environment is crucial to the Bank's
successful operations in financial markets. With the emphasis placed on the principle of prudence, the Bank has defined an
internal organisation system that pursues the right measure of risk diversification, an essential characteristic of the banking
business which is in line with the profitability, solvency, efficiency and liquidity objectives defined at any given time by the
Bank’s Senior Management.
The Board of Directors is responsible for approving annual counterparty limits, as proposed by the Executive Committee ,
which means the Bank is only permitted to deal on the financial markets with counterparties that have an authorised limit in
place.
Prior to their submission to the Board, the Executive Committee approves the counterparty limit proposals and makes any
amendments it considers appropriate.
Any new counterparty limits established in the course of the year must also be approved by the Executive Committee. The
unit responsible for measuring, controlling and managing counterparty risk for the Group is the Market Risk and Operations
Unit [UORM].
Credit limit proposal policy
For the assignment of limits, the Market Risk and Operations Unit conducts a preliminary analysis of each economic group
and its member entities that operate in the markets in question. The analysis focuses on a review of the publications of
the principal rating agencies (Moody's, Standard Poor's and Fitch) and regulatory bodies (ECB, Bank of Spain, CNMV) and
is completed with a study of each group’s economic-financial information, focusing on an analysis of solvency ratios, profits
and structures, core capital, etc. The latest news reports on the financial entities are also taken into account.
In addition to the above, Banco Pastor has an expert internal rating model for financial institutions that allows it to measure
the creditworthiness of its counterparties, anticipating changes in creditworthiness and adjusting the established credit limits
accordingly. With this internal model it is possible to combine quantitative aspects based on the specialised financial
information available on financial institutions with the opinions of the bank’s financial analyses to determine an internal
score. This score, considered together with external ratings, allows the Bank to actively monitor counterparty risk by economic
group and entity.
These limits can be adjusted according to the level of mutual application of the results of the internal rating model and/or
specific market circumstances. This aspect was essential over 2011 due to the high volatility of the markets and the repeated
rating downgrades of our main counterparties by the rating agencies.
Measuring counterparty risk
234
Counterparty risk with financial institutions.
The methodology used by the Bank to calculate counterparty risk is based on the market value of outstanding positions held
by each counterparty with the Bank i.e. factoring in current exposure or market value (mark to market)of all the transactions
with each counterparty, plus an add-on to reflect potential future exposure until the transaction matures.
The Market Risks and Operations Unit calculates the market value of each operation and based on the results of the
calculation applies the necessary market data (interest rate, volatility, price curves, etc.) used to calculate EAD (Éxposure at
Default´). For very complex positions that cannot be measured automatically by the Bank's applications, alternative methods
are used to calculate market value, which are then incorporated into the Bank’s management tool.
2. Issuer Risk. The current crisis has brought to light the need to control the risk associated with a decline in the credit ratings
of fixed income security issuers because when this occurs the economic consequences for financial entities are particularly
relevant. In this regard, the Bank controls the exposure of all portfolios (trading, available-for-sale, credit investment and
held-to-maturity) to this risk on a daily basis.
Mitigating counterparty risk
To mitigate its exposure to counterparty risk, Banco Pastor maintains a solid base of guarantee agreements (CSA-Credit
Support Annex; Annex III CMOF - Financial Operations Framework Agreement; GMRA - Global Master Repurchase
Agreement) which are negotiated with the counterparties and which, by providing daily guarantees, significantly reduces the
risk. This counterparty risk mitigation instrument was essential over the year to maintain the levels of this type of risk within an
appropriate range.
Monitoring and controlling credit lines
Counterparty limits are controlled via an integrated, real-time system, which means the Bank is aware of the credit limit
(authorised, consumed and available) for each counterparty at all times. Available credit limits must be verified before any
transactions can be concluded and immediate entered in the system so that the available credit limit is kept up to date for
use by operators.
The daily monitoring and control of authorised limits is performed by the Market Risks and Operations Unit (part of the
General Controller’s Department) which, in application of the principle of separation of powers, is totally independent from the
business unit, specifically the Treasury area, which falls within the Finance Division.
Dissemination of risk levels.
The Market Risks and Operations Unit submits daily reports to Management on the counterparty risks assumed and the
available credit lines on both an individual and aggregate basis.
MARKET RISK
Market risk is the risk associated with activities carried out on the markets by the Bank's Treasury Division and is defined as
the risk of loss to which the Bank is exposed due to positions taken in products that are sensitive to price fluctuations. When
estimating the value of such financial assets, we must factor in the evolution or performance of certain risk factors that affect
each market (interest rates, exchange rates, equities, etc).
Organisation of the market risk function in Banco Pastor
Limit authorization
The authorised limits are reviewed and, where necessary, updated on a yearly basis.
The Board of Directors following a proposal by the is responsible for approving the annual market risk limits
proposed by the Management Committee.
Prior to their submission to the Board for approval, the Management Committee approves the market limits proposed for
each of the different operating units and makes any amendments to the proposals it considers appropriate.
Market risk measurement systems and procedures
Because it operates in the financial markets, the Group’s Treasury Department is exposed to the market risk associated with
unfavourable fluctuations in the following risk factors: a) interest rates; b) exchange rates; c) share and / or commodity
prices; and d) volatility curves, correlations, etc.
The limits placed on market risk serve as a frame of reference for the Bank’s operations on financial markets so that each
transaction carried out by Treasury, which is part of the Corporate Finance Department, must necessarily be formalised
within this framework.
The Bank's structure for limiting market risk fulfils the following objectives:
. Establishes the market risk exposure level of each portfolio in keeping with the tolerance levels defined by the Board of
Directors and the Executive Committee.
. Establishes risk limits that guarantee enough flexibility so as not to restrain the assumption of new risk by the different
business areas.
235
. Guarantees that the risk limit structure is consistent with the approved objectives for each business area, level of
experience, past performance and the situation of the financial markets.
The unit responsible for measuring, controlling and monitoring Banco Pastor's market risk is the Market Risk and
Operations Unit [UORM].
(CONTINUES IN SECTION G.1.)
D.2 Indicate whether the company and/or group has been exposed to different types of risk (operational,
technological, financial, legal, reputational, fiscal...) during the year.
NO
If so, indicate the circumstances and whether the established control systems worked adequately.
D.3 Indicate whether there is a committee or other governing body in charge of establishing and supervising
these control systems.
YES
If so, explain its duties.
Name of the committee or body
AUDIT AND COMPLIANCE COMMITTEE
Description of duties
Its primary function is to assist the Board of Directors in its duties of oversight by periodically reviewing the
preparation of the economic and financial information, its internal controls and the independence of the external
auditors.
THE ASSET-LIABILITY COMMITTEE
The most senior decision-making body to which the Board of Directors entrusts powers regarding structural
balance sheet risks. Accordingly, the ALCO’s main functions are:
To identify exposure of the Bank’s balance sheet to interest rate and liquidity risk.
To supervise foreign exchange risks to which the Bank’s balance sheet is exposed.
To assess and supervise these risks regularly with a view to guaranteeing compliance with the applicable limits
in each case.
Action proposals for optimising the aggregate management of the Bank’s Balance Sheet, using profitability
criteria weighted by risk.
Execution of the policies formulated by the different bodies of the Bank in relation to assets and liabilities
management.
MANAGEMENT COMMITTEE
Plays an active role in approving the business strategies and concerns itself with defining risk assumption
policies, ensuring the existence of the appropriate monitoring policies, controls and systems.
236
OPERATIONAL RISK COMMITTEE
Its primary function is to encourage the implementation of operational risk policies throughout the company and
to evaluate the critical risks to which the Group is exposed in order to adopt the measures that will mitigate
those risks.
RISK COMMITTEE
By delegation of the Board of Directors, the Risk Committee is the most senior body authorised to make credit
risk decisions. Accordingly, the Risk Committee is responsible for:
. Establishing strategic risk policies, assessing their performance and continued adequacy and determining the
corrective measures deemed most appropriate in each case.
. Authorising proposals that fall outside the powers of other decision-making bodies.
BOARD OF DIRECTORS
Plays an active role in approving the business strategies and concerns itself with defining risk assumption
policies, ensuring the existence of the appropriate monitoring policies, controls and systems.
D.4 Identify and describe the processes for compliance with the regulations applicable to the company and/or
its group.
The following bodies are responsible for checking that the various regulations affecting the Group are complied with:
Audit and Compliance Committee: is the body charged with overseeing compliance with the legal requirements, and
supervising compliance with the Group’s Code of Conduct in the securities markets and also with the procedures for the
prevention of money laundering.
General Secretary’s Office: is the body responsible for all legal matters arising from the Group’s business and ensuring
compliance with the Code of Conduct for regulating activity in the securities markets.
General Controller’s Department: is the unit responsible for ensuring the reliability and technical rigor of the Bank’s and
Group’s financial information, as well as the strict application of the accounting, tax and banking regulations.
Control: this unit, within Audit and Control Department, is responsible for establishing controls to ensure that transactions
are performed in accordance with set policies and procedures.
Internal Audit: is an independent unit which is not involved in the conduct of the Group’s business and whose brief is to
check that the branch network, central services and Group companies perform their specific tasks in compliance with set
policies and procedures.
E – GENERAL MEETING
E.1 Indicate the quorum required for constitution of the General Meeting established in the Company's Articles
of Association. Describe how it differs from the system of minimum quorums established in the Spanish
Companies Act (LSA for its initials in Spanish).
YES
Quorum % other than that
established in art. 102 LSA for
general cases
established in art. 103 LSA for the
special cases described in art. 103
237
established in art. 102 LSA for
general cases
established in art. 103 LSA for the
special cases described in art. 103
Quorum required at first call
0
0
Quorum required at second call
0
33.330
Description of the differences
ARTICLE 20 OF THE ARTICLES OF ASSOCIATION - In order for General or Extraordinary Meetings to validly resolve on
debenture issues, capital increases or reductions, changes in the legal form, or the merger or spin-off, of the Company,
on first call the Meeting shall be attended by shareholders, in person or by proxy, holding at least fifty percent of the
subscribed voting share capital.
At second call, representation/presence of twenty-five percent of said capital shall suffice.
Where the Meeting is attended by shareholders representing less than fifty percent of the subscribed voting share capital,
the resolutions referred to in the previous paragraph may only be adopted validly with the affirmative vote of two-thirds of
the share capital attending the Meeting in person or by proxy.
In order for General or Extraordinary Meetings to validly resolve on amendments to the Articles of Association, with the
exception of that required by the cases envisaged in Sub article 1 of this Article, on first call they shall be attended by
shareholders, in person or by proxy, who hold at least sixty percent of the subscribed voting share capital. At second call,
representation/presence of thirty percent of such share capital shall suffice. To adopt the resolutions envisaged in this
paragraph the affirmative vote of three quarters of the share capital attending in person or by proxy shall be required.
E.2 Indicate and, as applicable, describe any differences between the company’s system of adopting corporate
resolutions and the framework set forth in the Spanish Companies Act (LSA).
NO
Describe how they differ from the rules established under the LSA.
E.3 List all shareholders’ rights regarding the General Meetings other than those established under the Spanish
LSA.
There are no rights other than those established in the Spanish Companies Act
E.4 Indicate the measures, if any, adopted to encourage participation by shareholders at general meetings.
Without prejudice to the call notice disclosure requirements established in the LSA, in accordance with the provisions of
the General Meeting Regulations, the call notice shall also be posted on the Company’s website.
238
The General Meeting Regulations also dictate that the call notice, together with all the documentation required by law,
shall be available to the shareholders at the registered office and that such documents may be obtained immediately by
hand or by mail at no charge.
Furthermore, the Chairman of the Board of Directors sends the call notice sufficiently in advance, together with a card
requesting attendance or representation by proxy, to the shareholders.
Article 7 of the Regulations governs the right of shareholders to attend and vote, which may be exercised directly by
attending the meeting in person, or by delegation to another shareholder, either by means of the relevant proxy card or by
electronic or any other remote means of granting proxies, provided the identity of the shareholder exercising his/her right is
assured.
E.5 Indicate whether the General Meeting is presided by the Chairman of the Board of Directors. List the measures, if any,
adopted to guarantee the independence and correct operation of the General Meeting:
YES
Details of measures
Apart from compliance with the requirements relating to call notice disclosure and to all the documentation to be submitted
for the Meeting’s approval being made available to the shareholders, the General Meeting Regulations establish and
guarantee the right to information prior to the Meeting by stipulating that up until the seventh day before the date of the
Meeting the shareholders may request such information or explanations as they deem necessary from the directors.
In addition to the constitution of the General Meeting, the Regulations also govern the composition of the head table and
applicable procedure during the meeting. Shareholders can “verbally request all information or clarifications they deem
convenient regarding the business on the Agenda”, and “record in the minutes of the meeting the entire content of their
interventions”.
E.6 Indicate the amendments, if any, made to the General Meeting Regulations during the year.
The General Meeting held on 6 April 2011 approved the amendment to articles 4 and 6 of the General Shareholders' Meeting Regulation
in order to adapt it to the consolidated text of the Capital Companies Law, approved by Royal Legislative Decree 1/2010, of 2 July, in the
terms indicated below:
ARTICLE 4 - PUBLISHING THE ANNOUNCEMENT
1. The announcement of the Meeting will be made by the Chairperson of the Board of Directors or whoever substitutes the Chairperson in
his/her functions.
2. The announcement will be published a month in advance of the date set for holding the General Meeting at least by means of an
announcement in the "Official Bulletin of the Companies Registry", which must express the announcement, the place, the day and the time
of the meeting and all the issues to be addressed therein.
3. The second announcement of the Meeting may be made of the same time as the first announcement, but at least 24 hours later.
4. The announcement of the Meeting will also be published on the Company's website.
5. Prior to its publication in the Official Bulletin of the Companies Registry and on the Company's website, the CNMV will be informed of
the announcement of the Meeting.
6. Without prejudice to the announcement of the Meeting in the manner indicated above, the Board of Directors may inform the
shareholders by any other means.
ARTICLE 6-RIGHT TO INFORMATION PRIOR TO THE MEETING
1. Up to the seventh day prior to the planned date of the Meeting, the shareholders may request from the directors the information which
they consider necessary as regards the issues included in the agenda, or they may formulate in writing the questions which they consider
appropriate, and may ask questions in writing about the information available to the public which may have been provided to the Spanish
Securities Market Commission (CNMV) in the time since the last General Meeting was held.
The Directors are obliged to provide the information in writing up to the day of the General Meeting except in the event that, in the opinion
of the Chairperson, publishing the requested information damages the corporate interests.
2. Information may not be refused when the request is supported by shareholders which represent at least one quarter of the share capital.
239
3. The Board of Directors shall respond, but the means which it considers appropriate, giving powers to this effect to any of its members.
4. When each General Meeting is held, and Online Shareholders' Forum shall be enabled on the company’s website. This is a special
information instrument to which the Company’s shareholders will have access, as will the validly established voluntary associations of
shareholders which have been included in the special Registry set up in the CNMV. The aforementioned Forum may publish proposals to
be presented as a supplement to the agenda given in the announcement, requests to support such proposals, initiatives to reach the
threshold percentage to exercise a minority right under the law, as well as offers or requests to act as a proxy. All of the above is carried
out in accordance with the rules of procedure of the Online Shareholders Forum which must be approved by the Company's Board of
Directors".
E.7 Indicate the attendance figures for the General Shareholders’ Meetings held during the year.
Details of attendance
Date of General
Meeting
% attending in
person
----
51.692
% remote voting
% by proxy
25.812
Total
Electronic votes
0.000
Other
0.000
77.504
240
E.8 Briefly indicate the resolutions adopted by the shareholders at the general meetings held during the year
and the percentage of votes with which each resolution was adopted.
1.Examination and approval, if applicable, of the Annual Financial Statements and Annual Directors' Report of Banco
Pastor, S.A. and its Consolidated Group. Approval, if appropriate, of the Allocation of Profit/Loss and of the corporate management.
All information refers to the financial year ending on 31 December 2010.
The General Meeting agreed by majority, with the favourable vote of 99.96% of the share capital in attendance to approve, in the
terms included in the legal documentation, the Annual Financial Statements (the balance sheet, income statement, statement of
changes in equity, the cash flow statement, notes to the financial statements and Directors' Report of Banco Pastor for the financial
year ended on 31 December 2010, which are attached herewith as appendices to this document.
In addition, the General Meeting approved, with the favourable vote of 99.96% of the share capital in attendance, the proposed
allocation of profits for the financial year ended 31 December 2010 in the amount of EUR 45,752,000, to be distributed as follows:
- The sum of EUR 16,015,000 to dividends which were paid prior to this General Shareholders' meeting.
- The remaining profit of Banco Pastor, S.A. for 2010 i.e. the sum of EUR 29,737,000 to voluntary reserves.
The General Meeting also approved with the favourable vote of 99.96% of the share capital in attendance, the performance of the
Board of Directors of Banco Pastor, S.A. for the financial year ended 31 December 2010.
2.
Free capital increase charged to the issue premium for distribution to shareholders in the maximum amount of EUR
1,957,407.21 by means of the issue of a maximum of 5,931,537 new shares with a par value of EUR 0.03 each. Distribution of one
new share to each shareholder controlling a minimum of 45 old shares. Subsequent modification of articles 5 and 7 of the Articles of
Association.
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to increase the
Share Capital by EUR 1,957,407.21 by issuing a maximum number 5,931,537 new shares in the same class and with the same par
value as the ones currently in circulation, delivering one new share to each shareholder who owns at least 45 old shares on 27 April
(or on a determinable date). The Board of Directors, which is expressly authorised to delegate its powers in this regard to the
Executive Committee or any of its members, is authorised to indicate the date on which the capital increase is to be carried out and
any conditions of the operation not settled by the General Meeting, as well as to apply for permission for the new shares to trade on
the stock exchange and to redraft the following articles of the Articles of Association: article 5 (share capital) and article 7 (number
of shares making up the share capital). All of this will be done only after any legally required authorisations have been obtained.
3.
Authorisation to the Board Directors to increase the share capital, one or more times, in the conditions which it considers
appropriate to the amount and in the period and manner provided in article 297 of the Capital Companies Act. To this end, it may
issue new shares, with or without a vote, ordinary or privileged, including redeemable shares or any other type of share permitted
by the Law, including shares without voting rights, with or without issue premium, in the other terms, conditions and characteristics
which it considers appropriate and subsequent modification of the Articles of Association. It is also authorised to request admission
to trading of the shares which are issued, rendering null and void the unused portion of the authorisation granted by the General
Meeting on 27 April 2007. The Board of Directors is delegated powers, in the terms of article 506 of the Capital Companies Act, of
exclusion of pre-emption rights relating to said share issues, although this power will be limited to 25% of the Company's share
capital.
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to delegate to the
Board of Directors, which is expressly authorised to delegate its powers in this regard to the Executive Committee or any of its
members, the power to increase the share capital in accordance with the provisions of article 297.1.b) of the Capital Companies Act,
when it considers it appropriate without the need to call a General Meeting, one or several times, within the limits established in the
aforementioned article i.e. up to half of the Share Capital paid up at the time of the authorisation.
As the current Share Capital of Banco Pastor, S.A. stands at EUR 8,083,328.41, the maximum amount of the increase will be EUR
44,041,664.20.
4.To authorise the Company to acquire treasury shares, directly or through Group companies, subject to the limits and
requirements of the Capital Companies Act, and delegating to the Board of Directors, which may in turn delegate, the powers
needed to execute the resolution passed by the General Meeting in this regard, rendering null and void the unused portion of the
authorisation granted by the General Meeting of Shareholders on 26 March 2010.
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to delegate to the
Board of Directors, which is expressly authorised to delegate its powers in this regard to the Executive Committee or any of its
members, the power, when it deems fit, to acquire treasury shares, directly or through companies forming part of Banco Pastor
Group, and to set up the corresponding special reserves, which may be charged to unrestricted reserves, pursuant to article 146
et al. of the Capital Companies Act, rendering null and void the unused portion of the authorisation granted by the General
Meeting of Shareholders on 26 March 2010, within the limits and requirements indicated below:
- The acquisition shall be made by deed of sale or any other valid lawful title for extra-judicial acquisition for valuable
consideration.
- The face value of the purchased shares plus those held by the Bank and its participated Companies shall not exceed 10% of the
share capital of Banco Pastor, S.A.
- The acquisitions must allow the Bank and participated Companies to set up the restricted reserve stipulated by Law, even by
charging it to unrestricted reserves.
241
- The acquisition prices must be in line with prevailing stock market prices or those authorised by the Spanish Securities
Market Commission (CNMV).
- The authorisation is granted for the maximum term prescribed by Law, which is five years.
- It is expressly agreed that some or all of the shares acquired by the Bank or its subsidiaries under this authorisation may be
delivered to company employees or administrators who are entitled to received such shares, either directly or as a consequence
of exercising stock option rights, as provided for in the article 146 a) of the Capital Companies Act.
5.
Authorisation for the Board of Directors, with capacity of substitution, subject to the applicable legal dispositions, and
after the legally necessary authorisations in the maximum legal period, to issue one or more times, directly or through specifically
established companies with one hundred percent participation by Banco Pastor and, as applicable, with the granting of a full
guarantee by the Bank, all types of bonds, ordinary bonds, subordinated bonds, mortgage bonds, public-sector bonds, nonconvertible bonds, negotiable instruments, transfers of every type of rights of credit to perform securitisation through securitisation
funds established for this purpose, along with preferential participations and any other analogous instruments that recognise or
create a debt, simple or with security of any type, subordinated or not, of fixed or variable type, in euros or in any kind of currency,
in one or more issues of equal or different characteristics, with temporary or undefined duration, and in the other forms and
conditions considered convenient, replacing the authorisation of the General Meeting of Shareholders on 26 March 2010, and
furthermore authorising a request for admission to official quotation.
The General Meeting unanimously agrees, with the favourable vote of 99.55% of the share capital in attendance:
6.
Delegation to the Board of Directors, with capacity of substitution, of the ability to issue fixed income convertible
securities and/or securities exchangeable into shares, as well as warrants or other analogous securities that can provide the right,
directly or indirectly, to the subscription or acquisition of shares with the possibility in all cases of excluding the right from
preferential subscription, and attribution to the Board of Directors of the ability to increase the capital in the necessary amount.
The General Meeting agreed by majority, with the favourable vote of 99.55% of the share capital in attendance, to empower the
Board of Directors, which may in turn be replaced by the Executive Committee or any one of its members, pursuant to the general
rules governing debenture issues and the terms of article 319 of the Companies Registry Regulations and similar articles of the
Capital Companies Act, the ability to issue, including with the exclusion of pre-emption rights, debentures and other securities that
can be converted into Company shares and/or exchanged for shares already in circulation, as well as warrants or similar securities
entitling the holders, directly or indirectly, to subscribe or acquire Company shares, whether newly issued or already in circulation.
7.
Approval of the amendment to article 16 of the Articles of Association for its adaptation to the consolidated text of the
Capital Companies Act, approved by Royal Legislative Decree 1/2010, of 2 July.
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to amend article
16 of the Articles of Association.
8.
Approval of the amendment to articles 4 and 6 of the Regulation of the General Shareholders' Meeting for their
adaptation to the consolidated text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010, of 2 July.
The General Meeting agreed by majority, with the favourable vote of 99.99% of the share capital in attendance, to amend articles
4 and 6 of the Articles of Association.
9.
Attribution to the Company of the System of Fiscal Consolidation provided for in Chapter VII of Title VII of Royal
Legislative Decree 4/2004 of 5 March, which approved the consolidated text of the Corporation Tax Act, and delegation to the
Board of Directors of the ability to determine the time period of the effective fiscal year.
The General Meeting agreed by majority, with the favourable vote of 99.86% of the share capital in attendance, to authorise the
Board of Directors, subject to the terms of Chapter VII, Title VII of Royal Legislative Decree 4/2004, of 5 March, which approved
the consolidated text of the Corporation Tax Act, to register the Company for the System of Fiscal Consolidation.
10.
Delegation to the Board of Directors, with capacity of substitution, of the Interim Dividends Policy to be applied by
the Company for Financial Year 2011.
Board of Directors, which is in turn authorised to delegate the Executive Committee or any of its members, to determine the interim
dividend policy it deems to be most appropriate at any given time during the 2011 fiscal year. To this end, it may decide on the
payment of a dividend which may take the form of a cash payment or an in kind dividend consisting of shares, including treasury
stock, or a combination of the two, compensating the shareholders who fall short of a whole multiple based on the exchange
equation established at the time and using market criteria as the basis for establishing the amount and the reference dates for
determining the amount.
11.
Delegation to the Board of Directors, with capacity of substitution, of the power to pay variable compensation to the
Directors and Senior Executives in the Company by the issue of shares or stock options.
The General Meeting agreed by majority, with the favourable vote of 97.87 % of the share capital in attendance, to authorise the
Board of Directors, which may in turn be replaced by the Executive Committee or any one of its members, to settle the bonuses of
Directors and Senior Officers of the Bank in the form of company stock or stock options. To this end, it may indicate the value of the
shares, the number of shares to be delivered, which may not under any circumstances exceed 0.3% of the share capital, with the
duration of the remuneration system limited to a maximum period of 3 years.
242
12.
Delegation to the Board of Directors, with capacity of substitution, of the power to initiate a remuneration system aimed
exclusively at employees of the Banco Pastor Group consisting of the delivery of newly issued shares up to a limit of 5% of share
capital, with the possibility of excluding preferential subscription rights, and with a maximum possible discount of 25% on the market
price of the share.
13.
The General Meeting agreed by majority, with the favourable vote of 97.91% of the share capital in attendance, to
delegate to the Board of Directors, which may in turn be replaced by the Executive Committee or any one of its members, the
power to initiate a variable remuneration system.
14.
Delegation of powers to the Board of Directors, with capacity of substitution, to formalise all of the resolutions
adopted by the General Meeting of Shareholders in the form deemed most appropriate, including the correction, interpretation,
development, amendment and completion of the resolutions as necessary for their full effectiveness.
Board of Directors, which is in turn authorised to delegate the Executive Committee or any of its members, with the broadestranging powers possible, to formalise the resolutions adopted by the General Meeting in the manner deemed most appropriate,
including the correction, interpretation, development, amendment and completion of the agreements as necessary for their full
effectiveness.
15.
Approval of the minutes of the Meeting in any of the forms provided by law.
243
The meeting minutes are drafted, read and approved by a majority of 99.99% of the share capital in attendance, with no
requests by those in attendance to place their participation on the record.
E.9 Indicate whether the Articles of Association impose any minimum requirement on the number of shares
needed to attend the General Meeting.
YES
Number of shares required to attend the General Meeting
6,000
E.10 Indicate and explain the policies pursued by the company with reference to proxy voting at the General
Meeting.
Without prejudice to compliance with the provisions of Article 18 of the Corporate Articles of Association, in accordance
with the General Meeting Regulations, a shareholder may grant a proxy to another shareholder who is entitled to attend.
In all cases, proxies shall be conferred in writing, by e-mail or by any other means of remote communication, specifically
for each meeting and provided that the identity of the shareholder exercising his or her right can be duly ascertained.
Each shareholder may only be represented by one legal representative or proxy holder.
E.11 Indicate whether the company is aware of the policy of institutional investors on whether or not to
participate in the company’s decision-making processes:
NO
E.12 Indicate the address and method for accessing corporate governance content on your company’s website.
http://www.bancopastor.es
Entry: Information for shareholders and investors. Corporate governance. Corporate governance report.
244
F - DEGREE OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS
Indicate the degree to which the company has complied with the recommendations of the Unified Good Governance
Code. Should the company fail to comply with any of them, explain the recommendations, rules, practices or criteria
the company applies.
1.
The bylaws of listed companies should not place an upper limit on the votes that can be cast by a single
shareholder, or impose other obstacles to the takeover of the company by means of share purchases on the market.
See headings: A.9, B.1.22, B.1.23 and E.1, E.2
Met
2. When a dominant and a subsidiary company are stock market listed, the two should provide detailed
disclosure on:
a) The type of activity they engage in, and any business dealings between them, as well as between
the subsidiary and other group companies;
b) The mechanisms in place to resolve possible conflicts of interest.
See headings: C.4 and C.7
N/A
3. Even when not expressly required under company law, any decisions involving a fundamental corporate
change should be submitted to the General Shareholders' Meeting for approval or ratification. In particular:
b) The transformation of listed companies into holding companies through the process of
subsidiarisation, i.e. reallocating core activities to subsidiaries that were previously carried out by the
originating firm, even though the latter retains full control of the former;
b) Any acquisition or disposal of key operating assets that would effectively alter the company's
corporate purpose;
c) Operations that effectively add up to the company's liquidation.
Explain
The Board of Directors complies with this recommendation as and when the preceding situations arise.
4. Detailed proposals of the resolutions to be adopted at the General Shareholders’ Meeting, including the
information stated in Recommendation 28, should be made available at the same time as the publication of the
Meeting notice.
Met
5. Separate votes should be taken at the General Shareholders’ Meeting on materially separate items, so
shareholders can express their preferences in each case. This rule shall apply in particular to:
a) the appointment or ratification of directors, with separate voting on each candidate;
b) amendments to the bylaws, with votes taken on all articles or groups of articles that are materially
different.
See heading: E.8
Met
245
6.
Companies should allow split votes, so financial intermediaries acting as nominees on behalf of different
clients can issue their votes according to instructions.
See heading: E.4
Met
7.
The Board of Directors should perform its duties with unity of purpose and independent judgement,
according all shareholders the same treatment. It should be guided at all times by the company's best interest
and, as such, strive to maximise its value over time.
It should likewise ensure that the company abides by the laws and regulations in its dealings with stakeholders;
fulfils its obligations and contracts in good faith; respects the customs and good practices of the sectors and
territories where it does business; and upholds any additional social responsibility principles it has subscribed to
voluntarily.
Met
8.
The board should see the core components of its mission as to approve the company's strategy and
authorise the organisational resources to carry it forward, and to ensure that management meets the objectives
set while pursuing the company's interests and corporate purpose. As such, the board in full should reserve the
right to approve:
a) The company's general policies and strategies, and in particular:
i)
ii)
The strategic or business plan, management targets and annual budgets;
Investment and financing policy;
iii) Design of the structure of the corporate group;
iv) Corporate governance policy;
v) Corporate social responsibility policy;
vi) Remuneration and evaluation of senior officers;
vii) Risk control and management, and the periodic monitoring of internal information and control
systems;
viii) Dividend policy, as well as the policies and limits applying to treasury stock.
See headings: B.1.10, B.1.13, B.1.14 and D.3
b) The following decisions:
i)
On the proposal of the company’s chief executive, the appointment and removal of senior
officers and their compensation clauses.
See heading: B.1.14
ii)
Directors' remuneration and, in the case of executive directors, the additional consideration for
their management duties and other contract conditions.
See heading: B.1.14
iii) The financial information listed companies must periodically disclose.
iv) Investments or operations considered strategic by virtue of their amount or special
characteristics, unless their approval corresponds to the General Shareholders’ Meeting;
v)
The creation or acquisition of shares in special purpose vehicles or entities resident in
jurisdictions considered tax havens, and any other transactions or operations of a comparable nature
whose complexity might impair the transparency of the group.
c)Transactions which the company conducts with directors, significant shareholders, shareholders with
board representation or other persons related thereto (“related-party transactions”).
However, board authorisation need not be required for related-party transactions that simultaneously
meet the following three conditions:
246
1. They are governed by standard form agreements applied on an across-the-board basis to a large
number of clients;
2. They go through at market rates, generally set by the person supplying the goods or services;
3. Their amount is no more than 1% of the company's annual revenues.
It is advisable that related-party transactions should only be approved on the basis of a favourable
report from the Audit Committee or some other committee handling the same function; and that the
directors involved should neither exercise nor delegate their votes, and should withdraw from the
meeting room while the board deliberates and votes.
Ideally the above powers should not be delegated with the exception of those mentioned in b) and c),
which may be delegated to the Executive Committee in urgent cases and later ratified by the full
board.
See headings: C.1 and C.6
Met
9. In the interests of maximum effectiveness and participation, the Board of Directors should ideally comprise
no fewer than five and no more than fifteen members.
See heading: B.1.1
Met
10. External directors, proprietary and independent, should occupy an ample majority of board places, while
the number of executive directors should be the minimum practical bearing in mind the complexity of the
corporate group and the ownership interests they control.
See headings: A.2, A.3, B.1.3 and B.1.14
Met
11. In the event that some external director can be deemed neither proprietary nor independent, the company
should disclose this circumstance and the links that person maintains with the company or its senior officers, or
its shareholders.
See heading: B.1.3
N/A
12. That among external directors, the relation between proprietary members and independents should match
the proportion between the capital represented on the board by proprietary directors and the remainder of the
company's capital.
This proportional criterion can be relaxed so the weight of proprietary directors is greater than would strictly
correspond to the total percentage of capital they represent:
1. In large cap companies where few or no equity stakes attain the legal threshold for significant
shareholdings, despite the considerable sums actually invested.
2. In companies with a plurality of shareholders represented on the board but not otherwise related.
See headings: B.1.3, A.2 and A.3
Met
13. The number of independent directors should represent at least one third of all board members.
See heading: B.1.3
Met.
247
14. The nature of each director should be explained to the General Meeting of Shareholders, which will make
or ratify his or her appointment. Such determination should subsequently be confirmed or reviewed in each
year’s Annual Corporate Governance Report, after verification by the Nomination Committee. The said Report
should also disclose the reasons for the appointment of proprietary directors at the urging of shareholders
controlling less than 5% of capital; and explain any rejection of a formal request for a board place from
shareholders whose equity stake is equal to or greater than that of others applying successfully for a proprietary
directorship.
See headings: B.1.3 and B.1.4
Met
15. When women directors are few or nonexistent, the board should state the
reasons for this situation and the measures taken to correct it; in particular, the
Nomination Committee should take steps to ensure that:
a)The process of filling board vacancies has no implicit bias against women candidates.
b) The company makes a conscious effort to include women with the target profile among the candidates
for board places.
See headings: B.1.2, B.1.27 and B.2.3
Met
16. The Chairman, as the person responsible for the proper operation of the Board of Directors, should ensure
that directors are supplied with sufficient information in advance of board meetings, and work to procure a good
level of debate and the active involvement of all members, safeguarding their rights to freely express and adopt
positions; he or she should organise and coordinate regular evaluations of the board and, where appropriate,
the company’s chief executive, along with the chairmen of the relevant board committees.
See heading: B.1.42
Met
17. When a company's Chairman is also its chief executive, an independent director should be empowered to
request the calling of board meetings or the inclusion of new business on the agenda; to coordinate and give
voice to the concerns of external directors; and to lead the board’s evaluation of the Chairman.
See heading: B.1.21
Partially met
Pursuant to article 11.2 of the Internal Regulations of the Board of Directors, any Director may request the Chairman to
include other items on the Agenda in addition to those initially scheduled.
18. The Secretary should take care to ensure that the board's actions:
a)
Adhere to the spirit and letter of laws and their implementing regulations, including those issued
by regulatory agencies;
b) Comply with the company bylaws and the regulations of the General Shareholders' Meeting, the
Board of Directors and others;
c)
Are informed by those good governance recommendations of the Unified Code that the company
has subscribed to.
In order to safeguard the independence, impartiality and professionalism of the Secretary, his or her
appointment and removal should be proposed by the Nomination Committee and approved by a full
board meeting; the relevant appointment and removal procedures being spelled out in the board's
regulations.
248
See heading: B.1.34
Met
19. The board should meet with the necessary frequency to properly perform its functions, in accordance with a
calendar and agendas set at the beginning of the year, to which each director may propose the addition of other
items.
See heading: B.1.29
Met
20. Director absences should be kept to the bare minimum and quantified in the Annual Corporate Governance
Report. When directors have no choice but to delegate their vote, they should do so with instructions.
Met
21. When directors or the Secretary express concerns about some proposal or, in the case of directors, about
the company's performance, and such concerns are not resolved at the meeting, the person expressing them
can request that they be recorded in the minute book.
Met
22. The board in full should evaluate the following points on a yearly basis:
a) The quality and efficiency of the board's operation;
b) Starting from a report submitted by the Nomination Committee, how well the Chairman and chief
executive have carried out their duties;
c) The performance of its committees on the basis of the reports furnished by the same.
See heading: B.1.19
Met
23. All directors should be able to exercise their right to receive any additional information they require on
matters within the board's competence. Unless the bylaws or board regulations indicate otherwise, such
requests should be addressed to the Chairman or Secretary.
See heading: B.1.42
Met
24. All directors should be entitled to call on the company for the advice and guidance they need to carry out
their duties. The company should provide suitable channels for the exercise of this right, extending in special
circumstances to external assistance at the company's expense.
See heading: B.1.41
Met
25. Companies should organise induction programmes for new directors to acquaint them rapidly with the
workings of the company and its corporate governance rules. Directors should also be offered refresher
programmes when circumstances so advise.
Met
249
26. Companies should require their directors to devote sufficient time and effort to perform their duties
effectively, and, as such:
a) Directors should apprise the Nomination Committee of any other professional obligations, in case they
might detract from the necessary dedication;
b) Companies should lay down rules about the number of directorships their board members can hold.
Partially met
There is no restriction on the maximum number of directorships a single Board member can hold.
27. The proposal for the appointment or renewal of directors which the board submits to the General
Shareholders’ Meeting, as well as provisional appointments by the method of co-option, should be approved by
the board:
a) On the proposal of the Nomination Committee, in the case of independent directors.
b) Subject to a report from the Nomination Committee in all other cases.
See heading: B.1.2
Met
28. Companies should post the following director particulars on their websites, and keep them permanently
updated:
a) Professional experience and background;
b) Directorships held in other companies, listed or otherwise;
c)
An indication of the director's classification as executive, proprietary or independent; in the case
of proprietary directors, stating the shareholder they represent or have links with.
d) The date of their first and subsequent appointments as a company director, and;
e) Shares held in the company and any options on the same.
Met
29. Independent directors should not stay on as such for a continuous period of more than 12 years.
See heading: B.1.2
Met
30. Proprietary directors should resign when the shareholders they represent dispose of their ownership
interest in its entirety. If such shareholders reduce their stakes, thereby losing some of their entitlement to
proprietary directors, the latter’s number should be reduced accordingly.
See headings: A.2, A.3 and B.1.2
Met
31. The Board of Directors should not propose the removal of independent directors before the expiry of their
tenure as mandated by the bylaws, except where just cause is found by the board, based on a proposal from
the Nomination Committee. In particular, just cause will be presumed when a director is in breach of his or her
fiduciary duties or comes under one of the disqualifying grounds enumerated in section III.5 (Definitions) of this
Code.
The removal of independents may also be proposed when a takeover bid, merger or similar corporate
operation produces changes in the company’s capital structure, in order to meet the proportionality criterion
set out in Recommendation 12.
250
Met
32. Companies should establish rules obliging directors to inform the board of any circumstance that might
harm the organisation's name or reputation, tendering their resignation as the case may be, with particular
mention of any criminal charges brought against them and the progress of any subsequent trial.
The moment a director is indicted or tried for any of the crimes stated in article 124 of the Public Limited
Companies Law, the board should examine the matter and, in view of the particular circumstances and
potential harm to the company's name and reputation, decide whether or not he or she should be called on
to resign. The board should also disclose all such determinations in the Annual Corporate Governance
Report.
Met
33. All directors should express clear opposition when they feel a proposal submitted for the board's approval
might damage the corporate interest. In particular, independents and other directors unaffected by the conflict
of interest should challenge any decision that could go against the interests of shareholders lacking board
representation.
When the board makes material or reiterated decisions about which a director has expressed serious
reservations, then he or she must draw the pertinent conclusions. Directors resigning for such causes
should set out their reasons in the letter referred to in the next Recommendation.
The terms of this Recommendation should also apply to the Secretary of the board; director or otherwise.
Met
34. Directors who give up their place before their tenure expires, through resignation or otherwise, should state
their reasons in a letter to be sent to all members of the board. Irrespective of whether such resignation is filed
as a significant event, the motive for the same must be explained in the Annual Corporate Governance Report.
See heading: B.1.5
Met
35. The company's remuneration policy, as approved by its Board of Directors, should specify at least the
following points:
a) The amount of the fixed components, itemised where necessary, of board and board committee
attendance fees, with an estimate of the fixed annual payment they give rise to;
b) Variable components, in particular:
i)
The types of directors they apply to, with an explanation of the relative weight of variable to fixed
remuneration items.
ii) Performance evaluation criteria used to calculate entitlement to the award of shares or share
options or any performance-related remuneration.
iii) The main parameters and grounds for any system of annual bonuses or other, non cash benefits;
and
iv) An estimate of the sum total of variable payments arising from the remuneration policy proposed,
as a function of degree of compliance with pre-set targets or benchmarks.
c) The main characteristics of pension systems (for example, supplementary pensions, life insurance
and similar arrangements), with an estimate of their amount or annual equivalent cost.
d) The conditions to apply to the contracts of executive directors exercising senior management
functions. Among them:
251
i)
ii )
Duration;
N otic e pe riods ; a nd
iii ) Any other clauses covering hiring bonuses, as well as indemnities or ‘golden parachutes’ in the
event of early termination of the contractual relation between company and executive director.
See heading: B.1.15
Met
36. Remuneration comprising the delivery of shares in the company or other companies in the group, share
options or other share-based instruments, payments linked to the company’s performance or membership of
pension schemes should be confined to executive directors.
The delivery of shares is excluded from this limitation when directors are obliged to retain them until the end
of their tenure.
See headings: A.3 and B.1.3
Met
37. External directors' remuneration should sufficiently compensate them for the dedication, abilities and
responsibilities that the post entails, but should not be so high as to compromise their independence.
Met
38. In the case of remuneration linked to company earnings, deductions should be computed for any
qualifications stated in the external auditor’s report.
Met
39. In the case of variable awards, remuneration policies should include technical safeguards to ensure they
reflect the professional performance of the beneficiaries and not simply the general progress of the markets or
the company’s sector, atypical or exceptional transactions or circumstances of this kind.
N/A
40. The board should submit a report on the directors’ remuneration policy to the advisory vote of the General
Shareholders’ Meeting, as a separate point on the agenda. This report can be supplied to shareholders
separately or in the manner each company sees fit.
The report will focus on the remuneration policy the board has approved for the current year with reference,
as the case may be, to the policy planned for future years. It will address all the points referred to in
Recommendation 34, except those potentially entailing the disclosure of commercially sensitive information.
It will also identify and explain the most significant changes in remuneration policy with respect to the
previous year, with a global summary of how the policy was applied over the period in question.
The role of the Remuneration Committee in designing the policy should be reported to the Meeting,
along with the identity of any external advisors engaged.
See heading: B.1.16
Met
41. The notes to the annual accounts should list individual directors' remuneration in the year, including:
a) A breakdown of the compensation obtained by each company director, to include where appropriate:
i)
Participation and attendance fees and other fixed director payments;
ii)
Additional compensation for acting as chairman or member of a board committee;
iii) Any payments made under profit-sharing or bonus schemes, and the reason for their accrual;
252
iv) Contributions on the director’s behalf to defined-contribution pension plans, or any increase in
the director’s vested rights in the case of contributions to defined-benefit schemes;
v)
Any severance packages agreed or paid;
vi) Any compensation they receive as directors of other companies in the group;
vii) The remuneration executive directors receive in respect of their senior management posts;
viii) Any kind of compensation other than those listed above, of whatever nature and provenance
within the group, especially when it may be accounted a related-party transaction or when its
omission would detract from a true and fair view of the total remuneration received by the director.
b) An individual breakdown of deliveries to directors of shares, share options or other share-based
instruments, itemised by:
i)
Number of shares or options awarded in the year, and the terms set for their execution;
ii)
Number of options exercised in the year, specifying the number of shares involved and the
exercise price;
iii) Number of options outstanding at the annual close, specifying their price, date and other
exercise conditions;
iv) Any change in the year in the exercise terms of previously awarded options.
c) Information on the relation in the year between the remuneration obtained by executive directors and
the company’s profits, or some other measure of enterprise results.
Met
42. When the company has an Executive Committee, the breakdown of its members by director category
should be similar to that of the board itself. The Secretary of the board should also act as secretary to the
Executive Committee.
Met
43. The board should be kept fully informed of the business transacted and decisions made by the Executive
Committee. To this end, all board members should receive a copy of the Committee’s minutes.
Met
253
44. In addition to the Audit Committee mandatory under the Securities Market Law, the Board of Directors
should form a committee, or two separate committees, of Nomination and Remuneration.
The rules governing the make-up and operation of the Audit Committee and the committee or
committees of Nomination and Remuneration should be set forth in the board regulations, and include
the following:
a) The Board of Directors should appoint the members of such committees with regard to the
knowledge, aptitudes and experience of its directors and the terms of reference of each committee;
discuss their proposals and reports; and be responsible for overseeing and evaluating their work,
which should be reported to the first board plenary following each meeting;
b) These committees should be formed exclusively of external directors and have a minimum of three
members. Executive directors or senior officers may also attend meetings, for information purposes,
at the Committees’ invitation.
c) Committees should be chaired by an independent director.
d) They may engage external advisors, when they feel this is necessary for the discharge of their duties.
e) Meeting proceedings should be minuted and a copy sent to all board members.
Met
45. The job of supervising compliance with internal codes of conduct and corporate governance rules should
be entrusted to the Audit Committee, the Nomination Committee or, as the case may be, separate Compliance
or Corporate Governance committees.
Met
46. All members of the Audit Committee, particularly its chairman, should be appointed with regard to their
knowledge and background in accounting, auditing and risk management matters.
Met
47. Listed companies should have an internal audit function, under the supervision of the Audit Committee, to
ensure the proper operation of internal reporting and control systems.
Met
48. The head of internal audit should present an annual work programme to the Audit Committee; report to it
directly on any incidents arising during its implementation; and submit an activities report at the end of each
year.
Met
254
49. Control and risk management policy should specify at least:
a)
The different types of risk (operational, technological, financial, legal, reputational...) the company is
exposed to, with the inclusion under financial or economic risks of contingent liabilities and other offbalance-sheet risks;
b) The determination of the risk level the company sees as acceptable;
c)
Measures in place to mitigate the impact of risk events should they occur;
d) The internal reporting and control systems to be used to control and manage the above risks,
including contingent liabilities and off-balance-sheet risks.
See headings: D
Met
50. The Audit Committee’s role should be:
1. With respect to internal control and reporting systems:
a) Monitor the preparation and the integrity of the financial information prepared on the company and,
where appropriate, the group, checking for compliance with legal provisions, the accurate demarcation
of the consolidation perimeter, and the correct application of accounting principles.
b) Review internal control and risk management systems on a regular basis, so main risks are properly
identified, managed and disclosed.
c) Monitor the independence and efficacy of the internal audit function; propose the selection,
appointment, reappointment and removal of the head of internal audit; propose the department’s budget;
receive regular report-backs on its activities; and verify that senior management are acting on the
findings and recommendations of its reports.
d) Establish and supervise a mechanism whereby staff can report, confidentially and, if necessary,
anonymously, any irregularities they detect in the course of their duties, in particular financial or
accounting irregularities, with potentially serious implications for the firm.
2. With respect to the external auditor:
a) Make recommendations to the board for the selection, appointment, reappointment and removal of
the external auditor, and the terms and conditions of his engagement.
b) Receive regular information from the external auditor on the progress and findings of the audit
programme, and check that senior management are acting on its recommendations.
c) Monitor the independence of the external auditor, to which end:
i) The company should notify any change of auditor to the CNMV as a significant event,
accompanied by a statement of any disagreements arising with the outgoing auditor and the reasons
for the same.
ii)
The Committee should ensure that the company and the auditor adhere to current regulations
on the provision of non-audit services, the limits on the concentration of the auditor’s business and,
in general, other requirements designed to safeguard auditors’ independence;
iii) The Committee should investigate the issues giving rise to the resignation of any external
auditor.
255
d) In the case of groups, the Committee should urge the group auditor to take on the auditing of all
component companies.
See headings: B.1.35, B.2.2, B.2.3 and D.3
Met
51. The Audit Committee should be empowered to meet with any company employee or manager, even
ordering their appearance without the presence of another senior officer.
Met
52. The Audit Committee should prepare information on the following points from Recommendation 8 for input
to board decision-making:
a)
The financial information that all listed companies must periodically disclose. The Committee should
ensure that interim statements are drawn up under the same accounting principles as the annual
statements and, to this end, may ask the external auditor to conduct a limited review.
b)
The creation or acquisition of shares in special purpose vehicles or entities resident in countries or
territories considered tax havens, and any other transactions or operations of a comparable nature
whose complexity might impair the transparency of the group.
c)
Related-party transactions, except where their scrutiny has been entrusted to some other supervision
and control committee.
Met
53. The Board of Directors should seek to present the annual accounts to the General Shareholders’ Meeting
without reservations or qualifications in the audit report. Should such reservations or qualifications exist, both
the Chairman of the Audit Committee and the auditors should give a clear account to shareholders of their
scope and content.
See heading: B.1.38
Met
54. The majority of Nomination Committee members – or Nomination and Remuneration Committee members
as the case may be – should be independent directors.
See heading: B.2.1
Met
55. The Nomination Committee should have the following functions in addition to those stated in earlier
recommendations:
a)
Evaluate the balance of skills, knowledge and experience on the board, define the roles and
capabilities required of the candidates to fill each vacancy, and decide the time and dedication
necessary for them to properly perform their duties.
b)
Examine or organise, in appropriate form, the succession of the chairman and chief executive, making
recommendations to the board so the handover proceeds in a planned and orderly manner.
256
c) Report on the senior officer appointments and removals which the chief executive proposes to
the board.
d) Report to the board on the gender diversity issues discussed in Recommendation 14 of this
Code.
See heading: B.2.3
Met
56. The Nomination Committee should consult with the company’s Chairman and chief executive,
especially on matters relating to executive directors.
Any board member may suggest directorship candidates to the Nomination Committee for its consideration.
Met
57. The Remuneration Committee should have the following functions in addition to those stated in
earlier recommendations:
a)
Make proposals to the Board of Directors regarding:
i)
The remuneration policy for directors and senior officers;
ii)
The individual remuneration and other contractual conditions of executive
directors.
iii) The standard conditions for senior officer employment contracts.
b) Oversee compliance with the remuneration policy set by the company.
Met
58. The Remuneration Committee should consult with the Chairman and chief executive, especially on
matters relating to executive directors and senior officers.
Met
G – OTHER INFORMATION OF INTEREST
If you consider that there is any material aspect or principle relating to the Corporate Governance
practices followed by your company that has not been addressed in this report, indicate and explain
below.
A.6 Indicate whether any shareholders’ agreements have been notified to the company …
The system does not allow us to include the existence of a shareholder agreement relating to shares
representing 5…% of the share capital signed by the Fundación Pedro Barrió de la Maza, Pontegadea
Inversiones and Financiera Tesalia which contains their irrevocable commitment for the purposes of the takeover
bid made by Banco Popular Español, S.A.
B.2.1. Give details of all the committees of the Board of Directors and their members :
APPOINTMENTS AND REMUNERATION COMMITTEE:
The system does not allow us to include as non-member Secretary in said committee: Mr ÓSCAR GARCÍA MACEIRAS
(Secretary of the Board of Directors).
257
MANAGEMENT COMMITTEE:
The system does not allow us to include as members of the aforementioned Committee: Mr JOSÉ MANUEL
RAMOS SÁNCHEZ and Ms. SUSANA QUINTAS VELOSO, who hold the offices of Member and SecretaryMember, respectively.
C.2, C.3 and C.4. RELATED PARTIES:
In accordance with Order EHA/3050/2004, of 15 September, the transactions carried out with significant
shareholders are part of the company's usual operations and have been carried out at arm's length. The
company's annual report details the significant balances held by the Banco Pastor Group and subsidiaries.
In addition, in accordance with the aforementioned Audit, there are no transactions of directors and executives in
the company which may be considered significant. Those carried out our part of the company's usual operations
and are carried out at arm's length or applied to employees.
Finally, and relating to transactions carried out with other companies belonging to the same group, it is necessary
to indicate that no significant transactions have been carried out which are not related to the in terms of their
object and conditions. Those performed have been eliminated in the consolidation process.
D.1 Give a general description of risk policy in the company and/or its Group…(continued)
Banco Pastor’s Market Risk and Operations Unit monitors the market risk of the transactions performed each day and
oversees compliance with the established limits. In those cases where the authorised risk levels are exceeded, there is an
efficient communication procedure in place to notify the Bank’s executive management of the reasons and, where
necessary, the measures taken to resolve or mitigate the problem.
Types of Market Risk limits
The Executive Committee sets a global limit for all of the market transactions carried out by Treasury so that the overall
risk assumed by the different portfolios / operating units may not be exceeded at any time. This limit is measured in terms
of diversified VaR (´Value at Risk´) for one day and a statistical probability of 99% which offsets the exposure to the
different risk factors assumed (interest and exchange rates, prices and volatility).
As part of this daily control process, three different types of market risk limits have been defined:
1. VaR limits (Value-at-Risk)
Discretional market risk is measured using the VaR methodology (´Value at Risk´), which makes it possible to jointly
measure the risk of one portfolio composed of products affected by multiple and divers risk factors.
This limit measures the maximum end-of-day exposure of the Treasury area as a whole or each portfolio individually,
calculated by taking the diversified one-day VaR with a confidence level of 99%.
Using the Value-at-Risk (VaR) it is possible to measure the maximum loss that could be incurred in the portfolio's value
due to changes in the general financial market conditions such as changes in interest rates, exchanges rates and equity
security prices if the portfolio is maintained for a certain period of time.
The methodology used to measure and control market risk (Ádaptiv´, owned by the Sungard Group) is the parametric
methodology based on variances and covariances calculated with a confidence level of 99%, daily statistics and a time
span of one day, since open positions are characterised by high liquidity levels.
2. Stop Loss level
A maximum limit on real market losses is defined by establishing three stop loss levels: daily, monthly and annual, based
on the maximum losses that are admissible during each period of time. Should any of these stop loss levels be reached,
the competent authorities must authorise the excess, establish a new stop loss level and/or decide whether part or all of
the stop loss measures should be implemented. The implementation of a monthly/annual stop loss involves closing or
covering open positions in the portfolio affected by the losses, after which no additional risk may be added to that portfolio
until the next month/year without express authorisation.
3. Additional limits
The Bank also has a raft of additional limits, all tailored to the individual characteristics of each portfolio (interest rate risk,
exchange rate risk, fixed income or equities risk), with the ultimate aim of closely controlling and monitoring its positions
by applying other kinds of control (net sensitivity, maximum net position, limits by issuer, limits by instrument, limits by
basis and curve risk, rating limits, etc.).
Daily control of positions and market risk limits
The Market Risk Unit, part of the General Audit area, is responsible for monitoring market risk by controlling positions and
258
authorised limits on a daily basis. This unit is completely independent from the (Treasury) business unit which is part of
Corporate Finance. This risk control unit activates the established authorisation procedures and reports any excesses that
may occur to senior management.
Market risk limits are controlled daily using an integrated system that makes it possible to measure and analyses the risk
incurred at any time, by type of risk, business unit and/or product.
Daily reports are issued on risk positions and limits, including the average exposure in terms of VaR (primary risk
indicator), the stop loss situation and the evolution of complementary limits.
These limits are calculated using the outstanding positions from the end of the day before, i.e. all of the transactions
registered by the Treasury.
STRUCTURAL BALANCE SHEET RISK
The business activities of financial institutions can entail the assumption of one or more types of structural risks. The most
significant structural balance sheet risks:
. Interest rate risk: Arises as a consequence of the different references and repricing cadences of the balance sheet items.
Liquidity risk: This is the risk that an entity may not be able to fulfil its payment obligations in a timely manner without
taking external funding under burdensome conditions or harming the entity’s image and reputation.
. Exchange risk: Arises as a consequence of variation in the exchange rates of the currencies in which the different
balance sheet items are denominated.
For the Banco Pastor Group, the risks assumed must be compatible with the target solvency level; they must be identified
and measured and there must be procedures in place for monitoring and managing them, in addition to solid control
mechanisms.
All risks must be comprehensively managed over the life cycle of the risk, treating the different types of risk accordingly.
Interest rate risk
Structural interest rate risk measures the sensitivity of the balance sheet to variations in the interest rate curve under
different scenarios. It refers to all of the Bank’s business with the exception of trading which is managed by the Treasury
Unit and measured separately.
The Corporate Finance Department is responsible for managing structural risks. Each month it presents the different risk
management proposals to the Assets and Liabilities Committee. This Committee also define the lines of action that are
consistent with the guidelines approved by the Board of Directors and the Executive Committee. The members of this
committee are members of the Bank’s senior management staff. The Committee also monitors the results and sets the
hedging strategies needed to stabilise the financial margins and maximum the Bank’s economic value under any
interest rate scenario.
Banco Pastor uses highly advanced technologies to perform these functions, which require a thorough knowledge of the
balance sheet positions and their behaviour. Statistical measurement and dynamic methodologies are used.
The statistical measurements used are the repricing gap and the sensitivity of market value to changes in interest rates.
Dynamic simulations are used to analyse the impact on net interest income (sensitivity) of different movements in the
interest rate curve – including step changes and changes in the slope of the curve - in a range of different trading volume
scenarios. The time horizon for this kind of analysis is 24 months to ensure that the process reflects the full impact of
movements in the yield curve on almost all balance-sheet aggregates.
In terms of analysis of the impact on economic value, the Bank complies with the limits established by the Board of
Directors.
The Bank establishes two limits for interest rate risk control purposes. The first determines the adverse impact of 100bp
movements in interest rates on the Bank’s economic value. The second establishes a limit on the sensitivity of net interest
income at a one year interval to all adverse interest rate scenarios.
Liquidity risk
Liquidity risk measures the ability to meet payment commitments assumed and to finance planned business growth.
Following analysis and presentation by the Corporate Finance Department, the Asset-Liability Committee (ALCO)
monitors and controls the company’s liquidity, pinpointing any possible shortcomings or excess liquidity stemming from
mismatches between maturities of assets and liabilities on the balance sheet. Structural liquidity management within the
Group attempts to optimise balance sheet structure in terms of diversification of both maturities and products, while
seeking out the best assets and generating profitable investment plans for the company.
Each year, the Bank drafts a plan of its financing needs based on the budgets for each business unit. Based on these
259
needs and the possibility of appealing to the markets, and keeping those appeals in the short term within prudential limits,
the Bank devises an issue and securitisation plan for the fiscal year.
Each month, the actual evolution of financing needs is monitored (backtesting) and the plan is updated accordingly.
For control and analysis purposes, the Bank uses other measures such as liquidity gap and liquidity ratios (loan to
deposits, short term liquidity %, long term liquidity compared to total assets, etc.).
The Bank also uses different scenario analyses (stress tests) to consider any additional needs that may appear in
response to different events.
The Group has a Liquidity Contingency Plan approved by the Board of Directors that should enable it to avoid situations
of severe illiquidity. The plan establishes various indicators that will enable the Bank to identity different illiquidity
situations and their degree of severity, as well as the procedures to be followed in each case.
As its first line of liquidity, Banco Pastor has sufficient liquid assets with the highest credit rating of the European Central
Bank for use as collateral in operations and financial institutions and clients.
The Banco Pastor Group has no exposure to exchange rate risk since all of its positions (primarily liabilities) are closed
market positions.
OPERATING RISK
The Bank’s operating risk management model is inspired by the guidelines set out in the framework agreement for
International Convergence of Capital Measurement and Capital Standards (the Basel II framework, hereinafter Basel II).
This model also complies with the Bank of Spain Circular 3/2008 on the determination and control of minimum
shareholders’ equity and attempts to adhere to best banking practices at all times.
In order to stay abreast of best practices in the banking sector, Banco Pastor, S.A. is a founding member of the CERO
Group (Spanish Operating Risk Consortium) and the CECON Group (Spanish Business Continuity Consortium).
The method used to calculate Operating Risk equity is the standard method. To this end, the Bank has built a
Comprehensive Operating Risk Management that covers both the qualitative and quantitative regulatory requirements
and creates a solid base for the adoption of internal models in the future.
The Operating Risk Committee has continued the work that started when the Executive Committee resolved to create it in
March 2009. Special emphasis has been placed on controlling the risks inherent to the marketing of new products, which
has led to the implementation of a New Product Launching Protocol that has been operating throughout the year. The
Operating Risk Committee has the right to veto products or services that are considered to involve a high level of risk
following the interdisciplinary analysis.
In our model Operating Risk Model, different risk management tools have been developed based on the following
applications:
. Qualitative management and analysis systems for operational risk, referred to internally as ORIS (Operational Risk
Information System).
. Quantitative management systems for operational risk, referred to internally as ORA (Operational Risk Application).
. Segmentation of the company’s activities into business lines via the mechanism for calculating minimum capital
requirements based on the business lines established by the Bank of Spain.
. Key risk indicators (KRI)
. Systems for generating and processing management information, based primarily on report-enabling systems used as
part of the operational risk balanced scorecard (ORBS).
Our targets are organised by type and divided into:
. Qualitative targets whose primary mission consists of:
- Detect current and potential risks with a view to enhancing the decision-making process when managing operational risk
and company operations;
- Bring about continuous improvements to control processes and systems to mitigate any operational risks that may arise;
- Heighten awareness throughout the entire organisation of the importance of operational risk and the impact and nature
of loss events on the company.
. Quantitative objectives, whose primary mission consists of:
- Quantify actual losses incurred following loss events associated with operational risk;
- Generate historical data on loss events and identify and classify said events according to business lines, processes and
the nature thereof;
- Generate objective elements to enhance the decision-making process when managing the company’s operational risk.
For the roll-out of this project, both qualitative and quantitative methodologies were used to generate the elements key to
260
operational risk measurement and management. These methodologies build on the Bank's risk analysis and classification,
following the guidelines of the Basel II Capital Accord and the Bank of Spain Circular 3/2008.
Qualitative methodologies, which are supported mainly by SIRO, are centred around three processes:
- Generation of the Bank’s process map;
- Identification of the risks and controls associated with these processes;
- Self-assessment system based on questionnaires and generation of a qualitative VaR calculated based on the result of
these questionnaires.
- Identification and measurement of the Key Risk Indicators (KRI) most closely correlated to the potential occurrence of
the risk and its impacts.
Quantitative methodologies (supported by ORA) centre on identifying and recording loss events in a database that is
reconciled with the accounting records. The information recorded in the loss database is classified according to process,
type of risk (type of event) and associated line of business.
Since 2007, Banco Pastor has belonged to ORX (Operational Risk data exchange), an international body comprising 52
financial institutions from 18 different countries boasting a market-leading international operational risk loss database and
featuring high information sharing quality standards.
REGULATORY COMPLIANCE AND REPUTATIONAL RISK
The Banco Pastor Group has a long- and firmly-established culture of compliance, as evidenced by its first Professional
Conduct Guide, which was approved by the Board of Directors in 1986. Updated in 2000 as the Code of Professional
Conduct, the guide now also sets out the values that should guide the actions of everyone working within the Group as
well as expressly covering issues surrounding transparency in customer dealings, conflicts of interest and proactive
contributions to the campaign to prevent potentially criminal actions committed by third parties.
In relation with the foregoing, all matters related to Bank customer claims are monitored closely at the most senior level.
An Interdisciplinary Committee for Anti-Money Laundering proposes to the Board of Directors the measures required to
ensure the Bank acts as effectively as possible at all times in managing this sensitive issue. Information on the actions
taken by the Supervisory Committee for the Internal Code of Conduct within the securities markets division is also
reported to the Board of Directors.
The Bank created the Regulatory Compliance Unit in September 2006 to respond to the obligations arising from two
groups of European Community directives:
1) The Directives related to the shareholders’ equity of credit institutions: Directive 2006/48/EC of 15 June 2006 on
access to the activity of credit institutions and Directive 2006/49/EC of 14 June 2006 on the capital of credit institutions.
Those Directives were transposed to Spanish law with Law 36/2007 of 16 November which amended Law 13/1985 on
investment coefficients, shareholders’ equity and reporting obligations and Law 47/2007 which amended the Securities
Market Law. These two laws were developed through Royal Decree 216/2008 of 15 February on the shareholders’ equity
of credit institutions.
2)The Directives related to financial markets and institutions (MiFID), a cornerstone of the Financial Services Action Plan
(FSAP) which comprises three Directives: the tier one Directive 2004/39/EC of 21 April 2004 known as the MiFID
Directive and two tier two Directives, 2006/73/EC of 10 August 2006 regarding the organisational requirements and
operating conditions and (EC) Regulations (CE) 1287/2006 of 16 August 2006 which develops the obligations relative to
mandatory record-keeping and reporting of operations, market transparency and admission of financial instruments to
trading.
Those Directives were transposed to Spanish law in Law 47/2007 which amended the Securities Market Law and Royal
Decree 217/2008 of 15 February on the legal regulations government entities that offer investment services.
The transposition of both Directives (shareholders’ equity and MiFID) through RD 216/2008 and RD 217/2008 establishes
the obligation of credit institutions to have a regulatory compliance unit.
In order to allow integral treatment of the response of our Bank to the requirements to adapt to the constant legislative
changes, such as investor protection regulation (MiFID) or the legislation on preventing market abuse, which have an
impact on a daily operations, since November 2010, the regulatory compliance unit now reports to the Bank's Secretary
General (without prejudice to the necessary coordination with, inter alia, the Operational Control Unit and the Operational
Risk Unit, which are part of the Audit and Control Department, thus guaranteeing its development and the principles of
objectivity and independence as provided in current legislation.
The Circular of February 2011 implementing updates to the functions performed by the Regulatory Compliance Unit,
especially those relating to the regulations deriving from the reform of the Criminal Code, Market Abuse, and the Reporting
suspicious Transactions, COS, and supervision of the Miami Agency. In addition, the role of the Unit in implementing and
261
managing the risks arising from the provision of investment services to customers is regulated in the MiFID has been and
will remain very active. From this date it now includes the Money Laundering Prevention Unit. All of this is carried out with
the aim of achieving greater efficiency and effectiveness.
The purpose of the Regulatory Compliance Unit is to adapt to the existing regulatory supervisory environment and to
anticipate any regulatory changes on the horizon with a view to helping the Cassini Management mitigate the impact of the
risks which they may have on Banco Pastor. With the same, it advises and assist the rest of the Organisation so as to
foster the aforementioned (compliance culture) which allows, through correct alignment of values, processes and controls,
the Act to prevent minimise the possible impact of the risks listed below which may incur on Banco Pastor as a result of
possible to finish you deficiencies relating to regulatory standards. In order to achieve this objective, it will make use of
indicators, controls and procedures which allowed to monitor and manage efficiently different types of risk.
At Banco Pastor we have defined four different types of risk:
Compliance Risk: which is the risk of the damage that can be caused to the business model or the financial conditions
of the organisation due to the failure to comply with laws, policies and internal standards and the failure to meet the
expectations of stakeholders.
Regulatory Risk: which is the risk of an organisation being fined by regulators or sustaining financial losses or damages to
its reputation as a result of not complying with applicable rules and regulations, evading compliance or not responding to
changes in regulators’ expectations. This includes the actual non-compliance with rules as well as the failure to satisfy
regulators’ expectations, which includes not communicating with them as clearly as they require.
Reputation Risk: by its very definition it is the most feared of the three types because of the impact it can have on the
company’s brand and image due to the negative perception of third parties of its business practices, whether or not those
perceptions are accurate, and which can affect the customer base and income and generate litigation costs.
Criminal Risk: the risk arising from the possible consequences of LO 5/20 of 22 June 2010 amending the Criminal Code
which entered into force in December 2010, through which the Bank may not only be declared civilly liable for offences
committed by its de facto or in Law directors and subsidiarily by the committee or by its employees, but it may also be
declared criminally liable for certain offences committed by its executives or employees in exercising their office on behalf
on Banco Pastor, in the latter case if the Bank has not carried out due control. The penalties may vary from a fine, the
inability to obtain public support for government contracts, up to legal intervention and, even, the Bank's dissolution.
As regards regulatory compliance prior to the creation of the Regulatory Compliance Unit in 2006, the Bank already had
three units responsible for managing regulatory compliance risk such as the Money-Laundering Prevention Unit, the “Ad
Hoc” unit under the supervision of the Bank’s Secretary General which was responsible for controlling Codes of Conduct
and RIC.
In addition, for all other issues, the Compliance Unit bases its work on the operational risks identified and categorised
qualitatively in the recommendations issued by the British Bankers’ Association. This categorisation applies a subjective
262
rating from 0 to 5 to express the reputational risk associated with a given operational loss event. An inventory is kept of reputational
risks which is updated regularly, and a monthly report is submitted accordingly.
D.2 Indicate whether the company and/or group has been exposed …
On having selected the option No, the system does not allow us to include the following comment:
As indicated in the previous section, the business of the Banco Pasto Group involves the assumption of certain risks that must be
guaranteed and controlled using systems that are commensurate at all times with the level of risk assumed. Credit risk is a
given in the banking business. As a consequence of the complicated economic environment brought about by the international
financial crisis in which the bank conducted its business in 2011, the default rate continues to rise, in line with the trend that can
be observed in other Spanish financial institutions.
The exposure to all other risks is limited. The control systems have worked properly and there were no specific situations whose
magnitude would suggest the assumption of risk levels above and beyond the limits established for properly managing and
controlling each one.
You may include in this section any other information, clarification or observation related to the above sections
of this report.
Specifically indicate whether the company is subject to corporate governance legislation from a country other
than Spain and, if so, include the compulsory information to be provided when different to that required by this
report.
Binding definition of independent director:
263
List any independent directors who maintain, or have maintained in the past, a relationship with the company,
its significant shareholders or managers, when the significance or importance thereof would dictate that the
directors in question may not be considered independent pursuant to the definition set forth in section 5 of the
Unified Good Governance Code:
NO
Date and signature:
This annual corporate governance report was approved by the company’s Board of Directors at its meeting held
on:
09/02/2012
List any directors who voted against or abstained from voting on the approval of this report.
NO
262
INTERNAL RISK CONTROL AND MANAGEMENT SYSTEMS RELATING TO FINANCIAL REPORTING (ICSFR)
COMPANY CONTROL ENVIRONMENT
1 What bodies and/or departments are responsible for (i) the existence and maintenance of an
adequate and effective ICSFR; (ii) its implementation; and (iii) its supervision.
The Board of Directors of Banco Pastor has approved the Global Framework for implementing ICSFR in
the Banco Pastor group (hereinafter "BP Group") in which:

The Board of Directors assumes ultimate responsibility for the existence and maintenance of an
adequate and effective ICSFR which will be based on the recommendations made by the
Spanish Securities Market Commission (CNMV) in this matter.

The Control and Audit Committee assumes responsibility for supervising the ICSFR which will
cover the control of the process of preparation and presentation, compliance with regulatory
requirements, suitable delimitation of the consolidation scope and correct application of
accounting criteria.

The Control and Audit Committee will base its work on the Internal Audit when supervising ICSFR.

The General Controller’s Department assumes responsibility for the design, implementation and
functioning of the ICSFR and, to this end, will perform the process of identifying the risks in
preparing financial information (with at least an annual review), and will perform the descriptive
documentation of the activity control flows and will be responsible for implementing and executing
the ICSFR.
2 What departments and/or mechanisms are in charge of: (i) design and review of corporate structure; (ii)
clearly establishing lines of responsibility and authority with an adequate distribution of tasks and
functions; and (iii) ensuring that sufficient processes exist for proper communication throughout
the company, especially as related to the production of financial information.
The Corporate Development Department is responsible for the review of the organisational
structure, which, based on the needs of the BP Group, analyses and adapts the structure of the
branches, the regional departments and the central services.
Any significant modification of the organisational structure is approved by the Chief Executive
Officer and by the Chairman and is published in the Internal Circular on the Intranet to which all
the professionals in the BP Group have access and in which there is an organisational chart
which is permanently updated.
3
Do the following elements exist, especially relative to the process of creating financial information:
• Code of conduct, body which approves it, degree of dissemination and instruction, included
principles and values, (indicate if there is specific mention of an transactions registry and
263
creation of financial information), a body charged with analyzing non-compliance and proposing
corrective actions and sanctions.
•
A hotline which permits communication to the audit committee of financial or accounting
irregularities as well as potential breaches of the code of conduct and irregular activities within the
organization, and whether these communications are confidential.
•
Periodic training programmes for personnel involved in the preparation and review of financial
information as well as evaluation of the ICSFR which at a minimum covers accounting rules, audit,
internal control, and risk management.
There is a professional code of conduct which is known by all the professionals in the BP Group. It is expected
that specific mention of a transactions registry and the creation of financial information will be incorporated into
said code.
Even though there is still no formal communication channel with the Control and Audit Committee, there is an
agreement through which a hotline will be established through which the professionals of the BP Group may
communicate directly with the Control and Audit Committee, in the manner which it decides, financial and
accounting irregularities, ensuring confidentiality at all times.
There is a Professional Develop System integrated in SAP which defines the competencies and technical
knowledge for each position. An appraisal is carried out once a year of all the professionals of the BP Group and
action plans established which include measures to improve those capacities in which weaknesses have been
identified, highlighting training actions.
The Training Unit, which is part of Human Resources, has developed a Training Plan which includes face-to-face
and online courses to which all the professionals in the BP Group will have access. All the units involved in the
process of preparing financial information have received training on financial reporting and receive continuing
updates as legislative changes take place and cover both standards of first application in the year in course and
legislation approved or in the process of approval which will affect future years.
In order to strengthen the importance of ICSFR, Human Resources is expected to prepare, in collaboration with
the General Controller’s Department and the Internal Auditing Unit, an ad hoc training plan with regular updates
of knowledge for the personnel involved in preparing and reviewing financial information, as well as the
evaluation of ICSFR, which will at least cover standards relating to accounting, audits, tax, internal control and
risk management.
ASSESSMENT OF FINANCIAL INFORMATION RISKS
4
What are the principle characteristics of the risk identification process, including error and fraud risk,
as regards to:
•
Whether the process exists and is documented.
•
If the process covers all of the objectives of financial information, (existence and occurrence;
completeness; valuation; delivery; breakdown and comparability; and rights and obligations), if
it is updated and with what frequency.
•
The existence of a process for identifying the scope of consolidation, taking into account,
among other factors, the possible existence of complex company structures, shell companies,
264
or special purpose entities.
•
If the process takes into account the effects of other types of risk (operational, technological,
financial, legal, reputational, environmental, etc.) to the extent that they affect the financial
statements.
•
What management body of the company supervises the process.
The General Controller’s Department in collaboration with a Consulting firm of recognised standing has
defined a risk identification process which is duly documented through which the relevant processes and
activities in preparing financial information have been identified. The analysis has been carried out based
on the quantitative significance of the headings in the consolidated financial statements of the BP Group,
and also a qualitative analysis has been carried out which considers issues such as automation of the
process, standardisation of operations, accounting complexity, the need to make estimates etc.
The risk identification process will be reviewed at least annually and specifically when there are significant
changes in operation.
The process is supervised by the Control and Audit Committee, which has the Internal Auditing Unit as a
support unit in its supervision of ICSFR, having approved a Multiyear Review Plan for ICSFR prepared by
the Internal Auditing Unit.
CONTROL ACTIVITIES
5 Documentation describing the flow of activity and controls (including those relating to risk of fraud) of
the various types of transactions which may materially affect the financial statements, including
financial closing procedures and the specific review of judgments, estimates, valuations and
relevant forecasts.
Once the relevant areas/processes have been defined, the General Controller’s Department carries out a
detailed description of the controls which have been established to minimise the risks identified. Each one
of the relevant processes is in turn divided into subprocesses and for each of these the existing risks,
controls, the unit and the person responsible for exercising control are identified.
These relevant area/processes associated with operations include:

Credit investment

Doubtful assets and doubtful contingent risks

Real estate assets received in payment of debt

Substandard risk

Generic provision

Shareholdings

Debt securities

Derivative products (trading and hedging)

Financial liabilities amortise cost (term deposits and sight current accounts)

Debits represented by marketable securities

Provisions

Taxes
There is also description of the risks and controls of the generic accounting process, of the cash accounting
process, of the accounting closing process, the consolidation process and of the process of preparing annual
265
accounts.
Each one of these processes is documented in a technical sheet which is periodically updated and which is
available to the Internal Auditing Unit for supervision.
6 Internal control policies and procedures for information systems (access security, change controls,
control of changes, their operation, operational continuity, and segregation of duties, among others)
which support relevant processes within the entity relating to the creation and publication of
financial information.
With regard to the Information Systems, a document has been prepared includes a description of the information
systems which support the relevant processes relating to the preparation of financial information
The Technical Department has established suitable security protocols which include the control of access to each
one of the systems.
The implementation in progress of CMMI in the BP Group establishes for IT development procedures suitable
policies for controlling changes and segregating duties, establishing the appropriate processes for performing
development tests and implementing production with clear delimitation of persons responsible and technological
environments. All development activities are carried out in the context of a duly formalised annual project plan.
With regard to operational continuity, the BP Group has a Systems Continuity Plan which, inter alia, includes a IT
backup centre in another location with the possibility of substituting the main centre in the event of any
contingency. Similarly, there is a backup centre to provide support to the Cash so that market operators and
control support areas for this activity may carry out their duties in the event of a contingency in the building from
which they currently operate. Furthermore, there is a possibility that 400 key persons may work by distance
through access to the Information Systems of the BP Group from any place with a guaranteed Internet connection
with tokens which provide security codes.
266
7
Internal control policies and procedures intended to supervise the management of activities
subcontracted
assessment,
to
calculation
third
or
parties,
evaluation
as
well
entrusted
to
those
independent
aspects
experts
that
of
may
materially affect financial statements.
The BP Group periodically reviews which activities relating to the preparation of financial information are
subcontracted to third parties and, as the case may be, the Financial Reporting unit establishes control
procedures to verify the reasonable nature of information received.
With regard to the financial statements at year-end 2011, there are no material activities for the purposes
of preparing financial information which has been subjected to third parties.
8
Procedures
for
review
and
authorization
of
financial
information
and
description
of the ICSFR to be published in the equity markets, indicating those responsible.
The General Controller’s Department prepares the public financial information which is sent to financial
markets and executes the controls established for this purpose so that there is consistency between the
public information and the consolidated financial statements of the BP Group. Prior to their publication, the
Control and Audit Committee supervises the quarterly accounting closes and directly informs the Board
Directors.
The half yearly and annual financial statements are submitted to the accounts audit and external auditors
issue their audit opinion and directly inform the Control and Audit Committee on the review process
performed.
INFORMATION AND COMMUNICATION
9
A specifically assigned function responsible for defining and updating accounting policies
(accounting policy area or department) as well as resolving doubts or conflicts arising from their
interpretation, maintaining a free flow of information to those responsible for operations in the
organization.
The Financial Information Unit, which is part of the General Controller’s Department, is responsible for
defining and updating the accounting policies applicable to the operations performed both by the company
and by the companies forming part of the BP Group. Legislative changes are analysed by this unit which is
responsible for giving instructions for the implementation in the Information Systems.
With regard to their automation, there is detailed documentation on the intermediary accounting stages
which defines the accounting schemes applicable to the operations and which establishes the information
which each one of the applications must send to the accounting application.
267
10
A
manual
of
accounting
policies
updated
and
communicated
to
the
units
by
which the entity operates.
The Financial Information Unit, part of the General Controller’s Department, has a set of documents which
constitutes the manual of accounting policies which is permanently updated. Similarly, the documents
describe in detail the process of preparing financial information.
11
Measures
for
capturing
and
preparing
financial
information
with
consistent
formats for application and use by all of the units of the entity or the group, and
which
contain
the
main
financial
statements
and
notes,
as
well
as
detailed
information regarding ICSFR.
The consolidation and preparation of financial information is carried out centrally. A consolidation package
has been developed which summarises the information necessary which each company in the BP Group
must send to the Financial Information unit on a monthly basis.
As indicated in section 5, the key processes include the accounting closing process, the consolidation
process and the process for preparing financial information which incorporates the accounting risks and
controls which have been identified.
268
SUPERVISION OF SYSTEM PERFORMANCE
12
If there is an internal audit function that has among its mandates support of the
audit committee and the task of supervising the internal control system, including the ICSFR.
The BP Group has the Internal Audit unit, which is part of the Audit and Control Department, which supports the
Control and Audit Committee in supervising ICSFR. To this end, there is a Multiyear Plan which describes the
activities and tests to be performed, starting from the analysis of the reasonable nature of the process for
identifying significant activities/processes in preparing financial information
The Internal Audit Unit directly informs the Control and Audit Committee of the result of its review and issues
recommendations for improvements.
13
If there is a procedure by which the account auditor (in accordance with that contained in the
Normas Técnicas de Auditoría (“Auditing Standards”)), internal audit and other experts may
communicate with senior management and the audit committee or managers of the entity regarding
significant weaknesses in internal control identified during the review of the annual accounts or
any others they have been assigned. Additionally, state whether a plan of action is available for
correcting or mitigating any weaknesses found.
The account auditor annually issues a report with recommendations which is presented to the Control and
Audit Committee and which states the internal control weaknesses identified during the Review process.
This report is sent to the affected units/areas which are responsible for proposing improvement measures
to rectify the weaknesses identified.
14
A description of the scope of the evaluation of the ICSFR made during the fiscal year and of the
procedure by which the person responsible communicates its results, if the entity has an action plan that
describes corrective measures, and if it considers its impact on financial information.
The Internal Audit unit has a Multiyear Plan for reviewing ICSFR and issues an annual report in which it informs
the Control and Audit Committee of the results of its review, issuing, where appropriate, improvement
recommendations.
269
15
A description of oversight activities carried out by the audit committee.
The Control and Audit Committee approved in July 2011 the Global Framework for implementing ICSFR in
the BP Group.
In its meeting in December 2011, the Control Audit Committee analysed the report on the Results of the
Internal Audit on ICSFR 2011, which informs about the work performed, the conclusions obtained and the
recommendations issued.
16
If the ICSFR information submitted to the markets has been subject to review by the external
auditor, in which case the entity shall include its report. If not, reasons why should be given.
The approved Global Framework establishes that the Control and Audit Committee shall propose, based
on best market practices, the evaluation of the ICSFR by the account auditor.
In 2011, the information of the ICSFR has not been subject to review by the account auditor as it is in the
implementation stage.
270
BancoPastor
DECLARATION OF LIABILITY OF THE ANNUAL
FINANCIAL REPORT
Statutory declaration drawn up by the Secretary of the Board of Directors of Banco Pastor, S.A., Mr Óscar
García Maceiras to record that each and every one of the members of the Board of Directors declares that, up
to the limits of their knowledge, the annual accounts, both individual and consolidated, for financial year 2011,
prepared in the meeting on 9 February 2012 and drawn up in accordance with the applicable accounting
principles, offer a true and fair view of the equity, financial situation and results of Banco Pastor, S.A. and the
companies included in the consolidation taken as a whole and that the management reports approved together
with the accounts include a true and fair analysis of the business development and results and the position of
Banco Pastor, S.A. and companies included in the consolidation taken as a whole, together with the
description of the main risks and uncertainties which the Bank faces, with each and every one of the Bank’s
Directors signing in agreement, the first names and surnames of whom appear , to which I attest.
Furthermore and for the pertinent legal effects, the persons signing below, members of the Board of Directors
of Banco Pastor, S.A., declare that the consolidated Annual Accounts and Management Report corresponding
to the financial year ended on 31 December 2011 are those which appear in the sheets numbered
__________________to_____________, both inclusive. The Annual Accounts corresponding to the financial
year ended on 31 December 2011 were prepared in A Coruña by the Board of Directors of Banco Pastor, S.A.
in its meeting on 9 February 2012.
A Coruña, 9 February 2012.
(Chairman)
(Vice-Chairman / CEO)
Mr Marcial Campos Calvo-Sotelo
(Member)
Mr José Luís Vázquez Mariño
(member)
(Member)
(Member)
Mr Gonzalo Gil García
(Member)
(Member)
(Member/ Secretary)
271

6011BANCO PASTOR GROUP Consolidated

Transcription

Similar documents

Teleplan_GB_2006_Final

Teleplan Annual Report 2007 from website

Pastor Troy Pastor Troy - Lakeshore Community Church

conference speakers

Men challenged at Men`s Gathering The Negro National Anthem

BTS

View Report - Financial Center Credit Union

OilnCO do Or~siI/U.S. Region

June 2016 Association Newsletter

Being an Equity-Oriented Leader