Docstoc

IA_ingles_caja09_completo

Document Sample
IA_ingles_caja09_completo Powered By Docstoc
					                                                                                                                                                                                                                            www.cajamadrid.com


01/
Chairman’s statement


                                                  Harshness of the environment                                combinations in the interest of preserving the             strengthening our soundness against the prospect of a
                                                  We started the year in the harsh conditions of the most     soundness of the financial system, with possible           normalization of central bank liquidity policies during
                                                  severe global recession in recent decades. Following        government loans.                                          2010, a process that has already begun in the euro area
                                                  forceful economic policy action by governments, there                                                                  and the United States. At the end of the year we had
                                                  were signs of a return to stability from the summer of                                                                 €15,600 million, of which €3,600 million corresponded
                                                  2009, while investor confidence in the securities           Strengthening the balance sheet                            to the net lending position in the interbank market, and
                                                  markets started to recover.                                 In these conditions the priority of our management has     the possibility of issuing €5,500 million more with a
                                                                                                              been to strengthen the balance sheet, maintaining a        guarantee.
                                                  In Spain, the particular deterioration of the housing and   balanced position in credit growth and funds raised
                                                  employment market has increased the fragility of an         from customers.                                            We have good capital adequacy ratios, reinforced by the
                                                  economy that entered the crisis with a high balance of                                                                 issue of €3,000 million of preferred securities, raising
                                                  payments imbalance. It now seems clear, after seven         Customer funds grew 5.3%, which improved                   Tier 1 capital to 8.88% and core capital to 6.84% at
                                                  quarters of declines in activity, that our country will     C              ’s market positioning, raising our share    the end of the year (total solvency 10.60%). In
                                                  leave the recession later than the other main industrial    to 7.4%, the highest ever achieved. At the same time,      addition, we have continued the policy of making
                                                  economies.                                                  against the background of a general cutback in lending     precautionary provisions for future scenarios of
                                                                                                              across the sector, lending activity continued, achieving   uncertainty and at year-end recorded an extraordinary
                                                  This situation strongly influenced banking activity and     a record 6.9% market share.                                provision of more than €650 million.
                                                  the evolution of banking risks, with the result that
                                                  there was a severe adjustment in lending, mainly            Thanks to this approach we have reached a situation
                                                  affecting the sectors most exposed to the recession,        where more than three-quarters of the loan portfolio is    Containment of non-performing assets
                                                  and an implacable increase in non-performing assets.        financed with customer deposits, thus reducing our         In an environment of rising default rates throughout
                                                                                                              dependence on the wholesale markets while at the           the credit system, we have focused on building on the
                                                  This landscape is reflected in the accounts of banking      same time building a balance sheet with a very solid       improvements contained in the plan implemented in the
                                                  institutions in the form of sharp downturns in              structure.                                                 Group at the end of 2008, which has enhanced our
                                                  profitability. In June 2009 the Spanish Government                                                                     ability to control the deterioration of credit quality.
                                                  approved the Fund for Orderly Bank Restructuring,           The funds raised have also helped to further expand
                                                  FROB, an instrument aimed at facilitating business          the Group’s comfortable liquidity position,




Annual Report 2009 C   01/ Chairman's statement                                                                                                                                                                                          02
                                                                                                                                                                                                                                       www.cajamadrid.com


01/
Chairman’s statement




The rate of growth of non-performing loans has been          Business development                                        Complementing this strategy, innovation and                 In short, we have ended the year with a strengthened
significantly reduced to levels below those of the           Convinced that our customers and depositors are our         technology have continued to contribute improvements        balance sheet, well balanced and with reinforced
sector as a whole, restricting the increase in the NPA       greatest strength, we have been very active in              that directly affect customer service quality and the       provisions, that will enable us to face a future that
ratio to just 56 basis points over the entire year, ending   initiatives to develop customer relationships.              effectiveness of all internal processes. As a result, 84%   holds great challenges but from which we will
the period at 5.43%.                                         Relationship building has been a fundamental                of customers declare themselves very satisfied with         emerge stronger.
                                                             component of product design, aimed at rewarding             the Caja.
                                                             loyalty and fostering broad-based, lasting ties with
Recurring results                                            customers, while meeting their current demands on the                                                                   Caja Madrid Chairman
The quality and recurring nature of the results for the      best terms in the market. C                 is the leader   Social activity
year contributed to the overall soundness of the Group.      in Spain in customer loyalty, with an 80% rating            C               ’s historical commitment to be close to
                                                             (FRS/Inmark), and has the highest percentage of             the people and communities it serves has been
The income statement is based on the most stable,            unshared customers (i.e. customers who bank                 strongly reaffirmed in these times of economic
recurring revenues obtained from traditional banking         exclusively with C                ), 62% (FRS/Inmark),      uncertainty.
services, the health of which is demonstrated by the         well ahead of other financial institutions.
15% increase in net interest income and the 11%                                                                          The social welfare action undertaken by Obra Social
increase in gross income. At the same time, we have          In the businesses sector, this idea has led us to focus     and Fundación C                  reached 14 million
continued to improve our efficiency ratio, which reached     on providing financial advice and support in these          beneficiaries in 2009 through a range of projects
41%. The margins generated by the business have              difficult times. Besides the €26,500 million in new         covering the areas of social welfare, education, culture,
provided the necessary flexibility to carry out              loans and discount facilities, C                took part   the environment and the conservation of Spain’s
substantial extraordinary provisions, enhancing              in all the ICO credit lines and has signed agreements to    historical heritage. Among all these projects I would
capital strength.                                            finance SMEs with numerous business institutions,           like to mention in particular the provision of access
                                                             including Avalmadrid, CEIM and the Madrid Chamber of        to employment for more than 3,700 people with
C               obtained €266 million of profit in           Commerce and Industry.                                      disabilities or facing social exclusion. Through other
2009 (€725 million of recurring profit attributable                                                                      programmes Obra Social and Fundación managed more
to the parent).                                                                                                          than 1,000 scholarships, 4,500 students in education
                                                                                                                         centres, 900,000 participants in cultural activities and
                                                                                                                         155 proprietary facilities.




Annual Report 2009 C             01/ Chairman's statement                                                                                                                                                                                           03
                                                                                             www.cajamadrid.com


02/
Board of Directors


                                                Chairman
                                                Mr. Miguel Blesa de la Parra

                                                Vice-chairmen
                                                Mr. José Antonio Moral Santín
                                                Mr. Estanislao Rodríguez-Ponga y Salamanca

                                                Members
                                                Mr. José María Arteta Vico
                                                Mr. Juan José Azcona Olóndriz
                                                Mr. Francisco Baquero Noriega
                                                Mr. Pedro Bedia Pérez
                                                Mr. Rodolfo Benito Valenciano
                                                Mr. Gerardo Díaz Ferrán
                                                Mr. Ramón Espinar Gallego
                                                Mr. José Manuel Fernández Norniella
                                                Mr. Guillermo R. Marcos Guerrero
                                                Mr. Gonzalo Martín Pascual
                                                Ms. Mercedes de la Merced Monge
                                                Mr. Ignacio de Navasqüés Cobián
                                                Mr. Jesús Pedroche Nieto
                                                Mr. Alberto Recarte García-Andrade
                                                Mr. José María de la Riva Ámez
                                                Ms. Mercedes Rojo Izquierdo
                                                Mr. Antonio Romero Lázaro
                                                Mr. Ricardo Romero de Tejada y Picatoste

                                                Secretary (non Board Member)
                                                Mr. Jesús Rodrigo Fernández

                                                Composition at 31.12.2009

Annual Report 2009 C   02/ Board of Directors                                                             05
                                                                                                www.cajamadrid.com


03/
Management Committee


                                                  Mr. Miguel Blesa de la Parra
                                                  Chairman

                                                  Mr. Matías Amat Roca
                                                  General Business Director
                                                  Director of the Corporación Financiera Unit

                                                  Mr. Juan Astorqui Portera
                                                  Director of the Communication Unit

                                                  Ms. Carmen Contreras Gómez
                                                  Director of the Obra Social Unit

                                                  Mr. Ramón Martínez Vilches
                                                  Director of the Audit Unit

                                                  Mr. Ricardo Morado Iglesias
                                                  Director of the Systems and Operations Unit

                                                  Mr. Ildefonso Sánchez Barcoj
                                                  General Director of Finance and Resources

                                                  Mr. Rafael Spottorno Díaz-Caro
                                                  Director of Fundación Caja Madrid

                                                  Mr. Jesús Rodrigo Fernández
                                                  General Secretary

                                                  Composition at 31.12.2009


Annual Report 2009 C   03/ Management Committee                                                              07
                                                                                                   www.cajamadrid.com


04/
Control Committee


                                               Chairman
                                               Mr. Pablo Abejas Juárez

                                               Members
                                               Mr. Miguel Ángel Abejón Resa
                                               Mr. Miguel Ángel Araujo Serrano
                                               Ms. María Carmen Cafranga Cavestany
                                               Mr. Antonio Cámara Eguinoa
                                               Mr. Rubén Cruz Orive
                                               Mr. Juan Gómez Castañeda (Secretary)
                                               Mr. Ángel Eugenio Gómez del Pulgar y Perales
                                               Mr. Javier de Miguel Sánchez
                                               Mr. Gabriel María Moreno Flores
                                               Mr. Francisco José Pérez Fernández
                                               Mr. Antonio Rey de Viñas y Sánchez de la Magestad
                                               Mr. Fernando Serrano Antón

                                               Representative of the Madrid Regional Government
                                               Mr. Cándido Cerón Escudero

                                               Composition at 31.12.2009




Annual Report 2009 C   04/ Control Committee                                                                    09
                                                                                                                                                                                                                        www.cajamadrid.com


05/
Financial review


                                              The world economy went through two clearly                 purchases of financial assets. Likewise, the financial
                                              differentiated phases. During the first few months of      authorities implemented substantial government
                                              the year, continuing the trend of the last part of 2008,   spending packages and avoided the temptation to
                                              there was a severe adjustment in world trade, a fall in    adopt protectionist policies, although the price of the
                                              industrial output and a major rundown of inventories,      stimulus measures in terms of future debt will be high.
                                              leading eventually to a sharp decline in activity and
                                              employment. Thanks to decisive economic policy             It seems obvious in this context that although the
                                              measures, on both the fiscal and the monetary front,       Spanish economy, too, has left behind the worst
                                              the economy stabilised and from the summer onwards         moments of the recession, its recovery will be delayed     10% one year earlier) and inflation (0.8% in December)
                                              the world’s main economies returned to positive rates      compared to that of its main trading partners. The year    are being corrected. The financial situation of the
                                              of growth. Despite this, the average rate of decline of    ended with an average decline in economic activity of      private agents is slowly improving; in particular,
                                              global GDP in 2009 was the highest since the Second        3.6%, large-scale job destruction (7%) and very weak       household saving has recovered. The other side of the
                                              World War (-2.5%).                                         domestic demand. The trend improved over the year,         coin is the major deterioration of public finances, which
                                                                                                         however, as the economy came close to reaching             has been much greater than expected (with the deficit
                                              By economic region, it was the emerging countries,         stability in the last quarter. Moreover, imbalances such   rising above 10%).
                                              headed by China, that led the recovery, allowing a         as the current account deficit (6% of GDP, compared to
                                              reactivation of trade. Exporting countries such as                                                                    The forecasts for 2010 are for a continuation of the
                                              Germany also started to recover in the second quarter                                                                 trends seen in the last few months of 2009. Doubts
                                              of the year, while the ones furthest behind were those                                                                remain, however, as to the soundness of the recovery,
                                              with high debt and housing market adjustments                                                                         once the monetary and fiscal stimuli are withdrawn.
                                              (Ireland and Spain, among others). Overall, the economy                                                               Similarly, the weakness in the labour market and the
                                              has overcome the moments of greatest uncertainty,                                                                     high level of indebtedness of the economic agents give
                                              when distrust among the economic agents and the                                                                       grounds for doubt as to the rate at which the economy
                                              paralysis of the financial markets threatened to cause a                                                              is likely to grow in the next expansionary cycle.
                                              slump in activity. An important role in this respect was
                                              played by the central banks, which succeeded in                                                                       The Spanish banking system has been deeply affected
                                              reviving the financial system through coordinated                                                                     by the worsening of the economy, with the level of
                                              interest rate cuts, liquidity injections and even direct                                                              activity decreasing compared to previous years. The



Annual Report 2009 C   05/ Financial review                                                                                                                                                                                          11
                                                                                                                                                                                 www.cajamadrid.com


05/
Financial review




main factor behind this slowdown has been the mild            As regards sources of funds, 2009 brought relief for       9/2009. Together with the three Deposit Guarantee
contraction in lending to the private sector, attributable    institutions’ funding needs. The normalization of the      Funds, the FROB extends and reinforces the range of
in equal measure to weak demand and tighter supply.           financial markets and the extraordinary injections by      instruments available for executing a bank
The most severe adjustment has been in lending to the         the European Central Bank were accompanied by the          restructuring strategy that will enhance the strength
real estate sector and, in the case of households, in the     exceptional support measures adopted by the Spanish        and solvency of the Spanish banking system.
granting of credit for purposes other than house              government, including the creation of the Fund for the
purchase.                                                     Acquisition of Financial Assets and the granting of
                                                              guarantees for new issues by financial institutions. In
The rise in the NPL ratio, consistent with the difficulties   addition, banks and savings banks continued to focus
the economy is facing and the increase in                     on attracting deposits from the private sector in order
unemployment, continued during the year, albeit less          to increase the proportion of retail funding.
rapidly than in 2008. Credit quality is likely to
deteriorate further, repeating the usual pattern, where       The slowdown in the banking business and the increase
the NPL ratio continues to rise even after the economy        in non-performing assets seriously affected financial
has hit bottom. However, the trend in new                     institutions’ results. The profit decline is likely to
non-performing loans is likely to continue to slow,           worsen in 2010, so institutions will need to restructure
thanks to the impact that the interest rate reductions        in order to contain costs and improve efficiency and
since year-end 2008 have had on companies and                 productivity. Precisely for this purpose, for the banks
households. By business sectors, the NPL ratio is             and savings banks most affected by the crisis last June
highest in lending to the construction and property           the Spanish government created the Fund for Orderly
development sectors and lowest in home loans, owing           Bank Restructuring (Fondo de Reestructuración
to the characteristics of the Spanish market.                 Ordenada Bancaria-FROB), under Royal Decree-Law




Annual Report 2009 C              05/ Financial review                                                                                                                                        12
                                                                                                                                                                                                                                  www.cajamadrid.com


05/
Financial review




Activity                                                     banking activity, business volume (loans and
                                                             advances to customers plus total managed
C                ended 2009 with total consolidated          customer funds) responded positively, increasing
assets of €191,904 million, up 6.0% on the previous          to €280,247 million, 2.3%, or €6,415 million,
year. In the context of a widespread slowdown in             more than at year-end 2008.
                                                                                                                                                                                             Balance                              2009
                                                                                                                                                                                                                     Change   Structure
Summary balance sheet                                                                                                                                                                         2009           2008        %           %
(thousand euros)
                                                                    Balance                                    2009
                                                                                                 Change    Structure    Liabilities
                                                                     2009             2008           %            %     Financial liabilities held for trading, derivatives and other
                                                                                                                        financial liabilities at fair value through profit or loss       10,515,315      8,540,191     23.1        5.5
  Assets                                                                                                                Financial liabilities at amortised cost                         168,208,936    159,802,479      5.3       87.6
  Cash and balances with central banks                           2,422,018        2,418,747         0.1           1.3      Deposits from central banks and credit institutions           20,955,218     19,735,306      6.2       10.9
  Financial assets held for trading, derivatives and other                                                                 Customer funds                                               146,225,958    138,880,767      5.3       76.2
  financial assets at fair value through profit or loss         12,177,064      10,119,735          20.3          6.4      Other                                                          1,027,760      1,186,406   (13.4)        0.5
     Of which: Loans and advances to customers                      39,359          70,122       (43.9)           0.0   Hedging derivatives                                                 657,428        460,288     42.8        0.3
  Available-for-sale financial assets                           26,340,045      21,202,828          24.2         13.7   Provisions                                                          511,039        545,059    (6.2)        0.3
  Loans and receivables                                        128,618,841     129,167,792         (0.4)         67.0   Sundry accounts                                                   1,713,842      1,582,526      8.3        0.9
     Loans and advances to credit institutions                  10,837,460      10,741,539           0.9          5.6   Total liabilities                                               181,606,560    170,930,543      6.2       94.6
     Loans and advances to customers                           117,740,305     118,366,749         (0.5)         61.4
     Other                                                          41,076          59,504       (31.0)           0.0   Equity
  Held-to-maturity investments                                   9,638,886       7,700,020          25.2          5.0   Own funds                                                        10,268,144     10,219,553      0.5        5.4
  Hedging derivatives                                            2,903,400       2,589,197          12.1          1.5      Endowment fund and reserves                                   10,002,337      9,379,073      6.6        5.2
  Non-current assets held for sale                                 893,316         243,475        266.9           0.5      Profit for the year attributable to the parent                   265,807        840,480   (68.4)        0.2
  Investments                                                    2,763,510       2,165,580          27.6          1.4   Valuation adjustments                                              (15,784)      (224,879)   (93.0)        0.0
  Tangible and intangible assets                                 4,628,742       3,859,520          19.9          2.4   Minority interests                                                   45,564         45,725    (0.4)        0.0
  Sundry accounts                                                1,518,662       1,504,048           1.0          0.8   Total equity                                                     10,297,924     10,040,399      2.6        5.4
  Total assets                                                 191,904,484      180,970,942         6.0         100.0   Total liabilities and equity                                    191,904,484    180,970,942      6.0      100.0


Annual Report 2009 C                  05/ Financial review                                                                                                                                                                                     13
                                                                                                                                                                                                                           www.cajamadrid.com


05/
Financial review




Total assets                                          Among the main balance sheet items, loans and             million, of which €3,587                                   Structure of assets
(million euros)                                                                                                                                                            (%)
                                                      advances to customers reached €117,780 million at 31      million corresponded to the
                                                      December 2009, very similar to the previous year’s        net lending position in the                                Cash and balances                     Other assets
                                                                                                                                                                           with central banks
                     191,904                          figure, accounting for 61.4% of assets, while customer    interbank market, added to                                 and loans and                         11.2%
             6.0 %
180,971                                                                                                                                                                    advances to credit
                                                      funds totalled €146,226 million, up 5.3%, representing    which was a second backup                                  institutions                          Loans and
                                                      76.2% of total liabilities and equity. The better         liquidity line of more than                                6.9%                                  advances to
                                                                                                                                                                                                                 customers
                                                      performance of both these items compared to the rest      €12,000 million, consisting of assets eligible for                                               61.4%
                                                                                                                                                                           Debt and equity
                                                      of the sector reinforces the soundness of the Group’s     discounting at central banks.                              portfolios
                                                      banking business in a very difficult environment.                                                                    20.5%
                                                                                                                Worth noting among the other balance sheet items is
                                                      Within customer funds, the growth in customer             the increase in available-for-sale financial assets,
                                                      deposits (+7.5%) allowed a further reduction in the       concentrated almost entirely in fixed income securities.
                                                      share of wholesale funding and a consolidation of the     Within equity, own funds increased to €10,268 million,
                                                      Group’s liquidity position. At the end of 2009 the        accounting for 5.4% of total liabilities and equity.
                                                      C                Group had liquidity sources of €15,600                                                              Structure of liabilities and equity
2008                 2009                                                                                                                                                  (%)


                                                                                                                                                                           Equity                                Other liabilities
                                                                                                                                                                           5.4%                                  7.5%



                                                                                                                                                                                                                 Customer funds
                                                                                                                                                                                                                 76.2%
                                                                                                                                                                           Deposits from
                                                                                                                                                                           central banks and
                                                                                                                                                                           credit institutions
                                                                                                                                                                           10.9%




Annual Report 2009 C           05/ Financial review                                                                                                                                                                                     14
                                                                                                                                                                                       www.cajamadrid.com


05/
Financial review




Capital adequacy                                             This increase in capital strength was supported, on the   Eligible own funds (BIS II)
                                                                                                                       (million euros)
C                reinforced its capital adequacy by          one hand, by the significant increase (16.1%) in Tier 1
increasing the quality and level of capital. The Group’s     capital, driven by internal capital generation and the                        + 5.2%       13,385
eligible own funds according to Basel II rules climbed to    placement of a €3,000 million issue of preferred                     12,729
                                                                                                                                              3,282.0
€13,385 million at 31 December 2009, up 5.2% compared        securities and, on the other, by the very moderate        2,650.6
to the previous year. The surplus over the minimum capital   (0.2%) increase in risk-weighted assets.
requirement increased by more than €630 million, or          As a result, the Tier 1 ratio increased to 8.9%,                                10,103.3
                                                                                                                       10,078.8
23.8%, reaching over €3,280 million, equivalent to 32.5%     1.2 percentage points more than in December 2008,
of the total, compared to 26.3% at the end of 2008.          while the core capital ratio improved to 6.8%. The BIS
                                                             ratio, meanwhile, reached 10.6%, 2.6 percentage
                                                             points above the minimum required level.                                                            Surplus over
                                                                                                                                                                 capital requirement
Capital adequacy (BIS II)                                                                                                                                        Minimum capital
(thousand euros)                                                                                                                                                 requirement
                                                                                                            Absolute
                                                                               2009*             2008        change              2008                  2009
    Eligible own funds                                                    13,385,316        12,729,424      655,892    Capital adequacy ratios (BIS II)
        Tier 1 capital                                                    11,209,344         9,655,068    1,554,276    (%)
        Tier 2 capital                                                     2,175,972         3,074,356    (898,384)                                     10.6
                                                                                                                                   10.1
    Risk-weighted assets                                                 126,291,563       125,985,325      306,238
    Minimum capital requirement                                           10,103,325        10,078,826       24,499
    Surplus over minimum capital requirement                               3,281,991         2,650,598      631,393                              8.9
    Surplus as % of minimum capital requirement                                 32.5              26.3           6.2      7.7
    BIS ratio(%)                                                               10.60             10.10          0.50
        Core capital (%)                                                        6.84              6.76          0.08
        Tier 1 (%)                                                              8.88              7.66          1.22
        Tier 2 (%)                                                              1.72              2.44        (0.72)
                                                                                                                                                                 BIS ratio
    *Estimated                                                                                                                                                   Tier 1 ratio


                                                                                                                                 2008                  2009
Annual Report 2009 C                 05/ Financial review                                                                                                                                           15
                                                                                                                                                                                                                                            www.cajamadrid.com


05/
Financial review




Throughout 2009 the international rating agencies         C               continues to present good credit                    Loans and advances to customers                           €117,780 million, only 0.6% below the level recorded
continued to downgrade the credit ratings of the main     ratings despite these changes, as the following table               In 2009 the volume of new loans and advances to retail    at the end of 2008. This evolution, more favourable
national and international financial institutions,        shows:                                                              customers and businesses exceeded €15,800 million         than that registered by the sector as a whole, allowed
reflecting the effect that the steady deterioration of                                                                        (not including bill discounting), almost completely       C               to achieve a record market share in
the macroeconomic environment and the ongoing global                                                                          offsetting the natural decline in loans through           total bank and savings bank lending to customers of
                                                              Caja Madrid ratings       Moody’s          Fitch     Standard
financial crisis are having on the sector.                                          Investors Service   Ratings    & Poor’s   repayment. At the end of the year the balance of the      6.9% in December 2009, 10 basis points more than
                                                                                                                              Group’s loans and advances to customers stood at          twelve months earlier.
In March Standard & Poor’s revised C                ’s     Long term                     A1               A+          A
long-term rating to A (from A+), due to the impact of      Short term                    P-1              F1         A-1
the deterioration of the property market and of the        Outlook                     Negative         Negative   Negative
Spanish economy on the quality of the loan portfolio.
S&P ratified Caja Madrid’s short-term rating (A-1).                                                                           Loans and advances to customers
                                                                                                                              (thousand euros)
Subsequently, in September 2009, after carrying out a                                                                                                                                                                            Change
stress-test of the Spanish financial industry, the        C               ’s credit ratings reflect in particular its                                                                         2009            2008        Absolute           %
agency confirmed the Caja’s long and short-term           capacity to generate recurring profits through its
ratings.                                                  powerful nationwide retail franchise, with a solid                    Loans to the Spanish public sector                        4,115,503       3,372,652       742,851           22.0
                                                          competitive position in the region of Madrid. This                    Loans to the resident private sector                   108,510,474     108,941,048      (430,574)          (0.4)
In April 2009 Fitch Ratings revised C               ’s    capacity is further supported by good levels of                           Secured loans                                        77,517,883      73,753,009     3,764,874            5.1
rating to A+ (from AA-), maintaining the negative         operational efficiency, which compare very favourably                     Personal guarantee loans                             24,423,741      28,543,509   (4,119,768)         (14.4)
outlook. Lastly, in mid-June Moody’s announced a          both nationally and internationally. The agencies also                    Commercial credit and other loans                     6,568,850       6,644,530      (75,680)          (1.1)
downgrade in the ratings of 36 Spanish financial          value positively Caja Madrid’s good liquidity position                Loans and advances to non-residents                       7,761,115       8,486,726     (725,611)          (8.5)
institutions, having completed its stress-test of the     and adequate capital adequacy levels.                                 Other financial assets                                      354,639         244,724       109,915           44.9
sector. In the case of C              , Moody’s revised                                                                         Allowances and provisions for loan losses               (3,093,272)     (2,881,348)     (211,924)            7.4
the rating to A1 with a negative outlook.                                                                                       Other valuation adjustments                                 131,205         273,069     (141,864)         (52.0)
                                                                                                                                Loans and advances to customers                        117,779,664     118,436,871      (657,207)          (0.6)
                                                                                                                                Memorandum items: Doubtful assets                        7,452,836       6,520,469        932,367          14.3




Annual Report 2009 C            05/ Financial review                                                                                                                                                                                                     16
                                                                                                                                                                                                                                                     www.cajamadrid.com


05/
Financial review




Lending to the resident private sector exceeded            Lastly, loans and advances to non-residents amounted               Over the course of 2009 there was a significant            NPA ratio
                                                                                                                                                                                         (%)
€108,500 million, representing nearly 90% of total         at year-end 2009 to €7,761 million, down 8.5% on the               slowdown in the rate of increase in non-performing
lending to customers.                                      previous year. Their share in total lending fell to 6.4%.          assets, reflecting the positive results of the                    4.87               5.43
                                                                                                                              implementation of the Group’s Asset Quality
Among the various components, secured loans grew                                                                              Management Plan, launched at the end of 2008. In
5.1%, or €3,765 million in absolute terms, raising their                                                                      December 2009 the rate of increase in non-performing
share in total loans and advances to customers to          Loans and advances to customers (gross)                            loans at the C                Group was only 14.3%,
64.2%, 3.3 percentage points more than in the              (million euros)                                                    well below the average of 50.2% for all banks and
previous year. On the other hand, the aggregate balance                                                                       savings banks. At the end of the year the NPA ratio
of unsecured loans to other resident sectors decreased                                                                        stood at 5.43% of qualifying credit risk, having
11.9%, bringing their share of total lending to 25.7%,               121,045   - 0.3%
                                                                                                                              recorded a moderate increase of 56 basis points
                                                                                          120,742
compared to 29.1% in December 2008.                                                                                           compared to December 2008.
                                                            47,292               43,224
Loans to the Spanish public sector also performed well,                                                                       Following strict prudential criteria, in anticipation of         2008                2009
reaching €4,116 million, representing growth of 22.0%,                                                                        potential future needs arising from the adverse
or €743 million in absolute terms, compared to the                               77,518                                       economic conditions forecasted for 2010, the
previous year. This represents 3.4% of total lending,
                                                            73,753
                                                                                                                              C                Group made further precautionary
                                                                                                                                                                                         NPA coverage ratios
                                                                                                                                                                                         (%)
up from 2.8% at the end of 2008.                                                                                              provisions in 2009 totalling over €650 million. Total
                                                                                                    Other loans and
                                                                                                                                                                                                                     112.9         105.7
                                                                                                    advances to customers     provisions increased to €3,363 million at 31 December
                                                                                                    Secured loans to
                                                                                                                              2009, with the generic provisions exceeding €900
                                                                                                    resident private sector   million. The coverage ratio reached 43.4%, or 105.7%
                                                                                                                              if mortgage collateral is included.
                                                                     2008                 2009                                                                                                 46.6         43.4




                                                                                                                                                                                                                                              2008

                                                                                                                                                                                                                                              2009

                                                                                                                                                                                                  NPA coverage       NPA coverage including
                                                                                                                                                                                                                      mortgage collateral


Annual Report 2009 C            05/ Financial review                                                                                                                                                                                                              17
                                                                                                                                                                                                                                 www.cajamadrid.com


05/
Financial review




NPAs and coverage                                                                                               Debt and equity portfolios                                year. This increase is attributable to the portfolios of
(thousand euros)
                                                                                               Change           The aggregate balance of C                Group’s debt    available-for-sale financial assets and held-to-maturity
                                                                 2009          2008     Absolute          %     and equity portfolios at the end of 2009 was €39,403      investments, which increased €5,137 and €1,939
                                                                                                                million, up €7,559 million, or 23.7%, on the previous     million, respectively.
  Qualifying credit risk                                   142,886,366   140,751,689   2,134,677          1.5
  Non-performing assets                                      7,754,627     6,851,072     903,555         13.2
  Provisions                                                 3,362,594     3,193,325     169,269          5.3
  NPA ratio (%)                                                   5.43          4.87         0.56        11.5
  NPA coverage (%)                                                43.4          46.6        (3.2)       (6.9)   Debt and equity portfolios
                                                                                                                (thousand euros)
  NPA coverage including mortgage collateral (%)                 105.7         112.9        (7.2)       (6.4)                                                                                                         Change
                                                                                                                                                                                  2009           2008         Absolute            %

                                                                                                                  Financial assets held for trading and other financial
                                                                                                                  assets at fair value through profit or loss                  619,358         716,059        (96,701)         (13.5)
                                                                                                                     Debt instruments                                          547,902         667,912      (120,010)          (18.0)
                                                                                                                     Equity instruments                                         71,456          48,147          23,309           48.4
                                                                                                                  Available-for-sale financial assets                       26,340,045      21,202,828      5,137,217            24.2
                                                                                                                     Debt instruments                                       23,244,781      18,405,829      4,838,952            26.3
                                                                                                                     Equity instruments                                      3,095,264       2,796,999        298,265            10.7
                                                                                                                  Loans and receivables                                         41,076          59,504        (18,428)         (31.0)
                                                                                                                     Debt instruments                                           41,076          59,504       (18,428)          (31.0)
                                                                                                                  Held-to-maturity investments                               9,638,886       7,700,020      1,938,866            25.2
                                                                                                                     Debt instruments                                        9,638,886       7,700,020      1,938,866            25.2
                                                                                                                  Investments                                                2,763,510       2,165,580         597,930           27.6
                                                                                                                  Debt and equity portfolios                                39,402,875      31,843,991      7,558,884           23.7




Annual Report 2009 C                05/ Financial review                                                                                                                                                                                      18
                                                                                                                                                                                                                  www.cajamadrid.com


05/
Financial review




Available-for-sale financial assets totalled €26,340       Investments totalled €2,764 million, up 27.6% on the         Total managed customer funds
                                                                                                                        (thousand euros)
million at 31 December 2009, equal to 66.8% of the         previous year. This increase mainly reflects the                                                                                            Change
aggregate balance of the debt and equity portfolios.       reclassification of the investments in Indra and NH                                                     2009          2008       Absolute               %
Debt instruments, consisting mainly of resident public     Hoteles mentioned previously.
sector debt securities, grew to €23,245 million, raising                                                                  Customer deposits                  89,596,749    83,345,656      6,251,093               7.5
their share of the total to 88.2%. The balance of equity   Lastly, the portfolio of financial assets held for trading       Spanish public sector            11,357,242     7,001,877      4,355,365              62.2
instruments, which accounts for the remaining 11.8%,       and other financial assets at fair value through profit or       Other resident sectors           74,585,881    73,245,644      1,340,237               1.8
increased by €298 million during the year, driven by,      loss reached €619 million, down 13.5% on the previous              Current and savings accounts   29,292,976    27,834,218      1,458,758               5.2
among other factors, the upward trend of the stock         year. Its share of the total fell to 1.6% from 2.2%                Term deposits                  41,653,700    40,177,597      1,476,103               3.7
markets from March onward. This increase offset the        in December 2008.                                                  Repos and other accounts        3,639,205     5,233,829    (1,594,624)            (30.5)
effect of the reclassification to “Investments” of the                                                                      Non-residents                     3,653,626     3,098,135        555,491              17.9
shareholding in Indra, following the increase in the                                                                      Marketable debt securities         49,023,377    49,047,811       (24,434)               0.0
ownership interest to 20%, and of the shareholding in      Managed funds                                                  Subordinated liabilities            5,925,200     4,033,784      1,891,416              46.9
NH Hoteles as a result of the agreement for the            The C               Group’s managed customer funds,            Valuation adjustments               1,680,632     2,453,516      (772,884)            (31.5)
concerted exercise of voting rights entered into with      comprising both on and off-balance-sheet funds                 On-balance-sheet customer funds    146,225,958   138,880,767    7,345,191                5.3
other shareholders at the end of December.                 (mutual funds, pension funds and insurance), totalled          Mutual funds                         8,068,254     8,649,254    (581,000)              (6.7)
                                                           €162,468 million at the end of 2009, up €7,073 million,        Pension funds                        3,971,535     3,549,156      422,379               11.9
The held-to-maturity investment portfolio totalled         or 4.6%, on the year before.                                   Insurance                            4,201,953     4,315,883    (113,930)              (2.6)
€9,639 million, representing 24.5% of the total debt                                                                      Off-balance sheet customer funds    16,241,742    16,514,293    (272,551)              (1.7)
and equity portfolios. The increase of 25.2% compared                                                                     Total managed customer funds       162,467,700   155,395,060    7,072,640                4.6
to December 2008 is attributable entirely to the
increase in the investments in Spanish government
debt securities, which account for 67.7% of the total,
8.5 percentage points more than one year earlier.




Annual Report 2009 C            05/ Financial review                                                                                                                                                                           19
                                                                                                                                                                                                                                                www.cajamadrid.com


05/
Financial review




On-balance-sheet customer funds totalled €146,226         Spanish public                                              Lastly, the balance of subordinated liabilities, €5,925     Total managed customer funds
million, having increased 5.3%, or €7,345 million,        sector deposits grew                                        million, includes the €3,000 million issue of preferred     (million euros)
compared to December 2008. As a result,                   strongly, €4,355                                            securities launched in the second quarter of the year,
C                 raised its market share in the total    million in absolute                                         targeted at the retail segment.                                                             162,468
                                                                                                                                                                                                      + 4.6%
on-balance-sheet customer funds of banks and savings      terms, to reach a                                                                                                                 155,395
banks to record levels, reaching 7.4% in December         total of €11,357                                            Off-balance-sheet customer funds amounted to                                       16,242

2009, 38 basis points higher than in the previous year.   million. Lastly,                                            €16,242 million at 31 December 2009, representing a           16,514
                                                                                                                                                                                                        146,226
                                                          non-resident deposits                                       slight decline of 1.7% compared to twelve months            138,881
This growth was driven by customer deposits, which        grew 17.9% to more than €3,650 million.                     earlier. Of the various components the best performer
increased 7.5% to €89,597 million.                                                                                    was assets under management in pension funds, which
                                                          Marketable debt securities totalled €49,023 million at      grew 11.9% in relative terms, reaching €3,972 million.
The growth in other resident sectors was spread across    year-end 2009, down €24 million on the previous year.       In line with behaviour across the sector, the decrease in                                             Off-balance-sheet
                                                                                                                                                                                                                            customer funds
demand deposits and term products. The combined           Despite the complex situation in the capital markets for    mutual funds slowed significantly compared to 2008,
                                                                                                                                                                                                                            On-balance-sheet
balance of current and savings accounts increased by      primary issues, C                 completed a total of 15   with net assets at year-end totalling €8,068 million,                                                 customer funds
5.2%, assisted by the low interest rate environment.      issues aimed at the institutional segment over the          down 6.7%. Lastly, the insurance business had funds
Term deposits, on the other hand, attracted nearly        year, notably: two issues of seven and five-year covered    of €4,202 million, compared to €4,316 million at the                  2008                  2009
€1,500 million of net new funds, encouraged by the        bonds, without a guarantee from the Kingdom of Spain,       end of 2008.
launch during the year of a wide range of new types of    in the total amount of €2,750 million, the first of the
deposits with attractive conditions for savers and        two being the largest and longest-dated issue made by
features designed to reward loyalty.                      a Spanish financial institution in 2009; and one issue of
                                                          two-year bonds, also without a State guarantee, in the
                                                          amount of €1,000 million. Additionally, C
                                                          carried out three issues of three-year bonds
                                                          guaranteed by the Kingdom of Spain in the total
                                                          amount of more than €4,800 million.




Annual Report 2009 C           05/ Financial review                                                                                                                                                                                                          20
                                                                                                                                                                                                                                                 www.cajamadrid.com


05/
Financial review




Income statement                                         Income statement                                                                                                                   Net interest income was €2,532 million, up 14.6%,
                                                         (thousand euros)
                                                                                                                                                                          Change            or €323 million in absolute terms, on 2008. This
In a very adverse context for financial activity, the                                                                                 2009          2008       Absolute               %     significant increase reflects business volume growth
C                Group ended 2009 with positive                                                                                                                                             coupled with foresight in balance sheet management,
results, based mainly on revenues from the traditional     Interest income and similar income                                     5,655,487     7,940,686   (2,285,199)            (28.8)   enabling C                  to exploit the opportunities
banking business. The strong growth in net interest        Interest expense and similar charges                                 (3,123,430)   (5,732,110)     2,608,680            (45.5)   that arose in an environment of falling interest rates,
income (14.6%) and gross income (10.9%), together          Net interest income                                                   2,532,057     2,208,576       323,481               14.6   especially in the first half of the year.
with cost containment, allowed the Group to reinforce      Income from equity instruments                                          118,524       112,285         6,239                5.6
its capital strength by recording precautionary            Share of results of entities accounted for using the equity method    (143,366)         6,073     (149,439)                  -   Net fee and commission income totalled €771 million,
provisions in the amount of more than €650 million,        Net fee and commission income                                           770,526       802,541      (32,015)              (4.0)   4.0% less than in 2008, mainly due to the decline in fee
under strict prudential criteria, in anticipation of       Gains/(losses) on financial assets and liabilities                                                                               and commission income from the asset management
difficult economic conditions persisting into 2010.        and exchange differences (net)                                          599,931       345,572      254,359             73.6      and stock brokerage businesses. Fees from business
                                                           Other operating income and expenses                                      (6,536)       14,941      (21,477)         (143.7)      banking, however, performed well, especially those
                                                           Gross income                                                           3,871,136     3,489,988      381,148               10.9   earned from transaction structuring, design and
                                                           Administrative expenses                                              (1,586,599)   (1,746,638)      160,039              (9.2)   underwriting activities.
                                                             Staff costs                                                        (1,155,152)   (1,330,002)      174,850             (13.1)
                                                             Other general administrative expenses                                (431,447)     (416,636)     (14,811)                3.6   Income from equity instruments increased to €119
                                                           Depreciation and amortisation                                          (232,730)     (175,111)     (57,619)               32.9   million. The largest contributor under this caption
                                                           Provisions (net)                                                          64,007        83,023     (19,016)             (22.9)   was Mapfre, S.A.
                                                           Impairment losses on financial assets (net)                          (1,440,595)     (869,481)    (571,114)               65.7
                                                           Profit from operations                                                  675,219       781,781     (106,562)          (13.6)
                                                           Other income and expenses (net)                                       (310,951)       423,758     (734,709)         (173.4)
                                                           Profit before tax                                                       364,268     1,205,539     (841,271)             (69.8)
                                                           Income tax                                                             (97,319)     (364,800)       267,481             (73.3)
                                                           Consolidated profit for the year                                        266,949       840,739     (573,790)             (68.2)
                                                           Profit attributable to minority interests                                 1,142           259           883             340.9
                                                           Profit attributable to the parent                                       265,807       840,480     (574,673)             (68.4)




Annual Report 2009 C           05/ Financial review                                                                                                                                                                                                           21
                                                                                                                                                                                                                                                   www.cajamadrid.com


05/
Financial review




Gains on financial assets and                            Below gross income, year-on-year comparison of the             Recurring income statement
                                                                                                                        (thousand euros)
liabilities and exchange                                 income statement items on a consistent basis is
differences rose to €600                                 affected by the inclusion of certain non-recurring items,                                                                                                                       Change
million, representing growth                             in particular: the recording in 2009, in accordance with                                                                                    2009          2008       Absolute              %
of 73.6%, driven by the                                  strict prudential criteria, of precautionary provisions
substantial gains on sales of                            totalling more than €650 million in anticipation of the          Interest income and similar income                                     5,655,487     7,940,686   (2,285,199)       (28.8)
available-for-sale assets. This positive trend largely   complicated economic and financial environment                   Interest expense and similar charges                                 (3,123,430)   (5,732,110)     2,608,680       (45.5)
offset the fall in equity-accounted income due to the    expected in 2010; and the inclusion in 2008 of a charge          Net interest income                                                   2,532,057     2,208,576       323,481              14.6
impact of the severe adjustment of the Spanish           for the 2008-2010 early retirement plan and of other             Income from equity instruments                                          118,524       112,285         6,239               5.6
economy.                                                 gains in the amount of €483 million obtained as a                Share of results of entities accounted for using the equity method    (143,366)         6,073     (149,439)                 -
                                                         result of the implementation of the Shareholding                 Net fee and commission income                                           770,526       802,541      (32,015)             (4.0)
Adding other operating income and expenses, gross        Reorganisation Agreement between C                               Gains/(losses) on financial assets and liabilities
income reached a total of €3,871 million, up 10.9%,      and Mapfre, which also created scope for the recording           and exchange differences (net)                                          599,931       345,572      254,359           73.6
or €381 million, on the previous year.                   of precautionary provisions in that year.                        Other operating income and expenses                                      (6,536)       14,941      (21,477)       (143.7)
                                                                                                                          Gross income                                                           3,871,136     3,489,988      381,148             10.9
                                                         The effect of these non-recurring transactions makes it          Administrative expenses                                              (1,586,599)   (1,532,789)     (53,810)              3.5
                                                         difficult to analyse the typical results. To facilitate this       Staff costs                                                        (1,155,152)   (1,116,153)     (38,999)              3.5
                                                         analysis, the recurring income statement shown below               Other general administrative expenses                                (431,447)     (416,636)     (14,811)              3.6
                                                         excludes the impact of non-recurring transactions.               Depreciation and amortisation                                          (232,730)     (175,111)     (57,619)             32.9
                                                                                                                          Provisions (net)                                                          45,507        31,604       13,903             44.0
                                                                                                                          Impairment losses on financial assets (net)                            (957,055)     (558,562)    (398,493)             71.3
                                                                                                                          Profit from operations                                                1,140,259     1,255,130     (114,871)          (9.2)
                                                                                                                          Other income and expenses (net)                                       (119,951)      (20,611)      (99,340)         482.0
                                                                                                                          Profit before tax                                                     1,020,308     1,234,519     (214,211)         (17.4)
                                                                                                                          Income tax                                                            (294,129)     (273,378)      (20,751)            7.6
                                                                                                                          Consolidated profit for the year                                        726,179       961,141     (234,962)         (24.4)
                                                                                                                          Profit attributable to minority interests                                 1,142           259           883         340.9
                                                                                                                          Profit attributable to the parent                                       725,037       960,882     (235,845)         (24.5)




Annual Report 2009 C            05/ Financial review                                                                                                                                                                                                            22
                                                                                                                                                                               www.cajamadrid.com


05/
Financial review




Administrative expenses (staff costs plus other           The sum of provision expense and impairment losses       On a recurring basis the C                 Group achieved
general administrative expenses) totalled €1,587          on financial assets, relating mainly to loans and        profit before taxes of €1,020 million and profit
million, a decrease of 9.2% compared to the previous      receivables, amounted to €1,377 million, up €590         attributable to the Group, after deduction of taxes and
year. Excluding the non-recurring staff costs             million on 2008, of which €465 million correspond to     profit attributable to minority interests, of €725
recognised in 2008, notably the charge for the whole of   precautionary provisions made in anticipation of         million, a decrease of 24.5% compared to 2008.
the 2008-2010 early retirement plan, administrative       potential future needs, following conservative           Including the effect of non-recurring transactions,
expenses increased by a moderate 3.5%, mainly due to      principles.                                              profit attributable to the Group totalled €266 million,
the consolidation of City National Bank of Florida.                                                                compared to €840 million in 2008.
                                                          Recurring profit from operations was €1,140 million,
Thanks to the much faster growth of revenues              compared to €1,255 million in 2008.
compared to expenses, the Group’s efficiency ratio
(ratio of administrative expenses to gross income)        The decrease in other net income and expenses
reached 41.0%, representing an improvement on a           (comprising impairment losses on other assets and
recurring basis of 2.9 percentage points compared         other gains and losses) is largely attributable to the
to the previous year.                                     precautionary provisions of €191 million made in 2009
                                                          to reflect the adjustment to the value of investment
                                                          property and the inclusion in 2008, noted earlier, of
                                                          €483 million of non-recurring gains from the
                                                          implementation of the Shareholding Reorganisation
                                                          Agreement between C                    and Mapfre.




Annual Report 2009 C           05/ Financial review                                                                                                                                         23
                                                                                                                                                                                                                    www.cajamadrid.com


06/
Risk management


                                             Risk management is a cornerstone of C                  ’s   • Top management commitment, through the                 • Delegation of powers, in accordance with the lines of
                                             strategy. Its primary purpose is to preserve the Caja’s       various bodies responsible for decision making           authority and decision processes set forth in the
                                             financial strength and net worth by maximising the            on risk matters.                                         Caja Madrid Risk Authority Manual, differentiating by
                                             risk-return ratio within the risk tolerance thresholds                                                                 type of risk and business. Credit risk authority is
                                             laid down by the Governing bodies, while at the same        • Comprehensive risk assessment, with sound risk           based on the following principles: grouping of clients
                                             time providing the tools to control and monitor               identification and acceptance and risk monitoring        by internal ratings; consideration of risk mitigation
                                             compliance with authorised risk levels and manage             functions. This integrated treatment enables the         techniques; and application of correction factors
                                             non-performing assets and recover unpaid                      identification, measurement and management of the        based on product, term, rating and transaction type
                                             transactions. The various risk functions (credit risk,        Group’s overall exposure by product, client group,       in setting risk limits and determining the appropriate
                                             market risk, interest rate risk, liquidity risk and           segment, geographical area, economic sector and          decision-making level. In retail portfolios, decisions
                                             operational risk) are grouped in the General Directorate      business.                                                based on scoring models have binding force for all
                                             of Finance and Resources.                                                                                              customers and products subject to the scoring
                                                                                                         • Early management of late payment and default,            system.
                                             The basic principles governing risk management at             which is particularly important in an adverse
                                             C                are:                                         economic context, with the aim of expediting the       • The principles guiding market risk management
                                                                                                           recovery of unpaid transactions through                  are: to be flexible enough not to constrain the
                                             • Independence, preserving loan book quality at               personalised solutions. The risk monitoring function     risk-taking activities of the business areas; to
                                               arm’s length from the commercial function. Risk             is crucial in this process, especially for the           monitor compliance with established exposure limits
                                               management at C                  is based on teams,         businesses and property developers segments.             on a daily basis; to have a quick and simple
                                               techniques, policies and tools that are constructed                                                                  procedure in place for reporting exceptions to the
                                               and managed by the various organisational units.          • Analysis of the different types of risks underlying      competent body; and to ensure that the structure of
                                               This does not preclude the ongoing adaptation of            transactions, which are assessed from a credit,          limits established for each business area is in
                                               risk management tools to                                    market, liquidity and operational risk standpoint.       accordance with the level of capital available, the
                                               market and, therefore,                                                                                               approved business objectives, the areas’ level of
                                               customer needs.                                                                                                      experience and their past performance.




Annual Report 2009 C   06/ Risk management                                                                                                                                                                                       25
                                                                                                                                                                                                                                                 www.cajamadrid.com


06/
Risk management




The most important actions of the Risk Directorate in    Risk management models and tools                                  The parameters and tools for each type of risk are the
2009 centred on the management of non-performing         C                has a policy of constantly improving its         basic elements that assist the teams whose task it is
assets. A number of segment-specific plans (mortgage     internal capabilities. Although progress to date is               to make decisions, both in risk-related fields and
segment, consumer segment, property developers,          significant, as evidenced by the Bank of Spain’s                  throughout the organisation, and to continuously
businesses, micro-businesses and independent             approval in June 2008 of the Caja’s internal models for           control and monitor the risks assumed.
contractors) have been implemented to streamline debt    the calculation of capital requirements for credit risk, in
recovery processes. These plans have involved the        2009 there were continued efforts to enhance the                  The most noteworthy improvements in models and
whole organisation in developing new products,           implementation of the models and tools for managing               tools in 2009 are as follows:                                      • Development of capital stress and expected loss
improving processes, adapting systems and                risk and solvency efficiently. C               applies                                                                                 models with different time horizons. These models
organisational structure, strengthening teams and        the following Basel II approaches to each type of risk:           • Consolidation of the management of the recovery                    are used to assess C              ’s capital
expanding the network of specialised centres. The                                                                            scoring models which, for the mortgage and consumer                adequacy in a range of adverse economic scenarios
results have been very positive, as the marked                                                                               finance segments, assign loans in these portfolios a                that are complementary to existing scenarios.
slowdown in the rate of growth of the NPA ratio shows.                                                                       probability of successful recovery. In addition, specific
                                                                                                                             products have been created and the authority levels              • Methodological improvements that consolidate the
                                                                                                                             and organisational structure have been adapted to                  economic capital model for credit risk, and
                                                                                                                             streamline all debt recovery processes.                            integration of the other risks (market, interest rate
                                                                                                                                                                                                and operational risk). The economic capital model
                                                         Type of risk                                                                        Approach adopted                                   allows C                 to calculate overall economic
                                                                                                                       For regulatory purposes        For internal risk management purposes     capital (derived from the loss distribution), systemic
                                                                                                                                                                                                economic capital (derived mainly from
                                                             Credit risk                                                                                                                        macroeconomic factors) and economic capital for
                                                                Retail portfolios                                          Advanced IRB                           Advanced IRB                  specific risks (derived from factors specific to each
                                                                Non-retail portfolios                                                                                                           borrower) at both an aggregate and a business unit
                                                                    Treasuries and regional authorities                    Standardised                           Advanced IRB                  or risk segment level. All these developments are
                                                                    Rest of portfolios                                     Advanced IRB                           Advanced IRB                  designed to support both risk management and
                                                             Market risk                                               Internal models (VaR)                  Internal models (VaR)             financial management within C                    .
                                                             Operational risk                                                   Basic                             Standardised

                                                             IRB: Internal Rating Based
                                                             VaR: Value at Risk


Annual Report 2009 C          06/ Risk management                                                                                                                                                                                                             26
                                                                                                                                                                                                                                       www.cajamadrid.com


06/
Risk management




Credit risk                                                   by its Governing bodies and analyse risk differently       - To maximise the net present value of recoveries        • Probability of default (PD) is the likelihood that a
                                                              according to type. Through its support for business          through an optimal mix of strategies and                 given borrower (corporate sector) or transaction
Credit risk is managed by the Risk Directorate, within        management the Risk Acceptance Area collaborates             procedures, both out-of-court (proactive                 (retail sector) will fail to perform its obligations, a
the General Directorate of Finance and Resources. The         in transaction risk assessment, offers an                    negotiation with debtors, settlements and                borrower or transaction being understood to be
Risk Management Directorate’s tasks in this area are to       independent opinion and helps the Governing bodies           refinancings, etc.) and in-court (litigation             non-performing when it is more than 90 days past
identify, analyse, measure, monitor, integrate and value      make decisions by identifying value creation                 management). In order to manage these                    due or has entered the pre-litigation, litigation or
all transactions exposed to credit risk in a                  opportunities.                                               processes effectively the Division must adapt to         default stage, or when there are reasonable doubts
differentiated way for each customer segment.                                                                              market circumstances and                                 that the debt will be repaid. PD is calculated over a
                                                            • The mission of the Risk Policies and Models Area is to       be in direct contact with                                one-year time horizon, although internally PDs are
Credit risk management takes an end-to-end approach,          quantify, control and manage credit risk portfolios          final debtors in order to                                also calculated for different transaction terms by
from the initial granting of the credit through to            with a view to minimising losses, and to control             seek optimal solutions.                                  reference to rating migration matrices.
cancellation of the risk, whether through settlement at       operational risk. It also manages the system of
maturity or through the recovery and sale of assets in        authority levels, proposes policies and provides           - To administer and make                                   Rating and scoring tools assign a PD to each rating
cases where collateral is seized upon default. The credit     support to the business in product development and           available for sale any                                   category, using a statistical calibration method. The
risk function is divided into a management division           in dealings with the authorities in all risk-related         assets resulting from                                    resulting PD is then mapped to a master scale to
(Risk Monitoring and Recovery Management Division)            matters.                                                     surrenders and foreclosures or acquired under            facilitate consistent comparison of ratings obtained
and two areas (Risk Acceptance Area and Risk Policies                                                                      debt restructuring agreements with customers,            from different models.
and Models Area) that cover all phases of the process.      • The Risk Monitoring and Recovery Management                  in line with the Group’s targets.
                                                              Division, which encompasses the Monitoring,                                                                         • Loss given default (LGD), or severity, is the
• The Risk Acceptance Area analyses, assesses and             Recoveries and Foreclosed Assets Areas, has the          The parameters for measuring credit risk in                  percentage of the amount outstanding at default
  refers to higher Committees the risks arising from          following functions, among others:                       C                 are those derived from the internal        that will not be recovered. It is affected by each
  branches, company branches, business directorates                                                                    models, i.e. probability of default (PD), exposure at        institution’s recovery management system.
  and business sub-directorates and, by optimising            - To define risk monitoring policies that will prevent   default (EAD) and loss given default (LGD), or severity.     Analysing LGD can help improve recovery rates and
  risk management, supports business decision                   loan portfolio impairment and to define strategies     These parameters allow prospective monitoring of the         recovery mechanisms.
  making. Risk management optimisation allows                   and policies that will maximise the net present        portfolio’s risk profile through the calculation of
  C                to protect its capital, preserve its         value of recoveries, promoting a financial approach    expected loss and economic capital.
  reputation, match risk-taking to the level specified          to problem loan management.




Annual Report 2009 C            06/ Risk management                                                                                                                                                                                                 27
                                                                                                                                                                  www.cajamadrid.com


06/
Risk management




• Expected loss (EL) is a crucial variable for                                                 Credit risk exposure by segment and business activity,
  quantifying the underlying risk of a loan portfolio,                                         measured by EAD, is shown in the following table:
  as it takes into account key features of the
  transactions, not just the risk profile of the
  borrower. It is defined as the average amount
  expected to be lost on the portfolio in the future,                                          Credit risk exposure by segment and business activity
  as of a given date.                                                                          (%)


The changes in C                ’s credit risk profile over                                    Segment and business activity                            2009    2008
the last year are shown in the following table:
                                                                                                 Public agencies                                         13.0    12.1
                                                                                                    Treasury departments                                  9.9     9.5
Credit risk profile                                                                                  Regional and local authorities                        3.1     2.6
(million euros and %)                                                                            Banks and financial intermediaries                      16.4    13.7
                                                                                                 Corporate                                               20.1    20.9
Management parameters                                                        2009      2008         Large companies                                      11.9    11.5
                                                                                                    SMEs                                                  8.2     9.4
  Exposure at default (EAD)* (million euros)                               199,638   194,740     Developers                                              11.1    13.2
  Average expected loss as % of EAD (including defaults) (%)                  1.97      1.51     Special finance                                          3.5     3.3
  Average regulatory capital requirement for credit risk as % of EAD (%)      3.16      3.20     Retail business                                         33.5    34.6
                                                                                                    Mortgages                                            28.0    28.4
  * Excluding equity securities                                                                     Consumer loans and cards                              3.1     3.6
                                                                                                    Micro-businesses and independent contractors          2.4     2.6
                                                                                                 Equity securities                                        2.4     2.2
                                                                                                 Total                                                  100.0   100.0




Annual Report 2009 C                 06/ Risk management                                                                                                                       28
                                                                                                                                                                                                                            www.cajamadrid.com


06/
Risk management




Expected loss and regulatory capital as a percentage of                                                                       Given its relative importance, the mortgage lending
exposure (excluding equities), by customer segment,                                                                           business is monitored separately, based on criteria
are detailed below:                                                                                                           such as loan to value (LTV), i.e. the ratio of the loan
                                                                                                                              amount to the appraised value at origination. During
                                                                                                                              2009 the average LTV at origination was 70.2%.
Expected loss and capital by segment and business activity
(%)

                                                                         2009                              2008               LTV at origination
                                                                                                                              (%)
Segment and business activity                                Expected             Capital      Expected             Capital
                                                          loss as % of           as % of    loss as % of           as % of
                                                             exposure           exposure       exposure           exposure
  Public agencies                                                0.05               1.33           0.03               0.75
     Treasury departments                                        0.01               0.88           0.00               0.30          90%

     Regional and local authorities                              0.18               2.75           0.13               2.43          85%
  Banks and financial intermediaries                             0.23               1.59           0.17               1.73
                                                                                                                                    80%
  Corporate                                                      1.60               4.98           1.16               5.73
     Large companies                                             0.80               4.73           0.49               5.13          75%
     SMEs                                                        2.77               5.33           1.99               6.46
                                                                                                                                    70%
  Developers                                                     6.39               4.52           4.29               5.08
  Special finance                                                1.20               7.20           1.01               6.65          65%

  Retail business                                                2.40               2.67           1.77               2.06          60%
     Mortgages                                                   2.15               2.45           1.36               1.74                Jun-06   Dec-06      Jun-07        Dec-07     Jun-08   Dec-08   Jun-09   Dec-09
     Consumer loans and cards                                    3.87               3.20           3.93               3.23
     Micro-businesses and independent contractors                3.39               4.49           3.20               4.01
  Total                                                          1.97               3.16           1.51               3.20




Annual Report 2009 C               06/ Risk management                                                                                                                                                                                   29
                                                                                                                                                                                         www.cajamadrid.com


06/
Risk management




By geographical area, 95.3% of the exposure at                           The risk distribution by product reflects the importance
year-end 2009 was concentrated in the European                           of loans and advances, which accounted for 65.6% of
Union, of which 87.9% was in Spain. The rest is spread                   exposure at the end of 2009 (68.6% at 31 December
across North America (1.8%), Latin America (0.6%)                        2008). In second place are fixed income securities,
and other countries (2.3%).                                              accounting for 17.8% (15.0% one year earlier).




                                                                         Risk distribution by product
                                                                         (%)

                                                                               80%

Risk distribution by geographical area                                         70%
                                                                                         68.6
                                                                                                   65.6
(%)
                                                                               60%

Geographical area                                        2009    2008          50%

                                                                               40%
  European Union                                          95.3    95.4
                                                                               30%
      Spain                                               87.9    88.9
                                                                                                                   17.8
      Portugal                                             0.9     1.0         20%                         15.0

      Rest of Europe                                       6.5     5.5         10%                                                                  5.2     6.0    5.5
                                                                                                                                              4.6                          3.3    3.2
                                                                                                                             2.5     2.7
  North America                                            1.8     2.1
                                                                                0%
  Latin America                                            0.6     0.7
                                                                                             Loans and     Fixed-income   Equity securities   Interbank   Guarantees and   Derivatives
  Rest of world                                            2.3     1.8                       advances        securities                        deposits    documentary
                                                                                                                                                              credits
  Total                                                  100.0   100.0
                                                                                      2008          2009




Annual Report 2009 C           06/ Risk management                                                                                                                                                    30
                                                                                                                                                                                                                                      www.cajamadrid.com


06/
Risk management




At 31 December 2009 ratings covered 99.6% of total                                                                   Market risk                                                  Measuring market risk
exposures for rated customers. The risk distribution by                                                                                                                           To measure exposure to market risk the Market Risk
credit rating shows that 79.4% of credit risk was rated                                                              Market risk refers to the potential losses arising from      Control Area uses the value at risk (VaR) model,
BB- or higher (81.3% at year-end 2008), with a                                                                       adverse movements in the prices of the financial             together with other metrics that provide a tighter
balanced rating distribution. The portfolio rated below                                                              instruments in which C                  trades. Other        control of market risk, especially with respect to
BB-, excluding defaults, accounted for 16.6% (15.7%                                                                  risks related to market risk include liquidity risk, model   trading desks.
at 31 December 2008). The portfolio of unrated                                                                       risk and credit/counterparty risk.
customers accounted for 0.4%, the same as at                                                                                                                                      Value at risk (VaR) and back-testing
year-end 2008.                                                                                                       Market risk is controlled through a system of limits,        VaR quantifies the maximum expected loss in the
                                                                                                                     which are set based on the maximum market risk               economic value of the positions exposed to market risk
                                                                                                                     exposure approved each year by the Board of Directors        for a given term and confidence level. C              's
                                                                                                                     and are then shared out among the different business         standard practice is to use a one-day horizon and a
                                                                                                                     areas and centres. Limits are set by reference to a          confidence level of 99%. Calculations are made by the
                                                                                                                     number of metrics: value at risk (VaR), measured by the      method of historical simulation, based on at least one
Risk distribution by credit rating                                                                                   historical simulation method; sensitivity; stop-loss         year of observed market data.
(%)                                                                                                                  limit; and position size.
      25%
                                         22.6                                                                                                                                     Back-testing is conducted daily on all portfolios to
               21.8
                                                                             20.5                                    Compliance with limits is monitored by the Market Risk       check the accuracy of the model used for calculating
      20%                                              18.9
                                                                                                                     Control Area, which operates independently of the            VaR. These back tests compare the VaR estimates with
                                                              16.3                  15.7
                                                15.1                 15.0
                                                                                           14.2   14.1
                                                                                                                     business areas and is part of the Risk Directorate           the daily profit and loss of the trading desks. Any gains
      15%
                                                                                                                     within the General Directorate of Finance and                or losses other than those arising from changes in
      10%
                                                                                                                     Resources. The main functions of the Market Risk             prices (e.g. fees and commissions) are excluded.
                                   7.6
                        7.2                                                                                    6.5   Control Area are to: control and monitor market risk         Back-testing is done with two
      5%
                                                                                                         4.5         positions and counterparty credit lines; calculate the       confidence levels, 95% and 99%.
                                                                                                                     daily trading results of the different desks and
       0%                                                                                                            portfolios; independently value all market positions;
                      AAA          AA+ to AA-     A+ to A-    BBB+ to BBB-    BB+ to BB-      B+ to B-   Below B-    report weekly on market risks to the Financial
            2008            2009
                                                                                                                     Committee; and control model risk.



Annual Report 2009 C                        06/ Risk management                                                                                                                                                                                    31
                                                                                                                                                                                                                                                                        www.cajamadrid.com


06/
Risk management




Tests carried out in 2009 confirm that the VaR                                     The VaR method is used in C                  ’s internal   Sensitivity                                                           For non-linear positions, as in derivatives trading,
model used by C                 works well for the                                 model (which has been approved by the Bank of Spain)       Sensitivity is a measure of the change produced in the                sensitivity analysis is supplemented by an assessment
assumptions used, with only one limit excess                                       to calculate capital requirements in respect of general    economic value of a portfolio when the factors that                   of other risk parameters, including sensitivity to price
during the year.                                                                   market risk (specific risk is excluded). Bank of Spain     influence this value change by a set amount. The main                 movements of the underlying asset (delta and gamma),
                                                                                   rules set the capital charge for the general market risk   changes in the market factors used as inputs for                      volatility (vega), time (theta), interest rates (rho) and,
                                                                                   of a given portfolio as the higher of the previous day’s   sensitivity analysis are:                                             in the case of options on shares or share indexes,
                                                                                   VaR or the average VaR of the last 60 days, multiplied                                                                           elasticity to changes in dividend yield. Sensitivity
                                                                                   by a coefficient that increases as a function of the       -    Interest rates: change of 100 basis points (bp).                 analysis is also run on a term basis to measure the
                                                                                   number of excesses produced by the internal model,         -    Equities: change of 20% in price.                                impact of non-parallel shifts in the term structure of
                                                                                   using a confidence level of 99% and a time horizon of      -    Exchange rates: change of 10%.                                   rates or volatilities and the distribution of risk across
                                                                                   10 days.                                                   -    Volatility:                                                      maturity bands.
Back-testing 2009
(milIion euros)
                                                                                                                                                    Equities              Interest rate            Exchange rate
                                                                                                                                                    10 points               5 points                 5 points
   30                                                                                                                                             of volatility            of volatility            of volatility

   20


   10


    0
                                                                                                                                              - Credit risk spreads: variation as per credit rating.

   -10                                                                                                                                              AAA            AA        A              BBB          <BBB
  -20
                                                                                                                                                    5 bp          10 bp    20 bp           50 bp        150 bp

   -30


   -40


         Jan        Feb    Mar         Apr     May        Jun   Jul    Aug   Sep       Oct   Nov    Dec

               VaR Gains         P/L         VaR Losses




Annual Report 2009 C                             06/ Risk management                                                                                                                                                                                                                 32
                                                                                                                                                                                                                            www.cajamadrid.com


06/
Risk management




Stress testing                                             Market risk performance                                   VaR in 2009*
Stress testing is performed on a regular basis to          and distribution in 2009                                  (thousand euros)

quantify the economic impact on the portfolio of           In 2009 C                 maintained an average VaR
extreme movements in market factors. Three scenarios       of €22.5 million, with a high of €39.4 million and a      VaR                                                                Trading                Trading +
                                                                                                                                                                                       portfolio      available-for-sale portfolio
are modelled: one historical, based on market statistics   low of €8.9 million.
compiled from the latest market crises; one                                                                            Average                                                         12,145                   22,516
crisis-based, registering extreme market movements;                                                                    High                                                            21,189                   39,356
and a worst-case scenario, factoring the deepest daily                                                                 Low                                                              8,218                    8,882
losses of the last year.
                                                                                                                     * Market activities only




Stress testing                                                                                                       The distribution of VaR by business area and type of
(thousand euros)                                                                                                     risk was as follows:

Scenario                                       Treasury       Capital      Corporate
                                                             markets         finance      Portfolios         Total

  Historical                                       944      (10,771)        (3,953)        (1,840)       (15,620)    VaR by business area
  Crisis                                         2,442     (329,403)          1,114       (10,861)      (336,708)    (thousand euros)
  Worst case                                     3,165       (7,270)          (253)          (265)        (4,623)
                                                                                                                     VaR                                                    Treasury      Capital   Corporate       Portfolios*
                                                                                                                                                                                         markets      finance

                                                                                                                       Average                                                5,150      12,170        1,407               602
                                                                                                                       High                                                   8,978      25,188        4,977             2,619
                                                                                                                       Low                                                    3,489       4,163          256               314


                                                                                                                       * Market activities only




Annual Report 2009 C            06/ Risk management                                                                                                                                                                                      33
                                                                                                                                                         www.cajamadrid.com


06/
Risk management




VaR by type of risk*                                                                          Utilisation of limits
(thousand euros)
                                                                                              In 2009 the average utilisation of the overall limits
                                                                                              for market activities approved by the Financial
Trading portfolio                                                                             Committee was 56.3% for VaR limits and 16.8%
Type of risk                                         31 December   Average     High    Low
                                                                                              for sensitivity limits.
  Interest rate                                           4,682     2,825     6,015   1,134
  Equities                                                5,290     3,358     6,010   1,548
  Exchange rate                                             948       571     1,271     136
  Credit                                                  1,311     4,102    15,643   1,257   Utilisation of limits
                                                                                              (%)
  Other                                                   1,040     1,093     2,270     420
                                                                                                                             VaR           Sensitivity
Available-for-sale portfolio                                                                   Average                      56.3                 16.8
Type of risk                                         31 December   Average     High    Low
                                                                                               High                         98.4                 67.1
  Interest rate                                           3,848     3,343    15,131     530    Low                          22.2                  0.1
  Equities                                                4,104     4,246     6,716   2,790
  Exchange rate                                               -         -         -       -
  Credit                                                 11,098     5,130    11,258     244

  * Market activities only




Annual Report 2009 C           06/ Risk management                                                                                                                    34
                                                                                                                                                                                    www.cajamadrid.com


06/
Risk management




Foreign exchange risk                                        Activity in derivatives                                      VaR of derivatives activity
                                                                                                                          (thousand euros)
C               has a policy of running a low foreign        C                ’s 2009 activity in derivatives gave rise
exchange risk profile. The euro value of its year-end        to a notional volume of €663,279,499 thousand,                                             Fixed income   Equities    Total
open position in foreign currencies was €5,055               originating mainly in the management of market and             Average                            2,375       219    2,594
thousand, with a VaR of €51,000.                             interest-rate risk as well as in market-making and             High                               3,413     1,162    4,575
                                                             distribution activities.                                       Low                                1,302        47    1,349

Derivatives volume by product and term
(thousand euros)


Product                                                          0 to 3         3 to 10           Over           Total
                                                                 years            years       10 years

    Interest rate               FRAs and short-term futures 3,095,990               -               -      3,095,990
                                Swaps                      292,119,269    191,426,966     109,534,085    593,080,320
                                Caps and floors             24,124,323     16,127,997       1,903,881     42,156,201
                                Swaptions                    2,296,761        763,573       1,160,972      4,221,306
                                Total                      321,636,343    208,318,536     112,598,938    642,553,817
    Exchange rate               Exchange insurance           4,294,547         52,669               -      4,347,216
                                FX swaps                     7,751,899         98,637               -      7,850,536
                                Options                        715,092              -               -        715,092
                                Total                       12,761,538        151,306               -     12,912,844
    Equities                    Futures                         34,181              -               -         34,181
                                Options                      6,619,319        180,436               -      6,799,755
                                Equity swaps                    66,919         56,281               -        123,200
                                Total                        6,720,419        236,717               -      6,957,136
    Credit derivatives          CDS-Protection purchases       159,088        603,038          34,091        796,217
                                CDS-Protection sales            14,656         44,829               -         59,485
                                Total                          173,744        647,867          34,091        855,702
    Total                                                 341,292,044      209,354,426    112,633,029     663,279,499


Annual Report 2009 C            06/ Risk management                                                                                                                                              35
                                                                                                                                                                          www.cajamadrid.com


06/
Risk management




The risk of derivatives trading as expressed by VaR was                                      The credit risk exposure of the derivatives position
again very subdued, since trading activity is based on                                       includes netting of the credit risk of positions whose
customer transactions, which are routinely closed out                                        counterparties are financial institutions which have
on the market.                                                                               entered into ISDA or CMOF framework agreements
                                                                                             (allowing the netting of positive and negative positions
                                                                                             with the same counterparty). At 31 December 2009
                                                                                             there were 179 netting agreements and 127 guarantee
                                                                                             agreements (85 collateral, 34 repos and 8 securities
Credit risk of derivatives activity*                                                         loans). These arrangements have reduced credit
(thousand euros)                                                                             exposure from derivative instruments by 84.4%.

Risk                                          Product                     Exposure      %
  Interest rate                               IRS                        5,310,370    85.2
                                              Currency swaps                49,103     0.8   Effect of netting arrangements and collateral held
                                              Caps and floors              251,457     4.0   on credit risk in derivatives transactions
                                              Swaptions                     41,081     0.7
                                                                                             (thousand euros)
                                              Total                      5,652,011    90.7
                                                                                                                                                              Amount       %
  Exchange rate                               FX swaps                      69,113     1.1
                                              Exchange insurance            89,411     1.4     Original credit risk                                        19,769,267   100.0
                                              Options                        6,641     0.1     Credit risk with netting arrangements                        8,247,477    41.7
                                              Total                        165,165     2.6     Credit risk with netting arrangements and collateral held    3,094,757    15.6
  Equities                                    Options                      267,701     4.3
                                              Equity swaps                 122,074     2.0
                                              Total                        389,775     6.3
  Credit                                      CDS-Protection purchases      22,278     0.4
  Total                                                                  6,229,229   100.0

 * Includes netting and collateral arrangements




Annual Report 2009 C                      06/ Risk management                                                                                                                          36
                                                                                                                                                                                                                                      www.cajamadrid.com


06/
Risk management




Market liquidity risk                                     Model risk                                                 Structural interest rate risk                               understood as the net present value of the expected
The market risk limits system is supplemented by a        Some financial instruments can only be valued using        on the balance sheet                                        future flows of the main balance sheet items, under
system of market liquidity limits, which is designed to   models based on standard financial and economic                                                                        different interest rate scenarios.
prevent excessive concentrations of any given asset in    techniques accepted by the financial community.            Structural interest rate risk on the balance sheet is the
C               ’s books that might have an adverse       Models invariably simplify the realities of financial      risk of loss arising from adverse movements of market       C                 has established limits for the measures
impact on the asset’s price if it were sold. The          markets, and the results obtained for a given position     interest rates. Changes in market interest rates feed       of interest rate risk. These limits are an indicator of the
indicators used to measure market liquidity risk are:     can easily vary from one model to the next. The            through to the Caja’s assets and liabilities with varying   maximum level of structural interest
the bid/offer spread; the time needed to neutralise       difference between these valuations becomes more           speed and intensity, depending on the assets and            rate risk on the balance sheet that
(close or hedge) a given position in normal market        apparent the more complex the financial product is or      liabilities’ maturities and repricing dates. These          the Caja considers consistent with
conditions; the volume issued or traded in the market;    the more difficult it is to obtain market data affecting   changes affect the Caja’s earnings performance and,         prudent risk management.
and the size of the issue.                                its value. As the difficulty increases, model risk         ultimately, its economic value.
                                                          becomes correspondingly greater.                                                                                       In addition, C               monitors
                                                                                                                     The Assets and Liabilities Committee (ALCO) is the          the limits stipulated in Bank of Spain
                                                          Model risk is controlled using the following procedures:   top-level body responsible for controlling and managing     Circular 3/2008, which imposes an
                                                                                                                     C               ’s structural interest rate risk, within    obligation to report to the supervisor and take
                                                          • Development of at least two models to provide a          the framework of the risk policies established by the       corrective action when the potential impact of the
                                                            double check.                                            Board of Directors.                                         established sensitivity scenarios exceeds either 20%
                                                                                                                                                                                 of the Institution’s economic value or equity, or 50% of
                                                          • Use of external valuations to validate the models        In compliance with applicable regulations and in line       the interest rate-sensitive net interest income over a
                                                            being used.                                              with best practice in interest rate risk management,        one-year time horizon.
                                                                                                                     this analysis is conducted from two complementary
                                                          • Review of the models by the Market Risk Control          standpoints: on the one hand, simulations of the            Throughout 2009 the interest rate scenario was
                                                            Area.                                                    changes in net interest income under alternative            marked by continued sharp rate reductions by the ECB.
                                                                                                                     balance sheet growth and interest rate scenarios; on        In this context the ALCO maintained its active
                                                                                                                     the other, simulations of the exposure of equity,           management of structural interest rate risk on the




Annual Report 2009 C            06/ Risk management                                                                                                                                                                                                37
                                                                                                                                                                                                                                       www.cajamadrid.com


06/
Risk management




balance sheet through the use of hedging instruments,       Structural liquidity risk                                   In addition, C              has                             Independently of the method used, operational risk
both derivatives and portfolios of structural securities,   on the balance sheet                                        a contingency plan for liquidity                            management demands integral treatment, covering
which allowed it to maintain moderate risk levels in line                                                               risk management in crisis                                   each of its four phases: risk identification, impact
with the objective of sustained growth of net interest      Structural liquidity risk reflects the uncertainty, in      scenarios. The ALCO is                                      assessment, monitoring and control, and mitigation. For
income and net worth.                                       adverse conditions, as to the availability of funds at      responsible for approving the                               this purpose, in 2009 C                  carried out the
                                                            reasonable prices to allow the Institution to make          measures to be taken to                                     following initiatives:
                                                            timely payment on the commitments it has acquired           re-establish compliance with liquidity risk policies in
                                                            and to finance the growth of its investment activity.       the event of structural deviations.                         • Preparation of a Policies and Procedures Manual for
                                                                                                                                                                                      operational risk.
                                                            One of the ALCO’s functions is to control and manage
                                                            structural liquidity risk on the balance sheet within the   Operational risk                                            • Half-yearly review of the self-assessment
                                                            framework of the risk policies defined by the Board of                                                                    questionnaires.
                                                            Directors.                                                  C                 understands operational risk as the
                                                                                                                        risk of loss resulting from inadequate or failed internal   • Submission of periodic reports on operational risk
                                                            The recent market liquidity crisis and its impact on        processes, people and systems or from external                capital to the Bank of Spain.
                                                            financial institutions illustrated the importance of        events. This definition includes legal risk, but excludes
                                                            monitoring and actively managing structural liquidity       reputational risk. Bank of Spain Circular 03/2008 of 22     • Development and improvement of the operational
                                                            risk on the balance sheet.                                  May on the calculation and monitoring of minimum              risk database (created jointly with the Systems and
                                                                                                                        capital regulates the treatment of operational risk for       Operations Unit), which is integrated in the Debt
                                                            In 2009 the active management of C                    ’s    credit institutions.                                          Forgiveness and Arrears Settlement application.
                                                            structural liquidity risk followed three basic lines of
                                                            action: attracting retail deposits; raising funds in the    C                currently uses the Basic Indicator         • Preparation of the operational risk scorecard.
                                                            wholesale markets through public and private                Approach for the computation of operational risk
                                                            placements, where market conditions allowed; and            capital, although its near-term goal is to use the          • Review of the Bank of Spain Guide for application of
                                                            increasing the liquidity reserve at the ECB.                Standardised Approach.                                        the Standardised Approach.




Annual Report 2009 C            06/ Risk management                                                                                                                                                                                                 38
                                                           www.cajamadrid.com


06/
Risk management




• Updating, in the second quarter of the year, of the
  C               Group’s operational risk map and
  adaptation of this map to the new organisational
  structure.

• Preparation of policies for the mitigation and control
  of operational risk in the functional units most
  affected by external fraud, in particular payment
  systems.

In addition, C              participates actively in the
Spanish Operational Risk Consortium (CERO Group), a
discussion forum open to any suggestion aimed at
promoting the search for new solutions and the
implementation of improvements in operational risk
management by its members.




Annual Report 2009 C            06/ Risk management                     39
                                                                                                                                                                                                                     www.cajamadrid.com


07/
Business
review

                                             C                is Spain’s fourth largest financial group,   • Diversity of financial activities through Cibeles,       • Multi-channel network which integrates the service
                                             with total consolidated assets of more than €190,000            which allows the Group to operate actively in asset        provided through the Group’s 2,179 branches with
                                             million and 7.2 million customers.                              management and intermediation (Gesmadrid, Caja             an advanced system of complementary channels and
                                                                                                             Madrid Pensiones, Caja Madrid Bolsa and Banco              external sales networks.
                                             It has a strong position in Spain, which was reinforced         Inversis), private banking (Altae Banco), insurance
                                             in 2009 with gains that brought its market share to             (Mapfre-Caja Madrid Vida) and specialised lending        • Workforce of 15,259 professionals.
                                             record levels, both in loans and in customer funds,             (Banco de Servicios Financieros Caja Madrid-Mapfre).
                                             reaching 6.9% and 7.4%, respectively, in                        Cibeles is also the platform for the Group’s
                                             December 2009.                                                  international expansion.

                                             The business model, based on universal banking, is            • Alliance in the insurance sector with Mapfre, in which
                                             centred on the customer, seeking to meet all the                the Group has a shareholding of 14.95%.
                                             customer’s financial needs. This model rests on the
                                             following pillars:                                            • Investments in other businesses, either directly or
                                                                                                             through Corporación Financiera Caja Madrid, that are
                                             • Specialisation in commercial banking, based on a              complementary to the banking activity, notably
                                               business strategy that focuses on close,                      Iberia, Indra, NH Hoteles, Realia and Global Vía.
                                               personalised customer relationships, product
                                               innovation and service quality. The results of this
                                               strategy are reflected in the highest level of
                                               customer loyalty in Spain, with an 80% rating
                                               (FRS/Inmark).




Annual Report 2009 C   07/ Business review                                                                                                                                                                                        41
                                                                                                                                                                                                                        www.cajamadrid.com


          07/
          Business
          review



          Distribution of the Group’s branches in Spain                                                                                        Distribution channels
          (number)                                                                                                                             (number)
                                                                                                                                                                                                              Change
                                                                                                                                                                                        2009    2008    Absolute         %

                                                 Asturias
                                                   21                 Cantabria      Basque                                                      Branches in Spain                      2,153   2,136        17          0.8
                                 Galicia                                25           Country
                                                                                                                                                 Branches abroad                           26      24         2          8.3
                                  50                                                    37 Navarra
                                                                                             8                                                   Banking Distribution Offices             604     628      (24)        (3.8)
                                                                                    La Rioja
                                                                                       8                                                         Self-service terminals                 5,000   4,944        56          1.1
                                                           Castilla y León                                              Catalonia
                                                                                                                          246                    Internet Branch customers (thousand)   2,675   2,569       106          4.1
                                                                 75                                           Aragón
                                                                                                                27


                                                                         Madrid                                                     Balearic
                                                                         1,076                                                      Islands
                                                                                                                                       30

                                                                             Castilla - La Mancha            Valencia
                                           Extremadura                               148                       140
                                                22



                                                                                                    Murcia
                                                                                                     26
                                                            Andalusia
                                                              176




Canary
Islands                                                  Ceuta
   32                                                      6




          Annual Report 2009 C               07/ Business review                                                                                                                                                                     42
                                                                                                                                                                                                                        www.cajamadrid.com


07/01
Retail Banking


                                             In 2009 C                 Retail Banking continued to       • Major efforts in creating and adapting financial           customers at each stage
                                             develop its customer-focussed business model by               products to meet customers’ current demands on             of their interaction with
                                             pursuing initiatives that allowed it to advance on two        the best terms in the market. This year, increasing        C                 and
                                             strategic fronts: improving the way it manages                customers’ ties with the Caja was a fundamental            more effectively meet
                                             customer relationships and strengthening customer             component of product design, which was aimed at            individual demands and
                                             loyalty. These two lines of strategy are key to achieving     rewarding loyalty and building on existing                 expectations.
                                             more loyal, stable customers, constituting an                 relationships.
                                             exceptionally valuable base in a market in which                                                                       The success of these and
                                             competition has intensified as a result of economic         • Improvements in customer segmentation, with new          other measures discussed below are reflected in
                                             circumstances.                                                customer groups being created and others being           C                ’s leadership in customer loyalty in
                                                                                                           redistributed to achieve a more differentiated           Spain, with an 80% rating (FRS/Inmark), and its high
                                             The following actions taken during the year deserve           relationship with each type of customer and more         percentage (62%) of unshared customers, i.e.
                                             special mention:                                              precisely tailor the Caja’s services to the              customers who bank exclusively with C
                                                                                                           characteristics of each segment.                         (FRS/Inmark), well ahead of other financial institutions.
                                             • Definition and design of the new Commercial Model                                                                    C                ’s position is even stronger in the
                                               for branches. This is a new formula for commercial        • Adaptation of the specific customer relationship         Madrid Region, where it serves 49% (FRS/Inmark) of
                                               management whose main purpose is to facilitate the          plans to the needs of the moment: the Early              the people who use banking services and has an 86%
                                               branches’ activity, allow more effective commercial         Relationship Plan manages the relationship with new      customer loyalty rating, the highest achieved by any
                                               interaction with customers and promote a proactive          customers in the first 15 months; the Retention Plan     financial institution in its traditional market
                                               approach to customer relationships based on                 seeks to prevent loss of customers by anticipating       (FRS/Inmark).
                                               specialised management according to portfolios. The         any decrease in their commitment to the
                                               new Model, whose first initiatives were launched in         relationship; the Loyalty Plan organizes and             In a year that was especially difficult for banking
                                               2009, will make the entire organisation more fully          schedules contacts with the most committed               activity on account of the economic and competitive
                                               customer-oriented.                                          customers; and the Reactivation Plan, reinforced this    circumstances, C                   gained market share
                                                                                                           year, centres on detecting opportunities to sell to      both in loans and in customer funds, closing the year
                                                                                                           customers who do very little business with               with a total of 7.2 million retail customers.
                                                                                                           C               . This helps to optimise contacts with




Annual Report 2009 C   07/ Business review                                                                                                                                                                                           44
                                                                                                                                                                                                                                   www.cajamadrid.com


07/01
Retail Banking




New Commercial Model                                        The Model will be implemented gradually. During         New products and services                                   Other products marketed during
                                                            2009 a first planning phase was started, in which a                                                                 2009 include the Depósitos NOÉ
In 2009 C                defined a new Commercial           Start-of-Year Plan and an End-Of-Year Plan were         Deposit-taking was once again a key activity in 2009.       range of deposit accounts, which
Model for branches. With the customer at its centre,        prepared, customer management guidelines were           The growth of on-balance-sheet customer funds               provide a high yield for a three-year
this Model is designed to reinforce the branches’           defined for each branch function and the commercial     exceeded €7,300 million, or 5.3%, allowing                  term, depending on criteria that
activity by broadly systematising branch-level              tools were reviewed. Lastly, between 2010 and 2011      C                 to increase its market share              include the amount of business a
functions related to commercial action, such as             the integrated analysis and monitoring tools will be    to 7.4% in December, 38 basis points more than              customer does with the Caja.
planning, customer management, development of sales         implemented. The changes in the Commercial Model will   one year earlier.
and support capabilities and monitoring of results.         be accompanied by improvements in commercial tools                                                                  November saw the launch of a major loyalty campaign,
                                                            that will facilitate its implementation.                In 2009 there was an increase in demand for deposit         Project 2038, a new line of communication addressed
During the planning process the branches will have                                                                  products, due to households’ greater propensity             to existing and potential future customers with the
structured information on the economic and social           The new Commercial Model will make the organisation     to save in a context of general deleveraging.               aim of creating a stronger sense of belonging and
environment. Customer management is based on the            more customer-oriented, so that customers receive       C                responded swiftly and effectively to       loyalty. The main product is Depósito 2038, with which
composition and distribution of each branch’s customer      the highest quality service and the best value          the new customer demands, extending the range of            C                rewards customer loyalty at a very
base, taking loyalty, portfolio growth and profitability,   proposition. This will increase customer loyalty and    deposits with attractive products that reward loyalty       attractive rate of interest and with very simple
among other variables, into account. Lastly, the            allow C                 to exploit new business         and the deposit of new funds.                               customer relationship conditions, associated with the
customer-specific action plans designed in the              opportunities and areas.                                                                                            financial services most used by households (cards,
branches will be established in accordance with the                                                                 Notably, it launched the Depósito Plus and the              direct deposit and direct debit, and pension plans or
business priorities for the year. The new Commercial                                                                Depósitos Más y Más and Depósito Premium accounts,          insurance). This product has attracted more than
Model will therefore allow the branches to work in an                                                               the latter two targeting capital from other institutions;   €2,600 million in deposits.
orderly and consistent manner, providing support for                                                                and within the linked deposit category the Depósito
knowing the environment and the branch itself and for                                                               Fidelidad I and Depósito Fidelidad II for new placements    Sales of direct deposit services for salary and pension
planning the year’s activities.                                                                                     of funds and the Depósito Vinculado II. These products      payments were excellent, with 100,000 new direct
                                                                                                                    attracted more than €9,700 million in deposits.             deposit orders, bringing the number of customers
                                                                                                                                                                                who use this service to more than two million.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                             45
                                                                                                                                                                                                                                     www.cajamadrid.com


07/01
Retail Banking




Lastly, C               issued €3,000 million of           More than 38,000                                           In consumer finance, new lending was guided by              Differentiated customer service
preferred securities, which were well received by          new home loans,                                            extreme prudence, with a focus on the portfolio of          by segment
investors, especially Personal Banking customers.          totalling €5,500                                           customers that have a permanent Pre-approved Loans
                                                           million, were made.                                        facility, accessible through the Caja’s various channels.   Personal Banking
As regards retirement products, vested rights in           In granting new                                            In total C                financed consumer                 Caja Madrid Personal Banking is a service aimed at high
individual pension plans grew by 8.1%. The activity        mortgages priority is                                      transactions in the amount of €500 million.                 net worth or high income customers. During 2009 the
during the year was centred around the launch of new       given to customers                                                                                                     criteria for allocating customers to this segment were
products, including the Plan de Pensiones Protegido        who own other                                              As regards bancassurance, the focus in risk insurance       adapted to the new Commercial Model, which has been
Bolsa Premium and the Plan de Pensiones Protegido          C                products. Accordingly, more than 70%      was on cross-selling and the application of combined        implemented in the branches. As a result of this
Cupón Memoria Caja Madrid (which attracted €20 and         of new mortgages were in the form of discounted            discounts, mainly in auto and home insurance. Other         adaptation, the minimum required level of net assets
€25 million, respectively) and measures to                 interest rate products, such as the Hipoteca Bonificada.   actions centred on accident insurance (Seguro de            and earnings was increased and the “liberal
de-seasonalise customer contributions.                     At the same time, efforts were made to attract other       Accidentes Nexo) and health insurance. In retirement        professionals” and “potential Personal Banking
                                                           lenders’ best mortgage customers through the               savings insurance, noteworthy developments include          customers” groups were redistributed, with the liberal
In investment funds, the products were adapted to the      Subrogación Bonificada scheme, resulting in more than      the launch at the beginning of year of Seguro Elección      professionals joining the SMEs and Independent
new CNMV regulations, which reduce the number of           5,000 mortgage transfers in a total amount of more         Vida, an annuity policy where the customer chooses          Contractors segment and a specific segment,
investment categories and change the name of some          than €540 million.                                         both the term of the interest rate guarantee and the        Preferential Management, being created for potential
funds. There were also various mergers between funds,                                                                 death cover and which includes a profit-sharing clause,     Personal Banking customers.
which helped to rationalise the catalogue. In              C               markets the Línea ICO Moratoria            making this one of the most attractive annuity
guaranteed funds, the guarantees of the matured            Hipotecaria mortgage relief line, designed to help         products on the market.                                     As of the end of 2009 Personal Banking provided
funds were renewed, offering new structures, notably       unemployed people and businesses that have seen                                                                        financial advice to 463,000 customers, who
the Caja Madrid Memoria Garantizado fund.                  their revenues decline keep up with their contractual                                                                  contributed aggregate business volume of €48,500
                                                           mortgage payments.                                                                                                     million. Of this total, €25,600 million related to
In lending products, C                  maintained a                                                                                                                              on-balance-sheet customer funds, which grew 13.3%.
significant level of activity, supporting households in
their need for credit despite the difficult environment.                                                                                                                          The Personal Banking service is provided in all Retail
                                                                                                                                                                                  Banking branches. Specifically, there are 1,270 Personal
                                                                                                                                                                                  Banking managers, distributed across 1,010 branches,
                                                                                                                                                                                  dedicated exclusively to providing personalised service
                                                                                                                                                                                  and advice to this type of customer. In 2009 the


Annual Report 2009 C             07/ Business review                                                                                                                                                                                              46
                                                                                                                                                                                                                                www.cajamadrid.com


07/01
Retail Banking




number of Personal Banking managers increased by           At the same time, Caja Madrid Personal Banking has      Preferential Management                                   The branch network had a total of 559 managers
108. In the other branches Personal Banking services       continued to develop innovative products and services   In 2009 C                created a new segment,           specialised in serving this segment, with more than
are provided by the branch manager.                        to meet the specific needs of this segment. Besides     called Preferential Management, that allows it to         255,000 customers in their portfolios.
                                                           launching new deposits, investment funds and pension    manage high value, high potential customers in a
Investment advice is personalized based on the             plans, it continued to issue own-brand cards, such as   differentiated way. These include customers reallocated   Lending to SMEs and independent contractors was
investor’s risk profile and investment horizon, using      the Platinum Banca Personal card, the Visa Oro Banca    out of Personal Banking under the guidelines of the       dominated by the mediation agreements entered into
the Personal Adviser, a portfolio management tool that     Personal card and the Banca Personal debit card, of     new Commercial Model.                                     with various public and private institutions. Through
improves operations by streamlining the preparation of     which already more than 116,000 units have been                                                                   these collaborations C                offers these
investment proposals, with a significant time saving for   issued.                                                 The management model is oriented towards                  groups, which have been especially affected by the
the adviser and a substantial gain in efficiency.                                                                  cross-selling and loyalty building. Customers have        prevailing financial and economic conditions, products
                                                           The communication channels available to                 personal managers, who offer basic advice and             and services on advantageous and affordable terms.
The Personal Adviser facilitated the management of         customers have been expanded, making the                operational support with the aim of increasing assets
394,000 advised portfolios, amounting to €19,300           Personal Account Manager more accessible                under management and accelerating the transition          Several agreements were renewed during the year,
million. A total of 130,000 investment proposals were      via SMS or the Internet Branch, where customers         towards the Personal Banking segment.                     including those with the state-owned financial agency
submitted over the year.                                   may request a phone call or a face-to-face meeting.                                                               ICO, the mutual guarantee companies, the Madrid
                                                           The www.cajamadridbancapersonal.es portal saw a         As of year-end 2009 Preferential Management had           Confederation of Employers and Industries (CEIM), the
                                                           marked increase in number of visits in 2009,            400,000 customers, with a business volume of              Madrid Chamber of Commerce and the European
                                                           reaching a monthly average of more than 230,000.        €20,300 million.                                          Investment Bank, among others.

                                                                                                                                                                             As regards operational improvements for this segment,
                                                                                                                   SMEs and Independent Contractors                          the Internet Branch for Businesses has extended its
                                                                                                                   The SMEs and Independent Contractors segment has          services with the addition of the Financial Aggregator
                                                                                                                   reached 540,000 customers. During the year the            and Online Tax Filing. At the same time, the Firmamóvil
                                                                                                                   criteria for segmenting this group were redefined in      Service provides enhanced security for transfers, credit
                                                                                                                   order to better match the customers’ profile and so be    transfers and other transactions through validation
                                                                                                                   able to offer them the products and services that best    codes via SMS.
                                                                                                                   meet their needs.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                          47
                                                                                                                                                                                                                                        www.cajamadrid.com


07/01
Retail Banking




Other segments                                              6,200 mortgages under the Madrid Regional                    Payment cards                                                The number of co-branded cards is nearly 1,050,000
C               ’s activity with young people is            Government’s Hipoteca Joven scheme of subsidised                                                                          across the Group’s 42 card programmes, generating an
organised around the CMCool portal, which in the three      mortgages for young people, offering terms that are          In the cards business, one of those most affected by         annual transaction volume of €2,128 million. The
years it has been in operation has positioned itself        among the best on the market.                                the adverse economic conditions, C                           strongest performers were the Club Mapfre card, in its
strongly among the 18 to 30 age group. To keep pace                                                                      succeeded in increasing its market share within the          Standard and Platinum versions, and the cards for
with this demanding and fast-moving segment                 The range of cards for young people is very wide and         Servired ATM system by half a percentage point,              young people, such as the MTV card.
C               needs to constantly update its offering,    includes the CMCool card, the MTV card, the Carné Joven      to 17.2%.
so opening new channels of communication is                 de la Comunidad de Madrid card and various university                                                                     The year’s main events include the launch of the new
particularly important. Information about daily life in     cards (Complutense, Autónoma, Carlos III and Rey Juan        C                has consolidated its position as the        Carné Joven de la Comunidad de Madrid card, available
universities and the latest online trends and social        Carlos), which also serve as ID cards. All these cards       third largest card issuer in the Spanish market. The         to young people between the ages of 14 and 30,
networks are the most representative examples.              offer discounts and advantages and can be used to            financing granted to retail customers via credit cards       replacing the previous <26 and +26 cards; and, within
                                                            make purchases in shops.                                     reached a balance of €831 million in 2009.                   the Iberia Sendo programme, the Iberia Sendo para
In 2009 C                  started a strategic plan aimed                                                                                                                             Empresas cards, one Visa and one American Express,
at getting closer to young people in their everyday         New this year was the launch of YCAR motor insurance, a      The total number of C                 cards in operation     which complement one
surroundings through leisure and technology. In the         pioneering product in this segment, which offers discounts   was 5.9 million, made up of 3.7 million debit and            another and are associated
actions undertaken to date the emphasis has been on         at the time of purchase and additional advantages in         prepayment cards and 2.2 million credit cards. Total         with the Iberia Plus
participation, soliciting the involvement of young          subsequent years based on the level of claims.               transaction volume was €16,923 million, down 4.5%            Empresas points
people of all ages through cash draws and direct gifts.                                                                  on the previous year, in line with the fall in the market.   programme.
All this gives an added incentive to the CMCool range of    In the Senior segment the focus this year was on giving
products and services, creating an offering that is         value to the Servicio Pensión service for pensioners,        During 2009 C                 reinforced its leadership in   For liberal professionals
diverse, modern and useful to young people.                 and all its associated benefits, and to the Desafío card,    payment security and technology, being the first             and independent
                                                            which offers attractive leisure benefits and discounts of    institution to migrate to EMV smart cards on a large         contractors
The core products continue to be the Cuenta CMCool          up to 40%. Furthermore,                                      scale. The percentage of EMV-compliant cards doubled         C                 issued the
account for daily transactions and the Depósito             customers in this segment                                    to 63%, well above the market average, which is no           Madrid Economists Association
Vivienda CMCool account for home savings. In housing        received regular information                                 more than 20%.                                               card, supplementing the Autónomos card for the
C                continues to collaborate with the          about the activities of Obra                                                                                              self-employed launched at the end of 2008 and
Ministry of Housing in managing the Renta Básica de         Social and Fundación                                                                                                      marketed this year, which already has more than
Emancipación state subsidy for young people to help         C                .                                                                                                        18,700 holders.
with the cost of rental accommodation. It also granted


Annual Report 2009 C             07/ Business review                                                                                                                                                                                                 48
                                                                                                                                                                                                                                       www.cajamadrid.com


07/01
Retail Banking




                                                             Multichannel distribution                                  Internet Branch                                             (sales of cinema, theatre and other tickets) from
Marketing promotions continued in 2009 in the form of                                                                   As a result of the rapid development in recent years,       more than 100 types of handset, including Blackberry,
rebates on card purchases, one example being the             All the Group’s activity is supported by a multi-channel   the Internet Branch is now the channel most used by         iPhone and numerous latest-generation touch
Descuento card, which offers a discount of 5% in             distribution system, in which the branches, as the focal   the Group’s customers after the branches, with more         screen handsets.
certain sectors. The reductions on purchases made            point of the customer relationship, are complemented       than 546 million transactions in 2009. Its more than
with C                credit cards, equal to 4% at GALP      by other channels (Internet Branch, Mobile Branch,         2.4 million individual users carry out an average of 1.5    The development of this portal has stimulated use of
service stations and 3% at BP service stations,              self-service terminals and Telephone Branch) and           million transactions per day.                               the Mobile Branch, which already has more than 40,100
continued, with the number of beneficiaries reaching         external sales networks, notably the Mapfre network.                                                                   active users, an increase of 16.8% compared to the
more than two million.                                                                                                  During the year the Internet Branch service started to      previous year. The number of transactions carried out
                                                             The C                Group has 2,153 branches in Spain,    market various new deposits that reward a greater           increased by more than 60%.
Lastly, C                 collaborated in the embossing in   including five mobile branches (“ofibuses”), which take    degree of loyalty, including the Depósito Barrilete
braille of the cards for the Spanish Paralympic              banking services to trade fairs and other events and       Cósmico, the Depósito Fidelidad, the Depósito Premium
Committee.                                                   towns that have no local branch.                           and the Depósito 365, complementing the existing            Self-service terminals
                                                                                                                        range of products designed specifically for this channel.   In 2009 the project to redesign the interface of the
                                                             Customers continue to value very positively the                                                                        Group’s 5,000 self-service terminals to take advantage
                                                             comprehensive service offering and quality of the                                                                      of the new interaction possibilities of touch screens
                                                             various channels, as well as their ease of access and      Mobile Branch                                               and implement best practices in usability and user
                                                             security. In 2009 the levels of satisfaction with the      C                 has reinforced its status as a            experience was completed, making the terminals more
                                                             Internet Branch and the Telephone Branch rose to           benchmark in online services with the launch in 2009 of     accessible, intuitive, efficient and easy to use. Design
                                                             90.8% and 93.2%, respectively. The Mobile Branch and       a mobile portal that is a first in the financial sector.    guidelines and patterns for multi-channel interaction
                                                             the Mobile Alerts service, which were assessed for the     Through the Mobile Portal, m.cajamadrid.es, customers       were applied, allowing a significant improvement in
                                                             first time this year, achieved very good results, with     have access to a full range of banking products and         customer orientation and ease of use and greater
                                                             satisfaction levels of 92.8% and 86.7%, respectively.      services (Mobile Branch), information (product and          consistency with other channels.
                                                                                                                        service information, branch locator, market news, and
                                                                                                                        the activities of Obra Social and Fundación
                                                                                                                        C                , among others) and leisure offerings




Annual Report 2009 C             07/ Business review                                                                                                                                                                                                49
                                                                                                                                                                              www.cajamadrid.com


07/01
Retail Banking




Telephone Branch                                          Business referral channels                                 Monte de Piedad
The renewal in 2009 of the certification granted by       The model of banking distribution that C                   (“pawnshop” business)
AENOR confirms the high quality standards of the          develops jointly with Mapfre made a significant
Telephone Branch service. The level of customer           contribution in terms of business volume. New              During 2009 a total of 175,691 transactions were
satisfaction with the channel has continued to improve,   production totalled €2,176 million, of which 27%           granted, in a total amount of €88.9 million. The total
reaching record levels (93.2%) for the second year        relates to products for companies, liberal professionals   loan portfolio increased 3.1% to €82.7 million and the
running.                                                  and the self-employed and 47% to deposits. Growth          average loan amount per customer was €1,207.
                                                          was strongest in services that foster customer loyalty,
                                                          such as direct deposit of income, up 36% on the            At the end of 2009 the number of customers stood at
                                                          previous year. These figures reaffirm the potential of     69,191, of which 13,385 were first-time customers. Of
                                                          the Mapfre sales network to contribute customers in        this total, 20,460 were foreign nationals, 6.4% more
                                                          all segments and generate recurring business across        than the previous year.
                                                          all product lines.

                                                          In 2009 more than 6,100 Mapfre agents carried
                                                          C              products as a complement to their
                                                          main business of selling insurance. This business is
                                                          conducted through 1,876 C                  branches.

                                                          The Banking Distribution Offices project continued. At
                                                          the end of 2009 a total of 604 Mapfre branches were
                                                          equipped to operate and sell C                products
                                                          and services.




Annual Report 2009 C           07/ Business review                                                                                                                                         50
                                                                                                                                                                                                                      www.cajamadrid.com


07/02
Business Banking
and Corporate Finance

                                             The services that C             provides to                Company Branches                                          • Foreign currency credit account, aimed at customers
                                             companies are managed by the Business Banking and          C                delivers a personalised, close and         who carry out a significant proportion of their
                                             Corporate Finance Directorates:                            responsive service to companies through its company         transactions in dollars and pounds sterling, thus
                                                                                                        branches, which form a specialised and highly               minimising exchange rate risk.
                                             • Business Banking serves companies and large              professional network, equipped with specific tools for
                                               institutions, offering high quality management and       active, high quality management of corporate              • New foreign trade portal, Comex, where importing
                                               the best solutions to their needs.                       customers’ financial needs.                                 and exporting companies can find solutions to all
                                                                                                                                                                    their needs in international operations, including the
                                             • Corporate Finance manages the products and               During the year efforts were made to expand the             possibility of contacting a specialist.
                                               services related to structured finance in projects,      business and increase its profitability through
                                               assets and company acquisitions. It also designs         initiatives aimed at broadening the customer base and     • Online tax filing via the Internet Branch for
                                               structured products and provides financial advisory      growing customer relationships. At the same time the        Businesses for customers who do not have a digital
                                               services in mergers, acquisitions and capital            product range was extended with innovative products         certificate. C                is authorised to certify
                                               products.                                                and services, special attention being given to the          third parties to the public tax administration (AEAT).
                                                                                                        international trade business, while maintaining the
                                                                                                        high levels of quality. Among the products and services   • General liability insurance, in collaboration with
                                             Business Banking                                           launched during the year are the following:                 Mapfre, notably a liability insurance for Directors
                                                                                                                                                                    and Managers.
                                             In 2009 the C                 Group strengthened its       • Línea Multiproducto Global, which among other
                                             position as a leading provider of financial services for     benefits includes financing for international trade
                                             companies and large institutions in a scenario marked        transactions. This product has a new open-ended
                                             by economic weakness and a slowdown in corporate             contract, compatible with periodic reviews of
                                             activity. Financing to businesses during the year            customers’ economic and financial situation.
                                             reached a volume of €26,500 million in new loans,
                                             credits and discount facilities.




Annual Report 2009 C   07/ Business review                                                                                                                                                                                         52
                                                                                                                                                                                                                                          www.cajamadrid.com


07/02
Business Banking
and Corporate Finance




Arrangements and collaboration                                 during 2009. More than                                    Company encounters                                           Corporate clients
agreements with the business sector                            25,800 loans, totalling                                   The C                 Group continues to promote the          C                ’s relations with large corporate
In the complex conditions of 2009 C                            €2,175 million, were                                      organisation of company encounters, which serve to           customers are conducted according to a model of
emphasised its collaboration with public bodies,               granted within the                                        build closer ties with customers and provide a               relationship banking based on a deep knowledge of
business associations and private companies, with the          framework of this                                         framework that fosters information sharing on market         companies and their environment, activity, strategy,
aim of making a range of products and services                 programme to support Madrid                               developments and new business trends. In 2009 more           managers and shareholders. This business model has
available to businesses on advantageous terms. The             businesses. In addition, the collaboration with           than 2,000 businesses and managers took part in              enabled it to develop differentiated financial solutions
following agreements and arrangements were signed              business associations was extended to other               these encounters. Of particular note were the                and value added proposals to support corporate
during the year:                                               regions. Most notably, agreements were signed with        encounters held under the title New market scenarios         activity in the context of the widespread slowdown in
                                                               the Confederation of Small and Medium-sized               for companies: financing, internationalisation and           business activity.
•   C                continues to be one of the                Enterprises of Catalonia (PIMEC), the Confederation of    business experiences in Alicante, Toledo, Palma de
    institutions most active in placing the mediation          Employers and Industries of the Valencian Region          Majorca, Pamplona, Barcelona, Madrid and Ciudad Real.        In 2009 the C                Group took part in the
    loans established by the state financial agency ICO. A     (CIERVAL) and the Regional Confederation of                                                                            biggest corporate transactions in the Spanish market
    total of 12,800 loans were granted in 2009,                Employers and Industries of Murcia (CROEM), which         C                also continued to advise companies in       and continued to develop its activity internationally.
    amounting to more than €965 million.                       made available to businesses in their regions credit      their foreign trade activity by organising technical
                                                               facilities on preferential terms in the total amount of   gatherings and trade missions focused on the following       Among other transactions, in the energy sector
• Mediation agreement with the European Investment             €2,000 million (PIMEC), €750 million (CIERVAL) and        destinations: Argentina, Brazil, Chile, Egypt, United Arab   C                led the financing of the acquisition of
  Bank (EIB) whereby €200 million have been allocated          €200 million (CROEM).                                     Emirates, Morocco, Russia, Thailand, Tunisia and             Endesa by Enel and continued to expand its portfolio of
  to provide financial support to Spanish companies.                                                                     Vietnam.                                                     projects focused on improving environmental
  Within this line C               has also reinforced       • Lastly, the agreements with Mutual Guarantee                                                                           sustainability, essentially wind and solar thermal
  the existing agreement with the Madrid Regional              Companies (SGR), backing loans endorsed by these                                                                       assets, in which it has a significant presence.
  Government, under which Madrid-based companies               entities, were substantially reinforced during the
  may apply for subsidies for loans granted under the          year. C                has agreements with 20 of the                                                                   In telecommunications it took part in the first Forward
  agreement with the EIB.                                      21 SGRs present in Spain. In 2009 C                                                                                    Start Facility launched by a Spanish multinational,
                                                               increased its interest in the following companies:                                                                     Telefónica. Moreover, C               is a provider of
• The agreement entered into at the end of 2008 with           Undemur (Murcia), SGR de la Comunidad Valenciana,                                                                      financial services to the top three operators at the
  the Official Chamber of Commerce and Industry of             Suraval (Andalusia) and Isba (Balearic Islands).                                                                       European level, having renewed its commitments during
  Madrid (COCIM) and the Madrid Confederation of                                                                                                                                      the year. As regards the audiovisual media, it has
  Employers and Industries (CEIM) was developed                                                                                                                                       continued to finance the main Spanish groups.


Annual Report 2009 C             07/ Business review                                                                                                                                                                                                   53
                                                                                                                                                                                                                                        www.cajamadrid.com


07/02
Business Banking
and Corporate Finance




In the field of infrastructure and public utilities,           Despite the complicated macroeconomic environment,          Real estate                                               • Extension of the Community of Madrid Framework
C                  took part in the financing of major civil   C                was actively involved in the structuring   The severe downturn experienced by the property             Agreement to promote the sale of the stock of
works, including the San Salvador reservoir, belonging         of the financing for major civil infrastructure and         market has led to a further decline in financing to the     homes in the Madrid Region.
to the Ebro Basin Water Authority (CHE), and the               energy sector projects. The numerous projects tackled       developer segment. The number of properties financed
construction of underground rail infrastructure in the         include various motorways in Portugal, Poland and the       in 2009 was 83,238, a decrease of 14.2% compared to       • Renewal of the collaboration with the Government
main provincial capitals through which the AVE                 United States and the German-Russian gas pipeline           the previous year.                                          (Junta) of Extremadura, through the Extremadura
high-speed train will pass.                                    through the Baltic Sea, a project of crucial strategic                                                                  Special Housing Plan included in the Extremadura
                                                               importance for the European Union, as well as               As regards transfers of mortgages to home buyers by         Housing and Land Plan, and with the Basque
In the public sector, in 2009 C               continued        acquisitions of companies in the food and                   subrogation, the C               Group                      Government.
to be one of the main providers of services to Madrid          pharmaceutical industries.                                  handled a total of 7,282 homes through its specialised
City Council, both as regards financing and as regards                                                                     mortgage subrogation centres, achieving 89%               In 2009 C                 once again had a significant
collaboration in the management of the services for            International corporate activity is also directed towards   effectiveness in subrogations and cross-selling of more   institutional presence in the various real estate
the collection of taxes, rates and charges and the             attracting deposits from multilateral institutions,         than 14 products purchased per home subrogated.           industry events and forums. In particular, it had its own
receipt of guarantees.                                         aiming for long-term commitments and offering                                                                         stand at the 11th Madrid Real Estate Exhibition
                                                               attractive interest rates. These deposits are used for      To meet the growing demand for subsidised housing,        (SIMA09) and was a sponsor of the 6th Asprima Real
The international corporate banking business is                the granting of targeted loans, notably the credit lines    C                has intensified its collaboration with   Estate Awards-Madrid Real Estate Exhibition.
channelled mainly through the branches in Lisbon,              for SMEs and the immigrant population.                      the various government agencies through which access      Furthermore, C                 renewed its collaboration
Miami and Vienna, which allow C               to give                                                                      to financing on preferential terms is provided. The       agreements with the main industry associations,
support to Spanish customers with cross-border                                                                             following agreements were signed or renewed during        including the Madrid property developers association
interests and serve the main companies in the most                                                                         the year:                                                 Asprima, representing more than 80% of the largest
profitable industries in Europe and America.                                                                                                                                         developers in the Madrid Region, many of which also
                                                                                                                           • Agreement with the Ministry of Housing within the       have significant operations in other parts of Spain,
                                                                                                                             framework of the Spanish Government’s Housing and       and the association of real estate
                                                                                                                             Refurbishment Plan 2009-2012.                           cooperatives and project managers
                                                                                                                                                                                     Gecopi, a leader in the cooperative
                                                                                                                           • Mediation on behalf of the state financial agency ICO   sector.
                                                                                                                             in the Housing 2009-2010 and Subsidised Housing
                                                                                                                             Loan Guarantee lines.



Annual Report 2009 C               07/ Business review                                                                                                                                                                                               54
                                                                                                                                                                                                                                            www.cajamadrid.com


07/02
Business Banking
and Corporate Finance




Corporate Finance                                           their international expansion. At the same time, it        banks in this sector by transaction volume and second                                     In the area of infrastructure
                                                            started to finance concession projects with new            by number of mandates.                                                                    and public utilities in Spain,
 In 2009 the C                 Group increased the          project sponsors.                                                                                                                                    C                 successfully
volume of business in structured finance for large                                                                     The year’s most significant transactions included the                                     completed the refinancing of
corporations by 9%, bringing the amount of the              The volume of investment committed during the year,        financing of three new solar thermal plants, two of                                       the R-4 motorway in the
portfolio to €12,600 million, thus strengthening its        totalling €800 million in 35 transactions, puts            which (Termesol and Arcosol, 50 MW each, in the                                        amount of €557 million.
position in the market in a general context of decline in   C                in third place among project finance      province of Cadiz) belong to the Sener group, and the            Significant projects outside Spain included the
activity.                                                   lenders in Western Europe in number of transactions        financing of the ACS group’s Manchasol 2 solar thermal           structuring and financing of the A2 motorway in Poland
                                                            and sixth in amount. Among the transactions that won       plant in Alcázar de San Juan (Ciudad Real). In the wind          for the consortium led by Meridiam, Kulczyk and
During the year the Corporate Finance Directorate           structuring awards were the financing of the Interstate    energy industry C                    financed the Acciona        Strabag, in the amount of €1,400 million and, in North
worked to increase the international diversification of     595 in Florida, Fowler Ridge Wind Farm I in Indiana, the   Eólica Levante and Villamayor projects developed by the          America, of the Interstate 595 in Florida for ACS, with a
activity, particularly in the field of infrastructure       Acciona Termosolar solar thermal project, Sener’s solar    Acciona group and the repowering of the SEASA wind               total investment of $1,639 million. This was a highly
project finance, and focused on adapting specialised        thermal plants and the Nord Stream gas pipeline            farm in Tarifa. Lastly, significant financings in the solar      innovative transaction, as it was the first deal
lending products to the SME segment.                        uniting Russia and Europe through the Baltic Sea.          photovoltaic sector included those granted to the                completed in the United States in which the
                                                                                                                       Gestamp and Ortiz groups for the development of their            remuneration is evaluated based on the availability of
                                                            In the area of energy and the environment in Spain,        photovoltaic solar energy projects.                              the infrastructure.
Project finance                                             C                maintained its commitment to the
The activity of financing global infrastructure, energy     renewable energies sector, which in 2009 was affected      In the international arena the renewables sector                 In addition, in Portugal, where it has extensive
and public utility projects continued at the same           by liquidity constraints and regulatory changes. During    benefited from the implementation of ambitious                   experience in infrastructure finance, C
sluggish pace as in the second half of the previous year.   the year the Group structured and financed wind power,     investment plans in countries such as the United                 once again reasserted its presence, having successfully
                                                            solar thermal and                                          States, which largely offset the negative impact of the          structured and signed the financing of the Baixo
In this general context C               once again          solar photovoltaic                                         lack of liquidity. Even so, overall activity reflects a slight   Alentejo motorway, led by ACS, in the amount of €390
reaffirmed its status as a benchmark institution in the     projects, as well as                                       decline in the number of new projects. C                         million, and of the Douro Interior and Transmontana
project finance business, both in Spain and in the          urban waste                                                continued to finance projects outside Spain, the most            motorways for the consortia led by Mota and Global Vía,
international markets, supporting its prime customers       projects, occupying                                        noteworthy being the Fowler Ridge wind farm in Indiana           in the amounts of €810 and €718 million, respectively.
in their domestic projects and accompanying them in         fourth place in the                                        (United States) and the Generg wind and hydro power
                                                            world ranking of                                           portfolio in Portugal.




Annual Report 2009 C             07/ Business review                                                                                                                                                                                                     55
                                                                                                                                                                                                                                        www.cajamadrid.com


07/02
Business Banking
and Corporate Finance




In 2009 C                 also                             At the same time C                  continued with the        from Acciona of its interest in Endesa for a total of       Within leveraged financings the trend started in the
increased its specialised                                  restructuring and refinancing of the corporate debt of        €8,000 million and took part in the financing of the        previous year towards financing structures with less
lending activity in the                                    real estate companies, matching the repayment                 acquisition by Acciona of the renewable energies            debt and larger capital contributions, and in general
segment of medium-sized and                                schedules to the new economic circumstances and               business of Endesa for €1,500 million.                      towards simpler structures with fewer tranches and a
small projects, where it                                   increasing the collateral securing the loans. Specifically,                                                               larger repayable component, continued. The Group led
attained a solid competitive                               it restructured the debt of Realia Business’s property        Abroad, C                was involved in various            three of the year’s most important transactions as
position. Of particular note among the many                development business, extending the maturity to               transactions in the United States, taking advantage of      mandated lead arranger: the acquisition of Cintra
transactions completed during the year were the            December 2012.                                                its presence in Miami. Notably, it took part in the         Aparcamientos by the Portuguese group Empark, the
financing of three car parks, a university campus and                                                                    financings for the acquisition of Wyeth by Pfizer           acquisition of Grupo Palacios by Proa Capital and the
the refurbishment of a barracks in Ceuta, a residence                                                                    ($22,500 million) and of Weston Foods by the Bimbo          acquisition of the vehicle inspection business of Atecsa
for the elderly in Almería, a state-subsidised school in   Acquisition financing                                         Group ($2,300 million). This latter transaction was         ITV. The total volume of debt in these transactions
San Sebastián de los Reyes and various solar               In the acquisition financing and leveraged buyout             voted “Deal of the Year” by LatinFinance magazine in the    exceeds €500 million.
photovoltaic power plants in different parts of Spain      market the correction that started in 2008 continued          categories of best corporate issuer and best syndicated
(including Cáceres, Lérida and Córdoba).                   in 2009, resulting in a significant decline in the number     loan of the year.
                                                           and volume of deals. Furthermore, the need of many
                                                           companies to negotiate more flexible financing terms in       As regards participation in corporate refinancings,
Asset financing                                            response to the deterioration of economic conditions          highlights include Cemex (more than $15,000 million)
In the financing of productive and real estate assets,     gave added importance to debt restructurings arising          and Ferrovial (€3,300 million), within the framework of
C                completed various singular                from transactions structured in previous years.               the latter’s merger with Cintra, and also the refinancing
transactions, notably the financing for Iberia of two                                                                    of the more than €5,200 million debt incurred by
Airbus A340s for a combined total of €92 million and       C                was involved in the year’s most              Iberdrola in the acquisition of Scottish Power.
the financing of a property sale and leaseback for the     important transactions in the Spanish market, with
German investor group LHI in the purchase of a hotel in    committed financing in excess of €900 million. In the
Amsterdam operated by NH Hoteles.                          energy sector, for example, it led the structured
                                                           financing for Enel on the occasion of the acquisition




Annual Report 2009 C             07/ Business review                                                                                                                                                                                                 56
                                                                                                                                                                                  www.cajamadrid.com


07/02
Business Banking
and Corporate Finance




Structuring and hedging                                     Financial advising                                         of their interest in Centro de Transportes de Coslada.
C                showed notable growth in the business      In the field of mergers and acquisitions the advisory      As regards transactions with non-public information,
of structuring and selling derivatives for corporate        business at the national level declined by more than       C                advised top-ranking national and
clients, with increases of 32% in number of customers,      40% in number of deals and by almost 30% in volume.        international companies in various sectors, including
15% in volume (reaching €11,600 million) and nearly         This significant slowdown reflects the paralysation        renewable energies, tourism, water concessions and
23% in revenues.                                            of the acquisition activity of private equity companies    waste water treatment, and food and beverages.
                                                            due to the difficulties in obtaining financing and the
This growth rested on the increase in hedge                 delay in the adjustment of the prices of companies to      The total value of the companies under
restructuring transactions as a consequence of the          be acquired and in the disposal of private equity firms’   C                 ’s advisory mandate reached €1,300
sharp drop in interest rates and the increase in sales of   investees, given the market situation. As a result,        million, in line with the figure registered the previous
hedges designed to take advantage of lower interest         merger and acquisition activity was much more              year.
rates. The increase in business in the derivatives          concentrated in transactions with industrial
market was accompanied by a decrease in the level of        customers.                                                 As regards capital products, the advisory activity was
sophistication of the transactions. The greater                                                                        influenced by three factors: the virtually complete
illiquidity of exotic derivatives and uncertainty           In 2009 C                  obtained a total of 11          absence of IPOs, especially in Europe, where only one
regarding their possible impact on business                 mandates to advise on acquisition projects, develop        significant IPO took place; the proliferation of rights
performance, in a year of high volatility, fostered a       business plans and provide strategic and valuation         issues by industrial and financial companies as part of
stronger preference among customers for simple              advice. Notably, it advised the shareholders of            the general deleveraging; and the significant expansion
structures.                                                 Marceliano Martín, on the sale of the company to Grupo     of issues of convertible bonds in the face of high
                                                            Alfonso Gallardo. It also advised the Portuguese           market volatility. In this environment C
                                                            company Empark on the acquisition of Cintra                took part as co-lead manager in the capital increase by
                                                            Aparcamientos, the former leader in Spain in the           the Italian energy company Enel, one of the year’s
                                                            short-stay car park and on-street parking control          largest capital increases in Europe, totalling €8,000
                                                            sector; and IMADE and the Madrid Chamber of                million.
                                                            Commerce on the disposal, by public auction,




Annual Report 2009 C             07/ Business review                                                                                                                                           57
                                                                                                                                                                                                                         www.cajamadrid.com


07/03
Treasury and
Capital Markets

                                             The Treasury and Capital Markets Directorate is divided     banks, C                built up its own portfolios of       Leveraged finance
                                             into four Business Sub-Directorates: Capital Markets,       corporate bonds and government debt, generating              continued to be one of the
                                             Own Funding, Treasury and Distribution.                     significant returns over the year, both in the form of net   businesses most affected
                                                                                                         interest income and in the form of gains from financial      by the crisis, reflecting the
                                             The Directorate’s main activities include:                  transactions.                                                greater difficulty private
                                                                                                                                                                      equity companies are
                                             • Management of the C                   Group’s liquidity                                                                having in accessing finance
                                               and exchange rate risk.                                   Capital Markets                                              on more advantageous terms.
                                                                                                                                                                      Prices rallied in the secondary market, bringing the
                                             • Trading in the money and equity markets.                  Credit market                                                Levex leveraged loan index back up to pre-crisis levels.
                                                                                                         In 2009 the credit market situation evolved from
                                             • Market making in government debt securities.              stagnation in the first few months toward a slight            C               ’s focus in this market was on
                                                                                                         recovery in the second half of the year.                     constructing a solid portfolio of corporate bonds with
                                             • Management of C                  ’s own portfolios.                                                                    the intention of taking advantage of the low prices at
                                                                                                         The first half saw a significant decline in new              the beginning of the year and betting on declining or
                                             In 2009 the Treasury and Capital Markets Directorate        syndicated loan activity, as the market only showed          stable interest rates and narrowing credit spreads on
                                             took advantage of the business opportunities offered        interest in issues of high yield, high liquidity bonds. In   investment-grade corporate bonds.
                                             by the special market conditions, making a very             this environment large Spanish and European
                                             positive contribution to Group profit.                      corporations chose to raise funds directly in the fixed
                                                                                                         income market.
                                             At the beginning of the year, in response to the
                                             distortions in the prices of certain assets, such as        The markets regained some confidence in the second
                                             corporate bonds (especially of financial institutions),     half, thanks to the economic policy initiatives, although
                                             mortgage securitisations and covered bonds, and the         it was only in the closing months that there was a
                                             liquidity measures adopted by the leading central           significant upsurge in lending activity, accompanied by
                                                                                                         a tightening of credit spreads.




Annual Report 2009 C   07/ Business review                                                                                                                                                                                            59
                                                                                                                                                                                                                                  www.cajamadrid.com


07/03
Treasury
and Capital Markets




Origination                                                In loan underwriting the trend                              55%-60% compared to pre-crisis levels. Starting in the   Own Funding
Bond underwriting activity during the year was             in activity during the year was                             second quarter, however, the economic and monetary
influenced by the high rate of activity in the primary     dictated by the market, where                               stimulus provided by the authorities started to feed     Although the capital markets for primary issues were
market, centred initially on government-guaranteed         the sharp slowdown in the                                   through, sparking a vigorous rebound in equity           quiet in 2009, C               raised €10,389 million
bonds of financial institutions and subsequently           primary syndicated loans                                    markets, assisted by reduced volatility and risk         through 15 issues targeted at institutional investors.
spreading to issues by corporate borrowers with high       segment, begun the previous                                 premiums, excess liquidity in the market and some
credit ratings. Towards the end of the year the market     year, continued.                                            pleasant surprises in business performance.              The public issues included:
for covered bonds (cédulas hipotecarias) started to
recover, thanks to the stimulus provided by the ECB’s      C               took a lead arranger role in most of the    Against this backdrop, equity investments were           • Two issues of government-guaranteed senior debt in
covered bond purchase programme.                           syndicated deals done by top Spanish companies in           managed with medium to long-term objectives,               February and April for €2,000 and €2,500 million,
                                                           2009. Specifically, the C               Group               targeting the industries most resistant to economic        which met with a massive response from investors,
C                took active part in the underwriting      underwrote a total of around €6,000 million in 107          conditions. Stock selection centred on companies with      especially international investors, with take-up
and placement of bonds in the primary market,              customer transactions.                                      solid fundamentals, strong cash flow generation            exceeding 60%.
achieving leading positions in the domestic bond                                                                       capacity, high dividend yield and multiples below the
underwriting rankings. Specifically, it ranks first in     Equity investment portfolio                                 market and their own historical averages.                • One issue of unsecured senior debt in the amount of
underwriting and placement of government-backed            The approach adopted with respect to C                 ’s                                                              €1,000 million, which made C                the first
issues by Spanish financial institutions, having           portfolio of investments in equity securities, excluding                                                               savings bank to issue senior debt without a
lead-managed 15 of the 24 public issues brought to         industrial interests, was prudent, achieving minimum                                                                   government guarantee since June 2008.
market in 2009. It also took part in public sector         assumption of risk even during the worst moments of
issues, most notably acting as lead arranger of the        the crisis.                                                                                                          • Two issues of covered bonds (cédulas hipotecarias)
June issue of 10-year Treasury bonds. C                                                                                                                                           in the total amount of €2,750 million, the first of
was also very active in the covered bond market, where     Equity markets started the year under the negative                                                                     which was the largest and longest-dated issue made
it was lead manager of the first issue carried out under   influence of the drastic deterioration of financial and                                                                by any Spanish financial institution in 2009.
new UK legislation on covered bonds for Barclays Bank.     macroeconomic fundamentals. All the indices hit a low
                                                           in March, with cumulative losses in the region of




Annual Report 2009 C            07/ Business review                                                                                                                                                                                            60
                                                                                                                                                                                                                                   www.cajamadrid.com


07/03
Treasury
and Capital Markets




As regards subordinated debt, in July C                    Treasury                                                  obtain liquidity                                          Government debt investment portfolios
offered to exchange the S-04-1 Subordinated Bond                                                                     through the ECB and,                                      The investment strategy for the Group’s government
(€250 million) for a new S-09-1 Subordinated Bond,         Treasury manages the Group’s short-term surpluses         more immediately,                                         debt portfolio is oriented toward the medium and long
with conditions updated to take account of the market      and financing needs through the domestic and foreign      through the ECB’s                                         term, based on risk-return efficiency criteria, within the
situation. This offer was taken up by 65% of investors.    money markets, with the aim of maximising                 open market                                               framework of Group-wide policies.
                                                           risk-adjusted return. It also manages the Group’s fixed   operations.
                                                           income investment portfolios, comprising the                                                                        Efforts during the year were focused on efficient risk
Securitisation market                                      securities of governments, government agencies and        There was considerable                                    management in the face of the world economic
C                remains a major player in the             supranational institutions.                               activity in the C              notes issuance             situation and its market impact. Thus, the interest rate
securitisation market, helping to mobilize credit                                                                    programmes in 2009, as well as in the commercial          and fixed-income market situation was exploited to
institutions’ balance sheets and generate bonds with                                                                 paper and certificate of deposit programmes, the          build portfolios that would help to generate net
the highest credit rating to build a stronger structural   Money and currency markets                                former registered at the CNMV and the latter at the       interest income in a possible future scenario of
liquidity position.                                        The money markets were considerably more stable in        London Stock Exchange. More than 400 issues were          moderate economic growth and low interest rates.
                                                           2009, thanks to the measures implemented by the ECB,      made under these two programmes, generally at terms
In 2009 it took part in multi-issuer issues of covered     such as the numerous liquidity injections and the         of between three and six months. The total amount
bonds by savings banks and banks and also issued           12-month auctions called in June, September and           issued during the year exceeded €12,000 million,
covered bonds of its own. Total issuance was €11,227       December, which brought the Eonia to a record low since   keeping the average balance at around €4,000 million.
million, consisting of €8,510 million for customers and    the introduction of the euro.
€2,717 million for its own account.                                                                                  As regards the currency markets, in 2009 the high
                                                           In this environment short-term liquidity management       volatility experienced at the end of the previous year
                                                           remained highly prudent, emphasising active               gradually subsided, while growing market risk appetite
                                                           management of the various facilities the Group has        led the dollar to depreciate to levels close to 1.50,
                                                           available to meet occasional cash flow requirements.      fuelling a resurgence of the international debate about
                                                           Bank deposits and short-term debt were used to            the role of the dollar as a reserve currency.
                                                           diversify funding and avoid risk concentration.
                                                           C               also has sufficient guarantees to




Annual Report 2009 C            07/ Business review                                                                                                                                                                                             61
                                                                                                                     www.cajamadrid.com


07/03
Treasury
and Capital Markets




Derivatives and market making                              Distribution
In the light of the volatility of the environment there
was an increase in the use of hedging derivatives.         The distribution business was very active in 2009. At
                                                           the institutional level the Group was especially active
C               reinforced its position in this segment    in placements of primary market bonds, and also in the
of the Spanish market, taking fourth place in the          secondary market. The secondary market was marked
derivatives ranking in Spain. The catalogue of hedging     by buying pressure in all sectors (financials,
products was diversified to adapt to prevailing interest   corporates, subsovereigns, guaranteed and
rate, equity market and inflation conditions.              sovereigns). The flows originated, on the one hand,
                                                           in the ample liquidity of institutional customers
C                also held a significant position as       (investment and pension funds, insurance companies
market maker in Spanish government debt, while             and private banks) and, on the other, in the funds of
playing a very active role in the secondary market. For    financial institutions. Both drove activity throughout
the first time the Spanish Treasury selected               the year, causing a sharp tightening of credit spreads.
C                as a member of the syndication and
placement team for the 4.30%/2019 bond issued in           In distribution to customers, C                followed
May in the amount of €7,000 million. C                     the policy of offering multiple solutions adapted to
was also very actively and continuously involved in the    customers’ needs and the characteristics of their
secondary market for government-guaranteed bonds           financing. To that end it has developed a wide range of
issued by private entities.                                hedging products, with which it provides simple
                                                           solutions to the management of risks such as interest
                                                           rate and exchange rate risk. These products are offered
                                                           through Business Banking and Retail Banking networks.




Annual Report 2009 C             07/ Business review                                                                              62
                                                                                                                                                                                                                       www.cajamadrid.com


07/04
Caja Madrid Cibeles


                                             Caja Madrid Cibeles, S.A. is a financial services company   The parent company, Caja Madrid Cibeles, has a              offset by the return on assets managed. Industry
                                             created in 2008 that brings together in a common            management team of 51 people, who are responsible           assets held in securities investment funds thus fell 3%
                                             corporate structure businesses that previously were         for legal advisory, communication, auditing, resource       to €162,567 million. Real estate investment funds
                                             part of the C                  Group in order to make       management, strategic development, and financial            registered a 12.6% decrease in assets, ending the year
                                             them more efficient and better exploit growth               management and control.                                     with a total of €6,465 million.
                                             opportunities. Cibeles is also the platform the
                                             C               Group has chosen to drive its expansion     The goal of Caja Madrid Cibeles is to be traded on the      The year’s most positive
                                             outside Spain.                                              various Spanish stock exchanges. It is working towards      news was regarding
                                                                                                         this objective and will put it into effect as soon as the   returns. According to
                                             Cibeles encompasses the following shareholdings:            market situation makes it advisable.                        Inverco data, in 2009 all
                                             100% of Caja Madrid Bolsa, Gesmadrid, Caja Madrid                                                                       categories of securities
                                             Pensiones and Altae Banco; 51% of Banco de Servicios                                                                    funds obtained positive
                                             Financieros Caja Madrid-Mapfre; 49% of Mapfre-Caja          Asset management and                                        returns, with a weighted
                                             Madrid Vida; 38.5% of Banco Inversis; 14.95% of             brokerage services                                          average return of 4.93%.
                                             Mapfre, S.A.; 12.5% of Mapfre Internacional; and                                                                        Equity funds performed
                                             10.36% of Mapfre América. Outside Spain, Cibeles            Gesmadrid                                                   particularly well, achieving
                                             controls 40% of Hipotecaria Su Casita and 83% of City       Financial year 2009 started with a sharp correction in      record returns on the back of the strong stock market
                                             National Bank of Florida.                                   the securities markets, continuing the downward trend       recovery in both developed and emerging countries. The
                                                                                                         of 2008. The second quarter, however, saw the start of      emerging and other international equity categories, for
                                             At 31 December 2009 Cibeles had assets valued at            a brisk recovery, with the result that the stock markets    example, gained 71.6% and 36.7%, respectively.
                                             around €3,230 million. Its activity is concentrated in      had one of the best years in their history, while the ECB
                                             financial services and insurance and most of its            reduced interest rates to levels never seen before.         At 31 December 2009 Gesmadrid managed assets
                                             investees are managed or co-managed by the                                                                              worth €7,467 million (excluding the SICAVs and the real
                                             C                Group, except for the interests in the     Strong market volatility reflected the prevailing           estate fund), 7.5% less than one year earlier. These
                                             Mapfre Group. Cibeles is Mapfre’s largest individual        uncertainty among investment managers and                   figures consolidate Gesmadrid as the fifth-ranking
                                             shareholder, after Fundación Mapfre.                        investors, which translated into further redemptions,       securities investment fund manager, with a market
                                                                                                         though on a much smaller scale than in 2008 and partly      share of 4.59%. In real estate investment funds its




Annual Report 2009 C   07/ Business review                                                                                                                                                                                          64
                                                                                                                                                                                                                          www.cajamadrid.com


07/04
Caja Madrid Cibeles




market share is                                           Meanwhile, taking advantage of market opportunities       In 2009 Gesmadrid once again renewed the ISO 9001
6.88%. The total                                          and the specialisation in this type of product, six       quality certificate granted by AENOR, in accordance with
number of                                                 guaranteed equity funds available in all the branch       the new 2008 version of the standard. The certificate is
unitholders is                                            networks (C                 , Altae Banco Privado, Caja   for the “Design, management and administration of
295,374.                                                  Madrid Bolsa, Bancofar and Banco Inversis) were           investment funds”.
                                                          renewed, including a fund specifically for Altae Banco
Virtually all                                             Privado, Altae Cesta Bolsa Española. Additionally, the
Gesmadrid’s funds                                         first Gesmadrid branded fund, Gesmadrid Bolsa
ended the year with positive returns, which were          Europea, was created, to be marketed exclusively
especially high in the emerging equity, Europe equity     through Banco Inversis. The assets managed in these
and Spain equity categories. Mixed equity funds, which    new products at year-end exceeded €470 million.
posted double-digit gains, and mixed private fixed
income funds with a greater weight of credit in their     In 2009 Gesmadrid was the first Spanish fund manager
                                                                                                                    Gesmadrid: net assets
                                                                                                                    (thousand euros)
portfolios also performed well. Lastly, the money         to launch a new euro equity fund, Caja Madrid Bolsa                                                                                                   Change
market and short-term fixed-income funds succeeded        Cartera Euro, marketed exclusively through Caja Madrid                                                                   2009        2008     Absolute           %
in ending the year in the black, despite the successive   Bolsa and Altae Banco Privado.
falls in interest rates.                                                                                              Securities investment funds                              7,467,222   8,073,998   (606,776)         (7.5)
                                                          In compliance with CNMV regulations, the entire             Real estate fund                                           445,086     421,306      23,780           5.6
Among the activities of the year, the process of          catalogue of funds was reclassified in accordance with      SICAV                                                      155,946     153,950       1,996           1.3
reorganising the range of funds continued, with the aim   the required new investment categories. At the same         Total net assets                                         8,068,254   8,649,254   (581,000)         (6.7)
of having the most competitive and most efficient         time, the half-yearly reports received by unitholders
products on the market at all times. Over the year as a   were adapted to the regulator’s new disclosure
whole seven fund mergers took place, affecting a total    requirements.
of 21 funds.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                    65
                                                                                                                                                                                                                            www.cajamadrid.com


07/04
Caja Madrid Cibeles




Caja Madrid Pensiones                                       With regard to profitability three products stand out:   In the field of employer and associated plans, Caja
The volume of assets managed by Caja Madrid                 Plan de Pensiones Caja Madrid Dividendo (39.9%), Plan    Madrid Pensiones made further improvements to the
Pensiones at 31 December 2009 was €3.972 million, up        de Pensiones Caja Madrid Bolsa Española (34.7%) and      specific Internet portals. These portals offer
11.9% compared to the end of 2008. The net assets of        Plan de Pensiones Caja Madrid Inmobiliario (27.8%).      unitholders proprietary, differentiated information on
the individual pension plans increased by €224 million                                                               these plans in a personalised way and also allow them
or 8.1% in relative terms. The net intake of funds for      Caja Madrid Pensiones has a diversified product range,   to carry out transactions.
the year was €174 million, equivalent to 4.9% of net        consisting of 28 individual pension plans, to meet the
assets at the start of the year.                            varied needs of its 310,221 unitholders. In 2009 the     Lastly, in 2009 Caja Madrid Pensiones again renewed its
                                                            catalogue was extended with the new Plan de              AENOR quality certificate.
By categories, the biggest increases in net assets were     Pensiones Cupón Memoria Caja Madrid, which
in guaranteed pension plans, especially Plan Protegido      guarantees 100% of the initial net asset value plus a
Renta 2012, which had an increase of €136.6 million or      coupon of 3.5% for every annual observation in which     Caja Madrid Pensiones: net assets
                                                                                                                     (thousand euros)
120.5%, and Plan Protegido Renta 2014, whose net            the four securities in the Ibex 35 that make up the
                                                                                                                                                                                                                  Change
assets grew by €44.5 million or 23.8%.                      chosen basket trade above their initial value.
                                                                                                                                                                                   2009        2008    Absolute              %

Equity plans also performed well, aided by savers’          Caja Madrid Pensiones maintained its commitment to
greater risk appetite in a low interest rate environment.   improving transparency and disclosure to unitholders       Individual pension plans                                2,988,165   2,763,923   224,242              8.1
Overall, net assets increased by 33.4%, or €61.6            by adding new functionality and content to its portal,     Group pension plans                                       983,370     785,233   198,137             25.2
million in absolute terms.                                  www.cajamadridpensiones.es. It also increased the          Total net assets                                        3,971,535   3,549,156   422,379             11.9
                                                            range of transactions available to beneficiaries
                                                            via ATMs and online.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                      66
                                                                                                                                                                                                                                           www.cajamadrid.com


07/04
Caja Madrid Cibeles




Caja Madrid Bolsa                                           The drop in results was due to the significant decline in    At the international level Caja Madrid Bolsa pushed         to generate synergies in corporate
For the stock markets 2009 was the most volatile year       activity in terms of actual volumes traded and the           ahead with the integration of its 10% stake in U.S.         finance. With 11 brokerage firms
of the last decade. In Spain the Ibex 35, which started     almost complete absence, once again this year, of            broker ESN North America Inc., acquired in 2007. It also    from 12 EU countries and a team of
the year at 9,196 points, dropped to 6,817 points           corporate transactions (public offerings, takeovers or       continued to develop the agreement with the ESN             more than 130 international
(-26%) in March and then started a rally, reaching a        capital increases), all this in a highly uncertain and       (European Securities Network) network of banks and          analysts, the ESN alliance underpins
high of 12,070 (+31%) in December before falling back       volatile environment that has affected issuers and           firms, further expanding its capacity for analysis of       the vigorous expansion of Caja Madrid
to 11,940 points at the end of the year. This represents    investors.                                                   European mid-sized companies and organising projects        Bolsa’s international business in recent years.
a gap of 77% between the high and low. The rest of the
developed markets behaved similarly, although the           In response, Caja Madrid Bolsa’s strategy has been to
spread between high and low was slightly less,              reinforce anti-cyclical activities, drive the distribution
reaching 63% for the Eurostoxx 50 and 60% for the           channels based on the interactive web site, promote
                                                                                                                         Caja Madrid Bolsa: activity
Dow Jones 30.                                               sales of innovative products such as contracts for           (thousand euros)
                                                            differences (CFDs) and expand the range of investment                                                                                                               Change
In this complicated environment Caja Madrid Bolsa           funds.                                                                                                                       2009            2008        Absolute               %
obtained pre-tax profit of €5.8 million, down 26% on
the previous year, in line with the industry average. The                                                                  Equities trading                                         54,864,133     79,254,934   (24,390,801)             (30.8)
volume of equity trading was €54,864 million, putting                                                                      Fixed-income brokerage                                    1,714,710     10,893,500    (9,178,790)             (84.3)
Caja Madrid Bolsa in fifth place in the national ranking,                                                                  Mutual funds marketed (net assets)                           29,503         32,427        (2,924)              (9.0)
with a market share of 5.47%.                                                                                              Options and futures (no. of contracts)                      554,939        822,439      (267,500)             (32.5)




Annual Report 2009 C            07/ Business review                                                                                                                                                                                                     67
                                                                                                                        www.cajamadrid.com


07/04
Caja Madrid Cibeles




Banco Inversis                                              The upsurge in activity from March, driven by the rise in
Cibeles is also active in the intermediation of financial   the markets, allowed the treasury desk aimed at
assets through its 38.5% shareholding in Banco              institutional customers to post very positive results for
Inversis.                                                   the second year running. In the last part of the year the
                                                            improvement extended to the retail business, where
Inversis is a bank specialising in the trading,             initiatives were aimed at increasing the product and
management, custody and administration of all classes       service offering.
of financial assets, with a strong claim to leadership in
its segment of activity, based on its independence,
broad product offering and excellent service quality.
Inversis’s network of agents is supported by a powerful
technology platform that is at the forefront of
distribution systems in Spain.

Its activity covers three separate business lines: retail
banking, aimed at investors who require advisory and
asset management services, with an independent
investment offering; treasury desk, for professional
clients seeking direct access to the markets; and
institutional services, aimed at all kinds of financial
intermediaries that require integrated services in
investment products, including back office functions.




Annual Report 2009 C              07/ Business review                                                                                68
                                                                                                                                                                                                                               www.cajamadrid.com


07/04
Caja Madrid Cibeles




Mapfre-Caja Madrid Vida                                                                In risk insurance, given the     In 2010 Mapfre-Caja Madrid Vida will continue to pursue
                                                                                       existing broad offering,         a strategy aimed at boosting sales of non-credit-linked
Mapfre-Caja Madrid Vida manages the life and personal                                  efforts were focussed on         risk insurance and retirement savings products. It will
accident insurance sold through the C                                                  marketing Seguro Vida Anual,     also give priority to the marketing of the various types
branch network.                                                                        a renewable term product         of unit-linked insurance, in particular those associated
                                                                                   with main coverage for death for     with structured products and those with innovative
Marketing efforts in 2009 were focused on selling           whatever reason and optional coverage with double           yield formulas.
non-credit-linked risk insurance and products for the       indemnity for disability and accidental death. A total of
elderly through different types of annuities. For this      28,531 new policies were issued during the year.
purpose new products were launched and sales of
some of the various types already available were            These and other achievements enabled Mapfre-Caja            Mapfre-Caja Madrid Vida: activity
promoted.                                                   Madrid Vida to book premium income of €704 million at       (thousand euros)
                                                            the end of 2009, a decrease of 18.3% compared to the                                                                                                    Change
In savings insurance, income insurance gained impetus       previous year. Technical provisions stood at €4,791                                                                        2009        2008     Absolute            %
from the launch of Seguro Elección Vida, which offers a     million at year-end. Profit before tax, meanwhile,
complement to the income retired people obtain from         totalled €70.8 million, up 4.8% on 2008.                      Premiums written                                           703,557     861,665   (158,108)         (18.3)
their state pension and can be adapted to their family                                                                        Risk                                                   130,494     121,385       9,109            7.5
situation and financial risk tolerance. This product also                                                                     Savings                                                573,063     740,280   (167,217)         (22.6)
covers situations not necessarily associated with                                                                         Technical provisions                                     4,790,974   4,921,618   (130,644)          (2.7)
retirement. Its success was reflected in sales of 21,494
policies, reaching a total of €376 million in premiums at
year-end.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                         69
                                                                                                                                                                                                                                        www.cajamadrid.com


07/04
Caja Madrid Cibeles




Altae Banco Privado                                        service and bringing it closer to customers. Altae Banco   The growth of the customer base facilitated                   Because of this commercial policy oriented towards
                                                           also benefited from the considerable reduction in the      cross-selling. There was also an increase in average          deposits and conservative collective investment
Altae Banco Privado offers a global range of products      relative weight of equity assets in its customers’         assets per customer, which is particularly significant in     products and the impact of the adverse economic
and services for high net worth customers, with highly     portfolios in 2008, which allowed it to contend with the   a context in which investors had incentives to diversify      conditions and the sharp decline in interest rates, the
personalised, professional and reliable service. It        systemic risk better than its competitors.                 their investments across different institutions.              results were down on the previous year.
provides tailored solutions to its customers’ financial
and tax needs, offering the kind of agile, best-in-class   At 31 December 2009 Altae Banco had assets under           Taking note of customers’ investment preferences,
management this segment expects.                           management totalling €6,507 million, an increase of        during the first part of the year Altae Banco continued
                                                           12.3% compared to the previous year.                       to aggressively pursue the policy of attracting
Following a long period of growth, in 2009 the private                                                                traditional bank deposits, begun in the second half of
banking business worldwide faced very complicated                                                                     2008. It also strengthened its range of new collective
conditions, affected by high volatility and the loss of                                                               investment products with a markedly conservative
confidence due to events such as the bankruptcy of                                                                    profile, based mainly on sovereign debt securities.
Lehman Brothers, the Madoff case and the situation of                                                                 Marketing of structured products, in contrast, was
illiquidity experienced by some real estate funds.                                                                    almost completely halted.

In this scenario Altae Banco’s activities have been
                                                           Altae Banco: volume of business
focused on strengthening relations with customers in       (thousand euros)
an effort to minimise the impact of these events. To                                                                                                              Change
achieve this objective various initiatives were                                                                           2009            2008        Absolute                %
undertaken to reinforce the already high level of
customer satisfaction by further personalising the           Managed funds                                            6,507,152      5,791,905         715,247               12.3
                                                                Portfolios advised                                    5,821,182      5,027,394         793,788               15.8
                                                                Portfolios managed                                      685,970        764,511        (78,541)             (10.3)
                                                             Loans and credits                                           38,140         27,925           10,215              36.6
                                                             Guarantees                                                 139,985        142,566          (2,581)             (1.8)
                                                             Volume of business                                       6,685,277       5,962,396       722,881               12.1




Annual Report 2009 C            07/ Business review                                                                                                                                                                                                  70
                                                                                                                                                                                                                                    www.cajamadrid.com


07/04
Caja Madrid Cibeles




Banco de Servicios Financieros                              Finanmadrid                                              Madrid Leasing                                               Total investment was €1,610 million, compared to
Caja Madrid-Mapfre, S.A.                                    The decrease in lending by                               Madrid Leasing’s factoring and confirming business           €1,394 million the previous year. Notable in the
                                                            Finanmadrid was                                          achieved a production volume of €3,004 million, slightly     investment is the relative weight of mortgage-backed
In 2009 the specialised lending activity of Banco de        concentrated in the                                      less than the previous year. The decline in investment       loans, mainly to finance the purchase and renovation of
Servicios Financieros Caja Madrid-Mapfre, S.A. was          automotive sector, where                                 by small and medium-sized companies mostly affected          pharmacies, accounting for 53% of the total. Asset
especially affected by the economic recession, as           transactions totalling €95 million                       the leasing business, which reported production of           quality remained excellent, with an NPL ratio of 0.3%,
reflected in a decline in the volume of lending by its      were financed, compared to €703 million the previous     €273 million, compared to €843 million the previous          undoubtedly one of the lowest in the Spanish financial
subsidiaries and an increase in non-performing loans,       year. The decrease in consumer lending was less          year.                                                        industry.
which affected the whole of the Spanish financial           pronounced, reaching a business volume of €244
system. Both factors adversely affected results.            million, down 25.2% on 2008.                                                                                          Customer funds amounted to €503 million at year-end
                                                                                                                     Bancofar                                                     2009, compared to €416 million one year earlier.
At year-end 2009 the consolidated balance of loans and      On the other hand, the decline in results was            Bancofar ended 2009 with very positive results,              Off-balance-sheet funds totalled €87 million.
advances to customers was €6,176 million, compared          attributable to the rapid increase in non-performing     despite the difficulties of the environment. On the one
to €6,756 million at the end of 2008. Consolidated          loans. In addition, anticipating the writedown of its    hand, its balance sheet structure allowed it to benefit
equity, meanwhile, totalled €466 million, a change of       doubtful portfolio, the company opted to bring forward   from the sharp fall in interest rates, which translated
2.8% compared to the previous year. During the year         the schedule of provisions established by the Bank of    into a significant increase in net interest income. On the
Banco de Servicios Financieros Caja Madrid-Mapfre, S.A.     Spain.                                                   other, thanks to its specialisation in the provision of
carried out a capital increase in the amount of €115                                                                 financial services to pharmacies, it was able to avoid
million, which was taken up by its main shareholders,       In 2009 Finanmadrid increased its capital by €115        the impact of the deterioration of credit quality that
Caja Madrid Cibeles, S.A. and Mapfre, S.A., in proportion   million, which was fully subscribed by Banco de          has affected the financial sector in general.
to their shareholdings.                                     Servicios Financieros Caja Madrid-Mapfre, S.A.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                              71
                                                                                                                                                                                    www.cajamadrid.com


07/04
Caja Madrid Cibeles




International business                                       City National ended 2009 with solid capital adequacy       Strategic alliance with Mapfre
                                                             and liquidity levels in a very complicated environment
Cibeles’s international presence is concentrated in the      for the banking industry throughout the United States      Cibeles is present in the insurance industry through its
United States and Mexico, through its 83%                    and in certain states such as Florida in particular. The   strategic alliance with Mapfre, in which Cibeles has a
shareholding in City National Bank of Florida, acquired in   impact of the sharp increase in NPL rates prompted the     14.95% equity interest. Mapfre is the number one
November 2008, and its 40% shareholding in Grupo             failure of 140 banks (14 in Florida) and pushed many       insurance company in Spain, with a market share of
Hipotecaria Su Casita.                                       other banks into losses.                                   more than 17%.

                                                                                                                        Within the framework of this alliance, Cibeles also has a
City National Bank of Florida                                Hipotecaria Su Casita                                      10.36% interest in Mapfre América, a holding company
City National Bank is one of Florida’s largest regional      Caja Madrid Cibeles is the biggest shareholder of Grupo    whose activity is concentrated in 11 countries in Latin
banks, with assets of $4,472 million.                        Hipotecaria Su Casita, Mexico’s second largest             America, mainly Brazil and Mexico, and whose market
                                                             mortgage company. This investment primes Cibeles to        share in non-life insurance is above 6%. In 2009 a
In its first year of activity as a subsidiary of Cibeles,    lock into the growth potential of the Mexican mortgage     letter of intent was signed with Banco do Brasil to
City National’s efforts were aimed at strengthening its      market. The performance of Grupo Su Casita in 2009         jointly develop life and general insurance businesses
business model, which is focused on retail banking, by       was influenced by the difficulties mortgage companies      in Brazil.
increasing sales capacity and expanding the range of         have had in accessing financing.
products and services it offers. Over the year City                                                                     Cibeles also owns 12.5% of Mapfre Internacional, S.A., a
National opened two new branches, bringing the total                                                                    Grupo Mapfre company which manages the Group’s
to 22 at the end of 2009. At the same time, the                                                                         international activity outside Latin America. Its main
organisational structure was modified to make the                                                                       subsidiary is The Commerce Group, Inc., the leading
bank more agile, part of the management team was                                                                        provider of auto and home insurance in the U.S. state of
renewed and changes were made to the bank’s                                                                             Massachusetts. Besides the United States, Mapfre
systems in response to the new needs of the business.                                                                   Internacional is also present in Turkey, Portugal, the
                                                                                                                        Philippines and Malta.




Annual Report 2009 C             07/ Business review                                                                                                                                             72
                                                                                                                                                                                                                       www.cajamadrid.com


07/05
Corporación Financiera
Caja Madrid

                                             Corporación Financiera Caja Madrid, a holding company       Infrastructure                                             As regards the performance of the various business
                                             created in 1988, is a key element in the C                                                                             lines, highlights include the maintenance of motorway
                                             Group’s strategy to diversify its activities by investing   Corporación Financiera Caja Madrid participates in         traffic (both in Spain and in the six other countries in
                                             in companies with the ability to generate value.            the infrastructure sector through Global Vía               which the company has motorways) and the increase in
                                                                                                         Infraestructuras, S.A., an infrastructure management       activity in urban passenger railways (urban light rail,
                                             To carry out its activity Corporación Financiera Caja       company created in 2007 in partnership with FCC. The       urban heavy rail and trams), which reached close to 42
                                             Madrid, S.A. has share capital of €652 million (100%        transfer of the companies contributed to Global Vía by     million passengers, counting all the lines managed.
                                             held by C                 ).                                each partner continued in 2009.
                                                                                                                                                                    More than 40% of the company’s revenues come
                                             Corporación Financiera actively manages its portfolio of    Global Vía                                                 from assets managed outside Spain. By type of
                                             investments, strictly controlling the associated risks at   Global Vía Infraestructuras manages a total of 41          infrastructure, motorways continue to be the leading
                                             all times. During 2009 it continued to pursue a             infrastructure concessions (toll roads, shadow toll        sector in terms of volume, with 75%. Urban railways
                                             strategy of entering into agreements with the main          roads, metropolitan railways, ports, airports and          are in second place, with 16%.
                                             groups of companies in the business segments in             hospitals) in seven countries: Spain, Ireland, Portugal,
                                             which it operates in order to exploit investment and        Andorra, Mexico, Costa Rica and Chile. These figures
                                             growth opportunities and attain a leadership position in    make Global Vía Infraestructuras the second largest
                                             the domestic market and expand its presence                 company in the world in number of concessions,
                                             internationally.                                            according to Public Works Financing Newsletter.

                                             The main sectors in which it is active at present are as    The activity in 2009 was marked by the transfer of
                                             follows: infrastructure, energy and technology,             assets by the two shareholders to the Global Vía
                                             industrial, tourism, health and elderly care, leisure,      Infraestructuras portfolio; the management of the
                                             venture capital, finance and real estate.                   investee companies; and participation in tenders for
                                                                                                         infrastructure projects.




Annual Report 2009 C   07/ Business review                                                                                                                                                                                          74
                                                                                                                                                                                                                                    www.cajamadrid.com


07/05
Corporación Financiera
Caja Madrid




Technology and energy                                      Genesa                                                     Comsa - Emte                                               Tourism
                                                           In 2009 Genesa increased its installed wind power          In July 2009 the merger of
The main event in the technology sector was the            generating capacity and, as a result, went from            Emte (a Corporación Financiera                             Corporación Financiera Caja Madrid participates in the
increase, at the beginning of the year, of the             managing 1,500 MW in operation to 1,800 MW. It also        investee) with Comsa, a civil                              tourism industry through NH Hoteles and Inhova.
investment in Indra, bringing the ownership interest to    has another 250 MW under construction, scheduled to        engineering and rail
20%. Corporación Financiera is present in the              come into operation in 2010-2011.                          infrastructure company, went                               NH Hoteles
renewable energies sector through its interests in                                                                    into effect. As of year-end                                In the last quarter of 2009 NH Hoteles signed an
Genesa (20%) and Renovables Samca (33%).                   Renovables Samca                                           2009 the new company,                                      agreement with the Hesperia Group to integrate their
                                                           During 2009 progress was made in the construction of       Comsa-Emte, had a presence in 13 countries, mainly in      respective hotel management businesses, creating the
Indra                                                      two 50 MW solar thermal electric power plants in the       Europe and Latin America, and a turnover of more than      largest Spanish hotel group in the urban segment
Indra is the leader in information technology in Spain     province of Badajoz. Start-up is planned for next year.    €2,100 million.                                            (business travel, conferences, trade fairs, etc.). Under
and a top player in Europe and Latin America. It is the                                                                                                                          this agreement NH Hoteles will take over the
second largest European company by market                                                                             Mecalux                                                    management of the more than 50 hotels in the
capitalization in its industry and ranks second in Spain   Industrial                                                 Corporación Financiera Caja Madrid has a 20% interest      Hesperia chain, thus operating a total of 400 hotels in
in R&D investment.                                                                                                    in Mecalux, a listed company. Mecalux is the leader in     24 countries.
                                                           SOS Corporación Alimentaria                                Spain and ranks third in the world by turnover in the
                                                           Corporación Financiera became a shareholder of SOS         storage systems sector. It has 12 production facilities:   Inhova
                                                           Corporación Alimentaria in January 2009. SOS is a world    four in the United States, three in Spain, two in Mexico   Inversora de Hoteles Vacacionales, a company formed in
                                                           leader in the food oil market, with a market share of      and one each in Poland, Brazil and Argentina.              partnership with Iberostar, Caixa Galicia and Sa Nostra,
                                                           over 20%. SOS is currently involved in an organisational                                                              owns six hotels (one in Palma de Mallorca, three in
                                                           and financial restructuring and business reorientation                                                                Croatia and two in Morocco), which together have more
                                                           process, giving priority to the production, distribution                                                              than 4,000 beds. Unlike NH, its activity is focused on
                                                           and sale of oil.                                                                                                      the holiday tourism sector.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                              75
                                                                                                                                                                                                                                     www.cajamadrid.com


07/05
Corporación Financiera
Caja Madrid




Health and elderly care                                    Hospital Pardo de Aravaca                                  Under this agreement Faunia becomes a part of Parques       Finance
                                                           Corporación Financiera’s partner is Grupo Nisa, which is   Reunidos, a leading theme and leisure park operator,
Corporación Financiera Caja Madrid is active in the        the majority owner and manager of this centre, located     allowing it to strengthen its business and exploit          Corporación Financiera Habana
health and elderly care sector through its investments     in the district of Aravaca (Madrid).                       synergies with the group’s other amusement parks            Created in 1998, Corporación Financiera Habana, S.A.
in Mapfre-Quavitae, Vissum Corporación Oftalmológica,                                                                 (Parque Warner, Madrid Zoo and Amusement Park,              (CFH) reaffirms each year its position among the top
Centro Médico Maestranza, Hospital Pardo de Aravaca        Dedir Clínica                                              among others) through package offers.                       non-banking financial institutions in Cuba.
and Dedir Clínica.                                         Dedir Clínica owns the Palmaplanas clinic in Palma
                                                           de Mallorca, which has been managed by Grupo USP                                                                       CFH offers its customers (Cuban companies, mixed
Mapfre-Quavitae                                            since 2009.                                                Venture capital                                             ownership companies and foreign companies) a wide
Mapfre-Quavitae is the market leader in Spain in elderly                                                                                                                          range of financial products and services, tailored to
care services. It currently has 20 residences for the                                                                 Through its fully owned subsidiary Avanza Inversiones       their needs, market trends and Cuban laws and
elderly, with a total of 3,388 places, plus 1,369 places   Leisure                                                    Empresariales, S.A., S.G.E.C.R., Corporación Financiera     regulations. The products and services it offers include
in day care centres. It also provides a telephone help                                                                manages Capital Riesgo de la Comunidad de Madrid, S.A.,     the following: discounting of bills of exchange and
line for 22,734 users and a home assistance service        Corporación Financiera has interests in Madrid Deportes    S.C.R., a venture capital company that has an               receivables, lines of credit, loans, financial leases,
reaching over 12,558 homes.                                y Espectáculos and Parque Biológico de Madrid.             investment portfolio consisting of 21 companies in          endorsements, guarantees and foreign trade facilities.
                                                                                                                      various sectors, concentrated mainly in the Madrid          This offering is backed up by sound advice, based on
Vissum Corporación Oftalmológica                           Madrid Deportes y Espectáculos                             Region.                                                     deep experience and knowledge of the Cuban market.
Vissum Corporación provides comprehensive                  This company holds the concession to manage the
ophthalmology services, notably refractive surgery. It     Palacio de Deportes sports centre, belonging to the        Following three years of intense investment activity, in    In 2009 the company’s activity registered moderate
has 38 centres throughout Spain, which serve more          Madrid Regional Government. The Palacio de Deportes        which several new companies were added to the               growth, aiming to consolidate its relationships with
than 150,000 patients per year.                            hosts more than one hundred events per year and is a       portfolio, 2009 was a year of consolidation and active      the top Cuban and mixed ownership companies. The
                                                           standard setter in the management of sports and            management of the investments. One new company              amount disbursed as loans exceeded $158 million,
                  Centro Médico Maestranza                 cultural facilities.                                       was added to the portfolio during the year: Cellerix, one   while profit before taxes increased 10.9% to $7.5
                    Centro Médico Maestranza has two                                                                  of the main companies in the biotechnology sector.          million.
                    outpatient clinics in Madrid with 28   Parque Biológico de Madrid
                    medical specialities, treating more    In June 2009 Parque Biológico de Madrid reached an
                    than 200,000 patients per year.        agreement with Parques Reunidos for the lease and
                                                           management of the Faunia theme park for a period of
                                                           15 years.


Annual Report 2009 C             07/ Business review                                                                                                                                                                                              76
                                                                                                                                                                                                                                         www.cajamadrid.com


07/05
Corporación Financiera
Caja Madrid




                    CFH’s loan portfolio is highly         added to which is the new borrowing during the year,       Tasamadrid                                                    Plan de Vivienda Joven Housing Development
                    diversified, with a stronger presence   including a loan granted by the company’s two main         Tasamadrid has established itself as one of the               Corporación Financiera Caja Madrid continued to
                    in the financial, real estate, IT and   shareholders (FCC and C               ). As a result,      companies with most experience in appraisal, valuation        conduct its activity under the Plan de Vivienda Joven
                    telecommunications sectors. Its        as of the end of 2009 more than 90% of the company’s       and surveys of all kinds of assets in its sector. In the      housing plan through Intermediación y Patrimonios,
                    prudent risk management is reflected    gross financial debt falls due between 2012 and 2017.      Madrid Region it is the outright market leader in number      S.L., both in the Madrid Region and in the rest of Spain.
                in the maintenance of excellent asset                                                                 of valuations, with a market share of more than 50%.          Land for the construction of 400 homes for rent with
quality and high coverage levels.                          The results for the year are based on the most                                                                           a purchase option was acquired in public auctions of
                                                           recurring sources of revenue. The contribution of the      Reflecting the trend in the sector as a whole, in 2009 it     land in the Madrid Region and another 400 through
                                                           property investment business to gross income was           registered a decline in the number of valuations issued,      the signing of agreements with private developers.
Real estate                                                98.9%.                                                     which reached 118,654, and in the volume of                   These projects are carried out through investee
                                                                                                                      properties valued.                                            companies in partnership with top-tier property
Realia Business                                            In 2009 Realia opened the Plaza Nueva de Leganés                                                                         developers.
Realia Business, S.A. operates in three business areas:    shopping centre and the Torre Realia BCN office building   The company was present at the main real estate
property development, basically first and second           in Barcelona, bringing 83,562 m2 into operation.           industry forums, notably the 4th ATASA Conference,            Intermediación y Patrimonios has 1,168 rental
homes, but diversifying towards the international                                                                     organised by the Spanish association of property              homes under the Madrid Regional Government’s Plan
market and land management; integral management of         Sales of residential properties totalled 493 units, up     valuation companies ATASA. Taking part in this                de Vivienda Joven programme and another 48 in the
singular buildings owned by the company and leased as      almost 1,000% on the previous year. This increase is       conference were relevant government representatives           Valencia Region. These properties are rented at
offices or shopping centres in the main Spanish cities     attributable to the commercial strategy of offering        and prominent members of the International Valuation          government-subsidised rates for seven years, after
and Paris; and, new in 2009, management of real estate     discounts, which the company started in 2008 and           Standards Council, which develops the International           which the young tenants have the option of buying
assets for third parties.                                  reinforced in 2009 with the dual objective of              Valuation Standards.                                          the property at a protected price below the market
                                                           strengthening liquidity                                                                                                  rate.
In 2009 Realia adapted its funding structure to current    and reducing the                                           In the regulatory sphere, following the entry into force of
market conditions. In September it signed an               portfolio of unsold                                        the mortgage market reform, the company implemented           In addition, as of year-end 2009 it had 2,519 homes
agreement to refinance the financial debt associated       completed homes.                                           an Internal Code of Conduct that guarantees its               at an advanced stage of construction, 84% of which
with the residential property development business,                                                                   independence and helps prevent possible conflicts of           were concentrated in the Madrid Region, followed by
                                                                                                                      interest.                                                     the Valencia Region, Andalusia and Castilla y León.




Annual Report 2009 C            07/ Business review                                                                                                                                                                                                   77
                                                                                                                                                                                                                      www.cajamadrid.com


07/06
Human resources


                                             The C                Group ended 2009 with 15,259          Talent management                                         Given the importance of the retail business, a specific
                                             professionals, including for the first time the staff of   Staff development programmes at C                 are     development programme for new branch managers
                                             City National Bank of Florida. This total was made up      based on the people management specialists                has been started, in which 125 professionals took
                                             of 47.5% women and 52.5% men, with an average              closeness to and knowledge of the company’s               part in 2009.
                                             age of 41.9 years. The proportion of temporary             professionals and on close collaboration with the
                                             employees was 3.1% and productivity, measured as           business.
                                             loans and customer funds per employee, was                                                                           People management
                                             €17.3 million, once again outperforming the other          Thanks to the alignment of the activity of human          The year’s most important actions
                                             main banks and savings banks.                              resources with corporate strategy, 2009 was a year of     were aimed at matching professional
                                                                                                        progress in the model of management by groups of          profiles to the needs arising from the
                                             The most important actions taken in human resources        employees with similar functions. This model ensures      environment. To do this functional and
                                             during 2009 are presented below.                           the necessary consistency of action through               geographical mobility have been
                                                                                                        implementation of specific actions tailored to the        actively managed, with 3,339 changes
                                                                                                        group at which they are targeted, thus helping to         of function or workplace during 2009.
                                                                                                        maximise the effectiveness of human resources             The deployment of the human resources function in this
                                                                                                        policies.                                                 process, advising the business and the Group’s
                                                                                                                                                                  professionals, has been key, as it allows the process to
                                                                                                        The development programmes foster steady                  be closely managed.
                                                                                                        improvement of people’s skills and training from the
                                                                                                        moment they join, promoting functional mobility and       In line with the tactical plan for the year,
                                                                                                        career development. They also serve to optimise the       C                 implemented various selection
                                                                                                        management of C                 ’s talent map, so as to   processes to meet the Group’s needs, mainly in areas
                                                                                                        help meet the new challenges facing the business. A       related to commercial and risk activity. In these
                                                                                                        total of 389 managers were appointed in 2009.             selection processes various techniques for assessing
                                                                                                                                                                  competencies, attitudes and aptitudes are employed,
                                                                                                                                                                  according to the needs of each job.




Annual Report 2009 C   07/ Business review                                                                                                                                                                                         79
                                                                                                                                                                                                                                      www.cajamadrid.com


07/06
Human resources




At the same time, an Internship Programme was               Assessment by Competencies                                  The new Knowledge Model has been constructed taking         knowledge needed for branch work.
implemented, involving collaboration with the world of      For the second year running the C                 Group     into account the nature of the business, the Group’s        Financial selling skills are taught in
education to give young undergraduates contact with         assessed all its professionals using the new Model of       strategy, the experience of functional managers and         practical sessions in the FIS Centres
the financial sector. This programme has two purposes:      Assessment by Competencies. Implementing this model         the recommendations of regulatory bodies and                (situational training centres
to facilitate the entry of young people into the world of   has made it possible to orient professionals with regard    professional development associations. Thanks to the        replicating a C
work in a difficult labour market scenario; and to          to the behaviour to be adopted in order to position         contributions of the functional managers and the            branch).
attract talent. To this end C               took steps to   C                in the new economic and social             opinions of professional development experts, the new
strengthen its brand image in several areas of interest,    scenario.                                                   model accurately reflects the professional challenges to    At the same time, to support the Group’s commercial
through collaboration agreements with top universities                                                                  which the Group’s people must respond.                      plans, human resources continued to implement
and schools, while maintaining an active presence at job                                                                                                                            training projects targeting customer and deposit
fairs and conducting corporate image campaigns in the       New Knowledge Model                                                                                                     acquisition, including: the Deposit Acquisition course,
main job portals.                                           In 2009 the C                   Group prepared a new        Training                                                    attended by nearly 1,000 sales staff, and the Training
                                                            Knowledge Model in response to the new demands of           The mission of the Training Service is to support and       Itineraries in Personal Banking (more than 180 hours of
Human resources also conducted surveys and took part        the environment, regulators and the business. The aim       facilitate the execution of C                ’s projects,   training per person) and in SMEs and Independent
in forums to obtain information that will enable it to      of this project is to identify the training needs of the    while at the same time promoting the improvement of         Contractors (more than 90 hours per person).
continue to improve its processes so as to attract          Group’s professionals and tailor training to those needs    the capabilities of all its people by designing and
people with greater professional potential.                 by strengthening the role of the immediate supervisor       implementing training programmes aimed ultimately at
                                                            as training and development manager for his or her          helping to achieve the goals of the Group’s strategic
                                                            team and getting employees involved in designing their      and tactical plans and contributing to the professional
                                                            own Individual Training Plan, taking advantage of the       development of all employees.
                                                            fact that applications for training actions, both to meet
                                                            ongoing training needs and for training actions             Induction training for new employees joining
                                                            associated with improvement plans, are made during          C                was particularly important during
                                                            the actual assessment interview.                            2009. These courses involve more than 187 hours of
                                                                                                                        training, covering everything from an overview of the
                                                                                                                        C                Group to the financial and banking




Annual Report 2009 C            07/ Business review                                                                                                                                                                                                80
                                                                                                                                                                  www.cajamadrid.com


07/06
Human resources




Also worth noting is the implementation of the        Plan for Equality                                        C              has also agreed to set up a
Active Management of Late-Paying Customers            The C               Group has been promoting equal      monitoring committee made up of members of the
training project, associated with the Group’s         opportunities for men and women for several             company and employees’ representatives to oversee
Asset Quality Management Plan, in which nearly        decades. That is why at year-end 2009 47.5% of the      and propose actions to ensure compliance with the
1,200 professionals took part. This project has       Group’s professionals were women.                       Plan.
been reinforced with online training clips
targeted at the entire workforce and specialized      In 2009 C                went a step further by
training actions for risk specialists.                agreeing a Plan for Equality with a majority of the
                                                      employees’ representatives, in which specific goals
Lastly, the new Virtual Classroom has been            and measures are established to facilitate equal
launched to meet the Group’s new training             opportunities. Those goals are:
needs, especially those arising from the review
of the Knowledge Model, and to stimulate the          • To make all professionals, especially those who
learning process through the use of more                lead teams, aware of the principles of equal
participatory methods.                                  opportunities that govern the organization.

                                                      • To promote effective implementation of equality,
                                                        guaranteeing equal access and career development
                                                        opportunities and articulating positive action to
                                                        achieve this goal.

                                                      • To ensure that people management systems
                                                        guarantee equality at all times.

                                                      • To reinforce awareness of the options available for
                                                        reconciling working life with family and personal
                                                        life, so as to ensure that professionals avail
                                                        themselves of these options independently of
                                                        their gender.


Annual Report 2009 C            07/ Business review                                                                                                                            81
                                                                                                                                                                                                                    www.cajamadrid.com


07/07
Technology
and operating processes

                                             The activities of the Systems and Operations Unit in     Technology                                                • Implementation of a marketing action prioritisation
                                             2009 were grouped in two broad categories: on the                                                                    engine, which identifies the most appropriate
                                             one hand, initiatives of a more tactical, short-term     The initiatives in the field of technology have been        product for each customer in the different
                                             nature aimed at responding to the needs of the           grouped in three blocks: projects related to business       product lines.
                                             business in the new economic and financial               priorities, with special emphasis on risk
                                             environment; on the other, the ongoing Technology        management; projects aimed at improving internal          • Automatic opening of deposit accounts and sale of
                                             Plan, aimed at ensuring that the C                       control and efficiency and ensuring regulatory              investment funds based on the advisory proposal
                                             Group has at all times a solid and flexible technology   compliance; and lastly, projects that contribute to the     presented to the customer.
                                             platform.                                                ongoing technological development of the
                                                                                                      C                 Group.                                  • Issuance of cards and granting of pre-approved loans
                                             To give an overview of activity, in 2009                                                                             through self-service terminals.
                                             C                processed a total of 1,627 million      Business priorities
                                             customer transactions, 45% of which were carried         The following projects are aimed at improving basic       • Implementation of new scorecards per manager
                                             out in branches, 30% via the Internet, 24% via           business parameters by adapting practices to the            and portfolio to facilitate the monitoring of
                                             self-service devices and in retail establishments, and   new market conditions:                                      sales activity.
                                             the remaining 1% through other channels.
                                                                                                      • Development of 19 new deposit and investment            • Creation of the m.cajamadrid.es mobile portal, which
                                             As regards operating processes, C                 has      products with advanced customization capabilities         gives users mobile phone access to a full range of
                                             reinforced its leadership in payments processing           in pricing and four new lending products. At the          services, including banking (in the Mobile Branch),
                                             under the new SEPA (Single European Payments Area)         same time, the applications for the 19 mediation          information (on financial products, state of the
                                             standard. It has become the first Spanish financial        agreements signed with the ICO have been                  markets, and Obra Social and Fundación activities,
                                             institution to use the SEPA Direct Debit (SDD) scheme      adapted.                                                  among other things) and leisure (ticket sales).
                                             for the exchange of information on direct debit
                                             transactions at national and European level.             • New Member Concentrator system, based on
                                                                                                        the SWIFT messaging platform, to offer payment
                                             The year’s most important milestones in technology         and collection transaction remittance services to
                                             and operating processes are detailed below.                SMEs and large corporations.




Annual Report 2009 C   07/ Business review                                                                                                                                                                                       83
                                                                                                                                                                                                                                www.cajamadrid.com


07/07
Technology and operating processes




• New securitisation system, which automates            Control, efficiency                                       • System for analysing and managing derivative, fixed   • Improvements in accessibility,
   portfolio management, reconciliations and custom     and regulatory compliance                                   income and equity transactions to adapt to CNMV         notably the adaptation of the
   report design for issues.                            The second block includes advances in operating,            regulations on market abuse.                            telephone banking service to
                                                        commercial and management control procedures                                                                        serve people with hearing
• Improvements to the recovery process through the      resulting from internal continuous improvement                                                                      disabilities through a special
   introduction of early warnings that draw attention   initiatives and from regulatory compliance.               Technological development                                 handset and the installation in ATMs
   to potential default situations and allow early                                                                This last section includes projects designed to           of an application for blind and partially sighted
   action to be taken.                                  • Implementation of the KSP software package,             reinforce the Group’s technology leadership and           people.
                                                          which provides greater control in derivatives           positioning, as well as its internal technological
• Adoption of a more commercial approach in the           valuation.                                              capabilities.                                           • Implementation of a platform to allow all the Group’s
   foreclosed asset management system in order to                                                                                                                           portals to be presented in a variety of languages.
   speed up the sale of such assets through various     • Integration of the Murex exotic derivatives             • Launch of the new Virtual Classroom, a portal
   channels.                                              accounting software package in the Group’s                providing remote access to training courses           • Launch of the new Mobile Branch, which works with a
                                                          systems.                                                  developed by several external suppliers and             variety of operating systems and can be accessed
                                                                                                                    allowing individualized monitoring of training          through a range of latest-generation devices.
                                                        • Generation of automatic alerts for the                    actions.
                                                          management of assets held as security for                                                                       • Implementation of an authentication system using
                                                          corporate transactions.                                 • Creation of a usability laboratory, equipped with       voice recognition to streamline customer service
                                                                                                                    latest-generation technologies, to improve the user     centre operations.
                                                        • Adaptation to the European cash recycling                 experience, through interfaces designed both for
                                                          framework, which with the installation of 700 new         external customers and for internal users.            • Deployment of IP telephony in 25% of branches.
                                                          cash recyclers now stands at 80% of the total
                                                          number of recyclers installed.                          • New ATM interface that improves interaction           • New Java-based, open-platform payment transaction
                                                                                                                    through greater ease of use and increases the           processing system, guaranteeing total availability
                                                        • Customer identification for tax purposes through          speed of operation.                                     and greater efficiency.
                                                          centralized control of sales and operations in
                                                          relation to all the financial products subject to tax
                                                          identification requirements under applicable
                                                          regulations.


Annual Report 2009 C            07/ Business review                                                                                                                                                                                          84
                                                                                                                                                                              www.cajamadrid.com


07/07
Technology and operating processes




• Complete monitoring of the hardware and software          Operations                                              Lastly, the level of adaptation of the debit and credit
   used in the delivery of 52 critical business services,                                                           cards in operation to the new EMV standard, through
   so as to guarantee its availability and level of         In 2009 the Operations Area processed more than         the incorporation of an electronic chip to protect
   response.                                                942 million transactions, amounting to more than        against fraud, has reached 63%. This effort place
                                                            €2.7 trillion. In addition, 224 million transactions,   C                 well ahead of the rest of the
• Implementation of grid computing technology in            totalling one trillion euros, were executed via the     industry, where the level of adaptation has not yet
   transactional and batch environments in order to         ECB’s TARGET2 high-value payments system,               reached 20%.
   improve the ratio of utilisation of available            implemented at the beginning of 2008.
   technology assets.
                                                            A significant event during the year was adherence to
• Achievement of ISO 20000 certification from AENOR         the SDD scheme, making C                  the first
   for the internal operating processes of the Group’s      Spanish financial institution to exchange SEPA direct
   technology platforms. These processes use the ITIL       debits via IBERPAY in Spain and EBA CLEARING at a
   (Information Technology Infrastructure Library)          pan-European level.
   framework, which guarantees maximum levels of
   operational availability and effectiveness.              Further adaptations were made towards the Spanish
                                                            Electronic Clearing System (Sistema Nacional de
                                                            Compensación Electrónica, SNCE) for the SEPA Credit
                                                            Transfer scheme (SCT), in compliance with the
                                                            transposition of the European directive (Law 16/2009
                                                            on payment services).




Annual Report 2009 C             07/ Business review                                                                                                                                       85
                                                                                                                                                                                                                  www.cajamadrid.com


07/08
Innovation, organisation and quality


                                             The C                Group has strengthened its         collaboration through the Innovation Portal, the          The new Model has been subjected to numerous
                                             competitive capacity in an especially complex           Colabora collaboration tool and the Innovation Factory    measurements to determine the impact of the new
                                             economic environment by consolidating innovation        idea gathering channel.                                   devices and of the display of digital content on
                                             and service quality and by designing and defining                                                                 customers, employees and business results. Notable
                                             new processes in critical business areas.               The most important project in 2009 was the new            among the methods used is automatic observation.
                                                                                                     Branch Signage Model, which is designed to update         This technique, which C                 has pioneered
                                                                                                     the in-branch advertising model to market products        in the banking industry, captures images of customer
                                             Innovation                                              and services more effectively.                            movements by means of a stereoscopic camera
                                                                                                                                                               attached to the ceiling of the branch. These images
                                             During 2009 the Organisation and Innovation             Following a thorough analysis of the options available,   are then transformed into data points, which provide
                                             Management Division launched the Innovation Plan,       C                chose to design custom prototypes        information about how customers move around the
                                             aimed at fostering a new culture of innovation in the   (in some cases patent-protected) for both exterior        branch, the exposure time to the advertising and the
                                             Group that favours the implementation of initiatives    and interior signage. The exterior signage has been       time spent standing in front of the displays. Analysis
                                             to support business growth. This Plan has focused       designed using LED-based solutions, which besides         of more than 6,000 recordings has provided
                                             on the six lines of action set out in the Innovation    being the largest advertising displays in the industry    knowledge of customers’ usual movements, the
                                             Agenda approved by the Innovation Committee:            also have a much longer useful life than traditional      commercially most active areas, the displays that
                                             innovation in customers, channels, processes,           systems and entail considerable energy saving. The        attract most attention and the promotions and
                                             technology, customer experience and new business        interior devices are based on LCD screens and             formats that have the greatest impact.
                                             models.                                                 projectors, which allow dynamic displays and more
                                                                                                     highly customised marketing messages based on             In 2009 the new signage was installed in 100 Group
                                             Innovation activity was driven by Innovation            time of day and branch location.                          branches and is expected to
                                             Campaigns, whose purpose is to find solutions to the                                                              be rolled out to more than
                                             business challenges identified by C                ,                                                              600 branches by the end
                                             mainly in relation to the customer loyalty, and to                                                                of 2010.
                                             reinforce mechanisms, tools and channels of




Annual Report 2009 C   07/ Business review                                                                                                                                                                                     87
                                                                                                                                                                                                                                  www.cajamadrid.com


07/08
Innovation, organisation and quality




An example of the exploration of new business             Organisation                                             C                and their needs; better monitoring of     In 2009 the new Commercial Model was piloted in 20
models is the Viaje Seguro initiative, testing the sale                                                            what interests (or might interest) them and what           retail banking branches and is expected to be rolled
of roadside assistance insurance through self-service     The organisational designs related to the new branch     does not; greater responsiveness (in selling products      out to all the branches over the course of 2010.
channels. The purpose of this project is to experiment    Commercial Model were implemented during 2009, in        and also in answering questions about maturities,
with selling a non-banking product through a new          collaboration with the Retail Banking and Resources      positions or incidents); better knowledge of               In the field of risk management, in collaboration with
channel of customer interaction and to compare            directorates.                                            customer’s transactions in any of the channels             the Risk Monitoring and Recovery Management and
“impulse” buying with the current practice of buying                                                               through which they relate to C                ; and        the Systems Management divisions, progress was
under advice.                                             Essentially, the new Commercial Model is a set of new    information that is more appropriate (special offers,      made in the development of the Asset Quality
                                                          tools and working methods and new functionalities in     product details, etc.) and more consistent in style and    Management Plan, improving the efficiency of debt
C                has also started a Business,             C                ’s commercial information systems.      content throughout the network. In a word, it means        recovery processes through measures to enhance
Technology and Trends Observatory. This is a powerful     Its main purpose is to support the branches’             making the relationship with C                , from the   negotiating capabilities and recovery of impaired
semantic search and interpretation engine that will       commercial activity, facilitate more effective           customer’s point of view, easier, more agile and more      assets.
support initiatives to identify new areas of customer     commercial interaction with customers and promote a      comprehensive.
interest, propose solutions based on new                  proactive approach to customer relationships, based
technologies that are directly applicable to the          on a model of management that is specialised             Notable among the functionalities added to the
business, and learn about the view that the new Web       according to portfolios. The Model establishes four      commercial information systems are the following:
2.0 channels have of the products and services of         basic pillars, which underpin all the initiatives that   new scorecards for customers, portfolios and
C                itself and of its competitors.           have been carried out: planning the activity;            commercial managers; integrated customer and
                                                          systematising customer management; focusing              product search engines; modules for creating local
                                                          attention on closing sales; and building commercial      marketing actions; a new commercial file that brings
                                                          capabilities in order to advance at the same pace at     together all the financial and marketing information
                                                          which society and customers are changing.                on a given customer (from all channels); a new
                                                                                                                   commercial planner; and lastly, a system for
                                                          Systematising customer management consists of            generating commercial information for delivery to
                                                          acting clearly and consistently throughout the branch    existing and potential future customers on products
                                                          network with one basic objective: to add value to        and services that may be of interest to them.
                                                          customers. Adding value to customers requires a
                                                          better overall knowledge of customers’ business with



Annual Report 2009 C            07/ Business review                                                                                                                                                                                            88
                                                                                                                                                                                                                                     www.cajamadrid.com


07/08
Innovation, organisation and quality




Specifically, early management of default in the        Other initiatives during the year include participation in   Quality                                                   Customers’ perceptions were verified by
branches was reinforced with new tools, products        the development of the detail design of the new                                                                        pseudo-purchases carried out in 500
and procedures to increase the branches’ capacity for   corporate headquarters, which involved collaborating in      Quality measurement systems                               C                branches, which confirm that
timely management of impaired loans. Also, new          activities related to the fitting-out of the building. This   For C               the quality of the services offered   objectively, and compared with the rest of the
centres have been created that specialise in            Project is especially complex due to the scale of the        to all stakeholder groups is a differentiating factor.    industry, the Group’s service quality standards are
negotiating the recovery of loans at a more advanced    building (with more than 70,000 m2 of above-ground           Accordingly, the results of quality measurements,         met. Based on the results for 2009, C
phase. Lastly, various initiatives have been            floor area) and the diverse types of workstations and         derived from both external and internal customers,        maintains a leading position, ahead of its main
undertaken to facilitate the sale of assets obtained    areas to be created, in some cases with highly technical     are incorporated into the objectives of the               competitors.
from surrenders and foreclosures or acquired within     requirements (e.g., the Trading Rooms).                      organisational groups responsible for providing those
the framework of debt restructuring agreements                                                                       services.                                                 Internally, service quality measurements are applied
with customers. As regards organisational measures,     The In-Branch Digitised Signature project has been                                                                     to all central services (41 services analysed in 2009)
special mention should be made of the geographic        started to replace customers’ signatures on paper in         During 2009 almost 140,000 customer surveys were          that provide support to the branch network and the
specialisation of commercial managers, the increase     their transactions with C               by an                conducted, as well as focus groups, with the aim of       Group’s professionals. In 2009 the results of this
in the number of independent contractors, the           electronic signature handwritten on a pen tablet.            guiding the Group’s actions to satisfy the needs and      measurement system, which has been in place for 10
definition of the process for purchases of singular     Implementation of this system improves information           expectations of different customer segments.              years, reached record levels, both as regards
assets and the improvements made to the Property        security and administration and branch efficiency and                                                                  participation and as regards satisfaction levels,
Portal to stimulate property sales.                     underlines the C                Group’s commitment           The measurements made in 2009 show very positive          showing a significant improvement in the internal
                                                        to the environment.                                          results in all segments and channels. Specifically, new   customer orientation of the central departments.
                                                                                                                     customers who have just started banking with
                                                        As part of the effort to improve internal                    C                 consider that they receive excellent    Lastly, C             has broadened its
                                                        communication systems, a project has been launched           service (more than 90% of customers very satisfied).      commitment to quality by implementing a process
                                                        to define a new corporate intranet. The aim of this          The Internet Branch, Telephone Branch and Mobile          for measuring the service quality of external
                                                        project is to provide an agile, flexible response to the     Branch also achieved excellent results, with more         suppliers, whose actions directly affect the branch
                                                        new needs of intranet users and meet the challenges          than 90% of customers very satisfied.                     network and thus also end customers.
                                                        of internationalisation and the new models of internal
                                                        relations and work.




Annual Report 2009 C           07/ Business review                                                                                                                                                                                                89
                                                                                                                                                                         www.cajamadrid.com


07/08
Innovation, organisation and quality




Q+ Programme                                            Management excellence model                              ISO-certified quality
The Q+ Programme is designed to disseminate quality     C                ’s commitment to quality and            management systems
guidelines through tools that serve to establish        excellence was ratified with the granting in 2005 of     All the groups certified according to the UNE-EN ISO
improvement plans and spread best practices. In 2009    the European Seal of Excellence - 500+ points award,     9001 standard passed the internal and external
Q+ awards were given to the 27 best-performing          equivalent at the European level to the Recognised for   annual audits, demonstrating that the quality
centres in terms of service quality. The centres that   Excellence - 5 Stars award, the highest international    management systems in place in the Group meet the
receive these awards are selected by customers          recognition given to organisations that truly excel in   requirements of this standard.
themselves through their assessments.                   management.
                                                                                                                 Said audits, carried out in accordance with the new
Channels of participation                               In October 2009 the European Seal of Excellence -        version of the standard, have allowed Tasamadrid,
Through the Su Idea Cuenta (“Your Idea Counts”)         500+ points award was renewed, following an              Caja Madrid Pensiones, Gesmadrid, the External
programme C                 encourages and rewards      external assessment. This assessment, carried out        Payroll and Social Security Pensions Service and the
customers who send in their opinions, suggestions       every two years, uses the EFQM Excellence Model to       Securities Service to renew their Registered Firm
and expectations. Since the programme was started in    assess the excellence of the C              Group’s      Certificate for a further three years.
2003 almost 10,000 suggestions have been received,      management model.
contributing to the customer-centred approach that                                                               In 2009 the scope of the Telephone Branch certificate
characterises the C              Group’s business       The overall score obtained by the C                      was extended to include the Telephone Branch
model.                                                  Group places it at the highest level of excellence       service to Personal Banking customers.
                                                        achieved so far, in the 630-680 points bracket
                                                        according to the EFQM Model, a level attained by few     In addition, the ISO 14001:2004 certified
                                                        companies in Europe. The evaluators specifically noted   environmental management systems in
                                                        and highlighted C                ’s capacity to react    C                ’s head office and in Obra Social’s
                                                        and adapt to the new economic and financial scenario     flagship building, La Casa Encendida, passed the
                                                        by implementing important, prioritised projects and      external audits carried out during the year by the
                                                        action plans in accordance with the principles of        certifying body, AENOR, which detected no
                                                        excellence.                                              non-compliances.




Annual Report 2009 C           07/ Business review                                                                                                                                    90
08/
Obra Social and Fundación


                                                       Obra Social and Fundación carry out C               ’s    • Adaptation to the changing demands of society and
                                                       wide-ranging programme of welfare and social                local communities. In 2009 there was a special focus
                                                       activities aimed at helping the most disadvantaged          on meeting the needs created by the economic crisis,
                                                       groups in society and increasing the well-being of the      especially through the job creation projects managed
                                                       communities with which C                 has relations.     by the Social and Welfare Action Area.

                                                       C              ’s social action reflects the              The following is an overview of the most important
                                                       commitment assumed more than 300 years ago to             work done by Obra Social and Fundación in 2009. Full
                                                       invest a substantial portion of the Caja’s profits back   details are to be found in each institution’s annual
                                                       into society.                                             report, available via the C               web site at
                                                                                                                 www.cajamadrid.com.
                                                       The guidelines for the Group’s activities in the social
                                                       and welfare sector are as follows:

                                                       • Substantial volume of funds to undertake the
                                                         programmes and activities of Obra Social
                                                         C                and Fundación C             .
                                                         In 2009 a total of €210 million was spent.

                                                       • Broad scope of action, encompassing social welfare,
                                                         education, culture, the environment and the
                                                         conservation of Spain’s historical heritage.




Annual Report 2009 C   08/ Obra Social and Fundación                                                                                                                      92
                                                                                                                                                                                                                                     www.cajamadrid.com


08/01
Obra Social C


                                                       In 2009 Obra Social C                spent €164.2            providing curricular, occupational and supplementary       Social and welfare action
                                                       million on a wide range of social and cultural activities.   training to 2,843 students. Individual attention           Social and welfare action, which in
                                                       Of this total €5.5 million went to administrative            ensures that the young people receive an all-round         2009 had an allocation of €66.1
                                                       expenses. The activities carried out during the year         education, encompassing both knowledge and values          million, encompasses the actions
                                                       reached a total of 14.0 million participants or              and geared to facilitating their entry to the world        undertaken to meet society’s
                                                       beneficiaries, 7.0 million through Obra Social’s own         of work.                                                   greatest needs. These consist of social
                                                       social and welfare projects and the remaining 7.0                                                                       welfare programmes aimed at elderly or dependent
                                                       million through joint projects. Obra Social                  The main contents of the educational projects for          people and those with disabilities, suffering
                                                       C                has 120 facilities under its own            school age children are as follows: Debating               discrimination or at risk of social exclusion, as well as
                                                       management and another 35 under contract                     programmes, which provide frameworks for reflection        development cooperation programmes.
                                                       management.                                                  that stimulate dialogue and the exchange of ideas;
                                                                                                                    Online programmes, which extend the reach of the           To improve the quality of life of the elderly and their
                                                       The activities of Obra Social C              are             educational projects; Scholarship programmes, which        families and carers, each year Obra Social
                                                       grouped in four areas: education, social and welfare         give students access to complementary training; and,       C               issues two calls for proposals for
                                                       action, culture and the environment.                         finally, Partnership programmes, aimed at motivating       funding of social welfare initiatives and solutions:
                                                                                                                    young people to acquire values and habits that will help
                                                                                                                    them in their personal development.                        • Elderly Care. Obra Social aims to address the needs of
                                                       Education                                                                                                                 a society in which life expectancy has increased
                                                       In 2009 a total of €49.5 million were allocated to           Obra Social C               also has 39 Spaces for           significantly. In 2009 it funded innovative,
                                                       education. Obra Social C                 has the following   Reading, offering a range of attractive educational          high-quality projects for the promotion of healthy,
                                                       educational centres and facilities: five Early Childhood     activities to promote debate, participation and              active and successful ageing and for the provision of
                                                       Education Centres, attended by 1,077 children aged           collaboration through reading. These spaces have more        care and the improvement of quality of life for elderly
                                                       from four months to six years; a Special Education           than 528,600 books and other publications, which are         dependents and their family carers. The 130 projects
                                                       Centre, with 572 pupils, catering primarily for children     available to more than 277,900 active members. In            which it supported during the year benefitted
                                                       with hearing impairment or other special needs, but          addition, Obra Social has 11 Spaces for Language             59,509 people directly and a further 156,154 people
                                                       integrated with other students in an ordinary education      Learning, giving courses in English and Spanish for          indirectly.
                                                       curriculum; and six Youth Education Centres (five under      immigrants, which in 2009 were attended by 4,219
                                                       own management and one under joint management),              students.



Annual Report 2009 C   08/ Obra Social and Fundación                                                                                                                                                                                              94
                                                                                                                                                                                                                                             www.cajamadrid.com


08/01
Obra Social C




• Alzheimer’s, Parkinson’s and other                              • Assistance for people facing discrimination or at risk   The calls for proposals in support of dependent persons                                 Obra Social C              ’s
  neurodegenerative diseases associated with ageing.                of social exclusion and their families. Through this     were supplemented by 51 ad hoc projects, which                                         Development Cooperation
  Through this call for proposals support was given to              call for proposals Obra Social helps those living on     benefitted 2,714,766 people.                                                           Programme supports projects
  91 projects, with 9,159 direct and 25,534 indirect                the margins of society and facing serious problems                                                                                              and programmes in the most
  beneficiaries.                                                    of exclusion to become personally independent and        The Caja Madrid Supported Employment (ECA)                                             disadvantaged regions of
                                                                    fully integrated in society. The 337 projects            programme, which is complementary to the call for                                  Central America, aimed at
In addition to these annual calls, funding was awarded              supported in 2009 benefitted 587,364 people              proposals for the creation or promotion of employment       improving primary healthcare, basic sanitation and
to 31 ad hoc initiatives, benefiting a further 1,164,157            directly and a further 2,298,329 indirectly.             for disabled people and groups facing discrimination or     education or promoting productivity and revenue
people.                                                                                                                      at risk of social exclusion, is aimed at providing access   generation, giving priority to the most vulnerable
                                                                  • Creation or promotion of employment for disabled         to employment for people belonging to these groups          groups, especially women and children. As a result of
Obra Social C                ’s 41 Spaces for the Elderly           people and groups facing discrimination or at risk of    that have serious difficulty finding jobs in ordinary       the 2009 call for proposals, Obra Social took part in 27
promote healthy ageing and help to improve the quality              social exclusion. Obra Social C              aims to     companies. The projects supported in 2009 enabled           projects, benefitting 79,144 people directly and
of life of elderly people by organising social and cultural         help the people who have most difficulty finding         331 people with disabilities and 166 people facing          another 564,151 indirectly.
activities. The Spaces for the Elderly have 127,109                 decent jobs to gain access to employment. To             exclusion to enter employment. In addition, a total of
beneficiaries and in 2009 carried out 4,905 activities,             promote equal employment opportunities for               182 employment arrangements initiated under this            Collaborations under the Emergency Aid Plan to provide
with 69,646 participants.                                           disabled and otherwise disadvantaged people, it          same programme in previous years were maintained.           immediate relief in humanitarian emergencies
                                                                    took part in 127 projects, benefitting more than                                                                     continued, with agreements being signed with Acción
Obra Social has reaffirmed its commitment to support                69,400 people and giving jobs to 3,077.                  Obra Social also awarded the Caja Madrid Social             contra el Hambre, Médicos del Mundo España, Bomberos
society’s most disadvantaged groups, including those                                                                         Research Awards, which promote research projects and        Unidos sin Fronteras and Intermón Oxfam.
suffering one or more disabilities or chronic illnesses,          • Assistance for people with disabilities and their        studies aimed at improving the quality of life of the
facing discrimination                                               families. Through this call for proposals Obra Social    most disadvantaged groups by exploring the root
or at risk of social                                                supports projects that provide disabled people and       causes of social problems and proposing innovative
exclusion, and their                                                their families with resources and services that would    solutions. This year’s winner is “Inequalities in access
families. Aid for                                                   not otherwise be available to them. A total of 472       to public health services for socially disadvantaged
these groups is                                                     projects received support in 2009, assisting             groups”, a study analysing access to health services for
channelled through                                                  221,580 people directly and a further 991,848            elderly people living on their own, the homeless and
the following calls                                                 indirectly.                                              non-Spanish-speaking illegal immigrants in Catalonia.
for proposals:



Annual Report 2009 C              08/ Obra Social and Fundación                                                                                                                                                                                           95
                                                                                                                                                                                        www.cajamadrid.com


08/01
Obra Social C




Culture                                                           The various areas covered by Obra Social                    The environment
The goals of Obra Social’s cultural activities are to bring       C               ’s cultural agenda (art, photography,       The purpose of the
culture and cultural values to groups that have limited           theatre, music, literature, film and social action) were    environmental programmes,
opportunities, promote young artists and offer children           strongly represented in 2009. Notable activities            which in 2009 were funded
and young people an initiation into artistic expression.          included:                                                   with €6.9 million, is to
In 2009 a total of €27.4 million was allocated to these                                                                       educate and inform by providing
activities.                                                       • The Generaciones. Premios y Becas de Arte Caja            training and information on environmental issues,
                                                                    Madrid project, celebrating its first ten years, during   conservation and protection of biodiversity, and
The 15 Spaces for Art and Culture hosted 3,216 events,              which 14,027 artists submitted applications and           sustainable development, making society aware of the
which were attended by 938,251 visitors. A total of                 656 were selected. A total of 38 First Prizes, 91         importance of natural resources and responsible and
2,517 activities (lectures, workshops, exhibitions,                 Mentions of Honour and 78 project grants have been        fair consumption.
literature and thought, performing and audiovisual                  awarded.
arts, and library), covering the areas of solidarity,                                                                         Highlights include the Two Million Trees project to
education, culture and the environment, were held at              • The Inéditos call for exhibition projects in              restore areas of special environmental importance in
the La Casa Encendida cultural centre and were                      contemporary art, which attracted 51 curating             public hill-land (80.5 hectares were planted in 2009)
attended by 692,820 people. The Espai Cultural in                   projects.                                                 and the call for proposals for Grants for Environmental
Barcelona and the Espacio para el Arte in Zaragoza both                                                                       Projects, which supports schemes to protect
ran outstanding programmes of events.                             • The 2009 Premio de Carteles poster competition,           biodiversity and promote, publicise and disseminate
                                                                    with 634 entries on this year’s theme (“Ways of           good environmental practices and sustainable use of
                                                                    reducing energy consumption”).                            natural resources.

                                                                  • Acordes Caja Madrid 2009, a scheme for
                                                                    conservatory and music school orchestras; the
                                                                    Narrative and Essay Prizes; and the Vicente
                                                                    Aleixandre Poetry Competition and Luis Rosales
                                                                    Memorial Prize for young authors.




Annual Report 2009 C              08/ Obra Social and Fundación                                                                                                                                      96
                                                                                                                                                                                                                                  www.cajamadrid.com


08/02
Fundación C


                                                       As an institution of national scope, Fundación               Conservation of Spain’s                                    • The cultural project to restore the Church of La
                                                       C                targets its activities at Spanish culture   historical heritage                                          Asunción in the Monastery of San Millán de La
                                                       and society in general, while at the same time               Alongside its usual collaboration with Madrid City           Cogolla, which was the venue for the third annual
                                                       maintaining its longstanding commitment to the Madrid        Council and the Madrid Regional Government in                educational workshops on architecture, art and
                                                       Region.                                                      conserving and restoring historical monuments in the         heritage. Between 2007 and 2009 the learning
                                                                                                                    Madrid Region, the 2009 programme managed projects           centre installed in the church to allow young visitors
                                                       The Foundation’s activities broadly cover the following      and conservation works in eight other Autonomous             to discover the importance of preserving their
                                                       areas: conservation of Spain’s historical heritage; the      Communities: Andalusia, Asturias, Castilla y León,           heritage was visited by more than 5,400 school
                                                       promotion and diffusion of music in Spain; cultural          Castilla-La Mancha, Catalonia, Valencia Region, La Rioja     students from the La Rioja Region.
                                                       sponsorship and promotion and the organisation of            and Navarra.
                                                       exhibitions in the Sala de las Alhajas gallery; and,                                                                    • The cultural project to restore the façade of
                                                       finally, postgraduate scholarships, research funding         Fundación C                 understands heritage             Pamplona Cathedral, started during the year. The
                                                       and collaboration with public universities.                  conservation as a broad-based cultural enterprise. It        lowering of the bells, which are to be restored in
                                                                                                                    therefore directs its efforts towards enriching              Valencia and Germany, drew thousands of spectators
                                                       Total spending on the Foundation’s sociocultural             conservation projects through the implementation of          during the various events organized for this purpose
                                                       activities in 2009 was €45.9 million.                        advertising, education and public awareness plans. In        by Fundación C                .
                                                                                                                    2009 this approach was exemplified in the following
                                                                                                                    projects:                                                  2009 also saw the start of the projects to restore the
                                                                                                                                                                               Casa Amatller house in Barcelona, the Toledo Gate in
                                                                                                                    • The cultural project to restore the Church of San        Ciudad Real and the Santa Isabel Convent in Granada,
                                                                                                                      Pablo in Valladolid, completed in 2009, where the        and the signing of the collaboration agreement for the
                                                                                                                      advertising and promotion plan attracted more than       restoration of the Church of Santo Cristo in Malaga.
                                                                                                                      45,000 visitors, who were able to take guided tours      Projects completed in 2009, apart from the Church of
                                                                                                                      of the façade and see for themselves the scientific      San Pablo in Valladolid, include the restoration of the
                                                                                                                      and technical value of the work done by the              murals in the Sacred Heart Basilica in Gijón.
                                                                                                                      conservators, thus getting the public directly
                                                                                                                      involved.                                                The total amount committed to the Spanish
                                                                                                                                                                               historical heritage conservation programme in 2009
                                                                                                                                                                               was €8.0 million.


Annual Report 2009 C   08/ Obra Social and Fundación                                                                                                                                                                                           98
                                                                                                                                                                                                                                          www.cajamadrid.com


08/02
Fundación C




Music                                                           Standouts among the events of 2009 were the                 In the field of music                                     Cultural sponsorship and promotion
Following the pattern established in previous years, the        performances of Boccherini’s zarzuela La Clementina at      recordings and                                            and exhibitions
Foundation’s music programme was divided into three             the Teatro Español in Madrid, within the Los Siglos de      publications,                                             Through this programme Fundación C
categories: concerts; education and research; and               Oro series, and the concert in Cuenca Cathedral by the      noteworthy events                                         carries out, on its own or in partnership with other
music recordings and publications.                              organist Julián de la Orden to inaugurate the Evangelio     of 2009 include the                                       institutions, important projects in the field of cultural
                                                                organ, the restoration of which was carried out by          publication of                                            dissemination. Besides sponsoring specific events, it
The ongoing institutional and artistic collaborations           Fundación C               .                                 volumes 3 and 4 of                                        also sponsors the activities of other cultural
with the Teatro Real opera house, the Madrid                                                                                the project in homage                                     institutions, including the Royal Academies of History,
International Chamber Music Institute and the Cuenca            In the field of education, the Educational Project, which   of the composer Tomás Luis de Victoria, included in the   Medicine, Pharmacy, Moral and Political Sciences, and
Religious Music Week (which the Foundation both                 includes the Concerts for Schoolchildren series,            Foundation’s Los Siglos de Oro collection. Also, three    Jurisprudence, the Príncipe de Asturias Foundation, the
directs and sponsors) continued in 2009.                        continued. The 24 concerts given in 2009 were               CDs were released in the New Generation of Spanish        Residencia de Estudiantes, the Colegio Libre de
                                                                attended by around 16,300 schoolchildren and young          Composers collection, including works by Francisco        Eméritos, the Casa de América, the Círculo de Bellas
The concerts included new editions of the now well              people. The Foundation also organised or sponsored 20       López, Manuel Hidalgo, Alberto Posadas and Jesús          Artes and the Madrid Athenaeum.
established Chamber Music, Music and Heritage, Lied             specialist musical courses at the University of Alcalá de   Torres. As regards print publications, the book
and Los Siglos de Oro Golden Age Spanish Music                  Henares and sponsored the Voice Workshop at Carlos III      Restauración de los Órganos de la Epístola y del          Also within this programme the Foundation engages in
seasons, the latter dedicated this year to the repertoire       University in Madrid. Lastly, 2009 saw the continuation     Evangelio de la Catedral de Cuenca was published.         joint initiatives with the Madrid Regional Government
of the great Spanish polyphonists. Four editions of the         of the educational activities of the Madrid International                                                             and Madrid City Council, including exhibition
Sacred Music in Spanish Cathedrals series were held, as         Chamber Music Institute, whose members, besides             Committed spending on the music programme in 2009         programmes and theatrical, musical and publishing
well as the C                 Symphonic Music Season,           Fundación C                  and Fundación Albéniz,         was €7.0 million.                                         activities. Within the framework of its collaboration
while the Foundation maintained its artistic                    include the Ministry of Culture, the Madrid Regional                                                                  with the Madrid public administrations, Fundación
directorship of the 48th edition of the Cuenca Religious        Government and Madrid City Council.                                                                                   C                 has become a sponsor of the project
Music Week. There were also new editions of the                                                                                                                                       for a City of Madrid Pavilion at the 2010 Shanghai
MusicadHoy contemporary music series, in collaboration                                                                                                                                World’s Fair.
with the Madrid Regional Government and the Spanish
Ministry of Culture, and of the Grandes Voces en el Real
programme, in collaboration with the Teatro Real.




Annual Report 2009 C            08/ Obra Social and Fundación                                                                                                                                                                                          99
                                                                                                                                                                                                                                            www.cajamadrid.com


08/02
Fundación C




The Foundation’s main publishing project is its monthly          100,780 visited the Fundación C                 gallery.   Scholarships, research                                      In addition, the following
Book Review, available in a digital edition, which at the        Lastly, the exhibition Lágrimas de Eros, which has been    and universities                                            awards were made in
end of 2009 reached issue number 156.                            visited by more than 180,000 people, will continue         Of the three lines of action of this programme, the most    collaboration with other
                                                                 until the end of January 2010 at the Sala de las Alhajas   important is scholarships, aimed mainly at funding the      entities under the
Work also proceeded on the preparation and publication           gallery and at the Thyssen-Bornemisza Museum.              postgraduate studies of Spanish holders of higher           2009-2010 Call for
of the Enciclopedia Española del siglo XXI and the                                                                          (5-year) undergraduate degrees. Depending on the            Applications: 30 grants for
Diccionario Español de Ingeniería. The Foundation                At the same time, Fundación C                continued     specialities offered each year, the postgraduate            the completion of master’s
continued to collaborate in the courses organised by             the teaching programme linked to its exhibitions, with     training may be carried out in Spain or in other EU         degrees in social services and
Fundación Amigos del Museo del Prado and Real                    workshops for children of employees and the general        countries, the United States or Canada.                     development cooperation at public universities in
Asociación de Amigos del Centro de Arte Reina Sofía.             public between the ages of 4 and 16. In 2009 a total of                                                                Madrid; 1 grant in collaboration with Fundación
                                                                 2,165 children took part in these workshops. The           The Foundation’s main scholarship scheme comprises          Internacional Josep Carreras; 3 grants for the
In its exhibitions programme Fundación C                         Foundation also continued to offer guided visits, which    up to 80 grants available for Spanish graduates to          completion of postgraduate studies at CEMFI; 3 grants
continued to organise exhibitions jointly with                   attracted nearly 11,000 people, including 989              complete their training in universities and research        in collaboration with the Bioethics Chair at Universidad
Fundación Colección Thyssen-Bornemisza. 2009 began               C               employees.                                 institutions in the United States, Canada and Europe        Pontificia Comillas in Madrid; 16 half-grants for the PhD
with the closure of the exhibition ¡1914!. La Vanguardia                                                                    (except Spain). Eligible study areas are: Social Sciences   programme Migraciones Internacionales e Integración
y la Gran Guerra, which received a total of 151,063              Spending committed to the cultural sponsorship and         and Law (Economics, Law, Sociology and Politics);           Social at the University Institute of Fundación Ortega y
visitors at its two sites, of which 80,494 visited the           promotion and exhibitions programme in 2009 was            Biomedical Sciences (Pharmacy, Veterinary Science,          Gasset; and 3 grants in collaboration with Casa
Fundación C                  gallery. The spring season          €13.2 million.                                             Biology and Medicine); Technical Sciences (Architecture,    Sefarad-Israel for postdoctoral research in
started with the exhibition La Sombra, a show about                                                                         Information Technology and Engineering); Basic              nanotechnology.
the representation of the shadow in art from the                                                                            Sciences (Physics, Chemistry and Mathematics); and
Renaissance to the present day, which has been a big                                                                        Music. Scholarship holders wishing to continue their        Also in the educational field, Fundación C              ,
success, attracting a total of 196,482 visitors, of which                                                                   studies abroad for a second year may, where sufficient      together with Majadahonda Town Council and Fundación
                                                                                                                            justification is provided, have their grants renewed for    Mapfre, is a founding member of Centro Internacional de
                                                                                                                            another twelve months. In 2009 the Foundation               Estudios Económicos y Sociales (CIEES). CIEES hosts the
                                                                                                                            approved a total of 77 grant renewals.                      London School of Economics (LSE) seminars, which are
                                                                                                                                                                                        supported by the Foundation.




Annual Report 2009 C             08/ Obra Social and Fundación                                                                                                                                                                                          100
                                                                                                                              www.cajamadrid.com


08/02
Fundación C




                           Within the programme of              Since 2007 Fundación C                 has been the sole
                           collaboration with public            sponsor of the archaeological project for the excavation
                           universities in the                  and restoration of the tomb of Djehuty in Luxor (Egypt),
                           Community of Madrid                  which it was already supporting prior to that date. The
                           (Carlos III, Alcalá de               agreement has a projected term of five years.
                           Henares, Complutense,
                           Autonomous University, Rey           The Foundation also continues to collaborate with the
                         Juan Carlos and Politécnica),          “Severo Ochoa” Molecular Biology Research Centre
651 students benefitted under the Erasmus-Fundación             (CBMSO) to enable the centre to attract prestigious
Caja Madrid grant scheme, now in its fifth year.                researchers.

As regards research funding, for the third year running         The programme of collaboration with the Spanish
Fundación C                 continued with the                  National Cancer Research Centre (CNIO), started in 2004
cataloguing of one of the Simancas General Archive’s            to facilitate the hiring of four groups of young
main collections, the Registro General del Sello de             researchers, came to a conclusion in 2008. At the end
Castilla, undertaken by a team of seven researchers.            of 2008 the collaboration with the CNIO took an
This project is being carried out in collaboration with         important step forward, moving from the field of
the Spanish Ministry of Culture and is expected to last         scientific knowledge to that of clinical practice, with the
five years.                                                     approval of an Excellence Programme. The programme
                                                                will involve conducting early-stage clinical trials
                                                                (stages I and II) of emerging therapies for cancer
                                                                patients.

                                                                Committed spending on the scholarships, research and
                                                                universities programme in 2009 totalled €13.9 million.




Annual Report 2009 C            08/ Obra Social and Fundación                                                                             101
                                                                                                                                                                                                                                 www.cajamadrid.com


09/01
C


Description of activities                                 Madrid Law 4/2003 of 11 March on savings banks,         Board of Directors                                         Control Committee
                                                          and resolved that the Department of Economy and         The Board of Directors held 29 meetings during the         The Control Committee held 46 ordinary sessions and
General Assembly                                          Finance of the Madrid Regional Government be notified   year, in which a range of matters was discussed,           20 sessions as Electoral Committee.
Two Ordinary General Assemblies and two Extraordinary     accordingly.                                            notably the agreement whereby the Board ratifies
General Assemblies were held during 2009.                                                                         the Draft Articles of Association and Electoral Rules of   In the sessions held as Electoral Committee on 16
                                                          The second Extraordinary General Assembly took          C                , as adapted to Community of Madrid       and 21 December 2009, the General Directors for the
The first Ordinary General Assembly was held on 22        place on 20 July. Besides hearing the Chairman’s        Law 2/2009 of 23 June, which were laid before the          Local Authorities, Madrid Parliament and
March to approve the management and the financial         Report on the economic situation, the Assembly voted    General Assembly for approval.                             Representative Institutions sectors were proclaimed.
statements for 2008 and to resolve on other matters       on the Articles of Association and Electoral Rules of
within the Assembly’s scope of responsibilities.          Caja de Ahorros y Monte de Piedad de Madrid as          With respect to the Memorandum negotiated by
                                                          adapted to Community of Madrid Law 2/2009 of 23         Iberia with British Airways, the Board declared itself
In the second Ordinary General Assembly, held on 30       June. The General Assembly resolved to approve the      in agreement and gave its consent to the                   C                is engaged in an Electoral Process to
November, the Chairman reported on recent events in       Articles of Association and Electoral Rules of          continuation of the negotiations between the two           elect the General Directors for the Local Authorities,
the national and international economy and on the         C               , as adapted to Community of Madrid     companies.                                                 Madrid Parliament and Representative Institutions
activity of the C              Group.                     Law 2/2009 of 23 June amending Community of                                                                        sectors, so the renewal of the Governing bodies will
                                                          Madrid Law 4/2003 of 11 March on savings banks,         At its meeting on 28 December the Board of Directors       take place in the first quarter of 2010.
The first Extraordinary General Assembly took place on    and to refer them to the Department of Economy and      unanimously agreed to call an Extraordinary General
23 March. Besides hearing the Chairman’s Report on the    Finance of the Madrid Regional Government for           Assembly for 28 January 2010. In accordance with
economic situation, the Assembly resolved to reappoint    pertinent legal purposes.                               the Caja’s Articles of Association, this Assembly will
the external auditors for 2009 for the annual and                                                                 elect the members of the Board of Directors of
interim individual and consolidated financial                                                                     C                and the members of the Control
statements. The General Assembly did not approve the                                                              Committee, as part of the process of partial renewal
text of the Draft Articles of Association and Electoral                                                           of the members of these Governing bodies
Rules of C                 as adapted to Community of                                                             representing the Local Authorities, Madrid Parliament
Madrid Law 3/2008 of 29 December on fiscal and                                                                    and Representative Institutions sectors.
administrative measures, amending Community of




Annual Report 2009 C           09/ Governing bodies                                                                                                                                                                                          104
                                                                                                                                                                                        www.cajamadrid.com


09/01
C




Composition at 31.12.2009                               Mr. Rubén Cruz Orive                     Mr. Sigfrido Herráez Rodríguez             Mr. José Quintana Viar
                                                        Mr. Ignacio Díaz Plaza                   Mr. Oscar Iglesias Fernández               Mr. Alberto Recarte García-Andrade
General Assembly                                        Mr. Carlos Domingo Díaz                  Mr. Ramón Lamiel Villaró                   Mr. Ignacio del Río García de Sola
                                                        Mr. Álvaro José Domínguez Henríquez      Ms. María Begoña Larrainzar Zaballa        Mr. José Manuel Rodríguez Martínez
Chairman                                                Ms. Eva Durán Ramos                      Ms. Patricia Lázaro Martínez de Morentín   Ms. María del Carmen Rodríguez Quijano
Mr. Miguel Blesa de la Parra                            Mr. José Ignacio Echeverría Echániz      Ms. Rosa León Conde                        Mr. Pedro Manuel Rollán Ojeda
                                                        Mr. José Antonio Egea Puertas            Mr. Javier Julio Llopis Gabaldón           Ms. Cayetana Romero de Tejada y Picatoste
Local Authorities Sector                                Ms. Pilar Estébanez Estébanez            Mr. Raúl López Vaquero                     Mr. Antonio Romero Lázaro
Ms. Ana María Abella Alava                              Mr. José Fernández Bonet                 Ms. Sandra María de Lorite Buendía         Ms. Carmen Sánchez Carazo
Mr. José Luis Acero Benedicto                           Mr. Cándido Fernández González-Calero    Mr. Juan Antonio Mancheño Sánchez          Ms. María Elena Sánchez Gallar
Mr. José Acosta Cubero                                  Mr. Roberto Fernández Rodríguez          Ms. Noelia Martínez Espinosa               Mr. Pedro Sánchez Pérez-Castejón
Mr. Antonio Ainoza Cirera                               Ms. Matilde Fernández Sanz               Mr. Joaquín María Martínez Navarro         Ms. Ana de Sande Guillén
Mr. José María Álvarez del Manzano y López del Hierro   Mr. José Manuel Freire Campo             Mr. Juan Luis Mato Rodríguez               Mr. Antonio Santillana del Barrio
Mr. Emilio Álvarez Pérez-Bedia                          Mr. Mario de la Fuente Estévez           Ms. Mercedes de la Merced Monge            Mr. Pedro Santín Fernández
Mr. Miguel Ángel Araujo Serrano                         Mr. Ignacio García de Vinuesa Gardoqui   Mr. Rafael Merino López-Brea               Mr. Fernando Serrano Antón
Mr. Félix Arias Goytre                                  Mr. Joaquín García Pontes                Mr. José Antonio Moral Santín              Mr. Ramón Silva Buenadicha
Mr. José María Arteta Vico                              Ms. María Victoria García Ramos          Mr. Antonio Moreno Bravo                   Mr. José Miguel de la Torre Moncayo
Ms. María Antonia Astudillo López                       Mr. Luis García Salas                    Mr. José Nieto Antolinos                   Mr. Santiago de Torres Sanahuja
Ms. Noemí Ayguasenosa Soro                              Mr. Manuel García-Hierro Caraballo       Mr. José Enrique Núñez Guijarro            Ms. Isabel Vilallonga Elviro
Mr. Juan Barranco Fernández                             Mr. Ángel Garrido García                 Mr. Rogelio Ordóñez Blanco                 Mr. Carlos Javier Zori Mollá
Mr. Juan Barranco Gallardo                              Mr. Armand Giménez i Navarro             Mr. Esteban Parro del Prado                Mr. Pablo Zúñiga Alonso
Mr. José Manuel Berzal Andrade                          Ms. María de la Paz González García      Mr. José María Pascual Adalid
Mr. Juan Bravo Rivera                                   Mr. Bartolomé González Jiménez           Mr. Jesús Pedroche Nieto
Mr. Pedro Bugidos Garay                                 Ms. Mercedes González Merlo              Mr. Manuel Peinado Lorca
Mr. Pedro Calvo Poch                                    Mr. Carlos González Pereira              Mr. Francisco José Pérez Fernández
Mr. Pedro Castro Vázquez                                Mr. Pedro González Zerolo                Ms. Carmen Pérez-Carballo Veiga
Mr. Manuel Cobo Vega                                    Mr. Virgilio Heras Calvo                 Mr. Raúl Petit Sánchez
Mr. Miguel Conejero Melchor                             Ms. Nieves Hernández Espinal             Mr. Luis Tomás Polo Cobos
Mr. José Contreras Sánchez                              Ms. María Teresa Hernández Rodríguez     Mr. Enrique Pozas Rojo


Annual Report 2009 C            09/ Governing bodies                                                                                                                                                105
                                                                                                                                                                                                 www.cajamadrid.com


09/01
C




Depositors Sector                                       Mr. Pedro Joaquín Fernández Navarro      Ms. Paloma López Bermejo                    Mr. Vicente Jesús Prada Gómez
Mr. Pablo Abejas Juárez                                 Mr. José Manuel Fernández Norniella      Mr. Francisco José López Sánchez            Mr. Rafael Pradillo Moreno de la Santa
Mr. Miguel Ángel Abejón Resa                            Ms. Raquel Pilar Fernández Pascual       Mr. Ulpiano Lorences Rodríguez              Mr. Antonio Rey de Viñas y Sánchez de la Magestad
Ms. Belén Ardura Sahagún                                Mr. José Ignacio Fernández Rubio         Ms. Carmen Lorite Alcarria                  Mr. José María de la Riva Ámez
Mr. Ignacio de Arozarena Sanz                           Mr. José Luis Fernández-Quejo del Pozo   Mr. Francisco Javier Losantos García        Mr. Ángel Rizaldos González
Mr. Juan José Azcona Olóndriz                           Mr. Darío Fernández-Yruegas Moro         Mr. Diego Lozano Pérez                      Ms. Isabel Rodríguez Cabo
Mr. Francisco Baquero Noriega                           Ms. Mercedes Fidalgo Escudero            Ms. Magdalena Macías Burguillos             Ms. María Purificación Rodríguez Sánchez
Mr. Juan Ignacio Barragán Muro                          Ms. Laura Fuentes Cantarero              Mr. Juan José Marcano Dasilva               Mr. Estanislao Rodríguez-Ponga y Salamanca
Mr. Felipe Segundo Brihuega García                      Mr. Carlos García Cardedal               Mr. Guillermo R. Marcos Guerrero            Ms. Mercedes Rojo Izquierdo
Mr. Emilio Bueno Quijada                                Mr. Enrique García Platero               Ms. Juliana Marín Zamora                    Ms. Paloma Roldán Acea
Mr. José Cabrera Orellana                               Mr. Ángel García Rubiales                Ms. María Martín Barroso                    Mr. Ramón Roldán Mora
Mr. Antonio Cámara Eguinoa                              Mr. Francisco J. García Suárez           Ms. María José Martín del Cerro             Mr. José Fernando Sánchez Díaz
Mr. Francisco Caño Sánchez                              Ms. Teresa García Ventosa                Ms. María del Carmen Martín Irañeta         Mr. Juan Sánchez Fernández
Mr. Manuel Carlón López                                 Mr. Ricardo García-Aranda Rojas          Ms. Paloma Martín Martín                    Ms. Elvira F. Sánchez Llopis
Ms. Dolores Carrascal Prieto                            Ms. Francisca García-Fraile París        Ms. Encarnación Martín Paz                  Mr. Fernando Sánchez Martín
Mr. José Domingo Carrillo Verdún                        Mr. Miguel Ángel Godoy Prieto            Mr. Sebastián Martínez Alcázar              Mr. Bonifacio de Santiago Prieto
Ms. María Ángeles Casasolas Pérez                       Mr. Juan Gómez Castañeda                 Ms. María Esther Mayo Villalobos            Ms. Margarita Sastre Rodríguez
Mr. Alejandro Castilla de los Santos                    Mr. Victoriano Gómez Luengo              Ms. María del Pilar Mediavilla Alcalde      Mr. Julián Serrano Pernas
Ms. María Virtudes Cediel Martínez                      Ms. Eva Gómez Orgaz                      Mr. Fernando Medina Gómez                   Ms. María Concepción Suárez Rodríguez
Mr. Alejandro Cobos Sánchez                             Mr. Jesús Gómez Ruiz                     Mr. José Luis Miranda Blázquez              Mr. Alfredo Tapia Grande
Mr. Alejandro Couceiro Ojeda                            Ms. Francisca Gómez Sánchez              Mr. Francisco Moure Bourio                  Ms. María Nieves Valdés San José
Ms. María Victoria Cristóbal Araujo                     Ms. Ana María González Blanco            Mr. Juan Carlos Nicolás García              Mr. José Javier Vales Fernández
Ms. Susana Dussaillant Sabaté                           Mr. Ignacio González Velayos             Mr. Julio Novillo Cicuéndez                 Ms. Paloma Vega López
Ms. María Cruz Elvira Gómez                             Mr. Luis Haering Zabala                  Mr. Juan Antonio Olmos Mata                 Mr. Vicente Vigil González
Ms. Macarena Elvira Rubio                               Mr. Carlos Izquierdo Torres              Ms. María Jesús Paredes Gil                 Mr. Rubén Villa Benayas
Ms. Adelaida Eymar Gómez                                Ms. María Nieves Jerez Huete             Mr. David Pérez García                      Ms. María Mercedes Virumbrales Martín
Mr. Jesús Fermosel Díaz                                 Mr. Eustaquio Jiménez Molero             Mr. José Manuel Pérez Gómez
Ms. Susana Fernández Martín                             Mr. José Luis Jordán Moreno              Mr. Joaquín Pérez Vaquero
Ms. Lidia Fernández Montes                              Mr. José Manuel Juzgado Feito            Ms. María de los Ángeles del Pozo Velasco


Annual Report 2009 C             09/ Governing bodies                                                                                                                                                        106
                                                                                                                                                                                        www.cajamadrid.com


09/01
C




Madrid Parliament Sector                              Ms. Emilia Quirós Rayego                   Employees Sector                               Mr. Jesús Platas Sánchez
Ms. Paloma Adrados Gautier                            Mr. Jorge Rábago Juan-Aracil               Mr. Mariano Alonso Tejera                      Ms. Mónica Victoria Prado Izquierdo
Mr. Francisco Javier Ansuátegui Gárate                Ms. Ana María del Carmen Reboiro Muñoz     Mr. Ramón Alvarez González                     Mr. Bernardo Ruiz Hernández
Mr. Jesús Bachiller Andrés                            Mr. Andrés Reche García                    Mr. José María Ayuso Galán                     Mr. Sebastián Ruiz López
Mr. Francisco de Borja Carabante Muntada              Ms. María Isabel Redondo Alcaide           Ms. María Estrella Baeza Mayorga               Mr. Rafael Torres Posada
Ms. María del Rosario Carrasco Barba-Romero           Mr. José Luis Rodríguez García             Mr. José Bañales Curiel                        Mr. Antonio Treviño Capell
Ms. Cristina Cifuentes Cuencas                        Mr. Ricardo Romero de Tejada y Picatoste   Mr. José Vicente Bayarri Ballester             Mr. Fernando Trigueros Junquera
Mr. Joaquín Clemente Calero                           Mr. Antonio Ruda Valenzuela                Mr. Pedro Bedia Pérez                          Mr. Francisco José Villares Cousillas
Mr. Ángel Díaz Plasencia                              Mr. Juan Soler-Espiauba y Gallo            Mr. Carlos Bravo Fernández
Mr. José Ignacio Echániz Salgado                      Ms. Eva Tormo Mairena                      Mr. Juan Carlos Buenamañana Sánchez-Migallón
Mr. David Erguido Cano                                Mr. Colomán Trabado Pérez                  Mr. Josep Calzada i Doladé
Mr. Ramón Espinar Gallego                                                                        Mr. Francisco Canet Martorell
Ms. Fabiola Figueras Aguilar                                                                     Ms. Pilar del Corral Gracia
Ms. María Dolores García-Hierro Caraballo                                                        Mr. Ángel Corrales Martín
Mr. Ángel Eugenio Gómez del Pulgar y Perales                                                     Mr. Jesús Gallego Ochovo
Ms. Oliva Gómez Riestra                                                                          Mr. Jesús Garrido Gómez
Ms. Isabel Gema González González                                                                Mr. Juan Gil del Barrio
Mr. Sergio González Tejedor                                                                      Mr. Joan Güell Soler
Ms. Visitación González Villa                                                                    Ms. Soledad López Pereda
Mr. Beltrán Gutiérrez Moliner                                                                    Mr. Javier Luquero Antonio
Ms. Lourdes Hernández Ossorno                                                                    Ms. Isabel Madrid Martín de Vidales
Mr. Francisco José Hita Gamarra                                                                  Mr. José Luis Martínez Alemañ
Mr. Javier de Miguel Sánchez                                                                     Mr. José María Martínez López
Mr. Luis Vicente Moro Díaz                                                                       Ms. María Luisa Martínez Martínez
Mr. Pedro Muñoz Abrines                                                                          Mr. José Manuel Martínez Sánchez
Ms. Victoria Muñoz Agüera                                                                        Mr. Candelo Molina Bermejo
Mr. Víctor Raúl Olmos Mata                                                                       Mr. Antonio Miguel Molina Medina
Ms. María Gádor Ongil Cores                                                                      Mr. Gabriel María Moreno Flores
Mr. Ernolando Parra Gellida                                                                      Mr. Ignacio de Navasqüés Cobián


Annual Report 2009 C           09/ Governing bodies                                                                                                                                                 107
                                                                                                                                                                                                        www.cajamadrid.com


09/01
C




Representative Institutions Sector                  Mr. Pedro Luis Rubio Aragonés                      Board of Directors                           Control Committee
Mr. Fernando Aldana Mayor                           Mr. Daniel F. Sotelsek Salem
Ms. Inmaculada Álvarez Morillas                     Ms. Sara Patricia Torre García                     Chairman                                     Chairman
Mr. Rodolfo Benito Valenciano                       Mr. José Miguel Villa Antoñana                     Mr. Miguel Blesa de la Parra                 Mr. Pablo Abejas Juárez
Ms. María Carmen Cafranga Cavestany                 Mr. Manuel María Zorrilla Suárez                   Vice-chairmen
Mr. Francisco Cal Pardo                                                                                Mr. José Antonio Moral Santín                Members
Mr. Juan José Cancho Fernández                      Representative of the Madrid Regional Government   Mr. Estanislao Rodríguez-Ponga y Salamanca   Mr. Miguel Ángel Abejón Resa
Mr. Jaime Alfonso Cedrún López                      on the Control Committee                                                                        Mr. Miguel Ángel Araujo Serrano
Ms. Estrella Díaz Campoy                            Mr. Cándido Cerón Escudero                         Members                                      Ms. María Carmen Cafranga Cavestany
Mr. Gerardo Díaz Ferrán                                                                                Mr. José María Arteta Vico                   Mr. Antonio Cámara Eguinoa
Mr. Arturo Fernández Álvarez                        Secretary                                          Mr. Juan José Azcona Olóndriz                Mr. Rubén Cruz Orive
Ms. María Teresa Fernández Talaya                   Mr. Jesús Rodrigo Fernández                        Mr. Francisco Baquero Noriega                Mr. Juan Gómez Castañeda (Secretary)
Mr. Marcelino Fernández Verdes                                                                         Mr. Pedro Bedia Pérez                        Mr. Ángel Eugenio Gómez del Pulgar y Perales
Mr. Jorge Fernández-Cid Plañiol                                                                        Mr. Rodolfo Benito Valenciano                Mr. Javier de Miguel Sánchez
Mr. Carlos Galdón Cabrera                                                                              Mr. Gerardo Díaz Ferrán                      Mr. Gabriel María Moreno Flores
Mr. Pedro Gallo Casado                                                                                 Mr. Ramón Espinar Gallego                    Mr. Francisco José Pérez Fernández
Ms. Alicia Gómez-Navarro Navarrete                                                                     Mr. José Manuel Fernández Norniella          Mr. Antonio Rey de Viñas y Sánchez de la Magestad
Mr. Jaime González Prósper                                                                             Mr. Guillermo R. Marcos Guerrero             Mr. Fernando Serrano Antón
Mr. Juan Miguel Hernández León                                                                         Mr. Gonzalo Martín Pascual
Mr. Juan E. Iranzo Martín                                                                              Ms. Mercedes de la Merced Monge              Representative of the Madrid Regional Government
Mr. Tomás Martínez Piña                                                                                Mr. Ignacio de Navasqüés Cobián              Mr. Cándido Cerón Escudero
Mr. Juan Carlos de la Mata González                                                                    Mr. Jesús Pedroche Nieto
Mr. José Meliá Goicoechea                                                                              Mr. Alberto Recarte García-Andrade
Mr. Ramón Muñoz-González y Bernaldo de Quirós                                                          Mr. José María de la Riva Ámez               Honorary Directors
Mr. Francisco Naranjo Llanos                                                                           Ms. Mercedes Rojo Izquierdo
Mr. Carlos Ortiz de Zúñiga Echeverría                                                                  Mr. Antonio Romero Lázaro                    (Articles of Association of 1 December 1986)
Mr. Rafael Palomo Losana                                                                               Mr. Ricardo Romero de Tejada y Picatoste
Mr. Vicente F. Pérez Quintana                                                                                                                       Mr. Andrés Martínez-Bordiú Ortega
                                                                                                       Secretary (non Board Member)
                                                                                                                                                    Mr. Mateo Ruiz Oriol
                                                                                                       Mr. Jesús Rodrigo Fernández

Annual Report 2009 C         09/ Governing bodies                                                                                                                                                                   108
                                                                                                                                                                                                       www.cajamadrid.com


09/01
C




Executive Committee                                   Obra Social                                  Remuneration Committee                                Management Committee
                                                      Proposals Committee
Chairman                                                                                           Mr. Guillermo R. Marcos Guerrero                      Mr. Miguel Blesa de la Parra
Mr. Miguel Blesa de la Parra                          Chairman                                     Mr. José Antonio Moral Santín                         Chairman
                                                      Mr. Miguel Blesa de la Parra                 Mr. Antonio Romero Lázaro
Members                                                                                                                                                  Mr. Matías Amat Roca
Mr. Francisco Baquero Noriega                         Members                                                                                            General Business Director
Mr. Pedro Bedia Pérez                                 Mr. Juan José Azcona Olóndriz                Investment Committee                                  Director of the Corporación Financiera Unit
Mr. Guillermo R. Marcos Guerrero                      Mr. Pedro Bedia Pérez
Ms. Mercedes de la Merced Monge                       Mr. Ramón Espinar Gallego                    Mr. José María Arteta Vico                            Mr. Juan Astorqui Portera
Mr. José Antonio Moral Santín                         Mr. Guillermo R. Marcos Guerrero             Mr. Alberto Recarte García-Andrade                    Director of the Communication Unit
Mr. Ignacio de Navasqüés Cobián                       Mr. José Antonio Moral Santín                Mr. Estanislao Rodríguez-Ponga y Salamanca
Mr. Alberto Recarte García-Andrade                    Mr. Estanislao Rodríguez-Ponga y Salamanca                                                         Ms. Carmen Contreras Gómez
Mr. Estanislao Rodríguez-Ponga y Salamanca            Mr. Antonio Romero Lázaro                                                                          Director of the Obra Social Unit
Mr. Ricardo Romero de Tejada y Picatoste              Mr. Ricardo Romero de Tejada y Picatoste     Audit Committee
                                                                                                                                                         Mr. Ramón Martínez Vilches
Secretary (non Board Member)                                                                       Mr. Pedro Bedia Pérez                                 Director of the Audit Unit
Mr. Jesús Rodrigo Fernández                                                                        Mr. José María de la Riva Ámez
                                                                                                   Mr. Ricardo Romero de Tejada y Picatoste (Chairman)   Mr. Ricardo Morado Iglesias
                                                                                                                                                         Director of the Systems and Operations Unit

                                                                                                                                                         Mr. Ildefonso Sánchez Barcoj
                                                                                                                                                         General Director of Finance and Resources

                                                                                                                                                         Mr. Rafael Spottorno Díaz-Caro
                                                                                                                                                         Director of Fundación Caja Madrid

                                                                                                                                                         Mr. Jesús Rodrigo Fernández
                                                                                                                                                         General Secretary


Annual Report 2009 C           09/ Governing bodies                                                                                                                                                                109
                                                                                                      www.cajamadrid.com


09/02                                                    09/03
Caja Madrid Cibeles, S.A.                                Corporación Financiera
                                                         Caja de Madrid, S.A.

Board of Directors                                       Board of Directors
                                                         Chairman
Chairman
                                                         Mr. Miguel Blesa de la Parra
Mr. Miguel Blesa de la Parra
                                                         Managing Director
Managing Director                                        Mr. Matías Amat Roca
Mr. Carlos María Martínez Martínez
                                                         Members
Members                                                  Mr. José María Arteta Vico
                                                         Mr. Juan José Azcona Olóndriz
Mr. Ángel Acebes Paniagua
                                                         Mr. Francisco Baquero Noriega
Mr. Matías Amat Roca
                                                         Mr. Pedro Bedia Pérez
Mr. Francisco Baquero Noriega
                                                         Mr. Rodolfo Benito Valenciano
Ms. Carmen Cavero Mestre
                                                         Mr. Gerardo Díaz Ferrán
Mr. Óscar Fanjul Martín                                  Mr. Ramón Espinar Gallego
Mr. Manuel Lamela Fernández                              Mr. José Manuel Fernández Norniella
Mr. José Manuel Martínez Martínez                        Mr. Guillermo R. Marcos Guerrero
Ms. Mercedes de la Merced Monge                          Mr. Gonzalo Martín Pascual
Mr. José Antonio Moral Santín                            Ms. Mercedes de la Merced Monge
Mr. Estanislao Rodríguez-Ponga y Salamanca               Mr. José Antonio Moral Santín
Ms. Mercedes Rojo Izquierdo                              Mr. Ignacio de Navasqüés Cobián
Mr. Antonio Romero Lázaro                                Mr. Jesús Pedroche Nieto
Mr. Ildefonso Sánchez Barcoj                             Mr. Alberto Recarte García-Andrade
Mr. Pedro Schwartz Girón                                 Mr. José María de la Riva Ámez
Mr. Ignacio Varela Díaz                                  Mr. Estanislao Rodríguez-Ponga y Salamanca
                                                         Ms. Mercedes Rojo Izquierdo
Secretary (non Board Member)                             Mr. Antonio Romero Lázaro
Mr. Ignacio de Navasqüés Cobián                          Mr. Ricardo Romero de Tejada y Picatoste
                                                         Secretary (non Board Member)
                                                         Mr. Jesús Rodrigo Fernández

Annual Report 2009 C              09/ Governing bodies                                                            111
                                                            www.cajamadrid.com


10/
Legal documentation

Contents
Auditor’s report on consolidated financial statements.114

Consolidated financial statements.115
  Balance sheets.115
  Income statements.116
  Statements of recognised income and expense.116
  Statements of changes in total equity.117
  Cash flow statements.119
  Notes to the consolidated financial statements.120

Consolidated director’s report.216
  Annual Corporate Governance Report.225




Annual Report 2009 C   10/ Legal documentation                          113
                                                 www.cajamadrid.com


10/
Legal documentation

Auditor’s report on consolidated
financial statements




Annual Report 2009 C   10/ Legal documentation               114
                                                                                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.

Caja de Ahorros y Monte de Piedad de Madrid and subsidiaries composing the Caja Madrid Group
Consolidated balance sheets at 31 December 2009 and 2008, before the allocation of profit (Notes 1 to 8)
                                                                                                                                                     (thousands of euros)                                                                                                                           (thousands of euros)

  Assets                                                                                                                                    2009                2008*       Liabilities and equity                                                                                       2009                 2008*
  1.    Cash and balances with central banks (Note 9)                                                                                    2,422,018            2,418,747     Liabilities
                                                                                                                                                                            1.      Financial liabilities held for trading (Note 10)                                                  10,515,315              8,540,191
  2.    Financial assets held for trading (Note 10)                                                                                     12,093,955           10,035,759             1.1.        Deposits from central banks                                                                    -                      -
        2.1.      Loans and advances to credit institutions                                                                                      -                    -             1.2.        Deposits from credit institutions                                                              -                      -
        2.2.      Loans and advances to customers                                                                                           39,359               70,122             1.3.        Customer deposits                                                                              -                      -
        2.3.      Debt instruments                                                                                                         464,793              583,936             1.4.        Marketable debt securities                                                                     -                      -
        2.4.      Equity instruments                                                                                                        71,456               48,147             1.5.        Trading derivatives                                                                   10,163,307              8,371,974
        2.5.      Trading derivatives                                                                                                   11,518,347            9,333,554             1.6.        Short positions                                                                          352,008                168,217
                                                                                                                                                                                    1.7.        Other financial liabilities                                                                     -                      -
        Memorandum item: Loaned or advanced as collateral                                                                                  352,304              491,573     2. Other financial liabilities at fair value through profit or loss                                                  -                      -
                                                                                                                                                                                    2.1.        Deposits from central banks                                                                    -                      -
  3.    Other financial assets at fair value through profit or loss (Note 11)                                                                83,109                83,976             2.2.        Deposits from credit institutions                                                              -                      -
        3.1.     Loans and advances to credit institutions                                                                                      -                     -             2.3.        Customer deposits                                                                              -                      -
        3.2.     Loans and advances to customers                                                                                                -                     -             2.4.        Marketable debt securities                                                                     -                      -
        3.3.     Debt instruments                                                                                                          83,109                83,976             2.5.        Subordinated liabilities                                                                       -                      -
        3.4.     Equity instruments                                                                                                             -                     -             2.6.        Other financial liabilities                                                                     -                      -
        Memorandum item: Loaned or advanced as collateral                                                                                       -                     -     3. Financial liabilities at amortised cost (Note 21)                                                     168,208,936            159,802,479
                                                                                                                                                                                    3.1.        Deposits from central banks                                                            3,901,150              4,974,404
  4.    Available-for-sale financial assets (Note 12)                                                                                    26,340,045          21,202,828              3.2.        Deposits from credit institutions                                                     17,054,068             14,760,902
        4.1.      Debt instruments                                                                                                      23,244,781          18,405,829              3.3.        Customer deposits                                                                     89,924,082             83,865,939
                                                                                                                                                                                    3.4.        Marketable debt securities                                                            50,001,483             50,699,897
        4.2.      Equity instruments                                                                                                     3,095,264           2,796,999              3.5.        Subordinated liabilities                                                               6,300,393              4,314,931
        Memorandum item: Loaned or advanced as collateral                                                                               11,428,412          11,505,964              3.6.        Other financial liabilities                                                             1,027,760              1,186,406
                                                                                                                                                                            4. Changes in the fair value of hedged items in portfolio hedges of interest rate risk                             -                      -
  5.    Loans and receivables (Note 13)                                                                                                128,618,841         129,167,792      5. Hedging derivatives (Note 15)                                                                             657,428                460,288
        5.1.     Loans and advances to credit institutions                                                                              10,837,460          10,741,539      6. Liabilities associated with non-current assets held for sale                                                    -                      -
        5.2.     Loans and advances to customers                                                                                       117,740,305         118,366,749      7. Liabilities under insurance contracts                                                                           -                      -
        5.3.     Debt instruments                                                                                                           41,076              59,504      8. Provisions (Note 22)                                                                                      511,039                545,059
        Memorandum item: Loaned or advanced as collateral                                                                               81,617,003          76,297,959              8.1.        Provisions for pensions and similar obligations                                          161,372                176,818
                                                                                                                                                                                    8.2.        Provisions for taxes and other legal contingencies                                        94,071                124,866
  6.    Held-to-maturity investments (Note 14)                                                                                           9,638,886            7,700,020             8.3.        Provisions for contingent liabilities and commitments                                    144,543                169,076
        Memorandum item: Loaned or advanced as collateral                                                                                7,860,080            6,069,909             8.4.        Other provisions                                                                         111,053                 74,299
                                                                                                                                                                            9. Tax liabilities                                                                                           677,413                637,313
  7.    Changes in the fair value of hedged items in portfolio hedges of interest rate risk                                                      -                     -            9.1.        Current                                                                                   21,477                 34,236
                                                                                                                                                                                    9.2.        Deferred (Note 27)                                                                       655,936                603,077
  8.    Hedging derivatives (Note 15)                                                                                                    2,903,400            2,589,197     10. Welfare fund (Note 46)                                                                                   226,644                237,843
                                                                                                                                                                            11. Other liabilities (Note 23)                                                                              809,785                707,370
  9.    Non-current assets held for sale (Note 16)                                                                                         893,316              243,475     12. Equity refundable on demand                                                                                    -                      -
  10. Investments (Note 17)                                                                                                              2,763,510            2,165,580     Total liabilities                                                                                        181,606,560            170,930,543
      10.1. Associates                                                                                                                   1,744,943            1,450,243     Equity
      10.2. Jointly controlled entities                                                                                                  1,018,567              715,337
                                                                                                                                                                            1. Own funds                                                                                              10,268,144             10,219,553
  11. Insurance contracts linked to pensions (Note 22)                                                                                     144,333               68,789             1.1.        Endowment fund                                                                                27                     27
                                                                                                                                                                                                1.1.1.         Registered                                                                     27                     27
  12. Reinsurance assets                                                                                                                         -                     -                        1.1.2.         Less: Uncalled capital                                                          -                      -
                                                                                                                                                                                    1.2.        Share premium                                                                                  -                      -
  13. Tangible assets (Note 18)                                                                                                          4,011,667            3,231,185             1.3.        Reserves (Note 26)                                                                    10,002,310              9,379,046
                                                                                                                                                                                                1.3.1.         Accumulated reserves (losses)                                          10,023,934              9,340,994
      13.1. Property, plant and equipment                                                                                                2,566,009            2,571,389                         1.3.2.         Reserves (losses) of entities accounted for using the equity method       (21,624)                38,052
                13.1.1.    For own use                                                                                                   2,338,842            2,303,586             1.4.        Other equity instruments                                                                       -                      -
                13.1.2.    Leased out under an operating lease                                                                             106,444              140,449                         1.4.1.         Equity component of compound financial instruments                               -                      -
                13.1.3.    Assigned to welfare projects                                                                                    120,723              127,354                         1.4.2.         Non-voting equity units and associated funds                                    -                      -
      13.2. Investment property                                                                                                          1,445,658              659,796                         1.4.3.         Other                                                                           -                      -
      Memorandum item: Acquired under a finance lease                                                                                             -                    -             1.5.        Less: Treasury shares                                                                          -                      -
                                                                                                                                                                                    1.6.        Profit for the year attributable to the Parent                                            265,807                840,480
  14.   Intangible assets (Note 19)                                                                                                       617,075              628,335              1.7.        Less: Dividends and remuneration                                                               -                      -
        14.1. Goodwill                                                                                                                    438,998              475,343      2. Valuation adjustments (Note 25)                                                                           (15,784)              (224,879)
        14.2. Other intangible assets                                                                                                     178,077              152,992              2.1.        Available-for-sale financial assets                                                       229,943                (74,942)
                                                                                                                                                                                    2.2.        Cash flow hedges                                                                            1,419                  2,006
  15. Tax assets                                                                                                                         1,278,597            1,335,609             2.3.        Hedges of net investments in foreign operations                                                -                      -
      15.1. Current                                                                                                                        279,133              267,651             2.4.        Exchange differences                                                                     (88,247)               (62,297)
                                                                                                                                                                                    2.5.        Non-current assets held for sale                                                               -                      -
      15.2. Deferred (Note 27)                                                                                                             999,464            1,067,958             2.6.        Entities accounted for using the equity method                                          (158,899)               (89,646)
                                                                                                                                                                                    2.7.        Other valuation adjustments                                                                    -                      -
  16. Other assets (Note 20)                                                                                                               95,732                99,650     3. Non-controlling interests (Note 24)                                                                        45,564                 45,725
      16.1. Inventories                                                                                                                        88                   447             3.1.        Valuation adjustments                                                                       (921)                  (718)
      16.2. Other                                                                                                                          95,644                99,203             3.2.        Other                                                                                     46,485                 46,443
                                                                                                                                                                            Total equity                                                                                              10,297,924             10,040,399
  Total assets                                                                                                                         191,904,484         180,970,942      Total liabilities and equity                                                                             191,904,484          180,970,942
                                                                                                                                                                            Memorandum items                                                                                          43,768,419             45,654,823
                                                                                                                                                                            1. Contingent liabilities (Note 28)                                                                       10,163,765             10,669,748
                                                                                                                                                                            2. Contingent commitments (Note 28)                                                                       33,604,654             34,985,075

   * Presented for comparison purposes
   The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated balance sheet at 31 December 2009


Annual Report 2009 C                                  10/ Legal documentation                                                                                                                                                                                                                                                  115
                                                                                                                                                                                                                                                                                                                                                                     www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.

Caja de Ahorros y Monte de Piedad de Madrid and subsidiaries composing the Caja Madrid Group                                                                                           Caja de Ahorros y Monte de Piedad de Madrid and subsidiaries composing the Caja Madrid Group
Consolidated income statements for the years ended 31 December 2009 and 2008 (Notes 1 to 8)                                                                                            Consolidated statements of recognised income and expense for the years ended 31 December 2009 and 2008
                                                                                                                                                                (thousands of euros)                                                                                                                                                                 (thousands of euros)
                                                                                                                                                         2009              2008*                                                                                                                                                           2009                 2008*
  1.    Interest and similar income (Note 29)                                                                                                     5,655,487              7,940,686       A.   Consolidated profit for the year                                                                                                           266,949               840,739
  2.    Interest expense and similar charges (Note 30)                                                                                           (3,123,430)            (5,732,110)
  3.    Return on equity refundable on demand                                                                                                             -                      -       B.   Other recognised income and expense                                                                                                       208,892            (1,179,922)
  A.  Net interest income                                                                                                                         2,532,057              2,208,576       1.   Available-for-sale financial assets                                                                                                        435,550            (1,328,535)
  4.  Income from equity instruments (Note 31)                                                                                                      118,524                112,285            1.1. Revaluation gains (losses)                                                                                                           734,330            (1,048,435)
  5.  Share of results of entities accounted for using the equity method (Note 32)                                                                 (143,366)                 6,073            1.2. Amounts transferred to income statement                                                                                              298,780               380,589
  6.  Fee and commission income (Note 33)                                                                                                           887,658                916,501
                                                                                                                                                                                              1.3. Other reclassifications                                                                                                                     -               100,489
  7.  Fee and commission expense (Note 34)                                                                                                         (117,132)              (113,960)
  8.  Gains/losses on financial assets and liabilities (net) (Note 35)                                                                               561,365                328,140       2.   Cash flow hedges                                                                                                                               (580)               5,180
      8.1.      Held for trading                                                                                                                     26,610                (90,350)           2.1. Revaluation gains (losses)                                                                                                               (580)             127,061
      8.2.      Other financial instruments at fair value through profit or loss                                                                        2,297                (13,176)
      8.3.      Financial instruments not measured at fair value through profit or loss                                                              494,954                467,269            2.2. Amounts transferred to income statement                                                                                                     -                    -
      8.4.      Other                                                                                                                                37,504                (35,603)           2.3. Amounts transferred to initial carrying amount of hedged items                                                                              -              121,881
  9. Exchange differences (net) (Note 36)                                                                                                            38,566                 17,432            2.4. Other reclassifications                                                                                                                      -                    -
  10. Other operating income                                                                                                                        107,140                121,141
      10.1 Income from insurance and reinsurance contracts issued                                                                                         -                      -       3.   Hedges of net investments in foreign operations                                                                                                    -                       -
      10.2. Sales and income from the provision of non-financial services (Note 37)                                                                   65,983                 84,294            3.1. Revaluation gains (losses)                                                                                                                    -                       -
      10.3. Other (Note 38)                                                                                                                          41,157                 36,847            3.2. Amounts transferred to income statement                                                                                                       -                       -
  11. Other operating expenses                                                                                                                     (113,676)              (106,200)           3.3. Other reclassifications                                                                                                                        -                       -
      11.1. Expenses of insurance and reinsurance contracts                                                                                               -                      -
      11.2. Changes in inventories (Note 37)                                                                                                        (41,963)               (48,354)      4.   Exchange differences                                                                                                                       (26,293)              (61,362)
      11.3. Other (Note 39)                                                                                                                         (71,713)               (57,846)
                                                                                                                                                                                              4.1. Revaluation gains (losses)                                                                                                            (26,293)              (61,362)
  B. Gross income                                                                                                                                 3,871,136              3,489,988            4.2. Amounts transferred to income statement                                                                                                     -                     -
  12. Administrative expenses                                                                                                                    (1,586,599)            (1,746,638)           4.3. Other reclassifications                                                                                                                      -                     -
      12.1. Staff costs (Note 40)                                                                                                                (1,155,152)            (1,330,002)
      12.2. Other general administrative expenses (Note 41)                                                                                        (431,447)              (416,636)      5.   Non-current assets held for sale                                                                                                                   -           (100,489)
  13. Depreciation and amortisation charge (Notes 18 and 19)                                                                                       (232,730)              (175,111)           5.1. Revaluation gains (losses)                                                                                                                    -                  -
  14. Provisions (net)                                                                                                                               64,007                 83,023            5.2. Amounts transferred to income statement                                                                                                       -                  -
  15. Impairment losses on financial assets (net)                                                                                                 (1,440,595)              (869,481)           5.3. Other reclassifications                                                                                                                        -           (100,489)
      15.1. Loans and receivables (Note 13)                                                                                                      (1,293,958)              (863,976)
      15.2. Other financial instruments not measured at fair value through profit or loss (Notes 12 and 14)                                          (146,637)                (5,505)      6.   Actuarial gains (losses) on pension plans                                                                                                          -                       -
  C. Profit from operations                                                                                                                          675,219                781,781       7.   Entities accounted for using the equity method                                                                                             (69,253)              (93,876)
  16. Impairment losses on other assets (net) (Note 42)                                                                                            (336,142)               (76,534)           7.1. Revaluation gains (losses)                                                                                                            (69,253)              (93,876)
      16.1. Goodwill and other intangible assets                                                                                                    (39,760)               (20,000)           7.2. Amounts transferred to income statement                                                                                                     -                     -
      16.2. Other assets                                                                                                                           (296,382)               (56,534)
  17. Gains (losses) on disposal of assets not classified as non-current assets held for sale (Note 43)                                                46,628                32,531
                                                                                                                                                                                              7.3. Other reclassifications                                                                                                                      -                     -
  18. Negative goodwill on business combinations                                                                                                           -                     -       8.   Other recognised income and expense                                                                                                                -                       -
  19. Gains (losses) on non-current assets held for sale not classified as discontinued operations (Note 44)                                          (21,437)              467,761
                                                                                                                                                                                         9.   Income tax                                                                                                                               (130,532)              399,160
  D. Profit before tax                                                                                                                               364,268              1,205,539
  20. Income tax (Note 27)                                                                                                                          (97,319)              (364,800)      C.   Total recognised income and expense (A+B)                                                                                                 475,841              (339,183)
  21. Mandatory transfer to welfare fund                                                                                                                  -                      -            C 1.    Attributable to the Parent                                                                                                        474,902              (331,229)
  E. Profit for the year from continuing operations                                                                                                  266,949                840,739            C 2.    Attributable to non-controlling interests                                                                                             939                (7,954)
  22. Profit/Loss from discontinued operations (net)                                                                                                       -                      -
  F.    Consolidated profit for the year                                                                                                             266,949                840,739
        F.1)     Profit attributable to the Parent                                                                                                   265,807                840,480
        F.2)     Profit attributable to non-controlling interests                                                                                      1,142                    259


  * Presented for comparison purposes                                                                                                                                                   * Presented for comparison purposes
  The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated income statement for the year ended 31 December 2009                                  The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated statement of recognised income and expense for the year ended 31 December 2009

Annual Report 2009 C                                10/ Legal documentation                                                                                                                                                                                                                                                                                                      116
                                                                                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.

Caja de Ahorros y Monte de Piedad de Madrid and subsidiaries composing the Caja Madrid Group
Consolidated statements of changes in total equity for the years ended 31 December 2009 and 2008*


                                                                                                                                                                                                                                                                                                    (thousands of euros)
                                                                                                                                                                                          Own funds
                                                                                                                                                            Reserves
                                                                                                                                                                   Reserves
                                                                                                                                                                     (Losses)                                              Profit
                                                                                                                                                                  of entities                                             for the
                                                                                                                                              Accumulated      accounted for                   Other       Less:             year           Less:         Total                                  Non-
                                                                                                         Endowment              Share             reserves using the equity                   equity   Treasury     attributable    Dividends and          own    Valuation                controlling           Total
                                                                                                              fund           premium               (losses)          method             instruments      shares    to the Parent    remuneration         funds adjustments         Total     interests          equity

  1. Ending balance at 31/12/2008                                                                                   27                 -         9,340,994                   38,052                -           -       840,480                  -   10,219,553     (224,879)   9,994,674      45,725 10,040,399
     1.1. Adjustments due to changes in accounting policies                                                          -                 -                 -                        -                -           -             -                  -            -            -            -           -          -
     1.2. Adjustments due to errors                                                                                  -                 -                 -                        -                -           -             -                  -            -            -            -           -          -
  2. Adjusted beginning balance                                                                                     27                 -         9,340,994                   38,052                -           -       840,480                  -   10,219,553     (224,879)   9,994,674      45,725 10,040,399
  3. Total recognised income and expense                                                                               -               -                     -                     -               -           -       265,807                  -     265,807      209,095      474,902          939         475,841
  4. Other changes in equity                                                                                           -               -           682,940                   (59,676)              -          -       (840,480)                 -    (217,216)            -    (217,216)      (1,100)       (218,316)
     4.1. Increases in endowment fund                                                                                  -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.2. Capital reductions                                                                                           -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.3. Conversion of financial liabilities into equity                                                               -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.4. Increases in other equity instruments                                                                        -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.5. Reclassification of financial liabilities to other equity instruments                                          -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.6. Reclassification of other equity instruments to financial liabilities                                          -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.7. Remuneration of members                                                                                      -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.8. Transactions involving own equity instruments (net)                                                          -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.9. Transfers between equity items                                                                               -               -           653,008                         -               -          -       (653,008)                 -           -             -           -            -               -
     4.10. Increases (decreases) due to business combinations                                                          -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.11. Discretionary transfer to welfare fund                                                                      -               -                 -                         -               -          -        187,472                  -     187,472             -     187,472            -         187,472
     4.12. Equity-instrument-based payments                                                                            -               -                 -                         -               -          -              -                  -           -             -           -            -               -
     4.13. Other increases (decreases) in equity                                                                       -               -            29,932                   (59,676)              -          -              -                  -     (29,744)            -     (29,744)      (1,100)        (30,844)

  5. Ending balance at 31/12/2009                                                                                   27                 -       10,023,934                    (21,624)              -           -       265,807                  -   10,268,144      (15,784) 10,252,360       45,564 10,297,924


  * Presented for comparison purposes
  The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2009




Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                                                                                                                         117
                                                                                                                                                                                                                                                                                                                       www.cajamadrid.com


10/
Legal documentation


                                                                                                                                                                                                                                                                                                     (thousands of euros)
                                                                                                                                                                                          Own funds
                                                                                                                                                            Reserves
                                                                                                                                                                   Reserves
                                                                                                                                                                     (Losses)                                              Profit
                                                                                                                                                                  of entities                                             for the
                                                                                                                                              Accumulated      accounted for                   Other       Less:             year           Less:         Total                                   Non-
                                                                                                         Endowment              Share             reserves using the equity                   equity   Treasury     attributable    Dividends and          own    Valuation                 controlling           Total
                                                                                                              fund           premium               (losses)          method             instruments      shares    to the Parent    remuneration         funds adjustments          Total     interests          equity

  1. Ending balance at 31/12/2007                                                                                   27                 -         6,722,374                   52,566                -           -     2,860,836                  -    9,635,803     946,830     10,582,633      69,211 10,651,844
     1.1. Adjustments due to changes in accounting policies                                                          -                 -                 -                        -                -           -             -                  -            -           -              -           -          -
     1.2. Adjustments due to errors                                                                                  -                 -                 -                        -                -           -             -                  -            -           -              -           -          -
  2. Adjusted beginning balance                                                                                     27                 -         6,722,374                   52,566                -           -     2,860,836                  -    9,635,803     946,830     10,582,633      69,211 10,651,844
  3. Total recognised income and expense                                                                               -               -                     -                     -               -           -       840,480                  -     840,480    (1,171,709)    (331,229)      (7,954)       (339.183)
  4. Other changes in equity                                                                                           -               -        2,618,620                    (14,514)              -          -     (2,860,836)                 -    (256,730)            -     (256,730)     (15,532)       (272,262)
     4.1. Increases in endowment fund                                                                                  -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.2. Capital reductions                                                                                           -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.3. Conversion of financial liabilities into equity                                                               -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.4. Increases in other equity instruments                                                                        -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.5. Reclassification of financial liabilities to other equity instruments                                          -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.6. Reclassification of other equity instruments to financial liabilities                                          -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.7. Remuneration of members                                                                                      -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.8. Transactions involving own equity instruments (net)                                                          -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.9. Transfers between equity items                                                                               -               -        2,608,264                          -               -          -     (2,608,264)                 -           -             -            -            -               -
     4.10. Increases (decreases) due to business combinations                                                          -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.11. Discretionary transfer to welfare fund                                                                      -               -                -                          -               -          -        252,572                  -     252,572             -      252,572            -         252,572
     4.12. Equity-instrument-based payments                                                                            -               -                -                          -               -          -              -                  -           -             -            -            -               -
     4.13. Other increases (decreases) in equity                                                                       -               -           10,356                    (14,514)              -          -              -                  -      (4,158)            -       (4,158)     (15,532)        (19,690)

  5. Ending balance at 31/12/2008                                                                                   27                 -         9,340,994                   38,052                -           -       840,480                  -   10,219,553     (224,879)    9,994,674      45,725 10,040,399


  * Presented for comparison purposes
  The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated statement of changes in total equity for the year ended 31 December 2009




Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                                                                                                                          118
                                                                                                                                                                                                                                                                                               www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.

Caja de Ahorros y Monte de Piedad de Madrid and subsidiaries composing the Caja Madrid Group
Consolidated statements of cash flows for the years ended 31 December 2009 and 2008
                                                                                                                                                               (thousands of euros)                                                                                            (thousands of euros)

                                                                                                                                                      2009                2008*                                                                                        2009               2008*

  A. Cash flows from operating activities                                                                                                       1,635,824              (164,807)       C. Cash flows from financing activities                                        1,740,406          (285,571)
                                                                                                                                                                                      8. Payments                                                                   245,056            337,674
  1. Consolidated profit for the year                                                                                                              266,949              840,739
                                                                                                                                                                                         8.1. Dividends                                                             187,472            252,572
  2. Adjustments made to obtain the cash flows from operating activities                                                                        1,627,434               879,106           8.2. Subordinated liabilities                                                    -                  -
     2.1. Depreciation and amortisation charge                                                                                                   232,730               175,111           8.3. Redemption of own equity instruments                                        -                  -
     2.2. Other adjustments                                                                                                                    1,394,704               703,995           8.4. Acquisition of own equity instruments                                       -                  -
  3. Net increase/(decrease) in operating assets                                                                                               8,909,102           24,708,334            8.5. Other payments related to financing activities                          57,584             85,102
     3.1. Financial assets held for trading                                                                                                    2,058,196            3,516,501         9. Proceeds                                                                  1,985,462             52,103
     3.2. Other financial assets at fair value through profit or loss                                                                                 (867)             (18,421)           9.1. Subordinated liabilities                                             1,985,462             52,103
     3.3. Available-for-sale financial assets                                                                                                   5,124,875            7,840,360            9.2. Issuance of own equity instruments                                           -                  -
     3.4. Loans and receivables                                                                                                                1,485,203           11,432,836            9.3. Disposal of own equity instruments                                           -                  -
     3.5. Other operating assets                                                                                                                 241,695            1,937,058            9.4. Other proceeds related to financing activities                                -                  -
  4. Net increase/(decrease) in operating liabilities                                                                                          8,815,738           22,899,262
     4.1. Financial liabilities held for trading                                                                                               1,975,124            4,203,747         D. Effect of foreign exchange rate changes                                           -                     -
     4.2. Other financial liabilities at fair value through profit or loss                                                                               -                    -
     4.3. Financial liabilities at amortised cost                                                                                              6,632,001           18,884,913
                                                                                                                                                                                      E. Net increase (decrease) in cash and cash equivalents (A+B+C+D)                3,271        (1,559,528)
     4.4. Other operating liabilities                                                                                                            208,613             (189,398)
  5. Income tax recovered/(paid)                                                                                                                (165,195)               (75,580)
                                                                                                                                                                                      F.   Cash and cash equivalents at beginning of year                          2,418,747         3,978,275

  B. Cash flows from investing activities                                                                                                      (3,372,959)           (1,109,150)
                                                                                                                                                                                      G. Cash and cash equivalents at end of year                                  2,422,018         2,418,747
  6. Payments                                                                                                                                  3,501,558             2,270,893
     6.1. Tangible assets                                                                                                                      1,228,554               824,019        Memorandum items
     6.2. Intangible assets                                                                                                                       56,235               615,563
                                                                                                                                                                                      Components of cash and cash equivalents at end of year
     6.3. Investments                                                                                                                            280,350               302,830
                                                                                                                                                                                         1.1. Cash                                                                   648,541          664,446
     6.4. Subsidiaries and other business units                                                                                                        -                     -
                                                                                                                                                                                         1.2. Cash equivalents at central banks                                    1,773,477        1,754,301
     6.5. Non-current assets held for sale and associated liabilities                                                                                  -                     -
                                                                                                                                                                                         1.3. Other financial assets                                                        -                -
     6.6. Held-to-maturity investments                                                                                                         1,936,419               528,481
                                                                                                                                                                                         1.4. Less: Bank overdrafts refundable on demand                                   -                -
     6.7. Other payments related to investing activities                                                                                               -                     -
  7. Proceeds                                                                                                                                     128,599           1,161,743
                                                                                                                                                                                      Total cash and cash equivalents at end of year                               2,422,018         2,418,747
     7.1. Tangible assets                                                                                                                          36,231                   -
                                                                                                                                                                                           of which: held by consolidated entities but not drawable by the Group           -                 -
     7.2. Intangible assets                                                                                                                             -                   -
     7.3. Investments                                                                                                                                   -                   -
     7.4. Subsidiaries and other business units                                                                                                         -                   -
     7.5 Non-current assets held for sale and associated liabilities                                                                               92,368           1,161,743
     7.6. Held-to-maturity investments                                                                                                                  -                   -
     7.7. Other proceeds related to investing activities                                                                                                -                   -



  * Presented for comparison purposes
  The accompanying Notes 1 to 47 and Appendices I to III are an integral part of the consolidated statement of cash flows for the year ended 31 December 2009


Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                                                                                                  119
                                                                                                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.



Notes to the consolidated financial statements - Contents
1.    Group description, basis of presentation of                                   2.16. Inventories.150                                                                  11. Other financial assets at fair value                                31.   Income from equity instruments.205
      the consolidated financial statements and other                               2.17. Provisions and contingent assets and liabilities.151                                 through profit or loss.174
      information.121                                                               2.18. Non-current assets held for sale.151                                                                                                                     32. Share of results of entities accounted for using
1.1. Group description.121                                                          2.19. Welfare Fund .152                                                                12. Available-for-sale financial assets.174                                 the equity method.205
1.2. Basis of presentation of the consolidated financial                            2.20. Consolidated statements of recognised
      statements.125                                                                      income and expense.152                                                           13. Loans and receivables.176                                           33. Fee and commission income.205
1.3. Use of estimates.126                                                           2.21. Consolidated statements of changes
1.4. Comparative information relating to 2008.127                                         in total equity.152                                                              14. Held-to-maturity investments.180                                    34. Fee and commission expense.206
1.5. Detail of agents.127                                                           2.22. Consolidated statements of cash flows.153
1.6. Investments in the share capital                                                                                                                                      15. Hedging derivatives.181                                             35. Gains/losses on financial assets and
      of credit institutions.127                                                    3. Risk management.153                                                                                                                                             liabilities (net).206
1.7. Environmental impact.127                                                       3.1. Exposure to credit risk and concentration                                         16. Non-current assets held for sale.182
1.8. Minimum reserve ratio.127                                                           of risk.154                                                                                                                                               36. Exchange differences (net).206
1.9. Deposit Guarantee Fund.127                                                     3.2. Liquidity risk of financial instruments.159                                       17. Investments.184
1.10. Events after the reporting period.127                                         3.3. Exposure to interest rate risk.162                                                                                                                        37. Sales and income from the provision of non-financial
1.11. Customer Care Service.128                                                     3.4. Exposure to other market risks.164                                                18. Tangible assets.188                                                     services and Changes in inventories.206
1.12. Disclosures required pursuant to the Mortgage
      Market Law.129                                                                4.      Capital management.165                                                         19. Intangible assets.190                                               38. Other operating income - Other.207

2.    Accounting policies and                                                       5.      Earnings per share.167                                                         20. Other assets.191                                                    39. Other operating expenses - Other.207
      measurement bases.130
2.1. Business combinations and consolidation.130                                    6.      Allocation of the Caja’s profit.168                                            21. Financial liabilities at amortised cost.191                         40. Staff costs.207
2.2. Financial instruments.132
2.3. Hedge accounting and mitigation of risk.138                                    7. Segment reporting.168                                                               22. Provisions.195                                                      41. Other general administrative expenses.208
2.4. Foreign currency transactions.139                                              7.1. Basis of segmentation.168
2.5. Recognition of income and expenses.141                                         7.2. Basis and methodology for business segment                                        23. Other liabilities.196                                               42. Impairment losses on other assets (net).208
2.6. Offsetting.141                                                                      reporting.168
2.7. Transfers of financial assets.141                                              7.3. Segment reporting.169                                                             24. Non-controlling interests.197                                       43. Gains/(losses) on disposal of assets not classified as
2.8. Impairment of financial assets.142                                                                                                                                                                                                                non-current assets held for sale.209
2.9. Financial guarantees and provisions for financial                              8.   Remuneration of directors and senior                                              25. Valuation adjustments.198
      guarantees.144                                                                     executives of the Caja.171                                                                                                                                44. Gains/(losses) on non-current assets held for
2.10. Accounting for leases.144                                                     8.1. Remuneration of directors.171                                                     26. Reserves.198                                                            sale not classified as discontinued operations.209
2.11. Investment funds, pension funds, assets under                                 8.2. Remuneration of senior executives.172
      management and savings insurance policies                                     8.3. Post-employment benefits for former members of                                    27. Tax matters.199                                                     45. Related parties.210
      marketed and/or managed by the Group.145                                           the Board of Directors and senior executives of the
2.12. Staff costs.145                                                                    Caja.172                                                                          28. Other significant disclosures.203                                   46. Welfare Projects.211
2.13. Income tax.147
2.14. Tangible assets.148                                                           9.      Cash and balances with central banks.172                                       29. Interest and similar income.205                                     47. Explanation added for translation to English.212
2.15. Intangible assets.149
                                                                                    10. Financial assets and liabilities held for trading.172                              30. Interest expense and similar charges.205                            Appendices.213,214,215


Annual Report 2009 C                       10/ Legal documentation                                                                                                                                                                                                                                              120
                                                                                                                                                                                                                                                                                  www.cajamadrid.com


10/
Legal documentation
Translation of consolidated financial statements originally issued in Spanish and prepared in accordance with IFRSs as adopted by the European Union (see Notes 1 and 47). In the event of a discrepancy, the Spanish-language version prevails.




Notes to the consolidated financial statements
for the year ended 31 December 2009
                                                                                                                                                                  were approved by the Caja’s Extraordinary General Assembly on 20 July 2009 and authorised by an Order dated 23 July
1. Group description, basis of presentation of the consolidated financial statements and                                                                          2009 from the Department of Finance of the Madrid Autonomous Community Government authorising the amendment
other information                                                                                                                                                 of the bylaws and the electoral regulations of Caja de Ahorros y Monte de Piedad de Madrid.

1.1. Group description                                                                                                                                            On 29 December 2009, Tax and Administrative Measures Law 10/2009, of 23 December, amending Law 4/2003, of 11
Caja de Ahorros y Monte de Piedad de Madrid ("the Caja"), a community welfare institution founded in 1702 as a                                                    March, was published in the Official Gazette of the Madrid Autonomous Community. The changes to the bylaws to adapt
pawnshop by the priest Francisco Piquer y Rudilla, was granted royal sponsorship by King Philip V on 10 June 1718.                                                them to the new law were approved at the Extraordinary General Assembly of the Caja held on 24 February 2010.
Its operations as a savings bank commenced in 1838 pursuant to a Royal Decree dated 25 October 1838, issued by
Queen María Cristina at the proposal of the Marquis de Pontejos, the then Madrid City Administrator.                                                              The Caja is subject to the supervision of the Bank of Spain, in whose Savings Banks Register it is registered under
                                                                                                                                                                  number 99, with Bank of Spain Code number 2038. The Caja is a member of the Spanish Confederation of Savings Banks
Pursuant to the 24 May 1869 Merger Decree, the two activities were merged in a single institution with the primary                                                and participates in the Savings Banks Deposit Guarantee Fund regulated by Royal Decree-Law 18/1982, of 24
objectives of promoting savings, investing and administering the funds entrusted to it and carrying out welfare                                                   September. It is also registered at the Madrid Mercantile Registry on Sheet no. 20, Volume 3067 General, Page
projects.                                                                                                                                                         M-52454, Entry 1.

Since the merger the Caja has retained its royal sponsorship and has been governed by bylaws adopted pursuant to                                                  The Caja Madrid Group ("the Group") comprises 45 subsidiaries (see Appendix I) which supplement the activities of the
the successive legislation regulating savings banks, most notably the General Popular Savings Bank Statute enacted                                                Caja, inter alia, in the areas of corporate promotion and participation, investment management, finance and services.
by the decree of 14 March 1933, and the basic reforms introduced by Royal Decree 2290/1977, of 27 August, which
was the direct precursor, with respect to the organisation of savings banks, of Law 31/1985, of 2 August, the current                                             The Caja’s individual balance sheets, income statements, statements of recognised income and expense, statements
Basic Regulation for Savings Banks’ Governing Bodies. Subsequently, Law 31/1985 was amended by Law 44/2002, of                                                    of changes in total equity and statements of cash flows for the years ended 31 December 2009 and 2008, prepared
22 November, on Financial System Reform Measures and by Law 26/2003, of 17 July, amending Securities Market Law                                                   in accordance with Bank of Spain Circular 4/2004, of 22 December, as amended by Bank of Spain Circular 6/2008, of
24/1988, of 28 July, and the Consolidated Spanish Public Limited Liability Companies Law, as enacted by Legislative Royal                                         26 November, are shown on the following pages.
Decree 1564/1989, of 22 December, to enhance the transparency of publicly listed companies, also amended by Law
62/2003, of 30 December, on Tax, Administrative, Labour and Social Security Measures. The Caja is also governed by
the current Madrid Autonomous Community Savings Bank Law 4/2003, of 11 March, as amended by Law 3/2007, of
26 July, on Urgent Modernisation Measures of the Government and Administration of the Autonomous Community of
Madrid, by Madrid Autonomous Community Savings Bank Law 2/2009, of 23 June, and by its bylaws, which are adapted
to Madrid Autonomous Community Savings Bank Law 4/2003, of 11 March, to Law 3/2007, of 26 July, on Urgent
Modernisation Measures of the Government and Administration of the Autonomous Community of Madrid and to Law
2/2009, of 23 June, amending Madrid Autonomous Community Savings Bank Law 4/2003, of 11 March. These bylaws


Annual Report 2009 C                       10/ Legal documentation                                                                                                                                                                                                                            121
                                                                                                                                                                                                                                                           www.cajamadrid.com


10/
Legal documentation
Caja de Ahorros y Monte de Piedad de Madrid
Balance sheets at 31 December 2009 and 2008, before the allocation of profit
                                                                                                            (thousands of euros)                                                                                                           (thousands of euros)

  Assets                                                                                           2009                  2008      Liabilities and equity                                                                       2009                    2008
                                                                                                                                   Liabilities
  1.    Cash and balances with central banks                                                    1,883,363            2,374,503     1. Financial liabilities held for trading                                                 10,517,838              8,564,401
                                                                                                                                           1.1.   Deposits from central banks                                                         -                      -
  2.    Financial assets held for trading                                                      12,087,154           10,057,066             1.2.   Deposits from credit institutions                                                   -                      -
        2.1.      Loans and advances to credit institutions                                             -                    -             1.3.   Customer deposits                                                                   -                      -
        2.2.      Loans and advances to customers                                                  39,359               70,122             1.4.   Marketable debt securities                                                          -                      -
        2.3.      Debt instruments                                                                460,249              582,906             1.5.   Trading derivatives                                                        10,165,830              8,396,184
        2.4.      Equity instruments                                                               43,014               38,407             1.6.   Short positions                                                               352,008                168,217
        2.5.      Trading derivatives                                                          11,544,532            9,365,631             1.7.   Other financial liabilities                                                          -                      -
        Memorandum item: Loaned or advanced as collateral                                         352,304              491,573     2. Other financial liabilities at fair value through profit or loss                                  -                      -
                                                                                                                                           2.1.   Deposits from central banks                                                         -                      -
  3.    Other financial assets at fair value through profit or loss                                 83,109                83,976             2.2.   Deposits from credit institutions                                                   -                      -
        3.1.     Loans and advances to credit institutions                                             -                     -             2.3.   Customer deposits                                                                   -                      -
        3.2.     Loans and advances to customers                                                       -                     -             2.4.   Marketable debt securities                                                          -                      -
        3.3.     Debt instruments                                                                 83,109                83,976             2.5.   Subordinated liabilities                                                            -                      -
        3.4.     Equity instruments                                                                    -                     -             2.6.   Other financial liabilities                                                          -                      -
        Memorandum item: Loaned or advanced as collateral                                              -                     -     3. Financial liabilities at amortised cost                                               166,271,857            157,370,016
                                                                                                                                           3.1.   Deposits from central banks                                                 3,900,872              4,974,404
  4.    Available-for-sale financial assets                                                     23,699,490          18,382,789              3.2.   Deposits from credit institutions                                          17,154,130             15,915,338
        4.1.      Debt instruments                                                             22,749,208          17,907,725              3.3.   Customer deposits                                                          89,973,262             84,715,483
        4.2.      Equity instruments                                                              950,282             475,064              3.4.   Marketable debt securities                                                 48,553,408             47,118,658
        Memorandum item: Loaned or advanced as collateral                                      11,428,412          11,505,964              3.5.   Subordinated liabilities                                                    6,077,213              4,144,290
                                                                                                                                           3.6.   Other financial liabilities                                                    612,972                501,843
  5.    Loans and receivables                                                                 130,008,499         128,827,136      4. Changes in the fair value of hedged items in portfolio hedges of interest rate risk             -                      -
        5.1.     Loans and advances to credit institutions                                     10,752,003          10,123,010      5. Hedging derivatives                                                                       831,117                634,647
        5.2.     Loans and advances to customers                                              119,215,420         118,644,622      6. Liabilities associated with non-current assets held for sale                                    -                      -
        5.3.     Debt instruments                                                                  41,076              59,504      8. Provisions                                                                                656,988                712,714
        Memorandum item: Loaned or advanced as collateral                                      81,617,003          76,297,959              8.1.   Provisions for pensions and similar obligations                               160,838                176,092
  6.    Held-to-maturity investments                                                            9,629,802            7,686,957             8.2.   Provisions for taxes and other legal contingencies                             54,471                 56,122
                                                                                                                                           8.3.   Provisions for contingent liabilities and commitments                         143,995                171,892
        Memorandum item: Loaned or advanced as collateral                                       7,860,080            6,069,909             8.4.   Other provisions                                                              297,684                308,608
  7.    Changes in the fair value of hedged items in portfolio hedges of interest rate risk             -                     -    9. Tax liabilities                                                                           536,248                494,489
                                                                                                                                           9.1.   Current                                                                         4,852                      -
  8.    Hedging derivatives                                                                     2,906,912            2,586,629             9.2.   Deferred                                                                      531,396                494,489
                                                                                                                                   10. Welfare fund                                                                             226,644                237,843
  9.    Non-current assets held for sale                                                          886,983              243,339     11. Other liabilities                                                                        745,732                632,503
  10. Investments                                                                               3,942,221            3,963,274     12. Equity refundable on demand                                                                    -                      -
      10.1. Associates                                                                            648,141              632,917     Total liabilities                                                                        179,786,424            168,646,613
      10.2. Jointly controlled entities                                                            10,403                2,831
      10.3. Subsidiaries                                                                        3,283,677            3,327,526     Equity
                                                                                                                                   1. Own funds                                                                               9,722,325              9,550,089
  11. Insurance contracts linked to pensions                                                      143,798               68,657             1.1.      Share capital or endowment fund                                                 27                     27
                                                                                                                                                     1.1.1.        Registered                                                        27                     27
  12. Tangible assets                                                                           2,969,177            2,041,355                       1.1.2.        Less: Uncalled capital                                             -                      -
      12.1. Property, plant and equipment                                                       1,534,940            1,522,512             1.2.      Share premium                                                                    -                      -
               12.1.1.   For own use                                                            1,414,217            1,395,158             1.3.      Reserves                                                                 9,362,590              8,651,660
               12.1.2.   Leased out under an operating lease                                            -                    -             1.4.      Other equity instruments                                                         -                      -
               12.1.3.   Assigned to welfare projects                                             120,723              127,354                       1.4.1.        Equity component of compound financial instruments                  -                      -
      12.2. Investment property                                                                 1,434,237              518,843                       1.4.2.        Non-voting equity units and associated funds                       -                      -
      Memorandum item: Acquired under a finance lease                                                    -                    -                       1.4.3.        Other                                                              -                      -
                                                                                                                                           1.5.      Less: Treasury shares                                                            -                      -
  13. Intangible assets                                                                           92,141                77,588             1.6.      Profit for the year                                                         359,708                898,402
         13.1. Goodwill                                                                                -                     -             1.7.      Less: Dividends and remuneration                                                 -                      -
         13.2. Other intangible assets                                                            92,141                77,588     2. Valuation adjustments                                                                       6,655               (127,709)
                                                                                                                                           2.1.      Available-for-sale financial assets                                           7,046               (127,695)
  14. Tax assets                                                                                1,120,071            1,325,375             2.2.      Cash flow hedges                                                                490                    569
      14.1. Current                                                                               238,484              396,762             2.3.      Hedges of net investments in foreign operations                                  -                      -
                                                                                                                                           2.4.      Exchange differences                                                          (881)                  (583)
      14.2. Deferred                                                                              881,587              928,613             2.5.      Non-current assets held for sale                                                 -                      -
                                                                                                                                           2.6.      Other valuation adjustments                                                      -                      -
  15. Other assets                                                                                 62,684              350,349
                                                                                                                                   Total equity                                                                               9,728,980              9,422,380
  Total assets                                                                                189,515,404         178,068,993      Total liabilities and equity                                                             189,515,404           178,068,993
                                                                                                                                   Memorandum items                                                                          47,181,791             48,319,247
                                                                                                                                   1. Contingent liabilities                                                                 13,420,570             12,365,792
                                                                                                                                   2. Contingent commitments                                                                 33,761,221             35,953,455




Annual Report 2009 C                                 10/ Legal documentation                                                                                                                                                                                           122
                                                                                                                                                                                                                                                                    www.cajamadrid.com


10/
Legal documentation
Caja de Ahorros y Monte de Piedad de Madrid                                                                                              Caja de Ahorros y Monte de Piedad de Madrid
Income statements for the years ended 31 December 2009 and 2008                                                                          Statements of changes in equity:
                                                                                                                                         I. Statements of recognised income and expense for the years ended 31 December 2009 and 2008
                                                                                                                  (thousands of euros)                                                                                                              (thousands of euros)

                                                                                                        2009                   2008                                                                                                      2009                  2008
  1.   Interest and similar income                                                                   5,562,885           8,000,570
  2.   Interest expense and similar charges                                                         (3,177,389)         (5,784,856)       A. Profit for the year                                                                         359,708             898,402
  3.   Return on equity refundable on demand                                                                 -                   -
                                                                                                                                          B. Other recognised income and expense                                                        134,364            (812,647)
  A. Net interest income                                                                             2,385,496           2,215,714        1. Available-for-sale financial assets                                                         192,486          (1,163,879)
  4.  Income from equity instruments                                                                   41,512              397,443           1.1. Revaluation gains (losses)                                                            469,224            (810,909)
  6.  Fee and commission income                                                                       809,853              836,663           1.2. Amounts transferred to income statement                                               276,738             352,970
                                                                                                                                             1.3. Other reclassifications                                                                      -                   -
  7.  Fee and commission expense                                                                     (109,371)            (103,739)
  8.  Gains/losses on financial assets and liabilities (net)                                           672,742              342,049        2. Cash flow hedges                                                                              (111)               3,787
      8.1. Held for trading                                                                           160,004              (46,787)          2.1. Revaluation gains (losses)                                                              (111)             125,668
      8.2. Other financial instruments at fair value through profit or loss                               3,465              (13,176)          2.2. Amounts transferred to income statement                                                    -                    -
      8.3. Financial instruments not measured at fair value through profit or loss                     472,628              438,654           2.3. Amounts transferred to initial carrying amount of hedged items                             -              121,881
      8.4. Other                                                                                       36,645              (36,642)          2.4. Other reclassifications                                                                     -                    -
  9. Exchange differences (net)                                                                        17,314               18,097
  10. Other operating income                                                                           36,586               35,069        3. Hedges of net investments in foreign operations                                                    -                     -
                                                                                                                                             3.1. Revaluation gains (losses)                                                                    -                     -
  11. Other operating expenses                                                                        (59,495)             (50,932)
                                                                                                                                             3.2. Amounts transferred to income statement                                                       -                     -
  B.   Gross income                                                                                  3,794,637           3,690,364           3.3. Other reclassifications                                                                        -                     -
  12. Administrative expenses                                                                       (1,453,235)         (1,653,543)       4. Exchange differences                                                                          (427)                (832)
      12.1. Staff costs                                                                             (1,071,831)         (1,278,378)          4.1. Revaluation gains (losses)                                                               (427)                (832)
      12.2. Other general administrative expenses                                                     (381,404)           (375,165)          4.2. Amounts transferred to income statement                                                     -                    -
  13. Depreciation and amortisation charge                                                            (205,552)           (162,953)          4.3. Other reclassifications                                                                      -                    -
  14. Provisions (net)                                                                                  37,981              90,643        5. Non-current assets held for sale                                                                   -                     -
  15. Impairment losses (net)                                                                       (1,407,442)           (851,428)          5.1. Revaluation gains (losses)                                                                    -                     -
      15.1. Loans and receivables                                                                   (1,262,410)           (845,780)          5.2. Amounts transferred to income statement                                                       -                     -
      15.2. Other financial instruments not measured at fair value through profit or loss               (145,032)             (5,648)          5.3. Other reclassifications                                                                        -                     -
  C.   Profit from operations                                                                          766,389            1,113,083        6. Actuarial gains/(losses) on pension plans                                                          -                     -
  16. Impairment losses on other assets (net)                                                        (254,214)              (61,204)      8. Other recognised income and expense                                                                -                     -
      16.1. Goodwill and other intangible assets                                                             -                    -
      16.2. Other assets                                                                             (254,214)              (61,204)      9. Income tax                                                                                 (57,584)            348,277
  17. Gains (losses) on disposal of assets not classified as non-current assets held for sale          (12,379)                  242
  18. Negative goodwill on business combinations                                                             -                    -       C. Total recognised income and expense (A+B)                                                  494,072               85,755
  19. Gains/(losses) on non-current assets held for sale not classified as discontinued operations      (21,437)             (15,608)
  D.   Profit before tax                                                                               478,359            1,036,513
  20. Income tax                                                                                     (118,651)            (138,111)
  21. Mandatory transfer to welfare fund                                                                    -                    -

  E.   Profit for the year from continuing operations                                                  359,708              898,402
  22. Profit/Loss from discontinued operations (net)                                                          -                      -

  F.   Profit for the year                                                                             359,708              898,402




Annual Report 2009 C                         10/ Legal documentation                                                                                                                                                                                                            123
                                                                                                                                                                                                                                            www.cajamadrid.com


10/
Legal documentation
Caja de Ahorros y Monte de Piedad de Madrid
Statements of changes in equity:
II. Statements of changes in total equity for the years ended 31 December 2009 and 2008
                                                                                                                                                                                                                             (thousands of euros)
                                                                                                                             Own funds
                                                                               Endowment fund   Share premium    Reserves   Other equity             Less:         Profit      Less: Dividends        Total      Valuation                Total
                                                                                                                            instruments    Treasury shares   for the year    and remuneration    own funds    adjustments                equity

 1. Ending balance at 31/12/2008                                                          27                -   8,651,660              -                 -      898,402                      -   9,550,089     (127,709)             9,422,380
 1.1. Adjustments due to changes in accounting policies                                    -                -           -              -                 -            -                      -           -             -                     -
 1.2. Adjustments due to errors                                                            -                -           -              -                 -            -                      -           -             -                     -
 2. Adjusted beginning balance                                                            27                -   8,651,660              -                 -      898,402                      -   9,550,089     (127,709)             9,422,380
 3. Total recognised income and expense                                                    -                -           -              -                 -      359,708                      -     359,708       134,364               494,072
 4. Other changes in equity                                                                -                -     710,930              -                 -    (898,402)                      -   (187,472)             -             (187,472)
 4.1. Capital increases/Increases in endowment fund                                        -                -           -              -                 -            -                      -           -             -                     -
 4.2. Capital reductions                                                                   -                -           -              -                 -            -                      -           -             -                     -
 4.3. Conversion of financial liabilities into equity                                      -                -           -              -                 -            -                      -           -             -                     -
 4.4. Increases in other equity instruments                                                -                -           -              -                 -            -                      -           -             -                     -
 4.5. Reclassification of financial liabilities to other equity instruments                -                -           -              -                 -            -                      -           -             -                     -
 4.6. Reclassification of other equity instruments to financial liabilities                -                -           -              -                 -            -                      -           -             -                     -
 4.7. Distribution of dividends/Remuneration of members                                    -                -           -              -                 -            -                      -           -             -                     -
 4.8. Transactions involving own equity instruments (net)                                  -                -           -              -                 -            -                      -           -             -                     -
 4.9. Transfers between equity items                                                       -                -     710,930              -                 -    (710,930)                      -           -             -                     -
 4.10. Increases (decreases) due to business combinations                                  -                -           -              -                 -            -                      -           -             -                     -
 4.11. Discretionary transfer to welfare fund                                              -                -           -              -                 -      187,472                      -     187,472             -               187,472
 4.12. Equity-instrument-based payments                                                    -                -           -              -                 -            -                      -           -             -                     -
 4.13. Other increases/(decreases) in equity                                               -                -           -              -                 -            -                      -           -             -                     -
 5. Ending balance at 31/12/2009                                                          27                -   9,362,590              -                 -      359,708                      -   9,722,325         6,655             9,728,980


                                                                                                                                                                                                                             (thousands of euros)
                                                                                                                              Own funds
                                                                               Endowment fund   Share premium    Reserves   Other equity             Less:          Profit     Less: Dividends        Total      Valuation                 Total
                                                                                                                            instruments    Treasury shares    for the year   and remuneration    own funds    adjustments                 equity

  1. Ending balance at 31/12/2007                                                          27               -   6,229,638              -                 -     2,674,594                     -   8,904,259        684,938            9,589,197
  1.1. Adjustments due to changes in accounting policies                                    -               -           -              -                 -             -                     -           -              -                    -
  1.2. Adjustments due to errors                                                            -               -           -              -                 -             -                     -           -              -                    -
  2. Adjusted beginning balance                                                            27               -   6,229,638              -                 -     2,674,594                     -   8,904,259        684,938            9,589,197
  3. Total recognised income and expense                                                    -               -           -              -                 -       898,402                     -     898,402      (812,647)               85,755
  4. Other changes in equity                                                                -               -   2,422,022              -                 -   (2,674,594)                     -   (252,572)              -            (252,572)
  4.1. Capital increases/Increases in endowment fund                                        -               -           -              -                 -             -                     -           -              -                    -
  4.2. Capital reductions                                                                   -               -           -              -                 -             -                     -           -              -                    -
  4.3. Conversion of financial liabilities into equity                                      -               -           -              -                 -             -                     -           -              -                    -
  4.4. Increases in other equity instruments                                                -               -           -              -                 -             -                     -           -              -                    -
  4.5. Reclassification of financial liabilities to other equity instruments                -               -           -              -                 -             -                     -           -              -                    -
  4.6. Reclassification of other equity instruments to financial liabilities                -               -           -              -                 -             -                     -           -              -                    -
  4.7. Distribution of dividends/Remuneration of members                                    -               -           -              -                 -             -                     -           -              -                    -
  4.8. Transactions involving own equity instruments (net)                                  -               -           -              -                 -             -                     -           -              -                    -
  4.9. Transfers between equity items                                                       -               -   2,422,022              -                 -   (2,422,022)                     -           -              -                    -
  4.10. Increases (decreases) due to business combinations                                  -               -           -              -                 -             -                     -           -              -                    -
  4.11. Discretionary transfer to welfare fund                                              -               -           -              -                 -       252,572                     -     252,572              -              252,572
  4.12. Equity-instrument-based payments                                                    -               -           -              -                 -             -                     -           -              -                    -
  4.13. Other increases/(decreases) in equity                                               -               -           -              -                 -             -                     -           -              -                    -
  5. Ending balance at 31/12/2008                                                          27               -   8,651,660              -                 -       898,402                     -   9,550,089      (127,709)            9,422,380


Annual Report 2009 C                         10/ Legal documentation                                                                                                                                                                                    124
                                                                                                                                                                                                                                          www.cajamadrid.com


10/
Legal documentation
Caja de Ahorros y Monte de Piedad de Madrid
Statements of cash flows for the years ended 31 December 2009 and 2008
                                                                                                 (thousands of euros)   1.2. Basis of presentation of the consolidated financial statements
                                                                                     2009                   2008        The Group’s consolidated financial statements for 2008 were approved at the Annual General Assembly of the Caja on
                                                                                                                        22 June 2009. The 2009 consolidated financial statements, which were authorised for issue by the Board of Directors
  A.    Cash flows from operating activities                                           174,488            2,184,260
  1.    Profit for the year                                                            359,708              898,402
                                                                                                                        on 22 March 2010, are expected to be approved at the Annual General Assembly without any changes.
  2.    Adjustments made to obtain the cash flows from operating activities          1,491,752            1,120,322
        2.1.      Depreciation and amortisation charge                                205,552              162,953
        2.2.      Other adjustments                                                 1,286,200              957,369      The consolidated financial statements were prepared in accordance with the International Financial Reporting Standards
  3.    Net increase/(decrease) in operating assets                                10,981,175           21,531,348
        3.1.
        3.2.
                  Financial assets held for trading
                  Other financial assets at fair value through profit or loss
                                                                                    2,030,088
                                                                                         (867)
                                                                                                         3,590,252
                                                                                                           (18,421)
                                                                                                                        adopted by the European Union and in force at 31 December 2009 (“EU-IFRSs”), and with Bank of Spain Circular 4/2004,
        3.3.
        3.4.
                  Available-for-sale financial assets
                  Loans and receivables
                                                                                    4,994,672
                                                                                    4,124,643
                                                                                                         5,587,022
                                                                                                        10,145,881
                                                                                                                        of 22 December, which implements and adapts EU-IFRSs for Spanish credit institutions.
        3.5.      Other operating assets                                             (167,361)           2,226,614
  4.    Net increase/(decrease) in operating liabilities                            9,434,713           21,743,983
        4.1.
        4.2.
                  Financial liabilities held for trading
                  Other financial liabilities at fair value through profit or loss
                                                                                    1,953,437
                                                                                            -
                                                                                                         4,205,923
                                                                                                                 -
                                                                                                                        The consolidated financial statements were prepared taking into account all the mandatory accounting principles and
        4.3.      Financial liabilities at amortised cost                           7,179,924           17,452,352
        4.4.      Other operating liabilities                                         301,352               85,708      policies and measurement bases with a material effect on the consolidated financial statements, so that they present
  5.    Income tax recovered/(paid)                                                  (130,510)             (47,099)     fairly the Group’s consolidated equity and financial position at 31 December 2009, and the results of its operations,
  B.    Cash flows from investing activities                                        (2,410,702)           (3,506,738)    the changes in consolidated equity and the consolidated cash flows in the year then ended.
  6.    Payments                                                                    2,539,301             3,506,738
        6.1.     Tangible assets                                                      494,276               789,420
        6.2.     Intangible assets                                                     64,858                55,320
        6.3.
        6.4.
                 Investments
                 Other business units
                                                                                       39,485
                                                                                            -
                                                                                                          1,916,670
                                                                                                                  -
                                                                                                                        The main standards or amendments to IFRSs adopted by the EU that came into force and became mandatory in the year
        6.5.
        6.6.
                 Non-current assets held for sale and associated liabilities
                 Held-to-maturity investments
                                                                                            -
                                                                                    1,940,682
                                                                                                            229,910
                                                                                                            515,418
                                                                                                                        ended 31 December 2009, the effects of which, if any, were included in these consolidated financial statements, were
        6.7.     Other payments related to investing activities                             -                     -
                                                                                                                        as follows:
  7.    Proceeds                                                                      128,599                     -
        7.1.     Tangible assets                                                       36,231                     -
        7.2.     Intangible assets                                                          -                     -
        7.3.
        7.4.
                 Investments
                 Other business units
                                                                                            -
                                                                                            -
                                                                                                                  -
                                                                                                                  -     •   IFRS 8, “Operating segments”: this standard, which replaces IAS 14, “Segment reporting”, requires segment
        7.5.     Non-current assets held for sale and associated liabilities           92,368                     -
        7.6.     Held-to-maturity investments                                               -                     -         information to be reported on the same basis as that used internally by management of the Group.
        7.7.     Other proceeds related to investing activities                             -                     -
  C.    Cash flows from financing activities                                         1,745,074               (269,369)
  8.    Payments                                                                     187,849                271,437     •   Revision of IAS 1, “Presentation of financial statements”: this revision introduced changes in relation to the
        8.1.     Dividends                                                           187,472                252,572
        8.2.     Subordinated liabilities                                                  -                 18,865         presentation and disclosures of the financial statements, mainly in the “statement of changes in equity”, which
        8.3.     Redemption of own equity instruments                                      -                      -
        8.4.     Acquisition of own equity instruments                                     -                      -         now includes changes in equity arising from transactions with owners, and to the inclusion of new reporting
        8.5.     Other payments related to financing activities                           377                      -
  9.    Proceeds                                                                   1,932,923                  2,068         requirements in the event of retrospective accounting changes.
        9.1.     Subordinated liabilities                                          1,932,923                      -
        9.2.     Issuance of own equity instruments                                        -                      -
        9.3.     Disposal of own equity instruments                                        -                      -
        9.4.     Other proceeds related to financing activities                             -                  2,068         The revised standard also introduced changes in the names of certain financial statements (the “Balance sheet”
  D.    Effect of foreign exchange rate changes                                             -                      -        becomes the “Statement of financial position” and the “Income statement” is split into a “Separate income
  E.    Net increase/(decrease) in cash and cash equivalents (A+B+C+D)              (491,140)            (1,591,847)        statement” and a “Statement of comprehensive income”), although the Group opted to retain in these consolidated
  F.    Cash and cash equivalents at beginning of year                              2,374,503             3,966,350         financial statements the conventions currently defined by the Bank of Spain in order to simplify the information and
  G. Cash and cash equivalents at end of year                                       1,883,363             2,374,503
                                                                                                                            make it easier to compare.
  Memorandum items
  Components of cash and cash equivalents at end of year
       1.1.     Cash                                                                 621,841                637,907
       1.2.     Cash equivalents at central banks                                  1,261,522              1,736,596
       1.3.     Other financial assets                                                      -                      -
       1.4.     Less: Bank overdrafts refundable on demand                                 -                      -
  Total cash and cash equivalents at end of year                                    1,883,363             2,374,503




Annual Report 2009 C                                  10/ Legal documentation                                                                                                                                                                         125
                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



•   Revision of IAS 23, “Borrowing costs”: the option of immediate recognition as an expense of borrowing costs             The consolidated financial statements were prepared from the accounting records kept by the Caja and by the other
    associated with assets that take a substantial period of time to get ready for their intended use is eliminated and,    Group entities. However, since the accounting policies and measurement bases used in preparing the Group’s
    therefore, these costs must be capitalised.                                                                             consolidated financial statements for 2009 may differ from those used by certain Group entities, the required
                                                                                                                            adjustments and reclassifications were made on consolidation to unify such policies and bases and to make them
•   Amendments to IAS 32, “Financial instruments: disclosure and presentation”, and IAS 1, “Presentation of financial       compliant with the EU-IFRSs used by the Caja.
    statements” permit certain financial instruments that meet certain criteria, including that of being redeemable,
    being subordinate to all other classes of instruments, and evidencing a residual interest in the net assets of the
    entity, to be classified as equity.                                                                                     1.3. Use of estimates
                                                                                                                            In the Group’s consolidated financial statements for 2009 estimates were occasionally used in order to quantify certain
•   Amendments to IFRS 1, “First-time Adoption of International Financial Reporting Standards”, and IAS 27, “Consolidated   of the assets, liabilities, income, expenses and obligations reported herein. These estimates relate basically to the
    and Separate Financial Statements”: refer to accounting for investments in subsidiaries, jointly controlled entities    following:
    and associates in the individual financial statements at cost or in accordance with IAS 39.
                                                                                                                            •   The fair value of certain unquoted assets (see Note 2.2).
•   Amendments to IFRS 2, “Share-based payment”: clarified the concepts of vesting conditions and cancellations in
    share-based payments.                                                                                                   •   The impairment losses on certain assets (see Note 2.8).

•   Amendments to IAS 39 and IFRS 7, “Reclassification of financial assets - Effective date and transitional period”,       •   The assumptions used in the actuarial calculation of the post-employment benefit liabilities and obligations and
    which only clarified the effective date of entry into force and the transitional measures regarding the amendments          other long-term commitments (see Note 2.12).
    to the previously mentioned standards published in 2008.
                                                                                                                            •   The useful life and fair value of the tangible and intangible assets (see Notes 2.14 and 2.15).
•   Amendments to IFRS 4, “Insurance contracts”, and IFRS 7, “Financial instruments: Disclosures”, in relation to
    disclosure requirements about fair value measurements and liquidity risk associated with financial instruments.         •   The measurement of goodwill arising on consolidation (see Note 2.15).

The amendments to IFRSs which were not in force at 31 December 2009 but for which early adoption was permitted              Although these estimates were made on the basis of the best information available at 31 December 2009 on the events
were not applied by the Group. However, their effect is not expected to be material.                                        analysed, future events might make it necessary to change these estimates (upwards or downwards) in coming years.
                                                                                                                            Changes in accounting estimates would be applied prospectively in accordance with the applicable standards, recognising
The principal accounting principles and policies and measurement bases applied in preparing the Group’s consolidated        the effects of the change in estimates in the related consolidated income statement.
financial statements for 2009 are summarised in Note 2.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                126
                                                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



1.4. Comparative information relating to 2008                                                                                    1.8. Minimum reserve ratio
As required by the current regulations, the information relating to 2008 contained in these notes to the consolidated            Monetary Circular 1/1998, of 29 September, which came into force on 1 January 1999, repealed the ten-year cash
financial statements is presented with the information relating to 2009 for comparison purposes only and, accordingly,           ratio and replaced it with the minimum reserve ratio.
it does not constitute the Group’s statutory consolidated financial statements for 2008.
                                                                                                                                 At 31 December 2009 and 2008, and throughout 2009 and 2008, the consolidated credit institutions exceeded the
                                                                                                                                 minimum reserve ratio required by the applicable Spanish legislation.
1.5. Detail of agents
A detail at 31 December 2009 of the Caja’s agents which meet the conditions established in Article 22 of Royal Decree
1245/1995, of 14 July, is provided below:                                                                                        1.9. Deposit Guarantee Fund
                                                                                                                                 Pursuant to a Ministry of Economy and Finance Order dated 14 February 2002, establishing the contributions to be
                                                                                                                                 made by savings banks to the Deposit Guarantee Fund, and at the proposal of the Bank of Spain, the amount of the
  Name                                                          Registered office
                                                                                                                                 contributions by the Caja was set at 0.4 per mille of the deposits covered by the guarantee, which represented a total
  Banco de Servicios Financieros Caja Madrid-Mapfre, S.A.       Ctra. Pozuelo a Majadahonda, 52 - 28220 - Majadahonda (Madrid)
                                                                                                                                 contribution of EUR 22,603 thousand in 2009 (2008: EUR 18,837 thousand). Also, the other Group entities affected
  Mecanización y Gestión, S.L                                   C/ Méndez Nuñez, 5 - 13250 - Daimiel (Ciudad Real)
                                                                                                                                 by similar regulations contributed EUR 949 thousand in 2009 (2008: EUR 460 thousand). All these contributions are
  Seguros Ramos Reinaldos, S.L.                                 C/ Generalísimo, 2 - 45211 - Recas (Toledo)
                                                                                                                                 recognised under “Other operating expenses - Other” in the consolidated income statement in accordance with current
  Mapfre Familiar, Compañía de Seguros y Reaseguros S.A.        Ctra. Pozuelo a Majadahonda, 52 - 28220 - Majadahonda (Madrid)
                                                                                                                                 regulations (see Note 39).

                                                                                                                                 The contributions to be made by savings banks to the aforementioned Deposit Guarantee Fund from 31 December
1.6. Investments in the share capital of credit institutions                                                                     2009, the date on which Ministry of Economy and Finance Order EHA/3515/2009, of 29 December, came into force, are
The Group’s ownership interests of 5% or more in the share capital or voting power of other Spanish or foreign credit            now 1 per mille of the calculation base referred to in the preceding paragraph.
institutions at 31 December 2009 are listed in Appendices I, II and III.

At 31 December 2009, the only ownership interest of more than 5% held by other Spanish or foreign credit institutions            1.10. Events after the reporting period
in the share capital or voting power of credit institutions forming part of the Group was that held by Banco Popular de          As a result of the partial renewal of the Caja’s Governing Bodies, at an Extraordinary General Assembly meeting on
Ahorro de Cuba (see Note 24).                                                                                                    28 January 2010, thirteen members of the Board of Directors and eight members of the Control Committee
                                                                                                                                 representing the Local Authorities, the Madrid Autonomous Community Assembly and entities representing
                                                                                                                                 collective interests were elected or re-elected. Also, on the same date, the Board of Directors resolved to appoint
1.7. Environmental impact                                                                                                        Rodrigo de Rato Figaredo as Executive Chairman of the Board as ratified at the Extraordinary General Assembly
In view of the business activities carried on by the Group (see Note 1.1), it does not have any environmental liabilities,       held on 24 February 2010.
expenses, assets, provisions or contingencies that might be material with respect to the Group’s consolidated equity,
financial position and results. Therefore, no specific disclosures relating to environmental issues are included in these          In the period from 1 January 2010 to the date on which these consolidated financial statements were authorised for
notes to the consolidated financial statements.                                                                                   issue, no other events took place having a material effect on the consolidated financial statements.



Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                                127
                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



1.11. Customer Care Service                                                                                                      The detail of the complaints handled by the Caja Madrid Group’s Customer Care Service in 2008 is as follows:
Pursuant to Article 17 of Ministry of Economy Order ECO/734/2004 on Customer Care Departments and Services and                                                                                                                                  (euros)
Customer Ombudsmen of Financial Institutions, on 12 July 2004 the Caja’s Board of Directors resolved that the                                                                                              Complaints   Complaints        Indemnity
Customer Care Service should be a single service shared by all Group entities and approved the Caja Madrid Group’s                 Source                                                                    received     resolved             paid
customer ombudsman regulations.                                                                                                    Caja de Ahorros y Monte de Piedad de Madrid                                11,674       11,376          864,088
                                                                                                                                   Altae Banco, S.A.                                                              31           28            2,290
                                                                                                                                   Bancofar, S.A.                                                                  6            8            1,678
The Customer Care Service must handle the complaints submitted by customers of the following subsidiaries and                      Banco de Servicios Financieros Caja Madrid-Mapfre, S.A.                         2            2                -
jointly controlled entities: Caja de Ahorros y Monte de Piedad de Madrid; Altae Banco, S.A.; Bancofar, S.A.; Banco de              Caja Madrid Bolsa, S.V., S.A.                                                   1            2                -
                                                                                                                                   Caja de Madrid de Pensiones, S.A., E.G.F.P.                                    70           75           16,258
Servicios Financieros Caja Madrid-Mapfre, S.A.; Caja Madrid Bolsa, S.V., S.A.; Caja Madrid de Pensiones, S.A., E.G.F.P.;           Finanmadrid, S.A., E.F.C.                                                     107          109            1,510
Finanmadrid S.A., E.F.C.; Gesmadrid S.G.I.I.C., S.A.; Madrid Leasing Corporación, S.A., E.F.C.; Segurcaja, S.A., Correduría de     Gesmadrid, S.G.I.I.C., S.A.                                                   162          164           32,481
                                                                                                                                   Madrid Leasing Corporación, S.A., E.F.C.                                        8            8                -
Seguros del Grupo Caja Madrid linked to Mapfre-Caja Madrid, Holding de Entidades Aseguradoras, S.A.; and Abitaria                  Segurcaja, S.A., Correduría de Seguros del Grupo Caja Madrid                    -            -                -
Consultoría y Gestión, S.A.                                                                                                        linked to Mapfre-Caja Madrid, Holding de Entidades Aseguradoras, S.A.
                                                                                                                                   Abitaria Consultoría y Gestión, S.A.                                           26           30               3,915

The detail of the complaints handled by the Caja Madrid Group’s Customer Care Service in 2009 is as follows:                       Total                                                                      12,087       11,802          922,220

                                                                                                                     (euros)
                                                                                                                                 The detail, by type, of the complaints resolved and of the indemnities paid in 2009 is as follows:
                                                                          Complaints        Complaints            Indemnity
  Source                                                                    received          resolved                 paid                                                                                                                     (euros)

  Caja de Ahorros y Monte de Piedad de Madrid                                13,030            12,628             947,887                                                                                  Complaints   Complaints        Indemnity
  Altae Banco, S.A.                                                              37                39              10,289          Product giving rise to complaint                                          received     resolved             paid
  Bancofar, S.A.                                                                  4                 3                 902          Mortgage loans and credits                                                  1,421        1,391           64,400
  Banco de Servicios Financieros Caja Madrid-Mapfre, S.A.                         3                 3                   -          Other loans and credits                                                       435          392           23,057
  Caja Madrid Bolsa, S.V., S.A.                                                  11                10                   -          Other lending transactions                                                    252          243            4,968
  Caja de Madrid de Pensiones, S.A., E.G.F.P.                                    64                65               5,489          Current accounts                                                            1,407        1,361          142,389
  Finanmadrid, S.A., E.F.C.                                                     243               200               4,274          Other deposits                                                              1,693        1,556          131,057
  Gesmadrid, S.G.I.I.C., S.A.                                                    72                73               7,694          Cards, ATMs and POS terminals                                               2,774        2,693          307,004
  Madrid Leasing Corporación, S.A., E.F.C.                                       24                20                   -          Other banking products                                                        645          512           14,798
  Segurcaja, S.A., Correduría de Seguros del Grupo Caja Madrid                    -                 -                   -          Direct debiting                                                               246          234           21,312
  linked to Mapfre-Caja Madrid, Holding de Entidades Aseguradoras, S.A.                                                            Transfers                                                                     317          312           62,425
  Abitaria Consultoría y Gestión, S.A.                                           30                26                1,040         Bills and cheques                                                             277          264           42,601
  Total                                                                      13,518            13,067              977,575         Other collection and payment services                                         509          478            5,105
                                                                                                                                   Products related to collective investment undertakings                        157          160           18,647
                                                                                                                                   Other investment services                                                     292          304           27,459
                                                                                                                                   Life insurance                                                                 88           80            4,363
                                                                                                                                   Damage insurance                                                              115          106            6,981
                                                                                                                                   Pension funds                                                                  94           92            8,318
                                                                                                                                   Other insurance products                                                      131          117            6,589
                                                                                                                                   Other                                                                       2,665        2,772           86,102
                                                                                                                                   Total                                                                      13,518       13,067          977,575




Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                                  128
                                                                                                                                                                                                                                        www.cajamadrid.com


10/
Legal documentation



                                                                                                        (euros)                                                                                                                      (euros)

                                                                Complaints             Complaints    Indemnity                                                                      Complaints              Complaints           Indemnity
  Reason for complaint                                            received               resolved         paid      Reason for complaint                                              received                resolved                paid
  Fees and expenses                                                 3,081                  2,962     169,598        Fees and expenses                                                   2,880                   2,855             217,929
  Interests                                                           710                    667      12,924        Interests                                                             433                     407              19,377
  Discrepancy in account entries                                    2,372                  2,286     465,560        Discrepancy in account entries                                      2,347                   2,266             424,136
  Other contractual conditions/lack of documentation                  643                    627      23,827        Other contractual conditions/lack of documentation                    473                     448               6,209
  Quality, ex-ante dissatisfaction with the service                   600                    458      16,159        Quality, ex-ante dissatisfaction with the service                     278                     282              34,802
  Quality, ex-post dissatisfaction with the service                 2,716                  2,685      96,999        Quality, ex-post dissatisfaction with the service                   2,694                   2,615              82,993
  Data protection                                                     152                    148       1,647        Data protection                                                       100                     100                 503
  Insurance policies, claims                                          223                    220      16,418        Insurance policies, claims                                            267                     257              21,880
  Other                                                             3,021                  3,014     174,443        Other                                                               2,615                   2,572             114,391
  Total                                                            13,518                 13,067     977,575        Total                                                              12,087                  11,802             922,220

The detail, by type, of the complaints resolved and of the indemnities paid in 2008 is as follows:

                                                                                                        (euros)
                                                                                                                  1.12. Disclosures required pursuant to the Mortgage Market Law
                                                                Complaints             Complaints    Indemnity    Pursuant to Mortgage Market Law 2/1981, of 25 March, amended by Law 41/2007, of 7 December, and based on the
  Product giving rise to complaint                                received               resolved         paid
                                                                                                                  disclosures required by Royal Decree 716/2009, of 24 April, implementing certain provisions of Law 2/1981, the most
  Mortgage loans and credits                                        1,126                  1,076      99,629      relevant data relating to the special accounting register for mortgage loans and credits granted by the Group, the
  Other loans and credits                                             401                    389      38,821
  Other lending transactions                                          143                    143       2,282      related replacement assets and the derivative financial instruments and other mortgage-market-related transactions
  Current accounts                                                  1,068                  1,055      73,882      must be disclosed in aggregate terms.
  Other deposits                                                    1,312                  1,273     121,187
  Cards, ATMs and POS terminals                                     2,806                  2,775     308,200
  Other banking products                                               69                     66       7,614      The outstanding mortgage loan and credit portfolio, excluding the securitised loans and credits, totalled EUR
  Direct debiting                                                     205                    201       5,023      68,371,651 thousand at 31 December 2009 (31 December 2008: EUR 64,578,236 thousand), of which EUR 45,864,727
  Transfers                                                           318                    308      17,373      thousand (31 December 2008: EUR 43,072,671 thousand) relates to eligible mortgage loans and credits, pursuant
  Bills and cheques                                                   280                    265      14,662
  Other collection and payment services                               489                    481       9,704      to the criteria defined in the aforementioned Royal Decree.
  Products related to collective investment undertakings              291                    290      81,526
  Other investment services                                           284                    266      36,558      At 31 December 2009, the aggregate face values of the marketable mortgage market securities issued by the Group
  Life insurance                                                       87                     86       1,939
  Damage insurance                                                     90                     85       2,981      (see Note 21) amounted to EUR 25,586,700 thousand (31 December 2008: EUR 23,803,800 thousand), of which EUR
  Pension funds                                                       100                    104      16,936      23,750,000 thousand were issued through public offerings (31 December 2008: EUR 22,600,000 thousand), and this
  Other insurance products                                            399                    392      22,271      amount is recognised under “Financial liabilities at amortised cost - Marketable debt securities” in the consolidated
  Other                                                             2,619                  2,547      61,632
                                                                                                                  balance sheet (see Note 21). On the same date, the aggregate face values of the non-marketable mortgage market
  Total                                                            12,087                 11,802      922,220     securities amounted to EUR 7,774,600 thousand (31 December 2008: EUR 7,749,600 thousand), and this amount is
                                                                                                                  recognised under “Financial liabilities at amortised cost - Deposits from credit institutions” or “Financial liabilities at


Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                       129
                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



amortised cost - Customer deposits” in the consolidated balance sheet, according to the nature of the holders of these      2. Accounting principles, policies and measurement bases
securities.
                                                                                                                            The accounting principles, policies and measurement bases applied in preparing the Group’s consolidated financial
In 2009 the Group entered into interest rate swap derivative financial instruments with counterparties of recognised        statements for 2009 were as follows:
creditworthiness for a total of EUR 2,750,000 thousand, which were individually tied to a portion of the mortgage-
backed bond (“cédula hipotecaria”) issues launched in the year for a total of EUR 3,282,900 thousand (see Note 21).         2.1. Business combinations and consolidation
Pursuant to the aforementioned Royal Decree 716/2009, holders of these mortgage-backed bonds have the status
of special preferential creditors vis-à-vis all other creditors in relation to the cash flows, if any, generated by the     Business combinations
aforementioned derivative financial instruments.                                                                            A business combination is the bringing together of two or more separate entities or economic units into one single
                                                                                                                            entity or group of entities.
Pursuant to current legislation, the principal and interest of the mortgage-backed bonds issued by the Group are
specially secured (there being no need for registration in the Property Register) by mortgages on all the mortgage-         Business combinations are accounted for using the acquisition method, under which the acquired assets and the
backed bonds that are registered in the Caja’s name at any time, without prejudice to its unlimited liability. The          identifiable liabilities and contingent liabilities assumed, including those that the acquiree had not previously
mortgage-backed bonds entitle the holders not only to the aforementioned guaranteed financial claim but also to             recognised, are recognised and measured at fair value.
claim payment from the issuer after maturity, conferring on the holders the status of special preferential creditors vis-
à-vis all other creditors in relation to all the mortgage loans and credits registered in the issuer’s name.                Subsidiaries
                                                                                                                            ”Subsidiaries” are defined as entities over which the Caja has the capacity to exercise control; control is, in general
As regards the Mortgage Market and the legislation applicable thereto, the Caja has in place appropriate mortgage           but not exclusively, presumed to exist when the Parent owns directly or indirectly half or more of the voting power
risk management policies and procedures for the two main areas of its business, namely, loans and deposits, in order        of the investee or, even if this percentage is lower or zero, when, for example, there are other circumstances or
to control and calculate the mortgage portfolio and the mortgage borrowing limits.                                          agreements that give the Caja control.

With respect to the assets, there are mortgage risk approval policies that are materialised through decisions adopted       In accordance with the applicable standards, control is the power to govern the financial and operating policies of an
at the Caja’s various levels as envisaged in the system of powers and delegations implemented at the Caja. For control,     entity so as to obtain benefits from its activities.
recognition and calculation purposes, the Caja uses computer systems to record and monitor mortgage risk and
determine the level of compliance with mortgage market requirements in order to ascertain whether the loans are             Appendix I to these notes to the consolidated financial statements contains significant information on these entities.
eligible for inclusion in the calculation of the Caja’s mortgage borrowing limit.
                                                                                                                            The financial statements of the subsidiaries are consolidated with those of the Caja using the full consolidation
With respect to liabilities, the Caja, pursuant to the financing strategy it may have at any time in the light of the       method as defined in the applicable regulations. Accordingly, all material balances of the transactions between fully
outstanding mortgage portfolio, makes decisions regarding the issuance of mortgage securities with values that              consolidated entities are eliminated on consolidation. Also, the share of third parties of:
enable it to issue the securities and remain within the borrowing limit established by mortgage market legislation.

The Board of Directors has stated that the Caja has specific mortgage market policies and procedures in place and
assumes responsibility for compliance with mortgage market regulations, as required by current legislation.


Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                 130
                                                                                                                                                                                                                                                          www.cajamadrid.com


10/
Legal documentation



•   The Group’s equity is presented under “Non-controlling interests” in the consolidated balance sheet (see Note 24).         Had the interests in jointly controlled entities been proportionately consolidated, the following aggregates in the
                                                                                                                               consolidated balance sheets at 31 December 2009 and 2008, and in the consolidated income statements for 2009 and
•   The consolidated profit for the year is presented under “Profit attributable to non-controlling interests” in the          2008 would have increased as follows (net):
    consolidated income statement (see Note 24).

                                                                                                                                                                                                                                          (thousands of euros)
The securitisation special-purpose vehicles in which the Caja retains the risks and rewards inherent to the related
assets are also fully consolidated (see Note 28).                                                                                                                                                                               2009(*)             2008(*)
                                                                                                                                Consolidated balance sheets
The results of subsidiaries acquired during the year are included in the consolidated income statement from the date            Assets                                                                                       4,676,952         3,520,740
                                                                                                                                    Available-for-sale financial assets                                                       2,530,176         2,147,506
of acquisition to year-end. Similarly, the results of subsidiaries disposed of during the year are included in the                  Tangible assets                                                                          1,637,724           822,816
consolidated income statement from the beginning of the year to the date of disposal.                                               Other assets                                                                               509,052           550,418
                                                                                                                                Liabilities                                                                                  4,676,952         3,520,740
The main characteristics of the capital items of the various Group entities (possible capital increases in progress,                 Liabilities under insurance contracts                                                   2,345,908         2,335,329
                                                                                                                                     Other liabilities                                                                       2,331,044         1,185,411
amount of capital authorised by shareholders at their respective annual general meetings, rights on founder’s shares,
non-convertible debentures, availability of reserves, etc.) are included in the notes to the individual financial statements    Consolidated income statements
                                                                                                                                Net interest income                                                                           121,852             122,594
of those entities.                                                                                                              Gross income                                                                                  173,708              67,180
                                                                                                                                Profit from operations                                                                          12,245               7,526
Note 17 contains information on the main acquisitions and disposals of subsidiaries in 2009.
                                                                                                                                 (*) Latest available quarterly figures (30/09/2009 and 30/09/2008), approved and unaudited

At 31 December 2009 and 2008, there were no subsidiaries whose equity instruments were admitted to listing.
                                                                                                                               Relevant information on these entities is provided in Appendix II.
Joint ventures ( jointly controlled entities)
A “Joint venture” is a contractual arrangement whereby two or more unrelated entities (“venturers”) have interests             Associates
in entities (“jointly controlled entities”) or undertake operations or hold assets so that strategic financial and operating   “Associates” are defined as companies over which the Group is in a position to exercise significant influence, but
decisions affecting the joint venture require the unanimous consent of the venturers.                                          not control or joint control, usually because it holds, (directly or indirectly), 20% or more of the voting power of
                                                                                                                               the investee.
Pursuant to current regulations, the Caja opted to value its interests in jointly controlled entities using the equity
method since it considered that this method presents faithfully the economic substance and reality of the jointly              Associates are accounted for using the “equity method” in the consolidated financial statements.
controlled entities’ relations in the framework of the contractual arrangements in force with the other venturers (see
Note 17).                                                                                                                      If as a result of losses incurred by an associate its equity were negative, the investment would be presented in the
                                                                                                                               Group’s consolidated balance sheet with a zero value, unless the Group is obliged to give it financial support.

                                                                                                                               Relevant information on associates is provided in Appendix III.


Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                             131
                                                                                                                                                                                                                                                        www.cajamadrid.com


10/
Legal documentation



At 31 December 2009 and 2008, the Group did not have any liabilities or contingent liabilities related to investments      Derecognition of financial instruments
in associates.                                                                                                             A financial asset is derecognised when:

Note 17 contains information on the main acquisitions and disposals of associates in 2009.                                 •   The contractual rights to the cash flows from the financial asset expire; or

                                                                                                                           •   The financial asset is transferred and substantially all its risks and rewards are transferred or, even if substantially all the
2.2. Financial instruments                                                                                                     risks and rewards are neither transferred nor retained, when control over the financial asset is transferred (see Note 2.7).

Initial recognition of financial instruments                                                                               A financial liability is derecognised when the related obligations are extinguished or when they are repurchased by the Group.
Financial instruments are initially recognised in the consolidated balance sheet when the Group becomes a party
to the contract originating them in accordance with the terms and conditions thereof. Specifically, debt                   Fair value and amortised cost of financial instruments
instruments, such as loans and cash deposits, are recognised from the date on which the legal right to receive             The fair value of a financial instrument on a given date is taken to be the amount for which it could be bought or sold
or the legal obligation to pay cash arises. Derivative financial instruments are generally recognised from the trade       on that date by two knowledgeable parties in an arm’s length transaction. The most objective and common reference
date.                                                                                                                      for 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”).
A regular way purchase or sale of financial assets, defined as one in which the parties’ reciprocal obligations must be
discharged within a time frame established by regulation or convention in the marketplace and that may not be settled      The Group measures on a daily basis all the positions that must be recognised at fair value based either on available
net, such as stock market and forward currency purchase and sale contracts, is recognised on the date from which           market prices for the same instrument, or on valuation techniques supported by observable market variables or, if
the rewards, risks, rights and duties attaching to all owners are for the purchaser, which, depending on the type of       appropriate, on the best available information.
financial asset purchased or sold, 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; equity instruments traded in Spanish          The tables below present the fair value of the Group’s financial instruments at 31 December 2009 and 2008, broken
secondary securities markets are recognised on the trade date and debt instruments traded in these markets are             down, by class of financial asset and liability, into the following three levels:
recognised on the settlement date.
                                                                                                                           •   Level 1: financial instruments whose fair value was determined by reference to their quoted price in active markets,
                                                                                                                               without making any change to these prices.

                                                                                                                           •   Level 2: Financial instruments whose fair value was estimated by reference to quoted prices on organised markets
                                                                                                                               for similar instruments or using other valuation techniques in which all the significant inputs are based on directly
                                                                                                                               or indirectly observable market data.

                                                                                                                           •   Level 3: Instruments whose fair value was estimated by using valuation techniques in which one or another
                                                                                                                               significant input is not based on observable market data. An input is deemed to be significant when it is important
                                                                                                                               for determining the fair value as a whole.


Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                            132
                                                                                                                                                                                                                                                                    www.cajamadrid.com


10/
Legal documentation



The fair value of the assets and liabilities at 31 December 2009, including the detail of the amounts recognised in the
consolidated income statement for 2009 as a result of changes in the fair value of the Group’s financial instruments,
which relate to unrealised gains and losses for each level defined above, is as follows:
                                                                                                                                                                                                                                                    (thousands of euros)
                                                                                                                                                                                                                                        Unrealised gains and losses
  Assets                                                                                                                                               Balance            Fair                 Fair value hierarchy                      recognised in profit or loss
                                                                                                                                                    sheet total         value        Level 1           Level 2          Level 3     Level 2                   Level 3
  Cash and balances with central banks                                                                                                               2,422,018      2,422,018             -       2,422,018                   -           -                           -
  Financial assets held for trading                                                                                                                 12,093,955     12,093,955       552,051      11,541,904                   -     736,199                           -
     Loans and advances to customers                                                                                                                    39,359         39,359             -          39,359                   -      22,909                           -
     Debt instruments                                                                                                                                  464,793        464,793       464,793               -                   -           -                           -
     Equity instruments                                                                                                                                 71,456         71,456        71,456               -                   -           -                           -
     Trading derivatives                                                                                                                            11,518,347     11,518,347        15,802      11,502,545                   -     713,290                           -
  Other financial assets at fair value through profit or loss                                                                                             83,109         83,109        83,109               -                   -           -                           -
     Debt instruments                                                                                                                                   83,109         83,109        83,109               -                   -           -                           -
  Available-for-sale financial assets                                                                                                                26,340,045     26,340,045    21,360,387               -           4,979,658           -                           -
     Debt instruments                                                                                                                               23,244,781     23,244,781    18,839,047               -           4,405,734           -                           -
     Equity instruments at fair value                                                                                                                2,521,340      2,521,340     2,521,340               -                   -           -                           -
     Equity instruments carried at cost                                                                                                                573,924        573,924             -               -             573,924           -                           -
  Loans and receivables                                                                                                                            128,618,841    128,618,841             -     128,577,765              41,076           -                           -
     Loans and advances to credit institutions                                                                                                      10,837,460     10,837,460             -      10,837,460                   -           -                           -
     Loans and advances to customers                                                                                                               117,740,305    117,740,305             -     117,740,305                   -           -                           -
     Debt instruments                                                                                                                                   41,076         41,076             -               -              41,076           -                           -
  Held-to-maturity investments                                                                                                                       9,638,886      9,532,217     8,562,323               -             969,894           -                           -
  Hedging derivatives (*)                                                                                                                            2,903,400      2,903,400             -       2,903,400                   -     388,704                           -
  Total assets                                                                                                                                     182,100,254    181,993,585    30,557,870     145,445,087           5,990,628   1,124,903                           -

                                                                                                                                                                                                                                                    (thousands of euros)
                                                                                                                                                                                                                                        Unrealised gains and losses
  Liabilities                                                                                                                                          Balance            Fair                 Fair value hierarchy                      recognised in profit or loss
                                                                                                                                                    sheet total         value        Level 1           Level 2          Level 3     Level 2                   Level 3
  Financial liabilities held for trading                                                                                                            10,515,315     10,515,315      361,065       10,154,250                   -   (708,590)                           -
     Trading derivatives                                                                                                                            10,163,307     10,163,307        9,057       10,154,250                   -   (708,590)                           -
     Short positions                                                                                                                                   352,008        352,008      352,008                -                   -          -                            -
  Other financial liabilities at fair value through profit or loss                                                                                             -              -            -                -                   -          -                            -
  Financial liabilities at amortised cost                                                                                                          168,208,936    168,208,936            -      168,208,936                   -          -                            -
     Deposits from central banks                                                                                                                     3,901,150      3,901,150            -        3,901,150                   -          -                            -
     Deposits from credit institutions                                                                                                              17,054,068     17,054,068            -       17,054,068                   -          -                            -
     Customer deposits                                                                                                                              89,924,082     89,924,082            -       89,924,082                   -          -                            -
     Marketable debt securities                                                                                                                     50,001,483     50,001,483            -       50,001,483                   -          -                            -
     Subordinated liabilities                                                                                                                        6,300,393      6,300,393            -        6,300,393                   -          -                            -
     Other financial liabilities                                                                                                                      1,027,760      1,027,760            -        1,027,760                   -          -                            -
  Hedging derivatives (*)                                                                                                                              657,428        657,428            -          657,428                   -    (61,413)                           -
  Total liabilities                                                                                                                                179,381,679    179,381,679      361,065      179,020,614                   -   (770,003)                           -

 (*) The unrealised gains and losses recognised in profit or loss relating to assets and liabilities hedged in accounting hedges are not included


Annual Report 2009 C                               10/ Legal documentation                                                                                                                                                                                                      133
                                                                                                                                                                                                                                                                       www.cajamadrid.com


10/
Legal documentation



The detail at 31 December 2008 is as follows:
                                                                                                                                                                                                                                                       (thousands of euros)
                                                                                                                                                                                                                                           Unrealised gains and losses
  Assets                                                                                                                                                Balance            Fair                  Fair value hierarchy                       recognised in profit or loss
                                                                                                                                                     sheet total         value        Level 1         Level 2             Level 3      Level 2                   Level 3
  Cash and balances with central banks                                                                                                                2,418,747      2,418,747             -      2,418,747                     -            -                         -
  Financial assets held for trading                                                                                                                  10,035,759     10,035,759       549,195      9,486,564                     -   2,979,106                      4,918
     Loans and advances to customers                                                                                                                     70,122         70,122             -         70,122                     -     (98,420)                         -
     Debt instruments                                                                                                                                   583,936        583,936       492,809         91,127                     -     (27,088)                     4,918
     Equity instruments                                                                                                                                  48,147         48,147        48,147              -                     -            -                         -
     Trading derivatives                                                                                                                              9,333,554      9,333,554         8,239      9,325,315                     -   3,104,614                          -
  Other financial assets at fair value through profit or loss                                                                                              83,976         83,976             -         83,976                     -      (13,177)                        -
     Debt instruments                                                                                                                                    83,976         83,976             -         83,976                     -     (13,177)                         -
  Available-for-sale financial assets                                                                                                                 21,202,828     21,202,828    14,387,983      2,367,935             4,446,910            -                         -
     Debt instruments                                                                                                                                18,405,829     18,405,829    12,239,878      1,719,041             4,446,910            -                         -
     Equity instruments at fair value                                                                                                                 2,796,999      2,796,999     2,148,105        648,894                     -            -                         -
  Loans and receivables                                                                                                                             129,167,792    129,167,792             -    129,108,288                59,504            -                         -
     Loans and advances to credit institutions                                                                                                       10,741,539     10,741,539             -     10,741,539                     -            -                         -
     Loans and advances to customers                                                                                                                118,366,749    118,366,749             -    118,366,749                     -            -                         -
     Debt instruments                                                                                                                                    59,504         59,504             -              -                59,504            -                         -
  Held-to-maturity investments                                                                                                                        7,700,020      7,755,747     6,329,280        725,891               700,576            -                         -
  Hedging derivatives (*)                                                                                                                             2,589,197      2,589,197             -      2,589,197                     -   1,477,747                          -
  Total assets                                                                                                                                      173,198,319    173,254,046    21,266,458    146,780,598             5,206,990    4,443,677                      4,918


                                                                                                                                                                                                                                                       (thousands of euros)
                                                                                                                                                                                                                                           Unrealised gains and losses
  Liabilities                                                                                                                                           Balance            Fair                  Fair value hierarchy                       recognised in profit or loss
                                                                                                                                                     sheet total         value        Level 1         Level 2             Level 3      Level 2                   Level 3
  Financial liabilities held for trading                                                                                                              8,540,191      8,540,191      175,511       8,364,680                     -   (3,067,967)                          -
     Trading derivatives                                                                                                                              8,371,974      8,371,974        7,294       8,364,680                     -   (3,067,967)                          -
     Short positions                                                                                                                                    168,217        168,217      168,217               -                     -            -                           -
  Other financial liabilities at fair value through profit or loss                                                                                              -              -            -               -                     -            -                           -
  Financial liabilities at amortised cost                                                                                                           159,802,479    159,802,479            -     159,802,479                     -            -                           -
     Deposits from central banks                                                                                                                      4,974,404      4,974,404            -       4,974,404                     -            -                           -
     Deposits from credit institutions                                                                                                               14,760,902     14,760,902            -      14,760,902                     -            -                           -
     Customer deposits                                                                                                                               83,865,939     83,865,939            -      83,865,939                     -            -                           -
     Marketable debt securities                                                                                                                      50,699,897     50,699,897            -      50,699,897                     -            -                           -
     Subordinated liabilities                                                                                                                         4,314,931      4,314,931            -       4,314,931                     -            -                           -
     Other financial liabilities                                                                                                                       1,186,406      1,186,406            -       1,186,406                     -            -                           -
  Hedging derivatives (*)                                                                                                                               460,288        460,288            -         460,288                     -      756,981                           -
  Total liabilities                                                                                                                                 168,802,958    168,802,958      175,511     168,627,447                     -   (2,310,986)                          -

  (*) The unrealised gains and losses recognised in profit or loss relating to assets and liabilities hedged in accounting hedges are not included



Annual Report 2009 C                               10/ Legal documentation                                                                                                                                                                                                         134
                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



The Group generally uses the following methods to estimate the fair value of financial instruments:                               - The validity of the models is examined periodically using recent transactions and current market data.

•   When the market publishes closing prices, these prices are used to determine the fair value.                                  - They take into account the following factors: the time value of money, credit risk, exchange rates, commodity
                                                                                                                                    prices, equity prices, volatility, liquidity, prepayment risk and servicing costs.
•   When the market publishes both bid and asking prices for the same instrument, the market price for a purchased
    asset or a liability to be issued is the bid price and that for an asset to be purchased or an issued liability is the    •   For financial instruments with no market or with a scantly active market, on initial recognition, the fair value is
    asking price. If there is significant market making activity or it can be demonstrated that the positions can be              obtained either on the basis of the most recent transaction price, unless another value can be demonstrated
    closed -settled or hedged- at the average price, the average price is used.                                                   through comparison with other recent market transactions in the same instrument, or by using a valuation
                                                                                                                                  technique in which all the variables are taken solely from observable market data.
•   If there is no market price for a given financial instrument or for scantly active markets, its fair value is estimated
    on the basis of the price established in recent transactions involving similar instruments and, in the absence            •   It is considered that the fair value of the financial instruments composing “Loans and receivables” or “Financial
    thereof, of valuation techniques sufficiently used by the international financial community, taking into account              liabilities at amortised cost” in the consolidated balance sheet does not differ materially from the amortised
    the specific features of the instrument to be measured and, particularly, the various types of risk associated                cost at which they are recognised, since most of the instruments earn interest at a floating rate which is adjusted
    with it.                                                                                                                      periodically and, accordingly, their exposure to changes in market interest rates is scantly material. The fixed-
                                                                                                                                  rate assets and liabilities with residual maturity of more than one year, which might be more sensitive to changes
•   The valuation techniques used to estimate the fair value of a financial instrument meet the following                         in market interest rates, are not material in the Group’s consolidated balance sheets at 31 December 2009 and
    requirements:                                                                                                                 2008.

    - The techniques used are based on the most consistent and appropriate economic and financial methods, which              •   The fair value of derivatives is determined as follows:
      have been demonstrated to provide the most realistic estimate of the financial instrument’s price.
                                                                                                                                  - Financial derivatives included in the portfolios of financial assets or liabilities held for trading which are traded
    - They are those which are customarily used by market participants to measure this type of financial instrument,                in organised, transparent and deep markets: the fair value is deemed to be their daily quoted price and if, for
      such as discounting of cash flows, condition-based or non-arbitrage option pricing models, etc.                               exceptional reasons, the quoted price at a given date cannot be determined, these financial derivatives are
                                                                                                                                    measured using methods similar to those used to measure OTC derivatives.
    - They maximise the use of available information, in relation to both observable data and recent transactions of
      similar characteristics, and limit the use of non-observable data and estimates as far as possible.                         - OTC derivatives or derivatives traded in scantly deep or transparent organised markets: the fair value is taken
                                                                                                                                    to be the sum of the future cash flows arising from the instrument, discounted to present value at the date of
    - They are sufficiently and amply documented, including the reasons why they were chosen in preference to other                 measurement (“present value” or “theoretical close”) using valuation techniques accepted by the financial
      possible alternatives.                                                                                                        markets: “net present value” (NPV), option pricing models, etc.

    - They are applied consistently over time so long as the reasons for choosing them do not change.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                      135
                                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



Amortised cost is understood to be the acquisition cost of a financial asset or liability plus or minus, as appropriate,          •   Other financial assets/liabilities at fair value through profit or loss: this category includes hybrid financial instruments
the principal and interest repayments and the cumulative amortisation (taken to the consolidated income statement),                   that simultaneously include an embedded derivative and a host contract, that are not held for trading and that
calculated using the effective interest method, of the difference between the initial cost and the maturity amount of                 comply with the requirements of current regulations to record the embedded derivative and the host contract
such financial instruments. In the case of financial assets, amortised cost furthermore includes any reductions for                   separately although it is not possible to perform such separation.
impairment or uncollectibility.
                                                                                                                                      Financial instruments classified as held for trading or as other financial assets or liabilities at fair value through profit
The effective interest rate is the discount rate that exactly matches the carrying amount of a financial instrument to                or loss are initially measured at fair value and subsequent changes in the fair value are recognised under
all its estimated cash flows of all kinds over its remaining life. For fixed rate financial instruments, the effective interest       “Gains/Losses on financial assets and liabilities (net)” in the consolidated income statement, except for the changes
rate coincides with the contractual interest rate established on the acquisition date adjusted, where applicable, for                 in the fair value due to accrued returns on financial instruments other than trading derivatives, which are recognised
the fees and transaction costs that, pursuant to the applicable regulations, must be included in the calculation of the               under “Interest and similar income”, “Interest expense and similar charges” or “Income from equity instruments”
effective interest rate. In the case of floating rate financial instruments, the effective interest rate is determined in a           in the consolidated income statement, depending on their nature. The accrued returns on debt instruments included
similar way to that of fixed rate transactions and is recalculated on each contractual interest rate reset date, taking               in this category are calculated using the effective interest method.
into account any changes that the future cash flows might have suffered.
                                                                                                                                  •   Available-for-sale financial assets: this category includes debt instruments not classified as held-to-maturity
Classification and measurement of financial assets and liabilities                                                                    investments, as loans and receivables or as financial assets at fair value through profit or loss owned by the Group
Financial instruments are classified in the Group’s consolidated balance sheet as follows:                                            and equity instruments owned by the Group relating to entities other than subsidiaries, joint ventures or associates
                                                                                                                                      that are not classified as at fair value through profit or loss.
•   Financial assets/liabilities held for trading:
                                                                                                                                      The instruments included in this category are initially measured at fair value adjusted by the transaction costs
    - Financial assets held for trading include those acquired with the intention of selling them in the near term or                 that are directly attributable to the acquisition of the financial asset, which are allocated, through maturity, to the
      which are part of a portfolio of identified financial instruments that are managed together and for which there                 consolidated income statement using the effective interest method, except for those financial assets with no fixed
      is evidence of a recent pattern of short-term profit-taking, and derivatives not designated as hedging instruments,             maturity, which are recognised in the income statement when the assets become impaired or are derecognised.
      including those separated from hybrid financial instruments pursuant to current regulations.                                    Subsequent to acquisition, financial assets included in this category are measured at fair value.

    - Financial liabilities held for trading include those that have been issued for the purpose of repurchasing them in              However, equity instruments whose fair value cannot be determined in a sufficiently objective manner are measured
      the near term or which are part of a portfolio of identified financial instruments that are managed together and                in these consolidated financial statements at cost, net of any impairment loss, calculated as detailed in Note 2.8.
      for which there is evidence of a recent actual pattern of short-term profit-taking; short positions arising from sales
      of financial assets acquired under non-optional resale agreements (reverse repos) or of borrowed securities,                    Changes in the fair value of available-for-sale financial assets relating to accrued interest or dividends are
      and derivatives not designated as hedging instruments, including those separated from hybrid financial                          recognised under “Interest and similar income" (calculated using the effective interest method) and “Income
      instruments pursuant to current regulations.                                                                                    from equity instruments” in the consolidated income statement, respectively. Any impairment losses on these
                                                                                                                                      instruments are recognised as described in Note 2.8. Exchange differences on financial assets denominated in
                                                                                                                                      currencies other than the euro are recognised as explained in Note 2.4. Changes in the fair value of financial
                                                                                                                                      assets hedged in fair value hedges are recognised as set forth in Note 2.3.


Annual Report 2009 C                10/ Legal documentation                                                                                                                                                                                                              136
                                                                                                                                                                                                                                                www.cajamadrid.com


10/
Legal documentation



    Other changes in the fair value of available-for-sale financial assets from the acquisition date are recognised in     •   Held-to-maturity investments: this category includes debt instruments traded on an active market with fixed
    equity under “Valuation adjustments – Available-for–sale financial assets” until the financial asset is                    maturity and with fixed or determinable cash flows that the Group has, from inception and at any subsequent date,
    derecognised, at which time the balance recorded under this item is recognised under “Gains/Losses on financial            the positive intention and financial ability to hold to maturity.
    assets and liabilities (net)” in the consolidated income statement.
                                                                                                                               Debt instruments included in this category are initially measured at fair value adjusted by the transaction costs that
•   Loans and receivables: this category includes unquoted debt instruments, financing granted to third parties in             are directly attributable to the acquisition of the financial asset, which are recognised in the consolidated income
    connection with ordinary lending activities carried out by the consolidated entities and receivables from purchasers       statement by the effective interest method. Subsequently, these instruments are measured at amortised cost
    of goods and users of services. This category also includes finance lease transactions in which the consolidated           calculated using the effective interest method.
    entities act as the lessor.
                                                                                                                               The interest accrued on these securities, which is calculated using the effective interest method, is recognised
    The financial assets included in this category are initially measured at fair value adjusted by the amount of the          under “Interest and similar income” in the consolidated income statement. Exchange differences on securities
    fees and transaction costs that are directly attributable to the acquisition of the financial asset and which, in          denominated in currencies other than the euro are recognised as set forth in Note 2.4. Any impairment losses on
    accordance with the applicable regulations, must be allocated to the consolidated income statement by the effective        these securities are recognised as explained in Note 2.8.
    interest method through maturity. Subsequent to acquisition, assets included in this category are measured at
    amortised cost.                                                                                                        •   Financial liabilities at amortised cost: this category includes the financial liabilities not included in any other
                                                                                                                               category.
    Assets acquired at a discount are measured at the cash amount paid and the difference between their repayment
    value and the amount paid is recognised as finance income using the effective interest method during the remaining         The liabilities issued by the consolidated entities which, although capital for legal purposes, do not meet the
    term to maturity.                                                                                                          requirements for classification as equity, basically the shares issued by the consolidated entities that do not carry
                                                                                                                               any voting rights and entitle their holders to receive dividends if certain conditions are met, are treated for
    The consolidated entities generally intend to hold the loans and credits granted by them until their final maturity        accounting purposes in the same way as other financial liabilities classified at amortised cost and are presented
    and, therefore, they are presented in the consolidated balance sheet at their amortised cost.                              under “Financial liabilities at amortised cost – Subordinated liabilities” in the consolidated balance sheet.

    The interest accrued on these assets, which is calculated using the effective interest method, is recognised under         The financial liabilities included in this category are initially measured at fair value adjusted by the amount of
    “Interest and similar income” in the consolidated income statement. Exchange differences on loans and receivables          the transaction costs that are directly attributable to the issue of the financial liability, which are recognised in
    denominated in currencies other than the euro are recognised as set forth in Note 2.4. Any impairment losses on            the consolidated income statement by the effective interest method (as defined by current regulations) through
    these securities are recognised as explained in Note 2.8. Debt instruments included in fair value hedges are               maturity. Subsequently, these financial liabilities are measured at amortised cost calculated using the effective
    recognised as set forth in Note 2.3.                                                                                       interest method.

                                                                                                                               The interest accrued on these securities, which is calculated using the effective interest method, is recognised
                                                                                                                               under “Interest expense and similar charges” in the consolidated income statement. Exchange differences on
                                                                                                                               securities denominated in currencies other than the euro are recognised as set forth in Note 2.4. Financial liabilities
                                                                                                                               included in fair value hedges are recognised as set forth in Note 2.3.


Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                   137
                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



2.3. Hedge accounting and mitigation of risk                                                                                   Hedging transactions performed by the Group are classified as follows:
The Group uses financial derivatives as part of its strategy to reduce its exposure to interest rate, foreign currency
and other risks. When these transactions meet certain requirements stipulated in current regulations, they qualify             •   Fair value hedges: hedge the exposure to changes in fair value of financial assets or liabilities or unrecognised firm
for “hedge accounting”.                                                                                                            commitments, or of an identified portion of such assets, liabilities or firm commitments, that is attributable to a
                                                                                                                                   particular risk, provided that it affects the consolidated income statement.
When the Group designates a transaction as a hedge, the transaction is documented appropriately from that date.
Hedge accounting documentation includes proper identification of the hedged item or items and the hedging                      •   Cash flow hedges: hedge the exposure to variability in cash flows that is attributable to a particular risk associated
instrument or instruments, the nature of the risk to be hedged and the criteria or methods used by the Group to                    with a financial asset or liability or a highly probable forecast transaction, provided that it may affect the
assess the effectiveness of the hedge over its entire life, taking into account the risk to be hedged.                             consolidated income statement.

The Group only applies hedge accounting for hedges that are considered highly effective over their entire lives. A hedge       In the specific case of financial instruments designated as hedged items or qualifying for hedge accounting, gains
is considered to be highly effective if, during its expected life, the changes in the fair value or cash flows of the hedged   and losses are recognised as follows:
item that are attributable to the hedged risk are almost fully offset by changes in the fair value or cash flows, as
appropriate, of the hedging instrument or instruments.                                                                         •   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 (see Note 35).
To measure the effectiveness of hedges designated as such, the Group analyses whether, from the beginning to the
end of the term defined for the hedge, it can expect, prospectively, that the changes in the fair value or cash flows of       •   In cash flow hedges, the gains or losses arising on the hedging instruments are recognised temporarily in
the hedged item that are attributable to the hedged risk will be almost fully offset by changes in the fair value or               consolidated equity under “Valuation adjustments - Cash flow hedges”, when the hedge is effective (see Note 25).
cash flows, as appropriate, of the hedging instrument and, retrospectively, that the actual results of the hedge will              Furthermore, the hedged financial instruments are recognised exactly as explained in this Note.
have been within a range of 80% to 125% of the results of the hedged item.
                                                                                                                                   In the latter case, the gains or losses on the hedging instruments are not recognised in the income statement until
                                                                                                                                   the gains or losses on the hedged item are recognised in the income statement or until the date of maturity of the
                                                                                                                                   hedged item.

                                                                                                                                   The ineffective portion of the gains or losses on the hedging instruments of cash flow hedges are recognised directly
                                                                                                                                   under “Gains/Losses on financial assets and liabilities (net)” in the consolidated income statement (see Note 35).

                                                                                                                               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 the designation as a hedge is revoked.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                      138
                                                                                                                                                                                                                                                        www.cajamadrid.com


10/
Legal documentation



When, as explained in the preceding paragraph, hedge accounting is discontinued for a fair value hedge, in the case            The detail, by currency and item, of the equivalent euro value of the main asset and liability balances in the consolidated
of hedged items carried at amortised cost, the value adjustments made as a result of the hedge accounting described            balance sheet denominated in foreign currency, is as follows:
above are recognised in the consolidated income statement through maturity of the hedged items, using the effective
interest rate recalculated as at the date of discontinuation of hedge accounting.
                                                                                                                                                                                                                                          (thousands of euros)

If hedge accounting is discontinued for a cash flow hedge, the cumulative gain or loss on the hedging instrument                                                                                    2009                                 2008
                                                                                                                                                                                           Assets           Liabilities         Assets           Liabilities
recognised in equity under “Valuation adjustments - Cash flow hedges” in the consolidated balance sheet shall remain
recognised in equity until the forecast transaction occurs, when it will be reclassified into the consolidated income           Balances in US dollars
                                                                                                                                    Cash and balances with central banks                  491,000                  -          485,380                  -
statement; or it will adjust the acquisition cost of the asset or liability to be recorded, if the hedged item is a forecast        Financial assets and liabilities held for trading     477,918            497,474        1,368,747          1,362,764
transaction that results in the recognition of a non-financial asset or liability.                                                  Loans and receivables                               4,965,254                  -        5,655,570                  -
                                                                                                                                    Investments                                            23,934                  -           24,047                  -
                                                                                                                                    Financial liabilities at amortised cost                     -          4,778,698                -          6,361,846
                                                                                                                                    Available-for-sale financial assets                    570,429                  -          576,231                  -
2.4. Foreign currency transactions                                                                                                  Held-to-maturity investments                          410,768                  -          466,661                  -
                                                                                                                                    Other                                                 557,142             41,897          604,468             38,058
Functional currency                                                                                                             Subtotal                                                7,496,445          5,318,069         9,181,104          7,762,668
The Group’s functional currency is the euro. Therefore, all balances and transactions denominated in currencies other           Balances in pounds sterling
than the euro are deemed to be denominated in “foreign currency”.                                                                   Financial assets and liabilities held for trading    122,327            118,593           130,234             125,448
                                                                                                                                    Loans and receivables                                760,285                  -           976,231                   -
                                                                                                                                    Investments                                                -                  -                 -                   -
                                                                                                                                    Financial liabilities at amortised cost                    -            502,373                 -             191,850
                                                                                                                                    Available-for-sale financial assets                    18,785                  -             5,459                   -
                                                                                                                                    Held-to-maturity investments                               -                  -             9,668                   -
                                                                                                                                    Other                                                  2,231                171                 -               1,795
                                                                                                                                Subtotal                                                 903,628            621,137          1,121,592            319,093
                                                                                                                                Balances in other currencies
                                                                                                                                    Financial assets and liabilities held for trading     25,317              21,125           21,945              18,013
                                                                                                                                    Loans and receivables                                298,605                   -          256,198                   -
                                                                                                                                    Investments                                           46,084                   -           58,849                   -
                                                                                                                                    Financial liabilities at amortised cost                    -              74,018                -              19,781
                                                                                                                                    Available-for-sale financial assets                     6,576                   -           10,090                   -
                                                                                                                                    Other                                                  2,321               8,709            2,971               3,034
                                                                                                                                Subtotal                                                 378,903            103,852           350,053               40,828
                                                                                                                                Total foreign currency balances                         8,778,976          6,043,058        10,652,749          8,122,589




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                           139
                                                                                                                                                                                                                                               www.cajamadrid.com


10/
Legal documentation



Translation of foreign currency balances                                                                                      •   Equity items, at the historical exchange rates.
Foreign currency balances are translated to euros in two consecutive stages:
                                                                                                                              Exchange rates applied
•   Translation of foreign currency to the functional currency of the Group entities, joint ventures and entities accounted   The exchange rates used by the Group in translating the foreign currency balances to euros for the purpose of preparing
    for using the equity method, and                                                                                          the consolidated financial statements, taking into account the methods mentioned above, were those published by
                                                                                                                              the European Central Bank.
•   Translation to euros of the balances of consolidated companies or companies accounted for using the equity method
    whose reporting currency is not the euro.                                                                                 Recognition of exchange differences
                                                                                                                              The exchange differences arising on the translation of foreign currency balances of the consolidated entities to their
The functional currencies of all the Group entities or entities accounted for using the equity method in the consolidated     functional currency are generally recognised at their net amount under “Exchange differences (net)” in the consolidated
financial statements are the same as their respective reporting currencies.                                                   income statement (see Note 36), except for exchange differences arising on financial instruments at fair value through
                                                                                                                              profit or loss, which are recognised in the consolidated income statement without distinguishing them from other
Translation of foreign currency to the functional currency: foreign currency transactions performed by consolidated           changes in the fair value of these instruments.
entities or entities accounted for using the equity method are initially recognised in their respective financial
statements at the equivalent value in their functional currencies, translated using the exchange rates prevailing at          However, exchange differences arising on non-monetary items measured at fair value through equity are recognised
the transaction date. Subsequently, the consolidated entities translate the foreign currency monetary balances to             in equity under “Valuation adjustments - Exchange differences” in the consolidated balance sheet until they are
their functional currencies using the exchange rates at period-end.                                                           realised.

Furthermore:                                                                                                                  The exchange differences arising on the translation to euros of the financial statements in the functional currencies
                                                                                                                              of the consolidated entities or entities accounted for using the equity method whose functional currency is not the
•   Non-monetary items measured at historical cost are translated to the functional currency at the exchange rate at          euro are recognised in equity under “Valuation adjustments – Entities accounted for using the equity method” in the
    the date of acquisition.                                                                                                  consolidated balance sheet until the investment is derecognised, at which time they are recognised in the consolidated
                                                                                                                              income statement.
•   Non-monetary items measured at fair value are translated to the functional currency at the exchange rate at the
    date when the fair value was determined.                                                                                  Entities and branches located in hyperinflationary economies
                                                                                                                              None of the functional currencies of the consolidated branches and entities located abroad relate to hyperinflationary
Entities whose functional currency is not the euro: the balances in the financial statements of the consolidated entities     economies as defined by current regulations. Accordingly, at 2009 year-end it was not necessary to adjust the financial
or entities accounted for using the equity method whose functional currency is not the euro are translated to euros           statements to correct for the effect of inflation.
as follows:

•   Assets and liabilities, at the closing rates.

•   Income and expenses and cash flows, at the average exchange rates for the year.


Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                 140
                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



2.5. Recognition of income and expenses                                                                                         2.6. Offsetting
The most significant accounting criteria used by the Group to recognise its income and expenses are summarised as               Asset and liability balances are offset, i.e. reported in the consolidated balance sheet at their net amount, when, and
follows:                                                                                                                        only when, they arise from transactions in which a contractual or legal right of set-off exists and the Group intends
                                                                                                                                to settle them on a net basis, or to realise the asset and settle the liability simultaneously.
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. Dividends received from other companies are generally recognised as income when the consolidated               2.7. Transfers of financial assets
entities’ right to receive them arises.                                                                                         The accounting treatment of transfers of financial assets depends on the extent to which the risks and rewards
                                                                                                                                associated with the transferred assets are transferred to third parties:
Commissions, fees and similar items
Fee and commission income and expenses that are not to be included in the calculation of the effective interest rate            •   If the Group transfers substantially all the risks and rewards of the transferred assets to third parties
of transactions and/or are not included in the cost of financial assets or liabilities other than those classified as at fair       –unconditional sale of financial assets, sale of financial assets under an agreement to repurchase them at their
value through profit or loss are recognised in the consolidated income statement using criteria that vary according to              fair value at the date of repurchase, sale of financial assets with a purchased call option or written put option
their nature. The most significant fee and commission items are as follows:                                                         that is deeply out of the money, securitisation of assets in which the transferor does not retain a subordinated
                                                                                                                                    debt or grant any credit enhancement to the new holders, and other similar cases–, the transferred financial
•   Those relating to the acquisition of financial assets and liabilities measured at fair value through profit or loss,            asset is derecognised and any rights or obligations retained or created in the transfer are recognised
    which are recognised in the consolidated income statement at the acquisition date.                                              simultaneously.

•   Those arising from transactions or services that are performed over a period of time, which are recognised in the           •   If the Group retains substantially all the risks and rewards associated with the transferred financial asset -sale of
    consolidated income statement over the life of these transactions or services.                                                  financial assets under an agreement to repurchase them at a fixed price or at the sale price plus interest, a securities
                                                                                                                                    lending agreement in which the borrower undertakes to return the same or similar assets, securitisation of financial
•   Those relating to services provided in a single act, which are recognised in the consolidated income statement when             assets in which a subordinated debt or another type of credit enhancement is retained that absorbs substantially
    the single act is carried out.                                                                                                  all the expected credit losses on the securitised assets, and other similar cases-, the transferred financial asset
                                                                                                                                    is not derecognised and continues to be measured by the same criteria as those used before the transfer. However,
                                                                                                                                    the following items are recognised, without offsetting:
Non-finance income and expenses
These are recognised for accounting purposes on an accrual basis.                                                                     - An associated financial liability, for an amount equal to the consideration received; this liability is subsequently
                                                                                                                                        measured at amortised cost, unless it meets the regulatory requirements to be classified as a financial liability
Deferred collections and payments                                                                                                       at fair value through profit or loss.
These are recognised for accounting purposes at the amount resulting from discounting the expected cash flows at
market rates.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                         141
                                                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



      - The income from the transferred financial asset not derecognised and any expense incurred on the new financial       •   In the case of debt instruments (loans and debt securities), give rise to an adverse impact on the future cash flows
        liability.                                                                                                               that were estimated at the transaction date.

•   If the Group neither transfers nor retains substantially all the risks and rewards associated with the transferred       •   In the case of equity instruments, mean that their carrying amount may not be fully recovered.
    financial asset –sale of financial assets with a purchased call option or written put option that is not deeply in or
    out of the money, securitisation of financial assets in which the transferor retains a subordinated debt or other type   As a general rule, the carrying amount of impaired financial instruments is adjusted with a charge to the consolidated
    of credit enhancement for a portion of the transferred asset, and other similar cases- the following distinction is      income statement for the period in which the impairment becomes evident, and the reversal, if any, of previously
    made:                                                                                                                    recognised impairment losses is recognised in the consolidated income statement for the period in which the
                                                                                                                             impairment is reversed or reduced.
      - If the Group, acting as the transferor, does not retain control of the transferred financial asset, the asset is
        derecognised and any rights or obligations retained or created in the transfer are recognised.                       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
      - If the Group, acting as the transferor, retains control of the transferred financial asset, it continues to          due to expiry of the statute-of-limitations period, forgiveness or any other cause.
        recognise it in the consolidated balance sheet for an amount equal to its exposure to changes in value and
        recognises a financial liability associated with the transferred financial asset. The carrying amount of the         The criteria applied by the Group to determine possible impairment losses in each of the various financial instrument
        transferred asset and the associated liability is the amortised cost of the rights and obligations retained, if      categories and the method used to calculate and recognise such impairment losses are as follows:
        the transferred asset is measured at amortised cost, or the fair value of the rights and obligations retained,
        if the transferred asset is measured at fair value.                                                                  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 negative
Accordingly, financial assets are only derecognised when the cash flows they generate have been extinguished or              difference between its carrying amount and the present value of its estimated future cash flows. The market value of
when substantially all the inherent risks and rewards have been transferred to third parties.                                quoted debt instruments is deemed to be a reliable estimate of the present value of their future cash flows.

Note 28 contains, inter alia, a summary of the principal asset securitisation transactions outstanding at 2009               In estimating the future cash flows of debt instruments the following factors are taken into account:
year-end, indicating those which did not lead to the derecognition of the related assets.
                                                                                                                             •   All the amounts that are expected to be obtained over the remaining life of the instrument; including, where
                                                                                                                                 appropriate, those which may result from the collateral provided for the instrument (less the costs for obtaining
2.8. Impairment of financial assets                                                                                              and subsequently selling the collateral). The impairment loss takes into account the likelihood of collecting accrued
A financial asset is considered to be impaired -and therefore its carrying amount is adjusted to reflect the effect of           past-due interest receivable.
impairment– when there is objective evidence that events have occurred which:
                                                                                                                             •   The various types of risk to which each instrument is subject.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                    142
                                                                                                                                                                                                                                                       www.cajamadrid.com


10/
Legal documentation



•   The circumstances in which collections will foreseeably be made.                                                            In the case of impairment losses arising due to the insolvency of the issuer of the debt instruments classified as
                                                                                                                                available for sale, the procedure followed by the Group for calculating such losses is the same as the method used for
These cash flows are subsequently discounted using the instrument’s effective interest rate (if its contractual rate            debt instruments carried at amortised cost explained in the preceding section.
is fixed) or the effective contractual rate at the discount date (if it is variable).
                                                                                                                                When there is objective evidence that the losses arising on measurement of these assets are due to impairment,
Specifically as regards impairment losses resulting from materialisation of the insolvency risk of the obligors (credit         they are removed from the equity item “Valuation adjustments – Available–for–sale financial assets” and are
risk), a debt instrument is impaired due to insolvency:                                                                         recognised, for their cumulative amount, 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
•   When there is evidence of a deterioration of the obligor’s ability to pay, either because it is in arrears or for other     period in which the reversal occurs. In particular, the main events that might constitute evidence of impairment
    reasons, and/or                                                                                                             include the following:

•   When country risk materialises; country risk is defined as the risk that is associated with debtors resident in a given     •   The issuer has been declared (or will probably be declared) insolvent or is in significant financial difficulty.
    country due to circumstances other than normal commercial risk.
                                                                                                                                •   A breach of the contract, such as default on principal or interest, occurs.
Impairment losses on these assets are assessed as follows:
                                                                                                                                •   The issuer is granted financing or arranges debt restructuring because it is in financial difficulty, unless there is
•   Individually, for all significant debt instruments and for instruments which, although not material, are not                    reasonable certainty that the customer will be able to settle its debt in the envisaged period or new effective
    susceptible to being classified in homogeneous groups of instruments with similar risk characteristics: instrument              collateral is provided.
    type, debtor’s industry and geographical location, type of guarantee or collateral, age of past-due amounts, etc.
                                                                                                                                Similarly, any impairment losses arising on measurement of debt instruments classified as “Non-current assets
•   Collectively, the Group classifies transactions on the basis of the nature of the obligors, the conditions of the           held for sale” which are recorded in the Group’s consolidated equity are considered to be realised and are therefore
    countries in which they reside, transaction status, and type of guarantee or collateral, and age of past-due amounts,       recognised in the consolidated income statement when the assets are classified as “Non-current assets held for
    etc. For each risk group it establishes the impairment losses that must be recognised in the consolidated financial         sale”.
    statements. Additionally, the Group recognises a loss for inherent impairments not specifically identified. This
    impairment is the loss inherent to any portfolio of assets incurred at the date of the financial statements and is          Equity instruments classified as available for sale
    quantified by application of the parameters established by the Bank of Spain based on experience and on the                 The criteria for recognising impairment losses on equity instruments classified as available for sale are similar to
    information available to it on the Spanish banking industry.                                                                those for debt instruments explained in the preceding section, with the exception that any reversal of these losses
                                                                                                                                is recognised in equity under “Valuation adjustments - Available-for-sale financial assets” in the consolidated balance
Debt instruments classified as available for sale                                                                               sheet.
The amount of the impairment losses on debt instruments included in the available-for-sale financial asset portfolio
is the full or partial negative difference, if any, between their fair value and their acquisition cost (net of any principal
repayment or amortisation), less any impairment loss previously recognised in the consolidated income statement.



Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                          143
                                                                                                                                                                                                                                                www.cajamadrid.com


10/
Legal documentation



The main events that might constitute evidence of impairment of equity instruments include the following:                   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
•   The issuer has been declared (or will probably be declared) insolvent or is in significant financial difficulty.        required. The 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 2.8).
•   Significant changes in the technological, market, economic or legal environment in which the issuer operates may
    have adverse effects on the recovery of the investment.                                                                 The provisions made for these transactions are recognised under “Provisions - Provisions for contingent liabilities
                                                                                                                            and commitments” on the liability side of the consolidated balance sheet (see Note 22). These provisions are
•   A significant or prolonged decline in the fair value of an equity instrument below its carrying amount. In this         recognised and reversed with a charge or credit, respectively, to “Provisions (net)” in the consolidated income
    connection, the objective evidence of the impairment of instruments quoted in active markets is more pronounced         statement.
    in the event a fall of 40% of its market price over a continuous period of one–and–a-half year.

At 31 December 2009 and 2008 there were no securities whose value had fallen by the aforementioned percentage               2.10. Accounting for leases
over the aforementioned time period.
                                                                                                                            Finance leases
Equity instruments carried at cost                                                                                          Finance leases are leases that transfer substantially all the risks and rewards incidental to ownership of the leased
The amount of the impairment losses on equity instruments carried at cost is the difference between their carrying          asset to the lessee.
amount and the present value of the expected future cash flows discounted at the market rate of return for similar
securities.                                                                                                                 When the consolidated entities act as the lessors of an asset in a finance lease transaction, the sum of the present
                                                                                                                            value of the lease payments receivable from the lessee and the guaranteed residual value (which is generally the
Impairment losses are recognised in the consolidated income statement for the period in which they arise as a               exercise price of the lessee’s purchase option at the end of the lease term) is recognised as lending to third parties
direct reduction of the cost of the instrument. These losses can only be reversed subsequently if the related assets        and is therefore included under “Loans and receivables” in the consolidated balance sheet based on the type of
are sold.                                                                                                                   lessee.

                                                                                                                            When the consolidated entities act as the lessees in finance leases, they present the cost of the leased assets in
2.9. Financial guarantees and provisions for financial guarantees                                                           the consolidated balance sheet, based on the nature of the leased asset, and, simultaneously, recognise a liability
“Financial guarantees” are defined as contracts whereby an entity undertakes to make specific payments on behalf            for the same amount (which is the lower of the fair value of the leased asset and the sum of the present value of
of a third party if the latter fails to do so, irrespective of the various legal forms they may have, such as guarantees,   the lease payments payable to the lessor plus, if appropriate, the exercise price of the purchase option). The
credit derivatives, irrevocable documentary credits issued or confirmed by the Group, etc.                                  depreciation policy for these assets is consistent with that for the Group’s property, plant and equipment for own
                                                                                                                            use (see Note 2.14).




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                   144
                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



In both cases, the finance income and finance charges arising under finance lease agreements are credited and debited,     2.12. Staff costs
respectively, to “Interest and similar income” and “Interest expense and similar charges”, respectively, in the
consolidated income statement and the related accrual is estimated using the effective interest method.                    2.12.1. Post-employment benefits

Operating leases                                                                                                           Certain Group entities have undertaken to pay post-employment benefits to certain employees and to their beneficiary
In operating leases, ownership of the leased asset and substantially all the risks and rewards incidental thereto remain   right holders.
with the lessor.
                                                                                                                           The Group’s post-employment obligations to its employees are deemed to be "Defined contribution plan obligations"
When the consolidated entities act as the lessors in operating leases, they present the acquisition cost of the            since the Group makes pre-determined contributions and will have no real or effective obligation to make further
leased assets under “Tangible assets”, either as “Investment property” or as “Property, plant and equipment –              contributions if the employee benefits relating to the service rendered in the current and prior periods cannot be paid.
Leased out under an operating lease”, depending on the nature of the leased asset. The depreciation policy for             The post–employment obligations that do not meet the aforementioned conditions relate to 9 employees.
these assets is consistent with that for similar items of property, plant and equipment for own use, and income
from operating leases is recognised under “Other operating income” in the consolidated income statement on a               Actuarial gains and losses arising from defined benefit plans are recognised by the Group, in conformity with current
straight–line basis.                                                                                                       standards, in accordance with the “corridor method”. Accordingly, any amount resulting from application of this method
                                                                                                                           is recognised under “Provisions (net)” in the consolidated income statement.
When the consolidated entities act as the lessees in operating leases, lease expenses, including any incentives granted
by the lessor, are charged to “Other operating expenses” in the consolidated income statement on a straight-line           All the pension obligations to current and former employees of the Group are funded by pension plans and insurance
basis.                                                                                                                     policies, the detail being as follows:

                                                                                                                           2.12.1.a. Pension contingencies in respect of current employees
2.11. Investment funds, pension funds, assets under management and savings insurance policies marketed and/or managed      Since 1999 the Caja and certain Group entities have made contributions to an external occupational pension fund
by the Group                                                                                                               managed by Caja Madrid de Pensiones, S.A., E.G.F.P. to cover their commitments under the applicable defined
The investment funds, pension funds, assets owned by third parties and savings insurance policies marketed and/or          contribution system.
managed by the Group are not presented on the face of the consolidated balance sheet since the related assets are
owned by third parties. The fees and commissions earned in the year for the services rendered are recognised under         The contributions made to the pension plan in 2009 amounted to EUR 71,581 thousand (2008: EUR 55,795
“Fee and commission income” in the consolidated income statement (see Note 33). Note 28 contains information               thousand), which are recognised under “Administrative expenses – Staff costs” in the consolidated income statement
related to these products at 31 December 2009 and 2008.                                                                    (see Note 40).

                                                                                                                           Additionally, at 31 December 2009, 10 Senior Executives had expectations of rights to defined contribution pension
                                                                                                                           plan obligations which may be extended to a group of up to an additional 26 employees. These pension rights will
                                                                                                                           become vested in the future and their amount will depend on certain variables, namely: length of service at the
                                                                                                                           Group and as a member of the aforementioned employee group and the value of certain variables linked to the
                                                                                                                           performance of the Group. The estimated value of this obligation, calculated on the basis on the aforementioned


Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                 145
                                                                                                                                                                                                                                                www.cajamadrid.com


10/
Legal documentation



variables, amounted to EUR 24,670 thousand which had been recognised at 31 December 2009. For the defined                      Also, in 2000 the Caja decided to take out an insurance policy with Caja Madrid Vida, S.A. de Seguros y Reaseguros (now
benefit obligations to current employees not covered by the aforementioned plan (9 employees), the Caja took out               Mapfre Caja Madrid Vida, S.A.) to cover its other early-retirement obligations. The amount of the policy was calculated
insurance policies with Mapfre Caja Madrid Vida, S.A., covering all the actuarial liabilities incurred at 31 December          using the following actuarial assumptions: GRM/F95 mortality tables; discount rate based on the return on the plan
2009, using the following actuarial assumptions: GRM/F95 mortality tables; discount rate of the periodic premium               assets; and income increase rate of 2.20%.
of 2.994% until 31/12/2030 and 2.50% thereafter; salary increase rate of 3.5%; CPI of 2.50%; and a 2.50% increase
in Social Security contribution bases.                                                                                         In conformity with the new trade union agreement, in 2008 several Group entities implemented a Generational Handover
                                                                                                                               Plan under which certain employees are offered the possibility of taking early-retirement or partial retirement. The
2.12.1.b. Pension obligations to retired employees                                                                             related obligations were covered: 1) through the arrangement of insurance policies for the individuals who avail
In accordance with current legislation, in 2000 the Caja externalised its pension obligations to retired employees by          themselves of the Plan; and 2) through a provision (see Note 22) for the amounts relating to possible future new
taking out an insurance policy with Caja Madrid Vida, S.A. de Seguros y Reaseguros (now Mapfre Caja Madrid Vida, S.A.)         participants in the Plan estimated based on the confirmations already made and the average funds required to settle
using the following actuarial assumptions: GRM/F95 mortality tables; discount rate based on the return on the plan             the obligations. In order to cover these obligations, the Caja took out two insurance policies with Mapfre Caja Madrid
assets; and income increase rate of 2.20%.                                                                                     Vida, S.A., which were calculated using the following actuarial assumptions: GRM/F95 mortality tables; discount rate
                                                                                                                               based on the return on the plan assets; and income increase rate of 2.50%.
The summary of the post-employment benefits at the Group at 31 December 2009 and 2008 is as follows:
                                                                                                                               The Group recognised the present value of these obligations (see Note 22) under “Provisions – Provisions for pensions
                                                                                                        (thousands of euros)
                                                                                                                               and similar obligations” on the liability side of the consolidated balance sheet and recognised the fair value of the
                                                                                                 2009               2008       aforementioned insurance policies, which amounted to EUR 144,333 thousand at 31 December 2009 (31 December
  Pension contingencies in respect of current employees                                                                        2008: EUR 68,789 thousand), under “Insurance contracts linked to pensions” on the asset side of the consolidated
      External pension funds                                                                  816,609           646,848
      Insurance contracts                                                                      13,025             8,321
                                                                                                                               balance sheet.
  Pension obligations to retired employees
      Insurance contracts                                                                     412,985           390,726        2.12.2.b. Death and disability
  Total                                                                                     1,242,619         1,045,895        The Group’s obligations for death or disability of current employees, which are covered by insurance policies, are
                                                                                                                               recognised in the consolidated income statement for the amount of the insurance policy premiums accrued in each
                                                                                                                               year.
2.12.2. Other long-term employee benefits
                                                                                                                               2.12.2.c. Long-service bonuses
2.12.2.a. Early-retirements and partial retirements                                                                            Pursuant to the labour agreement entered into in 2008, in the first quarter of 2009 the long-service bonuses were
In 1999 several Group entities offered certain employees the possibility of taking early-retirement. For this purpose,         settled with a charge to the provision recognised for this purpose under “Provisions - Provisions for pensions and
insurance policies were taken out with Caja Madrid Vida, S.A. de Seguros y Reaseguros (now Mapfre Caja Madrid Vida,            similar obligations” (see Note 22).
S.A.) covering all the financial obligations to these employees from the time of early-retirement until they reach
retirement age, since the retirement obligations to this employee group are covered as indicated in point 2.12.1 above.
The following actuarial assumptions were used to calculate the amount of the policy: GRM/F95 mortality tables;
discount rate based on the return on the plan assets; and income increase rate of 2.20%.


Annual Report 2009 C                   10/ Legal documentation                                                                                                                                                                                              146
                                                                                                                                                                                                                                              www.cajamadrid.com


10/
Legal documentation



2.12.3. Financial aid for employees                                                                                       2.12.4. Termination benefits
                                                                                                                          Termination benefits must be recognised when the Group is committed to terminate the employment contracts of its
The Group’s employees are entitled to request certain financial aid, the conditions and characteristics of which are as   employees and has a detailed formal termination plan. There are no redundancy plans making it necessary to record a
follows:                                                                                                                  provision in this connection.

2.12.3.a. Payroll advances
All permanent employees are entitled to payroll advances. The maximum amount to be granted is six months’ gross           2.13. Income tax
fixed remuneration. The advance may be requested for any purpose, is repayable within 72 months and does not bear         The expense for Spanish corporation tax and other similar taxes applicable to the foreign branches is recognised in
interest.                                                                                                                 the consolidated income statement, except when it results from a transaction recognised directly in equity, in which
                                                                                                                          case the income tax is also recognised in consolidated equity.
2.12.3.b. Employee loans
These loans are available to Caja Madrid’s permanent employees and may be requested for any purpose. The maximum          The current income tax expense is calculated as the tax payable with respect to the taxable profit for the year, adjusted
amount to be granted is EUR 36,000, the maximum repayment period is ten years and the applicable interest rate is         by the amount of the changes in the year in the assets and liabilities recognised as a result of temporary differences
Euribor, without exceeding the legal interest rate for money.                                                             and tax credit and tax loss carryforwards (see Note 27) and, accordingly, it comprises a current tax portion and a
                                                                                                                          deferred tax portion.
2.12.3.c. Principal residence loans
All permanent employees are entitled to these loans. The maximum amount to be granted is the lower of the following       The Group considers that there is a temporary difference when there is a difference between the carrying amount of
amounts: five years’ gross fixed annual remuneration or 110% of the appraisal value/purchase price. This loan may         an asset or liability and its tax base. The tax base of an asset or liability is the amount attributed to that asset or
be requested for the purchase, construction, extension or refurbishing of the employee’s principal residence and the      liability for tax purposes. A taxable temporary difference is one that will generate a future obligation for the Group to
maximum repayment period is 40 years or until the employee reaches the age of 70. The applicable interest rate is 55%     make a payment to the related tax authorities. A deductible temporary difference is one that will generate a right for
of Euribor, with a maximum rate of 5.25% and a minimum rate of 1.50%.                                                     the Group to a refund or a reduction in its tax charge in the future.

The difference between market rates and the interest rate applied to each of the aforementioned loans is recognised       Tax credit and tax loss carryforwards are amounts that, after performance of the activity or obtainment of the profit
as an addition to staff costs, with a credit to “Interest and similar income” in the consolidated income statement.       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 and the Group considers it probable that they will be used in future
                                                                                                                          periods.

                                                                                                                          Current tax assets and liabilities are the taxes that are expected to be recoverable from or payable to, respectively,
                                                                                                                          the related tax authorities within twelve months from the date they are recognised. Deferred tax assets and liabilities
                                                                                                                          are the taxes that are expected to be recoverable from or payable to, respectively, the related tax authorities in a
                                                                                                                          period of more than twelve months from the reporting date.




Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                  147
                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation


                                                                                                                                   For this purpose, the acquisition cost of foreclosed assets which are included in the Group’s property, plant and
The Group only recognises deferred tax assets arising from deductible temporary differences and from tax credit and                equipment for own use is the carrying amount of the financial assets settled through foreclosure.
tax loss carryforwards when the following conditions are met:
                                                                                                                                   Upkeep and maintenance expenses relating to property, plant and equipment for own use are recognised as an
•   Deferred tax assets are only recognised to the extent that it is considered probable that the consolidated entities will       expense under “Administrative expenses - Other general administrative expenses” in the consolidated income
    have sufficient future taxable profit available against which the deferred tax assets can be utilised; and                       statement in the period in which they are incurred. Borrowing costs incurred in the financing of items of property,
                                                                                                                                   plant and equipment that require a period of more than one year to be prepared for use are included in the
•   In the case of deferred tax assets arising from tax loss carryforwards, the tax losses result from identifiable causes which    acquisition or production cost thereof.
    are unlikely to recur.
                                                                                                                                   Depreciation is calculated using basically the straight-line method on the basis of the acquisition cost of the assets
Deferred tax liabilities are recognised for all taxable temporary differences.                                                     less their residual value. The land on which the buildings and other structures stand has an indefinite life and,
                                                                                                                                   therefore, is not depreciated.
Notwithstanding the foregoing, deferred tax assets and liabilities are not recognised if they arise from the initial recognition
of an asset or liability (other than in a business combination) that at the time of recognition affects neither accounting         The period tangible asset depreciation charge is recognised under “Depreciation and amortisation charge” in the
profit nor taxable profit.                                                                                                           consolidated income statement and is calculated basically using the following depreciation rates (based on the
                                                                                                                                   average years of estimated useful life of the various assets):
The deferred tax assets and liabilities recognised are reassessed each year in order to ascertain whether they still exist, and
the appropriate adjustments are made on the basis of the findings of the analyses performed.                                                                                                                                                   Annual rate
                                                                                                                                    Buildings for own use                                                                                           2%
                                                                                                                                    Furniture and fixtures                                                                                 10% to 12.5%
2.14. Tangible assets                                                                                                               Computer hardware                                                                                             25%

Property, plant and equipment for own use
Property, plant and equipment for own use include assets, owned by the Group or held under a finance lease, for                    The consolidated entities assess at the reporting date whether there is any internal or external indication that an
present or future administrative purposes (other than those of Welfare Projects) or for the production or supply of                asset may be impaired (i.e. its carrying amount exceeds its recoverable amount). If this is the case, the carrying
goods, that are expected to be used for more than one period. This category includes, inter alia, tangible assets                  amount of the asset is reduced to its recoverable amount and future depreciation charges are adjusted in proportion
received by the consolidated entities in full or partial satisfaction of financial assets representing receivables from third      to the revised carrying amount and to the new remaining useful life (if the useful life has to be re-estimated). When
parties which are intended to be held for continuing use. Property, plant and equipment for own use are presented in               necessary, the carrying amount of property, plant and equipment for own use is reduced with a charge to “Impairment
the consolidated balance sheet at acquisition cost, which is the fair value of any consideration given for the asset               losses on other assets (net) - Other assets” in the consolidated income statement.
plus any monetary amounts paid or committed, less:
                                                                                                                                   Similarly, if there is an indication of a recovery in the value of an impaired tangible asset, the consolidated entities
•   the related accumulated depreciation, and                                                                                      recognise the reversal of the impairment loss recognised in prior periods with the related credit to “Impairment losses
                                                                                                                                   on other assets (net) - Other assets” in the consolidated income statement and adjust the future depreciation charges
•   any estimated impairment losses (carrying amount higher than recoverable amount).                                              accordingly. In no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above
                                                                                                                                   that which it would have if no impairment losses had been recognised in prior years.


Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                        148
                                                                                                                                                                                                                                                     www.cajamadrid.com


10/
Legal documentation



The estimated useful lives of property, plant and equipment for own use are reviewed at least once a year with a view      The criteria used to recognise the acquisition cost of assets assigned to welfare projects, to calculate their
to detecting significant changes therein. If changes are detected, the useful lives of the assets are adjusted by          depreciation and their respective estimated useful lives and to recognise any impairment losses thereon are
correcting the depreciation charge to be recognised in the consolidated income statement in future years on the basis      consistent with those described in relation to property, plant and equipment for own use, the only exception being
of the new useful lives.                                                                                                   that the depreciation charges and the recognition and reversal of any impairment losses on these assets are not
                                                                                                                           recognised in the consolidated income statement but rather under “Welfare Fund” in the consolidated balance sheet
Investment property                                                                                                        (see Note 46).
“Tangible assets - Investment property” in the consolidated balance sheet reflects the net values of the land, buildings
and other structures held either to earn rentals or for capital appreciation.
                                                                                                                           2.15. Intangible assets
The criteria used to recognise the acquisition cost of investment property, to calculate its depreciation and its          Intangible assets are identifiable non–monetary assets without physical substance which arise as a result of a legal
estimated useful life and to recognise any impairment losses thereon are consistent with those described in relation       transaction or which are developed internally by the consolidated entities. Only intangible assets whose cost can be
to property, plant and equipment for own use.                                                                              estimated reasonably objectively and from which the consolidated entities consider it probable that future economic
                                                                                                                           benefits will be generated are recognised.
Other assets leased out under an operating lease
“Tangible assets – Property, plant and equipment – Leased out under an operating lease” in the consolidated balance        Intangible assets are measured initially at acquisition or production cost and are subsequently measured at cost less
sheet reflects the net values of the tangible assets, other than land and buildings, leased out by the Group under         any accumulated amortisation and any accumulated impairment losses.
operating leases.
                                                                                                                           Goodwill
The criteria used to recognise the acquisition cost of assets leased out under operating leases, to calculate their        Any excess of the cost of the investments in the consolidated entities and entities accounted for using the equity
depreciation and their respective estimated useful lives and to recognise any impairment losses thereon are consistent     method over the corresponding underlying carrying amounts acquired, adjusted at the date of first-time consolidation,
with those described in relation to property, plant and equipment for own use.                                             is allocated as follows:

Assigned to Welfare Projects                                                                                               •   If it is attributable to specific assets and liabilities of the companies acquired, by increasing the value of the assets (or
“Tangible assets – Property, plant and equipment – Assigned to Welfare Projects” in the consolidated balance sheet             reducing the value of the liabilities) whose fair values were higher (lower) than the carrying amounts at which they had
includes the carrying amounts of the tangible assets assigned to the welfare projects of the Caja, which is the only           been recognised in the acquired entities’ balance sheets.
Group entity holding this type of assets.
                                                                                                                           •   If it is attributable to specific intangible assets, by recognising it explicitly in the consolidated balance sheet provided
                                                                                                                               that the fair value of these assets at the date of acquisition can be measured reliably.

                                                                                                                           •   The remaining positive amount is recognised as goodwill, which is allocated to one or more specific cash-generating
                                                                                                                               units.




Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                         149
                                                                                                                                                                                                                                                              www.cajamadrid.com


10/
Legal documentation



Goodwill is only recognised when it has been acquired for consideration and represents, therefore, a payment made               Negative goodwill (Negative goodwill on business combinations)
by the acquirer in anticipation of future economic benefits from assets of the acquired entity that are not capable of          Any deficiency of the cost of the investments in the consolidated entities and entities accounted for using the equity
being individually identified and separately recognised.                                                                        method below the corresponding underlying carrying amounts acquired, adjusted at the date of first-time consolidation,
                                                                                                                                is allocated as follows:
Goodwill acquired on or after 1 January 2004 is measured at acquisition cost and that acquired earlier is recognised
at the carrying amount at 31 December 2003, calculated pursuant to the regulations previously applied by the                    •   If the negative goodwill is attributable to specific assets and liabilities of the companies acquired, by increasing the value
Group (Bank of Spain Circular 4/1991, of 14 June). In both cases, at the end of each reporting period goodwill is                   of the liabilities (or reducing the value of the assets) whose fair values were higher (lower) than the carrying amounts at
reviewed for impairment (i.e. a reduction in its recoverable amount to below its carrying amount) and, if there is                  which they had been recognised in the acquired entities’ balance sheets.
any impairment, the goodwill is written down with a charge to “Impairment losses on other assets (net) – Goodwill
and other intangible assets” in the consolidated income statement. An impairment loss recognised for goodwill                   •   If it is attributable to specific intangible assets, by recognising it explicitly in the consolidated balance sheet provided that
cannot be reversed.                                                                                                                 the fair value of these assets at the date of acquisition can be measured reliably.

In general, the Group uses methods based on the following assumptions to estimate the recoverable amounts for                   •   The remaining amount is presented under “Negative goodwill on business combinations” in the consolidated income
subsequent comparison with the carrying amounts of the aforementioned assets:                                                       statement for the year in which the share capital of the consolidated entity or entity accounted for using the equity method
                                                                                                                                    is acquired.
•   The recoverable value is the value in use of the investment, obtained from the present value of the cash flows that are
    expected to be obtained from the cash-generating unit, from its ordinary activities (adjusted for extraordinary items) or   Other intangible assets
    from the possible disposal thereof.                                                                                         “Other intangible assets” includes intangible assets other than goodwill, basically computer applications, which are
                                                                                                                                recognised in the consolidated balance sheet at acquisition or production cost, net of accumulated amortisation and
•   Estimated cash flow projections usually have a maximum time horizon of five years and include cyclical growth rates based     any impairment losses.
    on various factors such as the economic situation at the time the assessment is performed, growth in the industry,
    historical rates, etc. At 31 December 2009 and 2008, no estimates had been made with cash flows for longer periods.          None of the Group’s significant intangible assets have an indefinite useful life. These intangible assets, which were
                                                                                                                                developed by non-Group companies, have an average useful life of three years. The amortisation charge for the year
•   The cash flows are discounted using specific discount rates for each asset, on the basis of a risk-free interest rate         is recognised under “Depreciation and amortisation charge” in the consolidated income statement.
    which is increased by a risk premium for each investment based on various capital-weighting factors (ratings, internal
    scorings, etc.).
                                                                                                                                2.16. Inventories
                                                                                                                                “Inventories” in the consolidated balance sheet includes non-financial assets:

                                                                                                                                •   Held for sale in the ordinary course of business.

                                                                                                                                •   In the process of production, construction or development for such sale, or



Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                                150
                                                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



•   To be consumed in the production process or in the rendering of services.                                                   Provisions, which are quantified on the basis of the best information available on the consequences of the event giving
                                                                                                                                rise to them and are reviewed and adjusted at the end of each year, are used to cater for the specific obligations for
Inventories are measured at the lower of cost and “net realisable value”. The cost of inventories includes all costs of         which they were originally recognised. Provisions are fully or partially reversed when such obligations cease to exist
purchase and direct and indirect costs incurred in bringing the inventories to their present location and condition,            or are reduced (see Note 22).
as well as the directly attributable borrowing costs, provided that the period of time required to bring the inventories
into condition to be sold is more than one year. Net realisable value is the estimated selling price of inventories in          The provisions considered necessary pursuant to the foregoing criteria are recognised with a charge or credit to
the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make                “Provisions (net)” in the consolidated income statement.
the sale.
                                                                                                                                Contingent assets, which are defined as possible assets that arise from past events and whose existence will be
Any write-downs of inventories to net realisable value and any subsequent reversals of write-downs are recognised               confirmed only by the occurrence or non-occurrence of future events not wholly within the control of the Group, are
under “Impairment losses on other assets (net) – Other assets” in the consolidated income statement for the year in             not recognised in the consolidated balance sheet until they become actual assets.
which the write-down or reversal occurs.
                                                                                                                                Litigation and/or claims in process
The carrying amount of inventories is derecognised and recognised as an expense in the period in which the related              At the end of 2009 certain litigation and claims were in process against the consolidated entities arising from the
revenue from their sale is recognised. This expense is included under “Other operating expenses – Changes in                    ordinary course of their operations. The directors consider that, in view of the provisions recognised, the outcome of
inventories” in the consolidated income statement.                                                                              litigation and claims will not have a material effect on the consolidated financial statements for the years in which
                                                                                                                                they are settled.

2.17. Provisions and contingent liabilities (assets)
Provisions are credit balances covering present obligations at the balance sheet date arising from past events which            2.18. Non-current assets held for sale
could give rise to a loss for the Group, which is considered to be likely to occur and certain as to its nature but uncertain   “Non-current assets held for sale” in the consolidated balance sheet includes the carrying amount of individual
as to its amount and/or timing.                                                                                                 items, disposal groups or items forming part of a business unit earmarked for disposal (“discontinued operations”),
                                                                                                                                whose sale in their present condition is highly likely to be completed within one year from the reporting date.
Contingent liabilities are possible obligations that arise from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more future events not wholly within the control of the consolidated              Investments in associates and joint ventures meeting the conditions set forth in the foregoing paragraph will also
entities.                                                                                                                       be considered to be non-current assets held for sale.

The Group’s consolidated financial statements include all the material provisions with respect to which it is considered        Therefore, the carrying amount of these items, which can be of a financial nature or otherwise, will foreseeably be
that it is more likely than not that the obligation will have to be settled. Contingent liabilities are not recognised in the   recovered through the proceeds from their disposal, rather than through their continuing use.
consolidated financial statements, but rather are disclosed, as required by current regulations.
                                                                                                                                Specifically, property or other non-current assets received by the Group as total or partial settlement of its debtors’
                                                                                                                                payment obligations to it are deemed to be non-current assets held for sale, unless the Group has decided to make
                                                                                                                                continuing use of these assets or to hold them to earn rentals or for future capital appreciation.


Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                    151
                                                                                                                                                                                                                                              www.cajamadrid.com


10/
Legal documentation



In general, non-current assets classified as held for sale are measured at the lower of their carrying amount calculated   2.20. Statements of recognised income and expense
as at the classification date and their fair value less estimated costs to sell. Tangible and intangible assets that are   The applicable regulations stipulate that certain assets and liabilities must be recognised at fair value through equity.
depreciable and amortisable by nature are not depreciated or amortised during the time they remain classified in this      Changes in fair value are recognised in consolidated equity under “Valuation adjustments”, net of the related tax
category.                                                                                                                  effect, which is recognised as deferred tax assets or liabilities, as appropriate.

If the carrying amount of the assets exceeds their fair value less costs to sell, the Group adjusts the carrying           The statements of recognised income and expense present the income and expenses generated by the Group as a result
amount of the assets by the amount of the excess with a charge to “Gains (Losses) on non-current assets held               of its business activity in 2009 and 2008, and a distinction is made between the income and expenses recognised as
for sale not classified as discontinued operations” in the consolidated income statement. If the fair value of such        “Consolidated profit for the year” in the accompanying consolidated income statement and the income and expenses
assets subsequently increases, the Group reverses the losses previously recognised and increases the carrying              included in consolidated equity, which are presented under “Other recognised income and expense”.
amount of the assets without exceeding the carrying amount prior to the impairment, with a credit to
“Gains/(Losses) on non-current assets held for sale not classified as discontinued operations” in the consolidated         The total recognised income and expense for the year shows separately the amounts attributable to the Parent and
income statement.                                                                                                          to non-controlling interests. Similarly, the tax effects relating to the various items composing the total recognised
                                                                                                                           income and expense for the year are presented separately, except for those relating to entities accounted for using
However, financial assets, assets arising from employee remuneration, deferred tax assets and assets under insurance       the equity method, which are included under “Entities accounted for using the equity method”.
contracts that are part of a disposal group or of a discontinued operation are not measured as described in the
preceding paragraphs, but rather in accordance with the accounting policies and rules applicable to these items, which
were explained in previous sections of Note 2.                                                                             2.21. Consolidated statements of changes in total equity
                                                                                                                           The consolidated statements of changes in total equity present all the changes in the Group’s equity in 2009 and
                                                                                                                           2008, including those arising from changes in accounting policies and from the correction of values, and show a
2.19. Welfare Fund                                                                                                         reconciliation of the carrying amounts of all the equity items at the beginning and at the end of each year.
The Welfare Fund is recognised under “Welfare Fund” in the consolidated balance sheet.
                                                                                                                           In conformity with the applicable regulations, the consolidated statements of changes in total equity disclose the
Transfers to the Welfare Fund are accounted for as an appropriation of the net profit of the Caja (see Note 6).            changes in 2009 and 2008 in the consolidated balance sheet line items “Other equity instruments”, “Valuation
                                                                                                                           adjustments” and “Non-controlling interests”.
Welfare Project expenses are presented in the consolidated balance sheet as deductions from the Welfare Fund and
under no circumstances may they be recognised in the consolidated income statement.

Tangible assets and liabilities assigned to Welfare Projects are presented in separate line items in the consolidated
balance sheet (see Note 46).




Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                  152
                                                                                                                                                                                                                                                     www.cajamadrid.com


10/
Legal documentation



2.22. Consolidated statements of cash flows                                                                                   Cash outflows
The following terms are used in the presentation of the consolidated cash flow statements:                                    • The increase in operating assets gave rise to an increase in cash flows of EUR 8,909 million, of which EUR 5,125 million
                                                                                                                                 relate to assets classified as available-for-sale financial assets (mainly debt securities), EUR 1,485 million to the
•   Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid investments that          net increase in lending and EUR 2,058 million to the Group’s trading activities.
    are subject to an insignificant risk of changes in value.
                                                                                                                              •   In investing activities, the Group’s held-to-maturity investments increased by EUR 1,936 million. Also, the Group
•   Operating activities: the principal revenue-producing activities of credit institutions and other activities that are         made payments of EUR 1,229 million and EUR 280 million to acquire tangible assets and equity investments,
    not investing or financing activities.                                                                                        respectively.

•   Investing activities: the acquisition and disposal of long-term assets and other investments not included in cash         •   The amounts relating to non-current assets held for sale and other foreclosed assets and/or dation in payment of
    and cash equivalents.                                                                                                         loans or credits granted by the Group were adjusted, in full or in part, for the portions that did not give rise to any
                                                                                                                                  cash flows.
•   Financing activities: activities that result in changes in the size and composition of the equity and liabilities that
    are not operating activities.
                                                                                                                              3. Risk management
In 2009 there was a slight (net) increase of EUR 3 million in the balance of the Group’s cash and cash equivalents
(2008: net decrease of EUR 1,560 million). The main changes in cash balances in 2009 were as follows:                         Risk management is a strategic cornerstone, the main purpose of which is to maintain the Group’s financial strength
                                                                                                                              and its solid equity position, to maximise the risk/return ratio under the risk tolerance levels defined by its
Cash inflows                                                                                                                  Governing Bodies, and, at the same time, to provide the tools to enable the authorised risk limits to be monitored
• Cash flows from the consolidated profit for the year, adjusted for the income and expenses which did not result in          and controlled.
   cash flows (mainly depreciation and amortisation, impairment losses, period provisions, exchange differences and
   unrealised revaluation gains or losses), amounted to EUR 1,894 million (2008: EUR 1,720 million).                          The main principles governing risk management are independence, the commitment of senior executives, a global
                                                                                                                              view of risk management, early management of non-performing loans, exhaustive analysis, the delegation of powers,
•   The increase in operating liabilities gave rise to a net increase in cash and cash equivalents of EUR 8,816 million, of   the monitoring and control of positions and consistency and uniformity of methodologies and measurement. The
    which EUR 6,058 million relate to customer funds and EUR 1,975 million to trading activities carried on by the Group.     Group’s ongoing process to improve the parameters and tools associated with each type of risk is a key factor that
                                                                                                                              provides basic support for the teams making decisions, in the risk area and in the rest of the Group’s organisational
•   Also, the Group obtained EUR 1,985 million of financing, mainly from the placement of issues of Preferred Shares          structure, and continuous control and monitoring of the various risks assumed.
    launched in 2009.
                                                                                                                              As a result of the activity carried on by the Group, the main risks to which it is subject, the functions of which fall under
                                                                                                                              the responsibility of the Finance and Resources Division, are as follows:




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                        153
                                                                                                                                                                                                                                                  www.cajamadrid.com


10/
Legal documentation


•   Credit risk (including concentration risk), arising basically from the business activity performed by the                 3.1. Exposure to credit risk and concentration of risk
    Individuals, Businesses and Corporate Finance and Treasury and Capital Markets business areas, and from certain
    investments made by the Group through Corporación Financiera Caja Madrid, Caja Madrid Cibeles and the Corporate           3.1.1. Credit risk management objectives, policies and processes
    Unit.                                                                                                                     The management of credit risk -which is taken to be the risk of loss assumed by the Group in the course of its ordinary
                                                                                                                              banking activities stemming from the failure of its customers or counterparties to meet their contractual payment
•   The liquidity risk of financial instruments, arising from the unavailability, at reasonable prices, of the necessary      obligations- is the responsibility of the Risk Unit, which forms part of the Finance and Resources Division, in accordance
    funds to enable the Group to meet its commitments on a timely basis and to achieve growth in its lending                  with the policies, methods and procedures approved by the Caja’s Board of Directors.
    activity.
                                                                                                                              Accordingly, specific credit risk management policies are established for the various customer segments based on
•   On-balance-sheet structural interest rate risk, which is associated with the probability of losses arising as a result    the following:
    of an adverse trend in market interest rates.
                                                                                                                              •   Stability of the general criteria for the approval and monitoring of loan transactions.
•   Market and foreign currency risk, which relates to the potential losses arising from adverse changes in the
    market prices of financial instruments traded by the Group, basically thorough the Treasury and Capital Markets           •   Maintenance of the specific criteria defined for each segment and of the risk concentration limits.
    Department.
                                                                                                                              •   Matching of price to risk.
•   Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from
    external events.                                                                                                          •   Delegated powers; these have not undergone any significant changes, except for the implementation of LPVs
                                                                                                                                  (binding automatic credit pre-approval to businesses).
The Board of Directors is the highest governing body, which determines and approves the general internal control
strategies and procedures, together with the policies regarding the assumption, management, control and mitigation            •   Strengthening of the provisioning policies for credit risk impairment.
of the risks to which the Group is exposed. Also, exercising the powers delegated by the Board of Directors, the
Management Committee, the Financial Committee and the Asset-Liability Committee (ALCO) perform risk management                Also, the Group has defined procedures for the identification, analysis and acceptance, measurement, valuation,
functions.                                                                                                                    monitoring and recovery of specific risks. These procedures, which are also managed independently by the Risk Unit,
                                                                                                                              are in place from the initial approval of the loan transactions to the expiration of the risk.
Lastly, the (Internal) Audit Unit, which reports directly to the Chairman and is supervised by the Audit Committee
created in June 2008, is responsible for supervising the efficiency of the operating processes and the internal control       The risk concentration policies establish different limits at both individual and sector level. The individual limits are
systems, and checking compliance with the applicable regulations.                                                             based on: a maximum of 25% of eligible capital, the internal rating, the size of the company, its financial structure
                                                                                                                              and the inclusion of the limit in the proposal for the “large exposures group”. The sector limits are established on
                                                                                                                              the basis of the size of the sector, and limits are set for cyclical sectors.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                     154
                                                                                                                                                                                                                                                                                                                                                                www.cajamadrid.com


10/
Legal documentation


In 2008 the Group completed the development of the internal credit risk management models, which were definitively                                                                  At 31 December 2008, the credit risk exposure was as follows:
implemented for the calculation of capital requirements for credit risk and for internal credit risk management, after
the relevant authorisation was obtained from the Bank of Spain. Accordingly, at 31 December 2009, the Group applied                                                                                                                                                                                                                               (millions of euros)
advanced internal credit risk measurement models for most of its internal customer segments, which enables it to                                                                                                                         Financial assets held
perform ex-ante monitoring of the risk profile of its customers based on the calculation of the expected loss and the                                                                                                                        for trading/Other                   Available-
                                                                                                                                                                                                                                            financial assets at                     for-sale                                           Held-to-    Memorandum
associated economic capital.                                                                                                                                                          Segment and                                           fair value through                    financial                Loans and                   maturity      items and
                                                                                                                                                                                      business activity                                         profit or loss (*)                   assets               receivables              investments           Other
3.1.2. Exposure to credit risk by segment and business activity                                                                                                                       Central Government                                                   491.8                  11,644.9                  2,222.4                     6,326.3         1,322.7
The maximum exposure to credit risk of the financial assets recognised in the consolidated balance sheet is their                                                                     Institutions                                                          81.6                   1,343.6                  9,220.8                       263.5         5,211.1
                                                                                                                                                                                      Corporate                                                             79.6                   4,868.0                 50,270.1                     1,110.2        36,752.8
carrying amount. The maximum exposure to credit risk of financial guarantees granted is the maximum amount the                                                                        Retail                                                                   -                         -                 65,729.1                           -         3,703.0
Group would have to pay if they were executed.                                                                                                                                              Consumer loans                                                     -                         -                  6,697.1                           -           562.4
                                                                                                                                                                                            SME mortgages                                                      -                         -                    381.7                           -             2.9
                                                                                                                                                                                            Other mortgages                                                    -                         -                 55,330.8                           -            99.6
Following is a detail, by the main risk segments and business activities established by the Group, of the initial credit                                                                    Retail - SMEs                                                      -                         -                  2,262.1                           -           679.2
                                                                                                                                                                                            Cards                                                              -                         -                  1,057.4                           -         2,358.9
risk exposure at 31 December 2009, without deducting the collateral or other credit enhancements received, as                                                                         Equities                                                              48.1                   2,797.0                        -                           -               -
defined by Bank of Spain Circular 3/2008:                                                                                                                                             Other                                                                 85.1                     549.3                  1,725.4                           -               -
                                                                                                                                                                                      Total                                                                786.2                  21,202.8               129,167.8                      7,700.0        46,989.6
                                                                                                                                                              (millions of euros)
                                                     Financial assets held                                                                                                            (*) Does not include the balance relating to “Trading derivatives”, the initial exposure of which was included in the "Memorandum items and Other" column
                                                         for trading/Other                   Available-
                                                        financial assets at                     for-sale                                           Held-to-    Memorandum
  Segment and                                           fair value through                    financial                Loans and                   maturity      items and
  business activity                                         profit or loss (*)                   assets               receivables              investments           Other           3.1.3. Distribution of initial exposure by product
  Central Government                                                       -                  12,176.8                  4,115.5                     8.067.5         1,297.2         The table below shows the distribution of the initial exposure by product, excluding equities. Loans and credits are
  Institutions                                                         587.3                   4,545.0                 13,788.3                       440.0         1,894.3         the products most in demand, and represented 72.53% of risk exposure at 31 December 2009 (31 December 2008:
  Corporate                                                                -                   6,522.9                 45,247.9                     1,131.3        43,193.4
  Retail                                                                   -                         -                 65,467.2                           -         3,452.4         75.96%). The second most important product group is fixed-income securities, which accounted for 15.8% at 31
       Consumer loans                                                      -                         -                  4,369.8                           -           316.4         December 2009 (31 December 2008: 13.7%).
       SME mortgages                                                       -                         -                  1,295.9                           -            21.1
       Other mortgages                                                     -                         -                 57,522.1                           -           121.3
       Retail - SMEs                                                       -                         -                  1,304.5                           -           561.1
       Cards                                                               -                         -                    974.9                           -         2,432.5
  Equities                                                              71.5                   3,095.3                        -                           -               -
  Other                                                                    -                         -                        -                           -               -
  Total                                                                658.8                  26,340.0               128,618.9                      9,638.8        49,837.3

  (*) Does not include the balance relating to “Trading derivatives”, the initial exposure of which was included in the "Memorandum items and Other" column




Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                                                                                                                                                                   155
                                                                                                                                                                                                                                                    www.cajamadrid.com


10/
Legal documentation



At 31 December 2009, the credit risk exposure was as follows:
                                                                                                                                                                                                                                                    (%)
                                                                                                           (millions of euros)
                                       Financial assets held                                                                       Geographical area                                                                             2009            2008
                                           for trading/Other     Available-                                                        European Union                                                                                 97.4            97.1
                                          financial assets at       for-sale                     Held-to-   Memorandum                Spain                                                                                        88.4            89.4
                                          fair value through      financial     Loans and        maturity     items and               Rest of Europe                                                                                9.0             7.7
  Product                                    profit or loss (*)      assets    receivables   investments          Other             United States                                                                                   1.2             1.3
                                                                                                                                   Latin America                                                                                   0.7             0.8
  Loans and credits                                    39.4             -     124,050.4               -         29,625.3           Other countries                                                                                 0.7             0.8
  Fixed-income securities                             547.9      23,244.7          41.0         9,638.8                -
  Interbank deposits                                      -             -       4,527.4               -                -           Total                                                                                         100.0           100.0
  Guarantees and documentary credits                      -             -             -               -         14,143.1
  Derivatives                                             -             -             -               -          6,068.8
  Total                                               587.3      23,244.7     128,618.8         9,638.8          49,837.2
                                                                                                                                 3.1.5. Credit quality
                                                                                                                                 The Group uses advanced credit risk measurement systems. Lending to corporate customers is measured using internal
                                                                                                                                 rating models, whereas retail lending, which includes exposures to individuals, micro-businesses (companies with
At 31 December 2008, the distribution was as follows:                                                                            annual revenue of less than EUR 1 million) and independent contractors, is measured using risk scoring models.

                                                                                                           (millions of euros)
                                       Financial assets held
                                                                                                                                 Credit quality. Initial exposure and average rating or scoring by segment
                                           for trading/Other     Available-                                                      The weighted average rating of the Group’s initial exposure, including certain exposures whose credit risk-based
                                          financial assets at       for-sale                     Held-to-   Memorandum            capital requirements are calculated using a standard method and those exposures that are calculated using internal
                                          fair value through      financial     Loans and        maturity     items and
  Product                                    profit or loss (*)      assets    receivables   investments          Other
                                                                                                                                 rating methods (not including default), was B+ at 31 December 2009 (31 December 2008: average rating BB–).
  Loans and credits                                    70.1             -     124,311.2               -         29,747.5
  Fixed-income securities                             667.9      18,405.8       1,357.4         7,700.0                -                                                                  2009                                   2008
  Interbank deposits                                      -             -       3,473.1               -                -           Segments                                  % exposure          Average rating     % exposure           Average rating
  Guarantees and documentary credits                      -             -          26.1               -         11,471.8
  Derivatives                                             -             -             -               -          5,770.3           Central Government                              12.5          A+                       11.3           A
                                                                                                                                   Institutions                                    10.8          BBB                       8.3           BBB
  Total                                               738.0      18,405.8     129,167.8         7,700.0          46,989.6          Corporate                                       43.0          B+                       44.9           B+
                                                                                                                                   Retail                                          33.7          B+                       35.5           BB-
                                                                                                                                        Consumer loans                              2.3          B                         3.7           B+
                                                                                                                                        SME mortgages                               0.7          B                         0.2           B+
3.1.4. Distribution of initial exposure by geographical area                                                                            Other mortgages                            28.1          B+                       28.4           BB-
The table below shows the distribution of the initial credit risk exposure by geographical area. Most of the portfolio                  Retail - SMEs                               0.9          B                         1.5           B
                                                                                                                                        Cards                                       1.7          B+                        1.7           B+
relates to Spanish customers – 88.39% at 31 December 2009 (31 December 2008: 89.45%). Secondly, 8.99% of the
                                                                                                                                   Total                                          100.0          B+                      100.0           BB-
risk exposure taken at 31 December 2009 relates to EU customers (31 December 2008: 7.64%).




Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                      156
                                                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



Credit quality. Distribution of ratings for exposures calculated using the internal ratings-based approach (IRB)            Credit quality. Expected loss by segment for exposures assessed using the internal ratings-based approach (IRB)
At 31 December 2009, 61.53% of the initial exposure was rated BB- or higher (31 December 2008: 64.6%), with a               The annual average expected loss on the credit risk exposure, defined as the expected loss amount due to credit risk in a given
balanced rating distribution. 38.5% of the portfolio was rated below BB- at 31 December 2009 (31 December 2008:             time horizon, based on the approach established in the New Basel Capital Accord, was 2.2% at 31 December 2009 (31
35.4%). The table below shows the distribution of the initial exposure by credit rating, for exposures assessed using       December 2008: 1.5%).
a rating system whose capital requirements are calculated using the internal ratings-based approach:
                                                                                                                            Of all exposures whose credit risk requirements are calculated using the internal ratings-based approach, the credit risk
                                                                                                                   (%)      arising from mortgage lending to individuals accounted for 33.6% of the total credit risk exposure and expected loss was
  Rating                                                                                          2009           2008       1.8% at 31 December 2009 (31 December 2008: 32.0% and 1.6%, respectively). The corporate risk exposure accounted for
  AAA to A-                                                                                         8.3          13.8       47.5% of the total exposure at 31 December 2009 and the expected loss for this segment was 2.9% at that date (31
  BBB+ to BB-                                                                                      53.2          50.8       December 2008: 50.6% and 1.6%, respectively).
  B+ to B-                                                                                         27.6          29.6
  CCC+ to C                                                                                         4.6           2.3
  Default                                                                                           6.3           3.5                                                                 2009                                            2008
                                                                                                                                                                                               Expected loss                               Expected loss
  Total                                                                                           100.0         100.0        Segments                                    % exposure          on exposure (%)           % exposure        on exposure (%)

Credit quality. Distribution of exposures assessed using a scoring system under the internal ratings-based approach (IRB)    Central Government                                 0.1                       -                   0.1                     -
                                                                                                                             Institutions                                      12.2                     0.2                   9.3                   0.1
The lending to individuals, micro-businesses and independent contractors assessed using risk scoring models shows            Corporate                                         47.5                     2.9                  50.6                   1.6
a percentage distribution similar to that for 2008. Most exposures (53.8%) are scored between BBB+ and BB- (31               Retail                                            40.2                     2.0                  40.0                   1.8
                                                                                                                                  Consumer loans                                2.7                     4.1                   4.2                   3.2
December 2008: 62.1%). The table below shows the distribution of the initial exposure by credit rating for exposures              SME mortgages                                 0.8                     2.0                   0.2                   1.2
assessed using scoring models whose capital requirements are calculated using the internal ratings-based approach:                Other mortgages                              33.6                     1.8                  32.0                   1.6
                                                                                                                                  Retail – SMEs                                 1.1                     4.6                   1.7                   3.1
                                                                                                                                  Cards                                         2.0                     2.1                   1.9                   1.7
                                                                                                                   (%)
                                                                                                                             Total                                            100.0                     2.2                 100.0                   1.5
  Rating                                                                                          2009           2008

  AAA to A-                                                                                         7.0             -
  BBB+ to BB-                                                                                      53.8          62.1
  B+ to B-                                                                                         32.3          31.7
  CCC+ to C                                                                                         0.8           0.7       Credit quality. Historical default rates
  Default                                                                                           6.1           5.5       The Group’s default rate, defined as the ratio of non-performing loans at any time to the Group’s total credit risk
  Total                                                                                           100.0         100.0       exposure, was 5.43% at 31 December 2009 (31 December 2008: 4.87%).




Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                     157
                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



3.1.6. Concentrations of risk                                                                                           3.1.7. Netting arrangements and collateral held for derivatives
The Group’s risk exposure, measured in terms of credit risk and excluding equities, is highly diversified by business   At 31 December 2009, there were 179 netting arrangements and 127 collateral arrangements (31 December 2008:
sector, as shown in the following table.                                                                                175 and 102, respectively). The effect of these arrangements at 31 December 2009 was an 84.4% reduction (31
                                                                                                                        December 2008: 79.0%) in the credit risk of derivatives transactions.
Distribution of risk by business sector
                                                                                                                        The effect of the netting arrangements and collateral held on the credit risk of derivatives transactions at 31 December
                                                                                                                  (%)
                                                                                                                        2009 was as follows:
  Sector                                                                                        2009             2008
  Foodstuffs                                                                                     0.4              0.4                                                                                                               (millions of euros)
  Associations                                                                                   0.3              0.3
  Automotive and vehicle services                                                                0.7              0.8                 Credit risk                                                             Exposure (Facility drawdowns)
  Wholesale trade                                                                                2.1              2.2                  exposure                        Exposure (Facility drawdowns)                 with netting and
  Retail trade                                                                                   1.9              1.7           (Facility drawdowns)                     with netting arrangements               collateral arrangements
  Construction and property development                                                         19.7             22.9                19,769.3                                    8,247.5                                3,094.8
  Manufacture of machinery and equipment                                                         2.2              2.3                100.0%                                      41.7%                                  15.6%
  Manufacture of intermediate products                                                           2.5              2.8
  Financial services                                                                            12.9              8.7
  Hospitality and tour operators                                                                 1.1              0.9
  Foodstuffs, beverages and tobacco                                                              0.8              0.8   The effect of the netting arrangements and collateral held on the credit risk of derivatives transactions at 31 December
  Basic manufacturing, textiles and furniture                                                    0.3              0.4
  Mining, energy and infrastructure                                                              3.4              3.1
                                                                                                                        2008 was as follows:
  Public sector                                                                                 12.3             11.0
  Services to businesses                                                                         3.3              4.7                                                                                                               (millions of euros)
  Leisure and culture, health and education                                                      2.4              2.4
  Utilities: electricity, gas and water                                                          3.2              3.7                 Credit risk                                                             Exposure (Facility drawdowns)
  Telecommunications                                                                             1.3              1.4                  exposure                        Exposure (Facility drawdowns)                 with netting and
  Transport                                                                                      1.3              1.3           (Facility drawdowns)                     with netting arrangements               collateral arrangements
  Other sectors                                                                                 27.9             28.1                16,180.0                                    7,232.8                                3,397.4
  Unclassified                                                                                      -              0.1
                                                                                                                                     100.0%                                      44.7%                                  21.0%
  Total                                                                                        100.0         100.0


The Group regularly monitors large exposures to customers, which it reports periodically to the Bank of Spain.

At 31 December 2009, there was risk exposure to 90,313 customers in the corporate segment (31 December 2008:
92,106). Also, 33.8% of the risk exposure related to retail and individuals banking, with mortgage lending being the
proportionately most significant segment with an average amount of EUR 106,294 per transaction.




Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                                  158
                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



3.1.8. Guarantees received and other credit enhancements                                                     3.1.9. Renegotiated financial assets
At 31 December 2009, the distribution, by segment, of the exposures secured by collateral and other credit   The renegotiated not impaired financial assets amounted to EUR 2,554.9 million at 31 December 2009 (31 December 2008:
enhancements was as follows:                                                                                 EUR 914.6 million), although it is considered that the amount of the renegotiated financial assets that might have been
                                                                                                             deemed to be impaired at those dates had they not been renegotiated is not material to the Group’s consolidated financial
                                                                                                    (%)      statements as a whole.
                                                             Other                     Other
  Segments                          Mortgage             collateral   Unsecured   guarantees       Total
  Central Government                     0.1                   0.2        12.1            -        12.4
  Institutions                           0.3                   0.1        10.3            -        10.7      3.1.10. Individually impaired financial assets
  Corporate                             10.5                   5.1        26.0            -        41.6      The detail at 31 December 2009 and 2008, by segment, of the assets that were individually assessed as being impaired
  Retail                                30.2                   0.2         4.8          0.1        35.3      (which, accordingly, does not include the detail of the financial assets assessed as being impaired based on a collective
       Consumer loans                      -                   0.1         2.2          0.1         2.4
       SME mortgages                     0.7                     -           -            -         0.7      assessment of the possible losses - see Note 2.8) is as follows:
       Other mortgages                  29.5                     -           -            -        29.5
       Retail - SMEs                       -                   0.1         0.9            -         1.0                                                                                                                (millions of euros)
       Cards                               -                     -         1.7            -         1.7       Segments                                                                                         2009               2008
  Total                                 41.1                   5.6        53.2           0.1      100.0       Institutions                                                                                      10.6              11.6
                                                                                                              Corporate                                                                                      2,707.7           1,961.9
                                                                                                              Retail                                                                                           974.5             120.1
                                                                                                                   Consumer loans                                                                               17.4               6.7
At 31 December 2008, the distribution was as follows:                                                              SME mortgages                                                                                17.8               0.2
                                                                                                                   Other mortgages                                                                             925.8             108.0
                                                                                                    (%)            Retail - SMEs                                                                                13.3               5.0
                                                             Other                     Other                       Cards                                                                                         0.2               0.2
  Segments                          Mortgage             collateral   Unsecured   guarantees       Total      Total                                                                                          3,692.8           2,093.6
  Central Government                     0.1                   0.1        10.5            -        10.7
  Institutions                           0.3                   0.1        11.3            -        11.7
  Corporate                              9.7                   5.1        29.1          0.1        44.0
  Retail                                28.2                   0.1         5.3            -        33.6
                                                                                                             3.2. Liquidity risk of financial instruments
       Consumer loans                    0.7                   0.1         2.7            -         3.5
       SME mortgages                     0.2                     -           -            -         0.2      The Caja Madrid Group had total assets of EUR 191,904,484 thousand at 31 December 2009 (31 December 2008: EUR
       Other mortgages                  26.9                     -           -            -        26.9      180,970,942 thousand), of which those of the Caja accounted for 98.8% (31 December 2008: 98.4%).
       Retail - SMEs                     0.4                     -         0.9            -         1.3
       Cards                               -                     -         1.7            -         1.7
  Total                                 38.3                   5.4        56.2          0.1       100.0




Annual Report 2009 C           10/ Legal documentation                                                                                                                                                                                            159
                                                                                                                                                                                                                                                                                                                                                                                            www.cajamadrid.com


10/
Legal documentation



The Asset-Liability Committee (ALCO) is the body responsible for monitoring and managing liquidity risk, in accordance
with the resolutions and criteria approved by the Board of Directors, in order to guarantee the availability at all times
of funds at reasonable prices to enable the Caja to meet its commitments and finance the growth of its lending activities
on a timely basis.

This function relies on the systematic monitoring of various liquidity measures:

•    Liquidity gap: classification, by term to maturity, of the outstanding principal amounts of the financial assets and
     liabilities, taking as a reference the period remaining from the reporting date to the contractual maturity date. The
     liquidity gap analysis at 31 December 2009 is as follows:

                                                                                                                                                                                                                                                                                                                                                                          (thousands of euros)

                                                                                                                             On demand                  Less than 1 month                                 1 to 3 months                        3 months to 1 year                                 1 to 5 years                      More than 5 years                                     Total
    Assets
    Cash and balances with central banks                                                                                     1,926,799                             441,829                                       17,354                                          -                                        -                                    36,036                          2,422,018
    Loans and advances to credit institutions                                                                                        -                           7,668,696                                      613,995                                  1,092,519                                  929,482                                   532,768                         10,837,460
    Loans and advances to customers                                                                                                  -                           6,749,025                                    5,713,760                                 12,774,396                               30,567,869                                61,974,614                        117,779,664
    Financial assets held for trading                                                                                                -                             349,392                                            -                                          -                                   96,900                                   101,610                            547,902
    Available-for-sale financial assets                                                                                              -                          11,523,777                                       38,058                                  1,218,334                                4,998,805                                 5,506,883                         23,285,857
    Held-to-maturity investments                                                                                                     -                           7,289,238                                        6,941                                    176,339                                  354,644                                 1,811,724                          9,638,886
    Subtotal                                                                                                                 1,926,799                           34,021,957                                    6,390,108                                 15,261,588                              36,947,700                                 69,963,635                        164,511,787

    Liabilities
    Deposits from central banks and credit institutions                                                                             -                           12,042,268                                   4,007,151                                   3,253,194                                  267,963                                 1,384,642                         20,955,218
    Customer deposits, marketable debt securities and subordinated liabilities                                             33,684,328                           21,606,051                                  10,188,863                                  27,812,284                               28,265,133                                24,669,299                        146,225,958
    Subtotal                                                                                                               33,684,328                            33,648,319                                  14,196,014                                  31,065,478                              28,533,096                                 26,053,941                        167,181,176

    Total gap                                                                                                             (31,757,529)                               373,638                                 (7,805,906)                               (15,803,890)                               8,414,604                                 43,909,694
    Cumulative gap (*)                                                                                                    (31,757,529)                               373,638                                 (7,432,268)                               (23,236,158)                             (14,821,554)                                29,088,140


    (*) The calculation of the “cumulative gap” took into account the “demand” balances separately from the other maturities for liquidity analysis purposes because the balances relating to customer deposits, albeit legally claimable on demand, have remained historically stable over time. The calculation of the liquidity gaps took into account government debt securities listed on
    deep, highly liquid markets, at terms of one month, equal to the maturities of most of the underlying repos




Annual Report 2009 C                                 10/ Legal documentation                                                                                                                                                                                                                                                                                                                            160
                                                                                                                                                                                                                                                                                                                                                                                          www.cajamadrid.com


10/
Legal documentation



   The liquidity gap analysis at 31 December 2008 is as follows:
                                                                                                                                                                                                                                                                                                                                                                        (thousands of euros)

                                                                                                                          On demand                   Less than 1 month                                 1 to 3 months                        3 months to 1 year                                1 to 5 years                       More than 5 years                                    Total
  Assets
  Cash and balances with central banks                                                                                    1,786,040                              632,124                                            -                                          -                                       -                                        583                          2,418,747
  Loans and advances to credit institutions                                                                                 485,209                            6,758,164                                      381,274                                  1,040,024                               1,288,048                                    788,820                         10,741,539
  Loans and advances to customers                                                                                                 -                            7,172,669                                    6,430,063                                 15,709,176                              26,942,963                                 62,182,000                        118,436,871
  Financial assets held for trading                                                                                               -                              507,383                                            -                                     10,000                                  26,000                                    172,676                            716,059
  Available-for-sale financial assets                                                                                             -                           10,823,418                                       31,686                                    241,208                               4,666,977                                  5,499,043                         21,262,332
  Held-to-maturity investments                                                                                                    -                            5,415,185                                       55,364                                    355,185                                 401,667                                  1,472,619                          7,700,020
  Subtotal                                                                                                                 2,271,249                           31,308,943                                   6,898,387                                 17,355,593                               33,325,655                                70,115,741                         161,275,568

  Liabilities
  Deposits from central banks and credit institutions                                                                      250,432                            11,078,224                                   5,000,189                                   1,867,427                                 279,613                                  1,427,638                         19,903,523
  Customer deposits, marketable debt securities and subordinated liabilities                                            30,725,129                            18,216,409                                  12,901,025                                  23,084,207                              25,899,252                                 28,054,745                        138,880,767
  Subtotal                                                                                                               30,975,561                            29,294,633                                 17,901,214                                  24,951,634                               26,178,865                                29,482,383                         158,784,290

  Total gap                                                                                                             (28,704,312)                            2,014,310                                (11,002,827)                                 (7,596,041)                               7,146,790                                40,633,358
  Cumulative gap (*)                                                                                                    (28,704,312)                            2,014,310                                 (8,988,517)                                (16,584,558)                              (9,437,768)                               31,195,.590
  (*) The calculation of the “cumulative gap” took into account the “demand” balances separately from the other maturities for liquidity analysis purposes because the balances relating to customer deposits, albeit legally claimable on demand, have remained historically stable over time. The calculation of the liquidity gaps took into account government debt securities listed on
  deep, highly liquid markets, at terms of one month, equal to the maturities of most of the underlying repos


   This gap is the result of grouping financial assets and liabilities together by contractual maturity dates at 31                                                                                •    Structural position: a measure of the balance between recurring assets, mainly loans and receivables, and stable
   December 2009 and 2008, disregarding possible renewals. It is, therefore, an extremely prudent analysis of liquidity                                                                                 funding, defined as net capital, long-term issues and traditional customer deposits.
   risk, given the historical performance of the Group’s financial liabilities, especially customer deposits (retail
   liabilities).                                                                                                                                                                                   •    Interbank deposit position: at 31 December 2009, the lending position was EUR 3,587,382 thousand (31 December
                                                                                                                                                                                                        2008: lending position of EUR 4,723,544 thousand), which guarantees the existence of a significant funding balance
   In managing its liquidity gap, and in order to cater for future funding maturities, the Group has certain liquid assets                                                                              to cater for possible liquidity pressures.
   available to guarantee the commitments acquired in its lending activities. Most noteworthy among these assets are
   the securities included in the European Central Bank (Eurosystem) facility, which will provide immediate liquidity.                                                                             •    Aggressive liquidity: a liquidity stress-testing measure which analyses the availability of assets convertible into cash
   The total undrawn balance of these securities at 31 December 2009 was EUR 11,994,648 thousand (31 December                                                                                           at very short term to cater for payment commitments maturing within one month.
   2008: EUR 5,607,116 thousand).




Annual Report 2009 C                               10/ Legal documentation                                                                                                                                                                                                                                                                                                                            161
                                                                                                                                                                                                                                                          www.cajamadrid.com


10/
Legal documentation



The ALCO approves the rules for borrowing funds by instrument and term. Within this framework, the various borrowing               - On the one hand, the grant of State guarantees to the issues of promissory notes, bonds and debentures
programmes in force were combined to obtain stable sources of funding, with a prudent diversification of maturity                    launched on or after 14 October 2008 by credit institutions resident in Spain which meet certain requirements:
periods.                                                                                                                             they are individual transactions or part of issue programmes; they are not subordinated debt or debt secured
                                                                                                                                     by other types of collateral; they are admitted for trading on official Spanish secondary markets; they mature
In light of the exceptional circumstances that arose in the international financial markets, mainly in the second half               at between three months and three years, extendable to five years on the basis of a report from the Bank of
of 2008, European governments undertook to adopt the appropriate measures to seek to resolve the banks’ financing                    Spain; the interest rate is fixed or floating, although there are special requirements for issues with a floating
difficulties and their impact on the real economy, with a view to preserving the stability of the international financial            interest rate; they must be redeemed in one single payment and they may not include options or other financial
system. The main objectives of these measures were as follows: to ensure appropriate liquidity conditions for the                    instruments, and the nominal value must not be below EUR 10 million. The period for granting guarantees
operation of financial institutions; to facilitate financial institutions’ access to financing; to establish the mechanisms          ended on 31 December 2009 and the maximum total amount of guarantees to be granted in 2008 was EUR
required to permit, where appropriate, the provision of additional capital resources to financial institutions in order              100,000 million.
to ensure the proper performance of the economy; to guarantee that accounting regulations are sufficiently flexible
so as to take into account the exceptional circumstances in the markets; and to strengthen and improve the                         - On the other hand, the exceptional authorisation until 31 December 2009, for the Ministry of Economy and Finance to
mechanisms for coordination among European countries.                                                                                acquire securities, including preferred participating securities and non-voting equity units, issued by credit institutions
                                                                                                                                     resident in Spain which need to strengthen their capital and request such acquisitions.
Within this general framework, in the last quarter of 2008 the following measures were approved in Spain:
                                                                                                                              In 2009, as part of its liquidity and risk management policies, the Group utilised the aforementioned measures, as did
•   Royal Decree-Law 6/2008, of 10 October, creating the Fund for the Acquisition of Financial Assets (“FAAF”), and           other Spanish financial institutions, to launch issues guaranteed by the State (see Note 21) and to sell outright to the
    Ministry of Economy and Finance Order EHA/3118/2008, of 31 October, implementing the aforementioned Royal                 FAAF financial instruments for a total principal amount of EUR 1,321.7 million.
    Decree-Law. The purpose of the FAAF, which is under the auspices of the Ministry of Economy and Finance and was
    allocated an initial contribution of EUR 30,000 million, extendable to EUR 50,000 million, is to use Public Treasury
    money and market criteria to acquire, by means of the auction procedure, financial instruments issued by Spanish          3.3. Exposure to interest rate risk
    credit institutions and securitisation special-purpose vehicles, backed by loans granted to individuals, companies        The Caja Madrid Group had total assets of EUR 191,904,484 thousand at 31 December 2009 (31 December 2008: EUR
    and non-financial entities.                                                                                               180,970,942 thousand), of which those of the Caja accounted for 98.8% (31 December 2008: 98.4%).

•   Royal Decree-Law 7/2008, of 13 October, on Urgent Economic Measures in relation to the Concerted European Action          The sensitivity gap shows the matrix of maturities or repricings, grouping the carrying amount of assets and liabilities
    Plan of the Euro Area Countries, and Ministry of Economy and Finance Order EHA/3364/2008, of 21 November,                 by market rate on the basis of the repricing or maturity date, whichever is earlier. The sensitivity gap was calculated
    implementing Article 1 of the aforementioned Royal Decree-Law, which includes the following measures:                     considering the principal outstanding of all financial assets and liabilities, and transactional demand deposits from
                                                                                                                              customers were included as sensitive at five years because of the historical stable performance of the related balances.




Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                              162
                                                                                                                                                                                                            www.cajamadrid.com


10/
Legal documentation



The sensitivity gap analysis at 31 December 2009 is as follows:
                                                                                                                                                                                            (thousands of euros)

                                                                                Less than         1 to 3     3 months         1 to 2        2 to 3       3 to 4      4 to 5    More than
                                                                                 1 month         months       to 1 year       years         years        years       years       5 years                  Total
  Assets
  Cash and balances with central banks                                          1,615,083        19,599              -            -             -             -           -      787,336          2,422,018
  Loans and advances to credit institutions                                     8,405,200       877,600      1,068,066       19,432        64,037        31,258          22      371,845         10,837,460
  Loans and advances to customers                                              33,300,243    34,750,302     39,509,620    1,497,704       416,230       212,350     253,876    7,839,339        117,779,664
  Financial assets held for trading                                               151,936        30,832        157,652            -        74,300        12,197      37,500       83,485            547,902
  Available-for-sale financial assets                                            9,609,429       (27,233)     5,542,558      183,178        52,976     1,849,539   2,078,639    3,996,771         23,285,857
  Held-to-maturity investments                                                    781,977       251,492        176,339      173,494        55,000       550,000     326,150    7,324,434          9,638,886
  Subtotal                                                                     53,863,868     35,902,592    46,454,235    1,873,808       662,543     2,655,344   2,696,187   20,403,210        164,511,787
  Liabilities
  Deposits from central banks and credit institutions                          11,271,253     4,742,364      1,193,094    3,517,354             -            -            -      231,153         20,955,218
  Customer deposits, marketable debt securities and subordinated liabilities   34,755,168    56,468,098     26,123,446      879,240       890,739      613,093    1,263,999   25,232,175        146,225,958
  Subtotal                                                                     46,026,421     61,210,462    27,316,540    4,396,594       890,739      613,093    1,263,999   25,463,328        167,181,176
  Total gap                                                                     7,837,447    (25,307,870)   19,137,695    (2,522,786)     (228,196)   2,042,251   1,432,188   (5,060,118)
  Cumulative gap                                                                7,837,447    (17,470,423)    1,667,272      (855,514)   (1,083,710)     958,541   2,390,729   (2,669,389)
  % of balance sheet total                                                         4.08%          -9.10%        0.87%         -0.45%        -0.56%       0.50%       1.25%        -1.39%


The sensitivity gap analysis at 31 December 2008 is as follows:
                                                                                                                                                                                            (thousands of euros)

                                                                                Less than         1 to 3     3 months         1 to 2        2 to 3       3 to 4      4 to 5    More than
                                                                                 1 month         months       to 1 year       years         years        years       years       5 years                  Total
  Assets
  Cash and balances with central banks                                          1,736,014             -              -            -             -            -            -      682,733         2,418,747
  Loans and advances to credit institutions                                     7,550,974       697,499      1,242,768      304,204        34,660       13,132       94,869      803,433        10,741,539
  Loans and advances to customers                                              32,146,549    35,827,829     40,076,785    1,182,010       942,196      338,736      211,189    7,711,577       118,436,871
  Financial assets held for trading                                                56,434        32,055        413,565       78,092         1,200        1,050       16,275      117,388           716,059
  Available-for-sale financial assets                                            5,573,981     1,172,413      4,338,565    2,810,451       150,960      593,213    1,044,017    5,578,732        21,262,332
  Held-to-maturity investments                                                    759,635        55,364        403,328      173,888       179,636            -      200,000    5,928,169         7,700,020
  Subtotal                                                                     47,823,587    37,785,160     46,475,011    4,548,645     1,308,652      946,131    1,566,350   20,822,032        161,275,568

  Liabilities
  Deposits from central banks and credit institutions                          14,865,675     4,334,014        373,256        1,500        17,964            -           -       311,114        19,903,523
  Customer deposits, marketable debt securities and subordinated liabilities   37,843,561    55,116,561     18,525,759    4,729,359       235,694      110,665      45,578    22,273,590       138,880,767
  Subtotal                                                                     52,709,236    59,450,575     18,899,015    4,730,859       253,658      110,665       45,578   22,584,704        158,784,290
  Total gap                                                                    (4,885,649)   (21,665,415)   27,575,996     (182,214)    1,054,994       835,466   1,520,772   (1,762,672)
  Cumulative gap                                                               (4,885,649)   (26,551,064)    1,024,932      842,718     1,897,712     2,733,178   4,253,950    2,491,278
  % of balance sheet total                                                         -2.70%       -14.67%         0.57%        0.47%         1.05%         1.51%       2.35%        1.38%


Annual Report 2009 C                     10/ Legal documentation                                                                                                                                                        163
                                                                                                                                                                                                                                                     www.cajamadrid.com


10/
Legal documentation



The Asset-Liability Committee (ALCO), which is the Caja’s top executive body, is responsible for monitoring and               The working assumptions do not envisage negative interest rates and, accordingly, rates have a floor of 0.01% for
managing the Caja’s global on-balance-sheet interest rate risk, in accordance with the resolutions and criteria               downward shifts.
approved by the Board of Directors. In 2009 interest rate risk management policies and procedures were
implemented through the use of hedging instruments (structural securities and derivatives portfolios) arranged
in financial markets in order to maintain moderate risk levels in line with market interest rate trends and                   3.4. Exposure to other market risks
projections.                                                                                                                  The effect on the consolidated income statement of reasonable future changes in the various market risk factors is
                                                                                                                              as follows:
In order to perform these duties the ALCO relies basically on the systematic analysis of positions in each currency in
which a significant level of activity is carried out, making a distinction between the risk from the trading book and the     Distribution of sensitivity by risk factor at 31 December 2009:
risk from the banking book. In keeping with the recommendations of the Bank of Spain and the Basel Committee, the
                                                                                                                                                                                                                                    (thousands of euros)
analysis is conducted using two complementary approaches:
                                                                                                                                       Interest rate                      Equity instruments             Exchange rate         Credit spreads

•    Simulations of the performance of the net interest income over a time horizon of two years, given alternative                        25,008                               12,791                        506                  9,685
     scenarios of balance sheet growth and evolution of the yield curve. At the end of 2009 and 2008, the sensitivity
     of the net interest margin of the banking activity to an adverse horizontal shift of 100 b.p. in the yield curve, with   Distribution of sensitivity by risk factor at 31 December 2008:
     a time horizon of two years and a scenario of a stable balance sheet, was as follows:
                                                                                                                                                                                                                                    (thousands of euros)

                                                                                                                                       Interest rate                      Equity instruments             Exchange rate         Credit spreads
    Sensitivity                                                                                     2009           2008                  (75,499)                              16,947                       1,526                 (814)
    Euro                                                                                           5.44%         5.15%
    Dollar                                                                                         1.73%         1.12%
                                                                                                                              The assumptions used in the calculation of sensitivity were as follows:

•    Exposure of equity, defined as the net present value of expected future cash flows from the various balance sheet        •   Interest rates: 100 basic points increase.
     aggregates, to changes in the current yield curve. At the end of 2009 and 2008, the sensitivity of the net asset value   •   Equities: 20% fall.
     of the banking book to an adverse parallel shift of 100 b.p. in the yield curve was as follows:                          •   Exchange rates: 10% fluctuation.
                                                                                                                              •   Credit spreads: increase consistent with credit rating, as follows:


    Sensitivity                                                                                     2009           2008              AAA                          AA                             A                       BBB            <BBB
    Euro                                                                                           6.46%         4.99%               5 b.p.                     10 b.p.                        20 b.p.              50 b.p.           150 b.p.
    Dollar                                                                                         0.15%         0.66%




Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                       164
                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



Additionally, the Group holds the following structural portfolios:                                                              •   Central Government and central banks.
                                                                                                                                •   Institutions.
•   Debt instruments with a nominal amount of EUR 11,866,792 thousand and an overall sensitivity of EUR 383,249                 •   Corporate.
    thousand.                                                                                                                   •   Retail (including micro companies, mortgages, cards and other retail transactions).

•   Equity instruments acquired with the following investment strategy: instruments of listed companies that are                The Group measures other exposures, in order to calculate the capital requirements for credit risk, through the
    leaders in their industries; high dividend yields; high liquidity; and a medium-term time horizon. The cash balance         application of the standardised approach.
    of this portfolio amounts to EUR 90,594 thousand, with a sensitivity of EUR 18,119 thousand at 31 December 2009
    (31 December 2008: EUR 60,651 thousand and EUR 12,130 thousand, respectively).                                              The minimum capital requirements for risks related to the trading book (currency risk and market risk) and for certain
                                                                                                                                risk exposures of quoted available-for-sale equity securities are calculated by applying internal approaches.
At 31 December 2009, there were negative valuation adjustments (net of tax) amounting to EUR 15,784 thousand (31
December 2008: negative valuation adjustments of EUR 224,879 thousand). The effect on equity at 31 December                     Additionally, as regards the calculation of capital requirements for operational risk, the Group intends to adopt a
2009 of a 5% variation in the future prices of the above-mentioned equity instruments would amount to EUR 125,388               phased rollout of internal approaches, i.e. initial application of the basic indicator approach and subsequent
thousand (31 December 2008: EUR 65,020 thousand). The effect of the changes in exchange rates and in the quoted                 implementation of an advanced measurement approach (AMA).
commodity prices is zero or negligible.
                                                                                                                                In connection with Pillar II, the aforementioned Bank of Spain Circular 3/2008 obliges credit institutions to perform an
                                                                                                                                ongoing internal capital adequacy assessment process (ICAAP), which consists of defining a group of detailed strategies
4. Capital management                                                                                                           and procedures in order to measure the risks to which they are exposed and the adequacy of the amounts and
                                                                                                                                distribution of its internal capital and own funds. The ICAAP must include the determination of certain objectives and
Capital ratio                                                                                                                   strategies for own funds and the inclusion of stress scenarios that allow the Group to anticipate possible adverse
Bank of Spain Circular 3/2008 on the calculation and control of minimum capital requirements, contained in Law                  changes in the markets in which the entities operate. A detail of all these items that compose the ICAAP and the main
36/2007, of 16 November, in turn amending Law 13/1985, of 25 May, on the investment ratios, capital and reporting               conclusions must be summarised in an internal capital adequacy assessment report (ICAAR) and filed with the Bank
requirements of financial intermediaries was approved and came into force in 2008. Bank of Spain Circular 3/2008                of Spain every year.
adapts Spanish legislation on capital requirements to the Community Directives, which stem, in turn, from the Basel
Capital Accord (Basel II), and is structured around three core pillars: minimum capital requirements (Pillar I), the internal   Accordingly, in 2008, for the first time, the Group performed the aforementioned ICAAP on the adequacy of its own funds
capital adequacy assessment process (Pillar II) and market disclosures (Pillar III).                                            and internal capital with respect to the nature and level of risks to which it is exposed (see Note 3). Also, in 2009 the
                                                                                                                                performance of this process continued with the inclusion of certain actions, updates and improvements regarding the
With respect to Pillar I, the Group uses advanced IRB approaches to assess its credit risk for the following risk               management processes that have strengthened the internal capital adequacy assessment framework, in particular,
exposures, after obtaining explicit authorisation from the Bank of Spain:                                                       with respect to the development of the Group’s economic capital model. The basic aspects of this model and the
                                                                                                                                conclusions drawn from this process in 2009 are summarised in the aforementioned ICAAR, which will be sent to the
                                                                                                                                Bank of Spain once it has been approved by the Board of Directors.




Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                      165
                                                                                                                                                                                                                                                                                                                   www.cajamadrid.com


10/
Legal documentation



Finally, on the basis of Pillar III, the aforementioned Bank of Spain Circular 3/2008 determines that institutions must   Following is a detail, classified into Basic Equity and Supplementary Capital, of the Group’s capital at 31 December 2009
prepare, at least once a year, a document called “Information of prudential relevance”, including all the required        and 2008, and of the capital requirements for each type of risk, calculated as required by Bank of Spain Circular 3/2008:
explanations and details in connection with eligible capital, capital requirements on the basis of assumed risk levels
and other additional reporting requirements.                                                                                                                                                                                                                                                 (thousands of euros)

                                                                                                                                                                                                                         2009 (1)                                                              2008
The Group prepared the first document of this kind including data at 31 December 2008 and disseminated it,                                                                                                Amount                               %                             Amount                                %
pursuant to the formal policy approved by the Caja’s Board of Directors and included in the Information of prudential         Basic Equity Capital (2)                                              11,209,344                           8.88%                            9,655,068                        7.66%
                                                                                                                              Supplementary Capital (3)                                              2,175,972                           1.72%                            3,074,356                        2.44%
relevance, at the same time as it published the consolidated financial statements for 2008 on the Group’s website.
The Information of prudential relevance document for 2009 will be published in the same way as the previous one,              Total Group eligible capital                                           13,385,316                         10.60%                          12,729,424                        10.10%
once it has been approved by the Board of Directors.                                                                          Minimum capital requirements
                                                                                                                                  For credit risk                                                     9,382,268                                                           9,116,546
                                                                                                                                  For price and foreign currency risk                                   164,973                                                             342,850
Bank of Spain Circular 3/2008 establishes which elements should be classified as capital for the purposes of                      For operational risk                                                  556,084                                                             619,430
compliance with the minimum requirements established therein. Under this Circular, capital is classified into Tier            Total minimum capital requirements                                     10,103,325                               8%                        10,078,826                                 8%
1 capital and Tier 2 capital and differs from capital calculated in accordance with EU-IFRSs, since the Circular              (1) Estimated data at 31 December 2009
considers certain items to be capital and includes the obligation to deduct other items that are not envisaged                (2) Includes the endowment fund, reserves, net profit for the year to be appropriated to reserves, non-controlling interests and Preferred Shares, net, among other items, of the
                                                                                                                                  Group’s goodwill and other intangible assets of the Group and, where appropriate, 50% of the total deduction resulting from the short fall of recognised impairment losses
under EU-IFRSs. Additionally, the consolidation and measurement bases to be applied to investees for the purpose                  (provisions) in relation to the expected losses and investments of more than 10% in financial institutions and of more than 20% in insurance companies
of calculating the Group’s minimum capital requirements pursuant to current regulations differ from those applied             (3) Mainly includes revaluation reserves, unrealised gains recognised as revaluation gains on available-for sale financial assets and subordinated debt; net, where appropriate, of
                                                                                                                                  50% of the total deduction resulting from the short fall of recognised impairment losses (provisions) in relation to the expected losses and investments of more than 10% in
in the preparation of these consolidated financial statements, which also gives rise to differences in the calculation            financial institutions and of more than 20% in insurance companies
of capital under Bank of Spain regulations and EU-IFRSs.
                                                                                                                          At 31 December 2009 and 2008, and throughout these years, the Group’s eligible capital and that of the individual
The Group’s management of its capital, as far as conceptual definitions are concerned, is in keeping with Bank of         entities subject to this requirement exceeded the minimum required under the aforementioned regulations.
Spain Circular 3/2008. In this connection, the Group considers as eligible capital that specified in Rules 8 and 9 of
Bank of Spain Circular 3/2008.                                                                                            Capital management objectives, policies and processes
                                                                                                                          The objective established by the Group is to maintain levels of capital that amply satisfy minimum regulatory
The minimum capital requirements established by Bank of Spain Circular are calculated on the basis of the Group’s         requirements and that enable the Caja to preserve its financial robustness and solvency, optimising the risk/return
exposure to credit risk (based on its assets, commitments and other off-balance-sheet items exposed to this               ratio and complying with the risk tolerance levels defined by its Governing Bodies.
risk), to foreign exchange and gold position risk (based on the overall net foreign currency position and on the net
gold position), to risk in the trading book, to commodity price risk and to operational risk. Additionally, the Group     Although the capital target is set at Group level, the Caja adopts the same criteria as those established for the Group
is subject to compliance with the risk concentration limits established in the aforementioned Circular. In order to       as a whole. In this respect, a twin objective has been set:
ensure compliance with the aforementioned objectives, the Group performs an integrated management of these
risks, in accordance with the policies described in the following section.                                                •    Minimum Core Capital (Tier I): cushion of more than 50% over the core capital (Tier I) requirements.

                                                                                                                          •    Minimum total capital, net of the related deductions (Tier I + Tier II): cushion of more than 10% over the minimum
                                                                                                                               total capital requirements.

Annual Report 2009 C            10/ Legal documentation                                                                                                                                                                                                                                                                        166
                                                                                                                                                                                                                                                    www.cajamadrid.com


10/
Legal documentation



The Group attaches greater significance to the achievement of the core capital target since it considers it to be of            In 2008 the Group completed the economic capital model (in addition to the regulatory capital model required by Pillar
strategic importance in guaranteeing solvency and protecting against the assumed risks inherent to financial activities,        II) which provided, both at aggregate level and by risk unit or segment, the diversified economic capital arising from
given its permanent nature, availability and capacity to absorb losses.                                                         the distribution of losses, as well as the systemic economic capital (arising mainly from macroeconomic factors) and
                                                                                                                                the economic capital for specific risk (arising from specific factors of each borrower). This model addresses, inter alia,
The total capital adequacy objective was established in line with the analysis and evaluation of the different risks            the following aspects:
incurred by the Group, i.e. from a credit, market, interest rate, liquidity and operational risk perspective.
                                                                                                                                •   The calculation for different capitalisation levels (the Basel II model focuses on a 99.9th percentile standard).
These sound levels of capitalisation are also in keeping with the Group’s aim to maintain stable the current credit
ratings awarded by the principal international agencies: Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.        •   The diversification among segments and the differentiation between systemic and specific capital (treatment of
                                                                                                                                    concentration).
To achieve these objectives, the Group has in place a series of capital management policies and processes, the main
cornerstones of which are as follows:                                                                                           •   The use of a multi-factor model (as opposed to the single-factor model under Basel II).

•   Planning its future capital requirements on the basis of the risk assumed at short term (one-year time horizon) and         •   Long-term time horizon.
    at medium term (time horizon of one to three years) including an analysis of a core scenario and various stress
    scenarios.                                                                                                                  •   The treatment of loss severity as a random factor.

•   During the financial planning process, the ordinary generation of capital is assessed through the projection of profit      •   The option to calculate unconditional capital (over the cycle) or capital conditional upon a specific macroeconomic
    attributable to reserves. The capital planning process begins with financial planning, and capital requirements                 situation of the cycle.
    resulting from business development are estimated on the basis of projected organic growth of exposure at default
    (EAD), as defined by Basel II, taking into account any variations in the risk profile that might arise from changes in
    the business conducted and from changes in the economic cycle.                                                              5. Earnings per share
•   Each month Management monitors the achievement of the capital targets set and analyses any variances in order               Due to the nature of Savings Banks, their endowment fund does not comprise listed shares and, therefore, in accordance
    to determine if their causes relate to one-off events or if they are structural in nature. In the latter case, management   with current regulations, no information relating to earnings per share is disclosed in the consolidated financial
    reviews and adopts the measures required to adjust the level of capital to the targets set, and assesses the need           statements.
    to resort to potential alternative sources of capital, evaluating in each case which instrument would optimally cover
    the existing requirements, within the applicable regulatory issuance limits.




Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                      167
                                                                                                                                                                                                                                                         www.cajamadrid.com


10/
Legal documentation



6. Allocation of the Caja’s profit                                                                                                  The Businesses and Corporate Finance segment includes the business specialising in the provision of financial services
                                                                                                                                    to businesses and large institutions, including services and products related to project finance, structured asset
The allocation of the Caja’s net profit for 2009 that the Board of Directors will propose for approval by the General Assembly       financing, corporate advice on mergers and acquisitions and structured products, inter alia.
is as follows (the figures for 2008 are presented for comparison purposes):
                                                                                                                                    The Treasury and Capital Markets segment groups together Group treasury management, trading in money and equity
                                                                                                             (thousands of euros)
                                                                                                                                    markets and government debt market making, management of the Group’s foreign exchange risk, management of
                                                                                                      2009                2008
                                                                                                                                    the Group’s proprietary fixed-income and equity securities investment portfolios and participation in capital markets
    Transfer to Welfare Fund                                                                        80,000            187,472       (origination, syndication, secondary fixed-income and syndicated loan market, derivatives trading, securitisation and
    Transfer to reserves                                                                           279,708            710,930
                                                                                                                                    management of own issues).
    Net profit for the year                                                                         359,708            898,402

                                                                                                                                    The Corporación Financiera and Caja Madrid Cibeles segment brings together several activities, ownership interests and
                                                                                                                                    investments of the Caja Madrid Group in various sectors, including real estate business and development, and venture
7. Segment reporting                                                                                                                capital and private equity activities, which comprise the ownership interests in infrastructures or in the industrial
                                                                                                                                    sector, inter alia. Caja Madrid Cibeles brings together the activities relating to financial asset management and
7.1. Basis of segmentation                                                                                                          intermediation, private banking, specialist financial services, investments in the Mapfre Group and the international
Segment reporting is structured based on the various business segments of the Caja Madrid Group, and is perfectly                   holdings in Grupo Su Casita, S.A. de C.V. and City National Bank of Florida.
aligned with the structure used by the Group’s Governing Bodies in the process of taking decisions regarding the
allocation of resources to the segments and for the measurement of their performance.                                               Lastly, the Corporate Unit covers mainly the Caja’s direct investments and the activities and results of support units
                                                                                                                                    such as the ALCO and the central departments. The Corporate Unit also includes all the intra-Group eliminations arising
The segmentation at 2009 year-end comprised the following business segments:                                                        on consolidation.

•   Individuals.
•   Businesses and Corporate Finance.                                                                                               7.2. Basis and methodology for business segment reporting
•   Treasury and Capital Markets.                                                                                                   The business segments’ balance sheets and income statements are prepared by aggregating the figures of the units
•   Corporación Financiera and Caja Madrid Cibeles.                                                                                 assigned to the business segments. Each unit’s cash requirements and surpluses are presented in the income statement
•   Corporate Unit.                                                                                                                 at transfer prices, established depending on the type, maturity and currency of the transactions, which vary on the
                                                                                                                                    basis of current market rates. Direct or indirect expenses are allocated to the business segments in which they arise,
The Individuals Banking segment includes retail banking, which is carried out through the Caja Madrid branch network                except for those that are of a markedly corporate or institutional nature for the Group as a whole, which are allocated
and covers business with individuals (including the Caja Madrid Personal Banking service), independent contractors                  to the Corporate Unit.
and commercial customers, SMEs and developers with revenue of up to EUR 10 million. The range of products and
services provided includes demand and time savings products, mortgage loans, consumer loans, short- and long-term                   Lastly, the operating balances of each business segment do not reflect the elimination of intra-Group transactions affecting
financing for businesses and developers, guarantees, debit and credit cards, etc.                                                   various segments, since these transactions are considered to be an integral part of the activity and management of each
                                                                                                                                    business. Accordingly, the intra-Group eliminations arising on consolidation are allocated to the Corporate Unit.


Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                            168
                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



7.3. Segment reporting
The following table shows the business segment information for the Group at 31 December 2009, as required by
current regulations:


                                                                                                                                                                                          (thousands of euros)

                                                                                                                                   Businesses and   Treasury and            Corporación
                                                                                                                                        Corporate         Capital        Financiera and           Corporate
                                                                                                      Group Total    Individuals          Finance       Markets     Caja Madrid Cibeles                Unit
  Net interest income                                                                                  2,532,057     1,445,951          385,319        607,815                 44,693              48,279
  Income from equity instruments                                                                         118,524             -              260         12,875                 89,543              15,846
  Share of results of entities accounted for using the equity method                                    (143,366)            -                -              -                (64,968)            (78,398)
  Net fee and commission income (expense)                                                                770,526       489,687          217,218          5,688                 75,350             (17,417)
  Gains/losses on financial assets and liabilities (net) and Exchange differences                         599,931        26,942           27,107        345,043                 30,684             170,155
  Other operating income and expenses                                                                     (6,536)      (13,541)             (88)            82                 18,642             (11,631)
  Gross income                                                                                         3,871,136     1,949,039           629,816        971,503              193,944              126,834
  Administrative expenses                                                                             (1,586,599)   (1,082,001)         (117,941)       (43,755)            (139,138)            (203,764)
  Depreciation and amortisation charge                                                                  (232,730)      (87,438)           (4,775)          (760)             (25,116)            (114,641)
  Impairment losses on financial assets and other provisions (net)                                     (1,376,588)     (821,639)         (599,791)       (32,036)             (89,010)             165,888
  Profit (Loss) from operations                                                                          675,219        (42,039)          (92,691)       894,952               (59,320)            (25,683)
  Other income and expenses                                                                            (310,951)       (60,912)         (111,781)            (4)               61,875            (200,129)
  Profit (Loss) before tax                                                                               364,268       (102,951)         (204,472)       894,948                 2,555             (225,812)

  Loans and advances to customers                                                                    117,779,664    80,949,372        35,096,023      1,700,130             1,725,182          (1,691,043)
  Securities portfolio (*)                                                                            39,402,875               -         690,598    24,819,863              5,959,109           7,933,305
  Customer funds                                                                                     146,225,958    59,887,272         9,800,210    69,299,003             3,334,179            3,905,294
  Customer deposits                                                                                   89,596,749    56,191,330         9,750,351    18,261,969             3,323,168            2,069,931
  Marketable debt securities and Subordinated liabilities                                             54,948,577     3,556,724            42,302    49,514,188                     -            1,835,363
  Valuation adjustments and others                                                                     1,680,632       139,218             7,557     1,522,846                11,011                    -

  (*) Securities portfolio: balances of Debt instruments, Other equity instruments and Investments




Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                    169
                                                                                                                                                                                                                 www.cajamadrid.com


10/
Legal documentation



The following table shows the business segment information for the Group at 31 December 2008, as required by
current regulations:

                                                                                                                                                                                          (thousands of euros)

                                                                                                                                   Businesses and   Treasury and            Corporación
                                                                                                                                        Corporate         Capital        Financiera and           Corporate
                                                                                                      Group Total    Individuals          Finance       Markets     Caja Madrid Cibeles                Unit
  Net interest income                                                                                  2,208,576     1,394,911          357,332        124,594                (35,318)             367,057
  Income from equity instruments                                                                         112,285             -              449         17,955                 93,569                  312
  Share of results of entities accounted for using the equity method                                       6,073             -                -              -                (13,277)              19,350
  Net fee and commission income (expense)                                                               802,541        548,324          187,236         20,437                 72,391              (25,847)
  Gains/losses on financial assets and liabilities (net) and Exchange differences                         345,572        13,856           (1,858)       249,702                 26,570               57,302
  Other operating income and expenses                                                                     14,941       (10,095)             484            (62)                31,190               (6,576)
  Gross income                                                                                         3,489,988     1,946,996           543,643        412,626               175,125             411,598
  Administrative expenses                                                                             (1,746,638)   (1,130,454)         (124,190)       (39,457)              (96,034)           (356,503)
  Depreciation and amortisation charge                                                                  (175,111)      (73,045)           (3,884)          (781)              (13,315)            (84,086)
  Impairment losses on financial assets and other provisions (net)                                       (786,458)     (506,252)         (307,611)       (36,160)               (8,500)             72,065
  Profit (Loss) from operations                                                                          781,781        237,245           107,958        336,228               57,276                43,074
  Other income and expenses                                                                             423,758           (115)               (7)            17              513,435               (89,572)
  Profit (Loss) before tax                                                                              1,205,539       237,130           107,951        336,245               570,711              (46,498)

  Loans and advances to customers                                                                    118,436,871    81,385,681        35,973,686        942,461             1,457,324          (1,322,281)
  Securities portfolio (*)                                                                            31,843,991               -         419,387    15,199,818              5,352,654          10,872,132
  Customer funds                                                                                     138,880,767    55,579,420       10,505,183     61,915,557             3,263,781            7,616,826
  Customer deposits                                                                                   83,345,656    52,242,206       10,219,100     15,045,328             3,244,239            2,594,783
  Marketable debt securities and Subordinated liabilities                                             53,081,595     3,122,932          225,425     44,711,195                     -            5,022,043
  Valuation adjustments and others                                                                     2,453,516       214,282           60,658      2,159,034                19,542                    -

  (*) Securities portfolio: balances of Debt instruments, Other equity instruments and Investments




The Group carries on its business activity mainly in Spain through a network of 2,153 branches with a presence in all
the Autonomous Communities. The Caja’s foreign business is conducted through four operating branches located in
Dublin, Lisbon, Miami and Vienna. It also has a network of 22 branches relating to City National Bank of Florida located
in Florida (USA). Almost all the Group’s income is generated in Spain.



Annual Report 2009 C                              10/ Legal documentation                                                                                                                                                    170
                                                                                                                                                                                                                                               www.cajamadrid.com


10/
Legal documentation



8. Remuneration of Directors and Senior Executives of the Caja
8.1. Remuneration of Directors
The detail of the gross remuneration received by the members of the Caja’s Board of Directors, solely in their capacity as Board
members of the Caja, in 2009 and 2008, is as follows:
                                                                                                                                                                                                                               (thousands of euros)

                                                                                                                                              Short-term remuneration
                                                                                             Welfare Fund                     Executive                Remuneration          Investment                Audit
                                                                   Board of Directors          Committee                      Committee                  Committee            Committee              Committee                     Total
                                                                  2009          2008      2009          2008             2009          2008          2009        2008     2009        2008   2009                2008      2009            2008
  Mr. Miguel Blesa de la Parra                                   35.10         32.30                                     56.70        57.65                                                                               91.80         89.95
  Mr. José Antonio Moral Santín                                  35.10         32.30     33.75          33.45            56.70        57.65          5.40         14.85                                                  130.95        138.25
  Mr. Estanislao Rodríguez-Ponga y Salamanca                     33.75         32.30     33.75          33.45            54.00        57.65                                9.45      10.70                               130.95        134.10
  Mr. José María Arteta Vico                                     35.10         32.30                                                                                       9.45      10.70                                44.55         43.00
  Mr. Juan José Azcona Olóndriz                                  35.10         32.30     33.75          33.45                                                                                                             68.85         65.75
  Mr. Francisco Baquero Noriega                                  35.10         32.30                                     56.70        57.65                                                                               91.80         89.95
  Mr. Pedro Bedia Pérez                                          35.10         32.30     33.75          33.45            56.70        57.65                                                   9.45               5.40    135.00        128.80
  Mr. Rodolfo Benito Valenciano                                  35.10         32.30                                                                                                                                      35.10         32.30
  Mr. Gerardo Díaz Ferrán                                        31.05         32.30                                                                                                                                      31.05         32.30
  Mr. Ramón Espinar Gallego                                      35.10         32.30     33.75          33.45                                                                                                             68.85         65.75
  Mr. José Manuel Fernández Norniella                            35.10         32.30                                                                                                                                      35.10         32.30
  Mr. Guillermo R. Marcos Guerrero                               35.10         32.30     33.75          33.45            56.70        57.65          5.40         14.85                                                  130.95        138.25
  Mr. Gonzalo Martín Pascual                                     35.10         32.30                                                                                                                                      35.10         32.30
  Ms. Mercedes de la Merced Monge                                35.10         32.30                                     56.70        57.65                                                                               91.80         89.95
  Mr. Ignacio de Navasqüés Cobián                                35.10         32.30                                     56.70        57.65                                                                               91.80         89.95
  Mr. Jesús Pedroche Nieto                                       35.10         32.30                                                                                                                                      35.10         32.30
  Mr. Alberto Recarte García-Andrade                             35.10         32.30                                     56.70        57.65                                9.45      10.70                               101.25        100.65
  Mr. José María de la Riva Ámez                                 35.10         32.30                                                                                                          9.45               5.40     44.55         37.70
  Ms. Mercedes Rojo Izquierdo                                    35.10         32.30                                                                                                                                      35.10         32.30
  Mr. Antonio Romero Lázaro                                      35.10         32.30     33.75          33.45                                        5.40         14.85                                                   74.25         80.60
  Mr. Ricardo Romero de Tejada y Picatoste                       35.10         32.30     33.75          33.45            56.70        57.65                                                   9.45               5.40    135.00        128.80
  Total                                                          731.70       678.30    270.00         267.60           564.30       576.50         16.20         44.55   28.35      32.10   28.35           16.20      1,638.90     1,615.25



The Caja also paid EUR 381 thousand in 2009 (2008: EUR 372 thousand), in connection with the third-party liability
insurance policy premium for the members of the Governing Bodies and the executives who are directors of Group
entities, associates or investees.

The attendance fees received by the directors from other consolidated Group entities, associates or investees amounted
(gross) to EUR 3,117 thousand in 2009 (2008: EUR 2,124 thousand).

Annual Report 2009 C                   10/ Legal documentation                                                                                                                                                                                             171
                                                                                                                                                                                                                                                                    www.cajamadrid.com


10/
Legal documentation



8.2. Remuneration of Senior Executives                                                                                                10. Financial assets and liabilities held for trading
In the preparation of these consolidated financial statements, senior executives were deemed to be the members of
the Management Committee (10 people in 2009 and 12 in 2008), who were classified as key personnel for the Caja                        Breakdown
for these purposes.                                                                                                                   The detail, by counterparty and type of instrument, of these items in the consolidated balance sheets at 31 December 2009
                                                                                                                                      and 2008, showing the carrying amounts at those dates, is as follows:
The following table shows the remuneration received by the senior executives, as defined above:
                                                                                                                                                                                                                                                   (thousands of euros)
                                                                                                               (thousands of euros)                                                          Financial assets held for trading   Financial liabilities held for trading
                                      Short-term               Post-employment        Termination
                                    remuneration                   benefits              benefits                        Total                                                                 2009                    2008               2009                     2008
                                 2009           2008          2009         2008   2009          2008           2009            2008    By counterparty
                                                                                                                                       Credit institutions                               9,606,150             7,428,498          9,775,013              7,757,890
  Senior Executives             12,414         13,688         2,782        133    1,993            -      17,189           13,821      Resident public sector                              415,525               547,547                568                    580
                                                                                                                                       Non-resident public sector                           10,090                   205                  -                      -
                                                                                                                                       Other resident sectors                            1,706,302             1,432,242            600,455                588,310
8.3. Post-employment benefits for former members of the Board of Directors and Senior Executives of the Caja                            Other non-resident sectors                          355,888               627,267            139,279                193,411
No amount in respect of the Caja’s pension and similar obligations to the former Board members and Senior Executives                   Total                                            12,093,955            10,035,759         10,515,315               8,540,191
of the Caja was charged to the consolidated income statements for 2009 and 2008, since these obligations were fully                    By type of instrument
funded in previous years through insurance policies.                                                                                   Loans and advances to customers                      39,359                70,122                  -                      -
                                                                                                                                       Debt instruments                                    464,793               583,936                  -                      -
                                                                                                                                       Other equity instruments                             71,456                48,147                  -                      -
                                                                                                                                       Trading derivatives                              11,518,347             9,333,554         10,163,307              8,371,974
9. Cash and balances with central banks                                                                                                Short positions                                           -                     -            352,008                168,217
                                                                                                                                       Total                                            12,093,955            10,035,759         10,515,315               8,540,191
The detail of the balance of “Cash and balances with central banks” in the accompanying consolidated balance sheets is as
follows:
                                                                                                                                      Financial assets held for trading. Debt instruments
                                                                                                               (thousands of euros)   The breakdown of the balance of this item in the consolidated balance sheets is as follows:
                                                                                                       2009                 2008
  Cash and balances with central banks                                                                                                                                                                                                              (thousands of euros)
  Cash                                                                                               648,541            664,446
  Balances with the Bank of Spain                                                                  1,226,536          1,664,001                                                                                                             2009                2008
  Balances with other central banks                                                                  544,652             87,594        Debt instruments
  Valuation adjustments                                                                                2,289              2,706        Spanish government debt securities                                                               352,304             491,573
  Total                                                                                            2,422,018          2,418,747        Foreign government debt securities                                                                10,090                 205
                                                                                                                                       Issued by financial institutions                                                                   97,855              22,479
                                                                                                                                       Other foreign fixed-income securities                                                                   -              65,615
                                                                                                                                       Other Spanish fixed-income securities                                                               4,544               4,064
                                                                                                                                       Total                                                                                            464,793             583,936



Annual Report 2009 C                     10/ Legal documentation                                                                                                                                                                                                                172
                                                                                                                                                                                                                                                                  www.cajamadrid.com


10/
Legal documentation



The average effective annual interest rate on the debt instruments as included in the “Financial assets held for trading”                 The detail, by maturity, of the notional amount of the trading derivatives at 31 December 2009 is as follows:
was 2.56% in 2009 (2008: 4.54%).
                                                                                                                                                                                                                                                 (thousands of euros)
Financial assets held for trading. Equity instruments
                                                                                                                                                                                           0 to 3 years     3 to 10 years   More than 10 years             Total
The breakdown of the balance of this item in the consolidated balance sheets is as follows:
                                                                                                                                           Unmatured foreign currency purchases and sales 12,046,446            151,306                      -       12,197,752
                                                                                                                   (thousands of euros)    Securities derivatives                           6,654,005           180,435                      -        6,834,440
                                                                                                                                                Options                                     6,619,319           180,435                      -        6,799,754
                                                                                                            2009                2008            Swaps                                                 -                 -                    -                 -
                                                                                                                                                Futures                                        34,686                   -                    -           34,686
  Equity instruments
  Shares of resident companies                                                                          71,091               48,147        Interest rate derivatives                      295,081,070      176,746,002            87,035,494        558,862,566
  Shares of non-resident foreign companies                                                                 365                    -             Options                                    26,421,084       16,891,570              2,440,542        45,753,196
                                                                                                                                                Swaps                                     265,563,996      159,854,432            84,594,952        510,013,380
  Total                                                                                                 71,456                48,147            Futures                                     3,095,990                   -                    -        3,095,990
                                                                                                                                           Credit derivatives                                  63,390           308,537                 9,422           381,349
                                                                                                                                           Other                                              715,092                   -                    -          715,092
                                                                                                                                           Total                                          314,560,003      177,386,280             87,044,916       578,991,199
Financial assets/liabilities held for trading. Trading derivatives
The breakdown, by type of derivative, of the fair value of the Group’s trading derivatives at 31 December 2009 and 2008
is as follows:
                                                                                                                                          The detail, by maturity, of the notional amount of the trading derivatives at 31 December 2008 is as follows:
                                                                                                                   (thousands of euros)

                                                                2009                                        2008                                                                                                                                 (thousands of euros)
                                              Debit balances           Credit balances    Debit balances              Credit balances                                                       0 to 3 years   3 to 10 years    More than 10 years                 Total
                                                   Fair value                Fair value        Fair value                   Fair value
                                                                                                                                           Unmatured foreign currency purchases and sales 7,636,169            180,530                     -          7,816,699
  Unmatured foreign currency purchases and sales 137,818                     180,114           135,884                       141,002       Securities derivatives                          7,613,796           146,011                     -          7,759,807
  Securities derivatives                         207,458                     229,524           333,975                       322,024            Options                                    7,590,635           146,011                     -          7,736,646
      Options                                    207,458                     229,524           333,975                       322,024            Swaps                                              -                 -                     -                  -
      Swaps                                            -                           -                 -                             -            Futures                                       23,161                 -                     -             23,161
  Interest rate derivatives                     11,133,443                 9,730,060         8,774,500                    7,843,689        Interest rate derivatives                     212,883,693       124,765,946            74,025,071        411,674,710
       Options                                     406,395                   400,031           589,751                      568,023             Options                                   30,151,074         9,687,303             8,085,001         47,923,378
       Swaps                                    10,727,048                 9,330,029         8,184,749                    7,275,666             Swaps                                    180,817,412       115,078,643            65,940,070        361,836,125
                                                                                                                                                Futures                                    1,915,207                 -                     -          1,915,207
  Credit derivatives                                 19,518                    6,144             41,978                        20,750
  Other                                              20,110                   17,465             47,217                        44,509      Credit derivatives                                 24,586           628,002               100,708            753,296
                                                                                                                                           Other                                           1,109,237                 -                     -          1,109,237
  Total                                         11,518,347                10,163,307         9,333,554                     8,371,974
                                                                                                                                           Total                                          229,267,481      125,720,489            74,125,779        429,113,749




Annual Report 2009 C                 10/ Legal documentation                                                                                                                                                                                                                  173
                                                                                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



The notional amount of derivatives is the amount that is used as a basis for estimating the results associated                                                                                                                                                                              (thousands of euros)

therewith, although, bearing in mind that a highly significant portion of these positions offset each other, thus hedging                                                                                                                                                          2009                  2008
the risks assumed, the notional amount cannot be understood to represent a reasonable measure of the Group’s                 By counterparty
exposure to the risks associated with these products.                                                                        Credit institutions                                                                                                                           2,299,809             1,187,202
                                                                                                                             Resident public sector                                                                                                                       12,377,073            11,420,644
                                                                                                                             Non-resident public sector                                                                                                                       58,484               503,564
                                                                                                                             Other resident sectors                                                                                                                        8,514,974             7,380,243
                                                                                                                             Other non-resident sectors                                                                                                                    3,219,793               862,639
11. Other financial assets at fair value through profit or loss                                                              Impairment losses                                                                                                                               (67,936)              (62,817)
                                                                                                                             Valuation adjustments (Micro-hedges)                                                                                                            (62,152)              (88,647)
The total balance of “Other financial assets at fair value through profit or loss” in the consolidated balance sheet         Total                                                                                                                                        26,340,045            21,202,828
                                                                                                                             By type of instrument
relates, based on the type of financial instrument and the counterparty, to debt instruments with “Other non-resident        Debt instruments                                                                                                                             23,244,781            18,405,829
sectors”.                                                                                                                         Spanish government debt securities                                                                                                      12,377,073            11,420,644
                                                                                                                                          Treasury bills                                                                                                                     436,315               575,301
                                                                                                                                           Government bonds                                                                                                               11,940,758            10,845,343
The average effective annual interest rate on the debt instruments included under “Other financial assets at fair value           Foreign government debt securities                                                                                                          58,484               503,564
                                                                                                                                  Issued by financial institutions                                                                                                          2,112,396             1,031,354
through profit or loss” was 6.11% in 2009 (2008: 5.53%).                                                                          Other fixed-income securities                                                                                                             8,764,764             5,513,084
                                                                                                                                  Impairment losses                                                                                                                          (67,936)              (62,817)
                                                                                                                             Equity instruments                                                                                                                            3,095,264             2,796,999
                                                                                                                                  Shares of listed companies                                                                                                               2,212,038             2,236,751
12. Available-for-sale financial assets                                                                                           Shares of unlisted companies                                                                                                               945,378               648,895
                                                                                                                                  Valuation adjustments (Micro-hedges)                                                                                                       (62,152)              (88,647)

Breakdown                                                                                                                    Total                                                                                                                                        26,340,045             21,202,828
The detail, by type of counterparty and type of financial instrument (identifying the quoted financial instruments,
which are those for which prices in an active market are available on a frequent and regular basis - see Note 2.2), of      The average effective annual interest rate on the debt instruments included under “Available-for-sale financial assets”
“Available-for-sale financial assets” in the consolidated balance sheet is as follows:                                      was 4.02% in 2009 (2008: 4.80%).

                                                                                                                            The detail of the acquisition costs and the unrealised gains or losses on the equity instruments at 31 December 2009
                                                                                                                            and 2008 is as follows:
                                                                                                                                                                                                                                                                                            (thousands of euros)

                                                                                                                                                                                                            2009                                                                  2008
                                                                                                                                                                                       Net acquisition                   Gross unrealised                  Net acquisition                   Gross unrealised
                                                                                                                                                                                               cost (*)                     gains (losses)                         cost (*)                     gains (losses)
                                                                                                                              Equity instruments                                            2,912,089                             245,327                       2,924,110                              (38,464)
                                                                                                                                   Listed instruments                                       1,949,912                             262,126                       2,270,813                              (34,062)


                                                                                                                              (*) Relating to the acquisition cost net of impairment write-downs. Write-downs for impairment losses on equity instruments are recognised directly as a reduction in the carrying
                                                                                                                              amount of the asset (rather than using an allowance account or offsetting item)


Annual Report 2009 C             10/ Legal documentation                                                                                                                                                                                                                                                                 174
                                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



The main changes in “Equity instruments” in the year ended 31 December 2009 were as follows:                                                                                                                                                        (thousands of euros)

                                                                                                                                                                                                                    2009                            2008
•   Metrovacesa, S.A. On 30 January 2009, the Group, jointly with other Spanish financial institutions, entered into an                                                                                Individually     Collectively       Individually Collectively
    agreement for the dation in payment of 6,356,191 shares of Metrovacesa, S.A., representing 9.125% of                                                                                                 assessed         assessed           assessed     assessed
    Metrovacesa’s share capital, which were held as collateral for certain agreements financing Cresa-Sacresa Group            Balances at beginning of year                                               25,000           37,817                 -          106,232
    companies. The agreement for the dation in payment was entered into as part of the debt restructuring process of           Net impairment losses recognised/(reversed) with a charge/(credit)               -            6,639            25,000          (10,189)
                                                                                                                               to the income statement
    the Cresa-Sacresa Group and it was subject to certain conditions precedent which were definitively deemed to have          Amount used for amortised assets and other net changes                            -          (1,605)                 -         (58,092)
    been met on 20 February 2009.                                                                                              Exchange differences on impairment losses recognised in foreign currency          -              85                  -            (134)
                                                                                                                               Ending balances                                                             25,000           42,936            25,000           37,817
    The aforementioned shares of Metrovacesa, S.A. were initially recognised under “Available-for-sale financial assets”
                                                                                                                               Of which:
    in the Group’s balance sheet at EUR 57 per share, in accordance with the appraisal contained in the report prepared        By counterparty                                                            25,000           42,936             25,000           37,817
    by an independent expert, dated 15 January 2009. These shares were subsequently measured at their fair value.                   Entities resident in Spain                                                 -            3,960                  -            6,553
    The Group considers that the market price of the aforementioned shares does not faithfully represent their fair                 Entities resident abroad                                              25,000           38,976             25,000           31,264
                                                                                                                               By type of asset covered                                                   25,000           42,936             25,000           37,817
    value (such a low free float of the shares means trading therein is not sufficiently deep). Accordingly, the Group made         Debt instruments                                                      25,000           42,936             25,000           37,817
    the best estimate of the fair value based on the Net Asset Value (NAV). At 31 December 2009, the estimated NAV
    of the shares of Metrovacesa, S.A., and, accordingly, their fair value, amounted to EUR 34.91 per share, and the
    difference with respect to their carrying value was recognised as an impairment loss under “Impairment losses on          Additionally, in 2009, EUR 142,161 thousand were charged to the consolidated income statement with a credit to
    financial assets (net) - Other financial assets not measured at fair value through profit or loss” in the consolidated    “Available-for-sale financial assets - Other equity instruments” in the consolidated balance sheet. This amount
    income statement.                                                                                                         related mainly to the aforementioned write-down of the Group’s investment in Metrovacesa, S.A. recognised in
                                                                                                                              2009.
•   Bankinter, S.A. In 2009 the Group sold all its shares of Bankinter, S.A. (the sale process was completed in October
    2009).                                                                                                                    Available-for-sale financial assets. Past-due and impaired assets
                                                                                                                              Following is a detail of the assets classified as “Available-for-sale financial assets - Debt instruments” that were
•   Indra Sistemas, S.A. On 8 January 2009, the Group increased its ownership interest in the share capital of Indra          individually considered to be impaired due to credit risk at 31 December 2009 and 2008. At that date, none of these
    Sistemas, S.A. to over 20% and, accordingly, Indra Sistemas, S.A. is considered to be an associate of the Group (see      assets had any past-due amounts.
    Note 17).
                                                                                                                                                                                                                                                     (thousands of euros)

                                                                                                                                                                            Up to 6         6 to 12          12 to 18           18 to 24     More than
                                                                                                                                                                            months          months            months             months     24 months              Total
Available-for-sale financial assets. Impairment losses
                                                                                                                               By counterparty
Following is a summary of the changes in the impairment losses, due to credit risk, on available-for-sale financial
                                                                                                                               Other resident sectors                            -                 -                 -                 -                -           -
assets in 2009 and 2008:                                                                                                       Other non-resident sectors                   50,000                 -                 -                 -                -      50,000
                                                                                                                               Total                                        50,000                 -                 -                 -                -       50,000



Annual Report 2009 C              10/ Legal documentation                                                                                                                                                                                                                         175
                                                                                                                                                                                                                                                             www.cajamadrid.com


10/
Legal documentation



Impaired assets at 31 December 2008:                                                                                                  Loans and receivables. Loans and advances to credit institutions
                                                                                                                                      The detail, by type of transaction, of this item is as follows:
                                                                                                              (thousands of euros)

                                               Up to 6          6 to 12   12 to 18   18 to 24        More than                                                                                                                               (thousands of euros)
                                               months           months     months     months        24 months               Total                                                                                                    2009                2008
  By counterparty                                                                                                                      By type of transaction
  Other resident sectors                            -                 -          -          -                  -             -         Reciprocal accounts                                                                          3,901             3,774
  Other non-resident sectors                   50,000                 -          -          -                  -        50,000         Time deposits                                                                            8,591,940         8,203,307
  Total                                        50,000                 -          -          -                  -         50,000        Hybrid financial assets                                                                      55,075            74,350
                                                                                                                                       Reverse repurchase agreements                                                              772,439           899,013
                                                                                                                                       Deposits arranged as collateral                                                          1,133,445           685,925
                                                                                                                                       Other financial assets                                                                      250,998           825,044
                                                                                                                                       Doubtful assets                                                                             10,038            10,041
13. Loans and receivables                                                                                                              Subtotal                                                                                10,817,836        10,701,454
                                                                                                                                       Impairment losses                                                                           (2,742)           (6,797)
Breakdown                                                                                                                              Other valuation adjustments                                                                 22,366            46,882
The detail, by type of financial instrument, of “Loans and receivables” on the asset side of the consolidated balance                  Total                                                                                   10,837,460        10,741,539
sheets is as follows:

                                                                                                               (thousands of euros)

                                                                                                      2009                 2008       At 31 December 2009, the average annual interest rate on the financial instruments included in “Loans and receivables
  Loans and receivables                                                                                                               – Loans and advances to credit institutions” was 1.48% (31 December 2008: 4.26%). At 31 December 2009 and
  Loans and advances to credit institutions                                                      10,817,836         10,701,454        2008, there were no past-due amounts relating to loans and advances to credit institutions.
  Loans and advances to customers                                                               120,669,402        120,869,317
  Debt instruments                                                                                   56,157             91,608
  Subtotal                                                                                      131,543,395        131,662,379
  Valuation adjustments                                                                          (2,924,554)        (2,494,587)
      Impairment losses                                                                          (3,111,095)        (2,920,249)
      Other valuation adjustments                                                                   186,541            425,662
  Total                                                                                         128,618,841        129,167,792




A detail, by maturity, of the main items of “Loans and receivables” in the consolidated balance sheet is provided in
Note 3.2, “Liquidity risk of financial instruments”.



Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                                            176
                                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



Loans and receivables. Loans and advances to customers                                                                         Loans and receivables. Impairment losses
The detail by loan type, status and counterparty, of this item is as follows:                                                  The changes in 2009 in the allowances covering the impairment losses on the assets making up the balances of “Loans
                                                                                                                               and advances to credit institutions” and “Loans and advances to customers” under “Loans and receivables” in the
                                                                                                                               consolidated balance sheet were as follows:
                                                                                                        (thousands of euros)
                                                                                                                                                                                                                                                      (thousands of euros)
                                                                                               2009                 2008
                                                                                                                                                                                           Individually
  By loan type and status                                                                                                                                                                    assessed                  Collectively assessed
  Commercial credit                                                                        2,242,621         3,080,664                                                                         Specific        General Country-risk Other specific
  Loans                                                                                   21,611,823        21,760,435                                                                      allowance      allowance allowance            allowance                Total
  Secured loans                                                                           73,460,429        71,519,013
  Reverse repurchase agreements                                                              834,267            52,202           Balances at beginning of year                              563,965       1,023,016       33,847        1,267,317           2,888,145
  Other term loans                                                                        12,558,618        15,340,446           Net impairment losses recognised/(reversed)                618,097        (199,018)      (1,416)         972,621           1,390,284
                                                                                                                                 with a charge/(credit) to the income statement
  Receivable on demand and other                                                           2,154,169         2,351,364           Amount used for amortised assets and other net changes      (60,791)        (3,042)            -      (1,140,501)        (1,204,334)
  Other financial assets                                                                      354,639           244,724           Exchange differences                                              -              -          (727)         22,646             21,919
  Doubtful assets                                                                          7,452,836         6,520,469
                                                                                                                                 Ending balances                                           1,121,271       820,956        31,704        1,122,083           3,096,014
  Subtotal                                                                               120,669,402      120,869,317
                                                                                                                                 By counterparty                                          1,121,271        820,956        31,704        1,122,083           3,096,014
  Impairment losses                                                                       (3,093,272)       (2,881,348)               Other resident sectors                              1,095,190        742,165             -        1,087,303           2,924,658
  Other valuation adjustments                                                                164,175           378,780                Other non-resident sectors                             26,081         78,791        31,704           34,780             171,356
  Total                                                                                  117,740,305      118,366,749
  By counterparty
  Resident public sector                                                                  4,115,503   3,372,652                The changes in 2008 in the allowances covering the impairment losses on the assets making up the balances of “Loans
  Non-resident public sector                                                                 94,749         199                and advances to credit institutions” and “Loans and advances to customers” under “Loans and receivables” in the
  Other resident sectors                                                                108,509,927 108,940,273
  Other non-resident sectors                                                              7,594,584   8,311,469                consolidated balance sheet were as follows:
  Other financial assets                                                                     354,639     244,724                                                                                                                                       (thousands of euros)
  Impairment losses                                                                      (3,093,272) (2,881,348)
  Other valuation adjustments                                                               164,175     378,780                                                                           Individually
                                                                                                                                                                                            assessed                 Collectively assessed
  Total                                                                                  117,740,305      118,366,749
                                                                                                                                                                                               Specific       General Country-risk Other specific
                                                                                                                                                                                            allowance     allowance allowance             allowance                Total
                                                                                                                                Balances at beginning of year                                34,792       1,520,558       33,306          831,816           2,420,472
                                                                                                                                Net impairment losses recognised/(reversed)                 551,842        (518,768)        (637)         813,355             845,792
The average effective annual interest rate on the financial instruments included under “Loans and receivables - Loans           with a charge/(credit) to the income statement
and advances to customers” was 3.62% at 31 December 2009 (31 December 2008: 5.64%).                                             Amount used for amortised assets and other net changes      (22,669)        21,226             -         (381,224)           (382,667)
                                                                                                                                Exchange differences                                              -              -         1,178            3,370               4,548

The carrying amount recorded in the foregoing table, disregarding the portion relating to “Other valuation                      Ending balances                                             563,965       1,023,016       33,847        1,267,317           2,888,145
adjustments”, represents the Group’s maximum level of credit risk exposure in relation to the financial instruments             By counterparty                                             563,965       1,023,016       33,847        1,267,317          2,888,145
                                                                                                                                     Other resident sectors                                 551,539         876,489            -        1,231,995          2,660,023
included therein.                                                                                                                    Other non-resident sectors                              12,426         146,527       33,847           35,322            228,122


Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                                        177
                                                                                                                                                                                                                                                           www.cajamadrid.com


10/
Legal documentation



Following is a summary of the various items recognised in 2009 and 2008 under “Impairment losses on financial                         Impaired assets at 31 December 2008
assets (net) - Loans and receivables” in the consolidated income statements for those years:
                                                                                                                                                                                                                                          (thousands of euros)
                                                                                                               (thousands of euros)
                                                                                                                                                                                 Up to 6      6 to 12    12 to 18    18 to 24      More than
                                                                                                       2009                 2008                                                 months       months      months      months      24 months             Total
  Net impairment charge for the year                                                               1,392,387            924,671        By counterparty
  Recovery of assets previously written off (Note 28)                                                (98,429)           (60,695)            Other resident sectors             3,834,930    2,035,441    464,469      69,931          1,388      6,406,159
                                                                                                                                            Other non-resident sectors            51,610       24,413     12,644       3,585              -         92,252
  Ending balances                                                                                  1,293,958            863,976
                                                                                                                                       Total                                   3,886,540    2,059,854    477,113      73,516          1,388      6,498,411
                                                                                                                                       By collateral
                                                                                                                                            Mortgage                           2,652,305    1,754,536    372,445      63,589             39      4,842,914
                                                                                                                                            Other collateral                   1,234,235      305,318    104,668       9,927          1,349      1,655,497
Loans and receivables. Past-due and impaired assets                                                                                    Total                                   3,886,540    2,059,854    477,113      73,516          1,388      6,498,411
Following is a detail of the assets classified as “Loans and receivables – Loans and advances to customers” that were
considered to be impaired due to credit risk at 31 December 2009 and 2008, and of the assets which, although not
considered to be impaired, include any past-due amount, classified by type of collateral, counterparty and type of
instrument, showing the age of the oldest past-due amount at those dates:                                                             Assets including past-due amounts not considered to be impaired at 31 December 2009

                                                                                                                                                                                                                                           (thousands of euros)
Impaired assets at 31 December 2009
                                                                                                                                                                                  Up to 6      6 to 12   12 to 18     18 to 24     More than
                                                                                                               (thousands of euros)                                               months       months     months       months     24 months              Total
                                                Up to 6          6 to 12     12 to 18   18 to 24      More than                         By counterparty
                                                months           months       months     months      24 months               Total           Credit institutions                    508             -        132              -           -             640
                                                                                                                                             Public sector                        1,726             -         68             13           -           1,807
  By counterparty
                                                                                                                                             Other resident sectors             382,176         1,725        344            109          78         384,432
       Other resident sectors                2,864,594     1,415,491       2,095,159    723,313       143,756        7,242,313
                                                                                                                                             Other non-resident sectors           1,857             -          -              -           -           1,857
       Other non-resident sectors               84,566        82,200          32,660     12,453         4,265          216,144
                                                                                                                                        Total                                    386,267        1,725        544            122          78         388,736
  Total                                      2,949,160      1,497,691      2,127,819    735,766       148,021        7,458,457
                                                                                                                                        By type of instrument
  By collateral
                                                                                                                                             Loans and advances to customers    386,267         1,725        544            122          78         388,736
       Mortgage                              2,165,870          957,297    1,264,647    684,853       146,570        5,219,237
                                                                                                                                             Debt instruments                         -             -          -              -           -               -
       Other collateral                        783,290          540,394      863,172     50,913         1,451        2,239,220
                                                                                                                                        Total                                    386,267        1,725        544            122          78         388,736
  Total                                      2,949,160      1,497,691      2,127,819    735,766       148,021        7,458,457




Annual Report 2009 C                  10/ Legal documentation                                                                                                                                                                                                          178
                                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



Assets including past-due amounts not considered to be impaired at 31 December 2008                                             Loans and receivables. Debt instruments. Impairment losses
                                                                                                                                Following is a summary of the changes in the impairment losses, due to credit risk, on “Loans and receivables – Debt
                                                                                                        (thousands of euros)
                                                                                                                                instruments" in 2009 and 2008:
                                             Up to 6          6 to 12   12 to 18   18 to 24    More than
                                             months           months     months     months    24 months               Total                                                                                                                           (thousands of euros)

  By counterparty                                                                                                                                                                                                      2009                           2008
       Credit institutions                     666                 -          -          -               -           666                                                                                Individually      Collectively       Individually Collectively
       Public sector                         1,430                13          -        102               -         1,545                                                                                  assessed          assessed           assessed     assessed
       Other resident sectors              379,234               134         19          -               -       379,387
       Other non-resident sectors            1,761                 -          -          -               -         1,761          Balances at beginning of year                                             17,494            14,610                 -                -
                                                                                                                                  Net impairment losses recognised/(reversed) with a charge/(credit)             -             2,103            17,494           61,304
  Total                                     383,091              147         19        102               -       383,359          to the income statement
  By type of instrument                                                                                                           Amount used for amortised assets and other net changes                   (17,494)            (1,629)                -        (46,688)
       Loans and advances to customers     383,091               147         19        102               -       383,359          Exchange differences on impairment losses recognised in foreign currency       -                 (3)                -             (6)
       Debt instruments                          -                 -          -          -               -             -
                                                                                                                                  Ending balances                                                                  -          15,081            17,494           14,610
  Total                                     383,091              147         19        102               -       383,359          Of which:
                                                                                                                                  By counterparty                                                                 -           15,081            17,494           14,610
                                                                                                                                       Entities resident in Spain                                                 -                -                 -                -
                                                                                                                                       Entities resident abroad                                                   -           15,081            17,494           14,610
Loans and receivables. Debt instruments                                                                                           By type of asset covered                                                        -           15,081            17,494           14,610
                                                                                                                                       Debt instruments                                                           -           15,081            17,494           14,610
The detail, by counterparty, of this item is as follows:
                                                                                                         (thousands of euros)
                                                                                                                                Loans and receivables. Debt instruments. Past-due and impaired assets
                                                                                                2009                 2008       Following is a detail of the assets classified as “Loans and receivables – Debt instruments” that were considered
  By counterparty                                                                                                               to be impaired due to credit risk at 31 December 2009. At that date, none of these assets had any past-due
  Credit institutions                                                                           3,020              3,040
                                                                                                                                amounts.
  Other non-resident sectors                                                                   53,137             88,568
  Impairment losses                                                                           (15,081)           (32,104)
                                                                                                                                                                                                                                                      (thousands of euros)
  Total                                                                                        41,076              59,504
                                                                                                                                                                              Up to 6         6 to 12         12 to 18            18 to 24    More than
                                                                                                                                                                              months          months           months              months    24 months              Total

A detail, by maturity, of the main items in the Group’s consolidated balance sheet is provided in Note 3.2, “Liquidity            By counterparty
                                                                                                                                       Other resident sectors                      -               -                    -                -            -              -
risk of financial instruments”.                                                                                                        Other non-resident sectors             24,538          17,500                    -                -            -         42,038
                                                                                                                                  Total                                       24,538          17,500                    -                -            -          42,038
The average effective interest rate on the debt instruments classified as “Loans and receivables - Debt instruments”
was 9.02% at 31 December 2009 (31 December 2008: 15.56%).



Annual Report 2009 C                10/ Legal documentation                                                                                                                                                                                                                       179
                                                                                                                                                                                                                                                                      www.cajamadrid.com


10/
Legal documentation



Following is a detail of the assets classified as “Loans and receivables – Debt instruments” that were considered                    A detail, by maturity, of the main items in the Group’s consolidated balance sheets is provided in Note 3.2, “Liquidity
to be impaired due to credit risk at 31 December 2008. At that date, none of these assets had any past-due                           risk of financial instruments”.
amounts.
                                                                                                                                     The average effective interest rate on the debt instruments classified as “Held-to-maturity investments” was 4.45%
                                                                                                            (thousands of euros)
                                                                                                                                     at 31 December 2009 (31 December 2008: 4.64%).
                                               Up to 6        6 to 12   12 to 18      18 to 24     More than
                                               months         months     months        months     24 months               Total
                                                                                                                                     Held-to-maturity investments. Impairment losses
  By counterparty                                                                                                                    Following is a summary of the changes in the impairment losses, due to credit risk, on these assets in 2009 and
       Other resident sectors                       -               -          -             -              -               -
       Other non-resident sectors              34,988               -          -             -              -          34,988        2008:
  Total                                        34,988               -          -             -              -          34,988                                                                                                                        (thousands of euros)
                                                                                                                                                                                                                        2009                         2008
                                                                                                                                                                                                           Individually     Collectively   Individually   Collectively
                                                                                                                                                                                                             assessed         assessed       assessed       assessed
14. Held-to-maturity investments                                                                                                      Balances at beginning of year                                                  -          41,183               -          29,012
                                                                                                                                      Net impairment losses recognised/(reversed) with a charge/(credit)             -          (2,163)              -          (9,306)
Breakdown                                                                                                                             to the income statement
                                                                                                                                      Amount used for amortised assets and other net changes                         -               -               -         21,477
The detail of “Held-to-maturity investments” in the consolidated balance sheets at 31 December 2009 and 2008 is as follows:           Exchange differences                                                           -               -               -              -
                                                                                                              (thousands of euros)
                                                                                                                                      Ending balances                                                                -          39,020               -         41,183
                                                                                                     2009                 2008        Of which:
                                                                                                                                      By counterparty                                                                -          39,020               -         41,183
  By counterparty                                                                                                                          Entities resident in Spain                                                -               -               -          1,440
  Credit institutions                                                                              265,729            94,664               Entities resident abroad                                                  -          39,020               -         39,743
  Resident public sector                                                                         6,523,380         4,554,107
  Non-resident public sector                                                                     1,572,224         1,576,576
  Other resident sectors                                                                           237,146           309,176
  Other non-resident sectors                                                                     1,078,172         1,221,198
  Impairment losses                                                                                (39,020)          (41,183)
  Valuation adjustments (Micro-hedges)                                                               1,255           (14,518)        Held-to-maturity investments. Past-due and impaired assets
  Total                                                                                          9,638,886         7,700,020         At 31 December 2009 and 2008, the Group had no assets classified as held-to-maturity investments that had been
  By type of instrument                                                                                                              individually considered to be impaired by reason of their credit risk, or that had any past-due amount.
  Spanish government debt securities                                                             6,523,380         4,554,107
  Foreign government debt securities                                                             1,572,224         1,576,576
  Bonds                                                                                          1,581,047         1,625,038
  Impairment losses                                                                                (39,020)          (41,183)
  Other valuation adjustments (Micro-hedges)                                                         1,255           (14,518)
  Total                                                                                          9,638,886         7,700,020




Annual Report 2009 C                10/ Legal documentation                                                                                                                                                                                                                       180
                                                                                                                                                                                                                                                                  www.cajamadrid.com


10/
Legal documentation



15. Hedging derivatives                                                                                                    •   Cash flow hedges

At 31 December 2009 and 2008, the Group had entered into financial derivative hedging arrangements with                        - Available-for-sale financial assets:
counterparties of recognised creditworthiness as the basis of an improved management of the risks inherent to its
business (see Note 3).                                                                                                             - Floating-rate debt instruments, whose risk is hedged with interest rate derivatives (basically swaps).

The Group enters into hedges on a transaction-by-transaction basis by assessing the hedging instrument and the                 - Loans and receivables:
hedged item on an individual basis and continually monitoring the effectiveness of each hedge, so as to ensure that
changes in the value of the hedging instrument and the hedged item offset each other.                                              - Floating-rate loans, whose risk is hedged with interest rate derivatives (basically swaps).

The nature of the Group’s main hedged positions and the financial hedging instruments used are as follows:                     - Financial liabilities at amortised cost:

•   Fair value hedges                                                                                                              - Marketable debt securities issued by the Group, whose risk is hedged with interest rate derivatives (basically
                                                                                                                                     swaps).
    - Available-for-sale financial assets:
                                                                                                                           Following is a breakdown, by type of derivative and for each type of hedge, of the fair value of the derivatives designated
       - Fixed-rate debt instruments, whose risk is hedged with interest rate derivatives (basically swaps). Also, the     as hedging instruments at 31 December 2009 and 2008:
         Group hedges certain positions against credit risk with credit derivatives (basically credit default swaps).
                                                                                                                                                                                                                                                 (thousands of euros)
       - Equity instruments, whose market risk is hedged with equity swaps and futures arranged in organised
                                                                                                                                                                                                  2009                                        2008
         markets.                                                                                                                                                               Debit balances           Credit balances    Debit balances           Credit balances
                                                                                                                                                                                     Fair value                Fair value        Fair value                Fair value
    - Loans and receivables:                                                                                                   Fair value hedges                                   2,891,538                   642,298         2,573,090                   445,170
                                                                                                                               Cash flow hedges                                        11,862                    15,130            16,107                    15,118
       - Fixed-rate loans, whose risk is hedged with interest rate derivatives (basically swaps). Also, the Group hedges       Total                                               2,903,400                   657,428         2,589,197                   460,288
         certain positions against credit risk with credit derivatives (basically credit default swaps).

    - Financial liabilities at amortised cost:

       - Long-term, fixed-rate deposits and marketable debt securities issued by the Group, whose risk is hedged with
         interest rate derivatives (basically swaps).




Annual Report 2009 C               10/ Legal documentation                                                                                                                                                                                                                    181
                                                                                                                                                                                                                                                                                         www.cajamadrid.com


10/
Legal documentation



Fair value hedges                                                                                                                                        The detail, by maturity, of the notional amount of the derivatives classified as hedging derivatives at 31 December
                                                                                                                                  (thousands of euros)
                                                                                                                                                         2008 is as follows:
                                                                                2009                                          2008                                                                                                                                      (thousands of euros)
                                                              Debit balances           Credit balances         Debit balances      Credit balances
                                                                   Fair value                Fair value             Fair value           Fair value                                                        0 to 3 years        3 to 10 years    More than 10 years                    Total

  Securities derivatives                                              45,308                   6,761                  8,989                      -           Securities derivatives                                -                     -                     -                     -
  Interest rate derivatives                                        2,845,410                 627,866              2,535,676                444,398           Interest rate derivatives                    22,046,147            26,282,784            16,337,163            64,666,094
       Loans and receivables                                           2,623                  39,637                 10,441                 32,908           Other                                                 -               124,679                     -               124,679
       Available-for-sale financial assets                            281,790                 502,668                143,774                266,501
       Financial liabilities at amortised cost                     2,560,997                  85,561              2,381,461                144,989           Total                                         22,046,147           26,407,463            16,337,163             64,790,773
  Other                                                                  820                   7,671                 28,425                    772
  Total                                                            2,891,538                 642,298               2,573,090               445,170


Cash flow hedges                                                                                                                                         16. Non-current assets held for sale