Offering Memorandum - GFG Backend

Transcription

OFFERING MEMORANDUM
Global Program for the Issuance of Short-, Medium- and/or Long-term Notes for a
nominal value of US$60,000,000 (or its equivalent in other currencies) of
GRUPO FINANCIERO GALICIA S.A.
This Offering Memorandum (the “Offering Memorandum”) is an update of the Offering Memorandum dated
May 8, 2009, and contains information updated as of December 31, 2009, in conjunction with financial and
economic information presented in comparative format for the fiscal years ended as of December 31, 2008 and
2007 (as explained below under Section “Presentation of Financial Information”).
Under the Global Program for the Issuance of Short, Medium- and/or Long-term Notes (the “Program”),
described in the Offering Memorandum, Grupo Financiero Galicia S.A. (the “Issuer”, “the “Company”, or
“Grupo Galicia”) may, from time to time, issue notes. These notes (obligaciones negociables) may be short-,
medium- and/or long-term, not convertible into shares, secured (the “Secured Notes”), or unsecured (the
“Unsecured Notes”, and together with the Secured Notes, the “Notes”), peso-denominated, dollar-denominated
or, at the Issuer’s option, denominated in any other currency that may be specified in the applicable pricing
supplement (each of them, a “Pricing Supplement”) herein. The Notes constitute direct, general and
unconditional obligations of the Issuer. The Notes may be offered in separate classes and/or series (each of
them, a “Class and/or Series”), any of which may be reissued in the amounts, at the prices and under the
conditions determined at the time of issuance and as specified in the applicable Pricing Supplement.
The public offering of Notes issued under the Program has been authorized by the Argentine National
Securities Commission (Comisión Nacional de Valores) (the “CNV”) through Resolution No. 16,113
dated April 29, 2009. Said authorization only means that the reporting requirements have been met.
The CNV has not rendered any opinion about the data contained in the Offering Memorandum. The
accuracy of the accounting, financial and economic information, and all other information provided in
this Offering Memorandum is solely the responsibility of the Issuer’s Board of Directors and, to the
extent applicable, of the statutory audit committee and independent auditors of the Issuer with regard
to their respective reports on the financial statements attached hereto. In addition, the Arrangers and/or
Dealers will be accountable for the information related to them. The Company’s Board of Directors
warrants, by way of sworn statement, that this Offering Memorandum contains, as of the date of its
publication, true and sufficient information regarding all relevant facts that might affect the Company’s
shareholder’s equity, economic or financial position and all other information that must be available to
investors in relation with this issuance, pursuant to the applicable laws and regulations.
The maximum principal amount of the Notes from time to time outstanding shall not exceed US$60,000,000
(or its equivalent in other currencies), subject to any duly authorized increase thereof. For the purposes of
calculating the Program’ s total amount, the applicable exchange rate shall be the “selling” rate for dollars
quoted by the Banco de la Nación Argentina (“Banco Nación”). The Notes shall mature and have the
amortization terms and forms as set forth in the relevant Pricing Supplement, observing the minimum and
maximum terms applicable in accordance with the rules in force as from their original issue date. The Notes
may accrue interest at a fixed or variable rate, may not accrue interest and be issued with an original issue
discount (“OID”), and/or may accrue interest based on any other method set forth in the applicable Pricing
Supplement. Monetary adjustments, price indexations, cost variations or debt increases shall in no case be
admitted, whatever their cause and whether the Issuer is in default or not, with the exceptions provided for in
Law No. 23,928. To the extent laws and regulations in force so allow, the Notes may be in book-entry form, in
the form of book-entry bearer or registered certificates (endorsable or non-endorsable), in the form of global
certificates or securities (to be deposited with a depositary authorized by the rules in force in the corresponding
jurisdiction), pursuant to what is provided for in the applicable Pricing Supplement. Pursuant to Law No.
24,587, corporate securities issued in Argentina must be registered and non-endorsable. The Notes may be
subordinated or not, may be issued with an ordinary, special or floating security interest, or else may be
NEWYORK 7639332 (2K)
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guaranteed by a surety, bond, or by any other means (including, without limitation, bonds, securities or
guarantees, assignment of receivables as collateral security, pledges and guaranty trusts, granted in compliance
with the applicable regulations). The Notes shall be direct, unconditional obligations, with an ordinary security
interest from the Issuer and, except for the subordinated Notes and/or secured Notes, shall at all times rank
pari passu among themselves and with all the other ordinary present and future obligations of the Issuer, which
are not secured or subordinated, and that do not have privileges and/or preferences set forth by law. If
subordinated Notes are issued, the Pricing Supplement applicable to them shall specify whether they will be
subordinated to all other liabilities of the Issuer or to those liabilities to be specially determined. See Chapter
IX “The Offer and Listing – Ranking and Guarantee”.
The specific conditions of each Class and/or Series of Notes shall be set forth in the applicable Pricing
Supplement, which shall identify, in each case, among other things, the aggregate principal amount offered,
interest rate and interest payment dates, if any, minimum denominations authorized for trading, currency,
maturity, security interest and, in the case Secured Notes are issued, priority, issuance premium, if any, any
conditions for redemption, the form of the Notes, price, and any other condition that may be applicable with
respect to the offer and sale of said Class and/or Series of Notes.
The Notes are “Obligaciones Negociables” under Law No. 23.576 as amended (the “Negotiable Obligations
Law”), and are entitled to the benefits and subject to the procedural requirements set forth therein and in
Decree No. 677/01 for in the Transparency System in Public Offerings (Régimen de Transparencia de la
Oferta Pública) (the “Decree 677”). The Notes are simple obligations, non-convertible into shares and solely
secured by the Issuer’s equity, unless the applicable Pricing Supplement specifies other guarantees. Decree
No. 749/00 (the “Decree 749”) gives the Issuer the option to rate the Notes by two Rating Agencies, by one or
by none. The Pricing Supplement of each Class and/or Series of the Notes shall determine the option chosen
by the Issuer with respect to the ratings. If the Issuer opts to rate the Notes, such ratings shall not be deemed as
a recommendation by the Issuer, the Arranger or the Dealer (as defined below) to purchase the Notes.
NO RATING HAS BEEN ISSUED IN RESPECT OF THIS PROGRAM
In the event of default by the Company as regards payment of principal, issuance premium, if any, or interest
at maturity, any holder of a Note may commence an expedited foreclosure proceeding (acción ejecutiva)
against the Company for the collection of the payments due in connection with said Note, in accordance with
section 29 of the Negotiable Obligations Law. See Chapter IX “The Offer and Listing – Execution by Holders
of Notes – Execution Proceedings”.
For an analysis of certain factors to be taken into account regarding an investment in the Notes, see Chapter III
“Key Information on Grupo Galicia – Risk Factors”.
The Program has been authorized by the Issuer’s Ordinary Shareholders’ Meeting held on March, 09, 2009
and the terms and conditions of the Program were established in the Meeting of the Board of Directors No.
344 dated March 9, 2009. The resolution to update the financial and accounting information was adopted by
the Minutes of the Meeting of the Board of Directors N° 377, held on March 2, 2010.
The listing of the Notes to be issued under the Program may be requested in any stock exchange or market
agreed by the Company and the Dealer. The Pricing Supplement applicable to a Class and/or Series shall
specify the stock exchange and/or market in which the Notes will be listed and/or traded. If the applicable
Pricing Supplement so specifies, the Notes will be deposited with Caja de Valores S.A. (“Caja de Valores”).
The Issuer may offer the Notes issued under the Program either directly or through underwriters, dealers or
sub-dealers (“Underwriters”, “Dealers” or “Sub-dealers”) and arrangers of such issuances (“Arrangers”)
appointed by the Issuer, or otherwise appointed by Banco de Galicia y Buenos Aires S.A. (“Banco Galicia”
or the “Bank”). Such capacities shall be paid for with cash or by the delivery of other securities, as specified
in the Pricing Supplement. The name of the Dealers shall be indicated in the corresponding Pricing
Supplement.
This Offering Memorandum may not be used to offer the Notes under the Program, unless accompanied by a
corresponding Pricing Supplement. The Issuer may hire one or more Dealers or brokers authorized to
distribute the Notes. The Issuer reserves the right to withdraw, cancel or modify any offer of Notes provided
herein and in the Pricing Supplements, with prior written notice. If the Issuer changes the conditions of the
offer of Notes, investors may withdraw their subscription, without any penalty whatsoever.
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The Offering Memorandum and the Company’s financial statements are available to investors at
Grupo Galicia’s domicile in Tte. Gral. Juan D. Perón 456, 2nd Floor, Buenos Aires, and on the CNV’s
web site: www.cnv.gov.ar (the “CNV´s Web Site”) under the item “Financial Information”. In
addition, please note that: (a) the Company’s summarized financial statements as December 31, 2009,
December 31, 2008, and December 31, 2007 have been published in the Daily Gazettes of the Buenos
Aires Stock Exchange (the “BASE”) dated February 16, 2010, February 13, 2009 and February 14,
2008, respectively; and (b) the Company’s complete financial statements as of December 31, 2009,
December 31, 2008 and December 31, 2007 have been published in the Weekly Gazettes of the BASE
dated April 5, 2010, April 13, 2009 and March 31, 2008, respectively, and are available at
www.bolsar.com.
THE ISSUER AND THE DEALER INTEND TO CARRY OUT THEIR PLACEMENT ACTIVITIES
WITH THE NOTES IN ARGENTINA PURSUANT TO THE PUBLIC OFFERING LAW (LA LEY DE LA
OFERTA PÚBLICA) No. 17,811 (THE “PUBLIC OFFERING LAW”) AND THE APPLICABLE
REGULATIONS OF THE CNV – TEXT CONSOLIDATED BY GENERAL RESOLUTION No. 368/01
AS AMENDED – (THE “REGULATIONS”). THE ISSUER AND THE DEALER MAY EFFECTIVELY
SELL THE NOTES IN A PUBLIC OFFERING, IN THE FOLLOWING MANNERS, AMONG OTHERS:
(I) PERSONAL CONTACT WITH PROSPECTIVE INVESTORS; (II) DISTRIBUTION OF WRITTEN
MATERIALS TO PROSPECTIVE INVESTORS, INCLUDING PRELIMINARY OFFERING
MEMORANDUMS AND THE INFORMATION CONTAINED THEREIN; (III) PUBLICATIONS AND
ADVERTISEMENTS IN REPUTABLE MEDIA; (IV) TELEPHONE CONFERENCES WITH
PROSPECTIVE INVESTORS; (V) E-MAILING PROSPECTIVE INVESTORS INCLUDING
DISSEMINATION MATERIAL; (VI) ROAD SHOWS AND/OR ONE-TO-ONE MEETINGS WITH
PROSPECTIVE INVESTORS, ALL OF WHICH WILL BE CARRIED OUT IN COMPLIANCE WITH
THE CNV REGULATIONS AND AS SPECIFIED IN THE APPLICABLE PRICING SUPPLEMENT.
WITH RESPECT TO THE ISSUANCE OF NOTES, THE ARGENTINE FEDERAL PUBLIC INCOME
ADMINISTRATION (ADMINISTRACIÓN FEDERAL DE INGRESOS PÚBLICOS) (THE “AFIP”), IN ITS
RESOLUTION 16/2002 OF THE TECHNICAL ADVICE BOARD (DIRECCIÓN DE ASESORIA
TÉCNICA) DATED JANUARY 25, 2002, RULED THAT THE REQUIREMENT OF PLACEMENT
THROUGH PUBLIC OFFERING IS NOT SATISFIED SOLELY BY AUTHORIZATION BY THE CNV,
BUT RATHER ALL THE PROCEDURES REQUIRED FOR SUCH PURPOSES BY THE CNV MUST BE
CARRIED OUT – SUCH PROCEDURES SHOULD GUARANTEE, IN PRINCIPLE, ACCESS BY THE
GENERAL PUBLIC TO THE NOTES OFFERED – AND SUCH ACCESS MUST BE VERIFIED BY THE
RELEVANT ADMINISTRATIVE JUDGE. IN ACCORDANCE WITH THE FOREGOING, WE POINT
OUT THAT THE SOLE AUTHORIZATION BY THE CNV IS NOT ENOUGH TO BENEFIT FROM THE
TAX TREATMENT PROVIDED FOR IN THE NEGOTIABLE OBLIGATIONS LAW, BUT RATHER
THERE MUST ALSO BE AN ACTUAL PUBLIC OFFERING. IN THIS RESPECT, THE DEALER
SHALL MAKE A PUBLIC OFFERING OF THE SECURITIES UNDER THE TERMS OF SECTION 16
OF THE PUBLIC OFFERING LAW. HOWEVER, INVESTORS ARE URGED TO CONSULT WITH
THEIR OWN ADVISORS. THROUGH JOINT RESOLUTION No. 470 OF THE CNV AND No. 1738 OF
THE AFIP (THE “CNV 470 / AFIP 1378 RESOLUTION”), PUBLISHED ON SEPTEMBER 14, 2004, IT
WAS RESOLVED THAT – ALTHOUGH REFERRING TO ISSUANCES IN INTERNATIONAL
MARKETS – NOTES OR TRUST NOTES WILL BE CONSIDERED PLACED BY PUBLIC OFFERING
IF THE ISSUER OR DEALER UNDERTAKE PLACEMENT EFFORTS.
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Arranger and Dealer
Banco de Galicia y Buenos Aires S.A.
This Offering Memorandum is dated May 6, 2010
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RELEVANT INFORMATION
The information contained in this Offering Memorandum has been provided by the Issuer and other sources
identified throughout this document. No person has been authorized to give any information or to make any
representation not contained in, or inconsistent with, this Offering Memorandum or any other information that
the Issuer may have provided in connection with the Notes, and if given or made, such information or
representation must not be relied upon as having been authorized by the Issuer or the Arranger or the Dealer.
IN MAKING AN INVESTMENT DECISION, PROSPECTIVE INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THIS PUBLIC OFFERING, INCLUDING THE MERITS AND
RISKS INVOLVED. BY RECEIVING THIS OFFERING MEMORANDUM, YOU ACKNOWLEDGE THAT (A) YOU
HAVE NOT RELIED ON THE DEALER OR ANY PERSON AFFILIATED WITH THE DEALER IN CONNECTION WITH
YOUR INVESTIGATION OF THE ACCURACY OF THE INFORMATION CONTAINED HEREIN OR YOUR
INVESTMENT DECISION, AND THAT (B) NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION IN REFERENCE TO THE COMPANY OR THE NOTES OTHER THAN THOSE
CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION WILL NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE ARRANGER OR THE DEALER. THE
DEALER RESERVES THE RIGHT TO REJECT ANY OFFERS TO PURCHASE THAT MAY BE MADE FROM TIME TO
TIME, IN WHOLE OR IN PART, AND THE RIGHT TO SELL A LOWER NUMBER OF NOTES THAN THE NUMBER OF
NOTES OFFERED IN THE RELEVANT PRICING SUPPLEMENT.
THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR AN INVITATION TO BUY ANY
OF THE NOTES IN ANY JURISDICTION IN WHICH SUCH OFFER OR INVITATION COULD BE ILLEGAL.
The distribution of this Offering Memorandum and of any Pricing Supplement as well as the offer and sale of
the Notes may be restricted by law in certain jurisdictions. The Company urges anyone who has access to this
Offering Memorandum to inform themselves about and to observe any such restrictions. In particular, there are
restrictions to the offer and sale of Negotiable Negotiations in the United Kingdom and the United States of
America. Please see “Sale Restrictions” below.
WITH RESPECT TO THE ISSUANCE OF NOTES, THE DEALERS OR THE ARRANGER, IF ANY, OR ANY OTHER PERSON
ACTING ON THEIR BEHALF, MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THEIR MARKET PRICE, INCLUDING PURCHASES OF NOTES INTENDED TO STABILIZE THE MARKET PRICE AND TO
COVER IN WHOLE OR IN PART A POSITION SOLD IN NOTES HELD BY THE DEALERS AND/OR THE ARRANGER, AND
WILL BE SUBJECT TO SECTION 17 OF DECREE 677 AND SECTION 20 OF GENERAL RESOLUTION NO. 400/02 OF THE
CNV ABOUT THE REGULATION OF MARKET STABILIZATION ACTIVITIES (“GENERAL RESOLUTION 400”). UNDER
GENERAL RESOLUTION 400, STABILIZATION OPERATIONS MUST COMPLY WITH THE FOLLOWING CONDITIONS:
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They may not exceed the term of the first 30 running days following the first day of trading of the
Notes in the market;
The relevant Offering Memorandum of the public offering must include a warning describing the
possibility to carry out stabilization operations, their duration and conditions;
Stabilization operations must not be carried out by more than one broker that has taken part in their
placement and distribution;
The stabilization operations must be conducted for the purpose of avoiding or mitigating a decrease in
the price of the Notes;
Stabilization operations transacted within the authorized term shall not be carried out at prices higher
than those in the authorized markets, in transactions between unrelated parties regarding distribution
and placement;
Stabilization operations shall not be carried out at prices higher than the initial offer price;
Self-regulated entities shall identify stabilization operations as such, and make them known to the
public, either at the time of completion of each operation, or at the end of their trading day; and
Self-regulated entities may require further conditions applicable to the stabilization operations
performed by brokers duly registered with such entities.
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FORWARD LOOKING STATEMENTS
References herein to the “Issuer”, the “Company”, and “Grupo Galicia” refer to Grupo Financiero Galicia S.A.
References to “Bank” and “Banco Galicia” refer to Banco de Galicia y Buenos Aires S.A. References to
“Note” and “Notes” refer to the Notes offered by the Issuer under the Program. All forward-looking statements
contained in this Offering Memorandum including statements regarding the Issuer’s future financial position,
its business strategy, budgets, projected costs and plans and objectives of management for future operations,
are forward-looking statements. In addition, forward-looking statements generally can be identified by the use
of such words as “may,” “could,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “continue”, their
negative forms, or other similar terminology. Although the Issuer believes that the expectations reflected in
these forward-looking statements are reasonable, the Issuer do not provide any assurance with respect to these
statements. Because these statements are subject to risks and uncertainties, actual results may differ
substantially from those expressed or implied by such forward-looking statements. Factors that could cause
actual results to differ substantially include but are not limited to:
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Any financial difficulties of the Argentine government (the “Government”);
The devaluation and volatility of the Argentine peso and the fluctuations in the exchange rate of the
Argentine currency and foreign currencies;
Changes in the general economic, business, political, legal, social situation or other conditions
existing in Argentina, Latin America or other countries;
Changes in capital markets in general that may affect policies or attitudes toward financing to
Argentina or Argentine companies; and
Other factors discussed in “Risk Factors” herein and in the applicable Pricing Supplement.
Some of these factors are analyzed in detail in this Offering Memorandum in Chapter V “Operating and
Financial Review and Prospects” and in Chapter III “Key Information on Grupo Galicia — Risk Factors”.
Forward-looking statements speak only as of the date that they were made. These cautionary statements shall
be considered in connection with any written or oral forward-looking statements that the Issuer may make in
the future. The Company does not undertake any obligation to release publicly any revisions to forwardlooking statements after completion of this Offering Memorandum to reflect later events or circumstances or
to reflect the occurrence of unforeseen events.
SALE RESTRICTIONS
Other than in Argentina, no action has or will be taken in any jurisdiction that would permit a public offering
of the Notes or the possession or distribution of this Offering Memorandum or any other offering material in
connection with the Notes, in any country or jurisdiction where action for that purpose is required. The Issuer
and any Dealer of Notes shall comply with all applicable laws and regulations in any jurisdiction in which they
purchase, offer, sell or deliver Notes or in any jurisdiction in which they have in their possession or distribute
any preliminary Offering Memorandum or Offering Memorandum or any amendment or supplement thereof.
No authorization has been or will be requested to make a public offering of the Notes under the United States
Securities Act of 1933, as amended (the “Securities Act”), or under any securities law in any of the states of
the United States of America, and the Notes may not be offered or sold within such country (as defined under
Regulation S of the Securities Act (“Regulation S”)) except in a transaction exempt from the authorization
requirements to make a public offering of the Securities Act and in accordance with any other applicable law
or regulation, or pursuant to a registration statement duly declared effective by the U.S. Securities and
Exchange Commission.
No authorization has been or will be requested to make a public offering of the Notes under the rules on
Securities of the United Kingdom and the Notes may not be offered or sold within the United Kingdom or to
any person therefrom, except in a transaction exempt from the authorization requirements to make a public
offering of the rules on Securities of the United Kingdom and in accordance with any other applicable law or
regulation.
PRESENTATION OF FINANCIAL INFORMATION
In this Offering Memorandum, US$ and “dollars” refer to Unites States Dollars and “Ps.” refers to Argentine
pesos. Unless otherwise stated herein, the exchange rate used to convert pesos into foreign currency amounts
in the Issuer’s balance sheets and income statements up to December 2001 was the prevailing exchange rate
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as of each relevant date or fiscal year-end that Banco Nación quoted. In the case of dollars, the Banco Nación
quotes for such exchange rates were Ps.1.0 = US$1.0, under the peso-dollar parity introduced in 1991 by Law
No. 23,928 (the “Convertibility Law”). On January 7, 2002, Argentina abandoned the fixed peso-dollar parity
introduced by the Convertibility Law. Following the initial devaluation and the setting of an official
exchange-rate at Ps.1.4 per US$1.0, the peso started to float. The exchange rate used for the preparation of
the financial statements as of December 31, 2007, 2008 and 2009 was the buying exchange rate of Ps.3.11,
Ps.3.41 and Ps.3.76, respectively, and the selling exchange rate of Ps.3.15, Ps.3.45 and Ps.3.80, respectively,
per dollar, or otherwise the exchange rate arising from the estimates of the Company’s management included
in the financial statements for the shareholders’ equity balances, whereas for the charges included in the
income statements, the exchange rate prevailing at the date of each transaction was used, as provided for by
the accounting standards in force in the Argentine Republic (the “Accounting Standards”).
The Company prepares its financial statements in accordance with the Accounting Standards. According to
the professional Accounting Standards and requirements of the controlling authorities, the Company’s
financial statements have been prepared without recognizing the changes in the purchasing power of the
currency until December 31, 2001. As from January 1, 2002, and in accordance with the Accounting
Standards, recognition of the effects of inflation was reestablished, considering that the accounting
measurements dated prior to December 31, 2001 are stated in the currency of the later date.
On March 25, 2003, the National Executive Branch issued Decree No. 664/03 establishing that financial
statements for fiscal years ending as from said date be stated in nominal amounts. Consequently, according to
resolution 441/03 issued by the CNV, the Company discontinued the restatement of its financial statements
as from March 1, 2003, and therefore, did not recognize the effects of the changes in the purchasing power of
the currency originated after such date.
Certain amounts included in this Offering Memorandum (including percentages) may not be exact due to
rounding.
This Offering Memorandum contains certain peso-dollar conversions at the specified exchange rate solely for
the convenience of the reader. These conversions should not be construed as representations that amounts in
pesos actually represent said amounts in dollars, or that they could be converted into dollars at the indicated
exchange rate. Unless otherwise indicated, amounts in dollars as of December 31, 2007, December 31, 2008
and December 31, 2009 were converted into pesos at an exchange rate of Ps.3.06 per dollar, amounts in
dollars as of December 31, 2007 were converted into pesos at an exchange rate of Ps.3.15, Ps.3.45 and
Ps.3.80 per dollar, respectively, in all the cases according to the quotations of Banco Nación.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.
Under Argentine regulations, the Issuer files its audited annual financial statements and quarterly financial
statements with limited review reports with the CNV. As long as there are outstanding Notes, all the abovementioned financial statements published by the Issuer and filed with the CNV after the date hereof, shall be
incorporated herein by reference.
Also, as regards a given issuance of Notes, the relevant Pricing Supplement shall be incorporated by reference
to this Offering Memorandum and will be a part hereof. Likewise, any amendment or supplement to this
Offering Memorandum issued from time to time shall be incorporated by reference and will be a part hereof.
Any of the foregoing reports incorporated herein by reference may be requested, free of charge, in writing or
by phone, from the Issuer. Any statement included in a document incorporated herein by reference will be
considered to have been modified or replaced for the purpose of this Offering Memorandum, to the extent that
a statement included in such other document presented at a later stage, modifies or replaces said statement.
Any statement so modified or replaced shall not be considered a part of this Offering Memorandum, except as
such statement was so modified or replaced.
The delivery of this Offering Memorandum does not at any time imply that the information contained herein
concerning the Company is correct at any time subsequent to the date hereof or that any other information
supplied in connection with the Notes is correct as of any time subsequent to the date indicated in the
applicable Pricing Supplement.
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NOTICE TO INVESTORS ABOUT MONEY LAUNDERING REGULATIONS
Investors are hereby notified that Law No. 25,246 and regulatory decrees (as amended by Laws No.
26,087, No. 26,119 and No. 26,268) incorporate Money Laundering as a crime under the Argentine
Criminal Code (Código Penal) and that Law No. 26,268 incorporates the penalties for Illicit Terrorist
Association and Terrorism Financing. Furthermore, with the goal of preventing and stopping money
laundering, the Financial Information Unit (Unidad de Información Financiera) (the “UIF”) was
created under the jurisdiction of the Argentine Ministry of Justice, Security and Human Rights
(Ministerio de Justicia, Seguridad y Derechos Humanos de la Nación).
THEREFORE:
(I)
WHOEVER CONVERTS, TRANSFERS, MANAGES, SELLS, ENCUMBERS OR APPLIES IN ANY OTHER
WAY MONEY OR ANOTHER KIND OF ASSETS ARISING FROM A CRIME IN WHICH HE HAS NOT
PARTICIPATED, WITH THE POSSIBLE CONSEQUENCE THAT THE ORIGINAL ASSETS OR THE
SUBSTITUTES THEREOF APPEAR TO COME FROM A LAWFUL SOURCE, SO LONG AS THEIR
VALUE IS FIFTY THOUSAND PESOS, WHETHER THROUGH ONLY ONE ACT OR BY THE
REPETITION OF VARIOUS INTERRELATED ACTS, WILL BE PUNISHED WITH TWO TO TEN YEARS’
IMPRISONMENT AND A FINE OF TWO TO TEN TIMES THE AMOUNT OF THE TRANSACTIONS
MADE .
(II)
A PUNISHMENT OF A PRISON TERM FROM SIX MONTHS TO THREE YEARS WILL BE IMPOSED ON
WHOEVER, AFTER THE COMMISSION OF A CRIME BY ANOTHER INDIVIDUAL, IN WHICH HE HAS
NOT PARTICIPATED: A) HELPS SOMEONE TO AVOID INVESTIGATIONS BY THE AUTHORITY OR
TO ELUDE THE LATTER’S ACTION; B) HIDES, ALTERS OR DISPOSES OF EVIDENCE, PROOF OR
INSTRUMENTS OF THE CRIME OR AIDS THE PERPETRATOR OR PARTICIPANT TO HIDE, ALTER
OR MAKE THEM DISAPPEAR; C) ACQUIRES, RECEIVES OR HIDES MONEY, THINGS OR EFFECTS
ARISING FROM A CRIME; D) DOES NOT REPORT THE COMMISSION OF A CRIME OR DOES NOT
IDENTIFY THE PERPETRATOR OR PARTICIPANT IN A CRIME ALREADY KNOWN, WHERE HE
WOULD HAVE BEEN OBLIGED TO BRING THE CRIMINAL PROSECUTION OF SUCH A CRIME; E)
PROTECTS OR HELPS THE PERPETRATOR OR PARTICIPANT TO PROTECT THE PRODUCT OR
BENEFIT OF THE CRIME.
THE CRIMINAL PENALTY WILL BE INCREASED TO THE DOUBLE OF THE MINIMUM AND MAXIMUM THEREOF
WHENEVER: A) THE PREDICATE OFFENSE WAS A PARTICULARLY SERIOUS CRIME, FOR WHICH THE
MINIMUM PUNISHMENT INVOLVES MORE THAN THREE–YEAR PRISON TERM; B) THE WRONGDOER ACTED
FOR PROFIT; C) THE WRONGDOER HABITUALLY COMMITS CONCEALMENT ACTS. THE INCREASE IN THE
AMOUNT OF PUNISHMENT WILL BE APPLIED ONLY ONCE, EVEN IF MORE THAN ONE OF THE QUALIFYING
CIRCUMSTANCES IS PRESENT. IN THIS CASE, THE COURT MAY TAKE INTO ACCOUNT THE PLURALITY OF
CAUSES AT THE MOMENT OF APPLYING THE PUNISHMENT.
IN
ADDITION, LAW NO. 26,087 ESTABLISHES THAT: (A) WITHIN THE FRAMEWORK OF A REVIEW OF
REPORTED SUSPICIOUS ACTIVITY, THE PERSONS THAT ARE OBLIGATED TO PROVIDE INFORMATION MAY
NOT WITHHOLD INFORMATION REQUIRED BY THE UIF BECAUSE SUCH INFORMATION IS A BANKING, STOCK
MARKET OR PROFESSIONAL SECRET NOR BECAUSE IT IS LEGALLY OR CONTRACTUALLY CONFIDENTIAL;
(B) IF AFTER HAVING COMPLETED ITS ANALYSIS OF THE REPORTED ACTIVITY, THE UIF HAS FOUND
SUFFICIENT ELEMENTS TO SUSPECT THAT THE ACTIVITY IS A MONEY LAUNDERING OPERATION PURSUANT
TO THE LAW, THEN THE UIF WILL NOTIFY THE PUBLIC MINISTRY IN ORDER TO DETERMINE IF A
CRIMINAL PROSECUTION SHOULD BEGIN; (C) THOSE PERSONS WHO HAVE ACTED FOR THEIR SPOUSE, ANY
RELATIVE THAT IS RELATED BY BLOOD UP TO THE FOURTH DEGREE OR BY MARRIAGE UP TO THE SECOND
DEGREE OR A CLOSE FRIEND OR A PERSON TO WHOM THEY OWE SPECIAL GRATITUDE, WILL BE EXEMPTED
FROM CRIMINAL RESPONSIBILITY. NOTWITHSTANDING THE FOREGOING, PURSUANT TO THE ARGENTINE
CRIMINAL CODE, THE EXEMPTION WILL NOT BE EFFECTIVE IN THE FOLLOWING CASES: (I) WITH RESPECT
TO A PERSON WHO SECURES OR HELPS THE PERPETRATOR OF OR A PARTICIPANT IN A CRIME TO SECURE
THE PRODUCT OR PROFIT OF THE CRIME (SECTION 277, SUBSECTION 1 E); (II) WITH RESPECT TO A
PERPETRATOR THAT COMMITTED THE CRIME FOR PROFIT (SECTION 277, SUBSECTION 3 B); (WITH
RESPECT TO A PERPETRATOR THAT REGULARLY PERFORMS CONCEALMENT ACTIVITIES (SECTION 277,
SUBSECTION 3 C); WITH RESPECT TO A PERSON THAT CONVERTS, TRANSFERS, ADMINISTERS, SELLS,
ENCUMBERS OR USES MONEY OR ANY OTHER ASSET DERIVED FROM ANY CRIME IN WHICH HE WAS NOT
INVOLVED, WITH THE POSSIBLE RESULT OF GIVING THOSE ORIGINAL OR SECONDARY ASSETS THE
8
APPEARANCE OF HAVING A LEGAL ORIGIN AND AS LONG AS THEIR VALUE IS GREATER THAN FIFTY
THOUSAND PESOS, WHETHER THROUGH A SINGLE ACT OR THROUGH A SERIES OF RELATED EVENTS
(SECTION 278).
THE LAW IMPOSES CERTAIN OBLIGATIONS ON A NUMBER OF INSTITUTIONS OPERATING IN THE PRIVATE SECTOR,
SUCH AS BANKS, SECURITIES BROKERS, BROKERAGE HOUSES, AND INSURANCE COMPANIES. SUCH OBLIGATIONS
GENERALLY CONSIST OF PERFORMING DUE DILIGENCE IN ORDER TO GET TO KNOW THE CLIENT TO UNDERSTAND
THE CORRESPONDING TRANSACTION AND, IF APPLICABLE, TO REPORT ANY IRREGULAR OR SUSPICIOUS ACTIVITY
TO THE UIF, PURSUANT TO THE TERMS AND CONDITIONS ESTABLISHED BY THE REGULATION APPLICABLE TO
SUCH OBLIGATED PARTY.
THE “GUIDE OF UNUSUAL OR SUSPICIOUS TRANSACTIONS WITHIN THE SCOPE OF THE FINANCIAL AND FOREIGN
EXCHANGE SYSTEM” (PASSED BY RESOLUTION NO. 2/2002 OF THE UIF) ESTABLISHES THE OBLIGATION TO
REPORT THE FOLLOWING INVESTMENT RELATED TRANSACTIONS: (A) INVESTMENTS RELATED TO PURCHASES OF
GOVERNMENT OR CORPORATE SECURITIES GIVEN IN CUSTODY TO THE FINANCIAL INSTITUTION IF SUCH
SECURITIES’ VALUE APPEARS TO BE INAPPROPRIATE DUE TO THE TYPE OF BUSINESS OF THE CLIENT; (B) DEPOSITS
OR “BACK TO BACK” LOAN TRANSACTIONS WITH BRANCHES, SUBSIDIARIES OR AFFILIATES OF THE BANK IN
PLACES KNOWN TO BE “TAX HAVENS” OR COUNTRIES OR TERRITORIES CONSIDERED BY THE FINANCIAL ACTION
TASK FORCE (THE “FATF”) AS NON-COOPERATIVE, (C) CLIENT REQUESTS FOR INVESTMENT MANAGEMENT
SERVICES (WHETHER IN FOREIGN CURRENCY, SHARES OR TRUSTS) WHERE THE SOURCE OF THE FUNDS IS NOT
CLEAR OR IS NOT CONSISTENT WITH ITS BUSINESS; (D) SIGNIFICANT AND UNUSUAL MOVEMENTS IN CUSTODIAL
ACCOUNTS; (E) FREQUENT USE BY INFREQUENT CLIENTS OF SPECIAL INVESTMENT ACCOUNTS WHOSE OWNER IS
THE FINANCIAL ENTITY; (F) REGULAR SECURITIES TRANSACTIONS, THROUGH PURCHASES AND SALES ON THE
SAME DAY AND FOR IDENTICAL VOLUMES AND NOMINAL VALUES, TAKING ADVANTAGE OF QUOTATION
DIFFERENCES, WHEN SUCH TRANSACTIONS ARE NOT CONSISTENT WITH THE CLIENT’S PROFILE AND REGULAR
ACTIVITY.
ON JUNE 13, 2007 LAW NO. 26,268
ENACTED. SUCH LAW ESTABLISHES
OF “ILLICIT TERRORIST ASSOCIATION AND TERRORISM FINANCING” WAS
THE PUNISHMENTS AND SANCTIONS APPLICABLE TO THOSE INDIVIDUALS
THAT ARE PART OF AN UNLAWFUL ASSOCIATION THE PURPOSE OF WHICH IS, THROUGH THE EXECUTION OF
CRIMES, TERRORIZING THE PUBLIC AND FORCING A GOVERNMENT OR AN INTERNATIONAL ORGANIZATION TO
COMMIT AN ACT OR REFRAIN FROM COMMITTING AN ACT, AS LONG AS THE FOLLOWING CHARACTERISTICS ARE
FULFILLED: (A) HAVING A PLAN OF ACTION IN ORDER TO SPREAD HATE REGARDING SPECIFIC ETHNIC, RELIGIOUS
OR POLITICAL GROUPS; (B) BEING ORGANIZED AS AN INTERNATIONAL OPERATIONAL NETWORK; AND (C) HAVING
AT DISPOSAL WAR WEAPONS, EXPLOSIVES, CHEMICAL OR BACTERIAL AGENTS OR ANY OTHER INSTRUMENTS TO
PUT THE LIFE OR SAFETY OF AN UNCERTAIN NUMBER OF PEOPLE IN DANGER.
FOR A MORE DETAILED ANALYSIS OF THE CURRENT ANTI-MONEY LAUNDERING LAW, INVESTORS ARE ADVISED
TO CONSULT WITH THEIR OWN LEGAL COUNSEL AND READ CAREFULLY SECTION XII, TITLE XI, BOOK TWO OF
THE ARGENTINE CRIMINAL CODE, WHICH CAN BE FOUND ON THE MINISTRY OF ECONOMY AND PUBLIC
FINANCES (THE “MINISTRY OF ECONOMY”) WEBSITE, WWW.MECON.GOV.AR OR WWW.INFOLEG.GOV.AR.
9
TABLE OF CONTENTS
CHAPTERS AND SECTIONS
PAGE
Relevant Information ............................................................................................................................................ 5
Forward Looking Statements................................................................................................................................ 6
Sale Restrictions.................................................................................................................................................... 6
Presentation of Financial Information.................................................................................................................. 6
Incorporation of Certain Documents by Reference. ............................................................................................ 7
Notice to Investors about Money Laundering Regulations ................................................................................. 8
CHAPTER I. INFORMATION ON DIRECTORS, SENIOR MANAGEMENT, ADVISORS AND
MEMBERS OF THE SUPERVISORY SYNDICS’ COMMITTEE ............................................................ 4
Directors, alternate directors and senior managers .............................................................................................. 4
Independence Criteria for Directors ..................................................................................................................... 6
Grupo Galicia’s Main Executives ........................................................................................................................ 7
Employment Contracts entered into with Grupo Galicia’s Directors and Main Executives .............................. 8
Supervisory Syndics’ Committee ......................................................................................................................... 8
Independence Criteria for Syndics ....................................................................................................................... 9
Advisors ................................................................................................................................................................ 9
Auditors............................................................................................................................................................... 10
CHAPTER II. SUMMARY OF THE TERMS AND CONDITIONS OF THE PROGRAM.................. 11
CHAPTER III. KEY INFORMATION ON GRUPO GALICIA................................................................ 14
Accounting and Financial Information............................................................................................................... 15
Ratios................................................................................................................................................................... 15
Capitalization and Indebtedness ......................................................................................................................... 16
Reasons for the Offer and Use of Proceeds........................................................................................................ 18
Risk Factors......................................................................................................................................................... 18
Risk Factors Relating to Argentina ..................................................................................................... 18
Risk Factors Relating to the Argentine Financial System................................................................... 23
Risk Factors Relating to Grupo Galicia and Banco Galicia .............................................................. 26
Risk Factors Relating to the Notes ...................................................................................................... 28
CHAPTER IV. INFORMATION ON THE COMPANY ............................................................................ 30
Issuer’s History and Development ..................................................................................................................... 30
Milestones in Business Development................................................................................................................. 31
Business Description........................................................................................................................................... 38
Grupo Galicia’s Strategy .................................................................................................................................... 38
Sudamericana Holding S.A. ............................................................................................................................... 39
Net Investment S.A............................................................................................................................................. 40
Galicia Warrants S.A. ......................................................................................................................................... 40
Galval Agente de Valores S.A............................................................................................................................ 41
Banco Galicia...................................................................................................................................................... 41
Regulatory Aspects ............................................................................................................................................. 53
Monetary and Foreign Exchange Regime.......................................................................................................... 61
Structure and Organization of the Issuer and its Economic Group ................................................................... 62
Fixed Assets ........................................................................................................................................................ 63
CHAPTER V. OPERATING AND FINANCIAL REVIEW AND PROSPECTS .................................... 65
The Argentine Economy in 2009 ....................................................................................................................... 65
1
The Argentine Financial System ........................................................................................................................ 67
The Argentine Insurance Industry ...................................................................................................................... 68
Consolidated Assets............................................................................................................................................ 68
Loans ................................................................................................................................................................... 73
Exposure to the Argentine Public Sector ........................................................................................................... 74
Funding and Liabilities ....................................................................................................................................... 75
Contractual Obligations ...................................................................................................................................... 79
Shareholders’ Equity........................................................................................................................................... 81
Results of Operations.......................................................................................................................................... 81
Results by Division............................................................................................................................................. 96
Recent Developments ....................................................................................................................................... 121
Principal Trends and Uncertainties .................................................................................................................. 121
CHAPTER VI. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.................................. 123
Directors and senior management: ................................................................................................................... 123
Grupo Galicia’s Main Executives .................................................................................................................... 123
Compensation for the Board of Directors ........................................................................................................ 123
Additional information regarding the administrative body, the Supervisory Syndics’ Committee and
special committees............................................................................................................................................ 124
Employees......................................................................................................................................................... 124
Share Ownership............................................................................................................................................... 125
CHAPTER VII. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ............. 127
Major Shareholders........................................................................................................................................... 127
Significant Changes in the Percentage of Share ownership............................................................................. 129
Related Party Transactions ............................................................................................................................... 129
CHAPTER VIII. FINANCIAL INFORMATION ...................................................................................... 131
Financial Statements and Other Financial Information ................................................................................... 131
Legal Proceedings............................................................................................................................................. 131
Dividend Policy ................................................................................................................................................ 132
Changes After December 31, 2009 .................................................................................................................. 133
CHAPTER IX. THE OFFER AND LISTING ............................................................................................ 134
Description of Notes ......................................................................................................................................... 134
Terms and Conditions of Notes ........................................................................................................................ 134
Approvals and Authorizations .......................................................................................................................... 134
Issuer ................................................................................................................................................................. 136
Description........................................................................................................................................................ 136
Amount .............................................................................................................................................................. 136
Offer .................................................................................................................................................................. 136
Term of the Program......................................................................................................................................... 136
Form .................................................................................................................................................................. 136
Classes and/or Series........................................................................................................................................ 136
Issuance Price................................................................................................................................................... 137
Maturity and Amortization ............................................................................................................................... 137
Currencies......................................................................................................................................................... 137
Arranger............................................................................................................................................................ 137
Trustees and Agents .......................................................................................................................................... 137
Minimum Denomination ................................................................................................................................... 137
Minimum Trading Unit ..................................................................................................................................... 137
Placement.......................................................................................................................................................... 137
2
Placement Period and Payment Conditions..................................................................................................... 138
Use of Proceeds ................................................................................................................................................ 138
Registration and Collective Deposit................................................................................................................. 138
Ownership and Legitimation ............................................................................................................................ 138
Transfers ........................................................................................................................................................... 139
Security Interests and Liens.............................................................................................................................. 139
Replacement ...................................................................................................................................................... 139
Listing and Trading .......................................................................................................................................... 139
Ranking and Guarantee.................................................................................................................................... 140
Interest rate ....................................................................................................................................................... 140
Covenants of the Issuer..................................................................................................................................... 141
Events of Default............................................................................................................................................... 142
Optional Redemption for Tax Reasons............................................................................................................. 143
Additional Amounts........................................................................................................................................... 144
Repurchase........................................................................................................................................................ 145
Meetings ............................................................................................................................................................ 145
Special Voting Cases ........................................................................................................................................ 146
Execution by Holders of Notes – Execution Proceedings................................................................................ 146
Notices to Holders of Notes .............................................................................................................................. 147
Applicable Law ................................................................................................................................................. 147
Jurisdiction........................................................................................................................................................ 147
Ratings............................................................................................................................................................... 147
International Issuances – Subscription and Sale ............................................................................................. 148
Notice to Holders of Notes issued under Regulation S .................................................................................... 150
CHAPTER X. ADDITIONAL INFORMATION ....................................................................................... 151
Capital Stock ..................................................................................................................................................... 151
Articles of Incorporation and By-laws ............................................................................................................. 152
General ............................................................................................................................................... 152
Voting Rights ...................................................................................................................................... 153
Preemptive Rights .............................................................................................................................. 154
Appraisal Rights................................................................................................................................. 154
Preferred Shares ................................................................................................................................ 155
Dividends............................................................................................................................................ 155
Board of Directors ............................................................................................................................. 156
Distribution of Profits ........................................................................................................................ 156
Exchange Controls............................................................................................................................................ 159
Tax burden ........................................................................................................................................................ 162
Documents on display....................................................................................................................................... 167
Annual Financial Statements (2009)
3
CHAPTER I. INFORMATION ON DIRECTORS, SENIOR MANAGEMENT, ADVISORS AND
MEMBERS OF THE SUPERVISORY SYNDICS’ COMMITTEE
Directors, alternate directors and senior managers
The Board of Directors may consist of between three and nine permanent members; currently there are nine
members. In addition, 5 alternate directors have been appointed to act in case of the temporary or permanent
absence of one of the directors. Directors and alternate directors are appointed by shareholders at the general
ordinary shareholders’ meetings. Directors and alternate directors are elected for a three-year term.
The following table sets out the members of Grupo Galicia’s Board of Directors (hereinafter, the “Board of
Directors”), both directors and alternate directors, all of whom are resident in Buenos Aires, Argentina and
the position currently held by each of them, in accordance with the resolutions of Grupo Galicia’s General
Ordinary Shareholders’ Meeting which took place on April 28, 2009.
Name
Eduardo Escasany
Position
Chairman of the Board of Directors
Pablo Gutierrez
Vice-Chairman
Abel Ayerza
Director
Federico Braun
Director
Antonio Roberto Garcés
Director
Enrique Martin
Director
Luis Omar Oddone
Director
Silvestre Vila Moret
Director
Eduardo Jesús Zimmermann
Director
María Ofelia Hordeñana de Escasany
Alternate Director
Sergio Grinenco
Alternate Director
Alejandro María Rojas Lagarde
Alternate Director
Luis Sila Monsegur
Alternate Director
Some of Grupo Galicia’s directors are directors of Banco Galicia. Likewise, some of the members of Grupo
Galicia’s Board of Directors have served and may serve on the board of directors of any subsidiary
established in the future. Five of Grupo Galicia’s directors, Mr. Federico Braun, Mr. Abel Ayerza,
Mr. Eduardo Escasany, Mr. Pablo Gutierrez and Mr. Silvestre Vila Moret are members of the Escasany,
Ayerza and Braun families (hereinafter, the “Families”) who own a majority stake in Grupo Galicia.
The following is a summary of the biographies of the members of Grupo Galicia’s Board of Directors:
Eduardo Escasany: Mr. Escasany obtained a degree in economics at the Universidad Católica Argentina. He
was associated with Banco Galicia from 1973 to 2002. He was appointed to the Bank’s Board of Directors in
1975. In 1979, he was elected as the Vice Chairman and from 1989 to March 21, 2002 he was the Chairman
of the Bank’s Board of Directors and its Chief Executive Officer. He served as the vice chairman between
1989 and 1993 and then, he was elected as the Chairman of the Argentine Bankers Association (Asociación
Argentina de Bancos) from 1993 to 2002. He was also Chairman of Grupo Galicia’s Board of Directors from
April 2002 until June 2002. He was elected again for his current position as a member of Grupo Galicia’s
4
Board of Directors in April 2005. On April 14, 2010 he was elected as the Chairman of Grupo Galicia. He is
also a Regular Director of SADE S.A., Advisor and the Vice Chairman of the Foundation.
Pablo Gutiérrez: Mr. Gutierrez obtained a degree in business administration at the Universidad de Buenos
Aires. He has been associated with the Bank since 1985 where he has held various positions. Among others,
he has held the following positions within the Bank: Department Manager of Private Banking; from July
1996 to September 1999, Manager of Investment Department; from October 1999 to April 2002, Manager of
Risk Management Department; from May 2002 until February 2005, Treasury Manager and, from February
2005 until April 2007, Financial Division Manager. In April 2005, he was appointed to his current position as
Banco Galicia’s Director. Mr. Gutierrez is also a Regular Director of Galicia Valores S.A. Sociedad de Bolsa,
Sudamericana and Argenclear S.A., and an Alternate Advisor of the Foundation. He was an Alternate
Director of Grupo Galicia from April 2003 until April 14, 2010, on which date he was elected as a Director.
Abel Ayerza: Mr. Ayerza obtained a degree in business administration at the Universidad Católica Argentina.
He was associated with the Bank from 1966 to 2002. Mr. Ayerza is also Chairman of Aygalpla S.A., second
vice chairman of the Foundation and Managing Partner of Cribelco S.R.L., Crisabe S.R.L. and Huinca
Cereales S.R.L. He has been a member of Grupo Galicia’s Board of Directors since September 1999.
Federico Braun: Mr. Braun obtained a degree in industrial engineering at the Universidad de Buenos Aires.
He was associated with the Bank from 1984 to 2002. Mr. Braun is also Chairman of Asociación Argentina de
Codificación de Productos Comerciales (Código), Campos de la Patagonia S.A., Estancia Anita S.A. and
S.A. Importadora and Exportadora de la Patagonia; Vice Chairman of Club de Campo Los Pingüinos S.A.,
Inmobiliaria y Financiera “La Josefina” S.A. and Asociación de Supermercados Unidos y Mayorista Net
S.A.; a member of Asociación Empresaria Argentina and an advisor for the Foundation. He has been a
member of Grupo Galicia’s Board of Directors since September 1999.
Antonio Roberto Garcés: Mr. Garcés obtained a degree in National Public Accounting at the Universidad de
Buenos Aires. He has been associated with Grupo Galicia since 2002. He has also been associated with the
Bank since 1959 where he has held the following positions, among others: from December, 1968 until
October, 1969, Mendoza branch’s Accountant; from October, 1969 until August, 1970, Chief of the Second
Department of Investments and Financial Operations; since August, 1970 until October, 1971, Chief of
Accounting Department; since October, 1971 until November, 1977, Tax Advisor; since November, 1977
until April, 1985, Internal Auditor and, since April, 1985 until June, 2000 Alternate Director and a member
of the Board of Directors; since October, 1999 until May, 2002, Executive Director of Corporate Services. In
2001, he was elected as vice chairman and since March, 2002 until August, 2002, he served as Chairman;
since that date, he was elected as vice chairman until April, 2003. He is also the liquidator of Gal Mobiliaria
S.A. de Ahorro para Fines Determinados (in liquidation), as well as first Vice Chairman of the Argentine
Bankers Association (Asociación de Banco de Argentina), IDEA’s Director and Banco Galicia y Buenos
Aires (the “Foundation”) Foundation Adviser. Since April, 2003 until the present, he holds the position of
Chairman of the Board of the Bank, and from April 2003 until April 14, 2010, he was Chairman of Grupo
Galicia.
Enrique Martin: Mr. Martin obtained a Degree in Law at the Universidad de Buenos Aires. He was a
professor in said university for more than 12 years and has a Post-Graduate Certificate in International
Economics from the University of London. He was associated with Banco Galicia since 1977 until 2002 and
was responsible for the International Banking Relations Division. Mr. Martin is Advisor to ZEIG S.A. He is
also Director of the Argentine-Chilean Chamber of Commerce and an Advisor to the Canadian-Argentine
Chamber of Commerce. He has been a member of Grupo Galicia’s Board of Directors since April, 2006.
Luis Omar Oddone: Mr. Odonne obtained a Degree in National Public Accounting at the Universidad de
Buenos Aires. He was appointed as Grupo Galicia’s Syndic since 1999 until April 2005. Mr. Oddone is also
Chairman of La Cigarra S.A. and Scharstof S.A., Director of Petrolera de Conosur S.A. and Syndic for Santa
Emilia de Martin S.A. and Promotora S.A. He has been a member of Grupo Galicia’s Board of Directors
since April, 2005.
Silvestre Vila Moret: Mr. Vila Moret obtained a Degree in Banking Administration at the Universidad
Católica Argentina. He was associated with the Bank since 1997 until May 2002. Mr. Vila Moret is also Vice
Chairman of El Benteveo S.A. and Santa Ofelia S.A. He is member of Grupo Galicia’s Board of Directors
since June 2002.
5
Eduardo Jesús Zimmermann: Mr. Zimmermann obtained a Degree in Banking Administration at the
Universidad Argentina de la Empresa. He was associated with the Bank between 1958 and 2002, where he
acted as director from 1975 to 2002. Mr. Zimmermann is also Advisor to the Foundation. He is member of
the Board of Directors since April 2000.
María Ofelia Hordeñana de Escasany: Mrs. Hordeñana de Escasany has held several positions in different
subsidiaries of Banco Galicia. She is Alternate Director of Grupo Galicia since April 2000. She is currently
Chairman of the Foundation and Santamera S.A.
Sergio Grinenco: Mr. Grinenco obtained a degree in Economics at the Universidad Católica Argentina and
holds a Master’s Degree in Business Administration from Babson College in Wellesley, Massachusetts. He
has been associated with the Bank since 1977. Mr. Grinenco was elected as Alternate Director of the Bank in
September 2001 and Vice Chairman in April 2003, position he currently holds and also is a member of the
Auditors’ Committee of the Bank since August 31, 2009. He is Alternate Director of Grupo Galicia since
April 2003. He is also Chairman of Galicia Factoring and Leasing S.A., Liquidator of Galicia Capital
Markets S.A. “in liquidation” and Alternate Advisor of the Foundation.
Alejandro María Rojas Lagarde: Mr. Rojas obtained a Degree in Law at the Universidad de Buenos Aires.
He has held a variety of positions at Banco Galicia since 1963. From 1965 to January 2000, he was
responsible for the general counsel office of Banco Galicia. He has been an Alternate Director of Grupo
Galicia since April 2000. He has been a manager of Rojas Lagarde S.R.L., Director of Santiago Salud S.A.
and Lifetime Advisor of the Foundation.
Luis Sila Monsegur: Mr. Monsegur obtained a degree in National Public Accounting at the Universidad de
Buenos Aires. He held a variety of positions at Banco Galicia from 1962 to 1992. He has been an Alternate
Director of Grupo Galicia since April 2000. He is an Alternate Advisor of the Foundation.
Independence Criteria for Directors
In accordance with the CNV Rules, article 4º of Book 6, Section XXI, “Accountability in Public Offering”
and article 11, Section III of Book 1, “Administration and Supervision Bodies. External Audit”, it is required
to be reported that, in accordance with the designation adopted by the CNV Rules, Mr. Eduardo Escasany,
Pablo Gutierrez, Abel Ayerza, Federico Braun, Antonio Roberto Garcés, Silvestre Vila Moret, María Ofelia
Hordeñana de Escasany and Sergio Grinenco are “non-independent” directors; Mr. Enrique Martin, Luis
Omar Oddone, Eduardo Jesús Zimmerman, Alejandro María Rojas Lagarde and Luis Sila Monsegur are
“independent” directors. The Alternate Directors shall replace the Directors as follows: Alejandro
María Rojas Lagarde and Luis Sila Monsegur. The remaining Alternate Directors shall replace the remaining
Directors in the following order: María Ofelia Hordeñana de Escasany y Sergio Grinenco.
Mr. Eduardo Escasany is non-independent as he is a first-degree relative by affinity of an individual who, in
the event of becoming part of the administrative body, would not meet the requirements to be independent
established by the CNV Rules (paragraph f article 11 of Section III).
Mr. Pablo Gutierrez is non-independent as he is a first-degree relative by consanguinity of an individual who,
in case of becoming part of the administrative body, would not meet the requirements to be independent
established by CNV Rules (paragraph f section 11 of Ch. III), for being dependent on a corporation where the
shareholder holds significant indirect interest and for being a director of other corporations where Grupo
Galicia’s shareholders hold significant indirect interests (paragraph a, article 11, Section III of the CNV
Rules).
Mr. Abel Ayerza is non-independent as he is a relative up to the fourth-degree of consanguinity with an
individual who, in the event of becoming part of the administrative body, would not meet the requirements to
be independent established by the CNV Rules (paragraph f article 11 of Section III).
Mr. Federico Braun is non-independent as he is a second-degree relative by affinity of an individual who, in
the event of becoming part of the administrative body, would not meet the requirements to be independent
established by the CNV Rules (paragraph f article 11 of Section III).
6
Mr. Antonio Roberto Garcés is non-independent because he is a member of an administrative body of a
corporation in which Grupo Galicia’s shareholders hold a significant indirect interest in the capital stock
(paragraph a article 11 of Section III of the CNV Rules).
Mr. Silvestre Vila Moret is non-independent as he is a first-degree relative by consanguinity of an individual
who, in the event of becoming part of the administrative body, would not meet the requirements to be
independent established by the CNV Rules and as he is a second-degree relative by consanguinity of an
individual who, in the event of becoming part of the administrative body, would not meet the requirements to
be independent established by the CNV Rules (paragraph f, article 11, Section III).
Mrs. María Ofelia Hordeñana de Escasany is non-independent as she is a first-degree relative by
consanguinity of an individual who, in the event of becoming part of the administrative body, would not meet
the requirements to be independent established by the CNV Rules and as she is a second-degree relative by
consanguinity of an individual who is a director of Grupo Galicia (paragraph f, article 11, Section III).
Mr. Sergio Grinenco is non-independent as he is a director and as he is a dependent on other corporations
where Grupo Galicia’s shareholders hold significant indirect interests (paragraph a, article 11, Section III of
the CNV Rules).
Grupo Galicia’s Main Executives
The organizational structure of Grupo Galicia consists of a Managing Director who reports to the Board of
Directors, and a Financial & Accounting Division which reports directly to the Managing Director.
The Managing Director’s main function consists of the implementation of policies defined by Grupo
Galicia’s Board of Directors as well as proposing to the Board of Directors the application of plans, budgets
and company organization. The Managing Director is also responsible for the supervision of the Financial &
Accounting Division, evaluating achievement of objectives and their development, and participates in the
boards of subsidiary companies.
The Financial & Accounting Division is mainly responsible for the assessment of possible investments; i.e.,
suggesting whether to invest or withdraw the company’s positions in different companies or businesses. It
also plans and coordinates the company’s administrative services and financial resources in order to
guarantee a proper management of said areas. This division also must meet the requirements set forth by
various controlling bodies in terms of compliance with regulations for the presentation of information and
internal control; it is also responsible for compliance with the established budget. Additionally, this division
includes the function of Institutional Investor Relations, which is responsible for planning, developing,
coordinating, controlling and providing financial information to the markets in which the shares of the
company are listed, to regulatory bodies and to the local and international investors and analysts together
with an evaluation of the material published by analysts following their views as well as those of
shareholders and investors in general.
The following are the names of Grupo Galicia’s main executives, their current position and the year of their
appointment to said position, as well as their business experience.
Pedro Alberto Richards: Mr. Richards obtained a degree in economics from the Universidad Católica
Argentina and holds a Masters of Science in Management from the Sloan School of Management at the
Massachusetts Institute of Technology. He was Director of the National Development Bank (BANADE). He
has been associated with the Bank since 1990. He was member of the Board of Directors of Galicia Capital
Markets S.A. between 1992 and 1994 and vice chairman of Net Investment S.A. (“Net Investment”) between
September 2001 and May 2007. Since August 2000, he serves as Grupo Galicia’s Managing Director. Mr.
Richards is also Vice Chairman of Sudamericana Holding S.A. (“Sudamericana”) and Galicia Warrants S.A.
and Director of GV Mandataria of Valores S.A. and Galval Agente de Valores S.A. Mr. Richards was
Alternate Director of Grupo Galicia from April 2003 until April 2005, when he was appointed as Director,
which position he occupied until April 14, 2010.
José Luis Gentile: Mr. Gentile obtained a Degree in National Public Accounting at the Universidad de
Buenos Aires in 1982. Mr. Gentile is Chairman of GV Mandataria de Valores S.A., Vice Chairman of Marín
S.A., Net Investment, Nucleamiento Inversor S.A. and Rivadavia 5306 S.A.; Director of Distrocuyo S.A.,
Electrigal S.A., Galicia Retiro Cía. de Seguros S.A. (“Galicia Retiro”), Galicia Seguros S.A. (“Galicia
7
Seguros”), Galval Agente de Valores S.A. and Sudamericana Asesores de Seguros S.A. and Alternate
Director of Galicia Warrants S.A. and Sudamericana.
Employment Contracts entered into with Grupo Galicia’s Directors and Main Executives
Grupo Galicia’s main executives are employed by the Company. There are no employment contracts between
Grupo Galicia and its Directors.
Supervisory Syndics’ Committee
Grupo Galicia’s corporate bylaws provide for a Supervisory Syndics’ Committee consisting of three regular
members called “syndics” and three alternate members called “alternate syndics”. Pursuant to the
Corporations’ Law Nº 19,550 (Ley de Sociedades Comerciales Nº 19,550) (the “LSC”) and Grupo Galicia’s
bylaws, syndics and alternate syndics are responsible for ensuring that all Corporation’s capital stock abide
by the laws in force in the Argentine Republic. Syndics and alternate syndics are appointed by shareholders
at the General Ordinary Meeting and do not perform managing functions. Syndics are responsible for, among
other functions, preparing a report for shareholders stating the Company’s financial statements for each fiscal
year and recommending its approval or not. Alternate syndics act as syndics in the temporary or permanent
absence of a syndic. Currently, there are three syndics and two alternate syndics. syndics and alternate
syndics are elected for a period of one year.
The following table sets out the members of Grupo Galicia’s Supervisory Syndics’ Committee, pursuant to
the resolutions of Grupo Galicia’s General Ordinary and Special Meeting on April 14, 2010.
Name
Norberto Daniel Corizzo
Luis Alberto Díaz
Enrique M. Garda Olaciregui
Miguel Norberto Armando
Fernando Noetinger
Horacio Tedín
Position
Syndic
Syndic
Syndic
Alternate Syndic
Alternate Syndic
Alternate Syndic
Professional background and positions held in other companies or institutions:
Norberto Daniel Corizzo: Mr. Corizzo obtained a degree in National Public Accounting at the Universidad de
Buenos Aires. He has performed tax-related tasks in firms such as López González Raimondi y Asoc., Noel y
Cía. and Price Waterhouse. He has been a syndic of Grupo Galicia since April 2003. In Banco Galicia, he
worked as Tax Advisor from July 1977 until May 1987, as Internal Audit Manager from May 1987 to June
2002. Additionally, he is a syndic of EBA Holding S.A., Banco Galicia, Tarjetas Regionales S.A., Cobranzas
Regionales S.A., Tarjeta Naranja S.A., Tarjetas Cuyanas S.A., Tarjetas del Mar S.A. and various other
companies associated with Banco Galicia and Grupo Galicia.
Luis Alberto Días: Mr. Días obtained a degree in National Public Accounting at the Universidad de Buenos
Aires. He has provided services in Banco Galicia since 1965. The areas of the Bank in which he has provided
services, among others, include: from February 1983 to April 1984 Accounting Manager, from April 1984 to
May 1987 Planning and Operating Manager, from May 1987 to November 1997 General Manager for the
Planning and Operating Division, from November 1997 to August 1999 member of the Directors
Commission (Comisión de Dirección) from January 1999 to May 2002 General Manager for the Information
and Accounting control Division and from May 2002 to December 31, 2008, Manager of Internal Audit. He
was elected to be a syndic of Grupo Galicia and Banco Galicia, in the respective Shareholders Meeting of
each company, held on April 28, 2009. Additionally, he is a Syndic of Tarjetas Regionales S.A., Tarjetas del
Mar S.A., Galicia Factoring y Leasing S.A., Galicia Valores, S.A. Sociedad de Bolsa and Galicia Warrants
S.A.
Enrique M. Garda Olaciregui: Mr. Garda Olaciregui received a legal degree from the Universidad del
Salvador, has a masters in finance from the Universidad de CEMA and a post-graduate degree in corporate
law from the Universidad Austral. He has provided services to the Bank since 1970. The areas in which he
has provided services to the Bank, among others, include: from May 1974 to November 1975, Department
Manager; from December 1975 to June 1976, Principal Manager; from June 1976 to April 1983, assistant
legal counsel to the Management Department; and, since May 1983 until the date hereof, Legal Counsel to
8
the Bank. Between September of 2001 and April of 2003, he was an Alternate Director. In April of 2003, he
assumed the position of Secretary Director, which he held until April 14, 2010, on which date he was named
a syndic of Banco Galicia and Grupo Galicia, which position he currently occupies.
Miguel Norberto Armando: Mr. Armando obtained a degree in Law at the Universidad de Buenos Aires. He
was Grupo Galicia’s alternate syndic from 1999 until January, 22nd, 2009, when he became a syndic due to
Mr. Estevez’s decease. Currently he serves as alternate syndic, reelected by the Ordinary General Meeting
dated April 28, 2009. He is also Vice Chairman of Amoar S.A. and Director of Santiago de Compostela
Promotora de Seguros S.A., syndic for EBA Holding S.A. and alternate syndic of Banco Galicia, Galicia
Valores S.A. Sociedad de Bolsa, Tarjetas Regionales S.A., Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and
Tarjetas del Mar S.A., among others.
Fernando Noetinger: Mr. Noetinger obtained a degree in Law at the Universidad de Buenos Aires. He was
an alternate syndic between September 1999 and June 2002. Currently, he has been Grupo Galicia’s alternate
syndic since 2006. Mr. Noetinger is also Chairman of Arnoar S.A., Hijos de Ybarra S.A. and Doña Inés S.A.
and alternate syndic for EBA Holding S.A., Electrigal S.A., GV Mandataria de Valores S.A., Tarjetas del
Mar S.A., Tarjetas Regionales S.A., Santiago Salud S.A., Galicia Warrants S.A., Galicia Valores S.A.
Sociedad de Bolsa, Galicia Factoring y Leasing S.A., Banco Galicia, Galicia Capital Markets S.A. “in
Liquidation”, Galicia Retiro Compañía de Seguros S.A., Galicia Seguros S.A., Sudamericana Holding S.A.
and Net Investment, among others.
Horacio Tedín: Mr. Tedín obtained a degree in Law at the Universidad de Buenos Aires. He is Grupo
Galicia’s Alternate Syndic since April 2006. He is also a Syndic for GV Mandataria de Valores S.A. and
Tarjetas Regionales S.A. and Alternate Syndic for EBA Holding S.A. and Galicia Administradora de Fondos
S.A. Sociedad Gerente de Fondos Comunes de Inversión, among others.
Independence Criteria for Syndics
Syndics Norberto Daniel Corizzo and Luis Alberto Diaz, accountants, are “independent” pursuant to the
provisions of the Technical Resolution No. 15 of the Argentine Federation of Professional Councils in
Economic Sciences.
Also and pursuant to Article 4 of Book 5, Section XXI, “Accountability in Public Offering” of the CNV
Rules, it is informed that Alternate Syndic Dr. Fernando Noetinger and Syndic Dr. Miguel Norberto
Armando are part of a law firm with which Grupo Galicia and Banco Galicia maintains professional
relations, thus they are paid a fee for their services.
Advisors
The Issuer’s legal counsel is Dr. Rafael M. Manóvil, domiciled at Suipacha 268, 12th floor, City of Buenos
Aires.
The legal counsel for the issuance of Grupo Galicia is Estudio Beccar Varela, domiciled at Tucumán 1, 4th
floor, City of Buenos Aires.
9
Auditors
Grupo Galicia’s External Auditors for the past three fiscal years were:
- For fiscal year 2007, the Auditor was Santiago José Mignone, accountant, and the Alternate Auditor, Martín
Barbafina, accountant.
- For fiscal year 2008, the Auditor was Santiago José Mignone, accountant, and the Alternate Auditor, Diego
Mario Niehbur, accountant;
- For fiscal year 2009, the Auditor is Javier Casas Rúa, accountant, and the Alternate Auditor, Gabriel
Martini, accountant.
The accountants appointed for fiscal year 2009 are still empowered to audit the financial statements of the
Issuer as of December 31, 2010 and belong to the firm Price Waterhouse & Co., domiciled at Bouchard 557,
7th floor, Autonomous City of Buenos Aires.
The aforementioned independent accountants are registered with the Professional Council of Economic
Sciences of the Autonomous City of Buenos Aires. The following are the Book and Page numbers of the
registered licenses for the aforementioned professionals:
- Accountant Santiago José Mignone: Book 233 Page 237.
- Accountant Carlos Martín Barbafina: Book 175 Page 65.
- Accountant Diego Mario Niebuh: Book 95 Page 42.
- Accountant Javier Casas Rúa: Book 121 Page 94.
- Accountant Gabriel Martini: Book 201 Page 24.
10
CHAPTER II. SUMMARY OF THE TERMS AND CONDITIONS OF THE PROGRAM
The following is a summary of some of the terms and conditions of the Notes. Reference is made to, and
this summary must be complemented by, the information included in Chapter IX “The Offer and
Listing”. For the full details of the terms and conditions of the Notes, see Chapter IX “The Offer and
Listing” in this Offering Memorandum. In addition, for a deeper analysis of the risks inherent to the
Notes, see Chapter III “Key Information on Grupo Galicia – Risk Factors” in this Offering
Memorandum.
Issuer
Grupo Financiero Galicia S.A.
Description
The Notes shall be simple notes (“obligaciones negociables”), not convertible
into shares, issued pursuant to the Negotiable Obligations Law, and other
applicable regulations, and shall entitle their holders to the benefits established
in said law. As specified in “Ranking” below, the Notes may be subordinated or
not, may be issued with an ordinary, special or floating security interest, or else
may be guaranteed by a surety, bond, or by any other means.
Arranger
The Arranger will be Banco Galicia and/or those arrangers appointed from time
to time in the corresponding Pricing Supplement.
Dealer
The Issuer shall place the Notes directly, through Banco Galicia or through a
Dealer appointed with respect to a Class and/or Series of Notes. If applicable, the
names of the Dealers and/or Arrangers shall be indicated in the corresponding
Pricing Supplement.
Amount of the Program
The maximum aggregate principal amount of outstanding Notes at any time may
not exceed US$60,000,000 or the equivalent thereof in other currencies.
Offer
Notes may be offered in Argentina or in any other jurisdiction in accordance
with the provisions hereof, as determined in the corresponding Pricing
Supplement.
Form of the Notes
To the extent laws and regulations in force so allow, Notes may be book-entry,
in the form of definitive book-entry or registered certificates (and with respect to
the later, endorsable or non-endorsable), in the form of global certificates or
securities (to be deposited with a depositary authorized by the rules in force in
the corresponding jurisdiction), pursuant to what is provided for in the applicable
Pricing Supplement. Pursuant to Law No. 24,587, corporate securities issued in
Argentina must be registered and non-endorsable.
Ranking
The Notes may be subordinated or not, may be issued with an ordinary, special
or floating lien, or else may be guaranteed by a surety, bond, or by any other
means (including, without limitation, bonds, assignment of receivables as
collateral security, pledge and guaranty trusts, granted in compliance with the
applicable regulations). The Notes will be direct, unconditional obligations, with
an ordinary lien from the Issuer and, except for subordinated Notes and/or
secured Notes, shall at all times rank pari passu among themselves and with all
the other ordinary present and future obligations of the Issuer, which are not
unsecured or subordinated, nor which have privileges and/or priorities set forth
by legal provisions. If subordinated Notes are issued, the Pricing Supplement
applicable to them shall specify whether they will be subordinated to all the
other liabilities of the Issuer or to only certain specially determined liabilities.
Currency
Notes may be peso-denominated, dollar-denominated, or denominated in any
other currency or currency unit specified in the applicable Pricing Supplement,
subject to compliance with all the legal or regulatory requirements applicable to
the issuance in such currency or currency unit, including, without limitation,
Notes issued with a nominal value in certain currency that can later be converted
into another currency during the period such Notes are outstanding, at an
exchange rate applicable as provided for in the Pricing Supplement, and then the
principal and/or interests and/or Additional Amounts and/or any other amounts
payable under such Notes may be paid to holders in any of such currencies or in
any other currency or currency unit, as specified in the applicable Pricing
11
Supplement. Furthermore, such Notes may be in more than one currency as
specified in the applicable Pricing Supplement. As long as applicable regulations
allow, Notes may be issued with principal adjusted by the indices and/or
processes as specified in the corresponding Pricing Supplements. Notes may, as
well, be issued with principal and/or interests payable in one or more currencies
different from the currency in which they are denominated, if laws in Argentina
allow, and may be linked to an index and/or formula. Monetary adjustments,
price indexations, cost variations or debt increases shall not be admitted in any
case, whatever their cause and whether the Issuer is in default or not, with the
exceptions provided in Law No. 23,928.
Classes and/or Series
Notes may be issued in different Classes. Notes issued in different Classes may
grant different rights, as specified in the applicable Pricing Supplement.
Likewise, Notes of the same Class may be issued in different Series.
Issuance Price
Notes may be issued at par or at a discount or premium with respect to par value,
as specified in the applicable Pricing Supplement.
Maturity and Amortization
Notes shall mature and have the amortization terms and forms as set forth in the
corresponding Pricing Supplement, observing the minimum and maximum terms
applicable in accordance with the rules in force, being able to issue Notes for
short-, medium- and/or long term.
Term of the Program
The term of the Notes Program shall be five years, or any longer term authorized
in accordance with applicable rules, as from the date of authorization by the
CNV of this Program and of the public offering or, in case such authorization is
subject to certain conditions, as from the date such conditions have been lifted.
Amortized Classes and/or Series may be re-issued, provided the outstanding
principal amount of the Notes does not exceed the Program’s total amount, and
the maturity dates of the different Classes and/or Series occur after the
Program’s expiration date.
Interest Rates
Notes may accrue interest at a fixed rate (a “Fixed Rate Note”) or at a variable
rate (“Floating Rate Note”), may not accrue interest and be issued with an
original issue discount, and/or may accrue interest based on any other method set
forth in the applicable Pricing Supplement.
Use of Proceeds
Net proceeds from the placement of Notes may be used by the Issuer, as
determined in the corresponding Pricing Supplement upon issuance of each
Class and/or Series, for one or more of the following intended purposes: (i)
investments in physical assets located in Argentina; (ii) investments in working
capital in Argentina; (iii) refinancing of liabilities; and (iv) payment of capital
contributions in controlled or affiliated companies, so long as such companies
use the funds from such contributions as provided for in sections (i), (ii) and/or
(iii) above.
Listing and Trading
Grupo Galicia may request authorization to list and/or trade one or more Class
and/or Series of Notes on one or more stock exchanges and/or self-regulated
markets in the country or abroad, as specified in each Pricing Supplement.
Minimum Trading Unit
Minimum trading units of the Notes shall be determined from time to time in
each Pricing Supplement pursuant to the applicable rules in force.
Minimum Denomination
Minimum denominations of the Notes and their corresponding multiples shall be
determined from time to time in each Pricing Supplement pursuant to the
applicable rules in force.
Additional Amounts
Payments related to the Notes shall be without withholdings or deductions of any
present or future taxes, rights, liens, or government charges. If said taxes or
charges must be withheld or deducted, the Issuer shall have to pay such amounts
as may be necessary so that holders of the Notes receive the amount they would
have received if such withholding or deduction had not been required, as
specified in Chapter IX “The Offer and Listing – Additional Amounts”, or as
specified in the applicable Pricing Supplement.
12
Early Redemption
Early redemption shall be allowed for tax reasons as mentioned in Chapter IX
“The Offer and Listing – Optional Redemption for Tax Reasons”, however, other
forms of redemption shall be allowed to the extent specified in the applicable
Pricing Supplement.
Ratings
The decision to rate one or more Classes and/or Series of Notes with two, one or
none ratings, shall be indicated in each Pricing Supplement applicable to the
Notes to be issued under the Program, in accordance with the option granted by
Decree 749, and when allowed by the regulations applicable to the Issuer.
Execution Proceedings
Pursuant to article 29 of the Negotiable Obligations Law, debt securities
representing the Notes entitle their holders to claim principal, adjustments and
interests and to foreclose on collateral through expedited proceedings (acción
ejecutiva).
Governing Law
Matters concerning requirements inherent to the Notes shall be governed by the
Negotiable Obligations Law and Argentine laws and regulations, as well as by
the Issuer’s corporate capacity and authority to create this Program and issue,
offer and deliver the Notes in Argentina. All other matters regarding the Notes
shall be governed and construed according to Argentine laws or according to the
laws in the jurisdiction indicated in the applicable Pricing Supplement.
Jurisdiction
Any action against the Issuer in connection with the Notes may be initiated
before the competent courts located in the City of Buenos Aires, and/or the
permanent arbitration court of the competent self-regulated entity pursuant to
section 38 of Decree 677, as the case may be, and/or any other court to which the
Issuer decides to become subject as set forth in the applicable Pricing
Supplement. Where the Pricing Supplement indicates, any action against the
Issuer and/or the documents in connection with the Notes thereof may be
initiated before any state or federal court in Manhattan, city and state of New
York and/or before the court specified in the applicable Pricing Supplement.
Registration and Collective
Deposit
In the case of book entry or registered Notes, the registrar may be the Issuer, or
on its behalf, Caja de Valores, or whoever may be appointed in the
corresponding Pricing Supplement, in accordance with the applicable
regulations. Notes in the form of definitive book-entry certificates or global
certificates or securities may be jointly deposited with Caja de Valores or any
other depositary authorized by the rules in force in the corresponding
jurisdiction, pursuant to what is provided for in the applicable Pricing
Supplement.
Paying Agent
The paying agent of the Notes shall be the one appointed in the Pricing
Supplement applicable to each Class and/or Series of Notes. Unless otherwise
appointed, the Paying Agent shall be the Issuer, or on its behalf, Caja de Valores.
13
CHAPTER III. KEY INFORMATION ON GRUPO GALICIA
Introduction
The following is a summary of certain accounting and financial information of Grupo Galicia, on a
consolidated basis for the fiscal year ended December 31, 2009, together with the financial and economic
information presented in comparative format for the audited fiscal years ended on December 31, 2008 and
2007 and approved by Grupo Galicia’s Shareholders’ Meeting.
The consolidated financial statements are presented in line with the provisions of Argentine Central Bank’s
(the “Central Bank”) Communiqué “A” 3147 and supplementary regulations regarding financial reporting
requirements for the publication of quarterly and annual financial statements, with the guidelines of
Technical Pronouncement Nos. 8 and 19 of the Argentine Federation of Professional Councils in Economic
Sciences (the “FACPCE”) and the guidelines of the General Resolution No. 434/03 of the CNV. These
financial statements include the balances corresponding to the operations carried out by Grupo Galicia .and
its subsidiaries located in Argentina and abroad and form part of said Company’s annual financial statements
as supplementary information, for which reason they should be read in conjunction with them.
The CNV through its General Resolution No. 562/09 has established that Technical Resolution No. 26 issued
by the FACPCE (“Technical Resolution N° 26”) must be applied whereby the organizations that publicly
offer equity or debt securities, or those that have requested a permit to do that, pursuant to Act No. 17811,
must prepare their financial statements using the International Financial Reporting Standards (“IFRS”),
issued by the International Accounting Standards Board (“IASB”). The application of these rules will be
mandatory for the Company as from the fiscal period started on January 1, 2012. The Board of Directors is
analyzing the specific implementation plan.
It should be pointed out that Technical Resolution Nº 26 exempts from the mandatory application of the IFRS
entities that, while publicly offering equity or debt securities, prepare their financial statements in accordance
with the accounting criteria of regulatory or control bodies, such as the companies included in the Financial
Institutions Act (Ley de Entidades Financieras) and insurance companies.
Grupo Galicia’s financial statements have been consolidated on a line-by-line basis with those of Banco
Galicia, Net Investment, Galicia Warrants., Sudamericana Holding S.A., Galval Agente de Valores S.A. and
GV Mandataria de Valores S. A.
Banco Galicia is the Company’s main equity investment, a financial institution subject to the regulations of
the Central Bank. For this reason, the Company has adopted the valuation and disclosure criteria applied by
Banco Galicia.
Banco Galicia’s consolidated financial statements include the balances of its subsidiaries abroad: Banco
Galicia Uruguay S.A. (“Galicia Uruguay”) and Galicia (Cayman) Limited (“Galicia Cayman”).
These financial statements reflect the effects of the changes in the purchasing power of the currency up to
February 28, 2003, by following the restatement method established by Technical Resolution No. 6 of the
FACPCE. Pursuant to the provisions of Communiqué “A” 3921 of the Argentine Central Bank, Decree No.
664/2003 of the National Executive Power, and General Resolution No. 441/03 of the CNV, the Company
ceased to apply such method, and, therefore, did not record the changes in the currency purchasing power
originated as of March 1, 2003 in the financial statements.
Resolution M.D. No. 41/03 of the Professional Council in Economic Sciences of the Autonomous City of
Buenos Aires established the discontinuation of the recognition of the changes in the purchasing power of the
currency, effective as of October 1, 2003.
The following data should be read in conjunction with Chapter V “Operating and Financial Review and
Prospects” and the financial statements that form part of this Offering Memorandum and are conditioned by
way of reference thereto.
14
Accounting and Financial Information
As of December 31,
2009
2008
2007
In millions of Pesos
(Except as noted)
In accordance with Argentine Banking GAAP
Consolidated Income Statement
Financial Income
Financial Expenses
Net Financial Income
Provision for Losses on Loans and Other Receivables
Net Income from Services
Administrative Expenses
Minority Interest
Income (Loss) from Equity Investments
Miscellaneous Income, Net
Income Before Taxes
Income Tax
Net Income (Loss)
Book Value per Share
Earnings per share
3,005.6
1,460.5
1,545.1
639.5
1,310.9
2,029.1
(46.5)
11.3
233.1
385.3
(156.0)
229.3
1,653
0.185
2,559.3
1,421.0
1,138.3
395.4
1,187.9
1,781.1
(35.8)
56.8
80.1
250.8
(74.0)
176.8
1.487
0.142
1,997.9
1,246.7
751.2
255.5
913.1
1,286.3
(32.1)
2.0
25.1
117.5
(71.5)
46.0
1,333
0.037
3,696.3
3,907.2
13,477.9
6,521.0
27,602.4
17,039.4
8,510.5
25,549.9
3,405.1
1,531.8
11,774.6
8,024.3
24,735.8
14,056.1
8,834.0
22,890.1
2,960.0
1,693.0
11,601.0
6,574.7
22,828.7
13,165.6
8,008.6
21,174.2
1,241.4
Additional Paid-In Capital
0.6
278.1
Adjustments to Shareholders’ Equity
303.1
Profits Reserves
229.3
Retained Earnings
2,052.5
Shareholders’ Equity
Shares Outstanding (in millions)
1,241.4
24,685.3
Average Assets
Balance Sheet sections denominated in foreign currency (%)
1,241.4
0.6
278.1
1,241.4
0.6
278.1
148,8
176,8
1.845,7
88.4
46.0
1,654.5
Consolidated Balance Sheet
Cash and Due from Banks
Government Securities
Loans, Net
Other assets
Total Assets
Deposits
Other Liabilities (1)
Total Liabilities
Outstanding Capital
24.95
27.73
Assets
Liabilities
1,241.4
1,241.4
23,412.5
21,332.4
28.85
32.47
27.60
32.84
Ratios
As of December 31,
In accordance with Argentine Banking GAAP (%)
Profitability and Efficiency
Average Net Yield on Interest-Earning Assets (2)
Financial Margin
(3)
Interest Spread, Nominal Basis (4)
Return on Average Assets (ROA)
(5)
Return on Average Shareholders’ Equity (ROE) (6)
15
2009
2008
2007
9.10 %
8.41
5.72 %
5.72
4.13 %
4.12
8.08
4.00
2.79
1.12
0.91
0.37
11.69
10.13
2.86
Net Income from Services as a Percentage of Operating
Income
Net Income from Services as a Percentage of
45.90
51.07
54.86
64.60
66.69
70.99
Efficiency Ratio (7)
71.05
76.57
77.29
Capital
Shareholders’ Equity as a Percentage of Total Assets
Total Liabilities as a Multiple of Shareholders’ Equity
Shareholders’ Equity as a Percentage of Liabilities
Fixed Assets (8)
7.44 %
12.45 x
8.03
5.56
7.46 %
12.40 x
8.06
6.13
7.25 %
12.80 x
7.81
5.71
Liquidity
Cash and Due from Banks as a Percentage of Total
Deposits
21.69 %
24.23 %
22.48 %
48.83
47.60
50.82
Loans, net as a Percentage of Total Assets
Portfolio Quality
Past-due Loan Portfolio(9) as a Percentage of Total
Loans
Non-accrual Portfolio(10) as a Percentage of Total Loans
Non-accrual Portfolio(10) as a Percentage of Loans to the
Private Sector
3.95 %
2.87 %
2.77 %
4.77
4.77
3.49
3.14
3.95
3.53
Allowance for Loan Losses as a Percentage of Loans
(Except Interbank Loans)
5.84
4.44
3.63
Non Accrual Loans (10) as a Percentage of Loans
(Except for Interbank Loans)
4.93
3.60
3.18
118.64
123.11
114.05
Allowance for Loan Losses as a Percentage of NonAccrual Loans/Non-Accrual Portfolio (10)
(1)
Includes mainly liabilities with the Argentine Central Bank, other banks and international entities and debt securities.
(2)
Net interest earned divided by average interest-earning asset (average interest-bearing assets). See table “Interest-Earning Assets -Net Yield and
Spread”, in Chapter V “Income from Operations – Fiscal year 2009 compared with Fiscal Year 2008”.
(3)
Financial Income less Financial Expenses divided by average interest-earning assets.
(4)
(5)
Represents the difference between the average nominal interest rates earned on interest-earning assets and the average nominal interest rates earned on
interest-bearing liabilities.
Net Income plus Minority Interest divided by average assets.
(6)
Net Income divided by average shareholders’ equity.
(7)
Administrative expenses as a percentage of net operating income (Financial Income less Financial Expenses plus Net Income from Services).
(8)
Bank Premises and Equipment, Miscellaneous Assets and Intangible Assets / Total Assets
(9)
Past-due loans consist of principal or interest amounts which have been 91 days or more past due.
(10)
For a description of the non-accrual portfolio, see “Risk Management – Credit Risk – Bank’s Loan Portfolio Quality”.
Capitalization and Indebtedness
The following table establishes the Issuer’s capitalization as of December 31, 2009. Totals and subtotals may
differ due to rounding and are expressed in pesos and dollars.
Pesos
Deposits and Short-term Debt (1)
Deposits
Credit Lines
- Local Banks
-Argentine Central Bank
- Banks and International Entities
Debt Securities
13,344,043
89,985
86,770(2)
3,215
2,484
16
As of December 31, 2009 (*)
US Dollars
Total
(in thousands of Pesos)
3,072,578
183,004
183,004(3)
222,212
16,416,621
272,989
6,770
3,215
183,004
224,696
- Unsubordinated Notes
2,484
- Subordinated Notes
Other Liabilities
278,331
13,714,843
Total Deposits and Short-term Debt
Deposits and Long-term Debt (5)
Deposits
600,881
164,711
Credit Lines
- Local Banks
164,711(5)
- Banks and International Entities
Debt Securities
235,411
- Unsubordinated Notes
235,411
- Subordinated Notes
Other Liabilities
132,653
1,133,656
Total Deposits and Long-term Debt
Total Deposits and Debt
14,848,499
Capital Stock
1,241,407
Non-capitalized Contributions
606
606
- Share Issuance Premiums
278,131
Adjustments to Shareholders’ Equity
303,120
Profits Reserves
45,998
- Legal Reserve
257,122
- Other
229,275
Retained Earnings
Total Shareholders’ Equity
2,052,539
Total Capitalization, including Deposits and Short- and
Long-Term Debt
16,901,038
162,659
59,553
3,477,794
165,143
59,553
278,331
17,192,637
21,864
365,060
365,060(6)
2,256,444
1,178,550
1,077,894
331,357
2,974,725
6,452,519
622,745
529,771
164,711
365,060
2,491,855
1,413,961
1,077,894
464,010
4,108,381
21,301,018
-
1,241,407
606
606
278,131
303,120
45,998
257,122
229,275
2,052,539
6,452,519
3,353,557
(*) Capital, CER adjustment and interests.
(1) Short term: it includes assets and liabilities with an original arrangement term of up to one year, inclusive. It
includes interests from long-term liabilities or assets.
(2) includes, mainly call taken for Ps70.0 million, and principal and interest on loans granted by certain Banks to the
regional credit card companies for Ps.16.7 million..
(3) includes export refinancing lines of Ps.180.0 million, and interest.
(4) Long term: it includes assets and liabilities with an original arrangement term of over one year.
(5) Loans granted by different banks to the regional credit-card companies.
(6) IFC Lines, of Ps.260.8 million, loans from other bodies of Ps.93.0 million and banks of Ps.11.2 million.
The consolidated Group’s deposits and debt totaled Ps.21,301.0 million, 80.7% in short term debts and 19.3%
for long term debts. In aggregate, deposits represented 80.0%, while debt securities and credit lines’ share
was 12.7% and 3.8%, respectively.
Deposits amounted to Ps.17,039.4 million, 81.8% in pesos and the remaining 18.2% in dollars. Short term
deposits accounted for 96.3% of total deposits.
During 2008 and 2009, the Bank decided to make repayments in advance of its notes due in 2014 (the “Notes
Due 2014”) for a nominal value of US$32.3 million, and US$82.4 million, respectively. After such
repayments, the outstanding nominal value of these notes at December 31, 2009, rose to US$207 million.
As of December 31, 2009, the remaining balance of the loans and Notes Due 2014 decreased to US$219.8
million, while the balance of debt securities maturing in 2010 and 2019 was US$34.7 million and US$301.8
million, respectively.
After the closing of the fiscal period 2009, the Bank paid the last installment of amortization of its notes due
in 2010 (the “Notes Due 2010”) and the first installment of amortization of the Notes Due 2014, for a total
amount of US$60.8 million, and repaid in advance the Notes Due 2014 in a nominal amount of US$45.8
million. After such repayment, the remaining principal of the applicable outstanding loans and notes (with
17
maturity in 2014 and 2019) of the Bank amounted to US$465.2 million, decreasing in US$223.2 million
since December 31, 2008.
For further information, see Chapter IV “Information on the Issuer – Regulatory Aspects - Compensation to
Financial Institutions – For the “Asymmetric Pesification” and its Consequences” and Chapter V “Operating
and Financial Review and Prospects – Liquidity”.
Reasons for the Offer and Use of Proceeds
In compliance with the Negotiable Obligations Law, net proceeds from the placement of Notes to be issued
under the Program may be used by the Issuer, as determined in the relevant Pricing Supplement upon
issuance of each Class and/or Series, for one or more of the following intended purposes: (i) investments in
physical assets located in Argentina; (ii) investment in working capital in Argentina; (iii) refinancing of
liabilities; or (iv) payment of capital contributions in Grupo Galicia’s controlled or affiliated companies, as
long as such companies use the funds from such contributions as provided for in sections (i), (ii) and/or (iii)
above.
Risk Factors
The investor should carefully consider the risk factors described below, in addition to the information contained
in this Offering Memorandum and the relevant Pricing Supplement. It should be taken into account that most of
the risk factors described herein must be evaluated considering that the Company’s most important asset is its
equity interest in Banco Galicia, thus, a material change in Banco Galicia’s shareholders’ equity or in income
statement would adversely affect Grupo Galicia’s businesses.
Any investor considering the possibility of purchasing Notes should make its own independent risk assessment
associated with the purchase of the Notes. Please note that Grupo Galicia could face, in addition to those
mentioned herein, other risks and uncertainties that are not presently known or that are currently deemed
immaterial, which could affect its businesses or future operations.
All of the operations, property and customers of Grupo Galicia and its most important asset, Banco Galicia,
are located mainly in Argentina. Accordingly, financial condition and results of operations of Grupo Galicia
and its subsidiaries depend, to a significant extent, on the macroeconomic and political conditions prevailing
in Argentina. In general, the risk when investing in securities of issuers from emerging countries, such as
Argentina, is higher than when investing in securities of issuers from developed countries.
Risk Factors Relating to Argentina
Economic and Governmental Factors Relating to Argentina
Political and economic instability in Argentina and Government intervention in the economy as well as
market conditions may adversely affect Grupo Galicia’s ability to honor payments related to the Notes.
Grupo Galicia’s results of operations and the collection expectations of holders of the Notes and the value
thereof may be affected by inflation, fluctuations in the exchange rate, modifications in interest rates, changes
in the Government’s policies (among other, foreign investments or tax policies), social instability and other
political, economic or international developments in Argentina or somehow affecting the country. It should
be taken into account that in recent years the Government has exercised and currently exercises a marked
influence on the Argentine economy.
In turn, Argentina’s economy has been characterized in recent decades by a high level of instability and
volatility, periods of low or negative growth and high and variable inflation and devaluation levels. During
2001 and 2002, Argentina went through a period of serious political, economic and social instability, leading
to the default on Argentina's sovereign debt payments and the devaluation of the Argentine peso, after more
than 10 years of fixed Exchange rate parity with the dollar.
Therefore, the Government has enacted various broad scope laws and regulations which affect the economy
in general and it cannot be assured that any change in the future, including the enacting of regulations by the
Government or Argentine authorities, will not substantially and adversely affect the financial condition or the
18
results of operations of private sector companies, including Grupo Galicia and its subsidiaries, or the rights of
the holders of securities issued by such institutions or their value, including but not limiting the Notes.
Despite the economic growth achieved during the last years, Argentina may, in the future, experience another
economic recession with high inflation and unemployment rates. Consequently, a substantial adverse effect
on the results of operations of Grupo Galicia and its subsidiaries, including Banco Galicia, could take place,
possibly affecting the repayment of the Notes by Grupo Galicia.
Inflation could increase and affect the economy and Grupo Galicia’s financial condition.
Following the decision in January 2002 to abandon the fixed exchange rate regime set forth in the
Convertibility Law, the devaluation of the peso had an effect on the domestic price system and generated
inflation in 2002 after several years of price stability.
In recent months, some private analysts have warned of a rise in inflation, which, according to them, will not
be demonstrated by the official information. Inflation during 2009 was 7.7%, according to the Consumer
Price Index provided by the National Institute for Statistic and Census (“INDEC”), in comparison with 7.2%
for the previous year, and according to the Internal Wholesale Price Index (“IWPI”) there was an increase of
10.0%, while according to private estimates, consumer prices registered a 16.3% growth in 2009.
General increases in salaries, public expenditure and the tariff settlement for public services may have a
direct impact on inflation. Given the current uncertainties, it is not possible to assure that inflation will not
increase or that the value of the peso will remain stable. In the past, inflation significantly undermined the
Argentine economy and the Government’s ability to create conditions that would permit growth. In addition,
high inflation or high volatility in inflation rates would negatively and materially affect the financial system’s
volume of operations, making it difficult for Banco Galicia to continue with the development of its financial
intermediation activities. This could affect negatively the level of economic activity and employment.
High inflation would also undermine Argentina’s foreign competitiveness, with the same negative effect on
the level of economic activity, employment, real salaries, consumption and interest rates. High volatility of
economic variables and uncertainty would shorten contractual terms and would erode economic agents’
planning and decision making capacity, affecting economic activity, especially financial system activity. An
increase in inflation could affect the operations of Grupo Galicia’s subsidiaries and, especially the
intermediation activities of Banco Galicia, which could possibly hinder Grupo Galicia’s ability to repay the
Notes.
Argentina’s ability to obtain financing and attract direct foreign investment is limited, which could adversely
affect the economy.
In the first half of 2005, Argentina restructured part of its sovereign foreign debt, which had been in default
since late 2001. According to the Government, the exchange for the restructuring of said debt was accepted
by 76% of creditors. However, holders of approximately US$20.000 million of the sovereign debt subject to
the restructuring offer, mainly from the United States of America, Italy and Germany did not accept the
exchange and initiated litigation against Argentina (“holdouts”) and have requested the attachment of
accounts of the Government abroad with different results. In November 2009, the Argentine National
Congress (Congreso de la Nación Argentina) approved a suspension until December 31, 2010 of the “lock
law” (which ended the Argentina external debt exchange), which will allow the debt exchange with holdouts,
thus those holders of securities that were not included in the exchange carried out in 2005 are now entitled to
exchange their securities for new debt securities. The exchange is open for a period of 30 days, starting as of
May 3, 2010, in accordance with the official notices, and thus the result of such exchange is uncertain, nor
can it be assured that such exchange will have the result hoped for by the Government. Additionally, the
Government has issued a necessary and urgent decree ordering the transfer of a percentage of freely available
reserves for the payment of sovereign debt. As a result, certain judges of the City and State of New York
have issued certain preliminary injunctions over the funds of the Central Bank deposited in financial
institutions of the United States, impeding the transfer thereof. Notwithstanding the foregoing, new legal
proceedings and new precautionary measures against Argentina could be brought in the future with respect to
the holdouts, which could have a significant adverse effect on the Argentine economy.
On September 2, 2008, Argentina announced its intention to cancel its sovereign debt with the creditor nations of
the Paris Club. The Paris Club announced its acceptance of such decision. As of the date of this Offering
19
Memorandum, the amount of the debt to be cancelled, terms, and extent of the representations of the parties are
still unknown. Almost 70% of Argentina’s debt with such forum is with Germany, Japan and Spain, but the Paris
Club includes creditors such as the United States of America and other members of the Group of Eight, which are
industrially developed countries. Failure to agree with the Paris Club could curb financing from multilateral
financial institutions, which could adversely affect Argentina’s economic growth and public finances, and,
consequently, adversely affect Grupo Galicia’s business, financial condition and results of operations.
In addition, foreign investors in various Argentine companies, including public utilities companies and a
group of holders which did not participate in the debt restructuring, filed claims that amount up to over
US$20,000 million with the International Center for Settlement of Investment Disputes (“ICSID”), alleging
that the emergency measures adopted by the Government are inconsistent with the rules of fair and equal
treatment set forth in the different bilateral investment treaties signed by Argentina. As of the date hereof, the
ICSID has ordered the Government to pay an amount of US$1,000 million, plus interest and costs, on these
claims. Also, regarding the same issue, and as of the date hereof, the United Nations Commission on International
Trade Law (“UNCITRAL”) issued two awards against the Government to pay US$240 million plus interest and
costs. Recently, a group of bondholders who did not participate in the external public debt restructuring,
submitted before the ICSID an arbitration request for the amount of US$4,400 million.
Argentina’s default on payments, the delay in completing the debt restructuring with holdout creditors, on the
one hand, and the above-mentioned claims brought against the country, on the other hand, could hinder the
fluid access to capital markets and flows of direct foreign investment by the Government and the country’s
private sector. Consequently, the Government could lack sufficient financial resources to foster growth.
Additionally, private sector investment, which is necessary for the same purposes, may not materialize due to
the lack of financing.
If Argentina’s ability to access financing from international capital markets and attract direct foreign
investment is restricted, there is a risk that it may lack sufficient funds in order to restart the investment cycle
and sustain an elevated level of economic growth. As a consequence, the country’s fiscal condition could be
affected, which could lead to higher inflation and could negatively affect the Government’s ability to
implement economic policies that would foster economic growth. Therefore, if a sustained growth cycle is
not achieved, political, social and economic instability could resume. All of these events would have an
adverse effect on the Argentine economic outlook, and, consequently, an adverse impact on Grupo Galicia’s
ability to repay the Notes.
An excessive real appreciation of the peso could create a bigger recession and renewed pressures on the
foreign exchange market.
Currently, the Argentine Central Bank maintains a policy of intervention in the foreign exchange market,
aiming at preventing sudden fluctuations in the national currency.
Nevertheless, a real significant increase of the peso would affect Argentina’s competitiveness, substantially
affecting exports, and this, in turn could prompt new recessionary pressures on the country’s economy and a
new imbalance in the foreign exchange market, which could prompt great volatility in the exchange rate.
Most importantly, in the short term, a significant appreciation of the real exchange rate could substantially
reduce Argentine public sector’s tax income in real terms, given the strong reliance on taxes on exports
(withholdings). This could worsen the public sector’s financial condition, likely prompting an increase in
taxes or the printing of money to solve the issue. The latter would likely lead to higher inflation (see
“Inflation may increase and affect the economy and the financial condition of Grupo Galicia”), and both
measures would prompt recessionary effects on the economy, and therefore in the results and in Grupo
Galicia’s ability to honor its obligations, including the Notes.
An eventual future devaluation of the peso could hinder or eventually prevent Grupo Galicia from honoring
its obligations in foreign currency.
Following the significant devaluation in the first half of 2002, the peso has remained stable at approximately
3 pesos per dollar since early 2003, and as a consequence of the world financial and economic crisis and
other aspects of the local political and economic context, as of mid-February 2010, the peso was valued at
around 3.85 per dollar. It cannot be assured that in the future, and due to the different local and international
circumstances, there will not be abrupt movements in the value of the peso.
20
Despite the positive effects of the real devaluation of the peso in 2002 on the competitiveness of certain
sectors of the Argentine economy, the depreciation has had a far-reaching negative impact on the Argentine
economy in general, as well as on businesses’ and individuals’ financial condition. The devaluation of the
peso had a negative impact on the ability of Argentine businesses to honor their debt denominated in foreign
currency, led to high inflation, strongly reduced real wages, had a negative impact on businesses whose
activity was dependent on domestic market demand, such as public utilities and the financial industry. The
government’s ability to honor its foreign debt obligations was also negatively affected.
If the peso were to devalue significantly, the related negative effects on the Argentine economy could repeat,
with adverse consequences on Banco Galicia and Grupo Galicia’s businesses, which could impair Grupo
Galicia’s ability to honor future obligations in foreign currency, including the Notes.
Argentina’s economy and its goods and financial services markets and securities markets remain vulnerable
to external shocks which could have an adverse effect on the country’s economic growth and Grupo
Galicia’s prospects.
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market
conditions in other countries. Although said conditions vary from country to country, investor reactions to events
occurring in one country may substantially affect capital flows to issuers and securities of markets in other
countries, with similar characteristics, including Argentina. Lower capital inflows and declining prices in stock
markets negatively affect the real economy of a country through higher interest rates or exchange rate volatility.
In the past, Argentina’s economy was adversely affected by developments in other markets, such as, among
others, the events that occurred in Mexico at the end of 1994 and the collapse of various Asian economies
between 1997 and 1998. There is a risk that similar events may affect the Argentine economy in the future.
In addition, at the end of 2007 and in early 2008, the Unites States of America’s economy started to show
signs of weakness, stemming from the uncertainty provoked by the course of the world economy. The crisis
in the subprime mortgage market in the United States of America spread quickly into other geographical
regions, such as Europe, Asia, and even Latin America.
The volume of default on payments of mortgage loans in the subprime mortgage market in the United States
increased dramatically due to the decrease in real property prices and higher interest rates. The considerable
decrease in the value of financial products related to these subprime mortgage market loans initially led to the
closing and bankruptcy of certain banks, which later turned into a general confidence and liquidity crisis in
the international financial sector.
Given these events, long-term interest rates started to decrease from the second half of 2008. With the
outbreak of the crisis in the international financial markets, central banks mainly focused on the potential
negative effects on their economies. However, the dollar started to weaken reaching historically low values
during 2007, when compared especially to a strengthened euro, which reached levels of around US$1.60 per
euro, which situation is currently reversed as a result of the dissemination to European markets of the lack of
confidence in the system that began in the United States of America. During the crisis, the principal financial
institutions in the world have suffered substantial losses, further increasing the lack of confidence in the
international financial system. At the same time, various financial institutions have become insolvent,
bankrupt or had to be rescued by their country’s regulators or have merged with other institutions. Apart from
the huge decreases in the world’s principal stock exchanges to historic levels during 2008 and 2009, there
have been, in the context of a decelerating world economy, strong fluctuations in the price of oil, an abrupt
fall in the price of other commodities.
The final impact of the crisis in the United States of America on the liquidity and interest rates of
international markets, the growth of the world’s economy and world trade, the international commodity
prices, and capital flows into emerging markets, among others, is difficult to predict. It is also difficult to
predict how and to what extent such events will impact Argentina.
As a consequence of the financial and economic crisis, during 2008 and 2009 the world’s major economies
have entered into recessions or have shown a marked fall in their economic activities, which could trigger a
less favorable or unfavorable international environment for Argentina, forcing domestic economic policy
adjustments by the Argentine Government, which adjustments could trigger a lower growth in the economy.
21
Certain market segments in which Grupo Galicia’s subsidiaries participate are vulnerable to economic
recessions like the one described in this section. This and other new recessions have slowed and may in the
future slow the growth of such segments and, consequently, adversely affect the business of Grupo Galicia in
these areas.
Furthermore, the United States of America and the world’s major economies have shown signs of recovery
and confidence in the financial system during recent quarters. However, there are risks that may disrupt this
process, since there persist high levels of indebtedness in the public and private sector, an unrecuperated
credit market and high levels of unemployment in the developed economies. The interruption of the recovery
process of the developed economies, or the effects of the current crisis or a new economic and/or global
financial crisis, could affect Argentina’s economy, and, consequently, adversely affect the business of Grupo
Galicia and its subsidiaries, including Banco Galicia, which could adversely affect their results and Grupo
Galicia's ability to honor its debts, including the Notes.
A decline in the international prices for Argentina’s main commodity exports could have an adverse effect on
Argentina’s economic growth and on Grupo Galicia’s prospects.
Argentina’s financial recovery from the 2001-2002 crisis occurred in a context of price increases for
Argentina’s commodity exports, such as soy. High commodity prices have contributed to the increase in the
Argentine exports since the third quarter of 2002 and to high Government tax revenues from export
withholdings.
The prices of the commodities that Argentina exports have decreased as a consequence of the world crisis
which might affect future export levels. Such occurrence would have a negative impact on the levels of
Government revenues and the Government’s ability to service its sovereign debt, and could either generate
recessionary or inflationary pressures, depending on the Government’s reaction. Either of these results would
adversely impact the prospects of the financial system and, therefore, of Grupo Galicia, which could affect its
ability to honor its debts, including the Notes.
The foreign exchange market is subject to controls, which could adversely affect the ability and method in
which Grupo Galicia repays its obligations denominated in a foreign currency.
Decree No. 1570/01, effective as of December 3, 2001, established certain restrictions on the manner in
which foreign currencies are transferred abroad, prohibiting most ordinary foreign currency transfers abroad.
Decree No. 1606/01 maintained the same provisions, but incorporated additional exceptions regarding the
transfers of funds entering the country after December 3, 2001 to foreign countries.
Additionally, the Government issued Decree No. 616/05 (and supplementary regulations), which established
new rules for capital movements into and from Argentina. Basically, this decree establishes that funds
transferred into Argentina by residents and non-residents are subject to the deposit of a 30% reserve thereof,
which must be deposited in dollars for one year in a local financial institution without bearing interest. Please
note that regulations in force established certain exceptions to such deposit requirement. Moreover, the
legislation provides that, subject to certain exceptions, the transfer of currency from Argentina to foreign
accounts must be approved by the Central Bank, and establishes certain maximum amounts that individuals
are allowed to acquire in the exchange market. For further information on these and other similar measures
on foreign exchange controls, see Chapter X – “Additional Information – Foreign Exchange Controls” in this
Offering Memorandum.
It is not possible to assure you that the above-mentioned regulations will not be modified or to rule out that
new regulations may be passed in the future maximizing or increasing even further restrictions for the inflow
and outflow of foreign currencies in the local foreign exchange market. Those measures, as well as additional
controls and/or restrictions, could adversely affect Grupo Galicia’s ability to access the international capital
markets and could impair Grupo Galicia’s ability to pay principal and/or interest on its debt obligations in
foreign currency, and the ability to transfer payments under the Notes abroad, all of which could adversely
affect Grupo Galicia’s financial condition and results of operations. Investors resident or not resident of
Argentina holding assets abroad and investing in the Notes should take special notice of these regulations on
access to the foreign exchange market.
22
High volatility in the regulatory framework could adversely affect the country’s economy in general a well as
financial institutions and Grupo Galicia and/or its subsidiaries
Argentine governments have historically exercised a significant influence over the economy, and financial
institutions in particular have operated in a highly regulated environment in different periods. Since
December 2001, the Argentine government has enacted numerous, far-reaching laws and regulations
affecting the economy in general as well as financial institutions in particular. The laws and regulations
currently governing the economy and the financial sector could change in the future.
According to news reports, various projects to reform the Financial Institutions Act would be under study,
but the scope of such possible amendment is unknown, and the impact on the Grupo Galicia and its
subsidiaries’ business is uncertain.
It is not possible to guarantee that future changes in the regulatory framework and government policies will
not adversely affect the activities carried out by Grupo Galicia’s subsidiaries, including Banco Galicia, and
consequently, Grupo Galicia. The lack of a stable regulatory framework would impose significant restrictions
on the financial system’s activities and on Grupo Galicia’s businesses, including Banco Galicia, and would
cause uncertainty as regards Grupo Galicia’s future financial condition, results of operations and,
consequently, the ability to honor Grupo Galicia’s debts, including the Notes.
Judgments may not be able to be normally enforced in Argentina
Grupo Galicia and most of its subsidiaries are companies incorporated under the laws of Argentina. Most of
their shareholders, directors, members of the Supervisory Syndics’ Committee, officers, and some specialists
named herein are domiciled in Argentina and the most significant part of their assets is located in Argentina.
Under Argentine law, the enforcement of foreign judgments shall be allowed provided that the requirements
in articles 517 to 519 of the National Code of Civil and Commercial Procedures are met or, if it is one of the
powers reserved to the Provinces, the requirements in the local codes of procedure, and provided that the
foreign judgment does not infringe the principles of public policy in Argentine law, as determined by the
competent courts of Argentina.
Grupo Galicia cannot guarantee that an Argentine court will find that the enforcement of foreign judgments
ordering payments of securities that are denominated in a foreign currency, including the Notes, outside
Argentina is contrary to public policy regulations of Argentine law, for instance, if in case at such time there
are legal restrictions in place prohibiting Argentine debtors to transfer foreign currency abroad to pay off
debts.
Risk Factors Relating to the Argentine Financial System
The recovery of the financial system is dependent upon the ability of financial institutions, including Banco
Galicia, to maintain and increase the confidence of depositors.
The measures implemented by the Argentine Government in late 2001 and early 2002, in particular the
restrictions imposed on depositors to withdraw money freely from banks and the pesification and
restructuring of their deposits, were strongly opposed by depositors due to the losses on their savings and
undermined their confidence in the Argentine financial system and in all financial institutions operating in
Argentina.
Although the financial system has seen a recovery in deposits (principally transactional deposits) since 2002,
it cannot be assured that this trend will continue or that the deposit base of the Argentine financial system,
including with Banco Galicia, will not be negatively affected in the future by adverse economic, social and
political events. In turn, the rules and the decisions taken by the Government on the financial system may
undermine the confidence of depositors. If such confidence in the financial system is affected once again, it
will have a direct impact on the manner in which financial institutions, including Banco Galicia, conduct
their business, basically, by affecting institutions’ ability to operate as financial intermediaries. If Banco
Galicia could not conduct its Business as usual, Grupo Galicia’s ability to honor its debts, including the
Notes, could be adversely affected or limited.
23
The negative consequences of the 2001-2002 crisis on the profile and activities of the financial system could
not be completely overcome.
During and after the 2001 and 2002 crisis, the Argentine financial system practically ceased acting as an
intermediary between savings and credit. In the second half of 2002, deposits began to increase, and in 2004,
credit began to increase. Even though after the 2001-2002 crisis, the financial depth in Argentina has
increased (measured by the ratio of the total financial system’s private sector deposits and loans to GDP), it is
low when compared to international levels and lower than the periods prior to the crisis, especially in the case
of loans to the private sector, which represented approximately 12% of the Argentine GDP as of December
31, 2009, as compared to a maximum of approximately 23% at the end of 1999.
The depth of the crisis and its effect on the depositors’ confidence in the financial system raise significant
uncertainties as to the likelihood that the financial system will fully recover its ability to act as an
intermediary between savings and credit, even more so in the current international environment. Despite the
fact that the credit supply has recovered since 2004, during 2008 and especially during 2009, its growth rate
was considerably reduced, for which reason the period of time required for the financial system’s credit
activity to resume to the levels prior to the crisis is uncertain.
In addition, although deposits in the financial system and in Banco Galicia have begun increasing again, most
new deposits are either demand or short-term time deposits and the sources of medium- and long-term
funding for financial institutions are currently limited, and have consisted, to a large extent, primarily since
2004, in the securitization of loan portfolios, which was affected by the replacement of the retirement and
pension system of the Retirement and Pension Fund Administrators (the “AFJPs”), which invested in loan
securitization, by the SIPA, the new system administered by the National Social Security Administration
(Administración Nacional de la Seguridad Social) (“ANSES”), see “Reform of the Integrated Pension and
Retirement Benefits System”. Due to these reasons, as well as due to the characteristics of demand for credit,
the expansion of credit through loans recorded since 2004 was based on short-term loans to individuals and
companies.
For the financial system to be able to reach an adequate intermediation level and, at the same time, develop
medium- and long-term credit without having to assume excessive risks in terms of maturity mismatches, the
following would be required: (i) growth in deposits and loans to continue over time, (ii) the terms of assets
and liabilities in the Argentine financial system to be extended, (iii) the public’s confidence in the Argentine
financial system to return to levels enabling the savings in Argentina or a substantial part thereof to be
redirected to the financial system, and (iv) a process of sustained growth with macroeconomic and legal
stability to be consolidated.
It cannot be assured that these trends will materialize and, even if they do, financial intermediation activities
could not develop to the extent needed nor attain the necessary volume so as to allow an adequate income
generation capacity by Argentine financial institutions, including Banco Galicia. Under these circumstances,
for an undetermined period of time, the scale of operations of financial institutions that operate in Argentina,
including Banco Galicia, their business volume, the size of their assets and liabilities or their ability to
generate results could be lower than before the crisis.
If Banco Galicia has problems generating income and/or maintaining the volume and/or scale of its business,
Grupo Galicia’s ability to honor its debts, including the Notes, could be adversely affected.
The asset quality of financial institutions could deteriorate if the growth process does not recover.
The portfolio quality started to deteriorate during 2008, which, although partly recuperated during the second
half of 2009, it cannot be assured that the private sector portfolio will not continue to deteriorate.
Also, despite the Argentine Central Bank’s measures to limit the financial system’s exposure to the public
sector, the assets of certain financial institutions currently are highly exposed to debt instruments of
Argentina’s public sector.
Therefore, currently, the value of a large portion of the assets held by various Argentine financial institutions,
as well as those institutions’ income generation capacity, including Banco Galicia, is dependent, to a large
extent, on the Argentine public sector’s repayment capacity, which is dependent on, among others, the
presence of a verifiable continuity in economic growth.
24
Consequently, if Banco Galicia’s ability to generate income were to decrease, it could adversely affect Grupo
Galicia’s ability to repay its debt, including the Notes.
Judgments against financial institutions relating to the pesification and rescheduling of deposits could
deteriorate financial institutions’ profitability.
As a consequence of the measures adopted by the Government in connection with the pesification of banking
deposits originally denominated in dollars and the rescheduling thereof, since the beginning of 2002, a
significant number of legal actions were initiated by individuals and legal institutions, mainly through
protection claims (acción de amparo) (“amparo claims”), against financial institutions, including Banco
Galicia, on the basis that these measures violated constitutional and other rights. These claims resulted in
appellate and lower courts ordering precautionary injunctions, requiring banks to reimburse the relevant
dollar-denominated deposits, or their equivalent in pesos, at the then prevailing exchange rate for the free
market first and later the single market. These rulings resulted in a significant withdrawal of deposits from
the financial system and in significant losses for financial institutions, including Banco Galicia, as these
institutions had to reimburse the deposits in Argentina, which had been pesified and rescheduled by the
Argentine government (mostly dollar-denominated deposits before pesification), at market exchange rates,
higher than the Ps.1.40 rate at which the deposits were pesified and recorded. Banco Galicia deferred these
losses, as established by the Argentine Central Bank, and they must be amortized as from April 2003. The
Government has not provided compensation to financial institutions for these losses and has expressed that it
has no intention to do so.
While the repayment schedule of Rescheduled Deposit Certificates (“Cedros”) expired in August 2005, and
while there is a small amount of Rescheduled Deposits under amparo claims in the financial system, many of
these claims are still pending and shall be determined during the following fiscal years, making it impossible
to anticipate the final resolution of these cases. However, if judgments against financial institutions increased,
including against Banco Galicia, substantial additional losses would adversely impact the financial condition
of financial institutions, including Banco Galicia. Consequently, a substantial financial loss of Banco Galicia
could adversely affect Grupo Galicia’s ability to honor its debts, including the Notes.
The reform of the Integrated Pension and Retirement Benefits System could adversely affect the capital
market evolution in Argentina.
Through the enactment of Law No. 26,425 in November 20, 2008, the Argentine National Congress approved
the elimination of the capitalization system run by the AFJPs, which was absorbed and replaced by a single
government run pension called Integrated Social Security System (Sistema Integrado Previsional Argentino)
(“SIPA”). Among other measures, the law establishes that: (i) funds accumulated in the private retirement
and pension system during the last fourteen years shall be administered by the ANSES and (ii) the retirement
and pension system shall be public and citizens shall contribute to this new system.
The elimination of this system entails a significant change in the evolution of the local capital market and the
Argentine financial system, since AFJPs were an important factor within the group of institutional investors.
Consequently, the future trading of the Notes could be affected and, additionally, the ability to obtain
financing through the capital market by Grupo Galicia could be affected, which could affect its ability to
repay its obligations, including the Notes.
Consumer protection laws may limit some of the rights afforded to Grupo Galicia and its subsidiaries.
Law No. 24,240, the Consumer Protection Law (the “Consumer Protection Law”) sets forth a series of rules
and principles to protect consumers, including Banco Galicia’s customers. The Consumer Protection Law
was amended on March 12, 2008 in various aspects, namely: (i) the universe of people considered as
consumers under the Consumer Protection Law was widened, (ii) the maximum fines applicable to suppliers
violating this law was increased and the enforcement administrative authority was empowered to order any
supplier to pay direct damages up to a maximum amount, (iii) the courts were entitled to sentence suppliers to
pay “punitive damages” to consumers (such punitive damages not to exceed Ps.5 million, depending on the
gravity of the event and other circumstances), and (iv) the ability of consumers’ associations to bring class
action law suits on behalf of an indeterminate universe of consumers’ rights was regulated. Also, the
Secretary of Domestic Commerce, under the Ministry of Economy and Production, was appointed as the
25
national enforcement authority whereas the city of Buenos Aires and the provinces were to act as local
enforcement authorities.
Grupo Galicia cannot assure you that court and administrative rulings arising from the new regulation
previously mentioned, or from measures adopted by other enforcement authorities will not increase in the
future the degree of protection given to its debtors and other clients, or that such rulings will not favor the
claims brought by consumers’ groups or associations. This could hinder or prevent Grupo Galicia from
collecting payments for services and financing provided, which could have an adverse effect on their results
and operations, which could affect its ability to repay its obligations, including the Notes.
New limitations on creditors’ rights in Argentina and on the ability to foreclose on certain guarantees and
collateral may adversely impact financial institutions.
For the purpose of protecting debtors affected by the economic crisis, as of 2002, the Government passed
various laws and regulations limiting temporarily the ability of creditors to foreclose on collateral and to
exercise their rights pursuant to similar instruments upon the occurrence of a default by a debtor under a
financing agreement. Such limitations have restricted Argentine creditors, such as Banco Galicia, from
initiating actions and/or lawsuits to collect and recover on defaulted loans. If these rules ceased to be
applicable, in the event of an adverse economic environment or in other circumstances, the Government
could pass new rules and regulations restricting the ability of creditors to enforce their rights pursuant to loan
agreements, guarantees and similar instruments, with a negative effect on the financial system and Grupo
Galicia’s business.
Risk Factors Relating to Grupo Galicia and Banco Galicia
Part of Banco Galicia’s assets is invested in debt instruments of the Argentine public sector.
As of December 31, 2009, the net global position of Banco Galicia in the Argentine public sector reached
Ps.5,802 million, representing approximately 21.3% of its total assets and 2.7 times its shareholders’ equity.
Banco Galicia’s ability to honor its financial obligations could be adversely affected by the Argentine
Government’s payment capacity.
In addition, the Argentine Government’s ability to honor its financial obligations is dependent on, among
other things, its ability to establish economic policies that succeed in fostering an economy growth process
sustainable in the long term, generating tax revenues and controlling public expenditures, which could, either
partially or totally, fail to take place.
Banco Galicia’s public sector assets have been accounted for pursuant the Argentine Central Bank’s
valuation rules, which implies that their book value does not reflect market values.
It should be noted that Banco Galicia records its public sector assets according to the Argentine Central
Bank’s valuation rules. The book values of some of Banco Galicia’s public sector assets are higher than their
respective market value.
Therefore, Banco Galicia’s financial condition does not reflect the adjustments to the market values of the
above-mentioned assets. Future sales or arrangements of transactions carried out with these assets will reflect
market conditions as of that moment, which could result in losses due to differences between the market and
book value of said assets at such time.
Banco Galicia’s net position in assets adjustable by the Resource Stabilization Coefficient (Coeficiente de
Estabilización de Referencia) ("CER”) exposes it to real interest rate variation.
The amendments and modifications of Banco Galicia’s assets and liabilities resulting from the Government
measures to address the 2001-2002 economic crisis have created mismatches between its assets and liabilities
in terms of currency, interest rate and terms. Currently, Banco Galicia has a net position in CER-adjustable
assets (which index varies based on changes in consumer retail prices) that accrue a fixed interest rate on the
adjusted principal. This position is funded by non-adjustable pesos-denominated liabilities, which bear
market rates that are repriced mainly in the short term. This mismatch exposes the Bank to fluctuations in real
interest rates, with an adverse impact on income if there is a significant increase in real interest rates paid on
26
our peso-denominated liabilities, which occurs when the nominal interest rate increases more than the
inflation rate.
Increased competition and consolidation in the banking and financial industry could adversely affect Banco
Galicia’s operations.
If competition in the banking and financial sector increases as a consequence of the consolidation process in
the industry, with the consequence of the creation of stronger and larger banks that may have more resources
than Banco Galicia, this could reduce prices and margins and/or the volume of operations and market share,
and therefore, the results of operations of Banco Galicia and other subsidiaries of Grupo Galicia could be
adversely affected and consequently, Grupo Galicia’s capacity to honor its debts, including the Notes.
Banco Galicia has restrictions on its ability to pay dividends.
Under certain regulations and agreements applicable to the Bank, it has certain restrictions related to dividend
distribution, for which reason Grupo Galicia’s ability to rely on such funds to cancel the Notes will be
limited. Notwithstanding the fact that the repayment of such Notes could be afforded by Grupo Galicia
through other means, such as bank loans or new issuances in the capital market, investors should take into
account the above prior to deciding to invest in the Notes. For further information on dividend distribution
restrictions, see Chapter V “Financial Review and Prospects- Liquidity”.
Grupo Galicia could be unable to repay its financial obligations due to a lack of liquidity caused by it being
a holding company.
Grupo Galicia, as a holding company, conducts its operations through its Subsidiaries. Consequently, it does
not operate nor hold substantial assets, except for equity investments in its Subsidiaries and the subordinated
debt issued by Banco Galicia for a nominal value (“NV”) of US$10.2 million. Except for such assets, Grupo
Galicia’s ability to repay obligations is subject to the funds generated by its Subsidiaries and their ability to
pay cash dividends. In the absence of such funds, Grupo Galicia could have to resort to financing options at
unappealing prices, rates and conditions. Additionally, such financing could be unavailable when Grupo
Galicia may need it.
Grupo Galicia’s Subsidiaries are under no obligation to pay any amount to enable Grupo Galicia to cancel its
liabilities or to give Grupo Galicia funds for such purposes. Each of the Subsidiaries is a legal entity separate
from the Issuer, and due to certain circumstances, legal or contractual restrictions, as well as to the
Subsidiaries’ financial condition and operating requirements, Grupo Galicia’s ability to receive dividends
could be limited and, eventually, its ability to comply with its payment obligations, including the Notes.
The level of indebtedness of Grupo Galicia could increase substantially and affect its ability to repay its
debts.
In the future, Grupo Galicia or its Subsidiaries could increase their level of indebtedness, which could
adversely affect Grupo Galicia’s ability to repay its obligations under the Notes.
It could be difficult for Grupo Galicia and its Subsidiaries to completely overcome all the negative residual
effects of the 2001-2002 crisis.
The ability of Grupo Galicia and its subsidiaries to generate income was adversely affected by the 2001-2002
crisis, especially its ability to generate financial income. It is difficult to predict whether Grupo Galicia’s
subsidiaries will be able to maintain or increase their services and loans to the private sector, generating an
increase in their financial income and income from services so that their net operating results exceed the
losses originated during 2001-2002 crisis, in particular, and as regards Banco Galicia, the amortization of
amparo claims, the negative margin on their matched position in foreign currency resulting from the low
yield of the Government bonds in dollars at a Badlar interest rate (the average interest rate paid by banks for
deposits), due in 2012 (the “Boden 2012”) and their exposure to government securities with market values
lower than the book values.
Demand for fee-related products and services as well as for credit in Argentina depends mainly on the growth
of the economy, for which reason the demand for financial products and credit could fail to increase or could
fail to increase to a sufficient extent or at the necessary pace.
27
Likewise, Grupo Galicia may not be able to sufficiently increase its business volume for operating income to
exceed the losses. Also, lower economic growth could have a negative impact on asset quality and the losses
associated with the loan portfolio. Therefore, Grupo Galicia may not be able to increase its operating results
in the required amount or at the required pace in order to offset the losses, for which reason its final
profitability and internal capital generation capacity could be negatively affected.
Certain administrative proceedings started by tax authorities of some provinces against financial institutions
could generate losses to such institutions, including Banco Galicia.
Some tax authorities in the provinces and in the City of Buenos Aires initiated administrative proceedings
against certain financial institutions in order to collect higher gross income taxes from such financial
institutions from year-end 2002 onwards. Provincial tax authorities claim a substantial amount in connection
with gross income generated by financial institutions in 2002, as such authorities include the income related
to the Compensatory Bond (as defined below), into the income subject of the tax. The purpose of the
Compensatory Bond was to compensate financial institutions for the losses that they would otherwise incur
as a result of the measures implemented to face the 2001-2002 crisis, in particular, the asymmetric
pesification. Although the final decision of these proceedings is uncertain, financial institutions, including
Banco Galicia, could suffer material losses.
Risk Factors Relating to the Notes
Possible lack of a secondary market for the Notes.
The Notes issued under the Program will constitute an issue of securities, and the future existence of a
secondary market for such Notes cannot be assured. Neither can it be assured that their holders may be able
to trade them or ensure, if applicable, the price at which they may be traded. If a market should develop, the
Notes may be traded at prices that could be higher or lower than the initial subscription price, depending on
different factors, which are beyond Grupo Galicia’s control.
Likewise, the Notes’ liquidity and market may be affected by interest rate variations, by regulations that the
Government could issue and national or international market volatility, in the case of similar securities, and
by any other modification in Grupo Galicia’s liquidity, financial condition, results of operations and
profitability.
United States laws impose certain restrictions on investors’ ability to trade the Notes.
The Notes have not been registered under the Securities Act or any state securities law of the United States of
America. The Notes are being offered and sold according to a registration exception established under federal
and state laws of the United States of America. In addition, Grupo Galicia is not required to register the sale
of the Notes under the Securities Act of the United States of America. Consequently, the Notes may only be
transferred or resold through registered transactions, or under a registration exception provided for by the
Securities Act of the United States of America. Therefore, given the transfer restrictions established by the
Securities Act of the United States of America, holders of the Notes could be unable to trade them freely and
could have to withstand the investment risk for an indefinite time or the securities devaluation originated
from the trading restriction.
The Notes will be effectively subordinated to payment to the secured creditors.
Unless otherwise established in the relevant Pricing Supplement, the Notes will have the same payment
priority as Grupo Galicia’s other unsecured and unsubordinated debt, either present or future, except for the
obligations that have legal priority, including, but not limited to, tax or labor claims.
If the relevant Pricing Supplement so specifies, Grupo Galicia may also issue subordinated Notes. In that
case, in addition to the priority granted to certain obligations as explained in the paragraph above, the
subordinated Notes shall also be subject at all times to the payment of certain unsecured and unsubordinated
debt of Grupo Galicia, as detailed in the applicable Pricing Supplement.
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Grupo Galicia may redeem the Notes before their maturity.
In the event of changes in the Argentine tax system or due to any other cause set forth in the applicable
Pricing Supplement, Grupo Galicia, at its option, may redeem the Notes. See Chapter IX “The Offer and
Listing – Optional Redemption for Tax Reasons”. Consequently, investors may not be in a position to
reinvest the funds obtained from the redemption in a similar security at an effective interest rate similar to
that of the Notes.
Foreign exchange controls and restrictions to transfers abroad could impair Grupo Galicia’s ability to make
payments under the Notes.
In 2001 and 2002, Argentina established foreign exchange controls and transfer restrictions, substantially
limiting the ability of companies to retain foreign currency or make payments abroad. These restrictions have
been substantially eased, including those requiring the Argentine Central Bank’s prior authorization for the
transfer of funds abroad in order to pay principal and interest on debt obligations. However, Argentina may
re-impose exchange controls or transfer restrictions in the future, among other things, in response to capital
flight or a significant depreciation of the peso. In such event, restrictions on transfers abroad may impair
Grupo Galicia’s ability to make payments under the Notes. For further information on current foreign
exchange controls, see Chapter X “Additional Information - Foreign Exchange Controls” in this Offering
Memorandum.
Under certain circumstances in which Grupo Galicia may honor its payment obligations related to the Notes
through the transfer of pesos to bank accounts in Argentina, holders could be unable to obtain dollars or
transfer funds abroad.
Subject to the relevant Pricing Supplement, in case Grupo Galicia is unable to buy dollars or transfer such
currency abroad to make any payment under the Notes because there are legal or regulatory restrictions or
because of any other reason outside of its control, then Grupo Galicia shall be enabled to honor such payment
obligation in pesos and through transfers to bank accounts located in Argentina. In that case, due to the
application of the regulation on exchange markets, holders receiving payments in Argentina may be subject
to the same restrictions (See Chapter X “Additional Information – Foreign-Exchange Controls”) and
therefore could be unable to obtain dollars at the applicable exchange rate according to the Notes or at any
exchange rate, and/or holders could be unable to freely transfer funds outside Argentina.
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CHAPTER IV. INFORMATION ON THE COMPANY
Issuer’s History and Development
Grupo Galicia is a stock corporation formed under the Argentine laws. Grupo Galicia was incorporated on
September 14, 1999 and, under its by-laws, its duration is until June 30, 2100. The duration of Grupo Galicia
can be extended by resolution taken at an Extraordinary Shareholders’ Meeting.
According to Article One of its by-laws, Grupo Galicia has its legal domicile within the jurisdiction of the
City of Buenos Aires. Its principal executive offices are located at Teniente General Juan D. Perón 456,
Second Floor, (C1038AAJ), Autonomous City of Buenos Aires, as decided at a Board of Directors’ meeting
held on January 11, 2001. The respective registrations with the Corporations Control Authority (Inspección
General de Justicia) were made on February 5, 2001.
Name
Legal Type of Business
Date of Incorporation
Duration
Applicable Law
Legal Domicile
Telephone No.
Fax No.
E-Mail
Website
“Sociedad anónima” (corporation) incorporated in Argentina.
September 14, 1999.
Under its by-laws, its duration is until June 30, 2100, which can be extended by a
resolution passed at an Extraordinary Shareholders’ Meeting.
The company is subject to the laws currently applicable in Argentina.
Tte. Gral. Juan D. Perón 456, 2nd Floor (C1038AAJ), City of Buenos Aires,
Argentina.
(54-11) 4343-7528
(54-11) 4331-9183
relacionconinversores@gfgsa.com
www.gfgsa.com.ar
Grupo Galicia was incorporated as a financial services holding company to hold all of the shares of the
capital stock of Banco Galicia held by the members of the Families (as defined herein). Its initial nominal
capital amounted to 24,000 common shares, 12,516 of which were designated Class A shares and 11,484 of
which were designated as Class B shares. Following Grupo Galicia’s formation, the holding companies that
held the shares in Banco Galicia on behalf of the Families were merged into Grupo Galicia. Following the
merger, Grupo Galicia held 46.34% of the outstanding shares of Banco Galicia. Simultaneously with the
merger, Grupo Galicia’s capital increased from 24,000 to 543,000,000 common shares, 281,221,650 of which
were designated as Class A shares and 261,778,350 of which were designated as Class B shares. Following
this capital increase, all of Grupo Galicia’s Class A shares were held by EBA Holding S.A. (“EBA
Holding”), an Argentine corporation that is 100% owned by the members of the Families, and Class B shares
were held directly by the members of the Families in an amount equal to their controlling ownership interests
in the holding companies that were merged into Grupo Galicia.
On May 16, 2000, Grupo Galicia held an Extraordinary Shareholders’ Meeting during which they
unanimously approved a capital increase of up to Ps.628,704,540 and the public offering and listing of Class
B shares. All of the new common shares were designated as Class B shares, with a par value of Ps.1.00 each.
During this Extraordinary Shareholders’ Meeting, all of Grupo Galicia’s existing shareholders waived their
preemptive rights in order to determine the exchange ratio for the exchange offer of Grupo Galicia’s shares
for Banco Galicia’s shares. At such meeting, the shareholders determined that the exchange ratio for the
exchange offer would be 1 of Banco Galicia’s Class B share per 2.5 of Grupo Galicia’s Class B shares, and 1
Banco Galicia’s ADS per 1 Grupo Galicia’s ADS. The exchange offer was completed in July 2000. At the
date of completion of the exchange offer, Grupo Galicia’s most significant asset was its 93.23% interest in
Banco Galicia.
On January 2, 2004, Grupo Galicia’s shareholders held an Extraordinary Shareholders’ Meeting, during
which they decided to issue up to 149 million of Grupo Galicia’s preferred shares so as to restructure the
Foreign Debt (as defined below) of its subsidiary Banco Galicia. It was also decided that such shares could be
paid-in by means of certain subordinated notes issued by Banco Galicia or in cash. On May 13, 2004, 149
million preferred shares were issued; a year later, they were converted into Class B common shares. Grupo
Galicia’s majority shareholders accepted to assign a portion of their preemptive and accretion rights on behalf
of Banco Galicia’s creditors.
30
Milestones in Business Development
Grupo Galicia
Sale of the Silage plant
On July 8, 2009, the silage plant was sold, owned by Galicia Warrants S.A. (“Galicia Warrants”) built in San
Salvador, Province of Entre Ríos, Argentina, to Pilagá S.R.L. for the amount of US$5.2 million payable in
ten annual and consecutive equal installments as from June 5, 2010. The receivable proceeds from such sale
have been recorded under the item “miscellaneous credits” for a discounted value of Ps.12.7 million plus
accrued interest, generating an income before taxes of Ps.10.6 million for the Company.
Creation of GV Mandataria de Valores S.A.
In March 2008, GV Mandataria de Valores S.A. (“GV Mandataria”) was incorporated with the purpose of
carrying out representations, mandates and commissions of all types, whether involving domestic or
international companies. Grupo Galicia’s interest in this company is 90% of its stock, and the remaining 10%
is held by Galval Agente de Valores S.A. GV Mandataria was registered with the Corporations Control
Authority on July 16, 2008.
Reorganization of Net Investment S.A.
Net Investment was incorporated in February 2000 as a holding company. Its main purpose was to carry out
businesses related to technology, communications, Internet, connectivity, and related businesses.
Net Investment participated in Business to Business (“BtoB”) businesses carried out by Tradecom
International N.V. (“Grupo Tradecom”) directly through its controlled companies Tradecom Brasil S.A. and
Tradecom Argentina S.A., and indirectly through its controlled company Net Investment B.V. The other
shareholders of Grupo Tradecom were Banco Galicia, Unibanco of Brasil (Uniao de Bancos Brasileiros S.A.)
and Portugal Telecom.
Since the business volume expected at the beginning of fiscal year 2005 was not achieved, among other
reasons, Tradecom Brasil S.A.’s payment service and financing operations were absorbed by Unibanco, and
the rest of Tradecom Brasil S.A.’s customers, together with all Argentine customers, were served by
Tradecom Argentina S.A.
In April 2006, Grupo Tradecom’s shareholders concluded the negotiations and transferred all the shares of
Tradecom Internacional N.V. and Tradecom Brasil to Unibanco, and all the shares of Tradecom Argentina
S.A. to Net Investment, liquidating Net Investment BV.
Upon conclusion of all negotiations with the other shareholders of Grupo Tradecom, Net Investment,
together with its controlled companies B2agro S.A. and Tradecom Argentina S.A., carried out certain studies
to determine the convenience to merge such companies, since such a merger allowed for a significant
reduction in administration and management costs, as well as a common management of activities. As a
result of the reorganization, the commercial activities and all the employees of the absorbed companies were
transferred to Net Investment, and such companies were then dissolved. The merger was registered with the
Corporations Control Authority on February 1, 2007.
In fiscal year 2008, the company focused its efforts on the improvement in and the update of the services
provided, along with the professionalization of the business area, in order to obtain results that allow the
company to achieve a balance in its financial situation.
The extension of the cycle for the generation of new sales, the increases in the cost structure and the
incapacity to transfer those rises to the prices of the services rendered were factors that make it difficult to
generate the necessary revenues so as to sustain operating expenses. As a result, and due to the international
financial crisis, a less favorable scenario was expected for fiscal year 2009, which caused the Board of
Directors to make the decision to refocus transactions and resize the company’s structure.
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Banco Galicia
Agreement for the purchase of Compañía Financiera Argentina’s shares.
In June 2009, Banco Galicia entered into an agreement with American International Group Inc. (“AIG”) and
AIG Consumer Finance Group Inc., to acquire 80% of the shares of Compañía Financiera Argentina S.A.
(“CFA”), Cobranzas & Servicios S.A. and AIG Universal Processing Center S.A., companies incorporated in
Argentina, devoted to financial and complementary activities.
Additionally, certain private investors entered into an agreement to acquire the remaining 20% of the
mentioned companies’ shares. An offer to take a “purchase option” of these shares has been received from
these potential investors. In December 2009, these potential investors assigned to Banco Galicia and Tarjetas
Regionales S.A. their rights to acquire shares in such companies.
As a consequence of these acts, Banco Galicia and Tarjetas Regionales S.A. exercised the purchase right of
95% and 5% respectively, of the shares of Compañía Financiera Argentina S.A., Cobranzas & Servicios S.A.
and AIG Universal Processing Center S.A. subject, among other conditions, to the Central Bank approval.
The price for the transfer of the total capital stock, agreed upon with the current holders, subject to the
adjustments usually applied to this type of transaction, was established in the amount of Ps.166.5 million;
while the price of the purchase right assignment was fixed at Ps.21.1 million.
Shareholders’ Equity Increase.
Since mid May 2002, Bank Galicia has implemented several initiatives aimed at increasing its equity as a
result of the adverse effects suffered due to the 2001-2002 institutional and economic crisis. After an initial
strong adjustment in the structure and in administration expenses during 2002 and 2003, Banco Galicia
recovered its liquidity; restructured its commercial portfolio, a process substantially completed in 2004,
refinanced its liabilities with the Argentine Central Bank, incurred as a result of the crisis, finalizing such
process in 2004, and restructured its foreign currency debt subject to foreign laws (the “Foreign Debt”),
including the debt held by its head office in Argentina (the “Head Office”) and that of its subsidiaries and
branches abroad, totaling approximately US$3,000 million, between mid 2002 and May 2004.
Banco Galicia Uruguay made scheduled payments, exchanges for cash and Boden 2012, paid in advance
installments of its restructured debt and, on May 15, 2009, repaid in advance the total remaining balance,
which initial maturity date was in September 2011. As of December 31, 2009, the Foreign Debt of Banco
Galicia amounted to US$515.1 million.
In 2006 and 2007, Banco Galicia cancelled in advance the financial aid received from the Argentine Central
Bank as a result of the 2001-2002 crisis, mostly using the proceeds of the sale of public-sector assets given as
guarantees. This debt, with initial maturity date in 2011, was cancelled in advance on March 2, 2007.
On the other hand, in 2005 Banco Galicia received the last Boden 2012 related to the Compensatory Bond
and, on December 1, 2006, subscribed to 90.8% of the Hedge Bond (Boden 2012 of nominal value
US$1,155.00 million) using the proceeds of the settlement, in the same proportion, of the advance payment
of the Argentine Central Bank for the subscription of such Bond. This advance payment was cancelled, at the
same time, using the public-sector assets given as guarantees for such liabilities and cash. In April 2007, the
Bank subscribed for the remaining Hedge Bond through National Secured Loans, with a nominal value
Ps.115.9 million. The public-sector assets exchange for the advance payment requested from the Argentine
Central Bank generated a Ps.32.8 million increase in the acquisition cost of the remaining Hedge Bond, an
effect that was accounted for in the Bank’s financial statements as of March 31, 2007.
Mostly as a result of the above-mentioned situation, Banco Galicia’s exposure to the public sector was
reduced from Ps.5,958 million to Ps.5,802 million between December 31, 2008 and December 31, 2009,
representing a Ps.156 million reduction. This decrease was mainly the result of the sale of part of the
government securities received in the National Secured Loans exchange transaction at the end of January,
2009.
On June 27, 2007, the Argentine Central Bank informed Banco Galicia the end of the plan for Banco Galicia
to reach the regulatory limit in public-sector assets which, as from July 1, 2007, should be 35%. As a result,
32
the Bank reduced its exposure to the public sector by over Ps.9.510 million between December 31, 2005 and
June 30, 2007. The acquisition of the Hedge Bond involved significant losses for the Bank (Ps.109.1 million
in December 2006 and Ps.64.8 million during the first half of 2007) related to the valuation of the publicsector assets given as guarantees for the debt with the Argentine Central Bank for the acquisition of such
bond or used to acquire such Bond. The compensation process for the Bank as a result of the 2002
asymmetric pesification regulations has concluded.
These measures have increased not only Banco Galicia’s equity but also its capacity to generate income, due
to the possibility of gradually applying a very significant amount of resources to its course of business,
resources that result from the release of the assets formerly given as guarantees for debts with the Argentine
Central Bank or from the full availability of Boden 2012 related to the Hedge Bond. Finally, on August 6,
2007, Banco Galicia performed a capital increase amounting to almost 100 million shares, representing an
equity increase of approximately Ps.494.5 million. Banco Galicia issued 93.7 million shares, the subscription
of which represented a capital increase (plus issuance premium, before issuance costs) of Ps.467.5 million.
To account for Banco Galicia’s equity increase resulting from such capitalization, an amount of Ps.27 million
should be added to that figure, related to the gains deriving from the subscription of a portion of the capital
increase in Notes Due 2014, which were issued by Banco Galicia upon the restructuring of the Foreign Debt
and were accounted for at market value, which was less than their book value.
Restructuring of Banco Galicia’s Debt with the Argentine Central Bank.
During 2004, Banco Galicia also concluded the restructuring of the debt held with the Argentine Central
Bank, incurred as a consequence of the 2001-2002 crisis, under the terms and conditions of Decrees No.
739/03 and No. 1262, and Communiqué “A” 3940 issued by the Central Bank.
On February 3, 2004, the Argentine Central Bank informed Banco Galicia of the approval of the Bank’s
request to adhere to the settlement policy for the balance of the financial assistance granted by the Central
Bank during the 2001-2002 crisis, as well as the monthly payment schedule proposed by the Bank, which
started in March 2004 and initially matured in October 2011.
On May 14, 2004, by means of Resolution No. 152/04, the Argentine Central Bank approved the economic
terms for the restructuring of the Foreign Debt held by Banco Galicia and Galicia Cayman. The payments
made in 2006 and 2007 allowed the Bank to cancel in advance, on March 2, 2007, the entire financial
assistance received from the Argentine Central Bank during the crisis.
Galicia Uruguay and Galicia Cayman.
Galicia Uruguay
In early 2002, due to the effects that the Argentine crisis had on Galicia Uruguay, the Central Bank of
Uruguay revoked Galicia Uruguay’s license to operate as a domestic commercial bank but Galicia Uruguay
retained the license from the Uruguayan government’s executive branch.
By the end of December 2002, Galicia Uruguay restructured its liabilities. Between 2003 and 2005, Galicia
Uruguay carried out several exchanges of restructured liabilities, which allowed it, together with the payment
of amortizations, to substantially reduce the liability for these concepts.
On May 15, 2009, Galicia Uruguay made available to its clients in advance US$27.3 million, corresponding
to the remaining balance of its restructured debt, which was initially due in September 2011.
On May 29, 2009, the Special General Meeting of Galicia Uruguay approved the voluntary reduction of
capital by redemption of shares. Following such capital reduction, Banco Galicia held 100% of the capital
stock of Galicia Cayman, of which formerly 65.34% was controlled by Galicia Uruguay and the remaining
34.66% by Banco Galicia.
As of the closing of fiscal year 2009 the shareholders’ equity of Galicia Uruguay amounted to Ps.56.2
million.
33
Galicia Cayman
Galicia Uruguay’s situation adversely affected its subsidiary Galicia Cayman, which entered a voluntary
liquidation and surrendered its banking license effective as from December 2002. By the end of May 2003,
Galicia Cayman, together with the provisional liquidators appointed by the Grand Court of the Cayman
Islands (“the Court”), completed a debt restructuring plan and, with the authorization of the Court, presented
it to all its creditors for their consideration. The plan was approved, in whole, by the vote of 99.7% of
creditors, exceeding the legal majority required, on July 10, 2003, and it became effective and mandatory for
all creditors.
On February 2, 2006, as a result of the filing made by the restructuring plan’s liquidators, the Court declared
the plan terminated and ended the involvement of any third parties in the company’s management beginning
on February 23, 2006.
Restructuring of the Foreign Debt of Banco Galicia and the Cayman Branch.
As a result of the liquidity crisis experienced by the Argentine financial system and the Bank at the end of
2001 and beginning in 2002, as well as the economic policy measures taken by the Argentine Government to
face such crisis, in June 2002, Banco Galicia suspended the Foreign Debt payments of its Argentine Head
Office and its Branch in Cayman (“Cayman Branch”).
In December 2003, Banco Galicia informed the terms of its Foreign Debt restructuring plan to its bank
creditors and holders of notes.
Banco Galicia offered its creditors the possibility to exchange, in a first stage, the debt subject to
restructuring for “units”, at par value. These “units” consisted of new long-term debt instruments due in 2014
and subordinated debt due in 2019. In a second optional stage of this exchange, creditors could exchange
their units for different options, such as: (i) cash, with a discount; (ii) Boden 2012, with a discount; (iii) new
long-term debt instruments, at par value; and (iv) new medium-term debt instruments, at par value; and up to
149 million of Grupo Galicia’s preferred shares (or, instead of such shares, cash, as available, received from
those shareholders of Grupo Galicia that chose to subscribe for preferred shares by exercising their
preemptive right).
Also, creditors that agreed to grant Banco Galicia a new foreign trade financing for a total amount of up to
US$35 million were offered the option to receive new medium-term debt instruments (due in 2010) at par
value.
Each of the offers during the second stage of the swap was made on a pro rata basis.
The purpose of the units was mainly to ensure regulatory capital, by means of the issuance of subordinated
debt, for a long term. The purpose of the second-stage options was to try to meet the different creditors’
investment preferences.
To carry out such restructuring, Grupo Galicia issued 149 million preferred shares on May 13, 2004. A year
later, these preferred shares were converted into Class B common shares, and the creditors that participated in
the offer and had a stock interest received, pursuant to their preemptive and accretion rights, 87.8 million
preferred shares and US$30 million in cash. Grupo Galicia received US$100 million nominal value in Banco
Galicia’s subordinated debt held by creditors in exchange for the shares and cash. Grupo Galicia’s majority
shareholders agreed to assign a portion of their preemptive and accretion rights on behalf of Banco Galicia’s
creditors.
Additionally, in accordance with the restructuring terms, Banco Galicia paid US$15.5 million in cash as
interest accrued until April 30, 2002, and applied an amount of US$42.4 million not used in the cash offer to
cancel in advance, at par value, long-term debt instruments to be delivered to the creditors that participated in
the restructuring process.
Based on the final amounts validly presented for the exchange, on May 18, 2004, besides the
above-mentioned, Banco Galicia: (i) paid US$13.6 million to the creditors that participated in the cash offer;
(ii) transferred Boden 2012 at a nominal value of US$36.9 million to the creditors that participated in the
Boden 2012 offer; and (iii) issued the following debt instruments: (a) US$648.5 million in long-term dollar34
denominated debt, out of which US$464.8 million were notes with maturity in 2014, issued under the terms
and conditions of a trust agreement; (b) US$399.8 million in medium-term dollar-denominated debt, out of
which US$352.8 million were notes with maturity in 2010 (“Notes Due 2010”), issued under the terms and
conditions of an indenture; and (c) US$230 million in subordinated debt in dollars, out of which US$218.2
million were notes with maturity in 2019 (the “Notes Due 2019”), issued under the terms and conditions of
an indenture.
Banco Galicia also restructured its foreign trade debt for an initial principal amount of US$25.3 million, in
exchange for a new foreign trade debt of US$26.6 million, to be settled in 12 monthly, equal and consecutive
installments, beginning in June 2004 and concluding in May 2005.
The following table summarizes certain characteristics of Banco Galicia’s debt restructuring:
(in million of
US$)
Capital Amounts of:
a) Debt to restructure as of December 31, 2003 (only principal)
1,349.6
b) Debt to restructure as of April 27, 2004 (only principal)(1)
1,344.7(2)
c) Debt to restructure that participated in the restructuring as of April 27, 2004
(only principal)(1)
1,320.9
d) Debt to restructure including capitalized past-due interest(3)(4)
e) New issued debt
(4)(5)
f) Non-restructured debt as of May 18, 2004
1,399.6
1,278.3
(6)
g) Non-restructured debt as of December 31, 2009
22.9(7)
1.7
(1) Expiration date for the exchange offer.
(2) The reduction in the principal amount of the debt to be restructured, as compared to December 31, 2003, is due to the fact
that, according to Argentine law, the Bank’s debtors that were also creditors of the same Bank (because they held the Bank’s
debt to be restructured) were able to settle past-due loans granted by the Bank with such debt holdings.
(3) The interest past-due between May 1, 2002 and December 31, 2003 was capitalized at an annual 4.75% rate, except for the
foreign trade debt for a principal amount of US$25.3 million, the interest of which was capitalized at Libor rate + 1%. The
interest past-due as of April 30, 2002 was paid in cash.
(4) It excludes foreign trade debt.
(5) After applying the amount of US$42.4 not used in the cash offer to settle the long-term debt included in (d).
(6) Exchange Offer’s settlement date.
(7) Between the expiration date and the settlement date, the non-restructured debt amount was reduced by US$0.9 million as a
result of the payment made by the debtors who were also holders of debt to be restructured and used such debt instruments to
settle past-due loans granted by the Bank and, to a lesser extent, as a result of the renegotiation of the debt not restructured
under the terms of the restructuring process.
On May 18, 2004, the Bank successfully concluded the restructuring process of US$1,320.9 million of its
Foreign Debt (98.2% of the Foreign Debt subject to restructuring) related to the Argentine Head Office and
the Cayman Branch. Banco Galicia made all semi-annual interest or amortization payments related to the
debt instruments issued as a result of the Foreign Dent restructuring in May 2004 and, by mid 2005, the Bank
had settled its total restructured Foreign Trade Debt.
During February 2007, Banco Galicia repurchased a portion of the restructured debt in the form of loans. The
Bank repurchased loans with maturity in 2010 and 2014 for a residual amount of US$178.8 million. These
transactions were carried out at market value, generating a US$6.9 million gain compared to their book value.
The settlement was made mainly using the proceeds of the sale of Boden 2012, which involved a loss due to
the difference with their book value of approximately US$8.9 million. According to the agreements that
regulate the Bank’s Foreign Debt restructuring, and as a result of the capital increase paid-in on August 15,
2007 in cash, the loans with maturity in 2014 and the Notes Due 2014 were partially redeemed. This
redemption was made at par value in reverse order to their maturity date for an amount of US$28 million and
implied a reduction in such liabilities’ residual value to 93.7%.
Subsequently, in September 2007, the Bank canceled the Notes Due 2014 for a nominal value of US$40.3
million, and in July 2008, for a nominal value of US$32.3 million, which were acquired through market
transactions.
During the first quarter of fiscal year 2009, Banco Galicia repaid in advance Notes Due 2014 for a nominal
value of US$30.0 million, acquired through market operations. On August 26, 2009 Banco Galicia made an
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offer to purchase in cash its Notes Due 2014, with the goal of purchasing all of such notes (US$260.0 million
nominal value). Through such offer to purchase, valid offers were received for the amount of US$26.8
million nominal value, which were accepted in total by Banco Galicia on September 28 and settled on
October 2.
Additionally, on October 2, Banco Galicia cancelled in advance Notes Due 2014 for a nominal value of
US$25.6 million, which were acquired through market transactions. After such repayment, the outstanding
nominal value of these notes amounted to US$207.6 million as of December 31, 2009, and the residual value
amounted to US$194.6 millions. After the closing of the fiscal year 2009, Banco Galicia cancelled in advance
such notes in the nominal value of US$45.8 million.
Moreover, in January 2010 the Bank paid the last amortization installment of its Notes due in 2010, in the
amount of US$34.2 million, and the first amortization installment of its Notes due in 2014, for a principal
amount of US$23.1 million. Taking into account these operations, the residual value of the outstanding notes
issued by the Bank (Notes due in 2014 and Subordinated Notes due in 2019) amounted to US$427.2 million.
Restructuring of the Bank’s New York Branch Debt.
Banco Galicia’s New York Branch (the “New York Branch”) provided financial services to Banco Galicia’s
customers in connection with their international business and funding needs. In 2002, the debt of the New
York Branch totaling US$328 million was restructured and this branch was closed on January 30, 2003. As
part of the restructuring, the Bank’s Head Office in Argentina issued two notes. In August 2007, the Bank
fully repaid these notes.
Capitalization as a Result of the Debt Restructuring Process.
Upon the Foreign Debt restructuring of Banco Galicia’s Argentine Head Office and its Cayman Branch, the
Bank increased its regulatory capital by US$278.9 million. The related capital increase was the result of the
following: (i) the exchange of part of the debt for cash and Boden 2012 at a discount, and the capitalization of
interest past-due after April 2002 at a rate lower than the contractual rate, which generated a US$48.9 million
increase in shareholders’ equity; and (ii) the issuance of US$230 million in subordinated debt considered as
supplemental capital under the Argentine Central Bank’s minimum capital requirements.
Also, in 2002, as a result of the restructuring of the New York Branch’s debt, the Bank had increased its
shareholders’ equity by US$42.6 million, by exchanging part of the old debt for new debt or cash at a
discount. In the aggregate, the Bank’s capitalization increase as a result of its Foreign Debt restructuring
amounted to US$322 million, plus US$43 million due to Grupo Galicia’s waiver of its right to collect the
subordinated notes issued by Galicia Uruguay within its liabilities restructuring process.
Banco Galicia’s Capital Increase.
On October 11, 2006, Banco Galicia’s shareholders resolved at an Ordinary and Extraordinary Meeting to
make a capital increase of up to Ps.100 million, nominal value, and approved the issuance of up to 100
million common book-entry Class B shares, entitled to one vote per share and a nominal value of Ps.1 each.
It was also resolved that this capital increase could be paid-in, at the option of the subscriber, in cash or in
Notes Due 2010, Notes Due 2014 or Notes Due 2019.
By means of Resolution No. 15,534 dated December 14, 2006, the CNV authorized the public offering of 100
million common shares to be subscribed at a par value of Ps.1 each and entitled to one vote each. The Buenos
Aires Stock Exchange (the “BASE”) authorized the listing of the new shares by Resolution dated December
18, 2006 and also authorized the extension of the beginning of the subscription period on various occasions.
On May 11, 2007, the Bank was authorized by the Argentine Central Bank’s Superintendency of Financial
and Foreign Exchange Institutions to perform the capital increase. The capital increase was registered with
the Public Registry of Commerce on August 30, 2007 under No. 14,534 in Volume 36 of the Stock
Companies Book.
The holders of preemptive and accretion subscription rights subscribed for and paid-in 93.6 million new
shares, at a par value of Ps.1 each. On July 27, 2007, Grupo Galicia, exercising its preemptive rights,
subscribed for 93,604,637 new shares of Banco Galicia.
36
Thus, the Bank’s shareholder’s equity increased from Ps.468.7 million to Ps.562.3 million. Since the
subscription price was fixed at Ps.4.991 per share, the shareholders’ equity increased in terms of capital and
additional paid-in capital, before issuance costs, to Ps.467 million. Also, as a result of the portion paid-in by
means of notes, Banco Galicia generated gains of Ps.27 million, since such obligations were received at a
value lower than their book value. Consequently, as a result of this capitalization process, Banco Galicia’s
shareholders’ equity increased to a total amount of Ps.494 million.
Regional Credit Card Companies
In the mid ‘90s, Banco Galicia made the strategic decision to target the “non-bancarized” individuals market,
which, in Argentina, typically pertains to the low and medium-low income segments of the population, which
typically live in the interior of the country and in certain locations within greater Buenos Aires. To
implement this strategic decision, in 1995, Banco Galicia began investing in non-banking companies
operating in certain regions of the interior, providing financial services to individuals through the issuance of
credit cards with proprietary brands and extending credit to its customers through such cards. Banco Galicia
refers to these companies as the “Regional Credit Card Companies”.
In that same year, Banco Galicia made the first investment in this business by acquiring a minority stake in
Tarjeta Naranja S.A. The remaining stake remained in the hands of the founders of the company, who
currently retain a minority interest. This company started operations in 1985 in the city of Córdoba, the
second largest city in Argentina, by marketing “Tarjeta Naranja”, its proprietary brand credit card, and
benefited from a significant local growth.
In 1996, Banco Galicia started up Tarjetas Cuyanas S.A., with a minority interest in the company, to operate
in the Cuyo Region (the provinces of Mendoza, San Juan and San Luis) in partnership with local
businessmen, who currently retain a minority interest in the company. This company launched the “Nevada
Card” in May 1996 in the city of Mendoza.
Also in 1996, Banco Galicia formed a new company, Tarjetas del Mar S.A., to operate in the city of Mar del
Plata and its area of influence. Tarjetas del Mar S.A. began marketing the “Mira” card in March 1997.
In early 1997, Banco Galicia acquired an interest in Tarjeta Comfiar S.A., a consumer finance company
operating in the provinces of Santa Fe and Entre Ríos, which was merged into and absorbed by Tarjeta
Naranja S.A. in January 2004.
In 1999, the Bank reorganized its interest in these businesses through Tarjetas Regionales S.A., a holding
company wholly owned by Banco Galicia and Galicia Cayman, which controls Tarjeta Naranja S.A., Tarjetas
Cuyanas S.A. and Tarjetas del Mar S.A. In addition, in 1999, Tarjetas Regionales S.A. acquired a 12.5%
interest in Tarjetas del Sur S.A., a credit card company operating in southern Argentina. In January 2000, this
interest increased to 60% and, in February of the same year, Tarjeta Naranja S.A. acquired the remaining
40%. In March 2001, Tarjetas del Sur S.A. was merged into and absorbed by Tarjeta Naranja S.A.
In the last six years, these companies have experienced a significant expansion in terms of customer base,
number of cards issued, distribution networks and size of operations, as well as a technological upgrade and
general modernization.
Investments and Divestitures
During 2009, investments in capital assets and intangible assets amounted to Ps.179.5 million, distributed as
follows:
(i)
(ii)
(iii)
Ps.56.6 million in fixed assets (real estate, machinery and equipment, vehicles, furniture and
fittings);
Ps.4.7 million in construction in progress; and
Ps.118.2 million in organizational and IT system development expenses.
In June 2009, Banco Galicia entered into an agreement with AIG and AIG Consumer Finance Group Inc., to
acquire 100% of the capital stock of Compañía Financiera Argentina S.A., Cobranzas & Servicios S.A. and
AIG Universal Processing Center S.A., companies incorporated in Argentina, devoted to financial and
complementary activities. Banco Galicia will acquire 95% of the capital stock of the mentioned companies
37
and Tarjetas Regionales S.A. will acquire the remaining 5%, subject, among other conditions, to the
Argentine Central Bank approval. The agreed price with the current holders for the transfer of all the shares,
subject to the customary adjustments in these transactions, was determined in the amount of Ps.166.5 million.
For further information see “Banco Galicia – Agreement for the purchase of the Compañía Financiera
Argentina’s shares”.
During 2009, Galicia Warrants sold its Silos plant in San Salvador, province of Entre Ríos, generating a
profit of Ps.12.7 million.
During 2008, the investments in capital assets and intangible assets amounted to Ps.279.9 million, distributed
as follows:
(i)
(ii)
(iii)
fittings);
Ps.44 million in construction in progress; and
During September 2008, the interests and credits that Banco Galicia had in Aguas Argentinas S.A. and Aguas
Provinciales de Santa Fe S.A. (in liquidation) were sold, and the contingent obligations timely assumed in
relation to such investments were also settled. As of December 31, 2007, the interests were fully provisioned,
while the credits had their related regulatory provisions according to the debtor’s standing. As of September
30, 2008, and as a result of this transaction, a profit amounting to Ps.23.4 million was generated.
During 2007, the investments in capital assets and intangible assets amounted to Ps.208.7 million, distributed
as follows:
(i)
(ii)
(iii)
fittings);
Ps.44.7 million in construction in progress; and
After having obtained the necessary authorizations, on August 2, 2007 Grupo Galicia subscribed for and
paid-in 93,604,637 Class B shares with a par value of Ps.1 each, issued by Banco Galicia. Payment of the
shares was made in cash for Ps.175.3 million and the exchange of Notes Due 2014 for a nominal value of
US$102.2 million.
Payments have been made primarily in Argentina.
For the fiscal year 2010, Grupo Galicia has budgeted investments of Ps.252.3 million. The budgeted
investments will be financed by each company using their own funds.
Business Description
Grupo Galicia’s Strategy
Grupo Galicia’s main purpose is to be one of the leading companies in the provision of comprehensive
financial services and, at the same time, continue to consolidate Banco Galicia’s position as one of the main
banks in Argentina. As a holding company, the group is able to compete in a more efficient way, participate
in new businesses related to financial activities (which, according to the currently applicable law, cannot be
carried out by banks), and benefit from global financial industry trends.
Grupo Galicia’s main purpose as a holding company is exclusively related to financial services and
investments and, according to its by-laws, it cannot carry out the type of transactions described in the
Financial Institutions Law. Consequently, Grupo Galicia does not compete with Banco Galicia. Rather,
Grupo Galicia is constantly looking for opportunities to extend and supplement Banco Galicia’s operations
and businesses by participating in other companies and undertakings related to financial activities. Therefore,
Grupo Galicia develops financial and other related activities that Banco Galicia could not carry out, or in
which Banco Galicia can participate but in a limited way due to the currently applicable law.
38
Grupo Galicia’s strategy is the following:
•
Adapting the business to the current economic situation: Grupo Galicia has established as a strategy
the financing of its controlled companies with the flows of funds of each of them, reducing cash
payments to the minimum required. Furthermore, Grupo Galicia has suspended the payment of
dividends in cash to maintain an adequate level of liquidity, thereby financing its own costs and
existing projects.
•
Establishing a platform to provide added value to its shareholders and customers: Through the
creation of independent businesses, this platform allows Grupo Galicia to take advantage of its market
experience and know-how, as well as of its different companies, in a more focused and efficient way.
Also, the current platform provides Grupo Galicia great flexibility to react to market trends and rapidly
respond to the customers’ needs in relation to new products, markets and distribution channels.
•
Taking advantage of its great flexibility to carry out potential strategic alliances: by organizing certain
business lines in separate subsidiaries, Grupo Galicia optimizes its business potential to carry out
potential strategic alliances. This, in turn, provides additional flexibility to develop new businesses in a
more efficient way.
•
Obtaining the adequate participation levels in certain fast-growing businesses and taking advantage of
any potential cross-selling opportunities: The Argentine Central Bank establishes a limit for financial
institutions to invest in subsidiaries that carry out activities that are considered “non-supplementary” to
the banking activity. Grupo Galicia believes that some of these businesses have a growth potential in
Argentina. Unlike Banco Galicia, Grupo Galicia has no limits on its investments in “nonsupplementary” businesses, such as insurance. Also, Grupo Galicia has a controlling interest in some of
these businesses so as to benefit from the customer base of Banco Galicia and other companies and,
thus, allowing for cross-selling activities.
•
Establishing a corporate structure by means of business units: Grupo Galicia’s intention is to create an
adequate corporate structure, in line with the evolution of the different business sectors. Thus, Grupo
Galicia expects to make a more accurate evaluation of its income sources and cost controls in order to
facilitate the comparison between the patterns of such businesses and other similar ones and, therefore,
allow for Grupo Galicia’s commercial efficiency in the use of resources.
•
Optimizing the capital structure of the Group’s subsidiaries: By having a structure of separate
subsidiaries, Grupo Galicia can distribute its capital in a more efficient way by designing the best
capital structures for each of its subsidiaries and, thus, reduce its capital and investment costs and
expand its growth even more.
Sudamericana Holding S.A.
Sudamericana is a holding company which controls a group of life and retirement insurance companies
offering life, retirement, property, casualty and other types of insurance products in Argentina.
In 1996, Banco Galicia entered the insurance business, through the establishment of a joint venture with
Hartford Life International to sell life insurance products, in which Banco Galicia had a 12.5% interest. In
December 2000, Grupo Galicia subscribed to a capital increase amounting to 37.5% of Sudamericana’s
shares. In September 2001, Grupo Galicia made a new investment in the insurance business by acquiring
50% of Sudamericana’s capital stock and voting rights from Hartford Life International Ltd. (U.S.A.) and
Hartford Life Ltd. (Bermuda). As a result of this transaction, Grupo Galicia increased its interest in such
company to 87.50%, while the remaining 12.50% is held by Banco Galicia.
In turn, Sudamericana controls Galicia Seguros S.A. (property and life insurance), Galicia Retiro Compañía
de Seguros S.A. (retirement insurance) and Sudamericana Asesores de Seguros S.A. (insurance broker).
Grupo Galicia’s investment in the insurance business through its interest in Sudamericana is part of a strategy
to consolidate its position as a leading provider of financial services, supplementing the businesses that
Banco Galicia can only carry out to certain limits as established by the rules currently in force.
39
The joint production of 2009 of the above-mentioned insurance companies amounted to Ps.325.5 million,
exceeding by 11% volume of premiums of the prior year. Such increase was mainly experienced by Galicia
Seguros with Ps.50.3 million more premiums issued than in the same period of the prior year. Adversely, in
Galicia Retiro there was a decrease of Ps.18.6 million in the premiums issued, due to application of Law
26,425 which created the Argentine Integrated Social Security System (Sistema Integrado Previsional
Argentino) (“SIPA”), thus eliminating the commercialization of Social Security Life Annuities (Rentas
Vitalicias Previsionales), the main product of Galicia Retiro’s business. However, the Company continues
administering the funds and paying the annuities to the insured. During 2010, and within the framework of
the current economic scenario, we will continue taking the actions tending to fulfill the objectives of the
Business Plan.
The purpose of Galicia Seguros is to continue the vertical expansion of its business through Banco Galicia
and the Regional Credit Card Companies, the launch of new products, and the use of alternative contact and
sales channels. Another expectation is to develop new sales channels within the financial and retail sector, by
making use of Galicia Seguros’ strength, know-how and experience in the development of mass sales
insurance products. The purpose of these measures is to improve sales and collection levels, and they will be
carried out within a context aimed at obtaining adequate profit levels.
Galicia Retiro will continue to carry out an action plan to manage the current voluntary retirement business in
an efficient way, analyzing the market possibilities in this business sector in order to assess whether or not to
re-launch the sale of voluntary retirement products. As a result of the unification of the pension system, one
of the objectives is to efficiently manage the funds corresponding to the business of social security life
annuities held by the company.
Sudamericana Asesores de Seguros S.A. will continue to improve its growth in corporate businesses, adding
value by providing professional advisory services to its customers and finding the most adequate insurance
policies and companies for each case. The company will keep its strategy to extend the business lines where
it can operate. Also, the Labor Risk business line is currently under implementation.
Net Investment S.A.
Net Investment was founded with the purpose of developing Banco Galicia internet businesses, in the areas
related to e-commerce among companies, individuals and government agencies, mobile-phone payment
solutions, content and connectivity services, and electronic services for companies, aiming to generate and
exchange synergies with Banco Galicia’s operations.
The Grupo Galicia’s shareholding is 87.5%, the remaining 12.5% is owned by Banco Galicia.
The current year perspectives are related to the possibility of realization of the business alternatives which are
under consideration of the Board of Directors. As to December 31, 2009, the company did not hold ongoing
transactions.
Galicia Warrants S.A.
Galicia Warrants was founded in April 1993, when it obtained the authorization from the relevant authorities
at that time (Trade and Investments Department) to store goods and issue certificates of deposit and warrants
under the provisions of Law No. 9,643, both regarding its own deposits and third-party deposits. On July 31,
2001, Grupo Galicia acquired 87.50% of the capital stock and voting rights of Galicia Warrants, in which
Banco Galicia held the remaining 12.50%.
Galicia Warrants is a leading company in the industry of certificates of deposit for goods and warrants, and it
has continuously conducted business in Argentina since 1994, serving medium-sized and large companies in
terms of stock custody. Galicia Warrants’ main objective is to facilitate its customers’ access to credit and
financing, securing such loans with goods kept in custody by Galicia Warrants. Galicia Warrants’ principal
customers belong to the agricultural, industrial, agro-industrial, export and retail sectors. A greater credit
offer and more encouraged productive markets allowed recovering business volumes impaired by the crisis at
the beginning of the year and providing a more optimistic panorama in view of the following fiscal year.
Consequently, during 2009, revenue from services amounted to Ps.10.9 million, the net income of which
totaled Ps.7.7 million at year-end, which was also affected by the sale of a significant deposit (See in this
Chapter “Galicia Group Sale of Silage Plant”).
40
Galval Agente de Valores S.A.
This company was created in January 2005 under the laws of Uruguay. Galval makes use of Montevideo’s
free trade zone and renders brokerage services in Uruguay. Grupo Galicia owns 100% of the voting shares of
this company.
Galval Agente de Valores has gradually conducted operations since September 2005 and, as of December
2009, it had the custody of customers’ securities in an amount of US$116.76 million, out of which US$17.6
million relate to securities held by Grupo Galicia.
GV Mandataria de Valores S.A.
The principal purpose of GV Mandataria is to carry out representations, mandates and commissions, related
to securities, whether involving domestic or international companies. Grupo Galicia’s interest in the
Company is 90% of its stock, and the remaining 10% is held by Galval Agente de Valores S.A.
In December 2008 an agreement to render services as agent of Galval Agente de Valores S.A. was entered
into, which currently is the only activity.
During 2009, revenue for services amounted to Ps.3.8 millions, with an income before taxes of Ps.277,000.
Banco Galicia
Banco Galicia is Grupo Galicia’s most important subsidiary. Banco Galicia operates in Argentina and all of
its customers, operations and assets are substantially located in Argentina. Banco Galicia is a bank that
provides, directly or through its subsidiaries, a wide variety of financial products and services to large
corporations and small- and medium-sized companies (“PyMEs”), and individuals.
Banco Galicia is one of the main banks within the Argentine financial system, and is a leading provider of
financial services in Argentina. As per the information published by the Argentine Central Bank, as of
December 31, 2009, the Bank ranked third in terms of assets and by its deposits, the second measured by its
loan portfolio, and fifth in net worth among private-sector banks.
As of December 31, 2009, on a consolidated basis, Banco Galicia had total assets of Ps.27,225 million, total
deposits of Ps.17,057 million, and its shareholders’ equity amounted to Ps.2,127 million.
As a universal bank, and operating through several affiliates and different distribution channels, Banco
Galicia offers a wide range of financial services to approximately 4.9 million customers, including both
individuals and companies.
Banco Galicia operates one of the most extensive and diversified distribution networks within the private
financial sector in Argentina, offering over 380 contact points with its customers, including branches in
Argentina and e-banking facilities, without taking into account the Regional Credit Card Companies’ offices.
Customers also have access to phone banking services and to “e-galicia.com”, the first financial website
established by an Argentine bank, and to “Galicia Móvil”, the first mobile-phone payments service launched
by a bank in this country.
Additionally, through its subsidiary Tarjetas Regionales S.A., a holding corporation of companies engaged in
consumer finance and credit cards issuance, Banco Galicia is the majority shareholder of three of such
companies, Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A. (the “Regional Credit
Card Companies”), which operate in the interior of the country.
Wholesale Banking
The Wholesale Banking Division is in charge of the Bank’s businesses with the corporate sector, generating
value-added financial solutions and services oriented to optimize the business process of companies that
belong to different economic sectors, contributing to both their commercial development and competitive
growth.
41
Banco Galicia’s strong commitment to the needs of the country’s economic activity is reflected in over
46,000 corporate customers and in the loan portfolio structure (not consolidated with Tarjetas Regionales
S.A.), 62% of which pertains to the financing of production related sectors (43.4% of which corresponds to
the PyMEs and the agricultural sectors and 18.6% of which corresponds to large companies and
corporations).
During fiscal year 2009, Ps.19.605 million were granted as loans to companies throughout the country and
funds management experienced a 30% increase. As in the past, Banco Galicia continued to maintain its
leading position in the PyMEs and agricultural sectors and its strong presence in the corporate segment.
In order to provide companies with new financial solutions, by the end of 2009, Banco Galicia launched a
wide offer of short-, medium- and long-term loans amounting to Ps.1,200 million directed to PyMEs of all
the economic sectors, including outstanding conditions: several credit lines in pesos and dollars with a fixed,
floating or combined rate and terms ranging from 12 to 60 months, to finance working capital and capital
assets.
In order to provide the benefits of all the subsidized credit lines or of those having special terms and
conditions offered by the national and provincial public sector, Banco Galicia took part in several programs,
among which the following stand out: the ANSES program, through which Ps.142.6 million were granted to
finance the purchase of machinery; the program called “Stimulus for Growth of PyMEs” (Department of
Small- and Medium-Sized Enterprises), by means of which loans with subsidized rates amounting to Ps.23.2
million were granted to PyMEs all over the country; and the IDB’s Global Loan Program, through which
loans totaling Ps.1.7 million were granted to PyMEs that develop investment projects in the province of San
Juan.
With regard to leases, Banco Galicia continues to be the market leader in this line of business with a 13%
market share.
During fiscal year 2009, two Company Banking Centers were opened in Quilmes and Neuquén, in addition to
those held by Banco Galicia in Mar del Plata, Rosario, Mendoza, Córdoba, Tucumán and Corrientes,
consolidating, in this way, the customer service model. It is the Centers’ purpose to provide solutions tailored
to each regional problem, satisfying the customers’ needs in situ, within their social and economic context,
and by decentralizing Head Office’s decisions.
Evidence of the work done to improve the quality of products and services is the obtainment of the ISO 9001
Certification for Galicia Integrated Collection, a product highly valued by companies since it facilitates the
optimization of their collection system.
In relation to the business cards market, Banco Galicia consolidated its leadership by offering more benefits
through its Galicia Business and Galicia Corporate cards, oriented to the PyMEs segment and to the Large
Companies segment, respectively. Both cards, designed to meet the needs of the companies’ administrative
and commercial activities, reflected a consumption increase of more than 33% compared to 2008. During the
year, the Galicia Debit Enterprise card was launched, which is a product that allows conducting transactions
over the company’s current account.
In relation to Galicia Rural card, the leading card in the agricultural market with a market share of
approximately 60% including specific cards for the agricultural market, it continued providing benefits to
finance the necessary supplies, goods and services for the rural sector. Throughout the year, more than 30
agreements were entered into with the sector’s major companies so as to offer exclusive financing conditions:
a 0% rate and terms ranging from 90 to 180 days for the purchase of seeds, agrochemicals, fertilizers,
liquefied gas in bulk, machinery and services, among others.
Galicia Office
Year after year, the volume of the inquiries and transactions made through Galicia Office, the e-banking for
companies, keeps on growing, as well as the number of member companies, which today are more than
35,000. During fiscal year 2009, once again, as far as the number of inquiries and transactions is concerned,
the prior year-end records were surpassed. With more than 52 million inquiries and 2.1 million transactions,
the volume of transactions for fiscal 2009 went up by 23%.
42
As regards direct payroll deposits, the volume of transactions rose by 42% compared to 2008. In relation to
foreign trade activities, the amount of transfers abroad and payment orders processing was 35% higher than
in the prior year.
PyMEs
In order to meet the PyMEs’ financing needs with different solutions tailored to each company, throughout
2009, the amount of Ps.8,366 million was granted to medium-sized enterprises and the amount of Ps.3,523.4
million was destined to micro and small companies.
It should be pointed out that Banco Galicia went on supporting the development of regional economies with a
volume of the loans granted significantly higher than the volume of the deposits collected in such economies.
There was a wide financial proposal where a loan offer totaling Ps.1,200 million stood out, supplemented by
the access to all subsidized credit lines and to those having preferential terms and conditions offered by the
national and provincial sector mentioned above.
Agricultural Sector
Throughout its more than a hundred year history, Banco Galicia has shown its commitment to the rural area,
by establishing a direct and close relationship with producers and their unions, developing a customized offer
of products and services and giving customers professional and personalized assistance.
Among the measures taken during fiscal 2009, the following are worth mentioning: the multitude of terms
and conditions offered by Banco Galicia to finance the agricultural campaign both in pesos and in dollars, by
structuring financial loans tailored to each producer’s needs; the agreements entered into with the sector’s
leading companies to provide financing with the Galicia Rural card; and a wide range of credit lines which
facilitated satisfying different producers’ needs.
Corporate Banking
Banco Galicia has a strong presence in the corporate segment which is consolidated year after year thanks to
the development of value-added solutions customized to the needs of this type of enterprises and to the
assistance provided by a vastly experienced team of professionals.
During 2009, Banco Galicia merged the Corporate Banking division with the Large Companies division.
As regards the Corporate Banking division, the foreign trade business experienced a high level of activity
reaching a turnover of US$4,376.7 million and 18,039 transactions.
In 2009, this division participated actively in the structuring of several debt transactions in the capital market.
The challenge for 2010 is to continue working so as to reach a better position for Banco Galicia in this
customer segment.
Capital Market and Investment Banking
During 2009, Banco Galicia maintained its revenues compared with the previous year in spite of domestic
and international market environments.
The Capital Market’s activity consisted of corporate debt transactions and, to a lesser extent, financial trusts,
taking part in 10 transactions amounting to Ps.1,116 million and to US$153.6 million.
Two of such transactions were structured in pesos in the form of short-term securities, in the total amount of
Ps.40 million. The other transactions consisted of Notes in dollars for a year or longer term.
Additionally, Banco Galicia collaborated on optimizing the financing structure of related companies, by
conducting 3 transactions in the international market amounting to US$115 million.
43
Banco Galicia structured 3 financial trusts in the total amount of Ps.1,076 million and US$3.6 million, 2 of
which were private financial trusts. The financial trust market was affected by regulatory changes which
cause these transactions to become more expensive, giving rise to a decrease in their volume.
With respect to Investment Banking, Banco Galicia participated in 5 loans together with the main banks that
operate in the domestic market in the total amount of Ps.783 million, out of which Banco Galicia granted
Ps.115 million.
Non-Financial Public Sector
During 2009, Banco Galicia continued to increase its position as a service provider in the public sector, by
visiting and offering services to different municipalities and national universities. As a result, new
agreements were executed and additional services were offered to the municipal sector, and the bank
succeeded in being the first bank in the country which implemented a BtoB service oriented to the payment
of municipal rates that are to be paid by legal entities.
In addition, Banco Galicia continued participating in different public bids on direct payroll deposits.
The interest shown by the municipal sector in the services offered places Banco Galicia in a good position so
as to continue its businesses during fiscal 2010.
Foreign Trade
During 2009, the foreign trade business developed within the international crisis framework, which affected
the value of commodities and, consequently, the amount of the country’s exports and imports, decreasing
from US$128,000 million in 2008 to US$96,000 million in 2009.
The annual volume of international trade transactions handled by Banco Galicia totaled US$9,500 million, in
conjunction with a sustained level in the number of transactions, approximately 232,000.
Import and export transactions totaled US$7,673 million, a 10% setback over the prior year amount, but
lower than the country’s fall of 25%, thus increasing the market share from 6.6% to 8.0%.
It is worth mentioning that more and more customers use as a source of information and inquiry Galicia
Comex, the first website specialized in foreign trade of the Argentine financial system. From the Galicia
Comex website, customers can have access to valuable information for their activity, such as tools, key news,
sector-by-sector reports, foreign markets analyses, interpretation of regulations and specialists’ articles,
among others, with the purpose of providing a comprehensive international business vision, combining both
operating and commercial aspects. During 2009, there were over 3,000 monthly visits to this website.
On the other hand, we have continued developing foreign trade transactions online, primarily through Galicia
Office, with a 32% growth in the number of customers compared with the prior year.
Retail Banking (1)
In 2009, the retail financial market was highly competitive and maintained a good growth rate, despite the
fact the first quarter was a bit uncertain, owing to the impact of the international financial crisis and the
domestic context.
Banco Galicia is in the reduced leadership group in this market and in 2009 maintained an aggressive benefit
offer to its customers under the “More every day” (Cada día más) campaign, which allowed the Bank to get
ahead and win market share in most of its business lines.
In order to facilitate the decision-making process, improve commercial efficiency and give a greater focus on
customers, since August 2009 the Retail and Distribution divisions were merged and redesigned.
(1)
The figures included in this section are related to Banco Galicia individually, unconsolidated with Regional Credit Card
Companies.
44
The main changes in the Retail division were the following: (i) the creation of a Segments Department, in
order to generate a differentiated value proposal for each customer of the Retail Banking; (ii) the inclusion of
Micro- and Small-Sized Enterprises (with less than Ps.5 million and Ps.20 million in relation to annual
billing, respectively) in the Retail division to provide better assistance through the branch network; (iii) the
centralization of the branch network management in a single manager, by removing regional managements;
(iv) the focus of the Alternative Channels department on commercial management, transferring the call
centers’ operating function to the Transactions Department; (v) the division of the Retail Marketing
Management into Products and Advertising, Promotion and Image; (vi) the merger of the Advertising and
Promotion Departments in the Retail division, which renders services to the whole Banco Galicia and is
responsible for the control over the corporate image; and (vii) the Private Banking Management completing
the Retail Business division.
Products Tailored to Customer Type
Banco Galicia divides its customers portfolio based on their activity and their level of income so as to meet
the needs of each customer’s profile.
Galicia Prefer is an integral financial offer, suitable for higher-income customers, which provides a
differential service and financial products consistent with the needs of this type of customers.
During 2009, Galicia Prefer Platinum was launched, a new product including exclusive services such as
personal concierge, wide insurance coverage, preferential rates applicable to assets and investments and
higher financing limits, among others.
In search of new solutions for our customers, products that are better adapted to each customer type
continued being developed. Loan 24 was launched, emphasizing the speed at which loans are granted, and
new insurance and account services were included. Moreover, special promotions were launched in the
categories that are most valued by these customers.
In 2009, Galicia Prefer Businesses were also launched; a service which is directed to customers undertaking
commercial activities and which provides financial tools that cover, in an effective manner, the personal and
commercial needs of the Businesses and Professionals segment, which has a significant role in the
development of the economy.
With respect to the direct payroll deposits service, despite the deceleration of the economy and the effects
thereof on employment throughout 2009, the number of customers rose by 6% and the volume of wages and
salaries grew by 28% compared with 2008. Currently, Banco Galicia provides direct payroll deposits services
to 15,000 companies, representing over 500,000 customers.
Regarding the Small Enterprises (“PEs”) segment, Banco Galicia has more than 31,000 customers. This
customer base, with billing reaching up to Ps.20 million, is the responsibility of over 250 specialized
corporate officers at the branches. Throughout the year, customer liaison campaigns were conducted whereby
credit lines with special rates for the PEs were offered, by placing Ps.36 million into ANSES line and Ps.12
million in ADEBA (Argentine Bank Association (Asociasión de Bancos Argentinos)) line.
In order to expand credit to productive projects, a special credit line was created to fund micro-finance
institutions engaged in the funding of micro-entrepreneurs, granting Ps.1.4 million.
Private Banking
Galicia Private Banking (Galicia Banca Privada) offers premium, professional financial services to medium
to high net worth individuals. This is performed through the management of their investment portfolios and
the provision of financial advice. Galicia Private Banking offers its customers a wide range of domestic
financial investment alternatives, giving priority to the Bank’s products (deposits, the investment funds sold
by the Bank, among others) and financial trusts’ debt instruments and notes where the Bank acts as a dealer.
45
One of the competitive advantages of Galicia Banca Privada is the extensive geographical coverage of its
thirteen service centers located all over the country. In this regard, it is worth mentioning that a new service
center was opened in the city of Neuquén and that the Barrio Norte service center was relocated as part of the
new Alvear Branch.
Banca Privada focused on increasing the managed portfolio, particularly peso-denominated deposits, and on
placing financial trusts and notes among investors. During the year, Banca Privada had a significant
participation in the placement of notes, with considerable acceptance and a volume exceeding US$57 million.
Moreover, Banca Privada obtained the new ISO 9001 certification in customer service model. Such
certification was extended under the 9001: 2008 version in fiscal year 2009, thus reaffirming Private
Banking’s commitment to constantly improving service quality management.
Cards
With respect to credit cards, the amount in pesos of purchases made by customers with Visa, Visa Debit,
American Express and MasterCard issued by Banco Galicia exceeded Ps.10,700 million (28% more than in
2008). The campaigns organized through promotions at different stores and shopping malls and through
installment financing, oriented to new customers and to boost consumption among existing clients, allowed
us to exceed 1.15 million accounts with statements and debit cards with purchases, experiencing an 8%
growth throughout the year and winning market share.
During 2009, over 860 promotions were done in 2,800 points of sale with discount offers in the most
significant consumption items and with nationwide coverage.
Insurance
Banco Galicia continues holding its position as one of the leading financial institutions that offers its
customers, in an effective and simple way, a wide range of property and personal insurance, commercialized
through its extensive distribution network, by operating with prestigious insurance companies that are market
leaders.
During fiscal year 2009, customers purchased more insurance, which was reflected in an increase in
insurance-related income from services. Property insurance including policies aimed at protecting homes
surpassed 138,000 policies in 2009, and personal insurance, such as personal accident coverage, exceeded
53,000 policies, life and health insurance exceeded 19,000 policies, and unemployment insurance exceeded
85,000 customers insured in the same year.
Comprehensive business insurance ensures the continuity of customers’ undertakings and has developed
favorably since the beginning of its commercialization in 2007, reaching a stock of almost 5,000 policies at
the end of fiscal year 2009.
Consumer Loans
As regards consumer loans, the Bank continued working hard on improving its offering, by focusing
particularly on the customer base and setting the goal of continued growth, maintaining the outstanding risk
levels achieved. With this aim, the Bank continued developing and improving its credit limit allocation
(through an automatic rating process) applicable to customers whose salaries are directly deposited at Banco
Galicia or that already have a product outstanding.
With respect to the line offering, we focused on developing products having features tailored to different
customers and income segments, which allowed us to optimize placement efforts for commercial purposes
and achieve greater product profitability.
Placements were distributed as follows: 23% in the Businesses and Professionals segment (40% higher than
in 2008), 55% in the High Income and Upper-Middle Income segments (17% higher than in 2008) and 22%
in Middle Income segments (27% lower than in 2008).
46
We also continued expanding our range of products by entering into agreements with partners to reach
customers through consumer loans related to a differential price offer.
On the other hand, we kept on working strongly on placement campaigns, reaching customers and noncustomers through mass communication and direct marketing actions, including assigned loan ratings. All
this allowed us to place over Ps.1,000 million loans exceeding the goals set for fiscal year 2009 by 30%.
Investments
In relation to deposits, throughout fiscal year 2009, there were growth and contraction periods which
accompanied market evolution. Beginning in July, there was an uninterrupted growth stage which lasted until
December 2009.
During 2009, peso-denominated time deposits experienced a 16.8% growth (approximately 2.8% above
market), and transactional deposits showed a 23% increase compared with fiscal year 2008. As of December
31, 2009, total retail deposits in local currency amounted to Ps.6,449 million, made up of demand deposits
amounting to Ps.2,573 million and time deposits amounting to Ps.3,876 million. As of such date, retail
deposits in dollars reached the total amount of US$512 million, out of which US$227 million are related to
demand deposits and US$285 million are related to time deposits.
Commercial Intelligence
Based on the Management’s business strategy, we continued conducting segmented campaigns on a
permanent basis in line with current and potential customers’ needs.
To develop these campaigns, we use data mining, geomarketing and segmentation tools, which allow us to
determine customized offers, based on daily information, and reach our customers through different channels,
such as our branch network, the Retail Sales Unit (“RSU”), telemarketing, automatic telling machines
(“ATM”), electronic mails, traditional mail and other external channels. During 2009, we made more than 12
million contacts and sent over 3 million electronic mails and 600,000 customized parts of direct marketing.
Another key aspect for the success of our campaigns is the constant update to the information contained on
our customer base. Therefore, we conducted an ambitious plan aimed at improving the quality of customers’
data, combined with a new tool which standardizes the addresses on the customer base with periodic
campaigns for data improvement through ATM, telemarketing and RSU.
Advertising, Promotion and Image
2008 was the year in which Banco Galicia changed its image; 2009 was the year in which the bank changed
its communication strategy. To that end, through a very strict bidding process, we chose Young & Rubicam,
a world-renowned advertising agency and one of the most successful agencies within the Argentine market,
which created the “Cada día más” campaign to continue with and reinforce the “Achieve what you want”
(Alcanzá lo que querés) concept among the public, an idea which was being conveyed before.
“Cada día mas” tried to build up a concept showing an improvement in Banco Galicia mission, enthusiasm
for progress and growth to provide our customers with more benefits, more and better products, services and
assistance everyday.
With this new campaign, Banco Galicia managed to reach collection levels of 70%, exceeding the levels
achieved in the most recent campaigns. Every day we make efforts to surpass these levels, to be in a closer
contact with our customers, paying attention to their needs and providing a solution with products and
services of quality.
47
Branch Network
At the end of fiscal year 2009, the branch network’s geographical distribution was as follows:
Geographical Area
Capital Federal
Greater Buenos Aires
Rest of the Province of Buenos Aires
Santa Fe
Córdoba
Mendoza
Entre Ríos
Chubut
Río Negro
Corrientes
La Pampa
Misiones
San Luis
Tierra del Fuego
Tucumán
Catamarca
Chaco
Formosa
Jujuy
La Rioja
Neuquén
Salta
Santa Cruz
Santiago del Estero
San Juan
Total
Number of Branches
77
61
28
15
14
9
4
4
3
2
2
2
2
2
2
1
1
1
1
1
1
1
1
1
1
237
During the year, we opened the Alvear branch, the first Platinum branch with a new model of preferential
assistance to customers pertaining to this segment. Moreover, the Villa Tesei branch merged with the
Hurlingham subsidiary and the Jumbo Lomas de Zamora branch merged with the Temperley subsidiary.
The following subsidiaries were redesigned: Comodoro Rivadavia, Parera, Vicente López, Quilmes Centro
and Neuquén. In the two last-mentioned subsidiaries, a Company Banking Center was included, seeking a
closer proximity with this segment in such manner.
Alternative Channels
Alternative Channels include Red Galicia 24 (automatic telling machines), the e-galicia.com portal, Galicia
Servicios Móviles (services to operate from mobile phones) and the RSU. These channels are, like traditional
branches, service, transactions and sales channels aimed at both individual and corporate customers.
During fiscal year 2009, as in previous fiscal years, the level of use of alternative channels by the Bank’s
customers recorded an upward trend. In this regard, during fiscal year 2009, the volume of transactions
carried out through these channels represented 86% of the aggregate.
Regional Cards (Consumption)
Regional credit card and consumer finance companies, Banco Galicia’s subsidiaries through Tarjetas
Regionales S.A. (Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A.), had a very positive
year, despite the adverse circumstances in which the economy and the financial system developed in the first
quarters of fiscal 2009. These companies recorded a significant growth in their profits, keeping high
profitability ratios.
48
At the beginning of 2009, and due to liquidity restrictions and to the subsequent rise in funding costs, the
regional credit card companies limited their funding needs entirely, by suspending the branches’ growth
programs, postponing the expansion of coverage areas, restricting the capture of new accounts, and removing
long financing plans in installments. When the liquidity situation improved, the companies revised the
measures taken and reacted inversely to resume growth.
The branch network remained stable at 209 customer service centers. However, significant improvements were
made in their quality and location, so as to provide a better and more complete customer service, and to obtain
larger spaces and comfort for the customers and personnel.
The staffing also remained almost invariable, reaching 3,936 individuals in the branches as a whole at the end
of fiscal 2009. Tarjeta Naranja ranked second in the Great Place to Work award, reaffirming the objectives of
improving the quality of resources and the provision of services, human resources being one of the pillars of
the companies’ business and operating success.
The monthly average of statements issued grew by 6.6% in the year, reaching 1.85 million statements every
month. Transactions totaled 74.7 million (+10.5%), the annual turnover at stores exceeded Ps.9,000 million
(+20.0%) and the receivables portfolio before allowances, including the portfolio assigned to trusts and the
loans granted on behalf and at the expense of Banco Galicia, increased up to Ps.3,376 million (+3.8%) at yearend.
Although some relevant variables recorded moderate growth ratios, the regional credit card companies’ net
income as of December 31, 2009 corresponding to Banco Galicia, through Tarjetas Regionales S.A., amounted
to Ps.133 million, accounting for a 74% increase with respect to 2008. Interest on customer financing
experienced a significant rise, since the lack of liquidity evidenced at the end of 2008 was carried forward to
lending rates for the following year. These rates achieved high levels at the beginning and decreased gradually
throughout the year, but they remained at high levels. As regards financial costs, the decrease was much
sharper and resulted in an improvement on the net financial margin, which explains to a large extent the
growth in profits.
Revenue from services also went up, since commissions depend mainly on the number of statements issued in
the year and on billing. Additionally, at the onset of the fiscal year, price updates were made, owing to a rise in
inflation and salaries, and for the purpose of preventing the services offered from being devalued.
The controlled delinquency behavior was another key factor in terms of profitability. Since the budget forecast
an increase in delinquency ratios owing to the impact of the crisis and the portfolio’s significant growth in
prior years, the companies adopted several preventive measures and improved collection capacity to sustain
losses.
Fund sources, like their related costs, were modified experiencing a rise in the issue of notes, whereas bank
loans and especially financial trusts went down with respect to 2008.
With respect to the development of products, the launch of Naranja Mo stands out. Naranja Mo facilitates
making purchases at stores through mobile phones, with balances transferred by Tarjeta Naranja holders within
their own credit limits. Moreover, it is worth mentioning that Tarjeta Mira and La Anónima supermarket chain
reached an agreement to launch a credit card for buying purposes which grants benefits exclusively at such
chain. The agreement seeks to redefine the company as far as turnover and territorial expansion are concerned,
increasing its importance in most of the country’s provinces.
Finance
The Financial Division comprises Treasury, Banking Relations, Assets and Liabilities Management and
Information Management. Moreover, the Financial Division takes part in the fund business by being the main
distribution channel for this kind of products, as well as in the stock-exchange transaction business through
Galicia Valores S.A.
49
Treasury
Among other responsibilities, Treasury is in charge of managing Banco Galicia’s liquidity and different
financial risks as per the parameters imposed by the Board of Directors. Treasury manages the bank’s
foreign-exchange and securities positions and acts as a dealer in the distribution of financial instruments to
both own customers (institutional investors) and corporate and individual customers. It takes part in several
markets as an agent of the Argentine Over-The-Counter Market (Mercado Abierto Electrónico) (the “MAE”)
and as a member of the Rosario Forward Market Financial Products Division (Mercado a Término de
Rosario División Productos Financieros) (the “ROFEX”). Through Galicia Valores S.A. Sociedad de Bolsa
(“Galicia Valores”), it offers customers trading services to operate on the Buenos Aires Stock Exchange.
The traded volumes in the domestic market showed a sharp decrease with respect to those reported in 2008.
In fixed-income instruments, the traded amount was 59% lower than that in 2008, decreasing from
US$94,427 million to US$38,765 million in 2009. However, Banco Galicia’s traded volume rose by 12%
reaching US$1,659 million, which translated into a significant improvement in the MAE’s annual ranking for
fixed-income transactions, going from the 17th position in 2008 to the 8th position in December 2009. In the
stock exchange market, the total traded volume amounted to Ps.77,979 million, 37% lower than in 2008.
Galicia Valores contributed with an aggregate amount of Ps.2,234 million, with a 50% increase compared to
the prior year.
During fiscal year 2009, Banco Galicia placed financial trust securities and notes in dollars and in Argentine
pesos, held by both the bank and third parties, in the domestic and international markets, totaling US$126
million and Ps.205 million.
As to the exchange market, the traded volumes conformed to the development of the international and
domestic macroeconomic context. During 2009, the amount of US$7,047 million was transacted in foreign
trade, which represented a 25% decrease with respect to the prior year, whereas the foreign-exchange bills
brokerage reached a volume of US$3,332 million as of December 31, 2009, reflecting a 9% rise with respect
to fiscal year 2008. In the wholesale exchange market, the aggregate amount of transactions made by Banco
Galicia through the MAE was US$5,591 million, which represented a 47% fall in the year. As to the currency
futures market (OCT-Rofex), the volumes traded by Banco Galicia amounted to US$7,230 million during
2009, raising the volume by 20% with respect to the prior year. Based on the preceding figures, Banco
Galicia ended fiscal year 2009 occupying the fifth position in the MAE’s ranking given the bank’s total
traded volume, keeping, as a result, the position of the prior year.
In the last quarter of 2009, Banco Galicia started operating in the MAE’s interest rate derivative market and
managed to reach, as far as traded volume is concerned, the fifth position in swap agreements and the third
position in futures on such market.
Banking Relations
As regards the international environment, the Banking Relations Management is responsible for business
relationships with correspondent banks, international credit agencies and international investment funds. As
from the fourth quarter of fiscal year 2009, such Management is in charge of business relationships with
financial institutions and foreign exchange offices in the domestic environment.
Like in prior years, during 2009 bilateral meetings were held with the main foreign correspondent banks,
through which a constant flow of foreign trade transactions was channeled. Despite the sharp shrinkage in
trade worldwide, such flow slightly reduced transactions in volume but not in number. The greater
availability of credit lines facilitated covering, in a comfortable manner, the requests for the confirmation of
letters of credit and stand-by letters and the financing needs of our customers at competitive costs. Most of
the activity was carried out with Latin America and Southeast Asia, followed by the European Union and
North and Central America.
Additionally, the Bank kept direct contact with several multilateral organizations such as the International
Finance Corporation (“IFC”), the Inter-American Development Bank (“IDB”), the Inter-American
Investment Corporation (“IIC”), the Andean Development Corporation (“ADC”) and the FMO (Netherlands
Development Finance Company), with the purpose of expanding our offer to finance sustainable projects. To
such end, with resources from the IFC, the Bank continued financing medium- and long-term investment
projects submitted by companies, mainly related to the agriculture and livestock sector.
50
Moreover, Banco Galicia has recently been the host of the Integration Conferences with Latin American
banks that have adhered to the Equator Principles. Officers from the IFC, a body answerable to the World
Bank, participated as guests in said conferences, where experiences in credit analysis were shared from a
social and environmental viewpoint.
As to the domestic environment, the Bank continued analyzing and detecting business opportunities, always
within the framework of reciprocity and stable and long-term relations.
With respect to Banco Galicia Uruguay S.A., on May 15, 2009, the remaining balance of the arrangement
with creditors imposed in December 2002 was made available in advance by the Bank to its customers.
Assets and Liabilities Management
The Assets and Liabilities Management is responsible for preparing and analyzing the information directed to
the administration of mismatches to which the Bank’s activity is subject, keeping the exposure within the
policies set forth by the Board of Directors.
The activities include supporting the Assets and Liabilities Committee (ALCO) by analyzing, quantifying
and controlling the risks linked to the different business hypotheses and market scenarios, and by performing
a follow-up to and monitoring liquidity and currency mismatches policies, either imposed by the Central
Bank or by Banco Galicia’s management.
Investment Funds
Banco Galicia distributes the FIMA investment funds (common investment funds sold by the Bank) in
different customer segments (institutions, companies and individuals) through its broad channel network
(branches, electronic banking, phone banking), while acting as a custodian of the assets that make up the
funds, in its role as depository. Galicia Administradora de Fondos S.A. is the company that manages
investments and determines the value of the mutual fund units on a daily basis.
During 2009, the investment fund industry raised the volumes under management by 27%, particularly
regarding short-term fixed-income funds in local currency and, to a lesser extent, stock funds in local
currency, ending the fiscal year with a balance of Ps.17,005 million.
As for the FIMA funds, they grew by more than 41%, going from Ps.776 million (December 31, 2008) to
Ps.1,098 million (December 31, 2009).
FIMA market share reached 6.5% at year-end (2009), from 5.8% recorded in December 2008. If international
variable-income funds are excluded (products centralized by independent managers), the market share
reached 7.3%.
In terms of internal development, during 2009 Galicia Administradora de Fondos S.A. started analyzing and
reviewing its processes to obtain the certification of the ISO 9001 quality standards, which include asset
management, the accounting of transactions and the commercial support to the distribution channels.
Integrated Corporate Services
In order to integrate all the transactions carried out by Banco Galicia into a single division to improve the
efficiency in operating processes, the Integrated Corporate Services division has been redesigned within the
framework of Banco Galicia’s general restructuring process.
The main changes in the Corporate Services division have been the following: (i) the inclusion of the Call
Centers operations and Foreign Trade transactions in the Operations sector; (ii) the division of the former
Administration Management into four sectors: Engineering and Maintenance, Purchases and Hiring, Security
and Management Control; and (iii) the creation of a Project Management sector within Organization, for the
purpose of giving priority to, documenting, continuing and envisaging Banco Galicia’s different projects. The
addition of new sectors represents a challenge to keep Management’s efficiency and administration practices.
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During 2009, the change of image was completed in 152 neutral positions and the image manual for the
Company and Private Banking Center was developed. One branch was opened, 5 branches were redesigned
with the new 2008 image, 2 Company Banking Centers and 2 Private Banking centers were opened and 123
new self-service terminals (either as replacements or new ones) were installed.
The service agreement with the Distribution Management to administer the maintenance and emergency
attention of the network infrastructure reached efficiency ratios exceeding 90% in 2009. A service agreement
similar to the prior one was implemented for the operating sectors in the centralized divisions.
Regarding corporate buildings, during fiscal year 2009, they were improved and maintained in accordance
with the budgetary guidelines in place. Additionally, in 2009, actions were taken to rationalize energy
consumption, paper recycling and environment control, obtaining the ISO 14001 certification for the
environmental management program.
As to physical safety, during 2009, we continued implementing the digital image recording, the shield of
safe-deposit boxes, and the application of Communiqué “A” 4778 issued by the Central Bank for the
improvement of safe-deposit boxes in the branches, and the number of evacuation drills implemented at the
“Torre” (Tte. Gral. Juan D. Perón 430) were extended to other buildings.
Competition
Due to the financial holding structure of Grupo Galicia, competition is not experienced at the level of the
holding company but at that of our operating subsidiaries. Grupo Galicia faces strong competition in most of
the areas in which it is active.
Financial Activity
Banco Galicia faces significant competition in all of its principal areas of operation. The Bank faces
competition from foreign banks operating in Argentina, mainly large retail banks which are subsidiaries or
branches of banks with global operations, Argentine national and provincial government-owned banks,
private-sector domestic banks and cooperative banks, as well as non-bank financial institutions.
With respect to private-sector customers, the principal segment for the Bank, the main competitors are large
foreign banks and certain domestically-owned private-sector banks, which, prior to the crisis, operated in
commercial or private banking and that, after the 2001-2002 crisis, acquired the retail operations of banks
that left the business as a result of such crisis. Competition from public-sector banks has decreased since the
immediate post-crisis period, as the public initially attracted to such institutions as a safe harbor began to
search for better service with private-sector financial institutions. However, the three largest governmentowned banks are of a significant size and also compete with the Bank.
Banco Galicia’s estimated deposit market share of private-sector deposits in the Argentine financial system
and considering only Banco Galicia’s operations in Argentina, was 7.81% as of December 31, 2009,
compared to 7.61% as of December 31, 2008 and 8.23% as of December 31, 2007.
According to information published by the Argentine Central Bank, as of December 31, 2009, the Bank was
the third private-sector bank as measured by its assets and by its deposits, the second bank measured by its
loan portfolio, and ranked fifth in terms of net worth.
The Bank has a strong competitive position in retail banking, both with respect to individuals and PyMEs.
Specifically, Banco Galicia is one of the primary providers of financial services to individuals, the primary
private-sector institution serving the PyMEs sector, and has traditionally maintained a leading position in the
agriculture and livestock sector.
No official data is available about the credit card market and the consumer of financial services’ market in the
interior of Argentina, where the Regional Credit Card Companies operate. However, the Regional Credit
Card Companies’ operation is estimated to be the largest of its kind in Argentina and Tarjeta Naranja S.A. is
estimated to be the largest proprietary-brand credit card issuer in Argentina among approximately 170
existing companies.
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Insurance
Sudamericana’s subsidiaries face significant competition, as the Argentine insurance industry was comprised
of approximately 178 insurance companies as of December 2009, 39 of which were dedicated exclusively to
life insurance and 21 to retirement annuities. Subsidiaries of foreign insurance companies and the world’s
largest insurance companies with global operations are among these companies. In addition, as of that date,
the number of brokers amounted to approximately 23,800 individuals and 442 companies.
As of December 2009, Galicia Seguros ranked seventh in terms of underwriting of life insurance, and third in
terms of underwriting of home insurance.
Regulatory Aspects
Introduction
In accordance with the aforementioned, Grupo Galicia is a holding company which provides banking and
financial services, among others, through its subsidiaries. Thus, Grupo Galicia is not directly governed by
certain laws and rules applicable to the banking and financial activity. The regulations described in the
following sections correspond to the regulations applicable to the businesses of its subsidiaries, as applicable.
It must be mentioned that Banco Galicia, the most important asset of the Issuer, is a financial entity under the
Financial Institutions Act, thus, its activity is regulated by the Argentine Central Bank. Therefore, most of the
regulations described in the present Section is a summary of some of the aspects of Argentine banking
regulations.
Regulatory Authority of the Issuer
As a consequence of the application and authorization granted to make a public offering of its shares, and its
Notes, Grupo Galicia is under CNV regulation pursuant to Law 22,169. At the same time, given that certain
securities are authorized to list in the BASE, in the MAE and in the Bolsa de Comercio de Córdoba (the
“BCC”), Grupo Galicia is subject to the control of both entities. On the other hand, in view of its condition as
a holding company and for not being a financial entity according to Argentine laws, unlike Banco Galicia,
Grupo Galicia is not subject to the supervision of the Argentine Central Bank.
Argentine Banking Regulations
The following is a summary of certain aspects associated with the Argentine banking system, including
certain legal and regulatory provisions applicable to financial institutions within the Argentine Republic. This
summary does not intend to be a thorough analysis of every law and rule applicable to said institutions in the
Argentine Republic.
General Aspects
Since 1977, banking activities in Argentina have been governed by the Financial Institutions Law, which
empowers the Argentine Central Bank, an autocratic entity, to supervise and control the banking system. The
Argentine Central Bank has delegated most of its supervision powers to the Superintendence of Financial and
Foreign Exchange Institutions. In this section, unless otherwise required by the context, the references to the
Argentine Central Bank shall be understood as references to said entity acting through the Superintendence of
Financial and Foreign Exchange Institutions. The Financial Institutions Act grants the Argentine Central
Bank wide access to accounting systems, books, correspondence and every other documentation of the
financial institutions. Said body regulates the offering of credit and supervises the liquidity and the
functioning of the Argentine banking system, in general. The Argentine Central Bank is the enforcement
authority of the Financial Institutions Act and it is in charge of authorizing banks to operate in Argentina. The
Financial Institutions Act has granted several powers to the Argentine Central Bank, including the power to
approve and revoke authorizations to operate, authorize the creation of branches outside Argentina, approve
bank mergers or capital increases and certain equity transfers, establish minimum capital, liquidity and cash
requirements and limits on loan, to grant certain credit lines for financial institutions in case of temporary
illiquidity and provide for other regulations pursuant to the Financial Institutions Act.
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In accordance with the regulations in force to this date, national- and foreign-capital banks are governed by
the same regulations.
The Financial Institutions Law and Argentine Central Bank’s Charter were amended by Act No. 25,780,
published in the Official Gazette on September 8, 2003. The main provisions of the act are: (1) authorization
for the Argentine Central Bank to grant temporary loans to the Argentine government, for an amount
equivalent to 12% of the monetary base and to grant loans for an amount of up to 10% of the Argentine
government’s annual revenues collected in cash during the preceding 12 months, which, in both cases, should
be paid back within 12 months as from the date of disbursement. The aforementioned monetary loans shall
not be over 12% of the monetary base, except in the case of loans assigned exclusively to pay obligations
towards multilateral credit agencies; (2) an indemnity for the Argentine Central Bank’s officials, highlighting
that “the opportunity, merits or convenience” of certain decisions (mainly related with the settlement and
restructuring of financial institutions) shall be examined by courts only if said decisions were clearly
unreasonable and arbitrary; (3) authorization granted to the Argentine Central Bank to exclude assets and
liabilities of financial institutions with liquidity and financial standing problems and to establish the
corresponding valuation rules and transfer said excluded assets and liabilities to other financial institutions, or
transfer assets to financial trusts; see below “Financial Institutions with Economic Difficulties”; (4)
modification of payment privileges in favor of creditors; see in this chapter “Depositors’ Rights of Privilege”;
and (5) authorization granted to the Argentine Central Bank to grand discounts to financial institutions with
liquidity or financial standing problems, during the validity of the Emergency Act.
Main Regulatory Changes since 2002
On January 6, 2002, the Government enacted the Public Emergency Law (Law No. 25,561) in order to face
the 2001-2002 crises. The main measures implemented by the Government, especially during 2002, both by
means of the passing of this law as well as a series of decrees and other rules, include the following: (i)
ratification of the suspension of payments of a significant portion of the public debt, except for the
obligations with multilateral credit organizations, which situation has been gradually moderated until present;
(ii) annulment of the sections of the Convertibility Law which established, since 1991, the 1-1 parity between
the peso and the dollar, devaluation of the peso and a floating exchange rate regime, which resulted in an
increase of the peso’s exchange rate with respect to dollar of approximately 240% during 2002; (iii) increase
of foreign exchange control and restrictions to international wire transfers, measures which started to be
softened by the end of 2002; (iv) ratification and extension of restrictions on cash withdrawals of bank
deposits established in December 2001 (“corralito”), which were lifted in December 2002; (v) mandatory
conversion to pesos of certain dollar-denominated bank assets and liabilities at different exchange rates
(“asymmetric pesification”), as described below: (a) dollar-denominated debts of individuals and companies
with financial institutions were converted into peso-denominated debts at an exchange rate of Ps.1 per dollar
(1:1); (b) dollar-denominated debts of the public sector with the financial sector were converted into pesodenominated debt instruments at an exchange rate of Ps.1.4 per dollar (1.40:1); and (c) dollar-denominated
bank deposits were converted into peso-denominated bank deposits at an exchange rate of Ps.1.4 per dollar,
whereas liabilities regulated by foreign legislation of the public sector, banks and companies maintained their
dollar-denomination; (vi) alteration of the return on assets and the cost of pesified liabilities at an exchange
rate of Ps.1.4 per dollar, pegging minimum and maximum interest rates, respectively, and establishing the
adjustment of its capital according to the indexes based on the variation of retail prices or wages; (viii)
rescheduling of maturity dates for time deposits in pesos and deposits originally made in dollars, greater than
certain amounts, setting a payment schedule ending in 2003 or 2005, taking into account if these were
originally made in pesos or dollars (measures known as “corralón”); (ix) voluntary exchanges of deposits
within the “corralito” or the “corralón” for Government Bonds. By virtue of Decree No. 739/03 the
“corralón” ended on April 1, 2003; (x) amendment to the Argentine Central Bank’s Organic Charter (see
Section “General Aspects”); and (xi) compensation to financial institutions through securities to be issued by
the Government for the losses which, otherwise, would have been caused by asymmetric pesification. As of
this date, the Executive Branch of the Government and the Argentine Central Bank have provided a series of
rules to determine the amount of the compensation for asymmetric pesification corresponding to each
financial institution in the form of government securities, even though there are still certain situations which
have not been considered by these, such as compensation for the differences between the sums paid by
financial institutions when returning deposits in dollars at the market exchange rate, as a result of amparo
claims filed by depositors and the amounts established by regulations.
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The effective period of the Public Emergency Law was extended successively by the National Congress.
According to the last extension, the effective period of the law ends on December 31, 2011.
Compensation to Financial Institutions
For Asymmetric Pesification and its Consequences
Decree No. 214/02 established that financial institutions would receive compensation for (i) losses caused by
the conversion to pesos of a significant portion of its liabilities at an exchange rate of Ps.1.4 per dollar,
greater than the exchange rate for the conversion into pesos of some of its dollar-denominated assets set at
Ps.1.0 per dollar, with the issuance and delivery of a compensatory bond, for which “Government Bonds in
Pesos 2007” (Boden 2007, the “Compensatory Bond”) were issued; and (ii) the mismatch of their foreign
currency positions that followed the compulsory pesification of certain portions of their assets and liabilities
through the conversion of the Compensatory Bond, originally peso-denominated, into a dollar-denominated
bond and, if necessary, through the purchase by financial institutions of a dollar-denominated Hedge Bond.
For such purpose, the Government established the issuance of Boden 2012.
Among others, Decree No. 905/02 established the methodology to calculate the compensation to be received
by financial institutions. The Bank recorded the compensation for the determined amounts, in accordance
with the rules. After a verification process of the calculation, the Argentine Central Bank had to confirm the
amounts to be compensated to each entity.
In March 2005, the Bank agreed with the Argentine Central Bank to receive Boden 2012 for a nominal value
of US$2,178.0 million, comprised of Boden 2012 for a nominal value of US$906.3 million corresponding to
the Compensatory Bond which were fully paid in November 2005 and Boden 2012 for a nominal value of
US$1,271.7 million corresponding to the Hedge Bond. The full receipt of the Hedge Bond was pending until
December 1, 2006.
On such date, Banco Galicia received from the Argentine Central Bank Boden 2012 for a nominal value of
US$1,155.0 million at 75% of their residual value and US$406.8 for past due amortization and interest
amounts, corresponding to 90.8% of the Hedge Bond which credit is still pending in accordance with the
provisions of Decree No. 905/02.
Since 2002, the amount of Boden 2012 pending credit was registered in the Bank’s balance sheet under
“Other Receivables from Financial Brokerage” since said amount represented a right to receive Boden 2012
for the amount recorded under that category for the aforementioned compensation. The crediting of 90.8% of
Boden 2012 corresponding to the Hedge Bond resulted in the availability of such bonds and their registration
under “Government Securities”.
The Bank recorded on its balance sheet both the advance for the acquisition of the Hedge Bond and the
compensation. During the first quarter of 2006, the Bank asked the Argentine Central Bank for the advance
for the acquisition of 90.8% of the Hedge Bond. On December 1, 2006, the advance was granted for an
amount proportional to the acquisition of the Hedge Bond and, at the same time, the advance was paid
through the application of secured Bonds in pesos, with maturity February 4, 2018 (“Bogar”) and Argentine
Secured Loans allocated as collateral for a nominal value of Ps.1,111.6 million and Ps.0.07 million,
respectively, and with cash in the amount of Ps.1,369.7 million.
As a consequence of the foregoing, both the assets and liabilities of Banco Galicia were reduced by
Ps.3,302.6 million, due to the decrease of said sum corresponding to the advance to acquire the Hedge Bond
as well as the assets used in the settlement of such liability.
Due to the cash settlement of past-due debt services of the aforementioned advance, there was a release of
Bogar which were allocated as collateral for said liability for a nominal value of Ps.392.8 million. The
valuation of those securities according to Argentine Central Bank regulations, that is to say, at their present
55
value calculated using the discount rate provided by the aforementioned regulations, generated a decrease in
their book value of Ps.109.1 million.
On December 13, 2006, the Bank asked the Argentine Central Bank for an advance to finance the acquisition
of the remaining Hedge Bond and payment thereof simultaneously on its date of acquisition, through the
allocation of Bogar with a nominal value of Ps.163.5 million offered as collateral for said advance. In
February 2007, since this request had not been granted, the Bank asked the Argentine Central Bank to acquire
the remaining Hedge Bond in cash and also requested the simultaneous release of the aforementioned assets
allocated as collateral. Based on said decision, the valuation of said assets pursuant to Communiqué “A”
3911 and supplementary regulations for assets not allocated as collateral, generated a Ps.32.0 million
reduction in their book value, which was recorded last February.
In March 2007, the Argentine Central Bank informed the Bank that the remaining Hedge Bond had to be
acquired through the application of Argentine Secured Loans, in accordance with the direct exchange
alternative set forth in Decree No. 905/02.
On April 9, 2007, the acquisition of said bond was requested through the allocation of Argentine Secured
Loans for a nominal value of Ps.115.9 million. The exchange of public-sector assets for the above-mentioned
advance caused a Ps.32.8 million increase in the acquisition cost of the remaining Hedge Bond. Such loss
was recorded in the financial statements as of December 31, 2007. As of March 31, 2007, the amount of the
Hedge Bond to be received was recorded under “Other Receivables from Financial Brokerage - In Foreign
Currency - Compensation to be Received from the National Government” for Ps.409.1 million. The
aforementioned exchange was completed on April 24, 2007.
By means of the above-described actions, the Bank’s compensation process for the consequences of
asymmetric pesification provided by Decree No. 905/02 was completed. Additionally, said actions have
improved the Bank’s balance sheet through the reduction of risk concentration (due to the reduction of
exposure to the public sector it represented) and have increased the Bank’s structural liquidity. Also, the
capacity to generate businesses has developed due to the allocation of public-sector assets in business activity
of a very significant amount.
For Differences Associated with Amparo Claims
As a result of the provisions of Decree No. 1570/01, Law No. 25.561, Decree No. 214/02 and concurrent
regulations, and as a consequence of the restrictions on cash withdrawals and the measures that established
the pesification and restructuring of foreign-currency deposits, as from December 2001, a significant number
of claims have been filed against the Government and/or financial institutions, formally challenging the
emergency regulations and requesting prompt payment of deposits in their original currency. Most lower and
upper courts have declared the emergency regulations unconstitutional.
As of December 31, 2009, the difference between the amount paid as a result of the abovementioned court
orders and the amount resulting from converting deposits at an exchange rate of Ps.1.4 per dollar, adjusted by
the CER and interest accrued up to the payment date, amounted to Ps.837.7 million and was recorded under
“Intangible Assets”. The residual value as of that date amounted to Ps.259.1 million. The Bank has
repeatedly reserved its right to make claims, at a suitable time, in view of the negative effect caused on its
financial condition by the reimbursement of deposits originally denominated in dollars, pursuant to orders
issued by the Judicial Branch, either in dollars or in pesos for the equivalent amount at the market exchange
rate, since compensation for this effect was not taken into account by the Government in the calculation of
the compensation to financial institutions. The method of accounting for such right as a deferred loss, set
forth by the Argentine Central Bank regulations, does not affect its existence or legitimacy. To such effect,
the corresponding reservation of rights has been made.
As of December 30, 2003, the Bank formally asked the National Executive Branch, with a copy to the
Ministry of Economy (“MECON”) and to the Argentine Central Bank, for the payment of due compensation
for the losses suffered by the Bank resulting from the “asymmetric pesification” and especially for the
negative effect on its financial condition caused by court decisions. The Bank has reserved its right to further
extend such request in order to encompass losses made definitive by new final judgments.
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On December 27, 2006, the Argentine Supreme Court of Justice (the “Supreme Court”) ruled on the case
“Massa” against the National Government and a foreign-capital bank and decided that the defendant bank
had to fulfill its obligation to reimburse a deposit made in dollars subject to emergency regulations, paying
the original amount converted into pesos at the exchange rate of Ps.1.4 per dollar, adjusted by the CER until
the date of effective payment, with a 4% annual interest and calculating the amounts paid based on
preliminary injunctions or other reasons such as payments on account. On March 20, 2007 the Supreme
Court ruled, in the case “EMM S.R.L.”, that Decree No. 214/2002 did not apply to judicial deposits, and that
such deposits must be reimbursed to the depositors in their original currency. It is expected that said
decisions by the Supreme Court of Justice would be strongly followed in similar cases to be heard by the
lower courts. Finally, in the “Kujarchuk” opinion, dated as of August 28, 2007, the Supreme Court ruled
upholding the criterion set forth in the aforementioned “Massa” ruling and introducing an explanation
regarding the method to settle due amounts which does not represent any innovation regarding the criterion
already held by lower courts. Particular cases will be decided once the applicable stage of the proceedings is
reached. The Bank continuously monitors and analyzes the implications of said rulings to similarly situated
cases.
The number of new legal actions filed by customers requesting the reimbursement of deposits in the original
currency has decreased significantly over the time.
Legal Reserve
The Argentine Central Bank requires that every year banks allocate to a legal reserve a percentage of their net
profits established by the Central Bank, which currently amounts to 20.0%. Said reserve shall only be used
during periods of bank losses and after using up every allowance and other reserves. Distribution of
dividends shall not be allowed if the legal reserve has been impaired. See Chapter VIII “Dividend Policy”.
Operating Limitations
In accordance with the provisions of the Financial Institutions Law, commercial banks are authorized to carry
out all those activities and operations which are not strictly prohibited by law or by the Argentine Central
Bank regulations. Some of the allowed activities include the capacity to: grant and receive loans; receive
deposits from public in general, in local and foreign currency; secure its customers’ debts; acquire, place and
trade with shares and debt securities in the Argentine over-the-counter market, subject to prior approval by
the CNV; carry out operations in foreign currencies; act as trustee; and issue credit cards.
Banks are not allowed to own commercial, industrial, agricultural or any other type of company, unless they
are authorized by the Argentine Central Bank. Pursuant to the rules of said entity, a commercial bank’s total
equity investments (including interest in local mutual funds) shall not exceed 50% of the Bank’s Adjusted
Shareholders’ Equity or its Computable Regulatory Capital (as defined below). Also, investments in: (i)
shares not listed on stock exchanges except for (a) shares in companies providing services supplementary to
the ones offered by the bank, and (b) certain equity interests requiring the provision of utility services, if
applicable; (ii) listed shares and participation certificates in mutual funds not included for the purposes of
determining capital requirements associated with market risk; and (iii) listed shares that don’t have a “largely
publicly available market price” (when there are daily quotations of relevant operations, which should not be
substantially affected by the provision of ownership by the bank of such shares) shall not exceed 15%, in
total, of the Bank’s Adjusted Shareholders’ Equity.
In order to carry out the calculation of limits described above, it is not necessary to deduct the capital stock
allocated to foreign branches from a bank’ shareholders’ equity.
Pursuant to the Argentine Central Bank’s regulations, financial institutions are not allowed to engage directly
in insurance activities and hold an interest over 12.5% in the outstanding capital of a company which does
not provide services supplementary to those offered by financial institutions or exceeding certain specific
percentages of the Adjusted Shareholders’ Equity of the relevant financial institution, in accordance with the
above-mentioned description. The Argentine Central Bank determines which services are supplementary to
those provided by financial institutions.
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Legal Liquidity Requirements
In order to meet the minimum liquidity requirements or “minimum cash” requirements, a certain percentage
of a bank’s liabilities, depending on the type of account and the remaining term of the bank’s liabilities, must
be deposited in the Argentine Central Bank’s open accounts (or in any other type of investments permitted by
law).
Compliance with the minimum liquidity requirements of a bank is generally determined based on a monthly
basis average. Nevertheless, the Argentine Central Bank modifies said regulation from time to time, pursuant
to the monetary policy considerations and depending on the type of liability such entity intends to regulate.
Capital Requirements
Pursuant to the Argentine Central Bank’s regulations, a bank’s “Computable Regulatory Capital” is
calculated as: (a) the minimum core capital, including capital contributions, capital adjustments, reserves,
irrevocable capital contributions pending capitalization, unassigned unaudited results (of past fiscal years)
and, as of October 1, 2006, long term debt securities complying with certain prerequisites (including a
maturity not exceeding 30 years and that the amounts payable thereunder not exceed the net accounting
revenue of the issuer and should provide for non-cumulative defaults so as to allow payments to be differed
and paid at the stated maturity in a lump sum), so long as they do not exceed the predetermined percentage of
the basic net worth, generally 30% with periodic reductions until reaching the international standard of 15%
on January 1, 2013; plus (b) the supplementary capital, which may not exceed the minimum core capital and
which includes (i) with respect to results of past fiscal years: 100% of the results (plus or minus depending on
whether they are positive or negative) registered on the latest audited quarterly financials, in the event the
yearly financials are not audited; (ii) for the current fiscal year, the entire results (plus or minus depending on
whether they are positive or negative) registered at the closing of the year once the results are audited; (iii)
50% of the revenues and 100% of the losses from the latest available audited quarterly or yearly statements;
(iv) 50% of the reserves required by the Argentine Central Bank for Current and In Current Situation loans;
(v) subordinated-debt not exceeding 50% of the minimum core capital with a 5 years maturity minimum, and
as of October 1, 2006, including debt instruments that comply with the prerequisites to be considered
minimum core capital and that exceed the limits set forth in the above clause, debt instruments with a residual
term equal to shorter than 10 years and those that set forth non-cumulative defaults (in this last case the limit
for calculations is set at 50% of the minimum core capital), and (vi) breakdowns not included in financial
statements pursuant to the auditors report and the accounts payable or collectable of the net worth accounts
with uncollected valuation disparities; minus (c) the sum of (i) participation in other financial entities, (ii)
securities deposited with custodians that are not registered, (iii) securities issued by foreign countries with
ratings under the Government’s rating, (iv) demand securities placed with foreign financial institutions with
ratings below “investment grade”, (v) unregistered ownership over real property, (vi) goodwill, (vii)
incorporation and development expenses and (viii) provisioning deficiencies as determined by the
superintendency in Argentina.
Lending Limits
The total equity stake and credit, including collateral, a bank is allowed to grant to a customer at any time is
based on the bank’s Adjusted Shareholders’ Equity as of the last day of the immediately preceding month and
on the customer’s shareholders’ equity.
In accordance with the Argentine Central Bank’s regulations, a commercial bank shall not lend or provide
credit (“financial assistance”) in favor of, nor hold shares in the capital stock of only one unrelated customer
(together with its affiliates) for amounts higher than 15% of the Bank’s Adjusted Shareholders’ Equity or
100% of the customer’s shareholders’ equity. Nevertheless, a bank may provide additional financial
assistance to such customer up to a sum equivalent to 10% of the bank’s Adjusted Shareholders’ Equity, if
the additional financial assistance is secured by certain liquid assets, including government or private debt
securities.
The total amount of financial assistance a bank is authorized to provide to a borrower and its affiliates is also
limited based on the borrower’s shareholders’ equity. The total amount of financial assistance granted to a
58
borrower and its affiliates shall not be higher than, in the aggregate, 100% of said borrower’s shareholders’
equity, although said limit may extend to 200% of the borrower’s shareholders’ equity if the sum does not
exceed 2.5% of the bank’s Adjusted Shareholders’ Equity.
Since October 1, 1995, the Argentine Central Bank has required that the granting of any kind of loans
exceeding 2.5% of a bank’s Adjusted Shareholders’ Equity be approved by the branch’s manager, the
regional manager, the senior administrative officer of the credit division, the general manager and the credit
committee, if any, and it must also have the approval by the board of directors, management board or another
similar board.
As regards the assistance to non-financial public sector, Communiqué “A” 3911, dated March 28, 2003,
established certain limits, effective as from April 1, 2003. These limits do not include the banks’ current
exposure as of March 31, 2003 or bonds received as compensation pursuant to Decree No 905/02 or to be
received pursuant to other rules, nor the extension of amortization payments. The same treatment is given to
bonds issued pursuant to the conditions established by Decree 1735/04 (through which the debt exchange
offer was made official), received as part of the Argentine debt restructuring, in exchange for preexisting
eligible securities as of March 31, 2003. Global exposure to the public sector (national, provincial and
municipal public sector) shall not be higher than 75% of an institution’s Adjusted Shareholders’ Equity.
Additionally, section 12 of the aforementioned Communiqué establishes that, since January 2006, the
average financial assistance to non-financial public sector, in the aggregate, shall not be higher than 40% of
the bank’s total assets as of the end of the previous month. Later, through Communiqué “A” 4546, this limit
was reduced to 35%, to be effective as from July 1, 2007 to present.
The Argentine Central Bank regulates loans granted to a bank’s “related parties”, defined as affiliates and
persons related to a bank. In connection with these loan limits, “affiliate” refers to an institution directly or
indirectly controlled by, in control of, or under joint control with the bank, or an institution significantly
influenced, in a direct or indirect manner, by the bank in terms of its corporate decisions. “Related persons”
refer to a bank’s directors, members of senior management and syndics and their direct relatives.
The Argentine Central Bank limits the amount banks are allowed to lend to related parties, depending on the
rating granted to each bank by the Superintendency of Financial and Foreign Exchange Institutions. Banks
rated 4 or 5 are not allowed to grant loans to their related parties. Banks ranked between 1 and 3 are not
allowed to provide financial assistance to related parties for an amount which, together with the equity
interest held by the bank in its affiliates, is higher than 5% of the bank’s Adjusted Shareholders’ Equity.
Nevertheless, a bank is able to provide additional financial assistance to such related parties up to a sum
equivalent to 10% of the bank’s Adjusted Shareholders’ Equity: (i) if the affiliate provides supplementary
services (defined as services associated with brokerage of shares, issuance of credit cards, debit cards or other
cards, financial brokerage in leasing and factoring operations), (ii) in the case of temporary holdings of a
stake in companies to facilitate their development, with the aim of selling said shares afterwards, (iii) if the
affiliate is a local financial institution rated other than 1 or 2 by the Argentine Central Bank, or (iv) if
additional financial assistance is secured with certain liquid assets, including government or private debt
securities. If the affiliate is a financial institution rated 1, the amount of financial assistance can reach 100%
of the bank’s Adjusted Shareholders’ Equity. If the affiliate institution receiving assistance is rated 2, the
amount of financial assistance can reach 20% with no limitations and an additional 80% should the term for
loans and other credit lines do not exceed 180 days. Also, these percentages differ if the associated institution
is not a financial institution.
In addition, the total amount of a bank’s equity interest in related parties, plus non-exempt financial
assistance granted may not exceed 20% of the bank’s Adjusted Shareholders’ Equity.
Notwithstanding the limitations described above, a bank’s aggregate amount of non-exempt financial
assistance (including equity interests), independently of whether customers qualify as such bank’s related
parties or not, in the case said assistance and interest exceed 10.0% of such bank’s Adjusted Shareholders’
Equity, may not exceed three times the bank’s Adjusted Shareholders’ Equity excluding total financial
assistance to domestic financial institutions, or five times the bank’s Adjusted Shareholders’ Equity,
including such assistance. See Chapter V “Credit Risk Management”.
59
Distribution of Dividends
Pursuant to the provisions of the Argentine Central Bank’s Communiqué “A” 4152, any distribution of
profits must be previously authorized by the Superintendency of Financial and Exchange Institutions.
For these purposes, the Argentine Central Bank establishes that it must be confirmed that the financial
institution: (i) is not governed by the provisions of sections 34 “Regularization and Reorganization” and 35
bis “Restructuring of the institution in order to protect credit and bank deposits” of the Financial Institutions
Law; (ii) has not received financial assistance from the Argentine Central Bank and (iii) does not present
liquidity and solvency problems as a consequence of the distribution of profits.
In addition, the Argentine Central Bank’s Communiqué “A” 3785 establishes that, as long as institutions hold
Government securities pursuant to the provisions of Decree 905/02 (compensation for asymmetric
pesification) recorded at their “technical value”, they may not carry out a distribution of profits for an amount
“exceeding the difference between the carrying value and the market price of the aforementioned bonds, after
executing the appropriations established by law and by the Bank’s bylaws”.
Dissolution and Liquidation of Financial Institutions
The Argentine Central Bank must be notified of any decision to dissolve a financial institution pursuant to the
Financial Institutions Law. The Argentine Central Bank, in turn, must then notify a court of competent
jurisdiction which shall determine whether corporate authorities or an independent liquidator will undertake
the liquidation process of said institution. This determination shall be based on whether or not sufficient
assurances exist which indicate that such corporate authorities are able to carry out the liquidation properly.
Pursuant to the Financial Institutions Law, the Argentine Central Bank no longer acts as a liquidator of
financial institutions. However, when (i) a Restructuring Plan fails or is not considered viable; (ii) local and
regulatory violations exist; or (iii) substantial changes have occurred in the institution’s condition since the
original authorization was granted; the Argentine Central Bank may decide to revoke a bank’s license to
operate as a financial institution. In this case, the law provides for judicial or extrajudicial liquidation as in
the case of voluntary liquidation described in the preceding paragraph.
A financial institution’s bankruptcy cannot be adjudicated until the license is revoked by the Argentine
Central Bank. No creditor, with the exception of the Argentine Central Bank, may request the financial
institution’s bankruptcy before 60 running days have elapsed since the revocation of its license.
Capital Market Regulations
The CNV oversees the regulation of the Argentine securities markets and is responsible for authorizing
public offerings of securities and supervising stock exchanges and self-regulated markets, the agents of the
markets, the companies which issued securities with public offer and mutual funds. The Argentine securities
markets are generally governed by the provisions of the Public Offering Law, as amended, under which the
CNV was formed, and regulates stock exchanges, market operations and public offering of securities.
In order to offer securities to the public in Argentina, an issuer must meet certain information requirements of
the CNV regarding assets, operating history, management and other company matters. Only securities for
which an application for a public offering has been approved by CNV may be listed on the corresponding
stock exchanges or be negotiated in the corresponding self-regulated markets. This approval does not imply
any kind of certification of assurance related to the merits of the quality of the securities, or the solvency of
the issuer. Issuers submitted to the public offering system are required to file unaudited quarterly financial
statements and audited annual financial statements as well as various other periodic reports with the CNV
and the corresponding stock exchanges or markets in which are listed or trade its securities.
Pursuant to the Financial Institutions Law, commercial banks are authorized to both underwrite and place
securities. There are currently no statutory limitations as to the amount of securities a bank may commit to
60
underwrite. However, underwriting activity of securities by a bank would be treated as “credit assistance”
and, accordingly, until the time the securities are placed with third parties, such underwriting activity would
be subject to the limitations described in this Chapter.
Commercial banks are authorized to trade equity and debt securities on the Argentine over-the-counter
(“OTC”) market if they are registered with the CNV as OTC brokers. In its capacity as OTC broker, a
commercial bank will be subject to the supervision of the CNV and, as a result, must comply with certain
reporting requirements.
In addition, commercial banks may function as both managers and depositaries of Argentine mutual funds
provided that a bank may not simultaneously act as a manager and depositary for the same fund.
Monetary and Foreign Exchange Regime
The present section is discussed in Chapter X under the title “Foreign Exchange Control”.
Credit Card Regulations
Banco Galicia carries out its credit card activities through the Regional Credit Card Companies, which are
subject to the terms and conditions of Law No. 25,065, as amended (the “Credit Cards Law”). By virtue of
the provisions of section 50 of the aforementioned law, the enforcement authorities are the Argentine Central
Bank, as regards every issue associated with financial aspects and the Department of Industry, Commerce
and PyME, as regards every issue associated with commercial aspects.
The Credit Cards Law, among other things:
●
sets a 3% cap on the rate a credit card company can charge merchants for processing customer card
holders’ transactions with such merchants, calculated as a percentage of the customers’ purchases. With
respect to debit cards, the cap is set at 1.5% and the amounts relating to the canceled customers’
purchases should be processed in a maximum of 3 Business Days;
●
establishes that credit card companies must provide the Argentine Central Bank with the information on
their loan portfolio that such entity requires; and
●
sets a cap on the interest rate a credit card company can charge a card holder, which cannot exceed by
more than 25% the average interest rate charged by the issuer on personal loans and, for non-bank
issuers, it cannot exceed by more than 25% the financial system’s average interest rate on personal loans
(published by the Argentine Central Bank between the fist and fifth day of each month) for personal loan
transactions;
Both the Argentine Central Bank and the National Secretary of Interior Commerce have issued regulations,
among others, to enforce public disclosure of companies’ pricing (fees and interest rates) to ensure consumer
awareness of such pricing.
Insurance Regulations
The main regulations applicable to insurance business in Argentina are: (i) Law No. 17,418 which regulates
insurance policies in general, personal insurance and reinsurance; (ii) Law No. 20,091 which regulates the
control of insurance companies and establishes that the Superintendency of Insurance is the law enforcement
authority; (iii) Law No. 24,241, which contains some of the rules related to pension-linked retirement and life
insurance companies; and (iv) Law No. 24,557, which regulates the workers compensation regime.
Argentina’s Superintendency of Insurance, acting upon the powers granted by the aforementioned Law No.
20,091, has set forth the Resolutions regulating most of the sections contained in the above-cited laws,
exerting control over the operation of companies governed by said laws.
61
Structure and Organization of the Issuer and its Economic Group
Organizational Structure
The following table illustrates Grupo Galicia’s organizational structure as of the date of this Offering
Memorandum. Percentages indicate the different interests held. All the companies included in the chart were
incorporated in Argentina, except for:
•
•
•
•
Banco Galicia Uruguay S.A., incorporated in Uruguay and currently not operating as a financial
institution.
Galval Agente de Valores., incorporated in Uruguay.
Galicia (Cayman) Ltd., incorporated in the Cayman Islands.
Tarjeta Naranja Dominicana S.A., incorporated in the Dominican Republic.
87.5%
87.5%
87.5%
Galicia Warrants
S.A.
Sudamericana
Holding S.A.
12.5%
12.5%
99.99%
99.99%
99.99%
100%
Banco de Galicia
y
Buenos Aires S.A.
90%
Galval Agente de
Valores S.A.
GV Mandataria de
Valores S.A.
12.5%
Galicia
Seguros S.A.
10%
100%
Banco Galicia
Uruguay S.A.
100%
Galicia Cayman
Ltd.
68.22%
Tarjetas
Regionales S.A.
Galicia Capital Markets
(en liquidación)sa
Galicia Retiro
Compañía de
Seguros S.A.
Sudamericana
Asesores de
Seguros S.A.
94.71%
Net Investment
S.A.
5%
Galicia Valores S.A.
Sociedad de Bolsa
99.99%
Galicia Factoring y
Leasing S.A.
99.98%
Galicia Administradora
de Fondos S.A. S.G.F.C.I.
95%
Empresas No
Consolidadas (1)
80%
31.78%
Tarjeta
Naranja S.A.
49,99%
Tarjeta Naranja
Dominicana S.A.
60%
99.99%
Tarjetas
Cuyanas S.A.
Tarjetas del
Mar S.A.
12,3%
87.7%
Cobranzas
Regionales
S.A.
It should be noted that the transfer of the CFA’s shares to Banco Galicia and to Tarjetas Regionales is pending approval
by the Central Bank, thus it is not included within this scheme.
(1) Non Consolidated Companies: Electrigal S.A. 12.50%, Sedesa 10.3163% Aguas Cordobesas S.A.
10.833%, Interbanking 10.00%, Alfer S.A. (in liquidation) 9.8024%, Compensadora Electrónica S.A.
8.061%, A.E.C. S.A. 7.195%, Banelco S.A. 16.37%, Argencontrol S.A. 5.766%, Visa S.A. 14.0462%,
Garbin S.A. 3.9764%, Mercado Abierto Electrónico S.A. 1.4851%, Galicia Inmobiliaria S.A. (in liquidation),
12.50%, Banelsip S.A. 1.25%, Banco Latinoamericano de Exportaciones S.A. 0.10398% and S.W.I.F.T. S.C.
0.017%.
62
Fixed Assets
Grupo Galicia’s main fixed assets as of December 31, 2009 are the following:
Property
Square
Meters Main Uses
(approx.)
Address:
-Owned
-Tte. Gral. Juan D. Perón 456 2nd Floor Buenos Aires, Argentina
- Maipú 241, Buenos Aires, Argentina (1)
Banco de Galicia y Buenos Aires S.A.
-Owned
-Tte. Gral. Juan D. Perón 407, Buenos Aires, Argentina
-Tte. Gral. Juan D. Perón 430, Buenos Aires, Argentina
-Florida 361, Buenos Aires, Argentina
- Rented
-San Martín 178/200, Buenos Aires, Argentina
Banco Galicia Uruguay S.A.
-Rented
-Dr. Americo Ricaldoni 2468, Montevideo, Uruguay
-Montevideo, Uruguay
191 Administrative Activities
1,616 Administrative Activities
580 Storage
Tarjeta Naranja S.A.
-Owned
- Rented
-Sucre 152, 154 and 541, Córdoba, Argentina
- Humberto Primo, Córdoba, Argentina
-Ruta Nacional 36, km. 8, Córdoba, Argentina
-San Jerónimo 2348 and 2350, Santa Fe, Argentina
-Sucre 145/151, La Rioja 359, 364 and 375, Córdoba, Argentina
4,450 Administrative Activities and
Printing Center
-Río Grande, Tierra del Fuego, Argentina
Tarjetas Cuyanas S.A.
- Rented
-Belgrano 1415, Mendoza, Argentina
-Olascoaga 348, San José, Mendoza, Argentina
Tarjetas del Mar S.A.
- Rented
-Luro 3001, Mar del Plata, Buenos Aires, Argentina
-Luro 2943, Mar del Plata, Buenos Aires, Argentina
Galicia Seguros S.A.
-Owned
- Maipú 241, Buenos Aires, Argentina
1,740
1,156
175
580
Administrative Activities
Administrative Activities
Printing Centre
Storage
Galicia Warrants S.A.
-Owned
-Tte. Gral. Juan D. Perón 456 6th floor Buenos Aires, Argentina
-Alsina 3396/3510 San Miguel de Tucumán, Tucumán, Argentina
- Rented
49,200 Storage
12,800 Storage
-Lavalle 3272, San Miguel de Tucumán, Tucumán, Argentina
-Alto Verde, Chicligasta, Tucumán, Argentina
3,200 Storage
2,000 Storage
-Pasaje 1° de Mayo corner of 25 de Mayo, Barrio Corte Alderete, Tucumán,
Argentina
-San Martin 891 ground floor, San Miguel de Tucumán, Tucumán, Argentina
2,000 Storage
Galval Agente de Valores S.A.
- Rented
-Free Trade Zone, Montevideo, Uruguay
GV Mandataria de Valores S.A.
- Rented
-25 de Mayo 432, 3rd floor, Buenos Aires, Argentina (2)
63
(1) Grupo Galicia leases four units to Banco Galicia equivalent to 755.91 square meters, for Ps.22,677.30 per month;
and four units to Galicia Seguros S.A. equivalent to 817.17 square meters for Ps.24,515.10 per month. Grupo Galicia has
kept 45.40 square meters for storage purposes.
(2) Banco Galicia leases this property to GV Mandataria for a monthly rate of US$4,500 during the first year, US$4,635
during the second year and US$4,775 during the third year. The lease agreement was executed as from September 1,
2008 to August 31, 2011.
As of December 31, 2009, the Bank’s distribution network consisted of:
• 237 bank branches in Argentina, of which 137 were owned and 100 were rented, located
throughout Argentina’s provinces.
• 115 sales points for Tarjeta Naranja S.A., located in 21 of the 23 Argentine Provinces, 114
of which were rented.
• 27 sales points for Tarjetas Cuyanas S.A. and 15 client assistance centers, located in the
provinces of Mendoza, San Juan, San Luis, Santiago del Estero, La Pampa, La Rioja,
Catamarca, Neuquén, Río Negro, Salta, Jujuy and Tucumán. All of them are rented.
• 8 sales points for Tarjetas del Mar S.A., located in the Province of Buenos Aires. All of
them are rented. In addition, there are 7 sale stands located in premises that belong to the
chain Supermercados La Anónima, Province of Neuquén and Rio Negro.
64
CHAPTER V. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The Argentine Economy in 2009
2009 was characterized by a gradual improvement in the international context after the international financial
crisis that started in 2008, which had a large global impact on both the financial markets and the real
economy. The combination of the monetary policies coordinated by the developed economies, with strong
liquidity injections and stimulus plans agreed all over the world, generated a significant decrease of the
uncertainty which, in turn, triggered the first stages of the economic recovery. In the financial respect, since
March 2009, there has been a strong positive trend in the fixed asset prices globally and a renewed eagerness
to take risk, which derived in the inflow of capitals into emerging countries. The first recovery signs in the
real economy appeared in June, and that trend consolidated over the last quarter of 2009.
In this context, the Argentine economy started to show reactivation signs in July, after three consecutive
quarters of contraction. The recession suffered by the local economy between the fourth quarter of 2008 and
the second quarter of 2009 took place in a context where there was a steep drop in the activity level globally,
in addition to other domestic factors (such as the drought, the advanced elections). In this respect, although
the year ended as a whole with a lower gross domestic product (GDP), the last quarter of 2009 showed an
expansion as compared to the same quarter of the previous year, leaving a significant statistical carry-over for
2010.
In particular, based on the IGA-OJF index (index to measure the general level of activity) assessed by
Orlando Ferrers consultants, there was an economic contraction of 4.3% in 2009. However, its performance
was not even along the year, with a year-over-year (“y/y”) contraction of 5.9% over the first half of the year,
which decreased to 2.7% for the second half of 2009. In line with the global situation, the economy started to
recover towards the third quarter of the year. In particular, the economy grew 1.5% during the third quarter as
compared to the previous quarter without seasonal variations, while in the fourth quarter of 2009 it grew
1.7%. Thus, the last quarter of that year ended showing an annual expansion, the first one since the third
quarter of 2008, of 0.2%, which implied a statistical carry-over of 2%.
In terms of supply, the sector with the poorest performance in 2009 was the agricultural sector, which
decreased by 13% y/y, followed by the manufacturing (-7.7%), the trade (-7.3%) and the construction (-3.2%)
sectors. In the particular case of the agricultural sector, in addition to the strong impact of the international
crisis, the drought affected most areas, which led to a sharp drop. In contrast, some service sectors showed
more moderate drops, such as the real property (-1.4%), transport and communications (-1.4%), and financial
brokerage (-1.2%) sectors. In any case, in line with what has been stated as regards the economy in general,
most of the sectors started to reactivate by the end of 2009, and some of them even showed a year-over-year
expansion in December. In this sense, the most remarkable sectors were the manufacturing (+6.7% y/y in
December), trade (+4.8% y/y) and agricultural (+3.2% y/y) sectors. As regards the agricultural sector, the
recovery of 2009/2010 harvest, estimated at 31%, allows for expectations of a good performance of this
sector for 2010.
Concerning the industry, the Industrial Production Index calculated by Fundación de Investigaciones
Económicas Latinoamericanas (IPI-FIEL) states that sector slowed down 4.7% during 2009. As with other
sectors of the economy, since the third quarter of 2009, the industry started to slow down its falling trend, to
end the year with an annual expansion of 14.1% in December. The car-manufacturing sector was one of the
most deteriorated sectors, which had an accumulated drop of 20.2% in 2009, and the iron and steel industry,
with a 20.8% contraction during the same period. Also, those sectors showed the most dynamic reactivation
over the latest months, and their performance for 2010 is expected to be positive.
The unemployment rate for the fourth quarter of 2009 increased to 8.4% for the economically active
population from 7.3% for the same quarter of 2008, reflecting a moderate deterioration in the labor market
performance, in line with the contraction level showed in the activity level.
In terms of currency, the main components evolved in line with the effects of the international financial crisis
in the first half of the year, and the later recovery in the second semester of 2009, which added to certain
internal issues, which generated more uncertainty in certain periods. Due to the lower demand for money, the
monetary base expanded at an average rate of 4.3% rate during the year, and recovered gradually along the
second half to end the year with a 11.5% growth rate in December, reaching an average of Ps.118,661 million
in such month. In line with what happened in the economy as a whole, during the first half of the year the
65
performance of the monetary policy was completely opposite to what has been seen during the second half of
2009.
In this sense, during the first half of 2009, which still involved an unstable international context and increased
uncertainty due to the pending elections, the Argentine Central Bank was forced to sell foreign currency to
the market in order to reduce exchange volatility. Therefore, such sales in the exchange market decreased
Ps.5,472 million which principally contributed to the Ps.6,264 million reduction of the monetary base during
such period. In contrast, the improvement in the international conditions and the low volatility enabled the
Argentine Central Bank to reassume its policy of accumulating reserves over the second half of 2009. In such
period, the monetary base expanded by Ps.19,165 million, out of which Ps.18,120 million resulted from the
intervention of the Central Bank in the money market. As a result, 2009, as a whole, ended with an expansion
of the monetary base of Ps.12,901 million, out of which Ps.12.638 derived from the Central Bank money
purchases in the exchange market, while the rest originated in internal credit transactions, which had
practically a neutral impact through the year. In particular, during 2009, the Central Bank injected liquidity
into the system through the purchase of public bonds and other operations amounting to Ps.2,837 million, the
reduction in the portfolio of repurchase agreements by Ps.800 million and the Government’s operations by
Ps.204 million, which were almost fully offset by the net placement of Lebac and Nobac (each as defined
herein) of Ps.2,413 million and the cancellation of certain lines of credit of Ps.1,166 million.
The reference exchange rate set by the Argentine Central Bank increased from Ps.3.454 to Ps.3.797 per dollar
between December 31, 2008 and December 31, 2009, (a depreciation of 9.9%) while the average exchange
rate increased from Ps.3.161 to Ps.3.731 per dollar during the same year.
According to the Consumer Price Index (“CPI”) of the INDEC, the inflation rate was 7.7% in 2009, higher
than the 7.2% rate of the previous fiscal year. In turn, the Wholesale Domestic Price Index (“WPI”) recorded
a 10.0% increase.
According to the estimates calculated by private organizations, the consumer prices increased by 16.3% in
2009. While the 2009 retail price inflation was slightly lower than retail price inflation in 2008 and 2007
(19.4% and 18% respectively), beginning in August it increased rapidly. Price inflexibility, in addition to
pressures for salary raises, fiscal policies and monetary policies are behind the 2009 inflation but were offset
by a drop in GDP.
With respect to taxes, the lower activity level in addition to a poor performance in the foreign sector and the
modest recovery of international prices of commodities resulted in an increase of tax revenues of 11.8% as
compared to 2008. In turn, primary expenditure expanded during 2009 by 30%, well above the 19% increase
in total revenues. Therefore, the Argentine public sector obtained a primary surplus of Ps.17,285 million,
equivalent to 1.5% of GDP, far below the previous year’s 3.2%. The financial deficit, after interest payments
of Ps.24,417 million, amounted to Ps.7,131 million, equivalent to 0.6% of GDP.
The current account of the balance of payments once more recorded a surplus as a result of a still high trade
balance surplus. In fact, in terms of GDP there was an increase from 2.2% in 2008 to 3.0% in 2009. The
balance of trade experienced a US$16,980 million surplus in 2009, well over the US$12,598 million of the
previous year.
Exports showed a 20% drop as compared to 2008, explained by the combined effect of the decreased prices
and volumes. The impact of the financial crisis on the principal prices of the Argentine exportable products
caused a decrease by 14% compared to 2008, despite the gradual recovery evidenced since March 2009. In
turn, the global economic recession during most of 2009 is behind the 7% drop of the exported volumes.
While exports of agriculture and livestock goods continue to be the ones with the highest share in the total
exports of Argentina (39%), they showed a poor performance with respect to volume, with a 1% decrease for
the year. However, commodities exported had the poorest performance in terms of the exported volumes,
which decreased by 32% in 2009. In turn, imports decreased by 32% in comparison to 2008, due to the joint
effect of the decrease in prices and volumes. Products purchased as intermediate goods represented 32% of
total imports, followed by the purchases of capital goods (+23%).
Within a framework of gradual improvement internationally, the private sector’s capital account experienced
a net foreign currency outflow of US$9,226 million during the first nine months of 2009. The strong capital
outflow during the first half of the year slowed down considerably by the third quarter of 2009 due to the
improvement of the international context and a lower level of uncertainty. Even though we have no official
66
information for the fourth quarter of the year, capital outflows should have continued slowing down during
such period. As of December 31, 2009, the Argentine Central Bank’s international reserves rose to
US$47,967 million, US$1,500 million higher than the amount shown at the end of 2008.
The Argentine Financial System
During recent months, the global economy has shown signs of recovery based on the economic activity
indicators and the financial system. This process may be interrupted, since there are still high public and
private sector indebtedness levels, the credit market has not fully recovered yet, and the unemployment rates
shown in the developed economies are the highest compared to the ones in the latest decades.
As regards emerging economies in Latin America, the normalization of world trade, together with the
recovery and stabilization of commodity prices are related with a consensus reached as to a structural change
in the demand for commodities, which promotes an encouraging perspective for this region. Thus, the
country risk for the region, as measured by the Emerging Markets Bond Index Latinoamérica, decreased 394
basic points (“b.p.”) for this year, reaching 328 b.p. by the end of 2009.
In Argentina, the financial system performed as described above. The average interest rate paid by private
banks in December 2009 (up to 59 days) was 9.71%, evidencing a year-over-year drop of 881 b.p., while in
the case of term deposits higher than a million pesos it was 9.80% (-928 b.p.). As regards borrowing rates,
the rate applied to cash advances in current accounts dropped 737 b.p. and promissory notes dropped by 999
b.p., ending the fiscal year 2009 at 20.35% and 15.95% respectively.
Total deposits in the financial system grew by 14.9% in 2009 in comparison with 2008, reaching Ps.269,516
million, and deposits from the non-financial private sector increased by 20.5%, amounting to Ps.197,353
million (significantly higher than the previous year growth of 7.7%), while the public sector deposits
increased by 1.8% with respect to 2008, reaching Ps.68,978 million. Within the private sector deposits, the
transactional deposits ended at Ps.102,809 million, thus growing by 21.2% and term deposits ended at
Ps.85,662 million, a 20.7% growth.
Total loans to the private sector increased by 9.7% compared with 2008, reaching Ps.143,117 million. The
loans that increased the most were consumer credit lines, made up of loans granted through credit cards and
personal loans, which increased by 14.1% in 2009, reaching Ps.50,164 million. Short-term commercial loans,
composed of cash advances in current accounts and promissory notes, grew 3.0%, reaching Ps.42,337
million. Pledge loans decreased by 5.9%, with a final balance of Ps.7,315 million, while mortgage loans
decreased 1.3% (to Ps.18,612 million). On the other hand, loans to the public sector reached 14.5% of assets,
equivalent to an increase of 1.7 percentage points (“p.p.”) during the year, the first increase after six years of
decrease.
As a prudential policy, financial institutions increased their liquidity levels with respect to total deposits,
which in turn contributed to financial stability. The liquidity ratio increased from an average of 27.9% in
December 2008 to 28.6% in December 2009.
In order to moderate the impact of the domestic and international situation on the Argentine economy, the
Argentine Central Bank kept injecting liquidity into the market during the first half of the year by
repurchasing debt securities (Lebac and Nobac), thus avoiding any further interest rate fluctuations, which
was strongly reversed during the second half of the year. Thus the Lebac and Nobac grew 20.2% this year,
thus reaching Ps.43,980 million.
In terms of solvency, the Argentine financial system’s net worth increased Ps.7,089 million during 2008, a
17.1% improvement compared to 2008. The system’s profitability in 2009 was equivalent to 2.4% of total
assets, while the return on equity (ROE) was 19.6%, higher than the 13.4% in 2008 and the 11.0% in 2007.
Income from interest and income from services increased, representing 4.1% and 3.9% of the total assets,
respectively, from 3.1% and 3.6%, respectively, in 2008. Rises in listings of government securities resulted in
an improvement in holdings of government securities, accounting for 3.3% of assets. On the other hand,
although administrative expenses increased (from 6.1% in 2008 to 6.7% of total assets in 2009), operating
income increased even more. Provisions for loan losses increased from 0.9% to 1.1% of total assets in 2009,
representing historically low levels but reflecting a deterioration of the quality of the portfolio.
67
The non-accrual portfolio of loans to the non-financial private sector rose from 3.1% in December 2008 to
3.5% in December 2009, although the ratio decreased 0.3 percentage points in the second half of the year.
The level of provisioning by making allowances regarding non-accrual loans to the private sector, remains at
high levels, 125.7% in December 2009, but lower than the 131.4% recorded in December 2008.
As of December 31, 2009, there were 83 financial institutions in Argentina, taking into account both banking
and non-banking institutions. Of such total, 66 were banks, out of which 54 were private banks (representing
56.8% of total deposits in the system). In turn, 33 were domestic banks: one was a cooperative bank (which
represented 29.6% of the deposits, being 1% higher than in December 2008), and 21 were foreign-owned
banks (which represented 27.2% of total deposits, 1.6% lower than in December 2008). There were 12
Government-owned banks (with 42.8% of total deposits) and 17 non-banking financial institutions (with only
a 0.4% share in total deposits).
The concentration of the financial system – measured by the market share of the ten leading banks in terms of
deposits – reached 76.1% as of December 31 2009, which was 0.5% higher than the level recorded by the end
of December 2008.
Based on December 2009 data, the financial system employed a total of 97,606 people (61% related to the
private sector), representing a 1.5% decrease since the beginning of the year.
The Argentine Insurance Industry
During 2009, the insurance industry continued growing, though at a lower rate compared to previous years.
Insurance production amounted to nearly Ps.31,000 million, an 18% increase at current values compared to
2008. Out of the total insurance production, 79% relates to property insurance, 19% relates to life and
personal insurance, and 2% to retirement insurance. Within property insurance, automotive insurance
continues to be the most important segment, with a 47% share, followed by the workers’ compensation
segment, with a 26% share.
The most important group within the life insurance segment is the collective life insurance with 67%
followed by the personal injury group with 12%.
The retirement insurance production dropped 65%, which is associated with the end of the retirement and
pension integrated systems and, therefore, the discontinuity of the issuance of retirement life annuity.
Consolidated Assets
The structure and main components of Grupo Galicia’s consolidated assets as of December 31, 2009, in
comparison to the previous fiscal year, were as follows:
Government and Corporate Securities
Loans
To the Non-Financial Public Sector
Other Loans, Net
Other Assets
Total
2009
%
2008
%
As of December 31,
%
2007
3,696.3
3,920.4
13.4
14.2
3,405.1
1,531.9
13.8
6.2
2,960.0
1,694.0
13.0
7.4
25.4
13,452.5
6,507
27,602.4
0.1
48.7
23.6
100.0
1,373.6
10,400.9
8,024.3
24,735.8
5.6
42.0
32.46
100.0
1,265.5
10,335.6
6,573.6
22,828.7
5.5
45.3
28.8
100.0
The section “Cash and Due from Banks” includes cash for Ps.1,379.9 million, balances held at the Argentine
Central Bank of Ps.2,066.8 million and balances held in correspondent banks of Ps.249.6 million. The cash
and the balance held at the Argentine Central Bank are assets computable for meeting the minimum cash
requirements. These minimum cash requirements correspond to a requirement set by the Argentine Central
Bank and are explained in the “Risk Management – Financial Risks” section.
68
Government and Corporate Securities
The following table shows the components of the section “Government and Corporate Securities” in terms of
recorded holdings and net position (recorded holdings plus forward purchases and spot purchases pending
settlement, less forward sales and spot sales pending settlement).
In million of Pesos
Held for Trading
Pesos
Trading or Financial Brokerage Portfolio
Pesos
Dollars
Government Securities for Repurchase
Transactions with the Argentine Central
Bank
Dollars
Unlisted Government Securities
Pesos
Dollars
Securities issued by the Argentine Central
Bank
Pesos
Total Securities
Listed Private Debt Securities
Pesos
Dollars
Total Government and Corporate Securities
Holding
As of December 31, 2009
Spot
purchases Spot sales
Forward Forward pending
Net
pending
purchases
sales
settlement settlement position
43.3
226.6
-
-
-
269.9
100.7
13.5
-
-
1.7
-
6.4
-
96.0
13.5
152.7
-
152.7
-
-
-
945.7
1,036.2
887.6
-
-
13.1
945.7
1,910.7
1,615.1
3,907.2
0.1
13.1
3,920.2
91.7
1,205.9
152.7
1.7
19.5
1,706.8
4,942.6
1,205.9
152.7
1.7
19.5
0.1
13.1
4,955.8
The net position of government securities as of December 31, 2009 amounted to Ps.4,942.6 million.
The investment portfolio in pesos reflects the holding of Banco Central’s Notes (“Nobac”) due in 2010,
received as part of the Argentine Secured Loans (“PGN”) exchange transaction carried out at the beginning
of 2009.
The net position of trading securities in pesos mainly corresponds to Bonds issued by Argentina (“Bonar”),
due in 2014, of Ps.30.9 millions, and to Bonar due in 2015, of Ps.39.0 million.
The net position in unlisted government securities in pesos, of Ps.945.7 million, corresponds to Pesodenominated Discount Bonds due in 2033 and GDP-linked negotiable securities of Ps.622.0 million and
Bonar due in 2015 of Ps.323.7 million, while, in foreign currency it mainly corresponds to Boden 2012 of
Ps.1,906.9 million.
The instruments issued by the Argentine Central Bank in pesos comprised its own portfolio of Central Bank
Bills (“Lebac”) and Nobac totaling Ps.1,706.8 million.
With respect to the Peso-denominated Discount Bonds and GDP-linked negotiable securities resulting from
the exchange for the restructuring of sovereign debt carried out in 2005, the Central Bank authorized, through
Communiqué “A” 4270, that they were to be recorded at the lower value between the carrying amount of the
securities tendered and the sum of the nominal cash payments of the new securities up to maturity, specified
by the terms and conditions of the securities. The Bank’s holding of Peso-denominated Discount Bonds and
GDP-linked negotiable securities was recorded pursuant to the first alternative. Such valuation is reduced by
the amount of received payments, and accrued interest is not recognized.
Regarding the Bonar with maturity in 2015, resulting from the exchange performed in 2009, the Central
Bank, through its Communiqué “A” 4976, provides that the account balance of the securities submitted for
exchange be registered. This value will be increased exponentially in relation to its internal rate of return
69
(“IRR”), not exceeding the market value or the actual value published by the Central Bank. In the event that
the market value or the actual value were lower than the amount resulting from the accrual, the Central Bank
regulations provides a minimum accrual of 50% of the IRR.
The 2012 Boden are registered according to the option under the relevant rules, and were valued at their
technical value.
Valuation
Brokerage Portfolio
Pursuant to the regulations provided for by the Argentine Central Bank, listed government securities held for
trading are valued at their closing price in the Argentine market, less the estimated sales cost.
Investment Portfolio
Communiqué “A” 3857 of the Argentine Central Bank, dated January 7, 2003, provided that certain financial
institutions could hold in investment accounts only those securities recorded as such in the balance sheet until
December 31, 2002. Securities held in investment accounts are recorded at their cost plus IRR. After such
date, all securities included on the balance sheet (except for the Compensatory Bond and the Hedge Bond),
should be valued at their market value.
Financial institutions’ government securities received as compensation as set forth by Decree No. 905/02, as
amended, or Boden 2012 for Banco Galicia, are valued at their technical value (the balance of each security is
adjusted according to its contractual terms), pursuant to what is provided for in Communiqué “A” 3785 of the
Argentine Central Bank, dated October 29, 2002.
Communiqué “A” 3785 of the Argentine Central Bank, dated October 29, 2002, placed restrictions on the
ability to distribute dividends, providing that profits to be distributed in cash should be adjusted by the
difference between the book value and the market value of such securities.
Pursuant to Argentine Central Bank’s regulations, Banco Galicia has recorded Boden 2012 received at their
technical value. As of December 31, 2009, had Banco Galicia’s position in such securities been valued at
market value, a Ps.175.9 million decrease in net shareholders’ equity would have been recorded.
Communiqué “A” 4676 of the Argentine Central Bank, dated June 5, 2007, determined a variation to the
valuation system of portfolios in investment accounts, providing that such portfolios can be valued at their
cost plus IRR, except that, if the market price was lower than the book value, the accrual of the internal rate
of return should be recorded in a regularizing account created for such purpose. This regularizing account
shall be reversed by the positive difference between the market value and the book value and, with respect to
amortizations, by the portion attributable to such amortization.
Communiqué “A” 4698 of the Argentine Central Bank, dated August 24, 2007, modified the valuation
criteria for debt instruments issued by such institution, allowing that they be carried at cost plus the internal
rate of return instead of taking into consideration their market value, as long as the financial institution
undertakes the commitment to keep such securities until maturity. Additionally, the difference with the
market value of the securities shall be registered in a note to the quarterly and/or annual financial statements.
Communiqué “A” 4861 of the Argentine Central Bank set forth, from October 31, 2008, the possibility that
financial institutions recorded their holdings in investment accounts and special investment accounts
(Communiqué “A” 4676) as long as securities are included in the volatility list published monthly by the
Argentine Central Bank for the purpose of computing the minimum capital requirement to cover market risk.
Apart from that, the Argentine Central Bank provided that portfolios recorded in investment accounts and
special investment accounts could not exceed 7.5% of Banco Galicia’s total assets. The 100% excess leads to
an equivalent increase in the Minimum Capital Requirement to cover Credit Risk. The possible amounts in
excess recorded by financial institutions taking into consideration their position as of September 30, 2008
shall be considered admitted.
70
Communiqué “A” 5024 issued by the Argentine Central Bank, dated December 22, 2009, set forth that as of
December 31, 2009 the holdings registered under the special investment regime (Communiqué “A” 4676)
shall be reversed by at least 25% at the end of each calendar quarter of 2010 and shall be recorded at market
value, prohibiting the addition of new items to this regime.
When dealing with the refinancing of assets adjustable of the CER, a measure promoted by the Argentine
Government during the first six-month period of 2009, the Argentine Central Bank, through Communiqué
“A” 4976, implemented special valuation criteria for the securities arising from the exchange. To such end,
the Central Bank set forth two valuation options: traditional investment or investment where at least 50% of
the IRR shall accrue, regardless of the market value, and the remaining 50% shall be charged to an asset
regularization account, which shall be reversed and charged to income based on the evolution of market
prices. As of December 31, 2009, if the Bonar 2015 (as defined below) position had been stated at market
value, a Ps.317.6 million rise in the Bank’s net shareholders’ equity would have been recognized.
In January 2010, the Bank recorded in “Investment Accounts” a portion of the holding of Argentine Bonds
due in 2015 (“Bonar 2015”) in the amount of Ps.668.2 million of nominal value, including them in such item
at market value. At the end of fiscal year 2009, these securities were recorded in “Special Investment
Accounts” and were stated at equity value increased by its internal rate of return. This change in the exposure
criteria and, consequently, in the valuation criteria gave rise to income of Ps.240.1 million.
Additionally, an allowance for the risk of devaluation of Boden 2012 was set up in the amount of Ps.219.8
million, equivalent to the estimated difference between the book value (technical value) and the realizable
value considered to be reasonable by the Bank.
Convergence to market value pursuant to Communiqué “A” 3911 and supplementary regulations
By means of Communiqué “A” 3911 dated March 28, 2003, the Argentine Central Bank established a new
method for the valuation of public-sector assets pursuant to which Argentine Secured Loans, the Bogar, other
loans to the non-financial public sector and unlisted government securities were subject. This method did not
include government securities in investment accounts, securities from the Argentine Central Bank (Lebac and
others) and government securities received or receivable as compensation for measures taken by the
Government.
Pursuant to Communiqué “A” 3911 of the Argentine Central Bank, beginning with the financial statements
for March 2003, applicable assets had to be valued at the lower of their technical value or their present value.
In order to determine the present value, the Argentine Central Bank established a discount rate that would
increase gradually over time. Its initial value was 3% per annum, to be applied until December 2003,
gradually increasing from then on pursuant to a predetermined schedule. The difference between the present
and the technical value (the lower of both) and the book value must be reflected in an asset regularizing
account in case of a positive difference, or else be charged to income in case the difference is negative.
By means of Communiqué “A” 4163 published July 2, 2004, the Argentine Central Bank modified the
schedule of discount rates for the determination of the present value of public-sector assets’ cash flows. The
applicable discount rates are shown in the following table:
January
February
2003
March
April
May
June
July
August
Sept.
October
Nov.
Dec.
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
2004
3.25
3.25
3.25
3.25
3.25
3.25
3.29
3.33
3.37
3.41
3.46
3.50
2005
3.54
3.58
3.62
3.66
3.71
3.75
3.79
3.83
3.87
3.91
3.96
4.00
2006
4.08
4.15
4.23
4.31
4.39
4.47
4.56
4.64
4.73
4.82
4.91
5.00
5% +
0.04xTMC
5% +
0.58xTMC
5% +
0.08xTMC
5% +
0.66xTMC
5% +
0.13xTMC
5% +
0.75xTMC
5% +
0.17xTMC
5% +
0.83xTMC
5% +
0.21xTMC
5% +
0.92xTMC
5% +
0.25xTMC
5% +
0.29xTMC
5% +
0.33xTMC
5% +
0.38xTMC
5% +
0.42xTMC
5% +
0.46xTMC
5% +
0.50xTMC
2007
2008
TM (as from June 2008)
Where:
TM = average market rate informed by the Argentine Central Bank based on the internal rates of return of national government securities with
similar “modified duration”.
TMC = average market rate corrected = TM – 5%.
In the case of Argentine Secured Loans, valued also at their present value pursuant to the applicable discount
rate, their estimated realizable value as of December 31, 2008 was lower than their book value by
71
approximately Ps.259.3 million. As of December 31, 2009, the estimated realizable value recorded no
difference in reference to the book value.
By means of Communiqué “A” 4704, dated September 7, 2007, within the environment of a high volatility in
capital markets originated in the U.S. subprime mortgage market, the Argentine Central Bank determined to
set the discount rate to be used for the valuation of public-sector assets within the scope of Communiqué “A”
3911 and supplementary regulations, the determination of which was as shown in the preceding table. This
criterion will be applicable as long as, when applying the market rate (tasa del mercado) (“TM”) that would
correspond according to the table above, the discount rate is such that it generates a loss – for the financial
system as a whole – in the economic value of the comprised portfolio that is lower than or similar to the
positive result of taking into consideration such asset’s yield and, if applicable, CER.
Notwithstanding the foregoing, for the purposes of the determination of profits to be distributed on unlisted
securities (second paragraph, section 2.1.2, item 2 of the rules and regulations on “Distribution of Profits”),
the corresponding market rate shall be applied pursuant to the general procedure as set forth in section 2 of
Communiqué “A” 3911 (text as per the annex to Communiqué “A” 4455).
Within the framework of the Refinancing of Secured Loans of the Argentine Government, the Argentine
Central Bank issued, on January 22, 2009, Communiqué “A” 4898, which modifies the valuation criterion set
forth by Communiqué “A” 3911 and supplementary regulations. For such purpose, the Argentine Central
Bank determines that, as from February 2009, it shall publish, monthly, the present value of those securities
included in the annex to Communiqué “A” 4455. Banks shall have to value their holdings of such
instruments at the higher of present or book value thereof.
Argentine government securities from the restructuring process that took place in 2005
On January 14, 2005, the Argentine Government began the debt exchange for the restructuring of its foreign
debt that was in default, which included LEBAC of the Argentine Republic denominated in dollars at survey
rate – Series 74 and LEBAC of the Argentine Republic denominated in US dollars at a Badlar rate – Series
75 (the “LEBAC”) held by Banco Galicia, among other financial institutions. The exchange period expired
on February 25. During January 2005, the Bank opted to receive, in exchange for its LEBAC, “PesoDenominated Discount Bonds” and “GDP-Linked Negotiable Securities”, in an offer not subject to
apportionment and which terms and conditions were set forth in Annexes IV and V, respectively, to Decree
No.1735/04. In accordance with what is set forth in such regulation, the option chosen entailed the reception
of new instruments for an original principal amount equal to 33.7% of the eligible debt, equivalent to the
non-amortized principal as of December 31, 2001, plus interest past-due and unpaid to that date.
With respect to the recording of the new securities, with the purpose of minimizing the effect the acceptance
of the exchange offer could have on the financial condition of financial institutions, by means of
Communiqué “A” 4270 the Argentine Central Bank determined that the aforementioned “Peso-denominated
Discount Bonds” and “GDP-Linked Negotiable Securities” should be recorded at the lower of the carrying
amount pursuant to the regulations in force (Communiqué “A” 4084 sections 1 v) and 5) and supplementary
regulations), or the value resulting from the sum of the nominal cash payments until the maturity date
pursuant to the issuance conditions of those bonds. New securities were valued as per the first option. Such
valuation shall be reduced by the amount of received payments, and accrued interest is not recognized.
As of December 31, 2009, if Discount Bonds and GDP-Linked Negotiable Securities had been valued at
market value, Banco Galicia’s net shareholders’ equity would have decreased by Ps.284.1 million.
Government and corporate unlisted debt securities
By means of Communiqué “A” 4414 dated September 8, 2005, among others, the Argentine Central Bank
modified the criteria for the valuation of unlisted government and corporate debt securities, effective for
information as of August 2005. The unlisted securities within the scope of such Communiqué (Argentine
Central Bank bills and notes, subordinated and non-subordinated notes and financial trust securities) must be
valued, at period-end, at their acquisition cost increased on an exponential basis according to their internal
rate of return.
72
Securities Available for Sale
By means of Communiqué “A” 4702 dated August 30, 2007, among others, the Argentine Central Bank
established that holdings of national government securities and debt securities issued by such entity may be
classified as “available for sale”. Furthermore, it established that these securities must be recorded at their
market value, with the use of such methodology as well as the potential effect on the income statement
disclosed in the notes to the quarterly and/or annual financial statements. The (negative or positive)
difference between the carrying amount of these holdings and their market value has to be recognized in the
shareholders’ equity accounts specially created for this purpose. Interest accrued by applying the internal rate
of return will be charged to income (loss) in such shareholders’ equity accounts for each period. The rule also
allows for withdrawal from this category in the case of sale, collection of amortization and/or of return on
principal amount or when the volatility published by the Argentine Central Bank is no longer available, in
which case they must be recorded under “Holdings of Unlisted Securities”.
Loans
As of December 31, 2009, total loans amounted to Ps.13,477.9 million and, representing 48.8% of total
assets, and continued to be the most important asset.
Total loans included Ps.12,985.0 million of loans granted to the domestic non-financial private sector, and
Ps.442.2 million of loans granted to residents abroad (in both cases net of allowances, plus adjustments and
accrued interests). The latter mainly corresponded to “overnight” placements. The category “Other Loans,
Net” in the table “Assets” is made up of the above-mentioned sections plus Ps.25.3 million of loans granted
to the financial sector (both principal and interest).
The decrease of loans to the public sector, in comparison to the previous fiscal year, of Ps.1,348.2 million
(principal, adjustments and interest) results from the fact that during January 2009, within the process of rerestructuring the public debt carried out by the Government, the Bank participated in an exchange of
Argentine Secured Loans “maturity 2009-7%, Bond Note G+580 Mega (fixed rate)”, for other assets of the
public sector at market prices, generating no adverse financial effects
For more detailed information, see “Loan Portfolio and Credit Risk Management”.
Other Assets
The category “Other Assets” mainly includes the following sections recorded in the balance sheet under
“Other Receivables Resulting from Financial Brokerage”, unless otherwise noted:
- Ps.1,275.4 million recorded under “Bank Premises and Equipment”, “Miscellaneous Assets” and
“Intangible Assets” (excluding the difference from legal actions filed by depositors (amparos)).
- Ps.887.6 million of forward purchases of Boden 2012 in connection with repurchase transactions
(including the corresponding security margins recorded as “Miscellaneous Receivables” in the
balance sheet).
- Ps.584.1 million corresponding to Banco Galicia’s holding of participation certificates issued by the
Galtrust I Financial Trust, resulting from the securitization of loans to the provincial public sector in
late 2000.
- Ps.428.7 million corresponding to the participation certificate in, and debt securities of, the special
fund (referred to as “Special Fund Former Almafuerte Bank”) jointly formed in 2000 by the Bank
with other private-sector banks in order to facilitate the recovery of the assets of former Almafuerte
Bank.
- Ps.339.2 million corresponding to “Assets under Financial Lease”.
- Ps.331.5 corresponding to participation certificates in, and debt securities of, different financial trusts
created by Banco Galicia or by third parties.
- Ps.328.6 million corresponding to minimum presumed income tax recorded as “Miscellaneous
Receivables”.
- Ps.272.4 million corresponding to balances deposited at the Argentine Central Bank as guarantee in
favor of clearing houses.
- Ps.259.1 million recorded as “Intangible Assets”, which reflect the Bank’s losses due to the difference
between the amount paid to depositors as a consequence of legal actions filed (the original contractual
amount, collected by depositors in dollars or at the free market exchange rate), and the amount
established by the pesification rules (conversion at the Ps.1.40 per dollar exchange rate, plus CER
73
-
adjustment and interest), net of the accumulated amortization (provided for by Communiqué “A”
3916), plus the amount of the deferred amortization (provided for by Communiqué “A” 4439).
Ps.226.6 million corresponding to forward purchases for repurchase agreement of the investment
portfolio (including the corresponding security margins recorded under “Miscellaneous Receivables”
in the balance sheet).
Ps.153.2 million corresponding to financial debtors (Central Bank) for forward repurchase operations.
Ps.53.9 million corresponding to shareholdings in other companies.
Ps.40.0 million corresponding to securities issued by other companies.
Exposure to the Argentine Public Sector
As of December 31, 2009, Banco Galicia’s (Grupo Galicia’s subsidiary with the most significant exposure to
the public sector) total exposure to the public sector amounted to Ps.5,802.0 million. Excluding the debt
securities issued by the Central Bank (Ps.1,954 million), the net exposure to the non financial public sector
decreased by Ps.1,526 million during 2009, which represented a decrease of 28.4% (plus 7 p.p. with relation
to the total asset). This decrease is mainly related to the sale of part of the government securities received in
the Argentine Secured Loans exchange transaction carried out at the end of January 2009, and to the sale, in
June, of the coupon 15 of yield and amortization of the 2012 Boden, with maturity in August 2009. Also, to a
lesser extent, due to having received securities from the Argentine Central Bank in the above-mentioned
exchange operation.
The following table shows information as of December 31, 2009 corresponding to Grupo Galicia on a
consolidated basis:
Government Securities – Net Position
Held for Trading
Boden 2012
Nobac 2010
Bonar 2015
Discount Loans and GDP-Linked Negotiable
Loans
Financial Sector
Secured Loans and Other Loans
Other Receivables Resulting from Financial Brokerage
Trusts’ Participation Certificates and Securities
Others
Total
2009
2008
As of December 31,
2007
4,910.0
1,787.5
1,906.9
269.9
323.7
622.0
25.4
25.4
924.6
923.7
0.9
5,860.0
3,645.3
627.6
2,350.8
666.9
1,480.7
107.1
1,373.6
-928.3
927.5
0.8
6,054.3
3,877.8
435.8
2,744.3
697.7
1,372.6
107.1
1,265.5
870.4
870.1
0.3
6,120.8
Exposure to the Argentine Private Sector
The following table shows Banco Galicia’s total exposure to the private sector, which is the subsidiary of
Grupo Galicia with the most significant exposure to the private sector. Such table includes all the balance
sheet and memorandum account sections that represent a credit exposure to the private sector: loans, leasing,
debt securities and other financing, such as guarantees granted and unused balances of loans granted, as well
as current balances at the dates indicated of loans duly transferred to the different trusts.
At the closing of the 2009 fiscal year, the Bank total exposure to the private sector amounted to Ps.17,322.7
million, a 21.8% increase compared to the end of the previous fiscal year, which mainly corresponds to loans
granted to individuals, credit cards and discount of documents. For further information see “Loan Portfolio
and Credit Risk Management – Loan Portfolio”.
2009
14,258.9
342.8
31.5
2,245.7
16,878.9
Loans
Leasing
Securities
Other Credits (*)
Total Credits
74
2008
As of December 31,
2007
10,820.6
449.9
5.7
1,898.3
13,174.5
10,657.1
359.6
20.9
1,408.8
12,446.4
443.8
17,322.7
Assets Transferred to Trusts (**)
Total Exposure to the Argentine Private Sector
1,052.0
14,226.5
978.0
13,424.4
(*) Includes guarantees granted, unused balances of loans granted and some sections under Other Receivables Resulting from
Financial Brokerage.
(**) As of December 31, 2009, it includes the current balance of loans transferred to Galicia Personales, VI, VII and VIII trusts,
Galicia Créditos Inmobiliarios II, and loans securitized by the Regional Credit Card Companies.
Funding and Liabilities
The main sources of funds are deposits from the private sector, lines of credit extended by international banks
and multilateral credit agencies, repurchase transactions mainly related to government securities, and
medium- and long-term debt securities placed in the international capital market.
During fiscal year 2009, Banco Galicia’s main sources of funding were: i) net increase in deposits of
Ps.2,959.1 million, ii) the product of the sale of coupons from Boden 2012 for US$175.6 million and iii)
Ps.40.0 million from the securitization of the loan portfolios of the Regional Credit Card Companies.
The structure and main components of Grupo Galicia’s consolidated liabilities as of December 31, 2009, in
comparison to the previous fiscal year-end, were as follows:
As of December 31,
2009
Deposits (1)
2008
2007
17,039.4
14,056.1
13,165.6
3,719.2
4,995.9
8,066.7
13.8
243.8
3,105.4
4,037.8
6,638.4
20.3
254.2
2,630.4
3,229.1
6,634.9
33.9
637.3
1,480.0
2,172.7
2,307.8
322.2
248.6
318.5
International Banks and Credit Agencies
548.1
941.5
733.3
Repos
609.7
982.8
1,256.0
2,716.5
2,932.5
3,105.6
4,314.0
3,728.8
2,595.2
2,052.5
27,602.4
1,845.7
24,736.0
1,654.5
22,828.7
Current Accounts
Savings Accounts
Time Deposits
Restructured Deposits
Others
Credit Lines (1)
Local Banks and Credit Agencies
(2)
Subordinated and Unsubordinated Debt Securities (1)
Other Liabilities
(3)
Total
(1) Includes principal, accrued interest and exchange rate difference payable, as well as CER adjustment, if applicable.
(2) Includes credit line granted by the IDB through the Secretariat of Industry and Commerce.
(3) Includes: debts with stores due to credit card transactions, collections on account of third parties in pesos and dollars, debt owed to
domestic credit entities, miscellaneous obligations and allowances, among others.
The structure of Grupo Financiero Galicia S.A.’s liabilities by the end of 2009, showed significant changes
when compared to the previous fiscal year-end which is mainly reflected in the Bank’s financial statements,
due to the increase in the deposits and the decrease in the liabilities with international bodies and banks and
of those recorded as debt securities.
Deposits
As of December 31, 2009, Banco Galicia’s (the only subsidiary of Grupo Galicia with deposits) total deposits
amounted to Ps.17,039.4 million (principal, CER adjustment and interest), representing 61.7% of total funds
(including shareholders’ equity), compared to 56.8% recorded as of the same date the previous year.
75
As of December 31, 2009, Banco Galicia’s deposits included principal (excluding CER adjustment and
interest) of: (i) deposits in current account and other demand deposits of Ps.3,720.7 million, (ii) deposits in
savings accounts of Ps.4,994.9 million, (iii) time deposits of Ps.7,970.0 million and (iv) other deposits of
Ps.248.6 million, of which Ps.167.9 million corresponded to restricted balances, Ps.9.1 million corresponded
to deposits required from parties who assumed liabilities with parties from abroad within the framework of
Decree No. 616/05 and Ps.5.4 million corresponded to restructured deposits related to amparo claims.
During fiscal year 2009, Banco Galicia’s total deposits increased 21.0% in comparison with 2008, mainly as
a result of a 21.9% increase registered in Banco Galicia’s deposits from the private sector in Argentina.
Contractual Maturity of Deposits as of December 31, 2009 (1)
In million of Pesos
Current Accounts and Other Demand Deposits
Savings Accounts
Time Deposits Maturing
Up to 30 days
From 31 to 59 days
From 60 to 89 days
From 90 to 179 days
From 180 to 365 days
More than 365 days
Other Loans Maturing
Up to 30 days
From 31 to 59 days
From 60 to 89 days
From 90 to 179 days
From 180 to 365 days
More than 365 days
Total
Peso-denominated
% of
Total
Amount
3,719.2
3,405.3
6,561.6
1,471.6
1,932.4
933.8
771.1
852.0
600.7
138.9
134.0
4.9
13,825.0
26.9
24.6
47.5
10.6
14.0
6.8
5.6
6.2
4.3
1.0
1.0
100.0
Dollar-denominated
% of
Total
Amount
1,589.4
1,393.2
309.1
311.0
175.7
389.6
185.9
21.9
109.7
100.4
9.3
3,092.3
Total
Amount
- 3,719.2
51.3 4,994.7
45.1 7,954.8
10.0 1,780.7
10.1 2,243.4
5.7 1,109.5
12.6 1,160.7
6.0 1,037.9
0.7
622.6
3.6
248.6
3.3
234.4
0.3
14.2
100.0 16,917.3
% of
Total
22.0
29.5
47.0
10.5
13.3
6.6
6.9
6.1
3.6
1.5
1.4
0.41
100.0
(1) Only Principal. It does not include CER adjustment or interest.
The above-mentioned chart shows that the highest concentration of maturities for time deposits is in the term
of up to 59 days, representing 50.6% of total time deposits. The deposit-raising periods from 60 to 365 days
have a homogeneous share. As of December 31, 2009, the average term for the raising of non-adjusted pesoand dollar-denominated time deposits was approximately 107 days.
Dollar-denominated deposits, for Ps.3,092.3 million (excluding interests), represented 18.3% of total
deposits. Such total includes Ps.160.1 million (excluding interests) corresponding to Galicia Uruguay.
Debt Securities
From the total of Banco Galicia’s consolidated debt securities of Ps.2,459.5 million at the end of fiscal year
2009, Ps.2,221.8 million consisted of dollar-denominated debt pursuant to the following breakdown:
- Ps.129.9 million and Ps.736.5 million of Notes Due 2010 and Notes Due 2014, respectively, and
Ps.1,082.1 million of Subordinated Notes Due 2019. All of them correspond to Banco Galicia’s debt
in Argentina resulting from the foreign debt restructuring process ended in 2004.
- Ps.75.9 million of notes due 2010, issued by Tarjetas Cuyanas S.A.
- Ps.191.0 million of Notes, issued by Tarjeta Naranja S.A., of which Ps.133.7 million correspond to
Class IX, Series I, due 2010 and Ps.57.3 million to Class IX, Series II, due 2011.
- Ps.6.4 million of the Bank’s past-due foreign debt, included in the restructuring process ended in May
2004, the holders of which did not take part in such process.
The difference with total holdings, of Ps.237.7 million, corresponds to peso-denominated debt from notes of
the Regional Credit Card Companies. The balance of these securities decreased Ps.132.1 million as compared
to the end of fiscal year 2008.
76
It is worth noting that, during the year, foreign currency debt securities experienced the following changes:
i) the payment of two amortization payments, at 12.5% each, of Notes Due 2010, for a total of US$68.4
million,
ii) Partial payment of the Notes Due 2014 of Ps.77.3 million (NV U$S82.4 million) which were
purchased by the Bank, in market transactions during the 2009 fiscal year,
iii)Maturity of the Series XIX Notes, in the amount of US$11.5 million, issued by Tarjeta Cuyanas S.A.,
and of the Class VII and Class VIII notes, in the amount of US$18.1 million and of US$20 million,
respectively, issued by Tarjeta Naranja S.A., and
iv) The repayment of the Galicia Uruguay notes.
As of December 31, 2009, lines of credit extended by international banks and credit agencies amounted to
Ps.548.1 million. This amount (principal plus interest) represents dollar-denominated debt governed by
foreign law, of which Ps.261.1 million mainly correspond to a line of credit received from IFC (International
Finance Corporation), and Ps.181.4 million correspond to prefinancing loans and foreign trade transactions.
For further detailed information on the breakdown of Banco Galicia’s debt with international banks and
credit agencies, see “Contractual Obligations”.
Other Liabilities
The category “Other Liabilities” mainly includes the following sections recorded in the balance sheet under
“Other Liabilities Resulting from Financial Brokerage”, except as stated otherwise:
- Ps.925.8 million from debt with businesses due to credit-card transactions of the Bank and of the
Regional Credit Card Companies;
- Ps.578.7 million recorded under “Miscellaneous Liabilities”;
- Ps.511.6 million from collections on account of third parties and other obligations;
- Ps.393.8 million corresponding to purchases of Boden 2012 in connection with repurchase
transactions;
- Ps.255.9 million from “Allowances”;
- Ps.251.5 million corresponding to obligations with banks and local organisms; and
- Ps.203.8 million corresponding to creditors on account of Nobac purchases in connection with a
repurchase transaction.
Ratings
In December 2009, the Class I Series I and II Notes of Grupo Galicia were rated as “A+” by Evaluadora
Latinoamericana.
In December 2009, Standard & Poor’s granted the Notes Due 2010 and Notes Due 2014 a “raA” rating, and
an “raA-” rating was granted to the Subordinated Notes Due 2019, thus reflecting a “stable” outlook.
Standard & Poor’s noted that this “reflects the expectations that the Bank shall continue showing positive
results that will contribute to an additional improvement of its capital level and shall continue gradually
strengthening its balance sheet, with a higher reduction of its exposure to sovereign debt”. Banco Galicia’s
short- and long-term deposits were granted the “raA” and “raA-1” ratings, respectively.
In turn, Moody’s issued its first rating report on the Bank and granted, nationally, an “Aa3.ar” rating to the
outstanding Notes mentioned in the paragraph above, while peso-denominated deposits and deposits in
foreign currency were granted “Aa2.ar” and “Ba1.ar” ratings, respectively.
During the year, Tarjeta Naranja S.A. issued Series I and II class IX Notes, which in December 2009, were
rated domestically by Fitch Argentina Calificadora de Riesgo S.A. as “A+”, the same rate that Class IV notes
were granted.
At the end of 2009, Tarjetas Cuyanas S.A. issued class XX notes rated by Fitch Argentina Calificadora de
Riesgo S.A as “A-”, the same as its class XVIII notes.
Additionally, Moody’s has rated the Trustee Quality of Banco Galicia. The aim of this rating is provide the
market with an additional tool to assess the Trustee’s ability to meet its obligations under the transactions in
77
which it participates. Banco Galicia was rated as TQ1(-).ar, which means a strong capability in managing
underlying assets for the benefit of investors.
Such rating is mainly based on the following factors: (i) organizational structure and business strategy higher
than the average level; (ii) strong ability to play the role of trustee in securitized transactions based on a
satisfactory capacity to manage cash funds, the role in the monitoring and reporting of relevant events and the
procedures for verifying payment instructions independently; (iii) strong operational stability based on the
presence of clear origination, oversight and control procedures, and systems for managing trust operations;
and (iv) financial stability above the average level in comparison with other entities, as indicated by Banco
Galicia’s deposits rating.
78
Contractual Obligations
The table below identifies Grupo Galicia’s and its subsidiaries contractual obligations as of December 31, 2009.
Currency of
Maturity Date
issuance
In million of Pesos
Interest Rate
Total
Less than
1 to
3 to
1 Year
3 years 5 years
Over
5 years
Grupo Galicia
Grupo Financiero Series I(1) Notes
Dollars
2010
-
125.8
125.8
-
-
-
Grupo Financiero Series II(1) Notes
Dollars
2011
12.5%
40.3
-
40.3
-
-
Dollars
2010
Libor + 350 b.p.
129.9
129.9
174.6
Banco Galicia
Notes:
Floating Rate Class B Notes, due 2010 (2) (3) (4)
Step-up Rate Class A Notes, due 2014
Subordinated Notes, due 2019
(2) (3) (5)
(2) (6)
19% Notes, due 2003 (7)
-
-
349.2
212.7
-
-
-
-
6.4
-
-
-
-
-
Dollars
2014
7.0%
736.5
Dollars
2019
11.0%
1,077.7
Dollars
2003
9.0%
6.4
Dollars
2010
Libor + 350 b.p.
2.0
2.0
22.5
45.0
27.4
-
-
-
260.8
48.8
115.5
96.5
180.0
180.0
-
-
70.8
14.9
26.4
16.1
13.4
61.9
16.5
26.1
13.0
6.3
70.0
70.0
-
-
-
-
-
1,077.7
Loans:
Floating Rate Loans due 2010 (2) (3) (4)
Floating Rate Loans due 2014
(2) (3) (5)
Subordinated, Floating Rate Loans due 2019
(2) (8)
Dollars
2014
Libor + 85 b.p.
94.9
Dollars
2019
Libor + 578 b.p.
7.3
Dollars
IFC Financial Loans
(9)
Other Financial Loans
Dollars
IDB Loan
Pesos
Fontar Loans
Call Tomado
Repurchase Transactions
(10)
(10)
Repurchase Transactions
Several
2010
Several
Pesos
Several
Pesos
2010
Libor + 350 b.p.
Several
Several
Several
9.8%
7.3
Pesos
2010
Several
278.3
278.3
Dollars
Several
Several
331.4
331.4
Pesos
Several
Several
179.7
114.6
65.1
-
500.9
323.6
177.3
-
Tarjetas Regionales
Financial Loans with Domestic Banks
(11)
Pesos/Dollars
Notes
79
Several
Several
4,154.6 1,839.3
844.9 365.7 1,104.7
Total
Principal amounts only, interest not included.
(1) Corresponds to Notes issued by Grupo Galicia in dollars and in two series. Series I was issued with discounted base and in a 360-day term. Series II was issued at a 12.5%
fixed rate with a 540-day term. Principal of both series will be fully paid at maturity. Interest in Series II will be paid in a 180-day term.
(2) Issued in 2004 as part of the foreign debt restructuring of the Bank’s Head Office and its Cayman Branch.
(3) Interest payable, semiannually, on January 1 and July 1 of each year.
(4) Principal amortizes semiannually, on January 1 and July 1 of each year, beginning on July 1, 2006, in eight equal installments of 12.5% of original principal amount, until
maturity on January 1, 2010, when the remaining 12.5% is due.
(5) Principal amortizes semiannually, on January 1 and July 1 of each year, beginning on January 1, 2010, in eight equal installments of 11.11% of original principal amount,
until maturity on January 1, 2014, when the remaining 4.86% is due. The rate increases 1% on January 1 of each year, until reaching 7% per annum on January 1, 2008.
(6) Interest paid in cash: 6% per annum from January 1, 2004 until (but not including) January 1, 2014, payable semiannually, on January 1 and July 1 of each year, beginning on
July 1, 2004. Unless securities are previously redeemed, the annual interest rate will increase to 11% per annum from that date until (but not including) January 1, 2019.
Interest paid on Notes Due 2019: 5% per annum from January 1, 2004, to be paid on January 1, 2014 and January 1, 2019. Principal is payable in full on January 1, 2019,
unless the securities are previously redeemed at par plus accrued but unpaid interests and additional amounts, if any, in whole or in part, at the Bank’s option, at any time after
the Notes Due 2010 and Notes Due 2014 have been repaid in full.
(7) The balance represents debt not tendered by its holders in the exchange offered by the Bank to restructure its foreign debt, which was completed in May 2004.
(8) Interests payable in cash: Libor + 78 basis points from January 1, 2004 until (but not including) January 1, 2014, payable semiannually, on January 1 and July 1 of each year,
beginning on July 1, 2004. Unless the securities are previously redeemed, the annual interest rate will increase to Libor+578 basis points per annum from that date until (but
not including) January 1, 2019. Interests paid on additional subordinated loans due 2019: 5% per annum from January 1, 2004, to be paid on January 1, 2014 and January 1,
2019. Principal is payable in full on January 1, 2019, unless the securities are previously redeemed at par plus accrued but unpaid interests and additional amounts, if any, in
whole or in part, at the Bank’s option, in accordance with the terms and conditions of issuance.
(9) Represents borrowings to finance foreign trade transactions.
(10) Includes premiums.
(11) Includes the following Notes:
Tarjeta Cuyanas Series XVIII: issued in pesos. Interests are payable semiannually, in June and December, principal amortizes semiannually in 9 installments, the first four
installments of 15% beginning on June 14, 2008. The following 3 installments of 10% and the last two installments of 5% each. As to December, Ps.80 million payable in 3
installments of Ps.20 million corresponding to the 10% of the initial value and 2 installments of Ps.10 million.
Tarjeta Cuyanas Series XX: issued in dollars. US$20 million. Principal amount is payable in full on December 2, 2010. No interest accrues since it was issued at a discount in
respect to its nominal value.
Tarjeta Naranja S.A. Class IV: issued in pesos, at a 12.5 % fixed rate, with maturity on November 29, 2011. Interests are payable semiannually, in May and November of each
year, beginning in May 29, 2007. Principal amortizes in 8 equal installments of 12.5% in the same months, beginning on May 29, 2008.
Tarjeta Naranja S.A. Class IX Series I: issued in dollars. Principal is payable in full on September 1, 2010. No interest accrues since it was issued at a discount in respect to its
nominal value.
Tarjeta Naranja S.A. Class IX Series II: issued in dollars, at a 12.5 % fixed rate . Interests are payable semiannually in March and September of each year. Principal will be fully
repaid on the maturity date.
80
As of December 31, 2009, the breakdown of Grupo Galicia’s shareholders’ equity was the following:
December 31, 2009
1,241.4
278.1
0.6
46.0
265.2
(8.1)
229.3
2,052.5
Capital Stock
Capital Adjustment
Premium for trading of shares in own portfolio
Legal Reserve
Discretionary Reserve
Valuation Adjustment by hedging derivatives (*)
Retained Earnings
Total Shareholders’ Equity
(*) On June 4, 2009, a forward foreign currency hedge contract was entered into, aimed at covering the risk
associated with the exchange rate exposure of notes issued in dollars.
Changes in the market value of this derivative have been charged to shareholders’ equity, under “Valuation
Adjustment by hedging derivatives”, and shall be recorded as results when the covered section affects such
results.
Results of Operations
Fiscal year 2009 compared to fiscal year 2008
Net income for fiscal year 2009 amounted to Ps.229.3 million, Ps.52.5 million higher than the previous fiscal
year.
This increase in net income is mainly attributable to:
- a Ps.446.3 million increase in financial income, from Ps.2,559.3 million to Ps.3,005.6 million,
- a Ps.153.0 million increase in miscellaneous net income, from Ps.80.1 million to Ps.233.1 million,
and
- a Ps.123.0 million increase in net income from services, from Ps.1,187.9 million to Ps.1,310.9
million.
These factors were partially offset by:
- a Ps.244.1 million increase in provisions for loan losses from Ps.395.4 million to Ps.639.5 million,
- a Ps.248.0 million increase in administrative expenses, from Ps.1,781.1 million to Ps.2,029.1 million,
- an increase in income tax of Ps.82.0 million, a higher income tax, from Ps.74.0 million, to Ps.156.0
million, and
- a decrease of Ps.45.5 million in permanent participations, from Ps.56.8 million to Ps.11.3 million.
Net income per share for fiscal year 2009 was Ps.0.185, compared to Ps.0.142 in fiscal year 2008. The return
on average assets and the return on average shareholders’ equity were 1.12% and 11.69%, respectively, for
fiscal year 2009, as compared to 0.91% and 10.13%, respectively, during fiscal year 2008.
Financial Income
Financial income for the 2009 fiscal year amounted to Ps.3,005.6 million, a 17.4% increase compared to the
Ps.2,559.3 million recorded in fiscal year 2008. This increase in financial income was the result of a higher
average yield on interest-earning assets, partially offset by the lower average volume thereof. Financial
income during fiscal year 2009, was as follows:
Income from Loans and Other Receivables Resulting from
Financial Brokerage and Premiums Earned on Reverse Repos
Income from Government and Corporate Securities, Net
CER Adjustment
Other (1)
Total
81
2009
2008
As of December 31,
2007
2,207.7
559.1
24.4
214.4
3,005.6
1,930.3
238.1
123.9
267.0
2,559.3
1,413.2
241.3
205.1
138.3
1,997.9
(1) Reflects net income from financial leases, differences in the quotations of gold and foreign currency, as well as premiums on forward
sales of foreign exchange.
For the fiscal years indicated, the average balance of our interest-earning assets and our interest-bearing
liabilities and the yields on our interest-earning assets and the cost of our interest-bearing liabilities were as
follows:
In millions of Pesos, except rates (%)
Interest-Earning Assets
Loans
Other Interest-Earning Assets
Interest-Bearing Liabilities
Current Accounts
Savings Accounts
Time Deposits and Restructured Deposits
Argentine Central Bank
Debt Securities
Other Interest-Bearing Liabilities
Spread and Net Yield
Interest Spread, Nominal Basis (1)
Net Yield on Interest-Earning Assets (2)
Financial Margin (3)
2009
Principal
Rate
18,378.0
4,686.5
11,463.6
2,227.9
15,923.4
1,287.3
3,014.5
7,391.9
0.6
2,729.9
1,499.2
15.71
11.84
19.34
5.17
7.63
1.00
0.19
11.67
8.22
7.34
8.08
9.10
8.41
As of December 31,
2008
2007
Principal
Rate
Principal
Rate
19,892.5
12.14 18,225.9
10.00
3,642.2
4.08
4,278.8
3.42
12,077.3
17.01 10,528.9
14.17
4,173.0
5.09
3,418.2
5.41
15,694.5
8.14 14,858.8
7.21
948.1
2.28
678.4
2.42
2,587.7
0.18
2,252.9
0.23
6,769.4
11.34
6,606.2
8.51
0.4
261.5
26.31
2,799.8
10.00
3,360.1
8.66
2,589.1
7.86
1,699.7
7.50
4.00
5.72
5.72
2.79
4.13
4.12
(1) Represents the difference between the average nominal interest rate on interest-earning assets and the average nominal interest
rate on interest-bearing liabilities. Interest rates include the CER adjustment.
(2) Net interests earned divided by average interest-earning assets (interest-bearing average assets). Interest rates include the CER
adjustment. Net interests earned correspond to net financial income (financial income less financial expenses, as set forth in the income
statement), plus:
. financial fees, included in Income from Services - Related to Lending Transactions, in the Income Statement
. contributions made to the Deposit Insurance Fund (FGD), included in Financial Expenses – Deposit Insurance Fund, in the Income
Statement and
. contributions and taxes on financial income, included in Financial Expenses – Other, in the Income Statement, less:
. Net income from corporate securities, included in Financial Income/Expenses – Income(loss) from Holding of Government and
Corporate Securities, in the Income Statement, and
. differences in the quotation of gold and foreign currency, included in Financial Income/Expenses – Differences in Quotation of Gold
and Foreign Currency, in the Income Statement, and
. premiums on foreign exchange forward transactions and adjustments on foreign exchange forward transactions, included in
Financial Income – Other, in the Income Statement.
Net interest earned also includes income that corresponds to government securities used as margin requirements of repurchase
transactions. This income/loss is included in Miscellaneous Income(Loss) – Other, in the Income Statement. Income(Loss) from Holding
of Government Securities includes interests and income/loss resulting from variations in market quotations.
(3) Financial income less financial expenses, divided by average interest-earning assets.
The average yield on interest-earning assets was 15.71%, a 357 basis points increase, which can be explained
by increases of 776 basis points and 233 basis points in the average lending interest rate on government
securities and on loans, respectively.
Average interest-earning assets decreased 7.6%, from Ps.19,892.5 million to Ps.18,378.0 million. This was a
result of the 46.6% drop in the average balance of other interest-earning assets, and 5.1% in the average
balance of total loan portfolio. This effect was partially offset by a 28.7% increase in the average balance of
the net position in government securities.
The average loan portfolio amounted to Ps.11,463.6 million, 5.1% lower than the Ps.12,077.3 million in
fiscal year 2008. This decrease was mainly due to the fact that in January 2009 Banco Galicia made an
Argentine Secured Loans exchange transaction for government securities (Nobac 2010, Bogar 2018, Boden
2014 and Discount Bonds 2033) at market prices and without creating adverse economic effects. These
assets, as shown in the chart “Interest-Earning Assets Yield and Liabilities Expenses”, are presented in the
line of “Government Securities”, therefore, this exchange caused a decrease in the “Loans” line and an
increase in the “Government Securities” line. As a consequence of the foregoing, the average balance of
loans to public sector decreased by Ps.1,144.8 million (90.5%). As regards to the private sector loans, an
average increase of Ps.531.1 million (4.9%) was recorded.
82
The estimated market share of Banco Galicia, as demonstrated in the following table, on an individual basis,
in the Argentine financial system’s total loans to the private sector was 7.67% at the end of December 2009,
whereas such market share was 6.12% as of December 31, 2008.
Market Share (*)
Total Deposits
Deposits from the Private Sector
Total
Deposits in Current and Savings Accounts and Non-Restructured Time
Deposits
Total Loans
Loans to the Private Sector
2009
6.29
As of December 31,
2008
2007
5.93
6.32
7.81
7.61
8.23
8.07
6.91
7.67
7.87
6.16
6.12
8.55
7.41
7.75
(*) Banco Galicia only, within the Argentine market. Based on daily information on deposits and loans prepared by the Argentine Central
Bank. End-of-month balances are used.
The average interest rate on total loans, including the CER adjustment, was 19.34% in fiscal year 2009,
compared to 17.01% in fiscal year 2008. The portfolio of loans to the private sector accrued a 19.31%
average interest rate and the public-sector loan portfolio accrued a 22.50% average interest rate, including the
CER adjustment.
The average interest rate on peso-denominated loans to the private sector increased by 188 basis points, from
19.85% in fiscal year 2008 to 21.73% in fiscal year 2009. This increase reflected the increase experienced in
the Argentine market in general. The average interest rate on foreign-currency denominated loans to the
private sector increased by 59 basis points, from 6.75% in fiscal year 2008 to 7.34% in fiscal year 2009.
The average position in government securities amounted to Ps.4,686.5 million, an increase of Ps1,044.3
million (28.7%), compared to Ps.3,642.2 million in fiscal year 2008. This variation is mainly due to the
increase of a Ps.1,339.3 million in the average balance of the position in government securities in pesos, as a
result of the government securities received as part of the Argentine Secured Loans exchange transaction
carried out a the end of January 2009 (as mentioned in the above paragraphs). This increase was partially
offset by the decrease of Ps.295.0 million in the average balance of government securities in dollars due,
mainly, to the sale in June 2009 of 15 coupons of income and amortization of the Boden 2012, with maturity
date on August 2009. This decrease was partially offset by the increase in the price of the dollar during the
year 2009 (December ’08: $3.45 - December ’09: $3.80).
The average yield on government securities increased by 776 basis points, from 4.08% in fiscal year 2008 to
11.84% in fiscal year 2009. This variation is composed of a 1,397 basis points increase in the average interest
rate on government securities in pesos, partially offset by a 79 basis points decrease in the average interest
rate on government securities in dollars.
As a result of the Argentine Secured Loans exchange transaction mentioned above, the new portfolio of
government securities received was assessed as a special investment, pursuant to what is permitted by the
Argentine Central Bank. Consequently, these holdings are stated at their equity value, exponentially
increased in terms of the IRR, and adjusted by the CER, if applicable. When the market value of each item is
lower than its book value, the monthly accrual of the IRR and the CER is offset, on a cumulative basis,
against an asset regularization account, until the book value equals the market value. Such asset
regularization account is reversed and charged to income as long as the balance thereof exceeds the positive
difference between the market value and the book value. Moreover, during fiscal year 2009, a portion of such
portfolio of government securities was sold and income was obtained. Both effects mainly justify the rise in
the average rate of the government security portfolio in pesos. On the other hand, the nominal rate for 2009
and 2008 is influenced by the fact that in the item “Government Securities” there are Bonds with Discount in
Pesos and GDP-Linked Negotiable Securities, the accounting of which is governed by Communiqué “A”
4270 issued by the Argentine Central Bank.
The decrease in the average interest rate on government securities in dollars was mainly due to the decrease
of the Libo rate accrued by Boden 2012. Apart from that, the average interest rate for fiscal year was
influenced by the sale of the rent coupon 15 and amortization of the Boden 2012.
83
The average rate of the “Other Interest-Earning Assets” section amounted to Ps.2,227.9 million, a Ps.1,945.1
million decrease as compared to the average recorded in fiscal year 2008, mainly as a result of the Argentine
Central Bank halting the payment of compensation on the funds deposited in the Argentine Central Bank
corresponding to the minimum cash requirements.
The average rate of the “Other Interest-Earning Assets” section increased by 8 p.b. as of December 31 2009
in comparison to December 31, 2008, from 5.09% in 2008 to 5.17% in 2009, resulting from the variation of
the peso in respect to the transactions in pesos and in foreign currency, since the average rate of the other
interest-earning assets in pesos was 6.77% in 2008 to 6.47% in 2009, with a decrease of 30 p.b., while the
average rate of the foreign currency decreased from 1.20% in 2008 to 0.78% in 2009, a decrease of 42 p.b.
Financial income for fiscal year 2009 includes a Ps.103.5 million profit from foreign-exchange quotation
differences, which includes income from foreign exchange forward transactions. The above-mentioned profit
includes a Ps.127.1 million gain from foreign exchange brokerage activities and a Ps.23.6 million loss from
the valuation of the net position in foreign currency. Financial income for fiscal year 2008 amounted to
Ps.173.3 million, which included a Ps.163.7 million profit from foreign-exchange brokerage activities and
Ps.9.6 million from foreign currency net position valuation.
Financial Expenses
Financial expenses for fiscal year 2009 amounted to Ps.1,460.5 million, representing a 2.8% increase from
the Ps.1,421.0 million for fiscal year 2008.
Interests on Deposits
Notes
Contributions and Taxes
CER Adjustment
Other (1)
2009
877.9
284.5
161.7
0.3
136.1
1,460.5
Total
As of December 31,
2008
2007
786.1
547.3
288.8
335.2
135.9
86.4
9.2
67.0
201.0
210.8
1,421.0
1,246.7
(1) Includes accrued interest on liabilities resulting from financial brokerage with banks and international entities and premiums
payable on repurchase transactions.
This variation stemmed from a 51 basis points decrease in the average cost of funds, partially mitigated by a
1.5% increase in the average balance of interest-bearing liabilities.
Average interest-bearing liabilities amounted to Ps.15,923.4 million, compared to Ps.15,694.5 million in
fiscal year 2008. This variation was due to the Ps.1,388.5 million increase in total interest-bearing liabilities,
(which rose from Ps.10,305.2 million to Ps.11,693.7 million), partially offset by a Ps.1,089.9 million
decrease in the “Other Interest-Bearing Liabilities” (from Ps.2,589.1 million to Ps.1,499.2 million), and
Ps.69.9 million average balance of debt securities, (from Ps.2,799.8 million to Ps.2,729.9 million).
The increase in the average balance of interest-bearing deposits was mainly the result of the increase in
Banco Galicia’s deposits in Argentina, in current accounts, savings accounts and time deposits. Taking into
consideration the final balances of Banco Galicia’s total deposits in Argentina, such increase totaled
Ps.3,074.5 million for fiscal year, equivalent to a 21.9% increase from the previous fiscal year-end total.
Average transactional deposits increased 21.7%, while time deposits grew 9.2%, which allowed for an
improvement of interest-bearing deposits.
Of the total average interest-bearing deposits, Ps.2,841.4 million were dollar-denominated deposits and
Ps.8,852.3 million were peso-denominated, compared to Ps.1,960.6 million and Ps.8,344.6 million,
respectively, in fiscal year 2008.
Considering only private-sector deposits in current and savings accounts and time deposits, raised by Banco
Galicia only in Argentina, the estimated deposit market share of the Bank in the Argentine financial system
rose from 7.87% as of December 31, 2008 to 8.07% as of December 31, 2009.
The average rate on interest-bearing deposits was 7.53%, 17 basis points lower than the 7.70% average rate
recorded in fiscal year 2008. Peso-denominated deposits (including those adjusted by CER) accrued at an
average rate of 9.74%, higher by 44 basis points than the average interest rate of 9.30% in fiscal year 2008.
84
This increase was experienced by the Argentine market as a whole in 2009. Likewise, the cost of dollardenominated deposits was 0.67%, lower by 24 basis points than the average interest rate of 0.91% recorded
in fiscal year 2008.
The average balance of debt securities amounted to Ps.2,729.9 million, Ps.69.9 million lower than the
Ps.2,799.8 million in fiscal year 2008. This decrease is mainly related to a US$131.9 million net decrease
(taking into consideration the capitalization of interests on Subordinated Notes Due 2019) in the final balance
of Banco Galicia’s foreign debt recorded as notes, due to amortizations, redemptions and advance
cancellations. It should be mentioned that Grupo Galicia was authorized by the CNV to create the Program
for the issuance of Notes for a nominal value of US$60 million (or its equivalent in other currencies). The
offer of notes for NV US$45 million, whose subscription period ended on June 2, 2009, was totally
subscribed. This issuance partially mitigated the reductions made by the Bank. Also, this variation was
partially offset by an increase in the price of the dollar between December 31, 2008 and the same date in
2009.
The average cost of debt securities was 8.22% in fiscal year 2009, while it was 10.00% in fiscal year 2008.
The average rate for fiscal year 2009 was mainly influenced by the Ps.68.6 million gain resulting from the
repurchase and advance cancellation of part of its foreign debt (Notes Due 2014 for NV of US$82.4 million).
Otherwise, the average rate of the debt securities would have been increased to 10.73%. The rate was also
influenced by the issuance of notes mentioned in the above paragraph, as the Series I were issued at a price of
92.68% and for a nominal amount of US$34.4 million, which amounted to an annual gain of 8% and, as the
Series II were issued at a price of 103.48%, equal to an annual gain of 10.5% and for a nominal amount of
US$10.6 million.
The average balance of the “Other Interest-Bearing Liabilities” caption was Ps.1,499.2 million, with an
average rate of 7.34% while, for fiscal year 2008, the average balance amounted to Ps.2,589.1 million and the
average rate was 7.86%. This item records, mainly, dollar-denominated debt with international banks and
credit agencies and dollar-denominated obligations in connection with repurchase transactions of
Government securities. The decrease of Ps.1,089.9 million in the average balance is mainly due to the
decrease in the average of repurchase transactions and the repayment in advance on January 6, 2009, by
Grupo Galicia of foreign financial loans of US$62 million, through a single final payment of US$39.1
million.
The decrease in the average rate is due to dollar and peso operations, as the dollar rate was 6.20% in 2008
and 4.83% in 2009, a decrease of 137 b.p., and the average rate in pesos decreased 16 b.p., from 14.43% in
2008 to 14.27% in 2009.
Net financial income for fiscal year 2009 amounted to Ps.1,545.1 million, and the financial margin was
8.41%. In fiscal year 2008, the corresponding amounts were Ps.1,138.3 million and 5.72%, respectively.
Excluding the income from the valuation adjustment of public-sector assets (Ps.4.1 million profit), and
including the financial income related to margin requirements of repurchase transactions (Ps.23.0 million
profit), net financial income amounted to Ps.1,564.0 million and the corresponding adjusted financial margin
was 8.51%. During fiscal year 2008, the net financial income, calculated the same way, amounted to
Ps.1,163.3 million, and the corresponding adjusted financial margin was 5.85%.
Net financial income for fiscal year 2009 was mainly due to the profit from the peso-denominated matched
portfolio, offset by the loss recorded by the matched portfolio in foreign currency.
The improvement in the adjusted net financial margin is mainly attributable to: (i) a decrease in the average
cost of liabilities resulting from the change in their structure as a consequence of the change in the
composition of deposits, with an increase in transactional deposits, and the reduction of foreign debt; (ii) an
increase in income from brokerage activities with the private sector with an increase in the volume of average
loans and an increase in the average interest rate on such loans; and (iii) an increase in income related to the
government securities portfolio.
85
Interest-Earning Assets – Net Yield and Spread (*)
As of December 31,
2008
2007
2009
In millions of Pesos, except rates
Total Average Interest-Earning Assets
Pesos
Dollars
Total
Net Interest Earned
Pesos
Dollars
Total
Net Yield on Interest-Earning Assets (1) (%)
Pesos
Dollars
Weighted-Average Yield
Interest Spread, Nominal Basis (2) (%)
Pesos
Dollars
Weighted-Average Yield
13,770.2
4,607.8
18,378.0
14,182.4
5,710.1
19,892.5
12,451.1
5,774.8
18,225.9
1,714.5
(42.4)
1,672.1
1,269.4
(131.5)
1,137.9
798.1
(46.2)
751.9
12.45
(0.92)
9.10
8.95
(2.30)
5.72
6.41
(0.80)
4.13
9.34
0.49
8.08
5.59
(1.69)
4.00
4.08
(0.73)
2.79
(*) Interest includes CER adjustment.
(1) Net Interest Earned divided by average interest-earning assets. See “Consolidated Average Nominal Yields/Rates for Assets and
Liabilities”.
(2) Interest spread, nominal basis, is the difference between the average nominal interest rate on interest-earning assets and the average
nominal interest rate on interest-bearing liabilities.
Consolidated Average Nominal Yields/Rates for Assets and Liabilities (*)
Pesos
In millions of Pesos, except rates in %
Assets
Loans
Private Sector
Public Sector
Total Loans
Other
Cash and Gold
Equity Investments in other
Companies
Other Assets
Allowances
Total Assets
Liabilities and Shareholders’ Equity
Deposits
Current Accounts
Savings Accounts
Time Deposits and Restructured
Deposits
Total Interest-Bearing Deposits
Debt Securities
Total Interest-Bearing Liabilities
Current Accounts
Other Liabilities
Minority Interest
Average
Balance
2,500.7
Total
Dollars
Interests Average
Interests Average
Average
Average
Earned/ Yield/
Earned/ Yield/
Balance
Balance
Rate
Rate
Paid
Paid
2.29 4,686.5
Interests Average
Earned/ Yield/
Paid
Rate
505.0 20.19 2,185.8
50.1
555.1 11.84
9,431.6 2,049.8 21.73 1,912.0
120.0
27.0 22.50
9,551.6 2,076.8 21.74 1,912.0
1,717.9 111.2 6.47 510.0
13,770.
2 2,693.0 19.56 4,607.8
1,515.2
- 1,913.5
140.3
140.3
4.0
7.34 11,343.6 2,190.1 19.31
120.0
27.0 22.50
7.34 11,463.6 2,217.1 19.34
0.78 2,227.9 115.2 5.17
194.4
-
4.22 18,378.0 2,887.4 15.71
- 3,428.7
-
843.2
2,482.3
(724.8)
17,886.
1
-
-
157.2
162.9
(42.2)
-
- 1,000.4
- 2,645.2
- (767.0)
-
-
-
- 6,799.2
-
- 24,685.3
-
-
790.0
1,988.4
12.9
5.7
1.63 497.3
0.29 1,026.1
-
- 1,287.3
- 3,014.5
12.9
5.7
1.00
0.19
6,073.9
8,852.3
325.8
399.4
9,577.5
3,058.8
2,816.3
249.9
843.2
861.8
59.7
57.0
978.5
-
13.88
9.74
18.32
14.27
10.22
86
1,318.0
2,841.4
0.6
2,404.1
1,099.8
6,345.9
6.2
669.5
-
19.1
19.1
164.6
53.1
236.8
-
1.45
0.67
6.85
4.83
3.73
-
7,391.9 862.3 11.67
11,693.7 880.9 7.53
0.6
2,729.9 224.3 8.22
1,499.2 110.1 7.34
15,923.4 1,215.3 7.63
3,065.0
3,485.8
249.9
-
Total Liabilities and Shareholders’
Equity
Spread and Net Yield (%)
Interest Rate Spread
Cost of Funds Supporting InterestEarning Assets
Net Yield on Interest-Earning Assets
1,961.2
17,663.
7
-
-
-
-
- 1,961.2
-
-
-
- 7,021.6
-
- 24,685.3
-
-
9.34
0.49
8.08
7.11
5.14
6.61
12.45
(0.92)
9.10
(*) Interest earned/paid includes the CER adjustment.
Pesos
Assets
Loans
Private Sector
Public Sector
Total Loans
Other
Cash and Gold
Companies
Other Assets
Allowances
Total Assets
Deposits
Current Accounts
Savings Accounts
Deposits
Debt Securities
Current Accounts
Other Liabilities
Minority Interest
Equity
Cost of Funds of Interest-Earning
Assets
Average
Balance
1,161.4
Total
Dollars
Interests Average
Interests Average
Average
Average
Earned/ Yield/
Earned/ Yield/
Balance
Balance
Rate
Rate
Paid
Paid
72.2
6.22
2,480.8
76.3
8,848.1 1,756.6
1,264.8
165.7
10,112.9 1,922.3
2,908.1
197.0
14,182.4 2,191.5
599.2
-
19.85
13.10
19.01
6.77
15.45
-
1,964.4
1,964.4
1,264.9
5,710.1
287.9
3.08
Interests Average
Earned/ Yield/
Paid
Rate
3,642.2
148.5
4.08
132.6
132.6
15.2
224.1
-
6.75 10,812.5
- 1,264.8
6.75 12,077.3
1.20 4,173.0
3.92 19,892.5
887.1
1,889.2
165.7
2,054.9
212.2
2,415.6
-
17.47
13.10
17.01
5.09
12.14
-
-
-
948.1
2,587.7
21.6
4.7
2.28
0.18
708.4
2,211.6
(479.1)
17,222.5
-
-
63.8
218.2
(90.0)
6,190.0
-
772.2
- 2,429.8
- (569.1)
- 23,412.5
697.7
1,849.3
21.6
4.7
3.10
0.25
250.4
738.4
-
-
5,797.6
8,344.6
487.3
522.6
9,354.5
2,873.6
2,313.1
214.4
1,745.0
749.9
776.2
70.5
75.4
922.1
-
12.93
9.30
14.47
14.43
9.86
-
971.8
1,960.6
0.4
2,312.5
2,066.5
6,340.0
12.4
559.5
-
17.8
17.8
209.6
128.2
355.6
-
1.83 6,769.4
0.91 10,305.2
0.4
9.06 2,799.8
6.20 2,589.1
5.61 15,694.5
- 2,886.0
- 2,872.6
214.4
- 1,745.0
767.7
794.0
280.1
203.6
1,277.7
-
11.34
7.70
10.00
7.86
8.14
-
16,500.6
-
-
6,911.9
-
- 23,412.5
-
-
5.59
(1.69)
4.00
6.50
8.95
6.23
(2.30)
6.42
5.72
Pesos
Assets
Loans
Average
Balance
1,209.1
Total
Dollars
Interests Average
Interests Average
Average
Average
Earned/ Yield/
Earned/ Yield/
Balance
Balance
Rate
Rate
Paid
Paid
16.9
1.40
87
3,069.7
129.4
4.22
4,278.8
Interests Average
Earned/ Yield/
Paid
Rate
146.3
3.42
Private Sector
Public Sector
Total Loans
Other (1)
Cash and Gold
Companies
Other Assets
Allowances
Total Assets
Deposits
Current Accounts
Savings Accounts
Deposits
Debt Securities
Current Accounts
Other Liabilities
Minority Interest
Equity
Cost of Funds Supporting InterestEarning Assets
7,178.8 1,163.5
1,685.1
221.2
8,863.9 1384.7
2,378.1
155.2
12,451.1 1,556.8
484.6
-
16.21
13.13
15.62
6.53
12.50
-
1,665.0
1,665.0
1,040.1
5,774.8
201.6
107.1
107.1
29.8
266.3
-
6.43 8,843.8 1,270.6
- 1,685.1
221.2
6.43 10,528.9 1,491.8
2.87 3,418.2
185.0
4.61 18,225.9 1,823.1
686.2
-
661.0
2,010.4
(335.9)
15,271.2
-
-
65.2
126.8
(107.2)
6,061.2
-
726.2
- 2,137.2
- (443.1)
- 21,332.4
531.0
1,647.2
16.4
5.1
3.09
0.31
147.4
605.7
-
-
5,705.6
7,883.8
261.3
530.0
336.1
9,011.2
2,287.6
1,872.7
172.9
1,606.7
547.0
568.5
68.8
77.7
43.7
758.7
-
9.59
7.21
26.33
14.66
13.00
8.42
-
900.6
1,653.7
0.2
2,830.1
1,363.6
5,847.6
19.9
513.8
-
15.4
15.4
213.3
83.8
312.5
-
14,951.1
-
-
6,381.3
-
14.37
13.13
14.17
5.41
10.00
-
-
-
16.4
5.1
2.42
0.23
1.71 6,606.2
562.4
0.93 9,537.5
583.9
261.5
68.8
7.54 3,360.1
291.0
6.15 1,699.7
127.5
5.34 14,858.8 1,071.2
- 2,307.5
- 2,386.5
172.9
- 1,606.7
-
8.51
6.12
26.31
8.66
7.50
7.21
-
678.4
2,252.9
- 21,332.4
-
-
4.08
(0.73)
2.79
6.09
6.41
5.41
(0.80)
5.88
4.13
(1) Includes the Hedge Bond to be received.
Provisions for losses on loans and other receivables amounted to Ps.639.5 million, Ps.244.1 million higher
than the Ps.395.4 million for fiscal year 2008. A significant part of this increase was due to the maturation of
our loan portfolio in the deteriorating economic context.
For more information on the asset quality of the loan portfolio, See “Loan Portfolio and Credit Risk
Management – Credit Risk Management – Asset Quality of the Bank’s Loan Portfolio”
Net income from services for the fiscal years indicated consisted of:
As of December 31,
2009
1,148.2
465.3
682.9
252.9
18.6
30.2
14.9
14.3
50.1
96.5
51.8
Credit Cards
Banco Galicia
Deposits
Cash Management
Safe Deposit Box
Cash Transport
Product Package
Financial Fees
Credit-related Fees
Foreign Trade
88
2008
952.6
367.7
584.9
201.7
17.8
18.0
11.1
11.4
42.0
95.7
46.1
2007
669.5
253.2
416.3
160.5
13.8
13.2
8.3
7.9
28.8
79.1
39.5
33.0
25.7
90.6
1,826.8
515.9
1,310.9
Collections
Utility Bills Collection Services
Others(1)
Total Income
Total Expenses
33.9
19.5
122.3
1,572.1
384.2
1,187.9
27.3
14.1
108.7
1,170.7
257.6
913.1
(1) Includes, among others, income from investment banking activities, asset management, safety boxes and cash management
services.
Net income from services amounted to Ps.1,310.9 million, 10.3% higher than the Ps.1,187.9 million recorded
in fiscal year 2008. Almost all categories grew, mainly as a consequence of an increase in the volume of
transactions together with an increase in the price of certain services, in line with the dynamics of the
financial market.
Banco Galicia’s income from credit and debit card transactions, on an individual basis, amounted to Ps.465.3
million, a 26.5% increase over the Ps.367.7 million recorded in fiscal year 2008. This higher income was
attributable not only to the greater number of credit cards managed, but also to the greater average purchases
made with such cards during the year. The total number of cards managed by Banco Galicia (excluding those
managed by the Regional Credit Card Companies) increased 9.5%, reaching 1,356.2 thousand as of
December 31, 2009, compared to 1,238.5 thousand as of December 31, 2008.
Income from services corresponding to the Regional Credit Card Companies was Ps.682.9 million, 16.8%
higher than the Ps.596.9 million recorded in fiscal year 2008. This variation was mainly due to the increase in
the purchases made with these credit cards during fiscal year 2009. These companies managed 4,618.2
thousand cards as of December 31, 2009, a 2.6% decrease from December 31, 2008, due to the clean-up of
the base of cards made by these companies during the fiscal year 2009.
Credit Cards
Number of credit cards, except purchases
Banco Galicia
Visa
“Gold”
International
Domestic
“Business”
“Corporate”
“Platinum”
Galicia Rural
MasterCard
“Gold”
MasterCard
ArgenCard
American Express
“Gold”
International
“Platinum”
Visa
MasterCard
American Express
Regional Brands (1)
Total
Total Amount of Purchases (in million of Pesos)
2009
2008
As of December 31,
2007
982,866
262,388
471,766
189,626
28,430
1,130
29,526
7,157
57,276
19,452
36,670
1,154
308,942
143,899
145,111
19,932
4,618,199
1,424,453
221,575
27,627
2,944,544
5,974,440
18,142
936,267
203,464
470,709
227,785
20,976
960
12,373
6,215
54,916
16,790
36,531
1,595
241,145
99,970
133,644
7,531
4,742,816
1,628,185
217,090
32,832
2,864,709
5,981,359
14,948,8
855,708
172,830
433,000
229,174
15,962
295
4,447
5,841
50,577
13,203
35,684
1,690
195,360
79,829
115,531
4,283,770
1,599,046
182,237
22,699
2,479,788
5,391,256
11,566,3
(1) Corresponds to Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A.
Total deposit accounts of Banco Galicia, the only company from Grupo Galicia that owns deposit accounts,
amounted to 1,734.1 thousand as of December 31, 2009, 12.6% higher than the previous year.
89
Reflecting the increase in the volume of deposits and in the number of accounts, the higher sales of products,
and the increase in the price of certain services, significant growth was achieved during fiscal year 2009, in
income from the services related to deposit accounts (25.4%), financial transactions (19.3%), safe deposit
boxes (67.8%), collections (31.8%) and foreign trade (12.4%).
Expenses from services increased 34.3%, from Ps.384.2 million in fiscal year 2008 to Ps.515.9 million in
fiscal year 2009.
The following table sets forth the components of administrative expenses for fiscal year 2009 and the two
previous fiscal years:
2009
975.8
76.8
8.6
127.8
85.9
136.1
139.3
478.8
2,029.1
In million of Pesos
Salaries and Social Security Contributions
Personnel Services
Directors’ and Syndics’ Fees
Advertising and Publicity
Electricity and Communications
Property-Related Expenses (depreciations and rental)
Taxes
Other
Total Administrative Expenses
As of December 31,
2008
2007
805.2
540.6
90.8
75.7
8.2
6.4
146.5
113.8
72.7
57.2
113.2
89.9
104.0
70.4
440.5
332.3
1,781.1
1,286.3
In fiscal year 2009, administrative expenses amounted to Ps.2,029.1 million, 13.9% higher than the
Ps.1,781.1 million recorded in the previous fiscal year.
Salaries and social security contributions and expenses related to personnel services increased 17.5%, from
Ps.896.0 million in fiscal year 2008 to Ps.1,052.6 million in fiscal year 2009. This increase was mainly due to
higher remunerations, given the personnel experienced a 2.8% decrease, from 9,408 employees as of
December 31, 2008 to 9,142 in December 31, 2009.
The remaining administrative expenses amounted to Ps.976.5 million in fiscal year 2009, thus reflecting a
10.3% increase from the Ps.885.1 million recorded in the previous fiscal year. This increase was associated to
a successful policy of expenses control within the framework of an inflationary context.
In fiscal year 2009, a Ps.11.3 million gain from equity investments in other companies was recorded,
compared to a Ps.56.8 million profit recorded in fiscal year 2008. Income for fiscal year 2008 was mainly a
consequence of the Ps.53.8 million profit from dividends received due to Banco Galicia’s interest in Visa
Argentina S.A. The magnitude of these dividends was related to the initial public offering of Visa Inc.’s
shares.
Miscellaneous Income (Loss), Net
Miscellaneous net income for fiscal year 2009 amounted to Ps.233.1 million, compared to a Ps.80.1 million
profit for fiscal year 2008.
Excluding the income of a financial nature from security margins of repurchase transactions (of Ps.23.0
million), miscellaneous net income in fiscal year 2009 amounted to Ps.210.1 million, while in fiscal year
2008 a gain of Ps.45.9 million was recorded (also excluding the above-mentioned financial income for
Ps.34.2 million).
The variation in results between the two periods was mainly due to the revenue of Ps.85.5 million
corresponding to the result from the early cancellation of the foreign financial loan, and the Ps.12.7 million
profit from the sale by Galicia Warrants S.A. of its Silos plant in San Salvador, province of Entre Rios. These
results were offset by the higher amortization of amparo claims for the year 2009 (Ps.39.2 million) in
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comparison to the year 2008, as from January 2009, the amount deferred at December 31 2008 began to be
amortized in 36 monthly installments.
Income Tax
The income tax charge for fiscal year 2009 was Ps.156.0 million (an Ps.82.0 million increase when compared
to fiscal year 2008), of which Ps.111.6 million corresponded to Tarjetas Regionales S.A. consolidated with
its operating subsidiaries, Ps.24.8 million corresponded to Grupo Galicia, individually, and Ps.14.2 million
and Ps.4.4 million correspond to Sudamericana and Galicia Warrants, respectively.
The income tax charge for fiscal year 2008 was Ps.74.0 million, (a Ps.2.5 million increase or 3.5%, in
comparison to fiscal year 2007), of which Ps.63.0 million corresponded to Tarjetas Regionales S.A.
consolidated with its operating subsidiaries and Ps.11.1 million corresponded to Sudamericana.
Fiscal year 2008 compared to fiscal year 2007
During fiscal year 2008, net income amounted to Ps.176.8 million, a Ps.130.8 million increase compared to
the previous fiscal year.
This increase was mainly attributable to:
- a 30.1% increase in net income from net services, from Ps.913.1 million to Ps.1,187.9 million,
- a 28.1% increase in financial expenses, from Ps.1,997.9 million to Ps.2,559.3 million,
- a Ps.55.0 million increase in miscellaneous net income, from Ps.25.1 million to Ps.80.1 million, and
- a Ps.54.8 million increase in income from long term investments, from Ps.2.0 million to Ps.56.8
million.
These factors were partially offset by:
- a 38.5% increase in administrative expenses, which increased from Ps.1,286.3 million to Ps.1,781.1
million,
- a 14.0% increase in financial expenses, from Ps.1,246.7 million to Ps.1,421.0 million, and
- a Ps.139.9 million increase in provisions for loan losses, from Ps.255.5 million to Ps.395.4 million.
Net income per share of the fiscal year 2008 amounted to $0.142 while in 2007 was $0.037. The return on
average assets and average equity for 2008 were 0.91% and 10.13%, respectively while in 2007 they were
0.37% and 2.86%, respectively.
Financial income
Financial income amounted to Ps.2.559,3 million, representing a 28.1% increase from the Ps.1,997.9 million
recorded in fiscal year 2007. The increase in financial income was the result of a higher average interestearning assets, and a growth in the average volume thereof.
The average yield on interest-earning assets was 12.14%, a 214 basis points increase, which can be explained
by increases of 284 basis points and 66 basis points in the average lending interest rate and in the average rate
on other interest-earning assets, respectively. A 32 basis points decrease in the average interest rate of other
interest-earning assets was registered.
Average interest-earning assets increased 9.1%, from Ps.18,225.9 million to Ps.19,892.5 million. This was a
result of: i) a 14.7% increase in the average balance of the total loan portfolio, and ii) a 22.1% increase in the
average balance of other interest-earning assets, from Ps.3,418.2 million in fiscal year 2007 to Ps.4,173.0
million in 2008. This was partially offset by a 14.9% decrease in the average balance of the net position in
government securities, from Ps.4,278.8 million to Ps.3,642.2 million.
The average loan portfolio amounted to Ps.12,077.3 million, 14.7% higher than the Ps.10,528.9 million for
fiscal year 2007. This was due to an increase in the average balance of loans to the private sector, of
Ps.1,968.7 million, partially offset by an important decrease in the average balance of loans to the public
sector, equal to Ps.420.3 million (-24.9%). The decrease in the average portfolio of loans to the public sector
was mainly due to the sales of Argentine Secured Loans and to the use of these loans for the purchase of the
remaining Hedge Bond, both during the first six months of fiscal year 2007.
91
As regards loans to the private sector, a rise in the volume of such loans was registered during the year, with
a 22.3% increase in the average balance for fiscal year 2008, compared to the previous fiscal year. It should
be pointed out that this increase is net of the portfolio transferred to trusts and the application of provisions
corresponding to the fiscal year 2008.
The unconsolidated estimated market share of Banco Galicia in the private sector of the Argentine financial
system was 6.13% at the end of December 2008, while at December 31, 2007 this market share amounted to
7.75%.
The average interest rate on total loans, including the CER adjustment, was 17.01%, compared to 14.17% in
fiscal year 2007. The private sector loan portfolio accrued a 17.47% average interest rate and the publicsector loan portfolio accrued a 13.10% average interest rate, including the CER adjustment.
The average interest rate on peso-denominated loans to the private sector showed an increase of 364 b.p.,
from 16.21% to 19.85%. This increase reflected the increase observed in the Argentine market in general.
The average interest rate of the foreign currency loans to the private sector showed an increase of 32 b.p.,
from 6.43% in 2007 to 6.75% in 2008.
The average position in government securities was Ps.3,642.2 million, 14.9% lower than the Ps.4,278.8
million from fiscal year 2007. This variation was mainly due to a decrease of $588.9 million in the average
balance of the position in government securities in dollars mainly due to the collection of annual amortization
service and the sale of Boden 2012, the proceeds of which were used for the repurchase of part of the foreign
debt of Banco Galicia. This decrease was partially offset by the increase in the price of the dollar in 2008
(Dec. 2007: $3.15 – Dec. 2008: $3.45).
The average interest rate on government securities increased by 66 basis points, from 3.42% in fiscal year
2007 to 4.08% in fiscal year 2008. This variation was due to an increase of 482 basis points recorded in the
average balance of the position in government securities in pesos, partly offset by a 114 basis points decrease
in the average balance of the position in government securities in dollars.
The increase in the average interest rate on government securities in pesos was partly due to the fact that the
average interest rate in fiscal year 2007 included a Ps.32.0 million loss as a consequence of the release of
Bogar which, as of December 31, 2006, had been delivered as collateral in advance for the acquisition of the
remaining Hedge Bond. Pursuant to Communiqué “A” 3911 and supplementary regulations, Bogar used as
collateral were recorded at their technical value, while those not allocated in that way should be recorded at
their present value calculated using the rate provided for by the Argentine Central Bank. Furthermore, during
fiscal year 2008 higher income was recorded related to trading operations. In turn, the nominal interest rate in
2008 and 2007 was influenced by the fact that Peso-denominated Discount Bonds and GDP-Linked
Negotiable Securities are recorded under such item, which recording is regulated by Communiqué “A” 4270
of the Argentine Central Bank. See “Consolidated Assets – Government and Corporate Securities” in this
Chapter.
The decrease in the average rate on the position of government securities in dollars in fiscal year 2008 was
mainly due to the drop of the Libo rate accrued by the Boden 2012. Additionally, the average rate of fiscal
year 2007 was influenced by the Ps.27.5 million loss for the sale of Boden 2012 for US$178.8 million in
February 2007, which proceeds were used for the repurchase of part of its restructured foreign debt
instrumented as loans due in 2010 and 2014.
The average rate of the item “Other Interest-Earning Assets” experienced, between December 31, 2007 and
December 31, 2008, a 32 basis points decrease, mainly as a result of the variation of the relative weight of the
transactions in pesos and in foreign currency, since the average rate for other assets with yields in foreign
currency decreased from 2.87% in 2007 to 1.20% in 2008, thus decreasing 167 b.p., while the average rate in
pesos increased merely 24 b.p., from 6.53% in 2007 to 6.77% in 2008. The decrease in the foreign currency
average rate was mainly due to a decrease ordered by the Argentine Central Bank, in the rate of return
applied to the funds deposited with such entity corresponding to minimum cash payments. This drop was
related with a decrease in the average yield of the balances deposited with correspondent bank accounts.
The financial income in 2008 include a gain due to the difference in the exchange rate of Ps.173.3 million,
including the income obtained from foreign currency term transactions. Such gain is composed of Ps.163.7
million gains from the purchase-sale of foreign currency and Ps.9.6 million for the assessment of the foreign
92
currency net position. In 2007, such gain amounted to Ps.88.0 million, including a gain from purchase-sale of
foreign currency of Ps.91.9 million. It should be noted that in 2007 the foreign currency term transactions had
a loss; therefore, thus they were accounted as financial expenses. It should also be mentioned that in order to
hedge the risk associated with the exchange rate exposure for debts in dollars, Grupo Galicia entered into a
term hedging agreement in foreign currency in October 2008.
Financial Expenses
Financial expenses for fiscal year 2008 amounted to Ps.1,421.0 million, representing a 14.0% increase from
Ps.1,246.7 million for fiscal year 2007.
This variation was due to the increase of 93 p.b. in the average costs of funds and an increase of 5.6% in
average balance of the interest-bearing liabilities.
Average interest-bearing liabilities amounted to Ps.15,694.5, compared to Ps.14,858.8 million in the fiscal
year 2007. This variation was mainly due to a Ps.767.7 million increase in the total interest-bearing deposits,
from Ps.9,537.5 million to Ps.10,305.2 million and the increase in other interest-bearing liabilities, from
Ps.1,699.7 million to Ps.2,589.1 million. These effects were partially offset by the Ps.560.3 million decrease
in average balance of debt securities, from Ps.3,360.1 million to Ps.2,799.8 million.
The increase in the average balance of interest-bearing deposits was mainly the result of the increase in the
Bank’s deposits in Argentina, in current accounts, savings accounts and time deposits. Taking into
consideration the final balances of Banco Galicia’s total deposits in Argentina, such increase totaled
Ps.1,019.0 million for fiscal year 2008, equivalent to a 7.8% increase from the previous fiscal year-end total.
Average transactional deposits grew by 20.6%, while fixed term deposits grew by 2.5% which improved the
structure of the interest-bearing deposits.
Out of the total average interest-bearing deposits, Ps.1,960.6 million were dollar-denominated deposits and
Ps.8,344.6 million were peso-denominated, compared to Ps.1,653.7 million and Ps.7,883.8 million,
respectively, in fiscal year 2007.
Considering only private-sector deposits in current and savings accounts and time deposits (excluding
restructured deposits), raised by Banco Galicia in Argentina, the estimated deposit market share of Banco
Galicia in the Argentine financial system changed from 8.55% as of December 31, 2007, to 7.87% as of
December 31, 2008. In order to understand the evolution of deposits by sector it should be recalled that the
Argentine retirement and pension system was modified whereby the SIPA (Argentine Integrated Retirement
and Pension System) was created, thus eliminating the capitalization scheme. This resulted in a transfer of
AFJP funds to the SIPA Sustainability Security Fund, managed by the ANSES. This implied the
reassignment of funds from the private sector to the public sector. Then, if the balances for such ownership
change are adjusted, Banco de Galicia’s share in the private sector deposits (current accounts, savings
accounts and term deposits, excluding those that were re-scheduled) would have decreased by 0.46
percentage points, as compared to December 31, 2007.
The average rate on interest-bearing deposits was 7.70%, 158 basis points greater than the 6.12% average
rate for the fiscal year 2007. Peso-denominated deposits (including those adjusted by CER) accrued a 9.30%
average interest rate, compared to a 7.21% average interest rate in fiscal year 2007, as a result of the increase
experienced by the Argentine market as a whole during 2008. Likewise, the cost of dollar-denominated
deposits was 0.91%, a level similar to that recorded in 2007.
The average balance of the “Argentine Central Bank” item was Ps.0.4 million, while in the fiscal year 2007,
it was Ps.261.5 million. This item showed the average balance of the financial assistance from the Argentine
Central Bank and the average balance of the advance for the acquisition of the Hedge Bond. During the first
quarter of fiscal year 2007, the Bank fully canceled in advance the debt owed for the financial assistance,
which as of December 31, 2006 amounted to Ps.2,688.7 million and, during April 2007, Banco Galicia
purchased 9.2% of the Hedge Bond, through an exchange for Argentine Secured Loans. The average rate for
fiscal year 2007 was the result of the recording of a loss of Ps.32.8 million related to the acquisition cost of
such Bond.
The average balance of debt securities was Ps.2,799.8 million, Ps.560.3 million lower than the Ps.3,360.1
million for the 2007 fiscal year. This decrease is basically related to a net reduction (including interests
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capitalized on the Notes Due 2019) of US$85.5 million in the year-end balance of the Bank’s foreign debt
recorded as notes, resulting from amortizations, redemptions and repayments in advance and from the
payment by Galicia Uruguay of US$24.6 million for the amortization of its notes with maturity in September
2008 and the early cancellation of the installments with maturity in September 2009 and 2010. The average
cost of debt securities in fiscal year 2008 was 10.00%, while in the previous fiscal year it had been 8.66%.
The average interest rate for fiscal year 2007 was mainly affected by the Ps.27.0 million profit resulting from
the partial payment of Banco Galicia’s capital increase in notes received at a value lower than their book
value (See Chapter IV. “Information on the Issuer – Important Events in Business Development – Banco
Galicia – Capital Increase of Banco Galicia”). Excluding this effect, the average rate would amount to
9.46%. The highest average rate of 2008 is mainly due to the increase of the restructured foreign debt rate
according to contractual terms.
The average balance of the item “Other Interest-Bearing Liabilities” was Ps.2,589.1 million, with an average
rate of 7.86% while, for fiscal year 2007, the average balance amounted to Ps.1,699.7 million and the average
rate was 7.50%. This section records, mainly, dollar-denominated debt with banks and international entities,
and dollar-denominated notes in connection with repurchase and reverse repurchase transactions of
government securities and the unsecured dollar loan, taken by Grupo Galicia in the year 2007, as part of the
capital increase of Banco Galicia. The variation in the average balance is mainly due to a higher average
balance for repurchase agreement transactions and foreign-trade-related lines. It should be mentioned that
during July 2008, Galicia Group cancelled the first repayment of principal for the Merrill Lynch International
loan of US$18.0 million and it later repaid the full loan amount in advance on January 7, 2009, as reported in
Chapter VIII “Accounting Information – Changes after December 31, 2009”. The average rate for fiscal year
2007 was mainly influenced by the Ps.6.9 million profit resulting from the repurchase carried out in
February, at market prices, of part of the Bank’s foreign debt recorded as loans. Excluding this profit, the
average interest rate on the item “Other Interest-Bearing Liabilities”, would amount to 8.82%. The decrease
compared to fiscal year 2007 is mainly due to the decrease in the average rate related to the repurchase
agreements.
Net financial income for fiscal year 2008 amounted to Ps.1,138 million and the financial margin was 5.72%.
In fiscal year 2007, the corresponding amounts were Ps.751.2 million and 4.12%, respectively.
Excluding the income from the assessment of public sector assets (Ps.9.2 million gain) and including the
financial income associated with the collateral security margins for the repurchase agreements (Ps.34.2
million) the net financial gain amounted to Ps.1,163.3 million and the corresponding adjusted financial
margin was 5.85%. In 2007 the net financial gain was Ps.805.2 million, calculated in like manner, and the
respective adjusted financial margin was 4.42%.
Net financial income for fiscal year 2008 was mainly due to the profit from the peso-denominated matched
portfolio, offset by the loss recorded by the matched portfolio in foreign currency.
The improvement in the net financial income, in spite of the increase in the cost of peso-denominated
deposits, is mainly attributable to: (i) a significant increase in income from our exposure to the private sector,
(resulting both from a strong increase in the average balance of loans to such sector and in the average
interest rate on such loans), and (ii) the decrease in the average cost of liabilities resulting from the change in
their structure as a consequence of the change in the composition of the deposits in favor of transactional
deposits and the reduction of our restructured foreign debt.
Provisions for losses on loans and other receivables amounted to Ps.395.4 million, Ps.139.9 million higher
than the Ps.255.5 million of fiscal year 2007. A significant percentage of this increase was due to the
maturation of our loan portfolio, mainly the individuals’ portfolio.
For further information on asset quality of the loan portfolio, see “Loan Portfolio and Credit Risk
Management – Credit Risk Management – Asset Quality of the Bank’s Loan Portfolio”.
94
Net income from services amounted to Ps.1,187.9 million, 30.1% higher than the Ps.913.1 million recorded
in fiscal year 2007. All categories grew, mainly as a consequence of a significant increase in the volume of
transactions, together with an increase in the price of certain services in line with financial market dynamics.
Banco Galicia’s income from credit and debit card transactions, on an individual basis, was Ps.367.7 million,
representing a 45.2% increase over the Ps.253.2 million recorded in fiscal year 2007. This higher income was
attributable not only to the greater number of credit cards managed, but also to the greater average purchases
made with such cards during the year. The total number of cards managed by Banco Galicia (excluding those
managed by the Regional Credit Card Companies) increased 11.8%, reaching 1,238.5 thousand as of
December 31, 2008, compared to 1,107.5 thousand as of December 31, 2007.
Income from services corresponding to the regional credit card companies was Ps.584.9 million, 40.5%
higher than the Ps.416.3 million recorded in fiscal year 2007. This variation was mainly due to the increase in
the average number of managed credit cards and to the significant increase in the purchases made with these
credit cards during fiscal year 2008. These companies managed 4,742.8 thousand cards as of December 31,
2008, a 10.7% increase from December 31, 2007.
Banco Galicia’s total deposit accounts amounted to 1,540.7 thousand as of December 31, 2008, 13.0% higher
than that as of December 31, 2007.
In fiscal year 2008 significant growth was achieved in income from services in financial transactions
(45.8%), collections (38.3%), deposit accounts (25.7%) securities receivables (24.2%), credit transactions
(21.0%), and foreign trade (16.7%), thus reflecting the expansion of credit activity, the increase in the
volume of deposits and in the number of accounts, the higher sales of products and the increase in the price
of certain services.
Expenses from services increased 49.1%, from Ps.257.6 million in fiscal year 2007 to Ps.384.2 million in
fiscal year 2008.
In fiscal year 2008, administrative expenses amounted to Ps.1,781.1 million, 38.5% higher than the
Ps.1,286.3 million recorded in fiscal year 2007.
Salaries and social security contributions and expenses related to personnel services increased 45.4%, from
Ps.616.3 million in fiscal year 2007 to Ps.896.0 million in fiscal year 2008. This increase was mainly due to
higher salaries and to an increase in staff.
The Bank’s staff, on a consolidated basis, grew 3.2%, from 8,962 to 9,246 employees, as a consequence of
the greater level of activity of the Bank and the expansion of the distribution network of the Regional Credit
Card Companies.
The remaining administrative expenses amounted to Ps.885.1 million in fiscal year 2008, thus reflecting a
32.1% increase from the Ps.670.0 million recorded in the previous fiscal year, with increases in all of its
components. These increases were associated, like personnel expenses, with the higher level of activity,
geographic expansion and inflation during the year.
Income (loss) from equity investments
In fiscal year 2008, the income was of Ps.56.8 million due to ownership interests in other companies,
compared to the Ps.2.0 million income in fiscal year 2007. Income for fiscal year 2008 was mainly attributed
to the Ps.53.8 million income stemming from the dividends received by Banco Galicia’s interest in Visa
Argentina S.A. Income for fiscal year 2007 was mainly due to the Ps.2.5 million income arising from the
investment in Banelco S.A.
95
Miscellaneous Income (Loss), Net
Miscellaneous net income for fiscal year 2008 amounted to Ps.80.1 million, compared to a miscellaneous net
income of Ps.25.1 million for fiscal year.
Excluding the profits of a financial nature from security margins of repurchase transactions (of
Ps.34.2 million), miscellaneous net income amounted to Ps.45.9 million, while in fiscal year 2007 they
recorded a gain of Ps.9.3 million (also excluding the above-mentioned financial income of Ps.15.8 million).
Miscellaneous net income for fiscal year 2008 was mainly due to: i) Ps.43.5 million related to net operating
income of Sudamericana recorded under “Miscellaneous Income/Loss” for consolidation purposes, ii) profits
associated with credits recovered of Ps.75,7 million, iii) the creation of allowances of Ps.132.9 million and
iv) amortization of active amparo claims for Ps.39.5 million.
Income Tax
The income tax charge for fiscal year 2008 was Ps.74.0 million (an increase of Ps.2.5 million, or 3.5% higher
than the charge recorded for fiscal year 2007), Ps.63.0 million corresponding to Tarjetas Regionales S.A.
consolidated with its operating subsidiaries and Ps.11.1 million, Ps.1.3 million and Ps.0.5 million
corresponding to Sudamericana, Galicia Warrants and Galicia Factoring y Leasing S.A., respectively, and
Ps.2.1 million corresponding to Grupo Galicia on an individual basis.
The income tax charge for fiscal year 2007 was Ps.71.5 million, Ps.60.9 million corresponding to Tarjetas
Regionales S.A. consolidated with its operating subsidiaries and Ps.6.0 million, Ps.0.8 million, Ps.0.3 million
and Ps.0.3 million corresponding to Sudamericana, Galicia Warrants and Galicia Factoring y Leasing S.A.,
respectively, and Ps.3.2 million corresponding to Grupo Galicia on an individual basis.
Results by Division
Grupo Galicia’s divisions are the following:
- Banking: the banking business division includes Banco Galicia, consolidated on a line-by-line
basis with Galicia Uruguay, Galicia (Cayman) and its subsidiaries and the results of other small
subsidiaries of the Bank.
- Regional Credit Cards: the regional credit cards business division includes the accounts of Tarjetas
Regionales S.A. consolidated with its subsidiaries.
- Insurance: the insurance business division includes the accounts of Sudamericana and its
subsidiaries.
- Other Grupo Businesses: this division includes the results of Net Investment, Galicia Warrants,
GV Mandataria and Galval Agente de Valores.
Below is a discussion of our results of operations by division for the years ended December 31, 2009,
December 31, 2008 and December 31, 2007. It is understood that the information below arises from the
annual report of Grupo Galicia, it may be exposed differently to the Company’s financial statements.
Banco Galicia
The table below shows the breakdown of the results of Banco Galicia’s division.
In millions of Pesos, except percentages
Net Operating Revenue
Net Operating Income
Tarjetas Regionales S.A.
Other
96
2009
1,144.2
727.9
1,872.1
388.7
1,321.8
161.6
133.0
16.5
As of December 31,
2008
2007
847.3
516.2
655.0
520.4
1,502.3
1,036.6
214.9
159.2
1,166.5
875.1
120.9
2.3
76.4
61.0
88.2
5.4
Income from Equity Investments
Other Income (Loss)
Pre-Tax Income
Net Income (Loss)
Net Income as a % of Grupo Financiero Galicia’s Net Income
Average Loans
Average Deposits
149.5
(139.3)
171.8
171.8
75%
8,959.4
14,765.9
As of December 31,
137.4
93.6
(63.0)
(65.5)
195.3
195.3
110%
8,707.5
13,199.0
30.4
30.4
66%
7,140.6
11,857.0
This segment recorded Ps.171.8 million net income for fiscal year 2009, Ps.23.5 million lower than the
Ps.195.3 million recorded in fiscal year 2008, which in turn was Ps.164.9 million higher than the Ps.30.4
million recorded for fiscal year 2007.
The improvement in the net operating income for the fiscal year 2009 of Ps.369.8 million and the
improvement in the income related to long term shareholdings of Ps.12.1 million, were more than offset by
the increase of: (i) provision for losses of Ps.173.8 million, (ii) administrative expenses of Ps.155.3 million,
and (iii) losses corresponding to other results in the amount of Ps.76.3 million.
The improvement in net income for fiscal year 2008 was attributable to a Ps.465.7 million increase in net
operating revenue and to a Ps.43.8 million increase in income from equity investments. These gains were
partially offset by greater administrative expenses (which increased by Ps.291.4 million), and greater
provisions for losses on loans and other receivables (which increased by Ps.55.7 million).
The increase in net financial income (Ps.296.9 million) for fiscal year 2009 was mainly due to: (i) a decrease
in the cost of liabilities resulting from the change in their structure, resulting from the change in the deposits
composition in favor of transactional deposits and the reduction of the external debt, (ii) an increase in the
income from the intermediation with the private sector, with an increase in average volume loan and an
increase in the average placement rate, and (iii) an increase in income related to the government securities
portfolio. The average balance of total deposits increased by 11.9%, while the average loans to the private
sector increased by 2.9%.
The increase in net financial income (Ps.331.1 million) for fiscal year 2008 was the consequence of the
improvement in the financial margin, together with an increase in the average volume of intermediation with
the private sector. The average interest rate on peso-denominated loans to the private sector increased, which
reflected the growth observed in the Argentine market in general. Average loans to the private sector
amounted to Ps.8,707.5 million, 21.9% higher than the Ps.7,140.6 million for fiscal year 2007. The
improvement in net financial income is also attributable to the relative decrease in the cost of liabilities,
resulting from the change in their structure as a consequence of the change in the composition of deposits, in
favor of transactional deposits, and the reduction of the restructured foreign debt. The average balance of
total deposits increased by Ps.1,342.0 million, equivalent to 11.3%. The average rate on interest-bearing
deposits was 7.70%, 158 basis points higher than the 6.12% average rate recorded for the previous fiscal
year. This increase was experienced by the Argentine market as a whole in 2008.
Net income from services amounted to Ps.727.9 million in fiscal year 2009, 11.1% higher than the Ps.655.0
million recorded in fiscal year 2008, which was in turn 25.9% above the Ps.520.4 million recorded in fiscal
year 2007. For both fiscal years, almost all the categories grew, mainly as a consequence of an increase in the
volume of transactions together with an increase in the price of certain services, in line with the dynamics of
the financial market.
Provisions for losses on loans and other receivables amounted to Ps.388.7 million in fiscal year 2009,
Ps.173.8 million higher than fiscal year 2008, which was in turn Ps.55.7 million higher than the Ps.159.2
million recorded in the previous fiscal year. Both in fiscal year 2009 and 2008, a significant percentage of
this increase was attributable to the maturation of the loan portfolio within the economic context.
Administrative expenses for fiscal year 2009 amounted to Ps.1,321.8 million, 33.3% higher in 13.3% than the
Ps.1,166.5 million from fiscal year 2008, which in turn were 33.3% higher than the Ps.875.1 million for fiscal
year 2007. Both in fiscal years 2009 and 2008, the increase in administrative expenses is related to the
increase in personnel expenses and other administrative expenses. In fiscal year 2009, the increase in
personnel expenses (salaries, social charges and expenses for personnel services) were associated with the
increase in salaries, since the staff was decreased by 2.8% from 9408 to 9142 employees. The other
97
administrative expenses showed a controlled growth, as a result of a successful policy of expenditure control
within the framework of an inflationary context. Variations in fiscal year 2008 compared to fiscal year 2007,
were related to the increase in staff, the higher level of activity, the expansion of the distribution network and
the increase in inflation during the year.
Income from equity investments amounted to Ps.149.5 million, Ps.137.4 million and Ps.93.6 million, for
fiscal years 2009, 2008 and 2007, respectively. Income for fiscal year 2009 was mainly due to Banco
Galicia’s gain from its interest in Tarjetas Regionales S.A. (Ps.133.0 million), while for fiscal year 2008, it
was mainly due to Banco Galicia’s gain from its interest in Tarjetas Regionales S.A. (Ps.76.4 million) and the
Ps.53.8 million profit from dividends received because of Banco Galicia’s interest in Visa Argentina S.A. In
fiscal year 2007, income was mainly due to the Bank’s interest in Tarjetas Regionales S.A.
Banco Galicia recorded Ps.139.3 million, Ps.63.0 million and Ps.65.5 million miscellaneous net losses for
fiscal years 2009, 2008 and 2007, respectively. The loss for fiscal year 2009 was mainly attributable to the
amortization of deferred losses from amparo claims of Ps.109,3 million. The increase in amortizations of
amparo claims (Ps.69.8 million) in 2009 as compared to 2008, is attributable to the fact that, from January
2009, we began to amortize in 36 monthly installments the amount deferred at December 31, 2008. The loss
for fiscal year 2008 was mainly attributable to the amortization of deferred losses from amparo claims of
Ps.39.5 million, together with the establishment of net allowances. This effect was partially offset by income
related to loan recoveries of Ps.54.6 million and financial income from margin requirements in connection
with repurchase transactions of Ps.34.2 million. The loss for fiscal year 2007 was mainly attributable to the
loss due to the amortization of deferred losses from amparo claims of Ps.108.7 million, partially offset by
loan recoveries of Ps.36.7 million and financial income from margin requirements in connection with
repurchase transactions of Ps.15.8 million.
Provisions for Losses on Loans and Other Receivables
Other Income (Loss)
Minority Interest
Pre-Tax Income
Income Tax
Net Income
Average Loans
2009
375.5
737.0
1,112.5
250.8
621.9
239.8
54.9
(32.6)
262.1
129.1
133.0
58%
2,402.5
As of December 31,
2008
2007
296.2
203.2
571.8
409.0
868.0
612.2
180.4
96.3
554.5
369.5
133.1
146.4
45.2
41.3
(20.6)
(27.5)
157.7
160.3
81.3
72.1
76.4
88.1
43%
192%
2,105.0
1,703.1
In fiscal year 2009, the business division of the Regional Credit Card Companies recorded net income of
Ps.133.0 million, 74.1% higher than the Ps.76.4 million gain from fiscal year 2008. In turn, net income for
fiscal year 2008 was lower by 13.2% compared to fiscal year 2007, which amounted to Ps.88.2 million.
The increase in the income for fiscal year 2009 was mainly a result of the increase in the net operating
revenue of Ps.244.5 million which was more than the increase in the provision for losses of Ps.70.4 million
and the administrative expenses of Ps.67.4 million.
The decrease in net income for fiscal year 2008 was mainly a result of the increase in net operating revenue
of Ps.255.8 million which was more than offset by the increase in provisions for losses on loans and other
receivables for Ps.84.1 million and higher administrative expenses of Ps.185.0 million.
During fiscal year 2009, the Regional Credit Card Companies experienced growth in the most significant
variables as compared to 2008: (i) average statements issued: 6.6%, reaching 1.85 million on annual average,
(ii) receivables portfolio (including managed portfolio): 3.8%, amounting to Ps.3,376 million at year-end,
(iii) turnover: 20%, reaching Ps.9,061 million on an annual basis and (iv) the number of purchase
98
transactions: 10.5%, reaching 74.7 million during the year. The distribution network remained stable at 209
service centers. The number of personnel remained almost unchanged, reaching 3,936 employees as of
December 31, 2009.
During fiscal year 2008, the customer base of the Regional Credit Card Companies as a whole increased 16%
as compared to the previous fiscal year, and the number of authorized cards exceeded 4.7 million cards in
December 2008. The number of statements issued increased 18.1% in fiscal year 2008, as compared to the
previous fiscal year, with almost 1.9 million statements as of December 2008. The distribution network
continued growing, reaching 208 service centers in Argentina, 23 more centers than in fiscal year 2007
(+12%). Staff increased by 127 people, reaching 3,892 employees. Annual turnover in stores (valued at real
prices as of December 2008) exceeded Ps.7,550 million, while the average loan portfolio increased 23.6%.
In fiscal years 2009 and 2008, the higher provisions for losses on loans and other receivables are mainly
related to the portfolio maturation . With regard to fiscal year 2009, it is worth mentioning the great efforts
made to control delinquency, adopting many preventive measures and improving the collection capacity,
allowing the bank to contain related losses.
The increase in administrative expenses, both in fiscal year 2009 and 2008, is mainly related to the increase
in the level of activity, inflation rate and the geographical expansion.
In both fiscal years, miscellaneous net income mainly reflected loans recovered.
Insurance
The table below shows the results of the insurance business division.
Other Income (Loss)
Pre-Tax Income
Income Tax
Net Income (Loss)
2009
28.5
28.5
42.9
(14.4)
55.3
40.9
14.1
26.8
11.7%
As of December 31,
2008
2007
20.2
16.6
20.2
16.6
30.0
16.1
(9.8)
0.5
43.5
22.0
33.7
22.5
11.1
7.9
22.6
14.6
12.8%
32%
The accounting rules of the Central Bank establish that the accounts of non-homogeneous activities must be
included under “Other Results”, therefore the income statement of Sudamericana was reclassified and that is
why, in the table above, its main accounts (earned premiums, claims, acquisition costs, etc.) are included in
such account. The results of this division mainly represent the results of Galicia Seguros. For consolidation
purposes, we have used Sudamericana’s consolidated financial statements as of September 30 of each year.
In the twelve-month period ended September 30, 2009, the insurance segment recorded Ps.26.8 million in net
income. In the same period, Galicia Seguros recorded gains of Ps.24.4 million. This segment’s net income
was mainly due to: (i) Ps.309.5 million of earned premiums, claims of Ps.40.7 million, and acquisition costs
of Ps.114.3 million, (ii) net financial income of Ps.28.5 million, and (iii) administrative expenses amounting
to Ps.42.9 million, of which approximately 36% corresponded to personnel expenses. Earned premiums for
the twelve months ended September 30, 2009 were Ps.83.5 million greater than in the same period of 2008,
representing a 37% increase, mainly as a result of Galicia Seguros’ performance through group life
insurance, home insurance and accidental death and dismemberment insurance sold through Banco Galicia
and the Regional Credit Card Companies. An alternative channel that helped to achieve such growth was the
sales call center. Acquisition costs grew following the increase in underwritten premiums. The Ps.12.9
million increase in administrative expenses was mainly due to the fact that a part of the value added tax is
recorded at cost (certain life insurance products are exempt from such tax but the fees paid to the brokers and
other expenses related thereto are subject to such tax), as well as salary increases and increases in other
expenses within an inflationary context. It is important to note that claims have remained at practically the
same level of previous years.
99
was mainly due to: (i) Ps.221.4 million of earned premiums and additional fees, claims for Ps.22.1 million,
and acquisition costs of Ps.90.2 million; (ii) net financial income of Ps.20.2 million, and (iii) administrative
expenses amounting to Ps.30.0 million, of which approximately 41% corresponded to personnel expenses.
Earned premiums for the twelve months ended September 30, 2008 were Ps.129.4 million greater than in the
same period of 2007, representing a 134% increase, mainly as a result of Galicia Seguros’ performance. This
company’s growth in premiums earned mainly reflects group life insurance, home insurance and accidental
death and dismemberment insurance sold through Banco Galicia and the Regional Credit Card Companies.
An alternative channel that helped to achieve such growth was the sales call center (customer contact center).
Acquisition costs grew following the increase in underwritten premiums. The Ps.13.9 million increase in
administrative expenses was mainly due to the fact that a part of the value added tax is recorded at cost
(certain life insurance products are exempt from such tax but the fees paid to the brokers and other expenses
related thereto are subject to such tax), as well as salary increases and increases in other expenses within an
inflationary context. It is important to note that claims remained at practically the same level of previous
years; therefore the increase in insurance production did not cause an increase in claims, reflecting the
strategy of focusing on businesses with a lower claims ratio and with a potential margin of improvement.
was mainly due to: (i) Ps.93.4 million of earned premiums and additional fees, claims for Ps.20.8 million,
and acquisition costs of Ps.31.7 million, (ii) net financial income for Ps.16.6 million, and (iii) administrative
expenses amounting to Ps.16.1 million, of which approximately 50% corresponded to personnel expenses.
Other Businesses of Grupo Galicia
This division includes the results of Net Investment, Galicia Warrants, Galval Agente de Valores and GV
Mandataria. In fiscal year 2009, this division recorded Ps.2.3 million in net income, compared to Ps.0.1
million from fiscal year 2008 and Ps.1.2 million in fiscal year 2007. In fiscal year 2009, this division’s results
were attributable to net income of Galicia Warrants and GV Mandataria of Ps.7.7 million and Ps.0.1 million,
respectively, partially offset by losses of Ps.4.7 million and Ps.0.8 million of, Galval Agente de Valores and
Net Investment, respectively.
In fiscal year 2008, this division’s results were attributable to Galicia Warrant’s net income of Ps.2.4 million,
partially offset by a Ps.1.2 million, Ps.1.1 million and Ps.0.02 million loss of Net Investment, Galval Agente
de Valores and GV Mandataria, respectively.
In fiscal year 2007, this division’s results were attributable to Galicia Warrant’s net income of Ps.1.3 million,
partially offset by a Ps.0.04 million loss of Galval Agente de Valores.
Loan Portfolio and Credit Risk Management
Loan Portfolio
As of December 31, 2009, Banco Galicia’s loan portfolio before allowances amounted to Ps.14,263.9
million, a 16.47% increase when compared to the previous fiscal year-end, due to a significant increase in the
portfolio of loans of the private sector and a decrease in the public non-financial sector.
Breakdown of the Loan Portfolio
As of December 31,
2009
2008
2007
2006
2005
Principal and Interest
Local Financial Sector
Non-Financial Private Sector and
Residents Abroad (1)
Advances
Promissory Notes
5.0
25.4
1,319.6
148.1
1,210.5
110.0
2,690.6
311.6
5,187.5
128.2
630.1
3,205.4
594.4
2,116.3
792.1
2,911.2
346.3
2,143.7
223.6
1,836.9
100
Mortgage Loans
Pledge Loans
Personal Loans
Credit Cards
Placements in Banks Abroad
Other
Accrued Interest, Adjustment and
Quotation Differences Receivable
Documented Interests
Total(1)
Allowance for Loan Losses
Total Loans
Loans with Guarantees
Preferred Guarantees (2)
Other Guarantees
Total Loans with Guarantees
964.3
64.8
1,724.4
5,691.3
440.7
1,387.9
1,026.8
81.0
1,217.6
4,378.4
334.5
883.3
945.1
94.5
977.9
3,630.1
158.0
1,010.8
688.0
67.1
563.2
2,458.6
608.0
794.8
503.4
121.1
258.0
1,732.1
212.9
599.8
178.8
(54.2)
14,263.9
(806.4)
13,457.5
185.8
(38.5)
12,247.3
(526.8)
11,720.5
177.0
(42.5)
11,974.7
(428.6)
11,546.1
155.0
(23.3)
10,803.6
(327.0)
10,476.6
146.8
(12.3)
10,938.0
(427.9)
10,510.1
1,142.2
2,453.9
3,596.1
1,332.8
2,971.1
4,303.9
1,289.8
3,180.2
4,470.0
1,076.2
4,103.6
5,179.8
838.5
6,317.3
7,155.8
(1) Description of the categories of the above loans:
- Advances: short-term obligations drawn on by customers through overdrafts.
- Promissory notes: endorsed promissory notes, debentures and other promises to pay signed by one borrower or group of
borrowers and factored loans.
- Mortgage loans: loans granted to purchase or improve real estate and collateralized by such real estate, and commercial loans
secured by a real estate mortgage.
- Pledge loans: loans secured by collateral (such as cars or machinery) other than real estate.
- Personal loans: loans to individuals.
- Credit Cards: loans granted through credit cards to credit card holders.
- Placements in Banks Abroad: short-term loans to banks abroad and short-term loans granted by Galicia Uruguay to
international banks outside Uruguay.
- Other loans: loans not included in other categories.
(2) preferred guarantees include mortgages and senior pledges, pledges of Government securities, or gold or cash granted as
collateral.
Loans to the financial and non-financial public sector as of the end of fiscal year 2009 amounted to Ps.5.0
million, 99.65% lower than the Ps.1,426.7 million outstanding as of the close of the previous fiscal year
(Ps.1,319.6 million in Argentine Secured Loans and Ps.107.1 million in loans granted to the financial public
sector).
Total loans to the financial and non-financial public sector as of the end of the fiscal year 2009 corresponds
mainly to Argentine Secured Loans. The participation in such exposure in the total of the portfolio is not
significant as of the end of 2009 while as of the end of 2008 it was 11.65%.
As of December 31, 2009, the loans to the private sector before the allowance for loan losses totaled
Ps.14,258.9 million, a 31.78% increase as compared to the Ps.10,820.6 million at end of the previous fiscal
year, and a share in the total loan portfolio of 99.96%, compared to 88.35% the previous fiscal year. Loans to
corporations and individuals in the total loan portfolio increased from 85.27% at the end of fiscal year 2008
to 96.67% at the end of fiscal year 2009.
Loans by Type of Borrower
As of December 31,
Large Corporations
Small- and Medium-Sized Companies
Total Loans to Companies
Individuals
Financial Sector (1)
Total (2)
2009
1,801.1 12.63
4,844.5 33.96
6,645,6 46.59
7,142,8 50.07
470.5
3.30
5.0
0.04
14,263.9 100.00
(1) Includes domestic and international financial sector.
(2) Before allowance for loan losses.
101
2008
2007
1,148.6
3,716.8
15.62
33.35
1,870.0
3,993.8
15.62
33.35
4,865.4
5,578.3
484.0
1,319.6
48.97
38.68
2.25
10.10
5,863.8
4,631.4
269.0
1,210.5
48.97
38.68
2.25
10.10
12,247.3
100.00
11,974.7
100.00
Consumer loans continue to be the most significant category in the loan portfolio, representing 47.54% of the
total portfolio, at the end of the fiscal year 2009, similar to the end of the previous fiscal year, where the
share was 43.23%.
By economic sector, the most significant categories were loans to the manufacturing industry, the primary
production sector and trade (wholesale and retail) with participation in the portfolio of 14.61%, 13.90% and
11.57%, respectively.
The most significant growth is reflected in the construction sector, an increase of 115.33% as compared to
the year-end 2008.
The services sector registered a decline in respect of the total portfolio of loans, from 18.23% at year-end
2008 to 7.59%.
Loans by Economic Sector
Financial Sector (1)
Services
Communications, Transportation, Health and
Others
Electricity, Gas, Water Supply and Sewage
Other Financial Services
Total Services
Primary Production
Agriculture and Livestock
Fishing, Forestry and Mining
Total Primary Production
Consumer
Commercial
Retail Trade
Wholesale Trade
Construction
Manufacturing Industry
Food and Beverage
Transportation Materials
Chemicals and Oil
Other Manufacturing Industries
Total Manufacturing Industry
Other
Total (2)
2009
470.5
3.30 %
2008
484.0
3.95 %
As of December 31,
2007
269.0
2.25 %
5.0
0.04
1,319.6
10.77
1,210.5
10.10
1,020.2
43.7
12.8
1,081.7
7.15
0.31
0.09
7.59
838.3
30.7
44.5
2,233.1
6.84
0.25
0.37
18.23
936.7
198.2
11.7
2,357.1
7.82
1.66
0.10
19.68
1,803.8
177.8
1,981.6
6,781.5
12.65
1.25
13.90
47.54
1,274.5
60.9
1,335.4
5,294.9
10.41
0.49
10.90
43.23
1,217.8
49.8
1,267.6
4,402.4
10.17
0.42
10.59
36.76
719.5
931.4
177.0
5.04
6.53
1.24
537.2
647.0
82.2
4.39
5.28
0.67
721.0
854.3
268.1
6.02
7.13
2.24
773.2
5.42
41.9
0.29
378.3
2.65
891.5
6.25
2,084.9 14.61
35.8
0.25
14,263.9 100.00
533.6
81.5
293.2
682.6
1,590.9
42.6
12,247.3
4.36
0.67
2.39
5.57
12.99
0.36
100.00
561.4
69.3
339.6
836.1
1,806.4
28.8
11,974.7
4.69
0.58
2.84
6.98
15.09
0.24
100.0
(1) Includes domestic and international financial sector.
(2) Before allowance for loan losses.
Risk Management
Banco de Galicia’s credit approval and credit risk analysis is a centralized process based on the concept of
adverse interests. This is achieved through the existing division between the risk management, credit and
commercial functions with respect to both retail and wholesale businesses, thus enabling the Bank to achieve
an ongoing and efficient control of asset quality, a proactive management of problem loans, aggressive writeoffs of uncollectible loans, and a conservative loan loss provision policy. The process also includes credit
control by borrower and monitoring of loans with problems and associated losses. The process facilitates
early detection of situations that could entail some degree of portfolio impairment and provides appropriate
protection for the Bank’s assets.
Credit Risk and Insurance Management within Credit Risk Management approves credit risk policies and
procedures, verifies the compliance thereof, assesses credit risk on a continuous basis and develops credit
assessment models to be applied to risk products and provides the information on the aspects required by the
General Management.
102
In a significant aspect, during the fiscal year 2008, a maximum limit for credits granted to a customer or
economic group (excluding the interbank financial transactions) was established and is equal to 5% of the
computable equity responsibility (“RPC”). Banco de Galicia’s Board of Directors will determine by a
majority the cases that require special financing conditions.
Furthermore, in 2008, the Board of Directors resolved that significant credits defined as credits to customers
or economic groups higher than Ps.30 million (excluding interbank financial transactions) shall be approved
by the majority of the Board of Directors, and for related customers, by two-thirds of the Board of Directors.
Finally, in 2008 the Bank established that Wholesale Banking’s customers (except Corporate customers) with
an internal rating of “CCC”, “CC” or “C” shall be accepted as an exception due to their corresponding loan
classification, and they will have to meet, among others, the following criteria: (i) to belong to an economic
group of the Bank’s customer with a better rating, (ii) to have, among its shareholders, one institution (legal
entity) with a good financial condition and economic and financial records, (iii) to be a company starting an
investment project provided always the group or customer supports it or (iv) to have recorded significant
changes after its balance sheet’s date, that favorably modify its situation.
In addition, the Internal Audit Division is in charge of overseeing the classification of the loan portfolio in
accordance with the regulations established by the Argentine Central Bank.
The Bank constantly monitors its loan portfolio through different indicators (of delinquency, roll rates, etc),
as well as the classification and concentration thereof (through maximum ratios between the exposure to each
client, its own RPC or regulatory capital, and that of each client). The loan portfolio classification, as well as
its concentration control, are carried out following the Argentine Central Bank regulations. In turn, Banco
Galicia uses advanced statistical models which result in an internal rating to order and analyze credit risk in
terms of expected losses and to adjust pricing and/or risk policies by customer groups or segments.
Credit Area (the “Area”)
It is the Area’s mission to ensure the quality of the portfolio by creating business and optimizing recovery
under the best practice standards.
The extension of credits, the classification of and follow-up with customers and the recovery of overdue
transactions are functions carried out in the Area, which has been organized in order to have timely
information and a dynamic structure that responds and adapts to the prevailing macroeconomic and
microeconomic variables.
In order to fulfill these functions and objectives, sectors that report directly to the Area were created, in order
to make the decision-making process more efficient.
The main changes introduced in the Area are the separation of the extension functions from those of review
and recovery, both for companies and individuals, with the purpose of assigning differentiated objectives and
goals.
Under these guidelines, specific areas were created so as to assist complex businesses and/or those having
significant growth in the Argentine economy over recent years: banks, capital market and agribusiness.
A sector was also organized for the purpose of reviewing and analyzing activity and environmental risk.
An Information and Policy sector was created; its function consists of generating information for the
decision-making process and for compliance with the credit policies established by the bank or regulatory
agencies and performing a constant review of the processes, having, to this end, a collection of efficiency
indicators, suggesting changes for continuous improvements.
The Policy Analysis sector works on the revision of and proposal for changes in internal extension and
recovery policies, interacting on a permanent basis with the Insurance and Credit Risk Management Area,
with strong involvement in the recommendation and definition of such policies.
With this new structure, we are attempting to obtain greater efficiency, coordination and determination of
responsibilities.
103
Extension of Consumer Loans and Related Recovery
The retail portfolio is provided credit services through two sectors, Extension of Consumer Loans,
responsible for the analysis of the extension and the report thereon, and Recovery, in charge of the follow-up
with and control of the delinquency and the out-of-court management.
As regards consumer loans, Banco Galicia assesses applications for different products such as credit cards,
current account agreements and personal loans, whether secured or not. Applications for these products are
assessed through computerized credit scoring systems that take into account different criteria to determine the
customer’s profile and repayment capacity, as well as through granting guidelines based on the customers’
credit history within the financial system or with the Bank (credit screening). Analysis of the information
required from applicants and the credit approval or refusal decision is made in a centralized manner.
Applicants’ previous credit performance, either at the Bank or in the financial system as a whole, is verified
through the information provided by a company that provides credit information services.
With respect to the recovery of past-due loans, the follow-up and control in both early and advanced
instances are carried out until its recovery or until it is transferred to the Judicial Management sector.
Recovery procedures throughout Argentina are conducted either directly or through third parties.
Early default management of the consumer portfolio is conducted through the Collection Center of the
Customer Contact Center. Further, Banco Galicia uses a follow-up system that performs automated telephone
calls in relation to past-due loans. In order to reach out all Argentina’s provinces, the sector also coordinates
actions with branch network staff. When these procedures are exhausted, recovery of these loans is turned
over to agencies hired by Banco Galicia to handle recovery through out-of-court proceedings. Follow up and
supervision of the agencies are made by the Recovery sector.
Extension of Loans to Companies and Corporate Recovery
The credit services offered to the companies portfolio are provided through three specialized teams: the
Extension of Credits to Companies Area, responsible for the extension; Credit Analysis, in charge of
analyzing transactions involving larger amounts; and Companies Review, accountable for controlling and
managing the portfolio, taking preventive actions and classifying them in accordance with rules and
regulations.
Before approving a loan, Banco Galicia performs an assessment of the corporate borrower and its financial
condition. For credits exceeding certain amounts, an analysis of each credit line and of each customer is
carried out. For credits below certain amounts, the Bank applies automated risk assessment systems that
provide financial and non-financial data about customers. They have the ability to perform automated risk
evaluations and financial-statements projections to generate automatic warnings about situations that may
indicate an increase in the risk.
Banco Galicia performs its risk assessment based on the following factors:
Qualitative Analysis
Economic and financial risk
Economic risk of the sector
Environmental Risk
Evaluation of the corporate borrower’s creditworthiness
performed by the officer in charge of the account, based on
personal knowledge.
Quantitative analysis of the borrower’s financial statements.
Measurement of the general risk of the financial sector in
which the borrower operates (based on statistical information
gathered from internal and external sources).
Environmental impact evaluation (required for all investment
projects of significant amounts)
The Board of Directors’ Credit Committee decides on loans exceeding a certain amount and on all loans to
financial institutions (domestic or foreign) and related parties. The Corporate Credit Department approves the
remaining loans pursuant to credit authorization levels previously established.
104
The Corporate Recovery sector is responsible for monitoring and controlling the entire past-due commercial
portfolio. It establishes procedures and acts proactively to design action plans on a case-by-case basis to
recover any amounts that exceed the credit limits that are assigned to the different corporate customers. This
department also oversees recovery of problem loans in the corporate portfolio, managing them efficiently and
working to regularize the status of those customers that are most attractive to the Bank. Furthermore, this
sector is in charge of judicial and out-of-court proceedings to recover loans in the corporate portfolio with
problems as well as judicial proceedings to recover loans from the consumer portfolio. This department also
manages and oversees lawsuits carried out in various jurisdictions by outside law firms hired to handle these
matters.
Argentine Central Bank’s Main Loan Classification and Loan Loss Provisions
Independently of the Bank’s internal policies and procedures designed to minimize credit risk, the Bank is
subject to the applicable regulations of the Argentine Central Bank, which are summarized below.
In 1994, the Argentine Central Bank introduced the current loan classification system and the corresponding
minimum loan loss provision requirements applicable to loans and other types of credit (together referred to
as “loans” in this section) to private-sector borrowers.
The current loan classification system applies certain criteria to classify the “consumer” portfolio, and
another set of criteria to classify the “commercial” portfolio, independently of the currency in which the loan
was denominated.
The loan criteria applied to loans in the consumer portfolio are based mainly on delinquency aging, their
legal situation, the information that arises from the Register of Debtors of the Financial System (Central de
Deudores), when levels of quality are lower than the one appointed by the entity, from the database of
Debtors in Non-Accrual Status of former financial institutions, and the situation that arises from the
refinancing guidelines. In the event of any disagreement, the guideline indicating the greater risk level of loan
losses should be considered.
For the purposes of the Argentine Central Bank regulation, consumer loans are defined as residential
mortgage loans, pledge loans, credit card loans and other types of installment credits to individuals. All other
loans are considered as commercial loans. In addition, in accordance with an option provided under this
regulation, the Bank applies the consumer portfolio classification criteria to commercial loans of up to
Ps.750,000 (until August, 2009, this amount was Ps.500,000) and this classification is based on the level of
fulfillment thereof.
As far as classification for loans in the commercial portfolio, the principal criterion is each borrower’s ability
to pay, mainly in terms of such borrower’s future cash flows. If a customer has both commercial and
consumer loans, they are both jointly considered to determine the classification criterion applicable. Loans
backed with preferred guarantees will be considered at 50.0% of their nominal value.
When applying the Argentine Central Bank’s classification to commercial loans, banks must assess the
following factors: the current and projected financial situation of the borrower, the customer’s exposure to
the currency risk, the customer’s management and operating background, the borrower’s ability to provide
accurate and timely financial information, as well as the general risk of the sector in which the borrower
operates and the borrower’s relative position within that sector.
The Argentine Central Bank’s regulations also establish that a team independent from the areas in charge of
loan origination must carry out a periodic evaluation of the commercial portfolio. The Bank’s Credit
Management Division, which is independent from the business units that generate transactions, is in charge
of these reviews.
The review must be carried out on each borrower with debt pending payment equal to the lesser of the
following amounts: Ps.2 million (until August, 2009 this amount was Ps.1 million) or 1% of a bank’s RPC
and the review shall at least cover 20% of the total loan portfolio. The frequency of the review of each
borrower depends on a bank’s exposure to that borrower. The Argentine Central Bank requires that the larger
the exposure is, the more frequent the review be. This review must be conducted every calendar quarter when
credit exposure to that borrower is equal to or in excess of 5% of a bank’s RPC, or every six months when
exposure equals or exceeds the lesser of the following amounts: Ps.2 million or 1% of a bank’s RPC. In all
105
cases, at least 50.0% of the Bank’s commercial portfolio must be reviewed by the end of each six months,
and all other borrowers in the Bank’s commercial portfolio must be reviewed during the Bank’s fiscal year,
such that the entire commercial portfolio is reviewed every fiscal year.
In addition, only one level of discrepancy is permitted between the classification assigned by a bank and the
lowest classification assigned by at least two other banks whose combined credit to the borrower represents
40% or more of the total credit of the borrower, considering all banks. If Banco Galicia’s classification
differs by more than one level from the lowest of such classification, it must immediately downgrade its
classification of the borrower to the same classification, or within one classification level.
Communiqué “A” 4738 issued by the Argentine Central Bank on November 26, 2007, introduced certain
amendments to the classification rules applicable to debtors pertaining to the consumer portfolio, with the
purpose of reflecting the client’s total risk more accurately. Consequently, the rule establishes a new
identification of the consumer portfolio categories and it also establishes that, in order to determine the
degree of timely fulfillment of obligations, it is necessary to analyze the client’s arrears, legal situation and
the classification assigned by the rest of the financial institutions, and whether the fulfillment of obligations
depends on any kind of refinancing.
Pursuant to this Communiqué, those clients having received any kind of refinancing may achieve a better
credit status than the one they had at the time of such refinancing, by repaying in advance a certain number of
installments for monthly or bimonthly amortization loans or a percentage of the debt for any other type of
loans, without incurring any arrears exceeding 31 days.
In August 2009 the Central Bank, through its Communiqué “A” 4975, amended these requirements as
follows:
Monthly or
Bimonthly
from 5 to 4
from 4 to 3
from 3 to 2
from 2 to 1
3 installments
3 installments
2 installments
1 installment
Refinancing
Others
Previous
Com. “A”
4975
20%
15%
15%
10%
10%
5%
10%
5%
Legal Settlement
Previous
Com. “A”
4975
20%
20%
15%
15%
In addition: (i) to achieve this better quality status, the client must comply with the rest of the requirements
for the new category; (ii) in case of having refinanced and non-refinanced obligations, the resulting
classification shall be the lowest resulting from the individual analysis of each transaction; (iii) if a client
with a refinanced loan received or had received additional financial assistance, it will remain within the
category for 180 days after the refinancing or the granting of additional credit, whichever is more recent; and
(iv) debtors with arrears of over 31 days must be classified within the category resulting from adding the
number of days in arrears corresponding to the refinanced debt’s first unpaid installment and those of the
minimum arrears set forth for the category in which the debtor is classified at the time default is recorded.
For clients in a normal situation, additional financial assistance granted shall not be deemed refinancing as
long as it leads to an increase in the principal owed and the client’s ability to pay the obligation resulting
from such expansion is assessed. The remaining cases, in which no debt increase is recorded, it will be
deemed refinancing and only those clients that have not exceeded two refinancing instances within 12
months since the last refinancing will continue in category 1.
In order to verify the compliance with the obligations of commercial nature included in this portfolio the
following shall not be considered as refinancing: (i) additional credit lines granted in respect of margins
already agreed upon, to the extent that they involve additional expenditures and do not exceed 10% of the
original margins; and (ii) a higher financial assistance to fund working capital increases or additional
investment assistance to finance working capital increases or a higher investment arising from the extension
of activities; provided that they were consistent with the ordinary course of business and that the remaining
financial liabilities can be attended to in an appropriate manner.
106
Loan Classification Categories
The following tables contain the six loan classification categories corresponding to the different risk levels
set forth by the Argentine Central Bank. The Bank’s total exposure to a private-sector customer must be
classified according to the riskier classification corresponding to any part of said exposure.
Commercial Portfolio
1. Normal Situation:
2. With Special Follow-up:
3. With Problems:
4. High Risk of Insolvency:
5. Uncollectible:
6. Uncollectible due to
Technical Reasons:
The debtor is widely able to meet its financial obligations,
demonstrating significant cash flows, a liquid financial situation, an
adequate financial structure, a timely payment record, competent
management, available information in a timely, accurate manner and
satisfactory internal controls. The debtor is in the upper 50% of a
sector of activity that is operating properly and presents good
prospects.
The cash flow analysis reflects that the debt may be repaid even
though it is possible that the customer’s future payment ability may
deteriorate without a proper follow up.
This category is divided into two subcategories:
2.a Under Observation and
2.b. Under Negotiation or under Refinancing Agreements.
The cash flow analysis evidences problems to repay the debt, and
therefore, should these problems not be solved, there may be some
losses.
The cash flow analysis evidences that repayment of the full debt is
highly unlikely.
The amounts in this category are deemed total losses. Even though
these assets may be recovered under certain future circumstances,
inability to make payments is evident at the date of analysis. Includes
loans to insolvent or bankrupt borrowers.
Loans to borrowers indicated by the Argentine Central Bank to be in
non-accrual status with financial institutions that have been liquidated
or are being liquidated, or whose authorization to operate has been
revoked. It also includes loans to foreign banks and other institutions
that are not:
(i) classified as “normal”;
(ii) subject to the supervision of the Argentine Central Bank or other
similar authority of the country of origin;
(iii) classified as “investment grade” by any of the rating agencies
admitted to the Argentine Central Bank pursuant to Communiqué “A”
2729.
Consumer Portfolio
2. Low Risk:
3. Medium Risk:
Loans with timely repayment or arrears not exceeding 31 days, both of
principal and interest.
Occasional late payments, with payment in arrears of more than 32
days and up to 90 days. A customer classified under category 1 having
been refinanced may be recategorized within this category, as long as
he amortizes one principal installment (whether monthly or bimonthly)
or repays 5% of principal.
Some inability to make payments, with arrears of more than 91 days
and up to 180 days. A client classified under category 2 having been
refinanced may be recategorized within this category, as long as he
amortizes 2 principal installments (whether monthly or bimonthly) or
repays 5% of principal.
107
4. High Risk:
Judicial proceedings demanding payment have been initiated or with
arrears of more than 180 days and up to one year. A client classified
under category 3 having been refinanced may be recategorized within
this category, as long as he amortizes three principal installments
(whether monthly or bimonthly) or repays 10% of principal.
Loans to insolvent or bankrupt borrowers, or subject to judicial
proceedings, with little or no possibility of collection, or with arrears
in excess of one year.
Loans to borrowers who fall within the conditions described above
under “Commercial Portfolio – Uncollectible due to Technical
Reasons”.
5. Uncollectible:
6. Uncollectible due to
Technical Reasons:
Loan Loss Provision Requirements
Minimum allowances for loan losses are required for the different categories in which loans are classified.
The rates vary by classification and by whether the loans are secured. The percentages apply to total
customer obligations, both principal and interest. The allowance for loan losses on the performing portfolio is
unallocated, while the allowances for the other classifications are individually allocated. The regulations
suspend accrual of interests or require allowances equivalent to 100% of the interests for customers classified
as “With Problems and Medium Risk”, or lower quality. The allowances are set forth as follows:
Status of Debtor
2. a) Under Observation and Low Risk
b) Under Negotiation or Agreements to Refinance
3. With Problems and Medium Risk
4. High Risk of Insolvency and High Risk
5. Uncollectible
6. Uncollectible due to Technical Reasons
Secured
1%
3%
6%
12%
25%
50%
100%
Unsecured
1%
5%
12%
25%
50%
100%
100%
Pursuant to Argentine Central Bank regulations, these minimum provisions are not required for interbank
financial transactions of less than thirty days, or loans to Argentine provincial governments or to financial
institutions majority-owned by the Argentine national, provincial or city governments with governmental
guarantees.
Loans backed with preferred guarantees “A” require a provision of 1% independently of the customer
category.
Banco Galicia’s Loan Portfolio Quality
The non-accrual loan portfolio as a percentage of total loans increased from 3.49% at the end of fiscal year
2008 up to 4.77% at the end of fiscal year 2009, mainly due to the maturation of the consumer loan portfolio
and the occurrence of some cases of default in the commercial portfolio as a result of the deterioration of
some macroeconomic and microeconomic variables.
Considering only loans to the private sector, the non-accrual portfolio as a percentage of such portfolio rose
from 3.95% as of December 31, 2008 to 4.77% as of December 31, 2009.
Coverage of the non-accrual portfolio with allowances increased from 123.11% as of December 31, 2008 to
118.64% as of the end of fiscal year 2009.
Classification of the Loan Portfolio
2009
Amounts
Not
Amounts
Yet Due
Past Due
As of December 31,
2007
2008
Amounts
Not
Amounts
Total
108
Yet Due
Past Due
Amounts
Not
Amounts
Total
Yet Due
Past Due
Total
Normal Situation
With Special Follow-up and Low
Risk
With Problems and Medium Risk
High Risk of Insolvency and High
Risk
Uncollectible:
Uncollectible due to Technical
Reasons:
13,273,6 -
13,273,
6
11,430,6 -
11,430,6 11,242,7 -
11,242,
7
310.6
85.1
146.2
310.6
231,3
388.8
54.1
103.1
388.8
157.2
356.2
31.7
56.0
356.2
87.7
30.5
-
308.1
109.0
338.6
109.0
21.8
-
185.4
62.0
207.2
62.0
12.1
-
221.0
48.1
233.1
48.1
-
0.8
1.5
-
6.9
Total Loans (1)
13,699,8 564.1
115.6
564.1
0.8
1.5
14,263,
11,895,3 352.0
9
679.7
75.9
352.0
6.9
11,974,
7
375.8
Total Non-Accrual Portfolio (2)
12,247,3 11,642,7 332.0
427.9
43.8
332.0
During 2009, allowances for loan losses over the loan portfolio were made for Ps.625.9 million, of which
Ps.464.0 million were related to the maturation of the consumer portfolio and the remaining amount to the
commercial portfolio.
Ps.5.4 million of allowances for loan losses were reversed and direct charges to the income statement, net of
recoveries, represented a gain of Ps.27.9 million. Net charge to the income statement of fiscal year 2009
amounted to Ps.592.6 million, representing 5.16% of the average loan balance for the fiscal year.
Charges-offs against allowances for loan losses were Ps.354.5 million.
Analysis of Portfolio Quality
As of December 31,
2009
2008
2007
In millions of pesos (except ratios)
Total Loans (1)
Non-accrual loan portfolio
With preferred guarantees
With other guarantees
Without guarantees
Total Non-Accrual Loans
Past-due loan portfolio
Non-financial public sector
Domestic financial sector
Non-financial private sector and residents abroad
Advances
Promissory notes
Mortgage loans
Pledge loans
Personal loans
Credit cards
Placements in correspondent banks
Other loans
Total Past-Due Loans
Past due loan portfolio
With preferred guarantees
With other guarantees
Without guarantees
Total Past-Due Loans
Ratios (%)
Past-Due Loans as a percentage of Total Loans
Past-Due Loans with Preferred Guarantees as a percentage
of Total Loans
Past-Due Loans with Other Guarantees as a percentage of
Total Loans
Past-due Loans without Guarantees as a percentage of
Total Loans
Non-accrual Loans as a percentage of Total Loans
109
14,263.9
12,247.3
11,974.7
33.7
97.9
548.1
679.7
42.0
10.3
375.6
427.9
43.5
5.0
327.3
375.8
-
-
-
64.4
90.5
16.8
2.7
69.8
85.9
34.0
564.1
25.9
24.5
24.9
1.1
45.7
215.0
14.9
352.0
23.0
134.5
30.0
0.8
17.6
115.4
10.7
332.0
19.8
66.9
477.4
564.1
806.4
26.0
9.0
317.0
352.0
526.8
30.8
4.2
297.0
332.0
428.6
3.95
2.87
2.77
0.14
0.21
0.26
0.7
0.07
0.03
3.34
4.77
2.59
3.49
2.48
3.14
Non-accrued Loans as a percentage of Total Loans
(excluding interbank loans)
Non-accrual Loans as a percentage of Loans to the Private
Sector
Allowance for Loan Losses as a percentage of Total
Loans
Allowances for Loan Losses as a percentage of Total
Loans (excluding Interbank Loans)
Allowances for Loan Losses as a percentage of NonAccrual Portfolio
Non-Accrual Portfolio with Guarantees as a percentage
of Non-Accrual Portfolio
Non-Accrual Portfolio as a percentage of Past-Due
Portfolio
4.93
3.60
3.18
4.77
3.95
3.53
5.65
4.30
3.58
5.84
4.44
3.63
118.64
123.11
114.05
19.36
12.22
12.91
120.49
121.56
113.20
Provision for losses
December 31,
2008
2007
12,077.3
10,528.9
2009
11,481.9
Total Loans, Average (1)
Allowance for Loan Losses at Beginning of Fiscal
Year
Changes in the Allowance for Loan Losses
Allowances for Loan Losses made during fiscal year
Reversals of Allowances for Loan Losses
Charges-offs (A)
Allowances for Loan Losses at Fiscal Year-End
Provisions charged to Income during fiscal year
Allowances for Loan Losses made (2)
Direct Charge-Offs, Net of Recoveries (B)
Allowances for Loan Losses Reversed
Net Charge to the Income Statement
Ratios (%)
Charges-Offs (-A+B) as a percentage of Average Total
Loans
Net Charge to the Income Statement as a percentage of
Average Total Loans
526.8
428.6
327.0
639.5
(5.4)
(354.5)
806.4
393.9
(6.5)
(289.2)
526.8
248.5
(21.5)
(125.4)
428.6
625.9
(27.9)
(5.4)
592.6
384.6
(68.4)
(6.5)
309.7
248.4
(57.2)
(21.5)
169.7
2.84
1.83
0.65
5.16
2.56
1.61
Composition of Allowances for Loan Losses by Type of Loan
In millions of Pesos, except for
percentages
Non-financial public sector
Local financial sector
Non-financial private sector and residents
abroad
Advances
Promissory notes
Mortgage loans
Pledge loans
Personal loans
Credit cards
Placements in correspondent banks
Other loans
Unallocated
Total
2009
Amount %
31.7
80.3
11.8
1.5
63.9
168.3
16.0
432.9
806.4
%
-
2008
Amount %
0.04
0.18
-
0.22
4.42
0.56 22.47
0.08
6.76
0.01
0.45
0.45 12.09
1.18 39.90
- 3.09
0.11 10.60
3.04
5.65 100.00
14.5
34.9
21.9
0.5
37.8
111.4
7.4
298.4
526.8
110
%
-
As of December 31,
2007
Amount %
%
10.77
1.21
-
0.12
4.85
0.28 17.28
0.18
8.38
0.66
0.31
9.94
0.91 35.75
- 2.73
0.06
8.43
2.44
4.30 100.00
16.2
119.8
26.5
0.3
14.0
56.0
7.9
187.9
428.6
-
10.11
0.92
0.13
6.61
1.00 24.31
0.22
7.89
0.79
0.12
8.17
0.47 30.31
1.32
0.07
9.57
1.57
3.58 100.00
Credit
In accordance with the Argentine Central Bank’s methodology for the preparation of the Statement of
Debtor’s Status, total credit is defined as the sum of loans, certain accounts under the balance sheet item
“Other Receivables from Financial Brokerage” that represent credit transactions (such as unlisted notes),
assets under financial leases, and the memorandum accounts “Guarantees Granted” and “Unused Balances of
Loans Granted”. Banco Galicia’s total credit portfolio amounted to Ps.16,884.8 million as of the end of fiscal
year 2009, including the portfolio of the Regional Credit Card Companies indirectly controlled.
As of December 31, 2009, the ratio of the non-accrual portfolio to total credit was 4.12% compared to 2.99%
as of December 31, 2008, while coverage of non-accrual credit portfolio with allowances was 117.96%
compared to 123.70% a year before.
In millions of Pesos, except for percentages
Loan Portfolio Classification
Normal Situation
With Special Follow-up and Low Risk
With Problems and Medium Risk
High Risk of Insolvency and High Risk
Uncollectible:
Uncollectible due to Technical Reasons:
Total Loans (1)
Non-Accrual Portfolio (2)
With Preferred Guarantees
With Other Guarantees
Without Guarantees
Total Non-Accrual Loans
Ratios (%)
as a Percentage of Total Loans
Non-Accrual Loan Portfolio as a Percentage of Total Loans
as a Percentage of Non-Accrual Loan Portfolio
Non-Accrual Loan Portfolio with Guarantees
as a Percentage of Non-Accrual Loan Portfolio
As of December 31,
2007
2009
2008
15,871.7
317.1
236.2
348.7
110.3
0.8
16,884.8
13,773.6
392.1
158.8
212.8
63.2
1.5
14,602.0
13,002.7
362.2
98.0
239.9
54.6
6.9
13,764.3
37.2
98.7
560.1
696.0
821.0
43.2
10.8
382.3
436.3
539.7
45.1
5.0
349.3
399.4
447.5
4.86
4.12
3.70
2.99
3.25
2.90
117.96
123.70
112.04
19.53
12.38
12.54
(1) Before allowances.
(2) Non-accrual loan portfolio is defined as the loan portfolio classified in the last four categories of the classification.
Liquidity
Grupo Galicia’s net earnings and losses are generated from its operating subsidiaries, especially Banco
Galicia, its main operating subsidiary. Until 2001, Banco Galicia was the primary source of funds available
for Grupo Galicia in the form of dividends.
Banco Galicia’s dividend-paying ability was impaired since late 2001 by the effects of the 2001-2002 crisis
on its liquidity and income-generation capacity. In addition, there are other restrictions on Banco Galicia’s
ability to pay dividends resulting from applicable Argentine Central Bank rules and certain loan agreements
entered into by the Bank as part of its foreign debt restructuring. Grupo Galicia has not received dividends
from Banco Galicia since October 2001. See Chapter VIII “Financial Information – Dividend Policy”.
The amount to which a banking subsidiary may grant credits or otherwise provide funds to a holding
company is limited by Argentine Central Bank rules. For a description of these rules, see Chapter IV.
“Information on the Issuer – Regulatory Aspects – Argentine Banking Regulation – Credit Limits.”
Grupo Galicia’s current policy is to retain earnings to pay for its operating expenses, support the growth of
certain of its businesses and repay its current outstanding financial liabilities. Cash available to support the
growth of certain of Grupo Galicia’s businesses will be limited until said outstanding financial liabilities are
fully repaid.
111
As of December 31, 2006, Grupo Galicia held Notes Due 2014 in a nominal value of US$107.0 million and
Notes Due 2019 in a nominal value of US$4.3 million. In January 2007, Grupo Galicia sold the latter and
part of the Notes Due 2014 and acquired loans maturing in 2019 issued by Banco Galicia as part of its
foreign debt restructuring. As of December 2007, Grupo Galicia held such loans for US$10.2 million of
nominal value. In July 2007, in an exercise of Grupo Galicia’s preemptive rights within the framework of the
offering carried out by Banco Galicia, Grupo Galicia used a nominal value of US$102.2 million of Notes
Due 2014 and cash to subscribe for 93.6 million of Banco Galicia’ shares.
Furthermore, also in 2007, Grupo Galicia entered into an US$80 million unsecured loan agreement with
Merrill Lynch International. In July 2008, the first installment of the above-mentioned loan entered into with
Merrill Lynch International was repaid for US$24.3 million (US$18.0 million of principal and
US$6.3 million in interest). Such payment was carried out with funds from the deposit determined by Decree
No. 616/2005 made in 2007, as a consequence of the inflow of funds to the domestic foreign exchange
market from the above-mentioned loan.
On January 6, 2009, the foreign financial loan of US$62 million was cancelled in advance, with a single and
final payment of US$39.1 million, with Grupo Galicia’s own funds and funds from financing granted by
local authorities.
On March 9, 2009, the General Ordinary Shareholders’ Meeting approved the creation of a Global Program
of simple Notes, not convertible into shares for a maximum principal amount of US$60 million. On June 4,
2009 Series I and Series II Notes corresponding to the Class I Notes were issued in the amount of US$45
million. Series I, with a one-year term, was issued for a principal amount of US$34.4 million and a yield of
8% and Series II, with a two-year term, for a principal amount of US$10.6 million with an annual yield of
10.5%. With the proceeds of these issuances, Grupo Galicia proceeded to cancel the funding from local
entities.
As of December 31, 2009, the investments of Grupo Galicia, on an individual basis, totaled Ps.30.5 million,
made up of fixed term and demand deposits of Ps.17.4 million, and the notes and bonds portfolio in an
amount of Ps.13.1 million.
Financial Risks
The financial risks to which Grupo Galicia is exposed mainly arise from the financial activities developed by
the Bank. The following describes the Bank’s policies for financial risks.
By means of the Bank’s asset and liability management, its objective is to achieve a structure for financial
assets and liabilities that maximizes its return on equity, both short-term and long-term, within an overall
framework of acceptable risks. The risks involved are those related to liquidity, currency, interest rates,
market and cross border transactions. With regard to the above-mentioned risks, the Bank’s policy is
approved by the Board of Directors, which delegates their management and control to the Treasury Division.
Liquidity
Banco Galicia’s policy is to maintain a level of liquid assets that allows it to meet financial commitments at
contractual maturity, take advantage of potential investment opportunities, and meet demand for credit. To
set the appropriate level, forecasts are made based on historical experience and on analyses of possible
scenarios. This enables management to project funding needs and alternative funding sources, as well as
excess liquidity and placement strategies for such funds.
Liquidity Management (Bank individually)
As of December 31, 2009, the liquidity structure of Banco Galicia was as follows:
Legal Requirements
Excess Liquidity
Total Liquidity (1)
3,819.8
2,319.0
6,138.8
(1) Does not include cash and due from banks of consolidated companies.
112
The legal liquidity requirement refers to the Minimum Cash Requirements (“minimum cash requirements”)
set by the Argentine Central Bank regulations.
Excess liquidity consists of the following sections: (i) 100% of the balance of overnight placements in banks
abroad, (ii) net amount of collateral security margin required for short-term loans (call loans) to prime
companies, (iii) 90% of the Lebac balance, (iv) 100% of the market value of available government securities,
due to the potential liquidity that might be obtained through sales or repurchase transactions, (v) net shortterm interbank loans (call loans), (vi) 100% of the balance at the Argentine Central Bank (including escrow
accounts in favor of clearing houses) in excess of the necessary sections to cover minimum cash
requirements.
As regards to legal requirements, such requirements correspond to the minimum cash requirements for pesoand dollar-denominated assets and liabilities. At the close of fiscal year 2009, the percentages of the
minimum cash requirements applicable pursuant to Argentine Central Bank regulations were as follows:
• Demand deposits:
- peso-denominated deposits in current accounts and savings accounts: 19%.
- dollar-denominated deposits in savings accounts: 20%.
• Time deposits, including those adjusted by CER (by remaining maturity):
-peso-denominated: up to 29 days: 14%; from 30 to 59 days: 11%; from 60 to 89 days: 7%; from 90
to 179 days: 2%; from 180 to 365 days: 0%
- dollar-denominated: up to 29 days: 20%; from 30 to 59 days: 15%; from 60 to 89 days: 10%; from
90 to 179 days: 5%; from 180 to 365 days: 2%; and more than 365 days: 0%.
The assets computable for compliance with this requirement are the technical cash, which comprises bills and
coins, the balances of the peso- and dollar-denominated deposit accounts at the Argentine Central Bank and
the escrow accounts held at the Argentine Central Bank in favor of clearing houses.
Banco Galicia’s management has defined a total liquidity objective, which was determined based on the
analysis performed on the behavior of the Bank’s deposits during the 2001-2002 crisis, considered as the
“worst-case” scenario. Two liquidity levels were defined: “operational liquidity” (to address the Bank’s daily
operations) and “additional liquidity” (excess liquidity available). Deposits were classified into “wholesale
deposits” and “retail deposits”.
“Operational liquidity” was established at 5% of retail demand deposits and time deposits maturing in less
than 10 days, plus the balance of the escrow accounts held at the Argentine Central Bank plus 30% of other
demand liabilities for collection services and payment to businesses.
“Additional liquidity” varies according to the remaining maturity of the different types of deposits and to the
currency in which such deposits are denominated. As a result of the analysis performed, the Bank defined a
floor for the “additional liquidity in pesos” at 50% of the necessary funds to face the “worst-case” scenario
and for the “additional liquidity in dollars” the floor was set at 70% of the funds necessary to face the “worstcase” scenario. Simultaneously, a margin must be kept in order to face a potential drop in deposits, without
failing to meet the minimum cash requirements, of 10% in pesos and 15% in dollars. At the end of fiscal year
2009, the “additional” liquidity included in the above table amounted to Ps.2,953.0 million and US$519.2
million, equivalent to 61.2% and to 175.4% of the “worst-case” scenario, respectively, with both percentages
exceeding the policy limits established by Banco Galicia.
Liquidity Mismatch
The aforementioned concepts refer to liquidity as regards “stock”. To analyze cash flows and as a supplement
to the above-mentioned liquidity analysis, the Bank prepares the “Liquidity Gap”, which shows the
mismatches resulting from the contractual maturity of consolidated financial assets and liabilities. As of
December 31, 2009, information is as follows:
113
Liquidity Mismatch
Assets
Argentine Central Bank – Escrow Accounts
Overnight Placements in Correspondent Banks
Loans – Public Sector
Loans – Private Sector
Notes and Corporate Securities
Financial Trusts
Special Fund Former Almafuerte Bank
Other Finances
Assets under Financial Lease
Other
Total Assets
Liabilities
Savings Accounts
Demand Deposits
Time Deposits
Notes
Local Banks
Other Liabilities (1)
Total Liabilities
Asset / Liability Gap
Cumulative Gap
Ratio of Cumulative Gap to Cumulative Liabilities
Ratio of Cumulative Gap to Total Liabilities
Less than
One Year
1-5 Years
Over 10
5-10 Years
Total
Years
1,616.6
2,339.2
440.7
1,0
10,929.3
2,583.3
21,4
449.3
162.2
12.7
132.6
357.1
19,045.4
2.7
1,716.3
1,155.3
101.1
366.5
238.7
161.5
3,651.1
200.6
-105.8
462.6
49.3
818.3
16.7
0.1
0.1
16.9
1,616.6
2,339.2
440.7
3.7
12,862.9
844.4
31.5
1,278.5
400.9
12.7
343.5
357.1
23,531.7
5,022.0
927.4
7,851.4
636.8
253.0
209.8
3,216.1
21,116.5
(2,071.1)
(2,071.1)
(9.8)%
(8.8)%
139.9
1,822.8
342.9
146.7
0.1
19.6
19.7
798.6
(73.7)
(0.3)%
(0.3)%
0.1
0.1
16.8
(56.9)
(0.2)%
(0.2)%
5,022.0
3,927.4
7,991.5
2,459.6
595.9
376.1
3,216.1
23,588.6
(56.9)
(56.9)
2,452.3
1,198.8
(872.3)
(3.7)%
(3.7)%
Principal plus CER adjustment. It does not include interest.
(1) It mainly includes debt with retailers due to credit card operations, liabilities in connection with repurchase transactions, debt with
domestic credit agencies and collections for third parties. The “Less than One Year” bucket also includes Ps.6.4 million
corresponding to the Bank’s foreign debt not tendered by its holders in the exchange offered to restructure such foreign debt,
which was completed in May 2004.
Due to the fact that the above table was prepared taking into account contractual maturity, financial assets
and liabilities with no maturity date were included in the category “Up to one year”.
Banco Galicia must meet a maximum limit for liquidity mismatches. This limit has been established at -25%
(minus 25%) for the ratio of cumulative gap to total liabilities within the first year. As it is shown in the table
above, Banco Galicia complies with such established policy since such gap was -8.8% (minus 8.8%) at the
end of fiscal year 2009.
Currency Mismatches
The risk inherent in Banco Galicia’s balance sheet structure of assets and liabilities as regards exchange rate
variations and real interest rates depends on the size and the sign of said currency mismatches (in pesos
adjusted and non-adjusted and those denominated in foreign currency). Therefore, Banco Galicia’s Board of
Directors has defined limits in that respect by setting maximum authorized positions in each currency, on a
consolidated basis.
The table below shows the composition of the Banco Galicia’ shareholders’ equity as of December 31, 2009,
by currency and type of principal adjustment:
Shareholders’ Equity as of December 31, 2009
Financial Assets and Liabilities
Pesos - Adjusted by CER
Pesos – Non-Adjusted
Foreign Currency (1)
Other Assets and Liabilities
Total Gap
Assets
23,663.4
887.5
15,976.8
6,799.1
3,561.3
27,224.7
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Liabilities
24,016.6
14.9
17,026.6
6,975.1
1,081.6
25,098.2
Gap
(353.2)
872.6
(1,049.8)
(176.0)
2,479.7
2,126.5
Adjusted for Forward Transactions Recorded in Memorandum Accounts:
Financial Assets and Liabilities
23,663.4
887.5
Pesos - Adjusted by CER
Pesos- Non-Adjusted (2)
13,638.8
Foreign Currency (1) (2)
9,137.1
3,561.3
27,224.7
Total Adjusted Gap
24,016.6
14.9
14,925.7
9,076.0
1,081.6
25,098.2
(353.2)
872.6
(1,286.9)
61.1
2,479.7
2,126.5
(1) Stated in pesos, at the exchange rate of Ps.3.7967 per dollar.
(2) Adjusted for forward sales and purchases of foreign exchange, without delivery of underlying assets and recorded in memorandum
accounts.
As of December 31, 2009, taking into account the forward transactions recorded in memorandum accounts,
Banco Galicia had a net asset position in peso-denominated assets adjusted by the CER and in foreign
currency-denominated assets; and a net liability position in non-adjusted peso-denominated liabilities.
The paragraphs below describe the composition of the different currency mismatches as of December 31,
2009.
Peso-denominated Assets and Liabilities Adjusted by the CER
As of December 31, 2009, assets adjusted by the CER were mainly made up of: (i) Ps.584.1 million of
certificates of participation in the Galtrust I financial trust, (ii) Ps.219.2 million of debt securities and
certificates of participation of the Special Fund of Former Almafuerte Bank and (iii) Ps.55.4 million
(principal, adjustment and interest, net of allowances), corresponding to private sector finances.
Banco Galicia’s liabilities adjusted by the CER were made up by deposits for Ps.14.9 million (principal,
adjustment and interests).
At the end of fiscal year 2009, there was a net position of Ps.872.6 million. The fall in the position acquired,
which totaled Ps.1,444.7 million compared with fiscal year 2008, is mainly due to Banco Galicia’s
participation in the debt restructuring process conducted by the Government, through exchange transactions
of Argentine Secured Loans for instruments issued by the Argentine Central Bank, subject to the Badlar rate,
and for Government securities, adjusted by the CER (Ps.1,491 million NV of Boden 2014, Ps.377 million
NV of Bogar 2018 and Ps.320 million NV of Discount Bonds in pesos due 2033). It is worth mentioning that
44% of the Boden 2014 portfolio and practically 100% of the latter two types of bonds were sold between
June and August 2009. The remaining balance of the Boden 2014 portfolio was subject to exchange in
September, under joint resolution issued by the Treasury Department and the Finance Department, 216/2009
and 57/2009 respectively, which implied receiving Argentine Bonds in Private Pesos Badlar plus 300 b.p.
(Bonar Badlar + 300 b.p. 2015).
The limit established for the CER-adjusted mismatch was set for the purchased position and sold position at
100% and at 25% of RPC respectively. At the end of fiscal year 2009, the Bank’s CER-adjusted net asset
position represented 31.7% of its RPC.
Assets and Liabilities Denominated in Foreign Currency
As of December 31, 2009, the Bank’s foreign-currency-denominated assets consisted mainly of the
following: (i) Ps.2,395.7 million (principal plus interest, net of allowances) of loans to the financial private
sector and residents abroad, (ii) Ps.1,856.4 million of principal and balance in the Central Bank and
correspondent banks; (iii) Ps.1,036.2 million registered as “Unlisted Government Securities” corresponding
to the holding of the Boden 2012; (iv) Ps.887.6 million forward purchases of Boden 2012 related to
repurchase agreements, (including Ps.438.5 million in principal), Ps.420.9 million of appraisal and Ps.28.2
million due to valuation differences, out of which Ps.81.1 million were realized against pesos; (v) Ps.152.7
million corresponding to the holding of Bonar 2013, received as repurchase agreements with the Argentine
Central Bank; and (vi) Ps.153.2 million, corresponding to trade receivables stemming from forward sales of
the above-mentioned repurchase agreements with the Argentine Central Bank
The Bank’s liabilities denominated in foreign currency consisted mainly of: (i) Ps.3,095.4 million
corresponding to deposits (principal, interest and value differentiation); (ii) Ps.2,281.6 million corresponding
to principal of subordinated and unsubordinated Notes issued by Banco Galicia and the Regional Credit Card
Companies; (iii) Ps.596.2 million of debt with banks and international credit agencies; (iv) Ps.402.9 million
115
of collections by third parties; (v) Ps.331.3 million corresponding to creditors on account of repurchase
agreements carried out with the Boden 2012 portfolio (principal plus premiums); (vi) Ps.152.7 million as
forward sales, for the repurchase agreements carried out by the Central Bank; and (vii) Ps.43.9 million of
interest accrued to be paid by other liabilities from financial brokerage.
A net liability position of Ps.176.0 million arises from the Bank’s balance sheet. However, in order to
accurately measure currency risk and exposure to the exchange rate fluctuations, the calculation of Banco
Galicia’s net foreign-currency position should take into account the notional value of forward transactions in
foreign currency, without delivery of the underlying asset, recorded in memorandum accounts. As of
December 31, 2009, Banco Galicia’s balance of net forward purchases in foreign currency recorded in
memorandum accounts was Ps.237.1 million. Consequently, as of such date, net asset position in foreign
currency adjusted by these transactions was Ps.61.1 million, equivalent to US$16.1 million.
Banco Galicia has set limits with respect to foreign currency mismatches at 30% and 10% of the Bank’s RPC
for its net asset position and short position, respectively. At the end of fiscal year 2009, the Banco Galicia net
asset position in foreign currency represented 2.2% of its RPC.
Non-Adjusted Peso-Denominated Assets and Liabilities
As of December 31, 2009, Banco Galicia’s non-adjusted peso-denominated assets were mainly composed of:
(i) loans to the non-financial private sector (principal plus interest, net of allowances) of Ps.10,976.1 million,
including Regional Credit Card Companies’ loan portfolio of Ps.2,443.8 million; (ii) Ps.1,635.4 million
corresponding to the holding of securities issued by the Central Bank, from which Ps.43.3 million
corresponded to Nobac, accounted for under “Investment Accounts”; (iii) Ps.1,232.7 million corresponding
to balances held at the Argentine Central Bank (including escrow account balances) and at correspondent
banks; (iv) Ps.862.0 million in cash; (v) Ps.345.4 million of participation certificates in several financial
trusts; (vi) Ps.323.7 million corresponding to the remaining balance of Bonar 2015 from the portfolio
received as a result of the exchange transaction carried out in September 2009, within the framework of the
joint Resolution issued by the Treasury Department and the Finance Department, 216/2009 and 57/2009,
respectively; (vii) Ps.310.0 million related to assets under financial lease; (viii) Ps.203.9 million
corresponding to forward purchases including Nobac repurchase agreements expiring on January 6, 2010;
(ix) Ps.194.6 million corresponding to participation certificates in Fondo Especial of former Banco
Almafuerte; and (x) Ps.91.7 million related to securities issued by the Argentine Central Bank delivered as
security for the transactions conducted with the MAE and the Rofex, recorded in “Miscellaneous
Receivables”.
The Bank’s non-adjusted peso-denominated liabilities were mainly comprised of: (i) Ps.12,380.1 million in
time deposits from the non-financial private sector and foreign residents (principal plus interest);
(ii) Ps.1,925.8 million of liabilities with businesses in connection with Banco Galicia’s credit card activities
and those of the Regional Credit Card Companies; (iii) Ps.1,569.8 million in deposits from the financial
sector and non financial public sector (principal plus interest); (iv) Ps.251.5 million in liabilities with
domestic financial entities, out of which Ps.181.4 million corresponds to Regional Credit Card Companies;
and (v) Ps.204.1 million (principal plus premium) corresponding to creditors, for a forward purchase of the
Nobac repurchase agreement.
As of the end of fiscal year 2009, Banco Galicia’s net position in non-adjusted peso-denominated liabilities
was Ps.1,286.9.
As of December 31, 2009, the assets included in the category “Other Assets and Liabilities” were mainly the
following: (i) bank premises and equipment and miscellaneous and intangible assets of Ps.1,242.7 million,
(ii) Ps.259.1 million corresponding to the difference for amparo claims net of amortization, recorded as an
intangible asset pursuant to the regulations established by the Argentine Central Bank, (iii) Ps.326.4 million
corresponding to the minimum presumed income tax (tax credit), recorded under “Miscellaneous
Receivables”, and (iv) equity investments in other companies of Ps.65.2 million. Liabilities included, mainly,
Ps.486.2 million recorded under “Miscellaneous Liabilities” and allowances for other contingencies of
Ps.255.6 million.
116
Banco Galicia’s Interest-Rate Sensitivity (On a consolidated basis)
Interest rate risk stems from the sensitivity of the Bank’s ”Financial Results” and “Shareholder’s Equity” to
fluctuations in interest rates derived from the existence of fixed and variable interest rates, for different
periods. In order to mitigate such risk, the Bank’s policy consists of setting limits on the sensitivity to interest
rate variations inherent in a certain structure of the Bank’s assets and liabilities, in terms of permitted
negative maximum variations in the net financial income for the first year and the present value of assets and
liabilities, as explained below.
Limit on the Net Financial Income for the First Year
The effect of interest rate variations on the net financial income for the first year is calculated using the
methodology known as “scenario simulation”. On a monthly basis, net financial income for the first year is
simulated in a “base” scenario and in a “+100 basis points” scenario. In order to prepare each scenario,
different criteria are assumed regarding the sensitivity to interest rates of assets and liabilities, depending on
the historical observed performance of the different balance sheet sections. Net financial income for the first
year in the “+100 basis points” scenario is compared to the net financial income for the first year in the
“base” scenario. The resulting difference is related to the annualized accounting net financial income for the
last available calendar trailing quarter, for Banco Galicia on a consolidated basis, before the adjustment to the
valuation of public-sector assets in accordance with Communiqué “A” 3911 of the Argentine Central Bank,
exchange rate listing differences and CER adjustment.
The limit on a potential loss in the “+100 basis points” scenario with respect to the “base” scenario was
established at 20% of the net financial income for the first year, as defined in the above paragraph. At fiscal
year end 2009, the negative difference between the net financial income for the first year corresponding to
the “+100 basis points” scenario and that corresponding to the “base” scenario represented -1.3% (minus
1.3%) of the net financial income for the first year.
Net Present Value of Assets and Liabilities
The net present value of assets and liabilities is also calculated on a monthly basis taking into account the
assets and liabilities of Banco Galicia’s consolidated balance sheet. The net present value, is calculated for a
“base” scenario in which the listed portfolio securities are discounted using interest rates obtained according
to “yield curves” determined based on the market yields of different reference bonds denominated in pesos,
in dollars and adjusted by the CER. Yield curves for unlisted assets and liabilities are also created using
market interest rates. The net present value of assets and liabilities is also obtained for a second scenario
where portfolios are discounted at the rates of the aforementioned yield curves plus 100 basis points. It is
worth mentioning that, in order to prepare the second scenario, it was assumed that an increase in domestic
interest rates is not transferred to the yield curves of the dollar portfolios, and that, in the case of portfolios
adjusted by the CER, they are treated as fixed rates. By comparing the values obtained for each scenario, the
difference between the present values of shareholders’ equity in each scenario can be drawn.
The limit on a potential loss in the present value of shareholders’ equity resulting from a 100 basis points
increase in interest rates relative to the “base” scenario, was established at 3% of the RPC. As of the fiscal
year end 2009, a 100 basis points increase in interest rates (in accordance with that mentioned in the
paragraph above) resulted in a reduction of the present value of Banco Galicia’s shareholders’ equity, relative
to the value calculated for the “base” scenario, equivalent to -2.0% (minus 2%) of the RPC.
Banco Galicia’s Market Risk (On a non-consolidated basis)
In order to measure and control the risk derived from price variations of the financial instruments that make
up the brokerage or trading portfolio, the model known as “Value at Risk” (“VaR”) is used. This model
determines, on an intra-day basis and for Banco Galicia on an individual basis, the potential loss generated by
the trading positions in securities and foreign currencies, considering the prices of the last 252 trading days.
The parameters taken into consideration are as follows:
i)
A 95% “degree of confidence.”
ii)
VaR estimates are made for holding periods of one day and “n” days, where “n” is defined as
the number of days necessary to liquidate the position in each security.
117
iii)
In the case of new issuances, the available trading days are taken into consideration; if there are
not enough trading days or if there are no quotations, the volatility of bonds from domestic
issuers with similar risk and characteristics is used.
Banco Galicia’s policy requires that the Finance and Risk Management Area agree on the parameters under
which the model works, and establishes the maximum losses authorized both for securities and foreign
currency positions in a fiscal year. These were set at Ps.15.0 million and Ps.1.0 million, respectively, for
fiscal year 2009. Banco Galicia stayed within policy guidelines.
Risk related to Cross Border Transactions
The policy for cross border risk takes into account: (i) the jurisdiction risk, which means the impossibility of
recovering international investments, due to the occurrence of events associated with a particular country, or
the ability of a debtor to meet its payment obligation of foreign currencies, whether for the lack of the enough
currency in the country or legal impediments to transfer (transfer risk), and (ii) counterparty risk, which
involves credit risk, diversification risk, concentration risk and economic group risk.
The Bank set forth its policy setting maximum exposure limits, measured as a percentage of accountable
corporate liability, and taking into account if the counterparty is considered investment grade:
Risk
-Jurisdiction Risk
-Counterpart Risk
Required Credit Rating
-International rating
-International Banking
Relationship
-Credit Management
Investment Grade
-No limit
-Max. limit: 15%
-The limit is allocated to
financial transactions
and to foreign trade,
accounting for the
margin of the local
counterpart
Not Investment Grade
-Max. limit: 5%
-Max. limit: 1%
-Only foreign trade
transactions
Operating risk
Banco Galicia assumes the definition of operating risks provided by the New Basel Capital Accord.
Operating risks are defined as the risks of suffering losses due to the lack of adequacy of or failures in
internal processes, systems or individuals, or on account of external events. This definition includes the legal
risk but excludes the strategic risk and the reputation risk. Banco Galicia has control policies, procedures and
structures for different business or support activities, in order to avoid incurring losses owing to operating
events. As a protection strategy, the Bank has a Business Continuity Plan and a System Continuity Plan,
which are destined to ensure quick answers should there be potential incidents which may put Banco
Galicia’s operating continuity at risk. Furthermore, before launching new products and services, their
inherent operating risk is assessed. With respect to operating risk management, the purpose is to identify,
assess, perform a follow-up to and control/mitigate such risk. The framework for the operating risk
management includes a unit, within Risk Management and independent of the business or support units
involved, responsible for the specific management of such risk. The unit tasks are as follows: identify
different risks; propose and implement measurement and follow-up methodologies to implement mitigation
or coverage policies and procedures; control that the foregoing is within preset standards and appoint
individuals responsible for the referred risks, in order to ensure a coordinated action with the sectors that
administer such risks. Internal Audit reviews the management framework.
Risk of Money Laundering and Other Illegal Activities
With regard to the control and prevention of this risk, Banco Galicia complies with the rules and regulations
prescribed by the Central Bank and by Law 25,246, which amends the criminal code in relation to complicity
and money laundering arising from criminal offences and creates the Financial Information Unit (“UIF”),
answerable to the Ministry of Justice. The UIF is in charge of the analysis, treatment and transmission of the
information covered by this risk.
118
Banco Galicia has control policies, procedures and structures which are consistent with the features of the
different products offered by the entity. Such policies and procedures allow us to perform a follow-up to the
transactions, so as to detect, under certain parameters, those which are to be considered unusual or
suspicious, and submit the potential claim to the UIF, where appropriate. The framework for the management
of this risk is the Anti-Money Laundering Unit (Unidad Antilavado) (“UAL”), which is responsible for
implementing control and prevention procedures and for the communication thereof to the rest of the
organization, through the preparation of the corresponding manuals and the training of the whole staff.
Banco Galicia has appointed a Director who is responsible for this risk and has created a committee which is
in charge of planning, coordinating and safeguarding the compliance with the policies established by the
Board of Directors. Such committee is made up of two directors of Banco Galicia and officers belonging to
senior management. It is worth mentioning that the basic principle sustaining the rules and regulations
relating to the prevention and control of this risk is consistent with the “know your customer” policy in full
force and effect worldwide. The management of this risk is revised by internal and external auditors on a
regular basis.
Regulatory Capital
Grupo Galicia has to comply with the minimum capital requirement established by Law No. 19,550 as
amended by the LSC, which establishes this amount as 12,000.
Banco Galicia
Through its Communiqués “A” 3959 and “A” 3986, dated June 2 and June 25, 2003, respectively, the
Argentine Central Bank established a new capital adequacy rule effective as from January 1, 2004.
The new capital adequacy rule is based on the Basel Committee methodology, like the previous one, and
establishes the minimum capital a financial institution is required to maintain in order to cover the different
risks inherent in its business activity and incorporated into its assets. Such risks mainly include: credit risk,
generated both by exposure to the private sector and to the public sector; market risk, generated by foreigncurrency, securities and CER positions; and interest-rate risk, generated by the mismatches between assets
and liabilities in terms of interest rate repricing. The minimum capital requirement stated by the new rule is
8% of risk-weighted assets, with a 100% risk weighting for public-sector assets (within the previous rule, this
risk-weighting was nil) and private-sector assets; with said requirement being lower depending on the
existence of certain guarantees in the case of private-sector assets and for certain liquid assets.
The Argentine Central Bank established a schedule for the gradual compliance with the minimum capital
requirement to assets from the public sector to reach to 100% of such requirement required by the new
regulations. To such purposes, as from January 2004, two coefficients known as “Alfa 1” and “Alfa 2” were
applied. Alfa 1 temporarily reduced the minimum capital requirement to cover credit risk of public-sector
assets. The Alfa 1 coefficient value increased progressively, in January of each year, until reaching 1.00 on
January 1, 2009. The Alfa 2 coefficient reduced the capital requirement to cover the interest-rate risk and the
value of the Alfa 2 coefficient increased in the same manner until it reached 1.00 on January 1, 2007, as
shown in the table below:
January 1st / December 31st,
2004
2005
2006
2007
2008
2009
Alfa 1
0.05
0.15
0.30
0.50
0.75
1.00
Alfa 2
0.20
0.40
0.70
1.00
-
Minimum capital requirements must be met by the Bank, not only on an individual basis, but also on a
consolidated basis with its significant subsidiaries.
In the table below, the information on Banco Galicia’s regulatory capital and compliance with regulations on
minimum capital requirements is consolidated with Galicia Uruguay and the companies that the Bank
indirectly controls through Tarjetas Regionales S. A.
119
Regulatory Capital (*)
2009
2,126.5
Minimum Capital Requirements
Allocated to Credit Risk
Allocated to Fixed Assets
As of December 31,
2008
2007
1,954.7
1,759.4
977.6
168.7
86.5
14.3
20.7
343.7
1,611.5
944.9
169.5
69.2
5.4
50.7
324.8
1,564.5
784.8
153.2
60.5
20.4
52.4
231.5
1,302.8
1,991.2
1,070.2
(312.6)
40.4
2,789.2
1,177.7
19,438.9
1,789.1
994.7
(244.8)
13.3
2,552.3
987.8
18,335.9
1,756.4
757.1
(159.5)
3.1
2,357.1
1,054.3
15,166.3
73.08
63.14
14.35
13.92
(*) According to the Central Bank’s rules applicable from time to time.
80.93
15.54
Allocated to Other Assets
Allocated to Market Risk
Allocated to Interest Rate Risk
Allocated to Exposure to the Non-Financial Public Sector
Minimum Capital Requirements (a)
Computable Regulatory Capital
Core Capital
Supplemental Capital
Deductions
Additional Capital per Market Variation
Computable Capital (b)
Excess Over Required Capital (b – a)
Total Risk Assets
Ratios (%)
Excess Over Required Capital as % of Required Capital
Total Capital Ratio
As of December 31, 2009, Banco Galicia’s computable capital amounted to Ps.2,789.2 million, exceeding the
minimum capital requirement by Ps.1,177.7 million pursuant to the regulations provided for by the Argentine
Central Bank effective at that date. This excess amount was Ps.987.8 million as of December 31, 2008. The
increase of Ps.189.9 million in the excess was due to integration of principal by Ps.236.9 million, offset by
the rise in the minimum capital requirement of Ps.47.0 million.
The greater minimum capital requirement was mainly the result of the Ps.32.7 million increase in minimum
capital requirements to cover the credit risk, as a consequence of the growth of the Bank’s exposure to the
private sector during fiscal year 2009 and the Ps.18.9 million increase in minimum capital requirement for
the exposure to the non-financial public sector, which was mainly due to the increase of the “Alfa 1”
coefficient from 0.75 to 1, therefore, eliminating, as from January 2009 the mitigating coefficient. The latter
effect was mainly offset by the sale of part of the government securities portfolio made during this fiscal
period 2009.
The Ps.236.9 increase in computable capital when compared to December 31, 2008 was mainly the result of
Ps.202.1 million from basic shareholders’ equity, mainly due to the result of the fiscal year 2008 and Ps.75.5
million from an increase in the complementary shareholders’ equity, mainly due to the balance of the
subordinated debt increase for the increase of the value of the dollar. This latter increase was offset by the
increase of Ps.67.8 million in the deductions corresponding to an increase in the organization and
development expenses.
Insurance Companies
The insurance companies controlled by Sudamericana must meet the minimum capital requirements set by
General Resolution No. 31,134 of National Insurance Superintendency.
The abovementioned resolution requires insurance companies to maintain a minimum capital level based on:
a) line of insurance; b) premiums and additional fees and c) claims. The minimum required capital must then
be compared to computable capital, defined as shareholder’s equity less non-computable assets. Noncomputable assets consist mainly of deferred charges, pending capital contributions, and excess investments
in authorized instruments, among others.
As of December 31, 2009, according to the estimates carried out as of such date, the computable capital of
the companies held by Sudamericana exceeded the minimum capital requirement of Ps.49.3 million by
Ps.15.5 million.
120
Sudamericana also holds Sudamericana Asesores de Seguros S.A., a company dedicated to the brokerage in
different lines of insurance that is regulated by the guidelines of the Corporations’ Law,
Since the Regional Credit Card Companies are not financial institutions, the capital adequacy of these
companies is not under the supervision of the Argentine Central Bank. The Regional Credit Card Companies
have to comply with the minimum capital requirements established by the Corporations’ Law of Ps.12,000.
However, Banco Galicia has to comply with the Argentine Central Bank’s regulations on capital adequacy on
a consolidated basis with the Regional Credit Card Companies, among others, as explained above.
Recent Developments
Please see Chapter VIII “Accounting Information – Changes after December 31, 2009”.
Principal Trends and Uncertainties
Trends Related to Argentina
The economic outlook for 2010 is more favorable as compared to the previous year. The decrease in
uncertainty at a global level together with the recovery being experienced by economies worldwide, and in
particular the principal business partners of Argentina, generates a more promising outlook for its growth
potential. The GDP statistics of the fourth quarter of 2009 show a 1.7% expansion as compared to the
previous quarter of the year without seasonal variations and does not account for a statistical drag of 2%.
Additionally, the expected momentum in consumption, a product of the expansive monetary policy and the
rise in salaries, as well as a harvest that exceeded that of the previous year by approximately 50% with
international commodity prices at levels similar to those of the second half of 2009, permit an expectation of
growth in GDP of around 5% in 2010. In this context the labor market would experience good performance,
maintaining the unemployment level at current rates.
With respect to the exchange rate, a moderate depreciation as compared to the end of 2009 is expected.
To the extent the growth in public spending remains at an elevated level, the increase in tax revenues, as a
result of a higher level of activity and price increases, together with certain extraordinary resources
(primarily, transfer of profits and advances from the Central Bank and transfer of the income of the ANSES),
makes it easier to cover the financing gap for 2010.
Notwithstanding the foregoing, it should be noted that certain latent risks exist that could affect growth
expectations, such as expansive fiscal, monetary and wage policies and their consequences over the evolution
of prices.
Trends Related to the Financial System
With respect to the Argentine financial system, it is expected to continue to strengthen its solvency, resulting
from positive net incomes within a context of growth in financial intermediation in the private sector and
levels of interest rates and liquidity similar to those of the end of the previous year. Income for services will
continue to be an important part of operating incomes. With respect to the evolution of the portfolio quality,
we expect the improvement observed during the last quarter of 2009 to continue, maintaining high coverage
with provisions for the non-accruing portfolio.
Trends Related to the Issuer
It is expected that the level of activity of all of the subsidiaries of Grupo Galicia will be consistent with
expectations generated by a more favorable economic context. Given that Banco Galicia is the most
significant asset of Grupo Galicia, we refer to the trends related to Banco Galicia.
During recent years, and despite passing through various periods of crisis, both internationally and
domestically, the Bank managed to increase its volume of business in the private sector and improve its
equity structure, which had a positive impact on its ability to generate financial and service income. In 2010,
121
with the goal of continued improvement of recurring operating results, the Bank will maintain its strategy of
increasing its volume of intermediation activities in the private sector, reducing its exposure to the public
sector and its assets with no yield, improving the structure of its liabilities, reducing its foreign debt and
maintaining adequate diversification and risk coverage.
The analysis of these trends should be read in conjunction with the discussion in Chapter III “Key
Information on Grupo Galicia – Risk Factors”, and considering that the Argentine economy has been
historically volatile, which has negatively affected the volume and growth of the financial system.
122
CHAPTER VI. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
Directors and senior management:
See Chapter I “Information on Directors, Senior Management, Advisors and Supervisory Syndics’ Committee
Members – Directors, Alternate Directors and Senior Management”.
Director
Date of Birth
Eduardo Jesús Escasany
Born on June 30, 1950.
Pablo Gutiérrez
Born on December 9, 1959.
Abel Ayerza
Born on May 27, 1939.
Federico Braun
Born on February 4, 1948.
Enrique Martin
Born on October 19, 1945.
Luis Omar Oddone
Born on April 26, 1971.
Born on January 3, 1931.
María Ofelia Hordeñana de Escasany
Born on December 30, 1920.
Sergio Grinenco
Alejandro María Rojas Lagarde
Born on July 17, 1937.
Luis Sila Monsegur
Born on August 15, 1936.
Grupo Galicia’s Main Executives
Grupo Galicia’s main executives (Pedro Alberto Richards and José Luis Gentile), their background, current
position and year of appointment to such position, as well as their business experience are described in
Chapter I “Grupo Galicia’s Main Executives”.
Some of Grupo Galicia’s directors are directors of Banco Galicia. Likewise, some of the members of Grupo
Galicia’s Board of Directors may serve on the board of directors of any subsidiary established in the future.
Four of Grupo Galicia’s directors are members of the Families who own a majority stake in Grupo Galicia.
Likewise, the family relationship between the members of the Board of Directors is the following:
- Mr. Escasany is María Ofelia Hordeñana de Escasany’s son and Silvestre Vila Moret’s uncle.
- Mr. Ayerza is Mr. Pablo Gutierrez’s uncle.
- Mr. Vila Moret is María Ofelia Hordeñana de Escasany’s grandson.
There are no understandings or agreements with majority shareholders, customers, suppliers or others, stating
that any of the aforementioned persons was elected as Grupo Galicia’s director or member of senior
management.
Compensation for the Board of Directors
The Ordinary and Extraordinary Shareholders’ Meeting held on April 14th 2010 fixed the compensation for
the Board of Directors at Ps.1,705,500, which includes salaries, social benefits and fees for the fiscal year
ending on December, 31st, 2009.
The total amount approved by the Shareholders’ Meeting for global compensation on all accounts for the
members of the Supervisory Syndics’ Committee, for the fiscal year ending on December, 31st, 2009 was
Ps.660.000.
123
Additional information regarding the administrative body, the Supervisory Syndics’ Committee and
special committees
Directors
Name
Position
Main
Function
Current Term
Started On
Current Term
Ends On
Eduardo Escasany
Chairman of the
Board of
Directors
Businessman
April 14, 2010
April, 14, 2013
Pablo Gutiérrez
Vice-Chairman
Banker
April 14, 2010
April 14, 2013
Abel Ayerza
Director
Businessman
April 28, 2009
April 28, 2012
Federico Braun
Director
Businessman
April 29, 2008
April 29, 2011
Antonio Roberto
Garcés
Director
Banker
April 29, 2008
April 29, 2011
Enrique Martin
Director
Businessman
April 28, 2009
April 28, 2012
Luis Omar Oddone
Director
Public
Accountant
April 14, 2010
April 14, 2013
Director
Businessman
April 29, 2008
April 29, 2011
Eduardo Jesús
Zimmermann
Director
Businessman
April 28, 2009
April 28, 2012
María Ofelia
Hordeñana de Escasany
Alternate Director
Businesswoman
April 29, 2008
April 29, 2011
Sergio Grinenco
Alternate Director
Banker
April 28, 2009
April 28, 2012
Alejandro María Rojas
Lagarde
Alternate Director
Lawyer
April 29, 2008
Apri, 29, 2011
Luis Sila Monsegur
Alternate Director
Accountant
April 29, 2008
April 29, 2011
The members of the Supervisory Syndics’ Committee are Norberto Daniel Corizzo, Enrique M. Garda
Olaciregui, Luis Alberto Diaz and alternate members are Miguel Norberto Armando and Fernando Noetinger
and Horacio Tedín.
The terms of the members of the Supervisory Syndics’ Committee end on April 14, 2011.
Audit Committee
The Audit Committee is made up of three directors; all of them are independent. The Audit Committee
operates in a joint manner and its members are appointed by Grupo Galicia’s Board of Directors upon the
majority vote of those present.
In the meeting held on April 14, 2010, Grupo Galicia’s Board of Directors appointed Eduardo Jesús
Zimmermann, Luis Omar Oddone and Enrique Martín as members of the Audit Committee; and Alejandro
María Rojas Lagarde and Luis Sila Monsegur as alternate members of said committee.
Their terms end on April 14, 2011.
Employees
The following table sets out the staff of Grupo Galicia and its subsidiaries:
124
2009
Grupo Galicia
Banco Galicia
Galicia Uruguay
Insurance Companies
Other Subsidiaries
Total
As of December 31,
2007
9
10
5,324
5,164
10
13
3,898
3,769
105
96
62
51
9,408
9,103
2008
10
5,028
8
3,936
116
44
9,142
Within the current legal framework, affiliation with the labor unions is voluntary. Banco Galicia’s employees
are represented by the union of bank employees, the insurance companies’ employees are represented by the
insurance union and employees belonging to the rest of the companies, such as Grupo Galicia, are
represented by the commerce employee union.
During the first six months of 2009, the bank employee union and the commerce employee union
renegotiated their respective collective labor agreements.
In May 2009, salary increases were granted for bank employees and in April a non-salary increase was
granted for commerce employees.
Banco Galicia has not experienced a strike by its employees since 1973 and believes that its relationship with
employees has developed within normal and satisfactory parameters.
Grupo Galicia has a human resources policy that aims at providing its employees possibilities for growth and
personal and socio-economic achievement. Likewise, Grupo Galicia will continue their current policy of
monitoring both wage levels and labor conditions in the financial industry in order to be competitive.
Grupo Galicia’s employees receive fixed compensation and may receive variable compensation according to
their level of achievement. There are no option plans.
As of the date of the present Offering Memorandum, there are no agreements between Grupo Galicia or the
Bank and their employees granting the employees any interest or stake in Grupo Galicia or the Bank, as
applicable, nor are there any stock option plans for the aforementioned companies.
Share Ownership
The following chart shows the share ownerships as of December 31, 2009 as regards the persons listed under
“Directors and Senior Management” of this Chapter:
Board of Directors
Eduardo Escasany
Pablo Gutiérrez
Abel Ayerza
Federico Braun
Enrique Martin
Luis Omar Oddone
Pedro Alberto Richards
Maria Ofelia Hordeñana de
Escasany
Sergio Grinenco
Class A
Shares
Chairman
Vice-Chairman
Director
Director
Director
Director
Director
Director
Director
Director
0
0
0
0
0
0
0
0
0
0
0
Alternate Director
Alternate Director
0
125
Class B Number of
Shares
Votes
16,057,160 16,057,160
5,067,036 5,067,036
24,322,508 24,322,508
9,589,183 9,589,183
331,821
331,821
0
0
650
650
0
0
7,580,664 7,580,664
5,020,602 5,020,602
192
0
192
0
%
0.68%
0.21%
1.03%
0.41%
0.01%
0.00%
0.00%
0.00%
0.32%
0.21%
0.00%
0.00%
Class A
Shares
Board of Directors
Alejandro María Rojas
Alternate Director
Lagarde
Luis Sila Monsegur
Alternate Director
Norberto Daniel Corizzo
Syndic
Syndic
Luis Alberto Díaz
Enrique M. Garda Olaciregui Syndic
Syndic
Miguel Norberto Armando
Alternate Syndic
Fernando Noetinger
Alternate Syndic
Horacio Tedín
Subtotal
José Luis Gentile
Number of
Votes
%
0
Subtotal
Senior Management
Pedro Alberto Richards
Class B
Shares
Managing Director
Chief Financial
Officer
0
0
0
0
0
0 67,969,816 67,969,816
0.00%
0.00%
2.87%
0
0
0
0
0
0
0
0
0
0
0
14,350
0
14,350
0
0
0
0
14,350
0
14,350
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0
0
0
0
0.00%
0
0
0.00%
0
0
0.00%
67,984,166 67,984,166
2.87%
0
Subtotal
0
Total (**)
0.00%
(*) The percentage of total equity interest held by the Board of Directors, the Supervisory Syndics’ Committee and Management of total
Class B Shares is of 7.08%.
126
CHAPTER VII. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Major Shareholders
Grupo Galicia’s capital structure is made up of class A shares, each of which is entitled to five votes and has
a nominal value of Ps.1 and class B shares, each of which is entitled to one vote and has a nominal value of
Ps.1.
Grupo Galicia’s majority shareholder is EBA Holding, a corporation incorporated in Argentina, and its shares
are, in totality, held by certain members of the Families and the Foundation.
Such members of the Families are majority shareholders (directly or indirectly), and currently own 100% of
Grupo Galicia’s Class A shares, through EBA Holding, which represents 22.7% of capital stock, and 13.4%
of Grupo Galicia’s Class B shares, which represents 10.4% of capital stock.
Based on information that is publicly available, the table below sets forth, as of March 31, 2010, the number
of Grupo Galicia’s Class A and Class B shares held by holders of more than 5% of the shares and their share
ownership percentage, as well as the percentage of votes that such Class A and Class B shares represent with
respect to Grupo Galicia’s total capital stock.
Grupo Galicia’s Class A Shares
Number of
% of Class A
Shares
Shares
Holder
EBA Holding S.A.
281,221,650
Holder
Grupo Galicia’s Class B Shares
Number of
% of Class B
Shares
Shares
34.7%
332,813,240
The Bank of New
York Mellon(1)
(1)
(2)
(3)
(4)
% of Total Votes
100 %
59.4 %
% of Total Votes
14.1%
ANSES(2)
253,754,743
26.4%
10.7%
EBA Shareholders(3)
127,335,319
13.3%
5.4%
Banco Santander (4)
82,741,540
8.6%
3.5%
Pursuant to the requirements of Argentine law, all class B shares represented by American Depositary Shares (ADSs) are owned
of record by The Bank of New York Mellon, as Depositary. The address for the Bank of New York is 101 Barclay Street, 22nd
Floor, New York 10286, and the country of organization is the United States of America.
ANSES’ holding is obtained through information supplied by Caja de Valores and information gathered from the ANSES. Said
holding includes 46,204,420 shares in ADS.
No member holds more than 2.0% of the capital stock. Such holding includes 25,959,510 shares in the form of ADS.
Information is based on a Schedule 13 G filed by Banco Santander (*), dated February 16, 2001. It was confirmed by Banco
Santander (*), as of March 31, 2010. The address for Banco Santander is Plaza Canalejas 28014, Madrid, Spain and the country
of organization is Spain. The holding is in ADS. Shares are held by Administración de Bancos Latinoamericanos Santander
S.L., a company controlled by Grupo Santander S.A., a company incorporated in Spain.
Based on information that is publicly available, the table below sets forth, as of March 31, 2010, the number
of Grupo Galicia’s Class A and Class B shares held by holders of more than 5% of the total capital stock,
their share ownership percentage and the percentage of votes as regards Grupo Galicia’s total capital stock.
Major Shareholders
Holder
Total Shares
The Bank of New York
Mellon
EBA Holding (1)
332,813,240
Class B
281,221,650
Class A
127
% of Total Capital
% of Total Votes
26.8%
14.1%
22.7%
59.4%
ANSES
EBA Holding
Shareholders
Banco Santander (2)
(1)
(2)
253,745,743
Class B
127,335,319
Class B
82,741,540
Class B
20.4%
10.7%
10.4%
5.4%
6.7%
3.5%
See “EBA Holding.” below for more information on its shareholders.
Shares are held by Administración de Bancos Latinoamericanos Santander S.L., a company controlled by Grupo Santander S.A.,
a company incorporated in Spain.
The following table sets forth the portion of each class of Grupo Galicia’s shares held within the country and
abroad and the number of registered holders according to information gathered from Caja de Valores as of
March 31, 2010:
Country of Residence of Shares and Record of Shareholders
Class of
Number of
Capital
Number of Shares
Residence
Share
Holders
Percentage
1
22.7% (1)
Argentina
Class A
281,221,650
9,642
48.7%
604,897,517
Class B
0
0.0%
Abroad
Class A
355,287,850
73
28.6% (2)
Class B
9,900
100.0%
1,241,407,017
Total
(1) EBA Holding S.A.
(2) Includes The Bank of New York
For more information on issued capital stock, number of Grupo Galicia’s shares, see Chapter X “Additional
Information – Capital Stock”.
EBA Holding
On September 3, 1999, Banco Galicia’s majority shareholders formed EBA Holding S.A., and the totality of
its shares – 100% – are owned by members of the Families and the Foundation. EBA Holding holds 100% of
Grupo Galicia’s Class A Shares.
Currently, EBA Holding only has outstanding class A shares. EBA Holding’s by-laws provide for certain
restrictions on the sale or transfer of its class A shares. While EBA Holding’s class A shares may be
transferred to any other EBA Holding’s class A shareholder, any transfer of such class A shares to third
parties would automatically result in the conversion of the sold shares into EBA Holding’s class B shares
having one vote per share. In addition, EBA Holding’s by-laws provided for the rights of first refusal,
preemptive rights, provisions related to the purchase and sale of shares and tag-along rights.
The following table sets forth EBA Holding’s shareholders and their equity interest and voting rights in said
company as of March, 31, 2010:
Holder
María Ofelia Escasany
Eduardo José Escasany
Josefina María Ayerza
María Teresa Ayerza
Adela M. Ayerza de Gutiérrez
Abel Ayerza
Marta Braun
Santiago Braun
EBA Holding Shareholders
Number of Shares
54,446,509
78,560,487
24,126,215
31,399,862
41,875,635
41,872,106
41,985,608
16,926,309
22,490,395
128
% of Capital
10.638
15.349
4.714
6.135
8.182
8.181
8.203
3.307
4.394
Marta Braun
Federico Braun
Miguel Braun
Susana Braun de Santillán
Inés Braun Ledesma
Pablo Braun Ledesma
Sucesión Oscar Braun Malenchini
Sonia Braun Malenchini
Mercedes Guerrero de Authier
Isabel Guerrero de Romero
Francisca Guerrero de Aduriz
Fundación Banco Galicia
Total
22,439,136
22,478,308
7,469,392
22,486,306
11,234,656
11,281,826
7,491,548
7,488,092
1,656,628
1,845,308
1,845,308
40,422,557
511,822,191
4.384
4.392
1.459
4. 393
2.195
2. 204
1.463
1.463
0.324
0.361
0.361
7.898
100.000
Significant Changes in the Percentage of Share ownership
On November 20, 2008, the National Congress passed Law No. 26,425 which established the creation of the
SIPA and terminated the existence of the AFJPs (Retirement and Pension Fund Administrators). As a
consequence of the above, funds and holdings belonging to the AFJPs, such as the interest held by these in
other companies, were transferred to the ANSES. Thus, equity investments in Grupo Galicia held by the
AFJPs are currently held by the ANSES.
During the last three years, there have not been changes in the Class A shares owned by EBA Holding.
Related Party Transactions
Some of Grupo Galicia’s directors and the directors of Banco Galicia have been involved in certain credit
transactions with the Bank as permitted by Argentine law. The Corporations’ Law and the Argentine Central
Bank’s regulations allow directors of a corporation to carry out transactions with such company if such
transaction follows prevailing market conditions. A bank’s total credit assistance to related individuals or
legal institutions is subject to Argentine Central Bank’s regulations which set limits on the amount of credit
assistance that can be extended by a bank to affiliates. Such limits are based on, among others, in the Bank’s
RPC. See Chapter IV. “Information on the Issuer – Regulatory Aspects – Argentine Bank Regulations –
Lending Limits”.
The Argentine Central Bank regulations establish that the financial assistance to directors, controlling
shareholders, officers and other related institutions must be granted on an equal basis with respect to interest
rates, terms and guarantees as loans granted to the general public. Also, pursuant to such regulations, once a
month the Board of Directors is required to record financial assistance in force granted by the Bank to
directors, controlling shareholders, officers and other related institutions, and this information is transcribed
in the Board of Directors’ minute books.
In accordance with the provisions of the applicable rules, the Bank’s directors and other related parties have
received credit assistance from the Bank. Below, “Total Credit Assistance” comprises equity interests and
financial assistance, the latter defined as loans and all credit related sections such as notes or unlisted
participation certificates, granted guarantees and unused balances of granted loans, among others.
Also, “Related parties” refers to directors, senior officers, syndics, majority shareholders both from Banco
Galicia and Grupo Galicia, as well as all individuals who are related to them by a family relationship of up to
the second degree of consanguinity or first degree by affinity (pursuant to the Argentine Central Bank’s
definition of related individual) and any entity affiliated with any of these parties which is not required to be
consolidated.
The following table presents the aggregate amounts of the Bank’s total credit assistance to related parties, the
number of recipients, the average amounts and the single largest assistance as of the end of the last three
closed fiscal years as of December 31, 2009 and January 31, 2010, the last date for which information is
available:
129
In millions of Pesos, except as
noted
Total Amount of Credit
Assistance
Number of Recipients - Related
Parties
Individuals
Companies
Average Amount of Credit
Assistance
Largest Outstanding Assistance
January 31,
2010
December 31,
2009
December 31,
2008
December 31,
2007
Ps.77.4
Ps.76.0
Ps.74.9
Ps.40.8
220
219
221
207
173
47
Ps.0.4
172
47
Ps.0.3
174
47
Ps.0.3
168
39
Ps.0.2
Ps.19.1
Ps.18.9
Ps.30.5
Ps.11.6
Financial assistance, including that which was restructured, was granted in the ordinary course of business,
on substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other non-related parties. Additionally, this financial assistance did not involve
more than the normal risk of loan losses or present other unfavorable conditions.
In 2000, the Bank and Grupo Galicia executed a trademark license agreement under which the Bank has
authorized Grupo Galicia to use the word “Galicia” in its corporate name and has authorized its direct or
indirect subsidiaries to use in their corporate names the Bank’s registered trademarks, including the word
“Galicia,” certain trademarks and the logo design, in order to market their products and services.
On January 6, 2009, Grupo Galicia entered into a 180-day loan agreement with Sudamericana for Ps.97
million, at a corrected Badlar rate plus a fixed spread of 13.3% per year recalculated each month. Also,
Grupo Galicia paid Sudamericana a structuring fee for the aforementioned loan equivalent to 4% per year on
the loan’s amount. On June 4, 2009, Grupo Galicia repaid in advance the loan granted by Sudamericana.
Grupo Galicia made foreign-exchange operations with Banco Galicia under market conditions each time the
Company needed to do so.
130
CHAPTER VIII. FINANCIAL INFORMATION
Financial Statements and Other Financial Information
Financial information selected as of and for the fiscal year ending on December 31, 2007, 2008 and 2009 of
Grupo Galicia and its subsidiaries is gathered from their consolidated financial statements included in the present
Offering Memorandum.
For more information, see Chapter III “Key Information on Grupo Galicia” and Notes 1, 2 and 3 of the Issuer’s
consolidated financial statements as of December 31, 2009.
The following financial statements have been attached hereto as annexes to the present Offering Memorandum:
A. Grupo Galicia’s annual financial statements as of December 31, 2009
B. Grupo Galicia’s annual financial statements as of December 31, 2008
C. Grupo Galicia’s annual financial statements as of December 31, 2007.
The annual financial statements included in this Offering Memorandum have been audited by Price Waterhouse
& Co. S.R.L., independent accountants, as indicated in their reports included in such financial statements.
Investors may find Grupo Galicia’s financial statements on the CNV’s Website under “Financial
Information”, of the AIF. Also, copies of said financial statements are available at Tte. Gral. Juan D. Perón
456, 2nd floor, Autonomous City of Buenos Aires, Grupo Galicia’s legal domicile.
Legal Proceedings
Grupo Galicia
On March 11, 2003 Theseus S.A. and Lagarcué S.A., two minority shareholders of Banco Galicia, initiated legal
proceedings against Banco Galicia and Grupo Galicia (“Theseus S.A. y otra c/ Banco de Galicia y Buenos Aires
S.A. y Grupo Financiero Galicia S.A. s/ Ordinario”). The proceeding’s purpose is to have the court “declare null
the corporate legal action done by Grupo Financiero Galicia with the cooperation of Banco Galicia pursuant to
which there was an exchange of class B shares of Banco Galicia for class B shares of Grupo Financiero Galicia.”
Banco Galicia and Grupo Galicia have answered the claim, arguing in defense that the transaction complied with
applicable legal requirements and, among other things, that there was not one action of exchange of shares but
rather as many legal actions (exchange agreements) as there were shareholders who tendered their Banco
Galicia’s shares to receive Grupo Galicia’s shares (i.e., 3,172 legal actions). Therefore, in order to nullify all of
the exchange agreements, it would be necessary that every single person who tendered shares be named in the
lawsuit, not just Banco Galicia and Grupo Galicia. The material effect that the lawsuit could have, if it were
successful, which is considered unlikely, is not assessed in monetary terms, since such effects are not indicated in
the lawsuit. Currently, this lawsuit is at the discovery stage. Grupo Galicia considers that the result of this lawsuit
is unlikely to produce a significant adverse effect on its financial condition.
On January 18, 2007, Grupo Galicia, Banco Galicia and their respective directors and syndics were notified of the
CNV Resolution No.15,557, dated as of January 11, 2007 (the “Resolution”), pursuant to which the CNV
resolved to institute an investigation proceeding against all of the above-mentioned institutions and persons with
respect to potential violations of various regulations relating to the improper use of inside information and the
possible insufficient disclosure of information. This is related to trading operations of Notes Due 2014 and Notes
Due 2019 in the market carried out by Grupo Galicia and issued by the Bank as part of its Foreign Debt
restructuring. Such institutions and persons presented their respective defenses, after which it was decided to
commence an evidentiary period. After the evidentiary period ended in August 2009, the case was handed over to
the CNV Board so that they would pass a final resolution on the matter. Grupo Galicia and the Bank believe that
the proceeding has no factual support and that all the actions related to the matter were performed in accordance
with applicable laws and regulations. The aforementioned CNV regulation is available at www.cnv.gov.ar.
Banco Galicia
In response to certain pending legal proceedings, the Bank has made allowances to cover (i) various types of
claims filed by customers against it (e.g., claims for thefts from safe deposit boxes, collections of checks that had
been fraudulently altered, discrepancies related to deposit and payment services rendered to the Bank’s
131
customers, etc.) and (ii) estimated amounts payable under labor-related lawsuits filed against Banco Galicia by
former employees.
In connection with the application by financial institutions of emergency measures implemented by the Executive
Branch of the Government during and in respect of the 2001-2002 crisis, which mandated the pesification of
deposits originally denominated in dollars and the restructuring of such deposits, in 2002 individuals and
institutions initiated a significant number of legal actions known as amparo claims against financial institutions,
including the Bank, on the basis that these measures violated their constitutional and other rights. These legal
actions have resulted in losses for financial institutions, including the Bank, as a result of court orders mandating
the reimbursement of Restructured Deposits at values greater than those established by the emergency measures.
The Argentine Central Bank issued regulations allowing for the deferral and amortization of such related losses,
while the Government did not provide for any compensation of such losses to the financial institutions and the
Argentine Supreme Court has issued rulings in several particular cases related to deposit pesification with
different implications. The Bank has repeatedly reserved its right to make claims, at a suitable time, in view of the
negative effect caused on its financial condition by the reimbursement of deposits originally denominated in
dollars, pursuant to orders issued by the Judicial Branch, either in dollars or in pesos for the equivalent amount at
the market exchange rate, since compensation of this effect was not included by the Government in the
calculation of the compensation to financial institutions. The method of accounting for such right as a deferred
loss, set forth by the Argentine Central Bank regulations, does not affect its existence or legitimacy. To such
effect, the corresponding reservation of rights has been made. On December 30, 2003, the Bank formally
requested the National Executive Branch, with a copy to the MECON and to the Argentine Central Bank, the
payment of due compensation for the losses incurred by the Bank generated by the “asymmetric pesification” and
especially for the negative effect on its financial condition caused by court decisions. The Bank has reserved its
right to further extend such request in order to encompass losses made definitive by new final judgments.
As of the date of this Offering Memorandum, provincial tax collection authorities as well as tax collection
authorities from the Autonomous City of Buenos Aires, are in the process (in different degrees of completion) of
conducting audits related to tax on gross income corresponding to fiscal year 2002, mainly regarding the
Compensatory Bond. The Bank has been expressing its disagreement regarding these adjustments at the
corresponding administrative and/or legal proceedings. These proceedings and their possible effects are
constantly being monitored by the management division. Even though the foregoing has not yet been finally
resolved, the Bank believes it has complied with its tax liabilities in full pursuant to current regulations.
Finally, it must be mentioned that Banco Galicia, its directors and syndics are also governed by the investigation
proceeding initiated by the CNV on January 18, 2007 with respect to potential violations of various regulations
relating to the possible improper use of inside information and the possible insufficient disclosure of information.
In addition, Theseus S.A. and Lagarcué S.A., two minority shareholders of Banco Galicia, have initiated legal
proceedings against Banco Galicia requesting that the court “declare null the corporate legal action done by
Grupo Financiero Galicia with the cooperation of Banco Galicia pursuant to which there was an exchange of
class B shares of Banco Galicia for class B shares of Grupo Financiero Galicia.” For more information on these
two proceedings, see “Legal Proceedings – Grupo Galicia” in this section.
As of the date of this Offering Memorandum, the AFIP, the Revenue Board of the Province of Córdoba and the
Municipalities of the cities of Mendoza and San Luis are in the process of conducting audits. Such bodies have
served notices and made claims regarding taxes applicable to Tarjetas Regionales S.A.’s subsidiaries. Based on
the opinions of their tax advisors, the companies believe that the abovementioned claims are both legally and
technically groundless and that taxes related to the claims have been correctly calculated in accordance with tax
regulations in force and existing case law. Therefore, both companies are taking the corresponding administrative
and legal steps in order to solve such issues.
Dividend Policy
Grupo Galicia
Grupo Galicia is a holding company; thus dividends or other intercompany transfers from its subsidiaries,
primarily Banco Galicia, are the main source of cash from which to pay dividends on its shares.
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Therefore, it is understood that Grupo Galicia’s ability to pay dividends in the future shall depend mainly on (1)
its net income (on a consolidated basis), (2) availability of cash and (3) applicable legal requirements.
As regards legal requirements, dividends may only be declared and paid out of retained earnings mostly
representing the realized gains on Grupo Galicia’s operations and investments. The Corporations’ Law and the
Company’s by-laws state that no profits may be distributed until prior losses are covered. Dividends paid on
Class A shares and Class B shares will be of an equal percentage on a per share basis.
Pursuant to the LSC, 5% of net income is allocated to a legal reserve until the reserve equals 20% of the
outstanding capital. Payment of cash dividends shall not be affected by the aforementioned 5% legal reserve as
long as such reserve is covered by the Company’s retained earnings. Dividends shall not be paid if the legal
reserve has been impaired until it reaches the required level. Legal reserve is not available for distribution to
shareholders.
Holders of ADSs shall be entitled to receive any dividends payable in respect of our underlying Class B shares.
Cash dividends shall be paid to the ADS depositary in pesos, although the Company reserves the right to pay cash
dividends in any other currency. The deposit agreement provides that the depositary shall convert cash dividends
in pesos into dollars and, after deduction or upon payment of fees and expenses of the ADS depositary, the
Company shall make payment to ADSs’ holders in dollars.
In light of the restrictions on Banco Galicia’s ability to make distributions - detailed in Chapter V “Liquidity” and
in Chapter IV “Argentine Bank Regulations – Distribution of Dividends” and the international and domestic
economic situation, Grupo Galicia’s current policy is to retain its earnings to pay for its operating expenses and to
support the growth of the Grupo Galicia’s businesses.
Changes After December 31, 2009
On January 4, 2010, Banco Galicia repaid the last installment of Notes Due 2010 in an amount of US$35,010
thousand (payment of principal and interest) and the first installment of Notes Due 2014 in the amount of
US$29,878 thousand.
Moreover, during January 2010, under market terms and conditions, the Bank acquired Notes Due 2014 in an
amount of US$45,771 thousand NV, for their subsequent cancellation, generating income of approximately
Ps.3,300. After making the referred cancellations, the principal amount of nominal value of the outstanding
Notes Due 2014 totals US$161,844 thousand NV.
On January 2010, Banco Galicia decided to allocate to the “Investment Accounts” item Ps.668,178 NV of
Bonar 2015, out of which Ps.627,178 NV were stated at the end of fiscal year 2009 pursuant to the indications
included in Note b.2.1.3 c) of the Financial Statements. The referred allocation, which as per the rules and
regulations in force is to be made at market values, results in income of approximately Ps.241 million.
Additionally, the Bank created an allowance for the risk of devaluation of Boden 2012, stated as of December
31, 2009 in line with the indications included in Note b.2.1.3.a) of the Financial Statements, equivalent to the
estimated difference between the book value and that considered by Banco Galicia to be reasonable for
realization purposes in the amount of Ps.220 million.
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CHAPTER IX. THE OFFER AND LISTING
Description of Notes
Terms and Conditions of Notes
The following is a detailed description of the general terms and conditions of the Notes that the Company
may issue under the Program. The specific terms and conditions of each Class and/or Series of Notes shall be
explained in the corresponding Pricing Supplements.
Approvals and Authorizations
The creation of the Program and its terms and conditions were approved by the Company’s General Ordinary
Meeting of Shareholders held on March 9, 2009, which delegated to the Board of Directors, under applicable
law, the necessary powers to effect the issuance and sale of Notes, including wide powers to define and
establish, within the maximum amount of the Program, the remaining conditions of said Program and of each
issuance or re-issuance of each Class and/or Series.
Some Definitions
Below are some definitions used in this Chapter of the Offering Memorandum – “The Offer and Listing –
Description of Notes”.
“AFIP” means the Argentine Federal Public Income Administration (Administración Federal De Ingresos
Públicos).
“Indebtedness” means, with respect to any Person, without duplication: (a) all indebtedness of such Person
for borrowed money, (b) any amount raised by such Person pursuant to any bonds, debentures, notes or any
similar instrument; (c) all indebtedness of such Person issued and assumed as a deferred purchase price of
goods or services, all indebtedness from conditional sales and all indebtedness under any title retention
agreement (but excluding banker’s debt and other accrued liabilities arising in the ordinary course of business
of such Person); (d) all letters of credit, banker’s acceptances or similar credit transactions, including
reimbursement obligations in respect thereof; (e) guarantees and other contingent obligations of such Person
in respect of the Indebtedness referred to in sections (a) through (d) above; (f) all the Indebtedness of any
other Person of the type referred to in sections (a) through (e) which is secured by a lien on any property or
asset of such Person; and (g) all obligations due and payable under such Person’s Hedge Obligations;
provided, however, that the term “Indebtedness” shall not include any of the following liabilities or
obligations incurred by Grupo Galicia: (1) any deposit in or funds collected by Grupo Galicia (but not
borrowed funds or funds obtained by Grupo Galicia or any of its subsidiaries as loans), (2) any check,
promissory note, certificate of deposit, draft or bill of exchange issued, accepted or endorsed by Grupo
Galicia, (3) any transaction in which Grupo Galicia acts only in its capacity as agent or legal representative,
(4) any agreement to purchase or repurchase securities, loans or currency or to participate in loans and (5)
letters of credit, banker’s acceptances or other similar credit transactions up to the amount for which they
were issued.
“Working Day” means a day when financial institutions can make normal banking and foreign exchange
transactions in the Autonomous City of Buenos Aires, unless (i) another jurisdiction is specified in the
corresponding Pricing Supplement, or (ii) a trade listing has been requested or issuances have been made
under foreign laws, in which cases it shall mean a day when financial institutions can make normal banking
and foreign exchange transactions in the City of New York and/or in the Autonomous City of Buenos Aires,
and/or in any other jurisdiction under whose laws Notes are listed, negotiated or issued, as specified in the
corresponding Pricing Supplement.
“US dollar” means the lawful currency of the United States of America.
“Issuance Date” means the date of issuance and delivery of each Class and/or Series of Notes.
“Interest Payment Date” means the dates on which interest is paid to the holders of each Class and/or Series
of Notes, as specified in the corresponding Pricing Supplement.
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“Lien” means any mortgage, charge, pledge, guaranty assignment, trust assignment, guaranty, lien or other
encumbrance, or preferential arrangement or similar lien.
“Permitted Liens” means: (a) any Lien existing as of the date of the applicable Pricing Supplement and/or of
the respective Trust Agreement, (b) any privilege of a lessor, worker, carrier, warehouseman, any lien on real
property, any privilege of a supplier, technician or other Liens that arise in the ordinary course of business
(excluding, for the avoidance of doubt, Liens created to secure Indebtedness), (c) any Lien created over an
asset securing Indebtedness incurred or assumed solely to finance, in whole or in part, the costs of
construction, acquisition or improvements of such asset, any Lien created or affecting such asset
simultaneously with, or within 180 days of, the construction, acquisition or improvement of such asset, (d)
any Lien created in favor of the Company, (e) any Lien granted with respect to: (i) special lines of credit or
advancements granted to the Company by or through local or foreign government entities or (ii) any Hedge
Obligations, (f) any Lien over any asset existing upon the acquisition of such asset and that was not created in
connection with such asset acquisition, (g) any Lien securing an extension, renewal or refinancing of
Indebtedness secured by the types of Liens described in clause (a), (c), (e) or (f) above, provided that, such
new Lien is limited to the asset secured by the original Lien immediately before such extension, renewal or
refinancing, and provided, further, that the principal amount of the Indebtedness guaranteed by such original
Lien is not increased immediately before such extension, renewal or refinancing, (h) (i) any unperfected Lien
for taxes, assessments or governmental charges or levies not yet due (including any applicable extension) or
(ii) any Lien arising out of or is incurred in relation with the existence of judgments or awards, in
circumstances not constituting an Event of Default or (iii) any Lien created in the form of taxes or other legal
Lien or other Lien arising as a matter of law, so long as such Liens are released within the 90 days following
the date in which they are created or determined or (iv) any other Liens not permitted, including Liens related
to the issuance of Secured Notes under the Program, so long as on the date of the creation of such Liens all
Indebtedness of the Company secured by any such Lien –including the new Lien–, has an unpaid principal
amount not exceeding the percentage of Grupo Galicia’s total assets as shown in its last financial statements
as indicated in the applicable Pricing Supplement.
“Insolvency and Bankruptcy Law” means Law No. 24,522, as amended.
“Exchange Act” means the 1934 Securities Exchange Act of 1934 of the United States of America, as
amended.
“Margin” means the number of percentage points specified in the applicable Pricing Supplement and in the
Note which are applicable to the interest rate that corresponds to such Note.
“Additional Amounts” has the meaning ascribed thereto in the heading “Additional Amounts” below.
“Regulations of the Argentine Central Bank” means the accounting rules of the Central Bank, as applicable
from time to time.
“Hedge Obligations” means, in respect of any Person, such Person’s obligations under any agreement
concerning obligations known as derivatives (including interest rate swaps), foreign currency, maximum and
minimum interest rates, options as futures or any other similar agreements or contracts, aimed at protecting
such Person against changes in interest or exchange rates, funding risks and credit risks.
“Notes” means each Class and/or Series of Notes to be issued, offered and sold hereunder and pursuant to the
“Significant Portion” means, at any given time, those assets of the Company that represent more than 50%
(or such other percentage as determined in the corresponding Pricing Supplement) of the assets of the
Company according to its most recent quarterly or annual consolidated financial statements.
“Change of Control” means the occurrence of any of the following, the Company ceases (i) to own securities
representing the majority of the capital stock of Banco de Galicia y Buenos Aires S.A., and/or (ii) to have the
ability to nominate, directly or indirectly a majority of the members of the board of directors of Banco de
Galicia y Buenos Aires S.A., and/or (iii) to have the power to direct or cause the direction of the management
and policies of Banco de Galicia y Buenos Aires S.A., directly or indirectly, whether by written agreement or
otherwise, as necessary to direct the decisions at any of Banco de Galicia y Buenos Aires S.A.’s
shareholders’ meetings.
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“Person” means any individual, corporation (including a company organized as a trust), limited liability
company, partnership, joint venture, association, stock company, trust, unincorporated organization or other
entity, or government or any agency or subdivision thereof.
“Peso” means the lawful currency of the Argentine Republic or such other lawful currency as may replace it
in the future.
Issuer
Description
Notes shall be simple “notes”, not convertible into shares, issued under the Negotiable Obligations Law and
any other applicable regulations, and shall entitle their holders to the benefits established in the Negotiable
Obligations Law. As specified below under the heading “Ranking”, Notes may be subordinated or not, may
be issued with an ordinary, special or floating security interest, or else may be guaranteed by a surety, bond,
or by any other means.
Amount
The maximum amount of total principal of outstanding Notes at any time may not exceed US$60,000,000, or
its equivalent in other currencies. Subject to applicable law at the time of issuance, and in order to determine
the amount of outstanding Notes as of the date of issuance of each Class and/or Series, if such Notes are
issued in a currency other than US dollars, the respective Pricing Supplements of each Class and/or Series
shall include the formula or procedure to determine the equivalence between the currency used in each
issuance and the US dollar. For the purpose of calculating the total amount of outstanding Notes, the Issuer
shall treat Notes issued at a discount or premium as if they had been issued at face value.
Offer
Notes may be offered in Argentina or any other jurisdiction, as specified in each corresponding Pricing
Supplement.
Term of the Program
The term of the Notes Program shall be five years, or such other longer term as may be authorized under
regulations in force, beginning on the date of authorization of this Program and of the public offering by the
CNV or, if said authorization is conditioned, on the date on which said conditions are lifted. Successive
amortizing Classes and/or Series may be re-issued, provided the principal amount of outstanding Notes does
not exceed the total amount of the Program. The maturity dates of the different Classes and/or Series may
occur after the Program’s expiration date.
Form
As permitted by regulations in force, Notes may be book-entry, certified in the form of definitive bearer or
registered certificates (and, in this last case, endorsable or non-endorsable) or in the form of global
certificates (for subsequent deposit with depositories authorized by the applicable law of the relevant
jurisdiction), as specified in the corresponding Pricing Supplement. Pursuant to Law No. 24,587, corporate
securities issued in Argentina must now be registered and non-endorsable.
Classes and/or Series
Different Classes of Notes may be issued. Different Classes of Notes may grant different rights, but Notes
within the same Class shall always grant the same rights. Likewise, Notes within the same Class may be
issued in different Series.
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Issuance Price
Notes may be issued at par, or at a discount or premium with respect to par value, as specified in the
Maturity and Amortization
Notes may be short-, medium- and/or long-term, in compliance with the minimum and maximum terms
established by regulations in force, and their maturity dates and dates and forms of amortization shall be set
forth in the corresponding Pricing Supplements.
Currencies
Notes may be US dollar-denominated, Peso-denominated or may be in any other currency or currency unit,
as specified in the corresponding Pricing Supplement, subject to compliance with all the legal or regulatory
requirements applicable to the issuance in such currency or currency unit, including, without limitation, the
issuance of Notes with a nominal value in a certain currency that can later be converted into another currency
during the period such Notes are outstanding, at the applicable exchange rate provided for in the Pricing
Supplement, and the principal and/or interest and/or Additional Amounts and/or any other amount payable
under such Notes may be paid to holders in any such currencies or in any other currency or currency unit, as
specified in the applicable Pricing Supplement. As permitted by regulations in force, Notes may be issued
with principal adjustable by the coefficients and/or through the procedures specified in the corresponding
Pricing Supplements. Likewise, Notes may be in more than one currency, as specified in the applicable
Pricing Supplement. No currency adjustment, price indexation, cost variation or debt restatement, regardless
of its cause, shall be admitted, whether or not the Issuer is in arrears, except as provided in Law N° 23,928.
Notes may also be issued with principal and/or interest payable in one or more currencies other than the
currency in which they are denominated, as permitted by Argentine law, or may be related to a coefficient
and/or formula.
Arranger
The Arranger shall be Banco Galicia and/or such other arrangers as may be duly designated in the
Trustees and Agents
Notes may be issued under indentures and/or agency agreements that the Issuer may duly make with entities
acting as trustees and/or agents. Such trustees and/or agents shall perform their functions only in respect of
the Class and/or Series of Notes specified in the corresponding Pricing Supplement, and shall have the rights
and duties specified therein. The existence of trustees and agents shall be mentioned in the corresponding
Pricing Supplement.
Minimum Denomination
The minimum denominations of Notes and their corresponding multiples shall be duly determined in each
Pricing Supplement, under regulations in force.
Minimum Trading Unit
The minimum trading units of Notes shall be duly determined in each Pricing Supplement, under regulations
in force.
Placement
The Issuer shall place Notes through Banco Galicia itself or a Dealer designated in respect of a Class and/or
Series of Notes. As appropriate, the names of Dealers and/or Arrangers shall be mentioned in the
corresponding Pricing Supplements. Dealers may be underwriters, dealers subject to best-efforts agreements
or other intermediaries, as specified in the corresponding Pricing Supplements. Among other underwriting
efforts, copies of the Offering Memorandum and the corresponding Pricing Supplement shall be made
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available to investors, and a summary of the Offering Memorandum and the Pricing Supplement containing
the terms and conditions of the Notes to be issued may be published in the daily gazette of the self-regulatory
Argentine entity where Notes are listed and/or traded. Notwithstanding the provisions of the heading
“International Issuances – Subscription and Sale”, the Issuer and the dealers, if any, propose to carry out
their underwriting activities in respect of Notes in Argentina, under the Public Offering Law, applicable CNV
rules and the CNV 470 / AFIP 1738 Resolution. Efforts by the Issuer, the Dealers or other intermediaries, if
any, towards an effective placement through a public offering of Notes may include, among others, the
following activities: (i) personal contact with potential investors; (ii) distribution of relevant written material
among potential investors, including draft Offering Memorandum and Pricing Supplements and the
information contained therein; (iii) publications and notices in renowned means of communication; (iv)
telephone conferences with potential investors; (v) sending of e-mails with written material to potential
investors; and (vi) road shows or one-on-one meetings with potential investors, all of which shall be carried
out pursuant to CNV Regulations and the provisions of the corresponding Pricing Supplement.
Placement Period and Payment Conditions
Notes shall be offered for as many days as established in the corresponding Pricing Supplement. The term
and conditions of payment of the subscription price of Notes shall be set forth in the corresponding Pricing
Supplement. Subscribers of Notes may pay the price thereof in cash or in kind, as provided for in each
Pricing Supplement.
Use of Proceeds
Pursuant to the Negotiable Obligations Law, the net proceeds obtained from the underwriting of Notes issued
under the Program may be used by the Issuer, as determined at the time of issuance of each Class and/or
Series in the corresponding Pricing Supplement, for one or more of the following intended purposes: (i)
investments in tangible assets located in Argentina; (ii) investments in working capital in Argentina; (iii)
refinancing of liabilities; and (iv) payment of capital contributions in controlled or affiliated companies,
provided such companies use the funds from such contributions as provided for in sections (i), (ii) and/or (iii)
above.
Registration and Collective Deposit
In relation to book-entry Notes or registered Notes, the registrar may be the Issuer or, on its behalf, Caja de
Valores or such other person as may be designated in the corresponding Pricing Supplement, pursuant to
applicable law. Provisions may require the collective deposit of Notes certified in the form of definitive
book-entry or global certificates with Caja de Valores or such other entity as specified in the corresponding
Pricing Supplement, provided it is an authorized depository under the applicable regulations of the relevant
jurisdiction.
Ownership and Legitimation
In the case of book-entry Notes, ownership shall be evidenced by registration thereof in the relevant register;
and in the case of registered non-endorsable Notes, by the respective notations in the instruments and the
relevant register. As provided for in section 4 of Decree No. 677, in the case of book-entry Notes, at the
request of the holder, account balance certificates shall be issued prior to transferring such Notes or creating
security interests in respect thereof, and in order to attend meetings or exercise voting rights. Issuance of said
certificates shall cause the account to become blocked for ten business days or up to the day following the
date of the meeting said holder is to attend or in which he is to exercise voting rights. Likewise, as provided
for in section 4 of Decree No. 677, account balance certificates of book-entry securities or certificates of
global securities may be issued, as the case may be, in order to legitimate the holder (or such other person as
may hold an interest in the relevant global certificate) to make judicial claims or initiate arbitration
proceedings (including execution proceedings, as appropriate), to file proofs of claim or to participate in
universal proceedings, in which cases said certificate shall suffice, and there shall be no need to obtain
further authentications or meet other requirements. Issuance of said certificates shall cause the respective
accounts to become blocked, for the sole purpose of registering acts of disposition by holders, for 30 days,
unless the holder returns the certificate or within said term an order requiring extension thereof is received
from the judge or arbitration panel with which the certificate has been filed. In the case of Notes certified in
the form of global certificates, the account blocking shall only affect the securities referred to in the
certificates, which shall be issued by the national or foreign entity managing the collective deposit system
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with which said global certificates are registered. Should entities that manage collective deposit systems hold
an interest in global certificates registered with collective deposit systems managed by another entity,
certificates may be issued directly by the former. Unless otherwise provided in the corresponding Pricing
Supplement, the issuance of all certificates mentioned in this heading “Ownership and Legitimation” shall be
at the expense of those requesting them.
Transfers
Transfers of Notes deposited with collective deposit systems shall be effected pursuant to applicable
procedures of the relevant depository and in compliance with regulations in force. Transfers of book-entry
Notes shall be effected by their registered holders pursuant to applicable procedures of the relevant registrar
and in compliance with regulations in force. All transfers of registered or book-entry Notes shall be notified,
in writing, to the Issuer or registrar, as the case may be, and shall be enforceable against the Issuer and thirdparties as from the date of registration with the corresponding registers. Unless otherwise provided in the
corresponding Pricing Supplement, transfers of registered non-endorsable Notes certified in the form of
definitive book-entry certificates shall be effected by delivery of said certificates to the relevant registrar,
together with a written request, acceptable to such registrar, asking for the transfer of said certificates, in
which case the registrar shall register the transfer and deliver the new definitive book-entry certificates, duly
signed by the Issuer, to the new registered holders, in exchange for the older ones. Provided the issuance of
this kind of securities is authorized by regulations in force, registered endorsable Notes shall be transferred
through an uninterrupted chain of endorsements (and the endorser, in order to exercise his rights, shall
request the corresponding registration); and bearer Notes shall be transferred simply by delivery thereof to
the new holder. Pursuant to applicable Argentine law, no bearer or registered endorsable securities may be
issued. As regards book-entry Notes, section 4 of Decree No. 677 provides that a third-party who acquires,
for valuable consideration, negotiable securities held in accounts or book-entry securities of a person who,
pursuant to the entries in the corresponding register, may legitimately transfer them, shall not be subject to
ownership claims, unless at the time of acquisition such third–party shall have acted in bad faith or
maliciously.
Security Interests and Liens
The creation, issuance, transfer or setting up of security interests on Notes, as well as any liens, provisional
remedies or other encumbrances affecting the rights granted by Notes, shall be notified to the Issuer or
registrar, as the case may be, and shall be entered in the corresponding registers and be enforceable against
the Issuer and third-parties as from the date of said registration. Likewise, all security interests created on
Notes shall be written at the back of the definitive book-entry certificates of said registered Notes.
Replacement
If a global certificate or definitive book-entry certificate is defaced and/or mutilated, or is allegedly
destroyed, lost or stolen, the Issuer, upon written request by the relevant holder and, as appropriate, after
sending a copy to the designated registrar, shall issue a replacement global certificate. In all cases, the
applicant for a replacement certificate shall furnish to the Issuer such security, indemnification and indemnity
as the Issuer and the registrar, as appropriate, may deem acceptable to release the Issuer and its agents from
any liability arising from such replacement. When the replacement involves defaced and/or mutilated
certificates, such defaced and/or mutilated certificate shall be delivered together with the replacement
request. When the replacement involves allegedly destroyed, lost or stolen certificates, evidence of the
alleged destruction, loss or theft shall be furnished together with the replacement request. Replacement
certificates issued hereunder shall constitute valid obligations of the Issuer and shall evidence the same debt
and be entitled to the same benefits as the replaced certificates. In all cases, new certificates shall be
delivered at the Issuer’s or registrar’s offices, as the case may be, specified herein. Costs and expenses
incurred in the replacement of any Notes hereunder, including payment of sufficient amounts to cover any
tax, rate, assessment and/or any other present or future governmental charge, shall be borne by the relevant
applicant for the replacement certificate.
Listing and Trading
Grupo Galicia or, as the case may be, the corresponding agent, may request an authorization to list and/or
trade one or more Classes and/or Series of Notes, or the amounts represented by said Notes, in one or more
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stock exchanges and/or self-regulatory national or foreign markets, as specified in the corresponding Pricing
Supplements.
Ranking and Guarantee
Notes may be subordinated or not, may be issued with an ordinary, special or floating security interest, or
else may be guaranteed by a surety, bond, or by any other means (including, without limitation, a guarantee,
surety, a credit assignment having the effect of a guarantee, a pledge or a guarantee trust granted under
applicable law). Notes shall be direct, unconditional obligations, and shall be issued with an ordinary
guarantee granted by the Issuer, and, except for subordinated Notes and/or secured Notes, they shall be given
equal treatment among them and with respect to any other present or future ordinary obligations of the Issuer
which are not secured or subordinated, or subject to any legal privileges and/or preferences. If subordinated
Notes are issued, the corresponding Pricing Supplement shall specify whether such Notes will be
subordinated to all other liabilities of the Issuer or only to certain liabilities.
Notwithstanding the foregoing, section 29 of the Negotiable Obligations Law provides that “Certificates
representing obligations entitle their holders to initiate execution proceedings to claim the principal,
adjustments or interest and to enforce any granted guarantees”.
Interest rate
Notes may accrue interest at a fixed or variable rate or may not accrue any interest at all, and may be issued
at a discount on face value and/or accrue interest based on any other method specified in the corresponding
Pricing Supplement.
Notes at a Fixed Interest Rate or Notes at a Floating Interest Rate shall accrue interest as from the Date of
Issuance or such other date as specified in the corresponding Pricing Supplement, until the principal is paid
or made available for payment and until the date on which interest accrued on said Notes is paid, pursuant to
the interest rate formula specified in the corresponding Pricing Supplement. Interest shall be payable on each
Interest Payment Date, as specified in the corresponding Pricing Supplement and/or on the maturity date of
Notes stated in the Pricing Supplement (“Maturity”).
Each Note may accrue interest at one of the following rates: (a) a fixed rate, or (b) a variable rate determined
by reference to a base interest rate (including LIBOR, BADLAR, the Treasury Rate or such other base
interest rate as established in the corresponding Pricing Supplement), which may be adjusted by adding or
subtracting a Margin or by multiplying it by the Margin multiplier.
Likewise, Notes at a Floating Interest Rate may have one or both of the following: (a) a maximum numerical
limit to the interest rate, or ceiling, which may be charged during any interest period (a “Maximum Rate”);
and (b) a minimum numerical limit to the interest rate, or floor, which may be charged during any interest
period (a “Minimum Rate”).
The established interest rate may be recalculated on a daily, monthly or annual basis, and/or as specified in
the corresponding Pricing Supplement. To such end, one or more calculation agents may be designated.
Notes at a Fixed Interest Rate may accrue interest as from the Date of Issuance or such other date as specified
in the corresponding Pricing Supplement, at the relevant rate, and such interest shall be payable in arrears, on
the Interest Payment Date or Dates and/or upon Maturity.
Interest on Notes at a Fixed Interest Rate may be calculated on the basis of a 360-day year divided into 12
months of 30 days each, and in the case of an incomplete month, of the number of days elapsed, or on the
basis a 365-day year (number of elapsed days/365), or else as specified in the corresponding Pricing
Supplement.
The principal amount due under each Note shall cease to accrue interest (if any) upon Maturity or as from the
redemption date, unless, upon presentation for payment, such payment is unreasonably withheld or denied. If
the principal amount of a Note is not paid, in whole or in part, upon Maturity, said past due principal amount
shall continue to accrue interest at the interest rate specified in the corresponding Pricing Supplement until
payment is effected or until a provision for the whole amount is duly created.
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The Paying Agent of the Notes shall be designated in the Pricing Supplement applicable to each Class and/or
Series of Notes. Unless another person or entity is designated, the Paying Agent shall be the Issuer, or, on its
behalf, the Caja de Valores.
All payments due from the Issuer under the Notes shall be made in the currency or currencies in which such
Notes were issued, or pursuant to the procedure provided for in the corresponding Pricing Supplement and
the designated Paying Agent’s procedures. In the case of Notes payable in a currency other than Pesos,
payments shall be made in the specified currency, in compliance with applicable law. Payments due in
respect of Notes on account of principal, interest, Additional Amounts (as defined below) and/or any other
amount shall be made on the dates established in the corresponding Pricing Supplement, unless otherwise
provided herein.
Pursuant to the corresponding Pricing Supplement, interest payments on any Note at a Fixed Interest Rate or
Floating Interest Rate in respect of any Interest Payment Date shall include interest accrued up to said
Interest Payment Date, exclusive thereof.
Interest and principal, as the case may be, (payable on a date other than Maturity or by reason of an
accelerated repayment or redemption) shall be payable to the person in whose name the Note is registered at
the close of operations on the last Business Day before each Interest Payment Date or on such other date as
specified in the corresponding Pricing Supplement.
Covenants of the Issuer
Provided any Note is outstanding, the Issuer shall comply, to the extent specified below, with the terms of the
following covenants:
(i) The Issuer shall avoid incurring in a Change of Control.
(ii) The Issuer will not merge, sell or otherwise transfer all or a Significant Portion of its assets, unless: (1)
such sale or transfer is conducted in the ordinary course of business of the Issuer (which includes, without
limitation, transfers of assets to trusts or for securitization purposes); (2) at least 80% of the proceeds of such
sales or transfers of Significant Portion of assets are fully applied to activities in the ordinary course of the
Issuer’s business; or (3) immediately after giving effect to any such merger, sale or transfer of all or a
Significant Portion of assets: (a) no Event of Default has occurred and is continuing and no event, act or
condition has occurred, which with notice or lapse of time, or both, would constitute an Event of Default; or
(b) (i) the successor by merger or the acquirer of all the assets of the Issuer or a Significant Portion thereof,
assumes the payment obligations of principal and interest and other payment obligations of the Issuer,
including under the Notes, as if such new entity would have been the original issuer of the Notes, or (ii) if the
Issuer is the successor by merger, it timely complies with all payment obligations under the Notes.
(iii) The Issuer shall duly and timely pay, or direct the payment of the principal and interest on each of the
Notes of said Class and/or Series, and any other payment due by the Issuer under the Notes, in the place or
places, on the occasions and in the way provided for in the corresponding Pricing Supplement.
(iv) The Issuer will (a) maintain its corporate existence (except in the authorized cases mentioned in
section (ii)) and all the necessary registrations; (b) take all actions as necessary to maintain the validity of all
permits, rights and privileges as necessary or convenient in the ordinary course of the Issuer’s business; and
(c) keep all of its assets in good working order, unless not doing so would not have a material adverse effect
on the Issuer’s business, affairs and operations or financial condition.
(v) The Issuer will comply with all applicable laws, rules, regulations, orders and directions from any
governmental or regulatory authority in Argentina or any regional or local authority thereof or therein, having
jurisdiction over the Issuer or the Issuer’s business, and will comply with all covenants and other obligations
included in any and all agreements to which the Issuer is a party, except where failure to perform would not
have a material adverse effect on the consolidated Issuer’s business, affairs and operations or financial
condition.
(vi) The Issuer shall keep accounting books and records in accordance with Argentine GAAP and other
regulations applicable to the Issuer.
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(vii) The Issuer shall not create, incur or assume, or allow the existence of, any Lien other than a Permitted
Lien, on its current or future assets to secure any Indebtedness unless, at that time or before, its obligations
under the Notes are secured on an equal and proportional basis with respect to said Indebtedness. The Issuer
may, without having to secure the remaining Notes, issue Secured Notes, provided the total amount of
Indebtedness of Grupo Galicia secured by any Lien, including those resulting from the issuance, does not
exceed, at the time of the creation of such Lien, the percentage of Grupo Galicia’s total assets as shown in the
last financial statements as indicated in the Pricing Supplement.
(viii) The Issuer will maintain insurance with responsible and reputable insurance companies, in the amounts
and covering such risks as reasonable and prudent, taking into account all the applicable circumstances.
(ix) The Issuer will immediately notify in writing to the relevant official of the Trustee and/or Dealer the
existence of any Event of Default or any condition or event that, through service of notice or the passing of
time or any other condition or any combination of the above, would become – unless remedied or waived – an
Event of Default. Each notice served in accordance with the terms of this subsection will state that it
constitutes a “notice of default” hereunder, and will be accompanied by an Officers’ Certificate of the Issuer
stating the details of the event mentioned therein, and explaining what steps the Issuer intends to take in that
respect.
(x) The Issuer will make sure that its obligations under the Notes are at all times general, direct,
unsubordinated and unconditional obligations of the Issuer (except in the case of Subordinated Notes) and,
except for Secured Notes, ranking pari passu at all times in terms of priority for payment with the other
Notes and with all other unsubordinated and unsecured debts of the Issuer whether now or hereafter
outstanding, subject to any mandatory preferences under applicable law.
(xi) In the case of any Class and/or Series of Notes in respect of which an order of the Issuer has specified
that said Notes are to be listed in any stock exchange, the Issuer shall strive to obtain and maintain the
quotation of said Notes in any of such stock exchange. In the event a quotation is requested from any market,
the Issuer shall not be obliged to maintain the quotation in said market if it determines that compliance with
listing requirements is excessively burdensome (including costs and human resources). If changes are
introduced in the listing requirements of the foreign market selected by the Issuer, and such market decides
not to accept the Issuer’s financial statements prepared under Argentine GAAP, the Issuer may determine
that maintaining the listing in such market is excessively burdensome. As established by section 15 of the
Negotiable Obligations Law, withdrawal of the listing of a Class and/or Series of Notes shall be agreed to by
the holders of Notes of said Class and/or Series, as provided in the heading “Meetings” below.
Other Covenants
The Issuer may, at its sole discretion, include additional covenants to those established herein at the time of
issuing a Class or Series. If a new covenant is included in the Pricing Supplement applicable at the time of
issuance of a new Class and/or Series, it shall be understood that such covenant is to be assumed in respect of
that specific Class and/or Series.
Events of Default
While any Class and/or Series of Notes remains outstanding, any of the following events shall be an “Event
of Default” on the Notes of such Class and/or Series:
a)
default by the Issuer in the payment of principal on any of the Notes on their maturity and
continuance of such default for a period of 7 Business Days after their maturity date; or
b) default by the Issuer in the payment of any interest (or premium or Additional Amounts, if any) on
any Note when it becomes due and payable and continuance of such default for a period of 14
Business Days; or
c)
the Issuer fails to perform or observe any covenant hereunder or its obligations under the Notes
hereunder, or its obligations hereunder and such failure continues for a term of 60 Business Days
after the Issuer receives written notice stating such default and demanding that it be remedied, from
holders of Notes representing at least 5% of the outstanding principal amount of the Notes of the
Class and/or Series in question at the time outstanding; or
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d) (i) the Issuer files an out-of-court reorganization proceeding (acuerdo preventivo extrajudicial), or
(ii) the Issuer files for reorganization or bankruptcy proceedings, or (iii) a court of competent
jurisdiction renders a sentence or final, unappealable judgment with the effect of declaring the
bankruptcy of the Issuer, or (iv) the Issuer is dissolved, or (v) the Issuer acknowledges in writing
that it is unable to pay its debts generally as they become due, or (vi) the validity or enforceability of
any document signed in connection with the Notes is contested by the Issuer; or
e)
the Issuer shall default in the payment of debts generally as they become due (except for any
Indebtedness of the Issuer outstanding as of the Date of Issuance) in an outstanding principal
amount to be determined in the corresponding Pricing Supplement, if such default shall continue for
more than the grace period, if any, originally applicable thereto; or
f)
any final judgment or judgments by competent authorities for the payment of money in an aggregate
amount equal to or in excess of the amount to be determined in the corresponding Pricing
Supplement shall be rendered against the Issuer and shall not be waived, satisfied or discharged
within the period of 30 Business Days from the payment date specified in the respective final
judgment;
then, (i) following the occurrence of any of the Events of Default described in clauses (a), (b), (d), (e) and (f)
above and so long as such Events of Default are continuing, the holders of at least 25% of the total principal
amount of the relevant Class and/or Series, upon written notice to the Issuer, may declare all outstanding
Notes of such Class and/or Series immediately due and payable; and (ii) following the occurrence of the
Event of Default described in clause (c) above and so long as such Event of Default is continuing, the holders
representing at least 1/3 of the principal amount of the Notes then outstanding, may, in each case, upon
written notice to the Issuer, declare the outstanding principal amount on all of the Notes at that time
outstanding to be forthwith due and payable, plus all interest accrued thereon until the date of payment.
After any such acceleration, and unless all such Events of Default are remedied or waived as described
below, the outstanding principal amount of the Notes of the relevant Class and/or Series at the time
outstanding, will be immediately due and payable, plus all interest accrued thereon.
Any declaration of acceleration of terms in respect of a Class and/or Series may be rescinded by the holders
representing a majority of the principal amount of such Class and/or Series at a holders Meeting (as defined
below, under “Meeting”) to be held for such purpose.
The Issuer may modify and/or expand the Events of Default in the corresponding Pricing Supplements to the
benefit of holders of Notes, and may establish, in respect of one or more Classes and/or Series, Events of
Default additional to those provided for herein, which shall be governed by the terms and conditions of the
Optional Redemption for Tax Reasons
An early redemption for tax reasons shall only be allowed as described below. Additionally, a redemption for
other reasons shall be allowed only to the extent specified in the corresponding Pricing Supplement.
If, as a consequence of any change in or amendment to regulations (including, without limitation, laws,
decrees, resolutions, instructions and/or treaties to which Argentina is a party) or an administrative, judicial
or jurisdictional ruling entered in Argentina by any political subdivision, tax authority or competent court
thereof, or as a consequence of any change in the official position or interpretation about the application of
such regulations (including, among others, that of a competent court), introduced on or as from the
subscription date, the Issuer shall become obligated to pay Additional Amounts as provided under the
heading “Additional Amounts” below, the Issuer shall have the power to redeem the Notes in whole or in
part. Such early redemption shall only be allowed once the Issuer has informed the CNV about the conditions
of the occurrence of the event authorizing such early redemption of Notes, duly accompanied by a report of
the Issuer’s auditors and a legal opinion issued by a lawyer of recognized standing showing, beyond any
doubt, the existence of such event. The redemption shall be effected at a redemption price of 100% of the
remaining principal amount of the redeemed Notes, plus interest accrued up to the redemption date. The
Issuer shall inform the holders of Notes of its decision to redeem such Notes by publishing notices in the
means of communication specified under the heading “Notices to Holders of Notes” below, at least 30
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calendar days in advance of the redemption date, on which the principal and interest accrued on Notes shall
be made available pursuant to the content of said notices and the procedure established for the regular
payment of interest coupons and principal and interest amortization coupons on each Payment Date.
Notwithstanding the foregoing, the procedure fixed by the Issuer for the early redemption of a Class and/or
Series of Notes shall comply with the equal treatment requirement applicable to all holders of a Class and/or
Series of Notes to be redeemed.
Additional Amounts
All present or future taxes of any jurisdiction which may be levied on the acts, contracts and transactions
related to the issuance and subscription of Notes shall be paid exclusively by the Issuer, which shall also pay
any principal or interest amounts due in relation to Notes, without deducting any amount on account of taxes,
rates, assessments, encumbrances, withholdings or transfer expenses applicable as of the subscription date or
established thereafter by any Argentina authority, for whatever reason. Accordingly, if the Issuer shall have
become obligated to pay or withhold such amounts under legal or regulatory provisions, or pursuant to an
interpretation of said legal or regulatory provisions, the Issuer agrees to make, at its own expense, such
payments or withholdings in such a way that, once all of them are made, the holders of Notes receive an
amount equal to the amount they would have received if such withholdings or deductions had not existed (the
“Additional Amounts”). However, the foregoing shall not be applicable:
(i) to holders covered by the provisions of Title VI of the Argentine Income Tax Act (Ley de
Impuesto a las Ganancias de Argentina) – except for entities governed by the provisions of the
Financial Institutions Act (Ley de Entidades Financieras) (the “Financial Institutions Act”) – in
connection with income tax payable by them.
(ii) in connection with the tax on credits and debits into bank accounts of any nature held at entities
governed by the provisions of the Financial Institutions Act;
(iii) where the Issuer is mandated by law to make a withholding and/or deduction by reason of the
personal assets tax (Impuesto sobre los bienes personales);
(iv) with respect to any tax, duty, assessment or other governmental charges imposed over
successions, inheritance, estate, legacy, donation, sale, transfer or similar taxes;
(v) where any such withholding and/or deduction is imposed as a result of failure by a holder of the
Notes, or any other Person, to provide, as required by applicable law – including without
limitation, laws, executive orders, resolutions, written instructions from the AFIP and/or
international treaties to which Argentina is a party– whether such holder of the Notes or Person
has the legal capacity to comply with such requirements: information, documents, statements,
other certificates pursuant to the terms and conditions required under applicable law with respect
to the nationality, residence, identity, legal status or relation to Argentina of such holder of the
Notes or Person or other material information required or imposed by applicable laws as a
condition precedent or requirement to eliminate and/or reduce such deductions and/or
withholdings to tax, duty, assessment or other governmental charges, so long as the compliance
with any such requirements is commercially reasonable;
(vi) when any such withholdings and/or deductions result from a connection between the holder of
the Notes and Argentina (or any of its political subdivisions or authorities), other than merely by
holding the Notes, the right to demand compliance or payment of such Note, or payments of
principal, interests and/or other amounts under the Notes;
(vii) for any tax, duty, assessment or other governmental charges imposed or levied and payable in a
manner different from withholding or deduction of the payments made with respect to the Notes;
and/or
(viii) any combination of clauses (i)-(vii) above.
If the holders of Notes do not furnish all or part of the information, documents or evidence duly required by
the Issuer under applicable regulations (including, without limitation, laws, decrees, resolutions, written
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AFIP instructions and/or international treaties to which Argentina is a party), the Issuer shall not pay any
Additional Amounts with respect to such holder’s Notes and shall withhold or deduct the maximum amount
required by Argentine law; provided that the burden of complying with these requirements is commercially
reasonable and the Issuer has given notice to holders of Notes, at least 30 days in advance, that they must
comply with these requirements.
Repurchase
The Issuer may, at any time and from time to time, purchase Notes in the secondary market or otherwise, at
any price, and may resell or otherwise dispose of such Notes at any time. Any Notes so acquired by the Issuer
may be reimbursed and/or, if a trust agreement has been entered into, presented to the trustee for
reimbursement. While maintained for or on behalf of the Issuer, Notes so acquired shall not entitle to vote in
Meetings (as defined below, under “Meeting”) and shall not be deemed outstanding for the purposes of
calculating the quorum of such Meetings.
Meetings
The meetings of holders of outstanding Notes of each Class and/or Series (the “Meetings”) shall be governed
by the Negotiable Obligations Law in all respects not expressly provided for herein.
Place of Meeting. Meetings may be held in the City of Buenos Aires and, additionally, in such other
jurisdiction as specified in the corresponding Pricing Supplement.
Obligatory nature of decisions. Resolutions adopted at the Meetings shall be obligatory and binding for all
holders of the relevant Class and/or Series of Notes, even for dissident and absent holders.
Vote. Each Note shall entitle its holder to one (1) vote.
Notice of Meetings. Unless other methods are provided for in the corresponding Pricing Supplement or in an
indenture, Meetings shall be called by the Issuer, in the cases provided for herein or at such other time as said
Issuer may deem fit, or by the Trustee (when entitled to do so), or when holders of at least 5% of the
outstanding principal amount of Notes of such Class and/or Series so require. In this last case, such holders’
petition shall specify the topics to be dealt with and the Issuer, or the relevant controlling authority, as the
case may be, shall call the Meeting within 40 calendar days after the date on which the petition was received.
Meetings shall be called at least 10 but not more than 30 days prior to the date on which the meeting is to be
held, by publishing a notice of meeting for five Business Days in the Official Gazette, in an Argentine
newspaper of general circulation and/or in such other newspaper or form as specified by the corresponding
Pricing Supplement, and on the CNV’s Website, through the Financial Information Highway (AIF). Such
notice shall include the date, time and place of the Meeting, the agenda and the requirements for the
attendance of holders. Meetings may be called on first and second notice, and both meetings may be called
simultaneously. In the case of a simultaneous notice, if the Meeting on second notice is to be held on the
same day, at least 1 hour must elapse after the scheduled time for the Meeting on first notice.
Attendance. All holders of the relevant Class and/or Series of Notes may attend the Meeting in person or by
proxy. No Director, member of the supervisory committee, manager or employee of the Issuer may act as
agents. Holders intending to attend the Meetings shall give notice to the Issuer or trustee, as the case may be,
of such intention at least 3 Business Days in advance of the date on which the Meeting is to be held.
Unanimous Meeting. No need for notice. Meetings may be held without publishing a notice of meeting when
attending holders represent the total principal amount of the relevant Class and/or Series of Notes then
outstanding, and when decisions are adopted unanimously by such holders.
Calculation. In no case shall the following be entitled to vote or be taken into account when calculating
quorums and majorities: (a) Notes which are not outstanding; and (b) Notes which have been redeemed or
purchased by the Issuer (as provided for in this Chapter under the headings “Optional Redemption for Tax
Reasons” or “Repurchase”), as long as they remain part of the Issuer’s portfolio.
Authority, quorum and majorities. Except as provided for in the relevant parts of the headings “Special
Events” below and “Events of Default” above:
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(i) Meetings shall have authority to discuss and/or decide any issue pertaining to the relevant Class
and/or Series of Notes and to allow holders of the relevant Class and/or Series of Notes to effect,
grant or accept any petition, requirement, authorization, consent, waiver (including a waiver of an
Event of Default), resignation and/or any other action required to be effected, granted or accepted
by holders of such relevant Class and/or Series of Notes under the terms thereof.
(ii) The quorum for the meeting on first call shall be constituted by holders of at least an absolute
majority of the principal amount of the relevant Class and/or Series of Notes then outstanding. If
no quorum is available, a second meeting may be called, at which the holders of the relevant
Class and/or Series of Notes, whatever their number and percentage of outstanding nominal value
they represent, shall constitute a quorum.
(iii) At Meetings on both first and second call, all decisions (including, without limitation, those
pertaining to the amendment of non-material terms of the issuance) shall be taken by the absolute
majority of votes cast by the holders of the relevant Class and/or Series of Notes present with a
right to vote.
Special Voting Cases
(a) The affirmative vote of holders present at a Meeting who represent the total outstanding principal amount
of the relevant Class and/or Series of Notes shall be required in respect of the amendment of material terms
of the issuance, including, without limitation, the following amendments: (i) modification of payment dates
of principal, interest, Additional Amounts and/or any other amounts due under such Class and/or Series of
Notes; (ii) reduction of the amount of principal, the interest rate and/or any other amounts due under such
Class and/or Series of Notes; (iii) modification of the currency used to pay principal, interest, Additional
Amounts and/or any other amounts due under such Class and/or Series of Notes, provided said modification
does not arise from legal and/or regulatory provisions the Issuer is required to observe, and such provisions
have become effective after the issuance date of the relevant Class and/or Series of Notes; and/or (iv)
reduction of quorum and majority requirements provided for herein and/or in the corresponding Pricing
Supplement.
(b) The Issuer may, even without the consent of holders of Notes, change or amend the Notes and/or the
Indenture (if any), for any of the following purposes:
(i) adding covenants or obligations for the benefit of holders of all or some of the Classes and/or
Series of Notes;
(ii) adding Events of Default for the benefit of holders of all or some of the Classes and/or Series of
Notes;
(iii) appointing a new registrar, co-registrar, Paying Agent or Co-Paying Agent;
(iv) securing any Class and/or Series of Notes; and/or
(v) curing any ambiguity, defect or inconsistency in the Program and/or in any Class or Series.
Execution by Holders of Notes – Execution Proceedings
Notwithstanding the specific provisions of the corresponding Pricing Supplement or an indenture, Notes shall
be issued in accordance with the Negotiable Obligations Law, shall be “notes” as provided therein and shall
have the rights established by said Law.
Notwithstanding the foregoing, section 29 of the Negotiable Obligations Law provides that “Certificates
representing obligations entitle their holders to initiate execution proceedings (acción ejecutiva) to claim the
principal, adjustments or interest and to enforce any granted guarantees”.
Section 4 of Decree No. 677 provides that account balance certificates of book-entry securities or certificates
of global securities may be issued, as the case may be, in order to legitimate the holder (or such other person
as may hold an interest in the relevant global certificate) to make judicial claims or initiate arbitration
proceedings (including execution proceedings, as appropriate), to file proofs of claim or to participate in
universal proceedings, in which cases such certificate shall suffice, and there shall be no need to obtain
further authentications or meet other requirements. Issuance of such certificates shall cause the respective
accounts to become blocked, for the sole purpose of registering acts of disposition by holders, for 30 days,
unless the holder returns the certificate or within said term an order requiring extension thereof is received
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from the judge or arbitration panel with which the certificate has been filed. Certificates shall make reference
to these circumstances.
In the case of Notes certified in the form of global certificates, the account blocking shall only affect the
securities referred to in the certificates, which shall be issued by the national or foreign entity managing the
collective deposit system with which such global certificates are registered. Should entities that manage
collective deposit systems hold an interest in global certificates registered with collective deposit systems
managed by another entity, certificates may be issued directly by the former.
Thus, pursuant to section 4 of Decree 677, holders of book-entry Notes or Notes certified in the form of
global certificates may require the issuance of the receipts provided for in such regulation to initiate
execution proceedings.
Notices to Holders of Notes
Except for Meetings, which shall be governed by the provisions of the heading “Meetings” above, all notices
related to Notes shall be deemed duly given to holders if published for one market business day in the Daily
Gazette of the BASE (a market business day being that during which a session takes place at the BASE)
and/or through such other method as specified in the corresponding Pricing Supplement and/or the CNV
Website, through the Financial Information Highway (AIF). Any notice of the type indicated above shall be
deemed given on the date of such publication, or if published more than once or on different dates, on the
date of the last publication.
In the event placement efforts are made in a jurisdiction other than Argentina, notices to holders of Notes
issued under Regulation S shall be governed by the provisions of the Heading “International Issuances –
Notices to Holders of Notes issued under Regulation S” below.
Applicable Law
Issues pertaining to requirements inherent to the Notes, as well as the Issuer’s corporate ability and authority
to create this Program and to issue, offer and deliver Notes in Argentina, shall be governed by the Negotiable
Obligations Law and other Argentine laws and regulations. All other issues pertaining to Notes shall be
governed and interpreted pursuant to Argentine laws or pursuant to the laws of such other jurisdiction as
specified in the corresponding Pricing Supplements.
Jurisdiction
Any action against the Issuer related to Notes may be brought before courts having jurisdiction in the City of
Buenos Aires and/or before the permanent arbitration panel of the self-regulatory entity having jurisdiction
under section 38 of Decree 677, as the case may be, and/or any other court to whose jurisdiction the Issuer
may voluntarily consent under the corresponding Pricing Supplement. In the event Notes are issued outside
the Argentine territory, all actions against the Issuer related to Notes and/or to the documents connected
therewith may be brought before any State or federal court sitting in Manhattan, City and State of New York
and/or before courts sitting in such other countries as specified in the corresponding Pricing Supplement.
Ratings
Decree 749 removed the requirement mandating prior submission of two ratings issued by two Argentine
rating agencies in order to obtain an authorization to make a public offering of securities, thus repealing
sections 1 and 23 of Decree No. 656/92. The decision to obtain two, one or no ratings for one or more
Classes and/or Series of Notes shall be specified in each Pricing Supplement applicable to Notes issued under
the Program, pursuant to the option set forth by Decree 749 and as permitted by regulations applicable to the
Issuer.
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International Issuances – Subscription and Sale
As provided in the heading “Offer” above, Notes may be placed through a public offering in Argentina and/or
abroad pursuant to the Public Offering Law, as amended, and other regulations in force, including, without
limitation, the CNV 470 / AFIP 1738 Resolution. Classes and/or Series in respect of which placement efforts
are made in a jurisdiction other than Argentina shall be governed by the following provisions, except as
amended by the terms of the corresponding Pricing Supplement.
United States of America
Offers outside the United States of America
Notes have not and shall not be registered under the Securities Act and may not be offered or sold within the
United States of America or to American persons or for the account or to the benefit thereof unless such
Notes are registered under the Securities Act or an exemption from the registration requirements set forth
therein is established. The terms used in this paragraph shall have the meanings ascribed thereto in
Regulation S.
Each Dealer shall agree, except as provided in the underwriting/placement agreement to which he is a party,
not to offer, sell or deliver any Class and/or Series of Notes within the United States of America or to
American persons or for the account or to the benefit thereof, (i) as part of the distribution, at any time, or (ii)
otherwise until 40 days have elapsed from the conclusion of the distribution of a Class and/or Series of
Notes, as certified, and that he shall have sent to each Dealer to whom he has sold Notes, within such 40-day
term, a confirmation or other notice listing the restrictions on offers and sales of such Notes within the United
States of America or to US persons or for the account or to the benefit thereof.
On the other hand, within 40 days of the conclusion of the distribution of a Class and/or Series of Notes, an
offer or sale thereof within the United States of America by a Dealer who is not a participant in the offer of
said Class and/or Series may constitute a breach of the registration requirements of the Securities Act if such
offer or sale is effected without an applicable exemption from registration under the Securities Act or if such
offer is not registered under the Securities Act.
Offers within the United States of America
Notes offered and sold within the United States of America shall not be registered under the Securities Act
and shall be offered and sold pursuant to an exemption from registration under section 4(2) of such Act,
which exempts transactions made by an issuer which do not involve a public offering.
Dealers may arrange for the resale of Notes to Qualified Institutional Buyers (“QIBs”) under Regulation
144A, and each of such buyers of Notes is hereby notified that dealers may be acting on the basis of an
exemption from registration requirements of the Securities Act set forth in Regulation 144A. To the extent
the Issuer is not subject to, or does not comply with the reporting requirements of section 13 or 15(d) of the
Exchange Act or the reporting requirements of Rule 12g3-2(b) thereunder, the Issuer has agreed to provide
holders of Notes and potential buyers designated by said holders, upon request, with such information as may
be necessary under Regulation 144A.
Notes may additionally be offered and sold within the United States of America to Institutional Accredited
Investors (as defined by Regulation D under the Securities Act) that are not QIBs, but who otherwise meet
the requirements of qualified accredited investors (as defined by Regulation D under the Securities Act), and
also, under certain circumstances such term may include a person with the necessary knowledge and
experience to assess risks. Notes sold to such Institutional Accredited Investors shall be issued exclusively as
registered, book-entry obligations. Notes shall be sold only to Institutional Accredited Investors who have
duly granted and executed a letter of investment substantially in the form of the model included in the
indenture.
All buyers of Notes shall have sufficient knowledge and experience in business-related matters enabling them
to assess the merits and risks of investing in and holding Notes and shall be willing to assume the economic
risk of the investment for an indefinite term, due to the fact that Notes have not been registered under the
Securities Act.
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Additionally, each Class and/or Series of Notes shall be subject to such additional restrictions on sales in the
United States of America as agreed by the Issuer and the Dealer or relevant dealers and as specified in the
corresponding Pricing Supplement. Each of the dealers shall agree to offer, sell or deliver Notes only in
compliance with such additional restrictions on sales.
United Kingdom
Each Dealer shall be required to declare, guarantee and agree to the following:
1
Financial promotion: that he has only communicated or caused to be communicated and that he
shall only communicate or cause to be communicated an invitation or recommendation to participate in
investment activities (as defined in Section 21 of the Financial Services and Markets Act 2000, or “FSMA”)
that he has received in respect of the issuance or sale of such Notes under circumstances in which Section
21(1) of the FSMA is not applicable, or would not be applicable, to the Issuer;
2
General compliance: that he has complied and will comply with all applicable provisions of the
FSMA related to any action performed by him regarding the Notes in the United Kingdom, from such
country or otherwise involving such country; and
3
(i) That he is a person whose ordinary activities include the acquisition, holding, management or
disposal of investments (whether as principal or agent) for the purposes of such activities, and (ii) he has
offered and sold and will offer and sell such Notes only to individuals whose ordinary activities involve the
acquisition, holding, management or disposal of investments (as principals or agents) for the purposes of
such activities, or who are reasonably expected to acquire, hold, manage or dispose of investments (as
principals or agents) for the purposes of their activities, in which case the issuance of Notes would otherwise
constitute a breach of Section 19 of the FSMA by the Issuer.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus
Directive (each a “Relevant Member State”), each Dealer shall be required to declare and agree that, as from
the date on which the Prospectus Directive is implemented in such Relevant Member State (the “Relevant
Implementation Date”), he has not made and will not make a public offering of Notes in such Relevant
Member State, except that he may, as from the Relevant Implementation Date and inclusive thereof, make a
public offering of Notes in such Relevant Member State:
(a) during the period begun on the date of publication of a prospectus in relation to said Notes
approved by the relevant authority of such Relevant Member State, or, as appropriate, approved in
another Relevant Member State and notified to the relevant authority of such Relevant Member State,
all of it in accordance with the Prospectus Directive, and ended within 12 months of the date of such
publication (or, in Germany, when the offering begins within such period);
(b) at any time, to legal institutions authorized or regulated to operate in financial markets or, if not so
authorized or regulated, whose exclusive corporate purpose is investing in securities;
(c) at any time, to legal institutions that meet two or more of the following requirements: (1) that have
had, in average, at least 250 employees during the last fiscal year; (2) that have a total net worth of
over €43,000,000; and (3) that have revenues higher than €50,000,000, as shown in their last annual or
consolidated financial statements; or
(d) at any time, under other circumstances not requiring publication of a prospectus by the issuer, in
accordance with section 3 of the Prospectus Directive.
For purposes of this provision, the term “public offering of Notes” in respect of Notes in any Relevant
Member State shall mean the communication, in any form and through any means, of sufficient information
on the terms of the offering and the Notes to be offered, in such a way as to enable an investor to make a
decision as to the purchase or subscription of such Notes, taking into account the amendments introduced by
such Member State pursuant to measures implementing the Prospectus Directive adopted in such Member
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State; and the term “Prospectus Directive” shall mean Directive 2003/71/EC and shall include all relevant
implementation measures adopted in each Relevant Member State.
Other Jurisdictions
The Issuer has not adopted and will not adopt any measure in any jurisdiction allowing a public offering of
Notes, or the possession or distribution of any offering-related material, in any country or jurisdiction in
which an action to such effect is required. The Issuer requests all persons who receive this Offering
Memorandum to comply with all applicable laws at their own expense.
Notice to Holders of Notes issued under Regulation S
Notwithstanding any additional method specified in the corresponding Pricing Supplement or in an indenture,
when placement efforts are made in a jurisdiction other than Argentina pursuant to Regulation S, notices to
holders of Notes shall be deemed validly given (i) if sent to them through a reputable international courier
(or, in the case of joint holders, to the one appearing first on the security ownership register kept by the
Registrar) to their respective domiciles, as established in such register, and such notices shall be deemed
validly given on the date they are effectively received, (ii) through publication in the Gazette of the BASE
and in an Argentine newspaper of general circulation, and (iii) for as long as said Notes are listed on the
Stock Exchange of Luxembourg, through publication in a newspaper of general circulation within
Luxembourg. It is hereby provided that notices in London shall be published in the Financial Times, notices
in Luxembourg shall be published in the Luxembourger Wort, and notices in the City of Buenos Aires shall
be published in La Nación. Should publication become impossible or impracticable in London, instead of
being published in London, notices may be published in any English-language newspaper of general
circulation within Europe.
Any such notices shall be deemed given on the date of such publication, or, if published more than once or on
different dates, on the last date on which such publication is required to be made and is effectively made. In
the case of international global securities, notices shall be sent to Euroclear and Clearstream, or to the
persons designated by them or by their successors, in their capacity as holders of such securities, and such
payment agent or agents shall forward such notices to their participants in accordance with their regular
procedures. Additionally, the Issuer shall be obligated to provide for all additional publications of such
notices as required by applicable law from time to time.
If, due to a suspension or irregularities in the normal mail service, a temporary suspension of the publication
or general circulation of a newspaper, or any other reason, it shall become impracticable, in the trustee’s
opinion, to publish or send notices by mail to the Issuer or to holders of Notes when such notices are required
under the indenture, any other form of notice, to the trustee’s satisfaction, shall be deemed sufficient notice.
Issuance Expenses
Issuance expenses shall be determined upon issuance of each Class and/or Series.
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CHAPTER X. ADDITIONAL INFORMATION
Capital Stock
General
Grupo Galicia’s outstanding capital stock comprises Class A and Class B common shares. The par value of
Class A shares is Ps.1 and each share entitles its holder to five votes, while the par value of Class B shares is
Ps.1 and each share entitles its holder to one vote.
According to Section 216 of the Corporations’ Law, Grupo Galicia would not be able to issue new Class A
shares, since a company authorized to make a public offering of its shares cannot issue new shares with
privileged voting rights. All Class A shares are owned directly by EBA Holding. Likewise, according to
Section Five, subsection b) of the Company’s by-laws “...all the common shares that may be issued in the
future shall carry one vote each, except otherwise authorized by law…”. See Chapter VII “Major
Shareholders” in this Offering Memorandum.
Pursuant to Decree 677, it is hereby informed that in Grupo Galicia’s Shareholders’ Meeting held on April
23, 2003 it was resolved not to adhere to the “System for the mandatory acquisition of shares in a public
offering”.
Evolution of the Capital Stock
As of December 31, 2009, the Company’s issued capital amounted to Ps.1,241,407,017, with 1,241,407,017
authorized shares, divided in 281,221,650 Class A shares and 960,185,367 Class B shares.
The total subscribed and paid-in capital stock of Grupo Galicia as of December 31, 2009 amounted to
Ps.1,241,407,017. The following table shows the number of outstanding shares as of December 31, 2009, and
voting interest that said shares represent.
Shares
Number of Shares
% of Capital Stock
% of Voting Rights
Class A Common Shares
281,221,650
22.65%
59.42%
Class B Common Shares
960,185,367
77.35%
40.58%
1,241,407,017
100.00%
100.00%
Total
From January 1st, 2009 to December 31, 2009 the number of outstanding shares was 1,241,407,017. During
the last five years the following movements in the capital stock have been recorded:
Movement
Balance as of 12.31.03
The Ordinary and Extraordinary Shareholders’ Meeting held on January 1st, 2004
approved the increase through the issuance of preferred shares mandatorily convertible
into Class B shares after one year of issuance.
(In thousands
of Ps.)
1,092,407
149,000
1,241,407
1,241,407
Payment of Capital Stock in Kind
On January 2, 2004, the Ordinary and Extraordinary Shareholders’ Meeting of Grupo Galicia S.A. under
Banco Galicia’s Bank Debt Restructuring and following the proposal of the Board of Directors stated at their
meetings held on December 1, 2003 and December 10, 2003, resolved, among other items on the agenda, to
approve the increase in the capital stock under the terms of the second paragraph of Section 188 of the
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Corporations’ Law in an amount of Ps.149,000,000. This was carried out through the issuance of up to 149
million new preferred shares, with no voting rights, that had preference over all common shares in the event
of the Company’s liquidation, with a nominal value of Ps.1, convertible into common Class B shares one
year after their issuance, or in the event of a change of control over Grupo Galicia, in both cases at a rate of
one preferred share for one common Class “B” share, which paid dividends as from the fiscal year in which
they are subscribed. Issuance conditions of the above-mentioned shares included preemptive and accretion
rights over any potential issuance of shares by the Company until the date of conversion. Preferred shares
were paid up at their nominal value plus a premium, either in cash or through a contribution in kind of up to
US$100,000,000 (face value) of Subordinated Notes, in the latter case at a rate of US$0.67114 (face value) of
debt for each peso of face value of new shares.
As a result of the full subscription and payment of the 149,000,000 million non-voting preferred shares, on
May 13, 2004, Grupo Galicia’s Board of Directors set the new capital stock at Ps.1,241,407,017. One year
later, non-voting preferred shares were converted into Class B common shares entitled to one vote per share.
Articles of Incorporation and By-laws
General
Grupo Galicia was incorporated on September 14, 1999 as a stock corporation or sociedad anónima under
the laws of Argentina and registered on September 30, 1999 with the Corporation Control Authority
(Inspección General de Justicia), under corporate registration number 14,519 of Book 7, Volume of Stock
Corporations. Under our by-laws, the duration of Grupo Galicia is until June 30, 2100. The duration can be
extended by resolution taken at a General Extraordinary Shareholders’ Meeting.
Furthermore, Grupo Galicia’s by-laws have been amended on different occasions. Below, the different
amendments are shown, with their respective registration number with the Public Registry of Commerce:
Date
03-09-2000
07-17-2000
07-17-2000
08-09-2000
08-09-2000
07-03-2001
08-22-2003
02-08-2006
06-26-2006
No.
3,385
10,203
10,202
11,670
11,670
8,569
11,891
2,065
9,410
Folio
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Book
10
11
11
12
12
15
22
30
31
Volume
- of Stock Companies
In the Ordinary and Extraordinary Shareholders’ Meeting of April 14, 2010, it was decided to reform Section
Four, paragraph E, clause b. of the by-laws, which now states as follows: “b. That shareholders of Class “A”
shares of EBA Holding S.A., according to the roll of such shareholders included in Shareholders’ Resolution
No. 1 of such company, corresponding to the General Special Meeting of October 12, 1999 (registered in the
Registry under number 18,036 of book 8, Stock Companies volume, corresponding number IGJ 1670663),
transfer to third persons who are not (i) other shareholders of Class “A” shares, or (ii) their descendants, or
(iii) their respective heirs, or (iv) spouses to whom Class “A” shares are assigned as part of dissolution of the
marriage, shares which carry more than half of the votes in ordinary shareholders’ meetings of EBA Holding
S.A.”. Such modification is pending registration with the Public Registry of Commerce.
Grupo Galicia’s corporate purpose is to engage in financial and investment activities (Section 3 of the bylaws).
Directors’ power to vote on a proposal, agreement or contract in which they have a personal interest is
governed by Section 272 of the Corporations’ Law, which establishes a prohibition on such matters.
Likewise, Section sixteen of Grupo Galicia’s by-laws sets forth in general that “The powers and duties of the
Board of Directors shall be as follows: …11) To provisionally suspend, with the vote of two-thirds of the
members of the Board of Directors, a director who shall have willfully carried out any act contrary to the
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company’s interests, submitting the case to the consideration of the shareholders at a meeting to be
immediately convened therefor.”
The Board of Directors is not empowered, in the absence of an independent quorum, to vote on compensation
for themselves or any members of their body. With regard to this matter, Section Fifteen, subsection c) of
Grupo Galicia’s by-laws establishes that “The shareholders’ meeting shall set the compensation of the Board
of Directors. For that purpose, the shareholders’ meeting shall take into account the best practices used in
local and international markets to compensate directors having similar duties and responsibilities.”
In addition, Section Sixteen sets forth that “The powers and duties of the Board of Directors are: … 2) To
decide, when so deemed convenient for the fulfillment of the corporate objectives, that its members take up
remunerated positions within the company, its subsidiaries or affiliates, whether they be technical or
administrative positions, and whether of a permanent, temporary or occasional nature, such a cost to be
allocated to general expenses. It shall appoint all other officers and employees, establishing their powers,
duties, remunerations, rewards and bonds, with authority to suspend and remove them.”
Grupo Galicia’s by-laws do not provide for directors’ retirement upon a certain age, therefore, there is no
limitation in such respect.
In order to be a director of Grupo Galicia it is not necessary to own shares, but to post a bond. Below, Section
Thirteen, subsection d), under Title IV, Administration, of the Company’s by-laws is included, for illustration
purposes: “d. In order to be a Director, an individual shall have an honorable reputation and shall possess the
technical qualifications suitable to hold office. Upon taking office, each director shall give a bond of One
Thousand pesos (Ps.1,000.-), either in cash and/or government securities”.
Voting Rights
At the shareholders’ meetings, each Class A share is entitled to five votes and each Class B share is entitled
to one vote.
However, Class A shares are entitled to only 1 vote in certain matters, such as, (i) a merger or spin-off in
which Grupo Galicia is not the surviving corporation, unless the acquirer’s shares are authorized to be
publicly offered or listed in any stock exchange; (ii) a change in Grupo Galicia’s legal corporate form; (iii) a
fundamental change in Grupo Galicia’s corporate purpose; (iv) a change of Grupo Galicia’s domicile to
outside Argentina; (v) a voluntary termination of Grupo Galicia’s public offering or listing authorizations;
(vi) Grupo Galicia’s continuation following a delisting or a mandatory cancellation of its public offering or
listing authorizations; (vii) a total or partial recapitalization of Grupo Galicia’s statutory capital following a
loss; (viii) the appointment of syndics; or (ix) limitations to preemptive rights.
Section Four, subsections E and F of Grupo Galicia’s by-laws sets forth that the division of Grupo Galicia’s
shares into Class A and Class B shares will be automatically rendered ineffective, will cease to be divided in
classes, all Class A shares will become common shares losing their preemptive voting rights and all shares
shall be entitled to one vote per share upon the occurrence of any of the following change of control events,
as detailed in subsection E: (i) should EBA Holding S.A. sell all Grupo Galicia’s Class A shares; (ii) should
EBA Holding S.A. sell part of its Grupo Galicia’s Class A to a third party and the aggregate number of
Grupo Galicia’s Class A and Class B shares held by such third party, if any, represent half of the votes plus
one vote out of the total number of votes; or (iii) should holders of Class A shares of EBA Holding S.A., as
per the list of such shareholders included in the Minutes of Meeting Number 1 of said Company,
corresponding to the General Extraordinary Shareholders’ Meeting held on October 12, 1999 (filed with the
Registry under Number 18,036, Book 8, Volume of Stock Companies, IGJ’s consecutive number 1670663),
transfer shares to third parties who are not (i) other shareholders of Class “A” shares, or (ii) their
descendants, or (iii) their respective heirs, or (iv) spouses to whom Class “A” shares are assigned as part of
the dissolution of the marriage, shares which carry more than half of the votes in the ordinary shareholders’
meetings of EBA Holding S.A.
On June 5, 2000, Grupo Galicia’s Board of Directors passed a resolution to clarify that any transfer by EBA
Holding, including by way of a sale, exchange, gift, assignment of voting rights, spin-off or merger of EBA
Holding, which results in a transfer of Grupo Galicia to any entity or individual, would trigger a change of
control event and Class A shares would be entitled to only one vote per share. In addition, the Board of
Directors clarified that if EBA Holding were to transfer a portion of its Grupo Galicia Class A shares with 5
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votes to a transferee, all distinctions between Class A shares and Class B shares would be eliminated and
Class A shares would be entitled to only one vote per share if, when aggregating the 5 votes to the votes of
the other shares that such transferee may have or acquire in the future, such transferee acquires more than
50% of all of the outstanding votes of Grupo Galicia.
The Board of Directors also clarified that when two or more persons act or agree to act in concert or through
institutions which are under common control with such persons, such persons would be treated as one person.
Preemptive Rights
Under Argentine law, it is mandatory that a shareholder of common shares of any given class have a
preemptive right, proportional to the number of shares he or she owns. Under this right, shareholders may
subscribe for shares of capital stock of the same class or of any other class if the new subscription offer does
not include all classes of shares. Shareholders may waive their preemptive right only in special cases.
Alternatively, pursuant Section 197 of Corporations’ Law, only in the higher interest of the Company, in
exceptional and restrictive cases, the shareholders at an Extraordinary Shareholders’ Meeting with a special
majority may decide to suspend or limit the shareholders’ preemptive rights (without taking into account the
multiple voting right; see above “Voting Right”).
In the event of an increase in Grupo Galicia’s capital, holders of Class A shares and Class B shares shall have
a preemptive right to subscribe any issuance of Class B shares in an amount sufficient to maintain the
proportion of capital held before the increase. Holders of Class A shares shall be entitled to subscribe for
Class B shares because no further Class A shares carrying 5 votes each are allowed to be issued in the future
since an Argentine company is prohibited from issuing stock with multiple voting rights after such company
is authorized to make a public offering of their shares.
Pursuant to the Corporations’ Law, if authorized by an Extraordinary Shareholders’ Meeting, companies
authorized to make a public offering of securities may, simultaneously with the approval of the offering,
shorten the period during which such rights may be exercised to not less than ten days following the date of
publication of notices to the shareholders of their opportunity to preempt the capital increase published for
three days in the Official Gazette and an Argentine newspaper of wide circulation.
Preemptive rights are exercisable following the last publication of the notification to shareholders of the
opportunity to exercise preemptive rights in the Official Gazette and an Argentine newspaper of wide
circulation for a period of 30 days, provided that such period may be reduced up to 10 days if so approved by
an Extraordinary Shareholders’ Meeting.
Shareholders who have exercised their preemptive rights and indicated their intention to exercise additional
preemptive rights are entitled to additional preemptive rights (“accretion rights”), on a pro rata basis, with
respect to any unsubscribed shares, in accordance with the terms of the Corporations’ Law. Also, Class B
shares not subscribed for by shareholders through exercise of their preemptive or accretion rights may be
offered to third parties.
Appraisal Rights
If Grupo Galicia’s shareholders approved: (i) a merger or spin-off in which Grupo Galicia is not the
surviving corporation, unless the acquirer’s shares are authorized to be publicly offered or listed on any stock
exchange; (ii) a fundamental change in Grupo Galicia’s corporate purpose; (iii) a change of Grupo Galicia’s
domicile to a foreign country; (iv) a voluntary termination of Grupo Galicia’s public offering or listing
authorizations; (v) Grupo Galicia’s continuation following a delisting or a mandatory cancellation of its
public offering or listing authorizations; (vi) the total or partial recapitalization of Grupo Galicia’s statutory
capital following a loss; or (vii) a capital increase determined by the Extraordinary Shareholders’ Meeting
and implying a disbursement by shareholders; then, any shareholder that voted against such action or did not
attend the relevant meeting may exercise its right to have its shares canceled in exchange for the book value
of its shares, determined on the basis of Grupo Galicia’s latest balance sheet prepared in accordance with
Argentine laws and regulations (except for Grupo Galicia’s voluntary termination of the public offering or
listing of shares, in which case the provisions in section 22 et seq. of the CNV Rules, Chapter XXVII shall be
applicable), provided that such shareholder exercises its appraisal rights within the periods set forth below.
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Appraisal rights must be exercised within five days following the adjournment of the meeting at which the
resolution was adopted, in the event that the dissenting shareholder voted against such resolutions, or within
15 days following such adjournment if the dissenting shareholder did not attend such meeting and can prove
that he was a shareholder on the date of such meeting. In the case of a merger or spin-off involving an entity
authorized to make a public offering of its shares, appraisal rights may not be exercised if the shares to be
received as a result of such transaction are listed on any stock exchange. Appraisal rights are extinguished if
the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 75 days of
the meeting at which the resolution was adopted.
Payment on the appraisal rights will be made within one year of the date of the shareholders’ meeting at
which the resolution was adopted, except in the cases of voluntarily termination, abandonment or rejection of
the public offering or listing of Grupo Galicia’s shares, or of continuation of the Company under the terms of
Section 94, subsection 9 of the Corporations’ Law, in which case the payment period is reduced to 60 days
from the date of the related resolution or from the date of the abandonment, rejection or approval of the
voluntary termination.
In the event of Grupo Galicia’s voluntary termination of the public offering or listing of the shares, the Issuer
shall mandatorily promote a public offering for the acquisition of its shares, of preemptive rights, pursuant to
Section 31 of decree 677, regulations and CNV Rules.
Preferred Shares
According to the Corporations’ Law and Grupo Galicia’s by-laws, an Ordinary Shareholders’ Meeting may
approve the issuance of preferred stock. Such preferred stock may have a fixed dividend, cumulative or not
cumulative, with or without additional participation in Grupo Galicia’s profits, as decided by shareholders at
a Shareholders’ Meeting when determining the conditions of the issuance. They may also have other
preferences, such as a preference in the event of the Company’s liquidation.
The holders of preferred stock shall not be entitled to voting rights. Notwithstanding the foregoing, in the
event that no dividends are paid to such holders for their preferred stock, and as long as such dividends are
not paid, the holders of preferred stock shall be entitled to voting rights. Holders of preferred stock are also
entitled to vote on certain special matters, such as the transformation of the corporate form, a merger into
another company and spin-offs (if Grupo Galicia is not the surviving entity and the surviving entity is not
listed on any stock exchange), early winding-up, a change of Grupo Galicia’s domicile to foreign country,
total or partial repayment of capital for losses and a substantial change in the corporate purpose set forth in
Grupo Galicia’s by-laws or in the event preferred stock is traded on stock exchanges and such trading is
suspended or terminated.
Dividends
Dividends may be lawfully paid and declared only out of the retained earnings representing the realized and
liquid profit obtained from the operations and investments reflected in Grupo Galicia’s annual financial
statements and approved at the Annual General Shareholders’ Meeting. No profits may be distributed until
prior losses are covered. Per share dividends paid on Class A shares will equal dividends paid on Class B
shares.
As required by the Corporations’ Law, 5% of net income shall be allocated to a legal reserve until the reserve
equals 20% of the capital stock. Payment of cash dividends shall not be affected by the 5% legal reserve as
long as it is possible to cover such reserve with the Company’s retained earnings. When the legal reserve is
decreased, for any reason whatsoever, no profits may be distributed until its repayment. The legal reserve
shall not be available for distribution to shareholders.
The Board of Directors shall submit to the shareholders meeting, the financial statements of the previous
fiscal year, together with the reports prepared by the Supervisory Syndics’ Committee for approval. The
shareholders, upon approving the financial statements, shall determine the allocation of Grupo Galicia’s net
income.
The Board of Directors is allowed by law and by the by-laws to decide to pay anticipated dividends on the
basis of special or quarterly balance sheets, accompanied by the opinion of the Supervisory Syndics’
Committee.
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Under CNV Rules and Grupo Galicia’s by-laws, cash dividends must be paid within 30 days of the
Shareholders’ Meeting approving the dividends. Payment of dividends in shares requires authorization from
the CNV, the Buenos Aires Stock Exchange and the Córdoba Stock Exchange, which authorizations must be
requested within 10 business days after the Shareholders’ Meeting approving the dividends. Grupo Galicia
shall make distribution of the shares available to shareholders not later than three months of receiving the
authorization from the CNV.
Shareholders cannot claim payment of dividends from Grupo Galicia after three years from the date on which
the relevant dividends were made available to such shareholders. The amount of such forfeited dividends
shall be allocated to the legal reserve fund. For further information on dividend policy and restrictions, see
Chapter VIII “Accounting Information – Issuer’s Dividend Policy”.
Board of Directors
Grupo Galicia’s by-laws provide that the Board of Directors shall be composed of at least three and up to
nine directors, as decided by the General Ordinary Shareholders’ Meeting. The Shareholders’ Meeting may
also appoint alternate directors up to a maximum number equal to the number of appointed of regular
directors. To be appointed to the Board of Directors, such person must have been presented as a candidate by
shareholders who represent at least 10% of Grupo Galicia’s voting rights, at least three business days before
the date the General Ordinary Shareholders’ Meeting is to be held. In the event the Shareholders’ Meeting
must be convened before the election of directors, new lists may be submitted up to three business days
before the date set for the new Shareholders’ Meeting.
Directors, as well as alternate directors, shall remain in office for three years. Both can be reelected
indefinitely and one third of the members of the Board of Directors (or by a fraction not lower than one third)
shall be renewed each fiscal year. Alternate directors replace directors until the following General Ordinary
Shareholders’ Meeting is held, and, if applicable, during the length of their absence. Directors may also be
replaced by alternate directors if a director will be absent from a Board of Director’s meeting. The Board of
Directors is required to meet at least once every month and each time any one of the directors or the
Supervisory Syndics Committee should request. A quorum shall be deemed constituted with the presence of
the majority of the Board of Director’s members, whether they are in person or communicating through any
simultaneous transmission media of sound, images or words such as a videoconference or any similar device.
If such is the case, a quorum shall be deemed constituted with both the directors present as well as those
holding the meeting at a distance. The decisions shall be taken by the majority of votes present or informed
through any of the above-mentioned transmission means. In the event of a tie, the chairman shall be entitled
to a second vote.
Grupo Galicia’s by-laws establish that the Board of Directors is entitled to organize an executive committee
and/or to delegate part of its administration duties to one of its members, who will have the title of delegate
director; however, such appointment has not taken place.
Distribution of Profits
The relevant part of Section Twenty-four, under Title VII, Balance Sheet and Profit Distribution, of the bylaws establishing the manner in which profits shall be distributed reads as follows: “...d. Liquid and realized
profits shall be annually distributed as follows: 1º) The percentage stipulated by existing laws shall be
allotted to the legal reserve fund. 2º) The sum to be determined according to current legal provisions or to
these by-laws, to the compensation of the Board of Directors, which sum shall be distributed among the
directors in the manner decided by the shareholders’ meeting or, as applicable, by the Board of Directors. 3º)
The sum to be determined as compensation of the supervisory syndics’ committee. 4º) To dividends payable
to preferred shares, if any, with any overdue cumulative dividends to be paid out first. 5º) To the
amortization, in whole or in part, of issued participation stock, as applicable. 6º) After payment of the
additional participation of preferred shares, the remainder, shall be distributed in the manner resolved at the
shareholders’ meeting. It may be distributed, either totally or partially, to optional reserve funds that are
reasonable and consistent with reasonable prudent management practices, to a new account or to dividends
payable to common stock. Dividends in cash shall not exceed the realized and liquid profits, whether the
latter correspond to the fiscal year or accumulated in previous fiscal years, or resulting from releases of
optional reserve funds made up with such profits. 7º) Dividends shall be paid pro rata to the respective
payments, within one year of their approval. If the company is authorized to make a public offering of its
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shares of stock, the dividends, if only in cash, shall be paid within 30 (thirty) calendar days of their approval
by the shareholders at the respective shareholders’ meeting or within a longer or shorter term as may be
established by the applicable laws and regulations. The dividends that have not been collected three years
after being placed at the disposal of the shareholders shall be forfeited in favor of the company. The amount
of the so forfeited dividends shall be allocated to the reserve fund. 8º) The distribution of advanced or interim
dividends or of dividends resulting from the quarterly balance sheets in cash, as authorized by the second
paragraph of Section 224 of the Corporations’ Law shall be decided by the Board of Directors on the basis of
the special or quarterly balance sheets, accompanied by the opinion of the supervisory syndics’ committee.”
For further information on dividend policy and restrictions, see Chapter VIII “Accounting Information –
Issuer’s Dividend Policy”.
Liquidation
In the event of liquidation of Grupo Galicia, the Shareholders’ Meeting shall appoint one or more liquidators.
If no liquidators are appointed, the Board of Directors may act as such. All outstanding common shares shall
be entitled to participate equally in any distribution upon liquidation.
In the event of liquidation, in Argentina as well as in any other country, Grupo Galicia’s assets shall first be
applied to satisfy its debts and liabilities. In this respect, Section Seven of Banco Galicia’s by-laws
establishes that “Upon the liquidation of the company, the nominal capital stock shall be repaid first to the
holders of preferred stock and then to the holders of common stock. Overdue cumulative dividends shall be
paid, if applicable, on the preferred shares; any balance shall be then distributed solely among the holders of
common stock, once holders of preferred stock have been paid any additional participation they may be
entitled to according to the terms of the respective issue.”
Likewise, Section Twenty-five, under Title VIII, Dissolution and Liquidation, sets forth that: “a. The events
of dissolution are those established in the Corporations’ Law b. Upon the dissolution of the company, the
ensuing liquidation may be carried out by the Board of Directors or by the liquidators appointed at a
shareholders’ meeting. The liquidation shall be conducted under the supervision of the supervisory syndics’
committee. Liabilities being cancelled, and capital refunded taking into account the preferences of the shares
of preferred stock or of participation stock or the payment of notes, as the case may be, the balance shall be
distributed among the shareholders pro rata to their shares and the rights attaching to each share.”
Redemption or Repurchase of Shares
According to Decree No. 677, a stock corporation may acquire the shares issued by it, provided that the
public offering and listing thereof has been authorized, subject to the following terms and conditions and
those set forth by the CNV. The above-mentioned conditions are: (a) the shares to be acquired shall be fully
paid up; (b) there shall be a resolution signed by the Board of Directors to such effect; (c) the acquisition
shall be made out of net profits or free or voluntary reserves; and (d) the total amount of shares acquired by
the Company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower
percentage determined by the CNV. The shares acquired by the Company in excess of such limit shall be
disposed of within the term of 90 days after the date of the acquisition originating such excess.
The shares acquired by the Company shall be disposed of by the company within the maximum term of three
years counted as from the date of acquisition thereof, unless an Extraordinary Shareholders’ Meeting extends
such term. In the event the Shareholders’ Meeting fails to make any decision, capital stock shall be reduced
by operation of law. Upon disposing of the shares, the Company shall make a preemptive offer thereof. Such
an offer shall not be obligatory if the shares are used in connection with a compensation plan or program for
the company’s employees or if the shares are distributed among all shareholders pro rata to their
shareholdings. If shareholders do not exercise, in whole or in part, their preemptive rights, the sale shall be
made at a stock exchange.
In this respect, Section Six of Grupo Galicia’s by-laws establishes that “The shareholders at an Extraordinary
Shareholders’ Meeting may at any time decide to fully or partially redeem preferred shares of a specific kind
or class, according to their terms of issue and to any other conditions fixed by the shareholders at the
meeting. These shares shall thereupon forfeit all their voting and economic rights, thus becoming
automatically credit instruments for the amount of the redemption. If the redemption of one class of preferred
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shares were only partial, it shall be pro rata to all the shares of that kind or class. The redemption notice shall
be published for three days in the Official Gazette”.
Grupo Galicia’s Board of Directors is entitled to decide whether to buy other companies’ stock or not, and in
the event of acting to the detriment of Grupo Galicia, they will be subject to the obligations imposed by,
among other, the Argentinean Civil Code and Corporations´ Law.
Grupo Galicia’s Board of Directors does not provide for the purchase of shares of the Company, therefore,
the Corporations’ Law and the Rules of the CNV are strictly applied.
Shareholders’ Meetings
Shareholders’ meetings may be ordinary meetings or extraordinary meetings, depending on the topics in the
agenda. An Annual Ordinary Shareholders’ Meeting must be held each fiscal year to consider the sections
outlined in Section 234 of the Corporations’ Law, including, but not limited to (i) the approval of Grupo
Galicia’s financial statements and general performance of the Board of Directors and member of the
Supervisory Syndics’ Committee for the fiscal year under analysis; (ii) appointment and remuneration of
Directors and members of the Supervisory Syndics’ Committee; (iii) allocation of profits, (iv) the disposal or
grant of any lien on all or most part of the Company’s assets outside the ordinary course of business; and (vi)
any other matter the Board of Directors decides to submit to the shareholders’ meeting concerning the
Company’s business administration. Matters which may be discussed at these or other ordinary meetings
include resolutions regarding the responsibility of Directors and members of the Supervisory Syndics’
Committee, as well as capital increases and the issuance of notes.
Special shareholders’ meetings may be called at any time to discuss matters beyond the scope of the ordinary
meeting, including, but not limited to, amendments to the by-laws, matters related to the liquidation of the
Company, limitation of the shareholders’ preemptive rights, issuance of bonds and debentures,
transformation of the corporate form, the merger into another company and spin-offs, early winding-up,
change of the company’s domicile to foreign country, total or partial repayment of capital for losses, a
substantial change in the corporate purpose set forth in the by-laws.
Shareholders’ meetings may be convened by the Board of Directors or by the syndics. A shareholder or
group of shareholders holding at least 5% in the aggregate of Grupo Galicia’s capital stock may request the
Board of Directors or the syndics to convene a General Shareholders’ Meeting to discuss the matters
indicated by the shareholder.
Additionally, the by-laws provide that any shareholder holding at least 5% in the aggregate of Grupo
Galicia’s capital stock may present, in writing, to the Board of Directors, before February 28 of each year,
proposals of sections to be included in the agenda at the Annual General Ordinary Shareholders’ Meeting.
Notice of each shareholders’ meeting shall be published in the Official Gazette, and in an Argentine
newspaper of wide circulation, at least ten days prior to the date of the meeting, but not more than thirty days
prior to the date of the meeting. The Board of Directors shall determine the appropriate publication of notices
outside Argentina in accordance with the requirements of the jurisdictions and stock exchanges on which
Grupo Galicia’s shares are traded. In order to attend a meeting and to be listed on the meeting registry,
shareholders must submit evidence of their book-entry share account held at Caja de Valores at least three
business days prior to the scheduled meeting date without counting the meeting day.
The quorum for ordinary meetings consists of a majority of stock entitled to vote, and resolutions may be
adopted by the affirmative vote of 50% plus one vote (an “absolute majority”) of the votes present. If there is
no quorum present at the first meeting, a second meeting may be called at which the shareholders present,
whatever their number, shall constitute a quorum. The meeting on second call may be convened to be held
one hour later on the same day as the first meeting had been called for, provided that it is an ordinary
shareholders’ meeting, or, if such meeting had not been called simultaneously, within thirty days of the date
for which the first ordinary meeting was called.
The quorum for extraordinary shareholders’ meetings consists of 60% of stock entitled to vote, and
resolutions may be adopted by an absolute majority of the votes present. If there is no quorum present at the
first meeting, a second meeting may be called at which the shareholders present, whatever their number, shall
constitute a quorum. The meeting on second call will be held within thirty days of the date for which the first
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special meeting was called, and the notice will be published for three days, at least eight days before the date
of the meeting on second call. Some special matters require a favorable vote of the majority of all the stock
holding voting rights, and in such cases the Class A shares are granted the right to only 1 vote each. These
special matters are described above, under “Voting Rights”.
Grupo Galicia’s by-laws do not establish more stringent conditions than those required by legal provisions
regarding changes in capital, establishing that capital may be increased by the decision of the Shareholders’
Meeting without any limitation whatsoever and without the need to amend the by-laws.
Notwithstanding the foregoing, Section Nine of Grupo Galicia’s by-laws sets forth that “In the event of
arrears in paying up the capital stock, the Board of Directors is empowered to proceed in accordance with
Section 193 of the Corporations’ Law, selecting the mechanism that will best serve the Company’s interests,
in the light of prevailing circumstances. In all cases, arrears shall occur automatically, as a matter of law,
with the ensuing acceleration of all pending terms. Arrears interest shall be one and a half times the rate
applied by Banco Nación to its checking account overdrafts. The delinquent shareholder shall be given a 15calendar-day notice to pay the full balance due plus interest, under warning that non-payment as aforesaid
will entail the sale of the shares at a public auction to be conducted by an auctioneer or, in the event of listed
shares, by a stock broker appointed by the Board of Directors. If the proceeds of the auction are not sufficient
to cover the expenses, fees, interest and amounts due, the Company shall request the delinquent shareholder
to pay the shortage; if there is any amount in excess, such an excess shall be made available to said
shareholder. Should the Board of Directors decide to exercise its right to declare the expiration of all rights
with the ensuing forfeiture of any sums paid (Section 193, paragraph 2 of the Corporations’ Law) the notice
demanding payment of the amounts due plus interest shall specify a 15 to 30 calendar-day term therefor, as
may be resolved by the Board of Directors.
Exchange Controls
The Argentine foreign exchange market was subject to exchange controls until December 1989. From 1989
to December 03, 2001, there were no controls preventing or restricting the conversion of pesos into dollars
and transfers abroad. Decree No. 1570/01, effective as of December 3, 2001, established restrictions on the
manner in which foreign currencies are transferred abroad, prohibiting most of ordinary foreign currency
transfers abroad if they had not been previously authorized by the Argentine Central Bank. This system is
still in force although with certain modifications.
Argentina has a single free exchange market covering all foreign exchange brokerage operations. These
operations are made at a free exchange rate, but subject to the Argentine Central Bank regulations. As such
regulatory framework has been repeatedly changed we deem it convenient to include only the main
provisions currently in force governing access to local exchange market as regards the inflow and outflow of
foreign currency:
•
Investments of Residents Abroad. Individuals and legal institutions residing in Argentina are
authorized to buy foreign currency up to US$2,000,000 per month, provided they do not have any
kind of past-due and unpaid debts abroad and/or to make investments abroad for an equal amount,
which could be increased in certain cases. It is worth noting that these purchases shall be admitted
for transfers abroad when made into accounts in the name of the resident in:
(1). Foreign banks that are based in OECD countries having a sovereign debt of at least a
“BBB” international rating, or that consolidate their balance sheet in the country with a
domestic bank institution; or
(2). Foreign banks of the country of permanent residence of individuals authorized to stay in
the country as “temporary residents” pursuant to the provisions set forth under Section 23
of the Migration Law No. 25,871, or
(3).
Financial institutions that carry out investment banking activities on a regular basis and that
are set up in OECD countries, having a sovereign debt of at least a “BBB” international
rating.
IT IS HIGHLY IMPORTANT TO BEAR THESE REGULATIONS IN MIND SINCE, AMONG
OTHER THINGS, THEY MUST BE COMPLIED WITH TO MAKE ANY INVESTMENT
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OUTSIDE ARGENTINA, INCLUDING, WITHOUT LIMITATION, THE ACQUISITION OF
SECURITIES THAT MAY BE ISSUED UNDER DOCUMENTS ASSOCIATED WITH THIS
OFFERING MEMORANDUM.
•
Repatriation of Non-residents’ Investments. Non-residents may buy foreign currency for transfer
abroad “when operations in the country are related to or are for the collection of” (among others):
o
Financial debts arising from foreign loans of non-residents, including recovery of claims of
Argentine bankruptcies and bankruptcy debt collections.
o
Collection of imports and/or services, income and other ordinary transfers abroad.
o
Income from Bonds and Secured Loans of the Government issued in Argentine currency.
o
Inheritances, according to the ruling declaring who are the rightful heirs.
o
Repatriation of direct investments (as defined by the Argentine Central Bank), so long as
the investor registers the permanence of that investment in the country for 365 days under
specific circumstances, including sale of direct investment, final settlement of direct
investment, capital reduction decided by the local company, refund of irrevocable
contributions made by the local company.
o
Portfolio investments (and their income), provided that all of them do not exceed
US$500,000 per calendar month. The Argentine Central Bank established that, in these
cases, investors shall have a certification issued by a financial or foreign-exchange
institution, stating the date and amount of the investment brought into the country, at least
365 calendar days before the date of access into the local foreign-exchange market.
o
In the remaining cases, the monthly transfer limit is US$5,000.
It is worth noting that the above-mentioned options may be used provided the institutions through
which transfers are made can verify that (among other matters) “since the date of the collection of
funds (…) until the date of entry into the local foreign exchange market, the funds received have not
been applied to other investments in the country.”
OTHER THINGS, THEY MUST BE COMPLIED WITH TO REPATRIATE FUNDS OBTAINED
BY NON-RESIDENTS LOCALLY, INCLUDING, WITHOUT LIMITATION, THE
REPATRIATION OF FUNDS OBTAINED LOCALLY UNDER SECURITIES THAT MAY BE
ISSUED UNDER DOCUMENTS ASSOCIATED WITH THIS OFFERING MEMORANDUM.
•
Inflow of Foreign Currency and 30% Reserve. Decree No. 616/05, issued on June 10, 2005, and
supplementary regulations, provide for the recording of inflows and outflows of foreign currency,
outflow restrictions and the obligation to set up a deposit (reserve) which funds shall be unavailable
for a certain term. In this respect:
(i).
Foreign exchange inflows into the local foreign exchange by non-residents must be
registered with the Argentine Central Bank.
(ii). The issuances of debt securities of the private sector (financial and non-financial) in
foreign currency whose capital and interest payments are not exclusively payable in
Argentine pesos, shall be subscribed in foreign currency and the obtained funds shall be
settled on the local market, within a term of 365 days from the date of disbursement;
(iii). Any new financial indebtedness and renewals of debts with foreign countries of residents
in the country shall be approved and the foreign currency shall be maintained in
Argentina for the minimum term of 365 consecutive days. Maturities of amortizations of
debt securities issued pursuant to a primary public offering and listed on a self-regulated
market and financing transactions of foreign trade shall be exempted from the minimum
stay period of 365 calendar; and
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(iv). Except in certain cases, 30% of the funds shall remain in a non-transferable, non-interest
bearing deposit denominated in US dollars (reserve) for a term of 365 days. Such reserve
may not be used as collateral of any kind of debt. Upon expiration, the reserve shall be
available inside Argentina, but will be subject to the remaining foreign exchange
regulations (i.e. regulations on transfers abroad).
The following foreign exchange inflow operations (excluding the transaction recording requirement
and the mandatory minimum term for foreign currency to remain in the country) are exempted from
the reserve requirement: (1) residents’ settlements in foreign currency of foreign currency loans
granted by local financial institutions; (2) sales of interests in local institutions to direct investors;
(3) inflows from investments of non-residents applied to the purchase of real property, provided that
a deed of sale is executed on behalf of the non-resident simultaneously with the settlement of funds;
(4) other financial debts abroad, provided that the resulting funds are applied to the acquisition of
foreign currency for the payment of principal under foreign debt and/or to make long-term
investments in foreign companies; (5) other financial debts contracted and settled on an average
term not inferior to two years, and allocated to the purchase of non-financial assets (as defined by
the Argentine Central Bank); (6) financing with an average term not inferior to two years granted to
tax-exempt foundations and civil associations for the granting of small loans to low-income
individuals; (7) purchases of foreign exchange allocated to portfolio investments abroad for the
payment of debts and imports; (8) sale of foreign assets of public-sector residents in order to
subscribe to primary issuances of public debt issued by the Government, the proceeds of which are
applied to the payment of debt services; (9) payments of non-residents to financial institutions as
foreclosures over financial collateral and recovery of financial debts, provided that: (a) the
Argentine Central Bank has authorized it; or (b) they refer to commercial guarantees owed prior to
the issuance of Decree No. 616/05, and/or foreclosures of collateral with certain characteristics; (10)
when applied, within the following 10 business days, to sections included in the “classification of
ordinary transactions of international accounts” (see the accounts manual of the International
Monetary Fund). Among others, this classification includes: (a) payment of advances or debts
related to income and net worth tax of resident individuals; (b) contributions by non-residents to the
retirement and pension system, or payments to health care systems or health insurance, (c) payments
of other taxes that given their nature are levied on non-residents as taxpayers, to the extent that such
payment does not grant a right to the non-resident as against the collection agency or any third party,
(d) Other rates and services provided by non-residents. Also, transfers of foreign currency by local
companies’ employees based abroad made to meet their local obligations under the abovementioned exceptions are exempted from the reserve requirement; and (11) foreign currency inflows
allocated to or originated from the primary subscription of stock certificates, bonds or public debt
securities provided that they are offered publicly and listed on self-regulated markets, or they are
issued by trusts, the purpose of which is the development of energy infrastructure works and the
underlying assets of which are formed by the specific charges created by Law No. 26,095, and
provided that they are cancelled in a term not inferior to 365 days.
Moreover, funds transferred into the country by residents, obtained from the settlement of foreign
assets (capital repatriation) shall not be subject of the reserve requirement, if:
(1)
The amount of funds, measured on a monthly basis, is not greater than US$2 million. If
the amount is greater than US$2 million, the reserve is created on the funds that exceed
such amount;
(2)
The funds are transferred from the resident’s accounts opened in (a) foreign banks that
are based in OECD countries having a sovereign debt of at least a “BBB” international
rating, or that consolidate their balance sheet in the country with a domestic bank
institution, or in (b) foreign banks of the country of permanent residence of individuals
authorized to stay in the country as “temporary residents” pursuant to the provisions set
forth under Section 23 of the Migration Law No. 25,871, or in (c) financial institutions
that carry out investment banking activities on a regular basis and that are set up in
OECD countries, having a sovereign debt of al least a “BBB” international rating;
(3)
Transferor and transferee must be the same; and
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(4)
It must be proved that the client held the funds in the foreign account for at least ten
business days prior to the date of the arrangement of the exchange transaction. It shall
not be necessary to prove that the funds were held for the minimum term of 10 business
days with respect to, among others, (a) debt collections, sale of direct investment assets,
sale of other foreign assets of the client, and collection of income from foreign asset
holdings, complying with the conditions established below for income from such
sources, and (c) sales in the local exchange market of foreign assets of the client that do
not exceed US$40,000 per month.
OTHER THINGS, THEY MUST BE COMPLIED WITH TO REPATRIATE FUNDS OBTAINED
ABROAD, INCLUDING, WITHOUT LIMITATION, THE REPATRIATION OF FUNDS
OBTAINED ABROAD UNDER SECURITIES THAT MAY BE ISSUED UNDER DOCUMENTS
ASSOCIATED WITH THIS OFFERING MEMORANDUM.
•
Inflows to Purchase of Trust Securities. In this respect, any transfer of foreign currency into the
country made by non-resident individuals in Argentina to pay Trust Securities subscribed under
financial trusts must be registered with the Argentine Central Bank (for information purposes only),
with the funds being locked-up under the reserve requirement. Through Resolution No.637/05, the
Ministry of Economy established that all inflows of funds to the local foreign exchange market for
the subscription of primary issuances of securities, bonds or certificates of participation issued by
the trustee of a trust, shall be subject to the restrictions set forth in Decree No. 616/05 referenced to
above, when such restrictions were applicable to capital inflows to be used to acquire any of the
trusts’ assets.
•
Credit Payment. As regards the payment of principal or interest to non-residents abroad, the
Argentine Central Bank established that the purchase of foreign currency and its subsequent transfer
abroad are free, provided that: (i) the applicant has declared its debt in compliance with the
requirements of Communiqué “A” 3602 (and relevant regulations), (ii) the disbursement of the debt
to be paid has been settled in the local exchange market and the funds have remained in the country
for the minimum term established in the applicable regulations, and (iii) in the case of financial
institutions, other requirements specially established by the Argentine Central Bank are complied
with, and (iv) the documents required to prove that the operation is genuine are furnished.
•
In addition, the Argentine Central Bank provided that in case it is intended to make capital
prepayments, without the need of authorization, the guidelines established in Communiqué “A”
4177 and relevant regulations shall be complied with.
Criminal Foreign Exchange Regime. According to Communiqué “A” 3471 of the Argentine Central Bank,
foreign exchange transactions may only be made through institutions authorized to such purposes by the
Central Bank (for example, financial institutions and foreign currency exchanges). It also establishes that the
transactions that do not comply with the applicable regulations shall be subject to the penalties set forth by
the criminal foreign exchange regime, which provides for fines up to ten times the amount of the improper
transaction.
For further information, see Chapter III “Key Information on Grupo Galicia – Risk Factors - The foreign
exchange market is subject to controls, which could affect the ability to make payments in foreign currency
or limit the access to international capital markets”.
Tax burden:
General
The following is a brief description of certain aspects of the Argentine taxation system relating to an
investment in Notes. The description is meant for general information purposes only and is based on
Argentine tax laws and regulations applicable as of the date of this Offering Memorandum. The description
does not include all possible tax consequences relating to an investment in Notes. In addition, although the
following summary is a reasonable interpretation of the taxation rules and regulations applicable as of the
date of this Offering Memorandum, we cannot guarantee that the courts or tax authorities charged with the
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enforcement of those rules and regulations will agree with said interpretation, or that no amendments will be
introduced thereto.
POTENTIAL PURCHASERS OF NOTES SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE
TAX CONSEQUENCES APPLICABLE TO THEIR PARTICULAR SITUATION IN RESPECT OF
THE ACQUISITION, HOLDING AND DISPOSITION OF NOTES, AND, IN PARTICULAR, ABOUT
THEIR SITUATION IN RESPECT OF DECREE NO. 1076/92, OF THE MINIMUM PRESUMED
INCOME TAX AND PERSONAL ASSETS TAX.
Income Tax
Except as explained in the following paragraphs, Interest payments on Notes shall be exempt from Argentine
income tax, provided such Notes are issued in accordance with the Negotiable Obligations Law and meet the
requirements for the admission of the tax exemption under section 36 thereof and the CNV 470 / AFIP 1738
Resolution. Pursuant to such section, interest on Notes shall be exempt if the following conditions are met
(“Conditions under Section 36”):
(a) Notes must be placed through a public offering authorized by the CNV;
(b) The proceeds of the offering must be used by the Company for one or more of the following
purposes: (i) investments in tangible assets located in Argentina; (ii) investments in working capital
in Argentina; (iii) refinancing of debt, on or before maturity; and (iv) payment of capital
contributions in controlled or affiliated companies, provided such companies use the funds from
such contributions as provided for in sections (i), (ii) and/or (iii) above; and
(c) Within the term and in the form established by regulations, the Company shall furnish the CNV with
evidence that the proceeds of the offering made hereunder have been used for any of the purposes
described in paragraph (b) above.
The CNV 470/AFIP 1738 Resolution interprets, to some extent, the “tax exemption for public offerings”
which, before said Resolution was published, had not been clearly interpreted by the AFIP. Although the
interpretation of the CNV 470/AFIP 1738 Resolution is still not entirely clear due to its recent publication,
many aspects relating to the above mentioned concept have already been clarified. The main points of the
CNV 470/AFIP 1738 Resolution are the following:
(a) The concept of “placement through a public offering” must be interpreted exclusively under
Argentine law (section 16 of the Public Offering Law). Pursuant to the Argentine Public Offering
Law, Notes offered to purchasers or qualified institutional buyers under Regulation 144A, or offered
under Regulation S, may qualify in respect of the concept of public offering established by such law.
(b) Efforts related to the public offering must be duly made, and the issuer shall keep the documents
pertaining to its existence. The mere authorization to make a public offering granted by the CNV
shall not suffice for the purposes of the tax exemption.
(c) Efforts related to the public offering may be made not only within Argentina but also abroad.
(d) The offering may be directed at the “general public” or at a “specific group of investors” (including
qualified institutional investors).
(e) The offering may be included within the framework of a “placement agreement”. Notes placed
pursuant to such instrument shall be deemed placed through a public offering, insofar as the dealer
makes actual public offering efforts pursuant to the Argentine Public Offering Law.
If a Company does not meet the Conditions under Section 36, section 38 of the Negotiable Obligations Law
provides that the Company shall be responsible for paying any taxes levied on the payment of interest on
Notes.
Decree No. 1076 of July 2, 1992 (as amended by Decree No. 1157 of July 15, 1992, both ratified under Law
No. 24.307 of December 30, 1993) removed the above mentioned exemption from payment of the Argentine
income tax in respect of taxpayers subject to rules on tax adjustment for inflation under Title VI of the
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Argentine Income Tax Law (in general, commercial companies and other institutions organized or registered
under Argentine laws, national branches of international entities, permanent offices of individuals living
abroad or legal institutions organized abroad, single-person enterprises and individuals who engage in certain
commercial activities in Argentina). As a consequence of the above mentioned decree, interest paid to
holders which is subject to rules on tax adjustment for inflation (and which are therefore not included within
the exemptions established in section 36 of the Negotiable Obligations Law) is also subject to payment of
Argentine income tax.
The tax described in the paragraph above shall be paid by local holders subject to tax adjustment for
inflation. In the event the Issuer is a non-regulated person under the Financial Institutions Law and the
beneficiaries of interest payments are not financial institutions either, income tax shall be withheld and paid
by the Issuer. The amount withheld for income tax in these cases shall be 35% of paid interest, as established
by Argentine tax law. Income tax to be paid by such beneficiary of interest payments subject to income tax
withholding shall be reduced by the amount of such withholding.
Residents and non-resident individuals and foreign institutions without permanent offices in Argentina are
not subject to payment of taxes for capital income arising from the sale or other form of disposition of Notes.
As a result of Decree No. 1076 of July 2, 1992, the above mentioned taxpayers subject to the rules on tax
adjustment for inflation set forth in the Argentine Income Tax Law are also subject to payment of tax for
capital income arising from the sale or other form of disposition of Notes, as established by Argentine tax
law. Persons making tax adjustments for inflation (commercial companies and other institutions organized or
registered under Argentine laws, national branches of international entities, permanent offices of individuals
living abroad or legal institutions organized abroad, single-person enterprises and individuals who engage in
certain commercial activities in Argentina) who sell Notes shall determine, at the end of their relevant fiscal
years, the income received from such sales, and shall pay the corresponding tax.
Personal Assets Tax
Individuals and undivided estates domiciled or located in Argentina or abroad must include their securities,
such as Notes, when determining their tax liability in respect of the Personal Assets Tax (the “Personal
Assets Tax”).
Individuals and undivided estates domiciled or located in the Republic of Argentina are subject to payment
of an annual tax levied on assets located in Argentina and abroad payable as of December 31 each year. The
tax rate varies depending on the value of assets subject to taxation, in the following manner: 1) if the value of
a person’s assets subject to taxation is between Ps.305,000 and Ps.750,000, the applicable rate is 0.50% over
the total value of assets, 2) if the value of a person’s assets subject to taxation is between Ps.750,000 and
Ps.2,000,000, the applicable rate is 0.75% over the total value of assets, 3) if the value of a person’s assets
subject to taxation is between Ps.2,000,000 and Ps.5,000,000, the applicable rate is 1% over the total value
of assets and 4) if the value of a person’s assets subject to taxation is higher than Ps.5,000,000, the applicable
rate is 1.25% over the total value of assets.
Individuals and undivided estates domiciled or located abroad are not required to pay Personal Assets Tax if
the amount of such tax is equal to or lower than Ps.255.75. Although securities such as the Notes are
technically subject to payment of Personal Assets Tax under Decree 127/06, no procedure has been
established to collect said tax in respect of said securities.
In certain cases, with respect to some assets which are held directly by certain companies, enterprises or
other institutions domiciled or located abroad (specifically, off-shore companies other than insurance
companies, open-end investment funds, pension funds or banking or financial institutions with head offices
organized or located in countries whose central banks or equivalent bodies have adopted the international
banking supervision standards laid down by the Basel Committee on Banking Supervision), the law assumes,
without admitting any proof to the contrary, that those assets belong to individuals or undivided estates
domiciled or located in the country. Accordingly, such assets are subject to payment of the Personal Assets
Tax at a rate of 2.5%. However, Decree 812/1996 of July 24, 1996 provides that the legal assumption
analyzed above shall not be applied to shares and corporate debt securities, such as the Notes, the public
offering of which has been authorized by the CNV and which can be traded in stock exchanges located in
Argentina or abroad.
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In order to guarantee that this legal assumption will not be applied and, consequently, that the Company will
not be held liable as a substitute obligor in respect of the Notes, the Company will keep in its records a duly
certified copy of the CNV resolution authorizing the public offering of shares or corporate debt securities
and other evidence showing that said certificate or authorization was in force as of December 31 of the year
in which the tax liability arose, as required by AFIP Resolution 4,206 of July 30, 1996.
If the Argentine Tax Authority finds that the documents do not evidence the authorization granted by the
CNV to trade securities in national or international stock exchanges, the Company shall be responsible for
paying the tax.
Value Added Tax
Interest payments made in respect of Notes are also exempt from payment of value added tax, provided the
Notes meet the Conditions of Section 36 of the Negotiable Obligations Law. Moreover, if Notes meet said
Conditions of Section 36, all benefits related to the offering, subscription, firm underwriting, transfer,
authorization and repayment thereof shall be exempt from payment of value added tax in Argentina.
Minimum Presumed Income
As provided by section 1 of Law No. 25,063, Notes held, at the end of their respective fiscal years, by
institutions organized or registered under Argentine laws, national branches of international entities, offices
of individuals living abroad or legal institutions organized abroad, single-person enterprises and individuals
who engage in certain commercial activities in Argentina, shall be included in the taxable base of the
Minimum Presumed Income Tax (the “Minimum Presumed Income Tax”). The rate of such tax is 1% of the
assets located in the country and abroad held by the above mentioned persons and institutions and it may be
reduced by their income tax payments for the same fiscal year. In turn, the Minimum Presumed Income Tax
payments for a fiscal year (in excess of income tax, as specified above) may be carried forward to be applied
against income tax liability incurred in future fiscal years, provided relevant legal requirements are met.
The Minimum Presumed Income Tax is not levied when the total amount of assets in the country does not
exceed Ps.200,000. If there exist any assets held abroad, such sum shall be increased by an amount obtained
by applying to the Ps.200,000 a percentage representing the assets taxed abroad with respect to the total
amount of assets held.
Stamp Tax
Pursuant to section 35 of the Negotiable Obligations Law, some provinces have adopted specific exemptions
for agreements involving the subscription and issuance of Notes.
Particularly, the Tax Code of the City of Buenos Aires (section 407, subsection 46) sets forth the stamp tax
exemption for agreements, acts and transactions of any nature whatsoever, including deliveries and receipts
of money, related to and/or necessary for the issue of debt securities held by their issuers and any other
securities, destined to public offering in accordance with Law 17,811 and held by companies which are duly
authorized by the CNV to make their public offering. This exemption protects the agreements, acts, contracts,
transactions and guarantees connected with the issuances mentioned above, provided they take place prior to,
parallel with or subsequent to these last events or if they are renewals thereof, including the condition
prescribed herein. This exemption shall be ineffective if within a 90 running day-term the CNV authorization
for the public offering of such securities is not requested, and/or the placement of such securities does not
take place in a period of 180 running days following the date on which the authorization requested is granted.
In the City of Buenos Aires, the acts and/or agreements connected with the negotiation of securities duly
authorized by the CNV for the related public offering are also entitled to the abovementioned exemption.
Tax on Bank Deposits
Law No. 25,413 (published in the Official Gazette on March 26, 2001), as amended, establishes, with certain
exceptions, a tax on debits and credits in respect of current accounts held in Argentine financial institutions
and on other transactions used to replace current accounts. The general rate is 0.60% for each debit and
credit. Certain money transfers made other than through bank accounts could be subject to payment of this
tax at a rate of 1.2%.
165
Pursuant to Decree No. 534/2004 (published in the Official Gazette on May 3, 2004), income tax and/or
Minimum Presumed Income Tax shall be reduced (for a three-month period, subject to review) by 34% of the
tax paid on credits at a rate of 0.60% and 17% of the tax paid on transactions at a rate of 1.2%.
Amounts in excess may not be used as an offset to other taxes or transferred to third parties. They may only
be carried forward, until used completely, to other periods of the above mentioned taxes.
There are no exemptions providing that this tax will not be levied on interest payments including debits and
credits, or on the proceeds from the sale of Notes.
Gross Income Tax
Gross income tax is collected by Argentine provinces and by the City of Buenos Aires and is levied on the
gross income of persons who habitually engage in economic activities, for valuable consideration, in the
territory of such jurisdictions. The general tax rate is between 2 and 6%. Interest paid on Notes is usually
exempt from payment of this tax, provided the exemption from payment of income tax is applicable.
Court Fees
Should it be necessary to institute execution proceedings in respect of the Notes in Argentina, court fees (at a
current rate of 3% of the amount of the claim) shall be charged on the amount of any action brought before
Argentine courts sitting in the City of Buenos Aires.
Other taxes
There is no Argentine federal tax on gratuitous transfers of assets to heirs, donors, devisees, legatees or
donees. Subscribers of Notes are not required to pay any tax on transfers of marketable securities, or on the
issuance or registration thereof, or any similar tax. The legislature of the Province of Buenos Aires has
enacted Provincial Law 14044, whereby, among other amendments, it was set forth that the tax on gratuitous
transfers of assets is to be levied in the Province of Buenos Aires, effective as from 1/1/2010. The purpose of
this tax is to levy any gratuitous increase in wealth, including among other acts, inheritances, legacies,
donations, inheritance advances, which comprise or affect one or more assets located in the Province of
Buenos Aires and/or benefit individuals or legal entities having domicile therein.
Funds from countries with little or no taxation
Executive Branch Decree No. 1344/98, as amended, sets forth that the following countries, territories and
regimes shall be considered with a low or no taxation: Anguilla (dependent territory of the United Kingdom),
Antigua and Barbuda, Netherlands Antilles, Aruba, Ascension Island, The Bahamas, Barbados, Belize,
Bermuda (dependent territory of the United Kingdom), Negara Brunei Darussalam, Campione D’italia,
Gibraltar, Commonwealth of Dominica (associated state), United Arab Emirates, State of Bahrain,
Associated State of Grenada, Puerto Rico, Kuwait, Qatar, Federation of Saint Christopher, Saint Kitts and
Nevis, Regime applicable to Holding Companies in Luxemburg, Greenland, Guam, Honk Kong, Azorean
Islands, Channel Islands (Guernsey, Jersey, Alderney, Great Sark Island, Herm, Little Sark, Brechou, Jethou
Lihou), Cayman Islands (dependent territory of the United Kingdom), Christmas Island, Cocos (Keeling)
Islands, Cook Islands, Isle of Man, Norfolk Island, Turks and Caicos Islands (dependent territory of the
United Kingdom), Pacific Islands, Solomon Islands, San Pedro and Miquelon Island, Qeshm Island, British
Virgin Islands (dependent territory of the United Kingdom), Virgin Islands of the United States, Kiribati,
Labuan, Macao, Madeira, Montserrat (dependent territory of the United Kingdom), Niue, Patau, Pitcairn,
French Polynesia, Principality of Andorra, Principality of Liechtenstein, Principality of Monaco, Regime
applicable to Financial Corporations (Sociedades Anónimas Financieras) (governed by Law No. 11,073 dated
June 24, 1948 of the Eastern Republic of Uruguay), Kingdom of Tonga, Hashemite Kingdom of Jordan,
Kingdom of Swaziland, Republic of Albania, Republic of Angola, Republic of Cape Verde, Republic of
Cyprus, Republic of Djibouti, Cooperative Republic of Guyana, Republic of Panama, Republic of Trinidad
and Tobago, Republic of Liberia, Republic of Seychelles, Republic of Mauritius, Republic of Tunisia,
Republic of Maldives, Republic of the Marshall Islands, Republic of Nauru, Democratic Socialist Republic
of Sri Lanka, Republic of Vanuatu, Republic of Yemen, Republic of Malta, Saint Helena, Saint Lucia, Saint
Vincent and the Grenadines, American Samoa (dependent territory of the United States), Western Samoa,
166
Serenísima Republic of San Marino, Sultanate of Oman, Archipelago of Svalbard, Tuvalu, Tristan da Cunha,
Trieste, Tokelau, Free Zone of Ostrava.
Pursuant to the legal presumption established in section 18.1 of Law No. 11,683, as amended, funds from
countries with little or no taxation shall be taxed as follows:
a)
With the income tax, at a rate of 35% applied over 110% of the amount of transferred funds.
b) With the added value tax, at a rate of 21% applied over 110% of the amount of received funds.
Although the meaning of the term “funds from” is unclear, it could be interpreted as any transfer of funds:
(i) From an account in a country with little or no taxation or from a bank account opened outside a
country with little or no taxation, but whose holder is an entity located in a country with little or no
taxation.
(ii) To a bank account located in Argentina or a bank account opened outside Argentina but whose
holder is an Argentine resident for tax purposes.
The local person or receiver of the funds may refute such legal assumption by duly proving before the Tax
Authority that the funds were obtained from activities actually performed by an Argentine taxpayer or by a
third party located in Argentina, or that said funds have been already declared.
Other considerations
If the Issuer fails to meet the conditions or comply with the obligations set forth in section 36 of the
Negotiable Obligations Law, the benefits arising from the tax treatment established therein shall be
terminated.
THE
SUMMARY ABOVE IS NOT A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE
HOLDING OF NOTES. HOLDERS AND POTENTIAL PURCHASERS OF NOTES SHOULD CONSULT THEIR
RESPECTIVE TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
Documents on display
The Offering Memorandum and financial statements of the Company are available for investors at Grupo
Galicia’s domicile: Tte. Gral. Juan D. Perón 456, 2nd. floor, City of Buenos Aires and on the CNV’s Website,
under “Financial Information”, in the Financial Information Highway (AIF). Additionally, we hereby inform
that: (a) outlines of the Company’s financial statements as of December 31, 2009; December 31, 2008 and
December 31, 2007 have been published in the Daily Gazette of the BASE on February 16, 2010, February
13, 2009 and February 14, 2008, respectively; and (b) complete versions of the Company’s financial
statements as of December 31, 2009, December 31, 2008 and December 31, 2007 have been published in the
Daily Gazette of the BASE on April 5, 2010, April 13, 2009 and March 31, 2008, respectively, and are also
available at http://www.bolsar.com.
Additionally, all relevant Company information, notices of payment, ratings, notices of meetings of holders
of Notes and any other information required to be announced shall be simultaneously made available on the
CNV’s Website, Financial Information Highway (AIF), under “Financial Information”.
167
FINANCIAL STATEMENTS
For the fiscal year commenced on January 1, 2009 and ended December 31, 2009, presented
on comparative basis with the prior fiscal year.
168
169
170
Issuer
GRUPO FINANCIERO GALICIA S.A.
Tte. Gral. Juan D. Perón 456, 2nd floor (C1038AAV)
City of Buenos Aires
Argentina
Arranger
BANCO DE GALICIA Y BUENOS AIRES S.A.
Tte. Gral. J. D. Perón 407 (C1038AAI)
Argentina
Dealer
BANCO DE GALICIA Y BUENOS AIRES S.A.
Tte. Gral. J. D. Perón 407 (C1038AAI)
Argentina
Legal Advisors of the Issuer, the Arranger and the Dealer
Regarding Argentine Law
Regarding US Law
ESTUDIO BECCAR VARELA
WHITE & CASE LLP
Tucumán 1, 4th. Floor (C1049AAA)
Argentina
1155 Av. of the Americas
New York, NY 10036
United States of America
Issuer’s Auditors
PRICE WATERHOUSE & CO. S.R.L.
Bouchard 557, 7th Floor (C1106ABG)
Argentina
171

Offering Memorandum - GFG Backend

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