TIDMEOS
ESPÍRITO SANTO FINANCIAL GROUP S.A. ANNOUNCES ITS UNAUDITED
CONSOLIDATED RESULTS FOR THE FIRST NINE MONTHS OF 2013
Luxembourg/Portugal - 18 November 2013 - Espírito Santo
Financial Group S.A. ("ESFG" or the "Company") (NYSE Euronext
Lisbon: ESF; Bloomberg: ESF PL; Reuters: ESF LS) today announces
its unaudited consolidated results for the first nine months of
2013. The report is compiled under IFRS as implemented by the
EU.
HIGHLIGHTS FOR THE REPORTING PERIOD
ESFG's banking and insurance operations remain constrained by
the economic contraction in Portugal. Recent indicators however
point to a positive economic picture coupled with a significant
improvement in the external balance of credit.
The deleverage programme at ESFG's principal banking subsidiary
Banco Espírito Santo (BES) continues with the LtD ratio at 129% by
the end of the third quarter and is well on its way to achieving
the 120% required level by 2014. Consolidated deposits remain
robust whilst the Bank undertakes disciplined financial measures
through deleveraging. Despite negative results for the period,
reflecting continued provisioning, quarterly results show an
improvement in operating trends.
-- Consolidated Commercial Banking Income at ESFG declined by
15.1% year-on-year to EUR 1.36 billion, (EUR 1.61 billion in
September
2012);
-- Consolidated Net Interest Income reached to EUR 809.0 million,
(EUR 964.5 million in September 2012), a 16.1% decline
year-on-year;
-- Consolidated Net Fees and Commissions fell 13.6% year-on-year
to EUR 553.5 million, (EUR 640.7 million in September 2012);
-- Consolidated Market Results1 declined to EUR
74.8 million, (EUR 288.9 million in September 2012);
-- Consolidated Insurance Earned Premiums (Net of Reinsurance)
rose 16.1% year-on-year to EUR 349.3 million, (EUR 300.7 million
in
September 2012);
-- Consolidated Claims Incurred (Net of Reinsurance) declined by
20.5% to EUR 352.3 million, (EUR 443.4 million in September
2012);
-- Consolidated Operating Expenses rose by 5.5% year-on-year to
EUR 2.43 billion, (EUR 2.30 billion in September 2012), despite
a
34.3% year-on-year rise in provisioning;
-- Consolidated Staff Costs and General Administrative Expenses decreased
by 6.3% year-on-year to EUR 898.2 million, (EUR 958.3 million
in
September 2012);
-- As of the 30 September 2013 ESFG's Core Tier 1 ratio reached
10.3% which exceeds the Bank of Portugal's requirement of 10.0%.
Under
EBA ESFG's Core Tier 1 remained at 9.5%
CONTENTS
1. Income Statement Summary 3
2. Macroeconomic Environment 4
3. Overview of Operations 5
4. Operating Structure 11
5. Income Analysis
5.1 Banking 12
5.2 Insurance 13
5.3 Other Income 14
6. Cost Analysis
6.1 Operating Costs 15
7. Solvency and Liquidity
7.1 Solvency 16
7.2 Basel III 17
7.3 Liquidity - External Debt 17
7.4 Credit Rating 18
8. Developments in 9M13 and Subsequent Events 19
9. Consolidated Financial Statements 20
CONFERENCE CALL
A conference call for investors and analysts will be held on
Tuesday 19 November at 3:00 PM (UK & Portugal) / 4:00PM (CET) /
10:00AM (Eastern). An instant replay of the call will be available
for two weeks. For details, please contact Miles Chapman at King
Worldwide on telephone number +44 (0) 207 614 2900.
1. INCOME STATEMENT SUMMARY
Fig. I
(EUR Thousands) 9M12 9M13 % ?
+ Net Interest Income 964 475 809 363 (16.1%)
+ Net Fees and Commissions 640 671 553 484 (13.6%)
= Commercial Banking Income 1 605 146 1 362 847 (15.1%)
+ Capital Markets Results 288 905 74 826 (74.1%)
+ Other Operating Income 401 416 91 605 (77.2%)
+ Insurance Earned Premiums 300 746 349 253 16.1%
(Net of Reinsurance)
+ Dividend Income 71 166 55 442 (22.1%)
= Operating Income 2 667 379 1 933 973 (27.5%)
- Staff Costs and General Expenses 958 321 898 210 (6.3%)
- Claims incurred (Net of Reinsurance) 443 378 352 290 (20.5%)
- Change in Technical Reserves (Net of (197 103) (208 068) 5.6%
Reinsurance) & Insurance Commissions
- Depreciation, Provisioning 857 651 1 151 492 34.3%
and Impairments
- Other Expenses 242 664 238 283 (1.8%)
= Operating Expenses 2 304 911 2 432 207 5.5%
Profit before Tax (Inc. Gains 458 467 (489 090) -
from Financial Investments
& Share of profit of Associates)
- Direct Taxes 99 141 129 359 -
- Deferred Taxes 27 797 (244 147) -
- Minority Interests 77 155 (266 751) -
= Net Income 254 374 (107 551) -
2. MACROECONOMIC ENVIRONMENT
The third quarter of 2013 saw a moderate recovery in global
growth, with positive signs coming from all the main economies. The
quarter started with an increase in volatility in the financial
markets, resulting from political and military tensions in Syria,
which drove up the price of oil, (with Brent crude up by almost
7.0%, to USD 109 per barrel), as well as the uncertainty over the
reduction of monetary stimuli by the US Federal Reserve. The Fed's
decision, on 18 September 2013, to delay this tapering of
quantitative easing, contributed to an improvement in investor
sentiment and to a greater propensity for risk by the end of the
quarter.
In the US, the Dow Jones, Nasdaq and S&P 500 indices
advanced in the quarter by 1.5%, 10.8% and 4.7%, respectively,
while in Europe the DAX, CAC 40 and IBEX gained 8.0%, 10.8% and
18.3%. In the Eurozone, sentiment was also boosted by the ECB's
unprecedented 'forward guidance' policy, which signalled that key
interest rates would stay low for a long period of time. The
3-month Euribor remained stable during the period, at around 0.22%.
The Fed's postponement of QE tapering and positive activity signs
in the Eurozone contributed to the EUR's appreciation during the
quarter (4.0% against the dollar, to EUR/USD 1.353). The Fed's
decision also benefited the emerging markets' assets, which had
been under great pressure in the preceding months. In Brazil, the
Bovespa index gained 10.3% in the quarter. In China, signs of
growth stabilisation (GDP grew by 7.8% YoY), supported a 9.9% rise
in the Shanghai Composite index.
In Portugal, GDP registered a further increase in the quarter
(0.2%, after reaching 1.1% in the second quarter), supported by the
strong performance of exports, (services in particular), and a
slowdown in the contraction of domestic demand. From January to
September the Bank of Portugal's coincident indicator of economic
activity fell by 1.5% YoY. The increase in domestic savings
permitted an improvement in the net lending position of the
economy, with the external accounts reaching an estimated surplus
of 2.5% of GDP in the period from January to July. A period of
political instability and difficulties in the fiscal consolidation
process drove up the yield on the 10-year Portuguese public debt
securities to 7.51% in early July. The stabilisation of the
political scenario and a new positive review of the Economic and
Financial Adjustment Process by the IMF/EC/ECB subsequently allowed
the 10-year yield curve to fall to 6.3% by the beginning of the
fourth quarter. The PSI-20 followed the European trend, gaining
7.1% in the quarter.
3. OVERVIEW OF OPERATIONS
ESFG's unaudited consolidated net results for the first nine
months of 2013, attributable to equity holders of the Company fell
to -EUR 107.6 million from EUR 47.8 million when compared on a
like-for-like basis. In 2012, net results for the first nine months
of EUR 254.4 million included EUR 206.6 million of extraordinary
gains recognised through the re-evaluation of the life insurance
investment further to the purchase of the outstanding 50.0% stake
in BES Vida by BES.
Results of ESFG's core operations were constrained by the
challenges of the Eurozone crisis and the impact of the Financial
Adjustments' Programme adopted by Portugal. The performance of
ESFG's principal banking investment, Banco Espírito Santo (BES),
was affected by the rise of insolvencies in Portugal, impacting on
impairment levels and the need to provide adequate provisions.
Recent quarterly banking income results however show clear
improvements. Consolidated contributions from ESFG's other banking
operations remain positive, though reduced when compared to the
first nine months of 2012. ESFG's consolidated life and non-life
financial results, through BES and Tranquilidade, improved during
the reporting period.
Consolidated Banking Income at ESFG declined year-on-year to EUR
1.36 billion. Strong growth in customer deposits at BES during the
first half of the year were tapered in the third quarter. The
year's deposit growth, coupled with a decline in corporate and
mortgage loans in the third quarter consequently improved the
Bank's Loan to Deposit ratio (LtD) from 142% to 129%. Net interest
income at BES, which improved in the second quarter of 2013, rose
by a further 19.0% in the third quarter with positive contributions
from both its Portuguese and its international operations. When
compared year-on-year ESFG's consolidated NII results declined by
16.1%.
Consolidated Fees and Commissions (net of expenses) at ESFG
totalled EUR 553.5 million, a decline of 13.6% year-on-year.
Results include the significant cost of guarantees provided by the
Portuguese state for certain debt instruments issued by BES but
which expected to end in 2015. Fees and Commission income reported
by the Bank declined year-on-year by 15.5% to EUR 529.0 million.
Positive quarterly trends, seen in the Bank's NII business, were
also seen in Fees and Commissions which rose by 9.0%
quarter-on-quarter. Capital market's results, including interest
rate, credit and FX as well as equity trading, consolidated at ESFG
declined to EUR 74.8 million.
Despite the difficult operating environment, and consequently
the consolidated losses for the period, ESFG's Core Tier 1 remains
above the Bank of Portugal's and the EBA's minimum requirements of
10.0% and 9.0% at 10.3% and 9.5% respectively. The capital position
of BES, which is fully consolidated at ESFG, remained stable at
10.4% and 9.7% respectively, despite negative results. ESFG is
recognised by the European Banking Authority ('EBA') as one of the
leading European banking groups and is regulated as such.
ESFG's un-audited consolidated net results reflect the
challenges faced by BES and its measures to mitigate them, namely
the 43.2% year-on-year increase in provisioning charges during the
first nine months of the year to EUR 1.07 billion. The increase in
provisions for credit to EUR 3.30 billion has seen the credit
provisions over gross customer loans rise to 6.6% from 5.1% a year
earlier.
Consolidated operating expenses during the period grew by 5.5%
year-on-year on the back of increased provisioning. Staff costs
were contained, however, falling by 12.3% year-on-year to EUR 516.1
million from EUR 588.6 million a year earlier. ESFG's continued
organic drive towards business outside of its traditional markets
remains a central strategy, with staff and administrative costs in
its established markets declining whilst rising in international
markets.
Total consolidated assets at ESFG declined by 4.1%, from EUR
87.57 billion at the end of September 2012 to EUR 83.95 billion at
the end of the September 2013. Consolidated Risk Weighted Assets at
ESFG fell to EUR 62.10 billion by the end of the period.
Group Banco Espírito Santo
The results of ESFG's banking subsidiary, BES, reflect the
difficult operating environment of its principal market of
Portugal. Results for the first nine months of 2013, fell to -EUR
381.0 million, as the Bank strengthens its balance sheet through
continued deleveraging and reinforcement of provisions.
Pre-provisioning profit in the third quarter of 2013, however, saw
a 46.0% quarter-on-quarter increase. Commercial banking income grew
by 15.0% quarter-on-quarter to EUR 482.7 million from EUR 419.8
million in H113. Commercial banking over the first 3 quarters has
risen accumulatively by 23.0%. Quarterly improvements were coupled
with a stable cost base. Despite pressures to further strengthen
the balance sheet, operating costs during the nine months fell by
only 0.5%. Further improvements in macro conditions will allow
results at the Bank to recover in the coming quarters.
Despite the negative results for the period the Core Tier I
ratio remained stable at 10.4 %, meeting the Bank of Portugal's
requirement (minimum of 10%); under the EBA calculation method, the
Core Tier I ratio is 9.7%, also above the minimum 9.0% established
by the European Banking Authority. At the end of the second quarter
BES Life insurance subsidiary BES Vida completed a monetisation
transaction of its life risk portfolio which contributed to the
Bank's results. During the fourth quarter BES is expected to
benefit from the approved capital increase at BES Angola, which is
expected to raise the Bank's Core Tier 1 to 10.7%. RWA's at BES
fell by EUR 2.5 billion from the beginning of the year to EUR 59.2
billion, or 79.1% of total assets.
The deleveraging programme at BES, which began in 2010, and
pre-empted the Portuguese Government's request for assistance, has
continued through the third quarter. ESFG's banking subsidiary's
LtD ratio at the end of 9M13 reached 129% from 142% a year earlier,
a decrease of some 13 percentage points. The marked improvement in
the LtD (Bank of Portugal methodology) was supported by the
increase in the year's customer deposits though a
quarter-on-quarter decline resulted from a reduction in large
corporate and institutional deposits. Deposits reached EUR 36.0
billion, an increase of EUR 2.8 billion from the end of September
2012. Overall customer funds, including deposits and other on and
off balance sheet products, rose by 5.3% year-on-year from EUR 2.3
billion to EUR 45.6 billion
Although overall asset quality remained resilient, the worsened
economic situation has had its effect on the levels of overdue
loans both in Portugal and internationally. Non-Performing Loans
(NPL) of over 30 days rose from 3.7% at the end of the third
quarter 2012 to 6.0% by the end of the same period in 2013, the
balance of provisions for credit increased by 28.0% during the same
period to EUR 3.31 billion, 6.6% of gross loans. The first three
quarters of the year saw encouraging, improving, signs with a 50.0%
decrease of net entries in credit at risk. The Cost of Risk
declined to 1.81% in 3Q13 from 2.16% in H113). NPL formation is
slowing gradually.
Operating costs at BES fell by 0.1% year-on-year (-1.1% when
incorporating recent consolidations); staff costs fell by 2.4%
year-on-year. Operating costs in Portugal fell by 3.3% year-on-year
to EUR 565.0 million. Operating costs outside of Portugal however
increased by 7.2% year-on-year to EUR 280.0 million (principally
reflecting the costs relating to the reorganisation of the Bank's
Angolan operations). BES continues to implement a cost cutting
programme in Portugal between 2013 and 2015 with expected savings
of up to EUR 100.0 million.
Consolidated international operations through BES play a key
role in Espírito Santo Financial Group's strategy of
diversification. Spain, Brazil and Africa make up BES' strategic
banking triangle, when adding its other international interests,
namely the UK and the USA, international contributions remain
positive, but to a lesser degree when compared to a year earlier.
Results reached EUR 30.9 million following a rise in provisions.
International net interest income rose by 31.4% year-on-year to EUR
355.7 million driven by the Bank's Angolan operations. Fees and
Commissions, however, declined to EUR 139.8 million. International
commercial banking rose by 1.1% year-on-year.
The increase in international net interest income helped counter
the 35.3% decline in domestic NII. Combined international and
domestic commercial banking income at BES fell by -15.5%.
Consolidated banking income at BES, including capital markets and
other results, fell to EUR 1.43 billion from EUR 1.87 billion in
9M12, a decline of 23.7%. Developments at BES' international
operations include the recovery in the United Kingdom driven by the
expansion of wholesale funding; the positive evolution in the USA,
France and Luxembourg were countered by lower contributions from
African operations and the negative impact of the EU crisis on the
Bank's operations in Spain.
At Banco Espírito Santo de Angola (BESA), in which BES has a
51.9% stake and management control, total assets reached EUR 8.4
billion, a year-on-year rise of 6.0%, and its credit portfolio rose
by 17.0% to EUR 5.8 billion. Customer funds, by the end of the
third quarter rose by 8.0%. Net income reached EUR 48.6 million
with NII rising by 76.0% to EUR 192.0 million. Results were however
affected by a reduction in fees and commission and a reinforcement
of provisions.
BES reinforced its position in Moza Banco during the first half
of the year by acquiring 24.0% of the capital of Grupo Geocapital
and now holds 49.0% of the share capital of Moza Banco. The
Mozambican bank's operations continued to grow during the third
quarter with deposits doubling year-on-year.
Investment banking activities at Espírito Santo Investment Bank
(BESI), include advisory services in project finance, mergers and
acquisitions, restructuring and consolidation of liabilities,
preparation and public or private placement of shares, bonds and
other fixed-income and equity instruments, stock broking and other
investment banking services. In addition, the bank offers
traditional banking services to corporate and institutional
clients.
Banking Income at BESI reached EUR 177.5 million, a decline of
7.7% with the non-Portuguese business accounting for 58.0% of total
business. Capital markets and other results however rose by 5.5% to
EUR 38.7 million. Pre-tax profits for the period fell to EUR 5.6
million as provisioning increased to EUR 35.2 million, a rise of
14.1% year-on-year. Operating costs declined by 2.3% year-on-year
to EUR 127.2 million.
ESFG's consolidated international operations also include the
Group's other directly owned Private and Commercial banking
operations
ESFG's Swiss private banking operations, Banque Privée Espírito
Santo ('BPES'), contributed positively to ESFG's consolidated
results in the first nine months of the year, with individual net
income up 18.0% year-on-year to CHF 3.8 million. The strength of
the Bank's commercial activity is reflected in Assets under
Management (AuM) which now exceed CHF 5.0 billion, an increase of
5.5% YoY. Net new money rose by CHF190.0 million from the beginning
of the year. Banking Income was up by 5.5% to CHF 36.8 million.
BPES strengthened its focus on wealth management by acquiring
the LATAM unit of Hyposwiss Privatbank AG. The Hyposwiss team will
join BPES in a newly opened Zurich branch office during the last
quarter of 2013. ESFG considers this to be an important step in
BPES' development strategy of expanding operations within the
European Union. The acquisition is subject to regulatory approval.
At Espírito Santo Wealth Management (Europe) S.A. (ES Wealth
Management), controlled through BPES, AuM has reached CHF 100.0
million after only nine months of activity and was recently granted
the authorization to begin operations in Spain and will open a
branch in Madrid by year end.
Net Income at ES Bankers (Dubai) Limited (ESBD) reached USD 3.0
million against USD 5.9 million a year earlier, a decrease of 49.0%
year-on-year. The reduction in profitability reflects the Bank's
new strategy and repositioning for the future. Fees and Commissions
rose by over 25.0% when compared to the previous year, from USD 7.1
million in 9M12 to USD 8.9 million in 9M13. ESBD closed the period
with Total Equity of USD 40.2 million, an increase of 2.0%
year-on-year generating a ROE of 12.6%. Total assets increased to
USD 278.2 million by the end of the period. AuM, focusing solely on
private accounts, rose by 20.0 % to USD 1.5 billion.
Banking activity at Espírito Santo Bank of Panama (ESBP) remains
positive. Individual net income declined to USD 13.1 million from
USD 14.5 million, a decrease of 10.1%. NII rose by 6.0% to EUR 13.5
million during the period. Fees and Commissions however declined
leading to a 4.3% decline in Banking Income to EUR 16.2 million.
Staff costs and general administrative expenses rose as ESBP
develops new business channels.
At Banque Espírito Santo et de la Vénétie (BESV) (France) gross
operating income rose by 16.0% year-on-year to EUR 14.3 million.
Banking income rose by 10.0% to EUR 34.8 million. Operating costs
however were up by 6.0% driven by the Bank's reorganisation
programme, including the reform of commercial operations and the
outsourcing of services. The French Bank's pre-tax profit for the
period reached EUR 6.6 million.
Banco BEST, principally owned through BES but in which ESFG owns
a 9.0% direct stake, reported a net individual net income for the
first nine months of the year of EUR 8.6 million, a rise of 33.0%
year-on-year. The internet banking operation focuses on the
provision of online trading and investment services. The Bank
reported EUR 2.2 billion of Assets under Custody.
Tranquilidade Insurance Group, BES Vida and BES Seguros
ESFG's insurance operations contributed positively to ESFG's
third quarter results of 2013 despite continued economic
difficulties in Portugal. ESFG's consolidated operations remain the
largest privately owned insurance group in Portugal with a
consolidated market share, by premiums, of 19.4%, ranked only by
the state insurer, and which compares favourably with the Group's
market share in the third quarter 2012 of 15.3%. ESFG's market
share in the non-Life sector, through Tranquilidade Group and BES
Seguros reached 10.6%. The combined market share in the Life
business of T-Vida and BES Vida stood at 23.4%.
In the first six months of the year, as reported by the
Portuguese Insurance Institute (ISP), ESFG's consolidated insurance
income represented 57.0% of total results for the Portuguese
insurance sector. ESFG's consolidated Non-Life net results
represented 88.0% of its sector whilst the Life operations
represented 56.0% of its respective market. Outside of Portugal
ESFG's insurance operations are present in Spain, Angola,
Mozambique, Cape Verde, Brazil, Argentina and Chile.
Tranquilidade's net individual income reached EUR 15.8 million.
Technical results fell during the period by 8.0% to EUR 43.8
million. These results were affected by storms in the first
quarter, which affected continental Portugal. Financial results
stood at EUR 23.6 million, with operating costs down by 0.1%
year-on-year to EUR 48.8 million. Tranquilidade's individual market
share stood at 8.3%. Tranquilidade's market share in workers
compensation, fire and other damage and motor reached at 10.8%,
8.3% and 8.5% in the first nine months of 2013.
T-Vida reported an individual net income of EUR 3.1 million, a
year-on-year increase of 1.0%. Premiums at Tranquilidade's Life
business increased by 61.3%.
BES Vida posted an individual net income of EUR 211.9 million
(including the extraordinary gains of approximately EUR 150.0
million associated with the non-recurrent reinsurance transaction
announced at the end of the first half of the year). BES Vida, a
fully owned subsidiary of BES, posted strong premium growth of
80.0% year-on-year to EUR 1.55 billion on the back of increased
unit-linked, savings and pension product growth. Claims saw a sharp
decline of 47.3% year-on-year following BES' return to full
management control and a sharp reduction in financial product
redemptions.
Solvency margins at ESFG' direct insurance operations remained
strong with Tranquilidade's solvency margin reaching 578%. T Vida's
solvency position improved over the period to 155%. At BES Vida and
BES Seguros solvency margins reached 207.0% and 201.8% respectively
by the end of the period.
ESFG's assurfinance programme of cross-selling banking products
through its agents accounted for 19.4% of new clients at BES and
represents 12.1% of the total increase in retail Assets under
Management. Tranquilidade's distribution network is made up of more
than 1.800 points of sale, of which 37 are own branches and 169
tied agent stores.
4. OPERATING STRUCTURE - 30 September 2013
Fig. II
[ Object omitted ]
5. INCOME ANALYSIS
5.1 Banking Income
Consolidated Net Interest Income (NII) declined by 16.1%
year-on-year to EUR 809.4 million from EUR 964.5 million in 9M12.
The reduction in NII at BES was domestically driven and relates to
the impact of the weak economic picture in Portugal and the
volatility in interest rates. NII generate outside of Portugal,
particularly in Angola, saw a 31.4% year-on-year increase to EUR
355.7 million. Interest earning business remains unchanged, when
compared to a year earlier at close to EUR 69.0 billion with loans
to customers focusing primarily on the corporate sector with loans
to individuals continuing to shrink through lower demand and
amortisation of mortgage loans. The average rate of interest on
financial assets fell (-51 bps) but exceeded the decrease in the
average rate of liabilities received (-26 bps). Net Interest Margin
(NIM) therefore fell by 26 bps year-on-year from 1.75% to
1.49%.
BES' domestic credit portfolio decreased by EUR 900.0 million
which included a 2.0% decrease in the corporate loans, individual
loans fell by 4.0%. International loans rose by EUR 500.0 million
with a 4.0% rise in international corporate loans and a 6.0% rise
in loans to individuals abroad highlighting the support provided by
BES to its corporate clients and more specifically to the exporting
firms.
Net Interest Income results also reflect the limited access to
the medium and long-term debt markets. BES has redeemed, net of
issues, EUR 19.6 billion of wholesale debt over the past 3 years.
As of 30 September 2013 BES' net use of ECB funding fell to EUR 9.2
billion from a high of EUR 13.7 billion in June 2012.
Consolidated Fees and Commissions (Net of Expenses) declined by
13.6% year-on-year to EUR 553.5 million in 9M13 from EUR 640.7
million in 9M12. Results include fees generated by BES as well as
from asset management and securities related fees from the private
banking operations directly owned by ESFG namely Banque Privée
Espírito Santo and ES Bankers (Dubai). The first nine months of
2013 saw strong growth in fees on documentary credit as well as
asset management fees. Commissions on documentary credit increased
by 33.6% and asset management fees by 14.9%. When excluding the
cost of government guaranteed bonds (GGB) and other non-recurrent
fees, issued by BES and guaranteed by the Republic of Portugal,
fees and commissions fell by only 1.8% year-on-year.
Fees and commissions linked to corporate business, namely
financings (collections and loans), project finance and documentary
credits declined however, reflecting the economic conditions as
well as the Group's deleveraging programme. Commission income from
credit cards and account management (commissions on current
accounts, transfers, and payment orders) were also impacted by the
current austerity policies. Commissions on Bancassurance activity
declined year-on-year, though quarterly improvements were
noted.
Consolidated Capital Markets totalled EUR 74.8 million in 9M13
from EUR 288.9 million reported in 9M12. Capital market results
reflect the consolidated trading activity, of primarily BES. BES'
exposure, by the end of September 2013 to both Portuguese and
Spanish sovereign debt, and to a smaller extent Italy, reached EUR
6.9 billion. 40.0% of sovereign exposure was in T-bills and a
further 18.0% in debt of between 1 and 5 years; this reflects the
well-considered duration profile of the Bank's asset allocation.
The Bank's sovereign portfolio contributed positively to capital
markets' results. Concerns during the period over the US Federal
Reserve's willingness to withdraw QE incentives, as well as the
need to readjust for risk in countries suffering social
instability, weighed on asset prices and currencies alike.
5.2 Insurance Income
Income generated from the Group's insurance operations are
consolidated from both ESFG's fully owned Companhia de Seguros
Tranquilidade, S.A. (Tranquilidade) operations and through BES'
recent, fully acquired, consolidation of its life business; BES
Vida, Companhia de Seguros (BES Vida). By the end of the reporting
period ESFG's consolidated life and non-life operations remain the
largest privately owned insurance group in Portugal with a combined
market share of 19.4%.
Consolidated Insurance Earned Premiums (Net of Reinsurance) rose
by 16.1% to EUR 349.3 million in the first nine months of 2013 from
EUR 300.7 million a year earlier. Consolidated Claims Incurred (Net
of Reinsurance) decreased by 20.5% to EUR 352.3 million from EUR
443.4 million in 9M12. The net change in technical reserves (Net of
Reinsurance) increased to EUR 0.1 million from -EUR 8.4 million a
year earlier, the contribution of the Groups to net results
improved during the period.
Tranquilidade's net individual income reached EUR 15.8 million.
The combined ratio at Tranquilidade rose from 100.5% to 102.3% due
to storm claims in the first quarter. The expense ratio stood at
29.8%, reflecting the ongoing cost reduction programme which
includes a 0.1% fall in expenses. Tranquilidade's direct insurance
business, LOGO, reported that its customer base had reached 115,058
clients and gross written premium of EUR 14.8 million. The claims
ratio continued to improve (7.7 p.p.) allowing for a 31.4%
improvement in the net income for the period though the figure
remains negative.
T-Vida reported an individual net income of EUR 3.1 million, a
year-on-year increase of 1.0%. Premiums increased by 61.3%. Risk
products continue to be the main focus for ESFG's insurance
operations in its Life business. The largest growth however was in
PPR products (retirement savings plans). The technical margin
decreased by 1.6% (EUR 4.9 million in 9M12 to EUR 4.8 million by
9M13), mainly due to an increase in premiums but also an increase
in claims over the third quarter of the year. Operating costs
increased by 7.0% year-on-year to EUR 4.7 million.
ESFG's Angolan and Mozambican insurance operations, through
Tranquilidade, which began in 2012, report individual results of
-EUR 0.3 million and -EUR 0.5 million respectively but are expected
to contribute positively to full year results in 2013.
At BES Vida, fully owned by BES, results were positively
influenced by the reinsurance of its life risk portfolio under
which all the inherent risks were transferred though BES Vida
maintained the management of the contracts and the relations with
clients. The operation contributed approximately EUR 150.0 million
to the Company's individual results of EUR 211.9 million. Results
were further boosted by an increase in insurance production, which
reached EUR 1.45 billion in premium volume, close to a fivefold
improvement year-on-year. Unit-linked products and pension plans
saw strong growth while claims' volume fell sharply (-47.3%) as
financial products' redemption volume declined.
AdvanceCare, ESFG's managed care platform for healthcare
insurers provides the link between the Company's insurance and
healthcare operations. AdvanceCare continues to provide positive
results, and in the period net individual income increased by 29.0%
to EUR 1.8 million from EUR 1.4 million a year earlier.
Tranquilidade's assistance service provider, Europ-Assistance
(Portugal), reported a 43.0% increase in individual results to EUR
3.2 million in 9M13 from EUR 2.2 million a year earlier.
Tranquilidade has a 47.0% economic stake in the operations.
5.3 Other Income
Consolidated Net Other Operating Income decreased to EUR 91.6
million from EUR 401.4 million following non recurrent gains at BES
in 2012.
Dividend Income declined to EUR 55.4 million from EUR 71.2
million in 9M12 as payments remain constrained reflecting the
current macroeconomic picture in the Eurozone, reduced dividend
policies and the reduction in certain equity investments at BES
6. COST ANALYSIS
6.1 Operating Expenses
Consolidated Operating Expenses for the period ending the 30
September 2013 rose by 5.5% to EUR 2.43 billion from EUR 2.30
billion a year earlier.
Consolidated Staff Costs and General Administrative Expenses
fell by 6.3% to EUR 898.1 million from EUR 958.3 million in 9M12. A
12.3% fall in staff costs resulted from ESFG Group's strict control
over variable salaries in Portugal. International staff costs at
BES however rose by 1.1% year-on-year as the Bank focuses on the
reorganisation of its Angolan operations, staff costs in Portugal
fell by 4.2% year-on-year.
General administration expenses at ESFG rose by 3.4% as costs
relating to further international growth rose. BES has implemented
a EUR 100.0 million cost-cutting plan to be executed between 2013
and 2015. The Bank's cost reduction, including employment and
running costs (such as IT and advertising) is aligned with
cost-cutting programmes of ESFG's other subsidiaries. Retail
banking at BES is supported by a domestic branch network of 647
branches in Portugal and a net reduction of 19 branches since the
beginning of the year. The branch network includes 43 on-site
branches in partnership with insurance agents under the Group's
assurfinance programme. The streamlining process permitted a 0.1%
reduction in operating costs at the Bank.
Consolidated Costs due to Depreciation, Provisioning and
Impairments rose by 34.3% year-on-year to EUR 1.15 billion from EUR
857.7 million in 9M12. Despite improved economic conditions in
ESFG's principal market, Portugal, the balance of provisions for
credit registered on the balance sheet at BES has increased to EUR
3.31 billion in the period, a year-on-year rise of 28.3% with the
credit provisions/gross customer loans ratio rising to 6.6% (5.1%
in 9M12). Increased provisioning at BES rose by 42.1% or EUR 1.07
billion by the third quarter. ESFG considers that the actions taken
by BES, through their strong provisioning effort, represent a
conservative approach to the current environment.
Other Expenses fell year-on-year by 1.8% to EUR 238.3 million
from EUR 242.7 million in 9M12.
7. SOLVENCY AND LIQUIDITY
7.1 Solvency
ESFG is approved by the Bank of Portugal to use the Internal
Ratings Based ('IRB') method for calculating minimum core capital
requirements to cover credit risk. The authorisation covers ESFG
and its subsidiaries, BES and BESI and their respective
subsidiaries. ESFG provides information on regulatory capital and
capital ratios under the BIS IRB II.
ESFG's capital ratios under Basel II at the end of the reporting
period are estimated at: Core Tier 1: 10.3%, Tier 1: 10.1% and
Total Solvency: 11.5%. Under the EBA method, ESFG achieved a Core
Tier 1 ratio of 9.5%. The respective ratios meet the minimum
requirements set by the two regulators. Capital preservation
remains central to ESFG's strategy.
Fig. III
Solvency (Basel II IRB Foundation) FY11 FY12 9M13
Core Tier I 8.3% 10.1% 10.3%
Core Tier I (EBA) - 9.6% 9.5%
Tier I 8.6% 10.1% 10.1%
Total 9.4% 11.4% 11.5%
RWA (EUR million) 66,967 65,044 62,099
In 2012 ESFG's capital position saw a significant improvement in
its Core Capital following the successful completion of a EUR 500
million capital increase and a EUR 1.01 billion rights issue at its
fully consolidated banking subsidiary BES. ESFG's solvency position
remains above the regulators minimum capital requirements, despite
the negative consolidated results, on the back of a reduction Risk
Weighted Assets (RWA's) and the re-insurance agreement of BES
Vida's life risk portfolio which added approximately 40 basis
points to the Group Core Tier 1 position.
On the 25 October 2013 BES published its capital indicators for
the period: despite the negative results for the period the Core
Tier I ratio 10.4 %, meeting the Bank of Portugal's requirement
(minimum of 10.0%); under the EBA calculation method, the Core Tier
I ratio is 9.7 %, also above the minimum 9.0% established by the
European authority. A reduction in RWA's offset a decrease of EUR
287.0 million in CET1 at BES. The authorised capital increase of
USD 500 million at BES Angola, once completed, is expected to
improve BES' pro forma CET1 to 10.7%, with the positive impact
consolidated at ESFG.
7.2 Basel III
Financial institutions that fall under the Basel Committee on
Banking Supervision have a transitory period from 1 January 2013 to
1 January 2019 to comply with the approved rules, aimed at
strengthening financial institutions and preventing new financial
crises in the future. Basel III rules have established the
following regulatory framework to be gradually implemented by
January 1st, 2019:
-- Minimum Core Tier 1 of 7.0%, 4.5% minimum common equity and 2.5%
capital conservation buffer;
-- Minimum Tier 1 of 8.5%, 6.0% minimum and 2.5% capital conservation
buffer;
-- Total solvency ratio of 10.5%;
-- Introduction of a countercyclical buffer, ranging from 0% to 2.5% of
common equity, under conditions to be defined by the
national
regulatory authorities;
-- Transitory period defined for the absorption of deductions to capital
not eligible under BIS III and for the new deductions to
capital;
-- Definition of the leverage and liquidity ratios (short and long term)
in certain conditions, to be defined.
The approval of EU Regulation no.575/2013 and Directive
2013/36/EU by the European Parliament and the Council of Europe on
26 June 2013 sets out the prudential requirements for credit
institutions and investment firms. The new regulations however have
yet to be transposed into Portuguese law. The ESFG Group closely
follows the development process of the future regulatory framework,
as well as all the efforts carried out to define the final rules
for new capital ratios in the European Union.
7.3 Liquidity - External Debt
ESFG's external debt at the end of the period remained stable at
EUR 716.3 million (falling from a high of EUR 1.3 billion in the
last quarter of 2011). ESFG continues to minimise interest costs
recognising the current economic downturn and the reduced dividend
income from its subsidiaries.
ESFG's EMTN and ECP programmes remain in place. These programmes
support the provision of liquidity to its fully owned subsidiary
Espírito Santo Financière (ESFIL). In the quarter 2013 ESFIL
launched and priced a senior EUR 200 million two-year note. The
transaction was guaranteed by ESFG.
7.4 Credit Rating
ESFG is rated by two international rating agencies; DBRS and
Moody's. The ratings are:
Fig. IV
Short Term Long Term Comment Date of Rating
DBRS R-2 (Middle) BBB (Low) Neg. Outlook 07/05/13
Moody's NP B2 Neg. Outlook 18/07/13
8. DEVELOPMENTS DURING 9M13 AND SUBSEQUENT EVENTS
-- On 18 July 2013 Moody's confirmed ESFG's long term debt rating at B2
(Neg).
-- On 27 June 2013 Banque Privée Espírito Santo (BPES) announced the
acquisition of LATAM unit of Hyposwiss Privatbank AG. Following
the
acquisition BPES will open a branch in Zurich.
-- On 7 May 2013 DBRS confirmed ESFG's long term rating at BBB (low) and
short term rating at R-2 (middle).
-- On 29 April ESFG announced the results of the AGM, held in Luxembourg
on that date.
-- On 23 April 2013 ESFG announced the successful issuance of the EUR 200
million ESFG guaranteed ESFIL two year senior note which will
mature
in June 2015.
-- On 18 March 2013 ESFG published its un-consolidated annual accounts
for 2012.
CONTACTS
Espírito Santo Financial Group King Worldwide
Filipe Worsdell Faisal Kanth
+44 (0) 203 4292 100 +44 (0) 207 614 2900
fworsdell@esfg.com fkanth@king-worldwide.com
For objects omitted, please go to www.esfg.com for the complete
release.
The Espírito Santo Financial Group provides, through its
subsidiaries, a global and diversified range of financial services
to its clients including Commercial banking, Insurance, Investment
banking, Stock-brokerage, Healthcare services and Asset management
in Portugal and internationally. For additional information on
Espírito Santo Financial Group, its subsidiaries, operations and
results, please visit the Company's website on www.esfg.com.
ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2013, 30 SEPTEMBER 2012 AND 31 DECEMBER 2012
9/30/2013 9/30/2012 12/31/2012
Unaudited Unaudited Audited
(in thousands of euro)
Assets
Cash and deposits at central banks 1 092 699 1 226 134 1 444 831
Deposits with banks 1 099 466 1 167 007 1 126 853
Financial assets held for trading 2 963 117 4 017 877 3 981 845
Other financial assets at fair value through profit or loss 3 522 829 2 589 188 2 603 463
Available-for-sale financial assets 12 477 206 12 261 366 11 041 235
Loans and advances to banks 991 286 1 582 426 4 548 247
Loans and advances to customers 49 234 379 51 087 670 50 692 878
Held-to-maturity investments 1 405 067 1 144 604 1 119 047
Derivatives for risk management purposes 366 579 483 150 516 520
Non-current assets held for sale 3 527 346 2 198 689 3 280 185
Property and equipment 979 623 1 265 359 982 617
Investment properties 694 953 763 120 797 323
Intangible assets 584 225 806 912 703 210
Investments in associates 630 362 534 011 640 614
Technical reserves of reinsurance ceded 82 596 68 304 70 773
Current income tax assets 26 309 33 680 28 811
Deferred income tax assets 1 003 586 699 936 760 953
Other assets 3 265 868 4 073 710 3 234 655
Total assets 83 947 496 86 003 143 87 574 060
Liabilities
Deposits from central banks 10 169 012 11 271 547 10 941 325
Financial liabilities held for trading 1 432 263 2 191 170 2 124 225
Deposits from banks 5 459 432 5 170 225 5 065 980
Due to customers 36 837 717 34 165 770 35 625 474
Debt securities issued 12 627 644 15 928 240 15 952 870
Derivatives for risk management purposes 134 640 117 906 125 199
Investment contracts 4 020 562 2 687 224 3 844 020
Non-current liabilities held for sale 152 660 156 243 175 945
Provisions 205 336 238 140 255 601
Technical reserves of direct insurance 2 433 382 2 589 048 2 488 328
Current income tax liabilities 139 025 106 170 253 406
Deferred income tax liabilities 150 415 161 399 154 736
Subordinated debt 1 183 828 1 186 267 1 176 482
Other liabilities 1 550 621 1 842 214 1 268 442
Total liabilities 76 496 537 77 811 563 79 452 033
Equity
Share capital 207 075 207 075 207 075
Treasury shares ( 3 441) ( 3 434) ( 35 965)
Share premium 884 856 885 381 884 456
Preference shares 51 628 56 163 55 978
Other equity components 58 574 57 663 58 100
Capital reserve not available for distribution 700 970 700 970 700 970
Fair value reserve ( 16 579) ( 7 278) 25 771
Other reserves and retained earnings 285 405 52 774 ( 10 282)
Result for the period attributable to equity holders of the Company ( 107 551) 254 374 313 633
Total equity attributable to equity holders of the Company 2 060 937 2 203 688 2 199 736
Non-controlling interest 5 390 022 5 987 892 5 922 291
Total equity 7 450 959 8 191 580 8 122 027
Total equity and liabilities 83 947 496 86 003 143 87 574 060
ESPÍRITO SANTO FINANCIAL GROUP SA
CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTH PERIODS ENDED 30 SEPTEMBER 2013 AND 2012
9/30/2013 9/30/2012
Unaudited Unaudited
(in thousands of euro)
Interest and similar income 2 737 829 3 144 587
Interest expense and similar charges 1 928 466 2 180 112
Net interest income 809 363 964 475
Dividend income 55 442 71 166
Fee and commission income 704 356 786 597
Fee and commission expenses ( 150 872) ( 145 926)
Net gains / (losses) from financial assets and financial liabilities at fair value through profit or loss ( 197 122) ( 15 457)
Net gains / (losses) from available-for-sale financial assets 268 279 337 368
Net gains from foreign exchange differences 5 091 1 141
Net gains / (losses) from the sale of other assets ( 1 422) ( 34 147)
Insurance earned premiums net of reinsurance 349 253 300 746
Other operating income 91 605 401 416
Operating income 1 933 973 2 667 379
Staff costs 516 105 588 645
General and administrative expenses 382 105 369 676
Claims incurred net of reinsurance 352 290 443 378
Change on the technical reserves net of reinsurance ( 56 482) ( 225 521)
Insurance commissions ( 151 586) 28 418
Depreciation and amortisation 88 217 114 791
Provisions net of reversals ( 24 997) 33 249
Loans impairment net of reversals and recoveries 769 598 604 883
Impairment on other financial assets net of reversals 95 478 33 644
Impairment on other assets net of reversals 223 196 71 084
Other operating expenses 238 283 242 664
Operating expenses 2 432 207 2 304 911
Result on disposal of investments in subsidiaries and associates - 1 874
Gains arising on business combinatons achieved in stages - 87 273
Share of profit of associates 9 144 6 852
Profit before income tax ( 489 090) 458 467
Income tax
Current tax 129 359 99 141
Deferred tax ( 244 147) 27 797
( 114 788) 126 938
Profit for the period ( 374 302) 331 529
Attributable to equity holders of the company ( 107 551) 254 374
Attributable to non-controlling interest ( 266 751) 77 155
( 374 302) 331 529
1Aggregate of Net Gains/Losses from Financial Assets at Fair
Value through Profit and Loss; Net Gains on Available for Sale
Financial Assets, Net Gains from Foreign Exchange Differences and
Net Gains/Losses from the Sale of Other Assets
This information is provided by Business Wire
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