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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of September, 2007
Commission File Number: 0-30852
GRUPO FINANCIERO GALICIA S.A.
Galicia Financial Group S.A.
(Translation of registrant's name into English)
Tte. Gral. Juan D. Peron 456
(C1038AAJ) Buenos Aires, Argentina
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ________
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FORM 6-K
Commission File No. 0-30852
MONTH FILED EVENT AND SUMMARY EXHIBIT NO.
September, 2007 Financial Results for the Registrant for the six 99.1
month period ending June 30, 2007.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GRUPO FINANCIERO GALICIA S.A. (Registrant)
Date: September 12, 2007 By: /s/Antonio Garces
--------------------------------------
Name: Antonio Garces
Title: Chief Executive Officer
EXHIBIT 99.1
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
TABLE OF CONTENTS
System established by the Regulations
(N. T. 2001) set forth by the National Securities Commission (C.N.V.)
FINANCIAL STATEMENTS AND LIMITED REVIEW REPORT
for the six months period ended
June 30, 2007, presented in comparative format
REPORT OF THE SUPERVISORY SYNDICS' COMMITTEE
For the six months ended June 30, 2007
Heading Page 1
Consolidated Financial Statements Pages 2 to 45
Individual Financial Statements Pages 46 to 65
Additional information to the Notes to the Financial Statements required by
Section 68 of the Rules and Regulations of the Bolsa de Comercio de Buenos Aires
(Buenos Aires Stock Exchange) Pages 66 and 67
Supplementary and Explanatory Statement by Board of Directors required by
Section 2 of the Rules on accounting documents set forth by the Regulations of
the Bolsa de Comercio de Cordoba (Cordoba Stock Exchange) Pages 68 and 69
Informative Review Page 70 to 73
Report of the Supervisory Syndics' Committee
Limited Review Report
Company's Name: GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to
the optional system for the mandatory
acquisition of shares in a public
offering"
Legal domicile: Tte. Gral. Juan D. Peron No. 456 - 2nd
floor Autonomous City of Buenos Aires
Principal line of business: Financial and Investment Activities
Fiscal year N(degree)9
For the six-month period commenced January 1, 2007, and ended June 30, 2007,
presented in comparative format.
DATE OF REGISTRATION WITH THE PUBLIC REGISTRY OF COMMERCE
Of Bylaws: September 30, 1999
Date of latest amendment to Bylaws: June 26, 2006
Registration number with the Corporation
Control Authority (I.G.J): 11,891
Sequential Number - Corporation Control
Authority (I.G.J.): 1,671,058
Date of expiration of the Company's
Bylaws: June 30, 2100
Name of the Controlling Company: EBA HOLDING S.A.
Principal line of business: Financial and Investment Activities
Interest held by the Controlling Company
in the Shareholders' equity as of
06.30.07: 22.65%
Percentage of votes which the Controlling
Company is entitled to as of 06.30.07: 59.42%
Capital status as of 06.30.07 (Note 7 to the Financial Statements)
(figures stated in thousands of pesos)
--------------------------------------------------------------------------------------------
Shares
--------------------------------------------------------------------------------------------
Number Class Voting rights per share Subscribed Paid in
--------------- --------------------- ------------------------- ------------ -----------
Ordinary class "A",
281,221,650 face value of 0.001 5 281,222 281,222
Ordinary class "B",
960,185,367 face value of 0.001 1 960,185 960,185
--------------- ------------ -----------
1,241,407,017 1,241,407 1,241,407
=============== ============ ===========
1
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED BALANCE SHEET
As of June 30, 2007 and December 31, 2006.
(figures stated in thousands of pesos)
06.30.07 12.31.06
-------------- --------------
ASSETS
-------------- --------------
CASH AND DUE FROM BANKS 2,057,751 2,294,849
-------------- --------------
- Cash 565,142 550,851
- Banks and correspondents 1,492,609 1,743,998
-------------- --------------
GOVERNMENT AND CORPORATE SECURITIES 3,571,165 3,188,648
-------------- --------------
- Holdings of securities in investment accounts 2,755,236 2,608,827
- Holdings of trading securities 171,659 28,566
- Government unlisted securities 4,868 431,753
- Securities issued by the Argentine Central Bank 637,297 119,520
- Investments in listed corporate securities 2,465 339
- Allowances (360) (357)
-------------- --------------
LOANS 9,910,852 10,524,972
-------------- --------------
- To the non-financial public sector 1,251,849 2,739,282
- To the financial sector 145,246 311,623
- To the non-financial private sector and residents abroad 8,878,486 7,801,109
- Overdrafts 725,536 346,135
- Promissory notes 2,400,285 2,143,706
- Mortgage loans 785,451 687,954
- Pledge loans 86,150 67,145
- Consumer loans 670,976 563,232
- Credit card loans 2,966,236 2,458,572
- Others 1,115,716 1,403,209
- Accrued interest and quotation differences receivable 153,212 154,960
- Documented interest (24,989) (23,231)
- Unallocated collections (87) (573)
- Allowances (364,729) (327,042)
-------------- --------------
OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 3,378,462 5,441,981
-------------- --------------
- Argentine Central Bank 261,796 1,878,286
- Amounts receivable for spot and forward sales to be settled 125,640 91,441
- Securities receivable under spot and forward purchases to be settled 1,102,977 1,464,917
- Others not included in the debtor classification regulations 1,544,385 1,761,381
- Unlisted negotiable obligations 33,147 26,721
- Balances from forward transactions without delivery of underlying asset to be
settled 75,848 30,964
- Others included in the debtor classification regulations 249,702 207,930
- Accrued interest receivable not included in the debtor classification
regulations 1,834 1,463
- Accrued interest receivable included in the debtor classification regulations 2,040 774
- Allowances (18,907) (21,896)
-------------- --------------
ASSETS UNDER FINANCIAL LEASES 281,056 206,175
-------------- --------------
- Assets under financial leases 284,134 208,603
- Allowances (3,078) (2,428)
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
2
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED BALANCE SHEET
As of June 30, 2007 and December 31, 2006.
(figures stated in thousands of pesos)
06.30.07 12.31.06
-------------- --------------
EQUITY INVESTMENTS 42,184 35,575
-------------- --------------
- In financial institutions 3,078 3,057
- Others 80,455 77,385
- Allowances (41,349) (44,867)
-------------- --------------
MISCELLANEOUS RECEIVABLES 760,072 675,510
-------------- --------------
- Receivables for assets sold 15,222 15,118
- Tax on minimum presumed income - Tax credit 239,276 218,884
- Others 585,608 515,805
- Accrued interest on receivables for assets sold 319 93
- Other accrued interest and adjustments receivable 95 82
- Allowances (80,448) (74,472)
-------------- --------------
BANK PREMISES AND EQUIPMENT 672,847 490,290
-------------- --------------
MISCELLANEOUS ASSETS 138,026 271,107
-------------- --------------
INTANGIBLE ASSETS 439,623 502,796
-------------- --------------
- Goodwill 55,590 65,165
- Organization and development expenses 384,033 437,631
-------------- --------------
UNALLOCATED ITEMS 10,180 4,381
-------------- --------------
OTHER ASSETS 14,058 8,311
-------------- --------------
TOTAL ASSETS 21,276,276 23,644,595
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
3
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED BALANCE SHEET
As of June 30, 2007 and December 31, 2006.
(figures stated in thousands of pesos)
06.30.07 12.31.06
-------------- --------------
LIABILITIES
DEPOSITS 12,438,809 10,779,369
-------------- --------------
- Non-financial public sector 202,724 63,922
- Financial sector 156,123 154,303
- Non-financial private sector and residents abroad 12,079,962 10,561,144
- Current Accounts 2,439,205 1,982,765
- Savings Accounts 2,816,751 2,442,946
- Time Deposits 6,433,792 5,789,299
- Investment accounts 5,514 4,031
- Others 232,677 211,176
- Accrued interest and quotation differences payable 152,023 130,927
-------------- --------------
OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 5,731,965 9,835,373
-------------- --------------
- Argentine Central Bank 593 3,025,977
- Others 593 3,025,977
- Banks and international entities 271,561 844,263
- Unsubordinated negotiable obligations 2,868,740 2,809,416
- Amounts payable for spot and forward purchases to be settled 712,142 1,046,181
- Securities to be delivered under spot and forward sales to be settled 244,006 91,329
- Loans from domestic financial institutions 90,013 281,055
- Balances from forward transactions without delivery of underlying asset to be
settled 75,128 31,635
- Others 1,362,905 1,577,126
- Accrued interest, adjustments and quotation difference payable 106,877 128,391
-------------- --------------
MISCELLANEOUS LIABILITIES 246,572 223,095
-------------- --------------
- Dividends payable 4,200 -
- Directors' and syndics' fees 1,850 3,255
- Others 240,522 219,002
- Adjustments and accrued interest payable - 838
-------------- --------------
PROVISIONS 188,973 182,927
-------------- --------------
SUBORDINATED NEGOTIABLE OBLIGATIONS 817,655 777,617
-------------- --------------
UNALLOCATED ITEMS 7,512 5,734
-------------- --------------
OTHER LIABILITIES 66,597 64,827
-------------- --------------
MINORITY INTEREST IN CONSOLIDATED ENTITIES OR COMPANIES 175,260 167,185
-------------- --------------
TOTAL LIABILITIES 19,673,343 22,036,127
-------------- --------------
SHAREHOLDERS' EQUITY 1,602,933 1,608,468
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 21,276,276 23,644,595
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
4
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED MEMORANDUM ACCOUNTS
As of June 30, 2007 and December 31, 2006.
(figures stated in thousands of pesos)
06.30.07 12.31.06
-------------- --------------
DEBIT 18,330,920 17,961,491
============== ==============
CONTINGENT 5,587,989 8,215,105
-------------- --------------
- Loans obtained 57,494 107,986
- Guarantees received 4,391,439 6,006,114
- Others not included in the debtor classification regulations - 10,500
- Contingencies re. contra items 1,139,056 2,090,505
-------------- --------------
CONTROL 10,536,923 8.231.305
-------------- --------------
- Uncollectible loans 571,945 582,503
- Others 9,721,502 7,461,271
- Control re. contra items 243,476 187,531
-------------- --------------
DERIVATIVES 1,414,667 800,127
-------------- --------------
- "Notional" value of forward transactions without delivery of underlying asset 825,568 475,338
- Derivatives re. contra items 589,099 324,789
-------------- --------------
TRUST ACCOUNTS 791,341 714,954
-------------- --------------
- Trust funds 791,341 714,954
-------------- --------------
CREDIT 18,330,920 17,961,491
============== ==============
CONTINGENT 5,587,989 8,215,105
-------------- --------------
- Loans granted (unused balances) 697,357 624,847
- Guarantees granted to the Argentine Central Bank - 955,414
- Other guarantees granted included in the debtor classification regulations 120,368 123,790
- Other guarantees granted not included in the debtor classification
regulations 104,299 180,892
- Others included in the debtor classification regulations 170,537 164,374
- Others not included in the debtor classification regulations 46,495 41,188
- Contingencies re. contra items 4,448,933 6,124,600
-------------- --------------
CONTROL 10,536,923 8,231,305
-------------- --------------
- Checks and drafts to be credited 243,301 187,358
- Others 529,744 471,472
- Control re. contra items 9,763,878 7,572,475
-------------- --------------
DERIVATIVES 1,414,667 800,127
-------------- --------------
- "Notional" value of put options written 164,574 175,923
- "Notional" value of forward transactions without delivery of underlying asset 424,525 148,866
- Derivatives re. contra items 825,568 475,338
-------------- --------------
TRUST ACCOUNTS 791,341 714,954
-------------- --------------
- Trust liabilities re. contra items 791,341 714,954
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
5
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED INCOME STATEMENT
For the period of six months commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format with the same period
of the previous fiscal year.
(figures stated in thousands of pesos)
06.30.07 06.30.06
-------------- --------------
FINANCIAL INCOME 928,660 1,286,821
-------------- --------------
- Interest on cash and due from banks 5,706 88
- Interest on loans to the financial sector 2,473 1,339
- Interest on overdrafts 44,717 28,077
- Interest on promissory notes 121,169 91,038
- Interest on mortgage loans 42,751 30,725
- Interest on pledge loans 5,261 7,942
- Interest on credit card loans 192,338 126,340
- Interest on other loans 82,840 42,226
- Net income from government and corporate securities 102,396 241,033
- Interest on other receivables resulting from financial brokerage 17,748 89,021
- Net income from secured loans - Decree No. 1,387/01 50,351 96,288
- CER adjustment 135,060 459,189
- Others 125,850 73,515
-------------- --------------
FINANCIAL EXPENSES 617,480 1,000,863
-------------- --------------
- Interest on current account deposits 8,106 11,738
- Interest on savings account deposits 2,892 1,719
- Interest on time deposits 233,570 117,501
- Interest on financing from the financial sector 2,343 2,960
- Interest on other liabilities resulting from financial brokerage 160,793 164,031
- Interest on subordinated obligations 46,373 31,955
- Other interest 43,605 105,000
- CER adjustment 51,433 449,218
- Others 68,365 116,741
-------------- --------------
GROSS FINANCIAL MARGIN 311,180 285,958
============== ==============
PROVISIONS FOR LOAN LOSSES 86,248 64,009
-------------- --------------
INCOME FROM SERVICES 533,559 386,018
-------------- --------------
Related to lending transactions 153,842 110,399
Related to borrowing transactions 135,308 100,617
Other commissions 9,362 6,122
Others 235,047 168,880
-------------- --------------
EXPENSES FOR SERVICES 113,133 80,404
-------------- --------------
Commissions 54,259 35,426
Others 58,874 44,978
-------------- --------------
ADMINISTRATIVE EXPENSES 580,463 442,770
-------------- --------------
Personnel expenses 304,869 231,693
Directors' and syndics' fees 3,260 2,200
Other fees 17,685 16,726
Advertising and publicity 51,206 33,206
Taxes 28,258 22,432
Other operating expenses 128,648 103,795
Others 46,537 32,718
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
6
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED INCOME STATEMENT
For the period of six months commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format with the same period
of the previous fiscal year.
(figures stated in thousands of pesos)
06.30.07 06.30.06
-------------- --------------
NET INCOME FROM FINANCIAL BROKERAGE 64,895 84,793
============== ==============
MINORITY INTERESTS RESULT (4,088) (10,430)
-------------- --------------
MISCELLANEOUS INCOME 123,009 109,064
-------------- --------------
- Net income from equity investments 364 -
- Penalty interests 881 446
- Loans recovered and allowances reversed 42,764 59,237
- CER adjustment 7 97
- Others 78,993 49,284
-------------- --------------
MISCELLANEOUS LOSSES 145,696 87,768
-------------- --------------
- Net loss from equity investments - 15,842
- Penalty interests and charges in favor of the Argentine Central Bank 9 564
- Loan loss provisions for miscellaneous receivables and other provisions 30,940 27,920
- CER adjustment 15 -
- Amortization of differences arising form court resolutions 73,973 -
- Others 40,759 43,442
-------------- --------------
NET INCOME BEFORE INCOME TAX 38,120 95,659
-------------- --------------
INCOME TAX 43,655 55,517
-------------- --------------
NET INCOME (LOSS) FOR THE PERIOD (5,535) 40,142
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
7
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period of six months commenced January 1, 2007
and ended June 30, 2007, presented in comparative format with the
same period of the previous fiscal year.
(figures stated in thousands of pesos)
06.30.07 06.30.06
-------------- --------------
CHANGES IN CASH
- Cash and due from banks at beginning of fiscal year 2,294,849 1,041,158
- (Decrease) / Increase in cash (237,098) 293,743
-------------- --------------
- Cash and due from banks at period-end 2,057,751 1,334,901
============== ==============
REASONS FOR CHANGES IN CASH
- Financial income collected 1,397,986 486,307
- Income from services collected 542,837 394,218
Less
- Financial expenses paid (433,586) (305,550)
- Expenses for services paid (113,042) (80,406)
- Administrative expenses paid (548,733) (398,712)
-------------- --------------
CASH PROVIDED BY OPERATING ACTIVITIES 845,462 95,857
============== ==============
OTHER SOURCES OF CASH
- Increase in deposits, net 1,628,631 1,217,736
- Decrease in government and corporate securities, net - 1,912,474
- Decrease in other receivables resulting from financial brokerage, net 1,562,684 57,817
- Other sources of cash 107,643 74,326
-------------- --------------
TOTAL SOURCES OF CASH 3,298,958 3,262,353
============== ==============
OTHER USES OF CASH
- Increase in government and corporate securities, net (233,231) -
- Increase in loans, net (133,654) (70,987)
- Increase in other assets, net (235,139) (120,245)
- Decrease in other liabilities resulting from financial brokerage, net (3,645,901) (2,687,381)
- Decrease in other liabilities, net (44,979) (118,511)
- Other uses of cash (88,614) (67,343)
-------------- --------------
TOTAL USES OF CASH (4,381,518) (3,064,467)
============== ==============
(DECREASE) / INCREASE IN CASH (237,098) 293,743
============== ==============
The accompanying Notes 1 to 25 are an integral part of these consolidated
financial statements.
8
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY ACCOUNTING INFORMATION
Notes to the Consolidated Financial Statements
For the period of six months commenced January 1,
2007 and ended June 30, 2007, presented in
comparative format.
(figures stated in thousands of pesos ($) and U.S. dollars (US$))
NOTE 1: PRESENTATION OF FINANCIAL STATEMENTS
The consolidated Financial Statements are presented in line with the provisions
of Argentine Central Bank's ("B.C.R.A.") Communique "A" 3147 and supplementary
regulations regarding financial reporting requirements for the publication of
quarterly and annual financial statements, with the guidelines of Technical
Pronouncement Nos. 8 and 19 of the Argentine Federation of Professional Councils
in Economic Sciences ("F.A.C.P.C.E.") and with the guidelines of the General
Resolution No. 434/03 of the National Securities Commission ("C.N.V."). As
required by the above-mentioned regulations, the comparative information in the
Balance Sheet corresponds to the end of the previous fiscal year, while that of
the Income Statement, and Statement of Cash Flows corresponds to the same period
of the previous fiscal year. These financial statements include the balances
corresponding to the operations carried out by Banco de Galicia y Buenos Aires
S.A. and its subsidiaries located in Argentina and abroad and form part of said
Bank's quarterly financial statements as supplementary information, reason for
which they should be read in conjunction with them.
These financial statements reflect the effects of the changes in the purchasing
power of the currency up to February 28, 2003, by following the restatement
method established by Technical Resolution No. 6 of F.A.C.P.C.E. In line with
Argentine Central Bank's Communique "A" 3921, Decree No. 664/03 of the National
Executive Branch and General Resolution No. 441/03 of the C.N.V., the Company
discontinued the application of that method and therefore did not recognize the
effects of the changes in the purchasing power of the currency originated after
March 1, 2003.
Resolution M.D. No. 41/03 of the Professional Council in Economic Sciences of
the Autonomous City of Buenos Aires ("C.P.C.E.C.A.B.A") established the
discontinuation of the recognition of the changes in the purchasing power of the
currency, effective October 1, 2003.
NOTE 2: ACCOUNTING STANDARDS
The most relevant accounting standards used in preparing the consolidated
financial statements are listed below:
a. CONSOLIDATION OF FINANCIAL STATEMENTS
The financial statements of Grupo Financiero Galicia S.A. ("the Company") have
been consolidated on a line-by-line basis with those of Banco de Galicia y
Buenos Aires S.A., Net Investment S.A., Galicia Warrants S.A., Sudamericana
Holding S.A. and Galval Agente de Valores S.A. (See Note 3 to the consolidated
financial statements).
Banco de Galicia y Buenos Aires S.A. is the Company's main equity investment, a
financial institution subject to the Argentine Central Bank regulations. For
this reason, the Company has adopted the valuation and disclosure criteria
applied by Banco de Galicia y Buenos Aires S.A.
Banco de Galicia y Buenos Aires S. A.'s consolidated financial statements
include the balances of its subsidiaries abroad: Banco Galicia Uruguay S. A. and
Galicia (Cayman) Limited. The conversion into pesos of these subsidiaries'
accounting balances was made according to the following:
a. Assets and liabilities were converted into pesos according to item b.1.
b. Allotted capital has been computed for the actually disbursed restated
amounts.
c. Accumulated earnings were determined by the difference among assets,
liabilities and the allotted capital.
9
d. Earnings for the period were determined by the difference between the
accumulated earnings at the beginning of the fiscal year, net of distributions
of cash dividends, and the accumulated earnings at the end of the period.
10
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
The balances of income statement accounts were converted into pesos applying the
monthly average exchange rates recorded in each month of this fiscal year. e.
Significant items arising from intercompany transactions, not involving third
parties, have been eliminated from the Balance Sheet and the Income Statement.
b. CONSISTENCY OF ACCOUNTING PRINCIPLES
Accounting principles applied to the financial statements of Net Investment
S.A., Galicia Warrants S.A., Sudamericana Holding S.A. and Galval Agente de
Valores S.A., are similar to those applied by the Company (See Note 1 item c.2.
to the financial statements).
The main valuation criteria applied by Banco de Galicia y Buenos Aires S.A. are
listed below:
b.1. - FOREIGN CURRENCY ASSETS AND LIABILITIES
These are stated at the U.S. dollar exchange rate set by the Argentine Central
Bank, at the close of operations on the last business day of each month.
As of June 30, 2007, December 31, 2006 and June 30, 2006, balances in U.S.
dollars were converted applying the reference exchange rate (figures stated in
pesos $ 3.0908, $ 3.0695 y $ 3.0848, respectively) set by the Argentine Central
Bank.
Assets and liabilities valued in foreign currencies other than the U.S. dollar
have been converted into the latter currency using the swap rates informed by
the Argentine Central Bank.
b.2. - GOLD BULLION
Gold bullion is valued at the most recent U.S. dollar closing selling quotation
for the troy ounce on the London Market, net of estimated direct selling costs.
The procedure referred in item b.1. has been applied for conversion into local
currency.
b. 3. - GOVERNMENT AND CORPORATE SECURITIES
b.3.a. - GOVERNMENT SECURITIES
I) Holdings of securities in investment accounts:
These include Boden 2012 received within the scope of Sections 28 and 29 of
Decree No. 905/02 (see Note 16.3 to the consolidated financial statements)
recorded at their "technical value".
The same criterion was applied to holdings of such bonds used in repo
transactions recorded under "Other Receivables Resulting from Financial
Brokerage" and "Miscellaneous Receivables".
Had these securities been valued at market price, into which, as of December
2006, the bonds to be received were included therein, Banco de Galicia y Buenos
Aires S.A's Shareholders' equity would have been reduced as of June 30, 2007 and
December 31, 2006, by approximately $152,788 and $ 202,299, respectively.
II) Holdings of trading securities:
These are recorded at the closing price for each class of securities at
period/fiscal year end, plus the value of amortization and interest coupons due
and receivable, less estimated selling costs, when applicable.
III) Unlisted securities:
As of June 30, 2007 and December 31, 2006, the Banco de Galicia y Buenos Aires
S.A. carries the following holdings:
a) Secured bonds in pesos (Bogar)
As of the date of these financial statements, no holdings of these bonds were
recorded.
11
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
As of December 31, 2006, the holdings allocated as collateral for the advance
for the acquisition of the remaining Hedge Bond, have been valued at the value
admitted for those purposes. The remaining holdings were valued at the lowest of
their "present value" and "technical value", as defined in item b.4. Had these
securities been valued at market price, an increase of $ 1,475 in Banco de
Galicia y Buenos Aires S.A.'s Shareholders' equity would have been recognized.
Securities sold and pending settlement were valued at their net realized value.
b) Discount bonds and GDP-linked negotiable securities.
Banco de Galicia y Buenos Aires S.A. decided to participate in the exchange
offered by the National Government, within the framework of the Argentine debt
restructuring, and opted to exchange its holdings of "Medium-Term External
Notes," Series 74 and 75, with a face value of US$ 280,471, for "Discount Bonds
in Pesos" and "GDP-Linked Negotiable Securities" issued under the conditions
established by Decree No. 1,735/04.
As established in that Decree, acceptance of this offer implied receiving new
debt instruments for an original principal amount equal to 33.7% of the
non-amortized principal as of December 31, 2001, plus past due and unpaid
interest up to that date.
As of June 30, 2007 and December 31, 2006, the securities received have been
recorded at the lowest of the total future nominal cash payments up to maturity,
specified by the terms and conditions of the new securities, and the carrying
value of the securities tendered as of March 17, 2005, equivalent to the present
value of the Secured Bonds' cash flows at that date.
This valuation is reduced by the amount of perceived payments and accrued
interest is not recognized. As of June 30, 2007, holdings of such bonds are
mainly used in repo transactions. Had these securities been marked to market, as
of June 30, 2007 and December 31, 2006, Banco de Galicia y Buenos Aires S.A'
Shareholders' equity would have been reduced by approximately $ 249,896 and $
239,262 respectively.
IV) Securities issued by the Argentine Central Bank:
These are recorded at the closing listed price for each class of securities at
the end of each period/fiscal year.
Holdings of unlisted securities were valued at their acquisition cost increased
on an exponential basis according to their internal rate of return.
b.3.b. - INVESTMENTS IN LISTED CORPORATE SECURITIES
These securities are valued at the period/fiscal year-end closing price, less
estimated selling costs, when applicable.
b.4.- SECURED LOANS
On November 6, 2001 and within the framework of Decree No. 1,387/01, Banco de
Galicia y Buenos Aires S.A. participated in the exchange of Argentine government
securities and loans, issued under the Promissory Note/Bond program, for new
loans called "National Secured Loans," which are recorded under "Loans -
Non-Financial Public Sector".
At the date of these financial statements, their estimated realizable value
exceeds their book value by $19,300 approximately. Said value was obtained by
calculating the present value of their future cash flow of amortization and
interest, based on the market rate of debt instruments of the same issuer.
In accordance with the Argentine Central Bank's regulations, secured loans have
been recorded at the lowest of their "present value" and "technical value". The
"present value" is defined as the "net present value" of a cash flow structure
determined under contractual conditions and discounted at a rate set by the
Argentine Central Bank which, as of June 30, 2007, was 4.65% per annum and, as
of December 31, 2006, 5% per annum. The "technical value" is the adjusted amount
of each instrument under contractual conditions.
12
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
Banco de Galicia y Buenos Aires S.A. had recognized in the income statement the
effect resulting from the application of this criterion.
b.5. - ACCRUAL OF ADJUSTMENTS, INTEREST, EXCHANGE RATE DIFFERENCES, PREMIUMS ON
FUTURE TRANSACTIONS AND VARIABLE INCOME
For foreign and local currency transactions with a principal adjustment clause,
as well as for those in which rates have been prearranged for terms up to 92
days, the accrual has been recognized on a linear basis. For local currency
transactions at rates arranged for longer periods, interest has been accrued on
an exponential basis.
For lending and borrowing transactions, which according to the legal and/or
contractual conditions that may be applicable, the adjustment by the
Stabilization Coefficient of Reference (Coeficiente de Estabilizacion de
Referencia) (C.E.R) has been accrued.
b.6. - DEBT SECURITIES AND PARTICIPATION CERTIFICATES IN FINANCIAL TRUSTS
Debt securities added at par have been recorded at their technical value; the
remaining holdings were valued at their cost increased according to their
internal rate of return. Participation certificates in financial trusts are
valued taking into account the share in the assets, net of liabilities that stem
from the financial statements of the respective trusts.
b.7. - UNLISTED NEGOTIABLE OBLIGATIONS
Holdings of these securities are valued at their acquisition cost increased on
an exponential basis according to their internal rate of return.
b.8. - ASSETS UNDER FINANCIAL LEASES
Assets under financial leases are stated at cost less accumulated amortization,
adjusted by the C.E.R, where applicable.
b.9. - EQUITY INVESTMENTS
b.9.a. - IN FINANCIAL INSTITUTIONS, SUPPLEMENTARY AND AUTHORIZED ACTIVITIES
Argentine:
Banco de Galicia y Buenos Aires S. A.'s equity investment in Banelco S. A. is
valued under the equity method, based on this company's last financial
statements available.
The rest of the companies with supplementary activities, in which Banco de
Galicia y Buenos Aires S. A. has an equity investment, is valued at their
acquisition cost restated as set forth in Note 1 to these financial statements,
plus stock dividends.
Banco de Galicia y Buenos Aires S.A. established an allowance for impairment of
value for the amount by which it is estimated that the value of the investment
in Compensadora Electronica S.A. exceeds the equity method value.
b.9.b. - EQUITY INVESTMENTS
Argentine:
These are stated at their acquisition cost restated as mentioned in Note 1 to
these financial statements, plus stock dividends.
An allowance for impairment of value has been established for the amount by
which it is estimated that the value of the investments in Argencontrol S.A.,
Alfer S.A. (in liquidation), Galicia Inmobiliaria S.A., Electrigal S.A., and
Aguas Cordobesas S.A. exceed their equity method value. The investments in Aguas
Provinciales de Santa Fe S.A. (in liquidation) and Aguas Argentinas S.A. are
fully provisioned.
13
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
14
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
Foreign:
These are stated at cost, plus stock dividends recognized at their face value.
For the conversion into local currency, the procedure referred to in item b.1.
above. was applied.
b.10. - BANK PREMISES AND EQUIPMENT AND MISCELLANEOUS ASSETS
Bank premises and equipment and miscellaneous assets have been valued at their
restated cost (see Note 1 above), plus the increase in value of the real estate
property derived from a technical revaluation made in 1981, less the accumulated
depreciations.
Depreciation of these assets is determined based on their estimated useful
lives, expressed in months. A full month's depreciation is recognized in the
month in which an asset is acquired, while no depreciation is recognized in the
month in which it is sold or retired, over a maximum of 600 months for real
estate property, 120 months for furniture and fittings and 60 months for the
rest of assets.
The residual value of the assets, taken as a whole, does not exceed their
economic utilization value.
b.11.- OTHER MISCELLANEOUS ASSETS
These assets are valued at their restated acquisition cost (see Note 1 above),
less the corresponding accumulated depreciations.
For those miscellaneous assets earmarked for sale, the effects of the changes in
the purchasing power of the currency as from January 1, 2002 have not been given
accounting recognition.
The depreciation charge for these assets is calculated following the same
criterion as that mentioned in item b.10. above.
b.12. - INTANGIBLE ASSETS
Intangible assets have been valued at their restated acquisition cost (see Note
1 above), less the corresponding accumulated amortization, calculated
proportionally over the estimated number of months of useful life.
Amortization has been recognized on a straight-line basis over a maximum of 120
months for "Goodwill" and over a maximum of 60 months for "Organization and
Development Expenses".
Effective March 2003, the Argentine Central Bank established that the difference
resulting from compliance with court decisions made in lawsuits filed
challenging the current regulations applicable to deposits with the financial
system, within the framework of the provisions of Law No. 25,561, Decree No.
214/02 and supplementary regulations, must also be recorded under this caption,
the amortization of which must take place in a maximum of 60 equal, monthly and
consecutive installments as from April 2003. (See Note 16.1 to the consolidated
financial statements).
Effective December 2005, through Communique "A" 4439 and supplementary ones, the
Argentine Central Bank authorized those financial institutions who have granted,
as from that date, new commercial loans with an average life of more than 2
years, to defer the charge to income related to the above-mentioned
amortization. The maximum amount to be deferred cannot exceed 50% of the new
commercial loans' growth nor 10% of the financial institutions computable
regulatory capital ("RPC" as per its initials in Spanish). In addition, banks
will not be able to reduce the rest of their commercial loan portfolio. This
methodology will be applied until December 2008, when the balance recorded as of
that date will begin to be amortized in up to 36 monthly, equal and consecutive
installments.
As of June 30, 2007 and December 31, 2006, the accumulated amount of deferred
amortizations is $ 143,743 and $ 148,673 respectively.
15
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
b.13. - ALLOWANCE FOR LOAN LOSSES AND PROVISIONS FOR CONTINGENT COMMITMENTS
These have been established based upon the estimated default risk of Banco de
Galicia y Buenos Aires S.A. credit portfolio, which results from an evaluation
of debtors' compliance with their payment obligations, their economic and
financial condition, and the guarantees securing their related transactions, in
line with the Argentine Central Bank regulations.
b.14. - INCOME TAX
As of June 30, 2007, Banco de Galicia y Buenos Aires S.A. recorded no income tax
charge because, as of that date, it estimated it had incurred in a tax loss. The
income tax charge reported by Banco de Galicia y Buenos Aires S.A. has been
determined in accordance with the Argentine Central Bank regulations, which do
not consider the application of the deferred tax method.
b.15. - TAX ON MINIMUM PRESUMED INCOME
Pursuant to Section 13 of Law No. 25,063, as amended by Law No. 25,360, payments
on account of the Minimum Presumed Income Tax, which are not offset against the
Income Tax for each fiscal year, can be computed as a payment on account of the
Income Tax determined for any of the following 10 fiscal years
The recognition of this deferred asset and its realization stem from the ability
to generate sufficient future taxable income for offsetting purposes, in
accordance with projections prepared in conformity with the Argentine Central
Bank regulations.
Banco de Galicia y Buenos Aires S.A.'s outstanding tax credits and their
probable offsetting date are detailed below:
Probable offsetting
Tax credit Date of generation date
------------ ------------------ -------------------
11,702 2001 2010
45,158 2002 2010
43,004 2003 2010
42,037 2004 2010
46,126 2005 2010
22,073 2006 2010
19,647 2006 2011
5,272 2007 2011
In addition to the statement made in the preceding paragraphs, as of June 30,
2007, companies controlled by Banco de Galicia y Buenos Aires S.A. record an
asset of $ 4,299 for the Tax on Minimum Presumed Income, while as of December
31, 2006, this amount was $ 2,067.
b.16. SEVERANCE PAYMENTS
Banco de Galicia y Buenos Aires S.A. directly charges severance payments to
expenses.
The amounts that the Bank may possibly have to pay for labor lawsuits are
covered by a provision, which is recorded under "Liabilities - Provisions for
Severance Payments".
c. DIFFERENCES BETWEEN THE ARGENTINE CENTRAL BANK'S REGULATIONS AND ARGENTINE
GAAP IN THE AUTONOMOUS CITY OF BUENOS AIRES
On August 10, 2005, the C.P.C.E.C.A.B.A. passed Resolution CD No. 93/05, which
adopts Technical Pronouncements No. 6 to 22 issued by F.A.C.P.C.E. as the
Argentine GAAP. Said resolutions were amended with the purpose of unifying
Argentine GAAP and the interpretation of the accounting and auditing standards 1
to 4. The abovementioned resolution is effective for fiscal years commenced on
and after January 1, 2006. On
16
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
December 29, 2005, the C.N.V. adopted Resolution C.D. 93/05 issued by
C.P.C.E.C.A.B.A with certain amendments.
Subsequently, on June 26, 2006 and through Resolution C.D. No. 42/06, the
C.P.C.E.C.A.B.A. approved T.P. No. 23 of the F.A.C.P.C.E., to be mandatory
effective for fiscal years beginning on and after July 1, 2006, and thus it also
authorized its application in advance. Moreover, on December 14, 2006 the C.N.V.
approved said resolution effective April 1, 2007, and it also allowed its
application in advance.
At the date these financial statements were prepared, the Argentine Central Bank
has not yet adopted these regulations. For this reason, Banco de Galicia y
Buenos Aires S.A. has prepared its financial statements without considering the
new valuation and disclosure criteria included in the Argentine GAAP in force in
the Autonomous City of Buenos Aires.
The main differences between the Argentine Central Bank regulations and
Argentine GAAP in the Autonomous City of Buenos Aires are detailed below:
c. 1. - VALUATION CRITERIA
c.1.a. - ACCOUNTING FOR INCOME TAX ACCORDING TO THE DEFERRED TAX METHOD
Banco de Galicia y Buenos Aires S.A. determines the income tax charge by
applying the enacted tax rate to the estimated taxable income, without
considering the effect of any temporary differences between accounting and tax
results.
Pursuant to the Argentine GAAP in force in the Autonomous City of Buenos Aires,
the income tax must be recognized using the deferred tax method and, therefore,
deferred tax assets or liabilities must be established based on the
aforementioned temporary differences. In addition, unused tax loss
carry-forwards or fiscal credits that may be offset against future taxable
income should be recognized as deferred assets, provided that taxable income is
likely to be generated.
The application of this criterion based on projections prepared by Banco de
Galicia y Buenos Aires S.A., would determine deferred tax assets as of June 30,
2007, amounting to $ 466,221.
c.1.b. - VALUATION OF ASSETS WITH THE NON-FINANCIAL PUBLIC AND PRIVATE SECTORS
c.1.b.1. - DOMESTIC SECURED LOANS AND PROVINCIAL SECURED BONDS
On November 6, 2001, Banco de Galicia y Buenos Aires S.A. and the Companies
controlled by Sudamericana Holding S.A. participated in the exchange offered by
the National Government, swapping national government securities for National
Secured Loans which, as of June 30, 2007 and December 31, 2006, are recorded
under "Loans - Non-Financial Public Sector". Furthermore, Banco de Galicia y
Buenos Aires S.A. and the "Fondo Fiduciario para el Desarrollo Provincial"
(FFDP) exchanged loans to provincial governments for BOGAR which, as of December
31, 2006, are recorded under "Unlisted Government Securities". As of June 30,
2007 and December 31, 2006, Banco de Galicia y Buenos Aires S.A. valued its
holdings in Secured Loans at the lower of present or technical value, as
established by the Argentine Central Bank. The same criterion was applied as of
December 31, 2006 to its Bogar holdings, except for those then allocated as
collateral for the advance for the acquisition of the remaining Hedge Bond,
which were valued at the estimated value admitted for those purposes.
Pursuant to the provisions of Resolution C.D.No. 290/01 of the C.P.C.E.C.A.B.A,
the restructured assets should have been valued as follows:
a) Domestic Secured Loans: based upon the respective market quotations of the
securities exchanged as of November 6, 2001, which as from that date are
considered to be the acquisition cost, if corresponding, plus interest accrued
at the internal rate of return until the closing date of each fiscal year.
At the date of these financial statements, their estimated realizable value
exceeds their book value by $19,300 approximately.
17
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
b) Provincial Secured Bonds (Bogar): at market value. The difference between the
market value and the book value as of December 31, 2006 is detailed in item
b.3.a.III) a) above.
c.1.b.2. - FINANCIAL REPORTING OF EFFECTS GENERATED BY COURT DECISIONS ON
DEPOSITS
As disclosed in Note 16.1 to the consolidated financial statements, as of June
30, 2007, Banco de Galicia y Buenos Aires S.A. records an asset for $ 300,542
under "Intangible Assets - Organization and Development Expenses", on account of
the residual value of the differences resulting from compliance with court
decisions on reimbursement of deposits within the framework of Law No. 25,561,
Decree No. 214/02 and supplementary regulations. Argentine GAAP would admit the
registration of such asset and of the corresponding allowance, based on the best
estimate of the recoverable amounts.
c. 1.b.3. - COMPENSATION AS PER SECTIONS 28 AND 29 OF DECREE NO. 905/02 OF THE
NATIONAL EXECUTIVE BRANCH
As of June 30, 2007 and December 31, 2006, BODEN 2012 resulting from the
compensation set forth by Sections 28 and 29 of Decree No. 905/02 issued by the
National Executive Branch have been valued to their technical value, as stated
in item b.3.a.I) above.
Pursuant to the Argentine GAAP in force in the Autonomous City of Buenos Aires,
the above-mentioned assets must be valued at their current value. As of June 30,
2007, the market value of the "BODEN 2012" is approximately 95% of its technical
value.
c.1.b.4. - ALLOWANCES FOR RECEIVABLES FROM THE NON-FINANCIAL PUBLIC SECTOR
Current regulations issued by the Argentine Central Bank on the establishment of
allowances provide that credits against public sector are not subject to
allowances for loan losses. Pursuant to Argentine GAAP, those allowances must be
estimated based on the recoverability risk of assets.
c.1.b.5. - Discount Bonds and GDP-Linked Negotiable Securities
Pursuant to Argentine GAAP, these assets must be valued separately and at their
closing price, less estimated selling costs. The above item b.3.a.III)b) states
the effect resulting from the differences in the valuation criteria.
c.1.c. - CONVERSION OF FINANCIAL STATEMENTS
The conversion into pesos of the financial statements of the foreign
subsidiaries for the purpose of their consolidation with Banco de Galicia y
Buenos Aires S.A.'s financial statements, made in accordance with the Argentine
Central Bank regulations, differs from Argentine GAAP (Technical Pronouncement
No. 18). Argentine GAAP require that:
a) the measurements in the financial statements to be converted into pesos that
are stated in period-end foreign currency (current values, recoverable values)
be converted at the exchange rate of the financial statements' date; and
b) the measurements in the financial statements to be converted into pesos that
are stated in foreign currency of periods predating the closing date (for
example: those which represent historical costs, income, expenses) be converted
at the relevant historical exchange rates, restated at fiscal year-end currency,
when applicable due to the application of Technical Pronouncement No.17.
Quotation differences arising from conversion of the financial statements shall
be treated as financial income or losses, as the case may be.
The application of this criterion does not have a significant impact on Banco de
Galicia y Buenos Aires S. A.'s financial statements.
18
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
c.1.d. - RESTRUCTURED LOANS AND LIABILITIES
Pursuant to the regulations issued by the Argentine Central Bank, Banco de
Galicia y Buenos Aires S.A. recorded restructured loans and financial
obligations based on the actually restructured principal amounts plus accrued
interest and capital adjustments, when applicable, minus collections or payments
made.
Pursuant to Argentine GAAP, those restructured loans and liabilities, for which
modification of original conditions imply a substitution of instruments, must be
recorded on the basis of the best possible estimate of the amounts receivable or
payable discounted at a market rate that reflects market evaluations on the time
value of money and the specific risks of such assets and liabilities at the time
of restructuring.
c.2. - STATEMENT OF CASH FLOWS
The Statement of Cash Flows has been prepared following the criterion
established by the Argentine Central Bank, which differs from that of Technical
Pronouncement No. 19 issued by F.A.C.P.C.E.
NOTE 3: BASIC INFORMATION ON CONSOLIDATED CONTROLLED COMPANIES
The basic information regarding Grupo Financiero Galicia S. A.'s controlled
companies is presented in Note 9 and Schedule C to these financial statements.
Grupo Financiero Galicia S.A. directly holds 87.50% of the capital stock and
voting rights of Net Investment S.A., Galicia Warrants S.A. and Sudamericana
Holding S.A.; while its controlled company, Banco de Galicia y Buenos Aires
S.A., holds the remaining 12.50% of the capital stock and voting rights of those
companies.
In July 2006, Net Investment S.A.'s Board of Directors together with B2Agro
S.A.'s and Tradecom Argentina S.A.'s Board of Directors decided to merge both
companies to be effective as of July 1st, 2006. On August 14, 2006 the
Extraordinary Shareholders' Meetings approved the commitment previous to the
merger required by Section 83 of the Law Governing Commercial Companies.
Subsequently, these Meetings approved the merger of Net Investment S.A., B2Agro
S.A. and Tradecom Argentina S.A. Therefore, Net Investment S.A. was the
absorbing company that purchased B2Agro S.A.'s and Tradecom Argentina S.A.'s
equity and these two Companies were dissolved without liquidation. On December
6, 2006, the paperwork related to the above-mentioned merger was submitted
before the Corporation Control Authority (Inspeccion General de Justicia), for
the liquidation of B2Agro S.A and Tradecom Argentina S.A., as well as the
paperwork necessary to change Net Investment S.A.'s corporate purpose, which
were recorded on February 1, 2007.
As of December 31, 2006, Net Investment S.A's financial statements have been
consolidated on a line-by-line basis with B2Agro S.A.'s and Tradecom Argentina
S.A.'s financial statements. As of said date, Net Investment S.A.'s interest was
as follows:
Issuing company Capital % Votes %
----------------------- ---------- ---------
B2Agro S.A. 100,00 100,00
Tradecom Argentina S.A. 100,00 100,00
Sudamericana Holding S.A's results have been adapted to cover a six-month period
as of March 31, 2007, for consolidation purposes. This Company's financial
statements have been consolidated on a line-by-line basis with the financial
statements of Galicia Retiro Cia. de Seguros S.A., Galicia Seguros S.A.
(formerly known as Galicia Vida Cia. de Seguros S.A.) and Sudamericana Asesores
de Seguros S.A.
On February 8, 2006, the representatives of Galicia Seguros S.A. (formerly known
as Galicia Vida Cia. de Seguros S.A.) and Galicia Patrimoniales Compania de
Seguros S.A., subscribed the commitment previous to the merger pursuant to which
Galicia Seguros S. A. merges with the assets, liabilities, and Shareholders'
equity of Galicia Patrimoniales Compania de Seguros S.A. to be effective as from
July 1, 2006. This merger was approved by the Regulatory Authority on July 7,
2006 and was registered with the Corporation Control Authority ("I.G.J.") on
September 25, 2006. As of March 31, 2007 and September 30, 2006, Sudamericana
Holding S.A. `s interest was as follows:
19
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: (Continued)
Issuing company Capital % Votes %
------------------------------------------ ------------- -------------
Galicia Retiro Cia. de Seguros S.A. 99.99 99.99
Galicia Seguros S.A. (ex Galicia Vida Cia.
de Seguros S.A.) 99.99 99.99
Sudamericana Asesores de Seguros S.A. 99.99 99.99
20
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 3: (Continued)
Banco de Galicia y Buenos Aires S.A.'s consolidated financial statements include
the assets, liabilities, and results of the controlled companies detailed below:
As of June 30, 2007
--------------------------------------------------------------------------------------------------------------
Shares Percentage held in
-------------------------------- ----------------------------------
Issuing company Class Number Total Capital Possible votes
-------------------------------------- --------------- -------------- --------------- ----------------
Banco Galicia Uruguay S.A. (*) Ordinary 2,591,600 100.00 100.00
Tarjetas Regionales S.A. Ord. Book-entry 207,586,358 100.00 100.00
Galicia Factoring y Leasing S.A. Ord. Book-entry 1,889,700 99.98 99.98
Galicia Valores S.A. Sociedad de Bolsa Ord. Book-entry 999,996 99.99 99.99
As of December 31, 2006
--------------------------------------------------------------------------------------------------------------
Shares Percentage held in
-------------------------------- ----------------------------------
Issuing company Class Number Total Capital Possible votes
-------------------------------------- --------------- -------------- --------------- ----------------
Banco Galicia Uruguay S.A. (*) Ordinary 2,591.600 100.00 100.00
Tarjetas Regionales S.A. Ord. Book-entry 207,586,358 100.00 100.00
Galicia Factoring y Leasing S.A. Ord. Book-entry 1,889,700 99.98 99.98
Galicia Valores S.A. Sociedad de Bolsa Ord. Book-entry 999,996 99.99 99.99
(*) Shares stated at face value of 1,000 Uruguayan pesos.
As of June 30, 2007
--------------------------------------------------------------------------------------------------------
Shareholder's
Issuing company Assets Liabilities equity Net income
-------------------------------------- ------------ ------------ ---------------- --------------
Banco Galicia Uruguay S.A. (*) 656,081 518,624 137,457 29,458
Tarjetas Regionales S.A 2,057,138 1,709,982 347,156 41,278
Galicia Factoring y Leasing S.A 4,468 285 4,183 243
Galicia Valores S.A. Sociedad de Bolsa 30,383 16,524 13,859 251
Financial condition as of December 31, 2006 and net income as of June 30, 2006
--------------------------------------------------------------------------------------------------------
Shareholder's
Issuing company Assets Liabilities equity Net income
-------------------------------------- ------------ ------------ ---------------- --------------
Banco Galicia Uruguay S.A. (*) 633,039 525,784 107,255 16,754
Tarjetas Regionales S.A 1,828,016 1,522,138 305,878 35,407
Galicia Factoring y Leasing S.A 4,648 707 3,941 278
Galicia Valores S.A. Sociedad de Bolsa 42,277 28,668 13,609 144
The controlled companies' financial statements were adapted to the valuation and
disclosure standards set by the Argentine Central Bank and cover the same period
as that of Banco de Galicia y Buenos Aires S.A.'s financial statements.
Banco Galicia Uruguay S.A.'s financial statements include the balances of Banco
Galicia Uruguay S.A. consolidated on a line-by-line basis with those of Galicia
(Cayman) Limited, in which Banco Galicia Uruguay S.A. holds 65.3405% of its
capital stock and Banco Galicia y Buenos Aires S.A. holds the remaining
34.6595%.
The latter statements have been consolidated with those of Galicia Pension Fund
Limited, in which Galicia (Cayman) Limited holds a 100% interest.
Galicia Pension Fund Limited consolidates its financial statements with those of
Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de
Inversion, in which it holds a 99.985% interest.
Banco de Galicia y Buenos Aires S.A. holds 68.218548% of Tarjetas Regionales
S.A.'s capital stock and votes, while Galicia (Cayman) Limited holds the
remaining 31.781452%.
In addition, Tarjetas Regionales S.A. 's financial statements as of June 30,
2007, which were used for consolidation purposes, have in turn been consolidated
on a line-by-line basis with the financial statements of
21
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 3: (Continued)
Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A., in which
Tarjetas Regionales S.A. holds a controlling interest.
The percentages directly held in those companies' capital stock are as follows:
- Directly:
Issuing company 06.30.07 12.31.06
--------------------- ----------- -----------
Tarjetas Cuyanas S.A. 60.000% 60.000%
Tarjetas del Mar S.A. 99.995% 99.995%
Tarjeta Naranja S.A. 80.000% 80.000%
Tarjeta Naranja S.A.'s financial statements have been consolidated with the
financial statements of Cobranzas Regionales S.A., in which the former company
holds 87.7% of the voting stock and with the financial statements of Ancud
Comercial S.A. in which it holds 99.4% of the voting stock.
Tarjeta Naranja S.A. is carrying out operations in order to close an investment
project in the Dominican Republic for the development of credit card business in
said country, since the Company acquired 99.4% of said company's capital stock
on December 19, 2006. The total amount of the investment in said company at
period end was $12,323.
Furthermore, Tarjetas Cuyanas S.A. holds a 12.3% interest in Cobranzas
Regionales S.A.'s capital stock and voting rights.
NOTE 4: MINORITY INTEREST IN CONSOLIDATED ENTITIES OR COMPANIES
The percentage of the controlled companies' shareholders' equity owned by third
parties has been disclosed in the Balance Sheet, under the "Minority Interests
in consolidated entities or companies" caption. The result of minority interest
is disclosed in the Income Statement under "Minority Interests Results".
The minority interest percentages as of June 30, 2007 and December 31, 2006 are
the following:
Issuing company 06.30.07 12.31.06
--------------------------------------------------------------- ------------ ------------
Banco de Galicia y Buenos Aires S.A. 6.39536% 6.39536%
Net Investment S.A. 0.79942% 0.79942%
Sudamericana Holding S.A. 0.79936% 0.79936%
Galicia Warrants S.A. 0.79942% 0.79942%
B2Agro S.A. - 0.79942%
Tradecom Argentina S.A. - 0.79942%
Galicia Retiro Cia. de Seguros S.A. (*) 0.79947% 0.79947%
Galicia Seguros S.A. (ex Galicia Vida Cia. de Seguros S.A.) (*) 0.79958% 0.79958%
Sudamericana Asesores de Seguros S.A. (*) 0.80493% 0.80493%
(*) Minority interest determined based on the financial statements as of March
31, 2007 and September 30, 2006.
The minority interest percentages held by Banco de Galicia y Buenos Aires S.A.
are listed below:
Issuing company 06.30.07 12.31.06
--------------------------------------------------------------- ------------ ------------
Galicia Valores S.A. Sociedad de Bolsa 0.010% 0.010%
Galicia Factoring y Leasing S.A. 0.020% 0.020%
Galicia Administradora de Fondos S.A. Sociedad Gerente
de Fondos Comunes de Inversion 0.015% 0.015%
Tarjetas Cuyanas S.A. 40.000% 40.000%
Tarjeta Naranja S.A. 20.000% 20.000%
Tarjetas del Mar S.A. 0.005% 0.005%
Cobranzas Regionales S.A. 22.460% 22.460%
Ancud Comercial S.A. 0.600% 0.600%
22
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 3: (Continued)
23
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: RESTRICTED ASSETS AND OTHER CONTINGENT LIABILITIES
Pursuant to the Argentine Central Bank regulations, Banco de Galicia y Buenos
Aires S.A. shall maintain a monthly average liquidity level. Computable assets
to meet minimum cash requirements are cash and the checking accounts opened at
the Argentine Central Bank.
Minimum cash requirement at the end the period/ fiscal year was as follows (as
measured in average daily balances):
06.30.07 12.31.06
------------ ------------
Minimum cash requirement in Pesos 1,409,787 1,217,511
Minimum cash requirement in foreign currency 626,284 658,751
As regards cash, based on September 2006 position, only 67% of the average cash
may be computed.
I) As of June 30, 2007, Banco de Galicia y Buenos Aires S. A.'s ability to
dispose of the following assets was restricted as mentioned below:
a. CASH AND DUE FROM BANKS, GOVERNMENT SECURITIES AND SECURED LOANS
The Bank has deposited $ 57,145 as a guarantee to third parties, $ 219,535 for
margin requirements of repo transactions and $ 48,389 as collateral for
transactions carried out at the Rosario Futures Exchange (Rofex). Furthermore,
secured loans for $ 387 are prevented from using as a result of a court order.
b. SPECIAL ESCROW ACCOUNTS
Special escrow accounts have been opened at the Argentine Central Bank as
collateral for transactions involving electronic clearing houses, checks for
settling debts and other similar transactions, which, as of June 30, 2007
amounted to $ 151,064.
c. DEPOSITS IN FAVOR OF THE ARGENTINE CENTRAL BANK
- Unavailable deposits related to foreign exchange transactions for $ 533.
- Securities held in custody to act as register agent and book-entry mortgage
securities held in custody for $ 1,215.
d. EQUITY INVESTMENTS
The item "Equity Investments" includes shares, the transfer of which is subject
to the prior approval of the National or Provincial authorities, as applicable,
under the terms of the concession contracts signed:
- Electrigal S.A.: 1,222,406.50 ordinary registered non-endorsable
non-transferable shares.
- Aguas Cordobesas S.A.: 900,000 ordinary class E shares.
Banco de Galicia y Buenos Aires S.A., in its capacity of shareholder of the
concessionaire companies, had guaranteed the compliance with certain obligations
arising from the concession contracts entered into by Aguas Argentinas S.A.,
Aguas Provinciales de Santa Fe S.A (in liquidation), and Aguas Cordobesas S.A.
In addition, Banco de Galicia y Buenos Aires S.A., as well as the other
shareholders, had committed, under certain circumstances, to provide financial
support to those companies if they were unable to honor the commitments they
have undertaken with international financial institutions. It is worth
mentioning that, as of June 30, 2007; only the commitments related to Aguas
Cordobesas S.A. are still in force.
Aguas Cordobesas S.A.: Banco de Galicia y Buenos Aires S.A., as a shareholder
and proportionally to its 10.833% interest, is jointly responsible before the
Provincial State for the contractual obligations arising from the concession
contract during the entire term thereof.
24
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
25
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: (Continued)
Should any of the other shareholders fail to comply with the commitments arising
from their joint responsibility, Banco de Galicia y Buenos Aires S.A. may be
forced to assume the unfulfilled commitment by the grantor, but only in the
proportion and to the extent of the interest held by the said Bank.
Aguas Provinciales de Santa Fe S.A. (in liquidation): the Shareholders' Meeting
of Aguas Provinciales de Santa Fe S.A. (in liquidation), held on January 13,
2006, approved the early dissolution and liquidation of said company.
Banco de Galicia y Buenos Aires S.A. voted against this decision because it
deemed it was contrary to the corporate interests, and requested to call for a
new Meeting to reactivate and capitalize this Company, thus allowing its
continuity.
On January 31, 2006, Decree No. 243 issued by the government of the Province of
Santa Fe terminated the concession contract alleging the concessionaire's fault.
This situation resulted from the Company's dissolution decided by the majority
shareholders during the abovementioned Shareholders' Meeting. Since March 2006,
Banco de Galicia y Buenos Aires S.A. has fully provisioned its credits against
this company.
Aguas Argentinas S.A.: after a long negotiation process, on March 21, 2006, the
National Executive Branch decided to rescind the concession contract with Aguas
Argentinas S.A., on the grounds of the concessionaire's fault.
As a result of this measure, Aguas Argentinas S.A. went into default and
requested to file for reorganization proceedings under the provisions of Section
5 and subsequent sections of Law No. 24,522.
On March 9, 2006 Banco de Galicia y Buenos Aires S.A. cancelled the commitments
undertaken with international financial institutions by purchasing the credits
these institutions held against Aguas Argentinas S.A., thus extinguishing the
guarantees granted in connection with those loans. The acquisition price was
approximately 25% lower than the guaranteed amount.
As from June 2006, a provision for the total interest in said Company has been
recognized. For the remaining credits, the provisions corresponding to the
debtor's status in accordance with the applicable regulations have been
established.
e. GUARANTEES GRANTED FOR DIRECT OBLIGATIONS
As of June 30, 2007, Banco de Galicia y Buenos Aires S.A. has recorded $ 70,259
as collateral for credit lines granted by the IFC, and the related transactions
have been allocated to the resources provided by the IFC.
As collateral for the requested funds, Banco de Galicia y Buenos Aires S. A.
used BODEN 2012 for a face value of US$ 70,000, through the Argentine Central
Bank, to the Subsecretaria de la Micro, Pequena y Mediana Empresa y Desarrollo
Provincial destined to the financing of the Global Credit Program for Small and
Medium Companies. As of June 30, 2007, the balance of secured loans was $
27,680.
As of December 31, 2006, the total amount of restricted assets for the
aforementioned items was $ 3,226,783.
II) As of June 30, 2007, the ability of Banco de Galicia y Buenos Aires S.A. to
dispose of the assets of its subsidiaries was restricted as follows:
a. Galicia Valores S.A. Sociedad De Bolsa:
26
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: (Continued)
As of June 30, 2007 and December 31, 2006, this Company holds three shares of
Mercado de Valores de Buenos Aires S.A., which secure an insurance covering its
transactions for $ 6,360.
27
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: (Continued)
b. Tarjetas Cuyanas S.A.:
As of June 30, 2007, the company's ability to dispose of time deposits for $530
and $80, and as of December 31, 2006 for $ 600 and $ 80, was restricted because
these amounts were earmarked as guarantee for two collection agreements signed
with the Revenue Board of the Province of Mendoza (Direccion General de Rentas
de la Provincia de Mendoza) and Telefonica de Argentina, respectively.
c. Tarjeta Naranja S.A.
Attachments in connection with lawsuit have been levied on current account
deposits for $ 328.
d. Banco Galicia Uruguay S.A.:
Under a fixed pledge agreement signed on July 24, 2003, and registered with the
Registry of Property-Personal Property-Pledges Division of Montevideo-Uruguay,
on August 5, 2003, Galicia Uruguay S.A.'s credit rights against all of its
debtors have been pledged in favor of the holders of the transferable
time-deposit certificates and/or negotiable obligations issued in compliance
with the debt restructuring plan approved.
III) As of June 30, 2007, the Bank's ability to dispose of the following assets
corresponding to Galval Agente de Valores S.A. was restricted as mentioned
below:
On December 20, 2005, in compliance with the Regulations issued by the
Securities and Exchange Commission of Uruguay, the above-mentioned Company made
a deposit of 2,000,000 indexed units with the Uruguayan Central Bank. Said
deposit has been pledged in favor of such Bank, as collateral for compliance
with regulations governing the activities carried out by securities agents.
NOTE 6: GOVERNMENT AND CORPORATE SECURITIES
Government and corporate securities listed below were classified pursuant to the
Argentine Central Bank regulations:
As of June 30, 2007 and December 31, 2006, holdings of government and corporate
securities were as follows:
06.30.07 12.31.06
-------------- --------------
Government Securities
Listed
Recorded at market value
Trading securities
- Government bonds 171,296 28,206
- Others 363 360
- Less: Allowance for impairment of value (360) (357)
-------------- --------------
Total trading securities 171,299 28,209
-------------- --------------
Recorded at cost after amortization
In investment accounts
- Government bonds (Boden 2012) 2,755,236 2,608,827
-------------- --------------
Total securities in investment accounts 2,755,236 2,608,827
-------------- --------------
Securities issued by the Argentine Central Bank
- Listed securities 637,297 119,520
-------------- --------------
28
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: (Continued)
06.30.07 12.31.06
-------------- --------------
Total securities issued by the Argentine Central Bank 637,297 119,520
-------------- --------------
Unlisted
- Government bonds (Discount) 4,868 431,753
-------------- --------------
Total unlisted securities 4,868 431,753
-------------- --------------
Total government securities 3,568,700 3,188,309
-------------- --------------
Corporate Securities
- Negotiable obligations (listed) 1,465 339
- Others 1,000 -
-------------- --------------
Total corporate securities 2,465 339
-------------- --------------
Total government and corporate securities 3,571,165 3,188,648
============== ==============
29
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 7: LOANS
The lending activities carried out by Banco de Galicia y Buenos Aires S.A. are
as follows:
a. Loans to the non-financial public sector: they are primarily loans to the
National Government and to provincial governments.
b. Loans to the financial sector: they represent loans to Banks and local
financial institutions.
c. Loans to the non-financial private sector and residents abroad: they include
the following types of loans:
- Overdrafts: short-term obligations issued in favor of customers.
- Promissory notes: endorsed promissory notes, factoring.
- Mortgage loans: loans for the purchase of real estate properties for housing
purposes, secured by such purchased real estate property or commercial loans
secured by real estate mortgages.
- Pledge loans: loans in which a pledge is granted as collateral, as an
integral part of the loan instrument.
- Credit card loans: loans granted to credit card holders.
- Personal loans: loans to natural persons.
- Other: this item primarily involves short-term placements in banks abroad.
Pursuant to the Argentine Central Bank regulations, Banco de Galicia y Buenos
Aires S.A. must disclose the breakdown of its loan portfolio to: the
non-financial public sector, the financial sector and the non-financial private
sector and residents abroad.
Moreover, Banco de Galicia y Buenos Aires S.A. must disclose the type of
collaterals established on the applicable loans to the non-financial private
sector and the pledges granted on loans (preferred guarantees in relation to a
registered senior pledge).
As of June 30, 2007 and December 31, 2006, the classification of the loan
portfolio was as follows:
06.30.07 12.31.06
----------- -----------
Non-financial public sector 1,251,849 2,739,282
Financial sector 145,246 311,623
Non-financial private sector and residents abroad 8,878,486 7,801,109
- With preferred guarantees 1,086,784 1,076,170
- With other collateral 1,476,282 1,307,511
- With no collateral 6,315,420 5,417,428
Subtotal 10,275,581 10,852,014
Allowance for loan losses (364,729) (327,042)
Total 9,910,852 10,524,972
Said loans were granted in the normal course of transactions with standard
terms, interest rates, and collateral requirements.
30
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 8: EQUITY INVESTMENTS
As of June 30, 2007 and December 31, 2006, the breakdown of "Equity Investments"
was a follows:
06.30.07 12.31.06
-------------- --------------
In financial institutions and supplementary
and authorized activities
- Banco Latinoamericano de Exportaciones S.A. 1,532 1,522
- Banelco S.A. 6,394 7,868
- Mercado de Valores de Buenos Aires S.A. 8,050 8,050
- Visa Argentina S.A. 951 951
- Other 2,399 2,362
-------------- --------------
Total equity investments in financial institutions,
supplementary and authorized activities 19,326 20,753
-------------- --------------
In non-financial institutions
- AEC S.A. 10,656 6,139
- Aguas Argentinas S.A. 23,370 23,370
- Aguas Cordobesas S.A. 8,911 8,911
- Aguas Provinciales de Santa Fe S.A. 10,771 10,771
- Electrigal S.A. 5,455 5,455
- Other 5,044 5,043
-------------- --------------
Total equity investments in non-financial institutions 64,207 59,689
-------------- --------------
Allowances (41,349) (44,867)
-------------- --------------
Total equity investments 42,184 35,575
============== ==============
NOTE 9: INTANGIBLE ASSETS - GOODWILL
The following table shows the breakdown of goodwill per activity as of June 30,
2007 and December 31, 2006, respectively:
06.30.07 12.31.06
------------ ------------
In banks 40,434 45,192
Companies issuing regional credit cards 15,156 19,973
------------ ------------
Total 55,590 65,165
------------ ------------
NOTE 10: TRUST ACTIVITIES
a) Trust contracts for purposes of guaranteeing compliance with obligations:
Purpose: in order to guarantee compliance with contractual obligations, the
parties to these agreements have agreed to deliver Banco de Galicia y Buenos
Aires S.A., amounts as fiduciary property, to be invested according to the
following detail:
Balance of Trust Fund
---------------------------------
In thousands of
Date of Contract Trustor $ US$ Maturity Date
---------------- ----------------------------- ------------- ------------------ -----------------
01.06.98 Eduardo Sumic y Ercides Ciani 13 38 07.07.07 (1)
02.15.05 Blaisten 68 - 02.15.08 (2)
12.29.05 Tecsan - Benito Roggio 4 - 04.28.11 (2)
06.16.06 La Nacion 175 - 12.31.07 (2)
11.01.06 Penaflor 1 - 11.01.11 (2)
11.09.06 Benito Roggio e hijos 47 - 01.09.09 (2)
04.10.07 Sullair 1 - 12.31.10 (2)
(1) This amount shall be released upon maturity or when the Bank receives
instructions in accordance with contract stipulations.
(2) These amounts shall be released monthly until settlement date of trustor
obligations or maturity date, whichever occurs first.
b) Financial trust contract:
Purpose: to administer and exercise the fiduciary ownership of the trust assets
until the redemption of debt securities and participation certificates:
31
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 10: (Continued)
Balance of Trust Fund
---------------------------------
In thousands of
Date of Contract Trustor $ US$ Maturity Date
---------------- ----------------------------- ------------- ------------------ -----------------
03.10.05 Grobo I 738 - 12.31.07 (4)
07.13.05 Rumbo Norte I 3,604 61 07.13.11 (4)
10.12.05 Hydro I 25,115 - 09.05.17 (3)
05.02.06 Prosion I 3 911 06.15.09 (4)
05.22.06 Radio Sapienza III 1 - 05.12.09 (4)
06.26.06 Saturno II 4,975 - 09.30.07 (4)
08.10.06 Faid 2006/07 8,926 172 11.30.07 (4)
10.05.06 Saturno III 9,899 - 04.15.08 (4)
10.17.06 Tarjetas del Mar II 6,333 - 01.10.15 (4)
11.24.06 Radio Sapienza IV 5,331 - 11.12.09 (4)
12.05.06 Faid 2011 37,029 - 02.28.12 (4)
12.06.06 Gas I 610,006 - 10.28.14 (4)
01.11.07 Saturno IV 27,273 - 07.15.08 (4)
03.02.07 Agro Nitralco 848 2.776 08.29.08 (4)
03.29.07 Saturno V 27,820 - 09.15.08 (4)
05.11.07 Radio Sapienza V 10,896 - 08.12.10 (4)
(3) These amounts shall be released monthly until redemption of debt securities.
(4) Estimated date, since maturity date shall occur at the time of the
distribution of all of trust assets.
NOTE 11: NEGOTIABLE OBLIGATIONS
a) As of June 30, 2007, Banco de Galicia y Buenos Aires S.A., had the following
negotiable obligations outstanding under this Program:
a.1) Ordinary negotiable obligations:
Residual face value Issuance authorized
Date of issuance (in thousands of US$) Term Rate by the C.N.V.
---------------- --------------------- ---------- ------- -------------------
11.08.93 4,229(*) 10 years 9.00% 10.08.93
(*) This amount corresponds to past due negotiable obligations, not tendered to
the restructuring offer.
a.2) The Ordinary Shareholders' Meeting, held on September 30, 1997, authorized
the constitution of a global program for the issuance of negotiable obligations,
not convertible into shares that could be denominated in pesos, dollars or other
currencies, for a maximum total amount equivalent to US$ 1,000,000. At the date
of these financial statements, this program has expired. However, as of June
30,2007, Banco de Galicia y Buenos Aires S.A. has the following short- and
medium-term negotiable obligations outstanding issued under this program:
Residual face value Issuance authorized
Date of issuance (in thousands of US$) Term Rate by the C.N.V.
---------------- --------------------- ---------- ------------------ -------------------
07.19.02 24,212(*) 1,840 days 7,875% 04.22.98
07.19.02 14,387(*) 1,840 days Libor 6 months + 4% 04.22.98
(**) Outstanding negotiable obligations issued as a result of the restructuring
of New York Branch's debt, not included in Banco de Galicia y Buenos Aires
S.A.'s debt restructuring.
In accordance with the provisions of the Law on Negotiable Obligations and the
Argentine Central Bank regulations, the net proceeds of the negotiable
obligations detailed in items a.1) and a.2) were applied to grant loans to
domestic companies to finance investments in physical assets in Argentina,
working capital or to restructure liabilities, consumer loans and mortgage loans
to finance housing construction, or to acquire interest in domestic companies'
capital stock and other uses envisaged by current regulations.
a.3) The Ordinary Shareholders' Meeting held on September 30, 2003, approved the
constitution of a Global Program for the issuance and re-issuance of ordinary
negotiable obligations, not convertible into shares,
32
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
subordinated or not, secured or unsecured, for a maximum face amount of US$
2,000,000 or its equivalent in any other currency, outstanding at any time
during the life of the Program, for a maximum term of five years
33
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 11: (Continued)
counted as from the authorization of the Program by the C.N.V, which took place
on December 29, 2003, pursuant to Resolution No. 14,708, or for any other longer
term the C.N.V. may authorize pursuant to regulations.
On April 23, 2004, through Resolution No. 14,773 the C.N.V. authorized the
issuance of ordinary senior and subordinated negotiable obligations, not
convertible into shares, for a total face value of up to US$ 1,400,000 or its
equivalent in other currencies.
The net proceeds of the negotiable obligations issued under the Program were
used to refinance foreign debt, in accordance with Section 36 of the Law on
Negotiable Obligations , the Argentine Central Bank regulations, and other
applicable regulations.
The Ordinary and Extraordinary Shareholder's Meeting held on April 27, 2006
ratified and renewed the powers invested in the Board of Directors regarding
this program.
As of June 30, 2007, Banco de Galicia y Buenos Aires S.A. had the following
negotiable obligations outstanding under this Program:
Ordinary negotiable obligations:
Residual face value Issuance authorized
Date of issuance US$ Term Rate by the C.N.V.
---------------- ------------------- -------- ------ ---------------------
05.18.04 464,802 (1) (*) 12.29.03 and 04.27.04
05.18.04 264,629 (2) (#) 12.29.03 and 04.27.04
(1) The principal of the Negotiable Obligations Due 2014 shall be amortized
semi-annually, beginning January 1, 2010, in installments equal to 11.11% of the
original principal amount, until their maturity date on January 1, 2014, when
the remaining 11.12% of the original principal amount is due. As of June 30,2007
and December 31, 2006, Grupo Financiero Galicia S.A. had Negotiable Obligations
for a face value of US$ 102,200 and US$ 107,000, respectively.
(2) The principal of the Negotiable Obligations Due 2010 shall be amortized
semi-annually, beginning July 1, 2006, in installments equal to 12.5% of the
original principal amount, until their maturity date on January 1, 2010 .
(*) Interest shall accrue as from January 1, 2004, at a 3% annual fixed rate,
which rate shall be increased by 1% each year until an annual rate of 7% is
reached as from January 1, 2008 up to but not including January 1, 2014. (#) The
interest rate established for the period January 1, 2007 - June 30, 2007 is
8.86688% (6-month Libor: 5.36688% plus 3.5%).
Subordinated negotiable obligations:
Residual nominal Issuance authorized
Date of issuance Value U$S Term Rate by the C.N.V.
---------------- ------------------- -------- ------ ---------------------
05.18.04 253,058(*) (1) (2) 12.29.03 and 04.27.04
(*) This amount includes US$ 5,455, US$ 5,592, US$ 5,731, US$ 5,875, US$ 6,021
and US$ 6,172 of capitalized interest due on July 1, 2004, January 1, 2005, July
1, 2005, January 1, 2006, July 1, 2006, and January 1, 2007, respectively, on
account of the payment-in-kind (by means of Negotiable Obligations Due 2019). As
of June 30,2007 Grupo Financiero Galicia S.A. holds no Subordinated Obligations
2019. As of December 31, 2006, the Company held Subordinated Negotiable
Obligations for a face value of US$ 4,281.93, which included capitalized
interest on the new Subordinated Negotiable Obligations.
(1) These obligations shall be fully amortized upon maturity on January 1, 2019,
unless their principal is previously redeemed at par, plus unpaid accrued
interest and additional amounts, if any, fully or partially at the issuer's
option at any time, after all negotiable obligations due in 2014 and 2010 have
been fully repaid. (2) Interest on Negotiable Obligations Due 2019 shall be
payable in cash and in additional Negotiable Obligations Due 2019, semi-annually
in arrears on January 1 and July 1 of each year, commencing on July 1, 2004.
Negotiable Obligations Due 2019 shall accrue interest payable in cash at an
annual fixed rate of 6%, as from January 1, 2004 up to, but not including,
January 1, 2014. Such interest rate will increase to 11% per annum as from
January 1, 2014 up to, but not including, January 1, 2019, the maturity date of
the Negotiable Obligations Due 2019, unless they are previously redeemed.
Interest payable in kind (by means of negotiable obligations due 2019) shall
accrue at an annual fixed rate of 5%, beginning on January 1, 2004, and shall be
payable on January 1, 2014 and January 1, 2019.
As of June 30, 2007, Banco de Galicia y Buenos S. A.'s holdings of Negotiable
Obligations due 2014 are for an amount of $ 78,187.
34
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 11: (Continued)
a.4) The Ordinary Shareholders Meeting, held on April 28, 2005, approved the
constitution of a Global Program for the issuance and re-issuance of Ordinary
Negotiable Obligations, not convertible into shares, subordinated or not,
adjustable or not, secured or unsecured, for a maximum face amount of $
1,000,000, or its equivalent in any other currency, outstanding at any time
during the life of the Program, for a maximum term of five years counted as from
the authorization of the Program by the C.N.V., or for any other longer term the
C.N.V. may authorize pursuant to regulations.
On September 15, 2005, Banco de Galicia y Buenos Aires S.A.'s Board of Directors
resolved that the U.S. dollar was the currency to determine the amount of the
Program, at the Argentine Central Bank reference exchange rate as of September
14, 2005 (US$ 1 = $ 2.9193) which resulted in the Program's total rounded off
amount of US$ 342,500. Likewise, the Board of Directors established the
remaining terms and conditions for the issuance and re-issuance of ordinary
negotiable obligations under the Program, which was approved by the C.N.V.,
through Resolution No.15,228 dated November 4, 2005.
The Ordinary Shareholder's Meeting held on April 26, 2007 confirmed and renewed
the powers invested in the Board of Directors regarding this Program.
As of June 30, 2007, total balance of negotiable obligations, including
principal and interest, amounts to $ 3,277,816, net of expenses.
As of December 31, 2006, the total for the same caption amounted to $ 3,368,044.
b) Companies controlled by Banco de Galicia y Buenos Aires S.A. - Issuance of
Negotiable Obligations In addition to Banco de Galicia y Buenos Aires S.A., its
consolidated entities have the following negotiable obligations outstanding:
a) Banco Galicia Uruguay S.A.
As of June 30, 2007:
Residual face value
Date of issuance (in thousands of US$) Term Rate
------------------------ ----------------------- --------- ------
10.17.06 44,781(*) 5 years 2%
08.31.03 8,924 9 years 7%
08.31.03 559 5 years 2%
(*) In addition, Grupo Financiero Galicia S.A. holds Negotiable Obligations
issued on 10.17.06 for a FV of US$ 1,042.
As of December 31, 2006:
Residual face value
Date of issuance (in thousands of US$) Term Rate
------------------------ ----------------------- --------- ------
10.17.06 44,799(*) 5 years 2%
08.31.03 8,924 9 years 7%
08.31.03 559 5 years 2%
(*) In addition, Grupo Financiero Galicia S.A. held Negotiable Obligations
issued on 10.17.06 for a FV of US$ 1,042.
b) Tarjetas Regionales S.A.
As of the date of these financial statements, the companies controlled by
Tarjetas Regionales S.A. have the following series of negotiable obligations
outstanding, issued in order to finance their operations:
35
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 11: (Continued)
Conditions Tarjeta Naranja S.A. Tarjeta Naranja S.A.
------------------------------ ------------------------------ ------------------------------
Series No. Class I Class II
U.S. dollars (US$) which
Currency of issuance Pesos ($) were converted into Pesos ($)
pursuant to issuance terms
and conditions
Placement date 12.14.05 06.14.06
Maturity date 12.14.07 12.14.08
Term 24 months 30 months
Rate Maximum 20% - Minimum 8% Annual nominal fixed at 17%
Face value 40,781 80,150(*)
Residual value as of 06.30.07 27,187 60,113
Residual value as of 12.31.06 40,781 80,150
(*) Tarjeta Naranja S.A. issued and placed Class II Negotiable Obligations for a
total amount of US$ 26,000, which, as specified by the terms and conditions of
the securities, was converted into $ 80,150 and shall be payable in pesos.
Investor assumes the exchange rate risk since amortization and interest services
are calculated based on the principal amounts in pesos converted into dollars on
each payment date.
Conditions Tarjeta Naranja S.A. Tarjeta Naranja S.A.
------------------------------ ------------------------------ ------------------------------
Series No. Class III Class IV
U.S. dollars (US$) which
Currency of issuance US Dollars (US$) were converted into Pesos ($)
pursuant to issuance terms
and conditions
Placement date 09.15.06 11.29.06
Maturity date 09.10.07 11.29.11
Term 360 days 60 months
Rate Fixed annual nominal at 7% Fixed annual nominal at 15.5%
Face value US$ 9,967(**) 307,900(***)
Residual value as of 06.30.07 30.828 307,900
Residual value as of 12.31.06 US$ 9,967 307,900
(**) Tarjeta Naranja S.A. issued and placed Class III Negotiable Obligations for
a total amount of US$ 9,967, which, as specified by the terms and conditions of
the securities, was converted into $ 30,828 and shall be payable in U.S.
dollars.
(***) Tarjeta Naranja S.A. issued and placed Class II Negotiable Obligations for
a total amount of US$ 100,000, which, as specified by the terms and conditions
of the new securities, was converted into $ 307,900 and shall be payable in
pesos. Investor assumes the exchange rate risk since amortization and interest
services are calculated based on the principal amounts in pesos converted into
dollars on each payment date.
Conditions Tarjetas Cuyanas S.A. Tarjetas Cuyanas S.A.
------------------------------ ------------------------------ ------------------------------
Series No. Class XVII Class XVIII
Currency of Issuance Pesos ($) US dollars (U$S)
Placement date 12.11.06 06.14.07
Maturity date 07.10.07 06.14.12
Term 210 days 5 years
Rate Fixed at 12.46% during all Fixed at 12.46% during all
period period
Face value 34,613 200,064
Residual value as of 06.30.07 34,613 200,064
Residual value as of 12.31.06 34,613 -
36
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 11: (Continued)
37
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 12: MINIMUM CAPITAL REQUIREMENTS
Grupo Financiero Galicia S.A. is not subject to the minimum capital requirements
established by the Argentine Central Bank.
Furthermore, Grupo Financiero Galicia S.A. meets the minimum capital requirement
established by the Law Governing Commercial Companies, which amount to $ 12.
Pursuant to the Argentine Central Bank regulations, Banco de Galicia y Buenos
Aires S.A. is required to maintain a minimum capital, which is calculated by
weighting risks related to assets and to balances of bank premises and equipment
and miscellaneous and intangible assets.
As called for by the Argentine Central Bank regulations, as of June 30, 2007 and
December 31, 2006, minimum capital requirements were as follows:
Computable capital as a %
Date Capital required Computable capital of the capital requirement
-------------- ------------------ -------------------- ------------------------------
06.30.07 1,301,667 1,733,192 133.15
12.31.06 1,084,313 1,861,559 171.68
Communique "A" 3911 and supplementary regulations establish that, as from
January 1, 2006, total exposure of financial institutions to the non-financial
public sector must not exceed 40% of their total assets. Moreover, as from July
1, 2007, said exposure shall not exceed 35%.
In due time, Banco de Galicia y Buenos Aires S. A. submitted to the Argentine
Central Bank a plan to adjust to these regulations since the Company falls
within the general regulatory limitations. The Argentine Central Bank approved
said plan as accomplished on June 27, 2007.
Furthermore, non-compliance of the regulations on immaterial credit limits have
been recorded which, in turn, generated an increase in the minimum capital
required to cover credit risk.
NOTE 13: CONTRIBUTION TO THE DEPOSIT INSURANCE SYSTEM
Law No. 24,485 and Decree No. 540/95 established the constitution of the Deposit
Insurance System to cover the risk attached to bank deposits, in addition to the
system of privileges and safeguards envisaged in the Financial Institutions Law.
The National Executive Branch through Decree No. 1,127/98 dated September 24,
1998 extended this insurance system to demand deposits and time deposits of up
to $ 30 denominated either in pesos and/or in foreign currency.
This system does not cover deposits made by other financial institutions
(including time deposit certificates acquired through a secondary transaction),
deposits made by parties related to Banco de Galicia y Buenos Aires S.A., either
directly or indirectly, deposits of securities, acceptances or guarantees and
those deposits set up after July 1, 1995 at an interest rate exceeding the one
established regularly by the Argentine Central Bank based on a daily survey
conducted by it.
Those deposits whose ownership has been acquired through endorsement and those
placements made as a result of incentives other than interest rates are also
excluded. This system has been implemented through the constitution of the
Deposit Insurance Fund ("FGD"), which is managed by a company called Seguros de
Depositos S.A. (SEDESA). SEDESA's shareholders are the Argentine Central Bank
and the financial institutions, in the proportion determined for each one by the
Argentine Central Bank based on the contributions made to the fund.
As from January 1, 2005, the Argentine Central Bank set this contribution at
0.015% per month.
38
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
As of June 30, 2007, the standard contribution to the Deposits Insurance System
amounted to $ 328,193, $ 9,652 of which corresponded to the period.
NOTE 14: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS
In the case of Banco de Galicia y Buenos Aires S.A., the Argentine Central Bank
regulations require that 20% of the profits shown in the Income Statement at
fiscal year-end, plus (less) previous fiscal year adjustments, be allocated to
the legal reserve.
This proportion applies regardless of the ratio of the Legal Reserve fund to
Capital Stock. Should the Legal Reserve be used to absorb losses, earnings shall
be distributed only if the value of the Legal Reserve exceeds 20% of the Capital
Stock plus the Capital Adjustment.
The Argentine Central Bank set rules for the conditions under which financial
entities can make the distribution of profits. According to the new scheme,
profits can be distributed as long as results are positive after deducting not
only the Reserves, that may be legally and statutory required, but also the
following items from Retained Earnings: the difference between the book value
and the market value of public sector assets of a financial institution's
portfolio, the amount of the asset representing the losses from lawsuits related
to deposits and any adjustments required by the external auditors or the
Argentine Central Bank not having been recognized.
Moreover, in order that a financial institution be able to distribute profits,
said institution must comply with the capital adequacy rule, i.e with the
calculation of minimum capital requirements and the regulatory capital. To these
purposes, this shall be done by deducting from its assets and Retained Earnings
all the items mentioned in the paragraph above, as well as the asset recorded in
connection with the minimum presumed income tax and the amounts allocated to the
repayment of long-term debt instruments subject to be computed as computable
regulatory capital (RPC) pursuant to Communique "A" 4576.
In addition, in such calculation, a financial institution shall not be able to
compute the temporary reductions in the capital required to cover the exposure
to the public sector (governed by the "alfa 1" coefficient) that are currently
in effect, as well as any other regulatory forbearance that the Argentine
Central Bank may provide that affects minimum capital requirements, computable
regulatory capital or a financial institution's capital adequacy, and the amount
of profits that it wishes to distribute.
Distribution of profits shall require the prior authorization of the Argentine
Central Bank, which intervention shall have the purpose of verifying the
aforementioned requirements have been fulfilled.
Loan agreements entered into by Banco de Galicia y Buenos Aires S.A. as part of
its foreign debt restructuring limit the Bank's ability to directly or
indirectly declare or pay dividends, or make distributions in relation to shares
of capital stock, except for stock dividends or distributions. It was also
established that such restriction shall not apply to dividends paid to said
Entity by a consolidated subsidiary.
Notwithstanding the above mentioned, those agreements contemplate that Banco de
Galicia y Buenos Aires S.A. may directly or indirectly declare or pay dividends,
and may permit its subsidiaries to do so, if: "(i) no default or event of
default has taken place and continues to take place immediately before and after
such payment has been made; (ii) the total outstanding Senior Debt were to be
equal to or less than fifty percent (50%) of the amount of originally issued
total Senior Debt; and (iii) the Bank were to repay two U.S. dollars (US$ 2) of
Long-Term Debt principal for each U.S. dollar (US$ 1) paid as dividends."
The shareholders of Tarjeta Naranja S.A. ratified the decision made by the Board
of Directors and set forth the following policy for the distribution of
dividends: a) to keep under Retained Earnings, those retained earnings
corresponding to fiscal years prior to 2005 and, therefore, not to distribute
them as dividends, and b) to set the maximum limit for the distribution of
dividends at 25% of the realized and liquid profits of each fiscal year as from
fiscal year 2005 onwards. These restrictions shall remain in force as long as
the Company's shareholder's equity is below $ 300,000.
39
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
Additionally, the Company agreed, pursuant to the terms and conditions of the
Class II and IV Negotiable Obligations, not to distribute profits exceeding 50%
of net income accrued during the fiscal year closest to the distribution date,
for which financial statements are available.
NOTE 15: NATIONAL SECURITIES COMMISSION ("C.N.V.")
Resolution No. 368/01
As of June 30, 2007, Banco de Galicia y Buenos Aires S.A.' shareholders' equity
exceeds that required by Resolution No. 368/01, Chapter XIX, items 4 and 5 of
the C.N.V. to act as an over-the-counter broker. Furthermore, in compliance with
Section 32 of Chapter XI of that Resolution, in its capacity as depository of
the mutual funds "FIMA ACCIONES", "FIMA P.B. ACCIONES," "FIMA RENTA EN PESOS,"
"FIMA RENTA EN DOLARES," "FIMA AHORRO PESOS," "FIMA MIX," "FIMA RENTA CORTO
PLAZO," "FIMA MONEY MARKET EN PESOS LIQUIDADO," "FIMA NUEVO RENTA EN DOLARES,"
"FIMA GLOBAL ASSETS," "FIMA RENTA LATINOAMERICANA," "FIMA PREMIUM" and "FIMA
OBLIGACIONES NEGOCIABLES," as of June 30, 2007, Banco de Galicia y Buenos Aires
S.A. holds a total of 762,806,038 units under custody for a market value of $
703,633, which is included in the "Depositors of Securities held in Custody"
account.
As of December 31, 2006, the securities held in custody by the Bank totaled
617,876,327 units and their market value amounted to $ 480,033.
NOTE 16: ISSUES DERIVED FROM THE SYSTEMIC CRISIS OF LATE 2001
16.1 - Deposits with the financial system - Legal actions requesting protection
of constitutional guarantees As a result of the provisions of Decree No.
1,570/01, Law No. 25,561, Decree No. 214/02 and concurrent regulations, and as a
consequence of the restrictions on cash withdrawals and of the measures that
established the pesification and restructuring of foreign-currency deposits, as
from December 2001, a significant number of claims have been filed against the
National State and/or financial institutions, formally challenging the emergency
regulations and requesting prompt payment of deposits in their original
currency. Most lower and upper courts have declared the emergency regulations
unconstitutional.
As of June 30, 2007, the court orders received by Banco de Galicia y Buenos
Aires S.A. requiring the reimbursement of deposits in foreign or Argentine
currency, at the free-market exchange rate, amounted to $ 11,925 and US$
647,159. In compliance with those court orders, as of the same date, the Bank
has paid the amounts of $ 1,181,649 and US$ 111,090 to reimburse deposits, in
pesos and in foreign currency.
The difference between the amounts paid as a result of the abovementioned court
orders and the amount resulting from converting deposits at the $ 1.40 per U.S.
dollars exchange rate, adjusted by the CER and interest accrued up to the
payment date, which amounted to $ 695,683 and $ 688,390, as of June 30, 2007 and
December 31, 2006, respectively, has been recorded under "Intangible Assets".
Residual values as of said dates total $ 300,542 and $ 367,221, respectively.
Banco de Galicia y Buenos Aires S.A. has repeatedly reserved its right to make
claims, at suitable time, in view of the negative effect caused on its financial
condition by the reimbursement of deposits originally denominated in US dollars,
pursuant to orders issued by the Judicial Branch, either in U.S. dollars or in
pesos for the equivalent amount at the market exchange rate, since compensation
of this effect was not included by the National Government in the calculation of
the compensation to financial institutions. The method of accounting for such
right as a deferred loss, set forth by the Argentine Central Bank regulations,
does not affect its existence or legitimacy. To such effect, the Entity has
reserved the corresponding rights.
On December 30, 2003, Banco de Galicia y Buenos Aires S.A. formally requested
the National Executive Branch, with a copy to the Ministry of Economy ("MECON")
and to the Argentine Central Bank, the payment of due compensation for the
losses incurred that were generated by the "asymmetric pesification" and
especially for the negative effect on its financial condition caused by court
decisions. Banco de Galicia y Buenos Aires S.A. has reserved its right to
further extend such request in order to encompass losses made definitive by new
final judgments.
40
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
41
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 16: (Continued)
On December 27, 2006, the Argentine Supreme Court of Justice (the "Supreme
Court") ruled on the case named "Massa c/ Estado Nacional y Bank Boston" and
decided that the sued bank should fulfill its obligation to reimburse a deposit
made in U.S. dollars subject to emergency regulations, paying the original
amount converted into pesos at the exchange rate of $ 1.40 per dollar, adjusted
by the CER until the payment day, with a 4% annual interest and calculating the
amounts paid based on preliminary injunctions or other reasons such as payments
on account.
On March 20, 2007 Supreme Court of Justice ruled, in the case of "EMM S.R.L. c/
Tia S.A.", that Decree No. 214/02 did not apply to judicial deposits, and that
such deposits must be reimbursed to the depositors in their original currency.
It is expected that said decisions by the Supreme Court of Justice would be
strongly followed in similar cases to be heard by the lower courts.
Senior executives continuously monitor and analyze the implications of such
ruling to similarly situated cases.
It is worth mentioning that during previous fiscal year, as well as in the
current one, Banco de Galicia y Buenos Aires S.A. has noticed that the number of
legal actions filed by customers requesting the reimbursement of deposits in
their original currency has decreased significantly. This implies that the risk
of worsening this problem in the future has been reduced.
With respect to judicial deposits that were pesified, the Argentine Central Bank
provided that, as from July 2007, institutions should establish an allowance
equal to the difference that arises from the balance of deposits recorded at
each month-end in their original currency and the balance in pesos that was
recorded in the books. Said allowance, at the entities' discretion, may be
charged to Income within the period of 24 months. The amount to establish in
July would increase approximately to $ 1,800.
16.2 - Claims due to foreign exchange differences arising from the repayment of
financial assistance during foreign-exchange market holidays in January 2002.
During December 2001, Banco de Galicia y Buenos Aires S.A. received financial
assistance in pesos from the Argentine Central Bank to face a temporary
liquidity shortage. This financial assistance was repaid by using the funds, in
U.S. dollars, provided by the Bank Liquidity Fund, on January 2 and 4, 2002.
On the day those funds were credited, the Argentine Central Bank had declared a
foreign-exchange market holiday.
On January 6, 2002, before the market was reopened, Law No. 25,561 was enacted,
which repealed the convertibility system and established a new exchange rate of
$1.40 per U.S. dollar.
As a result of the aforementioned regulations, during the foreign-exchange
market holiday, no foreign currency could be traded.
Consequently, the U.S. dollars funds credited by the Bank Liquidity Fund on
January 2 and 4, 2002, remained in U.S. dollars until the reopening of the
market.
On that date, and in accordance with the regulations in force, the U.S. dollar
was sold at $1.40.
Therefore, when the Argentine Central Bank applied US$ 410,000 to the payment by
Banco de Galicia y Buenos Aires S.A. of the financial assistance granted, it
should have cancelled US$ 410,000 per $1.40, that is, the amount of $ 574,000.
42
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 16: (Continued)
This has infringed the guarantee of inviolability of private property and equal
treatment before the law.
Banco de Galicia y Buenos Aires S.A. considers that the $ 164,000 difference
will have to be reimbursed to the Bank, dated January 2002, or that an
equivalent restoration of its equity should be considered.
The Bank has a claim outstanding to the Argentine Central Bank to recover the
above-mentioned amount. Such right has not been accounted for in these financial
statements.
16.3 - COMPENSATION TO FINANCIAL INSTITUTIONS
Decree No 214/02 provided for in Section 7 the issuance of a bond charged to the
National Treasury funds in order to compensate financial institutions for the
imbalance resulting from the devaluation of currency and asymmetric pesification
of assets and liabilities.
In June 2002, Decree No. 905/02, in its Sections 28 and 29, established the
methodology for calculating the above-mentioned compensation amount, granting a
Compensatory Bond to compensate losses that resulted from the asymmetric
pesification of assets and liabilities, and a Hedge Bond to compensate the
currency mismatch that resulted from the mandatory pesification of part of the
assets and liabilities.
After a thorough verification process performed by the Argentine Central Bank,
it was established that the final compensation to be paid to Banco de Galicia y
Buenos Aires S.A. amounted to US$ 2,178,030 of face value of BODEN 2012.
As of December 31, 2005, Banco de Galicia y Buenos Aires S.A. had received the
total amount of the Compensatory Bond for US$ 906,277.46 of face value of Boden
2012.
In December 2006, Banco de Galicia y Buenos Aires S.A. received from the
Argentine Central Bank Boden 2012 for a face value of US$ 1,154,955, at their
75% residual value and US$ 406,775 in cash in connection with past due
amortization and interest coupons, as partial compensation for the negative net
position in foreign currency as of December 31, 2001, pursuant to the provisions
of Decree N(degree)905/02 sections 28 and 29 (90.8% of the Hedge Bond).
The execution of the advance was carried out under the conditions set forth in
Resolution No. 237/06 of the Argentine Central Bank, i.e. excluding the
settlement of pass due amortization and interest coupons through the application
of assets granted as collateral. Therefore, the valuation of such assets and
that of the securities mentioned in the following paragraph, pursuant to the
"present value" criterion set forth by the Argentine Central Bank, generated a
decrease in their book value of $109,086 as of December 31, 2006.
On December 13, 2006, Banco de Galicia y Buenos Aires S. A. requested the
Argentine Central Bank the advance set forth in Section 29 sub-section g) of
said Decree to finance the acquisition of the remaining Hedge Bond amount for
US$ 116,797 of Boden 2012 and payment thereof simultaneously to its date of
acquisition, through the allocation of BOGAR with a face value of $ 163,516 as
collateral.
In February 2007, since this request has not been granted, Banco de Galicia y
Buenos Aires S.A. requested the Argentine Central Bank the acquisition of these
securities in cash as well as the simultaneous release of the assets allocated
as collateral. Based on said decision, the valuation of said assets pursuant to
Communique "A" 3911 and supplementary regulations for assets not allocated as
collateral, generated a $ 31,960 reduction in the book value.
Through a note dated March 30, 2007, the Argentine Central Bank informed Banco
de Galicia y Buenos Aires S.A. that Boden 2012 had to be acquired through a swap
for Domestic Secured Loans, in accordance with the direct swap alternative set
forth in the second to last paragraph of the abovementioned section of Decree
No.
43
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 16: (Continued)
905/02. Thus, on April 9, 2007 Banco de Galicia y Buenos Aires S.A. requested
the acquisition of such Boden through a swap of $ 115,925 of face value of
Domestic Secured Loans. The swap of public sector assets for the above-mentioned
advance approximately caused a $ 33,900 increase in the acquisition cost of the
remaining Hedge Bond amount.
On April 24, 2007, Banco de Galicia y Buenos Aires S. A. was credited Boden 2012
for a face value of US$ 116,797 and US$ 43,635 as amortization and past due
interest corresponding to the final settlement of the Hedge Bond.
16.4. - Situation of Banco Galicia Uruguay S.A.
Banco Galicia Uruguay S.A., after having been affected by the economic crisis of
late 2001, in December 2002, restructured its deposits with a high degree of
participation by its depositors. Subsequently, it implemented various voluntary
exchanges of restructured deposits, which allowed it to significantly reduce
such liabilities.
The Uruguayan authorities resolved to maintain the authorization to operate
granted to Banco Galicia Uruguay S.A. by the Executive Branch and withdraw the
authorization to act as a commercial bank. As of June 30, 2007, the principal
amount of the restructured liabilities (time deposits and negotiable
obligations) was $ 351,360 and Galicia Uruguay had settled the installments
corresponding to the payment schedule. As of such date, Shareholders' equity
amounts to $ 137,457 and it is estimated that the cash flows of this company's
assets (mainly credits) shall exceed, in all of the payment periods of the
restructuring agreement, the obligations resulting from such agreement.
On February 22, 2007, through Resolution D/74/2007, the Central Bank of Uruguay
decided to lift the intervention of Banco Galicia Uruguay S.A., thus reinstating
its authorities.
16.5 - REPURCHASE OF RESTRUCTURED FOREIGN DEBT
During February 2007, Banco de Galicia y Buenos Aires S.A. repurchased part of
the debt originated in the debt restructuring completed in May 2004 that was
instrumented as loans. Banco de Galicia Y Buenos Aires S.A. repurchased loans
maturing in 2010 and in 2014 for an total residual amount of US$ 178,794. These
transactions were carried at market value thus generating an US$ 6,942 profit
with respect to the loans' book value. The repurchase was funded through the
sale of Boden 2012 bonds in the market, which generated a loss of approximately
US$ 8,860 due to the difference between the market price and the book value of
such bonds.
NOTE 17: CONTRIBUTIONS TO THE BANK EMPLOYEES' SOCIAL SERVICES INSTITUTE (the
"ISSB")
The 2% contribution on interest and fees received by banks established by
Section 17, paragraph f) of Law No. 19,322 was reduced to 1% beginning July 1,
1996 and, beginning July 1, 1997, it was finally eliminated by Decrees No.
263/96 and 915/96. In addition, Decree No. 336/98 dated March 26, 1998 of the
National Executive Branch confirmed the elimination of the Bank Employees'
Social Services Institute (I.S.S.B.) and the creation of a new institution
called Bank Employees' Health Care System (O.S.B.A.), which was not the
successor of the ISSB.
In April 1998, O.S.B.A. filed a final claim against Banco de Galicia y Buenos
Aires S.A. claiming to be the successor of the I.S.S.B. In response to this,
Banco de Galicia y Buenos Aires S.A. brought an amparo claim before the Federal
Court of First Instance in Social Security Matters No. 5, requesting that a
resolution be issued stating that this contribution had been repealed, and that
O.S.B.A. was not the successor of the I.S.S.B. Also, it requested a preliminary
injunction, which was granted, that prevents O.S.B.A. from bringing legal
actions or making verifications on the grounds of Section 17, clause f) of Law
No. 19,322 until a final judgment is issued. The preliminary injunction was
confirmed. The lower and upper courts rendered judgment stating that O.S.B.A.
was not the successor of I.S.S.B. and that, therefore, it was not entitled to
claim or collect said contribution. This is a final judgment and has already
been confirmed.
44
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 17: (Continued)
In addition, O.S.B.A. has brought a declaratory action before the federal
administrative litigation jurisdiction against all institutions in the financial
system, claiming annulment of the decrees that eliminated the contribution to
said institution. Considering that there is a risk as to the interpretation that
courts may make regarding this dispute, Banco de Galicia y Buenos Aires S.A. has
agreed to seek an agreement on those disputed or doubtful rights, without this
involving any recognition of rights, but involving O.S.B.A.'s abandonment of the
abovementioned legal action and of any other judicial and/or administrative
action, whether filed or to be filed in the future, in connection with this
issue. This agreement has been approved by the Federal Court of First Instance
in Administrative Litigation No. 4 in the case identified above, what represents
a limitation on the potential risk an unfavorable resolution would entail.
NOTE 18: SETTING UP OF FINANCIAL TRUSTS
a) FINANCIAL TRUSTS WITH BANCO DE GALICIA Y BUENOS AIRES S.A. AS TRUSTEE
OUTSTANDING AT THE PERIOD/FISCAL YEAR END:
Conditions Galtrust I Galtrust II Galtrust V
----------------------------------- ------------------------- ------------------------- -------------------------
Creation Date 10.13.00 12.17.01 12.17.01
Maturity date 10.10.15 12.10.10 01.10.16
Trustee First Trust of New York First Trust of New York First Trust of New York
N.A. N.A. N.A.
Rate(*) C.E.R. +10% T.N.A. C.E.R. + 9.75% T.N.A. C.E.R. + 9.75% T.N.A.
Trust assets Loans to provincial Mortgage loans Mortgage loans
governments
Total portfolio transferred US$ 490,224(***) US$ 61,191 US$ 57,573
Amount of Class "A" trust debt
securities FV US$ 100,000 FV US$ 45,000 FV US$ 42,000
Amount of Class "B" trust debt
securities FV US$ 200,000 - -
Participation Certificates FV US$ 200,000 FV US$ 16,191 FV US$ 15,573
Book value as of 06.30.07(**) $ 589,292 $ 7,929 $ 16,843
Book value as of 12.31.06(**) $ 571,582 $ 7,683 $ 16,457
(*) Only applicable to debt securities.
(**) Includes participation certificates and/or class "A" or "B" debt
securities, as appropriate. (***) The remaining US$ 9,776 were transferred in
cash.
Galicia Hipotecas Creditos Inmobiliarios
Conditions Galicia Comerciales Galicia I
----------------------------------- ------------------------- ------------------------- -------------------------
Creation Date 04.16.02 02.22.05 08.17.05
Maturity date 05.06.32 07.12.13 03.15.15
Trustee Bapro Mandatos y Deustche Bank S.A. Deustche Bank S.A.
Negocios S.A.
Rate(*) C.E.R. + 4% C.E.R. + 0.05% T.N.A. Minimum 8% T.N.A. and
maximum 18% T.N.A.
Trust assets Secured loans Commercial mortgage Mortgage loans
loans
Total portfolio transferred $ 108,000 $ 29,059 $ 91,000
Amount of class "A" trust debt
securities - FV $ 24,119 FV $ 72,800
Amount of class "B" trust debt
securities - - -
Participation Certificates FV $ 108,000 FV $ 4,940 FV $ 18,200
Book value as of 06.30.07(**) $ 62,010 $ 4,657 $ 19,508
Book value as of 12.31.06(**) $ 58,159 $ 6,892 $ 18,776
(*) Only applicable to debt securities.
45
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
(**) Includes Participation certificates and/or class "A" or "B" debt
securities, as appropriate.
46
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 18: (Continued)
Conditions Galicia Personales II Galicia Personales III
----------------------------------- --------------------------------------------- ---------------------------------------------
Creation Date 01.25.06 05.16.06
Maturity date 09.15.07 (Estimated date for class B 09.15.07 (Estimated date for class B
debt securities debt securities
11.15.09 (Estimated date of 03.15.11 (Estimated date of
participation certificates) participation certificates)
Trustee Deustche Bank S.A. Deustche Bank S.A.
Rate(*) The highest rate between: Badlar for time The highest rate between: Badlar for time
deposits of 30 to 35 days and of more than deposits of 30 to 35 days and of more than
one million pesos of private banks, and one million pesos of private banks, and
C.E.R. variation percentage expressed C.E.R. variation percentage expressed
as T.N.A. up to a maximum of 21%. as T.N.A.
Trust assets Consumer loans Consumer loans
Total portfolio transferred $ 97,367 $ 100,000
Amount of class "A" trust debt
securities FV $ 77,893 FV $ 85,000
Amount of class "B" trust debt
securities FV $ 9,737 FV $ 7,500
Participation Certificates FV $ 9,737 FV $ 7,500
Book value as of 06.30.07(**) $ 19,993 $ 15,177
Book value as of 12.31.06(**) $ 21,155 $ 13,355
(*) Only applicable to debt securities.
(**) Includes participation certificates and/or class "A" or "B" debt
securities, as appropriate.
Conditions Galicia Personales IV Galicia Personales V
----------------------------------- --------------------------------------------- ---------------------------------------------
Creation Date 01.17.07 04.13.07
Maturity date 03.15.09 (Estimated date of Class "A" 12.15.08 (Estimated date of Class "A"
debt securities) debt securities)
07.15.09 (Estimated date for Class "B" 03.15.09 (Estimated date for Class "B"
debt securities) debt securities)
10.15.11 (Estimated date of participation 10.15.12 (Estimated date of participation
certificates) certificates)
Trustee Deustche Bank S.A. Deustche Bank S.A.
Class "A" debt securities, Minimum 10.5% Class "A" debt securities, Minimum 9%
T.N.A. Maximum 20% T.N.A. T.N.A. Maximum 19% T.N.A.
Rate(*) Class "B" debt securities, Minimum 11.5% Class "B" debt securities, Minimum 10.5%
T.N.A. Maximum 21% T.N.A. T.N.A. Maximum 20% T.N.A.
Trust assets Consumer loans Consumer loans
Total portfolio transferred $ 100,000 $ 150,000
Amount of class "A" trust debt
securities FV $ 85,000 FV $ 127,500
Amount of class "B" trust debt
securities FV $ 8,000 FV $ 12,000
Participation Certificates FV $ 7,000 FV $ 10,500
Book value as of 06.30.07(**) $ 11,429 $ 14,979
Book value as of 12.31.06(**) - -
(*) Only applicable to debt securities.
(**) Includes participation certificates and/or class "A" or "B" debt
securities, as appropriate.
47
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 18: (Continued)
Conditions Galicia Prendas Comerciales I Galicia Leasing I
----------------------------------- --------------------------------------------- ---------------------------------------------
Creation Date 07.03.06 09.22.06
Maturity date 11.15.07 (Estimated date for class A1
debt securities)
05.15.09 (Estimated date of class B debt 07.15.07 (Estimated date for class A2
securities) debt securities)
02.15.11 (Estimated date of Participation 11.15.09 (Estimated date of class B debt
Certificates) securities)
05.15.11 (Estimated date of Participation
Certificates)
Trustee Deustche Bank S.A. Deustche Bank S.A.
Class "A" debt securities, Minimum 10.5% Class "A" debt securities, Minimum 10.5%
T.N.A. Maximum 20% T.N.A. T.N.A. Maximum 20% T.N.A.
Rate(*) Class "B" debt securities, Minimum 11.5% Class "B" debt securities, Minimum 11.5%
T.N.A. Maximum 21% T.N.A. T.N.A. Maximum 21% T.N.A.
Trust assets Pledge loans Assets under financial leases
Total portfolio transferred $ 86,623 $ 150,000
Amount of class "A" trust debt
securities FV $ 73,629 FV $ 127,500
Amount of class "B" trust debt
securities FV $ 6,930 FV $ 12,000
Participation Certificates FV $ 6,064 FV $ 10,500
Book value as of 06.30.07(**) $ 12,611 $ 22,015
Book value as of 12.31.06(**) $ 12,409 $ 20,653
(*) Only applicable to debt securities.
(**) Includes participation certificates and/or class "A" or "B" debt
securities, as appropriate.
Conditions Creditos Inmobiliarios Galicia II
----------------------------------- ------------------------------------------
Creation Date 10.12.05
Maturity date 12.15.25
Trustee Deustche Bank S.A.
Rate(*) Minimum 8% T.N.A. and maximum 18% T.N.A.
Trust assets Mortgage loans
Total portfolio transferred $ 150,000
Amount of class "A" trust debt
securities FV $ 109,000
Amount of class "B" trust debt
securities -
Participation Certificates FV $ 41,000
Book value as of 06.30.07(**) $ 45,293
Book value as of 12.31.06(**) $ 43,347
(*) Only applicable to debt securities.
(**) Includes participation certificates and/or class "A" or "B" debt
securities, as appropriate.
48
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 18: (Continued)
b) Financial trusts received as loan repayment:
Conditions Hydro I
----------------------------------- ------------------------------------------
Creation Date 12.10.05
Maturity date 09.05.17
Trustor Consorcio de Empresas Mendocinas para
Potrerillos S.A.
Trustee Banco de Galicia y Buenos Aires S.A.
(B.G.B.A.)
Rate(*) 7% T.N.A. until 09.05.06 and thereafter,
variable T.N.A. equal to T.E.C. + 5%(**)
Trust assets Loans for power supply, loans for
subsidies, royalties and interest
Securities received by B.G.B.A Class "B" debt securities
FV $ 25,523
Book value as of 06.30.07(**) $ 24,850
Book value as of 12.31.06(**) $ 25,094
(*) Only applicable to debt securities.
(**) T.E.C. stands for adjusted survey rate.
c) As of June 30, 2007, Banco de Galicia y Buenos Aires S.A. records acquired
financial trusts. c1) As investments for $ 539. As of the previous fiscal year's
end, these amounted to $1,322. c2) In its capacity as underwriter for $ 8,495.
d) A trust called "BG Financial Trust" was created in December 2005. Receivables
amounting to $ 264,426, belonging to the portfolio classified as situation 3 or
lower, have been transferred to the trustee ("Equity Trust Company (Argentina)
S.A.") for a value, net of allowances, of $ 91,290. Banco de Galicia y Buenos
Aires S.A. received such amount in cash. The debt securities issued by the trust
were fully subscribed by third parties.
Banco de Galicia y Buenos Aires S.A. has been appointed Trustee and Collection
Manager of the Trust, thus assuming a special management commitment that will
enable the Bank to receive a compensation incentive upon the occurrence of the
following: (i) no later than December 31, 2009, the net cash flow effectively
collected equals or exceeds the price paid for the transferred portfolio; and
(ii) no later than December 31, 2012, an IRR equal to or higher than 18% is
reached. In the event the two objectives of the special management commitment
fail to be met, a penalty equal to the difference shall be paid to the trustee.
As of the end of July 2007, the collection amounts to approximately $ 89,500,
figure that greatly exceeds what was projected for such date. Apart from that,
from the analysis of the possibilities to recover the remaining cases,
compliance with the commitments undertook in advance is foreseen.
49
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 18: (Continued)
e) Tarjeta Naranja S.A.:
Financial Trust Tarjeta Naranja Trust I Tarjeta Naranja Trust II(*) Tarjeta Naranja Trust III
-------------------------- ----------------------------- ---------------------------- -----------------------------
Creation Date 11.07.05 02.16.06 08.15.06
Maturity date 05.20.08 12.20.07 09.20.08
Interest rate VRDF "A": Caps: minimum 9% VRDF "A": C.E.R. Caps: VRDF "A": Caps: minimum
nominal annual - maximum 18% minimum 10.5% nominal 10.5% nominal annual -
nominal annual annual - maximum 20% maximum 20% nominal annual
VRDF "B": Caps: minimum 11% nominal annual VRDF "B": Caps: minimum 11%
nominal annual - maximum 20% VRDF "B": Caps: maximum nominal annual - maximum 21%
nominal annual 21% nominal annual nominal annual
Placement $ 94,500 $ 80,000 $ 139,342
Type of fiduciary debt Trust debt securities Trust debt securities Trust debt securities
Trustee Equity Trust Company Equity Trust Company Equity Trust Company
(Argentina) S.A. (Argentina) S.A. (Argentina) S.A.
Class "A" $ 80,000 $ 68,000 $ 118,441
Class "B" $ 7,000 $ 6,000 $ 10,451
Participation Certificates $ 7,500 $ 6,000 $ 10,451
(*) As regards Tarjeta Naranja Trust II Financial Trust, the company, as
beneficiary of the class "C" participation certificates, requested Equity Trust
Company (Argentina) S.A. (Trustee) that the Trust be early and finally
terminated on March 31, 2007.
As of June 30, 2007, Tarjeta Naranja S.A.'s holdings of class "B" debt
securities and participation certificates totaled $ 15,435 and $ 25,773,
respectively. As of December 31, 2006 its holdings totaled $ 14,711 and $
34,102, respectively.
f) Tarjetas Cuyanas S.A.:
Financial Trust Tarjeta Nevada II Tarjeta Nevada III Tarjetas Cuyanas Trust I
-------------------------- ----------------------------- ---------------------------- -----------------------------
Creation Date 12.01.04 05.24.05 11.23.05
Maturity date 07.22.07(***) 02.25.08 11.15.07
Interest rate VDF "A": C.E.R +3% Min. 8% C.E.R + margin (5% Min. 10% VDF "A": 10.95%
Max. 15% T.N.A. Max. 20% T.N.A. VDF "B": 13.50%
VDF "B": C.E.R + 5% Min. 10%
Max. 20% T.N.A.
Trustee Banco Patagonia S.A. Banco Patagonia S.A. Equity Trust Company
(Argentina) S.A.
Placement $ 16,000 $ 25,000 $ 26,784
"A" debt securities $ 12,000 $ 19,000 $ 21,427
"B" debt securities $ 2,400(*) - $ 2,678(*)
Participation Certificates $ 1,600 $ 6,000 $ 2,679(**)
(*) As of June 30, 2007, class "B" debt securities have been fully settled.
(**) As of June 30, 2007, securities corresponding to the participation
certificate held by Tarjetas Cuyanas S.A. have been fully settled.
(***) As of June 30, 2007, Tarjetas Cuyanas S.A., as sole beneficiary of the
whole participation certificate, requested the trustee the termination of the
trust.
50
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 18: (Continued)
Financial Trust Tarjetas Cuyanas Trust II Tarjetas Cuyanas Trust III Tarjetas Cuyanas Trust IV
-------------------------- ----------------------------- ---------------------------- ---------------------------
Creation Date 04.04.06 07.14.06 11.01.06
Maturity date 02.15.08 07.15.08 11.15.08
Interest rate VDF "A": 12% VDF "A": 10.87% Badlar plus differential
VDF "B": 13% VDF "B": 12.75% margin 2.96%
Trustee Equity Trust Company Equity Trust Company Equity Trust Company
(Argentina) S.A. (Argentina) S.A. (Argentina) S.A.
Placement $ 37,680 $ 22,407 $ 68,120
"A" debt securities $ 30,144 $ 17,925 $ 54,495
"B" debt securities $ 3,768 $ 2,241 -
Participation Certificates $ 3,769 $ 2,241 $ 13,625
As of June 30, 2007 and December 31, 2006 Tarjetas Cuyanas' holding of
participation certificates totaled $ 20,965 and $ 28,570, respectively. No
holding of class "B" debt securities was recorded.
g) Trusts with Tarjetas del Mar S.A. as trustor:
Financial Trust Tarjetas del Mar - Series II
-------------------------- ------------------------------
Creation Date 10.17.06
Maturity date 01.10.15
Interest rate VDF "A": 13.00%
VDF "B": 14.00%
VDF "C" 14.50%
VDF "D" 15.00%
Trustee Banco de Galicia y Buenos
Aires S.A.
Placement $ 6,000
Amount of class "A"
trust debt securities $ 1,200
Amount of class "B"
trust debt securities $ 1,200
Amount of class "C"
trust debt securities $ 1,200
Amount of class "D"
trust debt securities $ 1,200
Participation Certificates 1,200
As of June 30, 2007 and December 31, 2006, Tarjetas del Mar's holding of
participation certificates totaled $ 1,148 and $ 1,158, respectively. No holding
of debt securities was recorded.
NOTE 19: DERIVATIVES
PUT OPTIONS WRITTEN
As established by Section 4, subsection a), and Section 6 of Decree No 1,836/02
and regulations of the Argentine Central Bank, Banco de Galicia y Buenos Aires
S.A. granted the holders of Rescheduled Deposit Certificates, who had opted to
receive Boden 2013 and Boden 2012 in lieu of the payment of those certificates,
an option to sell coupons. Said options, as of June 30, 2007 and December 31,
2006, are valued at the strike price.
51
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 19: (Continued)
The strike price will be equal to that resulting from converting the face value
of each coupon in U.S. dollars into pesos at a rate of $1.40 per U.S. dollar
adjusted by applying the C.E.R. variation, which arises from comparing the index
as of February 3, 2002 to that corresponding to the due date of the coupon. That
value shall in no case exceed the principal and interest amounts in pesos
resulting from applying to the face value of the coupon in U.S. dollars the
buying exchange rate quoted by Banco de la Nacion Argentina on the payment date
of that coupon.
These options have been recorded under "Memorandum Accounts - Credit-Derivatives
- Notional Value of Put Options Written" in the amount of $ 164,574 as of June
30, 2007 and $ 175,923 as of December 31, 2006, respectively.
FORWARD PURCHASE-SALE WITHOUT DELIVERY OF THE UNDERLYING ASSET
Mercado Abierto Electronico (MAE) and Mercado a Termino de Rosario (ROFEX) have
trading environments for the closing, recording and settlement of financial
forward transactions carried out among its agents, being Banco de Galicia y
Buenos Aires S.A. one of them.
The general settlement mode for these transactions is without delivery of the
traded underlying asset. Settlement is carried on a daily basis, in pesos, for
the difference, if any, between the closing price of the underlying asset and
the closing price or value of the underlying asset corresponding to the previous
day, the difference in price being charged to income.
As of June 30, 2007, forward purchase and sale transactions totaled $ 825,568
and $ 424,525, respectively, while as of December 31, 2006 they totaled $
475,338 and $ 148,866, respectively.
Said transactions are recorded under Memorandum accounts for the notional value
traded.
Balances pending settlement are recorded under "Other Receivables from Financial
Brokerage" and/or "Other Liabilities Resulting from Financial Brokerage", as the
case may be. As of June 30, 2007, said balances amount to $ 75,848 and $ 75,128,
respectively, while as of December 31, 2006, they amounted to $ 30,964 and $
31,635, respectively.
Banco de Galicia y Buenos Aires S.A.'s management of financial risks is carried
within the limits of the policies approved by the Board of Directors in such
respect. In that sense, "derivatives" allow, depending on market conditions, to
adjust risk exposures to the established limits, thus contributing to keep such
exposures within the parameters set forth by said policies. Banco de Galicia y
Buenos Aires S.A. plans to continue to use these instruments in the future, as
long as their use is favorably assessed, in order to limit certain risk
exposures.
NOTE 20: NET EXPOSURE TO THE PUBLIC SECTOR
As of June 30, 2007 and December 31, 2006, Banco de Galicia y Buenos Aires
S.A.'s net exposure to the public sector, including the Argentine Central Bank
and excluding the deposits made at such entity, in compliance with minimum cash
requirements, is the following:
06.30.07 12.31.06
---------- ----------
Government securities - global position 4,693,872 4,830,723
Loans 1,307,031 2,797,993
Other receivables resulting from financial brokerage 847,374 1,218,653
Total assets 6,848,277 8,847,369
Liabilities to the BCRA - 3,025,977
Net exposure to the public sector(*) 6,848,277 5,821,392
(*) Excludes the residual value of the amounts paid in compliance with court
orders, as mentioned in Note 16.1 above.
52
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 20: (Continued)
It is worth mentioning that on March 2, 2007, and mainly through the realization
of public sector assets, Banco de Galicia y Buenos Aires S.A. settled its debt
with the Argentine Central Bank totally and in advance for the financial
assistance received during the economic crisis that took place at the end of
2001 and the beginning of 2002 and which was originally due on October 2011.
As of March 31, 2007 and September 30, 2006 the consolidated financial
statements of Sudamericana Holding S.A. include secured loans for $ 52,317 and $
48,633, respectively.
NOTE 21: CHANGES IN SIGNIFICANT ASSETS AND LIABILITIES
There follows the breakdown of the most significant assets and liabilities shown
in these consolidated financial statements, presented in comparative format with
the previous fiscal year, in order to disclose the changes in those assets and
liabilities during the current period:
06.30.07 12.31.06
------------ ------------
ASSETS
LOANS 9,910,852 10,524,972
- To the non-financial public sector 1,251,849 2,739,282
- To the financial sector 145,246 311,623
- To the non-financial private sector and residents abroad 8,878,486 7,801,109
- Overdrafts 725,536 346,135
- Promissory notes 2,400,285 2,143,706
- Mortgage loans 785,451 687,954
- Pledge loans 86,150 67,145
- Consumer loans 670,976 563,232
- Credit card loans 2,966,236 2,458,572
- Other 1,115,716 1,403,209
- Accrued interest and quotation differences receivable 153,212 154,960
- Documented interest (24,989) (23,231)
- Unallocated collections (87) (573)
- Allowances (364,729) (327,042)
------------ ------------
OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 3,378,462 5,441,981
------------ ------------
- Argentine Central Bank 261,796 1,878,286
- Amounts receivable for spot and forward sales to be settled 125,640 91,441
- Securities receivable under spot and forward purchases to be settled 1,102,977 1,464,917
- Others not included in the debtor classification regulations 1,544,385 1,761,381
- Unlisted negotiable obligations 33,147 26,721
- Balances from forward transactions without delivery of underlying asset to be
settled 75,848 30,964
- Others included in the debtor classification regulations 249,702 207,930
- Accrued interest receivable not included in the debtor classification
regulations 1,834 1,463
- Accrued interest receivable included in the debtor classification regulations 2,040 774
- Allowances (18,907) (21,896)
LIABILITIES
------------ ------------
DEPOSITS 12,438,809 10,779,369
------------ ------------
- Non-financial public sector 202,724 63,922
- Financial sector 156,123 154,303
- Non-financial private sector and residents abroad 12,079,962 10,561,144
- Current Accounts 2,439,205 1,982,765
- Savings Accounts 2,816,751 2,442,946
- Time Deposits 6,433,792 5,789,299
- Investment accounts 5,514 4,031
- Other 232,677 211,176
- Accrued interest and quotation differences payable 152,023 130,927
53
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 21: (Continued)
06.30.07 12.31.06
------------ ------------
LIABILITIES
OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 5,731,965 9,835,373
- Argentine Central Bank 593 3,025,977
- Other 593 3,025,977
- Banks and international entities 271,561 844,263
- Unsubordinated negotiable obligations 2,868,740 2,809,416
- Amounts payable for spot and forward purchases to be settled 712,142 1,046,181
- Securities to be delivered under spot and forward sales to be settled 244,006 91,329
- Loans from domestic financial institutions 90,013 281,055
- Balances from forward transactions without delivery of underlying asset to be
settled 75,128 31,635
- Other 1,362,905 1,577,126
- Accrued interest, adjustments and quotation difference payable 106,877 128,391
------------ ------------
SUBORDINATED NEGOTIABLE OBLIGATIONS 817,655 777,617
============ ============
NOTE 22: TAX ISSUES
At the date of these consolidated financial statements, the Argentine Revenue
Service (AFIP) and the Revenue Board of the Province of Cordoba are in the
process of conducting audits. Said agencies have served notices and made claims
regarding taxes applicable to Tarjetas Regionales S.A.`s subsidiaries. The
amount claimed on a firm basis for such reason totals $ 23,792 approximately.
Based on the opinions of their tax advisors, the companies believe that the
abovementioned claims are both legally and technically groundless and that taxes
related to the claims have been correctly calculated in accordance with tax
regulations in force and existing case law.
Therefore, both companies are taking the corresponding administrative and legal
steps in order to solve such issues. However, since the final outcome of these
measures cannot be foreseen, provisions have been set up to cover such
contingencies.
NOTE 23: CAPITAL STOCK INCREASE
- Banco de Galicia y Buenos Aires S.A.
At the Ordinary and Extraordinary Shareholders' Meeting held on October 11,
2006, Banco Galicia y Buenos Aires S.A.'s shareholders resolved to increase the
capital stock in an amount of up to $ 100,000,000 ordinary book-entry class "B"
shares with one vote per share and a face value of $ 1 (one peso) each.
It was also decided that the subscription of the new shares could be made, at
the option of the subscriber, in cash or by exchange of Negotiable Obligations
due on 2010, 2014, and 2019.
It was as well decided that the subscription price of the new shares should be
equal to the weighted average of the market price of Banco de Galicia y Buenos
Aires S.A.'s share on the Buenos Aires Stock Exchange (B.C.B.A.) for the twenty
(20) business days prior to the date of the determination of the subscription
price in which the Bank's share has been listed. The date when the subscription
price was determined was July 19, 2007, and such price was $ 4.991 (in pesos)
per share. The difference between the face value of the share and the
subscription price was the issuance premium.
The values determined for the reception of negotiable obligations pursuant to
the provisions of Resolution No. 466 of the C.N.V., expressed in Pesos, were as
follows:
Negotiable Obligations due on 2010 with FV US$ 100: $193,200
54
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
Negotiable Obligations due on 2014 with FV US$ 100: $ 285,599
Negotiable Obligations due on 2019 with FV US$ 100: $ 368,025
55
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 23: (Continued)
The aforementioned values show the following: the original principal amount net
of amortizations as of the end of the preemptive rights subscription, interest
accrued since the last coupon and capitalized interest in case it may
correspond, and the maximum valuations and the exchange rate established by such
resolution.
Regarding the use of proceeds, it was established at the Shareholders<180>
Meeting that negotiable obligations would be used for the partial reduction of
the liabilities reflected by such instruments and that the cash received would
be used to increase working capital.
The term established for the preemptive rights subscription commenced on July
23, 2007 and ended on August 1, 2007, being it possible to exercise the
accretion right within the same term.
At the date of these financial statements, 93,664,806 new shares have been
subscribed and paid in through exercising the preemptive rights subscription and
the accretion rights. This generates an increase in Banco de Galicia y Buenos
Aires S.A.'s Shareholders' equity on account of principal and share issuance,
not taking into consideration the issuance expenses for $ 467,481.
Furthermore, for the portion paid in through negotiable obligations (Negotiable
obligations 2014 with FV of US$ 102,200), which were considered at a value lower
than its technical value, Banco de Galicia y Buenos Aires S.A. will record
income for $ 27,024.
Therefore, due to this capitalization process, the total increase in Banco de
Galicia y Buenos Aires S.A.'s shareholders' equity would approximately amount to
$ 494,000, what represents a 40% increase in comparison to that recorded as of
June 30, 2007.
- TARJETAS DEL MAR S.A.
The Ordinary and Extraordinary Shareholders' Meeting of Tarjetas del Mar S.A.
held on October 18, 2006 resolved to capitalize the irrevocable contributions
made by its shareholders, in proportion to their respective holdings, thus
increasing the company's capital stock by $ 72,423.
It was also decided to absorb retained losses for $ 61,046, against a reduction
of the capital stock.
After the above-mentioned changes, the capital stock totals $ 11,577.
- TARJETAS CUYANAS S.A.
During the previous fiscal year, the Shareholders' Meeting of Tarjetas Cuyanas
S.A. resolved to increase the company's capital stock by $ 30,333, which amount
was paid in on December 18, 2006, in proportion to the shareholders' respective
holdings. Due to the aforementioned, the capital stock amounts to $ 32,333.
NOTE 24: SEGMENT REPORTING
Below, there is a breakdown of the accounting information as of June 30, 2007
and 2006, by related business segment:
Primary segment: Business.
Financial brokerage Services Total
$ $ $
--------------------- ---------- ----------
Income 928,660 533,559 1,462,219
Expenses 617,480 113,133 730,613
--------------------- ---------- ----------
Result as of 06.30.07 311,180 420,426 731,606
--------------------- ---------- ----------
Result as of 06.30.06 285,958 305,614 591,572
===================== ========== ==========
56
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 24: (Continued)
Secondary segment: Geographic.
City of Buenos Aires Rest of the country Foreign Total
$ $ $ $
---------------------- --------------------- --------- ---------
Financial brokerage
Income 591,466 305,977 31,217 928,660
Expenses 393,274 203,449 20,757 617,480
Result as of 06.30.07 198,192 102,528 10,460 311,180
Result as of 06.30.06 209,943 63,365 12,650 285,958
City of Buenos Aires Rest of the country Foreign Total
$ $ $ $
---------------------- --------------------- --------- ---------
Services
Income 339.825 175.798 17.936 533.559
Expenses 72.055 37.275 3.803 113.133
Result as of 06.30.07 267.770 138.523 14.133 420.426
Result as of 06.30.06 224.374 67.720 13.523 305.614
The accounting measurement of assets and liabilities allocated to the
above-mentioned segments is the following:
06.30.07 12.31.06
$ $
---------- ----------
ASSETS
GOVERNMENT AND CORPORATE SECURITIES 3,571,165 3,188,648
LOANS 9,910,852 10,524,972
OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 3,378,462 5,441,981
ASSETS UNDER FINANCIAL LEASES 281,056 206,175
06.30.07 12.31.06
$ $
---------- ----------
LIABILITIES
DEPOSITS 12.438.809 10.779.369
OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 5.731.965 9.835.373
SUBORDINATED NEGOTIABLE OBLIGATIONS 817.655 777.617
NOTE 25: SUBSEQUENT EVENTS
- Tarjetas Cuyanas S.A.:
On July 10, 2007 Tarjetas Cuyanas S.A. paid interest and the 100% principal
amortization of the Negotiable Obligations series XVII for a principal amount of
$ 34,613 and interest for $ 2,493.
57
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
BALANCE SHEET
As of June 30, 2007 and December 31, 2006
(figures stated in thousands of pesos)
06.30.07 12.31.06
---------- ----------
ASSETS
CURRENT ASSETS
Cash and due from banks (Notes 2 and 10 and Schedule G) 177 131
Investments (Notes 8 and 10 and Schedules C, D and G) 310,715 338,413
Other receivables (Notes 3, 8 and 10 and Schedule G) 1,623 14,558
---------- ----------
Total Current Assets 312,515 353,102
---------- ----------
NON-CURRENT ASSETS
Other receivables (Notes 3, 8, 10 and 12 and Schedule G) 47,128 1,892
Investments (Notes 8, 9 and 10 and Schedules C and G) 1,247,504 1,261,295
Fixed assets (Schedule A) 2,989 3,028
---------- ----------
Total Non-Current Assets 1,297,621 1,266,215
---------- ----------
Total Assets 1,610,136 1,619,317
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Salaries and social security contributions (Notes 4 and 8) 389 657
Tax liabilities (Notes 5, 8 and 12) 5,144 8,680
Other liabilities (Notes 6, 8 and 10 and Schedule G) 1,659 1,506
---------- ----------
Total Current Liabilities 7,192 10,843
---------- ----------
NON-CURRENT LIABILITIES
Tax liabilities (Notes 5, 8 and 12) 5 -
Other liabilities (Notes 6 and 8) 6 6
---------- ----------
Total Non-Current Liabilities 11 6
---------- ----------
Total Liabilities 7,203 10,849
---------- ----------
SHAREHOLDERS' EQUITY (per related statement) 1,602,933 1,608,468
---------- ----------
Total liabilities and shareholders' equity 1,610,136 1,619,317
---------- ----------
The accompanying notes 1 to 15 and schedules A, C, D, G, and H are an integral
part of these financial statements.
58
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INCOME STATEMENT
For the six-month period commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format with the same
period of the previous fiscal year.
(figures stated in thousands of pesos)
06.30.07 06.30.06
---------- ----------
Administrative expenses (Note 10 and Schedule H) (5,926) (6,150)
Income on investments in related institutions - (Loss) (2,687) (6,024)
Financial income and by holding 7,586 82,642
- Generated by assets 7,650 84,037
Interest
On time deposits 166 297
Mutual funds 220 96
On current account deposits(*) 25 9
On negotiable obligations(*) - 812
On promissory notes receivable(*) 394 111
On other receivables 203 -
Other - 17
Result on negotiable obligations 5,312 78,201
Foreign exchange (loss) / gain 1,330 4,494
- Generated by liabilities (64) (1,395)
Interest (59) (135)
Foreign exchange (loss) / gain (5) (1,260)
Other income and expenses - income 558 1,503
---------- ----------
Income / (loss) before income tax - (loss)/income (469) 71,971
Income tax (Note 12) (5,066) (31,829)
---------- ----------
Income(loss) for the period (5,535) 40,142
---------- ----------
(*) Balances net of eliminations corresponding to transactions conducted with
companies included in section 33 of Law No. 19,550. See Note 10.
The accompanying notes 1 to 15 and schedules A, C, D, G, and H are an integral
part of these financial statements.
59
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
STATEMENT OF CHANGES IN THE SHAREHOLDERS' EQUITY
For the six-month period commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format with the same
period of the previous fiscal year.
(figures stated in thousands of pesos)
Shareholders' contributions
(Notes 7 and 14)
-------------------------------------------------------
Premium
for trading
Capital Capital of shares in
Item Stock adjustment own portfolio Total
------------------------ --------- ------------ -------------- -----------
Balances as of 12.31.05 1,241,407 278,131 - 1,519,538
Distribution of retained
earnings (1)
- Legal reserve - - - -
- Discretionary Reserve - - - -
Income for the period - - - -
Balances as of 06.30.06 1,241,407 278,131 - 1,519,538
Balances as of 12.31.06 1,241,407 278,131 606 1,520,144
Distribution of
retained earnings (2)
- Discretionary Reserve - - - -
Income (loss) for
the period - - - -
--------- ------------ -------------- -----------
Balances as of 06.30.07 1,241,407 278,131 606 1,520,144
--------- ------------ -------------- -----------
Retained earnings
(Note 11)
----------------------------------------
Total
Legal Discretionary Retained shareholders'
Item reserve reserve earnings equity
------------------------ --------- --------------- ---------- ---------------
Balances as of 12.31.05 - - 107,238 1,626,776
Distribution of retained
earnings (1)
- Legal reserve 34,855 - (34,855) -
- Discretionary Reserve - 72,383 (72,383) -
Income for the period - - 40,142 40,142
--------- --------------- ---------- ---------------
Balances as of 06.30.06 34,855 72,383 40,142 1,666,918
--------- --------------- ---------- ---------------
Balances as of 12.31.06 34,855 72,383 (18,914) 1,608,468
Distribution of
retained earnings (2)
- Discretionary Reserve - (18,914) 18,914 -
Income (loss) for
the period - - (5,535) (5,535)
--------- --------------- ---------- ---------------
Balances as of 06.30.07 34,855 53,469 (5,535) 1,602,933
--------- --------------- ---------- ---------------
(1) Approved by the Ordinary Shareholders' Meeting held on April 27, 2006.
(2) Approved by the Ordinary Shareholders' Meeting held on April 26, 2007.
The accompanying notes 1 to 15 and schedules A, C, D, G, and H are an integral
part of these financial statements.
60
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
STATEMENT OF CASH FLOWS
For the six-month period commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format with the
same period of the previous fiscal year.
(figures stated in thousands of pesos)
06.30.07 06.30.06
---------- ----------
CHANGES IN CASH
Cash at beginning of fiscal year 131 650
Cash at period end 177 114
---------- ----------
Increase / (Decrease) net cash for the period 46 (536)
---------- ----------
REASONS FOR CHANGES IN CASH
Operating activities
Collections for services 633 461
Payments to suppliers of goods and services (2,848) (1,717)
Personnel salaries and social security contributions (1,348) (1,068)
Income tax payments and prepayments (6,734) (11,439)
Payment of other taxes (4,366) (4,185)
---------- ----------
Net cash flow used in operating activities (14,663) (17,948)
---------- ----------
Investment activities
Payments for purchases of bank premises and equipment (5) (35)
Collection of dividends 700 613
Collection of Interest 177 202
Collection of interest on negotiable obligations 9,022 8,799
Collections for investments liquidation 4,815 7,840
Payments for purchases of controlled companies' shares - (7)
---------- ----------
Net cash flow generated by investment activities 14,709 17,412
---------- ----------
Increase / (Decrease) net cash for the period 46 (536)
---------- ----------
The accompanying notes 1 to 15 and schedules A, C, D, G, and H are an integral
part of these financial statements.
61
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS
For the six-month period commenced January 1, 2007 and ended
June 30, 2007, presented in comparative format.
(figures stated in thousands of pesos and U.S. dollars)
NOTE 1: BASIS FOR THE PREPARATION OF THE FINANCIAL STATEMENTS
On August 10, 2005, the C.P.C.E.C.A.B.A. passed Resolution C.D. No.93/05, which
adopts Technical Pronouncements 6 to 22 issued by Federation of Professional
Councils in Economic Sciences (F.A.C.P.C.E.) as the Argentine GAAP; said
resolutions were amended with the purpose of unifying the Argentine GAAP and the
interpretation of the accounting and auditing standards 1 to 4. The
above-mentioned resolution is effective for fiscal years commenced on and after
January 1, 2006. On December 29, 2005, the National Securities Commission
(C.N.V.) approved C.P.C.E.C.A.B.A's C.D. 93/05 with certain amendments.
Subsequently, on June 26, 2006 and through Resolution C.D. No. 42/06, the
C.P.C.E.C.A.B.A. approved Technical Pronouncement No. 23 of the F.A.C.P.C.E., in
mandatory force and effect for fiscal years started as from July 1, 2006, its
application in fiscal years commencing at an earlier date being admitted. On
December 14, 2006 the National Securities Commission approved said resolution as
from April 1, 2007. Its application in advance is admitted.
These financial statements have been stated in thousands of Argentine pesos and
prepared in accordance with disclosure and valuation accounting standards
contained in Technical Pronouncements issued by the Argentine F.A.C.P.C.E.,
approved by the C.P.C.E.C.A.B.A. and the C.N.V., with the considerations
mentioned in Note 2 to the consolidated financial statements in relation to the
criteria for the valuation of its subsidiaries Banco de Galicia y Buenos Aires
S.A. and Sudamericana Holding S.A.
The preparation of financial statements at a given date requires the senior
executives of the Company to make estimates and assessments that affect the
amounts of assets and liabilities reported and the disclosure of contingent
assets and liabilities at that date, as well as the income and expenses recorded
for the fiscal year. The Company's senior executives make estimates in order to
calculate, at any given moment, for example, the depreciation charges, the
recoverable value of assets, the income tax charge and provisions for
contingencies. Future actual results may differ from estimates and assessments
made at the date these financial statements were prepared.
On March 25, 2003, the National Executive Branch issued Decree No. 664
establishing that financial statements for fiscal years ending as from said date
be stated in nominal currency. Consequently, in accordance with Resolution No.
441/03 of the C.N.V., the Company discontinued the restatement of its financial
statements as from March 01, 2003. This criterion is not in line with Argentine
GAAP, under which financial statements are to be restated until September 30,
2003. Nevertheless, this departure has not produced a significant effect on the
financial statements.
The index used for restating the items in these financial statements during the
period mentioned in the previous paragraph was the domestic wholesale price
index published by the National Statistics and Census Institute (I.N.D.E.C.).
Certain figures in the financial statements for the year ended December 31, 2006
have been reclassified for purposes of their presentation in comparative format
with those for this period.
The most relevant accounting policies used in preparing the Financial Statements
are listed below:
a. ASSETS AND LIABILITIES IN DOMESTIC CURRENCY
Monetary assets and liabilities which include, where applicable, the interest
accrued at period/year-end, are stated in period-end currency and therefore
require no adjustment whatsoever.
62
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 1: (Continued)
b. ASSETS AND LIABILITIES IN FOREIGN CURRENCY (US dollars)
Foreign currency assets and liabilities (in US dollars) have been stated at
Banco de la Nacion Argentina's buying and selling exchange rates, respectively,
in force at the close of operations on the last working day of each period/year.
Interests receivable or payable have been accrued, where applicable.
c. INVESTMENTS
c.1. CURRENT
Time and special current account deposits, as well as mutual fund units, have
been valued at their face value plus accrued interest at the end of each
period/fiscal year.
Argentine mutual fund units have been valued at period/year-end closing price.
Negotiable obligations due in 2014 issued by Banco de Galicia y Buenos Aires
S.A., at period-end are valued at the price at which they will be contributed to
such entity by virtue of the capital increase (see Note 23 to the consolidated
financial statements), while at the end of the previous fiscal year were valued
at their closing price.
Negotiable obligations due in 2019 issued by Banco de Galicia y Buenos Aires, at
the end of the previous fiscal year were valued at their closing price.
Negotiable obligations due in 2011 issued by Banco Galicia Uruguay S.A. are
valued at face value, plus interest accrued at fiscal period/year-end.
c.2. NON-CURRENT
Negotiable obligations due in 2011 issued by Banco Galicia Uruguay S.A. are
valued at face value, plus interest accrued at fiscal period/year-end.
The equity investments in Banco de Galicia y Buenos Aires S.A., Net Investment
S.A., Galicia Warrants S.A. and Galval Agente de Valores S.A. have been
recognized at their equity value as of June 30, 2007 and December 31, 2006.
The financial statements of Banco de Galicia y Buenos Aires S.A. have been
prepared in accordance with Argentine Banking GAAP, which differ in the aspects
mentioned in Note 2.c. to the consolidated financial statements from Argentine
GAAP.
This investment has been stated at equity value arising from financial
statements valued in accordance with the abovementioned standards.
The equity investment in Sudamericana Holding S.A. has been accounted for under
the equity method, on the basis of the financial statements dated March 31, 2007
and September 30, 2006, and considering the significant changes occurred from
that date to the closing date of these financial statements, in accordance with
Argentine GAAP in force.
The financial statements of Sudamericana Holding S.A. have been prepared as
established by the National Insurance Superintendence (S.S.N.), without
recognizing the effect of inflation for January and February, 2003. This
criterion is not in accordance with Argentine GAAP in force. Nevertheless, this
departure has not produced a significant effect on the financial statements of
Grupo Financiero Galicia S.A.
Galval Agente de Valores S.A.'s financial statements were originally issued in
foreign currency and later converted into pesos as detailed below:
- Assets and liabilities were converted at the buying exchange rate established
by Banco de la Nacion Argentina in force at the closing of operations on the
last working day of the period/fiscal year.
- Capital and capital contributions have been computed for the amounts actually
disbursed.
63
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 1: (Continued)
- Accumulated earnings were determined as the difference between assets,
liabilities, capital and capital contributions.
- Results for the period were determined as the difference between the opening
balance and closing balance of accumulated earnings. Items in the income
statement were converted into pesos applying the monthly average exchange rates.
d. FIXED ASSETS
Fixed assets have been valued at their acquisition cost, restated at constant
currency as mentioned in this Note, net of the corresponding accumulated
depreciation.
Depreciation charges are calculated following the straight-line method, at rates
determined based on the useful life assigned to the assets, which is 60 months
for hardware and software, furniture and fixtures and vehicles and 600 months
for real estate property.
The updated residual value of the assets, taken as a whole, does not exceed
their combined market value at period/year-end.
e. INCOME TAX AND TAX ON MINIMUM PRESUMED INCOME
The Company has recognized the income tax charge according to the deferred tax
method, thus recognizing the temporary differences between measurements of
accounting and tax assets and liabilities, at the rate in force (See Note 12 to
the financial statements).
The Company determines the tax on minimum presumed income at the statutory rate
of 1% of the computable assets at period/year-end. This tax is supplementary to
the income tax. The Company's tax liability for each fiscal year is to coincide
with the higher of the two taxes.
However, if the tax on minimum presumed income were to exceed income tax in a
given fiscal year, such excess may be computed as a payment on account of the
income tax that could be generated in any of the next ten fiscal years.
THE COMPANY HAS NO RECEIVABLES STEMMING FROM TAX ON MINIMUM PRESUMED INCOME
PAYMENTS.
f. SHAREHOLDERS' EQUITY:
f.1. Activity in the shareholders' equity accounts has been restated as
mentioned in paragraphs five and six of this note.
The "subscribed and paid in capital" account has been stated at its face value
and at the value of the contributions in the currency value of the period in
which those contributions were actually made.
The adjustment stemming from the restatement of that account in constant
currency has been allocated to the "Principal Adjustment" account.
f.2. Income and expense accounts
The results for each period are presented in the period in which they accrue.
g. STATEMENT OF CASH FLOWS
The "Cash and due from banks" caption is considered to be cash.
64
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 2: CASH AND DUE FROM BANKS
The breakdown of this caption was the following:
06.30.07 12.31.06
$ $
---------- ----------
Cash (Schedule G) 11 49
Due from banks - Current Accounts (Note 10) 166 82
---------- ----------
Total 177 131
========== ==========
NOTE 3: OTHER RECEIVABLES
The breakdown of this caption was the following:
06.30.07 12.31.06
$ $
---------- ----------
Current
Tax Credit 172 182
Promissory notes receivable (Note 10 and
Schedule G) - 14,365
Prepaid expenses 8 6
Other 1,443 5
---------- ----------
Total 1,623 14,558
========== ==========
06.30.07 12.31.06
$ $
---------- ----------
Non-Current
Tax Credit - mandatory savings 5 5
Income tax (Note 12) - 20
Promissory notes receivable (Note 10 and
Schedule G) 42,012 -
Sundry Debtors (Note 10 and Schedule G) 1,886 1,867
Other 3,225 -
---------- ----------
Total 47,128 1,892
========== ==========
NOTE 4: SALARIES AND SOCIAL SECURITY CONTRIBUTIONS
The breakdown of this caption was the following:
06.30.07 12.31.06
---------- ----------
Current
Integrated Pension and Survivors' Benefit
System 52 44
Other 1 -
Provision for bonuses 70 175
Provision for retirement insurance 223 325
Provision for Directors' and Syndics' fees 43 113
---------- ----------
Total 389 657
========== ==========
NOTE 5: TAX LIABILITIES
The breakdown of this caption was the following:
06.30.07 12.31.06
---------- ----------
Current
Income tax - withholdings to be deposited 49 62
Provision for Income tax (net) (Note 12) 3,306 4,990
Provision for turnover tax (net) 22 5
Provision for tax on personal assets 1,767 3,623
---------- ----------
Total 5,144 8,680
========== ==========
65
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
66
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 5: (Continued)
06.30.07 12.31.06
---------- ----------
Non-Current
Income tax (Note 12) 5 -
---------- ----------
Total 5 -
========== ==========
NOTE 6: OTHER LIABILITIES
The breakdown of this caption was the following:
06.30.07 12.31.06
---------- ----------
Current
Sundry creditors (Note 10 and Schedule G) 114 23
Provision for expenses (Note 10 and
Schedule G) 1,542 1,480
Directors' qualification bonds 3 3
---------- ----------
Total 1,659 1,506
========== ==========
06.30.07 12.31.06
---------- ----------
Non-Current
Directors' qualification bonds 6 6
---------- ----------
Total 6 6
========== ==========
NOTE 7: CAPITAL STATUS
As of June 30, 2007, capital status was as follows:
Restated at Approved by Date of
Capital stock issued, subscribed, paid in constant ------------- ----------- registration
and recorded Face value currency Entity Date in the I.G.J.
------------------------------------------ ------------ ------------ ------------- ----------- --------------
Balance as of 12.31.03 1,092,407 2,407,080 Shareholders' 05.16.00 08.09.00
Meeting 07.24.00
Board of and
Directors 07.26.00
Capital increase 149,000 149,000 Shareholders' 01.02.04
Meeting 04.23.04 06.08.04
Board of and
Directors 05.13.04
Balance as of 12.31.04 1,241,407 2,556,080 - - -
Absorption of retained earnings - (1,036,542) Shareholders' 04.28.05
Meeting
Balance as of 12.31.05 1,241,407 1,519,538 - - -
Shares in own portfolio (Note 14) (1,614) (1,976) - - -
Sale of shares in own portfolio (Note 14) 1,614 2,582 - - -
Balances as of 12.31.06 1,241,407 1,520,144 - - -
Balances as of 06.30.07 1,241,407 1,520,144 - - -
67
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 8: ESTIMATED COLLECTION OR PAYMENT TERMS OF RECEIVABLES, INVESTMENTS, AND
DEBTS
As of June 30, 2007, the breakdown of receivables, investments, and debts
according to their estimated collection or payment term was the following:
As of June 30, 2007, the breakdown of receivables, investments, and debts
according to their estimated collection or payment term was the following:
Salaries and
social security
Investments Other receivables contributions Tax Liabilities Other liabilities
-------------- ------------------- ------------------- ---------------- --------------------
1st. Quarter 310,026 131 53 71 1,178
2nd. Quarter 689 155 - - -
3rd. Quarter - 2 336 - 3
4th. Quarter - 1,335 - 5,073 478
After one year 2,544 45,237 - 5 6
-------------- ------------------- ------------------- ---------------- --------------------
Subtotal falling due 313,259 46,860 389 5,149 1,665
No set due date 1,244,960 1,891 - - -
Past due - - - - -
Total 1,558,219 48,751 389 5,149 1,665
============== =================== =================== ================ ====================
Non-interest bearing 1,244,960 2,236 389 5,149 1,665
At fixed rate 313,259 46,515 - - -
-------------- ------------------- ------------------- ---------------- --------------------
Total 1,558,219 48,751 389 5,149 1,665
============== =================== =================== ================ ====================
NOTE 9: EQUITY INVESTMENTS
The breakdown of equity investments was the following:
As of June 30, 2007
----------------------------------------------------------------------------------------------------------------
Issuing company Shares Percentage held in
------------------------------------ ---------------------------------- ------------------------------------
Class Number Total Capital Possible votes
------------------ ------------- ----------------- ----------------
Banco de Galicia y Buenos Aires S.A. Class "A"
ordinary shares 101
Class "B"
ordinary shares 438,689,121
------------- ----------------- ----------------
Total 438,689,222 93.604638 93.604643
------------- ----------------- ----------------
Net Investment S.A. Ordinary shares 10,500 87.500000 87.500000
------------- ----------------- ----------------
Sudamericana Holding S.A. Class "A"
ordinary shares 31,302
Class "B"
ordinary shares 41,735
------------- ----------------- ----------------
Total 73,037 87.500899 87.500899
------------- ----------------- ----------------
Galicia Warrants S.A. Ordinary shares 175,000 87.500000 87.500000
Galval Agente de Valores S.A. Ordinary shares 16,874,250 100.000000 100.000000
============= ================= ================
As of December 31, 2006
----------------------------------------------------------------------------------------------------------------
Issuing company Shares Percentage held in
------------------------------------ ---------------------------------- ------------------------------------
Class Number Total Capital Possible votes
------------------ ------------- ----------------- ----------------
Banco de Galicia y Buenos Aires S.A. Class "A"
ordinary shares 101
Class "B"
ordinary shares 438,689,121
------------- ----------------- ----------------
Total 438,689,222 93.604638 93.604643
------------- ----------------- ----------------
Net Investment S.A. Ordinary shares 10,500 87.500000 87.500000
Sudamericana Holding S.A. Class "A"
ordinary shares 31,302
Class "B"
ordinary shares 41,735
------------- ----------------- ----------------
Total 73,037 87.500899 87.500899
Galicia Warrants S.A. Ordinary shares 175,000 87.500000 87.500000
68
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
As of December 31, 2006
----------------------------------------------------------------------------------------------------------------
Issuing company Shares Percentage held in
------------------------------------ ---------------------------------- ------------------------------------
Class Number Total Capital Possible votes
------------------ ------------- ----------------- ----------------
Galval Agente de Valores S.A. Ordinary shares 16,874,250 100.000000 100.000000
NOTE 9: (Continued)
The financial condition and results of controlled companies were the following:
As of June 30, 2007 (*)
-------------------------------------------------------------------------------------------------------
Shareholders'
Issuing company Assets Liabilities equity Net income
----------------------------------- ------------- -------------- -------------- --------------
Banco de Galicia y Buenos Aires S.A. 21,089,076 19,854,583 1,234,493 (28,523)
Net Investment S.A. 1,453 238 1,215 (34)
Galicia Warrants S.A. 7,115 2,403 4,712 503
Galval Agente de Valores S.A. 2,783 119 2,664 (57)
Sudamericana Holding S.A. (**) 136,058 79,671 56,387 6,511
(*) See Note 1.c.2.
(**) Financial condition and results as of 03.31.07
Financial condition as of December 31, 2006 and net income as of June 30, 2006 (*)
-------------------------------------------------------------------------------------------------------
Shareholders'
Issuing company Assets Liabilities equity Net income
----------------------------------- ------------- -------------- -------------- --------------
Banco de Galicia y Buenos Aires S.A. 23,475,297 22,212,281 1,263,016 (26,076)
Net Investment S.A. 1,637 386 1,251 (660)
Galicia Warrants S.A. 7,600 2,591 5,009 384
Galval Agente de Valores S.A. 2,763 43 2,720 853
Sudamericana Holding S.A. (**) 121,908 73,847 48,061 5,685
(*) See Note 1.c.2.
(**) Financial condition as of 09.30.06 and results as of 03.31.06.
NOTE 10: SECTION 33 OF LAW 19,550 ON GOVERNING COMMERCIAL COMPANIES
The financial statements include the following significant balances
corresponding to transactions with its controlled companies and its
subsidiaries:
BANCO DE GALICIA Y BUENOS AIRES S.A.
06.30.07 12.31.06
-------------- --------------
Assets
Cash and due from banks - current
accounts (Note 2) 158 82
Investments - special current
accounts (Schedule D) - 3
Investments - negotiable obligations
(Schedules C and G) 299,665 322,166
Other receivables - promissory notes
receivable (Note 3 and Schedule G) 42,012 14,365
-------------- --------------
Total 341,835 336,616
============== ==============
06.30.07 12.31.06
-------------- --------------
Liabilities
Other liabilities - provision for
expenses (Note 6) 342 219
Other liabilities - sundry
creditors (Note 6) - 1
-------------- --------------
Total 342 220
============== ==============
06.30.07 06.30.06
-------------- --------------
Income
Financial income - Interest on
negotiable obligations 10,882 12,694
Financial income - documented
interest receivable 2,422 143
Other income and expenses - bank
premises and equipment under lease 89 89
-------------- --------------
Total 13,393 12,926
============== ==============
69
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 10: (Continued)
06.30.07 06.30.06
-------------- --------------
Expenses
Administrative expenses
(Schedule H)
Trademark leasing 489 448
Bank expenses 4 4
General expenses 117 13
-------------- --------------
Total 610 465
============== ==============
BANCO GALICIA URUGUAY S.A.
06.30.07 12.31.06
-------------- --------------
Assets
Investments - negotiable
obligations (Schedules C and G) 3,233 3,169
Other receivables - sundry
debtors (Note 3 and Schedule G) 1,885 1,866
-------------- --------------
Total 5,118 5,035
============== ==============
06.30.07 06.30.06
-------------- --------------
Income
Financial income - interest on
time deposits - 38
Financial income - Interest on
negotiable obligations 32 -
-------------- --------------
Total 32 38
============== ==============
GALVAL AGENTE DE VALORES S.A.
06.30.07 12.31.06
-------------- --------------
Liabilities
Other liabilities - provision for
expenses (Note 6 and Schedule G) 31 128
-------------- --------------
Total 31 128
============== ==============
06.30.07 06.30.06
-------------- --------------
Expenses
Administrative expenses
(Schedule H)
General expenses 82 120
-------------- --------------
Total 82 120
============== ==============
NOTE 11: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS
Pursuant to section 70 of the Law Governing Commercial Companies, the Corporate
Bylaws and Resolution No. 368/01 of the C.N.V., 5% of the net income for the
year should be transferred to the Legal Reserve until 20% of the capital stock
is reached.
On April 27, 2006, the Ordinary and Extraordinary Shareholders' Meeting of Grupo
Financiero Galicia S.A. resolved to restore the amount of $ 29,493 to the Legal
Reserve, which had been used to absorb the negative retained earnings of the
fiscal year ended December 31, 2004. Also, said Meeting resolved to allocate the
amount of $ 5,362 to the Legal Reserve to comply with applicable regulations as
set forth in the previous paragraph.
On April 26, 2007, the Ordinary Shareholders' Meeting of Grupo Financiero
Galicia S.A. resolved to absorb the negative retained earnings of fiscal year
ended on December 31, 2006 for US$ 18,914 through the partial reversal of the
discretionary reserve.
70
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 12: INCOME TAX
The following tables show the changes and breakdown of deferred tax assets and
liabilities:
Assets Investments Other Total
-------------- ---------- ----------
Balances as of 12.31.05 27,166 149 27,315
Charge to income (27,166) (124) (27,290)
-------------- ---------- ----------
Balances as of 12.31.06 - 25 25
Charge to income - (25) (25)
-------------- ---------- ----------
Balances as of 06.30.07 - - -
============== ========== ==========
Liabilities Fixed assets Total
-------------- --------------
Balances as of 12.31.05 5 5
Charge to income - -
-------------- --------------
Balances as of 12.31.06 5 5
Charge to income - -
-------------- --------------
Balances as of 06.30.07 5 5
============== ==============
As the above-mentioned information shows, as of June 30, 2007 the Company's
deferred tax liabilities amounted to $ 5. As of December 31, 2006 its deferred
tax liabilities amounted to $ 20.
Accumulated tax losses pending being used at period-end amount approximately to
$ 37,837 and can be compensated with future fiscal-year taxable income, as
follows:
Argentine source tax loss Issuance year Amount Year due
------------------------------- --------------- ---------- ----------
Specific from derived financial
instruments 2003 43 2008
Foreign source tax loss Issuance year Amount Year due
------------------------------- --------------- ---------- ----------
Rest 2002 37,794 2007
The Company has not recorded said losses for the calculation of the deferred
tax, since its recovery is not likely at the issuance date of these financial
statements.
As regards the deferred tax liabilities stemming from the difference between the
carrying value adjusted for inflation of the Fixed assets and the taxable value
(or income tax base), Grupo Financiero Galicia S.A. decided not to record said
liabilities but to submit a note to the financial statements presenting the
supplementary information required to be included in the Response (identified as
7) to Question 3 of Interpretation No. 3 of F.A.C.P.C.E.
The deferred tax liabilities created due to the effect of the adjustment for
inflation of the non-monetary assets amount to $ 335 and $ 338, as of June 30,
2007 and December 31, 2006, respectively. They mainly stem from the real estate
valuation. Said liabilities are expected to revert in approximately 45 years,
the remaining useful life of real estate, being the amount for each fiscal year
of $ 8.
The classification of assets and liabilities by net deferred tax recorded in
accordance with its expected reversion term is shown in Note 8.
71
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 12: (Continued)
The following table shows the reconciliation of income tax charged to results to
that which would result from applying the tax rate in force to the accounting
loss before tax:
06.30.07 06.30.06
---------- ----------
Income / (loss) before income tax (469) 71,971
Income tax rate in force 35% 35%
---------- ----------
Result for the period at the tax rate (164) 25,189
Permanent differences at the tax rate:
Increase in income tax
- Expenses not included in tax return 828 818
- Income on investments in related institutions 4,589 6,150
- Other causes 14 433
Decrease in income tax
- Expenses included in tax return (20) (20)
- Other causes (181) (741)
---------- ----------
Total income tax charge recorded - (loss) 5,066 31,829
========== ==========
The following table shows the reconciliation of tax charged to results to tax
determined for the period for tax purposes:
06.30.07 06.30.06
---------- ----------
Total income tax charge recorded 5,066 31,829
Temporary differences
Increases in assets due to deferred tax
- Investments - (27,166)
- Other - (29)
Decrease in assets due to deferred tax
- Other (25) -
---------- ----------
Total tax determined for tax purposes 5,041 4,634
========== ==========
Breakdown of net income tax provision:
06.30.07 12.31.06
---------- ----------
Total tax determined for tax purposes 5,041 18,355
Tax Credit (1,735) (13,365)
---------- ----------
Income tax provision (net) (Note 5) 3,306 4,990
========== ==========
NOTE 13: EARNINGS PER SHARE
Below is a breakdown of the earnings per share as of June 30, 2007 and 2006:
06.30.07 06.30.06
---------- ----------
(Loss) / Income for the period (5,535) 40,142
Outstanding ordinary shares weighted average 1,241,407 1,241,372
Diluted ordinary shares weighted average 1,241,407 1,241,372
Earning per ordinary share
- Basic (0.0045) 0.0323
- Diluted (0.0045) 0.0323
72
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
NOTES TO THE FINANCIAL STATEMENTS (Continued)
(figures stated in thousands of pesos and U.S. dollars)
NOTE 14: SHARES IN OWN PORTFOLIO
In November 1999, a "Framework Trust Agreement" was entered into by Banco de
Galicia y Buenos Aires S.A., as trustor, and First Trust of New York, as
trustee, for the implementation of an incentive program in favor of certain
executives of the Bank, to be determined from time to time by the Board of
Directors.
Given the fact that upon maturity of the Galicia 2005 Trust, which occurred on
May 31, 2006, there were no appointed beneficiaries, it was decided to terminate
the trust and to revert all trust assets to the trustee, Banco de Galicia y
Buenos Aires S.A. These were 155,335 ADR with a face value of $ 10 per ADR and
60,925 Class "B" shares with a face value of $ 1 per share of Grupo Financiero
Galicia S.A. The incorporation value of the shares added to Banco de Galicia y
Buenos Aires S.A.'s Shareholders' equity was the market price thereof as of the
date of settlement, which amounted to $ 2,865.
Pursuant to Technical Pronouncement No. 21 of the F.A.C.P.C.E., the Company
registered shares owned by Banco de Galicia y Buenos Aires S.A. as shares in its
own portfolio, thus recording a reduction of the Company's Shareholders' equity.
The deadline for the disposal of said shares was one year as from the addition
thereof to the Shareholders' equity of the Company.
Said shares were sold during October 2006. Their realization value amounted to $
3,471.
Pursuant to the regulations of the C.N.V., the positive result derived from the
sale of said shares for $ 606 was recorded under the account "Premium for
negotiation of shares in own portfolio".
NOTE 15: SUBSEQUENT EVENTS
a) On July 24, 2007 the Company subscribed an unsecured loan in US Dollars for
the amount of US$ 80,000, which was used, net of the cash reserves established
by Decree No. 616/05, to pay for the shares of Banco de Galicia y Buenos Aires
S.A. From the total loan, US$ 18,000 shall be amortized a year after having been
received, and the balance of US$ 62,000 on July 24, 2009. The interest rate is
7.75% for the first year and 3-month Libor plus 3.50% for the second year.
Interest shall be paid annually.
b) On July 27, 2007 Grupo Financiero Galicia S.A., exercising its preemptive
rights, subscribed 93,604,637 ordinary class "B" shares with a face value of $ 1
(one peso) each and one vote per share of Banco de Galicia y Buenos Aires S.A.
On August 2, 2007, such subscription was paid in pursuant to the following
breakdown:
o 58,481,702 shares through the contribution of Negotiable Obligations
with a FV of US$ 102,200 issued by Banco de Galicia y Buenos Aires
S.A. due on 2014, equivalent to $291,882, and
o 35,122,935 shares through the contribution in cash of $ 175,299 from
the loan mentioned in the above item a).
After this subscription, Grupo Financiero Galicia S.A.'s interest in Banco de
Galicia y Buenos Aires S.A. amounted to 94.66%.
73
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
FIXED ASSETS AND INVESTMENTS IN ASSETS OF A SIMILAR NATURE
For the six-month period ended June 30, 2007
presented in comparative format.
(figures stated in thousands of pesos)
SCHEDULE A
At Balance
beginning at fiscal
Main account of year Increases Withdrawals year end
--------------- ---------- ---------- -------------- --------------
Real estate 3,258 - - 3,258
Furniture
and facilities 212 - - 212
Hardware 235 2 - 237
Software 404 3 - 407
Totals as
of 06.30.07 4,109 5 - 4,114
Totals as
of 12.31.06 4,067 42 - 4,109
Amortizations
--------------------------------------------------------------------------------- Net book
Accumulated For the period Accumulated Value for
at beginning ----------------------- at the close Net book previous
Main account of year Withdrawals Rate % Amount of year value fiscal year
--------------- ------------------ -------------- ---------- ---------- ------------------ ---------- ------------
Real estate 314 - 2 30 344 2,914 2,944
Furniture
and facilities 207 - 20 - 207 5 5
Hardware 221 - 20 2 223 14 14
Software 339 - 20 12 351 56 65
Totals as
of 06.30.07 1,081 - 44 1,125 2,989 3,028
Totals as
of 12.31.06 982 - 99 1,081 3,028 -
74
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INVESTMENTS IN SHARES AND OTHER NEGOTIABLE SECURITIES
EQUITY INVESTMENTS
For the six-month period ended June 30, 2007
presented in comparative format.
(figures stated in thousands of pesos)
Schedule C
Issuance and characteristics of
the securities class Face value Number
------------------------------- --------------- ---------- --------------
Current investments (*)
Negotiable obligations
(Notes 8 and 10 and
Schedule G)
--------------- ---------- --------------
Total
=============== ========== ==============
Non-current investments
Corporations. Section 33
of Law No.19,550:
Controlled Companies
(Notes 8 and 9):
Banco de Galicia y Buenos Class "A" 0.001 101
Aires S.A. ordinary shares
Class "B" 0.001 438,689,121
ordinary shares
--------------
438,689,222
--------------
Galicia Warrants S.A. Ordinary shares 0.001 175,000
Galval Agente de Valores
S.A. Ordinary shares 0.001 16,874,250
Net Investment S.A. Ordinary shares 0.001 10,500
Sudamericana Holding S.A. Class "A" 0.001 31,302
ordinary shares
Class "B" 0.001 41,735
ordinary shares --------------
73,037
--------------- ---------- --------------
Subtotal
--------------- ---------- --------------
Other
Negotiable obligations
(Notes 8 and 10 and
Schedule G)
--------------- ---------- --------------
Subtotal
--------------- ---------- --------------
Total
=============== ========== ==============
Issuance and characteristics of Acquisition Equity method Recorded value Recorded value
the securities cost Market price value as of 06.30.07 as of 12.31.06
------------------------------- -------------- --------------- ------------- -------------- --------------
Current investments (*)
Negotiable obligations
(Notes 8 and 10 and 275,554 300,056 - 300,354 322,817
Schedule G)
-------------- --------------- ------------- -------------- --------------
Total 275,554 300,056 - 300,354 322,817
============== =============== ============= ============== ==============
Non-current investments
Corporations. Section 33
of Law No.19,550:
Controlled Companies
(Notes 8 and 9):
Banco de Galicia y Buenos
Aires S.A.
2,571,573 2,193,446 1,187,693 1,187,693 1,208,450
Galicia Warrants S.A. 11,829 - 4,133 4,133 4,393
Galval Agente de Valores
S.A. 1,867 - 2,663 2,663 2,720
Net Investment S.A. 22,484 - 1,064 1,064 1,093
Sudamericana Holding S.A.
42,918 - 49,407 49,407 42,121
-------------- --------------- ------------- -------------- --------------
Subtotal 2,650,671 2,193,446 1,244,960 1,244,960 1,258,777
-------------- --------------- ------------- -------------- --------------
Other
Negotiable obligations
(Notes 8 and 10 and 2,553 - - 2,544 2,518
Schedule G)
-------------- --------------- ------------- -------------- --------------
Subtotal 2,553 - - 2,544 2,518
-------------- --------------- ------------- -------------- --------------
Total 2,653,224 2,193,446 1,244,960 1,247,504 1,261,295
============== =============== ============= ============== ==============
(*) Include accrued interest, if applicable.
INFORMATION ON THE ISSUING COMPANIES
------------------------------------------------------------------------------------
Latest financial statements (Note 9).
------------------------------------------------------------------------------------
Issuance and characteristics of Principal line of Shareholders'
the securities business Date Capital Stock Net income equity
------------------------------- --------------------- ---------- ------------- -------------- -------------
Non-current investments
Corporations. Section 33
of Law No.19,550:
Controlled Companies
(Notes 8 and 9):
Banco de Galicia y Buenos Financial Activities 06.30.07 468,662 (28,523)(2) 1,234,493
Aires S.A.
Issuance of deposit
Galicia Warrants S.A. certificates and 06.30.07 200 503(2) 4,712
warrants
Galval Agente de Valores Custody of Securities 06.30.07 1,978(1) (57)(2) 2,664
S.A.
Net Investment S.A. Financial and 06.30.07 12 (34)(2) 1,215
Investment Activities
Sudamericana Holding S.A. Financial and 03.31.07 83 10,000(3) 56,387
Investment Activities
INFORMATION ON THE ISSUING COMPANIES
------------------------------------------------------------------------------------
Latest financial statements (Note 9).
------------------------------------------------------------------------------------
Percentage of
equity held in
Issuance and characteristics of the capital
the securities stock
------------------------------- ----------------
Non-current investments
Corporations. Section 33
of Law No.19,550:
Controlled Companies
(Notes 8 and 9):
Banco de Galicia y Buenos 93.604638
Aires S.A.
Galicia Warrants S.A. 87.500000
Galval Agente de Valores 100.000000
S.A.
Net Investment S.A. 87.500000
Sudamericana Holding S.A. 87.500899
(1) Equivalent to 16,874 thousand Uruguayan pesos.
(2) For the six-month period ended 06.30.07.
(3) For the nine-month period ended 03.31.07.
75
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
OTHER INVESTMENTS
For the six-month period ended June 30, 2007
presented in comparative format.
(figures stated in thousands of pesos)
SCHEDULE D
Main account and characteristics Value recorded at Value recorded at
06.30.07 12.31.06
--------------------------------------------- -------------------- --------------------
Current investments (*)
Deposits in special current accounts (Notes 8
and 10 and Schedule G) 4,566 33
Mutual Funds (Note 8 and Schedule G) 5,795 2,484
Time deposits (Note 8 and Schedule G) - 13,079
-------------------- --------------------
Total 10,361 15,596
==================== ====================
(*) Include accrued interest, if applicable.
(*) Include accrued interest, if applicable.
76
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
FOREIGN CURRENCY ASSETS AND LIABILITIES
For the six-month period ended June 30, 2007
presented in comparative format.
(figures stated in thousands of pesos and U.S. dollars)
SCHEDULE G
Amount in
Argentine
Amount and type of currency as of
Captions foreign currency Quotation 06.30.07
--------------------------------------- ------------------- ---------- ---------------
Assets
Current assets
Cash and due from banks
- Cash US$ 0.16 3.053 1
Investments
- Deposits in special current accounts US$ 1,495.56 3.053 4,566
- Mutual Funds US$ 1,766.92 3.053 5,394
- Time deposits US$ - 3.053 -
- Negotiable obligations US$ 225.56 3.053 689
- Negotiable obligations (*) US$ 97,706.27 3.067 299,665
Other receivables
- Promissory notes receivable US$ - 3.053 -
---------------
Total Current Assets 310,315
---------------
Non-current assets
Other receivables
- Sundry debtors US$ 617.31 3.053 1,885
- Promissory notes receivable US$ 13,760.84 3.053 42,012
Investments
- Negotiable obligations US$ 833.30 3.053 2,544
- Equity investments US$ 872.40 3.053 2,663
---------------
Total Current Assets 49,104
---------------
Total Assets 359,419
===============
Liabilities
Current liabilities
Other liabilities
- Sundry creditors US$ 26,07 3.093 81
- Provision for expenses US$ 287,59 3.093 890
---------------
Total Current Liabilities 971
---------------
Total Liabilities 971
Amount in
Argentine
Amount and type of currency as
Captions foreign currency of 12.31.06
--------------------------------------- ------------------- -------------
Assets
Current assets
Cash and due from banks
- Cash US$ 12.85 39
Investments
- Deposits in special current accounts US$ 9.75 29
- Mutual Funds US$ 1.30 4
- Time deposits US$ 4,327.98 13,079
- Negotiable obligations US$ 5,140.30 15,534
- Negotiable obligations (*) US$ 101,682.00 307,283
Other receivables
- Promissory notes receivable US$ 4,753.42 14,365
-------------
Total Current Assets 350,333
-------------
Non-current assets
Other receivables
- Sundry debtors US$ 617.31 1,866
- Promissory notes receivable US$ - -
Investments
- Negotiable obligations US$ 833.30 2,518
- Equity investments US$ 900.30 2,720
-------------
Total Current Assets 7,104
-------------
Total Assets 357,437
=============
Liabilities
Current liabilities
Other liabilities
- Sundry creditors US$ 0.52 2
- Provision for expenses US$ 256.06 784
-----------
Total Current Liabilities 786
-----------
Total Liabilities 786
(*) Simple negotiable obligations issued by Banco de Galicia y Buenos Aires S.A.
due in 2014. As of 06.30.07, the rate of exchange used is the one established by
the Ordinary and Extraordinary Shareholders' Meeting held on 10.11.2006. See
Note 23 to the consolidated financial statements.
77
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INFORMATION REQUIRED BY SECTION 64, SUBSECTION b) OF LAW NO. 19,550
For the six-month period ended June 30, 2007
presented in comparative format.
(figures stated in thousands of pesos)
SCHEDULE H
Captions Total as of Administrative Total as of
06.30.07 Expenses 06.30.06
------------------------------------------- ------------ ---------------- ------------
Salaries and social security contributions 918 918 735
Bonuses 74 74 4
Entertainment, travel, and per diem 14 14 52
Services to the staff 30 30 20
Training expenses 1 1 35
Retirement insurance 345 345 287
Directors' and Syndics' fees 552 552 267
Fees for services 1,005 1,005 671
Taxes 2,282 2,282 2,373
Security services 2 2 -
Insurance 171 171 203
Stationery and office supplies 19 19 14
Electricity and communications 35 35 33
Maintenance expenses 7 7 -
Depreciation of bank premises and equipment 44 44 52
Amortization of intangible assets - - 1,086
Bank charges (*) 16 16 8
Condominium Expenses 15 15 14
General expenses (*) 323 323 267
Vehicle expenses 42 42 -
Leasing of brand (*) 31 31 29
------------ ---------------- ------------
Totals 5,926 5,926 6,150
============ ================ ============
(*) Balances net of eliminations corresponding to transactions conducted with
companies included in section 33 of Law No. 19,550. See Note 10 to the financial
statements.
78
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
ADDITIONAL INFORMATION TO THE NOTES TO THE FINANCIAL STATEMENTS
For the six-month period commenced
January 1, 2007 and ended June 30, 2007, presented in comparative format.
(figures stated in thousands of pesos)
NOTE 1: SIGNIFICANT SPECIFIC LEGAL SYSTEMS ENTAILING CONTINGENT EXPIRATION OR
RESURGENCE OF BENEFITS ENVISAGED BY THOSE REGULATIONS
None .
NOTE 2: SIGNIFICANT CHANGES IN THE COMPANY ACTIVITIES OR OTHER SIMILAR
CIRCUMSTANCES THAT OCCURRED DURING THE PERIODS COVERED BY THE
FINANCIAL STATEMENTS WHICH MAY HAVE AN EFFECT ON THEIR COMPARISON WITH
THOSE PRESENTED IN PREVIOUS PERIODS, OR THOSE THAT SHALL BE PRESENTED
IN FUTURE PERIODS.
None.
NOTE 3: CLASSIFICATION OF RECEIVABLES AND DEBT BALANCES
a) Receivables: See Note 8 to the financial statements.
b) Debts: See Note 8 to the financial statements.
NOTE 4: CLASSIFICATION OF RECEIVABLES AND DEBTS ACCORDING TO THEIR FINANCIAL
EFFECTS
a) Receivables: See Notes 1.a., 1.b. and 8 and Schedule G to the
financial statements.
b) Debts: See Notes 1.a., 1.b. and 8 and Schedule G to the financial
statements.
NOTE 5: BREAKDOWN OF PERCENTAGE OF EQUITY INVESTMENTS - SECTION 33 OF LAW No.
19,550
See Note 9 and Schedule C to the financial statements.
NOTE 6: RECEIVABLES FROM OR LOANS GRANTED TO DIRECTORS OR SYNDICS OR THEIR
RELATIVES UP TO THE SECOND DEGREE INCLUSIVE
As of June 30, 2007 and December 31, 2006 there were no receivables
from or loans granted to directors or syndics or their relatives up to
the second degree inclusive.
NOTE 7: PHYSICAL INVENTORY OF INVENTORIES
As of June 30, 2007 and December 31, 2006, the Company did not have
any inventories.
NOTE 8: CURRENT VALUES
See Notes 1.c. and 1.d. to the financial statements.
NOTE 9: Bank premises and equipment
See Schedule A to the financial statements.
a) Bank premises and equipment that have been technically appraised:
As of June 30, 2007 and December 31, 2006, the Company did not
have any bank premises and equipment that have been technically
appraised. b) Bank premises and equipment not used because they
are obsolete: As of June 30, 2007 and December 31, 2006, the
Company did not have any obsolete bank premises and equipment
which have a book value.
NOTE 10: EQUITY INVESTMENTS
The Company is engaged in financial and investment activities, so the
restrictions of Section 31 of Law No. 19,550 do not apply to its
equity investments in other companies.
NOTE 11: RECOVERABLE VALUES
As of June 30, 2007 and December 31, 2006, the criterion followed by
the Company for determining the recoverable value of its bank premises
and equipment consisted in using their economic utilization value,
based on the possibility of absorbing future depreciation charges with
the profits reported by it.
79
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
ADDITIONAL INFORMATION TO THE NOTES TO THE FINANCIAL STATEMENTS (continued)
(figures stated in thousands of pesos)
NOTE 12: INSURANCE
As of June 30, 2007 and December 31, 2006, the breakdown of insurance
policies taken out by the Company for its bank premises and equipment
was as follows:
Book Value Book Value
Insured as of as of
Insured assets Risks covered amount 06.30.07 12.31.06
------------------------ ------------------ ----------- --------------- --------------
Office Assets Fire, thunderbolt,
and/or explosion 200 5 5
NOTE 13: POSITIVE AND NEGATIVE CONTINGENCIES
a) Elements used for the calculation of provisions, the total or
partial balances of which exceed two percent of Shareholders'
equity:
b) Contingencies which, at the date of the financial statements, are
not of remote occurrence, the effects of which have not been
given accounting recognition: As of June 30, 2007 and December
31, 2006 there were no contingencies which are not of remote
occurrence and the effects of which have not been given
accounting recognition.
NOTE 14: IRREVOCABLE ADVANCES TOWARDS FUTURE SHARE SUBSCRIPTIONS
a) Status of capitalization arrangements: As of June 30, 2007 and
December 31, 2006, there were no irrevocable contributions
towards future share subscriptions.
b) Cumulative unpaid dividends on preferred shares: As of June 30,
2007 and December 31, 2006, there were no cumulative unpaid
dividends on preferred shares.
NOTE 15: RESTRICTIONS ON THE DISTRIBUTION OF RETAINED EARNINGS
See Note 11 to the financial statements.
80
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY AND EXPLANATORY STATEMENT BY THE BOARD OF DIRECTORS
For the six-month period commenced January 1, 2007
and ended June 30, 2007, presented in comparative format.
(figures stated in thousands of pesos)
Pursuant to the provisions of the standards regarding accounting documentation
of the Cordoba Stock Exchange Regulations, the Board of Directors hereby submits
the following supplementary and explanatory information.
A. CURRENT ASSETS:
a) Receivables:
1) See Note 8 to the financial statements.
2) See Notes 3 and 8 to the financial statements.
3) As of June 30, 2007 and December 31, 2006, the Company had not set up any
allowances or provisions.
b) Inventories:
As of June 30, 2007 and December 31, 2006, the Company did not have any
inventories.
B. NON-CURRENT ASSETS:
a) Receivables:
As of June 30, 2007 and December 31, 2006, the Company had not set up any
allowances or provisions.
b) Inventories:
As of June 30, 2007 and December 31, 2006, the Company did not have any
inventories.
c) Investments:
See Note 9 and Schedule C to the financial statements.
d) Bank premises and equipment:
1) As of June 30, 2007 and December 31, 2006, the Company did not have any bank
premises and equipment that have been technically appraised.
2) As of June 30, 2007 and December 31, 2006, the Company did not have any
obsolete bank premises and equipment which have a book value.
e) Intangible assets:
1) As of June 30, 2007 and December 31, 2006, the Company did not have any
intangible assets.
2) As of June 30, 2007 and December 31, 2006, there were no deferred charges.
C. CURRENT LIABILITIES:
a) Receivables:
1) See Note 8 to the financial statements.
See Notes 4, 5, 6 and 8 to the financial statements.
D. ALLOWANCES AND PROVISIONS:
As of June 30, 2007 and December 31, 2006, the Company had not recorded any
allowances or provisions.
E. FOREIGN CURRENCY ASSETS AND LIABILITIES:
See Note 1.b. and Schedule G to the financial statements.
F. SHAREHOLDERS' EQUITY:
1) As of June 30, 2007 and December 31, 2006, the Shareholders' Equity did not
include the Irrevocable Advances towards future share issues account.
2) As of June 30, 2007 and December 31, 2006, the Company had not set up any
technical appraisal reserve; nor has it reversed any reserve of that kind.
81
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
SUPPLEMENTARY AND EXPLANATORY STATEMENT BY THE BOARD OF DIRECTORS (continued)
(figures stated in thousands of pesos)
G. MISCELLANEOUS:
1) The Company is engaged in financial and investment activities, so the
restrictions of Section 31 of Law No. 19,550 do not apply to its equity
investments in other companies.
2) See Notes 8 and 10 to the financial statements.
3) As of June 30, 2007 and December 31, 2006 there were no receivables from or
loans granted to directors or syndics or their relatives up to the second degree
inclusive.
4) See Notes 8 and 10 to the financial statements.
5) As of June 30, 2007 and December 31, 2006, the breakdown of insurance
policies taken out by the Company for its bank premises and equipment was as
follows:
Book Value Book Value
Insured as of as of
Insured assets Risks covered amount 06.30.07 12.31.06
------------------------ ------------------ ----------- --------------- --------------
Office Assets Fire, thunderbolt,
and/or explosion 200 5 5
6) As of June 30, 2007 and December 31, 2006, there were no contingencies highly
likely to occur which have not been given accounting recognition.
7) As of June 30, 2007 and December 31, 2006, the Company did not have any
receivables or debts including implicit interest or index adjustments.
The Company has complied with the requirements of Section 65 of Law No. 19,550
in these financial statements.
Autonomous City of Buenos Aires, August 08, 2007
82
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INFORMATIVE REVIEW AS OF JUNE 30, 2007 AND 2006
(figures stated in thousands of pesos and U.S. dollars)
Grupo Financiero Galicia S.A.'s purpose is to become a leading company devoted
to providing comprehensive financial services and, at the same time, to continue
to strengthen Banco de Galicia y Buenos Aires S.A.'s position as one of the
leading companies in Argentina. This strategy shall be carried out by
supplementing the operations and business conducted by Banco de Galicia y Buenos
Aires S.A. through equity investments in companies and undertakings, either
existing or to be created, engaged in financial activities as they are
understood in the modern economy.
The income for the six months ended June 30, 2007 resulted in a loss of $ 5,535.
This loss has been mainly generated as a consequence of the valuation of equity
investments in our subsidiaries and of the financial income and by holdings, net
of the impact of income tax.
On April 27, 2006, the Ordinary and Extraordinary Shareholders' Meeting was
held, resolving to restore the Legal Reserve that had been used to absorb
negative retained earnings of fiscal year ended December 31, 2004, according to
what was determined on April 28, 2005 by the Ordinary and Extraordinary
Shareholders' Meeting, to create the Legal Reserve for the fiscal year complying
with applicable regulations and, with the remnants, to create a Discretionary
Reserve with the purpose of affording future needs and enterprises of the
Company and its controlled companies.
The Ordinary Shareholders' Meeting was held on October 11, 2006, which decided
that Grupo Financiero Galicia S.A., in Banco de Galicia y Buenos Aires S.A.,
voted for the approval of the proposals submitted by the Bank's Board of
Directors in regard to a capital increase and stock issuance. (See Note 23 to
the consolidated financial statements).
As of the date these financial statements are issued, Grupo Financiero Galicia
S.A. subscribed and paid in 93,604,637 class "B" shares with a face value of $ 1
(one peso) of Banco de Galicia y Buenos Aires S.A.
Payment of shares was made in cash for $175,299 and negotiable obligations from
Banco de Galicia y Buenos Aires due in 2014, with a face value of US$ 102,200.
On April 26, 2007, the Ordinary Shareholders' Meeting of Grupo Financiero
Galicia S.A. resolved to absorb the loss accounted for in the Retained Earnings
account of fiscal year ended on December 31, 2006 through the partial use of the
Discretionary Reserve.
On July 24, 2007 Grupo Financiero Galicia S.A. subscribed an unsecured loan in
US Dollars for the amount of US$ 80,000, which use, net of the cash reserves
established by Decree No. 616/2005, was for paying for the shares of Banco de
Galicia y Buenos Aires S.A. (See Note 15 to the financial statements).
Regarding Banco Galicia Uruguay S.A., it is worth noting that the company has
created a "Negotiable Obligations Issuance Program" in order to convert
privately issued Negotiable Obligations due in 2011 into public Negotiable
Obligations and, also, to offer holders of "transferable book-entry time-deposit
certificates" the possibility to exchange said certificates for the
abovementioned Negotiable Obligations. On October 17, 2006, Series I of said
program was issued. Grupo Financiero Galicia S.A. subscribed said exchange for a
face value of US$ 1,042.
KEY BALANCE SHEET FIGURES
06.30.07 06.30.06 06.30.05 06.30.04 06.30.03
$ $ $ $ $
------------ ------------ ------------ ------------ ------------
Assets
Current assets 312,515 321,597 26,832 30,906 28,571
Non-current assets 1,297,621 1,349,049 1,558,720 1,607,752 1,553,214
------------ ------------ ------------ ------------ ------------
Total Assets 1,610,136 1,670,646 1,585,552 1,638,658 1,581,785
------------ ------------ ------------ ------------ ------------
Liabilities
Current liabilities 7,192 3,722 12,803 4,339 843
Non-current liabilities 11 6 6 45,794 43,213
Total Liabilities 7,203 3,728 12,809 50,133 44,056
------------ ------------ ------------ ------------ ------------
Shareholders' equity 1,602,933 1,666,918 1,572,743 1,588,525 1,537,729
------------ ------------ ------------ ------------ ------------
83
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INFORMATIVE REVIEW AS OF JUNE 30, 2007 AND 2006 (continued)
(figures stated in thousands of pesos)
06.30.07 06.30.06 06.30.05 06.30.04 06.30.03
$ $ $ $ $
------------ ------------ ------------ ------------ ------------
Total 1,610,136 1,670,646 1,585,552 1,638,658 1,581,785
============ ============ ============ ============ ============
KEY INCOME STATEMENT FIGURES
06.30.07 06.30.06 06.30.05 06.30.04 06.30.03
---------- ---------- ---------- ---------- ----------
Ordinary operating result (8,613) (12,174) 150,933 (41,308) (36,899)
Financial results 7,586 82,642 (4,139) 5,241 (27,839)
Other income and expenses 558 1,503 (133,454) 545 6,931
---------- ---------- ---------- ---------- ----------
Ordinary net (loss)/ income (469) 71,971 13,340 (35,522) (57,807)
Income tax (5,066) (31,829) 39,865 (5,388) (17)
---------- ---------- ---------- ---------- ----------
Net income/(loss) (5,535) 40,142 53,205 (40,910) (57,824)
========== ========== ========== ========== ==========
RATIOS
06.30.07 06.30.06 06.30.05 06.30.04 06.30.03
---------- ---------- ---------- ---------- ----------
Liquidity 43.45314 86.40435 2.09575 7.12283 33.89205
Credit standing 222.56789 447.13466 122.78421 31.68621 34.90396
Capital assets 0.80590 0.80750 0.98307 0.98113 0.98193
The individual financial statements have been considered in order to disclose
the key Balance Sheet figures and key Income statement figures, as the
consolidated financial statements are presented in line with the provisions of
Communique "A" 3147 from the Argentine Central Bank and supplementary
regulations regarding financial reporting requirements for the publication of
quarterly and annual financial statements, and observing the guidelines of
Technical Pronouncement No. 8 of the Argentine Federation of Professional
Councils in Economic Sciences.
EQUITY INVESTMENTS IN OTHER COMPANIES
o Banco de Galicia y Buenos Aires S.A.
See the above-mentioned Note 16 to the consolidated financial statements.
o Net Investment S.A.
In July 2006, the Board of Directors of Net Investment S.A., together with
the Board of Directors of its controlled companies, B2Agro S.A. and
Tradecom Argentina S.A., decided to merge the companies in order to reduce
administrative and managing costs, which will improve as a result of the
legal unification.
On August 14, 2006 the Extraordinary Shareholders' Meetings of the
above-mentioned companies approved the merger, being Net Investment S.A the
absorbing company that purchased the whole of B2Agro S.A. and Tradecom
Argentina S.A's equity. These two Companies were dissolved without
liquidation.
On December 6, 2006, the paperwork related to the above-mentioned merger
were submitted before the Board of Legal Entities, as well as those related
to the liquidation of B2Agro S.A and Tradecom Argentina S.A. and those
necessary to change the corporate purpose of Net Investment S.A. All of
them were recorded on February 1, 2007. Net Investment S.A. is now a
company which corporate purpose is to develop and operate electronic
businesses through the Internet.
84
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
In line with the business policy developed during fiscal year 2006, during
the first six months of 2007, Net Investment S.A. continued the improvement
of the tools used by its customers as well as the development of new
products such as Galicia Compras II and the implementation of new
solutions, such as the "electronic delivery note" (remito electronico),
among others.
Sales recorded for the first six months of fiscal year 2007 are correlative
to those figures budgeted for the current fiscal year.
Future prospects are directly related to the opening of companies towards
the automation of their circuits and the constant research carried out by
Net Investment about each company's particular needs in order to meet the
increasing demand of automation of the administrative and purchasing
circuits.
85
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INFORMATIVE REVIEW AS OF JUNE 30, 2007 AND 2006 (continued)
(figures stated in thousands of pesos and U.S. dollars)
o Sudamericana Holding S.A.
Sudamericana Holding S.A. is a holding company providing life, retirement,
property, and casualty insurance and insurance brokerage services. The
equity investment held by Grupo Financiero Galicia S.A. in this company is
87.50%. Banco de Galicia y Buenos Aires S.A. has the remaining 12.50%.
The insurance business undertaken by the Company through its interest in
Sudamericana Holding S.A. is part of Grupo Financiero Galicia S.A.'s
strategy to strengthen its position as a leading financial services
provider.
Joint production of the insurance companies controlled by Sudamericana
Holding S.A. in the life, retirement and property insurance business,
during the six-month period commenced on January 1, 2007 and ended June 30,
2007, amounted to $ 53,576. As of June 30, 2007, these companies had
approximately 2.6 million insured in all their lines of business.
From a commercial standpoint, within a more favorable context, the company
maintains its purpose of taking advantage of the greater demand for
insurance coverage to significantly increase the companies' sales.
As a result of this effort, the premium volume for the second quarter of
2007 exceeded that for the same period of the previous year by 107%.
o Galicia Warrants S.A.
Galicia Warrants S.A. was founded in 1993 and its main purpose has been to
provide solutions to short- and mid-term financing and inventory control by
means of the issuance of deposit certificates and warrants, pursuant to Law
9,643, which governs such activity as well as the storage of merchandise in
general. The equity investment held by Grupo Financiero Galicia S.A. in
this company is 87.50%, while the remaining 12.50% interest is held by
Banco de Galicia y Buenos Aires S.A.
In addition to its offices in the city of Buenos Aires, Galicia Warrants
S.A. has one office in the city of Tucuman and another in the city of San
Salvador, province of Entre Rios, which are used to expand its presence in
other sectors of the country and to better serve the different markets.
As of June 30, 2007, the certificates of deposit and warrants issued on
third-parties' merchandise amounted to $ 92,300 for the first six months of
the fiscal year, regarding merchandise belonging to third parties that are
throughout the country and include different products.
The Shareholders' Meeting held on April 25, 2007 decided to distribute
dividends in cash for $ 800.
Galicia Warrants has increased the storage of merchandise in general thanks
to the increasing level of industrial activity, meeting through its
services the higher demand of customers generated by higher production
volumes and a more active demand from local and foreign markets. We believe
this tendency will continue during this fiscal year, and therefore we plan
to incorporate more resources and new technologies that will be in line
with such growth.
o Galval Agente de Valores S.A.
Galval Agente de Valores S.A. is a direct user of the Free-trade Zone of
Montevideo and provides services as a securities agent in Uruguay.
On February 4, 2005, the Uruguayan Central Bank decided to conclusively
confirm the registration of the Company with the Registry of the Stock
Exchange.
86
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
As from September, 2005, Galval Agente de Valores S.A. started to operate
in a gradual manner and, as of June 30, 2007 it holds customers' securities
in custody for US$ 173,458, of which US$ 111,134 correspond to the holding
of securities belonging to Grupo Financiero Galicia S.A.
As of June 30, 2007, Galval Agente de Valores S.A. had recorded income for
US$ 212, with a recorded net loss of US$ 28.
87
GRUPO FINANCIERO GALICIA S.A.
"Corporation which has not adhered to the optional system
for the mandatory acquisition of shares in a public offering"
INFORMATIVE REVIEW AS OF JUNE 30, 2007 AND 2006 (continued)
(figures stated in thousands of pesos and U.S. dollars)
We believe that, during fiscal year 2007, the total number of opened
accounts and the balance of the deposits held in custody shall experience a
substantial increase and that income from services in connection with
commissions from custody maintenance and securities trading operations
shall increase to the same extent.
The Company's outlook for the current fiscal year is basically linked to the
development of the Argentine economy, and particularly the evolution of the
financial system.
Autonomous City of Buenos Aires, August 08, 2007
88
REPORT OF THE SUPERVISORY SYNDICS' COMMITTEE
To the Directors and Shareholders of
GRUPO FINANCIERO GALICIA S.A.
Tte. Gral. Juan D. Peron 456 - 2nd floor
Autonomous City of Buenos Aires
1. In our capacity as Syndics of Grupo Financiero Galicia S.A., we have
performed a limited review of the Balance Sheet of Grupo Financiero Galicia
S.A. (the "Company") as of June 30, 2007, and the related Income Statement,
Statement of Changes in Shareholders' Equity and Statement of Cash Flows
for the six-month period then ended, as well as supplementary Notes 1 to
15, Schedules A, C, D, G and H, the Additional Information to the Notes to
the Financial Statements required by Section 68 of the Buenos Aires Stock
Exchange regulations and the Supplementary and Explanatory Statement by the
Board of Directors, required by the regulations concerning Accounting
Documentation of the Cordoba Stock Exchange, and the Informative Review to
that date, which have been submitted by the Company to our consideration.
Furthermore, we have performed a limited review of the consolidated
financial statements of Grupo Financiero Galicia S.A. and its subsidiaries
for the six-month period ended June 30, 2007, with Notes 1 to 25, which are
presented as supplementary information. The preparation and issuance of
those financial statements are the responsibility of the Company.
2. Our work was conducted in accordance with standards applicable to syndics
in Argentina. These standards require the application of the procedures
established by Technical Pronouncement No. 7 of the Argentine Federation of
Professional Councils in Economic Sciences for limited reviews of financial
statements for interim periods, and include verifying the consistency of
the documents reviewed with the information concerning corporate decisions,
as disclosed in minutes, and the conformity of those decisions with the law
and the bylaws insofar as concerns formal and documental aspects. For
purposes of our professional work, we have reviewed the work performed by
the external auditors of the Company, Price Waterhouse & Co. SRL, who
issued their limited review report on August 8, 2007, in accordance with
auditing standards applicable in Argentina for limited reviews of financial
statements for interim periods. A limited review mainly involves applying
analytical procedures to the accounting information and making inquiries to
the staff responsible for accounting and financial issues. The scope of
such review is substantially more limited than that of an audit of the
financial statements, the objective of which is to issue an opinion on the
financial statements as a whole. Therefore, we do not express such an
opinion. We have not evaluated the corporate criteria regarding the
different areas of the Company, as these matters are its exclusive
responsibility.
In addition, we have verified that the Additional Information to the Notes to
the Financial Statements, the Supplementary and Explanatory Statement by the
Board of Directors, and the Informative Review, for the six-month period ended
June 30, 2007 contain the information required by Section 68 of the Buenos Aires
Stock Exchange regulations, Section 2 of the Standards concerning Accounting
Documentation of the Cordoba Stock Exchange Regulations and Regulations of the
National Securities Commission, respectively, and insofar as concerns our field
of competence, that the numerical data contained therein are in agreement with
the Company's accounting records and other relevant documentation. Assumptions
and projections on future events contained in that documentation are the
exclusive responsibility of the Board of Directors.
We also report that, in compliance with the legality control that is part
of our field of competence, during this period we have applied the
procedures described in Section 294 of Law No. 19,550, which we deemed
necessary according to the circumstances.
3. The subsidiary Banco de Galicia y Buenos Aires S.A. has prepared their
financial statements following the valuation and disclosure criteria
established by Argentine Central Bank regulations, which have been taken as
the basis for calculating the equity method value and preparing the
consolidated financial statements of the Company. As mentioned in Note 2.c
to the consolidated financial statements, those criteria for valuing
certain assets and liabilities and the regulations on financial reporting
issued by the control body differ from the professional accounting
standards applicable in the Autonomous City of Buenos Aires.
4. Based on our review, with the scope mentioned in paragraph 2 above, we
report that the financial statements as of June 30, 2007 and the
consolidated financial statements at that date, detailed in item 1 above,
prepared in accordance with Argentine Central Bank regulations and, except
as mentioned in paragraph 3 above, with accounting standards applicable in
the Autonomous City of Buenos Aires, give consideration to all significant
facts and circumstances which are known to us and, in relation to said
financial statements, we have no observations to make. In compliance with
the legality control that is part of our field of competence, we have no
observations to make.
As regards the Additional Information to the Notes to the Financial
Statements, the Supplementary and Explanatory Statement by the Board of
Directors, and the Informative Review, for the six-month period ended June
30, 2007, we have no observations to make insofar as concerns our field of
competence, and the assertions on future events are the exclusive
responsibility of the Company's Board of Directors.
Furthermore, we report that the accompanying financial statements stem from
accounting records kept, in all formal aspects, in compliance with legal
regulations prevailing in Argentina.
Autonomous City of Buenos Aires, August 08, 2007
Supervisory Syndics' Committee
LIMITED REVIEW REPORT
To the Chairman and Directors of
Grupo Financiero Galicia S.A.
Tte. Gral. Juan D. Peron 456 - 2nd floor
Autonomous City of Buenos Aires
C.U.I.T. 30-70496280-7
1. We have performed a limited review of the Balance Sheet of Grupo Financiero
Galicia S.A. as of June 30, 2007, and the related income statements,
statements of changes in shareholders' equity and statements of cash flows
for the six-month periods ended June 30, 2007 and 2006, as well as
supplementary Notes 1 to 15 and Schedules A, C, D, G and H, the Additional
Information to the Notes to the Financial Statements required by Section 68
of the Buenos Aires Stock Exchange regulations, and the Supplementary and
Explanatory Statement by the Board of Directors, as required by the rules
concerning Accounting Documentation Regulations of the Cordoba Stock
Exchange Regulations and the Informative Review to those dates, which
supplement them. Furthermore, we have performed a limited review of the
consolidated Balance Sheet of Grupo Financiero Galicia S.A. as of June 30,
2007, and the consolidated income statements and consolidated statements of
cash flows for the six-month periods ended June 30, 2007 and 2006, together
with Notes 1 to 25, which are presented as supplementary information. The
preparation and issuance of those financial statements are the
responsibility of the Company.
2. Our review was limited to the application of the procedures set forth by
Technical Pronouncement No. 7 of the Argentine Federation of Professional
Councils in Economic Sciences for limited reviews of financial statements
for interim periods, which mainly involve applying analytical procedures to
the financial statement figures and making inquiries to the Company staff
responsible for preparing the information included in the financial
statements and its subsequent analysis. The scope of these reviews is
substantially more limited than that of an audit examination, the purpose
of which is to express an opinion on the financial statements under
examination. Accordingly, we do not express an opinion on the Company's
financial condition, the results of its operations, changes in its
shareholders' equity and cash flows, or on its consolidated financial
condition, the consolidated results of its operations and consolidated cash
flows.
3. The subsidiary Banco de Galicia y Buenos Aires S.A. has prepared their
financial statements following the valuation and disclosure criteria
established by Argentine Central Bank regulations, which have been taken as
the basis for calculating the equity method value and preparing the
consolidated financial statements of the Company. As mentioned in Note 2c.
to the consolidated financial statements, the abovementioned valuation
criteria regarding certain assets and liabilities, and the regulations on
the financial reporting issued by the control body, differ from the
Argentine professional accounting standards in force in the City of Buenos
Aires.
4. On February 14, 2007 we issued our audit report on the Company's financial
statements and consolidated financial statements for the fiscal years ended
December 31, 2006 and 2005 with an unqualified opinion, without
qualifications regarding the Argentine Central Bank's regulations and
departures from professional accounting standards similar to those
indicated in item 3 above. Also, our report on the Financial Statements as
of June 30, 2006 included, apart from the abovementioned departure, a
qualification related to the uncertainty on the final settlement of the
Hedge Bond by the Argentine Central Bank which, as stated in Note 16.3 to
the consolidated financial statements, has been solved as of the date of
this report.
5. Based on the work done and on our examination of the financial statements
of Grupo Financiero Galicia S.A. and its consolidated financial statements
for the fiscal years ended December 31, 2006 and 2005 mentioned in item 4,
we express the following:
a) the financial statements of Grupo Financiero Galicia S.A. as of June
30, 2007 and 2006 and its consolidated financial statements at those
dates, detailed in item 1 above, prepared in accordance with Argentine
Central Bank regulations and, except as mentioned in item 3 above,
with accounting standards applicable in the City of Buenos Aires, give
consideration to all significant facts and circumstances which are
known to us and, in relation to said financial statements, we have no
observations to make.
b) the comparative information included in the parent-only and
consolidated balance sheet and in supplementary Notes and Schedules
to the attached financial statements stems from the financial
statements of Grupo Financiero Galicia S.A. as of December 31, 2006.
6. As called for by the regulations in force, we report that:
a) the financial statements of Grupo Financiero Galicia S.A. and its
consolidated financial statements have been transcribed to the
"Inventory and Balance Sheet" book and, insofar as concerns our field
of competence, are in compliance with the provisions of the Law
Governing Commercial Companies, and pertinent resolutions of the
National Securities Commission.
b) the financial statements of Grupo Financiero Galicia S.A. and its
consolidated financial statements arise from accounting record systems
kept in all formal respects as called for by prevailing legal
regulations, which systems maintain the security and integrity
conditions based on which they were authorized by the National
Securities Commission.
c) we have read the Additional Information to the Notes to the Financial
Statements required by Section 68 of the Buenos Aires Stock Exchange
regulations, the Supplementary and Explanatory Statement by the Board
of Directors, required by the regulations concerning Accounting
Documentation of the Cordoba Stock Exchange and the Informative Review
as of June 30, 2007 and 2006, about which, insofar as concerns our
field of competence, we have no significant observations to make other
than the one mentioned in item 3 above. Projections about future
events contained in that information are the exclusive responsibility
of the Company's Board of Directors.
d) as of June 30, 2007, Grupo Financiero Galicia S.A.'s accrued debt with
the Integrated Pension and Survivor's Benefit System, which stems from
the accounting records, amounted to $ 42,905.95, which was not yet due
at that date.
Autonomous City of Buenos Aires, August 08, 2007
PRICE WATERHOUSE & CO. S.R.L.