Financial Statements

Transcription

1 Financial Statements for the year ended 31 December 2014 Kaupthing hf. (in windingup proceedings) Borgartún Reykjavík Iceland Reg. no

2 ContentS Page Endorsement by the Windingup Committee Independent Auditor s Report Income Statement Balance Sheet Statement of Cash flows Notes

3 ENDORSEMENT BY THE WINDINGUP COMMITTEE Kaupthing hf. (Kaupthing, the Company ), is currently in windingup proceedings headed by a windingup committee (the Windingup Committee ). The Windingup Committee is responsible for all of the Company s affairs, including directing its daily operations, managing the Company s assets, administrating the claims process and safeguarding the Company s interests for the benefit of the Company s creditors. Pursuant to Act No. 125/2008 on Authority for treasury disbursements due to unusual financial market circumstances etc., the Icelandic Financial Supervisory Authority (the FME ) was given the power to appoint a resolution committee for the Company and other financial institutions. On 9 October 2008, the Company s board of directors resigned due to the Company s financial difficulties. In accordance with the aforementioned legislation, the FME appointed a resolution committee which immediately assumed control of the Company. On 25 May 2009, pursuant to Act No. 44/2009 amending Act No. 161/2002 on Financial Undertakings (the Act on Financial Undertakings ), the District Court of Reykjavik appointed the Windingup Committee to oversee and administrate the Company s claim process. In accordance with the provisions of Act No. 78/2011, amending the Act on Financial Undertakings, the resolution committee was dissolved as of 1 January The Windingup Committee took over the respective tasks that were previously handled by the resolution committee. The Company is operating in accordance with the provisions of the Act on Financial Undertakings which set out the legal framework for the windingup proceedings. These provisions are supplemented by the general provisions of the Act on Bankruptcy No. 21/1991 (the Bankruptcy Act ). During the windingup proceedings the Windingup Committee shall i.a. endeavour to obtain as high a value as possible for the financial undertaking s assets, for instance, by waiting if necessary for outstanding claims to mature rather than realising them at an earlier date. In addition, the Company can only remain in winding up proceedings as long as composition is targeted and achievable. The Windingup Committee, after consultation with creditors and other parties, is preparing the Company for a creditor s composition. However, as the vast majority of the Company s assets is located abroad and/or denominated in foreign currencies, and given the fact that the bulk of claims against the Company is held by creditors domiciled abroad, the execution of such a composition agreement with the creditors will not be possible, due to the capital controls provided for in the Foreign Exchange Act No. 87/1992, without an exemption from the Central Bank of Iceland (the CBI ). The Company has submitted an exemption application, which is being processed by the CBI, but a formal response has not yet been received. Furthermore, according to the Act on Financial Undertakings if a composition is ultimately not achievable then the Windingup Committee shall petition for the Company to be subject to bankruptcy proceedings by a ruling of the District Court. Operations in 2014 In 2014, the Company continued the active management of its diverse portfolio of assets in accordance with the aim of the Windingup Committee to maximise value of assets until distributions can be made to unsecured creditors. Determination of claims against the Company likewise continued. On 31 October 2014 the Directorate of Internal Revenue issued the tax statement for Kaupthing for the year 2013, including for the bank tax pursuant to Act No. 155/2010 ( Bank Tax ), surcharge on income tax pursuant to Act No. 165/2011 ( Surcharge on Income Tax ) and for the financial activities tax pursuant to Act No. 165/2011 ( Financial Activities Tax ). Kaupthing s Windingup Committee has disputed the abovementioned taxes and the disputes are currently in process with the relevant tax authorities. Kaupthing paid the relevant taxes in November and December 2014 with reservations on the grounds that the taxes are disputed. Reference is made to note 32 for further information. In late November 2014, proceedings were commenced before the High Court of Justice in London against the Company by the trustees of the Tchenguiz Family Trust and other plaintiffs for damages of an unquantified amount. The basis for the claim is an alleged conspiracy between a member of the Windingup Committee and two partners of Grant Thornton (UK) LLP which had the aim of arranging the arrests of certain individuals by the Serious Fraud Office in England. In January 2015, the Company filed an application for strike out of the claims on the basis that the English Court does not have jurisdiction to hear the dispute. The outcome of that application is expected in the summer of It is the firm position of the Windingup Committee that these allegations have absolutely no basis in fact or in law. Although the substantive claim is of an unquantified amount it could have a material effect if accepted by the Courts. Reference is made to note 33 in the financial statements. As at 31 December 2014 the Company s total assets amounted to ISK 800 billion (2013: ISK 778 billion) and outstanding claims amounted to ISK 2,826 billion (2013: ISK 2,879 billion). The profit for the year ended 31 December 2014 amounts to ISK 74 billion (2013: ISK 38 billion). 3

4 ENDORSEMENT BY THE WINDINGUP COMMITTEE General The Company s risk management possibilities are severely restricted under Icelandic legislation. Reference is made to note 4 in the financial statements for further discussion on the Company s risk management. The financial statements are prepared on the basis that the Company will be able to manage the timing of realisation of its assets. The realisable values of the Company s assets may be different at any given point in time as most of the noncash assets are complex, illiquid and not standardised and subject to a number of material uncertainties, including general economic and market conditions which have been and may continue to be volatile. Reference is made to note 2d regarding uncertainties/use of estimates and judgements. The liabilities of the Company are currently being determined through a formal claims filing process which is administered by the Windingup Committee. The scope of the Company s liabilities remains uncertain until the legal process of recognising and excluding claims has been further progressed by the Windingup Committee and, where applicable, the Icelandic Courts. Statement by the Windingup Committee The financial statements of Kaupthing hf. for the year ended 31 December 2014 have been prepared in accordance with the Icelandic Act on Annual Accounts No. 3/2006. In our opinion, the financial statements and endorsement by the Windingup Committee give a true and fair view of the development and performance of the Company s operations during the year ended 31 December 2014 and its financial position as at year end and describe the principal risks and uncertainties faced by the Company. The Windingup Committee has today discussed the financial statements of Kaupthing hf. for the year 2014 and confirms them by means of their signatures. Reykjavik, 3 March 2015, Windingup Committee: Feldis L. Oskarsdottir Johannes R. Johannsson Theodor S. Sigurbergsson 4

5 Independent Auditor s Report To the Windingup Committee of Kaupthing hf. We have audited the accompanying financial statements of Kaupthing hf., which comprise the Balance Sheet as at 31 December 2014, the Income Statement and Statement of cash flows for the year then ended, the Endorsement by the Windingup Committee and a summary of significant accounting policies and other explanatory notes. The Windingup Committee s Responsibility The Windingup Committee is responsible for the preparation and fair presentation of the financial statements in accordance with the Icelandic Act on Annual Accounts No. 3/2006, and for such internal control as management determines is necessary to enable the preparation of the financial statements and related explanatory notes that is 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 International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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 judgement, 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. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Kaupthing hf. as at 31 December 2014, of its financial performance and cash flows for the year ended 31 December 2014 in accordance with the Icelandic Act on Annual Accounts. Emphasis of matter Without qualifying our opinion, we draw attention to note 2b which describes that Kaupthing hf. is in windingup proceedings. Furthermore we draw attention to notes 2d, 34 & 35 to the financial statements which describe that there is a significant judgement applied in estimating the carrying value of the assets, including the assumption that Kaupthing hf. is able to manage the timing of the realisation of its assets. Actual amounts realised in the future might be materially different from the amounts on the balance sheet. Reykjavik, 3 March 2014 Ernst & Young ehf. Margrét Pétursdóttir, Partner 5

6 Income Statement for the year ended 31 December 2014 Notes ,291 7,600 45,563 (5,095) 41,610 (2,802) 8,514 3,498 21,499 (59,509) 94,403 (15,307) 94,167 53, (1,233) (3,766) (1,319) (3,807) Operating expenses (4,999) (5,126) Profit before taxes 89,168 47, (14,680) (9,932) Profit for the year 74,488 38,040 Interest income Net reversal of impairment Net financial income Net foreign exchange rate loss Changes in claims registry Increase in late filed priority claims in dispute Operating income Salaries and related expenses General and administrative expenses Taxes

7 Balance Sheet as at 31 December 2014 Notes Cash at bank Loans to and claims against credit institutions Loans to customers Bonds and debt instruments Shares and instruments with variable income Unsettled derivative receivables Other assets ,667 8,629 98,365 6, ,047 12,940 14, ,566 9, ,781 6, ,757 14,146 13,544 Total Assets 799, ,082 Claims Tax liabilities Other liabilities ,825,610 10,136 1,274 2,878,725 9,932 1,171 Total Liabilities 2,837,020 2,889,828 7, ,471 (2,180,999) 7, ,471 (2,255,487) (2,037,258) (2,111,746) 799, ,082 Assets Liabilities Equity Share capital Share premium Accumulated deficit Total Equity 26 Total Liabilities and Equity Other information

8 Statement of Cash Flows for the year ended 31 December 2014 Notes Cash flows from assets Interest received Dividend received ,820 1,289 6, Loans to and claims against credit institutions principal payments Loans to and claims against credit institutions long term deposits ,031 10,663 (5,257) 36,564 (2,555) Bonds and debt instruments principal payments ,434 4,333 Shares and instruments with variable income purchase of equity stakes Shares and instruments with variable income realisation of equity stakes (1,405) 62 (11) Unsettled derivative receivables net cash inflow ,316 3,544 Other assets net cash inflow ,446 Other inflow Net cash from assets 13,965 78,550 Fee income Other financial inflow Operating expenses Paid taxes (4,895) (14,478) 391 1,214 (5,688) Net cash to other operating activities (19,116) (4,083) Payment of claims Art. 109 and Payment of claims Art Custody account claims Art. 112 in dispute Custody account late filed claims Art. 109 and 110 in dispute net cash outflow (1,250) 562 (2,802) (5,797) (13,469) (562) (15,307) Net cash to claims (3,490) (35,135) Net cash (to) from operating activities Effects of foreign exchange rate adjustments on cash at bank Cash at bank at the beginning of the year (8,641) (8,258) 418,566 39,332 (38,393) 417,627 Cash at bank at the end of the year , ,566 Loans to customers principal payments Loans to customers principal outflow / RCF Cash flows to other operating activities Cash flows to claims 12 Significant non cash transactions Setoff settlements and nettings where assets and outstanding claims were offset or netted during the year amount to ISK 20.4 billion (2013: ISK 12.5 billion). Paid in kind (PIK) interest earned during the year amount to ISK 1.4 billion (2013: ISK 1.8 billion). Shares received as a payment of debts amounted to ISK 166 million. 8

9 General information 1. Reporting entity Kaupthing hf. (Kaupthing, the Company ) is a company domiciled in Iceland. The Company s registered office is at Borgartún 26, 105 Reykjavík. Kaupthing is currently in windingup proceedings headed by a windingup committee (the Windingup Committee ). The Windingup Committee is responsible for all of the Company s affairs, including directing its daily operations, managing the Company s assets, administrating the claims process and safeguarding the Company s interests for the benefit of the Company s creditors. The Windingup Committee s principal objective is to ensure proper handling of claims against the Company and maximising the value of the Company s assets to the benefit of its creditors. The Windingup Committee is comprised of the following members: Ms. Feldis L. Oskarsdottir, District Court Attorney, Mr. Johannes R. Johannsson, Supreme Court Attorney and Mr. Theodor S. Sigurbergsson, Certified Public Accountant. 2. Basis of preparation a) Statement of compliance These parent company financial statements have been prepared in accordance with the Icelandic Act on Annual Accounts No. 3/2006 (the Act on Annual Accounts ). The Act on Annual Accounts requires subsidiaries and associates to be recorded in accordance with the equity method or at cost but also allows for a use of an accounting policy that deviates from the provisions in the Act on Annual Accounts in order for the financial statements to provide a true and fair view of the Company s performance and financial position. Based on the above, and due to the purpose of the Company to liquidate/sell subsidiaries in the short/medium term, the subsidiaries and associates are measured at fair value. The book value of these shares and instruments with variable income measured at fair value is ISK 202 billion (2013: ISK 166 billion) while the equity value is ISK 268 billion (2013: ISK 184 billion). The financial statements were authorised for issue by the Windingup Committee on 3 March b) Windingup proceedings The Company is in windingup proceedings in accordance with Act No. 161/2002 on Financial Undertakings (the Act on Financial Undertakings ). The Windingup Committee plans to maximise the value of assets until distributions can be made to unsecured creditors. The financial statements are prepared on the basis that the Company will be able to manage the timing of realisation of its assets. External events, political, regulatory and/or legal, could affect the time scale, ability and process for such realisations. c) Basis of measurement The financial statements are prepared on the historical cost basis except for the following assets that are measured at fair value: Bond and debt instruments Shares and instruments with variable income d) Uncertainties/use of estimates and judgements The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported values. The estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions made. The Company has assets in respect of which limited or no observable market data is available and/or which are subject to legal action. The value of those assets is based on judgements regarding various factors as appropriate. Considerable judgement has been applied in recognising and determining the value of those assets. The realisable value of the Company s assets may be different at any given point in time as most of the noncash assets are complex, illiquid and not standardised and subject to a number of material uncertainties, including general economic and market conditions and legal uncertainties which have been and may continue to be volatile. Changes in the underlying assumptions used in the measurement methods could materially affect these stated values. Reference is made to note 34 and 35 for further information on uncertainties and impairment/ valuation methods. The liabilities of the Company are currently being determined through a formal claims filing process which is administered by the Windingup Committee. The scope of the Company s liabilities remains uncertain until the legal process of recognising and excluding claims has been further progressed by the Windingup Committee and, where applicable, the Icelandic Courts. 9

10 Basis of preparation, continued e) Setoff In the financial statements, assets and liabilities are offset and the net amounts presented, when there is a legally enforceable right to setoff the recognised amounts and an intention to either settle on a net basis or to realise the assets and settle the liabilities simultaneously. The impact of disputed setoff is not taken into account in the financial statements. Until all disputes have been concluded, the real and accurate amount of claims accepted for setoff remains uncertain. Reference is made to note 30 for further information. 3. Significant accounting policies Interest income Interest income is recognised on an accrual basis, except for nonperforming loans for which no interests are accrued. Impairment Assets measured at amortised cost are reviewed at each reporting date to determine whether there is any indication of impairment. Impairment losses are determined by an evaluation of the exposures on a casebycase basis, using the valuation methods outlined in note 34. Reasonable prudence is exercised in the valuation of individual items and potential losses which arise in the course of the financial year or in respect of previous financial years are taken into account. Impairment losses are recognised when losses are either incurred or foreseeable. Where the value of assets has been impaired and the reasons for the reduction in value does no longer apply, the previously recognised impairment loss is reversed. The amount of the reversal is recognised in the Income Statement. Cash at bank Cash at bank consists of cash and term deposits with credit institutions. Cash at bank comprises balances with up to one year maturity. Loans to and claims against credit institutions Loans to and claims against credit institutions are measured at amortised cost less estimated setoff effects. Loans to customers Loans to customers are measured at amortised cost. Bonds and debt instruments / Shares and instruments with variable income Listed and liquid instruments are measured at fair value based on the quoted closing price on 31 December Fair value measurements for financial instruments for which no or limited observable market data is available are determined by using the valuation methods outlined in note 34. The methods of assessing the fair value are based on the market value of underlying factors of the financial instrument in question when applicable. For other financial instruments the value produced by a model or other valuation method is adjusted to allow for a number of factors as appropriate. Reasonable prudence is exercised in the valuation of individual assets and foreseeable losses are taken into account. Unsettled derivative receivables Unsettled derivative receivables consist of claims against counterparties in relation to matured or terminated derivative trades. For ISDA counterparties the derivative exposure and collateral are netted and converted to the termination currency as at the termination date. In cases where multiple entities/branches of the same counterparty are being settled under a single legal agreement, the respective positions are netted. The value of unsettled derivative receivables is determined by using recognised valuation models. Once ISDA derivative contracts have been terminated, the nondefaulting counterparty must determine the net amounts owed by or to the defaulting counterparty. Third party quotes and closeout notices providing details of such calculations enable the Company to reconcile amounts. Impairment provisions are made to the Company s valuation of unsettled ISDA derivative receivables to account for potential disputes in valuation. For many nonisda counterparties, an impairment adjustment is made on derivative receivables to account for credit, legal and settlement risk. Disputed setoff may significantly affect this asset class. Reference is made to note 30 for further information. Other assets Other assets are measured at amortised cost less setoff effects. Outstanding claims Outstanding claims are based on the claims registry in accordance with the Icelandic Bankruptcy Act. Claims in foreign currencies have been converted into ISK at foreign exchange selling rates published by the CBI for 22 April 2009 in accordance with Act No. 44/2009. Hence, the outstanding claims have been fixed in ISK as at that date for all relevant claims. 10

11 Significant accounting policies, continued Late filed claims Late filed claims refers to priority claims under Art. 109 and 110 of the Bankruptcy Act that have been lodged against the Company after the expiry date for filing claims which was 30 December If the Windingup Committee s decision towards a late filed claim is disputed, the Windingup Committee can avail itself of the authority provided in paragraph 6 of Art. 102 of the Financial Undertakings Act and deposit into custody account in the name of the Company an amount corresponding to the payment of that claim. By making a deposit to a custody account a distribution shall be deemed to have been made to the creditor concerned. Once a final conclusion has been reached on the dispute, the share of this claim of the amount on deposit in the custody account, together with accrued interest, shall be paid to the creditor to the extent the claim has been recognised; any funds remaining shall revert to the Company. Claims are only recognised as late filed priority claims if the same have been filed with the Windingup Committee in accordance with Art. 117 of the Bankruptcy Act. Late filed claims are reflected in the financial statements when they have been filed with the Windingup Committee in accordance with Art. 117 of the Bankruptcy Act. 4. Risk management Risk management framework Pursuant to the Act on Financial Undertakings the Windingup Committee holds the rights and obligations held by the Company s board of directors and shareholders at shareholder s meetings. Furthermore the rules concerning administrators in bankruptcy proceedings apply to the Windingup Committee, its tasks and the members of the Committee. As such the Windingup Committee is responsible for both policy making and daily operations. The Company does not have a CRO or designated personnel for risk management. The Company s risk management, decision making and monitoring is mostly done bottomup, i.e. on a casebycase basis. Currency risk and concentration risk are, however, extensively reported at an aggregated level. The rationale for the bottomup approach is that the assets or legal issues being dealt with are few and each case needs specialised attention. The Company assigns employees to each asset who are responsible for the monitoring of and the reporting on the asset. Cash management The Company has significant cash assets due to the monetisation or maturity of assets since October Cash management possibilities are limited due to the Company s legal status and restrictions imposed by Icelandic legislation. The Foreign Exchange Act No. 87/1992 (the Foreign Exchange Act ) provides for certain restrictions on crossborder transfers of capital while the Bankruptcy Act provides for limitations on how the Company s cash assets can be invested. As a result, the Company s reinvestment and cash management possibilities, for risk management purposes, are severely limited. Noncash assets The Foreign Exchange Act is subject to interpretation by the CBI and frequent amendments by the legislator. As either the Foreign Exchange Act is amended or interpretation of the said Act evolves, the authority of the Company to both manage and dispose of its assets may alter or be subject to various conditions set forth by the CBI. Hence such developments could inter alia materially and adversely affect the Company s asset portfolio. The Company still has significant noncash assets. The portfolio of noncash assets includes loans, bonds, shares and instruments with variable income. The portfolio is static in nature and the book value is primarily affected by underlying borrower/investee business financial results. The Company s risk management possibilities are limited as the Company s legal status does not allow for executing hedging of its exposures, whether it is FX, market, interest rate et.al.risk. Active management of the assets continues, pending their eventual monetisation or maturity. Significant uncertainty surrounds the value of the Company s noncash assets and reference is made to notes 3435 for further information on the valuation methods used and sensitivity analysis. Below, the Company s risk management is broken down by types of risk. It should, however, be noted that the distinction between credit risk and market risk is in some cases ambiguous, for example when the Company owns both debt and equity of the same obligor. The following table shows a breakdown of the Company s assets by the type of holdings. 11

12 Risk management, continued Asset class Controlling Controlling equity equity interest interest Amount and debt only Operating loan portfolio NOA loan portfolio Bonds and debt instruments Shares and instruments with variable income ,108 22,257 6, ,047 70% 0% 16% 79% Debt only Minority equity interest and debt Minority equity interest only 6% 100% 69% 0% 24% 0% 15% 0% 0% 0% 0% 12% 0% 0% 0% 9% Total % 71% 6% 9% 6% 8% Total values , ,118 21,714 31,306 19,920 30,565 Credit risk Credit risk refers to the risk that the Company s obligors will fail to meet their obligations. Credit risk includes credit concentration risk and recovery risk. The Company considers credit risk associated with its cash holdings, loans to customers portfolio, bonds and debt instruments and other assets a material risk factor due to the varied credit quality of borrowers and uncertainty about recovery from defaulted counterparties. The risk associated with other asset classes that traditionally carry credit risk, such as unsettled derivative receivables and loans to credit institutions is categorised as legal risk since the value of those asset classes largely depends on the outcome of legal disputes. The Company also considers concentration risk a significant risk factor as the Company s loans to customers portfolio is highly concentrated in terms of number of borrowers and their geographical and industry sector distribution. Further, there is a legal risk associated with the portfolio due to enforcement issues related to borrowers that have defaulted on their contractual obligations. The Company mitigates the credit risk related to its cash holdings by making deposits abroad (i.e. outside Iceland) only at institutions with good credit ratings located in countries with good credit rating. Reference is made to notes 1518 for a breakdown of the Company s portfolio. Market risk Market risk is the prospective risk that market price movements negatively impact the value of the assets of the Company. This includes movements in equity prices, interest rates and prices of foreign currency. Market risk is considerable but the Company s means to mitigate this risk are severely limited. The Company doesn t manage the currency composition of its assets actively and instead reports the composition in detail, for example in notes Creditors can, therefore, account for the Company s currency position in their own risk management. Reference is made to notes 1920 for a breakdown of the Company s equities portfolio. Liquidity risk Liquidity risk refers to the risk that the Company has insufficient liquid funds to meet its financial obligations. At present the Company does not consider liquidity risk a material risk factor since its cash holdings far exceed the contractual financial obligations in its daytoday operations, in both ISK and foreign currency. However, the Company recognises the future need for reassessment of the risk factor in relation to possible distribution to creditors, in particular due to the constraints on cash movements imposed by the capital controls in Iceland. Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. Operational risk includes legal and political risk. The Company faces risk in regard to the scope and application of the Foreign Exchange Act and/or the Act on Financial Undertakings and/or tax legislation as regards inter alia distributions to creditors, realisations of assets, asset support, opearational requirements and foreign exchange rates. Other key risk factors are of strategic nature and include the legal and political unpredictability as well as risk factors specific to the operational environment of the Company. Such risk factors include potentially, having the need or be required to convert cash in foreign currency to ISK, being unable to retain key staff and uncertainty of the future operations of the Company regarding potential distributions to creditors. Due to recent legal and political developments, the Company considers future taxation and other legislative amendments to the current winding up proceedings to be or could be a material risk factor. The Company recognises that risk factors may change over time, risk factors which are currently deemed minor may become important and vice versa or new risk factors might emerge which are currently unknown to the Company. The Company will continue to monitor and reassess the various risk factors which it believes are most relevant at any given time and which may affect its operations. Claims The Company faces risk in respect of the quantum of finally accepted claims. The Company considers risk associated with future and current late filed claims against the Company a material risk factor. Late filed claims will in many cases be disputed, but, if finally accepted, can lead to a material increase in the liabilities of the Company. 12

13 5. Foreign exchange rates Transactions in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the spot foreign exchange rates as quoted on Reuters at 16:30 on the balance sheet date. Profits and losses arising on exchange are included in net profit or loss for the year. Balance Sheet AUD CAD CHF DKK EUR GBP JPY NOK SEK USD Interest income is specified as follows: Cash at bank Loans to and claims against credit institutions Loans to customers Bonds and debt instruments Other , , , , Interest income ,291 8,514 Impairment reversal on loans to and claims against credit institutions Impairment reversal on loans to customers Impairment reversal on unsettled derivative receivables Impairment reversal on other assets ,859 10,285 2, ,822 2, Impairment reversal ,338 25,942 Impairment loss on loans to customers Impairment loss on unsettled derivative receivables Impairment loss on other assets (8,641) (69) (28) (20,260) (975) (1,209) Impairment loss (8,738) (22,444) Net reversal of impairment ,600 3,498 Dividend income Net gain on bonds and debt instruments Net gain on shares and instruments with variable income Other financial income ,295 1,166 42, ,632 16,251 2,966 Net financial income ,563 21,499 Notes to the Income Statement 6. Comparative amounts have been adjusted. 7. Net reversal of impairment is specified as follows: Comparative amounts have been adjusted. 8. Net financial income is specified as follows: 13

14 9. Changes in claims registry is specified as follows: Outstanding claims liabilities at beginning of the year Outstanding claims liabilities at the end of the year ,879,287 2,825,610 2,994,802 2,879,287 Total Payment of claims Art. 109 and Payment of claims Art Setoff and amendments ,677 (506) (11,561) 115,515 (5,797) (13,469) (1,846) Changes in claims registry ,610 94,403 Salaries Salary related expenses External advisors Other expenses , , , Operating expenses ,999 5,126 Windingup Committee Professional service Legal services Non recoverable VAT ,599 1, , External advisors ,066 3,021 Average number of employees Surcharge on income tax Bank tax estimated for current year Bank tax under provided in prior year (4,542) (10,136) (2) (9,932) Total taxes in Income Statement (14,680) (9,932) 10. Operating expenses is specified as follows: External advisory expenses are specified as follows: 11. Taxes Reference is made to note 32 for further information. Notes to the Balance Sheet Cash at bank 12. Cash at bank specified by geographical location: Iceland Other Total Iceland Other Total Non ISK ISK ,810 5, , ,238 5,429 44,848 20, , ,398 20,168 Cash at bank , , ,667 65, , ,566 The Company s cash holdings are subject to Icelandic capital controls. Certain crossborder transactions require preapproval of the CBI, whilst other transactions are subject to reporting requirements to the CBI. 14

15 Loans to and claims against credit institutions 13. Loans to and claims against credit institutions specified by types of loans and claims: Gross Amortised amount cost Gross Amortised amount cost Foreign Cash collateral held with banks against guarantees Restricted bank accounts Frozen/emptied bank accounts Other loans and claims ,287 3, ,287 3, ,118 4, ,118 4, Loans to and claims against credit institutions before setoff against counterclaims.... Subject to setoff ,643 (14) 8,643 (14) 10,475 (469) 10,451 (469) Loans to and claims against credit institutions after setoff ,629 8,629 10,006 9,982 Loans to customers 14. Loans to customers specified by portfolios: Gross Amortised amount cost Gross Amortised amount cost Operating loan portfolio NOA loan portfolio , ,285 76,108 22, , ,190 83,418 21,363 Loans to customers ,101,873 98,365 1,177, ,781 Loans to customers are divided into two subportfolios due to the way the Company organises the management of its assets. Operating loan portfolio which is predominantly made up of loans to borrowers with underlying operating businesses, and the NOA loan portfolio which is made up of loans to borrowers with little or no underlying business operations. 15. Loans to customers specified by sectors: Gross Amortised amount cost Gross Amortised amount cost Business and Industrial Products Real Estate Holding Company Consumer Goods and Retail Consumer Services: Other Individuals Other ,307 77, ,284 33,145 10, ,990 94,515 24,265 21,201 21,090 19,366 10, ,657 44,706 80, ,946 33,269 15, ,370 93,328 24,669 22,531 20,398 21,190 14, ,591 Loans to customers ,101,873 98,365 1,177, ,781 15

16 16. Ten largest loans in loans to customers at amortised cost, broken down by sector and geographical location: Holding Company/UK** Real Estate/Other Consumer Services: Other/UK** Business and Industrial Products/Scandinavia* Consumer Goods and Retail/UK** Consumer Goods and Retail/UK** Real Estate/Scandinavia* Business and Industrial Products/Scandinavia* Business and Industrial Products/UK* Business and Industrial Products/Scandinavia* % 11% 10% 10% 10% 10% 8% 8% 4% 3% 19% 11% 9% 8% 11% 9% 8% 8% 3% 4% Ten largest loans of total Loans to customers % 90% * Scandinavia includes Denmark, Finland, Norway, Sweden, Iceland and Faroe Islands. ** UK includes UK overseas territories and Crown dependencies. The geographical location is determined by using the registration country where the majority of the underlying operation is located. 17. Loans to customers portfolios specified by performance: Operating loan portfolio Gross Amortised amount cost Performing loans Loans on view list Loans on watch list % 0.6% 46.9% 82.5% 0.4% 17.1% NOA loan portfolio Gross Amortised amount cost 0.1% 0.0% 99.9% 5.2% 0.0% 94.8% Total Gross Amortised amount cost 9.0% 0.1% 90.9% 65.0% 0.3% 34.7% 100.0% 100.0% 100.0% 100.0% 100.0% The performance categories are defined as follows: 100.0% Performing loans: Loans to entities where cash flow is sufficient to service debt, i.e. interest and principal repayments and no breaches in agreements are foreseeable in the future. Loans on view list: Loans to entities where cash flow is sufficient to service debt, i.e. interest and principal repayments, but agreements have been breached or are likely to be breached in the foreseeable future. Some banks include this category within performing loans. Loans on watch list: Loans to entities where cash flow is insufficient to service debt, i.e. interest and principal repayments and agreements have been breached repeatedly. Bonds and debt instruments 18. Bonds and debt instruments specified by sectors: Holding Companies Financial Services Governments listed Energy and Environment , , Bonds and debt instruments ,211 6,306 16