Dexia Holding SA · EURONEXT:DEXB
Dexia Holding SA — Q2 2008 Earnings Presentation
36 slides from Dexia Holding SA's earnings presentation, Aug 6, 2008
Slide 1: Strategic Review and 2Q 2008 Earnings of FSA
short term has no future Strategic Review and 2Q 2008 Earnings of FSA Axel Miller, Chief Executive Officer Alain Delouis, Member of the Management Board Rembert von Lowis, Member of the Management Board August 6, 2008
Slide 2: Disclaimer
Disclaimer This presentation and the information contained therein are provided for information purposes only and may not be complete. It does not constitute an offer to sell or the solicitation to buy any securities issued by Dexia or any entity of the Dexia Group. This presentation may include fut
Slide 3: Context of Today's Decision
Context of Today’s Decision Dexia’s Approach On the 14th of May, Dexia announced it would discontinue activity in the HELOC and CES sectors, as well as any other form of unsecured consumer credit. Dexia also announced it would engage in a thorough strategic review of FSA Since then, Dexia has taken
Slide 4: Highlights
Highlights Overview of Today’s Key Decisions Dexia announces the results of its strategic review of FSA FSA to exit the Asset-Backed business and focus on core public finance markets FSA will downsize the Financial Products business line FSA’s reserves are strengthened to reflect a more severe US mo
Slide 5: Continued Deterioration of Prospects on the US Housing Market
Continued Deterioration of Prospects on the US Housing Market Worsening of The Crisis Anticipations of House Prices declines in the US have worsened since the end of 1Q08 The decrease in House Prices should only stabilize during the first half of 2009 Longer term projections indicate home prices wil
Slide 6: Strengthening FSA's Provisions
Strengthening FSA’s Provisions Now Considering a More Severe US Mortgage Market Scenario Figures in USD m FSA Financial products: USD 316 m Q2 P&L losses (pretax) economic losses + USD 726 m A. Financial Products additional impairment to reflect full Economic Impairment Non Economic impairment 316 7
Slide 7: ABS Business Termination
ABS Business Termination Exclusive Focus on Global Public Finance FSA will exit the asset-backed sector and focus exclusively on US municipal and global public finance markets This decision is consistent with Dexia’s primary strategic objective to be a world leader in public finance This decision is
Slide 8: Downsizing FSA's Financial Products Business
Downsizing FSA’s Financial Products Business Reduce Volatility in Earnings FSA will continue to serve the Public Finance market by issuing municipal GICs and cease all activities on Structured CDO GICs FSA will reduce the size of its FP assets so as to limit earnings sensitivity to financial markets
Slide 9: Supporting the Financial Products Business
Supporting the Financial Products Business Rationale & Impact on Dexia’s Solvency FSA estimates economic losses on the Financial Products Business at USD 316m In its 21 July release, Moody’s states that stress case losses within the Financial Products portfolio are expected to be USD 600 m All analy
Slide 10: Dexia Injects USD 300 m in FSA
Dexia Injects USD 300 m in FSA Consolidate FSA’s Financial Strength Dexia contributed USD 300 m of additional capital (or any form of capital contribution which would have the same capital effect) to FSA Consolidate FSA’s financial strength Enable FSA to exceed agency capital requirements for AAA ra
Slide 11: Dexia's Second Quarter Preliminary Results
Dexia’s Second Quarter Preliminary Results Dexia Was Resilient in 2Q08 Highlights of Dexia 2Q08 results: Reported net income is EUR 539m (-32% yoy) Excluding FSA, reported net income would have been EUR 755m (+3%yoy) Excluding FSA and on an underlying basis, Dexia’s net income for 2Q08 is up 24% to
Slide 12: Dexia's Second Quarter Preliminary Results: Underlying Net Profit
Dexia’s Second Quarter Preliminary Results Underlying Net Profit excl. FSA up 24% Solid underlying performance of Dexia in 2Q08, excluding FSA Income growth of 10% of which half is due to positive MtM effects Slight increase of expenses mainly due to Turkey developments and PPFCE growth Cost of risk
Slide 13: Agenda
Agenda FSA within Dexia’s Global Public Finance Strategy FSA Impacted in 2Q08 by Continued Deterioration of US Housing Market Financial Impact of the ABS Business Termination Liquidity of the Financial Products Business Line Appendices 13
Slide 14: Strategy and Principles Driving Dexia's Activities in Global Public Finance
Strategy and Principles Driving Dexia’s Activities in Global Public Finance Dexia in Global Public Finance PPFCE’s Key Strategic principles PPFCE: Underlying 2007 Net Income (in EUR m) • Worldwide leadership Turkey; 7% • Multi-Product offer Belgium + France; 35% Other (mainly • Maintain stable margi
Slide 15: Robust Activity in Public/Project Finance in 1H08
Robust Activity in Public/Project Finance in 1H08 PPFCE Activity Trends in 1H08 Originations + 48 % LT Commitments + 58% + 17 % on a cst. exch. rate 43.6 + 21% 1.4 International H/Q on a cst. exch. rate 7.6 - 63 % 342.2 32.9 2Q International H/Q 29.5 Tomorrow growth mkts +109 % 25.1 + 16 % 4,1 292.5
Slide 16: FSA Within Dexia's Public Finance Strategy
FSA Within Dexia’s Public Finance Strategy Importance of the US Market Local Debt Market 2005-2015-2025 (USD bn) The US Public Finance market Total market 2005 = USD 5,000 bn is vast: debt outstanding is over USD 2.6 trn; new issues around USD 400 bn per year The US Public Finance market (banking an
Slide 17: Monoline Industry: Recent Trend and Long Term Outlook
Monoline Industry: Recent Trend and Long Term Outlook Demand for Credit Enhancement Driven by Solid Fundamentals Penetration in 1H08 was particularly low due to the large amount of letter of credit supported floating rate conversions from ARS. From November 2007 through January 2008, prior to the AR
Slide 18: Monoline Industry: Latest Trends in Municipal Credit Spreads
Monoline Industry: Recent Trend and Long Term Outlook Latest Trends in Municipal Credit Spreads US Municipal investors continue to focus on Single-A and Triple-B vs. Insured Triple-A underlying issuer credit risk Municipal credit spreads have not tightened in 10-Year Spreads Jan 2006 – Jul 2008 resp
Slide 19: FSA Market Leader Benefiting from High New Business Profitability
FSA Market Leader Benefiting from High New Business Profitability FSA Undisputed Market Leader 1H08 U.S. Municipal Bond Insurance Profitability on new business Market Share written YTD Premium Rate (Basis ROE* Points) Assured 23% 72 32% MBIA, 2% 19% 59 18% AMBAC, 1% 45 14% 14% 13% FGIC, 1% 38 35 29
Slide 20: Complementarities of Dexia New York and FSA on the US Market
Complementarities of Dexia New York and FSA on the US Market Synergies & Complementarities Synergies: example of Standby Purchase Agreements (SBPA) on Muni Bonds Aside from being credit enhanced by a monoline, Municipal Bonds are also covered by a liquidity facility (SBPA), which Dexia NY growth sin
Slide 21: Dexia Injects USD 300 m in FSA: CPR and BV
Dexia Injects USD 300 m in FSA FSA CPR and BV (US GAAP) Book Value Adjusted Book Value (“ABV”) Claims Paying Resources (“CPR”) Total shareholders’ equity, including Similar to Embedded Value: shareholders’ CPR is a liquidity indicator that shows total realized losses (in accumulated equity + present
Slide 22: Agenda
Agenda FSA within Dexia’s Global Public Finance Strategy FSA Impacted in 2Q08 by Continued Deterioration of US Housing Market Financial Impact of the ABS Business Termination Liquidity of the Financial Products Business Line Appendices 22
Slide 23: FSA Second Quarter Results
FSA Second Quarter Results Reported Net Loss of USD 330 m in 2Q08 FSA quarterly results Three Months Ended June, 30 USD m 2007 2008 Net Premiums Earned Excluding Refundings USD 68.2 USD 71.8 Refundings and Accelerations 14.6 12.5 Net Premiums Earned 82.8 84.3 Net investment income 58.1 67.4 Realized
Slide 24: Overview of Losses at FSA by Portfolio
Overview of Losses at FSA by Portfolio USD 987 m P&L Losses in 2Q08 FSA’s Total Net Par Outstanding: Asset Backed Portfolio: Financial Products Portfolio: $443.3Bn $133.8Bn $17.3Bn Other ABS; $1,9 Option Arm RMBS; Int'l ABS; $5,0 $0,8 Other C onsumer Other ABS; $0,3 Other Pooled Receivables; $0,8 PF
Slide 25: HELOCs: More Severe Assumptions
HELOCs: More Severe Assumptions Stressed Environment Assumed to Continue Well Into 2009 PV of expected losses on FSA’s insured HELOCs rose from USD 333 m in March 08 to USD 776 m in June 08 While performance of the problematic transactions in 2Q08 were close to 1Q08 expectations, we now assume that
Slide 26: Alt-A CES: More Severe Assumptions
Alt-A CES: More Severe Assumptions Stressed Environment Assumed to Continue Well Into 2009 PV of expected losses on FSA’s insured ALT-A CES rose from USD 87 m in March 08 to USD 168 m in June 08 While performance of the problematic transactions in 1Q08 has been in line with expectations, we now assu
Slide 27: First lien RMBS: Subprime, Alt-A first Lien, Option ARMs
First lien RMBS: Subprime, Alt-A first Lien, Option ARMs Losses of USD 39 m in the Insured Portfolio, USD 277 m in FP We determined a peak default rate for each first lien RMBS, based on various assumptions of liquidation rates by rating agencies and Wall Street analysts This peak default rate was a
Slide 28: Provisions on Public Finance Insured Portfolio
Provisions on Public Finance Insured Portfolio The Specific Case of Jefferson County FSA has USD 151 m of net par exposure to Jefferson County sewer debt against which it booked a USD 51 m provision in 2Q08 Jefferson County is a unique situation and not part of a larger trend for US Munis: 94% of Je
Slide 29: Insured CDS portfolio
Insured CDS portfolio USD 68 m Losses on Two CDS Transactions USD 50 m provisions in 2Q08 on one CDS transaction referencing a pool of high yield corporate obligations Out of FSA’s pooled corporate CDS portfolio of USD 41 bn, one 2001 BIG transaction with a net par of USD 712 m continued to experien
Slide 30: Agenda
Agenda FSA within Dexia’s Global Public Finance Strategy FSA Impacted in 2Q08 by Continued Deterioration of US Housing Market Financial Impact of the ABS Business Termination Liquidity of the Financial Products Business Line Appendices 30
Slide 31: ABS Business Termination: Financial Impact
ABS Business Termination Financial Impact Key financial impacts of the termination of FSA’s ABS business line: FSA’s ABS business expected to be less than 5% of FSA net par insured forecasts all net par insured by 2012 USD 1 bn of capital to be released over the next 3-5 years The amortizing ABS por
Slide 32: Agenda
Agenda FSA within Dexia’s Global Public Finance Strategy FSA Impacted in 2Q08 by Continued Deterioration of US Housing Market Financial Impact of the ABS Business Termination Liquidity of the Financial Products Business Line Appendices 32
Slide 33: Available Liquidity
Sound Liquidity Position Liquidity Analysis of FP The liquidity of the FP business is sound It is backed by Dexia’s USD 5 bn line of credit to FSA Asset Management, a subsidiary of FSA Holdings Ltd GIC withdrawals experienced to date: To date, FSA has experienced USD 447m of draws on ABS CDO GICs du
Slide 34: Agenda
Agenda FSA within Dexia’s Global Public Finance Strategy FSA Impacted in 2Q08 by Continued Deterioration of US Housing Market Financial Impact of the ABS Business Termination Liquidity of the Financial Products Business Line Appendices 34
Slide 35: Benchmarking FSA's Loss Estimates vs. Rating Agencies
Benchmarking FSA’s Loss Estimates vs. Rating Agencies Figures in USD m FSA Moody's Moody's FSA Q2 losses Cumulative Base case Stress case A. Financial Products Economic Impairment 316 327 modest 600 Non Economic impairment 726 726 n.a. n.a. Total Financial Products 1,042 1,053 n.a. n.a. B. Insured P
Slide 36: Financial Products OTTIs
Financial Products OTTIs FSA established reserves for economic losses on certain assets which are held for sale in the FP portfolio for USD 316 m (pretax) Beyond the level of expected losses, the marking to market of these assets had an additional impact on reported net income of USD 726 m (pretax).