Annual report 2005 - Dexia.com

ANNUAL REPORT 2005no achievement withoutlasting commitmentANNUAL REPORT2005SDXI 0086-5 04-06

DexiaDexia’s Annual Report 2005 has been published by the Communication Department of the Group.It has been drafted in cooperation with the Communication Departments of Dexia Bank Belgium,Dexia Crédit Local, Dexia Banque Internationale à Luxembourg,Dexia Asset Management and Dexia Insurance Services.ContentsThis report is also available in Dutch, French and German.It just needs to be requested at the Dexia head office in Brussels or in Parisor via the company website at www.dexia.com.2 CORPORATE PROFILE4 FINANCIAL PROFILE6 MESSAGE FROM THE CHAIRMEN12 GROUP ORGANIZATION16 ACTIVITY PORTFOLIO – BUSINESS MODEL –STRATEGY24 SHARE AND SHAREHOLDERS36 FINANCIAL RESULTS50 PUBLIC/PROJECT FINANCE ANDCREDIT ENHANCEMENT76 PERSONAL FINANCIAL SERVICES84 INVESTMENT MANAGEMENT ANDINSURANCE SERVICES92 TREASURY AND FINANCIAL MARKETS98 WOMEN, MEN, A GROUP106 CORPORATE GOVERNANCE124 DEXIA IN THE WORLDDexia entrusted Gueorgui Pinkhassov, photographer for Magnum Agency,with providing the illustrations for its Annual Report 2005. He carried out his tasks at several of the Group’s locations in Paris,Brussels and Luxembourg. We would like to thank all of those who appear in these pages.www.dexia.comDexia SASquare de Meeûs 1B-1000 BrusselsAccount no. 068-2113620-17RPM Brussels VAT BE 0458.548.296Address in Paris7-11, quai André CitroënF-75015 ParisAddress in Luxembourg69, route d’EschL-2953 LuxembourgPhoto creditsGueorgui Pinkhassov - Magnum, Michel Labelle, all rights reserved.Concept & DesignL’Agence SynelogProductionNord Compo + 33 3 20 41 40 01Printed bySnoeck-Ducaju, B-9000 GhentThe Annual Report 2005 is printed on Novatech.The manufacturer of Novatech paper takes into account the principles of sustainable development and is ISO 14001 and EMAS(Eco Management and Audit Scheme) certified as well as PEFC (Program for Endorsement of Forest Certification Schemes)certified for paper based on sustainable managed timber forests; it is also bearer of the Nordic Swan ecolabel.

Annual Report 2005Business linesPublic/Project Finance andCredit EnhancementDexia’s global leadership in public finance isdeservedly renowned. The Group operatesseveral subsidiaries and branches in twentysixcountries worldwide. The main ones areDexia Crédit Local in France and its mainsubsidiaries abroad, Dexia Bank in Belgium,Dexia Crediop in Italy, and Financial SecurityAssurance (FSA) in the United States. Thevery large size of the market, the qualityand solvency of borrowers, and the largeand growing needs for essential publicinfrastructures, offer wide opportunitiesfor the Dexia Group to underwrite valuablebusiness and expand its international coverage.Size, innovation, expertise and a long-termview are the key ingredients of Dexia’s successin this business line, which represents overone half of its earnings. Execution is providedin different forms: straightforward lending,sophisticated project financing schemes andcredit enhancement. In addition, insurance,payments, asset management and otherservices are offered to clientele.Personal Financial ServicesIn Belgium, Dexia Bank is one of thecountry’s top players in retail banking. Itoffers a complete range of banking andinsurance services to a clientele of householdsand small and medium-sized enterprises. InLuxembourg, Dexia BIL has a similar positionamong the retail banks of the Grand Duchy.In that country, a private banking businesshas been developed over the years and nowextends beyond Belgium and Luxembourg.Several units and joint ventures have beenacquired/developed in a number of Europeancountries, among which France, Spain,Switzerland and Slovakia.Treasury and Financial MarketsDexia’s principal businesses give the Groupan intensive presence in the capital markets,whether for the funding and managementof the Group’s balance sheet, or for theengineering of sophisticated products andsolutions delivered to clients of the variousbusiness lines. This business segment is notonly a key support entity for the whole Group,but it is also an important profit center whichgenerates substantial earnings.Specialized unitsThe fast developments of Dexia in its twomain markets, and its strong franchise inLuxembourg, have given rise to specialistactivities in Asset Management, Insuranceand Fund Services. Dexia Asset Managementhas acquired a strong renown in Europe andtoday distributes over one third of its productsamong institutions and through third partychannels. Dexia Insurance Services suppliesall the life and non life insurance productssold in the retail networks of the Group inBelgium and Luxembourg and in France. Infund services, RBC Dexia Investor Serviceshas recently been formed as a joint venturewith Royal Bank of Canada and ranks amongthe ten largest custodian banks worldwide.3

DexiaFinancial profileBALANCESHEET TOTAL(In billions of EUR)NET INCOME(GROUP SHARE)(in millions of EUR)31/12/2001 llllllllllllllllllllllllllllllllll31/12/2002 llllllllllllllllllllllllllllllllll31/12/2003 llllllllllllllllllllllllllllllllll351 351 35031/12/2004 llllllllllllllllllllllllllllllllll38901/01/2005 llllllllllllllllllllllllllllllllll40531/12/2005 llllllllllllllllllllllllllllllllll50931/12/2001 llllllllllllllllllllllllllllllllll31/12/2002 llllllllllllllllllllllllllllllllll31/12/2003 llllllllllllllllllllllllllllllllll1,434 1,4311,29931/12/2004 llllllllllllllllllllllllllllllllll1,77201/01/2005 llllllllllllllllllllllllllllllllll1,82231/12/2005 llllllllllllllllllllllllllllllllll2,038TIER 1 RATIO(in %)CAPITALADEQUACY RATIO(in %)31/12/2001llllllllllllllllllllllllllllllllll31/12/2002llllllllllllllllllllllllllllllllll9.3 9.331/12/2003llllllllllllllllllllllllllllllllll9.931/12/2004llllllllllllllllllllllllllllllllll10.701/01/2005llllllllllllllllllllllllllllllllll31/12/2005llllllllllllllllllllllllllllllllll10.0 10.331/12/2001llllllllllllllllllllllllllllllllll11.531/12/2002llllllllllllllllllllllllllllllllll10.731/12/2003llllllllllllllllllllllllllllllllll11.231/12/2004llllllllllllllllllllllllllllllllll11.701/01/2005llllllllllllllllllllllllllllllllll11.131/12/2005llllllllllllllllllllllllllllllllll10.9Dexia GAAP: Dexia Group accounting standards adopted until the publication on December 31, 2004.EU GAAP: IFRS adopted by the European Union for publications after January 1, 2005.4

Annual Report 2005EARNINGSPER SHARE (UNDILUTED)(in EUR)l lllllllllllllllllllll lllllllllll l1.25l lllllllllllllllllllllllll lllllll l1.13l llllllllllllllllllllllllllllll ll l1.24l llllllllllllllllllllllllllllll ll l1.58l llllllllllllllllllllllllllllll ll l1.63l llllllllllllllllllllllllllllll ll l1.87RETURNON EQUITY (ROE)(in %)llllllllllllllllllllllllllllllllll18.7llllllllllllllllllllllllllllllllll16.2llllllllllllllllllllllllllllllllll16.5llllllllllllllllllllllllllllllllll19.831/12/200131/12/200231/12/200331/12/200431/12/200431/12/2005COST-INCOMERATIO(in %)l lllllllllllllllllllll lllllllllll l59.0l lllllllllllllllllllllllll lllllll ll llllllllllllllllllllllllllllll ll l58.9 59.2l llllllllllllllllllllllllllllll ll l55.9l llllllllllllllllllllllllllllll ll l54.454.024,41815,275 in Belgium,2,516 in France,3,249 in Luxembourg,3,378 internationally.(1) As of December 31, 2005.31/12/200131/12/200231/12/200431/12/2004l llllllllllllllllllllllllllllll ll l31/12/200331/12/200531/12/200131/12/200231/12/200331/12/200431/12/2004llllllllllllllllllllllllllllllllll17.2llllllllllllllllllllllllllllllllll20.031/12/2005members (1) of staff, of which:Dexia Financial DexiaDexia Crédit Dexia Security MunicipalBank Local BIL Assurance AgencyMoody’s Aa2 Aa2 Aa2 Aaa AaaStandard & Poor’s AA AA AA AAA AAAFitch AA+ AA+ AA+ AAA AAADexia is one of the financial institutions with the best ratings in the world as theDexia fait partie des institutions financières les mieux notées du monde, les principales entités du groupemain bénéficiant entities des within notations the AA Group AAA. are rated AA or AAA.(2) As of December 31, 2005.5

DexiaMessage from the ChairmenMessagefrom the ChairmenPIERRE RICHARD,Chairman of the Board of DirectorsIn 2005, numerous events influenced theworld economy and the confidence of itsactors. The rise of oil prices in a mannerunequalled for several years, aroused fearsthat a new shock comparable to that felt inthe seventies and nineties would have seriousconsequences on the economies of theprincipal oil-importing countries. For theirpart, the terrorist attacks in London, afterMadrid, showed that the threat is still there,and that the front line in the battle against thisscourge is actually located at the heart of themajor Western capitals. Mother Nature alsoreminded us of her devastating power in thesouthern part of the United States, provokinghuman drama, the displacement of entirepopulations, and the paralysis of activity therefor many months.In this, to say the least, agitated environmentgrowth nonetheless continued: at a good pacein the United States; Asia is not sitting backeither, and economic activity accentuatedthe vigorous awakening of China and India;and in the countries of Western Europe,which saw differing evolutions in terms ofgrowth and of deficits, but which overall sawcompany results progress, their stock marketscontinuing to perform well.In 2005, Dexia continued to make goodprogress on all fronts. Business turnover,both in credit commitments and in customerassets, rose in a noteworthy fashion. Thisyear, earnings per share achieved once again asharp rise (+14.5%) at EUR 1.87.The share’s performance continued to makeprogress in 2005, with a rise of more than15% over the year, on top of the 24% increaseachieved in 2004. So, in two years, the Dexiashare has increased in value by almost 40%,or twelve points better than the Eurostoxx 50index (which rose +28%), nine more than theCAC 40 index (+31%), and three more thanthe Eurostoxx Banks index (+37%). We wouldrecall, moreover, that the dividend per sharegiven by Dexia in 2005 for the financial year2004 was an increase of 17% over the previousyear. The Board of Directors will propose tothe shareholders’ meeting on May 10, 2006 todistribute a dividend which is up 14.5% over2005, at EUR 0.71 per share. Thus the essentialobjective of value creation undertaken bythe Management Board and the Board ofDirectors of Dexia has been broadly achieved.After an existence of less than a decade, sinceNovember 1996, the Total Shareholder Return6

Annual Report 2005(stock market performance increased bydividends reinvested) was 357%, or an annualaverage performance of 15%, well above thatof the principal indices over the same period.This remarkable performance is the fruitborne by the excellence of our teams, well ableto give our customers the very best qualityof service and to energetically conquer newmarkets.The year 2006 marks an important stage inthe life of Dexia, with the baton passed inthe two management bodies of the Group,the Board of Directors and the ManagementBoard. The mandate of François Narmoncame to an end, and I took the Chair of theBoard of Directors, passing the baton to AxelMiller, new Chief Executive Officer, Chairmanof the Management Board.I would like to pay a very sincere homage, onmy own behalf and that of all my colleagues,to François Narmon. With him I shared thehonor and the thrill of having conceivedand constructed the Dexia Group over thecourse of the last nine years. With him I sharethe pride of having run a Group which hasquadrupled its earnings over that period, andwhich today has a presence in thirty countriesaround the world, and which enjoys itsrenown as world leader in providing financialservices to the local public sector. He receivesour heartfelt gratitude.The year 2006 will evolve under the bannerof corporate governance, in particular withthe application of the Lippens Code. In orderto transpose the provisions of that Code inthe best possible manner to governance atDexia, in 2005 the Dexia Board of Directorsestablished an ad hoc committee chargedwith revising the internal rules of the Boardof Directors. In particular that committeestudied the role of the Board of Directorsand the Chairman of the Board, the rightsand obligations of directors and shareholderrelations. That reflection led at the end of2005 to the publication of the CorporateGovernance Charter.As Chairman of the Board of Directors, I willprovide support and advice to managementand facilitate corporate governance accordingto best practices. I will ensure that our Boardof Directors is in a position to give the addedvalue it is able to provide through the varietyof its composition and the talents of eachof its members. Finally, I will do all I can tostrengthen relations even further with all ourshareholders.“Dexia continued tomake good progresson all fronts.Business turnover,both in creditcommitments andin customer assets,rose in a noteworthyfashion.”7

DexiaMessage from the ChairmenMessagefrom the ChairmenAXEL MILLER,Chief Executive Officer2005 was again a year of excellent achievementfor Dexia. In all areas of activity, the Groupsucceeded in increasing its new business, itsincome and its earnings. Costs remainedunder good control overall, despite the factthat many international developments wereundertaken during the year, and that a numberof closures and divestitures took place, aimedat refocusing the Group on its core businesses.Activity in Public/Project Finance wasparticularly buoyant in 2005, with creditcommitments jumping 25%, and net paroutstanding insured by FSA going up 8%in one year. In an environment of marginsqueeze, net underlying income went up14%, and with a ROEE in excess of 22%, thebusiness line continued to deliver a very highprofitability. Similarly, Personal FinancialServices achieved, this year again, a very goodcommercial performance, with customer assetsgrowing by almost 8%, and loans by morethan 11%. Net underlying income went upabove 13% in the business line, as a result of arobust revenue growth and a well-containedcost progression. In the other businesssegments, results have been equally good:net underlying income was up almost 29%in Investment Management and InsuranceServices, and more than 15% in Treasury andFinancial Markets.All these good underlying performancescombined with a number of one-offs duringthe year to create a very healthy bottom lineincome exceeding EUR 2 billion post tax,11.9% above the very good performance ofthe previous year. Furthermore, given the veryhigh level of share buybacks made in 2005(nearly EUR 600 million), earnings per sharerose by 14.5%, coming after the record +28%of the previous year.Looking back, this performance is veryimpressive, when one remembers that in 1996the combined net income of Dexia Franceand Dexia Belgium was EUR 481 million,whilst their capital resources were quitesubstantial compared to the size of theirbalance sheets, the Group’s Tier 1 ratio thenstanding at above 12%.This success must be recalled not only to praisethe two leaders, François Narmon and PierreRichard who, in their respective roles, ranthe Group until 2005, and to express all duegratitude to the staff who made this happen.This must also be done because it helps uslook into the future of Dexia and to address itsforthcoming challenges.Firstly, Dexia’s success clearly stems from avision: that of creating a global player in publicfinance, diversifying its geographic spread, andenhancing its product offer. This has madeDexia a unique player in the universe of publicfinance, when compared to its various localor global competitors. In less than ten years,Dexia managed to generate one billion eurosof net underlying income in Public/ProjectFinance, and more than half of it originatedoutside the domestic base of France andBelgium. Net income has continued to growdespite fiercer competition; the business bookhas grown to a very substantial level, and theseassets in store grant future revenue streams formany years to come.Secondly, the foundations of the more classicalbanking activities have been reinforcedcommercially, and the business was made8

Annual Report 2005more efficient over past years. Today Dexiaholds a strong position among the leadingbanks in Belgium and Luxembourg. Havingestablished its brand with more than fourmillion retail, affluent and private customers,and having streamlined its networks andoperations, Dexia has secured regular streamsof earnings for the future, gathered reliablefunding resources, and strengthened itsfranchise.Thirdly, at the same time a number ofspecialist activities were set and developedwithin the Group, which brought their supportto the franchise of Dexia in its two principalmarkets, and generated scale and earnings:asset management is now a sizeable and verysuccessful activity, and so is insurance. Fundadministration is now part of a leading globalfranchise under RBC Dexia Investor Services.Finally, in the financial markets, Dexia standsas a very large and well-rated counterpart,given the scope and sophistication of itsproduct offer, the size of its balance sheet andthe quality of its signature.Looking ahead, it is obvious that Dexia mustset a far-reaching vision whilst keeping its eyes“on the ball” and delivering performance inthe short run. In the first days of January, anew strategic planning exercise has started,with a triple time horizon. The plan will lookthree years forward, as was the case previously,to set financial objectives for our variouslines of business; it will also look five yearsahead, so as to earmark the position sought byDexia in the markets or regions strategicallytargeted; finally, the plan will also include aten-year horizon, because local public needsand infrastructures are a long-term matter,requiring anticipation and careful preparation,without which the Group would not be able tomove in the right place, at the right time, in theright way.As the new CEO of Dexia, for me this is athrilling challenge, because one can see theopportunities that exist worldwide in thisdomain. All of the Dexia staff are ready toembark on this challenge and to work hard atit, because there are tremendous assets in theGroup to make it succeed, as it did during thefirst nine years of its existence. The knowledgethat Dexia has developed to date and is ableto export to new territories is superior. Theneeds for public infrastructure creation orenhancement worldwide are immense. Dexiacan expand its franchise in mature markets aswell as in emerging countries. Its initiatives cantake the form of wholly-owned subsidiaries orjoint ventures with powerful local institutions.The modes of provision of financial servicescan be traditional or highly sophisticated:traditional lending, project financing, public/private initiatives and disintermediatedsolutions can be applied, because Dexia hasall the tools and expertise, in house, to handleall of these techniques. Similarly, Dexia’sinitiatives can be in the form of specialist/wholesale units, but they can also imply fullyfledgedretail banking activities when theparadigm in the targeted market commands it.This great array of possibilities makes thestrength of Dexia and gives it a uniqueopportunity to continue broadening its clientbase, improving the spread of its businessportfolio, increasing its earnings, and in theend delivering more and more value to itsshareholders in the many years to come.“2005 was againa year of excellentachievementfor Dexia. In allareas of activity,the Groupsucceededin increasing its newbusiness, its incomeand its earnings.”9

By the end of 2006, in France, 1,100 Dexia colleagueswill work in the new head office bought byDexia in Paris, in the “Défense” business area.Milestone 1The birth of a majorEuropeanbanking group

In October 1996, Dexia wasborn of the merger of CréditCommunal de Belgique and Créditlocal de France. That cross-bordermarriage between two banks, the firstof its kind in Europe, brought togethertwo establishments built on very differentindustrial models. Crédit Communalde Belgique (CCB), created in 1860to finance the local public sector, hadbecome an all-round bank over time bydeploying a network in Belgium for thegathering of deposits. For its part, Créditlocal de France (CLF), former subsidiaryof the Caisse des dépôts et consignationswhich was privatized in 1987, had asingle business line, providing local publicfinance. Those two operators were ofmedium size, compared at the timeto other major European banks, butfaced the same challenge: uncontestedleaders in public sector financing intheir respective countries, their onlyhope for growth was in increasing theirdomestic market to take on a Europeanscale. Rather than entering into directcompetition, anticipating the emergenceof the euro and a single financial market,CCB and CLF decided to join forces. ForDexia, the history of this first decadecan now be viewed as a developmentof that founding strategic choice: thoseten years have given the opportunity tobuild a genuine European banking group.It is a “group” because it is integrated,and not just a collection of entities andbusiness lines. It is a “banking” groupbecause today Dexia has all the attributesof a major bank of internationaldimensions. It is “European” becausemulticulturalism is at the very heart ofthe identity of this enterprise, now wellon the way to confirming its globalambitions.In Belgium, the building of the new Dexia toweris nearing the end. In September, about4,500 colleagues will be working there.

DexiaGroup organizationGrouporganizationDexia was born in 1996 from Europe’s first cross-borderunion in the banking sector, between Crédit Communal deBelgique and Crédit local de France. This initiative anticipatedthe emergence of a single currency and financial area inEurope. At first, the two entities were placed under the jointand equal control of two holding companies, one in Brusselsand the other in Paris. In 1999, the Group was unifiedfollowing the merger of the two holding companies, to formDexia SA, a company under Belgian Law with its registeredoffice in Brussels. Dexia SA is listed on the Euronext marketsin Paris and Brussels and is part of the CAC 40 and BEL20indices.At the time of its unification in 1999, Dexiawas given an organization controlled bya Management Board, itself chaired bythe Chief Executive Officer and composed ofa total of seven members, among which threewere in charge both of a business line and anoperating entity. That organization remaineduntil the end of 2005, and was recast whenthe new Chief Executive Officer took officeon January 1, 2006. That reorganization,described below, was conceived so thatDexia might operate in an even moreintegrated, rapid and effective mannerthan before, in order to take account of anenvironment presenting new challenges everyday. Furthermore, in terms of governance,a Corporate Governance Charter was drawnup and put in place in 2005.12

Annual Report 2005From left to right:Xavier de Walque, Jacques Guerber, Rembert von Lowis, Dirk Bruneel and Axel Miller.The operational management of the Group iscurrently organized as follows:• The general management body atDexia is the Group Management Board,composed of five members. It is chairedby Axel Miller, Chief Executive Officer; theother members are Jacques Guerber, ViceChairman, Dirk Bruneel, Rembert von Lowisand Xavier de Walque. The mission of theManagement Board consists in steeringthe Dexia Group and to define its strategy,to face the challenges and develop humanresources. Furthermore, in order to allow aquick decision-making process, four out ofthe five members of the Group ManagementBoard are members of the ManagementBoards of the Group’s major entities. Togetherwith the head of the entity, they form the topmanagement body of each entity.13

DexiaGroup organization“Thatreorganizationwas conceived sothat Dexia mightoperate in an evenmore integrated,rapid and effectivemanner…”• The Group Executive Committee, whichdeals with the central steering of the entireGroup, consists of the five members of theGroup Management Board, plus sevenExecutive Vice Presidents in charge of thebusiness lines and the principal horizontalfunctions: Public Finance, under the charge ofBruno Deletré; Personal Financial Services (tobe appointed); Treasury and Financial Markets,under the charge of Alain Delouis; Finance(to be appointed); Risk Management, underthe charge of Claude Piret; Operations and IT,under the charge of Marc Huybrechts; HumanResources, Communications & Culture, underthe charge of Bernard-Franck Guidoni-Tarissi.• Each of the management bodies of the threemain operating entities of the Group(Management Boards of Dexia Crédit Local,Dexia Bank and Dexia BIL) is composed of fivemembers: Axel Miller and Jacques Guerber,two other members of the Group ManagementBoard, and finally the Chairman of themanagement organ of the operating entityconcerned: respectively Gérard Bayol for DexiaCrédit Local, Stefaan Decraene for Dexia Bank,and Marc Hoffmann for Dexia BIL.• Moreover, Hugo Lasat, Chairman ofthe Management Board of Dexia AssetManagement, Guy Roelandt, Chairman ofthe Management Board of Dexia InsuranceServices and Marc Hoffmann, in his capacityof Chairman of RBC Dexia Investor Services,also report directly to the Group ManagementBoard.• Finally, those in charge at Group levelof Strategy and Development (StéphaneVermeire), Investor Relations (Robert Boublil),Audit (Véronique Thirion), Compliance(Jean-Noël Lequeue) and General Secretariat– Legal and Tax (Olivier Van Herstraeten),report directly to the Chief Executive Officer.The cohesion of the decision-making andmanagement process of the Group is thusensured by the majority presence of membersof the Group Management Board withinthe management bodies of the operatingentities and by the existence of sevenGroup divisions charged with monitoringthe business lines and the major horizontalfunctions.14

Annual Report 20051 Axel Miller – 2 Xavier de Walque – 3 Jacques Guerber – 4 Rembert von Lowis – 5 Dirk Bruneel – 6 Bernard-Franck Guidoni-Tarissi –7 Alain Delouis – 8 Bruno Deletré – 9 Claude Piret – 10 Marc Huybrechts – 11 Stefaan Decraene – 12 Gérard Bayol –13 Marc Hoffmann – 14 Hugo Lasat – 15 Guy Roelandt23 45 6 78 91011121314115• Comité stratégique• Comité des rémunérations• Comité des nominations• Comité d’auditAccumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duisdolore te feugait nulla facilisi. Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diamnonummy nibh euismod tincidunt ut laoreet dolore maerat volutpat.15

DexiaActivity portfolio – Business model – StrategyActivity portfolioBusiness modelStrategyThe alliance between Crédit local de France and CréditCommunal de Belgique in 1996 aimed at creating a EuropeanBank with, inter alia, the ambition to become the worldleader in public finance. By pooling the respective domesticleaderships, Dexia was able to develop a strategy ofinternational expansion based on the strengths of the twofounding institutions.Those shared the same high financial standingand values, and brought to the union theirtwo different business models: Crédit localde France – later renamed Dexia CréditLocal, was essentially an originator of longtermcredit facilities, raising its fundingalmost exclusively on the bond markets;symmetrically, Crédit Communal de Belgique– later renamed Dexia Bank Belgium – wasa network of local branches collecting retaildeposits from private individuals, andrecycling the majority of them in the formof loans to municipalities.Following the merger, Dexia has thus becomeone of the fifteen largest banks in the eurozone (by market capitalization), and today itaddresses two main markets:• local public authorities and borrowers witha similar profile (hospitals, schools, socialhousing institutions, charities, etc.), an activityconducted on a global scale;• households and small and medium-sizedenterprises, an activity conducted mostly inBelgium and Luxembourg.16

Annual Report 2005The alliance has met and even exceeded itsinitial ambitions. The two foundinginstitutions have been able to expand theiractivities in several directions: the productoffer is now wide-ranging in the two marketsthat are served; the client base has beenstrongly developed both in number and types;lastly, the geographic scope of the Group isnow much broader, with a presence in30 countries. Today, Dexia counts amongthe very rare banking institutions which holdglobal leadership in one specific business(Public/Project Finance) whilst being a stronglocal retail player in Belgium andLuxembourg, giving it a unique spread interms of portfolio mix and geographiccontributions to earnings.After less than a decade in existence, Dexiahas not only increased its size – net incomeand market capitalization quadrupled sinceinception – but it has also built a renownedworldwide franchise in the area of publicfinance, a very strong regional presence inpersonal financial services, and established itsname on the financial markets.• In the Public/Project Finance arena, Dexiacan today engineer and execute all formsof transactions: long and short-term creditfacilities, ranging from the traditionalto the more sophisticated schemes; debtmanagement services; credit enhancementof municipal bonds and asset-backedsecurities; arrangement and underwritingof infrastructure projects. As an illustrationof the latter capability, Dexia now belongsto the “top-ten” worldwide league of projectfinance players compiled by Euromoney forBUSINESS PORTFOLIO – SEGMENT CONTRIBUTIONSTO UNDERLYING NET INCOME GROUP SHARE*14%52%12%22%Treasury and Financial Markets* Excluding non-operating items and central assets.Public/Project Finance & CreditEnhancementUnited States 34%France 26%Belgium 20%Other 20%Personal Financial ServicesBelgium 60%Luxembourg 26%France 11%Other 3%Investment Managementand Insurance ServicesAsset Management 34%Insurance 38%Fund Services 28%17

DexiaActivity portfolio – Business model – Strategy2005. Dexia is in the sixth highest positionamong the mandated arrangers of GlobalProject Finance loans, and in first positionamong the mandated arrangers of Global“Public/Private” Project finance loans (PPP).• In terms of international development,Dexia’s presence has been dramaticallyenlarged, to a large extent in the United Statesfollowing the acquisition of FSA in 2000,and also through several moves in Europeancountries, and more recently in Canada,Mexico and Japan. The Group has constructedits presence in various ways, either throughbranches, wholly-owned subsidiaries or jointventures.• In Personal Financial Services, Dexia Bankis today one of the four largest universalbanks in Belgium, as is Dexia BIL inLuxembourg, with significant market sharesin asset-gathering activities – particularlywith affluent and private banking customers– and increasing activity in lending products.• In the financial markets, the marriageof the two institutions has given Dexia aconsiderably greater visibility: the Group isone of the largest private issuers of long-termbonds and one of the very large counterpartsin interest rate derivatives. The growingsophistication of the products offered toclients has developed a substantial businessflow and revenue base for the Group.• Initially established to supportthe commercial efforts of Dexia in its twomain markets, some specialist subsidiarieshave been successfully developed in the areasof Asset Management and Insurance Services.Their products show good performancesand are sold both in the proprietarydistribution networks of the Group andthrough third party channels. In the area offund administration, Dexia has constructeda strong franchise in Europe which hasrecently been brought to a joint venture withthe Royal Bank of Canada to form RBC DexiaInvestor Services. This young company holdsa very high position among global institutionsoffering custodian and fund administrationservices.The Dexia business model is today muchlike that of its European peers, with a spreadof contributions from retail networks,institutional clientele, and the capital marketsand specialist activities. Being a bank, Dexiaworks on the strengths of its four millionclient base in Belgium and Luxembourg andenjoys a good market share owing to its “stateof the art” products and services.But Dexia is also a unique player inthe financial services industry, because it is theworld leader in Public/Project Finance. In thisarea, its business model is in fact a combinationof several business models: it can be a “retail”approach – as in Belgium, where the completerange of services is offered to local authorities –it can also be a “wholesale/investment banking”approach – as executed in France, Italy or theUnited States – where only some products orservices, with high added value, are offered toselected segments of the market. This capacityto execute the business in different ways hasgiven Dexia a major competitive advantage inthe deployment of its international strategy.For instance, Dexia has established successfullyin Spain and Austria by establishing a joint,highly specialized, public finance subsidiarywith a local retail bank which operates onthe local market. In other cases, followingan acquisition, Dexia wholly or partly ownsa company conducting specialist activities(e.g. Dexia Crediop in Italy; FSA, a US majorin the credit enhancement of municipalbonds; or Dexia Kommunalbank Deutschland– formerly Dexia Hypothekenbank Berlin18

Annual Report 2005–, a holder and manager of German publicauthority funding instruments). Lastly, Dexiamay own and directly operate a fully-fledged“bank of the municipalities”, such as DexiaBanka in Slovakia, which operates a similarbusiness model to that of Dexia Bank inBelgium.Not only has Dexia all the means to deployits strategy by applying the right businessmodel in the right place, but its establishedexperience in public finance has alsoallowed it, in many countries, to transforma “demand-side” market – where the productsare quasi-commodities and where winninga transaction is only a matter of price – intoa “supply-side” market where public financecustomers are willing to discuss not onlya single piece of new debt, but also all possiblesolutions to their overall financial and riskmanagement needs.Dexia is organized in business segments,managed as profit centers for strategy,marketing, budgeting and reporting purposes.• Public/Project Finance and CreditEnhancement covers the activities ofMunicipal Finance, Project Finance, CreditEnhancement and Corporate Lending.Municipal Finance consists of financingthe needs of local public authorities or otherpublic service organizations, in the form ofdirect loans, signed commitments, liquidityguarantees or the purchase of securitiesissued by the customers. Dexia offers itsclients an entire range of products – includingstructured loans as well as debt management– to optimize their debt portfolio profileand efficiency. As indicated above, Dexia isalso an active player in Project Finance anddeploys its expertise on a global scale. It usesa selective approach, in line with the Group’srisk policy: priority is given to essentialinfrastructures (transportation, environmentand so on) and the renewable energy sector.Being one of the largest banks in Belgium,Dexia also supplies finance to corporateborrowers.Through its New York based AAA-ratedsubsidiary, Financial Security Assurance(FSA), Dexia insures municipal bonds andinfrastructure deals, as well as asset-backedsecurities (ABS) mainly in pooled corporate,consumer loans and mortgage sectors.• Personal Financial Services. The strategicfocus of this segment is the distribution ofits own products and services as well as thosecreated in other business lines of the Group(primarily Dexia Asset Management, DexiaInsurance Services and Treasury and FinancialMarkets – TFM), to a clientele predominantlycomposed of households, which includesaffluent and high net worth individuals,professionals and self-employed individuals,as well as small and medium-sized companies.The largest part of the activity is conductedin Belgium and Luxembourg, where a broadand comprehensive distribution apparatusexists. The networks, as they now stand,stem from the integration of the DexiaBank network and the BACOB/Artesianetwork acquired in 2001. The scaling downobjective set at that time for 2005 has beenexceeded, and the network now amounts to833 branches operated by independent agents,and 236 branches run by bank employees.The integration of Artesia BC aimed atachieving substantial cost synergies, and thishas been achieved and even exceeded.19

DexiaActivity portfolio – Business model – StrategyThe business line also operates units outsideBelgium and Luxembourg. These involvevarious types of approaches and/or productfocus. The main areas are:- France where the Group holds a 20%participation in Crédit du Nord, DexiaBanque Privée France – a wholly-ownedprivate bank –, and Dexia Epargne Pension,a specialized life insurance business;- Switzerland through Dexia Private BankSwitzerland;- Slovakia through Dexia banka Slovensko,a bank with 52 branches, which caters bothto the local public clients and to the personalsector;- Spain, where Dexia holds a 40%participation in Popular Banca Privada,a private banking joint venture with BancoPopular.• Treasury and Financial Markets (TFM), isa segment whose mission is largely aimed atgiving support to the other business lines ofthe Group, and which is run as a profit centerin its own right.TFM provides short-term money marketproducts and long-term funding for theGroup supporting the growth of the Group’sbalance sheet.TFM teams also develop, through permanentinnovation, the offer of a large range of capitalmarket products (fixed income, structuredproducts based on interest rates and equityderivatives, foreign exchange, securitization)to the customers of the commercial businesslines (local authorities, corporates, retail andprivate clients, institutional investors, fundmanagers and so on).Finally, TFM manages a bond portfolio(Credit Spread Portfolio), which contributesto ensuring a high level of liquidity for theGroup and brings a sizeable part of thebusiness line’s earnings.• Asset Management. Dexia has successfullydeveloped its own production capacity. Inthe first place this has related to mutualfunds, considering the retail networks’growing demand for this kind of product,with increasing levels of sophistication.This expertise has then been extendedto institutional investors, amongDexia’s traditional clients – for instancethe institutions of the public sector – butalso to other institutions such as pensionfunds, endowments and foundations, viaa professional distribution sales force.Today Dexia Asset Management isthe organization where asset managementskills are concentrated. It is a significantEuropean player, with three productioncenters in Belgium, Luxembourg andFrance, and client coverage in these threecountries plus Italy, Spain, Switzerland,Germany, Austria, the United Kingdom,the Scandinavian countries, and in Australia.2005 has been a year of strong extension innew markets.Dexia Asset Management manages a completerange of products including equity, fixedincome,money market and diversified funds.The company holds strong positions inspecific areas such as alternative investmentmanagement and socially responsibleinvestment funds.20

Annual Report 2005Products or mandates are distributed eitherthrough the various distribution channels(Retail and Private Banking networks, PublicFinance customer base), through third partynetworks, or via its own pan-European salesforce. Over one third of the business comesfrom institutional mandates.Dexia Asset Management’s main objective isto keep delivering outstanding performancesin its product range (79% of Dexia AssetManagement’s products are in the first twoquartiles of sector peer group classification byStandard and Poor’s in the last three years),whilst achieving superior productivity (one ofthe best in Europe), through a strict controlof operating costs. Dexia Asset Managementwill continue to leverage on the Group’sdistribution networks, retail and privateclients, public finance institutions, and willcontinue successfully to develop its activitytowards institutional clients.• Insurance activities occupy an importantplace in Dexia’s business portfolio, withapproximately 7.5% contribution to totalrevenues (excluding the business of FSAand Dexia Sofaxis, which are reportedseparately, within the Public/Project Financebusiness line, due to their specific nature).Insurance business is originated throughoutthe entire commercial organization, butmostly in Personal Financial Services (72%of the total premium amount collected), andthe balance of premiums are collected amongthe institutional clients of the Public/ProjectFinance business line (17%), and from thirdparty networks which distribute the productsof Dexia among their own clients (11%); thislatter part of the commercial production isreported in the Investment Management andInsurance Services (IMIS) segment. IMIS isalso the business line where the operational(administration, back office, IT), financial,and statutory management of the insurancecompany units is conducted.Within Dexia, insurance activity is largelya life business (89% of the total premiumscollected in 2005). Geographically,the majority of the premiums are collectedin Belgium (70%), and the balance comesessentially from France (essentially underthe brand of “Dexia Epargne Pension”),and Luxembourg (essentially via “DexiaLife & Pensions”).21

DexiaActivity portfolio – Business model – Strategy• Fund Administration. This businessencompasses the custody and otheradministrative tasks relating to securitiesand funds. Dexia offers three types ofservice: custody and related services, centraladministration (book-keeping of the funds,legal work, providing periodic valuations andso on), and transfer agent services (keepingregisters and managing subscriptions andredemptions of fund shares).Dexia has long been a leading player in thisindustry in Europe owing to its premierposition in the Luxembourg market, which isthe second largest in Europe. Over the years,Dexia has developed a renowned expertisein the central administration and transferagent businesses and is now a European leaderin these two activities. Dexia has developedoutside Luxembourg and now operates inmany other European countries. In 2005,a joint venture was concluded – and hasstarted operating in January 2006 – withRoyal Bank of Canada to establish one ofthe first global players in this area. The jointlyownedcompany, RBC Dexia Investor Services,occupies the tenth highest position amongglobal custodians with nearly USD 2 trillionunder custody.22

Milestone 2The Dexia share,sustainable performanceThere are several ways tomeasure the creation of value.Whatever mode of calculation ischosen, the performance of the Dexiashare over the past decade places it atthe head of the European pack. Since1996, the growth of net earnings pershare has been 12.3% per annum onaverage. For its part, the annualincrease of dividend per share hasreached 11.6%. Over the same period,in terms of total shareholder return(TSR), the Dexia share has performedbetter than the evolution ofthe European indices BEL20, CAC 40and Eurostoxx Banks, of which it hasbecome one of the reference shares.These great results are the fruit of anambitious policy which links growthand profitability. In its principalbusiness line, the bank has the benefitboth of good stability of assets andvery low risk, guarantees of long-termfuture visibility. Finally, the Groupcombines world competence and anunequalled capacity to adapt in eachcountry to local market conditions.All those fundamentals make the Dexiashare one of sustainable growth!23

DexiaShare and shareholdersShareand shareholdersThe Dexia shareDexia shares are traded on Euronext Parisand Euronext Brussels as well as on theLuxembourg stock exchange. They occupya strong position in the principal Europeanindices.Dexia was taken up in the following fourmain European indices managed on thebasis of socially responsible investment (SRI)principles:• Dow Jones Sustainability Index “World”;• ASPI Eurozone;• FTSE4 Good “Europe” et “Global”;• Ethibel Sustainability Index (ESI) “Europe”and “Global”.Shareholding structureDexia SA directly or indirectly held 1.85 % ofits own shares as at December 31, 2005. Theemployees of the Dexia Group held 4.82 % ofthe company shares.At the same date, and to the company’sknowledge, no individual shareholder, withthe exception of Arcofin, Holding Communal,Caisse des dépôts et consignations and Ethias,held more than 3% of Dexia SA’s capital.In addition, the directors of Dexia SAheld 136,315 shares in the company as ofDecember 31, 2005.Another year of progress2005 was an excellent stock market year onthe euro zone markets. Indeed, although theAmerican indices only evolved slightly, incontrast the indices of performance of the oldcontinent were particularly brilliant.The other noteworthy feature of the yearappears in the fact that it was not technologyshares which “drove” the market upwards, butoil (as a consequence of the rise of crude prices),insurance and banking shares and publicservice operators. In this regard, the performancein 2005 of shares in the EuroStoxx 50was pleasing since it was practically onlythe telecom shares which recorded negativeperformances.On the banking side, the best performancescame from German shares which have nowfully recovered and which also benefited fromthe Unicredito-HVB transaction. Commerzbankthus progressed 71.6%, HVB Group53.4%, Deutsche Bank 25.4%; only one sharein the EuroStoxx Banks posted a negativeperformance.As for the Stoxx Banks index which slightlyunderperformed the EuroStoxx Banks (21.2%against 26.5%), note should be taken of the24

Annual Report 2005performance, again very average, of Britishbanks which had already underperformed themarket in 2004.It was another year of progress for Dexiawhich, after a 24% rise in 2004, again rose15% in 2005. After having outperformed theEuroStoxx Banks index over the first half-year2005, a trend reversal occured from the firstspeculative movements on German banks(HVB Group but also Commerzbank) whichadded momentum to the EuroStoxx Banks ina spectacular manner to the end of the year(+18.5% from July 7 until year-end 2005).From the end of October until the end ofthe year, the progress made by Dexia was approximatelycorrelated to that of the market,recording a significant peak in the second fortnightof December (+5%), in a week which istraditionally calm.Closing the year at EUR 19.49 in Paris andEUR 19.48 in Brussels, Dexia had thereforegained 15.1% in 2005, establishing newhistorical highs in a session at EUR 19.78 andclosing at EUR 19.73.Finally, over two years, the net performanceof Dexia (with dividend reinvested) was 53%against 47.8% for the EuroStoxx Banks. Overthe same period that performance was at toplevel among European indices.DEXIA’S POSITION IN THE PRINCIPAL EUROPEAN INDICESIndex Weighting Position Numberin index (1)of companiesBEL20 13.05% 4 20CAC 40 1.43% 23 40Euronext 100 1.21% 25 99Next CAC 70 0.89% 25 69FTSE Eurotop 100 0.38% 86 106FTSEurofirst 80 0.71% 49 80Dow Jones EuroStoxx Banks 1.68% 17 47MSCI Europe Banks 1.12% 22 44MAIN SHAREHOLDERS OF DEXIA (1)Name of shareholderPercentageof Dexia SA capital heldArcofin 16.56%Holding Communal 16.22%Caisse des dépôts et consignations 8.89%Groupe Ethias 6.81%CNP Assurances 1.86%STOCK EXCHANGE DATAAs of December 31, As of December 31,2004 2005Share price (2) 16.93 19.49(in EUR)Market capitalization 19,384 21,579(in millions of EUR)(1) As of December 31, 2005.(1) (2) Moyenne Average closing des cours price de on clôture Euronext sur Euronext Brussels and Bruxelles Euronext et Euronext Paris. Paris.25

DexiaShare and shareholdersDEXIA’S STOCK MARKET PERFORMANCE (FROM NOVEMBER 1996 TO END FEBRUARY 2006)EUR 25Average Dexia EuroStoxx Banks EuroStoxx 50EUR 20EUR 15EUR 10EUR 520/11/9620/02/9720/05/9720/08/9720/11/9720/02/9820/05/9820/08/9820/11/9820/02/9920/05/9920/08/9920/11/9920/02/0020/05/0020/08/0020/11/0020/02/0120/05/0120/08/0120/11/0120/02/0220/05/0220/08/0220/11/0220/02/0320/05/0320/08/0320/11/0320/02/0420/05/0420/08/0420/11/0420/02/0520/05/0520/08/0520/11/0521/02/06DEXIA’S STOCK MARKET PERFORMANCE IN PARIS AND TRADING VOLUMESEUR 25Monthly trading volume Dexia CAC 4090,000,000EUR 20EUR 15EUR 10EUR 5EUR 080,000,00070,000,00060,000,00050,000,00040,000,00030,000,00020,000,00010,000,000020/11/9620/03/9718/07/9715/11/9715/03/9813/07/9810/11/9810/03/9908/07/9905/11/9904/03/0002/07/0030/10/0027/02/0127/06/0125/10/0122/02/0222/06/0220/10/0217/02/0317/06/0315/10/0312/02/0411/06/0409/10/0406/02/0506/06/0504/10/0501/02/0621/02/06DEXIA’S STOCK MARKET PERFORMANCE IN BRUSSELS AND TRADING VOLUMESEUR 25Monthly trading volumeDexiaBEL2045,000,00040,000,000EUR 2035,000,000EUR 1530,000,00025,000,000EUR 1020,000,00015,000,000EUR 510,000,0005,000,000EUR 0020/11/9620/03/9718/07/9715/11/9715/03/9813/07/9810/11/9810/03/9908/07/9905/11/9904/03/0002/07/0030/10/0027/02/0127/06/0125/10/0122/02/0222/06/0220/10/0217/02/0317/06/0315/10/0312/02/0411/06/0409/10/0406/02/0506/06/0504/10/0501/02/0621/02/0626

Annual Report 2005STOCK EXCHANGE DATABrusselsParisShare price as of December 31, 2004 (in EUR) 16.92 16.93Share price as of December 31, 2005 (in EUR) 19.48 19.49Highest/lowest price (in EUR) 19.78/16.93 19.77/16.93Average daily trading volume (in millions of EUR) 24.33 29.59Number of shares traded daily (in thousands of shares) 1,338 1,628NUMBER OF SHARESAs of As of As of As of As ofDec. 31, 2001 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2005Number of shares 1,166,813,164 1,181,685,852 1,175,222,680 1,145,261,366 1,107,469,030Of which Treasury shares 11,867,710 20,082,005 32,546,412 40,050,935 20,550,020Number of options 18,331,214 31,809,349 43,301,416 50,684,800 55,903,030Total number of current/potentialfuture shares (1) 1,185,144,378 1,213,4950201 1,218,524,096 1,195,946,166 1,163,372,060DATA PER SHARE2001 2002 2003 2004 2005Earnings per share (in EUR)– basic under Dexia GAAP (2) 1.25 1.13 1.24 1.58 –– basic under EU GAAP (2) – – – 1.63 1.87– diluted under EU GAAP (3) – – – 1.62 1.85Average weighted number of shares (4)– basic 1,137,242,884 1,150,867,134 1,157,363,982 1,118,723,767 1,091,316,100– diluted – – – 1,124,050,279 1,103,413,861Net assets per share (in EUR) (5)– under Dexia GAAP (6) 8.39 8.79 9.25 9.95 –– related core shareholders’ equity (7) – – –(9)8.87 9.86– related to total shareholders’ equity (8) – – –(9)10.32 12.25Dividend (in EUR)Gross dividend 0.48 0.48 0.53 0.62 0.71 (12)Net dividend (10) 0.36 0.36 0.40 0.47 0.53 (12)Net dividend for shares with a VVPR strip (11) 0.41 0.41 0.45 0.53 0.60 (12)STOCK MARKET RATIOS2001 2002 2003 2004 2005Payout ratio (in %) (13)– under Dexia GAAP 39.3 43.0 42.1 38.7 –– under EU GAAP – – – 37.6 37.9 (14)Price-earnings ratio (15) 12.9 x 10.4 x 11.0 x 10.7 x 10.4 xPrice to book ratio (16) 1.9 x 1.3 x 1.5 x 1.7 x 2.0 xAnnual yield (in %) (17) 3.0 4.1 3.9 3.7 3.6(1) For more details refer to “legal information” on www.dexia.com.(2) Ratio between the net income – Group share and the weighted average number of shares.(3) Ratio between the net income – Group share and the weighted average diluted number of shares.(4) Excluding shares held in treasury stocks.(5) Ratio between the shareholders’ equity (estimated dividend for the period deducted) and the number of shares at the end of the period (after deduction oftreasury shares).(6) Including GBRR – Group share.(7) Without AFS, CFH reserve and cumulative translation adjustments.(8) With AFS, CFH reserve and cumulative translation adjustments.(9) As of January 1, 2005.(10) After deduction of a 25% Belgian withholding tax.(11) After deduction of a 15% Belgian withholding tax for securities with a VVPR strip.(12) Proposed dividend, the net dividends are rounded up for the purpose of this publication.(13) Ratio between the total dividend and the net income – Group share.(14) Based on proposed dividend.(15) Ratio between the average share price as of December 31 and the earnings per share for the year.(16) Ratio between the average share price as of December 31 and the net assets per share as of December 31 (related to core shareholders’ equity for 2005).(17) Ratio between the gross dividend per share and the average share price as of December 31.27

DexiaShare and shareholdersInforming shareholdersHigh-performanceand adapted toolsSince its creation, Dexia has always beenattentive to the quality of relations with itsshareholders. The Group is constantly focusedto respect its commitments in an effort toenhance dialogue and transparency in theirregard. Dexia developed with its shareholdersa rigorous, regular and interactive informationsystem. This system comprises a shareholder’sclub, a European advisory board of individualshareholders, meetings in different regions,specific publications, a telephone informationservice and internet dedicated items withupdates in real time.The European clubfor individual shareholdersThe European club for individual shareholderstoday has nearly 16,000 members, primarilyBelgian and French shareholders. The club’sprimary purpose is to provide financialinformation to individual shareholders whowish to keep up to date on Group developmentsthrough publications and documentsspecifically designed for club members. Theregistration in the shareholders club may bedone by phone, email on www.dexia.com orfrom the www.boursorama.com site.Shareholders’ informationmeetings in different regionsDexia regularly organizes informationmeetings in different regions to discuss withshareholders the Group’s business lines,strategy, results and financial outlook. In2005, Pierre Richard met with shareholdersin Marseille and Strasbourg at eventsorganized in partnership with financialnewspapers. Dexia also participates, togetherwith other firms, in meetings organizedby the “Fédération française des clubsd’investissement” and the “Cercle de liaisondes informateurs financiers en France”. Itwas thus in 2005 that Dexia met numerousshareholders in Montpellier, Lyon, Annecy,Tours and Biarritz.28

Annual Report 2005Every year, Dexia has a stand at the Actionariashareholder convention in Paris. This event isorganized to put Dexia in direct contact withits shareholders.Information mediaDexia publishes a shareholders’ newsletterin French and Dutch three times a year. Thispublication keeps individual shareholders up todate on developments in the Group, its resultsand decisions taken at shareholders’ meetings.The letters to shareholders are sent to clubmembers and to shareholders who request itand are also available on the internet site.The edition of the Group’s annual report,available in four languages (English, French,Dutch and German), is completed by thepublication of a condensed report whichis produced in English, French and Dutch.By the same token, on the occasion of theannouncement of the Group’s quarterly, semiannualand annual results, Dexia publishesfinancial notices in the Belgian, French andEnglish-speaking press.The internet siteWith 49,000 visitors a month against 42,000 in2004, www.dexia.com confirmed in 2005 thatit is a major forum for information about theDexia Group for individual and institutionalshareholders as well as for journalists. The siteis practical in structure, giving quick accessto a wide range of information on the life ofthe Group, its activities, latest news, a list withprices of all the Group’s investment fundsand ethical funds, and the Dexia share price.In 2005, its shareholder’s section of receivedalmost 35,000 visits, i.e. a 15% increase in visitfrequency.The site provides access to all the Group’smain publications such as annual, quarterlyand semi-annual reports, as well as pressreleases, information letters to shareholders,and daily and monthly reports on the share.Launched in 2004, Dexia TV, Sustainabledevelopment live was very successful withsite visitors. In 2005 almost 34,000 of themcame on www.dexia.com to watch the reportson sustainable development related toenvironment, economy and social concerns.Available in English, French, Dutch and theDexia site is mostly visited by Europeansurfers, mainly from Belgium and France.The 2004 annual reportpraisedIn October 2005, the Belgian Institute of Statutory Auditors gave Dexiathe award of best Sustainable Development Report. And, in February2006, Dexia was also given the award in France of “Top Com – CorporateBusiness”. These two prizes awarded by juries of finance, press andcommunication professionals praise the quality and the transparency of theinformation contained in the annual report, and also its aesthetic value.29

DexiaShare and shareholdersShareholders’ meetingThis important time in the life of the companyis subject to specific information: in officialnotices published in Le Moniteur in Belgiumand in the legal announcement bulletin, theBalo, in France; in announcements in majorfinancial newspapers in Belgium and France;with information provided by the toll-freenumber; in a notice of meeting available inEnglish, French and Dutch that can also bedownloaded from the internet. The OrdinaryShareholders’ meeting is broadcast live overthe internet, thereby enabling shareholderswho cannot attend in person to follow theproceedings.The European AdvisoryCommittee of IndividualShareholdersFormed in June 2001, the European AdvisoryCommittee at Dexia took the baton fromthe Advisory Committee of Dexia France,created in 1997. This committee, composedof four Belgian shareholders, four Frenchshareholders and three Luxembourgshareholders, plays the role of advisor to theGroup in its policy regarding informationto individual shareholders. In 2005, theAdvisory Committee met twice to considerthe Group results and also to be informedon other subjects such as the internationaldevelopment of Dexia in its first business lineand the Group policy in matters of sustainabledevelopment. Every year, one of its memberspresents a summary of the committee’sactivity over the previous year at the OrdinaryShareholders’ meeting.Shareholders’ telephoneinformation serviceThis service can be reached from France at0800 35 50 00 (toll free), Monday to Fridayfrom 9 a.m. to 7 p.m., and from Belgiumat +32 2 213 57 46. It is regularly called byshareholders with all types of questionsincluding the price of the Dexia share, the taxtreatment of the share and the dividend, theamount of the dividend, the VVPR strips, andDexia SA shareholders’ meetings.Relations withinstitutional shareholdersFor Dexia, relations with institutionalshareholders have great importance, since thiscategory of investors holds almost 30% of thecapital. To that end a team, partly based inParis and partly in Brussels, is specially chargedwith ensuring relations with these investorsas well as with the analysts of 30 stock marketcompanies following the Dexia share andproducing publications and analysis notes.30

Annual Report 2005• Providing regular informationIn February 2005, in Paris, the ‘InvestorRelations’ team organized an Investor Day,a major meeting of analysts and investorsof all nationalities, to provide them withinformation on the state of progressin moving to the new IFRS accountingstandards, and also to present to them theactivity and the prospects of the Public/Project Finance and Credit Enhancementbusiness line. This was also an occasion for themanagement of the Group to present to themarket its objectives for the next three years.During the year, Dexia applied itself tothe regular dissemination of strategicand financial information to institutionalshareholders and analysts. It is mainlyquarterly, semi-annual and annual activityreports, thematic presentations andpress releases on business developments,financial results and recent Group events.Once released, this data is available on thecompany’s internet site www.dexia.com in the“You are an investor” section. Investors canalso request that the information be sent bye-mail.In 2005, Dexia released 35 publications,including 4 quarterly activity reports, 14 adhoc presentations and 17 press releases.2006 FINANCIAL CALENDARTuesday May 23 Publication of the results as of March 31, 2006.Wednesday May 24 2005 dividend payment.Tuesday September 5 Publication of the results as of June 30, 2006.Thursday November 16 Publication of the results as of September 30, 2006.31

DexiaShare and shareholders• Relations with institutionalshareholdersAfter every presentation of results or inother circumstances, meetings are organizedthroughout the world with the principalinstitutional investors. It is the occasionfor each of them to meet members of theManagement Board of Dexia directly.In 2005, Group management, assistedby the Investor Relations team met with500 investors in 17 countries and 29 cities.SHAREHOLDERS’ CALENDAR IN 2006Wednesday April 5 Lille Meeting chaired byAxel Miller, in partnershipwith Le Journal des financesWednesday April 26 Brussels Meeting of the European ConsultativeCommittee of Individual ShareholdersWednesday May 10 Brussels Shareholders’ meetingsThursday May 11 Paris Méridien Meeting chaired by Axel Miller andÉtoile 17 ePierre Richard in Paris, in partnershipwith InvestirTuesday June 6 Rouen In partnership with InvestirMonday September 11 Clermont-Ferrand In partnership with the FFCI (1)Thursday September 28 Chambéry In partnership with the FFCI (1)October Paris Meeting of the European ConsultativeCommittee of Individual ShareholdersTuesday October 3 Nantes In partnership with InvestirThursday October 19 Marseille In partnership with Le RevenuTuesday October 24 Tours In partnership with InvestirTuesday November 7 La Rochelle In partnership with the FFCI (1)Friday November 27 and Paris Actionaria ConventionSaturday November 28 Palais des CongrèsMonday December 4 Lyon In partnership with Investir(1) Fédération française des clubs d’investissement.32

Annual Report 2005The 2005 Dexia/TNS Sofres surveyIn November 2005, at theActionaria salon in Paris, inpartnership with the surveycompany TNS Sofres, Dexiapublished an exclusivebarometric study. For the fifthconsecutive year, this highlightedthe opinions and attitudes ofindividual shareholders withregard to the stock market andlisted companies. On the part ofFrench individual shareholdersa clear recovery of confidence,activity and appetite is notedvis-à-vis the stock market andalso an intensification of theirvigilance on transparency, inparticular concerning directors’remuneration and the allocationof profits. Shareholders areextremely sensitive to loyaltyactions.A more positive and moreconfident view vis-à-visthe stock market, whichmaterializes in a recoveryof stock market activity andincrease purchase intentionsfor 2006• More individual shareholdersare active in their portfolio: sincethe beginning of 2005, 57%of them carried out at least onetransaction in their portfolio and42% over the course of the lastquarter 2005.• Net buyers are increasing:almost one shareholder in twomade more purchases thansales. Net buyers are more oftenmajor portfolios active or veryactive on the stock market, orinternet users.• The revival of confidence isconfirmed with the profitabilityof shares: up to 80% ofshareholders perceive themas profitable. Today a third ofshareholders would invest as amatter of priority in shares andone in five in UCITS if they had amajor sum to invest.• This revival of interest in thestock market is not oustingreal property which is still thepreferred investment of theFrench, but marks a slightrunning out of steam.• In the short term, the peoplequestioned are optimistic as tothe evolution of the CAC 40.40% think it will rise and 44%think it will remain stable. 30%of shareholders, against 19%in 2002, intend to buy shares in2006.The Internet and the StockMarket, a popular tool foractive shareholders• 25% of individual shareholdersuse the internet these days tomanage their share portfolios,against 15% in 2003. Thisproportion is 41% forshareholders more active onthe stock market (at least onetransaction in the last quarter2005).• Almost 71% of internet-usingshareholders pass orders on line.More than one in two seeksinformation there, or advice onlisted companies.• For these people, gains in timeand management costs, as wellas independence vis-à-vis thebank are vital.Relations with listedcompanies: shareholdersdemand greater transparency• The priority for information onfinancial fundamentals such aseconomic and financial health,profitability and so on comesfirst (25%), the prospects of thelisted company are just behind(22%).• Whether letters toshareholders or annual reports,paper is still broadly the supportpreferred for the disseminationof information (73% against25% for the internet).• For shareholder loyalty,the granting of free sharesis approved (96%) and thedistribution of increaseddividends is much expected(77%).• As regards the allocation ofprofits: shareholders are dividedon the repurchase of shares(50% rather in favor with 43%against). Almost six shareholdersin ten prefer a redistribution ofcompany profits in the form ofdividends. Nevertheless, a notinsignificant proportion (36%)would like them reinvested inthe company.• Greater transparency incorporate governance: although46% of shareholders thinkcompanies have made progressover recent years, 48% think theopposite. For all, this is still thepath to be taken, in particularwith regard to directors’remuneration.33

Ensuring Dexia has the managerial skillsnecessary to face the challenges of the future isthe ambition of the Dexia Corporate University(DCU), officially opened in Brussels on 13 January2005.A horizontal project by nature, the Corporate University wasconceived and built by representatives of all the Group’scompanies and business lines. The tool they have put inplace is not simply aimed at responding to individual trainingrequirements. Serving the Dexia strategy, the DCU sees itselfabove all as a crucible, a place of exchange and reflection,a “melting pot” of local cultures which should foster theemergence of a common managerial identity at Group level.Beyond that, it contributes to the development of leadership,that is to say the affirmation of new generations of men andwomen able to take the company’s destiny in their hands,respecting its values and its missions. To that end, there arefour principal lines of approach: training programmes withan operational orientation, the drive of a corporate clubenlivening the international management community, thepublication of a magazine offering economic and financialanalyses (the first edition appeared in October 2005), andthe organization of a summer university. In 2005, some 700Dexia executives, from all the countries in which the groupis present, took part in the work of the DCU. In 2006, morethan 1,000 will occupy its seats.34

Milestone 3The Dexia Corporate University,a breeding ground for managers35

DexiaFinancial resultsFinancial resultsPreliminary notes tothe financial statementsChanges in scopeof consolidationThe main changes taking place in 2004concerned Société Monégasque de BanquePrivée and the sale of Kempen & Co in theNetherlands. In 2005, Eural Banque d’épargneSA has been sold (effective from the fourthquarter) and Rekord Group, in liquidation,is no longer consolidated. FMS Hoche, aspecialist fund-administration company basedin France, was acquired in 2005.EU GAAPThe consolidated financial statements of Dexiaare prepared in accordance with all IFRSs asadopted by the EU. The accounting principlesand rules are given on page 86 of the AnnualReport - Accounts and Reports.Pro forma financial statementsThe changes in scope of consolidation in2005 were taken into account to establish proforma financial statements for 2004 so as toenable comparisons. In absolute amounts,the difference between the reported and proforma 2004 net income – Group share isEUR -3 million (income lower by EUR 23 millionand costs lower by EUR 20 million).“Underlying” and “nonoperating”itemsUnderlying excludes the non-operatingitems. The non-operating factors compriseboth the nonrecurring items as reporteduntil 2004, and from 2005 on the variationsof the marked-to-market value of FSA’sCDS portfolio. The latter instruments beingclassified as derivatives, the variation of themarket value during the reporting period istaken as a trading result; this treatment underIAS 39 does not allow a good understandingof the economic results, as this portfolio iscomposed of AAA-rated instruments, whichFSA is committed to insure until maturity.Thus, the positive or negative marked-tomarketvariations on this book in any periodare not underlying results, as they willeventually add up to zero. Non-operatingitems are detailed on pages 44-45 of thisreport.36

Annual Report 2005Analysis of the statementof incomeForeword2005 results are presented under IFRS asadopted by the EU (EU GAAP), includingthe IAS 32&39 and IFRS 4 standards.Comparisons with 2004 are not totallyrelevant since the three standards mentionedabove were not in place in 2004. Furthermore,a number of adjustments were made duringthe fourth quarter 2005 on certain accountingentries of the first three quarters, followingmore accurate interpretation/application ofthe new IFRS standards. They are pointed outwhere appropriate in the commentary below.Net income – Group shareNet income – Group share amountedto EUR 2,038 million in 2005, upEUR 216 million (+11.9%) over 2004.Some changes took place between thetwo years in the scope of consolidation,accounting for a small variation in netincome (EUR - 3 million). The contributionof the non-operating factors was significantthis year again (EUR 251 million in 2005,compared to EUR 214 million in 2004 - seebelow), accounting for EUR 37 million of theincrease. Hence, the underlying performanceprogressed by EUR +181 mil lion, or 11.3%overall, and it was good in all business lines,with progressions of +14.0% in Public/ProjectFinance and Credit Enhancement, +13.3%in Personal Financial Services, +28.6% inInvestment Management and InsuranceServices, and +15.4% in Treasury and FinancialMarkets – see analysis below. Of note, thecurrency exchange impact on net income wasvery limited in 2005 (EUR 1 million positiveimpact).IncomeTotal income amounted to EUR 5,976 millionin 2005, EUR 353 million higher than in 2004(+6.3%). At constant scope of consolidation,the increase was EUR 377 million (+6.8%) inone year, largely stemming from the growthof underlying revenues in all the businesslines: respectively EUR +216 million inPublic Finance (+10.6%); EUR +69 millionin Personal Financial Services (+3.2%);EUR +71 million in Investment Managementand Insurance Services (+11.2%), andEUR +38 million in Treasury and FinancialMarkets (+8.5%). For the rest, the combinedrevenues of Central Assets and non-operatingitems went down EUR 15 million.37

DexiaFinancial resultsThis overall revenue growth was howevermitigated by several technical factors, discussedlater in more detail. Some are linked to theapplication for the first time of IAS 39 in 2005which has brought an accounting change forrevenues that were taken upfront in the pastand are now accrued over a long time span.Others concern arbitrage strategies engineeredby Treasury and Financial Markets whichhave mitigated both the revenues and the taxcharge in 2005. The last one stems from thechange introduced in 2005 in the fee structureand conventions of asset managementactivities. Without these various items, theyear-on-year revenue growth would have beenEUR 75 million higher (1.3 percentage pointof additional growth).CostsCosts stood at EUR 3,229 million in 2005,up 5.6% (or EUR +172 million) comparedto 2004.• By nature, the expenses progressed asfollows: staff expenses – which representabout half of the total cost base – went upEUR 43 million (or +2.8%) in the year;network commissions went up 3.7% (orEUR 13 million), a relatively modest increasewhen put in perspective with the goodcommercial performance of the networkin 2005; other costs went up 10.0% orEUR 116 million.• By type, there were two “non-operating”items in 2005 (none in 2004): EUR 13 millionrelated to the liquidation of Rekord inGermany, and EUR 3 million for the settingup of RBC Dexia Investor Services. Excludingthose, and on a pro forma basis, the variationof costs was +5.8%, or EUR +176 million,explained by a number of factors of varyingimportance (detailed below) but stemmingfrom three main reasons:– EUR 30 million linked to the geographicexpansion of the Group;– EUR 33 million linked to the businessdevelopment programs of the various entities,such as higher net-work commissions, the costof advertising campaigns, etc.;– and EUR 111 million for several specificreasons (e.g. EUR 29 million on IT programsput in place, as well as higher amortizationunder IFRS; EUR 14 million cost increase atFSA; EUR 6 million adjustment of IAS 19pension provisions, EUR 10 million forthe implementation of the “Duisenberg”mediation in the Netherlands, etc.).38

Annual Report 2005STATEMENT OF INCOME(in millions of EUR)2004 2005 VariationIncome 5,623 5,976 +6.3%of which net commissions 1,048 1,172 +11.8%Costs (3,057) (3,229) +5.6%Gross operating income 2,566 2,747 +7.1%Cost of risk (226) (52) -77.0%Impairments on (in)tangible assets (20) 0 n.s.Tax expense (429) (602) +40.3%Net income 1,891 2,093 +10.7%Minority interests 69 55 -20.3%Net income – Group share 1,822 2,038 +11.9%STATEMENT OF INCOME (FROM REPORTED TO UNDERLYING (1) PRO FORMA)(in millions of EUR)2004 2005 VariationIncome 5,623 5,976 +6.3%Changes in consolidation scope (24) 0 n.s.Income pro forma 5,599 5,976 +6.8%Non-operating items 182 221 +21.8%Underlying income 5,416 5,755 +6.3%Costs (3,057) (3,229) +5.6%Changes in consolidation scope 20 0 n.s.Costs pro forma (3,037) (3,229) +6.3%Non-operating items 0 (17) n.s.Underlying costs (3,037) (3,212) +5.8%Gross operating income pro forma 2,561 2,747 +7.3%Non-operating items 182 205 +12.8%Underlying gross operating income 2,380 2,543 +6.9%Cost of risk pro forma (226) (52) -77.0%Non-operating items (177) 7 n.s.Underlying cost of risk (48) (59) +21.4%Net income – Group share 1,822 2,038 +11.9%Changes in consolidation scope (3) 0 n.s.Net income – Group share pro forma 1,819 2,038 +12.0%Non-operating items 214 251 +17.0%Underlying net income – Group share 1,605 1,786 +11.3%(1) i.e. excluding the non-operating factors (defined on page 36 of this report).39

DexiaFinancial results• Of important note is the fact that in PersonalFinancial Services – which represents abouthalf of total costs, and where the cost-incomeratio is the highest – the underlying cost basewas up only 1.8%, in line with the objectivesset at the beginning of the year in this businessline, and substantially below the underlyingrevenue progression thereof.The cost-income ratio was 54.0%, in the fullyear 2005, below that of 2004 (54.4%).The underlying cost-income ratio stoodat 55.8% (down compared to 56.1% in2004). This reduction is satisfactory whenconsidering the expenditure engaged todevelop the business and franchise of Dexiaboth domestically and internationally duringthe year, and the number of items discussedherein, which have borne on the cost base in2005.Gross operating incomeThe gross operating income amounted toEUR 2,747 million in 2005, up 7.1%. Onthe underlying basis, the growth was +6.9%(+6.8% at constant exchange rate). Takingaside the effects of the non-operating items,one can see the very satisfactory underlyingperformances in the business lines, particularlyin Public Finance, where a +11.1% growthyear on year was achieved, in PersonalFinancial Services which delivered a +6.9%progression, in Investment Management andInsurance Services (+10.6%) and in Treasuryand Financial Markets (+8.5%). Overall,the exchange rates fluctuations in 2005 hada small influence on the gross operatingincome (EUR 2 million positive impact).Cost of riskThe cost of risk (impairments on loansand provisions for credit risks) was verylow, amounting to EUR 52 million in 2005,compared to EUR 226 million in 2004.Excluding the provision movements atDexia Bank Nederland (described below),the underlying cost of risk increasedslightly (EUR 59 million in 2005 againstEUR 48 million in 2004), but remainedhowever at a very low level (1.6 basis points onaverage outstanding banking commitments).TaxesTax expense (comprising both current anddeferred tax) amounted to EUR 602 millionin 2005, up 40.3% compared to 2004. Thisamount includes the non-operating items(net credits of respectively EUR 40 million in2005, and EUR 230 million in 2004 – see detail40

Annual Report 2005below). If those are excluded, the underlyingtax charge went down, from EUR 658 millionin 2004 to EUR 642 million in 2005, but thisvariation of EUR -16 million is partly due tothe positive impact of the arbitrage productsdiscussed above (down EUR 21 million withinthe variation), and partly due to an adjustmentmade in 2004 of the tax charge (on accountof derivative products), with no equivalentin 2005 (down EUR 13 million within thevariation). The tax rate in 2005 evolved asfollows: it was 23.1% (compared to 19.0% in2004) on the basis of reported earnings, and itwas 26.8% (compared to 29.1% in 2004) onthe basis of underlying earnings.Focus on the main non-operatingitemsIn 2005, the contribution of non-operatingitems to the net income – Group shareamounted to EUR +251 million while it wasEUR +214 million during the previous year.Over the year, the main evolutions are asfollows.In the incomeInterest payments were collected on the shareleasingcontracts of Dexia Bank Nederland,from those clients who have accepted the DexiaCommercial Offer. This offer included interestdiscounts, whose value was included in the totalgeneric provision decided in 2002. Since thisprovision was treated as a non-operating item,its utilization is treated in the same manner:related non-operating revenues amounted toEUR 31 million in 2005, vs. EUR 41 million in2004, or a EUR -10 million variance for the fullyear.Capital gains were crystallized in 2005 inthe amount of EUR 166 million, comparedto EUR 141 million in 2004. The main onesare a EUR 70 million gain on the sale of Eural,EUR 27 million on the sale of a participationin SPE, and EUR 13 million on the sale ofa participation in Veolia.The marking to market of the credit defaultswap (CDS) portfolio insured by FSAamounted to EUR 9 million in 2005, with noequivalent in 2004 (see page 36).In the costsThe closure of Rekord in Germany in 2005has caused a charge of EUR 13 million.The creation of the joint venture with RBC hadan effect of EUR 3 million.Cost of risk at Dexia Bank Nederland,treated as a non-operating item, amountedto a total net reversal of EUR 7 million overthe year. As previously reported, an additionalcharge of EUR 97 million was made duringthe first quarter of 2005 in the context ofthe Duisenberg mediation. Besides the netnew charges and reversals amounted toEUR +104 million. This compares to a chargeof EUR +177 million in 2004.41

DexiaFinancial resultsConcerning the situation of Dexia BankNederland, an update on the share-leasingcontracts is made on page 86 of the AnnualReport - Accounts and Reports.Non-operating taxes amounted to a creditof EUR +40 million in 2005 (compared toEUR +230 million in 2004) and stemmed,aside from the tax impacts of the nonoperatingitems discussed above, from variousevents, the main ones being the settlementof a tax dispute (EUR +28 million) andthe positive tax incidence of impairmentsmade on a subsidiary of Dexia BIL(EUR +17 million).Overall financial performanceThe profit margin (net income beforeminority interests related to total revenues)stood at 35.0% in 2005, higher than in 2004(33.6%).Return on equity (ROE) stood at 20.0%(compared to 17.2% in 2004), well aboveGroup’s medium-term objective, partly underthe influence of the non-operating items.Earnings per share (EPS) reached EUR1.87 in 2005 (non diluted), up 14.5% overthe previous year. Of note, the share buybackprogram was pursued, with 32,707,600 sharespurchased during the year, amounting tonearly EUR 600 million.Group Tier 1 ratio continued to go up andstood at 10.3% at year end (10.0% at January 1,2005). This stems from the combined effects, inopposite directions, of several factors, the mainones being: the increase of risk-weightedassets (+11.3% in the year); the issuance ofhybrid Tier 1 capital by Dexia Crédit Localin the fourth quarter, and finally the sharebuybacks discussed above.Proposed dividendIn view of the good 2005 results, the Boardof Directors will propose a gross dividend ofEUR 0.71 per share. Subject to shareholders’meeting approval thereon, the dividend will bepaid on May 24, 2006.Post-balance-sheet eventOn January 4, 2006 Dexia and Royal Bank ofCanada announced the completion of the jointventure to combine their institutional investorservices businesses. RBC Dexia InvestorServices is a joint venture equally ownedby Royal Bank of Canada and Dexia. Dexiawill consolidate 50% of the joint venture byproportional method from January 1, 2006.Dexia’s proportionate share of RBC’scontribution will be recorded at fair value inDexia’s consolidated financial statements. Asa result, Dexia will recognize both an after-taxprofit of over EUR 200 million in Dexia’s netasset contribution to the joint venture andEUR 100 million in intangible assets.42

Annual Report 2005Commenting on the results, Axel Miller,Dexia’s Chief Executive Officer, declared:“This year again, Dexia’s results have been excellent.In Public Finance, originations were record-high and a lot of profitablebusiness was done that will generate earnings for many years. Net incomegrowth exceeded 14% in 2005, despite a very high competitive pressure.In Personal Financial Services, this is the third consecutive year of high doubledigit earnings growth, with a solid revenue momentum and costs keepingunder control.Equally, Asset Management, Insurance, Fund Administration Services, andTreasury and Financial Markets have remarkably performed in terms ofefficiency, earnings growth and ROE.This year was excellent above all, because we increased our volume of businesswithout compromising with our key objectives: curbing down the cost-incomeratio – despite the fact that this has been a year of extensive development,domestically, internationally, and in terms of new activities –, delivering a highreturn on capital, and eventually increasing earnings per share and shareholdervalue.We are confident that Dexia will continue to deliver value at a strong pace,whilst planning and preparing its longer term future to occupy a strongposition in the very promising markets that we have ahead of us.”43

DexiaFinancial resultsMain items reportedas “non-operating” (1)Income• In Q1 2004: net revenues on the credit linknotes (CLN) portfolio (EUR -10.8 million);utilization of Legiolease provision(EUR +9.8 million); capital gain on sale ofequities (EUR +8.8 million); capital gain onlong-term investments (EUR +53.8 million);impairment on long-term investments(EUR -7.3 million); effect of disposal ofproperties (EUR +16.5 million);reimbursement of default interests followinga settlement with the Belgian fiscalauthorities (EUR +7.3 million).• In Q2 2004: net revenues on the CLNportfolio (EUR +8.1 million); utilization ofLegiolease provision (EUR +10.0 million);losses on sale of portfolio holdings (EUR-9.6 million); effect of disposal of properties(EUR +3.5 million); reimbursement of defaultinterests following a settlement with theBelgian fiscal authorities (EUR +1.0 million).• In Q3 2004: net revenues on the CLNportfolio (EUR -0.2 million); capital gain onsale of equities (EUR +1.0 million); utilizationof Legiolease provision (EUR +11.1 million).• In Q4 2004: net revenues on the CLNportfolio (EUR +7.1 million); capital gain onsale of equities (EUR +1.1 million); utilizationof Legiolease provision (EUR +9.9 million);accelerated amortization of capitalizedexpenses at Dexia Bank Nederland(EUR -24.9 million); capital gains onlong-term investments and participations(EUR +81.5 million).• In Q1 2005: interest discount on loansaccepting “Dexia Offer” (EUR +9.2 million);capital gain on sale of equities(EUR +7.1 million); capital gain on longterminvestments (EUR +4.1 million);marking to market of FSA’s CDS portfolio(EUR -2.2 million).• In Q2 2005: interest discount on loansaccepting “Dexia Offer” (EUR +8.6 million);capital gain on sale of equities(EUR +28.3 million); marking to market ofFSA’s CDS portfolio (EUR -11.3 million).• In Q3 2005: interest discount on loansaccepting “Dexia Offer” (EUR +7.0 million);capital gain on sale of equities(EUR +39.7 million); marking to market ofFSA’s CDS portfolio (EUR +34.8 million).• In Q4 2005: interest discount on loansaccepting “Dexia Offer” (EUR +5.7 million);capital gain on sale of Eural(EUR 70.3 million); capital gain on sale ofequities (EUR + 25.0 million); capital gain ondisposal of properties (EUR +9.2 million);marking to market of FSA’s CDS portfolio(EUR -12.4 million).(1) In 2004 and 2005 ; defined on page 36.44

Annual Report 2005Costs• In Q3 2004: restructuring costs at DexiaBank Nederland (EUR -1.4 million).• In Q3 2005: costs related to the closure ofRekord in Germany (EUR -11.2 million).• In Q4 2005: costs related to the creation ofthe joint venture RBC Dexia Investor Services(EUR -2.9 million).Cost of risk• In Q3 2004: net write-back of chargesfor Legiolease at Dexia Bank Nederland(EUR +4.4 million).• In Q4 2004: charges for Legiolease at DexiaBank Nederland (EUR -182.3 million).• In Q1 2005: net charge for Legiolease atDexia Bank Nederland (EUR -83.0 million).• In Q2 2005: net release of prior provisionsfor Legiolease at Dexia Bank Nederland(EUR +56.0 million).• In Q3 2005: net release of prior provisionsfor Legiolease at Dexia Bank Nederland(EUR +36.5 million).• In Q4 2005: net charge for Legiolease atDexia Bank Nederland (EUR -2.5 million).Impairments on (in)tangibleassets• In Q1 2004: accelerated goodwillamortization (EUR -9.9 million) followingimpairments on a participation.• In Q2 2004: accelerated goodwillamortization (EUR -6.2 million) followingimpairments on participations.• In Q4 2004: accelerated goodwillamortization (EUR -2.9 million) followingimpairments on a participation.TaxesAll the items above are before tax. The amountof corresponding taxes, at appropriate rates,is treated as a non-operating item in the totalamount of taxation. The individual taxincidence of some items is specified below,and so are particular tax entries.• In Q1 2004: reimbursement of taxesfollowing the settlement of a tax dispute(EUR +10.2 million); tax credit causedby the impairment of a participation(EUR +17.3 million).• In Q2 2004: reimbursement of taxesfollowing the settlement of a tax dispute(EUR +6.1 million); tax credit causedby the impairment of participations(EUR +40.6 million).• In Q4 2004: tax credit on additionaldeductible impairments of Dexia BIL’ssubsidiaries (EUR +104.9 million).• In Q1 2005: reimbursement of taxesfollowing the settlement of a tax dispute(EUR +15.4 million); tax credit causedby the impairment of a participation(EUR +17.0 million); write-back of a taxprovision (EUR +6.5 million).• In Q2 2005: tax credit caused bythe impairment of a participation(EUR +3.4 million).• In Q3 2005: reimbursement of taxesfollowing the settlement of a tax dispute(EUR +5.4 million); differed taxes followingthe change in tax rate in Luxembourg(EUR -7.0 million).• In Q4 2005: reimbursement of taxesfollowing the settlement of a tax dispute(EUR +7.6 million).45

DexiaFinancial resultsAnalysis of the balance sheetThe consolidated financial statements ofDexia are prepared under EU GAAP i.e. IFRSas adopted by the EU. The 2005 financialstatements include the application of IAS32, IAS 39 and IFRS 4. Therefore the balancesheet as of December 31, 2005 is compared tothat as of January 1, 2005.Total consolidated balance-sheet footingsas of December 31, 2005 amounted toEUR 508.8 billion. Compared to January 1,2005, the amount of total assets has increased(+25.7%) due to the development ofthe commercial activities.LiabilitiesThe amount of customer deposits and debtsecurities (savings bonds, certificates andbonds) reached EUR 273.1 billion at the endof 2005 (+18.1%). Their relative share in thetotal of the balance sheet amounted to 53.7%.Customer deposits stood at EUR 97.4 billionat the end of 2005, an increase of +11.8%,partly coming from the growth of fundadministration activity and the progression ofstructured products with guaranteed capital.Debt securities increased to EUR 175.7 billion(+21.9%) mainly due to new issues of bondsfor EUR 22.9 billion and of certificatesof deposits for EUR 13.8 billion. Savingcertificates decreased by EUR 4.4 billion.Loans and advances to customersLoans and advances to customers increased by+13.5% and stood at EUR 192.4 billion as ofDecember 31, 2005 due to good commercialactivity. Reverse repurchase agreements grewby EUR 4.5 billion, mortgage loans rose byEUR 2.2 billion in Belgium.Loans and securitiesUnder EU GAAP, loans and securities arepresented together by portfolio strategy:“trading”, “available for sale”, “designated atfair value through the statement of incomeor held to maturity”. The total amount as ofDecember 31, 2005 reached EUR 198.9 billionof which EUR 197.3 billion in securities(+34.7%).This increase came from the variation in theposition on bonds for EUR 48.5 billion (ofwhich EUR 13.6 billion from bonds issuedby public bodies) and from the increase ofshares, mainly those purchased by insurancecompanies for unit-linked products.Due to/from banksThe increase of the interbank assets andliabilities was due to the development ofthe volume of banking activities, mainly termdeposit and repo/reverse-repo activities.Total equityTotal shareholders’ equity in the DexiaGroup amounted to EUR 14.1 billion as ofDecember 31, 2005 against EUR 12.1 billionas of January 1, 2005, i.e. a growth of +16.5%.46

Annual Report 2005Total shareholders’ equity is composed of coreequity (capital, additional paid-in capital,reserves, profit for the year before allocation)and gains and losses not recognized inthe statement of income. The gains andlosses represent the fair value on availablefor-saleportfolio, the fair value of cash-flowhedge derivatives and the translation reservefor a total amount of EUR 2.6 billion, inprogression of 62.9%. This progressionproceeded from the raise in the stockmarket prices and from the improvement ofthe US dollar.Core shareholders’ equity amounted toEUR 11.5 billion, i.e. a growth of 9.5% due tothe result of the year less the dividend paid in2005 relating to 2004 results and the purchaseof treasury shares.Minority interests, at EUR 1.2 billionprogressed EUR 0.7 billion. This was mainlydue to the issuance by Dexia Crédit Local ofundated deeply non-cumulative subordinatednotes for EUR 0.7 billion.CONSOLIDATED BALANCE SHEET(in millions of EUR)VariationDecember 31, January 1, December 31, December 31, 2005/2004 2005 2005 January 1, 2005Total liabilities and equity 388,787 404,637 508,761 +25.7%Total liabilities 376,187 391,886 493,061 +25.8%Due to banks 88,830 87,471 134,793 +54.1%Customers borrowings and deposits 89,356 87,066 97,379 +11.8%Negative value of derivatives 24,353 35,991 37,652 +4.6%Debt securities 145,369 144,164 175,685 +21.9%Subordinated and convertible debt 5,042 5,277 4,985 -5.5%Total equity 12,600 12,751 15,700 +23.1%Core shareholders’ equity 12,219 10,494 11,488 +9.5%Total shareholders’ equity 12,116 12,088 14,084 +16.5%Minority interests 484 439 1,183 x2.7Total assets 388,787 404,637 508,761 +25.7%Due from banks 40,431 43,305 70,531 +62.9%Loans and advances to customers 167,951 169,547 192,402 +13.5%Loans and securities 143,659 147,265 198,941 +35.1%Positive value of derivatives 20,719 27,264 28,632 +5.0%47

48Milestone 4Dexia - FSA,the winning combination

It was in 2000, with the acquisition ofthe insurance company Financial SecurityAssurance (FSA), that Dexia achievedthe objective fixed since its creation: to becomeWorld Number One in financial services to the publicsector. The integration of FSA, a major operator inthe provision of public/project financing in the UnitedStates, not only enabled the Group to place itself inan eminent position on the North American market, and asa consequence on a global scale. This transatlantic alliancemade a great contribution to the globalization of Dexiaand its corporate culture. As for operational synergies,the desired results have already been achieved. Betweenthe European champion for bank loans to local authoritiesand the American specialist in the credit enhancementof municipal bonds and asset-backed securities, theirbusiness lines are truly complementary. Dexia and its NewYork subsidiary, rated AAA, share the same cautious andconsistent philosophy in the management of risks. Inthe United States, the Group has grown very rapidly byvirtue of the excellence of its range of products, whichcombines insurance (guarantees on bond issues) andbanking solutions (cash flow facilities). It is also a winningcombination in project financing throughout the entireworld: in order to support the development of newinfrastructures of collective interest, Dexia has a completerange of tools, of which the Group can take full advantageon a market for Public Private Partnerships (PPP) in fullexpansion.49

DexiaPublic/Project Finance and Credit EnhancementPublic/ProjectFinance andCredit EnhancementDexia’s global leadership in public finance is deservedlyrenowned. The Group operates several subsidiaries andbranches in twenty-six countries worldwide. The main onesare Dexia Crédit Local in France and its main subsidiariesabroad, Dexia Bank in Belgium, Dexia Crediop in Italy andFinancial Security Assurance (FSA) in the United States.The very large size of the market, the quality and solvencyof borrowers, and the large and growing needs for essentialpublic infrastructures, offer wide opportunities for the DexiaGroup to underwrite valuable business and expand itsinternational coverage. Size, innovation, expertise and a longtermview are the key ingredients of Dexia’s success in thisbusiness line, which represents over one half of its earnings.Execution is provided in different forms: straightforwardlending, sophisticated project financing schemes and creditenhancement. In addition, insurance, payments, assetmanagement and other services are offered to clientele.50

Annual Report 2005World leaderIn 2005, Dexia undertook a new andextremely dynamic phase of its geographicexpansion. This is marked by the openingof Dexia Kommunalkredit in Vienna,accompanied by the opening of three newrepresentative offices in the Czech Republic,Romania and Bulgaria to better serve theCentral and Eastern Europe markets, andfinally by obtaining two new licenses, one inCanada (branch) and the other in Mexico(finance company). In Japan, Dexia isinvolved in market studies and preliminaryadministrative procedures for a Tokyo branchto commence operation, planned for the endof 2006. All these new markets are promising,and for Dexia they represent a strong potentialfor future development.On all these markets, the Group acts inthe capacity of financial advisor, arrangeror lender in the direct financing of localauthorities and the entire local sector (localoperators in the health sector, social habitator social economy) or project financing inparticular in the sectors of infrastructure,energy and the environment. Dexia wasthus classified first in 2005 by the magazineDealogic, among banks arranging PublicPrivate Partnerships.In order to respond to the specific needs ofthe larger public borrowers on the capitalmarkets, Dexia has developed a specializedoffer, enabling them to access the marketseffectively, in particular through bond issues,securitization packages and other types ofstructured products.The situation regarding Public/ProjectFinance in the countriesof the European UnionAs world leader in Public/Project Finance,Dexia can share its knowledge of theEuropean local public sector.Each year Dexia publishes an economicreport entitled Local Finance in the EuropeanUnion. Published in November 2005, this newstudy presents an overview of the financialsituation of the local public sector in thecountries of the European Union between1999 and 2004. It also presents the majororientations observed for 2005 in the twentyfivecountries now members of the EuropeanUnion. For the fifth consecutive year thisstudy is a reference tool for the principallocal decision makers in Europe. Published inFrench and in English, its complete versioncan be consulted on the Group internet site atwww.dexia.com.51

DexiaPublic/Project Finance and Credit Enhancement1999-2004: maintenanceof the local investment effortwithout harming financialbalances• Dynamic local expenditure in 2004Between 1999 and 2004, local publicexpenditure in the Fifteen (EUR 1,259 billion)saw sustained development (+4.5% on annualaverage in volume). That momentum is to alarge extent the result of major transfers ofcompetence in favor of local authorities invarious countries (for example Italy, Franceand above all Spain).In 2004, the evolution of local publicexpenditure was dynamic in the Europe ofthe Fifteen (+3.7% in volume), driven by theincrease of health and social expenditure.It was even more for the ten new entrants(+5.3% in volume), as a consequence of theassumption of additional competences inseveral of those countries.• An investment effort maintainedin 2004Local public investment expenditure withinthe Europe of the Fifteen (EUR 149 billion)evolved on annual average by +3.0% involume between 1999 and 2004. After ratherstrong annual growth rates between 1999 and2001 (between 3.5% and 6.5% dependingupon the year), local investment in the Fifteenhas slowed since 2002, with annual growthrates in the order of 1.5% to 2%.In 2004, local investment expenditure rosemoderately for the Europe of the Fifteen(+1.5% in volume), and more dynamically forthe ten new entrants (+3.4% in volume).The local authorities of the Twenty-Five thusplay their role as leading public investors: localpublic investment expenditure amounted toEUR 158 billion in 2004, or 62.8% of publicinvestment expenditure and the equivalent of1.5% of GDP in the European Union of theTwenty-Five.• Financial balances preservedDuring the period from 1999 to 2004, thebudget balance of the local public sector stillremained close to balance.In 2004, local deficits in the Europe of theFifteen deteriorated very slightly to reach0.22% of GDP.Over the same period, local debt(EUR 572 billion) remained under control inrelation to GDP (5.8% of GDP in 2004).The budget balance of the local public sectorof the ten new entrants is almost balanced(-0.05% of GDP in 2004) and their localdebt is still not very high in relation to GDP(2.0% in 2004).Trends in 2005The major orientations observed for 2005in the twenty-five countries of the EuropeanUnion and published in November 2005 inthe economic report can be summarized asfollows.• Contrasted evolutions of localexpenditure and investmentdepending upon the countryconcernedLocal public expenditure should still bedynamic in the United Kingdom, as well asin France as a consequence in particular ofnew transfers of competence. In Portugal,expenditure could increase with the holdingof municipal elections.In the other countries, local expenditure shouldevolve more moderately, as in Belgium or Italy,countries in which the internal stability pact for2005 fixes the limits to its growth.52

Annual Report 2005Local investment should evolve in astimulating manner in the United Kingdom,with investments once more driven by thepublic transport sector, and also in France.In Portugal, taking account of municipalelections (October 2005), local investmentexpenditure should rise; this should alsobe the case in Belgium given the proximityof the communal and provincial elections(October 2006).• Numerous local finance reformsSeveral countries have implemented reformsconsisting of increasing the proportion ofnational taxes allocated to local authorities(Austria, France, Latvia and the CzechRepublic), so local tax receipts should risetherefore in these countries.For example, as was the case in Poland in2004, the proportion of state tax receiptstransferred to the regions increased in 2005in the Czech Republic, with a fall at thesame time in the level of grants. In Latvia,the proportion of national income taxredistributed to local authorities increased in2005 and should be up again in 2006.In France, transfers of competence to localauthorities will continue in 2005 and 2006.The easing of local taxes on professionalactivity for new investments, initiated in 2004,has been perpetuated; we will have to waituntil 2007 to see the reform of that tax withthe company contribution being limited to3.5% of the added value.• Public Private Partnershipsin EuropeThe development of Public PrivatePartnership operations (PPP) for public/project financing continued in Europe in2005, in response to the increasing demandfor public investments and the publicfinance constraints fixed by the Growthand Stability Pact. In the Europe of theFifteen, almost all countries already have alegislative or regulatory framework offeringrecourse to PPPs and have created PPPworking groups within the State chargedwith launching such investment programs.The European Union is also concerned tooffer a harmonized framework favoringthese operations (Green Paper on PPP).The principal investments realized in PPPsrelate to the sectors of transport, health andeducation, and the environment as well asthe need for administrative buildings andequipment. On the more mature PPP marketslike the United Kingdom, more than 10% ofpublic investment is realized through PPPs.The financing raised in 2005 to finance PPPprojects in Europe has risen to an amount ofEUR 21 billion (source Dealogic).53

DexiaPublic/Project Finance and Credit EnhancementThe US municipal marketin 2005The financing market of the local US publicsector is characterized by its very strongdisintermediation. Indeed, more than 95% offinancing is bond-linked.2005 was a record year for the US municipalbond market. Low interest rates during theyear encouraged municipalities to continuea relatively high level of new borrowingfor a broad range of public services andinfrastructure projects and to greatly increaserefundings of outstanding debt to lower theircost of funds.With issuers motivated to tap the marketbecause they anticipated a rise in interest rates,US municipalities issued approximatelyUSD 408 billion of municipal bonds, 13%more than in 2004 and 6% more than theprevious record, set in 2003. The principalamount of bonds issued exclusively forrefundings was 48.1% higher than in theprevious year. Conditions were particularlyfavorable for refundings because short-termrates rose during the year while longer-termrates remained quite low. This made itattractive for many issuers to issue new bondsand use the proceeds to defease their outstandingdebt with short-term Treasury bonds.Slightly more than two-thirds of themunicipal bonds issued in 2005 were generalobligations issued by states, counties, cities,school districts and other municipal entities.The rest were primarily revenue bonds in thetransportation, health care, utility, housing,education and other sectors.The penetration of bond insurance in thismarket also reached a new high in 2005.Approximately 56% of the new municipalbonds sold in the period carried insurancefrom monoline bond insurers, including FSA,compared with 54% in 2004.The year was marked by growing interestin Public Private Partnership (PPP) financingin North America.In 2006, taking into account the expectationsregarding the evolution of interest rates, thelevel of the municipal issues is not likely toexceed the record level of 2005 in the UnitedStates.54

Annual Report 2005ActivityLong-term outstanding commitments(including Germany) at the end of 2005amounted to EUR 241 billion, up 25% on2004. This rise is a result of the accelerateddevelopment of new activities in Central andEastern Europe and those of the internationaloffices of Dexia Crédit Local and Dexia BankBelgium. It is particularly significant, moreover,in France, America, Italy, Germany, Belgium, theUnited Kingdom and Spain.Outside Germany, originations amount toEUR 55.9 billion, up 63% on that achievedduring the year 2004.As for net par outstanding insured by FSA,this amounts to USD 351 billion, up 7.9%on the end of December 2004.For the public sector, activity outside Germanyamounts to EUR 43.5 billion, or an increaseof 54% on the volume recorded over the year2004.As regards the structured financing sector,the originations volume was EUR 12.4 billion,or more than double the activity recordedin the year 2004. It is to be noted that, inbank classifications established by Dealogic(Euromoney Group), Dexia is classified forthe year 2005 in sixth place in the worldamong arrangers of project financing andfirst for PPPs/PFIs. This classification isall the more remarkable since Dexia isa specialist on certain segments of themarkets (infrastructure, environment,(in billions of EUR)LONG-TERM ORIGINATIONS LONG-TERM COMMITMENTS (1)Fully-consolidated subsidiaries 2005 Variation 2005/2004 2005 Variation 2005/2004Belgium 5.3 +34.3% 28.4 +7.0%France 10.8 +6.6% 60.6 +5.1%Luxembourg 0.6 x2.6 1.9 +62.8%Netherlands (2) 0.4 +59.8% 0.8 +17.3%United Kingdom 2.2 +32.1% 6.7 +46.6%Sweden 0.9 +8.0% 3.6 +4.4%Italy 8.7 +51.7% 34.1 +19.6%Spain 1.7 +27.5% 6.5 +30.5%Central and Eastern Europe (3) 2.7 x8.0 3.1 x5.2America (4) 10.9 +60.7% 42.5 +58.7%Other (5) 11.7 x3.8 18.9 x2.9Germany 8.1 -13.1% 34.2 +8.4%Total (excluding Austria) 64.1 +46.6% 241.3 +25.0%Austria (6) 6.0 x2.0 17.7 +78.3%(1) Including off-balance-sheet products; amounts stated at current exchange rate.(2) Banque Artesia Nederland in the Netherlands.(3) “Central and Eastern Europe” includes all the activities of Dexia Kommunalkredit Bank and its two subsidiaries in Slovakia and in Poland.(4) Excluding FSA.(5) Includes activities of the Pacific area (Australia), Israel, and transactions carried out by head office in countries where the Group has no direct presence.(6) Corresponding to 100% new long-term originations/outstanding commitments of Kommunalkredit Austria, which is 49%-owned by Dexia.55

DexiaPublic/Project Finance and Credit EnhancementBelgiumNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l20043,939l llllllllllllllllllllllllllllll ll l20055,290Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l200425,511l llllllllllllllllllllllllllllll ll l200528,356telecommunications, etc.). Furthermore, fiveprojects in which Dexia intervened receivedthe accolade “Deal of the Year 2005” fromthe financial magazine Euromoney. Suchawards are a recognition of projects which areparticularly innovative in their financing inthe fields of transportation (renovation of theMadrid ring road), water (irrigation networkAigües del Segarra-Garrigues in Catalonia, saltwater desalination plant in Chile), and energy(factory for the liquefaction of natural gas,RasGas 2&3, in Qatar, wind farms developedby Invenergy in the United States). We alsonote that the Madrid ring road project hasbeen declared “Deal of the Year 2005” byInfrastructure Journal, all sectors and countriescombined. For the third consecutive year,the same magazine gave Dexia the prize of“Renewable Arranger of the Year 2005”, inrecognition of Dexia’s very considerableactivity in the field of financing wind energy.Financial Security Assurance, the NorthAmerican subsidiary of Dexia specializingin credit enhancement for municipal bondsand asset-backed securities, realized anexcellent volume of gross present value (PV)originations at USD 1,014 million, up 9.4%on 2004.BelgiumDexia had a great year in 2005 on the Belgianmarket.At public sector level, long-term outstandingcommitments reached EUR 26 billion atyear-end 2005, up EUR 1.7 billion, or anincrease of 7% over year-end 2004. Althoughit might appear modest in absolute terms,this growth rate is however appreciable, giventhe maturity of the Belgian market and thehistorically prominent position of Dexia Bankon this market. The rise is reflected, to variousextents, by increases of amounts outstandingin the majority of segments of the localsector. The proportion of intermunicipalassociations, especially those active in theenergy sector, were preponderant andcontributed an amount of EUR 874 millionwhilst that of other local operators andparticularly housing associations amounted toEUR 689 million.In 2005, with the public sector, long-termoriginations amounted to EUR 3.8 billionagainst EUR 3.0 billion in 2004, and thusshows a healthy increase of 29%. Activityon the client segment of municipality,provinces and intermunicipal associationsmade a particular contribution of 35%(EUR 578 million) and also that of other localoperators of 27% (EUR 230 million).56

Annual Report 2005For the social profit segment (whichprincipally addresses care and educationalinstitutions, unions and mutual associations,but also the entire associative world of nonprofit-makinginstitutions), Dexia registereda slight fall in its long-term originations ofaround 8%. It is also important to mentionthe performance recorded in leasing, whereoriginations reached EUR 119 million, morethan double the figure for 2004.Thus echoing these good commercial results,Dexia’s market share of local authorities (onthe basis of offers submitted for competition 1 )increased by 2.8% settling at year-end 2005 at80.6%.At year-end 2005, short-term outstandingcommitments with the local sector wereEUR 2.9 billion, down EUR 3.2 billion incomparison to 2004. That fall applied asmuch to balance-sheet products, and moreparticularly sight accounts, as to off-balancesheetproducts like Treasury certificates. Thecontinuing process of merger within regionaltreasuries is at the origin of this decline.Amounts outstanding at year-end 2005in deposits and asset management forthe local sector were EUR 10.2 billion, upEUR 307 million (+3%) on year-end 2004.This rise is explained in particular by theflow of liquidities due to the Suez bid forElectrabel.As regards structuring and debt managementoperations, their volume reached EUR 5 billionin 2005, a rise of 42% in comparison to 2004.As regards credit activity with the corporatesector, total originations were up 49%,or almost half a billion euros, reachingEUR 1.5 billion.The increase of long-term outstandingcommitments reaches at year-end 2005EUR 2.4 billion, up 5%.Short-terms outstanding commitmentsto companies, on the other hand, increasedby 26% in 2005 to settle at practicallyEUR 6 billion.Investment assets from the corporate sectorincreased 21% in 2005 to reach almostEUR 10 billion.FranceIn 2005, the commercial activity of Dexia inFrance was extremely dynamic. Global longtermoutstanding commitments at year-end2005 were EUR 60.6 billion, up 5.1% on yearend2004. For the second consecutive year, thevolume of long-term originations reached arecord level, passing the EUR 10 billion markto EUR 10.8 billion, up 5%. This exceptionalresult backs up the leading position of Dexiain France on the very dynamic local authoritymarket and confirms the success of theexpansion policy towards new diversificationmarkets.The global volume of activity carried onby Dexia in the local public sector wasEUR 10.8 billion, up 7% on 2004.More precisely, activity with local authoritiesrose 11% in comparison to 2004 and reachedEUR 6.9 billion. These results enabled Dexiato strengthen its leading position in Francewith a market share of more than 40%.FranceNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l200410,161l llllllllllllllllllllllllllllll ll l200510,832Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l200457,663l llllllllllllllllllllllllllllll ll l200560,599(1) This is the percentage of the deals submitted forcompetition which were attributed to Dexia duringthe period under review (including offers not subjectto competition, the Dexia accumulated market shareshould be 81.8%).57

DexiaPublic/Project Finance and Credit EnhancementWithin a low-rate context, activity withmajor clients, departments and regions grewby 17% to EUR 4 billion, which again backsup Dexia’s leading position in this segment.This evolution confirms the significantreturn of those clients to borrowing in acontext, which began in 2004, of a transfer ofcompetence. Dexia promoted two bond issuesfor clients in this segment in 2005, one forEUR 150 million for the regional council ofProvence-Alpes-Côte d’Azur and the other forEUR 120 million for the city of Paris.Clients among other local operators todayrepresent 33% of the long-term financingactivity in the local public sector. With a totalorigination volume of EUR 3.4 billion, Dexiais strengthening its strategy of diversificationin this very dynamic market segment.Origination in the public health sector wasEUR 1,024 million. The projects implementedwere stimulated by the “2007 Hospital Plan”and other actions of national interest such asthe fight against cancer and emergency careservices. With a market share of 41%, Dexiaconfirms its position in France as premierfinancial partner in this sector.The housing sector gained 10% comparedto 2004 with an origination volume ofEUR 1.6 billion. The greatest demand forfinancing comes from clients in UrbanPlanning and Habitat for a total amountof more than EUR 1.4 billion. 80% of thisactivity involved HLM and OPAC (Officepublic d’aménagement et de construction– logement social) companies.These organizations called on Dexia for thefinancing of their new constructions, in orderto facilitate the balancing of their operationalactivities, as well as for the financing ofmaintenance and renewal of their housingstock.With semi-public companies, totalorigination in 2005 made good progress toEUR 240 million, against EUR 163 million in2004.The total amount of long-term financingto the social economy sector also evolvedfavorably, rising by 8.2% to EUR 696 million.Dexia CLF Banque offers a complete range ofasset management products and services tolocal institutional clients. In 2005, assets undermanagement reached EUR 4.7 billion, up 6%on year-end 2004. UCITS assets representEUR 2.3 billion.As regards structured financing, originationin 2005 rose considerably, by 41% toEUR 558 million against EUR 397 millionin 2004. In this field, Dexia concentrates onproject and asset financing. It plays the roleof financial advisor, arranger or lender in thesectors of infrastructure (transport and carparks) and the environment (waste disposal).Note should also be taken of the mandate asfinancial advisor entrusted to Dexia at thebeginning of 2005 by the Group Lyon TurinFerroviaire (an entity created by the French-Italian inter-governmental commission)to study the modes of financing the futuretransalpine high-speed train link.In 2005, the activity of arranging financing forinfrastructure projects in the Public PrivatePartnership (PPP) field developed strongly,especially in the sectors of health, justice,public transport and education. Dexia tookpart in calls for tenders as financial advisorand also as investor and potential arrangerof financing.58

Milestone 5Public Private Partnership:Dexia concentrateson sustainable financingHistorically a partner of localauthorities, it was natural for Dexiato play premier roles in the developmentof innovative modes of financing publicservices. Through its structured financeactivities, the Group assembles packagesin a Public Private Partnership (PPP)mode, one of its specialities. At the endof the Nineties, the Group positioneditself on these long-term contracts,invented in the United Kingdom, linkingprivate operators to the constructionand maintenance of social utilityinfrastructures: roads, railway lines,schools, hospitals and so on. This is asystem which enables risks to be sharedand costs to be optimized over time forthe authority concerned. In 2005, Dexiaconfirmed its position as the leadingbank in the world for the financing ofthis type of project. Today the Group isinvolved, as arranger, investor or advisor,in extremely important operations andcalls for tender throughout Europeand elsewhere in the world: in theUnited States, Australia, Canada,and shortly in several large emergingcountries where the PPP is appearingas a future solution in the financingof huge infrastructure requirements.59

DexiaPublic/Project Finance and Credit EnhancementLuxembourgNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004227l llllllllllllllllllllllllllllll ll l2005598Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l20041,187l llllllllllllllllllllllllllllll ll l20051,933In France, Dexia has for some years beendeveloping a range of insurances speciallyintended for local operators and theirstaff. This successful diversification of the“bancassurance” range supports Dexia in itsrole as global banker to major institutionalclients.This activity is essentially developed throughtwo entities. The first, Dexia Sofaxis, is theonly French operator specializing in financialcover for the statutory obligations of localauthorities and hospital establishments withregard to their staff. As of December 31, 2005,the volume of premiums collected by DexiaSofaxis was EUR 352 million, up 2.6% on2004. This growth reflects the continuingevolution of the level of insurance premiums.Commissions were EUR 42 million, up 4.8%on 2004 in a very much more competitiveenvironment than the previous year.The second, Dexia Epargne Pension, a lifeinsurance subsidiary of Dexia InsuranceServices, markets collective life insuranceproducts to local institutional clients (socialhousing bodies, semi-public companies,consular chambers and so on): end of careerindemnities, supplementary pensions, save-asyou-earn.As regards Dexia Epargne Pension,this year again, the activity of collective lifeinsurance was extremely dynamic with aglobal collection of EUR 259 million, up 54%on 2004.LuxembourgDespite a slightly tenser budget situation thanin the past, the modernization of nationalinfrastructure continued at a fast pace. DexiaBanque Internationale à Luxembourg is still thesecond bank, after the State and Savings Bank,on the market for public financing.At year-end 2005, the long-term outstandingcommitments were EUR 1.9 billion againstEUR 1.2 billion at year-end 2004, up 63%.More precisely, with local authorities,amounts outstanding to Dexia BanqueInternationale à Luxembourg rose more than20% and position the bank as an operator notto be ignored on this market.New originations reached a record level.From EUR 227 million in 2004, they reachedEUR 598 million at year-end 2005 by virtueof some remarkable operations includingthe financing of rolling stock and certaininfrastructure for the Société nationale deschemins de fer luxembourgeois (LuxembourgRailways) in an amount of EUR 360 million.As regards the hospital sector, the bank’sleading position was reinforced by the grantof new long-term credits and also by theprovision of cash credits enabling hospitalsin the country to pre-finance state subsidies.Finally, corporate credit activity is growingmoderately against the background of a faintrecovery of investments.In Luxembourg, in the public sphere (centralstate, local authorities, satellites) Dexia playsa role in asset management. This activitysaw significant growth. At year-end 2005,assets under management amounted toEUR 2.5 billion against EUR 1.5 billion atyear-end 2004, marking a strong rise of 61%.60

Annual Report 2005The NetherlandsIt is through its subsidiary Banque ArtesiaNederland that Dexia operates on the localpublic sector market in the Netherlands. Atyear-end 2005, global long-term outstandingcommitments were EUR 819 million andoriginations EUR 423 million, up 66% on2004. Dexia activity in the Netherlands isconcentrated essentially on the financing ofsocial housing.America• Dexia Crédit Local New York BranchThe branch operates in two fields: on theone hand, the public sector where it offersliquidity guarantees on municipal bond issuesand the purchase of bonds, and on the otherhand structured financing.Dexia recorded a very good year 2005 in NorthAmerica. Global outstanding commitments tothe branch reached a peak of USD 50 billion,up 37.4% on 2004. Total originations in theNorth American public sector rose 54% toUSD 12.7 billion whilst that from structuredfinancing reached USD 646 million againstUSD 144 million in 2004.The public sectorIn 2005, the American municipal bondmarket hit a new record in terms of newissues, with a total volume of USD 407 billion,passing the previous record achieved in 2003(USD 383 billion). By virtue of the verygood market context, the off-balance-sheetoriginations of the branch amounted toUSD 7.4 billion in 2005, up 18.5% on 2004.Moreover, the total bond purchase volumewas USD 5.7 billion over the year 2005.As regards the investments of the branchin tax-exempt bonds, the “Tender OptionBonds” program, launched in mid-2004,developed rapidly. In 2005, the amount oftax-exempt bonds purchased by Dexia wasUSD 1,541 million against USD 572 millionin 2004. In addition, the volume of taxablebonds purchased was USD 1,347 million.The subsidiary also operated on theCanadian bond market in a total amount ofCAD 485 million.Structured financingIn 2005, we note a strong recovery ofstructured financing activity in the Americas.This was oriented towards the energy sector,and more particularly that of renewable(wind) energy, which continued to developwith success. In this field, Dexia is todayrecognized as a leading operator on theAmerican market.Dexia also arranged the largest financing bybank debt ever put together in the UnitedStates in the renewable energy sector. It alsoenabled Dexia to strengthen its position asworld leader in the financing of wind energyprojects (Invenergy Wind project). Finally, inview of its innovative character, the magazineEuromoney gave it the “Deal of the Year 2005”prize.AmericaDexia Crédit LocalNew York Branch (1)Neworiginations(in millions of USD)l llllllllllllllllllllllllllllll ll l2004l llllllllllllllllllllllllllllll ll l20048,43536,465l llllllllllllllllllllllllllllll ll l2005l llllllllllllllllllllllllllllll ll l200513,476(1) In 2005, Dexia Bank BelgiumNew York Branch merged withDexia Crédit Local New YorkBranch.Long-termcommitments(in millions of USD)50,09061

DexiaPublic/Project Finance and Credit EnhancementAmericaFinancial SecurityAssuranceGrosspresent valueoriginations(in millions of USD)l llllllllllllllllllllllllllllll ll l2004l llllllllllllllllllllllllllllll ll l2004927325,808l llllllllllllllllllllllllllllll ll l2005l llllllllllllllllllllllllllllll ll l20051,014Net paroutstanding(in millions of USD)351,398• CanadaIn Canada, Dexia operated on the PPPfinancing of two major road and publictransport infrastructure projects in theVancouver region. Announced in 2004, theplan to open an entity in Canada becamea reality in 2005 with the obtaining of anauthorization to operate on Canadianterritory from a bank branch: Dexia CréditLocal Canada. The opening of this has alreadypermitted a considerable increase in thevolume of Dexia activity on the Canadianmarket both in the public sector and in thefield of structured financing.• MexicoThe plan to open a commercial representationin Mexico became reality in 2005. Thesupervisory authorities granted the statusof Finance Company (SOFOL – SociedadFinanciera de Objeto Limitado) andoperations are in the name of Dexia CréditoLocal México. The young subsidiary hasalready been involved in its first financing inan amount of EUR 33 million to the State ofMichoacan, on Mexico’s Pacific coast.• Financial Security AssuranceFinancial Security Assurance (FSA) carriesout the activities of credit enhancement formunicipal bonds and asset-backed securities(ABS) in North America and also in Europe.Credit enhancement of municipal bondsconsists of guaranteeing bonds issuedprimarily by municipalities. By giving themthe benefit of its excellent AAA rating,FSA enables them, by way of a premium,to access the bond market under the mostadvantageous conditions. Credit enhancementof asset-backed securities is a guaranteesimilar to that granted for bond issuesrefinancing different asset classes (consumercredits and so on).During 2005, FSA achieved a volume ofgross present value (PV) originations equalto USD 1,014 million, which represents anincrease of 9.4% in comparison to the recordvolume already achieved in 2004. These verygood results are due to the momentum ofthe American municipal sector in 2005 anda significant volume of international projectfinancing transactions.As regards net par outstanding insured at theend of December 2005, these amounted toUSD 351 billion, up 8% on December 2004.We note that FSA, which closely monitorscounterparts hit by hurricanes Katrina andRita, has had no claims in that regard so far.62

Annual Report 2005Municipal sectorWith a total issue amount of USD 408 billion,the year 2005 recorded a market increaseof 13% over 2004. This is largely due tothe maintenance of very low interest ratesand the anticipation of their rise. The rateof penetration of credit enhancement onthe issues market, at 56%, was high (andindeed higher than that in 2004, 54%)and is explained in particular by the veryaggressive attitude of the competition, whichoffers very low premium levels. FSA insuredissues for a (gross) nominal amount ofUSD 65 billion, with a market share equal to26% (better that the previous year’s level of24%) and recorded USD 485 million in grossPV premiums, which represents an increaseof 12% over 2004.In the United States these good results areassociated with the momentum of creditenhancement activity for municipal issues,well-sustained activity in the health andeducation sectors and also the signature byFSA of a remarkable operation: ChicagoSkyway. This is the concession, on theEuropean PPP model, of a motorwaybelonging to the city of Chicago. Theoperation consisted of guaranteeing a bondissue of USD 1.4 billion, intended to financeits privatization. Moreover, the magazineEuromoney recognized the extremelyinnovative nature of this operation which itawarded a “Deal of the Year 2005” prize.Asset-backed securitiesIn the US asset-backed securities (ABS)sector, gross PV premiums fell by 16.6% toUSD 195 million by virtue of low margins ina market characterized by a strong appetiteof investors. It is important to note the fallof originations in the sector of real propertyloans to individuals, partially offset by a risein the securitization of home equity loans.FSA prefers to wait for margins to return tothe correct levels before again intensifying itsactivity in this segment.International transactionsAs regards international transactions, grossPV premiums reached USD 242 million in2005, or +29.9% in comparison to 2004. Theprincipal transactions took place in the UnitedKingdom with two important PPP projects inthe health sector.63

DexiaPublic/Project Finance and Credit EnhancementSpainNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l20041,372l llllllllllllllllllllllllllllll ll l20051,749Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l20044,945l llllllllllllllllllllllllllllll ll l20056,452SpainAt year-end 2005, the long-term outstandingcommitments of Dexia Sabadell Banco Localwere EUR 6.5 billion, up 31% on year-end2004. Total long-term originations wereEUR 1.7 billion, up more than 27%.With local authorities, new originationsreached EUR 1.4 billion, up 26% on 2004.This high level results in particular fromwell sustained activity with major clients(autonomous communities, large cities).Note should be taken of the participation ina syndicated loan (EUR 400 million) in anamount of EUR 138 million granted to theautonomous community of Catalonia and aloan of EUR 150 million granted to the city ofMadrid.Dexia Sabadell Banco Local is also particularlyactive in the bond issue segment. Significanttransactions during the year were themandates of joint lead manager for 30-yearissues by the autonomous communities ofCatalonia and the Canaries, an additionalparticipation of EUR 160 million in the issueby the autonomous community of Cataloniaand finally the participation as lead investorin the origination of securities issued by anasset-backing fund, the assets of which aredebts from Spanish local authorities. Thisissue amounted to EUR 665 million, of whichEUR 50 million was subscribed by DexiaSabadell Banco Local and EUR 250 million byother entities in the Dexia Group.In the field of structured financing,originations rose 38% to EUR 310 millionagainst EUR 225 million in 2004. Theextremely dynamic activity of Dexia SabadellBanco Local is concentrated on financingprojects in the sectors of water and theenvironment, wind energy, health (hospitals)and road infrastructures. The assembly of anumber of these financing packages was inthe form of Public Private Partnership (PPP)financing, a market where Dexia plays the roleof leader.Madrid Calle 30, an urban transport project,was the most remarkable operation in 2005.Structured in the form of PPP financing,Dexia played the role of arranger for thefinancing of EUR 2.5 billion (the final Dexiashare amounting to EUR 795 million),intended for the renovation and extensionof the Madrid inner ring road. In view of theoriginality of this operation, associating publicand privates operators, the British magazinesInfrastructure Journal and Euromoney eachnamed it “Deal of the Year 2005”.In the field of water and the environment,the Spanish subsidiary was also co-arrangerof a financing of EUR 884 million, intendedfor the Aigües del Segarra-Garrigues project.Situated in Catalonia, this concerned theconstruction of a new network for theirrigation of agricultural land. This othermajor project also drew the attention of thefinancial magazine Euromoney which namedit “Deal of the Year 2005”.64

Milestone 6The Bank forRenewable EnergiesIt was in 2000 that Dexia beganto invest in renewable energies.Five years later, the Group has becomeWorld Number One for the arrangementof financing for wind farms. Firstof all in Spain, then in Italy and theUnited States, the bank supported thedevelopment of this renewable andnon-polluting energy source, as lender,investor and financial advisor, for theprincipal industrial project leaders. It is aknow-how and a capacity for innovationof which Dexia takes great advantagethese days on numerous markets,from the United Kingdom to Australiathrough Belgium, Portugal and France.By financing wind energy, the Groupsupports an industry growing at 20%a year, and now providing competitionat an economic level against the priceof hydrocarbons. And because windis not the only energy source of thefuture, Dexia also offers its support tothe development of emerging sourcessuch as biomass and solar energy. Forthe “Bank for Renewable Energies”it is a means of realistic commitmentto sustainable development and thesafeguarding of our planet.65

DexiaPublic/Project Finance and Credit EnhancementItalyNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l20045,743l llllllllllllllllllllllllllllll ll l20058,714Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l200428,537l llllllllllllllllllllllllllllll ll l200534,140ItalyAt year-end 2005, the long-term outstandingcommitments of Dexia in Italy wereEUR 34.1 billion, up almost 20% on year-end2004. The Italian subsidiary achieved a recordtotal originations of EUR 8.7 billion, up 52%.For the public sector, the volume of activityrecorded at the end of December 2005was at a record level of EUR 7.0 billion, upstrongly by 89% on 2004. This exceptionalperformance resulted from a particularly highlevel of activity in all market segments. Dexiaincreased its market share to 26% in 2005from 21% in 2004.Dexia activity is well sustained in the fieldof bond issues. Note is to be taken of theintervention as co-lead manager in therefinancing of a part of the debt of the city ofMilan within the context of the largest bondissue ever seen from an Italian local authority.In 2005, major Italian authorities indulged indebt management transactions. Those led byDexia Finance Italia represented an amount ofEUR 1.2 billion.In the field of structured financing,originations in 2005 were EUR 1.8 billionagainst EUR 2.1 billion in 2004. Dexia activityin Italy was in particular related to rail andurban transport, motorways, wind energyand telecommunications. Among the mostsignificant operations was the interventionof Dexia with ISPA, the company in chargeof financing the TAV (Treno Alto Velocita),the Italian high-speed train, as arrangerof a new bond issue for a total amount ofEUR 850 million. Dexia also played the roleof arranger for the Nuove Acque project inTuscany. Amounting to EUR 65 million,it is the first financing in Italy of a privateconcessionaire of a water distributionnetwork. This most innovative project in Italydrew the attention of the financial magazineEuromoney which named it “Deal of the Year”.Dexia also acted, with Italian local authorities,as advisor for the development andrestructuring of their infrastructures, inparticular health and public transportation.In the field of asset management, assets undermanagement were EUR 826 million at yearend2005.66

Annual Report 2005United KingdomAt year-end 2005, total long-termoutstanding commitments to the branch wereEUR 6.8 billion, up 47% on 2004. In 2005,long-term originations by Dexia in the UnitedKingdom progressed strongly. They wereEUR 2.2 billion, up 32% on 2004. This riseis associated with very strong activity in thefield of structured financing which more thandoubled to represent some 50% in 2005 oftotal Dexia activity in the United Kingdom.With the local public sector, and despite a slightfall in the order of 6%, originations amountedto EUR 1.1 billion, including EUR 889 millionwith local authorities. The success inmarketing the LOBO (Lender’s Option,Borrower’s Option) product continues. Thistype of package is extremely attractive since itenables clients to be offered more interestingrates than those offered by the PWLB (PublicWork Loan Board). In 2005, two trends wereobserved: on the one hand, an increase ofmaturities (loan terms) which enables thepublic sector to benefit from interestingfinancing conditions over the long term and,on the other hand, the implementation of assetmanagement operations. In fact, British localauthorities want to benefit from good marketconditions to restructure their outstandingdebt.In the field of structured financing,originations over the year 2005 reachedEUR 1.1 billion against EUR 513 millionin 2004. Activity is particularly sustainedin the field of PPP/PFI. A noteworthy factis that over the year 2005, Dexia occupiedsecond place in the sector for arrangementof bank loans. The British branch in factplayed the role of arranger for a dozen PPPprojects in numerous fields, the principal ofwhich was education but also health, publictransportation, public lighting and socialhousing. This long and sound presence ofDexia on the English PFI market contributesa great deal to the development of this activityin the Group, in the rest of Europe and inthe United States. The British branch alsoinvested in bond issues in the fields of theenvironment, energy and health.United KingdomNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004l llllllllllllllllllllllllllllll ll l20041,6844,609l llllllllllllllllllllllllllllll ll l2005l llllllllllllllllllllllllllllll ll l20052,224Long-termcommitments(in millions of EUR)6,75667

DexiaPublic/Project Finance and Credit EnhancementSwedenNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004849l llllllllllllllllllllllllllllll ll l2005916Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l20043,445l llllllllllllllllllllllllllllll ll l20053,597Central andEastern Europe (1)Neworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004334l llllllllllllllllllllllllllllll ll l20052,680(1) Includes the full entity DexiaKommunalkredit Bank and itstwo subsidiaries in Slovakiaand Poland.Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004599l llllllllllllllllllllllllllllll ll l20053,060SwedenAt year-end 2005, total long-term outstandingcommitments to the Scandinavian subsidiarywere EUR 3.6 billion against EUR 3.4 billionat year-end 2004.New originations were EUR 916 million, up8% on the end of December 2004, includingEUR 894 million long-term financingintended for local authorities.The subsidiary also developed new operationsin Finland. At the end of December 2005,amounts outstanding with Finnishcounterparts were EUR 107 million, up78% on year-end 2004. The majority ofamounts outstanding relate to municipalities(52.8%) and municipal and state companies(32.8%). The subsidiary also providedlong-term financing of EUR 40 million tothe municipal company producing anddistributing energy in the town of Vantaan,as well as the municipalities of Vihti andNurmijärvi. These three municipalities areclose to the capital Helsinki.Central and Eastern EuropeThe year 2005 was marked by the birth ofDexia Kommunalkredit Bank. The newsubsidiary based in Vienna, the capital ofwhich is held 75% by Dexia Crédit Local(51% directly and 24% indirectly), is intendedto lead the development of Dexia in Centraland Eastern Europe.Dexia Kommunalkredit Bank holds the Dexiaparticipations in the capital of Dexia bankaSlovensko (78.98%), the Slovakian subsidiaryand Dexia Kommunalkredit Bank Poland(100%), the Polish subsidiary. The latterobtained its banking license during the second68

Annual Report 2005quarter 2005. During the year 2005, DexiaKommunalkredit Bank developed its presencein Central Europe by creating three new salesprospecting offices in the Czech Republic,Romania and Bulgaria, and also by launchinga procedure to open the same sort of officein Hungary.At year-end 2005, the total of the bank’samounts outstanding was EUR 2.8 billion.Since its creation in 2005 the activityof Dexia Kommunalkredit Bank, in thepublic sector, has been well sustained, withoriginations of EUR 2.7 billion. In 2005, theoriginations of Dexia Kommunalkredit Bankwere particularly significant among Polish,Romanian and Hungarian “sovereigns”, andparticularly in the form of participations inmajor bond issues or their assembly.As regards Dexia banka Slovensko, theoriginations for the year amounted toEUR 141 million, up 85% on 2004 in partby virtue of the development of structuredproducts for Slovakian public clientele.In the field of asset management, publicsector deposits were EUR 492 million at theend of December 2005, up 20% on the end ofDecember 2004.In the field of structured financing, long-termoriginations recorded over the course of 2005were EUR 105 million against EUR 88 millionat year-end 2004.GermanyIn 2005, Dexia Hypothekenbank Berlinchanged its name to Dexia KommunalbankDeutschland. In fact, a new law in Germanywithdrew the status of mortgage bank andthus enabled Dexia clearly to confirm in theeyes of the market its orientation towards thelocal sector, and to develop it.The bank’s activity is diversified over thesatellites of local authorities active in fieldsrelating to public services such as water,transportation, housing, health and energy.These are private risks but their profilesremain extremely close to those of the publicsector. The strategy of Dexia in Germany istherefore to present itself clearly as a referencebank for the entire local sector and itssatellites.At year-end 2005, the long-term outstandingcommitments of the subsidiary wereEUR 34.2 billion, up 8.4% on 2004.Dexia Kommunalbank Deutschland operatesfrom two locations: its head office in Berlinand its commercial office in Frankfurt. Fromthe latter, the bank operates in the fieldof local public financing, offering classicproducts and financial engineering. In 2005,it is important to note that the activity ofthe Frankfurt office developed on a broadbase and recorded very good performances,particularly in the field of structuredproducts. Its originations were EUR 3.1 billionagainst EUR 1.8 billion in 2004. Dexia putfinancing in place for major local authoritiesin Germany such as those for Frankfurt amMain and the city-province (Land) of Berlin,and also for operators in the fields of waterand energy. In 2005, Dexia in particularfinanced the repurchase of claims by theGermanyNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l2004l llllllllllllllllllllllllllllll ll l20049,35131,518l llllllllllllllllllllllllllllll ll l2005l llllllllllllllllllllllllllllll ll l20058,126Long-termcommitments(in millions of EUR)34,17769

DexiaPublic/Project Finance and Credit EnhancementAustriaDexia via KommunalkreditAustriaNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l20042,950l llllllllllllllllllllllllllllll ll l20056,045Long-termcommitments (1)(in millions of EUR)l llllllllllllllllllllllllllllll ll l20049,922l llllllllllllllllllllllllllllll ll l200517,694(1) Corresponding to 100%new long-term originations/outstanding commitmentsof Kommunalkredit Austria,which is 49%-owned by Dexiasince 2001.French operator Veolia Water, relating to theconcession contract for water treatment in thecity of Braunschweig.From Berlin, Dexia essentially develops itsactivity of managing portfolios of securitiesissued by “sovereigns” and local authorities,operating on both the secondary and theprimary market.AustriaDexia has a minority holding (49%) in thecapital of Kommunalkredit Austria, a bankspecializing in the financing of Austrian localauthorities.In 2005, the Austrian partner had a recordyear. In fact, global long-term outstandingcommitments reached EUR 17.7 billionagainst EUR 9.9 billion in 2004. New longtermoriginations were at EUR 6 billion,or double the volume recorded at year-end2004. Outside Austria, KommunalkreditAustria intervenes in Switzerland and in otherdeveloped countries.Other geographic zones• International officesAt year-end 2005, global long-termoutstanding commitments generated by theactivity of the two international offices ofDexia Crédit Local and Dexia Bank Belgiumwere EUR 18.9 billion. Total originationsrecorded strong progress, reachingEUR 11.7 billion against EUR 3 billion in 2004.The total volume of financing to the publicsector reached EUR 5.3 billion againstEUR 1.3 billion. The increase observed isexplained by the extremely dynamic activityin Switzerland as well as the developmentof Public Sector Origination activity. InSwitzerland, originations were EUR 1.4 billionin 2005 against EUR 1.0 billion in 2004. Fromits international office, Dexia financed otheroperations in Spain, Greece, Canada andJapan.As regards structured financing, 2005 proved tobe an excellent year for originations: they wereEUR 6.4 billion against EUR 1.7 billion in 2004.Dexia activity related to the sectors of renewableenergy, oil/gas and telecommunications.Among the most remarkable operationswere the arrangements of financing for fourwind farms in Portugal developed by EDFEnergies nouvelles. Dexia also played therole of lead manager in the financing of newgas liquefaction factories in Qatar and inEgypt. Finally we note the launch of ImpaxNew Energy Investors, a fund investing inrenewable energies in Europe sponsored byDexia.70

Annual Report 2005• IsraelAt year-end 2005, the long-term outstandingcommitments of Otzar Hashilton Hamekomi(OSM), the Israeli subsidiary of Dexia, wereEUR 473 million, up 45% on year-end 2004.The originations achieved over the course of2005 amounted to EUR 172 million, morethan double the volume achieved in 2004.The call for tenders launched in Marchby the Public Powers for the financing of80 municipalities in the recovery plan enabledOSM on the one hand strongly to increaseits activity with major cities and on the otherhand to redeploy its activity among small andmedium-sized authorities.• Asia-PacificAt year-end 2005, global long-termoutstanding commitments to the Australiansubsidiary were EUR 286 million and longtermoriginations show a rise of 30% to EUR159 million against EUR 110 million in 2004.Operating from Sydney, Dexia activity isconcentrated on the financing of infrastructurein Australia, principally in the energy sector.The year 2005 was marked in particular by thesignature of a first mandate as lead managerfor the financing, in the total amount ofAUD 403 million, of a project relating to a gaselectricity power station situated in the west ofthe country.IsraelNeworiginations(in millions of EUR)l llllllllllllllllllllllllllllll ll l200474l llllllllllllllllllllllllllllll ll l2005172Long-termcommitments(in millions of EUR)l llllllllllllllllllllllllllllll ll l324l llllllllllllllllllllllllllllll ll l4732004200571

DexiaPublic/Project Finance and Credit EnhancementResultsThe analysis hereafter is based on theunderlying data (i.e. excluding non-operatingitems) for this business line, in order to allowa better understanding of the fundamentaltrends of the business line. Items considerednon-operating are defined on page 36.Net income – Group share for the fullyear posted a solid 14.0% progression andexceeded for the first time the symbolicone billion threshold, amounting toEUR 1,008 million. This new progressionconfirms the business line’s powerfulearnings momentum and its status as thefirst contributor to Dexia’s earnings. Takingout FSA’s contribution – as this subsidiaryexperienced in 2005 what may be describedas a pause (+0.8% compared to 2004) inits relentless double digit progression sinceits acquisition by Dexia –, the rest of thebusiness line grew by 19.1% year on year.This naturally reflects the very robust buildup of the book of business during many yearsof high and growing originations. It alsostems from Dexia’s strategy of internationaldiversification, which has greatly paid off.Today, the business line’s net income comesfrom the US (34%), France (26%), Belgium(20%), Italy (5%); the balance (15%) isoriginated in different countries worldwide,whose number keeps increasing and alreadyexceeds a dozen.Total income amounted toEUR 2,253 million for the whole year, up10.6% or EUR 215 million, and each of thesubsegments contributed positively to thisgrowth. FSA contributed EUR 495 million,i.e. EUR 33 million to the revenue growth.The rest of the business line achieved 11.6%growth year on year, or EUR +182 million.Costs were up EUR 65 million comparedto 2004, i.e. +9.5% in 2005, a slightlylower percentage than the progression ofrevenues. Among the reasons for the costincrease, note that expenses at FSA went upEUR 13 million (or 11.5%), caused by severalfactors: acceleration of deferred costs onthe refunding business; a lower cost deferralrate than in 2004; expenses linked to themove to new head offices. The costs of thebusiness line without FSA went up 9.0% orEUR 52 million. In Belgium, the increase ofcosts amounted to EUR 12 million, and wasprincipally caused by higher IT spending,legal costs on litigations, and IAS 19 pensionprovision adjustment. In France, costswere up EUR 9 million, one third of whichon account of the new projects of DexiaSofaxis, and the rest on compensation dueto the very high level of originations andhirings for new developments. Elsewhere,the bulk of the increase (EUR 31 million)stems from the various developments andprojects of the business line: EUR 8 millionfor the public sector bond origination andthe first expenditure on the Japanese project;EUR 9 million on Central and EasternEurope; EUR 6 million in America.72

Annual Report 2005As a result, gross operating incomeamounted to EUR 1,501 million in 2005,an 11.1% increase compared to 2004,and 10.9% at constant exchange rate. Inspite of the expenditures on the variousdevelopments of the business line, andowing to the robust revenue growth, thecost-income ratio decreased slightly from33.7% in 2004 to 33.4% in 2005. On thesubject, Dexia manages this indicator inview of the overall development perspectiveof the business line. Indeed, in an areawhere acquisition opportunities are rareand where organic growth opportunities arethere, management finds cost growth quiteacceptable when such expenses relate tobusiness development.The cost of risk in 2005 amounted toEUR 34 million, slightly above the levelof charge during the same period of 2004(EUR 30 million) but this increase is verysmall when compared to the growth of theassets during the same period. The cost ofrisk thus remains in the region of its historiclows.Taxes went up in 2005 to EUR 421 million,up EUR 27 million (+6.8%). This wasbasically caused by the growth in operatingearnings. Of note however, the increase atFSA (USD 25 million in the third quarter,and USD 4 million in the fourth quarter),linked to the change of tax rate on theBermuda operations. In the other direction, aEUR 20 million provision was written back atDexia New York in the third quarter of 2005.Overall, the business line delivered anexcellent year, and posted a strong 22.7%return on economic equity (ROEE).UNDERLYING STATEMENT OF INCOME (excluding non-operating items)(in millions of EUR)2004 (1) 2005 Variation2005/2004Income 2,037 2,253 +10.6%of which net commissions 157 150 -4.4%Costs (687) (752) +9.5%Gross operating income 1,351 1,501 +11.1%Cost of risk (30) (34) +14.7%Impairments on (in)tangible assets 0 0 n.s.Tax expense (394) (421) +6.8%Net income 927 1,046 +12.8%Minority interests 43 38 -12.0%Net income – Group share 884 1,008 +14.0%Cost-income ratio 33.7% 33.4%ROEE (2) 22.8% 22.7%Allocated equity 3,874 4,432(1) Pro forma.(2) Return on economic equity.73

74Milestone 7Dexia and Artesia,together for a wider view

The success of a company merger is measured inits strategic and operational results, and indeed inthe manner in which it is led.In 2001, Dexia purchased Artesia Banking Corporation,which carried on activities in Belgium relating to retailbanking (BACOB Bank), insurance (DVV Insurance) andasset management (Cordius Asset Management); Artesia BCwas also present on the corporate market and in the noncommercialsector. Through that acquisition, Dexia becamenumber two in bancassurance in Belgium. The Groupconsiderably increased its share of the retail market, whilststrengthening its position as reference banker in the public andsocial sectors. As for expected synergies, the objectives wereachieved and indeed surpassed. In a faultless process lastingfour years, the trading rooms were merged, back offices andIT systems integrated, and the branch network reorganizedon a multi-channel distribution model, under the joint nameof Dexia Bank. In terms of economies of scale and commercialadded value, results are today as planned. For Dexia, oneof the first reasons for pride is in the exemplary nature ofthe social dialogue which has overseen the process. Effortstowards internal explanation, the spirit of openness amongsocial partners, and the elaboration from 2003 of a newcorporate project anchored in shared values have allowed us toadvance without ever losing sight of either the direction of theproject or its ambition: to create greater long-term value, forDexia members of staff and for all our clients.75

DexiaPersonal Financial ServicesPersonalFinancial ServicesIn Belgium, Dexia Bank is one of the country’s top playersin retail banking. It offers a complete range of banking andinsurance services to a clientele of households and smalland medium-sized enterprises. In Luxembourg, Dexia BILhas a similar position among the retail banks of the GrandDuchy. In that country, a private banking business has beendeveloped over the years and now extends beyond Belgiumand Luxembourg. Several units and joint ventures have beenacquired/developed in a number of European countries,among which France, Spain, Switzerland and Slovakia.PresentationPersonal Financial Services activity isessentially carried out in Belgium andLuxembourg, where Dexia occupies apremier position. As a consequence of thenew segmentation introduced in 2005, thePersonal Financial Services business lineincludes the activities of retail banking andprivate banking. That activity focuses onthe distribution of its products and servicesas well as those created in other businesslines of the Group (principally Dexia AssetManagement, Dexia Insurance Servicesand Financial Markets) to a clientelepredominantly consisting of households, butalso including wealthy and private bankingclients, the liberal professions, self-employedpersons and small and medium-sizedenterprises. The business line is also activeoutside Belgium and Luxembourg. Thisinvolves various types of approach and/or76

Annual Report 2005product. The principal countries are asfollows:• France, where the Group has a 20% holdingin Crédit du Nord, Dexia Banque PrivéeFrance, a private bank held 100% and DexiaEpargne Pension, specializing in life insurance,• Switzerland, through Dexia Private BankSwitzerland,• Slovakia with Dexia banka Slovensko, abank with 52 branches dealing with the localpublic sector and individuals, and• Spain, where Dexia has a 40% holding inPopular Banca Privada, a joint venture withBanco Popular in the field of private banking.The scope of private banking activity wasbroadened by the opening, in 2005, of a newrepresentative office in Bahrain by DexiaPrivate Bank Switzerland.ActivityAt year-end 2005, total customer assets (retailand private banking) were 7.9% higher thanat the end of 2004, reaching EUR 123.2billion.In 2005, the maintenance of interest rates ata low level and the favourable evolution ofthe equity markets continued to influenceclient behaviour. Balance-sheet products(savings accounts, savings bonds) amountedto EUR 52.3 billion, down slightly by 1.9%;whilst off-balance-sheet products (mutualfunds or UCI and insurance products)recorded a sustained increase of 16.0%reaching EUR 61.3 billion. These solid resultsvalidate the strategy engaged in this businessline several years ago.As for retail banking, total customer assetsreached EUR 81.5 billion, at the end of 2005,up 6.8%. The major trends were as follows.• The slight fall of balance-sheet products andin particular savings bonds is partially offsetby the positive evolution of sight accounts andsavings accounts.• Off-balance-sheet products continued toperform well during the year. At the end of2005, they represented 41.1% of retail assets,against 37.4% as of December 31, 2004, up17.0%. They outweigh the decrease in savingsbonds.• Life insurance products, notably guaranteedincomeproducts (Branch 21), progressedby 32.2% thanks to the successful marketingcampaigns launched for off-balance-sheetproducts during the year and the new taxlegislation applicable to insurance products inBelgium from the beginning of 2006.77

DexiaPersonal Financial ServicesCUSTOMER ASSETS & LIABILITIES(in billions of EUR)Dec. 31, Dec. 31, Variation2004 2005Balance-sheet products 53.3 52.3 -1.9%Off-balance-sheet products 52.8 61.3 +16.0%Insurance 8.0 9.6 +20.2%Customer assets 114.1 123.2 +7.9%Customer liabilities 25.7 28.6 +11.4%Total customer assets & liabilities 139.8 151.8 +8.6%CUSTOMER ASSETS(in billions of EUR)Dec. 31, Dec. 31, Variation2004 2005Total customer assets 114.1 123.2 +7.9%of which private banking 37.8 41.7 +10.3%of which retail banking 76.4 81.5 +6.8%Deposits 30.0 31.2 +4.0%Sight accounts 5.0 5.7 +13.9%Savings accounts 25.0 25.5 +2.1%Savings bonds & term deposits 11.7 9.6 -17.7%Bonds issued by the Group 6.0 6.5 +8.7%Mutual funds 17.2 20.7 +20.3%Life insurance technical reserves 6.1 7.2 +19.3%Direct securities 5.4 6.3 +15.6%In Belgium, the rationalization of the banknetwork subsequent to the acquisition ofBACOB/Artesia in 2001 was completed.The objective of reducing the networkfixed at the time for 2005 was exceeded andthe network now has 1,069 branches, 833branches managed by self-employed branchmanagers and 236 run by wage-earningemployees of the bank. The integration ofArtesia BC aimed at serious cost synergies,which have been achieved and even surpassed.Dexia is actively developing new modesof client relations, including Net Banking.In 2005, Internet banking transactionsrecorded spectacular growth. In Belgium,the bank launched promotions which cameto fruition with the opening of 100,000 newcontracts. Today, Dexia Direct Net (formerlyNet Banking) has more than 500,000 clientssubscribed to the service. In Luxembourg,the number of transactions recorded on theInternet transaction platform Dexiaplusis also increasing sharply among bothindividuals and professionals.Axion, the account intended for young peoplebetween 10 and 24 years of age, offering theminnovative products suited to their specificneeds, continues to achieve great successamong that client segment. In 2005, morethan 14,000 opened accounts.CUSTOMER LIABILITIES(in billions of EUR)Dec. 31, Dec. 31, Variation2004 2005Total customer liabilities 25.7 28.6 +11.4%of which private banking 2.5 2.9 +16.0%of which retail banking 23.2 25.7 +10.9%Loans to customers 17.3 19.3 +12.1%Mortgage loans 14.9 17.1 +14.6%Consumer loans 2.4 2.3 -4.0%Loans to SMEs and the self-employed 5.9 6.4 +7.7%78

Annual Report 2005As regards private banking, customer assetswere up 10.3% reaching EUR 41.7 billionat the end of 2005. As in the retail segment,the balance-sheet products remained almoststable, whilst off-balance-sheet productsincreased significantly, up 14.9% from ayear ago. The latter products now represent66.7% of private banking assets, against64% the previous year. Of note, assetsmanaged under mandates, mutual funds andinsurance products rose 17.7%, 22.5% and22.9% respectively in 2005. In Belgium andLuxembourg (which together represent 83%of the Group’s total private banking assets),private banking business benefited also fromthe successful marketing campaigns cateringto the retail segment.The new segmentation of clientele enabled areassessment and a differentiation of the rangeof Dexia services and offers better qualityfinancial advice to high net worth individualswith assets of more than EUR 500,000. Thisnew approach bore fruit particularly inBelgium where private banking assets rose14% in comparison to 2004.Finally, launched in Luxembourg in 2004, theDexia Vision programme is achieving greatsuccess and opens the way to new portfoliomanagement and financial advisory services.Extremely innovative, it relies on the highestvalues: responsibility, transparency andperformance.Outstanding loans to retail and privatecustomers amounted to 28.6 billion as ofDecember 31, 2005, up 11.4% in one year.This result is principally due to mortgageloans outstanding to retail customers, whichwere EUR 17.1 billion, up significantlyby 14.6%. This increase was even moresignificant in the fourth quarter 2005thanks to anticipation of a rise of interestrates. Finally, the volume of loans to privatebanking customers was up 16.0%.79

DexiaPersonal Financial ServicesResultsThe analysis hereafter is based on theunderlying data (i.e. excluding non-operatingitems) for this business line, in order to allowa better understanding of the fundamentaltrends of the business line. Items considerednon-operating are defined on page 36.The performance of the business lineimproved again in 2005, after two recordyears of earnings growth in 2003 and 2004.A strict cost discipline coupled with strongrevenue-generating activities led to achieve,this year again, a double-digit increase. Thenet income – Group share for the full year2005 amounted to EUR 420 million, up13.3% compared to 2004.Nota beneBefore commenting the results of the businessline, it must be noted that several changesand adjustments took place in the course ofthe year – of an accounting nature or dealingwith the scope of consolidation – which hadan overall material negative impact on theannual business line’s revenues:• the accounting mode of fees on structuredeurobond products has changed under IFRS;under the previous methodology, theseproducts would have generated EUR 30 millionmore revenues in 2005;• early repayment penalties on mortgageloans have been unduly taken upfront duringthe first three quarters of 2005; this wascorrected in the fourth quarter in the amountof EUR 18 million.All above items have the combined effect todistort the comparisons on a like-for-likebasis: the revenue growth between full year2005 and full year 2004 should have beenEUR +117 million instead ofEUR +69 million.Total income for the full year 2005amounted to EUR 2,219 million, up 3.2%or EUR +69 million compared to 2004.At comparable accounting standards, therevenue growth would have been +5.4%.This increase was mainly driven by thecommissions (+10.0%), pursuant toDexia’s policy to promote actively the offbalance-sheetproducts (cf. Activity above).The “no (or low) entry fee” propositions,the marketing campaigns conductedthroughout the four quarters, and finally theannouncement of a new tax on insuranceproducts from 2006, have positivelyinfluenced the revenues, and will continue todo so in the coming times.80

Annual Report 2005Costs amounted to EUR 1,596 millionfor the full year 2005, a modest 1.8%increase compared to those of 2004, andgiven the strong revenue momentum in2005. Yet, they include the investment infranchise, distribution and marketing thathas contributed to the increase of business.Particularly noteworthy is the fact that thebranch closure target decided in 2001 wasexceeded, the total number of branchesstanding at 1,069 at the end of 2005,compared to the initial target of 1,099.Gross operating income in 2005 thus went up6.9% to EUR 623 million.The cost-income ratio continued to improve,from 72.9% in 2004 to 71.9% this year,reflecting the good trends described above.The cost of risk remained very small at EUR23 million in the year, a decrease of 34.4%.Tax expenses remained almost stable in 2005at EUR 182 million. Owing to a more efficientmanagement of the tax base, the tax rate stoodat 29%, lower than in 2004 (37%).The return on economic equity (ROEE)continued to improve and stood at 23.5% forthe full year 2005, up from 21.6% in 2004.UNDERLYING STATEMENT OF INCOME (excluding non-operating items)(in millions of EUR)(1) Pro forma.(1) (2) Pro Return forma on pour economic 2004. equity.(2) Rentabilité sur fonds propres économiques.2004 (1) 2005 Variation2005/2004Income 2,150 2,219 +3.2%of which net commissions 669 736 +10.0%Costs (1,568) (1,596) +1.8%Gross operating income 583 623 +6.9%Cost of risk (35) (23) -34.4%Impairments on (in)tangible assets 0 0 n.s.Tax expense (179) (182) +1.6%Net income 369 418 +13.4%Minority interests (2) (1) -20.1%Net income – Group share 370 420 +13.3%Cost-income ratio 72.9% 71.9%ROEE (2) 21.6% 23.5%Allocated equity 1,718 1,78281

DexiaServices financiers au secteur public, financements de projets et rehaussement de créditIt did not take ten years for Dexia AssetManagement to become a leading assetmanager on the European market.Through the scope of its range, first of all: the financialanalysis and management company of the Dexia Group,created in 1998 and strengthened in 2001 by the purchaseof Cordius Asset Management, has moved from a nichepositioning to one covering the entire range of investmentsupports, for institutional and private clients. Then interms of credibility, since Dexia Asset Management isrecognized as one of the best managers on the market.Finally by the amount of assets under mandate, reachingEUR 91 billion at year-end 2005. The foundation of thissuccess: an organization which combines the centralizationof management activities (in Brussels, Paris, Luxembourgand Sydney) and a decentralized marketing network,gradually extended throughout Europe and Asia, so as tooffer tailor-made services to clients whilst controlling costs.Another key factor rests in the investment process, at thesame time modeled, objective and innovative, in phasewith the evolution of the markets. Indeed, beyond its skillsin traditional management, Dexia Asset Managementis among the pioneers of alternative management, andabove all sustainable management. Involved since 1998in this activity of the future, the subsidiary today offersthe widest range of socially responsible investment (SRI)funds in Europe. “Money does not perform. People do”– money is nothing without the talent of people. The Dexiamanagement company owes its success above all to thevalues which have been its guiding light since it came intobeing!82

Rapport d’activité 2005Milestone 8Asset management,performance and values83

DexiaInvestment Management and Insurance ServicesInvestmentManagement andInsurance ServicesPresentationThe specialist activities of asset management,fund administration and insurance aredeveloped with success by the Dexia Group.Dexia has its own production capacity forasset management through its subsidiaryDexia Asset Management. Today the latteris a major European actor operating innumerous European countries: Belgium,France, Luxembourg and also Austria, Italy,Switzerland, Germany, Spain and the UnitedKingdom. In 2005, Dexia Asset Managementwidened its network with two new offices:one in Denmark and the other in Sweden.In the fund administration business line,Dexia offers three types of services: custodyand related services, central administrationand transfer agent. Dexia is a leading playerin this industry by virtue of its leadingposition in the Luxembourg market.Dexia has gradually developed its knowhowoutside Luxembourg through its twosubsidiaries Dexia Fund Services and FETA(First European Transfer Agent). It nowoccupies the position of European leaderon this market. In 2005, a joint ventureagreement was concluded between Dexia andRoyal Bank of Canada. Operational fromJanuary 2006, it creates a new entity, RBCDexia Investor Services, which is amongthe top ten custodians in the world withEUR 1,650 billion of assets on deposit.In the field of insurance, through DexiaInsurance Services, Dexia combines life andnon-life insurance companies operatingprincipally in Belgium, Luxembourg andFrance. For the most part Dexia carries outthis activity in the field of life insurance.84

Annual Report 2005ActivityAsset management achieved a strong year in2005. Volumes reached EUR 90.6 billion atyear-end, up 26.8% (or EUR +19.1 billion)on the previous year, under the effect of asignificant organic growth (EUR +12.1 billion)but also of a positive market effect(EUR +7.0 billion). All types of managementexperienced a very strong increase in 2005:notably the mutual funds category increasedby 30.3% in one year, due to the resumedappetite for such products, on the part of bothretail and institutional clients. The increasein volumes of discretionary private mandateswas 21.5%, and institutional mandates wentup 18.6%. In this latter category, the growthof new business stemmed from differentsources: insurance activities within Dexia; newmandates from pension funds; new mandatesfrom local and government authorities;mandates from financial institutions. Of note,an important flow of business was won on theAustralian market.Concerning the productivity ratios of thecompany, already very good in 2004, theyhave further improved in 2005, with costsrepresenting only twelve basis points of assetsunder management. The performance ofDexia Asset Management’s funds also stoodvery well: Standard & Poor’s ranking of sectorpeer group placed 72% of its funds in the firsttwo quartiles (by volume) in 2005, and 79%in the last three years.Fund Administration activity remained verystrong.• Total assets under custody amounted toEUR 409.0 billion at year-end 2005, up 17.5%on one year earlier. The mandates to DexiaFund Services stood at EUR 255.1 billion,up 35.2% over the year thanks to the marketeffect, but above all to the mandates wonthroughout the year notably in Luxembourg.• The central administration activity hasexperienced a growth of 5.6% over 2004 interms of number of valuations. The assets inthis activity grew 28.4% to EUR 241.7 billionin 2005.• The transfer agent activity remained almostunchanged over the year.In 2005, Dexia and Royal Bank of Canadaannounced the creation of a joint venture(effective as of 2006). The new company,RBC Dexia Investor Services, ranks amongthe world’s top 10 global custodians withassets under custody (includes assets ofRoyal Bank of Canada as of October 31,2005 and Dexia as of September 30, 2005)of approximately EUR 1,650 billion. RBCDexia Investor Services offers an integratedrange of products, including global custody,fund and pension administration, securitieslending, shareholder services, analytics andother related services, to institutional investorsworldwide. This announcement has been verywell received by clients.ASSETS MANAGED BY TYPE OF MANAGEMENT(In billions of EUR)2004 2005 VariationMutual funds 49.3 64.2 +30.3%Private mandates 3.8 4.6 +21.5%Institutional mandates 18.4 21.8 +18.6%Total 71.5 90.6 +26.8%85

DexiaInvestment Management and Insurance ServicesGroup insurance activitiesInsurance activities occupy an importantplace in Dexia’s business portfolio. The totalof gross premiums received in 2005 wasEUR 3,684 million (excluding the activitiesof FSA and Dexia Sofaxis) and total revenuesamounted to EUR 443 million, i.e. nearly7.5% of total Dexia Group’s revenues.Insurance activity is carried out through thebusiness lines of Dexia and principally:• Personal Financial Services which represent72% of total premiums collected withproducts dedicated to retail bank and privatebanking clients;• Public/Project Finance and Creditenhancement, with institutional clients, localauthorities and other local public sectororganizations, which represent 17% of totalpremiums collected in 2005;• The balance of the originations in 2005(11%) came from third party networks whodistribute the Dexia products among theirown clients; this latter part of the commercialproduction.The Investment Management and InsuranceServices business line looks after theoperational management (administration,back office, IT), financial and statutorymanagement of the insurance entities. Theprincipal entity is Dexia Insurance Belgium(DIB), which is the result of the merger of theformer Dexia Insurance and DVV Insurance.DIB and its subsidiaries, the main subsidiariesbeing Dexia Epargne Pension, Dexia Life &Pensions, Belstar and Corona, are consolidatedin Dexia Insurance Services (DIS), whichrepresents 86% of total insurance revenuesgenerated within the Group.89% of premiums are generated by lifeinsurance activity. From a geographic pointof view, the majority of premiums arecollected in Belgium (70%), the remaindercoming essentially from France (mainlyunder the brand of “Dexia Epargne Pension”)and Luxembourg (above all Dexia Life &Pensions). Of note, an insurance activityconducted in Germany under the Rekordbrand was closed down during the year.2005 has been a strong year overall ininsurance activity at Dexia, with a progressionof 22.7% in the total premiums above theprevious year.TOTAL GROSS WRITTEN PREMIUMS(In millions of EUR)2004 2005 VariationNonlife 397 415 +4.4%Life 2,606 3,269 +25.4%Branch 21 (common life included) 1,881 2,533Branch 23 725 646Branch 26 – 90Total 3,003 3,684 +22.7%BREAKDOWN OF THE TOTAL GROSS WRITTEN PREMIUMS PER BUSINESS LINE(In millions of EUR)2004 2005 VariationPublic/Project Finance 420 625 +48.8%Personal Financial Services 2,344 2,643 +12.8%Investment Management and Insurance Services 239 416 +73.6%86

Annual Report 2005This growth stemmed from all three businesslines:• Public/Project Finance increased itsoriginations by 48.8% to EUR 625 millionin 2005;• Personal Financial Services increased itspremiums by 12.8% to EUR 2,643 million;• in Investment Management and InsuranceServices the growth was +73.6% toEUR 416 mil lion.Commercial activity was good throughoutthe year, but it was particularly strong inBelgium and Luxembourg during the fourthquarter. This is mainly due to a new tax oninsurance products which comes into force inBelgium in 2006, causing higher than usualbefore its enforcement and also due to animportant commercial campaign. In France,the commercial success of Dexia EpargnePension is bearing fruit: after only threeyears of existence, this unit has originatedEUR 625 mil lion of premiums (+48.8%)spread nearly equally between Dexia clientsand those of third party clients.Looking at the revenues of the insuranceactivities at Group level, they amounted intotal to EUR 443 million in 2005, up 13.3%better on 2004. They came from Public/Project Finance (5%), Personal FinancialServices (50%) and Investment Managementand Insurance Services (45%), pursuant tothe analytical conventions applied among thebusiness lines. If now considered under theangle of reporting entities, Dexia InsuranceServices generated EUR 381 million ofthe total insurance revenues in 2005.The balance (EUR 62 million) representsmostly commissions income related to thedistribution of insurance products, bookedat Dexia Bank Belgium, Dexia BIL and DexiaCrédit Local.For the purposes of evaluating the insurancebusiness within the Group, managementlooks at the originations and the “topline” contributions by business line (asindicated above) as the best proxy to activityperformance. Financial performance, bycontrast, is analyzed on the consolidatedreporting of Dexia Insurance Services. In2005, DIS had EUR 381 million of totalrevenues (+10.8% on 2004) and EUR 124 millionto net income – Group share (up 41.7%on 2004). This good performance stemsfrom a high dividend inflow in 2005, higherinvestment income linked to the growth ofthe life reserves and also from some capitalgains pursuant to specific operations suchas Almanij and Electrabel. The net income– Group share was favorably impacted by alow tax charge, itself explained by the revenuemix.FINANCIAL RESULTS OF DEXIA INSURANCE SERVICES(in millions of EUR)2004 2005 VariationRevenues 344 381 +10.8%Costs (203) (227) +11.5%Taxes and other (54) (30) -44.4%Net income – Group share 87 124 +41.7%87

DexiaInvestment Management and Insurance ServicesResultsThe analysis hereafter is based on theunderlying data (i.e. excluding non-operatingitems) for this business line, in order to allowa better understanding of the fundamentaltrends of the business line. Items considerednon-operating are defined on page 36.Net income – Group share of the businessline in 2005 increased strongly to EUR 230million, up 28.6% compared to 2004.The performances of all three units pertainingto this segment were good, as analyzed below.• Asset management performed very wellin 2005, with increased revenues (+4.8% orEUR 9 million in one year). This progressionmust be analyzed in view of the fact thatvarious changes were introduced in 2005(no more absolute performance fees as fromJanuary 1, 2005; revised fee structure oncertain products/services; different split incommissions between the distributors and theasset managers for some mutual funds). On alike-for-like basis, the revenue increase year onyear would have been +21%, quite consistentwith the volume growth. Costs increased(+17.3% in one year, or EUR 16 million), inconjunction with the strong developmentsof the activity. In particular, three new salesoffices were opened (in Milan, Madridand Rotterdam) to develop business withinstitutional clients. Staff increased by 67 in2005, adding to the recruitments made at theend of 2004. This increase of the costs did nothowever preclude the efficiency ratio (costper unit of asset managed) of Dexia AssetManagement to keep improving, from 13basis points in 2004 to 12 basis points in 2005.• Fund administration revenues were up14.0% (or EUR +35 million) at EUR 282 millionin 2005. Income was pulled by highervolumes and commissions on mutualfunds and higher foreign exchange income,but somewhat mitigated by the closure ofoperations in the Netherlands and by thepressure on fees in a strong competitiveenvironment. The costs rose by EUR 16 million,due to the cost of establishing the newjoint venture (RBC Dexia Investor Services– EUR 8 million) and by IT developmentsin the Spanish and Italian units. As a result,gross operating income increased by 23.9%(or EUR +18 million) to reach EUR 95 millionfor the full year.88

Annual Report 2005• The insurance activities have also achieveda very good year in 2005. To remind,this segment includes only the “factory”operations (i.e. without the distributionincome staying in the other business lines).For a complete reading of the contributionof the insurance activities throughout theGroup, please refer to the Focus on insuranceactivities across the Group on pages 86-87.Within the business line, revenues amountedto EUR 221 million in the year, up 13.9%or up EUR 27 million compared to 2004.Net income amounted to EUR 87 million,(+76.8% or EUR +38 million), owingparticularly to the positive influence offinancial revenues and lower taxes.UNDERLYING STATEMENT OF INCOME (excluding non-operating items)(in millions of EUR)2004 (1) 2005 Variation2005/2004Income 630 701 +11.2%of which net commissions 192 238 +24.1%Costs (379) (423) +11.6%Gross operating income 251 278 +10.6%Cost of risk (1) 0 n.s.Impairments on (in)tangible assets 0 0 n.s.Tax expense (63) (42) -32.4%Net income 188 235 +25.3%Minority interests 9 6 -39.2%Net income – Group share 179 230 +28.6%Cost-income ratio 60.1% 60.4%ROEE (2) 24.7% 28.1%Allocated equity 724 819(1) Pro forma.(2) Return on economic equity.UNDERLYING CONTRIBUTION OF THE BUSINESS LINE SEGMENT UNITS(in millions of EUR)Asset management Fund administration Insurance2004 (1) 2005 2004 (1) 2005 2004 (1) 2005Revenues 189 198 248 282 194 221Costs (94) (111) (171) (187) (114) (125)Gross operating income 94 87 77 95 80 96(1) Pro forma.89

When it comes to investor services, credibility isnot just a matter of skills: it is also a question ofdimension.With Dexia Fund Services (DFS) and its subsidiary FirstEuropean Transfer Agent (FETA), Dexia was among therecognized specialists on the market of fund administration.Already present in 11 countries in Europe and Asia,Dexia Fund Services offered a wide range of services toinvestment funds, as custodian bank, administrative agentand transfer agent. However, despite the exponentialgrowth of its results, DFS remained a flyweight comparedto the giants of the sector. In 2005, Dexia thereforetook the strategic decision to seek a powerful ally. Bymerging DFS with the twin entity of Royal Bank of Canada(RBC), Dexia BIL concluded a partnership which bore astrong resemblance to the ideal alliance. In phase withtheir business line philosophies, the two operators arecomplementary in terms of size, services and geographiccoverage: beyond its added value services, RBC GlobalServices contributes a solid portfolio of clients in Canada,and also in the United Kingdom and Australia. Created on2 January 2006, RBC Dexia Investor Services goes straightinto the world top ten of custodian banks (EUR 1,650billion in client assets), and its geographic coverage extendsover 15 countries and 4 continents. The young companynow offers a most comprehensive range of services: asolid basis upon which to embark upon its new long-termvoyage, from which to gain momentum for its internationaldevelopment and from which to provide appropriate andinnovative responses to each of its clients around the world.90

Milestone 9RBC Dexia Investor Servicesin the world top ten91

DexiaTreasury and Financial MarketsTreasury andFinancial MarketsDexia’s principal businesses give the Group an intensive presencein the capital markets, whether for the funding and managementof the Group’s balance sheet, or for the engineeringof sophisticated products and solutions delivered to clients ofthe various business lines. This business line is not only a keysupport entity for the whole Group, but it is also an importantprofit center which generates substantial earnings.ActivityFunding activities have been again verybuoyant in 2005, in line with the strongbalance-sheet growth of Dexia. Long-termissues (2 years and more) amounted toEUR 29.7 billion (+2.8% above 2004 level),of which EUR 17.0 billion bear the AAAsignatures of Dexia Municipal Agency andDexia Kommunalbank Deutschland (formerlyDexia Hypothekenbank Berlin). Dexia thuscontinues to stand among the largest privateissuers on the bond market. The fundingcost of new issues in 2005 was lower than in2004, and the average life of the new issuancesincreased to 9.0 years (compared to 7.3 yearsin 2004). Most of the long-term funding wassourced, as before, from private placementswith institutions (61.3%), but it must benoted that the retail oriented bond activitynow occupies a sizeable part of the longtermfunding (EUR 6.9 billion issuances in2005, i.e. 23.3% of total). The placement ofsuch notes is not only made in the networksof Dexia in Belgium and Luxembourg (5%of total), but more and more importantlyin several retail banking networks in Italy(18% of total), pursuant to Dexia Crediop’smarketing agreements with several largeItalian banks who distribute this paper, whichmeets great success.92

Annual Report 2005LONG-TERM ISSUES IN 2005(in billions of EUR)Dexia Municipal Agency 8.8Dexia Crédit Local 4.4Dexia Bank 1.2Dexia BIL 0.5Dexia Crediop 6.4Dexia KommunalbankDeutschland 8.2Total 29.7CREDIT SPREAD PORTFOLIO QUALITY22.4%1.3%27.9%1.1%47.3%AAAAAABBBNon-investment gradeShort-term funding – managed by themoney market team which generates abouta quarter of TFM’s revenues – was also veryactive in 2005, under its various usual forms(short-term bonds, commercial paper, CDs,interbank market, repurchase agreements) butit was also sourced with institutional clients,such as several central banks who appreciatedepositing mostly euro-denominatedreserves with Dexia in view of its good ratingand renown. This clientele now representsnearly 15% of the total outstanding shorttermborrowings of TFM, which exceededEUR 100 billion at year end.The credit spread portfolio (CSP) wasincreased substantially to EUR 54.9 billionat year end (from EUR 39.3 billion a yearbefore). This activity, which contributes forabout half of the TFM’s revenues, consistsof managing a large portfolio of high creditquality instruments (about 99% of theportfolio is investment grade, and 75%is rated AA- or above) on the strength ofDexia’s good rating, but more importantly,of its capability to assess the risk/reward ofselected asset classes on which the Group hasa long experience and a very good command(sovereigns, covered bonds, ABS/MBSs,financial institutions). In the CSP, Dexia keepsthe credit risk but hedges the interest raterisk, and the investment lines are essentiallyclassified in the available-for-sale (95%) andhold-to-maturity (2%) categories.The new investments made in 2005 totalledEUR 24.3 billion, making of Dexia one ofthe most sizeable buyers in the market. Theportfolio now also includes a significant93

DexiaTreasury and Financial Marketselement of “balance-sheet lending” business,offering attractive returns. This is a businesswhere Dexia supplies funding to financialinstitutions seeking liquidity but retainingthe credit risk of their loan books via creditdefault swaps (EUR 3.1 billion of newbusiness was written in 2005).The other contributors to TFM’s revenuesare several specialist desks, operating inthe various global capital markets, such asfixed income (arrangement of bond issuesdistributed in the retail networks; primarydealing of Belgian government bonds;syndication and support to the public sectorbond origination team…), foreign exchangeand equities. Of particular interest are theachievements of two other segments of TFMwhich bring sizeable and growing revenuecontributions, and who also participate to theincreasing renown of Dexia as “the investmentbank of the local public sector” and relatedniche markets. The first one is financialengineering and derivatives (FED) which,among other missions, is responsible for theengineering and marketing of the structuredproducts sold to the clients of the retail,private and public sectors. The economicrevenue exceeded EUR 60 million in 2005.The other one is securitization which operatespartly out of Brussels and partly in the US; itaccounted for EUR 35.6 million of revenuesin 2005, up 47% on 2004. This desk advises,arranges and/or underwrites securitizationtransactions. In Europe, it mainly deals withassets owned by the public authorities (realestate, tax receivables…), and in the US, itsbusiness is focused on commercial property.In both cases, extensive know-how is appliedto structure ABS transactions respondingprecisely to the needs of investors seekingcertain types of asset classes. This activityachieves very attractive returns, and providesexcellent service to the market. A good part ofits success stems from the fact that it combinesthe expertise of Dexia in the Public Financesphere and in structured products to conceiveinnovative asset classes whose commercialpotential could develop very strongly in theyears to come.TFM is a very profitable business line on itsown right within Dexia, with nearly half abillion euros of revenues in 2005, as analyzedhereafter. But it is also a strong support unitto the other business lines and to the Groupitself for what concerns funding and balancesheetmanagement. The amount of indirectrevenues stemming from the cooperationbetween TFM and the other business linesand booked in the latter, are estimated toexceed EUR 300 million in 2005. By nature,its revenues are more volatile than in the restof the Group, and it incurs some exposureto interest rate and equity market risks. In2005, the VaR limit allocated to TFM wasEUR 73 million, and the average utilizedwas EUR 27 million, a very small percentageof Group equity resources. (See chapter“Risk Management” in the Annual Report -Accounts and Reports on page 40).94

Annual Report 2005ResultsThe analysis hereafter is based on theunderlying data (i.e. excluding non-operatingitems) for this business line, in order to allowa better understanding of the fundamentaltrends of the business line. Items considerednon-operating are defined on page 36.This year again, Treasury and FinancialMarkets had a very good year, with netincome – Group share reaching EUR 267 million,up 15.4% on the previous year. The maincontributors to the business line’s yearly netincome remain the credit spread portfolio(CSP) – representing 65% thereof – and themoney market activities (19%).Total income for 2005 amounted toEUR 487 mil lion, up 8.5% or EUR +38 millionover the previous year, and was largelypulled by the revenue progression of CSP(EUR +21.4 mil lion), money market(EUR +15.6 million), and of the securitizationactivities (EUR +11.5 million) where businesshas been particularly buoyant. The financialengineering and derivatives (FED) deskalso performed well in 2005.The businessline’s income was however mitigated, thisyear again, by products involving arbitragestrategies, which embed cash and derivativeinstruments whose change in value may causesimultaneously either increased revenues andtaxes at times, or reduced revenues and taxes atother times.The overall effect was one of reduced revenuesboth in 2005 (EUR 35 million) and in 2004(EUR 14 million) leading to a negativevariance of EUR 21 million year on year.Costs were up 8.5% to EUR 177 millionfor the full year 2005. This EUR 14 millionincrease results from several factors amongwhich are structuring charge for thedownsizing of cash-equity activities in France(EUR 5 million) and the developmentsof securitization activities in the US(EUR 5 million).95

DexiaTreasury and Financial MarketsGross operating income thus amounted toEUR 311 million for the full year (+8.5%).Thus, the underlying cost-income ratioremained stable, at 36.2% in 2005.Cost of risk stood at a net write-back ofEUR 1 million in 2005, compared to a netwrite-back of EUR 20 million in 2004,pursuant to issues that were resolved.Finally, the net tax charge was EUR 42million in 2005, i.e. EUR 31 million lessthan in 2004. This important diminution ispartly explained by the accounting impactof the arbitrage products discussed above(EUR 21 million of the variance), and also bythe fact that an adjustment was made in 2004of the tax charge, with no equivalent in 2005(EUR 13 million of the variance).Return on economic equity (ROEE) of thebusiness line remained stable in 2005, at thehigh level of 26.9%.UNDERLYING STATEMENT OF INCOME (excluding non-operating items)(in millions of EUR)2004 (1) 2005 Variation2005/2004Income 449 487 +8.5%of which net commissions 33 20 -38.8%Costs (163) (177) +8.5%Gross operating income 287 311 +8.5%Cost of risk 20 1 n.s.Impairments on (in)tangible assets 0 0 n.s.Tax expense (73) (42) -42.9%Net income 233 270 +15.7%Minority interests 2 3 +51.2%Net income – Group share 231 267 +15.4%Cost-income ratio 36.2% 36.2%ROEE (2) 25.9% 26.9%Allocated equity 893 990(1) Pro forma.(2) Return on economic equity.96

Milestone 10The European WorksCouncil transnationalsocial dialogueIn 1996, anticipating theapplication of the EuropeanDirective, Dexia decided to createa European Works Council (EWC),the action of which was intendedfor the majority of the Group andits 13,500 members of staff atthat time. Straight away, it placed agreat deal of emphasis on the social plan.Ten years after its creation, this lively bodyreflects the vitality of the social dialogue,within a Group which has made theconstruction of a shared culture andvalues a strategic priority. A body fordiscussion in tune with the internationalreality of the company, the EWC, whichconsists of 33 representatives ofthe employees in six European countries,has become a unifier of business linesand cultures in Dexia. Founding texts,such as the Principles of SocialManagement and the Human ResourcesQuality Charter, are debated andnegotiated there. Given significantoperational means which go well beyondany legal obligations, the EWC also playsa key role in providing information andensuring discussion on economic,financial or social questions of a transnationalnature: employment,the evolution of business lines, mergersand acquisitions and so on.97

DexiaWomen, men, a groupWomen, men,a groupCreated ten years ago, Dexia enters in 2006 a new phase inits growth, the principal objective of which is to strengthenthe integration of members of staff, to evolve an entity cultureinto a Group culture and to define a management suitedto the issues at stake.Members of staff at Dexia• At the end of 2005, Dexia had24,418 members of staff against 24,019 in2004, an increase in global workforce of 1.7%.• More than 50% of members of staff havejoined the Group since less than ten yearsago, which proves the strong developmentrecorded since the creation of Dexia in 1996.• In 2005, the overall division of workforcebetween men and women was well balanced,respectively 53.5% and 46.5%.• Group members of staff are young: intotal, 35% are less than 35 and 52% less than40 years of age.• The average age is 40.3 for men and 37.7 forwomen. The average overall age is 39.1.• Recruitment is principally from the agegroup 25-35.• The average length of service of members ofstaff of the Group is 11.5 years.• 95% of members of staff of the Group areemployed under an indefinite-term contract.• Turnover is 6.69% of workforce onindefinite-term contract.• 18.5% of members of staff of the Groupwork part time against 15% in 2003 and17% in 2004. In 2005, the proportion of menrose 1% to 6.5% against 32% of the femaleworkforce.• The average number of days of training peremployee is 2.89 per annum.The year 2005 was marked by significantgeographic expansion and the opening of newoffices in Mexico, Canada, Bulgaria, Japan,Romania, the Czech Republic and Poland.In 2005, Dexia employed members of staff in30 countries.98

Annual Report 2005GENDER BREAKDOWN46.5%53.5%MenWomen24,418 MEMBERS OF STAFF IN 30 COUNTRIESBelgium (1) 15,275Luxembourg 3,249France 2,516Slovakia 781Netherlands 542United States 506Italy 281Switzerland 232Spain 220United Kingdom 188Ireland 173Germany 115Singapore 82Hong Kong/China 58Israel 33Denmark 33Australia 29Poland (2) 17Sweden 14Japan (2) 8Czech Republic (2) 6Mexico (2) 6Romania (2) 4Bulgaria (2) 3Canada (2) 3Other countries 44Total workforce as of December 31, 2005 24,418Preparing for the futureIn 2005, the Dexia Group formalizedcommitments vis-à-vis its teams which itintends to observe and apply in mattersof training, recruitment, internal mobilityand performance management. These nowappear in the Human Resources QualityCharter distributed to all members of staffand the 34 commitments must be effectiveby the end of 2006 in the main entities ofthe Group.Furthermore, the post of Business Partnerwas created in 2005 in the different Group’shuman resources departments. The BusinessPartner is responsible for local applicationof the measures adopted at Group level(principles of social management, HumanResources Quality Charter, commitmentsto non-discrimination…) and is the pointof contact both for management andemployees, intervening on a daily basis in allmatters of training and career management.With a presence in 30 countries, throughthe diversity of its business lines, the DexiaGroup offers real opportunities for careerevolution facilitated by the Passport forDexia. This charter relies on a package ofrules and common principles applicableto members of staff whether on placementor expatriate, and thus contributes tothe integration and development of a feelingof belonging to the Group.(1) Including members of staff of the self-employed network of Dexia Bank Belgium.(2) New office in 2005.99

DexiaWomen, men, a groupDexia Corporate UniversityIn order to ensure the sustainability ofthe company in the long term, it is vitalalso to ensure the development of skillswhich will be necessary in the future andto have all managers adhere to the commonmanagement model.Created at the end of 2004 and fullyoperational in 2005, the Dexia CorporateUniversity (DCU) offers high-level trainingprograms and opportunities for personaldevelopment to Dexia executives. TheDCU’s Marco Polo program, which placesthe emphasis on the international mobilityof the Group, was chosen as best Europeantraining program by the magazine FundsEurope.The Marco Polo programNamed after the great 13th century Venetianexplorer, the Marco Polo program of the DexiaCorporate University places the emphasis inter aliaon international mobility within the Group. It also aimsto develop the skills of young members of staff whohave already proved themselves and their promisingprofessional future.Marco Polo is based on an individual developmentcourse for each participant, offering training sessionswithin entities and at the Dexia Corporate University,fostering meetings with other entities of the Group.Training relates to project management, inter-culturalmanagement and team work.The program is followed over a full year with its keybeing a 6-month expatriation falling within a Groupperimeter, all Dexia entities Dexia combined.The 30 trainees have between 2 and 5 years service inthe Group, are aged between 30 and 35 years, speakfluent English and have been chosen by their superiorsfor their particular skills and performances. They arealso prepared to obtain experience in another entity ofthe Group for a period of at least six months.One of them, Vincent Meister, Business RiskManagement at Dexia Private Banking in Luxembourg,says, “Participating in Marco Polo is enriching bothfrom a personal and from a professional point of view.It is also recognition by our superiors, who give usthe occasion to acquire skills which will be useful to usin our future challenges. Afterwards? It is difficult toknow now what will happen, all the more since we area part of the first promotion. I would simply like to beable to take advantage advisedly of all the skills I haveacquired.”Only just launched, the Marco Polo program was chosenbest European training program of the year by themagazine Funds Europe. Finishing in the lead amongEuropean banks as prestigious as HSBC and BNP Paribas,Marco Polo beat competitors’ programs by virtue of itssystem of individualized development targeted to thespecific needs of each participant, and its promotionof international mobility at Group level; two aspects towhich the members of the jury paid particular attention.Frédéric Olivier, Program Director, Dexia CorporateUniversity states: “The program was originally developedat Dexia BIL, and we we soon realized that the Groupdimension should ensure the sustainability of the projectby increasing the number of trainees and by multiplyingthe possibilities of placements around the world. MarcoPolo is becoming one of the leading programs of theSales & Business Development faculty, since it promotesthe horizontal exchange of experiences and encouragesinternational mobility.”100

Annual Report 2005AGE PYRAMID> 5955-5950-5445-4940-4435-3930-3425-2920-24< 20lllllllllllllllllllllllllllllSENIORITY PYRAMID>40lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll20% 10% 0% 10% 20%WomenMen36-4031-3526-3021-2516-2011-156-100-5lllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllllll> 5955-5950-5445-4940-4435-3930-3425-2920-24< 20> 4036-4031-3526-3021-2516-2011-1540% 20% 0% 20% 40%WomenMen6-100-5Creating a communityWithin an international group, internalcommunication plays a vital role inthe creation of a unique work community.Through good articulation between Groupand local teams, internal communication, viavarious media (company journal, intranet andelectronic newsletters), is the perfect way inwhich to promote the feeling of belonging andof sharing information at the same level forall teams, wherever they are, and at the sametime to remain close to the personal concernsof members of staff.A new form of the magazine team+spirit,published in three languages for all24,000 members of staff, appeared inJanuary 2006. The result of work carriedout in 2005 by the multinational editorialteam, it aims at making information evenmore accessible, at sharing with everyonethe company’s strategic issues and at givinga voice and a face to those who contribute ona daily basis to its success. Its new thematicapproach and its journalistic style make itextremely popular among members of staff.By virtue of the development of informationon the intranet, members of staff can followthe evolution of the company in real time,particularly when the new organization isput in place. More news, new headings suchas “faces”, making Group members of staffknown, and also video and audio reportsillustrating the everyday life of the Groupand its diversity, have meant that the numberof intranet consultations has evolvedsignificantly.Finally, particular emphasis has been placedon direct exchanges at various internalseminars and events, the aim of which isto promote dialogue between teams and toenable everyone to relay information better tohis or her work colleagues.101

DexiaWomen, men, a groupPlace of women:the measures introducedin the Group as a whole• Making the executive aware ofthe issues of diversity.• Forbidding direct or indirectdiscrimination.• Promoting the recruitmentof female talents: not positivediscrimination but recruitmentagencies and HR teams mustimplement the means to presentmale and female candidates equallyto operational heads.• Creating a better balancebetween private and professionallife: in order to enable greaterflexibility in the management oftimetables, Dexia undertakes toincrease the opportunities of accessfrom a distance to professionalmails or computer files.• Ensuring the maintenance ofa link and facilitating return: toCommitting to diversityDevelopment also relies on good integrationof human resources and on their diversity.For Dexia, the idea of diversity encompassesenable women to maintain a linkduring maternity leave so as tofacilitate their return when it hasended.• Enabling non-linear careerdevelopment: “double ambition”.The Group undertakes to developa mechanism which enableswomen officially to take a break intheir career during times when theywant to dedicate themselves tobringing up their children.• Succession management:promoting the detection ofpotential female executivesby increasing the number ofwomen presented by entities tothe assessment procedure.• Assessing performances:integrating female values intothe executive assessment process.extremely broad fields such as language,culture, training, origin, age or handicap.In 2005, Dexia made commitments in thesefields and principally developed actions onthe themes of sexual equality, ethnic diversityand handicapped workers (in France).In 2004, Dexia launched the project ‘The placeof women in the Dexia Group’. The objectiveis to have mentalities evolve and to enablegreater advantage to be taken of the pool ofskills vital to the development of the Groupin the long term. Following publicationof the White Paper, a series of actions wasdecided upon in 2005 and progressivelyimplemented in the Group.In France, the policy of integratinghandicapped people entered a new phasewith the introduction of a specific actionplan in March 2005. It relies on internalcommunication and awareness actions,on a better knowledge of the world ofhandicapped people, and partnerships withspecialist associations. These initiatives mustpermit an increase, from 2006, of the numberof handicapped people in the workforce.Sharing growthThe development of the employee shareholderstructure is also a major factor in integration.To date, Dexia is still the only companyunder Belgian law to offer an internationalshareholding plan including a range of threeoffers enabling its members of staff to invest,depending on their means, in the shares of theircompany. In 2005, 4.82% of Dexia shares wereheld by its members of staff, which representeda stock market value as of December 31, 2005of more than a billion euros.102

Annual Report 2005It is a matter of enabling all employees of theGroup to become Dexia shareholders in order:• to strengthen the feeling among members ofstaff of belonging to a socially unified group;• to associate all members of staff withthe strategy and the growth of Dexia;• to enable members of staff to establishsave-as-you-earn schemes invested in sharesof their company under advantageousconditions.Almost 7 members of staff in 10 now holdDexia shares and members of staff nowrepresent the fifth largest shareholder in Dexiawith 4.82% of the capital against only 0.4%when the employee share plan was launchedin 2000.For Dexia, the year 2005 was remarkablein two regards: on the one hand, it wasthe first in which a plan was implementedwhen a previous plan (year 2000) came tomaturity; on the other hand, the investmentby members of staff was the second inimportance for Dexia, proof of the constantconfidence of members of staff in theircompany’s shares and also their interest in itsfinancial instruments.EVOLUTION OF THE PERCENTAGEOF DEXIA CAPITAL HELDBY MEMBERS OF STAFF (in %)2000llllllllllllllllllllllllllllllll1.502001llllllllllllllllllllllllllllllll2.302002llllllllllllllllllllllllllllllll3.502003llllllllllllllllllllllllllllllll4.142004llllllllllllllllllllllllllllllll4.802005llllllllllllllllllllllllllllllll4.82Social dialogueThe European Works Council (EWC)brings together the Chairman of the DexiaManagement Board, the Group head ofHuman Resources, heads of social relationsin the main entities and 29 employeerepresentatives corresponding to each ofthe entities employing more than 150 people.The year 2005 was one with a newmomentum of exchanges with the EWC,marked in particular by several initiatives:• a strengthening of exchanges with an officemeeting every six weeks and six plenarymeetings during the year;• better adaptation to the organization ofthe Group with the creation of specialistcommittees intended to prepare the workof elected members and to study technicalquestions;• a strengthening of the EWC’s means ofinformation with the possibility for it to havethe Group’s consolidated financial statementsanalyzed by an accountancy expert chosen by it;• a strengthening of the EWC’s means ofcommunication on the Group intranet andthe possibility for all the entities of the Groupto access the minutes of its considerations.Social life was particularly active in 2005 withthe signature of 39 collective agreements,in the main entities of the Group. Theseagreements related principally to employeeshare plans, union rights, compensation andstatus and working times.103

Milestone 11Dexia,patron of the artsAt Dexia, talent is recognized,not only in matters of financialmanagement! Since 1960,in Belgium, Dexia Bank has neverdeserted the cultural scene. First ofall through a policy of purchasingworks to create one of the mostrepresentative collections of Belgianart from 1860, the date when CréditCommunal was founded, to thepresent day. But if Dexia the patronprotects the heritage, the Group alsoaids burgeoning talent. Each yearannual competitions, Dexia Classicsfor music and Dexia Art for theplastic arts, throw the spotlight onnew generations of artists. And thisis without mentioning the countlessconcerts, exhibitions and festivalsthe bank supports or has supported.This provides such a boost to youngcreators, such real support to thecultural actions of local authorities. In2005, Dexia undertook an inventoryof the Group’s initiatives in favor ofthe arts and culture, with a view toestablishing a patronage strategy onan international scale, always with thesame conviction: to support artisticcreation, investing in mankind and inthe long term.

DexiaCorporate governanceCorporategovernanceThe Corporate GovernanceCharter of Dexia SADexia developed a corporate governancecharter (hereafter the “Charter”) on theoccasion of the coming into force of theBelgian Corporate Governance Code (LippensCode), which replaces the recommendationsmade on this issue by the Banking, Financialand Insurance Commission, the BelgianBusiness Federation and Euronext Brussels.This Charter gives a detailed overview of theprincipal governance aspects of the company.This document, which the Board of Directorswanted to be complete and transparent,contains 5 sections. The first section dealswith the structure and organizational chartfor the Dexia Group. It also provides abrief history of the Group since its creationin 1996. The second section describes theDexia governance structure, and includes allthe necessary information on the members,responsibilities and operations of the decisionmakingbodies: the shareholders’ meeting,the Board of Directors and the ManagementBoard. The internal rules of the Board ofDirectors and the Management Board arealso provided in their entirety. This section ofthe Charter also describes the responsibilitiesof the management units established as ofJanuary 1, 2006 at Group level and the centralfunctions of Dexia SA. The third sectiondiscusses the shareholders and Dexia share. Itdescribes Dexia’s relations with its shareholdersand summarizes the features of Dexia capitaland shares. The fourth section summarizes thecontrol exercised over and within the DexiaGroup. The “internal control” portion of thissection contains information on the internalaudit, ethics and compliance, and the reportof the Chairman of the Board of Directorsconcerning the operations of the Board ofDirectors and the internal control proceduresimplemented by the company. The “externalcontrol” section deals with the Board of theStatutory Auditors and the protocol concerningprudential management of the Dexia Groupsigned with the Banking, Financial andInsurance Commission. The final section of theCharter describes Dexia’s compensation policyfor directors of the company and members ofthe Management Board.Several elements of the Corporate GovernanceCharter are restated, as recommended by theLippens Code, in the “Corporate Governance”chapter in the annual report of Dexia SA.Pursuant to the Lippens Code, the Charter hasbeen available since December 31, 2005 on thecompany’s website www.dexia.com.106

Annual Report 2005The Board of Directorsof Dexia SAMembershipThe bylaws of Dexia SA stipulate that theBoard is composed of between sixteen andtwenty directors. As of December 31, 2005, theBoard of Directors was composed of nineteenmembers.The Board of Directors of Dexia SA reflectsthe European identity of the Group with fivenationalities represented. There is also thesame number of French and Belgian directors,consistent with the Franco-Belgian legalidentity of Dexia SA, with each nationalityrepresenting at least one third of the Board.On January 1, 2006 Pierre Richard took overfrom François Narmon (whose directormandate came to an end) the chairmanship ofthe Board of Directors. On the same date, AxelMiller was co-opted as director and succeededPierre Richard as Chief Executive Officer.Eligibility criteriaThe internal rules of the Board of Directorsstipulate that directors are elected by theshareholders’ meeting because of theirexpertise and the contribution they can maketo the administration of the company.In this context, the Appointments Committeecreated within the Board is responsible forestablishing profiles of expertise that willbe reviewed on a regular basis to take intoaccount changes in the Dexia Group and itsbusinesses.Any member of the Board of Directorsmust have the time required to perform hisobligations as a director.Non-executive directors may not hold morethan five directorships in publicly tradedcompanies.• Comité stratégique• Comité des rémunérations• Comité des nominations• Comité d’auditAccumsan et iusto odio dignissim qui blandit praesent luptatum zzril delenit augue duisdolore te feugait nulla facilisi. Lorem ipsum dolor sit amet, consectetuer adipiscing elit, sed diamnonummy nibh euismod tincidunt ut laoreet dolore maerat volutpat.107

DexiaCorporate governanceCOMPOSITION OF THE BOARD OF DIRECTORS AS OF DECEMBER 31, 2005 (1)NAME, AGE, SPECIALIZED PRIMARY FUNCTIONNATIONALITY,COMMITTEESSHAREHOLDING IN DEXIANAME, AGE, SPECIALIZED PRIMARY FUNCTIONNATIONALITY,COMMITTEESSHAREHOLDING IN DEXIAFrançois Narmon • (2) • (2) • (2)(director of Dexia SAChairman of the Boarduntil December 31, 2005)of Directors, Dexia SA71 years old, Belgian (until December 31, 2005)Holds 7,060 Dexia sharesDirector since 1996• (3) • (4) •Pierre Richard64 years old, French Group Chief Executive OfficerHolds 40,210 Dexia sharesand Chairman of theDirector since 1996Management Board,Dexia SA(until December 31, 2005)Chairman of the Board ofDirectors, Dexia SA asfrom January 1, 2006Gilles Benoist • (5)Independent directorChairman of the59 years old, French Management Board,Holds 300 Dexia sharesCNP AssurancesDirector since 1999• •Rik Branson61 years old, Belgian Chairman of theHolds no Dexia sharesManagement Board, ArcofinDirector since 2001Guy Burton • (4)57 years old, Belgian Chief Executive OfficerHolds 2,000 Dexia sharesand Chairman of theDirector since 2001Management Board, EthiasAnne-Marie IdracIndependent directorChairwoman and Chief54 years old, French Executive Officer, RATPHolds no Dexia sharesDirector since 2004•Denis KesslerIndependent directorChairman and Chief Executive53 years old, French Officer, SCOR GroupHolds 15,285 Dexia sharesDirector since 1999Serge Kubla58 years old, Belgian Burgomaster of WaterlooHolds no Dexia shares(Belgium)Director since 2005André Levy-Lang • • (6)Independent directorAssociate Professor [émérite],68 years old, French Université Paris-DauphineHolds 38,000 Dexia sharesDirector since 2000Bernard Lux56 years old, Belgian Rector-Chairman of theHolds no Dexia sharesUniversité de Mons-HainautDirector since 2005Dominique Marcel50 years old, French Financial DirectorHolds no Dexia sharesof the Groupe CaisseDirector since 2005des DépôtsMember of theManagement Boardof Caisse des dépôtset consignations• •Francis Mayer55 years old, French Chief Executive Officer,Holds no Dexia sharesCaisse des dépôts etDirector since 2003consignationsRoberto MazzottaIndependent directorChairman of Banca Popolare65 years old, Italian di MilanoHolds no Dexia sharesDirector since 2001Jan Renders56 years old, Belgian Chairman of ACWHolds no Dexia sharesDirector since 2003Gaston SchwertzerIndependent directorDoctor of law, company73 years old, Luxembourg directorHolds 30,660 Dexia sharesChairman of LuxempartDirector since 1999Chief Executive Officer,AudioluxAnne-Claire Taittinger • (7)Independent directorMember of the56 years old, French Management Board,Holds 1,000 Dexia sharesGroupe TaittingerDirector since 2001Chief Executive Officer,Société du Louvre –Groupe du LouvreMarc Tinant•51 years old, Belgian Member of theHolds 100 Dexia sharesManagement Board,Director since 2001Arcofin•Sir Brian UnwinIndependent directorChairman70 years old, British of Assettrust HousingHolds no Dexia sharesLimitedDirector since 2000• •Francis Vermeiren69 years old, Belgian Burgomaster of ZaventemHolds 1,700 Dexia shares(Belgium)Director since 2004Observer:Frank Beke59 years old, Belgian Burgomaster of GhentHolds 1,400 shares(Belgium)Observer since 2001• Stategy Committee • Compensation Committee • Appointments Committee • Audit Committee(1) Article 2 of the Law of August 6, 1931 (Belgian Gazette of August 14, 1931) forbids ministers, former ministers and State ministers, as well as members orformer members of Legislative Assemblies to mention their status as such in acts and publications of profit-making companies.(2) Until December 31, 2005.(3) Of which he is the Chairman as from January 1, 2006.(4) As from January 1, 2006.(5) Of which he is the Chairman.(6) As from February 7, 2006.(7) Of which she is the Chairwoman as from February 7, 2006.108

Annual Report 2005Changes in the members of the Boardof Directors of Dexia SA during the2005 financial yearDuring the 2005 financial year, significantchanges to members of the Board of Directorswere as follows.1) Thierry Breton resigned from the Board ofDirectors of Dexia SA on February 28, 2005.The Ordinary Shareholders’ Meeting of DexiaSA on May 11, 2005 gave the Board the optionto appoint a new director in order to replaceThierry Breton. Pursuant to this decisionby the Ordinary Shareholders’ Meeting, theBoard appointed Dominique Marcel to theBoard to replace Thierry Breton on July 7,2005. It will be recommended to the nextOrdinary Shareholders’ Meeting of Dexia SAon May 10, 2006 that it permanently appointDominique Marcel for a new four-year term.2) At the Ordinary Shareholders’ Meeting ofDexia SA on May 11, 2005, Elio Di Rupo waspermanently appointed for a new four-yearterm that would have ended at the end ofthe 2009 Dexia SA Ordinary Shareholders’Meeting. Mr. Di Rupo had already beenappointed by the Board of Directors of DexiaSA on November 16, 2004.Elio Di Rupo resigned from the Board ofDirectors of Dexia SA on October 6, 2005.At its meeting on November 17, 2005, theBoard temporarily appointed Bernard Lux toreplace Elio Di Rupo. The Dexia SA OrdinaryShareholders’ Meeting on May 10, 2006 willbe asked to permanently appoint Bernard Luxwhose term will expire at the end of the 2009Dexia SA Ordinary Shareholders’ Meeting.3) At the same Dexia SA OrdinaryShareholders’ Meeting on May 11, 2005,Francis Vermeiren was permanently appointedfor a new four-year term. Mr. Vermeirenhad already been appointed by the Dexia SABoard effective November 29, 2004. His termwill expire at the end of the 2009 Dexia SAOrdinary Shareholders’ Meeting.4) Eric André, who had served as a directorof Dexia SA since 2002, died on July 28, 2005.At its meeting on November 17, 2005, theBoard of Directors appointed Serge Kublato temporarily replace Mr. André. The DexiaSA Ordinary Shareholders’ Meeting onMay 10, 2006 will be asked to permanentlyappoint Serge Kubla for a new four-year term.5) François Narmon resigned fromthe Board of Directors of Dexia SA onDecember 31, 2005. The Board appointedAxel Miller to replace Mr. Narmontemporarily as of January 1, 2006. The Boardwill recommend that the next OrdinaryShareholders’ Meeting of Dexia SA onMay 10, 2006 appoints Axel Miller for anew four-year term.New directorsAs indicated above, four new directors werenamed in 2005: Dominique Marcel, SergeKubla, Bernard Lux and Axel Miller. Asrecommended by the Lippens Code, thesenew directors are introduced below.• Dominique Marcel holds a degree inpolitical science and is a former student ofthe ENA. He is Chief Financial Officer forthe Group Caisse des Dépôts. He is a.o. also amember of the Management Board of Caissedes dépôts et consignations, a member of theSupervisory Board of Accor and the Chairmanof the Supervisory Board of Compagnie desAlpes.• Serge Kubla is active in Belgian politics. Hehas served as Burgomaster of Waterloo since1982, and is also a director of IP Trade and theASBL «Les Amis du Musée Wellington».• Bernard Lux holds a doctorate in appliedeconomics and has authored a number ofscientific studies and articles. He is the Rector-Chairman of the Université de Mons-Hainaut.He is a.o. also a professor at the Warocquéfaculty in Economic Sciences and a federalmember of the Conseil supérieur de l’emploi.109

DexiaCorporate governance• Axel Miller holds a law degree. After workingfor 14 years as an attorney specializing infinancial law, mergers and acquisitionsand international commercial law, hejoined the Dexia Group in 2001 as GeneralCounsel. Appointed as a member of theManagement Board of Dexia Bank Belgiumin January 2002, he became Chairman of theManagement Board of Dexia Bank Belgiumand was appointed to head the PersonalFinancial Services business line in January2003. Since January 1, 2006, Axel Miller hasserved as the Chief Executive Officer of DexiaSA, a member of the Management Board ofDexia Crédit Local, Dexia Bank Belgium andDexia BIL.Independent directorsThe Lippens Code contains a list of criteria onthe basis of which directors may be classifiedas independent. With a few exceptions, thecriteria adopted by 2004 by the Board ofDirectors of Dexia SA (based on Article 524of the Belgian of Company Code and onthe governance principles recommended bythe Bouton report, which is the reference inFrance) were identical or stricter than thoserecommended by the Lippens Code.At its meeting of February 7, 2006, the Boardof Directors decided, on the recommendationof the Appointments Committee, to modifyDexia SA’s criteria for independence byincluding the most demanding rules from theLippens Code.Based on these criteria, there are eightindependent directors on the Dexia SA Boardas of December 31, 2005.Non-executive directorsA non-executive director is a member of theBoard of Directors who does not exercisemanagement functions in a company ofthe Dexia Group. The internal rules of theDexia SA Board of Directors stipulate that atleast half of the Board must be non-executivedirectors. It should be noted that, with theexception of the Chief Executive Officer(Pierre Richard until December 31, 2005and Axel Miller as from January 1, 2006), allmembers of the Dexia SA Board of Directorsare non-executive members.Separation of the functions of Chairman ofthe Board of Directors and Chief ExecutiveOfficerThe bylaws of Dexia SA, as well as the internalrules of the Board of Dexia SA, specificallydefine the rule for separation of the functionsof Chairman of the Board of Directorsand Chief Executive Officer (CEO). Theymust necessarily be entrusted to differentindividuals of different nationalities, evenwhen the Chairman of the Board of Directorsis unable to preside and is replaced by anothermember of the Board.Term of officeThe term of office for Board members electedon or after May 7, 2002 is a maximum of fouryears.The independence criteria applicable to themembers of Dexia’s Board of Directors and the list ofindependent directors are given in detail in the AnnualReport - Accounts and Reports on page 23.110

Annual Report 2005Activities of the Boardof DirectorsThe Board of Directors met eleven times in2005. The directors’ attendance rate at Boardmeetings was 82%.In addition to the items belonging to theordinary competence of the Board of Directors(follow-up of the results, approval of thebudget, nomination and compensation ofthe members of the Management Board),the Board concentrated in particular on thefollowing matters:• the analysis of the Dexia Group’s strategicorientations;• the discussion and approval of the auditprogram for 2005;• the study and approval of the proposedpartnership with Royal Bank of Canada;• the creation of Dexia Corporate University;• the discussion and decision on the paymentby the company of the social securitycontributions owed by the directors;• the discussion of Dexia’s activity in SRI;• the approval of Dexia’s participation in theCasa de economii çsi consemnatiuni ç (CEC) inRomania privatization;• the discussion and approval of the offer topurchase a stake in Banca Comerciala Romana(BCR) in Romania;• the report from the Chairman of the Board ofDirectors of Dexia SA on the operations of theBoard and internal control within the Group;• the discussion and reading of the internalcontrol report and the report on riskmeasurement and management in 2004;• the monitoring of the Dexia Bank Nederlandissue;• the employee share plan and the stock optionplan for 2005;• the discussion and approval of the charter oflegal and tax functions;• the strategy concerning the share buybackprogram;• the establishment of an action plan todevelop the place of women in the Group;• the discussion on the succession plan for theGroup;• the policy of Public Private Partnership;• the Data Consolidation Center;• the Fortis proposal of bringing together Dexiaand Fortis;• the sale of Eural;• the new organization for the Group;• the adoption of the corporate governancecharter, the modification of the internal rules ofthe Board of Directors and the modification ofthe internal rules of the Management Board;• the development of the internal rules of theAudit Committee;• the new Dexia institutional campaign.The bylaws and internal rules of the Board of Directorsare given in detail in the Annual Report - Accounts andReports, pages 24 to 26.111

DexiaCorporate governanceDIRECTORS’ FEES PAID TO THE DIRECTORS OF DEXIA SA FOR THE PERFORMANCEOF THEIR DUTIES IN 2005 (GROSS AMOUNTS)(in EUR) Board Board Strategy Audit Compensation Appointments Total Otherof Directors of Directors Committee Committee Committee Committee Dexia Group(fixed comp.) (variable comp.)entitiesNarmon, François 0 0 0 0 0 0 0 123,846.76 (5)Richard, Pierre 0 0 0 0 0 0 0(5)André, Eric 10,000 10,000 0 6,000 0 0 26,000 11,250 (4)Benoist, Gilles 20,000 20,000 0 8,000 0 0 48,000Branson, Rik 20,000 22,000 10,000 0 0 10,000 62,000 22,500 (4)Breton, Thierry 5,000 2,000 0 0 0 0 7,000Burton, Guy 20,000 14,000 0 0 0 0 34,000Di Rupo, Elio 15,000 12,000 0 0 0 0 27,000 (1) (1) (4)16,875Idrac, Anne-Marie 20,000 12,000 0 0 0 0 32,000Kessler, Denis 20,000 16,000 4,000 0 0 0 40,000Kubla, Serge 0 0 0 0 0 0 0Levy-Lang, André 20,000 16,000 2,000 0 0 10,000 48,000Lux, Bernard 0 0 0 0 0 0 0Marcel, Dominique 0 0 0 0 0 0 0 (2)Mayer, Francis 5,000 6,000 0 0 0 4,000 15,000 (3)Mazzotta, Roberto 20,000 18,000 0 0 0 0 38,000Renders, Jan 20,000 18,000 0 0 0 0 38,000Schwertzer, Gaston 20,000 16,000 0 0 0 0 36,000 61,973.38 (5)Taittinger, Anne-Claire 20,000 18,000 0 0 6,000 0 44,000Tinant, Marc 20,000 20,000 0 8,000 0 0 48,000Unwin, Brian 20,000 20,000 0 0 6,000 0 46,000Vermeiren, Francis 20,000 22,000 10,000 0 0 10,000 62,000Beke, Frank(observer) 20,000 18,000 0 0 0 0 38,000 22,500 (4)(1) The percentages and directors’ fees for the terms of office as a director of Dexia SA and Dexia Bank corresponding to Elio Di Rupo werepaid directly to the “Frans Aubry” Public Purpose Foundation after withholding of the professional deduction at source.(2) Dominique Marcel does not wish to receive percentages or fees as a director.(3) The percentages and fees for the term of office as a director of Dexia SA corresponding to Francis Mayer for the first quarter of 2005(which total EUR 15,000), were paid directly into the Caisse des dépôts et consignations after withholding of the professional deductionat source. As from the second quarter of 2005, Francis Mayer does not wish to receive any further percentages or fees as a director.(4) Percentages and fees obtained for a term of office as a director of Dexia Bank Belgium.(5) Percentages and fees obtained for a term of office as a director of Dexia Banque Internationale à Luxembourg. Dexia BIL will pay, as itdoes each year, the compensation to directors for the 2005 fiscal year only after the 2006 Ordinary Shareholders’ Meeting (which will takeplace on March 28, 2006). As a guide, it is indicated that, for the 2004 fiscal year, the percentages and fees obtained for a term of office as adirector of Dexia Banque Internationale à Luxembourg were set at EUR 61,973.38 per director, with a double percentage for the Chairmanof the Board of Directors. An amount of EUR 61,973.38 allotted to Pierre Richard was paid directly to Dexia SA.On April 26, 2005, the Board of Directors fixed the gross annual compensation of Pierre Richard when he succeeds François Narmon in 2006as Chairman of the Board of Directors at EUR 400,000. That amount will be included in the overall package of directors’ compensations.112

Annual Report 2005Compensation paid by Dexia SAto its directors in 2005In 2002, Dexia SA’s Ordinary Shareholders’Meeting approved a resolution to grant amaximum annual directors’ compensation ofEUR 700,000. This meeting also authorizedthe Board to determine the practicalprocedures and individual allocation of thiscompensation.At its meeting on May 23, 2002, theBoard of Directors decided to granteach director a fixed compensation ofEUR 20,000 (EUR 5,000 per quarter – fixedcompensation), and directors’ fees (variablecompensation) of EUR 2,000 per Boardmeeting or specialized committee meeting.Directors who have been in office for lessthan one full year shall earn a proportionof this fixed fee based on the number ofquarters during which they have effectivelybeen in office.The Board of Directors, at its May 26, 2005meeting, decided that Dexia SA would pay forthe non-refundable social contributions paid.A detailed description is given in the AnnualReport - Accounts and Reports on page 29.The Chairman of the Board of Directors,François Narmon, did not receive anycompensation for his position as directorin 2005. However, at its meeting onMarch 13, 2000, the CompensationCommittee proposed a fixed annual feeto the Chairman, for the full period of histerm, as well as options granted annually.This proposition, which was approved bythe Board of Directors on March 14, 2000,was taken in view of the pre-eminent roleplayed by François Narmon in promotingand representing the Group. To that effect,François Narmon will receive an amount ofEUR 707,000 for the period running fromJanuary 1, 2005 to May 10, 2006. Moreover,in 2005 Dexia Bank paid a premium ofEUR 75,323 on a death insurance contractconcluded by Dexia Bank in favor of thebeneficiaries of François Narmon.The Chief Executive Officer does not receiveany fee for his position as director. However,he was remunerated for his responsibilities asChief Executive Officer and Chairman of theManagement Board (see hereafter).113

DexiaCorporate governanceSpecialized committeescreated by the Board of DirectorsIn order to review in detail the matterssubmitted to the Board of Directors, it hasestablished four specialized Board committees(the Compensation Committee, the AuditCommittee, the Strategy Committee and theAppointments Committee) which are chargedwith preparing its decisions, those decisionsremaining under the sole responsibility ofthe Board. Unless they have been speciallydelegated by the Board, the specializedcommittees have indeed no decision-makingpowers.These committees are composed of three tosix Board members appointed by the Board ofDirectors for a period of two years, which maybe renewed.After each meeting, a report on the committee’swork is submitted to the Board of Directors.Full responsibilities and composition of the fourspecialized committees are given in detail in theAnnual Report - Accounts and Reports, pages 30 to 32.Strategy CommitteeMembershipThe Strategy Committee has six members,including the Chairman of the Board, whochairs the committee, the Chief ExecutiveOfficer and four other directors representingthe diversity of Dexia shareholders.ResponsibilitiesThe Strategy Committee meets annuallyto assess the strategic position of the DexiaGroup in view of changes in the Group’senvironment, its markets and its mediumtermgrowth strategies and to prepare for theannual meeting of the Board of Directors thatwill consider this issue.The Strategy Committee may also meetas needed, on the initiative of the ChiefExecutive Officer, to study, before a review bythe Board of Directors, major projects thatrequire a particular level of confidentialitybecause of their repercussions on the financialmarkets.Any of its members may also request ameeting of the Strategy Committee.ActivityIn 2005, the Strategy Committee met fivetimes (January 10, June 21, October 10,October 14, and November 16) to consider inparticular the Romanian files CEC and BCR.The attendance rate of directors at meetingsof this committee was 92.6%.Audit CommitteeMembershipThe Audit Committee is composed of three tofive directors, all non-executive. To the extentpossible, the majority of the Audit Committeemembers are independent directors, whichhas been the case since February 7, 2006, sinceAndré Levy-Lang, an independent director,was appointed as a member of the AuditCommittee as of that date. The most relevantcriterion for selection of committee membersremains expertise and independent judgment.The Chairman of the Board of Directors mayattend meetings of the Audit Committee. TheChief Executive Officer may attend, but maynot be a member of the Audit Committee.114

Annual Report 2005ResponsibilitiesThe role of the Audit Committee is, onthe one hand, to review the projects of theannual, quarterly, corporate and consolidatedfinancial statements of the Group in order toverify, from those transmitted documents, inparticular the conditions under which theywere established and to ensure the relevanceand continuity of the accounting principlesand applied methods, and, on the otherhand, to monitor the performance of theinternal control system put in place by theManagement Board and more particularlythe system to manage the risks to which theGroup is exposed as a result of its activities.The Audit Committee has free access to theStatutory Auditors, as well as to the GeneralAuditor and the Chief Compliance Officer.It informs the Chief Executive Officer of anysuch contacts.ActivityIn 2005, the Audit Committee met onFebruary 10 and 24, May 23 and September 5,to review in particular the following issues:• a review of the financial statements and theresults of the Group as of December 31, 2004,March 31, 2005 and June 30, 2005;• the half-year reports on the internal auditactivities in the entities of the Group;• the half-year reports from the GroupRisk Management on risk assessment andmonitoring;• the implementation and impact of the IFRS;• the Compliance situation within the DexiaGroup and the progress of actions in this area;• the independence and compensation ofGroup auditors;• the finalization of the internal rules of theAudit Committee;• the follow-up of the share-leasing file.The annual report on the status of internalcontrol and the 2006-2009 multi-year auditplan and the 2006 annual plans were presentedat the meeting of the Audit Committee onJanuary 13, 2006.The attendance rate of directors at meetingsof this committee was 100% in 2005.Compensation CommitteeMembershipThe Compensation Committee is composedof four non-executive directors who have norelationship that might directly or indirectlyinfluence their judgment. In this respect,careful attention is given to the relations thatexist on the Boards of Directors between theofficers of Dexia and the companies to whichmembers of this committee may belong.If he is not a member, the Chairman of theBoard of Directors attends the meetings ofthis committee. The Chief Executive Officermay also attend meetings, but he may not bea member of the Compensation Committee(since he is not a non-executive director).ResponsibilitiesThe responsibilities of the CompensationCommittee include recommendationsconcerning:• the compensation for the Chairman ofthe Board, and the Chief Executive Officerand, based on the Chief Executive Officer’srecommendation, the compensation for themembers of the Management Board;• the granting of stock options pursuant tothe general principles defined by the Board ofDirectors.It is also consulted on the compensation andincentives for the members of the ManagementBoards of Dexia Bank Belgium, Dexia Crédit115

DexiaCorporate governanceLocal and Dexia BIL, as well as on the employeeshareholding policy.It also makes recommendations on the feespaid to directors and the allocation of thosefees to directors.ActivityThe Compensation Committee met three timesin 2005: on February 2, April 19 and November14. It discussed the following subjects:• a comparative analysis of the systems in effectin European groups in terms of calculatingbonuses and variable portions;• the annual survey of compensation levelsfor Management Board members (Europeanbenchmark, not including the UK);• setting the general terms and conditionsfor the global shareholding plan reserved foremployees and the 2005 stock option plan.The attendance rate of directors at meetings ofthis committee was 100% in 2005.ResponsibilitiesThe Appointments Committee prepares,among other, the decisions of the Board ofDirectors relating to the appointment orrenewal of directors’ terms or the appointmentof the members of the Management Boardproposed by the Board to the shareholders’meeting.ActivityThe Appointments Committee met five timesin 2005: on February 18, March 24, June 21,October 24 and November 16. Topics discussedincluded the following:• the succession plan for the Group;• the membership of the Board of Directors;• the membership of the specializedcommittees;• the membership of the Management Board.The attendance rate of directors at meetings ofthis committee was 100% in 2005.Appointments CommitteeMembershipThe Appointments Committee is composedof six directors including the Chairman ofthe Board of Directors, the Chief ExecutiveOfficer and four other non-executivedirectors. There is one independent director,who chairs the Committee.The most important criterion for selectingcommittee members remains competence andindependent judgment.The committee meets at least once a year,before the Board of Directors’ meeting thatprepares the resolutions to be submitted to theshareholders’ meeting, and during the year ona motivated request from one of its members.116

Annual Report 2005The Management Boardof Dexia SAMembershipThe Management Board is composed of amaximum of eight members. It is chairedby the Chief Executive Officer, to whomthe Board of Directors has entrusted thedaily management of Dexia. The membersof the Management Board, other than theChief Executive Officer, are appointed anddismissed by the Board of Directors on therecommendation of the Chief Executive Officerand on the advice of the Management Board.Members are appointed for a term of fouryears, which may be renewed.ResponsibilitiesThe Management Board is charged with themanagement of the company and of the DexiaGroup, for which it manages and coordinatesthe different business lines, in the contextof the strategic objectives and the generalpolicy defined by the Board of Directors. TheManagement Board is chaired by the ChiefExecutive Officer, who is charged by the Boardof Directors with the daily management ofthe company. In addition, he ensures theexecution of the decisions taken by the Boardof Directors.Information on the operation of the ManagementBoard and, in particular, its internal rules,responsibilities, decision-making process and meetingschedules is presented in the Annual Report - Accountsand Reports on page 34.Management Board as of January 1, 2006ChairmanAxel MILLER• Chief Executive Officer• Member of the Management Board of Dexia Bank Belgium• Member of the Management Board of Dexia BanqueInternationale à Luxembourg• Member of the Management Board of Dexia Crédit Local• Director of Financial Security Assurance Holdings Ltd (FSA)(since February 16, 2006)Vice ChairmanJacques GUERBER• Member of the Management Board of Dexia Bank Belgium• Member of the Management Board of Dexia BanqueInternationale à Luxembourg• Member of the Management Board of Dexia Crédit Local(Chairman until January 11, 2006)• Director of Financial Security Assurance Holdings Ltd (FSA)MembersRembert von LOWIS• Member of the Management Board of Dexia Bank Belgium• Member of the Management Board of Dexia Crédit Local(since January 10, 2006)• Director of Financial Security Assurance Holdings Ltd (FSA)• Member of the Supervisory Board of Dexia Crédit Local(until January 10, 2006)• Director of Dexia Banque Internationale à Luxembourg(until March 7, 2006)Dirk BRUNEEL• Member of the Management Board of Dexia BanqueInternationale à Luxembourg• Member of the Management Board of Dexia Crédit Local• Chairman of the Management Board of Dexia Bank Nederland• Director of Financial Security Assurance Holdings Ltd (FSA)Xavier de WALQUE• Member of the Management Board of Dexia Bank Belgium• Member of the Management Board of Dexia BanqueInternationale à Luxembourg117

DexiaCorporate governanceCompensationThe compensation of the members of theManagement Board is set by the Board ofDirectors of Dexia SA upon recommendationof the Compensation Committee. Thecompensation of the members of theManagement Board has been the subjectof a study conducted by the CompensationCommittee with the assistance of a specializedexternal consultant.The compensation of the members of theManagement Board is composed of a fixedportion and a variable portion. The amountof the fixed compensation is set on the basis ofthe type and importance of the responsibilitiesperformed by each member, with referenceto the market for comparable positions.Thevariable portion is based on a performancecriterion of the Group, i.e. the 2004/2005evolution of Dexia’s net underlying results.The amount of the variable portion willbe determined according to the capacity torespect the budget fixed in the beginning of2005 regarding the estimated net underlyingresults as of December 31, 2005. In addition, anexceptional bonus of 0% to 20% (discretionaryelement) may be added to the amount grantedunder the variable portion. These exceptionalbonusses are set by the CompensationCommittee, upon recommendation of theChief Executive Officer for the members of theManagement Board.In addition to the fixed and variablecompensation, the members of theManagement Board benefit from otheradvantages, including an extralegal pensionscheme (based on the applicable nationalregulations), a death and health insurance,a company car and lump sum paymentsfor representation costs. Members of theManagement Board may also participate inDexia’s stock option plan and share plan.Any compensation received by a member of theManagement Board in his capacity as directorof a company of the Dexia Group is deductedfrom his fixed or variable compensation.The fixed part of the annual compensation paidin 2005 to the members of the ManagementBoard in office in 2005 was EUR 3,935,000,ofwhich EUR 825,000 to the Chief ExecutiveOfficer. The variable portion of the annualcompensation paid in 2005 to the members ofthe Management Board in office in 2005 wasEUR 3,723,810, of which EUR 950,000 to theChief Executive Officer.The aggregate charge for Dexia regarding theextralegal pension scheme of the membersof the Management Board in office in 2005amounted to EUR 4,804,600. The otheradvantages granted to the members of theManagement Board in office in 2005 amountedto an aggregate cost for Dexia of approximatelyEUR 242,100.As part of the 2005 stock option plan, allmembers of the Management Board received atotal of 630,000 Dexia stock options, of which150,000 were granted to the Chief ExecutiveOfficer in office in 2005. In total, this representsapproximately 6.3% of all options granted in2005.The individual compensation paid in 2005 to themembers of the Management Board in office in 2005is given in detail in the Annual Report - Accounts andReports on pages 34 to 36.118

Annual Report 2005Group controlInternal auditDexia has a homogenous internal auditfunction that meets the highest standards.The mission of this function is to promoteinternal control within the Group and toensure continuous performance and effectiveapplication of the control system in force.This requirement is consistent with theGroup’s desire to ensure that the protection ofits reputation and the efficiency and integrityof its structures are priority values.In this context, the internal audit teamevaluates whether the risks incurred byDexia in its activities and in all its entities areidentified, analyzed and adequately covered.The internal audit team must also ensurecontinuous improvement in the operations ofthe Group.OrganizationThe internal audit organization is based onthree fundamental principles:• the strategy, requirement level and operatingrules for the internal audit are set by theManagement Board in a framework approvedby the Audit Committee of Dexia SA;• internal audit’s responsibilities areperformed by a network of auditdepartments that conduct their missionunder the direction of the Group Auditor,who reports directly to the Chief ExecutiveOfficer, Chairman of the Management Board.The Group Auditor has direct access to theAudit Committee to which he/she regularlyreports on the internal audit operationswithin the Group. At the same time, boththe Audit Committee and the Chairman ofthe Board may call on the Group Auditor toperform an audit;• each audit department in the subsidiaries isresponsible for the performance of its missiontowards the Chairman of the ManagementBoard of the entity in question and alsoreports functionally to the Group Auditor.2005 MissionsIn the financial year 2005 several significant“horizontal audits”, involving auditors fromboth Dexia SA and operating entities werecompleted.Notably “horizontal audits” were conducted:on the long-term funding, on the countryrisk monitoring, on the organization ofthe credit spread portfolio activity line andwithin the framework of Basel II, on theinternal rating systems and operationalrisks. In addition, a follow up audit on theprogress of the IFRS project was conducted.Dexia SA’s audit department also initiatedaudits on areas of interest to the Group,including the organization of marketmodelling and the functioning of the GroupCompliance, and conducted “joint” auditswith the audit departments of certainsubsidiaries, including FSA in the UnitedStates.Furthermore each of the Group’s fourcommercial business lines was subject tospecific audits involving, in particular,credit, market and operational risks. Theinformation systems were analyzed intenselybecause of the changes resulting from theregulatory environment (IFRS and Basel II)and the impact of the organizationalchanges in the Group (reorganization of thesystems at Dexia Bank following the mergerwith Artesia Banking Corporation).119

DexiaCorporate governanceThe audits completed in 2005 gave rise tothe establishment of various action plansto correct weaknesses detected in theinternal control system. Each action planwas approved by the Management Boardof the entity concerned and is monitoredon a regular basis in order to ensure thatthe recommendations made are effectivelyimplemented.MethodsThe global approach to risk, the commonaudit methodology, which was completed in2005 by manuals on audit and risk assessmenttechniques, and the reporting and followupprocedures established at the level ofthe parent company, contribute to Dexia’seffective internal control system.2005 was the first full year in which Dexiaused the new procedure to monitor theimplementation of recommendations usingapproach that is differentiated on the basis ofpriorities and is more qualitative than it hasbeen in the past.In addition, the audit tool designedto promote the harmonization andimprovement of the quality of the work wasused by the operating entities within pilotmissions.Finally, in an effort to develop a cohesive auditunit, all auditors and inspectors from theGroup attended a seminar that offered reportsand workshops.Ethics and complianceSince its creation at the beginning of 2003,the ethics and compliance function has beenconsolidated to form a true Complianceunit composed of all Compliance Officerswithin each entity, subsidiary or branchthat performs an activity within the DexiaGroup. The unit is directed by a coordinationcommittee composed of the ComplianceOfficers for the three operating entities underthe chairmanship of the Chief ComplianceOfficer (CCO) of Dexia.The role of the committee is, first, tocoordinate the regulatory watch mechanism,and to establish, disseminate and ensurecompliance with Group policies and, second,to control, through information, awareness,training and audits, compliance risks, whichare the risks resulting from failure to complywith the laws, regulations or standards of theprofession.PrinciplesDexia’s integrity policy is based on thefollowing principles:• the application of the same principlesof ethics and conduct within all of Dexia’sentities;• compliance with both domestic andinternational laws and regulations;• the promotion of a climate of transparencyand confidence with customers, employeesand shareholders;• the definition of a policy to prevent fraudor any other misuse of assets, systems,information or procedures;• continued integrity, particularly inconducting transactions or providinginformation to the financial markets.120

Annual Report 2005In order to combat money laundering andthe financing of terrorism, Dexia followsthe highest international standards and istransposing those standards into its internalpolicies. More particularly, Dexia adheres tothe recommendations published by the FATF(Financial Action Task Force on moneylaundering) and the Wolfsberg principlesfor private and correspondent banking, andfund administration. These principles arebeing reinforced by the implementationwithin the Group of common prevention,tracking and surveillance tools.Thus, in 2005, the Group continued todevelop internal standards and to deploythe shared transaction analysis software tofight money laundering and the financing ofterrorism.Regarding insider trading, conflictsof interest and other regulated issues,Dexia complies with, and is progressivelytransposing the directives, laws and circularsas they are published and take effect.Detailed rules govern personal transactionsby employees and executives, which arecarefully monitored, in order to preventinsider trading.OrganizationThe Compliance unit is organized on the basisof the Compliance Charter, which definesthe missions of the compliance unit as wellas its powers and objectives. The code ofethics translates the general obligations of allGroup employees into practical instructions.Special codes define the rules that apply morespecifically to certain businesses, such as thefinancial markets, private banking, and assetmanagement.The Compliance Officers meet regularly withregulators and supervisory authorities inthe various countries in which Dexia Groupoperates in order to identify and apply bestethical practices.In 2005, the Compliance unit completed thefirst phase in the deployment to the entire unitof a single communication and data exchangesoftware application that offers functionalitiesto identify laws, regulations, internal policiesand procedures, to distribute and monitorinstructions, to provide consolidatedreporting and ensure periodic questioning.121

Ten years after its original merger and nowpresent in 30 countries around the world, theDexia Group presents an extremely internationalimage. Among the Group’s 24,418 members of staff,one in three works outside the borders of its historicalmarkets of Belgium, France and Luxembourg. In termsof results, 34% of income is achieved in countries otherthan its domestic bases. It is now a matter of the Groupconfirming its international stature, by creating new leversfor its future growth through its geographic expansion. Theprincipal driving force is still the bank’s first business line,local public sector financing. Uncontested leader in Europe,extremely active in North America, the Group intends bothto strengthen its positions everywhere it has a presence andto penetrate new strategic markets, in Japan and Mexicofor instance, in order to affirm its world ambitions in thisactivity. In all its other business lines (retail banking, assetmanagement, financial markets and fund administration),Dexia is increasing its international sphere of influencethrough organic commercial developments as well asby relying on an intentional policy of partnerships andacquisitions, whilst paying attention to emerging countrieswith strong potential. In all these cases, Dexia ensures itcreates the conditions for sustainable success, and amongthese it is the human resources aspect which is a priority:especially in the upstream make-up of teams charged withpreparing and then supporting each growth operation.122

taMilestone 12A European banking groupwith world ambitions123

DexiaDexiain the worldAchatpublic.com107, avenue ParmentierF-75011 ParisPhone: (33) 1 48 07 53 20Fax: (33) 1 48 07 53 21www.achatpublic.comAdinfoBoulevard Pachéco 44B-1000 BrusselsPhone: (32) 2 222 81 74Fax: (32) 2 222 24 37AMCC1180 NW Maple Street Suite 202Issaquah,WA 98027USAPhone: (1) 425 313 46 00Fax: (1) 425 313 10 05www.artesiamortgage.comAstris Finance, LLC1001 Connecticut Avenue NWSuite 905Washington, DC 20006USAPhone: (1) 202 223 97 01Fax: (1) 202 223 43 50www.astrisfinance.comAusbil DexiaVeritas House - Level 23207 Kent StreetSydney NSW 2000AustraliaPhone: (61) 2 925 90 200Fax: (61) 2 925 90 222www.ausbil.com.auBanque Artesia NederlandHerengracht 539-543NL-1017 BW AmsterdamPO Box 274NL-1000 AG AmsterdamPhone: (31) 20 520 49 11Fax: (31) 20 624 75 02www.artesia.nlBelstar AssurancesAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 556 01 75Fax: (32) 2 524 01 88www.belstar.beCEVIBisdomplein 3B-9000 GentPhone: (32) 9 264 07 01Fax: (32) 9 233 05 24www.cevi.beCIGERRue de Néverlée 12B-5020 NamurPhone: (32) 81 55 45 11Fax: (32) 81 55 45 06www.ciger.beCoronaAvenue de la Métrologie 2B-1130 BrusselsPhone: (32) 2 244 22 11Fax: (32) 2 216 15 15www.corona.beCréatis34, rue Nicolas LeblancF-59000 LillePhone: (33) 3 20 40 59 53Fax: (33) 3 20 30 16 15www.creatis-banque.netDexia Asset ManagementAlternative DublinGeorge’s Quay House43 Townsend StreetIRL-Dublin 2Phone: (353) 1 613 11 20Dexia Asset ManagementBelgiumRue Royale 180B-1000 BrusselsPhone: (32) 2 222 52 42Fax: (32) 2 222 07 07www.dexia-am.comDexia Asset ManagementFranceWashington Plaza40, rue WashingtonF-75408 Paris Cedex 08Phone: (33) 1 53 93 40 00Fax: (33) 1 45 63 31 04www.dexia-am.comDexia Asset ManagementLuxembourg283, route d’ArlonL-1150 LuxembourgPhone: (352) 254 34 31Fax: (352) 254 34 34 940www.dexia-am.comDexia Asset ManagementLuxembourgSuccursale de Genève2, rue de JargonnantCH-1207 GenèvePhone: (41) 22 707 90 00Fax: (41) 22 707 90 99www.dexia-am.comDexia Asset ManagementLuxembourgSucursal en EspañaCalle Ortega y Gasset, 26E-28006 MadridPhone: (34) 91 360 94 75Fax: (34) 91 360 98 99www.dexia-am.comDexia Asset ManagementLuxembourgSuccursale italianaCorso Italia 1I-20122 MilanoPhone: (39) 02 31 82 83 61Fax: (39) 02 31 82 83 84www.dexia-am.comDexia Asset ManagementLuxembourgSvenska filialEngelbrektsplan 2PO Box 7573S-103 93 StockholmPhone: (46) 8 407 57 80Fax: (46) 8 407 57 01www.dexia-am.comDexia Asset ManagementLuxembourgBijkantoor NederlandLichtenauerlaan 102-120NL-3062 ME RotterdamPhone: (31) 10 204 56 53Fax: (31) 10 204 58 79www.dexia-am.com124

Annual Report 2005Dexia Assureco7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 77 49Fax: (33) 1 43 92 78 99Dexia Auto LeaseAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 285 37 77Fax: (32) 2 282 66 01www.dexia-auto-lease.beDexia Bail7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 73 89Fax: (33) 1 45 75 34 59Dexia Bank BelgiumBoulevard Pachéco 44B-1000 BrusselsPhone: (32) 2 222 11 11Fax: (32) 2 222 40 32www.dexia.bewww.axionweb.beDexia Bank BelgiumDublin Branch6 George’s DockIRL-IFSC Dublin 1Phone: (353) 16 45 50 31Fax: (353) 18 29 15 77Dexia Bank DenmarkGrønningen 17DK-1270 KøbenhavnPhone: (45) 33 46 11 00Fax: (45) 33 32 42 01www.dexia-bank.dkDexia Bank NederlandPiet Heinkade 55Postbus 808NL-1000 AV AmsterdamPhone: (31) 20 348 50 00Fax: (31) 20 348 55 55www.dexiabank.nlDexia banka SlovenskoHodzova 1101011, ZilinaSlovakiaPhone: (421) 41 51 11 135Fax: (421) 89 51 11 530www.dexia.skDexia Banque Internationaleà Luxembourg69, route d’EschL-2953 LuxembourgPhone: (352) 4590 1Fax: (352) 4590 2010www.dexia-bil.luDexia Banque Privée France37, rue d’AnjouF-75383 ParisPhone: (33) 1 40 06 60 00Fax.: (33) 1 42 65 00 98www.dexiaplus.frDexia BILFuengirola Representative OfficePuebla Lucia, Local 6Avda. Alcalde Clemente DiazE-29640 FuengirolaPhone: (34) 95 258 02 44Fax: (34) 95 258 06 87www.dexia-bil.luDexia BILLondon BranchShackleton HouseHay’s Galleria4 Battle Bridge LaneUK-London SE1 2GZPhone: (44) 207 556 30 00Fax: (44) 207 556 30 55www.dexia-bil.luDexia BILSingapore Branch9 Raffles Place #42-01Republic PlazaSingapore 048619Phone: (65) 222 76 22Fax: (65) 536 02 01www.dexia-bil.luDexia BIL Asia Singapore9 Raffles Place #42-01Republic PlazaSingapore 048619Phone: (65) 222 76 22Fax: (65) 536 02 01www.dexia-bil.luDexia CLF Banque62, rue de la Chaussée d’AntinF-75009 ParisPhone: (33) 1 44 37 45 02Fax: (33) 1 44 37 45 07www.dexia-creditlocal.frDexia CLF Régions Bail7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 73 89Fax: (33) 1 45 75 34 59Dexia CrediopVia Venti Settembre, 30I-00187 RomaPhone: (39) 06 47 71 29 05Fax: (39) 06 47 71 59 52www.dexia-crediop.itDexia Crédit Local7 à 11, quai André CitroënBP 1002F-75901 Paris cedex 15Phone: (33) 1 43 92 77 77Fax: (33) 1 43 92 70 00www.dexia-creditlocal.frDexia Crédit LocalDublin Branch6 Georges DockIRL-IFSC Dublin 1Phone: (353) 1 670 27 00Fax: (353) 1 670 27 05Dexia Crédit LocalJapan Representative OfficeSaint-Gobain Building 2F3-7 KojimachiChiyoda-ku, Tokyo 102-0083JapanPhone: 81-3-5215 6393Fax: 81-3-5215 6391Dexia Crédit LocalNew York Branch445 Park AvenueNew York, NY 10022USAPhone: (1) 212 515 70 00Fax: (1) 212 753 55 22www.dexia-americas.comDexia Crédit LocalAsia Pacific Pty LtdLevel 23, Veritas House207, Kent StreetSydney NSW 2000AustraliaPhone: (61 2) 925 13 961Fax: (61 2) 925 90 222125

DexiaDexia in the worldDexia Crédit Local Canada800 Square Victoria, Suite 1620CP 201, Montréal (Québec)Canada H4Z 1 E3Phone: (1) 514 868 1200Dexia Crédit Local PortugalEstrella OfficeRua Domingos Sequeira 27-5GP-1350-119 LisboaPhone: (351) 21 395 15 16Fax: (351) 21 397 77 33Dexia Crédito Local MéxicoTorre Hemicor – Av. InsurgentesSur # 826Colonia del Valle – Bénito Juarez3100 México DFMexicoPhone: (55) 56 87 75 45Dexia Crédits LogementHeadquartersBoulevard Pachéco 44B-1000 BrusselsOperations• Chaussée de Dinant 1033B-5100 WépionPhone: (32) 81 46 82 11Fax: (32) 81 46 05 55• H. Consciencestraat 6B-8800 RoeselarePhone: (32) 51 23 21 11Fax: (32) 51 23 21 45Dexia Delaware LLC445, Park Avenue 7th floorNew York, NY 10022USAPhone: (1) 212 515 70 00Fax: (1) 212 753 55 22Dexia Editions7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 79 13Fax: (33) 1 43 92 80 77Dexia Epargne Pension65, rue de la VictoireF-75009 ParisPhone: 0810 39 82 83www.dexia-ep.comDexia FactorsAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 282 66 33Fax: (32) 2 282 66 99www.dexia-factors.beDexia Finance7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 75 27Fax: (33) 1 43 92 75 35Dexia Flobail7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 73 89Fax: (33) 1 45 75 34 59Dexia Habitat7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 81 64Fax: (33) 1 43 92 81 50Dexia Insurance BelgiumAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 286 61 11Fax: (32) 2 286 15 15www.dvvlap.beDexia Investments Ireland6 George’s DockIRL-IFSC Dublin 1Phone: (353) 1 645 50 00Fax: (353) 1 829 15 77www.dexia-investments.ieDexia KommunalbankDeutschlandCharlottenstrasse 82D-10969 BerlinPhone: (49) 30 25 59 8-0Fax: (49) 30 25 59 8-2 00www.dexia.deDexia Kommunalkredit Bank AGTürkenstraße 9A-1092 WienPhone: (43) 1 31 6 31Fax: (43) 1 31 6 31 103www.dexia-kom.comDexia Kommunalkredit BulgariaEOODSofia 1000, 19 KarnigradskaBulgariaPhone: (359) 897 886 761Dexia Kommunalkredit CzechRepublic a.sKarlova 27, 110 00 Praha 1Czech RepublicPhone: (420) 221 146 331Dexia Kommunalkredit PolskaUI. Sienna 39PL-00-121 WarszawaPhone: (48) 22 654 35 84Dexia Kommunalkredit RomaniaSRL42 Dorobantilor Street,1st District,010573 BucurestiRomaniaPhone: (40) 21 619 34 07Dexia Lease BelgiumHeadquartersBoulevard Pachéco 44B-1000 BrusselsOperationsAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 222 37 08Fax: (32) 2 222 37 13www.dexialease.beDexia Lease ServicesAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 222 38 36Fax: (32) 2 222 37 13Dexia Life & Pensions2, rue Nicolas BovéL-1253 LuxembourgPhone: (352) 262 54 41Fax: (352) 262 54 45 480www.dexia-life.comDexia Location Longue Durée22, rue des Deux GaresF-92564 Rueil-Malmaison CedexPhone: (33) 1 57 69 55 55Fax: (33) 1 57 69 65 87www.dexia-clflease.frDexia Municipal Agency7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 77 77Fax: (33) 1 43 92 70 00www.dexia-ma.comDexia Prévoyance3, avenue Claude GuilleminSite du BRGMBP 6009F- 45060 Orléans Cedex 2Phone: (33) 2 38 64 39 80Fax: (33) 2 38 64 33 68assurance@dexia-prevoyance.com126

Annual Report 2005Dexia Private Bank JerseyPO Box 122-6, Church StreetSt Helier, Jersey JE4 9NEPhone: (44) 1534 83 44 00Fax: (44) 1534 83 44 11www.dexia-privatebank.jeDexia Private Bank SwitzerlandBeethovenstrasse, 48CH-8039 ZürichPhone: (41) 1 286 92 92Fax: (41) 1 201 14 71www.dexia.chDexia Public Finance BankShackleton House4, Battle Bridge LaneUK-London SE1 2RBPhone: (44) 207 378 77 57Fax: (44) 207 378 71 88www.uk-dexia.comDexia Public Finance NordenBox 7573Engelbrektsplan 2S-103 93 StockholmPhone: (46) 8 407 57 00Fax: (46) 8 407 57 01Dexia Sabadell Banco LocalPaseo de las Doce Estrellas 4Campo de las NacionesE-28042 MadridPhone: (34) 91 721 33 10Fax: (34) 91 721 33 20www.dexiasabadell.esDexia Securities France112, avenue KléberF-75116 ParisPhone: (33) 1 56 28 52 00Fax: (33) 1 56 28 52 90www.dexia-securities.frDexia Securities USA747 Third Avenue, 22nd floorNew York, NY 10017USAPhone: (1) 212 376 01 30Fax: (1) 212 376 01 39Dexia Société de CréditHeadquarters and operationsRue des Clarisses, 38B-4000 LiègePhone: (32) 4 232 45 45Fax: (32) 4 232 45 01OperationsBoulevard Saint-Michel 50B-1040 BrusselsPhone: (32) 2 732 12 12Fax: (32) 2 737 29 27www.dexia-sdc.beDexia SofaxisRoute de CretonF-18100 VasselayPhone: (33) 2 48 48 10 10Fax: (33) 2 48 48 10 11www.sofaxis.comExperta (Switzerland)Steinengraben 22CH-4002 BaselPhone: (41) 61 285 17 17Fax: (41) 61 285 17 77www.experta.chExperta Corporate and TrustServices180, rue des AubépinesL-1145 LuxembourgPhone: (352) 26 92 55 2263Fax: (352) 26 92 55 3366www.experta.luExperta Trust Company(Bahamas) LimitedTrade Winds Building, 4th floorBay StreetPO Box N-10697Nassau, BahamasPhone: (1) 242 325 0922Fax: (1) 242 325 0911www.experta.bsExperta Trust Services JerseyPO Box 3002-6, Church StreetSt Helier, Jersey JE4 9NEPhone: (44) 1534 83 44 44Fax: (44) 1534 83 44 55www.experta.jeFidexisRue de la Charité 15B-1210 BrusselsPhone: (32) 2 209 02 30Fax: (32) 2 209 02 37Financial Security Assurance31 West 52nd StreetNew York, NY 10019USAPhone: (1) 212 826 01 00Fax: (1) 212 688 31 01www.fsa.comFinancière Centuria203, rue du Faubourg Saint-HonoréF-75008 ParisPhone: (33) 1 44 86 80 22Fax: (33) 1 40 06 62 87www.centuria.frFloral7 à 11, quai André CitroënF-75015 ParisPhone: (33) 1 43 92 78 34Fax: (33) 1 43 92 70 57INCAPO Box 1847 – Gallo Manor2152 JohannesburgSouth AfricaPhone: (27) 11 202 22 00Kommunalkredit Austria AGTürkenstraße 9A-1092 WienPhone: (43) 1 31 6 31 0Fax: (43) 1 31 6 31 503www.kommunalkredit.atKommunalkredit Dexia AssetManagementTürkenstraße 9A-1092 WienPhone: (43) 1 31 6 31 0Fax: (43) 1 31 6 31 505www.kdam.atLoginsGeneraal De Wittelaan 17 bus 32B-2800 MechelenPhone: (32) 15 45 48 50Otzar Hashilton Hamekomi(OSM)3, Heftman Street61070 Tel-AvivIsraelPhone: (972) 3 695 7211 5Fax: (972) 3 691 9503Popular Banca Privada PopularGestion PrivadaJuan Ignacio Luca de Tena 11E-28027 MadridPhone: (34) 914 18 93 30Fax: (34) 914 18 93 28www.popularbancaprivada.esRBC Dexia Corporate ServicesHong Kong51/F, Central Plaza18 Harbour RoadWanchai, Hong KongPhone: (852) 2978 5656Fax: (852) 2845 0390www.rbcdexia-is.com127

DexiaDexia in the worldRBC Dexia Investor ServicesBank France105, rue RéaumurF-75002 ParisPhone: (33) 1 70 37 83 00Fax: (33) 1 70 37 83 03www.rbcdexia-is.comRBC Dexia Investor ServicesBank SA5, rue Thomas EdisonL-1445 StrassenPhone: (352) 26 05 1Fax: (352) 24 60 95 00www.rbcdexia-is.comRBC Dexia Investor ServicesBank SADublin BranchGeorge’s Quay House43 Townsend StreetIRL-Dublin 2Phone: (353) 1 613 11 20Fax: (353) 1 613 04 45www.rbcdexia-is.comRBC Dexia Investor ServicesBank SAHong Kong Branch51/F, Central Plaza18 Harbour RoadWanchai, Hong KongPhone: (852) 2978 5656Fax: (852) 2845 0390www.rbcdexia-is.comRBC Dexia Investor ServicesBelgiumRue Royale 180B-1000 BrusselsPhone: (32) 2 222 07 02Fax: (32) 2 222 52 26www.rbcdexia-is.comRBC Dexia Investor ServicesCaymanCoconut Villa #2Jennifer’s DrivePO Box 10211 APOGrand CaymanPhone: (1345) 945 85 00Fax: (1345) 945 85 01www.rbcdexia-is.comRBC Dexia Investor ServicesEspaña SAFernando el Santo 20E-28010 MadridPhone: (34) 91 360 99 00Fax: (34) 91 360 99 95www.rbcdexia-is.comRBC Dexia Investor ServicesFrance105, rue RéaumurF-75002 ParisPhone: (33) 1 49 35 68 01Fax: (33) 1 49 35 70 54www.rbcdexia-is.comRBC Dexia Investor ServicesIreland LtdGeorge’s Quay House43 Townsend StreetIRL-Dublin 2Phone: (353) 1 613 04 00Fax: (353) 1 613 04 01www.rbcdexia-is.comRBC Dexia Investor ServicesItaliaProcaccini CenterVia Messina 38Torre B, Piano 5I-20154 MilanoPhone: (39) 02 33 62 31Fax: (39) 02 33 62 32 30www.rbcdexia-is.comRBC Dexia Investor ServicesNetherlandsBeethovenstraat 300PO Box 75666NL-1070 AR AmsterdamPhone: (31) 20 348 50 00Fax: (31) 20 348 75 76www.rbcdexia-is.comRBC Dexia Investor ServicesSingapore9 Raffles Place #42-01Republic PlazaSingapore 048619Phone: (65) 64 35 33 36Fax: (65) 65 36 02 19www. rbcdexia-is.comRBC Dexia Trust Services HongKong51/F, Central Plaza18 Harbour RoadWanchai, Hong KongPhone: (852) 2978 5656Fax: (852) 2845 0390www.rbcdexia-is.comRBC Dexia Trust ServicesSingapore9 Raffles Place #42-01Republic PlazaSingapore 048619Phone: (65) 64 35 33 36Fax: (65) 65 36 02 19www. rbcdexia-is.comSepiaAvenue Livingstone 6B-1000 BrusselsPhone: (32) 2 286 63 27Fax: (32) 2 284 74 76SISL180, rue des AubépinesL-1145 LuxembourgPhone: (352) 4590-3309Fax: (352) 4590-4792Société Luxembourgeoise deLeasing BIL Lease14-16, avenue PasteurL-2310 LuxembourgPhone: (352) 22 77 33 1Fax: (352) 22 77 44www.dexia-bil.luSogama Crédit associatif75, rue Saint-LazareF-75009 ParisPhone: (33) 1 42 80 42 24Fax: (33) 1 42 81 42 98Van Lieshout & PartnersMaliebaan 45PO Box 13224NL-3507 LE UtrechtPhone: (31) 30 23 45 432Fax: (31) 30 23 45 400www.vanlieshout-en-partners.nlWGH InformatiqueAvenue de l’Expansion 7B-4432 AnsPhone: (32) 4 246 10 46Fax: (32) 4 246 03 03www.wgh.be128

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