BCV: healthier and stronger

Following an overall and in-depth analysis of the risks pertaining to the Bank's businesses, measures were taken to improve the balance sheet's quality and raise equity capital to a level corresponding to 120% of the Swiss legal requirements. BCV will therefore regain a strong, credible and competitive position enabling it to fully play its essential role in the economy of the canton of Vaud. By common agreement between the Government and the Bank, a group of independent experts will be commissioned to determine any individual responsibilities for BCV's losses.

As a result of the new provisioning needs identified last July, BCV undertook about three months ago under the supervision of the President of the Executive Board, the Chief Risk Officer and our external auditors, KPMG, a thorough review of the Bank's situation in terms of risks. In addition to the CHF 273 million in provisions and losses recorded in the first nine months, the analysis showed that some CHF 670 million in further provisions were required and that valuation adjustments of CHF 180 million would have to be made on some assets. Furthermore, it was decided that shareholders' equity would be strengthened by CHF 400 million francs, so that the Bank would find itself in a comfortable situation with respect to the Swiss legal requirements. These new provisioning needs were also related to the intention of anticipating stricter future regulations in terms of shareholders' equity and accounting.

To ensure credit risk coverage (CHF 850 million) and reinforced equity capital (CHF 400 million), the Vaud Cantonal Government and the Bank chose, by mutual agreement, a capital increase of CHF 1.25 billion by issuing participation certificates. Vaud's Cantonal Government expressed its intention to fully subscribe to the issue. The additional debt that the operation will entail for the Government will not be borne by the taxpayer. The Bank will bear the burden of the debt through a preferential dividend on the participation certificates.

By common agreement, the Government and the Bank decided to commission a group of independent experts with the task of ascertaining individual responsibilities for the losses BCV incurred as well as their belated appearance in the Bank's accounts. In particular, they will have to determine whether or not to institute civil or criminal proceedings. The conclusions of the group of experts' report will be published.

In a healthier and stronger financial position, BCV, under the supervision of its new Board of Directors chaired by Mr. Olivier Steimer and of the new President of the Executive Board, Mr. Alexandre Zeller, will immediately set itself some new strategic objectives, such as efficient risk management, increased profitability in its core businesses, cost control, the ability to adapt to market changes and targeted diversification in the continuity of what enabled BCV so far to accomplish its mission of serving the Canton of Vaud.

Lausanne, 29 October 2002