EX-99.1 2 exh_99-1.txt FINANCIAL STATEMENTS TRADUCCION PUBLICA-------------------------------------------------------------- [On the bottom of pages 1 to 98 of the source document there are three illegible signatures and three seals, which read from left to right:]--------------------- See our report dated November 8, 2005. PRICE WATERHOUSE & CO S.R.L. - (Partner)- Registration No.T degree 1 F degree 17 ----------------------------------------- Antonio Roberto Garces - Chairman.---------------------------------------------- Adolfo Hector Melian - Syndic - Fir the Supervisory Committee.------------------ Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Financial Statements------------------------------------------------------------ for the nine months------------------------------------------------------------- ended September 30, 2005,------------------------------------------------------- presented in comparative format------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Contents------------------------------------------------------------------------ Financial Statements and Limited Review Report---------------------------------- For the nine months ended September 30, 2005------------------------------------ presented in comparative format------------------------------------------------- Report of the Supervisory Committee--------------------------------------------- For the nine months ended September 30, 2005------------------------------------ System established by----------------------------------------------------------- Technical Regulations (N.T.2001) of the National Securities Commission---------- Heading 1 Consolidated Balance Sheet 2 Consolidated Memorandum Accounts 5 Consolidated Income Statement 6 Consolidated Statement of Cash Flows 8 Notes to Consolidated Financial Statements 9 Balance Sheet 50 Income Statement 51 Statement of Changes in Shareholders' Equity 52 Statement of Cash Flows 53 Notes to Financial Statements 54 Schedules 81 Information required in addition to the Notes to Financial Statements by Section 68 of the Buenos Aires Stock Exchange regulations 88 Supplementary and Explanatory Statement by the Board of Directors required by Section 2 of the Accounting Documentation Regulations of the Cordoba Stock Exchange Regulations 91 Informative Review 94 Report of the Supervisory Committee Limited review report +Company's Name: Grupo Financiero Galicia S.A. "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Legal domicile: Tte. Gral. Juan D. Peron N degree 456 - Piso 2 degree Autonomous City of Buenos Aires Principal line of business: Financial and Investment Activities 7th Fiscal Year For the nine months ended September 30, 2005, presented in comparative format. DATE OF REGISTRATION WITH THE COMMERCIAL COURT OF RECORD Of bylaws: September 30, 1999 Date of latest amendment to bylaws: August 22, 2003 Registration number with the Corporation Control Authority: 11,891 Sequential Number - Corporation Control Authority: 1,671,058 Date of expiry of Company's bylaws: June 30, 2100 Name of the Controlling Company: EBA HOLDING S.A. Principal line of business: Financial and Investment Activities Interest held by the Controlling Company in the Shareholders' equity as of September 30, 2005: 22.65 % Percentage of votes to which the Controlling Company is entitled as of September 30, 2005: 59.42 %
======================================================================================================= CAPITAL STATUS as of September 30, 2005 (Note 8 to the Financial Statements) (figures stated in thousands of pesos) ------------------------------------------------------------------------------------------------------- Shares ------------------------------------------------------------------------------------------------------- Number Class Voting rights per share Subscribed Paid in ------------------------------------------------------------------------------------------------------- Ordinary class "A", 281,221,650 face value of 0.001 5 281,222 281,222 ------------------------------------------------------------------------------------------------------- Ordinary class "B", 960,185,367 face value of 0.001 1 960,185 960,185 ------------------------------------------------------------------------------------------------------- 1,241,407,017 1,241,407 1,241,407 ======================================================================================================= ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------
3 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Balance Sheet as of September 30, 2005----------------------------- and December 31, 2004.---------------------------------------------------------- (figures stated in thousands of pesos)------------------------------------------
============================================================================================================================= 09.30.05 12.31.04 ------------------------------------------ ASSETS ------------------------------------------ A. CASH AND DUE FROM BANKS 995,882 988,669 ------------------------------------------ - Cash 485,668 442,494 - Banks and correspondents 510,214 546,175 ------------------------------------------ B. GOVERNMENT AND CORPORATE SECURITIES 5,556,198 5,534,097 ------------------------------------------ -Holdings in investment account 11,677 601,264 - Holdings for trading 19,242 37,105 -Government securities without quotation 4,560,498 4,371,716 -Securities issued by the Argentine Central Bank 943,395 508,544 -Investments in quoted corporate securities 21,725 16,086 -Allowances (339) (618) -------------------------------------- C. LOANS 9,968,569 8,438,177 -------------------------------------- -To the non-financial public sector 5,094,771 4,558,873 -To the financial sector 117,557 150,530 -To the Non-financial private sector and residents abroad 5,286,866 4,361,393 -Overdrafts 311,835 199,668 -Promissory notes 1,508,726 1,099,243 -Mortgage loans 655,794 623,944 -Pledge loans 105,704 92,889 -Consumer loans 166,678 58,161 -Credit card loans 1,446,890 1,105,386 -Other 820,666 772,996 -Accrued interest, adjustments and quotation differences receivable 281,626 414,400 -Documented interest (11,030) (5,286) -Unallocated collections (23) (8) -Allowances (530,625) (632,619) --------------------------------------- D. OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 6,904,463 6,697,688 --------------------------------------- -Argentine Central Bank 87,248 78,463 -Amounts receivable for spot and forward sales to be settled 338,840 56,209 -Securities receivable under spot and forward purchases to be settled 363,511 313,462 -Negotiable obligations without quotation 39,332 20,384 -Other receivables not included in the debtor classification regulations 5,808,665 5,973,345 -Other receivables included in the debtor classification regulations 185,686 188,807 -Accrued interest receivable not included in the debtor classification regulations 113,972 92,302 -Accrued interest receivable included in the debtor classification regulations 766 2,427 -Allowances (33,557) (27,711) ========================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 4 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Balance Sheet as of September 30, 2005----------------------------- and December 31, 2004.---------------------------------------------------------- (figures stated in thousands of pesos)------------------------------------------
===================================================================================================================== 09.30.05 12.31.04 ------------------------------------------- E. ASSETS UNDER FINANCIAL LEASES 148,592 100,950 ------------------------------------------- - Assets under financial leases 150,561 103,443 - Allowances (1,969) (2,493) ------------------------------------------- F. EQUITY INVESTMENTS 84,892 82,819 ------------------------------------------- - In financial institutions 2,967 3,029 - Other 112,987 108,714 - Allowances (31,062) (28,924) ------------------------------------------- G. MISCELLANEOUS RECEIVABLES 408,791 519,781 ------------------------------------------- - Receivables for assets sold 485 879 - Tax on minimum presumed income - Tax credit 160,737 138,010 - Other 328,138 353,507 - Accrued interest on receivables for assets sold 29 33 - Other accrued interest and adjustments receivable 50 64,263 - Allowances (80,648) (36,911) ------------------------------------------- H. BANK PREMISES AND EQUIPMENT 485,150 489,182 ------------------------------------------- I. MISCELLANEOUS ASSETS 179,311 160,033 ------------------------------------------- J. INTANGIBLE ASSETS 520,169 638,004 ------------------------------------------- -Goodwill 95,833 115,080 -Organization and development expenses 424,336 522,924 ------------------------------------------- K. UNALLOCATED ITEMS 853 1,154 ------------------------------------------- TOTAL ASSETS 25,252,870 23,650,554 =====================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 5 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Supplementary Accounting Information--------------------------------------------------------------------- Consolidated Balance Sheet as of September 30, 2005----------------------------- and December 31, 2004.---------------------------------------------------------- (figures stated in thousands of pesos)------------------------------------------
===================================================================================================================== 09.30.05 12.31.04 ------------------------------------------- LIABILITIES ------------------------------------------- L. DEPOSITS 8,027,194 6,756,913 ------------------------------------------- -Non-financial public sector 92,426 131,932 -Financial sector 8,327 17,157 -Non-financial private sector and residents abroad 7,926,441 6,607,824 -Current Accounts 1,505,231 1,192,474 -Savings Accounts 2,094,248 1,638,694 -Time Deposits 4,075,165 3,415,788 -Investment accounts 247 383 -Other 168,190 280,220 -Accrued interest and quotation differences payable 83,360 80,265 ------------------------------------------- M. OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 14,575,019 14,056,567 ------------------------------------------- -Argentine Central Bank 8,073,516 8,059,550 -Financial assistance Decrees No. 739/03 and 1262/03 5,070,130 5,321,697 -Other 3,003,386 2,737,853 -Banks and international entities 717,904 772,393 -Unsubordinated negotiable obligations 2,975,027 3,348,652 -Amounts payable for spot and forward purchase to be settled 321,903 229,537 -Securities to be delivered under spot and forward sales to be settled 338,302 56,155 -Loans from domestic financial institutions 224,608 191,195 -Other 1,037,015 909,926 -Accrued interest and quotation differences payable 886,744 489,159 ------------------------------------------- N. MISCELLANEOUS LIABILITIES 269,545 300,612 ------------------------------------------- -Dividends payable - 5 -Directors' and syndics' fees 1,732 3,676 -Other 265,300 294,888 -Adjustments and accrued interest payable 2,513 2,043 ------------------------------------------- O. PROVISIONS 234,108 517,806 ------------------------------------------- P. SUBORDINATED NEGOTIABLE OBLIGATIONS 402,509 380,077 ------------------------------------------- Q. UNALLOCATED ITEMS 6,018 5,574 ------------------------------------------- MINORITY INTEREST IN CONSOLIDATED ENTITIES OR COMPANIES 139,260 113,467 ------------------------------------------- TOTAL LIABILITIES 23,653,653 22,131,016 =========================================== ------------------------------------------- SHAREHOLDERS' EQUITY 1,599,217 1,519,538 ------------------------------------------- ------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 25,252,870 23,650,554 =====================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 6 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Memorandum Accounts------------------------------------------------ As of September 30, 2005 and December 31, 2004---------------------------------- (figures stated in thousands of pesos)------------------------------------------
==================================================================================================================== 09.30.05 12.31.04 -------------------------------------------- DEBIT 26,104,484 24,834,267 =========================================== ------------------------------------------- CONTINGENT 18,004,177 16,956,681 ------------------------------------------- Loans obtained 229,194 107,302 Guarantees received 11,182,644 10,295,575 Others not included in the debtor classification regulations - 25,774 Contingencies re. contra items 6,592,339 6,528,030 ------------------------------------------- CONTROL 7,776,455 7,699,323 ------------------------------------------- Uncollectible loans 633,428 615,801 Other 6,935,470 6,911,058 Control re. contra items 207,557 172,464 ------------------------------------------- DERIVATIVES 203,770 173,069 ------------------------------------------- "Notional" value of forward transactions without delivery of underlying asset 11,678 - Derivatives re. contra items 192,092 173,069 ------------------------------------------- TRUST ACCOUNTS 120,082 5,194 ------------------------------------------- Trust funds 120,082 5,194 ------------------------------------------- ------------------------------------------- CREDIT 26,104,484 24,834,267 =========================================== CONTINGENT 18,004,177 16,956,681 ------------------------------------------- Loans granted (unused balances) 349,284 285,824 Guarantees granted to the Argentine Central Bank 5,886,009 5,708,394 Other guarantees granted included in the debtor classification regulations 228,782 122,539 Other guarantees granted not included in the debtor classification regulations 40,834 239,930 Others included in the debtor classification regulations 78,285 57,107 Others not included in the debtor classification regulations 111,432 140,010 Contingencies re. contra items 11,309,551 10,402,877 ------------------------------------------- CONTROL 7,776,455 7,699,323 ------------------------------------------- Checks and drafts to be credited 207,392 172,296 Other 9,484 168 Control re. contra items 7,559,579 7,526,859 ------------------------------------------- DERIVATIVES 203,770 173,069 ------------------------------------------- "Notional" value of put options written 178,953 - "Notional" value of forward transactions without delivery of underlying asset 13,139 - Derivatives re. contra items 11,678 173,069 ------------------------------------------- TRUST ACCOUNTS 120,082 5,194 ------------------------------------------- Trust liabilities re. contra items 120,082 5,194 ====================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 7 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Income Statement--------------------------------------------------- For the nine months from January 1, 2005---------------------------------------- to September 30, 2005----------------------------------------------------------- presented in comparative format with the same period of the previous year------- (figures stated in thousands of pesos)------------------------------------------
====================================================================================================================== 09.30.05 09.30.04 ------------------------------------------- A. FINANCIAL INCOME 1,719,588 1,153,519 ------------------------------------------- Interest on cash and due from banks 41 28 Interest on loans granted to the financial sector 2,203 4,107 Interest on overdrafts 28,435 15,886 Interest on promissory notes 85,400 75,625 Interest on mortgage loans 60,011 51,215 Interest on pledge loans 7,547 4,574 Interest on credit card loans 161,103 119,770 Interest on other loans 21,276 18,709 Net income from government and corporate securities 206,465 76,348 Interest on other receivables resulting from financial brokerage 120,243 57,820 Net income from secured loans - Decree No. 1387/01 149,407 138,351 CER adjustment 816,129 444,752 CVS adjustment - 28,837 Other 61,328 117,497 ------------------------------------------- B. FINANCIAL EXPENSES 1,349,477 865,702 ------------------------------------------- Interest on current account deposits 10,707 2,956 Interest on savings account deposits 3,464 3,118 Interest on time deposits 95,917 64,563 Interest on financing from the financial sector 2,950 5,042 Interest on other liabilities resulting from financial brokerage 197,703 141,758 Other interest 250,233 209,279 CER adjustment 742,055 394,424 Other 46,448 44,562 ------------------------------------------- GROSS FINANCIAL MARGIN 370,111 287,817 =========================================== C. LOAN LOSS PROVISIONS 55,539 116,306 ------------------------------------------- D. INCOME FROM SERVICES 461,954 383,815 ------------------------------------------- In relation to lending transactions 129,791 113,381 In relation to borrowing transactions 127,600 101,913 Other commissions 12,461 6,190 Other 192,102 162,331 ------------------------------------------- E. EXPENSES FOR SERVICES 81,557 68,789 ------------------------------------------- Commissions 38,634 29,770 Other 42,923 39,019 ===============================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 8 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Income Statement--------------------------------------------------- For the nine months from January 1, 2005---------------------------------------- to September 30, 2005----------------------------------------------------------- presented in comparative format with the same period of the previous year------- (figures stated in thousands of pesos)------------------------------------------
======================================================================================================================= 09.30.05 09.30.04 ------------------------------------------- F. ADMINISTRATIVE EXPENSES 558,910 452,652 ------------------------------------------- Personnel expenses 283,371 211,086 Directors' and syndics' fees 4,005 2,377 Other fees 21,520 14,239 Advertising and publicity 47,130 24,913 Taxes 25,876 31,862 Other operating expenses 135,452 135,494 Other 41,556 32,681 ------------------------------------------- NET INCOME FROM FINANCIAL BROKERAGE 136,059 33,885 =========================================== MINORITY INTERESTS RESULT (28,369) (11,996) ------------------------------------------- G. MISCELLANEOUS INCOME 258,615 258,392 ------------------------------------------- Net income from equity investments 5,455 2,346 Default interests 666 693 Loans recovered and allowances reversed 149,200 146,702 CER adjustment 7,331 7,449 Other 95,963 101,202 ------------------------------------------- H. MISCELLANEOUS LOSSES 282,193 326,022 ------------------------------------------- Default interests and charges in favor of the Argentina Central Bank 9 16 Loan loss provisions for miscellaneous receivables and other provisions 63,562 108,230 CER adjustment 520 265 Amortization of differences arising form court resolutions 99,526 88,864 Other 118,576 128,647 ------------------------------------------- NET INCOME / (LOSS) BEFORE INCOME TAX 84,112 (45,741) ------------------------------------------- I. INCOME TAX 4,433 28,469 ------------------------------------------- NET INCOME / (LOSS) FOR THE PERIOD 79,679 (74,210) =======================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 9 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Consolidated Statement of Cash Flows-------------------------------------------- For the nine months from January 1, 2005---------------------------------------- to September 30, 2005----------------------------------------------------------- presented in comparative format with the same period of the previous year------- (figures stated in thousands of pesos)------------------------------------------
===================================================================================================================== 09.30.05 09.30.04 -------------------------------------------- Changes in cash Cash and due from banks at beginning of fiscal year 988,669 826,150 Increase in funds 7,213 281,579 -------------------------------------------- Cash and due from banks at period end 995,882 1,107,729 ============================================ Reasons for changes in cash Financial income collected 904,259 726,238 Income from services collected 461,698 384,094 Less Financial expenses paid (630,380) (423,253) Expenses for services paid (77,643) (65,505) Administrative expenses paid (497,476) (371,815) -------------------------------------------- Funds provided by operating activities 160,458 249,759 ============================================ Other sources of cash Increase in deposits, net 1,609,032 958,057 Decrease in government and corporate securities, net - 598,559 Other sources of cash 102,428 186,197 -------------------------------------------- Total sources of cash 1,711,460 1,742,813 -------------------------------------------- Other uses of cash Increase in government and corporate securities, net (205,509) - Increase in loans, net (912,565) (331,410) Increase in other receivables resulting from financial brokerage, net (126,216) (201,101) Increase in other assets, net (122,273) (187,477) Decrease in other liabilities resulting from financial brokerage, net (295,170) (614,585) Decrease in other liabilities, net (70,942) (107,522) Other uses of cash (132,030) (61,259) Repayment of principal of and interest on restructured debt - (207,639) -------------------------------------------- Total uses of cash (1,864,705) (1,710,993) -------------------------------------------- Increase in funds 7,213 281,579 =====================================================================================================================
The accompanying Notes 1 to 23 are an integral part of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 10 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary Accounting Information-------------------------------------------- Notes to Consolidated Financial Statements-------------------------------------- For the nine months ended September 30, 2005------------------------------------ presented in comparative format.------------------------------------------------ (figures stated in thousands of pesos)------------------------------------------ NOTE 1: ARGENTINE ECONOMIC CONTEXT---------------------------------------------- The issues described in Note 1 to the financial statements of Grupo Financiero Galicia S.A. are also applicable to these consolidated financial statements.--------------------------------------------------------------------- NOTE 2: PRESENTATION OF FINANCIAL STATEMENTS------------------------------------ The Financial Statements are presented in line with the provisions of Argentine Central Bank's Communique "A" 3147 and supplementary regulations regarding financial reporting requirements for the publication of quarterly and annual financial statements, with the guidelines of Technical Pronouncement Nos. 8 and 19 of the Argentine Federation of Professional Councils in Economic Sciences and with the guidelines of the General Resolution No. 434/03 of the National Securities Commission ("CNV"). As required by the abovementioned regulations, the financial statements are presented in comparative format with the previous fiscal year. These financial statements include the balances corresponding to the operations carried out by Banco de Galicia y Buenos Aires S.A. and its subsidiaries located in Argentina and abroad and form part of the said Bank's quarterly financial statements as supplementary information, reason for which they should be read in conjunction with them.----------------------------------- These financial statements reflect the effects of the changes in the purchasing power of the currency up to February 28, 2003, by following the restatement method established by Technical Resolution No. 6 of the Argentine Federation of Professional Councils in Economic Sciences ("FACPCE"). In line with Argentine Central Bank's Communique "A" 3921, Decree No. 664/2003 of the National Executive Branch and General Resolution No. 441/03 of the CNV, the Company discontinued the application of that method and therefore did not recognize the effects of the changes in the purchasing power of the currency originated after March 1, 2003. Resolution MD No. 41/03 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires ("CPCECABA") established the discontinuation of the recognition of the changes in the purchasing power of the currency, effective October 1, 2003.------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 11 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to Consolidated Financial Statements (Continued)-------------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 3: ACCOUNTING STANDARDS---------------------------------------------------- The most relevant accounting standards used in preparing the consolidated financial statements are listed below:------------------------------------------ a. Financial statement consolidation-------------------------------------------- The financial statements of Grupo Financiero Galicia S.A. have been consolidated on a line-by-line basis with those of Galicia y Buenos Aires S.A., Net Investment S.A., Galicia Warrants S.A., Sudamericana Holding S.A. and Galval Agente de Valores S.A. (See Note 4 to the consolidated financial statements).-------------------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. is the Company's main equity investment, a financial institution subject to the Argentine Central Bank regulations. For this reason the Company has adopted the valuation and disclosure criteria applied by the Bank.------------------------------------------------------------ Banco de Galicia y Buenos Aires S.A. financial statements include the balances corresponding to the operations of its branches in Argentina and abroad, as reported in their special financial statements, which have been adapted to the valuation and disclosure standards established by the Argentine Central Bank and, except as mentioned in item c.1.d. of this Note, by professional accounting standards. Financial statements of foreign branches have originally been issued in foreign currency and converted into pesos using the following criteria:----------------- a. Assets and liabilities were converted into pesos applying the reference exchange rate established by the Argentine Central Bank.--------------------- b. Allotted capital has been computed for the amounts actually disbursed restated.-------------------------------------------------------------------- c. Accumulated earnings were determined as the difference between assets, liabilities and the allotted capital.---------------------------------------- d. Earnings for the period were determined as the difference between the accumulated earnings at the beginning of the fiscal year, net of cash dividends and contributions, and the accumulated earnings at the closing date. The balances of income statement accounts were converted into pesos applying the average of the monthly average exchange rates recorded in each month of the current fiscal year.-------------------------------------------- e. The significant items arising from intercompany transactions among the consolidated companies have been eliminated from the Balance Sheet and the Income Statement.------------------------------------------------------------ The financial statements of Banco de Galicia y Buenos Aires S.A. corresponding to Argentine operations have been adjusted for inflation as mentioned in the second paragraph of Note 2 to the consolidated financial statements.--------- 12 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ b. Consistency of accounting principles----------------------------------------- Accounting principles applied to the financial statements of Net Investment S.A., Galicia Warrants S.A., Sudamericana Holding S.A. and Galval Agente de Valores S.A., are similar to those applied by the Company (See Note 2 item c.2. to the financial statements).--------------------------------------------------- The main valuation criteria applied by Banco de Galicia y Buenos Aires S.A. are listed below:----------------------------------- b.1. - Foreign currency assets and liabilities---------------------------------- These are stated at the US dollar exchange rate set by the Argentine Central Bank, at the close of operations on the last business day of each month.-------------------------------------------------------------------------- Assets and liabilities valued in foreign currencies other than the US dollar have been converted into the latter currency using the swap rates communicated by the Argentine Central Bank's trading desk.----------------------------------- b.2. - Gold bullion------------------------------------------------------------- Gold bullion is valued at the most recent U.S. dollar closing selling quotation for the troy ounce on the London Market, net of estimated direct selling costs.-------------------------------------------------------------------------- The procedure referred to in item b.1. above has been applied for conversion into local currency.------------------------------------------------------------ b.3. - Government and corporate securities-------------------------------------- b.3.a. - Government securities-------------------------------------------------- I) Holdings in investment accounts:--------------------------------------------- These include the National Government Bonds Libor Due 2012 received within the framework of Sections 28 and 29 of Decree No. 905/02 (see Note 1 to the financial statements, section "Compensation to financial institutions") recorded at technical value.------------------------------------------------------------- As long as this valuation criterion is followed, Banco de Galicia y Buenos Aires S.A. shall not be allowed to distribute any cash dividends, except for the amount of profits in excess of the difference between the carrying value and the market value of these securities. If the position in these securities and the balances receivable recorded under "Other Receivables Resulting from Financial Brokerage" not used as collateral for the subscription of the Hedge Bond had been marked to market, a decrease in the Bank's shareholders' equity as of September 30, 2005 and at the end of the previous fiscal year of about $ 265,947 and $ 617,764 respectively would have been recorded.---------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 13 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ Furthermore, in valuing these bonds, the cap per bond to the admitted valuation difference, resulting from increasing the market price by 20%, does not apply, as established by the Argentine Central Bank regulations.----------------------- II) Holdings of trading securities:--------------------------------------------- These are recorded at the closing price for each security at period end, plus the value of amortization and interest coupons due and receivable, less estimated selling costs, when applicable.--------------------------------------- III) Without quotation:--------------------------------------------------------- As of September 30, 2005, the Bank carries the following holdings:-------------- a) Secured Bonds in Pesos------------------------------------------------------- These bonds have been valued in accordance with Communique "A" 3911 and supplementary regulations, as mentioned in this Note, section "National secured loans and provincial secured bonds".-------------------------------------------- The total of these bonds holdings is allocated as collateral for the financial assistance from the Argentine Central Bank, including that for the subscription of the Hedge Bond, as indicated in Note 1 to the financial statements, Section "Compensation to financial institutions". The market value of the bonds granted as collateral of the Argentine Central Bank's financial assistance exceeds the book value by $ 19,959 approximately.------------------------------------------- b) Discount Bonds and GDP-Linked Negotiable Securities-------------------------- Banco de Galicia y Buenos Aires S.A. decided to participate in the exchange offered by the National Government, within the framework of the Argentine debt restructuring, opting to exchange its holdings of "Medium-Term External Notes," Series 74 and 75, for a face value of US$ 280,471 thousand, for "Discount Bonds in Pesos" and "GDP-Linked Negotiable Securities" issued under the conditions established by Decree No. 1735/04.---------------------------------------------- As established in that Decree, the acceptance of this offer implied receiving new debt instruments for an original principal amount equal to 33.7% of the non-amortized principal as of December 31, 2001, plus past due and unpaid interest up to that date.------------------------------------------------------- As indicated in Argentine Central Bank's Communique "A" 4270 and supplementary regulations, as of September 30, 2005, the securities received have been recorded at the lowest of the total future nominal cash payments up to maturity specified by the terms and conditions of the new securities, and the carrying value as of March 17, 2005 of the securities, equivalent to the present value of the Secured Bonds at that date.------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 14 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ This valuation will be reduced in the amount of the perceived payments, and accrued interest will not be recognized. Had these securities been valued at market price, Banco de Galicia y Buenos Aires S.A shareholders' equity would have been reduced by approximately $ 391,148 as of September 30, 2005. c) The Fiscal Tax Credit Certificates have been recorded at technical value (i.e., face value plus accrued interests, according to contractual conditions), as they will be used for tax payments.------------------------------------------ IV) Securities issued by the Argentine Central Bank:----------------------- These securities were valued at the period-end closing price for each security.----------------------------------------------------------------------- Those securities without quotation have increased on an exponential basis according to their internal rate of return.------------------------------------- b.3.b. - Investments in quoted corporate securities----------------------------- These securities are valued at the period-end closing price, less estimated selling costs, when applicable.------------------------------------------------- b.4. - National secured loans and provincial secured bonds---------------------- On 6 November 2001, within the framework of Decree No. 1387/01, Banco de Galicia y Buenos Aires S.A. participated in the exchange of Argentine government securities and loans, issued under the Promissory Note/Bond program, for new loans called "National Secured Loans," which are recorded in under "Loans - Non-Financial Public Sector".--------------------------------------------------- Had the National Secured Loans originally been valued at the closing price of the securities exchanged as of November 6, 2001, Banco de Galicia y Buenos Aires S.A. shareholders' equity would have decreased, at that date, by $ 446,688. At the issue date of these financial statements, their book value is lower than their estimated realizable value. This value was obtained by calculating the present value of their future cash flow of amortization and interest, based on the market rate for instruments of the same issuer------------------------------ Banco de Galicia y Buenos Aires S.A. has also participated in the restructuring of the provincial government's debt, pursuant to the provisions of Decree No. 1579/02, receiving Provincial Secured Bonds ("BOGAR") in exchange for its loans, which have been disclosed under "Government Securities without quotation."--------------------------------------------------------------------- In accordance with Argentine Central Bank's regulations, both assets have been recorded at the lower of their present value and their technical value. The "present value" is defined as the "net present value" of a cash flow structure determined under contractual conditions and discounted at a rate set by the Argentine Central Bank which, as of September 30, 2005, was 3.87% and, as of December 31, 2004, 3.50%. The "technical value" is the adjusted amount of each instrument under contractual conditions.---------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 15 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ Banco de Galicia y Buenos Aires S.A. has recognized in the income statement the effect resulting from the application of this criterion.------------------------ The assets used as collateral for the advances from the Argentine Central Bank for the subscription of the bonds envisaged in Sections 10, 11 and 12 of Decree No. 905/02, ratified by Section 71 of Law No. 25,827, have been recorded at the value admitted by the Argentine Central Bank for assets used as collateral, in accordance with Communique "A" 3911 and supplementary regulations.-------------- b.5. - Accrual of adjustments, interest, exchange rate differences, premiums on future transactions and variable returns---------------------------------------- For foreign and local currency transactions with a principal adjustment clause, as well as for those in which rates have been prearranged for terms up to 92 days, the accrual has been recognized on a linear basis.------------------------ For local currency transactions at rates arranged for longer periods, interest has been accrued on an exponential basis.--------------------------------------- As indicated in Note 1 to the individual financial statements, section "Deposit with the financial system - Legal actions requesting protection of constitutional guarantees"; for liabilities originally denominated in foreign currency and converted into pesos, the adjustment from the application of the CER was accrued in accordance with legal regulations or contractual conditions.--------------------------------------------------------------------- b.6. - Financial trust debt securities and participation certificates----------- The debt securities added at par have been recorded at their technical value; the remaining holdings were recorded according to their internal rate of return. Participation certificates are valued taking into account the participation in the assets net of liabilities that stem from the financial statements of the respective trusts.-------------------------------------------------------------- b.7. - Negotiable obligations without quotation--------------------------------- The holdings of these securities have increased on an exponential basis according their internal rate of return.---------------------------------------- b.8. - Assets under financial leases-------------------------------------------- Assets under financial leases are stated at cost less accumulated amortization, adjusted by the CER where applicable.------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 16 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ b.9. - Equity investments------------------------------------------------------- b.9.a. - In financial institutions, complementary and authorized activities----- - Controlled-------------------------------------------------------------------- Argentine:---------------------------------------------------------------------- These investments have been valued according to the equity method.-------------- Banco de Galicia y Buenos Aires S.A. equity investment in Banelco S.A. is valued under the equity method, based on this company's June 30, 2005 financial statements, because at the date of these financial statements, more recent audited financial statements were not available. Furthermore, the important developments that had an impact on this company's financial condition and results after that date have been recognized.----------------------------------- The irrevocable capital contribution that was made in Tarjetas del Mar S.A. within the process of restructuring debts with the Bank, has been disclosed at its original value and a valuation allowance has been established, which amounted to $ 51,122 as of September 30, 2005.---------------------------------- Foreign:------------------------------------------------------------------------ Banco de Galicia (Cayman) Limited (in provisional liquidation) and Banco Galicia Uruguay S.A. have been valued according to the equity method, on the basis of financial statements originally issued in foreign currency.--------------------- The conversion to local currency was made as established in the fourth paragraph of item a. of this note.-------------------------------------------------------- - Non-controlled---------------------------------------------------------------- Argentine:---------------------------------------------------------------------- These are stated at their acquisition cost restated as mentioned in Note 2. to these financial statements, plus stock dividends.------------------------------- A valuation allowance has been established for the amount by which it is estimated that the value of the investment in Compensadora Electronica S.A. exceeds the equity method value.------------------------------------------------ Foreign:------------------------------------------------------------------------ Minority interests in foreign entities are reflected at acquisition cost, plus stock dividends recognized at their face value.--------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 17 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ The procedure referred to in item b.1. above has been applied for conversion into local currency.------------------------------------------------------------ b.9.b - In other companies------------------------------------------------------ - Non-controlled---------------------------------------------------------------- Argentine:---------------------------------------------------------------------- These are stated at their acquisition cost restated as mentioned in Note 2. to these financial statements, plus stock dividends.------------------------------- A valuation allowance has been established for the amount by which it is estimated that the value of the investments in Argencontrol S.A., Alfer S.A. (in liquidation), Galicia Inmobiliaria S.A., Aguas Provinciales de Santa Fe S.A., Aguas Cordobesas S.A. and Aguas Argentinas S.A. exceeds their equity method value.-------------------------------------------------------------------------- Foreign:------------------------------------------------------------------------ Minority interests in foreign entities are valued at acquisition cost, plus stock dividends recognized at their face value.--------------------------------- The procedure referred to in item b.1. above has been applied for conversion into local currency.------------------------------------------------------------ A valuation allowance has been established for the investment in Tradecom International NV in the amount that this investment is estimated to exceed its recoverable value.-------------------------------------------------------------- b.10. - Bank premises and equipment and miscellaneous assets-------------------- Bank premises and equipment and miscellaneous assets have been valued at their restated cost (see Note 2 above), plus the increase in value of the real estate properties derived from a technical revaluation made in 1981, less accumulated depreciation.------------------------------------------------------------------- The depreciation of these assets is determined on the basis of their estimated useful lives, expressed in months. A full month's depreciation is recognized in the month in which an asset is acquired, while no depreciation is recognized in the month in which it is sold or retired, over a maximum of 600 months for real estate property, 120 months for furniture and fittings and 60 months for the rest of assets.----------------------------------------------------------------- The residual value of the assets, taken as a whole, does not exceed their combined market value.---------------------------------------------------------- b.11. - Other miscellaneous assets---------------------------------------------- These assets are valued at their restated acquisition cost (see Note 2 above), less the corresponding accumulated depreciation.-------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 18 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ For those miscellaneous assets earmarked for sale and acquired through foreclosures, the effects of the variation in the purchasing power of the currency as from January 1, 2002 have not been given accounting recognition.-------------------------------------------------------------------- The depreciation charges for these assets are calculated following the same criterion as that mentioned in item b.10 above.--------------------------------- b.12. - Intangible assets------------------------------------------------------- Intangible assets have been valued at their restated acquisition cost (see Note 2 above), less the corresponding accumulated amortization, calculated proportionally over the estimated number of months of useful life.-------------- Amortization has been assessed on a straight-line basis over a maximum of 120 months for "Goodwill" and over a maximum of 60 months for "Organization and development expenses."---------------------------------------------------------- Effective March 2003, Argentine Central Bank's Communique "A" 3916 established that the difference resulting from compliance with court decisions made in lawsuits filed challenging the current regulations applicable to deposits with the financial system, within the framework of the provisions of Law No. 25,561, Decree No. 214/02 and supplementary regulations, must also be recorded under this caption, the amortization of which must take place in a maximum of 60 equal, monthly and consecutive installments as from April 2003, as described in Note 1. to the financial statements, section "Deposit with the financial system - Legal actions requesting protection of constitutional guarantees".-------------------------------------------------------------------- b.13. - Allowance for loan losses and provisions for contingent commitments----- These have been established based upon the estimated uncollectibility risk of Banco de Galicia y Buenos Aires S.A. credit portfolio, which results from an evaluation of debtors' compliance with their payment obligations, their economic and financial condition and the guarantees securing their related transactions, taking into account the provisions of Argentine Central Bank's Communique "A" 2216 and supplementary regulations.--------------------------------------------- Since the beginning of the crisis in late 2001, Banco de Galicia y Buenos Aires S.A. has been restructuring its loan portfolio, a process that has reached its final stage this fiscal year.--------------------------------------------------- b.14. - Income tax-------------------------------------------------------------- As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. recorded no income tax charge because, as of that date, it estimated it had incurred in a tax loss. The income tax charge reported by Banco de Galicia y Buenos Aires S.A. has been determined in accordance with Argentine Central Bank regulations, which do not contemplate the application of the deferred tax method.------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 19 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ b.15 - Tax on minimum presumed income------------------------------------------- Pursuant to Section 13 of Law No. 25,063, as amended by Law No. 25,360, payments on account of the Minimum Presumed Income Tax, not offset against the Income Tax for each fiscal year, can be computed as a payment on account of the Income Tax determined for any of the following 10 fiscal years.---------------------------- The recognition of this deferred asset and its realizability stem from the ability to generate sufficient future taxable income for offsetting purposes, in accordance with projections prepared in conformity with the provisions of Argentine Central Bank's Communique "A" 4111 and supplementary regulations.-------------------------------------------------------------------- Below is a detail of the tax credits outstanding and their probable offsetting date:--------------------------------------------------------------------------- Tax credit Date of generation Probable offsetting date 11,702 2001 2011 45,158 2002 2011 43,004 2003 2011 42,037 2004 2011 15,140 2005 2011 In addition to the statement made in preceding paragraphs, as of September 30, 2005, companies controlled by Banco de Galicia y Buenos Aires S.A. record an asset of $ 1,612 for the Tax on Minimum Presumed Income, while as of December 31, 2004, this amount was $20,020.---------------------------------------------- b.16. - Severance payments------------------------------------------------------ Banco de Galicia y Buenos Aires S.A. directly allocates severance payments to expenses.----------------------------------------------------------------------- The amounts that the Bank may possibly have to pay for labor lawsuits are covered by a provision, which is recorded under "Liabilities - Provisions for Severance Payments."------------------------------------------------------------ Also, as of September 30, 2005, the maximum risk in connection with severance payments amounted to $ 201,321. As of December 31, 2004, this amount totaled $176,593.----------------------------------------------------------------------- c. Differences between the Argentine Central Bank's regulations and Argentine GAAP in the Autonomous City of Buenos Aires------------------------------------- Through its C.D. Resolutions No. 238/01, No. 243/01, No. 261/01, No. 262/01 and No. 187/02, the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires ("CPCECABA") approved, with certain amendments, Technical Pronouncements Nos. 16, 17,. 18, 19 and 20, incorporating certain changes to Argentine GAAP valuation and disclosure standards, the application of which is mandatory for fiscal years commenced on and after 1 July 2002 and their interim periods.------------------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 20 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ Furthermore, M.D. Resolution No. 5/2003 approved Technical Pronouncement No. 21, effective for fiscal years commenced on or after April 2003. In addition, the CNV through its General Resolutions No. 434/03 and No. 459 adopted, with certain modifications, Technical Pronouncements No. 16 to No. 21 based upon the resolutions issued by the CPCECABA.--------------------------------------------- At the date these financial statements were prepared, the Argentine Central Bank had not yet adopted these regulations. For this reason, Banco de Galicia y Buenos Aires S.A. has prepared its financial statements without considering the new valuation and disclosure criteria added to Argentine GAAP in force in the Autonomous City of Buenos Aires.------------------------------------------------ The main differences between the Argentine Central Bank's regulations and Argentine GAAP are detailed below:---------------------------------------------- c.1.- Valuation criteria-------------------------------------------------------- c.1.a.- Restatement to constant currency---------------------------------------- Banco de Galicia y Buenos Aires S.A. financial statements recognize the effects of changes in the purchasing power of the currency through February 28, 2003, following the restatement method established by Technical Pronouncement No. 6 (as amended by Technical Pronouncement No. 19) of the FACPCE.------------------- In accordance with Decree No. 664/2003 of the National Executive Branch, Communique "A" 3921 of the Argentine Central Bank and Resolution No. 441 of the CNV, Banco de Galicia y Buenos Aires S.A. discontinued the application of that method and, therefore, did not recognize the effects of changes in the purchasing power of the currency after March 1, 2003.--------------------------- Under Argentine GAAP, as established by M.D. Resolution No. 41/03 of the CPCECABA, the application of this method has been discontinued effective October 1, 2003.------------------------------------------------------------------------ However, taking into account that the variation in the IPIM recorded in the March-September 2003 period was a deflation of approximately 2 %, the effect from not recognizing such variation in Banco de Galicia y Buenos Aires S.A. financial statements has not been significant.---------------------------------- c.1.b. - Accounting for income tax according to the deferred tax method--------- Banco de Galicia y Buenos Aires S.A. determines the Income Tax charge by applying the enacted tax rate to the estimated taxable income, without considering the effect of any temporary differences between accounting and tax results.------------------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 21 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ Under Argentine GAAP, income taxes must be recognized using the deferred tax method and, therefore, deferred tax assets or liabilities must be established based on the aforementioned temporary differences. In addition, unused tax loss carry-forwards or fiscal credits that may be offset against future taxable income should be recognized as deferred assets, provided that taxable income is likely to be generated. Application of this criterion would lead to an increase of approximately $ 263,000 in assets.------------------------------------------- c.1.c. - Valuation of assets with the non-financial public and private sectors------------------------------------------------------------------------- c.1.c.1. - National secured loans and provincial secured bonds------------------ In accordance with the provisions of Decree No. 1387/01, dated November 6, 2001, during the fiscal year ended December 31, 2001, Banco de Galicia y Buenos Aires S.A. and the Companies controlled by Sudamericana Holding S.A. participated in the exchange offered by the National Government, swapping national government securities (which were classified and valued as "Investment accounts" by Banco de Galicia y Buenos Aires S.A. according to the criteria established by the Argentine Central Bank) for National Secured Loans which, as of September 30, 2005 and December 31, 2004, were recorded under "Loans - Non-Financial Public Sector." Furthermore, as established by Decree No. 1579/02, Banco de Galicia y Buenos Aires S.A. and the FFDP ("Fondo Fiduciario para el Desarrollo Provincial") exchanged loans to provincial governments for Provincial Secured Bonds ("BOGAR") which, as of September 30, 2005 and December 31, 2004, are recorded under "Government Securities without quotation."----------------------- As of such dates, Banco de Galicia y Buenos Aires S.A. valued those assets at the lower of present or technical value, as established by Argentine Central Bank's Communique "A" 3911, except for those used as collateral of the advances from the Argentine Central Bank for the subscription of the bonds envisaged in Sections 10, 11 and 12 of Decree No. 905/02.------------------------------------ Under the provisions of CD Resolution No. 290/01 of the CPCECABA, the restructured assets should have been valued as follows:------------------------- - National secured loans based upon the respective market quotations of the securities exchanged as of 6 November 2001, which as from that date are considered to be the acquisition cost, if corresponding, plus interest accrued at the internal rate of return until the end of each period.-------------------- - Provincial secured bonds: at market value. No significant volumes of these securities have been traded on the market. The known market values may not be representative of the realizable value of these assets.------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 22 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ The aforementioned assets, in addition to the bonds described in section c.1.c.3 of this note, are allocated as collateral of rediscounts and advances from the Argentine Central Bank and/or have been exchanged for restructured foreign debt of Banco de Galicia y Buenos Aires S.A. and its subsidiary in Uruguay, as detailed in Note 1, section Situation of Banco de Galicia y Buenos Aires S.A. and Banco de Galicia (Cayman) Limited (in Provisional Liquidation)" and their proceeds are expected to be used to settle those debts. For this reason, the variations in their current values should not have any negative effect on the Company financial condition.---------------------------------------------------- c.1.c.2. - Financial reporting of effects generated by court decisions on deposits------------------------------------------------------------------------ As explained in Note 1 to the financial statements, under "Deposits with the financial system - Legal actions requesting protection of constitutional guarantees", as of September 30, 2005, Banco de Galicia y Buenos Aires S.A. records an asset for $ 365,493 (original value of $ 663,909 net of accumulated amortization of $ 298,416) under "Intangible Assets - Organization and Development Expenses," for the differences resulting from compliance with court decisions on reimbursement of deposits within the framework of Law No. 25,561, Decree No. 214/02 and supplementary regulations, as established by Argentine Central Bank's Communique "A" 3916, to be amortized over 60 months. Under Argentine GAAP, such asset may be recorded as a receivable but its valuation should be based upon the best estimate of the recoverable amounts.-------------- c.1.c.3. - Compensation, per sections 28 and 29 of Decree No. 905/2002 of the National Executive Branch------------------------------------------------------- As of September 30, 2005 and December 31, 2004, Banco de Galicia y Buenos Aires S.A records the government securities received and to be received in connection with the compensation established by Sections 28 and 29 of National Executive Branch's Decree No. 905/02, under the captions "Government Securities - Holdings in Investment Accounts," "Other Receivables Resulting from Financial Brokerage - Other Receivables not Included in the Debtor Classification Regulations" and "Forward Purchases of Government Securities under Agreements to Repurchase," and "Miscellaneous Receivables," respectively.-------------------------------------- Under Argentine GAAP in force in the Autonomous City of Buenos Aires, the abovementioned assets must be valued at their current value, as indicated in item b.3.a. above, except where their treatment as investments to be held to maturity applies.--------------------------------------------------------------- At the date of preparation of these financial statements, the market value of the "BODEN 2012" is approximately 92% of its technical value.------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 23 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 3: (Continued)------------------------------------------------------------ c.1.c.4. - Allowances for receivables from the non-financial public sector------ Current Argentine Central Bank regulations on the establishment of allowances provide that receivables from the public sector are not subject to allowances for uncollectibility risk. Under Argentine GAAP, those allowances must be estimated based on the recoverability risk of those assets.--------------------- c.1.d. - Conversion of financial statements------------------------------------- The conversion into pesos of the financial statements of the foreign branches and subsidiaries for the purpose of their consolidation with Banco de Galicia y Buenos Aires S.A. financial statements, made in accordance with Argentine Central Bank regulations differs from Argentine GAAP (Technical Pronouncement No. 18). Argentine GAAP requires that:------------------------------------------ a) the measurements in the financial statements to be converted into pesos that are stated in period-end foreign currency (current values, recoverable values) be converted at the balance sheet date exchange rate; and ---------------------- b) the measurements in the financial statements to be converted into pesos that are stated in foreign currency of periods predating the closing date (for example: those which represent historical costs, income, expenses) be converted at the pertinent historical exchange rates, restated at period-end currency, when corresponding, due to the application of Technical Pronouncement No. 17. Quotation differences arising from conversion of the financial statements will be treated as financial income or losses, as the case may be.------------------- The application of this criterion instead of that mentioned in item a. of this Note does not have a significant impact on Banco de Galicia y Buenos Aires S.A. financial statements.----------------------------------------------------------- c.2 - Statement of Cash Flows--------------------------------------------------- The preparation criterion for said Grupo Financiero Galicia S.A. statement is in line with the provisions of Argentine Central Bank's Circular CONAU 1, which differs from that of Technical Pronouncement No. 19 by F.A.C.P.C.E.------------- Banco de Galicia y Buenos Aires S.A. and Grupo Financiero Galicia S.A. have quantified the estimate effects that would be derived from the application of Argentine GAAP on its financial statements as of September 30, 2005.------------ NOTE 4: BASIC INFORMATION ON CONSOLIDATED CONTROLLED COMPANIES------------------ The basic information regarding the controlled companies is presented in Note 10 and Schedule C to the financial statements of Grupo Financiero Galicia S.A.----- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 24 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 4: (Continued)------------------------------------------------------------ Grupo Financiero Galicia S.A. directly holds 87.50% of the capital stock and voting rights of Net Investment S.A., Galicia Warrants S.A. and Sudamericana Holding S.A.; while its controlled company, Banco de Galicia y Buenos Aires S.A., the remaining 12.50% of the capital stock and voting rights of those companies. Also, Grupo Financiero Galicia S.A. directly holds 100% of the capital stock and voting rights of Galval Agente de Valores S.A.---------------- Net Investment S.A financial statements, in turn, have been consolidated on a line-by-line basis with the balance sheet, income statements and statements of cash flows of B2Agro S.A. As of September 30, 2005, Net Investment S.A. held the following percentages:---------------------------------------------------------- ==================================================================== ISSUING COMPANY CAPITAL % VOTES % -------------------------------------------------------------------- B2Agro S.A. 99.99 99.99 ==================================================================== Sudamericana Holding S.A. results have been adapted to cover a nine-month period as of June 30, 2005, for consolidation purposes. This company's financial statements, in turn, have been consolidated on a line-by-line basis with he balance sheet, income statements and statements of cash flows of Galicia Retiro Cia. de Seguros S.A., Galicia Vida Cia. de Seguros S.A., Sudamericana Asesores de Seguros S.A. and Galicia Patrimoniales Cia. de Seguros S.A.. As of June 30, 2005, Sudamericana Holding S.A. held the following percentages:-----------------
==================================================================================== ISSUING COMPANY CAPITAL % VOTES % ------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------ Galicia Retiro Cia. de Seguros S.A. 99.99 99.99 ------------------------------------------------------------------------------------ Galicia Vida Cia. de Seguros S.A. 99.99 99.99 ------------------------------------------------------------------------------------ Sudamericana Asesores de Seguros S.A. 99.97 99.97 ------------------------------------------------------------------------------------ Galicia Patrimoniales Cia. de Seguros S.A. 99.99 99.99 ====================================================================================
As of November 15, 2004 after a special general shareholders' meeting, the shareholders of Medigap Salud S.A. decided by unanimous vote the early dissolution of this company and subsequent liquidation as of December 31, 2004. The liquidation of Medigap Salud S.A. became final on April 12, 2005 and was approved by the special general shareholders' meeting on May 26, 2005.---------- On December 15, 2004, Sudamericana Holding S.A., Swiss Medical S.A. and SMG INVESTMENT S.A. entered into a share purchase agreement involving 100% of the shares in Instituto de Salta Compania de Seguros de Vida S.A. The transfer of the mentioned shares was completed on April 29, 2005.--------------------------- Banco de Galicia y Buenos Aires S.A. consolidated financial statements as to September 30, 2005 and December 31, 2004 include the assets, liabilities and results of the controlled companies detailed below:----------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 25 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 4: (Continued)------------------------------------------------------------
================================================================================================ As of September 30, 2005 ------------------------------------------------------------------------------------------------ ISSUING COMPANY SHARES PERCENTAGE HELD IN -------------------------------- ---------------------------------- ---------------------------- TOTAL POSSIBLE CLASS NUMBER CAPITAL VOTES -------------------------------- ---------------- ----------------- ---------------------------- Banco Galicia Uruguay S.A. Ordinary 16,680 (*) 100.00 100.00 shares 2,573,264 (**) Contributions -------------------------------- ---------------- ----------------- ---------------------------- Tarjetas Regionales S.A. Ordinary 103,834,148 100.00 100.00 book-entry -------------------------------- ---------------- ----------------- ----------------------------- Galicia Factoring y Leasing S.A. Ordinary 1,889,700 99.98 99.98 book-entry -------------------------------- ---------------- ----------------- ----------------------------- Galicia Valores S.A. Sociedad de Bolsa Ordinary 999,996 99.99 99.99 book-entry ================================ ================ ================= ============================= (*) Stated at face value of 1,000 Uruguayan pesos.---------------------------------------------- (**) Stated in Uruguayan pesos.------------------------------------------------------------------
================================================================================================== As of December 31, 2004 --------------------------------------------------------------------------------------------------- ISSUING COMPANY SHARES PERCENTAGE HELD IN ------------------------------------- -------------------------------- ---------------------------- TOTAL POSSIBLE CLASS NUMBER CAPITAL VOTES ------------------------------------- ------------- ------------------ ------------- -------------- Banco Galicia Uruguay S.A. Ordinary 13,375 (*) 100.00 100.00 shares 0.13716 ------------------------------------- ------------- ------------------ ------------- -------------- Tarjetas Regionales S.A. Ordinary 103,834,148 100.00 100.00 book-entry ------------------------------------- ------------- ------------------ ------------- -------------- Galicia Capital Markets S.A. (in liquidation) Ordinary 99,990 99.99 99.99 book-entry ------------------------------------- ------------- ------------------ ------------- -------------- Galicia Factoring y Leasing S.A. Ordinary 1,889,700 99.98 99.98 book-entry ------------------------------------- ------------- ------------------ ------------- -------------- Agro Galicia S.A. (in liquidation) Ordinary 250,000 100.00 100.00 book-entry ------------------------------------- ------------- ------------------ ------------- -------------- Galicia Valores S.A. Sociedad de Bolsa Ordinary 999,996 99.99 99.99 book-entry ===================================== ============= ================== ============= ============== (*) Stated at face value of 1,000 Uruguayan pesos.-------------------------------------------------
=================================================================================================== As of September 30, 2005 --------------------------------------------------------------------------------------------------- ISSUING COMPANY ASSETS LIABILITIES SHAREHOLDERS' RESULTS EQUITY -------------------------------------------- ------------- ------------- ------------ ------------- -------------------------------------------- ------------- ------------- ------------ ------------- Banco Galicia Uruguay S.A. 733,384 686,439 46,945 284,943 -------------------------------------------- ------------- ------------- ------------ ------------- Tarjetas Regionales S.A. 1,158,188 1,008,976 149,212 52,998 -------------------------------------------- ------------- ------------- ------------ ------------- Galicia Factoring y Leasing S.A. 3,495 141 3,354 (8) -------------------------------------------- ------------- ------------- ------------ ------------- Galicia Valores S.A. Sociedad de Bolsa 24,798 10,451 14,347 1,287 ============================================ ============= ============= ============ =============
26 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 4: (Continued)------------------------------------------------------------
=================================================================================================== Balance sheet as of December 31, 2004 and and results as of September 30, 2004. --------------------------------------------------------------------------------------------------- ISSUING COMPANY ASSETS LIABILITIES SHAREHOLDERS' RESULTS EQUITY -------------------------------------------- ----------- ------------- ------------- -------------- Banco Galicia Uruguay S.A. 983,076 1,546,266 (563,190) 163,387 -------------------------------------------- ----------- ------------- ------------- -------------- Tarjetas Regionales S.A. 840,045 743,831 96,214 55,773 -------------------------------------------- ----------- ------------- ------------- -------------- Galicia Capital Markets S.A. (in liquidation) 7,745 16,095 (8,350) (1,827) -------------------------------------------- ----------- ------------- ------------- -------------- Galicia Factoring y Leasing S.A. 3,383 20 3,363 (61) -------------------------------------------- ----------- ------------- ------------- -------------- Agro Galicia S.A. (in liquidation) 103 8 95 (51) -------------------------------------------- ----------- ------------- ------------- -------------- Galicia Valores S.A. Sociedad de Bolsa 22,515 9,455 13,060 1,449 ============================================ =========== ============= ============= ==============
The financial statements of the controlled companies were adapted to the valuation and disclosure standards set by the Argentine Central Bank and cover the same period as that of the financial statements of Banco de Galicia y Buenos Aires S.A.---------------------------------------------------------------------- The financial statements of Banco Galicia Uruguay S.A. include the balances of Galicia Uruguay consolidated on a line-by-line basis with those of Banco de Galicia (Cayman) Limited (In Provisional Liquidation), in which Banco Galicia Uruguay S.A. holds 65.3405% of its capital stock and Banco de Galicia y Buenos Aires S.A. holds the remaining 34.6595%.--------------------------------- The latest statements have been consolidated with those of Galicia Pension Fund Limited, in which Banco de Galicia (Cayman) Limited (in provisional liquidation) holds a 100% interest.---------------------------------------------------------- Furthermore, Galicia Pension Fund Limited consolidates its financial statements with those of Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion, in which it holds a 99.985% interest.--------------------- Banco de Galicia y Buenos Aires S.A. holds 68.218548% of Tarjetas Regionales S.A.'s capital stock and votes, while Banco de Galicia (Cayman) Limited (in provisional liquidation) holds the remaining 31.781452%.------------------------ The September 30, 2005 financial statements of Tarjetas Regionales S.A., which were used for consolidation purposes, have in turn been consolidated on a line-by-line basis with the financial statements of Tarjeta Naranja S.A., Tarjetas Cuyanas S.A. and Tarjetas del Mar S.A., in which Tarjetas Regionales S.A. holds a controlling interest.---------------------------------------------- The percentages directly held in those companies' capital stock are as follows:------------------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 27 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 4: (Continued)------------------------------------------------------------ - Directly:---------------------------------------------------------------------
============================================== ========================= ========================= Company 09.30.05 12.31.04 ---------------------------------------------- ------------------------- ------------------------- Tarjetas Cuyanas S.A. 60% 60% ---------------------------------------------- ------------------------- ------------------------- Tarjetas del Mar S.A. 99.999% 99.999% ---------------------------------------------- ------------------------- ------------------------- Tarjeta Naranja S.A. 80% 80% ============================================== ========================= =========================
On January 30, 2004 Tarjeta Naranja S.A. accepted irrevocable contributions from Banco de Galicia y Buenos Aires S.A. for $20,000 and from minority shareholders for $ 5,000. On July 14, 2005 the reimbursement of all irrevocable contributions was decided, which as to the date of these financial statements has not been made yet.----------------------------------------------------------------------- In addition, Tarjeta Naranja S.A.'s financial statements have been consolidated with the financial statements of Cobranzas Regionales S.A., in which it holds 87.7% of voting stock. Furthermore, Tarjetas Cuyanas S.A. holds a 12.3% interest in Cobranzas Regionales S.A.'s capital stock and voting rights.------------------------------------------------------------------------- Consolidation of the financial statements of Galicia Capital Markets S.A. (in liquidation) and Agro Galicia S.A. (in liquidation) has been discontinued during the previous quarter as a result of their anticipated dissolution.-------------- NOTE 5: MINORITY INTEREST IN CONSOLIDATED ENTITIES OR COMPANIES---------------- ---------------------------------------------------------------- The portion of the controlled companies' shareholders' equity owned by third parties has been disclosed in the Balance Sheet, under the "Minority Interests in consolidated entities or companies" caption. The result of minority interest is disclosed in the Income Statement under "Minority Interests Results."----------------------------------------------------------------------- The minority interest percentages as of September 30, 2005 and December 31, 2004 are the following:--------------------------------------------------------------
=============================================================== ================ ================= Company 09.30.05 12.31.04 --------------------------------------------------------------- ---------------- ----------------- Banco de Galicia y Buenos Aires S.A. 6.39581% 6.40835% --------------------------------------------------------------- ---------------- ----------------- Net Investment S.A. 0.79948% 0.80104% --------------------------------------------------------------- ---------------- ----------------- Sudamericana Holding S.A. 0.79942% 0.80099% --------------------------------------------------------------- ---------------- ----------------- Galicia Warrants S.A. 0.79948% 0.80104% --------------------------------------------------------------- ---------------- ----------------- B2Agro S.A. 0.80774% 0.80931% --------------------------------------------------------------- ---------------- ----------------- Net Investment B.V. 0.79948% 0.80104% --------------------------------------------------------------- ---------------- ----------------- Medigap Salud S.A. (*) - 0.80925% --------------------------------------------------------------- ---------------- ----------------- Instituto de Salta Cia. de Seguros de Vida S.A. (*) - 0.80135% --------------------------------------------------------------- ---------------- ----------------- Galicia Retiro Cia. de Seguros S.A. (*) 0.79955% 0.80112% --------------------------------------------------------------- ---------------- ----------------- Galicia Vida Cia. de Seguros S.A. (*) 0.80929% 0.81086% --------------------------------------------------------------- ---------------- ----------------- Sudamericana Asesores de Seguros S.A. (*) 0.83249% 0.83405% --------------------------------------------------------------- ---------------- ----------------- Galicia Patrimoniales Cia. de Seguros S.A. (*) 0.80769% 0.80925% =============================================================== ================ =================
(*) Minority interest determined based on the financial statements as of June 30, 2005.----------------------------------------------------------------------- 28 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 5: (Continued)------------------------------------------------------------- -------- The minority interest percentages held by Banco de Galicia y Buenos Aires S.A. are listed below:---------------------------------------------------------------
=============================================================== ================ ================= Company 09.30.05 12.31.04 --------------------------------------------------------------- ---------------- ----------------- Galicia Valores S.A. Sociedad de Bolsa 0.01% 0.01% --------------------------------------------------------------- ---------------- ----------------- Galicia Capital Markets S.A. (in liquidation) - 0.01% --------------------------------------------------------------- ---------------- ----------------- Galicia Factoring y Leasing S.A. 0.02% 0.02% --------------------------------------------------------------- ---------------- ----------------- Galicia Administradora de Fondos S.A. Sociedad Gerente de Fondos Comunes de Inversion 0.015% 0.015% --------------------------------------------------------------- ---------------- ----------------- Tarjetas Cuyanas S.A. 40.00% 40.00% --------------------------------------------------------------- ---------------- ----------------- Tarjeta Naranja S.A. 20.00% 20.00% --------------------------------------------------------------- ---------------- ----------------- Tarjetas del Mar S.A. 0.001% 0.001% --------------------------------------------------------------- ---------------- ----------------- Galicia Advent Corporation Limited - 26.67% --------------------------------------------------------------- ---------------- ----------------- Cobranzas Regionales S.A. 22.46% 22.46% =============================================================== ================ =================
NOTE 6: RESTRICTED ASSETS AND OTHER CONTINGENT LIABILITIES---------------------- ---------------------------------------------------------- I) As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. ability to dispose of the following assets corresponding to its local branches was restricted as mentioned below:-------------------------------------------------- a. Funds and government securities---------------------------------------------- The Bank has deposited $ 46,886 as a guarantee to third parties and $ 67,197 for security margins of repo transactions. The Bank has deposited $ 60 in Fiduciary accounts opened at the Argentine Central Bank as collateral for transactions carried out in the Rosario Futures Exchange.------------------------------------ b. Special escrow accounts------------------------------------------------------ Special escrow accounts have been opened with the Argentine Central Bank as collateral for transactions involving electronic clearinghouses, checks for settling debts and other similar transactions which, as of September 30, 2005, amounted to $ 80,340. c. Deposits in favor of the Argentine Central Bank-------- These have been set up in line with Argentine Central Bank regulations.--------- - Communique "A" 1190 $ 533.---------------------------- - Communique "A" 2923 $ 942.---------------------------- d. Guarantees granted to the Argentine Central Bank----------------------------- As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. has allocated loans to the public sector for $ 5,885,067 as collateral of assistance from the Argentine Central Bank.--------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- e. Equity investments----------------------------------------------------------- 29 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 6: (Continued)------------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. has granted a senior pledge on all its shares of Correo Argentino S.A., in favor of the International Finance Corporation, the Inter American Development Bank and a syndicate of local institutions, as collateral of financing granted to that company.--------------- This was authorized by the Argentine Central Bank through resolution No. 408 dated September 9, 1999. On 19 November 2003, the National State terminated the concession contract awarded to Correo Argentino S.A. On October 27, 2004, the Appeals Court sustained the claim filed by the company, leaving without effect the declaration of bankruptcy and converting the proceeding into a Cram Down process, pursuant to Section 48 of the Insolvency and Bankruptcy Law.----------- On March 25, 2004, the guarantee for $ 7,265 provided in favor of the National State as security for compliance with the concession of Correo Argentino S.A. was enforced. The related claim was proved as a possible claim in the Correo Argentino S.A.'s reorganization proceeding. Banco de Galicia y Buenos Aires S.A. paid the guarantee under the conditions established by the National Communications Commission and notice of this payment was given in the Correo Argentino's reorganization proceeding.------------------------------------------ Under the sponsorship contract, Banco de Galicia y Buenos Aires S.A. is liable for 14.53% of Correo Argentino S.A.'s financial debt with its financial creditors, in the event of early termination of the concession for any reason, including bankruptcy.----------------------------------------------------------- After having received a payment claim from the International Finance Corporation, on April 13, 2005, Banco de Galicia y Buenos Aires S.A. transferred Boden 2012 for a face value of US$ 9,459 thousand, thus complying with all of its payment obligations towards that Entity.------------------------------------ Also, upon receiving a payment claim from Banco Rio, on May 17, 2005, Banco de Galicia y Buenos Aires S.A. transferred $ 4,606 thus complying with all of its payment obligations towards that Entity.---------------------------------------- After having received a payment claim from the Inter American Development Bank, on June 23, 2005, Banco de Galicia y Buenos Aires S.A. transferred Boden 2012 for a face value of US$ 9,509 thousand, thus complying with all of its payment obligations towards that Entity.------------------------------------------------ Banco de Galicia y Buenos Aires S.A. has established provisions for the related outstanding contingent liabilities.--------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 30 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 6: (Continued)------------------------------------------------------------- Both the investment and the receivables have been written off from assets.------ The item "Equity Investments" also includes shares the transferability of which is subject to the prior approval of the National or Provincial authorities, as applicable, under the terms of the concession contracts signed:----------------- - Aguas Argentinas S.A.: 3,236,879 book-entry class F shares and 522,887 book-entry class E shares.------------------------------------------------ - Aguas Provinciales de Santa Fe S.A.: 3,600,000 book-entry class F shares and 62,500 book-entry class D shares-------------------------------------- - Inversora Diamante S.A.: 1,606,117 ordinary book-entry non-transferable shares.------------------------------------------------------------------- - Inversora Nihuiles S.A.: 1,184,093 ordinary book-entry non-transferable shares.------------------------------------------------------------------- - Electrigal S.A.: 1,222,406.50 ordinary registered non-endorsable non-transferable shares.-------------------------------------------------- - Aguas Cordobesas S.A.: 900,000 ordinary class E shares.------------------- - Correo Argentino S.A.: 12,462,021 ordinary non-transferable class B shares.------------------------------------------------------------------- As a shareholder of the water supply services concessionaires, Aguas Argentinas S.A., Aguas Provinciales de Santa Fe S.A. and Aguas Cordobesas S.A., Banco de Galicia y Buenos Aires S.A. has guaranteed their compliance with obligations arising from the concession contracts.------------------------------------------ In addition, the Bank and the other shareholders have committed, in certain circumstances, to provide financial support to those companies if they were unable to honor the commitments they have undertaken with international financial institutions.--------------------------------------------------------- In the case of Aguas Cordobesas S.A., Banco de Galicia y Buenos Aires S.A., in is capacity of shareholder and proportionally to its 10.833% interest, is jointly responsible, before the concession grantor, for all contract obligations deriving from the concession contracts during the entire term thereof.------------------------------------------------------------------------ Should any of the other shareholders fail to comply with the commitments deriving from their joint responsibility, the grantor may force Banco de Galicia y Buenos Aires S.A. to assume the unfulfilled responsibility, but only in the proportion and to the extent of the interest held by the Bank.------------------ In relation to Aguas Provinciales de Santa Fe S.A. and within the framework of the commitments undertaken as a shareholder with the American Development Bank and the International Finance Corporation, on March 3, 2005, Banco de Galicia y Buenos Aires S.A. disbursed an amount equivalent to US$ 7,131 thousand, granted a guarantee for US$ 2,312 thousand and assumed a contingent payment obligation for US$ 2,312 thousand, being these the only commitments undertaken with the abovementioned entities. In addition, at the grantor's request, in August 2005 the Bank paid the $ 7,900 compliance security of the concession contract.----------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 31 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 6:(Continued)-------------------------------------------------------------- The guarantees described have been recognized under "Memorandum Accounts."------ On the basis of information known as of September 30, 2005, Banco de Galicia y Buenos Aires S.A. has established a reserve for the amount it estimates it will have to pay for these contingencies.-------------------------------------------- At the date these financial statements were prepared, Aguas Argentinas S.A. continues to negotiate with the Argentine Government in relation to its activities, which are being followed up and analyzed by Banco de Galicia y Buenos Aires S.A.'s management on a regular basis.------------------------------ f. Guarantees granted for Direct Obligations------------------------------------ In addition, as of September 30, 2005, Banco de Galicia y Buenos Aires S.A. recorded $ 28,857 under "Memorandum Accounts - Guarantees Granted for Direct Obligations," to cover the commitments undertaken under the portfolio sale contract signed with Citibank NA, Buenos Aires Branch. Under the terms of that contract, in the event of a default, Banco de Galicia y Buenos Aires S.A undertakes to repurchase and/or replace the loans transferred with other loans of similar characteristics.----------------------------------------------------- As of December 31, 2004 the total amount of restricted assets for the aforementioned items was $ 6,285,889.------------------------------------------- II) As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. ability to dispose of the following assets corresponding to its controlled companies was restricted as follows:---------------------------------------------------------- a. Galicia Valores S.A. Sociedad de Bolsa:------------------------------------ As of September 30, 2005, this company holds three shares of Mercado de Valores de Buenos Aires S.A. securing an insurance covering its transactions for $ 6,450. At the end of the previous fiscal year, its restricted assets totaled $5,235.------------------------------------------------------------------------- b. Tarjetas Cuyanas S.A.-------------------------------------------------------- As of September 30, 2005, the company's ability to dispose of time deposits for $ 631 and $ 106 was restricted because this amount was earmarked to secure two collection agreements signed with the Revenue Board of the Province of Mendoza and Telefonica de Argentina, respectively. At the end of the previous fiscal year, its restricted assets totaled $ 612 and $ 103.---------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 32 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 6: (Continued)------------------------------------------------------------- c. Tarjeta Naranja S.A.--------------------------------------------------------- Attachments amounting to $ 423 have been levied on current account deposits that this company holds with Banco de Galicia y Buenos Aires S.A.-------------------- Furthermore, Tarjeta Naranja S.A. has made a time-deposit amounting to $ 33,500 with Bank Boston S.A. for 125 days until November 7, 2005, granting an actual pledge thereon in favor of the abovementioned entity pursuant to a loan agreement signed with such entity.---------------------------------------------- d. Banco de Galicia (Cayman) Limited (In Provisional Liquidation)--------------- All this company's assets are administered by the liquidators in favor of creditors until the termination of the debt restructuring agreement.------------ e. Banco Galicia Uruguay S.A.:-------------------------------------------------- At the request of creditors of Banco Galicia Uruguay S.A., a restraining order has been issued enjoining this company from disposing of its real property.----- Under a fixed pledge agreement signed on July 24, 2003, and registered with the Registry of Property-Movable Property-Pledges Division of Montevideo-Uruguay, on August 5, 2003, Galicia Uruguay's credit rights against all of its debtors have been pledged in favor of the holders of the transferable time-deposit certificates and/or negotiable obligations issued in compliance with the debt restructuring plan approved.---------------------------------------------------- III) As of September 30, 2005, the Bank's ability to dispose of the following assets corresponding to Galval Agente de Valores S.A. was restricted as mentioned below.---------------------------------------------------------------- On January 7, 2005, said company made a deposit for US$ 135 thousand with the which is Uruguay Central Bank, which has been pledged in favor of said controlling authority as collateral for compliance with regulations governing the activities carried out by securities agents.-------------------------------- NOTE 7: TRUST ACTIVITIES-------------------------------------------------------- a) Trust contracts for purposes of guaranteeing compliance with obligations:-------------------------------------------------------------------- In order to guarantee compliance with contractual obligations, the parties to these agreements have agreed to deliver to Banco de Galicia y Buenos Aires S.A., as fiduciary property, amounts to be invested according to the following detail:------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 33 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 7: (Continued)-------------------------------------------------------------
================== ===================== ======================================= ================== Date of Contract Trustor Trust fund balance Due date ------------------ --------------------- --------------------------------------- ------------------ $ In thousands of US$ ------------------ --------------------- ------------------- ------------------- ------------------ 01.06.98 Eduardo Sumic y 12 30 07.07.07 (1) Ercides Ciani ------------------ --------------------- ------------------- ------------------- ------------------ 02.15.04 Blaisten 16 - 02.15.08 (2) ================== ===================== =================== =================== ==================
b) Administration trust contracts:---------------------------------------------- To administer and exercise the fiduciary ownership of the trust assets.---------
================== ===================== ======================================= ================== Date of Contract Trustor Trust fund balance Due date ------------------ --------------------- --------------------------------------- ------------------ $ In thousands of US$ ------------------ --------------------- ------------------- ------------------- ------------------ 12.23.02 Coca Cola de 16 - 12.31.07 (2) Argentina S.A. ------------------ --------------------- ------------------- ------------------- ------------------ 02.23.04 Car Security 3 - 12.31.08 (2) ================== ===================== =================== =================== ==================
c) Financial trust contracts:------------------------------------------------- To administer and exercise the fiduciary ownership of the trust assets until the redemption of the debt securities:----------------------------------------------
================== ===================== ======================================= ================== Date of Contract Trustor Trust fund balance Due date ------------------ --------------------- --------------------------------------- ------------------ $ In thousands of US$ ------------------ --------------------- ------------------- ------------------- ------------------ 01.28.04 Tarjeta Naranja III 104,721 - 08.01.10 (3) ------------------ --------------------- ------------------- ------------------- ------------------ 03.07.05 Grobo I 7,979 - 08.01.06 (4) ------------------ --------------------- ------------------- ------------------- ------------------ 06.17.05 Radio Sapienza I 3,271 - 03.12.07 (4) ------------------ --------------------- ------------------- ------------------- ------------------ 07.13.05 Rumbo Norte I 3,975 - 07.13.11 (5) ================== ===================== =================== =================== ==================
(1) This amount will be released upon maturity or when the Bank receives instructions in accordance with contract stipulations.---------------------- (2) These amounts will be released monthly until the earlier of the settlement date of trustor obligations or the due date.-------------------------------- (3) These amounts will be released monthly until the redemption of the debt securities.----------------------------------------------------------------- (4) Estimated date, because the due date will occur at the time of the distribution of all of the trust assets.------------------------------------ (5) Pursuant to section 2.2 of the Trust Agreement: Term: 6 years as from the Final Establishment; such term may be extended over two (2) additional years.---------------------------------------------------------------------- NOTE 8: NEGOTIABLE OBLIGATIONS AND DEBT CERTIFICATES--------------------------- ----------------------------------------------------- a) As of September 30, 2005, Banco de Galicia y Buenos Aires S.A., had the following outstanding negotiable obligations:-------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 34 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 8: (Continued)------------------------------------------------------------ a.1) Banco de Galicia y Buenos Aires S.A. - Ordinary Negotiable Obligations:----
==================== ===================== ================= ================== ================== ISSUE DATE RESIDUAL FACE TERM RATE ISSUE VALUE (in AUTHORIZED BY thousands of US$) THE CNV -------------------- --------------------- ----------------- ------------------ ------------------ 08.11.93 8,084 (*) 10 years 9.00 % 08.10.93 ==================== ===================== ================= ================== ==================
(*) This amount corresponds to past due negotiable obligations, not tendered to the restructuring offer.-------------------------------------------------------- a.2) The Ordinary Shareholders' Meeting, held on September 30, 1997, authorized the creation of a global program for the issuance of negotiable obligations, not convertible into shares, which could be denominated in pesos, dollars or other currencies, for a maximum aggregate amount of equivalent to US$ 1,000,000 thousand. At the date of these financial statements, this program has expired. However, as of September 30, 2005, Banco de Galicia y Buenos Aires S.A. has outstanding the following short- and medium-term negotiable obligations issued under this program:-------------------------------------------------------------
==================== ===================== ================ ================== =================== ISSUE DATE RESIDUAL FACEVALUE TERM RATE ISSUE (in thousands of AUTHORIZED BY US$) THE CNV -------------------- --------------------- ---------------- ------------------ ------------------- 06.11.01 889 (*) 1,653 days Libor plus 2% 04.22.98 -------------------- --------------------- ---------------- ------------------ ------------------- 07.19.02 48.423 (**) 1,840 days 7,875% 04.22.98 -------------------- --------------------- ---------------- ------------------ ------------------- 07.19.02 28.774 (**) 1,840 days Libor 6 months 04.22.98 plus 4% ==================== ===================== ================ ================== ===================
(*) These amounts correspond to past due negotiable obligations, not tendered to the restructuring offer--------------------------------------------------------- (**) Negotiable obligations, which are current, issued as a result of the restructuring of New York Branch's debt, and which were not included in the Banco de Galicia y Buenos Aires S.A. debt restructuring.------------------------ In accordance with the provisions of the Negotiable Obligations Law and Argentine Central Bank regulations, the net proceeds of the negotiable obligations detailed in items a.1) and a.2) were applied to the extension of credit to domestic companies for them to finance investments in physical assets in Argentina, working capital or the restructuring of liabilities, the extension of consumer loans and mortgage loans to finance housing construction, or investments in the share capital of domestic companies and other uses envisaged by current regulations.--------------------------------------------------------- a.3) The Ordinary Shareholders' Meeting held on September 30, 2003 approved the creation of a Global Program for the issuance and re-issuance of ordinary negotiable obligations, not convertible into shares, subordinated or not, secured or unsecured, for a maximum face amount of US$ 2,000,000 thousand or its equivalent in any other currency, outstanding at any time during the life of the Program, for a maximum term of five years counted as from the authorization of the Program by the National Securities Commission, which took place on December 29, 2003, pursuant to Resolution No. 14,708, or for any other longer term the CNV may authorize pursuant to regulations.-------------------------------------- 35 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 8: (Continued)------------------------------------------------------------- On April 23, 2004, through Resolution No. 14,773 the National Securities Commission authorized the issuance of ordinary senior and subordinated negotiable obligations, not convertible into shares, for a total face value of up to US$ 1,400,000 thousand or its equivalent in other currencies.------------- The net proceeds of the negotiable obligations issued under the Program was used to refinance foreign debt, in accordance with Section 36 of the Negotiable Obligations Law, Argentine Central Bank's Communique "A" 3046 and its amendments, and other applicable regulations.----------------------------------- As of September 30, 2005, Banco de Galicia y Buenos Aires S.A., had the following negotiable obligations outstanding under this Program:---------------- Ordinary negotiable obligations:------------------------------------------------
===================== ====================== ================== ================ ================== ISSUE DATE RESIDUAL FACE VALUE TERM RATE ISSUE (in thousands of AUTHORIZED BY US$) THE CNV --------------------- ---------------------- ------------------ ---------------- ------------------ 05.18.04 464,802 (1) (*) 12.29.03 and 04.27.04 --------------------- ---------------------- ------------------ ---------------- ------------------ 05.18.04 352,839 (2) Libor plus 3.5% 12.29.03 and 04.27.04 ===================== ====================== ================== ================ ==================
(1) The principal of the Negotiable Obligations Due 2014 will be amortized semi-annually, beginning January 1, 2010, in installments equal to 11.11% of the original principal amount, until their due date, January 1, 2014, when the remaining 11.12% of the original principal is due.------------------------------ (2) The principal of the Negotiable Obligations Due 2010 will be amortized semi-annually, beginning July 1, 2006, in installments equal to 12.5% of the original principal amount, until their due date, January 1, 2010, when the remaining 12.5% of the original principal will is due.-------------------------- (*) Interest shall accrue as from January 1, 2004, at a 3% annual fixed rate, which increases by 1% each year until an annual rate of 7% is reached, which will apply from January 1, 2008 up to but not including January 1, 2014.-------- Subordinated negotiable obligations:--------------------------------------------
===================== ====================== ================ ================== ================== ISSUE DATE RESIDUAL FACE VALUE TERM RATE ISSUE (in thousands of AUTHORIZED BY US$) THE CNV --------------------- ---------------------- ---------------- ------------------ ------------------ 05.18.04 234,989 (*) (1) (2) 12.29.03 and 04.27.04 ===================== ====================== ================ ================== ==================
(*) Includes US$ 5,455 thousand, US$ 5,592 thousand and $ 5,731 corresponding to capitalized payment-in-kind (by means of Negotiable Obligations Due 2019) interest due on July 1, 2004 January 1, 2005, and July 1, 2005 respectively. Furthermore, Grupo Financiero Galicia S.A. holds Subordinated Negotiable Obligations due in 2019 for a face value of US$ 97,422 thousand, which include capitalized interest on the new Subordinated Negotiable Obligations.------------ 36 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 8: (Continued)------------------------------------------------------------- (1) These obligations will be fully amortized upon maturity, on January 1, 2019, unless their principal is previously redeemed at par, plus unpaid accrued interest and additional amounts, if any, fully or partially at the issuer's option at any time, after all the negotiable obligations due in 2014 and 2010 have been fully repaid.--------------------------------------------------------- (2) Interest on the Negotiable Obligations Due 2019 shall be payable in cash and in additional Negotiable Obligations Due 2019, semi-annually in arrears, on January 1 and July 1 of each year, commencing on July 1, 2004. The Negotiable Obligations Due 2019 shall accrue interest payable in cash at an annual fixed rate of 6%, from January 1, 2004 up to but not including January 1, 2014. Such interest rate increases to 11% per annum from 1 January 2014 up to but not including January 1, 2019, the maturity date of the Negotiable Obligations Due 2019, unless they are previously redeemed.-------------------------------------- Interest payable in kind will accrue at an annual fixed rate of 5%, beginning on January 1, 2004, and will be payable on January 1, 2014 and January 1, 2019.---- a.4) The Ordinary Shareholders' Meeting, held on April 28, 2005, approved the creation of a Global Program for the issuance and re-issuance of ordinary negotiable obligations, not convertible into shares, subordinated or not, adjustable or not, secured or unsecured, for a maximum face amount of $ 1,000,000, or its equivalent in any other currency, outstanding at any time during the life of the Program, for a maximum term of five years counted as from the authorization of the Program by the CNV, or for any other longer term the CNV may authorize pursuant to regulations.-------------------------------------- On September 15, 2005, the Board of Directors resolved that the US dollar was the currency to determine the amount of the Program, at the Argentine Central Bank reference exchange rate as of September 14, 2005 (U$S 1 = $ 2.9193), resulting in a rounded off total amount of the Program of U$S 342,500 thousand. Likewise, the Board of Directors established the remaining terms and conditions for the issuance and re-issuance of ordinary negotiable obligations under the Program, which was approved by the CNV through Resolution No. 15,228 dated November 04, 2005--------------------------------------------------------------- As of September 30, 2005, the total balance of negotiable obligations, including principal and interest, amounts to $ 3,341,497, net of expenses. This amount includes the negotiable obligations issued as a result of the debt restructuring.------------------------------------------------------------------ As of December 31, 2004, the total balance of negotiable obligations, including principal and interest, net of discounts, was $ 3,541,232.---------------------- b) Companies controlled by Banco de Galicia y Buenos Aires S.A. - Issuance of Ordinary Negotiable Obligations------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 37 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 8: (Continued)------------------------------------------------------------- In addition to Banco de Galicia y Buenos Aires S.A., its consolidated entities have the following outstanding negotiable obligations: a) Banco Galicia Uruguay S.A.--------------------------------------------------- As of September 30, 2005-------------------------------------------------------- a.1) Negotiable obligations-----------------------------------------------------
========================= ============================== ================== ======================= ISSUE DATE RESIDUAL FACE VALUE (in TERM RATE thousands of US$) ------------------------- ------------------------------ ------------------ ----------------------- 12.24.02 47,541 9 years 2% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 8,933 9 years 6,62% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 14,179 2 years 2% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 806 5 years 2% ========================= ============================== ================== =======================
As of December 31, 2004--------------------------------------------------------- a.1) Negotiable obligations-----------------------------------------------------
========================= ============================== ================== ======================= ISSUE DATE RESIDUAL NOMINAL VALUE (in TERM RATE thousands of US$) ------------------------- ------------------------------ ------------------ ----------------------- 12.24.02 157,273 9 years 2% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 13,854 9 years 4.8606% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 13,994 2 years 2% ------------------------- ------------------------------ ------------------ ----------------------- 08.31.03 1,990 5 years 2% ========================= ============================== ================== =======================
a.2) Subordinated negotiable obligations----------------------------------------
========================= ============================== ================== ======================= ISSUE DATE RESIDUAL NOMINAL VALUE (in TERM RATE thousands of US$) ------------------------- ------------------------------ ------------------ ----------------------- 12.24.02 43,000 (*) 9 years 1% ========================= ============================== ================== =======================
(*) As of December 31, 2004, Grupo Financiero Galicia S.A. held 100% of these Subordinate Negotiable Obligations (See Note 1 to these financial statements, section "Situation of Banco Galicia Uruguay S.A. and Banco de Galicia (Cayman) Limited (in provisional liquidation).------------------------------------------- b) Tarjetas Regionales S.A.----------------------------------------------------- In order to finance their operations, the companies controlled by Tarjetas Regionales S.A. issued the following negotiable obligations as of September 30, 2005:--------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 38 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 8: (Continued)------------------------------------------------------------- --------
=================================================================================================== Conditions Tarjeta Naranja S.A. Tarjeta Naranja S.A. --------------------------------------------------------------------------------------------------- Series No. I. II --------------------------------------------------------------------------------------------------- Currency of issue Pesos Pesos --------------------------------------------------------------------------------------------------- Placement date January 18, 2005 May 17, 2005 --------------------------------------------------------------------------------------------------- Due date November 14, 2005 March 13, 2006 --------------------------------------------------------------------------------------------------- Term 300 days 300 days --------------------------------------------------------------------------------------------------- Rate Variable Fixed Argentine Central Bank Survey Rate 11% Nominal annual (at least 4%) plus 2.47% --------------------------------------------------------------------------------------------------- Face value 30,000 41,365 --------------------------------------------------------------------------------------------------- Residual value 30,405 43,131 ===================================================================================================
=================================================================================================== Conditions Tarjeta Naranja S.A. Tarjeta Naranja S.A. --------------------------------------------------------------------------------------------------- Series No. III IV --------------------------------------------------------------------------------------------------- Currency of issue Pesos US Dollars --------------------------------------------------------------------------------------------------- Placement date May 17, 2005 September 20, 2005 --------------------------------------------------------------------------------------------------- Due date November 08, 2006 September 15, 2006 --------------------------------------------------------------------------------------------------- Term 540 days 360 days --------------------------------------------------------------------------------------------------- Rate Variable Fixed Var. CER 6,5% (minimum 8% maximum 20%) plus 1.75% --------------------------------------------------------------------------------------------------- Face value 41,020 25,969(*) --------------------------------------------------------------------------------------------------- Residual value 41,217 26,015 ===================================================================================================
(*) Tarjeta Naranja S.A. issued and placed negotiable obligations series IV totaling US$ 8,916.-------------------------------------------------------------
============================================================== Conditions Tarjetas Cuyanas S.A. -------------------------------------------------------------- Series No. XV -------------------------------------------------------------- Currency of issue Pesos -------------------------------------------------------------- Placement date February 14, 2005 -------------------------------------------------------------- Due date December 12, 2005 -------------------------------------------------------------- Term 301 days -------------------------------------------------------------- Rate Variable Argentine Central Bank Survey Rate plus 4% -------------------------------------------------------------- Face value 25,000 -------------------------------------------------------------- Residual value 25,244 ================================================================
On September 27, 2005, Tarjetas Cuyanas S.A. submitted an updated of the negotiable obligations' prospectus for $ 35,000. At the date of these financial statements an answer from the regulatory authority is pending.------------------ As of December 31, 2004, the amount issued by Tarjetas Cuyanas was $ 13,372, while Tarjeta Naranja S.A. did not have any outstanding issues.----------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 39 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 9: CONTRIBUTION TO THE DEPOSIT INSURANCE SYSTEM---------------------------- Law No. 24485 and Decree No. 540/95 established the creation of the Deposit Insurance System to cover the risk attached to bank deposits, in addition to the system of privileges and safeguards envisaged in the Financial Institutions Law.---------------------------------------------------------------------------- The National Executive Branch through Decree No. 1,127/98 dated September 24, 1998 extended this insurance system to demand deposits and time deposits of up to $ 30 denominated either in pesos and/or in foreign currency.----------------- This system does not cover deposits made by other financial institutions (including time deposit certificates acquired through a secondary transaction), deposits made by parties related to the Banco de Galicia y Buenos Aires S.A., either directly or indirectly, deposits of securities, acceptances or guarantees and those deposits set up after July 1, 1995 at an interest rate exceeding the one established regularly by the Argentine Central Bank based on a daily survey conducted by it.---------------------------------------------------------------- Also excluded are those deposits whose ownership has been acquired through endorsement and those placements made as a result of incentives other than the interest rate.------------------------------------------------------------------ This system has been implemented through the creation of the Deposit Insurance Fund ("FGD"), which is managed by a company called Seguros de Depositos S.A. ("SEDESA").The shareholders of SEDESA are the Argentine Central Bank and the financial institutions in the proportion determined for each one by the Argentine Central Bank based on the contributions made to the fund.------------- Effective January 1, 2005, this contribution was reduced to 0.015%, pursuant to Argentine Central Bank's Communique "A" 4271.----------------------------------- As of September 30, 2005, the standard contribution to the Deposits Insurance System amounted to $ 299,404 of which $ 8,694 corresponded to the current fiscal year.--------------------------------------------------------------------------- NOTE 10: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS-------------------- ------------------------------------------------------------ Argentine Central Bank regulations require that 20% of the profits shown in the Income Statement at the fiscal year end, plus (less) prior fiscal year adjustments, must be allocated to the legal reserve. This proportion applies regardless of the ratio of legal reserve to capital stock.---------------------- Through Resolution No. 81, dated February 08, 2002, the Argentine Central Bank prohibited Banco de Galicia y Buenos Aires S.A. from paying any cash dividends or making any distribution on or in respect of its capital stock, transferring profits abroad or paying fees or any bonuses or variable compensations tied to the Bank's profits or granting financial assistance to related parties for as long as financial assistance from the Argentine Central Bank is outstanding.---- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 40 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 10: (Continued)------------------------------------------------------------ Also, the loan agreements entered into by the Banco de Galicia y Buenos Aires S.A. as part of its foreign debt restructuring limit the Bank's ability to directly or indirectly declare or pay dividends, or make distributions in relation to shares of common stock, except for stock dividends or distributions. It was also established that such restriction will not apply to dividends paid to said Entity by a consolidated subsidiary. Notwithstanding this, those agreements contemplate that Banco de Galicia y Buenos Aires S.A. may directly or indirectly declare or pay dividends, and may permit its subsidiaries to do so, if "(i) no Default or Event of Default has taken place and continues to take place immediately before and after such payment has been made; (ii) the total outstanding Senior Debt were to be equal to or less than fifty percent (50%) of the amount of originally issued total Senior Debt ; and (iii) the Bank were to repay two US dollars (US$ 2) of Long-Term Debt principal for each US dollar (US$ 1) paid as dividends."---------------------------------------------------------- On the other hand, Communique "A" 3785 provides that financial institutions receiving National Government bonds as compensation within the framework of Sections 28 and 29 of Decree No. 905/02, may record them at technical value; but while using this procedure, they may not distribute cash dividends, except for the amount of profits exceeding the difference between the carrying value and the market value of those bonds, net of the pertinent appropriation to the legal reserve and to the reserve established by the Bank's bylaws.-------------------- The Ordinary and Extraordinary Shareholders' Meeting of Banco de Galicia y Buenos Aires S.A. held on April 28, 2005 resolved that the negative balance in the "Retained earnings" account be absorbed by partially using the Legal Reserve. Section 70 of the Corporations Law establishes that a reserve should be established until 20% of the corporate stock is reached, and that, "when for any reason, this reserve were to be reduced, profits may not be distributed until it is fully restored."------------------------------------------------------------- Argentine Central Bank's Communique "A" 4295 established that, for the purposes of determining distributable balances, the minimum presumed income tax asset shall be deducted from retained earnings.--------------------------------------- For Grupo Financiero Galicia S.A. see Note 12 to the Financial Statements.------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 41 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 11: NATIONAL SECURITIES COMMISSION----------------------------------------- Resolution No. 368/01----------------------------------------------------------- As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. equity exceeds that required by Chapter XIX, items 4 and 5 of the National Securities Commission Resolution No. 368/01 to act as an over-the-counter broker.------------------------------------------------------------------------- Furthermore, in compliance with Section 32 of Chapter XI of that resolution, in its capacity of depository of the mutual funds "FIMA ACCIONES," "FIMA P.B. ACCIONES," "FIMA RENTA EN PESOS," "FIMA RENTA EN DOLARES," "FIMA MIX PLUS," "FIMA MIX," "FIMA RENTA CORTO PLAZO," "FIMA MONEY MARKET EN PESOS," "FIMA MONEY MARKET EN DOLARES," "FIMA GLOBAL ASSETS," "FIMA RENTA LATINOAMERICANA," "FIMA PREMIUM" and "FIMA OBLIGACIONES NEGOCIABLES," Banco de Galicia y Buenos Aires S.A. holds a total of 388,178,098 units under custody for a market value of $ 273,423, which is included in the "Depositors of Securities held in Custody" account.------------------------------------------------------------------------ As of December 31, 2004, the securities held in custody by the Bank totaled 227,006,406 units and their market value amounted to $245,585.------------------ NOTE 12: PRIOR FISCAL YEAR ADJUSTMENTS------------------------------------------ -------------------------------------- On January 30, 2004, the Argentine Central Bank released Communique "A" 4084 establishing a change of criterion for the valuation of public-sector assets.--- The most significant changes included the treatment applicable to assets delivered as collateral for advances granted by the Argentine Central Bank for the subscription of the bonds envisaged in Sections 10, 11 and 12 of Decree No. 905/02. At Banco de Galicia y Buenos Aires S.A.'s option, these assets could be excluded from the treatment established in Communique "A" 3911 and described in Note 3 item b.4 to these consolidates financial statements, in which case, they were to be recorded at the value admitted for their use as collateral, under the terms of Section 15 of the above-mentioned Decree and Argentine Central Bank's Communiques "A" 3717 and "A" 3756.---------------------------------------------- The effect of this modification was recorded by Banco de Galicia y Buenos Aires S.A. under "Prior Fiscal Year Adjustments" in the amount of $ 30,893, as established by Argentine Central Bank's Communique "A" 4095.-------------------- At the end of fiscal year 2003, in accordance with regulations in force at that date, Banco de Galicia y Buenos Aires S.A. had recorded an asset for the difference arising from application of the CVS index instead of the CER index to certain financings, for $ 102,705.---------------------------------------------- In view of the lack of resolution on this issue, as of December 31, 2004, Banco de Galicia y Buenos Aires S.A. wrote said assets off against prior fiscal year results, for $ 76,791, in accordance with the criterion established by Argentine Central Bank's Communique "A" 4202, and against reserves previously established for such purpose, for the remaining amount.------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 42 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 13: CONTRIBUTIONS TO THE BANK EMPLOYEES' SOCIAL SERVICES INSTITUTE--------- Effective July 1, 1996, Decree No. 263/96 of the National Executive Branch reduced to 1%, and effective July 1, 1997, Decree No. 915/96 eliminated the 2% contribution on perceived interest and fees that banks previously had to make to the ISSB, pursuant to Section 17 of Law No. 19,322.----------------------------- Banco de Galicia y Buenos Aires S.A. has determined these contributions in accordance with those repealing regulations.------------------------------------ The Bank Employee Union (the "Banking Association") brought legal action calling for a stay against the National Executive Branch - Ministry of Public Works and Services, obtaining a final judgment in its favor from the Federal Chamber on Administrative Litigation - Panel I, that declared Section 1 of Decree No. 263/96 null and unconstitutional.----------------------------------------------- In the opinion of the legal counsels of financial institutions, this ruling is not opposable against banks because they were not a party to the abovementioned legal action.------------------------------------------------------------------- In April 1998, the Bank Employees' Health Care System ("OSBA") made a final claim against the Banco de Galicia y Buenos Aires S.A., which was challenged before administrative courts. As a result, said entity brought legal action calling for a stay before the Federal Court of First Instance on Social Security Matters No. 5, requesting that a resolution be issued stating that this contribution had been repealed and requested a restraining order which prevents the OSBA from bringing legal action or making verifications on the grounds of Section 17, clause f) of Law No. 19,322 until a final judgment is issued. The restraining order has become final and a judgment was rendered by lower and upper courts, stating that the OSBA was not the successor of the ISSB and, therefore, it was not entitled to claim or collect that contribution. This is a final judgment and has already been confirmed.---------------------------------- Furthermore, the OSBA has brought legal action against all institutions in the financial system, in the federal administrative litigation jurisdiction, claiming this contribution. Considering that a risk exists as to the interpretations that courts may make of this dispute, Banco de Galicia y Buenos Aires S.A. has agreed to seek an agreement on those disputed or doubtful rights, without this involving any recognition of rights, and in the context of the withdrawal of the legal action filed by the OSBA. This agreement has been approved by the Federal Court of First Instance on Administrative Litigation No. 4, in the case identified above, which will reduce the potential risk an unfavorable resolution would entail.-------------------------------------------- NOTE 14: REGULATIONS ON BANK CURRENT ACCOUNTS----------------------------------- --------------------------------------------- This law repeals the system of fines and penalties for current account holders and financial institutions established by Laws No. 24452 and 24760.------------- In the case of the latter, the repealed provisions established a system of fines for financial institutions that had kept current accounts open when they should have closed them, or had opened current accounts to current account holders who had been disqualified, effective as of January 13, 1997.------------------------ 43 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 14: (Continued)------------------------------------------------------------ Decree No. 347/99 imposed limits on the amount of the abovementioned fines, and Banco de Galicia y Buenos Aires S.A. operated pursuant to such Decree, paying the appropriate fines within the applicable limits. In view of the Argentine Central Bank demand for payment of the fines in accordance with section 62 of Schedule I of the Law Governing Checks, Banco de Galicia y Buenos Aires S.A. filed an action requesting protection of its constitutional rights, which has been ruled against the Bank by the chamber, based on the fact that Decree No. 347/99 had been declared unconstitutional in the proceedings brought by the Ombudsman. In the latter proceedings, however, the Federal Chamber on Administrative Litigation decided that the action had become groundless because Law No. 25,413 had repealed the parts of Section 62 of Schedule I of Law No. 24,452 which were related to fines and therefore the less severe criminal laws should be enforced. Given the fact that the Argentine Supreme Court of Justice has not accepted the extraordinary appeal against the above-mentioned Chamber ruling, the judgment has become final. Therefore, it is considered that there are no possibilities for any fine payment claims based on the Law Governing Checks. NOTE 15: SETTING UP OF THE "GALTRUST I" INDIVIDUAL FINANCIAL TRUST ------------- ------------------------------------------------------------------ At the meeting held on March 15, 2000, the Banco de Galicia y Buenos Aires S.A. Board of Directors approved the Bank's participation as originator, trustor and manager, in a global program for setting up financial trusts for a face value of up to US$ 1,000,000 thousand.--------------------------------------------------- The creation of this program was approved by the National Securities Commission through Resolution No. 13,334/00, dated April 06, 2000.------------------------- The trustee of those trusts is First Trust of New York, National Association, acting through its permanent representation in Argentina.----------------------- Under this global program, on October 20, 2000, Banco de Galicia y Buenos Aires S.A. transferred to the GalTrust I Financial Trust the trust ownership of loans amounting to US$ 490,224 thousand granted to Argentine Provinces collateralized by federal tax revenues shared by the Argentine national and provincial governments, and reserve investments for US$ 7,761 thousand.-------------------- As a counterpart, Banco de Galicia y Buenos Aires S.A. received Class A Debt Securities for a face value of US$ 100,000 thousand, Class B Debt Securities for a face value of US$ 200,000 thousand and Participation Certificates for a face value of US$ 200,000 thousand.-------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 44 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 15: (Continued)----------------------------------------------------------- ---------- As of September 30, 2005 and December 31, 2004, Banco de Galicia y Buenos Aires S.A. held Debt Certificates and Participation Certificates in its portfolio for $ 698,853 and $ 665,101, respectively.------------------------------------------ NOTE 16: SETTING UP OF THE "GALTRUST II and V" INDIVIDUAL FINANCIAL TRUSTS------ -------------------------------------------------------------------------- At the meeting held on December 06, 2001, Banco de Galicia y Buenos Aires S.A. Board of Directors approved the creation of the "Universal Program for the Securitization of Loans and the Issuance of Debt securities and/or Participation Certificates in Galtrust Financial Trusts". This program was approved by the National Securities Commission through Resolution No. 13,334/00, dated April 06, 2000, for a face value of up to US$1,000,000 thousand (the "Program") which authorized the Banco de Galicia y Buenos Aires S.A.'s participation as originator, trustor and manager of the program.--------------------------------- The trustee of those trusts is First Trust of New York, National Association, acting through its permanent representation in Argentina.----------------------- Four financial trusts, "Galtrust II, III, IV and V - Letras Hipotecarias", were set up under the above-mentioned program and participation certificates and debt securities were issued under those trusts.------------------------------------- As of September 30, 2005, Banco de Galicia y Buenos Aires S.A. held Participation Certificates and Debt Certificates corresponding to said trust funds for $ 25,275 and Banco Galicia Uruguay S.A., held debt securities for $ 25,540, while as of December 31, 2004 those portfolios amounted to $ 27,710 and $ 33,878, respectively.-------------------------------------------------------- NOTE 17: GALICIA 2004 AND GALICIA 2005 TRUSTS----------------------------------- ------- ------------------------------------ In November 1999, a "Framework Trust Agreement" was entered into by and between Banco de Galicia y Buenos Aires S.A. as trustor and First Trust of New York, as trustee, for the implementation of an incentive program in favor of certain executives of said Bank, to be determined from time to time by the Board of Directors. For such purpose, the "Galicia 2004 Trust" was created, and the amount of US$ 4,000 thousand was transferred to the trustee, which was used to purchase shares and ADSs of the Company. On June 15, 2003, the Galicia 2004 Trust was early terminated, and the shares and ADSs were delivered to the designated beneficiaries.------------------------------------------------------- The ADS balance of 157,669.40 of the Galicia 2004 Trust that was not granted to the beneficiaries formed the Galicia 2005 Trust, which expires on May 31, 2006.--------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 45 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Notes to the Consolidated Financial Statements (Continued)---------------------------------------------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 18: CHANGES IN SIGNIFICANT ASSETS AND LIABILITIES-------------------------- The breakdown of the most significant assets and liabilities shown in these consolidated financial statements, presented in comparative format with the previous fiscal year, in order to disclose the changes in those assets and liabilities during the current period is shown below:---------------------------
==================================================================================================== 09.30.05 12.31.04 ==================================================================================================== ASSETS LOANS 9,968,569 8,438,177 ---------------------------- -To the non-financial public sector 5,094,771 4,558,873 -To the financial sector 117,557 150,530 -To the Non-financial private sector and residents abroad 5,286,866 4,361,393 -Overdrafts 311,835 199,668 -Promissory notes 1,508,726 1,099,243 -Mortgage loans 655,794 623,944 -Pledge loans 105,704 92,889 -Consumer loans 166,678 58,161 -Credit card loans 1,446,890 1,105,386 -Other 820,666 772,996 -Accrued interest, adjustments and quotation differences receivable 281,626 414,400 -Documented interest (11,030) (5,286) -Unallocated collection (23) (8) -Allowances (530,625) (632,619) ---------------------------- OTHER RECEIVABLES RESULTING FROM FINANCIAL BROKERAGE 6,904,463 6,697,688 ---------------------------- -Argentine Central Bank 87,248 78,463 -Amounts receivable for spot and forward sales to be settled 338,840 56,209 -Securities receivable under spot and forward purchases to be settled 363,511 313,462 -Negotiable obligations without quotation 39,332 20,384 -Other receivables not included in the debtor classification regulations 5,808,665 5,973,345 -Other receivables included in the debtor classification regulations 185,686 188,807 -Accrued interest receivable not included in the debtor classification regulations 113,972 92,302 -Accrued interest receivable included in the debtor classification regulations 766 2,427 -Allowances (33,557) (27,711) =====================================================================================================
===================================================================================================== LIABILITIES ---------------------------- DEPOSITS 8,027,194 6,756,913 ---------------------------- -Non-financial public sector 92,426 131,932 -Financial sector 8,327 17,157 -Non-financial private sector and residents abroad 7,926,441 6,607,824 -Current Accounts 1,505,231 1,192,474 -Savings Accounts 2,094,248 1,638,694 -Time Deposits 4,075,165 3,415,788 -Investment accounts 247 383 -Other 168,190 280,220 -Accrued interest and quotation differences payable 83,360 80,265 =====================================================================================================
46 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements---------------------------------- (Continued)--------------------------------------------------------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 18: (Continued)----------------------------------------------------------- ----------
==================================================================================================== 09.30.05 12.31.04 ==================================================================================================== LIABILITIES ---------------------------- OTHER LIABILITIES RESULTING FROM FINANCIAL BROKERAGE 14,575,019 14,056,567 ---------------------------- -Argentine Central Bank 8,073,516 8,059,550 -Financial assistance Decrees No. 739/03 and 1262/03 5,070,130 5,321,697 -Other 3,003,386 2,737,853 -Banks and international entities 717,904 772,393 -Unsubordinated negotiable obligations 2,975,027 3,348,652 -Amounts payable for spot and forward purchases to be settled 321,903 229,537 -Securities to be delivered under spot and forward sales to be 338,302 56,155 settled 224,608 191,195 -Loans from domestic financial institutions -Other 1,037,015 909,926 -Accrued interest and quotation differences payable 886,744 489,159 ---------------------------- SUBORDINATED NEGOTIABLE OBLIGATIONS 402,509 380,077 ====================================================================================================
NOTE 19: SITUATION OF CERTAIN COMPANIES CONSOLIDATED WITH BANCO DE GALICIA Y BUENOS AIRES S.A.-------------------- Corporate merger between Tarjetas del Mar S.A. and Tarjeta Naranja S.A.:-------- The Board of Directors of Tarjeta Naranja S.A. and Tarjetas del Mar S.A. approved the carrying out of all necessary steps to formalize the merger of Tarjetas del Mar S.A. (merged company) into Tarjeta Naranja S.A. (the merging company) within the framework of a corporate reorganization pursuant to Section 77 of the Income Tax Law and Section 109 of its regulatory decree. The reasons for this process are the advantages that can be obtained from the joint actions and the unification of both companies' activities, which would improve the services provided and reduce operating costs.----------------------------------- Accumulated losses and capital reduction at subsidiaries:----------------------- -------------------------------------------------------- As of September 30, 2005, Tarjetas del Mar S.A. reported accumulated losses in the amount of $ 62,245. This amount exceeds by 50% its corporate capital and shareholders' contributions, in accordance with the computation established by Section 206 of the Corporations Law. On June 01, 2005, the National Executive Branch extended until December 10, 2005, the suspension of the application of Section 94, Subsec. 94 and Section 206 of Corporations Law No. 19550, provided by Decree 1269/2002 and extended by Decree 1293/2003.--------------------------- NOTE 20: GALICIA MORTGAGE LOANS AND SECURED LOANS TRUSTS------------------------ In May 2002, the "Galicia Mortgage Loans Financial Trust" was created. Mortgage loans for $ 312,774 were transferred and $ 234,580 in cash and $ 78,194 in participation certificates were received. The trustee was ABN AMRO Bank Argentine Branch, with various domestic financial institutions having subscribed for the trust securities.------------------------------------------------------- 47 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 20: (Continued)----------------------------------------------------------- ---------- In December 2004, Banco de Galicia y Buenos Aires S.A. acquired the senior certificates held by financial institutions, as mentioned above, and became the holder of all of the certificates issued by the Trust.-------------------------- On January 10, 2005 the parties resolved to terminate the trust in advance and redeem the outstanding securities, and all of the trust assets were transferred to Banco de Galicia y Buenos Aires S.A.. As a result, said Entity received mortgage loans for $ 172,214 and $ 1,508 in cash.------------------------------- As of December 31, 2004, the participation certificates and debt securities amounted to $170,495. The "Secured Loans Trust" was created and the parties to it are Banco de la Provincia de Buenos Aires as beneficiary and BAPRO Mandatos y Negocios S.A., as trustee. Under this Trust, National secured loans for $ 108,000 were transferred and $ 81,000 in cash and participation certificates for $ 27,000 were received.--------------------------------------------------------- In certain circumstances, Banco de Galicia y Buenos Aires S.A. is required to repurchase the participation certificates.-------------------------------------- As of September 30, 2005, the participation certificates amounted to $ 49,166 and, as of December 31, 2004, to $44,294.--------------------------------------- NOTE 21: SETTING UP OF FINANCIAL TRUSTS:---------------------------------------- - Galicia Personal Loans Trust:------------------------------------------------- The Galicia Personal Loans Financial Trust was created under the "Universal Program for the Securitization of Loans and the Issuance of Debt Securities and/or Participation Certificates in Financial Trusts" approved by the CNV through Resolution No. 13,334, dated April 6, 2000, with Deutsche Bank S.A. as financial trustee.-------------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. has transferred to the Trust a portfolio of personal loans of up to $ 41,529, and the trust issued class A debt securities for a face value of $ 33,223, Class B debt securities for a face value of $ 5,191 and participation certificates for a face value of 3,115.-------------------------------------------------------------------------- On January 11, 2005, the placement of these securities was completed. Banco de Galicia y Buenos Aires S.A. received $ 34,611 in cash, Class B debt securities for a face value of $ 2,927 and participation certificates for a face value of $ 3,115.----------------------------------------------------------------------- As of September 30, 2005, the participation certificates and debt securities amounted to $ 9,052.------------------------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 48 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Notes to the Consolidated Financial Statements (Continued)--------------------------------------------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 21: (Continued)----------------------------------------------------------- - Commercial Mortgages Trust:--------------------------------------------------- At the meeting held on October 28, 2004, the Board of Directors of Banco de Galicia y Buenos Aires S.A. authorized the creation of the "Galicia Commercial Mortgages Financial Trust". This trust was created under the "Universal Program for the Securitization of Loans and the Issuance of Debt Securities and/or Participation Certificates in Financial Trusts" approved by the National Securities Commission through Resolution No. 13,334, dated April 06, 2000. Deutsche Bank S.A. acting as financial trustee.--------------------------------- Banco de Galicia y Buenos Aires S.A. transferred to the Trust a portfolio of commercial mortgage loans for up to $ 29,059, and the trust issued class "A" Trust debt securities for a face value of $ 24,119 and participation certificates for a face value of $ 4,940.--------------------------------------- On April 05, 2005, the placement of these securities was completed. Banco de Galicia y Buenos Aires S.A. received $ 23,969 in cash, participation certificates for a face value of $ 4,940 and $ 150 were retained as a guarantee fund.--------------------------------------------------------------------------- As of September 30, 2005, the participation certificates amounted to $ 5,656.--- - Galicia I Real Estate Loans Financial Trust:---------------------------------- At the meeting held on June 06, 2005, the Board of Directors of Banco de Galicia y Buenos Aires S.A authorized the creation of a trust called "Galicia I Real Estate Loans Financial Trust." This trust was created under the framework of the "Centennial Global Securitization Program" approved by the CNV through Resolution No. 14,900, dated January 06, 2005, with Deutsche Bank S.A. as financial trustee. Banco de Galicia y Buenos Aires S.A. transferred to the Trust a portfolio of mortgage loans for $ 91,000, and the trust issued debt securities for a face value of $ 72,800 and participation certificates for a face value of $ 18,200.----------------------------------------------------------------------- The placement of these securities was completed on August 26, 2005. Banco de Galicia y Buenos Aires S.A received $ 70,525 in cash, participation certificates for a face value of $ 18,200 and $ 2,275 were retained as a guarantee fund.--------------------------------------------------------------------------- As of September 30, 2005, said certificates amounted to $ 17,606.--------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 49 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Notes to the Consolidated Financial Statements (Continued)--------------------------------------------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 21: (Continued)----------------------------------------------------------- - Tarjeta Naranja S.A. Trust Funds:---------------------------------------------
---------------------------------------------------------------------------------------------------- Trust Fund Tarjeta Naranja I (*) Tarjeta Naranja II Tarjeta Naranja III ---------------------------------------------------------------------------------------------------- Placement date 08/26/2004 11/03/2004 03/18/2005 ---------------------------------------------------------------------------------------------------- Due date 08/01/2005 04/22/2006 01/25/2006 ---------------------------------------------------------------------------------------------------- Interest rate D.C.: "A" 8% D.C.: "A" VAR. CER D.C.: "A" 7% plus 3% D.C.: "B": 11% D.C.: "B": VAR. CER D.C.: "B": 9% plus 5% ---------------------------------------------------------------------------------------------------- Total portfolio 40,000 50,009 64,001 transferred ---------------------------------------------------------------------------------------------------- "A" Debt Securities 32,000 40,000 54,401 ---------------------------------------------------------------------------------------------------- "B" Debt Securities 4,000 5,000 6,400 ---------------------------------------------------------------------------------------------------- Participation 4,000 5,009 3,200 Certificates ----------------------------------------------------------------------------------------------------
(*) On September 14, 2005, through due notice, after full amortization of the "A" Debt Certificates and the "B" Debt Certificates, Tarjeta Naranja, as beneficiary of all Participation Certificates, requested Banco Patagonia S.A., as Trustee of the Tarjeta Naranja I Trust, that the trust be early and finally terminated on September 30, 2005.----------------------------------------------- - Tarjetas Cuyanas S.A. Trust Funds:--------------------------------------------
---------------------------------------------------------------------------------------------------- Trust Fund Tarjeta Nevada I (*) Tarjeta Nevada II Tarjeta Nevada III ---------------------------------------------------------------------------------------------------- Placement date 07/21/2004 12/06/2004 06/03/2005 ---------------------------------------------------------------------------------------------------- Due date 09/30/2005 11/22/2006 07/25/2007 ---------------------------------------------------------------------------------------------------- Interest rate D.C.: "A" 7% D.C.: "A" CER plus 3% CER plus margin (min. 8% and max. 15% T.N.A.) (min. 10% and max. D.C.: "B": 10% D.C.: "B": CER plus 5% 20%) (min. 10% and max. 20% T.N.A.) ---------------------------------------------------------------------------------------------------- Total portfolio 15,000 16,000 25,000 transferred ---------------------------------------------------------------------------------------------------- "A" Debt Securities 12,000 12,000 19,000 ---------------------------------------------------------------------------------------------------- "B" Debt Securities 1,500 2,400 - ---------------------------------------------------------------------------------------------------- Participation 1,500 1,600 6,000 Certificates ----------------------------------------------------------------------------------------------------
(*) As of September 30, 2005, all Participation Certificates had been fully settled and the process to terminate the Trust.--------------------------------- NOTE 22: SUBSEQUENT EVENTS------------------------------------------------------ a) In October 2005 the "Galicia II Real Estate Loans Financial Trust" was issued, within the framework of the "Centennial Global Securitization Program", with Deutsche Bank S.A. as financial trustee.----------------------------------- Banco de Galicia y Buenos Aires S.A. transfers to the Trust a portfolio of mortgage loans for up to $ 149,999, and the trust shall issue debt securities for a face value of up to $ 109,000 and participation certificates for a face value of up to $ 40,999.-------------------------------------------------------- 50 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering" Notes to the Consolidated Financial Statements (Continued)---------------------------------------------------------- (figures expressed in thousands of pesos)--------------------------------------- NOTE 22: (Continued)----------------------------------------------------------- b) In October 2005, the Banco de Galicia y Buenos Aires S.A. advanced $ 450,000 to be applied in full to the partial repayment of the CER adjustment of the financial assistance from de Argentina Central Bank.---------------------------- c) In November 2005, Banco de Galicia y Buenos Aires S.A. received BODEN 2012 for a face value of 236,867,600 corresponding to the compensation established by Sections 28 and 29 of Decree No. 905/2002, which receipt was pending.----------- NOTE 23: SEGMENT REPORTING----------------------------------------------------- Below, a detail of the accounting information as of September 30, 2005, by related business segment:------------------------------------------------------- Primary segment: Business.------------------------------------------------------ Financial Services Total brokerage Income 1,719,588 461,954 2,181,542 Expenses 1,349,477 81,557 1,431,034 --------------------------------------------------- Result 370,111 380,397 750,508 =================================================== Secondary segment: Geographic.--------------------------------------------------
City of Buenos Rest of country Total and Greater Buenos Aires Financial brokerage Income 1,614,177 105,411 1,719,588 Expenses 1,266,754 82,723 1,349,477 --------------------------------------------------- Result 347,423 22,688 370,111 =================================================== Services Income 433,636 28,318 461,954 Expenses 76,558 4,999 81,557 --------------------------------------------------- Result 357,078 23,319 380,397 ===================================================
The accounting measurement of assets and liabilities allocated to the above-mentioned segments is the following:-------------------------------------- Total Assets Government and corporate securities 5,556,198 Loans 9,968,569 Other receivables resulting from financial brokerage 6,904,463 Assets under financial leases 148,592 Liabilities Deposits 8,027,194 Other liabilities resulting from financial brokerage 14,575,019 Subordinated negotiable obligations 402,509 51 Grupo Financiero Galicia S.A.--------------------------------------------------------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"--------- Balance Sheet as of September 30, 2005------------------------------------------------------------------------------------------ (figures stated in thousands of pesos)------------------------------------------------------------------------------------------ (Note 2)------------------------------------------------------------------------------------------------------------------------ ================================================================================================================================
09.30.05 12.31.04 ---------------------------------------- ASSETS CURRENT ASSETS Cash and due from banks Notes 3 and 11 and Schedule G) 574 540 Investments (Notes 9 and 11 and Schedules C and G) 16,141 37,442 Other receivables (Notes 4,9 and 11 and Schedule G) 967 89 --------------------------------------- Total Current Assets 17,682 38,071 --------------------------------------- NON-CURRENT ASSETS Other receivables (Notes 4, 9, 11 and 13 and Schedule G) 34,895 4,780 Investments (Notes 9, 10 and 11 and Schedules C and G) 1,558,868 1,529,348 --------------------------------------- Bank premises and equipment (Schedule A) 3,130 3,283 --------------------------------------- Intangible Assets (Schedules B and E) 1,334 3,745 --------------------------------------- Total Non-Current Assets 1,598,227 1,541,156 --------------------------------------- Total Assets 1,615,909 1,579,227 09.30.05 12.31.04 --------------------------------------- LIABILITIES CURRENT LIABILITIES Salaries and social security contributions (Notes 5 and 9) 290 159 Tax liabilities (Notes 6 and 9) 16,257 32,027 Other liabilities (Notes 7, 9 and 11 and Schedule G) 139 1,117 ---------------------------------------- Total Current Liabilities 16,686 33,303 ---------------------------------------- NON-CURRENT LIABILITIES Tax liabilities (Notes 6, 9 and 13) - 26,383 Other liabilities (Notes 7 and 9) 6 3 Total Non-Current Liabilities 6 26,386 Total Liabilities 16,692 59,689 ---------------------------------------- Shareholders' Equity (Per related statement) 1,599,217 1,519,538 ---------------------------------------- Total liabilities and shareholders' equity 1,615,909 1,579,227 ============================================================================================================== The accompanying Notes 1 to 17 and Schedules A, B, C, E, G and H are an integral part of these financial statements.----------------------------------------------------------------------------------------------------
52 Grupo Financiero Galicia S.A.--------------------------------------------------------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"--------- Income Statement---------------------------------------------------------------------------------------------------------------- For the nine months ended September 30, 2005------------------------------------------------------------------------------------ (figures stated in thousands of pesos)------------------------------------------------------------------------------------------ (Note 2)------------------------------------------------------------------------------------------------------------------------ ================================================================================================================================
09.30.05 19.30.04 ---------------------------------------- Administrative expenses (Note 11 and Schedule H) (11,951) (13,635) Net income / (loss) on investments in related entities 189,265 (61,541) Financial income and by holding - (Loss) / Income (Note 11) (1,149) 9,855 - Generated by assets (1,175) 9,853 Interest On time deposits (*) 93 142 On special current account deposits (*) 2 - On negotiable obligations (*) 2,035 2,503 On financial trusts 16 - Other 53 104 CER On time deposits (*) 6 5 Result of valuation on negotiable obligations 1,044 974 Gain on sale of negotiable obligations 5,173 - Result on government securities 99 (568) Result on corporate securities 137 (109) Mutual fund yield 50 3 Exchange loss (9,883) 6,799 - Generated by liabilities 26 2 Exchange loss 26 2 Other income and expenses (loss) / Income (Note 2.h.2) (133,620) 604 ------------------------------- Income / (loss) before income tax 42,545 (64,717) ------------------------------- Income tax (Note 13) 37,134 (9,493) ------------------------------- Income / (loss) for the period 79,679 (74,210) ================================================================================================================================== (*) Balances net of eliminations corresponding to intercompany transactions, pursuant to Section 33 of Law No. 19550. See Note 11 The accompanying Notes 1 to 17 and Schedules A, B, C, E, G and H are an integral part of these financial statements.------------- --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------
53 Grupo Financiero Galicia S.A.--------------------------------------------------------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"--------- Statement of Changes in Shareholders' Equity------------------------------------------------------------------------------------ For the nine months ended September 30, 2005------------------------------------------------------------------------------------ presented in comparative format with the same period of the previous year------------------------------------------------------- (figures stated in thousands of pesos)------------------------------------------------------------------------------------------ (Note 2)------------------------------------------------------------------------------------------------------------------------ ================================================================================================================================
Shareholders' contributions (Note 8) Non-capit.contrib. Item Capital Principal Issuance Irrevocable Stock Adjustment premiums contributions Total s ------------------------------------------------------------------------------------------------------------------------------- Balances at beginning of fiscal year 1,241,407 1,314,673 235,652 - 2,791,732 Prior fiscal year adjustments (Note 16) - - - - - ------------------------------------------------------------------------------ Modified and adjusted balances at beginning of fiscal year 1,241,407 1,314,673 235,652 - 2,791,732 Capital Increase (Note 15) - - - - - Absorption of accumulated losses approved by the shareholders' meeting held on April 28, 2005. - (1,036,542) (235,652) - (1,272,194) Income/(loss)for the period - - - - - ------------------------------------------------------------------------------------------------------------------------------ Totals 1,241,407 278,131 - - 1,519,538 Retained Earnings (Note 12). Total Total Total shareholder's shareholder's Legal Discretionary Other Retained equity as equity as reserve reserve reserves earnings of of 09.30.05 09.30.04 19.30.05 19.30.04 ----------------------------------------------------------------------------------------------------------------------------------- Balances at beginning of fiscal year 29,493 - - 29,493 (1,301,687) 1,519,538 1,462,337 Prior fiscal year adjustments (Note 16) - - - - - - (42,954) ----------------------------------------------------------------------------------------------- Modified and adjusted balances at 29,493 - - 29,493 (1,301,687) 1,519,538 1,419,383 beginning of fiscal year Capital Increase (Note 15) - - - - - - 210,026 Absorption of accumulated losses approved by the shareholders' meeting held on April 28, 2005. Income/(loss)for the period (29,493) - - (29,493) 1,301,687 - - - - - - 79,679 79,679 (74,210) Totals ----------------------------------------------------------------------------------- - - - - 79,679 1,599,217 1,555,199 ==================================================================================================================================== The accompanying Notes 1 to 17 and Schedules A, B, C, E, G and H are an integral part of these financial statements.---------------
54 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Statement of Cash Flows--------------------------------------------------------- For the nine months ended September 30, 2005------------------------------------ presented in comparative format with the same period of the previous year------- (figures stated in thousands of pesos)------------------------------------------ (Note 2)------------------------------------------------------------------------
==================================================================================================== 09.30.05 09.30.04 ------------------------------------- CHANGES IN CASH Cash at beginning of fiscal year 540 1,164 Cash at period end 574 477 ------------------------------------- Net cash increase (decrease) for the period 34 (687) ===================================== REASONS FOR CHANGES IN CASH Operating activities Collections for sales of goods and services 120 25 Payments to suppliers of goods and services (17,742) (2,877) Personnel salaries and social security contributions (819) (601) Income tax payments (28,142) - Other taxes payments (9,593) (4,293) Other operating payments - (1,713) ------------------------------------- Net cash flow used in operating activities (56,176) (9,459) ------------------------------------- Investment activities Payments for fixed assets purchases (12) (49) Contributions to controlled companies (1,892) (616) Financing granted (1,325) - Investment collections 32,996 - Dividends collections 350 438 Interests collections 26,279 8,999 Payments for purchases of controlled companies' shares (186) - ------------------------------------- Net cash flow generated by investment activities 56,210 8,772 ------------------------------------- Net cash increase (decrease) for the period 34 (687) ====================================================================================================
The accompanying Notes 1 to 17 and Schedules A, B, C, E, G and H are an integral part of these financial statements. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 55 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to Financial Statements--------------------------------------------------- For the nine months ended September 30, 2005------------------------------------ presented in comparative format------------------------------------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: PERFORMANCE OF GRUPO FINANCIERO GALICIA S.A.---------------------------- The Argentine economy continues on the growth path that began during 2003, having made considerable progress in overcoming the consequences of the economic crisis that affected the country in late 2001. The financial system has gradually strengthened its liquidity levels, recording a significant increase in deposits, while the level of loans began to grow.--------------------------------------------------------------------------- Another significant event of this period was that the National Government submitted to the consideration of creditors an offer to exchange defaulted debt issued prior to December 31, 2001, for new bonds called "Par Bonds," "Quasi-Par Bonds" and "Discount Bonds." The offer expired on February 25, 2005 and the exchange resulted in an important reduction of debt principal amounts, as well as a reduction in interest rates and an extension of payment terms. Participation in the exchange, was of 76.15% of the total past due debt amount. The process concluded in June 2005 with the final settlement of the new bonds created after the debt's restructuring and of interest accrued since December 31, 2003. Furthermore, these securities started to be listed on the stock exchange, except for "Quasi-par Bonds" which, according to their terms and conditions, can only be traded one year after their issue date.----------------- Accompanying the favorable trend in the Argentine economy over the last two years, Banco de Galicia y Buenos Aires S.A., main subsidiary of Grupo Financiero Galicia S.A., has shown a continuous increase in its activity level, as well as in its financial condition which enabled it to recover from the crisis that affected the financial system at the end of 2001.------------------------------- As part ofthe recovery of said Entity's situation, the following matters are worth mentioning, which did put at risk the Banco de Galicia y Buenos Aires S.A.'s business activities and which were mainly generated by measures adopted by the National Government in order to confront the crisis unleashed in late 2001, and which were resolved by Banco de Galicia y Buenos Aires S.A. in 2004 and during the current period:-------------------------------------------------- Banco de Galicia y Buenos Aires S.A. debt restructuring------------------------- During the previous fiscal year, Banco de Galicia y Buenos Aires S.A. concluded the process of restructuring its foreign debt.---------------------------------- In addition to the refinancing of the liabilities of its New York Branch (which was closed in January 2003) and of the liabilities of its subsidiaries Galicia Uruguay and Galicia (Cayman) Limited (in provisional liquidation) in December 2002 and July 2003, respectively, in May 2004, the Bank achieved the restructuring of the foreign debt of the Head Office and of the Cayman Branch, for a principal amount of US$ 1,320.9 million, representing 98.2% of the total principal amount of debt subject to restructuring.------------------------------ 56 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- The agreements reached resulted in the issuance of medium and long-term debt instruments, which are described in Note 8, item a 3) to the consolidated financial statements.----------------------------------------------------------- The completion of the aforementioned process enabled the Bank to modify its foreign debt's repayment terms and expected repayment cost and made the Banco de Galicia y Buenos Aires S.A. future development more predictable, in addition to allowing for an increase in its regulatory capital, mainly through the issuance of subordinated debt.----------------------------------------------------------- The agreements signed as part of the Bank's foreign debt restructuring include restrictions to the distribution of profits (see Note 10 to the consolidated financial statements) the ability to make certain types of investments, the use of the proceeds from the sale of certain assets or from the issuance of debt or equity, and participation in certain transactions with subsidiaries or in non-financial activities, in addition to requiring compliance with certain financial ratios.--- ----------------------------------------------------------- Pursuant to current regulations, fulfillment of the commitments undertaken is subject to the prior approval of the Argentine Central Bank.-------------------- Treatment of extraordinary financial assistance to financial institutions by the Argentine Central Bank---------------------------------------------------------- Due to the financial system crisis unleashed at the end of 2001 and in order to counterbalance the decrease in deposits, Banco de Galicia y Buenos Aires S.A. obtained financial assistance from the Argentine Central Bank, as of September 30, 2005 and December 31, 2004, which amounted to $ 5,070,130 and $ 5,321,697 respectively and, including adjustments and interests for $ 814,937 and $ 385,212, totals $ 5,885,067 and $ 5,706,909, respectively, as of the abovementioned dates.----------------------------------------------------------- In February 2004, said Entity adhered to the regime for the repayment of debt established by Decrees No. 739/03 and No. 1,262/03, as well as to the amortization schedule proposed, the term of which is 92 months, on the basis of the minimum amortization period set up by the regulations and of the cash flows of the assets eligible as collateral for such debt.----------------------------- By means of Communique "A" 4268, the Argentine Central Bank approved a mechanism by which financial institutions can apply funds in advance to the repayment of principal amortization installments on rediscounts received, in accordance with the original amortization schedule.--------------------------------------------- As of September 30, 2005, the funds advanced in connection with this item, including principal, adjustments and interests, amounted to $ 198,526.---------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 57 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- In addition, there are other issues which, at the date of these financial statements, are pending final resolution on certain aspects. However, significant progress has been made for the benefit of Banco de Galicia y Buenos Aires S.A. on certain of these issues, and some of them are expected to be resolved in the short term. Below is a description of the most significant ones: Compensation to financial institutions------------------------------------------ Section 7 of Decree No. 214/02, establishes the issuance of a bond payable by the National Treasury to compensate the imbalance created in the financial system by the devaluation of the peso and the asymmetric pesification of assets and liabilities.---------------------------------------------------------------- In June 2002, Sections 28 and 29 of Decree No. 905/02 established the methodology for calculating the amount of the compensation to be received by financial institutions, granting the bonds mentioned below, so as to compensate them for:----------------------------------------------------------------------- a) the losses caused by the mandatory conversion into pesos of a significant portion of their liabilities at the $ 1.4 per US$ 1.0 exchange rate, greater than the $ 1.0 per US$ 1.0 exchange rate established for the conversion into pesos of a significant portion of its dollar-denominated assets. This would be accomplished through the delivery of a compensatory bond, for which the issuance of Peso-Denominated Bonds Maturing in 2007 ("Boden 2007") was established;------ b) the mismatch of their foreign currency positions that followed the compulsory pesification of certain portions of their assets and liabilities. This would be achieved 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 this, the issuance of "National Government Bonds in US Dollars Libor Due 2012" ("Boden 2012") was established.--------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. originally calculated that it was entitled to a total compensation amount of US$ 2,254,027 thousand of face value of Boden 2012.--------------------------------------------------------------------------- Within the process of determination of the compensation amount, the Argentine Central Bank made certain observations to certain criteria and to the computation of certain items that would modify the final amount of such compensation.------------------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. initially accepted and recognized some of the adjustments indicated by the Argentine Central Bank, while it examined and discussed the remaining observations. Nevertheless, the Bank established provisions for other contingencies for the full amount that remained under discussion. Finally, in March 2005, after a thorough analysis of the adjustments still required by the Argentine Central Bank and of the implications of maintaining the final amount of the compensation to be received undetermined as well as of when it would be granted, it was decided to reach a final agreement on the pending items. Accordingly, the final 58 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- amount of the compensation to be granted to the Entity, including the Hedge Bond, is US$ 2,178,030 thousand of face value of BODEN 2012. The difference arising from the adjustments claimed by the Argentine Central Bank and accepted by Banco de Galicia y Buenos Aires S.A. was offset against the provisions previously set up and mentioned above.------------------------------------------ As of September 30, 2005, the amount of compensation pending receipt, of $ 4,696,502, was recorded under "Other Receivables Resulting from Financial Brokerage - In foreign currency - Compensation to be Received from the National Government," while $ 11,677 for the securities received as compensation, net of the transfers made to Banco Galicia Uruguay S.A. and of those used to settle debts and in repo transactions, were recorded in "Government Securities -In foreign currency- Holdings in Investment Accounts." The amount of $ 320,582 used in repo transactions has been recorded under "Other Receivables Resulting from Financial Brokerage - In foreign currency - Forward Purchases of Securities under Repo Transactions" and under "Miscellaneous Receivables." The advance to be requested to the Argentine Central Bank for the subscription of the Hedge Bond, including the effect of Decree No. 2,167/02, has been recorded under "Other Liabilities for Financial Brokerage - In pesos - Advances for the Acquisition of National Government Bonds in US Dollars Libor Due 2012" for $ 1,780,453 which, including the adjustments from the application of the reference stabilization index ("CER") and accrued interest for $ 1,404,101, totals $ 3,184,554. The conditions for financing the subscription of the "National Government Bonds in US Dollars Libor Due 2012" have been specified in Section 29, subsection g) of Decree No. 905/02, which contemplates, among other conditions, the delivery by financial institutions of assets as collateral, for at least 100.0% of the amount of the advance received.-------------------------- At the date of these financial statements, the final settlement of the Compensatory and Hedge Bonds requested by Banco de Galicia y Buenos Aires S.A. and agreed upon with the Argentine Central Bank, as well as the final settlement of the advance for their acquisition and the acceptance of the assets offered as collateral for such advance were still pending.--------------------------------- Situation of Banco Galicia Uruguay S.A. and Banco de Galicia (Cayman) Limited (in provisional liquidation)---------------------------------------------------- The financial crisis unleashed in late 2001 also affected the companies controlled by Banco de Galicia y Buenos Aires S.A., Banco Galicia Uruguay S.A. y Banco de Galicia (Cayman) Limited (in provisional liquidation).------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 59 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- In December 2002, Banco Galicia Uruguay S.A restructured its deposits with a high degree of participation by its depositors and subsequently implemented various voluntary exchanges of restructured deposits, which allowed it to significantly reduce such liabilities.------------------------------------------ A new offer to exchange restructured deposits for cash and BODEN 2012 concluded in May 2005. Expressions of interest for approximately US$ 243,000 thousand were received.----------------------------------------------------------------------- Within this process, the Argentine Central Bank authorized the transfer of BODEN 2012 to Banco Galicia Uruguay S.A. for a face value of US$ 195,979 thousand, which were applied to the settlement of the expressions of interest to participate in the exchange received.------------------------------------------- Furthermore, in order to strengthen the financial condition of its subsidiaries, Grupo Financiero Galicia SA, has waived the right to collect the US$ 43,000 thousand subordinated negotiable obligations issued by Banco Galicia Uruguay S.A.---------------------------------------------------------------------------- Said waiver, along with the exchange of deposits, has meant an important improvement to Banco Galicia Uruguay S.A. financial conditions derived from the reduction of its liabilities.--------------------------------------------------- As of September 30, 2005, the principal amount of restructured liabilities (time deposits and negotiable obligations) amounted to $ 441,704, with the first three installments due September 2003, 2004 and 2005 having been paid.---------------- In June 2004, after the total suspension of all of Galicia Uruguay's activities as from February 06, 2002, the Uruguayan authorities resolved to maintain the authorization to operate granted by the Executive Branch of that country and withdraw the authorization to act as a commercial bank. This resolution by the Central Bank of Uruguay does not affect the rights of depositors and holders of negotiable obligations arising from the restructuring agreement approved in 2002, or those arising from the successive debt exchanges undertaken.----------- The Banco de Galicia y Buenos Aires S.A. has undertaken with Banco Galicia Uruguay S.A. to take such necessary action in order to, in certain circumstances and with the prior consent of the Argentine Central Bank, to contribute to the latter the amounts that may be required to permit Galicia Uruguay to repay all of its deposits, subject to prior restoration of the Banco de Galicia y Buenos Aires S.A.'s economic and financial condition and the repayment in full of the financial assistance from the Argentine Central Bank, as provided for by clause No. 52 of Argentine Central Bank's Resolution No. 281.-------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 60 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- At the beginning of 2002, the situation of Banco Galicia Uruguay S.A. affected its subsidiary Banco de Galicia (Cayman) Limited (in provisional liquidation) due to the fact that one of its main assets was a deposit in Banco Galicia Uruguay S.A. Consequently, at the request of that subsidiary, on July 18, 2002, the Cayman Islands authorities appointed a provisional liquidator in order to reach a voluntary restructuring agreement between such subsidiary and its creditors, as an alternative to liquidation.------------------------------------ The restructuring plan, which had a high degree of acceptance, will be in force until April 30, 2012, and is effective and mandatory for all creditors. While this plan remains in effect, the subsidiary's assets will be administered by the liquidators for the benefit of creditors. The initial cash payment was made on August 08, 2003, and the last installment is due in September 2011. At the date of these financial statements, the first three installments due September 2003, 2004 and 2005 have been paid. As of September 30, 2005, the outstanding debt balances of Banco de Galicia (Cayman) Limited (In provisional liquidation), net of eliminations corresponding to intercompany transactions, amounts to approximately US$ 5,800 thousand.----------------------------------------------- In order to help face the payment proposal of Banco de Galicia (Cayman) Limited (in provisional liquidation), Grupo Financiero Galicia S.A., granted said bank a subordinated loan for US$ 1,200 thousand, to be repaid once the debt with all creditors has been amortized pursuant to the proposal. The individual financial statements of Banco de Galicia y Buenos Aires S.A. recognize the investments in Banco Galicia Uruguay S.A. and Banco de Galicia (Cayman) Limited (in provisional liquidation) according to the equity method. ----------------------------------- Deposits with the financial system - Legal actions requesting protection of constitutional guarantees------------------------------------------------------- Through Decree No. 1,570/2001 and Law No. 25,561, the National Executive Branch, imposed restrictions on cash withdrawals from financial institutions. Subsequently, various regulations were issued which rescheduled the maturity of deposits then outstanding with the financial system and established a new maturity schedule. Decree No. 214/02 established the mandatory conversion into pesos of all deposits in the Argentine financial system denominated in US dollars or in other foreign currencies, at the exchange rate of $ 1.40 per US$ 1. This Decree also established that financial institutions are to comply with their obligations by reimbursing pesos. The CER (reference stabilization index) adjustment and a minimum interest rate were applied to those deposits.---------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 61 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- On various occasions, the National Executive Branch offered depositors the possibility of opting for exchanging their deposits originally denominated in foreign currency for different peso-and US dollar-denominated government securities, with the National Government being responsible for delivery of such bonds.-------------------------------------------------------------------------- As a result of the measures that established the pesification and restructuring of foreign-currency deposits, since December 2001, a significant number of claims have been filed against the National State and/or financial institutions, formally challenging the emergency regulations, particularly Decree No. 214/02 and supplementary provisions, and requesting prompt payment of deposits in their original currency. As of September 30, 2005, the court orders received by Banco de Galicia y Buenos Aires S.A. requiring the reimbursement of deposits in foreign or Argentine currency, at the free-market exchange rate, amounted to $ 15,382 and US$ 598,069 thousand. In compliance with those court orders, as to the same date, the Entity paid the amounts of $ 1,068,828 and US$ 115,734 thousand to reimburse deposits, in pesos and in foreign currency.--------------- The emergency regulations have been declared unconstitutional by most lower and upper courts. The difference between the amount paid as a result of the above-mentioned court orders and the amount resulting from converting deposits at the $ 1.40 per US dollar exchange rate, adjusted by the CER and interest accrued up to the payment date, which was $ 663,909 and $ 650,318, as of September 30, 2005 and December 31, 2004, respectively, has been recognized under "Intangible Assets," net of the amortization required by Argentine Central Bank's Communique "A" 3916, a residual value of $ 365,493 and $ 451,428 was outstanding as of those dates.-------------------------------------------------- Banco de Galicia y Buenos Aires S.A. has repeatedly reserved its right to make claims, at suitable time, in view of the negative effect caused on its financial condition by the reimbursement of deposits originally denominated in dollars, pursuant to legal orders or final judgments, either in US dollar bills or in pesos for the equivalent amount at the market exchange rate, since compensation of this effect was not included by the National Government in the calculation of the compensation to financial institutions. The method of accounting for such right as a deferred loss, set forth by the Argentine Central Bank in the aforementioned Communique "A" 3916, does not affect its existence or legitimacy. To such effect, the Entity has reserved the corresponding rights.--------------- On December 30, 2003, Banco de Galicia y Buenos Aires S.A. formally requested to the National Executive Branch, with a copy to the Ministry of Economy and Production and the Argentine Central Bank, the payment of the due compensation for the losses incurred that were generated by the asymmetric pesification and especially for the negative effect on its financial condition caused by court decisions which, sustaining legal actions filed by depositors, ordered the Bank to reimburse deposits at an exchange rate higher than US$ 1=$ 1.40. The Bank has reserved its right to further 62 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- extend such request in order to encompass such new losses as may be derived from amounts made payable on demand by new final judgments.-------------------------- The Argentine Supreme Court of Justice ruled on the case entitled "Province of San Luis vs. Argentine Federal Government" declaring Section 2 of Decree No. 214/02 unconstitutional.-------------------------------------------------------- On October 26, 2004, the Argentine Supreme Court of Justice ruled on the lawsuit entitled "Bustos, Alberto et al vs. National State, on legal action requesting protection of constitutional guarantees," admitting the declaration of national emergency established by Law No. 25,561 and the constitutionality of Section 2 of Decree No. 214/02, and overruling the decision that had ordered the reimbursement of a deposit to a group of depositors, in US dollars. Notwithstanding the fact that, under Argentine law, the Supreme Court rulings are not mandatory for lower courts, this ruling is expected to set a precedent in similar cases to be heard by those courts.----------------------------------- At the date of these financial statements, the final outcome of these disputes cannot be foreseen.------------------------------------------------------------- However, during the current fiscal year, the number of legal actions filed by customers requesting the reimbursement of deposits in their original currency has decreased significantly, which has reduced the risk of worsening of this problem in the future.---------------------------------------------------------- Issues pending final resolution------------------------------------------------- There are certain claims made by Banco de Galicia y Buenos Aires S.A. the Argentine national authorities and the Argentine Central Bank regarding:-------- a) Compensation for application of the CER/CVS---------------------------------- Law No. 25,796 set forth compensation to financial institutions for the negative effects on their financial condition derived from the application of the CER to deposits originally denominated in foreign currency and converted into pesos, and the application of the CVS to certain loans. This compensation will be paid through the delivery of BODEN 2013.--------------------------------------------- On May 03, 2004, through its Resolution No. 302/2004, the Ministry of Economy approved the calculation method to be used by the Finance Secretariat to determine the amount of face value of "National Government Floating Rate Bonds in Pesos Due 2013" to be delivered to financial institutions adhering to the compensation regime created by Law No. 25,796. The above-mentioned resolution and Argentine Central Bank Communique "A" 4136 have regulated such compensation regime in a way that, in Banco de Galicia y Buenos Aires S.A. opinion, is contrary to the provisions of Law No. 25,796. For this reason, on May 06, 2004, the Bank presented a letter to the National Executive Branch, the MECON and the Argentine Central Bank, maintaining the claim for compensation made on December 30, 2003, and extending its justification. Given that the period established by the Argentine Central Bank for financial institutions to opt for their participation in the compensation regime laid down by such rules expired on May 18, 2004, on that date, Banco de 63 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- Galicia y Buenos Aires S.A. made a new presentation to the Ministry of Economy and the Argentine Central Bank restating its right to be compensated for the negative effects on its financial condition derived from the application of the CVS to certain assets converted into pesos and from the unequal application of the CER to certain liabilities, and challenging Resolution No. 302/2004 of the Ministry of Economy, under the terms of Section 24 of Law No. 19,549.----------- At the end of fiscal year 2003, Banco de Galicia y Buenos Aires S.A. had recorded the estimated recoverable value of that compensation in accordance with the regulations in force at that date.------------------------------------------ During last fiscal year, in view of the lack of resolution on this issue, the aforementioned asset was written off (see Note 12 to the consolidated financial statements).-------------------------------------------------------------------- This accounting recognition does not affect the Banco de Galicia y Buenos Aires S.A.'s right to seek compensation for all potential losses derived from the unequal application of the CER to deposits originally denominated in foreign currency and subsequently converted into pesos, and the application of the CVS to certain loans.--------------------------------------------------------------- On October 24, 2005, the MECON served notified Banco de Galicia y Buenos Aires S.A. that the legal challenge to Resolution No. 302/2004 had been rejected, which terminated the administrative recourse. Banco de Galicia y Buenos Aires S.A. has requested to examine the proceedings in order to know the basis for said decision.------------------------------------------------------------------ b) Claims due to foreign exchange differences arising from the repayment of financial assistance during foreign-exchange market holidays in January 2002.--- During December 2001, Banco de Galicia y Buenos Aires S.A. received financial assistance in pesos from the Argentine Central Bank to face a temporary liquidity shortage. This financial assistance was repaid by using the funds, in US dollars, provided by the Bank Liquidity Fund, on January 02 and 04, 2002.---- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 64 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- On the day those funds were credited, the Argentine Central Bank had declared a foreign-exchange market holiday.------------------------------------------------ On January 06, 2002, before the market was reopened, Law No. 25561 was enacted, which repealed the convertibility system and established a new exchange rate of $ 1.40 per US dollar.----------------------------------------------------------- As a result of the aforementioned regulations, during the foreign-exchange market holiday, no foreign currency could be traded.---------------------------- As a result, the US dollars funds credited by the Bank Liquidity Fund on January 02 and 04, 2002, remained in US dollars until the reopening of the market.------ On that date, and in accordance with the regulations in force, the US dollar was sold at $ 1.40.----------------------------------------------------------------- For this reason, when the Argentine Central Bank applied US$ 410,000 thousand to the settlement of the financial assistance granted to the Bank, it should have cancelled US$ 410,000 thousand times 1.40, that is, the amount of $ 574,000.---- This has infringed the guarantee of inviolability of private property and equal treatment before the law.------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. considers that the $ 164,000 difference will have to be reimbursed to the Bank, dated January 2002, or that an equivalent restoration of its equity should be considered.---------------------- Banco de Galicia y Buenos Aires S.A. has a claim outstanding before the Argentine Central Bank in order to seek satisfaction of its right. Such right has not been accounted for in these financial statements.----------------------- Net exposure to the Public Sector----------------------------------------------- As of September 30, 2005 and December 31, 2004, the net exposure of Banco de Galicia y Buenos Aires S.A. to the public sector, resulting from the situations described above and from the National Government's non-compliance with the servicing of its debt, was as follows:------------------------------------------ -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 65 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: (Continued)------------------------------------------------------------- -------------------------------------------------------------------------------- 09.30.2005 12.31.2004 -------------------------------------------------------------------------------- Government Securities - Global position 5,559,386 5,810,235 -------------------------------------------------------------------------------- Loans 5,153,676 4,635,305 -------------------------------------------------------------------------------- Other receivables resulting from financial brokerage 5,725,502 5,700,750 -------------------------------------------------------------------------------- Miscellaneous receivables - 183,311 -------------------------------------------------------------------------------- Total Assets 16,438,564 16,239,601 -------------------------------------------------------------------------------- Liabilities with the Argentine Central Bank 8,870,883 8,427,652 -------------------------------------------------------------------------------- Net exposure to the Public Sector (*) 7,567,681 7,901,949 -------------------------------------------------------------------------------- (*) excludes the residual value of the amounts paid in compliance with court orders, as mentioned in section "Deposit with the financial system - Legal actions requesting protection of constitutional guarantees".-------------------- NOTE 2: BASIS OF PRESENTATION OF FINANCIAL STATEMENTS--------------------------- On February 19, 2003, through MD Resolution No. 5/03 the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires (CPCECABA) approved Technical Pronouncement No. 21 "Equity value - consolidation of financial statements - information to be presented on related parties". This Technical Pronouncement and its amendments came into force for fiscal years commencing as from April 01, 2003. Furthermore, the CNV has adopted that Pronouncement establishing its mandatory application for fiscal years commencing as from April 01, 2004, its application in fiscal years commencing at an earlier date being admitted.----------------------------------------------------------------------- These financial statements have been stated in thousands of Argentine pesos and prepared in accordance with disclosure and valuation accounting standards contained in Technical Pronouncements issued by the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), approved with certain modifications by the CPCECABA, and in line with Resolutions issued by the CNV, with the considerations mentioned in Note 3 to the consolidated financial statements in relation to the criteria for valuing its subsidiaries Banco de Galicia y Buenos Aires S.A. and Sudamericana Holding S.A.----------------------- The preparation of financial statements at a given date requires management of the Company to make estimates and assessments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at that date, as well as the income and expenses recorded for the period. The Company's management makes estimates in order to calculate, at any given moment, for example, the depreciation and amortization charges, the recoverable value of assets, the income tax charge and provisions for contingencies. Future actual results may differ from estimates and assessments made at the date these financial statements were prepared.---------------------- 66 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- On March 25, 2003, the National Executive Branch issued Decree No. 664 establishing that financial statements for fiscal years ending as from said date be stated in nominal currency. Consequently, in accordance with CNV Resolution No. 441/03, the Company discontinued the restatement of its financial statements as from March 01, 2003. This criterion is not in line with Argentine GAAP, under which financial statements are to be restated until September 30, 2003. Nevertheless, this departure has not produced a significant effect on the financial statements. The index used in restating the items in these financial statements is the domestic wholesale price index published by the National Statistics and Census Institute. Also, certain financial statement figures for the year ended December 31, 2004 and the period ended September 30, 2004 have been reclassified for purposes of their comparative presentation with those of the current period. The most relevant accounting standards used accounting policies used in preparing the Financial Statements are listed below a. Local currency assets and liabilities Monetary assets and liabilities which include, where applicable, the interest accrued at period/year end are stated in period-end currency and therefore require no adjustment whatsoever. b. Foreign currency assets and liabilities (US dollars) Foreign currency assets and liabilities (in US dollars) have been stated at Banco de la Nacion Argentina buying and selling exchange rates, respectively, in force at the close of operations on the last working day of each period/year. Interests receivable or payable have been accrued, where applicable.------------ c. Investments------------------------------------------------------------------ c.1. Current-------------------------------------------------------------------- Time and special current account deposits as well as Class "A" Trust Debt Securities issued by Radio Sapienza Financial Trust, Series I, have been valued at face value, plus interest accrued at period / year end.---------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 67 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- Mutual fund units have been valued at period/year end closing price.------------ As of December 31, 2004, government securities had been valued at their closing price as of said date.---------------------------------------------------------- Corporate securities have been valued at closing price, plus interest accrued at period / year-end. c.2.---------------------------------------------Non-Current Banco de Galicia y Buenos Aires S.A. subordinated Negotiable Obligations due in 2019 have been added to the Company's assets at 73% of their dollar-denominated face value, as decided by the Special Shareholders' Meeting of held on January 02, 2004.----------------------------------------------------------------------- As of September 30, 2005, the Subordinated Negotiable Obligations of Banco de Galicia y Buenos Aires S.A. falling due in 2019 have been valued in accordance with the guidelines of Technical Pronouncement No. 17 of the FACPCE, on the basis of: (i) the original measurement of the asset, (ii) the portion accrued on any difference between this measurement and the amount receivable upon maturity, calculated exponentially at the internal rate of return determined at the time of and on the basis of the initial measurement, under the conditions previously agreed, and (iii) net of collections made.-------------------------------------- Negotiable Obligations issued by Banco Galicia Uruguay S.A. were valued at their face value as of December 31, 2004 plus accrued interest at that date, and have been recognized under current interest.----------------------------------------- The equity investments in Banco de Galicia y Buenos Aires S.A., Net Investment S.A., Galicia Warrants S.A. and Galval Agente de Valores S.A. have been recognized at their equity value as of September 30, 2005.---------------------- The financial statements of Banco de Galicia y Buenos Aires S.A. have been prepared in accordance with Argentine Banking GAAP, which differ in the aspects mentioned in Note 3.c. to consolidated financial statements from Argentine GAAP. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 68 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- This investment has been stated at equity value arising from financial statements valued in accordance with the above-mentioned standards.------------- The equity investment in Sudamericana Holding S.A. has been accounted for under the equity method, on the basis of June 30, 2005 financial statement and considering the significant movements occurred from that date to the closing date of these financial statements, in accordance with Argentine GAAP.---------- The financial statements of Sudamericana Holding S.A. have been prepared as established by the National Insurance Superintendence (SSN), without recognizing the effect of inflation for January and February 2003. This criterion is not in accordance with Argentine GAAP. Nevertheless, this departure has not produced a significant effect on the financial statements of Grupo Financiero Galicia S.A.- Galval Agente de Valores S.A.'s financial statements were originally issued in foreign currency and later converted into pesos as detailed below:-------------- Assets and liabilities were converted at Banco de la Nacion Argentina buying exchange rate in force at the closing of operations on the last working day of the period.--------------------------------------------------------------------- - Capital and capital contributions have been computed for the amounts actually disbursed.---------------------------------------------------------------------- - Accumulated earnings were determined as the difference between assets, liabilities, capital and capital contributions.--------------------------------- - Results for the period were determined as the difference between the opening balance and closing balance of accumulated earnings. Items in the income statement were converted into pesos applying the monthly average exchange rates. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 69 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- d. Bank premises and equipment-------------------------------------------------- Bank premises and equipment have been valued at their acquisition cost, restated to constant currency, as mentioned in this Note, net of the corresponding accumulated depreciation.------------------------------------------------------- Depreciation charges are calculated following the straight-line method, at rates determined based on the useful life assigned to the assets, which is 60 months for hardware and software, furniture and fixtures and vehicles and 600 months for real estate property.------------------------------------------------------- The updated residual value of the assets, taken as a whole, does not exceed their combined market value at period/ year-end.-------------------------------- e. Intangible Assets------------------------------------------------------------ Intangible assets have been valued at their acquisition cost, restated in constant currency, as mentioned in this Note, net of the corresponding accumulated amortization, calculated based on their estimated useful life. In the case of the goodwill vale, the Company has allotted a valuation allowance of $ 839 for the for the acquisition of the shares representing 87.50% of the capital stock and voting rights of Galicia Warrants S.A. (See Schedule E).------ Amortization is assessed on a straight-line basis in equal monthly installments, being the amortization term of 60 months. The updated residual value of the assets, taken as a whole, does not exceed their estimated recoverable value at period/year end.---------------------------------------------------------------- e. Income tax------------------------------------------------------------------- The Company has recognized the income tax charge according to the deferred tax liability method, thus recognizing the temporary differences between measurements of accounting and tax assets and liabilities. (See Note 13).------- For purposes of determining the deferred assets and liabilities, the tax rate that is expected to be in force at the moment of their reversal or use has been applied to the temporary differences identified and tax loss carry-forwards, under the legal regulations enacted at the date of issue of these financial statements.--------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 70 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- e. Tax on minimum presumed income----------------------------------------------- The Company determines the tax on Minimum presumed income at the statutory rate of 1% of the computable assets at period/ year end. This tax is supplementary to the income tax. The Company's tax liability for each period/year is to coincide with the higher of the two taxes.----------------------------------------------- However, if the tax on Minimum presumed income were to exceed income tax in a given fiscal year, such excess may be computed as a payment on account of the income tax to be generated in any of the next 10 fiscal years.------------------ The Company recognized the tax on Minimum presumed income paid in prior years as a credit, which was computed as a payment on account of fiscal year 2004 income tax.---------------------------------------------------------------------------- h. Shareholders' equity--------------------------------------------------------- h.1. Activity in the shareholders' equity accounts has been restated as mentioned in paragraphs 4 and 5 of this Note.----------------------------------- The "Subscribed and paid in capital" account has been stated at its face value and at the value of the contributions, in the currency value of the period in which those contributions were actually made.----------------------------------- The adjustment stemming from the restatement of that account in constant currency has been allocated to the "Principal Adjustment" account.-------------- h.2. Income and expense accounts------------------------------------------------ The results for each period are presented in the period in which they accrue.--- The Other Income and Expenses caption includes, among other items, $ 121,991 corresponding to the waiver of rights to collect Negotiable Obligations issued by Banco Galicia Uruguay S.A. for US$ 43,000 thousand (see Situation of Banco Galicia Uruguay S.A. and Banco de Galicia (Cayman) Limited (in provisional liquidation) in Note 1 to these Financial Statements), and a once-only expense of $ 12,000, in recognition of the efforts of Banco de Galicia y Buenos Aires S.A. Board of Directors during the period between July 2001 and December 2004.-- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 71 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 2: (Continued)------------------------------------------------------------- i. Statement of Cash Flows------------------------------------------------------ The "Cash and due from banks" caption is considered to be cash.----------------- NOTE 3: CASH AND DUE FROM BANKS------------------------------------------------- The breakdown of this caption was the following--------------------------------: 09.30.05 12.31.04 --------------- --------------- Cash (Schedule G) 559 463 Due from banks - Current Accounts (Note 11) 15 77 --------------- --------------- Total 574 540 =============== =============== NOTE 4: OTHER RECEIVABLES----------------------------------------------------- The breakdown of this caption was the following:-------------------------------- Current 09.30.05 12.31.04 -------------- --------------- Tax Credit 21 77 Sundry Debtors (Note 11 and Schedule G) 839 - Prepaid expenses 9 7 Other 98 5 --------------- --------------- Total 967 89 =============== ================ Non-Current 09.30.05 12.31.04 -------------- --------------- Tax Credit - Mandatory savings 5 5 Deferred tax receivables (Note 13) 30,044 - Prepaid expenses 3 1 Sundry Debtors (Note 11 and Schedule G) 4,843 4,774 --------------- --------------- Total 34,895 4,780 =============== ================ NOTE 5: SALARIES AND SOCIAL SECURITY CONTRIBUTIONS------------------------------ The breakdown of this caption was the following:-------------------------------- 09.30.05 12.31.04 -------------- --------------- Integrated Pension and Survivors' Benefit System 11 15 Health Care Payable 4 4 Provision for bonuses 150 - Provision for annual salary bonus 20 - Prov. for Directors' and syndics' fees 105 140 --------------- --------------- Total 290 159 =============== ================ 72 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 6: TAX LIABILITIES--------------------------------------------------------- The breakdown of this caption was the following:-------------------------------- Current 09.30.05 12.31.04 --------------- --------------- Income tax - Withholdings payable 20 5 Added value tax - 12 Provision for Income tax (net) 13,658 28,311 Provision for Turnover tax (net) 1 23 Provision for tax on personal assets 2,578 3,676 --------------- --------------- Total 16,257 32,027 =============== ================ Non-Current 09.30.05 12.31.04 --------------- --------------- Deferred tax liability (Note 13) - 26.383 --------------- --------------- Total - 26.383 =============== ================ NOTE 7: OTHER LIABILITIES------------------------------------------------------- The breakdown of this caption was the following:-------------------------------- 09.30.05 12.31.04 Current --------------- --------------- Sundry Creditors (Note 11 and Schedule G) 6 147 Provision for expenses (Note 11 and Schedule G) 126 967 Others (Note 11) 4 - Directors' escrow accounts 3 3 --------------- --------------- Total 139 1,117 =============== ================ Non-Current 09.30.05 12.31.04 --------------- --------------- Directors' escrow accounts 6 3 --------------- --------------- Total 6 3 =============== ================ NOTE 8: CAPITAL STATUS---------------------------------------------------------- As of September 30, 2005, capital status was the following:--------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 73 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 8: (Continued)-------------------------------------------------------------
==================================================================================================================== Capital Stock Issued, subscribed, Face Restated Approved by Date of registration paid in and recorded value In constant with the commercial currency Entity Date court of record -------------------------------------------------------------------------------------------------------------------- Balance as of 12.31.03 1,092,407 2,407,080 Board of 05.16.00 Directors' 07.24.00 08.09.00 Meeting and 07.26.00 -------------------------------------------------------------------------------------------------------------------- Capital increase 149,000 149,000 Board of 01.02.04 Directors' 04.23.04 06.08.04 Meeting and 05.13.04 -------------------------------------------------------------------------------------------------------------------- Absorption of retained earnings - (1,036,542) Board of 04.28.05 - Directors' Meeting -------------------------------------------------------------------------------------------------------------------- Balance as of 09.30.05 1,241,407 1,519,538 - - - ====================================================================================================================
NOTE 9: ESTIMATED COLLECTION OR PAYMENT TERMS OF RECEIVABLES, INVESTMENTS AND DEBTS----------------------------------------------------------------------- As of September 30, 2005 the breakdown of receivables, investments and debts according to their estimated collection or payment terms was the following:-----
=============================================================================================================== Investments Other Salaries and Tax Other receivables Social Security Liabilities liabilities contributions --------------------------------------------------------------------------------------------------------------- 1st Quarter 16,104 757 185 21 136 2nd Quarter 37 202 - - - 3rd Quarter - 8 105 16,236 3 4th Quarter - - - - - After one year 219,142 34,889 - - 6 ---------------------------------------------------------------------------------- Subtotal falling due 235,283 35,856 290 16,257 145 No set due date 1,339,726 6 - - - Past due - - - - - ---------------------------------------------------------------------------------- Total 1,575,009 35,862 290 16,257 145 ================================================================================== Non-interest bearing 1,339,726 32,065 290 16,257 145 At fixed rate 235,283 3,797 - - - ---------------------------------------------------------------------------------- Total 1,575,009 35,862 290 16,257 145 ===============================================================================================================
NOTE 10: EQUITY INVESTMENTS---------------------------------------------------- The breakdown of long-term investments was the following:----------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 74 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 10: (Continued)----------------------------------------------------------
================================================================================================================== As of 09.30.05 ------------------------------------------------------------------------------------------------------------------ Issuing Company Shares Percentage held in Principal line of FV per ------------------------------------------------------ business share Possible Class Number Total Capital Votes ------------------------------------------------------------------------------------------------------------------ Ordinary 101 0.001 Banco de Galicia y Buenos Class "A" Financial Aires S.A. Ordinary Activities Class "B" 438,687,004 0.001 ------------------------------------------------------- Total 438,687,105 93.604186% 93.604191% ------------------------------------------------------------------------------------------------------------------ Financial and Ordinary Investment Net Investment S.A. shares 10,500 87.500000% 87.500000% Activities 0.001 ------------------------------------------------------------------------------------------------------------------ Ordinary Financial and Class "A" 31,302 Investment 0.001 Sudamericana Holding S.A. Ordinary Activities Class "B" 41,735 0.001 -------------------------------------------------------- Total 73,037 87.500899% 87.500899% ------------------------------------------------------------------------------------------------------------------ Dep. Cert and Ordinary Warrants Galicia Warrants S.A. shares 175,000 87.500000% 87.500000% issuing company 0.001 ------------------------------------------------------------------------------------------------------------------ Galval Agente de Valores S.A. Ordinary 13,500,000 100.00000% 100.00000% Custody of 0.001 shares securities ==================================================================================================================
================================================================================================================== As of 12.31.04 ------------------------------------------------------------------------------------------------------------------ Issuing Company Shares Percentage held in Principal line of FV per ------------------------------------------------------ business share Possible Class Number Total Capital Votes ------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------ Banco de Galicia y Buenos Ordinary 101 Aires S.A. Class "A" Financial 0.001 Ordinary Activities Class "B" 438,628,250 0.001 ------------------------------------------------------- Total 438,628,351 93.591649% 93.591655% ------------------------------------------------------------------------------------------------------------------ Financial and Ordinary Investment Net Investment S.A. shares 10,500 87.500000% 87.500000% Activities 0.001 ------------------------------------------------------------------------------------------------------------------ Ordinary Financial Sudamericana Holding S.A. Class "A" 31,302 and 0.001 Ordinary Investment Class "B" 41,735 Activities 0.001 ------------------------------------------------------- Total 73,037 87.500899% 87.500899% ------------------------------------------------------------------------------------------------------------------ Dep. Cert and Warrants Ordinary issuing Galicia Warrants S.A. shares 175,000 87.500000% 87.500000% company 0.001 ==================================================================================================================
75 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 10: (Continued)----------------------------------------------------------- The financial condition and results of controlled companies were the following:----------------------------------------------------------------------
================================================================================================== Issuing Company -------------------------------------------------------------------------------------------------- Balance Sheet Banco de Galicia Net Galicia Galval Agente As of 09.30.05 (*) y Buenos Aires Investment Warrants de Valores S.A. S.A. S.A. S.A. -------------------------------------------------------------------------------------------------- Assets 25,085,390 2,078 6,984 1,689 Liabilities 23,709,781 57 1,935 37 Share holders' equity 1,375,609 2,020 5,049 1,652 Result for the nine months ended 09.30.05 177,362 (1,826) 547 (326) ================================================================================================== (*) See Note 2.c.2.-------------------------------------------------------------------------------------
================================================================================================ Issuing Company ------------------- Balance sheet as of 06.30.05 (*) Sudamericana Holding S.A. ------------------------------------------------------------------------------------------------ Assets 111,060 Liabilities 72,789 Share holders' equity 38,271 Result for the nine months ended 06.30.05 10,473 ================================================================================================ (*) See Note 2.c.2.------------------------------------------------------------------------------------
================================================================================================ Issuing Company ---------------------------------------- Banco de Galicia y Buenos Aires Net Investment Balance sheet as of 12.31.04 S.A. S.A. ------------------------------------------------------------------------------------------------ Assets 23,465,270 3,870 Liabilities 22,267,023 55 Share holders' equity 1,198,247 3,815 Result for the nine months ended 09.30.04 (68,304) (1,908) ================================================================================================
================================================================================================ Issuing Company ------------------- Balance sheet as of 12.31.04 Galicia Warrants S.A. ---------------------------------------------------------------------------------------- Assets 6,982 Liabilities 2,080 Share holders' equity 4,902 Result for the nine months ended 07.31.04 335 =================================================================================================
76 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 10: (Continued)----------------------------------------------------------- ================================================================================ Issuing Company ------------------- Balance sheet as of 09.30.04 Sudamericana Holding S.A. ----------------------------------------------------------------------- Assets 139,227 Liabilities 111,429 Share holders' equity 27,798 Result for the nine months ended 06.30.04 1,254 ====================================================================== NOTE 11: CORPORATIONS SECTION 33 OF LAW No. 19550------------------------------ The financial statements include the following significant balances of transactions with Banco de Galicia y Buenos Aires S.A. and its subsidiaries:------------------------------------------------------------------- Banco de Galicia y Buenos Aires S.A. 09.30.05 12.31.04 ------------ ----------- ASSETS Due from banks - Current Accounts (Note 3) - 74 Investments - Time deposits (Schedule C) 1,683 16,558 Investments - Negotiable obligations (Schedules C and G) 219,142 232,256 ------------ ---------- Total 220,825 248,888 ============ ========== LIABILITIES Other liabilities - Others (Note 7) 4 - Other liabilities - Provision for 2 161 expenses (Note 7) ----------- ---------- 6 161 =========== ========== INCOME 09.30.05 09.30.04 ----------- ---------- Financial income - interest on time deposits 507 42 Financial income - CER on time deposits 97 72 Financial income - interest on negotiable 22,968 24,354 obligations Bank premises and equipment under lease 125 - ----------- ---------- Total 23,697 24,468 =========== ========== EXPENSES Administrative expenses (Schedule H) Service fees 7 3 Trademark leasing 610 561 Bank expenses 5 4 General expenses 66 34 ----------- ---------- Total 688 602 =========== ========== 77 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 11: (Continued)-----------------------------------------------------------
Banco Galicia (Cayman) Limited 09.30.05 12.31.04 ----------------- ----------------- Other Receivables - Sundry Creditors (Note 4 and Schedule G) 3,596 3,629 ----------------- ----------------- Total 3,596 3,629 ================= ================= INCOME 09.30.05 09.30.04 ----------------- ----------------- Financial income - other interest 52 52 ----------------- ----------------- Total 52 52 ================= ================= Banco Galicia Uruguay S.A. 09.30.05 12.31.04 ----------------- ----------------- ASSETS Other Receivables - Sundry debtors (Note 4 and Schedule G) 1,884 1,144 Investments - Negotiable obligations (Schedules C and G) - 126,585 ----------------- ----------------- Total 1,884 127,729 ================= ================= LIABILITIES Other Liabilities - Sundry Creditors (Note 7 and Schedule G) - 2 ----------------- ----------------- Total - 2 ================= ================= INCOME 09.30.05 09.30.04 ----------------- ----------------- Financial income - Interest on negotiable obligations 565 941 ----------------- ----------------- Total 565 941 ================= ================= EXPENSES Administrative expenses (Schedule H) Taxes 13 - ----------------- ----------------- Total 13 - ================= ================= B2Agro S.A. 09.30.05 09.30.04 ----------------- ----------------- INCOME Financial income - other interests - 52 ----------------- ----------------- Total - 52 ================= =================
78 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 11: (Continued)----------------------------------------------------------- Tarjetas del Mar S.A. 09.30.05 09.30.04 -------------- -------------- INCOME Other income and expenses - 24 -------------- -------------- Total - 24 ============== ============== NOTE 12: RESTRICTIONS IMPOSED ON THE DISTRIBUTION OF PROFITS------------------ Pursuant to section 70 of the Argentine Corporations Law, the Corporate Bylaws and National Securities Commission Resolution No. 368/2001, 5% of the net income for the year should be transferred to the Legal Reserve until 20% of the capital stock is reached.--------------------------------------------------------------- Furthermore, the amount used to absorb the negative balance in the "Retained Earnings" account, which as of December 31, 2004 amounted to $29,493, should be restored before any distribution is made.==------------------------------------- NOTE 13: INCOME TAX - DIFFERED TAX---------------------------------------------- Income tax has been determined in accordance with the deferred tax method.------ The following tables show the changes and breakdown of deferred tax assets and liabilities:-------------------------------------------------------------------- Deferred tax assets:------------------------------------------------------------ -------------------------------------------------------------------------------- Item Specific tax Other Total losses -------------------------------------------------------------------------------- Balances at beginning of fiscal year 15 17,847 17,862 Charge to income - 12,188 12,188 --------------------------------------- Closing balances 15 30,035 30,050 ================================================================================ Deferred tax liabilities:------------------------------------------------------- -------------------------------------------------------------------------------- Item Bank Investments Other Total premises and equipment -------------------------------------------------------------------------------- Balances at beginning of 13 44,232 38 44,283 fiscal year Charge to income (7) (44,232) (38) (44,277) ------------------------------------------------- ------------------------------------------------- Closing balances 6 - - 6 ================================================================================ Net deferred assets at period end, derived from the information included in the preceding tables, amount to $ 30,044.------------------------------------------- 79 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 13: (Continued)----------------------------------------------------------- The following table shows the reconciliation of income tax charged to results to that which would result from applying the tax rate in force to the accounting loss: Result for the period before income tax 42,545 Restatement of income and expense items 1,820 Result of long-term investments (189,265) Consolidation adjustment per Technical Pronouncement No. 4 21,536 Sundry non-deductible expenses 13,119 Sundry income not included in the calculation (1,606) Income for credit assignment 1,531 Presumptive interest 169 Non-deductible expenses 4,140 Organization expenses (87) ------------ Taxable accounting result (106,098) Statutory tax rate 35% ------------ Total income tax charge (37,134) Variation between closing and opening deferred tax assets 12,188 Variation between closing and opening deferred tax liabilities 44,277 ------------ Subtotal 19,331 Foreign source tax loss (377) ------------ Tax determined 18,954 ============
NOTE 14: INCOME PER SHARE----------------------------------------------------- Below is a breakdown of the Income per share as of September 30, 2005 and 2004:---------------------------------------------------------------------------
09.30.05 09.30.04 -------------- ------------ Income / (loss) for the period 79,679 (74,210) Outstanding ordinary shares weighted average 1,169,363 1,092,407 Adjustment derived from preferred share issue convertible into Class "B" ordinary shares 72,044 73,956 Diluted ordinary shares weighted average 1,241,407 1,166,363 Earning per ordinary share: - Basic 0.0681 (0.0679) - Diluted 0.0642 (0.0636)
NOTE 15: CAPITAL INCREASE------------------------------------------------------ On January 02, 2004, the Ordinary and Extraordinary Shareholders' Meeting of Grupo Financiero Galicia S.A. resolved to approve a capital increase for up to $ 149,000, taking it to $ 1,241,407 under the terms of Section 188, paragraph 2, of the Law on Corporations.----------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 80 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 15: (Continued)------------------------------------------------------------ This capital increase will be intended for the acquisition or receipt as a contribution of Subordinated Negotiable Obligations for up to US$ 100,000 thousand, or other debt securities to be issued by Banco de Galicia y Buenos Aires S.A., or other instruments representing receivables from said Bank, to be issued in exchange for the latter's due and payable debt under the terms of the restructuring of the foreign currency debt governed by foreign legislation being carried out by Banco de Galicia y Buenos Aires S.A., as described in Note 1 to these financial statements.----------------------------------------------------- The capital increase became effective the issuance of up to 149 million non-voting preferred shares that have preference over ordinary shares, with a face value of one peso, convertible into ordinary Class B shares one year after their issuance, in the event of the Company's liquidation or a change of control over Grupo Financiero Galicia S.A., in both cases at a rate of one preferred share for one ordinary Class "B" share, which shall pay dividends as from the fiscal year in which they are subscribed. The above-mentioned preferred shares shall carry preemptive and survival rights over any potential issuance of shares by the Company. Preferred shares were paid up at their face value plus a premium, either in cash or through a contribution in kind of those securities for up to US$ 100,000 thousand (face value), in the latter case at a rate of US$ 0.00067114 thousand (face value) of debt for each peso (face value) of shares.------------------------------------------------------------------------- Said Shareholders' Meeting decided to set the value of the debt securities to be received at 73% of their face value in US dollars and, in the event of observations by the National Securities Commission (CNV), acceptance of a lower value of at least 70% shall be decided by the Board of Directors.--------------- On April 21, 2004, the CNV authorized the public offering of the preferred shares for up to $ 149,000, with a face value of $ 0.001 each, to be placed with a premium subscription, as well as the public offering of ordinary Class B shares with a face value of $ 0.001 each and entitled to one vote per share, to be exchanged for the preferred shares. On April 26 and 29, 2004, the Buenos Aires and Cordoba Stock Exchanges, respectively, authorized the listing of the preferred shares and the Class B ordinary shares arising from the conversion of those preferred shares.--------------------------------------------------------- As a result of the full subscription and payment of the 149 million non-voting preferred shares, on May 13, 2004, the Company's Board of Directors has set the new Company's capital at $1,241,407--------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 81 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Notes to the Consolidated Financial Statements (Continued)---------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 15: (Continued)----------------------------------------------------------- This increase has been registered with the General Inspection Board of Legal Entities on June 08, 2004, under number 6,907, Book 25 of Stock Corporations.--- In addition, as a result of that capital increase, in May 2004 Grupo Financiero Galicia S.A. received in payment thereof 99,965,603 Subordinated Negotiable Obligations due 2019 (face value) issued by Banco de Galicia y Buenos Aires S.A.---------------------------------------------------------------------------- On May 13, 2005, non-voting preferred shares were converted into ordinary Class "B" shares entitled to one vote per share.-------------------------------------- NOTE 16: PRIOR FISCAL YEAR ADJUSTMENTS------------------------------------------ In the quarters ended March 31 and September 30, 2004, the Company recognized under Prior year adjustment the proportion attributable to its participation in Banco de Galicia y Buenos Aires S.A. for the adjustments made by that Bank in those periods (See Note 12 to consolidated financial statements).--------------- The prior year adjustment presented in the Statement of Changes in Shareholders' Equity for comparative purposes is composed of a profit adjustment of $ 28,912 derived from the application of the deferred tax method for calculating income tax and a loss of $ 71,866, as mentioned in the preceding paragraph.------------ NOTE 17: SUBSEQUENT EVENTS----------------------------------------------------- On October 31, 2005, the credit the Company held with con Banco Galicia Uruguay S.A. was collected for US$ 222 thousand, corresponding to accrued interests on subordinated negotiable obligations.-------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 82 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Fixed assets and investments in assets of a similar nature---------------------- For the nine months ended September 30, 2005------------------------------------ In comparative format with the fiscal year ended December 31, 2004.------------- (figures stated in thousands of pesos)------------------------------------------ Schedule A----------------------------------------------------------------------
============================================================================================= ORIGIN VALUE DEPRECIATION -------------------------------------------------------------------- For the period -------------------- Principal Account A beginning Increases Withdrawals Balance at Accumulated of year period end at beginning of year --------------------------------------------------------------------------------------------- Real State 3,258 - - 3,258 190 --------------------------------------------------------------------------------------------- Furniture and facilities 207 - 207 162 --------------------------------------------------------------------------------------------- Hardware and software 585 12 - 597 415 --------------------------------------------------------------------------------------------- Totals 4,050 12 - 4,062 767 ============================================================================================= ORIGIN VALUE DEPRECIATION ------------------------------------------------------------------------------- For the period -------------------- Net book Net Book Withdrawals Rate Amount Accumulated value as of Value as of % at period end 30.06.05 12.31.04 -------------------------------------------------------------------------- Real State - 2 46 236 3,022 3,068 ------------------------- -------------------------------------------------------------------------- Furniture and facilities - 20 31 193 14 45 ------------------------- -------------------------------------------------------------------------- Hardware and software - 20 88 503 94 170 ------------------------- -------------------------------------------------------------------------- Totals - 165 932 3,130 3,283 ========================= ==========================================================================
83 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Intangible Assets--------------------------------------------------------------- For the nine months ended September 30, 2005------------------------------------ In comparative format with the fiscal year ended December 31, 2004.------------- (figures stated in thousands of pesos)------------------------------------------ Schedule B----------------------------------------------------------------------
======================================================================================================================= Principal Account ORIGIN VALUE AMORTIZATIONS ----------------------------------------- --------------------------- A Increases Withdrawals Balance Accumulated at Withdrawals For the period Accumulated beginning at beginning of ------------------ at period of year period year Rate % Amount end end ----------------------------------------------------------------------------------------------------------- Goodwill 20,064 - - 20,064 14,881 - 20 3,010 17,891 ----------------------------------------------------------------------------------------------------------------------- Totals 20,064 - - 20,064 14,881 - 3,010 17,891 ======================================================================================================================= Valuation Net book Net Book allowance value as Value as of (Schedule E) of 30.06.05 12.31.04 ------------------------------------------- Goodwill 839 1,334 3,745 ------------------------------------------- Totals 839 1,334 3,745 ===========================================
84 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Investments--------------------------------------------------------------------- Equity investments and Other Investments---------------------------------------- Balance Sheet as of September 30, 2005 and December 31, 2004-------------------- (figures stated in thousands of pesos)------------------------------------------ Schedule C----------------------------------------------------------------------
=========================================================================================== Issuance and characteristics of the securities Book value as Book value as of 09.30.05 of 12.31.2004 ------------------------------------------------------------------------------------------- Current investments (*) Special current account deposits (Notes 9 and 11 and Schedule G) 68 55 Mutual Funds (Note 9) 880 265 Time deposits (Notes 9 and 11 and Schedule G) 3,408 20,100 Financial trusts (Note 9) 522 - Government securities (Note 9 and Schedule G) - 2.148 Corporate securities (Note 9 and Schedule G) 11,263 14,666 Negotiable Obligations (Notes 9 and 11 and Schedule G) - 208 --------------------------------- Total current investments 16,141 37,442 =========================================================================================== (*) include accrued interest.--------------------------------------------------------------
85 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Investments--------------------------------------------------------------------- Equity investments and Other Investments---------------------------------------- Balance Sheet as of September 30, 2005 and December 31, 2004-------------------- (figures stated in thousands of pesos)------------------------------------------ Schedule C (Cont.)--------------------------------------------------------------
================================================================================================================================== Issuance and characteristics Class Face value Number Acquisition Quotation Proportional Book value of the securities value Cost per share equity value as of as of as of 09.30.05 09.30.05 09.30.05 ---------------------------------------------------------------------------------------------------------------------------------- Non-current investments Negotiable Obligations 335,473 - - 219,142(4) (Note 11 and Schedule G) Banco de Galicia y Ordinary Class "A" 0.001 101 - Buenos Aires S.A. Ordinary Class "B" 0.001 438,687,004 0.00414 ---------- 438,687,105 2,571,566 1,298,323 1,298,323 Net Investment S.A. Ordinary shares 0.001 10,500 23 - 1,768 1,768 Sudamericana Holding S.A. Ordinary Class "A" 0.001 31,302 - Ordinary Class "B" 0.001 41,735 - ----------- 73,037 33,003 33,555 33,555 Galicia Warrants S.A. Ordinary shares 0.001 175,000 11,829 - 4,428 4,428 Galval Agente de Valores S.A. Ordinary shares 13,500,000 687 - 1,652 1,652 ------------------------------------------------------------------------------------------------------- Total Non-current investments 2,962,497 1,339,726 1,558,868 ================================================================================================================================== % Book value Principal Capital Net Shareholders' of equity as of line of Date Stock income/(loss equity held in the 12.31.2004 business capital stock ------------------------------------------------------------------------------------------------------- Non-current investments Negotiable Obligations (Note 11 and Schedule G) 358,633 Banco de Galicia y Financial Buenos Aires S.A. 1,138,210 Activities 09.30.05 468,662 177.362(1) 1,375,609 93.604186% Net Investment S.A. 3,815 Financial and 09.30.05 12 (1.826)(1) 2,020 87.500000% Investment Activities Sudamericana Holding S.A. 24,391 Financial and 06.30.05 83 13.466(2) 38,271 87.500899% Investment Activities Galicia Warrants S.A. 4,299 Dep. certificates 09.30.05 200 547 (1) 5,049 87.500000% and warrants issuing company Galval Agente de Valores S.A. Custody of 09.30.05 1,978(3) (326) (1) 1,652 100.00000% securities ---------------------------------------------------------------------------------------------------------------------------------- Total Non-current investments 1,529,348 ================================================================================================================================== (1) for the nine months ended September 30, 2005-------------------------------------------------------------------------------- (2) for the year ended June 30, 2005.------------------------------------------------------------------------------------------- (3) equivalent to 13,500 Uruguayan pesos.--------------------------------------------------------------------------------------- (4) includes accrued interest.--------------------------------------------------------------------------------------------------
86 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Allowances and Provisions------------------------------------------------------- For the nine months ended September 30, 2005------------------------------------ In comparative format with the fiscal year ended December 31, 2004.------------- (figures stated in thousands of pesos)------------------------------------------ Schedule E---------------------------------------------------------------------- =================================================================================================================== Captions A beginning Increases Decreases Balance at of year period end ------------------------------------------------------------------------------------------------------------------ Allowances Valuation allowance - Equity investment 585 183 (768) - Valuation allowance - Intangible assets (Schedule B) 1,438 - (599) 839 ------------------------------------------------------------------------------------------------------------------ Total as of 09.30.05 2,023 183 (1,367) 839 ------------------------------------------------------------------------------------------------------------------ Total as of 12.31.04 2,249 585 (811) 2,023 ==================================================================================================================
87 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Foreign Currency Assets and Liabilities----------------------------------------- Consolidated Balance Sheet as of September 30, 2005----------------------------- (figures stated in thousands of pesos)------------------------------------------ Schedule G---------------------------------------------------------------------- ======================================================================================================================= Captions Amount and type Amount in Amount and type Amount in of foreign Quotation Argentine of foreign Argentine currency currency at currency currency as of 09.30.05 30.12.05 ----------------------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and Due from banks Cash US$ 191.20 2.870 549 US$ 155.35 457 Investments 2.870 Special Current account US$ 9.87 28 US$ 18.49 54 2.870 Time Deposits US$ 600.98 1,725 US$ 173.35 509 Government Securities US$ - 2.870 - US$ 730.79 2,148 Corporate Securities US$ 3,924.29 2.870 11,263 US$ 4,990.07 14,666 Negotiable Obligations US$ - 2.870 - US$ 70.68 208 Other Receivables Sundry debtors US$ 222.42 2.870 638 US$ - - ----------------- ---------------- Total Current Assets 14,203 18,042 ----------------- ---------------- NON-CURRENT ASSETS Other receivables Sundry debtors US$ 1,687.11 2.870 4,842 US$ 1,624.16 4,773 Investments Negotiable Obligations US$ 76,355.95 2.870 219,142 US$ 122,025.37 358,633 ----------------- ---------------- Total Non-Current Assets 223,984 363,406 ----------------- ---------------- Total Assets 238,187 381,448 ================= ================ LIABILITIES CURRENT LIABILITIES Other liabilities Sundry Creditors US$ - 2.910 - US$ 48.18 144 Provision for expenses US$ 1.28 2.910 4 US$ 174.22 519 ---------------- ----------------- ---------------- Total Current Liabilities 4 663 ----------------- ---------------- ---------------- Total Liabilities 4 663 =======================================================================================================================
88 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Information required by Section 64, subsection b) of Law No. 19550-------------- For the nine months ended September 30, 2005------------------------------------ presented in comparative format with the same period of the previous year------- (figures stated in thousands of pesos)------------------------------------------ Schedule H---------------------------------------------------------------------- ======================================================================================================================= Captions Total as of Administrative Total as of 09.30.05 Expenses 09.30.04 ----------------------------------------------------------------------------------------------------------------------- Salaries and social security charges 771 771 629 Bonuses 309 309 - Services to the staff 26 26 22 Training expenses 33 33 2 Directors' and syndics' fees 454 454 51 Fees for services (*) 2,345 2,345 771 Fixed asset depreciation 165 165 158 Amortization of intangible assets 3,010 3,010 3,010 Leasing of brand (*) 39 39 36 Stationery and office supplies 18 18 15 Condominium Expenses 24 24 65 Entertainment, travel and per diem 159 159 29 Electricity and communications 57 57 47 Taxes, rates and contributions 3,316 3,316 8,417 Insurance 644 644 - Bank charges (*) 12 12 9 General expenses (*) 569 569 374 ------------------------------------------------------ Total 11,951 11,951 13,635 ======================================================================================================================= (*) Balances net of eliminations corresponding to intercompany transactions (per Section 33 of Law No. 19550). See Note 11 to the financial statements.------------------------------------------------------------------------------------
Grupo Financiero Galicia S.A "Sociedad No Adherida al Regimen Estatutario Optativo de Oferta Publica de Adquisicion Obligatoria" Informacion Adicional a las Notas a los Estados Contables (Continuacion) (cifras expresadas en miles de pesos) Grupo Financiero Galicia S.A. "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Information required in addition to the Notes to the Financial Statements------- For the nine months from January 1, 2005---------------------------------------- to September 30, 2005 Presented in comparative format--------------------------- (figures stated in thousands of pesos)------------------------------------------ NOTE 1: SIGNIFICANT SPECIFIC LEGAL SYSTEMS ENTAILING THE LAPSING OF CONTINGENT BENEFITS ENVISAGED BY THOSE REGULATIONS OR THEIR REBIRTH-------------- None.----------------------------------------------------------------- NOTE 2: SIGNIFICANT CHANGES IN THE COMPANY ACTIVITIES OR OTHER SIMILAR CIRCUMSTANCES THAT OCCURRED DURING THE PERIODS COVERED BY THE FINANCIAL STATEMENTS WHICH MAY HAVE AN EFFECT ON THEIR COMPARABILITY WITH THOSE PRESENTED IN PRIOR PERIODS, OR THAT WILL BE PRESENTED IN FUTURE PERIODS.------------------------------------------------------- None.----------------------------------------------------------------- NOTE 3: CLASSIFICATION OF RECEIVABLES AND DEBT BALANCES----------------------- a) Receivables: See Note 9 to the financial statements.------------------------- b) Debts: See Note 9 to the financial statements.------------------------------- NOTE 4: CLASSIFICATION OF RECEIVABLES AND DEBTS ACCORDING TO THEIR FINANCIAL EFFECTS--------------------------------------------------------------- a) Receivables: See Notes 2.a., 2.b. and 9 and Schedule G to the financial statements.--------------------------------------------------------------------- b) Debts: See Notes 2.a., 2.b. and 9 and Schedule G to the financial statements. NOTE 5: BREAKDOWN OF PERCENTAGE OF EQUITY INVESTMENTS - SECTION 33 OF LAW No. 19550----------------------------------------------------------------- See Note 10 and Schedule C to the financial statements.------------------------- NOTE 6: RECEIVABLES FROM OR LOANS GRANTED TO DIRECTORS OR SYNDICS OR THEIR RELATIVES UP TO THE SECOND DEGREE INCLUSIVE--------------------------- As of September 30, 2005 and December 31, 2004 there were no receivables from or loans granted to directors or syndics or their relatives up to the second degree inclusive.---------------------------------------------------------------------- NOTE 7: PHYSICAL INVENTORY OF INVENTORIES------------------------------------- As of September 30, 2005 and December 31, 2004 the Company did not have any inventories.-------------------------------------------------------------------- Grupo Financiero Galicia S.A "Sociedad No Adherida al Regimen Estatutario Optativo de Oferta Publica de Adquisicion Obligatoria" Informacion Adicional a las Notas a los Estados Contables (Continuacion) (cifras expresadas en miles de pesos) NOTE 8: CURRENT VALUES---------------------------------------------------------- See Notes 2.c., 2.d. and 2.e. to the financial statements.---------------------- NOTE 9: BANK PREMISES AND EQUIPMENT--------------------------------------------- See Schedule A to the financial statements.------------------------------------- a) Technically Appraised Fixed Assets:------------------------------------------ As of September 30, 2005 and December 31, 2004 the Company did not have any technically appraised fixed assets.--------------------------------------------- b) Obsolete Fixed Assets:------------------------------------------------------- As of September 30, 2005 and December 31, 2004 the Company did not have any obsolete fixed assets which have a carrying value.------------------------------ NOTE 10: EQUITY INVESTMENTS----------------------------------------------------- The Company is engaged in financial and investment activities, so the restrictions of Section 31 of Law No. 19550 do not apply to its equity investments in other companies.------------------------------------------------- NOTE 11: RECOVERABLE VALUES----------------------------------------------------- As of September 30, 2005 and December 31, 2004, the criterion followed by the Company for determining the recoverable value of its fixed assets consisted of using their value to the business, based on the possibility of absorbing future depreciation charges with the profits reported by it.--------------------------- NOTE 12: INSURANCE-------------------------------------------------------------- As of September 30, 2005 and December 31, 2004, the breakdown of insurance policies taken out by the Company for its fixed assets was as follows:---------- ============== ================================== ======= ========== =========== Insured assets Insured Book Value Book Value Risks covered amount as of as of 09.30.05 12.31.04 -------------- ---------------------------------- ------- ---------- ----------- Office Assets Fire, thunderbolt and/or explosion 200 108 215 ============== ================================== ======= ========== =========== NOTE 13: POSITIVE AND NEGATIVE CONTINGENCIES------------------------------------ a) Elements used in calculating provisions, the total or partial balances of which exceed two percent of shareholders' equity.------------------------------- See Schedule E to the financial statements.------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Grupo Financiero Galicia S.A "Sociedad No Adherida al Regimen Estatutario Optativo de Oferta Publica de Adquisicion Obligatoria" Informacion Adicional a las Notas a los Estados Contables (Continuacion) (cifras expresadas en miles de pesos) b) Contingencies which at the date of the financial statements are not of remote occurrence the effects of which have not been given accounting recognition.----- As of September 30, 2005 and December 31, 2004 there were no contingencies which are not of remote occurrence and the effects of which have not been given accounting recognition.--------------------------------------------------------- NOTE 14: IRREVOCABLE ADVANCES TOWARDS FUTURE SHARE SUBSCRIPTIONS.--------------- a) Status of capitalization arrangements:--------------------------------------- As of September 30, 2005 and December 31, 2004, there were no irrevocable contributions towards future share subscriptions.------------------------------- b) Cumulative unpaid dividends on preferred shares.----------------------------- As of September 30, 2005 and December 31, 2004, there were no cumulative unpaid dividends on preferred shares.-------------------------------------------------- NOTE 15: RESTRICTIONS ON THE DISTRIBUTION OF RETAINED EARNINGS------------------ See Note 12 to the financial statements.---------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary and Explanatory Statement by the Board of Directors--------------- For the nine months from January 1, 2005---------------------------------------- to September 30, 2005 Presented in comparative format--------------------------- (figures stated in thousands of pesos)------------------------------------------ Pursuant to the provisions of the standards regarding accounting documentation of the Cordoba Stock Exchange Regulations, the Board of Directors hereby submits the following supplementary and explanatory information.------------------------ A. Current Assets:-------------------------------------------------------------- a) Receivables:----------------------------------------------------------------- 1) See Note 9 to the financial statements.-------------------------------------- 2) See Notes 4 and 9 to the financial statements.------------------------------- 3) As of September 30, 2005 and December 31, 2004 the Company had not set up any allowances or provisions.Inventories: As of September 30, 2005 and December 31, 2004 the Company did not have any inventories.---------------------------------- B. Non- Current Assets:--------------------------------------------------------- a) Receivables:----------------------------------------------------------------- As of September 30, 2005 and December 31, 2004 the Company had not set up any allowances or provisions.------------------------------------------------------- b) Inventories:----------------------------------------------------------------- As of September 30, 2005 and December 31, 2004 the Company did not have any inventories.-------------------------------------------------------------------- c) Investments:----------------------------------------------------------------- See Note 10 and Schedule C to the financial statements.------------------------- d) Fixed assets:---------------------------------------------------------------- 1) As of September 30, 2005 and December 31, 2004 the Company did not have any technically appraised fixed assets.--------------------------------------------- 2) As of September 30, 2005 and December 31, 2004 the Company did not have any obsolete fixed assets which have a carrying value.------------------------------ e) Intangible assets:----------------------------------------------------------- 1) See Note 2.e. and Schedules B and E to the financial statements.------------- 2) As of September 30, 2005 and December 31, 2004, there were no deferred charges.------------------------------------------------------------------------ 93 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary and Explanatory Statement by the Board of Directors (Continued)--- (figures stated in thousands of pesos)------------------------------------------ C. Current Liabilities:--------------------------------------------------------- a) Debts:----------------------------------------------------------------------- 1) See Note 9 to the financial statements.-------------------------------------- 2) See Notes 5, 6, 7 and 9 to the financial statements.------------------------- D. Allowances and provisions---------------------------------------------------- See Schedule E to the financial statements.------------------------------------- E. Foreign Currency Assets and Liabilities:------------------------------------- See Note 2.b. and Schedule G to the financial statements.----------------------- F. Shareholders' Equity:-------------------------------------------------------- 1) As of September 30, 2005 and December 31, 2004, the Shareholders' Equity did not include the Irrevocable Advances towards future share issues account.------- 2) As of September 30, 2005 and December 31, 2004, the Company had not set up any technical appraisal reserve; nor has it reversed any reserve of that kind.-- G. Miscellaneous---------------------------------------------------------------- 1) The Company is engaged in financial and investment activities, so the restrictions of Section 31 of Law No. 19550 do not apply to its equity investments in other companies.------------------------------------------------- 2) See Notes 9 and 11 to the financial statements.------------------------------ 3) As of September 30, 2005 and December 31, 2004 there were no receivables from or loans granted to directors or syndics or their relatives up to the second degree inclusive.--------------------------------------------------------------- 4) See Notes 9 and 11 to the financial statements.------------------------------ 5) As of September 30, 2005 and December 31, 2004, the breakdown of insurance policies taken out by the Company for its fixed assets was as follows:---------- ============== ================================== ======= ========== ========== Insured assets Insured Book Value Book Value Risks covered amount as of as of 09.30.05 12.31.04 -------------- ---------------------------------- ------- ---------- ---------- -------------- ---------------------------------- ------- ---------- ---------- Office assets Fire, thunderbolt and/or explosion 200 108 215 ============== ================================== ======= ========== ========== 6) As of September 30, 2005 and December 31, 2004, there were no contingencies highly likely to occur which have not been given accounting recognition.-------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 94 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Supplementary and Explanatory Statement by the Board of Directors (Continued)--- (figures stated in thousands of pesos)------------------------------------------ 7) As of September 30, 2005 and December 31, 2004, the Company did not have any receivables or debts including implicit interest or index adjustments.---------- The Company has complied with the requirements of Section 65 of Law No. 19550 in these financial statements.----------------------------------------------------- Autonomous city of Buenos Aires, November 08, 2005.----------------------------- [There follows an illegible signature and a seal that reads:] Antonio Roberto arces - Chairman.--------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 95 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Informative Review as of September 30, 2005 and 2004 (Continued)---------------- (figures stated in thousands of pesos)------------------------------------------ Grupo Financiero Galicia S.A.'s strategy is to become a leading company devoted to providing comprehensive financial services and, at the same time, to continue to strengthen Banco de Galicia y Buenos Aires S.A.'s position as one of the leading companies in Argentina. This strategy will be carried out by supplementing the operations and business conducted by Banco de Galicia y Buenos Aires S.A. through equity investments in companies and undertakings, either existing or to be created, engaged in financial activities as they are understood in the modern economy.----------------------------------------------- The income for the nine months ended September 30, 2005 reported by the Company amounts to $ 79,679. It was generated by the valuation of the equity investment in Banco de Galicia y Buenos Aires S.A., which is Grupo Financiero Galicia S.A.'s main source of income, as shown in its Income Statement. On January 02, 2004, an Ordinary and Extraordinary Shareholders' Meeting was held, which resolved to approve a capital increase under the terms of Section 188, paragraph 2, of the Law on Corporations. (see Note 15 to the financial statements). It is worth mentioning that on April 21, 2004, the National Securities Commission authorized the public offering of the preferred shares for up to $ 149,000, with a face value of $ 0.001 each, to be placed with a premium subscription, as well as the public offering of ordinary Class B shares with a face value of $ 0.001 each and entitled to one vote per share, to be exchanged for the preferred shares. On April 26 and 29, 2004, the Buenos Aires and Cordoba Stock Exchanges, respectively, authorized the listing of the preferred shares and the Class B ordinary shares arising from the conversion of those preferred shares.---------- The Ordinary Shareholders' Meeting held on April 22, 2004 resolved to charge the loss for fiscal 2003 to Retained Earnings, without it being absorbed. The meeting further resolved not to continue to claim from shareholders the personal assets tax amounts due for the fiscal year ended December 31, 2002 and that the tax incumbent on the shareholders for the fiscal year ended December 31, 2003 and subsequent years would be absorbed by the Company, provided that it cannot be withheld from dividends.----------------------------------------------------- On April 28, 2005, an Ordinary and Extraordinary Shareholders' Meeting was held, which resolved to absorb all accumulated losses as of December 31, 2004.-------- On February 03, 2004, Grupo Financiero Galicia S.A. exchanged all its holdings of Ordinary Negotiable Obligations issued by Banco Galicia Uruguay S.A. for BODEN 2012 and US dollars in cash.---------------------------------------------- In June 2004, after the total suspension of all of Banco Galicia Uruguay's S.A. activities as from February 06, 2002, the Uruguayan authorities resolved to maintain the authorization to operate granted by the Executive Branch of that country and withdraw the authorization to act as a commercial bank.------------- 96 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Informative Review as of September 30, 2005 and 2004 (Continued)---------------- (figures stated in thousands of pesos)------------------------------------------ This resolution by the Central Bank of Uruguay does not affect the rights of depositors and holders of negotiable obligations arising from the restructuring agreement approved in 2002, or those arising from the successive debt exchanges undertaken.--------------------------------------------------------------------- In June 2005, in order to strengthen the financial condition of its subsidiaries, Grupo Financiero Galicia SA, the Entity's controlling company, has waived the right to collect the US$ 43,000 thousand subordinated negotiable obligations issued by Banco Galicia Uruguay S.A.-------------------------------- For the sake of brevity, we refer to the economic context within which the Company operated in Note 1 to these financial statements.----------------------- KEY BALANCE SHEET FIGURES------------------------------------------------------- 09.30.2005 09.30.2004 09.30.2003 09.30.2002 09.30.2001 Current Assets 17,682 31,543 27,954 38,142 145,404 Non-Current Assets 1,598,227 1,579,525 1,529,076 2,028,606 2,986,874 -------------- -------------- ------------ ------------- ------------- Total Assets 1,615,909 1,611,068 1,557,030 2,066,748 3,132,278 ============== ============== ============ ============= ============= Current Liabilities 16,686 4,853 395 2,200 615 Non-Current liabilities 6 51,016 43,426 39,759 7 -------------- -------------- ------------ ------------- ------------- Total Liabilities 16,692 55,869 43,821 41,959 622 -------------- -------------- ------------ ------------- ------------- Share holders' equity 1,599,217 1,555,199 1,513,209 2,024,789 3,131,656 -------------- -------------- ------------ ------------- ------------- Total 1,615,909 1,611,068 1,557,030 2,066,748 3,132,278 ============== ============== ============ ============= =============
KEY INCOME STATEMENT FIGURES---------------------------------------------------- 09.30.2005 09.30.2004 09.30.2003 09.30.2002 09.30.2001 Ordinary operating result 177,314 (75,176) (110,762) (1,093,054) 291,528 Financial results (1,149) 9,855 (22,918) 60,993 538 Other income and expenses (133,620) 604 6,244 (44,437) 659 ------------- -------------- ------------- ------------- ------------- Ordinary net (loss)/ income 42,545 (64,717) (127,436) (1,076,498) 292,725 Income tax 37,134 (9,493) - (2,176) - ------------- -------------- ------------- ------------- ------------- Net income/(loss) 79,679 (74,210) (127,436) (1,078,674) 292,725 ============= ============== ============= ============= =============
RATIOS-------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------
09.30.2005 09.30.2004 09.30.2003 09.30.2002 09.30.2001 --------------------------------------------------------------------------------------------------------------- Liquidity 1.059691 6.499691 70.769620 17.337273 236.429268 --------------------------------------------------------------------------------------------------------------- Credit standing 95.807393 27.836528 34.531594 48.256369 5,034.816720 --------------------------------------------------------------------------------------------------------------- Capital assets 0.989058 0.980421 0.982047 0.981545 0.953579 ---------------------------------------------------------------------------------------------------------------
The individual financial statements have been considered to disclose the key Balance Sheet figures and key income statement figures, as the consolidated financial statements are presented in line with the provisions of Argentine Central Bank's Communique "A" 3147 and supplementary regulations regarding financial reporting requirements for the publication of quarterly and annual financial statements and observing the guidelines of Technical Pronouncement No. 8 of the Argentine Federation of Professional Councils in Economic Sciences.---- 97 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Informative Review as of September 30, 2005 and 2004 (Continued)---------------- (figures stated in thousands of pesos)------------------------------------------ For comparative purposes, the balances as of September 30, 2003, 2002 and 2001 have been restated to constant currency of February 28, 2003.------------------- Equity investments-------------------------------------------------------------- o Banco de Galicia y Buenos Aires S.A.------------------------------------------ See section entitled "Situation of Banco de Galicia y Buenos Aires S.A. and its subsidiaries", in Note 1 to the financial statements.--------------------------- o Net Investment S.A.----------------------------------------------------------- Net Investment S.A. is a holding company, which is engaged in investing and developing technology business and it provides communications, internet, connectivity and contents services, in order to create value for its shareholders. The equity investment held by Grupo Financiero Galicia S.A. in this company is 87.50%. The remaining 12.50% interest is held by Banco de Galicia y Buenos Aires S.A.----------------------------------------------------- In fiscal year 2005, B2agro S.A. decided to suspend its business activity, and has streamlined the Company structure, adapting it to the minimum level necessary to ensure its proper administration. It is currently evaluating the implementation of business projects associated with the offering of services to the agricultural and livestock sector via the Internet.------------------------- Since 2001, Grupo Financiero Galicia S.A., through its subsidiary Net Investment S.A. takes part in BtoB business activities, in Tradecom International N.V., also composed of Unibanco de Brasil, Portugal Telecom and Banco de Galicia y Buenos Aires S.A. Tradecom International N.V. operated in Brazil through Tradecom Brasil S.A. and in Argentina through Tradecom Argentina S.A.----------- Considering that the majority shareholder of the "Tradecom Group" (Unibanco - Brazil) has difficulty remitting funds abroad for capital contributions, and that maintaining the Dutch company Tradecom International N.V. involves high costs, at year end, the shareholders decided to move the corporate structure from The Netherlands to Brazil, and thus the dissolution and winding/up process of Tradecom International N.V. commenced in order to regroup the holding in Tradecom Brasil S.A., Brazil-based company.------------------------------------- As of the date of this review, and as a result, among other factors, of the fact that the business volume expected at the beginning of the year has not been reached, while there has been an increase in operations, the parties are negotiating a new agreement. One of the terms thereof is that Tradecom Brasil S.A.'s operations related to payment and financing services be absorbed by Unibanco, the remaining clients in Brazil and all clients in Argentina shall be serviced by Tradecom Argentina S.A.--------------------------------------------- This reorganization shall also include the reallocation of equity investments, which results in Tradecom Argentina becoming property of Banco de Galicia y Buenos Aires S.A., Grupo Financiero Galicia S.A. and Net Investment S.A.-------- 98 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Informative Review as of September 30, 2005 and 2004 (Continued)---------------- (figures stated in thousands of pesos)------------------------------------------ In view of the high costs associated with maintaining a company organized in The Netherlands, as mentioned above, and that it is convenient for Net Investment S.A. to hold a direct participation in Tradecom Brasil S.A., at the Extraordinary Shareholders' Meeting held on December 29, 2004, Net Investment S.A., as shareholder of Net Investment B.V., decided the early dissolution and subsequent winding-up of the company as from that date.------------------------- The Ordinary and Extraordinary Shareholders' Meeting of Duenovende S.A. held in April 2003 decided the early dissolution and subsequent winding-up of the company. During the first quarter of 2004, formalities carried out to dissolve this company were completed and the Ordinary and Extraordinary Shareholders' Meeting held on April 02, 2004 approved the final winding up purpose financial statements. Nevertheless, Banco de Galicia y Buenos Aires S.A. continues to offer real estate properties for sale and financing for their acquisition through its e-galicia.com web page.--------------------------------------------- o Sudamericana Holding S.A.----------------------------------------------------- Sudamericana Holding S.A. is a group of life, retirement and property and casualty insurance companies. The equity investment held by Grupo Financiero Galicia S.A. in this company is 87.50%. The remaining 12.50% interest is held by Banco de Galicia y Buenos Aires S.A.-------------------------------------------- The insurance business undertaken by the Company through its interest in Sudamericana Holding S.A. is part of Grupo Financiero Galicia S.A.'s strategy to strengthen its positioning as a leading financial service provider.------------- During the first nine months of 2005, the joint production of the life, retirement and property and casualty insurance companies controlled by Sudamericana Holding S.A. amounted to $ 26,878. As of September 30, 2005, these companies had 1,362,000 policyholders in all their lines of business.----------- From a commercial standpoint, within a more favorable context, the company's business was focused on taking advantage of the greater demand for insurance coverage to significantly increase the companies' sales.------------------------ As a result of these efforts, in the first quarter of 2005 the volume of premiums was 46.90% higher than in the same period of the previous year, significant progress having been made in the sales of policies through banking channels.----------------------------------------------------------------------- As of November 15, 2004 after a special general shareholders' meeting, the shareholders of Medigap Salud S.A. decided by unanimous vote the early dissolution of this company and subsequent liquidation as of December 31, 2004. The liquidation of Medigap Salud S.A. became final on April 12, 2005 and was approved by the special general shareholders' meeting on May 26, 2005.---------- On December 15, 2004, Sudamericana Holding S.A., Swiss Medical S.A. and SMG Investment S.A. entered into a share purchase agreement involving 100% of the shares in Instituto de Salta Compania de Seguros de Vida S.A.------------------- 99 Grupo Financiero Galicia S.A.--------------------------------------------------- "Corporation which has not adhered to the Optional System for the Mandatory Acquisition of Shares in a Public Offering"------------------------------------- Informative Review as of September 30, 2005 and 2004 (Continued)---------------- (figures stated in thousands of pesos)------------------------------------------ The shares were actually transferred on April 29 for a total amount of $6,806. Consequently, for purposes of a correct comparison of the production information mentioned above, the equity investment held by Instituto de Salta Compania de Seguros de Vida S.A. has been excluded from the half-yearly production, as well as its comparative format with the six month period of the previous year.------- o Galicia Warrants S.A---------------------------------------------------------- As of September 30, 2005, Galicia Warrants S.A. has collected accrued income for $ 4,155 with a result before taxes of $ 905, which is satisfactory pursuant to this year's budgetary guidelines.----------------------------------------------- As to the value of goods volume in deposit certificates and warrants issued during the January-September period, it amounted to US$ 61,025 thousand, against US$ 51,747 thousand for the same period of the previous year, which accounts for a 17.9% increase in the Company's operations volume.---------------------------- This trend is expected to maintain throughout the year's last quarter in line with the general economic growth and, specially, the growth in agricultural, livestock and related activities.----------------------------------------------- o Galval Agente de Valores S.A.------------------------------------------------- This company is based in Uruguay and Grupo Financiero Galicia S.A. holds 100% (one hundred percent) of its capital stock and voting rights. This company operates as a securities agent in said country.--------------------------------- The Company's outlook for the current year is basically linked with the development of the Argentine economy, and particularly of the financial system.- Autonomous city of Buenos Aires, November 08, 2005.----------------------------- 100 REPORT OF THE SUPERVISORY COMMITTEE--------------------------------------------- [On the bottom left corner of the first two pages of this report there appears an illegible signature]--------------------------------------------------------- To the Directors and Shareholders of-------------------------------------------- Grupo Financiero Galicia S.A.--------------------------------------------------- Tte. Gral. Juan D. Peron 456 -2nd floor----------------------------------------- Autonomous City of Buenos Aires------------------------------------------------- 1. In our capacity as Syndics of Grupo Financiero Galicia S.A., we have performed a limited review of the Balance Sheet of Grupo Financiero Galicia S.A. as of September 30, 2005, and the related Income Statement, Statement of Changes in Shareholders' Equity and Statement of Cash Flows for the nine months then ended, as well as supplementary Notes 1 to 17, Schedules A, B, C, E, G and H, Informative Review, the Information required in addition to the Notes to the Financial Statements by Section 68 of the Buenos Aires Stock Exchange regulations and the Supplementary and Explanatory Statement by the Board of Directors, as required by the regulations concerning Accounting Documentation of the Cordoba Stock Exchange Regulations, which have been submitted by the Company to our consideration. Furthermore, we have performed a limited review of the consolidated financial statements of Grupo Financiero Galicia S.A. and its subsidiaries for the nine months ended September 30, 2005, which are presented as supplementary information. The preparation and issuance of those financial statements are the responsibility of the Company.------------------------------- 2. Our work was conducted in accordance with standards applicable in Argentina to syndics. These standards require application of the procedures established by Technical Pronouncement No. 7 of the Argentine Federation of Professional Councils in Economic Sciences for limited reviews of financial statements for interim periods, and include verifying the consistency of the documents reviewed with the information concerning corporate decisions, as disclosed in minutes, and the conformity of those decisions with the law and the bylaws insofar as concerns formal and documental aspects. For purposes of our professional work, we have reviewed the work performed by the external auditors of the Company, Price Waterhouse & Co. SRL, who issued their limited review report on November 08, 2005, in accordance with auditing standards applicable in Argentina for limited reviews of financial statements for interim periods. That report was issued with observations, as detailed in paragraphs 3 and 4 of that report, to which we refer. A limited review mainly consists in applying analytical procedures to the accounting information and making inquiries of the staff responsible for accounting and financial issues. A limited review is substantially less in scope than an audit of financial statements, the objective of which is to issue an opinion on the financial statements as a whole. Therefore, we do not express such an opinion. We have not evaluated the corporate criteria regarding the different areas of the Company, as these matters are its exclusive responsibility.-------- In addition, we have verified that the Informative Review, the Information required in addition to the Notes to the Financial Statements and the Supplementary and Explanatory Statement by the Board of Directors for the nine months ended September 30, 2005, contain the information required by Regulations of the National Securities Commission, Section 68 of the Buenos Aires Stock Exchange regulations and Section 2 of the Standards concerning Accounting Documentation of the Cordoba Stock Exchange Regulations, respectively, and insofar as concerns our field of competence, that the numerical data contained therein are in agreement with the Company's accounting records and other relevant documentation. Assumptions and projections on future events contained in that documentation are the exclusive responsibility of the Board of Directors.---------------------------------------------------------------------- We also report that in performance of the legality control that is part of our field of competence, during this period we have applied the procedures described in Section 294 of Law No. 19550 which we deemed necessary according to the circumstances.------------------------------------------------------------------ 3. Banco de Galicia y Buenos Aires S.A. has prepared its financial statements following valuation and disclosure criteria established by the Argentine Central Bank regulations. As mentioned in Note 3 to the consolidated financial statements, those criteria for valuing certain assets and liabilities and the regulations on the financial statement presentation issued by the control body differ from professional accounting standards in force in the Autonomous City of Buenos Aires, the principal effects of which have been indicated in that Note.-- 4. Based on our review, with the scope mentioned in paragraph 2. above, we report that the financial statements of Grupo Financiero Galicia S.A. as of September 30, 2005 and its consolidated financial statements at that date, detailed in paragraph 1., prepared in accordance with accounting standards in force in the Autonomous City of Buenos Aires, except as mentioned in paragraph 3. above, give consideration to all significant facts and circumstances which are known to us and that, in relation to them, we have no observations to make other than those mentioned in paragraph 3 of the limited review report issued by the external auditors on this date, as mentioned in paragraph 2. above. In performance of the legality control that is part of our field of competence, we have no observations to make.--------------------------------------------------- As regards the Informative Review, the Information required in addition to the Notes to the Financial Statements and the Supplementary and Explanatory Statement by the Board of Directors for the nine months ended September 30, 2005, we have no observations to make insofar as concerns our field of competence, and the assertions on future events are the exclusive responsibility of the Board of Directors of the Company.------ Furthermore, we report that the accompanying financial statements stem from accounting records kept, in all formal aspects, in compliance with legal regulations prevailing in Argentina.-------------------------------------------- Autonomous city of Buenos Aires, November 08, 2005.----------------------------- [There follows an illegible signature and a seal that reads:] Adolfo Hector Melian- Syndic - For the Supervisory Committee.--------------------------------- Limited review report [All three pages of this limited review report bear the letterhead of Price Waterhouse Coopers] [On the bottom left corner of the first two pages of this report there appears an illegible signature]--------------------------------------------------------- To the Chairman and Directors of Grupo Financiero Galicia S.A. Tte. Gral. Juan D. Peron 456 -2nd floor Autonomous City of Buenos Aires 1. We have performed a limited review of the Balance Sheet of Grupo Financiero Galicia S.A. as of September 30, 2005, and the related income statements, statements of changes in shareholders' equity and statements of cash flows for the nine months periods ended September 30, 2005 and 2004, as well as supplementary Notes 1 to 17, Schedules A, B, C, E, G and H Informative Review, the Information required in addition to the Notes to the Financial Statements by Section 68 of the Buenos Aires Stock Exchange regulations and the Supplementary and Explanatory Statement by the Board of Directors, as required by the rules concerning Accounting Documentation Regulations of the Cordoba Stock Exchange Regulations which supplement them. Furthermore, we have performed a limited review of the consolidated Balance Sheet of Grupo Financiero Galicia S.A. as of September 30, 2005, and the consolidated income statements and consolidated statements of cash flows for the periods of nine months ended September 30, 2005 and 2004, together with Notes 1 to 23, which are presented as supplementary information. The preparation and issuance of those financial statements are the responsibility of the Company. 2. Our review was limited to the application of the procedures set forth by Technical Pronouncement No. 7 of the Argentine Federation of Professional Councils in Economic Sciences for limited reviews of financial statements for interim periods, which mainly consist in applying analytical procedures to the financial statement figures and making inquiries to the Company staff responsible for preparing the information included in the financial statements and its subsequent analysis. The scope of these reviews is substantially more limited than that of an audit examination, the purpose of which is to express an opinion on the financial statements under examination. Accordingly, we do not express an opinion on the Company's financial position, the results of its operations, changes in its shareholders' equity and cash flows, or on its consolidated financial position, the consolidated results of its operations and consolidated cash flows. 3. As detailed in Note 1 to the financial statements, the companies controlled by Grupo Financiero Galicia S.A. have significant exposure to the Argentine Public Sector in different instruments derived from the National Government's debt restructuring. Furthermore, the following processes have not yet been concluded: (a) the final settlement process of the compensation to Banco de Galicia y Buenos Aires S.A. for damages derived from government provisions detailed in Notes 1 to the financial statements in relation to compensations to Financial Institutions and legal actions requesting protection of Constitutional guarantees; or (b) the arrangement with creditors by Banco Galicia Uruguay and Banco Galicia Cayman Ltd (in provisional liquidation), both subsidiaries of Banco de Galicia y Buenos Aires S.A., described in Note 1 to the financial statements. The effect the above mentioned processes may have on the Company's financial condition, should they be settled in a manner different from that estimated by the Company, cannot be estimated. 4. Banco de Galicia y Buenos Aires S.A. has prepared its financial statements following valuation and disclosure criteria established by the Argentine Central Bank regulations. As mentioned in Note 3 to the consolidated financial statements, those criteria for valuing certain assets and liabilities and the regulations on the financial statement presentation issued by the control body differ from professional accounting standards applicable in Autonomous City of Buenos Aires , the principal effects of which have been indicated in that Note. 5. On February 14, 2005 we issued an audit report on the Company's financial statements and consolidated financial statements for the fiscal years ended December 31, 2004 and 2003, with qualifications regarding the recoverability of receivables from the Public Sector and the uncertain circumstances indicated in item 3. of this report. That report also included certain departures from professional accounting standards for the reasons indicated in item 4 above. 6. Based on the work done and on our examination of the financial statements of Grupo Financiero Galicia S.A. and its consolidated financial statements for the fiscal years ended December 31, 2004 and 2003 mentioned in item 5 of this report, we state that: a) the financial statements of Grupo Financiero Galicia S.A. as of September 30, 2005 and 2004 and its consolidated financial statements at those dates, detailed in item 1 above, prepared in accordance with Argentine Central Bank regulations (Argentine Banking GAAP) and, except as mentioned in item 4 above, with accounting standards applicable in the Autonomous City of Buenos Aires, give consideration to all significant facts and circumstances which are known to us and that, in relation to them, we have no observations to make other than those mentioned in item 3 above. b) the comparative information included in the parent only and consolidated statements of financial condition and in supplementary Notes and Schedules to the attached financial statements arises from the December 31, 2004 financial statements of Grupo Financiero Galicia S.A. 7. As called for by the regulations in force, we report that: a) The financial statements of Grupo Financiero Galicia S.A. and its consolidated financial statements have been transcribed to the "Inventory and Balance Sheet" book and, insofar as concerns our field of competence, are in compliance with the provisions of the Corporations Law, and pertinent resolutions of the National Securities Commission (CNV). b) The financial statements of Grupo Financiero Galicia S.A. and its consolidated financial statements arise from accounting record systems kept in all formal respects as called for by prevailing legal regulations, which maintain the same security and integrity conditions as those authorized by the CNV. c) We have read the Informative Review, the Information required in addition to the Notes to the Financial Statements by Section 68 of the Buenos Aires Stock Exchange regulations and the Supplementary and Explanatory Statement by the Board of Directors, as required by the regulations concerning Accounting Documentation of the Cordoba Stock Exchange Regulations, about which, insofar as concerns our field of competence, we have no comments to make. Projections about future events contained in that information are the exclusive responsibility of the Company's Board of Directors. d) As of September 30, 2005, the debts accrued towards the Integrated Pension and Survivors' Benefit System, according to the accounting records, amounted to $ 11,824.07, which were not yet due at that date.------------------------------- Autonomous city of Buenos Aires, November 08, 2005.----------------------------- [There follows and illegible signature and a seal that reads:] PRICE WATERHOUSE & CO. S.R.L.- Partner - Registration No. T(0) 1 F(0)17 - Dr. Santiago J. Mignone - Public Accountant (U.B.A.) - C.P.C.E.C.A.B.A. T(degree) 233 F(degree) 237----- This is to certify that the foregoing is a TRUE TRANSLATION into English of the original document written in Spanish, which I had before me and to which I refer, in the Autonomous City of Buenos Aires on sixteenth day of the month of November of the year two thousand and five. This translation consists of 106 pages. [FOR LEGALIZATION PURPOSES]---------------------------------------------- ES TRADUCCION FIEL al ingles del documento original redactado en espanol que he tenido a la vista y al cual me remito, en a Ciudad Autonoma de Buenos Aires, a los dieciseis dias del mes de noviembre del ano dos mil cinco. La presente traduccion consta de 106 fojas.-------------------------------------------------