DESCRIPCIÓN OBSERVACIONES
8. Conclusiones y recomendaciones
In keeping with Consob Notice no. DEM/11070007 dated August 5, 2011 (which is based on ESMA Statement 2011/266 of July 28, 2011) on the information regarding listed companies’ exposures to sovereign debt securities to be included in financial statements, and with reference to the evolution of international markets also after the second quarter of 2011, a detailed description of the Group’s sovereign exposures1as at June 30, 2011 is provided below.
On the whole, as at June 30, 2011 the book value of sovereign debt securities amounted to€91,571 million, of which 90% concentrated in seven countries; Italy, with€38,664 million, represents 42% of the total2. For each one of the seven countries, the table below shows the nominal value, the book value and the fair value of the exposures broken down by portfolio as at June 30, 2011.
(€ '000)
Nominal value Book value Fair Value
- Italy 38,413,997 38,663,667 38,562,567
financial assets/liabilities held for trading (net exposures) 12,382,587 12,081,269 12,081,269 financial assets at fair value through profit or loss 434,242 439,315 439,315 available for sale financial assets 22,062,251 22,636,405 22,636,405
loans 494 501 510
held to maturity investments 3,534,424 3,506,177 3,405,067
- Germany 27,073,648 26,893,427 26,893,562
financial assets/liabilities held for trading (net exposures) 1,621,662 1,612,896 1,612,896 financial assets at fair value through profit or loss 22,358,767 22,675,643 22,675,643
available for sale financial assets 262,850 248,802 248,802
loans 2,801,369 2,327,010 2,327,219
held to maturity investments 29,001 29,075 29,001
- Poland 8,609,695 7,613,230 7,595,101
financial assets/liabilities held for trading (net exposures) 103,574 101,438 101,438 financial assets at fair value through profit or loss 3,582 3,874 3,874
available for sale financial assets 7,075,848 6,094,521 6,094,521
loans 292,885 297,404 297,404
held to maturity investments 1,133,806 1,115,993 1,097,865
- Turkey (*) 3,255,444 3,249,176 3,573,387
financial assets/liabilities held for trading (net exposures) 149,421 146,187 146,187
financial assets at fair value through profit or loss - - -
available for sale financial assets 963,256 992,067 992,067
loans - - -
held to maturity investments 2,142,767 2,110,922 2,435,133
- Austria 2,512,680 2,599,071 2,598,629
financial assets/liabilities held for trading (net exposures) 255,546 276,624 276,624 financial assets at fair value through profit or loss 411,442 444,377 444,377
available for sale financial assets 1,630,090 1,729,355 1,729,355
loans - - -
held to maturity investments 215,602 148,715 148,274
- Spain 1,882,724 1,881,265 1,880,789
financial assets/liabilities held for trading (net exposures) 908 1,465 1,465 financial assets at fair value through profit or loss 366,853 376,948 376,948
available for sale financial assets 1,436,850 1,465,569 1,465,569
loans - - -
held to maturity investments 78,114 37,283 36,807
- Czech Republic 1,781,538 1,523,961 1,523,960
financial assets/liabilities held for trading (net exposures) 235,823 246,537 246,537 financial assets at fair value through profit or loss 4,814 4,868 4,868
available for sale financial assets 1,540,491 1,272,142 1,272,142
loans - - -
held to maturity investments 409 413 412
Total on-balance sheet exposures 83,529,725 82,423,798 82,627,995 Breakdown of Sovereign Debt Securities by Country and Portfolio
Amounts as at 06.30.2011 Country / portfolio
(*) amounts recognized using proportionate consolidation with reference to the ownership percentage for exposures held by joint ventures.
1
Sovereign exposures are bonds issued by and loans given to central and local governments and governmental bodies. ABSs are not included.
2
Including further exposures towards financial institutions (not Sovereign) and ABSs, respectively amounting to€3.0 billion and €1.3 billion of nominal value (managerial data), the overall exposure amounts to€42.7 billion of nominal value.
The weighted duration of the sovereign bonds shown in the table above, divided by the so-called banking3 and trading book, is the following:
Weighted duration (years)
Banking book Trading book
- Italy 4.43 0.71 - Germany 2.30 3.86 - Poland 2.80 -0.66 - Turkey 8.47 1.92 - Austria 7.69 1.05 - Spain 3.95 0.13 - Czech Republic 4.22 0.92
The remaining 10% of the total of sovereign debt securities, amounting to€9,147 million with reference to the book values as at June 30, 2011 (of which€593 million classified under held to maturity financial assets), is divided into 32 countries, among which the US (€168 million), Ireland (€50 million), and Portugal (€56 million).
These exposures were not subject to impairment at June 30, 2011, with the exception of those towards Greece, whose book amount after the impairment totals€404 million (of which €217 million classified under available-for-sale financial assets,€163 million under held to maturity financial assets and €24 million under financial assets held for trading and those at fair value through profit or loss). See Part A – A.3.2 Fair Value Hierarchy and Part B - Section 4 – Available-for-sale financial assets and Section 5 – Held to maturity investments of the Explanatory Notes for further details on the exposures towards Greece, the evaluation method and the consequent economic effects in the first half of 2011.
The fair values used for the evaluation of sovereign debt exposure as at June 30, 2011 are classified as level 1 or level 2. The exposures towards Greece held in available-for-sale financial assets and financial assets held to maturity are measured according to a fundamental valuation model classified under level 3, as specified in the aforementioned Part A – A 3.2 Fair value hierarchy.
The table below shows the classification of bonds belonging to the banking book and their percentage incidence on the total of the portfolio under which they are classified.
Breakdown of Sovereign Debt Securities by Portfolio (€ '000)
Financial asstes at fair value
Available for sale
financial asstes Loans
Held to maturity
investments Total
Book value 25,303,922 39,232,788 2,871,106 7,541,358 74,949,174
% Portfolio 87.67% 70.58% 0.45% 84.56% 10.31%
Amounts as at 06.30.2011
In addition to the exposures to sovereign debt securities, loans4given to central and local governments and governmental bodies must be taken into account.
With reference to the above-mentioned loans, it should be noted that€8,507.6 million were given to the Italian State and€5,353.8 million were given to the Austrian State.
The loans to the Italian State are divided as follows:
€1,333.3 million: the Treasury and Central Administration; €4,280.4 million: Local Administations;
€2,893.9 million: others.
3
The banking book includes assets at fair value through profit or loss, available-for-sale assets, held to maturity assets and loans. 4
After June 30, 2011, no events have occurred that have changed significantly the Group's exposure to sovereign risk. The most significant changes, even though not material in relation to the overall risk, are connected to the natural expiration of certain debt securities of this type.
Starting from the end of June, financial markets have experienced a period of increasing volatility, with a general widening of spreads, especially in the so-called "peripheral countries" of the European Union. The Italian and Spanish Government securities have been the most affected by this volatility.
On August 8, the differences over June 30, 2011 in yield on 5-year benchmark bonds of the seven countries where the Group’s exposures are concentrated were the following:
Italy: +48 b.p. (from 4.14% to 4.62%); Germany: - 86 b.p. (from 2.26% to 1.40%); Poland: - 8 b.p. (from 5.32% to 5.24%); Turkey: - 42 b.p. (from 9.32% to 8.90%); Austria: - 70 b.p. (from 2.80% to 2.10%); Spain: - 19 b.p. (from 4.71% to 4.52%); Czech Republic - 29 b.p. (from 2.82% to 2.53%).
As a consequence, the overall assessment of sovereign debt securities after June 30, 2011 shows different results, depending on the country and on the valuation date.
It should be noted that derivatives are traded within the ISDA master agreement and accompanied by Credit Support Annexes, which provide for the use of cash collaterals or low-risk eligible securities. For more details on the sensitivity analysis of credit spreads and on the results of the stress test please refer to the "Greece default" Scenario, "Sovereign Debt Tension" Scenario and the "Widespread Contagion" Scenario in chapters 2.7 and 2.8. of the following Section 2 - Market risk, while for liquidity management policies see Section 3 - Liquidity risk.