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BNP Paribas — Annual Report 2010
Mar 15, 2011
1158_10-k_2011-03-15_cc2f6def-6d82-47fc-bf06-8d610aa7033f.pdf
Annual Report
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Reguliersdwarsstraat 90
1017 BN Amsterdam, the Netherlands
Chamber of Commerce Amsterdam No. 33215278
Annual Report 2010
BNP Paribas Arbitrage Issuance B.V.
BNP Paribas Arbitrage Issuance B.V.
CONTENTS
Managing Director’s Report
3
Financial statements for the financial year ended December 31, 2010
- Balance sheet
5 - Profit and loss account
6 - Cash flow statement
7 - Notes to the financial statements
8
Other information
- Statutory arrangements concerning the appropriation of profits
14 - Appropriation of the results for the years 2009 and 2010
14 - Subsequent events
14 - Officers’ statement
14 - Auditor’s report
15
BNP Paribas Arbitrage Issuance B.V.
Managing Director's report
Description and principal activity of the Company
BNP Paribas Arbitrage Issuance B.V. (the Company) was incorporated on November 10, 1989 under the laws of the Netherlands.
The principal objectives of the Company are to issue and acquire financial instruments of any nature and to enter into related agreements for account of various entities of the BNP Paribas Group.
Audit committee
The Company qualifies as an organisation of public interest pursuant Dutch and EU law. By making use of the exemption for groups the Company did not install an audit committee. The Company belongs to the BNP Paribas group which has an audit committee that complies with international corporate governance rules.
Operating result
During the financial year under review there was a substantial increase of issues in number. The net profit for the financial year 2010 was EUR 28,537 (2009: profit EUR 36,953).
Liquidity and shareholder's equity
No significant changes to liquidity resources occurred and equity increased with the result for the period. Liquidity and capital resources are considered sufficient given the size and nature of the Company.
Risks and uncertainties
Due to its activities the Company is exposed to a variety of financial risks, including the effects of changes in debt and equity market prices, currency exchange rates and interest rates. However, all issued securities are hedged by OTC option and swap agreements with BNP Paribas group entities and therefore these risks are completely mitigated.
Market risk
The Company takes on exposure to market risks arising from positions in interest rate, currency, commodities and equity products, all of which are exposed to general and specific market movements. However, the risks are mitigated by the above mentioned OTC contracts.
Credit risk
The Company has significant concentration of credit risks as all OTC contracts are acquired from its parent company and other group companies. Taking into consideration the objective and activities of the Company and the fact that the BNP Paribas group is a high credit quality financial institution under supervision of the French central bank, management considers these risks as acceptable.
BNP Paribas Arbitrage Issuance B.V.
Liquidity risk
The Company has significant liquidity risk exposure. To mitigate this exposure, the Company entered into netting agreements with its parent company and other group companies.
Future outlook
It is expected that the activities of the Company will stabilize in 2011.
The Company will issue securities with pledged collateral and with or without a guarantee of BNP Paribas S.A. No OTC will be acquired for the securities without a guarantee of BNP Paribas S.A.
Amsterdam, March 14, 2011.
The Managing Director,
Signed by
BNP Paribas Trust B.V.
BNP Paribas Arbitrage Issuance B.V.
(before appropriation of the net result)
BALANCE SHEET AT DECEMBER 31, 2010
| Notes | 31.12.2010 | 31.12.2009 | |
|---|---|---|---|
| EUR | EUR | ||
| ASSETS | |||
| Financial fixed assets | |||
| OTC contracts | 1 | 22,527,434,243 | 21,208,098,597 |
| Current assets | |||
| OTC contracts | 1 | 10,429,808,218 | 10,172,402,984 |
| Taxes receivable | 59,552 | 3,309 | |
| Accounts receivable group | 1,101,547 | 1,169,055 | |
| Cash at banks | 337,838 | 144,917 | |
| 10,431,307,155 | 10,173,720,265 | ||
| TOTAL ASSETS | 32,958,741,398 | 31,381,818,862 | |
| SHAREHOLDER'S EQUITY AND LIABILITIES | |||
| Shareholder's equity | 2 | ||
| Share capital issued and paid up | 45,379 | 45,379 | |
| Retained earnings | 271,734 | 234,781 | |
| Result for the period | 28,537 | 36,953 | |
| 345,650 | 317,113 | ||
| Long term liabilities | |||
| Issued securities | 3 | 22,527,434,243 | 21,208,098,597 |
| Current liabilities | |||
| Issued securities | 3 | 10,429,808,218 | 10,172,402,984 |
| Other liabilities – non group | 603,951 | 496,559 | |
| – group | 549,336 | 503,609 | |
| 10,430,961,505 | 10,173,403,152 | ||
| TOTAL EQUITY AND LIABILITIES | 32,958,741,398 | 31,381,818,862 |
BNP Paribas Arbitrage Issuance B.V.
PROFIT AND LOSS ACCOUNT FOR THE YEAR 2010
| Notes | 2010 | 2009 | |
|---|---|---|---|
| EUR | EUR | ||
| Net result financial instruments | 4 | 0 | 0 |
| Other income | 5 | 414,156 | 523,919 |
| Operating income | 414,156 | 523,919 | |
| Operating expenses | |||
| General and administrative expenses | (376,506) | (476,290) | |
| Operating result | 37,650 | 47,629 | |
| Interest income | 201 | 227 | |
| Interest expenses and similar charges | (1,927) | (1,665) | |
| Profit before taxation | 35,924 | 46,191 | |
| Corporate income tax | 6 | (7,387) | (9,238) |
| Profit after taxation | 28,537 | 36,953 |
BNP Paribas Arbitrage Issuance B.V.
CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2010
| 2010 | 2009 | |
|---|---|---|
| EUR | EUR | |
| Cash flow from operating activities | ||
| Issuing of securities against OTC coverage | 0 | 0 |
| Received reimbursed issuing expenses | 4,130,033 | 3,120,406 |
| Received reimbursed general expenses | 260,321 | 730,055 |
| Paid issuing expenses | (3,755,774) | (3,776,435) |
| Paid general expenses | (435,035) | (462,991) |
| Paid taxes | (6,624) | (14,975) |
| Cash flow from operating activities | 192,921 | (403,940) |
| Cash flow from financing activities | 0 | 250,000 |
| Increase/ (decrease) cash at banks | 192,921 | (153,940) |
| Movements in cash at banks | ||
| Cash at banks at January 1 | 144,917 | 298,857 |
| Increase/ (decrease) cash at banks | 192,921 | (153,940) |
| Cash at banks | 337,838 | 144,917 |
BNP Paribas Arbitrage Issuance B.V.
NOTES TO THE FINANCIAL STATEMENTS
GENERAL
BNP Paribas Arbitrage Issuance B.V. (the Company), having its registered address at Reguliersdwarsstraat 90, Amsterdam, was incorporated under the law of the Netherlands on November 10, 1989 as a private limited liability company.
The principal objectives of the Company are to issue securities, such as warrants, certificates, private placements, notes, to enter into related OTC agreements and to issue and acquire financial instruments of any nature.
All outstanding shares of the Company are owned by BNP Paribas S.A., Paris, France, which company consolidates the figures of the Company. The annual reports of BNP Paribas S.A. can be found on the website www.bnpparibas.com.
SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The annual accounts of the Company are prepared in accordance with accounting principles generally accepted in the Netherlands and in conformity with Title 9, Book 2 of the Netherlands Civil Code. All amounts are stated in euros, the reporting currency, unless stated otherwise.
The accounting principles of the Company are summarised below. These accounting principles have all been applied consistently throughout the financial year and the preceding year unless indicated otherwise.
Accounting convention
The accounts are prepared under the historical cost convention modified by the translation of foreign currencies.
Financial instruments
Financial instruments include accounts receivable and accounts payable, cash at bank and cash equivalents, issued securities and acquired OTC contracts. Financial assets and liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.
Valuation of assets and liabilities
The issued securities such as warrants, certificates and notes and the related OTC contracts having the same characteristics are stated at fair value.
Other assets and liabilities are stated at nominal value.
BNP Paribas Arbitrage Issuance B.V.
Method of determining fair value of issued securities and related OTC contracts
Fair value is determined on the basis of quoted prices in an active market; or using valuation techniques involving mathematical calculation methods based on accepted financial theories, and parameters derived in some cases from the prices of instruments traded in active markets, and in others from statistical estimates or other quantitative methods. The distinction between the two valuation methods is made according to whether or not the instrument is traded in an active market. Whether or not a market is active is determined on the basis of a variety of factors. Characteristics of an inactive market include a significant decline in the volume and level of trading activity in identical or similar instruments, the available prices vary significantly over time or among market participants or observed transaction prices are not current.
At determining fair values the three categories of financial instruments are distinguished based on the characteristics of the instrument and the measurement method used:
- Category 1: financial instruments quoted on an active market;
- Category 2: financial instruments measured using valuation models based on observable parameters;
- Category 3: financial instruments measured using valuation models based wholly or partly on non-observable parameters. A non-observable parameter is defined as a parameter whose value results from assumptions or correlations which are not based on observable current market transactions in the same instrument at the valuation date, or on observable market data at that date.
The OTC contracts have the same values as their related securities.
Recognition of income and expenses
Other income and general and administrative expenses are taken in the year to which they relate. Profits are recognised in the year they are realised; losses are taken as soon as they are foreseeable.
If securities are exercised against the Company, the Company fulfils its obligation by exercising the related OTC contracts with entities of the BNP Paribas group as the case may be. Issued securities and related OTC contracts are released simultaneously. Issued securities not exercised at maturity and the related OTC contracts are released without any further future obligation for the Company.
Currencies
Balance sheet items not being securities or OTC’s denominated in currencies other than the euro are translated at the rate of exchange prevailing on balance sheet date in principle as given by the European Central Bank. Transactions in foreign currencies during the reporting period have been incorporated at the rate of settlement.
The premiums of the issued securities and the cost of the related OTC contracts are denominated in different currencies. Moreover, the underlying contracts of the securities have their own currency denominations, which are often based on a basket of currencies. The net effect of the currency risk is nil though, as this risk is completely hedged. The currency risk is not specified, as this information is not readily available and can only be obtained at unreasonable high cost.
BNP Paribas Arbitrage Issuance B.V.
Corporate income tax
Tax on result is calculated by applying the rates for the financial year to the result in the profit and loss account.
FINANCIAL RISK MANAGEMENT
Due to its activities the Company is exposed to a variety of financial risks, including the effects of changes in debt and equity market prices, currency exchange rates and interest rates. However, all issued securities are hedged by OTC option and swap agreements with BNP Paribas group entities and therefore these risks are completely mitigated.
Market risk
The Company takes on exposure to market risks arising from positions in interest rate, currency, commodities and equity products, all of which are exposed to general and specific market movements. However, the risks are mitigated by the above mentioned OTC contracts.
Credit risk
The Company has a significant concentration of credit risks as all OTC contracts are acquired from its parent company and other group companies. Taking into consideration the objective and activities of the Company and the fact that BNP Paribas S.A. is a high credit quality financial institution under supervision of the French central bank, management considers these risks as acceptable.
Liquidity risk
The Company has significant liquidity risk exposure. To mitigate this exposure, the Company entered into netting agreements with its parent company and other group companies.
RELATED PARTY TRANSACTIONS
The Company has entered into various agreements with its parent company and other group companies relating to the issuing of financial instruments, the hedging of the related exposures and the reimbursement of costs. These agreements are at arms-length and have as objective to limit cash flow, credit and market risks.
PRINCIPLES FOR PREPARATION OF THE CASH FLOW STATEMENT
The cash flow statement is prepared according to the direct method and consists of cash only. Corporate income tax is presented under operating expenses and interest is taken into account under financing activities.
Netting agreements between the Company and entities of the BNP Paribas group have been drawn up for all flows resulting from securities and OTC contracts to avoid that payments have to be made for these flows. This procedure is reflected in the cash flow report under the heading "Issuing of securities against OTC coverage".
BNP Paribas Arbitrage Issuance B.V.
NOTES TO THE BALANCE SHEET
1. OTC contracts
For all issued securities OTC contracts with BNP Paribas group companies are agreed having the same characteristics as the issued securities. This means that the underlying quantity, issue price, strike, parity, maturity and quoted price for exercise are identical. Refer to note 3 for the details of the issued securities and hence the OTC contracts.
2. Shareholder's equity
Share capital:
The Company’s authorised share capital amounts to EUR 225,000 (225,000 common shares of EUR 1 each), of which 45,379 shares are issued and fully paid-up.
During the financial year under review, there have been no changes in the authorised, issued or paid up capital.
Retained earnings:
The movement is as follows:
| EUR | EUR | |
|---|---|---|
| 2010 | 2009 | |
| Opening balance | 234,781 | 175,963 |
| Appropriation result previous year | 36,953 | 58,818 |
| Closing balance | 271,734 | 234,781 |
3. Issued securities
The Company establishes securities programmes and issues securities such as warrants, notes and certificates exercisable pursuant to the terms and conditions of such securities programmes. Entities of the BNP Paribas group have agreed to purchase the securities at the same time. The entities of the BNP Paribas group distribute the securities to third parties. BNP Paribas S.A. acts as guarantor for the securities programmes towards the third parties.
Specification of the outstanding issued securities and related OTC contracts at balance sheet date:
| Market value | Nominal value | |
|---|---|---|
| EUR | EUR | |
| - Up to 1 year | 10,429,808,218 | 11,745,703,322 |
| - From 1- 5 years | 18,385,051,783 | 21,207,598,534 |
| - Exceeding 5 years | 4,142,382,460 | 4,510,390,068 |
| Total as per December 31, 2010 | 32,957,242,461 | 37,463,691,924 |
| Total as per December 31, 2009 | 31,380,501,581 | 35,598,132,699 |
Represented in the balance sheet as per December 31, 2010 as follows:
| EUR | |
|---|---|
| - under financial fixed assets and long term liabilities | 22,527,434,243 |
| - under current assets and current liabilities | 10,429,808,218 |
| 32,957,242,461 |
BNP Paribas Arbitrage Issuance B.V.
When issued, securities are publicly offered or privately placed. Sometimes privately placed securities are listed for the secondary market. Listed securities are listed on stock exchanges in and outside the European Union; the related OTC contracts are not listed.
No accrued interest is presented in the balance sheet because the accrued interest is part of the market value of the financial instruments as disclosed in the balance sheet. The net result on the financial instruments equals zero and is recorded on a net basis in the profit and loss account, see note 4.
NOTES TO THE PROFIT & LOSS ACCOUNT
4. Net result financial instruments
The net result financial instruments includes capital gains and losses, currency results, interest income and expense and changes in fair value on the issued securities and related OTC contracts. As the Company enters into an OTC option or swap agreement with a BNP Paribas group company at each issue of securities at exactly the same terms and conditions of the issued security, there is a complete hedge of the economic risk of the Company. Therefore, the net result on the financial instruments equals zero and is recorded on a net basis.
5. Other income
Other income concerns general and administrative expenses of the Company increased with an up-count of 10%, based on a cost plus agreement concluded for an indefinite period of time. These costs have been or will be invoiced to BNP Paribas group companies.
6. Corporate income tax
The corporate income tax is the estimated charge for the period amounting to EUR 7,185 and a provision difference regarding year 2009 amounting to EUR 202. The rates for the financial year 2010 are 20 and 25.5%. The effective rate for the period is 20%.
Issuing expenses and remunerations
Issuing expenses are all expenses related to the issuing of the securities for account of the Company and are reimbursed by BNP Paribas group companies, if charged to the Company.
The sole director of the Company has charged a management fee of EUR 40,376 over 2010 (2009: EUR 38,924).
With reference to Section 2:382a of the Dutch Civil Code, a fee amount of EUR 23,500 has been charged to the Company for the financial year under review (2009: EUR 23,500) as audit fee. Additional amount of EUR 13,500 has been charged by Deloitte Accountants B.V. to the Company for the financial year 2010 (2009: EUR 4,500) for audit-related fees. No other fees were paid to member firms and affiliates of Deloitte Accountants B.V. in 2010 and 2009.
BNP Paribas Arbitrage Issuance B.V.
Employees
The Company employs no personnel.
Amsterdam, March 14, 2011
The Managing Director,
Signed by
BNP Paribas Trust B.V.
13
BNP Paribas Arbitrage Issuance B.V.
OTHER INFORMATION
STATUTORY ARRANGEMENTS CONCERNING THE APPROPRIATION OF PROFITS
In accordance with article 20 of the articles of association of the Company profits are at the disposal of the general meeting of shareholders.
No dividends can be declared if the shareholder’s equity is less than the total of the paid in capital and the legal reserves.
APPROPRIATION OF THE RESULTS FOR THE YEARS 2009 AND 2010
The profit of the year 2009 has been added to the retained earnings.
The Managing Director proposes to the general meeting of shareholders to add the profit made by the Company during the year 2010 to the retained earnings. The financial statements do not reflect this proposal.
SUBSEQUENT EVENTS
The Company will issue securities with pledged collateral and with or without a guarantee of BNP Paribas S.A. No OTC will be acquired for the securities without a guarantee of BNP Paribas S.A.
AUDIT
The auditor’s report is included on the next page.
OFFICERS’ STATEMENT
Amsterdam, March 14, 2011
To the best of our knowledge we declare that:
- the annual accounts 2010 give a fair view of the assets, the financial position and the profit of the Company; and
- the annual report 2010 gives a fair view of the Company’s condition on the balance sheet date, the development of the Company during the financial year and all material risks to which the Company is exposed.
Signed by
H.E. Sijsling C. Toelaram
Director Administrator
BNP Paribas Trust B.V.
14
Deloitte.
Deloitte Accountants B.V.
Orlyplein 10
1043 DP Amsterdam
P.O.Box 58110
1040 HC Amsterdam
Netherlands
Tel: +31 (0)88 288 2888
Fax: +31 (0)88 288 9739
www.deloitte.nl
Independent auditor's report
To the Shareholder of BNP Paribas Arbitrage Issuance B.V.
Report on the financial statements
We have audited the accompanying financial statements 2010 of BNP Paribas Arbitrage Issuance B.V., Amsterdam, which comprise the balance sheet as at December 31, 2010, the profit and loss account for the year then ended and the notes comprising a summary of the accounting policies and other explanatory information.
Management's responsibility
Management is responsible for the preparation and fair presentation of the financial statements in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch Law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
Deloitte Accountants B.V. is registered with the Trade Register of the Chamber of Commerce and Industry in Rotterdam number 24362853.
Member of
Deloitte Touche Tohmatsu Limited
3100235483/OP9983/ev
Deloitte.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion with respect to the financial statements
In our opinion, the financial statements give a true and fair view of the financial position of BNP Paribas Arbitrage Issuance B.V. as at December 31, 2010, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements
Pursuant to the legal requirement under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Managing Director’s report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b-h has been annexed. Further we report that the Managing Director’s report, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
Amsterdam, March 14, 2011
Deloitte Accountants B.V.
already signed: R.J.M. Maarschalk
3100235483/OP9983/ev