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The ”la Caixa” Group:Statutory Documentation for 2006

Auditors’ Report

Consolidated Financial StatementsConsolidated balance sheetsConsolidated income statementsConsolidated statements of changes in equityConsolidated cash fl ow statementsNotes to the consolidated fi nancial statements

Directors’ Report

”la Caixa” 2006 Annual Report 3


The ”la Caixa” Group: Statutory Documentation for 2006

Assets 2006 2005 (*)

Cash and balances with central banks (Note 8) 3,925,412 1,773,805 Financial assets held for trading (Note 9) 1,599,634 1,318,374

Debt instruments 1,360,969 1,018,756 Other equity instruments 12,047 57,422 Trading derivatives 226,618 242,196 Memorandum item: Loaned or advanced as collateral 691,257 432,024

Other fi nancial assets at fair value through profi t or loss (Note 21) 199,400 0 Debt instruments 57,592 0 Other equity instruments 141,808 0

Available-for-sale fi nancial assets (Note 10) 21,707,859 23,544,467 Debt instruments 12,365,666 13,242,288 Other equity instruments 9,342,193 10,302,179 Memorandum item: Loaned or advanced as collateral 523,215 533,081

Loans and receivables (Note 11) 162,863,763 130,241,956 Loans and advances to credit institutions (Note 11.1) 20,670,058 13,278,926 Money market operations through counterparties 0 50,140 Loans and advances to customers (Note 11.2) 137,231,262 111,064,698 Debt instruments (Note 11.3) 3,159,914 3,624,049 Other fi nancial assets (Note 11.4) 1,802,529 2,224,143 Memorandum item: Loaned or advanced as collateral 35,880,869 21,297,724

Held-to-maturity investments (Note 12) 0 188,567 Changes in the fair value of the hedged items in portfolio hedges of interest rate risk 16,915 48,664 Hedging derivatives (Note 13) 5,891,388 7,160,244 Non-current assets held for sale (Note 14) 53,824 165,270

Tangible assets 53,824 165,270 Investments (Note 15) 4,594,113 3,505,598

Associates 4,594,113 3,505,598 Insurance contracts linked to pensions (Note 22) 724,636 638,072 Reinsurance assets (Note 16) 14,479 19,165 Tangible assets (Note 17) 4,079,969 7,704,783

Property, plant and equipment for own use 3,142,515 3,145,510 Investment property 205,615 3,943,229 Other assets leased out under an operating lease 437,291 330,890 Assigned to Welfare Projects (Note 27) 294,548 285,154

Intangible assets (Note 18) 96,726 176,942 Goodwill 0 68,044 Other intangible assets 96,726 108,898

Tax assets 2,156,713 2,450,013 Current 607,045 407,601 Deferred (Note 28) 1,549,668 2,042,412

Prepayments and accrued income (Note 19) 435,990 397,432 Other assets (Note 19) 762,357 1,018,604

Inventories 68,905 569,764 Other 693,452 448,840

Total Assets 209,123,178 180,351,956 Memorandum itemsContingent exposures (Note 29) 13,606,805 11,803,864

Financial guarantees 13,559,932 11,764,417 Assets earmarked for third-party obligations 46,873 39,447

Contingent commitments (Note 29) 49,389,356 43,385,747 Drawable by third parties 46,524,908 40,191,319 Other commitments 2,864,448 3,194,428

(*) Presented for comparison purposes only.Translation of consolidated fi nancial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Catalan-language version prevails.

Consolidated Financial Statements of the ”la Caixa” GroupConsolidated balance sheetsat 31 December 2006 and 2005, before allocation of profi t (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP



Liabilities and Equity 2006 2005 (*)

Liabilities Financial liabilities held for trading (Note 9) 1,136,244 954,092

Trading derivatives 245,649 224,850 Short positions 890,595 729,242

Other fi nancial liabilities at fair value through profi t or loss (Note 21) 206,700 0 Customer deposits 206,700 0

Financial liabilities at amortised cost (Note 20) 166,466,287 137,791,363 Deposits from central banks 0 63,406 Deposits from credit institutions (Note 20.1) 12,420,704 13,346,731 Customer deposits (Note 20.2) 113,171,945 99,278,477 Marketable debt securities (Note 20.3) 36,061,514 19,243,782 Subordinated liabilities (Note 20.4) 3,398,287 3,433,341 Other fi nancial liabilities (Note 20.5) 1,413,837 2,425,626

Changes in the fair value of the hedged items in portfolio hedges of interest rate risk (599,434) 1,032,899 Hedging derivatives (Note 13) 5,545,094 5,543,511 Liabilities under insurance contracts (Note 21) 12,643,209 14,116,424 Provisions (Note 22) 2,880,427 2,400,342

Provisions for pensions and similar obligations 2,372,052 1,984,966 Provisions for taxes 152,873 104,867 Provisions for contingent liabilities and commitments 108,779 97,502 Other provisions 246,723 213,007

Tax liabilities 1,793,944 885,381 Current 171,330 20,838 Deferred (Note 28) 1,622,614 864,543

Accrued expenses and deferred income (Note 19) 545,458 360,628 Other liabilities (Note 19) 1,076,162 870,400

Welfare Fund (Note 27) 542,034 449,874 Other 534,128 420,526

Equity having the substance of a fi nancial liability (Note 23) 3,000,000 3,100,000 Total Liabilities 194,694,091 167,055,040 Equity Minority interests (Note 24) 214,685 1,506,457 Valuation adjustments (Note 25) 3,444,969 3,739,812

Available-for-sale fi nancial assets 3,430,572 3,706,867 Cash fl ow hedges (2,982) (31,966)Exchange differences 17,379 64,911

Own funds (Note 4) 10,769,433 8,050,647 Capital or endowment fund (Note 26) 3,006 3,006

Issued 3,006 3,006 Reserves 7,741,109 6,552,593

Accumulated reserves (losses) 6,366,649 5,360,556 Reserves (losses) of entities accounted for using the equity method (Note 26) 1,374,460 1,192,037

Associates 1,374,460 1,192,037 Profi t attributed to the Group 3,025,318 1,495,048

Total Equity 14,429,087 13,296,916 Total Liabilities and Equity 209,123,178 180,351,956


Consolidated balance sheetsat 31 December 2006 and 2005, before allocation of profi t (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP



2006 2005 (*)

Interest and similar income (Note 31) 5,923,735 4,300,710 Interest expense and similar charges (Note 32) (3,402,703) (2,107,517)

Return on equity having the substance of a fi nancial liability (123,830) (110,791)Other (3,278,873) (1,996,726)

Income from equity instruments (Note 33) 300,773 289,727 Net interest income 2,821,805 2,482,920 Share of results of entities accounted for using the equity method 494,646 434,032

Associates 494,646 434,032 Fee and commission income (Note 34) 1,469,968 1,431,049 Fee and commission expense (Note 34) (170,993) (195,767)Insurance activity income (Note 35) (204,104) (237,982)

Insurance and reinsurance premium income 1,200,646 1,981,930 Reinsurance premiums paid (15,638) (11,113)Claims paid and other insurance-related expenses (1,601,208) (1,715,919)Reinsurance income 4,289 2,595 Net provisions for insurance contract liabilities (387,333) (1,147,587)Finance income 605,490 662,214 Finance expense (10,350) (10,102)

Gains/losses on fi nancial assets and liabilities (net) (Note 36) 1,076,962 542,739 Held for trading (15,205) (20,061)Available-for-sale fi nancial assets 1,069,890 546,069 Loans and receivables 5 0 Other 22,272 16,731

Exchange differences (net) 137,980 74,557 Gross income 5,626,264 4,531,548 Sales and income for the provision of non-fi nancial services (Note 37) 500,105 821,005 Cost of sales (Note 37) (133,281) (222,829)Other operating income (Note 38) 226,072 147,411 Personnel expenses (Note 39) (1,783,174) (1,737,793)Other general administrative expenses (Note 40) (832,023) (853,406)Depreciation and amortisation (410,072) (398,995)

Tangible assets (Note 17) (356,610) (338,175)Intangible assets (Note 18) (53,462) (60,820)

Other operating expenses (Note 41) (76,903) (44,872)Net operating income 3,116,988 2,242,069 Impairment losses (net) (Note 42) (478,479) (390,185)

Available-for-sale fi nancial assets (1,069) (34,482)Loans and receivables (473,754) (325,118)Non-current assets held for sale 630 142 Investments 301 (8,901)Tangible assets (4,587) (15,819)Goodwill 0 (274)Other assets 0 (5,733)

Provisions (net) (Note 22) (460,636) (272,568)Finance income from non-fi nancial activities (Note 43) 9,212 15,752 Finance expenses from non-fi nancial activities (Note 43) (61,111) (131,016)Other gains (Note 44) 1,949,761 416,476

Gains on disposal of tangible assets 54,522 245,147 Gains on disposal of investments 1,859,582 141,730 Other 35,657 29,599

Other losses (Note 44) (62,685) (89,244)Losses on disposal of tangible assets (555) (2,931)Losses on disposal of investments (473) 0 Other (61,657) (86,313)

Profi t before tax 4,013,050 1,791,284 Income tax (Note 28) (870,424) (52,675)Mandatory transfer to welfare projects and funds 0 0 Profi t from ordinary activities 3,142,626 1,738,609 Profi t from discontinued operations (net) 0 0 Consolidated profi t for the year 3,142,626 1,738,609 Profi t attributed to minority interests (Note 24) (117,308) (243,561)Profi t attributed to the Group 3,025,318 1,495,048


Consolidated income statementsfor the years ended 31 December 2006 and 2005 (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP



2006 2005 (*)

Net income recognised directly in equity (Note 25) (267,010) 938,292Available-for-sale fi nancial assets (271,581) 878,393

Revaluation gains/losses 1,640,265 1,459,080Amounts transferred to income statement (807,942) (324,065)Income tax (1,103,904) (256,622)Reclassifi cations 0 0

Other fi nancial liabilities at fair value 0 0 Cash fl ow hedges 52,212 (6,285)

Revaluation gains/losses 52,279 (37,003)Amounts transferred to income statement 11,979 20,021 Amounts transferred at the initial carrying amount of hedged items 0 0 Income tax (12,046) 10,697 Reclassifi cations 0 0

Hedges of net investments in foreign operations 0 0 Exchange differences (47,641) 66,184

Translation gains/losses (47,641) 66,184 Amounts transferred to income statement 0 0 Income tax 0 0 Reclassifi cations 0 0

Non-current assets held for sale 0 0 Consolidated profi t for the year 3,142,626 1,738,609

Published consolidated profi t for the year 3,142,626 1,738,609 Adjustments due to changes in accounting policy 0 0 Adjustments made to correct errors 0 0

Total income and expenses for the year 2,875,616 2,676,901 Parent 2,730,475 2,433,340 Minority interests 145,141 243,561


Consolidated statements of changes in equity(Statements of recognised income and expenses)for the years ended 31 December 2006 and 2005 (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP



2006 2005 (*)

1. Cash fl ows from operating activitiesConsolidated profi t for the year 3,142,626 1,738,609

Adjustments to profi t: 428,412 1,644,040 Depreciation of tangible assets (+) 356,610 338,175 Amortisation of intangible assets (+) 53,462 60,820 Impairment losses (net) (+/–) 478,479 390,185 Net provisions for insurance contract liabilities (+/–) 387,333 1,144,992 Provisions (net) (–/+) 460,636 272,568 Gains/Losses on disposal of tangible assets (–/+) (53,967) (242,216)Gains/Losses on disposal of investments (–/+) (1,859,109) (141,730)Shares of results of entities accounted for using the equity method (net of dividends) (+/–) 265,456 231,429 Taxes (+/–) 870,424 52,675

Adjusted profi t 3,571,038 3,382,649 Net increase/decrease in operating assets 32,719,099 21,978,755

Financial assets held for trading 281,260 (388,582)Debt instruments 342,213 (333,165)Other equity instruments (45,375) 21,921 Trading derivatives (15,578) (77,338)

Other fi nancial assets at fair value through profi t or loss 199,400 0 Available-for-sale fi nancial assets (1,945,264) (1,164,493)

Debt instruments (873,873) 811,026 Other equity instruments (1,071,391) (1,975,519)

Loans and receivables 33,049,552 23,332,521 Loans and advances to credit institutions 7,391,132 1,153,613 Money market operations through counterparties (50,140) (280,156)Loans and advances to customers 26,594,398 21,985,580 Debt instruments (464,224) (706,288)Other fi nancial assets (421,614) 1,179,772

Other operating assets 1,134,151 199,309 Net increase/decrease in operating liabilities 13,814,138 14,536,617

Financial liabilities held for trading 182,152 447,232 Trading derivatives 20,799 (107,287)Short positions 161,353 554,519

Other fi nancial liabilities at fair value through profi t or loss 206,700 0 Financial liabilities at amortised cost 14,784,899 14,093,916

Deposits from central banks (63,406) (3,892)Deposits from credit institutions (926,027) (850,459)Customer deposits 13,893,468 13,943,029 Marketable debt securities 2,892,653 237,745 Other fi nancial liabilities (1,011,789) 767,493

Other operating liabilities (1,359,613) (4,531)Total net cash fl ows from operating activities (1) (15,333,923) (4,059,489)


Consolidated cash fl ow statements (1/2)

for the years ended 31 December 2006 and 2005 (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP



2006 2005 (*)

2. Cash fl ows from investing activitiesInvestments (–): (1,156,797) (2,067,586)

Subsidiaries, jointly controlled entities and associates 342,019 142,115 Tangible assets 754,057 1,812,857 Intangible assets 60,721 60,308 Held-to-maturity investments 0 52,306

Divestments (+): 6,290,150 1,162,165 Subsidiaries, jointly controlled entities and associates 1,918,859 193,767 Tangible assets 4,163,293 968,398 Intangible assests 19,431 0 Held-to-maturity investments 188,567 0

Total net cash fl ows from investing activities (2) 5,133,353 (905,421)3. Cash fl ows from fi nancing activities

Issuance/Redemption of equity having the substance of a fi nancial liability (+/–) (100,000) 100,000 Issuance/Redemption of subordinated liabilities (+/–) (35,054) (907)Issuance/Redemption of other long-term liabilities (+/–) 13,925,079 4,569,000 Increase/Decrease in minority interests (+/–) (1,436,913) 172,062

Total net cash fl ows from fi nancing activities (3) 12,353,112 4,840,155 4. Effect of exchange rate changes

on cash and cash equivalents (4) (935) 1,210

5. Net increase/decrease in cash and cash equivalents (1+2+3+4) 2,151,607 (123,545)Cash or cash equivalents at beginning of year 1,773,805 1,897,350 Cash or cash equivalents at end of year 3,925,412 1,773,805

(*) Presented for comparison purposes only.

Consolidated cash fl ow statements (2/2)

for the years ended 31 December 2006 and 2005 (Notes 1 to 47), in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP

The changes in scope of consolidation are included in the appropriate line based on the nature of each asset or liability addition or disposal.

Translation of consolidated fi nancial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Catalan-language version prevails.



1. Description of the Institution and other information 12 Description of the Institution 12 Basis of presentation 12 Responsibility for the information and for the estimates made 13 Comparative information and changes in scope of consolidation 13 Ownership interests in credit institutions 14 Minimum capital requirements 14 Deposit Guarantee Fund 15 Events after the balance sheet date 16 2. Accounting policies and measurement bases 16 2.1. Business combinations and basis of consolidation 16 2.2. Financial instruments 17 2.3. Derivatives and hedges 21 2.4. Foreign currency transactions 23 2.5. Recognition of income and expenses 23 2.6. Transfers of financial assets 24 2.7. Impairment of financial assets 25 2.8. Offsetting 26 2.9. Financial guarantees 26 2.10. Leases 27 2.11. Mutual funds, pension funds and other assets under management 27 2.12. Personnel expenses and post-employment benefit obligations 28 2.13. Income tax 31 2.14. Tangible assets 32 2.15. Intangible assets 33 2.16. Inventories 34 2.17. Non-current assets held for sale 34 2.18. Insurance transactions 34 2.19. Provisions and contingent liabilities 35 2.20. Consolidated statements of changes in equity 36 2.21. Consolidated cash flow statements 36 2.22. Welfare Projects 36 3. Risk management 37 3.1. Credit risk exposure 38 3.2. Market risk exposure 44 3.3. Liquidity risk exposure 50 3.4. Exposure to other risks 53 4. Own funds and allocation of profit 54 5. Purchase and sale of ownership interests in the capital

of subsidiaries, jointly controlled entities and associates 55 6. Business segment reporting 56 7. Remuneration of “key directors and executives” 58 8. Cash and balances with central banks 61 9. Financial assets and liabilities held for trading 61 10. Available-for-sale financial assets 64 11. Loans and receivables 69 11.1. Loans and advances to credit institutions 70 11.2. Loans and advances to customers 70 11.3. Debt instruments 73 11.4. Other financial assets 74 11.5. Impairment allowances 74 12. Held-to-maturity investments 75 13. Hedging derivatives (assets and liabilities) 76 14. Non-current assets held for sale 78 15. Investments 79

Notes to the consolidated fi nancial statements for 2006 ”la Caixa” Group



16. Reinsurance assets 82 17. Tangible assets 83 18. Intangible assets 85 19. Prepayments and accrued income, accrued expenses

and deferred income and other 86 20. Financial liabilities at amortised cost 87 20.1. Deposits from credit institutions 88 20.2. Customer deposits 88 20.3. Marketable debt securities 89 20.4. Subordinated liabilities 92 20.5. Other financial liabilities 93 21. Liabilities under insurance contracts 93 22. Provisions 94 23. Equity having the substance of a financial liability 96 24. Minority interests 97 25. Valuation adjustments 99 26. Endowment fund and reserves 101 27. Welfare Projects 102 28. Tax matters 105 29. Contingent liabilities and commitments 110 30. Other significant disclosures 111 30.1. Third-party funds managed by the Group 111 30.2. Asset securitisations 111 30.3. Securities deposits and investment services 115 30.4. Financial assets derecognised due to impairment 115 30.5. Geographical distribution of volume of business 116 31. Interest and similar income 117 32. Interest expense and similar charges 117 33. Income from equity instruments 118 34. Fee and commission income and expense 118 35. Insurance activity 119 36. Gains/losses on financial assets and liabilities 120 37. Sales and income from the provision of non-financial services and cost of sales 121 38. Other operating income 121 39. Personnel expenses 122 40. Other general administrative expenses 123 41. Other operating expenses 123 42. Impairment losses 124 43. Finance income and expenses from non-financial activities 126 44. Other gains and other losses 126 45. Transactions with related parties 127 46. Other disclosure requirements 129 46.1. Customer ombudsman and customer care service 129 46.2. Environmental information 131 47. Explanation added for translation to English 131 Appendix 1. Public Financial Statements of ”la Caixa” 132Appendix 2. ”la Caixa” Group Subsidiaries 138Appendix 3. Joint ventures of the ”la Caixa” Group (jointly controlled companies) 142Appendix 4. Associates of the ”la Caixa” Group 143Appendix 5. Income tax credits for reinvestment of profits 144Appendix 6. Companies filing joint tax returns 145



Notes to the consolidated fi nancial statements for the year ended 31 December 2006 CAJA DE AHORROS Y PENSIONES DE BARCELONA AND COMPANIES COMPOSING THE ”la Caixa” GROUP

As required by current legislation governing the content of consolidated financial statements, these notes to the consolidated financial statements complete, extend and discuss the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement, and form a unit together with them, in order to present fairly the consolidated equity and consolidated financial position of the ”la Caixa” consolidated Group at 31 December 2006, and the consolidated results of its operations, the changes in the consolidated equity and the consolidated cash flows for the year then ended.

1. Description of the Institution and other information

Description of the Institution

As a savings bank and in accordance with its bylaws, Caja de Ahorros y Pensiones de Barcelona (”la Caixa”) is a private-law, non-profit financial institution providing beneficent welfare services, and is separate from any other company or entity. Its corporate purpose is to encourage all authorised forms of savings, to carry out beneficent Welfare Projects and to invest the related funds in safe and profitable assets of general interest.

As a credit institution, subject to the rules and regulations issued by the Spanish and EU economic and monetary authorities, ”la Caixa” conducts universal banking activities, and provides substantial retail banking services.

”la Caixa” is the Parent of a group of subsidiaries that offer other products and services and which, together with it, compose a single decision-making unit. Therefore, ”la Caixa” is obliged to prepare, in addition to its own individual financial statements, the consolidated financial statements of the Caja de Ahorros y Pensiones de Barcelona Group (“the Group”), which also include the interests in joint ventures and investments in associates.

Caixa Holding, SAU, which is wholly owned by ”la Caixa”, is the subsidiary that manages and controls practically all of the Group’s equity securities portfolio.

Basis of presentation

The Group’s consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union through EU Regulations, in accordance with Regulation no. 1606/2002 of the European Parliament and of the Council, of 19 July 2002. In addition, the Bank of Spain issued Circular 4/2004, of 22 December, on Public and Confidential Financial Reporting Rules and Formats for Credit Institutions, which constitutes the adaptation of the IFRSs adopted by the European Union to the Spanish credit institution sector.

The financial statements were prepared on the basis of the accounting records kept by ”la Caixa” and by the other Group entities and include certain adjustments and reclassifications required to unify the policies and bases used by the Group companies with those of ”la Caixa”.

Appendix 1 includes the balance sheet, income statement, statement of changes in equity and cash flow statement of ”la Caixa” for 2006 and 2005.

Translation of consolidated fi nancial statements originally issued in Catalan and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Catalan-language version prevails.



Responsibility for the information and for the estimates made

The financial statements of ”la Caixa” and the consolidated financial statements of the ”la Caixa” Group for 2006 were prepared by the Board of Directors at a meeting held on 25 January 2007. These financial statements and the financial statements of the consolidated Group companies have not yet been approved by the General Assembly of the Parent and by the Annual General Meetings of the consolidated companies, respectively. However, the Board of Directors of ”la Caixa” considers that they will be approved without any changes. The financial statements of ”la Caixa” and the consolidated financial statements of the ”la Caixa” Group for 2005 were approved by the General Assembly at a meeting held on 27 April 2006.

The financial statements were prepared on the basis of judgments and estimates made by the senior executives of ”la Caixa” and of the consolidated entities, which relate, inter alia, to the fair value of certain assets and liabilities, impairment losses, the useful life of tangible and intangible assets, actuarial assumptions for the calculation of post-employment benefit obligations, pre-retirement scheme liabilities, and the equity and profit or loss of the companies accounted for using the equity method. These estimates relate to both the amounts recognised in the consolidated balance sheet and in the consolidated income statement for the period. Although these estimates were made on the basis of the best available information, future events might make it necessary to change these estimates in coming years. Changes in accounting estimates would be applied prospectively, recognising the effects of the change in estimates in the related consolidated balance sheet and income statement.

The accounting standards established by the IFRSs are generally compatible with those established by Bank of Spain Circular 4/2004 and are described in Note 2. No accounting policies differing from such standards which may have a material effect have been applied.

Comparative information and changes in scope of consolidation

Under International Financial Reporting Standards, the information presented in the consolidated financial statements must be consistent. Accordingly, as a result of the varying interpretations of the applicable legislation, in 2006 the unit-linked products sold by the ”la Caixa” Group’s insurance companies were classified under “Other Financial Liabilities at Fair Value Through Profit or Loss” in the consolidated balance sheet, and the financial assets related to these operations were classified under “Other Financial Assets at Fair Value Through Profit or Loss”. In 2005 these products were classified under “Liabilities under Insurance Contracts” and “Available-for-Sale Financial Assets” and totalled EUR 508 million and EUR 493 million, respectively. In 2006 the amortisation relating to operating leases was recognised under “Depreciation and Amortisation – Tangible Assets” in the consolidated income statement, whereas in 2005 it was recognised under “Other Operating Income”, as an offsetting entry against lease income, amounting to EUR 58.4 million.

The consolidated balance sheet heading “Valuation Adjustments – Available-for-Sale Financial Assets” must include the gain or loss on these assets net of the related tax effect. In 2005 this tax effect included the potential reinvestment tax credit that would be applicable in the event of sale of the assets. The recent amendment to the Spanish Corporation Tax brought about changes to the conditions for taking reinvestment tax credits, with the result that it was no longer considered reasonable to recognise them. Consequently, for a proper comparison of the information relating to 2006 and 2005, the consolidated balance sheet heading “Valuation Adjustments – Available-for-Sale Financial Assets” should be reduced, and “Tax Liabilities – Deferred” increased, by EUR 870 million at 31 December 2005.

The most significant changes in the scope of consolidation in 2006 included the disposal of the CaixaBank-France Group, effective from 1 January, of the Inmobiliaria Colonial Group, from 1 July, and of the Crèdit Andorrà Group, from 1 October. For a proper comparison of the consolidated financial statements for 2006 and 2005, it should be taken into account that at 31 December 2005 the consolidated balance sheets of the ”la Caixa” Group included, for all those companies taken as a whole, EUR 11,416 million in “Total Assets”, and



EUR 5,610 million in “Loans and Receivables”, EUR 3,846 million in “Tangible Assets” and EUR 7,175 million in “Financial Liabilities at Amortised Cost”.

Ownership interests in credit institutions

Pursuant to the provisions of Royal Decree 1245/1995, on public disclosure of investments of 5% or more in the capital or voting rights of credit institutions, in 2006 and 2005 the ”la Caixa” Group held the following investments other than those held in Group subsidiaries, which are listed in Appendix 2: Banco BPI, SA, a Portuguese credit institution, 25% owned at 31 December 2006 (31 December 2005: 15.99%), and Banco de Sabadell, SA, 13.83% owned at 31 December 2005 and sold entirely at 31 December 2006.

At 31 December 2006 and 2005, no Spanish or foreign credit institution, or group comprising a credit institution, held an interest of 5% or more in the capital or voting rights of any of the credit institutions that are subsidiaries of the ”la Caixa” Group.

Minimum capital requirements

Bank of Spain Circular 5/1993, of 26 March, sets forth the rules for determining the capital requirements to be met by consolidated groups of credit institutions, defines the consolidated balance sheet items composing eligible capital, and specifies the deductions to be made from eligible capital.

Under the aforementioned Circular, eligible capital is classified as follows:

• Tier I capital, which includes capital –the endowment fund, for savings banks–, reserves, profit for the year to be used to increase reserves, minority interests and preference shares. Goodwill arising from business combinations (see Note 2.1) is deducted from Tier I capital.

Tier I capital excluding preference shares is internationally known as core capital, which is a key measure of an institution’s capital adequacy.

• Tier II capital, which most notably includes asset revaluation reserves, 45% of the gross amounts of gains on equity instruments accounted for as available-for-sale financial assets, general loan-loss reserves and subordinated debt.

Tier II capital may not exceed 100% of Tier I capital. Also, general reserves and subordinated debt are eligible for inclusion in Tier II capital subject to certain quantitative and qualitative requirements.

The minimum capital requirements and eligible capital must be determined by reference to the confidential financial statements of consolidated groups of credit institutions, in which the full and proportionate consolidation methods are used solely for financial institutions that may be consolidated on the basis of their activity.

Circular 5/1993 sets forth the procedures to calculate the capital requirements to be met in order to provide for the following risks inherent to banking activities:

• Credit risk associated with on-balance-sheet assets, commitments and contingent liabilities and financial derivative transactions.

• Currency risk associated with the overall net position in foreign currency.

• Commodity risk and market risk associated with financial assets and liabilities held for trading.



Credit institutions calculate the measure known as weighted risk assets in accordance with the procedures established by Circular 5/1993 for the measurement of the risks listed above. The minimum eligible capital requirement to be met by credit institutions at all times is set at 8% of weighted risk assets. Similarly, the capital ratio is defined as the relationship of eligible capital to weighted risk assets and, therefore, credit institutions must always maintain a capital ratio of at least 8%.

Circular 5/1993 implements, for credit institutions, the legislation on capital and supervision of consolidated financial institutions contained in Law 13/1992, of 1 June, in Royal Decree 1343/1992, of 6 November, and in the Ministerial Order of 30 December 1992. The most recent amendments to Circular 5/1993 were introduced by Circular 2/2006, of 30 June. Specifically, Circular 2/2006, of 30 June, established that 45% of the gross amounts of gains on equity instruments accounted for as available-for-sale financial assets and of general loan-loss reserves is eligible for inclusion in the capital base. Circular 2/2006 also introduced the requirement for credit institutions to deduct from eligible capital their investments in insurance entities in which they hold an ownership interest in excess of 20%.

Circular 5/1993 also implements, for credit institutions, the legislation on the supervision of financial conglomerates contained in Law 5/2005, of 22 April, and in Royal Decree 1332/2005, of 11 November. In this regard, the Bank of Spain reported that the ”la Caixa” Group is considered to be a financial conglomerate on the grounds that it meets the conditions stipulated in Articles 2 and 3 of the above-mentioned Law 5/2005, of 22 April. The formal requirements for financial conglomerates to report their activities to the supervisory body vary in terms of degree of detail according to the materiality of the insurance business in relation to the conglomerate’s total business. In this respect, the Bank of Spain determined that the ”la Caixa” financial conglomerate should be subject to the basic formal reporting requirements.

The detail of the ”la Caixa” Group’s capital adequacy status, calculated in accordance with the procedures set out in the previous paragraphs, is provided below. In order to ensure year-on-year comparison, the data relating to 2005 were calculated in accordance with the provisions of Circular 2/2006, of 30 June.

Deposit Guarantee Fund

”la Caixa” makes annual contributions to the Savings Banks Deposit Guarantee Fund, the institution responsible for guaranteeing the deposits in cash and securities placed with savings banks. In 2006 and 2005, the contributions were 0.4 per thousand of the calculation basis (guaranteed deposits plus 5% of the market value of the guaranteed securities). The amounts accrued are included under “Other Operating Expenses“ in the consolidated income statement (see Note 41).

(Millions of Euros) 2006 2005

AMOUNT AS A % AMOUNT AS A %

Core capital 8,995 6.2% 7,090 5.9%Tier 1 11,995 8.3% 10,090 8.4%Tier total 16,704 11.5% 13,373 11.2%Capital requirements (*) 11,584 8.0% 9,586 8.0%Capital in excess of the minimum 5,120 3.5% 3,787 3.2%

(*) The above fi gures for 2006 are the best available estimate at the time of preparing the consolidated fi nancial statements and no signifi cant variations are expected.



Events after the balance sheet date

From 1 January 2007 to the date on which these consolidated financial statements were authorised for issue there were no events significantly affecting them.

2. Accounting policies and measurement bases

The accounting policies and measurement bases applied in preparing the Group’s consolidated financial statements for 2006 were as follows:

2.1. Business combinations and basis of consolidation

In accordance with IFRSs, business combinations are defined as the bringing together of two or more entities into one single entity or group of entities. “Acquirer” is defined as an entity which, at the date of acquisition, obtains control of another entity. At the acquisition date, the acquirer recognises in its financial statements, or consolidated financial statements, as appropriate, the assets, liabilities and contingent liabilities of the acquiree measured at fair value. The acquirer must also compare the cost of the business combination with the proportion acquired of the fair value of the assets, liabilities and contingent liabilities of the acquiree. If the difference is positive, the acquirer must recognise goodwill in assets; if negative, the acquirer must recognise income.

The consolidated financial statements were prepared using the full consolidation method for subsidiaries, the proportionate consolidation method for jointly controlled entities and the equity method for associates.

Subsidiaries

Subsidiaries are defined as entities with which ”la Caixa” makes up a decision-making unit due to the fact that it directly or indirectly owns 50% or more of the voting rights or, if it owns a lower percentage, it has agreements with other shareholders of these companies granting it a majority of the voting rights. Special purpose entities are also considered to be subsidiaries. Appendix 2 to these notes to the consolidated financial statements contains significant information on these companies.

The ”la Caixa” Group considers Caixa Inversiones 1, SICAV, SA, in which it owns a 13.62% interest to be a subsidiary, because it holds a majority of the seats on the Board of Directors, as well as the securitisation funds created from 1 January 2004 onwards in which ”la Caixa” retains the risks inherent to their assets.

However, the ”la Caixa” Group does not consider companies in which it holds an interest of 50% or more to be subsidiaries, since they are considered to be jointly controlled entities. CaiFor, SA, a holding company owned in equal parts by ”la Caixa” and the Fortis group, is a jointly controlled company through which they carry on the insurance business marketed by the ”la Caixa” Group’s branch network. CaiFor, SA has an 80% interest in the share capital of VidaCaixa, SA de Seguros y Reaseguros, and the remaining 20% is directly owned by the ”la Caixa” Group. Although the ”la Caixa” Group’s investment in VidaCaixa, SA de Seguros y Reaseguros stands at 60%, the majority in the Board of Directors of this company is held by CaiFor, SA. Consequently, VidaCaixa, SA de Seguros y Reaseguros is considered to be a jointly controlled entity.

The financial statements of the subsidiaries are consolidated with those of ”la Caixa”, without exceptions on the grounds of activity, using the full consolidation method, which consists of the aggregation of similar assets, liabilities and equity, income and expenses shown in their individual financial statements. The carrying amount of the direct and indirect investments in the share capital of the subsidiaries is eliminated to the extent of the equity interest in the subsidiaries held through these investments. All other balances and transactions between the consolidated companies are eliminated on consolidation.



The share of third parties in the ”la Caixa” Group’s equity and profit for the year is shown under “Minority Interests” in the consolidated balance sheet and “Profit Attributed to Minority Interests” in the consolidated income statement, respectively (see Note 24).

The results of subsidiaries acquired during the year are consolidated from the date of acquisition. The results of companies that cease to be subsidiaries are consolidated until the date they are no longer Group subsidiaries.

Note 5 contains information on the most significant acquisitions and disposals of subsidiaries in 2006.

Jointly controlled entities

The ”la Caixa” Group defines jointly controlled entities as entities which are not subsidiaries and which it controls jointly with other shareholders under a contractual agreement. Appendix 3 contains relevant information on these companies.

The financial statements of all jointly controlled entities are consolidated with those of ”la Caixa”, without exceptions on the grounds of activity, using the proportionate consolidation method. As a result, the balance sheet and income statement balances of jointly controlled entities, and the related eliminations, are aggregated to the consolidated financial statements only at the proportion of the ”la Caixa” Group’s share of their capital.

Associates

Associates are entities over which ”la Caixa” directly or indirectly exercises significant influence but are not subsidiaries or jointly controlled entities. Significant influence is, in most cases, presumed to exist where the ”la Caixa” Group owns 20% or more of the voting power of the investee.

An except to this rule are investees in which more than 20% of the voting rights are held, but which form part of the ”la Caixa” Group’s venture capital activity, and are not considered to be associates.

Similarly, entities in which less than 20% of the voting rights are held are not considered to be associates of the ”la Caixa” Group.

In the consolidated financial statements, investments in associates are accounted for using the equity method, i.e. at the Group’s share of the investee’s net assets, after taking into account the dividends received from the investee and other equity eliminations. The profits and losses resulting from transactions with an associate are eliminated to the extent of the Group’s interest in the associate.

Relevant information on these entities is disclosed in Appendix 4. Note 5 contains information on the most significant acquisitions in 2006 of associates and of new investments in entities that were already considered to be associates at the beginning of the year, and on the disposals of equity investments.

2.2. Financial instruments

Initial recognition

Financial instruments are initially recognised in the consolidated balance sheet when the Group becomes a party to the contract giving rise to them, under the terms and conditions thereof. Loans and deposits, i.e. the most common financial assets and liabilities, are recognised on the date from which the legal right to receive, or the legal obligation to pay cash, respectively, arises. Financial derivatives are generally recognised from the trade date.



Financial asset purchases and sales arranged through conventional contracts, which may not be settled net, are recognised on the date from which the risks and rewards, rights and duties incident to ownership are for the purchaser. Based on the type of financial asset purchased or sold, that date may be the trade date or the settlement or delivery date. In particular, transactions performed in the spot currency market are recognised on the settlement date; transactions performed on equity instruments traded in Spanish secondary securities markets are recognised on the trade date and transactions performed on debt instruments traded in Spanish secondary securities markets are recognised on the settlement date.

Derecognition of financial instruments

A financial asset is fully or partially derecognised when the contractual rights to the cash flows from the financial asset expire or when the financial asset is transferred. The transfer of the asset must result in a transfer of substantially all of the risks and rewards of the asset or a transfer of control thereof, if such risks and rewards have been retained (see Note 2.6).

A financial liability is fully or partially derecognised when the related obligations are extinguished or when it is acquired by the Group.

Fair value and amortised cost

Upon initial recognition, all financial instruments are recognised at fair value which, unless there is evidence to the contrary, is the transaction price. Thereafter, at a specified date, the fair value of a financial instrument is the amount for which it could be delivered, if an asset, or settled, if a liability, in a transaction carried out between knowledgeable, willing parties on an arm’s-length basis. The most objective and common reference to the fair value of a financial instrument is the price that would be paid for it on an organised, transparent and deep market (“quoted price” or “market price”).

If a market price does not exist for a given financial instrument, its fair value is estimated by reference to the price established in recent transactions involving similar instruments and, in the absence thereof, by reference to measurement models which have been sufficiently used by the international financial community, taking into account the specific features of the instrument to be measured and, most particularly, the various types of risk associated with the instrument. Most financial instruments, excluding OTC derivatives, are measured by reference to quoted prices in active markets.

The fair value of financial derivatives traded in organised, transparent and deep markets and included in financial assets and liabilities held for trading is equated with their daily quoted price and if, due to exceptional reasons, their quoted price cannot be determined at a given date, they are measured using methods similar to those used to measure derivatives not traded in organised markets.

The fair value of derivatives not traded in organised markets or derivatives traded in organised markets lacking depth or transparency is determined using methods recognised by the financial markets, namely “net present value” (NPV) or option pricing models.

Nevertheless, certain financial assets and liabilities are recognised at amortised cost. This method is used for financial assets included under the headings ”Loans and Receivables” and “Held-to-Maturity Investments” and for financial liabilities classified under “Financial Liabilities at Amortised Cost”.

Amortised cost is understood to be the acquisition cost of a financial asset or liability plus or minus, as appropriate, the principal repayments and the portion systematically recognised in the consolidated income statement, using the effective interest method, of the difference between the initial cost and the maturity amount of such financial instruments. In the case of financial assets, amortised cost furthermore includes any reductions for impairment.



The effective interest rate is the discount rate that exactly matches the net carrying amount of a financial instrument to all its estimated cash flows of all kinds through its remaining life. For fixed rate financial instruments, the effective interest rate coincides with the contractual interest rate established on the acquisition date, adjusted, where applicable, for the premiums and initial discounts and the fees that, because of their nature, can be equated with a rate of interest, and transaction costs. In the case of floating rate financial instruments, the effective interest rate coincides with the rate of return prevailing in all connections until the next benchmark interest reset date.

As indicated above, certain assets and liabilities are recognised at fair value, such as those included in the held for trading or available for sale portfolios. Other assets and liabilities, such as those included under “Loans and Receivables” or “Financial Liabilities at Amortised Cost”, are recognised at amortised cost as defined in this note.

A portion of the assets and liabilities contained in these headings are included in some of the fair value macro-hedges or micro-hedges managed by the ”la Caixa” Group and, therefore, they are recognised in the consolidated balance sheet at the fair value of the hedged risk.

Most of the remaining assets and some liabilities are floating rate instruments subject to the applicable annual interest rate review; therefore, the fair value of these assets resulting solely from fluctuations in market interest rates will not differ significantly from the value recognised in the consolidated balance sheet.

All other assets and liabilities are fixed rate instruments; a substantial portion of these has a term to maturity of less than one year and, therefore, as in the preceding case, the fair value of these assets and liabilities resulting solely from market interest rate fluctuations does not differ significantly from the value recognised in the consolidated balance sheet.

The amounts of assets and liabilities that are not included in one of the preceding paragraphs, i.e. unhedged fixed rate instruments with a term to maturity at over one year, are scantly material in relation to the total balance of each heading and, therefore, the Group considers that their fair value, resulting solely from market interest rate fluctuations, will not differ significantly from the value recognised in the consolidated balance sheet.

The fair value and the fair value measurement method used for the assets classified under the headings “Held-to-Maturity Investments” and “Tangible Assets” are described in Notes 12 and 17, respectively.

Classification and measurement of financial assets and liabilities

The financial instruments not included in the categories indicated below are recognised under the following headings in the accompanying consolidated balance sheet: “Cash and Balances with Central Banks”, “Hedging Derivatives”, “Investments” and “Equity Having the Substance of a Financial Liability”. The remaining financial instruments are classified in the consolidated balance sheet as follows:

Financial assets/liabilities held for trading: this item comprises financial assets and liabilities classified as held for trading which are recognised at fair value through profit or loss:

Financial assets/liabilities held for trading are financial assets or liabilities acquired/issued for the purpose of realising them in the short term or those which are part of a portfolio of identified financial instruments that are managed together, and for which there is evidence of a recent actual pattern of short-term profit taking. Financial assets/liabilities held for trading also include short positions arising from sales of assets purchased under non-optional reverse repurchase agreements or of borrowed securities. Lastly, these headings also include financial derivatives not designated as hedging instruments.



Financial instruments classified as held for trading are initially measured at fair value and subsequent changes in the fair value are recognised under “Gains/Losses on Financial Assets and Liabilities (Net) – Held for Trading” in the consolidated income statement, except for the changes in the fair value due to accrued returns on financial instruments other than trading derivatives, which are recognised under “Interest and Similar Income”, “Interest Expense and Similar Charges” or “Income from Equity Instruments”, depending on their nature.

Other financial assets and liabilities at fair value through profit or loss: this category includes financial instruments which, although not included in financial assets and liabilities held for trading, are in substance hybrid financial assets or liabilities and must be measured entirely at fair value when it is not possible to segregate the embedded derivative from the host contract, and also financial assets managed jointly with insurance contract liabilities measured at fair value, or with derivative financial instruments whose purpose is to mitigate the exposure to changes in fair value, or managed jointly with financial liabilities and derivatives whose purpose is to mitigate the overall exposure to interest rate risk. Financial instruments falling into this category must be subject at all times to an integrated and consistent system for the measurement, management and control of risks and returns permitting verification that risk has been effectively mitigated.

Financial liabilities at fair value through profit or loss include life insurance policies linked to mutual funds that do not expose the contract issuer to a significant insurance risk, when the related financial assets are also measured at fair value through profit or loss.

These financial assets and liabilities at fair value through profit or loss are measured initially and subsequently and taken to income under the same methods as those used for financial assets and liabilities held for trading.

Held-to-maturity investments: this category includes debt instruments with fixed maturity and with fixed or determinable cash flows that the Group has the intention and ability to hold to maturity. These instruments are initially measured at fair value adjusted by the transaction costs directly attributable to the acquisition of the financial asset, which are recognised in the consolidated income statement by the effective interest method. They are subsequently measured at amortised cost, calculated using the method described above in this note.

The interest accrued on these securities is recognised under “Interest and Similar Income” in the consolidated income statement and calculated using the effective interest method. Exchange differences on securities denominated in currencies other than the euro are recognised as explained in Note 2.4. Any impairment losses on these securities are recognised as indicated in Note 2.7.

Loans and receivables: this item includes financing granted to third parties through ordinary lending activities carried out by the consolidated entities, and receivables from purchasers of goods and users of services, and for unquoted debt instruments or those quoted in markets that are not sufficiently active. These assets are initially measured at fair value adjusted by the amount of the fees and commissions and transaction costs directly attributable to the acquisition of the financial asset, which are recognised in the consolidated income statement by the effective interest method through maturity. They are subsequently measured at amortised cost, calculated using the method described above in this note.

Assets acquired at a discount are measured at the cash amount paid. The difference between their repayment value and the amount paid is recognised as finance income in the consolidated income statement during the remaining term to maturity.



The interest accrued on these transactions is recognised under “Interest and Similar Income” in the consolidated income statement and calculated using the effective interest method. Exchange differences on securities denominated in currencies other than the euro are recognised as explained in Note 2.4. Any impairment losses on these securities are recognised as indicated in Note 2.7. Lastly, changes in the fair value of the financial assets hedged in fair value hedges are measured as described in Note 2.3.

Available-for-sale financial assets: this balance sheet heading includes debt instruments not classified as held-for-trading investments, as held-to-maturity investments or as loans and receivables, and also equity instruments issued by entities other than associates, provided that such instruments have not been classified as held for trading.

Debt instruments are always measured at fair value adjusted by the transaction costs directly attributable to the acquisition of the financial asset, which are recognised in the consolidated income statement by the effective interest method through maturity. Equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured at cost, net of any impairment loss.

Changes in the fair value of financial assets from the time of acquisition are recognised in “Equity. Valuation Adjustments – Available-for-Sale Financial Assets” until the financial asset is derecognised. The balance recognised in equity is then taken to the heading “Gains/Losses on Financial Assets and Liabilities (Net)” in the consolidated income statement.

Interest or dividend income on securities is recognised under “Interest and Similar Income” (calculated using the effective interest method) and “Income from Equity Instruments” in the consolidated income statement, respectively. Any impairment losses on these securities are recognised as indicated in Note 2.7. Lastly, changes in the fair value of the financial assets hedged in fair value hedges are measured as described in Note 2.3.

Financial liabilities at amortised cost: this item includes financial liabilities not classified as financial liabilities held for trading or as financial liabilities at fair value through profit or loss. The balances recognised in this item, irrespective of the instrumentation and maturity of such liabilities, arise from the ordinary deposit-taking activities of credit institutions.

These liabilities are initially measured at fair value adjusted by the amount of the transaction costs that are directly attributable to the issue of the financial liability, which are recognised in the consolidated income statement by the effective interest method through maturity. They are subsequently measured at amortised cost, calculated using the method described above in this note.

Interest borne on financial liabilities at amortised cost is recognised under “Interest Expense and Similar Charges” in the consolidated income statement. Exchange differences on liabilities denominated in currencies other than the euro are recognised as explained in Note 2.4. Changes in the fair value of the financial liabilities hedged in fair value hedges are measured as described in Note 2.3.

2.3. Derivatives and hedges

The ”la Caixa” Group uses financial derivatives as financial risk management tools (see Note 3). When these transactions meet certain requirements, they qualify for hedge accounting.

When the Group designates a transaction as a hedge, it does so from the inception of the transaction or of the instrument included in the hedge, and the transaction is documented appropriately in accordance with current legislation. The hedge accounting documentation duly identifies the hedged instrument or instruments and the hedging instrument or instruments, the nature of the risk to be hedged, and the



criteria or methods used by the Group to assess the effectiveness of the hedge over its entire life, taking into account the risk sought to be hedged.

The Group applies hedge accounting for hedges that are highly effective. A hedge is considered to be highly effective if, during its expected life, the changes in fair value or in the cash flows that are attributed to the hedged risk are almost entirely offset by changes in the fair value or in the cash flows, as appropriate, of the hedging instrument or instruments.

To measure the effectiveness of hedges, the Group analyses whether, from the beginning to the end of the term defined for the hedge, it may be expected, prospectively, that the changes in fair value or in the cash flows of the hedged item that are attributable to the hedged risk will be almost entirely offset by changes in the fair value or in the cash flows, as appropriate, of the hedging instrument or instruments and, retrospectively, that the results of the hedge will be within a range of 80% to 125% of the results of the hedged item.

Hedging transactions performed by the Group are classified as follows:

• Fair value hedges, which hedge the exposure to changes in the fair value of financial assets and liabilities or of unrecognised firm commitments, or of an identified portion of such assets, liabilities or firm commitments that is attributable to a particular risk, provided that they affect the consolidated income statement.

• Cash flow hedges, which hedge the changes in the cash flows that are attributed to a particular risk associated with a financial asset or liability or with a highly probable forecast transaction, provided that it will affect the consolidated income statement.

In the specific case of financial instruments designated as hedged items or qualifying for hedge accounting, gains and losses are recognised as follows:

• In fair value hedges, the gains or losses arising on both the hedging instruments and the hedged items attributable to the type of risk being hedged are recognised directly in the consolidated income statement.

• In cash flow hedges, the gains or losses arising on the portion of the hedging instruments qualifying as an effective hedge are recognised temporarily under “Equity. Valuation Adjustments – Cash Flow Hedges”, and are not recognised in the consolidated income statement until the gains or losses on the hedged item are recognised in the consolidated income statement or until the date of maturity of the hedged item, or in certain situations in which hedge accounting is discontinued. The gains or losses on the derivative are recognised in the same heading of the consolidated income statement as the gains or losses on the hedged item. Financial instruments hedged in this type of hedging transaction are recognised using the methods described in Note 2.2, without any changes for the fact that they are considered to be hedged instruments.

The gains or losses on the portion of the hedging instruments qualifying as an ineffective hedge are recognised directly under “Gains/Losses on Financial Assets and Liabilities (Net)” in the consolidated income statement.

The Group discontinues hedge accounting when the hedging instrument expires or is sold, when the hedge no longer meets the requirements for hedge accounting or, lastly, when the designation as a hedge is revoked.

The Group hedges against the interest rate risk of a certain amount of interest rate sensitive financial assets or liabilities which form part of the portfolio of instruments but are not identified as specific instruments.



These hedges, which are known as macro-hedges, can be fair value hedges or cash flow hedges (see Note 3.2.1). In fair value macro-hedges, the gains or losses arising on the hedged items which are attributable to interest rate risk are recognised directly in the consolidated income statement under “Changes in the Fair Value of the Hedged Items in Portfolio Hedges of Interest Rate Risk”, under assets or liabilities, based on the substance of the hedged item. In cash flow macro-hedges, the hedged items are recognised using the methods described in Note 2.2, without any changes for the fact that they are considered to be hedged instruments.

Derivatives embedded in other financial instruments or in other contracts are accounted for separately as derivatives if their risks and characteristics are not closely related to those of the instrument or host contract, provided that a reliable fair value can be attributed to the embedded derivative taken separately.

Since 2006, proceeds from derivatives sold to customers have not been recognised upon inception but accrued on a straight-line basis through maturity of the transaction. The effect of this change has involved immaterial amounts.

2.4. Foreign currency transactions

At 31 December 2006 and 2005, the ”la Caixa” Group’s functional currency, both at the parent and at the subsidiaries, is the euro. Therefore, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in foreign currency.

Foreign currency assets and liabilities, including foreign currency purchase and sale contracts outstanding considered as hedges, are translated to euros using the average exchange rates on the spot currency market prevailing at the 2006 and 2005 year-ends, except for non-monetary items measured at historical cost, which are translated to euros at the exchange rate ruling at the date of acquisition, or non-monetary items measured at fair value, which are translated to euros at the exchange rate ruling on the date when fair value was determined.

Forward foreign currency purchase and sale contracts outstanding not considered as hedges are translated to euros at the year-end exchange rates on the forward currency market.

The exchange rates used by the Group in translating the foreign currency balances to euros were those published by the European Central Bank, applicable at 31 December 2006 and 2005.

The assets and liabilities denominated in foreign currency of subsidiaries whose functional currency is not the euro are translated at the year-end exchange rates. Income and expenses are translated to euros at the average exchange rates of each year, and equity, at historical exchange rates.

The exchange differences arising on the translation of foreign currency balances to the functional currency of the consolidated entities are generally recognised under “Exchange Differences (Net)” in the consolidated income statement. However, exchange differences arising on changes in value of non-monetary items are recognised in equity under “Valuation Adjustments – Exchange Differences” in the consolidated balance sheet until they are realised, whereas exchange differences arising on financial instruments at fair value through profit or loss are recognised in the consolidated income statement without a distinction being made from other changes in fair value.

2.5. Recognition of income and expenses

The most significant criteria used by the Group to recognise its income and expenses are summarised as follows:



Interest income, interest expenses, dividends and similar items Interest income, interest expenses and similar items are generally recognised on an accrual basis using the effective interest method, regardless of the resulting monetary or financial flow. Interest accrued on doubtful loans, including loans exposed to country risk, is credited to income upon collection, which is an exception to the general rule. Dividends received from other companies are recognised as income when the consolidated entities’ right to receive them arises, which is when the dividend is officially declared by the company’s relevant body.

Fee and commission income and expense Fee and commission income and expenses are recognised in the consolidated income statement using criteria that vary according to their nature.

Financial fees and commissions, which include loan and credit origination fees, are part of the effective income or cost of a financial transaction and are recognised under the same heading as finance income or costs, namely “Interest and Similar Income” and “Interest Expense and Similar Charges”. These fees and commissions are collected in advance and recognised in the consolidated income statement over the life of the transaction, except when they offset direct costs related to the transaction.

Fees and commissions offsetting related direct costs, which are taken to be those which would not have arisen if the transaction had not been arranged, are recognised under “Other Operating Income” as the loan is taken out. These fees and commissions do not exceed individually 0.4% of the principal of the financial instrument, subject to a maximum limit of EUR 400; any excess is recognised in the consolidated income statement over the life of the transaction. If they do not exceed EUR 90, they are recognised immediately in the consolidated income statement. In any event, related direct costs that are individually identified can be recognised directly in the consolidated income statement upon inception of the transaction, provided that they do not exceed the fee collected (see Notes 38 and 41).

Non-financial fees and commissions arising from the provision of services are recognised under “Fee and Commission Income” and “Fee and Commission Expense” over the life of the service, except for those relating to services provided in a single act, which are accrued when the single act is carried out.

Non-finance income and expenses These are recognised for accounting purposes on an accrual basis.

Deferred collections and payments These are recognised for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

2.6. Transfers of financial assets

A transferred portfolio of loans and credits for which substantially all the associated risks and rewards are retained may not be derecognised, and a financial liability associated with the transferred financial assets must be recognised. This is the case of the loans and receivables securitised by the ”la Caixa” Group, under the terms of the transfer agreements.

However, in accordance with current legislation, the above accounting treatment is only applicable to all financial assets derecognised on or after 1 January 2004, but not to financial assets derecognised prior to that date. Accordingly, at 31 December 2006 and 2005, the consolidated financial statements do not include in the consolidated balance sheet the assets derecognised pursuant to the repealed accounting legislation, which assets, under current legislation, should have been kept on the consolidated balance sheet.

Note 30.2 contains a description of the main circumstances of the securitisations of assets performed at 2006 year-end, irrespective of whether or not they led to the derecognition of the related assets.



2.7. Impairment of financial assets

A financial asset is considered to be impaired when there is objective evidence of an adverse effect on the future cash flows that were estimated at the transaction date, or when its carrying amount may not be fully recovered.

As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously recognised impairment losses is recognised in the consolidated income statement for the period in which the impairment is reversed or reduced.

When the recovery of any recognised amount is considered unlikely, the amount is written off, without prejudice to any actions that the consolidated entities may initiate to seek collection until their contractual rights are extinguished due to expiry of the statute-of-limitations period, forgiveness or any other cause.

Debt instruments carried at amortised cost The amount of an impairment loss incurred on a debt instrument carried at amortised cost is equal to the positive difference between its carrying amount and the present value of its estimated future cash flows. A decline in fair value below acquisition cost does not constitute in itself evidence of impairment.

In the specific case of impairment losses resulting from the materialisation of the insolvency risk of the obligors (credit risk), a debt instrument is impaired due to insolvency when there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other reasons, or when country risk materialises. Country risk is defined as the risk that is associated with debtors resident in a given country due to circumstances other than normal commercial risk.

Impairment losses on these assets are assessed as follows:

• Individually: for all significant debt instruments and for instruments which, although not material, are not susceptible to being classified into homogeneous groups of instruments with similar risk characteristics: instrument type, debtor’s industry and geographical location, type of guarantee or collateral, and age of past-due amounts, among others.

• Collectively: the Group classifies transactions on the basis of the nature of the obligors, the conditions of the countries in which they reside, transaction status, type of guarantee or collateral and age of past-due amounts. For each risk group it establishes the impairment losses (“identified losses”) that it recognises in the consolidated entities’ financial statements.

In addition to the identified losses, the Group recognises an overall impairment loss on risks classified as standard and, therefore, not specifically identified. This loss is the inherent loss incurred at the date of preparation of the consolidated financial statements. This loss is quantified by applying the statistical parameters established by the Bank of Spain based on experience and on the information available to it on the Spanish banking system.

Debt instruments classified as available for sale The amount of the impairment losses on debt instruments included in the available-for-sale financial asset portfolio is the positive difference between their acquisition cost (net of any principal repayment or amortisation) and their fair value, less any impairment loss previously recognised in the consolidated income statement. The market value of quoted debt instruments is deemed to be a reliable estimate of the present value of their future cash flows, even though a decline in fair value below acquisition cost does not constitute in itself evidence of impairment.



When there is objective evidence that the positive differences arising on measurement of these assets are due to impairment, they are removed from the equity item “Valuation Adjustments – Available-for-Sale Financial Assets” and are recognised, for the cumulative impairment considered until then, in the consolidated income statement. If all or part of the impairment losses are subsequently reversed, the reversed amount is recognised in the consolidated income statement for the period in which the reversal occurs.

Equity instruments classified as available for sale An impairment loss on equity instruments included under available-for-sale financial assets is the positive difference between their acquisition cost and their fair value, less any impairment loss previously recognised in the consolidated income statement, even though a decline in fair value below acquisition cost does not constitute in itself evidence of impairment.

The criteria for recognising impairment losses on these instruments are the same as those used for debt instruments classified as available for sale, with the exception that any reversal of these losses is recognised in equity under “Valuation Adjustments – Available-for-Sale Financial Assets”.

Equity instruments carried at cost The amount of the impairment losses on equity instruments carried at cost is the positive difference between their carrying amount and the present value of the expected future cash flows discounted at the market rate of return for similar securities. The estimate of the impairment losses on this type of asset is determined by taking into account the equity of the investee, excluding the “valuation adjustments” due to cash flow hedges, per the last approved balance sheet, adjusted for the unrealised gains at the measurement date.

Impairment losses are recognised in the consolidated income statement for the period in which they arise as a direct reduction to the cost of the instrument. These losses can only be reversed subsequently if the related assets are sold.

2.8. Offsetting

Financial assets and liabilities are offset, i.e. reported in the consolidated balance sheet at their net amount, only if the entities have a legally enforceable right to set off the amounts of such instruments and intend either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

2.9. Financial guarantees

“Financial guarantees” are defined as contracts whereby an entity in the ”la Caixa” Group undertakes to make specific payments on behalf of a third party if the latter fails to do so, irrespective of the various legal forms they may take, such as guarantees, suretyships or irrevocable documentary credits issued or confirmed by the Group. These transactions are recognised under the memorandum item “Contingent Liabilities” in the consolidated balance sheet.

The contracts are recognised upon execution at fair value –which is taken to be the present value of the future cash flows– under “Loans and Receivables – Other Financial Assets”, with a charge or credit to “Accrued Expenses and Deferred Income” on the liability side of the consolidated balance sheet. The changes in value of the contracts are recognised as finance income under “Interest and Similar Income” in the consolidated income statement.

Financial guarantees, regardless of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider



whether a provision is required. Credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments carried at amortised cost (described in Note 2.7 above).

The provisions recorded are accounted for under “Provisions – Provisions for Contingent Liabilities and Commitments” on the liability side of the consolidated balance sheet. The provisions and recoveries of provisions are recognised with a charge or credit to “Provisions (Net)” in the consolidated income statement.

A detail of the risk borne in connection with these transactions, classified according to their legal form, is provided in Note 29.

2.10. Leases

Finance leases Finance leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased asset to the lessee.

When the consolidated entities act as lessors of an asset, the sum of the present value of the lease payments receivable from the lessee, plus the guaranteed residual value (which is generally the exercise price of the lessee’s purchase option at the end of the lease term), is recognised as lending to third parties and is therefore included under “Loans and Receivables” in the consolidated balance sheet based on the type of lessee.

When the consolidated entities act as the lessees, they present the cost of the leased assets in the consolidated balance sheet, based on the nature of the leased asset, and, simultaneously, recognise a liability for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of the lease payments payable to the lessor plus, if appropriate, the exercise price of the purchase option). The depreciation policy for these assets is consistent with that for property, plant and equipment for the Group’s own use.

In both cases, the finance income and finance charges arising under finance lease agreements are credited to “Interest and Similar Income” or debited to “Interest Expense and Similar Charges” in the consolidated income statement.

Operating leases In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain with the lessor.

When the consolidated entities act as lessors, they present the acquisition cost of the leased assets under “Tangible Assets”, either as “Investment Property” or as “Other Assets Leased out under an Operating Lease”. The depreciation policy for these assets is consistent with that for similar property, plant and equipment for own use (see Note 2.14), and income from operating leases is recognised under “Other Operating Income” in the consolidated income statement on a straight-line basis.

When the consolidated entities act as lessees, lease expenses, including any incentives granted by the lessor, are charged to “Other General Administrative Expenses” in the consolidated income statement on a straight-line basis.

2.11. Mutual funds, pension funds and other assets under management

The mutual funds and pension funds managed by the consolidated companies are not presented on the face of the Group’s consolidated balance sheet since the related assets are owned by third parties. The fees and commissions earned in the year for the various services provided by the Group companies to the funds, namely



depositary and asset management fees, are included in “Fee and Commission Income” in the consolidated income statement.

The consolidated balance sheet does not include other assets managed by the consolidated companies which are owned by third parties for the management of which a fee is received.

Information on third-party assets managed by the Group at 31 December 2006 and 2005 is disclosed in Notes 30.1 and 30.3.

2.12. Personnel expenses and post-employment benefit obligations

Post-employment benefit obligations

Post-employment benefit obligations are all those agreed by the ”la Caixa” Group with its employees to be paid upon termination of their employment with the Group.

As a result of the labour agreement executed with the current employees of ”la Caixa” on 31 July 2000, all the benefit obligations accrued on past services were contributed to a pension plan. This pension plan is defined as a plan with contributions defined by the retirement benefit obligations, since ”la Caixa” is required to contribute certain amounts established under the terms of the plan agreement, without any other future obligation. Cover for the risk of death of spouse, disability, death of parents and life insurance was also taken out with VidaCaixa, SA de Seguros y Reaseguros for the pension plan to pay the established benefits.

The contributions to the pension plan due each year and the premiums for the risk policy cover are recognised under the item “Personnel Expenses – Pensions” in the accompanying consolidated income statement.

Also, in compliance with other terms of the same plan agreement, supplementary guarantee policies were taken out with VidaCaixa, SA de Seguros y Reaseguros. The present value of these benefit obligations is recognised under “Provisions – Provisions for Pensions and Similar Obligations” on the liability side of the consolidated balance sheet.

In 2002, in compliance with the labour agreement executed on 29 July 2002 with former employees of ”la Caixa”, all the benefit obligations to former employees were transferred to a pension plan. They form a closed group known to have certain benefits insured, and accordingly this plan is considered to be a defined benefit plan. With the contributions received, a policy was taken out with VidaCaixa, SA de Seguros y Reaseguros for the pension plan which includes a profit-sharing clause, and it is considered that no significant contributions will need to be made in the future. The present value of these benefit obligations is recognised under “Provisions – Provisions for Pensions and Similar Obligations” on the liability side of the consolidated balance sheet.

The surrender value of the policies taken out with VidaCaixa, SA de Seguros y Reaseguros is recognised at ”la Caixa” under “Insurance Contracts Linked to Pensions” on the asset side of the accompanying consolidated balance sheets (Appendix 1), since this company is considered to be a related party. VidaCaixa, SA de Seguros y Reaseguros is consolidated in the ”la Caixa” Group using the proportionate consolidation method, whereby it contributes the assets and mathematical provisions relating to these policies at the percentage of ownership interest held by the Group (Appendix 3). The surrender value of the policies, which is shown in the heading “Insurance Contracts Linked to Pensions”, and the mathematical provisions, which are recognised in the heading “Liabilities under Insurance Contracts” in the accompanying consolidated balance sheets, are eliminated at the same percentage on consolidation.

As a result of the above-mentioned labour agreements, the premiums paid on insurance policies in prior years and the capitalisation of such premiums until they are surrendered and simultaneously contributed to



the pension fund became a deductible expense which, in accordance with Private Insurance Regulation and Supervision Law 30/1995, of 8 November, is recognised in income in tenths for the purpose of calculating income tax from such years onwards. The amounts remaining to be deducted are capitalised as deferred tax assets in respect of the premiums contributed and as tax assets in respect of the capitalisation of such premiums to “Tax Assets – Deferred” in the accompanying consolidated balance sheets (see Notes 22 and 28).

Since 2000, in the case of the agreement executed with current employees, and since 2002, in the case of former employees, pursuant to the coverage schedule laid down by the Bank of Spain, one tenth of the amounts by which the sums contributed and paid exceed the funds previously recorded has been recognised as an expense each year. Pursuant to current legislation, the actuarial gains and losses not yet recognised at 1 January 2004 may be charged, net of the related tax effect, to “First-Time Application Reserves”, an option that was taken by the Group. The amounts remaining to be deducted are capitalised as deferred tax assets under “Tax Assets – Deferred” in the accompanying consolidated balance sheets (see Note 28).

Pre-retirement schemes

In 2003, two pre-retirement schemes for ”la Caixa” employees were launched as a result of the labour agreement executed on 23 December 2003. The first, a partial retirement scheme, for employees aged over 60, and the second, a pre-retirement and early retirement scheme, for employees aged between 57 and 62 years who are between two and four years away from their agreed retirement age and, in both cases, have a minimum length of service at ”la Caixa” and have made a minimum amount of social security contributions. This agreement has an initial term of five years, is renewable by mutual consent between the parties and has general conditions applicable throughout the term of the schemes and other conditions applicable only in an initial extraordinary period. A total of 617 employees joined these two schemes.

The employees who joined the partial retirement scheme hold a part-time employment contract with ”la Caixa” involving a working day equal to 15% of that of a full-time contract. Concurrently, ”la Caixa” entered into relay contracts with new employees, for an indefinite term as long as the Labour Agreement of 14 November 1997 remains in force. Employees taking partial retirement are entitled to 15% of their salary, the social security pension and an additional supplementary benefit.

Employees taking pre-retirement or partial retirement retain, for all purposes, their status as participants of the Pension Plan for ”la Caixa” employees.

The entire cost of the obligations for wages, salaries, social security contributions, defined contributions to the pension plan, and other obligations, until the retirement age agreed with the workers who joined the schemes in the initial extraordinary period, is fully covered by a specific provision which is included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet.

In 2004, a new period of extraordinary conditions for the pre-retirement and early retirement scheme executed on 23 December 2003 was opened as a result of the labour agreement executed on 15 December 2004. These conditions, which are transitional and additional to those set forth in the former agreement, only affected the applications filed before 31 December 2004 by employees aged between 55 and 58 at that date, and improved the conditions for access to the pre-retirement scheme for employees who were already aged 59. ”la Caixa” undertook the firm commitment to grant partial retirement, under the same conditions as those established in the labour agreement dated 23 December 2003, to employees reaching the age of 60 in 2005 who had applied for partial retirement before 31 December 2004. The entire cost of these new obligations, until the agreed retirement age, was fully covered by a specific provision which is included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet, with a charge to “Provisions (Net)” in the consolidated income statement. A total of 520 employees joined these new schemes.



A new labour agreement was executed on 16 December 2005 as a continuation of the pre-retirement and early retirement scheme executed on 23 December 2003. This new agreement maintained the same extraordinary conditions and eligibility requirements as those contained in the agreement executed on 15 December 2004. The cost of these new obligations, until the agreed retirement age, was fully covered by a specific provision which is included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet, with a charge to “Provisions (Net)” in the consolidated income statement. A total of 330 employees joined this new agreement.

A new labour agreement was executed on 12 December 2006 as a continuation of the pre-retirement and early retirement scheme executed on 23 December 2003. This agreement extends to up to five years the maximum length of the pre-retirement stage and may be joined by employees who reach the age of 57, 58 or 59 at 31 December 2007, 2008 or 2009. A provision was recorded with a charge to the consolidated income statement that is included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet for the cost of the obligations assumed under the aforesaid agreement. This provision covered the total cost of the group of employees taking pre-retirement in 2007, 50% of the estimated cost of employees doing so in 2008 and one-third of those who will do so in 2009. At 31 December 2006, 385 employees had joined the 2007 retirement schemes.

The additional supplementary benefit payable by ”la Caixa” under the partial retirement scheme was insured through a policy taken out with VidaCaixa, SA de Seguros y Reaseguros. These policies are recognised for accounting purposes using the same method as that described for the policies covering the post-employment benefit obligations.

Other schemes

”la Caixa” executed an agreement with certain employees, called “Special Paid Leave”, based on Article 45.1.a) of the Workers’ Statute, whereby employment contracts may be temporarily suspended by mutual consent of the parties, during which time the employee retains his or her status as employee. While in this situation, the employee receives a percentage of salary, bonuses and any other applicable benefits based on the employee’s professional category, as well as any bonuses for length of service or under the terms of successive collective labour agreements. The employee remains registered for social security purposes and the relevant contributions and withholdings are made. As part of the above-mentioned agreement, a retirement age was agreed with each employee which is usually under than the age of 65. In the year in which approval for this situation is granted, the Institution records a provision that is included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet for the total net present value of the payments to be made in connection with wages, salaries, social security contributions and defined contributions to the pension plan until the planned retirement age. In 2005 and 2006, no employees joined this scheme under the labour agreement executed on 23 December 2003, while 21 employees remained registered at 31 December 2006.

Other long-term benefits

In accordance with current legislation, ”la Caixa” records a provision for length-of-service bonuses which consists of the portion accrued to its current employees and to employees on mandatory leave of absence. ”la Caixa” assumed with its employees the commitment to pay a bonus to employees upon reaching 25 or 35 years of service at the Institution. The amounts recognised in this connection are included under “Provisions for Pensions and Similar Obligations” in the consolidated balance sheet, with a charge to “Personnel Expenses – Other Expenses” in the consolidated income statement.

Termination benefits

Under applicable legislation, a provision for termination benefits expected in the future may only be recognised when a Group entity is demonstrably committed to terminating the employment of its employees before the normal retirement date, or to providing termination benefits as a result of an offer made to encourage voluntary



redundancy. Since there is no such commitment, there are no provisions in this connection in the consolidated balance sheet.

Credit facilities to employees

Under current legislation, credit facilities made available to employees at rates below market rates are considered to be non-monetary benefits and are calculated as the difference between market rates and the agreed rates. These items are recognised under “Personnel Expenses – Other Expenses”, with a balancing entry to “Interest and Similar Income” in the consolidated income statement.

2.13. Income tax

The expense for Spanish corporation tax and other similar taxes applicable to the foreign consolidated entities is recognised in the consolidated income statement, except when it results from a transaction recognised directly in equity. In such case the income tax is also recognised in the Group’s equity.

The current income tax expense is calculated as the tax payable on taxable profit for the year, adjusted for the changes arising during the year in the assets and liabilities recognised as a result of temporary differences, tax credits and allowances and tax losses.

The Group considers a temporary difference to exist when there is a difference between the carrying amount of an asset or liability and its tax base. The tax base of an asset or liability is taken to be the amount attributed to that asset or liability for tax purposes. A taxable temporary difference is one that will generate a future obligation for the Group to make a payment to the relevant taxation authorities. A deductible temporary difference is one that will generate a future right for the Group to a refund or to make lower payment to the relevant taxation authorities.

Tax credits and allowances are amounts that, after performance of the activity or obtainment of the profit or loss giving entitlement to them, are not used for tax purposes in the related tax return until the conditions for doing so established in the tax regulations are met, provided that the Group considers it probable that they will be used in future periods. All deferred tax assets identified as temporary differences are only recognised when it is considered probable that the Group will obtain sufficient future taxable profit to be able to offset them.

As a general rule, the Group recognises the reinvestment tax credits relating to expenditure carried out on qualifying assets up until the end of each year but not utilised earlier. Future expenditure which is part of a known expenditure programme or is recurring in nature and is highly likely to be carried out (see Note 28) may also be recognised.

Temporary differences are only recognised to the extent that it is considered probable that the consolidated entities will have sufficient future taxable profit available against which such differences may be utilised. Temporary differences are recognised in the consolidated balance sheet as deferred tax assets or liabilities, separately from current tax assets or liabilities, which basically comprise income tax payments on account and VAT receivable.

The deferred tax assets and liabilities recognised are reassessed at each balance sheet date in order to ascertain whether they still exist, and the appropriate adjustments are made on the basis of the findings of the analyses performed.

In 2006, pursuant to Final Provision Two of Law 35/2006, of 28 November, amending the Consolidated Spanish Corporation Tax Law, the standard tax rate was set at 32.5% for the tax period commencing from 1 January 2007, and 30% for tax periods commencing from 1 January 2008. Accordingly, taking into account the year in which the related reversal will foreseeably take place, “Tax Assets – Deferred” and “Tax Liabilities



– Deferred” were restated with a charge or credit to “Income Tax” in the consolidated income statement (see Note 28).

2.14. Tangible assets

Tangible assets include the carrying amount of buildings, land, furniture, vehicles, computer hardware and other facilities owned by the consolidated entities or acquired under finance leases. Tangible assets are classified in the consolidated balance sheet into property, plant and equipment for own use, investment property, assets leased out under an operating lease and tangible assets assigned to Welfare Projects. Tangible assets received in satisfaction of loans are classified as non-current assets held for sale.

Property, plant and equipment for own use includes assets held by the Group for present or future use for administrative purposes other than those of Welfare Projects, or for the production or supply of goods, that are expected to be used for more than one period. Investment property reflects the carrying amount of the land, buildings and other structures held either to earn rentals or for capital appreciation.

Tangible assets are generally presented at acquisition cost less the related accumulated depreciation and any value adjustments (net carrying amount higher than recoverable amount).

The current applicable legislation, upon implementation, allowed for the fair value at 1 January 2004 of unrestricted tangible assets, excluding assets assigned to Welfare Projects, to be recognised as the cost of such assets. At the ”la Caixa” Group, only ”la Caixa” restated the acquisition value of property for own use on the basis of appraisals performed by appraisers approved by the Bank of Spain, pursuant to the provisions of Ministerial Order no. 805 of 2003. The revaluation was recognised under “Revaluation Reserves” in the accompanying consolidated balance sheets, and is being reclassified to “Other Reserves” as the assets are derecognised due to depreciation, impairment or disposal, at the proportion relating to the revaluation.

Depreciation is calculated, using the straight-line method, on the basis of the acquisition cost of the assets less their residual value. As an exception, land is not depreciated since it is considered to have an indefinite life.

The period tangible asset depreciation charge is recognised under “Depreciation and Amortisation – Tangible Assets” in the consolidated income statement and is calculated basically using the depreciation rates set out below, which are based on the years of estimated useful life of the various assets. In the case of tangible assets assigned to Welfare Projects, the charge is recognised under “Other Liabilities – Welfare Fund” in the consolidated balance sheet (see Note 27).

Depreciation

YEARS OF ESTIMATED USEFUL LIFE

Buildings Structures 25 to 75Fixtures 8 to 25

Furniture and fi xtures 4 to 50Electronic equipment 4 to 8Other 7 to 14



The consolidated entities assess at the reporting date whether there is any indication that an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the case, the carrying amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion to the revised carrying amount and to the new remaining useful life, if the useful life has to be re-estimated. Any reduction in the carrying amount of tangible assets is recognised with a charge to “Impairment Losses (Net) – Tangible Assets” in the consolidated income statement, except for tangible assets assigned to Welfare Projects, the value adjustment of which is recognised under “Other Liabilities – Welfare Fund” in the consolidated balance sheet.

Similarly, if there is an indication of a recovery in the value of a tangible asset, the consolidated entities recognise the reversal of the impairment loss recognised in prior periods in the above-mentioned income statement heading, and adjust the future depreciation charges accordingly. Under no circumstances may the reversal of an impairment loss on an asset increase its carrying amount above the amount at which it would have been stated if no impairment losses had been recognised in prior years.

The estimated useful lives of tangible assets are reviewed each year or as any indications are noted which make it advisable to do so and, where appropriate, the depreciation charges are adjusted in the consolidated income statements of future years.

Upkeep and maintenance expenses are charged to “Other General Administrative Expenses” in the consolidated income statement.

2.15. Intangible assets

Intangible assets are identifiable non-monetary assets without physical substance which arise as a result of an acquisition from third parties or which are developed internally by a consolidated Group company. However, only intangible assets whose cost can be estimated objectively and from which it is considered probable that future economic benefits will be generated are recognised.

Intangible assets are recognised initially at acquisition or production cost and are subsequently measured at cost less any accumulated amortisation and any accumulated impairment losses.

Goodwill Upon acquisition of investments in the share capital of subsidiaries, any excess of acquisition cost over the underlying carrying amount of the investment is included under “Intangible Assets – Goodwill”, provided that it is not attributable to specific assets or intangible assets of the acquiree.

Goodwill acquired on or after 1 January 2004 is measured at acquisition cost, whereas that acquired earlier is recognised at the carrying amount at 31 December 2003. At the end of each reporting period goodwill is reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount). Any impairment is written down with a charge to “Impairment Losses (Net) – Goodwill” in the consolidated income statement.

An impairment loss is not reversed in a subsequent period.

Goodwill relating to associates is classified under “Investments – Associates”, together with the amount of the equity investment in the associate.



Other intangible assets This item basically includes deferred charges related to the development of electronic banking and information systems. These assets have a finite useful life and are amortised over a maximum of five years.

The annual amortisation charge is recognised under “Depreciation and Amortisation – Intangible Assets” in the consolidated income statement and impairment losses and reversals of impairment losses are recognised under “Impairment Losses (Net) – Other Intangible Assets”.

2.16. Inventories

“Inventories” in the consolidated balance sheet includes non-financial assets held by the consolidated entities for sale in the ordinary course of business, in the process of production, construction or development for such sale, or to be consumed in the production process or in the rendering of services. Inventories include the land and other property held for sale or for inclusion in a property development.

Inventories are measured at the lower of cost, including financing costs, and net realisable value. Net realisable value is defined as the estimated selling price of inventories less the estimated production costs and costs to sell.

The cost of inventories that are not ordinarily interchangeable and of goods or services produced and segregated for specific projects is determined individually and the cost of other inventories is assigned mainly by using the first-in, first-out (FIFO) or weighted average cost formula, as appropriate.

Any write-downs of inventories to net realisable value and any subsequent reversals of write-downs are recognised under “Impairment Losses – Other Assets” in the consolidated income statement for the year in which the write-down or reversal occurs.

The carrying amount of inventories is derecognised and recognised as an expense in the consolidated income statement under “Cost of Sales” when the sale relates to activities that do not form part of the Group’s ordinary activity or under “Other Operating Expenses” in all other cases, in the period in which the sales proceeds are recognised.

2.17. Non-current assets held for sale

In the case of the ”la Caixa” Group, “Non-current Assets Held for Sale” only includes tangible assets foreclosed in satisfaction of loans which are not assigned for own use or are classified as investment property since they are held to earn rentals.

These assets are measured at the lower of their carrying amount less the impairment losses recognised on the financial assets received, and their fair value less costs to sell. The impairment losses arising after capitalisation of these assets are recognised under “Impairment Losses – Non-current Assets Held for Sale” in the consolidated income statement. If their value is subsequently recovered, the amount may be recognised under the same item in the consolidated income statement to the extent of the impairment losses previously recognised. The assets classified under this item are not depreciated.

2.18. Insurance transactions

In accordance with accounting standards specific to the insurance industry, the ”la Caixa” Group’s consolidated insurance entities recognise income for the amounts of the premiums written throughout the year, and an expense for the cost of the claims incurred during the same period. Insurance entities are therefore required



to recognise in their balance sheets, by means of technical provisions recorded by them, the amount of obligations arising from insurance and reinsurance contracts in force.

The most significant categories of technical provisions are as follows:

• Provision for unearned premiums: this provision includes the proportion of premiums written in the year to be allocated to the period from each year-end to the expiry of the policy period.

• Provision for unexpired risks: this provision supplements the provision for unearned premiums by the amount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered in the coverage period not elapsed at the reporting date.

• Provision for claims outstanding: this provision reflects the estimated obligations outstanding arising from claims incurred prior to the reporting date –both unsettled or unpaid claims and claims not yet reported–, less payments made on account, taking into consideration the internal and external claim settlement expenses and, where appropriate, any additional provisions required for variances in assessments of claims involving long handling periods.

• Life insurance provision: this provision includes the value, at the consolidated balance sheet date, of the obligations relating to the insurance entity, less the obligations relating to the policyholder, under the terms of life insurance contracts.

• Provision for life insurance policies where the investment risk is borne by the policyholders: this provision is determined on the basis of the measurement of the assets specifically related to the contract.

• Provision for bonuses and rebates: this provision includes the earnings accrued to policyholders taken as a whole and the premiums to be returned to them, to the extent that such amounts have not been assigned on a case-by-case basis.

• Provisions for unsettled or unpaid claims: this provision includes a valuation of incurred losses reported prior to the consolidated balance sheet date.

• Provision for incurred but not reported losses: this provision includes an estimate of the value of losses incurred prior to the consolidated balance sheet date but not included in the provision for unsettled or unpaid claims.

The technical provisions for reinsurance assumed are determined using criteria similar to those applied for direct insurance.

The technical provisions for direct insurance and reinsurance assumed are presented in the consolidated balance sheet under “Liabilities under Insurance Contracts” (see Note 21).

The technical provisions for risks ceded to reinsurers are calculated on the basis of the reinsurance contracts entered into and by applying criteria similar to those used for direct insurance. These provisions are presented in the consolidated balance sheet under “Reinsurance Assets” (see Note 16).

In accordance with the applicable IFRSs, insurance entities must carry out a liability adequacy test on their on-balance-sheet insurance contract liabilities in relation to their contractual obligations (see Note 35).

2.19. Provisions and contingent liabilities

Provisions cover present obligations at the date of preparation of the consolidated financial statements arising from past events which could give rise to a loss for the entities considered likely to occur and certain in terms of its nature but uncertain in terms of its amount and/or timing.



Contingent liabilities are possible obligations that arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more future events beyond the control of the entities.

The Group’s consolidated financial statements include all the material provisions with respect to which it is considered more likely than not that the obligation will have to be settled. Provisions are recognised on the liability side of the consolidated balance sheet on the basis of the obligations covered, namely the provisions for pensions and similar obligations, the provisions for taxes and the provisions for contingent liabilities and commitments. Contingent liabilities are recognised under memorandum items in the consolidated balance sheet (see Note 29).

Provisions are recognised in the consolidated income statement under “Provisions (Net)” (see Note 22).

At the end of 2006 certain lawsuits and claims were in process against the consolidated entities arising from the ordinary course of their operations. The Group’s legal advisers and directors consider that the outcome of such lawsuits and claims will not have a material effect on the consolidated financial statements for the years in which they are settled.

2.20. Consolidated statements of changes in equity

Under current legislation, certain categories of assets and liabilities are recognised at fair value with a charge or credit to equity. These balancing entries, called “valuation adjustments”, are included under the Group’s equity net of the related tax effect, which is recognised as a deferred tax asset or liability, as appropriate. This statement presents the changes which arose during the year in the “valuation adjustments” detailed by item, plus the gains or losses arising during the year plus/minus, where appropriate, the adjustments made due to changes in accounting policies or errors in prior years. The sum of these items makes up the item “Total Income and Expenses for the Year”, broken down into those relating to the Group and to minority shareholders, which is the total change in the Group’s equity in the year.

2.21. Consolidated cash flow statements

The following terms are used in the consolidated cash flow statements:

• Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that are subject to an insignificant risk of changes in value.

• Operating activities: the principal revenue-producing activities of credit institutions and other activities that are not investing or financing activities.

• Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash and cash equivalents.

• Financing activities: activities that result in changes in liabilities that are not operating activities. The issues launched by the ”la Caixa” Group and placed in the institutional market are classified as financing activities, whereas the issues placed with retail customers are classified as operating activities.

2.22. Welfare Projects

The Welfare Fund is recognised under “Other Liabilities – Welfare Fund” in the consolidated balance sheet. Transfers to this fund are accounted for as allocations of profit by ”la Caixa” (see Note 4).

The expenses arising from Welfare Projects are presented on the face of the consolidated balance sheet as a reduction of the Welfare Fund, but are not recognised in the consolidated income statement in any event.



The tangible assets and the liabilities assigned to Welfare Projects are presented under separate items in the consolidated balance sheet, classified by type (see Note 27).

3. Risk management

Global risk management is crucial to the business of any credit institution. At the ”la Caixa” Group, global risk management is aimed at keeping risk in a healthy state and optimising the return/risk ratio, by identifying, measuring and assessing risks and ensuring that they are always taken into account in the business decision-making process, without losing sight of enhancing the quality of customer service.

The risks undertaken as a result of the Group’s own activities are classified as follows: credit risk, arising from both commercial and investment banking activities, and risk associated with the portfolio of investees; market risk, which includes structural balance sheet interest rate risk, the price or rate risk associated with treasury positions and currency risk, and liquidity risk and operational risk.

A set of quantification and monitoring tools and techniques have been used in recent years on each of these risk categories which are considered to be appropriate and in line with financial risk management standards and best practices. A brief description of these tools and techniques is included in the sections of this note providing individual descriptions of each exposure group.

All the risk measurement, monitoring and management activities are carried out in accordance with the guidelines contained in the New Basel Capital Accord (NBCA). The ”la Caixa” Group supports the need for and validity of the principles inspiring this new accord, which encourages better risk management and quantification practices and makes capital adequacy requirements sensitive to the risks actually incurred.

Completing the efforts undertaken since 1999 to achieve compliance with the requirements under the new capital adequacy regulations and in line with Bank of Spain recommendations, the Board of Directors of ”la Caixa” approved a Master Plan for Adaptation to the NBCA in July 2005. At that time, approval was formally requested from the Bank of Spain to use internal credit risk models and, in July 2006, approval was also sought to use internal market risk models, both for calculating minimum capital requirements once the NBCA comes into force. The Bank of Spain is currently in the process of validating these models as a step towards approval.

As established in the Accord, the Board of Directors of ”la Caixa” is the Group’s highest risk policy-setting body. Senior management acts within the framework of the duties assigned by the Board and, specifically, sets up the following risk management committees:

• The Risk Policy Committee, whose objectives are to propose general risk strategies and policies and improvements to internal risk management regulations, and to monitor the level of risk undertaken by the Institution and implement reasoned action proposals.

• The Lending Committee analyses and, where appropriate, approves the transactions that fall within the scope of its authority and refers any transactions that exceed its level of authority to the Board of Directors.

• The Asset-Liability Committee (ALCO) is responsible for managing the Group’s liquidity risk, interest rate risk and currency risk within the scope of structural balance sheet risk.

The Management Committee, through the Strategic Risk Management General Division, makes up the global risk control unit, with responsibility for safeguarding the health of the assets and preserving the capital adequacy and security mechanisms. Its main objectives are to identify, measure and integrate the various risk exposures and to evaluate the risk-adjusted returns in each line of business, from the overall standpoint of the ”la Caixa” Group and in line with its management strategy.



Lastly, it should be noted that the structure defined by the Board and senior executives of ”la Caixa” includes other areas of the organisation involved in risk measurement, monitoring and control activities, which will be analysed below in the context of the specific risk areas in which they operate.

In any event, in accordance with the requirements in the NBCA, the risk acceptance, measurement, monitoring and control system operates separately and independently of the various lines of the banking business.

It should finally be noted that the Audit Division of ”la Caixa” performs continuous checks on the adequacy of the internal control systems and the accuracy of the risk measurement and internal control methods employed by the various divisions involved in risk monitoring.

3.1. Credit risk exposure

Credit risk, which is inherent to the business of credit institutions, is the most significant risk on the ”la Caixa” Group’s consolidated balance sheet. Set out below is an analysis of the ”la Caixa” Group’s credit risk exposure and management activity, broken down into risk associated with the lending activity, which is basically generated by the branch network, and into counterparty risk, which is generated by treasury operations and basically undertaken with banking counterparties.

3.1.1. Customer credit risk

Overview

The lending activity of the ”la Caixa” Group’s branch network is basically geared towards meeting household and business financing needs.

Loans for homebuyers play an especially important role, and secured loans, basically mortgage loans, account for 72.2% of the loan portfolio. The risk coverage level achieved through mortgage collateral is very high, as the appraised value of collateral is double the value of the aggregate outstanding principal balance in the mortgage portfolio.

The lending portfolio is highly diversified and fragmented, and credit risk is therefore reduced. In terms of geographical distribution, the ”la Caixa” Group’s lending activity is basically concentrated in Spain.

The volume of doubtful assets stood at EUR 463 million at 31 December 2006 (31 December 2005: EUR 449 million). These amounts, combined with the Group’s growing lending business, placed the non-performing loan ratio at 0.33% at 31 December 2006 (31 December 2005: 0.39%).

Pursuant to current legislation, the Group continued to increase the loan-loss reserve, and particularly the allowance for unidentified inherent losses, which stands at the highest limit permitted under Bank of Spain Circular 4/2004, i.e. 125% of the weighting ratio for the risks in the lending portfolio. As a result of the substantial growth in the lending business and the Institution’s low non-performing loan ratio, the allowance ratio for doubtful assets stood at 444% at 31 December 2006, or 490% taking into account the amounts of mortgage collateral (31 December 2005: 380% and 425%, respectively).

Therefore, the ”la Caixa” Group has very low levels of credit risk as a result of the considerable diversification of its lending portfolio, the absence of exposure in high-risk geographical areas, the value of its supplementary guarantees and its high allowance ratios.



Organisation and processes

As discussed above, the main role of the Risk Policy Committee, made up of members of senior management, is to analyse and set the general credit approval strategies and policies across the branch network.

According to the guidelines issued by the Committee, the risk acceptance model is based on maximising the degree of autonomy of the branches. Along this line, the branches’ risk acceptance authority was considerably expanded in both the household and the business segments in 2006.

The increased autonomy for credit approvals also enables the experience and knowledge of the Institution’s extensive branch network to be drawn upon and, from the standpoint of efficiency, allows the branch network to expedite the credit approval process while improving customer service and care.

The experience of the branch network is enhanced by continuous improvement in the credit approval analysis and monitoring procedures. Probability of default calculation systems are used which comprise rating and scoring tools and tools to calculate loss given default and expected loss and risk-adjusted returns, both at customer and branch level.

A notable development in 2006 was the implementation of the risk classification procedure for working capital financing for SMEs; the approval system for household consumer credit was strengthened with the launch of the Préstamo de Abono Inmediato (instant loan) through channels complementing the branches, such as the Línea Abierta channel and the ATM network; work continued on improving the “Electronic File”, which stores, in a standardised manner, all relevant credit approval information relating to each borrower and can be easily accessed and consulted, so that applications may be resolved without the need for paperwork. This system is the best of its class on the market in terms of credit processing and will foreseeably be extended across the entire branch network in 2007.

Risk monitoring and control

The Risk Monitoring and Control function at ”la Caixa” is completely independent from the Risk and Resources Executive Vice-President. It is structured around a group of territorial monitoring units which report to the Monitoring and Control Division under the Strategic Risk Management General Division. Its function is two-fold: to prepare monitoring reports on borrowers or groups of companies with higher risks and to monitor risk holders whose creditworthiness shows signs of deteriorating, using a rating system based on risk warnings on each borrower.

The risk warning system and the borrower rating system based on the borrower’s profile play a key role in assisting both the approval system and the monitoring process. Thus, borrowers who are more likely to default in the short term are analysed more thoroughly and frequently.

The outcome of the monitoring process is the establishment of Action Plans for each of the borrowers analysed. The aim of these Action Plans is to supplement the expert system-based warning ratings, while bringing the credit approval policy into line with the Institution’s global risk acceptance framework.

Measurement

The Strategic Risk Management Division of ”la Caixa” includes the Credit Risk Management Division, whose mission, among other things, is to develop, maintain and monitor the credit risk measurement systems. It is also responsible for guaranteeing and advising on the use of these systems, while seeking to ensure that the decisions taken on the basis of these measurements take into account the quality of such measurements.



To attain these objectives, periodical reviews are performed of all the models, in order to detect any possible deterioration of the quality of the measurements, and of the estimates made, in order to include any fluctuations in the economic cycle. Practically the entire retail banking and SME customer portfolio is assessed on a monthly basis, enabling the information on these customers and their portfolios to be updated almost continually. This continual risk assessment provides information on the distribution of the risk exposure in the various portfolios with respect to creditworthiness, expressed as a probability of default.

Risk measurement involves two basic concepts: expected loss and unexpected loss. The use of these measures and of the components required to obtain them result in specific applications, such as the calculation of risk-adjusted returns, support for new credit transaction approval, and establishment of risk or loan pre-approval policies, to name a few.

The main components of both items are analysed below.

The concept of expected loss is a basic pillar of the new focus of banking regulations at both a domestic and international level. The NBCA provides for the need for entities to cover the expected loss amount through provisions. In this respect, the ”la Caixa” Group applies the rules contained in Annex IX of Bank of Spain Circular 4/2004. Therefore, the Group recognises the specific, general and country risk provisions required under the Circular to cover expected loss.

Expected loss is the result of multiplying three factors: exposure, probability of default, and loss given default. These three factors provide an estimate of the expected loss through credit risk from an individual transaction, customer or portfolio.

ExposureExposure at Default (EAD) provides an estimate of the debt outstanding in the event of default by the customer. This measure is especially significant for financial instruments with a repayment structure that varies according to customer drawdowns (credit accounts, credit cards and, in general, any revolving product).

This estimate is obtained through observation of the Institution’s internal default experience, and relates the drawdown levels upon default to the drawdown levels in the 12 preceding months.

The relationships observed in terms of product type, term to maturity and customer characteristics are modelled for each transaction in order to provide this estimate.

Probability of default”la Caixa” has management tools in place to assist with predicting the probability of default (PD) associated with each borrower, covering virtually all of its lending business.

These tools are either product- or customer-oriented. Product-oriented tools take into account the debtor’s specific characteristics related to the product concerned and are used basically in connection with the approval of new retail banking transactions. Customer-oriented tools assess the debtor’s probability of default on a general basis, even though the results for individuals may differ according to the product.

Customer-oriented tools include behavioural scoring models for individuals and ratings for companies, and are implemented throughout the branch network as part of the usual credit approval tools. These tools were developed on the basis of the Institution’s past delinquency experience and include the measurements needed to fine-tune the results to the economic cycle.

All the rating tools for companies are customer-oriented and vary considerably according to the customer’s market segment. The rating process for micro-enterprises and SMEs is very similar to that for individuals. For



these instances, a modular algorithm was developed, which rates three different sets of data: the financial statements, the information drawn from the customer’s dealings with ”la Caixa” and, finally, certain qualitative factors. The results of this rating are also adjusted to the business cycle using the same structure as for individuals.

”la Caixa” has a Corporate Rating function in place to provide specialised rating services for the large companies segment and developed internal rating models. These are expert models which give greater weight to analysts’ qualitative judgment. In view of the lack of internal delinquency experience in this segment, these models were developed in line with Standard & Poor’s methodology, with the result that the global default rates published by this rating agency could be used.

The results of all of the tools are linked to a risk master scale which provides a standard classification for the lending portfolio, namely it allows risk to be grouped according to the same expected NPL rate. Details of the exposure according to the estimated probability of default by the various customer segments are provided below:

A detail for the retail mortgage, other retail banking and SME segments of the percentage of borrowers who go into default in each of the years analysed and who constitute the probability of default observed in each period is as follows:

Loss given defaultLoss given default (LGD) is the percentage of debt that may not be recovered in the event of customer default. The Institution reviews the default recovery and default remedial procedures on an ongoing basis to minimise the impact of a potential default.

In addition, work is being carried out on modelling loss given default in order to provide correct a priori estimates, based on the collateral, the loan-to-value ratio, the type of product, the borrower’s creditworthiness and the recessionary phases of the business cycle.

Exposure by probability of default (on-balance sheet and off-balance sheet balances)

S&P EQUIVALENT RATING

SEGMENT

BANKS COMPANIES SMEsMORTGAGE

LOANSOTHER RETAIL

BANKINGTOTAL

AAA / AA 67.4% 0.5% 0.3% 9.7%A 32.5% 31.3% 3.6% 58.1% 18.5% 41.3%BBB 0.1% 25.3% 25.1% 28.8% 47.7% 24.9%BB 27.0% 52.4% 8.8% 25.5% 16.9%B 15.9% 16.9% 2.7% 6.0% 6.1%CCC 2.0% 1.3% 2.3% 1.1%Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Data at September 2006.

NPL frequency by borrower

SEGMENT 2003 2004 2005 2006 (1)

Retail mortgage 0.42% 0.34% 0.25% 0.25%Other retail banking 0.53% 0.48% 0.41% 0.48%SMEs 1.39% 1.32% 1.83% 1.70%

(1) Data at September.



As a result of the composition of the portfolio, which is the consequence of the credit approval policies, of the collateral provided and of the related loan-to-value ratio, and of active management of the remedial procedures, the loss given default rates of the ”la Caixa” Group’s exposures at default are very low, with loss given default at less than 10% for more than 80% of the exposure at default in mortgage loans to individuals and more than 60% of the exposure at default in unsecured loans to SMEs.

The measurement of expected loss ensures that credit risk can be properly controlled in “normal” market conditions. However, moving on to a description of the second factor mentioned above, that of unexpected loss, it is a known fact that actual losses may occasionally exceed expected losses as a result of sudden business cycle fluctuations, or changes in the risk factors specific to each portfolio, and of the correlation between the credit risk of the various debtors. Indeed, under the NBCA, entities must ensure that they have sufficient capital available to cope with these unexpected losses by using “simple” models which take into account the probability of default, the loss given default and exposure at default of individual customers, in addition to the standard correlations established between the various management segments.

All over the world, and in Spain as well, financial institutions actively manage and determine their capital adequacy requirements on the basis of all of their risks, in the context of what the Committee of European Banking Supervisors calls the Internal Capital Adequacy Assessment Process (ICAAP). The overall quantitative measure of capital requirements, in accordance with the Institution’s own standards, is called “economic capital.” Economic capital is a risk measure that encompasses fundamental components of credit risk, such as concentration and diversification, which are only partially included in the regulatory capital requirements. It also includes the remaining business risks, namely market risk and operational risk, and it is both a best management practice and a regulatory requirement under Pillar II of the NBCA. In December 2005, the Board of Directors of ”la Caixa” approved a master plan for developing an economic capital model covering all of the Group’s financial activities. The work conducted on developing the economic capital model in 2006 progressed smoothly, according to the targets and pace set in the master plan.

Lastly, in the context of the credit risk measurement and monitoring measures, reference must be made to the monitoring process established by ”la Caixa”, over recent years, to ensure that the return on transactions with customers includes a risk premium that is sufficient to cover the expected loss on its transactions, the administrative expenses associated with its operations and an adequate return on the capital at risk in its transactions.

Internal validation

In line with NBCA requirements, the Internal Validation Unit was set up in 2005. This unit was reinforced throughout 2006 to guarantee a robust validation framework from both an internal and regulatory standpoint. The main tasks of this unit are structured around three major blocks:

• Methodological validation of the credit risk measurement models. This analysis is performed using testing procedures to secure knowledge of the discriminative and predictive capacity of the models and of their sensitivity to changes in the variables affecting them. As part of this analysis, the reality observed is tested against the estimates made, a process known as back-testing. Stress-testing provides an analysis of the sensitivity of the models and estimates using external macroeconomic scenarios. This review framework is performed by reference to the main credit risk measures: PD, EAD, LGD, expected loss and capital.

• Guarantee that the Institution’s organisational structure complies with the supervisor’s requirements and good governance principles, in terms of independence of functions, and define an operating framework for the implementation of the models and of their applications within the organisation.

• Validation of the integration of the credit risk models into management. This is achieved by adopting a triple bottom-line approach: use of the models in the Institution’s strategy and planning processes, measurement and management of credit exposure and, lastly, effective sharing of the information obtained with the rest of the intended users within the organisation.



3.1.2. Counterparty risk generated by the treasury operations

The quantification and management of the credit risk arising from treasury operations presents certain peculiarities, basically as a result of the type of financial instruments used and the expediency and flexibility required for treasury transactions, which are further discussed below.

The maximum authorised exposure to credit risk with a counterparty for credit approval purposes is determined on the basis of a complex calculation, approved by management, which is based primarily on ratings for the entities and on the analysis of their financial statements. Hence, the approved risk lines are established for Front Office operations with each of the financial market counterparties, and the use of these lines is defined by the calculated exposure to counterparty risk. The risks of each counterparty are controlled at all times to ensure that they remain within the established limits. Position traders have real-time access to this information, which they systematically consult before carrying out new transactions. This minimises the risk of overstepping the limits.

In a loan transaction or an acquisition of an obligation on the portfolio, for the purposes of calculating exposure, the amount owed is identified with the amount delivered. However, the counterparty risk relating to derivatives transactions is quantitatively associated with the related market risk, since the amount owed by the counterparty has to be calculated by reference to the market value of the contracts plus the related potential value (possible changes in their future value under extreme market price conditions, based on the known historical pattern of market rates and prices).

The exposure vis-à-vis counterparties to Front Office operations (primarily credit institutions) stood at EUR 17,768 million at 31 December 2006. Nearly all the exposures arising from Front Office operations are undertaken with counterparties based primarily in European countries and the United States.

The distribution by rating of the ”la Caixa” Group’s counterparties reflects the large proportion of ratings higher than AA, and the confinement of the Group’s operations to counterparties designated as investment grade, i.e. those which the international credit rating agencies have considered to be safe due to their high payment capacity.

The Strategic Risk Management Division has responsibility for integrating those risks within the Group’s overall exposure management framework, although the specific responsibility for managing and monitoring the exposure to the counterparty risk arising from the treasury activity lies with the Market Risk Control Division, which prepares the proposals for approval of risk lines and monitors the use of such lines. This division, jointly with the Legal Advisory Division, as part of its duty to monitor the credit risks undertaken by the markets operations, also actively manages and monitors the adequacy of the supporting contractual documentation.

Hence, virtually all the risks undertaken in connection with derivative instruments are covered by the execution of ISDA and/or CMOF standardised contracts, which provide for the possibility of offsetting the flows of outstanding collections and payments between the parties for all transactions covered by these contracts.

In this context it should also be noted that at the end of 2006, 38 collateral agreements had been closed with the counterparties most actively engaged in OTC derivatives trading. A collateral is an agreement whereby two parties undertake to deliver an asset to each other (in the case of the ”la Caixa” Group, a deposit in cash) as security for the net credit risk position arising from the derivatives traded between the parties, on the basis of a prior close-out netting agreement included in the clauses of the ISDA or CMOF contracts. The risk is quantified, usually on a weekly basis, by marking to market all outstanding transactions, which results in a change in the deposit to be placed by the debtor.



These netting agreements are estimated to involve savings in the exposure to counterparty risk associated with OTC derivatives transactions (i.e. bilateral agreements, not traded in organised markets) of EUR 7,399 million at 31 December 2006, and 92% of the long-term risks associated with derivatives transactions are collateralised.

3.1.3. Risk associated with the portfolio of investees

The risk relating to the ”la Caixa” Group’s portfolio of investees is the risk associated with the possibility of incurring losses as a result of fluctuations in market prices and/or default on the positions making up the equity portfolio within a mid- to long-term time horizon.

The Strategic Risk Management Division, with the support of Caixa Holding, SAU, applies the risk measures on these positions, both from the standpoint of the underlying risk in terms of market price volatility, using VaR models (a statistical estimate of the maximum potential losses by reference to historical data on changes in prices), of the return spread in relation to risk-free interest rates as proposed by the NBCA, and of the uncertainty of default, using models based on the PD/LGD approach, also following the guidelines contained in the NBCA.

These indicators are monitored on an ongoing basis to ensure that the most appropriate decisions are always adopted on the basis of the past and projected performance of the markets and of the ”la Caixa” Group’s strategy.

These measures and their implementation are necessary to monitor management of the portfolio of investees and enable strategic decisions to be made on the composition of the portfolio by senior executives of the ”la Caixa” Group.

At 31 December 2006, the portfolio of listed investees has a market value of EUR 18,480 million, with gains before tax of EUR 9,976 million (31 December 2005: EUR 16,774 million and EUR 8,308 million, respectively).

3.2. Market risk exposure

The financial activity of credit institutions involves undertaking market risk, which includes exposures from various sources: balance-sheet risk arising from interest- and exchange-rate fluctuations, the risk caused by taking treasury positions, and the risk associated with equity investments which are part of the ”la Caixa” Group’s diversification business. In all instances, risk refers to the potential loss of returns or portfolio value as a result of adverse fluctuations in market rates or prices.

Subject to the methodological specifications and the additional comments made below to provide a specific description of the various exposure groups, there are two types of measures which constitute a common denominator and market standard for the measurement of market risk: sensitivity and value at risk (VaR).

Sensitivity calculates risk as the impact on the value of positions of a minor change in the risk factors, as follows:

• For interest rate risk, a calculation is performed of the variation in the present value of each of the future flows (actual or forecast) in the event of a one basis point (0.01%) variation at all stages of the curve.

• For currency risk, a calculation is performed of the variation in the counter value of each of the foreign currency flows in the event of a one percent (1%) variation in the exchange rate.

• For share or equity price risk, a calculation is performed of the variation in the present value of the position or portfolio in the event of a one percent (1%) variation in the price of its components.



• For the volatility risk (interest rate or price fluctuations) associated with options transactions (interest rate caps and floors and currency or equity options), a calculation is performed of the variation in the present value of each of the future flows in the event of volatility changes in quoted exchange rates and/or asset prices at all stages of the curve.

These sensitivity analyses provide information on the impact on the economic value of positions of a rise in interest rates, exchange rates, prices or volatility, but do not provide any assumptions regarding the likelihood of this variation.

In order to standardise risk measurement across the entire portfolio, and to provide certain assumptions regarding the extent of changes in the market risk factors, the VaR methodology is employed using a one-day time horizon and a statistical confidence level of 99%. In other words, 99 times out of 100 the actual losses sustained will be less than the losses estimated under the VaR method.

3.2.1. Exposure to structural balance sheet interest rate risk

Balance sheet interest rate risk is inherent to any banking activity. The consolidated balance sheet comprises assets and liabilities with varying maturity dates and interest rates. Interest rate risk arises when changes in the structure of the market rate curve affect these assets and liabilities and cause them to be renewed at rates other than those set previously, thereby affecting their economic value and net interest income.

As mentioned earlier in this note, this risk is managed and controlled directly by ”la Caixa” management, which carries out the role of an ALCO in this area.

The ”la Caixa” Group manages this risk with a two-fold objective: to reduce the sensitivity of net interest income to interest rate fluctuations and preserve the economic value of the consolidated balance sheet. To attain these two objectives, the Group actively manages this risk by arranging additional hedging transactions on financial markets to supplement the natural hedges generated in the Group’s own balance sheet as a result of the complementary nature of the sensitivity to interest rate fluctuations of the deposits and lending transactions arranged with customers.

The Markets General Division is responsible for analysing this risk and proposing hedging transactions aligned with these objectives to the ALCO.

To attain this two-fold objective, at 31 December 2006, for accounting and management purposes, the ”la Caixa” Group holds two different macro-hedges against interest rate risk on financial instrument portfolios:

• Macro-hedge against cash flow interest rate risk.

The management objective underlying this accounting hedge is to reduce the volatility of net interest income in the event of interest rate fluctuations within a two-year time horizon. Therefore, this macro-hedge covers future cash flows on the basis of the net exposure of a portfolio comprising a group of highly probable assets and liabilities with exposures similar to interest rate risk exposure. The hedging instruments currently used for this purpose are IRSs.

• Macro-hedge against fair value interest rate risk.

The management objective underlying this accounting hedge is to preserve the economic value of the assets and liabilities hedged, which comprise fixed interest rate assets and liabilities with original maturities of over two years, embedded options or options linked to balance sheet products (caps and floors) and derivatives sold to customers through the Front Office. The hedge instruments used for this purpose are IRSs, interest rate options (caps and floors) and any other financial instrument that may help mitigate interest rate risk.

The table provided below shows, through a static gap, the breakdown of maturities and interest rate revisions, at 31 December 2006, of sensitive items in the balance sheet of ”la Caixa.” The sensitivity to interest rates



and the expected term to maturity have been analysed for items without a contractual maturity date. The customer’s ability to repay or terminate a product early was taken into account in order to bring the contractual terms of the transactions into line with reality. Internal models are used for the early repayment or termination assumptions which are based on past experience and include behavioural variables of customers, products, seasonality and macroeconomic variables.

Dynamic gap analysis, based on the aforementioned assumptions, and also taking into consideration the transactions charted in the budget, is aimed at making future projections of the forthcoming renewals and maturities of on-balance-sheet transactions. This analysis predicts the mismatches that will occur between assets and liabilities, thereby making it possible to anticipate potential future pressures.

The sensitivity of net interest income shows the impact upon the review of on-balance-sheet transactions caused by changes in the interest rate curve. This sensitivity is determined by comparing a net interest income simulation, at one or two years, on the basis of various interest rate scenarios. The most likely scenario, which is arrived at using the imputed market rates, is compared against other scenarios of rising or falling interest rates that take into account changes in the slope of the curve. The one-year sensitivity of net interest income to on-balance-sheet sensitive assets and liabilities, taking into consideration scenarios of rising and falling interest rates of 100 basis points each and distributing the rate fluctuation on a quarterly basis over the year, is –2% and +2%, respectively.

The sensitivity of asset/liability values to interest rates measures the potential effect on balance sheet present value in the event of interest rate fluctuations.

The sensitivity of net interest income and asset/liability values are measures that complement each other and provide an overview of structural risk which is more focused on the short and medium term in the case of net interest income and on the medium and long term, in the case of asset/liability values.

Lastly, as a supplement for the above sensitivity measures, VaR and stress-testing measures are applied following the treasury-specific methodology, which will be described below.

Although the balance sheet interest rate risk assumed by ”la Caixa” is substantially below the levels considered significant (outliers), in keeping with the proposals in the NACB, a series of steps continue to be taken to intensify the monitoring and management of balance sheet interest rate risk.

Matrix of maturities and revaluations in sensitive balance sheet

(Thousands of Euros) 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS > 5 YEARS

Assets Mortgage collateral 88,815,583 11,593,064 152,596 40,866 34,998 266,479Other guarantees 32,485,315 1,593,173 1,092,748 773,476 483,806 507,503Money market 10,866,273 Total assets 132,167,171 13,186,237 1,245,344 814,342 518,804 773,982Liabilities Customer funds 76,076,349 10,736,560 12,423,063 3,443,002 814,374 2,373,868Issues 18,693,542 15,622 1,200,000 2,500,000 2,250,000 17,530,000Total liabilities 94,769,891 10,752,182 13,623,063 5,943,002 3,064,374 19,903,868Assets less liabilities 37,397,280 2,434,055 (12,377,719) (5,128,660) (2,545,570) (19,129,886)Hedges (38,749,960) 3,376,106 8,667,826 4,831,243 3,799,095 18,075,690 Total difference (1,352,680) 5,810,161 (3,709,893) (297,417) 1,253,525 (1,054,196)



3.2.2. Market risk of treasury positions

As part of the Markets General Division, the Market Risk and Administration Division is responsible for monitoring these risks, as well as the aforementioned counterparty risk and operational risk associated with the activity in the financial markets. To fulfil its duties, on a daily basis, this division monitors the contracts traded, calculates how changes in the market will affect the positions held (daily result of marking to market), quantifies the market risk taken, monitors compliance with the limits and analyses the ratio of actual return to risk taken.

As a result of its Front Office activities in financial markets, the ”la Caixa” Group is exposed to market risk due to adverse changes in the following risk factors: interest rates, exchange rates, share prices, volatility of these factors and changes in the credit spreads in private fixed-income positions. The detail of the average and maximum VaRs in 2006 is as follows:

In 2006 the average VaR in the Front Office’s trading business was EUR 1.7 million. The highest risk levels, up to a maximum of EUR 3 million, were assumed in July and September, as the forecasts relating to absolute interest rate movements, the spread between the euro and the US dollar exchange rate curves and the euro-US dollar exchange rates materialised.

Two methodologies are used to obtain this measurement: the parametric VaR and the historic VaR techniques.

a) The parametric VaR technique is based on the statistical treatment of parameters such as volatility and matching fluctuations in the prices and interest and exchange rates of the assets composing the portfolio and, according to the recommendations of the Basel Banking Supervision Committee, is applied using two time horizons: 75 days, giving more weight to recent observations, and 250 days, giving equal weight to all observations.

b) Historical VaR is based on calculating the impact on the value of the current portfolio of historical changes in risk factors. The changes over the last 250 days are taken into account and, with a confidence level of 99%, VaR is taken to be the third worst impact on the value of the portfolio.

Historical VaR is a very appropriate system for completing the estimates obtained by using the parametric VaR technique, since the latter does not provide any assumptions regarding the statistical behaviour of the risk factors (the parametric technique assumes fluctuations that can be modelled through “normal” statistical distribution). Historical VaR is also a specially suitable technique as it includes non-linear relationships between the risk factors,

VaR

(Thousands of Euros) AVERAGE VaR MAX. VaR

January 1,116 1,614 February 1,438 1,789 March 1,576 2,048 April 1,337 1,716 May 1,471 1,864 June 1,880 2,448 July 2,237 2,701 August 1,844 2,137 September 2,522 3,026 October 1,666 1,818 November 1,300 1,883 December 1,517 2,401 Average and maximum VaR for 2006 1,663 3,026



which are particularly necessary for options transactions, even though it should be noted that the risk associated with options has been a minor risk in the positions of the Front Office of ”la Caixa.”

A drop in the credit rating of asset issuers can also give rise to adverse changes in quoted market prices. Accordingly, the Market Risk Control Division completes the quantification of market risk with an estimate of the losses arising from changes in the volatility of the credit spread in private fixed-income positions (Spread VaR), which constitutes an estimate of the specific risk attributable to securities issuers. This calculation is made taking into account the potentially lower liquidity of these assets and a confidence level of 99%. The Market VaR (arising from fluctuations in interest rates, exchange rates and the volatility of both) and the Spread VaR are aggregated on a conservative basis, assuming zero correlation between the two groups of risk factors.

An estimate of the average VaR amounts attributable to the various risk factors is as follows:

As can be seen, consumption levels are of moderate significance and are basically concentrated on the assumption of interest rate curve and credit spread risk. The currency and volatility risk amounts assumed are of very marginal significance.

To confirm the suitability of the risk estimates, daily results are compared against the losses estimated under the VaR technique (back testing). As required by banking regulators, two validations are made of the risk calculation model:

a) Net back testing, which relates the portion of the daily result of marking to market for open positions at the close of the previous session to the estimated VaR for a time horizon of one day, calculated on the basis of the open positions at the close of the previous session. This validation is the most appropriate means of performing a self-assessment of the methodology used to quantify risk.

b) A valuation is also performed of the total result obtained in the day (therefore including any intraday transactions) by comparing this result against the VaR for a time horizon of one day calculated on the basis of the open positions at the close of the previous session (gross back testing). This provides an assessment of the importance of intraday transactions in generating profit and calculating the total risk of the portfolio.

Lastly, two stress testing techniques are used on the value of the treasury positions to calculate the possible losses on the portfolio in situations of extreme stress:

1) Systematic stress testing: this technique calculates the change in value of the portfolio in the event of a specific series of extreme changes in the main risk factors. Following the recommendations of the Basel Committee on Banking Supervision and best banking practices, the following factors are basically considered: parallel interest rate shifts (rising and falling), changes at various points of the slope of the interest rate curve (steepening and flattening), increased and decreased spread between the instruments subject to credit risk and government debt securities (bond-swap spread), parallel shifts in the US dollar interest rate curve (rising and falling), higher and lower volatility of interest rates, the appreciation and depreciation of the euro in relation to the dollar, the yen and sterling, and higher and lower volatility of exchange rates.

VaR by risk factor

(Thousands of Euros) INTERESTRATE

EXCHANGERATE

SHARE PRICEINTEREST-RATE

VOLATILITYEXCHANGE-RATE

VOLATILITYSHARE-PRICE VOLATILITY

CREDIT-SPREAD VOLATILITY

Average VaR for 2006 654 252 61 36 25 12 1,295



2) Historical scenario analysis: this analysis addresses the potential impact of actual past situations on the value of the positions held, such as the collapse of the Nikkei in 1990, the US debt crisis and the 1994 Mexican peso crisis, the 1997 Asian crisis, the 1998 Russian debt crisis, the growth of the technology bubble in 1999 and its collapse in 2000, or the terrorist attacks that have caused the most severe effects on the financial markets over recent years.

To complete these analyses of risk under extreme situations, the “worst-case scenario” is determined, which is the state of the risk factors in the last year that would cause the heaviest losses in the current portfolio. This is followed by an analysis of the distribution tail, i.e. the size of the losses that would arise if the market factor movement causing the losses was calculated on the basis of a 99.9% confidence level.

As part of the required follow-up and control of the market risks taken, management approves a structure of overall VaR and sensitivity limits for the Front Office activity. The risk factors are managed by the Markets General Division on the basis of the return/risk ratio determined by market conditions and expectations. The Market Risk Control Division is in charge of monitoring compliance with these limits and the risks taken, and generates a daily report on position, risk quantification and risk levels used that is distributed to management, front office executives and the internal audit division.

3.2.3. Currency risk

The equivalent value in euros of the foreign currency assets and liabilities held by ”la Caixa” at 31 December 2006 and 2005 is as follows:

The remaining foreign currency assets relating to other Group entities amount to EUR 8,687 thousand at 31 December 2006 (31 December 2005: EUR 1,067,802 thousand).

At 31 December 2006, there are no foreign currency liabilities relating to other Group entities (31 December 2005: EUR 1,138,005 thousand).

This fall in foreign currency assets and liabilities is due to the removal of companies from the scope of consolidation.

The Markets General Division is responsible for managing the currency risk arising from the consolidated balance sheet positions denominated in foreign currency, a task performed through the market risk hedging activity undertaken by the Front Office. Management is conducted under the premise of minimising the currency risks taken, which explains why the exposure of ”la Caixa” to this market risk is low or virtually nil.

(Thousands of Euros) 2006 2005

Total foreign currency assets 4,900,583 4,978,086 Financial assets held for trading 72,380 76,249 Loans and receivables 4,796,548 4,870,189

Loans and advances to credit institutions 3,864,865 4,446,717 Loans and advances to customers 928,135 422,339 Other 3,548 1,133

Other assets 31,655 31,648 Total foreign currency liabilities 4,782,726 4,455,170 Financial liabilities held for trading 56 85 Financial liabilities at amortised cost 4,776,328 4,443,124

Deposits from credit institutions 2,888,344 3,090,342 Customer deposits 1,150,246 890,827 Marketable debt securities 722,895 442,848 Other 14,843 19,107

Other liabilities 6,342 11,961



Also as a result of the active management of currency risk by the Front Office, the remaining minor foreign currency positions are primarily held with credit institutions in major currencies (e.g. US dollar, Pound sterling or Swiss franc), quantified by employing common methodologies used in conjunction with the risk measures implemented for the treasury activities taken as a whole.

The percentage breakdown, by currency, of loans and receivables and financial liabilities at amortised cost is as follows:

3.3. Liquidity risk exposure

The ”la Caixa” Group manages liquidity risk so as to ensure that it is always able to meet its obligations on a timely basis and never see its investment activities suffer from a lack of lendable funds. This objective is achieved by actively managing liquid assets, through ongoing monitoring of the consolidated balance sheet structure, on the basis of due dates, and early detection of potentially undesirable structures of short and medium-term liquid assets, while adopting a strategy that stabilises financing sources. The ”la Caixa” has been characterised in the past, and will continue to be in the future, by balanced deposit growth through on-balance-sheet products, which are the liquidity drivers, and off-balance-sheet products, which afford adequate, sustainable financing for the lending business without a need for intensive financing from the wholesale markets.

The Balance-Sheet Risk Analysis Department, which reports to the Markets General Division, is in charge of the analysis of liquidity risk. This analysis is performed under both ordinary market conditions and stress situations, in which various scenarios are considered, featuring specific and systemic crises entailing various loss given default assumptions in terms of reduced liquidity. Four categories of crisis scenario are analysed: three systemic crisis scenarios (macroeconomic crises, upsets in the capital markets and alterations in payment systems) and a specific crisis scenario considered as a “worst-case scenario.” These scenarios address various time horizons and loss given default levels based on the nature of the crisis analysed.

These analyses were used to prepare the Contingency Plan, specifically approved by the Board of Directors, which defined an action plan for each of the scenarios considered.

The ALCO monitors medium-term liquid assets on a monthly basis by reference to forecast gaps in the balance sheet structure and verifies compliance with the limits and operating lines of action approved by the Board of Directors. The Committee makes proposals to the Board of Directors on the optimum issues or financing or investment programmes to suit market conditions and the instruments and terms needed to support the growth of the business.

(Percentatge) 2006 2005

Loans and receivables 100 100 US dollar 41 40 Pound sterling 18 4 Swiss franc 8 7 Japanese yen 11 27 Canadian dollar 6 3 Australian dollar 6 3 Other 10 16 Financial liabilities at amortised cost 100 100 US dollar 81 75 Pound sterling 14 18 Swiss franc 1 2 Japanese yen 0 3 Other 4 2



Short-term liquid assets are managed by the Markets General Division, which is concerned with ensuring that liquid assets are permanently available on the consolidated balance sheet, i.e. minimising the structural liquidity risk inherent to the banking business. To assist with their management activity, a daily breakdown of liquid assets by due dates is available through the preparation of projections of future flows, which provides information on the time structure of liquid assets at all times.

At 31 December 2006 and 2005, virtually all of the ”la Caixa” Group’s fixed-income and equity financial instruments were listed on highly liquid active markets.

The detail by contractual term to maturity of the balances of certain headings in the balance sheet of ”la Caixa” at 31 December 2006 and 2005, disregarding the valuation adjustments, in a scenario of ordinary market conditions, is as follows:

2006

(Millions of Euros) DEMAND< 1

MONTH1-3

MONTHS3-12

MONTHS1-5

YEARS> 5

YEARSTOTAL

Assets Cash and balances with central banks 3,923 0 0 0 0 0 3,923Debt instruments-Financial assets held for trading 0 23 78 387 423 449 1,360Trading derivatives 0 11 85 56 42 30 224Available-for-sale debt instruments 0 0 212 312 56 48 628Loans and receivables 2,955 14,809 13,411 14,147 33,881 86,429 165,632

Loans and advances to credit institutions 234 9,482 8,567 2,204 84 190 20,761

Loans and advances to customers 989 5,327 4,739 11,870 33,692 83,309 139,926Debt instruments 0 0 105 0 105 2,930 3,140Other fi nancial assets 1,732 0 0 73 0 0 1,805

Hedging derivatives 0 113 128 223 1,750 3,682 5,896Total assets 6,878 14,956 13,914 15,125 36,152 90,638 177,663Liabilities Trading derivatives 0 19 83 62 44 38 246Financial liabilities at amortised cost 31,137 47,825 10,634 19,913 36,621 26,484 172,614

Deposits from central banks 0 0 0 0 0 0 0Deposits from credit institutions 518 4,763 1,981 1,935 1,716 1,118 12,031Customer deposits 29,677 41,152 7,976 17,673 21,138 1,683 119,299Marketable debt securities 0 1,641 677 235 9,267 21,965 33,785Subordinated liabilities 0 0 0 0 4,500 1,718 6,218Other fi nancial liabilities 942 269 0 70 0 0 1,281

Hedging derivatives 0 96 51 77 1,081 4,257 5,562Total liabilities 31,137 47,940 10,768 20,052 37,746 30,779 178,422Assets less liabilities (24,259) (32,984) 3,146 (4,927) (1,594) 59,859 (759)



As part of this approach to managing liquidity risk and with the aim of anticipating potential needs for lendable funds, the ”la Caixa” Group has several ordinary financing programmes that cover the various maturity periods to ensure that it has adequate liquidity levels at all times.

The Note Programme, with a face value of EUR 5,000 million, provides access to short-term funds.

The Euro Medium Term Note Programme (EMTN), with a face value at 31 December 2006 of EUR 5,000 million, of which EUR 1,235 million had been drawn down, guarantees the availability of medium-term funds.

In addition, the securities note for the basic prospectus for non-equity securities (formerly the Fixed-Income Securities Programme), which ensures the availability of long-term funds, was renewed and extended. This securities note amounts to EUR 25,000 million, of which almost EUR 9,000 million had been drawn down at 31 December 2006.

2005

(Millions of Euros) DEMAND< 1

MONTH1-3

MONTHS3-12

MONTHS1-5

YEARS> 5

YEARSTOTAL

Assets Cash and balances with central banks 1,677 0 0 0 0 0 1,677Debt instruments-Financial assets held for trading 0 13 33 204 439 324 1,013Trading derivatives 0 46 43 60 33 48 230Available-for-sale debt instruments 0 0 45 187 453 93 778Loans and receivables 2,836 14,107 7,180 12,693 26,862 66,213 129,891

Loans and advancesto credit institutions 59 7,993 2,845 2,719 108 69 13,793

Money market operations through counterparties 0 50 0 0 0 0 50

Loans and advancesto customers 887 6,064 4,335 9,940 26,638 61,527 109,391Debt instruments 0 0 0 0 116 4,617 4,733Other fi nancial assets 1,890 0 0 34 0 0 1,924

Hedging derivatives 0 12 36 168 1,886 5,067 7,169Total assets 4,513 14,178 7,337 13,312 29,673 71,745 140,758LiabilitiesTrading derivatives 0 34 35 53 42 52 216Financial liabilities at amortised cost 32,298 35,429 7,879 15,616 26,935 19,253 137,410

Deposits from central banks 0 0 0 0 0 0 0Deposits from credit institutions 1,207 3,955 1,813 1,567 1,046 1,026 10,614Customer deposits 29,601 30,706 5,216 13,783 20,389 2,821 102,516Marketable debt securities 0 451 850 228 2,500 12,188 16,217Subordinated liabilities 0 0 0 0 3,000 3,218 6,218Other fi nancial liabilities 1,490 317 0 38 0 0 1,845

Hedging derivatives 0 10 39 43 865 4,459 5,416Total liabilities 32,298 35,473 7,953 15,712 27,842 23,764 143,042Assets less liabilities (27,785) (21,295) (616) (2,400) 1,831 47,981 (2,284)



As a prudent measure to prepare for potential stress on liquid assets or market crises, i.e. to deal with the contingent liquidity risk, the ”la Caixa” Group has placed a series of guarantee deposits with the European Central Bank (ECB) through which high levels of liquid assets can be made available at short notice.

The Group’s financing policies are based on a balanced distribution of maturities in issues, avoiding the concentration of maturities and ensuring diversification in financing instruments.

3.4. Exposure to other risks

Based on the Institution’s global risk map, having analysed the risks directly associated with the banking business, operational risk management is the next risk area under analysis.

Operational risk includes all the events that could give rise to a loss caused by shortcomings in internal processes, human error, malfunctioning of information systems or external events. Operational risk is inherent in all business activities and, although it can never be wholly eliminated, it can be managed, mitigated and, in some cases, insured. ”la Caixa” has traditionally managed this risk on the basis of its past experience, establishing new controls and improving existing ones; enhancing the quality of internal processes and, when considered necessary, transferring the risk to third parties through insurance policies.

Management of this type of risk has become particularly important due to the increased dependence of the banking business on such factors as the intensive use of information technology, outsourcing or the use of complex financial instruments.

The ”la Caixa” Group is developing a strategic project, promoted by management and in keeping with the proposals in the NBCA, for the implementation of a single Comprehensive Model for Operational Risk Measurement and Control in all of the areas of business of ”la Caixa” and at all the financial subsidiaries of the ”la Caixa” Group. The Group already has an Operational Risk Management Framework paving the way towards the adoption of an advanced loss distribution model, which defines the management model, strategic objectives and risk assessment methodologies to be used across the board in the ”la Caixa” Group.

The Operational Risk Management Model defines an ongoing management process in three stages:

• Identification and detection of all current and potential risks.

• Ongoing assessment of these risks so as to assign capital to cover the potential losses caused by operational risk.

• Active risk management, which implies taking decisions aimed at mitigating the risk (setting up of new controls, development of business continuity plans, process engineering, hedging against potential contingencies and others).

The basic pillars of the methodology for the identification, assessment and control of operational risk are based on a categorisation of the risks specific to the ”la Caixa” Group and on the inclusion of methodologies involving qualitative assessment (expert opinions on potential risks of loss in the performance of processes) and quantitative assessment (actual data on operational losses).

This operational risk management model was used for the last time in 2006 in the various business divisions of ”la Caixa” and at the Spanish financial subsidiaries, and a first approach to qualitative operational VaR is presently available.

In addition, progress continued to be made in building the database of operational events and recording operational losses with a view to carrying out, together with the qualitative information, proactive operational risk management which anticipates the possible causes of risk and reduces their financial impact with the



resulting adjustment of capital requirements. A basic premise of the database of operational events in the ”la Caixa” Group is to implement an integrated database of loss events with sufficient data to ensure optimum risk assessment.

As provided for in the NBCA, subject to a minimum amount of data being available on operational losses for three years, quantitative operational VaR and the minimum capital for operational risk may be calculated, as proposed by Basel II, using the appropriate statistical models.

The strategic aim of the ”la Caixa” Group is to improve the quality of business management by making decision-making easier so as to enhance the quality of customer service and the efficiency of processes.

4. Own funds and allocation of profit

The own funds attributable to the ”la Caixa” Group, before allocation of profit for the year, and the changes therein in the years ended 31 December 2006 and 2005 are as follows:

”la Caixa” must allocate at least 50% of profit for the year to reserves and the remaining balance to the Welfare Fund.

The allocation of profit of ”la Caixa” for 2006 that the Board of Directors will propose for approval by the General Assembly, and the allocation of 2005 profit, are as follows:

(Thousands of Euros) ENDOWMENT FUND AND RESERVES

RESERVES AT CONSOLIDATED

COMPANIES

PROFIT ATTRIBUTED TO

THE GROUP

TOTAL OWN FUNDSATTRIBUTED TO THE

GROUP

Balance at 31/12/2004 4,582,862 1,334,555 816,499 6,733,916 Allocation of 2004 profi t to Reserves 460,515 100,984 (561,499) 0 Allocation of 2004 profi t to Welfare Fund (255,000) (255,000)Other changes in reserves 635 76,048 76,683 Consolidation adjustments 8,139 (8,139) 0 Profi t for the period attributed to the Group 1,495,048 1,495,048 Balance at 31/12/2005 5,052,151 1,503,448 1,495,048 8,050,647 Allocation of 2005 profi t to Reserves 608,814 583,234 (1,192,048) 0 Allocation of 2005 profi t to Welfare Fund (303,000) (303,000)Other changes in reserves 353 (3,885) (3,532)Consolidation adjustments 379,530 (379,530) 0 Profi t for the year attributed to the Group 3,025,318 3,025,318 Balance at 31/12/2006 6,040,848 (1) 1,703,267 (2) 3,025,318 10,769,433 Memorandum item:

Endowment fund 3,006Profi t at consolidated companies(Full and proportionate consolidation) 328,807

Reserves 6,037,842Profi t at consolidated companies (Equity method) 1,374,460

Total (1) 6,040,848 Total (2) (Note 26) 1,703,267



The profit of the companies composing the ”la Caixa” Group will be allocated as agreed at their respective Annual General Meetings.

5. Purchase and sale of ownership interests in the capital of subsidiaries, jointly controlled entities and associates

The main changes in 2006 and 2005 in ownership interests in subsidiaries were as follows:

• In 2005 ”la Caixa” sold its entire ownership interest in CaixaBank, SA to Crèdit Andorrà, SA, a ”la Caixa” Group company. As a result of this transaction, ”la Caixa” met its legal obligation to divest, prior to 31 December 2011, its full ownership interest in this Andorran bank up to a maximum of 51%, while it concentrated the ”la Caixa” Group’s financial business in Andorra into Crèdit Andorrà, SA, in which it retained its 46.35% interest. This sale did not result in the recognition of any net proceeds in the consolidated income statement for 2005. In 2006, ”la Caixa” sold its entire ownership interest in the capital of Crèdit Andorrà, SA to other significant shareholders in the bank for a total of EUR 927 million. This transaction gave rise to after-tax profit of EUR 425 million which was recognised in the 2006 consolidated income statement. The profit included the gain on disposal of CaixaBank, SA, which had not been recognised in 2005.

• In 2005 the ownership interest held in Inmobiliaria Colonial, SA was reduced by 8.36% as a result of the entry of Mutua Madrileña Automovilista, Sociedad de Seguros a Prima Fija as a new shareholder, and of open-market sales. In 2006 the ”la Caixa” Group sold its entire 39.54% interest in Inmobiliaria Colonial, SA, after accepting a takeover bid by Grupo Inmocaral, SA to acquire the entire share capital at a price of EUR 63 per share. This transaction resulted in the recognition of pre-tax profits amounting to EUR 1,041 million (EUR 680 million, net of tax).

• In January 2005, with the aim of encouraging cross-sales of their banking and life insurance products to their customers, the CaixaBank France Group and the Swiss Life France Group agreed upon a share exchange which involved the sale by the ”la Caixa” of 4.7% of its ownership interest in CaixaBank France, SA to Swiss Life France; consequently, the ”la Caixa” Group’s interest in CaixaBank France, SA at 31 December 2005 amounted to 95.3%. In turn, CaixaBank France, SA acquired a 45% ownership interest in the capital of Swiss Life Bank and 11.4% of Swiss Life Assurances des Biens, both Swiss Life France Group companies. In 2006 the ”la Caixa” Group sold its entire interest in CaixaBank France, SA. Previously, the 4.7% interest in CaixaBank France, SA was repurchased from Swiss Life France and the interests in Swiss Life Assurances des Biens (11.4%) and Swiss Life Banque (45%) were resold.

The French company Boursorama, SA, which belongs to the Société Générale Group, was the purchaser. CaixaBank France, SA was valued at EUR 234 million, of which the ”la Caixa” Group received EUR 109 million in cash and the rest in shares representing 19.9% of Boursorama, SA. The transaction gave rise to a net profit of EUR 37 million.

• On 10 August 2006, ”la Caixa”, Editorial Planeta, SA and Enciclopèdia Catalana, SA signed a framework agreement on investment in the Edicions 62 Group, whereby ”la Caixa” reduced its interest in the Edicions 62 publishing group from 88.91% to 30% of the share capital, while allowing Editorial Planeta, SA and Enciclopèdia Catalana, SA to become shareholders in the group with equal ownership interests. As a result of this transaction, the ”la Caixa” Group recognised pre-tax profits of EUR 5 million (EUR 3 million, net of tax).


Allocation to Welfare Fund (Note 27) 376,000 303,000 Allocation to reserves 1,419,101 602,814 Canary Islands investment reserves (Note 26) 0 6,000 Profi t for the year 1,795,101 911,814



• In 2005 HipoteCaixa, EFC, SA, InverCaixa Holding, SA and InverCaixa Valores, SV, SA were dissolved without liquidation and their assets and liabilities transferred en bloc to their sole shareholder, ”la Caixa”, effective for accounting purposes from 1 January 2005.

• In 2005 the ”la Caixa” Group sold its entire ownership interest in CaixaBank Banque Privée (Suisse), SA.

• In 2005 the ”la Caixa” Group increased its ownership interest in Port Aventura, SA by 15% through the purchase by GP Resort of Anheuser Busch’s interest in Port Aventura, SA. Subsequently, GP Resort, SA, GP Comercial, SA and USPA Hotel Ventures I, SA were merged into Port Aventura, SA.

Changes in ownership interests in associates in 2006 included most notably the 1.12% increase in the ownership interest in Abertis Infraestructuras, SA, the 0.33% increase in Sociedad General de Aguas de Barcelona, SA and the 9.01% increase in Banco BPI, SA. As a result, the ”la Caixa” Group’s ownership interest in Banco BPI, SA rose to over 20% (25% at 31 December 2006), and it is now accounted for using the equity method. In 2005, of note was the 1% increase in the interest in Gas Natural, SDG, SA and the disposal of interests related to the hotel business as a result of the sale of these interests to Caixa Capital Desarrollo, SCR, SA, which is engaged in the venture capital business and is wholly owned by the ”la Caixa” Group (see Note 15).

6. Business segment reporting

Segment reporting is structured on the basis of the internal control, monitoring and management of the ”la Caixa” Group’s activity and results, and constructed on the basis of the various lines of business, which are established according to the Group’s structure and organisation. The lines of business are defined taking into account each line’s inherent risks and peculiarities.

In 2006 the interest in Banco BPI, SA, which was included in the Investee Portfolio in 2005, and the interest in Boursorama, SA, which was acquired in 2006, were incorporated into the Foreign Banking Business, which is currently known as International Banking. For comparison purposes, the activities and results for 2005 of both the International Banking segment and the Investee Portfolio segment were unified.

Under these principles, the ”la Caixa” Group comprised the following business segments in 2006:

• Spanish Banking: this is the ”la Caixa” Group’s core business. It includes the entire banking business and the marketing of mutual funds, insurance and pension plans across the Spanish territory through its 5,179 branches and all other supplementary channels, and includes the business and results generated by more than 10.1 million customers, whether individuals, businesses or institutions. At 31 December 2006, the total business managed amounted to EUR 298,567 million, up 21.4% on the figure at 2005 year-end.

• International Banking: this segment relates to the activity and results generated by the Crèdit Andorrà Group and CaixaBank France up until their sale, and the results of the Group’s interests in other foreign banks, Banco BPI, SA and Boursorama, SA.

• Investee Portfolio: this segment includes the results of the investee portfolio’s investments. The carrying amount of the equity securities portfolio totalled EUR 14,090 million at 31 December 2006, and the market value of listed equity investments amounted to EUR 18,480 million, with unrealised gains of EUR 9,976 million. The performance of this segment was affected by the major divestments made in 2006 and 2005.



• ALCO and Corporate Activities: The activity of the ALCO encompasses management of interest rate and currency risk and of liquidity, through issues in the institutional market, capital, non-current assets and investment in/financing to the other businesses. Corporate Activities encompass the Group’s treasury operations and other activities and results which are the outcome of decisions taken for the Group as a whole or which, owing to their nature, are not allocable to the rest of the businesses, such as extraordinary profit and shared service costs. They also include the adjustments due to reconciling the inclusion of the financial statements of the various lines of business with the Group’s consolidated financial statements.

Description of the unbundling and measurement bases applied

For the purposes of unbundling the activity and results by business, the core business units on which accounting and management figures are available are taken as a reference (in the case of Spanish banking, these consist of the management information of the branches).

For the purpose of determining the gross income of the Spanish banking segment, the net financial income from each balance-sheet transaction is considered, which is calculated by applying to the contractual income or expense a transfer price which is the market price for a term equal to its length or frequency of review. Income from services generated by the banking activity is also recognised.

In 2006 the analytical profit of the Spanish Banking segment was recalculated using the best available information and, for comparison purposes, the 2005 figures were unified, resulting in a 10.2% reduction in the 2005 net profit of Spanish Banking shown in the 2005 consolidated financial statements.

International Banking includes the contributions of the foreign banking subsidiaries up until their sale (obtained from their financial statements) and of the banking interests, net of the related financing cost, which is equal to the opportunity cost of holding the investment in the long term.

The gross income of the Investee Portfolio includes dividend income and income from accounting for the rest of the Group’s interests using the equity method, also reduced by the related financing cost.

The ALCO recognises the balancing entry for the banking transfer prices and for the cost of financing the rest of the businesses.

The operating expenses of each Business Division include both direct and indirect expenses, allocated in accordance with internal distribution methods. Shared service costs forming part of corporate or institutional operating expenses are allocated entirely to the ALCO and Corporate Activities segment.

The allocation of capital is calculated on the basis of the minimum regulatory capital requirement for each business.



The consolidated income statements of the ”la Caixa” Group for 2006 and 2005, by business segment, and the assets, liabilities and own funds of each are as follows:

7. Remuneration of “key directors and executives”

Under the provisions of Bank of Spain Circular 4/2004, the “key directors and executives” of the ”la Caixa” Group, considered to be the persons who have the authority and responsibility for planning, managing and controlling the Group’s activities, either directly or indirectly, comprise the members of the Board of Directors, of the Control Committee and of senior management. By virtue of their positions, this group of persons is considered to be a “party related” to the group and, as such, subject to the disclosure requirements described in this note.

In addition, persons who have certain kinship or personal relationships with “key directors and executives” are also considered to be parties related to the group, together with companies in which control, significant influence or voting power is exercised by key employees or any of the aforementioned persons in their family environment. The ”la Caixa” Group’s transactions with “key directors and executives” of the Group and other related parties are disclosed in Note 45.

Remuneration of directors and Control Committee

Under Article 27 of the Bylaws of ”la Caixa”, amended on 19 October 2006, excluding the position of Chairman, the position of member of the Board of Directors or the Control Committee is an honorary, unpaid position which cannot confer entitlement to payments other than the attendance fees and travel allowances established by the General Assembly.

Consolidated income statements of the ”la Caixa” Group - By business segment

(Millions of Euros) SPANISH BANKING INTERNATIONAL BANKING INVESTEE

PORTFOLIO ALCO AND CORPORATE

ACTIVITIES (*) ”la Caixa”

GROUP TOTAL

2006 2005 VAR 2006 2005 VAR 2006 2005 VAR 2006 2005 2006 2005

Gross income 4,511 3,811 183 249 164 149 768 323 5,626 4,532Operating expenses (2,459) (2,332) (63) (132) (9) (8) (102) (77) (2,633) (2,549)

Net profi t of non-fi nancial services 147 297 (23) (38) 124 259

Net operating income 2,052 1,479 120 117 302 438 643 208 3,117 2,242

Other gains/losses and provisions (501) (318) (13) (13) (27) (94) 1,437 (26) 896 (451) Profi t before tax 1,551 1,161 107 104 275 344 2,080 182 4,013 1,791 Tax and minority interests (411) (301) (44) (41) 115 41 (648) 5 (988) (296)

Profi t attributed to the Group 1,140 860 32.6% 63 63 0.0% 390 385 1.3% 1,432 187 3,025 1,495Total assets 152,068 119,045 1,362 7,786 18,166 17,699 37,527 35,822 209,123 180,352 Own funds 10,157 7,842 478 636 2,213 1,803 (2,079) (2,230) 10,769 8,051

(*) The profi t/loss for ALCO and Corporate Activities includes extraordinary proceeds from sales of assets and write-downs of EUR 1,520 million in 2006 and EUR 285 million in 2005.



The remuneration earned in this connection by the persons in the aforementioned managing and control bodies in 2006 are detailed below by person and governing body. The remuneration of the Board of Directors includes the attendance fees paid to the persons who are members of any of the delegate committees of the Board of Directors, i.e. the Executive Committee and the Welfare Projects Committee, and also those earned by them as members of the Remuneration Committee or the Investment Committee.

Board of Directors


ATTENDANCE FEES AND TRAVEL EXPENSES

INSURANCE PREMIUMS (*)



Fornesa, Ricardo 46 9 47 8 Gabarró, Salvador 40 0 35 0 Mercader, Jorge 40 5 41 5 Raventós, Manuel 41 4 44 4 Balagueró, Ramon 18 3 18 3 Camarasa, Mª Amparo 34 3 30 3 Domènech, Marta (a) 22 3 15 2 Gabarró, Maria Isabel (b) – – 10 4 García, Manel 40 3 38 4 Godó, Javier 34 5 28 5 Gortázar, Mª Begoña (b) – – 6 2 Iglesias, Jaime (b) – – 4 9 Juan, Inmaculada (a) 22 1 15 1 López, Juan José (a) 18 4 12 3 López, Montserrat (a) 18 1 12 1 Noguer, Miguel 32 3 32 3 Novell, Rosa (b) – – 5 3 Novella, Justo Bienvenido 22 2 22 2 Oller, Vicenç 16 6 18 6 Orriols, Montserrat (b) – – 6 3 Pallarés, Magín 22 3 22 2 Pie, Antoni (b) – – 6 9 Rodés, Leopoldo (a) 16 6 12 4 Tomás, Lucas 18 3 13 3 Tutzó, Francisco 18 7 18 6 Villalba, Nuria Esther (a) 16 3 9 1 Zaragozà, Josep Francesc 18 4 18 3Total 551 78 536 99

(a) Joined the Board of Directors in 2005, following the renewal of the Governing Bodies approved by the General Assembly on 28 April 2005.(b) Retired from the Board of Directors in 2005, upon resignation or following the renewal of the Governing Bodies approved by the General

Assembly on 28 April 2005.(*) The insurance policies taken out cover death, accident and health contingencies.



Pursuant to Catalonia Autonomous Community Government Law 14/2006, of 27 July, which reformed the Catalan Savings Banks Law, a Special General Assembly of ”la Caixa” amended its Bylaws on 19 October 2006 to establish that the position of Chairman will be remunerated and that if the Chairman discharges his duties solely at ”la Caixa”, his remuneration will amount to over 50% but not more than 100% of the remuneration earned by the President and CEO.

In line with the above amendment to the Bylaws, after such amendment had been approved by the Catalonia Autonomous Community Government, the Board of Directors meeting held on 16 November 2006 resolved that the Chairman would discharge his duties solely at ”la Caixa” and, taking as reference the timeframe of financial year 2006 and the payments received by, and to be accrued to the Chairman in relation to activities performed in the interest of ”la Caixa”, and the attendance fees calculated in accordance with the system in place to date, supplementary remuneration amounting to EUR 350,000 was set for 2006.

In addition, ”la Caixa” took out a group liability insurance policy covering the members of the Board of Directors and the Control Committee, and also the members of senior management of ”la Caixa” and “key directors and executives” of the consolidated companies. The premiums paid in this connection amounted to EUR 136 thousand in 2006 and EUR 117 thousand in 2005. The liability insurance cover for the governing bodies of ”la Caixa” excludes any claims filed by the Institution.

The ”la Caixa” Group has not acquired any pension benefit obligations to current or former members of the Board of Directors or the Control Committee arising from their status as directors.

Short-term remuneration and post-employment benefits to the members of the Board of Directors and the Control Committee who are employees of ”la Caixa” which arise from their employment with the Institution are recognised as a personnel expense for the period in which they have rendered their services. In 2006 and 2005 this group was made up of four persons and their aggregate remuneration totalled EUR 282 thousand and EUR 254 thousand, respectively.

Control Committee

( Thousands of Euros) 2006 2005





Corominas, Enrique 13 8 12 7Pàmies, Martí 13 3 12 3Castellví, Josefi na (c) 1 0 – – Colom, Elvira 13 2 12 3García, Alfonso (b) – – 4 3 Guardia, José Delfín 13 4 12 5 Millet, Fèlix M. (d) 9 9 10 9 Pallàs, Santiago (a) 13 3 7 2 Roig, Joan-Maria (b) – – 4 3 Ros, Àngel (a) 12 5 7 3 Santana, Carlos (a) 13 5 7 3 Sierra, Juan 13 3 13 2 Torguet, Carlos (b) – – 5 6Total 113 42 105 49

(a) Joined the Control Committee in 2005, following the renewal of the Governing Bodies approved by the General Assembly on 28 April 2005.

(b) Retired from the Control Committee in 2005 following the renewal of the Governing Bodies approved by the General Assembly on 28 April 2005.

(c) Joined the Control Committee on 11 December 2006, upon the resignation of Fèlix M. Millet on 30 October 2006.(d) Retired from the Control Committee on 30 October 2006, upon his resignation.(*) The insurance policies taken out cover death, accident and health contingencies.



The remuneration received in 2006 and 2005 by the directors of ”la Caixa” in connection with their duties as representatives of the Institution at the Boards of Directors of listed companies and other companies in which the Institution has a significant presence or representation amount to EUR 5,173 thousand and EUR 3,911 thousand, respectively, are recognised in the income statements of those companies. Pursuant to Circular 2/2005 of the Spanish National Securities Market Commission, on the annual corporate governance reports of savings banks, ”la Caixa” is considered to have a significant presence or representation in all the Group subsidiaries and in all other companies in which it holds ownership interests of 20% or more.

Remuneration of senior executives

At 31 December 2006, the ”la Caixa” Group’s senior management is made up of 18 persons holding the following positions at the Parent: President and CEO (1), Senior Executive Vice-Presidents (2) and Executive Vice-Presidents (15). At 31 December 2005, the Group’s senior management was made up of 19 persons.

The total remuneration earned by all those who had been members of the Group’s senior management for the period in which they had such status in 2006 and 2005 is detailed in the table that follows. Remuneration is basically recognised under “Personnel Expenses” in the ”la Caixa” Group’s consolidated income statement.

The remuneration received in 2006 and 2005 by the ”la Caixa” Group’s senior executives in connection with their activity as representatives of the Parent at the Boards of Directors of listed companies and other companies in which the Parent has a significant presence or representation amount to EUR 1,199 thousand and EUR 934 thousand, respectively, and are recognised in the income statements of those companies. Pursuant to Circular 2/2005 of the Spanish National Securities Market Commission, on the annual corporate governance reports of savings banks, ”la Caixa” is considered to have a significant presence or representation in all the Group subsidiaries and in all other companies in which it holds ownership interests of 20% or more.

8. Cash and balances with central banks

The breakdown of the balance of this item in the accompanying consolidated balance sheets is as follows:

9. Financial assets and liabilities held for trading

Financial instruments classified as held for trading are initially measured at fair value and subsequent changes in the fair value are recognised in the consolidated income statement (see Note 2.2).


Short-term employee benefi ts 12,593 11,488 Post-employment benefi ts 6,341 6,013 Other long-term benefi ts 608 509 Termination benefi ts 0 2,733 Total 19,542 20,743


Cash 1,432,873 1,253,208 Balances with Bank of Spain 2,492,539 520,597Total 3,925,412 1,773,805



The detail of the balance of this item in the accompanying consolidated balance sheets is as follows:

Substantially all the assets and liabilities shown above are listed on active markets from which the quoted prices were obtained in order to estimate their fair values. Only the fair values of derivatives not traded on organised markets were calculated on the basis of methods recognised by the financial markets.

Debt instruments

The detail, by counterparty, of the balance of this item is as follows:

Other equity instruments

The breakdown of the balances of this item is as follows:


ASSETS LIABILITIES ASSETS LIABILITIES

Debt instruments 1,360,969 1,018,756 Other equity instruments 12,047 57,422 Trading derivatives 226,618 245,649 242,196 224,850 Short positions (*) 890,595 729,242Total 1,599,634 1,136,244 1,318,374 954,092

(*) Relate to reverse repurchase agreements.


Spanish government debt securities 921,184 669,882 Treasury bills 563,304 276,898 Government bonds 153,839 165,037 Other 204,041 227,947

Foreign government debt securities 88,615 103 Issued by credit institutions 90,889 105,187 Other Spanish issuers 6,423 34,320 Other foreign issuers 253,858 209,264Total 1,360,969 1,018,756


Shares of Spanish companies 12,047 947 Shares of foreign companies 0 3,442 Shares in the net assets of mutual funds 0 53,033Total 12,047 57,422



Trading derivatives

The detail, by type of product, of the notional amounts of the trading derivatives outstanding at the Group at 31 December 2006 and 2005 is as follows:

The notional and/or contract amounts of the contracts arranged do not reflect the actual risk taken by the Group, since the net positions taken in these financial instruments are the result of offsetting and/or combining them.

The detail, by counterparty, of the notional amounts of the trading derivatives is as follows:

Notional amount by product

( Thousands of Euros)DESCRIPTION 2006 2005

Unmatured foreign currency purchases and sales 6,998,940 8,147,685 Purchases of foreign currencies against euros 1,806,543 2,250,047 Purchases of foreign currencies against foreign currencies 2,826,609 2,488,563 Sales of foreign currencies against euros 2,365,788 3,409,075

Financial asset purchases and sales 409,280 174,304 Purchases 216,278 128,319 Sales 193,002 45,985

Financial futures on shares and interest rates 4,562,051 904,835 Bought 3,789,200 101,782 Sold 772,851 803,053

Share options 3,895,505 96,152 Bought 134,701 35,453 Written 3,760,804 60,699

Interest rate options 13,567 362 Written 13,567 362

Foreign currency options 3,304,966 3,160,580 Bought 1,578,114 1,477,647 Written 1,726,852 1,682,933

Other interest rate transactions 23,280,374 17,595,047 Interest rate swaps 23,280,374 17,595,047

Credit derivatives 150,000 180,000 Bought 150,000 180,000

Futures on commodities and other 576 0 Bought 576 0

Total 42,615,259 30,258,965

Notional amount by counterparty

( Thousands of Euros)DESCRIPTION 2006 2005

Organised markets 4,573,633 904,883Unorganised markets 38,041,626 29,354,082

Credit institutions 25,364,441 27,676,401Other sectors 12,677,185 1,677,681

Total 42,615,259 30,258,965



The breakdown, by type of product, of the fair values of the trading derivatives arranged by the Group at 31 December 2006 and 2005 is as follows:

The detail, by counterparty, of the fair values of the trading derivatives is as follows:

10. Available-for-sale financial assets

These assets are always measured at fair value and any changes in fair value, less the related tax effect, are recognised under “Equity. Value Adjustments – Available-for-Sale Financial Assets”. Unquoted equity instruments are recognised at acquisition cost less any impairment loss incurred, if fair value could not be determined objectively. The returns accrued thereon as interest or dividends are recognised under “Interest and Similar Income” and “Income from Equity Instruments” in the accompanying consolidated income statement.

Fair value by product

( Thousands of Euros)

DESCRIPTION

2006 2005


Unmatured foreign currency purchases and sales 67,750 73,504 80,495 52,453 Purchases of foreign currencies against euros 1,538 27,538 24,659 1,289 Purchases of foreign currencies against foreign currencies 23,265 45,168 48,751 14,705 Sales of foreign currencies against euros 42,947 798 7,085 36,459

Financial asset purchases and sales 1,283 403 300 102 Purchases 223 392 262 6 Sales 1,060 11 38 96

Financial futures on shares and interest rates 0 0 0 0 Share options 49,955 47,341 7,927 3,491

Bought 49,697 598 7,927 0 Written 258 46,743 0 3,491

Interest rate options 0 104 2 6 Written 0 104 2 6

Foreign currency options 36,154 27,744 45,993 39,321 Bought 36,154 27 38,674 8,163 Written 0 27,717 7,319 31,158

Other interest rate transactions 71,434 96,426 107,388 129,151 Interest rate swaps 71,434 96,426 107,388 129,151

Credit derivatives 42 127 91 326 Bought 42 127 91 326

Futures transactions on commodities and other 0 0 0 0Total 226,618 245,649 242,196 224,850

Fair value by counterparty


DESCRIPTION

2006 2005


Organised markets 27 0 0 47Unorganised markets 226,591 245,649 242,196 224,803

Credit institutions 31,786 35,256 144,407 155,920Other sectors 194,805 210,393 97,789 68,883

Total 226,618 245,649 242,196 224,850



The breakdown, by type of transaction, of the balance of this item in the accompanying consolidated balance sheets is as follows:

The inventory, with a detail of the percentage of ownership interest and market value, of the main listed companies classified as available for sale since it is considered that the ”la Caixa” Group does not exercise significant influence therein, is as follows:

The net gain, calculated as the difference between the gross gain and the related tax effect, amounts to EUR 3,431,295 thousand at 31 December 2006 (31 December 2005: EUR 3,704,575 thousand) and is recognised under “Equity. Valuation Adjustments – Available-for-Sale Financial Assets” in the accompanying consolidated balance sheets (see Notes 1 and 25).


Debt instruments 12,366,283 13,245,499 Spanish government debt securities 3,071,992 3,756,215

Treasury bills 526,636 454,843 Government bonds 2,296,621 2,695,569 Other 248,735 605,803

Foreign government debt securities 2,148,083 2,066,925 Issued by credit institutions 2,166 194,802 Other Spanish issuers 1,317,992 1,480,435 Other foreign issuers 5,826,050 5,747,122

Other equity instruments 9,342,193 10,302,179 Shares of listed companies 8,842,770 8,894,707 Shares of unlisted companies 379,574 1,229,179 Shares in the net assets of mutual funds and other 119,849 178,293

Subtotal 21,708,476 23,547,678 Less impairment allowance:

Debt instruments (Note 42) (617) (3,211)Total 21,707,859 23,544,467

(Thousands of Euros)

COMPANY

2006 2005

% OF OWNERSHIP INTEREST

MARKET VALUE% OF OWNERSHIP

INTERESTMARKET VALUE

Repsol-YPF, SA 12.50% 3,996,887 12.50% 3,763,481Telefónica, SA (1) 5.08% 3,775,566 5.06% 3,101,346Suez, SA 1.05% 524,979 1.36% 452,945Autostrade SPA 1.99% 247,908Boursorama, SA 19.74% 176,221Bolsas y Mercados Españoles SHMSF, SA (2) 3.53% 92,526Banco Comercial Português, SA 0.28% 28,683Banco de Sabadell, SA 13.83% 937,673Banco BPI, SA (3) 15.99% 469,208Endesa, SA (4) 1.00% 170,054 Market value 8,842,770 8,894,707 Acquisition cost 4,179,620 4,704,999 Gross gain 4,663,150 4,189,708

(1) The ownership interest of 1.18% in 2006 and 1.38% in 2005 is recognised at EUR 682.5 million and EUR 800.1 million, respectively, and the change in value is offset by a hedging derivative.

(2) Listed since July 2006.(3) Accounted for using the equity method since October 2006 as a percentage of ownership of over 20% was reached.(4) The market value was limited to EUR 16 per share as a result of the issue of convertible bonds of Caixa Finance, BV.



The main changes in the item “Other Equity Instruments” in 2006 and 2005 are as follows:


PURCHASESCAPITAL

INCREASESSALES

ADJUST. DUE TO TRANSFERS TO PROFIT ON

SALES

CHANGES IN MARKET

VALUEOTHER TOTAL

Total balance at 31/12/2005 10,302,179 Shares of listed companies Balance at 31/12/2005 8,894,707 Banco de Sabadell, SA (466,050) (928,790) 457,167 (937,673)Telefónica, SA (1) 134,657 (117,596) 657,159 674,220 Banco BPI, SA (2) 205,955 (203,853) (471,310) (469,208)Autostrade SPA 254,996 (7,088) 247,908 Repsol-YPF, SA 233,406 233,406 Boursorama, SA 124,760 51,461 176,221 Endesa, SA (168,365) (2,083) 394 (170,054)Bolsas y Mercados Españoles SHMSF, SA (3) 42 (13,401) (37,206) 106,281 36,809 92,525 Suez, SA (71,389) (76,448) 219,872 72,035 Banco Comercial Português, SA 25,513 3,170 28,683 Changes in 2006 745,923 0 (836,801) (1,044,527) 1,517,969 (434,501) (51,937) Balance at 31/12/2006 8,842,770

Shares of unlisted companies

Balance at 31/12/2005 1,229,179 Bolsas y Mercados Españoles SHMSF, SA (3) (40,383) (40,383) Other (4) 2,743 12,239 (664,900) (1,343) 1,343 (157,338) (807,256) Changes in 2006 2,743 12,239 (664,900) (1,343) 1,343 (197,721) (847,639) Impairment losses (1,966)Balance at 31/12/2006 379,574

Shares in the net assets of mutual funds and other

Balance at 31/12/2005 178,293 Share in ”la Caixa” Groupmutual funds (5) 32,530 (36,060) (980) 2,459 (2,051) Other companies 25,508 (82,261) (13,328) 13,688 (56,393) Changes in 2006 25,508 32,530 (118,321) (14,308) 16,147 0 (58,444) Balance at 31/12/2006 119,849

Total changes in 2006 774,174 44,769 (1,620,022) (1,060,178) 1,535,459 (632,222) (958,020)

Impairment losses (Note 42) (1,966) Total balance at 31/12/2006 9,342,193

(1) The sale relates to hedged shares, not subject to market risk. (2) Accounted for using the equity method since October 2006. “Other” includes a transfer (EUR –471,237 thousand) and a dividend as less

cost of fi nancial liabilities (EUR –73 thousand). (3) Listed since July 2006. “Other” includes a transfer (EUR 40,383 thousand) and the dividend recognised as less cost of fi nancial liabilities

(EUR –3,574 thousand). (4) Sales relate mainly to the exclusion from consolidation of the holding companies (see Note 5). (5) The column “Capital Increases” relates to the contributions made to set up the mutual fund.



The most significant changes in 2006 and 2005 in available-for-sale equity instruments were as follows:

• Banco de Sabadell, SA. In 2006 Caixa Holding, SAU sold its entire ownership interest (13.83%), giving rise to pre-tax profits of EUR 929 million (EUR 698 million after tax). In 2005 CaixaHolding sold a 0.92% ownership interest in Banco de Sabadell, SA.

• Banco BPI, SA. In 2006 the ”la Caixa” Group’s ownership interest rose to over 20% (25% at 31 December) in Banco BPI, SA, and is now accounted for using the equity method (see Notes 5 and 15).

• Suez, SA. In 2005 CaixaHolding, SAU subscribed and paid a capital increase in Suez, SA amounting to EUR 35.4 million. At 31 December 2005, the ”la Caixa” Group’s ownership interest in Suez, SA was 1.36%. In 2006 the ”la Caixa” Group sold a 0.3% ownership interest, giving rise to pre-tax profits of EUR 76 million (EUR 61 million after tax). In January 2007, the ”la Caixa” Group sold the rest of its ownership interest, giving rise to gains of EUR 220 million before tax.

• Bolsas y Mercados Españoles Sociedad Holding de Mercados y Sistemas Financieros, SA. On 14 July 2006, the flotation process of Bolsas y Mercados Españoles Sociedad de Mercados y Sistemas Financieros, SA was completed as its shares were admitted for trading. The ”la Caixa” participated in the public offering by

( Thousands of Euros) PURCHASES

CAPITAL INCREASES

SALES VALUATION

ADJUSTMENTS OTHER TOTAL

Total balance at 31/12/2004 10,820,535

Shares of listed companies Balance at 31/12/2004 9,602,952 Endesa, SA (668,864) (8,686) (677,550)Repsol-YPF, SA 840,567 840,567 Deutsche Bank, AG (435,995) (10,383) (446,378)Banco Itaú, SA (309,913) (79,624) (389,537)Fortis (220,675) (2,691) (223,366)Telefónica, SA (117,171) (111,700) (228,871)Banco de Sabadell, SA (31,244) 192,329 161,085 Suez, SA 35,478 113,357 148,835 Banco BPI, SA 106,970 106,970 Changes in 2005 0 35,478 (1,783,862) 1,040,139 0 (708,245) Balance at 31/12/2005 8,894,707

Shares of unlisted companies

Balance at 31/12/2004 975,340 Panrico, SA (126,003) (126,003) Other (1) 596,089 646 (278,308) 95,798 414,225 Changes in 2005 596,089 646 (404,311) 0 95,798 288,222 Impairment losses (34,383) Balance at 31/12/2005 1,229,179

Shares in the net assets of mutual funds and other

Balance at 31/12/2004 242,243 Share in ”la Caixa” Groupmutual funds 20,921 (16,477) 1,927 6,371 Other companies 40,582 (111,557) 654 (70,321) Changes in 2005 40,582 20,921 (128,034) 1,927 654 (63,950) Balance at 31/12/2005 178,293

Total changes in 2005 636,671 57,045 (2,316,207) 1,042,066 96,452 (483,973)

Impairment losses (Note 42) (34,383) Total balance at 31/12/2005 10,302,179

(1) Transfer from the heading “Investments” of EUR 110,272 thousand (see Note 15). Transfer of EUR 17,633 thousand to the heading “Financial Assets Held for Trading”.



agreeing to place a portion of its ownership interest. In this process, it sold 2.02% of the company at a price of EUR 31 per share, giving rise to pre-tax profits of EUR 37 million (EUR 24 million after tax). At 31 December 2006, the ”la Caixa” Group’s investment in the share capital was 3.53%.

• Telefónica, SA. In 2004 ”la Caixa” purchased 1.5% of the share capital of Telefónica, SA for EUR 917.3 million, in order to exceed the 5% interest threshold and thereby optimise the net financial return on the investment. Since the purchase was hedged using derivatives, it is not subject to market risk and is recognised at cost for accounting purposes.

As a result of the distribution of treasury shares by Telefónica, SA in 2005, the ”la Caixa” Group reduced its market risk-free investment by EUR 117.2 million (0.12% ownership interest) without any impact on the income statement. In 2006 the market risk-free investment fell by a further EUR 117.6 million (0.20% of ownership interest).

The ”la Caixa” Group’s ownership interest in Telefónica, SA at 31 December 2006 was 5.08%, 0.02% more than at 31 December 2005, as a result of purchases representing an investment of EUR 134.6 million.

• Endesa, SA. On 3 July 2003, Caixa Finance, BV launched an issue, guaranteed by ”la Caixa”, of EUR 847,600 thousand in bonds convertible into Endesa, SA ordinary shares. This issue of 16,952 bonds of EUR 50,000 each, maturing on 3 July 2006, bore interest at 0.25% and the bondholders could exchange them for Endesa, SA ordinary shares until maturity of the issue at a price of EUR 16 per share. This exchange could be made at a rate of 3,125 Endesa, SA ordinary shares per bond or for the equivalent cash value.

In 2005 the bondholders exercised the exchange of 13,551 bonds for 42,346,875 Endesa, SA ordinary shares at the fixed price of EUR 16 per share. The delivery of these shares reduced the interest held in the capital of Endesa, SA by 4%. At 31 December 2005, the ”la Caixa” Group’s ownership interest in Endesa, SA stood at 1%.

In 2006 the remaining bonds were exchanged for ordinary shares and, as a result, at 31 December 2006, the ”la Caixa” Group no longer holds an interest in Endesa, SA. As a result of this transaction, net profits of EUR 15 million were recognised.

• Boursorama, SA. In 2006, as part of the payment for the sale of CaixaBank France, SA, Hodefi, SAS received 19.9% of the share capital of Boursorama, SA (see Note 5). The ”la Caixa” Group’s interest in the share capital of Boursorama, SA, at 31 December 2006 amounted to 19.74%, and it obtained approval from the Bank of France to exceed the 20% threshold. The dilution is due to the capital increase performed at the company in order to cover the execution of share options granted to employees.

• Autostrade SPA. In 2006 Caixa Holding, SAU purchased 1.99% of the share capital of Autostrade SPA for EUR 255 million.

• Deutsche Bank, AG. In 2005, as a continuation of the sales commenced in 2004, CaixaHolding, SAU sold its entire 1.29% ownership interest in Deutsche Bank, AG.

• Banco Itaú Holding Financeira, SA. In 2005 CaixaHolding, SAU sold its entire 3.12% ownership interest in Banco Itaú Holding Financeira, SA, giving rise to pre-tax profits for the ”la Caixa” Group of EUR 287.7 million (EUR 225 million, net of tax).

• Fortis. In 2005 CaixaHolding, SAU sold its entire 0.85% ownership interest in Fortis.

• Panrico, SA. In 2005 Caixa Capital Desarrollo, SCR, SA sold its entire 32.5% ownership interest in Panrico, SA, giving rise to pre-tax profits for the ”la Caixa” Group of EUR 134.3 million. The gain obtained by the ”la Caixa” Group on this transaction, net of tax, provisions and associated expenses, amounted to EUR 114 million.

All the pre-tax gains arising from the sale of the above ownership interests are recognised under “Gains/Losses on Financial Assets and Liabilities (Net)” in the accompanying consolidated income statement (see Note 36).



The changes affecting the impairment allowance on financial assets available for sale in 2006 (see Note 42) are summarised as follows:

11. Loans and receivables

The breakdown of the balance of this item in the accompanying consolidated balance sheets, based on the nature of the related financial instrument, is as follows:

The detail of the main valuation adjustments included in each of the asset categories classified under “Loans and Receivables” is as follows:

Impairment allowance


Balance at beginning of year 3,211 13,764 Add:

Net impairment losses for the year charged to income (898) 99 Less:

Transfers and other (1,696) (10,639) Impairment allowance used 0 (13)

Balance at end of year 617 3,211

2006

( Thousands of Euros) GROSS BALANCE

IMPAIRMENT LOSSES

ACCRUED INTEREST

FEE AND COMMISSION

EXPENSE OTHER

CARRYING AMOUNT

Loans and advances to credit institutions 20,557,066 112,729 (113) 376 20,670,058

Loans and advances tocustomers 139,102,986 (2,060,507) 602,861 (414,932) 854 137,231,262

Debt instruments 3,139,959 (117) 20,072 3,159,914 Other fi nancial assets 1,802,541 (12) 1,802,529 Total 164,602,552 (2,060,636) 735,662 (415,045) 1,230 162,863,763


Loans and advances to credit institutions 20,670,058 13,278,926 Money market operations through counterparties (*) 0 50,140 Loans and advances to customers 137,231,262 111,064,698 Debt instruments 3,159,914 3,624,049 Other fi nancial assets 1,802,529 2,224,143Total 162,863,763 130,241,956

(*) Government debt securities reverse repurchase agreements, which are cleared and settled by Meffclear.



11.1. Loans and advances to credit institutions

The detail, by loan type and status, of the balance of this item, disregarding the valuation adjustments, is as follows:

In 2006 the effective average interest rate on financial assets under “Loans and Advances to Credit Institutions” was 3.18% (2005: 2.43%). These rates result from interest accrued in the year and do not include adjustments to income arising from accounting hedges.

11.2. Loans and advances to customers

The detail, by loan type and status, borrower sector and interest rate formula, of the balance of this item, disregarding the valuation adjustments, is as follows:


Demand 377,017 340,569 Reciprocal accounts 43,083 38,818 Other accounts 333,934 301,751

Time 20,180,049 12,885,553 Time deposits 15,170,500 9,522,480 Reverse repurchase agreements 5,009,549 3,363,073

Total 20,557,066 13,226,122

2005

(Thousands of Euros) GROSS BALANCE

IMPAIRMENT LOSSES

ACCRUEDINTEREST

FEE AND COMMISSION

EXPENSE OTHER

CARRYING AMOUNT

Loans and advances to credit institutions 13,226,122 52,372 (12) 444 13,278,926

Money market operations through counterparties 49,999 141 50,140

Loans and advances to customers 112,715,874 (1,705,880) 401,316 (337,748) (8,864) 111,064,698 Debt instruments 3,607,952 (206) 16,303 3,624,049 Other fi nancial assets 2,224,143 2,224,143 Total 131,824,090 (1,706,086) 470,132 (337,760) (8,420) 130,241,956

By loan type and status


Public sector 2,352,400 2,141,454 Commercial credit 5,124,566 4,233,375 Secured loans 99,275,640 79,379,358 Reverse repurchase agreements 628,799 941,432 Other terms loans 25,279,750 20,002,404 Finance leases 2,850,716 2,546,967 Receivable on demand and other 3,127,819 3,022,131 Doubtful assets 463,296 448,753Total 139,102,986 112,715,874



In 2006 the effective average interest rate on financial assets under “Loans and Advances to Customers” was 4.12%. (2005: 3.80%). These rates result from interest accrued in the year and do not include adjustments to income arising from accounting hedges.

The item “Loans and Advances to Customers” includes EUR 3,180,693 thousand at 31 December 2006 (31 December 2005: EUR 1,541,907 thousand) relating to the unamortised amounts of loans securitised on or after 1 January 2004, which were not derecognised since substantially all the risks and rewards inherent to these assets were retained. Conversely, the securitisations performed prior to 1 January 2004, involving unamortised amounts of EUR 3,117,103 thousand at 31 December 2006 (31 December 2005: EUR 3,672,976 thousand) were derecognised pursuant to current legislation (see Note 30.2).

At 31 December 2006 and 2005, the increase in “Loans and Advances to Customers”, including the unamortised amounts of securitised loans that were derecognised but eliminating reverse repurchase agreements executed basically with proportionately consolidated insurance companies, amounts to EUR 25,908 million, a 22.8% increase.

In all types of finance leases marketed by the ”la Caixa” Group, whether property or equipment leases, the risks and rewards are transferred to the lessee, and the lease contract always includes a purchase option for a value below the fair market value of the asset. If the purchase option is similar to fair value, a repurchase agreement available to the supplier of the asset is added to the lease.

By counterparty


Public sector 2,366,659 2,167,799 Spanish public sector 2,355,099 2,103,334 Other countries 11,560 64,465

Private Sector 136,736,327 110,548,075Resident 133,664,996 106,467,974 Non-resident 3,071,331 4,080,101

Total 139,102,986 112,715,874

By borrower’s business activity


Public sector 2,352,400 2,167,799Agriculture and fi shing 1,146,161 986,234Industry 5,544,329 4,568,947Property activities and construction 34,659,537 23,609,586Trade and fi nancial 9,809,003 12,161,548Households 81,973,979 67,718,178Other 3,617,577 1,503,582Total 139,102,986 112,715,874

By interest rate type


Fixed rate 18,133,601 17,228,834 Floating rate 120,969,385 95,487,040Total 139,102,986 112,715,874



Assets leased out under finance leases are recognised at the present value of the lease payments to be made by the lessee, plus the guaranteed and unguaranteed residual value, excluding interest expenses and value added tax. The detail is as follows:

The detail of the changes in the balance of “Doubtful Assets” in 2006 and 2005 is as follows:

The cumulative amount of finance income relating to the ”la Caixa” Group’s impaired financial assets amounted to EUR 24,980 thousand at 31 December 2006 (31 December 2005: EUR 23,917 thousand).

The detail, by nature and counterparty, of the balance under “Doubtful Assets” is as follows:

Finance leases


Lease payments receivable 2,670,060 2,383,613 Third-party guarantees 22,941 15,363 Unguaranteed residual values 157,715 147,991Total 2,850,716 2,546,967



New asset additions 450,184 380,185 Less:

Exclusions from consolidation (49,320) 0 Assets recovered (313,114) (283,591) Assets derecognised (Note 30.4) (73,207) (63,733)

Balance at end of year 463,296 448,753


Public sector 14,259 26,345Private sector 449,037 422,408

With collateral 211,330 204,252Other 237,707 218,156

Total 463,296 448,753



The detail, by guarantee provided for the asset, of the age of the balances of doubtful assets at 31 December 2006 and 2005 is as follows:

2006 Terms by guarantee

(Thousands of Euros) < 3 YEARS 3-4 YEARS 4-5 YEARS 5-6 YEARS > 6 YEARS TOTAL

Collateral on completed homes 200,300 2,561 778 201 6,375 210,215

(Thousands of Euros) < 6 MONTHS 6-12 MONTHS 12-18 MONTHS 18-24 MONTHS > 24 MONTHS TOTAL

Rest of secured transactions 825 11 0 0 279 1,115 Other guarantees 106,733 46,358 13,642 11,815 56,786 235,334 Negligible risk transactions 11,388 1,802 3,075 181 186 16,632 Rest of guarantees 118,946 48,171 16,717 11,996 57,251 253,081

Total 463,296

2005 Terms by guarantee

(Thousands of Euros) < 3 YEARS 3-4 YEARS 4-5 YEARS 5-6 YEARS > 6 YEARS TOTAL

Collateral on completed homes 181,331 3,876 1,398 885 8,631 196,121

11.3. Debt instruments

The detail of the balance of this item in the accompanying consolidated balance sheets, disregarding the valuation adjustments, is as follows:

(Thousands of Euros) < 6 MONTHS 6-12 MONTHS 12-18 MONTHS 18-24 MONTHS > 24 MONTHS TOTAL

Rest of secured transactions 4,910 2,343 252 0 626 8,131 Other guarantees 69,155 23,105 24,230 14,502 83,436 214,428 Negligible risk transactions 28,916 830 25 238 64 30,073 Rest of guarantees 102,981 26,278 24,507 14,740 84,126 252,632

Total 448,753


Own securitisation bonds (Note 30.2) 3,134,780 3,598,811 Other unquoted debt instruments 5,179 9,141Total 3,139,959 3,607,952



The foregoing own securitisation bonds reflect the acquisition by ”la Caixa” of the bonds issued by the securitisation funds relating to the loans transferred prior to 1 January 2004, which were derecognised. Those bonds are recognised at amortised cost since their market is not sufficiently active, despite the fact that they are quoted.

In 2006 the average effective interest rate on financial assets under “Debt Instruments” was 3.06%. (2005: 2.88%). These rates result from interest accrued in the year and do not include adjustments to income arising from accounting hedges.

11.4. Other financial assets


11.5. Impairment allowances

The changes in the balance of the provisions for impairment losses on the assets making up the balance of “Loans and Receivables” were as follows (see Note 42):


Cheques drawn on credit institutions 81,676 64,550 Unsettled fi nancial transactions 26,206 58,912 Guarantees provided in cash 76,600 47,122 Clearing houses 1,510,701 1,680,761 Fees and commissions for fi nancial guarantees (*) 76,576 87,079 Other 30,782 285,719Total 1,802,541 2,224,143

(*) See Note 2.9.

(Thousands of Euros) BALANCE AT31/12/2005

IMPAIRMENT CHARGES

AMOUNTSREVERSED

AMOUNTS USED

TRANSFERS AND OTHER

BALANCE AT31/12/2006

Allowance for assessed losses 191,904 119,620 (45,742) (63,218) (41,157) 161,407

Loans and advances to customers 191,904 119,620 (45,742) (63,218) (41,157) 161,407

Public sector 1,841 0 (1,500) 0 (1) 340 Other sectors 190,063 119,620 (44,242) (63,218) (41,156) 161,067

Allowance for inherent losses 1,512,246 454,394 (32,356) 0 (36,077) 1,898,207

Loans and advances to customers 1,512,040 454,393 (32,266) 0 (36,077) 1,898,090 Debt instruments 206 1 (90) 117 Country risk allowance 1,936 1 (12) 0 (903) 1,022 Total 1,706,086 574,015 (78,110) (63,218) (78,137) 2,060,636

“Transfers and Other” includes the changes for exclusions from consolidation. (Notes 30.4 and 42).



12. Held-to-maturity investments

The breakdown of the balance of this item in the accompanying consolidated balance sheets at 31 December 2006 and 2005 is as follows:

The fair values of the assets included in this portfolio amounted to EUR 189,712 thousand at 31 December 2005.

The portfolio recognised in 2005 belonged to companies in the Crèdit Andorrà, SA group, which are no longer included in the scope of consolidation. Accordingly, there is no balance under this item at 31 December 2006.


IMPAIRMENT CHARGES

AMOUNTSREVERSED

AMOUNTS USED

TRANSFERS AND OTHER


Allowance for assessed losses 179,876 91,115 (35,425) (46,318) 2,656 191,904

Loans and advances to credit institutions 0 12 (4) (8) 0 0

Loans and advances to customers 179,876 91,103 (35,421) (46,310) 2,656 191,904

Public sector 1,840 (629) (184) 0 814 1,841 Other sectors 178,036 91,732 (35,237) (46,310) 1,842 190,063

Allowance for inherent losses 1,234,182 270,970 (911) (1,521) 9,526 1,512,246

Loans and advances to customers 1,234,182 270,764 (911) (1,521) 9,526 1,512,040 Debt instruments 0 206 206 Country risk allowance 1,992 32 (96) 0 8 1,936 Total 1,416,050 362,117 (36,432) (47,839) 12,190 1,706,086

(Notes 30.4 and 42).


Foreign government debt securities 0 112,340 Issued by credit institutions 0 60,561 Other foreign issuers 0 15,666 Total 0 188,567



13. Hedging derivatives (assets and liabilities)

The detail, by type of product, of the notional amounts of the derivatives designated as hedging derivatives at 31 December 2006 and 2005 is as follows:

The notional and/or contract amounts of the contracts arranged does not reflect the actual risk taken by the Group, since the net positions taken in these financial instruments are the result of offsetting and/or combining them.

The detail, by counterparty, of the notional amounts of the derivatives designated as hedging derivatives is as follows:

Notional amount by product


Unmatured foreign currency purchases and sales 0 2,629 Purchases of foreign currencies against euros 0 1,143 Purchases of foreign currencies against foreign currencies 0 216 Sales of foreign currencies against euros 0 1,270

Financial asset purchases and sales 54,941 207,316 Purchases 3,833 42,498 Sales 51,108 164,818

Financial futures on shares and interest rates 3,622,397 1,137,129 Bought 2,183,797 686,622 Sold 1,438,600 450,507

Share options 6,216,802 5,535,762 Bought 5,062,542 4,247,765 Written 1,154,260 1,287,997

Interest rate options 22,708,698 20,691,317 Bought 11,453,356 8,436,938 Written 11,255,342 12,254,379

Foreign currency options 0 15,364 Bought 0 15,364

Other interest rate transactions 138,751,825 121,263,698 Future rate agreements (FRAs) 3,100,000 3,250,000 Interest rate swaps 135,651,825 118,013,698

Futures on commodities and other 201,418 0 Bought 100,972 0 Written 100,446 0

Total 171,556,081 148,853,215

Notional amount by type of counterparty


Organised markets 3,622,397 1,137,129Unorganised markets 167,933,684 147,716,086

Credit institutions 147,360,294 126,045,612Other sectors 20,573,390 21,670,474

Total 171,556,081 148,853,215



The detail, by type of hedge, of the notional amounts of the derivatives designated as hedging derivatives is as follows:

The detail, by product, of the fair values of the derivatives designated as hedging derivatives is as follows:

Notional amount by type of hedge


Fair value hedges 164,865,114 134,902,478Micro-hedges 46,277,308 26,443,900Macro-hedges 118,587,806 108,458,578

Cash fl ow hedges 6,690,967 13,950,737Macro-hedges 6,690,967 13,950,737

Total 171,556,081 148,853,215

Fair value by product



Unmatured foreign currency purchases and sales 0 0 0 0Financial asset purchases and sales 298 32 466 491

Purchases 0 32 31 1 Sales 298 0 435 490

Financial futures on shares and interest rates 0 0 (17) 216

Bought 0 0 0 216 Sold 0 0 (17) 0

Share options 269,423 19,378 215,465 124,324 Bought 269,423 0 215,465 0 Written 0 19,378 0 124,324

Interest rate options 100,872 36,296 311,951 112,385 Bought 100,872 0 294,248 32 Written 0 36,296 17,703 112,353

Foreign currency options 0 0 0 0 Other interest rate transactions 5,516,021 5,485,190 6,632,302 5,306,095

Future rate agreements (FRAs) 1,381 2,576 75 2,298 Interest rate swaps 5,514,640 5,482,614 6,632,227 5,303,797

Futures on commodities and other 4,774 4,198 77 0 Bought 0 4,198 17 0 Written 4,774 0 60 0

Total 5,891,388 5,545,094 7,160,244 5,543,511



The detail, by counterparty, of the fair values of the derivatives designated as hedging derivatives is as follows:

The detail, by type of hedge, of the fair values of the derivatives designated as hedging derivatives is as follows:

14. Non-current assets held for sale

This item in the consolidated balance sheets includes assets foreclosed in satisfaction of non-performing loans which are not included in assets for own use or as investment property, and investment property classified as non-current assets held for sale once the decision to sell them has been made.

The changes in 2006 and 2005 were as follows:

Fair value by type of counterparty



Organised markets 0 0 0 0Unorganised markets 5,891,388 5,545,094 7,160,244 5,543,511

Credit institutions 1,705,648 1,676,207 3,052,805 1,637,555Other sectors 4,185,740 3,868,887 4,107,439 3,905,956

Total 5,891,388 5,545,094 7,160,244 5,543,511

Fair value by type of hedge



Fair value hedges 5,756,756 5,396,238 6,988,017 5,199,862Micro-hedges 425,781 152,110 236,746 148,642Macro-hedges 5,330,975 5,244,128 6,751,271 5,051,220

Cash fl ow hedges 134,632 148,856 172,227 343,649Micro-hedges 0 0 0 135,997Macro-hedges 134,632 148,856 172,227 207,652

Total 5,891,388 5,545,094 7,160,244 5,543,511


Balance at beginning of year 168,984 67,883 Period additions 62,731 2,685 Reductions due to sale (38,014) (10,165)Reductions due to exclusion from consolidation (136,408) 0 Transfers (Note 17) (350) 108,581

Balance at end of year 56,943 168,984 Less:

Impairment allowance (Note 42) (3,119) (3,714)Total 53,824 165,270



The changes in the impairment allowance in 2006 and 2005 were as follows (see Note 42):

The net proceeds from sales of non-current assets held for sale at 31 December 2006 amount to EUR 10,962 thousand (2005: EUR 13,849 thousand) (see Note 44). There are no individual transactions generating significant proceeds.

The detail, by age, of the foreclosed assets at 31 December 2006 and 2005 is as follows:

15. Investments

This item in the accompanying consolidated balance sheets includes ownership interests in the capital of companies in which the ”la Caixa” Group exercises significant influence.

These investments are accounted for using the equity method on the basis of the best available estimate of their underlying carrying amount at the time of preparing the financial statements. The figures of the capital, reserves and profit of these companies, and dividends paid and accrued in the year, are detailed in Appendix 4. For listed companies, the figures published at 30 September 2006 or the last published data are indicated. Otherwise, the figures shown relate to the last actual or estimated data available at the time of preparing these notes to financial statements.


Balance at beginning of year 3,714 525 Add:

Net impairment losses for the year 432 1,319 Transfers 35 3,331

Less:Reversal of impairment losses (1,062) (1,461)



Listed 4,584,664 3,455,883Underlying carrying amount (*) 3,569,336 2,883,686Goodwill 1,015,328 572,197

Unlisted 9,611 50,093Subtotal 4,594,275 3,505,976Less:

Impairment allowance (Note 42) (162) (378)Total 4,594,113 3,505,598

(*) Includes the gains attributed to assets still existing at each subsequent valuation.

Age of foreclosed assets

2006 2005

NO. OF ASSETS

THOUSANDS OF EUROS

NO. OF ASSETS

THOUSANDS OF EUROS

Within 1 year 105 6,841 56 3,201 1 to 5 years 186 7,844 328 11,341 After 5 years 666 15,807 835 18,071 Total 957 30,492 1,219 32,613



The detail of goodwill at 31 December 2006 and 2005 is as follows:

Pursuant to current legislation, goodwill was tested for impairment, basically by reference to valuations made by independent experts and by the markets. On the basis of the results of the test it was concluded that no write-downs need to be made on the recognised amounts.

The inventory of the main listed companies which are considered to be associates or are Group subsidiaries, with a detail of the proportion of ownership interest and market value, is as follows:

(Thousands of Euros)COMPANY 2006 2005

Gas Natural SDG, SA 420,243 420,243Banco BPI, SA 338,148 0Abertis Infraestructuras, SA 249,500 151,954Sociedad General de Aguas de Barcelona, SA 7,437 0Total 1,015,328 572,197

(Thousands of euros)

COMPANY

2006 2005

% OF OWNERSHIP

INTEREST

MARKETVALUE

% OFOWNERSHIP

INTEREST

MARKET VALUE

Gas Natural SDG, SA 35.51% 4,768,776 35.51% 3,762,226Abertis Infraestructuras, SA 20.33% 2,769,731 19.21% 2,368,928Sociedad General de Aguas de Barcelona, SA 23.46% 975,903 23.13% 618,001Banco BPI, SA (1) 25.00% 1,122,902Inmobiliaria Colonial, SA 39.54% 1,130,209Market value 9,637,312 7,879,364Acquisition cost (*) 4,324,343 3,761,429Gross gains 5,312,969 4,117,935

(1) Accounted for using the equity method since October.(*) The cost of acquisition of Inmobiliaria Colonial, SA is its underlying carrying amount, since it was a fully consolidated Group subsidiary.



The main changes in 2006 and 2005 in the balance of “Investments”, disregarding the impairment allowances, were as follows:

(Thousands of Euros) ACQUISITIONS (a)CAPITAL

INCREASESDISPOSALS (b)

TRANSFERSAND OTHER

TOTAL

Total balance at 31/12/2005 3,505,976

Underlying carrying amountBalance at 31/12/2005 2,933,779 Banco BPI, SA (1) 59,323 270,686 330,009 Abertis Infraestructuras, SA 34,302 (572) 33,730 Sociedad General de Aguas de Barcelona, SA 5,281 346 5,627 Changes in the scope of consolidation 20,571 20,571 Other companies 2 185 (59,750) (59,563)Change in value due to equity accounting and consolidation adjustments 314,794 314,794 Changes in 2006 98,908 531 (59,750) 605,479 645,168 Balance at 31/12/2006 3,578,947

GoodwillBalance at 31/12/2005 572,197 Banco BPI, SA (1) 137,597 200,551 338,148 Abertis Infraestructuras, SA 97,546 97,546 Sociedad General de Aguas de Barcelona, SA 7,437 7,437 Changes in 2006 242,580 200,551 443,131 Balance at 31/12/2006 1,015,328 Total balance at 31/12/2006 4,594,275

(a) Cash paid comprising underlying carrying amount, including unrealised gains, and goodwill.(b) Consolidated cost attributed to sales.(1) Accounted for using the equity method from October 2006.

(Thousands of Euros)ACQUISITIONS (a)

CAPITALINCREASES

DISPOSALS (b)TRANSFERS AND OTHER

TOTAL

Total balance at 31/12/2004 3,274,902

Underlying carrying amountBalance at 31/12/2004 2,725,957 Gas Natural SDG, SA 48,443 48,443 Abertis Infraestructuras, SA (19,317) (19,317)Occidental Hotels Management, BV (1) (60,276) (60,276)Soteltur Internacional, BV (1) (28,437) (28,437)Soteltur, SL (1) (14,920) (14,920)Tamar Internacional, SARL (1) (6,639) (6,639)Sociedad General de Aguas de Barcelona, SA 340 340 Changes in the scope of consolidation 9,568 9,568 Other companies 932 (9,909) (43,208) (52,185)Change in value due to equity accounting and consolidation adjustments 331,245 331,245 Changes in 2005 49,375 340 (29,226) 187,333 207,822 Balance at 31/12/2005 2,933,779

Goodwill Balance at 31/12/2004 548,945 Gas Natural SDG, SA 46,063 46,063 Abertis Infraestructuras, SA (22,811) (22,811)Other 274 274 Changes in 2005 46,337 (22,811) 23,526 Impairment losses (Note 42) (274)Balance at 31/12/2005 572,197 Total balance at 31/12/2005 3,505,976

(a) Cash paid comprising underlying carrying amount, including unrealised gains, and goodwill.(b) Consolidated cost attributed to sales.(1) Transfer to the heading “Other Equity Instruments – Available for Sale” (see Note 10).



The most significant changes in 2006 and 2005 in investments in associates were as follows:

• Abertis Infraestructuras, SA. In 2005 the ”la Caixa” Group sold a 0.71% ownership interest in Abertis Infraestructuras, SA. In 2006 the ”la Caixa” Group purchased a 1.12% interest for EUR 131.8 million. The ”la Caixa” Group’s investment in Abertis Infraestructuras, SA at 31 December 2006 was 20.33% and the controlling interest was 24.20%. The controlling interest is accounted for using the equity method in the ”la Caixa” Group’s consolidated balance sheet. This interest includes the total investment held through subsidiaries and the interest held on the basis of the consolidation percentage in the ”la Caixa” Group in the case of investments through jointly controlled companies.

• Sociedad General de Aguas de Barcelona, SA. In 2006 the ”la Caixa” Group increased its interest in Sociedad General de Aguas de Barcelona, SA by 0.33% through the jointly controlled company Hisusa. The interest amounted to 23.46% at 31 December 2006. This purchase involved an investment for the ”la Caixa” Group of EUR 12.7 million.

• Banco BPI, SA. In 2006 the ”la Caixa” Group increased its interest in Banco BPI, SA by 9.01% with an investment of EUR 402.9 million, resulting in a 25% interest at 31 December. This shareholder presence has enabled Banco BPI, SA to be consolidated using the equity method. The ”la Caixa” Group obtained the required approval from the Bank of Portugal to exceed the 20% interest threshold.

• Gas Natural SDG, SA. In 2005 Caixa Holding, SAU purchased a 1% interest in the company for EUR 94.5 million. At 31 December 2006 and 2005, the ”la Caixa” Group’s total ownership interest in Gas Natural SDG, SA was 35.51%.

The changes in 2006 and 2005 in the impairment allowances under “Investments” were as follows (see Note 42):

16. Reinsurance assets

The breakdown of the balance of this item in the accompanying consolidated balance sheets at 31 December 2006 and 2005 is as follows:


Balance at beginning of year 378 2,314Less:

Amounts reversed in prior years (251) (7)Amounts used (4) (183)Changes in scope of consolidation (1,746)Other 39 0

Balance at end of year 162 378


Unearned premiums 2,645 3,887Mathematical provisions 121 3,865Claims outstanding 11,493 11,412Other technical provisions 220 1Total 14,479 19,165



17. Tangible assets

The detail of the balance of “Tangible Assets” and of the related accumulated depreciation and changes in 2006 and 2005 is as follows:

2006

(Thousands of Euros) BALANCE AT 31/12/2005

ADDITIONS DISPOSALS (2) TRANSFERS (3)BALANCE AT31/12/2006

Land and buildings 2,242,891 82,928 (55,280) (14,859) 2,255,680 Cost 2,604,447 126,923 (103,252) (14,957) 2,613,161 Accumulated depreciation (361,556) (43,995) 47,972 98 (357,481)

Furniture, fi xtures and other 902,619 30,051 (51,890) 6,055 886,835 Cost 2,378,111 251,481 (162,620) 5,476 2,472,448 Accumulated depreciation (1) (1,475,492) (221,430) 110,730 579 (1,585,613)

For own use 3,145,510 112,979 (107,170) (8,804) 3,142,515 Land and buildings 3,937,108 (16,464) (3,727,470) 11,075 204,249

Cost 4,296,129 27,884 (4,104,167) 11,253 231,099 Accumulated depreciation (359,021) (44,348) 376,697 (178) (26,850)

Furniture, fi xtures and other 6,121 111 (5,590) 724 1,366 Cost 10,131 128 (7,461) 1,303 4,101 Accumulated depreciation (4,010) (17) 1,871 (579) (2,735)

Investment property 3,943,229 (16,353) (3,733,060) 11,799 205,615 Cost 403,399 260,043 (127,983) 0 535,459 Accumulated depreciation (72,509) (57,414) 31,755 0 (98,168)

Assets leased out under an operating lease 330,890 202,629 (96,228) 0 437,291 Land and buildings 255,673 14,954 (1,231) (796) 268,600

Cost 302,720 23,850 (1,456) (821) 324,293 Accumulated depreciation (47,047) (8,896) 225 25 (55,693)

Furniture, fi xtures and other 29,481 (2,459) (1,802) 728 25,948 Cost 76,072 1,017 (2,364) 728 75,453 Accumulated depreciation (46,591) (3,476) 562 0 (49,505)

Assigned to Welfare Projects (Note 27) 285,154 12,495 (3,033) (68) 294,548 Total 7,704,783 311,750 (3,939,491) 2,927 4,079,969

(1) Additions include EUR 10,594 thousand relating to the accumulated depreciation of leased assets transferred to tangible assets.(2) Includes the exclusions of companies from consolidation (see Note 1 - Comparative information and changes in scope of consolidation).(3) Transfers include inventories of EUR 2,927 thousand.



The “Disposals” column includes EUR 4,587 thousand relating to impairment losses on assets in 2006 (see Note 42).

The net proceeds of disposal of tangible assets amounted to EUR 43,005 thousand at 31 December 2006 (31 December 2005: EUR 228,367 thousand) (see Note 44).

The carrying amount is their acquisition cost which was restated on 1 January 2004 with respect to properties for own use on the basis of appraisals performed in accordance with transitional provision one of Bank of Spain Circular 4/2004 (see Note 2.14).

The fair value of the properties held for own use is determined on the basis of the index issued by the Spanish National Statistics Institute (INE) for “the increase in prices of unsubsidised housing”, weighted by a correction coefficient to bring it into line with the characteristics of the properties of ”la Caixa”, which basically consist of business premises, and with actual conditions observed in prior periods on the basis of previous appraisals. The resulting coefficient represents approximately 40% of the benchmark index, i.e. a revaluation of 5% for 2005 and of 4% for 2006. It is applied at 31 December of the preceding year solely to the value of land, since this is the basic component of the changes in prices of business premises.

As a result of this calculation, the estimated gain at 31 December 2006 was EUR 165 million (31 December 2005: EUR 1,042 million), which ”la Caixa” considers to be an appropriate and prudent fair value estimate.

2005


ADDITIONS DISPOSALS TRANSFERS (1)BALANCE AT31/12/2005

Land and buildings 2,113,180 122,523 (21,468) 28,656 2,242,891 Cost 2,437,911 161,293 (22,430) 27,673 2,604,447 Accumulated depreciation (324,731) (38,770) 962 983 (361,556)

Furniture, fi xtures and other 958,400 (4,482) (42,525) (8,774) 902,619 Cost 2,449,635 205,533 (262,985) (14,072) 2,378,111 Accumulated depreciation (1,491,235) (210,015) 220,460 5,298 (1,475,492)

For own use 3,071,580 118,041 (63,993) 19,882 3,145,510 Land and buildings 3,688,390 582,171 (194,279) (139,174) 3,937,108

Cost 3,920,467 669,434 (163,423) (130,349) 4,296,129 Accumulated depreciation (232,077) (87,263) (30,856) (8,825) (359,021)

Furniture, fi xtures and other 8,816 (1,106) (2,682) 1,093 6,121 Cost 22,246 763 (8,917) (3,961) 10,131 Accumulated depreciation (13,430) (1,869) 6,235 5,054 (4,010)

Investment property 3,697,206 581,065 (196,961) (138,081) 3,943,229 Cost 262,453 754,475 (371,473) (242,056) 403,399 Accumulated depreciation (59,270) (58,686) (83,380) 128,827 (72,509)

Assets leased out under an operating lease (2) 203,183 695,789 (454,853) (113,229) 330,890 Land and buildings 254,115 8,408 (15,647) 8,797 255,673

Cost 292,090 17,775 (15,834) 8,689 302,720 Accumulated depreciation (37,975) (9,367) 187 108 (47,047)

Furniture, fi xtures and other 32,284 (3,242) (382) 821 29,481 Cost 76,161 899 (1,808) 820 76,072 Accumulated depreciation (43,877) (4,141) 1,426 1 (46,591)

Assigned to Welfare Projects (Note 27) 286,399 5,166 (16,029) 9,618 285,154 Total 7,258,368 1,400,061 (731,836) (221,810) 7,704,783

(1) Transfers include assets of Inmobiliaria Colonial, SA totalling EUR (108,581) thousand reclassifi ed as “Non-Current Assets Held for Sale” and assets of CaixaRenting, SA totalling EUR (113,229) reclassifi ed as “Finance Leases”.

(2) Accumulated depreciation of assets leased out under an operating lease does not include EUR 58,428 thousand which CaixaRenting, SA recognised as a reduction of lease income.



The gain in 2005 included the gain relating to the properties of Inmobiliaria Colonial, SA, which was removed from the scope of consolidation in 2006.

18. Intangible assets

Intangible assets, excluding goodwill, relate entirely to the development of computer software and systems. All these assets have a maximum estimated useful life of five years and were developed by companies outside the ”la Caixa” Group.

The changes in 2006 and 2005 in the balance of this item in the consolidated balance sheet were as follows:

The detail of goodwill on investments in subsidiaries at 31 December 2006 and 2005 is as follows:

In 2006 the above goodwill was derecognised due to the disposal of these companies. At 31 December 2005, the analyses performed did not bring to light the need to recognise impairment losses on goodwill.

The changes in 2006 and 2005 in goodwill on subsidiaries were as follows:

Computer software



New additions 60,721 60,308 Less:

Amortisation charged to income (53,462) (60,820)Reductions due to changes in scope of consolidation (19,431) 0


Goodwill

(Thousands of Euros) COMPANY 2006 2005

Crèdit Andorrà, SA 0 16,748Société Foncière Lyonnaise, SA (*) 0 50,851 Other 0 445Total 0 68,044

(*) An Inmobiliaria Colonial, SA Group company.

Changes in goodwill



Additions due to acquisitions 0 6,500 Less:

Reductions due to disposals (68,044) (3,837) Balance at end of year 0 68,044



19. Prepayments and accrued income, accrued expenses and deferred income and other

The detail of the balance of these headings in the accompanying consolidated balance sheets is as follows:

The changes in 2006 and 2005 in “Inventories” were as follows:


Accrued but unpaid dividends on equity securities 121,570 103,972 Other 314,420 293,460 Prepayments and accrued income 435,990 397,432 Through fi nancial guarantees 81,027 74,513 Other 464,431 286,115 Accrued expenses and deferred income 545,458 360,628 Inventories 68,905 569,764

Land and buildings 23,993 555,935 Other 45,458 26,505 Less:

Impairment allowance (Note 42) (546) (12,676) Other assets 693,452 448,840

Transactions in transit 645,792 230,379 Other 47,660 218,461

Other assets 762,357 1,018,604 Welfare Fund (Note 27) 542,034 449,874 Transactions in transit 217,840 86,110 Other 316,288 334,416 Other liabilities 1,076,162 870,400

Changes in inventories



Acquisitions 30,099 129,242 Additions of production costs 17,161 112,009

Less: Cost of sales (1) (41,835) (222,829) Transfers and other (4,937) (10,667)Exclusions from consolidation (2) (513,477) 0

Subtotal 69,451 582,440 Impairment allowance (Note 42) (546) (12,676)


(1) Including the costs attributable to sales of assets and income for rendering of services.(2) See Note 1 - Comparative information and changes in scope of consolidation.



The changes in 2006 and 2005 in the impairment allowance under “Inventories” were as follows (see Note 42):

20. Financial liabilities at amortised cost

The detail of the balance of this item in the accompanying consolidated balance sheets, based on the nature of the financial instrument giving rise to the liability, is as follows:

The detail of the main valuation adjustments included in each of the liability categories classified under “Financial Liabilities at Amortised Cost” is as follows:

Changes in impairment allowance


Balance at beginning of year 12,676 806 Add:

Impairment charges 0 6,017 Transfers and other 6 9,636

Less: Reversal of impairment charges 0 (284) Amounts used 0 (3,499)Exclusions from consolidation (1) (12,136) 0

Balance at end of year 546 12,676

(1) See Note 1 - Comparative information and changes in scope of consolidation.


Deposits from central banks 0 63,406 Deposits from credit institutions 12,420,704 13,346,731 Customer deposits 113,171,945 99,278,477 Marketable debt securities 36,061,514 19,243,782 Subordinated liabilities 3,398,287 3,433,341 Other fi nancial liabilities 1,413,837 2,425,626Total 166,466,287 137,791,363

2006

(Thousands of Euros) GROSS

BALANCE ACCRUED INTEREST

MICRO-HEDGE

DERIVATIVES

TRANSACTIONCOSTS

PREMIUMS/ DISCOUNTS

CARRYING AMOUNT

Deposits from credit institutions 12,302,609 119,356 (1,261) 12,420,704 Customer deposits 112,064,741 859,825 247,379 113,171,945 Marketable debt securities 35,654,424 537,671 (24,437) (106,144) 36,061,514 Subordinated liabilities 3,395,357 2,930 3,398,287 Other fi nancial liabilities 1,413,837 1,413,837Total 164,830,968 1,519,782 246,118 (24,437) (106,144) 166,466,287



20.1. Deposits from credit institutions

The breakdown, by type of deposit, of the balances of this item in the consolidated balance sheets, disregarding the valuation adjustments, is as follows:

In 2006 the heading “Time Deposits” includes several registered mortgage bonds (cédulas hipotecarias) totalling EUR 800 million and USD 178 million issued by ”la Caixa”. In 2005 these bonds amounted to EUR 600 million and USD 120 million (see Note 20.3).

In 2006 the effective average interest rate on the liabilities under “Loans and Advances to Credit Institutions” was 3.42%. In 2005, the rate was 2.46%. These rates result from interest accrued in the year and do not include cost adjustments arising from accounting hedges.

20.2. Customer deposits

The breakdown, by sector and type of deposit, of the balance of this item in the accompanying consolidated balance sheets, disregarding the valuation adjustments, is as follows:

2005

(Thousands of Euros) GROSS

BALANCE ACCRUED INTEREST

MICRO-HEDGE

DERIVATIVES

TRANSACTION COSTS

PREMIUMS/ DISCOUNTS

CARRYING AMOUNT

Deposits from central banks 63,404 2 63,406Deposits from credit institutions 13,290,851 56,568 (688) 13,346,731 Customer deposits 98,554,093 629,484 94,900 99,278,477Marketable debtsecurities 19,014,119 309,287 (12,575) (67,049) 19,243,782 Subordinated liabilities 3,395,357 37,984 3,433,341 Other fi nancial liabilities 2,425,626 2,425,626Total 136,743,450 1,033,325 94,212 (12,575) (67,049) 137,791,363


Demand deposits 669,533 1,342,362Other accounts 669,533 1,342,362

Time deposits 11,633,076 11,948,489 Fixed-term deposits 6,375,677 8,195,185 Hybrid fi nancial liabilities 149 1,832 Repurchase agreements 5,257,250 3,751,472

Total 12,302,609 13,290,851

By sector


Public sector 5,348,779 3,765,335 Private sector 106,715,962 94,788,758Total 112,064,741 98,554,093



In 2006 the effective average interest rate on financial liabilities under “Customer Deposits” was 1.88% (2005: 1.59%). These rates result from interest accrued in the year and do not include cost adjustments arising from accounting hedges.

20.3. Marketable debt securities

The breakdown, by issue, of the balance of this item in the accompanying consolidated balance sheets, disregarding the valuation adjustments, is as follows:

By type


Current accounts and other demand deposits 33,465,294 28,699,821 Savings accounts 21,922,802 20,882,287 Fixed-term deposits 51,082,120 43,674,663 Hybrid fi nancial liabilities 4,125,655 3,097,260 Repurchase agreements 1,468,870 2,200,062Total 112,064,741 98,554,093

Mortgage bonds issued by ”la Caixa”

( Thousands of Euros)DATE

FACE VALUE IN CURRENCY

NOMINAL INTEREST RATE

REDEMPTION DATE

UNREDEEMED AMOUNT

2006 2005

05/04/2001 1,500,000 € 5.250% 05/04/2011 1,500,000 1,500,00021/11/2002 1,500,000 € 4.500% 21/11/2012 1,500,000 1,500,00027/02/2003 2,500,000 € 3.500% 04/03/2010 2,500,000 2,500,00014/05/2003 750,000 € 5.250% 05/04/2011 750,000 750,00031/10/2003 1,250,000 € 4.250% 31/10/2013 1,250,000 1,250,00031/10/2003 750,000 € 4.750% 31/10/2018 750,000 750,00004/02/2004 750,000 € 4.250% 31/10/2013 750,000 750,00004/02/2004 250,000 € 4.750% 31/10/2018 250,000 250,00017/02/2005 2,500,000 € 3.880% 17/02/2025 2,500,000 2,500,00030/09/2005 300,000 £ Lib 1A+0.020% 30/09/2015 446,761 437,76405/10/2005 2,500,000 € 3.250% 05/10/2015 2,500,000 2,500,00009/01/2006 1,000,000 € E3M+0.075% 09/01/2018 1,000,00018/01/2006 2,500,000 € 3.375% 30/06/2014 2,500,00018/01/2006 2,500,000 € 3.625% 18/01/2021 2,500,00020/04/2006 (*) 1,000,000 € E3M+0.100% 30/06/2016 1,000,00016/06/2006 150,000 € E3M+0.060% 16/06/2016 150,00022/06/2006 100,000 € E3M 20/06/2013 100,00028/06/2006 2,000,000 € 4.250% 26/01/2017 2,000,00028/06/2006 1,000,000 € 4.500% 26/01/2022 1,000,00030/06/2006 150,000 € E3M+0.005% 20/08/2013 150,00030/06/2006 100,000 $ Lib 3M/0.013% 20/06/2013 75,93018/09/2006 (*) 1,000,000 € E3M+0.100% 30/09/2016 1,000,00018/10/2006 100,000 € E3M+0.020% 18/10/2013 100,00001/11/2006 255,000 $ Lib. 3M 02/02/2037 193,62228/11/2006 250,000 € E3M+0.060% 28/11/2016 250,000 Amount eliminated on consolidation (100,260) (105,060)Total mortgage bonds 26,616,053 14,582,70413/09/2006 1,500,000 € 3.750% 13/09/2011 1,500,000Total territorial bonds 1,500,00002/03/2006 500,000 € E3M+0.030% 02/03/2009 500,00014/03/2006 500,000 € E3M+0.020% 14/03/2008 500,00020/11/2006 1,000,000 € E3M+0.025% 20/11/2009 1,000,00015/12/2006 500,000 € E3M+0.030% 15/12/2008 500,00022/12/2006 500,000 € E3M+0.030% 22/12/2008 500,000Total non-convertible bonds 3,000,000Total 31,116,053 14,582,704

(*) Issues placed on the retail market. The remaining issues were placed on the institutional market.



At 31 December 2006, ”la Caixa” had outstanding registered mortgage bonds totalling EUR 800 million and USD 178 million, which are classified as time deposits with credit institutions. At 31 December 2005, the amount outstanding was EUR 600 million and USD 120 million (see Note 20.1).

In accordance with current legislation, the Institution expressly assigns the mortgages registered in its name as collateral for principal and interest on mortgage bond issues. The territorial bonds are issued using as collateral the portfolio of loans and credits granted to the State, Autonomous Community governments, local bodies and the autonomous community organisations and dependent public business entities, as well as to other institutions of this type in the European Economic Area.

Other companies in the ”la Caixa” Group had the following bonds outstanding at 31 December 2006 and 2005:

The issues dated 18/08/04, amounting to EUR 30,000 thousand, and 12/05/06, amounting to EUR 5,000 thousand, were subscribed in full by Caixa de Barcelona Seguros Vida, SA de Seguros y Reaseguros, a subsidiary of the ”la Caixa” Group, and include an embedded derivative causing the actual return on these securities to be variable. The remaining issues valid at 31 December 2006 are part of a European Medium Term Note programme guaranteed by ”la Caixa”. The issue dated 3 July 2003, relating to bonds convertible into Endesa, SA ordinary shares, initially amounting to EUR 847,600 thousand, matured in 2006.

Société Foncière Lyonnaise, SA is no longer included in the scope of consolidation due to the sale in 2006 of Inmobiliaria Colonial, SA, of which it was a subsidiary (see Note 1).

The detail, by term to maturity, of the outstanding amount of promissory notes issued by ”la Caixa” and Crèdit Andorrà, SA at 31 December 2006 and 2005 is as follows:

Issued by Caixa Finance, BV

(Thousands of Euros)DATE



REDEMPTION DATE

UNREDEEMED AMOUNT

2006 2005

21/11/2003 1,000,000 € Eur/3m+0.05% 21/11/2006 1,000,00010/07/2003 750,000 € Eur/3m+0.10% 10/07/2008 750,000 750,00016/01/2004 250,000 € Eur/3m+0.05% 16/01/2009 250,000 250,00003/07/2003 847,600 € 0.25% 03/07/2006 170,05018/08/2004 30,000 € Floating 18/08/2019 30,000 30,00021/02/2005 200,000 € 3.07% 21/02/2009 200,000 200,00012/05/2006 5,000 € Floating 12/05/2026 5,000 Amount eliminated on consolidation (35,000) (30,000)Total 1,200,000 2,370,050

Issued by Société Foncière Lyonnaise, SA

(Thousands of Euros)DATE



REDEMPTION DATE

UNREDEEMED AMOUNT

2006 2005

10/12/2002 100,000 $ 6.27% 10/12/2012 0 84,96910/12/2002 25,000 $ 5.67% 10/12/2009 0 21,242Total 0 106,211



Crèdit Andorrà, SA was removed from the scope of consolidation in 2006 (see Note 1).

The detail of bonds issued by the asset securitisation funds and placed with third parties that remained outstanding at 31 December 2005 and 2006 is as follows:

These bonds are amortised periodically according to the amortisation of the underlying assets.

The breakdown, by term to maturity, of the marketable securities issued by the ”la Caixa” Group at 31 December 2006 and 2005, disregarding the valuation adjustments and the securitisation bonds issued and placed with third parties, is as follows:

In 2006 the average effective interest rate on financial liabilities under “Marketable Debt Securities” was 3.77% (2005: 3.67%). These rates result from interest accrued in the year and do not include cost adjustments arising from accounting hedges.

Promissory notes issued by ”la Caixa”


Within 3 months 2,324,247 1,305,673 3 to 6 months 171,470 124,414 6 months to 1 year 57,729 98,987 1 to 2 years 15,625 0 Amount eliminated on consolidation 0 (64,353)Total 2,569,071 1,464,721

Promissory notes issued by Crèdit Andorrà, SA


Within 3 months 0 2,000 3 to 6 months 0 0 6 months to 1 year 0 23,353 1 to 2 years 0 15,780 Total 0 41,133

Securitisation bonds placed with third parties

(Thousands of Euros) UNREDEEMED AMOUNT

2006 2005

FonCaixa FTGENCAT 3, FTA (Note 30.2) 443,300 449,300FonCaixa FTGENCAT 4, FTA (Note 30.2) 326,000Total 769,300 449,300

Term to maturity

(Thousands of Euros) UNREDEEMED AMOUNT

2006 2005

Within 1 year 2,553,446 2,660,124 1 to 2 years 2,265,625 15,780 2 to 5 years 8,178,340 3,720,042 5 to 10 years 11,712,691 8,692,273 After 10 years 10,175,022 3,476,600Total 34,885,124 18,564,819



20.4. Subordinated liabilities

The detail, by issue, of the balance of this item in the accompanying consolidated balance sheets, disregarding the valuation adjustments, is as follows:

All the above issues obtained the required classification by the Bank of Spain for them to be computed, subject to the limitations set forth in Bank of Spain Circular 5/1993, as Tier 2 capital of the consolidated Group (see Note 1).

At 31 December 2006 and 2005, none of these securities had been pledged. None of the companies in the ”la Caixa” Group acquired subordinated marketable securities issued by the Group.

In 2006 the effective average interest rate on financial liabilities under “Subordinated Liabilities” was 4.22%. (2005: 4.27%). These rates result from interest accrued in the year and do not include cost adjustments arising from accounting hedges.

Subordinated debt issued by ”la Caixa”

( Thousands of Euros) ISSUE DATE MATURITY FACE VALUE

CURRENT NOMINAL INTEREST RATE

UNREDEEMED AMOUNT

2006 2005

October 1985 (*) 18,031 2.97% 2,860 2,860 November 1985 (*) 12,020 2.97% 1,984 1,984 March 1988 (*) 45,076 3.00% 17,387 17,387 May-June 1988 (*) 204,344 3.68% 49,649 49,649 February 1991 (*) 258,435 2.65% 108,314 108,314 October 1999 04/10/2009 1,000,000 5.84% 1,000,000 1,000,000 October 2001 10/10/2011 1,500,000 3.94% 1,500,000 1,500,000 April 2002 12/04/2012 357,563 3.93% 357,563 357,563 July 2002 22/07/2012 180,000 3.94% 180,000 180,000Total 3,217,757 3,217,757

(*) Perpetual securities, i.e. with no specifi ed maturity.

Subordinated debt issued by VidaCaixa, SA de Seguros y Reaseguros (**)

(Thousands of Euros) ISSUE DATE MATURITY FACE VALUE

CURRENT NOMINAL INTEREST RATE

UNREDEEMED AMOUNT

2006 2005

December 2000 (*) 150,000 4.430% 90,000 90,000 December 2004 (*) 146,000 3.720% 87,600 87,600Total 177,600 177,600

(*) Perpetual securities, i.e. with no specifi ed maturity.(**) VidaCaixa is proportionately consolidated (60% ownership interest).



20.5. Other financial liabilities


21. Liabilities under insurance contracts

The breakdown of the balance of “Liabilities Under Insurance Contracts” in the accompanying consolidated balance sheets at 31 December 2006 and 2005 is as follows:

In 2006 “Other Financial Liabilities at Fair Value Through Profit or Loss” only includes the mathematical provisions relating to life insurance products where the investment risk is borne by the policyholder, known as unit-linked products, and “Other Financial Assets at Fair Value Through Profit or Loss” includes the investments related to these operations (see Note 1 “Comparative Information and Changes in Scope of Consolidation”).


Payment obligations 344,188 626,420 Guarantees received 8,687 33,313 Clearing houses 11,014 714,806 Tax collection accounts 296,293 396,884 Special accounts 750,669 640,885 Other 2,986 13,318Total 1,413,837 2,425,626


Unearned premiums and unexpired risks 36,666 32,071 Mathematical provisions 12,444,334 12,864,683 Claims outstanding 132,792 126,542 Bonuses and rebates 29,417 28,477 Life insurance policies where the investment risk is borne by the policyholder 0 1,064,446 Other technical provisions 0 205Total 12,643,209 14,116,424



22. Provisions

The changes in 2006 and 2005 and the nature of the provisions recognised under this item in the accompanying consolidated balance sheets were as follows:

2006

(Thousands of Euros) BALANCE AT 31/12/2005

PROVISIONS NET OF REVERSALS CHARGED

TO INCOME

OTHER PROVISIONS (*)

AMOUNT USED

TRANSFERS AND OTHER

BALANCE AT 31/12/2006

Provisions for pensions and similar obligations (1) 1,984,966 268,972 40,455 (193,717) 271,376 2,372,052

Provisions for taxes(Note 28) 104,867 90,745 (15,793) (26,946) 152,873

Provisions for contingent liabilities and commitments 97,502 12,947 0 (1,670) 108,779

Country risk allowance 93 0 0 0 93 Allowance for identifi ed losses 16,474 (7,597) 0 (1,467) 7,410

Contingentliabilities 15,471 (7,727) 0 (810) 6,934

Contingent commitments 1,003 130 0 (657) 476

Allowance for inherent losses 80,935 20,544 0 (203) 101,276

Other provisions 213,007 87,972 (34,006) (20,250) 246,723 Total provisions 2,400,342 460,636 40,455 (243,516) 222,510 2,880,427 (*) Interest cost (Note 32) 10,586

Personnel expenses (Note 39) 5,155 Extraordinary contributions (Note 44) 24,714 Total other provisions 40,455

(1) “Transfers and Other” in the provisions for pensions and similar obligations include mainly the capitalisation of the provisions recorded and the risk policy taken out for serving employees.



The heading “Provisions – Provisions for Pensions and Similar Obligations” in the accompanying consolidated balance sheets shows the present value of post-employment benefit obligations which are considered defined-benefit plans, together with long-term employment benefits and the obligations undertaken under the various pre-retirement schemes in force at ”la Caixa”, which are described in greater detail in Note 2.12.

In 2002, in compliance with the labour agreement executed on 29 July 2002 with former employees, the then present value of the benefit obligations which are considered defined-benefit obligations were contributed to a pension plan. This contribution was made through the surrender of the provisions recognised basically in RentCaixa, SA de Seguros y Reaseguros and an extraordinary contribution caused by a change of the mortality tables, and by the coverage provided for the increases due to inflation required to bring most of the insured benefits to their net present value. With this contribution, a policy was taken out with VidaCaixa, SA de Seguros y Reaseguros for the pension plan which includes a profit-sharing clause for the benefit of the promoter, and it is considered that no significant additional contributions will need to be made in the future. The present value of benefit obligations with former employees amounted to EUR 1,275,296 thousand at 31 December 2006 (31 December 2005: EUR 1,266,353 thousand), calculated on the basis of the following actuarial assumptions considered: PERM/F-2000P mortality tables, actual assumed interest rate of 2.08% and CPI-linked pension increases. The surrender value of the policy is included under “Insurance Contracts Linked to Pensions”.

The labour agreement executed on 31 July 2000 with current employees converted the internal pension plan into an external defined-contribution pension plan for the retirement benefit obligations. Also, in compliance with the same plan agreement, supplementary guarantee policies were taken out with VidaCaixa, SA de Seguros y Reaseguros.

The expense recognised in connection with these policies amounted to EUR 24,714 thousand in 2006 (2005: EUR 57,521 thousand) and is shown under “Other Losses – Other” in the accompanying consolidated income

2005

(Thousands of Euros)BALANCE AT31/12/2004

PROVISIONS NET OF REVERSALS CHARGED

TO INCOME

OTHER PROVISIONS (*)

AMOUNT USED

TRANSFERS AND OTHER


Provisions for pensions and similar obligations 1,941,521 109,292 69,449 (143,368) 8,072 1,984,966

Provisions for taxes(Note 28) 66,321 42,593 (1,258) (2,789) 104,867

Provisions for contingent liabilities and commitments 71,937 25,038 0 527 97,502

Country risk allowance 93 0 0 0 93 Allowance for identifi ed losses 10,040 5,907 0 527 16,474

Contingentliabilities 8,997 5,929 0 545 15,471

Contingent commitments 1,043 (22) 0 (18) 1,003

Allowance for inherent losses 61,804 19,131 0 0 80,935

Other provisions 156,574 95,645 (25,037) (14,175) 213,007 Total provisions 2,236,353 272,568 69,449 (169,663) (8,365) 2,400,342 (*) Interest cost (Note 32) 8,691

Personnel expenses (Note 39) 3,237 Extraordinary contributions (Note 44) 57,521 Total other provisions 69,449



statement (see Note 44), except for the expense relating to the benefit obligations with current employees in connection with cover for the risk of disability, death of parents and death of spouse which, in 2006, amounted to EUR 1,595 thousand recognised under “Personnel Expenses” in the accompanying consolidated income statement (see Note 39). The present value of the supplementary guarantee obligations amounted to EUR 505,652 thousand at 31 December 2006 (31 December 2005: EUR 295,377 thousand). The surrender value of the policies is included under “Insurance Contracts Linked to Pensions”.

The present value of the obligations undertaken under the various pre-retirement schemes described in Note 2.12 amounted to EUR 520,988 thousand at 31 December 2006 (31 December 2005: EUR 324,598 thousand). In 2006 a provision amounting to EUR 286,406 thousand (EUR 199,784 thousand net of tax) was recognised with a charge to “Provisions for Pensions and Similar Obligations” in the consolidated income statement to cover the new obligations acquired and in 2005 the provision recorded with a charge to the same item amounted to EUR 107,850 thousand (EUR 70,103 thousand net of tax). The changes in the provision recognised, in addition to the net amounts transferred in the year to cover the new obligations, relate primarily to the payments made to employees under the schemes, to the interest accrued to the provision and to the payment of the premium on the policy with VidaCaixa, SA de Seguros y Reaseguros amounting to EUR 7,351 thousand, in relation to the supplementary guarantee provided under the partial retirement scheme (see Note 2.12). The present value of the benefit obligations insured through this policy amounted to EUR 30,643 thousand at 31 December 2006 (31 December 2005: EUR 33,450 thousand). The surrender value of the policy is included under “Insurance Contracts Linked to Pensions”.

To meet the obligations under the agreement called “Special Paid Leave” (see Note 2.12), a provision was recognised amounting to EUR 4,981 thousand at 31 December 2006 (31 December 2005: EUR 7,037 thousand). The provisions recognised in 2006 with a charge to “Provisions for Pensions and Similar Obligations” in the accompanying consolidated income statement amounted to EUR 559 thousand (2005: EUR 430 thousand). Payments made to employees with a charge to the existing provisions amounted to EUR 2,615 thousand in 2006 (2005: EUR 7,737 thousand).

Lastly, a long-term employment benefits provision was recognised for length-of-service bonuses (see Note 2.12) amounting to EUR 30,044 thousand at 31 December 2006 (31 December 2005: EUR 30,035 thousand). The net provisions recorded in 2006 with a charge to “Personnel Expenses” in the accompanying consolidated income statement amounted to EUR 3,561 thousand (2005: EUR 3,237 thousand). Payments made with a charge to the existing provision amounted to EUR 3,551 thousand in 2006 (2005: EUR 1,323 thousand).

The ”la Caixa” Group subsidiaries and jointly controlled companies set up in-house pension provisions totalling EUR 4,448 thousand at 31 December 2006 (31 December 2005: EUR 28,116 thousand). The decrease in this balance is due to the removal of CaixaBank, SA (Andorra) and Crèdit Andorrà, SA from the scope of consolidation and is shown in the “Transfers and Other” column.

“Other Provisions” mainly comprises provisions for contingent liabilities arising from the Institution’s ordinary activities and provisions for litigation contingencies.

23. Equity having the substance of a financial liability

In June 1999 Caixa Preference, SAU issued non-voting series A preference shares amounting to EUR 1 billion, with a variable quarterly dividend equal to three-month Euribor plus 0.06% per annum, and a guaranteed minimum dividend of 3.94 % per annum (4% APR) in the first three years following the issue. In May 2000 Caixa Preference, SAU issued non-voting series B preference shares amounting to EUR 2 billion, with a variable quarterly dividend equal to three-month Euribor plus 0.06% per annum, with a guaranteed minimum dividend of 4.43% per annum (4.5% APR) and a maximum dividend of 6.83% per annum (7% APR) in the first ten years following the issue.



Caixa Preference, SAU is a wholly-owned subsidiary of ”la Caixa” and the foregoing issues are backed by an irrevocable joint and several guarantee from ”la Caixa”, as indicated in the relevant prospectuses.

The securities issued by Caixa Preference, SAU obtained the required classification by the Bank of Spain for them to be computed entirely as Tier 1 capital of the consolidated Group. All of these perpetual securities were purchased by non-Group third parties, and may be fully or partially redeemed once five years have elapsed since they were paid for, at the company’s discretion, following approval by the Bank of Spain.

The change in the amount issued by the ”la Caixa” Group relates to the issue of EUR 100 million performed in December 2005 by Crèdit Andorrà Preference, LTD, a subsidiary of Crèdit Andorrà, SA which is no longer included in the scope of consolidation following the disposal of the ”la Caixa” Group’s entire interest in Crèdit Andorrà, SA.

In 2006 the effective average interest rate on financial liabilities under “Equity Having the Substance of a Financial Liability” was 3.98%. (2005: 3.69%). These rates result from interest accrued in the year and do not include cost adjustments arising from accounting hedges.

24. Minority interests

An itemised detail of the balance of this heading in the accompanying consolidated balance sheets is as follows:

The detail, by company, of the main items composing the balance of “Minority Interests” at 31 December 2006 and 2005 is as follows:


Equity interests 187,770 1,333,766 Share in profi t for the year 117,308 243,561 Interim dividends relating to minority interests (103,875) (56,518) Valuation adjustments 13,482 (14,352)Total 214,685 1,506,457

2006

(Thousands of Euros) COMPANY

EQUITY INTERESTS

SHARE IN PROFIT FOR THE YEAR

INTERIM DIVIDENDS

Inmobiliaria Colonial, SA (1) (2) 38,960 (38,960)Crèdit Andorrà, SA (1) (2) 52,336 (52,336)Inversiones Autopistas, SL 93,837 11,475 (11,467)Caixa Inversiones 1, SIMCAV, SA 15,836 998Banco de Europa, SA (1) 18,131 1,245 (111)Other 59,966 12,294 (1,001)Total 187,770 117,308 (103,875)

(1) Including minority interests relating to companies in the respective subgroups.(2) Disposed of in 2006. Interim dividends includes the effect of exclusion from consolidation.



The changes in 2006 and 2005, by company, of “Equity Interests” were as follows:

2005

(Thousands of Euros) COMPANY

EQUITY INTERESTS

SHARE IN PROFIT FOR THE YEAR

INTERIM DIVIDENDS

Inmobiliaria Colonial, SA (1) 867,021 170,231 (18,450)Crèdit Andorrà, SA (1) 279,144 47,380 (24,143)Inversiones Autopistas, SL 93,565 10,926 (10,908)Caixa Inversiones 1, SIMCAV, SA 15,544 2,187Banco de Europa, SA (1) 12,056 965Other 66,435 11,872 (3,017)Total 1,333,766 243,561 (56,518)

(1) Including minority interests relating to companies in the respective subgroups.

2006


COMPANYBALANCE AT31/12/2005

DISTRIBUTIONOF PRIOR YEAR’SNET PROFIT TORESERVES (1)

CHANGES IN CONSOLIDATION

SCOPE AND IN EQUITY INTERESTS

INCREASES AND OTHER


Inmobiliaria Colonial, SA (2) 867,021 126,442 (975,119) (18,344) 0 Crèdit Andorrà, SA (2) 279,144 19,765 (301,805) 2,896 0 Inversiones Autopistas, SL 93,565 5 0 267 93,837 Caixa Inversiones 1, SIMCAV, SA 15,544 2,187 (1,895) 0 15,836 Banco de Europa, SA (2) 12,056 965 5,179 (69) 18,131 Other 66,435 7,620 (12,871) (1,218) 59,966 Total 1,333,766 156,984 (1,286,511) (16,468) 187,770

(1) Net of interim and fi nal dividends. (2) Includes minority interests relating to companies in the respective subgroups.

2005


COMPANYBALANCE AT31/12/2004

DISTRIBUTIONOF PRIOR YEAR’SNET PROFIT TO RESERVES (1)

CHANGES IN CONSOLIDATION

SCOPE AND IN EQUITY INTERESTS

INCREASES AND OTHER


Inmobiliaria Colonial, SA (2) 589,610 32,193 168,723 76,495 867,021 Crèdit Andorrà, SA (2) 263,808 9,892 0 5,445 279,144 Inversiones Autopistas, SL 88,226 8 0 5,331 93,565 Caixa Inversiones 1, SIMCAV, SA 11,902 588 3,054 0 15,544 Banco de Europa, SA (2) 7,847 1,083 2,476 650 12,056 Other 62,219 7,146 (6,134) 3,204 66,435 Total 1,023,612 50,910 168,119 91,125 1,333,766

(1) Net of interim and fi nal dividends. (2) Includes minority interests relating to companies in the respective subgroups.



The detail of the ”la Caixa” Group’s subsidiaries which are 10% or more owned by minority shareholders is as follows:

25. Valuation adjustments

Consistently with this balance sheet heading, the data set out below do not include information on minority interests, unlike the “Statement of Changes in Equity” where the value adjustments contain information on the Group and on minority interests.

Available-for-sale financial assets

This item in the accompanying consolidated balance sheets includes the amount, net of the tax effect, of the differences between the market value and the acquisition cost (net gains/losses) of the assets classified as available-for-sale which, as indicated in Note 2.2, must be classified as an integral part of the Group’s consolidated equity. These differences are recognised in the consolidated income statement when the assets which gave rise to them are sold.

As explained in Note 1 on “Comparative Information and Changes in Scope of Consolidation”, in 2005 the tax effect included the reinvestment tax credit which would be applicable in the event of the sale of the assets. The recent amendment to the Spanish Corporation Tax brought about changes to the conditions for taking reinvestment tax credits, with the result that it was no longer considered reasonable to recognise them. For a proper comparison of the information relating to 2006 and 2005, the balance sheet heading “Valuation Adjustments – Available-for-Sale Financial Assets” should be reduced, and “Tax Liabilities – Deferred” increased, by EUR 870 million at 31 December 2005.

Also due to the recent amendments, in 2006 the 35% tax rate has been reduced to 30% for the calculation of deferred tax assets and liabilities. In 2006 this led to an increase in the valuation adjustments relating to available-for-sale financial assets and a decrease in deferred tax liabilities. The amount of this new estimate, recognised in the balance at 31 December 2006, was EUR 220 million.

SUBSIDIARY MINORITY INTERESTS

OWNERSHIP INTEREST OF MINORITY SHAREHOLDER

2006 2005

Finconsum, EFC, SA SOFINCO, SA 45% 45%Tenedora de Vehículos, SA Alquiler de Vehículos

a Largo Plazo, SA 35% 35%Hotel Caribe Resort, SL Tamisa Hoteles, SL 20% 20%

Promociones Blaumar, SA 20% 20%Inversiones Inmobiliarias Oasis Resort, SL

Metrópolis Inmobiliarias y Restauraciones, SL 40% 40%

Inversiones InmobiliariasTeguise Resort, SL

Metrópolis Inmobiliarias y Restauraciones, SL 40% 40%

Inversiones Autopistas, SL BCN Godia, SL 24% 24%G3T, SL 24% 24%

Inmobiliaria Colonial, SA Mutua Madrileña Automovilista,Sociedad de Seguros a Prima Fija – 10%

GDS-Correduría de Seguros, SL Unipsa 33% 33%



The changes in 2006 and 2005 in the balance of this item were as follows:

“Deferred Tax Liabilities” includes the effect of the change to the income tax rate (see Notes 2.13 and 28).

Cash flow hedges

This item in the accompanying consolidated balance sheets includes the amount, net of the tax effect, of the changes in value of financial derivatives designated as hedging instruments in cash flow hedges, in respect of the portion of these changes considered to be effective hedges (see Note 2.3).

The changes in the balance of this item in 2006 and 2005 were as follows:

“Deferred Tax Liabilities” includes the effect of the change to the income tax rate (see Notes 2.13 and 28).

2006


AMOUNTS TRANSFERREDTO INCOME STATEMENT,

AFTER TAX

VALUATION GAINS AND LOSSES, BEFORE TAX

DEFERRED TAX LIABILITY


Fixed-income 2,292 (1,497) (2,209) 691 (723) Equity 3,704,575 (805,266) 1,636,581 (1) (1,104,595) 3,431,295Total 3,706,867 (806,763) 1,634,372 (1,103,904) 3,430,572

(1) A comparison of this item with the total Adjustments to Market Value indicated in Note 10 reveals a difference of EUR 101,122 thousand arising from the Valuation Adjustments to the companies accounted for using the equity method and other, which are not considered in the above-mentioned Note.

2005



AFTER TAX




Fixed-income 12,004 (7,516) 1,917 (4,113) 2,292Equity 2,816,470 (316,549) 1,457,163 (252,509) 3,704,575Total 2,828,474 (324,065) 1,459,080 (256,622) 3,706,867

2006



AFTER TAX




Total (31,966) 6,774 25,986 (3,776) (2,982)

2005



AFTER TAX




Total (25,681) 20,021 (37,003) 10,697 (31,966)



Exchange differences

This item in the consolidated balance sheets includes the net amount of exchange differences arising on non-monetary items whose fair value is adjusted against equity, of the differences arising on the translation to euros of the balances in the functional currencies of the fully and proportionately consolidated companies whose functional currency is not the euro (see Note 2.4), and of the differences arising for the same reasons in associates.

The changes in the balance of this item in 2006 and 2005 were as follows:

The changes in the balance of this item in 2006 and 2005 arose mainly as a result of changes of this nature in associates.

26. Endowment fund and reserves

As required by the provisions of Decree 1838/1975, of 3 July, ”la Caixa” was set up with an endowment fund of EUR 3,006 thousand.

At 31 December 2006, the reserves of ”la Caixa” included EUR 58,354 thousand (31 December 2005: EUR 52,354 thousand), relating to reserves for investments in the Canary Islands Autonomous Community (see Note 4).

2006



AFTER TAX




Total 64,911 (47,532) 17,379

2005



AFTER TAX




Total (1,273) 66,184 64,911



The inventory of the reserves of the fully or proportionately consolidated companies, and of the companies accounted for using the equity method, at 31 December 2006 and 2005, is as follows:

The changes in 2006 in the balance of this item in the accompanying consolidated balance sheets can be seen in Note 4.

27. Welfare Projects

Through its programmes and activities, ”la Caixa” Welfare Projects aim to help improve people’s quality of life. The activities are guided by two principles: the principle of anticipation, by responding to shortfalls in society not covered by other institutions, and the principle of flexibility, by tailoring its programmes to the latest needs of an ever-changing society.

The welfare basis of Welfare Projects, which aims to further the Institution’s commitment to people’s real needs and problems, has been evident in a significant increase in the budget in 2006 for welfare and community care programmes, without detriment to cultural and scientific programmes, which also received a boost.

To carry out all of its activities, ”la Caixa” Welfare Projects employs two complementary working methods. On the one hand it has its own programmes, which are designed, run and managed directly by the Institution, and on the other, it has programmes carried out in conjunction with other public and private institutions. This system allows more people to benefit from the programmes and activities.

The Welfare Projects are carried out through the ”la Caixa” Foundation, the instrumental institution which handles and manages the Welfare Projects budget. Its highest governing body is the Board of Trustees, which has the duties and powers conferred by the Foundation’s Bylaws, in addition to all the other duties and powers it is not prohibited from exercising by law. In the performance of its duties, the Foundation is subject to the guidelines, supervision and control of the Board of Directors or the Welfare Projects Committee of the Caja de Ahorros y Pensiones de Barcelona.


Fully and proportionately consolidated companies 328,807 322,375 Caixa Holding, SA (1) 467,211 867 Caixa Barcelona Vida, SA de Seguros y Reaseguros (269,597) (135,530)CaiFor, SA 32,061 21,457 Caixa Capital Desarrollo, SCR, SA 23,900 440 VidaCaixa, SA de Seguros y Reaseguros 19,253 17,197 Servihabitat, SA 16,741 16,416 Crèdit Andorrà, SA (2) 0 163,135 CaixaBank, SA (2) 0 107,006 Inmobiliaria Colonial, SA (2) 0 104,304 Other companies 39,238 27,083 Companies accounted for using the equity method 1,374,460 1,181,073 Gas Natural, SDG, SA 1,065,916 946,350 Sociedad General de Aguas de Barcelona, SA 183,390 147,807 Abertis Infraestructuras, SA 130,240 96,222 Other companies (3) (5,086) (9,306)Total 1,703,267 1,503,448

(1) Includes the reserves attributed to the company in the consolidation process as an equity securities holding company.(2) In 2006, these companies were excluded from consolidation. (3) At December 2006, Edicions 62, SA was accounted for using the equity method for the fi rst time. For reasons of consistency of information, reserves

of EUR 10,964 relating to 2005 were transferred to this item.



In conformity with its Bylaws, the Foundation’s Board of Trustees is made up of the Chairman, the Deputy Chairmen and members of the Board of Directors of ”la Caixa”, the President and Chief Executive Officer of ”la Caixa” and the Executive Vice-President in charge of Welfare Projects. The Board of Trustees may make up its number of members, up to a maximum of 40 trustees, with people qualified in any of the areas inherent to the Foundation’s purpose. The Board of Trustees currently has 27 members, 21 of whom are members of the Board of Directors of ”la Caixa”; plus the President and Chief Executive Officer of ”la Caixa” and the Executive Vice-President in charge of Welfare Projects, and the remaining four are other trustees appointed by the Board of Trustees itself.

A detail of the contribution made by ”la Caixa” to the Welfare Projects, of the proposed Welfare Projects budget for 2007 and of the budgets for 2006 and 2005 is as follows:

Balance sheet item

• Tangible assets

• Investments – Group entities

• Other assets

• Other liabilities

The proposed allocation for the year represents 31% of the individual recurring profit of ”la Caixa” and 25% of consolidated recurring profit.

In accordance with the applicable balance sheet presentation standards, the assets and liabilities assigned to the ”la Caixa” Welfare Projects are classified into the following items:

Description

• Assets assigned to Welfare Projects

• Other financial assets

• Other assets

• Total own funds of Welfare Projects and other liabilities

(Thousands of Euros) 2007BUDGET

2006 20052007/2006 VARIATION

AMOUNT AS A %

Contribution from ”la Caixa” to Welfare Fund (Note 4) 376,000 303,000 255,000 73,000 24% Welfare Projects budget 400,000 303,000 250,000 97,000 32%

Welfare activities 255,580 159,891 127,394 95,689 60% Science and environment 64,343 53,550 33,725 10,793 20% Culture and humanities 53,801 70,515 70,916 (16,714) (24%) Education 26,276 19,044 17,965 7,232 38%

Assets


COST ACCUMULATED DEPRECIATION

CARRYING AMOUNT

COST ACCUMULATED DEPRECIATION

CARRYING AMOUNT

Fixed assets assigned to Welfare Projects (Note 17) 399,746 (105,198) 294,548 378,792 (93,638) 285,154

Property (land and buildings) 324,293 (55,693) 268,600 302,720 (47,047) 255,673 Furniture and fi xtures 75,453 (49,505) 25,948 76,072 (46,591) 29,481

Other fi nancial assets 58,572 58,572 28,572 28,572 Current assets with ”la Caixa” 188,427 135,977 Other assets 487 171 Total Assets 542,034 449,874



The foregoing “Other Financial Assets” are equity interests in the ”la Caixa” Group subsidiaries Foment Immobiliari Assequible, SAU and Arrendament Immobiliari Assequible II, SLU, whose objective is to develop affordable rented housing for groups who have difficulty accessing the housing market. These interests are eliminated on consolidation and replaced by the assets, liabilities and profit of these companies.

“Other Assets” relates to various receivables assigned to Welfare Projects, and “Current Assets with ”la Caixa”” is eliminated in the process of balance sheet integration.

Annual depreciation charges on tangible assets assigned to Welfare Projects are determined on the basis of the same methods as those indicated for the rest of the tangible assets of ”la Caixa” (see Note 2.14).

Of the transfer to the Welfare Fund used for tangible assets, the portion financing properties assigned to Welfare Projects is part of the own funds of ”la Caixa”.

The above “Other Liabilities” relate to outstanding Welfare Projects payment obligations.

The changes in the item “Transfer to Welfare Fund”, before settlement of the maintenance expenses for 2006 and 2005, were as follows:

Liabilities


Transfer to Welfare Fund 660,738 561,153 Used for tangible assets 294,548 285,154 Used for other fi nancial assets 58,572 28,572 Uncommitted amount 64,384 33,212 Expenses committed in the year 243,234 214,215

Maintenance expenses (260,180) (203,415) Annual budget settlement (302,501) (246,257)

Welfare activities (160,185) (119,477) Science and environment (57,704) (43,530) Culture and humanities (66,148) (63,730) Education (18,464) (19,520)

Depreciation and amortisation (Note 17) (12,372) (13,508) Investment in tangible assets (Note 17) 24,774 28,183 Investment in other fi nancial assets 30,000 28,572 Other (81) (405)

Total Welfare Projects own funds 400,558 357,738 Other liabilities 141,476 92,136 Total Liabilities (Note 19) 542,034 449,874

Movement in the “Transfer to Welfare Fund”



Annual contribution to Welfare Fund 303,000 255,000 Less:

Previous year’s maintenance expenses (203,415) (161,349) Balance at end of year 660,738 561,153



The changes in the item “Uncommitted Amount”, before and after payment of the maintenance expenses for 2006 and 2005, were as follows:

The 2005 balance includes EUR 13,808 thousand relating to the decline in value of tangible assets assigned to Welfare Projects due to the recovery of VAT paid in connection with these investments.

28. Tax matters

Tax consolidation

Caja de Ahorros y Pensiones de Barcelona has filed joint corporation tax returns since 1991.

The composition of the consolidated Group for income tax purposes in 2006 is shown in Appendix 6.

Years open for review

At 31 December 2006, the years 2002 and 2003 were open for review of the main taxes applicable to the consolidated group by the tax authorities.

In 1996 the tax authorities began an inspection of the tax group from 1991 to 1993 for the main applicable taxes. This inspection ended in 1997 with assessments being issued relating mainly to temporary differences arising from differences between accounting and tax legislation. Although these tax assessments were signed under protest, ”la Caixa” recorded provisions for the maximum contingencies that could arise from these assessments. In 2001 the Central Economic-Administrative Tribunal cancelled the assessments received in three rulings after partially upholding the pleadings submitted. As a result, the provisions relating to the amounts upheld by the Central Economic-Administrative Tribunal were reversed, and currently they total EUR 7,932 thousand. An appeal for judicial review was filed in relation to the other items for which a decision is yet to be handed down by the Supreme Court.

In 1999 the tax authorities began an inspection of the tax group from 1994 to 1997 for the main applicable taxes. This inspection ended in 2001 with assessments being issued relating mainly to temporary differences arising from differences between accounting and tax legislation. Although a

Uncomitted amount


Balance at beginning of year 44,012 19,754 Uncommitted budget (*) (1) 59,766 35,785 Net change in tangible assets and fi nancial assets (2) (39,394) (27,327) Difference between contribution and budget for the year 0 5,000

Uncommitted amount(before allocation of maintenance expenses) 64,384 33,212 Expenses committed in the year (3) 243,234 214,215 Period maintenance expenses (4) (260,180) (203,415) Uncommitted amount (before allocation of maintenance expenses) 47,438 44,012

(*) This relates to the portion of the budget not earmarked for maintenance expenses.(1) + (3) Budget for the year.Note: To ensure a proper comparison of fi gure (1) with (2) and fi gure (3) with (4), the amount of the net change in investment in fi xed assets and fi nancial assets ahould be increased and the period maintenance expenses reduced by the depreciation charge in each ear, totalling EUR 12,372 in 2006 (2005: EUR 13,508).



portion of these tax assessments were signed under protest, the Institution recorded provisions totalling EUR 22,722 thousand for the maximum contingencies that could arise from these assessments. In 2005 the Central Economic-Administrative Tribunal cancelled the assessments received in three rulings relating to years 1994, 1995 and 1996, after partially upholding the pleadings submitted. An appeal for judicial review was filed in relation to the other items on which a decision is yet to be handed down by the National Appellate Court.

In 2005 the tax authorities began an inspection of the tax group from 2000 to 2003 for the main applicable taxes. The inspection relating to 2000 and 2001 ended in 2006 with assessments being issued relating mainly to temporary differences arising from differences between accounting and tax legislation. Although a portion of these tax assessments were signed under protest, the Institution recorded provisions totalling EUR 17,983 thousand for the maximum contingencies that could arise from these assessments.

The varying interpretations which can be made of the tax legislation applicable to transactions carried out by financial institutions may give rise to certain contingent tax liabilities which cannot be objectively quantified. The Institution’s management and legal advisors consider that the provisions included in the accompanying consolidated balance sheets under “Provisions for Taxes” are sufficient to cover these contingent liabilities.

Transactions under special tax systems

2006 transactions

• No transactions were carried out in 2006 under the special tax system provided under Title VII, Chapter VIII of Legislative Royal Decree 4/2004, of 5 March, which approved the Consolidated Corporation Tax Law.

2005 transactions

• Dissolution without liquidation and transfer en bloc of the assets and liabilities of HipoteCaixa, EFC, SA to ”la Caixa”. Appendix 4 to the 2005 individual financial statements of ”la Caixa” includes the information required under Article 93 of Legislative Royal Decree 4/2004, of 5 March, which approved the Consolidated Corporation Tax Law.

• Dissolution without liquidation and transfer en bloc of the assets and liabilities of InverCaixa Holding, SA to ”la Caixa”. Appendixes 5 and 7 to the 2005 individual financial statements of ”la Caixa” include the information required under Article 93 of Legislative Royal Decree 4/2004, of 5 March, which approved the Consolidated Corporation Tax Law.

• Dissolution without liquidation and transfer en bloc of the assets and liabilities of InverCaixa Valores SV, SA to ”la Caixa”. Appendixes 6 and 7 to the 2005 individual financial statements of ”la Caixa” include the information required under Article 93 of Legislative Royal Decree 4/2004, of 5 March, which approved the Consolidated Corporation Tax Law.

Transactions from 1996 to 2004

• In 1996 Banco Granada Jerez, SA and CaixaBank, SA were dissolved without liquidation with the transfer en bloc of their assets and liabilities to ”la Caixa”. Note 30 to the individual financial statements of ”la Caixa” for 1996 contains the information required under Article 107 of the Corporation Tax Law 43/1995.

• In 2003 CaixaLeasing i Factoring, EFC, SA was dissolved without liquidation with the transfer en bloc of its assets and liabilities to ”la Caixa”. Appendix 4 to the individual financial statements of ”la Caixa” for 2003 contains the information required under Article 107 of the Corporation Tax Law 43/1995.

• All other transactions carried out in these years are disclosed in Note 26 to the individual financial statements of ”la Caixa” for 1996 and 1997, in Note 25 for 1998 and in Note 24 for 1999 to 2004.



Tax credit for reinvestment of extraordinary profits

Pursuant to Article 42 of Legislative Royal Decree 4/2004, of 5 March, approving the Consolidated Corporation Tax Law, a EUR 83,244 thousand tax credit for reinvestment of extraordinary profits was taken in the income tax return for 2005. As a result of the disposal of the 46.35% investment in Crèdit Andorrà, SA, of this amount, EUR 59,388 thousand were recognised in 2006 with a credit to “Income Tax” in the accompanying consolidated income statement in relation to the disposal of CaixaBank, SA to Crèdit Andorrà, SA in 2005. The tax credit relating to the reinvestment of the proceeds on the disposal of assets in satisfaction of debts was recognised under “Provisions for Taxes” in the accompanying consolidated balance sheet. The profit qualifying for the tax credit pursuant to this Law amounted to EUR 416,220 thousand. At 31 December 2005 the total gain obtained on transfers carried out in 2005 had already been reinvested.

The final tax credit for reinvestment of the extraordinary profits obtained in 2006 will be disclosed in the notes to the 2007 financial statements, after filing the 2006 income tax return. However, at the 2006 year-end, a tax credit of EUR 503 million was estimated, relating to extraordinary profits of EUR 2,500 million obtained in 2006. EUR 163 million of this tax credit were already recognised at 31 December 2006 under “Income Tax” in the consolidated income statement and relate to the tax credit applicable on the basis of the reinvestment already performed in 2006. The tax credit yet to be recognised amounting to EUR 340 million will accrue when the reinvestment is carried out.

Appendix 5 sets out the main parameters pursuant to Article 42 of Legislative Royal Decree 4/2004, of 5 March, which approved the Consolidated Corporation Tax Law (treatment applicable from 1 January 2002).

Change to income tax rate

Final provision two of Law 35/2006, of November 28, amends the Consolidated Corporation Tax Law. Among other measures, the standard tax rate was changed to 32.5% for the tax period commenced on or after 1 January 2007, and to 30% for the tax periods commencing on or after 1 January 2008.

Due to this change to the tax rate, in 2006 the assets and liabilities included under “Tax Assets – Deferred” and “Tax Liabilities – Deferred” in the consolidated balance sheet were re-estimated with a charge to “Income Tax” in the consolidated income statement amounting to EUR 202,971 thousand and a credit to the same item amounting to EUR 45,859 thousand. An exception to this policy is the treatment given to the deferred tax assets and liabilities arising from valuation adjustments relating to available-for-sale assets, cash flow hedges and exchange differences. In these cases, the charge or credit arising from the adjustment made is recognised under “Value Adjustments” in the accompanying consolidated balance sheets.

Accounting revaluations

Note 2.14 of the 2005 financial statements of ”la Caixa” states that, in accordance with current legislation, whereby the cost of unrestricted tangible assets may be their fair value at 1 January 2004, ”la Caixa” took this option and restated the value of its properties for own use on the basis of the appraisals performed by appraisers approved by the Bank of Spain. The gross restated amount was EUR 768,788 thousand and the 2004 depreciation expense amounted to EUR 8,743 thousand. Therefore, their net restated value at 1 January 2005 was EUR 760,045 thousand.



Reconciliation of accounting profit to taxable profit

The reconciliation of the income tax expense for the year recognised in the consolidated income statements for 2006 and 2005 to the pre-tax profit for the same years using the tax rate in force in Spain is as follows:

Tax recognised in equity

In addition to the income tax recognised in the consolidated income statement, in 2006 and 2005 the ”la Caixa” Group recognised in equity certain valuation adjustments net of the related tax effect, while this effect is recognised as a deferred tax asset or liability (see Note 25).


Profi t before tax (1) 4,013,050 1,791,284 Income / expenses not taxed at 35%

Dividends (277,598) (289,727) Net profi t of companies accounted for using the equity method (*) (494,646) (434,032) Profi t of untaxed subsidiaries (118,322) (131,385) Gains exempt in venture capital companies 0 (113,521) Non-deductible period provisions and write-downs (10,500) 58,000

Profi t taxed at 35% 3,111,984 880,619 Tax charge (1,089,194) (308,217)

Less: 218,770 255,542 Transfer to Welfare Projects 131,600 106,050 Gains on sales of securities and property (tax credit for reinvestment of gains and Art.30.5 TRLIS)

Tax credit for reinvestment of gains (disposal of Crèdit Andorrà,SA and CaixaBank, SA) 222,647 0 Other 3,493 131,466

Tax rates other than 35% (property and insurance companies) 19,376 38,236 Write-down of deferred tax assets and liabilities (157,112) 0 Withholding of foreign dividends and other (1,234) (20,210)

Income tax (2) (870,424) (52,675) Profi t after tax (1) + (2) 3,142,626 1,738,609

(*) The profi t relating to associates accounted for using the equity method is included under “Net Profi t of Companies Accounted for Using the Equity Method” in the accompanying consolidated income statements, shown after tax.



Deferred tax assets/liabilities

Pursuant to current tax legislation, in 2006 and 2005 there are certain temporary differences which must be taken into account when quantifying the related income tax expense. The deferred tax assets/liabilities recognised in the consolidated balance sheets at 31 December 2006 and 2005 arose from the following items:

The change in the balance of deferred tax assets and liabilities includes the revaluation resulting from the change to the income tax rate, as explained in this note. In addition, the balance of deferred tax liabilities relating to the valuation of available-for-sale assets was re-estimated without taking into account application of the reinvestment tax credit (see Note 1 – Comparative Information and Changes in Scope of Consolidation).

Deferred tax assets


Pension plan contributions 429,522 578,205 General loan-loss reserve 468,640 406,975 Funds for pre-retirement obligations 167,629 125,160 Origination fees for loans and receivables 43,896 67,655 Unused tax credits 154,050 461,926 Tax assets on valuation of available-for-sale fi nancial assets 2,126 6,731

Tax assets for extraordinary transfer to mathematical provision (Note 35) 242,497 145,465Other 41,308 250,295Total 1,549,668 2,042,412

Deferred tax liabilities


Revaluation of properties upon fi rst-time application of IFRSs 220,978 262,859 Tax liabilities on valuation of available-for-sale fi nancial assets 1,359,089 534,129

Caixa Holding (Repsol-YPF, SA, Telefónica, SA) 1,068,645 454,528Repinves (Repsol-YPF, SA) 155,724 51,086Caixa Barcelona Vida (Telefónica, SA) 76,949 28,515Negocio de Finanzas e Inversiones (Suez, SA) 57,771 0

Other 42,547 67,555Total 1,622,614 864,543



Provisions for taxes

The detail of “Provisions – Provisions for Taxes” in the consolidated balance sheets in 2006 and 2005 is as follows:

The changes in 2006 and 2005 in the balance of this item can be seen in Note 22.

29. Contingent liabilities and commitments

The detail of the balance of the item “Contingent Liabilities”, included in memorandum items in the accompanying consolidated balance sheets at 31 December 2006 and 2005, is as follows:

The detail of the balance of the item “Contingent Commitments”, included in memorandum items in the accompanying consolidated balance sheets at 31 December 2006 and 2005, is as follows:


Income tax assessment for years from 1991 through 2001 48,637 30,654 Tax credits for reinvestment of properties from loan recoveries 2,842 29,788Settlement of insurance transactions 71,540 0 Other tax charges (*) 28,856 43,427Other 998 998Total 152,873 104,867

(*) Includes, among others, provisions for local taxes.

Contingent liabilities


Bank guarantees and other indemnities provided 12,735,237 11,040,639 Credit derivatives sold 390,000 390,000 Documentary credits 434,695 333,778 Assets assigned to third-party obligations 46,873 39,447Total 13,606,805 11,803,864

Contingent commitments


Drawable by third parties 46,524,908 40,191,319 Credit institutions 227,796 154,839 Public sector 2,546,782 2,734,444 Other sectors 43,750,330 37,302,036

of which: conditionally drawable 92,842 73,740 Other contingent commitments 2,864,448 3,194,428Total 49,389,356 43,385,747



30. Other significant disclosures

30.1. Third-party funds managed by the Group

The detail of off-balance-sheet funds managed by the Group is as follows:

30.2. Asset securitisations

”la Caixa” converted a portion of its homogenous loan and credit portfolios into debt securities by transferring the assets to various securitisation funds set up for this purpose, whose participants assume the risks inherent to the securitised assets. In accordance with current legislation, securitised assets for which substantially all the associated risks are retained may not be derecognised. However, in accordance with transitional provision one of the aforementioned circular, it is not necessary to modify the recognition of securitised assets derecognised prior to 1 January 2004 under the provisions of the previous legislation.

In the case of assets securitised after 1 January 2004 for which significant risks are retained and which therefore have not been derecognised, under current legislation, the special purpose vehicle for the securitisation must be consolidated.

Consolidating the securitisation funds entails eliminating crossed transactions between Group companies, namely: loans securitised through securitisation funds, liabilities associated with assets not derecognised at ”la Caixa”, credit enhancements provided to securitisation funds and bonds purchased by Group companies.

The detail, by type, of securitised assets outstanding at 31 December 2006 and 2005 is as follows:

A detail of the securitised assets with the initial amounts of each and the amounts outstanding at 31 December 2005 and 2006, is provided below. As indicated above, the assets securitised after 1 January 2004 are included in the accompanying consolidated balance sheets and all assets securitised prior to that date were derecognised pursuant to the previous legislation.


Mutual funds 13,863,546 16,906,285 Pension funds 8,668,704 7,648,366 Insurance policies 5,405,594 5,589,818 Other adjusted funds (*) 1,075,776 154,815Total 29,013,620 30,299,284

(*) Includes, among others, securities managed for customers across the branch network, managed customer portfolios and adjustments made to eliminate duplications between on-balance-sheet funds and off-balance-sheet funds.


Mortgage loans 6,293,715 5,205,419Other loans (*) 4,081 9,464Total 6,297,796 5,214,883

(*) Basically relates to loans to SMEs.



Securitisation of loans and advances to customers

(Thousands of Euros) ISSUE DATE ACQUIRED BY: INITIAL AMOUNT

UNREDEEMED AMOUNT AT 31/12/2006

UNREDEEMED AMOUNT AT31/12/2005

July 1999 FonCaixa Hipotecario 1 - FTH 600,002 97,656 133,622 February 2001 FonCaixa Hipotecario 2 - FTH 600,037 190,662 237,203 July 2001 FonCaixa Hipotecario 3 - FTH 1,500,090 704,629 812,034 December 2001 FonCaixa Hipotecario 4 - FTH 600,168 283,149 330,646 October 2002 FonCaixa Hipotecario 5 - FTH 600,004 347,555 397,228 December 2002 FonCaixa Hipotecario 6 - FTH 600,066 355,517 405,113 December 2002 A y T FTGENCAT I, FTA 103,601 16,192 25,052 March 2003 GC FTGENCAT II, FTA 125,011 45,714 62,416 September 2003 FonCaixa Hipotecario 7 - FTH 1,250,133 850,448 955,767 November 2003 FonCaixa FTPYME 1, FTA 600,002 225,581 313,895 Transactions derecognised (Note 11.2) 6,579,114 3,117,103 3,672,976 March 2005 FonCaixa Hipotecario 8 - FTH 1,000,000 811,971 911,104 November 2005 FonCaixa FTGENCAT 3, FTA 656,500 498,741 630,803 March 2006 FonCaixa Hipotecario 9 - FTH 1,500,000 1,325,297 0 July 2006 FonCaixa FTGENCAT 4, FTA 606,000 544,684 0 Transactions kept on the balance sheet (Note 11.2) 3,762,500 3,180,693 1,541,907 Total 10,341,614 6,297,796 5,214,883



The credit enhancements provided by ”la Caixa” for each of the securitised assets were as follows:

Most bonds issued by the securitisation funds as balancing entries for the loans and receivables transferred were acquired by ”la Caixa” and therefore those relating to assets securitised prior to 1 January 2004 are recognised under “Loans and Receivables – Debt Instruments” in the accompanying consolidated balance sheets (Note 11.3) and those relating to securitisations subsequent to that date were eliminated on consolidation.

A detail of the amounts of the securitisation bonds initially acquired by ”la Caixa” and of the balances outstanding at 31 December 2006 and 2005 is as follows:

Credit enhancements for securitisation funds

(Thousands of Euros) AMOUNT AT 31/12/2006 AMOUNT AT 31/12/2005

ISSUE DATE HOLDER LOANS CREDITS (*) LOANS CREDITS (*)

July 1999 FonCaixa Hipotecario 1 - FTH 2,820 – 3,859 –February 2001 FonCaixa Hipotecario 2 - FTH 8,071 – 9,922 –July 2001 FonCaixa Hipotecario 3 - FTH 24,750 – 24,810 –December 2001 FonCaixa Hipotecario 4 - FTH 8,801 – 10,254 –October 2002 FonCaixa Hipotecario 5 - FTH 66 9,000 146 9,000 December 2002 FonCaixa Hipotecario 6 - FTH 74 10,620 142 10,620 December 2002 A y T FTGENCAT I, FTA 2,426 – 3,589 –March 2003 GC FTGENCAT II, FTA 70 14,111 121 14,111 September 2003 FonCaixa Hipotecario 7 - FTH 160 18,750 241 18,750 November 2003 FonCaixa FTPYME 1, FTA 159 10,918 242 12,300 Transactions not eliminated on consolidation 47,397 63,399 53,326 64,781 March 2005 FonCaixa Hipotecario 8 - FTH 254 8,000 341 7,998 November 2005 FonCaixa FTGENCAT 3, FTA 371 10,000 500 10,000 March 2006 FonCaixa Hipotecario 9 - FTH 338 12,000 – –July 2006 FonCaixa FTGENCAT 4, FTA 354 6,525 – – Transactions eliminated on consolidation 1,317 36,525 841 17,998 Total 48,714 99,924 54,167 82,779

Note: All loans and credits are subordinated.(*) The amounts under «Credits» show the maximum available limit.



(Thousands of Euros)DATE ISSUE

INITIAL AMOUNT BONDS ACQUIRED



July 1999 FonCaixa Hipotecario 1 - FTH 600,000 98,936 135,411 Preferred bonds - Aaa 585,300 84,236 120,711 Subordinated bonds - A1 14,700 14,700 14,700

February 2001 FonCaixa Hipotecario 2 - FTH 600,000 201,787 248,454 Preferred bonds - Aaa 580,500 182,287 228,954

Subordinated bonds - A1 19,500 19,500 19,500 July 2001 FonCaixa Hipotecario 3 - FTH 1,500,000 727,605 840,381

Preferred bonds - Aaa 1,432,500 660,105 772,881 Subordinated bonds - A2 67,500 67,500 67,500

December 2001 FonCaixa Hipotecario 4 - FTH 600,000 286,015 334,908 Preferred bonds - Aaa 583,200 269,215 318,108 Subordinated bonds - A2 16,800 16,800 16,800

October 2002 FonCaixa Hipotecario 5 - FTH 600,000 358,746 410,907 Preferred bonds - Aaa 585,000 343,746 395,907 Subordinated bonds - A2 15,000 15,000 15,000

December 2002 FonCaixa Hipotecario 6 - FTH 600,000 365,788 417,062 Preferred bonds - AAA (*) 582,000 347,788 399,062 Subordinated bonds - A (*) 18,000 18,000 18,000

December 2002 A y T FTGENCAT I, FTA 103,600 14,358 16,815 Preferred bonds - Aa1 92,200 2,958 5,415 Subordinated bonds - Aa2 3,100 3,100 3,100 Subordinated bonds - A2 3,100 3,100 3,100 Subordinated bonds - Ba1 5,200 5,200 5,200

March 2003 GC FTGENCAT II, FTA 32,000 15,884 19,273 Preferred bonds - Aa1 23,300 7,184 10,573 Subordinated bonds - Aa2 2,300 2,300 2,300 Subordinated bonds - A1 2,300 2,300 2,300 Subordinated bonds - Baa1 4,100 4,100 4,100

September 2003 FonCaixa Hipotecario 7 - FTH 1,250,000 874,161 984,100 Preferred bonds - Aaa 1,220,000 844,161 954,100 Subordinated bonds - A2 30,000 30,000 30,000

November 2003 FonCaixa FTPYME 1 - FTA 376,500 191,500 191,500 Preferred bonds - Aaa 330,900 145,900 145,900 Subordinated bonds - A2 37,800 37,800 37,800 Subordinated bonds - Baa2 7,800 7,800 7,800

Bonds recognised in the balance sheet 6,262,100 3,134,780 3,598,811 March 2005 FonCaixa Hipotecario 8 - FTH 1,000,000 818,578 918,299

Preferred bonds - Aaa 971,000 789,578 889,299 Subordinated bonds - A1 22,500 22,500 22,500 Subordinated bonds - Baa2 6,500 6,500 6,500

November 2005 FonCaixa FTGENCAT 3, FTA 207,200 207,200 207,200 Preferred bonds - Aaa 175,700 175,700 175,700 Subordinated bonds - A1 10,700 10,700 10,700 Subordinated bonds - Baa2 7,800 7,800 7,800 Subordinated bonds - Ba2 6,500 6,500 6,500 Subordinated bonds - C 6,500 6,500 6,500

March 2006 FonCaixa Hipotecario 9 - FTH 1,500,000 1,346,163 0 Preferred bonds - Aaa 1,463,200 1,309,363 0 Subordinated bonds - A1 29,200 29,200 0 Subordinated bonds - Baa2 7,600 7,600 0

July 2006 FonCaixa FTGENCAT 4, FTA 280,000 280,000 0 Preferred bonds - Aaa 251,200 251,200 0 Subordinated bonds - A2 9,600 9,600 0 Subordinated bonds - Baa2 7,200 7,200 0 Subordinated bonds - Ba1 6,000 6,000 0 Subordinated bonds - C 6,000 6,000 0

Bonds eliminated on consolidation 2,987,200 2,651,941 1,125,499Total 9,249,300 5,786,721 4,724,310



30.3. Securities deposits and investment services

A detail, by type, of the securities deposited by customers with ”la Caixa” and with the rest of the Group companies is as follows:

Listed securities are recognised at market value at each year-end, and unlisted securities are recognised at face value.

30.4 Financial assets derecognised due to impairment

The changes in 2006 and 2005 in the items derecognised because their recovery was deemed to be remote are summarised below. These financial assets are recognised under “Written-Off Assets” in the memorandum items supplementing the accompanying consolidated balance sheets.

”la Caixa”


Book-entries 83,670,812 73,654,212 Securities recorded in the market’s book-entry trading central offi ce 55,888,085 47,051,597

Equity instruments. Quoted 36,238,293 27,519,560 Equity instruments. Unquoted 51,075 75,105 Debt instruments. Quoted 19,598,717 19,456,932

Securities recorded at the entity itself 0 108,700 Debt instruments. Unquoted 0 108,700

Securities entrusted to other depositaries 27,782,727 26,493,915 Equity instruments. Quoted 5,453,448 4,108,136 Equity instruments. Unquoted 12,918 13,060 Debt instruments. Quoted 22,316,361 22,372,719

Physical securities 3,043,260 1,664,660 Held by the entity 3,043,070 1,664,360

Equity instruments 941,003 958,704 Debt instruments 2,102,067 705,656

Entrusted to other entities 190 300 Equity instruments 190 300

Other fi nancial instruments 910,443 1,389 ”la Caixa” subtotal 87,624,515 75,320,261

Other Group companies


Debt instruments 0 2,646,604 Equity instruments 0 3,874,582 Other fi nancial instruments 0 1,581,968 Other Group companies subtotal (1) 0 8,103,154Total 87,624,515 83,423,415

(1) At 31 December 2006, no amount is recognised for securities deposits and investment services due to the exclusion of the companies which provided these services (see Note 1 - Comparative information and changes in scope of consolidation).



30.5. Geographical distribution of volume of business

Since all the branches of the ”la Caixa” Groups’ credit institutions offer their customers the whole range of products and services, the volume of business by geographical area is broken down below into the following classification of branches by Spanish autonomous community, country and representative office abroad at 31 December 2006 and 2005:


Balance at beginning of year 623,134 572,779 Additions: 86,921 102,342 With a charge to impairment allowances(Notes 11.2, 11.5 and 42) 63,218 47,839

With a direct charge to the income statement (Notes 11.2 and 42) 9,989 15,894 Other 13,714 38,609 Reductions: (38,854) (51,987) Cash recovery of principal and/or past-due income receivable (Note 42) (32,189) (16,461) Forgiveness or expiry (6,665) (2,298)Other 0 (33,228) Balance at end of year 671,201 623,134

AUTONOMOUS COMMUNITY

2006 2005

NUMBER OF BRANCHES

% NUMBER OF BRANCHES

%

Andalusia 613 11.82 586 11.59 Aragon 93 1.79 92 1.82 Asturias 75 1.45 71 1.41 Balearic Islands 242 4.67 239 4.73 Canary Islands 150 2.89 146 2.89 Cantabria 44 0.85 40 0.79 Castile-la Mancha 114 2.20 111 2.20 Castile-Leon 201 3.88 141 2.79 Catalonia 1,789 34.50 1,776 35.15 Valencian Community 478 9.22 447 8.85 Extremadura 64 1.23 51 1.01 Galicia 182 3.51 167 3.30 La Rioja 28 0.54 26 0.51 Madrid 751 14.48 736 14.57 Murcia 131 2.53 120 2.37 Navarre 54 1.04 53 1.05 Basque Country 170 3.26 166 3.29 Total branches in Spain 5,179 99.86 4,968 98.32 France 0 0.00 55 1.09 Andorra 0 0.00 24 0.47 Representative offi ces Germany (Stuttgart) 1 0.02 1 0.02 Belgium ( Brussels) 1 0.02 1 0.02 Italy ( Milan) 1 0.02 1 0.02 Morroco (Casablanca) 1 0.02 1 0.02 Portugal (Porto) 1 0.02 1 0.02 Portugal (Lisboa) (*) 1 0.02 0 0.00 United Kingdom (London) 1 0.02 1 0.02 Total branches 5,186 100.00 5,053 100.00

(*) Location reporting to the Porto representative offi ce.



The Board of Directors has resolved to open an operating branch in Poland and another in Romania which is scheduled to open in 2007.

31. Interest and similar income

This item in the accompanying consolidated income statements includes the interest accrued in the year on financial assets with implicit or explicit returns obtained by applying the effective interest method, together with the adjustments to income arising from accounting hedges.

The breakdown of the balance of this item in the accompanying consolidated income statements in 2006 and 2005 by type of the related financial transaction is as follows:

The return earned on debt securities, according to the portfolio in which they are recognised in the accompanying consolidated balance sheets, basically relates to financial assets held for trading, available-for-sale financial assets and loans and receivables.

32. Interest expense and similar charges

This item in the accompanying consolidated income statements includes the interest accrued in the year on financial liabilities with implicit or explicit returns, including the interest arising from payments in kind, obtained by applying the effective interest method, together with the cost adjustments arising from accounting hedges and the cost for interest attributable to existing pension funds.

The breakdown of the balance of this item in the accompanying consolidated income statements in 2006 and 2005 by type of the related financial transaction is as follows:


Central banks 49,197 31,255 Credit institutions 577,826 321,068 Money market operations through counterparties 70 1,916 Loans and advances to customers and other fi nancial income 5,111,237 3,784,432 Debt instruments 194,321 158,811Adjustment to income due to hedging transactions (8,916) 3,228Total 5,923,735 4,300,710


Central banks (1,297) (294) Credit institutions (445,428) (274,304) Money market operations through counterparties (86) (27) Deposits from customers and other fi nancial charges (1,932,806) (1,452,332) Marketable debt securities (1,095,560) (615,906) Subordinated liabilities (Note 20.4) (135,630) (137,290) Return on equity having the substance of a fi nancial liability (Note 23) (123,830) (110,791)Adjustment to expenses due to hedging transactions 342,520 492,118 Cost allocable to pension funds (Note 22) (10,586) (8,691)Total (3,402,703) (2,107,517)



33. Income from equity instruments

The breakdown of the balance of this item in the accompanying consolidated income statements in 2006 and 2005 is as follows:

34. Fee and commission income and expense

The most significant fee and commission income and expenses recognised in the accompanying consolidated income statements in 2006 and 2005, by type of the related non-financial service, are as follows:


Banco BPI, SA 14,707 12,156Banco Itaú Holding Financeira, SA 0 7,294Banco de Sabadell, SA 28,571 24,433Crèdit Andorrà, SA 23,175 0Endesa, SA 92 27,784Fortis 0 15,418Repsol-YPF, SA 100,685 83,905Suez, SA 17,222 16,086Telefónica, SA 102,583 88,929Other 13,738 13,722Total 300,773 289,727

Fee and commission income


Contingent liabilities 61,825 49,534 Credit facility drawdowns 17,218 13,598 Exchange of foreign currencies and banknotes 3,599 4,053 Collection and payment services 757,859 756,127

of which, credit and debit cards 471,913 493,642 Securities services 154,890 154,640 Marketing and sale of non-banking fi nancial products 307,945 306,594 Other fees and commissions 166,632 146,503Total 1,469,968 1,431,049

Fee and commission expense


Assigned to other entities and correspondents (125,307) (145,331) of which, card and automated-teller machine transactions (113,265) (130,487)

Securities transactions (11,414) (17,581) Other fees and commissions (34,272) (32,855)Total (170,993) (195,767)



35. Insurance activity

As a result of the entry into force of IFRSs and Bank of Spain Circular 4/2004, the Group’s insurance companies incorporated their financial statements into those of the ”la Caixa” Group using the full or proportionate consolidation method, subject to their status as subsidiaries or jointly controlled companies. The companies adapted their accounting records to the measurement bases and policies determined by the new legislation applicable to groups of credit institutions.

The Group’s insurance business is basically conducted through the companies in the CaiFor Group. CaiFor is a holding company which is owned in equal shares by ”la Caixa” and the Belgian-Dutch group Fortis, which has an ownership interest in VidaCaixa, SA de Seguros y Reaseguros, a company specialised in life insurance and pension plan management, and SegurCaixa, SA de Seguros y Reaseguros, which is specialised in non-life insurance, and more specifically, in homeowners and homeowners’ associations’ insurance, and construction and accident insurance. The Group’s aggregate ownership interests in each of these companies are 60% and 39.94%, respectively. As a result of their status as jointly controlled entities, they are included in the consolidated financial statements using the proportionate consolidation method.

The consolidated financial statements also include the results of operations of Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros, which is indirectly wholly owned by ”la Caixa” and fully consolidated. Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros is the company to which ”la Caixa” transferred its insurance business in 1994, as credit institutions were no longer allowed to include insurance transactions in their financial statements. Since then, the activity of this company has been confined to holding the existing transactions through expiration. Since the establishment of the CaiFor group, the execution of new insurance contracts has been channelled through its subsidiaries.

The ”la Caixa” insurance group is completed with other companies having their head office in Andorra, which include CaixaBank Vida, SA and Credit Assegurances, SA, which were subsidiaries of the credit institutions, CaixaBank, SA and Crèdit Andorrà, SA, respectively. Following the disposal of the ”la Caixa” Group’s entire ownership interest in Crèdit Andorrà, SA, these companies no longer form part of the Group’s scope of consolidation.

The aggregate post-tax profit generated by all the ”la Caixa” Group’s insurance companies amounted to EUR 143 million in 2006 (2005: EUR 127 million).

On consolidation, this figure is added to the profit of the rest of the Group companies and recognised through the income statement on the basis of the nature of the income and expenses originating them and the consolidation percentage, after eliminating the balances arising from transactions with the rest of the ”la Caixa” Group companies.

The income or expense accrued in the year in relation to premiums collected net of reinsurance paid, benefits paid as a result of claim liabilities, transfers to the mathematical provisions and finance income and costs, is recognised under “Insurance Activity Income”. However, other income statement headings include a portion of the results of the insurance business, namely: “Income from Equity Instruments”, for the dividends earned basically by the portfolio of equity instruments available for sale; “Fee and Commission Income” and “Fee and Commission Expense”, particularly for insurance contract and pension plan marketing transactions; “Personnel Expenses”; “Other General Administrative Expenses”, “Other Gains” and “Other Losses”, which show the net proceeds on disposal of ownership interests, and “Income Tax”.

All these companies prepare their individual financial statements or those of the insurance group, where appropriate, for 2006 and 2005, in accordance with the accounting legislation in force applicable to insurance companies established by the Spanish Insurance Regulatory Authorities.



In 2005, in accordance with a conservative interpretation of International Financial Reporting Standards, in particular IFRS 4, which is an interim standard, the ”la Caixa” Group carried out a liability adequacy test on insurance contracts in order to determine whether they were adequate to meet future obligations. The result of the test disclosed the need for an extraordinary transfer to the mathematical provisions amounting to EUR 308 million (EUR 200 million net of taxes), due to the changes in the spread between the guaranteed rates and the market rates and the application of the assumptions considered, mainly the surrender rate and the discount rate curve. The surrender rate was re-estimated in 2006 to bring it into line with the performance observed in recent years. As a result of the adequacy test, an extraordinary transfer to the mathematical provisions was carried out in the amount of EUR 286 million (EUR 200 million after taxes) which are recognised under “Insurance Activity Income – Net Provisions for Insurance Contract Liabilities” in the accompanying consolidated income statements. The transfers made arose as a result of the transactions included in the balance sheet of Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros, relating to transactions carried out between 1980 and 1991 in a context characterised by high interest rates, which were transferred in 1994 from ”la Caixa” to Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros, as ”la Caixa” was no longer allowed by law to include insurance transactions in its balance sheet. Since then, Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros has not entered into any new transactions and has confined itself to holding the insurance transactions executed previously.

The balance of the heading “Insurance Activity Income”, upon elimination of the effect of the aforementioned extraordinary transfers, amounts to EUR 82 million in 2006 (2005: EUR 70 million, a 17.1% increase).

36. Gains/losses on financial assets and liabilities

The breakdown, by origin, of the balance of “Gains/Losses on Financial Assets and Liabilities” in the accompanying consolidated income statements is as follows:


Held for trading (15,205) (20,061) Debt instruments (8,966) (9,678) Equity instruments 5,730 2,071 Financial derivatives (11,969) (12,454)

Available-for-sale fi nancial assets (Note 10) 1,069,890 546,069 Debt instruments 485 11,564 Equity instruments 1,069,405 534,505

Hedging derivatives 18,254 16,075 Other 4,023 656 Total 1,076,962 542,739



37. Sales and income from the provision of non-financial services and cost of sales

These items in the accompanying consolidated income statements show the total amount of sales of assets and income from the provision of services, and the related costs and expenses, that constitute the typical activity of the non-financial consolidated subsidiaries. The detail of the most significant lines of business is as follows:

The balances of property income recognised through sales of assets and income from the provision of services arise from the sale of property developments and rentals of buildings classified in the accompanying consolidated balance sheets under “Tangible Assets – Investment Property” (see Note 17).

The amounts of the property business lines include the results of Inmobiliaria Colonial, SA until 30 June 2006, when this company ceased to be included in the scope of consolidation.

38. Other operating income

The breakdown of the balance of this item in the accompanying consolidated income statements is as follows:

Line of business


Sales/income from the provision of non-fi nancial services Property 284,371 594,220 Leisure 172,569 158,050 Other activities 43,165 68,735

Total 500,105 821,005 Cost of sales

Property (84,408) (159,872) Leisure (21,929) (21,723)Other activities (26,944) (41,234)

Total (133,281) (222,829)


Financial fees and commissions offsetting direct costs (Note 2.5 and 41) 121,489 96,229 Income from investment property 5,311 4,428 Income from other operating leases (Notes 1 and 2.10) 73,287 14,012Other income 25,985 32,742Total 226,072 147,411



39. Personnel expenses

The detail of this item in the accompanying consolidated income statements for 2006 and 2005 is as follows:

The item “Other Personnel Expenses” includes the non-monetary remuneration paid to ”la Caixa” employees through credit facilities made available to them, which are calculated as the difference between market rates and the rates agreed with employees. The market interest rate, both for mortgage loans and personal loans, is set each year at the 1-year Euribor prevailing in October, to become applicable on 1 January of the next year (in 2006 and 2005 it was Euribor +0.5 points for mortgage loans and Euribor +1.0 points for personal loans). The interest rate agreed with employees under the labour legislation for mortgage loans is Euribor –2.5 points, subject to a clause stipulating a minimum rate of 0.10%, whereas the interest rate agreed for personal loans is equal to Euribor. The amounts recognised in this connection amount to EUR 38,952 thousand in 2006 (2005: EUR 33,953 thousand). This item also includes training expenses, grants for studies and transfers to the provision for length-of-service bonuses (see Note 22).

In 2006 and 2005 the average number of employees at the Group entities, by professional category, was as follows:

The average number of employees between 2006 and 2005 was affected by the changes in the composition of the scope of consolidation (see Note 1 – Comparative Information and Changes in Scope of Consolidation).

Detail by type of remuneration


Wages and salaries (1,285,164) (1,249,036) Social security costs (249,669) (245,001) Transfers to defi ned benefi t plans (456) (662) Transfers to defi ned contribution plans (Notes 2.12 and 22) (103,663) (107,830) Other personnel expenses (144,222) (135,264)Total (1,783,174) (1,737,793)

Average number of employees

2006 2005

Executives 153 199 Managers 12,161 11,937 Clerical staff 11,548 12,378 Support staff 2,351 1,450 Temporary employees 1,189 1,841Total 27,402 27,805



40. Other general administrative expenses


In 2006 the foregoing “Other Expenses” item includes EUR 1,294 thousand relating to the fees and expenses of Deloitte, SL in connection with the audit of the consolidated and individual financial statements of each of the Spanish fully and proportionately consolidated companies audited by that firm, and EUR 623 thousand relating to other services connected with the audit. This item also includes EUR 957 thousand relating to consulting services provided by the service lines of Deloitte, SL and related companies at 31 December 2006. None of these amounts include the related VAT.

In 2005 the foregoing “Other Expenses” item includes EUR 1,412 thousand relating to the fees and expenses of Deloitte, SL in connection with the audit of the consolidated and individual financial statements of each of the Spanish fully and proportionately consolidated companies audited by that firm, and EUR 692 thousand relating to other services connected with the audit. This item also includes EUR 336 thousand relating to consulting services provided by the service lines of Deloitte, SL and related companies at 31 December 2005. None of these amounts include the related VAT.

This item also includes EUR 276 thousand relating to the fees and expenses of other auditors for the audit of the rest of the Spanish fully and proportionately consolidated Group companies. The fees charged by those auditors and other companies related to them in 2006 for consulting and other services amount to EUR 905 thousand. None of these amounts include the related VAT.

41. Other operating expenses


In 2006 and 2005 “Other” basically relates to the cost of the insurance taken out by ”la Caixa” to cover the risk of financing between 80% and 99% of collateral when a basic mortgage, mainly aimed at new residents, is taken out. The amount charged to customers in this connection is recognised under “Other Operating Income – Financial Fees and Commissions Offsetting Direct Costs” (see Note 38).


Technology and systems (159,755) (160,950) Communications (65,407) (65,008) Advertising (139,397) (127,007) Property and fi xtures (100,354) (115,454) Taxes other than income tax (57,119) (76,034) Rentals (71,708) (69,302) Other expenses (238,283) (239,651)Total (832,023) (853,406)


Investment property operation expenses (6,910) (2,437) Contribution to Deposit Guarantee Fund (Note 1) (35,574) (30,368) Other (34,419) (12,067)Total (76,903) (44,872)



42. Impairment losses

The detail of the balance of this item in the accompanying consolidated income statements for 2006 and 2005, and of the changes therein, is as follows:

The provisions which, at 31 December 2006 and 2005, covered impairment losses are detailed below. These balances and the changes recognised in 2006 and 2005 are first classified by type of asset, and then, by portfolio, the value of which is adjusted in the accompanying consolidated balance sheets.

Detail of “ Impairment Losses (Net)”


Write-downs (16,542) (75,278) Tangible assets (Note 17) (4,587) (15,819) Equity instruments - available for sale (Note 10) (1,966) (34,383) Investments 0 (8,908) Goodwill (Note 15) 0 (274) Loans and receivables (Note 30.4) (9,989) (15,894)

Net losses (494,126) (331,368) Recovery of assets (Note 30.4) 32,189 16,461 Total (478,479) (390,185)

Impairment losses by type of asset


NET LOSSES

AMOUNTS USED

TRANSFERS AND OTHER


Debt instruments (Note 11.5) 3,417 (987) 0 (1,696) 734 Specifi c provision 1,577 120 0 (1,697) 0 General provision 1,840 (1,107) 0 1 734

Investments (Note 15) 378 (251) (4) 39 162 Non-current assets held for sale (Note 14) 3,714 (630) 0 35 3,119

Loans and advances to customers (Note 11.5) 1,705,880 495,994 (63,218) (78,137) 2,060,519

Country risk provision 1,936 (11) 0 (903) 1,022 Specifi c provision 191,904 73,878 (63,218) (41,157) 161,407 General provision 1,512,040 422,127 0 (36,077) 1,898,090

Inventories (Note 19) 12,676 0 0 (12,130) 546 Total 1,726,065 494,126 (63,222) (91,889) 2,065,080




NET LOSSES

AMOUNTS USED

TRANSFERS AND OTHER


Debt instruments (Note 11.5) 13,768 305 (17) (10,639) 3,417 Specifi c provision 1,065 523 (11) 0 1,577 General provision 12,703 (218) (6) (10,639) 1,840

Investments (Note 15) 2,314 (7) (183) (1,746) 378 Non-current assets held for sale (Note 14) 525 (142) 0 3,331 3,714

Loans and advances to credit institutions 0 8 (8) 0 0

Loans and advances to customers (Note 11.5) 1,416,050 325,471 (47,831) 12,190 1,705,880

Country risk provision 1,992 (64) 0 8 1,936 Specifi c provision 179,876 55,682 (46,310) 2,656 191,904 General provision 1,234,182 269,853 (1,521) 9,526 1,512,040

Inventories (Note 19) 806 5,733 (3,499) 9,636 12,676 Total 1,433,463 331,368 (51,538) 12,772 1,726,065

Impairment losses of assets by portfolio


NET LOSSES

AMOUNTS USED

TRANSFERS AND OTHER


Available-for-sale fi nancial assets (Note 10) 3,211 (898) 0 (1,696) 617

Loans and receivables (*) (Note 11.5 and 30.4) 1,706,086 495,905 (63,218) (78,137) 2,060,636 Non-current assets held for sale (Note 14) 3,714 (630) 0 35 3,119 Investments (Note 15) 378 (251) (4) 39 162 Other assets (Note 19) 12,676 0 0 (12,130) 546 Total 1,726,065 494,126 (63,222) (91,889) 2,065,080

(*) Includes impairment losses on debt instruments at amortised cost.


NET LOSSES

AMOUNTS USED

TRANSFERS AND OTHER


Available-for-sale fi nancial assets (Note 10) 13,764 99 (13) (10,639) 3,211

Loans and receivables (*)

(Note 11.5 and 30.4) 1,416,050 325,685 (47,839) 12,190 1,706,086

Held-to-maturity investments (Note 12) 4 0 (4) 0 0

Non-current assets held for sale (Note 14) 525 (142) 0 3,331 3,714 Investments (Note 15) 2,314 (7) (183) (1,746) 378 Other assets (Note 19) 806 5,733 (3,499) 9,636 12,676 Total 1,433,463 331,368 (51,538) 12,772 1,726,065

(*) Includes impairment losses on debt instruments at amortised cost.



43. Finance income and expenses from non-financial activities

These items in the accompanying consolidated income statements show, respectively, the finance income and expenses earned or incurred by the non-financial subsidiaries and jointly controlled entities, excluding insurance entities. The breakdown, by activity of the subsidiaries, of these income and expenses is as follows:

The finance expenses of the property business relate mainly to financing provided to Inmobiliaria Colonial, SA for the acquisition of Société Foncière Lyonnaise, SA in 2004. The amounts relating to 2006 include the results of Inmobiliaria Colonial, SA only until 30 June 2006, when this company ceased to be included in the scope of consolidation.

44. Other gains and other losses

The breakdown of the balance of these items in the accompanying consolidated income statements is as follows:

In 2005 the net gains on disposal of other tangible assets included EUR 185.6 million relating to the disposal of assets by the Inmobiliaria Colonial Group, basically arising from the disposal of the Barcelona 2 complex (the gain net of tax and minority interests amounted to EUR 72 million) (see Note 17).

The remaining gains relate basically to disposals of investment properties and non-current assets held for sale which, taken separately, do not involve significant amounts in any case.

The proceeds on disposal of investments in Group subsidiaries in 2006 and 2005 basically relate to:

Crèdit Andorrà, SA. In 2006 the Group sold its entire interest in the capital of this company, which gave rise to a gain after tax of EUR 425 million (see Note 5).


Income Property 9,145 15,348 Leisure 64 398 Other activities 3 6

Total 9,212 15,752 Expenses

Property (59,876) (120,463) Leisure (1,235) (10,054) Other activities 0 (499)

Total (61,111) (131,016)


GAINS LOSSES GAINS LOSSES

On disposal of tangible assets 54,522 (555) 245,147 (2,931) Non-current assets held for sale (Note 14) 11,060 (98) 14,891 (1,042) Other tangible assets (Note 17) 43,462 (457) 230,256 (1,889)

On disposal of investments (Note 5) 1,859,582 (473) 141,730 0 Other 35,657 (61,657) 29,599 (86,313)Total 1,949,761 (62,685) 416,476 (89,244)



Inmobiliaria Colonial, SA. In 2006 the Group sold its entire interest in this company (see Note 5). The transaction gave rise to gross profits of EUR 1,041 million (EUR 680 million net of tax). In 2005 the Group sold 5.51% of its interest in the capital of this company, which gave rise to a gross gain of EUR 95.9 million (EUR 82 million net of tax).

CaixaBank France, SA. In 2006 the Group sold its entire interest in the capital of this company (see Note 5).

Société Foncière Lyonnaise, SA. In 2005 the Group sold a 6% ownership interest in this company, which was part of the group of subsidiaries of Inmobiliaria Colonial, SA.

CaixaBank Banque Privée, SA. In 2005 the Group completed the disposal agreed in 2004 of its full ownership interest in this Swiss bank to BNP Paribas Private Bank.

Edicions 62, SA. In 2006 the Group reduced its 88.91% ownership interest to 30%, giving rise to a gross gain of EUR 5 million.

“Other – Loss” includes the extraordinary contributions to policies to cover supplementary post-employment guarantees (see Note 22).

45. Transactions with related parties

Under Article 15 of the Bylaws of ”la Caixa”, loans, guarantees and sureties provided to members of the Board of Directors or the Control Committee, the President and Chief Executive Officer, or their spouses, ascendants, descendants and collateral relatives down to the second degree, and to companies in which these persons hold an ownership interest that, either separately or in the aggregate, is a majority interest, or in which they hold the position of chairman, director, manager, general manager or similar positions, must be approved by the Board of Directors, which must notify the Department of Economy and Finance of the Catalonia Autonomous Community Government and obtain its express approval.

The approval policy for loans to members of the Board of Directors or the Control Committee who are employees of ”la Caixa” or senior executives is governed by the provisions of the collective bargaining agreement for the savings banks industry and the internal implementing labour legislation (see Notes 2.11 and 40).

All other loan and deposit transactions and financial services arranged by the ”la Caixa” Group with “key directors and executives” (Board of Directors, Control Committee and Senior Executives), which are not subject to labour legislation, were approved under normal market conditions. None of these transactions involve any material amounts affecting a proper interpretation of the financial statements.

All material inter-company balances held at the end of 2006 and 2005 and the effect of inter-company transactions during the years were eliminated on consolidation. The detail of the Group’s most significant balances with associated companies, and jointly controlled companies for the portion not eliminated on consolidation, and with directors, Senior Executives and other related parties (relatives and companies related to members of the Board of Directors, the Control Committee and Senior Executives, to the best of the Institution’s knowledge), and of the effect on the consolidated income statements of transactions carried out with them, is as follows:



2006

(Thousands of Euros) ASSOCIATES AND JOINTLY CONTROLLED COMPANIES

DIRECTORS AND SENIOR EXECUTIVES

OTHER RELATED PARTIES (1)

Assets Loans and advances to credit institutions 130,650 – – Loans and advances to customers 810,349 10,775 17,417 Reverse repurchase agreements 633,407 0 0 Mortgage loans 0 5,872 13,589 Other loans and credits 176,942 4,903 3,828Total 940,999 10,775 17,417 Liabilities Deposits from credit institutions 31,446 – – Customer deposits (2) 832,188 8,299 15,712 Off-balance-sheet liabilities (3) 0 27,337 55,836Total 863,634 35,636 71,548 Income statement Interest expense and similar charges (30,095) (239) (271) Interest and similar income 33,359 313 664Total 3,264 74 393Other Contingent liabilities - Financial guarantees 3,370,757 16 979

Contingent commitments - Drawable by third parties 458,297 2,364 11,531

Accrued defi ned benefi t post-employment obligations – 81,781 –Total 3,829,054 84,161 12,510

(1) Family members and entities related to members of the Board of Directors, the Control Committee and Senior Executives and other related parties such as the Employee pension plan, etc.

(2) Includes Deposits, Marketable debt securities and Subordinated debt.(3) Includes Mutual funds, Insurance contracts, Pension funds and Post-employment obligations contributed.



At 31 December 2006 and 2005, there is no evidence of impairment in the value of the financial assets or the sureties or contingent commitments held with “key directors and executives”.

The balances of lending transactions at 31 December 2006 and 2005 arranged with directors and senior executives have an average maturity of 15.9 and 16.5 years and earn interest at an average rate of 3.5% and 2.6%, respectively.

Financing provided in 2006 and 2005 to directors and senior executives amounted to EUR 4,101 thousand and EUR 9,726 thousand, with an average maturity period of 7.8 and 13.2 years, earning interest at an average rate of 3.9% and 2.8%, respectively.

46. Other disclosure requirements

46.1. Customer ombudsman and customer care service

The report on the Customer Care Service for 2006 to be submitted for approval by the Board of Directors by 31 March 2007 is summarised below. This report describes the outcome of the claims and complaints (hereinafter “complaints”) handled by the Customer Care Service of ”la Caixa” in 2006.

2005

(Thousands of Euros) ASSOCIATES AND JOINTLY CONTROLLED COMPANIES

DIRECTORS AND SENIOR EXECUTIVES

OTHER RELATED PARTIES (1)

Assets Loans and advances to credit institutions 55,787 – – Loans and advances to customers 1,030,219 13,463 16,790

Reverse repurchase agreements 919,834 0 0 Mortgage loans 0 8,294 13,933 Other loans and credits 110,385 5,169 2,857

Total 1,086,006 13,463 16,790 Liabilities Deposits from credit institutions 22,400 – – Customer deposits (2) 1,346,366 8,352 12,394 Off-balance-sheet liabilities (3) 0 26,663 35,278Total 1,368,766 35,015 47,672 Income statement Interest expense and similar charges (21,803) (167) (163) Interest and similar income 22,992 187 484Total 1,189 20 321Other Contingent liabilities - Financial guarantees 4,105,877 0 1,317

Contingent commitments - Drawable by third parties 927,962 2,931 18,192

Accrued defi ned benefi t post-employment obligations and similar items – 76,655 – Other transactions (4) 0 11 22Total 5,033,839 79,597 19,531

(1) Family members and entities related to members of the Board of Directors, the Control Committee and Senior Executives and other related parties such as the Employee pension plan, etc.

(2) Includes Deposits, Marketable debt securities and Subordinated debt. (3) Includes Mutual funds, Insurance contracts, Pension funds and Post-employment obligations contributed. (4) Includes transactions performed with other non-fi nancial Group companies, mainly relating to the property and renting industries, etc.



Pursuant to the customer ombudsmen regulations of ”la Caixa” which were drawn up in compliance with Ministry of Economy and Finance Order ECO/734/2004, of 11 March, on customer care departments and services and customer ombudsmen at financial institutions, the customer ombudsman of the Catalan Savings Banks has jurisdiction over complaints involving sums of up to EUR 120,000. The Customer Care Service is responsible for the resolution of complaints involving sums in excess of EUR 120,000, and for the coordination of the ancillary customer services voluntarily set up by ”la Caixa” to provide customers with the channels required for faster and more expedient resolution of their complaints and to handle matters which, owing to their form, addressee, content or circumstances, legally do not constitute complaints but merely suggestions, requests or other communications.

Complaints received by the Customer Care Service (amounts exceeding EUR 120,000)

The detail of the complaints received by the Customer Care Service in 2006 and 2005 is as follows:

No payments were made to customers in connection with complaints resolved in their favour in 2006 and 2005.

In 2006 and 2005 no complaints were filed with the Customer Care Service against the ”la Caixa” Group entities, other than Caja de Ahorros y Pensiones de Barcelona, which are subject to its Regulations.

Summary of complaints submitted to the Customer Ombudsman (amounts up to EUR 120,000)

Complaints in 2006

ADMITTED FOR CONSIDERATION

REFERRED TO THE CUSTOMER

OMBUDSMANTOTAL

RESOLVED IN THE CUSTOMER’S

FAVOUR

DISMISSEDBY

CUSTOMER

SETTLED IN ”la Caixa” FAVOUR

0 1 2 46 49

Complaints in 2005

ADMITTED FOR CONSIDERATION

REFERRED TO THE CUSTOMER

OMBUDSMANTOTAL

RESOLVED IN THE CUSTOMER’S

FAVOUR

DISMISSEDBY

CUSTOMER

SETTLED IN ”la Caixa” FAVOUR

1 0 3 33 37

By complainee

MEMBER ENTITIES

NUMBER OF COMPLAINTS

2006 2005

”la Caixa” 556 599Banco de Europa, SA 0 1Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros 0 1Corporación Hipotecaria Mutual, EFC, SA 0 2Finconsum, EFC, SA 11 4InverCaixa Gestión, SGIIC, SA 14 4SegurCaixa, SA de Seguros y Reaseguros 68 42VidaCaixa, SA de Seguros y Reaseguros 46 38GDS Correduría de Seguros, SL 1 0Caixarenting, SA 2 0Total 698 691



Other internal channels for submitting complaints

In addition to the Customer Care and the Customer Ombudsman Services, ”la Caixa” provides customers and users with the following internal channels for handling their complaints:

• Free Customer Care telephone service (complaints resolved: 6,226 in 2006 and 6,408 in 2005).

• Letters to the President and Chief Executive Officer (complaints resolved: 2,919 in 2006 and 3,006 in 2005).

46.2. Environmental information

In view of the business activities carried on by the ”la Caixa” Group, its environmental liability, expenses, assets, provisions or contingencies are not material with respect to its equity, financial position or results.

In relation to the ruling issued by the Spanish Accounting and Audit Institute on 25 March 2002, on standards for the recognition, measurement and disclosure of environmental issues, it should be noted that ”la Caixa”, aware of the need to promote initiatives and projects for the conservation of the environment and, in particular, the environment in which it operates, decided to establish an Environmental Management system and keep it up-to-date, and to set up a multidisciplinary Management Committee to promote and follow up all the activities considered necessary to ensure respect for the environment at the Institution. With the creation of this Environment Committee, ”la Caixa” assumed its obligation to respect the natural environment, as it is convinced of the importance of the Institution’s conduct in achieving progress towards sustainable development.

The commitment of ”la Caixa” to the environment is a growing concern, and it accepts the challenge of making continuous improvements in all areas connected with environmental practices. This concern was publicly stated when the Institution issued its environmental policy, the main points of which included guaranteeing compliance with environmental legislation in the performance of its activities, training employees and raising their awareness of environmental principles and best practices, setting up an environmental management system, preventing polluting activities and extending the environmental policy to include the suppliers of goods and services.

In addition, an environmental management system certified in accordance with the UNE EN ISO 14001 Standard was implemented, and the Institution joined the United Nations Environment Programme’s Finance Initiative (UNEP-FI) in 2003. The European Eco-Management and Audit Scheme (EMAS) and the Sustainability Excellence Club were joined in 2004.

In 2005 the “green purchasing” guide was developed which affects companies who participate in public auction purchasing processes.

In 2006 the Department for Housing and the Environment of the Catalonia Autonomous Community Government gave the environmental seal of quality to the network of branches that serve the public.

47. Explanation added for translation to English

These consolidated financial statements are presented on the basis of IFRSs as adopted by the European Union. Certain accounting practices applied by the Group that conform with IFRSs may not conform with other generally accepted accounting principles.

By type of resolution

TYPE OF RESOLUTION

NUMBER OF COMPLAINTS

2006 2005

Upheld (totally or partially) 256 216 Dismissed 259 286 Irrelevant 90 77 Waived by customer 26 34 Pending resolution 67 78 Referred to Customer Care Service 0 0Total 698 691



Appendix 1. Public Financial Statements of ”la Caixa” Balance sheets at 31 December 2006 and 2005, before allocation of profi t, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”

Assets 2006 2005 (*)

Cash and balances with central banks 3,922,971 1,676,731Financial assets held for trading 1,595,931 1,243,239

Debt instruments 1,359,679 1,013,281Other equity instruments 12,047 0Trading derivatives 224,205 229,958Memorandum item: Loaned or advanced as collateral 691,257 432,024

Other fi nancial assets at fair value through profi t or loss 0 0Available-for-sale fi nancial assets 1,455,338 1,734,930

Debt instruments 627,152 776,199Other equity instruments 828,186 958,731Memorandum item: Loaned or advanced as collateral 523,215 533,081

Loans and receivables 163,967,057 128,443,209Loans and advances to credit institutions 20,872,859 13,853,678Money market operations through counterparties 0 50,140Loans and advances to customers 138,128,963 107,866,075Debt instruments 3,159,914 4,749,548Other fi nancial assets 1,805,321 1,923,768Memorandum item: Loaned or advanced as collateral 35,880,869 21,297,724

Held-to-maturity investments 0 0Changes in the fair value of the hedged items in portfolio hedges of interest rate risk 16,915 48,664Hedging derivatives 5,896,374 7,169,336Non-current assets held for sale 15,514 16,554

Tangible assets 15,514 16,554Investments 8,482,685 8,426,930

Associates 131,186 7Subsidiaries 8,351,499 8,426,923

Insurance contracts linked to pensions 1,811,591 1,595,180Tangible assets 2,951,546 2,861,118

Property, plant and equipment for own use 2,645,746 2,559,599Investment property 11,252 16,365Assigned to Welfare Projects 294,548 285,154

Intangible assets 67,647 65,324Other intangible assets 67,647 65,324

Tax assets 1,825,469 1,576,787Current 528,953 197,481Deferred 1,296,516 1,379,306

Prepayments and accrued income 291,411 572,241Other assets 193,016 364,695Total Assets 192,493,465 155,794,938Memorandum itemsContingent exposures 15,908,637 16,037,190

Financial guarantees 13,557,764 13,597,693Assets earmarked for third-party obligations 46,873 39,447Other contingent exposures 2,304,000 2,400,050

Contingent commitments 51,766,923 45,862,744Drawable by third parties 48,827,566 42,636,208Other commitments 2,939,357 3,226,536




Liabilities and Equity 2006 2005 (*)

LiabilitiesFinancial liabilities held for trading 1,136,244 944,800

Trading derivatives 245,649 215,558Short positions 890,595 729,242

Other fi nancial liabilities at fair value through profi t or loss 0 0Financial liabilities at fair value through equity 0 0Financial liabilities at amortised cost 174,288,165 138,448,258

Deposits from credit institutions 12,146,580 10,669,931Customer deposits 120,422,696 103,231,555Marketable debt securities 34,191,085 16,446,281Subordinated liabilities 6,247,267 6,255,968Other fi nancial liabilities 1,280,537 1,844,523

Changes in the fair value of the hedged items in portfolio hedges of interest rate risk (599,433) 1,032,898Hedging derivatives 5,562,439 5,415,856Liabilities associated with non-current assets held for sale 0 0Provisions 2,810,185 2,597,612

Provisions for pensions and similar obligations 2,367,604 1,956,850Provisions for taxes 152,873 104,867Provisions for contingent liabilities and commitments 108,779 96,480Other provisions 180,929 439,415

Tax liabilities 247,421 276,238Deferred 247,421 276,238

Accrued expenses and deferred income 484,299 321,985Other liabilities 881,446 609,006

Welfare Fund 542,034 449,874Other 339,412 159,132

Equity having the substance of a fi nancial liability 0 0Total Liabilities 184,810,766 149,646,653EquityValuation adjustments 42,678 718

Available-for-sale fi nancial assets 42,205 483Cash fl ow hedges 473 235

Own funds 7,640,021 6,147,567Capital or endowment fund 3,006 3,006

Issued 3,006 3,006Reserves 5,841,914 5,232,747

Accumulated reserves (losses) 5,841,914 5,232,747Profi t for the year 1,795,101 911,814

Total Equity 7,682,699 6,148,285Total Liabilities and Equity 192,493,465 155,794,938


Balance sheets at 31 December 2006 and 2005, before allocation of profi t, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”



2006 2005 (*)

Interest and similar income 5,833,941 4,164,825 Interest expense and similar charges (3,493,342) (2,143,099)Income from equity instruments 690,307 637,375 Net interest income 3,030,906 2,659,101 Fee and commission income 1,312,807 1,246,410 Fee and commission expense (168,102) (182,194)Gains/losses on fi nancial assets and liabilities (net) 24,009 12,025

Held for trading (34,759) (17,056)Available-for-sale fi nancial assets 35,461 12,284 Other 23,307 16,797

Exchange differences (net) 131,676 65,186 Gross income 4,331,296 3,800,528 Other operating income 126,101 102,080 Personnel expenses (1,610,562) (1,522,360)Other general administrative expenses (636,980) (596,532)Depreciation and amortisation (263,731) (266,173)

Tangible assets (221,472) (220,256)Intangible assets (42,259) (45,917)

Other operating expenses (74,453) (46,316)Net operating income 1,871,671 1,471,227 Impairment losses (net) (498,884) (315,373)

Available-for-sale fi nancial assets (927) (3,611)Loans and receivables (493,403) (298,478)Non-current assets held for sale 139 (742)Investments 118 1,192 Tangible assets (4,811) (13,734)

Provisions (net) (138,089) (544,010)Other gains 864,242 368,886

Gains on disposal of tangible assets 17,538 17,536 Gains on disposal of investments 828,418 318,535 Other 18,286 32,815

Other losses (55,446) (81,171)Losses on disposal of tangible assets (553) (1,572)Losses on disposal of investments (27) 0 Other (54,866) (79,599)

Profi t before tax 2,043,494 899,559 Income tax (248,393) 12,255 Profi t from ordinary activities 1,795,101 911,814 Profi t from discontinued operations (net) 0 0 Profi t for the year 1,795,101 911,814


Income statementsfor the years ended 31 December 2006 and 2005, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”



2006 2005 (*)

Net income recognised directly in equity 41,960 (5,587)Available-for-sale fi nancial assets 41,722 (5,822)

Revaluation gains/losses 95,011 3,327 Amounts transferred to income statement (23,050) (7,985)Income tax (30,239) (1,164)

Other fi nancial liabilities at fair value 0 0 Cash fl ow hedges 238 235

Revaluation gains/losses (2,674) (17,139)Amounts transferred to income statement 2,092 11,375 Income tax 820 5,999

Hedges of net investments in foreign operations 0 0 Exchange differences 0 0 Non-current assets held for sale 0 0

Profi t for the year 1,795,101 911,814Published profi t for the year 1,795,101 911,814 Adjustments due to changes in accounting policy 0 0 Adjustments made to correct errors 0 0

Total income and expenses for the year 1,837,061 906,227


Statements of changes in equityfor the years ended 31 December 2006 and 2005, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”



2006 2005 (*)

1. Cash fl ows from operating activitiesProfi t for the year 1,795,101 911,814

Adjustments to profi t: 303,721 778,802 Depreciation of tangible assets (+) 221,472 220,256 Amortisation of intangible assets (+) 42,259 45,917 Impairment losses (net) (+/–) 498,884 315,373 Provisions (net) (+/–) 138,089 544,010 Gains/Losses on disposal of tangible assets (–/+) (16,985) (15,964)Gains/Losses on disposal of investments (–/+) (828,391) (318,535)Taxes (–/+) 248,393 (12,255)

Adjusted profi t 2,098,822 1,690,616 Net increase/decrease in operating assets 36,469,250 22,946,948

Financial assets held for trading 352,692 (398,259)Debt instruments 346,398 (326,034)Other equity instruments 12,047 0Trading derivatives (5,753) (72,225)

Other fi nancial assets at fair value through profi t or loss 0 0 Available-for-sale fi nancial assets (338,089) (254,012)

Debt instruments (148,029) (29,282)Other equity instruments (190,060) (224,730)

Loans and receivables 36,037,486 22,946,760 Loans and advances to credit institutions 7,019,181 1,556,626 Money market operations through counterparties (50,140) (280,157)Loans and advances to customers 30,776,615 20,345,066 Debt instruments (1,589,723) 419,528 Other fi nancial assets (118,447) 905,697

Other operating assets 417,161 652,459 Net increase/decrease in operating liabilities 21,515,525 15,654,601

Financial liabilities held for trading 191,444 449,382 Trading derivatives 30,091 (108,461)Short positions 161,353 557,843

Other fi nancial liabilities at fair value through profi t or loss 0 0 Financial liabilities at fair value through equity 0 0 Financial liabilities at amortised cost 21,143,801 15,265,476

Deposits from credit institutions 1,476,649 (1,196,716)Customer deposits 17,191,141 15,550,498 Marketable debt securities 3,039,997 559,668 Other fi nancial liabilities (563,986) 352,026

Other operating liabilities 180,280 (60,257)Total net cash fl ows from operating activities (1) (12,854,903) (5,601,731)


Cash fl ow statements (1/2)for the years ended 31 December 2006 and 2005, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”



2006 2005 (*)

2. Cash fl ows from investing activitiesInvestments (–): (573,076) (412,946)

Subsidiaries, jointly controlled entities and associates 161,850 31,070 Tangible assets 366,644 340,031 Intangible assets 44,582 41,845

Divestments (+): 979,048 426,407 Subsidiaries, jointly controlled entities and associates 934,029 359,326 Tangible assets 45,019 67,081

Total net cash fl ows from investing activities (2) 405,972 13,461 3. Cash fl ows from fi nancing activities

Issuance/Redemption of subordinated liabilities (+/–) (8,701) (681)Issuance/Redemption of other long-term liabilities (+/–) 14,704,807 5,479,094

Total net cash fl ows from fi nancing activities (3) 14,696,106 5,478,413 4. Effect of exchange rate changes

on cash and cash equivalents (4) (935) 1,210

5. Net increase/decrease in cash and cash equivalents (1+2+3+4) 2,246,240 (108,647)Cash and cash equivalents at beginning of year 1,676,731 1,785,378 Cash and cash equivalents at end of year 3,922,971 1,676,731


Cash fl ow statements (2/2)for the years ended 31 December 2006 and 2005, in thousands of eurosCAJA DE AHORROS Y PENSIONES DE BARCELONA ”la Caixa”



Appendix 2. ”la Caixa” Group Subsidiaries

COMPANY NAME AND LINE OF BUSINESS

LOCATION

% OF OWNERSHIP INTEREST (Thousands of Euros)

DIRECT (1) TOTAL SHARE

CAPITALRESERVES PROFIT/LOSS

COST OF DIRECT OWNERSHIP

INTEREST (NET)

Arrendament Immobiliari Assequible II, SLU (*) Lease of state-sponsored housing

Aribau, 192-198, 1ª pl.08036 Barcelona

100.00 100.00 34,003 (1,270) (2,105) 33,760

Banco de Europa, SA Holding company

Gran Via de les Corts Catalanes, 130-13608038 Barcelona

100.00 100.00 50,995 15,789 5,046 67,571

C3 Caixa Center, SA Call Center and customer advisory services (internet)


0.00 100.00 670 1,164 55 –

Caixa Capital Desarrollo, SCR de Régimen Simplifi cado, SA Venture capital company

Av. Diagonal, 621-62908028 Barcelona

100.00 100.00 400,000 149,390 1,175 515,000

Caixa Capital Pyme Innovación, SCR de Régimen Simplifi cado, SA Venture capital management company


0.00 100.00 5,000 – (1) –

Caixa Capital Risc, SGECR, SA Venture capital management company


99.99 100.00 1,000 3,012 2,399 1,000

Caixa Capital Semilla, SCR de Régimen Simplifi cado, SAVenture capital management company


0.00 100.00 7,000 – (2) –

Caixa de Barcelona Seguros de Vida, SA de Seguros y Reaseguros Insurance

Torres Cerdà. General Almirante, 2-608014 Barcelona

100.00 100.00 230,481 46,096 7,280 487,582

Caixa Finance BV Finance

Rokin, 551012 KKAmsterdamThe Netherlands

100.00 100.00 18 2,952 718 2,000

Caixa Holding, SAU Share holding company. Consultancy and management services


100.00 100.00 2,629,871 7,147,344 1,833,288 8,241,235

Caixa Inversiones 1, SICAV, SA (C)

Purchase, holding and sale of marketable securities

Paseo de la Castellana, 5128046 Madrid

13.45 13.62 34,428 1,037 793 2,620




LOCATION





INTEREST (NET)

Caixa Preference, SAUFinance

Av. Diagonal 621-62908028 Barcelona

100.00 100.00 60 2,280 499 708

CaixaRenting, SA Renting of vehicles and machinery


0.00 100.00 601 3,423 2,681 –

Catalunya de Valores SGPS, UL Holding company

Rua Júlio Dinis, 891, 4º4050-327Massarelos Porto Portugal

100.00 100.00 2,211 270,626 14,949 265,455

Corporación Hipotecaria Mutual, EFC, SA Mortgage loans

Bruc, 72-7408009 Barcelona

70.00 70.00 3,005 3,155 189 2,596

ECT MultiCaixa, SA Development of technological platforms


0.00 100.00 670 727 93 –

e-la Caixa, SA ”la Caixa”electronic channel management


100.00 100.00 84,140 (591) 1,184 87,330

EuroCaixa 1, SICAV, SA (C)

Purchase, holding and sale of securities


93.17 93.17 60,100 7,659 8,129 46,694

FinanciaCaixa 2, EFC, SA Finance


0.00 100.00 1,803 191 (17) –

Finconsum, EFC, SA Consumer fi nance

Gran Via Carles III, 87, bajos 1º B08028 Barcelona

0.00 55.00 38,371 1,929 2,262 –

Foment Immobiliari Assequible, SAU (*) Development of state-sponsored housing


100.00 100.00 25,000 (963) (2,085) 24,812

GDS-Correduría de Seguros, SL Insurance brokerage

Av. Diagonal, 427 bis-429, 1ª pl.08036 Barcelona

67.00 67.00 30 8 3,297 228

GDS-CUSA, SA Services


0.00 100.00 1,803 526 2,408 –

GestiCaixa, SGFT, SASecuritisation fund management


85.00 96.40 1,502 300 1,588 1,430




LOCATION





INTEREST (NET)

Hodefi , SASHolding company

46 bis/46 ter rue Jacques Dulud92574 Neuilly-sur-SeineParis France

100.00 100.00 215,000 (31,964) 68,538 244,739

Hotel Caribe Resort, SL Hotel operation

Rambla del Parc, s/n43840 SalouTarragona

60.00 60.00 28,550 (11,457) 558 10,570

Iniciativa Emprendedor XXI, SA Support to entrepreneurship and innovation related projects

Av. Diagonal, 621-62908028Barcelona

100.00 100.00 10,000 (183) (310) 9,430

InverCaixa Gestión, SGIIC, SA Management of collective investment schemes


99.97 100.00 18,751 26,452 12,596 45,174

Inversiones Autopistas, SL Holding company


0.00 50.10 100,000 76,826 23,002 –

Inversiones Inmobiliarias Oasis Resort, SL Services

Av. Del Mar, s/n (Urbanización Costa Teguise)35009Teguise-Lanzarote

60.00 60.00 8,356 14,279 1,114 13,444

Inversiones Inmobiliarias Teguise Resort, SL Services

Av. Del Jablillo, 1(Hotel Teguise Playa) (Urbanización Costa Teguise)35009Teguise-Lanzarote

60.00 60.00 7,898 13,724 1,112 12,684

MediCaixa, SA Financial services


100.00 100.00 120 24 – 144

Negocio de Finanzas e Inversiones I, SL Services


100.00 100.00 3 (1) 629 2

Port Aventura, SA Theme park operation

Av. Pere Molas, km. 243480 Vila-SecaTarragona

71.86 93.99 300,136 (136,919) 12,455 125,763

PromoCaixa, SA Product marketing

Av. Carles III, 105, 1ª pl.08028 Barcelona

99.99 100.00 60 2,492 3,224 665




LOCATION





INTEREST (NET)

RentCaixa, SA de Seguros y Reaseguros Insurance


100.00 100.00 60,102 4,974 1,055 64,214

Servihabitat, SAProperty leasing


99.99 100.00 160,139 14,700 13,577 163,555

Serviticket, SATicket sales


0.00 100.00 2,300 (175) 2 –

Sodemi, SAS Property development and leasing

46 bis/46 ter rue Jacques Dulud92574Neuilly-sur-SeineParis France

0.00 100.00 9,405 13 242

–

Suministros Urbanos y Mantenimientos, SA Construction project management and maintenance

Gran Via Carles III, 85 bis08028 Barcelona

51.00 100.00 1,803 1,871 1,158 1,873

Tenedora de Vehículos, SA Renting

Edifi ci Estació de Renfe Local nº 3 p08256 RajadellBarcelona

0.00 65.00 600 410 648 –

(1) Includes ownership interests through ”la Caixa” and Caixa Holding, SAU.(C) Listed company. Public data on capital and reserves at 30/06/06; profi t/loss at 30/09/06.(*) Ownership interests assigned to Welfare Projects.Note: The foregoing information on unlisted companies refl ects the latest (actual or estimated) available fi gures at the time of preparing these notes to consolidated fi nancial statements.The fi gures on capital reserves and profi t and loss have been unifi ed for consolidation into the ”la Caixa” Group in accordance with IFRSs.




LOCATION





INTEREST (NET)

AgenCaixa, SA Insurance agency


0.00 50.00 601 2,288 295 –

CaiFor, SAHolding company


50.00 50.00 256,267 41,619 97,502 118,545

Hisusa-Holding de Infraestructuras de Serv. Urbanos, SA Holding company

Príncipe de Vergara, 11028004Madrid

49.00 49.00 213,373 514,764 50,487 449,216

Repinves, SA Holding company

Av. Diagonal, 621-629 Torre II 5ª pl.08028 Barcelona

67.60 67.60 61,304 838,668 40,471 643,541

SegurCaixa, SA de Seguros y Reaseguros Insurance


0.00 39.94 9,100 17,913 23,727 –

VidaCaixa, SA de Seguros y Reaseguros Insurance


20.00 60.00 252,971 31,362 108,953 56,094

(1) Includes ownership interests through ”la Caixa” and Caixa Holding, SAU.Note: The foregoing information on unlisted companies refl ects the latest (actual or estimated) available fi gures at the time of preparing these notes to consolidated fi nancial statements. The fi gures on capital, reserves and profi t and loss have been unifi ed for consolidation into the ”la Caixa” Group in accordance with IFRSs.

Appendix 3. Joint ventures of the ”la Caixa” Group (jointly controlled companies)




LOCATION

% OF OWNERSHIP INTEREST



CAPITAL RESERVES

PROFIT/ LOSS

COST OF DIRECT

OWNERSHIP INTEREST (NET)

DIVIDENDS ACCRUED IN

THE YEAR ON TOTAL

OWNERSHIP INTEREST

Abertis Infraestructuras, SA (C)

Operation of motorways

Av, del Parc Logístic, 12-2008040 Barcelona

4.48 20.33 1,824,025 1,058,440 456,397 378,938 58,570

Banco BPI, SA (C)

Banking

Rua Tenente Valadim, 2844100476 PortoPortugal

8.52 25.00 760,000 305,102 218,130 381,100 14,707

Edicions 62, SA Book publishing

Peu de la Creu, 408001 Barcelona

30.00 30.00 15,769 960 3,700 6,138 –

Gas Natural, SDG, SA (C)

Gas distribution

Plaça del Gas, 108003 Barcelona

32.86 35.51 447,776 4,301,850 646,938 1,441,473 143,111

Inforsistem, SA Digital printing and imaging services

Primer de Maig, 50-5208908L’Hospitalet de LlobregatBarcelona

31.58 31.58 317 763 586 98 38

Sociedad General de Aguas de Barcelona, SA (C)

Water distribution and City Works

Torre Agbar. Av. Diagonal, 21108018 Barcelona

0.00 23.46 148,165 1,371,957 133,971 – 14,929

Telefónica Factoring do Brasil, LTDA

Factoring

Av. Paulista, 1106 -13º andarCEP 01310100 Bela Vista- São Paulo SPBrasil

0.00 20.00 1,774 219 1,978 – 329

Telefónica Factoring, EFC, SA Factoring

P. de la Castellana, 5128046Madrid

0.00 20.00 5,109 1,796 2,620 – 551

(1) Includes ownership interests through “la Caixa” and Caixa Holding, SAU,(C) Listed company, Public data on capital and reserves at 30/06/06; profi t/loss at 30/09/06,Note: The foregoing information on unlisted companies refl ects the latest (actual or estimated) available fi gures at the time of preparing these notes to consolidated fi nancial statements, The fi gures on capital, reserves and profi t and loss have been unifi ed for consolidation into the “la Caixa” Group in accordance with IFRSs.

Appendix 4. Associates of the ”la Caixa” Group



(Thousands of Euros)YEAR

”La Caixa”QUALIFYING INCOME

”La Caixa”TAX CREDIT

“TAX GROUP”QUALIFYING INCOME

“TAX GROUP”TAX CREDIT

2001 and prior years 410,448 69,776 561,374 95,4342002 15,267 2,595 31,503 5,3552003 19,779 3,956 75,070 15,0142004 8,820 1,764 27,495 5,4992005 305,675 61,135 416,220 83,244

Appendix 5. Income tax credits for reinvestment of profi ts

Income qualifying for the tax credit set forth in Article 42 of Legislative Royal Decree 4/2004, of 5 March, approving the Consolidated Income Tax Law:

The total gain obtained through the transfers giving rise to this extraordinary profit was reinvested within the period between the year prior to the date of transfer and the end of the year of transfer.

This gain was reinvested in equity securities and in tangible and intangible assets.



Appendix 6. Companies fi ling joint tax returns

The composition of the “la Caixa” consolidated Group for 2006 income tax purposes is as follows:

Banco de Europa, SA

C3 Caixa Center, SA

Caixa Barcelona Seguros Vida, SA de Seguros y Reaseguros

Caixa Capital Desarrollo, SCR, SA

Caixa Capital Risc, SCGR, SA

Caja de Ahorros y Pensiones de Barcelona (parent)

Caixa Holding, SAU

Caixa Preference, SAU

CaixaCorp, SA

CaixaRenting, SA

eCT MultiCaixa, SA

e-la Caixa, SA

FinanciaCaixa 2, EFC, SA

GP Desarrollos Urbanísticos Tarraconenses, SL

GDS - Cusa, SA

GestiCaixa, SGFT, SA

GestorCaixa, SA

Iniciativa Emprendedor XXI, SA

InverCaixa Gestión, SGIIC, SA

MediCaixa, SA

Port Aventura, SA

PromoCaixa, SA

RentCaixa, SA de Seguros y Reaseguros

Servihabitat XXI, SA

Serviticket, SA

Suministros Urbanos y Mantenimientos, SA - SUMASA

Trade Caixa I, SA

Valoraciones y Tasaciones Hipotecarias, SA

Note: The Group of companies fi ling joint tax returns also includes 72 companies that are currently dormant.



2006 Directors’ Report of the ”la Caixa” Group

This report describes the most salient details and events of 2006 to show the situation of the Caja de Ahorros y Pensiones de Barcelona Group (”la Caixa” Group), the performance of its business and its risks and future outlook. The consolidated financial statements, supplemented by this Directors’ Report, have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs).

”la Caixa” is a leading institution in the Spanish banking industry. It is the top savings bank and the third largest credit institution in Spain, where it carries on the majority of its activities.

2006 saw the culmination of the 2004-2006 Strategic Plan which was launched with the strategic objective of maximising the growth potential of the Group’s businesses and developing the Triple Bottom Line: Financial, Social and Sustainable. The growth objectives were exceeded considerably and reflect the success of the initiatives implemented.

This strategic achievement has placed the ”la Caixa” Group in an excellent position to face the new challenges of the future defined in the new 2007-2010 Strategic Plan approved by the Board of Directors on 25 January 2007. The Plan’s objective is to lead the Spanish market and double the ”la Caixa” Group’s recurring profit.

The economic landscape

2006 saw world gross domestic product grow by around 5% in real terms and the completion of the fourth year of the most vigorous expansion cycle since the seventies. Contrary to initial fears, the dynamism of the world economy was not affected by high oil prices which only fell slightly in the last months of the year.

Concerns about a rise in inflation also dominated the economic landscape during most of the year, under the watchful eye of the central banks who did not hesitate to raise their official interest rates, as was the case with the United States Federal Reserve and the European Central Bank. Following the summer, the fall in oil prices moderated inflation rates in most countries although the monetary authorities maintained their guard over inflation. At 31 December 2006, the benchmark interest rates in the United States and the euro zone stood at 5.25% and 3.5%, respectively (31 December 2005: 4.25% and 2.25%).

In the first half of the year, growth was intense in the United States but slowed down progressively in the following months in a landscape marked by a rapid deceleration in the property industry following the boom in recent years. On the other side of the Atlantic, however, growth accelerated in the euro zone in 2006, resulting in the desired recovery after several failed attempts at reactivation. Lastly, growth continued to be strong in developing countries, particularly in Asia, with China taking the lead.

The excellent economic climate in 2006 provided the backdrop for the buoyant situation of the stock markets. Practically all of the stock markets achieved significant gains from the end of 2005. The IBEX 35 index took the lead in terms of gains generated, after achieving a series of successive historic highs. However, yield on public bonds showed a tendency towards moderation in the second half of the year after the upward trend of the first few months. The slowdown in economic growth in the United States and the moderation of inflation expectations were some of the causes of this performance, also characterised by a flattening tendency in the interest-rate curve in Europe, with the opposite occurring in the United States. Lastly, in the currency market, the euro showed a tendency to revaluate against the dollar, as the expectations for higher growth in Europe and a slowdown in the United States were consolidated.

Translation of a report originally issued in Catalan. In the event of a discrepancy, the Catalan-language version prevails.



The performance of the Spanish economy continued to surprise everyone with the GDP growth rate increasing to nearly 3.8%, the highest this decade. The expansion of the Spanish economy continued to be based on dynamic domestic demand. Among the various elements making up this demand, the rise in investment, in both capital goods and construction, offset the smooth deceleration in private consumption which, nevertheless, continued to grow at a very high rate, sustained by intense job creation (the unemployment rate fell to around 8%, a level not seen in Spain since the seventies) and the revaluation of the property and financial assets of Spanish households.

The strong investment in capital goods is a clear demonstration of the fact that Spanish companies have chosen to extend and renew their productive facilities to meet the considerable domestic demand and increased export activity in a scenario still characterised by very favourable financial conditions. In addition, the dynamism of the construction industry responded to robust demand in the residential housing sector, which has been bolstered in recent years by the considerable rise in the immigrant population and the popularity of holiday homes.

On the subject of prices, changes were similar to those recorded in the major economies. The inflation rate decreased in the final months of the year to under 3%, but the spread with respect to the average rate in the euro zone remained at around 1%. The current account deficit continued to rise to stand at around 9% of the GDP.

Business Performance

In this economic landscape, the ”la Caixa” Group achieved significant growth in terms of business and profit, including increased efficiency, returns and capital adequacy levels; all targets were set in the 2004-2006 Strategic Plan.

In 2006 the volume of business, defined as the sum of loans and credits (including the securitised amounts) and customer funds managed, was up by 19% on 2005 to EUR 337,260 million, largely due to the expansion of the lending business. Consolidated total assets stood at EUR 209,123 million, a 16% increase.

Profit attributable to the Group, after tax and minority interests, amounted to EUR 3,025 million, up 102.4% on 2005. This result was based on a combination of two factors: strong solid growth of the financial business, due to the intensive marketing activity undertaken by the branch network and active management of the portfolio of investees which generated considerable gains, by taking advantage of the favourable performance of the markets.

Significant changes took place in the scope of consolidation in 2006 due to the disposal of the ownership interests in CaixaBank France, SA, Inmobiliaria Colonial, SA and Crèdit Andorrà, SA, whose assets and liabilities are not shown in the consolidated financial statements for the year ended 31 December 2006. As a result, total assets fell by 6.3%. To ensure the comparability of the 2006 consolidated financial statements with those for 2005, in the business and profit performance analysis provided below, express reference is made where the contribution of the above-mentioned companies was significant, and the impact is corrected.

At 31 December the balance sheet heading “Loans and Advances to Customers” showed a net balance of EUR 137,231 million, with the year-on-year increase accounting for 91% of the total increase in assets. Taking into account the unamortised securitised loans, which have been derecognised, and deducting reverse repurchase agreements, loans and receivables amounted to EUR 139,765 million, a sum which is used to determine the volume of business. Using these criteria, lendings grew by EUR 25,908 million in 2006, up 22.8% on 2005 (27.3% with a uniform scope of consolidation). Mortgage loans, which have been the driving force of the business, increased by 25.2% (29.4% with a uniform scope of consolidation).



The non-performing loan ratio fell to a low level of 0.33% (0.39% in 2005). This ratio is significantly lower than in the credit institution sector which, on an individual basis in October, had a non-performing loan ratio in loans to the private sector of 0.76%. Concurrently, the coverage ratio for doubtful assets continued to rise and reached 444%, up from 380%. Taking into account the mortgage collateral, the coverage ratio reached 490%.

Total customer funds managed by the ”la Caixa” Group amounted to EUR 197,495 million at 31 December 2006, up 16.5% on the 2005 year-end figure (22.8% with a uniform scope of consolidation). Customer funds managed comprise the balances recognised in the consolidated balance sheet under the headings “Other Financial Liabilities at Fair Value Through Profit or Loss”, “Financial Liabilities at Amortised Cost” (“Customer Deposits”, “Marketable Debt Securities” and “Subordinated Liabilities”), “Liabilities under Insurance Contracts” and “Equity Having the Substance of a Financial Liability”; this figure also includes, as in other third-party funds managed by the Group (net of the duplications caused by their aggregation to on-balance-sheet funds), mutual and pension fund assets, and the liabilities under insurance contracts of VidaCaixa, SA de Seguros y Reaseguros which are kept off the balance sheet as this company is a jointly controlled entity that is accounted for using the proportionate method. The growth in customer funds in 2006 shown in the consolidated balance sheet enables adequate funding of the lending business and effective liquidity management, one of the Group’s strategic objectives.

The total investment in equity instruments, made up of financial assets held for trading, at fair value through profit or loss, available for sale and investments, increased by EUR 225 million. The active portfolio management policy translated into very significant changes in available-for-sale financial assets (a decrease of EUR 960 million) and in interests in associates (an increase of EUR 1,088.5 million).

In the area of equity interests accounted for as “Available-for-Sale Financial Assets”, the entire ownership interest in the capital of Banco de Sabadell, SA (13.83%) was sold; the interest in the capital of Suez, SA decreased from 1.36% to 1.06% (completed with the disposal of the rest of the interest in January 2007); the 2.02% interest in the capital of Bolsas y Mercados Sociedad Holding de Mercados y Sistemas Financieros, SA was sold; and lastly the Group was fully divested of its equity interest in Endesa, SA (1%), as a result of the exercise of the call options associated with the convertible bonds issued by the ”la Caixa” Group in 2003. Among investments, of note was the entry into the capital of Boursorama, SA with a 19.74% ownership interest, as a result of the disposal of CaixaBank France, SA.

As regards investments in associates, the ”la Caixa” Group increased its interest in the capital of Banco BPI, SA to 25% (it stood at 15.99% in 2005 and was recognised under “Available-For-Sale Financial Assets”). The interest in Abertis, SA increased by 1.12% to 20.33% and the interest in Sociedad General de Aguas de Barcelona, SA rose by 0.33% to 23.46%.

Lastly, concerning investments in subsidiaries, of particular note was the disposal of the entire interests in the capital of Crèdit Andorrà, SA (46.35%), Inmobiliaria Colonial, SA (39.54%) and CaixaBank France (100%). With the disposal of Crèdit Andorrà, SA, the ”la Caixa” Group brought to an end its involvement in Andorra, as in 2005 the entire ownership interest in the capital of another Andorran company CaixaBank, SA was sold to Crèdit Andorrà, SA.

Despite the disposals of interests in companies with high market capitalisation, at 31 December 2006 the market value of the portfolio of listed investees stood at EUR 18,480 million, with unrealised gains amounting to EUR 9,976 million, up EUR 1,668 million on the 2005 year-end figure. These gains reflect the difference between the market value of the shares and their value per the consolidated balance sheet. The gains made on investments available for sale are recognised, net of tax, under the equity heading “Valuation Adjustments – Available-for-Sale Financial Assets” in the balance sheets of the ”la Caixa” Group. All these gains, combined with the significant capacity provided by the portfolio of investees to manage the Group’s capital, guarantee the Group’s capital adequacy and security.



Profit Performance

Profit attributable to the ”la Caixa” Group, after tax and minority interests, amounted to EUR 3,025 million, up 102.4% on 2005. This figure includes the extraordinary profit amounting to EUR 1,520 million net of tax on the disposal of investments and extraordinary write-downs performed under conservative policies. Disregarding this extraordinary profit, the Group’s profit, hereinafter referred to as recurring profit, amounted to EUR 1,505 million, up 24.4% on the 2005 figure.

Net interest income stood at EUR 2,822 million, up 13.6% on 2005. The increase in the volume of business and pricing policy management enabled the Group to mitigate the heavy downwards pressure on operating income in a context of stiff competition and rising low interest rates. Dividends on equity instruments amounted to EUR 301 million, a slight increase on 2005. Net interest income excluding dividends increased by 14.9%.

The net profit earned by the companies accounted for using the equity method amounted to EUR 495 million, up 14% on 2005. The total income from the investee portfolio amounted to EUR 796 million, up 9.9%. This positive profit performance of the investees and their dividend distribution policy offset the impact of the major divestment process undertaken in 2005 and 2006.

Net fee and commission income stood at EUR 1,299 million, up 5.2% on 2005, as a result of the rise in marketing activity and the management of service prices.

The insurance business reflects the net result of premiums collected and paid, of technical provisions and financial income, before the operating expenses and taxes of the subsidiary insurance companies, but after the eliminations on consolidation. The recurring profit on insurance activities amounted to EUR 82 million, up 17.1% on 2005. In 2005, in accordance with a conservative interpretation of International Financial Reporting Standards, in particular IFRS 4, which is an interim standard, the ”la Caixa” Group carried out a liability adequacy test on insurance contracts in order to determine whether they were adequate to meet future obligations. The result of the test disclosed the need for an extraordinary transfer to the mathematical provisions amounting to EUR 308 million (EUR 200 million net of tax), due to the changes in the spread between the guaranteed rates and the market rates and the application of the assumptions considered, mainly the surrender rate and the discount rate curve. The surrender rate was re-estimated in 2006 to bring it into line with the performance observed in prior years. As a result of the adequacy test, an extraordinary transfer to the mathematical provisions was carried out in the amount of EUR 286 million (EUR 200 million, net of tax). These transfers arose as a result of insurance transactions carried out in past decades in a context of higher interest rates.

The gains/losses on financial assets and liabilities and exchange differences stood at EUR 1,214 million, which include EUR 1,053 million (EUR 798 million, net of tax) in non-recurring profit resulting from the gains generated on the disposal of investments classified as available-for-sale which were highlighted in the “Business Performance” section of this directors’ report. The exit from Banco de Sabadell, SA gave rise to EUR 929 million (EUR 698 million, net of tax) and the disposal of Suez, SA, to EUR 76 million (EUR 61 million, net of tax). Disregarding the effect of these extraordinary profits, gains/losses on financial assets and liabilities and exchange differences remained at the low level and low exposure to risk that have traditionally characterised the ”la Caixa” Group.

Gross income totalled EUR 5,626 million, up 24.2% on 2005. Gross income from recurring activities grew by 12.3% to stand at EUR 4,859 million.

Operating expenses from financial activities rose 3.3% and reached EUR 2,633 million. Besides the growth in marketing activities, the expense rationalisation and containment policy, coupled with an increase in recurring gross income, increased the productivity of the financial business. The recurring efficiency ratio stood at 47.2%,



and improved by 5 percentage points in 2006. The expense containment is significant in view of the geographic expansion strategy implemented by the ”la Caixa” Group over recent years, which in 2006 resulted in the opening of 212 new branches (the net variation in the branch network was 133 branches due to the disposal of the two foreign banks) and in significant research and development expenditure.

Net profit from non-financial services, provided in particular by the Group’s property and leisure subsidiaries, net of related operating expenses, amounted to EUR 124 million, with a substantial reduction due to the exclusion of Inmobiliaria Colonial, SA from the scope of consolidation on 1 July.

Overall, net operating income amounted to EUR 3,117 million, up 39% on 2005. In terms of recurring business, growth was 15.3%.

Without the contribution in 2005 from the CaixaBank France, Colonial and Crèdit Andorrà Groups, the income-statement performance of the recurring business is as follows: net interest income, excluding dividends, increased by 17.5%; fee and commission income, by 9.1%; operating expenses in financial activity, by 6.1%, and net operating income, by 24.3%.

Impairment losses amounted to EUR 478 million, up 22.6%, mainly due to the considerable increase in loans and advances to customers and despite the low non-performing loan rate. The loan-loss reserves recognised by the ”la Caixa” Group remained at the maximum level required by Bank of Spain Circular 4/2004.

The headings “Provisions”, “Other Gains” and “Other Losses” show a gain of EUR 1,426 million compared to EUR 55 million in 2005. Non-recurring profit was included under these headings in 2006 in the form of gains on the disposal of Group subsidiaries amounting to EUR 1,891 million (EUR 1,136 million, net of tax) and an extraordinary charge of EUR 286 million (EUR 200 million, net of tax) for the obligations acquired by ”la Caixa” under the pre-retirement and partial retirement programme executed in 2006, which covers the period from 2007 to 2009. The disposals affecting the investee portfolio most notably include the gains on the disposal of the investment in Inmobiliaria Colonial, SA amounting to EUR 1,041 million (EUR 680 million, net of tax) and the gains on the disposal of Crèdit Andorrà, SA amounting to EUR 807 million (EUR 425 million, net of tax), which include the gains arising in 2005 on the disposal to the Andorran bank, CaixaBank, SA, which were not recognised due to the fact that Crèdit Andorrà belonged to the ”la Caixa” Group.

The tax credit for reinvestment of non-recurring gains and other taxable profit gave rise to a net profit of EUR 143 million. In addition, an extraordinary write-down amounting to EUR 157 million was performed as a result of the re-estimate of deferred tax assets and liabilities due to the changes to the standard income tax rate, which was reduced from 35% to 32.5% in 2007 and to 30% from 2008.

Post-tax profit amounted to EUR 3,143 million in 2006, of which EUR 3,025 million are attributable to the Group, an increase of 102.4% on 2005. The return on average equity (ROE) stands at 39.1%.

Recurring profit attributable to the ”la Caixa” Group, after tax and minority interests, amounted to EUR 1,505 million, up 24.4%, with an return on average equity (ROE) of 19.5%.

The individual post-tax profit of ”la Caixa” amounted to EUR 1,795 million, up 96.9%. Recurring profit totalled EUR 1,202 million, a 22.4% increase. The proposed allocation of that individual profit commits EUR 1,419 million to increasing reserves and EUR 376 million to Welfare Projects, which represents 25% of the Group’s recurring profit (31.3% of the recurring profit of ”la Caixa”).



Capital of the ”la Caixa” Group

In order to comply with capital adequacy requirements, ”la Caixa” consolidates its financial statements with those of the other credit and financial institutions with which it makes up a decision-making unit. The substantial profits generated in 2006 and risk management policies have made it possible to continue to improve the core capital levels, in spite of intense lending activity.

In accordance with the standards established by Bank of Spain Circular 2/2006, at 31 December 2006, the ”la Caixa” Group’s eligible capital amounted to EUR 16,704 million, up 24.9% on 2005.

Core capital (Tier 1 capital excluding preference shares) amounted to EUR 8,995 million, giving rise to a ratio of 6.2%, up 0.3% on 2005. Tier 1 capital amounted to EUR 11,995 million, a ratio of 8.3%. The capital ratio (BIS ratio) stood at 11.5%, with an excess over the minimum capital adequacy requirements, set at 8% of weighted risk assets, estimated at EUR 5,120 million, up 35.2% on 2005. At the end of 2005 the BIS ratio stood at 11.2%. The volume of eligible capital together with the financial flexibility in managing eligible capital, basically arising from significant unrealised gains in the securities portfolio, allow the Group to maintain a high level of capital and ensure the ”la Caixa” Group’s growth strategy.

Risk Management and Ratings

Global risk management is crucial to the business of any credit institution because it is co-substantial to its activity. The objective of the ”la Caixa” Group is to keep risk in a healthy state and optimize the return/risk ratio, by identifying and assessing risks and taking them into account in the business decision-making process at all times, within a framework that enhances the quality of the service offered to customers. The risk management systems operate independently of the approval function in order to reinforce the follow-up and control process.

The risks undertaken as a result of the Group’s own activities are classified as follows: credit risk, arising from both the commercial and investment banking activities, and risk associated with the investee portfolio; market risk, which includes the interest rate risk in the structural balance sheet, the price or rate risk associated with treasury positions and currency risk; and, lastly, liquidity risk and operational risk.

A number of quantification and monitoring tools and techniques are used for each of these risk categories which are considered to be appropriate and aligned with financial risk management standards and best practices. All the risk measurement, monitoring and management activities are carried on in accordance with the guidelines of the New Basel Capital Accord (NBCA). The ”la Caixa” Group supports the need for and validity of the principles inspiring this new accord, which encourages better risk management and quantification practices and makes capital adequacy requirements sensitive to the risks actually incurred. Completing the efforts undertaken since 1999 to achieve compliance with the requirements of the new capital adequacy regulations, in 2005 the Board of Directors of ”la Caixa” approved a Master Plan for Adaptation to the NBCA, in line with Bank of Spain recommendations. Approval was then requested from the Bank of Spain to use internal credit risk models. In 2006 approval was requested to use internal market risk models. The Bank of Spain is currently in the process of validating these models as a step towards approval.

A more comprehensive description of all the relevant information relating to risk management can be found in Note 3 to the accompanying 2006 consolidated financial statements of the “la Caixa” Group.

In 2006 the Standard & Poor’s rating agency raised the long-term rating of ”la Caixa” from A+ to AA– and the short-term rating from A–1 to A–1+. This rating increase reflects the ongoing improvement in the recurring return of the banking business, the favourable performance of capital adequacy and the reduction in exposure to market risk.



Other Issues

In 2006 the “la Caixa” Group had over 10 million customers, representing an increase of 477,068 new customers on 2005. This broad customer base, which is the Group’s main asset as it sustains the growth of the business, was achieved through a combination of two factors: the extensive branch network, which is at the core of the relationship and close links with customers, and the quality and training of the staff.

At 31 December 2006, the territorial network of ”la Caixa” was made up of 5,186 branches, 7 of which are representation offices abroad. The geographical distribution of the branches operating in Spain is as follows: 39% of the branches are to be found in Catalonia and the Balearic Islands and the remaining 61% are located in Spain’s other autonomous communities. Throughout the year, the network increased by 212 new branches (211 in 2005). The disposal of the banking groups CaixaBank France, SA and Crèdit Andorrà, SA, with 79 branches, reduced the net variation in the Group’s branch network to 133 in 2006.

The employees of the ”la Caixa” Group numbered 25,241, i.e. 13 less than in 2005, as the persons employed at the banking groups CaixaBank France, SA and Crèdit Andorrà, SA and at Inmobiliaria Colonial, SA were no longer included in the workforce. The workforce of ”la Caixa” increased by 896 employees and that of its subsidiaries by 37.

”la Caixa” is developing a multi-channel management model, which focuses on leveraging on the possibilities offered by new technologies as tools and resources for serving customers and on supplementing the personal management and advisory function undertaken by the branch network.

This strategy has resulted in the www.laCaixa.es portal, the leader in online banking services, reaching 4.3 million registered customers, 1.9 million of whom are active users who conducted 864 million transactions in 2006. Activity increased notably in 2006 with 21.3% more active users performing 35% more transactions. CaixaMóvil, Telephone Banking and Digital Television are other channels available for providing services to customers.

As regards self-service systems, at 31 December 2006 ”la Caixa” had 7,493 terminals, of which 5,328 offered ticket sales (2,542 in 2005). In the area of payment cards, ”la Caixa”, which markets all the Spanish and foreign card brands, had over 9 million cards in circulation, 598,000 more than in 2005, thereby maintaining its position as the leading institution in the Spanish financial system in terms of bankcard transactions.

In today’s competitive global landscape, customer focus is a key differentiating factor. Accordingly, the ”la Caixa” Group gives priority to innovation and quality in its banking services, with the ultimate objective of anticipating products and tailoring them to customers’ preferences and needs.

Research and Development

Technology and information systems are essential components supporting the business model of ”la Caixa”, through ongoing innovation and anticipating technological advances. The cornerstone of the management model for IT Services is that it is geared towards, and closely linked to, the business, which translates into an ongoing capability, not only to respond rapidly and flexibly to the Group’s needs, but also to anticipate them.

In 2006 ”la Caixa” focused its efforts on Research and Development in two areas. On the one hand, on technological development applied to the business and, on the other, on training the professionals in the technical division.

Notable projects carried out in 2006 included a project conceived as the foundation of the Institution’s technical evolution in the next few years. This project involves the development of a new financial terminal whose design is based on a new technological architecture involving a reorganisation of the contents and functionalities on the basis of criteria concerning productivity, efficiency and use. Implementation of the project across the branch network began in 2006 and is expected to be completed at the beginning of 2007. The new technological platform will result in a fundamental improvement to the Institution’s information systems, enabling branch operating processes to be speeded up, while enhancing commercial capacity.



In line with the development of alternative distribution channels as a key element of the growth strategy, work was carried out on the design of a new prototype for an automated teller, tailored to the Institution’s specifications, which will incorporate significant technological advances in the provision of banking services. A particularly innovative feature will be its adaptation to the latest access standards and concepts, as part of the vocation of ”la Caixa” to serving society, particularly assisting its most disadvantaged members. The incorporated technological advances, combined with the leadership of ”la Caixa” in terms of the services offered by its automated tellers, make this new automated teller, the teller machine of the future.

As regards the internet banking channel, in 2006, the ongoing innovative efforts focused on the design and development of a new image for the corporate portal and the website for accessing financial transactions. In July 2006 the ”la Caixa” online banking service received the approval of the ONCE (Spanish Blind People’s Association) Foundation which recognised it as the first service accessible to the visually impaired in Spain.

In the area of computer security, the care paid by ”la Caixa” to ensure that its customers’ information is protected has been at the centre of its identification processes and the design and implementation of the latest security measures. The fact that ”la Caixa” obtained ISO27001 certification for information security management in 2006 illustrates this ongoing attention to information confidentiality and protection.

The business objective of improving efficiency has become the driving force behind initiatives geared towards simplifying transactions, maximising the automation of processes and, as a significant factor in technological progress, digitalising communications, transactions and documents. This area includes important projects such as the Electronic Risk File or the implementation of the Electronic Invoice. The use of security to improve operational efficiency included the project to implement biometric recognition techniques to enable user identification and authentication.

As mentioned, these activities were supplemented with the necessary professional training and development for employees in the technical division. In the course of the year, new multidisciplinary training lines were provided, aimed towards strengthening purely technical aspects as well as other aspects geared towards the business and management and leadership skills. The objective is to form teams of entrepreneurs with the skills to adapt to and anticipate the new demands and changes in the industry. Concurrently, specific training activities were carried out which, taken as a whole, represented a comparable investment in training to that made by companies in the technology industry.

Welfare Projects

The century-long essence of ”la Caixa” as a financial and social institution is reflected in its Welfare Projects which have come to represent the true spirit of the Institution.

Committed to society and faithful to the principles of foresight and flexibility which have guided the initiatives of the Welfare Projects for more than one hundred years, its budget for 2007 amounts to over EUR 400 million, consolidating the position of ”la Caixa” as the private Spanish institution that dedicates the most funds to the development of welfare programmes, as well as educational, cultural, environmental and scientific initiatives benefiting society. In 2006 the budget totalled EUR 303 million.

The welfare basis of Welfare Projects, which aims to further the Institution’s commitment to people’s real needs and problems, has been evident in a significant increase in the budget in 2006 for welfare and community care programmes without detriment to cultural and scientific programmes, which also received a boost. This commitment has been due, on the one hand, to the further boost given by Welfare Projects to the Voluntary Work, Natural Parks, Violence Prevention, Microloan, Affordable Housing and Spanish Fellowship programmes initiated in 2005 with notable successes in terms of participants and beneficiaries and, on the other, to the launch of new programmes to fight against poverty, assist in the integration into society and the job market



of persons at risk of exclusion, promote the autonomy of dependent persons, recognise young people’s positive values, integrate immigrants, encourage equal opportunities for men and women and protect marine ecosystems and natural parks.

In 2006 ”la Caixa” granted 613 microloans with an investment of EUR 8.4 million and is the Spanish institution that has granted the largest number of microloans.

Since its beginnings, the Affordable Housing programme has promoted the construction of 1,086 rental properties, completed or under construction, for young people and the elderly throughout Spain.

Aware of the importance of education to social progress, the ”la Caixa” Welfare Projects dedicate continual efforts in this area. Since 1982, when it launched its programme of postgraduate study abroad, more than 2,000 Spanish students have received fellowships to expand their education at prestigious universities around the world, and in Spain, as from this year.

In total, in 2006 more than 18 million beneficiaries took part in the 31,194 Welfare Projects activities organised across Spain.

Outlook: 2007-2010 Strategic Plan

The outlook for the world economy in 2007 point towards a continuation of the current expansive phase. The slowdown of the US economy is forecast to be moderate although the extent of the fall in the property market is still not known. In the euro zone, after the intense growth in 2006, progress is expected to be slightly more moderate in 2007, mainly due to the slowdown in the German economy following the planned tax rises. In the emerging or developing markets, the expansion rate is expected to continue to be considerable.

In Spain, trends point towards continuing intense growth of the GDP with a slightly more balanced contribution by domestic demand, which will cool slightly, and the negative contribution of foreign trade to the GDP will be reduced due to the favourable perspectives for exports. In this context, employment will continue to grow, although probably at a lower rate than in 2006.

Improvements in employment, the increased purchasing power of incomes, combined with the decrease in inflation and the financial conditions (still very favourable despite the interest rate rises) will continue to bolster consumption which will maintain the current trend towards a slight reduction in its rate of growth.

On the other hand, investment may maintain the levels shown in the last few months of 2006, as the situation from which it arose is not expected to change significantly. In addition, the main indicators relating to the construction industry suggest that the expansive cycle will continue for longer than expected although, in the medium term, it will slow down progressively.

The rate of inflation will tend to fall to around 2.5%, unless there is an unexpected rise in oil prices. On the other hand, the foreign deficit will continue to grow, albeit at a slower rate than in the last two years, mainly due to the growth in imports, bolstered by the expansion of domestic demand.

If the inflation and activity indicators in the euro zone follow this trend, new rises in the benchmark interest rate may be expected in 2007 to place it at around 4%. In the United States, however, the rate will remain at its current level.

Against this new economic landscape and in a highly competitive arena in all the business segments, the 2007-2010 Strategic Plan has been designed to place ”la Caixa” at the head of the Spanish financial industry and double the Group’s recurring profit. The success of the 2004-2006 Strategic Plan placed ”la Caixa” and its



Group in an optimum position marked by the strength and growth of the businesses, while generating value for customers, employees and society.

On this foundation, the new programme, approved by the Board of Directors, reaffirms the role of the Mission and Vision of ”la Caixa” as the strategic keys that represent the Institution’s origins, purpose, basic aims and future reference. Further efforts are concentrated on the strategic objective of implementing the Triple Bottom Line: Financial, Social and Sustainable.

Financial Bottom LineTo enhance the efficient, profitable and solvent growth of the Group. With this objective in mind, the related action programmes have been designed which provide the real driving force behind the application and optimum management of the development of the various strategic segments defined in the Plan. The customer is core to activities and, therefore, a global commercial management model has been developed, tailored to customers’ needs, in which personalised, professional quality advisory services play a key role. These activities are carried out through ongoing innovation in products and services to meet customers’ needs using an efficient multi-channel distribution system, with the branch, supported by leading-edge technology, at the core of customer relationships.

In terms of its international business, ”la Caixa” plans to open new operating branches to further the internationalisation of its customer base and exploit opportunities in neighbouring markets.

In terms of the management of the investee portfolio, the challenge remains to diversify income and generate value with controlled risk. With this aim in mind, it has been resolved to create a listed holding company to take the pulse of the market as part of its management function, while increasing the independence of ”la Caixa”.

For the period from 2007 to 2010, the results of these strategic initiatives will take the form of year-on-year increases in the Group’s recurring profit of around 20% to reach EUR 3,000 million in 2010, increases in the volume of business at an annual rate of over 13%; larger market shares; improvements in efficiency of up to 40%; a rise in the recurring return rate, with an ROE of over 20%, and the maintenance of high capital adequacy levels, with core capital exceeding 6%.

Social Bottom LineThe Plan highlights the extension of the Welfare Projects with contributions of 25% of the Group’s recurring profit, representing an increase in budget allocation to reach EUR 2 billions in four years. In order to consolidate the social focus, over 70% of the budget is expected to be put towards welfare and community care uses, with a particular emphasis on initiatives to eradicate child poverty (with a budget of EUR 300 million in the next four years).

Sustainable Bottom LineMaintain socially responsible conduct in all areas of activity and make ”la Caixa” an example of Corporate Social Responsibility. In 2006 ”la Caixa” continued to be ranked as the financial institution with the best brand reputation, for its service quality and the impact of its activities on society.

Events after the balance sheet date

On 25 January 2007, the Board of Directors authorised for issue the Financial Statements and Directors’ Report of the ”la Caixa” Group for the year ended 31 December 2006. No significant events having an effect on the ”la Caixa” Group’s activity took place between these dates.

the la caixa group: statutory documentation for 2006 · la caixa 2006 annual report 4 the la caixa...

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