TRADUCCION PUBLICA
Grupo Financiero Galicia S.A.
"Corporation which has not adhered to the Optional System for the Mandatory
Acquisition of Shares in a Public Offering"
Financial Statements
For the period of nine months
ended September 30, 2003
presented in comparative format
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
Financial Statements and Limited Review Report
For the period of nine months ended September 30, 2003
presented in comparative format
Report of the Supervisory Syndics Committee
For the period of nine months ended September 30, 2003.
System established by
Technical Regulations (N.T.2001) of the National Securities Commission
Heading 3
Consolidated Statement of Financial Condition 4
Consolidated Memorandum Accounts 7
Consolidated Income Statement 8
Consolidated Statement of Cash Flows 10
Notes to the Consolidated Financial Statements 11
Statement of Financial Condition 56
Income Statement 57
Statement of Changes in Shareholders' Equity 58
Statement of Cash Flows 59
Notes to the Financial Statements 60
Schedules 106
Information required in addition to the Notes to the
Financial Statements by Section 68 of the Buenos Aires
Stock Exchange regulations 113
Supplementary and Explanatory Statement by the Board of
Directors required by Section 2 of the Accounting
Documentation Rules of the Cordoba Stock Exchange Regulations 116
Informative Review 119
Report of the Supervisory Syndics Committee
Limited Review Report
2
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 N(0)456 - Piso 2 -
Autonomous City of Buenos Aires
Principal line of business: Financial and Investment activities
5th fiscal year
For the period of nine months ended September 30, 2003,
Presented in comparative format
DATE OF REGISTRATION WITH THE PUBLIC REGISTRY OF COMMERCE
By-laws: September 30, 1999
Date of more recent amendment to By-laws: August 22, 2003
Registration number with the Corporation
Control Authority: 8,569
Sequential Number - Corporation Control
Authority: 1,671,058
Date of expiry of the Company's by-laws: June 30, 2100
Name of 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
September 30, 2003: 25.74 %
Percentage of votes to which the
Controlling Company is entitled as of
September 30, 2003: 63.42 %
=============================================================================================================================
CAPITAL STATUS as of September 30, 2003 (Note 8 to the Financial Statements)
(figures stated in thousands of US dollars)
- -----------------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------------
Number Type Voting rights per share Subscribed Paid up
- -------------------- ------------------------------------------ ----------------------- ------------------- -----------------
281,221,650 Ordinary class "A", face value of 0.0003 5 96,474 96,474
- -------------------- ------------------------------------------ ----------------------- ------------------- -----------------
811,185,367 Ordinary class "B", face value of 0.0003 1 278,280 278,280
- -------------------- ------------------------------------------ ----------------------- ------------------- -----------------
1,092,407,017 374,754 374,754
==================== ========================================== ======================= =================== =================
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 Statement of Financial Condition
as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
=================================================================================================================
9.30.03 12.31.02
---------- ---------
ASSETS
A. CASH AND DUE FROM BANKS 286,459 197,886
---------- ---------
Cash 108,717 85,838
Banks and correspondents 177,391 111,834
Others 351 214
---------- ---------
B. GOVERNMENT AND CORPORATE SECURITIES 964,660 627,733
---------- ---------
-Holdings of investment account securities 839,913 573,901
-Holdings of trading securities 2,461 2,635
-Unlisted government securities 121,932 50,318
-Investments in listed corporate securities 1,271 3,237
-Allowances (917) (2,358)
---------- ---------
C. LOANS 3,636,886 3,664,550
---------- ---------
-To the non-financial public sector 2,632,232 2,638,086
-To the financial sector 69,638 46,247
-To the non-financial private sector and residents abroad 1,399,062 1,557,176
-Overdrafts 69,629 77,868
-Notes 462,960 529,765
-Mortgage loans 252,572 296,385
-Pledge loans 18,483 65,706
-Consumer loans 17,215 41,161
-Credit cards 236,593 200,667
-Others 162,108 141,351
-Accrued Interest and quotation differences receivable 180,905 208,740
-Documented interest (1,277) (3,716)
-Unallocated collections (126) (751)
-Allowances for loan losses (464,046) (576,959)
---------- ---------
D. OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 2,228,134 3,175,198
---------- ---------
-Argentine Central Bank 30,652 19,179
-Amounts receivable for spot and forward sales to be settled 2,214 659
-Securities receivable under spot and forward purchases to be settled 1,756 232
-Unlisted negotiable obligations 34,250 45,392
-Other receivables not included in the debtor classification regulations 2,031,787 2,877,468
-Other receivables included in the debtor classification regulations 108,257 236,663
-Accrued interest receivable not included in the debtor classification regulations 37,210 2,467
- Accrued interest receivable included in the debtor classification regulations 1,131 8,348
-Allowances (19,123) (15,210)
========== =========
The accompanying Notes 1 to 20 are an integral part of these 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 Statement of Financial Condition
as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
==================================================================================================================
9.30.03 12.31.02
---------- ----------
E. ASSETS UNDER FINANCIAL LEASES 7,405 7,767
---------- ---------
-Assets under financial leases 8,889 8,611
-Allowances (1,484) (844)
---------- ---------
F. EQUITY INTERESTS IN OTHER COMPANIES 30,300 35,765
---------- ---------
-In financial institutions 1,028 1,196
-Others 49,192 52,696
-Allowances (19,920) (18,127)
---------- ---------
G. MISCELLANEOUS RECEIVABLES 158,856 113,915
---------- ---------
-Receivables for assets sold 308 227
-Shareholders 1,354 --
-Others 146,312 123,707
-Accrued interest on receivables for assets sold 14 1
-Other accrued interest and adjustments receivable 21,914 57
-Allowances (11,046) (10,077)
---------- ---------
H. FIXED ASSETS 180,838 195,703
---------- ---------
I. MISCELLANEOUS ASSETS 55,387 63,383
---------- ---------
J. INTANGIBLE ASSETS 253,052 110,446
---------- ---------
-Goodwill 50,487 58,451
-Organization and development expenses 202,565 51,995
---------- ---------
K. UNALLOCATED ITEMS (1,183) 8,176
---------- ---------
TOTAL ASSETS 7,800,794 8,200,522
========== =========
==================================================================================================================================
The accompanying Notes 1 to 20 are an integral part of these 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 Statement of Financial Condition
as of September 30, 2003 and December 31, 2002
-(figures stated in thousands of US dollars)
====================================================================================================================================
9.30.03 12.31.02
---------- ---------
LIABILITIES
L. DEPOSITS 1,877,104 1,787,088
========== =========
-Non-financial public sector 1,761 2,685
-Financial sector 6,430 1,011
-Non-financial private sector and residents abroad 1,868,913 1,783,392
-Current accounts 372,805 248,149
-Savings accounts 268,685 193,437
-Time deposits 955,759 831,271
-Investment accounts 348 --
-Others 197,262 381,119
-Accrued interest and quotation differences payable 74,054 129,416
---------- ---------
M. OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 5,160,379 5,616,114
========== =========
-Argentine Central Bank 2,803,298 2,780,811
-Rediscounts to cover lack of liquidity 1,914,229 1,869,599
-Others 889,069 911,212
-Banks and international entities 931,790 1,092,525
-Unsubordinated negotiable obligations 831,973 1,188,521
-Amounts payable for spot and forward purchases to be settled 1,851 732
-Securities to be delivered under spot and forward sales to be settled 37,614 42,720
-Loans from domestic financial institutions 51,071 69,047
-Others 331,688 345,963
-Accrued interest and quotation differences payable 171,094 95,795
---------- ---------
N. MISCELLANEOUS LIABILITIES 81,920 88,079
========== =========
-Dividends payable 16 16
-Fees 340 759
-Others 80,954 87,302
-Adjustments and accrued interest payable 610 2
---------- ---------
---------- ---------
O. PROVISIONS 140,697 114,772
========== =========
P. UNALLOCATED ITEMS (42) 3,579
========== =========
MINORITY INTEREST IN CONSOLIDATED ENTITIES OR COMPANIES 31,943 28,750
---------- ---------
TOTAL LIABILITIES 7,292,001 7,638,382
========== =========
---------- ---------
SHAREHOLDERS' EQUITY 508,793 562,140
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 7,800,794 8,200,522
========== =========
====================================================================================================================================
The accompanying Notes 1 to 20 are an integral part of these 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 Memorandum Accounts
as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
====================================================================================================================================
9.30.03 12.31.02
--------- ---------
DEBIT 7,765,124 8,627,367
========== =========
CONTINGENT 5,632,586 5,931,338
---------- ---------
Guarantees received 3,443,313 3,784,139
Contingencies re. contra items 2,189,273 2,147,199
---------- ---------
CONTROL 2,050,685 2,664,584
---------- ---------
Uncollectible loans 316,910 273,328
Others 1,694,530 2,347,164
Control re. contra items 39,245 44,092
---------- ---------
DERIVATIVES 57,548 4,970
---------- ---------
"Notional" value of put options bought 568 4,105
Derivatives re. contra items 56,980 865
---------- ---------
TRUST ACCOUNTS 24,305 26,475
---------- ---------
Trust funds 24,305 26,475
---------- ---------
CREDIT 7,765,124 8,627,367
========== =========
CONTINGENT 5,632,586 5,931,338
---------- ---------
Loans granted (unused balances) 67,459 58,676
Guarantees provided to the Argentine Central Bank 1,929,970 1,932,696
Other guarantees provided included in the debtor classification regulations 83,222 92,947
Other guarantees provided not included in the debtor classification regulations 89,921 9,785
Others included in the debtor classification regulations 22,845 53,095
Others 26 --
Contingencies re. contra items 3,439,143 3,784,139
---------- ---------
CONTROL 2,050,685 2,664,584
---------- ---------
Valuables to be credited 39,191 44,030
Others 54 63
Control re. contra items 2,011,440 2,620,491
---------- ---------
DERIVATIVES 57,548 4,970
---------
"Notional" value of call options written 742 --
"Notional" value of put options written 56,238 865
Derivatives re. contra items 568 4,105
---------- ---------
TRUST ACCOUNTS 24,305 26,475
---------- ---------
Trust liabilities re. contra items 24,305 26,475
========== =========
====================================================================================================================================
The accompanying Notes 1 to 20 are an integral part of these 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 Income Statement
For the period of nine months
commenced January 1, 2003 and ended September 30, 2003.
Presented in comparative format with the same period of the previous fiscal year
(Figures stated in thousands of US dollars)
====================================================================================================================================
9.30.03 9.30.02
--------- ---------
A. FINANCIAL INCOME 464,458 1,796,786
--------- ---------
Interest on cash and due from banks 21 367
Interest on loans to the financial sector 34,779 20,137
Interest on overdraft facilities 10,172 17,294
Interest on notes 53,601 49,970
Interest on mortgage loans 26,459 36,992
Interest on pledge loans 3,736 24,786
Interest on credit card loans 32,001 50,681
Interest on other loans 8,420 38,244
Interest on other receivables resulting from financial brokerage 27,994 60,437
Net income from government and corporate securities 24,459 199,158
Net income from secured loans - Decree 1387/01 54,080 101,112
Adjustment from application of adjusting index CER 181,638 1,067,988
Others 7,098 129,620
--------- ---------
B. FINANCIAL EXPENSES 426,116 1,354,940
--------- ---------
Interest on current account deposits 696 5,336
Interest on savings account deposits 718 2,471
Interest on time deposits 59,093 78,944
Interest on loans from financial sector 1,663 4,426
Interest on other liabilities resulting from financial brokerage 85,681 132,225
Other interest 104,308 484,662
Net loss on options -- 90
Adjustment from application of adjusting index CER 55,990 574,714
Others 117,967 72,072
--------- ---------
GROSS BROKERAGE MARGIN 38,342 441,846
========= =========
C. PROVISIONS FOR LOAN LOSSES 131,777 479,080
--------- ---------
D. INCOME FROM SERVICES 107,585 144,452
--------- ---------
Linked with lending transactions 33,863 39,967
Linked with borrowing transactions 29,071 41,938
Other commissions 2,399 3,992
Others 42,252 58,555
--------- ---------
E. EXPENSES FOR SERVICES 17,617 43,092
--------- ---------
Commissions 8,903 32,305
Others 8,714 10,787
========= =========
MONETARY RESULT OF FINANCIAL BROKERAGE (4,974) (539,772)
========= =========
The accompanying Notes 1 to 20 are an integral part of these 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
Consolidated Income Statement
For the period of nine months
commenced January 1, 2003 and ended September 30, 2003.
Presented in comparative format with the same period of the previous fiscal year
(Figures stated in thousands of US dollars)
====================================================================================================================================
9.30.03 9.30.02
-------- --------
G. ADMINISTRATIVE EXPENSES 142,505 242,458
-------- --------
Personnel expenses 60,749 121,079
Directors' and syndics' fees 496 901
Other fees 5,266 7,195
Advertising and publicity 4,304 3,570
Taxes 7,533 16,729
Other operating expenses 53,731 79,531
Others 10,426 13,453
-------- --------
MONETARY RESULT OF OPERATING EXPENSES 29 7,311
-------- --------
NET LOSS ON FINANCIAL BROKERAGE (150,917) (710,793)
======== ========
RESULT OF MINORITY INTEREST (2,349) 87,200
-------- --------
H. MISCELLANEOUS INCOME 231,476 140,492
-------- --------
Penalty interest 1,011 1,256
Loans recovered and allowances reversed 190,875 11,139
Adjustment from application of adjusting index CER 18,225 28
Others 21,365 128,069
-------- --------
I. MISCELLANEOUS LOSSES 143,845 319,138
-------- --------
Net loss on long-term investments 7,225 48,114
Penalty interest and charges in favor of the Argentine Central Bank 26 51
Provision for losses on miscellaneous receivables and other provisions 75,038 204,063
Adjustment from application of adjusting index CER 610 6
Others 60,946 66,904
-------- --------
MONETARY RESULT OF OTHER OPERATIONS (1,219) (30,447)
-------- --------
NET LOSS BEFORE INCOME TAX (66,854) (832,686)
-------- --------
K. INCOME TAX 147 7,352
======== ========
LOSS FOR THE PERIOD BEFORE ABSORPTION (67,001) (840,038)
-------- --------
ABSORPTION "AD REFERENDUM" OF SHAREHOLDERS' EQUITY
- with Unrealized valuation difference -- 469,995
======== ========
NET LOSS FOR THE PERIOD (67,001) (370,043)
======== ========
====================================================================================================================================
The accompanying Notes 1 to 20 are an integral part of these financial statements.
9
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 nine months
commenced January 1, 2003 and ended September 30, 2003.
Presented in comparative format with the same period of the previous fiscal year
(Figures stated in thousands of US dollars)
====================================================================================================================================
9.30.03 9.30.02
---------- ---------
Changes in cash
Cash and due from banks at beginning of fiscal year 197,886 322,427
Increase (decrease) in cash 88,573 (161,474)
---------- ---------
Cash and due from banks at end of year 286,459 160,953
========== =========
Reasons for changes in cash
Financial income collected 299,987 373,095
Income from services collected 107,829 97,792
Less:
Financial expenses paid (198,340) (310,001)
Expenses for services paid (16,858) (19,942)
Administrative expenses paid (112,656) (173,101)
---------- ---------
Cash used in operations 79,962 (32,157)
========== =========
Other sources of cash
Net increase in deposits 381,379 --
Net increase in other liabilities resulting from financial brokerage -- 947,649
Net decrease in government and corporate securities -- 61,989
Net decrease in loans -- 914,742
Net decrease in other receivables resulting from financial brokerage 22,629 10,296
Net decrease in other assets -- 81,296
Other sources of cash 33,944 434,853
---------- ---------
Total sources of cash 437,952 2,450,825
---------- ---------
Other uses of cash
Net increase in government and corporate securities (49,936) --
Net increase in loans (7,818) (1,259)
Net increase in other receivables resulting from financial brokerage -- (9,219)
Net increase in other assets (30,114) (355)
Net decrease in deposits -- (2,106,733)
Net decrease in other liabilities resulting from financial brokerage (276,877) --
Net decrease in other liabilities (13,058) (59,434)
Cash dividends paid -- (127)
Other uses of cash (48,421) (240,407)
---------- ---------
Total uses of cash (426,224) (2,417,534)
---------- ---------
Monetary result of cash and due from banks (3,117) (162,608)
========== =========
Net Increase/(Decrease) in cash (88,573) (161,474)
========== =========
===================================================================================================================================
The accompanying Notes 1 to 20 are an integral part of these financial statements.
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"
Supplementary Accounting Information
Notes to the Consolidated Financial Statements
For the period of nine months
commenced January 1, 2003 and ended September 30, 2003.
presented in comparative format
(figures stated in thousands of US dollars)
NOTE 1: ARGENTINE ECONOMIC CONTEXT
The facts and circumstances described in Note 1 to the financial
statements of Grupo Financiero Galicia S.A. are also applicable to
these consolidated financial statements and, therefore, are subject to
the same restrictions as those mentioned in that note.
NOTE 2: FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements are disclosed in line with the
provisions of Argentine Central Bank Communique "A" 3147 and
supplementary rules regarding financial reporting requirements for the
publication of quarterly and annual financial statements, observing
the guidelines of Technical Pronouncements Nos. 8 and 19 of the
Argentine Federation of Professional Councils in Economic Sciences
(F.A.C.P.C.E.) and General Resolution No. 434/03 of the CNV. As
required by the regulations mentioned above, the financial statements
are presented in comparative format with the same period of the
previous year, except for the comparative information in the statement
of financial condition and supplementary information to it which, in
accordance with Technical Pronouncement No. 19 of the FACPCE, should
be that corresponding to the closing date of the preceding full fiscal
year, a disclosure criterion that has been adopted in these
consolidated financial statements.
In line with professional accounting standards and the requirements of
the control bodies, these financial statements have been prepared
without recognizing the changes in the purchasing power of the
currency until December 31, 2001. In line with Argentine Central Bank
Communique "A" 3702, Resolution 240/02 of the F.A.C.P.C.E. and
Resolution 415/02 of the National Securities Commission, recognition
of the effects of inflation has been resumed in these financial
statements since January 1, 2002.
To this end, the restatement method established by Technical
Pronouncement No. 6 of the F.A.C.P.C.E. has been followed, restating
the non-monetary items by applying the general level domestic
wholesale price
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 US dollars)
NOTE 2: (Continued)
index (IPIM) published by the National Institute of Statistics and
Census (I.N.D.E.C.), and considering that the accounting measurements
originated prior to December 31, 2001 are stated in the currency value
as of that date.
On April 8, 2003, Argentine Central Bank Communique "A" 3921
established that, in view of the provisions of Decree 664/03, the
financial statements for fiscal years commencing as from March 25,
2003 should be stated in nominal currency. Consequently, in line with
CNV Resolution No. 441/03, the Company has discontinued the
restatement of its financial statements since March 1, 2003.
Although this criterion is not in accordance with prevailing
professional accounting standards, this departure has not produced a
significant effect on the financial statements. During the
March-September 2003 period, a deflation rate of approximately 2% was
recorded.
NOTE 3: ACCOUNTING POLICIES
Below are the most important accounting policies used in preparing the
consolidated financial statements:
a. Financial statement consolidation
The statements of financial condition as of September 30, 2003
and December 31, 2002, and the income statements and statements
of sources and application of funds or cash flows, as the case
may be, as of September 30, 2003 and 2002 of Banco de Galicia y
Buenos Aires S.A., Net Investment S.A., Galicia Warrants S.A. and
Sudamericana Holding S.A. have been consolidated with those of
Grupo Financiero Galicia S.A. on a line by line basis (See Note 4
to the consolidated financial statements).
The principal investment of the Company is its equity interest in
Banco de Galicia y Buenos Aires S.A., a financial institution
subject to the BCRA regulations. For this reason the Company has
adopted the disclosure criteria applied by Banco de Galicia y
Buenos Aires S.A..
Banco de Galicia y Buenos Aires S.A. financial statements include
the figures corresponding to the operations of its foreign
branches and subsidiaries in Argentina and abroad, as reported in
their special financial statements, which have been adapted to
the valuation and disclosure standards laid down by the Argentine
Central Bank and professional accounting standards, except as
mentioned in point c.1.e. of this Note.
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 US dollars)
NOTE 3: (Continued)
The foreign branches' and subsidiaries' financial statements
originally issued in foreign currency have been converted into
pesos as follows:
a. Assets and liabilities have been converted into pesos applying
the reference exchange rate released by the BCRA. For those
assets and liabilities in US dollars or other foreign currencies
were converted into pesos following the guidelines of Decree 214
and complementary rules.
b. The allotted capital was computed in the restated amounts
actually disbursed.
c. Retained earnings were determined as the difference between
assets and liabilities and the allotted capital.
d. The result for the period was determined as the difference
between retained earnings at beginning of year, net of
distributions of profits in cash, and the retained earnings at
year end. Income statement account balances were converted into
pesos according to the criterion described in point a. above.
e. The significant items arising from intercompany transactions
among the consolidated entities have been eliminated from the
Statement of Financial Condition and the Income Statement. The
financial statements of Banco de Galicia y Buenos Aires S.A.
corresponding to Argentine operations have been adjusted for
inflation as mentioned in Note 2, second paragraph, to the
consolidated financial statements.
In addition, the balances of Banco de Galicia y Buenos Aires
S.A.'s income statement for the same period of the previous year
have been disclosed as established by Communique "A" 3800 of the
Argentine Central Bank so, ad referendum of the shareholders'
meeting, Banco de Galicia y Buenos Aires S.A. has absorbed the
loss for that period in advance, up to the limit of the balances
recorded in retained earnings and unrealized valuation difference
arising from the net foreign currency position.
It should be noted that for purposes of disclosing the
consolidated financial statements of the Company the early
absorption of that loss with the balance recorded in retained
earnings has not been taken into account.
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 US dollars)
NOTE 3: (Continued)
On April 30, 2003, an Ordinary and Extraordinary Meeting of
Shareholders of Banco de Galicia y Buenos Aires S.A. was held, at
which the absorption of the loss for the fiscal year ended
December 31, 2002, restated into currency as of February 28,
2003, was approved according to the following detail:
with prior year retained earnings: US$ 121,346
with unrealized valuation difference for the net foreign currency
position: US$ 502,208
with discretional reserves: US$ 115,672
with equity adjustment fund - technical revaluation: US$ 32,874
b. Consistency of accounting policies
The accounting policies used in preparing Galicia Warrants S.A.,
Net Investment S.A. and Sudamericana Holding S.A. financial
statements are similar to those followed by the Company (see Note
2.c.2. to the financial statements of Grupo Financiero Galicia
S.A.).
The principal valuation criteria observed by Banco de Galicia y
Buenos Aires S.A. were as follows:
b.1. - Foreign currency Assets and Liabilities
These are stated at the US dollar rate of exchange set by the
Argentine Central Bank, prevailing at the close of operations on
the last business day of each month.
Assets and liabilities valued in foreign currencies other than
the US dollar will be converted into the latter currency using
the swap rates communicated by the Argentine Central Bank's
operations desk. As established by professional standards and
regulations prevailing in Argentina, the Bank recognized the
effects of the devaluation of the Argentine peso as from January
1, 2002.
b.2. - Gold Bullion
This 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 expenses.
The procedure described in item b.1. was followed for translating
it into Argentine currency.
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 US dollars)
NOTE 3: (Continued)
b.3. - Government and Corporate Securities
b.3.a. - Government Securities
I) Holdings of investment accounts securities:
Holdings included in investment accounts have been recognized at
cost, increased exponentially up to the maturity date of each
service, based on their internal rate of return and the time
elapsed since their inclusion in those accounts.
When existing holdings of trading securities are involved, their
market quotation at the close of operations of the day preceding
the transfer of those holdings is considered to be the cost.
The values thus determined will be reduced on the last day of
each month by the amount of the positive difference resulting
from comparing that balance with the market value of each
security increased by 20%.
Effective January 7, 2003, Argentine Central Bank Communique "A"
3857 restricted the possibility of securities held in the Bank's
portfolio being classified as holdings in investment accounts. As
of September 30, 2003 the difference between the market value and
the carrying value of investment account securities has not been
determined, because the volume traded is considered to be
immaterial in relation to the total issue amount and, therefore,
it is not representative of the value of the investment.
These holdings include National Government Bonds accruing
interest at Libor and falling due in 2012, received within the
framework of Sections 28 and 29 of Decree 905/02 recorded at
their technical value (see Note 1 to the financial statements,
section "Compensation to financial institutions". The treatment
of the mentioned positive difference does not apply to these
securities.
While this valuation criterion is followed, no cash dividends may
be distributed, except for the amount of profits in excess of the
difference between the carrying value and the market value of
these securities. Had prevailing professional accounting
standards been applied, the value of addition of those securities
and of the balances to be received recorded in "Other receivables
resulting from financial brokerage" would have been stated at
their estimated market value (see point c.1.d.3.).
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 US dollars)
NOTE 3: (Continued)
II) Holdings of trading securities:
These are stated at the closing quotation for each security at
period / year end, plus the value of matured amortization and
interest coupons receivable, less estimated selling expenses,
where applicable.
III)Others - Listed:
These have been valued at their quotation, as indicated in point
II) above.
IV)Unlisted:
These are valued at the acquisition cost plus income accrued up
to the end of the period/year, where applicable.
b.3.b. - Listed Corporate Securities
These are valued at the quotation prevailing at the period / year
end, net of estimated selling expenses, where applicable.
b.4. Secured Loans
Within the framework of Decree 1387/01, Banco de Galicia y Buenos
Aires S.A. has participated in the exchange of Argentine public
debt securities and loans under the Promissory Note/Bond program
for new loans called Secured Loans. The main differences between
the instruments received and those exchanged consisted of an
extension of the amortization term which was 3 years for
securities originally maturing up to December 31, 2010 and a
reduction of the interest rate, which was set at 70% of the
contractual rate, with a maximum rate of 7% per annum for
fixed-rate transactions and Libor plus 3% for floating rate
loans. As established by Section 20 of the above mentioned
decree, the conversion was made at the nominal value, at a rate
of exchange of $ 1=US$ 1 and in the same currency as that of the
converted obligation.
As established by the Argentine Central Bank regulations, the
gain arising from the difference between the carrying value of
the Secured Loans and the book value of the securities exchanged
is recorded in an asset adjustment account and charged to results
on a monthly basis, in proportion to the term of each of the
secured loans received.
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 US dollars)
NOTE 3: (Continued)
Had the position of government securities classified in
investment accounts and presented for their exchange been valued
according to professional accounting standards, the shareholders'
equity of Banco de Galicia y Buenos Aires S.A. would have
decreased by US$ 153,238 at the exchange date (November 5, 2001)
(see point c.1.d.1.).
Subsequently, Decree 644/02 dated April 18, 2002 established the
conversion to pesos of the Secured Loans originally denominated
in US dollars at the exchange rate of $1.40 per US dollar,
pursuant to Section 1 of Decree No. 471/02, setting new interest
rates to be accrued by those secured loans, as established by
Section 3 of Decree 471/02. (see Note 1 to the financial
statements - under Section entitled Public Debt).
On March 28, 2003, the Argentine Central Bank released Communique
"A" 3911 substantially modifying the accounting criterion for
certain financing to the public sector. This Communique
establishes that Secured Loans, government securities not subject
to the minimum capital requirement to cover market risk, which
are mainly those which are not listed on stock exchanges,
promissory notes issued by the Fiduciary Fund for the Provincial
Development and other financing to the public sector, which
financial institutions held in their portfolio at that date or
will add to it in the future, must be recognized at the lower
value arising from comparing their "present value" to their
"technical value".
The former is defined as the "net present value" of a cash flow
structure, determined under contractual conditions, and
discounted at a rate of 3% set by the Argentine Central Bank
until December 2003. The "technical value" is the index-adjusted
amount of each instrument under contractual conditions.
As of September 30, 2003, if the difference between the value
arising as described in the preceding paragraph (the lower of
present value or technical value), and the theoretical value
(balances as of February 28, 2003, which include principal
amounts net of amortization, adjusted by applying the CER, where
applicable, net of the adjustment account mentioned above) is
positive, it is reflected in an asset adjustment account and, if
negative, it is charged to results.
Banco de Galicia y Buenos Aires S.A. has charged US$ 69,653 to
results for this item.
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 US dollars)
NOTE 3: (Continued)
b.5. - Accrual of adjustments, interest, exchange rate
differences, premiums on future transactions and variable returns
For foreign currency transactions and local currency transactions
with a principal adjustment clause valid through April 1, 1991,
as well as those with prearranged rates for less than 92 days,
the accrual has been recognized on a linear basis. For local
currency transactions at rates arranged for longer periods, the
interest has been accrued on an exponential basis.
For the lending and borrowing transactions originally carried out
in foreign currency and converted into pesos, the pertinent
adjustment from the application of the CER was accrued at
period/year end.
b.6. - Assets Under Financial Leases
These are stated at the acquisition cost less accumulated
depreciation, plus CER where applicable.
b.7. - Equity interests in other companies
b.7.a. - In financial institutions and supplementary and
authorized activities
- Controlled companies
Argentine:
The equity investments in controlled companies are stated at
their equity values.
The interest in Banelco S.A. has been valued according to the
equity method of accounting, on the basis of financial statements
as of June 30, 2003 because that company prepares its financial
statements on a semi-annual basis and, at the date of these
financial statements it company did not have audited financial
statements. Furthermore, important developments that had an
impact on the financial condition and results of that company
during the time elapsed, as well as the effect of inflation, were
recognized as of February 28, 2003.
As a result of the application of the economic measures described
in Note 1 to the financial statements of Tarjetas Regionales
S.A., this Company reported a deficit in its equity. This effect
has been recognized in Banco de Galicia y Buenos Aires S.A.'s
financial statements by recording a provision under liabilities.
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 US dollars)
NOTE 3: (Continued)
In valuing the equity interests held in Tarjetas Regionales S.A.
and Galicia Capital Markets S.A., their shareholders' equity and
results have been adjusted in their financial statements due to
the effect on them of the application of the deferred tax method
in recognizing the income tax charge, a criterion that is not
contemplated by Argentine Central Bank regulations. Those
adjustments led to a decrease of US$ 7,813 in the shareholders'
equity of Tarjetas Regionales S.A. and to an increase of US$
6,568 in its results, as well as to a decrease of US$ 211 in the
shareholders' equity of Galicia Capital Markets S.A. and to a
decrease of US$ 679 in its results. It should be noted that those
effects have been considered by Grupo Financiero Galicia S.A. in
these financial statements.
Foreign:
Banco de Galicia (Cayman) Limited (In Provisional Liquidation)
has been valued according to the equity method of accounting, on
the basis of financial statements originally issued in foreign
currency. In the case of Banco Galicia Uruguay S.A., a provision
for other contingencies has been set up to cover the deficit
reported in its equity, as disclosed in Note 1 to these financial
statements under section entitled "Situation of Banco de Galicia
y Buenos Aires S.A. -
Capitalization.
The financial statements of those entities were converted into
pesos as mentioned in the fourth paragraph of point a. of this
Note, except for the results for the period, which were converted
into pesos at the average exchange rate in force in the period in
which they were generated.
- Minority interests
Argentine:
Minority interests have been valued at cost restated as mentioned
in the fourth paragraph of point a. above of this Note, plus
stock dividends.
Foreign:
These are reflected at the acquisition cost, plus stock
dividends, recognized at their face value.
The procedure mentioned in point b.1. above was followed for
conversion of foreign currency equity interests into local
currency.
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 US dollars)
NOTE 3: (Continued)
b.7.b. - In other companies -
Minority interests
Argentine:
These equity investments are stated at their acquisition cost
restated as mentioned in point a. above, plus stock dividends.
A valuation allowance has been set up for the amount by which it
is estimated that the equity interests in Ocye S.A., Argencontrol
S.A., Correo Argentino S.A., Alfer S.A., Galicia Inmobiliaria
S.A., Coelsa S.A. Aguas Provinciales de Santa Fe S.A., Aguas
Cordobesas S.A., Caminos de la Sierra S.A. and Net Investment
S.A. are overstated in relation to their equity value.
Foreign:
These are stated at the acquisition cost, plus stock dividends,
recognized at their face value.
The procedure referred to in point b.1. above has been applied to
translate foreign currency equity interests into local currency.
A valuation allowance has been set up for the investment in
Tradecom International NV in the amount that this investment is
estimated to exceed its recoverable value.
b.8. - Fixed assets and miscellaneous assets
Fixed assets and miscellaneous assets have been valued at cost
restated (see point a. above), plus the appreciation in the value
of the real estate properties which include the effect of a
technical revaluation made in 1981, less accumulated
depreciation.
The depreciation of these assets is determined on the basis of
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 properties, 120 months for furniture and fixtures and
60 months for the rest of assets.
The net book values of the assets, taken as a whole, are not in
excess of their value to the business.
b.9. - Other miscellaneous assets
Miscellaneous assets are valued at their restated acquisition
cost (see point a. above), less the corresponding accumulated
depreciation.
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 US dollars)
NOTE 3: (Continued)
The effects of the variations in the purchasing power of the
currency as from January 1, 2002 on those miscellaneous assets
earmarked for sale and acquired through foreclosure have not been
given accounting recognition.
The depreciation charges for these assets are calculated
following the same criterion as that mentioned in the preceding
section.
b.10. - Intangible assets
Intangible assets have been valued at their acquisition cost
restated (see point a. above), less the corresponding accumulated
amortization, calculated on the basis of their estimated useful
lives expressed in months.
Amortization has been recognized on a straight-line basis in
equal monthly installments, over a maximum of 120 months for
"Goodwill" capitalized and over a maximum of 60 months for
"Organization and Development Expenses".
Effective March 2003, Argentine Central Bank Communique "A" 3916
established that the difference resulting from compliance with
court decisions made in lawsuits filed challenging the
applicability of current regulations to deposits with the
financial system, within the framework of the provisions of Law
No. 25561, Decree 214/02 and supplementary rules, should also be
recorded under this caption, the amortization of which should
take place in a maximum of 60 equal, monthly and consecutive
installments as from April 2003, as described in Note 1 to the
financial statements (see point c.1.d.2.).
b.11. - Allowance for loan losses and provision for contingencies
The aforementioned allowance and provision have been set up to
cover Banco de Galicia y Buenos Aires S.A.'s estimated loan
uncollectibility risk, based on an evaluation of the debtors'
degree of compliance with their payment obligations, their
economic and financial condition and the guarantees supporting
the related transactions, in line with the provisions of
Argentine Central Bank Communique "A" 2216 and supplementary
ones.
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 US dollars)
NOTE 3: (Continued)
b.12. - Shareholders' equity
1)The Shareholders' Equity accounts have been restated following
the procedure mentioned in Note 2 to these consolidated financial
statements, except for the "Capital Stock" and "Non-Capitalized
Contributions" accounts, which have been stated at their original
values. The adjustment derived from the restatement of those
accounts was allocated to the "Equity Adjustment- Capital
Adjustment" account.
Income and expenses have been restated regardless of whether they
have been collected or paid.
Monetary results of exposure to inflation were determined as
follows:
a. "Monetary result of financial brokerage" includes the result
of exposure to inflation generated by assets and liabilities
related to the usual period of brokerage activity between the
supply and demand of financial resources.
b. "Monetary result of operating expenses" includes the result of
exposure to inflation generated by monetary assets and
liabilities in pesos, related to administrative expenses.
c. "Monetary result of other operations" includes the result of
exposure to inflation generated by assets and liabilities not
related to the financial brokerage activity.
2) As called for by Communique "A" 3703, the amount of the
compensation envisaged in Decrees Nos. 214/02, 905/02 and
supplementary norms, attributable to the positive difference
between the Shareholders' Equity as of December 31, 2001 and that
resulting from adjusting the net foreign currency position at
that date converted into pesos at the exchange rate of $1.40 per
US dollar, was recorded in the "Unrealized valuation difference
arising from the compensation of the net foreign currency
position" account.
In the comparative consolidated financial statements of Grupo
Financiero Galicia S.A. as of September 30, 2002, that amount had
been included in the results for the period.
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 US dollars)
NOTE 3: (Continued)
b.13. - Income tax and tax on minimum notional income
As of September 30, 2003, the Company did not record any income
tax charge because it reported a tax loss carry-forward at that
date. In view of the fact that Banco de Galicia y Buenos Aires
S.A. determined an income tax loss carry forward in the fiscal
year ended December 31, 2002, it is required to pay the tax on
minimum notional income.
Notwithstanding this, no tax charge has been expensed because the
amounts that are ultimately paid may be computed, until they are
fully used up, as a payment on account of income tax to be
determined within the next ten fiscal years following the payment
date.
The income tax charge has been determined in accordance with
Argentine Central Bank regulations, which do not contemplate the
application of the deferred tax method. However, the consolidated
financial statements include the effect of this accounting
criterion on Grupo Financiero Galicia S.A. and its subsidiaries.
b.14. - Dismissal Indemnities Banco de Galicia y Buenos Aires
S.A. directly expenses the dismissal indemnities.
The amounts that Banco de Galicia y Buenos Aires S.A. may
possibly have to pay in respect of labor lawsuits are covered by
a provision, which is recorded under "Liabilities - Provisions
for Dismissal Indemnities".
As of September 30, 2003 the maximum risk faced by Banco de
Galicia y Buenos Aires S.A. in respect of dismissal indemnities
amounted to approximately US$ 41,107. As of December 31, 2002,
the total amount in this respect was US$ 39,837.
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 US dollars)
NOTE 3: (Continued)
c. Differences between Argentine Central Bank regulations and
professional accounting standards applicable in the
Autonomous City of Buenos Aires
Through C.D. Resolutions Nos. 238/01, 243/01, 261/01, 262/01 and
187/02, the Professional Council in Economic Sciences of the
Autonomous City of Buenos Aires (CPCECABA) approved Technical
Pronouncements Nos. 16, 17, 18, 19 and 20 with certain
modifications, adding changes to the valuation and disclosure
accounting standards, the application of which is mandatory for
fiscal years commencing as from July 1, 2002 and the interim
periods comprised in those fiscal years. Furthermore, National
Securities Commission (CNV) General Resolution No. 434/03
adopted, with certain modifications, Technical Pronouncements
Nos. 16 to 20 on the basis of the resolutions issued by the
CPCECABA. These regulations are mandatory for fiscal years
commencing as from January 1, 2003.
At the date these financial statements were prepared, the Central
Bank had 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 added to professional accounting standards in force in
the Autonomous City of Buenos Aires.
Below is a detail of the main differences between the Argentine
Central Bank regulations and professional accounting standards in
force in the Autonomous City of Buenos Aires:
c.1. Valuation criteria
c.1.a. Restatement to constant currency
These financial statements have given recognition to the effects
of the variations in the purchasing power of the currency until
February 28, 2003, following the restatement method established
by Technical Pronouncement No. 6 (as amended by Technical
Pronouncement No. 19) of the FACPCE. As provided for by National
Executive Branch Decree 664/2003, Argentine Central Bank
Communique "A" 3921 and CNV Resolution No. 441, Banco de Galicia
y Buenos Aires S.A. discontinued the application of that method
and, therefore, did not recognize the effects of the variations
in the purchasing power of the currency as from March 1, 2003.
As established by MD Resolution No. 10/2003 of the CPCECABA,
under professional accounting standards the application of this
method remains in effect.
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 US dollars)
NOTE 3: (Continued)
Nevertheless, taking into account that the variation in the IPIM
was a deflation rate of approximately 2% during the
March-September 2003 period, the effects derived from failure to
recognize those variations in these financial statements have not
been significant.
c.1.b. Allocation of results of the conversion into pesos of the
net foreign currency position as of December 31, 2001.
During the previous year, Banco de Galicia y Buenos Aires S.A.
allocated US$ 502,208 (stated in currency of February 2003) to
the Unrealized Valuation Difference account, in the shareholders'
equity, for the portion of the compensation received under
Sections 28 and 29 of the National Executive Branch Decree
905/02, which is equivalent to the recognition of 40% of the net
foreign currency position as of December 31, 2001. Under
professional accounting standards in force in the Autonomous City
of Buenos Aires, that amount should have been charged to the
results for that fiscal year. On April 30, 2003, the Meeting of
Shareholders approved the absorption of accumulated losses with
that Reserve. It should be noted that Grupo Financiero Galicia
S.A. has reflected this situation in its financial statements, as
explained in point b.12.2 above.
c.1.c. Accounting for income tax according to the deferred tax
method
Banco de Galicia y Buenos Aires S.A. determines income tax at the
statutory rate applicable to the estimated taxable income,
without considering the effect of any timing differences between
the accounting and taxable results.
Under professional accounting standards in force in the
Autonomous City of Buenos Aires, income tax must be recognized
according to the deferred tax method and, therefore, deferred tax
assets or liabilities calculated on those timing differences must
be recognized. In addition, unused tax loss carry-forwards or
fiscal credits subject to deduction from taxable income in future
fiscal years should be recognized as deferred assets, provided
that taxable income is likely to be generated. Grupo Financiero
Galicia S.A. has adapted this situation to its financial
statements, as explained in point b.13. above.
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 US dollars)
NOTE 3: (Continued)
c.1.d. Valuation of assets with the non-financial public and
private sectors
c.1.d.1. Secured loans
In view of Decree No. 1387/01 dated November 6, 2001, during the
fiscal year ended December 31, 2001, Banco de Galicia y Buenos
Aires S.A. exchanged with the National State national government
securities (classified and valued as "Investment accounts",
according to the criteria established by the Argentine Central
Bank) for secured loans.
As of September 30, 2003 and December 31, 2002, those loans were
recorded in the "Loans to Public Sector" caption. As of December
31, 2002, secured loans were valued at the exchange values
established by the Ministry of Economy as of November 6, 2001,
plus accrued interest until year end, converted to pesos at the
exchange rate of $1.40 = US$ 1 and adjusted by applying the CER.
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.
valued those assets at the lower of present or technical value,
as established by Argentine Central Bank Communique "A" 3911.
Considering the provisions of CD Resolution No. 290/01 of the
CPCECABA, as of September 30, 2003 and December 31, 2002 these
assets should have been valued on the basis of the respective
quotation values of the securities exchanged as of November 6,
2001, which are considered to be the transaction cost as from
that date, plus interest accrued at the internal rate of return
until the end of each period/year.
The impact of the application of this criterion has been
disclosed in point b.4. above.
c.1.d.2. Accounting disclosure of effects generated by court
decisions on deposits
As of September 30, 2003 Banco de Galicia y Buenos Aires S.A.
carries an asset for US$164,639 (original value of US$181,911 net
of accumulated amortization of US$ 17,272) under Intangible
assets - Organization and development expenses, for the
differences resulting from compliance with court decisions on
reimbursement of deposits within the framework of Law No. 25561,
Decree 214/02 and complementary rules, as established by BCRA
Communique "A" 3916, to be amortized over 60 months. Under
professional accounting standards, such asset is to be recorded
as a receivable and valued on the basis of the best estimate of
the recoverable amounts.
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 US dollars)
NOTE 3: (Continued)
c.1.d.3. Compensation to be received, per Sections 28 and 29 of
National Executive Branch Decree 905/02, and investment account
securities
As of September 30, 2003 and December 31, 2002, Banco de Galicia
y Buenos Aires S.A. carries the government securities received
and to be received in the "Government Securities - holdings in
investment accounts" and Other Receivables resulting from
financial brokerage - Other not included in the debtor
classification regulations" captions, respectively, arising from
the compensation established by Sections 28 and 29 of National
Executive Branch Decree 905/02.
In addition, there are other valued securities that are carried
in investment accounts.
Under professional accounting standards in force in the
Autonomous City of Buenos Aires, the above-mentioned assets must
be valued at their current value, as indicated in Note b.3.a.I).
At the date the financial statements of Banco de Galicia y Buenos
Aires S.A. were prepared, the trading volume of these securities
had not been significant. Therefore, the known market values may
not be representative of the realizable value of those assets. At
the date these financial statements were prepared, the parity
value of BODEN 2012 is approximately 60% of their face value.
c.1.d.4. Allowances for receivables from the non-financial public
sector
Current regulations on the setting up of allowances issued by the
Argentine Central Bank provide that receivables from the Public
Sector are not subject to allowances for doubtful accounts. Under
professional accounting standards, those allowances must be
estimated on the basis of the uncollectibility risk attaching to
those assets.
c.1.e. - Conversion of financial statements
The conversion to pesos of the financial statements of the
foreign branches for purposes of consolidation with the Bank's
financial statements differs from applicable professional
accounting standards (Technical Pronouncement No. 18). These
standards require that: (a) the measurements in the financial
statements to be converted to pesos that are stated in year-end
foreign currency (current values, recoverable values) be
converted at the balance sheet date exchange rate; and that (b)
the measurements in the financial statements to be converted to
pesos that are stated in foreign currency of periods predating
the closing date (for
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 US dollars)
NOTE 3: (Continued)
example: those which represent historical costs, income,
expenses) be converted at the pertinent historical exchange
rates, restated in year-end currency, when it is so required due
to the application of Technical Pronouncement No. 17. Exchange
differences arising from conversion of the financial statements
will be treated as financial income or costs, as the case may be.
The application of this criterion, instead of that mentioned in
point a. above does not have a significant impact on the
disclosure of the Bank's financial statements.
c.2. Disclosure issues
c.2.a. Comparative financial statements
The new professional accounting standards establish that it is
mandatory to present certain information in the basic financial
statements and/or as supplementary information, which has not
been included in these financial statements. Banco de Galicia y
Buenos Aires S.A. should present the information in the statement
of financial condition in comparative format with the same
statement for the preceding full fiscal year (in this case, as of
December 31, 2002). It should be noted that Grupo Financiero
Galicia S.A. has conformed its individual and consolidated
financial statements to those disclosure requirements, as
mentioned in Note 2 to the consolidated financial statements.
c.2.b. Restatement to constant currency of the comparative
financial statements
As established by MD Resolution No. 10/03 of the CPCECABA, the
September 30, 2002 financial statements, presented for
comparative purposes, should have been restated into uniform
currency of September 30, 2003, as established by applicable
Technical Pronouncement No. 6 of the FACPCE. As mentioned in the
notes to its financial statements, those financial statements
have been restated into constant currency as of February 28,
2003, as called for by Communique "A" 3921 of the Argentine
Central Bank and Resolution No 441 of the CNV.
c.2.c. Statement of cash flows The criterion for compiling this
statement established by the Argentine Central Bank in its
Circular CONAU 1 differs from that of Technical Pronouncement No.
19.
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 US dollars)
NOTE 3: (Continued)
Banco de Galicia y Buenos Aires S.A. has not quantified the
effect derived from the application of the new Technical
Pronouncements on its financial statements as of September 30,
2003.
NOTE 4: BASIC INFORMATION CONCERNING THE CONSOLIDATED CONTROLLED ENTITIES
The basic information concerning the controlled entities is
disclosed in Note 10 and Schedule C to the financial statements
of Grupo Financiero Galicia S.A..
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. and its controlled
entity Banco de Galicia y Buenos Aires S.A., the remaining 12.50%
of the capital stock and voting rights of those companies.
The financial statements of Net Investment S.A. have in turn been
consolidated on a line-by-line basis with the statements of
financial condition, statements of income and statements of cash
flows of B2Agro S.A. As of September 30, 2003, Net Investment
S.A. held the following percentages of equity interests:
========================================== ========================== ===========================
ISSUING COMPANY % OF CAPITAL % OF VOTES
------------------------------------------ -------------------------- ---------------------------
B2Agro S.A. 99.99 99.99
========================================== ========================== ===========================
The financial statements of Sudamericana Holding S.A. have been
adapted to cover a period of nine months as of June 30, 2003, for
consolidation purposes. These financial statements have in turn
been consolidated on a line by line basis with the statements of
financial condition, income statements and statements of cash
flows of Aseguradora de Personas Galicia S.A. (formerly Hartford
Seguros de Vida S.A.), Instituto de Salta Seguros de Vida S.A.,
Galicia Retiro Cia. de Seguros S.A., Galicia Vida Cia. de Seguros
S.A., Medigap Salud S.A. (formerly Hartford Salud S.A.) and
Sudamericana Asesores de Seguros S.A.. As of June 30, 2003,
Sudamericana Holding S.A. held the following equity percentages:
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 US dollars)
NOTE 4: (Continued)
================================================================ ========================== ===================
ISSUING COMPANY % OF CAPITAL % OF VOTES
---------------------------------------------------------------- -------------------------- -------------------
Aseguradora de Personas Galicia S.A. (formerly
Hartford Seguros de Vida S.A.) 99.99 99.99
---------------------------------------------------------------- -------------------------- -------------------
Instituto de Salta Seguros de Vida S.A. 99.99 99.99
---------------------------------------------------------------- -------------------------- -------------------
Galicia Retiro Cia. De Seguros S.A. 99.99 99.99
---------------------------------------------------------------- -------------------------- -------------------
Galicia Vida Cia. de Seguros S.A. 99.99 99.99
---------------------------------------------------------------- -------------------------- -------------------
Medigap Salud S.A. (formerly Hartford Salud S.A.) 99.99 99.99
---------------------------------------------------------------- -------------------------- -------------------
Sudamericana Asesores de Seguros S.A. 99.97 99.97
---------------------------------------------------------------- -------------------------- -------------------
Galicia Patrimoniales Cia. de Seguros S.A. (*) 99.99 99.99
================================================================ ========================== ===================
(*) Not included in the consolidation because it had not been registered with the Superintendency of Corporations at
June 30, 2003.
The financial statements of Banco de Galicia y Buenos Aires S.A.
as of September 30, 2003 and related comparative financial
statements include the assets, liabilities and results of the
controlled entities detailed below:
===========================================================================================================
as of September 30, 2003
-----------------------------------------------------------------------------------------------------------
PERCENTAGE OF
ISSUING COMPANY SHARES INTEREST HELD IN
------------------------------------ -------------------------------------- -----------------------------
TYPE NUMBER TOTAL CAPITAL POSSIBLE VOTES
------------------------------------ --------------------- --------------- ------------- --------------
BANCO GALICIA URUGUAY S.A. Ordinary 13,375* 100.00 100.00
------------------------------------ --------------------- --------------- ------------- -------------
TARJETAS REGIONALES S.A. Ord. Book-entry 70,834,138 68.218539 68.218539
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA CAPITAL MARKETS S.A. Ord. Book-entry 99,990 99.99 99.99
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA FACTORING Y LEASING S.A. Ord. Book-entry 1,889,700 99.98 99.98
------------------------------------ --------------------- --------------- ------------- -------------
AGRO GALICIA S.A. Ord. Book-entry 250,000 100.00 100.00
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA VALORES S.A. SOC. DE BOLSA Ord. Book-entry 999,996 99.99 99.99
==================================== ===================== =============== ============= =============
* Stated at a face value of 1,000 Uruguayan pesos.
==========================================================================================================
As of December 31, 2002
----------------------------------------------------------------------------------------------------------
PERCENTAGE OF
ISSUING COMPANY SHARES INTEREST HELD IN
--------------------------------------------------------------------- -----------------------------------
TYPE NUMBER TOTAL CAPITAL POSSIBLE VOTES
------------------------------------ --------------------- --------------- ------------- -------------
BANCO GALICIA URUGUAY S.A. Ordinary 13,375* 100.00 100.00
------------------------------------ --------------------- --------------- ------------- -------------
TARJETAS REGIONALES S.A. Ord. Book-entry 70,834,138 68.218539 68.218539
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA CAPITAL MARKETS S.A. Ord. Book-entry 99,990 99.99 99.99
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA FACTORING Y LEASING S.A. Ord. Book-entry 1,889,700 99.98 99.98
------------------------------------ --------------------- --------------- ------------- -------------
AGRO GALICIA S.A. Ord. Book-entry 247,500 99.00 99.00
------------------------------------ --------------------- --------------- ------------- -------------
GALICIA VALORES S.A. SOC. DE BOLSA Ord. Book-entry 999,996 99.99 99.99
======================================== ==================================================================
* Stated at a face value of 1,000 Uruguayan pesos.
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 US dollars)
NOTE 4: (Continued)
================================================================================================================
As of September 30, 2003
----------------------------------------------------------------------------------------------------------------
ISSUING COMPANY ASSETS LIABILITIES SHAREHOLDERS' EQUITY RESULTS (**)
------------------------------------------ ------------- ----------------- --------------------- ------------
BANCO GALICIA URUGUAY S.A. 591,211 825,059 (233,848) 34,140
------------------------------------------ ------------- ----------------- --------------------- ------------
TARJETAS REGIONALES S.A. (*) 232,592 233,358 (766) 5,836
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA CAPITAL MARKETS S.A. (*) 11,149 8,469 2,680 (2,788)
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA FACTORING Y LEASING S.A. 1,110 20 1,090 (456)
------------------------------------------ ------------- ----------------- --------------------- ------------
AGRO GALICIA S.A. 58 - 58 (19)
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA VALORES S.A. SOC. DE BOLSA 6,632 2,561 4,071 111
========================================== ============= ================= ===================== ============
(*) See Note 3b.7.a. to the consolidated financial statements.
================================================================================================================
Statement of financial condition as of December 31, 2002 and
----------------------------------------------------------------------------------------------------------------
Results as of September 30, 2002
----------------------------------------------------------------------------------------------------------------
ISSUING COMPANY ASSETS LIABILITIES SHAREHOLDERS' EQUITY RESULTS (**)
------------------------------------------ ------------- ----------------- --------------------- ------------
BANCO GALICIA URUGUAY S.A. 932,318 1,244,616 (312,298) (617,075)
------------------------------------------ ------------- ----------------- --------------------- ------------
TARJETAS REGIONALES S.A. 205,423 226,434 (21,011) (127,763)
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA CAPITAL MARKETS S.A. 13,401 7,452 5,949 (3,649)
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA FACTORING Y LEASING S.A. 2,330 267 2,063 (467)
------------------------------------------ ------------- ----------------- --------------------- ------------
AGRO GALICIA S.A. 81 4 77 (145)
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA VALORES S.A. SOC. DE BOLSA 5,414 1,454 3,960 1,122
------------------------------------------ ------------- ----------------- --------------------- ------------
GALICIA Y BS. AS. SECURITIES (UK) LIMITED - - - 286
========================================== ============= ================= ===================== ============
* Results for the period of nine months commenced January 1, 2002
and ended September 30, 2002, stated in constant currency of
February 28, 2003.
The Financial Statements of the controlled entities have been
conformed to the valuation and disclosure standards laid down by
the Argentine Central Bank and cover the same period as that of
the financial statements of Banco de Galicia y Buenos Aires S.A..
As mentioned in Note 1 to the individual financial statements
under section entitled "Situation of Banco Galicia y Buenos Aires
S.A. - Capitalization", these consolidated financial statements
include the figures of Banco Galicia Uruguay S.A. and its
subsidiaries. The information as of December 31, 2002 and
September 30, 2002 presented for comparative purposes has been
modified, including the figures of those subsidiaries, according
to pro forma information held at Banco de Galicia y Buenos Aires
S.A..
The September 30, 2003 financial statements of Tarjetas
Regionales S.A., which were used for consolidation purposes, have
in turn been consolidated on a line-by-line basis with those of
Tarjeta Naranja S.A., Tarjetas Cuyanas S.A., Tarjeta Comfiar S.A.
and Tarjetas del Mar S.A., in which Tarjetas Regionales S.A.
holds a controlling interest.
a) The percentages directly held in those companies' capital
stock are as follows:
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 US dollars)
NOTE 4: (Continued)
=================================================================
Company 9.30.03 12.31.02
-----------------------------------------------------------------
Tarjetas Cuyanas S.A. 60% 60%
-----------------------------------------------------------------
Tarjetas del Mar S.A. 100% 100%
-----------------------------------------------------------------
Tarjeta Naranja S.A. 80% 80%
-------------------------------------------------- --------------
Tarjeta Comfiar S.A. 60% 60%
================================================== ==============
b) The percentages indirectly held in those companies' capital
stock through the controlled entity Tarjeta Naranja S.A. are as
follows:
=================================================================
Company 9.30.03 12.31.02
-----------------------------------------------------------------
Tarjeta Comfiar S.A. 32% 32%
=================================================================
Tarjeta Naranja S.A. financial statements for both period/year
have in turn been consolidated with the financial statements of
Cobranzas Regionales S.A., in which it holds 66.4% of voting
stock. Furthermore, Tarjeta Comfiar S.A. and Tarjetas Cuyanas
S.A. hold 21.3% and 12.3% interests, respectively, in that
company's capital stock and voting rights.
The financial statements of Galicia Capital Markets S.A., used
for purposes of consolidation, have been consolidated on a
line-by-line basis with the financial statements of Galicia
Advent Corporation Limited, in which that company holds a 57.89%
equity interest. Banco de Galicia y Buenos Aires S.A. holds 99%
of the capital stock of Agro Galicia S.A. and Galicia Capital
Markets, the remaining 1%.
NOTE 5: MINORITY INTEREST IN CONSOLIDATED INSTITUTIONS OR COMPANIES
The portion of the net worth of the controlled
investees owned by third parties has been disclosed
in the Statement of Financial Condition, under the
"Minority interest in consolidated institutions or
companies" caption.
The result of minority interests is disclosed in the Income
Statement under "Result of Minority Interest".
As of September 30, 2003 and December 31, 2002, the percentages
of minority interest are as follows:
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 US dollars)
NOTE 5: (Continued)
=============================================================================================
Company 9.30.03 12.31.02
---------------------------------------------------------------------------------------------
Banco de Galicia y Bs. As. S.A. 6.41446% 6.41446%
---------------------------------------------------------------------------------------------
Net Investment S.A. 0.80181% 0.80181%
---------------------------------------------------------------------------------------------
Sudamericana Holding S.A. 0.80175% 0.80175%
---------------------------------------------------------------------------------------------
Galicia Warrants S.A. 0.80181% 0.80181%
---------------------------------------------------------------------------------------------
B2Agro S.A. 0.81007% 0.81007%
---------------------------------------------------------------------------------------------
Net Investment B.V. 0.80181% 0.80181%
---------------------------------------------------------------------------------------------
Aseguradora de Personas Galicia S.A. (formerly Hartford
Seguros de Vida S.A.) 0.80234% 0.80234%
---------------------------------------------------------------------------------------------
Medigap Salud S.A. (formerly Hartford Salud S.A.) 0.81002% 0.81002%
---------------------------------------------------------------------------------------------
Instituto de Salta Seguros de Vida S.A. 0.80211% 0.80211%
---------------------------------------------------------------------------------------------
Galicia Retiro Cia. De Seguros S.A. 0.80188% 0.80188%
---------------------------------------------------------------------------------------------
Galicia Vida Cia. de Seguros S.A. 0.80190% 0.80190%
---------------------------------------------------------------------------------------------
Sudamericana Asesora de Seguros S.A. 0.83482% 0.83482%
=============================================================================================
In the case of Banco de Galicia y Buenos Aires S.A., the
breakdown of supplementary equity interests included in the
"Minority Interests" caption is as follows:
==============================================================================================
Company 9.30.03 12.31.02
---------------------------------------------------------------------------------------------
Galicia Valores S.A. Sociedad de Bolsa 0.01% 0.01%
---------------------------------------------------------------------------------------------
Galicia Capital Markets S.A. 0.01% 0.01%
---------------------------------------------------------------------------------------------
Galicia Factoring y Leasing S.A. 0.02% 0.02%
---------------------------------------------------------------------------------------------
Galicia Administradora de Fondos S.A. Soc. Gerente 0.015% 0.015%
de Fondos Comunes de Inversion
---------------------------------------------------------------------------------------------
Agro Galicia S.A. - 1.00%
---------------------------------------------------------------------------------------------
Tarjeta Comfiar S.A. 8.00% 8.00%
---------------------------------------------------------------------------------------------
Tarjetas Cuyanas S.A. 40.00% 40.00%
---------------------------------------------------------------------------------------------
Tarjeta Naranja S.A. 20.00% 20.00%
---------------------------------------------------------------------------------------------
Galicia Advent Corporation Limited 42.11% 42.11%
---------------------------------------------------------------------------------------------
Galicia Equity Analysis S.A. - 1.00%
---------------------------------------------------------------------------------------------
Cobranzas Regionales S.A. 19.904% 19.904%
=============================================================================================
NOTE 6: RESTRICTED ASSETS
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.'s
ability to dispose of the following assets pertaining to local
branches was restricted as follows:
a. Funds and Government Securities
The amount of US$ 12,738 has been deposited in escrow as a
guarantee towards third parties.
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 US dollars)
NOTE 6: (Continued)
Within the framework of Decree 979/2001 of the National Executive
Branch, Banco de Galicia y Buenos Aires S.A. has advanced the
National State funds on account of tax obligations and received
in exchange Fiscal Credit Certificates for US$ 28,424, which have
been recognized in Government Securities. These certificates may
be used for settling taxes, under the conditions set out in
Resolution 38/2003 of the Ministry of Economy, as from January
2003.
Furthermore, as of September 30, 2003, BODEN 2012 for US$ 61,854
(face value: 60,246,900), received in respect of the compensation
to financial institutions, have been provided as collateral for
the subscription of bonds pertaining to depositors who opted for
them, as established by Decree No. 1836/02.
b. Guarantees provided as security for direct obligations:
As of September 30, 2003 the Bank records guarantees provided as
security for direct obligations for US$ 78,307 in memorandum
accounts, as a result of commitments undertaken under the
portfolio assignment and/or sale contracts signed with Galicia
Creditos Hipotecarios Financial Trust and Citibank N.A. Buenos
Aires Branch. According to those contracts, the Bank undertakes
to repurchase the assets assigned or replace them with others of
similar characteristics if they are in arrears and these arrears
persist for more than 30 days.
c. Special Accounts as Collateral for Transactions
Banco de Galicia y Buenos Aires S.A. has opened special accounts
with the Argentine Central Bank as collateral for transactions
involving electronic clearing houses, checks for settling debts
and other similar transactions which, as of September 30, 2003
amounted to US$ 29,609.
d. Deposits in favor of the Argentine Central Bank
These have been set up in line with Argentine Central Bank
regulations:
- Communique "A" 1190 US$ 183
- Communique "A" 2923 US$ 1,269
e. Fund for assistance to financial institutions
As of September 30, 2003 Banco de Galicia y Buenos Aires S.A. had
deposited secured loans for US$ 62,690 in guarantee of the Fund
for assistance to Financial Institutions.
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 US dollars)
NOTE 6: (Continued)
f. Guarantees provided to the Argentine Central Bank
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.
has transferred loans to the public sector in favor of the
Argentine Central Bank, as collateral for advances of US$
1,928,704 for assistance received to cover temporary lack of
liquidity.
g. Equity interests in Other Companies
Banco de Galicia y Buenos Aires S.A. has granted a senior pledge
on all its shares in Correo Argentino S.A., in favor of the
International Finance Corporation, Inter American Development
Bank and a syndicate of domestic institutions, as collateral for
financing granted to that company. This transaction was
authorized by the Argentine Central Bank through resolution No.
408 dated September 9, 1999.
According to the contract signed, in the event of a deficit in
funds, Banco de Galicia y Buenos Aires S.A. and the majority
shareholder of Correo Argentino S.A. shall hold the financial
creditors harmless from any non-compliance as a result of such
deficit. Under the terms of the contract, Correo Argentino should
inform Banco de Galicia y Buenos Aires S.A. and Socma Americana
S.A. of the existence of any deficit. At the date of these
financial statements, Banco de Galicia y Buenos Aires S.A. had
not been notified of any requirement in this connection.
"Equity interests in Other Companies" includes shares whose
transferability is subject to the prior approval of the National
or Provincial authorities, as applicable, under the terms of the
concession contracts signed:
-Aguas Argentinas S.A.: 3,236,879 book-entry class F shares and
522,887 book-entry class E shares.
-Aguas Provinciales de Santa Fe S.A.: 3,600,000 book-entry class
F shares and 62,500 book-entry class D shares
-Inversora Diamante S.A.: 1,606,117 ordinary book-entry
non-transferable shares.
-Inversora Nihuiles S.A.: 1,184,093 ordinary book-entry
non-transferable shares.
-Electrigal S.A.: 1,222,406.50 ordinary registered non-endorsable
non-transferable shares.
-Aguas Cordobesas S.A.: 900,000 ordinary class E shares.
-Correo Argentino S.A.: 12,462,021 ordinary non-transferable
class B shares.
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 US dollars)
NOTE 6: (Continued)
As a shareholder of the concessionaires of the water supply
services, Aguas Argentinas S.A., Aguas Provinciales de Santa Fe
S.A. and Aguas Cordobesas S.A., Banco de Galicia y Buenos Aires
S.A. and the other shareholders have committed to provide
financial support to those companies if they were unable to
fulfill the commitments they have undertaken with international
financial bodies, which have been recognized under Memorandum
Accounts - Guarantees provided as security for Direct
Obligations.
The Inter American Development Bank (IDB) requested that the
shareholders of Aguas Argentinas S.A. and Aguas Provinciales de
Santa Fe S.A. grant loans to those companies. On February 18,
2003, financial assistance was granted to Aguas Argentinas S.A.
in the amount of US$ 598, while the obligation to provide
assistance to Aguas Provinciales de Santa Fe S.A. is not deemed
to exist according to the IDB. Also, on August 21, 2003 the Bank
was notified of a deficit in funds by Aguas Provinciales de Santa
Fe S.A., so it will be required to disburse an amount in pesos
equivalent to US$ 329, in fulfillment of the provisions of the
contract signed with the International Finance Corporation.
At December 31, 2002, the total amount of restricted assets was
US$ 2,041,519.
In addition, as of September 30, 2003 the ability of Banco de
Galicia y Buenos Aires S.A. to dispose of the assets existing at
its controlled entities subject to consolidation is restricted as
follows:
a. Galicia Valores S.A. Sociedad de Bolsa:
As of September 30, 2003 this company held three shares of
Mercado de Valores de Buenos Aires S.A. securing an insurance
covering its transactions for US$ 1,852.
b. Tarjetas Cuyanas S.A.
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.'s
ability to dispose of time deposits for US$ 190 was restricted
because this amount was earmarked to secure a Collection
Agreement signed with the Revenue Board of the Province of
Mendoza.
c. Banco Galicia (Cayman) Limited (In Provisional Liquidation)
On January 3, 2003 an attachment was levied on the Entity's
receivables from Banco Galicia Uruguay S.A., for a total amount
of US$ 1,014
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 US dollars)
NOTE 6: (Continued)
(including legal expenses), which should have been transferred to
the Entity in payment of the second installment of that credit.
The pertinent defenses have been filed before the courts to
safeguard the Entity's interests, therefore such item has been
recognized under "Sundry receivables". At the date of these
financial statements, Banco de Galicia (Cayman) Limited (In
provisional liquidation) had not yet collected the amount of
those receivables. Furthermore, the lower court decision was
favorable to the Entity, so it is believed that the Appellate
Court will also rule in favor of the Company.
NOTE 7: TRUST ACTIVITIES
a) Trust Contracts as security for compliance with obligations
Purpose: to secure compliance with contractual obligations, the
parties to these contracts have agreed to deliver in trust to the
Bank amounts to be invested according to the following detail:
- ---------------------------------------------------------------------------------------------------------
Contract date Trustor Trust fund Due Date
balance
US$
- ---------------------------------------------------------------------------------------------------------
05.15.98 Natalio Garber y Silvia Chait de Garber 21,328 05.15.03 (1)
- ---------------------------------------------------------------------------------------------------------
01.06.98 Eduardo Sumic y Ercides Ciani 33 07.07.07 (2)
- ---------------------------------------------------------------------------------------------------------
09.20.02 Tarjeta Naranja S.A. I 1,922 05.31.10 (3)
- ---------------------------------------------------------------------------------------------------------
09.20.02 Tarjetas Cuyanas S.A. I 228 05.31.10 (3)
- ---------------------------------------------------------------------------------------------------------
10.31.02 Tarjetas Cuyanas S.A. II 80 05.31.10 (3)
- ---------------------------------------------------------------------------------------------------------
02.07.03 Tarjeta Naranja S.A. II 427 01.31.11 (3)
- ---------------------------------------------------------------------------------------------------------
b) AdministraTrust Agreements
Purpose: to administer and exercise the financial ownership of
the trust assets.
- ---------------------------------------------------------------------------------------------------------
Contract date Trustor Trust fund Due date
balance
US$
- ---------------------------------------------------------------------------------------------------------
12.23.02 Coca-Cola de Argentina S.A. 316 12.31.04
- ---------------------------------------------------------------------------------------------------------
(1) The contract shall remain in force until its purpose has been
complied with.
(2) These amounts will be released upon maturity or when the Bank
receives instructions in accordance with contract stipulations.
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 US dollars)
NOTE 7: (Continued)
(3) These amounts will be released monthly until the earlier of
the settlement date of trustor obligations or the due date.
NOTE 8: NEGOTIABLE OBLIGATIONS AND OTHER DEBT SECURITIES
a) Banco de Galicia y Buenos Aires S.A. - Ordinary Negotiable
Obligations
a.1) As of September 30, 2003, Banco de Galicia y Buenos Aires
S.A. had the following negotiable obligation issues outstanding:
=====================================================================================================
ISSUE AUTHORIZED BY THE
ISSUE DATE FACE VALUE TERM RATE NATIONAL SECURITIES
COMMISSION
-----------------------------------------------------------------------------------------------------
11.08.93 200,000 10 years 9.00 % 10.08.93
=====================================================================================================
a.2) Under the global program for issuing ordinary negotiable
obligations approved by the Shareholders' Meeting held on March
3, 1993, as of September 30, 2003, Banco de Galicia y Buenos
Aires S.A. had the following negotiable obligation issue
outstanding:
=====================================================================================================
ISSUE AUTHORIZED BY THE
ISSUE DATE FACE VALUE TERM RATE NATIONAL SECURITIES
COMMISSION
-----------------------------------------------------------------------------------------------------
08.07.97 150,000(*) 1,825 days (1) 08.02.93 and
12.20.94
=====================================================================================================
(1) On the interest payment dates falling due in August 2002 or
before, Libor plus 1.875%
(*) This issue has fallen due.
a.3) The Ordinary Shareholders' Meeting held on September 30,
1997, authorized the creation of a Global Program for a maximum
total amount of US$ 1,000,000 for issuing ordinary negotiable
obligations, not convertible into shares which may be issued in
pesos, US dollars or other currencies.
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.
had the following short and medium-term negotiable obligation
issues outstanding under the above program:
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 US dollars)
NOTE 8: (Continued)
================================================================================================================
ISSUE AUTHORIZED BY THE
ISSUE DATE FACE VALUE TERM RATE NATIONAL SECURITIES
COMMISSION
----------------------------------------------------------------------------------------------------------------
12.20.00 44,444(*) 1,825 days Libor plus 2% 04.22.98
----------------------------------------------------------------------------------------------------------------
06.11.01 10,667(*) 1,653 days Libor plus 2% 04.22.98
----------------------------------------------------------------------------------------------------------------
07.19.02 72,635 1,840 days 7.875% 04.22.98
----------------------------------------------------------------------------------------------------------------
07.19.02 43,161 1,840 days Libor - 6 months 04.22.98
plus 4%
================================================================================================================
(*) On December 20, 2001, the first installment was amortized for
a face value of 5,556 and 1,333, respectively, the last three
past due services remaining unpaid at the date of these financial
statements.
a.4) The Ordinary Meeting of Shareholders held on September 30,
2003 approved the creation of a Global Program for the issuance
and reissuance of ordinary negotiable obligations, not
convertible into shares, whether subordinated or not, secured or
unsecured, for a maximum nominal amount of US$ 2,000,000 or its
equivalent in any other currency, outstanding at any time during
the life of the Program, as determined by the Board of Directors,
for a maximum term of five years counted as from the
authorization of the Program by the National Securities
Commission (CNV) or for any other longer term the CNV may
authorize pursuant to regulations. The proceeds of the placement
of the negotiable obligations to be issued under the Program will
be used to refinance the liabilities governed by foreign laws.
As of September 30, 2003 and December 31, 2002, the amount of the
negotiable obligations in respect of principal and interest, net
of discounts, was US$ 569,196 and US$ 643,780, respectively, and
was used in accordance with the provisions of Communique "A" 1907
of the Argentine Central Bank for providing financing to domestic
companies with regard to investments in physical assets in
Argentina, providing working capital or refinancing liabilities,
granting consumer and mortgage loans for financing housing
construction, investments in the share capital of domestic
companies and other purposes envisaged in the above mentioned
Communique.
b) Banco de Galicia y Buenos Aires S.A.'s controlled companies -
Issue of negotiable obligations and other debt securities
During the fiscal year ended December 2002, various Series of
short and medium-term Negotiable Obligations issued by Tarjetas
Cuyanas S.A., Tarjetas del Mar S.A., Tarjeta Comfiar S.A. and
Tarjeta Naranja S.A. fell
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 US dollars)
NOTE 8: (Continued)
due. The difficult situation affecting the Argentine economy and
particularly the financial system, the devaluation of the peso
and the difficulties in accessing credit on the domestic and
foreign markets have had an adverse effect on the ability of
those companies to meet their payment obligations.
Within that environment, each of those companies have undertaken
a process for the renegotiation of their debts for negotiable
obligations, which has presented different characteristics and
different degrees of progress and/or definitions. As a result,
the criteria used for valuing these debts varied according to the
facts and judgmental elements each company had in relation to
those debts when they issued their respective financial
statements.
Below is disclosed the situation of each of those companies in
relation to these debts as of September 30, 2003, and the
valuation criteria followed:
Tarjetas Cuyanas S.A.:
On May 23 and October 31, 2002, that company entered into an
agreement with Administraciones Fiduciarias S.A. for the
redemption of its Negotiable Obligations through the issue of
debt certificates.
As of September 30, 2003, holders of negotiable obligations
adhered to the exchange of negotiable obligations for debt
certificates in the amount of approximately US$ 5,000 and US$
1,450, respectively. At that date, the Company has valued this
debt at approximately US$ 3,038, a figure obtained by applying
the present value method to the future discounted cash flows, as
established by CNV Resolution No. 434/03.
For purposes of applying the valuation method mentioned above,
Tarjetas Cuyanas S.A. has taken as a premise for the agreement
entered into on May 23, 2002 a nominal annual discount rate of
11% and a cash flow made up of 5% of the monthly collections of
receivables derived from the use of credit cards for a term of 8
years counted as from the earlier of June 1, 2002 or until the
full amortization of the subscribed certificates, and for the
agreement entered into on October 31, 2002, a nominal annual
discount rate of 11% and a cash flow made up of 1.75% of the
monthly collections of receivables derived from the use of credit
cards for a term of 7 years and 7 months, counted as from the
earlier of November 1, 2002 or until the full amortization of the
subscribed certificates.
The above-mentioned cash flows are made up of:
a) receivables derived from the use of credit cards;
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 US dollars)
NOTE 8: (Continued)
b) consumer loans granted by the Company to the holders of credit
cards issued by it; and
c) refinancing of receivables mentioned in a) and b).
As a result of those transactions and of certain payments made,
Tarjetas Cuyanas S.A. records due and payable negotiable
obligations amounting to approximately US$ 3,377 as of September
30, 2003, of which US$ 3,180 are in the hands of the minority
shareholders, with whom the issuance of a new series in pesos is
being negotiated for a term of one year, converting the nominal
values due at a conversion rate of $1.9 per US dollar. At that
date, Tarjetas Cuyanas S.A. had valued this debt by approximately
US$ 2,167, which represent the redemption value estimated by the
management of Tarjetas Cuyanas S.A. on the basis of the
negotiations carried out so far. If this debt were to be valued
at the free US dollar exchange rate, an additional loss of
approximately US$ 1,188 would be generated at period end.
The maximum risk associated with the situations described in
relation to the financial statements of Tarjetas Regionales S.A.
amounts to US$ 713.
On August 4, 2003, Banco de Galicia y Buenos Aires S.A. accepted
the restructuring of Tarjetas Cuyanas S.A.'s financial liability
for US$ 3,431. The conditions for the restructuring of this
liability are a term of one year with interest payments at the
BCRA Survey rate plus 2% per annum.
Tarjetas del Mar S.A.:
As of September 30, 2003, the debt certificates issued by the
Company and accepted by most holders of obligations in order to
redeem negotiable obligations amounted to US$ 15,000 (face
value).
The operation schedule proposed is the following: (i) Tarjetas
del Mar S.A. issues a debt certificate for US$ 15,000, payable
within 10 years in 10 annual and consecutive installments; (ii)
Tarjetas del Mar S.A. exchanges with Banco de Galicia (Cayman
Branch), its own debt certificate for a certificate issued by
Tarjeta Naranja S.A., which is held by that branch of Banco de
Galicia; and (iii) Tarjetas del Mar S.A. offers the holders of
its Negotiable Obligations to exchange them for the debt
certificate issued by Tarjeta Naranja S.A. The Argentine Central
Bank has not made any observations in relation to this procedure,
concerning matters within its field of competence.
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 US dollars)
NOTE 8: (Continued)
As of September 30, 2003, the balance of the Global Negotiable
Obligation Program issued, which continue to be due and payable
is equivalent to an amount of US$ 843. The Board of Directors of
the Company has valued the negotiable obligations as of September
30, 2003, as follows: US$ 663 (face value) at the exchange rate
of US$ 1 = $ 1, plus CER, and US$ 180 (face value), at the
exchange rate of US$ 1 = $ 1.40. If all the due and payable
negotiable obligations as of September 30, 2003 were to be valued
at the free US dollar exchange rate, an additional loss of
approximately US$ 428 would be generated at period end.
The maximum risk attaching to these situations, which could have
an impact on the financial statements of Tarjetas Regionales
S.A., amounted to approximately US$ 428.
In addition, bank loans for US$ 6,175 and overdraft facilities
for US$ 1,153 are past due.
As regards debts with related financial institutions, it is the
intention of that Company's Board of Directors to propose making
contributions or capitalizing debts in order to improve the
economic and financial profile of the Company.
Tarjetas del Mar S.A. proposed to Banco de Galicia y Buenos Aires
S.A. the capitalization of the debt it holds with Banco de
Galicia y Buenos Aires S.A. Cayman Branch for US$ 15,000, and the
refinancing of up to US$ 5,386 of its liability with Banco de
Galicia y Buenos Aires S.A. for a term of 4 years, amortizing 5%
of the debt in the first year, 10% in the second year, 15% in the
third year and 70% upon maturity, with quarterly interest
payments at survey rate plus 2%, and secured by Tarjeta Naranja
S.A. This proposal was accepted by Banco de Galicia y Buenos
Aires S.A. and is subject to the consideration of the BCRA.
Tarjeta Comfiar S.A.:
At the closing date of these financial statements, the Company
had not repaid the past due loans from Banco de Galicia y Buenos
Aires S.A. Cayman Branch for US$ 24,827 and from Banco de Galicia
y Buenos Aires S.A. for US$ 6,599, which fell due on February 10
and February 11, 2003, respectively.
Tarjeta Comfiar S.A. requested from Banco de Galicia y Buenos
Aires S.A. the refinancing of its liabilities for a term of 4
years, amortizing 5% of the debt in the first year, 10% in the
second year, 15% in the third year and
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 US dollars)
NOTE 8: (Continued)
70% upon maturity, with quarterly interest payments at survey
rate plus 2% and annual interest payments on the debt with the
above-mentioned Branch. This proposal was accepted by Banco de
Galicia y Buenos Aires S.A. and is subject to the consideration
of the BCRA.
As of September 30, 2003 the company has settled all its
negotiable obligation liabilities.
On August 4, 2003 Tarjeta Comfiar S.A. requested from the CNV and
the Buenos Aires Stock Exchange the delisting from the public
offering regime and the revocation of the approval of the short
and medium-term Global negotiable obligation issue program for up
to US$ 50,000, as it was not the company's intention to issue new
negotiable obligations and it had no outstanding negotiable
obligations.
The Buenos Aires Stock Exchange revoked the approval of the
mentioned global program through a letter dated August 8, 2003
and the CNV authorized the delisting from the public offering
regime through Resolution No. 14619 dated September 11, 2003.
Tarjeta Naranja S.A.:
On May 23, 2002 and February 7, 2003, Tarjeta Naranja S.A.
executed two agreements for the redemption of negotiable
obligations and the issuance of debt certificates in US dollars
secured by a trust (see Note 1 to the financial statements of
Grupo Financiero Galicia S.A.). As of September 30, 2003, holders
of negotiable obligations had adhered to those agreements in the
amount of US$ 69,445, the residual value of those negotiable
obligations amounting to US$ 51,459 at period end, due to
amortization for the period.
The debt certificates have been valued by determining the present
value of the cash flow involved, converted at the exchange rate
prevailing on the transaction date. The application of the
present value method to this financial debt, recommended by
Technical Pronouncement No. 17 of the Argentine Federation of
Professional Councils in Economic Sciences and approved by the
Professional Council in Economic Sciences of the Province of
Cordoba, results in US$ 46,613 (including principal and
interest).
As of September 30, 2003, the overdue balance of the Global
Negotiable Obligation Program not yet collected by their holders
amounted to US$ 2,128.
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 US dollars)
NOTE 8: (Continued)
In view of Tarjeta Naranja S.A.'s expectations for the method of
redemption of these obligations, either by means of the adherence
to the agreement or by redeeming them in cash, such obligations
have been valued as follows: 50%, that is US$ 1,064, are expected
to be redeemed in cash applying the US$1=$1 exchange rate, plus
CER, and the remaining 50% is expected to be exchanged for debt
securities, so they were valued applying the same procedure as
that described above for debt certificates, a present value of
US$ 962 being determined. If all the due and payable negotiable
obligations amounting to US$ 2,128 were valued at the free US
dollar exchange rate as of September 30, 2003, an additional loss
of approximately US$ 638 would be generated at period end.
The maximum risk attaching to the situations described, which
could have an impact on the consolidated financial statements of
Tarjetas Regionales S.A. amounts to US$ 511.
On February 6, 2003 the Board of Directors of Tarjeta Naranja
S.A. approved the issuance of Debt Certificates secured by a
Trust Series II for US$ 15,000 with similar characteristics to
the Agreement entered into on May 23, 2002 for the redemption of
negotiable obligations Series XXVII. On February 7, 2003 that
Agreement was entered into and fully subscribed. This debt has
been settled in monthly installments with 1% of collections since
February 1, 2003, for eight years counted as from the earlier of
that date or until the certificates subscribed are fully
amortized. Those Debt Certificates were valued by determining the
present value of the discounted cash flows, converted at
period-end exchange rate. The application of the present value
method to this financial debt, established by Technical
Pronouncement No. 17 of the Argentine Federation of Professional
Councils in Economic Sciences and approved by the Professional
Council in Economic Sciences of the Province of Cordoba, results
in a present value of US$ 11,228 (principal) and US$ 21
(interest) which, valued at period-end exchange rate represents a
principal amount of thousand $ 32,731 plus interest for thousand
$ 61.
Currently, the Company is negotiating with Banco de Galicia y
Buenos Aires S.A. Cayman Branch, holder of 100% of negotiable
obligations Series XXVII not exchanged for a total amount of US$
8,867, a restructuring of an outstanding debt balance through the
delivery of transferable debt certificates secured by the
transfer of the fiduciary ownership of a percentage of
collections.
On July 18, 2003, all interest accrued on the bank debt of US$
27,444 at that date was paid to Banco de Galicia y Buenos Aires
S.A. This debt fell due on February 12, 2003.
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 US dollars)
NOTE 8: (Continued)
Tarjeta Naranja S.A. submitted a proposal for the restructuring
of these two past due debts, which consists of:
- A loan from Banco de Galicia y Buenos Aires S.A. for US$
27,444: to capitalize US$ 6,862 and amortize the balance in
four annual installments of 5%, 10%, 15% and 70%, with
quarterly interest payments at survey rate plus 2%.
- It was agreed to settle the debt balance of negotiable
obligations Series XXVII held with Banco de Galicia y Buenos
Aires S.A. Cayman Branch for US$ 8,867 with the issue of a
new series of debt certificates with similar characteristics
to those of the agreement for the redemption of negotiable
obligations and issuance of debt certificates secured by a
Trust, Series I. This proposal has been accepted by Banco de
Galicia y Buenos Aires S.A. and is subject to the
consideration of the BCRA.
The maximum risk attaching to the situations described, which
could have an impact on the financial statements of Grupo
Financiero Galicia S.A. would amount to approximately US$ 1,545.
NOTE 9: DEPOSIT INSURANCE SYSTEM
Law 24485 and Decree 540/95 established the creation of the
Deposit Insurance System to cover the risk attached to bank
deposits, beyond the system of privileges and safeguards
envisaged in the Financial Institutions Law.
Pursuant to Communique "A" 2337, the Argentine Central Bank
established rules for applying the deposit insurance and the way
of settling the related contributions.
The National Executive Power through Decree 1127/98 dated
September 24, 1998 extended this insurance system to demand
deposits and time deposits of up to US$ 10 denominated either in
pesos or in foreign currency.
This System does not cover the deposits made by other financial
institutions (including the time deposit certificates acquired
through a secondary transaction), the deposits made by persons
related to Banco de Galicia y Buenos Aires S.A., either directly
or indirectly, deposits of securities, acceptances or guarantees
and those set up after July 1, 1995 at an interest rate exceeding
the one that the Argentine Central Bank regularly establishes
based on a daily survey conducted by it.
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 US dollars)
NOTE 9: (Continued)
Nor does this System cover deposits whose ownership has been
acquired through endorsement and placements which offer
incentives in addition to the interest rate. The System has been
implemented through the creation of the Deposit Insurance Fund,
which is managed by a company called Seguros de Depositos S.A.
(SE.DE.S.A.). The shareholders of SE.DE.S.A. 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 said fund.
Through Communique "A" 3068, the Argentine Central Bank reduced
the normal contribution to the said Fund, which amounted to
0.03%, to half, provided that the financial institution arranges
with SEDESA 36-month loans, to be earmarked for the Deposit
Insurance Fund. Interest on these loans has been determined on
the basis of the yield obtained by the mentioned Fund on its
placements.
As from September 2000, Argentine Central Bank Communique "A"
3153 eliminated the above mentioned loan and the normal
contribution of 0.015% on items comprised in the calculation
basis remained in force.
As from December 2001, Argentine Central Bank Communique "A" 3358
resolved to increase the contribution to 0.03%. As of September
30, 2003 the normal contribution to the Deposit Insurance Fund
amounted to US$ 93,132, of which US$ 2,971 correspond to the
current period.
NOTE 10: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS
Argentine Central Bank regulations establish that 20% of the
profits shown in the Income Statement at period end, plus (less)
prior year adjustments must be allocated to the legal reserve.
This proportion is applicable regardless of the ratio of the
legal reserve fund to the capital stock.
Furthermore, as a result of the facts described in Note 1 to the
financial statements, through Resolution 81 dated February 8,
2002, the Argentine Central Bank established that while the
assistance received from that Entity is in force, Banco de
Galicia y Buenos Aires S.A. may not distribute dividends or any
other return on capital in cash, remit profits or make payments
for fees, interests or compensation related to results.
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 US dollars)
NOTE 10: (Continued)
Furthermore, Argentine Central Bank Communique "A" 3574 provided
for the suspension of the distribution of profits until the
criteria for valuing the shareholders' equity of Banco de Galicia
y Buenos Aires S.A. are defined, which include the known effects
of Law 25561 and supplementary provisions.
Communique "A" 3785 provides that financial institutions which
receive in compensation National Government bonds within the
framework of Sections 28 and 29 of Decree 905/02, may record them
at their technical value; while using this procedure, financial
institutions may not distribute cash dividends, except for the
amount of profits in excess of the difference between the
carrying value and the market value of those bonds, net of the
pertinent appropriation to legal reserve and to the reserve
established by the bank's by-laws, and the same treatment will be
given to those institutions which decide to exchange the
compensating bonds for promissory notes issued by the National
Government.
NOTE 11: NATIONAL SECURITIES COMMISSION (Comision Nacional de Valores)
-Resolution No. 368/01
The Bank's equity as of September 30, 2003 exceeds that required
by Chapter XIX, points 4 and 5 of CNV Resolution No. 368/01 to
act as over-the-counter broker.
Furthermore, in compliance with Section 32 of Chapter XI of that
resolution, as depository of the mutual funds "FIMA ACCIONES",
"FIMA P.B. ACCIONES", "FIMA RENTA EN PESOS", "FIMA RENTA EN
DOLARES", "FIMA MIX PLUS ", "FIMA MIX ", "FIMA RENTA CORTO
PLAZO", "FIMA MONEY MARKET EN PESOS" "FIMA MONEY MARKET EN
DOLARES" , "FIMA GLOBAL ASSETS" and "FIMA RENTA LATINOAMERICANA",
the Bank has a total of 188,564,130 units under custody for a
market value of US$ 37,551, which is included in the "Depositors
of Securities in Custody" account.
At December 31, 2002, the securities held in custody by Banco de
Galicia y Buenos Aires S.A. totaled 155,298,672 units and their
market value amounted to US$ 21,564.
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 US dollars)
NOTE 12 CONTRIBUTIONS TO THE BANK EMPLOYEES' SOCIAL SERVICES INSTITUTE
(the "ISSB")
Effective July 1, 1996, Decree No. 263/96 of the National
Executive Power reduced to 1% and effective July 1, 1997 Decree
No. 915/96 eliminated the 2% contribution on interest and fees
that banks previously had to make to the ISSB, pursuant to
Section 17 of Law No. 19322. Banco de Galicia y Buenos Aires S.A.
has determined the aforementioned contributions in accordance
with these regulations. The bank employee union (the "Banking
Association") brought legal action calling for a stay against the
National Executive Power - Ministry of Public Works and Services,
with a view to having Section 1 of Decree 263/96 declared null
and unconstitutional, and got a favorable ruling from the Federal
Court dealing with Administrative Litigation Matters, Panel I.
The National Supreme Court of Justice declared out of order an
extraordinary appeal made by the National Executive Branch on
November 4, 1997. Therefore, the ruling in favor of the Banking
Association became firm.
Although in the opinion of the legal counsel of the financial
institutions this ruling is not opposable against the banks
because they were not a party to the aforementioned legal action,
the juridical uncertainty still persists. In April 1998, the Bank
Employees' Health Care System (OSBA) made a final claim against
Banco de Galicia y Buenos Aires S.A., which was refuted from the
administrative angle before OSBA, the Federal Public Revenue
Authority (AFIP) and the National Social Security Administration.
Furthermore, the Banking Association brought legal action calling
for a stay before the First Instance No. 5 Federal Social
Security Court, requesting a precautionary measure ordering the
OSBA not to bring legal actions for tax collection or make
verifications on the grounds of article 17, clause f) of Law
19,322 until a final judgment is issued about whether this
supposed claim is applicable.
This latter measure is firm and was confirmed by the National
Social Security Court (Panel II).
OSBA filed an extraordinary appeal with the National Supreme
Court of Justice, which was dismissed by the Court on November
21, 2000.
Furthermore, OSBA has brought a legal action against all
institutions in the financial system, before the Federal Court
dealing with Administrative Litigation Matters, and the complaint
has already been answered. The trial of the case has been
ordered. Considering that a risk exists as to the interpretations
that courts may make of this dispute, the Bank has agreed
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 US dollars)
NOTE 12: (Continued)
to a settlement regarding those disputed or doubtful rights,
without this involving any recognition of rights. This settlement
has been approved by the Federal Court of First Instance on
Administrative Litigation Matters No. 4, in the case identified
above, which will reduce the potential risk to which the Bank
would be exposed if an unfavorable resolution were to be issued.
NOTE 13: REGULATIONS ON BANK CURRENT ACCOUNTS
On March 24, 2001, the Competitiveness Law No. 25413 was enacted
and promulgated. This norm repeals the system of fines and
penalties for current account holders and financial institutions
established by Laws No. 24452 and 24760.
In the case of the latter, effective January 13, 1997, the law
that was repealed provided a system of fines for financial
institutions which would have kept current accounts open when
they should have been closed, or would have opened current
accounts to current account holders who had been disqualified.
In view of the above, on April 16, 1999, Section 3 of Decree
347/99 of the National Executive Power established that:
"In the case of the fines resulting from applying Section 62,
last paragraph ..., as amended by Law No. 24,760, accumulated by
each financial institution at the effective date of this decree,
the Argentine Central Bank is empowered to set the amount of the
fines between a minimum of five thousand dollars (US$ 5) and a
maximum of six hundred eighty six thousand dollars (US$ 686) for
each institution, based on the number of non-compliance by each
one".
In line with Argentine Central Bank Communique "A" 2909 Banco de
Galicia y Buenos Aires S.A. has reported to the aforementioned
body the current accounts kept open when they should have been
closed and paid the corresponding fines, taking the
aforementioned caps into consideration. Subsequently, Banco de
Galicia y Buenos Aires S.A. received a communication from the
Argentine Central Bank addressed to all financial institutions,
calling upon them to pay the corresponding amount, pursuant to
Section 62 of the Law Governing Checks. In view of this Banco de
Galicia y Buenos Aires S.A. filed a claim for a temporary
restraining order with the Federal Court of First Instance
dealing with Administrative Litigation Matters No. 4, Clerk's
Office No. 7, in the event that said communication might prove
detrimental to its vested rights.
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 US dollars)
NOTE 13: (Continued)
The temporary restraining order has been dismissed by the lower
court on the grounds that Decree No. 347/99 had been declared
unconstitutional in the ordinary proceedings initiated by the
Ombudsman requesting that such decree be declared null and void
because it allegedly violated constitutional rights.
The decision dismissing the temporary restraining order has been
appealed by the Bank.
If this decision were to be confirmed by the appellate court, and
if the judgment rendered in the lawsuit prosecuted by the
Ombudsman were to become final, the adverse effect on the Bank
would be that the Argentine Central Bank might claim from Banco
de Galicia y Buenos Aires S.A. payment of the difference between
the amount actually paid by it under the guidelines of Decree
347/99 and the amount that it should have paid as a result of the
application of Section 62 of Law 24452, as amended by Law 24760.
NOTE 14: SETTING UP OF THE "GALTRUST I" INDIVIDUAL FINANCIAL TRUST
At the meeting held on March 15, 2000, the Board of Directors of
Banco de Galicia y Buenos Aires S.A. approved Banco de Galicia y
Buenos Aires S.A.'s participation as originator, trustor and
manager in a global program for setting up financial trusts for
up to US$ 1,000,000. The creation of this program was approved by
the National Securities Commission through resolution No. 13334
dated April 6, 2000.
The trustee of this trust will be First Trust of New York,
National Association, through its permanent representation in
Argentina.
Under this global program, on October 20, 2000, Banco de Galicia
y Buenos Aires S.A. transferred the trust ownership of loans
amounting to US$ 490,224 granted to Argentine Provinces
collateralized by the federal tax sharing corresponding to those
Provinces, and reserve investments for US$ 7,761, to the GalTrust
I Financial Trust.
As a counterpart, Banco de Galicia y Buenos Aires S.A. received
Class A Debt Securities for a face value of US$ 100,000, Class B
Debt Securities for a face value of US$ 200,000 and Certificates
of Participation for a face value of US$ 200,000.
As of September 30, 2003 and December 31, 2002, Banco de Galicia
y Buenos Aires S.A. held debt securities and certificates of
participation in its portfolio for US$ 222,685 and US$ 235,389,
respectively.
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 US dollars)
NOTE 15: SETTING UP OF THE "GALTRUST II and V" INDIVIDUAL FINANCIAL TRUSTS
At the meeting held on December 6, 2001, the Board of Directors
of Banco de Galicia y Buenos Aires S.A. approved the creation of
the Universal Program for the Securitization of Loans for the
issue of debt securities and/or certificates of participation in
Galtrust Financial Trusts. This program was approved by the
National Securities Commission resolution No. 13334 dated April
6, 2000, for a face value of up to US$ 1,000,000 (the "Program")
and authorized Banco de Galicia y Buenos Aires S.A.'s
participation as originator, trustor and manager of that program.
The trustee of those trusts will be First Trust of New York,
National Association, through its permanent representation in
Argentina
Four financial trusts, Galtrust II, III, IV and V - Mortgage
bills, were set up under the above-mentioned program, and
Certificates of Participation and Debt Securities were issued.
Banco de Galicia y Buenos Aires S.A. subscribed 100% of the
certificates of participation and the Class A and Class B Debt
Securities were subscribed by the New York Branch, Banco de
Galicia Uruguay S.A. and Aseguradora de Personas Galicia S.A.
(formerly Hartford Seguros de Vida S.A.)
On December 26, 2002 the Galtrust III and IV financial trusts
were terminated.
As of September 30, 2003, Banco de Galicia y Buenos Aires S.A.
and Banco de Galicia Uruguay S.A. held in their portfolio US$
6,041 and US$ 16,927, respectively.
NOTE 16: GALICIA 2004 AND 2005 TRUSTS
Under the "Framework Trust Agreement" signed with First Trust of
New York (the trustee), the Bank, in its capacity as trustor, has
created "Galicia 2004 Trust" to implement an incentive program in
favor of certain executives of the Bank, to be determined from
time to time by the Board of Directors. For that purpose, the
amount of US$ 4,000 was transferred to the trustee, which was
used for the purchase of shares in Grupo Financiero Galicia.
On November 19, 2001, specific beneficiaries were awarded 855,442
shares and 28,046.60 ADS, and 3,400 ADS that were not awarded
were returned to the trustor. The balance of 157,669.40 ADS
formed the Galicia 2005 Trust.
On June 15, 2003 Galicia 2004 Trust was terminated in advance,
the shares and ADSs having been delivered to the beneficiaries
designated
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 US dollars)
NOTE 17: CHANGES IN SIGNIFICANT ASSETS AND LIABILITIES
The breakdown of the most significant assets and liabilities
shown in these consolidated financial statements, presented in
comparative format with those of the previous year ended December
31, 2002, in order to disclose the changes in those assets and
liabilities during the current period is as follows:
==============================================================================================================
9.30.03 12.31.02
-------------------------------
ASSETS -------------------------------
LOANS 3,636,886 3,664,550
-------------------------------
-To the non-financial public sector 2,632,232 2,638,086
-To the financial sector 69,638 46,247
-To the non-financial private sector and residents abroad 1,399,062 1,557,176
-Overdraft facilities 69,629 77,868
-Notes 462,960 529,765
-Mortgage loans 252,572 296,385
-Pledge loans 18,483 65,706
-Consumer loans 17,215 41,161
-Credit card loans 236,593 200,667
-Other 162,108 141,351
-Accrued interest and quotation differences receivable 180,905 208,740
-Documented interest (1,277) (3,716)
-Unallocated collections (126) (751)
-Allowances for loan losses (464,046) (576,959)
-------------------------------
OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 2,228,134 3,175,198
-------------------------------
-Argentine Central Bank 30,652 19,179
-Amounts receivable for spot and forward sales to be settled 2,214 659
- Securities receivable under spot and forward purchases to be 1,756 232
settled
-Unlisted negotiable obligations 34,250 45,392
-Other not included in the debtor classification regulations 2,031,787 2,877,468
-Other included in the debtor classification regulations 108,257 236,663
-Accrued interest receivable not included in the debtor classification 37,210 2,467
regulations
- Accrued interest receivable included in the debtor classification 1,131 8,348
regulations
-Allowances (19,123) (15,210)
==============================================================================================================
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 US dollars)
NOTE 17: (Continued)
===============================================================================================================
9.30.03 2.31.02
---------------------------------
LIABILITIES
---------------------------------
DEPOSITS 1,877,104 1,787,088
---------------------------------
-Non-financial public sector 1,761 2,685
-Financial sector 6,430 1,011
-Non-financial private sector and residents abroad 1,868,913 1,783,392
-Current accounts 372,805 248,149
-Savings accounts 268,685 193,437
-Time deposits 955,759 831,271
-Investment accounts 348 -
-Other 197,262 381,119
-Accrued interest and quotation differences payable 74,054 129,416
---------------------------------
OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 5,160,379 5,616,114
---------------------------------
-Argentine Central Bank 2,803,298 2,780,811
-Rediscounts to cover lack of liquidity 1,914,229 1,869,599
-Other 889,069 911,212
-Banks and international entities 931,790 1,092,525
-Unsubordinated negotiable obligations 831,973 1,188,521
-Amounts payable for spot and forward purchases to be settled 1,851 732
-Securities to be delivered under spot and forward sales to be
settled 37,614 42,720
-Loans from domestic financial institutions 51,071 69,047
-Other 331,688 345,963
-Accrued interest and quotation differences payable 171,094 95,795
=============================================================================================================
NOTE 18: SITUATION OF CERTAIN COMPANIES CONSOLIDATED WITH BANCO DE GALICIA
Y BUENOS AIRES S.A.
On September 15, 2003, the Board of Directors of Tarjeta Comfiar
S.A. and Tarjeta Naranja S.A. signed a preliminary merger
agreement involving the two companies, whereby Tarjeta Comfiar
S.A. would merge into Tarjeta Naranja S.A.. Under this agreement,
as from January 1, 2004 these companies shall jointly conduct the
corporate business to take greater advantage of existing
resources. The Preliminary Merger Agreement was approved by the
Extraordinary Meetings of Shareholders of the two companies held
on October 2, 2003.
As of September 30, 2003, Tarjeta Comfiar S.A., Tarjetas del Mar
S.A., and Tarjetas Regionales S.A. reported deficits in their
equity, and this situation is subject to the provisions of
Section 94, subsection 5) of the Corporations Law.
Accumulated losses are in excess of 50% of the corporate capital
and irrevocable capital contributions made by the shareholders,
according to the computation established by Section 206 of that
Law. It should be noted that Decree 1269/02 suspended until
December 10, 2003 the application of Section 94, subsection 5) of
Law 19550, which establishes that companies
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 US dollars)
NOTE 18: (Continued)
must be dissolved when their losses exceed their corporate
capital and of Section 206, which establishes mandatory capital
reduction when losses are in excess of reserves and 50% of
capital.
NOTE 19: GALICIA MORTGAGE LOANS AND SECURED LOANS TRUSTS
As part of the implementation of the Galicia Capitalization and
Liquidity Plan, during May 2002, "Galicia Mortgage Loans
Financial Trust" was created, by which mortgage loans for US$
107,298 were transferred, receiving in exchange US$ 80,473 in
cash and certificates of participation for US$ 26,825. The
trustee is ABN AMRO Bank Argentine Branch, with various domestic
financial institutions acting as subscribers.
The Secured Loans Trust has been created and the parties to it
are Banco de la Provincia de Buenos Aires as beneficiary and
BAPRO Mandatos y Negocios S.A., as trustee. Under this Trust,
secured loans for US$ 37,050 were transferred and US$ 27,787 in
cash and certificates of participation for US$ 9,262 were
received in exchange.
Banco de Galicia y Buenos Aires S.A. acts as administrator in
both cases.
As of September 30, 2003, the amounts of the participation
certificates was US$ 35,704 and US$ 13,620, respectively.
As of December 31, 2002, the amounts of the participation
certificates were US$ 31,019 and US$ 9,343, respectively.
NOTE 20: SEGMENT INFORMATION
Below is a detail of the accounting information as of September
30, 2003, classified according to the related business segment:
Primary segment: Business Segment.
Financial Services Total
brokerage
Income 464,458 107,585 572,043
Expenses (426,116) (17,617) (443,733)
------------------------------------------------
Result 38,342 89,968 128,310
================================================
Secondary segment: Geographic area segment.
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 US dollars)
NOTE 20: (Continued)
City of Buenos Aires and Rest of Total
Greater Buenos Aires country
Financial brokerage
Income 453,961 10,497 464,458
Expenses (416,486) (9,630) (426,116)
---------------- -------------- ---------------
Result 37,475 867 38,342
================ ============== ===============
Services
Income 105,151 2,431 107,582
Expenses (17,219) (398) (17,617)
---------------- -------------- ---------------
Result 87,932 2,033 89,965
================ ============== ===============
The accounting measurement of assets and liabilities allocated to
the above-mentioned segments is as follows:
Assets
Government and corporate securities 964,660
Loans 3,636,886
Other receivables resulting from financial
brokerage 2,228,134
Assets under financial leases 7,405
Liabilities
Deposits 1,877,104
Other liabilities resulting from financial
brokerage 5,160,379
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"
Statement of Financial Condition as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
(Note 2)
========================================================== ==================== ====================
9.30.03 12.31.02
-------------------- --------------------
ASSETS
CURRENT ASSETS
Cash and due from banks (Notes 3 and 11 and Schedule G) 322 443
Investments (Notes 9 and 11 and Schedules C and G) 7,101 12,506
Other receivables (Notes 4, 9 and 11 and Schedule G) 2,167 65
-------------------- --------------------
Total Current Assets 9,590 13,014
-------------------- --------------------
NON-CURRENT ASSETS
Other receivables (Notes 4, 9 and 11 and Schedule G) 1,452 2
Investments (Notes 9, 10 and 11 and Schedules C, E and G) 508,933 562,699
Fixed assets (Schedule A) 1,195 1,265
Intangible assets (Schedules B and E) 2,656 4,702
-------------------- --------------------
Total Non-current Assets 514,236 568,668
-------------------- --------------------
Total Assets 523,826 581,682
========================================================== ==================== ====================
========================================================== ==================== ====================
9.30.03 12.31.02
-------------------- --------------------
LIABILITIES
CURRENT LIABILITIES
Salaries and social security liabilities (Notes 5 and 9) 23 47
Tax liabilities (Notes 6 and 9) 61 449
Other liabilities (Notes 7, 9 and 11 and Schedule G) 51 475
-------------------- --------------------
Total Current Liabilities 135 971
-------------------- --------------------
NON-CURRENT LIABILITIES
Tax liabilities (Notes 6, 9 and 13) 14,896 18,570
Other liabilities (Notes 7 and 9) 2 1
-------------------- --------------------
Total Non-current Liabilities 14,898 18,571
-------------------- --------------------
Total Liabilities 15,033 19,542
-------------------- --------------------
SHAREHOLDERS' EQUITY
(per related statement) 508,793 562,140
-------------------- --------------------
Total Liabilities and Shareholders' Equity 523,826 581,682
========================================================== ==================== ====================
The accompanying Notes 1 to 15 and Schedules A, B, C, E, G and H are an integral
part of these financial statements.
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 period of nine months commenced January 1, 2003
and ended September 30, 2003.
In comparative format with the same period of the previous year
(figures stated in thousands of US dollars)
(Note 2)
================================================== ============================ ==========================
9.30.03 9.30.02
---------------------------- --------------------------
Administrative expenses (Note 11 and Schedule H) (2,148) (2,822)
Loss on investments in related entities (59,132) (372,154)
Financial and holding (loss)/ gain (Note 11)
- - Generated by assets (8,064) 18,889
Interest
On time deposits (*) 294 1,929
On special current account deposits (*) - 62
On government securities - 2
On negotiable obligations (*) 369 24
On notes receivable - 47
Others (*) 23 -
Index-adjustment of notes receivable - 145
Loss on Indol contracts (*) (15) -
Gain on fiscal credit certificate 31 -
Loss on purchase and sale of government securities (499) (2)
Mutual fund yield 2 -
Exchange (loss) / gain (7,717) 74,537
Loss on exposure to inflation (552) (57,855)
- - Generated by liabilities 202 2,035
Interest - -
Exchange gain /(loss) 31 (299)
Gain on exposure to inflation 171 2,334
Other income and expenses, net (Schedule E) 2,141 (15,244)
---------------------------- --------------------------
Loss before income tax (67,001) (369,296)
Income tax - (747)
---------------------------- --------------------------
Loss for the period (67,001) (370,043)
================================================== ============================ ==========================
(*) Balances net of eliminations corresponding to intercompany transactions,
pursuant to Section 33 of Law 19550. See Note 11. The accompanying Notes 1 to 15
and Schedules A, B, C, E, G and H are an integral part of these financial
statements.
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"
Statement of Changes in Shareholders' Equity
For the period of nine months commenced January 1, 2003
and ended September 30, 2003.
In comparative format with the same period of the previous year
(figures stated in thousands of US dollars)
(Note 2)
================================================== ========================================================================
Shareholders' contributions (Note 8)
Non-capitalized
contributions
Item Capital stock Capital
adjustment Issuance Irrevocable Total
premiums contributions
- -------------------------------------------------- --------------- ------------ ---------- --------------- ------------
374,754 443,866 59,388 - 878,008
Balances at beginning of year
Adjustment to balances at beginning of year - 7,137 518 - 7,655
--------------- ------------ ---------- --------------- ------------
--------------- ------------ ---------- --------------- ------------
Balances at beginning of year, adjusted 374,754 451,003 59,906 - 885,663
Prior year adjustments - - - - -
--------------- ------------ ---------- --------------- ------------
Modified and adjusted balances at beginning of 374,754 451,003 59,906 - 885,663
year.
Absorption approved by Ordinary and Extraordinary
Meeting of Shareholders held on 4.23.03:
- Discretionary reserve - - - - -
Loss for the period - - - - -
- -------------------------------------------------- --------------- ------------ ---------- --------------- ------------
Total 374,754 451,003 59,906 - 885,663
================================================== =============== ============ ========== =============== ============
================================================== ============================================================================== =
Retained earnings (Note 12)
Item Reserved profits Total Unappropriated
retained
earnings
Legal Reserve Discretionary Other
reserve reserves
- -------------------------------------------------- --------------- --------------- ---------- ----------- -------------------
10,030 167,439 - 177,469 (498,196)
Balances at beginning of year
Adjustment to balances at beginning of year 87 1,460 - 1,547 (4,343)
--------------- --------------- ---------- ----------- -------------------
Balances at beginning of year, adjusted 10,117 168,899 - 179,016 (502,539)
Prior year adjustments - - - - 13,654
--------------- --------------- ---------- ----------- -------------------
Modified and adjusted balances at beginning of 10,117 168,899 - 179,016 (488,885)
year.
Absorption approved by Ordinary and Extraordinary
Meeting of Shareholders held on 4.23.03:
- Discretionary reserve - (168,899) - (168,899) 168,899
Loss for the period - - - - (67,001)
- -------------------------------------------------- --------------- --------------- ---------- ----------- -------------------
Total 10,117 - - 10,117 (386,987)
================================================== =============== =============== ========== =========== ===================
================================================== ===================== ====================
Item Total shareholders' Total shareholders'
equity as of equity as of
9.30.03 9.30.02
- -------------------------------------------------- --------------------- --------------------
557,281 480,244
Balances at beginning of year
Adjustment to balances at beginning of year 4,859 584,409
--------------------- --------------------
Balances at beginning of year, adjusted 562,140 1,064,653
Prior year adjustments 13,654 -
--------------------- --------------------
Modified and adjusted balances at beginning of 575,794 1,064,653
year.
Absorption approved by Ordinary and Extraordinary
Meeting of Shareholders held on 4.23.03:
- Discretionary reserve - -
Loss for the period (67,001) (370,043)
- -------------------------------------------------- --------------------- --------------------
Total 508,793 694,610
================================================== ===================== ====================
The accompanying Notes 1 to 15 and Schedules A, B, C, E, 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"
Statement of Cash Flows
For the period of nine months commenced January 1, 2003
and ended September 30, 2003.
In comparative format with the same period of the previous year
(figures stated in thousands of US dollars)
(Note 2)
========================================================== ======================= =======================
9.30.03 9.30.02
- ---------------------------------------------------------- ----------------------- -----------------------
CHANGES IN CASH
Cash at beginning of year 443 122
Cash at end of period 322 420
----------------------- -----------------------
Net (decrease)/ increase in cash (121) 298
======================= =======================
REASONS FOR CHANGES IN CASH
Operating activities
Collections for sales of goods and services 118 86
Payments to suppliers of goods and services (1,261) (1,653)
Payments to the staff and social security contributions (207) (264)
Payments of income tax (453) -
Payments of other taxes (1,541) (168)
Other operating payments (52) (2,928)
----------------------- -----------------------
Net cash flow used in operating activities (3,396) (4,927)
----------------------- -----------------------
Investment activities
Collections for sales of fixed assets 11 -
Payments for purchases of fixed assets (3) -
Irrevocable contributions (1,132) (946)
Interest collected 595 1,908
Financing granted (1,914) (1,336)
Collections of investments 5,718 5,599
----------------------- -----------------------
Net cash flow provided by investment activities 3,275 5,225
----------------------- -----------------------
Net (decrease) / increase in cash (121) 298
========================================================== ======================= =======================
The accompanying Notes 1 to 15 and Schedules A, B, C, E, 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"
Notes to the Financial Statements
For the period of nine months commenced January 1,2003
and ended September 30,2003
presented in comparative format
(figures stated in thousands of US dollars)
NOTE 1: ARGENTINE ECONOMIC SITUATION AND ITS IMPACT ON GRUPO FINANCIERO
GALICIA S.A. AND BANCO DE GALICIA Y BUENOS AIRES S.A.
Argentina is immersed in a critical economic situation, the main
features of which are a major external debt burden, a financial system
in crisis and an economic recession that has led mainly until the end
of 2002 to a significant decrease in the demand for goods and services
and a large rise in the level of unemployment.
To confront that crisis, as from December 2001, the Government issued
measures, laws, decrees and regulations that involved profound changes
to the prevailing economic model. Among the measures adopted was the
establishment of an exchange rate float that led to a significant
devaluation of the Argentine peso during the first months of 2002 and
the conversion into pesos of certain assets and liabilities in foreign
currency held in Argentina.
Mainly during fiscal 2002, the situation described produced a
significant and unequal increase in the various economic indicators,
such as the exchange rate, the domestic wholesale price index (used
for the restatement of prior year financial statements) and specific
indexes of goods and services related to the Company business. These
circumstances affect the comparability of the financial statements
presented and they should be construed taking those circumstances into
account.
Towards the end of the previous year and the beginning of the current
year, certain economic indicators though still at low levels, began to
show signs of recovery, interest rates began to decline and the
exchange market stabilized. The financial system has gradually
recovered its liquidity levels, recording an increase in deposits and
in certain lines of credit.
Listed below are some of the measures adopted by the Government that
are in force at the date of filing these financial statements and have
been affecting the economic and financial situation of the Company
and/or its controlled entities:
Exchange system
On February 8, 2002, Decree No. 260 (Exchange System) was issued
establishing a single free exchange market system effective February
11, 2002, through which all transactions involving the exchange of
currency are to be traded at the exchange rate to be freely agreed,
according to the requirements to be laid down by the Argentine Central
Bank.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
At December 31, 2002, despite the implementation of measures for the
relaxation of exchange controls, transfers of funds abroad for
financial institutions to repay principal and interest on financial
obligations continued to require the prior approval of the Argentine
Central Bank, except for new indebtedness for operations carried out
on the single free exchange market after February 2, 2002 and payment
obligations with international credit agencies. In May 2003 this
requirement for prior approval was eliminated for financial
institutions which have not received financial assistance from the
BCRA for liquidity reasons.
During January 2003, the BCRA lifted the restrictions on the transfers
of foreign currency abroad to repay principal amounts on rescheduled
financial debts of the non-financial private sector, and past due
debts for amounts not exceeding US$150 per month.
Consequently, restrictions imposed on the transfers of foreign
currency abroad were lifted for interest payments on financial debts,
profits and dividends. In addition, on May 6, 2003, through Communique
"A" 3944, the B.C.R.A. eliminated the requirement for prior approval
of the BCRA for the transfer of funds abroad, in repayment of
principal on most debts. This amendment did not apply to financial
institutions which still recorded financial assistance from the BCRA
to cover temporary lack of liquidity and which would opt to
restructure those obligations in accordance with Decrees Nos. 739/03
and 1262/03. These institutions are still required to obtain the prior
approval of that Body to transfer funds abroad to repay principal
amounts, except in the cases of new financing received from abroad
after February 11, 2002 and transfers related to debts with
international agencies.
Through Communique "A" 3998 issued on August 15, 2003, the BCRA
authorized non-financial private sector individuals and legal entities
to acquire foreign currency to be transferred abroad in order to make
"off-shore" investments until March 31, 2004, provided these funds are
used to repay or repay in advance restructured financial debt within a
term of 180 days. The maximum amount of these acquisitions of foreign
currency was taken to US$ 40.000 per month and is limited to 15% of
the principal on the restructured debt. Furthermore, through
Communique "A" 3999, issued on that date, the BCRA authorized foreign
holders of US securities to access the domestic exchange market in
order to transfer abroad the benefits received for the reimbursements
of principal on these securities.
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 (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
Loans to the non-financial private sector and assets under financial
leases
a) Pursuant to the above mentioned Decree N(0) 214/02, as from
February 3, 2002, all debts denominated in US dollars or any other
currency with the financial system, except as mentioned in subsection
b) below, whatever their amount and nature, will be converted into
pesos at the exchange rate of $ 1 per US$ 1 or its equivalent in other
currency. Furthermore, as from February 3, 2002 a reference
stabilization index (CER) and a maximum interest rate to be determined
by the Argentine Central Bank will be applied to these debts.
Subsequently, Decrees 762/02 and 1242/02 excluded from the application
of the CER those loans secured by mortgages on the only family
dwelling of debtors, regardless of their amounts, consumer loans for
up to twelve thousand pesos and pledge consumer loans for up to thirty
thousand pesos.
Those loans will be adjusted as from October 1, 2002 by applying an
adjustment salary variation index (CVS), maintaining the conditions
prevailing at that date.
Law 25642 of September 11, 2002 postponed until September 30, 2002 the
application of the CER to all obligations to give sums of money of
less than four hundred thousand pesos. In the case of debtors of
financial institutions, this amount was considered on the basis of
indebtedness in financial system as a whole.
On January 9, 2003, Law 25713 was promulgated, which establishes
modifications to the application of the CER and CVS adjusting indexes
to credit operations. On that date, the National Executive Branch
issued Decree 44/03 leaving without effect the exemption from CER
established by that law for borrowers who have a consolidated debt
balance of less than US$ 34 in the financial system. The various
universes subject to each adjusting index after the modifications
introduced to legislation are as follows:
Effective October 1, 2002 CVS shall be applied to:
- Mortgage loans secured by family dwellings originally agreed for up
to US$ 250, while those loans exceeding this amount will be adjusted
applying the CER.
- Consumer loans originally agreed for up to US$ 12.
- Pledge consumer loans originally agreed for up to US$ 30.
CER shall be applied to:
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 US dollars)
NOTE 1: (Continued)
Loans of whatever nature that have not been converted to pesos and do
not meet the conditions mentioned above. As established by the norms
published on January 9, 2003, the only exceptions admitted to the
application of the CER are the loan operations subject to the
application of the CVS. The application of the CER to all operations
involved has been established as from February 3, 2002. This law was
to be regulated by the National Executive Branch and the Argentine
Central Bank.
It is also established that the amounts adjusted by applying the CER,
collected as a result of the application of regulations in force prior
to Law 25713 are to be reimbursed to customers, where applicable.
After the closing date of these financial statements, the National
Congress enacted Law No. 25796, which was sent to the National
Executive Branch for its promulgation. This Law amends Law 25713,
establishing the application of the CVS for the index-adjustment of
loans subject to this coefficient until March 31, 2004. As from April
1, 2004 no adjusting index will be applied to financing subject to
CVS.
Law 25796 also contemplates compensating financial institutions for
the negative effects on their equity derived from the application of
the CER to all deposits originally denominated in foreign currency and
converted to pesos, and from the application of the CVS to certain
loans in accordance with the above-mentioned regulations. This
compensation will be paid through the delivery of Boden 2013. Law
25796 will be regulated by the Ministry of Economy and the BCRA.
Banco de Galicia y Buenos Aires S.A. has reserved its right to claim
compensation in due course for the negative effects on its assets and
liabilities derived from the unequal application of the CER to its
deposits and loans. In this connection, the estimated higher value had
the CER been applied to the financing subject to adjustment by
applying the CVS has been recorded in Other Receivables resulting from
Financial Brokerage.
b) As established by Decree 410/02 issued by the Argentine Government,
loans related to foreign trade transactions granted by financial
institutions, credit card balances for consumption made outside
Argentina and contracts governed by foreign law are not included in
the conversion into pesos at the rate of $ 1 per US$ 1 established by
Section 1 of the mentioned Decree 214/02.
As a result of the measures adopted by the Argentine Government and
the crisis affecting Argentina, Banco de Galicia y Buenos Aires is
carrying out a restructuring of its commercial loan portfolio
according to the new repayment potential of customers which, at the
date of these financial statements, had not been concluded.
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 US dollars)
NOTE 1: (Continued)
Loans and obligations of the financial sector
As established by Decree 410/02, interbank loans in foreign currency
in force at February 3, 2002 were converted into pesos at a rate of $
1.40 per US$ 1 or its equivalent in other currencies, or at the single
and free market exchange rate, as determined by the Argentine Central
Bank according to the type of operations.
Deferral of the deduction of the exchange difference for income tax
purposes
Exchange losses caused by devaluation on foreign currency assets and
liabilities existing at the date of enactment of the public emergency
Law 25561 (January 6, 2002) are only deductible from income tax in the
proportion of 20% per annum in each of the first five fiscal years
ending after the effective date of the law.
Deposits and obligations of the public and private sectors
a) Under the terms of Decree 214/02, as from February 3, 2002 deposits
and obligations in U.S. dollars or other foreign currencies in
financial institutions were converted into pesos at the exchange rate
of $ 1.40 per US$ 1 or its equivalent in such other currency.
Furthermore, there were restrictions on the availability of certain
balances in current accounts and savings accounts in dollars and time
deposits in pesos or dollars, which would be returned to their owners
in installments and the amounts and due dates depended on the balances
recorded. As from February 3, 2002 a reference stabilization index
(CER) and an interest rate will be applied to these rescheduled
deposits. The CER is an index that measures the daily rate of change
derived from the monthly change in the Consumer Price Index (CPI)
published by the I.N.D.E.C.
Pursuant to Decree 905/02, depositors were allowed to opt to receive
National Government Bonds in pesos accruing interest at a 2% rate and
falling due in 2007 in substitution for their deposits, or National
Government Bonds in US dollars, accruing interest at Libor and falling
due in 2012, if deposits were originally made in foreign currency.
Under the conditions of Section 4 of Decree 905/02, depositors were
allowed to opt to receive in exchange for their receivables National
Government Bonds in US dollars, accruing interest at Libor and falling
due in 2005.
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 US dollars)
NOTE 1: (Continued)
Furthermore, Decree 905/02 established that financial institutions
were to register rescheduled deposits for which no option had been
exercised in a "Notarial Record of Rescheduled Deposits", in charge of
Caja de Valores S.A. The rescheduled deposits included in that Record
(CEDROS) were deemed to be negotiable securities to that effect,
listed on stock exchanges and could be traded on self-regulating
markets in Argentina.
Owners of those deposits may apply them to the subscription of new
share issuances and/or listed negotiable obligations and to the
repayment of loans at the financial institutions where those funds are
deposited.
On September 16, 2002, Decree 1836/02 established a second exchange of
deposits with the financial system, by which all owners of rescheduled
deposits, whether they have exercised the mentioned option or not, may
opt to exchange those deposits for National Government Bonds in US
dollars due 2013 until May 23, 2003, as established by Resolution
743/02 and Argentine Central Bank Communique "A" 3833 and
complementary rules. This option may be exercised together with a put
option to be delivered by the depository entity as collateral for the
payment of the original coupon adjusted by applying the CER, or to
transform the rescheduled balance into Time Deposit Bills in pesos,
with a guarantee to be provided by the National State consisting in
contributing the difference between the value of each installment in
pesos adjusted by applying the CER and the free US dollar exchange
rate at the payment date.
Financial institutions may also offer National Government Bonds in US
dollars accruing interest at Libor and falling due in 2006 to
depositors who have brought legal actions that are pending resolution.
Financial institutions bound to depositors that have opted to deliver
the mentioned government securities must transfer to the National
State sufficient assets to pay those securities.
Decree 1836/02 also provided that "in view of the increase determined
in deposits with the financial system and given the special situation
of small savers, owners of rescheduled deposits for amounts of up to
two thousand dollars (US$ 2) will be able to collect that amount in
cash", each financial institution being entitled to increase that
limit to three thousand dollars (US$ 3). Banco de Galicia y Buenos
Aires S.A. offered the latter possibility to its customers.
On November 22, 2002, through Resolution 668/02, restrictions on
withdrawals of funds from demand accounts as determined in the annex
to Resolution 6/02 were eliminated, those accounts having been added
to the free account system established by Section 26 of Decree 905/02.
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 US dollars)
NOTE 1: (Continued)
There is also a possibility of subscribing National Government
Securities in US dollars due 2013 with CEDROS.
On January 30, 2003 the Argentine Central Bank released Communique "A"
3875, which established new conditions for the early reimbursement of
rescheduled deposits. Deposits may be reimbursed in advance provided
that the financial institution is not receiving financial assistance
from the Central Bank, and its liquidity ratios are not affected, at
least in the short term. Financial institutions receiving assistance
from the Central Bank may only agree to offer improved terms with the
prior approval of the Superintendency of Financial and Exchange
Institutions, provided they repay principal amounts of that assistance
weekly, equivalent to the amount of the certificates of rescheduled
deposits reimbursed as a result of the improvements made in the
preceding calendar week, as established by Communique "A" 3877 dated
February 6, 2003.
Subsequently, continuing with the gradual release of deposits, under
Decree 739/2003 dated March 28, 2003, owners of rescheduled deposits
and CEDROS have been offered the possibility of those deposits and
CEDROS being reimbursed to them fully or partially. The
characteristics of the options vary according to the amount to be
released and the original currency in which the deposit was agreed.
For deposits not exceeding US$ 14 (originally US$ 30) savers may
request that these funds be credited to demand accounts, adjusted by
applying the CER. Savers will receive National Government Bonds in US
Dollars due 2013 (BODEN 2013) for the difference between the residual
nominal value adjusted by applying the CER as of April 1, 2003 and the
amount in pesos resulting from applying the reference exchange rate
established by the Argentine Central Bank at that date -$2.9792 per US
dollar- to that residual nominal value, converted to US dollars at the
exchange rate of $1.40 per US dollar. The amount of the bond to be
delivered will arise from applying the $2.9792 exchange rate to the
difference in pesos between the two amounts and subsequently dividing
the value obtained by the technical value of the bond (100,725).
For deposits for higher amounts, the placing of new time deposits for
a term of 90 or 120 days will be offered, according to whether the
amount of the original deposit converted to pesos and rescheduled is
up to or exceeds US$ 34, respectively. Upon expiration of the 90 or
120 day term, all the funds may be withdrawn.
Reimbursement of deposits originally agreed in pesos will be made by
crediting to a demand account the amount calculated at the technical
value at the payment date. The term set for exercising the options
mentioned above will expire on May 23, 2003.
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 US dollars)
NOTE 1: (Continued)
As of September 30, 2003, the principal on rescheduled deposits
(CEDROS) amounts to approximately US$ 124,532, while rescheduled
deposits exchanged for National Government Bonds and not delivered to
customers amount to US$ 27,132.
b) Decree 410/02 provides that deposits made by foreign banks or
financial institutions with domestic financial institutions will not
be converted into pesos at the $1=US$1 exchange rate, as established
by Section 1 of Decree 214/02, provided they have been transformed
into lines of credit that are effectively maintained and used for at
least four years, in conformity with Argentine Central Bank
regulations. The conversion into pesos also excluded those obligations
of the public and private sectors to give sums of money in foreign
currency which are governed by foreign laws.
Public debt
Decree 471/02 dated March 8, 2002 established that the obligations of
the National, Provincial and Municipal Public Sectors outstanding as
of February 3, 2002 denominated in US dollars or any other currency,
governed only by the Argentine law, were converted at an exchange rate
of $1.40 per US dollar or its equivalent in other foreign currency and
adjusted applying a reference stabilization index (CER). In addition,
the obligations of the National Public Sector converted into pesos as
explained earlier accrue interest at rates ranging from 2% to 5%,
depending on the characteristics of the original debt.
Other assets and liabilities
As established by Decree 410/02 and complementary rules, futures and
option contracts, including those recorded in self-regulating markets
and the accounts exclusively earmarked for the operations of those
markets were not converted into pesos at the $ 1 = US$ 1 exchange rate
as established by Section 1 of Decree 214/02, except for those
governed by Argentine legislation agreed before January 5, 2002, where
at least one of the parties must be a financial institution and have
been settled as from June 12, 2002, which will be converted into pesos
at $1.40 per US dollar.
Decree 410/02 also established that:
a) Fiscal credit certificates issued in US dollars or any other
foreign currency within the framework of Decrees 979/01, 1005/01 and
1226/01 and in force at February 3, 2002, were converted into pesos at
the exchange rate of $ 1.40 per US$ 1 or its equivalent in any other
foreign currency.
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 US dollars)
NOTE 1: (Continued)
b) The balances of the financial institution accounts in US dollars or
any other currencies at the close of operations at February 1, 2002,
which may be computed to comply with liquidity reserve requirements,
except for legal tender currency available and the amount equivalent
to the balances of accounts earmarked exclusively to the operations on
self-regulating futures and options markets, were converted into pesos
at the exchange rate of $ 1.40 per US$ 1.
The same treatment has been accorded to the amounts contributed by
financial institutions to the Bank Liquidity Fund established by
Decree 32/01 and to the debts institutions have with that Fund.
Reorganization and bankruptcy proceedings
On January 30, 2002, Law 25563 on reorganization and bankruptcy
proceedings was enacted, which declared a production and credit
emergency generated by the crisis affecting Argentina, to last until
December 10, 2003. Below is a detail of some of the measures adopted:
a) Suspension for one hundred and eighty days as from the effective
date of that Law, of all mortgage, pledge and other foreclosures of
whatever origin ordered in reorganization proceedings, whether they be
made extrajudicially or in execution of judgment (Section 9 of Law
25563).
b) Suspension for one hundred and eighty days of the expedition of
petitions in bankruptcy filed, without prejudice to the possibility of
applying the measures envisaged in Section 85 of Law 24522 (Section 11
of Law 25563).
c) Access to credit by insolvent individuals and/or legal entities,
for which the Argentine Central Bank will proceed to regulate the
elimination of all restrictions which otherwise hinder such access to
credit or make it more expensive, and implement a rediscount line
intended for those financial institutions that provide credit
assistance to insolvent companies that are in the stage envisaged in
Section 43 of Law 24522 (Section 12 of Law 25563).
d) Financial institutions governed by Law 21526 (Financial
Institutions Law) and supplementary rules may proceed within a term of
90 days to the rescheduling of their receivables from debtors of the
financial system existing as of November 30, 2001 through an agreement
to be reached with each of them (Section 15 of Law 25563).
e) Suspension for one hundred and eighty days of the precautionary
measures awarded and prohibition for the same term of new
precautionary measures requested on those assets that are essential
for the continuity of activities related to debtors' normal course of
business. All extraordinary acts of disposition of property on the
part of debtors will be null and void during the suspension period
envisaged in this Section, unless there is an express agreement by
creditors (Section 16 of Law 25563).
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 US dollars)
NOTE 1: (Continued)
On May 15, 2002, Law 25589 was enacted, which amended Laws 24522 and
25563. This Law introduced the following amendments:
a) Section 9 of Law 25563 has been repealed.
b) Section 11 of Law 25563 has been repealed.
c) Section 15 of Law 25563 has been repealed.
d) Section 16 of Law 25563 has been amended. In this connection,
auctions of property that is the only dwelling of debtors or of assets
used by them in the production and sale of goods or providing of
services, decreed in executory proceedings, extrajudicially or in
execution of judgment, shall be suspended for one hundred and eighty
calendar days, counted as from the effective date of this Law. This
Law shall not apply to court-ordered alimony payments, receivables
derived from the responsibility for the commission of crimes, those
arising in labor lawsuits, as a result of third party liability and
from insurance companies that have underwritten third party civil
liability policies, receivables arising after the effective date of
this Law and the liquidation of assets under bankruptcy proceedings.
The application of restitutional remedies that lead to the
dispossession of assets earmarked for the activity of commercial,
manufacture or other establishments, which are required for their
functioning shall also be suspended.
e) It is established that this Law will have legal effects on the date
of its publication and applies to pending reorganization proceedings.
In November 2002, when the 180-day suspension period expired,
financial institutions agreed with the Executive Branch a temporary
suspension of foreclosures of security interests until the end of
January 2003. This deadline has been successively extended.
On February 4, 2003, Decree 204/03 was issued, by which Legal
Emergency Units were created. These units will be responsible for
mediating between debtors and creditors and will operate within a term
of 90 days as from February 6, 2003, date on which such decree was
published in the Official Gazette.
Those units, which have been created to operate within the
jurisdiction of the Ministry of Labor and the Ministry of Production,
will intervene at the request of debtors or creditors, either of them
voluntarily, in those cases where foreclosures of security interests
have been sought on individuals or small and medium-sized companies.
This proceeding is voluntary and does not mean the suspension or
interruption of legal time limits or foreclosures made extrajudicially
or in execution of judgment, as regulated by current norms.
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 US dollars)
NOTE 1: (Continued)
Under Law No. 25737, enacted on May 8, 2003 and published in the
Official Gazette Gazette on June 3, 2003, auctions of property that is
the only dwelling of debtors have been suspended for a term of 90 days
whatever may be the origin of the obligation.
In addition, under Decree 247/03 the Mortgage Foreclosure Registry -
Only Dwelling - Law 25737" was created, with which debtors subject to
foreclosure on their only dwelling must be registered. Creditors may
also register with this Registry.
Financial institutions have voluntarily extended the mortgage
foreclosure suspension period that had expired on September 2, 2003 in
order to find a proper solution for all parties.
After the closing date of these financial statements, the National
Congress enacted Law 25798 that was sent to the national Executive
Branch for its promulgation. This Law establishes the creation of a
system for the refinancing of mortgage loans which will in principle
benefit banking and private borrowers with debts of up to US$ 34,305
secured by sole family dwellings, in arrears as from January 1, 2001.
Through the Trust for Mortgage Loan Refinancing created by this Law,
the Argentine Government will pay creditors the past due debt and
reschedule borrowers' overdue debt.
Suspension of the application of Section 94, subsection 5 and Section
206 of Law 19550 on Corporations
Decree 1269/02 has suspended until December 10, 2003 the application
of Section 94, subsection 5 of Law 19550 which establishes that a
company must be dissolved due to the loss of its corporate capital.
Section 206, which establishes the mandatory capital reduction when
losses exceed reserves and 50% of the capital has been suspended until
that date.
Legal actions requesting protection of constitutional guarantees
As a result of the measures adopted by the Government, a significant
number of complaints have been filed against the National State and/or
institutions comprised in the financial system by individuals and
legal entities, as they understand that those measures are in breach
of constitutional and other rights. At the date of issue of these
financial statements the final outcome of those complaints was still
unknown. As of September 30, 2003, the court orders received by Banco
de Galicia y Buenos Aires S.A. decreeing the reimbursement of deposits
in their original currency or at the free exchange rate amounted to
US$ 532,476 in compliance with court orders requiring the
reimbursement of deposits under penalty of search and/or seizure
and/or crimes involving illegal retention of deposits and/or contempt,
Banco de Galicia y Buenos Aires S.A. paid the amounts of US$ 355,703.
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 US dollars)
NOTE 1: (Continued)
The method of proceeding in those lawsuits and the admission and
execution of provisional remedies that decree, for any reason or
title, the material delivery of the pledged assets to the petitioner
has been a consequence of the above-mentioned Decree 214/02, as
amended by Decree 320/02, which suspended the execution of
precautionary measures and final judgments, except for certain cases,
a suspension that was declared unconstitutional by the courts. These
regulations were subsequently complemented by Law 25587 and Decree
676/02 (both of them published in the Official Gazette on April 26,
2002), which are applicable to all pending lawsuits and precautionary
measures pending execution, whatever the date of the related court
order may be, issued in judicial proceedings of whatever nature in
relation to credits, debts, obligations, deposits or rescheduling of
financial debts which may be deemed to be affected by the regulations
of Law 25561 and regulatory and complementary rules.
On July 23, 2002, Decree 1316/02 suspended for one hundred and twenty
working days, compliance with and execution of all precautionary
measures and final judgments issued in the legal actions referred to
by Section 1 of Law 25587, except for those cases where life, health
or physical integrity of individuals are at risk, or if the claimant
were to be an individual of 75 years old or more. In the latter cases,
requests for the execution of precautionary measures or judgments that
estimate the amount of the claim must be submitted to the Argentine
Central Bank. It should be noted that this Decree, as well as Law
25587 and the other decrees mentioned above, has been declared
unconstitutional by most courts, so the application of penalties of
search and/or seizure to seek payment of deposits has not been
completely suspended.
Decrees 494/02 (published in the Official Gazette on March 13, 2002)
and 905/02 (published in the Official Gazette on June 1, 2002)
established the option to receive US dollar National Government Bonds
under the terms and in the manner prescribed therein. The holders of
the bonds who have opted to receive the bonds envisaged in Decree
494/02 will receive bonds as provided for by Section 35 of Decree
905/02.
Furthermore, on September 16, 2002 Decree 1836/02 was issued, Section
17 of which provides that financial institutions may offer the total
or partial reimbursement of deposits with "National Government bonds
in US dollars accruing interest at Libor and due 2006" in lieu of
payment to the holders of rescheduled deposits covered by Section 4 of
Decree 905/02, who have brought legal actions questioning the current
legislation applicable to deposits with the financial system, that are
pending resolution at the effective date of this Decree and for which
precautionary measures are
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 US dollars)
NOTE 1: (Continued)
ordered. The issue terms and conditions of the above-mentioned bonds
are detailed in Section 12 of Decree 905/02, except for the issue and
due dates, which will be October 30, 2002 and January 30, 2006,
respectively.
Decree 739/03 (published in the Official Gazette on April 1, 2003)
provided for the possibility of reimbursing rescheduled deposits in
the manner and with the tranches contemplated therein, receiving the
amounts in cash or time deposits, as the case may be, and for the
exchange difference between the original nominal value of the
rescheduled deposit or rescheduled deposit certificate adjusted by
applying the CER at the date of publication of the decree in the
Official Gazette and the quotation of the US dollar on the free
exchange market at that date depositors shall receive "NATIONAL
GOVERNMENT BONDS IN US DOLLARS DUE 2013".
Article 6 of Resolution No. 236/03 issued by the Ministry of Economy
established the reimbursement mechanism for holders of rescheduled
deposits who have initiated legal actions questioning the regulations
applicable to those deposits, still pending resolution, and who wish
to release their funds in the manner established by Decree 739/03.
Depositors who have brought legal actions may opt to accept those
bonds.
The difference of US$ 181,911 between the amount paid as a result of
the measures mentioned above and the amount resulting from converting
deposits at $1.40 per US dollar, adjusted by applying the CER and
interest accrued at the payment date, has been recorded by Banco de
Galicia y Buenos Aires S.A. in "Intangible assets" as of September 30,
2003, net of related amortization for US$ 164,639, thus complying with
the provisions of Communique "A" 3916 of the Argentine Central Bank.
At December 31, 2002, that Bank had recorded US$ 153,261 in "Other
receivables resulting from financial brokerage" for that item.
Banco de Galicia y Buenos Aires S.A. has reserved its right to claim
compensation for damages caused by the reimbursement of deposits in US
dollars or their equivalent in pesos at the free exchange rate,
decreed under precautionary measures or judgments issued by courts,
and which have not been included by the National State in the
calculation of the compensation to Financial Institutions. The method
of accounting for that compensation as a deferred loss, envisaged by
the Argentine Central Bank in the mentioned Communique, does not
affect the legitimacy of the rights. Banco de Galicia y Buenos Aires
S.A. has reserved its rights for such purposes.
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 US dollars)
NOTE 1: (Continued)
The Argentine Supreme Court of Justice ruled on the case entitled
Province of San Luis vs Argentine Federal Government declaring article
2 of Decree No.214/02 unconstitutional. At the date of these financial
statements, the Court had not yet ruled on certain cases involving US
dollar deposits of individual savers. Although the criterion to be
followed by the Court in ruling on these cases will not be mandatory
for the lower courts, it is an indication of the likely rulings in
similar cases to be heard by them.
Compensation to be granted to financial institutions
Decree No. 214/02 provides for the issue of a Bond payable with the
funds of the National Treasury to cover the deficit in the financial
system arising from the imbalance generated by the application of the
measures mentioned above, that is, from the devaluation and the
asymmetric conversion into pesos of assets and liabilities. In fact,
in accordance with the provisions of Law 25561 and Decrees Nos.
214/02, 320/02, 410/02, 471/02, 704/02, 905/02 and 992/02 and their
amendments and complementary rules, and of Argentine Central Bank
Communiques "A" 3467, 3507, 3561 and 3648 and their amendments and
complementary rules, a significant portion of foreign currency assets
and liabilities that formed part of the net foreign currency position
as of December 31, 2001, were converted into pesos at different
exchange rates.
In June 2002, Decree 905/02 established the method of calculating the
amount of the compensation to be received by financial institutions,
which replaced Decree 494/02 that had previously established such
method.
Sections 28 and 29 of that Decree established the restoration of
financial institutions' equity ratios at the time of the conversion
into pesos, by compensating them for:
a) The losses arising from the conversion into pesos of a large
portion of their obligations at the exchange rate of $1.40 per US
dollar, which is higher than the exchange rate of $1 per US dollar
applied for the conversion into pesos of certain receivables in
foreign currency, by means of the delivery of a Compensating Bond, for
which the issuance of "National Government Bonds in pesos, due 2007"
(BODEN 2007), was established;
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
b) The mismatch of their foreign currency positions after the
mandatory conversion into pesos of a portion of their loan and deposit
portfolios, by transforming the Compensating Bond originally issued in
pesos into a bond in US dollars and, if necessary, through the
subscription of a Coverage Bond in US dollars. To this end, the
issuance of "National Government Bonds in US dollars, Libor 2012"
(BODEN 2012) has been established.
Argentine Central Bank Communique "A" 3650 and complementary rules
established the procedure that financial institutions were to carry
out for calculating the Compensating and Coverage Bonds, the amounts
of which were to be calculated taking into account the foreign
currency balances as of December 31, 2001, as shown in the statement
of financial condition of the parent company and subsidiaries in
Argentina audited at that date; however, insofar as concerns foreign
branches and subsidiaries and subsidiaries engaged in supplementary
activities, this compensation has been restricted to the negative
effects of the mandatory conversion into pesos of the credit
assistance granted to the National State under Secured Loans.
Therefore, the impact on the remaining foreign currency position
subject to Argentine legislation, of the application of the mentioned
economic measures has not been compensated so far.
This method of determining the amount of the Compensating and Coverage
Bonds, which does not contemplate certain assets and liabilities
converted into pesos due to the application of Decree 214/02,
corresponding to foreign branches and subsidiaries and controlled
entities engaged in supplementary activities, is not only in
disagreement with the objectives established by Decrees 214/02 and
905/02, and is therefore detrimental to Banco de Galicia y Buenos
Aires S.A.'s assets, but is also an essentially arbitrary act in the
light of the fact that identical economic acts are included or
excluded from the compensation, depending on whether they were
performed directly by Banco de Galicia y Buenos Aires S.A. or through
a subsidiary, or whether the receivable originated abroad is of a
public or private origin.
Through a letter dated September 16, 2002 sent to the Ministry of
Economy of the Nation and to the Argentine Central Bank, Banco de
Galicia y Buenos Aires S.A. formally stated its claim against the
procedure used, reiterating prior presentations, and left express
evidence that "it will not accept or approve the validity of any
system that may lead to losses of its assets, which are not fully
compensated, or to the exclusion from the compensation of assets and
liabilities corresponding to branches, subsidiaries and controlled
entities engaged in supplementary activities that form part of the
consolidated assets of Banco de Galicia y Buenos Aires S.A.". The Bank
also reserved its right to appeal to a federal court for damages
caused by
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
those measures and by the facts or omissions that may be attributable
to the National State which may affect the guarantees of inviolability
of private property and tax equality.
The Argentine Central Bank Communiques mentioned above set July 29,
2002 as the deadline for complying with the reporting requirements, so
that each institution could report the amount in bonds to which it was
to become entitled. Banco de Galicia y Buenos Aires S.A. has complied
with this requirement but, during September 2002, the Argentine
Central Bank released Communique "A" 3716, which established changes
in the method. This led to a new presentation being made on September
16, 2002. The amount determined in line with current regulations at
that date was US$ 787,541 in respect of compensation and US$ 618,229,
in respect of the coverage of the negative foreign currency position.
On October 28, 2002, National Executive Branch Decree 2167/02 amended
Section 29 of Decree 905/02, including in the calculation of the
compensation the assets recorded at foreign branches and subsidiaries
covered by Decree 214/02 and supplementary rules, but did not
contemplate any modification regarding assets and liabilities recorded
at controlled companies engaged in supplementary activities, which
were also affected by the regulations of that decree and still
continue to be excluded from such compensation. For this reason, the
statements made in connection with these companies are still valid.
Through Communiques "A" 3805 and "A" 3825, the Argentine Central Bank
ruled the amendments established by Decree 2167/02, establishing a new
reporting requirement, the deadline of which was December 23, 2002.
A total amount was determined at approximately US$ 2,254,027 in BODEN
2012 (face value) for the compensation. This amount may be subject to
changes arising from amendments to regulations or from presentations
by customers under the terms of Communique "A" 3561 and supplementary
rules, and is subject to review by the Argentine Central Bank.
Furthermore, Banco de Galicia y Buenos Aires S.A. has submitted a
letter to the Central Bank requesting authorization for the transfer
of securities for an amount equivalent to the net effect of the
compensation received for the assets converted into pesos recorded at
the subsidiary Banco de Galicia Uruguay S.A., which is estimated at
approximately US$ 438,000.
At September 30, 2003, the amount of US$ 1,630,284 for the
compensation to be received was recorded in "Other receivables
resulting from financial brokerage - In foreign currency -
Compensation to be received from the National Government".
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
The "Government securities - In foreign currency - Holdings of
investment accounts" caption includes US$ 543,529 for the securities
received for the compensation, net of the transfer made to Banco de
Galicia Uruguay S.A.
The advance to be requested from the Argentine Central Bank for the
subscription of the Coverage Bond, including the effect of Decree
2167/02, was recorded in "Other liabilities resulting from financial
brokerage - In pesos - Advances for the acquisition of "National
Government Bonds in US dollars, Libor 2012", for US$ 591,791 which,
including the adjustments from application of the CER and accrued
interest for US$ 291,573, totals US$ 883,365.
The compensation for the positive difference between the Shareholders'
Equity as of December 31, 2001 and that resulting from adjusting the
net foreign currency position at that date converted into pesos at the
exchange rate of $1.40 per US dollar, for US$ 502,208, stated in the
period-end currency value, was reflected in the "Unrealized valuation
difference arising from the compensation of the net foreign currency
position" account, in the Shareholders' Equity of Banco de Galicia y
Buenos Aires S.A., for the same period of the previous year, as
provided for by Argentine Central Bank Communique "A" 3703. This
criterion differs from professional accounting standards. Therefore,
should the latter have been applied, the accumulated losses for the
previous year before the absorption envisaged in Communique "A" 3800
would have decreased by that amount.
The terms and conditions for financing the subscription of the
"National Government Bonds in US dollars Libor 2012" have been
stipulated in Section 29, subsection g) of Decree 905/02 and
contemplate the delivery by financial institutions of assets as
collateral for at least 100% of the advance received.
With regard to the process for determining the compensation amount,
the BCRA has made observations on certain criteria applied and on the
inclusion of certain items in determining that compensation. In the
opinion of the Bank's legal counsel, the compensation has been
determined by Banco de Galicia y Buenos Aires S.A. on the basis of a
reasonable interpretation of applicable regulations. The Bank is
currently analyzing the observations received to establish their
grounds.
Treatment accorded to extraordinary assistance granted to financial
institutions by the Argentine Central Bank
Decree 739/03 issued on March 28, 2003 establishes a voluntary
procedure for the repayment of the assistance granted to financial
institutions by the Argentine Central Bank during the economic crisis
that affected the financial
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
system as from 2001. The basic criterion consists of balancing the
cash flows of financial institutions that are debtors for rediscounts
and creditors for holdings of public sector securities at the same
time.
Section 9 of the above-mentioned Decree provides that the balances due
must be amortized in pesos in the same number of installments as the
assets granted as collateral for the rediscounts obtained, without
exceeding 70 installments. In this connection, Communique "A"3941
establishes a minimum accumulated amortization schedule and a monthly
repayment of at least 0.90% of the adjusted balance. Mandatory and
voluntary accelerated amortization is envisaged when the rate of
interest collected on the assets granted as collateral for the
rediscounts exceeds 3.5% per annum.
It is also established that the assistance subject to this
amortization system must be secured by the delivery of Loans Secured
by the National Government originated under Decree 1646/01 or, failing
this, Bonds secured by the National Government issued within the
framework of Decree No. 1579/02 or Bonds issued under Decrees Nos.
905/02, 1836/02 and 739/03. The Argentine Central Bank may modify the
above-mentioned amortization conditions when the Unit for the
Restructuring of the Financial System (created under Decree No.
1262/03) so establishes it and provided some of the following
conditions are met:
a) Assets granted as collateral for the assistance received expire
after 70 months on average.
b) The financial institution is within the framework of the situations
envisaged in Sections 34 and 35 bis of Law 21526 and has adopted a
transformation and reorganization plan approved by the Unit for the
Restructuring of the Financial System.
In this case, amortization shall be made in the same number of
installments as that of the assets granted as collateral for the
rediscounts received, with a maximum of 120 installments, a monthly
amortization not lower than 0.40% being envisaged.
The financial institutions that wish to avail themselves of this
special assistance amortization system must have normalized their
foreign debt situation before December 5, 2003, under the terms of
point 1 of Communique "A" 3940.
The Bank stated its intention to adhere to that assistance
amortization procedure in letters submitted to the Argentine Central
Bank on May 12 and September 30, 2003.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
The Bank has also reported that it will request the Financial System
Restructuring Unit to modify the conditions for amortizing the
rediscounts established by clause b) of Decree 739/03, mentioned in
the second paragraph of this Note, as it meets the conditions
stipulated for receiving the special treatment envisaged in Section 3
of Decree 1262/03.
The Bank has complied with the requirements of points 2 and 3 of
Communique "A" 3940 in a letter submitted to the Argentine Central
Bank on July 15, 2003, reporting on the status of the negotiations
with its external creditors and the proposals for the settlement of
liabilities that will be submitted to their consideration.
Claims due to exchange differences arising from the repayment of
financial assistance during the exchange holidays that took place in
January 2002
During December 2001, Banco de Galicia y Buenos Aires S.A. received
assistance in pesos from the Argentine Central Bank to cover temporary
lack of liquidity. This assistance was repaid applying resources in US
dollars granted by the Bank Liquidity Fund (BLF) on January 2 and 4,
2002.
At the date those funds were credited, the Argentine Central Bank had
declared exchange holidays.
Before the markets were reopened, Law 25561 was enacted on January 6,
2002, which repealed the convertibility system and fixed the new
exchange rate of $1.40 per US dollar.
As a result of the mentioned norms, during the exchange holidays the
Bank was unable to perform exchange operations.
Accordingly, the funds in US dollars credited by the BLF on January 2
and 4, 2002 had to remain in US dollars until the markets were
reopened.
At the date markets were reopened, in view of the terms and conditions
of the norms in force, the US dollar was sold at $1.40.
For this reason, when the Argentine Central Bank allocated US$ 410,000
for Banco de Galicia y Buenos Aires to repay the financial assistance
provided to it, should have allocated US$ 410,000 at $1.40, that is,
the amount of thousand $ 574,000 .
This has affected the guarantees of inviolability of private property
and equality under the law.
Banco de Galicia y Buenos Aires considers that the difference of US$
56,261 should be returned to it restated as of January 2002, or its
equity should be restored for an equivalent amount.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
This right has not been given accounting recognition in the financial
statements of that Entity.
Situation of Banco de Galicia y Buenos Aires S.A. and its subsidiaries
The situation described above affected Banco de Galicia y Buenos Aires
S.A. in the form of a lack of liquidity as a result of the drop in
deposits that was so significant that it made it necessary for the
bank to request financial assistance from the Argentine Central Bank.
Within this context, on March 21, 2002, Banco de Galicia y Buenos
Aires S.A. submitted to the Argentine Central Bank a regularization
and rehabilitation plan called "Galicia Capitalization and Liquidity
Plan" which mainly contemplates:
a. the immediate restoring of its liquidity levels, the supply of the
necessary resources to achieve a solid cash position which enables
Banco de Galicia y Buenos Aires S.A. to reimburse a significant
portion of its demand deposits without requiring any financial
assistance from the Central Bank;
b. a subsequent significant increase in its capitalization levels.
This Plan also includes the negotiation with foreign creditors of the
restructuring of the debt that Banco de Galicia y Buenos Aires S.A.
carries with them;
c. the orderly closing-down of the operating branches abroad;
d. the streamlining of the Bank's operating structure and a
significant reduction of its administrative expenses to conform them
to the lower levels of activity recently recorded. This Plan was
approved by the Board of Directors of the BCRA on May 3, 2002, through
Resolution No. 281.
As described below, to date the Bank has complied with the following
components of the Plan: the restoring of its liquidity levels, the
streamlining of its structure with the consequent reduction of its
administrative expenses and the orderly closing-down of the operating
branches abroad. As regards the restructuring of its external debt,
the Bank managed to refinance the liabilities of its New York Branch
(currently closed down) and its subsidiaries Banco Galicia Uruguay SA
and Banco de Galicia (Cayman) Limited (In Provisional Liquidation)
have restructured their liabilities, which consist mainly of deposits.
Furthermore, with the approval of the BCRA, the Bank has recently
restructured its debt carried with Banco Galicia Uruguay S.A. the
principal amount of which was US$ 399.5 million. The restructuring of
the Bank's external debt is currently under way, the capitalization of
the Bank being subject to that restructuring.
Liquidity.
The strengthening of liquidity after the implementation of the Plan
has been achieved as follows:
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
o Securitization (and/or sale) of its mortgage and commercial loan
portfolio through trusts or assignment of credits for a total
amount of US$ 137,224, which were subscribed by financial
institutions during April 2002.
o Loan from Seguros de Depositos S.A. (SE.DE.S.A.) for US dollars
equivalent to US$ 68,612, converted at the exchange rate prevailing
on the day prior to that of the disbursement, for a term of five
years and at the 180-day LIBOR rate plus 300 basis points, which
was subscribed on March 21, 2002.
o Loan from Fondo Fiduciario de Asistencia a Entidades Financieras y
de Seguros (F.F.A.E.F.y S.) (Trust Fund for the Assistance to
Financial Institutions and Insurance Companies) for the amount in
US dollars equivalent to thousand $100,000 (US$ 34,306), converted
at the exchange rate prevailing on the day prior to that of the
disbursement, for a term of three years and at Libor plus 400 basis
points, with a floor of 8.07%, which was subscribed on April 30,
2002.
In addition, a debt of US$ 196,913 was refinanced with the Bank
Liquidity Fund for three years, which was settled after the
implementation of the Plan with the assistance provided by the
Argentine Central Bank under the same conditions as those of the
original debt on May 9, 2002.
After the initial strengthening of the Bank's liquidity levels within
the framework of the renegotiation of its debt, after the
implementation of the Plan, the Bank's liquidity levels stabilized and
were restored, no further financial assistance having been required
from the BCRA.
Reduction of expenses.
Within the framework of the Plan the Bank made significant progress in
conforming its corporate structure and administrative expenses to the
lower levels of activity recorded in 2002 and to the new regulations
issued during that year.
To this end, during 2002 the number of branches of the Bank was
reduced by 61 branches, which is equivalent to 21.1% of its branch
network at December 31, 2001, and the Galicia Ahora network, which at
that date consisted of 118 customer service centers, was fully
absorbed by the branch network. Furthermore, through voluntary
retirement plans, for a cost of approximately US$ 44,597, the Bank's
headcount had been reduced by 1,996 employees at June 30, 2003, which
is equivalent to 34% of the headcount at December 31, 2001. The Bank
has also renegotiated all its rental contracts and those signed with
systems, communications and other suppliers.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
New York Branch and Units abroad.
According to the guidelines of the Plan, during fiscal 2002 the debt
of the New York Branch was restructured, as a necessary step for its
orderly closing-down, which took place on January 30, 2003.
The "Restructuring Plan" was submitted to the Office of the
Comptroller of the U.S. Treasury ("OCC") on March 22, 2002. This Plan
contemplated the voluntary and orderly termination of the operations
carried out by the New York Branch and its subsequent closing-down,
after: (i) payment of smaller deposits by the Branch, (ii) the
renegotiation of its obligations with third parties and (iii) the
transfer of the renegotiated debts to the Head Office.
As of March 31, 2002, the New York Branch had obligations with third
parties for a total amount of approximately US$ 331,000. Most of that
debt was restructured between that date and the middle of 2002. At the
end of fiscal 2002, the New York Branch had restructured all its
obligations with third parties.
The restructuring of the New York Branch's debt consisted in
rescheduling its commercial debt amounting to US$ 51,000 in the short
term paying 20% of it in cash and transferring the remaining 80% to
the Head Office of the Bank in Argentina. At the date of these
financial statements the total amount of that debt had been settled.
Also, of the total financial debt of approximately US$ 237,000, US$
125,500 were rescheduled at the Head Office for a term of 5 years,
with a grace period of 2 years, US$ 68,900 were paid in cash and a
debt reduction of US$ 42,600 was granted. Of total deposits of US$
30,000, the Branch paid in cash deposits for lower amounts totaling
US$ 12,500, and rescheduled US$ 17,000 at the Head Office.
Furthermore, within the framework of this Plan, the representation
offices at Sao Paolo (Brazil) and London (United Kingdom), as well as
Galicia y Buenos Aires Securities (UK) Ltd., the company controlled by
the Bank and organized in the United Kingdom, were closed down during
the second half of 2002.
Restructuring of the external debt of the Parent Company and its
Cayman Islands Branch.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
On June 12, 2002 the Bank announced the restructuring of its entire
external debt within the framework of the Plan, which amounted to US$
1,365 million (principal) at September 30, 2003. Payment of all debts
with external creditors were postponed until they are restructured. At
that time the Bank also announced that it had hired the services of an
international investment bank to advise it on the restructuring
process. The Bank has formally started negotiations with the most
important creditors ("Steering Committee") regarding the debt with the
Head Office in Argentina and the Cayman Branch, and is making progress
in those negotiations and in defining a repayment proposal.
As called for by BCRA Communication "A"3940, in order for banks to be
allowed to restructure the debt for financial assistance granted by
the BCRA to cover lack of liquidity under the terms of Decrees Nos.
739/03 and 1262/03, they were required to submit to the control entity
before July 31, 2003 a proposal for the restructuring of their
external debt and report on the status of negotiations with their
external creditors. Banco Galicia met this requirement, and as a
result on August 14, 2003 the Board of Directors of the BCRA issued
Resolution No. 338.
Through this Resolution, the BCRA first approved the terms and
conditions for the restructuring of the debt of US$ 399,500
(principal) that the Bank carried with Banco Galicia Uruguay SA, as
well as the transfer to that entity of cash for US$ 72,100 and Boden
2012 for US$ 137 million (face value), in payment of the first
principal installment and interest thereon due at August 15, 2003.
This restructuring and the above-mentioned repayment enable the Bank
to meet the payment of rescheduled deposits of Banco Galicia Uruguay
SA.
Secondly, Resolution No.338 also approved the terms and conditions for
the restructuring of the external debt of the Bank, according to the
proposal submitted to the Steering Committee on June 5, 2003 on the
understanding that such debt was subject to negotiation. From a
regulatory viewpoint, the approval by the BCRA is a necessary step in
the authorization process established by Communication "A" 3940.
The restructuring of the Bank's external debt is a complex process
because of its amount, the large number of creditors and the different
instruments involved.
Capitalization.
The Plan contemplates the capitalization of the Bank as an integral
part of the restructuring of its external debt. As part of the Plan,
the Bank has proposed to the BCRA a capitalization plan for a total
amount of US$ 300,000, which is subject to discussion and, therefore,
to modifications.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
In connection with the restructuring of the external debt, the Meeting
of Shareholders of the Bank held on September 30, 2003 approved the
creation of a Program for the issuance and public offering of
negotiable obligations, not convertible into shares in the Bank. In
addition, the shareholders resolved that the negotiable obligations to
be issued under the Program will be subordinated to the payment of
shares in order to be computed as capital for BCRA regulatory
purposes, instead of as capital stock.
On June 5, 2003, the Bank submitted to the Creditors Committee a
restructuring proposal that was approved by the BCRA and is subject to
modifications.
Subsequently, as called for by Communique "A" 3940, the Bank submitted
monthly reports to the BCRA on the degree of progress made in the
negotiation with the Creditors Committee.
The situation described above also affected Banco Galicia Uruguay S.A.
and Banco de Galicia (Cayman) Ltd. (In Provisional Liquidation),
entities controlled by Banco de Galicia y Buenos Aires S.A..
On February 6, 2002, Banco Galicia Uruguay S.A. submitted a letter to
the Central Bank of Uruguay in order to: (i) inform it of its
temporary lack of liquidity, which prevented it from continuing to
face the withdrawal of deposits; (ii) request financial assistance
from that entity to be able to preserve its ability to reimburse all
deposits in an orderly manner and face the withdrawal of funds
generated by the developments that took place in Argentina, and (iii)
request the authorization of that entity to temporarily suspend its
operations.
On February 13, 2002 the Central Bank of Uruguay resolved to
preventively intervene in Banco Galicia Uruguay S.A. and temporarily
suspend all its activities for a term of 90 days, which was
subsequently extended until August 15, 2003.
On June 10, 2002, Banco de Galicia Uruguay S.A. submitted to the
Central Bank of Uruguay a proposal for the restructuring of its debt
in respect of deposits. The proposal consists in an initial cash
payment in US dollars equivalent to 3% of the amounts receivable by
each depositor, and for the remaining amount, in a time deposit or
negotiable obligations issued by Banco de Galicia Uruguay S.A., at the
customers' option, all of them falling due in September 2011, to be
amortized in nine annual and consecutive installments, the first two
installments for 15% of the balance, and the following ones, for 10%,
at a fixed interest rate of 2% per annum.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
On June 20, 2002, a letter was presented before the Central Bank of
Uruguay offering a pledge on Banco de Galicia Uruguay S.A.'s
commercial receivables as collateral for the proposal.
On July 18, 2002, the Central Bank of Uruguay informed Banco de
Galicia Uruguay S.A. that it would not object to any proposal the
latter could make to its depositors provided at least a 75% adherence
is obtained.
This percentage represents the majority legally required to achieve an
out-of-court reorganization plan, pursuant to Uruguayan legislation
(Section 29 and subsequent sections of Law 2230 of June 2, 1893).
Acceptance by depositors represented deposits for US$ 930,000, out of
a total amount of US$ 1,176,000, corresponding to the holders of 7.067
accounts over a total of 12,271 accounts. This is equivalent to 79% of
total deposits, which shows the confidence customers have in the bank.
On December 23, 2002, the Court of Montevideo hearing the case,
approved the reorganization plan requested by Banco de Galicia Uruguay
S.A..
In accordance with a resolution adopted by the Central Bank of
Uruguay, as from January 9, 2003, Banco Galicia Uruguay S.A.
implemented a payment program, which contemplates the reimbursement of
100% of deposits in US dollars plus interest to investors. As agreed,
the first step consists of an initial payment of 3% in cash to each
holder of time, savings account and demand deposits as of February 13,
2002, as well as the delivery of transferable rescheduled time deposit
certificates, as the case may be, issued by Banco Galicia Uruguay S.A.
On June 17, 2003 Banco de Galicia y Buenos Aires S.A. started to
receive opinions from its depositors about different ways of
exchanging their deposits rescheduled in 2002 (such as time deposits
or negotiable obligations) for different proportions of BODEN 2012
and/or new negotiable obligations to be issued by the Company. The
purpose of this exchange was to voluntarily modify the profile of the
debt already restructured to satisfy the preferences of customers for
different combinations of liquidity and return, and to improve the
distribution of cash flows over time.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
The options offered consisted of the exchange of units of rescheduled
deposits for US$ 1 for: (i) Boden 2012 at par for one thousand US
dollars (US$ 1), plus a cash premium of 3%. The maximum amount of this
option was US$ 375,000; (ii) a new negotiable obligation for US$ 1 to
be issued by Banco Galicia Uruguay SA, with a coupon accruing interest
at Libor plus 300 basis points, payable semi-annually, with a 7% cap,
to be amortized in three installments falling due on December 15, 2009
(30%), December 15, 2010 (30%) and December 15, 2011 (40%), plus an
interest payment in cash for US$ 0.01375 to be made in September 2003.
This negotiable obligation may be redeemed by the issuer as from
December 15, 2008. The maximum amount of this option was US$ 300,000;
(iii) a new negotiable obligation for US$ 0.450 to be issued by Banco
Galicia Uruguay SA, with a coupon accruing interest at a 2% rate,
payable semi-annually, to be amortized upon maturity on December
December 15, 2005, together with a principal and interest payment in
cash for US$ 0.08875 in September 2003, and Boden 2012 at par for US$
0.425. The maximum amount of this option was US$ 110,000; or (iv) a
new negotiable obligation for US$ 0.500 to be issued by Galicia
Uruguay, with a coupon accruing interest at 2% per annum, payable
semi-annually, to be amortized in three installments falling due on
December 15, 2006 (30%), December 17, 2007 (30%) and December 15, 2008
(40%), and a principal and interest payment in cash for US$ 0.08875 in
September 2003 and Boden 2012 at par for US$ 0.425. The maximum amount
of this option was US$ 200,000. The maximum amounts were not exceeded,
so no apportionment was required to be made.
The term for this voluntary exchange expired on July 24, 2003. The
customers of Banco Galicia Uruguay SA exercised those options in a
total amount of US$ 185,000, which included opting to receive Boden
2012 for US$ 137,000, in addition to new negotiable obligations to be
issued by Banco Galicia Uruguay SA.
Through Resolution No.338, the BCRA approved the terms and conditions
for the restructuring of the debt of US$ 399,500 (principal) that the
Bank carried with Banco Galicia Uruguay SA, as well as the transfer to
that entity of cash for US$ 72,100 (principal amount) and Boden 2012
for US$ 137,000 (face value), in payment of the first principal
installment and interest thereon due at August 15, 2003. The terms and
conditions approved by the BCRA were as follows:
- To amortize the principal, a disbursement for US$ 40,900 and
payment in Boden 2012 for a face value of US$ 137,000, both of
them to be made on August 15, 2003. The balance of around US$
221,600 is to be settled in 8 annual consecutive installments
falling due in August of each year.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
- Interest shall be payable on that date. Under Resolution No. 338,
interest paid on August 15, 2003 was set at US$ 31,200, which
resulted from applying the contractual rate until December 31,
2002 and the new rate to be applied, LIBOR plus 150 basis points
as from that date.
During the first days of September 2003, as scheduled, Banco Galicia
Uruguay S.A. began to pay the second installment envisaged in the
deposit rescheduling program, with the amendments introduced by the
exchange offer. At the same time, Banco Galicia Uruguay S.A. began to
settle the exchange offer, on the basis of the Boden 2012 for US$
137,000 (face value).
The Central Bank of Uruguay extended the intervention in Banco Galicia
Uruguay S.A. until November 30, 2003. The situation of Banco Galicia
Uruguay S.A. affected its subsidiary Banco de Galicia (Cayman) Ltd.
(In provisional liquidation) because one of its main assets was a
deposit for US$ 79,500 in Banco Galicia Uruguay SA). Consequently, at
the request of that subsidiary, on July 18, 2002 the authorities in
the Cayman Islands appointed a provisional liquidator in order to
reach a voluntary restructuring agreement between that Entity and its
creditors.
At the end of May 2003, Banco de Galicia (Cayman) Ltd. (in provisional
liquidation) and the Provisional Liquidator concluded the debt
rescheduling plan of that Entity and with the authorization of the
court in the Cayman Islands ("the Court") they distributed the plan to
all creditors for their consideration. The restructuring plan will be
in force until April 30, 2012.
On May 29, 2003 the restructuring proposal made to creditors was
submitted to the Court. The terms of this proposal were as follows: an
initial cash payment of 5% of the amount of the debt (principal and
interest) due as of July 18, 2002, plus a transferable debt
certificate for 95% of the amount of the debt (principal and interest)
due as of July 18, 2002. The conditions of this certificate are as
follows: (i) amortization of principal in nine annual consecutive
installments, the first two of them for 15% of the principal and the
following ones for 10%, payable as from September 21st of each year;
(ii) interest at 2% per annum (plus 1% provided that the entity still
has assets following reimbursement to all its creditors according to
the proposed plan and repayment of the subordinated loan described
below); (iii) the certificate shall accrue interest as from the date
of the agreement; and (iv) interest shall be payable together with the
principal and calculated on balances due. After the debt with all
Class A creditors has been repaid, the remaining assets of Banco de
Galicia (Cayman) Limited (In Provisional liquidation) shall be
allocated to the repayment of the US$ 2,900 debt held with Galicia
Pension Fund Ltd. (a subsidiary of Banco de Galicia (Cayman)
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
Limited (In Provisional Liquidation), which is subordinated to the
repayment of the debt with all Class A creditors. Furthermore, a
subordinated loan for US$ 1,200 was obtained from Grupo Financiero
Galicia S.A., the parent company of the Bank, which shall be repaid
after the debt with all creditors according to the proposed plan has
been amortized. On July 10, 2003 a creditors' meeting was held in
order to consider and approve fully or partially the repayment plan
proposed by the Bank. At that meeting, that plan was approved without
modifications by the creditors who, in number and amount of
receivables represented 99.7% of the total number of votes cast. The
degree of acceptance of the proposed plan exceeded the legal
majorities of more than 50% of the number of creditors and 75% of
total receivables corresponding to the votes cast. With the approval
of the proposed plan by the Court in the Cayman Islands and its
registration with the Company Record of that jurisdiction, both of
them having taken place on July 16, 2003, the proposed plan came into
force as from that date and has effects and is mandatory for all
creditors. This initial payment was made on August 8, 2003. The first
installment (15%) was paid in the middle of September 2003.
Furthermore, in view of the difficult economic situation and its
market share, as from last fiscal year Galicia Administradora de
Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion decided to
restrict the operations of the mutual funds it administers. To this
end, it has restructured some of the Funds it administers and launched
a new Money Market Premium to keep its offer attractive.
In order to give the same treatment to all unitholders, the CNV issued
General Resolution No. 384/01 by which it authorized mutual funds to
pay redemptions in a differentiated manner, according to the
proportion of liquid and non-liquid assets in each Fund.
The Board of Directors of that company and Banco de Galicia y Buenos
Aires S.A., acting as depository entity, decided to follow that
criterion in the case of the Funds it administers, which are subject
to spin-off, in order to preserve the common equity and provide equal
protection to all unitholders.
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"
Notes to the Financial Statements (Continued)
(figures stated in thousands of US dollars)
NOTE 1: (Continued)
General Resolution No. 411/02 of the C.N.V. regulates the mechanism
for the exchange of rescheduled Mutual Fund deposits held in the
financial system, as established by Section 6 of Decree No. 905/02,
laying down that in the case of Mutual Fund deposits, the options
envisaged in Sections 2 to 5 and 7 are to be exercised by the
unitholders in proportion to their holdings. This resolution also
establishes that mutual fund managers shall be responsible for
carrying out the pertinent formalities before the various financial
institutions and/or Caja de Valores S.A., as the case may be, in
relation to the options exercised by the unitholders, which shall be
considered to be redemptions of units paid in kind as part of mutual
fund operations.
As a result of the measures adopted by the Executive Branch, certain
unitholders have filed lawsuits against the National State and/or
institutions in the financial system requesting prompt reimbursement
of their holdings in mutual funds in the originally agreed currency.
At the date of issue of these financial statements, the Supreme Court
of Justice had not yet ruled on the legal actions filed before it
requesting protection of constitutional rights in relation to the
pesification of deposits under Decree No. 214/02, except for the
ruling on the case entitled Province of San Luis vs Argentine Federal
Government declaring article 2 of Decree No.214/02 unconstitutional.
At the date of these financial statements, the Court had not yet ruled
on certain cases involving US dollar deposits of individual savers.
Although the criterion to be followed by the Court in ruling on these
cases will not be mandatory for the lower courts, it is an indication
of the likely rulings in similar cases to be heard by them.
At the date of issue of these financial statements, the final outcome
of these claims cannot be determined.
The developments described in the section entitled "Compensation to be
granted to financial institutions" proved financially detrimental to
Banco de Galicia Uruguay S.A., due to the devaluation of the Argentine
currency and the mandatory conversion into pesos, at different
exchange rates, of a portion of its receivables in foreign currency
subject to Argentine legislation.
Such losses have been generated by the fact that, as mentioned
earlier, Decree 905/02 excluded from the calculation of the
Compensating and Coverage Bonds the assets converted into pesos owned
by companies engaged in supplementary activities and controlled by
Banco de Galicia y Buenos Aires S.A., and by foreign branches and
subsidiaries. In other words, the objective envisaged in Section 7 of
Decree No. 214/02, which consists in " establishing the issuance of a
Bond to cover the imbalance in
88
NOTE 1: (Continued)
the financial system", has only been partially met in the case of
Banco de Galicia y Buenos Aires S.A. under that decree. Subsequently,
Decree 2167/02 and Argentine Central Bank Communique "A" 3805
corrected that omission by complementing the calculation of the
compensation including in it the assets recorded at foreign branches
or subsidiaries subject to Decree 214/02 (see section entitled
"Compensation to be granted to financial institutions").
Within this context, Banco de Galicia y Buenos Aires S.A. agreed with
Banco Galicia Uruguay S.A. to perform the necessary acts to provide
the latter company, where applicable and subject to the prior
authorization of the Argentine Central Bank, with the necessary funds
for it to be able to reimburse all rescheduled deposits.
Subsequently, the two financial institutions complemented that
agreement through another agreement which explained that the legal
effects, whether direct or indirect, of the declarations and covenants
contained in the agreement, and the fulfillment of the commitments
undertaken are subject to the normalization of the economic and
financial situation of Banco de Galicia y Buenos Aires S.A. and to the
repayment of the financial assistance granted to it by the Argentine
Central Bank. These circumstances are mentioned in point 52 of
Resolution No. 281 issued by that body.
Furthermore, as a result of the intervention of the Central Bank of
Uruguay in Banco Galicia Uruguay S.A., during last year and at the
beginning of the current year, it was not possible to obtain financial
statements prepared in accordance with Argentine accounting standards.
In view of the above, and in compliance with the Galicia
Capitalization and Liquidity Plan, the Bank has decided to record a
provision to fully cover the value of its investments in Banco Galicia
Uruguay S.A. and Banco de Galicia (Cayman) Limited (In Provisional
Liquidation) in the amounts recorded as of December 31, 2001 and,
while those circumstances still persist, it has decided to discontinue
the consolidation of the financial statements of the two subsidiaries
with those of the Bank and record a provision in Provisions for other
contingencies, under liabilities, to cover the deficit in the
consolidated equity of the two subsidiaries, according to estimates
made by Banco de Galicia y Buenos Aires S.A. on the basis of
documentation and information held by it.
As of September 30, 2003, the Bank began to receive the accounting
information on those two subsidiaries regularly, so the financial
statements have been consolidated on a line-by-line basis with the
balances of Banco Galicia Uruguay S.A., Banco de Galicia (Cayman)
Limited (In Provisional Liquidation) and its subsidiaries.
89
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 US dollars)
NOTE 1: (Continued) ------
The individual financial statements include the investment in Banco de
Galicia (Cayman) Limited (In Provisional Liquidation) according to the
equity method of accounting, while US$ 233,848 have been recorded in
Provisions for other contingencies, under liabilities, to cover the
deficit in the equity of Banco Galicia Uruguay S.A.
In view of this, Banco de Galicia y Buenos Aires S.A. ratified its
intention to continue operating the business of its Uruguayan
subsidiary and meet the commitments previously undertaken, subject to
the necessary authorizations.
Situation of the controlled entities.
------------------------------------
To complement the measures adopted by Banco de Galicia y Buenos Aires
S.A., some of the companies that are indirectly controlled by that
Bank, have carried out various action plans to overcome the impact of
the situation of each of them, as detailed below:
Tarjeta Comfiar S.A.
The Company is making progress in the restructuring of its past due
financial liabilities (see Note 8 subsect. b)). If the adverse
economic conditions were to continue to affect the financial position
of the company and its controlled entities, its ability to meet its
obligations could be impaired, as well as the conduct of its business.
Furthermore, on August 5, 2003 the company's shareholder Tarjeta
Naranja S.A. informed it of a commitment to an irrevocable capital
contribution for US$ 6,175.
Tarjeta Naranja S.A.
Progress has been made in the restructuring of due and payable
financial liabilities (see Note 8 subsect. b)) and in the Company
capitalization process, improved operating results having been
recorded. In order to achieve longer terms and lower interest on its
financial liabilities, two Agreements for the Redemption of Negotiable
Obligations and Issuance of Debt Certificates secured by a Trust were
signed, by which up to 4.5% and 1% of its monthly cash flow have been
allocated to the payment of those certificates over eight years,
counted as from the earlier of June 1, 2002 and February 1, 2003,
respectively, or until the full amortization of the principal of the
certificates subscribed. Furthermore, for purposes of valuing the debt
certificates, a discount rate equivalent to an annual effective
interest rate (TEA) of 11% has been assumed as a premise.
90
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 US dollars)
NOTE 1: (Continued)
The Company has also obtained a commitment for US$ 1,715 from minority
shareholders to make contributions, subject to the restructuring of
the liabilities held with Banco de Galicia y Buenos Aires S.A. and to
a proportional contribution from the controlling shareholder (Tarjetas
Regionales S.A.). In addition, Tarjeta Naranja S.A. has informed Banco
de Galicia y Buenos Aires S.A. of this commitment, accompanying a
proposal for the restructuring of the liabilities with that Bank,
which was was accepted by the Board of Directors of the Bank on August
4, 2003 and has been submitted to the consideration of the Argentine
Central Bank.
Tarjetas Cuyanas S.A.
This Company has entered into two agreements for the redemption of its
negotiable obligations through the issuance of debt Certificates
secured by a Trust (see Note 8 subsect. b)), allocating 5% and 1.75%
of its monthly cash flow to the payment of those certificates, in a
manner similar to Tarjeta Naranja S.A.
Tarjetas del Mar S.A.
The Company is making progress in the restructuring of its short-term
financial debt (see Note 8, subsect. b)). Although the Management of
Tarjetas del Mar S.A. understands that this action will enable it to
mitigate the negative effects, it is not possible to assure that its
implementation will be successful or if, once implemented, it will
meet the objectives set.
The impact of all the measures adopted to date by the Argentine
Government on the financial statements of Grupo Financiero Galicia
S.A. and its controlled entities as of September 30, 2003 was
recognized according to evaluations and estimates made at the date of
preparing them. Future actual results might differ from those
evaluations and estimates and those differences could be significant.
Therefore, the financial statements of Grupo Financiero Galicia S.A.
may not report all the adjustments that could result from these
adverse conditions or from any future amendments that could be made to
legal and regulatory norms in force. Furthermore, at this time it is
not possible to foresee the effect of future development of the
country's economy or its consequences on the economic and financial
position of Grupo Financiero Galicia S.A. and its controlled entities.
Thus, any decision that must be made on the basis of these financial
statements must take into account the future development of these
measures and the financial statements must be considered in the light
of these uncertain circumstances.
91
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 US dollars)
NOTE 2: FINANCIAL STATEMENT PRESENTATION BASIS
Through Resolutions Nos. C 238/01, C 243/01, C 261/01, c 262/01 and C
187/02, the Professional Council in Economic Sciences of the
Autonomous City of Buenos Aires (CPCECABA) approved Technical
Pronouncements Nos. 16, 17, 18, 19 and 20, respectively. Furthermore,
the National Securities Commission (CNV) has adopted those Technical
Pronouncements adding certain modifications to them. These regulations
are mandatory for fiscal years commencing as from January 1, 2003.
Furthermore, Resolution MD No. 503 of the CPCECABA was approved, the
application if which is mandatory for fiscal years commencing as from
April 1, 2003.
The main modifications introduced by the new Technical Pronouncements,
which have produced significant effects on the Company's financial
statements, are as
follows:
1. Requirement to apply the deferred tax method in recognizing income
tax.
2. Addition of new disclosure requirements, including segment
information, earnings per share and the comparative information to be
presented.
These financial statements have been stated in thousands of US dollars
and prepared in accordance with disclosure and valuation accounting
standards contained in Technical Pronouncements issued by the
Argentine Federation of Professional Councils in Economic Sciences
(FACPCE), approved with certain modifications by the CPCECABA, and in
line with Resolutions issued by the CNV.
The financial statements for the periods of six months ended September
30, 2003 and 2002 have been subject to a limited review by the
external auditors of the Company. The Management of the Company
considers they include all the necessary adjustments to present fairly
the results for each period. The results for the periods of nine
months ended September 30, 2003 and 2002 do not necessarily reflect
the Company's results in proportion to the entire fiscal years.
The preparation of financial statements at a given date requires
management of the Company to make estimates and assessments that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at that date, as well
as the income and expenses recorded for the period. The management of
the Company makes estimates to be able to calculate at a given time
the depreciation and amortization charges, the recoverable value of
assets, the income tax charge and provisions for contingencies. Future
actual results may differ from those estimates and assessments made at
the date these financial statements were prepared.
92
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 US dollars)
NOTE 2: (Continued)
As established by professional accounting standards and CNV
resolutions, the effects of inflation have started to be recognized
since January 1, 2002, considering that the accounting measurements
originating prior to December 31, 2001 are stated in the currency of
that date.
On March 25, 2003, the National Executive Branch issued Decree 664
establishing that the financial statements for fiscal years ending as
from that date be stated in nominal currency. Consequently, in
accordance with CNV Resolution No. 441/03, the Company discontinued
the restatement of its financial statements as from March 1, 2003.
Although this criterion is not in accordance with prevailing
professional accounting standards, this departure has not produced a
significant effect on the financial statements. In the March-September
2003 period, a deflation rate of approximately 2% was recorded. The
index used in restating the items in these financial statements is the
domestic wholesale price index published by the National Statistics
and Census Institute.
For comparative purposes, the balances as of December 31, 2002 and
September 30, 2002 have been restated following the guidelines
contained in the preceding paragraphs of this Note. In addition, those
balances have been reclassified to conform them to the current period
presentation.
The principal accounting policies used in preparing the financial
statements are described below.
a. Assets and Liabilities in local currency
Monetary assets and liabilities which include, where applicable,
the interest accrued up to the closing date, are stated at
period/year end currency value, so they do not require any
adjustment whatsoever.
b. Foreign currency Assets and Liabilities (US dollars)
Foreign currency assets and liabilities (in US dollars) have been
stated at Banco de la Nacion Argentina buying and selling rates
of exchange, respectively, in force at the close of operations on
the last working day of each period/year. Interest receivable or
payable has been accrued, where applicable.
93
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 US dollars)
NOTE 2: (Continued)
c. Investments
c.1. Current
Time and special current account deposits have been valued
at their face value, plus interest accrued at period/year
end.
The negotiable obligations have been valued at their nominal
value, plus accrued interest at period/year end.
c.2. Non-current
The negotiable obligations have been valued at their nominal
value, plus accrued interest at period/year end.
The equity interests in Banco de Galicia y Buenos Aires S.A.
and Net Investment S.A. have been accounted for according to
the equity method as of September 30, 2003. The equity
interest in Banco de Galicia y Buenos Aires S.A. has been
valued considering the effect of income tax determined
according to the deferred tax method on the consolidated
financial statements (see Note 3.b.7.a. to the consolidated
financial statements).
The equity interests in Sudamericana Holding S.A. and
Galicia Warrants S.A. have been accounted for under the
equity method, on the basis of June 30, 2003 and July 31,
2003 financial statements, respectively, and considering the
significant movements occurred from that date to the closing
date of these financial statements, in accordance with
professional accounting standards.
The financial statements of Sudamericana Holding S.A. have
been prepared as established by the National Insurance
Superintendency (SSN), without recognizing the effect of
inflation for January and February 2003. This criterion is
not in accordance with professional accounting standards.
Nevertheless, this departure has not generated a significant
effect on the financial statements of Grupo Financiero
Galicia S.A.
94
NOTE 2: (Continued)
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 US dollars)
d. Fixed assets
Fixed assets have been valued at their acquisition cost, restated
into constant currency, as mentioned in the sixth and seventh
paragraphs of 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 index-adjusted net book values of the assets, taken as a
whole, do not exceed their value to the business at period end.
e. Intangible assets
Intangible assets have been valued at their acquisition cost,
restated in constant currency, as mentioned in the sixth and
seventh paragraphs of this Note, net of the corresponding
accumulated amortization, calculated based on their estimated
useful life.
The Company has recorded a valuation allowance of US$ 843 for the
goodwill for the acquisition of the shares representing 87.50% of
the capital stock and voting rights of Galicia Warrants S.A.
95
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 US dollars)
NOTE 2: (Continued)
Amortization charges are calculated on a straight-line basis in
equal monthly installments over 60 months. The index-adjusted net
book values of the assets taken as a whole do not exceed their
estimated recoverable value at period end.
As of September 30, 2003, the logotype and organization expenses
were written off.
f. Income Tax
Income tax has been determined according to the deferred tax
method. (See Note 13).
g. Shareholders' Equity
g.1. Activity in the shareholders' equity accounts has been
restated as mentioned in the sixth and seventh paragraphs of
this Note.
The "Subscribed and paid-up 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 derived
from the restatement of that account in constant monetary
units has been allocated to the Capital Adjustment account.
The opening balance of the retained earnings account has
been modified, as disclosed under the Statement of Changes
in Shareholders' Equity, to include a "Prior year gain
adjustment of US$ 13,654, mainly corresponding
to:
- US$ 13,037 due to the change of criterion for the
accounting measurement of income tax adopted by the entities
controlled by Banco de Galicia y Buenos Aires S.A.
- Adjustment derived from a foreign source tax loss
carry-forward recognized as a loss for US$ 617 as of
December 31, 2002.
g.2. Income and expense accounts
The results for each period have been disclosed at restated
values following the guidelines detailed in the sixth and
seventh paragraphs of this Note.
h. Statement of cash flows
The "Cash and banks" caption is considered to be cash. The
activity in that statement has been presented in constant
currency.
96
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 US dollars)
NOTE 3: CASH AND BANKS
The breakdown of this caption was as follows:
9.30.03 12.31.02
------------- -------------
Cash (Schedule G) 312 352
Banks - current accounts (Note 11) 10 91
---------- ----------
Total 322 443
========== ==========
NOTE 4: OTHER RECEIVABLES
The breakdown of this caption was as follows:
9.30.03 12.31.02
------------- -------------
Current
Fiscal credits 4 23
Prepaid expenses 4 2
Sundry debtors (Note 11 and
Schedule G) 805 40
Others 1,354 --
---------- ----------
Total 2,167 65
========== ==========
9.30.03 12.31.02
------------- -------------
Non-current
Fiscal credits (Note 13) 288 2
Sundry debtors (Note 11 and Schedule G) 1,164 --
---------- ----------
Total 1,452 2
========== ==========
NOTE 5: SALARIES AND SOCIAL SECURITY LIABILITIES
The breakdown of this caption was as follows:
9.30.03 12.31.02
------------- -------------
Integrated Pension and Survivors' Benefit System 2 4
Health care plans 1 1
Accrued annual legal bonus and social security
contributions 5 --
Directors' and syndics' fees accrual 15 42
---------- ----------
Total 23 47
========== ==========
97
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 US dollars)
NOTE 6: TAX LIABILITIES
The breakdown of this caption was as follows:
9.30.03 12.31.02
------------- -------------
Current
Income tax payable, net of fiscal credits 3 4
Income tax withholdings to be deposited -- 445
Provision for turnover tax 1 --
Provision for tax on minimum notional
income, net of fiscal credits 57 --
---------- ----------
Total 61 449
========== ==========
9.30.03 12.31.02
------------- -------------
Non-current
Deferred tax liability (Note 13) 14,896 18,570
---------- ----------
Total 14,896 18,570
========== ==========
NOTE 7: OTHER DEBTS
The breakdown of this caption was as follows:
9.30.03 12.31.02
------------- -------------
Current
Sundry creditors (Schedule G) 12 119
Expense accrual (Note 11 and Schedule G) 39 355
Directors' qualification bond -- 1
---------- ----------
Total 51 475
========== ==========
9.30.03 12.31.02
------------- -------------
Non-current
Directors' qualification bond 2 1
---------- ----------
Total 2 1
========== ==========
NOTE 8: CAPITAL STATUS
As of September 30, 2003, the capital status of the Company was as
follows:
======================== ================ ================ =================================================== =====================
Date of registration
Restated to with the Public
Capital Face Value constant Approved by Registry of
currency --------------------------- ---------------------- Commerce
Body Date
- ------------------------ ------------ ---------- -------------------------------------------------- ---------------------
374,754 825,757
Subscribed, issued, Extraordinary shareholders' 05.16.00
paid-in and registered meeting 07.24.00 and 07.26.00 08.09.00
Board of Directors
------------ ----------
Total 374,754 825,757
======================== ================ =========== ============================== ==================== =====================
98
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 US dollars)
NOTE 9: ESTIMATED COLLECTION OR PAYMENT TERMS OF RECEIVABLES, INVESTMENTS AND
DEBTS
As of September 30, 2003 the breakdown of receivables, investments and
debts according to their estimated collection or payment terms was as
follows:
============================ ==================== ================ =================== =================== ====================
Other receivables Investments Salaries and Tax liabilities Other liabilities
social security
liabilities
- ---------------------------- -------------------- ---------------- ------------------- ------------------- --------------------
Falling due within:
1st Quarter 1,414 7,101 8 4 51
2nd Quarter 374 - - - -
3rd Quarter 376 - 15 57 -
4th Quarter 3 - - - -
After one year 1,450 42,549 - 14,896 2
-------------------- ---------------- ------------------- ------------------- --------------------
Subtotal falling due 3,617 49,650 23 14,957 53
-------------------- ---------------- ------------------- ------------------- --------------------
Without any set due date 2 466,384 - - -
-------------------- ---------------- ------------------- ------------------- --------------------
Total 3,619 516,034 23 14,957 53
-------------------- ---------------- ------------------- ------------------- --------------------
Non-interest bearing 2,814 466,384 23 14,957 53
At a fixed rate 805 49,650 - - -
- ---------------------------- -------------------- ---------------- ------------------- ------------------- --------------------
Total 3,619 516,034 23 14,957 53
============================ ==================== ================ =================== =================== ====================
NOTE 10: EQUITY INTERESTS IN OTHER COMPANIES
The breakdown of long-term investments was as follows:
====================================================================================================================================
As of 9.30.03
- ------------------------------------------------------------------------------------------------------------------------------------
Issuing company Shares Percentage of interest held in Principal line of Face value
business per share
------------------- -------------- --------------- --------------
Type Number Total Capital Possible votes
- ------------------------------- ------------------- -------------- --------------- --------------
Ordinary class "A" 101 Financial 0.00034
Banco de Galicia y Buenos Aires activities
S.A. Ordinary class "B" 438,599,602 0.00034
------------------- -------------- --------------- --------------
Total 438,599,703 93.585537% 93.585542%
- ------------------------------- ------------------- -------------- --------------- -------------- ------------------- ----------
Net Investment S.A. Ordinary 10,500 87.50% 87.50% Financial and
investment
activities 0.00034
- ------------------------------- ------------------- -------------- --------------- -------------- ------------------- ----------
Sudamericana Holding S.A. Ordinary class "A" 31,302 Financial and 0.00034
Investment
Ordinary class "B" 41,735 activities 0.00034
------------------- -------------- --------------- --------------
Total 73,037 87.500899% 87.500899%
- ------------------------------- ------------------- -------------- --------------- -------------- ------------------- ----------
Issuer of
warehouse
receipts and
Galicia Warrants S.A. Ordinary 175,000 87.50% 87.50% warrants 0.00034
=============================== ==================== ============= ====================== ===================== ===============
99
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 US dollars)
NOTE 10: (Continued)
==========================================================================================================
As of 12.31.02
- ----------------------------------------------------------------------------------------------------------
Issuing company Shares Percentage of interest held in
------------------- --------------- ------------------ ---------------
Type Number Total Capital Possible votes
- ----------------------------------- ------------------- --------------- ------------- ----------------
Banco de Galicia y Buenos Aires Ordinary class "A" 101
S.A.
Ordinary class "B" 438,599,602
------------------- --------------- ----------- -------------
Total 438,599,703 93.585537% 93.585542 %
- ----------------------------------- ------------------- --------------- ----------- -------------
Net Investment S.A. Ordinary 10,500 87.50% 87.50%
- ----------------------------------- ------------------- --------------- ----------- -------------
Ordinary
Class "A" 31,302
Sudamericana Holding S.A. Ordinary
Class "B" 41,735
------------------- --------------- ----------- -------------
Total 73,037 87.500899% 87.500899%
- ----------------------------------- ------------------- --------------- ----------- -------------
Galicia Warrants S.A. Ordinary 175,000 87.50% 87.50%
=================================== =================== =============== =========== ================
================================================================================
As of 12.31.02
- --------------------------------------------------------------------------------
Issuing company Principal line of Face value
business per share
- ----------------------------------- -------------- ---------
Banco de Galicia y Buenos Aires Financial 0.00034
S.A. activities
0.00034
- ----------------------------------- -------------- ---------
Financial and
investment
Net Investment S.A. activities 0.00034
- ----------------------------------- -------------- ---------
Financial and 0.00034
Sudamericana Holding S.A. investment
activities 0.00034
- ----------------------------------- -------------- ---------
Issuer of
warehouse
receipts and
Galicia Warrants S.A. warrants 0.00034
=================================== ============= =========
The financial condition and results of controlled companies were as
follows:
======================================================================================================= ============================
Financial condition Issuing company
as of 9.30.03
----------------------------
Banco de Galicia Net
y Buenos Investment
Aires S.A. S.A.
- ---------------------------------------------------------------------------------------------- ----------------------------
Assets 7,197,616 2,015
Liabilities 6,718,181 21
Shareholders' equity 479,435 1,994
Result for the period of nine months ended 9.30.03 (52,890) (1,940)
============================================================================================== ========== =========
====================================================================================================================-===============
Issuing company
---------------------
Financial condition Galicia Warrants S.A.
As of 7.31.03(*)
- ---------------------------------------------------------------------------------------------- ------ ---------------
Assets 2,024
Liabilities 371
Shareholders' equity 1,653
Result for the period of nine months ended July 31, 2003 139
============================================================================================== =====
(*) See Note 2.c.2.
====================================================================================================================================
Issuing company
-------------------------
Financial condition Sudamericana Holding S.A.
As of 6.30.03(*)
- ---------------------------------------------------------------------------------------------- -------------------------
Assets 7,608
Liabilities 21
Shareholders' equity 7,587
Result for the period of nine months ended 6.30.03 (3,199)
============================================================================================== ========================
(*) See Note 2.c.2.
100
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 US dollars)
NOTE 10: (Continued)
=======================================================================================================-============================
Issuing company
---------------------------------
Financial condition as of 12.31.02 Banco de Galicia Net
Results as of 9.30.02 y Buenos Investment
Aires S.A. S.A.
- ------------------------------------------------------------------------------------------------------- ----------------------------
Assets 7,579,317 2,833
Liabilities 7,046,995 30
Shareholders' equity 532,322 2,803
Result for the period of nine months ended 9.30.02 (399,020) (1,995)
============================================================================================== ========== =========
==============================================================================================================-=====================
Issuing company
-------------------------
Financial condition as of 9.30.02 Sudamericana Holding S.A.
Results as of 6.30.02
- ------------------------------------------------------------------------------------------------------------------------------------
Assets 11,152
Liabilities 284
Shareholders' equity 10,868
Result for the period of nine months ended 6.30.02 278
======
====================================================================================================================================
Issuing company
------------------------
Financial condition as of 10.31.02 Galicia Warrants S.A.
Results as of 7.31.02
- ------------------------------------------------------------------------------------------------------------------------------------
Assets 2,062
Liabilities 548
Shareholders' equity 1,514
Result for the period of nine months ended 7.31.02 (15)
====================================================================================================================================
NOTE 11 INTERCOMPANY BALANCES AND TRANSACTIONS - SECTION 33 OF LAW 19550
The financial statements include the following significant balances of
the transactions carried out with Banco de Galicia y Buenos Aires S.A.
and its subsidiaries:
Banco de Galicia y Buenos Aires S.A. 9.30.03 12.31.02
------- --------
ASSETS
Cash and banks - current accounts (Note 3) 9 90
Investments - time deposits (Schedule C) 1,335 6,807
---------- ---------
Total 1,344 6,897
========== =========
LIABILITIES
Other liabilities - expense accrual (Note 7) 1 42
---------- ---------
Total 1 42
========== =========
101
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 US dollars)
NOTE 11: (Continued)
INCOME 9.30.03 9.30.02
---------- ---------
Financial income - interest on time deposits 475 3,936
---------- ---------
Total 475 3,936
========== =========
EXPENSES
Administrative expenses (Schedule H)
Leasing of brand 171 177
Bank charges 2 1
General expenses 19 15
---------- ---------
Total 192 193
========== =========
Banco Galicia (Cayman) Limited
9.30.03 12.31.02
---------- ---------
ASSETS
Other receivables - Sundry debtors (Note 4)
1,164 --
---------- ---------
Total 1,164 --
========== =========
9.30.03 9.30.02
---------- ---------
INCOME
Financial results - other interest 5 --
---------- ---------
Total 5 --
========== =========
Banco Galicia Uruguay S.A
9.30.03 12.31.02
---------- ---------
ASSETS
Investments - special current account deposits (Schedules C and G) 768 1,591
Investments - negotiable obligations (Schedules C and G) 42,549 51,456
---------- ---------
Total 43,317 53,047
========== =========
INCOME 9.30.03 9.30.02
---------- ---------
Financial income - interest on special current account deposits -- 52
Financial income - interest on negotiable obligations 369 958
---------- ---------
Total 369 1,010
========== =========
Galicia Valores S.A. Sociedad de Bolsa
EXPENSES 9.30.03 9.30.02
---------- ---------
1 --
Financial results - Loss on Indol
---------- ---------
Total 1 --
========== =========
102
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 US dollars)
NOTE 11: (Continued)
Galicia Warrants S.A.
9.30.03 9.30.02
========== =========
INCOME
Financial income - Interest earned -- 1
---------- ---------
Total -- 1
========== =========
B2Agro S.A.
9.30.03 12.31.02
---------- ---------
ASSETS
Other receivables - sundry debtors (Note 4) 805 40
---------- ---------
Total 805 40
========== =========
INCOME 9.30.03 9.30.02
---------- ---------
Financial results - interest earned 18 --
---------- ---------
Total 18 --
========== =========
Tarjetas del Mar 9.30.03 9.30.02
---------- ---------
INCOME
Other income and expenses 8 --
---------- ---------
Total 8 --
========== =========
NOTE 12: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS
At September 30, 2003 there are no restrictions on the distribution of
the Company's retained earnings except for those established by the
Argentine Commercial Companies Law and Resolution No. 368/2001 of the
National Securities Commission insofar as concerns the setting up of
the Legal Reserve with 5% of the net income for the year until 20% of
the capital stock is reached. (See Note 10 to the consolidated
financial statements).
NOTE 13: INCOME TAX - DEFERRED TAX
Income tax has been determined according to the deferred tax method.
The following tables show the changes and breakdown of deferred tax
assets and liabilities:
Deferred tax assets:
103
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 US dollars)
NOTE 13: (Continued)
Other receivables Total
----------------- -----
Opening balances -- --
Charge to results 200 200
Closing balances 200 200
Deferred tax liabilities:
Fixed assets Investments Total
Opening balances 4 18,406 18,410
Charge to results - (3,514) (3,514)
Closing balances 4 14,892 14,896
Deferred net liabilities at period end, derived from the information
included in the preceding tables, amount to US$ 14,696.
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:
Result for the period before income tax (70,104)
Permanent difference:
Result of exposure to inflation 381
Restatement of profit & loss items 738
Result of long-term investments 59,132
Consolidation adjustment per Technical Pronouncement No. 4 252
Impairment of value of goodwill 843
Prior year income tax adjustment 6
Non-deductible expenses 468
Organization expenses (579)
-----------------
Taxable accounting result (8,863)
Income tax rate in force 35%
-----------------
Total income tax loss carry-forward (*) (3,103)
Variation between closing and opening deferred tax assets 4
Variation between closing and opening deferred tax liabilities 3,514
-----------------
Sub-total 415
Argentine source loss carry-forward (**) 196
Foreign source loss carry-forward (611)
-----------------
Tax determined -
=================
(*) Recognized in other income and expenses (**)
Recognized in other receivables
104
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 US dollars)
NOTE 14: EARNINGS PER SHARE
Below is a breakdown of the Earnings per share as of September 30,
2003 and 2002:
9.30.03 9.30.02
--------- ---------
(Loss) for the period (67,001) (370,043)
Number of subscribed and paid-up ordinary shares 1,092,407 1,092,407
Earning per ordinary share:
- - Basic (0,06) (0,34)
- - Diluted (0,06) (0,34)
NOTE 15: SUBSEQUENT EVENTS
After September 30, 2003, the Company made new cash irrevocable
capital contributions in Net Investment S.A. for US$ 21.
105
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
For the period of nine months ended September 30, 2003
In comparative format with the fiscal year ended December 31, 2002.
(figures stated in thousands of US dollars)
Schedule A
ORIGINAL VALUES
- --------------------------------------------------------------------------------------------------------------
Principal account At beginning of Increases Deletions At end of period
year
- ------------------------------- ------------------- ------------------- ------------------- ------------------
Real estate 1,118 - - 1,118
---------------------------- ------------------- ------------------- ------------------- ------------------
Vehicles 26 - 26 -
---------------------------- ------------------- ------------------- ------------------- ------------------
Hardware and software 177 2 - 179
---------------------------- ------------------- ------------------- ------------------- ------------------
Furniture and facilities 70 1 - 71
---------------------------- ------------------- ------------------- ------------------- ------------------
Total 1,391 3 26 1,368
============================ =================== =================== =================== ==================
DEPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------------
For the period
---------------------------------
Principal account Accumulated at Deletions Rate Amount Accumulated at end
beginning of year % of period
- ------------------------------- ---------------------- ------------------- ------------- ------------------- ----------------------
Real estate 23 - 2 16 39
---------------------------- ---------------------- ------------------- ------------- ------------------- ----------------------
Vehicles 7 8 20 1 -
---------------------------- ---------------------- ------------------- ------------- ------------------- ----------------------
Hardware and software 69 - 20 27 96
---------------------------- ---------------------- ------------------- ------------- ------------------- ----------------------
Furniture and facilities 27 - 20 11 38
---------------------------- ---------------------- ------------------- ------------- ------------------- ----------------------
Total 126 8 55 173
============================ ====================== =================== ============= =================== ======================
Net book value at Net book value at
9.30.03 12.31.02
- -------------------------------------------------------------------------------
Principal account
---------------------------- --------------------- ----------------------
Real estate 1,079 1,095
---------------------------- --------------------- ----------------------
Vehicles - 19
---------------------------- --------------------- ----------------------
Hardware and software 83 108
---------------------------- --------------------- ----------------------
Furniture and facilities 33 43
---------------------------- --------------------- ----------------------
Total 1,195 1,265
============================ ===================== ======================
106
Grupo Financiero Galicia S.A.
"Corporation which has not adhered to the Optional System for the Mandatory
Acquisition of Shares in a Public Offering" Intangible assets
For the period of nine months ended September 30, 2003
In comparative format with the fiscal year ended December 31, 2002.
(figures stated in thousands of US dollars)
Schedule B
======================================================================================================
ORIGINAL VALUES
- ------------------------------------------------------------------------------------------------------
At beginning of
Principal account year Increases Deletions At end of period
Logotype 19 - 19 -
- ------------------------------------------------------------------------------------------------------
Organization expenses 302 - 302 -
- ------------------------------------------------------------------------------------------------------
Goodwill 6,883 - - 6,883
- ------------------------------------------------------------------------------------------------------
Total 7,204 - 321 6,883
======================================================================================================
====================================================================================================================
AMORTIZATION
- --------------------------------------------------------------------------------------------------------------------
Accumulated Accumulated
at beginning For the period at end of
Principal account of year Deletions Rate % Amount period
- --------------------------------------------------------------------------------------------------------------------
Logotype 9 9 20 - -
- --------------------------------------------------------------------------------------------------------------------
Organization expenses 141 141 20 - -
- --------------------------------------------------------------------------------------------------------------------
Goodwill 2,352 - 20 1,032 3,384
- --------------------------------------------------------------------------------------------------------------------
Total 2,502 150 1,032 3,384
====================================================================================================================
================================================================================
Valuation Net book Net book
allowance value at value at
Principal account (Schedule E) 9.30.03 9.30.03
- -------------------------------------------------------------------------------
Logotype - - 10
- -------------------------------------------------------------------------------
Organization expenses - - 161
- --------------------------------------------------------------------------------
Goodwill 843 2,656 4,531
- --------------------------------------------------------------------------------
Total 843 2,656 4,702
================================================================================
107
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
Equity Interests in Other Companies and Other Investments
Statement of Financial Condition as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
Schedule C
============================================================================================================= ======================
Issuance and characteristics of the securities Book Value Book Value
as of 9.30.03 as of 12.31.02
------------- --------------
Current investments (*)
Special current account deposits (Note 11 and Schedule G) 768 1,591
Time deposits (Note 11 and Schedule G) 6,258 10,486
Mutual Funds 75 --
Negotiable Obligations (Note 11 and Schedule G) -- 429
---------- ---------
Total current investments 7,101 12,506
========== =========
(*) include accrued interest.
108
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
Equity Interests in Other Companies and Other Investments
Statements of Financial Condition as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
Schedule C (contd.)
=============================================================================================================================
Issuance and characteristics of the Class Face Value Number Acquisition Quotation
securities cost per share
as of
9.30.03
- -----------------------------------------------------------------------------------------------------------------------------
Non-current investments
Negotiable Obligations (Note 11 and
Schedule G)
Banco de Galicia y Buenos Aires S.A. Ordinary class "A" 0,0004 101
Ordinary class "B" 0,0004 438,599,602 0,000911
--------------------------------
438,599,703 918,348
Net Investment S.A. Ordinary 0,0004 10,500 8
Irrevocable 7,588
contributions
Sudamericana Holding S.A. Ordinary class "A" 0,0004 31,302
Ordinary class "B" 0,0004 41,735
--------------------------------
73,037 11,787
Irrevocable
contributions 3,541
Galicia Warrants S.A. Ordinary 0,0004 175,000 4,225
----------------------------------------------------------------------------------
Total Non-current investments 945,497
=============================================================================================================================
=============================================================================================
Issuance and characteristics of the Equity value Book Value Book Value
securities as of as of as of
9.30.03 9.30.03 12.31.02
- ---------------------------------------------------------------------------------------------
Non-current investments
Negotiable Obligations (Note 11 and 42,549(*) 51,027(*)
Schedule G)
Banco de Galicia y Buenos Aires S.A.
456,207 456,207 498,177
Net Investment S.A.
2,067 2,067 2,634
Sudamericana Holding S.A.
6,661 6,661 9,532
Galicia Warrants S.A. 1,449 1,449 1,329
--------------------------------------------------
Total Non-current investments 466,384 508,933 562,699
=============================================================================================
==================================================================================================================================
INFORMATION ON THE ISSUING COMPANY
------------------------------------------------------------------------------------------
LATEST FINANCIAL STATEMENTS (Note 10)
------------------------------------------------------------------------------------------
Issuance and characteristics of the Principal line of Date Capital Net Shareholders' %
securities business Stock income/(loss) equity of equity held
in the capital
stock
- -----------------------------------------------------------------------------------------------------------------------------------
Non-current investments
Negotiable Obligations (Note 11 and
Schedule G)
Banco de Galicia y Buenos Aires S.A.
Financial activities 9.30.03 160,776 (52,890)(**) 479,435 93.585537%
Net Investment S.A. Financial and
investment
activities 9.30.03 4 (1,940)(**) 1,994 87.50%
Sudamericana Holding S.A.
Investment activities 6.30.03 28 (4,222)(***) 7,587 87.500899%
Galicia Warrants S.A. Issuer of warehouse
receipts and warrants
07.31.03 69 (130)(#) 1,653 87.50%
-------------------------------------------------------------------------------------------
Total Non-current investments
===================================================================================================================================
(*) includes accrued interest.
(**) for the period of nine months ended September 30, 2003.
(***)for the fiscal year ended June 30, 2003.
(#) for the period of three months ended July 31, 2003.
109
Grupo Financiero Galicia S.A.
"Corporation which has not adhered to the Optional System for the Mandatory
Acquisition of Shares in a Public Offering" Allowances and Provisions For the
period of nine months
ended September 30, 2003.
In comparative format with the fiscal year ended December 31,2002.
(figures stated in thousands of US dollars)
Schedule E
=================================================================================--------------------------------------------------=
Captions Balance at beginning Increases Decreases Balance at end
of year of period
-------- -------------------- --------- --------- --------------
Allowances:
Valuation allowance - Intangible assets (Schedule B) -- 1,029 (186) 843
--- ------ ------- ---
Total as of 9.30.03 -- 1,029 (186) 843
--- ------ ------- ---
Total as of 12.31.02 -- 57,013 (57,013) --
--- ------ ------- ---
Provisions:
Total as of 9.30.03 -- -- -- --
--- ------ ------- ---
Total as of 12.31.02 -- 13,842 (13,842) --
=== ====== ======= ===
=================================================================================--------------------------------------------------=
110
-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
Statement of Financial Condition as of September 30, 2003 and December 31, 2002
(figures stated in thousands of US dollars)
Schedule G
- ------------------------------------------------------------------------------------------------==================
Captions Amount and type of Amount in Argentine
foreign currency
currency Quotation at 9.30.03
- ------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and due from banks
Cash US$ 309 2.915 902
Imprest fund US$ - 2.915 -
Investments
Special current account deposits US$ 768 2.915 2,240
Time deposits US$ 3,005 2.915 8,759
Negotiable obligations US$ - 2.915 -
Other receivables
Sundry debtors US$ 805 2.915 2,347
---------------------------
Total Current Assets 14,248
---------------------------
NON-CURRENT ASSETS
Other receivables
Sundry debtors US$ 1,163 2,915 3,391
Investments
Negotiable obligations US$ 42,549 2.915 124,029
---------------------------
Total Non-current Assets 127,420
---------------------------
Total Assets 141,668
===========================
LIABILITIES
CURRENT LIABILITIES
Other debts
Sundry creditors US$ 9 2.915 27
Expense accrual US$ 23 2.915 67
---------------------------
Total Current Liabilities 94
---------------------------
Total Liabilities 94
=--------------------------------------------------------------------------------------------=====================
- ---------------------------------------------------------------------------=====================
Captions Amount and type of Amount in Argentine
foreign currency
currency at 12.31.02
- ------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and due from banks
Cash US$ 343 999
Imprest fund US$ 7 20
Investments
Special current account deposits US$ 1,591 4,638
Time deposits US$ 1,512 4,408
Negotiable obligations US$ 429 1,249
Other receivables
Sundry debtors US$ 40 117
----------------------------
Total Current Assets 11,431
----------------------------
NON-CURRENT ASSETS
Other receivables
Sundry debtors - -
Investments
Negotiable obligations US$ 51,027 148,744
----------------------------
Total Non-current Assets 148,744
----------------------------
Total Assets 160,175
============================
LIABILITIES
CURRENT LIABILITIES
Other debts
Sundry creditors US$ 202 588
Expense accrual US$ 221 643
----------------------------
Total Current Liabilities 1,231
----------------------------
Total Liabilities 1,231
- ------------------------------------------------------------------------------------------------
111
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 19550
For the period of nine months
ended September 30, 2003.
In comparative format with the same period of the previous fiscal year.
(figures stated in thousands of US dollars)
Schedule H
- -----------------------------------------------------------------------------------------------------------------------------------
Captions Total as of Administrative expenses Total as of
9.30.03 9.30.02
- -----------------------------------------------------------------------------------------------------------------------------------
Salaries and social security charges 177 177 249
Services to the staff 5 5 65
Training expenses 2 2 7
Directors' and syndics' fees 15 15 42
Fees for services 509 509 850
Fixed asset depreciation 55 55 54
Intangible asset amortization 1,032 1,032 1,081
Leasing of brand (*) 12 12 11
Stationery and office supplies 5 5 3
Condominium Expenses 15 15 20
Entertainment, transportation and per diem 7 7 12
Vehicles expenses 1 1 6
Insurance - - 29
Electricity and communications 16 16 21
Taxes, rates and assessments and contributions 182 182 181
Bank charges (*) - - -
General expenses (*) 115 115 191
----------------------------------------------------------------------
Total 2,148 2,148 2,822
===================================================================================================================================
(*) Balances net of eliminations corresponding to intercompany transactions (per Section 33 of Law 19550). See Note 11 to the
financial statements.
112
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 in addition to the Notes to the Financial Statements
For the period of nine months
commenced January 1, 2003 and ended September 30, 2003.
Presented in comparative format
(figures stated in thousands of US dollars)
NOTE 1: LEGAL SYSTEMS
There are no significant specific legal systems entailing the lapsing
of contingent benefits envisaged by those regulations or their
rebirth.
NOTE 2: CLASSIFICATION OF RECEIVABLES AND DEBTS
2.1. Receivables: See Note 9 to the financial statements.
2.2. Debts: See Note 9 to the financial statements.
NOTE 3: CLASSIFICATION OF RECEIVABLES AND DEBTS ACCORDING TO THEIR FINANCIAL
EFFECTS
3.1. Receivables: See Notes 2.a., 2.b. and 9 and Schedule G to the
financial statements.
3.2. Debts: See Notes 2.a., 2.b. and 9 and Schedule G to the financial
statements.
NOTE 4: EQUITY INTERESTS IN OTHER COMPANIES - SECTION 33 OF LAW 19550
See Notes 9, 10 and 11 and Schedule C to the financial statements.
NOTE 5: RECEIVABLES FROM OR LOANS GRANTED TO DIRECTORS OR SYNDICS
As of September 30, 2003 and December 31, 2002 there were no
receivables from or loans granted to directors or syndics or their
relatives up to the second degree inclusive.
113
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 in addition to the Notes to the Financial Statements
(Continued)
(figures stated in thousands of US dollars)
NOTE 6: PHYSICAL INVENTORY OF INVENTORIES
As of September 30, 2003 and December 31, 2002 the Company did not
have any inventories.
NOTE 7: FIXED ASSETS
See Schedule A to the financial statements.
a) As of September 30, 2003 and December 31, 2002 the Company did
not have any technically appraised fixed assets.
b) As of September 30, 2003 and December 31, 2002 the Company did
not have any obsolete fixed assets which have a carrying value.
c) As of September 30, 2003 and December 31, 2002, the criterion
followed by the Company for determining the recoverable value of
its fixed assets consisted of using their value to the business,
based on the possibility of absorbing future depreciation charges
with the profits reported by it.
NOTE 8: INSURANCE
As of September 30, 2003 and December 31, 2002, the breakdown of
insurance policies taken out by the Company for its fixed assets was
as follows:
================================================================================================
Insured Insured Book Book
assets Risks covered amount Value as Value as
of of
9.30.03 12.31.02
- ------------------------------------------------------------------------------------------------
Vehicles Third party liability,
fire, theftand total loss. - - 19
================================================================================================
NOTE 9: ALLOWANCES AND PROVISIONS
See Schedule E to the financial statements.
114
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 in addition to the Notes to the Financial Statements
(Continued)
(figures stated in thousands of US dollars)
NOTE 10: CONTINGENCIES
As of September 30, 2003 and December 31, 2002, there were no
contingencies highly likely to occur which have not been given
accounting recognition.
NOTE 11: IRREVOCABLE ADVANCES TOWARDS FUTURE SHARE SUBSCRIPTIONS
As of September 30, 2003 and December 31, 2002, there were no
irrevocable contributions towards future share subscriptions.
NOTE 12: DIVIDENDS ON PREFERRED SHARES
As of September 30, 2003 and December 31, 2002, there were no
cumulative unpaid dividends on preferred shares.
NOTE 13: LEGAL RESERVE
See Note 12 to the financial statements.
115
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 period of nine months commenced January 1, 2003
and ended September 30, 2003.
Presented in comparative format
(figures stated in thousands of US dollars)
As called for by the norms regarding accounting documentation of the Cordoba
Stock Exchange Regulations, the Board of Directors takes pleasure in submitting
the following supplementary and explanatory information.
A. Current Assets:
a) Receivables:
1) See Note 9 to the financial statements.
2) See Notes 4 and 9 to the financial statements.
3) As of September 30, 2003 and December 31, 2002 the Company had
not set up any allowances or provisions.
b) Inventories:
As of September 30, 2003 and December 31, 2002, the Company did not
have any inventories.
B. Non- Current Assets:
a) Receivables:
of September 30, 2003 and December 31, 2002 the Company had not set
up any allowances or provisions.
b) Inventories:
As of September 30, 2003 and December 31, 2002, the Company did not
have any inventories.
c) Investments:
See Note 10 and Schedule C to the financial statements.
d) Fixed assets:
1) As of September 30, 2003 and December 31, 2002, the Company did
not have any technically appraised fixed assets.
2) As of September 30, 2003 and December 31, 2002, the Company did
not have any obsolete fixed assets which have a carrying value.
116
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 US dollars)
e) Intangible assets:
1) See Note 2.e. and Schedules B and E to the financial
statements.
2) As of September 30, 2003 and December 31, 2002, there were no
deferred charges.
C. Current Liabilities:
a) Debts:
1) See Note 9 to the financial statements.
2) See Note 9 to the financial statements.
D. Allowances and provisions:
See Schedule E to the financial statements.
E. Foreign Currency Assets and Liabilities:
See Note 2.b. and Schedule G to the financial statements.
F. Shareholders' Equity:
1) As of September 30, 2003 and December 31, 2002, the Shareholders'
Equity did not include the Irrevocable Advances towards Future Share
Issues account.
2) As of September 30, 2003 and December 31, 2002, the Company had not
set up any technical appraisal reserve; nor has it reversed any
reserve of that kind.
G. Miscellaneous:
1) The Company is engaged in financial and investment activities, so the
restrictions of Section 31 of Law 19550 do not apply to its equity
interests in other companies.
2) As of September 30, 2003 and December 31, 2002, the Company recorded
receivables for operations conducted with related companies for US$
1,969 and US$ 40, respectively.
3) As of September 30, 2003 and December 31, 2002 there were no
receivables due from or loans granted to directors or syndics or
members of
117
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 US dollars)
the surveillance committee or their relatives up to the second degree
inclusive.
4) See Notes 9 and 11 to the financial statements.
5) As of September 30, 2003 and December 31, 2002, the breakdown of
insurance policies taken out by the Company for its fixed assets was
as follows:
================================================================================================
Insured Insured Book Book
assets Risks covered amount Value as Value as
of of
9.30.03 12.31.02
- ------------------------------------------------------------------------------------------------
Vehicles Third party liability,
fire, theftand total loss. - - 19
================================================================================================
6) As of September 30, 2003 and December 31, 2002, there were no
contingencies highly likely to occur which have not been given
accounting recognition.
7) As of September 30, 2003 and December 31, 2002, 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 19550 in
these financial statements.
Autonomous City of Buenos Aires, November 5, 2003.
(signed) Antonio Roberto Garces
Chairman
118
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
The loss for the period of nine months ended September 30, 2003 reported by the
Company amounts to US$ 67,001; it was generated by the valuation of the equity
interest in Banco de Galicia y Buenos Aires S.A., which is Grupo Financiero
Galicia S.A.'s principal source of income, as shown in its Income Statement.
Grupo Financiero Galicia S.A.'s strategy is to become a leading company engaged
in providing comprehensive financial services and, at the same time, continue to
strengthen Banco de Galicia y Buenos Aires S.A.'s position as one of the leading
companies in Argentina. This strategy will be carried out by supplementing the
operations and business conducted by Banco de Galicia through equity interests
in companies and undertakings, either existing or to be created, engaged in
financial activities as they are understood in the modern economy.
The Ordinary and Extraordinary Meeting of Shareholders held on April 23, 2003
resolved to exercise the option envisaged in Section 24 of Decree No. 677/01,
the Company not therefore adhering to the Optional System for the Mandatory
Acquisition of Shares in a Public Offering. It also approved the absorption of
part of the accumulated losses for the fiscal year ended December 31, 2002
stated in currency of February 2003 with the Discretionary Reserve balance of
US$ 168,899, and to carry forward the remaining loss of US$ 333,640.
In July 2002, the Company received a letter from NASDAQ stating that the NASDAQ
Staff Determination had noted the lack of an opinion in the Auditors' Report on
the financial statements for the fiscal year ended December 31, 2001 added to
the F-20 Form of the Securities & Exchange Commission, and that the financial
statements had not been prepared observing the Generally Accepted Accounting
Principles in the United States of America (US GAAP). In view of this, in order
to prevent the American Depositary Shares (ADR) from being delisted from the
NASDAQ National Market, Grupo Financiero Galicia S.A., enforcing its right as
envisaged by the NASDAQ Market Regulations, requested a hearing before the
NASDAQ Listing Qualifications Panel to review the decision issued by the NASDAQ
Staff Determination. This automatically suspended the delisting from the NASDAQ
National Market until a final decision is issued. As envisaged by NASDAQ
regulations, the mentioned hearing took place on August 8, 2002, at which the
representatives of the Company stated that the difficulties caused by the
economic crisis affecting Argentina had prevented the Company from preparing the
information required by current regulations, so they requested that an extension
be granted to be able to comply with all the listing requirements. Subsequently,
the representatives requested that the Company's listed ADRs be
119
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
transferred to NASDAQ SmallCap Market, which operates according to the same
regulations and uses the same electronic market makers system.
On September 9, 2002, the Company received an answer from NASDAQ, informing the
Company that the extension to present the Opinion of the External Auditors on
the financial statements prepared in accordance with local accounting standards,
requested at the hearing, had been granted until September 20, 2002, such
Opinion having been presented on September 18, 2002, and to present those
financial statements reconciled to US GAAP, until December 2, 2002. NASDAQ also
informed the Company that as from September 13, 2002, the ADRs would be listed
on the NASDAQ SmallCap Market, bearing the GGAEC symbol.
On December 10, 2002, the NASDAQ informed the Company that all listing
requirements for the compliance of which the latter had requested an extension
were deemed to have been met by it. The Company decided to keep its listing on
the NASDAQ SmallCap Market and recover its GGAL symbol, which took place as from
December 11, 2002.
On July 4, 2002 the Company approved a proposal made by Banco Galicia Uruguay
S.A. by which it would receive 3% in cash and the balance in ordinary negotiable
obligations, in exchange for investments it held in that entity. On July 26,
2002, the Company entered into an agreement with that Bank by which it undertook
to irrevocably exchange ordinary negotiable obligations for US$ 43,000 for
subordinated negotiable obligations to those ordinary negotiable obligations for
the same amount. On December 23, 2002, the Court of Montevideo hearing the case,
approved the reorganization plan requested by Banco de Galicia Uruguay S.A..
In accordance with a resolution adopted by the Central Bank of Uruguay, as from
January 9, 2003, Banco Galicia Uruguay S.A. implemented a payment program, which
contemplates the reimbursement of 100% of deposits in US dollars plus interest
to investors. As agreed, the first step consists of an initial payment of 3% in
cash to each holder of time, savings account and demand deposits as of February
13, 2002, as well as the delivery of transferable rescheduled time deposit
certificates, as the case may be, issued by Banco Galicia Uruguay S.A. Grupo
Financiero Galicia S.A. has collected interest accrued on subordinated
negotiable obligations in US dollars at August 31, 2003. At that date, interest
has also been collected on the portion of Ordinary negotiable obligations in US
dollars not exchanged for BODEN 2012. Premium on the portion that was exchanged
for those securities and the corresponding yield were collected.
120
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
Lastly, it should be noted that the Board of Directors of the Central Bank of
Uruguay has resolved to extend the intervention in Banco Galicia Uruguay S.A.
with suspension of its activities and substitution of authorities established in
the corporate by-laws up to and including November 30, 2003.
For the sake of brevity, we refer to the economic context within which the
Company operated in Note 1 to these financial statements.
KEY STATEMENT OF FINANCIAL CONDITION FIGURES
9.30.03 9.30.02 9.30.01 9.30.00
Current Assets 9,590 13,085 49,881 144
Non-current Assets 514,236 695,920 1,024,657 970,807
------------ -------------- --------------- -----------
Total Assets 523,826 709,005 1,074,538 970,951
============ ============== =============== ===========
Current Liabilities 135 756 211 10,583
Non-current liabilities 14,898 13,639 2 2
------------ -------------- --------------- -----------
Total Liabilities 15,033 14,395 213 10,585
------------ -------------- --------------- -----------
Shareholders' Equity 508,793 694,610 1,074,325 960,366
------------ -------------- --------------- -----------
Total 523,826 709,005 1,074,538 970,951
============ ============== =============== ===========
KEY INCOME STATEMENT FIGURES
9.30.03 9.30.02 9.30.01 9.30.00
Ordinary operating result (61,280) (374,976) 100,010 60,186
Financial results (7,862) 20,924 185 (103)
Other income and expenses 2,141 (15,244) 226 132
------------ -------------- --------------- -----------
Ordinary net (loss)/ income (67,001) (369,296) 100,421 60,215
Income tax - (747) - -
------------ -------------- --------------- -----------
Net (loss) / income (67,001) (370,043) 100,421 60,215
============ ============== =============== ===========
RATIOS
- ----------------------------------------------------------------------------------------------------------
9.30.03 9.30.02 9.30.01 9.30.00
- --------------------------------------------------------------------------------------------------------
Liquidity 70.769620 17.337273 236.812704 0.013614
- ---------------------------------------------------------------------------------------------------------
Indebtedness 33.845188 48.256369 5.042.925926 90.723855
- ----------------------------------------------------------------------------------------- ----------------
Freezing of capital 0.981693 0.981545 0.953579 0.999852
- ----------------------------------------------------------------------------------------------------------
The Company's individual financial statements have been considered to disclose
the key balance sheet figures and key income statement figures, as its
consolidated financial
121
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
statements are disclosed in line with the provisions of Argentine Central Bank
Communique "A" 3147 and supplementary rules 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.
For comparative purposes, the balances as of September 30, 2002, 2001 and 2000
have been restated to constant currency of February 28, 2003.
Equity interests in other companies
o Banco de Galicia y Buenos Aires S.A.
See section entitled "Situation of Banco de Galicia y Buenos Aires S.A. and its
subsidiaries", in Note 1 to the financial statements.
o Net Investment S.A.
Net Investment S.A. is a holding company, which is engaged in investing and
developing technology business and it provides communications, internet,
connectivity and contents services, in order to create value for its
shareholders. Grupo Financiero Galicia S.A. holds an 87.50% equity interest in
this company and Banco de Galicia y Buenos Aires S.A., owns the remaining 12.50%
of its capital stock.
Cash contributions made as of September 30, 2003 amounted to US$ 1,132. On
October 28, 2003, the Company made new cash contributions for US$ 21.
On July 16, 2002, Net Investment S.A. acquired 749 shares which represent
6.2416% of the capital stock of B2Agro S.A., taking its interest to 99.99167%.
Through its parent company B2Agro S.A. this company, which operates under the
trade name Red de Campo, seeks to strengthen the leadership position of the Bank
in the agricultural and livestock sector. As a service company, it provides
solutions to all participants in the agricultural and livestock production chain
in order to facilitate their management, business and integration by grouping
and intercommunicating them, thus forming the first private network in the
sector. As of December 31, 2002, that network consisted of more than 500
agricultural and livestock producers and more than 30 providers of goods and
services, which were carefully selected based on their skills and administration
and technology levels.
122
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
B2Agro is currently implementing a program by which it participates in all
aspects, from the search for inputs to the sale of grains on the complex futures
market. To this end it has acquired a share in Mercado a Termino de Buenos
Aires.
During 2003, B2Agro S.A. increased its level of activity by conducting business
involving inputs, financial structurings and operations on Mercado a Termino de
Buenos Aires, obtaining a greater share of the inputs market, with a volume sold
of approximately US$ 3,431, and consolidating a 250% growth. Furthermore, an
alliance was implemented with Jose Manuel Diaz Herrera S.A. to structure the
sale of all types of cattle, thus offering a wider range of services.
As regards technological services, the web page of Fundacion Producir
Conservando and information modules were developed to be used by customers of
Banco Galicia through the Galicia Office tool. During 2004, management tools
will be provided to producers through this Galicia Office tool.
With regard to the equity interest that Net Investment S.A. holds in Duenovende
S.A., during 2002, the macroeconomic situation and the measures implemented by
the Argentine Government significantly affected the mortgage loan business,
producing a significant decrease in real estate purchase and sale operations,
areas linked with the main source of income of the company. For this reason, the
"Soloduenos.com.ar" web site has been disabled since January 1, 2003. In view of
these circumstances, and of the fact that there are no prospects for undertaking
new projects, the Ordinary and Extraordinary Meeting of Shareholders of that
company held on April 2003 resolved to dissolve Duenovende S.A in advance and
subsequently liquidate it. To date, formalities are being carried out to close
down this company. Nevertheless, Banco de Galicia y Buenos Aires S.A. continues
to offer real estate properties for sale and financing for their acquisition
through its e-galicia.com web page.
Net Investment S.A. permanently evaluates various other types of new business in
relation to e-commerce, development of internet projects, broadband
communications and contents for wireless services. In all these projects, the
company is seeking to make use of the synergies with the operations carried out
by Grupo Financiero Galicia S.A. and Banco de Galicia y Buenos Aires S.A..
o Sudamericana Holding S.A.
123
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
Sudamericana Holding S.A. is a group of life and retirement insurance companies.
The equity interest held by Grupo Financiero Galicia S.A. in this company is
87.50%, and the remaining 12.50% interest is held by Banco de Galicia y Buenos
Aires S.A..
In April 2002, Grupo Financiero Galicia S.A. purchased 8 functional units of the
building located at Maipu 241, in the amount of US$ 860 through the release of
the guarantees provided by Hartford Life International Ltd. and Hartford Life
Ltd. in favor of Grupo Financiero Galicia S.A., as stipulated in the contract
for the purchase of shares in Sudamericana Holding S.A. executed on September 7,
2001.
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 positioning as a leading financial service provider, thus
supplementing those businesses which Banco de Galicia y Buenos Aires S.A. may
only conduct to a limited extent, in line with prevailing regulations.
As of June 30, 2003, the production of all Group companies represented 2.43% of
the life insurance market, being ranked 9th among life insurers. As of September
30, 2003, the consolidated figure exceeded 1,000,000 insureds and 37,865
insurance policies. Continuing with the strategy commenced in 2002, the
company's business was focused primarily on the maintenance of its portfolio,
loyalty campaigns having been promoted towards its current individual customers.
In the search for products adapted to the new market conditions, the company
launched a health plan, which combines the payment of compensation with the
providing of medical services. It also strengthened the sale of personal
accident insurance and other low premium life insurance plans.
The distribution continued to be focused on the Banco Galicia channel and on the
development of a network of independent agents of its own, with more than 100
active members, as well as a redirection towards independent agents. A program
to form the Company's own insurance broker network is still under way. The
company also continued to strengthen the sale of insurance policies through
non-traditional channels, implementing a telephone sale program and extending
such sale through the branches of Tarjetas Regionales S.A. Furthermore, the
Salta Institute continues to expand its regional scope, covering the provinces
of Jujuy, Tucuman and Catamarca, in addition to Salta.
124
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
o Galicia Warrants S.A.
Galicia Warrants S.A. was established in April 1993, and is authorized to store
goods and issue Warehouse Receipts and Warrants, in line with the provisions of
Law 9643. Its corporate purpose is to facilitate access to credit and financing,
secured by goods that remain under its custody.
Grupo Financiero Galicia S.A. holds an 87.50% equity interest in this company
and Banco de Galicia y Buenos Aires S.A., owns the remaining 12.50% of its
capital stock.
Galicia Warrants has provided its goods custody and control services to more
than 600 companies at more than 800 warehouses distributed throughout Argentina,
the humid pampa being the region where most of its business is concentrated. Its
principal customers belong to the agricultural, industrial and agroindustrial
sectors, as well as exporters. Billings for the period of nine months ended
September 30, 2003 amounted to US$ 927.
As mentioned in Note 1 to the financial statements, the impact generated by all
these measures adopted to date by the Government on the financial statements of
Grupo Financiero Galicia S.A. and its controlled entities as of December 31,
2002 was recognized according to evaluations and estimates made at the date of
preparing them. Future actual results might differ from those evaluations and
estimates and those differences could be significant. Therefore, the financial
statements of Grupo Financiero Galicia S.A. may not report all the adjustments
that could result from these adverse conditions or from any future amendments
that could be made to legal and regulatory norms in force.
At this time it is not possible to foresee the effect of future development of
the country's economy or its consequences on the economic and financial position
of Grupo Financiero Galicia S.A.
In the case of the financial system, one of the most important issues is to
achieve the regeneration of credit, which is essential for economic growth,
taking advantage of the greater competitiveness produced by a high real exchange
rate, and to rebuild public trust in the banking system as a savings instrument.
The possibility of Argentina returning to sustained growth will largely depend
on the recovery of the financial system because, within a context of lack of
access to international markets the generation of credit will only be possible
through the domestic financial system, and because the banking system is an
essential component of any market economy.
125
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 September 30, 2003 and 2002
(figures stated in thousands of US dollars)
The Company's outlook for the current period is basically linked with the
development of the Argentine economy, and particularly of the financial system.
Autonomous City of Buenos Aires, November 5, 2003.
(Signed) Antonio Roberto Garces. Chairman.
I, Silvia Cristina Bolzon, a Public Translator duly registered and sworn and
licensed to issue translations from English to Spanish and vice versa in the
City of Buenos Aires, hereby attest that the foregoing is a true and fair
translation into English of the attached financial statements, notes and
schedules, as well as the information required in addition to the notes to the
financial statements by Section 68 of the Buenos Aires Stock Exchange
regulations, supplementary and explanatory statement by the Board of Directors
required by the Cordoba Stock Exchange regulations and the informative review
corresponding to Grupo Financiero Galicia S.A. for the period of nine months
ended September 30, 2003, presented in comparative format, produced in Spanish,
a copy of which I have had before me.
Given and signed in Buenos Aires, Argentina on November 18, 2003. This
translation consists of 126 pages.
Es traduccion fiel al ingles de los estados contables, notas y anexos,
informacion adicional requerida por el Articulo 68 del reglamento de la Bolsa de
Comercio de Buenos Aires, declaracion del Directorio complementaria y
aclaratoria requerida por el reglamento de la Bolsa de Comercio de Cordoba y la
resena informativa correspondientes a Grupo Financiero Galicia S.A. por el
periodo de nueve meses terminado el 30 de septiembre de 2003, presentado en
forma comparativa, redactados en idioma castellano que se acompanan en primer
termino y que he tenido a la vista, de lo cual doy fe en Buenos Aires el dia 18
de noviembre de 2003. La presente traduccion consta de 126 fojas utiles.
126
TRADUCCION PUBLICA
Report of the Supervisory Syndics Committee
To the Directors and Shareholders of
Grupo Financiero Galicia S.A.
In our capacity as Syndics of Grupo Financiero Galicia S.A., we have performed a
limited review of the documents detailed in section I. below. Such documents are
the responsibility of the Board of Directors of the Company.
I. DOCUMENTS REVIEWED
------------------
We have performed a limited review of the Statement of Financial Condition of
Grupo Financiero Galicia S.A. as of September 30, 2003, Income Statement,
Statement of Changes in Shareholders' Equity and Statement of Cash Flows for the
period of nine months then ended, as well as Notes 1 to 15 Schedules A, B, C, E,
G and H, Informative Review, the Information required in addition to the Notes
to the Financial Statements by article 68 of the Buenos Aires Stock Exchange
regulations and the Supplementary and Explanatory Statement by the Board of
Directors, as required by the Norms concerning Accounting Documentation of the
Cordoba Stock Exchange Regulations, which supplement them. Furthermore, we have
performed a limited review of the Consolidated Statement of Financial Condition
of Grupo Financiero Galicia S.A as of September 30, 2003 and the Consolidated
Income Statement and Consolidated Statement of Cash Flows for the period of nine
months then ended, as well as Notes 1 to 20, which are presented as
supplementary information.
II. SCOPE OF THE LIMITED REVIEW
---------------------------
We performed our work in accordance with standards applicable to syndics. These
standards require syndics to review the documents detailed in section I.
observing prevailing auditing standards for the limited review of financial
statements for interim periods, and verify the consistency of the documents
reviewed with the information concerning corporate decisions, as disclosed in
minutes, and evaluate the conformity of those decisions with the law and the
by-laws insofar as concerns formal and documentary aspects. For purposes of our
professional work in relation to the documents detailed in section I., we
reviewed the work performed by the external auditors, who issued their report,
in accordance with prevailing auditing standards for the limited review of
financial statements for interim periods, in which they expressed no opinion on
the above-mentioned financial statements. Such review included verifying the
planning of the work, as well as the nature, scope and timing of the procedures
applied and the results of the limited review performed by those professionals.
A limited review mainly consists in applying analytical procedures to the
accounting information and making inquiries of the staff responsible for
accounting and financial issues. This review is substantially less in scope than
an audit of financial statements, the objective of which is to issue an opinion
on the financial statements taken as a whole. Therefore, we do not express such
an opinion. It is not the responsibility of the Supervisory Syndics Committee to
perform any control over the management, so our review
1
did not cover the business decisions and criteria regarding the different areas
of the Company, as such matters are the exclusive responsibility of the Board of
Directors.
In addition, we have verified that the Informative Review, the Information
required in addition to the Notes to the Financial Statements and the
Supplementary and Explanatory Statement by the Board of Directors for the period
of nine months ended September 30, 2003, contain the information required by
Regulations of the National Securities Commission, Section 68 of the Buenos
Aires Stock Exchange regulations and Section 2 of the Norms concerning
Accounting Documentation of the Cordoba Stock Exchange Regulations,
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, so we have no observations to make.
Assumptions and projections on future events contained in that documentation
fall within the exclusive responsibility of the Board of Directors.
III. PRELIMINARY EXPLANATIONS
------------------------
The Board of Directors has evaluated in Note 1 to the financial statements the
conditions existing in relation to the economic measures adopted by the National
Government to confront the crisis affecting Argentina, a process that has not
yet been concluded. The impact generated by those measures on the economic and
financial situation of the Company and its controlled entities has been
recognized in the financial statements according to the evaluations and
estimates made by Management. Future actual results could differ with various
degrees of significance from those evaluations and estimates. The existence of
processes for restructuring the credit portfolio and renegotiating liabilities
not yet defined at the controlled entities generates uncertainty as to their
final outcome and their impact on the financial position and future development
of those companies and, consequently, of the Company.
Furthermore, the equity interest held by the Company in Banco de Galicia y
Buenos Aires S.A. represents approximately 88.7% of its Assets and 89.7% of its
Shareholders' Equity, therefore requiring a special mention.
The situation of that Entity and its controlled entities produced by the crisis
affecting the Argentine financial sector, as well as the situation of the
Company in particular, has given rise to the situations that have been disclosed
by the Company in Note 1 to the financial statements and Note 3 to the
consolidated financial statements, and by the external auditors in sections 4.
to 11. of their report, the development and resolution of which will have a
significant effect on the normal conduct of the Company's operations in the
future. In notes to its financial statements, the Company discloses and
evaluates assets and liabilities of its own and/or owned by its controlled
entities, for the valuation and allocation of which it has applied the criteria
established by the Argentine Central Bank, or based on premises on future
events, which differ from professional accounting standards. Section 12 of the
report issued by the external auditors show situations related to those items,
so no opinion is issued on the net worth and financial effects they could have
on Grupo Financiero Galicia S.A. and its controlled entities. This Supervisory
Syndics Committee concurs with those statements. Consequently, the financial
statements should be analyzed in the light of these uncertain circumstances.
2
IV. CONCLUSION
----------
In our opinion, based on the review performed with the scope mentioned in
section II., the accompanying financial statements have been prepared in
accordance with professional accounting standards prevailing in the Autonomous
City of Buenos Aires, except for the application of valuation, disclosure and
revenue recognition criteria relating to directly and indirectly controlled
companies, as disclosed in the notes to financial statements and to consolidated
financial statements, which differ from those standards. Therefore, the
financial condition, results of operations and changes in shareholders' equity
disclosed have been determined on the basis of the application of those
standards. Nevertheless, in view of the effect on the above financial statements
that could derive from possible adjustments and reclassifications, if any, that
might be required following resolution of the situation described in the
Preliminary Explanations in section III. above, we understand that the financial
statements referred to above, as well as the financial condition, results of
operations and changes in shareholders' equity disclosed in them, should be read
and construed in the light of the uncertain conditions generated by subsequent
economic developments, the impact of which on the Company's economic and
financial position cannot be evaluated with reasonable certainty. Therefore, we
do not issue any opinion in this connection.
As regards the Informative Review, the Information required in addition to the
Notes to the Financial Statements and the Supplementary and Explanatory
Statement by the Board of Directors for the period of nine months ended
September 30, 2003, 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 Board of Directors of the Company.
Furthermore, we report that the accompanying financial statements stem from
accounting records kept, in all formal respects, in compliance with legal rules
prevailing in Argentina.
Autonomous City of Buenos Aires, November 5, 2003
- -------------------------------------------------
(Signed) ADOLFO HECTOR MELIAN, Syndic, for the Supervisory Syndics Committee.
I, Silvia Cristina Bolzon, a Public Translator duly registered and sworn and
licensed to issue translations from English to Spanish and vice versa in the
City of Buenos Aires, hereby attest that the foregoing is a true and fair
translation into English of the attached Report of the Supervisory Syndics
Committee corresponding to Grupo Financiero Galicia S.A. for the period of nine
months ended September 30, 2003, produced in Spanish, a copy of which I have had
before me.
Given and signed in Buenos Aires, Argentina on November 18, 2003. This
translation consists of 3 pages.
Es traduccion fiel al ingles del Informe de la Comision Fiscalizadora
correspondiente a Grupo Financiero Galicia S.A. por el periodo de nueve meses
terminado el 30 de septiembre de 2003, redactado en idioma castellano cuya copia
se acompana en primer termino y que he tenido a la vista, de lo cual doy fe en
Buenos Aires el dia 18 de noviembre de 2003. Consta de 3 fojas utiles.
3
LIMITED REVIEW REPORT
To the Chairman and Directors of
Grupo Financiero Galicia S.A.
Tte. Gral. Juan D. Peron 456, Piso 2(0)
Autonomous City of Buenos Aires
- -------------------------------
1. We have performed a limited review of the statement of financial condition
of Grupo Financiero Galicia S.A. as of September 30, 2003 and the related
income statement, statement of changes in shareholders' equity and
statement of cash flows for the periods of nine months ended September 30,
2003 and 2002, as well as Notes 1 to 15, Schedules A, B, C, E, G and H,
Informative Review, the Information required in addition to the Notes to
the Financial Statement 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 regarding accounting documentation
of the Cordoba Stock Exchange regulations, which supplement them.
Furthermore, we have performed a limited review of the consolidated
statement of financial condition of Grupo Financiero Galicia S.A. as of
September 30, 2003, and the consolidated income statements and consolidated
statements of cash flows for the periods of nine months ended September 30,
2003 and 2002, together with Notes 1 to 20, which are presented as
supplementary information. The preparation and issuance of these 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 consists in applying analytical
procedures to the accounting information and making inquiries of the staff
responsible for the preparation of the information included in the
financial statements and their subsequent analysis. These limited reviews
are substantially less in scope than an audit examination, the objective 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 position, the results of its operations, changes in its
shareholders' equity and cash flows, or on its consolidated financial
position, the consolidated results of its operations and consolidated cash
flows.
3. The equity interest held by the Company in Banco de Galicia y Buenos Aires
S.A. as of September 30, 2003 represents approximately 88.7% and 89.7% of
that company's assets and shareholders' equity, respectively. The
possibility of recovering that investment has been affected by the
uncertain circumstances detailed in paragraphs 4. to 11. below.
4. As described in Note 1 to the financial statements, Banco de Galicia y
Buenos Aires S.A. continues with the restructuring process involving
certain financing of its private sector portfolio which amounts to
approximately $830,000 thousand (US$ 284,734 thousand) and $897,000
thousand (US$ 307,719 thousand) as of September 30, 2003 and December 31,
2002, respectively, on consolidated bases. At the date of issue of this
report, it is not possible to foresee the impact on the classification of
debtors and the levels of allowances set up, which could derive from the
outcome of that process.
5. As mentioned in Note 1 to the financial statements, the Government has
declared default on public debt servicing in early 2002. Consequently, it
is not possible to assure that the recoverable values of government
securities and financing to the public sector recorded by the Company under
"Government and corporate securities", "Loans" and "Other receivables
resulting from financial brokerage", in the consolidated statement of
financial condition, including trust funds, will exceed their respective
net carrying values which as of September 30, 2003 and December 31, 2002
amount to approximately $17,062,780 thousand (US$ 5,853, 441 thousand) and
$17,531,000 thousand (US$ 6,014,065 thousand), respectively.
6. Without prejudice to the statement made in paragraph 5 above, as mentioned
in Note 1 to the financial statements, Banco de Galicia y Buenos Aires S.A.
records $1,584,388 thousand (US$ 543,529 thousand) and $4,752,277 thousand
(US$ 1,630,284 thousand) in "Government and corporate securities" and
"Other receivables resulting from financial brokerage", respectively, as of
September 30, 2003, which were generated by the request for compensation
for the losses caused by the devaluation of the currency and conversion
into pesos that Bank submitted to the Argentine Central Bank. At the date
of this report, that compensation is pending settlement by the Argentine
Central Bank. As mentioned in Note 1 to the financial statements, as a
result of the review of the calculation performed, that Entity has made
observations on certain issues, which are subject to analysis by Banco de
Galicia y Buenos Aires S.A.. As of December 31, 2002, that Bank recorded
$693,471 thousand (US$ 237,897 thousand) and $7,098,505 thousand
(US$2,435,165 thousand) under "Government and corporate securities" and
"Other receivables resulting from financial brokerage", respectively, for
that item.
7. As of September 30, 2003 and December 31, 2002, Banco de Galicia y Buenos
Aires S.A. records rescheduled deposits (CEDROS) for $363,010 thousand (US$
124,532 thousand) and $874,703 thousand (US$ 300,070 thousand) (principal),
respectively, under liabilities, corresponding to deposits converted into
pesos under Decree 214/02. Furthermore, as of September 30, 2003, Banco de
Galicia y Buenos Aires S.A. recorded $479,923 thousand (US$ 164,639
thousand) in "Intangible assets", paid in compliance with court resolutions
ordering Banco de Galicia y Buenos Aires S.A. to reimburse its customers
for the difference between the deposits converted into pesos and their
value at the free US dollar exchange rate, net of accumulated amortization.
As of December 31, 2002, Banco de Galicia y Buenos Aires S.A. had recorded
$446,756 thousand (US$ 153,261 thousand) in "Other receivables resulting
from financial brokerage" for that item. As explained in Note 1 to the
financial statements, so far the Supreme Court of Justice has not issued
any decision on the legal actions filed with it requesting that the
above-mentioned Decree be declared unconstitutional, so it is not possible
to determine the final settlement values to be applied to those deposits
converted into pesos or whether the amounts already paid will be recovered
by Banco de Galicia y Buenos Aires S.A..
8. As mentioned in Note 1 to the financial statements, Banco Galicia Uruguay
S.A., an entity controlled by Banco de Galicia y Buenos Aires S.A. has been
intervened by the Central Bank of Uruguay. In addition, its controlled
entity, Banco de Galicia (Cayman) Ltd. is subject to a provisional
liquidation process. These processes, including the transfer of securities
to Banco Galicia Uruguay S.A. in compensation for the assets converted into
pesos described in Note 1 to the financial statements, had not been
concluded at the date of issue of these financial statements, so there is
uncertainty as to the effects derived from the outcome of those processes
on the assets and liabilities of those entities and on the assets and
liabilities and financial position of Grupo Financiero Galicia S.A.,
including the recoverability of the restructured investment held by the
Company in Banco Galicia Uruguay S.A.
9. Banco de Galicia y Buenos Aires S.A. recorded $124,884 thousand (US$ 42,842
thousand) under "Other receivables resulting from financial brokerage" as
of September 30, 2003, for the estimate of the difference resulting from
applying the Reference Stabilization Index (CER) to the loans subject to
adjustment by applying the Salary Variation Index (CVS). This additional
compensation, which was approved by Law 25,796 that has not yet been
promulgated by the National Executive Branch, was pending regulation by the
Ministry of Economy and the Argentine Central Bank at the date of issue of
these financial statements.
10. The situation of Banco de Galicia y Buenos Aires S.A. and its controlled
entities, derived from the liquidity crisis affecting the Argentine
financial system and worsened by the effects of the measures and economic
context mentioned in Note 1 to the financial stsatements and the effects
that could derive following resolution of the situations described in
paragraphs 4 to 9 above, as well as compliance by Banco de Galicia y Buenos
Aires S.A. with the "Galicia Capitalization and Liquidity Plan" detailed in
Note 1 to the financial statements, which mainly contemplates keeping its
liquidity levels, the restructuring and/or capitalization of its financial
obligations and compliance with technical ratios, in addition to the
mismatch of terms and yields of financial assets and liabilities and the
recoverable value of goodwill, are factors that raise doubts about the
normal course of business of Banco de Galicia y Buenos Aires S.A.. that
Bank has prepared its financial statements following the accounting
principles described in Notes 2 and 3 to the consolidated financial
statements, which are applicable to a going concern. Therefore, those
financial statements do not include the effects of possible adjustments and
reclassifications, if any, that might be required following resolution of
the situations described above and if Banco de Galicia y Buenos Aires S.A.
and Grupo Financiero Galicia S.A. were obliged to sell their assets and
settle their liabilities, including contingencies, in conditions other than
those prevailing at the date of issue of the financial statements.
11. As mentioned in Note 1, as a result of the economic crisis affecting
Argentina, the period under consideration has been affected by all measures
adopted by the Government. The future development of the economic crisis
could require the Government to modify some of the measures adopted or to
issue new regulations. Furthermore, the estimates contained in these
financial statements could vary as a result of future events. Therefore,
the financial statements of the Company must be read in the light of these
circumstances.
12. Banco de Galicia y Buenos Aires S.A. has prepared its financial statements
following valuation and disclosure criteria established by Argentine
Central Bank regulations. As mentioned in Note 3 to the consolidated
financial statements, these criteria for valuing certain assets and
liabilities and the financial reporting requirements established by the
control entity are not in accordance with CNV regulations and professional
accounting standards in force in the Autonomous City of Buenos Aires.
Except for the cases indicated in that Note, the effect on the financial
statements derived from the different valuation and disclosure criteria has
not been quantified by Grupo Financiero Galicia S.A.
13. Our limited review report dated December 30, 2002 on the financial
statements of the Company as of September 30, 2002 and our audit report
dated February 17, 2003 on the financial statements of the Company as of
December 31, 2002 included an observation on the criterion for
consolidating the interests in Banco Galicia Uruguay S.A. and Banco Galicia
(Cayman) Ltd., which was not in accordance with professional accounting
standards. As detailed in Note 1 to the financial statements, this
situation was resolved at the date of issue of this report.
14. The Company carries its accounting records and reports its net worth and
financial position, results of operations, changes in shareholders equity
and cash flows in Argentine currency, as required by existing legal rules.
Nevertheless, the financial statements mentioned in paragraph 1. have been
translated to U.S. dollars at the exchange rate of US$ 1 = $ 2.915
prevailing at September 30, 2003, in connection with their presentation to
the National Securities Commission and in compliance with the provisions of
General Resolution No. 368/2001.
The accompanying financial statements are presented on the basis of
accounting principles generally accepted in Argentina, which may differ
from the accounting principles generally accepted in jurisdictions other
than Argentina, where those financial statements are to be used.
15. Based on the work done and on our examinations of the financial statements
of Grupo Financiero Galicia S.A. and its consolidated financial statements
for the fiscal years ended December 31, 2002 and 2001, on which we issued
our report on February 17, 2003 with an abstention of opinion, in view of
the situations indicated in paragraphs 4. to 13. of this report, we state
that:
a) In view of the effect on the financial statements that could derive
from the adjustments or reclassifications, if any, which might be
required following resolution of the situations described in
paragraphs 4. to 11. above, and considering the observation mentioned
in paragraph 12. above, we are not in a position to make any statement
concerning the financial statements of Grupo Financiero Galicia S.A.,
and its consolidated financial statements as of September 30, 2003 and
2002 detailed in paragraph 1., taken as a whole.
b) The comparative information included in the individual and
consolidated statements of financial condition and complementary notes
and schedules in the accompanying financial statements, considering
the situation described in paragraph 13. above, stems from the
financial statements of Grupo Financiero Galicia as of December 31,
2002.
16. As called for by the regulations in force, we report that:
a) The financial statements and related consolidated financial statements
have been transcribed to the "Inventory and Balance Sheet" book and
are in compliance with the provisions of the Corporations Law and
pertinent resolutions of the CNV.
b) The financial statements of Grupo Financiero Galicia S.A. and its
consolidated financial statements stem from accounting records kept in
all formal respects as called for by prevailing legal rules, which
maintain the same security and integrity conditions as those
authorized by the CNV.
c) We have read the Informative Review and the Information required in
addition to the Notes to the Financial Statements by article 68 of the
Buenos Aires Stock Exchange regulations, as well as the Supplementary
and Explanatory Statement by the Board of Directors, as required by
the rules regarding accounting documentation of the Cordoba Stock
Exchange regulations, and insofar as concerns our field of competence,
we have no significant observations to make concerning them. The
projections on future events stated in that documentation are the
exclusive responsibility of the Company's Board of Directors.
d) As of September 30, 2003, Grupo Financiero Galicia S.A.'s debt accrued
towards the Integrated Pension and Survivors' Benefit System,
according to the accounting records, amounted to $ 7,370.76 (US$
2,529), which were not yet due at that date.
Autonomous City of Buenos Aires, November 5, 2003
- -------------------------------------------------
PRICE WATERHOUSE & CO.
(Partner)
-----------------------------------
Professional Registration of the Firm:
C.P.C.E.C.A.B.A. To. 1 Fo. 1
Ignacio Javier Casas Rua
Public Accountant (U.B.A.)
C.P.C.E. C.A.B.A. To. 121 Fo. 94
TRADUCCION PUBLICA
Informe de Revision Limitada
Senores Presidente y Directores de
Grupo Financiero Galicia S.A.
Tte. Gral. Juan D. Peron 456 - Piso 2(0)
Ciudad Autonoma de Buenos Aires
1. Hemos efectuado una revision limitada del estado de situacion patrimonial
de Grupo Financiero Galicia S.A. al 30 de septiembre de 2003, y de los
correspondientes estados de resultados, de evolucion del patrimonio neto y
de flujo de efectivo por los periodos de nueve meses finalizados el 30 de
septiembre de 2003 y 2002, con sus Notas 1 a 15 y Anexos A, B, C, E, G y H,
Resena Informativa, Informacion Adicional a las Notas a los Estados
Contables requerida por el Articulo 68 del Reglamento de la Bolsa de
Comercio de Buenos Aires y Declaracion del Directorio Complementaria y
Aclaratoria requerida por las Normas sobre Documentacion Contable del
Reglamento de la Bolsa de Comercio de Cordoba, que los complementan.
Ademas, hemos efectuado una revision limitada del estado de situacion
patrimonial consolidado de Grupo Financiero Galicia S.A. al 30 de
septiembre de 2003, y de los estados de resultados consolidados y de origen
y aplicacion de fondos consolidados por los periodos de nueve meses
finalizados el 30 de septiembre de 2003 y 2002, con sus Notas 1 a 20, que
se presentan como informacion complementaria. La preparacion y emision de
los mencionados estados contables es responsabilidad de la Sociedad.
2. Nuestra revision se limito a la aplicacion de los procedimientos
establecidos en la Resolucion Tecnica N(degree)7 de la Federacion Argentina
de Consejos Profesionales de Ciencias Economicas para revisiones limitadas
de estados contables de periodos intermedios que consisten, principalmente,
en la aplicacion de procedimientos analiticos sobre las cifras incluidas en
los estados contables y en la realizacion de indagaciones al personal de la
Sociedad responsable de la preparacion de la informacion incluida en los
estados contables y su posterior analisis. El alcance de estas revisiones
es sustancialmente inferior al de un examen de auditoria, cuyo objetivo es
expresar una opinion sobre los estados contables bajo examen.
Consecuentemente, no expresamos opinion sobre la situacion patrimonial, los
resultados de las operaciones, las variaciones en el patrimonio neto y los
flujos de efectivo de la Sociedad, ni sobre la situacion patrimonial
consolidada, los resultados consolidados de las operaciones y los origenes
y aplicaciones de fondos consolidados.
3. La participacion accionaria que posee la Sociedad en Banco de Galicia y
Buenos Aires S.A. al 30 de septiembre de 2003, representa aproximadamente
el 88,7% y 89,7% del Activo y del Patrimonio Neto de la Sociedad,
respectivamente. La recuperabilidad de dicha inversion se encuentra
afectada por las situaciones de incertidumbre detalladas en los puntos 4. a
11. siguientes.
4. Tal como se describe en Nota 1 a los estados contables, Banco de Galicia y
Buenos Aires S.A. continua con el proceso de reestructuracion de ciertas
financiaciones de su cartera del sector privado que ascienden
aproximadamente a miles de $ 830.000 (miles de US$ 284.734) y miles de $
897.000 (miles de US$ 307.719) al 30 de septiembre de 2003 y 31 de
diciembre de 2002 respectivamente, sobre bases consolidadas. A la fecha de
emision del presente informe, no puede preverse el eventual impacto en las
clasificaciones de los clientes y sus niveles de previsionamiento que
resultara de la finalizacion del mencionado proceso.
5. Tal como se menciona en Nota 1 a los estados contables, el Gobierno
Nacional ha declarado el incumplimiento del pago de los servicios de la
deuda publica a principios del ano 2002. Consecuentemente, no es posible
asegurar que los valores recuperables de los titulos publicos y de las
financiaciones al sector publico registradas por la Sociedad en los rubros
"Titulos Publicos y Privados", "Prestamos" y "Otros Creditos por
Intermediacion Financiera" del estado de situacion patrimonial consolidado,
incluyendo fondos fiduciarios, superaran a sus respectivos valores
contables netos que, al 30 de septiembre de 2003 y al 31 de diciembre de
2002, ascienden aproximadamente a miles de $ 17.062.780 (miles de US$
5.853.441) y miles de $ 17.531.000 (miles de US$ 6.014.065),
respectivamente.
6. Sin perjuicio de lo mencionado en el punto 5. precedente, y tal como se
menciona en la Nota 1 a los estados contables, Banco de Galicia y Buenos
Aires S.A. registra, al 30 de septiembre de 2003, en los rubros "Titulos
Publicos y Privados" y "Otros Creditos por Intermediacion Financiera" las
sumas de miles de $ 1.584.388 (miles de US$ 543.529) y miles de $ 4.752.277
(miles de US$ 1.630.284) respectivamente, originados en la solicitud de
compensacion por la devaluacion y pesificacion presentada por dicha Entidad
al Banco Central de la Republica Argentina. La liquidacion de dicha
compensacion se encuentra pendiente de efectivizacion, a la fecha del
presente informe, por el Banco Central de la Republica Argentina. Tal como
se indica en Nota 1 a los estados contables, como resultado de la revision
del computo efectuado, dicho organismo ha observado ciertos aspectos que se
encuentran sujetos a analisis por parte de Banco de Galicia y Buenos Aires
S.A.. Al 31 de diciembre de 2002 dicha Entidad registraba en los rubros
"Titulos Publicos y Privados" y "Otros Creditos por Intermediacion
Financiera" por dicho concepto las sumas de miles de $ 693.471 (miles de
US$ 237.897) y miles de $ 7.098.505 (miles de US$ 2.435.165).
2
7. Al 30 de septiembre de 2003 y 31 de diciembre de 2002, Banco de Galicia y
Buenos Aires S.A. registra en el pasivo depositos reprogramados (CEDROS) en
concepto de capital por miles de $ 363.010 (miles de US$ 124.532) y miles
de $ 874.703 (miles de US$ 300.070), respectivamente, correspondientes a
los depositos que fueran pesificados en virtud del Decreto N(0) 214/02.
Asimismo, Banco de Galicia y Buenos Aires S.A. registro al 30 de septiembre
de 2003, en el rubro "Bienes intangibles", miles de $ 479.923 (miles de US$
164.639) abonados como consecuencia de resoluciones judiciales que
estipularon que Banco de Galicia y Buenos Aires S.A. reintegrara a sus
clientes la diferencia entre los depositos pesificados y su valor a dolar
libre, netos de amortizaciones acumuladas. Al 31 de diciembre de 2002 dicha
Entidad habia registrado dicho concepto en el rubro "Otros Creditos por
Intermediacion Financiera" por miles de $ 446.756 (miles de US$ 153.261).
Tal como se explica en Nota 1 a los estados contables, a la fecha, la Corte
Suprema de Justicia no se ha expedido sobre la resolucion de los recursos
de amparo presentados ante la misma en relacion a la inconstitucionalidad
de dicho decreto, por lo cual, no es posible determinar los valores finales
de liquidacion a aplicar a dichos depositos pesificados ni si los importes
ya abonados podran ser recuperados por Banco de Galicia y Buenos Aires S.A.
8. Tal como se menciona en Nota 1 a los estados contables, Banco Galicia
Uruguay S.A., controlada por Banco de Galicia y Buenos Aires S.A., se
encuentra intervenida por el Banco Central del Uruguay. Adicionalmente, su
controlada Banco de Galicia (Cayman) Limited se encuentra dentro de un
proceso de liquidacion provisional. Dichos procesos, incluyendo la
transferencia a Banco Galicia Uruguay S.A. de titulos en concepto de
compensacion por los activos pesificados descripta en Nota 1 a los estados
contables, no han finalizado a la fecha de emision de los presentes estados
contables, por lo que existe incertidumbre acerca de los efectos derivados
de la conclusion de los mismos sobre la situacion patrimonial de dichas
sociedades y sobre la situacion patrimonial y financiera de Grupo
Financiero Galicia S.A., incluyendo la recuperabilidad de la inversion
reestructurada de la Sociedad en Banco Galicia Uruguay S.A.
9. Banco de Galicia y Buenos Aires S.A. ha registrado al 30 de septiembre de
2003 en el rubro "Otros Creditos por Intermediacion Financiera" la suma de
miles de $ 124.884 (miles de US$ 42.842) correspondientes a la estimacion
de la diferencia que resulta de aplicar el Coeficiente de Estabilizacion de
Referencia (CER) a los prestamos sujetos a ajuste por el Coeficiente de
Variacion Salarial (CVS). Esta compensacion adicional, que fuera aprobada
por la Ley N(degree) 25.796, la cual aun no ha sido promulgada por el Poder
Ejecutivo Nacional, se encuentra pendiente de reglamentacion por parte del
Ministerio de Economia y del B.C.R.A. a la fecha de los presentes estados
contables.
3
10. La situacion de Banco de Galicia y Buenos Aires S.A. y sus sociedades
controladas, derivada de la crisis de liquidez que afecto al sistema
financiero argentino, agravada por los efectos de las medidas y contexto
economico mencionados en Nota 1 a los estados contables y los efectos que
podrian resultar de la resolucion de las situaciones planteadas en los
puntos 4. a 9. precedentes, asi como el cumplimiento por parte de Banco de
Galicia y Buenos Aires S.A. del "Plan Galicia de Capitalizacion y Liquidez"
que se detalla en Nota 1 a los estados contables, el cual comprende
principalmente el mantenimiento de la liquidez de Banco de Galicia y Buenos
Aires S.A., la reestructuracion y/o capitalizacion de sus obligaciones
financieras y el encuadramiento en las relaciones tecnicas; sumado al
descalce de plazos y rendimientos de activos y pasivos financieros y al
valor recuperable de las llaves de negocio, son factores que generan
incertidumbre respecto del curso de los negocios de Banco de Galicia y
Buenos Aires S.A. Dicha Entidad ha preparado sus estados contables
utilizando los principios contables descriptos en Notas 2 y 3 a los estados
contables consolidados, los cuales son aplicables a una empresa en marcha.
Por lo tanto, dichos estados no incluyen los efectos de los eventuales
ajustes y reclasificaciones, si los hubiere, que pudieran requerirse de la
resolucion de las situaciones descriptas, en el caso que Banco de Galicia y
Buenos Aires S.A. y Grupo Financiero Galicia S.A. se vieran obligadas a
realizar sus activos y cancelar sus pasivos, incluyendo los contingentes,
en condiciones diferentes a las vigentes a la fecha de emision de los
estados contables.
11. Tal como se detalla en Nota 1 a los estados contables, como consecuencia de
la crisis economica que afecto al pais, el periodo en consideracion se vio
afectado por un conjunto de medidas adoptadas por el Gobierno Nacional. La
evolucion futura de la crisis economica podria requerir que el Gobierno
Nacional modifique alguna medida adoptada o emita regulaciones adicionales.
Adicionalmente, las estimaciones contenidas en los presentes estados
contables podrian verse modificadas como consecuencia de hechos futuros. En
consecuencia, los estados contables de la Sociedad deben ser leidos a la
luz de estas circunstancias.
12. Banco de Galicia y Buenos Aires S.A. ha preparado sus estados contables
aplicando los criterios de valuacion y exposicion establecidos por las
normas del Banco Central de la Republica Argentina. Tal como se menciona en
Nota 3 a los estados contables consolidados, los mencionados criterios de
valuacion para ciertos activos y pasivos y las normas de presentacion de
estados contables establecidas por el ente de contralor no estan de acuerdo
con las normas establecidas por la Comision Nacional de Valores y las
normas contables profesionales vigentes en la Ciudad Autonoma de Buenos
Aires. Excepto en los casos expresamente indicados en dicha nota, el efecto
sobre los estados contables emergente de los diferentes criterios de
valuacion y exposicion no ha sido considerado en Grupo Financiero Galicia
S.A.
4
13. Nuestro informe de revision limitada, de fecha 30 de diciembre de 2002,
sobre los estados contables de la Sociedad al 30 de septiembre de 2002, y
nuestro informe de auditoria de fecha 17 de febrero de 2003, sobre los
estados contables de la Sociedad al 31 de diciembre de 2002, incluian una
observacion referida a los criterios de consolidacion de las
participaciones de Banco de Galicia y Buenos Aires S.A. en Banco de Galicia
Uruguay S.A. y Banco de Galicia (Cayman) Ltd., los cuales no estaban de
acuerdo con las normas contables profesionales. Tal como se detalla en Nota
1 a los estados contables, esta situacion fue resuelta a la fecha de
emision del presente informe.
14. La Sociedad mantiene sus registros contables e informa su situacion
patrimonial y financiera, resultados de operaciones, variaciones en el
patrimonio neto y origen y aplicacion de fondos en moneda argentina, de
acuerdo con normas legales vigentes. Sin embargo, los estados contables
mencionados en primer termino han sido convertidos a dolares
estadounidenses al tipo de cambio de US$ 1 = $ 2,915 vigente al 30 de
septiembre de 2003, con relacion a su presentacion ante la Comision
Nacional de Valores y en cumplimiento de las disposiciones de la Resolucion
General No. 368/2001. Los estados contables adjuntos se presentan en base a
principios contables generalmente aceptados en la Republica Argentina, los
cuales pueden diferir de los principios contables generalmente aceptados en
otras jurisdicciones que no sean la Republica Argentina, en las cuales se
requiere utilizar dichos estados contables.
15. En base a la labor realizada y a nuestros examenes de los estados contables
de Grupo Financiero Galicia S.A. y de sus estados contables consolidados
por los ejercicios terminados el 31 de diciembre de 2002 y 2001, sobre los
cuales emitimos nuestro informe de fecha 17 de febrero de 2003 y nos
abstuvimos de expresar opinion debido a las situaciones indicadas en los
puntos 4. a 13. de este informe, manifestamos que:
a) Debido al efecto que sobre los estados contables podrian tener los
eventuales ajustes y reclasificaciones, si los hubiere, que pudieran
requerirse de la resolucion de las situaciones descriptas en los
puntos 4. a 11. precedentes, y considerando la observacion mencionada
en el punto 12. precedente, no estamos en condiciones de expresar
manifestacion alguna sobre los estados contables de Grupo Financiero
Galicia S.A. al 30 de septiembre de 2003 y 2002 y sus estados
contables consolidados a esas fechas, detallados en el punto 1.,
tomados en su conjunto.
b) La informacion comparativa incluida en el estado de situacion
patrimonial basico y consolidado y en las notas y anexos
complementarios en los estados contables adjuntos, considerando la
situacion descripta en el punto 13. precedente, se deriva de los
estados contables de Grupo Financiero Galicia al 31 de diciembre de
2002.
5
16. En cumplimiento de disposiciones vigentes, informamos que:
a) Los estados contables Grupo Financiero Galicia S.A. y sus estados
consolidados se encuentran asentados en el libro de "Inventarios y
Balance" y cumplen con lo dispuesto en la Ley de Sociedades
Comerciales y en las resoluciones pertinentes de la Comision Nacional
de Valores.
b) Los estados contables Grupo Financiero Galicia S.A. y sus estados
consolidados surgen de registros contables llevados en sus aspectos
formales de conformidad con normas legales que mantienen las
condiciones de seguridad e integridad en base a las cuales fueron
autorizados por la Comision Nacional de Valores.
c) Hemos leido la Resena Informativa, la Informacion Adicional a las
Notas a los Estados Contables requeridas por el Articulo 68 del
Reglamento de la Bolsa de Comercio de Buenos Aires y la Declaracion
del Directorio Complementaria y Aclaratoria requerida por las Normas
sobre Documentacion Contable del Reglamento de la Bolsa de Comercio de
Cordoba, sobre las cuales, en lo que es materia de nuestra
competencia, no tenemos observaciones significativas que formular. Las
proyecciones sobre hechos futuros contenidas en dicha informacion son
responsabilidad exclusiva del Directorio de la Sociedad.
d) Al 30 de septiembre de 2003, la deuda de Grupo Financiero Galicia S.A.
devengada a favor del Sistema Integrado de Jubilaciones y Pensiones,
que surge de los registros contables, ascendia a $ 7.370,76 (US$
2.529), no siendo exigible a esa fecha.
Ciudad Autonoma de Buenos Aires, 5 de noviembre de 2003.
(Firmado) (Socio)
PRICE WATERHOUSE & CO.
C.P.C.E.C.A.B.A.
T(degree) 1 F(degree) 1 (R.A.P.U.)
Dr. I. Javier Casas Rua
Contador Publico (U.B.A.)
C.P.C.E.C.A.B.A.
Tomo 121 - Folio 94
Certifico que la presente es traduccion fiel al castellano del informe de
revision limitada correspondiente a Grupo Financiero Galicia S.A. por los
periodos de nueve meses finalizados el 30 de septiembre de 2003 and 2002,
redactado en idioma ingles que se acompana en primer termino y que he tenido a
la vista, de lo cual doy fe en Buenos Aires el dia 18 de noviembre de 2003.
Consta de 6 fojas utiles.