Extraordinary General Meeting, 5 February 2003

Recapitalization via an Issue of Participation Certificates: Strengthened Reserves and Provisions

As BCV's top management had announced at the Bank's 30 October, 2002 Extraordinary General Meeting (EGM), a capital increase amounting to CHF 1.25 bn will be implemented during the first quarter of 2003. The operation will allow the Bank to strengthen shareholders' equity by creating a CHF 400-mn reserve for general banking risks, as well as cover CHF 850 mn of additional provisioning needs and valuation adjustments which a thorough-going credit risk analysis conducted in 2002 brought to light. The recapitalization will be effected entirely through a dividend-rights participation certificate issue.

The Need to Recapitalize BCV

BCV's official monitoring agency, the Swiss Federal Banking Commission (Commission fédérale des banques, or "CFB") has approved the plan to recapitalize BCV, and insisted upon the necessity of doing so. Once the operation is completed, shareholders' equity coverage levels should be at more than 120% of legal requirements, which is in line with CFB guidelines. The Vaud Cantonal Government (Conseil d'Etat vaudois) has agreed in principle to subscribe the entire issue, but all BCV shareholders may also take part. The EGM scheduled for 5 February 2003, at the Palais de Beaulieu in Lausanne, Switzerland, will decide on the principle underpinning the participation certificate issue, as well as its technical aspects.

A Two-stage Process

As agreed with the Vaud Cantonal Government, two simultaneous operations will be put before the EGM for approval. The first of these is a reduction in the par value of BCV shares currently in circulation, from CHF 125.- to CHF 62.50; the second operation is the capital increase, to be effected by issuing participation certificates. The reduction in par value will entail a drop in share capital, from CHF 1,061 mn to CHF 530.50 mn. The amount by which share capital is reduced will be booked, in its entirety, under reserves, as part of shareholders' equity. The reduction in par value will give the Bank more maneuvering room as regards the issue price it will set for the new participation certificates. It will also make possible a more balanced equity capital structure.

Rights Relating to the Shares are Preserved

The reduction in share capital is nothing other than an accounting operation in which part of share capital is transferred to reserves, which themselves, of course, are also part of the Bank's shareholders' equity. The operation, therefore, has no effect on the substance of the Bank's equity capital.

The following points apply to current BCV shareholders:

• Their situation will not change: the reduction in par value has no effect on financial, voting and other related rights pertaining to the shares, and more particularly, it has no effect on dividend rights;
• They remain the owners of BCV to the same extent as before this operation, and continue to take part in the decisions made by the General Meeting of the Shareholders in the same manner as before;
• They have preferential subscription rights on the participation certificates to be issued, which allows them to maintain the proportional level of their stake in all of BCV's equity capital by taking full part in the issue.

The Vaud Cantonal Government is Committed to the Success of This Operation

Setting up the operation and issuing the participation certificates together comprise the second stage in the recapitalization process, a stage which will allow the government to ensure the success of the issue without shifting the structure of voting rights. The Canton's direct interest in BCV's share capital, which presently stands at 67.89%, will therefore remain at that level. It must be kept in mind that the Canton has made it clear that it wishes eventually to bring its stake in BCV back down to 51%, once market conditions are more propitious. The Canton has nonetheless promised, if necessary, to subscribe the issue in proportion with its current stake in BCV's share capital, and indeed has committed itself, if necessary, to exercising any subscription rights not used by other shareholders or investors.

As announced on 30 October, the participation certificates carry preferential dividend rights. The dividend will be set at a level entailing a yield on the issue price in line with the Canton's refinancing costs on the loans it will have to take out as a result of this operation. Financial rights on the participation certificates are limited to this preferential dividend distribution. All other profit distributions are reserved for shareholders. The issue price and other detailed information on the transaction will be made public in the invitation to the 5 February EGM.

BCV's Financial Base Strengthened

Once this recapitalization is implemented, BCV's shareholders' equity (pro forma at 30 September 2002) will total 2,326 mn and its provisions will amount to 2,536 mn. The Bank will thus have significantly strengthened its financial base, giving it the wherewithal to fulfill its official corporate mandate to serve the regional economy, as well as grow its business within Vaud Canton and in the private banking and institutional asset management segments, while at the same time selectively diversifying its activities.

Lausanne, 19 December 2002

Contact(s)

Daniel Herrera, Head of Communications
Phone +41 844 228 228
E-mail